Clean Energy Fuels Corp. — Q3 2023 Form 10-Q Summary
Business context and reporting period
Clean Energy Fuels Corp. supplies renewable natural gas (RNG), compressed natural gas (CNG), and liquefied natural gas (LNG) to medium- and heavy-duty vehicle fleets in the United States and Canada. It also provides station design, construction, operation and maintenance services; develops RNG production projects; sells environmental credits; and operates a virtual natural-gas pipeline business.
The filing covers the quarter and nine months ended September 30, 2023. The financial statements are unaudited and prepared under U.S. GAAP. As of September 30, 2023, the Company owned, operated, or supplied 577 U.S. stations and 24 Canadian stations, serving more than 1,000 fleet customers and over 50,000 vehicles.
Key financial metrics
| Metric | Q3 2022 | Q3 2023 | 9M 2022 | 9M 2023 |
|---|---|---|---|---|
| Total revenue | $125.7 million | $95.6 million | $306.4 million | $318.3 million |
| Product revenue | $113.4 million | $81.3 million | $271.7 million | $276.6 million |
| Service revenue | $12.3 million | $14.3 million | $34.7 million | $41.7 million |
| Operating loss | $(8.6) million | $(21.4) million | $(40.6) million | $(69.8) million |
| Net loss attributable to Clean Energy | $(9.0) million | $(25.8) million | $(46.4) million | $(80.8) million |
| Loss per share | $(0.04) | $(0.12) | $(0.21) | $(0.36) |
| Cash flow from operations | Not provided for quarter | Not provided for quarter | $31.7 million | $0.8 million |
Q3 2023 total revenue declined 24% year over year, while nine-month revenue increased 4%. Q3 operating expenses were $116.9 million, or 122.4% of revenue, compared with 106.8% in Q3 2022. Nine-month operating expenses were $388.1 million, or 121.9% of revenue, compared with 113.2% in the prior-year period. The filing does not present a consolidated gross margin or adjusted EBITDA measure.
Fuel volume increased to 73.8 million GGEs in Q3 2023 from 73.4 million, and to 215.3 million GGEs for the nine months from 197.7 million. RNG volume rose to 56.7 million GGEs in Q3 and 168.7 million GGEs for the nine months, while conventional natural gas volume declined.
At September 30, 2023, cash, cash equivalents and current restricted cash were $27.1 million, compared with $126.0 million at December 31, 2022. Short-term investments were $149.3 million, producing total cash, cash equivalents and short-term investments of approximately $174.4 million excluding current restricted cash, versus $263.5 million at year-end 2022. Total assets were $1.065 billion and total stockholders’ equity was $691.6 million.
Total debt was approximately $150.3 million principal, substantially consisting of the $150.0 million Riverstone sustainability-linked term loan. Including finance leases, total indebtedness was approximately $153.1 million principal. The Riverstone loan matures in December 2026, bears a variable rate based primarily on Term SOFR or an alternative base rate plus a margin, and is secured by substantially all of the Company’s personal property and certain real property interests.
Material changes versus the prior comparable period
- Q3 product revenue fell $32.1 million, primarily because of lower natural-gas prices, lower RIN revenue, lower AFTC revenue, higher Amazon Warrant contra-revenue charges, and a $1.4 million derivative loss.
- Q3 service revenue increased $2.0 million to $14.3 million, driven by higher serviced volumes and greater management fees from joint ventures.
- Nine-month product revenue rose $5.0 million, supported by higher fuel prices and volumes, but the increase was substantially offset by $44.5 million of Amazon Warrant charges, lower RIN and LCFS credit revenue, and lower AFTC revenue.
- Amazon Warrant non-cash contra-revenue charges increased from $15.5 million to $44.5 million for the nine months and from $7.0 million to $16.8 million in Q3. The warrant had 39.4 million unvested shares outstanding at September 30, 2023.
- Operating losses widened to $21.4 million in Q3 and $69.8 million for the nine months. Higher SG&A, service costs, product costs and equity-method investment losses contributed to the deterioration.
- Interest expense increased to $3.9 million in Q3 and $12.6 million for the nine months, reflecting higher debt and interest rates. Interest income increased to $2.6 million and $8.0 million, respectively, due to higher yields on short-term investments.
- Operating cash flow declined from $31.7 million to $0.8 million for the nine months. Cash used in investing activities was $96.7 million, including $67.3 million of property and equipment purchases and $17.7 million for RNG production projects.
- Land, property and equipment increased to $306.0 million from $264.1 million at year-end 2022, while cash and investments declined by approximately $89 million.
Guidance, outlook, commentary and unusual items
- Management’s 2023 business plan calls for approximately $90.0 million of capital expenditures and up to approximately $40.0 million for development of ADG RNG production facilities. The Company expects to fund these expenditures primarily with cash on hand and operating cash flow.
- Management expects to make scheduled principal and interest payments during the next 12 months and believes available liquidity and anticipated financing and operating cash flows will satisfy business requirements for at least the next 12 months. It cautions that additional capital may be required thereafter or sooner if spending, investments, debt repayments or operating needs exceed expectations.
- The Company expects AFTC to remain available for vehicle-fuel sales through December 31, 2024. The Inflation Reduction Act also provides potential future incentives for biogas property, clean transportation fuel and alternative-fuel refueling infrastructure.
- Management reported that California natural-gas price spikes in December 2022 through February 2023 reduced first-quarter 2023 gross profit by approximately $10.0 million. Prices subsequently largely returned to normal levels.
- The Company and Tourmaline announced a CAD $70 million, 50-50 development agreement to build and operate up to 20 CNG stations in Western Canada over five years.
- A fire at the South Fork Dairy farm in April 2023 killed approximately 18,000 dairy cows and injured one person. The Company had not started onsite construction of its related RNG project and expects a delay while assessing the incident’s effects.
- The Company completed removal and decommissioning of LNG station equipment at selected Pilot locations by the end of Q3 2023. Prior-year results included accelerated depreciation and asset-retirement charges related to this activity.
- As of September 30, 2023, the Company had $26.1 million of remaining station-construction performance obligations, expected to be recognized over the next 12 to 24 months.
- Material risks include volatile RIN and LCFS credit prices, dependence on government incentives, natural-gas price volatility, slower adoption of natural-gas vehicles, competition from electric and hydrogen vehicles, project construction and permitting risks, variable-rate debt, liquidity needs, and potential additional capital requirements.
- The Company reported compliance with its debt covenants as of September 30, 2023. Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter.
Important facts investors should verify
- Whether operating cash flow improves from the near-breakeven $0.8 million reported for the first nine months and is sufficient to fund planned capital expenditures.
- The timing and financing of the approximately $90.0 million 2023 capital-expenditure plan and up to $40.0 million of RNG project development spending.
- The impact of the Riverstone loan’s variable interest rate, 2026 balloon maturity, collateral package and financial covenants.
- Future Amazon Warrant vesting and the resulting non-cash revenue reductions and potential dilution from up to approximately 77.1 million potentially dilutive securities, including options, restricted stock units and warrant shares.
- RIN, LCFS and AFTC pricing, eligibility and regulatory developments, including the effect of California’s zero-emission vehicle regulations on natural-gas demand.
- Progress, permitting and expected timing for the South Fork Dairy RNG project, the Tourmaline station network and other RNG development projects.
- The status and carrying value of 25 nearly completed but unopened stations, which had a combined carrying amount of $45.2 million at September 30, 2023.
- Exposure under $52.9 million of surety bonds, take-or-pay natural-gas contracts, the fixed RNG supply arrangement with UPS through March 2026, and other commitments and contingencies.