Clean Energy Fuels Corp. — Fiscal 2016 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2016, with quarterly data through the fourth quarter. Clean Energy supplies compressed natural gas (CNG), liquefied natural gas (LNG), and renewable natural gas (RNG) for vehicle fleets in the United States and Canada, and provides station construction, operations and maintenance, compressor manufacturing, fuel transportation, vehicle financing, and environmental-credit services.
- Nearly 1,000 fleet customers and more than 45,000 natural-gas vehicles served.
- More than 570 fueling stations owned, operated, maintained, or supplied across 42 U.S. states and four Canadian provinces.
- Operations are reported as one segment.
Key financial metrics
| Metric | 2016 | 2015 | Change |
|---|---|---|---|
| Total revenue | $402.7 million | $384.3 million | +$18.4 million |
| Operating loss | $17.6 million | $41.6 million | Improved by $24.0 million |
| Loss before taxes | $12.4 million | $133.8 million | Improved by $121.5 million |
| Net loss attributable to Clean Energy | $12.2 million | $134.2 million | Improved by $122.1 million |
| Basic and diluted loss per share | $0.10 | $1.47 | Improved by $1.37 |
| Gross margin | $147.1 million | $125.8 million | +$21.3 million |
| Cash provided by operating activities | $46.1 million | $(12.1) million | +$58.2 million |
| Capital expenditures | $23.6 million | $51.4 million | Decreased by $27.8 million |
Revenue composition included $283.8 million of volume-related revenue, $64.9 million of station construction sales, $27.3 million of compressor sales, and $26.6 million of federal alternative-fuel tax credits. Fuel and O&M volumes delivered increased to 329.0 million gasoline-gallon equivalents from 308.5 million.
- CNG volume increased to 259.2 million GGEs from 229.2 million.
- LNG volume decreased to 66.8 million GGEs from 70.5 million.
- RNG volume for non-vehicle fuel decreased to 3.0 million GGEs from 8.8 million.
- RIN and LCFS credit revenue increased to $49.0 million from $18.4 million.
- Effective price per gallon increased to $0.86 from $0.84, while effective cost per gallon decreased to $0.52 from $0.56.
Liquidity, debt, and balance sheet
| Metric | December 31, 2016 | December 31, 2015 |
|---|---|---|
| Cash and cash equivalents | $36.1 million | $43.7 million |
| Short-term investments | $73.7 million | $102.9 million |
| Total liquidity, excluding restricted cash | $109.8 million | $146.7 million |
| Total debt and capital lease obligations, carrying value | $312.4 million | $567.2 million |
| Total debt principal | $314.3 million | Not clearly stated in the comparable table |
| Working capital | $172.5 million | $82.8 million |
Debt maturities included approximately $6.1 million in 2017, $189.6 million in 2018, $55.5 million in 2019, and $54.6 million in 2020. Expected 2017 interest payments were approximately $19.7 million. The company reported compliance with its debt covenants at year-end.
The 2017 capital-expenditure plan was approximately $29.0 million. Management stated that existing liquidity and expected operating and financing cash flows should satisfy routine requirements for at least the next 12 months, but additional capital may be needed for capital expenditures, investments, or debt repayment.
Material changes versus the prior comparable period
- Revenue increased 4.8%, primarily from higher delivered volumes, environmental-credit sales, and station construction, partly offset by lower compressor sales and lower VETC revenue.
- Compressor revenue declined $27.2 million to $27.3 million, reflecting lower global demand.
- Station construction revenue increased $27.1 million to $64.9 million.
- SG&A decreased $8.2 million to $105.5 million, while depreciation and amortization increased $4.1 million to $59.3 million.
- Interest expense declined $66.2 million, largely because 2015 included a $54.9 million non-cash charge related to terminated financing and because debt was reduced in 2016.
- The company generated a $34.3 million gain from debt extinguishment after repurchasing or exchanging $284.6 million of principal amount of convertible notes for cash and common stock.
- Shares outstanding increased from 92.4 million to 145.5 million, primarily from ATM equity issuance and debt exchanges.
- Beginning January 1, 2016, station-construction revenue was recognized using the percentage-of-completion method. Management stated that this increased 2016 revenue by $18.7 million and operating income by $1.7 million versus the prior completed-contract method.
Guidance, outlook, commentary, and risks
- The $0.50-per-gallon federal alternative-fuel tax credit, or VETC, expired on December 31, 2016. The company recognized $26.6 million of VETC revenue in 2016 and stated that the credit may not be available in future periods.
- Management expects long-term growth in natural-gas vehicle-fuel demand, particularly in trucking, refuse, transit, airports, government fleets, and industrial customers, but acknowledged that adoption of heavy-duty natural-gas trucks has been slower and more limited than anticipated.
- Thirty-nine completed ANGH stations were not open for fueling operations at year-end. These assets may remain nonproductive until sufficient customer demand develops.
- In February 2017, the company agreed to sell its existing RNG production assets and its interests in two RNG ventures to BP for $155.0 million in cash, plus potential additional payments of up to $25.0 million. Closing was expected on or before March 31, 2017; the filing does not establish whether closing subsequently occurred.
- After the proposed sale, the company expected to continue selling third-party RNG under the Redeem brand, but anticipated lower RIN and LCFS credit revenue and an improved liquidity position.
- Key risks include continued operating losses, substantial debt maturities, dependence on additional financing, expiration of incentives, volatility in natural-gas and petroleum prices, environmental-credit price volatility, competition from gasoline, diesel, electric, hydrogen, and other fuels, limited natural-gas vehicle availability, station underutilization, take-or-pay gas commitments, and regulatory or environmental compliance costs.
- The company had $13.2 million of remaining take-or-pay natural-gas purchase commitments, $48.6 million of operating lease commitments, $7.3 million of construction commitments, and $63.8 million of surety bonds.
- KPMG issued an unqualified opinion on the financial statements and internal control over financial reporting. Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2016.
Most important facts for investors to verify
- Whether the BP RNG asset sale closed on the expected timetable and the amount and timing of cash actually received.
- How the loss of VETC revenue affects 2017 revenue, margins, cash flow, and customer economics.
- The company’s ability to address the approximately $189.6 million of debt maturities scheduled for 2018 and its expected interest burden.
- Whether operating cash flow remains positive without relying on debt, equity issuance, asset sales, or environmental-credit proceeds.
- The utilization and profitability of the 39 unopened ANGH stations and the economics of adding CNG capability to LNG-focused stations.
- The sustainability and regulatory exposure of RIN and LCFS credit revenue, including the impact of RNG carbon-intensity changes.
- The effect of 2016’s percentage-of-completion accounting change on comparability and future contract estimates.
- Potential dilution from the ATM program, convertible notes, equity exchanges, options, and other equity-linked securities.