Take That, Piper Jaffray! Clean Energy Fuels Reports a Strong Q3

Okay, so the flashy headline includes a little bit of snark. However, every word is true. As much as I hate to say "but when this or that is included or excluded," an accurate analysis of Clean Energy Fuels' (NASDAQ: CLNE  ) latest earnings report really does require this, as did Westport Innovations'  (NASDAQ: WPRT  ) just last week. However, looking at the report from Royal Dutch Shell  (NYSE: RDS-B  ) , one of the world's largest natural gas producers, it doesn't take a lot of digging to see a tough environment going forward. 

Let's dig into Clean Energy's latest update first. 

The numbers behind the numbers
Clean Energy Fuels has made a number of transactions this year, which makes it less than a straight line from last year's quarter to this year's quarter. CEO Andrew Littlefair, from the earnings call: 

If you back out the one-time non-recurring construction project we completed in the third quarter of last year, and you take out our BAF revenues, which were in the 2012 number as we sold BAF in 2013 – June of 2013, our revenues actually increased 23% between periods. We delivered 56.4 million gallons during the quarter, which is up 11% from 50.9 million gallons a year ago. And again, if you back out the gallons of our Peruvian joint venture that we sold in March of this year, our volumes are up 17% between periods.

This is where GAAP and "adjusted" or non-GAAP numbers come into play. A year ago, Clean Energy was involved in two areas that management decided took focus away from the core business and growth opportunities: specifically a joint-venture in Peru, and its BAF subsidiary which competed directly with very important partner Westport Innovations (which acquired BAF.) By removing the results of these two parts of the business, what on the surface looks like a nearly 6% decline in revenue (from $91.5 to $86.3 million) hides actual growth in the company's core refueling business, both in total gallons delivered and, more importantly, in total sales. 

But it's not all roses
The significant investments to build out "America's Natural Gas Highway" are still weighing on results, as the company reported losses of 20 cents per share, versus 19 cents a year ago. However, the non-GAAP loss versus a year ago was narrowed from 19 cents to 16 cents. But before you zone out in all the "GAAP versus non-GAAP" talk, let's get to the point: Losses (both GAAP and non-GAAP) are significantly less in the first nine months of 2013 versus last year, and this bodes well for 2014. 

2013 is the starting line, 2014 is the first lap
Littlefair reiterated what Cummins management said on their company earnings call a couple of weeks ago, in regards to demand for the 12 liter CWI engine "exceeding their internal forecasts" so far this year, and offered some nice color on how the adoption is playing out. From the earnings call (emphasis mine):

Today, 46 of our trucking fleet customers have ordered 549 trucks representing up to approximately 10 million gallons annually. 60% are for CNG and 40% of those are orders for LNG. Additionally, we are in the final stages of negotiation and validation with 107 other fleets, who have plans to deploy over 1,250 additional LNG and CNG trucks representing up to approximately 20 million gallons ... Leading the way is UPS ... We have just entered a multiyear LNG fuel supply agreement to provide a minimum of 5 million gallons per year to support UPS LNG trucks.

Simply put, this is just the beginning of what looks to be massive adoption. The Cummins-Westport JV is expecting to sell 2,400 of its 12 liter engines this year. In 2014 that number is expected to be closer to 10,000.

Not to be left out of the mix, Shell and partner TravelCenters of America  (NYSE: TA  )  announced earlier this year plans to open up to 100 LNG refueling stations at existing TA locations. And with earnings down 32% this quarter on "headwinds from weak industry refining margins, and the security situation in Nigeria," it makes sense that Shell is investing more in natural gas. It's one area in its latest earnings report where earnings are actually growing, up 5% versus the year-ago quarter, and 4% so far in 2013. 

Smack-down on Piper Jaffray
Clean Energy CEO Andrew Littlefair made no bones about his opinion of the research report released by Piper Jaffray, using words like "erroneous," "misleading," and "just plain wrong." Here's my favorite quote from the earnings call. CEO Littlefair (emphasis mine):

Let me give you an example of how misleading this report was. The research report stated that a recent visit by the analyst to a truck industry's manufacturing facility revealed no LNG tanks in process for on-highway applications in North America. Well, here is why: He was at the wrong plant.

This may look like another jab at Piper Jaffray; that's not my intent. It's a reminder for investors to never make an investing decision based on any one source's findings. 

Final thoughts
While the losses continue, it looks like the ramp up to adoption by the trucking industry is indeed getting started. If you haven't opened a position in Clean Energy yet, it might be time to take a small bite -- but it's still early, so don't back up the truck just yet.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 08, 2013, at 11:55 AM, Thinkerbus wrote:

    Know the construction and opening of the LNG fueling stations at Flying J are on a delayed plan, but would like to know what that revised plan is--timing for completion of the 80 stations (plan was for 12/31/2013) and phased plan for opening all of the 150 stations. Actually visited one CNG/LNG station earlier this week and found very little activity there, plus higher than expected CNG/LNG fuel prices to the public (about $1.00 per gallon differential from gas and diesel), which will

    delay recouping the significant up-front costs of

    purchasing the Class 8 Long Haul trucks, which remains a major impediment to the LNG transition.

    Any info or comments? Thanks

  • Report this Comment On November 08, 2013, at 12:15 PM, TMFVelvetHammer wrote:

    >>Actually visited one CNG/LNG station earlier this week and found very little activity there, plus higher than expected CNG/LNG fuel prices to the public (about $1.00 per gallon differential from gas and diesel)<<

    Thinkerbus, I'll answer this one first. Probably 95% of the refuelling business growth will come from customers which CLNE has a contract with, meaning that the retail price at the pump isn't what they actually pay. Don't get caught up in that number: Fleets sign long-term agreements to leverage their scale for lower fuel costs, and also for forecasting of fuel costs.

    >>Know the construction and opening of the LNG fueling stations at Flying J are on a delayed plan, but would like to know what that revised plan is--timing for completion of the 80 stations (plan was for 12/31/2013) and phased plan for opening all of the 150 stations.<<

    More than 80 stations are built out and ready to "turn the key" and start selling fuel. CLNE will open the stations based on truck orders. The shippers are engaged with CLNE as they are placing truck orders in order to assure that they have access to fuel on their delivery routes.

    As to the other 70-ish stations? I think it's a product of demand. If adoption really ramps up, the company will have to spend heavily to more quickly build out stations. But I get the impression that management is pretty plugged in to what the shippers are doing.

    -Jason H

  • Report this Comment On December 02, 2013, at 12:41 PM, Thinkerbus wrote:

    Jason:

    If fuel price differentials at the pump are under $1.00, the fueling contracts (for better supply and price guarantees) will be even cheaper, thus making it difficult for CLNE to obtain good margins on the LNG they sell. This "retail pump price" is contrary to all the hype that there is about $1.50 or more per gallon differential for LNG versus diesel. If there is $1.50 diff., that should make sense to some forward thinking trucking companies, but seems odd that research on CNG shows CLNE is high priced compared to other CNG stations owned by others. Sounds like their strategy is to only capture long-term fueling contracts at lower prices. Just can't correlate the hype with reality and wonder why they do not provide competitive retail pricing on CNG, which has been quicker to adopt. Believe CLNE's disclosures should inform what their revised build out plan is, as that is very material to their cash requirements and near-term profitability. It costs to have idle cap. investments waiting for something out of your control and they should advise their shareholders what to expect (with specifics--surely they do have a new plan). I'm getting disappointed with their presentations, which don't cover the real opportunities in LNG.

    Maybe they have become complacent in their move to the "upper end" Newport Beach offices--spending the money while it is there. Who knows now. Maybe T. Boone Pickens should have a talk with management, unless he is part of the problem with sketchy disclosures and comfortable corporate headquarters. That doesn't sound like a smart way to run a business when it continues to lose money--unless you are just promoting the "hype" of what might be.

  • Report this Comment On January 13, 2014, at 1:28 PM, TMFVelvetHammer wrote:

    >>ust can't correlate the hype with reality and wonder why they do not provide competitive retail pricing on CNG, which has been quicker to adopt. Believe CLNE's disclosures should inform what their revised build out plan is, as that is very material to their cash requirements and near-term profitability. It costs to have idle cap.<<

    Hi Thinkerbus,

    Again-- CLNE's focus overall is on fleets, not just for LNG. The vast majority of its CNG business is also fleets, not Honda Civic CNG owners paying retail prices. It simply has retail stations that its fleet customers also use as well as the private ones. Since these stations are public, it offers CNG at retail prices. And frankly since retail CNG is so sparse it can and does charge more than other CNG retailers are able to since it has less competition for this business and almost no need to be competitive.

    I've found the detail of the build-out to be pretty exceptional on the earnings conference calls. Littlefair is very specific that they absolutely had to build out well in advance of the demand, or there wouldn't be any demand. He's also made it clear that they are involved in the truck purchase conversations with the fleet owners who have to have guaranteed access to NG before flipping a fleet (or part of it) over to NG.

    I'd be interested to know what more or more specificity you want to hear? You have to remember that these purchase conversations are likely confidential and should be. As a shareholder I want a certain amount of secrecy on these things to mitigate the competitive risk.

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