Natural-gas-for-transportation leader Clean Energy Fuels (CLNE -3.95%) reported first-quarter results on May 9 and delivered another quarter of double-digit volume growth from its core refueling business. The company delivered 95.2 million gallon-equivalents of natural gas to start 2019, a 12% increase from last year and its second straight quarter of double-digit growth after closing 2018 with 14% higher fuel sales in the fourth quarter.

Yet within that very positive result, Clean Energy reported another GAAP loss and deteriorating operating results, both compared with last year and the sequential quarter.

Natural gas pumps at Clean Energy Fuels station.

Image source: Clean Energy Fuels.

But even with that concern, management said it's starting to see some early success from its "Zero Now" program to help accelerate the pace of natural gas adoption, while sales of renewable natural gas continue to drive much of its growth.

Let's take a closer look at Clean Energy's results, particularly those things investors should be watching most closely right now.

Looking at the top and bottom lines with some context

From the first quarter:


Q1 2019

Q1 2018



$77.7 million

$102.4 million


Net income (loss)

($10.9) million

$12.2 million


Earnings (loss) per share




Operating cash flow

($8.3) million

($2.3) million


Fuel volume*

95.2 million

85.1 million


Data source: Clean Energy Fuels. *Gallon-equivalents. 

Two things affected Clean Energy's revenue. First was the expiration of the Alternative Fuels Tax Credit, or AFTC, which generated $25.5 million in revenue for the company  last year. Second, a hedging program it entered into in late 2018, which is designed to protect the company against a big decline in diesel prices, requires the company to report unrealized gains or losses in its results. Since diesel prices increased sharply in the first quarter, the company reported a $5 million unrealized loss in the value of those hedges, taking $5 million off the top line.

Let's put these two items in the proper context. First, the expiration of the AFTC Clean Energy took a $25.5 million bite out of revenue and cash flow, yet between the additional 10 million gallons in volume and improvements in its debt profile and operating efficiency, operating cash flows declined by only $5 million.

Second: The $5 million revenue reduction related to the fuel price hedges was non-cash, and because of the nature of commodity price swaps such as this -- which exist protect against falling diesel prices -- the loss of value of these hedges isn't actually a bad thing, per se, since it means the hedge isn't necessary.

Looking beyond the impact of these two things, which were expected, fuel volume continues to grow at a high rate. On the earnings call, co-founder and CEO Andrew Littlefair pointed out that of the 10 million new gallons the company delivered in the quarter, more than half of it was Redeem, Clean Energy's brand name for renewable natural gas produced from human and animal waste.

Cash flows and the balance sheet

As the preceding table shows, Clean Energy's cash consumption ramped up in the quarter. Operating cash was negative-$8.3 million, but a closer look at the cash flow statement indicates that this could be partly timing-related. The company showed an $11.5 million cash consumption in "accrued expenses and other," compared with a $2.8 million benefit in the sequential quarter.

Moreover, the company's improved operating cost profile, smaller debt load -- along with interest expenses -- and continued fuel volume growth make this a likely blip on the radar. That's particularly true when considering the company generated $38 million in positive operating cash in 2018; even when adjusting for the loss of $25.5 million in cash from the expired AFTC, Clean Energy's operating results seem primed to generate positive cash, if only modestly, over the full year.

Clean Energy ended the first quarter with $94 million in cash and short-term investments and $82 million in long-term debt, in line with where it started the year. The company was able to offset the cash consumed by operations with $5.1 million in cash from an earn-out bonus related to the sale of its renewable natural gas production assets to BP a couple of years ago, and $4.4 million in proceeds from the sale of a natural gas station "to accommodate improvements" near one of its airport refueling stations.

More growth to come

Because of the recurring nature of Clean Energy's refueling business, investors should expect the company's fuel volume sales to continue growing at similar rates in coming quarters. Moreover, Littlefair said the company continues to see strong interest in the "Zero Now" program it is offering in partnership with Total, the energy giant that owns a 25% stake in Clean Energy.

Earlier this month, the company announced that truck fleets had already acquired 250 trucks through the program, which is expected to support up to 2,500 total trucks, which, on average, will consume more than 20,000 gallons of fuel per year under long-term contracts with Clean Energy.

Moreover, Littlefair reminded listeners on the call that natural gas remains the only viable solution for the vast majority of medium- and heavy-duty applications:

The trucking companies we have been speaking to are under pressure to meet lower emissions targets today, while maintaining the performance of diesel, and the only solution available is natural gas trucks. They have seen the stories about recent roll-outs of electric buses by a few transit agencies that have encountered serious operational issues like the lack of battery range, charging times and ability to climb hills. ... So while others are grabbing easy headlines with big promises of the fuel of the future with very few details, we are signing on trucking firms to a solution that tackles air quality and long-term greenhouse gas issues today, while giving them the performance they expect at a cost that is less than diesel.

Lastly, Littlefair pointed out that it will continue to take some time for truck sales to drive fuel volumes, with even the significant interest in the Zero Now program expected to take most of the year to fully subscribe. That will likely push some of the resulting volume growth into next year.

Looking ahead

After a bumpy few years, Clean Energy is back to double-digit growth, and the big reductions in its operating and interest expenses have the business at a point where it's on solid ground. Moreover, natural gas for transportation may not be getting all the headlines that electric and hydrogen upstarts are, but it's the alternative fuel that already meets the needs of many fleets today, while also offering emissions improvements and cost savings versus diesel.

At this stage, the other alternatives remain in early testing, and it's likely to be years before they can even demonstrate viability. And Clean Energy is seizing upon that opportunity to establish a foothold as the "ready now" alternative to diesel.