There was a lot to like in natural gas supplier and service specialist Clean Energy Fuels Corp.'s (CLNE +0.49%) earnings report for the fourth-quarter and full-year 2014. So far today (Feb. 27), the market is loving it, with the stock up 15%. The highlights:
- Gallon-equivalents delivered increased 30% in the quarter, and rose 23.8% for the full year.
- Revenue (adjusted to remove one-time events) increased 33% in the quarter.
- Annual revenue increased 21.6%. Adjusted revenue increased 30% for the year.
- The company was adjusted EBITDA positive $23 million in 2014.
While the company is still losing money on a generally accepted accounting principles basis, it made a number of positive steps forward in 2014. Let's look at some key areas where the company improved, and picked up momentum. Does a strong year lie ahead?
Gallons delivered actually accelerated as oil prices fell
Clean Energy Fuels boosted deliveries strongly in 2014, even as oil prices plummeted in the second half of the year. Total gallon equivalents increased almost 24%, led by nearly 28% growth in compressed natural gas sales. CEO Andrew Littlefair highlighted this on the earnings call, saying the company's transit and solid waste vehicle refueling businesses continued to grow sharply during the year. He also noted that Clean Energy Fuels sold more than 100 million gallons of CNG into the transit segment alone. The company is not losing customers to gas or diesel, according to Littlefair, who noted that its CNG customers are still saving money versus those fuels.
The liquefied natural gas business -- which is almost entirely for heavy truck refueling -- saw sales rise by 17% for the year. Littlefair said only one of the approximately 600 customers that Clean Energy Fuels is working with put plans on hold for natural gas. Much of the interest from truckers right now is from local and regional short haulers, which often means less expensive CNG is viable for those shorter routes, versus more energy-dense LNG as the preferred fuel for longer routes and over-the-road trucking, since more fuel can fit on the truck in fewer, lighter tanks.
The appeal of CNG in this segment appears to be paying off for Clean Energy Fuels. On the earnings call, Littlefair said fuel sales to trucking customers grew 44% in 2014, and that the fourth quarter was the company's biggest ever in trucking.
The company isn't just sitting back and waiting for customers, either, having recently formed a partnership with CNG tank maker Agility Fuel Systems. This is similar to a partnership the company has had with Chart Industries for LNG tanks for the past several years. Littlefair said the partnership with Agility can lead to as much as a $10,000 reduction in the incremental cost for a CNG-fueled truck.
These efforts are expanding Clean Energy's customer base, while at the same time not killing the company's results. Littlefair said on the call the company's margin dollars per gallon only declined $0.02 versus last year.
Capital position, debt, and cash management trending better
Clean Energy reduced its long-term debt by $50 million in the quarter, to $570 million. This was tied to the sale of the company's interest in the McCommas Bluff landfill in Dallas. Additionally, the company ended the year with $215 million in cash and short-term investments. That was $143 million less than the previous year, with $86 million going to capital expenditures.
However, management has taken a number of steps to reduce costs. As a starting point, the company cut selling, general, and administrative expenses by $11.6 million in 2014, with essentially all of that reduction occurring in the second half of the year. As Littlefair described in our recent interview, the company has reduced headcount and made other painful moves, but needed to "rightsize" its operations to the business, so these actions will yield sustained cost improvements.
Interest expense also crept up significantly in 2014, to $44 million from $29 million in 2013. Long-term debt was reduced as part of the McCommas sale, so interest expense will be lower in 2015.
What can we predict about cash burn this year? Of the $59 million in capex, only $38 million will come from Clean Energy's cash, with the rest largely being CNG trailers for NG Advantage that will be financed. Based on the reductions in the second half of the year, potentially $20 million could be saved on SG&A, and probably $4 million less paid toward interest expense based on the 10% debt reduction. The company also took a $4.7 million bath in cost overruns on a deal IMW did in Australia.
Looking ahead: Slashing the cash burn, addressing 2016 notes, opening more stations
Based on those quick and dirty numbers, Clean Energy Fuels could halve its cash burn in 2015 even before factoring in the profit from a single gallon of new fuel sales. If the company grows fuel volume by 20% again, that would be 53 million new gallons of fuel sold, which would generate $13.8 million in gross profit, based on the $0.26 per gallon margin in 2014. Add that to the math above, and the company's cash burn in 2015 looks to be closer to $65 million or less.
Besides the cheap-oil elephant in the room, I think addressing debt is a very real concern for 2015. The company has $150 million coming due in August 2016, and at the highest interest rate of all the company's debt, at 7.5%, costing $11 million per year to service. If the company can renegotiate, refinance, or sell assets to pay down this debt, that would go a long way toward addressing cash burn.
The company also expects to open or upgrade more than 60 stations in the refuse and heavy trucking segment in 2015. Considering that the heavy trucking stations were built as part of the "America's Natural Gas Highway" over the past few years, the company could easily grow sales 20% again without all the capex.
What this Fool thinks
Even with oil at $50 per barrel, the refuse, transit, and heavy trucking businesses grew substantially. This indicates the cost differential between natural gas and diesel remains strong, and that fleet operators expect oil prices to eventually climb again. If the company continues improving its fundamentals -- which I think is very likely -- and sales grow at the 20% pace we've seen the past several years, 2015 could be a serious bounce-back year for Clean Energy Fuels.
