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Clean Energy Fuels Corp. May Have Had a Better Quarter Than It Seems

By Jason Hall – Mar 8, 2016 at 7:47AM

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Start with 2015's cost cuts, add 2016's debt-reduction efforts, and spice it up with expectations for continued growth, and the story is getting better for Clean Energy.

Even with diesel prices down, waste haulers and transit fleets continue to buy natural gas vehicles. Image source: Clean Energy Fuels.

Editor's note: A previous version of this article transposed the earnings-per-share figures in the full-year chart below, and listed an incorrect percent change for that metric. The Fool regrets the error.

Natural gas refueling leader Clean Energy Fuels Corp. (CLNE -0.18%) reported fourth-quarter and full-year 2015 financial results on March 3, finishing 2015 with another year of double-digit fuel volume growth, as well as steady improvement in several key operational and financial metrics. But at the same time, the company continued to report losses, and heads into 2016 with some pretty major hurdles ahead of it. 

Was the just completed quarter better than it looked? It just may have been, especially when factoring in moves the company has made since the end of 2015 that didn't show up in the earnings report, but featured heavily in management's call with analysts. Let's take a closer look at Clean Energy Fuels' 2015 results, as well as those recent moves. There are some important takeaways to consider.

The numbers 
Fourth quarter:

MetricQ4 2015Q4 2014Change
Revenue $119,347 $132,112 (9.7%)
Net Income ($50,014) $1,333 (3,852%)
Earnings Per Share ($0.54) $0.01 (5,500%)
Adjusted EBITDA $32,907 $37,185 (11.5%)
Gallon-Equivalents Delivered 78.3 72.4 8.1%

Numbers except earnings per share in thousands. Data source: Clean Energy Fuels.

Full year:

Revenue $384,320 $428,940 (10.4%)
Net Income ($134,242) ($89,659) 49.7%
Earnings Per Share ($1.47) ($0.96) (53.1%)
Adjusted EBITDA $27,761 $23,658 17.3%
Gallon-Equivalents Delivered 308.5 265.1 16.4%

Numbers except earnings per share in thousands. Data source: Clean Energy Fuels.

Some context on the numbers above is important. First, revenue is highly affected by the price of natural gas, while its profits aren't affected as much. 

The best evidence of this was given on the earnings call, where Clean Energy Co-founder and CEO Andrew Littlefair said that the per-gallon gross margin on fuel sold in the fourth quarter was $0.28, the same as it was in the fourth quarter of 2014 when natural gas was twice as expensive and slightly up from $0.26 in the third quarter. In other words, the fluctuations in revenue are more a product of the commodity environment than an indicator of the health of the business. 

This is one of the key reasons why management has consistently pointed at gallons-equivalent delivered, which measures the volume of fuel sold, as a more important metric than revenue to measure growth. 

What happened in the quarter and year

  • Announced an "at the market" stock sale plan to raise cash to pay down $150 million in debt due in Aug. 2016.
    • To date, no shares have been sold, as the company intends to wait for higher prices to reduce dilution.
  • Cancelled $200 million credit facility with General Electric to finance construction of two LNG plants.
    • This led to $54.9 million non-cash charge in Q4, but will actually reduce the company's cash expenses going forward.
    • The company said it has identified more than two dozen LNG sources to meet current and ongoing demand. 
  • Alternative fuel tax credits (also known as VETC) were reinstated retroactively for 2015 and for all of 2016. 
    • This resulted in $31 million in tax credits recognized in the fourth quarter; should be worth $8 million or more per quarter in 2016. 
  • Sales, general, and administrative expenses fell again, finishing 2015 10% lower than 2014.
    • Management expects to see further reductions in 2016, if not as substantial. 
  • Spent $51 million in capital expenditures in 2015, down from $88 million in 2014. 
  • Ended 2015 with $145 million in cash and investments, down from $215 million one year ago, and $166 million sequentially. 
    • The rest of its balance sheet was largely unchanged, with similar working capital besides the cash decline. 
  • Completed 67 station projects, largely upgrades and expansions to existing stations. 
  • Sales of "Redeem" renewable biomethane doubled in 2015 to 15 million gallons. 

What's happened so far in 2016, and some guidance

  • Paid down $92.5 million in long-term debt with some cash and $50 million line of credit at better rates than existing debt. 
    • This includes buying back $32.5 million in convertible debt due in 2018.
  • Received the $31 million in VETC credits from the federal government in February, adding that amount to the balance sheet. 
  • Announced capital expenditures guidance of $25 million for 2016, down more than half from 2015. 
  • Announced that its pipeline of new stations it would build for customers was as large as it had ever been in the company's history.
    • Expects that more full-station construction projects (versus mostly station upgrades in 2015) would help drive revenue higher in 2016.
  • Expects gross margins as Clean Energy Compression (station equipment manufacturing business) to continue increasing due to standardization of product offerings, though global downturn could continue to weigh on sales there. 
  • Management said they expect to end 2016 with similar cash on hand as at beginning of year. 
    • This is after paying down and refinancing 2016 notes, plus paying down a portion of 2018 debt. 

Looking ahead 
Clean Energy's business has weathered the energy downturn much better than anyone could have predicted, as its 16% volume growth in 2015 attests to. More recently, management has cranked up its focus on improving the cost structure, while also strengthening the balance sheet via debt reduction and lower capital expenditures. 

So far this year, the company has added $31 million in cash to the balance sheet, paid down $42.5 million in debt, and refinanced another $50 million at lower rates, leaving it with $90 million in notes due in August that it must refinance or pay off. Management has said that it still intends to use stock sales and cash both to do this. 

At the same time, management says growth isn't stopping, even as oil prices make natural gas less compelling as the cheaper fuel. Littlefair wouldn't give guidance on volume growth for 2016, but he reiterated the size of the company's new station backlog, emphasized that transit and solid waste customers continue to by natural gas vehicles almost exclusively, and that truck fleets such as UPS, Dillon Transportation, and Raven have shown natural gas to be a viable fuel for heavy-duty trucking. 

The company still isn't bringing in positive cash flows and its GAAP losses remain pretty large. But the trends are hard to ignore in fuel volume growth, steady improvements in its cost structure, and what looks like -- at least so far this year -- aggressive steps to reduce debt and strengthen the balance sheet. 

Jason Hall owns shares of Clean Energy Fuels and has the following options: long Jan. 2017 $5 calls on Clean Energy Fuels, short Jan. 2017 $5 puts on Clean Energy Fuels, and long Jan. 2017 $3 calls on Clean Energy Fuels. The Motley Fool owns shares of General Electric Company. The Motley Fool recommends Clean Energy Fuels and United Parcel Service. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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