CLEAN ENERGY FUELS CORP. The following Management's Discussion and Analysis of Financial Condition and Results of Operations (this discussion, as well as discussions under the same heading in our other periodic reports, are referred to as the "MD&A") should be read together with our unaudited condensed consolidated financial statements and the related notes included in this report, and all cross references to notes included in this MD&A refer to the identified note in such condensed consolidated financial statements. For additional context with which to understand our financial condition and results of operations, refer to the MD&A included in our Annual Report on Form 10-K for our fiscal year endedDecember 31, 2019 , which was filed with theSecurities and Exchange Commission ("SEC") onMarch 10, 2020 , as well as the audited consolidated financial statements and notes included therein (collectively, our "2019 Form 10-K").
Cautionary Note Regarding Forward-Looking Statements
This MD&A and the other disclosures in this report contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Forward-looking statements are
statements other than historical facts. These statements relate to future events
or circumstances or our future performance, and they are based on our current
assumptions, expectations and beliefs concerning future developments and their
potential effect on our business. In some cases, you can identify
forward-looking statements by the following words: "if," "may," "might,"
"shall," "will," "can," "could," "would," "should," "expect," "intend," "plan,"
"goal," "objective," "initiative," "anticipate," "believe," "estimate,"
"predict," "project," "forecast," "potential," "continue," "ongoing" or the
negative of these terms or other comparable terminology, although the absence of
these words does not mean that a statement is not forward-looking. The
forward-looking statements we make in this discussion include statements about,
among other things, our future financial
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and operating performance, our growth strategies and anticipated trends in our industry and our business. Although the forward-looking statements we make reflect our good faith judgment based on available information, they are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Factors that might cause or contribute to such differences include, among others, those discussed under "Risk Factors" in Item 1A of this report. In addition, we operate in a competitive and rapidly evolving industry in which new risks emerge from time to time, and it is not possible for us to predict all of the risks we may face, nor can we assess the effect of all factors on our business or the extent to which any factor or combination of factors could cause actual results to differ from our expectations. As a result of these and other potential risks and uncertainties, our forward-looking statements should not be relied on or viewed as guarantees of future events. All of our forward-looking statements in this report are made only as of the date of this document and, except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason, including to conform these statements to actual results or to changes in our expectations.
Overview
We areNorth America's leading provider of the cleanest fuel for the transportation market, based on the number of stations operated and the amount of gasoline gallon equivalents ("GGEs") of renewable natural gas ("RNG"), compressed natural gas ("CNG") and liquefied natural gas ("LNG") delivered. Through our sales of Redeem™ RNG, which is derived from biogenic methane produced by the breakdown of organic waste, we help thousands of vehicles, from airport shuttles to city buses to waste and heavy-duty trucks, to reduce their amount of climate-harming greenhouse gas by at least 70% and up to 300% depending on the source of the RNG feedstock while also reducing criteria pollutants such as Oxides of Nitrogen (NOx). Redeem RNG is delivered as CNG and LNG. Our principal business is supplying RNG, CNG and LNG for medium and heavy-duty vehicles and providing operation and maintenance ("O&M") services for public and private vehicle fleet customer stations. As a comprehensive solution provider, we also design, build, operate and maintain fueling stations; sell and service natural gas fueling compressors and other equipment used in CNG stations and LNG stations; offer assessment, design and modification solutions to provide operators with code-compliant service and maintenance facilities for natural gas vehicle fleets; transport and sell CNG and LNG via "virtual" natural gas pipelines and interconnects; procure and sell RNG; sell tradable credits we generate by selling RNG and conventional natural gas as a vehicle fuel, including Renewable Identification Numbers ("RIN Credits" or "RINs") under the federal Renewable Fuel Standard Phase 2 and credits under theCalifornia and the Oregon Low Carbon Fuel Standards (collectively "LCFS Credits"); help our customers acquire and finance natural gas vehicles; and obtain federal, state and local credits, grants and incentives. In addition, beforeMarch 31, 2017 , we produced RNG at our own production facilities (which we sold, along with certain of our other RNG production assets toBP Products North America ("BP"), in a transaction we refer to as the "BP Transaction "), and beforeDecember 29, 2017 , we manufactured natural gas fueling compressors and other equipment used in CNG stations (which we combined with Landi Renzo S.p.A.'s natural gas fueling compressor manufacturing business in a newly formed company, SAFE&CEC S.r.l., in a transaction we refer to as the "CEC Combination"). We serve fleet vehicle operators in a variety of markets, including heavy-duty trucking, airports, refuse, public transit, and government fleets. We believe these fleet markets will continue to present a growth opportunity for natural gas vehicle fuel for the foreseeable future. As ofJune 30, 2020 , we served over 1,000 fleet customers operating over 48,000 natural gas vehicles, and we currently own, operate or supply approximately 550 natural gas fueling stations in 41 states inthe United States and five provinces inCanada . We also provide fuel and services to industrial and institutional energy users.
Impact of COVID-19
The COVID-19 pandemic has resulted, and is likely to continue to result, in
significant economic disruption and has adversely affected and will likely
continue to adversely affect our business. Our operations have been designated
"essential critical infrastructure work" in the energy sector by the
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Beginning onMarch 16, 2020 , the vast majority of our employees transitioned to remote working arrangements. Importantly, this did not result in any adverse effects to our operations, including financial reporting systems, internal control over financial reporting and disclosure controls and procedures. Additionally, our technicians and O&M services continued to operate effectively, and we believe our supply chain has not been disrupted. All of our natural gas fueling stations have remained fully operational during the COVID-19 pandemic and continue to provide access to customers--many that are supplying essential services. Further, we have not experienced any challenges implementing business continuity plans and have not incurred, and do not expect to incur, material expenditures related to the same. Beginning onApril 27, 2020 we commenced a phased return of employees to their respective offices and have adopted and applied protocols and procedures in accordance with federal, state and local government policies and mandates andCenters for Disease Control (CDC ) guidelines. Specifically, we have implemented enhanced cleaning and disinfecting protocols and temperature and COVID-19 screening questionnaires for the health and safety of our employees, customers and the communities in which we operate. We have provided personal protective equipment (including masks and gloves) and hand sanitizer, we have modified office seating, we expect all our employees to maintain appropriate physical distancing, and we continue to restrict employee travel in accordance with the various state health orders. We began to see the negative effects of COVID-19 on volumes delivered in mid-March and continued to see declines in volumes delivered for the three months endedJune 30, 2020 , as compared to the three months endedJune 30, 2019 . Volumes delivered forJune 2020 increased 5% overMay 2020 but remained 13% lower compared toJune 2019 . The most significant negative effects of COVID-19 in relation to our volumes continue to be seen in the airports (fleet services), public transit and government fleet customer markets, which were down from the three months endedJune 30, 2019 by between 25% and 45% due to federal, state and local government mandates to restrict normal daily activities, as well as travel bans, quarantines and "shelter-in-place" orders, with single digit growth in trucking and refuse markets in the three months endedJune 30, 2020 from the three months endedJune 30, 2019 , where we saw more essential businesses operating. Although some of these restrictions have been lifted or scaled back in recent months, a recent surge of COVID-19 has resulted in the re-imposition of certain restrictions and may lead to other restrictions being re-implemented in response to efforts to reduce the spread of COVID-19. These measures, which may remain in place for a significant amount of time, may further adversely affect airports, public transit and government fleet customer markets. Our volume of GGEs delivered in the second quarter of 2020 declined 10% compared to the prior year period with the lowest volumes delivered being experienced inMay 2020 . Although there was an increase in volume inJune 2020 compared toMay 2020 , we believe the year over year declines in volumes will continue beyond June and gradually recover at a slower pace than previously anticipated due to the more recent resurgence and prolonging effect of the COVID-19 pandemic. Declines in volume have resulted and are expected to continue to result in lower gross margin dollars and likely a lower gross margin per GGE due to lower output on fixed operating costs and the effect of less RIN and LCFS revenue. Lower volumes have affected and may continue to affect our AFTC revenue as a portion of the decline in volume is from AFTC eligible volumes. During the second quarter of 2020, we also experienced lower than anticipated operating expenses due to lower spending as a result of reduced business activities. We expect this trend of lower spending to continue at least until our business activities begin to normalize to levels prior to the COVID-19 pandemic, which will help mitigate the reduction in gross profit margins associated with prolonged year over year declines in our overall volume. We also recorded a$2.5 million station asset disposal gain during the second quarter which helps mitigate the negative effect of COVID-19 on our 2020 financial results. We believe the lower gross profit margins from lower volumes can be sufficiently mitigated by our continued lower operating expenses together with the station asset disposal gain assuming there is not a further deterioration or lack of any recovery from the COVID-19 pandemic during the remainder of 2020. As such, we continue to estimate a negative effect of$11 million to our net operating results for 2020 as a result of COVID-19. Given the dynamic nature of these circumstances, significant uncertainty exists concerning the duration of business disruption and the full extent of the effect of COVID-19 on our business, results of operations and financial condition. Additionally, the effects of COVID-19, low oil prices and the adoption of government policies and programs, or increased popular sentiment, in favor of other vehicle technologies or fuels may delay adoption of natural gas vehicles by new customers and expansion by existing customers, particularly heavy-duty natural gas trucks, which would adversely affect our previously anticipated volume growth. For more information, see "Risk Factors" in Part II, Item 1A of this report. We believe we have sufficient liquidity to support business operations through this volatile period, including total cash and cash equivalents and short-term investments of$95.7 million as ofJune 30, 2020 . During the three months ended 28 Table of ContentsJune 30, 2020 , we collected our AFTC receivables related to 2018 and 2019 AFTC volumes which provided us with approximately$47 million , net in additional cash to support our operations, and helped repay the remaining$50.0 million in principal amount of our 7.5% Notes. We will also collect the 2020 AFTC revenue throughout 2020, which we expect to be between$16 million and$20 million giving consideration to the effect of COVID-19 described above. As ofJune 30, 2020 , we had approximately$6.8 million of current debt. Additionally, we are continuously evaluating and taking actions to reduce costs and spending across our organization. This includes limiting travel, reducing hiring activities and limiting discretionary spending. We also reduced our anticipated capital expenditures for 2020 in light of COVID-19 to$14.0 million for our core business and$2.0 million for NG Advantage. Additionally, we could suspend, or limit repurchases under, our share repurchase program which was authorized for up to$30.0 million , of which$10.5 million , excluding fees and commissions, had been spent throughJune 30, 2020 and$12.7 million had been spent throughJuly 31, 2020 . Performance Overview
This performance overview discusses matters on which our management focuses in evaluating our financial condition and our operating results.
Sources of Revenue
The following tables represent our sources of revenue:
Three Months Ended Six Months Ended
June 30, June 30,
Revenue (in millions) 2019 2020 2019 2020
Volume-related (1) $ 66.3 $ 50.2 $ 140.8 $ 125.3
Station construction sales 5.9 5.3 9.1 10.8
AFTC (2) - 4.4 - 9.8
Other 0.1 - 0.1 -
Total $ 72.3 $ 59.9 $ 150.0 $ 145.9 (1) Our volume-related revenue primarily consists of sales of RNG, CNG and LNG
fuel, performance of O&M services, and sales of RINs and LCFS Credits in
addition to changes in fair value of our derivative instruments. More
information about our volume of fuel and O&M services delivered in the
periods is included below under "Key Operating Data," and our derivative
instruments consist of commodity swap and customer contracts (see Note 6 for
more information). The following table summarizes our volume-related revenue
in the periods:
Three Months Ended Six Months Ended
June 30, June 30,
Revenue (in millions) 2019 2020 2019 2020Fuel sales and performance of O&M services$ 57.6 $ 44.2 $ 127.2 $ 107.8 Change in fair value of derivative instruments 0.6 (1.5)
(4.4) 4.2
RIN Credits 5.1 2.9 11.2 5.4
LCFS Credits 3.0 4.6 6.8 7.9
Total volume-related revenue $ 66.3 $ 50.2 $ 140.8 $ 125.3 (2) Represents the federal alternative fuel excise tax credit that we refer to as
"AFTC," which had previously expired but on
retroactively extended for vehicle fuel sales made beginning
through
made after
Key Operating Data
In evaluating our operating performance, our management focuses primarily on: (1) the amount of RNG, CNG and LNG GGEs delivered (which we define as (i) the volume of GGEs we sell to our customers as fuel, plus (ii) the volume of GGEs dispensed at facilities we do not own but where we provide O&M services on a per-gallon or fixed fee basis, plus (iii) our proportionate share of the GGEs sold as CNG by our joint venture withMansfield Ventures, LLC calledMansfield Clean Energy Partners, LLC ("MCEP"), plus (iv) for periods before completion of theBP Transaction , our proportionate 29
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share (as applicable) of the GGEs of RNG produced and sold by our former RNG production facilities, which we sold in theBP Transaction ), (2) our station construction cost of sales, (3) our gross margin (which we define as revenue minus cost of sales), and (4) net loss attributable to us. The following tables present our key operating data for the years endedDecember 31, 2017 , 2018, and 2019 and for the three and six months endedJune 30, 2019 and 2020: Year Ended Three Months Ended Six Months Ended December 31, June 30, June 30, Gasoline gallon equivalents delivered (in millions) 2017 2018 2019 2019
2020 2019 2020
CNG (1) 283.4 299.5 335.7 83.8 73.6 162.3 157.7
LNG 66.1 66.0 65.1 15.8 15.9 32.5 31.1Non-vehicle RNG (2) 1.9 - - -
- - -
Total 351.4 365.5 400.8 99.6 89.5 194.8 188.8
(1) As noted above, amounts include our proportionate share of the GGEs sold as
CNG by our joint venture MCEP. GGEs sold by this joint venture were 0.5
million, 0.5 million and 0.4 million for the years ended
2018, and 2019, respectively, 0.1 million for each of the three months ended
30, 2019 and 2020.
(2) Represents RNG sold as non-vehicle fuel. RNG sold as vehicle fuel is sold
under the brand name Redeem™ and is included in this table in the CNG or LNG
amounts as applicable based on the form in which it was sold.
RNG sold as vehicle fuel under the brand name RedeemTM is included in the CNG or LNG amounts in the table above as applicable based on the form in which it was sold. GGEs of RedeemTM sold for the years endedDecember 31, 2017 , 2018 and 2019 and for the three and six months endedJune 30, 2019 and 2020 were as follows: Year Ended Three Months Ended Six Months Ended December 31, June 30, June 30, Gasoline gallon equivalents delivered (in millions) 2017 2018 2019 2019 2020 2019 2020 RedeemTM 78.5 110.1 143.3 38.9 36.0 73.5 72.0 Year Ended Three Months Ended Six Months Ended December 31, June 30, June 30,
Gasoline gallon equivalents
delivered (in millions) 2017 2018 2019 2019 2020 2019 2020
O&M services 199.5 206.1 211.4 53.5 46.8 103.3 97.0
Fuel (1) 127.3 133.6 162.4 39.6 36.8 78.8 79.5
Fuel and O&M services (2) 24.6 25.8 27.0 6.5 5.9 12.7 12.3
Total 351.4 365.5 400.8 99.6 89.5 194.8 188.8
Year Ended Three Months Ended Six Months Ended
December 31, June 30, June 30,
Other operating data (in
millions) 2017 2018 2019 2019 2020 2019 2020
Station construction cost of
sales $ 47.0 $ 25.1 $ 23.5 $ 6.3 $ 4.6 $ 10.1 $ 9.7
Gross margin (3) (4) (5) $ 85.8 $ 133.5 $ 132.0 $ 24.7 $ 21.3 $ 43.6 $ 54.4
Net income (loss)
attributable to Clean Energy
Fuels Corp. (3) $ (79.2) $ (3.8) $ 20.4 $
(5.4)
(1) As noted above, amounts include our proportionate share of the GGEs sold as
CNG by our joint venture MCEP. GGEs sold by this joint venture were 0.5
million, 0.5 million and 0.4 million for the years ended
2018, and 2019, respectively, 0.1 million for each of the three months ended
30, 2019 and 2020.
(2) Represents GGEs at stations where we provide both fuel and O&M services.
(3) Includes the following amounts of AFTC revenue:
and
respectively, and
2019 and
(4) For the year ended
valuation provision of $13.2 million .
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(5) Gross margin includes an unrealized gain (loss) from the change in fair value
of commodity swap and customer contracts of
for the years ended
and
respectively, and
regarding the commodity swap and customer contracts.
Recent Developments
Chevron Adopt-a-Port. InJune 2020 , we entered into an agreement withChevron to provide truck operators serving the ports ofLos Angeles andLong Beach with cleaner, carbon-negative RNG to reduce emissions. Under the agreement,Chevron will provide funding to allow truck operators to subsidize the cost of buying new RNG-powered trucks and will supply RNG to our stations near the ports. Share Repurchase Program. OnMarch 12, 2020 , our Board of Directors approved a share repurchase program of up to$30.0 million (exclusive of fees and commissions) of our outstanding common stock (the "Repurchase Program"). The Repurchase Program does not have an expiration date, does not obligate us to acquire any specific number of shares, and may be suspended or discontinued at any time. As ofJune 30, 2020 , we had utilized$10.5 million under the Repurchase Program to purchase 6,112,499 shares of our common stock for a total cost of$10.7 million . As ofJuly 31, 2020 , we had utilized$12.7 million under the Repurchase Program to purchase 7,005,849 shares of our common stock.
7.5% Notes. In
NG Advantage. InFebruary 2020 , we converted the principal and accrued interest under theNovember 2019 Convertible Note (as defined in Note 3) into common units ofNG Advantage, LLC ("NG Advantage") and received common units pursuant to the guaranty agreement entered inFebruary 2018 , resulting in an increase in our controlling interest in NG Advantage to 93.3%.
Business Risks and Uncertainties and Other Trends
Our business and prospects are exposed to numerous risks and uncertainties. For more information, see "Risk Factors" in Part II, Item 1A of this report. In addition, our performance in any period may be affected by various trends in our business and our industry, including certain seasonality trends. See the description of the key trends in our past performance and anticipated future trends included in the MD&A contained in our 2019 Form 10-K. Except as set forth below, and in "Impact of COVID-19" above, there have been no material changes to such trends as described in the MD&A contained in our 2019 Form 10-K. The market for natural gas as a vehicle fuel is a relatively new and developing market, and has experienced slow, volatile or unpredictable growth in many sectors. For example, to date, adoption and deployment of natural gas vehicles, both in general and in certain of our key customer markets, including heavy-duty trucking, have been slower and more limited than we anticipated. Also, other important markets, including airports, refuse and public transit, had slower volume and customer growth in 2019 and in the six months endedJune 30, 2020 that we expect to continue, especially due to the COVID-19 pandemic and the efforts taken to reduce its spread. Moreover, adoption of and demand for the different types of natural gas vehicle fuel, including RNG, CNG and LNG, are subject to significant risks, including decreased LNG volumes in some markets in recent periods that may continue and may not be sufficiently offset by any increase in demand for RNG or CNG. Market prices for RINs and LCFS Credits can be volatile and unpredictable, and the prices for such credits can be subject to significant fluctuations. The value of RINs and LCFS Credits (derived from market prices) can materially affect our revenue. For example, since approximately the beginning ofJune 2019 toJanuary 2020 , market prices for RINs trended to historical lows. Although RIN prices have generally increased since lateJanuary 2020 , prices have fluctuated significantly during 2020 and will likely continue to be volatile. The market price of our common stock can be volatile and unpredictable. During the second quarter of 2020, our stock price fluctuated up and down. If a decline of our market capitalization were sustained we may need to perform 31
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goodwill impairment tests more frequently and it is possible that our goodwill could become impaired which could result in a material non-cash charge and adversely affect our results of operations.
Debt Compliance
Certain of the agreements governing our outstanding debt, which are discussed in Note 12, have certain non-financial covenants with which we must comply. As ofJune 30, 2020 , we were in compliance with all of these covenants.
Risk Management Activities
Our risk management activities are discussed in the MD&A contained in our 2019 Form 10-K. During the six months endedJune 30, 2020 , there were no material changes to these activities.
Critical Accounting Policies and Estimates
The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the Unites States of America requires the appropriate application of accounting policies, some of which require us to make estimates and assumptions that affect the amounts reported and related disclosures in our condensed consolidated financial statements. We base our estimates on historical experience and various assumptions that we believe are reasonable under the circumstances. To the extent there are differences between these estimates and actual results, our financial condition or results of operations could be materially affected. Our critical accounting policies and the related judgments and estimates are discussed in the MD&A contained in our 2019 Form 10-K, except for certain updates regarding our goodwill impairment assessment, which is described below, and our adoption of new guidance for credit losses effectiveJanuary 1, 2020 , which is described in Note 1. There have been no other material changes to our critical accounting policies as described in the MD&A contained in our 2019 Form 10-K.
Impairment of
Goodwill represents the excess of costs incurred over the fair value of the net assets of acquired businesses. We assess our goodwill using either a qualitative or quantitative approach to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying value. We are required to use judgment when applying the goodwill impairment test, including, among other considerations, the identification of reporting unit(s), the assessment of qualitative factors, and the estimation of fair value of a reporting unit in the quantitative approach. We determined that we are a single reporting unit for the purpose of goodwill impairment tests. We perform the impairment test annually onOctober 1 , or more frequently if facts or circumstances change that would indicate that the carrying amount may be impaired. The qualitative goodwill assessment includes the potential effect on a reporting unit's fair value of certain events and circumstances, including its enterprise value, macroeconomic conditions, industry and market considerations, cost factors, and other relevant entity-specific events. If it is determined, based upon the qualitative assessment, that it is more likely than not that the reporting unit's fair value is less than its carrying amount, then a quantitative impairment test is performed. Alternatively, we may bypass the qualitative assessment for a reporting unit and directly perform the quantitative assessment. The quantitative assessment estimates the reporting unit's fair value based on its market capitalization plus an assumed control premium as evidence of fair value. The estimates used to determine the fair value of the reporting unit may change based on results of operations, macroeconomic conditions, stock price fluctuations or other factors. Changes in these estimates could materially affect our assessment of the fair value and goodwill impairment for the reporting unit. For our most recent goodwill impairment test, which was our annual test performed onOctober 1, 2019 , we performed a quantitative impairment assessment for the reporting unit as described above. In this test, the fair value of the reporting unit exceeded its carrying value by 9%. 32
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We evaluated the recent change in the market price of our common stock and considered whether there were any other events or circumstances that would more likely than not reduce the fair value of our reporting unit below its carrying value on a sustained basis, and concluded it was not more likely than not that the fair value of our reporting unit decreased below its carrying value, on a sustained basis. As a result, an interim impairment test was not considered necessary during the three and six months endedJune 30, 2020 . If there were a decline in the market price of our common stock and our market capitalization, or if other events or circumstances change that would more likely than not reduce the fair value of our reporting unit below its carrying value, on a sustained basis, then we may perform impairment tests more frequently and it is possible that our goodwill could become impaired, which could result in a material non-cash charge and adversely affect our results of operations.
Recently Adopted and Recently Issued Accounting Standards
See Note 1 for a description of recently adopted accounting standards and recently issued accounting standards pending adoption.
Results of Operations
The table below presents, for each period indicated, each line item of our statements of operations data as a percentage of our total revenue for the period. Additionally, the narrative that follows provides a comparative discussion of certain of these line items between the periods indicated. Historical results are not indicative of the results to be expected in the current period or any future period.
Three Months EndedJune 30, 2020 Compared to Three Months EndedJune 30, 2019 Three Months Ended June 30, 2019 2020 Statements of Operations Data: Revenue: Product revenue 82.5 % 84.2 % Service revenue 17.5 15.8 Total revenue 100.0 100.0 Operating expenses: Cost of sales (exclusive of depreciation and amortization shown separately below): Product cost of sales 55.5 55.2 Service cost of sales 10.4 9.2
Change in fair value of derivative warrants -
(0.7)
Selling, general and administrative 24.8
28.2 Depreciation and amortization 17.4 20.1 Total operating expenses 108.1 112.0 Operating loss (8.1) (12.0) Interest expense (2.5) (3.1) Interest income 0.8 0.5 Other income, net 0.1 3.8
Loss from equity method investments -
(0.8) Loss before income taxes (9.7) (11.6) Income tax expense (0.1) (0.1) Net loss (9.8) (11.7)
Loss from noncontrolling interest 2.4
0.5
Net loss attributable toClean Energy Fuels Corp. (7.4) %
(11.2) % Revenue. Revenue decreased by$12.4 million to$59.9 million in the three months endedJune 30, 2020 , from$72.3 million in the three months endedJune 30, 2019 . This decrease was primarily due to a decrease in volume-related 33
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revenue, a net decrease in fair value of our commodity swap and customer contracts entered into in connection with our Zero Now truck financing program, and decreased construction sales, partially offset by AFTC revenue that did not exist in the second quarter of 2019. Volume-related revenue, excluding the effect of the change in fair value of our commodity swap and customer contracts entered in connection with our Zero Now truck financing program, decreased by$14.1 million between periods, attributable to a decrease in gallons delivered, and a lower effective price per gallon delivered. The effect to volume-related revenue as a result of the change in fair value of our commodity swap and customer contracts entered into in connection with our Zero Now truck financing program was$(2.0) million , as we recognized an unrealized gain of$0.6 million in 2019 compared to an unrealized loss of$(1.5) million in 2020 (see Note 6 for more information). Our effective price per gallon charged decreased by$0.08 per gallon to$0.58 per gallon in the three months endedJune 30, 2020 compared to$0.66 per gallon in the three months endedJune 30, 2019 , excluding the effect of the change in fair value of derivative instruments discussed above. Our effective price per gallon is defined as revenue generated from selling RNG, CNG, LNG and any related RINs and LCFS Credits and providing O&M services to our vehicle fleet customers at stations we do not own and for which we receive a per-gallon or fixed fee, all divided by the total GGEs delivered less GGEs delivered by non-consolidated entities, such as entities that are accounted for under the equity method. The decrease in our effective price per gallon was due to decreases in natural gas prices and the fuel price mix, which is based on the variation of fuel types and locations where we deliver fuel.
Station construction sales decreased by
AFTC revenue increased by$4.4 million between periods due to the absence of AFTC in the three months endedJune 30, 2019 . We recognized AFTC revenue for the vehicle fuel we sold in 2018 and 2019 in the three months endedDecember 31, 2019 . Cost of sales. Cost of sales decreased by$9.1 million to$38.6 million in the three months endedJune 30, 2020 , from$47.6 million in the three months endedJune 30, 2019 . This decrease was primarily due to a decrease in gallons delivered, a decrease in natural gas commodity costs due to the decrease in natural gas prices, and a$1.7 million decrease in the cost of station construction activities. Our effective cost per gallon decreased by$0.04 per gallon to$0.38 per gallon in the three months endedJune 30, 2020 from$0.42 per gallon in the three months endedJune 30, 2019 . Our effective cost per gallon is defined as the total costs associated with delivering natural gas, including gas commodity costs, transportation fees, liquefaction charges, and other site operating costs, plus the total cost of providing O&M services at stations that we do not own and for which we receive a per-gallon or fixed fee, including direct technician labor, indirect supervisor and management labor, repair parts and other direct maintenance costs, all divided by the total GGEs delivered less GGEs delivered by non-consolidated entities, such as entities that are accounted for under the equity method. The decrease in our effective cost per gallon was due to decreases in natural gas prices and transportation costs. Change in fair value of derivative warrants. Change in fair value of derivative warrants, all of which were issued by our subsidiary, NG Advantage, changed by$0.4 million to a gain of$0.4 million in the three months endedJune 30, 2020 , from a gain of$0.0 million in the three months endedJune 30, 2019 , due to a change in the estimated fair value. The warrants expired onJuly 2, 2020 . Selling, general and administrative. Selling, general and administrative expenses decreased by$1.0 million to$16.9 million in the three months endedJune 30, 2020 , from$17.9 million in the three months endedJune 30, 2019 . This decrease was primarily driven by reduced activities and cost reductions due to the effect of COVID-19, including lower advertising and travel expenses. Depreciation and amortization. Depreciation and amortization decreased by$0.6 million to$12.1 million in the three months endedJune 30, 2020 , from$12.6 million in the three months endedJune 30, 2019 , primarily due to a lower amount of depreciable assets. 34 Table of Contents
Interest expense. Interest expense in the three months ended
Other income, net. Other income, net increased$2.2 million from$0.1 million in the three months endedJune 30, 2019 to$2.3 million in the three months endedJune 30, 2020 , primarily due to a gain recorded for the disposal of certain assets.
Loss from equity method investments. Loss from equity method investments
increased
Income tax expense. Income tax expense increased in the three months endedJune 30, 2020 from the three months endedJune 30, 2019 , primarily due to an increase in deferred taxes associated with goodwill which were partially offset by a reduction in the Company's expected state tax expense. Loss attributable to noncontrolling interest. During the three months endedJune 30, 2019 and 2020, we recorded a$1.7 million and$0.3 million loss, respectively, for the noncontrolling interest in the net loss of NG Advantage. The noncontrolling interest in NG Advantage represents a 35.4% and 6.7% minority interest that was held by third parties during the 2019 and 2020 periods, respectively.
Six Months Ended
Six Months Ended June 30,
2019 2020
Statements of Operations Data:
Revenue:
Product revenue 85.4 % 86.5 %
Service revenue 14.6 13.5
Total revenue 100.0 100.0
Operating expenses:
Cost of sales (exclusive of depreciation and amortization
shown separately below):
Product cost of sales 63.0 54.7
Service cost of sales 7.9 8.1Change in fair value of derivative warrants 1.1 - Selling, general and administrative 24.2
24.1
Depreciation and amortization 16.7 16.4
Total operating expenses 112.9 103.3
Operating loss (12.9) (3.3)
Interest expense (2.5) (2.8)
Interest income 0.8 0.4
Other income, net 1.8 1.7Loss from equity method investments (0.3)
(0.2)
Loss before income taxes (13.1) (4.2)
Income tax expense (0.1) (0.1)
Net loss (13.2) (4.3)Loss attributable to noncontrolling interest 2.4
0.8
Net loss attributable toClean Energy Fuels Corp. (10.8) %
(3.5) %
Revenue. Revenue decreased by $4.1 million to $145.9 million in the six months
ended June 30, 2020 , from $150.0 million in the six months ended June 30, 2019 .
This decrease was primarily due to a decrease in volume-related revenue,
partially offset by a favorable change in fair value of our commodity swap and
customer contracts entered into in connection with our Zero Now truck financing
program, increased station construction sales and AFTC revenue that did not
exist in the prior year period.
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Volume-related revenue, excluding the impact of the change in fair value of our commodity swap and customer contracts entered in connection with our Zero Now truck financing program, decreased by$24.2 million between periods, attributable to a decrease in gallons delivered, and a lower effective price per gallon delivered. The impact to volume-related revenue as a result of the change in fair value of our commodity swap and customer contracts entered into in connection with our Zero Now truck financing program was$8.6 million , as we recognized an unrealized loss of$(4.4) million in 2019 compared to an unrealized gain of$4.2 million in 2020 (see Note 6 for more information). Our effective price per gallon charged decreased by$0.11 per gallon to$0.64 per gallon in the six months endedJune 30, 2020 compared to$0.75 per gallon in the six months endedJune 30, 2019 , excluding the effect of the change in fair value of derivative instruments discussed above. Our effective price per gallon is defined as revenue generated from selling RNG, CNG, LNG and any related RINs and LCFS Credits and providing O&M services to our vehicle fleet customers at stations we do not own and for which we receive a per-gallon or fixed fee, all divided by the total GGEs delivered less GGEs delivered by non-consolidated entities, such as entities that are accounted for under the equity method. The decrease in our effective price per gallon was due to decreases in natural gas prices and the fuel price mix, which is based on the variation of fuel types and locations where we deliver fuel.
Station construction sales increased by
AFTC revenue increased by$9.8 million between periods due to the absence of AFTC in the six months endedJune 30, 2019 . We recognized AFTC revenue for the vehicle fuel we sold in 2018 and 2019 in the three months endedDecember 31, 2019 . Cost of sales. Cost of sales decreased by$15.0 million to$91.5 million in the six months endedJune 30, 2020 , from$106.4 million in the six months endedJune 30, 2019 . This decrease was primarily due to a decrease in gallons delivered, a decrease in natural gas commodity costs due to the decrease in natural gas prices, and a$0.4 million decrease in the cost of station construction activities. Our effective cost per gallon decreased by$0.06 per gallon to$0.43 per gallon in the six months endedJune 30, 2020 from$0.49 per gallon in the six months endedJune 30, 2019 . Our effective cost per gallon is defined as the total costs associated with delivering natural gas, including gas commodity costs, transportation fees, liquefaction charges, and other site operating costs, plus the total cost of providing O&M services at stations that we do not own and for which we receive a per-gallon or fixed fee, including direct technician labor, indirect supervisor and management labor, repair parts and other direct maintenance costs, all divided by the total GGEs delivered less GGEs delivered by non-consolidated entities, such as entities that are accounted for under the equity method. The decrease in our effective cost per gallon was due to decreases in natural gas prices and transportation costs. Change in fair value of derivative warrants. Change in fair value of derivative warrants, all of which were issued by our subsidiary, NG Advantage, changed by$1.6 million to a gain of$0.0 million in the six months endedJune 30, 2020 , from an expense of$1.6 million in the six months endedJune 30, 2019 , due to a change in the estimated fair value. The warrants expired onJuly 2, 2020 . Selling, general and administrative. Selling, general and administrative expenses decreased by$1.2 million to$35.2 million in the six months endedJune 30, 2020 , from$36.4 million in the six months endedJune 30, 2019 . This decrease was primarily driven by reduced activities and cost reductions due to the effect of COVID-19, including lower advertising and travel expenses. Depreciation and amortization. Depreciation and amortization decreased by$1.1 million to$24.0 million in the six months endedJune 30, 2020 , from$25.1 million in the six months endedJune 30, 2019 , primarily due to a lower amount of depreciable assets. Interest expense. Interest expense increased by$0.3 million to$4.1 million in the six months endedJune 30, 2020 , from$3.7 million in the six months endedJune 30, 2019 . This increase was primarily due to an increase in outstanding indebtedness on the SG Facility between periods. 36
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Other income, net. Other income, net decreased$0.3 million from$2.8 million in the six months endedJune 30, 2019 to$2.5 million in the six months endedJune 30, 2020 . This decrease was primarily due to lower gains recorded from the disposal of certain assets.
Loss from equity method investments. Loss from equity method investments
decreased
Income tax expense. Income tax expense increased in the six months endedJune 30, 2020 from the six months endedJune 30, 2019 , primarily due to an increase in deferred taxes associated with goodwill which were partially offset by a reduction in the Company's expected state tax expense. Loss attributable to noncontrolling interest. During the six months endedJune 30, 2019 and 2020, we recorded a$3.6 million and$1.1 million loss, respectively, for the noncontrolling interest in the net loss of NG Advantage. The noncontrolling interest in NG Advantage represents a 35.4% and 6.7% minority interest that was held by third parties during the 2019 and 2020 periods, respectively.
Liquidity and Capital Resources
Liquidity
Liquidity is the ability to meet present and future financial obligations through operating cash flows, the sale or maturity of investments or the acquisition of additional funds through capital management. Our financial position and liquidity are, and will continue to be, influenced by a variety of factors, including the level of our outstanding indebtedness and the principal and interest we are obligated to pay on our indebtedness, which could be influenced by the potential discontinuance of LIBOR for certain of our debt instruments that tie interest rates to this metric; the amount and timing of any additional debt or equity financing we may pursue; our capital expenditure requirements; any merger, divestiture or acquisition activity; and our ability to generate cash flows from our operations. We expect cash provided by our operating activities to fluctuate as a result of a number of factors, including our operating results and the factors that affect these results, including the amount and timing of our natural gas vehicle fuel sales, station construction sales, sales of RINs and LCFS Credits and recognition of government credits, the effects of COVID-19, grants and incentives, if any; fluctuations in commodity, station construction and labor costs and natural gas, RIN and LCFS Credit prices; variations in the fair value of certain of our derivative instruments that are recorded in revenue; and the amount and timing of our billing, collections and liability payments.
Cash Flows
Cash provided by operating activities was$49.8 million in the six months endedJune 30, 2020 , compared to$8.8 million in the comparable 2019 period. The increase in cash provided by operating activities was primarily attributable to collection of 2018 and 2019 AFTC receivables, changes in working capital resulting from the timing of receipts and payments of cash, and the decrease in net loss in the six months endedJune 30, 2020 from the comparable 2019 period, partially offset by$7.8 million used to terminate a contract between NG Advantage and BP. Cash provided by investing activities was$43.6 million in the six months endedJune 30, 2020 , compared to$3.0 million provided by investing activities in the comparable 2019 period. The increase in cash provided by investing activities was primarily attributable to an increase in maturities and sales of short-term investments from the comparable period in 2019, partially offset by a decrease in proceeds from property and equipment disposals. Cash used in financing activities was$63.2 million in the six months endedJune 30, 2020 , compared to$0.0 million provided by financing activities in the comparable 2019 period. The increase in cash used in financing activities was primarily attributable to an increase in repayment of debt instruments and finance lease obligations due to repayment of the 7.5% Notes and repurchases of common stock during the six months endedJune 30, 2020 , partially offset by a decrease in proceeds from debt instruments. 37
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Capital Expenditures, Indebtedness and Other Uses of Cash
We require cash to fund our capital expenditures, operating expenses and working capital and other requirements, including costs associated with fuel sales; outlays for the design and construction of new fueling stations; additions or other modifications to existing fueling stations; RNG production; debt repayments and repurchases; repurchases of common stock; purchases of CNG tanker trailers and natural gas heavy-duty trucks; maintenance of LNG production facilities; supporting our operations, including maintenance and improvements of our infrastructure; supporting our sales and marketing activities, including support of legislative and regulatory initiatives; financing natural gas vehicles for our customers; any investments in other entities; any mergers or acquisitions; pursuing market expansion as opportunities arise, including geographically and to new customer markets; and to fund other activities or pursuits and for other general corporate purposes. Our business plan originally called for approximately$18.0 million in capital expenditures for all of 2020. However, due to the impact of COVID-19, we reduced our anticipated capital expenditures for 2020 to$14.0 million for our core business. These planned capital expenditures primarily relate to the construction of CNG fueling stations, IT software and equipment and LNG plant costs, and we expect to fund these expenditures primarily through cash on hand and cash generated from operations. We may also deploy capital for investments in RNG production. For the six months endedJune 30, 2020 , our capital expenditures were approximately$4.8 million , and we may not spend the full$14.0 million in 2020. In addition, we previously anticipated that NG Advantage may spend as much as$12.8 million in 2020 for capital expenditures. However, due to the impact of COVID-19, we reduced NG Advantage's anticipated capital expenditures to$2.0 million . These planned capital expenditures primarily relate to purchases of additional equipment in support of its operations and customer contracts; although NG Advantage has sought financing from third parties for capital expenditures, we have provided and may continue to provide financing for these capital expenditures. For the six months endedJune 30, 2020 , NG Advantage's capital expenditures were approximately$1.5 million , and NG Advantage may not spend the full$2.0 million in 2020. We had total indebtedness, consisting of our debt and finance leases, of approximately$40.4 million in principal amount as ofJune 30, 2020 , of which approximately$3.4 million ,$7.1 million ,$7.2 million ,$12.3 million ,$10.1 million , and$0.3 million is expected to become due in 2020, 2021, 2022, 2023, 2024 and thereafter, respectively. We expect our total interest payment obligations relating to this indebtedness to be approximately$4.8 million in 2020,$3.3 million of which had been paid when due as ofJune 30, 2020 . We plan to and are able to make all expected principal and interest payments in the next 12 months. We also have indebtedness, including the amount representing interest, from our operating leases of approximately$43.5 million as ofJune 30, 2020 , of which approximately$2.7 million ,$4.6 million ,$3.7 million ,$3.7 million ,$3.7 million and$25.1 million is expected to become due in 2020, 2021, 2022, 2023, 2024 and thereafter, respectively. In addition, in connection with implementing our Zero Now truck financing program, we have entered into agreements that permit us to incur a material amount of additional debt on a delayed draw basis and obligate us to make interest and other fee payments that vary in amount depending on the outstanding principal of this debt and certain other factors; none of this potential debt nor the related interest and other payments are included in the foregoing estimates, other than the principal amount of$4.6 million drawn as ofJune 30, 2020 . Although we believe we have sufficient liquidity and capital resources to repay our debt coming due in the next 12 months, we may elect to pursue alternatives, such as refinancing or debt or equity offerings, to increase our cash management flexibility.
We intend to make payments under our various debt instruments when due and pursue opportunities for earlier repayment and/or refinancing if and when these opportunities arise.
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Sources of Cash
Historically, our principal sources of liquidity have consisted of cash on hand;
cash provided by our operations, including, if available, AFTC and other
government credits, grants and incentives; cash provided by financing
activities; and sales of assets. As of June 30, 2020 , we had total cash and cash
equivalents and short-term investments of $95.7 million , compared to $106.1
million as of December 31, 2019 .
We expect cash provided by our operating activities to fluctuate depending on
our operating results, which can be affected by the factors described above, as
well as the other factors described in this MD&A and Part II, Item 1A. Risk
Factors of this report.
In October 2018 and January 2019 , we entered into agreements to implement our
Zero Now truck financing program, which permit us to incur up to an additional
$100.0 million of indebtedness through the beginning of January 2022 , obligate
us to make certain interest and other fee payments in connection with this debt
and THUSA's related guaranty (which payments will vary in amount but will be
owed by us regardless of the revenue we may receive from the program), and
subject us to potential additional payments in connection with related commodity
swap arrangements. We are permitted to use any proceeds we receive under these
agreements solely to fund the incremental cost of trucks purchased or financed
by operators that participate in the Zero Now program. See Note 12 for more
information.
See Note 12 for more information about all of our outstanding debt.
We believe our cash and cash equivalents and short-term investments and anticipated cash provided by our operating and financing activities will satisfy our expected business requirements for at least the 12 months following the date of this report. Subsequent to that period, we may need to raise additional capital to fund any planned or unanticipated capital expenditures, investments, debt repayments, share repurchases or other expenses that we cannot fund through cash on-hand, cash provided by our operations or other sources. Moreover, we may use our cash resources faster than we predict due to unexpected expenditures, the effects of COVID-19 or higher-than-expected expenses, in which case we may need to seek capital from alternative sources sooner than we anticipate. The timing and necessity of any future capital raise would depend on various factors, including our rate and volume of, and prices for, natural gas sales and other volume-related activity, the effects of COVID-19, new station construction, debt repayments (either before or at maturity) and any potential mergers, acquisitions, investments, divestitures or other strategic relationships we may pursue, as well as the other factors that affect our revenue and expense levels as described in this MD&A and elsewhere in this report. We may seek to raise additional capital through one or more sources, including, among others, selling assets, obtaining new or restructuring existing debt, obtaining equity capital, or any combination of these or other potential sources of capital. We may not be able to raise capital when needed, on terms that are favorable to us or our stockholders or at all. Any inability to raise necessary capital may impair our ability to develop and maintain natural gas fueling infrastructure, invest in strategic transactions or acquisitions or repay our outstanding indebtedness and may reduce our ability to support and build our business and generate sustained or increased revenue.
Off-Balance Sheet Arrangements
As ofJune 30, 2020 , we had the following off-balance sheet arrangements that have had, or are reasonably likely to have, a material current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources:
? Outstanding surety bonds for construction contracts and general corporate
purposes totaling
? Two long-term natural gas purchase contracts with a take-or-pay commitment;
? Quarterly fixed price natural gas purchase contracts with take-or-pay
commitments;
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? One long-term natural gas sale contract with a fixed supply commitment along
with a guaranty agreement; and
? One long-term natural gas sale contract with a fixed supply commitment.
We provide surety bonds primarily for construction contracts in the ordinary course of our business, as a form of guarantee. No liability has been recorded in connection with our surety bonds because, based on historical experience and available information, we do not believe it is probable that any amounts will be required to be paid under these arrangements for which we will not be reimbursed. As ofJune 30, 2020 , we had two long-term natural gas purchase contracts with a take-or-pay commitment, which require us to purchase minimum volumes of natural gas at index-based prices and expire inDecember 2020 andJune 2022 , respectively. Additionally, as ofJune 30, 2020 , we had quarterly fixed-price natural gas purchase contracts with take-or-pay commitments extending throughJune 2023 . NG Advantage has entered into an arrangement with BP for the supply, sale and reservation of a specified volume of CNG transportation capacity untilMarch 2022 . InJune 2020 , we paid BP$7.8 million to terminate a portion of the forgoing arrangement. In connection with the arrangement, onFebruary 28, 2018 , we entered into a guaranty agreement with NG Advantage and BP in which we guarantee NG Advantage's payment obligations to BP in the event of a default by NG Advantage under the supply arrangement, in an aggregate amount of up to$30.0 million plus related fees, which was reduced to$15.0 million effectiveJune 24, 2020 . Our guaranty is in effect until thirty days following our notice to BP of termination.
In addition, as of
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