Natural gas refueling leaderClean Energy Fuels Corp. announced third-quarter financial results on Nov. 5, reporting another quarter of double-digit growth in fuel sales, and improving in several key cash-flow and profitability metrics.
Has the company turned the corner? Not quite yet, but there's a lot to like in the company's latest earnings release. Let's take a look at the company's performance, and what it means going forward.
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Numbers except earnings per share in millions.
Because of the makeup of Clean Energy's business, those results need a little context. Clean Energy's core business is selling natural gas for transportation, but the company is also a leading expert in building, maintaining, and running stations and also owns a compressor manufacturing business. Revenue by segment breaks down as follows:
Numbers in millions.
Even with natural gas selling for about 40% less than it was in the same quarter in 2014, Clean Energy's growth in fuel volumes led to a 6.7% increase in fuel-volume revenue. However, the boom in station building work that Clean Energy was contracted for in 2014 has slowed in 2015, while Clean Energy's Compression manufacturing business has largely suffered from weak demand in overseas markets, especially China.
This context is important because the fuel sales business is largely recurring revenue. Once a Clean Energy customer implements a natural gas vehicle into its fleet, that vehicle will generate revenue for five to 10 years in most cases. The station building and compression businesses, however, are much more cyclical in nature, driven to a larger extent by macroeconomic trends that don't affect the refueling business.
What happened in the quarter
- Clean Energy reached a big milestone in the quarter, reporting adjusted EBITDA of $3.1 million. In short, that means the company generates positive cash flow before taxes, interest, and non-cash impacts from depreciation and amortization. It's important to note that $2.4 million of that figure was a one-time payout from last year's sale of a biogas production facility that won't repeat. In other words, the "adjusted adjusted" EBITDA result was more like $700,000 in the quarter -- a noteworthy improvement from the second quarter's $2.6 million adjusted EBITDA loss, and last year's $2 million loss.
- Gross margin per gallon of $0.26 was down slightly from $0.28 last year -- a notably strong performance considering the 40% drop in natural gas prices.
- Sales of Redeem, Clean Energy's brand name for renewable biogas sold as transportation, nearly tripled from 13 million to 36 million gallons versus last year's quarter.
- Fuel sales by market were as follows: Refuse increased 29%, transit/fleet services increased 3%, trucking increased 13%, and NG Advantage (which sells natural gas to industrial users) increased 287%.
- Cash and short-term investments were $165.9 million, down $15.9 million from $181.9 million at the start of the quarter. Cash burn remains a concern.
- The company has spent significantly less on capital expenditures in 2015, reporting $40 million to date, versus $75 million through the same period in 2014.
- Sales, general, and administrative expenses fell 2% from last year and 4% sequentially.
What management saidCo-founder and CEO Andrew Littlefair, on the current state of demand in the face of low diesel prices:
On the balance sheet and operational efficiency:
On reducing debt:
Looking aheadAs much as diesel and gasoline prices have fallen, taking a big bite out of the cost benefit of natural gas, Clean Energy has continued to grow fuel sales at a steady clip, while also cutting operating expenses and capex. And while the company did report a $23 million loss, $14 million of that amount was non-cash depreciation and amortization, and cash from operations was $1.85 million in the quarter. Debt expense of $10.1 million last quarter remains a big drain, but that amount will fall by about 25% in coming months, moving the company about $2.5 million closer to cash-flow positive status.
The wild card: Can the company continue growing fuel sales at double-digit rates?
Most estimates are projecting 2016 natural gas vehicle sales to be flat with this year. However, the majority of those will be replacing diesel and gas vehicles, meaning the natural gas pie will grow larger. That's good news for Clean Energy. How good? Only time will tell.
The article Clean Energy Fuels Corp. Continues Double-Digit Growth: Key Takeaways From Earnings originally appeared on Fool.com.
Jason Hall owns shares of Clean Energy Fuels and Waste Management. The Motley Fool owns shares of Waste Management. The Motley Fool recommends Clean Energy Fuels and United Parcel Service. Try any of our Foolish newsletter services free for 30 days. 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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