After the close on Wednesday, Clean Energy Fuels Corp. (CLNE) reported a surprising profit for Q113 that sent the stock soaring in after hours trading. By the time the market opened on Thursday, the stock opened down and eventually lost 4.3% for the day. As investors quickly found out from reading the details, the profits only occurred due to the collection of $20.8 million of VTEC revenues for all of 2012 that the company didn't exclude from the non-GAAP numbers.
Per the company, it is the largest provider of natural gas fuel for transportation in North America and a global leader in the expanding natural gas vehicle fueling market. Unfortunately though, that market isn't building out nearly fast enough to make this company profitable. The margins remain razor thin as Clean Energy is forced to pass along all the costs savings of using natural gas to the customers.
The profits and positive EBITDA though alluded to by the company all through the report didn't sit well with investors that quickly deducted the $20.8 million VTEC revenue from 2012 for all of the Q1 numbers. The numbers quickly turned back into the losses alluded to in a previous article (see As Predicted, Larger Losses At Clean Energy Fuels).
Gallons Delivered Only Increase 14%
Though investors know that the delivery of the Cummins (CMI) - Westport Innovations (WPRT) 12-liter engines are now on track for production deliveries by the end of the year, the market generally expects more than 14% growth in gallons delivered. Every quarter, Clean Energy lists a dizzying amount of new projects from airports to refuse stations, yet the numbers never seem to add up on the actual gallons delivered and consequently the top and bottom lines. Especially considering the CEO gave a great example of how stations open with around 20 trucks and eventually progress to 100 or more. In theory, the company wouldn't even need to open new stations to increase gallons delivered.
The gallons delivered actually declined from 51.7 million in Q412 to 49.9 million in Q113. The amount is only up 14% from the 43.7 million in Q112. Even more depressing is the total is only up 25% from the 40.0 million in Q411. Undoubtedly investors expected a substantially larger increase over that period.
Some examples from the earnings call of new deals:
- Acquired Mansfield's 43 service contracts and 20 new construction contracts.
- Ten refuse stations currently in construction and 42 letters of agreement for stations.
- Finalizing master construction agreement with Progressive Waste Services, third largest solid waste company in North America
- Selected by Chicago O'Hare Airport to build a CNG station while finishing station projects at Newark, JFK, Reagan National, Dallas and Orlando airports.
- Taking over operations for six CNG sites owned by PECO, a large utility in Philadelphia area.
- The core markets of airport, taxi, and shuttle have 48 projects in various stages of design, permitting, and construction.
- UPS plans to increase LNG trucks from 112 to 800 over the next year and a half that will require new stations.
While not a complete list, the above list covers a good majority of the projects the company is undertaking at the moment. Not to mention, it hardly covers any of the work being done on the Natural Gas Highway network.
Q1 2013 Highlights
The company provided the following highlights for Q1 2013:
- Gallons delivered for the first quarter of 2013 totaled 49.9 million gallons, up 14% from 43.7 million gallons delivered in the same period a year ago.
- Revenue for the fourth quarter ended March 31, 2013 was $93.0 million, which is up from $73.6 million in the first quarter of 2012.
- Adjusted EBITDA for the first quarter of 2013 was $20.0 million. This compares with adjusted EBITDA of $(2.0) million in the first quarter of 2012.
- Non-GAAP earnings per share for the first quarter of 2013 was $0.03, compared with a non-GAAP loss per share for the first quarter of 2012 of $0.16.
All of the non-GAAP and adjusted EBITDA numbers should exclude the $20.8 million for the VTEC revenue attributable to 2012. It isn't clear why the company failed to provide pro-forma numbers for a valid comparison for the first quarters of both years assuming the credit was applied as earned. Based on simple math, the adjusted EBITDA would've been a negative $0.8 million for the first quarter.
The most important numbers are the gallons delivered and the revenue excluding VTEC and construction. Eliminating the construction revenue from both periods (declined $12.2 million in Q113) and the $26.2 million VTEC reported in Q113, the revenue only grew from $58.5 million last year to $63.9 million in the last quarter.
The major concern with the Clean Energy investment is the very low margins on each gallon. The company only earned $0.28 in the last quarter per gallon delivered. For anybody excited about the conversion of the transportation system to natural gas should quickly lose interest in the investment thesis based on that number. Or at the very least the investment should be questioned to a much greater detail.
The company always touts the big difference between the fuel prices of natural gas and diesel for trucks. The current variance is a massive $2.50 with Clean Energy selling LNG at an average price of around $1.50. The problem is that all of the savings go to the trucking company and not Clean Energy. It doesn't portend a great return for the company if the fuel is always sold based on natural gas prices and not a discount to diesel.
The stock still remains in a tight pattern in the $12 to $14 range. For nearly a year now, it has traded virtually between that range with the 200ema slopping downwards. If the stock was to break above the 200ema at $13.38, investors might want to jump aboard for a possible break higher. While a debate exists on whether the stock will ever benefit from the building of America's Natural Gas Highway, if traders are convinced, the stock could eventually soar back to $24 like it did at the beginning of 2012. See the 18-month chart below:
The new Cummins - Westport engine promises to be a game changer in the long-haul trucking industry yet it can't get here fast enough for Clean Energy that already has an elaborate network of LNG stations waiting on trucks. In addition, the company continues to expand at a rapid rate in the airport, refuse, and transit markets, yet the growth never shows up in the numbers for the company.
The limited margin obtained per gallon delivered eliminates the whole benefit of the excitement about the new fuel concept. Unfortunately, the revolutionary transportation fuel doesn't provide premium margins for the company. At the end of the day, the announced profits were quickly turned into stock losses.
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