Clean Energy Fuels - Bright Future Ahead?

| About: Clean Energy (CLNE)

Summary

The company drastically reduced debt in 2015.

Its fuel gallon margins were up 24% in recent quarterly report.

Clean Energy's SG&A expenses dropped 15% in Q1 2016.

Clean Energy Fuels (NASDAQ:CLNE) provides natural gas as an alternative fuel for cars and trucks in the United States and Canada. The company supplies compressed natural gas (CNG), liquefied natural gas (LNG), and renewable natural gas (RNG) for light, medium and heavy-duty vehicles. They also build and operate fueling stations. CLNE manufactures, sells and services non-lubricated natural gas fueling compressors and other equipment used in CNG stations and LNG stations. As of year-end 2015, it serviced approximately 986 fleet customers operating approximately 44,152 natural gas vehicles. Approximately 570 natural gas fueling stations in 42 states in the United States, along with British Columbia and Ontario in Canada are maintained by them as well.

Clean Energy has its strong points, even though the pundits are typically turning their noses up to it. It's one thing when the environmentalists are saying that natural gas is better than regular gasoline, but it's entirely different when CEOs of transportation and trucking companies are saying it. Natural gas powers more than 12 million vehicles on the road today, of which 250,000 are being used in the USA. The domestic growth rate is around 4% since 2000 compared with a 31% global growth boom.

By expanding the number of CNG stations, it would allow more vehicles on the road. There are 12,000 stations around the globe but only 500 public stations here in the U.S. With all the new technology and increased demand, the number of stations is climbing. American interest in CNG is rising as well. It costs about 50% less than gasoline or diesel, and emits up to 90% fewer emissions than gasoline, and there's an abundant supply right here in America. How bad is clean, affordable and American?

A few Fortune 500 companies have gotten on the clean fuel bandwagon. United Parcel Service (NYSE:UPS) purchased 700 new LNG tractors back in 2014 as they saw the benefits of lower fuel prices, 25% lower emissions, growing domestic supply, an average of 600-mile range with no route limitations, and a shift toward energy independence from fossil fuels for heavy trucks. Another company, Ryder System (NYSE:R), the vehicle lessor, has partnered with CLNE to deliver renewable natural gas fuels, both compressed and liquid. Ryder has been leasing natural gas powered trucks to multiple industries. Anheuser-Busch Inbev (NYSE:BUD) has converted their entire Missouri-based 100-truck fleet to CNG after doing so with its smaller fleet in Texas.

In fact, according to Pike Research, commercial vehicles running on natural gas instead of gasoline/diesel should reach one million in annual sales by 2019. If compared to diesel engines, natural gas actually provides a financial benefit. The higher incremental cost of a natural gas vehicle is typically recovered because of lower fuel costs, within two to seven years. If you take a look at this link you can see some of the many contracts CLNE has secured in the past four months.

Here are some of the bright spots in the CLNE earnings report that was released last week:

  • Gallon deliveries up 3%
  • SG&A expenses down 15% from last year
  • Debt reduced almost $74 million since Q1
  • Revenues up 12%
  • Net income of $.03 vs. ($.34) compared to 2015
  • Adjusted EBITDA $30 million vs. -$5.6 million

What I liked about the report was the break in a streak of revenue declines, which were tied to lower fuel prices, not business decline. CLNE also went from regular GAAP profit and adjusted EBITDA losses to positive earnings for the quarter. The quarter ended with a balance of $85 million on a note due in August 2016, that is down from $150 million - the result of paydown and refinancing with revolving credit. Fuel gallon margins jumped around 24%, the key to that was the increased volume of Redeem, which is CLNE's brand name for renewable natural gas. This positive quarter is by no means a sign that CLNE is out of the woods yet. Keep in mind that $32 million of the $53 million that they added to the balance sheet were from 2015 VETC tax credits. CLNE records its VETC credits as revenue in its consolidated statements of operations because they are fully refundable and do not need to offset income tax liabilities to be received.

I also like the station expansion program currently in place. CLNE has plans to construct more than 60 new contracted stations. This will provide substantial revenue and earnings when the company sells these stations to customers, but will also add revenue from future fuel sales, as well as long-term support/maintenance agreements and operations. CLNE ended the quarter with $163 million in cash and other assets, up $17 million. Debt and capital lease obligations due in less than a year dropped $10 million, and LT capital and other lease obligations declined an additional $33 million. From where I am sitting, it seems that management's efforts to slash costs and focus their attention on profitability since station expansion are working well.

In my opinion, it has been a slow change in terms of the mindset of Americans to embrace renewable energy, which is fine. A couple of good quarters of earnings and a rebound in this stock aren't going to change that either. CLNE is down 61% in the past 52 weeks. It is hard to compare considering they have no competition. There is also a 16% short position in the stock. I feel the next two quarters are critical for Wall Street to see that CLNE isn't just another renewable flash in the pan, and that management has a foothold on growing this business across the nation - and making a few more believers out of it as well.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.