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While Clean Energy Fuels Corp. (CLNE) continues to promise a future of fueling stations offering cheap CNG and LNG fuels, the company continues to bleed cash. In fact while the company reported selling 24% more gallons of fuel in Q3 2012, the gross margin only slightly expanded over 2011 while the operating loss expanded. The massive growth isn't leading to any margin expansion yet.

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.

Though the company is busy building out the proclaimed America's Natural Gas Highway, the market isn't ready for it yet. The long haul trucking industry is still waiting for the 11.9-liter Cummins Westport engine and the 13-liter Volvo engine. Amongst other reasons, the company hasn't opened the majority of the highway stations completed so far.

Q3 2012 Highlights

The company reported the following highlights for Q3 2012:

  • Gallons delivered for the third quarter of 2012 totaled 50.9 million gallons, up 24% from 40.9 million gallons delivered in the same period a year ago.
  • Revenue for the third quarter ended September 30, 2012 was $91.5 million, which is up from $72.1 million in the third quarter of 2011.
  • Adjusted EBITDA for the third quarter of 2012 was $(3.1) million. This compares with adjusted EBITDA of $1.8 million in the third quarter of 2011.
  • Gross margin in the third quarter of 2012 was $20.2 million, which compares to $19.3 million in 2011.
  • The margin per gallon this quarter was $0.28 per gallon, which is down $0.01 from the prior quarter.

The company reported in-line losses with revenue beating consensus by $10M.

Core fueling revenue was only $37M in the quarter compared to $32.5M last year. All of the construction revenue masks that the company still doesn't generate significant revenues from actually selling fuel. This situation highlights how the cheaper fuel actually benefits the users and hinders revenue and margin totals for the company.

National Gas Highway

The highway remains on track though the company was a lot more forthcoming on the engine impacts this time around. Or maybe this analyst finally understood the impacts. Previously the discussion centered more on the construction of the highway stations while now the conversation focused more on the delayed openings of the completed stations until new engines are ready.

Currently, the company has completed 48 of the highway stations with 21 more stations under construction. Another 12 are in various stages of entitlement, design, and permitting. This places the company on track to complete the goal of 70 stations by year-end.

Unfortunately though, the company only has demand to open 20 of those completed stations so far. Below is the more recent map available on the Clean Energy website that fails to highlight stations completed and not open.

click to enlarge images

Engine Impact

The new engine from Cummins Inc. (CMI) and Westport Innovations (WPRT) will have a greater impact than originally acknowledged. While the company has long asserted that new engines coming out in 2013 were needed to help further adoption of natural gas fueling, the Q3 earnings call was more clear that the new Cummins Westport 11.9-liter engine would greatly impact the use of the highway stations.

The expectation is that the engine will be available starting in February, but that by the time OEMs receive the engines and test them the actual usage won't ramp until Q4. The current stations are not only 3-4 months ahead of schedule, but it could ultimately be a year before the new engine leads to surging demand.

Stock Price

The price action of Clean Energy remains weak with the stock hitting recent lows around $11. The stock had surged to over $24 back in March, but now trades at the lows for the last 12 months

1 Year Chart - Clean Energy

Conclusion

As highlighted in the last article, Clean Energy remains on the bleeding edge of the new natural gas fueling concept. Though the company is correct that building the highway stations is a prerequisite for attracting customers, it also highlights the issue for investors. The company is funding the adoption of the concept, but it also is bleeding cash to obtain these goals.

Another big issue that remains with Clean Energy is that volumes are soaring, but the majority of the increases appear tied into new fueling stations and not so much same store sales. The company has a lot of moving parts with all the new stations and contracts, but the financials aren't showing the same reason for enthusiasm as the growth potentials.

Clean Energy remains an interesting concept worthy of investor attention. Until the company is able to report stronger financial reports, the stock isn't investable at this point.

Disclaimer: Please consult your financial advisor before making any investment decisions.

Source: Clean Energy Still Bleeding Too Much Gas