Notes to Condensed Consolidated Financial Statements
(In thousands, except share and per share data, Unaudited)
Note 1—General
Nature of Business
Clean Energy Fuels Corp., together with its majority and wholly owned subsidiaries (hereinafter collectively referred to as the “Company,” unless the context or the use of the term indicates or requires otherwise) is engaged in the business of selling natural gas as an alternative fuel for vehicle fleets and related natural gas fueling solutions to its customers, primarily in the United States and Canada.
The Company’s principal business is supplying renewable natural gas (“RNG”), compressed natural gas (“CNG”) and liquefied natural gas (“LNG”) (RNG can be delivered in the form of CNG or LNG) for light, 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, the Company also designs, builds, operates and maintains fueling stations; sells and services natural gas fueling compressors and other equipment used in CNG stations and LNG stations; offers assessment, design and modification solutions to provide operators with code-compliant service and maintenance facilities for natural gas vehicle fleets; transports and sells CNG and LNG via “virtual” natural gas pipelines and interconnects; procures and sells RNG; sells tradable credits it generates 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 the California and the Oregon Low Carbon Fuel Standards (collectively, “LCFS Credits”); helps its customers acquire and finance natural gas vehicles; and obtains federal, state and local credits, grants and incentives. In addition, for all periods presented before March 31, 2017, the Company produced RNG at its own production facilities, and for all periods presented before December 29, 2017, the Company manufactured natural gas fueling compressors and other equipment used in CNG stations. See Notes
4
and
5
for more information.
Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries, and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Company’s consolidated financial position as of
September 30, 2018
, and results of operations and comprehensive loss for the
three and nine
months ended
September 30, 2017
and
2018
, and cash flows for the
nine
months ended
September 30, 2017
and
2018
. All intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the
three and nine
month periods ended
September 30, 2017
and
2018
are not necessarily indicative of the results to be expected for the year ending
December 31, 2018
or for any other interim period or for any future year.
Certain information and disclosures normally included in the notes to consolidated financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), but the resultant disclosures contained herein are in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) as they apply to interim reporting. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended
December 31, 2017
that are included in the Company’s Annual Report on Form 10-K filed with the SEC on March 13, 2018.
Reclassifications
During the
nine
months ended
September 30, 2018
, the Company adopted Accounting Standards Update (“ASU”) No. 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
(see Note
20
). The new standard requires restricted cash and restricted cash equivalents to be included as components of total cash and cash equivalents as presented on the statement of cash flows. As a result, the Company chose to also conform this classification on the accompanying condensed consolidated balance sheets. This resulted in prior period restricted cash of
$1,127
as of December 31, 2017 being reclassified into one line item with cash and cash equivalents to conform to presentation as of
September 30, 2018
. In addition, certain prior period amounts have been reclassified in the condensed consolidated statements of cash flows to conform to the current period presentation. These reclassifications had no material impact on the Company’s consolidated financial position, results of operations, or cash flows as previously reported.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying condensed consolidated financial statements
and these notes. Actual results could differ from those estimates and may result in material effects on the Company’s operating results and financial position. Significant estimates made in preparing the accompanying condensed consolidated financial statements include (but are not limited to) those related to revenue recognition, goodwill and long-lived asset impairment assessments, income tax valuations and fair value measurements.
Note
2
—Revenue from Contracts with Customers
Revenue Recognition Overview
The Company recognizes revenue when control of the promised goods or services is transferred to its customers, in an amount that reflects the consideration to which it expects to be entitled in exchange for the goods or services. In order to achieve that core principle, a five-step approach is applied: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue allocated to each performance obligation when the Company satisfies the performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account for revenue recognition.
The table below presents the Company’s revenues disaggregated by revenue source. The Company is generally the principal in its customer contracts as it has control over the goods and services prior to them being transferred to the customer, and as such, revenue is recognized on a gross basis. Sales and usage-based taxes are excluded from revenues. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
Volume -related
|
$
|
63,123
|
|
|
$
|
67,827
|
|
|
$
|
199,987
|
|
|
$
|
197,805
|
|
Station construction sales
|
12,502
|
|
|
9,359
|
|
|
34,077
|
|
|
20,938
|
|
Alternative fuels excise tax credit (“AFTC”)
|
—
|
|
|
—
|
|
|
—
|
|
|
26,863
|
|
Compressor sales
|
5,919
|
|
|
—
|
|
|
17,640
|
|
|
—
|
|
Other
|
248
|
|
|
134
|
|
|
595
|
|
|
4,584
|
|
|
$
|
81,792
|
|
|
$
|
77,320
|
|
|
$
|
252,299
|
|
|
$
|
250,190
|
|
Volume -Related
The Company’s volume -related revenue primarily consists of sales of RNG, CNG and LNG fuel, O&M services and RINs and LCFS Credits.
Fuel and O&M services are sold pursuant to contractual commitments over defined goods -and -service delivery periods. These contracts typically include a stand -ready obligation to supply natural gas and/or provide O&M services daily based on a committed and agreed upon routine maintenance schedule or when and if called upon by the customer.
The Company recognizes fuel and O&M services revenue in the amount to which the Company has the right to invoice. The Company has a right to consideration based on the amount of gasoline gallon equivalents of natural gas dispensed by the customer and current pricing conditions, which are typically billed to the customer on a monthly basis. Since payment terms are less than a year, the Company has elected the practical expedient which allows it to not assess whether a customer contract has a significant financing component.
Contract modifications are not distinct from the existing contract and are typically renewals of fuel and O&M service sales. As a result, these modifications are accounted for as if they were part of the existing contract. The effect of a contract modification on the transaction price is recognized prospectively.
The Company sells RINs and LCFS Credits (the “government credits”) to third parties that need the credits to comply with federal and state requirements. The government credits are considered variable consideration because they can either increase or decrease the transaction price based on volumes of vehicle fuel sold. Additionally, these government credits are constrained until there is an agreement in place to monetize the credits at a determinable price. Upon entering into such an agreement, the government credits are recognized as the constraint is removed.
Station Construction Sales
Station construction contracts are generally short-term, except for certain larger and more complex stations, which can take up to 24 months to complete. For most of the Company’s station construction contracts, the customer contracts with the
Company to provide a significant service of integrating a complex set of tasks and components into a single station. Hence, the entire contract is accounted for as one performance obligation.
The Company generally recognizes revenue over time as the Company performs under its station construction contracts because of the continual transfer of control of the goods to the customer, who typically controls the work in process. Revenue is recognized based on the extent of progress towards completion of the performance obligation and is recorded proportionally as costs are incurred. Costs to fulfill the Company’s obligations under these contracts typically include labor, materials and subcontractors’ costs, other direct costs and an allocation of indirect costs.
Refinements of estimates to account for changing conditions and new developments are continuous and characteristic of the process. Many factors that can affect contract profitability may change during the performance period of the contract, including differing site conditions, the availability of skilled contract labor, the performance of major suppliers and subcontractors, and unexpected changes in material costs. Because a significant change in one or more of these estimates could affect the profitability of these contracts, the contract price and cost estimates are reviewed periodically as work progresses and adjustments proportionate to the cost-to-cost measure of progress are reflected in contract revenues in the reporting period when such estimates are revised as discussed above. Provisions for estimated losses on uncompleted contracts are recorded in the period in which the losses become known.
Contract modifications are typically expansions in scope of an existing station construction project. As a result, these modifications are accounted for as if they were part of the existing contract. The effect of a contract modification on the transaction price and the Company’s measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue (either as an increase or a reduction) on a cumulative catch-up basis.
Under the typical payment terms of the Company’s station construction contracts, the customer makes either performance-based payments (“PBPs”) or progress payments. PBPs are interim payments of the contract price based on quantifiable measures of performance or the achievement of specified events or milestones. Progress payments are interim payments of costs incurred as the work progresses. For some of these contracts, the Company may be entitled to receive an advance payment. The advance payment typically is not considered a significant financing component because it is used to meet working capital demands that can be higher in the early stages of a construction contract and to protect the Company if the customer fails to adequately complete some or all of its obligations under the contract. In addition, the customer retains a small portion of the contract price until completion of the contract. Such retained portion of the contract price is not considered a significant financing component because the intent is to protect the customer.
In certain contracts with its customers, the Company agrees to provide multiple goods or services, including construction of and sale of a station, O&M services, and sale of fuel to the customer. These contracts have multiple performance obligations because the promise to transfer each separate good or service is separately identifiable and is distinct. This evaluation requires significant judgment and the decision to combine a group of contracts or separate the combined or single contract into multiple performance obligations could change the amount of revenue recognized in one or more periods.
The Company allocates the contract price to each performance obligation using best estimates of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate the standalone selling price for fuel and O&M services is observable standalone sales, and the primary method used to estimate the standalone selling price for station construction sales is the expected cost plus a margin approach because the Company sells customized customer -specific solutions. Under this approach, the Company forecasts expected costs of satisfying a performance obligation and then adds an appropriate margin for the good or service.
AFTC
See Note
19
for more information about AFTC. AFTC is considered variable consideration because it can either increase or decrease the transaction price based on volumes of vehicle fuel sold. Additionally, AFTC is not recognized as revenue until it is authorized through federal legislation, which also provides a determinable price. The Company recognizes revenue in the period the credit is authorized through federal legislation.
Compressor Sales
The Company completed the CEC Combination (as defined in Note
5
) during the year ended December 31, 2017 and no longer generates revenue from compressor sales.
Other
The majority of other revenue is from sales of used natural gas heavy -duty trucks purchased by the Company. Revenue on these contracts is recognized at the point in time when the customer accepts delivery of the truck.
Remaining Performance Obligations
Remaining performance obligations represents the transaction price of customer orders for which the work has not been performed. As of
September 30, 2018
, the aggregate amount of the transaction price allocated to remaining performance obligations was
$11,316
, which related to the Company’s station construction sale contracts. The Company expects to recognize revenue on the remaining performance obligations under these contracts over the next 12 to 24 months.
For volume -related revenue, the Company has elected to apply an optional exemption, which waives the requirement to disclose the remaining performance obligation for revenue recognized through the “right to invoice” practical expedient.
Costs to Fulfill a Contract
The Company capitalizes costs incurred to fulfill its contracts that (1) relate directly to the contract, (2) are expected to generate resources that will be used to satisfy the Company’s performance obligations under the contract, and (3) are expected to be recovered through revenue generated under the contract. Contract fulfillment costs are recorded to depreciation expense as the Company satisfies its performance obligations over the term of the contract. These costs primarily relate to set-up and other direct installation costs incurred by the Company’s subsidiary, NG Advantage LLC (“NG Advantage”), for equipment that must be installed on customers’ land before NG Advantage is able to deliver CNG to the customer because the customer does not have direct access to the natural gas pipelines. These costs are classified in “Land, property, and equipment, net” in the accompanying condensed consolidated balance sheets. As of
September 30, 2018
, these capitalized costs incurred to fulfill contracts were $
7,270
with accumulated depreciation of
$4,495
and related amortization of
$484
and $
1,490
for the
three and nine
months ended
September 30, 2018
.
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) in the accompanying condensed consolidated balance sheets. Changes in the contract asset and liability balances during the
nine
months ended
September 30, 2018
, were not materially impacted by any factors outside the normal course of business.
As of
December 31, 2017
and
September 30, 2018
, the Company’s contract balances were as follows:
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December 31, 2017
|
|
September 30, 2018
|
Receivables, net
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$
|
63,961
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|
|
$
|
69,822
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Contract Assets - Current
|
$
|
1,603
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$
|
550
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Contract Assets - Noncurrent
|
5,046
|
|
|
3,890
|
|
Contract Assets - Total
|
$
|
6,649
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|
|
$
|
4,440
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Contract Liabilities - Current
|
$
|
3,432
|
|
|
$
|
8,830
|
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Contract Liabilities - Noncurrent
|
13,413
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|
|
10,682
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Contract Liabilities - Total
|
$
|
16,845
|
|
|
$
|
19,512
|
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Receivables, Net
“Receivables, net” in the accompanying condensed consolidated balance sheets include amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value. The Company maintains an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, and the age of outstanding receivables.
Contract Assets
Contract assets include unbilled amounts typically resulting from the Company’s station construction sale contracts, when the cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer, and right to payment is not just subject to the passage of time. Amounts may not exceed their net realizable value. Contract assets are
classified as current or noncurrent based on the timing of billings. The current portion is included in “Prepaid expenses and other current assets” and the noncurrent portion is included in “Notes receivable and other long-term assets, net” in the accompanying condensed consolidated balance sheets.
Contract Liabilities
Contract liabilities consist of billings in excess of revenue recognized from the Company’s station construction sale contracts and deferred revenue when cash payments are received or due in advance of the Company’s performance obligation, which are generally for the Company’s volume -related revenue contracts. Billings in excess of revenue recognized of
$1,092
and
$3,255
are classified as current and are included in “Deferred revenue” in the accompanying condensed consolidated balance sheets as of
December 31, 2017
and
September 30, 2018
, respectively. Deferred revenue is classified as current or noncurrent based on when the revenue is expected to be recognized. The noncurrent portion of deferred revenue is included in “Other long -term liabilities” in the accompanying condensed consolidated balance sheets.
The increase in the contract liabilities balance for the
nine
months ended
September 30, 2018
is primarily driven by billings in excess of revenue recognized, offset by
$1,636
of revenue recognized related to the Company’s contract liability balances as of
December 31, 2017
.
Note
3
—Asset Impairments, Other Charges, and Inventory Valuation Provision
In light of continuing low oil prices and the current state of natural gas vehicle adoption, among other factors, during the three months ended September 30, 2017, the Company undertook an evaluation of its operations with the intent of minimizing and eliminating assets it believed were underperforming. As a result of this evaluation, the Company identified certain of its fueling stations where the current and projected natural gas volume and profitability levels were not expected to be sufficient to support the Company’s investment in the fueling station assets, and the Company decided to close these stations. The Company also reduced its workforce and took other steps to reduce overhead costs as a result of this evaluation, in an effort to lower its operating expenses going forward. In addition, this evaluation resulted in a strategic shift in how the Company viewed its natural gas compressor manufacturing business, operated by its then-subsidiary, Clean Energy Compression Corp. (“CEC”). In an effort to increase the scale and reach and improve the financial prospects of the Company’s investment in this business, the Company entered into an investment agreement with a strategic partner in November 2017, pursuant to which both parties combined their respective natural gas compressor manufacturing businesses (see Note
5
for more information). As a result of these decisions and the steps taken to implement them, the Company incurred, during the three months ended September 30, 2017 and on a pre-tax basis, aggregate cash and non-cash charges related to asset impairments and other charges, and a non-cash inventory valuation charge.
The following table summarizes these charges:
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Three and Nine Months Ended September 30, 2017
|
Workforce reduction and related charges
|
$
|
3,057
|
|
CEC asset impairments
|
32,274
|
|
Station closures and related charges
|
25,335
|
|
Total asset impairments and other charges
|
$
|
60,666
|
|
Inventory valuation provision
|
13,158
|
|
Total charges
|
$
|
73,824
|
|
Cash Charges
The following table summarizes the charges related to the foregoing that have been or will be settled with cash payments and their related liability balances as of December 31, 2017 and September 30, 2018, respectively:
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Charges
|
|
Cash Payments Made as of December 31, 2017
|
|
Balance as of December 31, 2017
|
|
Cash Payments Made as of September 30, 2018
|
|
Balance as of September 30, 2018
|
Employee severance
|
|
$
|
2,757
|
|
|
(2,757
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Lease termination fees and AROs for station closures
|
|
3,861
|
|
|
(70
|
)
|
|
3,791
|
|
|
(1,667
|
)
|
|
2,124
|
|
|
|
$
|
6,618
|
|
|
(2,827
|
)
|
|
$
|
3,791
|
|
|
(1,667
|
)
|
|
$
|
2,124
|
|
Note
4
—Divestitures
On February 27, 2017, Clean Energy Renewable Fuels (“Renewables”), a subsidiary of the Company, entered into an asset purchase agreement (the “APA”) with BP Products North America, Inc. (“BP”). Pursuant to the APA, Renewables agreed to sell to BP its assets relating to its RNG production business (the “BP Transaction”), consisting of Renewables’
two
RNG production facilities, Renewables’ interest in joint ventures formed with a third party to develop new RNG production facilities, and Renewables’ third-party RNG supply contracts (the “Assets”). The BP Transaction was completed on March 31, 2017 for a sale price of $
155,511
, plus BP assumed all
$8,820
of remaining obligations under the Canton Bonds (as defined in Note
13
).
On March 31, 2017, BP paid Renewables
$30,000
in cash and delivered to Renewables a promissory note with a principal amount of
$123,487
, which was paid in full on April 3, 2017. In addition, as a result of the determination of certain post-closing adjustments, (i) BP paid Renewables an additional
$2,010
on June 22, 2017, and (ii) the gain recorded from the BP Transaction was reduced by
$762
. Pursuant to the APA, the valuation date of the BP Transaction was January 1, 2017, and as a result, the APA included certain adjustments to the purchase price to reflect a determination of the amount of cash accumulated by Renewables from the valuation date to the closing date, net of permitted cash outflows. Control of the Assets was not transferred until the BP Transaction was completed on March 31, 2017. Accordingly, the full operating results of Renewables are included in the accompanying condensed consolidated statements of operations through the March 31, 2017 closing date.
In addition, under the APA, BP is required, following the closing of the BP Transaction, to pay Renewables up to an additional
$25,000
in cash over a
five
-year period if certain performance criteria relating to the Assets are met. The Company satisfied the performance criteria for the first such period, which ended on December 31, 2017, and as a result, the Company recognized a net gain of
$772
as of December 31, 2017, which is included in the total gain on the BP Transaction.
The Company incurred
$3,695
in transaction fees in connection with the BP Transaction, and the Company paid
$8,605
in cash and issued
770,269
shares of the Company’s common stock with a fair value of
$1,964
to former holders of options to purchase membership units in Renewables. The net proceeds from the BP Transaction were
$142,190
, net of
$1,007
cash transferred to BP.
In February 2018, the Company received
$871
in cash for its satisfaction of the performance criteria for the first period under the APA. Upon its receipt of such cash, the Company paid
$65
in cash and issued
15,877
shares of the Company’s common stock with a fair value of
$34
to former holders of options to purchase membership units in Renewables.
Following the completion of the BP Transaction, Renewables and the Company continue to procure RNG from BP under a long-term supply contract and from other RNG suppliers, and resell such RNG through the Company’s natural gas fueling infrastructure as Redeem, the Company’s RNG vehicle fuel. The Company also collects royalties from BP on gas purchased from BP and sold as Redeem at the Company’s fueling stations.
The BP Transaction resulted in a total gain of
$69,886
as of December 31, 2017. Included in the total gain is goodwill of
$26,576
allocated to the disposed assets based on the relative fair values of the assets disposed and the portion of the retained reporting unit.
The Company determined that the BP Transaction did not meet the definition of a discontinued operation because the disposal did not represent a strategic shift that will have a major effect on the Company’s operations and financial results.
Note
5
— Investments in Other Entities and Noncontrolling Interest in a Subsidiary
SAFE&CEC S.r.l.
On November 26, 2017, the Company, through its former subsidiary, CEC, entered into an investment agreement with Landi Renzo S.p.A. (“LR”), an alternative fuels company based in Italy. Pursuant to the investment agreement, the Company and LR agreed to combine their respective natural gas compressor subsidiaries, CEC and SAFE S.p.A, in a new company known as “SAFE&CEC S.r.l.” (such combination transaction is referred to as the “CEC Combination”). SAFE&CEC S.r.l. is focused on manufacturing, selling and servicing natural gas fueling compressors and related equipment for the global natural gas fueling market. Upon the closing of the CEC Combination on December 29, 2017, the Company owns
49%
of SAFE&CEC S.r.l. and LR owns
51%
of SAFE&CEC S.r.l.
The Company accounts for its interest in SAFE&CEC S.r.l. using the equity method of accounting because the Company does not control but has the ability to exercise significant influence over SAFE&CEC S.r.l.’s operations. The Company recorded a loss from this investment of
$817
and $
2,964
for the
three and nine
months ended
September 30, 2018
, respectively. Subsequent to December 29, 2017, the Company recorded an increase of
$1,163
in anticipated relocation expenses under the investment
agreement in “Accrued liabilities” in the accompanying condensed consolidated balance sheet as of
September 30, 2018
and in “Loss from formation of equity method investment” in the accompanying condensed consolidated statement of operations for the
nine
months ended
September 30,
2018
. The Company has an investment balance in SAFE&CEC S.r.l. of
$27,883
and
$24,936
as of December 31, 2017 and
September 30, 2018
, respectively.
The Company determined that the CEC Combination did not meet the definition of a discontinued operation because the disposal did not represent a strategic shift that will have a major effect on the Company’s operations and financial results.
MCEP
On September 16, 2014, the Company formed a joint venture with Mansfield Ventures LLC (“Mansfield Ventures”) called Mansfield Clean Energy Partners LLC (“MCEP”), which is designed to provide natural gas fueling solutions to bulk fuel haulers in the United States. The Company and Mansfield Ventures each have a
50%
ownership interest in MCEP. The Company accounts for its interest in MCEP using the equity method of accounting because the Company does not control but has the ability to exercise significant influence over MCEP’s operations. The Company recorded a gain (loss) from this investment of
$(30)
and
$276
for the
three months ended September 30,
2017
and
2018
, respectively, and
$(100)
and
$226
for the
nine
months ended
September 30,
2017
and
2018
, respectively. The Company has an investment balance in MCEP of $
1,512
and
$1,738
as of
December 31, 2017
and
September 30, 2018
, respectively.
NG Advantage
On October 14, 2014, the Company entered into a Common Unit Purchase Agreement (“UPA”) with NG Advantage for a
53.3%
controlling interest in NG Advantage. NG Advantage is engaged in the business of transporting CNG in high-capacity trailers to industrial and institutional energy users, such as hospitals, food processors, manufacturers and paper mills that do not have direct access to natural gas pipelines. The Company viewed the acquisition as a strategic investment in the expansion of the Company’s initiative to deliver natural gas to industrial and institutional energy users. The results of NG Advantage’s operations have been included in the Company’s consolidated financial statements since October 14, 2014.
On July 14, 2017, the Company contributed to NG Advantage all of its right, title and interest in and to a CNG fueling station located in Milton, Vermont. The Company purchased this CNG fueling station from NG Advantage in October 2014 in connection with the UPA, and at that time, the Company entered into a lease agreement with NG Advantage to lease the station back to NG Advantage. This lease agreement was terminated contemporaneously with the contribution of the station to NG Advantage in July 2017. As consideration for the contribution, NG Advantage issued to the Company Series A Preferred Units with an aggregate value of
$7,500
. The Series A Preferred Units provide for an accrued return upon a liquidation event with respect to NG Advantage and will convert into common units of NG Advantage if and when it completes a future equity financing that satisfies certain specified conditions; however, the Series A Preferred Units do not, in themselves, increase the Company’s controlling interest in NG Advantage. As a result, immediately following the contribution, the Company’s controlling interest in NG Advantage remained at
53.3%
.
On February 28, 2018, the Company entered into a guaranty agreement with NG Advantage and BP for the purchase, sale and transportation of CNG. The Company guarantees NG Advantage’s payment obligations in the event of default up to
$30,000
plus related fees. This guaranty is in effect until thirty days following the Company’s notice to NG Advantage’s customer of its termination. As consideration for the guaranty agreement, NG Advantage issued to the Company
19,660
common units, which increased the Company’s controlling interest in NG Advantage from
53.3%
to
53.5%
.
On October 1, 2018, the Company purchased
1,000,001
common units from NG Advantage for an aggregate cash purchase price of
$5,000
. This purchase increased Clean Energy's controlling interest in NG Advantage from
53.3%
to
61.7%
as of October 1, 2018.
Net loss included a loss from the noncontrolling interest in NG Advantage of
$747
and
$1,300
for the
three months ended September 30,
2017
and
2018
, respectively, and
$1,813
and
$4,235
for the
nine
months ended
September 30,
2017
and
2018
, respectively. The value of the noncontrolling interest was
$22,668
and
$18,433
as of
December 31, 2017
and
September 30, 2018
, respectively.
Note
6
—Cash, Cash Equivalents, and Restricted Cash
Cash, cash equivalents and restricted cash as of
December 31, 2017
and
September 30, 2018
consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
2017
|
|
September 30,
2018
|
Cash and cash equivalents
|
$
|
36,081
|
|
|
$
|
158,143
|
|
Restricted cash - standby letters of credit
|
1,127
|
|
|
1,127
|
|
Restricted cash - held in escrow
|
—
|
|
|
750
|
|
Total cash, cash equivalents and restricted cash
|
$
|
37,208
|
|
|
$
|
160,020
|
|
The Company considers all highly liquid investments with maturities of three months or less on the date of acquisition to be cash equivalents. The Company places its cash and cash equivalents with high credit quality financial institutions.
At times, such investments may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) and Canadian Deposit Insurance Corporation (“CDIC”). Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits. The amounts in excess of FDIC and CDIC limits were approximately
$34,709
and
$156,795
as of
December 31, 2017
and
September 30, 2018
, respectively.
The Company classifies restricted cash as short-term and a current asset if the cash is expected to be used in operations within a year or to acquire a current asset. Otherwise, the restricted cash is classified as long-term. Short-term restricted cash consisted of standby letters of credit renewed annually and an amount held in escrow. As of
December 31, 2017
and
September 30, 2018
, the Company had
no
long-term restricted cash.
Note
7
—Short-term Investments
Short-term investments include available-for-sale debt securities and certificates of deposit. Available-for-sale debt securities are carried at fair value, inclusive of unrealized gains and losses. Unrealized gains and losses for debt securities are recognized in other comprehensive income, net of applicable income taxes. Gains or losses on sales of available-for-sale debt securities are recognized on the specific identification basis.
The Company reviews available-for-sale debt securities for other-than-temporary declines in fair value below their cost basis each quarter and whenever events or changes in circumstances indicate that the cost basis of an asset may not be recoverable. This evaluation is based on a number of factors, including the length of time and the extent to which the fair value has been below its cost basis and adverse conditions related specifically to the security, including any changes to the credit rating of the security. As of
September 30, 2018
, the Company believes its carrying values for its available-for-sale debt securities are properly recorded.
Short-term investments as of
December 31, 2017
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Gross Unrealized
Losses
|
|
Estimated Fair
Value
|
Municipal bonds and notes
|
$
|
21,414
|
|
|
$
|
(49
|
)
|
|
$
|
21,365
|
|
Zero coupon bonds
|
54,159
|
|
|
(33
|
)
|
|
54,126
|
|
Corporate bonds
|
55,109
|
|
|
(40
|
)
|
|
55,069
|
|
Certificates of deposit
|
10,902
|
|
|
—
|
|
|
10,902
|
|
Total short-term investments
|
$
|
141,584
|
|
|
$
|
(122
|
)
|
|
$
|
141,462
|
|
Short-term investments as of
September 30, 2018
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Gross Unrealized
Losses
|
|
Estimated Fair
Value
|
Municipal bonds and notes
|
$
|
16,351
|
|
|
$
|
—
|
|
|
$
|
16,351
|
|
Zero coupon bonds
|
64,871
|
|
|
(2
|
)
|
|
64,869
|
|
Corporate bonds
|
3,721
|
|
|
2
|
|
|
3,723
|
|
Certificates of deposit
|
11,021
|
|
|
—
|
|
|
11,021
|
|
Total short-term investments
|
$
|
95,964
|
|
|
$
|
—
|
|
|
$
|
95,964
|
|
Note
8
—Fair Value Measurements
The Company follows the authoritative guidance for fair value measurements with respect to assets and liabilities that are measured at fair value on a recurring basis and non-recurring basis. Under the standard, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as of the measurement date. The standard also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The hierarchy consists of the following three levels: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly; Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Company’s available-for-sale debt securities and certificate of deposits are classified within Level 2 because they are valued using the most recent quoted prices for identical assets in markets that are not active and quoted prices for similar assets in active markets. The Company’s liability-classified warrants are classified within Level 3 because the Company uses the Black-Scholes option pricing model to estimate the fair value based on inputs that are not observable in any market. There were no transfers of assets between Level 1, Level 2, or Level 3 of the fair value hierarchy as of
December 31, 2017
or
September 30, 2018
.
The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis as of
December 31, 2017
and
September 30, 2018
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance at
December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
(1)
:
|
|
|
|
|
|
|
|
|
Municipal bonds and notes
|
|
$
|
21,365
|
|
|
$
|
—
|
|
|
$
|
21,365
|
|
|
$
|
—
|
|
Zero coupon bonds
|
|
54,126
|
|
|
—
|
|
|
54,126
|
|
|
—
|
|
Corporate bonds
|
|
55,069
|
|
|
—
|
|
|
55,069
|
|
|
—
|
|
Certificates of deposit
(1)
|
|
10,902
|
|
|
—
|
|
|
10,902
|
|
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Warrants
(2)
|
|
$
|
536
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance at
September 30, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities
(1)
:
|
|
|
|
|
|
|
|
|
Municipal bonds and notes
|
|
$
|
16,351
|
|
|
$
|
—
|
|
|
$
|
16,351
|
|
|
$
|
—
|
|
Zero coupon bonds
|
|
64,869
|
|
|
—
|
|
|
64,869
|
|
|
—
|
|
Corporate bonds
|
|
3,723
|
|
|
—
|
|
|
3,723
|
|
|
—
|
|
Certificates of deposit
(1)
|
|
11,021
|
|
|
—
|
|
|
11,021
|
|
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Warrants
(2)
|
|
$
|
435
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
435
|
|
(1) Included in Short-term investments in the accompanying condensed consolidated balance sheets. See Note
7
for more information.
(2) Included in Accrued liabilities and Other long-term liabilities in the accompanying condensed consolidated balance sheets.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
During the three and nine months ended September 30, 2017, long-lived assets held and used with a carrying value of
$59,367
were written down to their fair value of
$6,709
, resulting in charges of
$52,658
. The fair value of these assets was determined using Level 3 inputs. See Note
3
for more information.
Other Financial Assets and Liabilities
The carrying amounts of the Company’s cash, cash equivalents and restricted cash, receivables and payables approximate fair value due to the short-term nature of those instruments. The carrying amounts of the Company’s debt instruments approximated their respective fair values as of
December 31, 2017
and
September 30, 2018
. The fair values of these debt instruments were estimated using a discounted cash flow analysis based on interest rates offered on loans with similar terms to borrowers of similar credit quality, which are Level 3 inputs. See Note
13
for more information about the Company’s debt instruments.
Note
9
—Other Receivables
Other receivables as of
December 31, 2017
and
September 30, 2018
consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
2017
|
|
September 30,
2018
|
Loans to customers to finance vehicle purchases
|
$
|
4,746
|
|
|
$
|
5,360
|
|
Accrued customer billings
|
10,072
|
|
|
9,007
|
|
Fuel tax credits
|
177
|
|
|
1,256
|
|
Other
|
4,240
|
|
|
2,267
|
|
Total other receivables
|
$
|
19,235
|
|
|
$
|
17,890
|
|
Note
10
—Inventory
Inventory consists of raw materials and spare parts, work in process and finished goods and is stated at the lower of cost (first-in, first-out) or net realizable value. The Company evaluates inventory balances for excess quantities and obsolescence by analyzing estimated demand, inventory on hand, sales levels and other information and reduces inventory balances to net realizable value for excess and obsolete inventory based on this analysis.
Inventories as of
December 31, 2017
and
September 30, 2018
consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
2017
|
|
September 30,
2018
|
Raw materials and spare parts
|
$
|
35,145
|
|
|
$
|
37,013
|
|
Finished goods
|
93
|
|
|
90
|
|
Total inventories
|
$
|
35,238
|
|
|
$
|
37,103
|
|
Note
11
—Land, Property and Equipment
Land, property and equipment as of
December 31, 2017
and
September 30, 2018
consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
2017
|
|
September 30,
2018
|
Land
|
$
|
2,858
|
|
|
$
|
2,858
|
|
LNG liquefaction plants
|
94,634
|
|
|
94,634
|
|
Station equipment
|
304,090
|
|
|
307,301
|
|
Trailers
|
70,906
|
|
|
71,284
|
|
Other equipment
|
88,313
|
|
|
95,623
|
|
Construction in progress
|
74,905
|
|
|
74,501
|
|
|
635,706
|
|
|
646,201
|
|
Less: accumulated depreciation
|
(268,401
|
)
|
|
(302,124
|
)
|
Total land, property and equipment, net
|
$
|
367,305
|
|
|
$
|
344,077
|
|
Included in Land, property and equipment are capitalized software costs of
$26,003
and
$28,910
as of
December 31, 2017
and
September 30, 2018
, respectively. Accumulated amortization of the capitalized software costs is
$18,737
and
$21,424
as of
December 31, 2017
and
September 30, 2018
, respectively.
The Company recorded amortization expense related to the capitalized software costs of
$1,140
and
$1,026
for the three months ended
September 30, 2017
and
2018
, respectively, and
$3,134
and
$2,699
for the
nine
months ended
September 30,
2017
and
2018
, respectively.
As of
September 30, 2017
and
2018
,
$2,007
and
$1,660
, respectively, are included in accounts payable and accrued liabilities balances, which amounts are related to purchases of property and equipment. These amounts are excluded from the accompanying condensed consolidated statements of cash flows as they are non-cash investing activities.
Note
12
—Accrued Liabilities
Accrued liabilities as of
December 31, 2017
and
September 30, 2018
consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
2017
|
|
September 30,
2018
|
Accrued alternative fuels incentives
(1)
|
$
|
2,954
|
|
|
$
|
5,900
|
|
Accrued employee benefits
|
2,378
|
|
|
3,381
|
|
Accrued interest
|
1,486
|
|
|
4,897
|
|
Accrued gas and equipment purchases
|
8,722
|
|
|
10,560
|
|
Accrued property and other taxes
|
4,582
|
|
|
4,245
|
|
Accrued salaries and wages
|
8,363
|
|
|
6,117
|
|
Other
(2)
|
13,783
|
|
|
13,222
|
|
Total accrued liabilities
|
$
|
42,268
|
|
|
$
|
48,322
|
|
|
|
(1)
|
Includes the amount of RINs and LCFS Credits and, as of
September 30, 2018
, the amount of AFTC payable to third parties. The AFTC expired as of December 31, 2017, but was reinstated in February 2018 for vehicle fuel sales made from January 1, 2017 through December 31, 2017. See Note
19
for more information about AFTC.
|
|
|
(2)
|
The amount as of December 31, 2017 and
September 30, 2018
includes lease termination fees and asset retirement obligations related to the closure of certain fueling stations and working capital adjustments in the third and fourth quarters of 2017 (see Note
3
for more information), in addition to funding for certain commitments and transaction fees incurred as a result of the CEC Combination (see Note
5
for more information).
|
Note
13
—Debt
Debt and capital lease obligations as of
December 31, 2017
and
September 30, 2018
consisted of the following and are further discussed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Principal Balances
|
|
Unamortized Debt Financing Costs
|
|
Balance, Net of Financing Costs
|
7.5% Notes
|
$
|
125,000
|
|
|
$
|
131
|
|
|
$
|
124,869
|
|
5.25% Notes
|
110,450
|
|
|
454
|
|
|
109,996
|
|
NG Advantage debt and capital lease obligations
|
23,437
|
|
|
259
|
|
|
23,178
|
|
Capital lease obligations
|
802
|
|
|
—
|
|
|
802
|
|
Other debt
|
1,242
|
|
|
—
|
|
|
1,242
|
|
Total debt and capital lease obligations
|
260,931
|
|
|
844
|
|
|
260,087
|
|
Less amounts due within one year
|
(140,223
|
)
|
|
(524
|
)
|
|
(139,699
|
)
|
Total long-term debt and capital lease obligations
|
$
|
120,708
|
|
|
$
|
320
|
|
|
$
|
120,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
Principal Balances
|
|
Unamortized Debt Financing Costs
|
|
Balance Net of Financing Costs
|
7.5% Notes
|
$
|
100,000
|
|
|
$
|
72
|
|
|
$
|
99,928
|
|
5.25% Notes
|
110,450
|
|
|
2
|
|
|
110,448
|
|
NG Advantage debt and capital lease obligations
|
26,723
|
|
|
292
|
|
|
26,431
|
|
Capital lease obligations
|
809
|
|
|
—
|
|
|
809
|
|
Other debt
|
1,080
|
|
|
—
|
|
|
1,080
|
|
Total debt and capital lease obligations
|
239,062
|
|
|
366
|
|
|
238,696
|
|
Less amounts due within one year
|
(115,951
|
)
|
|
(72
|
)
|
|
(115,879
|
)
|
Total long-term debt and capital lease obligations
|
$
|
123,111
|
|
|
$
|
294
|
|
|
$
|
122,817
|
|
7.5%
Notes
On July 11, 2011, the Company entered into a loan agreement (the “CHK Agreement”) with Chesapeake NG Ventures Corporation (“Chesapeake”), an indirect wholly owned subsidiary of Chesapeake Energy Corporation, whereby Chesapeake agreed to purchase from the Company up to
$150,000
of debt securities pursuant to the issuance of
three
convertible promissory notes over a
three
-year period, each having a principal amount of
$50,000
(each a “CHK Note” and collectively the “CHK Notes” and, together with the CHK Agreement and other transaction documents, the “CHK Loan Documents”). The first CHK Note was issued on July 11, 2011 and the second CHK Note was issued on July 10, 2012.
On June 14, 2013 (the “Transfer Date”), T. Boone Pickens and Green Energy Investment Holdings, LLC (“GEIH”), an affiliate of Leonard Green & Partners, L.P. (collectively, the “Buyers”), and Chesapeake entered into a note purchase agreement (“Note Purchase Agreement”) pursuant to which Chesapeake sold the outstanding CHK Notes (the “Sale”) to the Buyers. Chesapeake assigned to the Buyers all of its right, title and interest under the CHK Loan Documents (the “Assignment”), and each Buyer severally assumed all of the obligations of Chesapeake under the CHK Loan Documents arising after the Sale and the Assignment including, without limitation, the obligation to advance an additional
$50,000
to the Company in June 2013 (the “Assumption”). The Company is also a party to the Note Purchase Agreement for the purpose of consenting to the Sale, the Assignment and the Assumption.
Contemporaneously with the execution of the Note Purchase Agreement, the Company entered into a loan agreement with each Buyer (collectively, the “Amended Agreements”). The Amended Agreements have the same terms as the CHK Agreement, other than changes to reflect the new holders of the CHK Notes. Immediately following execution of the Amended Agreements, the Buyers delivered
$50,000
to the Company in satisfaction of the funding requirement they had assumed from Chesapeake (the “2013 Advance”). In addition, the Company canceled the existing CHK Notes and issued replacement notes, and the Company
also issued notes to the Buyers in exchange for the 2013 Advance (the replacement notes and the notes issued in exchange for the 2013 Advance are referred to herein as the “
7.5%
Notes”).
The
7.5%
Notes have the same terms as the original CHK Notes, other than changes to reflect their different holders. They bear interest at the rate of
7.5%
per annum and are convertible at the option of the holder into shares of the Company’s common stock at a conversion price of
$15.80
per share (the “
7.5%
Notes Conversion Price”). Upon written notice to the Company, each holder of a
7.5%
Note has the right to exchange all or any portion of the principal and accrued and unpaid interest under its
7.5%
Notes for shares of the Company’s common stock at the
7.5%
Notes Conversion Price.
Additionally, subject to certain restrictions, the Company can force conversion of each
7.5%
Note into shares of its common stock if, following the second anniversary of the issuance of a
7.5%
Note, such shares trade at a
40%
premium to the
7.5%
Notes Conversion Price for at least
20
trading days in any consecutive
30
trading day period.
The entire principal balance of each
7.5%
Note is due and payable
seven years
following its original issuance and the Company may repay each
7.5%
Note at maturity in shares of its common stock (provided that the Company may not issue more than
13,993,630
shares of its common stock to holders of
7.5%
Notes) or cash. All of the shares issuable upon conversion of the
7.5%
Notes have been registered for resale by their holders pursuant to a registration statement that has been filed with and declared effective by the SEC.
The Amended Agreements provide for customary events of default which, if any of them occurs, would permit or require the principal of, and accrued interest on, the
7.5%
Notes to become, or to be declared, due and payable. No events of default under the
7.5%
Notes had occurred as of
September 30, 2018
.
On August 27, 2013, GEIH transferred
$5,000
in principal amount of its
7.5%
Notes to certain third parties.
On February 9, 2017, the Company purchased from Mr. Pickens, his
7.5%
Note due July 2018 having an outstanding principal amount of
$25,000
for a cash purchase price of
$21,750
. Upon such purchase, the applicable
7.5%
Notes were surrendered and canceled in full. The Company’s repurchase of this
7.5%
Note resulted in a gain of
$3,191
for the
nine
months ended
September 30, 2017
.
On February 21, 2017, GEIH transferred
$11,800
in principal amount of its
7.5%
Notes to certain third parties.
On November 17, 2017, Mr. Pickens transferred all remaining
$40,000
in principal amount of his
7.5%
Notes to a third party.
On June 29, 2018, and pursuant to the consent of the holders of the
7.5%
Notes to the Company’s payments of amounts owed thereunder before maturity, the Company paid to the holders, in cash, an aggregate of
$25,000
in principal amount and
$505
in accrued and unpaid interest owed under all outstanding
7.5%
Notes due July 2018. Upon such payment, the applicable
7.5%
Notes were surrendered and canceled in full.
As a result of the foregoing transactions, as of
September 30, 2018
, (i) GEIH held
7.5%
Notes in an aggregate principal amount of
$56,435
, and (ii) other third parties held
7.5%
Notes in an aggregate principal amount of
$43,565
.
5.25%
Notes
In September 2013, the Company completed a private offering of
$250,000
in principal amount of
5.25%
Convertible Senior Notes due 2018 (the “
5.25%
Notes”) and entered into an indenture governing the
5.25%
Notes (the “Indenture”).
The net proceeds from the sale of the
5.25%
Notes after the payment of certain debt issuance costs of
$7,805
were
$242,195
. The Company used the net proceeds from the sale of the
5.25%
Notes to fund capital expenditures and for general corporate purposes. The
5.25%
Notes bore interest at a rate of
5.25%
per annum, payable semi-annually in arrears on October 1 and April 1 of each year, beginning on April 1, 2014. The
5.25%
Notes matured October 1, 2018, unless any such notes were purchased, redeemed or converted prior to such date in accordance with their terms and the terms of the Indenture.
The Indenture contained customary events of default with customary cure periods, including, without limitation, failure to make required payments or deliveries of shares of the Company’s common stock when due under the Indenture, failure to comply with certain covenants under the Indenture, failure to pay when due or acceleration of certain other indebtedness of the Company or certain of its subsidiaries, and certain events of bankruptcy and insolvency of the Company or certain of its subsidiaries. The occurrence of an event of default under the Indenture would allow either the trustee or the holders of at least
25%
in principal amount of the then-outstanding
5.25%
Notes to accelerate, or upon an event of default arising from certain events of bankruptcy or insolvency of the Company, would automatically cause the acceleration of, all amounts due under the
5.25%
Notes. No events of default under the
5.25%
Notes had occurred as of
September 30, 2018
.
Prior to September 30, 2018, the Company (i) paid an aggregate of
$84,344
in cash to repurchase
$114,550
in aggregate principal amount of the
5.25%
Notes and (ii) issued an aggregate of
6,265,829
shares of its common stock in exchange for an aggregate of
$25,000
in aggregate principal amount of the
5.25%
Notes, together with all accrued and unpaid interest thereon. No such repurchases or exchanges occurred during the
nine
months ended
September 30,
2017
or
2018
. All repurchased and exchanged
5.25%
Notes have been surrendered to the trustee for such notes and canceled in full and the Company has no further obligations under such notes.
On October 1, 2018, the Company paid to the holders, in cash, an aggregate of
$110,450
in principal amount and
$2,899
in accrued and unpaid interest owed under all then-outstanding
5.25%
Notes due October 2018. Upon such payment, the
5.25%
Notes were surrendered and canceled in full and the Company has no further obligations under such notes.
Plains Credit Facility
On February 29, 2016, the Company entered into a Loan and Security Agreement (the “Plains LSA”) with PlainsCapital Bank (“Plains”), which, as amended on December 6, 2017, has a maturity date of September 30, 2019. Pursuant to the Plains LSA, Plains agreed to lend the Company up to
$50,000
on a revolving basis from time to time (the “Credit Facility”). Simultaneously, the Company drew
$50,000
under this Credit Facility, which the Company repaid in full on August 31, 2016. On December 22, 2016, the Company drew
$23,500
under the Credit Facility, which the Company repaid in full on March 31, 2017. As a result, the Company had no amounts outstanding under the Credit Facility as of
September 30, 2018
.
The Credit Facility is evidenced by a promissory note issued by the Company on February 29, 2016 in favor of Plains (the “Plains Note”). Interest on the Plains Note is payable monthly and accrues at a rate equal to the greater of (i) the then-current LIBOR rate plus
2.30%
or (ii)
2.70%
. As collateral security for the prompt payment in full when due of the Company’s obligations to Plains under the Plains LSA and the Plains Note, the Company pledged to and granted Plains a security interest in all of its right, title and interest in the cash and corporate and municipal bonds rated AAA, AA or A by Standard & Poor’s Rating Services that the Company holds in an account at Plains. In connection with such pledge and security interest granted under the Credit Facility, on February 29, 2016, the Company entered into a Pledged Account Agreement with Plains and PlainsCapital Bank - Wealth Management and Trust (the “Pledge Agreement” and collectively with the Plains LSA and the Plains Note, the “Plains Loan Documents”).The Plains Loan Documents include certain covenants of the Company and also provide for customary events of default, which, if any of them occurs, would permit or require, among other things, the principal of, and accrued interest on, the Credit Facility to become, or to be declared, due and payable. Events of default under the Plains Loan Documents include, among others, the occurrence of certain bankruptcy events, the failure to make payments when due under the Plains Note and the transfer or disposal of the collateral under the Plains LSA. No events of default under the Plains Loan Documents had occurred as of
September 30, 2018
.
Canton Bonds
On March 19, 2014, Canton Renewables, LLC (“Canton”), a former subsidiary of the Company, completed the issuance of Solid Waste Facility Limited Obligation Revenue Bonds (Canton Renewables, LLC — Sauk Trail Hills Project) Series 2014 in the aggregate principal amount of
$12,400
(the “Canton Bonds”). The Canton Bonds were issued by the Michigan Strategic Fund (the “Issuer”) and the proceeds of the issuance were loaned by the Issuer to Canton pursuant to a loan agreement that became effective on March 19, 2014. On March 31, 2017, Canton was sold to BP in the BP Transaction (see Note
4
). As a result, the Canton Bonds became the obligation of BP as of such date.
NG Advantage Debt and Capital Lease Obligations
NG Advantage has debt and capital lease obligations for trailers and equipment due at various dates through
2025
bearing interest at rates up to
8.76%
, with weighted -average interest rates of
4.98%
and
5.89%
as of
December 31, 2017
and
September 30, 2018
, respectively.
NG Advantage pledged to and granted a security interest in all of its right, title and interest in the CNG trailers and equipment purchased with the proceeds received from various creditors.
Other Debt
The Company has other debt due at various dates through
2023
bearing interest at rates up to
5.02%
, with weighted -average interest rates of
4.79%
and
4.79%
as of
December 31, 2017
and
September 30, 2018
, respectively.
Note
14
—Net Loss Per Share
Basic net loss per share is computed by dividing the net loss attributable to Clean Energy Fuels Corp. by the weighted-average number of common shares outstanding and common shares issuable for little or no cash consideration during the period. Diluted net loss per share is computed by dividing the net loss attributable to Clean Energy Fuels Corp. by the weighted-average number of common shares outstanding and common shares issuable for little or no cash consideration during the period and potentially dilutive securities outstanding during the period, and therefore reflects the dilution from common shares that may be issued upon exercise or conversion of these potentially dilutive securities, such as stock options, warrants, convertible notes and restricted stock units. The dilutive effect of stock awards and warrants is computed under the treasury stock method. The dilutive effect of convertible notes and restricted stock units is computed under the if-converted method. Potentially dilutive securities are excluded from the computations of diluted net loss per share if their effect would be antidilutive.
The information required to compute basic and diluted net loss per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
Weighted-average common shares outstanding
|
150,927,825
|
|
|
203,469,222
|
|
|
150,128,204
|
|
|
172,946,896
|
|
Dilutive effect of potential common shares from restricted stock units and stock options
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Weighted-average common shares outstanding -diluted
|
150,927,825
|
|
|
203,469,222
|
|
|
150,128,204
|
|
|
172,946,896
|
|
The following potentially dilutive securities have been excluded from the diluted net loss per share calculations because their effect would have been antidilutive. Although these securities were antidilutive for these periods, they could be dilutive in future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
Stock Options
|
9,648,613
|
|
|
9,417,492
|
|
|
9,648,613
|
|
|
9,417,492
|
|
Convertible Notes
|
14,991,521
|
|
|
13,409,242
|
|
|
14,991,521
|
|
|
13,409,242
|
|
Restricted Stock Units
|
2,403,266
|
|
|
2,428,731
|
|
|
2,403,266
|
|
|
2,428,731
|
|
Total
|
27,043,400
|
|
|
25,255,465
|
|
|
27,043,400
|
|
|
25,255,465
|
|
At-The-Market Offering Program
On May 31, 2017, the Company terminated its equity distribution agreement (the “Sales Agreement”) with Citigroup Global Markets Inc. (“Citigroup”), as sales agent and/or principal. The Sales Agreement was terminable at will upon written notification by the Company with no penalty. Pursuant to the Sales Agreement, the Company was entitled to issue and sell, from time to time through or to Citigroup, shares of its common stock having an aggregate offering price of up to
$200,000
in an “at-the-market” offering program (the “ATM Program”). The ATM Program commenced on November 11, 2015 when the Company and Citigroup entered into the original equity distribution agreement, which was amended and restated on September 9, 2016 and again on December 21, 2016 prior to its termination.
The following table summarizes the activity under the ATM Program for the periods presented:
|
|
|
|
|
|
Nine Months Ended
September 30, 2017
|
Gross proceeds
|
$
|
10,767
|
|
Fees and issuance costs
|
311
|
|
Net proceeds
|
$
|
10,456
|
|
Shares issued
|
3,802,500
|
|
Note
15
—Stock-Based Compensation
The following table summarizes the compensation expense and related income tax benefit related to the Company’s stock-based compensation arrangements recognized in the accompanying condensed consolidated statements of operations during the periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
|
Stock-based compensation expense, net of $0 tax in 2017 and 2018
(1)
|
$
|
2,216
|
|
|
$
|
1,206
|
|
|
$
|
6,904
|
|
|
$
|
4,312
|
|
|
(1)
$300
of stock-based compensation expense for the three and nine months ended September 30, 2017 is recorded in asset impairments and other charges in the accompanying condensed consolidated statements of operations and is reported in asset impairments and other charges in the accompanying condensed consolidated statements of cash flows. See Note
3
for more information.
As of
September 30, 2018
, there was
$5,242
of total unrecognized compensation costs related to unvested shares subject to outstanding stock options and restricted stock units, which is expected to be expensed over a weighted-average period of approximately
1.84
years.
Note
16
—Stockholders
’
Equity
Issuance of Common Stock
On May 9, 2018, the Company entered into a stock purchase agreement (the “Purchase Agreement”) with Total Marketing Services, S.A., a wholly owned subsidiary of Total S.A. (“Total”). Pursuant to the Purchase Agreement, the Company agreed to sell and issue, and Total agreed to purchase, up to
50,856,296
shares of the Company’s common stock at a purchase price of
$1.64
per share, all in a private placement (the “Total Private Placement”). The purchase price per share was determined based on the volume-weighted average price for the Company’s common stock between March 23, 2018 (the day on which discussions began between the Company and Total) and May 3, 2018 (the day on which the Company agreed in principle with Total regarding the structure and basic terms of its investment). As of the date of the Purchase Agreement, Total did not hold or otherwise beneficially own any shares of the Company’s common stock, and Total has agreed, until the later of May 9, 2020 or such date when it ceases to hold more than
5.0%
of the Company’s common stock then outstanding, among other similar undertakings and subject to customary conditions and exceptions, to not purchase shares of the Company’s common stock or otherwise pursue transactions that would result in Total beneficially owning more than
30.0%
of the Company’s equity securities without the approval of the Company’s board of directors.
On June 13, 2018, the Company and Total closed the Total Private Placement, in which: (1) the Company issued to Total all of the
50,856,296
shares of its common stock issuable under the Purchase Agreement, resulting in Total holding approximately
25.0%
of the outstanding shares of the Company’s common stock and the largest ownership position of the Company as of
September 30, 2018
; (2) Total paid to the Company an aggregate of
$83,404
in gross proceeds, which the Company has used and expects to continue to use for working capital and general corporate purposes, which may include executing its business plans, pursuing opportunities for further growth, and retiring a portion of its outstanding indebtedness; and (3) the Company and Total entered into a registration rights agreement, described below. In connection with the issuance of common stock, the Company incurred transaction fees of
$2,694
.
Pursuant to the Purchase Agreement, the Company and Total also entered into a registration rights agreement on June 13, 2018, upon the closing under the Purchase Agreement. Pursuant to the registration rights agreement, the Company filed a registration statement with the SEC to cover the resale of the shares issued and sold under the Purchase Agreement, which was declared effective on August 16, 2018, and is obligated to use its commercially reasonable efforts to maintain the effectiveness of such registration statement until all such shares are sold or may be sold without restriction under Rule 144 under the Securities Act of 1933, as amended. As of
September 30, 2018
, the Company was in compliance with all of its registration covenants set forth in the registration rights agreement.
During the nine months ended September 30, 2017, we issued and sold
3,802,500
shares of our common stock for gross proceeds of
$10,767
in the ATM Program. See Note
14
for more information.
Note
17
—Income Taxes
The provision for income taxes for interim periods is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the Company updates the estimate of the annual effective tax rate, and if the estimated tax rate changes, a cumulative adjustment is recorded.
The Company’s income tax benefit (expense) was $
44
and
$(89)
for the three months ended
September 30, 2017
and
2018
, respectively, and
$2,183
and
$(266)
for the
nine
months ended
September 30, 2017
and
2018
, respectively. Tax benefit (expense) for the 2018 periods was comprised of taxes due on the Company's U.S. operations, and for the 2017 periods was comprised of taxes due on the Company’s U.S. and foreign operations. The decrease in the Company’s income tax benefit for the three months ended
September 30, 2018
as compared to the three months ended
September 30, 2017
was primarily due to the absence of the tax benefit that arose from the Company's foreign operations following the CEC Combination (see Note
5
). The decrease in the Company’s income tax benefit for the
nine
months ended
September 30, 2018
as compared to the
nine
months ended
September 30, 2017
was primarily due to a decrease in the deferred tax benefit attributed to the reduction of goodwill amortization following the BP Transaction (see Note
4
). The effective tax rates for the
three and nine
months ended
September 30, 2017
and
2018
are different from the federal statutory tax rate primarily due to losses for which no tax benefit has been recognized.
Following the BP Transaction and during the year ended December 31, 2017, the Company also benefited from the utilization of federal and state net operating loss (“NOL”) carryovers that offset all of the Company's federal and the majority of its state taxes. In addition to the decrease in its deferred tax liability of
$2,493
attributed to the reduction in goodwill following the BP Transaction, the utilization of NOLs also resulted in a decrease of
$29,768
in the Company’s deferred tax assets attributed to NOLs and a corresponding decrease in the Company's deferred tax asset valuation allowance.
The Company increased its liability for unrecognized tax benefits in the
nine
months ended
September 30, 2018
by $
2,178
, which was primarily attributable to the portion of AFTC revenue recognized in the period that was offset by the fuel tax the Company collected from its customers as an unrecognized tax benefit during the year ended December 31, 2017. The net interest incurred was immaterial for both the
three and nine
months ended
September 30,
2017
and
2018
, respectively.
Note
18
—Commitments and Contingencies
Environmental Matters
The Company is subject to federal, state, local and foreign environmental laws and regulations. The Company does not anticipate any expenditures to comply with such laws and regulations that would have a material impact on the Company’s consolidated financial position, results of operations or liquidity. The Company believes that its operations comply, in all material respects, with applicable federal, state, local and foreign environmental laws and regulations.
Litigation, Claims and Contingencies
The Company may become party to various legal actions that arise in the ordinary course of its business. The Company is also subject to audit by tax and other authorities for varying periods in various federal, state, local and foreign jurisdictions, and disputes may arise during the course of these audits. It is impossible to determine the ultimate liabilities that the Company may incur resulting from any of these lawsuits, claims, proceedings, audits, commitments, contingencies and related matters or the timing of these liabilities, if any. If these matters were to ultimately be resolved unfavorably, it is possible that such an outcome could have a material adverse effect upon the Company’s consolidated financial position, results of operations, or liquidity. The Company, does not, however, anticipate such an outcome and it believes the ultimate resolution of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity.
Note
19
—Alternative Fuels Excise Tax Credit
Under separate pieces of U.S. federal legislation, the Company has been eligible to receive the AFTC tax credit for its natural gas vehicle fuel sales made between October 1, 2006 and December 31, 2017. The AFTC, which had previously expired on December 31, 2016, was reinstated on February 9, 2018 to apply to vehicle fuel sales made from January 1, 2017 through December 31, 2017. The AFTC credit is equal to
$0.50
per gasoline gallon equivalent of CNG that the Company sold as vehicle fuel,
$0.50
per liquid gallon of LNG that the Company sold as vehicle fuel through 2015, and
$0.50
per diesel gallon of LNG that the Company sold as vehicle fuel in 2016 and 2017.
Based on the service relationship with its customers, either the Company or its customers claims the credit. The Company records its AFTC credits, if any, as revenue in its consolidated statements of operations because the credits are fully payable to the Company and do not offset income tax liabilities. As such, the credits are not deemed income tax credits under the accounting guidance applicable to income taxes.
As a result of the most recent legislation authorizing AFTC being signed into law on February 9, 2018, all AFTC revenue for vehicle fuel the Company sold in the 2017 calendar year, totaling
$25,481
, has been recognized and collected during the nine months ended September 30, 2018. In addition, during the nine months ended September 30, 2018, the Internal Revenue Service approved, and the Company recognized as revenue,
$1,382
of AFTC credit claims related to prior years. AFTC is not currently available, and may not be reinstated, for vehicle fuel sales made after December 31, 2017.
Note
20
—Recently Adopted Accounting Changes and Recently Issued Accounting Standards
Recently Adopted Accounting Changes
In February 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-02,
Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
, which allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the “TCJA”). This update is effective for fiscal years beginning after December 15, 2018, which for the Company is the first quarter of 2019, with early adoption permitted. The Company elected to early adopt this ASU during the
nine
months ended
September 30, 2018
, which did not have any impact on the accompanying condensed consolidated financial statements or related disclosures. The Company did not elect to reclassify the stranded tax effects of the TCJA as there were none.
In December 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash.
The new standard requires restricted cash and restricted cash equivalents to be included as components of total cash and cash equivalents as presented on the statement of cash flows. This pronouncement is effective for reporting periods beginning after December 15, 2017, which for the Company is the first quarter of 2018. The Company adopted this standard on a retrospective basis, and adoption did not have a material impact on the Company’s consolidated financial statements or related disclosures. As a result of including restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts presented in the accompanying condensed consolidated statement of cash flows, net cash flows decreased by
$5,533
for the
nine
months ended
September 30, 2017
(see Note
1
).
In September 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Payments
. The new standard provides clarification as to the classification of certain transactions as operating, investing or financing activities. This pronouncement is effective for reporting periods beginning after December 15, 2017, which for the Company is the first quarter of 2018. Adoption of this standard did not have any impact on the accompanying condensed consolidated financial statements and related disclosures for the
nine
months ended
September 30, 2018
.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
(“ASC 606”), which amends the guidance in former Accounting Standards Codification Topic 605,
Revenue Recognition
, to provide a single, comprehensive revenue recognition model for all contracts with customers. The new standard requires an entity to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in amounts that reflect the consideration to which an entity expects to be entitled in exchange for those goods or services. The new standard also requires entities to enhance disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The standard is effective for fiscal years beginning after December 15, 2017, which for the Company was the first quarter of 2018.
The Company adopted this standard using the modified retrospective method and recognized the cumulative effect of initially applying ASC 606 as an adjustment to accumulated deficit in the consolidated balance sheet as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted. This adoption did not have a material impact to the Company’s condensed consolidated financial statements.
The ASC 606 adoption adjustments are as follows, and relate to significant financing components resulting from an advance payment by a customer of NG Advantage and an extended payment term to a station construction customer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2017
|
|
Adjustments Due to ASC 606
|
|
Balance as of January 1, 2018
|
Notes receivable and other long-term assets, net
|
$
|
21,397
|
|
|
$
|
(963
|
)
|
|
$
|
20,434
|
|
Deferred revenue
|
$
|
3,432
|
|
|
$
|
330
|
|
|
$
|
3,762
|
|
Accumulated deficit
|
$
|
(683,570
|
)
|
|
$
|
(1,293
|
)
|
|
$
|
(684,863
|
)
|
The ASC 606 adoption adjustments on the accompanying condensed consolidated balance sheet as of
September 30, 2018
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
Balance before ASC 606 Adoption
|
|
Effect of Change
|
|
As Reported
|
Notes receivable and other long-term assets, net
|
$
|
16,885
|
|
|
$
|
(907
|
)
|
|
$
|
15,978
|
|
Deferred revenue
|
$
|
7,989
|
|
|
$
|
841
|
|
|
$
|
8,830
|
|
Accumulated deficit
|
$
|
(693,767
|
)
|
|
$
|
(1,748
|
)
|
|
$
|
(695,515
|
)
|
The impact on the accompanying condensed consolidated statements of operations for the
three and nine
months ended
September 30, 2018
was immaterial.
Recently Issued Accounting Standards
In February 2016, the FASB issued ASU 2016-02,
Leases
. The new standard requires most leases to be recognized on the balance sheet which will increase reported assets and liabilities. Lessor accounting remains substantially similar to current guidance. The new standard is effective for annual and interim periods in fiscal years beginning after December 15, 2018, which for the Company is the first quarter of 2019, and mandates adoption using a modified retrospective method. The Company has completed its first phase of globally identifying its leases and is in the process of identifying changes to its processes, internal controls and system requirements and configurations that would result from the new lease standard. The Company’s implementation efforts are progressing as planned. The Company’s evaluation of the impact this ASU will have on its consolidated financial statements and related disclosures is ongoing and not complete.
Note
21
—Subsequent Events
In October 2018, in support of the Company’s truck financing program, which the Company calls “Zero Now Financing,” the Company executed
two
commodity swap contracts with Total Gas & Power North America, an affiliate of Total, for a total of
five million
diesel gallons annually from April 1, 2019 to June 30, 2024. These commodity swap contracts are used to manage the risk related to the diesel -to -natural gas price spread and are measured at fair value with changes in the fair value to be recorded in the consolidated statement of operations in the period incurred.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 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 ended
December 31, 2017
, which was filed with the Securities and Exchange Commission (“SEC”) on March 13, 2018, as well as the audited consolidated financial statements and notes included therein (collectively, our “2017 Form 10-K”). Pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K promulgated by the SEC, in preparing this MD&A, we have presumed that readers have access to and have read the MD&A contained in our 2017 Form 10-K. Unless the context indicates otherwise, all references to “Clean Energy,” the “Company,” “we,” “us,” or “our” in this MD&A refer to Clean Energy Fuels Corp. together with its consolidated subsidiaries.
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, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements other than historical facts and 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 and operating performance, our growth strategies and anticipated trends in our industry and our business. Although the forward-looking statements in this discussion 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 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 impact 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 predictions of future events. All forward-looking statements in this discussion 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 are the leading provider of natural gas as an alternative fuel for vehicle fleets in the United States and Canada, 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. Our principal business is supplying RNG, CNG and LNG (RNG can be delivered in the form of CNG or LNG) for light, 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 the California and Oregon Low Carbon Fuel Standards (collectively, “LCFS Credits”); help our customers acquire and finance natural gas vehicles; and obtain federal, state and local tax credits, grants and incentives. In
addition, before March 31, 2017, we produced RNG at our own production facilities (which we sold, along with certain of our other RNG production assets, in the transaction we refer to as the “BP Transaction”), and before December 29, 2017, we manufactured natural gas fueling compressors and other equipment used in CNG stations (which we combined with another company’s natural gas fueling compressor manufacturing business in a newly formed joint venture, in the 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, industrial and institutional energy users, 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 of
September 30, 2018
, we served nearly
1,000
fleet customers operating over
46,000
natural gas vehicles, and we currently own, operate or supply approximately
530
natural gas fueling stations in
41
states in the United States and
four
provinces in Canada.
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 table represents our sources of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (in millions)
|
|
Three Months
Ended
September 30,
2017
|
|
Three Months
Ended
September 30,
2018
|
|
Nine Months
Ended
September 30,
2017
|
|
Nine Months
Ended
September 30,
2018
|
Volume -Related
(1)
|
|
$
|
63.1
|
|
|
$
|
67.8
|
|
|
$
|
200.0
|
|
|
$
|
197.8
|
|
Compressor Sales
(2)
|
|
5.9
|
|
|
—
|
|
|
17.6
|
|
|
—
|
|
Station Construction Sales
|
|
12.5
|
|
|
9.4
|
|
|
34.1
|
|
|
20.9
|
|
AFTC
(3)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26.9
|
|
Other
|
|
0.3
|
|
|
0.1
|
|
|
0.6
|
|
|
4.6
|
|
Total
|
|
$
|
81.8
|
|
|
$
|
77.3
|
|
|
$
|
252.3
|
|
|
$
|
250.2
|
|
|
|
(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. More information about our volume of fuel and O&M services delivered in the periods is included below under “Key Operating Data.” The following table summarizes our revenue from sales of RINs and LCFS Credits in the periods:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(In millions)
|
|
2017 (a)
|
|
2018
|
|
2017
|
|
2018
|
RIN Credits
(b)
|
|
$
|
3.8
|
|
|
$
|
4.0
|
|
|
$
|
17.2
|
|
|
$
|
10.5
|
|
LCFS Credits
(b)
|
|
—
|
|
|
2.6
|
|
|
2.9
|
|
|
6.5
|
|
Total
|
|
$
|
3.8
|
|
|
$
|
6.6
|
|
|
$
|
20.1
|
|
|
$
|
17.0
|
|
|
|
a.
|
We recognized no revenue from sales of LCFS Credits during the three months ended September 30, 2017 primarily because the majority of the LCFS Credits we had generated were sold in the BP Transaction and we could not sell our remaining LCFS Credits due to restrictions imposed on our credit account pending completion of an ongoing administrative review by the California Air Resources Board (“CARB”), which was completed in November 2017.
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|
b.
|
Revenue from sales of RINs and LCFS Credits decreased after the first quarter of 2017 due to the effects of the BP Transaction. Please see the MD&A contained in our 2017 Form 10-K for more information.
|
|
|
(2)
|
We completed the CEC Combination on December 29, 2017 (see Note
5
). As a result, no revenue for compressor sales has been or will be received or recorded after that date.
|
|
|
(3)
|
Represents a federal alternative fuels tax credit that we refer to as “AFTC,” which expired December 31, 2016 but, subsequent to December 31, 2017, was reinstated for vehicle fuel sales made in 2017. See “Recent Developments” below for more information.
|
Key Operating Data
In evaluating our operating performance, our management focuses primarily on: (1) the amount of RNG, CNG and LNG gasoline gallon equivalents delivered (which we define as (i) the volume of gasoline gallon equivalents we sell to our customers, plus (ii) the volume of gasoline gallon equivalents 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 gasoline gallon equivalents sold as CNG by our joint venture with Mansfield Ventures, LLC called Mansfield Clean Energy Partners, LLC (“MCEP”), plus (iv) our proportionate share (as applicable) of the gasoline gallon equivalents of RNG produced and sold as pipeline quality natural gas by the RNG production facilities we owned before completion of the BP Transaction, (2) our station construction cost of sales, (3) our gross margin (which we define as revenue minus cost of sales), and (4) net income (loss) attributable to us. The following tables present our key operating data for the years ended December 31, 2015, 2016, and 2017 and for the
three and nine
months ended
September 30, 2017
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasoline gallon equivalents
delivered (in millions)
|
|
Year Ended
December 31,
2015
|
|
Year Ended
December 31,
2016
|
|
Year Ended
December 31,
2017
|
|
Three Months
Ended
September 30,
2017
|
|
Three Months
Ended
September 30,
2018
|
|
Nine Months
Ended
September 30,
2017
|
|
Nine Months
Ended
September 30,
2018
|
CNG
(1)
|
|
229.2
|
|
|
259.2
|
|
|
283.4
|
|
|
73.5
|
|
|
75.4
|
|
|
213.1
|
|
|
220.0
|
|
LNG
|
|
70.5
|
|
|
66.8
|
|
|
66.1
|
|
|
17.3
|
|
|
16.9
|
|
|
50.0
|
|
|
46.8
|
|
RNG
(2)
|
|
8.8
|
|
|
3.0
|
|
|
1.9
|
|
|
0.7
|
|
|
—
|
|
|
1.9
|
|
|
—
|
|
Total
|
|
308.5
|
|
|
329.0
|
|
|
351.4
|
|
|
91.5
|
|
|
92.3
|
|
|
265.0
|
|
|
266.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gasoline gallon equivalents
delivered (in millions)
|
|
Year Ended
December 31,
2015
|
|
Year Ended
December 31,
2016
|
|
Year Ended
December 31,
2017
|
|
Three Months
Ended
September 30,
2017
|
|
Three Months
Ended
September 30,
2018
|
|
Nine Months
Ended
September 30,
2017
|
|
Nine Months
Ended
September 30,
2018
|
O&M services
|
|
159.3
|
|
|
176.6
|
|
|
199.5
|
|
|
53.2
|
|
|
53.4
|
|
|
150.2
|
|
|
154.6
|
|
Fuel
(1)
|
|
130.1
|
|
|
128.5
|
|
|
127.3
|
|
|
32.3
|
|
|
32.2
|
|
|
96.7
|
|
|
92.8
|
|
Fuel and O&M services
(3)
|
|
19.1
|
|
|
23.9
|
|
|
24.6
|
|
|
6.0
|
|
|
6.7
|
|
|
18.1
|
|
|
19.4
|
|
Total
|
|
308.5
|
|
|
329.0
|
|
|
351.4
|
|
|
91.5
|
|
|
92.3
|
|
|
265.0
|
|
|
266.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating data (in millions)
|
|
Year Ended
December 31,
2015
|
|
Year Ended
December 31,
2016
|
|
Year Ended
December 31,
2017
|
|
Three Months
Ended
September 30,
2017
|
|
Three Months
Ended
September 30,
2018
|
|
Nine Months
Ended
September 30,
2017
|
|
Nine Months
Ended
September 30,
2018
|
Station construction cost of sales
|
|
$
|
32.3
|
|
|
$
|
57.0
|
|
|
$
|
47.0
|
|
|
$
|
11.6
|
|
|
$
|
8.7
|
|
|
$
|
31.3
|
|
|
$
|
20.7
|
|
Gross margin
(4) (5)
|
|
$
|
125.8
|
|
|
$
|
147.1
|
|
|
$
|
85.8
|
|
|
$
|
8.5
|
|
|
$
|
24.5
|
|
|
$
|
60.8
|
|
|
$
|
96.9
|
|
Net loss attributable to Clean Energy Fuels. Corp
(4)
|
|
$
|
(134.2
|
)
|
|
$
|
(12.2
|
)
|
|
$
|
(79.2
|
)
|
|
$
|
(94.1
|
)
|
|
$
|
(10.9
|
)
|
|
$
|
(50.9
|
)
|
|
$
|
(10.7
|
)
|
(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 0.4 million, 0.5 million, and 0.5 million, for the years ended December 31,
2015
,
2016
, and
2017
, respectively,
0.1 million
and
0.2 million
for the three months ended
September 30, 2017
and
2018
, respectively, and
0.4 million
and
0.4 million
for the
nine
months ended
September 30, 2017
and
2018
, respectively.
(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. GGEs of Redeem sold were 50.1 million, 58.6 million, and 78.5 million for the years ended December 31,
2015
,
2016
, and
2017
, respectively,
19.3 million
and
28.3 million
for the three months ended
September 30, 2017
and
2018
, respectively, and
53.6 million
and
70.8 million
for the
nine
months ended
September 30, 2017
and
2018
, respectively.
|
|
(3)
|
Represents gasoline gallon equivalents at stations where we provide both fuel and O&M services.
|
|
|
(4)
|
Includes the following amounts of AFTC revenue: $31.0 million, $26.6 million, and $0.0 million for the years ended December 31,
2015
,
2016
, and
2017
, respectively, and
$0.0 million
and
$26.9 million
for the
three and nine
months ended
September 30, 2018
, respectively.
|
|
|
(5)
|
For the three and nine months ended September 30, 2017, gross margin includes an inventory valuation provision of $13.2 million. See Note
3
for more information.
|
Recent Developments
BP RNG Supply Agreement.
In October 2018, we entered into a joint marketing arrangement that provides for us to receive an increased supply of RNG from BP. We expect that this will boost our volumes of RNG vehicle fuel in future periods. We will also share in the incremental environmental credit revenue generated from the additional RNG supply provided as vehicle fuel.
Full Cash Repayment of 5.25% Notes.
On October 1, 2018, we paid to the holders of our 5.25% Convertible Senior Notes due 2018 (the “5.25% Notes”), in cash, an aggregate of $110.5 million in principal amount plus
$2.9 million
in accrued and unpaid interest owed under all then-outstanding 5.25% Notes due October 2018. Upon such payment, the 5.25% Notes were surrendered and canceled in full and we have no further obligations under such notes.
Total Private Placement.
On May 9, 2018, we entered into a stock purchase agreement (“Purchase Agreement”) with Total Marketing Services, S.A., a wholly owned subsidiary of Total S.A. (“Total”), for the sale and issuance to Total of up to
50,856,296
shares of our common stock at a purchase price of
$1.64
per share, all in a private placement (the “Total Private Placement”). The Total Private Placement closed on June 13, 2018, upon the satisfaction of all conditions to closing set forth in the Purchase Agreement. At the closing, we issued to Total all of the
50,856,296
shares of our common stock issuable under the Purchase Agreement, and Total paid to us an aggregate of
$83.4 million
in gross proceeds, which we have used and expect to continue to use for working capital and general corporate purposes, which may include executing our business plans, pursuing opportunities for further growth, and retiring a portion of our outstanding indebtedness.
The agreements related to the Total Private Placement also contain representations, warranties and covenants made by us and Total regarding, among other matters, certain director designation rights we have granted to Total (along with undertakings by certain of our stockholders, including all of our directors and executive officers, to vote their shares in favor of such director designees in future elections of directors), certain registration rights we have granted to Total for the shares that were issued and sold, certain limitations on Total’s purchase of additional securities of our Company without the approval of our board of directors, and various other matters that are customary for transactions of this nature.
In addition, and separate from the Total Private Placement, we have also launched a truck financing program with Total, pursuant to which Total will provide $100.0 million of credit support, designed to facilitate and grow the deployment of heavy-duty natural gas trucks in the United States. In October 2018, in support of the truck financing program, we executed two commodity swap agreements with Total Gas & Power North American, an affiliate of Total, for a total of five million diesel gallons annually from April 1, 2019 to June 30, 2024. These swap agreements are designed to manage our risk related to the diesel -to -natural gas price spread.
AFTC.
The AFTC, which had previously expired on December 31, 2016, was reinstated on February 9, 2018 to apply to vehicle fuel sales made from January 1, 2017 through December 31, 2017. As a result, all AFTC revenue for vehicle fuel we sold in the 2017 calendar year, which totaled
$25.5 million
, was recognized and collected in the nine months ended September 30, 2018. The AFTC credit for 2017 is equal to $0.50 per gasoline gallon equivalent of CNG that we sold as vehicle fuel, and $0.50 per diesel gallon of LNG that we sold as vehicle fuel. In addition, during the nine months ended September 30, 2018, the Internal Revenue Service approved, and we recognized as revenue,
$1.3 million
of AFTC credit claims related to prior years. AFTC is not currently available, and may not be reinstated, for vehicle fuel sales made after December 31, 2017.
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 2017 Form 10-K. Except as set forth below, there have been no material changes to such trends as described in the MD&A contained in our 2017 Form 10-K.
In the third and fourth quarters of 2017, as described further in our 2017 Form 10-K, we took actions we believe will better align our activities and assets with current and anticipated market demand, and these actions will have an impact on our future performance and financial condition. For instance, our fueling station closures and the CEC Contribution have decreased our aggregate revenue and cost levels, and we expect these lower levels to continue. In addition, the actions we took to reduce our operating costs, including a workforce reduction and other measures to reduce overhead costs, have contributed to decreased expenses, particularly selling, general and administrative expenses, and we expect these lower expense levels will also continue. These actions also led us to record asset impairment and other cash and non-cash charges in 2017, which could be repeated if we decide to implement similar measures in the future.
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, have experienced fluctuations in their natural gas adoption, including slower volume and customer growth in 2018 to date that could continue in future periods. Moreover, adoption of and demand for the different types of natural gas vehicle fuel, including CNG, LNG and RNG, are subject to significant
fluctuations, including decreased LNG volumes in some markets in recent periods that may continue in the future and may not be sufficiently offset by any increase in demand for RNG or CNG.
Debt Compliance
Certain of the agreements governing our outstanding debt, which are discussed in Note
13
, have certain non-financial covenants with which we must comply. As of
September 30, 2018
, 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
2017
Form 10-K. In the
nine
months ended
September 30, 2018
, there were no material changes to these activities.
Critical Accounting Policies
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements.
|
|
•
|
Impairment of goodwill and long-lived assets;
|
|
|
•
|
Fair value measurements.
|
These critical accounting policies and the related judgments and estimates are discussed in the MD&A contained in our
2017
Form 10-K, except that effective January 1, 2018, we adopted new guidance for our revenue recognition policy that superseded the previous guidance for revenue recognition. The new guidance, and our revenue recognition policy under this new guidance, is described Note
2
. There have been no other material changes to our critical accounting policies as described in the MD&A contained in our 2017 Form 10-K.
Recently Issued and Adopted Accounting Standards
See Note
20
for a description of recently issued and adopted accounting standards.
Results of Operations
Three Months Ended September 30, 2018
Compared to
Three Months Ended September 30, 2017
The table below presents, for each period indicated, each line item of our statement 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 Ended September 30,
|
|
|
2017
|
|
2018
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
Product revenue
|
82.7
|
%
|
|
87.2
|
%
|
|
Service revenue
|
17.3
|
|
|
12.8
|
|
|
Total revenue
|
100.0
|
|
|
100.0
|
|
|
Operating expenses:
|
|
|
|
|
|
|
Cost of sales (exclusive of depreciation and amortization shown separately below):
|
|
|
|
|
|
|
Product cost of sales
|
64.7
|
|
|
62.2
|
|
|
Service cost of sales
|
8.9
|
|
|
6.1
|
|
|
Inventory valuation provision
|
16.1
|
|
|
—
|
|
|
Selling, general and administrative
|
30.3
|
|
|
23.8
|
|
|
Depreciation and amortization
|
17.2
|
|
|
17.3
|
|
|
Asset impairments and other charges
|
74.2
|
|
|
—
|
|
|
Total operating expenses
|
211.4
|
|
|
109.4
|
|
|
Operating income (loss)
|
(111.4
|
)
|
|
(9.4
|
)
|
|
Interest expense
|
(5.2
|
)
|
|
(5.3
|
)
|
|
Interest income
|
0.6
|
|
|
1.5
|
|
|
Other income (expense), net
|
0.0
|
|
|
(0.2
|
)
|
|
Loss from equity method investments
|
0.0
|
|
|
(0.7
|
)
|
|
Gain from extinguishment of debt
|
—
|
|
|
—
|
|
|
Gain from sale of certain assets of subsidiary
|
—
|
|
|
—
|
|
|
Loss from formation of equity method investment
|
—
|
|
|
(1.5
|
)
|
|
Loss before income taxes
|
(116.0
|
)
|
|
(15.6
|
)
|
|
Income tax benefit (expense)
|
0.1
|
|
|
(0.1
|
)
|
|
Net loss
|
(115.9
|
)
|
|
(15.7
|
)
|
|
Loss attributable to noncontrolling interest
|
0.9
|
|
|
1.7
|
|
|
Net loss attributable to Clean Energy Fuels Corp.
|
(115.0
|
)%
|
|
(14.0
|
)%
|
|
Revenue.
Revenue decreased by
$4.5 million
to
$77.3 million
in the
three months ended September 30,
2018
, from
$81.8 million
in the
three months ended September 30, 2017
. This decrease was primarily due to lower station construction sales and the absence of compressor revenue, partially offset by higher volume -related revenue.
Station construction sales decreased by
$3.1 million
between periods, principally due to fewer full station and station upgrade projects in process.
Compressor revenue decreased by
$5.9 million
between periods due to the completion of the CEC Combination in December 2017 (see Note
5
).
Volume -related revenue increased by
$4.7 million
between periods, primarily due to a higher effective price per gallon charged, an increase in gallons delivered between periods, and the impact of temporarily stopping sales of LCFS Credits due to restrictions imposed on our LCFS Credit account during the 2017 period.
Our effective price per gallon charged was
$0.73
for the three months ended
September 30, 2018
, a
$0.04
per gallon increase from
$0.69
per gallon for the three months ended
September 30, 2017
. 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 increase in our effective price per gallon between periods was primarily due to higher retail selling prices and the impact to the 2017 period of temporarily stopping sales of LCFS Credits due to restrictions imposed on our LCFS Credit account during the period.
Cost of sales.
Cost of sales decreased by $
20.5 million
to $
52.8 million
in the three months ended
September 30, 2018
, from $
73.3 million
in the three months ended
September 30, 2017
. This decrease was primarily due to a
$13.2 million
inventory valuation provision recorded in the three months ended September 30, 2017 (see Note
3
), and a
$6.3 million
decrease in costs related to our former compressor manufacturing business due to the completion of the CEC Combination in December 2017 (see Note
5
).
Our effective cost per gallon increased by
$0.01
per gallon between periods, to
$0.47
per gallon in the three months ended
September 30, 2018
from
$0.46
per gallon in the three months ended
September 30, 2017
. 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 increase in our effective cost per gallon was primarily due to a temporary increase in natural gas transportation prices on the SoCalGas system.
Selling, general and administrative.
Selling, general and administrative expenses decreased by $
6.4 million
to $
18.4 million
in the three months ended
September 30, 2018
, from $
24.8 million
in the three months ended
September 30, 2017
. This decrease was primarily driven by continued cost reduction efforts and reduced administrative costs due to the completion of the CEC Combination in 2017.
Depreciation and amortization.
Depreciation and amortization decreased by $
0.7 million
to $
13.4 million
in the three months ended
September 30, 2018
, from $
14.1 million
in the three months ended
September 30, 2017
, primarily due to asset impairments related to our station closures and former natural gas compressor manufacturing business recorded during the third quarter of 2017.
Asset impairments and other charges.
During the three months ended September 30, 2017, we recorded asset impairments and other cash and non-cash charges totaling
$60.7 million
related to our station closures, our former natural gas fueling compressor manufacturing business, our workforce reduction and other steps taken to reduce overhead costs. See Note
3
for more information. We recorded no comparable charge in the
2018
period.
Interest expense.
Interest expense decreased by $
0.2 million
to $
4.1 million
in the three months ended
September 30, 2018
, from $
4.3 million
in the three months ended
September 30, 2017
. This decrease was primarily due to a reduction of outstanding indebtedness between periods.
Other income (expense), net.
Other income (expense), net decreased between periods, which was primarily attributable to an increase in losses recorded from disposals of assets between periods.
Loss from equity method investments.
Loss from equity method investments increased by
$0.5 million
between periods, which was primarily attributable to the completion of the CEC Combination in December 2017.
Loss from formation of equity method investment.
During the three months ended
September 30, 2018
, we recorded a loss of
$1.2 million
related to additional commitments incurred as a result of the CEC Combination. We recorded no comparable loss in the 2017 period.
Income tax benefit (expense)
. Income tax benefit decreased between periods, primarily due to the absence of the tax benefit that arose from the Company's foreign operations following the CEC Combination (see Note
5
).
Loss attributable to noncontrolling interest.
During the three months ended
September 30, 2017
and
2018
, we recorded a
$0.7 million
and $
1.3 million
reversal of loss, respectively, for the noncontrolling interest in the net loss of our subsidiary, NG Advantage LLC (“NG Advantage”). The noncontrolling interest in NG Advantage represents a 46.7% and 46.5% minority interest that was held by third parties during the 2017 and 2018 periods, respectively.
Nine Months Ended September 30, 2018
Compared to
Nine Months Ended September 30, 2017
The table below presents, for each period indicated, each line item of our statement 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.
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2017
|
|
2018
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
Product revenue
|
83.9
|
%
|
|
88.3
|
%
|
|
Service revenue
|
16.1
|
|
|
11.7
|
|
|
Total revenue
|
100.0
|
|
|
100.0
|
|
|
Operating expenses:
|
|
|
|
|
|
|
Cost of sales (exclusive of depreciation and amortization shown separately below):
|
|
|
|
|
|
|
Product cost of sales
|
62.7
|
|
|
55.8
|
|
|
Service cost of sales
|
8.0
|
|
|
5.4
|
|
|
Inventory valuation provision
|
5.2
|
|
|
—
|
|
|
Selling, general and administrative
|
28.5
|
|
|
22.8
|
|
|
Depreciation and amortization
|
17.3
|
|
|
15.8
|
|
|
Asset impairments and other charges
|
24.0
|
|
|
—
|
|
|
Total operating expenses
|
145.7
|
|
|
99.8
|
|
|
Operating income (loss)
|
(45.7
|
)
|
|
0.2
|
|
|
Interest expense
|
(5.3
|
)
|
|
(5.2
|
)
|
|
Interest income
|
0.5
|
|
|
0.9
|
|
|
Other income (expense), net
|
0.0
|
|
|
(0.1
|
)
|
|
Loss from equity method investments
|
0.0
|
|
|
(1.1
|
)
|
|
Gain from extinguishment of debt
|
1.3
|
|
|
—
|
|
|
Gain from sale of certain assets of subsidiary
|
27.7
|
|
|
—
|
|
|
Loss from formation of equity method investment
|
—
|
|
|
(0.5
|
)
|
|
Loss before income taxes
|
(21.5
|
)
|
|
(5.8
|
)
|
|
Income tax benefit (expense)
|
0.9
|
|
|
(0.1
|
)
|
|
Net loss
|
(20.6
|
)
|
|
(5.9
|
)
|
|
Loss attributable to noncontrolling interest
|
0.7
|
|
|
1.7
|
|
|
Net loss attributable to Clean Energy Fuels Corp.
|
(19.9
|
)%
|
|
(4.2
|
)%
|
|
Revenue.
Revenue decreased by
$2.1 million
to
$250.2 million
in the
nine
months ended
September 30, 2018
, from
$252.3 million
in the
nine
months ended
September 30, 2018
. This decrease was primarily due to the absence of compressor revenue and lower station construction sales and volume -related revenue, partially offset by the addition of AFTC revenue.
Compressor revenue decreased by
$17.6 million
between periods due to the completion of the CEC Combination in December 2017 (see Note
5
).
Station construction sales decreased by
$13.2 million
between periods, principally due to fewer full station and station upgrade projects in process.
Volume -related revenue decreased by
$2.2 million
between periods, primarily due to reduced revenue received from sales of RINs and LCFS Credits, which was due in large part to the effects of the BP Transaction (see Note
4
) as described in the MD&A contained in our
2017
Form 10-K and, to a lesser extent, the decrease in natural gas prices between periods.
Our effective price per gallon charged was
$0.74
for the
nine
months ended
September 30, 2018
, a
$0.02
per gallon decrease from
$0.76
per gallon for the
nine
months ended
September 30, 2017
. The decrease in our effective price per gallon between periods was primarily due to lower revenue from sales of RINs and LCFS Credits and, to a lesser extent, the decrease in natural gas prices between periods.
AFTC revenue increased by
$26.9 million
between periods due to the absence of AFTC in the 2017 period and our recognition in the 2018 period of AFTC revenue for all of the vehicle fuel we sold in 2017.
Cost of sales.
Cost of sales decreased by
$38.3 million
to
$153.3 million
in the
nine
months ended
September 30, 2018
, from
$191.5 million
in the
nine
months ended
September 30, 2017
. This decrease was primarily due to a
$13.2 million
inventory valuation provision recorded in the three months ended September 30, 2017 (see Note
3
), a
$16.4 million
decrease in costs related to our former compressor manufacturing business due to the completion of the CEC Combination in December 2017 (see Note
5
) and a
$10.6 million
decrease in costs related to lower station construction sales.
Our effective cost per gallon decreased by
$0.01
per gallon between periods, to
$0.48
per gallon in the
nine
months ended
September 30, 2018
from
$0.49
per gallon in the
nine
months ended
September 30, 2017
. The decrease in our effective cost per gallon was primarily due to a decrease in natural gas prices between periods and, to a lesser extent, the sale of our RNG production facilities in the BP Transaction, resulting in no costs to operate these facilities incurred in the 2018 period.
Selling, general and administrative.
Selling, general and administrative expenses decreased by
$14.8 million
to
$57.1 million
in the
nine
months ended
September 30, 2018
, from
$71.9 million
in the
nine
months ended
September 30, 2017
. This decrease was primarily driven by continued cost reduction efforts and reduced administrative costs due to the completion of the CEC Combination in 2017.
Depreciation and amortization.
Depreciation and amortization decreased by
$4.3 million
to
$39.5 million
in the
nine
months ended
September 30, 2018
, from
$43.8 million
in the
nine
months ended
September 30, 2017
, primarily due to asset impairments related to our station closures and former natural gas compressor manufacturing business recorded during the third quarter of 2017.
Asset impairments and other charges.
During the three months ended September 30, 2017, we recorded asset impairments and other cash and non-cash charges totaling
$60.7 million
related to our station closures, our former natural gas fueling compressor manufacturing business, our workforce reduction and other steps taken to reduce overhead costs. See Note
3
for more information. We recorded no comparable charge in the
2018
period.
Interest expense.
Interest expense decreased by
$0.4 million
to
$13.1 million
in the
nine
months ended
September 30, 2018
, from
$13.5 million
in the
nine
months ended
September 30, 2017
. This decrease was primarily due to a reduction of outstanding indebtedness between periods.
Other income (expense), net.
Other income (expense), net increased between periods, which was primarily attributable to the absence of our former compressor subsidiary in the 2018 period.
Loss from equity method investments.
Loss from equity method investments increased by
$2.6 million
between periods, which was attributable to the completion of the CEC Combination in December 2017.
Gain from extinguishment of debt.
During the
nine
months ended
September 30, 2017
, we recorded a gain of
$3.2 million
related to the extinguishment of debt. We recorded no comparable gain in the
2018
period.
Gain from sale of certain assets of subsidiary.
During the
nine
months ended
September 30, 2017
, we recorded a gain of $
69.9 million
related to the BP Transaction. We recorded no comparable gain in the
2018
period.
Loss from formation of equity method investment.
During the
nine
months ended
September 30, 2018
, we recorded a loss of
$1.2 million
related to additional funding for certain commitments incurred as a result of the CEC Combination. We recorded no comparable loss in the 2017 period.
Income tax benefit (expense)
. Income tax benefit decreased between periods. The change was primarily due to a decrease in the deferred tax benefit due to the completion of the reduction of goodwill amortization following the BP Transaction.
Loss attributable to noncontrolling interest.
During the
nine
months ended
September 30, 2017
and
2018
, we recorded a
$1.8 million
and
$4.2 million
reversal of loss, respectively, for the noncontrolling interest in the net loss of NG Advantage. The noncontrolling interest in NG Advantage represents a 46.7% and 46.5% minority interest that was held by third parties during the 2017 and 2018 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, our capital expenditure requirements and any merger, divestiture or acquisition activity, as well as 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 impact these results, including the amount and timing of our billing, collections and liability payments, completion of our station construction projects and receipt of government credits, grants and incentives.
Cash Flows
Cash provided by operating activities was
$29.0 million
in the
nine
months ended
September 30, 2018
, compared to
$3.4 million
used in operating activities in the comparable
2017
period. The increase in cash provided by operating activities was primarily attributable to the AFTC revenue collected in June 2018, in addition to changes in working capital resulting from the timing of receipts and payments of cash.
Cash provided by investing activities was
$34.3 million
in the
nine
months ended
September 30, 2018
, compared to
$50.3 million
provided by investing activities in the comparable
2017
period. Cash provided by investing activities for the nine months ended September 30, 2018 consisted primarily of maturities and sales of short-term investments, net of purchases. Cash provided by investing activities for the nine months ended September 30, 2017 consisted primarily of cash received in connection with the sale of our assets relating to our RNG production business in the BP Transaction.
Cash provided by financing activities in the
nine
months ended
September 30, 2018
was
$59.6 million
, compared to
$43.9 million
used in financing activities in the comparable
2017
period. Cash provided by financing activities for the nine months ended September 30, 2018 consisted primarily of cash proceeds, net of fees, from our issuance of stock in the Total Private Placement, partially offset by our repayment of capital lease obligations and debt instruments. Cash used in financing activities for the nine months ended September 30, 2017 consisted primarily of our repayment of borrowings under a revolving line of credit and our repayment of capital lease obligations and debt instruments, partially offset by cash proceeds from our issuance of stock in the ATM Program, as discussed below.
Capital Expenditures and Other Uses of Cash
We require cash to fund our capital expenditures, operating expenses and working capital 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, debt repayments and repurchases, purchases of CNG tanker trailers and natural gas heavy-duty trucks, maintenance of LNG production facilities, any investments in other entities, mergers and acquisitions (if any), financing natural gas vehicles for our customers, pursuing market expansion as opportunities arise, including geographically and to new customer markets, supporting our sales and marketing activities, including support of legislative and regulatory initiatives, and other general corporate purposes.
Our business plan calls for approximately
$15.0 million
in capital expenditures for 2018. Our capital expenditures primarily relate to the construction of CNG fueling stations, IT software and equipment and LNG plant maintenance costs.
In addition, NG Advantage may spend as much as
$15.0 million
to purchase additional CNG trailers and equipment in support of its operations and customer contracts; NG Advantage intends to seek financing from third parties for such capital expenditures.
We had total indebtedness of approximately
$239.1 million
in principal amount as of
September 30, 2018
, of which approximately
$111.8 million
,
$55.5 million
,
$55.3 million
,
$4.9 million
,
$4.4 million
and
$7.2 million
is expected to become due in
2018
,
2019
,
2020
,
2021
,
2022
and thereafter, respectively. Of these amounts, on October 1, 2018, we paid to the holders, in cash, an aggregate of
$110.5 million
in principal amount plus
$2.9 million
in accrued and unpaid interest owed under all then-outstanding 5.25% Notes.
We expect our total interest payment obligations relating to our indebtedness to be approximately
$16.7 million
in
2018
,
$9.4 million
of which had been paid when due as of
September 30, 2018
and
$2.9 million
of which was paid on October 1, 2018. As of
September 30, 2018
, we are permitted to issue up to
14.0 million
shares of common stock to repay part of the outstanding principal amount of certain of our convertible notes. 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.
We may also elect to invest additional amounts in companies, assets or joint ventures in the natural gas fueling infrastructure, vehicle or services industries, RNG production, or use capital for other activities or pursuits, in addition to those described above.
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. In addition, our revolving credit facility with PlainsCapital Bank (“Plains”), as described below, provides us with an additional source of liquidity. As of
September 30, 2018
, we had total cash and cash equivalents and short-term investments of $
254.1 million
, compared to $
177.5 million
as of
December 31, 2017
.
We expect cash provided by our operating activities to fluctuate depending on our operating results, which can be affected by the amount and timing of natural gas vehicle fuel sales, station construction sales, sales of RINs and LCFS Credits and recognition of other government credits, grants and incentives, such as AFTC; volatility in commodity costs and natural gas prices; and the amount and timing of our billing, collections and liability payments, as well as other factors described in this MD&A and elsewhere in this report.
On June 13, 2018, we completed the Total Private Placement and received
$83.4 million
of gross cash proceeds from the transaction. See “Recent Developments” above and Note
16
for more information.
On March 31, 2017, we completed the BP Transaction. The net proceeds to us from the BP Transaction were approximately
$142.2 million
. See Note
4
for more information.
In November 2015, we commenced an “at-the-market” offering program (the “ATM Program”), under which we were entitled to issue and sell, from time to time through or to a sales agent, shares of our common stock having an aggregate offering price of up to $200.0 million. From the commencement of the ATM Program until our termination thereof on May 31, 2017, we received aggregate net proceeds of
$117.9 million
from sales of our common stock in the program.
The following table summarizes the activity under the ATM Program for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Nine Months Ended September 30, 2017
|
|
Inception through May 31, 2017
|
|
Gross proceeds
|
|
$
|
10.8
|
|
|
$
|
121.3
|
|
|
Fees and issuance costs
|
|
0.3
|
|
|
3.4
|
|
|
Net proceeds
|
|
$
|
10.5
|
|
|
$
|
117.9
|
|
|
Shares issued
|
|
3.8
|
|
|
36.4
|
|
|
On February 29, 2016, we entered into a loan and security agreement with, and issued a related promissory note to, Plains, pursuant to which Plains agreed to lend us up to $50.0 million on a revolving basis with a maturity date on September 30, 2019 (the “Credit Facility”). Simultaneously, we drew $50.0 million under the Credit Facility, which we repaid in full on August 31, 2016. On December 22, 2016, we drew $23.5 million under the Credit Facility, which we repaid in full on March 31, 2017. As a result, we had no amounts outstanding and $50.0 million of availability under the Credit Facility as of
September 30, 2018
.
See Note
13
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 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 or other expenses that we cannot fund through cash on-hand, cash provided by our operations or other sources.
The timing and necessity of any future capital raise would depend on various factors, including our rate and volume of natural gas sales and other volume-related activity, 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 maintain and build our business and generate sustained or increased revenue.
Off-Balance Sheet Arrangements
As of
September 30, 2018
, we had the following off-balance sheet arrangements that had, or are reasonably likely to have, a material 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
$29.8 million
;
|
|
|
•
|
One
long-term natural gas contract with a take-or-pay commitment;
|
|
|
•
|
One long-term natural gas contract with a fixed supply commitment along with a guaranty agreement; and
|
|
|
•
|
Operating leases where we are the lessee.
|
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 of
September 30, 2018
, we had
one
long-term natural gas contract with a take-or-pay commitment, which requires us to purchase minimum volumes of natural gas at index based prices and expires in December 2020.
NG Advantage has entered into an arrangement with BP for the purchase, sale and reservation of a specified volume of CNG transportation capacity over a five-year period, or until March 2022. In connection with the arrangement, on February 28, 2018, we entered into a guaranty agreement with NG Advantage and BP in which we guarantee, in an amount up to
$30.0 million
plus related fees, NG Advantage’s payment obligations to the customer in the event of a default by NG Advantage under the arrangement. Our guaranty is in effect until thirty days following our notice to BP of termination.
We have entered into operating lease arrangements for certain equipment and for our office and field operating locations in the ordinary course of our business. The terms of our leases expire at various dates through 2038. Additionally, in November 2006, we entered into a ground lease for 36 acres in California on which we built our California LNG liquefaction plant. The lease is for an initial term of 30 years and requires payments of $0.2 million per year, plus up to $0.1 million per year for each 30 million gallons of production capacity utilized, subject to adjustment based on consumer price index changes. We must also pay a royalty to the landlord for each gallon of LNG produced at the facility, as well as a fee for certain other services that the landlord provides.