Clean Energy Fuels Corp (CLNE) 2015 Q4 法說會逐字稿

Greetings, and welcome to the Clean Energy Fuels fourth quarter and year-end 2015 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Tony Kritzer, Director of Investor Relations. Go ahead, Mr. Kritzer.

Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the fourth quarter and full year ending December 31, 2015. If you did not receive the release, it is available on the investor relations section of the Company's website, at www.cleanenergyfuels.com, where the call is also being webcast. There will be a replay available on the website for 30 days.

Before we begin, we'd like to remind you that some of the information contained in the news release, and on this conference call, contains forward-looking statements that involve risks, uncertainties, and assumptions that are difficult to predict. Words of expression reflecting optimism, satisfaction with current prospects, as well as words such as believe, intend, expect, plan, should, anticipate, and similar variations identify forward-looking statements, but their absence does not mean that the statement is not forward-looking.

Such forward-looking statements are not a guarantee of performance, and the Company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the risk factors section of Clean Energy's form 10-K filed March 3, 2015. These forward-looking statements speak only as of the date of this release.

The Company undertakes no obligation to publicly update any forward-looking statements, or supply new information regarding the circumstances after the date of this release. The Company's non-GAAP EPS and adjusted EBITDA will be reviewed on this call, and exclude certain expenses that they Company's management does not believe are indicative of the Company's core business operating results. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP, and should not be considered a substitute for, or superior to, GAAP results.

The directly comparable GAAP information, reasons why Management uses non-GAAP information, a definition of non-GAAP EPS and adjusted EBITDA, and a reconciliation between these non-GAAP and GAAP figures is provided in the Company's press release, which has been furnished to the SEC on Form 8-K today.

Participating on today's call from the Company is President and Chief Executive Officer Andrew Littlefair, and Chief Financial Officer Bob Vreeland. And with that, I will turn the call over to Andrew.

Thank you Tony, good afternoon everyone, and thank you for joining us.

I'm going to keep my remarks focused on what we feel are the most important take-aways from 2015, and looking forward into 2016. For the fourth quarter, we delivered 78.3 million gallons to our customers. This is an 8% increase over the 72.4 million gallons we delivered during the fourth quarter of 2014. For the full year, we delivered 308.5 million gallons, a 16% or 43 million gallon increase.

I think it's important to remind everyone that despite the global oil price decline, and the rippling effects it has caused throughout the energy industry, we have continued to grow our delivered volumes in every single quarter. We are growing in the most challenging energy market in quite some time, and our recurring revenue model is intact. We reported fourth-quarter revenue of $119 million, which included $31 million of alternative fuel tax credit. For the full year, we reported revenue of $384 million.

Revenue was down compared to last year principally because of three reasons, including lower commodity costs. While lower natural gas commodity prices are good for us and for our customers, they do impact our top line revenue. Revenues were also impacted by continued softness in the global compressor business, due to lower oil prices and a strong US dollar. And finally, our station construction revenues were down as compared to 2014, because we completed more station upgrade projects and fewer full stations. All told, we completed 67 station projects in 2015.

It is important to note that our station construction projects tend to be cyclical, between station upgrades versus full stations, and we anticipate construction revenues in 2016 to benefit from an increase of full station projects. We currently have more refuse station construction projects in the pipeline for 2016 than we've ever had in our history. We believe our robust construction pipeline is a solid indicator that our customers continue to make investments in expanding their fleets, and remain committed to their sustainability goals.

As I've emphasized on previous earnings calls, natural gas fueling is the most effective and immediate solution a Company can take towards achieving greater sustainability. These environmental benefits will be unmatched with the Cummins Westport low NOx engine, especially when combined with our Redeem renewable fuel. This combination is cleaner than running an electric vehicle that is plugged into the grid.

As we announced in early February, Redeem sales more than doubled 2015, to 50 million gallons, and have become an important fuel for customers like UPS, Rider, Republic Services, and many transit agencies. Another significant point I'd like to make is that beginning in the third quarter of last year, we crossed over into positive adjusted EBITDA. We were positive again in the fourth quarter, with adjusted EBITDA of $32.9 million. Excluding the alternative fuel tax credit, our adjusted EBITDA was positive $1.9 million. Furthermore, we believe that we will continue to trend positively each quarter of 2016.

Lastly, I want to provide an update on our capital structure. We finished 2015 with approximately $147 million of cash and investments on the balance sheet. Our highest and most immediate priority is to address the 2016 convertible notes, and we repaid $60 million of those notes with cash earlier this week. We expect to repay the remaining balance with a combination of cash and stock. We have also recently bought back $32.5 million of our 2018 convertible notes.

All told, so far in the first quarter, we reduced our convertible debt by $92.5 million. What I want to emphasize is that we already have several incoming sources of cash, including positive EBITDA, a credit line based on working capital, the alternative fuel tax credit, and proceeds from our at-the-market stock sale program. Our principal uses of cash this year will be for CapEx, interest expense, the opportunistic buyback of the 2018 convertible notes, and paying the remainder of the cash portion of the 2016 convertible notes.

We believe our cash position will be about the same at the end of 2016 as it was at the end of 2015, this even after addressing the 2016 converged and a portion of the 2018 convertible notes. Our CapEx budget for 2016 is about $25 million, which has been reduced by more than 50% from 2015. This will be targeted only for projects for key anchor fleet customers. I wanted to reiterate that our business continues to grow because our largest customers continue to invest in their natural gas fleet operation, and our scale and expertise allows us to be their partner of choice across the country.

We also continue to gain new customers across our markets of transit, refuse, and trucking. The natural gas fueling industry, although facing current headwinds, will continue to be the most cost-effective and environmentally beneficial solution for commercial fleets, and is here to stay. The pressure of consumer-facing companies to reduce their carbon footprint and emission levels only continues --

Ladies and gentlemen, please stand by Ladies and gentlemen, we do apologize for the inconvenience. Our speaker line has disconnected. Give us one moment, and we will get them right back. Sorry about that. Okay, gentlemen, you're back.

Good. Sorry, everybody, it looked like our call dropped. I was just wrapping up my remarks. Let me just say that our focus for 2016 is very straightforward: deleveraging the balance sheet, conserving cash, and growing volumes.

And with that, I'll turn the call over to Bob.

Thank you, Andrew, and good afternoon to everyone.

Overall, we had a good fourth quarter, with 8% volume growth from a year ago, and positive adjusted EBITDA. As Andrew mentioned, annual volumes grew by 43 million gallons, or 16.4%. We've seen growth in all of our sectors, including refuse, transit, trucking, and industrial. On our renewable natural gas, we saw a decline compared to 2014, due to the sale of our Dallas Biomethane plant at the end of 2014.

Our revenues for the fourth quarter of 2015 and for the year were less than the same periods in 2014, which is consistent with what we have seen during the first three quarters of 2015. However, it's important to note that we have improved our adjusted EBITDA in 2015, despite the lower revenue, in part as a result of lower commodity costs, improved operating results at our compression business, lower SG&A spending, together with gross profit margin benefits from our volume growth.

Our gross profit margin per gasoline gallon equivalent for the fourth quarter, including our low carbon fuel standards credits, or LCFS credits, was $0.28 per gallon, which compares to $0.28 per gallon in the fourth quarter of 2014. For clarification, we have included the LCFS credits in our volume related revenue and gross profit margin per gallon, similar to how we include our RIN credits in our volume related revenue and margin per gallon. And we will continue this approach on a go forward basis.

While we have seen some pressure on fuel margins from this low oil and diesel price environment, the environment credits, the RINs and the LCFS, have benefited our gross profit margin per gallon in 2015. It's a testament to the fact that we have both economics associated with fueling natural gas, and additional economic benefits from the environmental attributes of our product offering. Clean Energy Compression Corp also saw improvements in gross margin, as we continue to move into a standardized product offering.

Our SG&A spending of $26.6 million in the fourth quarter of 2015 was 12% lower than a year ago, and 4% lower than the third quarter. Throughout 2015, we took appropriate actions on SG&A spending, given the low price environment, and have seen a reduction each quarter. On a year-over-year basis, we have reduced SG&A by approximately $13 million, or 10%. And compared to 2013, SG&A has been reduced 18%, or $24 million, while volumes have increased 44%.

Also, because we have been successful in sourcing LNG from 27 different locations across the US, and since we are closely monitoring and reducing our CapEx, we canceled our $200 million credit facility with GE. Which we put in place three years ago, specifically to finance the construction of two additional LNG plants. Since we never initiated construction of the LNG plants, this facility was undrawn. However, the cancellation of the credit facility meant we could cancel $4 million issued but unvested warrants.

This had the effect of a $54.9 million non-cash interest charge in Q4, and saves us around $1 million annually, in cash, from not having to pay standby commitment fees. Our adjusted EBITDA for fourth quarter of 2015 was $32.9 million, compared to $37.2 million in 2014. Although, from a comparability standpoint, 2014 included a $12 million gain from the sale of our Dallas Biomethane plant. Our adjusted EBITDA has improved each quarter in 2015, crossing over to positive adjusted EBITDA in Q3, and again in Q4. We see this trend continuing into 2016.

For the year, adjusted EBITDA was $27.8 million, compared to $23.7 million in 2014, keeping in mind 2014 included the $12 million gain. Regarding the alternative fuel tax credit, what we refer to as VETC, we recorded $31 million of VETC revenue in December 2015, representing VETC for the full year of 2015. On a side note, we collected the $31 million last week. Going forward in 2016, we will recognize VETC on a quarterly basis, since the tax credit is in effect through 2016.

As Andrew mentioned, we have reduced our convertible debt -- our convertible note debt by $92.5 million thus far in the first quarter of 2016. We utilized existing cash and established a $50 million line of credit, which has a significantly lower interest rate than the convertible debt, and is collateralized by a portion of our short-term investments.

With that, operator, we will open the call to questions.

Thank you, gentlemen. At this time, we will be conducting a question-and-answer session.

(Operator Instructions)

Rob Brown from Lake Street Capital Markets.

Good afternoon. Thanks for taking my call.

Hey, Rob.

On your gallon volume growth, you had nice growth in 2015. What is your thinking on 2016? Should you be able to get double-digit volume growth in 2016, as well?

Rob, we probably don't typically quote you a number on that, going forward and giving guidance. But one of the strengths that we have is our recurring model. So we are seeing very good continuation of the strength of our refuse business, and we've actually had some good wins in transit, and our transit customers continue to take transit buses. So we will have an increase in volume.

I'm not going to go out on a limb, and give you exactly if it's going to be double digits or not, but we have built in our budget a good volume growth. And I don't know that it will hit -- for years and years, we were in the 20% range, Rob. We're down a little bit on the last year. Could be a little bit challenged, compared to 2015, but I think it will be in that neighborhood, because our existing customers continue to take more vehicles.

Okay, good. And then you talked about a new contract pipeline -- sorry, new construction pipeline being quite large. Could you give us a sense of how many units, or what industries they're for? And maybe scope that out a little bit?

Yes. We have two buckets of construction. Some are for our own account. And when you look at that CapEx, you have to take out the $25 million, you have to take out a portion of that for some trailers that will happen at our natural gas advantage subsidiary. The remainder, the majority of it, is for new stations. And those are for our account. Those are stations that we own, and you can figure those stations range around $1.5 million apiece or so.

Some of that money, in that $25 million, will go to open up our truck stop stations, as we make some of those -- we add some CNG to it, and things like that. But the bulk of our construction, which should be on the par, I would say, in terms of just building stations, if you think of that that way. We did, as I said in my remarks, what, 57 or so last year. We will be in that -- almost identical, if not up a few, from that. Most of those stations will be for our customers, and we sell those stations for those customers. And the majority of that will be work that we will do for our refuse customers.

We really have seen our refuse customers, across the board, continue to add vehicles, add stations. As I mentioned in my prepared remarks, we see the construction business ed and flow. Republic is a good example, and so is Waste. But Republic will build stations for Republic, and on one given year. The next year, they add another 10% or so of vehicles at those sites. And so we will -- we won't necessarily build more stations; we will increase the size of those stations. And then the next year, we typically add more stations, and so it goes.

So the majority of the stations that we will see in our construction business will go for refuse. And then we will have pretty good business this year on the transit side, some of which we announced yesterday.

Okay, good. And then last question, on your balance sheet, I think you said you paid down your -- a good chunk of your convert in the first quarter here. What is your plan, I guess, that's due in August? Do you plan to pay -- what is the timing on that, on the rest of that payment? And what is your plan there?

What we've said, Rob, is we would take care of it before it is due, right? So we have -- we have several months, and it's really a balance of using cash and stock. We would rather -- to the extent we are going to use stock, we would like it to be at a higher price. And -- because therefore, it will be less dilutive to the Company and shareholders, and so we will keep an eye on that. We are in very close communication, as you would imagine, with those note holders, having just sent them $60 million.

They understand what we are trying to do. They are working with us, I think, in a very cooperative fashion. And because there wasn't really anything in those notes that would allow us to prepay. So they are working with us, and we would like to use as much cash as possible. And so I would say, just watch us over the next several months, as we look -- watch what the oil price does, other things. And in the summer here, we will begin to take care of cleaning it all up.

Okay, great, thank you. I'll turn it over.

Eric Stine from Craig-Hallum.

Hi everyone, thanks for taking the questions.

How are you doing?

Maybe just an overall market picture. Clearly, the people on the fence are probably not doing a whole lot. But just curious, are you seeing any changes to the plans of some of the first movers? Any changes in behavior from the shippers, due to low oil prices?

Yes, Eric, you have it exactly the way I talk about it. If you break our business down, and you have those customers that have been at this a long time, and I don't see that there is any -- there hasn't been really any chink in the armor. Those refuse customers, there hasn't been a one that has -- that decided to go back to diesel. And really, that's been the case -- and even in our over the road trucking customers. UPS is continuing to move forward on a big deployment of natural gas trucks. But certainly, our transit customers and our refuse guys are moving forward, and I really feel like the economics are still there.

We have to remind, for the people on the call, let's remember, we still have an economic proposition. It's not as good as it was a year ago, but we are still saving versus the other fuel. And Eric, the other, I think, important point is, with all of what's going on, with the climate change and the talks in Paris, and what you see all the time, sustainability is, and continues to be, a really important thing that these consumer companies -- what we call the shippers -- they are very mindful of that.

And there are new rules being talked about in California, going forward, starting in the next couple of years. The introduction of low NOx engines really raised the bar, in terms of NOx emissions. And so look, this isn't loss. I spoke to the executive leadership of the American Trucking Association out here in California a month ago, and they are very mindful of the fact that the bar continues to be raised, in terms of them being cleaner and less carbon.

So right now, while we are a little pressed on the economics, the payout has gone from maybe, at $1, maybe a one year payback, a little longer, to now, it's closer to two years. We still have an economic offering, and our shipper friends are still putting pressure on our contracted carriers, to look for the cleanest option. And so you are right, those that were on the fence, this $1.60 diesel in the Southeast has been very challenging, and I understand why they would continue to watch. Those people that have been invested continue to move forward with the program.

Got it. Maybe just sticking with the emissions angle. There has been a lot of chatter lately about pairing Redeem with the low NOx 8.9 liter that I believe that is coming out next month. Just curious, are there any fleet opportunities you see out there that are waiting on that engine? And then maybe any government programs, whether it is Prop 1B funding or others, that fit into that?

It's a good point, Eric. I think we really have captured people's -- in fact, there was a conference -- industry conference, pretty will attended, out here in Long Beach a couple weeks ago, where it was called Game Changer. And it was the introduction of this low NOx engine. And remember, this engine is 90% less NOx, and you compare it -- I'm sorry, you combine it with our Redeem product, and you're 90% less carbon. That's really powerful. In my remarks, I said it is even -- it is cleaner than electric vehicle.

And it is substantially cleaner than anything that is on the books right now, and so we see that as a very important thing in the future. It won't come to the 12 liter, for another couple years, in 2018. You are exactly right. That engine is now -- if you are ready to order one of those engines, you go to the OEMs, and that process is in the works as we speak. I think you are going to see some efforts to put these engines, with that fuel, in the Port of LA, as they continue to work on cleaning up the environment down there.

There is talk of new standards in California, where a portion of renewable natural gas will be required, going forward. So yes, I really think that for natural gas, the renewable fuel is going to be an important piece, as well as this engine. I'm excited about it, because it really ups the game, ups the ante, for all the other competing alternative fuels. The electrics can't get there in heavy-duty, on our cost basis, and other fuels are just really miles behind. So when we get a little help on the oil price, you are going to be able to see really powerful economics again, and this environmental advantage, with the low NOx and with the low carbon fuel.

Okay. Maybe just one last one for me, just on the SG&A, just any thoughts on additional levers there? Good to see that come down again. Just wondering how we should think about that trending in 2016?

Hi Eric, it is Bob. Trending, there is room there. I don't know that it will reduce every single quarter, but there is more room to -- that that will trend a little bit down, probably for the whole year.

We've made additional trim and a little additional reduction. Keep in mind, we are growing, and so there is a limit here. As Bob mentioned, over the last couple of years, we have grown 40% of volume or so, and we have reduced our SG&A by 18%, or whatever it is. And we are continuing to cut this year.

We are beginning to get to the point where it's -- we are getting close to, I think, being at about the right level on the SG&A spending. So I guess if you look at it, going forward, if you're doing some modeling, you are beginning to get about, I think, where you could level it off at this level. We may see it come down a little bit more.

Right, and that's just because some of the actions that we've taken, you haven't seen a full year in 2015. And so it's not so much about taking more actions; it's about feeling the effects of what we've already done for a full year. But that ends up being a little bit less than, say, if you were to go in and start taking some other actions.

Okay. Thanks a lot.

Ian Scime from Highbridge Capital.

Hi guys, first off, congrats on the quarter, and thanks for taking my question. This is really just a housekeeping item. So first off, we are really encouraged to see the proactive measures you guys are taking to address the balance sheet. So just a quick question on VTEC. The additional $31 million that you guys got came in after quarter end, correct? So if I think about your pro forma cash before the debt repurchases, it's actually closer to $180 million? Is that correct?

Yes. Yes, we received that here in -- last week.

Okay, great. And then going forward, it's on a quarterly basis, correct?

Yes. And there is a filing piece. Se we will recognize it in our numbers, for sure. The collection, then, is a little bit dependent upon the US government.

Understood. Okay, that's it for me. Thanks, guys.

Okay.

Pavel Molchanov from Raymond James.

Hey, guys. First, a small housekeeping follow-up on the previous question. What was operating cash flow in Q4? It was still negative, because you hadn't collected the VTEC, is that right?

Yes. It was about negative 11 in Q4.

Okay, got it.

So that -- yes, so it -- because we were, year to date, about negative 1, so -- and we ended 2015 at negative 12.

Okay, perfect. And then a little more broadly, so you guys have had some PR about supplying LNG fueled ships on the West Coast. There was a deal signed a couple weeks ago, between Shell and Maersk, to develop the LNG marine fuel market. Is that still an early stage opportunity? Or are you actually seeing some more substance to that addressable market?

Pavel, I think it's still early. But as I think you point out, it seems to continue to -- we keep seeing things pop up here and there. I think there has been a few other ship announcements on both coasts. It seems like there is a trend there, but it is slow, right? You have got to re-power these ships. It takes time and dry dock, and these engines -- it seems to be slow. So I don't think you are going to see it hockey stick here, but it seems like there is more happening all the time on that front.

Okay. Is there any hope for LNG volumes? Because it seems like they're on a continual downward trend for you guys.

They are a little flat, yes, but -- and I would say there is hope. Yes. Absolutely. Because --

Yes, I think so. I think you are going to see -- our view is that as the adoption rate picks up, it's going to be essentially flat, I think, on the heavy-duty trucking side. Pavel, we saw the LNG was flat, mainly -- the trucking increased, actually, but it was flat because of the oil patch, where we are selling LNG into the oil patch. So last year, that part of the business, the stationery part, was down. I think, though, over a longer period of time, and leaving the oil patch aside, and asphalt plants and some other things that we have done, is that we still believe -- and I know you and I, we have disagreed over time on this. But we see that the LNG will be viable in the irregular part of the business.

It's been a success with our Raven friends, who have just added more trucks here, that we have released yesterday. And we have some other customers that are doing the same. So I think, as we get by this environment, where it's been relatively flat, where you see the CNG versus LNG split, 70/30 or so, I still think there is plenty of room for LNG. So I think, over time, as this spreads and goes into more fleets, gets a little deeper into the country, and it becomes more sleeper cabs, more irregular routes, you will see LNG take a good share of that market, because of the advantages that it has, range and weight and other things.

Appreciate it guys.

Okay, thank you.

There are no further questions at this time. I'd like to turn the conference back over to Andrew Littlefair for any closing comments.

Good. Thank you, operator, and thank you all for dialing in this afternoon. We look forward to updating you on our progress next quarter.

Thank you.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your time and participation. You may disconnect your lines at this time, and have a wonderful rest of your day.