Clean Energy Fuels Corp (CLNE) 2016 Q2 法說會逐字稿

Greetings, and welcome to the Clean Energy Fuels second-quarter 2016 earnings conference all. (Operator Instructions)

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Tony Kritzer, Director of Investor Relations. Please go ahead.

Thank you, Operator. Earlier this afternoon, Clean Energy released financial results for the second quarter ending June 30th, 2016.

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-Q filed August 9th, 2016.

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 the 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 as 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.

As I have over the last two quarters, I'm going to keep my remarks focused on the most important takeaways from what we feel was another very positive quarter.

We reported second-quarter revenue of $108 million, which is a 24% increase over the second quarter of last year.

Additionally, we reported $26.7 million of adjusted EBITDA, which is a $29 million improvement over the second quarter of 2015. This is the fourth straight quarter where we reported positive adjusted EBITDA.

The second quarter of 2016 included $6.5 million of VETC and a gain of $10.1 million dollars from our convert buybacks. However, even when these very real benefits are backed out, our adjusted EBITDA was still positive $10.1 million, which is a $12.7 million improvement over the second quarter of 2015.

We delivered 82.9 million gallons to our customers. This is an 11% increase over the 74 million gallons we delivered during the second quarter of 2015.

On the last few earnings calls, I told you that a primary focus for 2016 would be to de-leverage the balance sheet, conserve cash, and grow volumes.

To that end, I am pleased to report that we recently retired the remaining $85 million of convertible notes that were outstanding and due at the end of this month. No amounts remain due and all of the 2016 notes have been paid in full.

So far this year we have paid down or repurchased $214 million of convertible debt, taken our convertible debt from $545 million down to $331 million, a 39% reduction.

At the end of the second quarter, we had approximately $182 million in cash and short-term investments on our balance sheet.

The capital we raised with those convertible notes was used primarily to build out the initial phase of America's Natural Gas Highway.

Our growing volume and improved financial results are a testament to our ability to leverage our extensive station network with new customers and expanding with our existing customers.

Additionally, we reduced our SG&A by 13% year over year, while growing our volume 11% and revenues 24%.

We have also increased our margin per gallon 20% over the second quarter of last year.

Our CapEx budget for 2016 is on track to be around $25 million, which is 50% less than last year. So we are executing on our plan to reduce our debt and conserve cash.

Keep in mind that all these improved operational results came in the face of continued challenging low oil and diesel prices.

I am proud of the hard work and focus our employees have demonstrated to successfully navigate a really tough environment.

The success we had this quarter was a result of many of our longtime customers continuing to make investments in their own natural gas fleets and operations.

Our enduring partnerships with companies like Waste Management, Republic Services, and LA Metro, to name a few, have built a strong recurring revenue model that is the foundation of our continued growth.

In fact, LA Metro recently released a study in which they concluded that natural gas was the most cost-effective and cleanest solution for their fleet of almost 2,300 buses. The study even considered electric buses, but concluded that natural gas was the superior solution.

We believe other transit fleets, as well as many other heavy fuel use fleets are reaching the same conclusion.

A couple of good examples include the California cities of Santa Clarita, which recently extended a 1.3 million gallon-a-year agreement with us for four years, and Culver City, which last month awarded us a contract to expand their CNG fueling capability.

These two transit authorities continue to show their commitment to the cleaner fuel, and altogether will be adding about 170 CNG buses to their fleets.

There are several developing initiatives both on the federal and state level that are very bullish for the advancement of natural gas vehicles as a cleaner alternative.

One example is from the recent Volkswagen settlement, where $2.7 billion from the settlement is being allocated towards heavy-duty, lower NOx trucks. California alone is set to receive $381 million of that settlement. And we are confident that a large portion of those funds will be allocated toward low NOx natural gas trucks, and we expect to benefit.

We are impressed with the California Air Resources Board on their proposed state implementation to promote the adoption of 900,000 medium and heavy-duty trucks to low NOx over the next 15 years.

In addition, 50% of the fuel must be renewable like our Redeem fuel. This is significant news and recognizes the threat NOx poses to air quality and the impact cleaner trucks and fuel could have on it.

The good news is a solution is currently available with the Cummins Westport 8.9 low NOx emission engine, soon to be followed by the 11.9 and 6.7 liter engines.

Turning now to our renewable fuel business, we continue to see increase interest in demand for our renewable fuel offering. Through our robust network of stations, we have established a pathway to distribute Redeem, a renewable green gas in the vehicles.

This is the best way to realize the full value of renewable fuel, which contributed $13 million of revenue in the second quarter.

I want to emphasize that our nationwide infrastructure has enabled us to benefit from this rapidly growing renewable fuel market and differentiates us from competitors.

We have expanded the Redeem program beyond California to other states, such as Oregon and Texas.

Companies like UPS, Kroger, Ryder, Republic Services, and many transit agencies use Redeem and understand the significance.

Turning now to our station construction, we benefited during the second quarter from an increase in full station projects.

So far this year we have completed 29 station projects and are on pace to complete 66 stations and station projects by the end of 2016.

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.

All told, we believe it was a strong quarter and we executed on our stated plan to de-leverage the balance sheet, grow our volumes, and conserve our cash.

This year we reduced our convertible debt by $214 million and achieved positive adjusted EBITDA for the fourth straight quarter.

We grew our volumes over 11% and we increased our revenue 24%.

Our margin per gallon improved year over year and our CapEx and SG&A were reduced, all this in the face of a continued low oil and diesel price environment.

Our largest customers continue to buy new trucks and invest in their natural gas operation, and we continue to gain new customers across our market of transit, refuse, and trucking.

There is much more work to be done, but we feel that we are successfully navigating our business and are well-positioned to capitalize on the enormous opportunity in front of us.

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

Thank you, Andrew, and good afternoon to everyone.

Our financial results continued on a positive trend in the second quarter. The second quarter financial results benefited from higher volumes at higher gross margins per gallon, increased station construction sales, and the alternative fuel tax credit or VETC.

The second quarter volume of 82.9 million gallons was an increase of 8.5 million gallons from a year ago and came from both CNG and LNG, partially offset by a slight decline in RNG gallons sold into the non-vehicle fuel sector.

We saw volume growth in all of our sectors led by refuse, NG Advantage, and our bulk supply sector.

Part of the reason for the slight decline in RNG gallons was due to the fact that we have sold more RNG gallons as Redeem into our fueling network, and the Redeem gallons are included in our CNG and LNG gallons.

Redeem volume for the quarter was 14.9 million gallons.

Our increase in second-quarter revenue over a year ago was driven by higher volumes, increased construction sales, and VETC.

Year over year, our third-party compressor sales were down principally due to the continued global oil price environment and strong US dollar on the international front.

Compressor sales into North America, which are reported within our construction sales were up slightly from last year, consistent with the increase in our construction activity.

Our overall gross profit margin improved from a year ago due to a higher effective margin per gallon on higher volumes, as well as the benefit of increased construction sales and the addition of VETC in 2016.

Our effective margin per gallon was $0.35 per gallon compared to $0.29 for the second quarter of 2015.

Both quarters include the state and federal environmental credits LCFS and the RINs.

The combined environmental credits contributed $12.2 million dollars of profit margin in the second quarter of 2016, compared to $4.2 million in 2015, again demonstrating the economic benefits from the environmental attributes of natural gas and Redeem.

Our SG&A of $25.3 million in the second quarter was 13% lower than a year ago and flat with the first quarter of 2016.

This has been a continuing trend and is the result of the actions we've taken given the low oil price environment.

We also recorded a $10.1 million gain on the retirement of $36.5 million of our 2018 convertible debt.

The higher revenues and gross profit margin and lower SG&A, along with the gain on debt repurchase, lead to GAAP net income of $1.5 million in the second quarter of 2016, compared to a GAAP net loss of $30 million a year ago. And also led to an improvement of $29.4 million in adjusted EBITDA for the second quarter compared to a year ago.

Excluding VETC and the debt repurchase gain, adjusted EBITDA improved by $12.7 million when compared to the second quarter of 2015.

Year to date we are at $4.4 million of GAAP net income versus a loss of $61.1 million for the same period in 2015.

Adjusted EBITDA has improved by $64.7 million on a year-to-date basis compared to last year. Exclusive of VETC and the debt repurchase gain, adjusted EBITDA has improved by $25.8 million to date through June, compared to last year.

As Andrew mentioned, we had $182 million of cash and investments at the end of the second quarter. In July we paid $38 million in cash and issued 14 million shares of common stock to pay off the remaining balance of our 2016 convertible notes.

We believe we are in a good position with our cash and investments. Our operating cash flow for the first six months of 2016 improved by $30 million compared to last year. And we've made good progress on our 2018 5.25% convertible debt, which we've reduced by nearly $69 million, to $181 million.

Looking forward and consistent with the results from the first two quarters, we anticipate our environmental credits from both natural gas and Redeem to benefit our results. VETC will continue each quarter. And we expect positive quarterly adjusted EBITDA for the balance of 2016.

And with that, Operator, we'll open the call to questions.

Thank you (Operator Instructions) Eric Stine with Craig-Hallum.

Nice quarter.

Thank you.

Just wanted to touch on volumes. Great to see record overall volumes. But wanted to focus specifically on LNG, which was also a record.

Any thing in there that was one-time, whether it was industrial volumes? Or is that an on-road number? And then how should we think about LNG trending going forward?

It's Bob. As usual, there is some kind of bulk supply volumes that are in there. And so that will kind of sway the number here and there. So we're up a couple million there. So some of that is from bulk supply.

Got it. But I know you've been opening stations on the LNG side. You've got some anchor tenants. I mean, just curious commentary on how LNG volumes are trending.

Well, generally they're trending up, but at a, I mean a slower pace. But they're trending up. I mean, we are adding gallons on that, absolutely.

Okay.

And as you know -- Eric, this is Andrew -- we've had some growth in the southeastern United States and trucking with some long-haul LNG fleets.

So I think these things tend to add slowly, but we've had some good growth in that sector. So I think you're seeing that.

But as Bob says, we had a little bit, but we always do, but there was about $1.8 million of stationary LNG supply, which, by the way, is important for us. We know that there will be more of that with other utilities. And so it's a good business for us.

Okay. Maybe just turning to your truck demo program. I know you've had that in place. But just maybe you could characterize the interest levels there, whether you've secured any new customers as a result, and maybe what it's done to the pipeline.

Yes. Good. Thanks. We're awaiting delivery of our latest demo for our demo fleet, which is going to be a sleeper.

One of the things we did, Eric, and maybe you saw one of them at one of the shows. I can't remember.

But some of the early natural gas vehicles that were taken into the day cab fleet were in the rental fleets and weren't always necessarily designed for a particular use.

And so we made sure as we brought these demos in that they were designed for the kinds of use that some of our long-haul customers use. And so, therefore, we got the right gearing ratios and other things for what they might expect.

One of the interesting things is that one of the [knocks] on natural gas is, we've seen a lower miles per gallon as compared to some of the diesels. And we've been pleased to report that in some of our recent demo fleets - this is real data we're getting in on a daily basis - we've seen up to 6.3 to 6.4 miles, 6.5 miles to the gallon, which is higher than other fleets have experienced with natural gas. And that's because it's geared correctly and we have the aerodynamics involved.

And so where natural gas was I think getting a little bit of a bad name in terms of miles per gallon, that's one of the things we've seen as we've been demoing these vehicles for the fleets.

We have about 36 different fleets in the queue right now. We've sold, I know a couple weeks ago we had an order. One of our demo customers stepped up and bought five vehicles.

And so it's helping us. We constantly have, every week we turn it into another fleet. And then we continue to have 35 fleets kind of in the queue.

So we like the program. We think it's a good way to help our customers.

Got it. Maybe last one for me, just related to LCFS. There's been a lot of noise about the future of that and potentially weakening the compliance requirements. And I know it's part of a larger cap and trade discussion in California.

But maybe just thoughts on where things stand now and how you think that shakes out going forward.

I've been lining up on this one with -- I'm betting on the governor. Governor Brown has been an early proponent of this kind of thing, and, of course, has a long track record of these kind of environmental programs.

And this has been a little bit of kind of inside baseball, I think, frankly. It's been an effort to kind of use a particular potential court ruling to kind of trade away the low carbon fuel standard to extend AB-32.

I really think, though, when you shake this all out, I don't see the low carbon fuel standard going away. And I don't see the governor doing that. I don't think that's part of the trade. I think that's been promoted by certain quarters.

And so I kind of feel like you should count on the fact of when the dust clears, AB-32 will be extended and the low carbon fuel credit will be in place for a long time to come.

I mean, frankly, it's working, and I don't see it going away. Though, I think there were some that thought it might be traded away. I don't think that's going to happen.

Okay. Thanks a lot.

Thank you. Rob Brown with Lake Street Capital Markets.

Congratulations on a nice quarter and the nice station construction revenue.

Do you see the ramp in that business as some indication that fleets are starting to look past the current oil prices and make decisions or -- could you just give some color on sort of why --

Well, you know what? I watched that. And you and I've discussed this before. I do look at that. I mean, to me that's a very good indicator.

We look back in 2014, 2015, 2016, our station construction and what our customers are doing, remember a lot of this, the majority of this is for our customers, not just for our own account.

Well, that means that these guys are willing to spend, Buy trucks to fill up the station, and hire us to build them a station, spending millions of dollars. So it, to me, shows great confidence by our refuse customers, our transit customers, and even our trucking customers where they continue to move forward.

Ryder announced, I think today, 100 million miles. UPS the other day talked about a billion miles. I mean, UPS, I believe I'm right on this, still hasn't bought a diesel truck in a couple years.

Our friends in the refuse business, I think this year will be really a record for us in terms of full station construction for our refuse customers.

So we don't see anybody going back. So to me it's a sign of confidence.

There isn't any, right now, other than there is important sustainability benefits, there isn't any great incentive for these refuse customers to continue forward like they are, where they're still buying 60% of all the trucks sold in America are natural gas. It's because they work and they're saving money.

And they haven't really -- Waste Management, I think is still at about 90% of their new purchases are natural gas.

So I take that all as a good sign. And we'll, as maybe I didn't say yet, but I noted at our meeting earlier this morning, that we have 81 stations underway. We think we'll finish 66 or so this year.

But we have 81 projects, which means that at about this time on a given year, having 20 kind of in the bullpen or 30 in the bullpen is about where we've always been. So I think that is a bullish sign for what we see out there.

Okay. Great. Thank you. And then on the RIN credits, how do you see that market progressing? Do you continue to see that pricing up there? Or is it just a shift to the routine gallons that you're seeing on RIN volume?

Well, on the RIN credits, and I'll admit, I'm not an expert of all the trading that's going on in the RINs. Though they're strong, as you know.

And we don't really see anything that is going to make those really softened anytime soon. Now, we've seen some softening in the low carbon fuel standard pricing is because of -- the previous question about, I think some people thought that maybe there was a chance that the low carbon fuel standard might go away. I believe that those will probably begin to strengthen.

No, we think in the coming years and next year, that there'll be significant demand for those credits on the RINs. And we think those should be pretty strong.

Okay. Good. And then last question --

One thing, Rob --

Go ahead.

One thing on that is this market's developed and you've watched us in it. I mean, I think it was two or three years ago we were selling eight million gallons of renewable fuel. This year we'll do closer to sixty million.

We think there's potential for that over the next couple years to potentially double.

And the customer, our customers, I think it's the case with natural gas as well, some of our really sophisticated customers are keeping a close eye on the sustainability picture.

And some of our most sophisticated fleets really like that renewable fuel. And it really fits in nicely to their own sustainability goals.

And so as we, as you know, we have to knock on other people's doors often. But in terms of our Redeem product, our renewable natural gas, we actually have customers seeking us out for it. And I think that's important. And I think that's only going to continue to strengthen.

Good. Thank you. And then quickly, in SG&A, do you think this is sort of the level that you can sustain at or can there be more taken out of that line?

Well, we're constantly looking at ways to trim that a little bit. I think probably for your modeling purposes, this is probably a number that is comfortable.

We're going to see if there aren't some other things that we can do to trim it slightly. But we're growing and we're adding. And so I have to remind people of that.

I think most of the cuts have been made. The volume's going up. The station network has expanded. I think we're closer to 575 stations now.

So it's hard to continue to grow at the rate we're growing and do much more on the SG&A. But we're looking for a couple ways to trim it a little bit.

But I'd say for now use that as a pretty good number.

It's ballpark, absolutely. Yes.

Okay, great. Thanks. I'll turn it over.

Thank you. Pavel Molchanov with Raymond James.

Over the last couple years, you've sharply reduced your expansion, your CapEx. Now that cash flow metrics are clearly looking better than before, heading into 2017, would you consider kind of ramping your investment program back up?

I don't know. I mean, I think we still, as you know, Pavel, we have a network that has great room to grow in terms of its capacity.

The existing 570 stations who are in network, about half of which we own, you could almost double the volume from here on your existing network.

And then there could be CapEx adds in terms of pumps and some other things, the tanks, that would get you even substantially beyond that.

I think the CapEx spend that we have right now, this $25 million range is probably one that makes sense. It does allow us to add [nodes] in for contracted customers.

Obviously, we're building, as I just mentioned, we have 81 stations kind of underway. We'll complete 60-some-odd this year. To me that's robust growth.

I'd love to get back to a point where we thought we needed to add another hundred a year. But I think for now, I think this level of CapEx probably is very reasonable, and I don't see it having to grow much from there.

Our partner, Pilot Flying J, Jimmy Haslam told me, he said, listen, Andrew, 150 of the right truck stops, you can get great coverage across this country and sell billions of gallons. And so I remember that.

And we have about 70 or 80 of those kind of already built. And we're a long way from several billion gallons there. But I think kind of the current CapEx number that you're seeing probably makes sense the next year or so.

Okay. And then just turning to your balance sheet, I recall earlier in the year you repurchased some of your 2018 convert. Most of that is still outstanding.

Are you going to be looking to kind of nibble at it in the near term or will you largely let it be, since you've got a year and a half until then?

Yes. We got a couple years to go on the 2018s. And you're right, we took it down from 250 to 181, I guess.

We'll be opportunistic. But I think we've made some good progress on it. As you know, we took out the 2016s. We've got a couple years to go.

We're very mindful of the dilution and the trade-off that comes in here.

We're in good contact with all those bondholders. They're fairly centralized. And so we're in contact with them about different alternatives with them.

But I would say that we're not in any rush right at this point in time to do any thing.

All right. Appreciate it, guys. Thanks.

Thank you. I'd like to turn the floor over to Andrew for closing comments.

Good. Thank you, Operator. Thank you, everyone, for joining us today. Want to thank you for listening to the call this afternoon. And we look forward to updating you on all of our progress for the next quarter. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. And thank you for your participation.