CLNE 10-Q
Clean Energy Fuels Corp. (CLNE)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to
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As of October 30, 2024, there were
CLEAN ENERGY FUELS CORP. AND SUBSIDIARIES
INDEX
Table of Contents
Unless the context indicates otherwise, all references to “Clean Energy,” the “Company,” “we,” “us,” or “our” in this report refer to Clean Energy Fuels Corp. together with its consolidated subsidiaries.
This report contains forward-looking statements. See the cautionary note regarding these statements in Part I, Item 2.-Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report.
We own registered or unregistered trademark rights to Clean Energy™. Although we do not use the “®” or “™” symbol in each instance in which one of our trademarks appears in this report, this should not be construed as any indication that we will not assert our rights thereto to the fullest extent under applicable law. Any other service marks, trademarks and trade names appearing in this report are the property of their respective owners.
2
PART I.—FINANCIAL INFORMATION
Item 1.—Financial Statements (Unaudited)
Clean Energy Fuels Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data; Unaudited)
December 31, | September 30, | |||||
2023 | 2024 | |||||
Assets | ||||||
Current assets: |
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Cash, cash equivalents and current portion of restricted cash | $ | | $ | | ||
Short-term investments |
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Accounts receivable, net of allowance of $ |
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Other receivables |
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Inventory |
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Prepaid expenses and other current assets |
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Total current assets |
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Operating lease right-of-use assets | | | ||||
Land, property and equipment, net |
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Notes receivable and other long-term assets, net |
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Investments in other entities |
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Goodwill |
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Intangible assets, net |
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Total assets | $ | | $ | | ||
Liabilities and Stockholders' Equity |
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Current liabilities: |
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Current portion of debt | $ | | $ | | ||
Current portion of finance lease obligations | | | ||||
Current portion of operating lease obligations | | | ||||
Accounts payable |
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Accrued liabilities |
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Deferred revenue |
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Derivative liabilities, related party | | | ||||
Total current liabilities |
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Long-term portion of debt | | | ||||
Long-term portion of finance lease obligations | | | ||||
Long-term portion of operating lease obligations | | | ||||
Other long-term liabilities |
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Total liabilities |
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Commitments and contingencies (Note 17) |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
| ( |
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Accumulated other comprehensive loss |
| ( |
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Total Clean Energy Fuels Corp. stockholders’ equity |
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Noncontrolling interest in subsidiary |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | | ||
See accompanying notes to condensed consolidated financial statements.
3
Clean Energy Fuels Corp. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except share and per share data; Unaudited)
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
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| 2023 |
| 2024 |
| 2023 |
| 2024 |
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Revenue: |
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Product revenue | $ | | $ | | $ | | $ | | |||||
Service revenue |
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Total revenue |
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Operating expenses: |
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Cost of sales (exclusive of depreciation and amortization shown separately below): |
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Product cost of sales |
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Service cost of sales |
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Selling, general and administrative |
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Depreciation and amortization |
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Total operating expenses |
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Operating loss |
| ( |
| ( |
| ( |
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Interest expense |
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Interest income |
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Other income (expense), net |
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Loss from equity method investments |
| ( |
| ( |
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Loss before income taxes |
| ( |
| ( |
| ( |
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Income tax (expense) benefit |
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| ( |
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Net loss |
| ( |
| ( |
| ( |
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Loss attributable to noncontrolling interest |
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Net loss attributable to Clean Energy Fuels Corp. | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Net loss attributable to Clean Energy Fuels Corp. per share: |
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Basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Weighted-average common shares outstanding: |
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Basic and diluted |
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See accompanying notes to condensed consolidated financial statements.
4
Clean Energy Fuels Corp. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss
(In thousands; Unaudited)
Clean Energy Fuels Corp. | Noncontrolling Interest | Total | ||||||||||||||||
Three Months Ended | Three Months Ended | Three Months Ended | ||||||||||||||||
September 30, | September 30, | September 30, | ||||||||||||||||
| 2023 |
| 2024 |
| 2023 |
| 2024 |
| 2023 |
| 2024 | |||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
Other comprehensive income (loss), net of tax: |
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Foreign currency translation adjustments, net of $ |
| ( |
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Unrealized gains (losses) on available-for-sale securities, net of $ |
| ( |
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Total other comprehensive income (loss) |
| ( |
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Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
Clean Energy Fuels Corp. | Noncontrolling Interest | Total | ||||||||||||||||
Nine Months Ended | Nine Months Ended | Nine Months Ended | ||||||||||||||||
September 30, | September 30, | September 30, | ||||||||||||||||
| 2023 |
| 2024 |
| 2023 |
| 2024 |
| 2023 |
| 2024 | |||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
Other comprehensive income (loss), net of tax: |
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Foreign currency translation adjustments, net of $ |
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Unrealized gains on available-for-sale securities, net of $ |
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Total other comprehensive income (loss) |
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| ( |
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Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
See accompanying notes to condensed consolidated financial statements.
5
Clean Energy Fuels Corp. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except share data; Unaudited)
Accumulated | ||||||||||||||||||||
Additional | Other | Noncontrolling | Total | |||||||||||||||||
Common Stock | Paid-In | Accumulated | Comprehensive | Interest in | Stockholders’ | |||||||||||||||
| Shares |
| Amount |
| Capital |
| Deficit |
| Loss |
| Subsidiary |
| Equity | |||||||
Balance, December 31, 2022 |
| | $ | | $ | | $ | ( | $ | ( | $ | | $ | | ||||||
Issuance of common stock |
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| — |
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| — |
| — |
| — |
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Shares withheld related to net share settlement |
| — |
| — |
| ( |
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| — |
| — |
| ( | ||||||
Stock-based compensation |
| — |
| — |
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Stock-based sales incentive charges |
| — | — | | — | — | — |
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Net loss |
| — |
| — |
| — |
| ( |
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| ( |
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Other comprehensive income |
| — |
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| — |
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Balance, March 31, 2023 |
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Issuance of common stock |
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Stock-based compensation |
| — | — | | — | — | — |
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Stock-based sales incentive charges |
| — | — | | — | — | — |
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Net loss |
| — | — | — | ( | — | ( |
| ( | |||||||||||
Other comprehensive income |
| — | — | — | — | | — |
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Balance, June 30, 2023 |
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Issuance of common stock |
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Stock-based compensation |
| — | — | | — | — | — |
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Stock-based sales incentive charges |
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Net loss |
| — | — | — | ( | — | ( |
| ( | |||||||||||
Other comprehensive loss |
| — | — | — | — | ( | — |
| ( | |||||||||||
Balance, September 30, 2023 |
| | $ | | $ | | $ | ( | $ | ( | $ | | $ | | ||||||
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Accumulated | ||||||||||||||||||||
Additional | Other | Noncontrolling | Total | |||||||||||||||||
Common Stock | Paid-In | Accumulated | Comprehensive | Interest in | Stockholders’ | |||||||||||||||
| Shares |
| Amount |
| Capital |
| Deficit |
| Loss |
| Subsidiary |
| Equity | |||||||
Balance, December 31, 2023 |
| | $ | | $ | | $ | ( | $ | ( | $ | | $ | | ||||||
Issuance of common stock |
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| — |
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| — |
| — |
| — |
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Shares withheld related to net share settlement | — | — | ( | — | — | — | ( | |||||||||||||
Stock-based compensation |
| — |
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Stock-based sales incentive charges | — | — | | — | — | — | | |||||||||||||
Net loss |
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| ( |
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Other comprehensive loss |
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Balance, March 31, 2024 |
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Issuance of common stock |
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Stock-based compensation | — | — | | — | — | — | | |||||||||||||
Stock-based sales incentive charges |
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Issuance of common stock warrants | — | — | | — | — | — | | |||||||||||||
Net loss |
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Other comprehensive loss |
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Balance, June 30, 2024 |
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Issuance of common stock |
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Stock-based compensation |
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Stock-based sales incentive charges | — | — | | — | — | — | | |||||||||||||
Issuance of common stock warrants | — | — | | — | — | — | | |||||||||||||
Net loss |
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Other comprehensive income |
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Balance, September 30, 2024 |
| | $ | | $ | | $ | ( | $ | ( | $ | | $ | | ||||||
See accompanying notes to condensed consolidated financial statements.
7
Clean Energy Fuels Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands; Unaudited)
Nine Months Ended September 30, | |||||
2023 |
| 2024 | |||
Cash flows from operating activities: | |||||
Net loss | $ | ( | $ | ( | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
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Provision for credit losses and inventory |
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Stock-based compensation expense |
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Stock-based sales incentive charges | | | |||
Change in fair value of derivative instruments |
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Amortization of discount, debt issuance cost and Section 30C tax credit |
| ( |
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Loss (gain) on disposal of property and equipment |
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Asset impairments and other charges |
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Loss from equity method investments |
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Non-cash lease expense | | | |||
Deferred income taxes | ( | | |||
Accretion of ARO liabilities | | | |||
Changes in operating assets and liabilities: |
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Accounts and other receivables |
| ( |
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Inventory |
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Prepaid expenses and other assets |
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Operating lease liabilities | ( | ( | |||
Accounts payable |
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Deferred revenue |
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Accrued liabilities and other |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Purchases of short-term investments |
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Maturities and sales of short-term investments |
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Payment and deposits on equipment and manure rights for ADG RNG production projects |
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Purchases of and deposits on property and equipment |
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Grant proceeds for capital projects | | | |||
Proceeds received for joint development and construction of station projects |
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Disbursements for loans receivable |
| ( |
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Proceeds from paydowns, maturities, and sales of loans receivable |
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Investments in other entities |
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Advance to DR JV |
| ( |
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Proceeds from settlement of insurance claims |
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Proceeds from disposal of property and equipment |
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Net cash (used in) investing activities |
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Cash flows from financing activities: |
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Issuance of common stock |
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Payment of tax withholdings on net settlement of equity awards | ( | ( | |||
Fees paid for lender and debt issuance costs | ( | ( | |||
Proceeds for Adopt-A-Port program | | | |||
Repayment of proceeds for Adopt-A-Port program | ( | ( | |||
Proceeds from debt instruments |
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Repayments of debt instruments and finance lease obligations |
| ( |
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Net cash (used in) financing activities |
| ( |
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Effect of exchange rates on cash, cash equivalents and restricted cash |
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Net increase (decrease) in cash, cash equivalents and restricted cash |
| ( |
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Cash, cash equivalents and restricted cash, beginning of period |
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Cash, cash equivalents and restricted cash, end of period | $ | | $ | | |
Supplemental disclosure of cash flow information: |
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Income taxes paid | $ | | $ | | |
Interest paid, net of $ | $ | | $ | | |
See accompanying notes to condensed consolidated financial statements.
8
Clean Energy Fuels Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(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 renewable and conventional natural gas as alternative fuels for vehicle fleets and related fueling solutions to its customers, primarily in the United States and Canada. The Company’s principal business is supplying renewable natural gas (“RNG”) and conventional natural gas, in the form of compressed natural gas (“CNG”) and liquefied natural gas (“LNG”), for medium and heavy-duty vehicles and providing operation and maintenance (“O&M”) services to public and private vehicle fleet customer stations. The Company is also focused on developing, owning, and operating dairy and other livestock waste RNG projects and supplying RNG (procured from third party sources and from the Company’s jointly owned RNG production facilities (see Note 3)) to its customers in the heavy and medium-duty commercial transportation sector.
As a comprehensive clean energy solution provider, the Company also designs and builds, as well as operates and maintains, public and private vehicle fueling stations in the United States and Canada; sells and services compressors and other equipment used in RNG production and at fueling stations; transports and sells RNG and conventional natural gas, in the form of CNG and LNG, via “virtual” natural gas pipelines and interconnects; sells U.S. federal, state and local government credits it generates by selling RNG in the form of CNG and LNG 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, Oregon, and Washington Low Carbon Fuel Standards (collectively, “LCFS Credits”); and obtains federal, state and local tax credits, grants and incentives.
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, 2024, results of operations, comprehensive loss, and stockholders’ equity for the three and nine months ended September 30, 2023 and 2024, and cash flows for the nine months ended September 30, 2023 and 2024. All intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and nine months ended September 30, 2023 and 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any other interim period or 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 (“U.S. 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, 2023 that are included in the Company’s Annual Report on Form 10-K filed with the SEC on February 29, 2024.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. 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
9
accompanying condensed consolidated financial statements include (but are not limited to) those related to revenue recognition, fair value measurements, goodwill and long-lived asset valuations and impairment assessments, income tax valuations, stock-based compensation expense and stock-based sales incentive charges.
Amazon Warrant
The Amazon Warrant (defined in Note 14) is accounted for as an equity instrument and measured in accordance with Accounting Standards Codification (“ASC”) 718, Compensation – Stock Compensation. This instrument is classified in the condensed consolidated statements of operations in accordance with ASC 606, Revenue from Contracts with Customers, which states that for awards granted to a customer that are not in exchange for distinct goods or services, the fair value of the awards earned based on service or performance conditions is recorded as a reduction of the transaction price. To determine the fair value of the Amazon Warrant in accordance with ASC 718, the Company used the Black-Scholes option pricing model, which is based in part on assumptions that require management to use judgment. Based on the fair value of the award, the Company determines the amount of non-cash stock-based sales incentive charges on the customer’s pro-rata achievement of vesting conditions, which is recorded as a reduction of revenue in the condensed consolidated statements of operations. See Note 14 for additional information.
Tourmaline Joint Development
In April 2023, the Company and Tourmaline Oil Corp. (“Tourmaline”) announced a CAD $
The Company determined that it is the principal for the revenue generated from third parties under this collaborative arrangement with Tourmaline in accordance with ASC 606; as such, the associated revenue and cost of sales generated and incurred are recognized on a gross basis in the condensed consolidated statements of operations. Net participation of profit and loss owed to or from Tourmaline is recorded as an increase or decrease to cost of sales, respectively, as the transaction is not deemed to be with a customer within the scope of ASC 606. Capitalized station costs are presented at half of the total development and construction costs in the condensed consolidated balance sheets, corresponding to the Company’s
Impairment of Goodwill and Long-Lived Assets
Due to a decline in the market price of the Company's common stock subsequent to December 31, 2023, the Company performed an interim quantitative goodwill impairment test as of September 30, 2024 for its single reporting unit. In connection with the quantitative goodwill impairment test, the Company estimated the fair value of its reporting unit based on its market value of invested capital plus a market participant acquisition premium. The results of the quantitative goodwill impairment test performed as of September 30, 2024 indicated that the fair value of the Company’s reporting unit exceeded its carrying value by
10
In addition, due to a decline in share price of the Company's common stock, the Company assessed whether such event or any other events or changes in circumstances indicated that the carrying value of the Company’s long-lived assets may not be recoverable. Based on the Company’s assessment,
Recently Adopted Accounting Pronouncements and Recently Issued Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-01, Leases (Topic 842): Common Control Arrangements. This ASU permits private entities with common control arrangements that may contain or be leases to use any written terms and conditions between the parties, without regard to their legal enforceability, to identify, classify and account for common control leases. In addition, all lessees (public or private), in general, amortize leasehold improvements related to a common control lease over their useful life to the common control group, regardless of the ASC 842 lease term, as long as they continue to control the use of the underlying leased asset. The ASU is effective for fiscal years, including interim periods within those years, beginning after December 15, 2023, with early adoption allowed. The Company adopted this new ASU in the first quarter of 2024. The adoption of this ASU did not have a material effect on the Company’s consolidated financial statements and related disclosures.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU improves financial reporting by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included with each reported measure of significant profit or loss on an annual and interim basis. This ASU also requires that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. This ASU is required to be applied retrospectively for all prior periods presented in the financial statements. The Company will adopt this ASU for the year ending December 31, 2024, and expects the adoption of the standard will impact certain of our segment reporting disclosures in the Notes to the Consolidated Financial Statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures. This ASU enhances annual income tax disclosures by requiring entities to disclose specific categories and greater disaggregation of information in the rate reconciliation table and income taxes paid disaggregated by jurisdiction. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the adoption impact of this ASU on the Company’s consolidated financial statements and related disclosures.
In March 2024, the FASB issued ASU No. 2024-01, Compensation-Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. This ASU improves U.S. GAAP by adding an illustrative example to demonstrate how an entity should apply the scope guidance in paragraph 718-10-15-3 to determine whether profits interest and similar awards should be accounted for in accordance with Topic 718, Compensation-Stock Compensation. The ASU is effective for annual periods, including interim periods within those years, beginning after December 15, 2024, with early adoption allowed. The Company is evaluating the adoption impact of this ASU on the Company’s consolidated financial statements and related disclosures.
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. To
11
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 Company is generally the principal in its customer contracts because it has control over the goods and services prior to their transfer to the customer, and as such, revenue is recognized on a gross basis. Sales and usage-based taxes are excluded from revenue. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities. The table below presents the Company’s revenue disaggregated by revenue source (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
2023 |
| 2024 |
| 2023 |
| 2024 | ||||||
Product revenue: | ||||||||||||
Volume-related | ||||||||||||
Fuel sales(1) (3) | $ | | $ | | $ | | $ | | ||||
Change in fair value of derivative instruments(2) | ( | ( | ( | | ||||||||
RIN Credits | | | | | ||||||||
LCFS Credits | | | | | ||||||||
AFTC (4) |
| |
| |
| |
| | ||||
Total volume-related product revenue | | | | | ||||||||
Station construction sales | | | | | ||||||||
Total product revenue |
| |
| |
| |
| | ||||
Service revenue: | ||||||||||||
Volume-related, O&M services | | | | | ||||||||
Other services | | | | | ||||||||
Total service revenue | | | | | ||||||||
Total revenue | $ | | $ | | $ | | $ | | ||||
| (1) | Includes non-cash stock-based sales incentive contra-revenue charges associated with the Amazon Warrant. For the three and nine months ended September 30, 2023, contra-revenue charges recognized in fuel revenue were $ |
| (2) | Represents changes in fair value of unsettled derivative instruments relating to the Company’s commodity swap and customer fueling contracts associated with the Company’s truck financing program. The amounts are classified as revenue because the Company’s commodity swap contracts are used to economically offset the risk associated with the diesel-to-natural gas price spread resulting from customer fueling contracts under the Company’s truck financing program. See Note 6 for more information about these derivative instruments. |
| (3) | Includes net settlement of the Company’s commodity swap derivative instruments. For the three and nine months ended September 30, 2023, net settlement payments recognized in fuel revenue were $ |
| (4) | Represents the federal alternative fuel excise tax credit (“AFTC”). See Note 19 for more information. |
Remaining Performance Obligations
Remaining performance obligations represent the transaction price of customer orders for which the work has not been performed. As of September 30, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations was $
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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.
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.
As of December 31, 2023 and September 30, 2024, the Company’s contract balances were as follows (in thousands):
| December 31, |
| September 30, | |||
2023 | 2024 | |||||
Accounts receivable, net | $ | | $ | | ||
| ||||||
Contract assets - current | $ | | $ | | ||
Contract assets - non-current |
| |
| | ||
Contract assets - total | $ | | $ | | ||
| ||||||
Contract liabilities - current | $ | | $ | | ||
Contract liabilities - non-current |
| |
| | ||
Contract liabilities - total | $ | | $ | | ||
Accounts Receivable, Net
“Accounts receivable, net” in the accompanying condensed consolidated balance sheets includes billed and accrued amounts that are currently due from customers. The amounts due are stated at their net estimated realizable value. The Company maintains an allowance to provide for the estimated amount of receivables that will not be collected. The allowance is based on an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables, and economic conditions that may affect a customer’s ability to pay.
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 “Other receivables” and 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 payments received from customers in advance of the satisfaction of performance obligations and are classified as current or noncurrent based on when the revenue is expected to be recognized. The current portion and noncurrent portion of contract liabilities are included in “Deferred revenue” and in “Other long-term liabilities,” respectively, in the accompanying condensed consolidated balance sheets.
Revenue recognized in the nine months ended September 30, 2023 relating to the Company’s contract liability balances as of December 31, 2022 was $
13
ended September 30, 2024, partially offset by $
Note 3— Investments in Other Entities and Noncontrolling Interest in a Subsidiary
TotalEnergies Joint Venture
On March 3, 2021, the Company entered into an agreement (the “TotalEnergies JV Agreement”) with TotalEnergies S.E. (“TotalEnergies”) to create
The Company accounts for its interest in the LLC using the equity method of accounting because the Company does not control but has the ability to exercise significant influence over the LLC’s operations. The Company recorded a loss of $
bp Joint Venture
On April 13, 2021, the Company entered into an agreement (the “bp JV Agreement”) with BP Products North America, Inc. (“bp”) that created a
On December 20, 2023, the bpJV issued a capital call in the amount of $
As of September 30, 2024, the Company and bp each own
Maas Energy Works, LLC Joint Development
On May 8, 2024, the Company entered into a joint development agreement (the “Maas JDA”) with Maas Energy Works, LLC (“Maas”), granting the Company exclusive right to acquire, fund and participate in the development of certain ADG RNG production projects at dairy farms subject to its due diligence. Pursuant to the Maas JDA, the Company will provide financing to fund the development, construction, operation and maintenance of approved ADG RNG production projects, and Maas will manage and oversee the development, construction, operations and maintenance of such approved
14
projects. The Company will record all the associated income/loss in earnings until a certain rate of return is achieved and then receive
Pursuant to the Maas JDA, each approved ADG RNG production project will be formed as a separate, special purpose project limited liability company that will be wholly-owned by a holding company (collectively, the “Project LLC”), which is jointly controlled by Maas and the Company. The Company accounts for its interest in the Project LLC using the equity method of accounting because it has the ability to exercise significant influence but does not control the Project LLC’s operations. In the three months ended September 30, 2024, the Project LLC issued capital calls totaling $
SAFE&CEC S.r.l.
On November 26, 2017, the Company, through its former subsidiary, IMW Industries Ltd. (formerly known as Clean Energy Compression Corp.) (“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 fueling systems manufacturing subsidiaries, CEC and SAFE S.p.A, into a new company, 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. At the closing of the CEC Combination on December 29, 2017, the Company owned
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 of $
NG Advantage
On October 14, 2014, the Company entered into a Common Unit Purchase Agreement (“UPA”) with NG Advantage, LLC (“NG Advantage”) for a
The Company recorded a loss attributable to the noncontrolling interest in NG Advantage of $
Investments in Equity Securities
For investments in equity securities of privately held entities without readily determinable fair values, the Company measures such investments at cost, adjusted for impairment, if any, and observable price changes in orderly transactions for the identical or similar investment of the same issuer. As of December 31, 2023 and September 30, 2024,
15
the Company had an investment balance recorded at cost of $
Note 4—Cash, Cash Equivalents and Restricted Cash
Cash, cash equivalents and restricted cash as of December 31, 2023 and September 30, 2024 consisted of the following (in thousands):
| December 31, |
| September 30, | |||
2023 | 2024 | |||||
Current assets: |
|
|
|
| ||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash - standby letter of credit |
| |
| | ||
Total cash, cash equivalents and current portion of restricted cash | $ | | $ | | ||
Total cash, cash equivalents and restricted cash | $ | | $ | | ||
The Company considers all highly liquid investments with maturities of three months or less on the date of acquisition to be cash equivalents, except for U.S. government securities.
The Company places its cash and cash equivalents with high credit quality financial institutions. At times, such balances may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) and Canadian Deposit Insurance Corporation (“CDIC”) limits. 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 $
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. The Company deposited $
Note 5—Short-Term Investments
Short-term investments include available-for-sale debt securities, excluded from cash equivalents, that have maturities of one year or less on the date of acquisition and certificates of deposit. Available-for-sale debt securities are carried at fair value, inclusive of unrealized gains and losses. Unrealized gains and losses on available-for-sale debt securities are recognized in other comprehensive income (loss), 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 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 and evaluates the current expected credit loss. This evaluation is based on a number of factors, including historical experience, market data, issuer-specific factors, economic conditions, and any changes to the credit rating of the security. As of September 30, 2024, the Company has not recorded a credit loss related to available-for-sale debt securities and believes the carrying values of its available-for-sale debt securities are properly recorded.
16
Short-term investments as of December 31, 2023 consisted of the following (in thousands):
Gross | |||||||||
Amortized | Unrealized | Estimated | |||||||
| Cost |
| Gain (Loss) |
| Fair Value | ||||
U.S. government securities | $ | | $ | | $ | | |||
Certificates of deposit |
| |
| |
| | |||
Total short-term investments | $ | | $ | | $ | | |||
Short-term investments as of September 30, 2024 consisted of the following (in thousands):
Gross | |||||||||
Amortized | Unrealized | Estimated | |||||||
| Cost |
| Gain (Loss) |
| Fair Value | ||||
U.S. government securities | $ | | $ | | $ | | |||
Certificates of deposit | | | | ||||||
Total short-term investments | $ | | $ | | $ | | |||
Note 6—Derivative Instruments and Hedging Activities
In October 2018, the Company executed
The Company has entered into fueling agreements with fleet operators under the Company’s truck financing program. Certain of these fueling agreements contain a pricing feature indexed to diesel, which the Company determined to be an embedded derivative and is recorded at fair value at the time of execution, with the changes in fair value of the embedded derivative recognized in “Product revenue” in the accompanying condensed consolidated statements of operations.
Commodity swaps and embedded derivatives as of December 31, 2023 consisted of the following (in thousands):
Gross Amounts | Gross Amounts | Net Amount | |||||||
| Recognized |
| Offset |
| Presented | ||||
Assets: |
|
|
|
|
|
| |||
Fueling agreements: | |||||||||
Prepaid expenses and other current assets | $ | | $ | | $ | | |||
Notes receivable and other long-term assets, net | | | | ||||||
Total derivative assets | $ | | $ | | $ | | |||
Liabilities: |
|
|
|
|
|
| |||
Commodity swaps: | |||||||||
Current portion of derivative liabilities, related party | $ | | $ | | $ | | |||
Total derivative liabilities | $ | | $ | | $ | | |||
17
Embedded derivatives as of September 30, 2024 consisted of the following (in thousands):
Gross Amounts | Gross Amounts | Net Amount | |||||||
| Recognized |
| Offset |
| Presented | ||||
Assets: |
|
|
|
|
|
| |||
Fueling agreements: | |||||||||
Prepaid expenses and other current assets | $ | | $ | | $ | | |||
Notes receivable and other long-term assets, net | | | | ||||||
Total derivative assets | $ | | $ | | $ | | |||
As of December 31, 2023, the Company had a total volume on open commodity swap contracts of
The following table reflects the weighted-average price of open commodity swap contracts as of December 31, 2023 and September 30, 2024, by year with associated volumes:
December 31, 2023 | September 30, 2024 | |||||||||
Volumes | Weighted-Average Price per | Volumes | Weighted-Average Price per | |||||||
Year |
| (Diesel Gallons) |
| Diesel Gallon |
| (Diesel Gallons) |
| Diesel Gallon | ||
2024 |
| | $ | | | $ | | |||
Note 7—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 developed based on market data obtained from sources independent of the Company that market participants would use in valuing the asset or liability. 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; and 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 U.S. government issued debt securities are classified within Level 1 because they are valued using the most recent quoted prices for identical assets in active markets. Certificate of deposits is classified within Level 2 because it is 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 used the income approach to value its outstanding commodity swap contracts and embedded derivatives in its fueling agreements under the Company’s truck financing program (see Note 6). Under the income approach, the Company used a discounted cash flow (“DCF”) model in which cash flows anticipated over the term of the contracts are discounted to their present value using an expected discount rate. The discount rate used for cash flows reflects the specific risks in spot and forward rates and credit valuation adjustments. This valuation approach is considered a Level 3 fair value measurement. The significant unobservable inputs used in the fair value measurement of the Company’s derivative instruments are Ultra-Low Sulfur Diesel (“ULSD”) forward prices and differentials from ULSD to Petroleum Administration for Defense District (“PADD”) regions. Significant increases (decreases) in any of those inputs
18
in isolation would result in a significantly (lower) higher fair value measurement. Generally, a change in the ULSD forward prices is accompanied by a directionally opposite but less extreme change in the ULSD-PADD differential.
The Company estimated the fair value of its outstanding commodity swap contracts based on the following inputs as of December 31, 2023:
December 31, 2023 | |||||
Significant Unobservable Inputs |
| Input Range |
| Weighted Average | |
ULSD Gulf Coast Forward Curve | $ | $ | |||
Historical Differential to PADD 3 Diesel | $ | $ | |||
Historical Differential to PADD 5 Diesel | $ | $ | |||
The Company estimated the fair value of embedded derivatives in its fueling agreements under the Company’s truck financing program based on the following inputs as of December 31, 2023 and September 30, 2024:
December 31, 2023 | September 30, 2024 | |||||||||
Significant Unobservable Inputs |
| Input Range |
| Weighted Average |
| Input Range |
| Weighted Average | ||
ULSD Gulf Coast Forward Curve | $ | $ | $ | $ | ||||||
Historical Differential to PADD 3 Diesel | $ | $ | $ | $ | ||||||
Historical Differential to PADD 5 Diesel | $ | $ | $ | $ | ||||||
Convertible Promissory Notes
In connection with the Company’s loan commitments (see Note 17) to Rimere, LLC (“Rimere”), an equity method investee, the Company acquired convertible promissory notes with aggregate principal balances equaling the total amount of drawdowns on the loan commitments. In addition, in May 2024, the Company invested in a convertible promissory note with a principal balance of $
The following table provides quantitative information about the significant inputs used to estimate the fair value of the convertible promissory notes from Rimere as of December 31, 2023 and September 30, 2024:
Significant Unobservable Inputs |
| December 31, 2023 |
| September 30, 2024 |
Risk-free interest rate | ||||
Credit adjustment | ||||
Credit adjusted discount rate |
The following table provides quantitative information about the significant inputs used to estimate the fair value of the convertible promissory note from BTR as of September 30, 2024:
Significant Unobservable Inputs |
| September 30, 2024 |
Risk-free interest rate | ||
Credit adjustment | ||
Credit adjusted discount rate |
The above significant unobservable inputs are subject to change based on changes in economic and market conditions. The use of significant unobservable inputs creates uncertainty in the measurement of fair value as of the reporting date. Significant increase or decrease in any of the inputs in isolation would result in a significantly lower or
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higher fair value measurement. Generally, a change in market interest rates is accompanied by a directionally opposite change in the estimated fair value of fixed-rate debt securities. The Company records changes in the fair value of available-for-sale debt securities in “Unrealized gain (loss) on available-for-sale securities” within other comprehensive income (loss) in the accompanying condensed consolidated statements of comprehensive loss.
There were
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, 2023 and September 30, 2024 (in thousands):
| December 31, 2023 |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Assets: |
|
|
|
|
|
|
|
| ||||
Available-for-sale securities: |
|
|
|
|
|
|
|
| ||||
U.S. government securities(1) | $ | | $ | | $ | | $ | | ||||
Convertible promissory notes(4) |
| |
| |
| |
| | ||||
Certificates of deposit (1) |
| |
| |
| |
| | ||||
Embedded derivatives (3) | | | | | ||||||||
Liabilities: |
|
|
|
|
|
|
| |||||
Commodity swap contracts (2) | $ | | $ | | $ | | $ | | ||||
| September 30, 2024 |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Assets: |
|
|
|
|
|
|
|
| ||||
Available-for-sale securities: |
|
|
|
|
|
|
|
| ||||
U.S. government securities(1) | $ | | $ | | $ | | $ | | ||||
Convertible promissory notes(4) | | | | | ||||||||
Certificates of deposit (1) | | | | | ||||||||
Embedded derivatives (3) | $ | | $ | | $ | | $ | | ||||
| (1) | Included in “Short-term investments” in the accompanying condensed consolidated balance sheets. See note 5 for more information. |
| (2) | Included in “Derivative liabilities, related party” as of December 31, 2023 in the accompanying condensed consolidated balance sheets. See Note 6 for more information. |
| (3) | Included in “Prepaid expenses and other current assets” and “Notes receivable and other long-term assets, net” as of December 31, 2023 and September 30, 2024 in the accompanying condensed consolidated balance sheets. See Note 6 for more information. |
| (4) | Included in “Other receivables” as of December 31, 2023 and September 30, 2024 in the accompanying condensed consolidated balance sheets. |
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The following table provides a reconciliation of the beginning and ending balances of items measured at fair value on a recurring basis as shown in the tables above that used significant unobservable inputs (Level 3), as well as the change in unrealized gains or losses for the periods included in earnings or other comprehensive income (loss) (in thousands):
Assets: | Assets: | Liabilities: | Liabilities: | |||||||||
Embedded | Convertible | Commodity | Embedded | |||||||||
| Derivatives | Promissory Note | Swap Contracts | Derivatives | ||||||||
Balance as of June 30, 2023 | $ | | $ | | $ | ( | $ | ( | ||||
Settlements, net | — | — | | — | ||||||||
Total gain (loss) | ( | ( | ( | | ||||||||
Purchases | — | | — | — | ||||||||
Equity method investment loss(1) | — | ( | — | — | ||||||||
Balance as of September 30, 2023 | $ | | $ | | $ | ( | $ | — | ||||
Balance as of June 30, 2024 | $ | | $ | | $ | — | $ | — | ||||
Settlements, net | — | — | — | — | ||||||||
Total gain (loss) | ( | | — | — | ||||||||
Purchases | — | | — | — | ||||||||
Equity method investment loss(1) | — | ( | — | — | ||||||||
Balance as of September 30, 2024 | $ | | $ | | $ | — | $ | — | ||||
Change in unrealized gain (loss) for the three months ended September 30, 2023 included in earnings | $ | ( | $ | — | $ | ( | $ | | ||||
Change in unrealized gain (loss) for the three months ended September 30, 2024 included in earnings | $ | ( | $ | — | $ | — | $ | — | ||||
Change in unrealized gain (loss) for the three months ended September 30, 2023 included in other comprehensive income (loss) | $ | — | $ | ( | $ | — | $ | — | ||||
Change in unrealized gain (loss) for the three months ended September 30, 2024 included in other comprehensive income (loss) | $ | — | $ | | $ | — | $ | — | ||||
21
Assets: | Assets: | Liabilities: | Liabilities: | |||||||||
Embedded | Convertible | Commodity | Embedded | |||||||||
| Derivatives | Promissory Notes | Swap Contracts | Derivatives | ||||||||
Balance as of December 31, 2022 | $ | | $ | | $ | ( | $ | — | ||||
Settlements, net | — | — | | — | ||||||||
( | | ( | — | |||||||||
Purchases | — | | — | — | ||||||||
Equity method investment loss(1) | — | ( | — | — | ||||||||
Balance as of September 30, 2023 | $ | | $ | | $ | ( | $ | — | ||||
Balance as of December 31, 2023 | $ | | $ | | $ | ( | $ | — | ||||
Settlements, net | — | — | | — | ||||||||
( | | ( | — | |||||||||
Purchases | — | | — | — | ||||||||
Equity method investment loss(1) | — | ( | — | — | ||||||||
Balance as of September 30, 2024 | $ | | $ | | $ | — | $ | — | ||||
$ | ( | $ | — | $ | | $ | — | |||||
Change in unrealized gain (loss) for the nine months ended September 30, 2024 included in earnings | $ | ( | $ | — | $ | | $ | — | ||||
Change in unrealized gain (loss) for the nine months ended September 30, 2023 included in other comprehensive income (loss) | $ | — | $ | | $ | — | $ | — | ||||
$ | — | $ | | $ | — | $ | — | |||||
| (1) | Represents the Company’s proportionate share of Rimere’s losses. These losses are recorded as adjustments to the carrying value of the convertible promissory notes because the Company’s equity investment in Rimere had been reduced to zero. |
Other Financial Assets and Liabilities
The carrying amounts of the Company’s cash, cash equivalents, receivables and payables approximate fair value due to the short-term nature of those instruments.
Debt instruments as of December 31, 2023 consisted of the following (in thousands):
Net Carrying | Estimated | |||||
| Amounts | Fair Value | ||||
Stonepeak Term Loan | $ | | $ | | ||
Other Debt | | | ||||
Total Debt | $ | | $ | | ||
Debt instruments as of September 30, 2024 consisted of the following (in thousands):
Net Carrying | Estimated | |||||
| Amounts | Fair Value | ||||
Stonepeak Term Loan | $ | | $ | | ||
Other Debt | | | ||||
Total Debt | $ | | $ | | ||
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The fair values of these debt instruments were estimated using a DCF analysis based on imputed interest rates, which are Level 3 inputs. See Note 12 for more information about the Company’s debt instruments.
Note 8—Other Receivables
Other receivables as of December 31, 2023 and September 30, 2024 consisted of the following (in thousands):
December 31, |
| September 30, | ||||
2023 |
| 2024 | ||||
Loans to customers to finance vehicle purchases | $ | | $ | | ||
Accrued customer billings |
| |
| | ||
Fuel tax credits |
| |
| | ||
Other |
| |
| | ||
Total other receivables | $ | | $ | | ||
Note 9—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.
Inventory as of December 31, 2023 and September 30, 2024 consisted of the following (in thousands):
| December 31, |
| September 30, | |||
2023 | 2024 | |||||
Raw materials and spare parts | $ | | $ | | ||
Total inventory | $ | | $ | | ||
Note 10—Land, Property and Equipment
Land, property and equipment, net as of December 31, 2023 and September 30, 2024 consisted of the following (in thousands):
| December 31, |
| September 30, | |||
| 2023 |
| 2024 | |||
Land | $ | | $ | | ||
LNG liquefaction plants |
| |
| | ||
Station equipment |
| |
| | ||
Trailers |
| |
| | ||
Other equipment |
| |
| | ||
Construction in progress |
| |
| | ||
| |
| | |||
Less accumulated depreciation |
| ( |
| ( | ||
Total land, property and equipment, net | $ | | $ | | ||
Included in “Land, property and equipment, net” are capitalized software costs of $
The Company recorded amortization expense related to capitalized software costs of $
23
As of December 31, 2023 and September 30, 2024, $
Note 11—Accrued Liabilities
Accrued liabilities as of December 31, 2023 and September 30, 2024 consisted of the following (in thousands):
December 31, | September 30, | |||||
| 2023 |
| 2024 | |||
Accrued alternative fuels incentives (1) | $ | | $ | | ||
Accrued employee benefits |
| |
| | ||
Accrued gas and equipment purchases |
| |
| | ||
Accrued interest |
| |
| | ||
Accrued property and other taxes |
| |
| | ||
Accrued salaries and wages |
| |
| | ||
Other (2) |
| |
| | ||
Total accrued liabilities | $ | | $ | | ||
| (1) | Includes amount for RINs, LCFS Credits, and AFTC payable to third parties. |
| (2) | No individual item in “Other” exceeds |
Note 12—Debt
Debt obligations as of December 31, 2023 and September 30, 2024 consisted of the following (in thousands):
December 31, 2023 | |||||||||
|
| Unamortized Debt |
| Balance, Net of | |||||
Principal Balance | Financing Costs | Financing Costs | |||||||
Stonepeak Term Loan | $ | |
| $ | | $ | | ||
Other debt |
| |
| |
| | |||
Total debt |
| |
| |
| | |||
Less amounts due within one year |
| ( |
| |
| ( | |||
Total long-term debt | $ | | $ | | $ | | |||
September 30, 2024 | |||||||||
|
| Unamortized Debt |
| Balance, Net of | |||||
Principal Balance | Financing Costs | Financing Costs | |||||||
Stonepeak Term Loan | $ | | $ | | $ | | |||
Other debt |
| | | | |||||
Total debt |
| |
| |
| | |||
Less amounts due within one year |
| ( | | ( | |||||
Total long-term debt | $ | | $ | | $ | | |||
Stonepeak Credit Agreement
On December 12, 2023 (the “Stonepeak Closing Date”), the Company entered into a senior secured first lien term loan credit agreement (as amended, supplemented or otherwise modified, the “Stonepeak Credit Agreement”) with Clean Energy, a wholly-owned direct subsidiary of the Company, as borrower (the “Borrower”), the Company, as parent guarantor, a syndicate of lenders and Alter Domus Products Corp., as administrative agent and collateral agent. Pursuant to the Stonepeak Credit Agreement, the lenders funded a $
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date, which is December 12, 2029. The Loan Facility bears interest at
The Borrower has the option to prepay all or any portion of the amounts owed prior to the maturity date, and the Loan Facility is subject to customary mandatory prepayments clauses. All prepayments and all other payments of the Loan Facility principal are subject to a call premium in the minimum amount that, when received by the lenders, would be sufficient to cause both (1) the internal rate of return for each such lender on the Loan Facility to be not less than
The Stonepeak Credit Agreement requires the Company and the Borrower to comply with a maximum total leverage ratio, a minimum interest coverage ratio and a minimum liquidity test. In addition, the Stonepeak Credit Agreement contains customary representations and warranties and affirmative and negative covenants, including covenants that limit or restrict the Company’s, the Borrower’s and their subsidiaries’ ability to incur liens, incur indebtedness, dispose of assets, make investments, make certain restricted payments, merge or consolidate and enter into certain speculative hedging arrangements. Additionally, the Stonepeak Credit Agreement includes a number of events of default contingency clauses, including, among other things, non-payment defaults, covenant defaults, cross-defaults to other materials indebtedness, bankruptcy and insolvency defaults, material judgment defaults, and material breaches of material contracts. If any event of default occurs (subject, in certain instances, to specified grace periods), the principal, premium, if any, interest and any other monetary obligations on all the then outstanding amounts under the Loan Facility may become due and payable immediately.
Concurrent with the execution of the Stonepeak Credit Agreement, the Company issued warrants to Stonepeak CLNE-W Holdings LP (“Stonepeak”), pursuant to a Warrant Agreement, dated December 12, 2023, allowing Stonepeak to purchase
25
Note 13—Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing the net income (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 income (loss) per share is computed by dividing the net income (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 options 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 income (loss) per share if their effect would be antidilutive.
The following table sets forth the computations of basic and diluted earnings (loss) per share for the three and nine months ended September 30, 2023 and 2024 (in thousands except share and per share amounts):
| Three Months Ended | Nine Months Ended | ||||||||||
| September 30, | September 30, | ||||||||||
2023 |
| 2024 |
| 2023 |
| 2024 | ||||||
Net loss attributable to Clean Energy Fuels Corp. | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Weighted-average common shares outstanding |
| |
| |
| |
| | ||||
Dilutive effect of potential common shares from restricted stock units, stock options and stock warrants |
| |
| |
| |
| | ||||
Weighted-average common shares outstanding - diluted |
| |
| |
| |
| | ||||
Basic and diluted loss per share | $ | ( | $ | ( | $ | ( | $ | ( | ||||
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 | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2023 |
| 2024 |
| 2023 |
| 2024 | |||||
Stock options |
| | | | | |||||||
Stonepeak warrant shares |
| | | | | |||||||
Restricted stock units |
| | | | | |||||||
Amazon warrant shares | | | | | ||||||||
Total | | | | | ||||||||
Note 14—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 three and nine months ended September 30, 2023 and 2024 (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2023 |
| 2024 |
| 2023 |
| 2024 | |||||
Stock-based compensation expense, net of $ | $ | | $ | | $ | | $ | | ||||
26
As of September 30, 2024, there was $
Amazon Warrant
On April 16, 2021, the Company entered into a Project Addendum to Fuel Pricing Agreement (the “Fuel Agreement”) with Amazon Logistics, Inc., a subsidiary of Amazon.com, Inc. (“Amazon”), and a Transaction Agreement with Amazon (the “Transaction Agreement”), pursuant to which, among other things, the Company issued to Amazon.com NV Investment Holdings LLC, a subsidiary of Amazon (“Amazon Holdings”), a warrant to purchase up to an aggregate of
The Warrant Shares and the Additional Warrant Shares shall vest in multiple tranches, certain of which vested immediately upon execution of the Fuel Agreement. Subsequent tranches will vest over time based on fuel purchases by Amazon and its affiliates, up to a total of $
Non-cash stock-based sales incentive contra-revenue charges (“Amazon Warrant Charges”) associated with the Amazon Warrant are recognized as Amazon and its affiliates purchase fuel and vesting conditions become probable of being achieved, based on the grant date fair value of the Amazon Warrant.
The following table summarizes the Amazon Warrant activities for the nine months ended September 30, 2024:
Warrant | ||
| Shares | |
Outstanding and unvested as of December 31, 2023 |
| |
Granted |
| |
Vested |
| ( |
Outstanding and unvested as of September 30, 2024 |
| |
5,289,336 shares of the Amazon Warrant vested in the nine months ended September 30, 2024 based on fuel purchases made by Amazon and its affiliates. The Company recognized Amazon Warrant Charges of $
Note 15—Stockholders’ Equity
Authorized Shares
On June 14, 2021, the Company’s stockholders approved an increase in the number of shares of common stock the Company is authorized to issue from
27
Share Repurchase Program
On March 12, 2020, the Company’s Board of Directors approved a share repurchase program of up to $
Stonepeak Warrant
In connection with the Stonepeak Credit Agreement and related Loan Facility (see Note 12), on December 12, 2023, the Company issued warrants (the “Stonepeak Warrant”) to Stonepeak, pursuant to a warrant agreement, dated December 12, 2023 (the “Warrant Agreement”), allowing Stonepeak to purchase
The Stonepeak Warrant vested upon the execution of the Warrant Agreement and is exercisable at any time after December 12, 2025. The Stonepeak Warrant has an
As a result of the issuance and vesting of the Stonepeak Warrant, the Company recognized $
The following table summarizes the Stonepeak Warrant activities for the nine months ended September 30, 2024:
Warrant | ||
| Shares | |
Outstanding and unexercised as of December 31, 2023 |
| |
Granted |
| |
Exercised |
| |
Outstanding and unexercised as of September 30, 2024 |
| |
Note 16—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
28
Company updates the estimate of the annual effective tax rate, and if the estimated tax rate changes, a cumulative adjustment is recorded.
The Company recorded an income tax benefit of million and income tax expense of $
The Company increased its unrecognized tax benefits in the nine months ended September 30, 2024 by $
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into law. Besides the reinstatement of AFTC for the three year period from January 1, 2022 to December 31, 2024, the IRA offers tax incentives targeting energy transaction and renewables:
| ● | The investment tax credit under Section 48 of the Internal Revenue Code is expanded to include Qualified Biogas Property, which is expected to be available for the RNG dairy projects that the Company has invested in or will invest in. The investment tax credit rate could range from 6% up to a 50% bonus rate depending on meeting certain wage, apprenticeship, domestic content, and energy community requirements. |
| ● | A new tax credit under Section 45Z of the Internal Revenue Code was introduced to apply to low-emissions transportation fuel produced at a qualified facility and sold by the taxpayer after December 31, 2024 through December 31, 2027. The IRA provides a base credit of 20 cents per gallon or $1.00 per gallon multiplied by an applicable emission factor if prevailing wage and apprenticeship requirements are met. The Company expects its RNG dairy projects will be eligible for this credit, although the rate of the credit per gallon is still pending further guidance from the US Treasury department. |
| ● | The alternative fuel refueling property credit under Section 30C of the Internal Revenue Code was reinstated for 2022 and extended an additional 10 years to apply to any property placed in service before January 1, 2033. The base credit amount is 6% with a bonus rate of 30% if wage and registered apprenticeship requirements are met with a maximum credit amount of $100,000 (previously $30,000) per single refueling pump. |
The Internal Revenue Service has been granted broad authority to issue regulations or other guidance that could clarify how these taxes will be applied and credits will be eligible. The Company is continuing to evaluate the financial impact of the IRA as additional information becomes available. For the nine months ended September 30, 2024, the Company’s RNG equity method investee transferred the investment tax credits on the two RNG projects that were placed in service in 2023 and received $
Note 17—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 effect 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.
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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 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.
Long-Term Take-or-Pay Natural Gas Purchase Contracts
The Company has entered into quarterly fixed price natural gas purchase contracts with take-or-pay commitments extending through March 2025. As of September 30, 2024, the fixed commitments under these contracts totaled approximately $
Rimere Loan Commitment
In November 2022, the Company entered into a note purchase agreement (the “2022 Note Purchase Agreement”) with Rimere. Pursuant to the 2022 Note Purchase Agreement, the Company irrevocably committed to make available up to $
Note 18—Leases
Lessor Accounting
The Company leases fueling station equipment to customers pursuant to agreements that contain an option to extend and an end-of-term purchase option. Receivables from these leases are accounted for as finance leases, specifically sales-type leases, and are included in “Other receivables” and “Notes receivable and other long-term assets, net” in the accompanying condensed consolidated balance sheets.
The Company recognizes the net investment in the lease as the sum of the lease receivable and the unguaranteed residual value, both of which are measured at the present value using the interest rate implicit in the lease.
During each of the three months ended September 30, 2023 and 2024, the Company recognized $
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The following schedule represents the Company’s maturities of lease receivables as of September 30, 2024 (in thousands):
Fiscal Year: |
|
| |
Remainder of 2024 | $ | | |
2025 |
| | |
2026 |
| | |
2027 |
| | |
2028 |
| | |
Thereafter |
| | |
Total minimum lease payments |
| | |
Less amount representing interest |
| ( | |
Present value of lease receivables | $ | |
Note 19—Alternative Fuel Excise Tax Credit
Under separate pieces of U.S. federal legislation, the Company was eligible to receive AFTC for its natural gas vehicle fuel sales made between October 1, 2006 and December 31, 2021. In August 2022, the IRA was enacted, extending AFTC for an additional three years through December 31, 2024, beginning retroactively to January 1, 2022. The AFTC incentive in the extension period under the IRA is equal to $
Based on the service relationship with its customers, either the Company or its customers claim the credit. The Company records its AFTC, if any, as revenue in its condensed 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.
Note 20—Related Party Transactions
TotalEnergies S.E.
In the nine months ended September 30, 2023, the Company recognized revenue of $
In the three and nine months ended September 30, 2023, the Company paid TotalEnergies $
SAFE&CEC S.r.l.
In the nine months ended September 30, 2023, the Company received $
In the three and nine months ended September 30, 2023, the Company paid SAFE&CEC S.r.l. $
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September 30, 2024, cash payments to SAFE&CEC S.r.l. were immaterial. In the nine months ended September 30, 2024, the Company paid SAFE&CEC S.r.l. $
TotalEnergies Joint Venture(s) and bpJV
Pursuant to the contractual agreements of the TotalEnergies joint venture(s) and bpJV, the Company manages day-to-day operations of RNG projects in the joint ventures in exchange for an O&M fee and management fee. In the three and nine months ended September 30, 2023, the Company recognized total management and O&M fee revenue of $
In the nine months ended September 30, 2023, the Company paid $
In the three and nine months ended September 30, 2023, the Company received $
Rimere
In the three and nine months ended September 30, 2023, the Company provided $
In the three and nine months ended September 30, 2023, the Company recognized management fee revenue of $
Excluding management fee revenue,
32
Excluding management fee revenue,
Note 21—Revenue Concentration
During the nine months period ended September 30, 2024,
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 condensed 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, 2023, which was filed with the Securities and Exchange Commission (“SEC”) on February 29, 2024, as well as the audited consolidated financial statements and notes included therein (collectively, our “2023 Form 10-K”).
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 (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are statements other than historical facts. These statements 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 operational plans, including expectations regarding our delivery and sales of RNG and Environmental Credits (each as defined below), and anticipated trends in our industry and our business.
The preceding list is not intended to be an exhaustive list of all topics addressed by our forward-looking statements. Although the forward-looking statements we make reflect our good faith judgment based on available information, they are only predictions. Accordingly, our forward-looking statements 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 Part II, Item 1A of this report, as such factors may be amended, supplemented or superseded from time to time by other reports we file with the SEC. 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 effect 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 guarantees of future events.
33
All of our forward-looking statements in this report 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. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC for the most recent information about our forward-looking statements and the risks and uncertainties related to these statements. We qualify all of our forward-looking statements by this cautionary note.
Overview
We are North America’s leading provider of the cleanest fuel for the transportation market, based on the number of stations operated and the amount of gasoline gallon equivalents (“GGEs”) of renewable natural gas (“RNG”) and conventional natural gas sold. We calculate one GGE to equal 125,000 British Thermal Units (“BTUs”) and, as such, one million BTUs (“MMBTU”) equals eight GGEs. Through our sales of RNG, which is derived from biogenic methane produced by the breakdown of organic waste, we help thousands of vehicles, from airport shuttles to city buses to waste and heavy-duty trucks, reduce their amount of climate-harming greenhouse gases (“GHG”) from 60% to over 400% based on determinations by the California Air Resources Board (“CARB”), depending on the source of the RNG, while also reducing criteria pollutants such as Nitrogen Oxides, or NOx. RNG is either delivered as compressed natural gas (“CNG”) or liquefied natural gas (“LNG”).
As a clean energy solutions provider, we supply RNG (sourced from third party sources and from our anaerobic digester gas (“ADG”) RNG joint venture projects with TotalEnergies S.E. and BP Products North America, Inc. (“bp”) (see Note 3)) and conventional natural gas (sourced from third party suppliers), in the form of CNG and LNG, for medium and heavy-duty vehicles; design and build, as well as operate and maintain (“O&M”), public and private vehicle fueling stations in the United States (“U.S.”) and Canada; develop and own dairy ADG RNG production facilities; sell and service compressors and other equipment used in RNG production and at fueling stations; transport and sell RNG and conventional natural gas via “virtual” natural gas pipelines and interconnects; sell U.S. federal, state and local government credits (collectively, “Environmental Credits”) we generate by selling RNG 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, Oregon, and Washington Low Carbon Fuel Standards (collectively, “LCFS Credits”); and obtain federal, state and local tax credits, grants and incentives.
At present, we see the best use of RNG as a replacement for fossil-based fuel in the transportation sector. We believe the most attractive market for RNG is U.S. heavy-duty Class 8 trucking and, based on information from the American Trucking Association and our own internal estimates, we believe there are approximately 4.1 million Class 8 heavy-duty trucks operating in the U.S. that use over 40 billion gallons of fuel per year. As of September 30, 2024, we deliver RNG to the transportation market through 583 fueling stations we own, operate or supply in 43 states and the District of Columbia in the U.S., including over 200 stations in California. We also own, operate, or supply 24 fueling stations in Canada as of September 30, 2024.
Critically, to generate the valuable Environmental Credits, RNG must be placed in vehicle fuel tanks. We believe our stations and customer relationships allow us to deliver substantially more RNG to vehicle operators than any other participant in the market – we calculate that we have access to more fueling stations and vehicle fleets than all our competitors combined. As of September 30, 2024, we served over 1,000 fleet customers operating over 50,000 vehicles on our fuels.
Longer term, we plan to expand availability of hydrogen fuel for vehicle fleets. As operators deploy more hydrogen powered vehicles, we can modify our fueling stations to reform our RNG and deliver clean hydrogen to customers. We also believe our RNG can be used to generate clean electricity to power electric vehicles, and we have the capability to add electric vehicle charging at our station sites, although the cost of adding electric vehicle charging capacity may be significant.
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Impact of COVID-19, Inflation, Labor Shortage, Material Availability and Interest Rate
The COVID-19 pandemic had an adverse effect on the volume of our sales, which we saw bottom in the second quarter of 2020. The subsequent surge in cases driven by the omicron variant negatively affected the demand recovery for our vehicle fuels in the first quarter of 2022. Since that time, we have seen improvement in volumes in all customer markets, and the residual effects of the COVID-19 pandemic have not been a significant headwind to our business operations. For more information, see “Risk Factors” in Part II, Item 1A of this report.
In recent periods, we have experienced increases in commodity and supply chain costs due to inflationary pressures. Additionally, effects stemming from the COVID-19 pandemic have caused disruptions in labor supply and in supply chains, leading to shortages of certain materials and equipment and higher labor costs that have continued to linger to some extent. The future duration and extent of these pressures and effects are difficult to predict. Although we have partially offset these increased costs through price increases for our products and services, our efforts to manage the current inflationary pressure and to recover inflation-based cost increases from our customers may be hampered by the structure of our contracts as well as the competitive and economic conditions of the markets in which we serve. For more information, see “Risk Factors” in Part II, Item 1A of this report.
As of September 30, 2024, the majority of our debt outstanding represents a long-term loan bearing a fixed rate of interest. Changes in market interest rates do not affect the interest expense incurred from this outstanding long-term debt instrument. However, changes in market interest rates may affect the interest rate and corresponding interest expense on any new issuance of short-term and long-term debt securities. See “Quantitative and Qualitative Disclosures about Market Risk” in Part I, Item 3 of this report for more information.
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 presents our sources of revenue:
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
Revenue (in millions) | 2023 |
| 2024 |
| 2023 |
| 2024 | |||||
Product revenue(1): | ||||||||||||
Volume-related(2) | ||||||||||||
Fuel sales(3) (5) | $ | 60.0 | $ | 64.1 | $ | 220.2 | $ | 189.7 | ||||
Change in fair value of derivative instruments(4) | (1.4) | (1.4) | (0.3) | 0.3 | ||||||||
RIN Credits | 6.8 | 11.1 | 16.7 | 29.4 | ||||||||
LCFS Credits | 2.8 | 1.9 | 7.5 | 6.0 | ||||||||
AFTC(6) |
| 5.4 |
| 6.4 |
| 15.0 |
| 17.8 | ||||
Total volume-related product revenue | 73.6 | 82.1 | 259.1 | 243.2 | ||||||||
Station construction sales | 7.7 | 7.8 | 17.6 | 19.1 | ||||||||
Total product revenue |
| 81.3 |
| 89.9 |
| 276.7 |
| 262.3 | ||||
Service revenue(7): | ||||||||||||
Volume-related, O&M services | 13.7 | 14.4 | 39.6 | 42.5 | ||||||||
Other services | 0.6 | 0.6 | 2.0 | 1.7 | ||||||||
Total service revenue |
| 14.3 |
| 15.0 |
| 41.6 |
| 44.2 | ||||
Total revenue | $ | 95.6 | $ | 104.9 | $ | 318.3 | $ | 306.5 | ||||
| (1) | A discussion of product revenue is included below under “Results of Operations.” |
35
| (2) | Our volume-related product revenue primarily consists of sales of RNG and conventional natural gas, in the form of CNG and LNG, and sales of RINs and LCFS Credits in addition to changes in fair value of our derivative instruments. More information about our GGEs of fuel sold in the periods is included below under “Key Operating Data,” and more information about our derivative instruments, which consist of commodity swap and customer fueling contracts, is included in Note 6. |
| (3) | Includes $16.8 million and $44.5 million of non-cash stock-based sales incentive contra-revenue charges related to the Amazon Warrant (as defined in Note 14) for the three and nine months ended September 30, 2023, respectively. Includes $15.8 million and $42.7 million of non-cash stock-based sales incentive contra-revenue charges related to the Amazon Warrant (as defined in Note 14) for the three and nine months ended September 30, 2024, respectively. |
| (4) | The change in fair value of unsettled derivative instruments is related to the Company’s commodity swap and customer fueling contracts. The amounts are classified as revenue because the Company’s commodity swap contracts are used to economically offset the risk associated with the diesel-to-natural gas price spread resulting from customer fueling contracts under the Company’s truck financing program. |
| (5) | Includes net settlement of the Company’s commodity swap derivative instruments. For the three and nine months ended September 30, 2023, net settlement payments recognized in fuel revenue were $1.9 million and $2.9 million, respectively. For the three and nine months ended September 30, 2024, net settlement payments recognized in fuel revenue were $0.0 million and $2.4 million, respectively. |
| (6) | Represents the federal alternative fuel excise tax credit (“AFTC”). AFTC is available for vehicle fuel sales made through December 31, 2024. |
| (7) | Our service revenue primarily represents sales from performance of O&M services. More information about our GGEs serviced in the periods relating to O&M services is included below under “Key Operating Data.” Additionally, a discussion of service revenue is included below under “Results of Operations.” |
Key Operating Data
In evaluating our operating performance, we focus primarily on: (1) the amount of total fuel volume we sell to our customers with particular focus on RNG volume as a subset of total fuel volume, (2) O&M services volume dispensed at facilities we do not own but where we provide O&M services on a per-gallon or fixed fee basis, (3) our station construction 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, 2021, 2022 and 2023 and for the three and nine months ended September 30, 2023 and 2024. Certain gallons are included in both fuel and service volumes when the Company sells fuel (product revenue) to a customer and provides maintenance services (service revenue) to the same customer.
Year Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||
Fuel volume, GGEs(1) sold (in millions), | December 31, | September 30, | September 30, | ||||||||||||||||||
correlating to total volume-related product revenue |
| 2021 |
| 2022 |
| 2023 | 2023 |
| 2024 | 2023 |
| 2024 | |||||||||
RNG |
| 167.0 | 198.2 | 225.7 | 56.7 | 59.6 | 168.7 | 174.7 | |||||||||||||
Conventional natural gas |
| 78.8 | 69.6 | 62.5 | 17.1 | 13.9 | 46.6 | 44.2 | |||||||||||||
Total fuel volume |
| 245.8 |
| 267.8 |
| 288.2 | 73.8 |
| 73.5 | 215.3 |
| 218.9 | |||||||||
Year Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||
O&M services volume, GGEs(1) serviced (in millions), | December 31, | September 30, | September 30, | ||||||||||||||||||
correlating to volume-related O&M services revenue |
| 2021 |
| 2022 |
| 2023 | 2023 |
| 2024 | 2023 |
| 2024 | |||||||||
O&M services volume |
| 229.8 | 240.4 | 256.9 | 66.2 | 65.6 | 191.7 | 198.9 | |||||||||||||
Year Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||
December 31, | September 30, | September 30, | |||||||||||||||||||
Other operating data (in millions) |
| 2021 |
| 2022 |
| 2023 |
| 2023 |
| 2024 |
| 2023 |
| 2024 | |||||||
Station construction cost of sales | $ | 15.0 | $ | 19.4 | $ | 24.4 | $ | 6.9 | $ | 7.7 | $ | 16.3 | $ | 18.7 | |||||||
Net loss attributable to Clean Energy Fuels Corp. (2) (3) (4) |
| $ | (93.1) |
| $ | (58.7) |
| $ | (99.5) | $ | (25.8) | $ | (18.2) | $ | (80.8) | $ | (52.9) | ||||
| (1) | GGEs are calculated based on the conversion rate of one MMBTU equaling eight GGEs. |
| (2) | Includes $20.7 million, $21.8 million and $20.9 million of AFTC revenue for the years ended December 31, 2021, 2022 and 2023, respectively, $5.4 million and $15.0 million for the three and nine months ended September 30, 2023, respectively, $6.4 million and $17.8 million for the three and nine months ended September 30, 2024, respectively. |
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| (3) | Includes $83.6 million, $24.3 million and $60.6 million of non-cash stock-based sales incentive contra-revenue charges relating to the Amazon Warrant for the years ended December 31, 2021, 2022 and 2023, respectively, $16.8 million and $44.5 million for the three and nine months ended September 30, 2023, respectively, and $15.8 million and $42.7 million for the three and nine months ended September 30, 2024, respectively. |
| (4) | Includes an unrealized gain (loss) from the change in fair value of commodity swap and customer fueling contracts of $(3.5) million, $0.5 million and $(0.2) million for the years ended December 31, 2021, 2022 and 2023, respectively, and $(1.4) million and $(1.4) million for the three months ended September 30, 2023 and 2024, respectively, and $(0.3) million and $0.3 million for the nine months ended September 30, 2023 and 2024, respectively. See Note 6 for more information regarding the commodity swap and customer contracts. |
2024 Key Developments
Joint Development Agreement with Maas Energy Works, LLC. In May 2024, we entered into a joint development agreement (the “Maas JDA”) with Maas Energy Works, LLC (“Maas”) that granted us exclusive rights to acquire, fund and participate in the development of certain ADG RNG production projects at dairy farms. Pursuant to the Maas JDA, we have the option to exercise our exclusive development rights with respect to these projects subject to our due diligence. We will record all the associated income/loss in earnings until a certain rate of return is achieved and then receive 49% of the income/loss in earnings with Maas receiving 51%. We contemplate investing up to $132.0 million of equity capital in production projects in connection with the Maas joint development. RNG produced from the ADG RNG project(s) will be available to us for sale as vehicle fuel. As of September 30, 2024, the Company has invested $4.1 million to the Project LLC. Subsequent to September 30, 2024, the Project LLC issued a Capital Call in the amount of $29.6 million, which was contributed by the Company in October 2024.
East Valley Dairy Farm Bankruptcy. In April 2024, the dairy farm partner to an ADG RNG production project located in East Valley, Idaho that is currently under construction by the 50-50 joint venture between us and BP Products North America Inc. (the “bpJV”) filed for Chapter 11 bankruptcy protection in the Bankruptcy Court for the District of Idaho (the “Bankruptcy Court”). The bpJV is party to contracts with the dairy farm partner to lease land and to receive manure feedstock for the ADG RNG production facility currently in construction. The Company is gathering facts, closely monitoring the bankruptcy proceedings, and assessing possible future developments and alternatives.
In September 2024, the dairy farm partner filed a Chapter 11 bankruptcy plan of reorganization, which proposes to accept and perform under the contracts with the bpJV but the plan has not yet been confirmed by the Bankruptcy Court. At present, substantial uncertainty exists and a wide range of potential outcomes are possible, including taking a loss of a substantial part of our investment due to the outcome of the proceedings. In light of this situation, the bpJV has taken steps to vigorously protect its interests in connection with the bankruptcy proceedings.
South Fork Dairy Farm Project. On April 10, 2023, an accident resulted in a fire at the South Fork Dairy farm in Dimmitt, Texas, the location of one of our consolidated ADG RNG projects under development. The fire killed the dairy cows and burned down the milking facilities. Our partner, South Fork Dairy, is rebuilding the dairy farm and replenishing the dairy cattle. At the time of the incident, we had not commenced onsite construction activities. Rebuilding efforts were initiated in late 2023. Since then, we have begun to prepare for the construction of the ADG RNG project. In July 2024, the Company broke ground on construction of the RNG production facility at South Fork Farm Dairy. The construction of the digesters and processing plant is expected to be completed in 2025 at a cost of approximately $85 million, which will be home to a 16,000-cow herd with an anticipated 2.6 million GGEs of RNG to be produced annually.
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 2023 Form 10-K. Except as set forth below, and in “Impact of COVID-19, Inflation, Labor Shortage, Material Availability and Interest Rate” above, there have been no material changes to such trends as described in the MD&A contained in our 2023 Form 10-K.
The market for our vehicle fuels 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
37
general and in certain of our key customer markets, including heavy-duty trucking, have been slower than we anticipated. Slower growth may occur due to unfavorable macroeconomic events such as inflationary pressures, lingering or reoccurring pandemic effects, supply chain challenges, government regulations related to other alternative fuels or products, or other events.
Market prices for RINs and LCFS Credits can be volatile and unpredictable, and the prices for such credits can be subject to significant fluctuations. The value of RINs and LCFS Credits (derived from market prices) can materially affect our revenue. Prices have fluctuated significantly during 2021, 2022 and 2023 and will likely continue to be volatile.
The market price of our common stock has been and may continue to be volatile and unpredictable. If a decline of our market capitalization were sustained, we may need to perform, and have in the past performed, goodwill impairment tests more frequently and it is possible that our goodwill could become impaired, which could result in material non-cash charges and adversely affect our results of operations.
Debt Compliance
Certain of the agreements governing our outstanding debt, which are discussed in Note 12, have financial and non-financial covenants with which we must comply. As of September 30, 2024, 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 2023 Form 10-K. During the nine months ended September 30, 2024, there were no material changes to these activities.
Critical Accounting Policies and Estimates
The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the appropriate application of accounting policies, some of which require us to make estimates and assumptions that affect the amounts reported and related disclosures in our condensed consolidated financial statements. We base our estimates on historical experience and various assumptions that we believe are reasonable under the circumstances. To the extent there are differences between these estimates and actual results, our financial condition or results of operations could be materially affected.
Our critical accounting policies and the related judgments and estimates are discussed in the MD&A contained in our 2023 Form 10-K. Except for certain updates relating to our goodwill impairment assessment, which are described below, there have been no other material changes to our critical accounting policies as described in the MD&A contained in our 2023 Form 10-K.
Impairment of Goodwill and Long-Lived Assets
Goodwill represents the excess of costs incurred over the fair value of the net assets of acquired businesses. We assess our goodwill using either a qualitative or quantitative approach to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying value. We are required to use judgment when applying the goodwill impairment test, including, among other considerations, the identification of reporting unit(s), the assessment of qualitative factors, and the estimation of fair value of a reporting unit in the quantitative approach. We determined that we are a single reporting unit for the purpose of goodwill impairment test. We perform the impairment test annually on October 1st, or more frequently if facts or circumstances change that would indicate that the carrying amount may be impaired.
The qualitative goodwill assessment includes the potential effect on a reporting unit’s fair value of certain events and circumstances, including its enterprise value, macroeconomic conditions, industry and market considerations, cost factors, and other relevant entity-specific events. If it is determined, based upon the qualitative assessment, that it is more likely than not that the reporting unit’s fair value is less than its carrying amount, then a quantitative impairment test is
38
performed. Alternatively, we may bypass the qualitative assessment for a reporting unit and directly perform the quantitative goodwill impairment test.
The quantitative goodwill impairment test estimates the reporting unit's fair value based on its market value of invested capital plus a market participant acquisition premium derived from recent merger and acquisition transactions in comparable industry and market sectors as those in which the Company operates. The estimates, including the estimation methodology, used to determine the fair value of the reporting unit may change based on results of operations, macroeconomic conditions, stock price fluctuations or other factors. Changes in these estimates could materially affect our assessment of the fair value and goodwill impairment for the reporting unit.
Due to a decline in the market price of our common stock subsequent to December 31, 2023, we performed an interim quantitative goodwill impairment test as of September 30, 2024 for our single reporting unit as described above, which resulted in a fair value, based on its market value of invested capital plus a market participant acquisition premium, that exceeded carrying value by 17% or $179.8 million. Although, subsequent to September 30, 2024, there have been further declines in the market price of our common stock and in our market capitalization, we have not deemed that such declines will be sustained nor have we identified other events or circumstances that would more likely than not reduce the fair value of our reporting unit to below its carrying value on a sustained basis. As such, we believe the reporting unit’s goodwill as of September 30, 2024 was not impaired. It is possible that our goodwill could become impaired if we determine in a subsequent period that the fair value of our reporting unit was less than its carrying amount on a sustained basis, which could result in a material charge and adversely affect our results of operations.
We review the carrying value of our long-lived assets, including property and equipment and intangible assets with finite useful lives, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. Events that could result in an impairment review include, among others, a significant decrease in the operating performance of a long-lived asset or asset group or the decision to close a fueling station. Impairment testing involves a comparison of the sum of the undiscounted future cash flows of the asset or asset group to its carrying amount. If the sum of the undiscounted future cash flows exceeds the carrying amount, then no impairment exists. If the carrying amount exceeds the sum of the undiscounted future cash flows, then a second step is performed to determine the amount of impairment, if any, to be recognized. An impairment loss is recognized to the extent that the carrying amount of the asset or asset group exceeds its fair value. The fair value of the asset or asset group is based on estimated discounted future cash flows of the asset or asset group using a discount rate commensurate with the related risk. The estimate of future cash flows requires management to make assumptions and to apply judgment, including forecasting future sales and expenses and estimating useful lives of the assets. These estimates can be affected by a number of factors, including, among others, future results, demand and economic conditions, many of which can be difficult to predict.
Recently Adopted and Recently Issued Accounting Standards
See Note 1 for a description of recently adopted accounting standards and recently issued accounting standards pending adoption.
39
Results of Operations
The table below presents, for each period indicated, each line item of our statements 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, 2024 Compared to Three Months Ended September 30, 2023
Three Months Ended | |||||
September 30, | |||||
|
| 2023 |
| 2024 | |
Statements of Operations Data: |
|
|
|
| |
Revenue: |
|
|
|
| |
Product revenue |
| 85.0 | % | 85.7 | % |
Service revenue |
| 15.0 |
| 14.3 | |
Total revenue |
| 100.0 |
| 100.0 | |
Operating expenses: |
|
|
|
| |
Cost of sales (exclusive of depreciation and amortization shown separately below): |
|
|
|
| |
Product cost of sales |
| 68.5 |
| 60.9 | |
Service cost of sales |
| 9.4 |
| 8.9 | |
Selling, general and administrative |
| 30.5 |
| 27.5 | |
Depreciation and amortization |
| 14.0 |
| 10.8 | |
Total operating expenses |
| 122.4 |
| 108.1 | |
Operating loss |
| (22.4) |
| (8.1) | |
Interest expense |
| (4.1) |
| (8.0) | |
Interest income |
| 2.7 |
| 3.4 | |
Other income (expense), net |
| — |
| — | |
Loss from equity method investments |
| (3.5) |
| (4.8) | |
Loss before income taxes |
| (27.3) |
| (17.5) | |
Income tax (expense) benefit |
| — |
| — | |
Net loss |
| (27.3) |
| (17.5) | |
Loss attributable to noncontrolling interest |
| 0.1 |
| 0.1 | |
Net loss attributable to Clean Energy Fuels Corp. |
| (27.2) | % | (17.4) | % |
Product revenue. Product revenue for the three months ended September 30, 2024 increased by $8.6 million to $89.9 million, representing 85.7% of total revenue, compared to $81.3 million, representing 85.0% of total revenue, for the three months ended September 30, 2023. The increase was primarily due to (1) increased bulk fuel sales into the marine sector, increased volumes of vehicle fueling at our stations, and a decrease of $1.0 million in non-cash stock-based sales incentive contra-revenue charges relating to the Amazon Warrant Asset that was fully amortized by the end of 2023, resulting in a $4.1 million net increase in fuel sales from the prior year period. In addition, (2) an increase in RIN revenue of $4.3 million principally attributable to higher share of RIN values in the third quarter of 2024 when compared to that in the same period of 2023, (3) an increase in AFTC revenue of $1.0 million in part due to higher bulk fuel sales into the marine sector, and (4) an increase in station construction sales of $0.1 million due to increased construction activities , all contributed to the increase in product revenue in the third quarter of 2024 when compared to the same period in 2023. The increase in product revenue between periods was partially offset by (1) a decrease in LCFS revenue of $0.9 million primarily due to lower LCFS credit prices in the third quarter of 2024.
Service revenue. Service revenue for the three months ended September 30, 2024 increased $0.7 million to $15.0 million, representing 14.3% of total revenue, compared to $14.3 million, representing 15.0% of total revenue, for the three months ended September 30, 2023. The increase was primarily due to additional work performed at private stations.
Product cost of sales. Product cost of sales for the three months ended September 30, 2024 decreased by $1.5 million to $63.9 million, representing 60.9% of total revenue, from $65.4 million, representing 68.5% of total revenue, in
40
the three months ended September 30, 2023. The decrease was primarily due to lower underlying natural gas commodity costs, partially offset by a $0.8 million increase in station construction costs.
Service cost of sales. Service cost of sales for the three months ended September 30, 2024 increased by $0.3 million to $9.3 million, representing 8.9% of total revenue, compared with $9.0 million or 9.4% of total revenue in the three months ended September 30, 2023. The increase was primarily due to the additional work performed at private stations.
Selling, general and administrative. Selling, general and administrative expenses decreased by $0.2 million to $28.9 million in the three months ended September 30, 2024, from $29.1 million in the three months ended September 30, 2023. The decrease was primarily driven by a $3.2 million decrease in stock-based compensation expense due to vesting of equity awards granted in prior years, partially offset by a $3.0 million increase in general business, selling and administrative expenses.
Depreciation and amortization. Depreciation and amortization decreased by $2.0 million to $11.4 million in the three months ended September 30, 2024, from $13.4 million in the three months ended September 30, 2023. The decrease was primarily due to more assets being fully depreciated partially offset by higher amount of depreciable assets.
Interest expense. Interest expense increased by $4.5 million to $8.4 million in the three months ended September 30, 2024, from $3.9 million in the three months ended September 30, 2023, primarily due to (1) a $3.7 increase due to higher outstanding indebtedness and (2) a 0.8 increase due to higher amortization of debt discount and issuance costs.
Interest income. Interest income increased by $1.0 million to $3.6 million in the three months ended September 30, 2024, from $2.6 million in the three months ended September 30, 2023, primarily due to higher average interest rates of the Company’s short-term investments and loan receivables.
Loss from equity method investments. Loss from equity method investments increased by $1.7 million to $5.0 million in the three months ended September 30, 2024, from $3.3 million in the three months ended September 30, 2023, due to the operating results of SAFE&CEC S.r.l., Rimere, and our joint venture(s) with TotalEnergies and bp.
Income tax (expense) benefit. Income tax benefit was $0.1 million for the three months ended September 30, 2023. We recognized an income tax expense of $0.1 million for the three months ended September 30, 2024. Income tax expense and/or benefit is primarily related to deferred taxes associated with goodwill and the Company’s expected state tax expense.
Loss attributable to noncontrolling interest. During the three months ended September 30, 2023 and 2024, we recorded a gain of $0.1 million and $0.1 million, respectively, for the noncontrolling interest in the net loss of NG Advantage, LLC (“NG Advantage”). The noncontrolling interest in NG Advantage represents a 6.7% minority interest that was held by third parties during both the 2023 and 2024 periods.
41
Nine months ended September 30, 2024 Compared to Nine months ended September 30, 2023
Nine Months Ended | |||||
September 30, | |||||
|
| 2023 |
| 2024 | |
Statements of Operations Data: |
|
|
|
| |
Revenue: |
|
|
|
| |
Product revenue |
| 86.9 | % | 85.6 | % |
Service revenue |
| 13.1 |
| 14.4 | |
Total revenue |
| 100.0 |
| 100.0 | |
Operating expenses: |
|
|
|
| |
Cost of sales (exclusive of depreciation and amortization shown separately below): |
|
|
|
| |
Product cost of sales |
| 75.6 |
| 60.1 | |
Service cost of sales |
| 7.9 |
| 9.3 | |
Selling, general and administrative |
| 27.4 |
| 27.2 | |
Depreciation and amortization |
| 11.0 |
| 11.0 | |
Total operating expenses |
| 121.9 |
| 107.6 | |
Operating loss |
| (21.9) |
| (7.6) | |
Interest expense |
| (4.0) |
| (7.8) | |
Interest income |
| 2.5 |
| 3.5 | |
Other income (expense), net |
| — |
| — | |
Loss from equity method investments |
| (2.2) |
| (5.3) | |
Loss before income taxes |
| (25.6) |
| (17.2) | |
Income tax (expense) benefit |
| 0.1 |
| (0.2) | |
Net loss |
| (25.5) |
| (17.4) | |
Loss attributable to noncontrolling interest |
| 0.1 |
| 0.2 | |
Net loss attributable to Clean Energy Fuels Corp. |
| (25.4) | % | (17.2) | % |
Product revenue. Product revenue for the nine months ended September 30, 2024 decreased by $14.4 million to $262.3 million, representing 85.6% of total revenue, compared to $276.7 million, representing 86.9% of total revenue, for the nine months ended September 30, 2023. The decrease was primarily due to lower average prices on fuel sold driven by a decrease in the prices of natural gas, partially offset by an increase in total GGEs of fuel sold and a decrease of $1.8 million in non-cash stock-based sales incentive contra-revenue charges relating to the Amazon Warrant due to zero amortization relating to customer incentive asset in the nine months ended September 30, 2024 partially offset by higher customer fuel purchases, resulting in a $30.5 million net decrease in fuel sales from the prior year period. In addition, a decrease in LCFS revenue of $1.5 million primarily resulting from lower average LCFS prices also contributed to the decrease in product revenue for the nine months ended September 30, 2024 when compared to the same period in 2023. The decrease in product revenue between periods was partially offset by (1) an increase in RIN revenue of $12.7 million principally attributable to higher share and average RIN prices, (2) an increase in AFTC revenue of $2.8 million primarily due to higher fuel volumes in the nine months ended September 30, 2024 when compared to the same period in the prior year, (3) a change in fair value of our commodity swap and customer contracts entered into in connection with our truck financing program, as we recognized an unrealized gain of $0.3 million in the nine months ended September 30, 2024 compared to an unrealized loss of $0.3 million in the same period of 2023, and (4) an increase in station construction sales of $1.5 million due to increased construction activities.
Service revenue. Service revenue for the nine months ended September 30, 2024 increased $2.6 million to $44.2 million, representing 14.4% of total revenue, compared to $41.6 million, representing 13.1% of total revenue, for the nine months ended September 30, 2023. The increase was primarily due to an increase in GGEs serviced.
Product cost of sales. Product cost of sales for the nine months ended September 30, 2024 decreased by $56.5 million to $184.2 million, representing 60.1% of total revenue, from $240.7 million, representing 75.6% of total revenue, in the nine months ended September 30, 2023. The decrease was primarily due to lower average prices of natural gas in the nine months ended September 30, 2024 when compared to those in the same period in the prior year. In 2023, there was a significant rise in the cost of natural gas in California during January and February. The effects of lower natural gas
42
prices in the nine months ended September 30, 2024 were partially offset by an increase in GGEs of fuel sold and a $2.4 million increase in station construction costs.
Service cost of sales. Service cost of sales for the nine months ended September 30, 2024 increased by $3.3 million to $28.5 million, representing 9.3% of total revenue, compared with $25.2 million or 7.9% of total revenue in the nine months ended September 30, 2023. The increase was primarily due to an increase in GGEs serviced.
Selling, general and administrative. Selling, general and administrative expenses decreased by $3.9 million to $83.4 million in the nine months ended September 30, 2024, from $87.3 million in the nine months ended September 30, 2023. The decrease was primarily driven by a $9.9 million decrease in stock-based compensation expense due to vesting of equity awards granted in prior years, partially offset by a $6.0 million increase in general business, selling and administrative expenses.
Depreciation and amortization. Depreciation and amortization decreased by $1.2 million to $33.8 million in the nine months ended September 30, 2024, from $35.0 million in the nine months ended September 30, 2023. The decrease was primarily due to more assets being fully depreciated partially offset by higher amount of depreciable assets.
Interest expense. Interest expense increased by $11.4 million to $24.0 million in the nine months ended September 30, 2024, from $12.6 million in the nine months ended September 30, 2023, primarily due to (1) a $8.9 increase due to higher outstanding indebtedness and (2) a $2.5 increase due to higher amortization of debt discount and issuance costs.
Interest income. Interest income increased by $2.8 million to $10.8 million in the nine months ended September 30, 2024, from $8.0 million in the nine months ended September 30, 2023, primarily due to higher average interest rates of the Company’s short-term investments and loan receivables.
Loss from equity method investments. Loss from equity method investments increased by $9.1 million to $16.2 million in the nine months ended September 30, 2024, from $7.1 million in the nine months ended September 30, 2023, due to the operating results of SAFE&CEC S.r.l., Rimere, and our joint venture(s) with TotalEnergies and bp.
Income tax (expense) benefit. Income tax benefit was $0.2 million for the nine months ended September 30, 2023. We recognized an income tax expense of $0.6 million for the nine months ended September 30, 2024. Income tax expense and/or benefit is primarily related to deferred taxes associated with goodwill and the Company’s expected state tax expense.
Loss attributable to noncontrolling interest. During the nine months ended September 30, 2023 and 2024, we recorded a gain of $0.5 million and $0.5 million, respectively, for the noncontrolling interest in the net loss of NG Advantage. The noncontrolling interest in NG Advantage represents a 6.7% minority interest that was held by third parties during both the 2023 and 2024 periods.
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; the amount and timing of any capital calls related to the joint venture(s) with TotalEnergies and/or bp, or any other joint venture we may enter into in the future; the amount and timing of any additional debt or equity financing we may pursue; our capital expenditure requirements; any merger, divestiture or acquisition activity; and 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 affect these results, including the amount and timing of our vehicle fuel sales, station construction sales, sales of RINs and LCFS Credits and recognition of government credits, grants and incentives, if any; fluctuations in commodity, station construction and labor costs; supply chain issues and unfavorable macroeconomic events, including inflationary
43
pressures; environmental credit prices; variations in the fair value of certain of our derivative instruments that are recorded in revenue; and the amount and timing of our billing, collections and liability payments.
Cash Flows
Operating Activities. Cash provided by operating activities was $42.7 million in the nine months ended September 30, 2024, compared to cash provided by operating activities of $0.8 million in the comparable 2023 period. The increase in cash provided by operating activities was primarily attributable to higher contributions relating to the procurement and sales of natural gas in the nine months ended September 30, 2024 when compared to the same period in 2023. Additionally, changes in working capital resulting from the timing of cash receipts, accruals, billings and payments of cash contributed to the increase in cash provided by operating activities in the nine months ended September 30, 2024 when compared to the same period in 2023.
Investing Activities. Cash used in investing activities was $30.6 million in the nine months ended September 30, 2024, compared to cash used in investing activities of $96.7 million in the comparable 2023 period. The decrease in cash used in investing activities was primarily attributable to a $41.3 million increase in net maturities of short-term investments in the nine months ended September 30, 2024 when compared to the same period in 2023, a $22.7 million net decrease in capital expenditures on property and equipment and on RNG production projects, and a $2.2 million decrease in investments in other entities.
Financing Activities. Cash used in financing activities was $0.1 million in the nine months ended September 30, 2024, compared to cash used in financing activities of $3.0 million in the comparable 2023 period. The decrease in cash used in financing activities was primarily attributable to higher cash receipts of incentive payments relating to our Adopt-a-Port program and lower cash payments of debt issuance fees relating to our debt instruments, partially offset by lower cash receipts from exercise of stock options.
Capital Expenditures, Indebtedness and Other Uses of Cash
We require cash to fund our capital expenditures, operating expenses and working capital and other 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; RNG production facilities; debt repayments and repurchases; repurchases of common stock; purchases of heavy-duty trucks that use our fuels; additions or modifications of LNG production facilities; supporting our operations, including maintenance and improvements of our infrastructure; supporting our sales and marketing activities, including support of legislative and regulatory initiatives; financing vehicles for our customers; any investments in other entities; any mergers or acquisitions, including acquisitions to expand our RNG production capacity; pursuing market expansion as opportunities arise, including geographically and to new customer markets; and to fund other activities or pursuits and for other general corporate purposes.
Our business plan calls for approximately $60.0 million in capital expenditures in 2024. These capital expenditures primarily relate to the construction of fueling stations, IT software and equipment and LNG plant costs, and we expect to fund these expenditures primarily through cash on hand and cash generated from operations. Further, in 2024, we anticipate deploying up to approximately $65.0 million to develop ADG RNG production facilities. As of September 30, 2024, we have invested $284.9 million in the development of ADG RNG production facilities, which includes $242.2 million contributed to our joint ventures.
We had total indebtedness, consisting of our debt and finance leases, of approximately $303.3 million in principal amount as of September 30, 2024, of which approximately $0.9 million, $1.1 million, $0.7 million, $0.5 million, $0.1 million and $300.0 million are expected to become due in 2024, 2025, 2026, 2027, 2028 and thereafter, respectively. Based on our outstanding indebtedness and applicable interest rates as of September 30, 2024, we expect our total interest payment obligations relating to our indebtedness to be approximately $29.3 million in 2024, $22.0 million of which had been paid when due as of September 30, 2024. We plan to and believe we are able to make all expected principal and interest payments in the next 12 months.
We also have indebtedness, including the amount representing interest, from our operating leases of approximately $153.3 million as of September 30, 2024, of which approximately $4.0 million, $16.7 million, $16.6
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million, $16.7 million, $15.8 million and $83.5 million are expected to become due in 2024, 2025, 2026, 2027, 2028 and thereafter, respectively.
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. 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 suspend, or limit repurchases under, our share repurchase program or pursue alternatives, such as refinancing, or debt or equity offerings, to increase our cash management flexibility.
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. As of September 30, 2024, excluding current portion of restricted cash, we had total cash and cash equivalents and short-term investments of $243.5 million, compared to $263.1 million as of December 31, 2023.
We expect cash provided by our operating activities to fluctuate depending on our operating results, which can be affected by the factors described above, as well as the other factors described in this MD&A and Part II, Item 1A. “Risk Factors” of this report.
Subject to the following paragraph, we believe our cash and cash equivalents and short-term investments and anticipated cash provided by our operating and current or future financing activities will satisfy our expected 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, share repurchases or other expenses that we cannot fund through cash on-hand, cash provided by our operations or other sources. Moreover, we may use our cash resources faster than we predict due to unexpected expenditures or higher-than-expected expenses due to unfavorable macroeconomic events, including inflationary pressures or otherwise, in which case we may need to seek capital from alternative sources sooner than we anticipate. The timing and necessity of any future capital raise would depend on various factors, including our rate and volume of, and prices for, natural gas fuel 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.
If we deploy additional capital to develop ADG RNG production facilities and fueling stations to support contracted RNG fueling volume, we could be required to raise additional capital.
We may raise additional capital through one or more sources, including, among others, obtaining equity capital, including through offerings of our common stock or other securities, obtaining new or restructuring existing debt, selling assets, 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 fueling infrastructure, invest in strategic transactions or acquisitions or repay our outstanding indebtedness and may reduce our ability to support and build our business and generate sustained or increased revenue.
Off-Balance Sheet Arrangements
As of September 30, 2024, we had the following off-balance sheet arrangements that have had, or are reasonably likely to have, a material current or future 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 $92.4 million; |
| ● | A loan commitment to an equity method investee; |
| ● | Quarterly fixed-price natural gas purchase contracts with take-or-pay commitments; and |
| ● | One long-term natural gas sale contract with a fixed supply commitment. |
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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.
We entered into a note purchase agreement, dated January 8, 2024, with Rimere, an equity method investee, pursuant to which we committed to make available up to $10.0 million in delayed draw loans to support Rimere’s working capital requirements (see Note 17).
As of September 30, 2024, we have quarterly fixed-price natural gas purchase contracts with take-or-pay commitments extending through March 2025.
In addition, as of September 30, 2024, we have a fixed supply arrangement with UPS for the supply and sale of 170.0 million GGEs of RNG through March 2026.
Item 3.—Quantitative and Qualitative Disclosures about Market Risk
In the ordinary course of our business, we are exposed to various market risks, including commodity price risks, risks related to foreign currency exchange rates, and risks related to fluctuations in interest rates.
Commodity Price Risk
We are subject to market risk with respect to our sales of natural gas, which have historically been subject to volatile market conditions. Our exposure to market risk is heightened when we have a fixed-price sales contract with a customer that is not covered by a futures contract, or when we are otherwise unable to pass through natural gas price increases to customers. Natural gas prices and availability are affected by many factors, including, among others, drilling activity, supply, weather conditions, the global trade environment, overall economic conditions and foreign and domestic government regulations.
Natural gas costs represented $190.6 million of our total cost of sales in 2023 and $89.8 million of our total cost of sales for the nine months ended September 30, 2024.
In addition, we are exposed to market price risk relating to the diesel-to-natural gas price spread associated with the natural gas fuel supply commitments we make in our fueling agreements with fleet operators who participate in the Company’s truck financing program.
Foreign Currency Exchange Rate Risk
For the three and nine months ended September 30, 2024, our primary exposure to foreign currency exchange rates relates to our Canadian operations that had certain outstanding accounts receivable and accounts payable denominated in Canadian dollar, which were not hedged.
We performed a sensitivity analysis to estimate our exposure to market risk with respect to our monetary transactions denominated in a foreign currency. If the exchange rates on these assets and liabilities were to fluctuate by 10% from the rates as of September 30, 2024, we would expect a corresponding fluctuation in the value of the net assets to be approximately $0.1 million.
Interest Rate Risk
As of September 30, 2024, we had no debt that bears a variable rate of interest. Certain London Inter-bank Offered Rate (“LIBOR”) tenors were discontinued after 2021 with other LIBOR tenors discontinued after June 2023. We intend to monitor the developments with respect to the discontinuance of LIBOR and work with our lenders to minimize the effect of such a discontinuance on our financial condition and results of operations. To date, the effect of the discontinuance of LIBOR on us and on our debt instruments has not been material. However, if our lenders have increased costs due to
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changes in LIBOR, we may experience potential increases in interest rates on our variable rate debt or fees on our fixed rate debt, which could adversely affect our interest expense, results of operations and cash flows.
Item 4.—Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Our management carried out an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive and principal financial officers, respectively), of the effectiveness of our disclosure controls and procedures as of September 30, 2024. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2024.
Changes in Internal Control over Financial Reporting
We regularly review and evaluate our internal control over financial reporting, and from time to time we may make changes to our processes and systems to improve controls or increase efficiencies. Such changes may include, among others, implementing new and more efficient systems, consolidating activities, and migrating processes.
There were no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Disclosure Controls and Procedures and Internal Control Over Financial Reporting
In designing our disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of our controls and procedures must reflect the fact that there are resource constraints, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Because of these inherent limitations, our disclosure and internal controls may not prevent or detect all instances of fraud, misstatements or other control issues. In addition, projections of any evaluation of the effectiveness of disclosure or internal controls to future periods are subject to risks, including, among others, that controls may become inadequate because of changes in conditions or that compliance with policies or procedures may deteriorate.
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PART II.—OTHER INFORMATION
Item 1. —Legal Proceedings
From time to time, we may become involved in various legal proceedings that arise in the ordinary course of our business, including lawsuits, claims, audits, government enforcement actions and related matters. It is not possible to predict when or if these proceedings may arise, nor is it possible to predict the outcome of any proceedings that do arise, including, among other things, the amount or timing of any liabilities we may incur, and any such proceedings could have a material effect on us regardless of outcome. In the opinion of management, however, we are not a party, and our properties are not subject, to any pending legal proceedings that are material to us.
Item 1A. Risk Factors
An investment in our Company involves a high degree of risk of loss. You should carefully consider the risk factors discussed below and all of the other information included in this report before you make any investment decision regarding our securities. We believe the risks and uncertainties described below are the most significant we face, but additional risks and uncertainties not known to us or that we currently deem immaterial could also be or become significant. The occurrence of any of these risks could harm our business, financial condition, results of operations, prospects and reputation and could cause the trading price of our common stock to decline.
Risks Related to Our Business
Our success is dependent on the willingness of fleets and other customers to adopt our vehicle fuels, which may not occur in a timely manner, at expected levels or at all.
Our success is highly dependent on the adoption by fleets and other customers of our RNG and conventional natural gas vehicle fuels. The market for our vehicle fuels has experienced slow, volatile and unpredictable growth in many sectors. For example, adoption and deployment of our vehicle fuels in heavy-duty trucking has been slower and more limited than we anticipated. Also, other important fleet markets, including airports and public transit, had slower volume and customer growth in recent years that may continue. If the market for our vehicle fuels does not develop at improved rates or levels, or if a market develops but we are not able to capture a significant share of the market or the market subsequently declines, our business, prospects, financial condition, and operating results would be harmed.
Factors that may influence the adoption of our vehicle fuels, many of which are beyond our control, include, among others: lack of demand for trucks that use our vehicle fuels; adoption or expansion of government policies, programs, funding or incentives, or increased publicity or popular sentiment in favor of vehicles or fuels other than RNG and natural gas, including long-standing support for diesel-powered vehicles, changes to emissions requirements applicable to vehicles and fleets powered by diesel, RNG, natural gas, or other vehicle fuels and/or growing support for electric and hydrogen-powered vehicles; limitations on the capabilities of utilities to provide services to meet our requirements. For example, natural gas utilities may be unable to expand piping or provide services for new expansions, and electric utilities may lack the capacity to provide service for our projects; perceptions about the benefits of our vehicle fuels relative to diesel and other alternative vehicle fuels, including with respect to factors such as supply, cost savings, environmental benefits and safety; increases, decreases or volatility in the supply, demand, use and prices of crude oil, diesel, RNG, natural gas and other vehicle fuels, such as electricity, hydrogen, renewable diesel, biodiesel and ethanol; inertia among fleets and fleet vehicle operators, who may be unable or unwilling to prioritize converting a fleet to our vehicle fuels over an operator’s other general business concerns, particularly if the operator is not sufficiently incentivized by emissions regulations or other requirements or lacks demand for the conversion from its customers, drivers, or other stakeholders; vehicle cost, fuel efficiency, availability, quality, safety, convenience (to fuel and service), design, performance and residual value, as well as operator perception with respect to these factors, generally and in our key customer markets and relative to comparable vehicles powered by other fuels; the development, production, cost, availability, performance, sales and marketing and reputation of engines that are well-suited for the vehicles used in our key customer markets, including heavy-duty trucks and other fleets; increasing competition in the market for vehicle fuels generally, and the nature and effect of competitive developments in this market, including improvements in or perceived advantages of other vehicle fuels and engines powered by these fuels; the impact of federal or state laws, orders or regulations mandating new or additional limits on GHG emissions, “tailpipe” emissions or internal combustion engines,
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including the Advanced Clean Trucks regulation, the September 2020 Executive Order, the Advanced Clean Fleets regulation and the 2021 Executive Order (each as defined below); the availability and effect of environmental, tax or other government regulations, programs or incentives that promote our products or other alternatives as a vehicle fuel, including certain programs under which we generate credits by selling RNG as a vehicle fuel, as well as the market prices for such credits; and emissions and other environmental regulations and pressures on producing, transporting, and dispensing our fuels.
In addition, as our customers and partners react to economic conditions and the potential for a global recession, they may reduce spending and take additional precautionary measures to limit or delay expenditures and preserve capital and liquidity. Reductions in spending, delays in purchasing decisions, lack of renewals, inability to attract new customers, uncertainty about business continuity as well as pressure for extended billing terms or pricing discounts, could limit our ability to grow our business and negatively affect our operating results and financial condition.
We are dependent on the production of vehicles and engines in our key customer and geographic markets by manufacturers, over which we have no control.
Vehicle and engine manufacturers control the development, production, quality assurance, cost and sales and marketing of their products, which shapes the performance, availability and reputation of these products in the marketplace. We are dependent on these manufacturers to succeed in our target markets, and we have no influence or control over their activities. A small number of manufacturers, chiefly Cummins, produce engines that use our vehicle fuels. The number of manufacturers making vehicles that use our fuels is limited as well. These manufacturers may decide not to expand or maintain, or may decide to discontinue or curtail, their engine or vehicle product lines for a variety of reasons, including as a result of the adoption of government policies or programs such as the Advanced Clean Trucks regulation, the September 2020 Executive Order and the Advanced Clean Fleets regulation. The limited production of engines and vehicles that use our fuels increases their cost and limits availability, which restricts large-scale adoption, and may reduce resale value, which may contribute to operator reluctance to convert their fleets to vehicles that use our fuels. In addition, some operators have communicated to us that earlier models of heavy-duty truck engines using our fuels have a reputation for unsatisfactory performance, and that this reputation or their first-hand experiences of such performance may be a factor in operator decisions regarding whether to convert their fleets to vehicles that use our fuels. If manufactures of vehicles and engines that use our fuels develop unsatisfactory vehicles or engines, then our business, financial condition, and results of operations may be adversely affected.
Our RNG business may not be successful.
Our RNG business consists of procuring RNG from projects we plan to develop and own or from projects owned by third-party producers and reselling this RNG through our fueling infrastructure. The success of our RNG business depends on our ability to secure, on acceptable terms, a sufficient supply of RNG; sell this RNG in adequate volumes and at prices that are attractive to customers and produce acceptable margins for us; and sell Environmental Credits we may generate under applicable federal or state programs from our sale of RNG as a vehicle fuel at favorable prices as well as our ability to appropriately balance supply we take with demand from customers. Our ability to maintain an adequate supply of RNG is subject to risks affecting RNG production, including unpredictable production levels or other difficulties due to, among others, problems with equipment, severe weather, droughts, financial condition or bankruptcy or insolvency of the applicable ADG and LFG source owner, health crises and pandemics, construction delays, technical difficulties, high operating costs, limited availability, unfavorable composition of collected feedstock gas, and plant shutdowns caused by upgrades, expansion, required maintenance, or other operational issues. The agriculture industry generally, and the dairy industry in particular, are subject to risks and uncertainties that may lead to financial and other challenges impacting RNG production levels and potentially our future investments in RNG projects. For example, various entities with whom we have contracted for our project in East Valley, Idaho filed for Chapter 11 bankruptcy protection in April 2024, which could have a material adverse impact on our RNG production at and investment in that project.
Our ability to balance supply with demand from customers is subject to risk where we are committed to acquire RNG produced by third-party producers that could exceed the level of demand of our customers. If we are unable to maintain an adequate supply of RNG or are oversupplied with RNG versus customer demand, our business, financial condition, and performance could be negatively affected. In addition, increasing demand for RNG will result in more
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robust competition for supplies of RNG, including from other vehicle fuel providers, gas utilities and other users and providers. If we or any of our RNG suppliers experience these or other difficulties in RNG production processes, or if competition for RNG development projects and supply increases, then our supply of RNG and our ability to resell it as a vehicle fuel could be jeopardized.
Our ability to generate revenue from our sale of RNG or our generation and sale of Environmental Credits depends on many factors, including the markets for RNG as a vehicle fuel and for Environmental Credits. The markets for Environmental Credits have been volatile and unpredictable in recent periods, and the prices for these credits are subject to fluctuations. Additionally, the value of Environmental Credits, and consequently the revenue levels we may receive from our sale of these credits, may be adversely affected by changes to the federal and state programs under which these credits are generated and sold, prices for and use of oil, diesel or gasoline, the inclusion of additional qualifying fuels in the programs, increased production and use of other fuels in the programs, or other conditions. Our ability to generate revenue from sales of Environmental Credits depends on our strict compliance with these federal and state programs, which are complex and can involve a significant degree of judgment. If the agencies that administer and enforce these programs disagree with our judgments, otherwise determine we are not in compliance, conduct reviews of our activities or make changes to the programs, then our ability to generate or sell these credits could be restricted, permanently limited, or lost entirely, and we could also be subject to fines or other sanctions. Any of these outcomes could force us to purchase credits in the open market to cover any credits we have contracted to sell, retire credits we may have generated but not yet sold, reduce or eliminate a significant revenue stream, or incur substantial additional and unplanned expenses. Any permanent or temporary discontinuation or suspension of federal and state programs that provide credits, grants and incentives, such as the AFTC, would also adversely impact our revenue. Moreover, in the absence of programs that allow us to generate and sell Environmental Credits or other federal and state programs that support the RNG vehicle fuel market, or if our customers are not willing to pay a premium for RNG, we may be unable to operate our RNG business profitably or at all.
Our commercial success depends on our ability and the ability of our third-party supply sources to successfully develop and operate projects and produce expected volumes of RNG.
Our specific focus on RNG exposes us to risks related to the supply of and demand for RNG and Environmental Credits, the cost of capital expenditures, government regulation, and economic conditions, among other factors. As an RNG supplier we may also be negatively affected by lower RNG production resulting from lack of feedstock, mechanical breakdowns, faulty technology, competitive markets, or changes to the laws and regulations that mandate the use of renewable energy sources.
In addition, other factors related to the development and operation of renewable energy projects could adversely affect our business, including: (i) changes in pipeline gas quality standards or other regulatory changes that may limit our ability to transport RNG on pipelines for delivery to vehicles or increase the costs of processing RNG to allow for such deliveries; (ii) construction risks, including the risk of delay, that may arise because of inclement weather, natural disasters, accidents, labor disruptions, disputes, or increases in costs for or shortages of equipment and construction materials; (iii) operating risks; (iv) weather conditions; (v) financial condition of the applicable source owner, including obstacles to their ability to adequately fund their operations or pay vendors and creditors; (vi) health of the applicable dairy herd; (vii) consolidation in the dairy industry; (viii) budget overruns; (ix) possible liabilities because of unforeseen environmental, construction, technological or other complications; (x) failures or delays in obtaining desired or necessary rights, including leases and feedstock agreements; (xi) diseases and health crises; and (xii) failures or delays in obtaining and keeping in good standing permits, authorizations and consents from local city, county, state and U.S. federal governments as well as local and U.S. federal governmental organizations. Any of these factors could prevent completion or operation of projects, or otherwise adversely affect our business, financial condition, and results of operations.
Acquisition, financing, construction, and development of projects by us or our partners that own projects and divestitures, investments or other strategic relationships, may not commence on anticipated timelines or at all, may not meet expectations, and may otherwise harm our business.
Our strategy is to continue to expand, including through the acquisition of additional projects and by signing additional supply agreements with third-party project owners. From time to time, we and our partners enter into nonbinding
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letters of intent for projects. Until the negotiations are final, however, and the parties have executed definitive documentation, we or our partners may not be able to consummate any development or acquisition transactions, or any other similar arrangements, on the terms set forth in the applicable letter of intent or at all. The acquisition, financing, construction and development of projects involves numerous risks, including: the ability to obtain financing for a project on acceptable terms or at all; difficulties in identifying, obtaining, and permitting suitable sites for new projects; failure to obtain all necessary rights to land access and use; inaccuracy of assumptions with respect to the cost and schedule for completing construction; inaccuracy of assumptions with respect to the biogas potential, including quality, volume, and asset life; delays in deliveries or increases in the price of equipment; permitting and other regulatory issues, license revocation and changes in legal requirements; increases in the cost of labor, labor disputes and work stoppages; potential business, financial stress or bankruptcy of partners or applicable source owners; failure to receive quality and timely performance of third-party or utility services; unforeseen engineering and environmental problems; cost overruns; accidents involving personal injury or the loss of life; and weather conditions, catastrophic events, including fires, explosions, earthquakes, droughts and acts of terrorism, and other force majeure events.
Additionally, we may acquire or invest in other companies or businesses or pursue other strategic transactions or relationships, such as joint ventures, collaborations, divestitures, or other similar arrangements. These strategic transactions and relationships and any others we may pursue in the future involve numerous risks, any of which could harm our business, performance and liquidity, including, among others, the following: (i) difficulties integrating the operations, personnel, contracts, service providers and technologies of an acquired company or partner; (ii) diversion of financial and management resources from existing operations or other opportunities; (iii) failure to realize the anticipated synergies or other benefits of a transaction or relationship; (iv) risks of entering new customer or geographic markets in which we may have limited or no experience; (v) potential loss of our or an acquired company’s or partner’s key employees, customers, vendors or assets in the event of an acquisition or investment; and (vi) incurrence of substantial costs or debt or equity dilution to fund an acquisition, investment or other transaction or relationship, as well as possible write-offs or impairment charges relating to any businesses we partner with, invest in or acquire. Further, our partners, including TotalEnergies, bp and Chevron, may reallocate their resources from RNG to other renewable or low carbon vehicle fuels. Any such action would have a material adverse effect on our plans, results of operations and financial condition.
To secure ADG RNG from new projects we develop, we typically face a long and variable development cycle that requires significant resource commitments and a long lead time before we realize revenue.
The development, design and construction process for ADG RNG projects generally lasts between 12 to 24 months on average. Prior to entering into a letter of intent with respect to an ADG RNG project, we typically conduct a preliminary assessment of whether the site is commercially viable based on our expected return on investment, investment payback period, and other operating metrics, as well as whether the necessary permits to develop a project on that site are available. After entering into a project letter of intent, we perform a more detailed review of the site’s facilities, including a life-cycle assessment, which serves as the basis for the final specifications of the project. Finally, we negotiate and execute contracts with the site owner and other parties. This extended development process requires the dedication of significant time and resources from our personnel, with no certainty of success or recovery of our expenses. Further, upon commencement of operations, it takes about 15-18 months for the project to ramp up to expected production level, receive necessary registrations and approvals from the Environmental Protection Agency (“EPA”) and CARB, and begin generating revenue. All these factors, and in particular, expenditures on development of projects that will not generate significant revenue in the near term, can contribute to fluctuations in our financial performance and increase the likelihood that our operating results in a particular period will fall below investor expectations.
Livestock waste and dairy farm projects are dependent on LCFS credits and RINS.
Livestock waste and dairy farm projects are heavily dependent on the LCFS credits and, to a lesser extent, RINs for commercial viability. If CARB reduces the CI score that it applies to waste conversion projects, such as dairy digesters, the number of LCFS credits for RNG generated at livestock waste and dairy farm projects will decline. Additionally, revenue from LCFS credits also depends on the price per LCFS credit. LCFS credit prices are driven by various market forces, including the supply of and demand for LCFS credits, which depends on the demand for traditional and other renewable fuels and mandated CI targets, which determine the number of LCFS credits required to offset LCFS deficits.
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Fluctuations in the price of LCFS credits or the number of LCFS credits assigned will significantly affect the success of our livestock waste and dairy farm projects. RINs and LCFS Credit prices have fluctuated in recent years and will likely continue to be volatile. A significant decline in the value of LCFS credits could adversely affect our business, financial condition, and results of operations.
We have a history of losses and may incur additional losses in the future.
We have incurred pre-tax losses in the past, may incur losses in the future, and may never sustain profitability, any of which would adversely affect our business, prospects and financial condition and may cause the price of our common stock to fall. Furthermore, historical losses may not be indicative of future losses, and our future losses may be greater than our past losses. In addition, to try to achieve or sustain profitability, we may choose or be forced to take actions that result in material costs or material asset or goodwill impairments. For instance, we have recorded significant charges in connection with our closure of certain fueling stations, our determination that certain assets were impaired because of the foregoing, and other actions. We review our assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable, and we perform a goodwill impairment test on an annual basis and between annual tests in certain circumstances, in each case in accordance with applicable accounting guidance and as described in the financial statements and related notes included in this report. For example, due to a decline in the market price of our common stock, we determined that an indicator of potential goodwill impairment existed as of September 30, 2024; as such, we performed an interim goodwill impairment test of our single reporting unit.
In addition, changes to the use of our assets, divestitures, changes to the structure of our business, significant negative industry or economic trends, disruptions to our operations, inability to effectively integrate any acquired businesses, further market capitalization declines, or other similar actions or conditions could result in additional asset impairment or goodwill impairment charges or other adverse consequences, any of which could have material negative effects on our financial condition, our results of operations and the trading price of our common stock.
Our plans for hydrogen and electric vehicle stations will require significant cash investments and management resources and may not meet our expectations.
As operators deploy hydrogen powered vehicles, we plan to modify our fueling stations to reform our RNG, build additional hydrogen stations, and deliver clean hydrogen. Further, we have the capability to add electric charging at our sites, and we believe our RNG can be used to generate clean electricity to power vehicles. Our plans will require significant cash investments and management resources and may not meet our expectations with respect to additional sales of our vehicle fuels. We have experience constructing hydrogen fueling stations, but such facilities cost significantly more than traditional RNG vehicle fueling stations. In addition, we have not yet added electric charging capability to any of our stations, and the cost of such capability may be significant. We will need to ensure compliance with all applicable regulatory requirements, including obtaining any required permits and land use rights, which could take considerable time and expense and is subject to the risk that government support in certain areas may be discontinued. If we are unable to modify our stations to provide hydrogen or add electric charging to our stations, or if we experience delays in doing so, our stations may be unable to meet our customer demand, which may negatively impact our business, prospects, financial condition, and operating results. Additionally, even if we are able to successfully modify our stations to provide hydrogen or electric charging stations, we will be dependent on the manufacturers of hydrogen and electric vehicles to succeed in our target markets, and we will have no influence over their activities. See the risks discussed under “We are dependent on the production of vehicles and engines in our key customer and geographic markets by original equipment manufacturers, over which we have no control,” above and elsewhere in these risk factors.
Increases, decreases and general volatility in oil, diesel, renewable diesel, natural gas, RNG and Environmental Credit prices could adversely affect our business.
The prices of RNG, natural gas, crude oil, diesel, renewable diesel, and Environmental Credits can be volatile, and this volatility may continue to increase. Factors that may cause volatility in the prices of RNG, natural gas, crude oil, diesel, renewable diesel, and Environmental Credits include, among others, changes in supply and availability of crude oil, RNG and other renewable transportation fuels, and natural gas, government regulations, inventory levels, customer demand, price and availability of alternatives, weather conditions, negative publicity about crude oil or natural gas drilling,
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production or transportation techniques and methods, worldwide economic, military, health and political conditions, transportation costs and the price of foreign imports. If the prices of crude oil and diesel are low or decline, or if the price of RNG or natural gas increases without corresponding increases in the prices of crude oil and diesel or Environmental Credits, we may not be able to offer our customers an attractive price for our vehicle fuels, market adoption of our vehicle fuels could be slowed or limited and/or we may be forced to reduce the prices at which we sell our vehicle fuels in order to try to attract new customers or prevent the loss of demand from existing customers. Natural gas and crude oil prices are expected to remain volatile for the near future because of market uncertainties over supply and demand, including due to the state of the world economy, geopolitical conditions, military conflicts such as the wars in Ukraine and the Middle East, energy infrastructure and other factors. Fluctuations in natural gas prices affect the cost to us of the natural gas commodity. High natural gas prices adversely affect our operating margins when we cannot pass the increased costs through to our customers. Conversely, lower natural gas prices reduce our revenue when the commodity cost is passed through to our customers.
Pricing conditions may also exacerbate the cost differential between vehicles that use our fuels and diesel-powered vehicles, which may lead operators to delay or refrain from purchasing or converting to our vehicle fuels. Generally, vehicles that use our fuels cost more initially than diesel-powered vehicles because the components needed for a vehicle to use our fuels add to the vehicle’s base cost. Operators then seek to recover the additional base cost over time through a lower cost to use our fuels. Operators may, however, perceive an inability to timely recover these additional initial costs if our vehicle fuels are not available at prices sufficiently lower than diesel. Such an outcome could decrease our potential customer base and harm our business prospects.
We face increasing competition from competitors, many of which have far greater resources, customer bases and brand awareness than we have, and we may not be able to compete effectively with these businesses.
The market for vehicle fuels is highly competitive. The biggest competition for our products is diesel because most vehicles in our key markets are powered by these fuels. We also compete with suppliers of other alternative vehicle fuels, including renewable diesel, biodiesel, and ethanol, as well as producers and fuelers of alternative vehicles, including hybrid, electric and hydrogen-powered vehicles. Additionally, our stations compete directly with other natural gas fueling stations and indirectly with electric vehicle charging stations and fueling stations for other vehicle fuels. Many businesses are in the market for RNG and other alternatives for use as vehicle fuel, including alternative vehicle and alternative fuel companies, refuse collectors, industrial gas companies, private equity groups, commodity traders, truck stop and fuel station owners, fuel providers, gas marketers, utilities and their affiliates and other organizations. If the alternative vehicle fuel market grows, the number and type of participants in this market and their level of capital and other commitments to alternative vehicle fuel programs could increase. Many of our competitors have substantially greater customer bases, brand awareness and financial, marketing and other resources than we have. As a result, these competitors may be able to respond more quickly to changes in customer preferences, legal requirements or other industry or regulatory trends; devote greater resources to the development, promotion and sale of their products; adopt more aggressive pricing policies; dedicate more effort to infrastructure and systems development in support of their business or product development activities; implement more robust or creative initiatives to advance customer acceptance of their products; or exert more influence on the regulatory landscape that affects the vehicle fuels market. We expect competition to increase in the vehicle fuels market generally. In addition, if the demand for alternative vehicle fuels, including RNG, increases, then we expect competition to also increase. Any such increased competition may reduce our customer base and revenue and may lead to increased pricing pressure, reduced operating margins and fewer expansion opportunities.
We rely on information technology in our operations, and any material failure, inadequacy, interruption, or security failure of that technology could harm our business.
Increased global cybersecurity threats and more sophisticated and targeted computer crime pose a risk to the security of our information systems and the confidentiality, availability and integrity of our data. There have been several recent, highly publicized cases in which organizations of various types and sizes have reported the unauthorized disclosure of customer or other confidential information, as well as cybersecurity incidents involving the dissemination, theft and destruction of corporate information, intellectual property, cash or other valuable assets. There have also been several highly publicized cases in which hackers have requested “ransom” payments in exchange for not disclosing customer or other confidential information or for not disabling the target company’s computer or other systems. Implementing security
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measures designed to prevent, detect, mitigate or correct these or other cybersecurity threats involves significant costs. Although we have taken steps to protect the security of our information systems and the data maintained in those systems, we have, from time to time, experienced cyberattacks or other cybersecurity incidents that have threatened our data and information systems, including malware and computer virus attacks and it is possible that future cybersecurity incidents we may experience may materially and adversely affect our business. We cannot provide assurance that our safety and security measures will prevent our information systems from improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cybersecurity incidents. Any IT security threats that are successful against our security measures could, depending on their nature and scope, lead to the compromise of confidential information, improper use of our systems and networks, manipulation and destruction of data, operational disruptions, and substantial financial outlays. Further, a cybersecurity incident could occur and persist for an extended period of time without detection, and an investigation of any successful cybersecurity incident would likely require significant time, costs and other resources to complete. We may be required to expend significant financial resources to protect against or to remediate such cybersecurity incidents. In addition, our information technology infrastructure and information systems are vulnerable to damage or interruption from natural disasters, power loss and telecommunications failures. Any failure to maintain proper function, security and availability of our information systems and the data maintained in those systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties, harm our business relationships or increase our security and insurance costs, which could have a material adverse effect on our business, financial condition and results of operations.
NG Advantage may not be successful.
NG Advantage provides “virtual pipelines” to transport CNG by truck from compression facilities to pipeline interconnects and to industrial and commercial customer users that do not have direct access to natural gas pipelines. NG Advantage faces unique risks, including among others: (i) it has a history of net losses and has incurred substantial indebtedness; (ii) NG Advantage may need to raise additional capital, which may not be available, may only be available on onerous terms, or may only be available from the Company; (iii) the labor market for truck drivers is very competitive, which increases NG Advantage’s difficulty in meeting its delivery obligations; (iv) NG Advantage often transports CNG in trailers over long distances and these trailers may be involved in accidents; and (v) NG Advantage’s CNG trailers may become subject to new or changed regulations that could adversely affect its business. If NG Advantage fails to manage any of these risks, our business, financial condition, liquidity, results of operations, prospects and reputation may be harmed. In addition, we have been a significant source of financing for NG Advantage. If NG Advantage needs to raise additional capital and is not able to obtain financing from external sources, we may need to provide additional debt or equity capital to allow NG Advantage to satisfy its commitments and maintain operations.
Our station construction activities subject us to business and operational risks.
As part of our business activities, we design and construct vehicle fueling stations that we either own and operate ourselves or sell to our customers. These activities require a significant amount of judgment in determining where to build and open fueling stations, including predictions about fuel demand that may not be accurate for any of the locations we target. As a result, we have built stations that we may not open for fueling operations, and we may open stations that fail to generate the volume or profitability levels we anticipate, either or both of which could occur due to a lack of sufficient customer demand at the station locations or for other reasons. For any stations that are completed but unopened, we would have substantial investments in assets that do not produce revenue, and for any stations that are open and underperforming, we may decide to close the stations. For example, we have nearly completed stations that are not open for fueling operations. We do not know when or if these stations will open, and some of these stations are subject to agreements that may expire prior to us being able to open such stations. Closure of these and/or any other stations could result in substantial additional costs and non-cash asset impairments or other charges and could cause the price of our common stock to decline.
We also face many operational challenges in connection with our station design and construction activities. For example, we may not be able to identify suitable locations for the stations we or our customers seek to build. Additionally, even if preferred sites can be located, we may encounter land use or zoning difficulties, problems with utility services, challenges obtaining and retaining required permits and approvals or local resistance, including due to reduced operations of permitting agencies because of health crises, any of which could prevent us or our customers from building new stations on these sites or limit or restrict the use of new or existing stations. Any such difficulties, resistance or limitations or any
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failure to comply with local permit, land use or zoning requirements could restrict our activities or expose us to fines, reputational damage or other liabilities, which would harm our business and results of operations. In addition, we act as the general contractor and construction manager for new station construction and facility modification projects, and we typically rely on licensed subcontractors to perform the construction work. We may be liable for any damage we or our subcontractors cause or for injuries suffered by our employees or our subcontractors’ employees during the course of work on our projects. Additionally, shortages of skilled subcontractor labor could significantly delay a project or otherwise increase our costs. Further, our expected profit from a project is based in part on assumptions about the cost of the project, and cost overruns, delays or other execution issues may, in the case of projects we complete and sell to customers, result in our failure to achieve our expected margins or cover our costs, and in the case of projects we build and own, result in our failure to achieve an acceptable rate of return. If any of these events occur, our business, operating results and liquidity could be negatively affected.
We have significant contracts with government entities, which are subject to unique risks.
We have, and expect to continue to seek, long-term fueling station construction, maintenance and fuel sale contracts with various government bodies, which accounted for 31%, 27% and 30% of our revenue in 2021, 2022 and 2023, respectively. In addition to normal business risks, including the other risks discussed in these risk factors, our contracts with government entities are often subject to unique risks, some of which are beyond our control. For example, long-term government contracts and related orders are subject to cancellation if adequate appropriations for subsequent performance periods are not made. Further, the termination of funding for a government program supporting any of our government contracts or any other governmental action that results in reduced support for our government contracts could result in the loss of anticipated future revenue attributable to the contract. Moreover, government entities with which we contract are often able to modify, curtail or terminate contracts with us at their convenience and without prior notice, and would only be required to pay for work completed and commitments made at or prior to the time of termination.
In addition, government contracts are frequently awarded only after competitive bidding processes, which are often protracted. In many cases, unsuccessful bidders for government contracts are provided the opportunity to formally protest the contract awards through various agencies or other administrative and judicial channels. The protest process may substantially delay a successful bidder’s contract performance, result in cancellation of the contract award entirely and distract management. As a result, we may not be awarded contracts for which we bid, and substantial delays or cancellation of contracts may follow any successful bids as a result of any protests by other bidders. The occurrence of any of these risks would have a material adverse effect on our results of operations and financial condition.
Our results of operations fluctuate significantly and are difficult to predict.
Our results of operations have historically experienced, and may continue to experience, significant fluctuations as a result of a variety of factors, including, among others, the amount and timing of our vehicle fuel sales, Environmental Credit sales and recognition of government credits, station construction sales, grants and incentives, such as AFTC (for example, we recorded all of the AFTC revenue associated with our vehicle fuel sales made in the first and second quarters of 2022 during the third quarter of 2022); fluctuations in commodity, station construction and labor costs; fluctuations in expenditures and resource commitments due to new ADG RNG project developments; variations in the fair value of certain of our derivative instruments that are recorded in revenue; sales of compressors and other equipment used in RNG production and at fueling stations; the amount and timing of our billing, collections and liability payments; weather and seasonality; and the other factors described in these risk factors.
Our performance in certain periods has also been affected by transactions or events that have resulted in significant cash or non-cash gains or losses. These or other similar gains or losses may not recur, in the same amounts or at all in future periods. These significant fluctuations in our operating results may render period-to-period comparisons less meaningful, especially with respect to periods heavily impacted by effects of the COVID-19 pandemic, and investors in our securities should not rely on the results of one period as an indicator of performance in any other period. Additionally, these fluctuations in our operating results could cause our performance in any period to fall below the financial guidance we may have provided to the public or the estimates and projections of the investment community, which could negatively affect the price of our common stock.
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The COVID-19 pandemic has affected and may continue to adversely affect, and a future pandemic or epidemic may adversely affect, our business, results of operations and financial condition.
Our business has been and may continue to be adversely affected by the COVID-19 pandemic. For example, as a result of the COVID-19 pandemic, we experienced increased costs on equipment and construction services, and longer lead times on equipment and materials orders. Any future pandemic, epidemic, or infectious disease outbreak could also adversely affected our business through delaying the adoption of our RNG and natural gas vehicle fuels by heavy-duty trucks and/or a delaying increased usage of our vehicle fuels; decreasing the volume of truck and fleet operations, including shuttle buses at airports, and public transportation generally, and disrupting production of vehicles and engines that use our fuels. Any of the foregoing may result in decreased demand for our vehicle fuels, plant closures, decreased manufacturing capacity, and delays in deliveries, which would negatively impact our business, operations, and financial condition.
Our future success will depend on our ability to attract and retain qualified management, technical, and other personnel.
Our future success is dependent on the services and performance of our executive officers and other key management, engineering, information technology, scientific, manufacturing and operating personnel. The loss of the services of any such personnel could materially adversely affect our business. Our ability to achieve our strategic plans will also depend on our ability to attract and retain additional qualified personnel. Recruiting key personnel in our industry is highly competitive and we cannot assure you that we will be able to do so. Our inability to attract and retain additional qualified personnel, or the departure of key employees, could materially and adversely affect our strategic plans and, therefore, our business, results of operations and financial condition. In addition, our inability to attract and retain sufficient personnel to quickly increase production at our facilities when and if needed to meet increased demand may adversely impact our ability to respond rapidly to any new product, growth or revenue opportunities.
Risks Related to Our Indebtedness and Other Capital Resources.
We may need to raise additional capital to continue to fund our business, which could have negative effects and may not be available when needed, on acceptable terms or at all.
We require capital to pay for capital expenditures, operating expenses, any mergers, acquisitions or strategic investments, capital calls related to our joint ventures, transactions or relationships we may pursue, and to make principal and interest payments on our indebtedness. If we cannot fund any of these activities with capital on-hand or cash provided by our operations, we may seek additional capital from other sources, such as by selling assets or pursuing debt or equity financing.
Asset sales and equity or debt financing may not be available when needed, on terms favorable to us or at all. Any sale of our assets to generate cash proceeds may limit our operational capacity and could limit or eliminate any revenue streams or business plans that are dependent on the sold assets. Any issuances of our common stock or securities convertible into our common stock to raise capital would dilute the ownership interest of our existing stockholders. Any debt financing we may pursue could require us to make significant interest or other payments and to pledge some or all of our assets as security. In addition, higher levels of indebtedness could increase our risk of non-repayment, adversely affect our creditworthiness, and amplify the other risks associated with our existing debt, which are discussed elsewhere in these risk factors. Further, we may incur substantial costs in pursuing any capital-raising transactions, including investment banking, legal and accounting fees. On the other hand, if we are unable to obtain capital in amounts sufficient to fund our obligations, expenses, and strategic initiatives, we could be forced to suspend, delay or curtail our business plans or operating activities or could default on our contractual commitments. Any such outcome could negatively affect our business, performance, liquidity, and prospects.
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Our indebtedness could adversely affect our financial condition or operating flexibility and prevent us from fulfilling our obligations under our credit agreement and other indebtedness we may incur, and we may not generate sufficient cash flow from our business to pay our debt.
On December 12, 2023, we and our wholly-owned direct subsidiary Clean Energy entered into a senior secured first lien term loan agreement (as amended, supplemented or otherwise modified, the “Credit Agreement”) with the lenders from time to time party thereto (“Lenders”) and Alter Domus Products Corp., as the administrative agent and collateral agent for the Lenders and collateral agent for the secured parties, pursuant to which the Lenders funded a $300,000,000 senior secured term loan and committed to making an additional $100,000,000 of delayed draw term loans available for the two-year period after closing. As of September 30, 2024, we had total consolidated indebtedness of $267.2 million, net of debt discount, and we may incur additional debt in the future. Our outstanding and any future indebtedness could make us more vulnerable to adverse changes in general U.S. and worldwide economic conditions, including rising interest rates, regulatory, and competitive conditions, limit our flexibility to plan for or react to changes in our business or industry, place us at a disadvantage compared to our competitors that have less debt, or limit our ability to borrow or otherwise raise additional capital as needed.
Our payments of amounts owed under our various debt instruments will reduce our cash resources available for other purposes, including pursuing strategic initiatives, transactions or other opportunities, satisfying our other commitments, and generally supporting our operations. Moreover, our ability to make these payments depends on our future performance, which is subject to economic, financial, competitive and other factors, including those described in these risk factors, and many of which are beyond our control. Our business may not generate sufficient cash from operations to service our debt. If we cannot meet our debt obligations from our operating cash flows, we may pursue one or more alternative measures. Any repayment of our debt with equity, however, would dilute the ownership interests of our existing stockholders. We are permitted under the Credit Agreement to incur additional debt under certain conditions. If new debt were to be incurred in the future, the related risks that we now face could intensify. The Credit Agreement requires us and our subsidiaries, on a consolidated basis, to comply with a maximum total net leverage ratio, a minimum interest coverage ratio, and a minimum liquidity test. In addition, the Credit Agreement contains certain covenants that limit or restrict our and our subsidiaries’ ability to incur liens, incur indebtedness, dispose of assets, make investments, make certain restricted payments, merge or consolidate, amend our charter documents and certain other agreements, and enter into speculative hedging arrangements. In the event of any default on our debt obligations, the holders of the indebtedness could, among other things, declare all amounts owed immediately due and payable and foreclose on our assets that serve as collateral. Any such declaration could deplete all or a large portion of our available cash flow, and thereby reduce the amount of cash available to pursue our business plans or force us into bankruptcy or liquidation.
Our warranty reserves may not adequately cover our warranty obligations, which could result in unexpected costs.
We provide product warranties with varying terms and durations for the stations we build and sell, and we establish reserves for the estimated liability associated with these warranties. Our warranty reserves are based on historical trends and any specifically identified warranty issues known to us, and the amounts estimated for these reserves could differ materially from the warranty costs we may actually incur. We would be adversely affected by an increase in the rate or volume of warranty claims or the amounts involved in warranty claims, any of which could increase our costs beyond our established reserves and cause our cash position and financial condition to suffer.
Risks Related to Environmental Health and Safety and Governmental and Environmental Regulations
Our business is influenced by environmental, tax and other government regulations, programs and incentives that promote our vehicle fuels, and their modification or repeal could negatively affect our business.
Our business is influenced by federal, state, and local tax credits, rebates, grants and other government programs and incentives that promote or exclude the use of our vehicle fuels. These include various government programs that make grant funds available from the purchase of vehicles and construction of fueling stations, as well as the AFTC under which we generate revenue for our vehicle fuel sales. Additionally, our business is influenced by laws, rules and regulations that require reductions in carbon emissions and/or the use of renewable fuels, such as the programs under which we generate Environmental Credits.
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These programs and regulations, which have the effect of encouraging the use of RNG as a vehicle fuel, could expire or be repealed or amended for a variety of reasons. For example, parties with an interest in gasoline and diesel, electric or other alternative vehicles or vehicle fuels, including lawmakers, regulators, policymakers, environmental or advocacy organizations, producers of alternative vehicles or vehicle fuels, or other powerful groups, may invest significant time and money in efforts to delay, repeal or otherwise negatively influence regulations and programs that promote RNG. Many of these parties have substantially greater resources and influence than we have. Further, challenges to agencies’ rules and regulations and their interpretations of such rules and regulations, and changes in federal, state or local political, social or economic conditions, including as a result of a lack of legislative focus on these programs and regulations or prolonged U.S. government shutdown, could result in their modification, delayed adoption or repeal. For example, the IRA contains credits and tax incentives that may be beneficial to us but interagency guidance processes are still ongoing. Any failure to adopt, delay in implementing, expiration, repeal or modification of these programs and regulations, or the adoption of any programs or regulations that encourage the use of other alternative fuels or alternative vehicles over RNG, could reduce the market for RNG as a vehicle fuel and harm our operating results, liquidity, and financial condition.
To benefit from Environmental Credits, RNG projects are required to be registered and are subject to audit.
RNG projects are required to register with the EPA and relevant state regulatory agencies. Further, we qualify our RINs through a voluntary Quality Assurance Plan, which typically takes from three to five months from first injection of RNG into the commercial pipeline system. We also must certify RNG pathways with CARB, which typically takes from 15-18 months from first injection of RNG into the commercial pipeline system. Delays in obtaining registration, RIN qualification, and any LCFS credit qualification of a new project could delay future revenues from a project and could adversely affect our cash flow. Further, we may make large investments in projects prior to receiving the regulatory approval and RIN qualification. By registering RNG projects with the EPA’s voluntary Quality Assurance Plan and by establishing RNG pathways under CARB’s LCFS program, we are subject to third-party audits and on-site visits of projects to validate generated RINs and overall compliance with the federal renewable fuel standard and the LCFS. We are also subject to a separate third party’s annual attestation review. The Quality Assurance Plan provides a process for RIN owners to follow, for an affirmative defense to civil liability, if used or transferred Quality Assurance Plan verified RINs were invalidly generated. A project’s failure to comply could result in remedial action, including penalties, fines, retirement of RINs, or termination of the project’s registration, any of which could adversely affect our business, financial condition and results of operations.
Our business could be negatively affected by federal or state laws, orders or regulations mandating new or additional limits on GHG emissions, “tailpipe” emissions or internal combustion engines.
Federal or state laws, orders or regulations have been adopted, such as California’s AB 32 cap and trade law, and may in the future be adopted that impose limits on GHG emissions or otherwise require the adoption of zero-emission electric vehicles. The effects of GHG emission limits on our business are subject to significant uncertainties based on, among other things, the timing of any requirements, the required levels of emission reductions, the nature of any market-based or tax-based mechanisms adopted to facilitate reductions, the relative availability of GHG emission reduction offsets, the development of cost-effective, commercial-scale carbon capture and storage technology and supporting regulations and liability mitigation measures, the range of available compliance alternatives, and our ability to demonstrate that our vehicle fuels qualify as a compliance alternative under any statutory or regulatory programs to limit GHG emissions. If our vehicle fuels are not able to meet GHG emission limits or perform as well as other alternative fuels and vehicles, our solutions could be less competitive. Furthermore, additional federal or state taxes could be implemented on “tailpipe” emissions or on methane emissions generally, which would have a negative impact on the cost of our vehicle fuels, as compared to vehicle fuels that do not generate tailpipe emissions.
In June 2020, CARB adopted the Advanced Clean Trucks regulation, which requires manufacturers to sell a gradually increasing proportion of zero-emission electric trucks, vans and pickup trucks from 2024 onwards. By the year 2045, the Advanced Clean Trucks regulation seeks to have every new commercial vehicle sold in California be zero-emissions. Further, in September 2020, the Governor of the State of California issued an executive order (the “September 2020 Executive Order”) providing that it shall be the goal of California that (i) 100% of in-state sales of new passenger cars and trucks will be zero-emission by 2035, (ii) 100% of medium- and heavy-duty vehicles in California will be zero-emission by 2045 for all operations, where feasible, and by 2035 for drayage trucks, and (iii) the state will transition to
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100% zero-emission off-road vehicles and equipment by 2035 where feasible. The September 2020 Executive Order also directed CARB to develop and propose regulations and strategies aimed at achieving the foregoing goals. Resulting regulations mandate increasing adoption of zero-emission vehicles. In April 2023, CARB adopted the Advanced Clean Fleets regulation, which requires all truck fleets be zero emission by 2042. The Advanced Clean Fleets regulation also seeks to end the sale of combustion trucks in California in 2036. Among other things, we believe the intent of the Advanced Clean Trucks regulation, the September 2020 Executive Order, and the Advanced Clean Fleets regulation is to limit and ultimately discontinue the production and use of internal combustion engines because such engines have “tailpipe” emissions. Implementation of such regulations and executive actions may slow, delay or prevent the adoption by fleets and other commercial customers of our vehicle fuels, particularly in California. Moreover, other states have taken steps to enact similar regulations, which may slow, delay, change, or prevent the adoption of our vehicle fuels in those states as well. These actions could result in state funding and incentive programs being directed only to the adoption of zero emission vehicles. In December 2021, President Biden signed an executive order (the “2021 Executive Order”) that directs the federal government to achieve certain goals, including purchasing 100% zero-emission vehicles by 2035 for its fleet of over 600,000 cars and trucks.
Our business is subject to a variety of government regulations, including environmental regulations, which may restrict our operations and result in costs and penalties or otherwise adversely affect our business and ability to compete.
We are subject to a variety of federal, state and local laws and regulations relating to the environment, health and safety, labor and employment, building codes and construction, zoning and land use, the government procurement process, any political activities or lobbying in which we may engage, public reporting and taxation, among others. It is difficult and costly to manage the requirements of every authority having jurisdiction over our various activities and to comply with their varying standards. Many of these laws and regulations are complex, change frequently, may be unclear and difficult to interpret and have become more stringent over time. Any changes to existing regulations, adoption of new regulations, or judicial rulings regarding such regulations, may result in significant additional expense to us or our customers. For example, our operations are and will be subject to federal, state and local environmental laws and regulations, including laws relating to the use, handling, storage, disposal of and human exposure to hazardous materials. Contamination at properties we own or operate, will own or operate, or formerly owned or operated to which hazardous substances were sent by us, are subject to the Comprehensive Environmental Response, Compensation and Liability Act, which can impose liability for the full amount of remediation-related costs without regard to fault, for the investigation and cleanup of contaminated soil and ground water, for impacts to human health and for damages to natural resources.
Further, from time to time, as part of the regular evaluation of our operations, including newly acquired or developing operations, we may be subject to compliance audits by regulatory authorities, which may distract management from our revenue-generating activities and involve significant costs and use of other resources. Also, we often need to obtain facility permits or licenses to address, among other things, storm water or wastewater discharges, waste handling and air emissions in connection with our operations, which may subject us to onerous or costly permitting conditions or delays if permits cannot be timely obtained. Our failure to comply with any applicable laws and regulations could result in property damage, bodily injury or a variety of administrative, civil and criminal enforcement measures, including, among others, assessment of monetary penalties, imposition of corrective requirements, including cleanup costs, or prohibition from providing services to government entities. If any of these enforcement measures were imposed on us, our business, financial condition, and performance could be negatively affected.
Our operations entail inherent safety and environmental risks, which may result in substantial liability to us.
Our operations entail inherent safety risks, including risks associated with equipment defects, malfunctions, failures, and misuses. For example, operation of LNG pumps requires special training because of the extremely low temperatures of LNG. Also, LNG tanker trailers and CNG fuel tanks and trailers could rupture if involved in accidents or improper maintenance or installation. Further, improper refueling of vehicles that use our fuels or operation of vehicle fueling stations could result in sudden releases of pressure that could cause explosions. In addition, our operations may result in the venting of methane, which is flammable and is a potent GHG. These safety and environmental risks could result in uncontrollable flows of our fuels, fires, explosions, death, or serious injury, any of which may expose us to liability for personal injury, wrongful death, property damage, pollution and other environmental damage. We may incur substantial liability and costs if any such damages are not covered by insurance or are more than policy limits, or if environmental
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damage causes us to violate applicable GHG emissions or other environmental laws. Additionally, the occurrence of any of these events with respect to our fueling stations or our other operations could materially harm our business and reputation. Moreover, the occurrence of any of these events to any other organization in our vehicle fuel business could harm our industry generally by negatively affecting perceptions about, and adoption levels of, our vehicle fuels.
Risks Related to Our Common Stock
A significant portion of our outstanding common stock is owned or otherwise subject to acquisition by three equityholders, each of which may have interests that differ from the Company’s other stockholders and which now or in the future may be able to influence the Company’s corporate decisions, including a change of control.
After giving effect to the issuance of the Amazon Warrant and the Stonepeak Warrant (defined below), Total Marketing Services, S.A.S (“TMS”), a wholly owned subsidiary of TotalEnergies, owns approximately 19% of our outstanding shares of common stock as of September 30, 2024. In addition, TotalEnergies was granted certain special rights that our other stockholders do not have in connection with its acquisition of this ownership position, including the right to designate two individuals to serve as directors of our Company and a third individual to serve as an observer on certain of our board committees.
The Amazon Warrant was immediately exercisable by Amazon Holdings for 4.999% of our outstanding common stock when issued. Subject to additional vesting through fuel purchase from the Company pursuant to the Fuel Agreement, the Amazon Warrant will be exercisable for up to 19.999% of our outstanding common stock on a fully diluted basis (determined at the time of issuance), subject to certain anti-dilution provisions, and Amazon Holding’s beneficial ownership will initially be contractually limited to the beneficial ownership limitation unless Amazon Holdings gives the Company sixty one (61) days’ notice that it is waiving such limitation.
The Stonepeak Warrant is exercisable at any time after December 12, 2025 for up to 9.999% of our common stock outstanding immediately after giving effect to such exercise, and Stonepeak’s beneficial ownership will initially be contractually limited to such beneficial ownership limitation unless Stonepeak gives the Company sixty one (61) days’ notice that it is waiving such limitation.
TotalEnergies or other current or future large stockholders may be able to influence or control matters requiring approval by our stockholders, including the election of directors, mergers and acquisitions, or other extraordinary transactions. Large stockholders may have interests that differ from other stockholders and may vote or otherwise act in ways with which the Company or other stockholders disagree or that may be adverse to your interests. A concentration of stock ownership may also have the effect of delaying, preventing or deterring a change of control of our Company, which could deprive our stockholders of an opportunity to receive a premium for their shares of our common stock as part of a sale of our Company and could affect the market price of our common stock. Conversely, such a concentration of stock ownership may facilitate a change of control under terms other stockholders may not find favorable or at a time when other stockholders may prefer not to sell.
Sales of our common stock, or the perception that such sales may occur, could cause the market price of our stock to drop significantly, regardless of the state of our business.
All outstanding shares of our common stock are eligible for sale in the public market, subject in certain cases to the requirements of Rule 144 under the Securities Act. Also, shares of our common stock that may be issued upon the exercise, vesting or conversion of our outstanding stock options and restricted stock units may be eligible for sale in the public market, to the extent permitted by Rule 144 and the provisions of the applicable stock option and restricted stock unit agreements or if such shares have been registered under the Securities Act. Sales of large amounts of our common stock by large stockholders, or the perception that such sales may occur, could cause the market price of our common stock to decline, regardless of the state of the Company’s business. Our common stock held by TMS, our common stock underlying the Amazon Warrant, and our common stock underlying the Stonepeak Warrant may be sold in the public market under Rule 144 or in registered sales or offerings pursuant to registration rights held by each stockholder. If these shares are sold, or if it is perceived that they may be sold, in the public market, the trading price of our common stock could decline.
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The price of our common stock may continue to fluctuate significantly, and you could lose all or part of your investment.
The market price of our common stock has experienced, and may continue to experience, significant volatility. Factors that may cause volatility in the price of our common stock, many of which are beyond our control, include, among others, the following: (i) the factors that may influence the adoption of our vehicle fuels, as discussed elsewhere in these risk factors; (ii) our ability to implement our business plans and initiatives and their anticipated, perceived or actual level of success; (iii) failure to meet or exceed any financial guidance we have provided to the public or the estimates and projections of the investment community; (iv) the market’s perception of the success and importance of any of our acquisitions, divestitures, investments or other strategic relationships or transactions; (v) the amount and timing of sales of, and prices for, Environmental Credits; (vi) actions taken by state or federal governments to mandate or otherwise promote or incentivize alternative vehicles or vehicle fuels over, or to the exclusion of, RNG; (vii) technical factors in the public trading market for our common stock that may produce price movements that may or may not comport with macro, industry or company-specific fundamentals, including, without limitation, the sentiment of retail investors (including as may be expressed on financial trading and other social media sites), the amount and status of short interest in our common stock, access to margin debt, and trading in options and other derivatives on our common stock; (viii) changes in political, regulatory, health, economic and market conditions; and (ix) a change in the trading volume of our common stock.
In addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies, but which have affected the market prices of these companies’ securities. These market fluctuations may also materially and adversely affect the market price of our common stock. Volatility or declines in the market price of our common stock could have other negative consequences, including, among others, further impairments to our assets, potential impairments to our goodwill and a reduced ability to use our common stock for capital-raising, acquisitions or other purposes. The occurrence of any of these risks could materially and adversely affect our financial condition, results of operations and liquidity and could cause further declines in the market price of our common stock.
Item 2.—Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.—Defaults Upon Senior Securities
None.
Item 4.—Mine Safety Disclosures
None.
Item 5. —Other Information
Rule 10b5-1 Plan Elections.
During the quarter ended September 30, 2024, the officers listed below adopted Rule 10b5-1 trading plans for the purpose establishing sales plans of the Company’s common stock that is intended to comply with the requirements of Rule 10b5-1(c)(1) under the Securities Exchange Act of 1934, as amended.
On
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On
On
On November 5, 2024, the Company’s board of directors approved a new form of indemnification agreement (the “Indemnification Agreement”) to be entered into between the Company and each of its directors and certain officers. The Indemnification Agreement supersedes the Company’s previous form of indemnification agreement.
The Indemnification Agreement provides, among other things, that the Company will indemnify the director or officer (the “Indemnitee”) to the fullest extent permitted by law and the Company’s Restated Certificate of Incorporation, as amended, and Amended and Restated Bylaws, against all interest and assessments of expenses in connection with proceedings in which the Indemnitee is involved by reason of any action taken or failure to act while serving as a director or officer of the Company, or of another enterprise at the request of the Company, provided that the Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company. The Company will also indemnify the Indemnitee to the fullest extent permitted by law against all expenses actually and reasonably incurred by or on the Indemnitee’s behalf in connection with any such proceeding or defense, in whole or in part, to which the Indemnitee is a party or participant and in which the Indemnitee is successful.
In addition, among other things, the new form clarifies the scope of the Company’s indemnification obligations and an Indemnitee’s rights. The Indemnification Agreement also establishes various related procedures, processes and requirements.
The foregoing description of the Indemnification Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the form of Indemnification Agreement, which is attached hereto as Exhibit 10.1 to this Quarterly Report on Form 10-Q and incorporated herein by reference.
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Item 6.—Exhibits
The information required by this Item 6 is set forth on the Exhibit Index that immediately precedes the signature page to this report and is incorporated herein by reference.
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EXHIBIT INDEX
Exhibit |
| Description |
10.1*+ | ||
31.1* | ||
31.2* | ||
32.1** | ||
101* | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in iXBRL (Inline eXtensible Business Reporting Language): | |
(i) Condensed Consolidated Balance Sheets as of December 31, 2023 and September 30, 2024; | ||
(ii) Condensed Consolidated Statements of Operations for the Three and Nine months ended September 30, 2023 and 2024; | ||
(iii) Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine months ended September 30, 2023 and 2024; | ||
(iv) Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine months ended September 30, 2023 and 2024; | ||
(v) Condensed Consolidated Statements of Cash Flows for the Nine months ended September 30, 2023 and 2024; and | ||
(vi) Notes to Condensed Consolidated Financial Statements. | ||
104* | Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101). |
+ | Indicates management contract or compensatory plan. |
* Filed herewith.
** Pursuant to Item 601(b)(32)(ii) of Regulation S-K (17 C.F.R. § 229.601(b)(32)(ii)), this certification is deemed furnished, not filed, for purposes of section 18 of the Exchange Act, nor is it otherwise subject to liability under that section. It will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except if the registrant specifically incorporates it by reference.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CLEAN ENERGY FUELS CORP. | ||
Date: November 6, 2024 | By: | /s/ ROBERT M. VREELAND |
Robert M. Vreeland | ||
Chief Financial Officer | ||
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