CLNE - Clean Energy Fuels: Still Not Much To Get Excited About

Summary

• There's a lot of demand for RNG fuel, but CLNE will continue to struggle to meet demand for some time.
• Since its last earnings report, it did secure a $150.00 million loan from Riverstone Credit Partners, part of which will be used to fund its RNG dairy projects.
• Profitability will remain elusive because of the ongoing need to build out infrastructure as it works on scaling its operations.

The challenge for Clean Energy Fuels ( CLNE ) isn't concerning demand for RNG, but in figuring out a way to supply demand while moving closer to profitability, something I don't think is going to happen anytime soon.

The last time I wrote about CLNE stock, I mentioned the major challenges the company faces, which I see as still being in place. Among them were:

the time it'll take to build out infrastructure, the growing need to increase the diversification of its partners, incurring significant losses even with the alternative fuel tax credit, and the lack of capital needed for Clean Energy Fuels to scale at a faster pace.

Since that time it has secured a modest $150.00 million loan from Riverstone Credit Partners, as well as adding a few more partners and customers to its base. While that's something the company must continue to do, it's still doing so at a fairly incremental pace when measured against current demand.

While revenue has continued to climb, it hasn't been able to take advantage of that scale because of rising operating expenses which has resulted in increasing net losses, which as of the last earnings report was projected to be $58.00 million for full year 2022. Operating expenses in the last quarter came in at $134.00 million, compared to $89.2 million in the same quarter of 2021. I expect that to continue.

In this article we'll look at some of the recent wins the company has had, the loan it secured, and why I still see it taking a long time before the company turns a profit. And with the cash burn its going through, the $23.1 million in cash and cash equivalents at the end of the last quarter is looking very small.

Its capital issue

In my last article on CLNE my major thesis was that the major issue facing the company wasn't demand for RNG or its ability to attract partners, but instead, having enough capital to take advantage of the rapidly growing market. I maintain that this remains the key challenge for the company.

A major concern isn't only getting operating capital, but also doing so before larger companies with bigger pockets start to pay more attention to the potential in this energy space.

In its last earnings report the company mentioned it was working on securing a $150.00 million loan, and in the latter part of December 2022, it announced it had entered into a four-year agreement with Riverstone Credit Partners L.P., for a $150.00 million loan linked to sustainable projects.

Among the projects CLNE is targeting to use the capital on are boosting construction at dairies around the U.S. The company sees the added capital helping to accelerate the pace of development of those projects; something it definitely needs to successfully execute on to take advantage of the current demand and increasing competition.

Even though the dairies will contribute to the success of CLNE over the long term, I want to see how much capital the company will allocate to expanding the number of RNG fueling stations around the country. That would have an immediate and positive long-term impact on the performance of CLNE.

Latest wins

Amazon ( AMZN ) was a nice win for the company a while back, but it does expose CLNE to risk if the ecommerce giant ever decides to go with a competitor. For that reason, increasing the number of customers it works with is important to spreading the risk around.

With that in mind, the company announced on January 24, 2022, that it had won a nice bit of business with San Diego Metropolitan Transit System ((MTS)), representing 86 million gallons of RNG to operate its bus fleet.

MTS has a total fleet of 764 buses, with 595 of them being run on RNG. This will of course give its revenue a boost, but since there were competitive bids for the business, the fact that CLNE was the winner, suggests it could have a negative impact on the bottom line of the company. We'll have to wait to see what management has to say about it, but it is something to watch closely with that many gallons of fuel being sold.

The company also continues to work with partner TotalEnergies in the development of RNG from dairy waste. It expects its project at Del Rio Dairy in Texas to be operational in the first quarter of 2023, which is expected to produce over 1.00 million gallons of RNG annually. It's also continuing to build at South Fork Dairy in Texas, which is expected to be operational in the near future, and is projected to have a capacity to produce over 2.6 million gallons of RNG annually.

CLNE has entered into a number of smaller deals to sell RNG to, including Filamar Energy Services for approximately 4.2 million gallons of compressed natural gas; an upgrade at Denver International Airport that represents about 5 million gallons of RNG; Jacksonville Transit, with demand for about 2.1 million gallons; Stark Area Regional Transit in Canton, OH, which represents demand of approximately 2.5 million gallons; among some other deals that were extensions of current business, as well as a number of smaller deals.

From the point of view of diversifying its business, these are all positives for the company, but again, input costs are rising significantly, and we'll have to wait and see how increasing revenue will impact the bottom line. So far the company's scale hasn't come close to generating a profit. How much business it'll have to win before scale starts taking effect on the bottom line is what needs to be known and determined.

Conclusion

It's my opinion that CLNE, while operating in a market that has strong demand, will continue to struggle because of the enormous costs that will be required to build out the infrastructure needed to serve the RNG market.

As I've mentioned in the past, it's going to take an enormous amount of capital to do this, and even though the company landed the $150.00 million loan, it's in reality a very small amount when considering current market demand.

I think it's still going to take a considerable amount of time before CLNE turns profitable, and with only a small amount of capital at its disposal, it's going to have to continue to scramble to raise capital to gain market share.

My conclusion is it's probably setting itself up to be acquired, rather than engaging in a long-term growth plan as a standalone company. It simply doesn't have the capital to compete in the RNG market in a way that has a visible path to profitability.

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