Clean Energy (CLNE)

[krays]

Found this to be interesting so I thought I would post it.

From the FAQ section of the website: It appears that volume will drive cash flow more so than the cost of goods.

Can you explain why you focus more on your margins as opposed to revenue?

Because approximately half of our sales contracts are structured on an index-plus methodology, whereby we add a fixed margin to the market price of natural gas we pay to purchase the natural gas we ultimately sell to our customers, we like to point out that although tracking revenue growth is important, it is not perfectly indicative of how our business is performing. In our business, the market price of natural gas can have a big impact on the revenue we earn related to these contracts, while at the same time not having any impact on the margin we earn on these contracts. I am now going to walk you through an example that demonstrates this point. For simplicity, all the amounts below are for illustrative purposes only and are not indicative of past or anticipated future results.

Market and Contract Assumptions

Base Case Scenario 1 Scenario 2 Market price of natural gas per gallon ("Index")

1.00 $.50 $1.50
Other direct costs per gallon related to gas sale
$.50 $.50 $.50
Margin (or "Plus") component of sales contract per gallon
$.90 $.90 $.90

Financial Results

Base Case Scenario 1 Scenario 2Revenue ("Index + "Margin")
$1.90 $1.40 $2.40
Cost of Sales ("Index" + other direct costs)
$1.50 $1.00 $2.00
Net Margin Results
$.40 $.40 $.40

As you can see, in Scenario 1 revenue goes down 26% from the Base Case, and in Scenario 2, revenue goes up 26% from the Base Case, but our net margin results are the same in all three examples. Consequently, based on the impact these contracts have on our overall financial results, we believe our margin results are more indicative of our financial performance than revenues, which is why we focus so heavily on this metric.

http://investors.cleanenergyfuels.com/faq.cfm