NextDecade Corporation — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. NextDecade was a pre-revenue LNG project developer focused on the Rio Grande LNG terminal and associated Rio Bravo pipeline in Texas; it also held a site option for a potential Galveston Bay terminal.
Financial results and position
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $3.6m | $2.5m | $19.9m | $4.9m |
| Net loss | $3.5m | $2.5m | $19.7m | $4.8m |
| Loss per share, basic and diluted | $0.03 | $0.03 | $0.18 | $0.05 |
| Operating cash used | Not separately presented | Not separately presented | $9.1m | $5.1m |
| Investing cash used | Not separately presented | Not separately presented | $7.8m | $5.7m |
- At June 30, cash and cash equivalents were $18.8m and investments were $5.1m, versus cash of $35.7m and investments of $5.1m at December 31, 2017. First-half cash declined $16.9m; there were no financing cash flows in the period.
- Total assets were $112.2m, including $86.1m of property, plant and equipment, primarily project assets under development. Total liabilities were $18.1m, and stockholders’ equity was $94.1m. The balance sheet reports no debt.
- No revenue-based margins are meaningful because the company had no revenue. First-half share-based compensation expense was $11.3m; Q2 share-based compensation was a $1.0m credit, reflecting forfeitures and changes in the probability and timing of performance conditions.
Changes versus the prior comparable periods
- Q2 net loss increased $1.0m year over year; first-half net loss increased $14.8m. The first-half increase primarily reflected $11.3m of share-based compensation expense not incurred in 2017 and higher employee and professional-fee costs.
- First-half operating cash use rose $4.0m, mainly from additional employees and professional fees. Investing cash use rose $2.1m, primarily from increased project-development spending.
- First-half weighted average shares increased to 106.4m from 96.7m; issued and outstanding shares were 106.4m at June 30.
Outlook, financing, and risks
- Management estimated Rio Grande could begin commercial operations as early as 2023, subject to regulatory approvals, construction, financing, and other development milestones. No formal financial guidance was provided.
- The company had not executed the lump-sum turnkey EPC contract it had targeted for Q2 2018 and planned to update its status in Q3. Management said the project requires substantial additional capital; it cited a non-binding term sheet with GE Oil & Gas for up to $150m of pre-FID bridge financing, subject to milestones.
- Subsequent to quarter-end, agreements covered a total $50m Series A preferred-stock offering with associated warrants: the approximately $15m backstop purchaser offering closed August 9, 2018, and a separate $35m HGC offering was expected to close by August 30. These were post-quarter developments, not June 30 cash. HGC also received specified board-appointment and future financing rights, including a right of first refusal subject to exceptions.
- Key risks include obtaining sufficient financing on acceptable terms, securing permits and approvals, completing construction, controlling project costs, and LNG market and capital-market conditions. Management said results to date are not indicative of full-year results.
- The company agreed to reimburse a nearby pipeline company for 50% of qualifying valve costs, capped at $2m, payable after the specified 2019 trigger. A 24-month headquarters lease was signed, with stated net payments of $0.7m in 2019 and $0.9m in 2020.
- Management reported no legal proceedings likely to have a material adverse effect and no changes to previously disclosed risk factors. Disclosure controls were considered effective; no material change in internal control was reported.
Important facts for investors to verify
- Whether the HGC preferred-stock offering closed as expected, and the final terms, dilution, warrant effects, and use of proceeds for both preferred offerings.
- Current cash runway and the timing and availability of additional pre-FID and project financing; the filing does not provide a clear runway estimate.
- Status and terms of the EPC contract, FERC and other permits, project cost estimates, and progress toward FID and the stated 2023 operating target.
- The drivers and potential future volatility of share-based compensation, including performance-based awards and related liabilities.