NextDecade Corporation — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. The company completed its merger with NextDecade LLC on July 24, 2017; the transaction was accounted for as a reverse acquisition and recapitalization, so prior-year financial statements principally reflect NextDecade LLC.
Business context
NextDecade was a pre-revenue LNG project developer focused primarily on the Rio Grande LNG terminal and associated Rio Bravo pipeline in Texas. The proposed Brownsville terminal is designed for up to 27 million tonnes per annum (mtpa); management anticipated an initial phase of three trains, with the option to take an initial FID on two. Commercial operations were targeted as early as 2023. The company also held leases for a potential Galveston Bay terminal.
Key financial metrics
| Metric | FY 2017 / Dec. 31, 2017 | FY 2016 / Dec. 31, 2016 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating loss | $35.6 million | $8.5 million |
| Net loss | $35.3 million ($0.35 per share) | $8.4 million ($0.09 per share) |
| Operating cash flow | $(12.8) million | $(7.2) million |
| Cash and cash equivalents | $35.7 million | $12.5 million |
| Available-for-sale investments | $5.1 million | $5.0 million |
| Total assets | $116.1 million | $75.8 million |
| Total liabilities | $13.0 million | $7.7 million |
There were no revenues, so operating margins are not meaningful. No borrowings are identified in the reported balance sheet; liabilities were primarily accrued and compensation-related. Project assets not yet in service were $73.0 million. Capital expenditures for property, plant and equipment were $14.8 million in 2017. The company reported no off-balance-sheet arrangements.
Material changes versus prior period
- Net loss increased by $26.9 million, mainly reflecting $22.7 million of share-based compensation expense, higher staffing and professional fees, and increased project-development activity. Share-based compensation expense was not recorded in 2016.
- Operating cash use rose by $5.6 million, chiefly due to additional employees and professional fees.
- Cash increased by $23.2 million during 2017, supported by $24.1 million of net financing cash flow and $26.8 million of cash received in the merger, partly offset by operating and development spending.
- Equity issuance generated $30.1 million before $6.0 million of issuance costs. Shares outstanding at year-end were 106.3 million, versus 95.7 million a year earlier.
Outlook, risks and unusual items
- Management estimated first-phase EPC costs at $490 per tonne, targeting $450 per tonne; the two-train estimate was $535 per tonne, targeting $500. These estimates exclude owners’ costs, financing, pipeline construction and contingencies and are not total project-cost estimates.
- The FEED update was completed in early 2018. The company said it was finalizing a binding lump-sum turnkey EPC contract, then expected in the second quarter of 2018; it had not yet been executed at the filing date.
- Management was pursuing long-term LNG offtake agreements before FID. A proposed $150 million pre-FID bridge loan from GE Oil & Gas was based on a non-binding term sheet and subject to milestones. Construction financing remained to be secured; the filing gives no assurance it would be available on acceptable terms.
- FERC authorization for the terminal and pipeline remained pending. Management expected a draft environmental impact statement as early as Q2 2018 and final authorization as early as year-end 2018. DOE authorization to export to FTA countries had been obtained; non-FTA export authorization remained pending.
- Key execution risks include obtaining permits, binding customer and gas-supply contracts, financing, a long-term terminal-site lease and remaining pipeline rights-of-way; cost escalation, construction delays, contractor performance, LNG market competition, and environmental or community opposition.
- The company reported a full valuation allowance against deferred tax assets and no income-tax provision. Its warrants were delisted from Nasdaq on February 22, 2018 and moved to OTC Pink trading. No cash dividends were anticipated in the foreseeable future.
Most important facts for investors to verify
- Whether the company subsequently executed the EPC contract and secured sufficient binding offtake agreements to support FID and project financing.
- Whether FERC and DOE approvals, the terminal lease, pipeline rights-of-way and local tax incentives were obtained on schedule and on viable terms.
- Whether the EPC cost estimates remain achievable after owners’ costs, financing, pipeline costs, contingencies and potential escalation are included.
- How quickly cash is being consumed and whether additional equity or debt financing has caused, or may cause, material dilution or restrictive obligations.
- The scale and timing of outstanding share-based awards and warrants, including potential dilution; the filing reported 12.1 million warrants exercisable at $11.50 per share.