NextDecade Corporation — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018; balance-sheet comparisons are with December 31, 2017. NextDecade is a pre-revenue LNG development company focused on the Rio Grande LNG terminal and associated 137-mile Rio Bravo pipeline in southern Texas. It also holds a site option for a potential Galveston Bay terminal.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating loss | $11.0m | $14.3m | $30.9m | $19.2m |
| Net loss attributable to NextDecade | $10.7m | $14.2m | $30.4m | $19.0m |
| Net loss attributable to common stockholders | $11.0m | $14.2m | $30.6m | $19.0m |
| Basic and diluted loss per share | $0.10 | $0.14 | $0.29 | $0.19 |
All amounts above are losses; dollar figures are rounded. There is no operating margin because the company reported no revenue. Q3 general and administrative expense was $6.2m, down from $14.0m, principally reflecting lower share-based compensation; this was partly offset by $4.4m of EPC invitation-to-bid costs. Nine-month general and administrative expense increased to $25.5m from $18.4m, and the new EPC bid costs contributed to the increase in nine-month losses. Share-based compensation expense was $12.7m for the nine months.
At September 30, cash and cash equivalents were $33.9m and investments were $60.1m, totaling $94.0m in reported cash and investment resources. Current assets were $95.8m versus current liabilities of $21.9m. Total assets were $184.7m; total liabilities were $29.5m. Property, plant and equipment, primarily project assets not yet in service, was $88.9m. The balance sheet reports no borrowings; the filing does not provide a debt balance as a separate metric.
For the first nine months, operating cash use was $12.6m, investing cash use was $66.6m (including $11.5m for project development and $55.1m for investments), and financing provided $77.4m, largely from preferred equity proceeds. Cash decreased by $1.8m from year-end 2017. No off-balance-sheet arrangements were reported.
Material changes and financing
- Q3 net loss narrowed by $3.5m year over year, mainly because general and administrative expense fell by $7.8m as share-based compensation declined; EPC bid costs partly offset the improvement.
- Nine-month net loss increased by $11.4m year over year, reflecting higher general and administrative and EPC bid costs. Operating cash outflow also increased from $8.0m to $12.6m.
- In August, the company issued $50.0m of Series A convertible preferred stock and associated warrants; in September, it issued $29.055m of Series B preferred stock and associated warrants. The preferred stock has a $1,000 stated value per share, ranks senior to common stock for dividends and liquidation distributions, and carries cumulative dividends at 12% annually, payable in cash or in kind. Accrued cumulative preferred dividends were $0.7m at quarter-end.
- The preferred stock is presented as mezzanine equity: $38.8m of Series A and $26.2m of Series B at September 30. Conversion is generally at $7.50 per common share under specified conditions, including mandatory conversion following a defined FID event or at the tenth anniversary. Associated warrants have a $0.01 exercise price and a three-year term. The transactions and potential conversion/dilution merit close review.
Outlook, risks and contingencies
Management estimated that the Rio Grande project could begin commercial operations as early as 2023, subject to regulatory approvals, financing, permits, construction and commercial viability. The FERC schedule called for a final environmental impact statement on April 26, 2019 and a federal authorization decision deadline of July 25, 2019. The company invited Bechtel, Fluor and McDermott to bid and expected to execute a final EPC contract in Q3 2019.
Management said the project requires significant additional capital and expects long-term funding to come predominantly from project financing and future debt and equity offerings. It cautioned that financing may not be available, may be costly or dilutive, and that there is no assurance the project can be completed. Other cited risks include regulatory and permitting outcomes, project cost estimates and contractor execution, access to site and pipeline rights-of-way, LNG and natural-gas market conditions, and availability of LNG vessels.
Potential future EPC bid payments were up to $2.1m in 2018 and $14.9m in 2019. A separate pipeline-valve arrangement may require reimbursement of 50% of costs, capped at $2.0m, after the specified timing conditions. Management reported no known legal matters likely to have a material adverse effect as of September 30, 2018. The company expected lease-accounting changes effective January 1, 2019 to have a preliminary material balance-sheet impact, with no cash-flow impact anticipated.
Important facts for investors to verify
- Progress against the FERC environmental review and authorization schedule, and the status and timing of required permits.
- Whether the company secures project-level and corporate financing sufficient to reach FID and fund construction, and the resulting cost and dilution.
- Final EPC contract terms, project cost estimates, and any additional bid or construction commitments.
- Preferred-stock dividend accruals, conversion conditions, warrant terms and potential dilution to common shareholders.
- Cash use and available liquidity relative to continued development spending; the filing does not state a specific cash-runway estimate.