New Fortress Energy Inc. — 2023 Form 10-K
Reporting period: Year ended December 31, 2023. The filing also reports fourth-quarter results. Amounts are in U.S. dollars unless noted. The financial statements received an unqualified audit opinion; the auditor also reported effective internal control over financial reporting.
Business context
NFE is an integrated LNG and natural-gas infrastructure company with terminal, shipping, logistics and power-generation operations. Its two reportable segments are Terminals and Infrastructure and Ships. Operations include assets in Jamaica, Puerto Rico, Mexico and the United States; Brazil, Nicaragua, Ireland and other projects were under development. Two customers accounted for 47% of 2023 revenue, compared with 42% in 2022.
Financial results
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $2.413 billion | $2.368 billion | Up 1.9% |
| Operating income | $942.7 million | $737.4 million | Up 27.8% |
| Net income | $548.9 million | $184.8 million | Up $364.1 million |
| Net income attributable to stockholders | $547.9 million | $194.5 million | |
| Diluted EPS | $2.65 | $0.93 | |
| Gross margin (GAAP) | $1.136 billion | $1.046 billion | |
| Segment operating margin (non-GAAP) | $1.324 billion | $1.189 billion |
Revenue grew modestly while operating income and net income increased more sharply. Results reflect lower cost of sales, including reduced LNG cargo sales costs and $139.1 million of realized commodity-swap gains, as well as lower SG&A and asset-impairment expense. The prior-year comparison included $472.2 million of equity-method investment losses, principally impairments of CELSEPAR and Hilli. The tax line also shifted from a $123.4 million benefit in 2022 to a $115.5 million provision in 2023.
Fourth quarter: Revenue was $758.4 million and net income was $214.9 million. GAAP gross margin was $366.7 million; non-GAAP segment operating margin was $428.8 million, compared with $250.1 million in the third quarter. Management attributed the sequential improvement mainly to higher Puerto Rico deliveries, a full quarter of San Juan Power Plant operations, higher Henry Hub-linked customer pricing and increased volumes. Delivered downstream volumes rose to 22.2 TBtu from 20.1 TBtu in the third quarter.
Cash flow: Operating activities provided $824.8 million, versus $355.1 million in 2022. Investing activities used $2.904 billion, largely for Fast LNG development and Puerto Rico temporary-power assets. Financing activities provided $1.529 billion, including $3.005 billion of debt proceeds, offset partly by $686.5 million of debt repayments and $724.0 million of dividends paid. Cash, cash equivalents and restricted cash totaled $310.8 million at year-end, including $155.4 million of restricted cash; unrestricted cash was $155.4 million.
Margins and liquidity: GAAP gross margin was approximately 47% of revenue and operating margin approximately 39%. Current assets were $980.0 million versus current liabilities of $1.706 billion. Management stated it expected available liquidity, operating cash flow and access to capital to fund needs for the next 12 months and foreseeable future, while emphasizing financing, asset-sale and operating cash-flow sources. Remaining committed capital expenditures were approximately $1.365 billion.
Debt: Year-end debt principal was approximately $6.919 billion; the balance-sheet carrying amount, net of deferred financing costs, was $6.803 billion. Debt increased from $4.542 billion at year-end 2022. Major maturities include approximately $1.341 billion in 2025 and $2.606 billion in 2026. Interest expense was $277.8 million, up from $236.9 million; the Energos vessel financing obligation carries an effective rate of approximately 15.9%. The company reported compliance with Revolving Facility covenants at year-end.
Material changes and notable items
- Terminals and Infrastructure revenue declined $27.5 million year over year: lower LNG cargo sales and the loss of CELSEPAR revenue were partly offset by increased downstream volumes, including Puerto Rico and Mexico. LNG cargo sales fell to $618.5 million from $1.176 billion; downstream deliveries increased to 68.3 TBtu from 39.5 TBtu.
- Ships revenue declined $151.0 million, mainly after the Nanook sale, the Hilli investment exchange and the expiration of vessel charters. Four vessels moved into terminal operations during 2023.
- Construction in progress rose to $5.348 billion from $2.419 billion. The auditor identified the assessment of impairment indicators for construction in progress as a critical audit matter. No company-wide impairment of that balance was reported; a $11.0 million impairment was recorded for the Mazo vessel held for sale.
- In 2023, NFE sold Pecém and Muricy, recording a $21.5 million gain; sold the Spirit vessel, recording a $7.8 million gain; and completed the Hilli investment exchange, recording a $37.4 million disposal loss. It recognized a $5.3 million impairment of its Energos investment in connection with its subsequent sale.
- The company paid a $3.00-per-share special dividend in January 2023 and quarterly dividends of $0.10 per share during 2023. The board reinstated a policy targeting quarterly dividends of $0.10 per share, subject to board discretion and financing restrictions.
Outlook, risks and contingencies
- Management expected the first Fast LNG unit in Altamira, Mexico, to complete commissioning and begin production in 2024. The filing describes the technology as unproven and notes the CFE supply agreement had conditions to effectiveness that were not yet satisfied.
- NFE expected the Barcarena and Santa Catarina facilities in Brazil to begin operations in the first half of 2024. The Barcarena Power Plant was more than 43% complete at year-end, with power delivery expected from 2025. These dates and outcomes remain subject to construction, permitting, financing and commissioning risks.
- In February 2024, NFE entered a commitment letter for $700 million of financing secured by the Altamira onshore FLNG project and collateral securing the 2025 and 2026 Notes. The financing remained subject to a definitive credit agreement and customary closing conditions.
- The Ireland planning commission denied the LNG terminal and power-plant application in 2023; NFE was challenging the decision. The project’s continuation was uncertain.
- Key risks include substantial leverage and refinancing needs, working-capital demands, construction delays and cost overruns, dependence on concentrated customers and third-party LNG suppliers, commodity-price and shipping exposure, regulatory approvals, and political, currency, weather and counterparty risks in operating markets. PREPA is in bankruptcy proceedings; the San Juan Facility’s FERC authorization application remained pending, although operations were allowed to continue during review.
- Management reported no material legal proceedings and no cybersecurity incidents or threats known to have materially affected the business during 2023. The filing states that forward-looking plans are uncertain and actual results may differ materially.
Investor verification priorities
- Confirm progress, commissioning, production volumes, costs and contractual effectiveness for the Altamira Fast LNG project, and whether the proposed $700 million financing closed on its stated terms.
- Review the 2025 and 2026 debt maturities, refinancing plans, covenant headroom, floating-rate exposure and liquidity available after restricted cash and committed capital needs.
- Assess whether operating cash flow can sustain the development program and dividend policy, given the year-end current-liability position and large remaining commitments.
- Monitor concentration and payment performance among the largest customers, particularly government-related counterparties, and the contribution and margins from Puerto Rico temporary power.
- Check actual delivery and operating milestones for Barcarena and Santa Catarina, the status of Ireland permitting, and any resulting changes to construction-in-progress recoverability or impairment assessments.
- Reconcile the filing’s non-GAAP segment operating margin to GAAP results and distinguish recurring operating performance from commodity-swap gains, asset-sale gains, impairments and investment-disposal effects.