New Fortress Energy Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results are presented under U.S. GAAP. NFE operates Terminals and Infrastructure and Ships businesses, supplying and marketing natural gas and LNG, developing energy infrastructure, and chartering vessels.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $731.9 million | $304.7 million | $1.822 billion | $674.2 million |
| Operating income | $186.7 million | $53.9 million | $486.9 million | $19.4 million |
| Net income (loss) | $56.2 million | $(17.8) million | $119.0 million | $(59.0) million |
| Net income (loss) attributable to NFE stockholders | $61.8 million | $(9.8) million | $130.4 million | $(53.8) million |
| Diluted earnings (loss) per share | $0.29 | $(0.05) | $0.62 | $(0.27) |
| Consolidated Segment Operating Margin | $295.7 million | $133.8 million | $819.8 million | $255.0 million |
| Cash provided by (used in) operating activities | Not separately stated for the quarter | Not separately stated for the quarter | $91.1 million | $(139.7) million |
Q3 operating margin was approximately 25.5% of revenue, versus 17.7% in Q3 2021. Consolidated Segment Operating Margin is a company-defined measure, not GAAP operating income.
Balance sheet and liquidity
- At September 30, 2022, cash and cash equivalents were $364.3 million; restricted cash was $26.8 million. Total current assets were $1.045 billion and current liabilities were $571.0 million.
- Long-term debt was $4.397 billion and current debt was $58.2 million. Total debt on the balance sheet, net of deferred financing charges, was $4.455 billion; scheduled principal and other debt payments shown in the debt note totaled $4.498 billion before deferred financing charges.
- Stockholders’ equity totaled $2.002 billion. Capital expenditures for the first nine months were $787.2 million; segment disclosures report $917.7 million of capital expenditures, including additions to construction in progress and property, plant and equipment.
- Management said it believed available liquidity, expected operating cash flow, financing access, and asset-sale proceeds would fund the next 12 months and foreseeable needs. The $440 million revolving facility had no balance outstanding at quarter-end; the company reported compliance with its debt covenants.
Material changes and unusual items
- Revenue rose sharply year over year, driven largely by LNG cargo sales: $350.6 million in Q3 and $944.8 million for the first nine months, compared with $32.6 million in the comparable 2021 periods. Management attributed results to high LNG market prices, cargo sales, and higher Henry Hub-indexed customer pricing. Nine-month downstream volumes fell to 28.5 TBtu from 35.0 TBtu.
- Q3 net income included materially negative equity-method results, including a $23.8 million impairment charge related to CELSEPAR. The nine-month equity-method loss was $354.4 million, including a $369.2 million other-than-temporary impairment of the CELSEPAR investment. A separate $48.1 million impairment was recorded on CEBARRA development assets.
- On August 15, NFE completed a vessel financing transaction with an Apollo affiliate, receiving approximately $1.85 billion in cash proceeds and retaining a 20% interest in Energos. Because charter arrangements prevented sale accounting for ten vessels, NFE recognized $1.419 billion of financing obligations and expects an approximately 16% effective interest rate on that obligation. The transaction also produced a $15.0 million debt-extinguishment loss and a $14.6 million loss on sale of the Nanook finance-lease asset.
- Operating cash flow improved by $230.8 million year over year for the first nine months, but receivables increased by $287.7 million, reflecting cargo invoices; the filing says a significant portion had been collected after quarter-end. Investing cash outflow was $196.0 million, including development spending and $593.0 million of proceeds from sale of the Nanook finance-lease investment. Financing cash flow was $249.7 million, after $1.932 billion of borrowings and $1.518 billion of debt repayments.
- The effective tax rate and tax benefit were affected by discrete items, including stock-based compensation, an internal reorganization, and impairment-related benefits. The nine-month tax benefit was $126.2 million; these items make reported earnings less indicative of recurring performance.
Outlook, risks, and contingencies
- No quantified earnings or revenue guidance is provided in the filing. Management described ongoing development of Fast LNG, Barcarena, Puerto Sandino, Santa Catarina, and other projects; project completion depends on construction, financing, permitting, and customer or regulatory conditions. Management estimated approximately $2.627 billion of committed project expenditures, of which $1.899 billion had been spent by September 30.
- The Sergipe Sale closed October 3, 2022, after quarter-end. NFE reported receiving approximately $530 million in proceeds, including proceeds from foreign-exchange forwards, after relevant transaction settlements and costs. The sale removes CELSEPAR’s results from future reporting; NFE expected to incur additional sale-related costs.
- NFE’s results remain exposed to volatile LNG prices and supply, working-capital needs, customer concentration, construction delays and cost overruns, and substantial debt and financing costs. Purchase obligations were reported at $27.236 billion, largely reflecting long-term LNG and natural-gas commitments; amounts based on indexed prices use the September 30 spot index.
- The company identified regulatory and permitting uncertainty, including a pending FERC application for the San Juan Facility. It reported no material legal proceedings and stated it was not aware of a material adverse effect from ordinary-course claims. Disclosure controls were concluded effective as of September 30, 2022.
Most important facts for investors to verify
- How much of the exceptional 2022 revenue and margin improvement came from cargo trading and elevated commodity prices, and whether those contributions are repeatable.
- Cash collection after quarter-end and the working-capital impact of large LNG cargo sales and customer payment timing.
- Final net proceeds from the Sergipe Sale, related transaction costs, and the effect of removing CELSEPAR from future earnings and cash flows.
- The actual cash cost, debt-service profile, and covenant implications of the vessel financing obligation, including its stated approximately 16% effective rate.
- Funding capacity and schedule for committed projects, alongside the company’s debt maturities, purchase commitments, and reliance on future financing and asset-sale proceeds.
- Permitting and construction progress for Fast LNG and other developments, and the status of the pending San Juan FERC authorization.