Nextdecade Corp quarterly report, Q2 FY2023

NextDecade Corporation — Q2 2023 Form 10-Q

Reporting period: Quarter ended June 30, 2023; filed August 14, 2023. NextDecade is developing the Rio Grande LNG export terminal in Brownsville, Texas, and carbon capture and storage projects. It had not begun generating revenue.

Financial results and position

Metric	Q2 2023	Q2 2022	Six months 2023	Six months 2022
Revenue	$0	$0	$0	$0
Operating loss	$27.6m	$12.8m	$54.7m	$18.0m
Net loss attributable to NextDecade	$120.3m	$10.9m	$147.6m	$22.3m
Net loss attributable to common stockholders	$127.0m	$16.7m	$161.1m	$33.9m
Loss per common share, basic and diluted	$0.84	$0.13	$1.08	$0.27

Amounts are losses. Margins are not meaningful because revenue was zero. Q2 general and administrative expense was $26.8m, up $15.5m year over year; the six-month expense was $53.1m, up $38.5m. Increases reflected employee costs, professional fees, and share-based compensation, including awards vesting upon FID. The Q2 and six-month results included an $87.5m noncash loss on contingent interest-rate swaps and a $5.5m and $5.8m loss, respectively, on common-stock warrant liabilities.

• Cash and liquidity: Cash and cash equivalents were $40.0m at June 30, versus $62.8m at year-end 2022. Current assets were $53.3m and current liabilities $45.3m. Management stated that cash may not be sufficient for planned operations and development through one year after issuance, and disclosed substantial doubt about the Company’s ability to continue as a going concern.
• Cash flows, six months: Operating activities used $41.2m (prior year: $17.5m); investing activities used $56.5m (prior year: $6.2m); financing provided $74.9m (prior year: $38.6m). Cash decreased $22.8m to $40.0m. Operating outflows rose with employee costs and professional fees; investing outflows rose primarily with Terminal development and Bechtel spending.
• Assets and capitalization: Total assets were $352.8m, including $266.4m of property, plant and equipment, largely project assets not yet in service. Total liabilities were $156.6m; stockholders’ equity was a deficit of $19.7m. Convertible preferred stock carried a 12% cumulative annual dividend and $1,000 per-share liquidation preference. No project financing debt appears on the June 30 balance sheet; the major project financing was completed after quarter-end.

Material changes and developments

• Compared with the prior year, operating expenses and losses increased substantially, driven by preparation for a Phase 1 final investment decision (FID), increased staffing and professional costs, share-based compensation, and the contingent swap valuation loss.
• On July 12, 2023, NextDecade announced FID for the first three liquefaction trains and related facilities at Rio Grande LNG, issued Bechtel a final notice to proceed, and commenced construction. The first train’s commercial operation is expected in 2027. Phase 1’s final EPC lump-sum price was approximately $11.96bn.
• At FID, Rio Grande secured up to $11.1bn of construction term loans, a $500m working-capital and letter-of-credit facility, and $700m of secured notes bearing 6.67% interest and due 2033. The project also had approximately $6.2bn of equity capital commitments. These are project-level, non-recourse financings, not June 30 corporate debt balances.
• NextDecade’s Phase 1 equity commitment was approximately $283m, including about $125m contributed before FID. The filing states that $88m of the remaining commitment had been funded and approximately $69.4m remained. The Company expected to fund that amount through a third TotalEnergies-affiliated share-sale tranche, subject to stockholder approval; alternative funding may be needed if it does not close.
• After quarter-end, the convertible preferred stock converted into approximately 59.5m common shares on July 26, and the second TotalEnergies-affiliated placement tranche raised approximately $110m on July 27. The first tranche raised $40m in June. The third tranche remained conditional. The cover reports 241.4m common shares outstanding as of August 10.
• Rio Grande’s LNG sales portfolio as of August 10 totaled 16.15 million tonnes per annum under long-term agreements, with a 19.2-year weighted-average tenor. The agreements became effective in July upon FID, except the Shell agreement, which became effective in 2020.

Outlook, risks and contingencies

Management expects operating losses and negative cash flows to continue while the projects are developed; NextDecade does not expect significant cash flows from Phase 1 until it is operational. Future Terminal phases and CCS projects will require substantial additional capital. Management’s going-concern plan includes raising capital and managing operating and overhead costs, but access to financing on acceptable terms is not assured.

• Key risks include construction cost, schedule and completion; reliance on contractors; funding and refinancing needs; variable-rate interest expense and restrictive project-debt covenants; LNG demand and prices; regulatory and environmental approvals; and the ability to develop CCS projects.
• The Company operates Phase 1 through a joint venture and does not control all decisions or distributions. Its distribution rights are subject to investor thresholds and other JV terms.
• FERC reaffirmed the Terminal authorization in April 2023. Opponents petitioned the D.C. Circuit for review in July; the filing describes the petition as initiating the appeal process.
• The filing reported no material legal proceedings known to management as of June 30 and no material change to previously disclosed contractual obligations. The Rio Grande site lease requires approximately $1.6m per quarter through lease commencement; it commenced July 12.
• The contingent interest-rate swaps generated a reported $87.5m loss for the quarter and six months. The filing says they were amended at FID and the derivative liability was reversed in July. The subsequent-events text refers to a $110.9m June 30 liability, while the balance sheet reports derivative liabilities totaling $87.45m; the filing text does not clearly reconcile these amounts.

Most important facts for investors to verify

• Whether the conditional third TotalEnergies placement tranche closed, and how the required stockholder approval and remaining $69.4m equity commitment were addressed.
• Current cash runway and the Company’s ability to meet corporate obligations without further financing, given the disclosed substantial doubt about going concern.
• Phase 1 construction progress, total project cost, contingency needs, financing drawdowns, interest-rate exposure and the project’s ability to meet the 2027 first-train target.
• The dilution and economic implications of preferred-stock conversion, subsequent share issuances, the remaining preferred-related obligations, and the Company’s JV ownership and distribution rights.
• The correct June 30 fair value and July reversal accounting for the contingent swaps, including the filing’s $87.45m balance-sheet amount versus the $110.9m amount cited in subsequent events.
• Developments in the D.C. Circuit review and any resulting effects on permits, construction or project timing.