New Fortress Energy Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; filed May 4, 2023. NFE is a global natural gas and LNG infrastructure company with Terminals and Infrastructure and Ships segments. Unless noted, financial amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $579.1 million | $505.1 million | Up 14.7% |
| Operating income | $267.2 million | $166.5 million | Up 60.5% |
| Net income | $151.6 million | $241.2 million | Down 37.2% |
| Net income attributable to NFE stockholders | $150.2 million | $238.3 million | Down 37.0% |
| Diluted EPS | $0.71 | $1.13 | Down |
| Operating cash flow | $200.1 million | $114.4 million | Up $85.8 million |
| Capital expenditures | $563.3 million cash outflow | $189.2 million cash outflow | Higher investment |
- GAAP gross margin was $319.9 million; management’s non-GAAP Consolidated Segment Operating Margin was $354.2 million, versus $250.7 million a year earlier.
- Q1 revenue included $169.5 million from a customer cancellation fee for a future LNG delivery. A settled commodity swap generated a $146.1 million realized gain, recorded as a reduction of cost of sales. These unusual items materially influenced reported performance.
- Interest expense was $71.7 million, up from $44.9 million, despite $51.0 million of interest capitalized to projects. Other expense, net, was $25.0 million, including a $37.4 million loss on disposal of the Hilli investment.
- At March 31, cash and cash equivalents were $296.9 million and restricted cash was $325.3 million. Total debt carrying value was $5.23 billion, including $700 million drawn under the revolving facility. Current debt was $277.0 million.
- Total assets were $8.22 billion; current assets were $1.15 billion and current liabilities were $1.40 billion. Restricted cash includes $203 million posted to support a letter of credit for turbine purchases.
Changes versus comparable periods
- Revenue increased year over year, primarily from higher LNG cargo sales and downstream delivery volumes. Volumes delivered to downstream customers rose to 12.1 TBtu from 6.3 TBtu; the cancellation fee contributed significantly to cargo revenue.
- Operating income improved, but net income fell, reflecting lower equity-method investment income, a higher tax provision, increased interest expense and the Hilli disposal loss. Q1 2022 included $50.2 million of equity-method income and a $49.7 million tax benefit; the latter largely reflected discrete tax items.
- Terminals and Infrastructure segment operating margin rose to $402.1 million from $211.1 million, including the swap gain and increased delivered volumes. Ships segment operating margin declined to $78.7 million from $89.0 million, partly due to lower charter revenue and the absence of Nanook-related revenue.
- Investing cash outflow increased with Fast LNG development. Financing cash flow was $43.2 million; $700 million of revolving-facility borrowings was largely used to fund development. Cash, cash equivalents and restricted cash decreased by $219.0 million during the quarter.
- The company paid a previously declared $626.3 million special dividend in January 2023 and paid quarterly dividends of $20.5 million during the quarter. The special dividend was a major use of cash.
Outlook, developments and risks
- Management said it expects sufficient liquidity from borrowings, operating cash flow and other sources to fund working capital and capital needs for the next 12 months and the reasonably foreseeable future. Future dividends remain at the board’s discretion.
- NFE expected its first Fast LNG unit to begin operation in Q3 2023, with additional units planned in 2024. Management estimated completed Fast LNG units would cost $800 million to $1 billion each. The first unit’s schedule and economics remain subject to construction, permitting, contracting and execution risks.
- Management estimated committed expenditures for existing and completed projects at approximately $4.41 billion, with $3.15 billion spent through March 31, 2023. Q1 construction-in-progress additions were $931.8 million, including $767.6 million for Fast LNG.
- Other project expectations included Barcarena terminal operations by year-end 2023 and its power plant in 2025; Santa Catarina operations by year-end 2023; and commencement of the first 350 MW of temporary Puerto Rico power generation in Q2 2023. These are forward-looking expectations, not guarantees.
- NFE reported $13.85 billion of contractual purchase obligations, including LNG and natural gas take-or-pay commitments and project construction commitments; the amount depends partly on index prices and contractual conditions. Total listed debt, purchase and lease obligations were $21.93 billion.
- Key risks include construction delays or cost overruns; unproven Fast LNG technology; dependence on third-party LNG supply and a limited customer base; commodity-price volatility; substantial leverage and financing needs; and regulatory, permitting, political and foreign-exchange risks. The San Juan facility’s FERC operating application remained pending. The Louisiana FLNG permit review had been paused for additional information.
- NFE completed the Hilli investment exchange in March, receiving $100 million cash and approximately 4.1 million NFE shares, which were cancelled; it no longer owns an interest in Hilli or guarantees certain Hilli obligations. The sale of Pecém and Muricy remained subject to regulatory approval.
Most important facts for investors to verify
- How much of reported earnings and margin reflects the $169.5 million cancellation fee and $146.1 million swap gain, and whether comparable benefits recur.
- Progress, total cost, financing and commissioning timing for Fast LNG and other major projects, including required permits and customer agreements.
- Liquidity available for operations after accounting for restricted cash, the special dividend, planned capital spending and debt maturities.
- Debt levels, interest burden, revolving-facility utilization and continued compliance with financial covenants; NFE reported covenant compliance at March 31, 2023.
- Whether projected customer demand, LNG supply and project contracts convert into sustained cash generation, and whether regulatory approvals—including the San Juan FERC application—are obtained.