Excelerate Energy, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Excelerate provides LNG and natural-gas sales, floating storage and regasification vessel (FSRU) services, and terminal services. It completed its IPO on April 18, 2022; comparisons with 2021 reflect the predecessor partnership’s results, while shareholder-level earnings per share are presented only after the IPO.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $622.9m | $192.8m | $1,214.6m | $357.6m |
| Operating income | $39.3m | $27.8m | $78.4m | $90.7m |
| Net income (loss) | $(4.0)m | $3.6m | $8.9m | $41.6m |
| Adjusted Gross Margin | $79.2m | $66.3m | $157.5m | $168.6m |
| Adjusted EBITDA | $66.1m | $58.4m | $128.4m | $147.9m |
| Adjusted EBITDAR | $75.2m | $65.5m | $146.6m | $162.1m |
Q2 net loss attributable to Class A shareholders was $2.0m, or $0.08 per share, for the period after the IPO. The filing reports a GAAP gross margin of $54.9m in Q2 and $109.5m for the first half. Adjusted measures are non-GAAP and should not be treated as substitutes for GAAP results.
- Revenue mix and change: Q2 gas-sales revenue rose to $512.9m from $82.9m, primarily due to Brazil terminal-related sales; FSRU and terminal-services revenue was essentially flat at $110.1m. First-half gas-sales revenue increased to $1,006.9m, while FSRU and terminal-services revenue fell to $207.7m from $235.7m.
- Cash flow: First-half operating cash flow was negative $9.5m, versus positive $78.1m a year earlier. Investing cash outflow was $42.0m, including vessel-related capital spending. Financing provided $366.3m, principally reflecting IPO proceeds. Cash and cash equivalents were $386.3m at June 30; cash, cash equivalents and restricted cash totaled $405.7m.
- Liquidity and debt: Current assets were $683.1m and current liabilities $290.6m. External and related-party debt totaled approximately $428.8m before debt issuance costs; finance lease liabilities were $240.9m and operating lease liabilities $95.1m. The $350m revolver had no borrowings and $40m of letters of credit outstanding; the company reported compliance with debt covenants.
Material changes and unusual items
- Q2 operating income improved year over year, but net income turned to a loss, primarily reflecting a $21.8m expense for early extinguishment of the Excellence vessel lease liability and higher vessel and operating costs. The acquisition included $188.5m of Class A shares and $50m cash, among other consideration.
- For the first half, net income and Adjusted EBITDA declined year over year. Management cited fewer vessel sub-charter opportunities, higher operating costs associated with the Bahia terminal, foreign-exchange losses, and the vessel-acquisition charge; increased gas-sales margins partly offset these items.
- The company began incurring U.S. corporate-level income taxes after the IPO. The Q2 effective tax rate was 204.7%, affected by the vessel-related loss without a corresponding tax benefit.
- The $76.8m TRA liability represents an estimate of future payments to related beneficiaries under the tax receivable agreement. The company is obligated to pay beneficiaries 85% of specified net cash tax savings, if realized.
Outlook, risks and contingencies
- Management said it expects sufficient liquidity for the next 12 months, including operating needs, planned spending, debt service and announced dividends. It anticipated increased working-capital needs for LNG purchases, which could at times exceed cash on hand, and expected to use the revolver if needed.
- No quantified earnings or revenue guidance was provided. The company described advanced-development projects in Albania, the Philippines and Bangladesh as representing more than $1bn in potential future capital investment; this estimate is preliminary. It signed a 10-year Finland charter expected to begin in Q4 2022 and reported ongoing negotiations or development work on other projects.
- Management cited elevated LNG prices, supply-chain and inflationary pressures, Russia-Ukraine-related market volatility, and customer financial exposure in Bangladesh and Pakistan. Some service agreements have inflation escalators, but timing or coverage may not match cost increases.
- Disclosure controls were deemed ineffective at June 30 due to material weaknesses in staffing and financial-reporting controls, revenue recognition, debt-covenant monitoring, tax provision controls and IT general controls. Management was adding personnel and implementing remediation; weaknesses were not yet remediated.
- The board declared an inaugural dividend of $0.025 per Class A share after quarter-end, payable September 7, 2022. Future dividends are discretionary and may be constrained by debt agreements. Class B interests carry 75.8% of combined voting power through Kaiser-controlled EE Holdings.
Important facts for investors to verify
- Whether large Brazil-related gas-sales volumes translate into durable margins and cash generation, given the substantial direct cost of gas sales.
- Customer concentration: one customer represented 78% of first-half 2022 revenue, compared with 8% in the prior-year period.
- Working-capital requirements for LNG cargoes, availability and terms of revolver capacity, and compliance with leverage and interest-coverage covenants.
- Progress and funding requirements for the Finland, Albania, Bangladesh and Philippines opportunities; project investment estimates and timing remain uncertain.
- Remediation and independent testing of the disclosed material weaknesses, and the impact of the TRA, related-party arrangements and controlling voting interest.