Excelerate Energy, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The operating results and consolidated balance sheet figures below are for Excelerate Energy Limited Partnership (EELP), the company’s operating predecessor; Excelerate Energy, Inc. was formed as a holding company and reported only $10 of assets at quarter-end. Amounts are in U.S. dollars.
Business context and key financial results
Excelerate provides LNG and natural-gas supply, floating storage and regasification unit (FSRU) services, and terminal infrastructure. Its fleet comprised ten FSRUs. Most vessel-service revenue is supported by long-term charter arrangements; gas sales grew substantially as operations expanded in Brazil and New England.
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $591.7 million | $164.8 million | +259% |
| FSRU and terminal services revenue | $97.6 million | $125.9 million | -22% |
| Gas sales revenue | $494.1 million | $39.0 million | +1,169% |
| Operating income | $39.1 million | $62.8 million | -38% |
| Net income | $12.8 million | $38.0 million | -66% |
| Operating cash flow | $(31.4) million | $47.3 million | Down $78.6 million |
| Capital expenditures | $11.0 million | $5.2 million | +113% |
| Adjusted EBITDA (non-GAAP) | $62.3 million | $89.5 million | -30% |
| Adjusted EBITDAR (non-GAAP) | $71.4 million | $96.6 million | -26% |
Operating margin was approximately 6.6% and net margin approximately 2.2% in Q1 2022, versus approximately 38.1% and 23.1%, respectively, in Q1 2021. The sharp increase in gas-sales revenue was accompanied by $463.4 million of direct gas-sales costs; reported revenue growth therefore did not translate into higher profit. Gross margin was $54.5 million, down 28%, and Adjusted Gross Margin was $78.3 million, down 23% (both company-defined measures; the latter is non-GAAP).
Liquidity, debt, and balance sheet
- At March 31, 2022, EELP had $82.9 million of unrestricted cash and $19.5 million of restricted cash, or $102.4 million in total cash and restricted cash.
- Current assets were $307.2 million and current liabilities were $250.1 million. Total assets were $2.30 billion and total liabilities were $1.27 billion.
- Debt before unamortized issuance costs was $236.0 million, including $257.8 million of related-party debt; the latter includes a $60 million KFMC Note. Separately, finance lease liabilities totaled $470.0 million and operating lease liabilities $103.1 million.
- Operating cash flow was negative despite positive net income, mainly reflecting working-capital movements, including payments of payables related to LNG purchases. Cash, cash equivalents, and restricted cash increased by $11.4 million, with financing cash flow of $53.8 million supporting the period.
- Management said it expected sufficient liquidity for the next 12 months. On April 18, 2022, EELP entered a $350 million senior secured revolving facility, maturing in April 2025, and used borrowing proceeds to repay and terminate the KFMC Note. As of May 20, the company reported $52.0 million of letters of credit and no revolver borrowings.
Material changes and unusual items
- Gas sales in Brazil and New England drove the revenue increase and generated $30.7 million of direct margin, compared with $15.6 million of direct margin from a China LNG sale in Q1 2021. FSRU and terminal-services revenue fell primarily because there were fewer third-party vessel sub-chartering opportunities.
- Profitability was also pressured by higher vessel and operating costs, including costs following the Bahia terminal lease commencement; a $4.4 million foreign-exchange loss, primarily related to Brazil; and $2.8 million of IPO-related restructuring, transition, and transaction expenses. The company cited a $23.6 million reduction in sub-charter opportunities as a principal year-over-year headwind.
- The effective tax rate was 22.5%, compared with 10.6% a year earlier, reflecting geographic income mix and withholding-tax accruals. EELP generally operated as a pass-through entity for U.S. federal income-tax purposes, while foreign operations and certain U.S. corporate subsidiaries incurred taxes.
- Customer concentration increased: one customer represented 73% of Q1 2022 revenue and another 13%. The filing identifies customers anonymously in its concentration table.
Outlook, risks, and subsequent events
- The filing gives no specific earnings or revenue guidance. Management described increased LNG demand and inquiries for FSRU services amid energy-security concerns, while noting that high spot LNG prices could constrain spot cargo and short-term gas-sale opportunities. It said it did not then expect Russia-related sanctions or other actions to adversely affect current operations, but would monitor developments.
- In May 2022, Excelerate signed a 10-year time charter with Gasgrid Finland, with regasification services expected to start in Q4 2022. The company also cited development opportunities in Bangladesh, Albania, and the Philippines; several remain subject to approvals, negotiations, or development work.
- After quarter-end, the company completed its IPO on April 18, 2022, selling 18.4 million Class A shares at $24 each. Gross proceeds were $441.6 million; after underwriting discounts and estimated expenses, net proceeds were approximately $408.0 million. The IPO and its effects are not reflected in March 31 financial statements.
- In connection with the IPO, EELP acquired the Foundation Vessels for 7.85 million Class A shares valued at $188.5 million, $50.0 million cash, and an estimated $21.5 million of future Tax Receivable Agreement payments. Excelerate also agreed to pay beneficiaries 85% of specified net cash tax savings, if realized; management estimated aggregate future payments of $71.2 million under stated assumptions, while actual payments may differ.
- George B. Kaiser–controlled EE Holdings held 75.8% of the combined voting power after the IPO. Related-party financing, vessel arrangements, guarantees, and transactions are also disclosed.
- Management concluded disclosure controls were not effective at March 31, 2022 because of material weaknesses in the control environment, financial close and reporting, revenue recognition, debt-covenant monitoring, tax provision controls, and IT general controls. Remediation was ongoing and not yet complete.
- Other risks include customer nonperformance or termination, project delays and cost overruns, LNG price and supply volatility, foreign-exchange and interest-rate exposure, substantial lease and debt obligations, regulatory and permitting requirements, and the effects of COVID-19 and geopolitical events. The company reported compliance with debt covenants at March 31, 2022 and no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether gas-sale volumes and margins can be sustained, and how much future revenue depends on the highly concentrated customer base.
- How working-capital needs and LNG inventory purchases affect operating cash flow, revolver usage, and liquidity.
- Execution, approvals, capital requirements, and contracted economics for Finland and the proposed Bangladesh, Albania, and Philippines projects.
- The actual cost and accounting impact of the Foundation Vessels acquisition, Tax Receivable Agreement payments, and related-party arrangements.
- Progress in remediating material weaknesses and the effectiveness of newly implemented financial-reporting and IT controls.