NextDecade Corporation — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. NextDecade is developing and constructing the Rio Grande LNG export facility and carbon capture projects. It has not begun LNG operations and reported no revenue.
Key financial metrics
| Metric | Q3 2023 / September 30, 2023 | Prior comparable period / December 31, 2022 |
|---|---|---|
| Revenue | $0 | $0 in Q3 2022 |
| Operating loss | $35.8 million | $16.1 million in Q3 2022 |
| Net income (loss) attributable to NextDecade | $181.8 million; $107.6 million attributable to common stockholders, or $0.48 per share | Q3 2022: $18.8 million loss attributable to NextDecade; $25.0 million loss attributable to common stockholders, or $0.19 loss per share |
| Nine-month net loss attributable to common stockholders | $53.5 million, or $0.31 loss per share | $58.9 million loss, or $0.47 loss per share, for 2022 |
| Cash and restricted cash | $50.8 million unrestricted; $395.0 million restricted | $62.8 million cash and cash equivalents at December 31, 2022 |
| Debt | $1.409 billion gross; $1.382 billion net of unamortized issuance costs | No debt at December 31, 2022 |
| Total assets / total equity | $2.898 billion / $817.6 million | $312.4 million / $54.4 million at December 31, 2022 |
Q3 earnings included a $240.3 million derivative gain on interest-rate swaps, a non-cash fair-value item that more than offset operating and interest costs. The swaps’ fair value was approximately $151.7 million at quarter-end. The filing reports no meaningful operating margin because the company had no revenue.
For the first nine months, operating cash used was $52.6 million, investing cash used was $1.010 billion, and financing cash provided was $1.446 billion. Investing outflows primarily funded Phase 1 construction and development. Total cash, cash equivalents and restricted cash was $445.9 million; most of this amount was restricted project cash.
Material changes and significant developments
- In July 2023, NextDecade reached final investment decision and began construction on Phase 1, comprising three trains with expected capacity of approximately 17.6 MTPA. At September 2023, Trains 1 and 2 were 8.1% complete; engineering was 35.7%, procurement 14.1%, and construction 0.2% complete.
- Phase 1 financing included approximately $6.2 billion in equity commitments, $11.6 billion in bank credit facilities, and $700 million of senior secured notes. Rio Grande also drew $356 million of senior secured loans in September. The company funded its approximately $283 million Phase 1 equity commitment by September 30.
- Phase 1 estimated total capital cost was approximately $18.0 billion, including approximately $12.0 billion of EPC costs. The company reported that more than 90% of expected Phase 1 nameplate capacity was covered by long-term LNG sales agreements: approximately 16.15 MTPA, with a weighted-average term of 19.2 years.
- All outstanding Series A, B and C convertible preferred stock converted into approximately 59.5 million common shares in July. The company also issued common shares in private placements, including approximately 44.9 million shares to a TotalEnergies affiliate for approximately $219.4 million. Common shares outstanding were approximately 256.5 million at September 30.
- Balance-sheet expansion reflects construction spending, project financing and consolidation of the Rio Grande joint venture; it should not be read as equivalent growth in unrestricted corporate liquidity. Restricted cash and Rio Grande project assets are subject to project-level limitations.
Outlook, risks and unusual items
- Management stated that substantial doubt exists about NextDecade’s ability to continue as a going concern within one year after issuance of the financial statements. The company had $50.8 million of unrestricted cash at September 30; management plans to manage costs and seek additional equity, equity-linked or debt financing. The filing cautions that funding may not be available on acceptable terms.
- Management expected the first Phase 1 train’s commercial operation in late 2027 under the EPC schedule. The company expects no significant Phase 1 cash flows until operations begin. The filing provides no numerical corporate earnings or cash-flow guidance.
- Rio Grande’s debt is secured and includes restrictive covenants, including debt-service coverage requirements that begin after specified project milestones. Rio Grande reported covenant compliance at September 30. Interest-rate exposure remains a risk despite fixed-rate borrowing and executed swaps.
- Phase 1 joint-venture interests entitle NextDecade to up to approximately 20.8% of available-cash distributions, subject to investor return thresholds and potential distribution arrears. The company may have limited control over the timing and amount of distributions.
- Key risks include construction cost and schedule execution, contractor performance, financing and refinancing needs, debt service, future LNG demand and prices, gas supply and pipeline availability, permitting and legal challenges, and the ability to secure financing and customers for later trains and CCS projects. A petition for review of the FERC remand order was pending; management did not expect a material adverse effect on construction or operations.
- The $240.3 million quarterly derivative gain and the nine-month $152.8 million derivative gain were driven by changes in forward SOFR rates. Fair-value changes are recognized in earnings and may reverse as rates move. General and administrative expense rose substantially year over year, partly due to preparation for FID and compensation costs on awards vesting at FID.
Investor verification points
- Review the going-concern disclosure and assess the parent company’s unrestricted cash needs, fundraising assumptions and available financing sources.
- Track Phase 1 cost, contingency use, construction progress and schedule against the approximately $18.0 billion estimated total cost and late-2027 first-train target.
- Distinguish Rio Grande’s restricted project cash and non-recourse project debt from NextDecade Corporation’s corporate liquidity and obligations.
- Assess the sensitivity and accounting volatility of swap fair values, and the effect of interest rates on project financing and debt service.
- Verify the terms and distribution priorities of the joint venture, the status of commercial arrangements for future trains, and the company’s ability to finance expansion and CCS development.