NextDecade Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. NextDecade is developing the Rio Grande LNG terminal in Texas and carbon capture and storage projects. The company had no operating revenue in the quarter. Unless noted otherwise, amounts below are in U.S. dollars; financial statement figures are in millions.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $27.1 | $5.1 |
| Operating loss | $27.1 | $5.1 |
| Net loss attributable to NextDecade | $27.3 | $11.4 |
| Preferred stock dividends | $6.7 | $5.8 |
| Net loss attributable to common stockholders | $34.0; $0.23 per share | $17.2; $0.14 per share |
| Cash used in operating activities | $23.2 | $10.2 |
| Cash used in investing activities | $23.4 | $3.0 |
| Cash provided by financing activities | $34.9 | $10.0 |
- Cash and cash equivalents were $51.1 million at March 31, 2023, down from $62.8 million at December 31, 2022. Total current assets were $52.7 million and current liabilities were $34.9 million.
- Total assets were $327.9 million; total liabilities were $61.9 million. The balance sheet reports no conventional borrowings. It includes $23.0 million of other non-current liabilities related to the conditional Rio Bravo pipeline equity sale arrangement.
- Property, plant and equipment, largely project assets not yet in service, increased to $243.9 million from $218.6 million. Q1 cash capital spending included $21.5 million for property, plant and equipment.
- The company raised $35.0 million in a February private placement, selling 5.84 million common shares. Common shares issued and outstanding were 149.4 million at quarter-end; 150.6 million were outstanding as of May 5, 2023.
- Series A, B and C convertible preferred stock carries cumulative dividends at 12% annually. Dividends of $6.7 million were paid in kind in Q1, increasing preferred shares and potential future dilution. Preferred stock had a combined balance-sheet amount of $209.1 million at March 31.
- Operating margins are not meaningful because the company reported no revenue and remains in development.
Material changes versus Q1 2022
- Common-stockholder net loss increased $16.9 million, primarily reflecting a $22.9 million increase in general and administrative expense and higher preferred dividends. The increase was partly offset by a smaller loss on warrant liabilities and lower development expense.
- General and administrative expense rose to $26.3 million from $3.3 million, mainly due to higher professional fees, employee costs and share-based compensation. Management attributed increased staffing and fees to preparation for a positive final investment decision (FID).
- Operating cash outflows more than doubled, as employee costs and professional fees increased. Investing cash outflows rose substantially, primarily due to increased Bechtel spending and Terminal development.
- Warrant-liability loss declined to $0.4 million from $6.3 million. The prior-year loss was primarily driven by an increase in the common share price; the current-period loss was primarily attributed to a decrease in the preferred-stock conversion price.
Outlook, developments and risks
- Going concern: Management states that substantial doubt exists about the company’s ability to continue as a going concern. The $51.1 million cash balance may not fund planned operations through one year after issuance of the financial statements. Management plans to raise additional equity, equity-based or debt capital and manage costs; success and acceptable financing terms are not assured.
- Management expects to spend approximately $15 million per month on development activities during 2023 until a positive FID on the initial Terminal phase. It reported approximately $46.6 million spent on development activities during Q1.
- The Terminal is not expected to generate significant cash flow until operational, which management said was at least four years away. Construction and CCS projects will require substantial capital, and construction depends on securing financing.
- As of May 5, 2023, the company reported LNG SPAs totaling 10.75 million tonnes per annum, with an 18.7-year weighted-average tenor. The January 2023 Itochu agreement covers 1.0 mtpa for 15 years, indexed to Henry Hub. Most agreements other than Shell’s remain subject to conditions including a positive FID.
- On April 21, 2023, FERC issued a remand order reaffirming its authorization for the Rio Grande LNG terminal. This was a post-quarter development following a court remand concerning environmental justice and greenhouse-gas emissions issues.
- Bechtel EPC price validity for the first three trains was extended to June 15, 2023. Rio Grande also exercised its option to extend the site-lease effective date to May 6, 2024. The company is committed to pay approximately $1.6 million per quarter to the site landlord until the earlier of lease commencement and the effective date.
- The Elk Hills Power Plant FEED study was completed in Q1 2023; Next Carbon Solutions and California Resources Corporation were reviewing results and discussing commercial progress.
- Key risks include obtaining financing, reaching FID, construction cost and schedule uncertainty, contractor and regulatory execution, LNG demand and pricing, and CCS market and policy development. The filing reports no material change to previously disclosed risk factors and no legal proceedings known to management that were likely to have a material adverse effect.
- Disclosure controls and procedures were assessed as effective as of March 31, 2023; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether NextDecade can raise sufficient capital to address the stated going-concern doubt and fund its development plans.
- Progress and timing toward FID, project financing, and binding construction arrangements, including EPC price validity and any resulting cost or schedule changes.
- Whether LNG SPAs’ conditions precedent are satisfied and how much contracted volume ultimately supports a financeable Terminal project.
- The continuing cost and dilution implications of 12% cumulative preferred dividends, preferred-stock conversion terms, common warrants and future equity financing.
- Updates on FERC and other permits, the site lease, pipeline commitments, and any material legal or environmental developments.