NextDecade Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter ended September 30, 2021. Unless stated otherwise, financial figures below are in millions of dollars. NextDecade is a pre-revenue developer focused on its Rio Grande LNG terminal in southern Texas and a proposed carbon capture and storage (CCS) project.
Financial results and liquidity
- Revenue: None in Q3 or the first nine months of 2021, or in the comparable 2020 periods. Profit margins are therefore not meaningful.
- Q3 earnings: Operating loss was $3.2 million, versus $5.6 million in Q3 2020. The company reported net income of $1.2 million, compared with a $7.2 million net loss, but a $4.4 million noncash gain on warrant liabilities contributed to the improvement. After preferred-stock dividends and deemed dividends, net loss attributable to common stockholders was $4.1 million, or $0.03 per share, versus $10.8 million, or $0.09 per share.
- First nine months: Operating loss was $11.7 million, versus $18.0 million in 2020. Net loss attributable to the company was $14.0 million, compared with $12.1 million; net loss attributable to common stockholders was $27.1 million, or $0.23 per share, versus $22.7 million, or $0.19 per share. Higher preferred dividends and a $2.4 million warrant-liability loss were important factors.
- Cash flow: For the first nine months, operating cash use was $12.3 million, investing cash use was $13.1 million, and financing provided $39.4 million. Cash increased by $14.1 million to $36.7 million. Financing primarily reflected $39.5 million of Series C preferred-stock proceeds. In 2020, operating cash use was $22.7 million and investing activities provided cash, primarily from investment-security sales.
- Liquidity and obligations: Current assets were $37.6 million and current liabilities $8.1 million. Total liabilities were $33.8 million; the filing reports no conventional borrowings. Other noncurrent liabilities included $23.0 million related to the Rio Bravo pipeline sale arrangement. The company separately had $163.1 million of Series A, B and C preferred stock on the balance sheet. Its preferred stock carries cumulative dividends at 12% annually, generally paid in kind; $13.0 million accrued in the first nine months of 2021.
- Assets and capitalization: Total assets were $228.7 million, including $170.4 million of property and equipment, principally project assets not yet in service. Stockholders’ equity was $31.8 million. Common shares outstanding were 120.7 million at quarter-end and 123.8 million as of November 8, 2021.
Material changes and developments
- General and administrative expense declined to $2.9 million in Q3 from $5.1 million, mainly because of lower share-based compensation, partly offset by higher staffing and related costs. Nine-month G&A fell to $10.8 million from $16.6 million.
- In March, April and July, the company raised $39.5 million through Series C preferred-stock issuances. In August it established a common-stock at-the-market program for up to $50 million; approximately $0.4 million had been raised under the program through September 30.
- During Q3, holders exercised warrants and received approximately 1.5 million common shares. Potentially dilutive securities were excluded from diluted loss per share as anti-dilutive; the filing lists 50.5 million potentially dilutive shares for Q3.
- The Rio Grande site-lease effective date was extended to May 6, 2022. The company remains obligated to pay approximately $1.5 million per quarter to the Brownsville Navigation District until the earlier of that date and lease commencement.
Outlook, risks and contingencies
- Management expected to incur $39 million on pre-final-investment-decision (pre-FID) development activities in 2021; $27 million was incurred in the first nine months. The projects are not expected to generate significant cash flow until several years after construction and operation begin.
- The company expects long-term project funding to rely predominantly on project financing and future debt and equity offerings. It cautions that financing may not be available, may be costly or dilutive, or may not be available on acceptable terms.
- The proposed CCS project, announced in 2021 through NEXT Carbon Solutions, is expected to reduce permitted terminal CO2 emissions by more than 90%. NextDecade announced a term sheet with Occidental’s Oxy Low Carbon Ventures for CO2 offtake, transport and sequestration; definitive agreements remained to be negotiated. Mitsubishi Heavy Industries was engaged to assist with the project.
- A 20-year LNG sale and purchase agreement with Shell covers approximately 2 million tonnes per year, beginning when the first train is commercially operable. The terminal has FERC siting, construction and operating authorization, but construction and operations remain subject to project development, financing, permitting and execution risks.
- The Rio Bravo pipeline sale proceeds and additional buyer costs remain recorded as a noncurrent liability because the arrangement allows a repurchase or resale if the terminal project does not meet a notice-to-proceed condition by December 31, 2023. Pipeline construction obligations are also conditional on that notice.
- Risks highlighted include securing project funding, development and contractor execution, regulatory approvals, LNG demand and pricing, cost estimates, environmental requirements, COVID-19 effects, and whether CCS technology achieves expected results. Management reported no legal proceedings believed likely to have a material adverse effect and no off-balance-sheet arrangements.
Key facts for investors to verify
- Progress toward FID, required permits, project financing and the timing and cost of terminal construction.
- Whether the CCS offtake and sequestration agreements are finalized and whether expected emissions reductions are achievable.
- Cash needs relative to the development budget, remaining liquidity and access to additional financing; also the amount of ATM equity ultimately issued.
- The cumulative cost and dilution from 12% preferred dividends, preferred-stock conversion and outstanding warrants.
- The conditions and potential consequences of the Rio Bravo sale arrangement and the May 2022 site-lease date.