NextDecade Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. NextDecade is developing the Rio Grande LNG export terminal in Brownsville, Texas, and a proposed carbon capture and storage (CCS) project. The company had not begun operations that generate revenue.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating loss | $6.8m | $5.2m | $8.4m | $12.5m |
| Net loss attributable to NextDecade | $11.6m | $5.8m | $15.2m | $4.9m |
| Net loss attributable to common stockholders | $15.5m | $9.3m | $23.0m | $11.9m |
| Loss per common share, basic and diluted | $0.13 | $0.08 | $0.19 | $0.10 |
Margins are not meaningful because revenue was zero. Q2 operating expenses were $6.8m, including $6.5m of general and administrative expense. The higher Q2 common-stockholder loss primarily reflected greater warrant-liability losses and G&A expense. For H1, the larger loss was primarily due to warrant remeasurement, despite lower G&A expense.
- Cash and liquidity: Cash and cash equivalents were $40.6m at June 30, 2021, versus $22.6m at December 31, 2020. Current assets were $41.4m and current liabilities $14.3m.
- Cash flows, H1: $7.7m used in operating activities; $8.6m used in investing activities, primarily for project development; and $34.3m provided by financing, principally Series C preferred-stock proceeds. Cash increased by $18.0m.
- Assets and liabilities: Total assets were $229.1m, including $168.2m of property, plant and equipment, mainly project assets not yet placed in service. Total liabilities were $40.7m, including $12.2m of common-stock warrant liabilities, $23.0m of other non-current liabilities and $0.8m of operating lease liabilities. The filing reports no conventional borrowings in the presented balance sheet.
- Preferred securities: Series A, B and C preferred stock had carrying values of $59.5m, $60.5m and $33.2m, respectively. The preferred stock carries cumulative dividends at 12% annually, payable in cash or in kind. H1 dividends of $7.7m were paid in kind.
Material changes and notable items
- H1 warrant-liability remeasurement produced a $6.8m loss, compared with a $7.8m gain in H1 2020. These noncash fair-value changes are tied largely to the common-stock price and warrant count; warrants are valued using a Level 3 model.
- G&A increased $1.8m in Q2 year over year, attributed mainly to added headcount, salaries, share-based compensation and professional fees. H1 G&A decreased $3.6m, primarily due to lower share-based compensation and professional, travel and marketing costs.
- In March and April, the company raised $34.5m gross from Series C preferred-stock sales; the filing also reports a further $5m Series C issuance on July 30, 2021. These financings included common-stock warrants.
- The company sold Rio Bravo Pipeline Company in 2020, but continues to report the related proceeds and buyer costs as a non-current liability because repurchase rights may apply if specified project milestones are not met.
Outlook, risks and contingencies
- Management expected to spend $42m on pre-final-investment-decision development activities for the Terminal and CCS project in 2021; approximately $17m was incurred in H1. The projects require additional capital, permits and a final investment decision (FID); management expects long-term capital needs to be financed mainly through project financing and future debt and equity offerings. There is no assurance financing will be available on acceptable terms.
- The company extended the effective date of its 984-acre Rio Grande site lease to May 6, 2022. It is committed to pay approximately $1.5m per quarter to the Brownsville Navigation District through the earlier of lease commencement and the effective date.
- The company has a 20-year LNG sale and purchase agreement with Shell for approximately 2 million tonnes per year, conditional on the first train becoming commercially operable. It also announced a CCS development effort targeting more than 90% reduction in permitted Terminal CO2 emissions and signed a term sheet with Oxy Low Carbon Ventures for CO2 offtake and sequestration; definitive agreements remained to be negotiated.
- Key risks include project development and construction, permitting and regulatory approvals, cost estimates, obtaining financing, LNG demand and prices, third-party pipeline delivery, and whether CCS technology achieves expected results. The filing says COVID-19 effects remained uncertain. No material legal proceedings were reported; no off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether NextDecade can secure sufficient project financing and reach FID, and the timing and total cost of the Terminal and CCS project.
- Progress on permits, construction readiness, gas-pipeline arrangements and the Shell agreement’s conditions for delivery.
- Whether the CCS project, including definitive CO2 offtake and sequestration agreements, can achieve the stated emissions-reduction target.
- Cash use versus the 2021 pre-FID spending expectation, and the terms, cumulative dividend burden and potential dilution from preferred stock and warrants.
- The effect of warrant-liability fair-value changes on reported earnings, which can fluctuate independently of operating cash flows.