NextDecade Corporation — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. NextDecade is a pre-revenue LNG project developer focused on the Rio Grande LNG terminal and associated pipeline in Texas; it reported no revenue in either 2019 or comparable 2018 periods.
Key financial metrics
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating loss | $4.4 million | $11.0 million | $22.5 million | $30.9 million |
| Net loss attributable to NextDecade | $3.2 million | $10.7 million | $22.0 million | $30.4 million |
| Net loss attributable to common stockholders | $6.4 million | $11.0 million | $31.1 million | $30.6 million |
| Basic and diluted loss per share | $0.06 | $0.10 | $0.29 | $0.29 |
All figures are in U.S. dollars. With no revenue, operating margins are not meaningful. The lower operating loss mainly reflects reduced general and administrative and bid-process costs; common-stockholder losses also reflect preferred dividends and deemed dividends.
- Cash flow: Nine-month operating cash outflow was $33.3 million, versus $12.6 million in 2018. Investing activities provided $13.8 million, chiefly from selling investment securities; financing provided $20.2 million, principally from Series B preferred stock proceeds. Cash increased $0.7 million to $3.8 million.
- Liquidity: At September 30, cash and cash equivalents were $3.8 million and investment securities were $40.4 million; current assets totaled $45.5 million and current liabilities $23.0 million.
- Assets and capitalization: Total assets were $169.8 million, including $119.9 million of property and equipment, primarily project assets not yet in service. Total liabilities were $33.4 million, including $10.3 million of warrant liabilities and $1.5 million of operating lease liabilities. The balance sheet reported no borrowings. Series A and B preferred stock totaled $94.4 million and carries cumulative dividends at 12% per year, payable in cash or in kind.
- Development spending: Nine-month capital expenditures for property and equipment were $18.6 million. Accrued liabilities included $15.4 million of project asset costs.
Changes versus prior comparable periods
- Q3 operating loss improved by $6.6 million; nine-month operating loss improved by $8.4 million. Lower share-based compensation was a major factor, driven largely by restricted-stock forfeitures; G&A expense fell $15.1 million for the nine-month period.
- Bid costs were $10.2 million for the first nine months of 2019, compared with $4.4 million in 2018; there were none in Q3 2019 versus $4.4 million in Q3 2018.
- Despite a lower nine-month net loss, common-stockholder loss was slightly higher than in 2018 because $7.8 million of preferred dividends and $1.3 million of deemed dividends were recorded in 2019.
- Operating cash use increased by $20.6 million year over year, reflecting project and business-development activity, staffing, professional fees, travel, and marketing costs.
Outlook, developments and risks
- Management estimated commercial operations could begin as early as 2023, contingent on permits, financing, construction, and other requirements. No specific near-term revenue or earnings guidance was provided.
- The 20-year Shell LNG sale and purchase agreement covers 2 million tonnes per annum, beginning at terminal commercial operation, and is subject to conditions including a positive final investment decision (FID).
- Bechtel EPC agreements cover Trains 1 and 2 for $7.042 billion and Train 3 for $2.323 billion. The Q2 2019 limited notice to proceed (LNTP) created an approximately $30.3 million 2019 commitment; $5.0 million had been paid by September 30 and approximately $15.0 million was subsequently settled in shares. The company reported $25.3 million of remaining LNTP obligations at quarter-end.
- Wetland and habitat mitigation commitments were approximately $3.4 million in 2019 and $5.5 million in 2020; reported obligations at September 30 totaled $7.7 million.
- After quarter-end, the company received $50.0 million from a common-stock sale to a Mubadala affiliate, issuing 7,974,482 shares. It also issued approximately 2.1 million shares to a Bechtel affiliate in October in lieu of a $15.0 million cash payment.
- Management cited substantial additional capital needs and no assurance of obtaining the debt or equity financing needed to complete the project; future financing could be costly or dilute shareholders. Other key risks include permitting and regulatory approvals, project execution and cost estimates, LNG market demand and prices, and the ability to secure financing. The filing reported no material legal proceedings and no changes to previously disclosed risk factors.
- Management stated disclosure controls were effective as of September 30, 2019, with no material quarterly changes in internal control over financial reporting.
Important facts for investors to verify
- Progress toward FID, required federal, state and local permits, and the status and effectiveness of the Shell SPA.
- Available liquidity and cash burn, including the use of the subsequent $50.0 million equity proceeds and funding needs before project financing.
- Remaining EPC and mitigation commitments, share-settled obligations, and any changes to construction cost or schedule.
- Preferred stock dividend accruals, warrant liabilities, and potential dilution: the filing listed 27.3 million potentially dilutive shares for the nine-month period, excluded from diluted loss per share as anti-dilutive.
- The project timeline and management’s “as early as 2023” commercial-operations estimate, which depends on financing, permits, and successful construction.