New Fortress Energy Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unless otherwise stated, dollar amounts below are in millions; the filing’s financial statements report amounts in thousands. NFE is a global LNG and natural-gas infrastructure, power-generation and shipping company, reporting Terminals and Infrastructure and Ships segments.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $561.3 | $584.9 | $1,140.5 | $1,090.0 |
| Operating income | $191.0 | $133.7 | $458.2 | $300.2 |
| Net income (loss) | $120.1 | $(178.4) | $271.7 | $62.8 |
| Net income (loss) attributable to NFE stockholders | $119.2 | $(169.8) | $269.5 | $68.5 |
| Diluted EPS | $0.58 | $(0.81) | $1.29 | $0.33 |
| Operating cash flow | Not separately reported by quarter | $503.9 | $170.9 | |
| Cash capital expenditures | Not separately reported by quarter | $1,465.6 | $441.7 |
- Q2 GAAP gross margin was $248.3 million; non-GAAP Consolidated Segment Operating Margin was $290.4 million, compared with $273.3 million in Q2 2022. For the first half, these measures were $568.2 million and $644.7 million, respectively, versus $453.4 million and $524.0 million.
- Q2 interest expense was $64.4 million, up from $47.8 million. First-half interest expense was $136.1 million, up from $92.8 million; substantial interest was capitalized to construction projects.
- At June 30, cash and cash equivalents were $104.3 million and restricted cash was $100.5 million. Cash, cash equivalents and restricted cash totaled $216.1 million, down from $855.1 million at year-end, principally reflecting the $626.3 million dividend paid in January and heavy investment spending.
- Total debt carrying value was $5.43 billion, versus $4.54 billion at December 31, 2022. Current debt and short-term borrowings were $366.9 million; long-term debt was $5.06 billion. Current assets of $713.7 million were below current liabilities of $2.07 billion.
Changes and notable items
- Q2 revenue declined 4% year over year, while operating income and net income improved. The prior-year quarter included a $48.1 million asset impairment and a large loss from equity-method investments; prior-year comparisons also include unusual tax and investment-related items.
- First-half revenue rose about 5% year over year. Higher downstream deliveries and LNG cargo sales partly offset the loss of reported CELSEPAR revenue following its 2022 divestiture and lower Henry Hub-linked pricing.
- LNG cargo revenue included customer fees for canceled future deliveries of $162.5 million in Q2 and $332.0 million in the first half. First-half results also included a $37.4 million loss on disposal of the Hilli investment; the Hilli Exchange closed in March for approximately $100 million cash and NFE shares that were canceled.
- Segment performance varied sequentially: Consolidated Segment Operating Margin fell to $290.4 million in Q2 from $354.2 million in Q1, in part because a $146.1 million realized commodity-swap gain benefited Q1. First-half operating cash flow increased, supported by working-capital movements and cash received under Puerto Rico temporary-power agreements.
- Cash used in investing activities was $1.37 billion in the first half, largely for Fast LNG development and Puerto Rico grid-stabilization assets. Financing cash flow included $741.6 million of Revolving Facility draws and $100 million of Equipment Notes borrowing, offset in part by the large dividend payment.
Outlook, liquidity, risks and contingencies
- Management stated it expects sufficient liquidity for the next 12 months and foreseeable future, citing operating cash flows, financing access and potential asset sales or financing. It also noted significant working-capital and capital-spending needs. The company reported compliance with debt covenants at June 30.
- NFE expected its first Fast LNG unit to deploy and begin sourcing LNG in Q3 2023, with additional units planned in 2024. Management expects Fast LNG to lower supply costs, but the technology is unproven and subject to construction, permitting, financing and performance risks. Estimated completed-unit cost is $1.1–$1.3 billion each.
- In Puerto Rico, 150 MW of temporary power was commissioned in Q2; the remaining 200 MW was expected in Q3. Genera’s 10-year PREPA operations-and-maintenance contract began its service period July 1, 2023. The filing also describes planned operations at Barcarena by year-end 2023, Santa Catarina in Q1 2024 and Barcarena power generation in 2025; schedules are subject to project and regulatory conditions.
- Committed expenditures for existing and completed projects were estimated at approximately $5.0 billion, of which $3.53 billion had been paid by June 30. Contractual obligations totaled $23.46 billion, including $15.00 billion of purchase obligations, substantially reflecting long-term LNG and construction commitments.
- After quarter-end, NFE borrowed $400 million under a secured term loan due August 1, 2024, bearing Adjusted Term SOFR plus 3.50%. It borrowed a further $85 million under Equipment Notes and expected another $15 million tranche. The term loan has mandatory prepayment provisions, including an excess-cash-flow sweep beginning with Q4 2023.
- The board reinstated a targeted quarterly dividend of $0.10 per share in Q3 2023; future payments remain discretionary and subject to financial, contractual and other constraints.
- Risks include execution and cost overruns on major projects, dependence on a concentrated customer base and third-party LNG supply, commodity-price and interest-rate exposure, substantial debt and liquidity needs, and political, regulatory and permitting uncertainty. The San Juan Facility’s FERC operating authorization remained pending; FERC allowed construction and operation of an incremental pipeline for temporary power. The Louisiana Fast LNG permitting process and other project approvals also remain important execution risks.
- The company reported no material legal proceedings and said disclosure controls were effective as of June 30, 2023. It stated ordinary-course claims were not expected to have a material adverse effect.
Most important facts for investors to verify
- Fast LNG commissioning, permitting, cost to complete, operating performance and ability to deliver the expected supply-cost benefits.
- Near-term liquidity and cash conversion, including the effect of project spending, vendor payment terms, restricted cash and post-quarter financing.
- Debt maturity and covenant capacity, particularly the 2024 term loan, revolving borrowings and required prepayments.
- Whether Puerto Rico temporary-power operations and the PREPA management contract generate the expected cash flows, and the status of PREPA-related payment and regulatory risks.
- How much reported revenue and margin depend on customer cancellation fees, commodity hedges and other non-recurring or timing-sensitive items.
- Progress on key permits and construction milestones, especially FERC authorization for San Juan and approvals for planned LNG projects.