New Fortress Energy Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; filed May 7, 2021. The company is an integrated natural-gas and LNG infrastructure, logistics and power business. Unless noted, financial amounts below are in U.S. dollars and rounded to millions.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Total revenue | $145.7 | $74.5 | Up $71.2, or about 95.5%; development-services revenue, including gas used in Puerto Rico commissioning, was a major contributor. |
| Operating revenue | $91.2 | $63.5 | Up $27.7, mainly from higher Old Harbour volumes and increased CHP Plant/Jamalco activity. |
| Other revenue | $54.5 | $11.0 | Includes $54.1 of development-services revenue; $45.6 related to gas used by a customer to commission assets. |
| Operating loss | $(22.3) | $(36.2) | Operating loss margin improved to approximately 15.3% negative from 48.5% negative. |
| Net loss | $(39.5) | $(60.2) | Consolidated net loss narrowed; comparison is affected by changes in non-controlling interests after the June 2020 Exchange Transactions. |
| Net loss attributable to stockholders | $(37.9) | $(8.5) | Per-share loss was $(0.21), versus $(0.32); weighted-average shares rose to 176.5 million from 26.0 million, making comparison less direct. |
| Cash from operating activities | $(112.0) | $(51.3) | Use of cash increased, including $46.8 of additional working-capital cash use year over year. |
| Capital expenditures | $80.8 | $56.1 | Investing cash use was $90.3, including development spending and asset acquisitions. |
| Cash and liquidity | $360.1 cash; $379.2 including restricted cash | $601.5 cash at Dec. 31, 2020 | Cash, cash equivalents and restricted cash fell by $250.1 during the quarter. |
| Debt | $1,239.8 carrying value | $1,239.6 at Dec. 31, 2020 | Primarily senior secured notes due 2025, bearing 6.75%; no principal due before maturity. |
Cost of sales was $96.7 million, up $28.5 million, while selling, general and administrative expense was $45.2 million, up $16.6 million; the latter included $11.6 million of merger-related professional and other costs. Interest expense was $18.7 million, up $4.8 million, partly because less interest was capitalized after facilities entered service. EBITDA is not clearly presented as a reported measure in the supplied filing text.
Material changes and significant events
- Operating revenue growth reflected greater Old Harbour deliveries, including gas for the CHP Plant and Jamalco, and more power and steam sales. Old Harbour delivered 53.0 million gallons versus 42.1 million a year earlier.
- Development-services revenue rose substantially, including commissioning-related gas volumes in Puerto Rico. This revenue mix is important when assessing the persistence and cash conversion of reported growth.
- Cost of third-party LNG increased with delivered volumes, although the weighted-average delivered purchase cost fell to $0.51 per gallon from $0.67. Approximately 97% of Q1 LNG volumes were sourced from third parties.
- During Q1, NFE acquired Brazilian project permits and power-purchase-agreement rights through asset acquisitions. These included development rights for a proposed Suape LNG terminal and gas-fired power plant, subject to required regulatory approvals.
- After quarter-end, NFE completed the Hygo and Golar LNG Partners (GMLP) acquisitions on April 15. Consideration included $580 million cash and 31.4 million NFE shares for Hygo, and approximately $251 million cash for GMLP; certain GMLP debt was also repaid at closing. Acquired businesses are not included in Q1 results.
- To finance the GMLP cash consideration and related costs, NFE issued $1.5 billion of 6.50% senior secured notes due 2026 on April 12. It also entered into a $200 million secured revolving facility on April 15. These post-quarter transactions materially change the capital and debt picture; acquired-company debt and purchase accounting were not yet fully quantified in this filing.
Outlook, risks and unusual items
- Management said it expected available liquidity, operating cash flow and capital access to fund capital expenditures and working-capital needs for the next 12 months. This is management’s assessment, not a guarantee; the quarter had negative operating cash flow.
- Management estimated approximately $1.239 billion of total expenditures for completed and existing projects, with approximately $839 million spent through March 31, 2021. The estimate includes project completion and other planned capital expenditures. Pennsylvania Facility spending to date was approximately $144 million, of which approximately $21 million had been expensed and $123 million capitalized.
- No specific quarterly or annual revenue, profit, cash-flow or margin guidance is provided in the supplied filing text. Management’s strategy depends on long-term, often take-or-pay contracts, LNG supply availability and successful construction and commissioning. A disclosed $10.478 billion of remaining performance obligations relates to fixed margins on minimum volumes under certain take-or-pay contracts, not total contract revenue.
- FERC ruled on March 19, 2021 that the San Juan Facility is within its jurisdiction and directed NFE to apply for authorization within 180 days. Operations may continue while an application is pending; rehearing requests remained unresolved at filing.
- The filing identifies customer concentration, LNG supply and price exposure, project delays and cost overruns, permits, foreign-market and political risk, leverage and merger integration as material risks. NFE said it had no commodity or interest-rate hedges in place. COVID-19 had not significantly disrupted operations or projects to date, but its effects remained uncertain.
- The acquired Sergipe Power Plant had transformer failures that affected dispatch and was described in the risk disclosures as not currently operating; the timing of full-capacity operations was uncertain. The filing also describes an ongoing Brazil/Netherlands investigation concerning a former Hygo CEO; Hygo’s internal review reported no evidence establishing bribery or other corrupt conduct involving Hygo.
Most important facts for investors to verify
- How much of the revenue increase—particularly Puerto Rico commissioning and development-services revenue—converts into recurring sales and cash collections.
- Current cash, working-capital requirements and project spending after the April financing and acquisitions, including the acquired companies’ debt, guarantees and other obligations.
- Integration costs, dilution, synergies and operating performance following the Hygo and GMLP acquisitions; Q1 results exclude both acquired businesses.
- Progress on the San Juan FERC authorization and on permits, construction and commissioning for Brazil, Mexico, Nicaragua and other development projects.
- The status and repair timeline for the Sergipe Power Plant transformers, and the effect on generation, customer commitments and cash distributions.
- Exposure to LNG price and supply volatility, customer concentration, take-or-pay obligations and the company’s ability to fund capital commitments without additional financing.