New Fortress Energy LLC — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Financial amounts below are in U.S. dollars; amounts are shown in millions unless noted. The filing reports New Fortress Energy LLC, an integrated gas-to-power infrastructure company operating in the United States and Jamaica.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / prior date |
|---|---|---|
| Total revenue | $74.5 | $30.0 |
| Cost of sales | $68.2 | $33.3 |
| Gross profit (revenue less cost of sales) | $6.3; 8.5% margin | $(3.4); (11.3)% margin |
| Operating loss | $(36.0) | $(59.3) |
| Consolidated net loss | $(60.1) | $(60.3) |
| Net loss attributable to stockholders | $(8.3), or $(0.32) per share | $(13.6), or $(0.96) per share |
| Cash used in operating activities | $(51.3) | $(31.0) |
| Cash used in investing activities | $(56.0) | $(136.0) |
| Cash provided by financing activities | $305.6 | $483.2 |
| Cash and cash equivalents at period-end | $232.7 | $27.1 at Dec. 31, 2019 |
| Total debt carrying value | $945.2 | $619.1 at Dec. 31, 2019 |
- Revenue increased 149%, principally from higher volumes at the Old Harbour Terminal, CHP Plant operations beginning in March, and development-services work. Cost of sales rose with volume, although the average third-party LNG purchase cost declined to $0.67 per gallon from $0.83.
- Operating loss narrowed as revenue grew and SG&A fell to $28.4 million from $49.7 million, partly reflecting lower share-based compensation and professional fees. Higher interest expense and a $9.6 million debt-extinguishment loss limited improvement in net loss.
- Current assets were $414.6 million and current liabilities $151.7 million at March 31, 2020. Cash, cash equivalents and restricted cash totaled $291.3 million; $58.6 million was restricted and not generally available for operating needs.
- Operating cash outflow increased year over year, including due to prepayments for two LNG cargoes not yet received. Capital expenditures were $56.1 million.
Material changes and unusual items
- In January 2020, the company borrowed $800 million under a new credit agreement, repaid its $495 million term loan facility, and recognized a $9.6 million loss on extinguishment. The new loan matures in January 2023, has a LIBOR-based rate with a 1.50% floor and 6.25% initial margin, and its margin rises by 1.50% each year. The filing estimates that a 1 percentage-point rate change would affect annual interest expense by approximately $8 million.
- Reported debt also includes South Power bonds: secured bonds at 8.25% and unsecured bonds at 11.00%. Debt agreements contain financial and other covenants.
- Adoption of lease accounting standard ASC 842 added right-of-use assets and lease liabilities. At March 31, lease liabilities totaled $94.7 million, including $29.9 million current. Adoption also changed accounting for the Montego Bay Terminal, shifting related amounts into property, plant and equipment and changing revenue classification.
- The company began commercial power and steam deliveries from the CHP Plant in March 2020. It began PREPA fuel deliveries and expected San Juan Facility full commercial operations in Q2 2020.
- Management reported a $651,000 net refund from settlement of Florida property-tax disputes, recognized in operations and maintenance.
Outlook, commentary and risks
- Management stated it believed available liquidity, recent borrowing proceeds and operating cash flows would fund capital expenditures and working capital needs for the next 12 months. It estimated approximately $869 million of expenditures for completed and existing projects, with about $690 million spent through March 31, 2020.
- Projects discussed include the San Juan Facility and La Paz Terminal; the company also described development plans in Nicaragua, Angola, Ireland and Pennsylvania. Timely completion, permitting, construction costs and access to additional financing remain significant uncertainties.
- Management said COVID-19 had not significantly disrupted operations or projects through Q1 and did not then expect a significant effect on results, liquidity, budgets or timelines. It cautioned that the pandemic’s duration and effects on customers, suppliers, markets, tourism and financing were uncertain.
- Customer contracts include take-or-pay minimum-volume commitments. The filing lists $4.15 billion of fixed margin allocated to remaining performance obligations under certain such contracts, but this is not total expected contract revenue: other contracts are excluded, and market-index pricing and volumes can vary.
- The company had no commodity or interest-rate hedges in place at quarter-end. LNG price volatility, third-party supply dependence, customer concentration, customer credit and payment risk, and exposure to Jamaica and Puerto Rico are notable risks.
- On May 5, 2020, the company announced expected exchange transactions with certain members of its parent, anticipated around June 9. Management expected the transactions to reduce future tax distributions and improve liquidity and credit profile, but completion and benefits were not assured. They would also change the allocation of earnings and equity between non-controlling interests and stockholders.
- The company reported no material legal proceedings and no material off-balance-sheet arrangements. Management concluded disclosure controls were effective as of March 31, 2020.
Most important facts for investors to verify
- Whether new facilities—especially San Juan and La Paz—met expected commissioning dates and budgets, and whether they generated the anticipated revenue and cash flows.
- Whether operating cash burn, restricted cash and project spending leave adequate liquidity, particularly given the $945.2 million debt balance, floating-rate exposure and covenant requirements.
- Whether major counterparties, including PREPA, JPS, JPC and Jamalco, continue performing and paying under their agreements amid COVID-related economic and tourism pressures.
- How LNG supply costs, take-or-pay purchase commitments, vessel charter costs and any supply-chain constraints affect margins and working capital.
- Whether the announced exchange transactions were completed, their actual share dilution and tax-distribution effects, and whether the anticipated benefits materialized.
- How much future revenue depends on variable market-index prices and volumes, beyond the disclosed fixed-margin remaining performance obligations.