New Fortress Energy Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Unless noted, dollar amounts below are U.S. dollars in millions. NFE operates integrated natural-gas infrastructure and shipping businesses. Comparisons are substantially affected by the April 15 acquisitions of Hygo and Golar LNG Partners (GMLP); their results are included only from that date.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $223.8 | $94.6 | $369.5 | $169.1 |
| Operating loss | $(12.2) | $(148.2) | $(34.5) | $(184.2) |
| Net loss attributable to stockholders | $(6.0) | $(137.4) | $(43.9) | $(145.7) |
| Basic and diluted loss per share | $(0.03) | $(2.40) | $(0.23) | $(3.49) |
| Operating cash flow | Not separately presented for Q2 | $(111.4) | $(80.3) |
- Q2 revenue included $64.6 million of vessel charter revenue from the newly acquired Ships business. Other revenue was $56.4 million, including $46.6 million of development services revenue.
- Q2 operating loss improved year over year, in part because the prior-year quarter included $123.9 million of contract termination charges and LNG mitigation-sale losses. Q2 2021 included $29.2 million of transaction and integration costs; interest expense was $31.5 million.
- Q2 net loss included $38.9 million of income from equity-method investments, including CELSEPAR and Hilli. Foreign-currency remeasurement gains also contributed to equity-method earnings; these items make reported net results less representative of recurring operating performance.
- Management’s non-GAAP consolidated Operating Margin was $88.4 million for Q2 and $121.2 million for the first half, versus $15.2 million and $13.0 million, respectively, in 2020. This measure excludes several items, including SG&A, transaction costs, depreciation, interest, taxes and equity-method income; it is not GAAP operating income.
- Six-month cash used in investing was $1,830.9 million, including $1,586.0 million for the Mergers and $235.3 million of capital expenditures. Financing provided $1,544.6 million, primarily from the 2026 Notes and revolver draw. Cash, cash equivalents and restricted cash ended at $230.3 million; unrestricted cash was $143.1 million.
- At June 30, total assets were $6,392.1 million and total liabilities were $4,390.2 million. Reported debt was $3,530.9 million, including debt of consolidated vessel lessor entities; approximately $3,527.3 million was scheduled principal before fair-value adjustments and deferred financing costs. Current liabilities exceeded current assets by $159.5 million. Restricted cash totaled $87.2 million, and $152.5 million was drawn under the $200 million revolver.
Material changes versus prior periods
- The Hygo and GMLP acquisitions materially expanded the company’s assets, revenue base and business mix, adding vessel chartering, a 50% interest in the Sergipe power plant, development projects in Brazil and a 50% interest in Hilli LLC. Total assets rose from $1,908.1 million at year-end 2020 to $6,392.1 million at June 30, 2021.
- Debt increased from $1,239.6 million at December 31, 2020 to $3,530.9 million. NFE issued $1.5 billion of 6.50% senior secured notes due 2026 and drew $152.5 million on its revolving facility; $1.24 billion of senior secured notes due 2025 remained outstanding.
- Higher terminal and infrastructure revenue reflected increased LNG and power-related volumes, Puerto Rico commissioning and acquired CELSEPAR activity. In Q2, the Ships segment generated $95.8 million of segment revenue and $75.6 million of segment Operating Margin; no comparable Ships segment existed in 2020.
- Operating expenses included acquisition-related depreciation and amortization, higher operating costs from expanded facilities and acquired vessels, and transaction/integration costs. Six-month operating cash use increased by $31.0 million year over year, with working-capital outflows including higher receivables and inventory.
Outlook, commentary and risks
- Management said it expects available liquidity, recent borrowing proceeds, operating cash flow and access to capital to fund operations and working-capital needs for the next 12 months. It reported approximately $1.428 billion of committed expenditures for projects and customer-related development, of which approximately $1.059 billion had been spent through June 30. No specific earnings or revenue guidance is provided.
- Management cited long-term customer contracts, including take-or-pay arrangements, and LNG supply agreements as support for its business. It reported that approximately 97% of LNG volumes in the first half were sourced from third parties and described plans to develop Fast LNG and other supply infrastructure. Execution, cost, permitting and timing are uncertain.
- The Sergipe power plant was not operating at full capacity because of transformer problems; the filing does not state a precise date for full restoration. This could affect dispatch, equity-method earnings and related project performance.
- FERC determined that the San Juan Facility is subject to its jurisdiction and directed NFE to apply for authorization by September 15, 2021. FERC allowed continued operation while an application is pending, subject to compliance. NFE filed petitions for judicial review and said it intended to comply with the application directive.
- COVID-19 had not materially disrupted operations or development to date, according to management, but staffing, transport, supply-chain and customer-demand effects remain uncertain. Other material risks include project delays and cost overruns, LNG price and supply exposure, customer concentration, leverage and refinancing needs, foreign-exchange and political risks, and regulatory or permitting changes.
- Acquisition purchase-price allocations remained preliminary and may be adjusted during the measurement period. The filing also describes tax assessments and contingencies in Indonesia and Jordan; management disputed the claims or stated that liabilities were not probable, as applicable. Hygo’s former CEO was named in a Brazil-Netherlands investigation; Hygo’s internal review reported no evidence establishing bribery or other corrupt conduct involving Hygo, while the outcome of any authority investigation remained uncertain.
- Subsequent events included commencement of commercial operations at the La Paz Facility on July 14, 2021, and a July 16 agreement for up to $75 million of letters of credit intended to reduce cash collateral requirements and potentially release restricted cash.
Investor facts to verify
- How much of the reported Q2 and first-half improvement is recurring, versus acquired operations, commissioning revenue, equity-method earnings, foreign-exchange effects and prior-year one-time charges?
- What is the updated timeline, remaining funding requirement and expected contribution of the Sergipe repairs and NFE’s committed development projects?
- How much liquidity is unrestricted and available after minimum-cash covenants, restricted-cash needs, near-term debt payments and working-capital requirements?
- What are the operational, financial and permitting outcomes of the San Juan FERC process and the Sergipe plant repairs?
- How will NFE manage customer concentration, third-party LNG sourcing and the added debt and guarantees arising from the Mergers?