NextDecade Corporation — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. NextDecade is developing the Rio Grande LNG terminal and related carbon capture and storage projects; it had no reported revenue and was not yet generating operating cash flow.
Financial performance and position
- Revenue: $0 for Q2 and the first six months of 2022, unchanged from the comparable 2021 periods.
- Q2 results: Operating loss was $12.8 million, versus $6.8 million a year earlier. Net loss attributable to common stockholders was $16.7 million ($0.13 per share), versus $15.5 million ($0.13 per share).
- Six-month results: Operating loss was $18.0 million, versus $8.4 million. Net loss attributable to common stockholders was $33.9 million ($0.27 per share), versus $23.0 million ($0.19 per share).
- Expenses: Q2 general and administrative expense rose to $11.3 million from $6.5 million; development expense was $1.2 million, compared with none reported in Q2 2021. Management cited higher share-based compensation, personnel, professional fees and other costs, plus preliminary carbon-capture FEED work.
- Cash flow: First-half operating cash outflow was $17.5 million, compared with $7.7 million; investing outflow was $6.2 million, compared with $8.6 million. Financing provided $38.6 million, principally from equity and preferred-stock sales. Cash increased $14.9 million to $40.5 million.
- Liquidity and capital structure: Current assets were $41.5 million and current liabilities $7.9 million. Total liabilities were $36.7 million; the balance sheet reported no borrowings. Convertible preferred stock is presented separately from liabilities and carries cumulative dividends at 12% annually, payable in cash or in kind. First-half dividends of $11.5 million were paid in kind. Stockholders’ equity was $18.3 million.
- Margins: Not meaningful because the company reported no revenue.
Material changes and developments
- Operating expenses increased as the company expanded development work and staffing ahead of a potential final investment decision (FID). The average employee count rose 24% in the first half year over year.
- In April, NextDecade sold 4.62 million common shares for approximately $30 million gross proceeds. In March, it raised $10.5 million through Series C preferred stock and associated warrants.
- Development spending was approximately $26 million in the first half. Management expected spending to increase in the second half of 2022.
- After quarter-end, the company announced additional long-term LNG sale agreements with China Gas, Guangdong Energy and ExxonMobil LNG Asia Pacific. These, like the April agreements with ENN LNG and ENGIE, are subject to conditions including a positive FID for the initial project phase.
Outlook, risks and unusual items
- Going concern: Management said $40.5 million of cash was insufficient to fund planned operations through one year after issuance of the financial statements. The filing states there is substantial doubt about the company’s ability to continue as a going concern. Management plans to manage costs and obtain additional equity, equity-linked or debt financing; success and acceptable terms are not assured.
- The terminal was expected to be at least four years from beginning operations, and construction requires substantial capital. The filing provides no quantified earnings or cash-flow guidance.
- Major risks include obtaining financing and reaching FID, construction and contractor execution, permitting and regulatory approvals, project cost and schedule, LNG demand and pricing, and carbon-capture market and policy conditions.
- Warrant remeasurement affected reported results: Q2 included a $1.9 million gain, versus a $4.8 million loss in Q2 2021; first-half 2022 included a $4.4 million loss, versus a $6.8 million loss in 2021. These fair-value changes are not operating cash flows.
- Site-lease obligations include approximately $1.5 million per quarter until the lease commencement or its effective date. Management reported no legal proceedings likely to have a material adverse effect; a previously disclosed stockholder-litigation fee claim was agreed to be settled for $125,000, subject to withdrawal of the motion.
- Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether NextDecade secures enough financing to meet near-term development needs and address the stated going-concern doubt.
- Progress toward FID, required permits, construction readiness and the timing and cost of the Rio Grande LNG project.
- Whether LNG sale agreements satisfy their conditions precedent and translate into financeable project commitments.
- The continuing cash burn, planned second-half spending and terms or dilution associated with future financing.
- The preferred stock’s cumulative 12% dividends, potential conversion and resulting dilution; also note the IPO warrants expired July 24, 2022.