Business context and reporting period
NextDecade Corporation’s unaudited Form 10-Q covers the quarter and six months ended June 30, 2019. The company is pre-revenue and focused on developing the Rio Grande LNG terminal and associated 137-mile pipeline in Texas. It also holds a site for a potential Galveston Bay terminal.
Key financial metrics
Amounts are in millions of dollars except per-share data. There was no revenue in the quarter or first half of 2019 or the comparable 2018 periods.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Operating loss | $(5.6) | $(3.6) | $(18.1) | $(19.9) |
| Net loss attributable to NextDecade | $(6.7) | $(3.5) | $(18.8) | $(19.7) |
| Net loss attributable to common stockholders | $(7.2) | $(3.5) | $(24.8) | $(19.7) |
| Basic and diluted loss per share | $(0.07) | $(0.03) | $(0.23) | $(0.18) |
| Operating cash used | Not stated | Not stated | $(25.2) | $(9.1) |
- Margins: Not meaningful because the company had no revenue.
- Liquidity at June 30, 2019: Cash and cash equivalents of $4.5 million plus investment securities of $52.6 million, or $57.1 million combined. Current assets were $58.9 million and current liabilities $8.6 million.
- Balance sheet: Total assets were $164.7 million, total liabilities $20.1 million, and stockholders’ equity $53.3 million. The balance sheet also reported Series A and B convertible preferred stock of $44.3 million and $47.0 million, respectively. No conventional debt balance is reported in the supplied filing text.
- Project investment: Property, plant and equipment, primarily project assets not yet in service, was $104.2 million. First-half capital expenditures were $14.1 million.
Material changes versus comparable periods
- Q2 net loss increased $3.2 million year over year, largely because of $10.2 million in invitation-to-bid contract costs and a $1.6 million loss from revaluing common stock warrant liabilities. Lower share-based compensation expense partly offset these items.
- First-half net loss attributable to the company improved by $0.9 million, but loss per common share worsened to $0.23 from $0.18, reflecting preferred dividends and deemed dividends as well as the share count and loss attribution.
- First-half operating cash use rose to $25.2 million from $9.1 million, which management attributed primarily to bid-process costs, additional employees, professional fees, travel, and marketing and conference sponsorships.
- Cash increased by $1.4 million during the first half, supported by $20.9 million of Series B preferred stock proceeds and net investing inflows of $6.1 million, including $36.0 million of investment-security sales. Cash alone was only $4.5 million at period-end.
Outlook, developments, and risks
- In March 2019, NextDecade entered a 20-year LNG sale and purchase agreement with Shell for 2 million tonnes per annum, conditional on a positive final investment decision (FID). Commercial operations were then anticipated as early as 2023.
- In May, the company signed Bechtel fixed-price turnkey EPC agreements: $7.042 billion for Trains 1 and 2 and $2.323 billion for Train 3. The filing reports a $30.3 million 2019 limited-notice-to-proceed commitment, of which up to $15 million may be paid in common stock; its contractual-obligations discussion states $25.3 million was the obligation at June 30. The text does not reconcile these amounts.
- NextDecade received the FERC final environmental impact statement on April 26, 2019; this is not itself final project authorization. Construction depends on required regulatory approvals, permits, financing, and FID. The Rio Grande site lease’s effective date is tied to FID and generally had an outside date of November 6, 2019, subject to extensions and exceptions.
- Management said substantial additional capital is needed. It expected long-term project funding to rely primarily on project financing and future debt and equity offerings, while warning that financing may not be available on acceptable terms or at all and could be costly or dilutive. No specific financing outlook or cash runway is provided.
- Series A and B preferred stock carries cumulative 12% annual dividends, payable in cash or in kind. First-half preferred dividends were $5.0 million; additional dividends were paid in kind on July 15, 2019. Common-stock warrant remeasurement losses are noncash period expenses and depend on valuation assumptions.
- Other commitments include approximately $2.7 million for the first phase of an ERP system, expected to be incurred in 2019. Management reported no material legal proceedings, no off-balance-sheet arrangements, and no changes to previously disclosed risk factors. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Progress toward FID, FERC and other permits, and whether the Shell agreement’s conditions precedent are satisfied.
- Sources, timing, terms, and dilution implications of construction financing, and liquidity needs before any project cash flows.
- The scope, payment timing, and conditions of the Bechtel EPC commitments, including the $30.3 million versus $25.3 million limited-notice-to-proceed amounts and stock-settlement option.
- Cash burn and investment-security liquidity, as well as the cash or in-kind burden of the 12% preferred dividends.
- Potential dilution from preferred-stock conversion, warrants, and outstanding incentive awards; reported diluted loss per share excludes anti-dilutive securities.
- Timing assumptions behind the stated 2023 earliest expected commercial operations and the project’s estimated costs and execution risks.