New Fortress Energy Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Dollar amounts below are U.S. dollars in millions unless stated otherwise.
Business context
NFE operates LNG and natural-gas infrastructure, power-generation assets and vessels across the United States, Jamaica, Puerto Rico, Brazil and Mexico. Its reportable segments are Terminals and Infrastructure and Ships. The company is developing Fast LNG capacity and other energy projects; its first Altamira Fast LNG unit was installed and connected to a pipeline and remained in commissioning during the quarter.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $690.3 | $579.1 | +19.2% |
| Operating income | $184.5 | $267.2 | -31.0% |
| Net income | $56.7 | $151.6 | -62.6% |
| Net income attributable to stockholders | $54.1 | $150.2 | -64.0% |
| Basic / diluted EPS | $0.26 / $0.26 | $0.72 / $0.71 | Lower |
| Gross margin (GAAP) | $333.8 | $319.9 | +4.4% |
| Segment operating margin (non-GAAP) | $384.3 | $354.2 | +8.5% |
| Operating cash flow | $70.1 | $200.1 | Down $130.1 |
Gross margin was about 48.3% of revenue versus 55.2% a year earlier; segment operating margin was about 55.7% versus 61.2%. Segment operating margin is a company-defined non-GAAP measure and should be considered alongside GAAP results.
- Cash and liquidity: Cash and cash equivalents were $143.5 at quarter-end, with restricted cash of $171.5; combined cash and restricted cash was $314.9. Current assets were $1,038.8 versus current liabilities of $1,566.9.
- Debt: Total debt carrying value was $7,026.4, including $291.5 current and $6,734.9 long term. Aggregate principal indebtedness was reported as approximately $7,158.0. Long-term debt fair value was $7,103.4.
- Cash investment: Capital expenditures were $683.4; operating cash flow less capital expenditures was approximately negative $613.4. Investing activities used $219.8 net, partly offset by asset and investment sale proceeds. Financing activities provided $157.6.
- Balance sheet changes: Construction in progress increased to $5,797.5 from $5,348.3. Receivables were $335.3, net of an allowance of $12.8, up from an allowance of $1.2 at year-end.
Material changes versus the prior year
- Operating revenue rose to $609.5 from $501.7, while vessel charter revenue fell to $46.7 from $76.5. Other revenue increased to $34.2, including $29.2 of Genera operation-and-maintenance revenue.
- Downstream deliveries increased to 22.0 TBtu from 12.1 TBtu. NFE had no LNG cargo sales in Q1 2024, compared with $349.4 of cargo revenue in Q1 2023, including a $169.5 customer cancellation fee. The prior-year quarter also benefited from a $146.1 realized commodity-swap gain that reduced cost of sales.
- Net income was reduced by a $77.1 net loss on asset sales, including the $77.5 loss on turbines and equipment sold to PREPA, and a $9.8 loss on extinguishment of debt. Selling, general and administrative expense rose to $70.8, including an $11.6 credit-loss allowance and $5.2 of share-based compensation.
- Operating cash flow declined primarily because of working-capital movements, notably an $85.5 increase in inventory. Cash capital expenditures remained substantial as Fast LNG and the Barcarena Power Plant progressed.
Outlook, transactions and risks
- Management said it expects liquidity from recent borrowings, operating cash flow and additional capital sources to cover working capital and capital needs for the next 12 months and the foreseeable future. Remaining committed capital expenditures were approximately $1,619, of which about $1,027 had financing commitments. Management expects Fast LNG units to cost $1.0–$1.6 billion per completed unit on average; timing and completion remain subject to execution, permitting and other conditions.
- Management expects the first Fast LNG unit to complete commissioning in 2024. Barcarena and Santa Catarina facilities were expected to enter service in 2024; the Barcarena Power Plant is expected to be completed and begin delivering power in 2025. These are forward-looking expectations, not guarantees.
- In March, NFE issued $750.0 of 8.75% secured notes due 2029, repurchased $375.0 of 2025 notes and repaid Equipment Notes following the PREPA turbine sale. It also received $273.4 under the BNDES loan for Barcarena. The company reported compliance with its debt covenants at March 31.
- NFE acquired PortoCem in exchange for 96,746 shares of 4.8% Series A convertible preferred stock and assumption of debt. The preferred shares have a $96.7 liquidation preference, cumulative dividends and conditional repurchase rights. In April, PortoCem entered a financing commitment for R$2.9 billion; a R$600 million short-term credit note was funded pending satisfaction of conditions for longer-term financing.
- The PREPA emergency grid-stabilization contract was terminated; NFE is pursuing contractual remedies, but any related transaction price is fully constrained because the outcome is uncertain. A new PREPA gas-sale agreement provides for up to 80 TBtu annually, initially for one year with annual renewal options.
- Key risks include project construction, commissioning and funding; substantial leverage and working-capital needs; reliance on a limited number of customers and third-party LNG suppliers; commodity, foreign-exchange and interest-rate exposure; and regulatory and political uncertainty. The San Juan Facility operating authorization remains pending before FERC. Ireland’s planning commission denied the LNG terminal and power-plant application, which NFE is challenging. The filing also notes the temporary U.S. pause on pending non-FTA LNG export approvals.
- The company reported no material legal proceedings and said disclosure controls were effective. It declared and paid $0.10 per Class A share in quarterly dividends.
Most important facts for investors to verify
- Progress, commissioning results, costs and funding for the first Fast LNG unit and other major construction commitments.
- Whether the stated liquidity outlook is supported by realized operating cash flow, available borrowing capacity and completion of the PortoCem financing.
- Debt principal, refinancing needs and covenant headroom, particularly given the high debt load and $8.75% 2029 notes.
- PREPA’s payment performance, gas-sale volumes, the outcome of NFE’s contract remedies and the effects of the terminated emergency-power contract.
- Collection of receivables and the adequacy of the increased credit-loss allowance; also, the drivers of the large working-capital cash outflow.
- Regulatory approvals and schedule risks for San Juan, Altamira, Louisiana, Ireland and other projects, plus the terms and potential dilution or cash requirements associated with the Series A preferred stock.
Note: The cash-flow statement reports a $4.1 increase in cash, cash equivalents and restricted cash for the quarter, including foreign-exchange effects. The MD&A table describes the $7.9 subtotal of operating, investing and financing cash flows as a “net decrease”; investors should reconcile that wording with the statement’s $4.1 reported increase.