New Fortress Energy Inc. quarterly report, Q3 FY2021

New Fortress Energy Inc. — Q3 2021 Form 10-Q

Reporting period: Three and nine months ended September 30, 2021. Unless noted otherwise, figures below are in U.S. dollars (millions). New Fortress Energy (NFE) operates integrated natural-gas-to-power infrastructure and LNG shipping businesses. Its results include Hygo and Golar LNG Partners (GMLP) only from their April 15, 2021 acquisitions, limiting comparability with 2020.

Business context and period developments

The Hygo and GMLP acquisitions expanded NFE into Brazil’s gas-to-power market and added vessel and floating LNG operations. NFE paid $580 million cash and issued shares valued at approximately $1.401 billion for Hygo; GMLP cash consideration was approximately $251 million, alongside debt repayment.
NFE reports two segments: Terminals and Infrastructure, and Ships. It began commercial operations at its La Paz facility in Mexico in July 2021; commissioning of San Juan Power Plant Units 5 and 6 was substantially completed in Q3.
At September 30, the company reported 206.9 million Class A shares outstanding. The filing states that founders’ affiliates held a majority of voting power and that NFE is a Nasdaq “controlled company.”

Financial performance and liquidity

Metric	Q3 2021	Q3 2020	Nine months 2021	Nine months 2020
Total revenue	$304.7	$136.9	$674.2	$306.0
Operating income (loss)	$53.9	$11.1	$19.4	$(173.4)
Net income (loss)	$(17.8)	$(36.7)	$(59.0)	$(263.5)
Net loss attributable to NFE stockholders	$(9.8)	$(36.4)	$(53.8)	$(182.3)
Net loss per share, basic and diluted	$(0.05)	$(0.21)	$(0.27)	$(2.14)

Q3 revenue rose about 123% year over year. The increase reflected higher Henry Hub-linked pricing, additional San Juan volumes, LNG cargo sales, and acquired businesses. The acquired Ships segment contributed vessel charter revenue of $78.7 million in Q3.
Q3 operating margin, calculated as operating income divided by revenue, was approximately 17.7%, compared with 8.1% a year earlier. Nine-month results improved substantially from 2020, which included $124.1 million of contract termination charges and mitigation-sale losses and $33.1 million of debt-extinguishment losses. Acquisition-related expenses and higher interest and depreciation partly offset improvements in 2021.
Q3 interest expense was $57.6 million, up from $19.8 million. For the first nine months it was $107.8 million, versus $50.9 million. Increased borrowings and acquisition-related debt fair-value discount amortization contributed to the increase.
Operating cash flow was negative $139.7 million for the first nine months, compared with negative $115.7 million in 2020. Investing cash outflow was $2.031 billion, including $1.586 billion net cash paid for business combinations and $430.5 million of capital expenditures. Financing provided $1.874 billion. Cash, cash equivalents and restricted cash ended at $334.6 million, including $224.4 million of unrestricted cash and $110.2 million restricted.
At September 30, current assets were $615.7 million and current liabilities $767.9 million; the resulting current ratio was approximately 0.80. Debt, net of deferred financing costs, was $3.847 billion, including $249.8 million current. NFE reported compliance with debt covenants. A $30 million minimum consolidated cash balance applies under certain facilities.
Total assets were $6.665 billion, including $973.9 million of construction in progress, $2.026 billion of property, plant and equipment, $1.228 billion of equity-method investments and $740.1 million of goodwill.

Material changes and management commentary

Reported nine-month revenue is not like-for-like: acquired businesses contributed only from April 15. The filing’s unaudited pro forma presentation, assuming the mergers occurred January 1, shows nine-month 2021 revenue of $780.9 million and net loss attributable to stockholders of $96.0 million; it excludes potential synergies and cost savings.
Q3 segment operating margin was $133.8 million, versus $51.4 million in Q3 2020. The 2021 measure includes acquired Ships activity and NFE’s proportionate share of equity-method operations, so the comparison also reflects a changed segment perimeter.
Management said higher LNG market prices since August allowed it to sell some committed cargoes for delivery in Q4 2021 and expects those sales to increase Q4 revenue and results. It reported supply commitments covering approximately 100% of expected needs at specified facilities for six years, and described additional Henry Hub-indexed supply agreements through 2030.
Management stated it expects available liquidity, borrowing access and operating cash flows to fund capital expenditures and working capital for the next 12 months. It estimated committed expenditures for specified completed and existing projects at approximately $1.663 billion, of which $1.154 billion had been spent by September 30.
NFE declared dividends of $0.10 per Class A share in each of the first three quarters of 2021. Future dividends remain subject to board discretion and financing restrictions.

Outlook, risks, contingencies and unusual items

Development and execution risks include construction delays and cost overruns, permitting and regulatory uncertainty, financing needs, customer concentration, LNG supply and price volatility, and operations across multiple jurisdictions. Fast LNG remains an unproven development strategy; management cautions it may not achieve expected cost or schedule benefits.
The Sergipe Power Plant was not operating at full capacity following transformer damage. The filing warns its physical guarantee could be reduced by up to 106 MW for 2022–2027, potentially requiring purchases of replacement capacity or power. Separately, a fire at Jamalco’s refinery in August stopped gas consumption by its boilers and halted steam deliveries, although take-or-pay provisions supported reported steam revenue.
NFE filed an application to operate the San Juan Facility after FERC determined it was subject to FERC jurisdiction. The company also petitioned the U.S. Court of Appeals for review; the outcome remains pending. In Mexico, required regasification and transmission permits were still outstanding according to the risk disclosures.
Q3 included a $15.983 million loss from equity-method investments, primarily affected by a $17.709 million foreign-currency remeasurement loss at CELSEPAR. Hygo and GMLP purchase-price allocations remained preliminary; Q3 measurement-period adjustments reduced goodwill and increased interest expense.
The company disclosed assumed tax contingencies, including $19.4 million recorded primarily for potential tax obligations tied to acquired vessel charter payments. It also described Indonesian and Jordanian tax disputes for which it had not recorded a provision, and a disputed Indonesian VAT matter of approximately $24 million that management did not consider probable and believed was covered by an indemnity.
Management reported no material legal proceedings and no material off-balance-sheet arrangements. It identified the integration of Hygo and GMLP and the associated controls as ongoing; disclosure controls were assessed as effective at September 30, 2021.

Most important facts for investors to verify

Whether Q4 cargo-sale benefits materialized, and how LNG price and supply flexibility affected realized margins and customer deliveries.
Progress, remaining funding requirements and timetable for the committed development portfolio, including La Paz, Puerto Sandino, Suape, Barcarena and Santa Catarina.
Debt service, covenant headroom, refinancing needs and liquidity available for construction, given negative operating cash flow and substantial project commitments.
Recovery of Sergipe plant capacity and the financial consequences of the transformer repairs, while monitoring CELSE’s dispatch and replacement-power requirements.
Outcomes of the San Juan FERC review and other material permitting, tax and regulatory matters; also track integration costs and any revisions to preliminary acquisition accounting.