Excelerate Energy, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted. The IPO closed in April 2022, so shareholder earnings and some year-over-year comparisons are affected by the reorganization and new public-company structure.
Business context and reporting period
Excelerate provides LNG regasification and terminal services, operates a fleet of floating storage and regasification units (FSRUs), and buys and sells LNG and natural gas. Much of its service revenue comes from long-term time-charter contracts; commodity sales can increase reported revenue substantially while generating comparatively lower margins. The company reported one operating segment and operated ten FSRUs at September 30, 2022.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $803.3 | $192.1 | $2,017.9 | $549.8 |
| Operating income | $49.9 | $25.7 | $128.3 | $116.3 |
| Net income | $37.3 | $1.4 | $46.1 | $43.0 |
| Net income attributable to shareholders | $8.8 | Not presented | $6.8 | Not presented |
| Adjusted EBITDA (non-GAAP) | $77.5 | $58.2 | $205.9 | $206.1 |
| Adjusted EBITDAR (non-GAAP) | $86.4 | $65.3 | $233.1 | $227.4 |
Q3 2022 gross margin was $70.0 million (8.7% of revenue), adjusted gross margin was $94.7 million (11.8%), operating margin was 6.2%, and net margin was 4.6%. These percentages are heavily influenced by gas sales and their associated direct costs. Q3 diluted earnings per share were $0.34; year-to-date EPS was $0.26 for the period from April 13 through September 30.
Cash flow: Nine-month operating cash flow was negative $15.8 million, versus positive $130.6 million a year earlier. The company attributed the deterioration mainly to LNG inventory purchases for Brazil sales and higher receivables. Investing cash outflow was $63.9 million, principally capital expenditures; financing provided $355.7 million, including IPO proceeds. Capital expenditures were $63.9 million versus $30.8 million.
Liquidity: Cash and cash equivalents were $345.7 million at September 30, up from $72.8 million at year-end 2021. Current assets were $956.0 million and current liabilities $536.9 million. The $350 million revolving facility had $40 million of letters of credit outstanding and $253 million of borrowing capacity available after covenant limits. Management said liquidity was sufficient for the next 12 months, including operations, planned capital expenditures, debt service, taxes, and announced and expected dividends.
Debt and leases: Reported debt principal was approximately $426.1 million, including $200.4 million of related-party debt; net debt carrying amounts were lower after issuance costs. Finance lease liabilities were $235.3 million and operating lease liabilities were $87.8 million. The company reported compliance with debt covenants at quarter-end. External debt and certain borrowings carry variable rates; existing swaps hedge a portion of interest-rate exposure.
Material changes versus comparable periods
- Revenue rose sharply, primarily because gas sales increased to $687.9 million in Q3 from $75.6 million, and to $1,694.9 million for nine months from $197.5 million. Brazil terminal activity drove the Q3 increase; Brazil and New England activity contributed year to date. The associated direct gas costs also increased substantially.
- Q3 net income increased by $35.9 million year over year, principally reflecting $29.6 million of direct margin from Brazil gas sales, lower related-party interest expense, lower taxes, and lower IPO-related expenses. For nine months, net income rose $3.1 million, while adjusted EBITDA was essentially flat.
- Nine-month FSRU and terminal services revenue declined $29.3 million, mainly because of fewer vessel sub-chartering opportunities. Operating costs increased with Bahia operations and maintenance activity; SG&A increased with public-company and business-development costs.
- The April IPO brought approximately $416.2 million of proceeds after underwriting discounts and commissions and changed the ownership, tax, and reporting structure. Excelerate acquired the Foundation Vessels as part of the transaction; the Excellence vessel acquisition resulted in a $21.8 million early-extinguishment loss in the nine-month results.
Outlook, commentary, risks, and unusual items
- The filing provides no specific earnings or revenue guidance. Management cited potential LNG demand growth and opportunities to expand into new markets, while warning of tight LNG markets, high spot prices, demand reductions in some emerging markets, and uncertainty around winter supply and prices.
- In October, Excelerate signed a binding five-year charter for the Excelsior with the German government and a shipbuilding contract for a new FSRU expected in 2026. The newbuild cost is currently estimated at approximately $330 million, subject to adjustment; the filing describes installments and future payment commitments.
- The Finland charter for the Exemplar commenced October 1, 2022. The company also described ongoing development and commercial discussions for projects in Albania and Bangladesh; these are not presented as completed or guaranteed business.
- Customer concentration is material: one customer accounted for 82% of nine-month 2022 revenue, compared with 8% in the comparable 2021 period. The filing does not identify that customer in the concentration table.
- Management identified material weaknesses in internal control over financial reporting, including financial close and account controls, revenue recognition for drydock contracts, debt-covenant monitoring, tax provision controls, staffing, and IT controls. Disclosure controls and procedures were therefore deemed ineffective at September 30, 2022. Remediation was ongoing.
- Key risks include customer nonperformance or termination, operational and project execution risks, LNG availability and price volatility, variable-rate debt and financing access, foreign-exchange exposure, regulatory and permitting requirements, and geopolitical and economic uncertainty. The company recorded $6.4 million of foreign-currency losses for the nine months.
- The balance sheet includes a $76.7 million tax receivable agreement liability. Under the agreement, the company may pay beneficiaries 85% of certain realized tax savings; actual payments depend on future tax benefits and other assumptions.
- The company paid its inaugural $0.025-per-share Class A dividend in September and announced another $0.025 dividend payable in December 2022. Ordinary-course legal proceedings were disclosed, with management stating it did not expect them to have a material adverse effect.
Important facts for investors to verify
- Whether Brazil gas sales and their margins, working-capital requirements, and receivable collections are sustainable; reported sales volume and revenue growth do not by themselves establish durable profitability.
- The identity, credit quality, and contractual terms of the customer representing 82% of nine-month revenue, and the extent to which revenue is protected by take-or-pay arrangements.
- Actual available revolver capacity, covenant headroom, variable-rate exposure, and total obligations including debt, finance leases, operating leases, and the newbuild commitment.
- Progress in remediating the disclosed material weaknesses and whether controls become effective after testing.
- Project approvals, financing, customer commitments, and execution risks for the Germany charter, Finland deployment, Albania and Bangladesh projects, and the approximately $330 million newbuild.
- The assumptions underlying the $76.7 million TRA liability and the company’s ability to fund dividends, taxes, working capital, and growth investment from available cash and borrowing capacity.