NextDecade Corporation — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. NextDecade is a pre-revenue LNG development company focused on the Rio Grande LNG terminal and associated Rio Bravo pipeline in Texas. The filing estimates commercial operations could begin in 2023. The July 24, 2017 merger with Harmony was accounted for as a reverse acquisition and recapitalization; 2016 comparative results reflect NextDecade LLC, the accounting acquirer.
Financial highlights
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating loss | $14.3 million | $2.1 million | $19.2 million | $6.2 million |
| Net loss | $14.2 million | $2.0 million | $19.0 million | $6.2 million |
| Basic and diluted loss per share | $0.14 | $0.02 | $0.19 | $0.06 |
At September 30, 2017, cash was $44.7 million and available-for-sale investments were $5.1 million. Total current assets were $50.8 million versus current liabilities of $6.9 million. Total assets were $118.8 million; total liabilities were $10.2 million. The filing reports no debt balance. Project assets not yet placed in service totaled $67.4 million. No revenue means operating margins are not meaningful.
For the first nine months, operating cash outflow was $8.0 million, project capital spending was $10.7 million, and financing provided $24.1 million net. Cash increased $32.2 million to $44.7 million, helped by $26.8 million received in the merger and $30.1 million of equity proceeds, offset by $6.0 million of issuance costs.
Changes and notable items
- Net loss increased $12.1 million in Q3 and $12.8 million for the nine-month period versus 2016, primarily due to higher general and administrative expense.
- General and administrative expense included $10.5 million of share-based compensation in 2017, with no comparable expense in 2016. Total share-based compensation cost was $11.1 million, of which $0.7 million was capitalized. The filing reports $72.3 million of unrecognized compensation cost, expected to be recognized over a weighted-average 1.75 years.
- Operating cash outflow rose from $5.2 million to $8.0 million for the nine-month period, attributed mainly to additional employees and professional fees. 2016 also included a $0.5 million impairment of abandoned non-core projects; none was recorded in 2017.
- Common shares outstanding increased from 95.7 million at year-end 2016 to 106.3 million at September 30, 2017. Potential milestone shares and other awards could cause further dilution.
Outlook, risks and contingencies
- The company says it expects regulatory approvals and construction commencement in 2018, with commercial operations estimated for 2023. The project requires substantial additional capital; construction and timing depend on regulatory approvals, permits, financing, customer contracts, and successful third-party execution.
- NextDecade had a non-binding term sheet with GE Oil & Gas for up to $150 million of pre-FID bridge financing, subject to development milestones. It had also engaged advisers to assist with post-FID capital raising. Neither financing is presented as completed; the company cautions that funding may not be available or may be costly or dilutive.
- Commercial progress included significant non-binding customer commitments, but the filing does not quantify them here. Merger-related share milestones included a FERC final environmental impact statement and binding LNG sales/tolling agreements targeted by June 30, 2018, an EPC contract by December 31, 2018, and a board FID vote by June 30, 2019.
- Nasdaq granted continued listing of the common stock and warrants through March 6, 2018, subject to interim progress reporting and compliance with minimum round-lot shareholder rules.
- Management reported no material legal proceedings and no off-balance-sheet arrangements. It stated that disclosure controls were effective; no material changes in internal control were reported beyond post-merger control-building efforts.
Key facts for investors to verify
- Whether FERC approvals, permits, binding offtake agreements, and project financing progress toward the stated milestones and timeline.
- Whether the non-binding $150 million GE bridge-financing term sheet becomes a committed facility and what conditions or costs apply.
- Cash burn, remaining liquidity, project spending requirements, and the timing and terms of future equity or debt financing.
- Potential dilution from merger milestone shares, restricted awards, warrants, and substantial unrecognized share-based compensation.
- Progress toward Nasdaq shareholder-count compliance by March 6, 2018.