New Fortress Energy Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unless stated otherwise, financial amounts below are in U.S. dollars and rounded to millions. Results include Hygo and GMLP for the full quarter; they were acquired in April 2021, so the prior-year comparison excludes their operations.
Business context
NFE operates LNG and natural-gas infrastructure, power-generation assets and a marine fleet through its Terminals and Infrastructure and Ships segments. Operations span the United States, Jamaica and Brazil, with development projects in several other markets.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $505.1 million | $145.7 million |
| Operating income (loss) | $166.5 million | $(22.3) million |
| Net income (loss) | $241.2 million | $(39.5) million |
| Net income (loss) attributable to NFE stockholders | $238.3 million | $(37.9) million |
| Diluted EPS | $1.13 | $(0.21) |
| Cash from operating activities | $114.4 million | $(112.0) million |
| Capital expenditures | $189.2 million | $80.8 million |
- Operating margin, calculated as operating income divided by revenue, was approximately 33.0%, versus a 15.3% operating loss margin in Q1 2021. Segment Operating Margin, a company-defined measure, was $250.7 million versus $32.8 million.
- Q1 revenue included $285.2 million from LNG cargo sales (9.7 TBtu), with no cargo sales in Q1 2021. Operating revenue was $400.1 million; vessel charter revenue was $92.4 million.
- Net income included $50.2 million of equity-method income and a $49.7 million income-tax benefit. The tax benefit principally reflected a $76.5 million discrete benefit from an internal reorganization; it is not an indication of recurring earnings.
- At March 31, cash and cash equivalents were $156.2 million; restricted cash totaled $82.8 million. Current assets were $606.3 million and current liabilities $578.3 million. Restricted cash and covenant-required cash may not be freely available for general use.
- Total debt was $3.94 billion on the balance sheet, or approximately $3.98 billion of principal before deferred financing costs and adjustments. Long-term debt was $3.84 billion. The company reported compliance with debt and lease covenants.
- Operating cash flow less capital expenditures was negative $74.8 million. Cash, cash equivalents and restricted cash ended at $239.0 million, down $25.0 million from the beginning of the period.
Material changes and operating developments
- Revenue increased 247% year over year, reflecting cargo sales and the inclusion of Hygo and GMLP, including acquired vessel-charter operations and NFE’s equity-method investment in CELSEPAR. The comparison is therefore not like-for-like.
- Cost of sales rose to $208.3 million from $96.7 million. LNG purchased from third parties for customer deliveries cost an average $9.49/MMBtu, versus $6.17/MMBtu a year earlier; management said lower delivery volumes partly offset higher LNG costs.
- Terminals and Infrastructure Segment Operating Margin was $211.1 million; Ships Segment Operating Margin was $89.0 million. Ships results have no comparable Q1 2021 segment contribution because the fleet was acquired in 2021.
- Debt principal outstanding increased from approximately $1.25 billion at March 31, 2021 to approximately $3.98 billion at March 31, 2022, primarily reflecting acquisition-related financing and subsequent borrowings.
- Capital expenditures and development activity increased, with spending directed to Fast LNG and projects including Santa Catarina, Barcarena, La Paz and Puerto Sandino.
Outlook, risks and unusual items
- No formal earnings or financial guidance is provided in the supplied filing text. Management said it expected sufficient liquidity from cash, operating cash flow and financing access to meet capital expenditure and working-capital needs for the next 12 months.
- Management reported approximately $2.08 billion of committed expenditures for completed and existing projects, of which approximately $1.584 billion had been spent through March 31, 2022. Funding plans include cash, operating cash flow and South Power bond proceeds.
- Management said high LNG market prices prompted it to sell a portion of committed cargoes, positively affecting Q1 results and expected to increase 2022 revenue and results. This activity exposes results to commodity-market conditions and should not be assumed to recur at the same level.
- Montego Bay deliveries to the Bogue Power Plant were suspended during Q1 while port-required facility reconfiguration and partial relocation proceeded; management expected work to finish and deliveries to resume in Q2 2022. Jamalco had consumed no gas since an August 2021 refinery fire. San Juan power-plant maintenance also reduced gas consumption.
- Key risks include LNG supply and price volatility, project construction costs and delays, permits and regulatory uncertainty, leverage and refinancing needs, customer concentration, foreign-exchange exposure, joint-venture dependence and integration of the 2021 acquisitions. NFE’s San Juan Facility authorization application remained pending with FERC; the company’s court petitions challenging FERC’s jurisdictional ruling were also pending.
- Other items to note: a $24.4 million fair-value gain on acquired interest-rate and currency swaps contributed to other income; equity-method earnings included a foreign-currency remeasurement gain at CELSEPAR. The company disclosed Indonesian and Jordanian tax matters and other contingencies; it stated it did not consider ordinary-course legal proceedings material.
- After quarter-end, on May 4, 2022, the revolving facility commitment was increased by $125 million to $440 million. At March 31, the facility had $225 million drawn against the then-current $315 million capacity.
Most important facts for investors to verify
- How much of Q1 earnings and expected 2022 performance depends on cargo sales, derivative fair-value movements, foreign-currency effects and the discrete tax benefit.
- Whether LNG procurement costs, customer pricing and cargo-sale economics protect margins if market prices or supply availability change.
- Project spending, remaining committed costs, funding availability and construction or permitting milestones, particularly for Fast LNG and major development projects.
- Debt maturities, interest-rate exposure, covenant headroom, actual revolver availability and liquidity after accounting for restricted and covenant-required cash.
- Whether Montego Bay deliveries resumed as expected, and the continuing operational and regulatory status of the San Juan Facility.
- Exposure to key customers, joint ventures and contingent liabilities, including the Hilli guarantees and disclosed tax matters.