New Fortress Energy Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. NFE develops and operates LNG and natural-gas infrastructure, power generation assets, and a shipping business. Its reportable segments are Terminals and Infrastructure and Ships. Figures below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial results and key metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $514.5 | $731.9 | $1,654.9 | $1,821.9 |
| Operating income | $149.6 | $186.7 | $607.8 | $486.9 |
| Net income attributable to NFE stockholders | $61.2 | $61.8 | $330.7 | $130.4 |
| Diluted earnings per share | $0.30 | $0.29 | $1.59 | $0.62 |
| Consolidated segment operating margin (non-GAAP) | $250.1 | $295.7 | $894.8 | $819.8 |
| Interest expense | $64.8 | $63.6 | $200.9 | $156.3 |
- Q3 GAAP gross margin was $201.4 million; nine-month gross margin was $769.6 million. Segment operating margin is a non-GAAP measure, not a substitute for GAAP results.
- Operating cash flow was $537.2 million for the first nine months, versus $91.1 million a year earlier. Investing cash outflow was $2,065.6 million, including $2,191.6 million of capital expenditures. Financing cash inflow was $924.1 million. Cash, cash equivalents and restricted cash ended at $251.7 million.
- At September 30, cash and cash equivalents were $171.3 million and restricted cash was $66.2 million. Current assets were $866.2 million against current liabilities of $1,911.2 million.
- Reported debt totaled $6,168.1 million, including $270.5 million classified as current. Long-term debt was $5,897.5 million. Total liabilities were $8,217.8 million.
- Capital spending and project commitments are substantial: management estimated $6,162 million of committed expenditures for completed and existing projects, of which approximately $4,815 million had been paid by quarter-end. The filing lists $24.1 billion of contractual obligations, including $15.0 billion of purchase obligations.
Material changes versus comparable periods
- Q3 revenue declined about 30% year over year. NFE had no LNG cargo sales in Q3 2023, compared with $350.6 million in Q3 2022; greater downstream deliveries and new Puerto Rico and La Paz power activity partly offset the decline.
- Q3 operating income fell about 20%, while net income attributable to stockholders was approximately flat. Higher operations and maintenance and depreciation costs, alongside lower revenue, weighed on the quarter.
- For the first nine months, revenue fell about 9%, but operating income rose about 25% and attributable net income more than doubled. The comparison benefited from the prior-year $369.2 million impairment of the CELSEPAR investment and a prior-year equity-method loss; 2023 also included a $37.4 million loss on disposal of the Hilli investment.
- Nine-month segment operating margin increased to $894.8 million from $819.8 million, supported by higher downstream volumes and $141.6 million of realized commodity-swap gains. The company also no longer included CELSEPAR results after its 2022 sale and completed the Hilli Exchange in March 2023.
- Debt rose from $4,541.7 million at December 31, 2022 to $6,168.1 million at September 30, 2023. Cash and cash equivalents declined from $675.5 million to $171.3 million. NFE paid a $626.3 million special dividend in January 2023, in addition to quarterly dividends.
Outlook, management commentary and risks
- Management said it expected sufficient liquidity for the next 12 months and the reasonably foreseeable future, citing borrowings, operating cash flows, asset-sale options and subsequent financings. This is management’s assessment, not a guarantee.
- NFE expected its first Fast LNG unit at Altamira, Mexico, to begin production after commissioning, with production anticipated in Q4 2023. The CFE supply agreement includes conditions to effectiveness that had not been satisfied at filing. Management estimated fully completed Fast LNG units would cost $1.0–$1.6 billion each.
- In October, after quarter-end, NFE entered into a $856 million Term Loan B, used to repay the $400 million Bridge Term Loan. Term Loan B bears interest at adjusted Term SOFR plus 5.0%, is secured, and has conditional maturity provisions linked to refinancing the 2025 and 2026 notes. Also after quarter-end, Brazilian subsidiaries obtained financing arrangements for the Barcarena Power Plant, including a BNDES facility of up to R$1.8 billion and up to $200 million of 12% convertible debentures.
- Management reinstated a target quarterly dividend of $0.10 per share in Q3; future dividends remain at the board’s discretion and subject to financial, legal and contractual constraints.
- Key execution risks include Fast LNG commissioning and cost/schedule performance, permitting and construction of major projects, working-capital needs, high leverage and refinancing requirements, LNG supply and price volatility, and dependence on a limited number of customers. NFE noted that Ireland’s planning commission denied its LNG terminal and power-plant application; NFE is challenging the decision and development remains uncertain.
- The San Juan Facility’s FERC operating application remained pending. FERC had allowed continued operation while the application was pending and, in July 2023, did not act to prevent construction and operation of an incremental pipeline connection.
- The company reported no material legal proceedings and said disclosure controls were effective at September 30, 2023. It noted that implementation of core financial systems in Q4 could result in process and control changes.
Important facts for investors to verify
- Whether Altamira Fast LNG commissioning achieved commercial production on the expected timeline, and whether related CFE conditions were satisfied.
- Actual remaining project costs, vendor payment timing and funding availability against the $6.2 billion of committed expenditures.
- Post-quarter financing completion, proceeds, interest costs, security and maturity conditions, including Barcarena financing terms and Term Loan B refinancing triggers.
- Cash generation, working-capital movements and collections from key customers, including PREPA, as operations and temporary power activity scale up.
- Whether project permits and approvals, particularly for Ireland, Puerto Sandino, Santa Catarina and U.S. LNG export development, remain achievable on expected schedules.
- Debt covenant compliance and refinancing needs, plus the sustainability of the quarterly dividend in light of liquidity and investment requirements.