New Fortress Energy LLC — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise. The company completed its IPO in February 2019, so the 2019 results include the post-IPO non-controlling interest structure, while prior periods reflect its predecessor.
Business context and operating developments
NFE supplies LNG and natural gas, related logistics and energy infrastructure to customers converting from diesel or heavy fuel oil. Its operations include the Miami liquefaction facility and Jamaica terminals. The Old Harbour Terminal began commercial operations in Q2 2019; the associated 190 MW power plant was expected to become fully operational in Q4 2019. The company remains in a heavy development and construction phase.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $39.8 | $26.8 | $69.7 | $52.5 |
| Operating loss | $(44.0) | $(17.1) | $(103.3) | $(26.6) |
| Net loss, consolidated | $(51.2) | $(18.8) | $(111.5) | $(29.7) |
| Net loss attributable to NFE stockholders | $(6.2) | $(18.8) | $(19.7) | $(29.7) |
| Operating cash flow | Not separately presented for the quarter | $(92.1) | $(27.7) | |
| Capital expenditures | Not separately presented for the quarter | $232.3 | $76.4 |
- Q2 revenue rose 48% year over year; six-month revenue increased 33%. Growth was driven by Old Harbour commencing operations, higher volumes at Montego Bay, and additional customer leasing and pipeline-installation revenue.
- Cost of sales exceeded revenue in both Q2 periods: the resulting gross loss was $4.3 million in Q2 2019 versus $1.0 million in Q2 2018. Cost of sales rose faster than revenue, reflecting higher third-party LNG costs, greater volumes, vessel charter costs and customer pipeline work.
- Operating loss widened to $44.0 million in Q2. SG&A increased, including $8.7 million of Q2 share-based compensation, while operations and maintenance and depreciation also rose. Six-month SG&A included $18.968 million of first-quarter expense related to vested RSUs.
- Six-month net loss attributable to NFE stockholders was lower than consolidated net loss because most consolidated losses were allocated to the non-controlling interest after the IPO. Q2 2019 EPS was $(0.28); six-month EPS was $(1.09).
Financial position, liquidity and debt
- At June 30, 2019, cash and cash equivalents were $200.3 million and restricted cash was $57.7 million. Current assets were $319.4 million versus current liabilities of $574.4 million; the current ratio was approximately 0.56.
- Total assets were $1.057 billion, including $324.8 million of construction in progress. Total liabilities were $589.7 million and total equity was $467.1 million.
- The New Term Loan Facility had $500 million principal outstanding, reported net of financing costs as a $490.5 million current liability. It matures December 31, 2019, with a balloon payment; two six-month extensions are available subject to fees and higher spreads. The company reported covenant compliance at quarter-end.
- Cash, cash equivalents and restricted cash increased by $157.2 million in the first half, largely reflecting IPO proceeds and $220 million of additional term-loan borrowings. This was offset by $92.1 million of operating cash use and $231.9 million of investing cash use.
- Management stated it expected sufficient liquidity and access to capital for the next 12 months. It estimated total expenditures of approximately $765 million to complete specified existing projects and serve small-scale customers, with approximately $483 million spent through June 30.
Changes, outlook, risks and unusual items
- Old Harbour contributed $4.1 million of operating revenue in the first half. Montego Bay delivered volumes increased 27% in Q2 and 22% in the first half. However, weighted-average gas cost rose to $0.83 per gallon from $0.69 in Q2 2018; 93% of LNG volumes were sourced from third parties in both 2019 comparison periods.
- On August 12, 2019, a subsidiary signed a binding commitment letter for up to $180 million of secured and unsecured bonds to support the Clarendon CHP Plant and reimburse company advances. Initial expected issuances were up to $72 million secured at 8.25% and $45 million unsecured at 11%; issuance remained subject to closing conditions and required lender approval or amendment under the term facility.
- No formal earnings or revenue guidance was provided. Management’s outlook depends on completing and commissioning projects, obtaining permits and financing, securing LNG supply and achieving expected customer demand. The company noted that historical results are not indicative of future performance.
- Key risks include construction delays and cost overruns, dependence on a concentrated customer base and Jamaica operations, third-party LNG supply and shipping exposure, commodity and variable-rate debt risk, refinancing needs, customer credit and contract termination risk, and regulatory, political, weather and environmental risks. The company had no commodity or interest-rate hedges.
- Share-based compensation was a significant non-cash expense: $28.0 million for the first half, with $42.6 million of unrecognized RSU compensation cost remaining at June 30. The company also recorded a full valuation allowance on specified deferred tax assets.
- A Florida property-tax rebate remains subject to state appeal; the company had repaid the rebate pending resolution and would recognize any refund as a gain when received. The filing reported no material legal proceedings and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the Old Harbour Power Plant and the CHP Plant reach operation on schedule and within expected cost, and whether contracted customers take expected volumes.
- Completion, timing, covenants and final terms of the proposed bond financing, including its required interaction with the December 2019-maturity term loan.
- Cash burn, remaining construction commitments and access to sufficient financing to fund the company’s stated project expenditure needs.
- Whether LNG procurement costs, third-party supply dependence and vessel charter costs can be managed while preserving positive unit economics.
- Customer concentration, counterparty credit exposure and the status of permits and construction for the San Juan, Pennsylvania, La Paz and Ireland projects.