NextDecade Corporation — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. The unaudited statements are consolidated. NextDecade is developing LNG export projects, primarily the Rio Grande LNG terminal in Texas; it had no operating revenue during the periods.
Financial position and performance
| Metric | Q3 2020 / September 30, 2020 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $0 | $0 in Q3 2019 and nine-month periods |
| Operating loss | $5.6 million for Q3; $18.0 million for nine months | $4.4 million and $22.5 million, respectively, in 2019 |
| Net loss attributable to NextDecade | $7.2 million for Q3; $12.1 million for nine months | $3.2 million and $22.0 million, respectively, in 2019 |
| Net loss attributable to common stockholders | $10.8 million for Q3 ($0.09/share); $22.7 million for nine months ($0.19/share) | $6.4 million ($0.06/share) and $31.1 million ($0.29/share), respectively |
| Cash and cash equivalents | $29.9 million | $15.7 million at December 31, 2019 |
| Total assets / total liabilities | $204.9 million / $30.3 million | $221.2 million / $33.6 million at December 31, 2019 |
| Cash flows, nine months | Operating use $22.7 million; investing inflow $22.3 million; financing inflow $14.6 million | Operating use $33.3 million; investing inflow $13.8 million; financing inflow $20.2 million in 2019 |
Margins are not meaningful because the company reported no revenue. The balance sheet reported no conventional borrowing; it included $5.9 million of common-stock warrant liabilities and $21.7 million of other non-current liabilities, principally associated with the Rio Bravo pipeline sale arrangement. Series A and B preferred stock carried amounts totaled approximately $108.5 million, with $1,000-per-share liquidation preferences and cumulative dividends at 12% annually, payable in cash or in kind.
Material changes versus prior periods
- Q3 common-stockholder loss increased $4.4 million year over year, reflecting higher G&A, higher preferred dividends, and a swing to a warrant-liability loss from a gain.
- Nine-month common-stockholder loss improved by $8.4 million, mainly because 2019 included $10.2 million of invitation-to-bid contract costs and 2020 had a more favorable warrant-liability revaluation.
- G&A rose $1.5 million in Q3 and $6.2 million for the first nine months, largely due to comparison against substantial share-based compensation forfeitures in 2019. Warrant remeasurement is non-cash and affected reported earnings.
- Cash increased, but current investment securities fell from $62.2 million at year-end 2019 to zero after redemption in March 2020; the redemption resulted in a $0.4 million loss. Capital spending on property and equipment was $30.1 million in the first nine months.
Liquidity, outlook, risks and unusual items
- Management expected $72 million of pre-FID development spending in 2020; $64 million had been incurred in the first nine months. It projected average pre-FID spending of approximately $2 million per month through year-end 2021 and said cost measures were expected to sustain development through then. Measures included a 38% reduction in full-time headcount since December 31, 2019, 10% voluntary salary reductions for the CEO and certain executives for the rest of 2020, and reduced contractor scope, office space and IT spending.
- The company said construction requires a final investment decision (FID), financing and required permits; the terminal would not generate significant cash flows for several years. It was pursuing advisors to help raise post-FID capital and cautioned that financing may not be available or may be costly or dilutive.
- The FERC authorized the terminal and pipeline in 2019. In August 2020, FERC approved a redesign from six trains to five, retaining expected capacity of 27 mtpa; the company cited potential emissions, construction-time, footprint and traffic benefits. Related court appeals remained pending. A later October 2020 FERC rehearing denial and Bechtel contract-validity extensions to December 31, 2021 were disclosed as subsequent events.
- Management announced in October 2020 that carbon-capture technology could reduce terminal CO2-equivalent emissions by approximately 90%; achieving carbon neutrality remained under evaluation. This is a forward-looking statement, not a reported operating result.
- The company sold Rio Bravo Pipeline Company to an Enbridge subsidiary for a purchase price subject to a $25 million cap. It received $15 million at closing; the remainder is payable only after FID and initial project financing. If a full construction notice to proceed is not issued by December 31, 2023, the buyer may sell the interests back and NextDecade may repurchase them for no more than $23 million. Accordingly, the sale proceeds and buyer costs were recorded as a non-current liability, and Rio Bravo assets were not derecognized.
- A 20-year Shell LNG sale agreement for approximately 2 mtpa became effective in Q1 2020, but deliveries depend on the first train becoming commercially operable. The main identified risks include COVID-19 and energy-market volatility, project financing, construction and cost risks, permits and litigation, and future LNG demand and pricing. The company reported no material legal proceedings as of September 30 and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether and when NextDecade can secure FID, project financing and sufficient liquidity to continue development and build the terminal.
- Status and outcomes of outstanding permitting appeals, and whether required approvals and construction conditions will be satisfied.
- Progress on the Shell offtake arrangement, pipeline transportation agreements, and other commercial commitments needed to support financing.
- Terms and potential dilution from the 12% cumulative preferred stock, common-stock warrants and other convertible securities.
- Timing and collectability of the contingent Rio Bravo sale proceeds, and the potential repurchase obligation if the construction notice-to-proceed deadline is missed.