New Fortress Energy LLC — Form 10-Q summary
Reporting period: Quarter ended September 30, 2019; comparative results are for the three and nine months ended September 30, 2018. Financial statement amounts are in thousands of U.S. dollars unless stated otherwise. NFE completed its IPO in February 2019, so the 2019 results also reflect its post-IPO structure and non-controlling interests.
Business context
NFE provides LNG, natural gas and related infrastructure and logistics services to customers converting from diesel or heavy fuel oil. Operations included LNG liquefaction in Miami and regasification in the United States and Jamaica. 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 was also developing projects in Jamaica, Puerto Rico, Mexico, Ireland and Pennsylvania.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $49.7 million | $28.4 million | $119.4 million | $80.9 million |
| Operating loss | $(47.7) million | $(9.9) million | $(151.0) million | $(36.5) million |
| Net loss | $(54.4) million | $(13.7) million | $(165.9) million | $(43.4) million |
| Net loss attributable to NFE stockholders | $(6.7) million | $(13.6) million | $(26.5) million | $(43.3) million |
| Net loss per share, basic and diluted | $(0.30) | Not clearly provided | $(1.34) | Not clearly provided |
- Revenue grew 75% in Q3 and 47% for the nine-month period. Operating revenue rose with Old Harbour activity and higher small-scale customer volumes; other revenue included construction services of $10.2 million in Q3 and $14.1 million year to date.
- Cost of sales exceeded total revenue by $3.9 million for the nine months. Management cited higher purchased LNG costs, increased delivery volumes and additional vessel charter costs. Weighted-average LNG cost was $0.66 per gallon in Q3 and $0.77 per gallon for the nine months, versus $0.57 and $0.62, respectively, in 2018.
- SG&A was $40.9 million in Q3 and $122.8 million year to date. The increase included IPO-related RSU compensation; total share-based compensation expense was $36.1 million for the nine months. Higher development, staffing, professional and financing costs also contributed.
- Operating cash used was $154.8 million in the first nine months, versus $53.2 million in 2018. Investing cash used was $295.0 million, primarily for construction; financing cash provided was $593.0 million, including IPO proceeds and borrowings. Cash, cash equivalents and restricted cash totaled $244.1 million at September 30.
- At September 30, cash and cash equivalents were $178.2 million and restricted cash was $65.9 million. Current assets were $316.8 million against current liabilities of $599.0 million, a working-capital deficit of $282.2 million.
- Debt carrying value was $605.9 million, including $492.8 million current under the New Term Loan Facility, due December 31, 2019, and $113.2 million non-current in South Power bonds. The term loan had extension options, each requiring a fee and higher interest spread. South Power issued approximately $117 million of bonds in September: secured bonds at 8.25% and unsecured bonds at 11.00%.
Changes, outlook and risks
- The company attributed much of the revenue increase to the new Old Harbour Terminal and increased small-scale sales. Delivered volume at Montego Bay rose 10.0 million gallons year over year for the nine-month period.
- Capital spending and construction in progress increased substantially: construction in progress was $394.5 million at quarter-end, versus $254.7 million at December 31, 2018. NFE estimated total spending of approximately $823 million to complete specified existing projects and serve new small-scale customers; approximately $563 million had been spent through September 30. Pennsylvania development spending was approximately $161 million, including $17 million expensed because a final investment decision had not been made.
- Management said it believed liquidity, operating cash flow and access to capital would be sufficient for capital expenditures and working-capital needs over the next 12 months. The filing provides no earnings or revenue guidance. NFE also stated it would need significant additional capital for its broader expansion plans.
- The company sourced 92% of Q3 LNG volumes and 93% of nine-month volumes from third parties. Its plan to reduce that reliance depends on completing and operating its own liquefaction facilities; construction delays, cost overruns, supply availability and commodity price movements remain material risks. NFE reported it had no current commodity or interest-rate hedges.
- Customer and geographic concentration, counterparty performance, project permitting and construction, and the ability to refinance or extend the term loan are notable risks. The term loan was due at year-end 2019, and the company reported compliance with its covenants at September 30.
- Florida tax rebate appeals remained unresolved; the company had repaid disputed rebates while the appeals were pending. NFE reported no material legal proceedings and no material off-balance-sheet arrangements. Its disclosure controls were assessed as effective, while the filing also noted remediation of a significant internal-control deficiency identified in 2018.
- After quarter-end, COO Michael J. Utsler departed the company on November 12, 2019.
Investor verification points
- Confirm the December 2019 term-loan maturity, any extension or refinancing, associated fees and covenant status after quarter-end.
- Track actual completion, commissioning and operating performance of Old Harbour, the CHP Plant and other funded projects against the stated timelines and cost estimates.
- Assess whether higher third-party LNG costs and vessel expenses can be passed through to customers or offset by future in-house supply.
- Reconcile capital requirements and liquidity forecasts with the working-capital deficit, restricted cash and continued negative operating cash flow.
- Review major customer and counterparty exposure, including PREPA and Jamaican customers, and the outcomes of the Florida tax appeals.