NextDecade Corporation — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. NextDecade is a pre-revenue LNG project developer focused on the Rio Grande LNG terminal in Brownsville, Texas; the filing reports no revenue for the quarter or first half.
Key financial metrics
| Metric | Q2 2020 | Six months 2020 | Comparable 2019 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating loss | $5.2 million | $12.5 million | $5.6 million and $18.1 million, respectively |
| Net loss attributable to NextDecade | $5.8 million | $4.9 million | $6.7 million and $18.8 million, respectively |
| Net loss attributable to common stockholders | $9.3 million; $0.08/share | $11.9 million; $0.10/share | $7.2 million; $0.07/share, and $24.8 million; $0.23/share |
| Operating cash used | Not stated for quarter | $18.8 million | $25.2 million for first half |
| Cash and cash equivalents | $37.6 million at June 30, 2020 | $15.7 million at December 31, 2019 |
Amounts are in U.S. dollars. Six-month net loss was lower mainly because 2019 included invitation-to-bid contract costs and 2020 recorded a gain on warrant liabilities. Q2 common-stockholder loss increased, principally reflecting preferred dividends, higher G&A expense, and warrant-liability losses. No operating margin is meaningful because the company had no revenue.
For the first half, investing cash flow provided $25.8 million, including $62.0 million from investment-security sales, offset by project spending. Financing cash flow provided $14.9 million, primarily from the $15.0 million initial payment for the Rio Bravo sale. Cash increased by $21.8 million. Property, plant and equipment was $150.1 million, primarily project assets. Current assets were $38.5 million and current liabilities $2.6 million. The filing reports no conventional borrowings; total liabilities were $22.1 million, including $15.0 million recorded for the Rio Bravo transaction and warrant liabilities.
Material changes and capital structure
- G&A was $4.7 million in Q2, compared with a $5.1 million recovery in Q2 2019; the comparison was affected by substantial share-based compensation forfeitures in 2019. First-half G&A was $11.5 million versus $7.0 million.
- In March 2020, the company sold Rio Bravo Pipeline Company to an Enbridge subsidiary. It received $15.0 million at closing; additional proceeds, subject to a $25 million purchase-price cap, are payable after FID and initial project-financing funding. Because of potential repurchase rights if notice to proceed is not issued by December 31, 2023, the proceeds are recorded as a non-current liability and the assets were not derecognized.
- Series A and B convertible preferred stock carries cumulative dividends at 12% annually. Approximately $6.9 million of dividends accrued and were paid in kind in the first half, increasing preferred shares outstanding. These dividends materially increase the loss attributable to common stockholders and may contribute to dilution.
- At June 30, the company had 117.5 million common shares issued and outstanding; 120.7 million were reported outstanding as of July 31. Potentially dilutive securities were excluded from diluted loss per share as anti-dilutive.
Outlook, risks and unusual items
- Management estimated $72 million of pre-FID development spending for 2020; $56 million had been incurred in the first half. After cost reductions, management expected pre-FID spending to average about $2 million monthly through year-end 2021 and believed available resources and measures would sustain development through then. This is management’s estimate, not a financing commitment.
- Cost actions included an 18% reduction in full-time headcount since year-end 2019, a May furlough affecting 14% of full-time headcount, 10% voluntary salary reductions for the CEO and certain executives through year-end, limited ongoing Bechtel work, and plans to reduce leased office space and defer IT spending.
- The company still needs substantial financing to reach FID and construct the terminal; it cautioned that financing may be unavailable, costly or dilutive. The terminal is not expected to generate significant cash flow until several years after construction and operations begin.
- The project’s FERC authorization was issued in November 2019 and rehearing requests were denied, but appeals remained pending. The Fifth Circuit upheld the terminal’s air permits on July 31, 2020; a separate state-court lawsuit was dismissed on August 5, after quarter-end. Other permit-related appeals were pending.
- Project plans were optimized from six trains to five while targeting the same 27 mtpa capacity; the company cited expected 21% lower CO2-equivalent emissions and a shorter construction timeline. Train 6 would require new regulatory authorization if developed.
- A 20-year Shell LNG sale agreement for approximately 2 mtpa became effective in Q1 2020; deliveries depend on the first train becoming commercially operable. The site-lease start date was extended to May 6, 2021, with an option to extend to May 6, 2022; the company committed to pay about $1.5 million per quarter through lease commencement.
- COVID-19, energy-market weakness, potential LNG demand and price changes, project delays, regulatory outcomes, construction costs, and access to capital were identified as material risks. The company said the pandemic’s ultimate impact was uncertain.
Investor verification priorities
- Confirm the timing and conditions for FID, project financing, and any further Rio Bravo sale proceeds.
- Assess whether cash, cost reductions, and planned spending support the stated pre-FID runway through year-end 2021.
- Track pending regulatory appeals, permit requirements, and any effects on the terminal schedule or costs.
- Review the preferred stock’s 12% cumulative dividends, conversion terms, and potential dilution from preferred shares and warrants.
- Verify current EPC contract price validity and the status of the Shell agreement, site lease, and pipeline arrangements.