NextDecade Corporation (10-K) — FY2018
Business context and reporting period
Annual report for the year ended December 31, 2018, filed March 6, 2019. NextDecade was a pre-revenue LNG project developer focused chiefly on the proposed Rio Grande LNG terminal and associated 137-mile Rio Bravo pipeline in Texas. The planned terminal capacity was 27 million metric tons per annum; management estimated commercial operations could begin as early as 2023. The company also held leases for a potential Galveston Bay LNG project.
Financial performance, cash flow and liquidity
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating loss | $43.0 million | $35.6 million |
| Net loss attributable to NextDecade | $42.0 million | $35.3 million |
| Net loss attributable to common stockholders | $43.5 million | $35.3 million |
| Basic and diluted loss per share | $0.41 | $0.35 |
| Operating cash used | $23.3 million | $12.8 million |
| Project-related capital expenditures | $18.7 million | $14.8 million |
At year-end, cash and cash equivalents were $3.2 million and investment securities were $72.5 million, versus $35.7 million and $5.1 million, respectively, a year earlier. Current assets were $76.9 million and current liabilities $12.1 million. Total liabilities were $19.5 million; the filing reports no conventional debt balance. Property, plant and equipment, primarily project assets not yet in service, was $92.1 million. No operating margin is meaningful because the company had no revenue.
Cash decreased $32.5 million during 2018. Financing provided $76.9 million net, mainly from $79.1 million of preferred-stock proceeds less issuance costs. The company reported $16.7 million of share-based compensation expense. No income-tax provision was recorded; deferred tax assets were fully offset by a valuation allowance.
Material changes versus the prior period
- Net loss attributable to the company widened by $6.6 million, principally from $6.6 million of EPC bid-process costs and higher general and administrative expenses; increased interest income partly offset the increase.
- Operating cash use increased by $10.5 million. Investment-securities holdings rose substantially, while cash and cash equivalents fell.
- The company raised $79.1 million through Series A and Series B preferred-stock offerings. These securities carry cumulative 12% annual dividends, payable in cash or in kind, and are convertible into common shares at $7.50 per share under specified conditions.
Outlook, risks and unusual items
- Management was pursuing long-term LNG offtake and gas-supply agreements, EPC pricing and project financing. It expected binding offtake commitments for substantially all terminal capacity before a final investment decision (FID); none is reported as secured in this filing.
- The FERC issued a draft environmental impact statement in October 2018. Management expected the final statement in April 2019 and anticipated FERC approvals in 2019; these were expectations, not completed approvals. Texas air permits were issued in December 2018. Non-FTA export authorization applications remained pending.
- Three invited EPC bidders endorsed the project’s FEED. Lump-sum turnkey bids were scheduled for April 2019, with contract execution expected in the third quarter of 2019. Up to $14.9 million of bid-process payments could be due in 2019.
- Completion depends on additional debt and equity financing, permits, commercial contracts, construction execution, tax incentives and securing the terminal lease and pipeline rights-of-way. Management warned that construction costs, delays, market conditions, gas supply and LNG competition could undermine project economics. The company did not expect revenues or operating cash flow before the project is operational.
- Preferred dividends and potential conversion, plus outstanding warrants, may dilute common shareholders or constrain common dividends. The preferred stock’s 12% cumulative dividend and senior liquidation rights are material financing terms.
- The company reported no material legal proceedings and no off-balance-sheet arrangements. It stated that disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation.
Key facts for investors to verify
- Progress and final terms of FERC, DOE and other permits, including non-FTA export authorization.
- Executed binding LNG offtake and feed-gas agreements, their volumes, pricing and counterparties, and whether they support financing.
- Final EPC price, schedule, contract protections and total project cost compared with available financing.
- Terminal lease extensions, pipeline right-of-way completion, and the status and competitiveness of local tax incentives.
- Cash runway and future capital needs; cumulative preferred dividends, conversion dilution, warrant terms and any new financing.