New Fortress Energy(NFE) - 2023 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements The company's H1 2023 financials show increased assets and liabilities, improved net income, and significant capital expenditures Condensed Consolidated Balance Sheets Total assets grew to $9.14 billion by June 30, 2023, driven by Construction in Progress, with liabilities also rising Condensed Consolidated Balance Sheet Highlights (in thousands USD) | Account | June 30, 2023 (USD) | December 31, 2022 (USD) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $104,342 | $675,492 | | Construction in progress | $4,593,132 | $2,418,608 | | Total current assets | $713,691 | $1,387,154 | | Total assets | $9,135,239 | $7,705,082 | | Liabilities & Equity | | | | Current portion of long-term debt | $366,945 | $64,820 | | Accounts payable | $602,759 | $80,387 | | Long-term debt | $5,064,188 | $4,476,865 | | Total liabilities | $7,584,364 | $6,263,223 | | Total stockholders' equity | $1,550,875 | $1,441,859 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Net income significantly improved to $269.5 million for H1 2023, driven by higher operating income despite a slight revenue decrease Statement of Operations Highlights (in thousands USD, except per share data) | Metric | Q2 2023 (USD) | Q2 2022 (USD) | Six Months 2023 (USD) | Six Months 2022 (USD) | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $561,345 | $584,855 | $1,140,476 | $1,089,973 | | Operating income | $190,965 | $133,695 | $458,189 | $300,151 | | Net income (loss) attributable to stockholders | $119,248 | $(169,765) | $269,454 | $68,504 | | Net income (loss) per share – diluted | $0.58 | $(0.81) | $1.29 | $0.33 | Condensed Consolidated Statements of Cash Flows Operating cash flow increased to $503.9 million, but significant capital expenditures led to a net decrease in cash for H1 2023 Cash Flow Summary (in thousands USD) | Activity | Six Months Ended June 30, 2023 (USD) | Six Months Ended June 30, 2022 (USD) | | :--- | :--- | :--- | | Net cash provided by operating activities | $503,877 | $170,933 | | Net cash used in investing activities | $(1,367,092) | $(441,708) | | Net cash provided by financing activities | $222,583 | $226,654 | | Net decrease in cash, cash equivalents and restricted cash | $(639,024) | $(46,139) | Notes to Condensed Consolidated Financial Statements Notes detail LNG cargo sales, $13.2 billion in future contract revenue, increased debt, and post-quarter financing activities - For the six months ended June 30, 2023, the company recognized $617.1 million in revenue from LNG cargo sales, which included $332.0 million from contract settlements[29] Transaction Price Allocated to Remaining Performance Obligations (in thousands USD) | Period | Revenue (USD) | | :--- | :--- | | Remainder of 2023 | $ 846,988 | | 2024 | 2,043,173 | | 2025 | 1,355,952 | | 2026 | 525,753 | | 2027 | 522,876 | | Thereafter | 7,988,459 | | Total | $ 13,283,201 | - On March 15, 2023, the company sold its investment in Hilli LLC to Golar LNG Limited in exchange for approximately 4.1 million NFE shares and $100,000 in cash, recognizing a loss on disposal of $37,401[65] - Construction in progress increased by $2.25 billion during the first six months of 2023, reaching a total of $4.59 billion, primarily for Fast LNG projects and the Puerto Rican temporary power project[70][71] - Subsequent to quarter-end, on August 3, 2023, the company entered into a $400 million Term Loan Credit Agreement for working capital and general corporate purposes, maturing on August 1, 2024[123] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management discusses segment performance, significant investments in Fast LNG, and liquidity, with $5.0 billion in committed project expenditures Overview of Business and Operations NFE operates two segments, focusing on global energy infrastructure and developing Fast LNG to lower supply costs - The company operates through two segments: Terminals and Infrastructure (vertically integrated gas-to-power solutions) and Ships (vessels leased to customers)[135][136][137] - Key development projects include multiple Fast LNG units, the Puerto Sandino Facility (Nicaragua), Barcarena Facility (Brazil), Santa Catarina Terminal (Brazil), and the Ireland Facility[153] - The first Fast LNG unit is expected to be deployed in Q3 2023, anticipated to significantly lower LNG supply costs and reduce dependence on third-party suppliers[158][221] - In Q1 2023, subsidiary Genera PR LLC was awarded a 10-year contract to operate and maintain PREPA's thermal generation assets in Puerto Rico, commencing July 1, 2023[144] Results of Operations Consolidated Segment Operating Margin increased to $644.7 million in H1 2023, driven by Terminals and Infrastructure growth Segment Operating Margin Comparison (in thousands USD) | Segment | Six Months 2023 (USD) | Six Months 2022 (USD) | Change (USD) | | :--- | :--- | :--- | :--- | | Terminals and Infrastructure | $641,575 | $448,795 | $192,780 | | Ships | $133,076 | $178,736 | $(45,660) | | Consolidated Segment Operating Margin | $644,668 | $524,024 | $120,644 | - Terminals and Infrastructure revenue for H1 2023 decreased slightly to $998.1 million from $1,023.8 million in H1 2022, mainly due to the divested CELSEPAR investment, offset by a 67% increase in volumes delivered to downstream customers in 2023[185][186][188] - Cost of sales for the Terminals and Infrastructure segment in H1 2023 decreased by $211.3 million compared to H1 2022, primarily due to a $141.9 million realized gain from a commodity swap settlement and lower LNG purchase prices[188][191] - Ships segment revenue for H1 2023 decreased by $62.2 million compared to H1 2022, mainly due to the sale of the Nanook vessel and the conclusion of charters for two other vessels[200] Liquidity and Capital Resources The company maintains sufficient liquidity for 12 months, with $5.0 billion in committed project expenditures and new financing - The company has assumed total committed expenditures for all completed and existing projects to be approximately $4.997 billion, with $3.526 billion paid through June 30, 2023[225] - The company expects its working capital position to improve based on new financing (totaling $485 million post-Q2), over $2 billion in unencumbered assets, and future cash flows from new projects[223] - A special dividend of $626.3 million ($3.00 per share) was paid in Q1 2023, and the Board has reinstated a quarterly dividend policy targeting $0.10 per share[227] Contractual Obligations as of June 30, 2023 (in thousands USD) | Obligation Type | Total (USD) | Less than 1 Year (USD) | Years 2 to 3 (USD) | Years 4 to 5 (USD) | More than 5 years (USD) | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term debt obligations | $7,836,484 | $259,024 | $2,952,126 | $2,093,200 | $2,532,134 | | Purchase obligations | $14,996,844 | $1,256,540 | $2,170,489 | $1,354,518 | $10,215,297 | | Lease obligations | $631,113 | $83,411 | $254,249 | $107,037 | $186,416 | | Total | $23,464,441 | $1,598,975 | $5,376,864 | $3,554,755 | $12,933,847 | Item 3. Quantitative and Qualitative Disclosures About Market Risk. The company manages commodity, interest rate, and foreign currency risks, with limited exposure due to hedging and contract structures - The company limits exposure to natural gas price fluctuations as its downstream customer contracts are largely based on the Henry Hub index price plus a contractual spread[253] - A 100-basis point change in the market interest rate would impact the fair value of fixed-rate debt by approximately $73 million, but would not impact results of operations or cash flows[254] - For variable-rate debt (Barcarena Term Loan), a 100-basis point increase or decrease in the market interest rate would change annual interest expense by approximately $2 million[255] Item 4. Controls and Procedures. Management concluded disclosure controls and procedures were effective as of June 30, 2023, with no material changes - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[258] - There were no material changes to the company's internal control over financial reporting during the quarter ended June 30, 2023[259] PART II OTHER INFORMATION Item 1. Legal Proceedings. The company is not currently a party to any material legal proceedings - The company is not currently a party to any material legal proceedings[262] Item 1A. Risk Factors. The company faces risks related to its business, operations, jurisdictions, and stock ownership, including unproven technology and high debt Risks Related to Our Business Business risks include limited operating history, construction and operational challenges, reliance on third parties, and unproven Fast LNG technology - The company has a limited operating history, which may not be sufficient to evaluate its business and prospects[269] - The business is subject to significant construction risks, including engineering problems, delays in equipment delivery, and failure to obtain government approvals, which can lead to cost overruns and project delays[273][275] - The company's Fast LNG technology is not yet proven and faces risks associated with new technologies, including failure to meet performance specifications, high costs, and regulatory challenges[326] - As of June 30, 2023, the company had approximately $5.5 billion in aggregate principal amount of indebtedness outstanding, which includes restrictive covenants that may limit operational flexibility[328] Risks Related to the Jurisdictions in Which We Operate Operations are exposed to economic, political, and social instability, and foreign currency exchange risks in various jurisdictions - Operations are materially dependent on the economic, political, and social conditions in jurisdictions like Jamaica, Puerto Rico, Brazil, and Mexico, which have experienced instability[371] - The company is exposed to foreign currency exchange risk from revenues and expenses in local currencies, such as the Brazilian real and Mexican peso, which have historically been volatile against the U.S. dollar[374] Risks Related to Ownership of Our Class A Common Stock Ownership risks stem from the company's 'controlled company' status, concentrated voting power, and anti-takeover provisions - The company is a "controlled company" under Nasdaq rules, as a small group of investors holds a majority of the voting power, exempting it from certain corporate governance requirements such as a majority-independent board[379] - A small number of original investors, including Founder Entities and Energy Transition Holdings LLC, control over 50% of the voting power, enabling them to direct matters requiring stockholder approval[380] - The company's organizational documents contain provisions that could discourage acquisition bids, such as a classified board and limitations on who can call special meetings[384][386] General Risks General risks include holding company dependence, M&A integration, pandemic impacts, and potential changes in tax laws - As a holding company, NFE is dependent on the results and cash distributions from its subsidiaries, which may be restricted by their own financing agreements[393] - The company is unable to predict the full extent to which global pandemics, like COVID-19, will negatively affect its operations, financial performance, customers, and suppliers[395] - Changes in tax laws, regulations, or treaties in the countries where the company operates could result in a materially higher tax expense[397] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. No unregistered sales of equity securities occurred, though subsidiaries face debt-related dividend restrictions - There were no unregistered sales of equity securities during the reporting period[400] Item 3. Defaults Upon Senior Securities. The company reported no defaults upon senior securities - None[401] Item 4. Mine Safety Disclosures. This item is not applicable to the company - Not applicable[402] Item 5. Other Information. Post-quarter, the company secured a $400 million Term Loan and appointed a new Chief Operating Officer - On August 3, 2023, the company entered into a Term Loan Credit Agreement, securing term loans of $400 million[403] - The Term Loans mature on August 1, 2024, and bear interest at a rate of Adjusted Term SOFR plus 3.50%[405] - On August 7, 2023, William L. Payne was appointed as Chief Operating Officer of the Company[408] Item 6. Exhibits. This section lists all exhibits filed, including corporate governance documents, debt agreements, and officer certifications - The report includes a list of exhibits, such as the Certificate of Incorporation, Bylaws, various debt agreements (including supplemental indentures and credit agreements), and officer certifications required by the Sarbanes-Oxley Act[409][410][411]