New Fortress Energy(NFE) - 2023 Q3 - Quarterly Report

GLOSSARY OF TERMS This section defines key terminology used throughout the report CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS This section outlines the nature of forward-looking statements and associated risks - This Quarterly Report contains forward-looking statements regarding the Company's plans, strategies, prospects, and financial projections which involve known and unknown risks[14] - Key risk factors include limited operating history, construction and operational risks, regulatory complexities, and economic or political instability in operating jurisdictions[15] PART I FINANCIAL INFORMATION This part contains the unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements. This section presents the unaudited condensed consolidated financial statements for New Fortress Energy Inc Condensed Consolidated Balance Sheets The company's balance sheet expanded due to significant investments in construction projects, financed largely by increased debt | Metric (in thousands of U.S. dollars) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Total assets | $9,796,370 | $7,705,082 | | Total liabilities | $8,217,808 | $6,263,223 | | Total stockholders' equity | $1,578,562 | $1,441,859 | - Total assets increased by $2.1 billion (27.1%) from December 31, 2022, to September 30, 2023, primarily driven by a significant increase in Construction in progress[17] - Total liabilities increased by $2.0 billion (31.2%) over the same period, largely due to increases in long-term debt and accounts payable[17] Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Revenue declined due to lower LNG cargo sales, but net income grew substantially driven by improved investment performance | Metric (in thousands of U.S. dollars) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total revenues | $514,462 | $731,930 | $1,654,938 | $1,821,903 | | Operating income | $149,594 | $186,735 | $607,783 | $486,886 | | Net income | $62,338 | $56,231 | $334,004 | $118,981 | | Net income per share - basic | $0.30 | $0.30 | $1.60 | $0.62 | - Total revenues decreased by $217.5 million (29.7%) for the three months ended September 30, 2023, compared to the same period in 2022, primarily due to lower LNG cargo sales and a reduction in the Henry Hub index[18][213] - Net income for the nine months ended September 30, 2023, significantly increased to $334.0 million from $119.0 million in the prior year, largely due to improved income from equity method investments[18][246][249] Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity grew, reflecting strong net income that outweighed the impact of share cancellations and dividends | Metric (in thousands of U.S. dollars) | Dec 31, 2022 | Sep 30, 2023 | | :------------------------------------ | :----------- | :----------- | | Total stockholders' equity | $1,441,859 | $1,578,562 | | Retained earnings | $62,080 | $331,282 | | Additional paid-in capital | $1,170,254 | $1,039,428 | - Total stockholders' equity increased by $136.7 million from December 31, 2022, to September 30, 2023, primarily driven by net income and other comprehensive income, partially offset by share cancellations and dividends[19] - The Company cancelled 4.1 million shares during the nine months ended September 30, 2023, reducing Class A common stock and additional paid-in capital[19] Condensed Consolidated Statements of Cash Flows Operating cash flow improved significantly, but heavy capital expenditures led to a net decrease in cash reserves | Metric (in thousands of U.S. dollars) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------ | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $537,184 | $91,105 | | Net cash used in investing activities | $(2,065,562) | $(195,960) | | Net cash provided by financing activities | $924,072 | $249,710 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(603,383) | $139,959 | - Cash provided by operating activities significantly increased by $446.1 million, driven by improved collection of receivables and settlement of a commodity derivative[267][268] - Cash used in investing activities increased substantially by $1.9 billion, primarily due to capital expenditures for the Fast LNG project and Puerto Rico grid stabilization[269] - Cash provided by financing activities increased by $674.4 million, mainly from new borrowings, partially offset by a large dividend payment in January 2023[271] 1. Organization The company operates as a global energy infrastructure firm with two primary business segments - New Fortress Energy Inc (NFE) is a global energy infrastructure company focused on natural gas and LNG, operating in the United States, Jamaica, Brazil, and Mexico[26] - The Company operates through two segments: Terminals and Infrastructure, and Ships[27] 2. Basis of presentation The interim financial statements adhere to GAAP standards for fair and accurate presentation - The unaudited interim condensed consolidated financial statements are prepared in accordance with GAAP and include all necessary adjustments for fair presentation[28] 3. Adoption of new and revised standards Recent accounting pronouncements are not expected to materially affect the company's financial statements - The Company has reviewed recent accounting pronouncements and expects no material impact on its financial statements from future adoption[30] 4. Revenue recognition Operating revenue streams include LNG, natural gas, and power, with future revenue secured by long-term contracts - Operating revenue includes sales of LNG, natural gas, power, steam, and LNG cargos; no LNG cargo sales occurred in Q3 2023, a decrease from $350.6 million in Q3 2022[31] | Metric (in thousands of U.S. dollars) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Receivables related to revenue | $351,160 | $280,382 | | Total contract assets, net | $30,743 | $36,734 | | Total contract liabilities, net | $111,072 | $12,748 | - Contract liabilities significantly increased during the nine months ended September 30, 2023, primarily due to upfront payments for temporary power and O&M services in Puerto Rico[35] Transaction Price Allocated to Remaining Performance Obligations (Take-or-Pay Contracts): | Period | Revenue (in thousands of U.S. dollars) | | :---------------- | :------------------------------------- | | Remainder of 2023 | $473,460 | | 2024 | $2,044,859 | | 2025 | $1,449,971 | | 2026 | $528,514 | | 2027 | $525,643 | | Thereafter | $8,004,334 | | Total | $13,026,781 | 5. Leases, as lessee The company's lease portfolio consists mainly of LNG vessels, port space, and various operational assets - The Company primarily leases LNG vessels, marine port space, office space, land, and equipment[44] | Metric (in thousands of U.S. dollars) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Total right-of-use assets | $474,483 | $377,877 | | Total current lease liabilities | $142,296 | $48,741 | | Total non-current lease liabilities | $318,082 | $302,121 | Cash Outflows for Lease Liabilities (9 Months Ended Sep 30): | Type of Lease Liability | 2023 (in thousands of U.S. dollars) | 2022 (in thousands of U.S. dollars) | | :---------------------- | :---------------------------------- | :---------------------------------- | | Operating lease liabilities | $89,326 | $73,389 | | Finance lease liabilities | $13,582 | $3,654 | 6. Financial instruments Commodity swaps are utilized to manage exposure to natural gas and LNG market price volatility - The Company uses commodity swap transactions to manage exposure to natural gas/LNG market pricing, recognizing realized and unrealized gains/losses in Cost of sales[49] - A commodity swap settled in Q1 2023 resulted in a $41.3 million gain, reducing Cost of sales[50] Fair Value of Financial Instruments (in thousands of U.S. dollars): | Instrument | Sep 30, 2023 (Level 2/3) | Dec 31, 2022 (Level 1/2/3) | | :---------------------------------- | :----------------------- | :------------------------- | | Investment in equity securities | $7,678 (L3) | $17,806 (L1/L3) | | Commodity swap (liability/asset) | $1,841 (L2) | $104,797 (L2) | | Contingent consideration derivative liabilities | $40,946 (L3) | $46,619 (L3) | 7. Restricted cash Restricted cash balances decreased substantially due to changes in loan agreement requirements | Metric (in thousands of U.S. dollars) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Cash restricted under loan agreements | $3,825 | $124,085 | | Collateral for letters of credit/bonds | $62,337 | $41,392 | | Collateral for interest rate swaps | — | $2,500 | | Total restricted cash | $66,162 | $167,977 | - Restricted cash decreased significantly from $168.0 million to $66.2 million, primarily due to a reduction in cash restricted under loan agreements[59] 8. Inventory Inventory levels rose sharply, driven by a significant increase in LNG and natural gas holdings | Metric (in thousands of U.S. dollars) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | LNG and natural gas inventory | $73,936 | $15,398 | | Automotive diesel oil inventory | $9,848 | $8,164 | | Bunker fuel, materials, supplies, other | $19,547 | $15,508 | | Total inventory | $103,331 | $39,070 | - Total inventory increased by $64.3 million, mainly due to a substantial increase in LNG and natural gas inventory[61] - An inventory adjustment of $6.2 million was recognized in Q2 2023 due to the net realizable value of a spot cargo being below cost[61] 9. Prepaid expenses and other current assets Current assets decreased due to the absence of a commodity swap asset, partially offset by assets held for sale | Metric (in thousands of U.S. dollars) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Prepaid expenses | $26,831 | $56,380 | | Recoverable taxes | $68,748 | $37,504 | | Commodity swap | — | $104,797 | | Assets held for sale | $48,879 | — | | Total prepaid expenses and other current assets, net | $164,559 | $226,883 | - Prepaid expenses and other current assets decreased by $62.3 million, primarily due to the absence of a commodity swap asset and lower prepaid LNG inventory[62] - Assets of Pecém and Muricy were classified as held for sale as of September 30, 2023, with an estimated fair value exceeding carrying value[64] 10. Equity method investments The sale of the Hilli LLC investment significantly reduced the company's equity method investment portfolio | Metric (in thousands of U.S. dollars) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Hilli LLC | — | $260,000 | | Energos | $139,058 | $132,306 | | Total equity method investments | $139,058 | $392,306 | - Equity method investments decreased significantly due to the sale of Hilli LLC in March 2023, which resulted in a $37.4 million loss on disposal[65][67] - The Company recognized earnings from Energos of $0.5 million and $6.8 million for the three and nine months ended September 30, 2023, respectively[70] 11. Construction in progress Investment in Fast LNG projects and Puerto Rico power assets nearly doubled the construction in progress balance | Metric (in thousands of U.S. dollars) | Sep 30, 2023 | | :------------------------------------ | :----------- | | Construction in progress as of Dec 31, 2022 | $2,418,608 | | Additions | $2,889,770 | | Assets placed in service | $(532,390) | | Construction in progress as of Sep 30, 2023 | $4,789,799 | - Construction in progress nearly doubled, with significant additions of $2.9 billion, primarily focused on Fast LNG projects and temporary power generation assets for Puerto Rico[72][73] - Interest expense of $201.9 million was capitalized for the nine months ended September 30, 2023, reflecting substantial development activities[72] 12. Property, plant and equipment, net The company's fixed asset base grew due to new terminal and power plant equipment placed into service | Metric (in thousands of U.S. dollars) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Total property, plant and equipment, net | $2,563,871 | $2,116,727 | | Vessels | $1,527,684 | $1,518,839 | | Terminal and power plant equipment | $430,883 | $218,296 | | Accumulated depreciation | $(331,889) | $(248,082) | - Property, plant and equipment, net increased by $447.1 million, driven by additions to terminal and power plant equipment and leasehold improvements[75] - Depreciation expense increased to $125.2 million for the nine months ended September 30, 2023, reflecting assets placed in service for the Puerto Rico grid stabilization project[18][237][238] 13. Goodwill and intangible assets Intangible assets declined due to amortization, while goodwill remained unchanged - Goodwill remained constant at $776.8 million as of September 30, 2023[77] | Metric (in thousands of U.S. dollars) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Total intangible assets | $67,443 | $85,897 | | Favorable vessel charter contracts | $24,127 | $41,664 | | Permits and development rights | $40,990 | $41,863 | - Intangible assets decreased by $18.5 million, primarily due to amortization of favorable vessel charter contracts[78] - The Company is challenging the denial of its LNG terminal application in Shannon, Ireland; capitalized permits for this project are not deemed impaired despite uncertainty[80] 14. Other non-current assets, net Non-current assets decreased following the reclassification of assets held for sale and a reduction in equity investments | Metric (in thousands of U.S. dollars) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Assets held for sale | — | $40,685 | | Cost to fulfill | $23,834 | $9,773 | | Contract assets, net | $22,176 | $28,651 | | Investments in equity securities | $7,678 | $17,806 | | Total other non-current assets, net | $110,681 | $141,679 | - Other non-current assets, net decreased by $31.0 million, mainly due to the reclassification of assets held for sale and a decrease in equity securities investments[81] - The Company recognized a realized loss of $0.4 million on the sale of certain equity securities during Q3 2023[81] 15. Accrued liabilities A large dividend payment and reduced development costs led to a significant decrease in accrued liabilities | Metric (in thousands of U.S. dollars) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Accrued development costs | $265,061 | $364,157 | | Accrued interest | $72,970 | $51,994 | | Accrued dividend | — | $626,310 | | Total accrued liabilities | $435,692 | $1,162,412 | - Total accrued liabilities decreased significantly by $726.7 million, primarily due to the payment of a large accrued dividend in January 2023[84] 16. Other current liabilities Current liabilities grew substantially, driven by increased contract liabilities and income tax payable | Metric (in thousands of U.S. dollars) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Derivative liabilities | $20,045 | $19,458 | | Contract liabilities | $69,254 | $12,748 | | Income tax payable | $31,180 | $6,261 | | Liabilities held for sale | $21,407 | — | | Total other current liabilities | $169,744 | $52,878 | - Total other current liabilities increased by $116.9 million, mainly driven by a substantial increase in contract liabilities and income tax payable[85] 17. Debt The company's total debt increased significantly due to new borrowings to fund its expansion projects | Metric (in thousands of U.S. dollars) | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Total debt | $6,168,075 | $4,541,685 | | Current portion of long-term debt and short-term borrowings | $270,547 | $64,820 | | Long-term debt | $5,897,528 | $4,476,865 | - Total debt increased by $1.6 billion, primarily due to new borrowings under the Revolving Facility, Bridge Term Loan, and Equipment Notes[86][271] - The Revolving Facility's borrowing capacity increased to $866.6 million through amendments in 2023, with the full amount drawn as of September 30, 2023[91] - The Company was in compliance with all debt covenants as of September 30, 2023[93] Total Interest Costs (in thousands of U.S. dollars): | Period | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total interest costs | $148,138 | $90,871 | $402,781 | $213,122 | | Capitalized interest | $83,316 | $27,283 | $201,890 | $56,778 | | Total interest expense | $64,822 | $63,588 | $200,891 | $156,344 | 18. Income Taxes The company's tax position shifted from a significant benefit to a provision, resulting in a normalized effective tax rate Tax Provision (Benefit) (in thousands of U.S. dollars): | Period | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Tax provision (benefit) | $25,194 | $9,971 | $69,476 | $(126,249) | | Effective tax rate | 28.8% | 15.1% | 17.2% | 1,737.1% | - The effective tax rate for the nine months ended September 30, 2023, was 17.2%, a significant change from the 1,737.1% benefit in the prior year, which was driven by discrete items[105] 19. Commitments and contingencies Current legal matters are not expected to have a material adverse effect on the company's financial standing - The Company does not believe current legal proceedings, claims, and disputes will have a material adverse effect on its financial position, results of operations, or cash flows[106] 20. Earnings per share Earnings per share increased substantially year-over-year, reflecting higher net income Net Income Per Share (Basic & Diluted): | Period | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income per share - basic | $0.30 | $0.30 | $1.60 | $0.62 | | Net income per share - diluted | $0.30 | $0.29 | $1.59 | $0.62 | | Weighted average shares outstanding - basic | 205,032,928 | 209,629,936 | 206,249,474 | 209,749,139 | - Basic and diluted EPS for the nine months ended September 30, 2023, increased significantly to $1.60 and $1.59, respectively, from $0.62 in the prior year[107] - The Board reinstated a quarterly dividend policy of $0.10 per share in Q3 2023, following a $3.00 per share dividend paid in January 2023[109][257] 21. Share-based compensation No compensation expense was recognized for certain performance-based stock units due to unmet vesting conditions - No compensation expense was recognized for PSUs granted in Q4 2022, as it was not probable that the performance condition for vesting would be achieved[111] 22. Related party transactions The company engages in transactions with affiliated entities for administrative, aircraft, and office space services Administrative Services Agreement Charges (in thousands of U.S. dollars): | Period | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Charges under Administrative Agreement | $1,643 | $1,117 | $4,284 | $3,776 | - The Company incurred charter costs of $0.5 million and $1.9 million for the three and nine months ended September 30, 2023, respectively, for an aircraft leased from a Fortress affiliate[114] - Rent and administrative expenses to a Fortress-affiliated entity for office space totaled $0.8 million and $2.0 million for the three and nine months ended September 30, 2023, respectively[116] 23. Segments The company's operations are divided into Terminals and Infrastructure and Ships segments - The Company operates in two reportable segments: Terminals and Infrastructure, and Ships[120] - Terminals and Infrastructure includes integrated gas-to-power solutions, from natural gas procurement and liquefaction to logistics, shipping, facilities, and power generation[120] - Ships segment includes vessels leased to customers under long-term or spot arrangements, and the Company's investment in Energos[122] Segment Operating Margin (in thousands of U.S. dollars): | Segment | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Terminals and Infrastructure | $194,743 | $251,469 | $836,318 | $700,264 | | Ships | $54,944 | $87,861 | $188,020 | $266,597 | | Consolidated Segment Operating Margin | $250,110 | $295,749 | $894,778 | $819,773 | 24. Subsequent events The company secured significant long-term financing for its Barcarena Power Plant and Fast LNG project post-quarter end - Subsequent to September 30, 2023, the Company secured two long-term financing arrangements for the Barcarena Power Plant, including a BNDES Credit Agreement for up to R$1.8 billion and $200 million in convertible debentures[135][136][138] - On October 30, 2023, the Company entered into an $856 million Term Loan B Credit Agreement, with proceeds used to repay Bridge Term Loans[141] - The Term Loan B is secured by assets of the first Fast LNG project in Altamira, Mexico, and has quarterly principal payments starting March 2024[141][142] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management discusses the company's financial performance, operational strategies, development projects, and liquidity position Overview The company aims to provide clean and affordable energy through its integrated natural gas and LNG infrastructure - NFE is a global energy infrastructure company focused on natural gas and LNG, aiming to provide reliable, affordable, and clean energy[150] - The Company's business is managed through two operating segments: Terminals and Infrastructure, and Ships[150] - The Terminals and Infrastructure segment covers the entire production and delivery chain, with a focus on Fast LNG development[151] Our Current Operations – Terminals and Infrastructure The company operates key energy facilities across the Americas, serving major utility and industrial customers - The Company operates facilities in Jamaica, Puerto Rico, Mexico, and the United States, serving significant customers like JPS, PREPA, and CFE[153][155][156][157][160][162] - In Puerto Rico, NFE commissioned 350MW of additional power generation capacity in Q2 and Q3 2023 to support grid stabilization[158] - Genera PR LLC, a wholly-owned subsidiary, was awarded a 10-year contract for operation and maintenance of PREPA's thermal generation assets, commencing July 1, 2023[159] Our LNG Supply and Cargo Sales A diversified supply strategy, including proprietary Fast LNG production, aims to meet long-term demand and manage price risk - NFE plans to satisfy LNG demand through current contractual supply, additional long-term contracts starting in 2027, and its own Fast LNG production[164] - The Company has secured 100% of expected committed LNG volumes for its downstream terminals and has binding 20-year contracts from two U.S. LNG facilities starting in 2027[164] - NFE aims to mitigate exposure to natural gas price fluctuations by basing customer contracts on the Henry Hub index and commencing its own Fast LNG production in Q4 2023[165] Our Current Operations – Ships The Ships segment provides marine assets for customer leases and supports the company's integrated terminal operations - The Ships segment includes FSRUs, FSUs, and LNG carriers leased to customers, with plans to utilize these vessels for NFE's own terminal operations as charters expire[166] - In August 2022, NFE transferred ownership of 11 vessels to Energos Infrastructure, receiving $1.85 billion in cash and a 20% equity interest[167] Our Development Projects The company is advancing several major development projects, led by its innovative Fast LNG modular liquefaction units - Current development projects include modular floating liquefaction facilities (Fast LNG) and LNG terminals and power plants in Nicaragua, Brazil, and Ireland[168] - The first Fast LNG unit has been installed offshore Altamira, Mexico, and is in the commissioning phase, with additional units planned for deployment[175] - The Barcarena Facility is substantially completed and expected to commence operations in Q1 2024, with the Barcarena Power Plant expected to be operational in 2025[180] - The Ireland Facility's application for development was denied in Q3 2023, which the Company is challenging, introducing uncertainty and regulatory risks[183] Recent Developments The company recently secured significant long-term financing for its Barcarena and Fast LNG projects - In October 2023, NFE's Brazilian subsidiaries secured long-term financing for the Barcarena Power Plant, including a BNDES Credit Agreement (R$1.8 billion) and convertible debentures ($200 million)[184][185][188] - On October 30, 2023, the Company entered into an $856 million Term Loan B Credit Agreement, used to repay Bridge Term Loans and for general corporate purposes[191][192] Other Matters Regulatory proceedings for the San Juan Facility are ongoing, with continued operation permitted - The San Juan Facility remains under FERC jurisdiction, with an application for authorization to operate pending since September 2021[196] - FERC approved an amendment in July 2023, allowing construction of a pipeline to supply natural gas for temporary power generation in Puerto Rico[197] Results of Operations – Three Months Ended September 30, 2023 compared to Three Months Ended June 30, 2023 and Nine Months Ended September 30, 2023 compared to Nine Months Ended September 30, 2022 Segment Operating Margin serves as the primary metric for evaluating the company's core operational performance - Segment Operating Margin is the key metric for evaluating segment performance, defined as segment revenue less direct operating costs[123][198] Consolidated Segment Operating Margin (Non-GAAP) (in thousands of U.S. dollars): | Period | 3 Months Ended Sep 30, 2023 | 3 Months Ended Jun 30, 2023 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Consolidated Segment Operating Margin | $250,110 | $290,437 | $894,778 | $819,773 | - Consolidated Segment Operating Margin decreased by $40.3 million QoQ but increased by $75.0 million YoY for the nine-month period[200][205] Terminals and Infrastructure Segment Segment performance was impacted by lower LNG cargo sales, though downstream volumes and margins improved Terminals and Infrastructure Segment Performance (in thousands of U.S. dollars): | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Jun 30, 2023 | Change (QoQ) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change (YoY) | | :------------------ | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Total revenues | $447,905 | $495,504 | $(47,599) | $1,446,017 | $1,711,241 | $(265,224) | | Cost of sales | $192,343 | $222,371 | $(30,028) | $488,512 | $909,938 | $(421,426) | | Operations and maintenance | $60,819 | $33,697 | $27,122 | $121,187 | $89,861 | $31,326 | | Segment Operating Margin | $194,743 | $239,436 | $(44,693) | $836,318 | $700,264 | $136,054 | - QoQ revenue decrease was driven by no LNG cargo sales in Q3 2023, partially offset by increased gas sales in Puerto Rico and higher Henry Hub index pricing[211][212][213] - YoY revenue decrease was due to lower LNG cargo sales and a 60% reduction in the Henry Hub index, partially offset by a 62% increase in downstream terminal volumes[213][214] - Operations and maintenance expenses increased significantly due to new O&M services for PREPA's thermal assets and increased lease costs for Puerto Rican operations[219][220][221] Ships Segment The segment's revenue and operating expenses declined year-over-year following the Energos vessel transaction Ships Segment Performance (in thousands of U.S. dollars): | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Jun 30, 2023 | Change (QoQ) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change (YoY) | | :------------------ | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Total revenues | $66,557 | $65,841 | $716 | $230,315 | $337,626 | $(107,311) | | Vessel operating expenses | $11,613 | $11,443 | $170 | $42,295 | $71,029 | $(28,734) | | Segment Operating Margin | $54,944 | $54,398 | $546 | $188,020 | $266,597 | $(78,577) | - YoY revenue decreased by $107.3 million, primarily due to the sale of the Nanook as part of the Energos Formation Transaction[226] - Vessel operating expenses decreased YoY by $28.7 million, mainly due to lower costs related to the Hilli after its exchange and the sale of the Nanook[229] - The Company sold the vessel Golar Spirit for $15.8 million in July 2023, recognizing a $7.8 million gain[224] Other operating results Net income grew substantially year-over-year, driven by improved investment income and despite higher interest expense Other Operating Results (in thousands of U.S. dollars): | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Jun 30, 2023 | Change (QoQ) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change (YoY) | | :-------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Selling, general and administrative | $49,107 | $55,803 | $(6,696) | $157,048 | $165,952 | $(8,904) | | Depreciation and amortization | $48,670 | $42,115 | $6,555 | $125,160 | $106,439 | $18,721 | | Interest expense | $64,822 | $64,396 | $426 | $200,891 | $156,344 | $44,547 | | Net income | $62,338 | $120,100 | $(57,762) | $334,004 | $118,981 | $215,023 | - Selling, general and administrative expenses decreased QoQ due to reduced headcount and lower annual incentive compensation estimates[233] - Depreciation and amortization increased due to assets placed in service for the Puerto Rico grid stabilization project[237][238] - Interest expense increased YoY by $44.5 million, driven by a higher total principal outstanding ($6.2 billion as of Sep 30, 2023)[241] - Net income for the nine months ended September 30, 2023, increased by $215.0 million, largely due to a significant improvement in income from equity method investments[231][249] Factors Impacting Comparability of Our Financial Results Future financial results will be shaped by the deployment of Fast LNG units and the full impact of recently completed projects - Historical results are not indicative of future performance due to the exclusion of results from disposed investments and the upcoming impact of Fast LNG solutions[250] - The deployment of Fast LNG facilities is expected to significantly lower LNG supply costs and reduce dependence on third-party suppliers[252] - Recent project completions, such as the La Paz Power Plant and Puerto Rico grid stabilization assets, will impact future revenue and operating results[252] Liquidity and Capital Resources The company anticipates sufficient liquidity from borrowings, cash flow, and other capital sources to fund future expenditures - The Company expects sufficient liquidity from recent borrowings, additional capital sources, and cash flow from operations to fund capital expenditures[251] - Working capital position is expected to improve due to new financing, potential asset sales, and cash flows from temporary power projects[252][253] - Total committed expenditures for completed and existing projects are approximately $6.2 billion, with $4.8 billion paid through September 30, 2023[255] Contractual Obligations The company has substantial long-term contractual obligations, primarily related to debt and LNG purchase agreements Contractual Obligations as of September 30, 2023 (in thousands of U.S. dollars): | Obligation Type | Total | Less than 1 Year | Years 2 to 3 | Years 4 to 5 | More than 5 years | | :------------------------ | :----------- | :--------------- | :----------- | :----------- | :---------------- | | Long-term debt obligations | $8,525,237 | $225,540 | $3,550,767 | $2,177,844 | $2,571,086 | | Purchase obligations | $14,968,923 | $645,109 | $2,237,465 | $1,412,110 | $10,674,239 | | Lease obligations | $600,005 | $47,555 | $255,500 | $108,502 | $188,448 | | Total | $24,094,165 | $918,204 | $6,043,732 | $3,698,456 | $13,433,773 | - Purchase obligations, primarily take-or-pay contracts for LNG/natural gas and EPC agreements, represent the largest portion of future commitments[263][264] - Long-term debt obligations exclude payments to Energos for vessel charters and residual value, as these are not direct cash payments by NFE[261] Cash Flows Cash flow dynamics reflect strong operating performance offset by major investments and significant financing activities Cash Flow Summary (in thousands of U.S. dollars): | Cash Flows From: | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change | | :-------------------- | :-------------------------- | :-------------------------- | :----------- | | Operating activities | $537,184 | $91,105 | $446,079 | | Investing activities | $(2,065,562) | $(195,960) | $(1,869,602) | | Financing activities | $924,072 | $249,710 | $674,362 | | Net (decrease) increase in cash | $(604,306) | $144,855 | $(749,161) | - Operating cash flow increased significantly due to improved receivables collection, commodity derivative settlement, and deferred cash receipts[268] - Investing cash flow saw a substantial increase in outflows, primarily for Fast LNG and Puerto Rico grid stabilization projects, partially offset by $100 million from the Hilli LLC sale[269] - Financing cash flow increased due to $1.77 billion in new borrowings, offset by a $626.3 million dividend payment and debt repayments[271] Long-Term Debt and Preferred Stock The company actively managed its debt profile through new loan agreements and increased revolving credit capacity - The Company entered into a $400 million Bridge Term Loan Agreement in August 2023, which was subsequently repaid in full after the quarter end[274] - In June 2023, NFE secured up to $200 million in Equipment Notes to finance turbines for the Puerto Rico grid stabilization project[276] - An EB-5 Loan Agreement was entered into in July 2023 for up to $100 million to fund a new green hydrogen facility in Texas[278] - The Revolving Facility's capacity increased by $426.6 million in 2023 to a total of $866.6 million[281] - The Company was in compliance with all debt covenants as of September 30, 2023[282] Critical Accounting Policies and Estimates There have been no significant changes to the company's critical accounting estimates since the last annual report - No significant changes to critical accounting estimates have occurred since the Annual Report[283] Recent Accounting Standards Information on recently issued accounting standards is available in the financial statement notes - Refer to Note 3 for descriptions of recently issued accounting standards[284] Item 3. Quantitative and Qualitative Disclosures About Market Risk. The company is exposed to market risks from commodity prices, interest rates, and foreign currency exchange Commodity Price Risk LNG price exposure is managed through index-based customer contracts and derivative instruments - NFE manages LNG price exposure by largely basing customer contract pricing on the Henry Hub index plus a contractual spread[286] - A commodity swap settled in Q1 2023 resulted in a $146.1 million realized gain, while new swaps led to an unrealized loss of $1.8 million for the nine months ended September 30, 2023[286] Interest Rate Risk The company's exposure to interest rate risk is linked to both its fixed-rate and variable-rate debt instruments - Fixed-rate debt means interest rate changes impact fair value but not results of operations or cash flows[287] - A 100-basis point change in market interest rates would alter the fair value of fixed-rate debt by approximately $69 million[287] - For the variable-rate Barcarena Term Loan, a 100-basis point change would impact annual interest expense by approximately $2 million[288] Foreign Currency Exchange Risk Operations in Brazil expose the company to foreign exchange fluctuations against the U.S. dollar - The Company has transactions, assets, and liabilities denominated in Brazilian reais, exposing it to foreign exchange fluctuations[289] - A 10% depreciation of the U.S. dollar against the Brazilian reais would not significantly decrease revenue or expenses[289] - As international operations grow, NFE may use derivative or hedging transactions to manage foreign currency risks[290] Item 4. Controls and Procedures. Management has evaluated and confirmed the effectiveness of the company's disclosure controls and procedures Evaluation of Disclosure Controls and Procedures The company's disclosure controls and procedures were deemed effective as of the end of the reporting period - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2023, providing reasonable assurance[291][292] Changes in Internal Control over Financial Reporting No material changes to internal controls occurred during the quarter, though a new system implementation is noted - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2023[293] - The Company completed an implementation of core financial systems in Q4 2023, which could lead to future changes in internal control over financial reporting[293] PART II OTHER INFORMATION This part provides information on legal proceedings, risk factors, and other corporate matters Item 1. Legal Proceedings. The company is not currently a party to any material legal proceedings - The Company is not currently involved in any material legal proceedings[296] - Various legal and regulatory claims may arise in the ordinary course of business, but the Company does not anticipate a material adverse effect on its financial position[296] Item 1A. Risk Factors. The company faces significant risks related to its business operations, jurisdictions, and stock ownership Summary Risk Factors Key risks include operational challenges, regulatory hurdles, competition, and geopolitical instability - Key business risks include limited operating history, construction and operational risks, dependence on third-party contractors, regulatory complexities, and intense competition[299] - Risks related to operating jurisdictions include economic, political, and social instability, and foreign exchange fluctuations[302] - Ownership risks include control by a small number of original investors and the Company's status as a 'controlled company' under Nasdaq rules[302] Risks Related to Our Business The company's business is subject to risks from its limited operating history, project execution, and substantial debt - The Company has a limited operating history, with net income of $62.3 million in Q3 2023, but prior years included significant net losses, making historical performance an unreliable basis for future evaluation[303] - Construction projects are subject to risks like engineering problems, supply delays, and regulatory approvals, which can lead to cost overruns and delays[307][310] - Operational risks for infrastructure, facilities, and vessels include equipment failures, human error, and environmental accidents, which could result in revenue loss and increased costs[311] - Dependence on third-party contractors and suppliers poses risks of non-performance, delays, and cost increases[313] - The success of the business relies on LNG being a competitive energy source; price volatility and competition could adversely affect demand and profitability[314][315][316] - The Company's Fast LNG technology is unproven and subject to construction, regulatory, and operational risks, with no guarantee of achieving expected cost savings[360][361] - Substantial debt ($6.2 billion as of Sep 30, 2023) and restrictive covenants may limit operational flexibility and ability to fund future needs[362] Risks Related to the Jurisdictions in Which We Operate Operating in multiple international jurisdictions exposes the company to political, economic, and regulatory risks - Operations in Jamaica, Mexico, Puerto Rico, Brazil, Ireland, and Nicaragua expose the Company to economic, political, and social instability[405] - Foreign exchange fluctuations, particularly in Brazilian reais and Mexican pesos, can adversely affect financial condition and operating results[408] - The Company is subject to extensive environmental, social, health, and safety laws, which can lead to increased compliance costs, liabilities, and reputational damage[369][370][383] - Compliance with anti-corruption laws (e.g., FCPA) is critical; violations could result in investigations, fines, and penalties, especially in high-risk jurisdictions[388][389][390] - Dependence on land leases and rights-of-way for projects means loss of these rights could materially affect operations[395] Risks Related to Ownership of Our Class A Common Stock Stock ownership risks include price volatility, concentrated voting power, and discretionary dividend payments - The market price and trading volume of Class A common stock may be volatile due to factors like earnings fluctuations and general economic conditions[409][410][412] - As a 'controlled company' under Nasdaq rules, NFE is exempt from certain corporate governance requirements, which may not afford the same protections as other companies[413] - A small number of original investors control a majority of voting power, potentially leading to conflicts of interest with other stockholders[414][415] - The declaration and payment of dividends are at the discretion of the Board, and there is no assurance of continued payments[422] General Risks General risks include the company's holding structure, M&A challenges, and potential impacts from global events - As a holding company, NFE's financial results depend on its subsidiaries, whose ability to make distributions may be limited by restrictive debt covenants[427] - Future mergers, acquisitions, or divestments carry significant risks, including integration challenges and failure to realize expected value[428] - Global pandemics can cause economic disruptions, supply chain issues, and financial market volatility, negatively impacting operations[429][430] - Changes in tax laws or regulations in operating countries could lead to materially higher tax expenses[431] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Restrictive covenants on subsidiary indebtedness can impact the distribution and use of proceeds - Operating subsidiaries, joint ventures, and special purpose entities are subject to restrictive covenants on dividend distributions related to their indebtedness[434] Item 3. Defaults Upon Senior Securities. The company reports no defaults upon its senior securities - No defaults upon senior securities were reported[435] Item 4. Mine Safety Disclosures. Mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable[436] Item 5. Other Information. There is no other information to report in this section - No other information is applicable[437] Item 6. Exhibits. This section lists all exhibits filed as part of the quarterly report - The exhibits include organizational documents, incentive plans, shareholder agreements, and administrative services agreements[438] - Debt-related exhibits comprise various indentures and credit agreements, including amendments to the Revolving Facility and the new Credit Agreement dated August 3, 2023[439][440][441][442] - Certifications by the Chief Executive Officer and Chief Financial Officer, along with Inline XBRL documents, are also included[442][443] SIGNATURES This section provides the official signatures of the company's certifying officers - The report is signed by Wesley R Edens (CEO), Christopher S Guinta (CFO), and Yunyoung Shin (CAO) on November 9, 2023[449]