UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to__________

Commission File Number: 001-38790

New Fortress Energy Inc.
(Exact Name of Registrant as Specified in its Charter)

Delaware
 
83-1482060
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

111 W. 19th Street, 8th Floor
New York, New York
 
10011
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: (516) 268-7400

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
 
Accelerated filer 
Non-accelerated filer
 
Smaller reporting company
   
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A common stock
NFE
NASDAQ Global Select Market

As of October 26, 2020, the registrant had 168,738,423 Class A common stock outstanding.





TABLE OF CONTENTS

ii
 
 
iii
 
 
1
 
 
Item 1.
1
 
 
 
Item 2.
26
 
 
 
Item 3.
40
 
 
 
Item 4.
41
 
 
 
42
 
 
Item 1.
42
 
 
 
Item 1A. 
42
 
 
 
Item 2.
73
 
 
 
Item 3.
73
 
 
 
Item 4.
73
 
 
 
Item 5.
73
 
 
 
Item 6.
74
 
 
 
76

i


GLOSSARY OF TERMS

As commonly used in the liquefied natural gas industry, to the extent applicable and as used in this Quarterly Report on Form 10-Q (“Quarterly Report”), the terms listed below have the following meanings:

Btu
the amount of heat required to raise the temperature of one avoirdupois pound of pure water from 59 degrees Fahrenheit to 60 degrees Fahrenheit at an absolute pressure of 14.696 pounds per square inch gage
   
CAA
Clean Air Act
   
CERCLA
Comprehensive Environmental Response, Compensation and Liability Act
   
CWA
Clean Water Act
   
DOE
U.S. Department of Energy
   
FERC
Federal Energy Regulatory Commission
   
GAAP
generally accepted accounting principles in the United States
   
GHG
greenhouse gases
   
GSA
gas sales agreement
   
Henry Hub
a natural gas pipeline located in Erath, Louisiana that serves as the official delivery location for futures contracts on the New York Mercantile Exchange
   
ISO container
International Organization of Standardization, an intermodal container
   
LNG
natural gas in its liquid state at or below its boiling point at or near atmospheric pressure
   
MMBtu
one million Btus, which corresponds to approximately 12.1 LNG gallons
   
MW
megawatt. We estimate 2,500 LNG gallons would be required to produce one megawatt
   
NGA
Natural Gas Act of 1938, as amended
   
non-FTA countries
countries without a free trade agreement with the United States providing for national treatment for trade in natural gas and with which trade is permitted
   
OPA
Oil Pollution Act
   
OUR
Office of Utilities Regulation (Jamaica)
   
PHMSA
Pipeline and Hazardous Materials Safety Administration
   
PPA
power purchase agreement
   
SSA
steam supply agreement
   
TBtu
one trillion Btus, which corresponds to approximately 12,100,000 LNG gallons

ii


CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements regarding, among other things, our plans, strategies, prospects and projections, both business and financial. All statements contained in this Quarterly Report other than historical information are forward-looking statements that involve known and unknown risks and relate to future events, our future financial performance or our projected business results. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “targets,” “potential” or “continue” or the negative of these terms or other comparable terminology. Such forward-looking statements are necessarily estimates based upon current information and involve a number of risks and uncertainties. Actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include:

our limited operating history;
loss of one or more of our customers;
inability to procure LNG on a fixed-price basis, or otherwise to manage LNG price risks, including hedging arrangements;
the completion of construction on our LNG facilities, power plants or Liquefaction Facilities (as defined herein) and the terms of our construction contracts for the completion of these assets;
cost overruns and delays in the completion of one or more of our LNG facilities, power plants or Liquefaction Facilities, as well as difficulties in obtaining sufficient financing to pay for such costs and delays;
our ability to obtain additional financing to effect our strategy;
failure to produce or purchase sufficient amounts of LNG or natural gas at favorable prices to meet customer demand;
hurricanes or other natural or manmade disasters;
impacts of the novel coronavirus (“COVID-19”) pandemic on our or our customers’ demand or customers’ or suppliers’ operations and financial status;
failure to obtain and maintain approvals and permits from governmental and regulatory agencies;
operational, regulatory, environmental, political, legal and economic risks pertaining to the construction and operation of our facilities;
inability to contract with suppliers and tankers to facilitate the delivery of LNG on their chartered LNG tankers;
cyclical or other changes in the demand for and price of LNG and natural gas and alternative fuels, including oil-based fuels;
failure of natural gas to be a competitive source of energy in the markets in which we operate and seek to operate;
competition from third parties in our business;
inability to re-finance our indebtedness outstanding from time to time or implement our financing plans;
changes to environmental and similar laws and governmental regulations that are adverse to our operations;
inability to enter into favorable agreements and obtain necessary regulatory approvals;
the tax treatment of us or of an investment in any of our securities;
a major health and safety incident relating to our business;
increased labor costs, and the unavailability of skilled workers or our failure to attract and retain qualified personnel;
risks related to the jurisdictions in which we do, or seek to do, business, particularly Florida, Puerto Rico, Jamaica, Mexico, Nicaragua and other jurisdictions in the Caribbean;
our inability to achieve the anticipated benefits of converting from a limited liability company to a corporation; and
other risks described in the “Risk Factors” section of this Quarterly Report.

All forward-looking statements speak only as of the date of this Quarterly Report. When considering forward-looking statements, you should keep in mind the risks set forth under “Item 1A. Risk Factors” and other cautionary statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 (our “Annual Report”), this Quarterly Report and in our other filings with the Securities and Exchange Commission (the “SEC”). The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no duty to update these forward-looking statements, even though our situation may change in the future. Furthermore, we cannot guarantee future results, events, levels of activity, performance, projections or achievements.


iii

PART I
FINANCIAL INFORMATION

Item 1.
Financial Statements.

New Fortress Energy Inc.
Condensed Consolidated Balance Sheets
As of September 30, 2020 and December 31, 2019
(Unaudited, in thousands of U.S. dollars, except share amounts)

 
September 30,
2020
   
December 31,
2019
 
Assets
           
Current assets
           
Cash and cash equivalents
 
$
112,723
   
$
27,098
 
Restricted cash
   
25,714
     
30,966
 
Receivables, net of allowances of $183 and $0, respectively
   
93,000
     
49,890
 
Inventory
   
19,399
     
63,432
 
Prepaid expenses and other current assets, net
   
29,689
     
39,734
 
Total current assets
   
280,525
     
211,120
 
                 
Restricted cash
   
15,000
     
34,971
 
Construction in progress
   
206,110
     
466,587
 
Property, plant and equipment, net
   
622,475
     
192,222
 
Right-of-use assets
   
140,143
     
-
 
Intangible assets, net
   
44,381
     
43,540
 
Finance leases, net
   
4,872
     
91,174
 
Investment in equity securities
   
164
     
2,540
 
Deferred tax assets, net
   
2,532
     
34
 
Other non-current assets, net
   
83,611
     
81,626
 
Total assets
 
$
1,399,813
   
$
1,123,814
 
                 
Liabilities
               
Current liabilities
               
Accounts payable
 
$
92,774
   
$
11,593
 
Accrued liabilities
   
52,606
     
54,943
 
Current lease liabilities
   
36,380
     
-
 
Due to affiliates
   
9,219
     
10,252
 
Other current liabilities
   
31,272
     
25,475
 
Total current liabilities
   
222,251
     
102,263
 
                 
Long-term debt
   
980,183
     
619,057
 
Non-current lease liabilities
   
83,843
     
-
 
Deferred tax liabilities, net
   
182
     
241
 
Other long-term liabilities
   
14,617
     
14,929
 
Total liabilities
   
1,301,076
     
736,490
 
                 
Commitments and contingences (Note 18)
   
     
 
                 
Stockholders’ equity
               
Class A common stock, $0.01 par value, 750.0 million shares authorized, 169.3 million issued and 168.7  million outstanding as of September 30, 2020
   
1,687
     
-
 
Treasury stock, 0.6 million shares as of September 30, 2020, at cost; 0 shares at December 31, 2019, at cost
   
(6,411
)
   
-
 
Class A shares, 0 shares issued and outstanding as of September 30, 2020; 23.6 million shares issued and outstanding as of December 31, 2019
   
-
     
130,658
 
Class B shares, 0 shares issued and outstanding as of September 30, 2020; 144.3 million shares, issued and outstanding as of December 31, 2019
   
-
     
-
 
Additional paid-in capital
   
325,053
         
Accumulated deficit
   
(229,673
)
   
(45,823
)
Accumulated other comprehensive income (loss)
   
85
     
(30
)
Total stockholders' equity attributable to NFE
   
90,741
     
84,805
 
Non-controlling interest
   
7,996
     
302,519
 
Total stockholders' equity
   
98,737
     
387,324
 
Total liabilities and stockholders' equity
 
$
1,399,813
   
$
1,123,814
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


New Fortress Energy Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
For the three and nine months ended September 30, 2020 and 2019
(Unaudited, in thousands of U.S. dollars, except share and per share amounts)
 
 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2020
   
2019
   
2020
   
2019
 
Revenues
                       
Operating revenue
 
$
83,863
   
$
35,345
   
$
223,542
   
$
93,221
 
Other revenue
   
52,995
     
14,311
     
82,412
     
26,152
 
Total revenues
   
136,858
     
49,656
     
305,954
     
119,373
 
                                 
Operating expenses
                               
Cost of sales
   
71,665
     
45,832
     
209,780
     
123,224
 
Operations and maintenance
   
13,802
     
8,707
     
31,785
     
18,609
 
Selling, general and administrative
   
30,849
     
40,913
     
91,301
     
122,831
 
Contract termination charges and loss on mitigation sales
   
-
     
-
     
124,114
     
-
 
Depreciation and amortization
   
9,489
     
1,930
     
22,363
     
5,731
 
Total operating expenses
   
125,805
     
97,382
     
479,343
     
270,395
 
Operating income (loss)
   
11,053
     
(47,726
)
   
(173,389
)
   
(151,022
)
Interest expense
   
19,813
     
4,974
     
50,901
     
14,457
 
Other expense, net
   
2,569
     
1,788
     
4,179
     
133
 
Loss on extinguishment of debt, net
   
23,505
     
-
     
33,062
     
-
 
Loss before taxes
   
(34,834
)
   
(54,488
)
   
(261,531
)
   
(165,612
)
Tax expense (benefit)
   
1,836
     
(64
)
   
1,949
     
337
 
Net loss
   
(36,670
)
   
(54,424
)
   
(263,480
)
   
(165,949
)
Net loss attributable to non-controlling interest
   
312
     
47,701
     
81,163
     
139,483
 
Net loss attributable to stockholders
 
$
(36,358
)
 
$
(6,723
)
 
$
(182,317
)
 
$
(26,466
)
                                 
Net loss per share – basic and diluted
 
$
(0.21
)
 
$
(0.30
)
 
$
(2.14
)
 
$
(1.34
)
                                 
Weighted average number of shares outstanding – basic and diluted
   
170,074,532
     
22,692,104
     
85,009,385
     
19,689,568
 
                                 
Other comprehensive loss:
                               
Net loss
 
$
(36,670
)
 
$
(54,424
)
 
$
(263,480
)
 
$
(165,949
)
Unrealized (gain) loss on currency translation adjustment
   
(971
)
   
143
     
(1,122
)
   
143
 
Comprehensive loss
   
(35,699
)
   
(54,567
)
   
(262,358
)
   
(166,092
)
Comprehensive (income) loss attributable to non-controlling interest
   
(926
)
   
47,825
     
80,156
     
139,607
 
Comprehensive loss attributable to stockholders
 
$
(36,625
)
 
$
(6,742
)
 
$
(182,202
)
 
$
(26,485
)

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


New Fortress Energy Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the three and nine months ended September 30, 2020 and 2019
(Unaudited, in thousands of U.S. dollars, except share amounts)

 
Class A shares
   
Class B shares
   
Class A common stock
         
Treasury shares
                         
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
Additional
paid-in
capital
   
Shares
   
Amount
   
Accumulated
deficit
   
Accumulated other
comprehensive
(loss) income
   
Non-
controlling
interest
   
Total
stockholders'
equity
 
Balance as of December 31, 2019
   
23,607,096
   
$
130,658
     
144,342,572
   
$
-
     
-
   
$
-
   
$
-
     
-
   
$
-
   
$
(45,823
)
 
$
(30
)
 
$
302,519
   
$
387,324
 
Cumulative effect of accounting changes
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(1,533
)
   
-
     
(7,780
)
   
(9,313
)
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(8,466
)
   
-
     
(51,757
)
   
(60,223
)
Other comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(53
)
   
(316
)
   
(369
)
Share-based compensation expense
   
-
     
2,508
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
2,508
 
Issuance of shares for vested RSUs
   
1,212,907
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Shares withheld from employees related to share-based compensation, at cost
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(583,508
)
   
(6,132
)
   
-
     
-
     
-
     
(6,132
)
Balance as of March 31, 2020
   
24,820,003
   
$
133,166
     
144,342,572
   
$
-
     
-
   
$
-
   
$
-
     
(583,508
)
 
$
(6,132
)
 
$
(55,822
)
 
$
(83
)
 
$
242,666
   
$
313,795
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(137,493
)
   
-
     
(29,094
)
   
(166,587
)
Other comprehensive income
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
435
     
85
     
520
 
Share-based compensation expense
   
-
     
1,922
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
1,922
 
Issuance of shares for vested RSUs
   
11,529
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Shares withheld from employees related to share-based compensation, at cost
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(3,250
)
   
(40
)
   
-
     
-
     
-
     
(40
)
Exchange of NFI units
   
144,342,572
     
206,587
     
(144,342,572
)
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(206,587
)
   
-
 
Balance as of June 30, 2020
   
169,174,104
   
$
341,675
     
-
   
$
-
     
-
   
$
-
   
$
-
     
(586,758
)
 
$
(6,172
)
 
$
(193,315
)
 
$
352
   
$
7,070
   
$
149,610
 
Conversion from LLC to Corporation
   
(169,174,104
)
   
(341,675
)
   
-
     
-
     
169,174,104
     
1,687
     
339,988
     
-
     
-
     
-
     
-
     
-
     
-
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(36,358
)
   
-
     
(312
)
   
(36,670
)
Other comprehensive income (loss)
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(267
)
   
1,238
     
971
 
Share-based compensation expense
   
-
     
-
     
-
     
-
     
-
     
-
     
2,071
     
-
     
-
     
-
     
-
     
-
     
2,071
 
Issuance of shares for vested RSUs
   
-
     
-
     
-
     
-
     
157,148
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Shares withheld from employees related to share-based compensation, at cost
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(6,071
)
   
(239
)
   
-
     
-
     
-
     
(239
)
Dividends
   
-
     
-
     
-
     
-
     
-
     
-
     
(17,006
)
   
-
     
-
     
-
     
-
     
-
     
(17,006
)
Balance as of September 30, 2020
   
-
   
$
-
     
-
   
$
-
     
169,331,252
   
$
1,687
   
$
325,053
     
(592,829
)
 
$
(6,411
)
 
$
(229,673
)
 
$
85
   
$
7,996
   
$
98,737
 

3


 
Members' Capital
   
Class A shares
   
Class B shares
                         
   
Units
   
Amounts
   
Shares
   
Amount
   
Shares
   
Amount
   
Accumulated
deficit
   
Accumulated other
comprehensive
(loss) income
   
Non-controlling
Interest
   
Total
stockholders'
equity
 
Balance as of December 31, 2018
   
67,983,095
   
$
426,741
     
-
   
$
-
     
-
   
$
-
   
$
(158,423
)
 
$
(11
)
 
$
14,340
   
$
282,647
 
Activity prior to the IPO and related organizational transactions:
                                                                               
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
     
(7,923
)
   
11
     
(91
)
   
(8,003
)
Effects of the IPO and related organizational transactions:
                                                                               
Issuance of Class A shares in the IPO, net of underwriting discount and offering costs
   
-
     
-
     
20,837,272
     
32,136
     
-
     
-
     
-
     
-
     
235,874
     
268,010
 
Effects of the reorganization transactions
   
(67,983,095
)
   
(426,741
)
   
-
     
51,092
     
147,058,824
     
-
     
146,420
     
-
     
229,229
     
-
 
Activity subsequent to the IPO and related organizational transactions:
                                                                               
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
     
(5,645
)
   
-
     
(46,644
)
   
(52,289
)
Share-based compensation expense
   
-
     
-
     
-
     
19,037
     
-
     
-
     
-
     
-
     
-
     
19,037
 
Balance as of March 31, 2019
   
-
   
$
-
     
20,837,272
   
$
102,265
     
147,058,824
   
$
-
   
$
(25,571
)
 
$
-
   
$
432,708
   
$
509,402
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
     
(6,186
)
   
-
     
(45,047
)
   
(51,233
)
Share-based compensation expense
   
-
     
-
     
-
     
8,971
     
-
     
-
     
-
     
-
     
-
     
8,971
 
Balance as of June 30, 2019
   
-
   
$
-
     
20,837,272
   
$
111,236
     
147,058,824
   
$
-
   
$
(31,757
)
 
$
-
   
$
387,661
   
$
467,140
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
     
(6,723
)
   
-
     
(47,701
)
   
(54,424
)
Other comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(19
)
   
(124
)
   
(143
)
Share-based compensation expense
   
-
     
-
     
-
     
7,825
     
-
     
-
     
-
     
-
     
-
     
7,825
 
Exchange of NFI units
   
-
     
-
     
2,001,449
     
4,699
     
(2,001,449
)
   
-
     
-
     
-
     
(4,699
)
   
-
 
Issuance of shares for vested RSUs
   
-
     
-
     
53,572
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Balance as of September 30, 2019
   
-
   
$
-
     
22,892,293
   
$
123,760
     
145,057,375
   
$
-
   
$
(38,480
)
 
$
(19
)
 
$
335,137
   
$
420,398
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


New Fortress Energy Inc.
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2020 and 2019
(Unaudited, in thousands of U.S. dollars)

 
Nine Months Ended September 30,
 
   
2020
   
2019
 
Cash flows from operating activities
           
Net loss
 
$
(263,480
)
 
$
(165,949
)
Adjustments for:
               
Amortization of deferred financing costs
   
9,949
     
4,150
 
Depreciation and amortization
   
23,025
     
6,197
 
Non-cash contract termination charges and loss on mitigation sales
   
71,510
     
-
 
Loss on extinguishment of debt and financing expenses
   
37,090
     
-
 
Deferred taxes
   
388
     
318
 
Change in value of Investment in equity securities
   
2,376
     
2,127
 
Share-based compensation
   
6,501
     
35,833
 
Other
   
1,895
     
(209
)
(Increase) in receivables
   
(43,307
)
   
(8,403
)
Decrease (Increase) in inventories
   
26,691
     
(12,666
)
(Increase) in other assets
   
(16,526
)
   
(44,985
)
Decrease in right-of-use assets
   
31,910
     
-
 
Increase in accounts payable/accrued liabilities
   
23,982
     
8,807
 
(Decrease) Increase in amounts due to affiliates
   
(1,033
)
   
3,375
 
(Decrease) in lease liabilities
   
(30,930
)
   
-
 
Increase in other liabilities
   
4,249
     
16,644
 
Net cash used in operating activities
   
(115,710
)
   
(154,761
)
                 
Cash flows from investing activities
               
Capital expenditures
   
(115,841
)
   
(295,635
)
Principal payments received on finance lease, net
   
137
     
600
 
Net cash used in investing activities
   
(115,704
)
   
(295,035
)
                 
Cash flows from financing activities
               
Proceeds from borrowings of debt
   
1,832,144
     
337,000
 
Payment of deferred financing costs
   
(27,099
)
   
(8,259
)
Repayment of debt
   
(1,490,002
)
   
(3,750
)
Proceeds from IPO
   
-
     
274,948
 
Payments related to tax withholdings for share-based compensation
   
(6,356
)
   
-
 
Payment of dividends
   
(16,871
)
   
-
 
Payment of offering costs
   
-
     
(6,938
)
Net cash provided by financing activities
   
291,816
     
593,001
 
                 
Net increase in cash, cash equivalents and restricted cash
   
60,402
     
143,205
 
Cash, cash equivalents and restricted cash – beginning of period
   
93,035
     
100,853
 
Cash, cash equivalents and restricted cash – end of period
 
$
153,437
   
$
244,058
 
                 
Supplemental disclosure of non-cash investing and financing activities:
               
Changes in accounts payable and accrued liabilities associated with construction in progress and property, plant and equipment additions
 
$
(4,682
)
 
$
(51,586
)

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


1.
Organization

New Fortress Energy Inc. (“NFE,” together with its subsidiaries, the “Company”) is a Delaware corporation formed by New Fortress Energy Holdings LLC (“New Fortress Energy Holdings”). The Company is a global integrated gas-to-power infrastructure company that seeks to use natural gas to satisfy the world’s large and growing power needs and is engaged in providing energy and logistical services to end-users worldwide seeking to convert their operating assets from diesel or heavy fuel oil to LNG. The Company currently sources LNG from a combination of its own liquefaction facility in Miami, Florida and purchases on the open market. The Company has liquefaction, regasification and power generation operations in the United States and Jamaica.

The Company manages, analyzes and reports on its business and results of operations on the basis of one operating segment. The chief operating decision maker makes resource allocation decisions and assesses performance based on financial information presented on a consolidated basis.

2.
Significant accounting policies

The principle accounting policies adopted are set out below.

(a)
Basis of presentation and principles of consolidation

The accompanying unaudited interim condensed consolidated financial statements contained herein were prepared in accordance with GAAP and reflect all normal and recurring adjustments which are, in the opinion of management, necessary to provide a fair statement of the financial position, results of operations and cash flows of the Company for the interim periods presented. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned consolidated subsidiaries. The ownership interest of other investors in consolidated subsidiaries is recorded as a non-controlling interest.  All significant intercompany transactions and balances have been eliminated on consolidation. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2019.

On February 4, 2019, the Company completed an initial public offering (“IPO”) and a series of other transactions, in which the Company issued and sold 20,000,000 Class A shares at an IPO price of $14.00 per share. The Company’s Class A shares began trading on NASDAQ Global Select Market (“NASDAQ”) under the symbol “NFE” on January 31, 2019. Net proceeds from the IPO were $257.0 million, after deducting underwriting discounts and commissions and transaction costs. These proceeds were contributed to New Fortress Intermediate LLC (“NFI”), an entity formed in conjunction with the IPO, in exchange for 20,000,000 limited liability company units in NFI (“NFI LLC Units”). In addition, New Fortress Energy Holdings contributed all of its interests in consolidated subsidiaries that comprised substantially all of its historical operations to NFI in exchange for NFI LLC Units. In connection with the IPO, New Fortress Energy Holdings also received 147,058,824 Class B shares of the Company, which is equal to the number of NFI LLC Units held by New Fortress Energy Holdings immediately following the IPO. New Fortress Energy Holdings retained a significant interest in NFE through its ownership of 147,058,824 Class B shares, representing a 88.0% voting and non-economic interest. New Fortress Energy Holdings also had an 88.0% economic interest in NFI through its ownership of 147,058,824 of NFI LLC Units. New Fortress Energy Holdings has been determined to be NFE’s predecessor for accounting purposes.

On March 1, 2019, the underwriters of the IPO exercised their option to purchase an additional 837,272 Class A shares at the IPO price of $14.00 per share, less underwriting discounts, which resulted in $11.0 million in additional net proceeds after deducting $0.7 million of underwriting discounts and commissions, such that there were 20,837,272 outstanding Class A shares. In connection with the exercise of the underwriters’ option to purchase an additional 837,272 Class A shares, NFE contributed such additional net proceeds to NFI in exchange for 837,272 NFI LLC Units.

NFE is a holding company whose sole material asset is a controlling equity interest in NFI. As the sole managing member of NFI, NFE operates and controls all of the business and affairs of NFI, and through NFI and its subsidiaries, conducts the Company’s historical business. The contribution of the assets of New Fortress Energy Holdings and net proceeds from the IPO to NFI was treated as a reorganization of entities under common control. As a result, NFE presented the condensed consolidated balance sheets and statements of operations and comprehensive loss of New Fortress Energy Holdings for all periods prior to the IPO.

6

On June 3, 2020, the Company entered into a mutual agreement (the “Mutual Agreement”) with the members holding the majority voting interest in New Fortress Energy Holdings (“Exchanging Members”) and NFE Sub LLC, a wholly-owned subsidiary of the Company.  Pursuant to the Mutual Agreement, the Exchanging Members agreed to deliver a block redemption notice in accordance with the Amended and Restated Limited Liability Company Agreement of NFI (the “NFI LLCA”) with respect to all of the NFI LLC Units, together with an equal number of Class B shares of the Company, that such Exchanging Members indirectly own as members of New Fortress Energy Holdings.  Pursuant to the Mutual Agreement, the Company agreed to exercise the Call Right (as defined in the NFI LLCA), pursuant to which the Company would acquire such NFI LLC Units and such Class B shares in exchange for Class A shares of the Company (the “Exchange Transactions”). The Exchange Transactions were completed on June 10, 2020. In connection with the closing of the Exchange Transactions, the Company issued 144,342,572 Class A shares in exchange for an equal number of NFI LLC Units, together with an equal number of Class B shares of the Company. Following the completion of the Exchange Transactions, the Company owns all of the NFI LLC Units directly or indirectly and no Class B shares remain outstanding.

Prior to the Exchange Transactions, the Company recognized the Exchanging Members’ economic interest in NFI as non-controlling interest in the Company’s condensed consolidated financial statements. Results of operations for the period prior to the date of the Exchange Transactions, June 10, 2020, was attributed to non-controlling interest based on the Exchanging Members’ interest in NFI; subsequent to the Exchange Transactions, results of operations, excluding results attributable to other investors in non-wholly owned subsidiaries, were recognized as net income or loss attributable to stockholders. Amounts that were attributable to these Exchanging Members' prior interest in NFI previously shown as non-controlling interest on the Company’s consolidated balance sheets have been reclassified to Class A shares.

On August 7, 2020, the Company converted New Fortress Energy LLC (“NFE LLC”) from a Delaware limited liability company to a Delaware corporation named New Fortress Energy Inc. (“the Conversion”). Since the IPO, NFE LLC has been a corporation for U.S. federal tax purposes, and converting NFE LLC from a limited liability company to a corporation has no effect on the U.S. federal tax treatment of the Company or its shareholders. Upon the Conversion, each Class A share, representing Class A limited liability company interests of NFE LLC (“Class A shares”), outstanding immediately prior to the Conversion were converted into one issued and outstanding, fully paid and nonassessable share of Class A common stock, $0.01 par value per share, of the Company (“Class A common stock”). Class A shares shown on the Company’s condensed consolidated statements of changes in stockholders’ equity were reclassified to Class A common stock and Additional paid-in capital with no change to Total stockholders’ equity. As of September 30, 2020, NFE had 168,738,423 Class A common stock outstanding.

(b)
Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include relative fair value allocations between revenue and lease components of contracts with customers, determination of current expected credit losses, total consideration and fair value of identifiable net assets related to acquisitions and the fair value of equity awards granted to both employees and non-employees. Management evaluates its estimates and related assumptions regularly. Changes in facts and circumstances or additional information may result in revised estimates, and actual results may differ from these estimates.

(c)
Legal and contingencies

The Company may be involved in legal actions in the ordinary course of business, including governmental and administrative investigations, inquiries and proceedings concerning employment, labor, environmental and other claims. The Company will recognize a loss contingency in the condensed consolidated financial statements when it is probable a liability has been incurred and the amount of the loss can be reasonably estimated. The Company will disclose any loss contingencies that do not meet both conditions if there is a reasonable possibility that a loss may have been incurred. Gain contingencies are not recorded until they are realized.

(d)
Revenue recognition

The Company’s contracts with customers may contain one or several performance obligations usually consisting of the sale of LNG, natural gas, and beginning in the first quarter of 2020, power and steam which are outputs from the Company’s natural gas-fueled infrastructure. The transaction price for each of these contracts is structured using similar inputs and factors regardless of the output delivered to the customer. The customers consume the benefit of the natural gas, power and steam when they are delivered by the Company to the customer’s power generation facilities or interconnection facility. Natural gas, power and steam qualify as a series with revenue being recognized over time using an output method, based on the quantity of natural gas, power, or steam that the customer has consumed. LNG is typically delivered in containers transported by truck to customer sites. Revenue from sales of LNG delivered by truck is recognized at the point in time at which physical possession and the risks and rewards of ownership transfer to the customer, either when the containers are shipped or delivered to the customers’ storage facilities, depending on the terms of the contract. Because the nature, timing and uncertainty of revenue and cash flows are substantially the same for LNG, natural gas, power and steam, the Company has presented Operating revenue on an aggregated basis.

7

The Company has concluded that variable consideration included in its agreements meets the exception for allocating variable consideration. As such, the variable consideration for these contracts is allocated to each distinct unit of LNG, natural gas, power or steam delivered and recognized when that distinct unit is delivered to the customer.

The Company’s contracts with customers to supply natural gas or LNG may contain a lease of equipment. The Company allocates consideration received from customers between lease and non-lease components based on the relative fair value of each component. The fair value of the lease component is estimated based on the estimated standalone selling price of the same or similar equipment leased to the customer. The Company estimates the fair value of the non-lease component by forecasting volumes and pricing of gas to be delivered to the customer over the lease term.

The leases of certain facilities and equipment to customers are accounted for as finance or operating leases. The current and non-current portion of finance leases are recorded within Prepaid expenses and other current assets and Finance leases, net on the condensed consolidated balance sheets, respectively. For finance leases accounted for as sales-type leases, the profit from the sale of equipment is recognized upon lease commencement in Other revenue in the condensed consolidated statements of operations and comprehensive loss. The lease payments for finance leases are segregated into principal and interest components similar to a loan. Interest income is recognized on an effective interest method over the lease term and included in Other revenue in the condensed consolidated statements of operations and comprehensive loss. The principal component of the lease payment is reflected as a reduction to the net investment in the lease. For the Company’s operating leases, the amount allocated to the leasing component is recognized over the lease term as Other revenue in the condensed consolidated statements of operations and comprehensive loss.

In addition to the revenue recognized from the leasing components of agreements with customers, Other revenue includes revenue recognized from the construction, installation and commissioning of equipment, inclusive of natural gas delivered for the commissioning process, to transform customers’ facilities to operate utilizing natural gas or to allow customers to receive power or other outputs from our natural gas-fueled power generation facilities. Revenue from these development services is recognized over time as the Company transfers control of the asset to the customer or based on the quantity of natural gas consumed as part of commissioning the customer’s facilities until such time that the customer has declared such conversion services have been completed. If the customer is not able to obtain control over the asset under construction until such services are completed, revenue is recognized when the services are completed and the customer has control of the infrastructure. Such agreements may also include a significant financing component, and the Company recognizes revenue for the interest income component over the term of the financing as Other revenue.

Shipping and handling costs are not considered to be separate performance obligations. These costs are recognized in the period in which the costs are incurred and presented within Cost of sales in the condensed consolidated statements of operations and comprehensive loss. All such shipping and handling activities are performed prior to the customer obtaining control of the LNG or natural gas.

The Company collects sales taxes from its customers based on sales of taxable products and remits such collections to the appropriate taxing authority. The Company has elected to present sales tax collections in the condensed consolidated statements of operations and comprehensive loss on a net basis and, accordingly, such taxes are excluded from reported revenues.

The Company elected the practical expedient under which the Company does not adjust consideration for the effects of a significant financing component for those contracts where the Company expects at contract inception that the period between transferring goods to the customer and receiving payment from the customer will be one year or less.

(e)
Contract termination charges and loss on mitigation sales

The Company has long-term supply agreements to purchase LNG, and the Company may incur termination charges to the extent that the Company cancels such contractual arrangements. Further, if the Company is unable to take physical possession of a portion of the contracted quantity of LNG due to capacity limitations, the supplier will attempt to sell the undelivered quantity through a mitigation sale. The Company may incur a loss on a mitigation sale if the cargo is unable to be sold for a price greater than the contracted price. These costs are included in a separate line in the condensed consolidated statements of operations and comprehensive loss because such costs are not related to inventory delivered to the Company’s customers.

8

During the nine months ended September 30, 2020, the Company recognized a termination charge of $105,000 associated with an agreement with one of the Company’s LNG suppliers to terminate the obligation to purchase any LNG from this supplier for the remainder of 2020. Loss on mitigation sales of $19,114 were recognized in the nine months ended September 30, 2020.

(f)
Credit losses

Financial assets recorded at amortized cost, which include trade and other receivables, contracts assets, and finance lease receivables, are presented net of an allowance for current expected credit losses. Amounts are written off against the allowance when management is certain that outstanding amounts will not be collected. The Company estimates expected credit losses based on relevant information about the current credit quality of our customers, past events, including historical experience, and reasonable and supportable forecasts that affect the collectability of the reported amount. Credit loss expense is recorded within Selling, general and administrative in the condensed consolidated statements of operations and comprehensive loss.

3.
Adoption of new and revised standards

Following the issuance of Senior Secured Notes (defined below) on September 2, 2020, the Company ceased to qualify as an “emerging growth company” or EGC and is required to accelerate the adoption of certain new or revised accounting pronouncements. The adoption dates below reflect the changes as a result of no longer qualifying as an EGC.

(a)
New standards, amendments and interpretations issued but not effective for the financial year beginning January 1, 2020:

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes, including removing certain exceptions related to the general principles in ASU 740, Income Taxes. ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes. The new standard is effective for interim and annual periods beginning after December 15, 2020, and early adoption is permitted. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements.

(b)
New and amended standards adopted by the Company:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments  Credit Losses (Topic 326): Disclosure Framework  Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires financial assets measured at amortized cost basis, including trade receivables, to be presented net of the amount expected to be collected. The measurement of all expected credit losses will be based on relevant information about the credit quality of our customers, past events, including historical experience, and reasonable and supportable forecasts that affect the collectability of the reported amount. Upon the loss of EGC status, ASU 2016-13 was adopted in the third quarter of 2020 with an effective date of January 1, 2020. The Company elected to apply the modified retrospective transition method, which allowed the Company to begin recognizing and measuring current expected credit losses at January 1, 2020, without modifying the comparative period financial statements. In connection with the adoption of ASC 2016-13, the Company recorded a transition adjustment of $228 which was recorded as an adjustment to retained earnings. The Company recorded credit loss expense of $149 and $385 for the three and nine months ended September 30, 2020, respectively.

On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (“ASC 842”), which amends the existing accounting standards for lease accounting, including requiring most leases to be recognized on a lessee’s balance sheet and making targeted changes to lessor accounting. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee will depend primarily on the lease’s classification as a finance or operating lease. However, unlike ASC 840, which required only capital leases to be recognized on the balance sheet, ASC 842 requires most leases to be recognized on the balance sheet as a right-of-use (“ROU”) asset and a lease liability.

The Company has entered into lease agreements for the use of LNG vessels, marine port space, office space, land and equipment, all of which are operating leases. ROU assets recognized for these leases represent the Company’s right to use an underlying asset for the lease term, and the lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of fixed lease payments over the lease term. The incremental borrowing rate used to calculate the present value of lease payments is determined using existing credit rates of unsecured borrowings adjusted for collateral, which are then adjusted for the appropriate lease term and currency.

9

The Company adopted ASC 842 effective January 1, 2020 and elected to apply the modified retrospective transition method at the beginning of the period of adoption, which allowed the Company to begin recognizing and measuring leases under ASC 842 at January 1, 2020, without modifying the comparative period financial statements. Upon adoption of ASC 842, the Company recorded ROU assets and corresponding lease liabilities of $124,774 and $103,874, respectively.

The Company did not elect the package of practical expedients and therefore, as part of transition, the Company reassessed the previous conclusions made under ASC 840 related to the identification of leases, classification of leases and initial direct costs based on the standards of ASC 842. In connection with the reassessment of previous conclusions, the Company determined that the direct financing lease recognized related to the Montego Bay Facility is no longer a lease under ASC 842. The Company recognized a transition adjustment that removed the unamortized net investment in the direct financing lease and recognized the underlying assets as Property, plant and equipment, net of depreciation, that would have been recognized since the commissioning of the Montego Bay Facility, with the difference of approximately $9,085, net of taxes of $2,945, recorded as a reduction to retained earnings. Beginning in 2020, the Company will recognize payments previously allocated to the leasing component of the gas sales agreement with this customer within Operating revenue in the condensed consolidated statements of operations and comprehensive loss. Under ASC 840, amounts allocated to the leasing component had been recognized on an effective interest method over the lease term with only the portion representing interest income recognized as Other revenue.

The Company made an accounting policy election to exclude leases with terms of 12 months or less from ROU assets and lease liabilities on the balance sheet, and short-term lease payments are recognized on a straight-line basis over the lease term. Variable payments under short-term leases are recognized in the period in which the obligation that triggers the variable payment becomes probable.  The Company, as lessee, has also elected the practical expedient not to separate lease and non-lease components for marine port space, office space, land and equipment leases.  The Company will separate the lease and non-lease components for LNG vessel leases.  The allocation of lease payments between lease and non-lease components has been determined based on the relative fair value of each component. The fair value of the lease component is estimated based on the estimated standalone price to lease a bareboat LNG vessel. The fair value of the non-lease component is estimated based on the estimated standalone price of operating the respective vessel, inclusive of the costs of the crew and other operating costs.

The Company, as lessor, will continue to separate lease and non-lease components for the equipment leases provided in connection with agreements for the sale of LNG or natural gas to customers.

The Company has elected the land easement practical expedient, which allows the Company to continue to account for pre-existing land easements as intangible assets under the accounting policy that existed before adoption of ASC 842.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which provides additional guidance to improve the effectiveness of disclosure requirements on fair value measurement. The Company has adopted ASU 2018-13 for the year beginning January 1, 2020. As this guidance is only related to qualitative financial disclosures, it did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets. A customer’s accounting for the costs of the hosting component of the arrangement is not affected by the new guidance. The Company has early adopted ASU 2018-15 for the year beginning January 1, 2020, using the prospective transition approach. This approach did not require any adjustment to comparative financial statements. The Company did not capitalize a material amount of implementation costs as a result of adopting this guidance in the three or nine months ended September 30, 2020, and the adoption did not result in material impact on the Company’s condensed consolidated financial statements.

4.
Revenue from contracts with customers

Under most customer contracts, invoicing occurs once the Company’s performance obligations have been satisfied, at which point payment is unconditional. As of September 30, 2020 and December 31, 2019, receivables related to revenue from contracts with customers totaled $91,337 and $40,731, respectively, and were included in Receivables, net on the condensed consolidated balance sheets, net of current expected credit losses of $183 and $0, respectively. Other items included in Receivables, net not related to revenue from contracts with customers represent receivables associated with reimbursable costs and leases which are accounted for outside the scope of ASC 606.

10

The Company has recognized contract liabilities, comprised of unconditional payments due or paid under the contracts with customers prior to the Company’s satisfaction of the related performance obligations. The performance obligations are expected to be satisfied during the next 12 months, and the contract liabilities are classified within Other current liabilities on the condensed consolidated balance sheets. Contract assets are comprised of the transaction price allocated to completed performance obligations that will be billed to customers in subsequent periods. The contract liabilities and contract assets balances as of September 30, 2020 and December 31, 2019 are detailed below:

 
September 30,
2020
   
December 31,
2019
 
Contract assets, net - current
 
$
110
   
$
3,787
 
Contract assets, net - non-current
   
27,563
     
19,474
 
Total contract assets, net
 
$
27,673
   
$
23,261
 
                 
Contract liabilities
 
$
7,682
   
$
6,542
 
                 
Revenue recognized in the year from:
               
Amounts included in contract liabilities at the beginning of the year
 
$
5,394
   
$
-
 

Contract assets are presented net of expected credit losses of $373 and $0 as of September 30, 2020 and December 31, 2019, respectively. As of September 30, 2020, the Company has unbilled receivables, net of current expected credit losses, of $6,907, of which $356 is presented within Other current assets and $6,551 is presented within Other non-current assets on the condensed consolidated balance sheet. These unbilled receivables represent unconditional right to payment subject only to the passage of time.