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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
OR
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¨ | 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, NY | 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 x 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 x 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 x | 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 x
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 November 4, 2022, the registrant had 208,770,088 shares of Class A common stock outstanding.
TABLE OF CONTENTS
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:
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ADO | automotive diesel oil |
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Bcf/yr | billion cubic feet per year |
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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 |
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CAA | Clean Air Act |
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CERCLA | Comprehensive Environmental Response, Compensation and Liability Act |
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CWA | Clean Water Act |
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DOE | U.S. Department of Energy |
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DOT | U.S. Department of Transportation |
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EPA | U.S. Environmental Protection Agency |
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FTA countries | countries with which the United States has a free trade agreement providing for national treatment for trade in natural gas |
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GAAP | generally accepted accounting principles in the United States |
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GHG | greenhouse gases |
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GSA | gas sales agreement |
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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 |
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ISO container | International Organization of Standardization, an intermodal container |
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LNG | natural gas in its liquid state at or below its boiling point at or near atmospheric pressure |
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MMBtu | one million Btus, which corresponds to approximately 12.1 gallons of LNG |
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mtpa | metric tons per year |
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MW | megawatt. We estimate 2,500 LNG gallons would be required to produce one megawatt |
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NGA | Natural Gas Act of 1938, as amended |
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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 |
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OPA | Oil Pollution Act |
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OUR | Office of Utilities Regulation (Jamaica) |
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PHMSA | Pipeline and Hazardous Materials Safety Administration |
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PPA | power purchase agreement |
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SSA | steam supply agreement |
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TBtu | one trillion Btus, which corresponds to approximately 12,100,000 gallons of LNG |
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;
•the results of our subsidiaries, affiliates, joint ventures and special purpose entities in which we invest and their ability to make dividends or distributions to us;
•construction and operational risks related to our facilities and assets, including cost overruns and delays;
•complex regulatory and legal environments related to our business, assets and operations, including actions by governmental entities or changes to regulation or legislation, in particular related to our permits, approvals and authorizations for the construction and operation of our facilities;
•delays or failure to obtain and maintain approvals and permits from governmental and regulatory agencies;
•failure to maintain sufficient working capital for the development and operation of our business and assets;
•failure to obtain a return on our investments for the development of our projects and assets and the implementation of our business strategy;
•failure to convert our customer pipeline into actual sales;
•lack of asset, geographic or customer diversification, including loss of one or more of our customers;
•competition from third parties in our business;
•failure of LNG or natural gas to be a competitive source of energy in the markets in which we operate, and seek to operate;
•cyclical or other changes in the demand for and price of LNG and natural gas;
•inability to procure LNG at necessary quantities or at favorable prices to meet customer demand, or otherwise to manage LNG supply and price risks, including hedging arrangements;
•inability to successfully develop and implement our technological solutions;
•inability to service our debt and comply with our covenant restrictions;
•inability to obtain additional financing to effect our strategy;
•inability to successfully complete mergers, sales, divestments or similar transactions related to our businesses or assets or to integrate such businesses or assets and realize the anticipated benefits, including with respect to the Mergers (defined below);
•economic, political, social and other risks related to the jurisdictions in which we do, or seek to do, business;
•weather events or other natural or manmade disasters or phenomena;
•the extent of the global COVID-19 pandemic or any other major health and safety incident;
•increased labor costs, disputes or strikes, and the unavailability of skilled workers or our failure to attract and retain qualified personnel;
•the tax treatment of, or changes in tax laws applicable to, us or our business or of an investment in our Class A shares; 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, 2021 (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.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
New Fortress Energy Inc.
Condensed Consolidated Balance Sheets
As of September 30, 2022 and December 31, 2021
(Unaudited, in thousands of U.S. dollars, except share amounts)
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Assets | | | |
Current assets | | | |
Cash and cash equivalents | $ | 364,313 | | | $ | 187,509 | |
Restricted cash | 24,204 | | | 68,561 | |
Receivables, net of allowances of $854 and $164, respectively | 438,440 | | | 208,499 | |
Inventory | 62,801 | | | 37,182 | |
Prepaid expenses and other current assets, net | 154,798 | | | 83,115 | |
Total current assets | 1,044,556 | | | 584,866 | |
| | | |
Restricted cash | 2,581 | | | 7,960 | |
Construction in progress | 1,835,289 | | | 1,043,883 | |
Property, plant and equipment, net | 2,131,912 | | | 2,137,936 | |
Equity method investments | 1,016,350 | | | 1,182,013 | |
Right-of-use assets | 391,488 | | | 309,663 | |
Intangible assets, net | 92,339 | | | 142,944 | |
Finance leases, net | 5,573 | | | 602,675 | |
Goodwill | 778,488 | | | 760,135 | |
Deferred tax assets, net | 4,750 | | | 5,999 | |
Other non-current assets, net | 137,658 | | | 98,418 | |
Total assets | $ | 7,440,984 | | | $ | 6,876,492 | |
| | | |
Liabilities | | | |
Current liabilities | | | |
Current portion of long-term debt | $ | 58,188 | | | $ | 97,251 | |
Accounts payable | 104,042 | | | 68,085 | |
Accrued liabilities | 278,732 | | | 244,025 | |
Current lease liabilities | 51,362 | | | 47,114 | |
Other current liabilities | 78,670 | | | 106,036 | |
Total current liabilities | 570,994 | | | 562,511 | |
| | | |
Long-term debt | 4,397,099 | | | 3,757,879 | |
Non-current lease liabilities | 317,268 | | | 234,060 | |
Deferred tax liabilities, net | 101,107 | | | 269,513 | |
Other long-term liabilities | 52,319 | | | 58,475 | |
Total liabilities | 5,438,787 | | | 4,882,438 | |
| | | |
Commitments and contingencies (Note 22) | | | |
| | | |
Stockholders’ equity | | | |
Class A common stock, $0.01 par value, 750 million shares authorized, 208.8 million issued and outstanding as of September 30, 2022; 206.9 million issued and outstanding as of December 31, 2021 | 2,088 | | | 2,069 | |
Additional paid-in capital | 1,801,719 | | | 1,923,990 | |
Accumulated deficit | (2,047) | | | (132,399) | |
Accumulated other comprehensive income (loss) | 45,613 | | | (2,085) | |
Total stockholders’ equity attributable to NFE | 1,847,373 | | | 1,791,575 | |
Non-controlling interest | 154,824 | | | 202,479 | |
Total stockholders’ equity | 2,002,197 | | | 1,994,054 | |
Total liabilities and stockholders’ equity | $ | 7,440,984 | | | $ | 6,876,492 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
New Fortress Energy Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
For the three and nine months ended September 30, 2022 and 2021
Unaudited, in thousands of U.S. dollars, except share and per share amounts) | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Revenues | | | | | | | |
Operating revenue | $ | 632,684 | | | $ | 188,389 | | | $ | 1,529,999 | | | $ | 382,421 | |
Vessel charter revenue | 92,860 | | | 78,656 | | | 260,414 | | | 143,217 | |
Other revenue | 6,386 | | | 37,611 | | | 31,490 | | | 148,541 | |
Total revenues | 731,930 | | | 304,656 | | | 1,821,903 | | | 674,179 | |
| | | | | | | |
Operating expenses | | | | | | | |
Cost of sales | 393,830 | | | 135,432 | | | 874,529 | | | 333,533 | |
Vessel operating expenses | 20,318 | | | 15,301 | | | 61,910 | | | 30,701 | |
Operations and maintenance | 22,033 | | | 20,144 | | | 65,691 | | | 54,960 | |
Selling, general and administrative | 67,601 | | | 46,802 | | | 165,952 | | | 124,954 | |
Transaction and integration costs | 5,620 | | | 1,848 | | | 12,387 | | | 42,564 | |
| | | | | | | |
Depreciation and amortization | 35,793 | | | 31,194 | | | 106,439 | | | 68,080 | |
Asset impairment expense | — | | | — | | | 48,109 | | | — | |
Total operating expenses | 545,195 | | | 250,721 | | | 1,335,017 | | | 654,792 | |
Operating income | 186,735 | | | 53,935 | | | 486,886 | | | 19,387 | |
Interest expense | 63,588 | | | 57,595 | | | 156,344 | | | 107,757 | |
Other expense (income), net | 10,214 | | | (5,400) | | | (31,613) | | | (13,458) | |
Loss on extinguishment of debt, net | 14,997 | | | — | | | 14,997 | | | — | |
Net income (loss) before income from equity method investments and income taxes | 97,936 | | | 1,740 | | | 347,158 | | | (74,912) | |
(Loss) income from equity method investments | (31,734) | | | (15,983) | | | (354,426) | | | 22,958 | |
Tax provision (benefit) | 9,971 | | | 3,526 | | | (126,249) | | | 7,058 | |
Net income (loss) | 56,231 | | | (17,769) | | | 118,981 | | | (59,012) | |
Net loss attributable to non-controlling interest | 5,617 | | | 7,963 | | | 11,371 | | | 5,259 | |
Net income (loss) attributable to stockholders | $ | 61,848 | | | $ | (9,806) | | | $ | 130,352 | | | $ | (53,753) | |
| | | | | | | |
Net income (loss) per share – basic | $ | 0.30 | | | $ | (0.05) | | | $ | 0.62 | | | $ | (0.27) | |
Net income (loss) per share - diluted | $ | 0.29 | | | $ | (0.05) | | | $ | 0.62 | | | $ | (0.27) | |
| | | | | | | |
Weighted average number of shares outstanding – basic | 209,629,936 | | | 207,497,013 | | | 209,749,139 | | | 195,626,564 | |
Weighted average number of shares outstanding – diluted | 209,800,427 | | | 207,497,013 | | | 209,869,058 | | | 195,626,564 | |
| | | | | | | |
Other comprehensive income (loss): | | | | | | | |
Net income (loss) | $ | 56,231 | | | $ | (17,769) | | | $ | 118,981 | | | $ | (59,012) | |
Currency translation adjustment | (33,087) | | | 76,996 | | | 48,040 | | | (23,697) | |
Comprehensive income (loss) | 23,144 | | | (94,765) | | | 167,021 | | | (35,315) | |
Comprehensive loss attributable to non-controlling interest | 6,085 | | | 8,162 | | | 11,029 | | | 6,005 | |
Comprehensive income (loss) attributable to stockholders | $ | 29,229 | | | $ | (86,603) | | | $ | 178,050 | | | $ | (29,310) | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
New Fortress Energy Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the three and nine months ended September 30, 2022 and 2021
(Unaudited, in thousands of U.S. dollars, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Class A common stock | | Additional paid-in capital | | Accumulated deficit | | Accumulated other comprehensive (loss) income | | Non- controlling interest | | Total stockholders’ equity |
| | | | | | | | | Shares | | Amount |
Balance as of December 31, 2021 | | | | | | | | | 206,863,242 | | | $ | 2,069 | | | $ | 1,923,990 | | | $ | (132,399) | | | $ | (2,085) | | | $ | 202,479 | | | $ | 1,994,054 | |
Net income | | | | | | | | | — | | | — | | | — | | | 238,269 | | | — | | | 2,912 | | | 241,181 | |
Other comprehensive income | | | | | | | | | — | | | — | | | — | | | — | | | 118,874 | | | 1,956 | | | 120,830 | |
Share-based compensation expense | | | | | | | | | — | | | — | | | 880 | | | — | | | — | | | — | | | 880 | |
| | | | | | | | | | | | | | | | | | | | | |
Issuance of shares for vested RSUs | | | | | | | | | 1,121,255 | | | 7 | | | — | | | — | | | — | | | — | | | 7 | |
Shares withheld from employees related to share-based compensation, at cost | | | | | | | | | (442,146) | | | — | | | (15,274) | | | — | | | — | | | — | | | (15,274) | |
| | | | | | | | | | | | | | | | | | | | | |
Dividends | | | | | | | | | — | | | — | | | (20,754) | | | — | | | — | | | (3,019) | | | (23,773) | |
Balance as of March 31, 2022 | | | | | | | | | 207,542,351 | | | $ | 2,076 | | | $ | 1,888,842 | | | $ | 105,870 | | | $ | 116,789 | | | $ | 204,328 | | | $ | 2,317,905 | |
Net loss | | | | | | | | | — | | | — | | | — | | | (169,765) | | | — | | | (8,666) | | | (178,431) | |
Other comprehensive loss | | | | | | | | | — | | | — | | | — | | | — | | | (38,557) | | | (1,146) | | | (39,703) | |
Share-based compensation expense | | | | | | | | | — | | | — | | | 358 | | | — | | | — | | | — | | | 358 | |
| | | | | | | | | | | | | | | | | | | | | |
Issuance of shares for vested RSUs | | | | | | | | | 13,898 | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Dividends | | | | | | | | | — | | | — | | | (20,582) | | | — | | | — | | | (7,019) | | | (27,601) | |
Balance as of June 30, 2022 | | | | | | | | | 207,556,249 | | | $ | 2,076 | | | $ | 1,868,618 | | | $ | (63,895) | | | $ | 78,232 | | | $ | 187,497 | | | $ | 2,072,528 | |
Net income (loss) | | | | | | | | | — | | | — | | | — | | | 61,848 | | | — | | | (5,617) | | | 56,231 | |
Other comprehensive loss | | | | | | | | | — | | | — | | | — | | | — | | | (32,619) | | | (468) | | | (33,087) | |
Share-based compensation expense | | | | | | | | | — | | | — | | | 13,417 | | | — | | | — | | | — | | | 13,417 | |
Issuance of shares for vested RSU/PSUs | | | | | | | | | 2,291,060 | | | 12 | | | (12) | | | — | | | — | | | — | | | — | |
Shares withheld from employees related to share-based compensation, at cost | | | | | | | | | (1,077,221) | | | — | | | (59,548) | | | — | | | — | | | — | | | (59,548) | |
Deconsolidation of vessels | | | | | | | | | — | | | — | | | — | | | — | | | — | | | (23,569) | | | (23,569) | |
Dividends | | | | | | | | | — | | | — | | | (20,756) | | | — | | | — | | | (3,019) | | | (23,775) | |
Balance as of September 30, 2022 | | | | | | | | | 208,770,088 | | | $ | 2,088 | | | $ | 1,801,719 | | | $ | (2,047) | | | $ | 45,613 | | | $ | 154,824 | | | $ | 2,002,197 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Class A common stock | | Additional paid-in capital | | Accumulated deficit | | Accumulated other comprehensive (loss) income | | Non- controlling interest | | Total stockholders’ equity |
| | | | | | | Shares | | Amount |
Balance as of December 31, 2020 | | | | | | | | | 174,622,862 | | | $ | 1,746 | | | $ | 594,534 | | | $ | (229,503) | | | $ | 182 | | | $ | 8,127 | | | $ | 375,086 | |
| | | | | | | | | | | | | | | | | | | | | |
Net loss | | | | | | | | | — | | | — | | | — | | | (37,903) | | | — | | | (1,606) | | | (39,509) | |
Other comprehensive loss | | | | | | | | | — | | | — | | | — | | | — | | | (123) | | | (874) | | | (997) | |
Share-based compensation expense | | | | | | | | | — | | | — | | | 1,770 | | | — | | | — | | | — | | | 1,770 | |
Issuance of shares for vested RSUs | | | | | | | | | 1,335,787 | | | — | | | — | | | — | | | — | | | — | | | — | |
Shares withheld from employees related to share-based compensation, at cost | | | | | | | | | (638,235) | | | — | | | (27,571) | | | — | | | — | | | — | | | (27,571) | |
Dividends | | | | | | | | | | | | | (17,598) | | | | | | | | | (17,598) | |
Balance as of March 31, 2021 | | | | | | | | | 175,320,414 | | | $ | 1,746 | | | $ | 551,135 | | | $ | (267,406) | | | $ | 59 | | | $ | 5,647 | | | $ | 291,181 | |
Net (loss) income | | | | | | | | | — | | | — | | | — | | | (6,044) | | | — | | | 4,310 | | | (1,734) | |
Other comprehensive income | | | | | | | | | — | | | — | | | — | | | — | | | 101,363 | | | 327 | | | 101,690 | |
Share-based compensation expense | | | | | | | | | — | | | — | | | 1,613 | | | — | | | — | | | — | | | 1,613 | |
Shares issued as consideration in business combinations | | | | | | | | | 31,372,549 | | | 314 | | | 1,400,470 | | | — | | | — | | | — | | | 1,400,784 | |
Issuance of shares for vested RSUs | | | | | | | | | 8,930 | | | — | | | — | | | — | | | — | | | — | | | — | |
Shares withheld from employees related to share-based compensation, at cost | | | | | | | | | (3,329) | | | — | | | (164) | | | — | | | — | | | — | | | (164) | |
Non-controlling interest acquired in business combinations | | | | | | | | | — | | | — | | | — | | | — | | | — | | | 229,285 | | | 229,285 | |
Dividends | | | | | | | | | — | | | — | | | (20,736) | | | — | | | — | | | | | (20,736) | |
Balance as of June 30, 2021 | | | | | | | | | 206,698,564 | | | $ | 2,060 | | | $ | 1,932,318 | | | $ | (273,450) | | | $ | 101,422 | | | $ | 239,569 | | | $ | 2,001,919 | |
Net loss | | | | | | | | | — | | | — | | | — | | | (9,806) | | | — | | | (7,963) | | | (17,769) | |
Other comprehensive loss | | | | | | | | | — | | | — | | | — | | | — | | | (76,797) | | | (199) | | | (76,996) | |
Share-based compensation expense | | | | | | | | | — | | | — | | | 1,562 | | | — | | | — | | | — | | | 1,562 | |
Adjustments related to business combination | | | | | | | | | — | | | — | | | — | | | — | | | — | | | (319) | | | (319) | |
Issuance of shares for vested RSUs | | | | | | | | | 193,193 | | | 9 | | | (9) | | | — | | | — | | | — | | | — | |
Shares withheld from employees related to share-based compensation, at cost | | | | | | | | | (28,515) | | | — | | | (478) | | | — | | | — | | | — | | | (478) | |
Dividends | | | | | | | | | — | | | — | | | (20,750) | | | — | | | — | | | (3,019) | | | (23,769) | |
Balance as of September 30, 2021 | | | | | | | | | 206,863,242 | | | $ | 2,069 | | | $ | 1,912,643 | | | $ | (283,256) | | | $ | 24,625 | | | $ | 228,069 | | | $ | 1,884,150 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
New Fortress Energy Inc.
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2022 and 2021
(Unaudited, in thousands of U.S. dollars)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
Cash flows from operating activities | | | |
Net income (loss) | $ | 118,981 | | | $ | (59,012) | |
Adjustments for: | | | |
Amortization of deferred financing costs and debt guarantee, net | 3,201 | | | 9,503 | |
Depreciation and amortization | 107,185 | | | 68,971 | |
Loss (earnings) of equity method investees | 354,426 | | | (22,958) | |
Drydocking expenditure | (15,028) | | | — | |
Dividends received from equity method investees | 23,195 | | | 14,259 | |
| | | |
| | | |
Change in market value of derivatives | (6,700) | | | (4,955) | |
Deferred taxes | (203,026) | | | (4,280) | |
| | | |
Share-based compensation | 14,655 | | | 4,945 | |
Asset impairment expense | 48,109 | | | — | |
Earnings recognized from vessels chartered to third parties by Energos | (14,341) | | | — | |
Loss on extinguishment of debt | 14,997 | | | — | |
Loss on sale of net investment in lease | 11,592 | | | — | |
Other | 12,636 | | | (5,735) | |
Changes in operating assets and liabilities, net of acquisitions: | | | |
(Increase) in receivables | (287,748) | | | (75,633) | |
(Increase) in inventories | (28,078) | | | (56,172) | |
(Increase) decrease in other assets | (93,329) | | | 25,500 | |
Decrease in right-of-use assets | 51,265 | | | 3,149 | |
Increase (decrease) in accounts payable/accrued liabilities | (10,487) | | | (2,530) | |
(Decrease) in amounts due to affiliates | (3,220) | | | (2,070) | |
(Decrease) in lease liabilities | (47,237) | | | (2,510) | |
Increase (decrease) in other liabilities | 40,057 | | | (30,159) | |
Net cash provided by (used in) operating activities | 91,105 | | | (139,687) | |
| | | |
Cash flows from investing activities | | | |
Capital expenditures | (787,166) | | | (430,549) | |
Cash paid for business combinations, net of cash acquired | — | | | (1,586,042) | |
Entities acquired in asset acquisitions, net of cash acquired | — | | | (8,817) | |
Proceeds from the sale of net investment in lease | 593,000 | | | — | |
Other investing activities | (1,794) | | | (5,750) | |
Net cash (used in) investing activities | (195,960) | | | (2,031,158) | |
| | | |
Cash flows from financing activities | | | |
Proceeds from borrowings of debt | 1,932,020 | | | 2,234,650 | |
Payment of deferred financing costs | (16,093) | | | (35,846) | |
Repayment of debt | (1,518,471) | | | (229,887) | |
Payments related to tax withholdings for share-based compensation | (72,597) | | | (29,717) | |
Payment of dividends | (75,149) | | | (65,051) | |
Net cash provided by financing activities | 249,710 | | | 1,874,149 | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (4,896) | | | 1,960 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 139,959 | | | (294,736) | |
Cash, cash equivalents and restricted cash – beginning of period | 264,030 | | | 629,336 | |
Cash, cash equivalents and restricted cash – end of period | $ | 403,989 | | | $ | 334,600 | |
| | | |
| | | | | | | | | | | |
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 | $ | 112,886 | | | $ | 187,295 | |
Liabilities associated with consideration paid for entities acquired in asset acquisitions | — | | | 9,959 | |
Consideration paid in shares for business combinations | — | | | 1,400,784 | |
Principal payments paid to Energos by third party charterers | (5,438) | | | — | |
Investment in Energos | 129,518 | | | — | |
Non-cash financing costs | 41,264 | | | |
Cash and cash equivalents includes $12,891 which has been classified as assets held for sale and included in Other non-current assets on the condensed consolidated balance sheets.
The accompanying notes are an integral part of these condensed consolidated financial statements.
1. Organization
New Fortress Energy Inc. (“NFE,” together with its subsidiaries, the “Company”), a Delaware corporation, is a global energy infrastructure company founded to help address energy poverty and accelerate the world’s transition to reliable, affordable and clean energy. The Company owns and operates natural gas and liquefied natural gas ("LNG") infrastructure, ships and logistics assets to rapidly deliver turnkey energy solutions to global markets. The Company has liquefaction, regasification and power generation operations in the United States, Jamaica, Mexico and Brazil. The Company also has marine operations with vessels operating under time charters and in the spot market globally.
The Company currently conducts its business through two operating segments, Terminals and Infrastructure and Ships. The business and reportable segment information reflect how the Chief Operating Decision Maker (“CODM”) regularly reviews and manages the business.
2. Basis of presentation
The accompanying unaudited interim condensed consolidated financial statements contained herein were prepared in accordance with accounting principles generally accepted in the United States of America (“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. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual audited consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2021 (the "Annual Report"). Certain prior year amounts have been reclassified to conform to current year presentation.
The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions, impacting the reported amounts of assets and liabilities, net earnings and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. Actual results could be different from these estimates.
3. Adoption of new and revised standards
(a)New standards, amendments and interpretations issued but not effective for the year beginning January 1, 2022:
The Company has reviewed recently issued accounting pronouncements and concluded that such pronouncements are either not applicable to the Company or no material impact is expected in the consolidated financial statements as a result of future adoption.
(b)New and amended standards adopted by the Company:
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU 2020-06 requires entities to provide expanded disclosures about the terms and features of convertible instruments and amends certain guidance in ASC 260 on the computation of EPS for convertible instruments and contracts on an entity’s own equity. ASU 2020-06 is effective for public companies for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption of all amendments in the same period permitted. The adoption of this guidance in the first quarter of 2022 did not have a material impact on the Company’s financial position, results of operations or cash flows.
4. Acquisitions
Hygo Merger
On April 15, 2021, the Company completed the acquisition of all of the outstanding common and preferred shares representing all voting interests of Hygo Energy Transition Ltd. (“Hygo”), a 50-50 joint venture between Golar LNG Limited (“GLNG”) and Stonepeak Infrastructure Fund II Cayman (G) Ltd., a fund managed by Stonepeak Infrastructure Partners (“Stonepeak”), in exchange for 31,372,549 shares of NFE Class A common stock and $580,000 in cash (the "Hygo Merger"). The acquisition of Hygo expanded the Company’s footprint in South America with three gas-to-power
projects in Brazil’s large and fast-growing market. Assets acquired as a result of the Hygo Merger are a 50% interest in a 1.5GW power plant in Sergipe, Brazil (the “Sergipe Power Plant”) and its operating FSRU terminal in Sergipe, Brazil (the “Sergipe Facility”), as well as a terminal and power plant under development in the State of Pará, Brazil (the “Barcarena Facility” and "Barcarena Power Plant," respectively), and a terminal under development on the southern coast of Brazil (the “Santa Catarina Facility”). In addition, the Company also acquired two LNG carriers and the Nanook, a newbuild FSRU moored and in service at the Sergipe Facility.
Based on the closing price of NFE’s common stock on April 15, 2021, the total value of consideration in the Hygo Merger was $1.98 billion, shown as follows:
| | | | | | | | | | | |
Consideration | | | As of April 15, 2021 |
Cash consideration for Hygo Preferred Shares | $ | 180,000 | | | |
Cash consideration for Hygo Common Shares | 400,000 | | | |
Total Cash Consideration | | | $ | 580,000 | |
Merger consideration to be paid in shares of NFE Common Stock | 1,400,784 | | | |
Total Non-Cash Consideration | | | 1,400,784 | |
Total Consideration | | | $ | 1,980,784 | |
The Company determined it was the accounting acquirer of Hygo, which was accounted for under the acquisition method of accounting for business combinations. The total purchase price of the transaction was allocated to identifiable assets acquired, liabilities assumed and non-controlling interests of Hygo based on their respective estimated fair values as of the closing date. The final adjusted fair values assigned to the assets acquired, liabilities assumed and non-controlling interests of Hygo as of the closing date were as follows:
| | | | | |
Hygo | As of April 15, 2021 |
Assets Acquired | |
Cash and cash equivalents | $ | 26,641 | |
Restricted cash | 48,183 | |
Accounts receivable | 5,126 | |
Inventory | 1,022 | |
Other current assets | 8,095 | |
Construction in process | 128,625 | |
Property, plant and equipment, net | 385,389 | |
Equity method investments | 823,521 | |
Finance leases, net | 601,000 | |
Deferred tax assets, net | 1,065 | |
Other non-current assets | 52,996 | |
Total assets acquired: | $ | 2,081,663 | |
Liabilities Assumed | |
Current portion of long-term debt | $ | 38,712 | |
Accounts payable | 3,059 | |
Accrued liabilities | 39,149 | |
Other current liabilities | 13,495 | |
Long-term debt | 433,778 | |
Deferred tax liabilities, net | 275,410 | |
Other non-current liabilities | 21,520 | |
Total liabilities assumed: | 825,123 | |
Non-controlling interest | 38,306 | |
Net assets acquired: | 1,218,234 | |
Goodwill | $ | 762,550 | |
The fair value of Hygo’s non-controlling interest (“NCI”) as of April 15, 2021 was $38,306, including the fair value of the net assets of VIEs that Hygo has consolidated. These VIEs are SPVs (both defined below) for the sale and leaseback of certain vessels, and Hygo has no equity investment in these entities. The fair value of NCI was determined based on the valuation of the SPV’s external debt and the lease receivable asset associated with the sales leaseback transaction with Hygo’s subsidiary, using a discounted cash flow method.
The fair value of receivables acquired from Hygo was $8,009, which approximated the gross contractual amount; no material amounts were expected to be uncollectible.
Goodwill was calculated as the excess of the purchase price over the net assets acquired. Goodwill represents access to additional LNG and natural gas distribution systems and power markets, including workforce, that will allow the Company to rapidly develop and deploy LNG to power solutions. While the goodwill is not deductible for local tax purposes, it is treated as an amortizable expense for the U.S. global intangible low-taxed income ("GILTI") computation.
The Company’s results of operations for the nine months ended September 30, 2022 include Hygo’s result of operations for the entire period. Revenue and net loss attributable to Hygo during the period was $64,759 and $257,434, respectively.
GMLP Merger
On April 15, 2021, the Company completed the acquisition of all of the outstanding common units, representing all voting interests, of Golar LNG Partners LP ("GMLP") in exchange for $3.55 in cash per common unit and for each of the outstanding membership interest of GMLP’s general partner (the "GMLP Merger, and collectively with the Hygo Merger,
the "Mergers"). In conjunction with the closing of the GMLP Merger, NFE simultaneously extinguished a portion of GMLP’s debt for total consideration of $1.15 billion.
As a result of the GMLP Merger, the Company acquired a fleet of six FSRUs and four LNG carriers, which are expected to help support the Company’s existing facilities and international business development pipeline. Acquired FSRUs are operating in Brazil, Indonesia and Jordan under time charters, and uncontracted vessels are available for short term employment in the spot market. Assets acquired also included an interest in a floating natural gas liquefaction vessel ("FLNG"), the Hilli Episeyo (the "Hilli"), which is expected to provide consistent cash flow streams under a long-term tolling arrangement. The interest in the FLNG facility also provides the Company access to intellectual property that will be used to develop future FLNG solutions.
The consideration paid by the Company in the GMLP Merger was as follows:
| | | | | | | | | | | |
Consideration | | | As of April 15, 2021 |
GMLP Common Units ($3.55 per unit x 69,301,636 units) | $ | 246,021 | | | |
GMLP General Partner Interest ($3.55 per unit x 1,436,391 units) | 5,099 | | | |
Partnership Phantom Units ($3.55 per unit x 58,960 units) | 209 | | | |
Cash Consideration | | | $ | 251,329 | |
GMLP debt repaid in acquisition | 899,792 | | | |
Total Cash Consideration | | | 1,151,121 | |
Cash settlement of preexisting relationship | (3,978) | | | |
Total Consideration | | | $ | 1,147,143 | |
The Company determined it is the accounting acquirer of GMLP, which was accounted for under the acquisition method of accounting for business combinations. The total purchase price of the transaction was allocated to identifiable assets acquired, liabilities assumed and non-controlling interests of GMLP based on their respective estimated fair values as of the closing date. The final adjusted fair values assigned to the assets acquired, liabilities assumed and non-controlling interests of GMLP as of the closing date were as follows:
| | | | | |
GMLP | As of April 15, 2021 |
Assets Acquired | |
Cash and cash equivalents | $ | 41,461 | |
Restricted cash | 24,816 | |
Accounts receivable | 3,195 | |
Inventory | 2,151 | |
Other current assets | 2,789 | |
Equity method investments | 355,500 | |
Property, plant and equipment, net | 1,063,215 | |
Intangible assets, net | 106,500 | |
Deferred tax assets, net | 963 | |
Other non-current assets | 4,400 | |
Total assets acquired: | $ | 1,604,990 | |
Liabilities Assumed | |
Current portion of long-term debt | $ | 158,073 | |
Accounts payable | 3,019 | |
Accrued liabilities | 17,226 | |
Other current liabilities | 73,774 | |
Deferred tax liabilities, net | 14,907 | |
Other non-current liabilities | 10,630 |