New Fortress Energy Inc. - Quarter Report: 2019 September (Form 10-Q)
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, 2019
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 LLC
(Exact Name of Registrant as Specified in its Charter)
Delaware
|
81-1482060
|
|
(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
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 shares, representing limited liability company interests
|
“NFE”
|
NASDAQ Global Select Market
|
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 ☒
As of November 8, 2019, the registrant had 22,892,293 Class A shares and 145,057,375 Class B shares outstanding.
ii
|
||
iii
|
||
5 | ||
Item 1.
|
5 | |
Item 2.
|
27 | |
Item 3.
|
38 | |
Item 4.
|
39 | |
40 | ||
Item 1.
|
40 | |
Item 1A.
|
40 | |
Item 2.
|
74 | |
Item 3.
|
74 | |
Item 4.
|
74 | |
Item 5.
|
74 | |
Item 6.
|
74 | |
76 |
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
|
GAAP
|
generally accepted accounting principles in the United States
|
GHG
|
greenhouse gases
|
GSA
|
natural gas sales agreement
|
Henry Hub
|
a natural gas pipeline hub 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
|
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 terminals, 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 terminals, 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;
|
• |
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;
|
• |
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 outstanding indebtedness 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 our Class A shares;
|
• |
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; and
|
• |
risks related to the jurisdictions in which we do, or seek to do, business, including particularly the United States. and states such as Pennsylvania and Florida, as well as Puerto Rico, Mexico, Angola, Jamaica, Ireland, the
Dominican Republic and other jurisdictions in the Caribbean.
|
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, 2018 (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
New Fortress Energy LLC
Condensed Consolidated Balance Sheets
As of September 30, 2019 and December 31, 2018
(Unaudited, in thousands of U.S. dollars, except share amounts)
September 30,
2019
|
December 31,
2018
|
|||||||
Assets
|
||||||||
Current assets
|
||||||||
Cash and cash equivalents
|
$
|
178,187
|
$
|
78,301
|
||||
Restricted cash
|
22,011
|
30
|
||||||
Receivables, net of allowances of $0 and $257, respectively
|
37,248
|
28,530
|
||||||
Finance leases, net
|
1,045
|
943
|
||||||
Inventory
|
28,625
|
15,959
|
||||||
Prepaid expenses and other current assets
|
49,712
|
30,017
|
||||||
Total current assets
|
316,828
|
153,780
|
||||||
Investment in equity securities
|
1,529
|
3,656
|
||||||
Restricted cash
|
43,860
|
22,522
|
||||||
Construction in progress
|
394,516
|
254,700
|
||||||
Property, plant and equipment, net
|
193,577
|
94,040
|
||||||
Finance leases, net
|
91,447
|
92,207
|
||||||
Deferred tax asset, net
|
38
|
185
|
||||||
Intangibles, net
|
40,693
|
43,057
|
||||||
Other non-current assets
|
65,295
|
35,255
|
||||||
Total assets
|
$
|
1,147,783
|
$
|
699,402
|
||||
Liabilities
|
||||||||
Current liabilities
|
||||||||
Term loan facility
|
$
|
492,762
|
$
|
272,192
|
||||
Accounts payable
|
17,106
|
43,177
|
||||||
Accrued liabilities
|
50,796
|
67,512
|
||||||
Due to affiliates
|
7,856
|
4,481
|
||||||
Other current liabilities
|
30,495
|
17,393
|
||||||
Total current liabilities
|
599,015
|
404,755
|
||||||
Long-term debt
|
113,164
|
―
|
||||||
Deferred tax liability, net
|
171
|
―
|
||||||
Other long-term liabilities
|
15,035
|
12,000
|
||||||
Total liabilities
|
727,385
|
416,755
|
||||||
Commitments and contingences (Note 17)
|
||||||||
Stockholders’ equity
|
||||||||
Members’ capital, no par value, 500,000,000 shares authorized, 67,983,095 shares issued and outstanding as of December 31, 2018
|
―
|
426,741
|
||||||
Class A shares, 22,892,293 shares, issued and outstanding as of September 30, 2019; 0 shares issued and outstanding as of December 31, 2018
|
123,760
|
―
|
||||||
Class B shares, 145,057,375 shares, issued and outstanding as of September 30, 2019; 0 shares issued and outstanding as of December 31, 2018
|
―
|
―
|
||||||
Accumulated deficit
|
(38,480
|
)
|
(158,423
|
)
|
||||
Accumulated other comprehensive gain (loss)
|
(19
|
)
|
(11
|
)
|
||||
Total stockholders’ equity attributable to NFE
|
85,261
|
268,307
|
||||||
Non-controlling interest
|
335,137
|
14,340
|
||||||
Total stockholders’ equity
|
420,398
|
282,647
|
||||||
Total liabilities and stockholders’ equity
|
$
|
1,147,783
|
$
|
699,402
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
New Fortress Energy LLC
Condensed Consolidated Statements of Operations and Comprehensive Loss
For the three and nine months ended September 30, 2019 and 2018
(Unaudited, in thousands of U.S. dollars, except share and per share amounts)
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2019
|
2018
|
2019
|
2018
|
|||||||||||||
Revenues
|
||||||||||||||||
Operating revenue
|
$
|
35,345
|
$
|
24,629
|
$
|
93,221
|
$
|
69,545
|
||||||||
Other revenue
|
14,311
|
3,795
|
26,152
|
11,387
|
||||||||||||
Total revenues
|
49,656
|
28,424
|
119,373
|
80,932
|
||||||||||||
Operating expenses
|
||||||||||||||||
Cost of sales
|
45,832
|
22,094
|
123,224
|
68,625
|
||||||||||||
Operations and maintenance
|
8,707
|
1,999
|
18,609
|
5,750
|
||||||||||||
Selling, general and administrative
|
40,913
|
13,423
|
122,831
|
40,827
|
||||||||||||
Depreciation and amortization
|
1,930
|
830
|
5,731
|
2,258
|
||||||||||||
Total operating expenses
|
97,382
|
38,346
|
270,395
|
117,460
|
||||||||||||
Operating loss
|
(47,726
|
)
|
(9,922
|
)
|
(151,022
|
)
|
(36,528
|
)
|
||||||||
Interest expense
|
4,974
|
3,183
|
14,457
|
6,389
|
||||||||||||
Other expense, net
|
1,788
|
270
|
133
|
103
|
||||||||||||
Loss before taxes
|
(54,488
|
)
|
(13,375
|
)
|
(165,612
|
)
|
(43,020
|
)
|
||||||||
Tax (benefit) expense
|
(64
|
)
|
306
|
337
|
399
|
|||||||||||
Net loss
|
(54,424
|
)
|
(13,681
|
)
|
(165,949
|
)
|
(43,419
|
)
|
||||||||
Net loss attributable to non-controlling interest
|
47,701
|
72
|
139,483
|
72
|
||||||||||||
Net loss attributable to stockholders
|
$
|
(6,723
|
)
|
$
|
(13,609
|
)
|
$
|
(26,466
|
)
|
$
|
(43,347
|
)
|
||||
Net loss per share – basic and diluted
|
$
|
(0.30
|
)
|
$
|
(1.34
|
)
|
||||||||||
Weighted average number of shares outstanding – basic and diluted
|
22,692,104
|
19,689,568
|
||||||||||||||
Other comprehensive loss:
|
||||||||||||||||
Net loss
|
$
|
(54,424
|
)
|
$
|
(13,681
|
)
|
$
|
(165,949
|
)
|
$
|
(43,419
|
)
|
||||
Unrealized loss on currency translation adjustment
|
143
|
―
|
143
|
―
|
||||||||||||
Unrealized loss (gain) on available-for-sale investment
|
―
|
290
|
―
|
(443
|
)
|
|||||||||||
Comprehensive loss
|
(54,567
|
)
|
(13,971
|
)
|
(166,092
|
)
|
(42,976
|
)
|
||||||||
Comprehensive loss attributable to non-controlling interest
|
47,825
|
72
|
139,607
|
72
|
||||||||||||
Comprehensive loss attributable to stockholders
|
$
|
(6,742
|
)
|
$
|
(13,899
|
)
|
$
|
(26,485
|
)
|
$
|
(42,904
|
)
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
New Fortress Energy LLC
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the three and nine months ended September 30, 2019 and 2018
(Unaudited, in thousands of U.S. dollars, except share amounts)
Members’ Capital
|
Class A shares
|
Class B shares
|
Stock
subscription
receivable
|
Accumulated
deficit
|
Accumulated
other
comprehensive
(loss) income
|
Non-
controlling
Interest |
Total
stockholders’
equity
|
|||||||||||||||||||||||||||||||||||||
Units
|
Amounts
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||||||||||||||||
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
|
|||||||||||||||||||||||
Balance as of December 31, 2017
|
65,665,037
|
$
|
406,591
|
―
|
$
|
―
|
―
|
$
|
―
|
$
|
(50,000
|
)
|
$
|
(80,347
|
)
|
$
|
2,666
|
$
|
―
|
$
|
278,910
|
|||||||||||||||||||||||
Net loss
|
―
|
―
|
―
|
―
|
―
|
―
|
―
|
(10,913
|
)
|
―
|
―
|
(10,913
|
)
|
|||||||||||||||||||||||||||||||
Other comprehensive loss
|
―
|
―
|
―
|
―
|
―
|
―
|
―
|
―
|
929
|
―
|
929
|
|||||||||||||||||||||||||||||||||
Capital contributions
|
665,843
|
20,150
|
―
|
―
|
―
|
―
|
―
|
―
|
―
|
―
|
20,150
|
|||||||||||||||||||||||||||||||||
Stock subscription receivable
|
1,652,215
|
―
|
―
|
―
|
―
|
―
|
50,000
|
―
|
―
|
―
|
50,000
|
|||||||||||||||||||||||||||||||||
Balance as of March 31, 2018
|
67,983,095
|
426,741
|
―
|
―
|
―
|
―
|
―
|
(91,260
|
)
|
3,595
|
―
|
339,076
|
||||||||||||||||||||||||||||||||
Net loss
|
―
|
―
|
―
|
―
|
―
|
―
|
―
|
(18,825
|
)
|
―
|
―
|
(18,825
|
)
|
|||||||||||||||||||||||||||||||
Other comprehensive loss
|
―
|
―
|
―
|
―
|
―
|
―
|
―
|
―
|
(196
|
)
|
―
|
(196
|
)
|
|||||||||||||||||||||||||||||||
Balance as of June 30, 2018
|
67,983,095
|
426,741
|
―
|
―
|
―
|
―
|
―
|
(110,085
|
)
|
3,399
|
―
|
320,055
|
||||||||||||||||||||||||||||||||
Net loss
|
―
|
―
|
―
|
―
|
―
|
―
|
―
|
(13,609
|
)
|
―
|
(72
|
)
|
(13,681
|
)
|
||||||||||||||||||||||||||||||
Other comprehensive loss
|
―
|
―
|
―
|
―
|
―
|
―
|
―
|
―
|
(290
|
)
|
―
|
(290
|
)
|
|||||||||||||||||||||||||||||||
Balance as of September 30, 2018
|
67,983,095
|
$
|
426,741
|
―
|
$
|
―
|
―
|
$
|
―
|
$
|
―
|
$
|
(123,694
|
)
|
$
|
3,109
|
$
|
(72
|
)
|
$
|
306,084
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
New Fortress Energy LLC
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2019 and 2018
(Unaudited, in thousands of U.S. dollars)
Nine Months Ended
September 30,
|
||||||||
2019
|
2018
|
|||||||
Cash flows from operating activities
|
||||||||
Net loss
|
$
|
(165,949
|
)
|
$
|
(43,419
|
)
|
||
Adjustments for:
|
||||||||
Amortization of deferred financing costs
|
4,150
|
1,469
|
||||||
Depreciation and amortization
|
6,197
|
2,776
|
||||||
Deferred taxes
|
318
|
309
|
||||||
Change in value of Investment in equity securities
|
2,127
|
―
|
||||||
Share-based compensation
|
35,833
|
―
|
||||||
Other
|
(209
|
)
|
808
|
|||||
(Increase) Decrease in receivables
|
(8,403
|
)
|
354
|
|||||
(Increase) in inventories
|
(12,666
|
)
|
(8,002
|
)
|
||||
(Increase) in other assets
|
(44,985
|
)
|
(5,863
|
)
|
||||
Increase (Decrease) in accounts payable/accrued liabilities
|
8,807
|
(1,156
|
)
|
|||||
Increase (Decrease) in amounts due to affiliates
|
3,375
|
(1,330
|
)
|
|||||
Increase in other liabilities
|
16,644
|
898
|
||||||
Net cash used in operating activities
|
(154,761
|
)
|
(53,156
|
)
|
||||
Cash flows from investing activities
|
||||||||
Capital expenditures
|
(295,635
|
)
|
(112,861
|
)
|
||||
Principal payments received on finance lease, net
|
600
|
726
|
||||||
Net cash used in investing activities
|
(295,035
|
)
|
(112,135
|
)
|
||||
Cash flows from financing activities
|
||||||||
Proceeds from borrowings of debt
|
337,000
|
130,000
|
||||||
Payment of deferred financing costs
|
(8,259
|
)
|
(9,438
|
)
|
||||
Repayment of debt
|
(3,750
|
)
|
(75,920
|
)
|
||||
Proceeds from IPO
|
274,948
|
―
|
||||||
Payment of offering costs
|
(6,938
|
)
|
―
|
|||||
Proceeds from note due to affiliate
|
―
|
372
|
||||||
Capital contributed from Members
|
―
|
20,150
|
||||||
Collection of subscription receivable
|
―
|
50,000
|
||||||
Net cash provided by financing activities
|
593,001
|
115,164
|
||||||
Net increase (decrease) in cash, cash equivalents and restricted cash
|
143,205
|
(50,127
|
)
|
|||||
Cash, cash equivalents and restricted cash – beginning of period
|
100,853
|
118,331
|
||||||
Cash, cash equivalents and restricted cash – end of period
|
$
|
244,058
|
$
|
68,204
|
||||
Supplemental disclosure of non-cash investing and financing activities:
|
||||||||
Changes in accrued construction in progress costs and property, plant and equipment
|
$
|
(51,586
|
)
|
$
|
30,879
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
1. |
Organization
|
New Fortress Energy LLC (“NFE,” together with its subsidiaries, the “Company”) is a Delaware limited liability company formed by New Fortress Energy Holdings LLC (“New Fortress Energy Holdings”) on August 6, 2018. The
Company 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 and regasification 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
of the delivery of an integrated solution to our customers 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 condensed consolidated financial statements were prepared in accordance with GAAP. The accompanying unaudited interim condensed consolidated financial statements contained herein 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.
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. Immediately following the IPO, New Fortress Energy Holdings held 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 are 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.
As of September 30, 2019, NFE has 22,892,293 Class A Shares outstanding, and New Fortress Energy Holdings has an 86.4% economic interest in NFI through ownership of 145,057,375 NFI LLC Units and New Fortress Energy
Holdings holds an 86.4% voting interest in NFE.
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 balances sheets and statements of operations and comprehensive loss of New Fortress Energy Holdings for all periods prior to the IPO. The Company’s financial statements also include a non-controlling interest
related to the portion of NFI LLC Units not owned by NFE. Prior to the IPO, NFE had no operations and had no assets or liabilities.
(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 allocation between revenue and lease
components of contracts with customers, total consideration and fair value of identifiable net assets related to acquisitions and 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) |
Investment in equity securities
|
The Company holds an investment in equity securities. The investment is carried at fair value with gains or losses recorded in earnings in Other expense, net in the condensed consolidated statements of operations and
comprehensive loss. See “Note 8. Investment in equity securities” for more information.
(d) |
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.
(e) |
Revenue recognition
|
The Company’s primary revenue stream is the sale of LNG or natural gas to its customers, which is presented as Operating revenue in the condensed consolidated statements of operations and comprehensive loss. Natural
gas or LNG is delivered either by pipeline into the customer’s power generation facilities or in containers delivered by truck to customer sites, respectively. Revenues from sales delivered by pipeline to a power generation facility are recognized
over time under the output method, as the customer takes control of the natural gas. Revenues from sales delivered by truck are 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 revenues and cash flows are substantially the same under both
modes of delivery, the Company has presented Operating revenue on an aggregated basis.
The Company has concluded that variable consideration included in these agreements meets the exception for allocating variable consideration. As such, the variable consideration for these contracts is allocated to each
distinct unit of LNG or natural gas delivered and recognized when that distinct unit of LNG or natural gas 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 market value 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 direct financing or operating leases. Direct financing leases, net represents the minimum lease payments due, net of unearned revenue.
The lease payments are segregated into principal and interest components similar to a loan. Unearned revenue 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 components of the lease payment are reflected as a reduction to the net investment in the finance 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 and installation of equipment to transform customers’
facilities to operate utilizing natural gas or to allow customers to receive power or other outputs from our power generation facilities. Revenue for these construction services is recognized over time as the Company transfers control of the asset
to the customer, unless the customer is not able to obtain control over the asset under construction until such services are completed, in which case, 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 expensed in the period in which they 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 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.
(f) |
Share-based compensation
|
In connection with the IPO, the Company adopted the New Fortress Energy LLC 2019 Omnibus Incentive Plan (the “Incentive Plan”), effective as of February 4, 2019. Under the Incentive Plan, the Company may issue options,
stock appreciation rights, restricted shares, restricted stock units (“RSUs”), share bonuses or other share-based awards to selected officers, employees, non-employee directors and select non-employees of NFE or its affiliates. The Company accounts
for share-based compensation in accordance with Accounting Standards Codification (“ASC”) 718, Compensation – Stock Compensation, and ASC 505, Equity, which require
all share-based payments to employees and members of the board of directors to be recognized as expense in the condensed consolidated financial statements based on their fair values. The Company has elected not to estimate forfeitures of its
share-based compensation awards but will recognize the reversal in compensation expense in the period in which the forfeiture occurs. Upon creation of the Incentive Plan, the Company early adopted Accounting Standards Update (“ASU”) 2018-07 (as
defined below). See “Note 3(b). Adoption of new and revised standards – New and amended standards adopted by the Company” for additional information related to ASU 2018-07 and “Note 19. Share-based compensation” for additional information related
to share-based compensation.
(g) |
Income taxes
|
In conjunction with the closing of the Company’s IPO, 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. NFE has elected to be taxed as a corporation and is subject to U.S. federal and state income taxes.
The Company accounts for income taxes in accordance with ASC 740, “Accounting for Income Taxes” (“ASC 740”), which requires the recognition of tax benefits or expenses on
temporary differences between the financial reporting and tax bases of its assets and liabilities by applying the enacted tax rates in effect for the year in which the differences are expected to reverse. Such net tax effects on temporary
differences are reflected on the Company’s condensed consolidated balance sheets as deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when the Company believes that it is more-likely-than-not that some
portion or all of the deferred tax assets will not be realized.
ASC 740 prescribes a two-step approach for the recognition and measurement of tax benefits associated with the positions taken or expected to be taken in a tax return that affect amounts reported in the financial
statements. The Company has reviewed and will continue to review the conclusions reached regarding uncertain tax positions, which may be subject to review and adjustment at a later date based on ongoing analyses of tax laws, regulations and
interpretations thereof. To the extent that the Company’s assessment of the conclusions reached regarding uncertain tax positions changes as a result of the evaluation of new information, such change in estimate will be recorded in the period in
which such determination is made. The Company reports income tax-related interest and penalties relating to uncertain tax positions, if applicable, as a component of income tax expense.
(h) |
Net loss per share
|
Basic EPS is computed by dividing net loss attributable to Class A shares by the weighted average number of Class A shares outstanding during the period following the reorganization. Class B shares represent
non-economic interests in the Company and, as such, earnings are not allocated to Class B shares.
Diluted EPS reflects potential dilution and is computed by dividing net loss attributable to Class A shares by the weighted average number of Class A shares outstanding during the period following the reorganization
increased by the number of additional Class A shares that would have been outstanding, including NFI LLC Units convertible into Class A shares and unvested RSUs. The dilutive effect of outstanding awards, if any, is reflected in diluted earnings
per share by application of the treasury stock method or if-converted method, as applicable. Refer to “Note 18. Earnings per share” for additional information.
Please refer to “Note 2. Significant accounting policies,” to our consolidated financial statements from our Annual Report on Form 10-K for the discussion of our significant accounting policies.
3. |
Adoption of new and revised standards
|
As an “emerging growth company,” the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable
to private companies. The Company has elected to use this extended transition period under the JOBS Act. The adoption dates discussed below reflect this election.
(a)
|
New standards, amendments and interpretations issued but not effective for the financial year beginning January 1, 2019:
|
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 amends the existing accounting standards for lease
accounting, including requiring lessees to recognize most leases on their balance sheet and making targeted changes to lessor accounting. In October 2019, the FASB voted to approve a proposal to defer the effective date of ASC 2016-02 for certain
entities, including emerging growth companies that take advantage of the extended transition period, to fiscal years beginning after December 15, 2020. This proposal would be applicable to the Company. The Company is currently evaluating the impact
of adopting this new guidance on its consolidated financial statements and timing of adoption.
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 historical
experience, current conditions, and reasonable and supportable forecasts. In October 2019, the FASB voted to approve a proposal to defer the effective date of ASC 2016-13 for certain entities, including emerging growth companies that take advantage
of the extended transition period, to fiscal years beginning after December 15, 2022. This proposal would be applicable to the Company. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial
statements and timing of adoption.
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 will adopt ASU 2018-13 for the year beginning January 1, 2020 and is currently evaluating the impact of
adopting this new guidance on its 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. This ASU is effective for the Company on January 1, 2021, with early adoption permitted. The
Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements and the timing of adoption.
(b) |
New and amended standards adopted by the Company:
|
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) which provides a single comprehensive model for recognizing revenue from
contracts with customers and supersedes existing revenue recognition guidance. The new standard requires that a company recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the
company expects to receive in exchange for those goods or services. The Company adopted ASC 606 on January 1, 2019 using the modified retrospective method, which required the Company to apply the new revenue standard to (i) all new revenue
contracts entered into after January 1, 2019 and (ii) all existing revenue contracts as of January 1, 2019 through a cumulative adjustment to the Company’s retained earnings balance. The adoption of ASC 606 did not have any impact on the Company’s
historical retained earnings.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities (“ASU 2016-01”), which makes targeted improvements to the accounting for, and presentation and disclosure of, financial instruments. ASU 2016-01 requires that most equity investments be measured at fair
value, with subsequent changes in fair value recognized in net income. ASU 2016-01 does not affect the accounting for investments that would otherwise be consolidated or accounted for under the equity method. The new standard also impacts financial
liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. The Company has adopted this guidance for the year beginning January 1, 2019 by recognizing an immaterial adjustment to beginning
retained earnings for the net unrealized gains/losses on equity investments with readily determinable fair values.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,
which provides guidance on eight specific cash flow issues with an intention to reduce the existing diversity in practice. The Company has adopted this guidance for the year beginning January 1, 2019, and its adoption did not have a material impact
on the Company’s condensed consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires that statements of
cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. This change is intended to limit the diversity in practice in the treatment
of restricted cash in the statement of cash flows. The adoption of this standard resulted in the Company no longer showing the changes in restricted cash balances as a component of cash flows from investing or financing activities but instead
including the balances of both current and long-term restricted cash with cash and cash equivalents in total cash, cash equivalents and restricted cash for the beginning and end of the periods presented. The Company has adopted this guidance for
the year beginning January 1, 2019.
In February 2018, the FASB issued ASU 2018-02, Income Statement: Reporting Comprehensive Income (Topic 220) which allows a reclassification from accumulated other comprehensive
income (loss) to retained earnings for tax effects resulting from the comprehensive tax legislation enacted by the U.S. government commonly referred to as the Tax Cuts and Jobs Act. The Company has adopted this guidance for the year beginning
January 1, 2019. The Company had no tax impacts recorded in accumulated other comprehensive income (loss) prior to adoption of the standard, and therefore adoption of the standard had no impact on the Company’s condensed consolidated financial
statements.
In September 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation Improvements to Non-employee Share-Based Payment Accounting (“ASU 2018-07”), which simplifies
the accounting for share-based payments granted to non-employees for goods and services. Under ASU 2018-07, most of the guidance on such payments to non-employees will be aligned with the requirements for share-based payments granted to employees.
The Company has early adopted ASU 2018-07 upon inception of the Incentive Plan, and its adoption did not have a material impact on the Company’s condensed consolidated financial statements.
4. |
Revenue from contracts with customers
|
Revenue recognized in the Company’s condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2019 and any associated balances on the condensed
consolidated balance sheet as of September 30, 2019 prepared under ASC 606 did not differ materially from what would have been presented under the previous revenue standard. As such, no comparison for the results of operations for the three and
nine months ended September 30, 2019 and the financial position as of September 30, 2019 under ASC 606 and ASC 605 has been presented.
Under most customer contracts, invoicing occurs once the Company’s performance obligations have been satisfied, at which point payment is unconditional. Receivables related to revenue from contracts with customers
totaled $23,724 as of September 30, 2019 and were included in “Receivables, net” on the condensed consolidated balance sheets, net of the allowance for doubtful accounts. Other items included in Receivables, net not related to revenue from
contracts with customers represent receivables associated with leases which are accounted for outside the scope of ASC 606.
During the nine month period ended September 30, 2019, the Company recognized a contract liability of $8,956. The contract liability balance is comprised of unconditional payments due under the contract with a customer
prior to the Company’s satisfaction of the related performance obligations. The performance obligations are expected to be recognized during the next 12 months, and the contract liability is classified within Other current liabilities on the
condensed consolidated balance sheets. During the nine month period ended September 30, 2019, the Company recognized a contract asset of $10,107. The contract asset is comprised of the transaction price allocated to completed performance
obligations that will be billed to customers in subsequent periods, and $110 is presented within Other current assets and $9,997 is presented within Other non-current assets based on the timing of the expected billing to the customer. Contract
assets or liabilities have not been previously recognized, and as such, there are no other changes to contract balances within the current period.
The Company began to recognize revenue for construction services during the nine months ended September 30, 2019 within Other revenue in the condensed consolidated statements of operations and comprehensive loss.
Construction revenue totaled $10,195 and $14,103 for the three and nine months ended September 30, 2019, respectively. Costs recognized within Cost of sales associated with construction services were $8,974 and $12,527 for the three and nine
months ended September 30, 2019, respectively
Transaction price allocated to remaining performance obligations
Some of the Company’s contracts are short-term in nature with a contract term of less than a year. The Company applied the optional exemption not to disclose any transaction price allocated to unfulfilled performance
obligations related to these contracts.
The Company has arrangements in which LNG or natural gas is sold on a “take-or-pay” basis whereby the customer is obligated to pay for the minimum guaranteed volumes even if it does not take delivery of them. The price
under these agreements is based on a market index plus a fixed margin. The fixed transaction price allocated to the remaining performance obligations under these arrangements is $3,141,216 as of September 30, 2019, representing the fixed margin
multiplied by the outstanding minimum guaranteed volumes. The Company expects to recognize this revenue over the following time periods. The pattern of recognition reflects the minimum guaranteed volumes in each period:
Period
|
Revenue
|
|||
Remainder 2019
|
$
|
46,977
|
||
2020
|
178,027
|
|||
2021
|
169,877
|
|||
2022
|
168,366
|
|||
2023
|
167,635
|
|||
Thereafter
|
2,410,334
|
|||
Total
|
$
|
3,141,216
|
For all other sales contracts that have a term exceeding one year, the Company has elected the practical expedient in ASC 606 under which the Company does not disclose the transaction price allocated to remaining
performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. For these excluded contracts, the sources of variability are (a) the fluctuating market index prices of natural gas used to
price the contracts, and (b) the variation in volumes that may be delivered to the customer. Both sources of variability are expected to be resolved at or shortly before delivery of each unit of LNG or natural gas. As each unit of LNG or natural
gas represents a separate performance obligation, future volumes are wholly unsatisfied.
During the nine month period ended September 30, 2019, the Company began to incur costs to fulfill a contract with a significant customer. These costs primarily consist of expenses required to enhance resources to
deliver under the agreement with the customer. Such costs are capitalized as incurred within Other non-current assets on the condensed consolidated balance sheets. As of September 30, 2019, the Company has capitalized $6,991, and these costs will
be recognized over the expected customer life, beginning when the Company begins to deliver under the contract.
5. |
Fair value
|
Fair value measurements and disclosures require the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized
as follows:
• |
Level 1 – observable inputs such as quoted prices in active markets for identical assets or liabilities.
|
• |
Level 2 – inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities or market corroborated inputs.
|
• |
Level 3 – unobservable inputs for which there is little or no market data and which require the Company to develop its own assumptions about how market participants price the asset or liability.
|
The valuation techniques that may be used to measure fair value are as follows:
• |
Market approach – uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
|
• |
Income approach – uses valuation techniques, such as discounted cash flow technique, to convert future amounts to a single present amount based on current market expectations about those future amounts.
|
• |
Cost approach – based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).
|
The following table presents the Company’s financial assets and financial liabilities that are measured at fair value as of September 30, 2019:
September 30, 2019
|
|||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
Valuation technique
|
|||||||||||||
Assets
|
|||||||||||||||||
Cash and cash equivalents
|
$
|
178,187
|
$
|
―
|
$
|
―
|
$
|
178,187
|
Market approach
|
||||||||
Restricted cash
|
65,871
|
―
|
―
|
65,871
|
Market approach
|
||||||||||||
Investment in equity securities
|
1,529
|
―
|
―
|
1,529
|
Market approach
|
||||||||||||
Total
|
$
|
245,587
|
$
|
―
|
$
|
―
|
$
|
245,587
|
|||||||||
Liabilities
|
|||||||||||||||||
Derivative liability(1)
|
$
|
―
|
$
|
―
|
$
|
9,729
|
$
|
9,729
|
Income approach
|
||||||||
Equity agreement(2)
|
―
|
―
|
16,904
|
16,904
|
Income approach
|
||||||||||||
Total
|
$
|
―
|
$
|
―
|
$
|
26,633
|
$
|
26,633
|
(1) |
Consideration due to the sellers of Shannon LNG (as defined in “Note 11. Intangible Assets” below) once first gas is supplied from the terminal to be built.
|
(2) |
To be paid in shares at the earlier of agreed-upon date in 2020 or the commencement of significant construction activities specified in the Shannon LNG Agreement.
|
The following table presents the Company’s financial assets and financial liabilities that are measured at fair value as of December 31, 2018:
December 31, 2018
|
|||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
Valuation technique
|
|||||||||||||
Assets
|
|||||||||||||||||
Cash and cash equivalents
|
$
|
78,301
|
$
|
―
|
$
|
―
|
$
|
78,301
|
Market approach
|
||||||||
Restricted cash
|
22,552
|
―
|
―
|
22,552
|
Market approach
|
||||||||||||
Investment in equity securities
|
3,656
|
―
|
―
|
3,656
|
Market approach
|
||||||||||||
Total
|
$
|
104,509
|
$
|
―
|
$
|
―
|
$
|
104,509
|
|||||||||
Liabilities
|
|||||||||||||||||
Derivative liability
|
$
|
―
|
$
|
―
|
$
|
9,835
|
$
|
9,835
|
Income approach
|
||||||||
Equity agreement
|
―
|
16,924
|
16,924
|
Income approach
|
|||||||||||||
Total
|
$
|
―
|
$
|
―
|
$
|
26,759
|
$
|
26,759
|
The Company estimates fair value of the derivative liability and equity agreement using a discounted cash flows method with discount rates based on the average yield curve for bonds with similar credit ratings and
matching terms to the discount periods as well as a probability of the contingent event occurring. The Company recorded a total loss from fair value adjustment on the derivative liability and equity agreement of $1,144 and $988 within Other
expense, net in the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2019, respectively. During the three and nine months ended September 30, 2019, the Company had no
settlements of the equity agreement or derivative liability or any transfers in or out of Level 3 in the fair value hierarchy.
The Company estimates fair value of outstanding debt using a discounted cash flow method based on current market interest rates for debt issuances with similar remaining years to maturity and adjusted for credit risk.
The Company has estimated that the carrying value each of the New Term Loan Facility, Senior Secured Bonds, and Senior Unsecured Bonds (all defined below in “Note 15. Debt”) approximate fair value. The fair value estimate is classified as Level 3
in the fair value hierarchy.
6. |
Restricted cash
|
As of September 30, 2019 and December 31, 2018, restricted cash consisted of the following:
September 30,
2019
|
December 31,
2018
|
|||||||
Collateral for performance under customer agreements
|
$
|
15,141
|
$
|
15,095
|
||||
Collateral for LNG purchases
|
35,000
|
927
|
||||||
Collateral for letters of credit and performance bonds
|
7,140
|
6,238
|
||||||
Debt service reserve account
|
8,299
|
―
|
||||||
Other restricted cash
|
291
|
292
|
||||||
Total restricted cash
|
$
|
65,871
|
$
|
22,552
|
||||
Current restricted cash
|
$
|
22,011
|
$
|
30
|
||||
Non-current restricted cash
|
43,860
|
22,522
|
7. |
Inventory
|
As of September 30, 2019 and December 31, 2018, inventory consisted of the following:
September 30,
2019
|
December 31,
2018
|
|||||||
LNG and natural gas inventory
|
$
|
27,879
|
$
|
15,611
|
||||
Materials, supplies and other
|
746
|
348
|
||||||
Total
|
$
|
28,625
|
$
|
15,959
|
Inventory is adjusted to the lower of cost or net realizable value each quarter. Changes in the value of inventory are recorded within Cost of sales in the condensed consolidated statements of operations and
comprehensive loss, and the Company recorded an adjustment to the value of inventory of $251 during both the three and nine months ended September 30, 2019. No adjustments were recorded during the three and nine months ended September 30, 2018.
8. |
Investment in equity securities
|
The Company has invested in equity securities of an international oil and gas drilling contractor. The following tables present the number of shares, cost and fair value of the investment:
September 30, 2019
|
||||||||||||
Number of
Shares
|
Cost
|
Fair value
|
||||||||||
(in thousands of U.S. dollars except shares)
|
||||||||||||
Investment in equity securities(1)
|
295,256
|
$
|
3,667
|
$
|
1,529
|
December 31, 2018
|
||||||||||||
Number of
Shares
|
Cost
|
Fair value
|
||||||||||
(in thousands of U.S. dollars except shares)
|
||||||||||||
Investment in equity securities
|
1,476,280
|
$
|
3,667
|
$
|
3,656
|
(1) |
During the nine months ended September 30, 2019, the investee effected a 5-for-1 reverse stock split.
|
The movement of the equity investment during the nine months ended September 30, 2019 is summarized below:
September 30,
2019
|
||||
Beginning of period
|
$
|
3,656
|
||
Unrealized gain/(loss)
|
(2,127
|
)
|
||
End of period
|
$
|
1,529
|
The unrealized loss of $1,325 and $2,127 for the three and nine months ended September 30, 2019, respectively is included within Other expense, net in the condensed consolidated statements of operations and
comprehensive loss.
9. |
Construction in progress
|
The Company’s construction in progress activity during the nine months ended September 30, 2019 is detailed below:
September 30,
2019
|
||||
Balance at beginning of period
|
$
|
254,700
|
||
Additions
|
241,550
|
|||
Transferred to property, plant and equipment, net (Note 10)
|
(101,734
|
)
|
||
Balance at end of period
|
$
|
394,516
|
Interest expense of $7,269 and $236 was capitalized for the three months ended September 30, 2019 and 2018, respectively, inclusive of amortized debt issuance costs disclosed in “Note 15. Debt.” Interest expense of
$16,380 and $236 was capitalized for the nine months ended September 30, 2019 and 2018, respectively, inclusive of amortized debt issuance costs disclosed in “Note 15. Debt.”
10. |
Property, plant and equipment, net
|
As of September 30, 2019 and December 31, 2018 the Company’s property, plant and equipment, net consisted of the following:
September 30,
2019
|
December 31,
2018
|
|||||||
LNG liquefaction facilities
|
$
|
67,532
|
$
|
65,631
|
||||
Gas terminals
|
52,132
|
―
|
||||||
Gas pipelines
|
11,370
|
―
|
||||||
ISO containers and other equipment
|
50,532
|
15,873
|
||||||
Land
|
16,537
|
12,779
|
||||||
Leasehold improvements
|
8,054
|
7,229
|
||||||
Vehicles
|
1,329
|
1,178
|
||||||
Computer equipment
|
880
|
741
|
||||||
Accumulated depreciation
|
(14,789
|
)
|
(9,391
|
)
|
||||
Total property, plant and equipment, net
|
$
|
193,577
|
$
|
94,040
|
Depreciation for the three months ended September 30, 2019 and 2018 totaled $1,837 and $1,009, respectively, of which $161 and $179 is respectively included within Cost of sales in the condensed consolidated statements
of operations and comprehensive loss. Depreciation for the nine months ended September 30, 2019 and 2018 totaled $5,400 and $2,776, respectively, of which $466 and $518 is respectively included within Cost of sales in the condensed consolidated
statements of operations and comprehensive loss.
11. |
Intangible assets
|
On November 9, 2018, the Company entered into an agreement to acquire the entire issued share capital of Shannon LNG Limited and Shannon LNG Energy Limited (together, “Shannon LNG”). Shannon LNG was previously formed
to construct and operate a terminal, pipeline and related infrastructure in order to deliver natural gas to downstream customers in Ireland. In connection with the acquisition, the Company recognized intangible assets related to favorable lease
agreements and permits.
The following table summarizes the composition of intangible assets as of September 30, 2019 and December 31, 2018:
September 30, 2019
|
|||||||||||||
Gross Carrying
Amount
|
Accumulated
Amortization
|
Net Carrying
Amount
|
Useful Life
|
||||||||||
Shannon LNG leases and permits
|
$
|
41,624
|
$
|
931
|
$
|
40,693
|
40 to 91
|
||||||
Total intangible assets
|
$
|
41,624
|
$
|
931
|
$
|
40,693
|
December 31, 2018
|
|||||||||||||
Gross Carrying
Amount
|
Accumulated
Amortization
|
Net Carrying
Amount
|
Useful Life
|
||||||||||
Shannon LNG leases and permits
|
$
|
43,191
|
$
|
134
|
$
|
43,057
|
40 to 91
|
||||||
Total intangible assets
|
$
|
43,191
|
$
|
134
|
$
|
43,057
|
As of September 30, 2019, the weighted-average remaining amortization periods for the intangible assets is 39.38 years. Amortization for the three and nine months ended September 30, 2019 totaled $254 and $797,
respectively.
12. |
Finance leases, net
|
The Company placed its storage and regasification LNG terminal in Montego Bay, Jamaica into service on October 30, 2016, which has been accounted for as a direct finance lease. In addition, the Company has also entered
into other arrangements to lease equipment to customers which are accounted for as direct finance leases. The components of the direct finance leases as of September 30, 2019 and December 31, 2018 are as follows:
September 30,
2019
|
December 31,
2018
|
|||||||
Finance leases
|
$
|
294,922
|
$
|
306,832
|
||||
Unearned income
|
(202,430
|
)
|
(213,682
|
)
|
||||
Total finance leases, net
|
$
|
92,492
|
$
|
93,150
|
||||
Current portion
|
$
|
1,045
|
$
|
943
|
||||
Non-current
|
91,447
|
92,207
|
Receivables related to the Company’s direct finance leases are primarily with a public utility that generates consistent cash flow. Therefore, the Company does not expect a material impact to the results of operations
or financial position due to nonperformance from such counterparty.
13. |
Other non-current assets
|
As of September 30, 2019 and December 31, 2018, other non-current assets consisted of the following:
September 30,
2019
|
December 31,
2018
|
|||||||
Port access rights
|
$
|
11,977
|
$
|
12,671
|
||||
Initial lease costs
|
9,753
|
9,200
|
||||||
Nonrefundable deposit
|
16,445
|
10,810
|
||||||
Upfront payments to customers
|
6,267
|
―
|
||||||
Contract asset (Note 4)
|
9,997
|
―
|
||||||
Cost to fulfill (Note 4)
|
6,991
|
―
|
||||||
Other
|
3,865
|
2,574
|
||||||
Total other non-current assets
|
$
|
65,295
|
$
|
35,255
|
Port access rights related to the Company’s port lease in Baja California Sur, Mexico, represent capitalized initial direct costs of entering the lease and are amortized straight-line over the lease term as additional
rent expense. Initial lease costs represent capitalized payments made to previous lessees to secure the Company’s port lease in San Juan, Puerto Rico, and are also amortized straight-line over the lease term. Nonrefundable deposits are primarily
related to deposits for planned land purchases in Pennsylvania and Ireland.
Upfront payments to customers consist of amounts the Company has paid in relation to two natural gas sales contracts with customers. Under these agreements, the Company has made payments of $5,000 and is obligated to
make an additional payment of $1,350 to the customers in order to construct fuel-delivery infrastructure that the customers will own.
14. |
Accrued liabilities
|
As of September 30, 2019 and December 31, 2018 accrued liabilities consisted of the following:
September 30,
2019
|
December 31,
2018
|
|||||||
Accrued construction costs
|
$
|
24,865
|
$
|
41,343
|
||||
Accrued IPO costs
|
―
|
5,296
|
||||||
Accrued bonuses
|
9,896
|
12,582
|
||||||
Other accrued expenses
|
16,035
|
8,291
|
||||||
Total
|
$
|
50,796
|
$
|
67,512
|
15. |
Debt
|
As of September 30, 2019 and December 31, 2018, debt consisted of the following:
September 30,
2019
|
December 31,
2018
|
|||||||
New Term Loan Facility, due December 2019
|
$
|
492,762
|
$
|
272,192
|
||||
Senior Secured Bonds, due September 2034
|
70,914
|
―
|
||||||
Senior Unsecured Bonds, due September 2036
|
42,250
|
―
|
||||||
Total debt
|
$
|
605,926
|
$
|
272,192
|
||||
Current portion of debt
|
$
|
492,762
|
$
|
272,192
|
||||
Non-current portion of debt
|
113,164
|
―
|
New Term Loan Facility
On August 16, 2018, the Company entered into a Term Loan Facility (the “Term Loan Facility”). On December 31, 2018, the Company amended its previous Term Loan Facility to borrow up to an aggregate principal amount of
$500,000 (the “New Term Loan Facility”) from a syndicate of two lenders. The Company initially borrowed $280,000 under the New Term Loan Facility. On March 21, 2019, the Company drew an additional $220,000 under the New Term Loan Facility, bringing
the Company’s total outstanding borrowings to $500,000 under the New Term Loan Facility.
All borrowings under the New Term Loan Facility bear interest at a rate selected by the Company of either (i) the LIBOR divided by one minus the applicable reserve requirement plus a spread of 4.0% or (ii) subject to a
floor of 1.0%, a Base Rate equal to the higher of (a) the Prime Rate, (b) the Federal Funds Rate plus 1⁄2 of 1.0% or (c) the 1-month LIBOR rate plus 1.0% plus a spread of 3.0%. The New Term Loan Facility is set to mature on December 31, 2019 and is
repayable in quarterly installments of $1,250, with a balloon payment due at maturity. The Company has the option to extend the maturity date for two additional six-month periods; upon the exercise of each extension option, the spread on LIBOR and
Base Rate increases by 0.5%. To exercise the extension option, the Company must pay a fee equal to 1.0% of the outstanding principal balance at the time of the exercise of the option.
The New Term Loan Facility is secured by mortgages on certain properties owned by the Company’s subsidiaries, in addition to other collateral. The New Term Loan Facility was amended in the third quarter of 2019 to
allow certain properties of a consolidated subsidiary to secure the South Power Senior Secured Bonds (defined below).
The Company is required to comply with certain financial covenants and other restrictive covenants customary for facilities of this type, including restrictions on indebtedness, liens, acquisitions and investments,
restricted payments and dispositions. The New Term Loan Facility also provides for customary events of default, prepayment and cure provisions.
The Company paid $4,400 of additional fees in connection with the $220,000 draw on the New Term Loan Facility. These fees were capitalized as a reduction to the New Term Loan Facility on the condensed consolidated
balance sheets. The total unamortized deferred financing costs as of September 30, 2019 was $3,488.
South Power Bonds
On September 2, 2019, NFE South Power Holdings Limited (“South Power”), a consolidated subsidiary of the Company, entered into a facility for the issuance of secured and unsecured bonds (the “Senior Secured Bonds” and
“Senior Unsecured Bonds”, respectively) and subsequently issued $73,317 and $43,683 in Senior Secured Bonds and Senior Unsecured Bonds, respectively. The Senior Secured Bonds are secured by the dual-fired combined heat and power facility in
Clarendon, Jamaica (the “CHP Plant”) that is currently under construction and related receivables and assets, and the proceeds will be used to fund the completion of the CHP Plant and to reimburse shareholder advances. Upon completion of
construction of the CHP Plant, which is currently expected in the fourth quarter of 2019, and the satisfaction of certain related conditions, South Power has the ability to issue an additional $63,000 in Senior Secured Bonds.
The Senior Secured Bonds bear interest at an annual fixed rate of 8.25% and will mature 15 years from the closing date of each tranche. No principal payments will be due for the first seven years. After seven years,
quarterly principal payments of approximately 1.6% of the original principal amount will be due, with a 50% balloon payment due upon maturity. Interest payments on outstanding principal balances will be due quarterly.
The Senior Unsecured Bonds will bear interest at an annual fixed rate of 11.00% and will mature 17 years from the closing date. No principal payments will be due until 2028. Beginning in 2028, principal payments will
be due quarterly on an escalating schedule. Interest payments on outstanding principal balances will be due quarterly.
South Power will be required to comply with certain financial covenants as well as customary affirmative and negative covenants, including limitations on incurring additional indebtedness. The facility also provides
for customary events of default, prepayment and cure provisions.
The Company paid approximately $3,859 of fees in connection with the issuance of Senior Secured Bonds and Senior Unsecured Bonds. These fees were capitalized on a pro-rata basis as a reduction of the Senior Secured
Bonds and Senior Unsecured Bonds on the condensed consolidated balance sheets. The total unamortized deferred financing costs as of September 30, 2019 was $3,836.
Interest expense
Interest and related amortization of debt issuance costs recognized during major development and construction projects are capitalized and included in the cost of the project. Interest expense, net of amounts
capitalized, recognized for the three and nine months ended September 30, 2019 and 2018 consisted of the following:
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2019
|
2018
|
2019
|
2018
|
|||||||||||||
Interest costs:
|
||||||||||||||||
Interest per contractual rates
|
$
|
8,731
|
$
|
2,315
|
$
|
22,094
|
$
|
5,181
|
||||||||
Amortization of debt issuance costs
|
3,512
|
1,104
|
8,743
|
1,444
|
||||||||||||
Total interest costs
|
12,243
|
3,419
|
30,837
|
6,625
|
||||||||||||
Capitalized interest
|
7,269
|
236
|
16,380
|
236
|
||||||||||||
Total interest expense
|
$
|
4,974
|
$
|
3,183
|
$
|
14,457
|
$
|
6,389
|
Under the terms of the facility, South Power is required to maintain a Debt Service Reserve Account (as defined in the facility) in the amount of $8,299. Such amount is included as a component of Restricted cash on
the Company’s condensed consolidated balance sheets (see Note 6).
16. |
Income taxes
|
In connection with the IPO, NFE contributed the net proceeds from the IPO to NFI in exchange for NFI LLC Units, and NFE became the managing member of NFI. NFI is a limited liability company that is treated as a
partnership for U.S. federal income tax purposes and for most applicable state and local income tax purposes. As a partnership, NFI is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by NFI
is passed through to and included in the taxable income or loss of its members, including NFE, on a pro rata basis, subject to applicable tax regulations. NFE is subject to U.S. federal income taxes, in addition to state and local income taxes,
with respect to its allocable share of any taxable income or loss of NFI. Additionally, NFI and its subsidiaries are subject to income taxes in the various foreign jurisdictions in which they operate.
In connection with the IPO, NFE recorded a deferred tax asset related to the differential between its outside basis in its investment in NFI and NFE’s share of the basis of the assets of NFI, which was $44,473 at
February 4, 2019.
The Company records a valuation allowance against its deferred tax assets to reduce the net carrying value to an amount that it believes is more likely than not to be realized. As of September 30, 2019, the Company
concluded, based on the weight of all available positive and negative evidence, those deferred tax assets recorded as part of the IPO are not more likely than not to be realized and accordingly, a full valuation allowance has been recorded on this
deferred tax asset as of September 30, 2019.
Jamaica
NFI’s subsidiaries incorporated in Jamaica are subject to income tax which is computed at 25% of the relevant subsidiaries’ results for the year, adjusted for tax purposes.
Bermuda
NFI has subsidiaries incorporated in Bermuda. Under current Bermuda law, the Company is not required to pay taxes in Bermuda on either income or capital gains. The Company has received an undertaking from the Bermuda
government that, in the event of income or capital gain taxes being imposed, it will be exempted from such taxes until 2035.
Ireland
NFI acquired Shannon LNG on November 9, 2018. The Shannon LNG entities are incorporated in Ireland and had net operating loss carryforwards of approximately $41,416 through December 31, 2018. These losses were
evaluated to determine if any would be subject to a limitation resulting from the acquisition. The Company concluded, based on the weight of all available positive and negative evidence, those deferred tax assets relating to the net operating loss
carryforwards are not more likely than not to be realized and accordingly, a full valuation allowance has been recorded on these deferred tax assets as of September 30, 2019.
Puerto Rico
NFI has subsidiaries incorporated in Puerto Rico that are treated as controlled foreign corporations for U.S. federal income tax purposes. These entities have been in a cumulative loss position since inception, and a
full valuation allowance has been recorded against the deferred tax assets related to those losses as of September 30, 2019.
Total Operations
The effective tax rate for the three and nine months ended September 30, 2019 was 0.12% and (0.20)% respectively, compared to (2.29)% and (0.93)% for the three and nine months ended September 30, 2018, respectively.
The total tax expense/(benefit) for the three and nine months ended September 30, 2019 was $(64) and $337, compared to $306 and $399 for the three and nine months ended September 30, 2018.
The Company has not recorded a liability for uncertain tax positions as of September 30, 2019. The Company remains subject to periodic audits and reviews by the taxing authorities, and NFE’s returns since its formation
remain open for examination.
17. |
Commitments and contingencies
|
Contingencies
During 2017, the Company paid $1,204 of tangible personal property tax levied in the State of Florida with respect to the Company’s LNG plant in Hialeah, Florida and subsequently initiated legal proceedings to
challenge the tax amount for a full or partial rebate. The Company successfully challenged the tax amount and received a full rebate. The State of Florida has appealed the determination and the Company repaid the rebate amount in order to avoid
penalties and charges while the appeal is under consideration. Additionally, in 2018, the Company paid $1,033 of tangible personal property taxes to the State of Florida with respect to the same LNG plant. The Company initiated legal proceedings to
challenge the tax amount for a partial rebate and received a rebate of approximately $140. The State of Florida has appealed the determination, and the Company repaid the rebate amount to avoid penalties and charges while the appeal is under
consideration.
As of the date at which these condensed consolidated financial statements were issued, the appeals have not been concluded. Should the State of Florida lose the appeals the Company expects a refund which will be
recognized as a gain contingency in earnings when the cash is received.
18. |
Earnings per share
|
Three Months Ended
September 30, 2019
|
Nine Months Ended
September 30, 2019
|
|||||||
Numerator:
|
||||||||
Net loss
|
$
|
(54,424
|
)
|
$
|
(165,949
|
)
|
||
Less: net loss attributable to non-controlling interests
|
47,701
|
139,483
|
||||||
Net loss attributable to Class A shares
|
$
|
(6,723
|
)
|
$
|
(26,466
|
)
|
||
Denominator:
|
||||||||
Weighted-average shares – basic and diluted
|
22,692,104
|
19,689,568
|
||||||
Net loss per share – basic and diluted
|
$
|
(0.30
|
)
|
$
|
(1.34
|
)
|
In connection with the IPO, New Fortress Energy Holdings, the Company’s predecessor, effected a one-for-2.16 stock split of its issued and outstanding common shares, resulting in 147,058,824 common shares. Upon the
reorganization, New Fortress Energy Holdings obtained the same number of Class B shares in NFE. Class B shares do not share in the earnings or losses of the Company and are therefore not participating securities. As such, separate presentation of
basic and diluted net loss per share for Class B shares under the two-class method has not been presented.
The following table presents potentially dilutive securities excluded from the computation of diluted net loss per share for the periods presented because its effects would have been anti-dilutive.
September 30,
2019
|
||||
Unvested RSUs(1)
|
3,875,081
|
|||
Class B shares(2)
|
145,057,375
|
|||
Shannon Equity Agreement shares(3)
|
932,914
|
|||
Total
|
149,865,370
|
(1) |
Represents the number of instruments outstanding at the end of the period.
|
(2) |
Class B shares at the end of the period are considered potentially dilutive Class A shares.
|
(3) |
Class A shares that would be issued in relation to the Shannon LNG Equity agreement.
|
19. |
Share-based compensation
|
During the nine months ended September 30, 2019, the Company granted RSUs to select officers, employees, non-employee members of the board of directors, and select non-employees under the Incentive Plan.
The Company estimates the fair value of RSUs on the grant date based on the closing price of the underlying shares on the grant date and other fair value adjustments to account for a post-vesting holding period. These
fair value adjustments were estimated based on the Finnerty model.
The following table summarizes the RSU activity for the nine months ended September 30, 2019:
Restricted
Stock Units
|
Weighted-
average grant
date fair value
per share
|
|||||||
Non-vested RSUs as of December 31, 2018
|
―
|
$
|
―
|
|||||
Granted
|
5,404,823
|
13.48
|
||||||
Vested and shares issued
|
(1,284,383
|
)
|
13.53
|
|||||
Forfeited
|
(245,359
|
)
|
13.51
|
|||||
Non-vested RSUs as of September 30, 2019
|
3,875,081
|
$
|
13.46
|
During the nine months ended September 30, 2019, the Company recognized a compensation expense of $36,075 of which $35,483 and $592 are recorded in Selling, general and administrative and Operations and maintenance,
respectively. During the three months ended September 30, 2019, the Company recognized a compensation expense of $8,067, of which $7,804 and $263 are recorded in Selling, general and administrative and Operations and maintenance, respectively. The
Company recognizes the income tax benefits resulting from vesting of RSUs in the period they vest, to the extent the compensation expense has been recognized.
For the nine months ended September 30, 2019, cumulative compensation expense recognized for forfeited awards of $249 was reversed.
As of September 30, 2019, the Company had 3,875,081 non-vested RSUs subject to service conditions and therefore had unrecognized compensation costs of approximately $33,419. The non-vested RSUs will vest over a period
from ten months to three years following the grant date. The weighted-average remaining vesting period of non-vested RSUs totaled 1.27 years as of September 30, 2019.
20. |
Leases, as lessee
|
During the three months ended September 30, 2019 and 2018, the Company recognized rental expense for all operating leases of $10,947 and $5,536, respectively. During the nine months ended September 30, 2019 and 2018,
the Company recognized rental expense for all operating leases of $28,323 and $16,831, respectively. These operating leases were related primarily to LNG vessel time charters, office space, a land site lease and marine port berth leases as detailed
in the table below.
Lease
|
Term
|
Rent Escalation
|
||
Land site lease(1)
|
5 year initial term; 5 year renewal option
|
2.5% per annum
|
||
Marine port berth lease
|
10 year initial term; annual renewal option for up to 10 years
|
15% after year 5
|
||
Marine port berth lease
|
20 year initial term; no renewal option
|
No escalation
|
||
Marine port berth lease
|
25 year initial term; 20 year renewal option
|
No escalation
|
||
LNG vessel time charter
|
24 month initial term; 3 month renewal option
|
No escalation
|
||
LNG vessel time charter
|
7 year initial term; no renewal option
|
2% per annum after year 3
|
||
LNG vessel time charter
|
15 year initial term; non-cancellable for the first 3 years; 5 year renewal option
|
No escalation
|
||
LNG vessel time charter
|
3 year initial term; no renewal option
|
No escalation
|
||
Office space lease
|
7 year initial term; two 5-year renewal options
|
3% per annum
|
||
Office space lease
|
1 year renewal option
|
5% per annum
|
(1) |
Refer to “Note 21. Related party transactions” for additional detail.
|
21. |
Related party transactions
|
Management and administrative services
In the ordinary course of business, Fortress Investment Group LLC (“Fortress”), through affiliated entities, has historically charged the Company for administrative and general expenses incurred pursuant to its
Management Services Agreement (“Management Agreement”). Upon completion of the IPO, the Management Agreement was terminated and replaced by an Administrative Services Agreement (“Administrative Agreement”) to charge the Company for similar
administrative and general expenses. The charges under the Management Agreement and Administrative Agreement that are attributable to the Company totaled $1,952 and $1,004 for the three months ended September 30, 2019 and 2018, respectively and
$6,472 and $2,235 for the nine months ended September 30, 2019 and 2018, respectively. Costs associated with the Management Agreement and Administrative Agreement are included within Selling, general and administrative in the condensed
consolidated statements of operations and comprehensive loss.
In addition to management and administrative services, an affiliate of Fortress owns and leases an aircraft chartered by the Company for business purposes in the course of operations. The Company incurred, at aircraft
operator market rates, charter costs of $1,306 and $314 for the three months ended September 30, 2019 and 2018, respectively and charter costs of $2,931 and $905 for the nine months ended September 30, 2019 and 2018, respectively.
As of September 30, 2019 and December 31, 2018, $7,045 and $3,579 were due to Fortress, respectively.
Land and office lease
The Company has historically leased land and office space from Florida East Coast Industries, LLC (“FECI”), an affiliate of the Company. In April 2019, FECI sold the office building to a non-affiliate, and as such, the
lease of the office space is now no longer held with a related party. The expense for the land during the three months ended September 30, 2019 and 2018 totaled $76 and $71, respectively, which is included in Operations and maintenance. The expense
for the period that the land and building was owned by a related party during the nine months ended September 30, 2019 and 2018 totaled $834 and $188, respectively, of which $386 and $0 was capitalized to Construction in progress, $223 and $0
related to the office lease and ancillary services is included in Selling, general and administrative, and $225 and $71 related to the land lease is included within Operations and maintenance, respectively in the condensed consolidated statements
of operations and comprehensive loss. As of September 30, 2019 and December 31, 2018, $0 and $597 were due to FECI, respectively.
DevTech Investment
In August 2018, the Company entered into a consulting arrangement with DevTech Environment Limited (“DevTech”), to provide business development services to increase the customer base of the Company. DevTech also
contributed cash consideration in exchange for a 10% interest in a consolidated subsidiary. The 10% interest is reflected as non-controlling interest in the Company’s condensed consolidated financial statements. DevTech also purchased 10% of a note
payable due to an affiliate of the Company. As of September 30, 2019 and December 31, 2018, $1,073 and $755 was owed to DevTech on the note payable, respectively. The outstanding note payable due to DevTech is included in Other long-term
liabilities on the condensed consolidated balance sheet as of September 30, 2019. For the three and nine months ended September 30, 2019, interest expense on the note payable due to DevTech was $25 and $71, respectively. As of September 30, 2019
and December 31, 2018, $665 and $365 was due from DevTech, respectively.
Fortress affiliated entities
Since 2017, the Company has provided certain administrative services to related parties including Fortress Energy Partners that is billed on a yearly basis. As of September 30, 2019 and December 31, 2018, $601 and $525
were due from affiliates, respectively. There are no costs incurred by the Company as it is fully reimbursed, and there is currently a receivable outstanding. Additionally, Fortress affiliated entities provide certain administrative services to the
Company. As of September 30, 2019 and December 31, 2018, $811 and $305 were due to Fortress affiliates, respectively.
Due to/from Affiliates
The tables below summarizes the balances outstanding with affiliates at September 30, 2019 and December 31, 2018:
September 30,
2019
|
December 31,
2018
|
|||||||
Amounts due to affiliates
|
$
|
7,856
|
$
|
4,481
|
||||
Amounts due from affiliates
|
1,266
|
890
|
Certain information contained in the following discussion and analysis, including information with respect to our plans, strategy, projections and expected timeline for our business and related
financing, includes forward-looking statements that involve risks and uncertainties. Forward-looking statements are 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 due to a variety of factors. This discussion and analysis includes information that is intended to provide investors with an understanding of our past performance and our
current financial condition and is not necessarily indicative of our future performance. Please refer to “—Factors Impacting Comparability of Our Financial Results” for further discussion. The results of operations for interim periods are not
necessarily indicative of the results that may be expected for any other interim period or for a full year.
You should read “Part II, Item 1A. Risk Factors” and “Cautionary Statement on Forward Looking Statements” elsewhere in this Quarterly Report on Form 10-Q (“Quarterly Report”) and “Part I, Item 1A.
Risk Factors” in the Annual Report on Form 10-K for the year ended December 31, 2018 (our “Annual Report”) for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the
forward-looking statements contained in the following discussion and analysis.
The following information should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report. Our
financial statements have been prepared in accordance with GAAP. The unaudited condensed consolidated financial statements as of and for the three and nine months ended September 30, 2019 included herein, reflect all adjustments which, in the
opinion of management, are necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods on a basis consistent with the annual audited financial statements. All such adjustments are of a
normal recurring nature.
Unless the context otherwise requires, references to “Company,” “NFE,” “we,” “our,” “us” or like terms refer to New Fortress Energy LLC and its subsidiaries. When used in a historical context that
is prior to the completion of NFE’s initial public offering (“IPO”), “Company,” “we,” “our,” “us” or like terms refer to New Fortress Energy Holdings LLC, a Delaware limited liability company (“New Fortress Energy Holdings”), our predecessor for
financial reporting purposes. Unless otherwise indicated, dollar amounts are presented in thousands.
Overview
We are engaged in providing energy and logistical services to end-users worldwide seeking to convert their operating assets from diesel or heavy fuel oil to liquefied natural gas (“LNG”). The Company currently has
liquefaction and regasification operations in the United States and Jamaica. We currently source LNG from a combination of our own liquefaction facility in Miami, Florida and purchases from third party suppliers. We are developing the
infrastructure necessary to supply all of our existing and future customers with LNG produced primarily at our own facilities. We expect that control of our vertical supply chain, from liquefaction to delivery of LNG, will help to reduce our
exposure to future LNG price variations and enable us to supply our existing and future customers with LNG at a price that reflects production at our own facilities, reinforcing our competitive standing in the LNG market. Our strategy is simple: we
seek to manufacture our own LNG at attractive prices, using fixed-price feedstock, and we seek to sell natural gas (delivered through LNG infrastructure) or gas-fired power to customers that sign long-term, take-or-pay contracts.
Our Current Operations
Our management team has successfully employed our strategy to secure long-term, take-or-pay contracts with Jamaica Public Service Company Limited (“JPS”), the sole public utility in Jamaica, South Jamaica Power Company
Limited (“JPC”), an affiliate of JPS, and Jamalco, a joint venture between General Alumina Jamaica Limited (“GAJ”), a subsidiary of Noble Group, and Clarendon Alumina Production Limited, an entity minority-owned by the Government of Jamaica, with a
focus on bauxite mining and alumina production in Jamaica (“Jamalco”), each of which is described in more detail below. Certain assets built to service JPS and JPC have, and the assets built to service Jamalco will have, capacity to service other
customers. We currently procure our LNG either by purchasing it under a multi-cargo contract from a supplier or by manufacturing it in our natural gas liquefaction, storage and production facility located in Miami-Dade County, Florida (the “Miami
Facility”). In the future, we intend to develop the infrastructure necessary to supply our existing and future customers with LNG produced primarily at our own facilities, including our expanded delivery logistics chain in Northern Pennsylvania
(the “Pennsylvania Facility” and, together with the Miami Facility, the “Liquefaction Facilities”).
Montego Bay Terminal
Our storage and regasification terminal in Montego Bay, Jamaica (the “Montego Bay Terminal”) serves as our supply hub for the north side of Jamaica, providing gas to JPS to fuel the 145MW Bogue Power Plant in Montego
Bay, Jamaica. The Montego Bay Terminal commenced commercial operations in October 2016 and can store approximately two million gallons of LNG in seven storage tanks. The Montego Bay Terminal also consists of an ISO loading facility that can
transport LNG to all of our industrial and manufacturing (“small-scale”) customers across the island. The small-scale business provides their users with an alternative fuel to support their business operations and limit reliance on monopolistic
utilities.
Miami Facility
Our Miami Facility began operations in April 2016. This facility enables us to produce LNG for our customers and reduces our dependence on other suppliers for LNG. The Miami Facility is the first plant to successfully
export domestically produced LNG from the lower 48 states to a non-FTA country and it employs one of the largest ISO container fleets in the world. The Miami Facility provides LNG to small-scale customers in southern Florida including Florida East
Coast Railway via our train loading facility and other customers throughout the Caribbean using ISO containers.
Old Harbour Terminal
Our marine LNG storage and regasification terminal in Old Harbour, Jamaica (the “Old Harbour Terminal”) commenced commercial operations during the second quarter of 2019 and is capable of processing approximately six
million gallons of LNG (500,000 MMBtu) per day. The Old Harbour Terminal supplies gas to the new 190MW Old Harbour power plant (the “Old Harbour Power Plant”) operated by JPC. The Old Harbour Power Plant is substantially complete and is expected to
be fully operational during the fourth quarter of 2019.
Results of Operations – Three and Nine Months Ended September 30, 2019 compared to Three and Nine Months Ended September 30, 2018
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||||||||||
2019
|
2018
|
Change
|
2019
|
2018
|
Change
|
|||||||||||||||||||
Revenues
|
||||||||||||||||||||||||
Operating revenue
|
$
|
35,345
|
$
|
24,629
|
$
|
10,716
|
$
|
93,221
|
$
|
69,545
|
$
|
23,676
|
||||||||||||
Other revenue
|
14,311
|
3,795
|
10,516
|
26,152
|
11,387
|
14,765
|
||||||||||||||||||
Total revenues
|
49,656
|
28,424
|
21,232
|
119,373
|
80,932
|
38,441
|
||||||||||||||||||
Operating expenses
|
||||||||||||||||||||||||
Cost of sales
|
45,832
|
22,094
|
23,738
|
123,224
|
68,625
|
54,599
|
||||||||||||||||||
Operations and maintenance
|
8,707
|
1,999
|
6,708
|
18,609
|
5,750
|
12,859
|
||||||||||||||||||
Selling, general and administrative
|
40,913
|
13,423
|
27,490
|
122,831
|
40,827
|
82,004
|
||||||||||||||||||
Depreciation and amortization
|
1,930
|
830
|
1,100
|
5,731
|
2,258
|
3,473
|
||||||||||||||||||
Total operating expenses
|
97,382
|
38,346
|
59,036
|
270,395
|
117,460
|
152,935
|
||||||||||||||||||
Operating loss
|
(47,726
|
)
|
(9,922
|
)
|
(37,804
|
)
|
(151,022
|
)
|
(36,528
|
)
|
(114,494
|
)
|
||||||||||||
Interest expense
|
4,974
|
3,183
|
1,791
|
14,457
|
6,389
|
8,068
|
||||||||||||||||||
Other expense, net
|
1,788
|
270
|
1,518
|
133
|
103
|
30
|
||||||||||||||||||
Loss before taxes
|
(54,488
|
)
|
(13,375
|
)
|
(41,113
|
)
|
(165,612
|
)
|
(43,020
|
)
|
(122,592
|
)
|
||||||||||||
Tax expense (benefit)
|
(64
|
)
|
306
|
(370
|
)
|
337
|
399
|
(62
|
)
|
|||||||||||||||
Net loss
|
$
|
(54,424
|
)
|
$
|
( 13,681
|
)
|
$
|
(40,743
|
)
|
$
|
(165,949
|
)
|
$
|
(43,419
|
)
|
$
|
(122,530
|
)
|
Revenues
Operating revenue from LNG and natural gas sales increased by $10,716 and $23,676 for the three and nine months ended September 30, 2019, respectively. The increases in both the three and nine month periods were
primarily driven by the commissioning of the Old Harbour Terminal and increases in volumes sold to small-scale customers. During the second quarter of 2019, the Old Harbour Terminal commenced commercial operations, and we began to recognize revenue
from our contract with JPC, adding $11,386 and $15,440 in operating revenue for the three and nine months ended September 30, 2019, respectively.
The delivered volume at the Montego Bay Terminal for the three months ended September 30, 2019 compared to the three months ended September 30, 2018 decreased slightly due to outages at the Bogue Power Plant, that was
offset by increases in sales to small scale customers.
The delivered volume at the Montego Bay Terminal increased by 10.0 million gallons (0.8 TBtu) from 71.9 million gallons (5.9 TBtu) for the nine months ended September 30, 2018 to 81.9 million gallons (6.7 TBtu) for the
nine months ended September 30, 2019. The increase in volumes delivered at the Montego Bay Terminal for the nine month period was attributable to additional new small-scale customers as well as an increase in consumption at an existing customer due
to the customer’s installation of a new gas turbine that consumes approximately 60,500 gallons (5,000 MMBtu) per day. Of the volumes delivered at the Montego Bay Terminal, 6.3 million gallons (529,392 MMBtu) and 2.1 million gallons (165,943 MMBtu)
were delivered to small-scale networks in the nine months ended September 30, 2019 and 2018, respectively.
Other revenue increased by $10,516 and $14,765 for the three and nine months ended September 30, 2019, respectively. The increase was primarily due to the recognition of construction revenue of $10,195 and $14,103 for
the three and nine months ended September 30, 2019, respectively. We did not have any such projects during the comparable periods ended September 30, 2018. The Company also leases certain facilities and equipment to its customers which are
accounted for either as direct financing leases or operating leases, and the interest recognized from direct financing leases or leasing revenue from operating leases is recognized within Other revenue. The remaining increase in Other revenue for
both the three and nine months ended September 30, 2019 was primarily driven by additional operating leases with small-scale customers.
Cost of sales
Cost of sales includes the procurement of feedgas or LNG as applicable, shipping and logistics costs to deliver LNG to our facilities and regasification to supply natural gas to our customers. Our LNG and natural gas
supply are purchased from third parties or converted in our Miami Facility. Costs to convert natural gas to LNG, including labor and other direct costs to operate our Miami Facility are also included in Cost of sales.
Cost of sales increased by $23,738 and $54,599 for the three and nine months ended September 30, 2019, respectively. The increase in Cost of sales was attributable to increased costs to purchase LNG from third parties.
The weighted-average cost of gas increased from $0.57 per gallon ($6.92 per MMBtu) for the three months ended September 30, 2018 to $0.66 per gallon ($8.02 per MMBtu) for the three months ended September 30, 2019, which is inclusive of boil-off
gas. The weighted-average cost of LNG increased from $0.62 per gallon ($7.46 per MMBtu) for the nine months ended September 30, 2018 to $0.77 per gallon ($9.32 per MMBtu) for the nine months ended September 30, 2019, which is inclusive of boil-off
gas. The weighted-average cost of our inventory balance as of September 30, 2019 was $0.65 per gallon ($7.84 per MMBtu). Additionally, the volumes delivered increased by 7% and 17% for the three and nine months ended September 30, 2019 compared to
the three and nine months ended September 30, 2018, respectively.
The Company also incurred an increase in charter costs due to additional ships on charter. These additional ships on charter increased cost of sales by $5,682 and $13,912 for the three and nine months ended September
30, 2019, respectively, as compared with the same periods in the prior year. During the three and nine months ended September 30, 2019, we also recognized costs associated with construction services provided to customers of $8,974 and $12,527,
respectively. We did not have any such projects for customers ongoing during the comparable periods ended September 30, 2018.
Operations and maintenance
Operations and maintenance relates to costs of operating our Miami Facility, Montego Bay Terminal and Old Harbour Terminal, exclusive of costs to convert that are reflected in Cost of sales. Operations and maintenance
increased by $6,708 and $12,859 for the three and nine months ended September 30, 2019, respectively. The increases were primarily a result of higher costs associated with the operations of charter vessels, including a storage vessel for Puerto
Rico, of $3,379 and $6,000 in the three and nine month periods ended September 30, 2019 respectively. The remaining increase is due to demurrage, as well as, increased operating costs as we continue to expand our operations.
Selling, general and administrative
Selling, general and administrative includes employee travel costs, insurance and costs associated with activities for projects that are in initial stages and development is not yet probable. Selling, general and
administrative also includes compensation expenses for our corporate employees as well as professional fees for our advisors.
Selling, general and administrative increased by $27,490 and $82,004 for the three and nine months ended September 30, 2019, respectively. The increase in the three months ended September 30, 2019 as compared to the
three months ended September 30, 2018 was primarily attributable to stock-based compensation expense of $7,804, as well as increased headcount as compared to the same period in the prior year. The increase is also due to development costs incurred
at the Pennsylvania Facility as well as other development projects that currently do not qualify for capitalization. Costs incurred in future periods for such projects may be capitalizable once a final investment decision is made for these
projects.
The increase of $82,004 in the nine month period ended September 30, 2019 as compared with the same period ended September 30, 2018 was driven mainly by recognition of $18,968 in the first quarter of 2019 due to vested
restricted stock units (“RSUs”) issued to employees and non-employees after our IPO. We also incurred $16,515 in the second and third quarters of 2019 for continuing recognition of compensation expense related to RSUs granted in the first quarter
of 2019. Additionally, there was an increase of $4,760 in transaction costs associated with financing activities. The remaining change is due to increases in professional fees and costs for development projects.
Depreciation and amortization
Depreciation and amortization increased by $1,100 and $3,473 for the three and nine months ended September 30, 2019, respectively. The increase is primarily a result of additional equipment purchases placed in service
for small-scale customers, as well as depreciation of the Old Harbour Terminal that was placed in service in the second quarter of 2019.
Interest expense
Interest expense increased by $1,791 and $8,068 for the three and nine months ended September 30, 2019, respectively, primarily as a result of additional principal balance outstanding since March 2019 under the New
Term Loan Facility (as defined below). We also incurred additional interest expense in September 2019 due to the issuance of the Senior Secured Bonds and the Senior Unsecured Bonds (both defined below). The increase in interest expense was offset
by an increase in capitalized interest in the amount of $7,033 and $16,144 for the three and nine months ended September 30, 2019, respectively.
Other expense, net
Other expense, net increased by $1,518 and $30 for the three and nine months ended September 30, 2019, respectively. The increase in expense for the three months ended September 30, 2019 was driven by changes in fair
value of the derivative liability and equity agreement associated with our acquisition of Shannon LNG in November 2018 and the change in value of an available-for-sale investment, which prior to the adoption of ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities was recorded in Other comprehensive income. For the nine months ended September 30, 2019, the changes
in the fair value of the derivative liability, equity agreement, and available-for-sale investment were almost completely offset by interest income of $3,382.
Tax expense (benefit)
Tax expense decreased by $62 for the nine months ended September 30, 2019 due to lower income in Jamaican entities.
Factors Impacting Comparability of Our Financial Results
Our historical results of operations and cash flows are not indicative of results of operations and cash flows to be expected in the future, principally for the following reasons:
• |
Our historical financial results only include our Miami Facility, our Montego Bay Terminal and certain small-scale customers. Our historical financial statements only
include our Miami Facility, our Montego Bay Terminal and certain small-scale customers and do not include the impact of projects that commenced commercial operations during 2019, such as the Old Harbour Terminal and the increase in
sales to small-scale customers. None of the periods presented include future revenue that should result from long-term, take-or-pay contracts with downstream customers expected from projects under development, including the dual-fired
combined heat and power facility in Clarendon, Jamaica (the “CHP Plant”), the multi-fuel handling facility located in the Port of San Juan, Puerto Rico (the “San Juan Facility”), the LNG regasification terminal in La Paz, Baja
California Sur, Mexico (the “La Paz Terminal”), the LNG terminal on the Shannon Estuary near Ballylongford, Ireland (the “Ireland Terminal” and, together with the Old Harbour Terminal, the Montego Bay Terminal, the San Juan Facility and
the La Paz Terminal, our “Terminals”) and the Pennsylvania Facility. The Old Harbour Terminal began commercial operations during the second quarter of 2019, and we expect the Old Harbour Power Plant, a significant buyer of gas from the
Old Harbour Terminal, to be fully operational during the fourth quarter of 2019.
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Our historical financial results also have not included construction revenue that the Company began to recognize during the nine months ended September 30, 2019. Services to manage the construction and installation of
equipment to transform customers’ facilities to operate utilizing natural gas or to allow customers to receive power or other outputs from our power generation facilities are increasingly offered to our customers, and we may recognize significant
revenue for such services that was not included in the historical financial results.
In addition, we currently purchase the majority of our supply of LNG from third parties. For the three months ended September 30, 2019 and 2018, we sourced 92% and 91%, respectively, of our LNG volumes from third
parties. For the nine months ended September 30, 2019 and 2018, we sourced 93% and 90%, respectively, of our LNG volumes from third parties. We are in the process of developing in-basin liquefaction facilities that will vertically integrate our
supply and substantially reduce the need to source LNG from third parties, which, when combined with lower cost production, should significantly impact our results of operations and cash flows from both contracted and expected downstream sales.
• |
Our organizational structure has changed as a result of reorganization transactions completed at the time of our IPO. We completed our IPO on February 4, 2019, and the net
proceeds from the IPO were contributed to New Fortress Intermediate LLC (“NFI”), an entity formed in conjunction with the IPO, in exchange for 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. 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.
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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. NFE has presented the condensed consolidated
financial statements of New Fortress Energy Holdings for periods prior to the IPO.
The financial statements of NFE beginning in February 2019 subsequent to our IPO allocate a significant portion of the results of operations to New Fortress Energy Holdings, through its non-controlling interest in NFI.
NFE has elected to be taxed as a corporation and is subject to U.S. federal and state income taxes, and as such, may recognize a tax expense (benefit), as well as associated deferred tax accounts. As of September 30, 2019, NFE has recorded a
valuation allowance on all of its deferred taxes associated with U.S. federal and state income taxes.
• |
We have incurred and will continue to incur incremental selling, general and administrative expenses related to our transition to a publicly traded company. We completed our
IPO on February 4, 2019, and we expect to incur direct, incremental general and administrative expenses as a result of being a publicly traded company, including costs associated with the employment of additional personnel, compliance
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), annual and quarterly reports to our common shareholders, registrar and transfer agent fees, national stock exchange fees, the costs associated with the initial
implementation of our Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”) Section 404 internal controls and testing, audit fees, incremental director and officer liability insurance costs and director and officer compensation. These
direct, incremental general and administrative expenses are not included in our historical results of operations for the three and nine months ended September 30, 2018.
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Liquidity and Capital Resources
We believe we will have sufficient liquidity, cash flow from operations and access to additional capital sources, to fund our capital expenditures and working capital needs for the next 12 months. We expect to fund our
current operations and continued development of additional facilities through a combination of cash on hand, borrowings from the New Term Loan Facility, and proceeds from the issuance of Senior Secured Bonds and Senior Unsecured Bonds (both defined
below). Our IPO was completed on February 4, 2019, and we issued and sold 20,000,000 Class A shares at an IPO price of $14.00 per share, raising net proceeds of approximately $257,000. On March 1, 2019, the underwriters exercised their option to
purchase an additional 837,272 Class A shares at the IPO price of $14.00 per share, less underwriting discounts, raising additional net proceeds of $11,048. On March 21, 2019, we drew the remaining availability on our New Term Loan Facility and
have $496,250 of outstanding principal as of September 30, 2019. On September 5, 2019, we issued approximately $117,000 in Senior Secured Bonds and Senior Unsecured Bonds and the full amount issued is outstanding as of September 30, 2019.
We have assumed total expenditures for all completed and existing projects to be approximately $823 million, with approximately $563 million having already been spent through September 30, 2019. This estimate
represents the expenditures necessary to complete construction of the San Juan Facility, the La Paz Terminal, the CHP Plant as well as expected expenditures to serve new small-scale customers. Through September 30, 2019, we have spent approximately
$161 million to develop the Pennsylvania Facility. As we have not made a final investment decision to complete the Pennsylvania Facility, $17 million of construction and development costs have been expensed. Cost for land, as well as, engineering
and equipment that could be deployed to other facilities of approximately $144 million, has been capitalized. We are currently exploring opportunities to expand our business into new markets, including the Caribbean, Angola, and Mexico, and we will
require significant additional capital to implement our strategy.
Cash Flows
The following table summarizes the changes to our cash flows for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018:
Nine Months Ended September 30,
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||||||||||||
2019
|
2018
|
Change
|
||||||||||
(in thousands)
|
||||||||||||
Cash flows from:
|
||||||||||||
Operating activities
|
$
|
(154,761
|
)
|
$
|
(53,156
|
)
|
$
|
(101,605
|
)
|
|||
Investing activities
|
(295,035
|
)
|
(112,135
|
)
|
(182,900
|
)
|
||||||
Financing activities
|
593,001
|
115,164
|
477,837
|
|||||||||
Net increase (decrease) in cash, cash equivalents, and restricted cash
|
$
|
143,205
|
$
|
(50,127
|
)
|
$
|
193,332
|
Cash (used in) operating activities
Our cash flow used in operating activities was $154,761 for the nine months ended September 30, 2019, which increased by $101,605 from $53,156 for the nine months ended September 30, 2018. For both the nine-month
periods ended September 30, 2019 and 2018, we had losses that comprised a significant portion of cash used in operating activities due to the continued expansion of our business activities. The loss in the nine months ended September 30, 2019
reflects non-cash shared-based compensation expense, which was excluded from the cash used in operating activities. Cash flows used in operating activities for the nine months ended September 30, 2019 was also significantly impacted by increases in
other assets, inventories, and receivables, offset by increases in accounts payable, accrued liabilities and other liabilities.
Cash (used in) investing activities
Our cash flow used in investing activities was $295,035 for the nine months ended September 30, 2019, which increased by $182,900 from $112,135 for the nine months ended September 30, 2018. The increase in cash flow
used in investing activit