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NextDecade Corp. - Quarter Report: 2019 June (Form 10-Q)

Table of Contents

 

 

UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

 

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

 

For the quarterly period ended June 30, 2019

 

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

 

For the transition period from                    to                    

 

Commission File No. 001‑36842

 

NEXTDECADE CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

    

46‑5723951

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

1000 Louisiana Street, Suite 3900, Houston, Texas 77002

(Address of principal executive offices) (Zip Code)

 

(713) 574‑1880

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

Title of each class:

    

Trading Symbol:

    

Name of each exchange on which registered:

Common Stock, $0.0001 par value

 

NEXT

 

The NASDAQ Stock Market LLC

 

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 August 1, 2019, the issuer had 110,535,922 shares of common stock outstanding.

 

 

 

 

Table of Contents

NEXTDECADE CORPORATION

FORM 10‑Q FOR THE QUARTER ENDED JUNE 30, 2019

TABLE OF CONTENTS

 

 

 

Page

Organizational Structure 

 

 

 

Part I. Financial Information 

1

Item 1. Consolidated Financial Statements 

1

Consolidated Balance Sheets 

1

Consolidated Statements of Operations 

2

Consolidated Statements of Stockholders’ Equity, Series A and Series B Convertible Preferred Stock  

3

Consolidated Statements of Cash Flows 

4

Notes to Consolidated Financial Statements 

5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

14

Item 3. Quantitative and Qualitative Disclosures About Market Risk 

19

Item 4. Controls and Procedures 

20

Part II. Other Information 

21

Item 1. Legal Proceedings 

21

Item 1A. Risk Factors 

21

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 

21

Item 3. Defaults Upon Senior Securities 

21

Item 4. Mine Safety Disclosures 

21

Item 5. Other Information 

21

Item 6. Exhibits 

22

Signatures 

24

 

 

Table of Contents

Organizational Structure

The following diagram depicts our abbreviated organizational structure as of June 30, 2019 with references to the names of certain entities discussed in this Quarterly Report on Form 10-Q.

Picture 3

Unless the context requires otherwise, references to “NextDecade,” the “Company,” “we,” “us” and “our” refer to NextDecade Corporation (NASDAQ: NEXT) and its consolidated subsidiaries.

 

 

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

NextDecade Corporation

Consolidated Balance Sheets

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

2019

 

2018

Assets

 

 

 

 

 

Current assets

 

 

  

 

 

  

Cash and cash equivalents

 

$

4,543

 

$

3,169

Investment securities

 

 

52,573

 

 

72,453

Prepaid expenses and other current assets

 

 

1,755

 

 

1,310

Total current assets

 

 

58,871

 

 

76,932

Property, plant and equipment, net

 

 

104,198

 

 

92,070

Operating lease right-of-use assets, net

 

 

1,608

 

 

 —

Total assets

 

$

164,677

 

$

169,002

 

 

 

 

 

 

 

Liabilities, Series A and Series B Convertible Preferred Stock and Stockholders’ Equity

 

 

  

 

 

  

Current liabilities

 

 

  

 

 

  

Accounts payable

 

$

1,856

 

$

719

Share-based compensation liability

 

 

182

 

 

3,018

Accrued liabilities and other current liabilities

 

 

4,789

 

 

8,353

Current operating lease liabilities

 

 

1,784

 

 

 —

Total current liabilities

 

 

8,611

 

 

12,090

Non-current common stock warrant liabilities

 

 

11,216

 

 

7,441

Non-current operating lease liabilities

 

 

273

 

 

 —

Total liabilities

 

 

20,100

 

 

19,531

 

 

 

 

 

 

 

Commitments and contingencies (Note 11)

 

 

  

 

 

  

 

 

 

 

 

 

 

Series A Convertible Preferred Stock, $1,000 per share liquidation preference

Issued and outstanding: 54,854 shares and 51,720 shares at June 30, 2019 and December 31, 2018, respectively

 

 

44,263

 

 

40,091

Series B Convertible Preferred Stock, $1,000 per share liquidation preference

Issued and outstanding: 52,818 shares and 29,636 shares at June 30, 2019 and December 31, 2018, respectively

 

 

46,987

 

 

26,159

 

 

 

 

 

 

 

Stockholders’ equity

 

 

  

 

 

  

Common stock, $0.0001 par value

Authorized: 480.0 million shares at June 30, 2019 and December 31, 2018

Issued and outstanding: 107.2  million shares and 106.9 million shares at June 30, 2019 and December 31, 2018, respectively

 

 

11

 

 

11

Treasury stock: 103,198 shares and 6,425 shares at June 30, 2019 and December 31, 2018, respectively, at cost

 

 

(466)

 

 

(35)

Preferred stock, $0.0001 par value

Authorized: 0.9 million, after designation of the Series A and Series B Convertible Preferred Stock

Issued and outstanding: none at June 30, 2019 and December 31, 2018

 

 

 —

 

 

 —

Additional paid-in-capital

 

 

170,374

 

 

180,862

Accumulated deficit

 

 

(116,592)

 

 

(97,617)

Total stockholders’ equity

 

 

53,327

 

 

83,221

Total liabilities, Series A and Series B Convertible Preferred Stock and stockholders’ equity

 

$

164,677

 

$

169,002

 

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

1

Table of Contents

NextDecade Corporation

Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2019

    

2018

    

2019

    

2018

Revenues

 

$

 —

 

$

 —

 

$

 —

 

$

 —

Operating expenses

 

 

  

  

 

  

 

 

  

  

 

  

General and administrative expense (recovery)

 

 

(5,076)

  

 

3,318

 

 

6,960

  

 

19,319

Invitation to bid contract costs

 

 

10,163

 

 

 —

 

 

10,163

 

 

 —

Land option and lease expense

 

 

451

  

 

250

 

 

862

  

 

500

Depreciation expense

 

 

43

  

 

48

 

 

85

  

 

77

Total operating expenses

 

 

5,581

  

 

3,616

 

 

18,070

  

 

19,896

Total operating loss

 

 

(5,581)

  

 

(3,616)

 

 

(18,070)

  

 

(19,896)

Other income (expense)

 

 

  

  

 

  

 

 

  

  

 

  

Loss on common stock warrant liabilities

 

 

(1,641)

  

 

 —

 

 

(1,838)

  

 

 —

Interest income, net

 

 

409

  

 

131

 

 

875

  

 

253

Other

 

 

94

  

 

 3

 

 

271

  

 

(39)

Total other (expense) income

 

 

(1,138)

  

 

134

 

 

(692)

  

 

214

Net loss attributable to NextDecade Corporation

 

 

(6,719)

 

 

(3,482)

 

 

(18,762)

 

 

(19,682)

Preferred stock dividends

 

 

 —

 

 

 —

 

 

(4,972)

 

 

 —

Deemed dividends on Series A Convertible Preferred Stock

 

 

(488)

 

 

 —

 

 

(1,039)

 

 

 —

Net loss attributable to common stockholders

 

$

(7,207)

  

$

(3,482)

 

$

(24,773)

  

$

(19,682)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share - basic and diluted

 

$

(0.07)

  

$

(0.03)

 

$

(0.23)

  

$

(0.18)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

 

107,061

  

 

106,398

 

 

107,001

  

 

106,393

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

2

Table of Contents

NextDecade Corporation

Consolidated Statement of Stockholders’ Equity, Series A and Series B Convertible Preferred Stock

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three and Six Months Ended June 30, 2019

 

 

Common Stock

 

Treasury Stock

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Par

 

 

 

 

 

Additional

 

 

 

 

Other

 

Total

 

Series A

 

Series B

 

 

 

 

Value

 

 

 

 

 

Paid-in

 

Accumulated

 

Comprehensive

 

Stockholders’

 

Convertible

 

Convertible

 

  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Deficit

  

Loss

  

Equity

  

Preferred Stock

  

Preferred Stock

Balance at December 31, 2018

 

106,856

 

$

11

 

 6

 

$

(35)

 

$

180,862

 

$

(97,617)

 

$

 —

 

$

83,221

 

$

40,091

 

$

26,159

Adoption of ASC Topic 842

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(213)

 

 

 —

 

 

(213)

 

 

 —

 

 

 —

Adoption of ASU 2018-07

 

 —

 

 

 —

 

 —

 

 

 —

 

 

2,116

 

 

 —

 

 

 —

 

 

2,116

 

 

 —

 

 

 —

Share-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

5,884

 

 

 —

 

 

 —

 

 

5,884

 

 

 —

 

 

 —

Restricted stock vesting

 

180

 

 

 —

 

 —

 

 

 —

 

 

495

 

 

 —

 

 

 —

 

 

495

 

 

 —

 

 

 —

Shares repurchased related to share-based compensation

 

(65)

 

 

 —

 

65

 

 

(260)

 

 

 —

 

 

 —

 

 

 —

 

 

(260)

 

 

 —

 

 

 —

Preferred stock dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(4,972)

 

 

 —

 

 

 —

 

 

(4,972)

 

 

3,133

 

 

1,819

Deemed dividends - accretion of beneficial conversion feature

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(551)

 

 

 —

 

 

 —

 

 

(551)

 

 

551

 

 

 —

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(12,043)

 

 

 —

 

 

(12,043)

 

 

 —

 

 

 —

Balance at March 31, 2019

 

106,971

 

$

11

 

71

 

$

(295)

 

$

183,834

 

$

(109,873)

 

$

 —

 

$

73,677

 

$

43,775

 

$

27,978

Share-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(12,972)

 

 

 —

 

 

 —

 

 

(12,972)

 

 

 —

 

 

 —

Restricted stock vesting

 

230

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Shares repurchased related to share-based compensation

 

(32)

 

 

 —

 

32

 

 

(171)

 

 

 —

 

 

 —

 

 

 —

 

 

(171)

 

 

 —

 

 

 —

Issuance of Series B Convertible Preferred Stock

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

19,009

Deemed dividends - accretion of beneficial conversion feature

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(488)

 

 

 —

 

 

 —

 

 

(488)

 

 

488

 

 

 —

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(6,719)

 

 

 —

 

 

(6,719)

 

 

 —

 

 

 —

Balance at June 30, 2019

 

107,169

 

$

11

 

103

 

$

(466)

 

$

170,374

 

$

(116,592)

 

$

 —

 

$

53,327

 

$

44,263

 

$

46,987

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three and Six Months Ended June 30, 2018

 

 

Common Stock

 

Treasury Stock

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Par

 

 

 

 

 

Additional

 

 

 

 

Other

 

Total

 

Series A

 

Series B

 

 

 

 

Value

 

 

 

 

 

Paid-in

 

Accumulated

 

Comprehensive

 

Stockholders’

 

Convertible

 

Convertible

 

  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Deficit

  

Loss

  

Equity

  

Preferred Stock

  

Preferred Stock

Balance at December 31, 2017

 

106,275

 

$

11

 

 —

 

$

 —

 

$

158,738

 

$

(55,617)

 

$

(40)

 

$

103,092

 

$

 —

 

$

 —

Share-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

12,440

 

 

 —

 

 

 —

 

 

12,440

 

 

 —

 

 

 —

Restricted stock vesting

 

123

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Adoption of ASU 2016-01

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(40)

 

 

40

 

 

 —

 

 

 —

 

 

 —

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(16,200)

 

 

 —

 

 

(16,200)

 

 

 —

 

 

 —

Balance at March 31, 2018

 

106,398

 

$

11

 

 —

 

$

 —

 

$

171,178

 

$

(71,857)

 

$

 —

 

$

99,332

 

$

 —

 

$

 —

Share-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(1,724)

 

 

 —

 

 

 —

 

 

(1,724)

 

 

 —

 

 

 —

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(3,482)

 

 

 —

 

 

(3,482)

 

 

 —

 

 

 —

Balance at June 30, 2018

 

106,398

 

$

11

 

 —

 

$

 —

 

$

169,454

 

$

(75,339)

 

$

 —

 

$

94,126

 

$

 —

 

$

 —

 

 

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

 

3

Table of Contents

NextDecade Corporation

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30, 

 

    

2019

    

2018

Operating activities:

 

 

 

  

 

 

Net loss attributable to NextDecade Corporation

 

$

(18,762)

 

$

(19,682)

Adjustment to reconcile net loss to net cash used in operating activities

 

 

 

 

 

  

Depreciation

 

 

85

 

 

77

Share-based compensation expense

 

 

(7,817)

 

 

11,251

Loss on common stock warrant liabilities

 

 

1,838

 

 

 —

(Gain) loss on investment securities

 

 

(280)

 

 

25

Realized gain on investment securities

 

 

(34)

 

 

 —

Amortization of right-of-use asset

 

 

399

 

 

 —

Changes in operating assets and liabilities:

 

 

 

 

 

  

Prepaid expenses

 

 

(342)

 

 

(96)

Accounts payable

 

 

546

 

 

(58)

Operating lease liabilities

 

 

(266)

 

 

 —

Accrued expenses and other liabilities

 

 

(601)

 

 

(578)

Net cash used in operating activities

 

 

(25,234)

 

 

(9,061)

Investing activities:

 

 

  

 

 

  

Acquisition of property, plant and equipment

 

 

(14,077)

 

 

(7,746)

Proceeds from sale of investment securities

 

 

36,000

 

 

 —

Purchase of investment securities

 

 

(15,803)

 

 

(50)

Net cash provided by (used in) investing activities

 

 

6,120

 

 

(7,796)

Financing activities:

 

 

  

 

 

  

Proceeds from equity issuance

 

 

20,945

 

 

 —

Preferred stock dividends

 

 

(26)

 

 

 —

Shares repurchased related to share-based compensation

 

 

(431)

 

 

 —

Net cash provided by financing activities

 

 

20,488

 

 

 —

Net increase (decrease) in cash and cash equivalents

 

 

1,374

 

 

(16,857)

Cash and cash equivalents – beginning of period

 

 

3,169

 

 

35,703

Cash and cash equivalents – end of period

 

$

4,543

 

$

18,846

 

 

 

 

 

 

 

Non-cash investing activities:

 

 

  

 

 

  

Accounts payable for acquisition of property, plant and equipment

 

$

958

 

$

453

Accrued liabilities for acquisition of property, plant and equipment

 

 

1,058

 

 

6,930

Non-cash financing activities:

 

 

 

 

 

 

Paid-in-kind dividends on Series A and Series B Convertible Preferred Stock

 

 

4,952

 

 

 —

Accretion of deemed dividends on Series A Convertible Preferred Stock

 

 

1,039

 

 

 —

 

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

4

Table of Contents

NextDecade Corporation

Notes to Consolidated Financial Statements

(unaudited)

Note 1 — Background and Basis of Presentation

NextDecade Corporation engages in development activities related to the liquefaction and sale of liquefied natural gas (“LNG”). We have focused and continue to focus our development activities on the Rio Grande LNG terminal facility at the Port of Brownsville in southern Texas (the “Terminal”) and an associated 137-mile Rio Bravo pipeline to supply gas to the Terminal (the “Pipeline” and together with the Terminal, the “Project”). In January 2017, we also secured a 994-acre site near Texas City, Texas for another potential LNG terminal (the “Galveston Bay Terminal”).

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with Rule 10‑01 of Regulation S-X. Accordingly, they do not include all the information and disclosures required by GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2018. In our opinion, all adjustments, consisting only of normal recurring items, which are considered necessary for a fair presentation of the unaudited consolidated financial statements, have been included.  The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the operating results for the full year.

During the first quarter of 2019, the Company adopted Accounting Standards Codification (“ASC”) Topic 842, Leases (“Topic 842”), which requires lessees to recognize a right-of-use asset and a lease liability for all operating leases.  The Company adopted Topic 842 using a prospective transition approach, which applies the provisions of Topic 842 at the effective date without adjusting the comparative periods presented, with certain practical expedients available to ease the burden of adoption.  See Note 5 – Leases for additional information.

Note 2 — Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

 

 

 

 

 

 

 

 

    

June 30, 

    

December 31, 

 

 

2019

 

2018

Rio Grande LNG site option

 

$

234

 

$

508

Short-term security deposits

 

 

49

 

 

18

Rio Bravo Pipeline options

 

 

26

 

 

54

Prepaid insurance

 

 

144

 

 

233

Prepaid marketing and sponsorships

 

 

673

 

 

242

Other

 

 

629

 

 

255

Total prepaid expenses and other current assets

 

$

1,755

 

$

1,310

 

 

Note 3 — Investment Securities

We invest in Class L shares of the JPMorgan Managed Income Fund.  The JPMorgan Managed Income Fund has an average maturity of approximately one year, duration of approximately six months, and approximately 7% of such fund’s holdings are AAA-rated with 0% non-investment grade rated. 

Investment securities consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

2019

 

2018

 

    

Fair value

    

Cost

    

Fair value

    

Cost

JPMorgan Managed Income Fund

 

$

52,573

 

$

52,394

 

$

72,453

 

$

72,567

 

 

 

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Note 4 — Property, Plant and Equipment

Property, plant and equipment consisted of the following (in thousands):

 

 

 

 

 

 

 

 

    

June 30, 

    

December 31,

 

 

2019

 

2018

Fixed Assets

 

 

  

 

 

  

Computers

 

$

317

 

$

164

Furniture, fixtures, and equipment

 

 

359

 

 

316

Leasehold improvements

 

 

420

 

 

420

Total fixed assets

 

 

1,096

 

 

900

Less: accumulated depreciation

 

 

(627)

 

 

(542)

Total fixed assets, net

 

 

469

 

 

358

Project Assets (not placed in service)

 

 

  

 

 

  

Rio Grande

 

 

91,949

 

 

80,407

Rio Bravo

 

 

11,780

 

 

11,305

Total project assets

 

 

103,729

 

 

91,712

Total property, plant and equipment, net

 

$

104,198

 

$

92,070

 

Depreciation expense was $43 thousand and $48 thousand for each of the three months ended June 30, 2019 and  2018, respectively, and $85 thousand and $77 thousand during the six months ended June 30, 2019 and 2018, respectively.  

Note 5 — Leases

We currently lease approximately 38,300 square feet of office space for general and administrative purposes in Houston, Texas under a lease agreement that expires on September 30, 2020.

In January 2017, NextDecade LLC executed surface lease agreements with the City of Texas City and the State of Texas for a 994‑acre site for the Galveston Bay Terminal (collectively, the “Galveston Bay Leases”). The term of the Galveston Bay Leases is 36 months with an option to extend for an additional 12 months.  Such option was included in the measurement of Operating lease right-of-use assets and Operating lease liabilities.

On March 6, 2019, Rio Grande entered into a lease agreement with the Brownsville Navigation District of Cameron County, Texas (“BND”), pursuant to which Rio Grande has agreed to lease approximately 984 acres of land situated in Cameron County, Texas for the purposes of constructing, operating and maintaining the Terminal.  

The initial term of the lease is for 30 years (the “Primary Term”), which will commence on the date specified in a written notice by Rio Grande to BND (the “Effective Date Notice”), if given, confirming that Rio Grande or a Rio Grande affiliate has made a positive final investment decision (“FID”) for the first phase of the Terminal.  The Effective Date may be no later than November 6, 2019 (the “Outside Effective Date”), provided, however , that in the event Rio Grande does not deliver the Effective Date Notice prior to the Outside Effective Date due to reasons unrelated to an act or omission of its own or its inability to secure one or more of the required permits for the Terminal, then the Outside Effective Date will be automatically extended on a month-to-month basis for a maximum of six months. Rio Grande has the option to renew and extend the term of the lease beyond the Primary Term for up to two consecutive renewal periods of ten years each provided that it has not caused an event of default under the lease.

In adopting Topic 842, the Company has elected the “package of practical expedients,” which permits it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the use-of-hindsight and the practical expedient pertaining to land easements. The Company elected not to apply Topic 842 to arrangements with original lease terms of 12 months or less. At lease commencement date, the Company estimated the lease liability and the right-of-use assets at present value, at inception, of $2.3 million. On January 1, 2019, upon adoption of Topic 842, the Company recorded right-of-use assets of $1.6 million, lease liabilities of $1.9 million, eliminated deferred rent of $0.1 million and recorded a cumulative-effect adjustment of $0.2 million.

The Company determines if a contractual arrangement represents or contains a lease at inception. Operating leases with lease terms greater than twelve months are included in Operating lease right-of-use assets and Operating lease liabilities in the Consolidated Balance Sheets.

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Operating lease right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of the future lease payments over the lease term. The Company utilizes its incremental borrowing rate in determining the present value of the future lease payments. The incremental borrowing rate is derived from information available at the lease commencement date and represents the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment. The right-of-use assets and lease liabilities may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company has lease arrangements that include both lease and non-lease components. The Company accounts for non-lease components separately from the lease component.

Operating lease right-of-use assets as of June 30, 2019 are as follows (in thousands):

 

 

 

 

Office leases

 

$

976

Land leases

 

 

632

Total operating lease right-of-use assets, net

 

$

1,608

Operating lease liabilities as of June 30, 2019 are as follows (in thousands):

 

 

 

 

Office leases

 

$

977

Land leases

 

 

807

Total current lease liabilities

 

 

1,784

Non-current office leases

 

 

273

Non-current land leases

 

 

 -

Total lease liabilities

 

$

2,057

Operating lease expense is as follows (in thousands):

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 2019

 

June 30, 2019

Office leases

 

$

146

 

$

262

Land leases

 

 

121

 

 

241

Total operating lease expense

 

 

267

 

 

503

Short-term lease expense

 

 

25

 

 

40

Land option expense

 

 

159

 

 

319

Total land option and lease expense

 

$

451

 

$

862

 

 

 

 

Maturity of operating lease liabilities as of June 30, 2019 are as follows (in thousands, except lease term and discount rate):

 

 

 

 

 

 

 

 

 

 

2019 (remaining)

 

$

788

2020

 

 

1,412

2021

 

 

 3

2022

 

 

 —

2023

 

 

 —

Thereafter

 

 

 —

Total undiscounted lease payments

 

 

2,203

Discount to present value

 

 

(146)

Present value of lease liabilities

 

$

2,057

 

 

 

 

Weighted average remaining lease term - years

 

 

1.4

Weighted average discount rate - percent

 

 

12.0

 

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Other information related to our operating leases for the six months ended June 30, 2019 is as follows (in thousands):

 

 

 

 

 

 

Cash paid for amounts included in the measurement of operating lease liabilities:

 

 

 

 

 

Cash flows from operating activities

 

$

367

 

 

Noncash right-of-use assets recorded for operating lease liabilities:

 

 

 

 

 

Adoption of Topic 842

 

 

1,562

 

 

In exchange for new operating lease liabilities during the period

 

 

446

 

 

 

 

Note 6 — Accrued Liabilities and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

 

 

 

 

 

 

 

 

    

June 30, 

    

December 31, 

 

 

2019

 

2018

Employee compensation expense

 

$

2,900

 

$

3,130

Project asset costs

 

 

1,058

 

 

2,014

Valve installation incentive(1)

 

 

 —

 

 

2,000

Accrued legal services

 

 

131

 

 

313

Other accrued liabilities

 

 

700

 

 

896

Total accrued liabilities and other current liabilities

 

$

4,789

 

$

8,353

 

(1)

In April 2018, we entered into an agreement with an intrastate pipeline company with assets near the Terminal which incentivizes the pipeline company to procure, permit and install a valve on an intrastate pipeline near the Terminal.  We agreed that, upon the later of (i) March 31, 2019 and (ii) thirty days after the date on which the valve was installed, we will reimburse the pipeline company a cash amount equal to 50% of the costs incurred in connection with the valve, up to a maximum payment of $2.0 million. Such valve was installed in 2018 and we reimbursed the pipeline company $2.0 million in the first quarter of 2019.

 

Note 7 – Preferred Stock and Common Stock Warrants

Preferred Stock

In August 2018, we sold an aggregate of 50,000 shares of Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock), at $1,000 per share for an aggregate purchase price of $50 million and we issued an additional 1,000 shares of Series A Preferred Stock in aggregate as origination fees to the purchasers of the Series A Preferred Stock.  In September 2018 and May 2019, we sold an aggregate of 29,055 shares and 20,945 shares, respectively, of Series B Convertible Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock” and, together with the Series A Preferred Stock, the “Convertible Preferred Stock”), at $1,000 per share for a combined purchase price of $50 million and we issued an additional 999 shares of Series B Preferred Stock in aggregate as origination fees to the purchasers of the Series B Preferred Stock. Warrants were issued together with the shares of Convertible Preferred Stock (“Common Stock Warrants”).

The shares of Convertible Preferred Stock bear dividends at a rate of 12% per annum, which are cumulative and accrue daily from the date of issuance on the $1,000 stated value.  Such dividends are payable quarterly and may be paid in cash or in-kind.  During the six months ended June 30, 2019, the Company paid-in-kind $3.1 million and $1.8 million of dividends to the holders of the Series A Preferred Stock and the Series B Preferred Stock, respectively.  On July 15, 2019, the Company paid-in-kind $1.6 million and $1.2 million of dividends to the holders of the Series A Preferred Stock and the Series B Preferred Stock, respectively, as of the close of business on June 15, 2019.

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Common Stock Warrants

Pursuant to ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, the fair value of the Common Stock Warrants was recorded as a non-current liability on our Consolidated Balance Sheet on the issuance dates.  The Company revalues the Common Stock Warrants at each balance sheet date and recognized a loss of $1.6 million and $1.8 million during the three and six months ended June 30, 2019, respectively. The Common Stock Warrants are included in Level 3 of the fair value hierarchy.

The Common Stock Warrants have a fixed three-year term commencing on the closings of the issuances of the associated Convertible Preferred Stock.  The Common Stock Warrants may only be exercised by the holders thereof at the expiration of such three-year term; however, the Company can force exercise of the Common Stock Warrants prior to expiration of such term if the volume weighted average trading price of shares of Company common stock for each trading day during any 60 of the prior 90 trading days is equal to or greater than 175% of the Conversion Price (as defined in the certificate of designations of the applicable Convertible Preferred Stock) and, in the case of the warrants issued together with the Series B Preferred Stock (the “Series B Warrants”), also if the Company simultaneously elects to force a mandatory exercise of all other warrants then outstanding and unexercised and held by any holder of parity stock. 

The Company used a Monte Carlo simulation model to estimate the fair value of the Common Stock Warrants using the following assumptions:

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

2019

 

2018

Stock price

 

$

6.32

 

$

5.40

Exercise price

 

$

0.01

 

$

0.01

Risk-free rate

 

 

1.8%

 

 

2.5%

Volatility

 

 

27.6%

 

 

33.1%

Term (years)

 

 

2.4

 

 

2.7

 

Beneficial Conversion Feature

ASC 470-20-20 – Debt – Debt with conversion and Other Options (“ASC 470-20”) defines a beneficial conversion feature (“BCF”) as a nondetachable conversion feature that is in the money at the issuance date.  The Company was required by ASC 470-20 to allocate a portion of the proceeds from the Series A Preferred Stock equal to the intrinsic value of the BCF to additional paid-in capital. We are recording the accretion of the $2.5 million Series A Preferred Stock discount attributable to the BCF as a deemed dividend using the effective yield method over the period prior to the expected conversion date. Deemed dividends on the Series A Preferred Stock was $0.5 million and zero during the three months ended June 30, 2019 and 2018, respectively, and $1.0 million and zero during the six months ended June 30, 2019 and 2018, respectively.

Initial Fair Value Allocation

Net cash proceeds from the sale of the Series B Preferred Stock in May 2019 were allocated on a fair value basis to the Series B Warrants and on a relative fair value basis to the Series B Preferred Stock.

The allocation of the net cash proceeds is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allocation of Proceeds

 

 

 

 

 

 

 

 

Series B

 

 

 

 

 

Series B

 

Preferred

 

    

 

 

    

Warrants

    

Stock

Gross proceeds

 

$

20,945

 

 

 

 

 

 

Equity issuance costs

 

 

 —

 

 

 

 

 

 

Net proceeds - Initial Fair Value Allocation

 

$

20,945

 

$

1,936

 

$

19,009

Per balance sheet upon issuance

 

 

 

 

$

1,936

 

$

19,009

 

 

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Note 8 — Net Loss Per Share

The following table (in thousands, except for loss per share) reconciles basic and diluted weighted average common shares outstanding for each of the three and six months ended June 30, 2019 and 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

June 30, 

 

June 30, 

 

    

2019

    

2018

    

2019

    

2018

Weighted average common shares outstanding:

 

 

  

 

 

  

 

 

  

 

 

  

Basic

 

 

107,061

 

 

106,398

 

 

107,001

 

 

106,393

Dilutive unvested stock, Convertible Preferred Stock, Common Stock Warrants and IPO Warrants

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Diluted

 

 

107,061

 

 

106,398

 

 

107,001

 

 

106,393

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share attributable to common stockholders

 

$

(0.07)

 

$

(0.03)

 

$

(0.23)

 

$

(0.18)

 

Potentially dilutive securities not included in the diluted net loss per share computations because their effect would have been anti-dilutive were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

June 30, 

 

June 30, 

 

    

2019

    

2018

    

2019

    

2018

Unvested stock (1)

 

 

605

 

 

417

 

 

548

 

 

396

Convertible Preferred Stock

 

 

12,647

 

 

 —

 

 

11,891

 

 

 —

Common Stock Warrants

 

 

1,542

 

 

 —

 

 

1,462

 

 

 —

IPO Warrants(2)

 

 

12,082

 

 

12,082

 

 

12,082

 

 

12,082

Total potentially dilutive common shares

 

 

26,876

 

 

12,499

 

 

25,983

 

 

12,478


(1)

Does not include 4.1 million shares for each of the three and six months ended June 30, 2019 and 16.4 million shares for the three and six months ended June 30, 2018, of unvested stock because the performance conditions had not yet been satisfied as of June 30, 2019 and 2018, respectively.

(2)

In 2015, the Company issued warrants in connection with its initial public offering (the “IPO Warrants”).  The IPO Warrants are exercisable at a price of $11.50 per share and expire on July 24, 2022.  The Company may redeem the IPO Warrants at a price of $0.01 per IPO Warrant upon 30 days’ notice only if the last sale price of Company common stock is at least $17.50 per share for any 20 trading days within a 30-trading day period.  If the Company redeems the IPO Warrants in this manner, the Company will have the option to do so on a cashless basis with the issuance of an economically equivalent number of shares of Company common stock.

 

 

 

 

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Note 9 — Share-based Compensation

We have granted shares of Company common stock and restricted Company common stock to employees, consultants and a non-employee director under our 2017 Omnibus Incentive Plan (the “2017 Plan”) and in connection with our special meeting of stockholders held on July 24, 2017.

Total share-based compensation consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

June 30, 

 

June 30, 

 

    

2019

    

2018

    

2019

    

2018

Share-based compensation:

 

 

  

 

 

  

 

 

  

 

 

  

Equity awards

 

$

(12,972)

 

$

(1,724)

 

$

(7,088)

 

$

10,716

Liability awards

 

 

(20)

 

 

2,179

 

 

(20)

 

 

2,132

Total share-based compensation

 

 

(12,992)

 

 

455

 

 

(7,108)

 

 

12,848

Capitalized share-based compensation

 

 

(163)

 

 

(1,438)

 

 

(709)

 

 

(1,597)

Total share-based compensation expense

 

$

(13,155)

 

$

(983)

 

$

(7,817)

 

$

11,251

 

On January 1, 2019, we adopted Accounting Standards Update (“ASU”) 2018-07, Compensation-Stock Compensation (“ASU 2018-07”).  This standard simplifies aspects of share-based compensation issued to non-employees by making the guidance consistent with accounting for employee share-based compensation.  Upon adoption of this standard, we reclassified $2.1 million from Share-based compensation liability to Additional paid-in-capital in our Consolidated Balance Sheets.

 

Certain employee contracts provided for cash bonuses upon a positive FID in the Project (the “FID Bonus”).  In January 2018, the nominating, corporate governance and compensation committee of the board of directors approved, and certain employees party to such contracts accepted, an amendment to such contracts whereby the FID Bonuses would be settled in shares of Company common stock equal to 110% of the FID Bonus.  The associated liability for FID Bonuses to be settled in shares of Company common stock of $0.2 million and $0.4 million is included in Share-based compensation liability in our Consolidated Balance Sheets at June 30, 2019 and December 31, 2018, respectively.

 

 

 

Note 10 — Income Taxes

Due to our cumulative loss position, we have established a full valuation allowance against our deferred tax assets at June 30, 2019 and December 31, 2018. Due to our full valuation allowance, we have not recorded a provision for federal or state income taxes during each of the three and six months ended June 30, 2019 and 2018.

Note 11 — Commitments and Contingencies

Legal Proceedings

From time to time the Company may be subject to various claims and legal actions that arise in the ordinary course of business. As of June 30, 2019, management is not aware of any claims or legal actions that, separately or in the aggregate, are likely to have a material adverse effect on the Company’s financial position, results of operations or cash flows, although the Company cannot guarantee that a material adverse effect will not occur.

Enterprise Resource Planning system

During the first and second quarters of 2019, we entered into agreements with a third-party to design and implement the first phase of a new enterprise resource planning system.  In connection with these agreements, we are committed to spend approximately $2.7 million, all of which is expected to be incurred in 2019.

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Engineering, Procurement and Construction Contract

 During the second quarter of 2019, we issued a limited notice to proceed (“LNTP”) to Bechtel Oil, Gas and Chemicals, Inc. (“Bechtel”) under our engineering, procurement and construction contract with Bechtel.  In connection with the issuance of the LNTP, we are committed to spend approximately $30.3 million in 2019, of which $15.0 million may be settled in Company common stock.

 

 

Note 12 — Recent Accounting Pronouncements

The following table provides a brief description of recent accounting standards that have not been adopted by the Company as of June 30, 2019:

 

 

 

 

 

 

 

Standard

 

Description

 

Expected Date of Adoption

 

Effect on our Consolidated Financial Statements or Other Significant Matters

ASU 2018-15, Intangibles, Goodwill and Other Internal Use Software (Subtopic 350-40)

 

The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update.  Accordingly, the amendments in this update require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. These amendments may be early adopted and are required to be applied retrospectively or prospectively to all implementation costs incurred after the date of adoption.

 

January 1, 2020

 

We are currently evaluating the effect of this standard on our Consolidated Financial Statements.

 

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Additionally, the following table provides a brief description of recent accounting standards that were adopted by the Company during the reporting period:

 

 

 

 

 

 

 

Standard

 

Description

 

Date of Adoption

 

Effect on our Consolidated Financial Statements or Other Significant Matters

ASU 2016‑02, Leases (Topic 842)

 

This standard requires a lessee to recognize leases on its balance sheet by recording a lease liability representing the obligation to make future lease payments and a right-of-use asset representing the right to use the underlying asset for the lease term. A lessee is permitted to make an election not to recognize lease assets and liabilities for leases with a term of 12 months or less. The standard also modifies the definition of a lease and requires expanded disclosures. This standard may be early adopted, and must be adopted using a modified retrospective approach with certain available practical expedients.

 

January 1, 2019

 

We have adopted this accounting standard using a prospective transition approach, which applies the provisions of the new guidance at the effective date without adjusting the comparative periods presented. Upon adoption of this standard, we recognized operating lease right-of use assets of $1.6 million and operating lease liabilities of $1.9 million.  See Note 5 - Leases of our Notes to Consolidated Financial Statements for additional details.

ASU 2018-07, Compensation-Stock Compensation (Topic 718)

 

This standard simplifies aspects of share-based compensation issued to non-employees by making the guidance consistent with accounting for employee share-based compensation. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards. This standard may be early adopted, and must be adopted using a modified retrospective approach.

 

January 1, 2019

 

Upon adoption of this standard, we  reclassified $2.1 million from Share-based compensation liability to Additional paid-in-capital in our Consolidated Balance Sheets.  The fair value of share based compensation awards to non-employees will not be remeasured subsequent to December 31, 2018. 

 

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

This Quarterly Report on Form 10‑Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact contained in this Quarterly Report on Form 10‑Q, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. The words “anticipate,” “contemplate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “might,” “will,” “would,” “could,” “should,” “can have,” “likely,” “continue,” “design” and other words and terms of similar expressions, are intended to identify forward-looking statements.

 

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short-term and long-term business operations and objectives and financial needs.

 

Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ from those expressed in our forward-looking statements. Our future financial position and results of operations, as well as any forward-looking statements are subject to change and inherent risks and uncertainties, including those described in the section titled “Risk Factors” in our most recent Annual Report on Form 10-K. You should consider our forward-looking statements in light of a number of factors that may cause actual results to vary from our forward-looking statements including, but not limited to:

progress in the development of our liquefied natural gas (“LNG”) liquefaction and export projects and the timing of that progress;

government approval of construction and operation of the terminal at the Port of Brownsville in southern Texas (the “Terminal”) and an associated 137-mile pipeline to supply gas to the Terminal (the “Pipeline” and together with the Terminal, the “Project”) and the timing of that approval;

the successful completion of the Project by third-party contractors;

our ability to secure additional debt and equity financing in the future to complete the Project;

the accuracy of estimated costs for the Project;

statements that the Project, when completed, will have certain characteristics, including amounts of liquefaction capacities;

the development risks, operational hazards, regulatory approvals applicable to Rio Grande’s and Rio Bravo’s construction and operations activities;

our anticipated competitive advantage and technological innovation which may render our anticipated competitive advantage obsolete;

the global demand for and price of natural gas (versus the price of imported LNG);

the availability of LNG vessels worldwide;

negotiations for the Terminal site lease and right-of-way options for the Pipeline route;

changes in legislation and regulations relating to the LNG industry, including environmental laws and regulations that impose significant compliance costs and liabilities;

risks related to doing business in and having counterparties in foreign countries;

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our ability to maintain the listing of our securities on a securities exchange or quotation medium;

changes adversely affecting the business in which we are engaged;

management of growth;

general economic conditions;

our ability to generate cash;

compliance with environmental laws and regulations; and

the result of future financing efforts and applications for customary tax incentives.

Should one or more of the foregoing risks or uncertainties materialize in a way that negatively impacts us, or should the underlying assumptions prove incorrect, our actual results may vary materially from those anticipated in our forward-looking statements, and our business, financial condition, and results of operations could be materially and adversely affected.

The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q.  You should not rely upon forward-looking statements as predictions of future events. In addition, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements.

Except as required by applicable law, we do not undertake any obligation to publicly correct or update any forward-looking statements.  All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in our most recent Annual Report on Form 10-K as well as other filings we have made and will make with the Securities and Exchange Commission (the “SEC”) and our public communications. You should evaluate all forward-looking statements made by us in the context of these risks and uncertainties.

Overview

NextDecade Corporation is a LNG development company focused on LNG export projects and associated pipelines in the State of Texas. We have focused and continue to focus our development activities on the Project and have undertaken and continue to undertake various initiatives to evaluate, design and engineer the Project that we expect will result in demand for contracted capacity at the Terminal, which would allow us to seek construction financing to develop the Project. We believe the Project possesses competitive advantages in several important areas, including, engineering, commercial, regulatory, and gas supply. We submitted a pre-filing request for the Project to the FERC in March 2015 and filed a formal application with the FERC in May 2016. We also believe we have robust commercial offtake and gas supply strategies in place and we estimate that the Project could commence commercial operations as early as 2023.

Unless the context requires otherwise, references to “NextDecade,” “the Company,” “we,” “us,” and “our” refer to NextDecade Corporation and its consolidated subsidiaries.

Significant Events

LNG Sale and Purchase Agreement

In March 2019, we entered into a 20-year sale and purchase agreement (the “SPA”) with Shell NA LNG LLC (“Shell”) for the supply of two million tons per annum of liquefied natural gas from the Terminal.

Pursuant to the SPA, Shell will purchase LNG on a free-on-board basis starting from the commercial operation date of the Terminal, currently expected in 2023, with approximately three-quarters of the purchased LNG volume indexed to Brent and the remaining volume indexed to domestic United States gas indices, including Henry Hub.

The Shell SPA becomes effective upon the satisfaction of certain conditions precedent, which include a positive final investment decision (“FID”) in the Project.

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Rio Grande Site Lease

On March 6, 2019, Rio Grande entered into a lease agreement with the Brownsville Navigation District of Cameron County, Texas (“BND”), pursuant to which Rio Grande has agreed to lease approximately 984 acres of land situated in Cameron County, Texas for the purposes of constructing, operating, and maintaining the Terminal.  

The initial term of the lease is for 30 years (the “Primary Term”), which will commence on the date specified in a written notice by Rio Grande to BND (the “Effective Date Notice”), if given, confirming that Rio Grande or a Rio Grande affiliate has made a FID for the first phase of the Terminal.  The Effective Date may be no later than November 6, 2019, subject to certain exceptions. Rio Grande has the option to renew and extend the term of the lease beyond the Primary Term for up to two consecutive renewal periods of ten years each provided that it has not caused an event of default under the lease.

Engineering, Procurement, and Construction Contract

During the third quarter of 2018, we initiated a competitive engineering, procurement and construction (“EPC”) bid process.  We received expressions of interest (the “EOIs”) from multiple EPC contractors to participate in the EPC bid process.  We reviewed the EOIs against a series of selection criteria and issued formal invitations to bid to Bechtel Oil, Gas, and Chemicals, Inc. (“Bechtel”), Fluor Corporation (“Fluor”) and McDermott International, Inc. (“McDermott”).

On April 22, 2019, we received EPC bid packages from each of Bechtel and Fluor, two of the global LNG market’s leading EPC contractors.  The technical and commercial bid packages, which were received on-schedule, were for fully wrapped lump-sum separated turnkey (“LSTK”) EPC contracts for the Terminal. 

On May 24, 2019, we entered into two LSTK EPC agreements with Bechtel for the construction of (i) two LNG trains with expected aggregate production capacity up to approximately 11.74 million tonnes per annum (“mtpa”), two 180,000m3 full containment LNG tanks, one marine loading berth, related utilities and facilities, and all related appurtenances thereto, together with certain additional work options (the “Trains 1 and 2 EPC Agreement”) and (ii) an LNG train with expected production capacity of up to approximately 5.87 mtpa, related utilities and facilities, and all related appurtenances  thereto (the “Train 3 EPC Agreement” and together with the Trains 1 and 2 EPC Agreement, the “EPC Agreements”).  We agreed to pay to Bechtel a contract price of $7.042 billion for the work under the Trains 1 and 2 EPC Agreement and a contract price of $2.323 billion for the work under the Train 3 EPC Agreement.  Bechtel will perform limited notice to proceed (“LNTP”) activities until January 1, 2020 and has agreed to accept, in addition to cash payments, up to $15 million in Company common stock as payment for LNTP activities.

Series B Convertible Preferred Stock Purchase Agreements

On May 17, 2019, we entered into Series B Convertible Preferred Stock Purchase Agreements (the “Series B Stock Purchase Agreements”) with (i) York Tactical Energy Fund, L.P. and York Tactical Energy Fund PIV-AN, L.P., (ii) First Series of HDML Fund I, LLC, Bardin Hill Event Driven Master Fund, LP, and HCN LP, (iii) Valinor Capital Partners, L.P. and Valinor Capital Partners Offshore Master Fund, L.P and (iv) HGC NEXT INV LLC pursuant to which we agreed to sell an aggregate of $20.945 million of shares of the Company’s Series B Convertible Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock”), together with associated warrants.  Such warrants represent the right to acquire approximately 30 basis points (0.30%) in the aggregate of the fully diluted shares of all outstanding shares of Company common stock on the exercise date with a strike price of $0.01 per share. The closings of the transactions contemplated by the Series B Stock Purchase Agreements occurred on May 24, 2019.   

Receipt of Final Environmental Impact Statement

On April 26, 2019, we received our final environmental impact statement (“FEIS”) from the FERC for the Terminal and the Pipeline.  The FEIS was prepared in compliance with the requirements of the National Environmental Policy Act (“NEPA”), the Council on Environmental Quality regulations for implementing NEPA, and FERC regulations. 

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Liquidity and Capital Resources

Capital Resources

We have funded and continue to fund the development of the Project and general working capital needs through our cash on hand and proceeds from the issuance of equity.  Our capital resources consisted of approximately $4.5 million of cash and cash equivalents and $52.6 million of investment securities as of June 30, 2019. 

Sources and Uses of Cash

The following table summarizes the sources and uses of our cash for the periods presented (in thousands):

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30, 

 

    

2019

 

2018

Operating cash flows

 

$

(25,234)

 

$

(9,061)

Investing cash flows

 

 

6,120

 

 

(7,796)

Financing cash flows

 

 

20,488

 

 

 —

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

1,374

 

 

(16,857)

Cash and cash equivalents – beginning of period

 

 

3,169

 

 

35,703

Cash and cash equivalents – end of period

 

$

4,543

 

$

18,846

 

Operating Cash Flows

Operating cash outflows during the six months ended June 30, 2019 and 2018 were $25.2 million and $9.1 million, respectively.  The increase in operating cash outflows during the six months ended June 30, 2019 compared to the six months ended June 30, 2018 was primarily related to invitation to bid contract costs, additional employees, increased professional fees and travel costs, and increased marketing and conference sponsorship costs.

Investing Cash Flows

Investing cash inflows (outflows) during the six months ended June 30, 2019 and 2018 were $6.1 million and $(7.8) million, respectively. The investing cash inflows during the six months ended June 30, 2019 were primarily the result of the sale of $36.0 million of investment securities partially offset by cash used in the development of the Project of $14.1 million and the purchase of investment securities of $15.8 million. The investing cash outflows for six months ended June 30, 2018 were primarily the result of cash used in the development of the Project of $7.7 million.

Financing Cash Flows

Financing cash inflows during the six months ended June 30, 2019 and 2018 were $20.5 million and zero, respectively. For the six months ended June 30, 2019 financing cash inflows were primarily the result of the sale of Series B Preferred Stock for $20.9 million partially offset by $0.4 million of common stock repurchased related to share-based compensation.

Capital Development Activities

We are primarily engaged in developing the Project, which will require significant additional capital to support further project development, engineering, regulatory approvals and compliance, and commercial activities in advance of a FID made to finance and construct the Project. Even if successfully completed, the Project will not begin to operate and generate cash flows until at least several years from now, which management currently estimates being as early as 2023. Construction of the Project would not begin until, among other requirements for project financing, the FERC issues an order granting the necessary authorizations under the Natural Gas Act and once all required federal, state and local permits have been obtained. We estimate that we will receive all regulatory approvals and begin construction to support the commencement of commercial operations as early as 2023. As a result, our business success will depend, to a significant extent, upon our ability to obtain the funding necessary to construct the Project, to bring it into operation on a commercially viable basis and to finance our staffing, operating and expansion costs during that process.

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We have engaged SG Americas Securities, LLC (a business unit of Société Générale) and Macquarie Capital (USA) Inc. to advise and assist us in raising capital for post-FID construction activities.

We currently expect that the long-term capital requirements for the Project will be financed predominately through project financing and proceeds from future debt and equity offerings by us. There can be no assurance that we will succeed in securing additional debt and/or equity financing in the future to complete the Project or, if successful, that the capital we raise will not be expensive or dilutive to stockholders.  Additionally, if these types of financing are not available, we will be required to seek alternative sources of financing, which may not be available on terms acceptable to us, if at all.

Contractual Obligations 

There have been no material changes to our contractual obligations from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, except for our obligation of $1.8 million at June 30, 2019 for the implementation of the first phase of a new enterprise resource planning system as compared to zero at December 31, 2018 and our obligation of $25.3 million, of which $15.0 million may be settled with Company common stock, at June 30, 2019 for limited notice to proceed activities as compared to zero at December 31, 2018.

Results of Operations

The following table summarizes costs, expenses and other income for the periods indicated (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2019

    

2018

    

Change

    

2019

    

2018

    

Change

Revenues

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

General and administrative expense (recovery)

 

 

(5,076)

 

 

3,318

 

 

(8,394)

 

 

6,960

 

 

19,319

 

 

(12,359)

Invitation to bid contract costs

 

 

10,163

 

 

 —

 

 

10,163

 

 

10,163

 

 

 —

 

 

10,163

Land option and lease expense

 

 

451

 

 

250

 

 

201

 

 

862

 

 

500

 

 

362

Depreciation expense

 

 

43

 

 

48

 

 

(5)

 

 

85

 

 

77

 

 

 8

Operating loss

 

 

(5,581)

 

 

(3,616)

 

 

(1,965)

 

 

(18,070)

 

 

(19,896)

 

 

1,826

Loss on common stock warrant liabilities

 

 

(1,641)

 

 

 —

 

 

(1,641)

 

 

(1,838)

 

 

 —

 

 

(1,838)

Interest income, net

 

 

409

 

 

131

 

 

278

 

 

875

 

 

253

 

 

622

Other

 

 

94

 

 

 3

 

 

91

 

 

271

 

 

(39)

 

 

310

Net loss attributable to NextDecade Corporation

 

 

(6,719)

 

 

(3,482)

 

 

(3,237)

 

 

(18,762)

 

 

(19,682)

 

 

920

Preferred stock dividends

 

 

 —

 

 

 —

 

 

 —

 

 

(4,972)

 

 

 —

 

 

(4,972)

Deemed dividends on Series A Convertible Preferred Stock

 

 

(488)

 

 

 —

 

 

(488)

 

 

(1,039)

 

 

 —

 

 

(1,039)

Net loss attributable to common stockholders

 

$

(7,207)

 

$

(3,482)

 

$

(3,725)

 

$

(24,773)

 

$

(19,682)

 

$

(5,091)

Our consolidated net loss was $6.7 million, or $0.07 per common share (basic and diluted), for the three months ended June 30, 2019 compared to a net loss of $3.5 million, or $0.03 per common share (basic and diluted), for the three months ended June 30, 2018.  The $3.2 million increase in net loss was primarily a result of increased invitation to bid contract costs and loss on common stock warrant liabilities, partially offset by decreased general and administrative expense (recovery) discussed separately below.

Our consolidated net loss was $18.8 million, or $0.23 per common share (basic and diluted), for the six months ended June 30, 2019 compared to a net loss of $19.7 million, or $0.18 per common share (basic and diluted), for the six months ended June 30, 2018.  The $0.9 million decrease in net loss was primarily a result of a decrease in general and administrative expense (recovery) discussed separately below, partially offset by an increase in invitation to bid contract costs and loss on common stock warrant liabilities.

General and administrative expense (recovery) during the three months ended June 30, 2019 decreased $8.4 million compared to the same period in 2018 primarily due to a decrease in share-based compensation expense of $12.2 million partially offset by an increase in expenses related to additional employees, increased professional fees and travel costs, and increased marketing and conference sponsorship costs.  The decrease in share-based compensation expense is primarily a result of forfeitures of restricted stock during the three months ended June 30, 2019.

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General and administrative expense (recovery) during the six months ended June 30, 2019 decreased $12.4 million compared to the same period in 2018 primarily due to a decrease in share-based compensation expense of $19.1 million partially offset by an increase in expenses related to additional employees, increased professional fees and travel costs, and increased marketing and conference sponsorship costs.  The decrease in share-based compensation expense is primarily a result of forfeitures of restricted stock during the six months ended June 30, 2019.

For the three and six months ended June 30, 2019, we incurred approximately $10.2 million of  invitation to bid contract cost as a result of our receipt of bid packages from Bechtel and Fluor and the execution of LSTK EPC contracts with Bechtel discussed under Significant Events above. There were no invitation to bid contract costs incurred during the same periods in 2018.

Loss on common stock warrant liabilities for the three and six months ended June 30, 2019 is primarily due to an increase in the share price of Company common stock from December 31, 2018 to the remeasurement dates at March 31, 2019 and June 30, 2019. There were no liability classified common stock warrants during the three and six months ended June 30, 2018.

Interest income, net during the three and six months ended June 30, 2019 increased $0.3 million and $0.6 million, respectively, compared to the same period in 2018 due to increased yield and higher average balances maintained in our cash, cash equivalent and investment securities accounts.

Preferred stock dividends of $5.0 million consisted of dividends paid-in kind of $2.5 million related to the issuance of 1,561 additional shares of Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), and 919 additional shares of Series B Preferred Stock, on January 15, 2019 and $2.5 million of dividends declared on March 22, 2019 and paid on April 15, 2019.  There was no Series A Preferred Stock or Series B Preferred Stock issued or outstanding during the three or six months ended June 30, 2018.

Deemed dividends on the Series A Preferred Stock for the three and six months ended June 30, 2019 represents the accretion of the beneficial conversion feature associated with the Series A Preferred Stock issued in the third quarter of 2018.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of June 30, 2019.

Summary of Critical Accounting Estimates

The preparation of our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make certain estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and the accompanying notes. There have been no significant changes to our critical accounting estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.

Recent Accounting Standards

For descriptions of recently issued accounting standards, see Note 12 – Recent Accounting Pronouncements of our Notes to Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s  rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.    Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of “our disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the fiscal quarter ended June 30, 2019. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of June 30, 2019, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

During the most recent fiscal quarter, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.   Legal Proceedings

None.

Item 1A. Risk Factors

There were no changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

Purchase of Equity Securities by the Issuer

The following table summarizes stock repurchases for the three months ended June 30, 2019:

 

 

 

 

 

 

 

 

 

Period

    

Total Number of Shares Purchased (1)

    

Average Price Paid Per Share (2)

 

Total Number of Shares Purchased as a Part of Publicly Announced Plans

    

Maximum Number of Units That May Yet Be Purchased Under the Plans

April 2019

 

1,301

 

$5.51

 

 —

 

 —

May 2019

 

30,331

 

5.41

 

 —

 

 —

June 2019

 

 —

 

 —

 

 —

 

 —

 

(1)

Represents shares of Company common stock surrendered to us by participants in our 2017 Omnibus Incentive Plan (the “2017 Plan”) to settle the participants’ personal tax liabilities that resulted from the lapsing of restrictions on shares awarded to the participants under the 2017 Plan.

(2)

The price paid per share of Company common stock was based on the closing trading price of such stock on the dates on which we repurchased shares of Company common stock from the participants under the 2017 Plan.

Item 3.   Defaults Upon Senior Securities

None.

Item 4.   Mine Safety Disclosures

Not applicable.

Item 5.   Other Information

None.

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Item 6. Exhibits

 

 

 

 

Exhibit No.

    

Description

3.1(1)

 

Second Amended and Restated Certificate of Incorporation of NextDecade Corporation, dated July 24, 2017.

3.2(2)

 

Amended and Restated Bylaws of NextDecade Corporation, dated July 24, 2017.

3.3(3)

 

Certificate of Designations of Series A Convertible Preferred Stock, dated August 9, 2018.

3.4(4)

 

Certificate of Designations of Series B Convertible Preferred Stock, dated September 28, 2018.

3.5(5)

 

Certificate of Amendment to Certificate of Designations of Series A Convertible Preferred Stock, dated July 12, 2019.

3.6(6)

 

Certificate of Amendment to Certificate of Designations of Series B Convertible Preferred Stock, dated July 12, 2019.

3.7*

 

Certificate of Increase to Certificate of Designations of Series A Convertible Preferred Stock of NextDecade Corporation, dated July 15, 2019.

3.8*

 

Certificate of Increase to Certificate of Designations of Series B Convertible Preferred Stock of NextDecade Corporation, dated July 15, 2019.

4.1(7)

 

Specimen Common Share Certificate.

4.2(8)

 

Specimen Unit Certificate.

4.3(9)

 

Specimen Warrant Certificate.

4.4(10)

 

Form of Warrant Agreement between Harmony Merger Corp. and Continental Stock Transfer & Trust Company.

4.5(11)

 

Form of Warrant Agreement for the Series A Warrants.

4.6(12)

 

Form of Warrant Agreement for the Series B Warrants.

10.1(13)

 

Series B Convertible Preferred Stock Purchase Agreement, dated as of May 17, 2019, entered into by and between NextDecade Corporation and York Tactical Energy Fund, L.P.

10.2(14)

 

Series B Convertible Preferred Stock Purchase Agreement, dated as of May 17, 2019, entered into by and between NextDecade Corporation and the Valinor Funds.

10.3(15)

 

Series B Convertible Preferred Stock Purchase Agreement, dated as of May 17, 2019, entered into by and between NextDecade Corporation and the Bardin Hill Funds.

10.4(16)

 

Series B Convertible Preferred Stock Purchase Agreement, dated as of May 17, 2019, entered into by and between NextDecade Corporation and HGC NEXT INV LLC.

10.5(17)

 

Form of Registration Rights Agreement.

10.6(18)

 

Form of Purchaser Rights Agreement.

10.7*+

 

Fixed Price Turnkey Agreement for the Engineering, Procurement and Construction of Trains 1 and 2 of the Rio Grande Natural Gas Liquefaction Facility by and between Rio Grande LNG, LLC as Owner and Bechtel Oil, Gas and Chemicals, Inc. as Contractor, dated as of May 24, 2019.

10.8*+

 

Fixed Price Turnkey Agreement for the Engineering, Procurement and Construction of Train 3 of the Rio Grande Natural Gas Liquefaction Facility by and between Rio Grande LNG, LLC as Owner and Bechtel Oil, Gas and Chemicals, Inc. as Contractor, dated as of May 24, 2019.

31.1*

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**

 

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**

 

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*

 

XBRL Instance Document.

101.SCH*

 

XBRL Taxonomy Extension Schema Document.

101.CAL*

 

XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB*

 

XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*

 

XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF*

 

XBRL Taxonomy Extension Definition Linkbase Document.

 


(1)

Incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K, filed July 28, 2017.

(2)

Incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K, filed July 28, 2017.

(3)

Incorporated by reference to Exhibit 4.3 of the Registrant’s Registration Statement on Form S-3, filed December 20, 2018.

(4)

Incorporated by reference to Exhibit 3.4 of the Registrant’s Quarterly Report on Form 10-Q, filed November 9, 2018.

(5)

Incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K, filed July 15, 2019.

(6)

Incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K, filed July 15, 2019.

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(7)

Incorporated by reference to Exhibit 4.2 of the Amendment No. 2 to the Registrant’s Registration Statement on Form S-1, filed October 10, 2014.

(8)

Incorporated by reference to Exhibit 4.1 of the Amendment No. 7 to the Registrant’s Registration Statement on Form S-1, filed March 13, 2015.

(9)

Incorporated by reference to Exhibit 4.3 of the Amendment No. 7 to the Registrant’s Registration Statement on Form S-1, filed March 13, 2015.

(10)

Incorporated by reference to Exhibit 4.4 of the Amendment No. 7 to the Registrant’s Registration Statement on Form S-1, filed March 13, 2015.

(11)

Incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K, filed August 7, 2018.

(12)

Incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K, filed August 24, 2018.

(13)

Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed May 20, 2019.

(14)

Incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K, filed May 20, 2019.

(15)

Incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K, filed May 20, 2019.

(16)

Incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K, filed May 20, 2019.

(17)

Incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form 8-K, filed May 20, 2019.

(18)

Incorporated by reference to Exhibit 10.6 of the Registrant’s Current Report on Form 8-K, filed May 20, 2019.

 

    Filed herewith.

**   Furnished herewith.

+   Certain portions of this exhibit have been omitted.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

NEXTDECADE CORPORATION

 

 

Date:  August 6, 2019

By:

/s/ Matthew K. Schatzman   

 

 

Matthew K. Schatzman

 

 

Chairman of the Board and Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

 

 

Date:  August 6, 2019

By:

/s/ Benjamin A. Atkins  

 

 

Benjamin A. Atkins

 

 

Chief Financial Officer

 

 

(Principal Financial Officer)

 

24