New Fortress Energy LLC Earnings 2020-03-31

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

10-Q 1 form10q.htm 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 March 31, 2020

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

111 W. 19^th Street, 8^th 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 April 30, 2020, the registrant had 24,236,495 Class A shares and 144,342,572 Class B shares outstanding.

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GLOSSARY OF TERMS		ii

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS		iii

PART I FINANCIAL INFORMATION		5

Item 1.	Financial Statements.	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	28

Item 3.	Quantitative and Qualitative Disclosures About Market Risks.	38

Item 4.	Controls and Procedures.	39

PART II OTHER INFORMATION		40

Item 1.	Legal Proceedings.	40

Item 1A.	Risk Factors.	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	71

Item 3.	Defaults upon Senior Securities.	71

Item 4.	Mine Safety Disclosures.	71

Item 5.	Other Information.	71

Item 6.	Exhibits.	72

SIGNATURES		73

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GLOSSARY OF TERMS

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

Btu	the amount of heat required to raise the temperature of one avoirdupois pound of pure water from 59 degrees Fahrenheit to 60 degrees Fahrenheit at an absolute pressure of 14.696 pounds per square inch gage

CAA	Clean Air Act

CERCLA	Comprehensive Environmental Response, Compensation and Liability Act

CWA	Clean Water Act

DOE	U.S. Department of Energy

FERC	Federal Energy Regulatory Commission

GAAP	generally accepted accounting principles in the United States

GHG	greenhouse gases

GSA	gas sales agreement

Henry Hub	a natural gas pipeline located in Erath, Louisiana that serves as the official delivery location for futures contracts on the New York Mercantile Exchange

ISO container	International Organization of Standardization, an intermodal container

LNG	natural gas in its liquid state at or below its boiling point at or near atmospheric pressure

MMBtu	one million Btus, which corresponds to approximately 12.1 LNG gallons

MW	megawatt. We estimate 2,500 LNG gallons would be required to produce one megawatt

NGA	Natural Gas Act of 1938, as amended

non-FTA countries	countries without a free trade agreement with the United States providing for national treatment for trade in natural gas and with which trade is permitted

OPA	Oil Pollution Act

OUR	Office of Utilities Regulation (Jamaica)

PHMSA	Pipeline and Hazardous Materials Safety Administration

PPA	power purchase agreement

SSA	steam supply agreement

TBtu	one trillion Btus, which corresponds to approximately 12,100,000 LNG gallons

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CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

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

•

our limited operating history;

•

loss of one or more of our customers;

•

inability to procure LNG on a fixed-price basis, or otherwise to manage LNG price risks, including hedging arrangements;

•

the completion of construction on our LNG 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;

•

the severity and duration of world health events, including the recent novel coronavirus (“COVID-19”) pandemic and related economic and political impacts on our or our customers’ or suppliers’ operations and financial status;

•

failure to obtain and maintain approvals and permits from governmental and regulatory agencies;

•

operational, regulatory, environmental, political, legal and economic risks pertaining to the construction and operation of our facilities;

•

inability to contract with suppliers and tankers to facilitate the delivery of LNG on their chartered LNG tankers;

•

volatility or cyclical or other changes in the demand for and price of LNG and natural gas and alternative fuels including oil-based fuels;

•

uncertainty regarding the timing, pace and extent of an economic recovery in the United States, the other jurisdictions in which we operate and elsewhere, which in turn will likely affect demand for crude oil 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;

•

the completion of the Exchange Transactions (as defined below);

•

a major health and safety incident relating to our business;

iii

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•

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, particularly Florida, Puerto Rico, Mexico, Jamaica, Angola, Nicaragua 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, 2019 (our “Annual Report”), this Quarterly Report and in our other filings with the Securities and Exchange Commission (the “SEC”). The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no duty to update these forward-looking statements, even though our situation may change in the future. Furthermore, we cannot guarantee future results, events, levels of activity, performance, projections or achievements.

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PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements.

New Fortress Energy LLC

Condensed Consolidated Balance Sheets

As of March 31, 2020 and December 31, 2019

(Unaudited, in thousands of U.S. dollars, except share amounts)

	March 31, 2020			December 31, 2019
Assets
Current assets
Cash and cash equivalents	$	232,698		$	27,098
Restricted cash		32,512			30,966
Receivables, net of allowances of $0 and $0, respectively		45,976			49,890
Inventory		28,602			63,432
Prepaid expenses and other current assets		74,826			39,734
Total current assets		414,614			211,120

Restricted cash		26,055			34,971
Construction in progress		333,646			466,587
Property, plant and equipment, net		479,089			192,222
Right-of-use asset, net		115,511			-
Intangible assets, net		42,276			43,540
Finance leases, net		1,002			91,174
Investment in equity securities		140			2,540
Deferred tax assets, net		2,756			34
Other non-current assets		74,027			81,626
Total assets	$	1,489,116		$	1,123,814

Liabilities
Current liabilities
Accounts payable	$	21,256		$	11,593
Accrued liabilities		68,529			54,943
Current lease liabilities		29,944			-
Due to affiliates		7,377			10,252
Other current liabilities		24,545			25,475
Total current liabilities		151,651			102,263

Long-term debt		945,209			619,057
Non-current lease liabilities		64,760			-
Deferred tax liabilities, net		-			241
Other long-term liabilities		13,305			14,929
Total liabilities		1,174,925			736,490

Commitments and contingences (Note 18)

Stockholders’ equity
Class A shares, 24,820,003 shares issued and 24,236,495 outstanding as of March 31, 2020; 23,607,096 shares issued and outstanding as of December 31, 2019		133,166			130,658
Treasury shares, 583,508 shares as of March 31, 2020, at cost; 0 shares at December 31, 2019, at cost		(6,132	)		-
Class B shares, 144,342,572 shares, issued and outstanding as of March 31, 2020 and December 31, 2019		-			-
Accumulated deficit		(55,427	)		(45,823	)
Accumulated other comprehensive loss		(83	)		(30	)
Total stockholders' equity attributable to NFE		71,524			84,805
Non-controlling interest		242,667			302,519
Total stockholders' equity		314,191			387,324
Total liabilities and stockholders' equity	$	1,489,116		$	1,123,814

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

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New Fortress Energy LLC

Condensed Consolidated Statements of Operations and Comprehensive Loss

For the three months ended March 31, 2020 and 2019

(Unaudited, in thousands of U.S. dollars, except share and per share amounts)

	Three Months Ended March 31,
	2020			2019
Revenues
Operating revenue	$	63,502		$	26,138
Other revenue		11,028			3,813
Total revenues		74,530			29,951

Operating expenses
Cost of sales		68,216			33,349
Operations and maintenance		8,483			4,499
Selling, general and administrative		28,370			49,749
Loss on mitigation sales		208			-
Depreciation and amortization		5,254			1,691
Total operating expenses		110,531			89,288

Operating loss		(36,001	)		(59,337	)

Interest expense		13,890			3,284
Other expense (income), net		611			(2,575	)
Loss on extinguishment of debt, net		9,557			-
Loss before taxes		(60,059	)		(60,046	)
Tax (benefit) expense		(4	)		246
Net loss		(60,055	)		(60,292	)
Net loss attributable to non-controlling interest		51,757			46,735
Net loss attributable to stockholders	$	(8,298	)	$	(13,557	)

Net loss per share – basic and diluted	$	(0.32	)	$	(0.96	)

Weighted average number of shares outstanding – basic and diluted		26,029,492			14,094,534

Other comprehensive loss:
Net loss	$	(60,055	)	$	(60,292	)
Unrealized loss on currency translation adjustment		369			-
Comprehensive loss		(60,424	)		(60,292	)
Comprehensive loss attributable to non-controlling interest		52,073			46,735
Comprehensive loss attributable to stockholders	$	(8,351	)	$	(13,557	)

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

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New Fortress Energy LLC

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the three months ended March 31, 2020 and 2019

(Unaudited, in thousands of U.S. dollars, except share amounts)

	Members' Capital				Class A shares				Class B shares				Treasury shares						Accumulated			Accumulated other comprehensive			Non- controlling			Total stockholders'
	Units		Amounts		Shares		Amount		Shares		Amount		Shares			Amount			deficit			(loss) income			Interest			equity
Balance as of December 31, 2019		-	$	-		23,607,096	$	130,658		144,342,572	$	-		-		$	-		$	(45,823	)	$	(30	)	$	302,519		$	387,324
Cumulative effect of accounting change (ASC 842)		-		-		-		-		-		-		-			-			(1,306	)		-			(7,779	)		(9,085	)
Net loss		-		-		-		-		-		-		-			-			(8,298	)		-			(51,757	)		(60,055	)
Other comprehensive loss		-		-		-		-		-		-		-			-			-			(53	)		(316	)		(369	)
Share-based compensation expense		-		-		-		2,508		-		-		-			-			-			-			-			2,508
Issuance of shares for vested RSUs		-		-		1,212,907		-		-		-		-			-			-			-			-			-
Shares withheld from employees related to share-based compensation, at cost		-		-		-		-		-		-		(583,508	)		(6,132	)		-			-			-			(6,132	)
Balance as of March 31, 2020		-	$	-		24,820,003	$	133,166		144,342,572	$	-		(583,508	)	$	(6,132	)	$	(55,427	)	$	(83	)	$	242,667		$	314,191

	Members' Capital						Class A shares				Class B shares				Treasury shares				Accumulated			Accumulated other comprehensive			Non- controlling			Total stockholders'
	Units			Amounts			Shares		Amount		Shares		Amount		Shares		Amount		deficit			(loss) income			Interest			equity
Balance as of December 31, 2018		67,983,095		$	426,741			-	$	-		-	$	-		-	$	-	$	(158,423	)	$	(11	)	$	14,340		$	282,647
Activity prior to the IPO and related organizational transactions:
Net loss		-			-			-		-		-		-		-		-		(7,923	)		11			(91	)		(8,003	)
Effects of the IPO and related organizational transactions:
Issuance of Class A shares in the IPO, net of underwriting discount and offering costs		-			-			20,837,272		32,136		-		-		-		-		-			-			235,874			268,010
Effects of the reorganization transactions		(67,983,095	)		(426,741	)		-		51,092		147,058,824		-		-		-		146,420			-			229,229			-
Activity subsequent to the IPO and related organizational transactions:
Net loss		-			-			-		-		-		-		-		-		(5,645	)		-			(46,644	)		(52,289	)
Share-based compensation expense		-			-			-		19,037		-		-		-		-		-			-			-			19,037
Balance as of March 31, 2019		-		$	-			20,837,272	$	102,265		147,058,824	$	-		-	$	-	$	(25,571	)	$	-		$	432,708		$	509,402

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

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New Fortress Energy LLC

Condensed Consolidated Statements of Cash Flows

For the three months ended March 31, 2020 and 2019

(Unaudited, in thousands of U.S. dollars)

	Three Months Ended March 31,
	2020			2019
Cash flows from operating activities
Net loss	$	(60,055	)	$	(60,292	)
Adjustments for:
Amortization of deferred financing costs		3,353			981
Depreciation and amortization		5,481			1,849
Loss on extinguishment of debt, net		9,557			-
Deferred taxes		(18	)		201
Change in value of Investment in equity securities		2,400			(896	)
Share-based compensation		2,508			19,037
Other		88			204
Decrease (Increase) in receivables		5,752			(3,102	)
Decrease (Increase) in inventories		34,830			(11,043	)
(Increase) Decrease in other assets		(54,080	)		15,684
Decrease in right-of-use asset, net		9,263			-
Increase in accounts payable/accrued liabilities		2,132			3,567
(Decrease) Increase in amounts due to affiliates		(2,875	)		3,117
(Decrease) in lease liabilities		(9,170	)		-
(Decrease) in other liabilities		(477	)		(355	)
Net cash used in operating activities		(51,311	)		(31,048	)

Cash flows from investing activities
Capital expenditures		(56,098	)		(136,281	)
Principal payments received on finance lease, net		50			284
Net cash used in investing activities		(56,048	)		(135,997	)

Cash flows from financing activities
Proceeds from borrowings of debt		832,144			220,000
Payment of deferred financing costs		(14,069	)		(4,400	)
Repayment of debt		(506,402	)		(1,250	)
Proceeds from IPO		-			274,948
Payments related to tax withholdings for share-based compensation		(6,084	)		-
Payment of offering costs		-			(6,105	)
Net cash provided by financing activities		305,589			483,193

Net increase in cash, cash equivalents and restricted cash		198,230			316,148
Cash, cash equivalents and restricted cash – beginning of period		93,035			100,853
Cash, cash equivalents and restricted cash – end of period	$	291,265		$	417,001

Supplemental disclosure of non-cash investing and financing activities:
Changes in Accounts payable and accrued liabilities associated with construction in progress and property, plant and equipment additions	$	13,359		$	(32,946	)

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

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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 a global integrated gas-to-power infrastructure company that seeks to use natural gas to satisfy the world’s large and growing power needs and is engaged in providing energy and logistical services to end-users worldwide seeking to convert their operating assets from diesel or heavy fuel oil to LNG. The Company currently sources LNG from a combination of its own liquefaction facility in Miami, Florida and purchases on the open market. The Company has liquefaction, regasification, and power generation operations in the United States and Jamaica.

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

2.	Significant accounting policies

The principle accounting policies adopted are set out below.

(a)	Basis of presentation and principles of consolidation

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

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

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

As of March 31, 2020, NFE has 24,236,495 Class A shares outstanding, and New Fortress Energy Holdings has an 85.6% economic interest in NFI through ownership of 144,342,572 NFI LLC Units, and New Fortress Energy Holdings holds an 85.6% 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.

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(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 the fair value of equity awards granted to both employees and non-employees. Management evaluates its estimates and related assumptions regularly. Changes in facts and circumstances or additional information may result in revised estimates, and actual results may differ from these estimates.

(c)	Legal and contingencies

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

(d)	Revenue recognition

The Company’s contracts with customers may contain one or several performance obligations usually consisting of the sale of LNG, natural gas, and beginning in the three months ended March 31, 2020, power and steam which are outputs from the Company’s natural gas-fueled infrastructure. The transaction price for each of these contracts is structured using similar inputs and factors regardless of the output delivered to the customer. The customers consume the benefit of the natural gas, power, and steam when they are delivered by the Company to the customer’s power generation facilities or interconnection facility. Natural gas, power, and steam qualify as a series with revenue being recognized over time using an output method, based on the quantity of natural gas, power, or steam that the customer has consumed. LNG is typically delivered in containers transported by truck to customer sites. Revenue from sales of LNG delivered by truck is recognized at the point in time at which physical possession and the risks and rewards of ownership transfer to the customer, either when the containers are shipped or delivered to the customers’ storage facilities, depending on the terms of the contract. Because the nature, timing, and uncertainty of revenue and cash flows are substantially the same for LNG, natural gas, power and steam, the Company has presented Operating revenue on an aggregated basis.

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

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

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

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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 natural gas-fueled power generation facilities. Revenue from these development services is recognized over time as the Company transfers control of the asset to the customer, 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 recognized in the period in which the costs are incurred and presented within Cost of sales in the condensed consolidated statements of operations and comprehensive loss. All such shipping and handling activities are performed prior to the customer obtaining control of the LNG.

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

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

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, 2020:

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, and early adoption is permitted. 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 December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by removing certain exceptions related to the general principles in ASC 740, Income Taxes. It also clarifies and simplifies other aspects of the accounting for income taxes. The new standard is effective for interim and annual periods beginning after December 15, 2021, and early adoption is permitted. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements and timing of adoption.

b)	New and amended standards adopted by the Company:

On February 25, 2016, the FASB issued ASU No. 2016-2, Leases (“ASC 842”), which 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. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee will depend primarily on the lease’s classification as a finance or operating lease. However, unlike ASC 840, which required only capital leases to be recognized on the balance sheet, ASC 842 requires most leases to be recognized on the balance sheet as a right-of-use (“ROU”) asset and a lease liability.

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

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

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

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

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

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

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

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

4.	Revenue from contracts with customers

Under most customer contracts, invoicing occurs once the Company’s performance obligations have been satisfied, at which point payment is unconditional. As of March 31, 2020 and December 31, 2019, receivables related to revenue from contracts with customers totaled $28,195 and $30,563, respectively, 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 reimbursable costs and leases which are accounted for outside the scope of ASC 606.

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The Company has recognized a contract liability, 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 satisfied during the next 12 months, and the contract liability is classified within Other current liabilities on the condensed consolidated balance sheets. Contract assets are comprised of the transaction price allocated to completed performance obligations that will be billed to customers in subsequent periods. The contract liability and contract assets balances as of March 31, 2020 and December 31, 2019 are detailed below:

	March 31, 2020		December 31, 2019
Contract assets - current	$	4,570	$	3,787
Contract assets - non-current		21,582		19,474
Total contract assets	$	26,152	$	23,261

Contract liability	$	3,546	$	6,542

Revenue recognized in the period from:
Amounts included in contract liability at the beginning of the period	$	3,136	$	-

As of March 31, 2020, the Company has unbilled receivables of $7,088, of which $356 is presented within Other current assets and $6,732 is presented within Other non-current assets on the condensed consolidated balance sheet. These unbilled receivables represent unconditional right to payment subject only to the passage of time.

Operating revenue which includes revenue from sales of LNG and natural gas as well as outputs from the Company’s natural gas-fired power generation facilities, including power and steam, was $63,502 and $26,138 for the three months ended March 31, 2020 and 2019, respectively. During March 2020, the Company began to deliver power and steam for the first time recognizing $1,731 in operating revenue for the three months ended March 31, 2020. Other revenue includes revenue for development services revenue as well as lease and other revenue. The table below summarizes the balances in Other revenue:

	Three Months Ended March 31,
	2020		2019
Development services revenue	$	10,071	$	-
Lease and other revenue		957		3,813
Total other revenue	$	11,028	$	3,813

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 report any unfulfilled performance obligations related to these contracts.

The Company has arrangements in which LNG, natural gas or outputs from the Company’s natural gas-fired power generation facilities are 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 typically based on a market index plus a fixed margin. The fixed transaction price allocated to the remaining performance obligations under these arrangements was $4,151,764 as of March 31, 2020, 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:

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Period	Revenue
Remainder of 2020	$	180,354
2021		228,237
2022		226,728
2023		226,000
2024		225,283
Thereafter		3,065,162
Total	$	4,151,764

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, natural gas, power or steam. As each unit of LNG, natural gas, power or steam represents a separate performance obligation, future volumes are wholly unsatisfied.

The Company has recognized costs to fulfill a contract with a significant customer, which primarily consist of expenses required to enhance resources to deliver under the agreement with the customer. As of March 31, 2020, the Company has capitalized $9,072, of which $442 of these costs is presented within Other current assets and $8,630 is presented within other non-current assets on the condensed consolidated balance sheets. As of December 31, 2019, the Company has capitalized $8,839, of which $331 of these costs is presented within Other current assets and $8,508 is presented within Other non-current assets on the condensed consolidated balance sheets. In the three months ended March 31, 2020, the Company began delivery under the agreement and started recognizing these costs on a straight-line basis over the expected term of the agreement.

Leases

Lessee

The Company has operating leases primarily for the use of LNG vessels, marine port space, office space, land, and equipment under non-cancellable lease agreements. The Company’s leases may include multiple optional renewal periods that are exercisable solely at the Company’s discretion. Renewal periods are included in the lease term when the Company is reasonably certain that the renewal options would be exercised and the associated lease payments for such periods are reflected in the ROU asset and lease liability.

The Company’s leases include fixed lease payments which may include escalation terms based on a fixed percentage or may vary based on an inflation index or other market adjustments. Escalations based on changes in inflation indexes and market adjustments and other lease costs that vary based on the use of the underlying asset are not included as lease payments in the calculation of the lease liability or ROU asset and are included in variable lease cost when the obligation that triggers the variable payment becomes probable. Variable lease cost includes contingent rent payments for office space based on the percentage occupied by the Company in addition to common area charges and other charges that are variable in nature. The Company also has a component of lease payments that are variable related to the LNG vessels, in which the Company may receive credits based on the performance of the LNG vessels during the period.

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For the three months ended March 31, 2020, the Company’s operating lease cost recorded within the condensed consolidated statements of operations and comprehensive loss were as follows:

	Three Months Ended March 31, 2020
Fixed lease cost	$	10,267
Variable lease cost		639
Short-term lease cost		286

Lease cost - Cost of Sales	$	9,351
Lease cost - Operations and maintenance		388
Lease cost - Selling, general and administrative		1,453

Lease cost of $539 has been capitalized as part of Construction in progress.

Cash paid for operating leases is reported in operating activities in the condensed consolidated statements of cash flows. Supplemental cash flow information related to leases was as follows for the three months ended March 31, 2020:

	Three Months Ended March 31, 2020
Operating cash outflows for operating lease liabilities	$	10,096
Right-of-use assets obtained in exchange for new operating lease liabilities		127,994

The future payments due under operating leases as of March 31, 2020 is as follows:

	Operating Leases
Due remainder of 2020	$	27,296
2021		35,382
2022		18,291
2023		6,986
2024		7,098
Thereafter		33,454
Total lease payments		128,507
Less: effects of discounting		33,803
Present value of lease liabilities	$	94,704

Current lease liabilities	$	29,944
Non-current lease liabilities		64,760

As of March 31, 2020, the weighted-average remaining lease term for all operating leases was 5.7 years. Because the Company generally does not have access to the rate implicit in the lease, the incremental borrowing rate is utilized as the discount rate. The weighted average discount rate associated with operating leases as of March 31, 2020 was 8.4%.

The Company has entered into an LNG vessel lease that has not commenced as of March 31, 2020 with a noncancelable term of 5 years and includes fixed payments for lease and non-lease components of $73,454.

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Future annual minimum lease payments for operating leases as of December 31, 2019, prepared in accordance with accounting standards prior to the adoption of ASC 842, were as follows:

	Operating Leases
2020	$	37,776
2021		35,478
2022		18,387
2023		7,083
2024		7,151
Thereafter		26,458
Total	$	132,333

During the three months ended March 31, 2019, the Company recognized rental expense for all operating leases of $8,437, related primarily to LNG vessel time charters, office space, a land site lease and marine port berth leases.

Lessor

In the Company’s agreements to sell LNG or natural gas to customers, the Company may also lease certain equipment to customers which are accounted for either as a finance or an operating lease. Property, plant and equipment subject to operating leases is included within ISO containers and other equipment within Note 12. Property, plant and equipment, net.

	March 31, 2020
Property, plant and equipment	$	8,872
Accumulated depreciation		(501	)
Property, plant and equipment, net	$	8,371

The following table shows the expected future lease payments as of March 31, 2020, for the remainder of 2020 through 2024 and thereafter:

	Future cash receipts
	Financing leases		Operating leases
Remainder of 2020	$	226	$	234
2021		303		262
2022		298		222
2023		304		225
2024		304		227
Thereafter		837		916
Total	$	2,272	$	2,086
Less: Imputed interest		1,064
Present value of total lease receipts	$	1,208

Current finance leases, net	$	206
Non-current finance leases, net		1,002

6.	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:

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•

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 March 31, 2020 and December 31, 2019:

	March 31, 2020
	Level 1		Level 2		Level 3		Total		Valuation technique
Assets
Cash and cash equivalents	$	232,698	$	-	$	-	$	232,698	Market approach
Restricted cash		58,567		-		-		58,567	Market approach
Investment in equity securities		140		-		-		140	Market approach
Total	$	291,405	$	-	$	-	$	291,405

Liabilities
Derivative liability¹	$	-	$	-	$	8,583	$	8,583	Income approach
Equity agreement²		-		-		15,863		15,863	Income approach
Total	$	-	$	-	$	24,446	$	24,446

	December 31, 2019
	Level 1		Level 2		Level 3		Total		Valuation technique
Assets
Cash and cash equivalents	$	27,098	$	-	$	-	$	27,098	Market approach
Restricted cash		65,937		-		-		65,937	Market approach
Investment in equity securities		2,540		-		-		2,540	Market approach
Total	$	95,575	$	-	$	-	$	95,575

Liabilities
Derivative liability¹	$	-	$	-	$	9,800	$	9,800	Income approach
Equity agreement²		-		-		16,800		16,800	Income approach
Total	$	-	$	-	$	26,600	$	26,600

⁽¹⁾

Consideration due to the sellers of Shannon LNG once first gas is supplied from the terminal to be built.

⁽²⁾

To be paid in shares at the earlier of agreed-upon date or the commencement of significant construction activities specified in the Shannon LNG Agreement.

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 gain from fair value adjustments on the derivative liability and equity agreement of $1,617 and $633 within Other expense (income), net in the condensed consolidated statements of operations and $537 and $0 within unrealized gain on currency translation adjustment in the Other comprehensive loss for the three months ended March 31, 2020 and 2019, respectively. During the three months ended March 31, 2020 and 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.

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The liability associated with the equity agreement of $15,863 and $16,800 as of March 31, 2020 and December 31, 2019, respectively, is recorded within Other current liabilities on the condensed consolidated balance sheets. The liability associated with the derivative liability of $8,583 and $9,800 as of March 31, 2020 and December 31, 2019, respectively, is recorded within Other long-term liabilities on the condensed consolidated balance sheets.

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 for each of the Credit Agreement, Senior Secured Bonds, and Senior Unsecured Bonds (all defined below in “Note 16. Debt”) approximate fair value. The fair value estimate is classified as Level 3 in the fair value hierarchy.

7.	Restricted cash

As of March 31, 2020 and December 31, 2019, restricted cash consisted of the following:

	March 31, 2020		December 31, 2019
Collateral for performance under customer agreements	$	15,000	$	15,000
Collateral for LNG purchases		29,168		35,000
Collateral for letters of credit and performance bonds		6,018		7,388
Debt service reserve account		8,131		8,299
Other restricted cash		250		250
Total restricted cash	$	58,567	$	65,937

Current restricted cash	$	32,512	$	30,966
Non-current restricted cash		26,055		34,971

Inventory

As of March 31, 2020 and December 31, 2019, inventory consisted of the following:

	March 31, 2020		December 31, 2019
LNG and natural gas inventory	$	15,949	$	57,436
Automotive diesel oil inventory		9,498		4,746
Materials, supplies and other		3,155		1,250
Total inventory	$	28,602	$	63,432

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. No adjustments were recorded during the three months ended March 31, 2020 and 2019, respectively.

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9.	Prepaid expenses and other current assets

As of March 31, 2020 and December 31, 2019, prepaid expenses and other current assets consisted of the following:

	March 31, 2020		December 31, 2019
Prepaid LNG	$	46,989	$	7,097
Prepaid expenses		5,251		7,458
Due from affiliates (Note 21)		1,468		1,577
Other current assets		21,118		23,602
Total prepaid expenses and other current assets	$	74,826	$	39,734

Other current assets as of March 31, 2020 and December 31, 2019 primarily consists of capitalized costs associated with delivering development services to a customer and receivables for recoverable taxes. The increase in prepaid LNG is primarily due to the timing of payments in relation to LNG delivery.

10.	Investment in equity securities

The Company has invested in equity securities of an international oil and gas drilling contractor. The cost of the investment was $3,667. As of March 31, 2020 and December 31, 2019, the Company owned 295,256 shares of that contractor and the fair value of the investment was $140 and $2,540, respectively.

The unrealized (loss) gain of $(2,400) and $896 for the three months ended March 31, 2020 and 2019, respectively, is included within Other expense (income), net in the condensed consolidated statements of operations and comprehensive loss.

11.	Construction in progress

The Company’s construction in progress activity during the three months ended March 31, 2020 is detailed below:

	March 31,
	2020
Balance at beginning of period	$	466,587
Additions		64,300
Transferred to property, plant and equipment, net (Note 12)		(197,241	)
Balance at end of period	$	333,646

Interest expense of $9,606 and $3,669 was capitalized for the three months ended March 31, 2020 and 2019, respectively, inclusive of amortized debt issuance costs disclosed in “Note 16. Debt.”

12.	Property, plant and equipment, net

As of March 31, 2020 and December 31, 2019 the Company’s property, plant and equipment, net consisted of the following:

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	March 31, 2020			December 31, 2019
CHP facilities	$	117,296		$	-
Terminal and power plant equipment		105,643			14,981
LNG liquefaction facilities		65,992			66,273
Gas terminals		71,673			52,781
Gas pipelines		58,898			11,692
ISO containers and other equipment		71,610			39,951
Land		15,618			15,401
Leasehold improvements		8,295			8,054
Accumulated depreciation		(35,936	)		(16,911	)
Total property, plant and equipment, net	$	479,089		$	192,222

In connection with the adoption of ASC 842, the Company determined that the direct financing lease recognized related to the Montego Bay Terminal is no longer a lease under ASC 842. As of January 1, 2020, the Company recognized a transition adjustment that removed the unamortized net investment in the direct financing lease of $91,005 and recognized the underlying assets as Property, plant and equipment of $92,207 net of accumulated depreciation of $13,932 that would have been recognized since the commissioning of the Montego Bay Terminal, with the difference of approximately $9,085, net of taxes of $2,945, recorded as an adjustment to retained earnings.

Depreciation for the three months ended March 31, 2020 and 2019 totaled $5,211 and $1,580, respectively, of which $227 and $158 is respectively included within Cost of sales in the condensed consolidated statements of operations and comprehensive loss.

13.	Intangible assets

The following table summarizes the composition of intangible assets as of March 31, 2020 and December 31, 2019:

	March 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Life
Definite-lived intangible assets
Shannon LNG permits	$	41,140		1,414	$	39,726		40
Easements		1,559		152		1,407		30

Indefinite-lived intangible assets
Easements		1,143		-		1,143		n/a
Total intangible assets	$	43,842	$	1,566	$	42,276

	December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Life
Definite-lived intangible assets
Shannon LNG leases and permits	$	42,157	$	1,198	$	40,959		40
Easements		1,559		139		1,420		30

Indefinite-lived intangible assets
Easements		1,161		-		1,161		n/a
Total intangible assets	$	44,877	$	1,337	$	43,540

As of March 31, 2020 and December 31, 2019, the weighted-average remaining amortization periods for the intangible assets was 38.2 years and 38.8 years, respectively. As of January 1, 2020, intangible assets associated with favorable lease terms in acquired leases have been reclassified as a ROU assets as a result of adoption of ASC 842.

Amortization for the three months ended March 31, 2020 and 2019 totaled $270 and $278, respectively.

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14.	Other non-current assets

As of March 31, 2020 and December 31, 2019, Other non-current assets consisted of the following:

	March 31, 2020		December 31, 2019
Nonrefundable deposit	$	24,439	$	22,262
Contract asset (Note 4)		21,582		19,474
Cost to fulfill (Note 4)		8,630		8,508
Unbilled receivables (Note 4)		6,732		-
Upfront payments to customers		5,819		5,904
Port access rights and initial lease costs		-		17,762
Other		6,825		7,716
Total other non-current assets	$	74,027	$	81,626

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 to construct fuel-delivery infrastructure that the customers will own.

As of January 1, 2020, port access rights related to the Company’s port lease in Baja California Sur, Mexico, and payments to incumbent tenants to secure the Company’s port lease in San Juan, Puerto Rico were reclassified as ROU assets in connection with the adoption of ASC 842.

15.	Accrued liabilities

As of March 31, 2020 and December 31, 2019 accrued liabilities consisted of the following:

	March 31, 2020		December 31, 2019
Accrued construction costs	$	21,777	$	25,037
Accrued interest		13,828		-
Accrued bonuses		3,462		14,991
Other accrued expenses		29,462		14,915
Total accrued liabilities	$	68,529	$	54,943

16.

Debt

As of March 31, 2020 and December 31, 2019, debt consisted of the following:

	March 31, 2020		December 31, 2019
Credit Agreement, due January 15, 2023	$	768,940	$	-
Term Loan Facility, due January 21, 2020		-		495,000
Senior Secured Bonds, due September 2034		71,005		70,960
Senior Secured Bonds, due December 2034		62,966		10,823
Senior Unsecured Bonds, due September 2036		42,298		42,274
Total debt	$	945,209	$	619,057

Current portion of debt	$	-	$	-
Non-current portion of debt		945,209		619,057

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The Credit Agreement

On January 10, 2020, the Company entered into a credit agreement to borrow $800,000 in term loans (the “Credit Agreement”). The Credit Agreement will mature in January 2023 with the full principal balance due upon maturity. Interest is payable quarterly and is based on a LIBOR rate divided by one minus the applicable reserve requirement, subject to a floor of 1.50%, plus a margin of 6.25%. The interest rate margin increases each year of the term by 1.50%. A portion of the proceeds received were utilized to extinguish the Term Loan Facility (defined below), including outstanding principal of $495,000.

The Credit Agreement is secured by mortgages on certain properties owned by the Company’s subsidiaries, in addition to other collateral. The Company is required to comply with certain financial covenants and other restricted covenants customary for credit agreement of this type, including restrictions on indebtedness, liens, acquisitions and investments, restricted payments, and dispositions. The Credit Agreement also provides for customary events of default, prepayment and cure provisions.

In connection with obtaining the Credit Agreement and the extinguishment of the Term Loan Facility, the Company incurred $35,614 in origination, structuring, and other fees which were recognized as a reduction of the principal balance of the Credit Agreement on the condensed consolidated balance sheets. As of March 31, 2020, the remaining unamortized deferred financing costs were $31,060.

Term Loan Facility

On August 16, 2018, the Company entered into a credit agreement with a syndicate of two lenders to borrow up to an aggregate principal amount of $240,000, and proceeds received from this credit agreement were utilized to repay prior debt facilities. On December 31, 2018, the Company amended this credit agreement to increase the available borrowing principal amount to $500,000 (as amended, the “Term Loan Facility”), and as of December 31, 2018, the Company had an outstanding principal balance of $280,000 under the Term Loan Facility. On March 21, 2019, the Company drew an additional $220,000, bringing the Company’s total outstanding borrowings to $500,000 under the Term Loan Facility.

All borrowings under the Term Loan Facility bore interest at a rate selected by the Company of either (i) LIBOR divided by one minus the applicable reserve requirement plus a spread of 4% or (ii) subject to a floor of 1%, a Base Rate equal to the higher of (a) the Prime Rate, (b) the Federal Funds Rate plus 1/2 of 1% or (c) the 1-month LIBOR rate plus 1.00% plus a spread of 3.0%. The Term Loan Facility was repayable in quarterly installments of $1,250, with a balloon payment due at maturity.

The Term Loan Facility was secured by mortgages on certain properties owned by the Company’s subsidiaries, in addition to other collateral. The Term Loan Facility was amended in the third quarter of 2019 to allow certain properties of a consolidated subsidiary to secure the Senior Secured Bonds (defined below).

The Company incurred costs in connection with obtaining the Term Loan Facility, the extinguishment of the Company’s prior debt facilities, and the amendment of the Term Loan Facility. Some of the costs incurred were capitalized as a reduction to the Term Loan Facility on the consolidated balance sheets, and all deferred financing costs associated with the Term Loan Facility were amortized over the term of the Term Loan Facility, through December 31, 2019. As such, there were no unamortized deferred financing costs as of December 31, 2019.

The Term Loan Facility had a maturity date of December 31, 2019, with an option to extend the maturity date for two additional six-month periods. Upon the exercise of each extension option, the Company would pay a fee equal to 1.0% of the outstanding principal balance at the time of the exercise and the spread on LIBOR and Base Rate would increase by 0.5%. On December 30, 2019, the Company entered into an amendment with the lenders to extend the maturity to January 21, 2020; no fees were due to lenders from the execution of this amendment. On January 15, 2020, the Company repaid the full amount outstanding including fees due to the lenders using proceeds from the Credit Agreement to extinguish the Term Loan Facility. In conjunction with the extinguishment of the Term Loan Facility, the Company recognized a Loss on extinguishment of debt of $9,557 in the condensed consolidated statements of operations and comprehensive loss.

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”) and related receivables and assets, and the proceeds were used to fund the completion of the CHP Plant and to reimburse shareholder advances. Upon completion of construction of the CHP Plant in the fourth quarter of 2019, South Power issued an additional $63,000 in Senior Secured Bonds. The Company received $10,856 of the proceeds in 2019 and received the remaining proceeds of $52,144 in January 2020.

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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 issuance. 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 bear interest at an annual fixed rate of 11.00% and will mature in September 2036. No principal payments will be due for the first nine years. 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 $3,892 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 March 31, 2020 and December 31, 2019 was $3,731 and $3,799, respectively.

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 $8,131. Such amount is included as a component of Restricted cash on the Company’s condensed consolidated balance sheets (see Note 7).

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 months ended March 31, 2020 and 2019 consisted of the following:

	Three months ended
	March 31, 2020		March 31, 2019
Interest costs:
Interest per contractual rates	$	18,874	$	4,889
Amortization of debt issuance costs		4,622		2,064
Total interest costs		23,496		6,953
Capitalized interest		9,606		3,669
Total interest expense	$	13,890	$	3,284

17.	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 non-U.S. jurisdictions in which they operate.

In connection with the IPO, NFE recorded a deferred tax asset of $42,783 related to the difference between its tax basis in its investment in NFI and NFE’s share of the financial statement carrying amount of the net assets of NFI. The deferred tax asset was recorded to equity and is fully offset by a valuation allowance also recorded to equity. The effective tax rate for the three months ended March 31, 2020 was 0.01%, compared to (0.41)% for the three months ended March 31, 2019. The total tax expense / (benefit) for the three months ended March 31, 2020 was $(4), compared to $246 for the three months ended March 31, 2019.

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The primary items which decreased the Company’s effective tax rate for the quarter ended March 31, 2020 and March 31, 2019 from the U.S. federal statutory rate of 21% were valuation allowances recorded against the Company’s current period losses and earnings generated in non-U.S. tax jurisdictions with preferential tax rates.

The Company has not recorded a liability for uncertain tax positions as of March 31, 2020. The Company remains subject to periodic audits and reviews by the taxing authorities, and NFE’s tax returns since its formation remain open for examination.

18.	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 appealed the determination, and the Company repaid the rebate amount to avoid penalties and charges while the appeal was 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 appealed the determination, and the Company repaid the rebate amount to avoid penalties and charges while the appeal is under consideration.

The Company settled both cases with the State of Florida during 2019 and received a total refund of $651 in March 2020. The cash received, net of legal fees, was recognized within Operations and maintenance in the condensed consolidated statements of operations and comprehensive loss during the three months ended March 31, 2020.

19.	Earnings per share

	Three Months Ended March 31, 2020			Three Months Ended March 31, 2019
Numerator:
Net loss	$	(60,055	)	$	(60,292	)
Less: net loss attributable to non-controlling interests		51,757			46,735
Net loss attributable to Class A shares	$	(8,298	)	$	(13,557	)
Denominator:
Weighted-average shares-basic and diluted		26,029,492			14,094,534

Net loss per share - basic and diluted	$	(0.32	)	$	(0.96	)

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. As of March 31, 2020, there were 144,342,572 Class B shares outstanding. 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 weighted-average Class A shares for the three months ended March 31, 2019 was 14,094,534, which was lower than the outstanding Class A shares at March 31, 2019. This was primarily due to the timing of the issuance of the 20,000,000 Class A shares in connection with the IPO and a series of other transactions on February 4, 2019.

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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.

	March 31, 2020		March 31, 2019
Unvested RSUs¹		1,890,125		4,184,183
Class B shares²		144,342,572		147,058,824
Shannon Equity Agreement shares³		1,635,462		1,416,554
Total		147,868,159		152,659,561

Represents the number of instruments outstanding at the end of the period.

Class B shares at the end of the period are considered potentially dilutive Class A shares.

Class A shares that would be issued in relation to the Shannon LNG Equity Agreement.

20.	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, share appreciation rights, restricted shares, restricted share 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 has granted RSUs to select officers, employees, non-employee members of the board of directors, and select non-employees under the Incentive Plan. The grant date fair market value of RSUs is estimated 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 three months ended March 31, 2020:

	Restricted Share Units			Weighted-average grant date fair value per share
Non-vested RSUs as of December 31, 2019		3,137,415		$	13.44
Granted		109,409			14.47
Vested		(1,341,094	)		13.51
Forfeited		(15,605	)		13.51
Non-vested RSUs as of March 31, 2020		1,890,125		$	13.45

During the three months ended March 31, 2020, the Company recognized a compensation expense of $2,508, of which $2,271 and $237 was recorded in Selling, general and administrative and Operations and maintenance, respectively. During the three months ended March 31, 2019, the Company recognized a compensation expense of $19,037, of which $18,968 and $69 was 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 of vesting, to the extent the compensation expense has been recognized.

For the three months ended March 31, 2020 and 2019, cumulative compensation expense recognized for forfeited RSU awards of $61 and $0, respectively, was reversed.

As of March 31, 2020, the Company had 1,890,125 non-vested RSUs subject to service conditions and had unrecognized compensation costs of approximately $16,945. 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 1.87 years as of March 31, 2020.

During the three months ended March 31, 2020, the Company granted 1,109,777 performance share units (“PSUs”) to certain employees and non-employees. The PSUs contain a performance condition, and vesting will be determined based on achievement of an adjusted operating margin for the year ended December 31, 2021. The number of shares that will vest can range from zero to 2,219,554. As of March 31, 2020, the Company determined that it was not probable that the performance condition required for any of the PSUs to vest would be achieved, and as such, no compensation expense has been recognized in the condensed consolidated statements of operations and comprehensive loss. Unrecognized compensation costs if 2,219,554 shares were to vest based on the achievement of the performance condition was $32,117.

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21.	Related party transactions

Management services

The Company is majority owned by a private equity fund managed by an affiliate of Fortress Investment Group LLC (“Fortress”). In the ordinary course of business, 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 $2,231 and $2,779 for the three months ended March 31, 2020 and 2019 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. As of March 31, 2020 and December 31, 2019, $2,254 and $5,083 were due to Fortress, respectively.

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 $1,239 for the three months ended March 31, 2020. As of March 31, 2020 and December, 31, 2019, $3,958 and $4,286 was due to this affiliate, respectively. In prior years, such charges were incurred under the Management Agreement and amounts incurred of $976 for the three months ended March 31, 2019 were included in the activity and balance disclosed above.

Land and office lease

The Company has 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 no longer held with a related party. The Company recognized expense related to the land lease still held by a related party during the three months ended March 31, 2020 of $103, which was included within Operations and maintenance in the condensed consolidated statements of operations and comprehensive loss. The Company recognized expense during the three months ended March 31, 2019 for both the land and building of $647, of which $386 was capitalized to Construction in progress, $76 related to the land lease was included in Operations and maintenance, and $185 related to the office lease and ancillary services was included in Selling, general and administrative, respectively in the condensed consolidated statements of operations and comprehensive loss. As of March 31, 2020 and December 31, 2019, there was no amount due to FECI.

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 purchased 10% of a note payable due to an affiliate of the Company. As of March 31, 2020 and December 31, 2019, $715 and $815 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 sheets. For the three months ended March 31, 2020 and 2019, interest expense on the note payable due to DevTech was $19 and $22, respectively; no interest has been paid and accrued interest has been recognized within Accrued liabilities on the condensed consolidated balance sheets. As of March 31, 2020 and December 31, 2019, $343 and $443 was due from DevTech, respectively.

Fortress affiliated entities

Since 2017, the Company has provided certain administrative services to related parties including Fortress affiliated entities. As of March 31, 2020 and December 31, 2019, $1,125 and $1,134 were due from affiliates, respectively. There are no costs incurred by the Company as the Company is fully reimbursed for all costs incurred. Additionally, Fortress affiliated entities provide certain administrative services to the Company. As of March 31, 2020 and December 31, 2019, $1,165 and $883 were due to Fortress affiliates, respectively.

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Due to/from Affiliates

The table below summarizes the balances outstanding with affiliates at March 31, 2020 and December 31, 2019:

	March 31, 2020		December 31, 2019
Amounts due to affiliates	$	7,377	$	10,252
Amounts due from affiliates		1,468		1,577

22.	Subsequent events

On May 5, 2020, the Company announced that prior to June 2, 2020 the Company expects to enter into a mutual agreement with certain members (the “Exchanging Members”) of New Fortress Energy Holdings, pursuant to which the Exchanging Members will agree to deliver a block redemption notice in accordance with Section 4.6(b)(ii)(B) of the Amended and Restated Limited Liability Company Agreement of NFI (the “NFI LLCA”) with respect to all of the NFI LLC Units, together with an equal number of Class B shares that they indirectly own as members of New Fortress Energy Holdings. NFE has agreed to exercise the Call Right (as defined in the NFI LLCA) pursuant to which NFE will acquire such NFI LLC Units and Class B shares in exchange for Class A shares (the “Exchange Transactions”), and NFE will own all of the NFI LLC Units acquired as part of the Exchange Transactions. The Exchange Transactions are expected to be completed on or about June 9, 2020.

The Company currently recognizes the Exchanging Members’ economic interest in NFI as non-controlling interest in the condensed consolidated financial statements. Subsequent to the Exchange Transactions, results of operations previously attributed to non-controlling interest based on these Exchanging Members’ interest in NFI will be recognized as net income or loss attributable to stockholders, and amounts attributable to these Exchanging Members' interest in NFI previously shown as non-controlling interest on the Company’s condensed consolidated balance sheets will be reclassified to Class A shares.

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Item 2.

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

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. Unless otherwise indicated, dollar amounts are presented in thousands.

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, 2019 (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 months ended March 31, 2020 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.

Overview

We are a global integrated gas-to-power infrastructure company that seeks to use natural gas to satisfy the world’s large and growing power needs. We deliver targeted energy solutions to customers around the world, thereby reducing their energy costs and diversifying their energy resources, while also reducing pollution and generating compelling margins. Our near-term mission is to provide modern infrastructure solutions to create cleaner, reliable energy while generating a positive economic impact worldwide. Our long-term mission is to become one of the world’s leading carbon emission-free independent power providing companies. We discuss this important goal in more detail in “Items 1 and 2: Business and Properties” under “Toward a Carbon-Free Future” in our Annual Report.

As an integrated gas-to-power energy infrastructure company, our business model spans the entire production and delivery chain from natural gas procurement and liquefaction to logistics, shipping, terminals and conversion or development of natural gas-fired power generation. We currently source LNG from long-term supply agreements with third party suppliers and from our own liquefaction facility in Miami, Florida. We expect that control of our vertical supply chain, from procurement 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 reinforces our competitive standing in the LNG market. Our strategy is simple: we seek to procure LNG at attractive prices using long-term agreements and through our own production, 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 contracts with significant customers in Jamaica and Puerto Rico, including Jamaica Public Service Company Limited (“JPS”), the sole public utility in Jamaica, South Jamaica Power Company Limited (“JPC”), an affiliate of JPS, Jamalco, a bauxite mining and alumina production joint venture in Jamaica, and the Puerto Rico Electric Power Authority (“PREPA”), each of which is described in more detail below. Our assets built to service these significant customers have been designed with capacity to service other customers.

We currently procure our LNG either by purchasing it under a contract from a supplier or by manufacturing it in our natural gas liquefaction and storage facility located in Miami-Dade County, Florida (the “Miami Facility”). Our long-term goal is 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”).

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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 natural gas to JPS to fuel the 145MW Bogue Power Plant in Montego Bay, Jamaica. Our Montego Bay Terminal commenced commercial operations in October 2016 and is capable of processing up to 740,000 LNG gallons (61,000 MMBtu) per day and features approximately 7,000 cubic meters of onsite storage. The Montego Bay Terminal also consists of an ISO loading facility that can transport LNG to numerous on-island industrial users.

Old Harbour Terminal

Our marine LNG storage and regasification terminal in Old Harbour, Jamaica (the “Old Harbour Terminal”) commenced commercial operations in June 2019 and is capable of processing approximately six million gallons of LNG (500,000 MMBtu) per day. The Old Harbour Terminal supplies natural gas to the new 190MW Old Harbour power plant (the “Old Harbour Power Plant”) operated by JPC. The Old Harbour Terminal is also supplying natural gas to our dual-fired combined heat and power facility in Clarendon, Jamaica (the “CHP Plant”). The CHP Plant supplies electricity to JPS under a long-term power purchase agreement (“PPA”). The CHP Plant also provides steam to Jamalco under a long-term take-or-pay steam supply agreement (“SSA”). On March 3, 2020, the CHP Plant commenced commercial operation under both the PPA and the SSA and began supplying power and steam to JPS and Jamalco, respectively.

San Juan Facility

We are finalizing the development of the micro-fuel handling facility in the Port of San Juan, Puerto Rico (the “San Juan Facility”). The San Juan Facility is currently being developed near the San Juan Power Plant and will serve as our supply hub for the San Juan Power Plant and other industrial end-user customers in Puerto Rico. We have begun delivering natural gas under the Fuel Sale and Purchase Agreement with PREPA and expect to declare full commercial operations in the second quarter of 2020.

Miami Facility

Our Miami Facility began operations in April 2016. This facility has liquefaction capacity of approximately 100,000 gallons of LNG (8,300 MMBtu) per day and enables us to produce LNG for sales directly to industrial end-users in southern Florida, including Florida East Coast Railway via our train loading facility, and other customers throughout the Caribbean using ISO containers.

Other Development Projects

We are in the process of developing an LNG regasification terminal at the Port of Pichilingue in Baja California Sur, Mexico (the “La Paz Terminal”). Our La Paz Terminal is expected to supply approximately 455,000 gallons of LNG (37,565 MMBtu) per day, and we have received all necessary permits for onshore construction of the power plant that is expected to produce up to 135 MW.

In February 2020, we entered into a 25-year power purchase agreement with Nicaragua’s electricity distribution companies, and we expect to construct a new approximately 300 MW natural gas-fired power plant that will consume approximately 700,000 gallons of LNG (60,000 MMBtus) per day. In 2019, we signed a memorandum of understanding to develop a terminal in Angola to supply natural gas for power generation, and we are in active discussions to secure a definitive agreement in 2020.

COVID-19 Pandemic

We are closely monitoring the impact of the novel coronavirus (“COVID-19”) pandemic on all aspects of our operations and development projects. While we did not incur significant disruptions during the three months ended March 31, 2020 from the COVID-19 pandemic, there are important uncertainties including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures. Therefore, the effects of COVID-19 at this time are hard to predict. We do not currently expect these factors to have a significant impact on our results of operations, liquidity or financial position, or our development budgets or timelines. We primarily operate under long-term contracts with customers, many of which contain fixed minimum volumes that must be purchased on a “take-or-pay” basis, which has limited the impact of the COVID-19 pandemic on our current operations. Based on the essential nature of the services we provide to support power generation facilities, our development projects have not currently been significantly impacted by responses to the COVID-19 pandemic. However, we are actively monitoring the spread of the pandemic and the actions that governments and regulatory agencies are taking to fight the spread.

Exchange Transactions

On May 5, 2020, we announced that prior to June 2, 2020 we expect to enter into a mutual agreement (the “Mutual Agreement”) with certain members (the “Exchanging Members”) of New Fortress Energy Holdings, including Fortress Equity Partners (A) LP (the “Initial Shareholder,” which is owned primarily by Mr. Edens, our Chief Executive Officer and a member of our Board, and Mr. Nardone, a member of our Board) and/or its members, pursuant to which the Exchanging Members will agree to deliver a block redemption notice in accordance with Section 4.6(b)(ii)(B) of the Amended and Restated Limited Liability Company Agreement of NFI (the “NFI LLCA”) with respect to all of the common units (“NFI LLC Units”) of New Fortress Intermediate LLC (“NFI”), together with an equal number of our Class B shares that they indirectly own as members of New Fortress Energy Holdings. We have agreed to exercise our Call Right (as defined in the NFI LLCA) pursuant to which we will acquire such NFI LLC Units and Class B shares in exchange for our Class A shares (the “Exchange Transactions”). We will own all of the NFI LLC Units acquired as part of the Exchange Transactions. We expect to acquire substantially all of the other currently outstanding NFI LLC Units in the Exchange Transactions; however, there can be no assurance that we will acquire all of the NFI LLC Units in the Exchange Transactions. The Exchange Transactions are generally expected to be tax-deferred transactions for the exchanging holders of NFI LLC Units, in which case we would generally not receive a tax basis “step-up” as a result of the Exchange Transactions. The Exchanging Members have agreed pursuant to the Mutual Agreement not to transfer any of the Class A shares they receive in the Exchange Transactions for 90 days following the date of the exchange. The Exchange Transactions are expected to be completed on or about June 9, 2020.

We expect the Exchange Transactions will confer several significant benefits to us. Most notably, the Exchange Transaction will significantly reduce our future tax distribution obligations to the members of NFI, which will enable us to instead invest those funds to develop projects that we expect will increase our returns for all stockholders, enhance our liquidity, improve our credit profile and potentially lower our cost of capital. Because the Board deemed it to be in the best interest of the Company to effect the Exchange Transactions now so that the Company could begin realizing these benefits, the Board requested that the members of NFI (who have no obligation to exchange their New Fortress Energy Holdings units) agree to exchange their interests in NFI pursuant to the Exchange Transactions described above. The Exchange Transactions are generally expected to be tax-deferred transactions for the Exchanging Members, which is the tax treatment of transactions already provided for in the NFI LLCA. Because this change could be viewed as a related party transaction involving the Exchanging Members and NFE, the Exchange Transactions were reviewed by a duly appointed committee of the Board consisting of Messrs. Catterall, Grain, Griffin and Mack and Ms. Wanner, who unanimously approved the Exchange Transactions prior to the full Board unanimously approving the Exchange Transactions. The committee’s approval serves as a Special Approval as defined in our First Amended and Restated Limited Liability Company Agreement. We cannot assure you that the Exchange Transactions will be completed or that these transactions will confer the potential benefits that we currently expect from them.

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Results of Operations – Three Months Ended March 31, 2020 compared to Three Months Ended March 31, 2019

	Three Months Ended March 31,
	2020			2019			Change
Revenues
Operating revenue	$	63,502		$	26,138		$	37,364
Other revenue		11,028			3,813			7,215
Total revenues		74,530			29,951			44,579
Operating expenses
Cost of sales		68,216			33,349			34,867
Operations and maintenance		8,483			4,499			3,984
Selling, general and administrative		28,370			49,749			(21,379	)
Loss on mitigation sales		208			-			208
Depreciation and amortization		5,254			1,691			3,563
Total operating expenses		110,531			89,288			21,243
Operating loss		(36,001	)		(59,337	)		23,336
Interest expense		13,890			3,284			10,606
Other expense (income), net		611			(2,575	)		3,186
Loss on extinguishment of debt, net		9,557			-			9,557
Loss before taxes		(60,059	)		(60,046	)		(13	)
Tax (benefit) expense		(4	)		246			(250	)
Net loss	$	(60,055	)	$	(60,292	)	$	(237	)

Revenues

Operating revenue from the sale of LNG, natural gas sales or outputs from our natural gas-fired power generation facilities for the three months ended March 31, 2020 was $63,502 which increased by $37,364 from $26,138 for the three months ended March 31, 2019. The increase was primarily driven by volumes sold from the Old Harbour Terminal and the commencement of commercial operations at the CHP Plant during the three months ended March 31, 2020. For the three months ended March 31, 2020, we recognized $35,777 of revenue from volumes sold at the Old Harbour Terminal, including $29,945 from sales to the Old Harbour Power Plant and $5,832 from natural gas utilized in the CHP Plant. For the three months ended March 31, 2020, the volume delivered to the Old Harbour Power Plant was 32.2 million gallons (2.7 TBtu) and the volume utilized in the CHP Plant was 9.8 million gallons (0.8 TBtu). We also began to deliver power and steam under our contracts with JPS and Jamalco during March 2020 adding $1,731 in revenue.

In connection with the adoption of ASC 842, we no longer identified a lease of the Montego Bay Terminal in our gas sale agreement with our customer. Accordingly, interest income associated with the direct financing lease of the Montego Bay Terminal is no longer recognized within Other revenue and all amounts recognized as revenue for activities at the Montego Bay Terminal were included in Operating revenue for the three months ended March 31, 2020, resulting in an increase of $3,900 to Operating revenue. The increase in Operating revenue was partially offset by decrease in sales at the Montego Bay Terminal of $602 due to planned maintenance at the Bogue Power Plant offset by additional industrial end user customers. The delivered volume at the Montego Bay Terminal decreased by 3.2 million gallons (0.2 TBtu) from 26.7 million gallons (2.2 TBtu) during the three months ended March 31, 2019 to 23.5 million gallons (2.0 TBtu) during the three months ended March 31, 2020.

Other revenue for the three months ended March 31, 2020 was $11,028 which increased $7,215 from $3,813 for the three months ended March 31, 2019. The increase was primarily due to the recognition of development services revenue of $10,071 for the three months ended March 31, 2020, and this increase included $9,486 for the conversion of our customer’s infrastructure in Puerto Rico and $585 of revenue recognized for the completion of infrastructure projects for customers of the CHP Plant. Development services revenue is 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 natural gas-fired power generation facilities, and such services are included within certain long-term contracts to supply these customers with natural gas or outputs from our natural gas-fired facilities. This increase is partially offset by the decrease in interest income associated with the direct financing lease of the Montego Bay Terminal which is included in Operating revenue for the three months ended March 31, 2020.

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Cost of sales

Cost of sales includes the procurement of feedgas or LNG, as well as shipping and logistics costs to deliver LNG or natural gas to our terminals or power generation facilities or 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, depreciation, and other direct costs to operate our Miami Facility are also included in Cost of sales. For natural gas utilized by the CHP Plant, we bill our customer on a pass-through basis, and as such, NFE South Power Holdings, our consolidated subsidiary and owner of the CHP Plant, recognizes no margin on gas sales to our customer.

Cost of sales for the three months ended March 31, 2020 was $68,216 which increased by $34,867 from $33,349 for the three months ended March 31, 2019. The increase was primarily attributable to the increase in volumes delivered of 139% compared to the three months ended March 31, 2019, partially offset by the decrease in LNG cost. The weighted-average cost of LNG purchased from third parties decreased from $0.83 per gallon ($10.06 per MMBtu) for the three months ended March 31, 2019 to $0.67 per gallon ($8.10 per MMBtu) for the three months ended March 31, 2020. The weighted-average cost of our inventory balance as of March 31, 2020 and December 31, 2019 was $0.68 per gallon ($8.24 per MMBtu) and $0.64 per gallon ($7.69 per MMBtu), respectively.

The increase in Cost of sales was also attributable to costs associated with development services and increased charter costs. The costs recognized associated with development services were $9,347 for the three months ended March 31, 2020; these costs included $8,815 of costs associated with the conversion of our customer’s infrastructure in Puerto Rico and $532 of costs associated with the completion of infrastructure projects for customers of the CHP Plant. No costs associated with development services revenue were recognized during the three months ended March 31, 2019.

The Company also incurred an increase in charter costs associated with our expanded charter fleet. Such charter costs increased Cost of sales by $2,920 for the three months ended March 31, 2020 as compared with the three months ended March 31, 2019.

Operations and maintenance

Operations and maintenance relates to costs of operating our Montego Bay Terminal, CHP Plant, Miami Facility and Old Harbour Terminal, exclusive of costs to convert that are reflected in Cost of sales. Operations and maintenance for the three months ended March 31, 2020 was $8,483, which increased $3,984 from $4,499 for the three months ended March 31, 2019. The increase was primarily a result of higher costs associated with the operations of charter vessels, including a storage vessel for Puerto Rico, of $2,918 in the three months ended March 31, 2020, as well as other increased operating costs, primarily payroll related expenses of $828. We also incurred operational costs for the CHP Plant for the period after commencement of commercial operations on March 3, 2020 of $344.

Selling, general and administrative

Selling, general and administrative includes compensation expenses for our corporate employees, employee travel costs, insurance, professional fees for our advisors, and costs associated with development activities for projects that are in initial stages and development is not yet probable.

Selling, general and administrative for the three months ended March 31, 2020, was $28,370 which decreased $21,379 from $49,749 for the three months ended March 31, 2019. The decrease was primarily attributable to higher share-based compensation expense of $16,697 and professional fees of $7,844 recognized for the three months ended March 31, 2019. These decreases were partially offset by costs associated with increased headcount as compared to the same period in the prior year.

Loss on mitigation sales

Loss on mitigation sales for the three months ended March 31, 2020 was $208 which was attributable to losses incurred associated with undelivered quantities of LNG under firm purchase commitments due to storage capacity constraints. In these situations, our supplier will attempt to sell the undelivered quantity through a mitigation sale, and the losses incurred under the firm purchases are partially offset by this sale of the undelivered amount to third parties for amounts lower than the contracted price, which resulted in a loss of $208. We did not have such transactions during the three months ended March 31, 2019.

Depreciation and amortization

Depreciation and amortization for the three months ended March 31, 2020 was $5,254, which increased $3,563 from $1,691 for the three months ended March 31, 2019. The increase is primarily a result of depreciation of $1,894 for our Old Harbour Terminal that was not yet in service during the three months ended March 31, 2019, as well as, depreciation expense of $673 recognized for the CHP Plant that went into service in March 2020. The increase is also due to deprecation recognized on our Montego Bay Terminal during the three months ended March 31, 2020 of $1,201. These assets were presented as direct financing leases prior to the adoption of ASC 842, and no depreciation for such assets was previously recorded.

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Loss on extinguishment of debt, net

Loss on extinguishment of debt for the three months ended March 31, 2020 was $9,557 as a result of the extinguishment of the Term Loan Facility (as defined below).

Interest expense

Interest expense for the three months ended March 31, 2020 was $13,890, which increased $10,606 from $3,284 for the three months ended March 31, 2019, primarily as a result of the additional principal balances outstanding in the first quarter of 2020 under the Credit Agreement, Senior Secured Bonds and Senior Unsecured Bonds (all defined below), as compared to the Term Loan Facility which was extinguished in January 2020. Interest expense incurred under the Credit Agreement, net of capitalized interest, was $10,932, and interest expense incurred on the Secured Bonds and Senior Unsecured, net of capitalized interest, was $1,787.

Other expense (income), net

Other expense, net for the three months ended March 31, 2020 was $611, which decreased $3,186 from other income of $2,575 for the three months ended March 31, 2019, primarily as a result of the unrealized loss on our investment in equity securities, partially offset by the changes in fair value of the derivative liability and equity agreement associated with our acquisition of Shannon LNG in November 2018 and interest income.

Tax (benefit) expense

Tax (benefit) for the three months ended March 31, 2020 was $(4), as compared to tax expense of $246 for the three months ended March 31, 2019. We continue to have valuation allowances in many non-U.S. jurisdictions, and as such, our tax benefit for current period losses in such jurisdictions has been limited.

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 do not include significant projects that are near completion. Our results of operations for the first quarter of 2020 include our Montego Bay Terminal, Miami Facility, sales from our Old Harbour Terminal to JPC, and certain industrial end-users. The CHP Plant commenced commercial operations during March 2020, and our future results will include revenue and results operations from sales of gas, power and steam from the CHP Plant. We also expect that the San Juan Facility will become fully operational beginning in the second quarter of 2020. Our current results also do not include revenue and operating results from other projects under development including the La Paz Terminal, the LNG regasification terminal and power plant in Puerto Sandino, Nicaragua (the “Puerto Sandino Terminal”), the LNG terminal in Angola (the “Angola Terminal”), and the LNG terminal on the Shannon Estuary near Ballylongford, Ireland (the “Ireland Terminal”).

Price	19.00	EPS	-1
Shares	23	P/E	-16
MCap	431	P/FCF	-3
Net Debt	362	EBIT	-12
TEV	793	TEV/EBIT	-68
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-03-31	Filed 2020-05-06
10-K	2019-12-31	Filed 2020-03-04
10-Q	2019-09-30	Filed 2019-11-12
10-Q	2019-06-30	Filed 2019-08-13
10-Q	2019-03-31	Filed 2019-05-15
10-K	2018-12-31	Filed 2019-03-26
S-1	2018-11-09	Public Filing

8-K	2020-06-10
8-K	2020-06-03
8-K	2020-05-04
8-K	2020-03-03
8-K	2020-01-15
8-K	2020-01-10
8-K	2019-11-11
8-K	2019-09-02
8-K	2019-08-12
8-K	2019-05-15
8-K	2019-03-18
8-K	2019-03-15
8-K	2019-03-05
8-K	2019-01-30

EX-10.3	ex10_3.htm
EX-31.1	ex31_1.htm
EX-31.2	ex31_2.htm
EX-32.1	ex32_1.htm
EX-32.2	ex32_2.htm

NFE 10Q Quarterly Report

New Fortress Energy LLC Earnings 2020-03-31