Business Overview and History: New Fortress Energy Inc. (NASDAQ:NFE) is a global energy infrastructure company that has been at the forefront of addressing energy poverty and accelerating the world's transition to reliable, affordable, and clean energy. Founded in 2014, the company has rapidly expanded its footprint, leveraging its expertise in liquefied natural gas (LNG), power generation, and integrated logistics to deliver turnkey energy solutions to markets around the world.
New Fortress Energy's journey began in 2014, when it was founded with the mission to address energy poverty and accelerate the world's transition to reliable, affordable, and clean energy. The company's initial focus was on establishing its core operations, securing long-term contracts with significant customers, and building out its infrastructure and asset base.
A significant milestone in NFE's early years was the commencement of commercial operations at its Miami Facility in 2016. This facility, with a liquefaction capacity of approximately 8,300 MMBtu of LNG per day, enabled NFE to produce LNG for sales directly to industrial end-users in southern Florida and other customers throughout the Caribbean.
NFE continued its expansion by developing additional facilities and assets in various countries. In 2016, the company commissioned the Montego Bay Facility in Jamaica, followed by the Old Harbour Facility in Jamaica in 2019. The year 2020 saw the commissioning of the San Juan Facility in Puerto Rico, and in 2021, NFE began commercial operations at the La Paz Facility in Mexico.
Throughout its growth, NFE has faced various challenges, including engineering and geological issues, equipment and supply chain problems, and regulatory hurdles in obtaining necessary permits and approvals. The company has had to navigate complex legal and political environments in some of its operational countries. For instance, in 2020, NFE received an order from the Federal Energy Regulatory Commission (FERC) determining that its San Juan Facility in Puerto Rico fell under FERC's jurisdiction, requiring the company to file an application for authorization to operate the facility, which remains pending.
Financial Performance and Ratios: As of the latest reported quarter (Q2 2024), New Fortress Energy generated total revenue of $428.01 million, down from $1.14 billion in the same period of the previous year. The company's net income for Q2 2024 was -$88.85 million, compared to $271.67 million in the first half of 2023. The decrease in net income was primarily due to the delayed commissioning of the company's first FLNG unit, which had a material impact on the second quarter results.
For the full year 2023, NFE reported revenue of $2.41 billion and net income of $547.88 million. Operating cash flow for 2023 was $824.76 million, while free cash flow was -$2,205.08 million.
NFE's financial position remains strong, with a current ratio of 0.72 and a quick ratio of 0.63 as of June 30, 2024. The company's debt-to-equity ratio stands at 4.67, indicating a relatively high level of leverage. However, management has outlined plans to reduce the company's overall debt levels and shift towards more asset-level financing, which could improve the company's financial flexibility and risk profile.
As of June 30, 2024, NFE had $132.96 million in cash and a $1 billion revolving credit facility, which was fully drawn.
Operational Highlights and Developments: In 2024, New Fortress Energy achieved a significant milestone with the successful commissioning of its first floating liquefaction (FLNG) unit, which began production on July 19th. This asset is expected to generate approximately $500 million in annual free cash flow, making it a critical component of the company's growth strategy.
Additionally, NFE has made substantial progress on its development projects in Brazil, Nicaragua, and Ireland. The Barcarena facility in Brazil, which includes an FSRU and a 630MW combined-cycle power plant, is on track to commence operations in the second half of 2024. Similarly, the Puerto Sandino facility in Nicaragua, featuring a 300MW power plant and an associated LNG terminal, is nearing completion and is expected to start contributing to the company's results in the near future.
Risks and Challenges: Despite its impressive growth, New Fortress Energy faces several risks and challenges that investors should be aware of. The company operates in a highly regulated environment, with its projects and operations subject to various governmental approvals and permits. Delays or failures in obtaining these necessary approvals could significantly impact the company's development plans and financial performance.
Moreover, the global LNG market is subject to significant price volatility, which could affect NFE's ability to secure favorable supply contracts and pricing for its customers. The company's reliance on a limited number of large customers also exposes it to counterparty risk, as the loss of a significant customer could have a material impact on its revenue and profitability.
Guidance and Outlook: For the full year 2024, New Fortress Energy is guiding for adjusted EBITDA in the range of $1.4 billion to $1.5 billion, with the potential for further upside as the company's various development projects come online. Management has also outlined a long-term growth strategy focused on expanding its FLNG capabilities, diversifying its customer base, and optimizing its capital structure through increased asset-level financing.
NFE expects Q3 2024 to be impacted by the FLNG 1 delay, as they did not get the asset online until July 19th. They don't expect full production from FLNG 1 until September 1st. For Q4 2024, NFE expects to achieve their $275 million quarterly EBITDA target.
Looking ahead to 2025, NFE provided guidance of $1.3 billion in EBITDA, based on their existing volumes, customers, and the addition of their Nicaragua and Brazil assets. Over 90% of NFE's expected 2025 revenues are already contracted, providing some stability in the volatile LNG market.
Financials: New Fortress Energy's financial performance has been mixed in recent periods. While the company has shown revenue growth in previous years, its most recent quarter saw a significant decrease. The company's revenue for Q2 2024 was $428.01 million, down from $1.14 billion in the same period of the previous year. Net income for Q2 2024 was -$88.85 million, a substantial decrease from the previous year's performance.
Operating cash flow for Q2 2024 was $92.92 million, while free cash flow was -$570.02 million. The decrease in net income and free cash flow in Q2 2024 compared to the prior year period was primarily due to the delay in the deployment of the company's first FLNG asset, which impacted their ability to generate revenue from this new asset.
NFE operates in two reportable segments: Terminals and Infrastructure, and Ships. The Terminals and Infrastructure segment includes NFE's vertically integrated gas to power solutions, while the Ships segment includes vessels leased to customers under long-term arrangements.
For Q2 2024, the Terminals and Infrastructure segment generated total revenues of $385.43 million, with a segment operating margin of $214.28 million. The Ships segment generated total revenues of $42.58 million, with a segment operating margin of $34.08 million.
NFE currently operates in the United States, including Puerto Rico, as well as in the Caribbean, Brazil, Mexico, Ireland, and Nicaragua. However, the company has not provided a geographic breakdown of its financials.
Liquidity: As of June 30, 2024, NFE's liquidity position appears to be relatively stable. The company reported a current ratio of 0.72 and a quick ratio of 0.63, indicating that it has sufficient short-term assets to cover its immediate liabilities. However, the company's debt-to-equity ratio of 4.67 suggests a high level of leverage, which could potentially impact its financial flexibility in the future.
NFE has a $1 billion revolving credit facility, which was fully drawn as of June 30, 2024. The company's cash balance stood at $132.96 million at the end of Q2 2024.
Conclusion: New Fortress Energy has established itself as a prominent player in the global energy infrastructure space, leveraging its expertise in LNG, power generation, and logistics to deliver comprehensive energy solutions to underserved markets. The company's recent operational milestones, such as the commissioning of its first FLNG unit and the progress on its development projects, underscores its ability to execute on its growth strategy. However, the company faces several risks, including regulatory challenges and market volatility, which investors should carefully consider. As NFE continues to navigate the dynamic energy landscape, its ability to effectively manage these risks and capitalize on emerging opportunities will be crucial to its long-term success.