At long last, we finally have an IPO in 2019. New Fortress
Energy's (NFE) IPO priced and opened for trading earlier this morning. First,
the amped up market volatility -- especially in December -- and growing
macroeconomic concerns bottled up the IPO market up 4Q18. Entering 2019, the
hope was that pent-up investor demand and a substantial pipeline of new deals
would heat things up.
Unfortunately, that was not the case as the government shutdown put the IPO market on complete lockdown. With the government on shutdown, the SEC did not have the proper personnel available to review financial statements and IPO filing documents. Now that the government is back open -- perhaps temporarily -- the floor was back open for a deal to actually price. And, in fact, there could be a few more deals pricing next week from the pharmaceutical space.
As for today's IPO, NFE's 20.0 mln share IPO priced at $14, below the expected price of $15. Originally, NFE was looking to offer 22.2 mln shares within a range of $17-$19. So, in total, it generated $280 mln in gross proceeds, about 30% less than anticipated. The lead underwriters on the deal were Morgan Stanley, Barclays, Citigroup, and Credit Suisse.
NFE is an integrated gas-to-power company that seeks to use "stranded" natural gas to satisfy the world's power needs. It aims to deliver targeted energy solutions by employing a four-part integrated LNG production and delivery model:
- Liquefaction -- Its approach is to enter into long-term, largely fixed-price contracts for feedgas, then liquefy that gas at or proximate to its site of extraction, minimizing transport and pipeline costs for the feedgas producer.
- Logistics -- NFE expects to own or control the logistics assets necessary to deliver LNG to its customers through its logistics pipeline.
- Shipping -- NFE has long-term charters for both large-scale floating storage units and floating storage and regasification units and for smaller liquefied natural gas carriers.
- Terminals -- Through its network of current and planned downstream terminals, NFE will be positioned to deliver gas and power solutions to its customers seeking either to transition from environmentally dirtier distillate fuels such as ADO and heavy fuel oil or to purchase natural gas to meet their current fuel needs.
The company's downstream customers are, and it expects future customers to be, a mix of power, transportation, and industrial users of natural gas and LNG. To date, NFE has contracts or letters of intent or expects to secure contracts in the near-term to sell LNG volumes in excess of 12.4 mln gallons (1,025,000 MMBtu) per day, which includes approximately 2.2 mln gallons per day that it expects to sell to customers under existing contracts.
Taking a quick look at the financials, total revenue increased by 12% year/year to $80.9 mln for the nine months ended Sept. 30, 2018. Its operating loss widened to ($36.5) mln from ($13.8) mln as SG&A expense jumped by 92% to $40.8 mln. It also had a cash burn of ($53.2) mln for the period. Not surprisingly, given the capital-intensive nature of its business, NFE has some debt on its books, $122 mln as of Sept. 30, 2018. Due to its negative cash flow and debt load, it therefore isn't surprising that NFE does not intend to pay a dividend for the time being.