NextDecade Corp 10-K

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   Market Information, Holders and Dividends   Our common stock trades on Nasdaq under the symbol “NEXT.”    As of March 2, 2023, 150.6 million shares of Company common stock were outstanding held by approximately 66 record owners. All shares of Company common stock held in street name are recorded in our stock register as being held by one stockholder.   We currently intend to retain earnings to finance the growth and development of our business and do not anticipate paying any cash dividends on Company common stock in the foreseeable future. Any future change in our dividend policy will be made at the discretion of our Board of Directors in light of our financial condition, capital requirements, earnings, prospects and any restrictions under any financing agreements, as well as other factors it deems relevant.   Purchase of Equity Securities by the Issuer   The following table summarizes stock repurchases for the three months ended December 31, 2022:   Period   Total Number of Shares Purchased (1)   Average Price Paid Per Share (2)   Total Number of Shares Purchased as a Part of Publicly Announced Plans   Maximum Number of Units That May Yet Be Purchased Under the Plans October 2022     2,303     $ 6.59       —       —   November 2022     2,312     $ 6.73       —       —   December 2022     97,128     $ 4.43       —       —     (1) Represents shares of Company common stock surrendered to us by participants in our 2017 Omnibus Incentive Plan (the “2017 Plan”) to settle the participants’ personal tax liabilities that resulted from the lapsing of restrictions on shares awarded to the participants under the 2017 Plan.   (2) The price paid per share of Company common stock was based on the closing trading price of Company common stock on the dates on which we repurchased shares of Company common stock from the participants under the 2017 Plan.   Item 6. [Reserved]     23 Table of Contents       Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.   Introduction   The following discussion and analysis presents management’s view of our business, financial condition and overall performance and should be read in conjunction with our Consolidated Financial Statements and the accompanying notes in “Financial Statements and Supplementary Data.” This information is intended to provide investors with an understanding of our past performance, current financial condition and outlook for the future. Our discussion and analysis include the following subjects:     • Overview of Business     • Overview of Significant Events     • Liquidity and Capital Resources     • Contractual Obligations     • Results of Operations     • Summary of Critical Accounting Estimates     • Recent Accounting Standards   Overview of Business   NextDecade Corporation engages in development activities related to the liquefaction and sale of LNG and the capture and storage of CO 2  emissions.  We have undertaken and continue to undertake various initiatives to evaluate, design and engineer the Terminal, including the Terminal CCS project, that we expect will result in demand for LNG supply at the Terminal, and other CCS projects that would be hosted at industrial source facilities.    Overview of Significant Events   LNG Sale and Purchase Agreements   In April 2022, we entered into a 20-year sale and purchase agreement with ENN for the supply of 1.5 mtpa of LNG indexed to Henry Hub on a free-on-board basis from the Terminal (“ENN LNG SPA”).  The LNG supplied to ENN LNG will be from the first two trains at the Terminal.  In December 2022, we executed an Amended and Restated ENN LNG SPA to increase the volume to 2.0 mtpa.   In April 2022, we entered into a 15-year SPA with ENGIE for the supply of 1.75 mtpa of LNG indexed to Henry Hub on a free-on-board basis from the Terminal.  The LNG supplied to ENGIE will be from the first two trains at the Terminal.   In July 2022, we entered into a 20-year SPA with China Gas for the supply of 1.0 mtpa of LNG indexed to Henry Hub on a free-on-board basis from the Terminal.  The LNG supplied to China Gas will be from the second train at the Terminal.   In July 2022, we entered into a 20-year SPA with Guangdong Energy for the supply of 1.0 mtpa of LNG indexed to Henry Hub delivered on an ex-ship basis from the Terminal.  The LNG supplied to Guangdong Energy will be from the first train at the Terminal.   In July 2022, we entered into a 20-year SPA with EMLAP, an affiliate of ExxonMobil, for the supply of 1.0 mtpa of LNG indexed to Henry Hub delivered on a free-on-board basis from the Terminal.  The LNG supplied to EMLAP will be from the first two trains at the Terminal.   In December 2022, we entered into a 20-year SPA with Galp for the supply of 1.0 mtpa of LNG indexed to Henry Hub on a free-on-board basis from the Terminal.   In January 2022, we entered into a 15-year SPA with Itochu Corporation for the supply of 1.0 mtpa of LNG indexed to Henry Hub on a free-on-board basis from the Terminal.   Each of the above SPAs becomes effective upon the satisfaction of certain conditions precedent, which include a positive final investment decision on the initial phase of the Terminal.   Rio Grande Site Lease   On March 6, 2019, Rio Grande entered into a lease agreement (the “Rio Grande Site Lease”) with the Brownsville Navigation District of Cameron County, Texas (the “BND”) for the lease by Rio Grande of approximately 984 acres of land situated in Brownsville, Cameron County, Texas for the purposes of constructing, operating, and maintaining (i) a liquefied natural gas facility and export terminal and (ii) gas treatment and gas pipeline facilities.   On April 20, 2022, Rio Grande and the BND amended the Rio Grande Site Lease to extend the effective date for commencing the Rio Grande Site Lease to May 6, 2023.   Engineering, Procurement and Construction ( “ EPC ”)  Agreements   In April 2022, Rio Grande and Bechtel Energy Inc. (formerly known as Bechtel Oil, Gas and Chemicals, Inc., “Bechtel”) amended each of the Trains 1 and 2 EPC Agreement and the Train 3 EPC Agreement to extend the respective contract validity to July 31, 2023.   In September 2022, Rio Grande and Bechtel amended each of the Trains 1 and 2 EPC Agreement and the Train 3 EPC Agreement. The amendments to the EPC Agreements primarily give effect to certain updated lump-sum, separated contract pricing components. As of the date of filing this Annual Report on Form 10-K, we estimate the lump-sum EPC cost to construct Trains 1-3 of the Terminal at approximately $11.5 billion. The final EPC lump-sum contract pricing for Trains 1-3 of the Terminal will be determined prior to an FID on Trains 1-3 and is subject to change, including if we do not issue a full notice to proceed to Bechtel on or before March 15, 2023, unless extended by mutual agreement of the parties thereto.   24 Table of Contents   NEXT Carbon Solutions   On March 18, 2021, we announced the formation of NEXT Carbon Solutions.   NEXT Carbon Solutions offers end-to-end CCS solutions for industrial facilities. Leveraging our team’s years of engineering and project management experience, we have developed proprietary processes that lower the capital and operating costs of deploying CCS on industrial facilities. We expect to partner with customers to invest in the deployment of CCS to reduce and permanently store CO 2 emissions. We believe that integrating CCS with an industrial facility’s operations has the potential to increase the value of the industrial facility. Through commercial agreements and by investment, NEXT Carbon Solutions looks to share in the value created from this integration.   In May 2022, we entered into an agreement with California Resources Corporation, whereby NEXT Carbon Solutions was engaged to perform a Front-end Engineering and Design (“FEED”) study for the post combustion capture and compression of up to 95% of the CO 2  produced at the Elk Hills Power Plant.  The FEED was successfully completed in the first quarter of 2023.  California Resources Corporation and NEXT Carbon Solutions are continuing review of the FEED results and commercial discussions.   In June 2022, we entered into agreements with an energy infrastructure fund to perform preliminary FEED studies at two power generation facilities.  Through performance of the preliminary FEED studies, we have generated cash proceeds of $1.0 million.   Private Placements of Company Common Stock   In April 2022, we sold 4,618,226 shares of Company common stock for gross proceeds of approximately $30 million to HGC NEXT INV LLC, as described in  Note 9 -   Stockholders' Equity  in the Notes to Consolidated Financial Statements.   In September 2022, we sold 15,454,160 shares of Company common stock for gross proceeds of approximately $85 million. The Private Placement closed on September 19, 2022, as described in  Note 9 -   Stockholders' Equity  in the Notes to Consolidated Financial Statements.   Private Placement of Series C Convertible Preferred Stock   In March 2022, we sold an aggregate of 10,500 shares of Series C Convertible Preferred Stock, par value $0.0001 per share (the “Series C Preferred Stock”), at $1,000 per share for an aggregate purchase price of $10.5 million and issued an additional 210 shares of Series C Preferred Stock in aggregate as origination fees. Warrants representing the right to acquire an aggregate number of shares of our common stock equal to approximately 14.91 basis points (0.1491%) of all outstanding shares of Company common stock, measured on a fully diluted basis, on the applicable exercise date with a strike price of $0.01 per share were issued together with the issuances of the Series C Preferred Stock.   For further descriptions of the Series C Preferred Stock and associated warrants, see  Note 9 - Preferred Stock and Common Stock Warrants in the Notes to Consolidated Financial Statements.   25 Table of Contents   Liquidity and Capital Resources   Near Term Liquidity and Capital Resources   Our consolidated financial statements as of and for the year ended December 31, 2022 have been prepared on the basis that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Based on our balance of cash and cash equivalents of $62.8 million at December 31, 2022, there is substantial doubt about our ability to continue as a going concern within one year after the date that our consolidated financial statements were issued. Our ability to continue as a going concern will depend on managing certain operating and overhead costs and our ability to generate positive cash flows through equity, equity-based or debt financings. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty, which could have a material adverse effect on our financial condition.   We expect to spend approximately $15 million per month on development activities during 2023 and until a positive FID is made on the initial phase of the Terminal.  Because our businesses and assets are in development, we have not historically generated significant cash flow from operations, nor do we expect to do so until the Terminal is operational or until we install CCS systems on third-party industrial facilities. We intend to fund development activities for the foreseeable future with cash and cash equivalents on hand and through the sale of additional equity, equity-based or debt securities in us or in our subsidiaries. There can be no assurance that we will succeed in selling equity or equity-based securities or, if successful, that the capital we raise will not be expensive or dilutive to stockholders.   Our primary cash needs have historically been funding development activities in support of the Terminal and our CCS projects, which include payments of initial direct costs of our Rio Grande site lease and expenses in support of engineering and design activities, regulatory approvals and compliance, commercial and marketing activities and corporate overhead. We spent approximately $81.0 million on such development activities during 2022, which we funded through our cash on hand and proceeds from the issuances of equity and equity-based securities. Our capital raising activities since January 1, 2022 have included the following:   In March 2022, we sold 10,500 shares of Series C Preferred Stock, at $1,000 per share for a purchase price of $10.5 million and issued an additional 210 shares of Series C Preferred Stock as origination fees.   In April 2022, we sold 4,618,226 shares of Company common stock for approximately $30 million.   In September 2022, we sold 15,454,160 shares of Company common stock for approximately $85 million.   In February 2023, we sold 5,835,277 shares of Company common stock for approximately $35 million.   Long Term Liquidity and Capital Resources   The Terminal will not begin to operate and generate significant cash flows unless and until the Terminal is operational, which is expected to be at least four years away, and the construction of the Terminal will require a significant amount of capital expenditure. CCS projects will similarly take an extended period of time to develop, construct and become operational and will require significant capital deployment. Based on our EPC Agreements with Bechtel, we currently estimate the aggregate lump-sum EPC cost to construct Trains 1-3 of the Terminal at approximately $11.5 billion. The final EPC lump-sum contract pricing for Trains 1-3 of the Terminal will be determined prior to an FID on Trains 1-3 and is subject to change, including if we do not issue a full notice to proceed to Bechtel on or before March 15, 2023, unless extended by mutual agreement of the parties thereto. We currently expect that the EPC costs and other long-term capital requirements for the Terminal and any CCS projects will be financed predominately through project financing and proceeds from future debt, equity-based, and equity offerings by us. Construction of the Terminal and CCS projects would not begin until such financing has been obtained. As a result, our business success will depend, to a significant extent, upon our ability to obtain the funding necessary to construct the Terminal and any CCS projects, to bring them into operation on a commercially viable basis and to finance our staffing, operating and expansion costs during that process. There can be no assurance that we will succeed in securing additional debt and/or equity financing in the future to complete the Terminal or any CCS projects or, if successful, that the capital we raise will not be expensive or dilutive to stockholders. Additionally, if these types of financing are not available, we will be required to seek alternative sources of financing, which may not be available on terms acceptable to us, if at all.   Sources and Uses of Cash   The following table summarizes the sources and uses of our cash for the periods presented (in thousands):       Year Ended     December 31,     2022   2021 Operating cash flows   $ (40,076 )   $ (17,960 ) Investing cash flows     (40,888 )     (18,534 ) Financing cash flows     118,201       39,438                     Net increase in cash and cash equivalents     37,237       2,944   Cash and cash equivalents – beginning of period     25,552       22,608   Cash and cash equivalents – end of period   $ 62,789     $ 25,552     Operating Cash Flows   Operating cash outflows during the years ended December 31, 2022 and 2021 were $40.1 million and $18.0 million, respectively. The increase in operating cash outflows in 2022 compared to 2021 was primarily due to an increase in employee costs and professional fees paid to consultants as we prepare for a positive FID on the initial phase of the Terminal.   Investing Cash Flows   Investing cash outflows during the years ended December 31, 2022 and 2021 were $40.9 million and $18.5 million, respectively. The investing cash outflows in 2022 were primarily the result cash used in the development of the Terminal of $33.8 million and cash used in the acquisition of other assets of $7.1 million. During the third quarter of 2022, we issued a limited notice to proceed to Bechtel to begin ramping up its personnel and initiate site preparation work; as a result, investing cash outflows increased in 2022 relative to 2021. The investing cash inflows in 2021 were primarily the result cash used in the development of the Terminal of $12.1 million and cash used in the acquisition of other assets of $6.4 million.   26 Table of Contents   Financing Cash Flows   Financing cash inflows during the years ended December 31, 2022 and 2021 were $118.2 million and $39.4 million, respectively. Financing cash inflows in 2022 were primarily the result of proceeds from the sale of common stock of $115 million and sale of Series C Preferred Stock of $10.5 million, partially offset by equity issuance costs of $3.9 million and shares repurchased related to share-based compensation of $3.3 million. Financing cash inflows in 2021 were primarily the result of proceeds from the sale of Series C Preferred Stock of $39.5 million.   Contractual Obligations   We are committed to make cash payments in the future pursuant to certain of our contracts. The following table summarizes certain contractual obligations (in thousands) in place as of December 31, 2022:       Total   2023   2024-2025   2026-2027   Thereafter Operating lease obligations   $ 2,701     $ 2,039     $ 662     $ —     $ —   Rio Grande site lease     8,619       6,384       2,235       —       —   Other     305       84       141       80       —   Total   $ 11,625     $ 8,507     $ 3,038     $ 80     $ —       Operating lease obligations relate to our office space in Houston, Texas and Singapore.   Rio Grande site lease represents amounts due until the lease term commences.   A discussion of these obligations can be found at  Note 6 – Leases and Note 14 – Commitments and Contingencies of our Notes to Consolidated Financial Statements.   Results of Operations   The following table summarizes costs, expenses and other income for the years ended December 31, 2022 and 2021 (in thousands):       Year Ended       December 31,       2022     2021     Change   Revenues   $ —     $ —     $ —   General and administrative expenses     49,093       16,803       32,290   Development expense, net     4,101       1,615       2,486   Lease expense     1,119       905       214   Depreciation expense     162       184       (22 ) Operating loss     (54,475 )     (19,507 )     (34,968 ) Loss on Common Stock Warrant Liabilities     (5,747 )     (2,533 )     (3,214 ) Other     151       1       150   Net loss attributable to NextDecade Corporation     (60,071 )     (22,039 )     (38,032 ) Preferred stock dividends     (24,282 )     (18,294 )     (5,988 ) Deemed dividends on Series A Convertible Preferred Stock     —       (63 )     63   Net loss attributable to common stockholders   $ (84,353 )   $ (40,396 )   $ (43,957 )   Our consolidated net loss was $60.1 million, or $0.65 per common share (basic and diluted), for the year ended December 31, 2022 compared to a net loss of $22.0 million, or $0.34 per common share (basic and diluted), for the year ended December 31, 2021. The $38.0 million increase in net loss was primarily a result of increases in general and administrative expense, development expense, net, and loss on common stock warrant liabilities, discussed separately below.   General and administrative expenses during the year ended December 31, 2022 increased $32.3 million compared to the year ended December 31, 2021, primarily due to an increase in share-based compensation expense of $11.8 million and increases in salaries and wages, professional fees, travel expenses, and marketing costs. The increase in share-based compensation expense for the year ended December 31, 2022 was primarily due to forfeitures of awards upon the departure of certain employees during 2021 and the grant of additional restricted stock unit awards in 2022. The increase in salaries and wages, professional fees, travel expense, and marketing is primarily due to fewer pandemic restrictions in 2022 and an increase in the average number of employees during the year ended December 31, 2022 compared to the year ended December 31, 2021.   The increase in development expense, net of $2.5 million during the year ended December 31, 2022 compared to the year ended December 31, 2021, is primarily due to NEXT Carbon Solutions' FEED study for California Resources Corporation that commenced in May 2022.    The loss on common stock warrant liabilities of approximately $5.7 million in 2022 was primarily due to an increase in the share price of Company common stock from December 31, 2021 to December 31, 2022.   Preferred stock dividends of $24.3 million in 2022 consisted of dividends paid-in-kind with the issuance of an additional 9,235 shares of Series A Preferred Stock, 8,806 additional shares of Series B Preferred Stock and 6,166 additional shares of Series C Preferred Stock.     27 Table of Contents   Summary of Critical Accounting Estimates   The preparation of our Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make certain estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and the accompanying notes. Management evaluates its estimates and related assumptions regularly, including those related to the value of properties, plant, and equipment, share-based compensation, common stock warrant liabilities, and income taxes. Changes in facts and circumstances or additional information may result in revised estimates, and actual results may differ from these estimates. Management considers the following to be its most critical accounting estimates that involve significant judgment.   Impairment of Long-Lived Assets   A long-lived asset, including an intangible asset, is evaluated for potential impairment whenever events or changes in circumstances indicate that its carrying value may not be recoverable. Recoverability generally is determined by comparing the carrying value of the asset to the expected undiscounted future cash flows of the asset. If the carrying value of the asset is not recoverable, the amount of impairment loss is measured as the excess, if any, of the carrying value of the asset over its estimated fair value. We use a variety of fair value measurement techniques when market information for the same or similar assets does not exist. Projections of future operating results and cash flows may vary significantly from results. Management reviews its estimates of cash flows on an ongoing basis using historical experience and other factors, including the current economic and commodity price environment.   Share-based Compensation   The assumptions used in calculating the fair value of share-based payment awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and we use different assumptions, our share-based compensation expense could be materially different in the future.   For additional information regarding our share-based compensation, see Note 12 – Share-based Compensation of our Notes to Consolidated Financial Statements.   Valuation of Common Stock Warrant Liabilities   The fair value of Common Stock Warrant liabilities is determined using a Monte Carlo valuation model. Determining the appropriate fair value model and calculating the fair value of Common Stock Warrant requires considerable judgment. Any change in the estimates used may cause the value to be higher or lower than that reported. The estimated volatility of our Common Stock Warrants at the date of issuance, and at each subsequent reporting period, is based on our historical volatility. The risk-free interest rate is based on rates published by the government for bonds with maturity similar to the expected remaining life of the Common Stock Warrants at the valuation date. The expected life of the Common Stock Warrants is assumed to be equivalent to their remaining contractual term.   The Common Stock Warrants are not traded in an active market and the fair value is determined using valuation techniques. The estimates may be significantly different from those recorded in the consolidated financial statements because of the use of judgment and the inherent uncertainty in estimating the fair value of these instruments that are not quoted in an active market. All changes in the fair value are recorded in the consolidated statement of operations each reporting period.   For additional information regarding the valuation of Common Stock Warrant liabilities, see Note 9 – Preferred Stock and Common Stock Warrants of our Notes to Consolidated Financial Statements.   Income Taxes   Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the tax basis of assets and liabilities and their reported amounts in the Consolidated Financial Statements. Deferred tax assets and liabilities are included in the Consolidated Financial Statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the current period’s provision for income taxes. We routinely assess our deferred tax assets and reduce such assets by a valuation allowance if we deem it is more likely than not that some portion or all of the deferred tax assets will not be realized. This assessment requires significant judgment and is based upon our assessment of our ability to generate future taxable income among other factors.   For additional information regarding the valuation of deferred tax assets, see Note 13 - Income Taxes of our Notes to Consolidated Financial Statements.   Recent Accounting Standards   For descriptions of recently issued accounting standards, see Note 15 – Recent Accounting Pronouncements of our Notes to Consolidated Financial Statements.     Item 7A. Quantitative and Qualitative Disclosures About Market Risk   We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information under this item.   28 Table of Contents