Ladies and gentlemen, thank you for standing by and welcome to the New Fortress Energy LLC First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alan Andreini. Thank you. Please go ahead, sir.

Thank you, Gigi. I would like to welcome you all to the New Fortress Energy LLC First Quarter 2020 Earnings Call. Joining me here today are Wes Edens, our CEO and Chairman of the Board; Chris Guinta, our Chief Financial Officer; and Brannen McElmurray, our Chief Development Officer. Throughout the call, we are going to reference the earnings supplement that was posted to the New Fortress Energy website. If you have not already done so, I'd suggest that you download it now. In addition, we will be discussing some non-GAAP financial measures during the call today. The reconciliations of those measures to the most directly comparable GAAP measures can be found in the earnings supplement. Before I turn the call over to Wes, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements by their nature are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC. Now, I would like to turn the call over to Wes.

Great. Thanks Alan. Thanks everybody for dialing in. I've got a lot to talk about. But before we go into the quarter, I'd like to start by just sharing a couple of thoughts that I had as I was preparing this with our folks here over the last couple of days. Two main takeaways that I'm very thankful for. One, and first and foremost, is our customers. Even in these very difficult times, power and gas remain essential goods and services for those people, and I feel honored to have them as customers. They continue to deal with the difficulties of their situation each and every day. Although volumes in the aggregate from them are down a little bit as a result of the diminished financial times, they still showed up every day, and we showed up every day to service them. That is a terrific benefit for us. The second is that I'm very grateful for the people we have, especially those essential workers in the fields. There is no sheltering in place for these individuals, and they showed up to work every day resulting in a great quarter and a very good start to the year, in no small part because of their efforts. As a result of our activities, we had no mass layoffs or furloughs. We applied for government assistance but have yet to receive any. We actually were able to raise the salaries of our fuel workers by 50% for the months of April and May in recognition of the jobs they were doing during this time. I am very proud to be part of an organization that accomplished this. In New York City, I’ve been coming to work every day with a skeleton crew here. Our business does not particularly translate well to the shelter-at-home crowd. So we’ve been making adjustments and trying to be productive as we can with some people here and some people at home. But we’ve had a very good quarter, and we will go through that in detail in terms of the productivity we have managed to accomplish in our infrastructure build and the pipeline we have. I’m happy to say that both Brannen and Chris shaved and actually put on clean shirts for this Zoom call we have this morning. There has never been a shutdown in my life like this. Many industries and companies literally had no revenues whatsoever. We are very fortunate that in these extraordinary times, we have both record revenues and the ability to complete our infrastructure in Puerto Rico. We are also maintaining a new business pipeline and profile that is remarkable indeed. Let's turn to the presentation and go through this briefly. I will start on page number 4. Highlights are listed by month. Our business is all about the volumes we generate. In January, we averaged 700,000 gallons per day; February, 730,000; March, 830,000; and in April, one million gallons per day. The goal is to reach 1.5 million to 2.5 million gallons per day for the remainder of 2020, and there is significant upside to this depending on a handful of ongoing projects. Montego Bay, Old Harbour, and San Juan are now fully operational. The new business pipeline remains strong. The world has not suddenly become electrified or attained its own gas, so there are many new business prospects still out there. COVID has obviously impacted our customers, but power and gas are essential goods. On page number 5, you can see the volume chart. Each one of these terminals has come online over time and has grown measurably. Montego Bay was our first terminal visible since the first quarter of 2019. The Old Harbour terminal came online midway last year. Puerto Rico was launched just a month ago. We also have developments in both Nicaragua and Mexico underway, along with organic growth from existing terminals. The simple chart on the right-hand side illustrates that range from one million gallons a day to three million gallons a day and their annualized revenue impact from $12 million to $450 million. One million gallons is an important threshold because, at that point, our business margins grow dramatically. We are currently averaging about 1.5 million to 1.7 million gallons per day; therefore, we are well past that mark. Each successive new business opportunity that comes online will further enhance that growth. I’ve received many questions about COVID and the competition between gas and diesel. Customers are still using significant volumes of gas and power. Their average reductions have been about 20%. We are a derivative of our customers' businesses, which are being impacted. However, they continue to be meaningful. Oil prices have collapsed, and the demand destruction in the oil sector has been significant. About two-thirds of all the oil in the world is consumed for transportation. With airline flights down 95%, and fewer vehicles on the road, this demand destruction has been substantial. The good news is that demand can reverse itself once economies begin to recover. I also looked back over the last 10 years at the price of delivered LNG compared to diesel in these markets. Most of the time, it has made more sense to burn natural gas than diesel. Thus, our value proposition remains intact. We've seen no pullback from our customers in considering a switch from oil to gas. On page number 7, the new business pipeline continues to be very robust. We are shortlisted for the Puerto Rico temporary power RFP. We were notified of that position recently and expect decisions to be made in the next couple of weeks. Travel restrictions worldwide are still challenging, but we hope they will ease soon. These terminals serve as transfer points for us to deliver LNG and power around the globe. Our focus remains on the ten regions we previously discussed, particularly the five highlighted in green where we’re having active discussions. I am very optimistic about our prospects here for the remainder of the year.

You bet. Thanks Wes. Flipping to page 9, good morning and thank you all for joining. As Wes said, we're very excited to update you on what we've accomplished since we last spoke. Focusing on page 9, our terminals are complete. We finished our San Juan facility, adding a marquee terminal asset to our growing portfolio, along with Mo Bay, Old Harbour, and Jamalco. San Juan Units 5 and 6 were successfully converted to run on natural gas, completing a long-running goal of PREPA. They could not be more excited. Now, over 400 megawatts at San Juan Power Station runs on natural gas, which is expected to save PREPA millions of dollars and significantly reduce emissions compared to diesel. Most importantly, as Wes alluded to, we have demonstrated that even during the most challenging times, we can deliver on our commitments to customers. At peak, we had over 250 workers onsite completing construction and commissioning activities safely and without incidents. Our employees and those of our partners showed tremendous dedication and commitment, for which we are greatly appreciative. As a company, we showed remarkable resilience to deliver critical infrastructure during challenging periods, further enhancing our reputation as a go-to critical infrastructure provider. Turning to page 10, specifically regarding Puerto Rico, our San Juan facility is a significant step towards our strategy to gasify Puerto Rico, providing a compelling option to transition from diesel and HFO across the island. We believe there is tremendous growth opportunity that complements Puerto Rico's strategic plan to modernize its power infrastructure. Over the past week, Units 5 and 6 have averaged over 620,000 gallons per day, reaching as high as 800,000 gallons per day as we continue to ramp up operations. In addition to serving the power plant next door, we have a four-bay truck loading system capable of loading about one million gallons per day for delivery to industrial customers. We expect to serve our first customer in just a few weeks, including marquee names like Coca-Cola. Significantly, the facility itself has built-in capacity to serve additional power demand over time. Now, flipping to page 11 for a snapshot of operational asset performance, the health, safety, and welfare of our people is our top priority, as is being a good steward of the environment in the communities in which we operate. In this moment, we have redoubled our efforts in this area. No news is good news from an operational perspective. I’m happy to report that we continue to achieve Zero in terms of recordable incidents on the operational side. Our operators do a terrific job every day. They are the face of our business and the ones our customers rely on to support their critical activities. We're continuing to rack up metrics without incidents in truck and rail tender loads, currently about 6,000, while we have over 420-plus ship-to-ship transfers without incident.

Thanks, Brannen. It's great to talk with you all this morning. If you turn to slide number 13, I'd like to walk you through the financial results for Q1 2020. We are very excited to announce that our average daily volumes for the first quarter reached over 750,000 gallons per day, an increase of 40% from Q4 and more than double from the same quarter in 2019. The increase in volumes is driven by the Jamalco CHP plant coming online and achieving COD during Q1. The plant has operated at base load capacity and aligned with our volume forecast for the last 60 days. Revenue for the quarter was $75 million, which was our highest quarterly revenue to date. This results from the volume increase but is slightly offset by a lower average Henry Hub price and decreased construction activity revenue recognized in Puerto Rico. Our cost of sales and O&M was higher due to increased volumes. However, as we continue to grow, we will see significant margin expansion owing to the fixed cost nature of our shipping and terminal OpEx. Our SG&A expense was in line with forecasts at $20 million per quarter, excluding $3 million of stock-based compensation expense and $6 million of non-capitalizable development-related costs. During Q1, we also had about $10 million of one-time costs related to the early extinguishment of debt when we closed our $800 million term loan facility provided by Apollo in January. Flipping to Page 14, we discussed how we will advance our plan to enhance efficiency in our business. Now that our operating cash flows are established, we are closely examining how and where we spend our capital to enhance profitability. Over 95% of our operating expenses stem from four main categories: 1) SG&A expense, expected at approximately $80 million annually; 2) our current annualized interest expense around $85 million, which will decrease once we complete refinancing; 3) shipping costs at approximately $85 million for the five vessels we have on hire, which we believe can be significantly reduced; and 4) over 60% of our LNG needs being uncontracted, representing an opportunity to dramatically increase earnings. On the right side of this page, we display the strength of our balance sheet. As of March 31, cash on hand plus our LNG inventory exceeded $350 million. This, combined with cash flows from committed volumes, fully funds all our committed CapEx and operating activities. Turning to page 15, we’ve included a slide showing the ramp-up of our committed volumes and their impact on our cash flows. While not formal guidance, we demonstrate that these assets offer material cash flow capability as they hit run rates. The graph illustrates how annualized cash flows from committed volumes will ramp to over $300 million this year, and with Mexico and Nicaragua, we anticipate exceeding $460 million next summer. It’s exciting to note that as we continue to execute on contracting new committed volumes, we can clearly see NFE earning well in excess of $1 billion in annual operating margin. With that, I turn it back over to Wes.

Operator?

Our first question comes from Joseph Osha from JMP Securities. Your line is now open.

Hey. I made it to the front of the line. I hope everyone is doing well. Thanks for hosting the call. I have two questions. First, you point out in the deck that you've been working through higher-cost supply right now. Wes, as you pointed out you're still somewhat open to exposure. I'm wondering how we should reasonably expect to see that cost of goods trend over the next couple of quarters?

We do have excess supply in Jamaica assets in particular. With slightly lower volumes, this has gotten a bit worse. In total, we contracted a couple of cargoes that we don’t need right now. We’ll either sell those outright or swap them into cargoes for use in Puerto Rico. You will see a financial charge against the excess cargoes over the next few quarters, but the run rate margin will reflect our actual gas purchase price. I don't want to confuse the operational performance of these assets with what's just a short-term oversupply. However, we're effectively 60% undersupplied across the board, presenting a big opportunity to execute good pricing on gas.

Okay. And as a follow-up, can we assume at this point that you probably don't want to go out? I heard Chris talk about contracting more. But wouldn't it make sense to let this existing supply roll off and then just go out and buy spot given how cheap it's gotten? I'm trying to understand your strategy going forward.

Exactly. What we've said before is that once we have our assets operational, we want to run them for a period of time to understand their performance and requirements. After that, we look for a longer-term strategy. That's what we did in Jamaica and that is how we plan to operate in Puerto Rico. Given our few extra cargoes, there's less impetus to rush into more supply purchases. As I stated, we remain undersupplied in a healthy market, which is a positive.

Okay. Thank you. I will jump back in queue.

Thank you. Our next question comes from the line of Greg Lewis from BTIG. Your line is now open.

Yes. Thank you, and good morning. My first question is related to the Puerto Rico temporary power RFP, understanding it’s a competitive process. Would there be any additional CapEx or requirements needed to fill that temporary RFP?

What we can share is public — there was an earthquake in Puerto Rico on the 6th of January, impacting power supply in the southern region. With summer approaching, they are keen to fill this gap to avoid service disruption. They are specifically requesting offers on power equipment in various locations. We have made offers on a number of those locations and feel confident about our position in the competitive process. We'll see how it unfolds in the next couple of weeks.

Was the actual power amount available in terms of the size of the potential project?

We don't know the exact size of their project yet. I've seen estimates in prior public meetings ranging from as few as 350 megawatts to as high as 500 megawatts. These are significant power needs that fit well with our fast power concept using mobile turbines and gas. This will serve as a good test for us and, if successful, could open doors to other markets facing similar short-term power needs.

Okay. Perfect. Thank you very much.

Thank you. Our next question comes from the line of Sean Morgan from Evercore ISI. Your line is now open.

Hey, guys. I had a question. We look at slide 13 obviously the cost of sales is one of the biggest trends in the model, and I'm wondering what proportion of that is fixed and what portion of that $70 million is floating? And could we see — with an improvement in spot cargoes could we see that — how much flexibility do you have there?

Sure, Sean, good to talk to you. The bulk of the cost of sales is comprised of the LNG expense. Approximately 70% to 75% of total cost of sales is LNG, around 15% to 20% is shipping, and 5% to 10% is terminal OpEx. As Wes mentioned earlier, as we procure more supply at market prices, our basis will improve below the $5.50 previously seen in forecasts.

It’s significant to have this terminal online and operating, especially burning cheaper fuel during this time. Our expectations are that we should average around $5.50, but you’ll see our numbers decrease as we burn through more low-priced gas.

Regarding charges for the excess cargoes due to fluctuations from COVID-19, what's the timeline for these charges, and what magnitude should we expect for the next few quarters?

These charges will mainly prompt over the next couple of quarters. Expected organic revenue numbers are down around 20% from our projections. It’s important to note that we are currently generating between 1.5 million and 1.7 million gallons daily, which marks our baseline expectations moving forward.

And on the revenue side, given the fixed nature of contracts, are you anticipating a revenue benefit next quarter if Henry Hub remains elevated?

That's correct. Recall that the Henry Hub component represents about 25% of our revenue structure. A movement in Henry Hub will not cause dramatic revenue changes, but an elevation in Henry Hub can positively reflect in our quarterly revenues.

Good morning. Can you discuss the bad debt expense and what you’re observing with your contract portfolio? What recourse does the company have if customers don’t pay?

Our customer receipts have been strong. In fact, days in AR improved in Q1 compared to Q4. We had no charge-offs, and accounts receivable that are not current is less than $1 million. There’s strong commitment from our customers.

Is New Fortress or any customers pursuing legal actions under force majeure provisions due to the current environment?

No, there has been no suggestion of force majeure on our side. People need power, and discussions are geared toward providing it.

What are you seeing with customer lows or gas demand in April, and how do you foresee that evolving through the rest of the year?

Our numbers mentioned regarding the forecast for the remainder of the year show a growth trend, including 1.4 million gallons on average in April. We anticipate consistent improvements moving forward. As for customer types, we haven’t observed significant differences in reduced demand. While nominations are minimal, the customers have continued to sustain their minimal contract commitments.

Hi. Good morning, everyone. My first question involves the mentality of your customers. Given the current situation with oil prices being low, have any of your potential customers exhibited caution regarding capital commitments?

No, we haven’t seen it at all. The long-term value proposition is robust. The savings over time through natural gas usage versus diesel are substantial. Our clients recognize that inexpensive oil won't last forever, and they seek to secure a cleaner, cheaper alternative for the long haul.

Regarding incremental developments, can you provide an update on Mexico, along with any developments in Nicaragua or any other geography?

Dredging in Mexico is near completion, expected by the end of this month. Nicaragua is still in the planning phase, facing potential delays from travel restrictions. However, new discussions are active, and I am optimistic for the second half of the year. The larger competition from oil majors is likely reducing, leading to new opportunities for our business.

As for remaining CapEx, there is less than $100 million required to finish Mexico, while Nicaragua is still in the planning, permitting, and design phase with minimal spent capital.

Thank you. Our next question comes from the line of Ryan Levine from Citi. Your line is now open.

Can you comment on customer receipts and what you're seeing with your contract portfolio amidst the current situation?

The customer performance has been strong. Regular conversations with our customers have maintained performance levels. It's a remarkable situation and our accounts receivable remain healthy with minimal non-current amounts.

Thank you for participating in today's call. We look forward to updating you after Q2. Stay safe.

Before concluding, I'd like to highlight some valuation metrics. We're converting all our partnership interests to direct share structure to simplify operations. This should positively influence market perception in the future. The potential for our margins to exceed $450 million isn't a far-off vision; it’s well within reach if we can execute our plans effectively.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.