New Fortress Energy Inc. Q3 FY2020 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to NFE's Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker today, Mr. Josh Kane, Vice President of Investor Relations. Thank you. Please go ahead.

Thank you. I'd like to welcome you to the New Fortress Energy Third 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 Sam Abdalla, Vice President of Project Development. Throughout the call, we're going to reference the earnings supplement that was posted to the New Fortress Energy website. If you've not already done so, I'd suggest that you download it now. In addition, we'll 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 review the risk factors contained in our quarterly report filed with the SEC. Now, I'd like to turn the call over to Wes.

Great. Thanks, Josh. Thanks everyone for calling in early on the 29th here. As Josh said, if you have had a chance to either pop on your screen or download the management presentation that we'll refer to as we go through this, it'd be helpful to have it in front of you. So with that, let's turn to the beginning and start with Page number four. We had a very, very productive quarter. It's our first full quarter in our COVID world. We had a number of initiatives when we started the quarter, and I'm happy to say that we actually achieved most of what we set out to do. Starting first and foremost with production. As we mentioned in our last earnings call, July 10th was a big date for us. That was the date when both of the turbines turned on down in Puerto Rico. That basically marked the moment we switched from being a development company to an operating company. The bottom line is that we achieved record volumes of 1.8 million gallons per day for the quarter. We actually had a peak in the month of September at about 2 million gallons and we're well on the way to being the cash flow enterprise that we set out to be. Second of all, the development for us, both our large-scale developments in our terminals and the smaller developments for our customers also had a very productive quarter. There were challenges from the COVID environment that caused some delays, but they were modest. We'll have Sam go through them in just a few minutes, but the tagline is that we are basically on time and on budget for the most part, which is very good news to report. We have a lot to talk about regarding the new business cycle, and I'll spend some detail on that when we get there, but we have become very focused on organizing our business into the organic growth of our existing terminals and new terminals as well as the new markets we are targeting. We've hired a lot of people. We have put significant focus on the infrastructure build-out, and I think the results will speak for themselves here shortly. On hydrogen, I'll talk a fair bit about it, as the path becomes clearer every day regarding what we intend to do. Our first two projects were announced recently, with our first investment made in an electrolysis company, an Israeli company where we made a small investment a few days ago. We also established a joint venture to run hydrogen, creating the first hydrogen burning power plant here in the United States to provide fuel data for us. That's fantastic, but there's a lot more to cover there and Chris will go through the finance and operations, of which there is a lot to report on. If you flip to the next page, Page number five, you'll see that July 10th was the date when both turbines turned on and for the most part, they have been running very reliably ever since. This is a photo you see there. We were at 1.4 million gallons per day in July. In August, we then added one significant customer piece of business with Jamalco, a company in Jamaica that's a bauxite company. They switched over their boiler operation from HFO to gas, moving from dirty fuel to clean fuel. That's a big win for the environment and an incremental piece of business for us. By September, we reached 1.8 million gallons per day as expected. If you look at Page number six, it's a busy page and it's not intended to be the cleanest presentation. You can see that while there are modest amounts of variability day to day, the overall story is one of growth and also growing in diversity. It's essential for our business to achieve both; we obviously want higher volumes, but we desire to onboard more customers because that is what will create the cash flow profile and reliability we want as an enterprise, and the quarter was very good in that regard. If we flip to the next section, we'll talk about developments. I’ll turn over to Sam. Sam?

Thank you, Wes, and good morning, everyone. Our business is about terminals and customers that we supply from those terminals. Currently, we have three terminals in operation and two terminals under construction. The two under construction, which I'm moving to Slide number nine, are largely on track and we achieved significant milestones. Talking about the La Paz, Mexico terminal, we encountered a couple of months delay because some government offices were closed between March and July due to COVID. The project is currently on track. We have 110 people on site right now, and by next month, we will have 150 people on site, with the completion of the terminal expected by mid-December of this year and the power plant completion by the end of Q1 next year. We also realized there is an increasing demand for power in La Paz and Baja in general. Therefore, we filed for a new generation license and we achieved preliminary approval from the authority. We proceeded to buy new land and filed for the permit, which we received last week. We’ll keep you posted; we’re not entirely sure what will happen, but it looks very promising. Moving to Nicaragua, the project is on track for completion by the end of Q1 next year or early Q2. We signed the port concession in Nicaragua, bought the land for the power plant, and finalized the engineering to file for the permit. This week, we finalized the EPC contract with the power plant contractor, and they are mobilizing to the site next month. Now moving to Slide number 10; our customers, large or small, need gas and power. For gas, we supply them from the existing terminals and for power, we fully finance the solution. Currently, we have 24 customers in operation and nine under construction for small scale or what we call organic growth. This picture on Slide number 10 illustrates the Bimini project, which is 9 megawatts installed, averaging about 11,000 gallons per day, and we turned on this project a few weeks ago. We are proud of this project because it's a small island luxury resort, and there are many islands in the world, making it a great proof of concept for what's coming, especially in the Bahamas. In addition, this last quarter, we turned on our first two small-scale customers in Puerto Rico; the Coca-Cola facility and the data center for Banco Popular, the largest bank in Puerto Rico. It's also worth mentioning that out of the nine customers currently under construction, we have our first small-scale client in Baja, which is the Four Seasons Resort in Los Cabos. Once all these nine customers are activated, which we expect by the end of this year or early next year, we will have around 190,000 gallons per day of production from small scale. Now moving to Slide number 11, regarding the ISO Flex, to provide a quick update on the logistics for the ISO Flex, we have hired the former COO of a publicly traded Offshore Supply Vessel Company, with a talented team that opened an office in Louisiana. The team purchased our first small ship called NFE Zero and identified two barges we will purchase within a couple of weeks. Our proprietary manifold is also under construction and will be completed by December of this year.

If you look on the following page, there is a cartoon we showed before which demonstrates how this all works. The bottom line is that we see this as a real game-changer, basically by using ISO containers and filling them up from the big ship and then bringing them to shore and offloading with cranes and typical types of equipment found in ports, we basically skip the intermediate shipping step. This reduces our CapEx by about 50% and reduces our OpEx by about 50%. Delivery time is reduced from 24 to 36 months down to three to six months. So, it's a huge change for us. Flipping now, briefly, to the new business side on Page 14, as I mentioned earlier, we reorganized our sales into two distinct functions; organic sales groups with our existing terminals and new terminals, as well as targeting markets globally. We added more than a dozen new people. Building out the origination network for us is a significant step forward, and I’m very positive about the results we are seeing. If you look on Page 15, just take a quick look at what organic growth really means. The five terminals under construction are operational right now, and you can see the utilization rate at the bottom of the page is 29%. This means that 71% of terminals are still available for new customers, translating into total capacity for another 8.2 million gallons per day. If we sold all that at our average margins right now, it would generate another $1 billion in profit and loss for us. This offers us a huge opportunity and gives us a competitive advantage; we already have the infrastructure built, have logistics in place, and the necessary personnel. All we really need to do is engage with our customers, execute, and get them online. This is a big focus for us. It's the best business we can conduct. We believe many developments are likely to emerge in the coming months and quarters. Organic growth is poised to be one of the true engines of growth for us, cash flow-wise, next year. Page 16 shows our near-term pipeline, which is significant. We've reorganized our origination teams to concentrate on key markets. There are six countries worldwide that we believe possess the characteristics most suitable for our business. While there are hundreds of companies globally, we think two-thirds of them require our services in one form or another. Out of these, we have identified a handful that we believe have the characteristics that will impact us the most. The three primary traits are; A) large populations, B) substantial existing power infrastructure, particularly existing thermal power that can be converted, and C) substantial opportunities for economic growth, especially once the COVID period is over. On the right side, there are eight different transactions in which we are currently engaged. There is a real push towards the right-hand side. With LNG flows worldwide, approximately 75% or 80% flows into Asia. So, it's not a surprise that promises for us lie in Central America, South America, Africa, and Asia. Our goal is to reach financial investment decisions for two new projects by the end of the year. Though there are only a couple of months left, we are down the path on several opportunities, and I believe we have a solid chance to finish two of them successfully. For next year, we aim for five to ten and have set a clear target of achieving 20 to 30 terminals over the next five years. Now shifting to hydrogen, I’ve included several slides for context, and I'll go through this briefly. Page 18, on the left side, gives an overview of how large the hydrogen market is at present. We often talk about its potential size and the transition away from fossil fuels, but how big is it currently? A hundred billion kilos of hydrogen are sold every year, so at an average price of about $1.25 per kilo, this translates into a hydrogen market today that's valued at approximately $125 billion. In comparison, the LNG market today is about 360 million tonnes selling at roughly $5 per MMBtu, equating to about $90 billion. This may surprise people, but the actual hydrogen market today is 30% larger than the LNG market. So, there's a significant existing market. Where does all this hydrogen come from? It is produced through various methods, including steam-methane reforming and coal gasification in particular. Please note that electrolysis currently represents a very small portion of hydrogen production. The critical takeaway regarding steam-methane reforming and coal gasification is that both produce hydrogen while generating substantial CO2 emissions. The implications for our planet are significant, as producing hydrogen results in approximately 2.5% of all global emissions – a concerning environmental concern. The good news is that there are ways to address this issue. If you look at Page 19, we provide context about how hydrogen can be produced using three primary feedstocks: one, water (generally considered free); two, gas; and three, coal. When considering production technologies, we analyzed over 150 companies and their various methods. The three production methods are electrolysis, methane pyrolysis, and coal pyrolysis. While these methods share similarities in that they utilize considerable heat, the substantial distinction is that they can be made entirely clean, as we believe. The best prices at the bottom here are a point of reference. This represents our expectations of optimal conditions, which unfortunately does not always reflect reality. For instance, the theoretical lowest possible production prices are $0.80 per kilogram for water, $0.60 for gas through methane pyrolysis, and $0.20 for coal pyrolysis. When examining the issues we're trying to address, we concentrate on three sectors: power, industrial, and transportation, which account for approximately 80% of all emissions. Therefore, if we can transition those sectors from burning fossil fuels to utilizing clean hydrogen, we will significantly contribute to reducing CO2 in the atmosphere. To the right, I presented a comparative box demonstrating the competition between fossil fuels and hydrogen today. If we can generate hydrogen at $1 per kilogram, converting that into MMBtu equivalent requires multiplying by 7.5. Currently, the average price for power in the United States is about $3, with an additional $0.75 transport cost incurred to deliver natural gas to power plants. That brings the total to around $3.75. The takeaway here suggests that even in our best-case scenario using conventional electrolyzers, hydrogen prices are still roughly 50% higher than natural gas prices. This includes competitive pricing for industrial hydrogen, which averages $1.25 per kilogram, equating to about $9.50. The disparity between $7.50 for hydrogen and $9.50 for natural gas could potentially allow for competitiveness, again reflecting best-case scenarios. Additionally, the transport of hydrogen poses considerable logistic costs, which will be significant. While it's fair to highlight potential advantages of hydrogen over natural gas, it is essential to recognize the challenges that must still be addressed. Our end goal is straightforward: zero emissions. An essential realization for me is that the way we categorize hydrogen and its production needs to change. We often say that electrolysis is clean only when the power originates from renewable sources, likening it to the Hippocratic Oath of hydrogen - do no harm. Rather, the key concern should be generating zero emissions. That perspective allows us to assess the efficiency of different processes more effectively. A simple classification of ‘no emissions’ is much clearer than using terms such as green, blue, gray, or turquoise. When we consider earlier projections, we note that water and gas and coal can lead to a theoretical price of as low as $0.20 a kilogram of hydrogen through coal pyrolysis, assuming effective CO2 sequestration practices that prevent emissions from entering the atmosphere. This process might seem counterintuitive, especially for those focused on environmental, social, and governance (ESG) criteria, as coal is often viewed negatively. However, the potential exists for processes that could yield extremely clean hydrogen production while addressing emissions. Many articles have discussed such advances. For example, I came across an article from Forbes just last night about coal pyrolysis, and I believe this conversation will gain traction. While it may sound improbable, it illustrates how the dirtiest fossil fuel could serve as a pathway towards very clean hydrogen production. There’s a lot of promise in that regard. Transitioning from fossil fuels to hydrogen represents trillions of dollars of opportunity that will emerge from identifying the right technologies and feedstocks. This is a subject we are intensely focused on, with a great team dedicated to exploring these prospects. I anticipate that we will make further investments in these sectors sooner rather than later; my impatience is clear. The critical task is to produce hydrogen at around $0.50 or lower per kilogram. Achieving this price point would revolutionize the market, and the applications become significantly broader across transportation, power, and industrial use sectors. Solving for this cost problem effectively presents a major opportunity for cleaning up emissions. In terms of what we accomplished this quarter, we engaged in two main initiatives. The first, Long Ridge, was established on an abandoned aluminum smelter site, where we are partnering to build a 485 megawatt power plant, aiming to incorporate hydrogen feedstock with a vision to ultimately burn hydrogen entirely. This initiative is built upon verifying actual field data, presuming we establish a clean and affordable hydrogen production method. Once operational, this plant represents an exciting opportunity for us to gather practical data. The second investment is in a company called H2OPro or H2Pro, which specializes in more efficient electrolysis. Their technology includes two distinct cycles that leverage heat generated from the first cycle to enhance the efficiency of the second cycle. In simple terms, this combined cycle has proven to use 30% less electricity, less than 50% CapEx compared to traditional electrolysis, and achieve near-100% efficiency. Based on laboratory results, this technology appears truly promising. Moving to the next section on COVID, I will turn it over to Chris shortly, but I wanted to provide an update on what we have implemented company-wide. Since March 11, I've been working from home, and our team has been in operation since June 1. Once the pandemic struck, we aspired to create a working environment that was safe for all employees. We've invested in testing, biometrics, and other protocols to provide our employees with optimal safety. During the peak uncertainty in May and June, we recognized the significance of our field personnel's efforts, demonstrated by awarding them a bonus of 150% of their salaries over the two months in acknowledgment of their vital role. Overall, our proactive measures cost about $1 million, but the positive outcomes have been evident thus far.

Yeah, thanks, Wes. Good morning, everybody. I appreciate the time to update you on Q3 results, but let's first discuss COVID. As Wes noted, our decision to return to work was carefully considered, driven by our responsibility as an essential industry to keep operations running for our customers. I’m happy to share a few details on our plan. We provided bonuses for essential workers at our power plants and gasification terminals. Additionally, we created our own version of a bubble at our corporate offices, implementing daily health screenings and ongoing deep cleaning measures for safety. We've expanded our office space to promote social distancing and instituted mandatory weekly testing for the entire workforce. To date, we've administered over 3,200 tests, ensuring a safe work environment with no recorded in-office transmission occurrences. I'm glad to announce that we have added over 60 new team members, successfully completed eight construction projects, and signed eight new contracts or MOUs that represent an additional 2.5 million gallons per day while achieving record sales volume for the quarter. Our success during this pandemic is attributable to our incredible customers, reliable vendors, and dedicated employees who have shown extraordinary commitment during these challenging times. On Slide number 26, I will walk you through the summary financial information for the quarter. The key driver of our results, as you know, is volumes. We averaged over 1.5 million gallons per day for the quarter, and as Wes mentioned, we sold an average of 1.8 million gallons for September. The increase in volumes is largely attributed to Puerto Rico and gas sales to the Jamalco refinery boilers. Revenue for the quarter increased by $42 million, representing a 45% increase from Q2. Despite the significant volume increase, the cost of sales remains relatively unchanged, due to the reduction in LNG costs to just over $4 for the quarter. We are pleased to report that our cash SG&A expenses for the quarter were $19 million, just below the $20 million forecasted and on track for $80 million for the year. One thing to mention is the $24 million loss incurred from the write-off of debt issuance costs associated with the early termination of the credit facility. Lastly, I'd like to touch on the balance sheet in greater detail later, but we currently have over $150 million in cash reserves, which will fully finance the remaining costs for our builds in Mexico and Nicaragua. If you flip to Slide 27, it presents the projected volume ramp and cash flow estimates for the remainder of 2020 and 2021. This graph solely depicts committed volumes reflecting growth opportunities both organically through gaining new customers utilizing existing infrastructure, and inorganically through the development of new terminals. Significant upside potential exists. In Q3, we averaged 1.5 million gallons per day, and we're expecting approximately 1.8 million gallons for Q4 while aiming for 3.5 million gallons once our Mexico and Nicaragua terminals commence operations. When reviewing consumption for the quarter while analyzing large-scale terminals versus direct customer sales, volumes aligned with our initial forecasts given to our baseload consumers. Now, moving on to Page 28. In our Q2 earnings call, we laid out a roadmap for our capital plan, and we are making progress on those key priorities. In August, we successfully priced an upsized $1 billion secured notes offering due in 2025 at 6.75%, while refinancing our existing corporate facility as well as the Jamaican subsidiary bonds. This strategic transaction extended our debt maturity by 2.5 years and will yield a $23 million interest reduction for 2021. These notes have traded exceptionally well following the offering and currently yield around 5%. The bond offering enhances NFE's access and flexibility in capital markets, facilitating our growth objectives, marking a pivotal transition in NFE toward a well-capitalized, mature company. Following the refinancing, we established a quarterly dividend of $0.10 per share, representing 20% to 25% of the forecasted free cash flow for the next 12 months. The strong cash flow generation of our company allows us to provide returns to our shareholders, and we aim to maintain the 20% to 25% target range of free cash flow going forward. Additionally, we remain fully funded for our committed projects and remain dedicated to maintaining modest leverage and strong liquidity. Our goal remains to attain investment-grade status as a company, and we intend to finance new terminals through a prudent mix of debt, equity, and cash flow generation. With that, I will turn the call back over to Wes to take questions.

Great. Operator, we will open up to questions.

Thank you. Our first question comes from Sean Morgan with Evercore ISI. Your line is now open.

One thing I've been wondering about with OPEC considering increased production and the potential re-entry of Libya into the market, could we see a decline in crude prices possibly affecting the prices of diesel and high-sulfur fuel oil? Is there potential risk that if the spread compresses, some of your existing customers in Puerto Rico and Jamaica may consider switching fuel sources, using diesel instead of the natural gas obtained from you? Are they somewhat fixed into the power sources they are generating from?

Generally, the answer is that they are committed. We have a range of contracts, from merchant contracts to long-term fixed contracts, with the majority being long-term take-or-pay agreements averaging around 12 years. So for the most part our customers are set; however, there are some that have the flexibility to switch back and forth. We conducted a study for one of our investors this summer analyzing the past ten years of delivered diesel versus gas prices in an island country. Over that period, diesel was cheaper on only 24 out of 3,650 days—less than 1%. While we experienced some declines over the spring, we would historically be cost-competitive over 99% of the time. Additionally, there are hidden costs associated with running liquid fuels regarding maintenance and operations; turbines operate poorly on diesel. The marginal costs of maintenance and operational costs tend to rank higher. People definitely care about the environmental impact. A misconception people may have is that developing countries may not care about the environment as much as developed ones, but our perspective is that this isn't true. Should prices approach parity, a switch might occur, but based on historical data, gas prices have consistently outperformed diesel over the long term.

Alright, just another question; do you have any clarity you could share regarding your contracted gas prices for 2021 and how much of that is hedged versus exposed to spot pricing?

We haven't done anything material reportable on the hedging side. However, there are several matters in the works right now. We still have significant exposure next year. I would say, my commentary on the quarter is that the impact of several hurricanes in the Gulf Coast, along with a fire at one of the producers in Norway, has caused short term supply disruptions. Thus, prices increased slightly over the course of the quarter. Still, our long-term position remains very beneficial. The quarter-over-quarter value reflects minimal short-term volatility. Most market experts believe there will be some volatility over the next few years, as short-term supply and demand swings a lot; however, we expect significant production to come online in 2024 and 2025, leading to a strong, supple market, which provides us with flexibility in terms of contract types. Nothing specific is disclosed at this point, but our current position feels strong. In Q3, we bought gas under $3, while Q4 may be fairly priced around $4, despite the market floating above $5 today. Overall, we feel good about our position looking forward, and this is certainly a priority for me and the company; expect developments on that soon.

Thanks, Wes.

Thank you. Our next question comes from Devin McDermott with Morgan Stanley. Your line is now open.

Good morning. Thank you for taking my question. I wanted to explore hydrogen in greater detail. I appreciate the extra time and information you've shared during this call. Additionally, congratulations on the significant progress made in recent months regarding your ambitious hydrogen strategy. I would like to understand the specific next steps as we look ahead to the next few years of implementing this strategy. Could you provide more details on the pilot projects with H2Pro? What do you anticipate these projects will entail and what customer demand have you seen so far for green hydrogen? Should we consider making additional technology investments? Are you looking into opportunities for gas and coal pyrolysis, and are you also exploring seed investments in these technologies? I'm interested in your thoughts on the shortening value cycle for such investments.

There are two responses to your question. First, regarding prototypes, we aim to identify promising technologies, invest in companies that align with our vision, and partner with them to build prototypes for real field data verification. H2Pro is a capable group, and we want to characterize their technology in real-world scenarios. The second aspect revolves around understanding broader market dynamics. Our outlook encompasses scaling potential technologies capable of addressing climate change issues widely. I believe the numbers presented concerning theoretical pricing– $0.80 per kilogram for water, $0.60 per kilogram for gas, and $0.20 per kilogram for coal, illustrate our aspirations. Our strategy focuses on cost-effectiveness to deliver scalable solutions efficiently. Our priority remains to identify viable mechanisms and pathways for producing hydrogen cleanly and economically while leveraging each potential feedstock wherever feasible.

That's great and really helpful context. My second question pertains to growth opportunities within your existing portfolio. I'm impressed with the additional clarity and disclosure on capturing small-scale opportunities, and it's exciting to see the execution there. Considering the noted $1.2 billion profit-and-loss opportunity from enhanced utilization across existing terminals; I have two queries: Are there any logistics constraints preventing you from achieving theoretical 100% utilization? Furthermore, the slide mentions the potential for 50,000 gallons per day from the nine customers you've executed with alongside a total of 190,000 gallons from the small-scale segment. Could you provide clarity bridging these two metrics while considering expected deployments over the next 12-18 months?

There are no logistics constraints whatsoever. In the infrastructure business, the principle is clear: if you create infrastructure for specific purposes and it remains unused, your investment is lost; if utilized, you earn satisfactory returns; if you can leverage that addition to serve multiple purposes, you maximize returns significantly. By adopting this philosophy, we aim to optimize our existing infrastructure, resources, and personnel strategically. Our renewed focus on these opportunities remains evident, as detailed by Sam—we've achieved milestones, with the first few customers up and running in Puerto Rico and the initial contract signed in Mexico. Multiple more contracts are coming: this represents low-hanging fruit for our portfolio. We anticipate increased incremental demand from these initiatives. That makes it an exciting prospect as no delays are present in infrastructure or logistics—translating into immediate earnings and sales opportunities as targeted.

Thank you. Our next question comes from Joseph Osha with JMP Securities. Your line is now open.

I wanted to revisit the hydrogen transportation market since potential price points there could be potentially higher—especially if you consider hydrogen in the fuel cell context. Is it feasible to look into economically viable electrolysis from the side as you indicated might work at a $1.50 per kilogram level?

Yes, that's an interesting point to raise. We've been pursuing two lines of inquiry: firstly, how can we produce hydrogen efficiently and economically, and secondly, what utilization avenues may arise from affordable hydrogen availability? That inquiry reflects the necessity of providing decentralized production methods, which ought to facilitate easier logistics. We consider various sectors with the most straightforward logistical conditions; potential analogies can be drawn comparing this approach to past growth within the natural gas sector.

Could I inquire about your exploration of utilizing gas as a firming resource in conjunction with renewables?

Absolutely. Energy plans continually leverage gas-fired solutions alongside renewables. Renewables remain exceptionally affordable and clean but lack dispatchability. For example, solar resources are ineffective days like today, and the need for complementary power sources is crucial. Hydrogen serves as an efficient energy storage medium aiding transitions to higher renewable penetration in energy systems. The choice remains between hydrogen functioning as an energy storage source or relying solely on batteries. That logistical gap emphasizes our commitment to scrutiny when producing hydrogen and analyzing if the hydrogen-based production is more sustainable and environmentally favorable compared to battery solutions.

Thank you.

Thank you. Our next question comes from Christine Cho with Barclays. Your line is now open.

Well, you've made commendable progress towards achieving a position of positive free cash flow while distinguishing yourself within the clean energy sector. This leads me to a question regarding your perspective on maintaining positive free cash flow in light of the significant opportunities alluded to. Also, previously you mentioned the possibility of equity issuance; while the investments discussed seem modest in size, could they create an opportunity to increase market flow concurrently with one of these investments?

Great question, Christine. We're keenly focused on maintaining free cash flow. While it's essential to discuss the potential upside, particularly in hydrogen initiatives—our core business must remain cash-generative and steady with consistent growth. I genuinely believe that once our two terminals are up and running together with several additional projects advancing FID by the latter half of next year, free cash flow generation could double. Targeting smaller project opportunities of 300, 400, and 500 megawatts allows us to yield significant growth in cash flow. Investment into these areas must be balanced with prudent blendings of debt and equity to retain our credit profile, which is critical as we scale. Though we strive to avoid equity issuance, strategic capital events remain possibilities if conditions necessitate broader investments. Overall, our focus narrows down to future customer acquisitions and effective management all throughout. As for FERC proceedings regarding the Puerto Rico terminal, I want to reiterate that our position remains solid. Following an extensive response letter we sent, everything is publicly accessible. We feel 100% good about our stance, but have yet to receive any feedback from them. We have communicated a request for an expeditious response, but that's outside of our influence. Overall, we remain optimistic and confident regarding our position.

Thank you. Our last question for today comes from Ryan Levine with Citi. Your line is now open.

What do you consider as the most efficient mode to transport hydrogen to your new target markets? Do you plan on developing infrastructure to assist in that transportation?

Great question, Ryan. Hydrogen can be liquefied; however, it presents challenges due to its lighter, smaller atoms, which necessitates lower temperatures than LNG. While pipelines can transport it, there are concerns around its permeability, making it challenging. Our interest also lies in localized electrolysis as it would allow on-site production of hydrogen and circumvent transportation needs. That approach weighs heavily in our planning pattern. The present focus underscores a decentralized production model, perhaps ultimately leading to filling and transport methods that favor installations closer to hydrogen demand locations. Producing hydrogen in proximity to demand drastically diminishes transport burdens and added costs. Operator, thank you for the participation today; we're pleased to be here. We look forward to following up on any inquiries through Josh or our Investor Relations team. We'll connect again after the next quarterly results in the New Year. Thank you all.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes your program. You may now disconnect.