NextDecade Corporation Common Stock 2026 Q3 Earnings Call

Good morning and welcome to the NextDecade Corporation's third quarter 2026 Investor Call and webcast. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal management's prepared remarks. If you'd like to enter the queue, the command is *1 on your telephone keypad. If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. As a reminder, this conference is being recorded. And now I'd like to turn the call over to your host, Megan Light, NextDecade's Vice President of Investor Relations. Thank you, you may begin.

Thank you. And good morning, everyone. Welcome to NextDecade's third quarter 2026 Investor Update call and webcast. The slide presentation and access to the webcast for today's call are available on our website at www.next-decade.com. Today I am joined by Matt Schatzman, NextDecade's Chairman and Chief Executive Officer, and John Zuklic, NextDecade's Chief Financial Officer. Before we begin, I would like to remind listeners that discussion on this call, including answers to your questions, contains forward-looking statements within the meaning of U.S. federal securities laws. These statements have been based on assumptions and analysis made by NextDecade in light of current expectations perceptions of historical trends, current conditions, and projections about future events and trends. Although NextDecade believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that the expectations will prove to be correct. NextDecade's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in NextDecade's periodic reports that are filed with and available from the Securities and Exchange Commission. In addition, discussion on this call includes references to certain non-GAAP financial measures such as distributable cash flow. A definition of an additional information regarding these measures can be found in the appendix to our presentation.

And now I will turn the call over to Matt Schatzman, NextDecade's Chairman and Chief Executive Officer.

Thank you and good morning. We continue to make excellent progress toward first LNG production at Rio Grande LNG. Phase 1 construction remains safe, on budget, and ahead of schedule. We remain on schedule to introduce hydrocarbons into the facility before year-end. Today, we are narrowing our guidance for first LNG production from train 1 to the second quarter of 2027, consistent with the early volume guidance we provided earlier this year and are reaffirming today. Train 1's guaranteed substantial completion date is near the end of the fourth quarter of 2027. We expect Bechtel to achieve substantial completion in the third quarter of 2027, which is one quarter early. Trains 2 and 3 also remain ahead of schedule and aligned with our early volume guidance. During the quarter, the main cryogenic heat exchanger was installed for train 2, and the first compressor string was set for train 3. We expect both trains to achieve substantial completion about one quarter ahead of their guaranteed schedules, consistent with train 1. As outlined in our early volume and cash flow guidance, commissioning and early uncontracted volumes from RGLNG trains 1 through 5 provide valuable market exposure to NextDecade over the next few years, and the current LNG market dynamics are very favorable.

Spot LNG prices remain strong and have increased materially over the last year due to the loss of supply from the Middle East. Based on current forward LNG and U.S. gas prices, we estimate that volume-weighted average implied margins on the projected uncontracted volumes from train 1 startup in 2027 through the date of first commercial delivery under the train 5 long-term SDAs at RGLNG, together with the impact of the 175 TBTUs we sold forward in Q1 of this year, to average over $6 per MMBTU, more than $1 per MMBTU above our base case guidance. Using these estimated implied margins for our projected uncontracted volumes, NextDecade's share of Rio Grande LNG project-level distributable cash flow during this period, with total over $2.4 billion, or over 20% above the projected $2 billion of cash flow, in our base case guidance. Each $1 per MMBTU change in the estimated volume-weighted average implied margin on our uncontracted volumes from train 1 startup through train 5 DFCD, including the impact of the additional 175 TBTUs sold in Q1, would change NextDecade's projected share of project-level distributable cash flow by approximately $350 million, to $400 million, over the forecast period. As of September 2026, trains 1 and 2 were nearly 80% complete, engineering and procurement were nearly finished, construction was almost 70% complete, and commissioning was approaching 5%.

Train 3 was more than 55% complete, with engineering nearly finished, procurement above 90%, and construction approaching 25%. Train 4 was 22.5% complete, and train 5 was 14% complete. During the third quarter, electrical, mechanical, and utility commissioning advanced on train 1. More than 100 operations personnel succumbed to Bechtel in the second quarter are working alongside its team and will remain through commissioning and startup to support a smooth transition to operations. During the third quarter, installation and pre-alignment of train 2's compressor strings were completed, and its main cryogenic heat exchanger was installed. Train 3's first compressor string was set. Foundation pours began for train 4's main cryogenic rack, along with the excavation of its refrigeration area. Soil stabilization using the direct mixing method began for train 5. Tank 1 completed inner tank nickel plate welding and its first hydro test. Tiling advanced for tank 3 and began for tank 4. Side-wide dredging for the burst, turning basin, and channel deepening is complete. The gas inlet facilities are ready for startup, and the bay runner pipeline entered service during the third quarter. More than 7,000 workers are now on site each day, with over 70% of them local residents.

We are proud to provide safe, high-quality long-term jobs that make a meaningful impact in the Rio Grande Valley. Across the site, commissioning of systems is underway to support initial hydrocarbonate reduction before year-end. We made meaningful regulatory progress during the third quarter. BERC approved our upgrade request for trains 1 through 5, increasing authorized LNG exports from those trains to 30.15 million tons per annum, consistent with our expected annual five-train LNG production. As we mentioned on our last call, in July, BERC released its scheduled of environmental review for train 6 and the final environmental impact statement is expected in June of 2027. In September, the U.S. Army Corps of Engineers authorized a key construction permit for train 6 in record time, reflecting our team's discipline preparation and effective regulatory engagement. We're advancing commercial discussions with multiple high-credit quality counterparts for long-term train 6 LNG offtake, demand for our long-term LNG from Rio Grande LNG remains strong across a global customer base. Since the Iran conflict began in February, the global LNG market has tightened significantly, and Ford prices for 2026, 2027, and beyond have risen. Potential long-term buyers have also placed greater emphasis on energy security and supply diversification.

These priorities have been prominent since the Russian-Ukraine conflict began in 2022 and have intensified this year. As we have said, long-term LNG supply from Rio Grande LNG offers buyers an effective combination of attractive pricing and supply security, the United States' abundant diversified natural gas resources, and our competitive LNG construction costs, support affordable, reliable long-term supply and help protect customers from regional natural gas and LNG price spikes. We expect to advance long-term train 6 offtake discussions while permitting proceeds with the goal of securing sufficient commercial support to enable a positive final investment decision, or FID, in the second half of next year. Long-term LNG contract pricing has remained strong since we contracted trains 4 and 5. Based on current market conditions, we expect train 6 returns to be at least as strong as those trains. Given that outlook, our goal is to retain a substantial economic interest in train 6, which NextDecade currently wholly owns. Although we may consider a joint venture tied to a high-quality strategic LNG offtake. We continue to evaluate capital-raising options for our projected train 6 equity commitments, with a focus on maximizing shareholder value. We expect additional FINCO capacity to fund part of train 6 equity requirement, and our evaluating alternatives for the balance, with a focus on the most accretive per-share solution.

Finally, we selected the Western end of the Rio Grande LNG site for train 7 and 8. We expect to pre-file with FERC before year-end, with a schedule placed for train 7 and 8 roughly one year behind train 6 in permitting and development. I'll now turn it over to John.

Thanks, Matt. And thanks to everyone for joining us on the call today. During the third quarter, we continued to execute our project-level balance sheet strategy of terming out bank facility debt through opportunistic debt-to-capital markets transactions, which during the third quarter included approximately $4.1 billion of senior secured notes issued by Rio Grande LNG LLC, our phase one financing entity. These refinancings extended and staggered our debt maturity profile while also releasing committed bank capacity for financing train 6 and subsequent expansions. We have now refinanced over $7 billion or 60% of the $11.1 billion of initial capacity under the phase one bank facilities leaving drawn balances under those facilities of approximately $700 million as of September 30th. As we mentioned on our last call, in July, Rio Grande LNG LLC issued $3.5 billion of senior secured notes in its inaugural 144A offering. These notes, which were rated BBB- by S&P and Fitch, were issued in four tranches with maturities ranging from 2031 to 2041 and with fixed rates ranging from 5.15% to 6.15%. We used proceeds from the offering, net of fees, to reduce outstanding balances on the phase one bank facilities. In conjunction with the 144A offering and the $1 billion term load we entered into at a phase one holding company in late June, we unwound the portion of our interest rate swaps associated with the bank debt those transactions repaid, resulting in $109 million settlement receipt in July which we used to further reduce our phase one bank borrowings.

Then in September, Rio Grande LNG LLC issued another $575 million of senior secured notes in a private placement transaction. The notes, which bear interest at 6.72%, will amortize over a period of approximately 18.5 years beginning in June 2029 with a final maturity in December of 2047. Similar to the previous two issuance as noted, we also utilized proceeds from this transaction to reduce outstanding borrowings under the phase one bank facilities and to pay transaction-related fees and expenses. We were very pleased with the market response to our recent financings. There has been tremendous demand for and interest in Rio Grande LNG project-level credit. As an indication of that interest, the 144A offering in July was four times oversubscribed, and the notes priced at the tight end of our expected range. As we've said previously, we expect to continue to opportunistically capitalize on robust market opportunities as we seek to refinance the remaining phase one bank facilities balances as well as the project-level bank facilities balances for trains 4 and 5, which consisted of approximately $900 million drawn on the train 4 bank facility and no outstandings under the train 5 bank facility as of September 30th. Two additional financial transactions I would like to note are the July issuance of a $100 million installment and subsequent to the third quarter, the October issuance of a final $150 million installment of the train 5 $6.56% senior secured notes due 2050, which were issued pursuant to the note purchase agreement entered into in conjunction with the positive final investment decision on train 5 in October 2025.

The full $500 million of these train 5 senior secured notes have now been issued and remain outstanding. There is also one minor accounting item that I would like to mention before moving to our NextDecade-level debt discussion. In the third quarter, we moved proceeds from vessel subchartering to other income, net, on our income statement, where it will be recorded until we begin operations. Subchartering proceeds were previously recorded as an offset to operating and maintenance expense. We made this adjustment because we believe presenting subchartering proceeds in other income, net, provides a more helpful view of our activities and operating expenses. Once we begin operations, we expect any proceeds from subchartering vessels to be recorded as part of revenue on our income statement. Next, I'd like to talk about our leverage above the project companies up at the NextDecade level. Since I joined the company in July, we've received a fair number of questions about our capital structure and like to take a few minutes to better explain our current balance sheet, debt targets, and near-term capital priorities. In February of this year, we introduced a steady-state NextDecade-level unconsolidated leverage target comparing NextDecade-level debt to NextDecade's share of Rio Grande LNG project-level distributable cash flow less NextDecade-level G&A.

For purposes of this leverage ratio, NextDecade-level debt excludes debt at the project and project holding company levels, which is consolidated on the NextDecade balance sheet but is non-recourse to NextDecade. This NextDecade-level debt currently consists primarily of the SuperFinCo and FinCo term loans we entered into to fund the majority of our equity commitments for trains 4 and 5 and relatively small corporate loans outstanding at the Super Holdings level. And for purposes of this leverage ratio, NextDecade's share of Rio Grande LNG distributable cash less NextDecade-level G&A which excludes non-cash compensation and also excludes G&A at the project and project holding company levels effectively represents cash expected to be available for NextDecade-level debt service after the impact of debt service at the project level. Using our base case guidance, which assumes $5 per MMBTU average margins on uncontracted cargoes during our ramp-up period, the leverage target we provided previously is consistent with NextDecade-level debt of approximately $2 to $2.25 billion when steady-state operations begin, following the date of first commercial delivery or DFCD for train 5 long-term SPAs in the second quarter of 2031. We believe this NextDecade-level debt range will ensure a strong credit position into steady-state operations given that the distributable cash flows from the Rio Grande LNG projects are underpinned by long-term SPAs on approximately 85% of the total expected Rio Grande LNG production volumes with high-quality investment-grade customers with a weighted average life of 19.5 years and provide a strong visibility of predictability during steady-state operations.

As a reminder, we are committed to using NextDecade's share of project-level cash flows generated during our ramp-up period from train 1 startup through DFCD of train 5 SPAs to reduce a portion of the term loans we entered into to fund the large majority of our equity commitments for trains 4 and 5. In our base case early volume and cash flow guidance, which assumes $5 per MMBTU margins on uncontracted volumes. We expect NextDecade's cumulative share of Rio Grande LNG project-level distributable cash flow to be approximately $2 billion, which will be used to first pay down FinCo balances then to pay SuperFinCo interest and/or principal balances. In our base case, applying the projected approximately $2 billion of early cash flows to NextDecade-level debt repayment results in NextDecade-level debt that is within our target range of $2 to $2.25 billion when we enter steady-state operations. As Matt mentioned earlier in the call, market conditions have improved meaningfully since the Iran conflict began eight months ago, and today's forward curves imply LNG margins that exceed our base case guidance. With current volume-weighted average estimated margins implied by the forward curves over our ramp-up period of over $6 per MMBTU, we would expect our share of project-level distributable cash flow to be over $2.4 billion for the ramp-up period of 2027 through the second quarter of 2031, or over 20% above our base case which would result in projected cash flow generation in excess of what is needed to achieve our target debt range.