EL PASO ELECTRIC COMPANY The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto included in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled "Risk Factors" included in Item 1A of this Annual Report and our other filings with theSEC . Please also see the section titled "Forward-Looking Statements" in this Annual Report. OverviewExcelerate is changing the way the world accesses cleaner and more reliable energy by delivering regasified natural gas, benefiting hundreds of millions of people around the world. From our founding, we have focused on providing flexible LNG solutions to markets in diverse environments across the globe, providing a lesser emitting form of energy to markets that often rely on coal as their primary energy source. AtExcelerate , we believe that access to energy sources such as LNG is critical to assisting markets in their decarbonization efforts, while at the same time promoting economic growth and improving quality of life. We have grown our business significantly since our first FSRU charter in 2003, and today, we are a profitable energy company with a geographically diversified business model. Our business spans the globe, with regional offices in 11 countries and operations inArgentina ,Bangladesh ,Brazil ,Finland ,Pakistan ,UAE , andthe United States . We are the largest provider of regasified LNG inArgentina andBangladesh and one of the largest providers of regasified LNG inBrazil andPakistan , and we operate the largest FSRU inBrazil . We also lease theBahia Terminal from Petrobras and inDecember 2021 , started importing LNG and selling natural gas to the Brazilian market. We also have plans to sell natural gas to other downstream customers inBrazil ,Europe andBangladesh . In each of these regions, we offer a cleaner energy source from which power can be generated consistently. The high value our customers place on our services has resulted in a reliable source of revenues to us, while our global reach helps balance seasonal demand fluctuation among the geographies in which we operate. For the year endedDecember 31, 2022 , we generated revenues of$2.5 billion , net income of$80.0 million and Adjusted EBITDAR of$331.1 million . For the year endedDecember 31, 2021 , we generated revenues of$888.6 million , net income of$41.2 million and Adjusted EBITDAR of$291.1 million . For the year endedDecember 21, 2020 we generated revenues of$430.8 million , net income of$32.9 million and Adjusted EBITDAR of$256.2 million . For more information regarding our non-GAAP measure Adjusted EBITDAR and a reconciliation to net income, the most comparableU.S. Generally Accepted Accounting Principles ("GAAP") measure, see "How We Evaluate Our Operations." Our business focuses on the integration of the natural gas-to-power LNG value chain, and as part of this value chain, we operate regasification terminals in global economies that utilize our FSRU fleet. Our business is substantially supported by time charter contracts, which are effectively long-term, take-or-pay arrangements and provide consistent revenue and cash flow from our high-quality customer base. As ofDecember 31, 2022 , we operate a fleet of ten purpose-built FSRUs, have completed more than 2,500 STS transfers of LNG with over 40 LNG operators since we began operations and have safely delivered more than 6,000 BCF of natural gas through 16 LNG regasification terminals. For the years endedDecember 31, 2022 , 2021 and 2020, we generated revenues of$445.2 million ,$468.0 million and$430.8 million , respectively, from our FSRU and terminal services businesses, representing approximately 18%, 53% and 100% of our total revenues for each of those periods. We also procure LNG from major producers and sell natural gas through our flexible LNG terminals. For the years endedDecember 31, 2022 and 2021 we generated revenues of$2,027.8 million and$420.5 million , respectively, from LNG and natural gas sales, representing approximately 82% and 47% of our total revenues for each of those periods. We had no LNG and natural gas sales in 2020. The commercial momentum that we have established in recent years and the increasing need for access to LNG around the world, have resulted in a significant portfolio of new growth opportunities for us to pursue. In addition to our FSRU and terminal services businesses and natural gas sales, we plan to expand our business to provide customers with an array of products, including LNG-to-power projects. We are evaluating and pursuing early-stage projects with opportunities inEurope ,Asia Pacific ,Latin America , and theMiddle East .
Recent Trends and Outlook
TheRussia -Ukraine war continues to reshape global energy markets. Unexpected shifts in LNG trade led to a tightening of global gas markets, resulting in extreme price volatility impacting economies across the globe. The decline of Russian natural gas pipeline exports toEurope led the continent to increase LNG imports to approximately128 MT in 2022 from approximately 82 MT in 2021. While global LNG supply increased in 2022 to400 MT from 382 MT in 2021 as a result of newU.S. LNG export projects coming online and higher liquefaction utilization, increased European demand for LNG, combined withU.S. and European sanctions on Russian natural gas and other energy exports, led to tighter global natural gas supply and higher spot market prices. For example, Dutch Title Transfer Facility ("TTF") pricing rose to record highs, averaging$70.74 /MMBtu inAugust 2022 compared to$15.84 /MMBtu inAugust 2021 . The high prices reduced LNG spot demand fromLatin America , theMiddle East , andAsia . Total demand for LNG from these regions declined from approximately300 MT in 2021 to approximately 272 MT in 2022 as it became costly for industries and companies to operate on natural gas and countries switched back to less expensive coal and other liquid fuels for power generation and to satisfy 48 -------------------------------------------------------------------------------- industrial demand. Lower Chinese LNG imports due toChina's zero-Covid policy and high spot prices, coupled with newU.S. LNG export projects, helpedEurope meet its rapid increase in LNG demand. This was crucial in the third quarter of 2022 asEurope increased its LNG imports to fill storage inventories in preparation for the colder winter months. European storage levels reached 90% of capacity byNovember 2022 . These record high storage levels combined with a warmer-than-normal 2022 - 2023 winter in bothEurope andNorth Asia helped to reduce LNG demand, and therefore pricing, and alleviate market concerns over potential energy shortages. So far in 2023, tepid Chinese demand, despite the lifting of zero-Covid policies, and higher European storage levels, currently at 63% compared to the five year-average of 42% are supporting a continued retreat of benchmark prices, with TTF averaging$18.62 /MMBtu throughFebruary 2023 . We expect that the market dynamics from 2022 will carry over into 2023 and for a few years after. While LNG demand is expected to be driven by increased European consumption, limited new supply is coming online over the next three years. LNG markets are expected to remain tight and continue to be exposed to supply and demand disruptions. In the longer-term, emerging market power demand growth, underpinned by economic development and continued electrification, is expected to drive natural gas demand. According to Shell's 2023 LNG Outlook, global LNG demand is estimated to increase to700 MT by 2040. From 2025 through the end of the decade, approximately100 MT of new LNG supply is anticipated to come online, with the bulk of supply coming fromQatar andthe United States . Although we expect there to be access to affordable long-term LNG supply, risks such as cost inflation and project financing availability could limit or delay project developments. For many countries, near-term energy decision making is being driven by the need to balance between aspirations for a transition to renewable energy with the pursuit of energy security, coupled with LNG prices. In 2022, countries such asBangladesh ,Pakistan , andIndia reduced their spot LNG purchases as prices soared. With the retreat in prices so far in 2023,Bangladesh issued its first spot LNG tender since the second quarter of 2022 and received its first cargo inFebruary 2023 . We expect that global LNG markets will continue to evolve as energy security is a key driver on how countries are approaching LNG strategies. As a leader in flexible LNG solutions,Excelerate is well positioned to participate in near-term LNG supply opportunities. Recent changes in market behavior have the potential to create more opportunities for deployment of FSRUs and integrated projects forExcelerate , not only inEurope as countries there seek to meet increased demand for LNG, but also in the Southern Hemisphere as countries look to natural gas as their energy transition fuel of choice.
Recent Business Updates and 2022 in Review:
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InMarch 2023 , we closed on an amended and restated$600 million senior secured credit facility, consisting of a$350 million revolving credit facility and a$250 million term loan. The new facilities refinanced our existing EE Revolver, and we intend to use the proceeds from the term loan to exercise our right to purchase the FSRU Sequoia. We gave notice to the vessel owner regarding our intent to exercise our purchase option following the closing of the EE Facilities and expect the purchase to close inApril 2023 .
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InMarch 2023 , we were awarded a seasonal charter for the Excelsior vessel at the Bahia Blanca GasPort terminal ("Bahia Blanca") inArgentina . The Excelsior, which began its charter hire with the German government inFebruary 2023 , will be placed on a suspension agreement while it is temporarily deployed toBahia Blanca during theArgentina winter before returning to theGermany charter afterwards.
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InFebruary 2023 , we extended our time charter party agreement withDubai Supply Authority (DUSUP) for the Explorer vessel. Under the terms of the new agreement, the time charter period will be extended by an additional five years from the end of the existing contract in the fourth quarter of 2025.
•
In
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InDecember 2022 , the Exemplar arrived at theInkoo Terminal inFinland and began service. The vessel's charter hire commencedOctober 1, 2022 , as it made the voyage to the port of Navantia inSpain for customer-requested winterization upgrades in preparation for its deployment toFinland .Excelerate andGasgrid Finland Oy ("Gasgrid Finland") previously announced an executed 10-year, time charter party agreement forExcelerate to provide LNG regasification services. The vessel previously completed its charter at the Bahia Blanca GasPort inArgentina .
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In
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InOctober 2022 ,Excelerate signed a binding five-year charter contract with the Government of theFederal Republic of Germany for the FSRU Excelsior to provide regasification services at one ofGermany's planned LNG import terminals that is being developed at the port ofWilhelmshaven by Tree Energy Solutions, E.ONSE and ENGIE SA. The charter hire for Excelsior commenced inFebruary 2023 .
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InOctober 2022 ,Excelerate signed a binding Shipbuilding Contract (the "Newbuild Agreement") with HHI for a new FSRU to be delivered in 2026. The state-of-the-art FSRU will be equipped with HHI's proprietary LNG regasification system, dual fuel engines, selective catalytic reduction system, best-in-class boil-off gas management, and other innovative 49 -------------------------------------------------------------------------------- technologies that will drive improved performance and efficiency while lowering emissions. With this newbuild order,Excelerate will have 11 FSRUs in operation or under construction.
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InMay 2022 , the Payra LNG project was approved in principle byBangladesh Oil, Gas & Mineral Corporation andBangladesh's Energy and Mineral Resources Division, a significant milestone in the approval process.Excelerate has commenced negotiations of the integrated deal, which includes an LNG supply agreement. The Payra LNG project is expected to representExcelerate's largest deployment of capital to date and has the potential to increase significantly the scale of the Company's global operations.
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InFebruary 2022 , the Moheshkhali LNG ("MLNG") expansion project was approved in principle by the government ofBangladesh .Excelerate has commenced commercial negotiations for the expansion of the terminal via a potential extension of our regasification agreement and a long-term LNG supply agreement.
Components of Our Results of Operations
Revenue
We generate revenue through the provision of regasification services using our fleet of FSRUs and LNG terminal assets, as well as physical sales of LNG and natural gas, that are made primarily in connection with our regasification and terminal projects. We provide regasification services through time charters and operation service contracts primarily related to our long-term charter contracts. Most of our time charter revenues are from long-term contracts that function similarly to take-or-pay arrangements in that we are paid if our assets and teams are available and ready to provide services to our customers regardless of whether our customers utilize the services. A portion of our revenue attributable to our charters for the use of our vessels is accounted for as lease revenue, and the revenues attributable to the services provided under those charters are accounted for as non-lease revenue. We generally charge fixed fees for the use of and services provided with our vessels and terminal capacity plus additional amounts for certain variable costs.
Expenses
The principal expenses involved in conducting our business are operating costs, direct cost of gas sales, general and administrative expenses, and depreciation and amortization. A large portion of the fixed and variable costs we incur in our business are in the operation of our fleet of FSRUs and terminals that provide regasification and gas supply to our customers. We manage the level of our fixed costs based on several factors, including industry conditions and expected demand for our services and generally pass-through certain variable costs. We incur significant equipment costs in connection with the operation of our business, including capital equipment recorded as property and equipment, net on our balance sheets and related depreciation and amortization on our income statement. In addition, we incur repair and maintenance and leasing costs related to our property and equipment utilized both in our FSRU and terminal services and gas sales. Property and equipment includes costs incurred for our fleet of FSRUs and terminal assets, including capitalized costs related to drydocking activities. Generally, we are required to drydock each of our vessels every five years, but vessels older than 15 years of age require a shorter duration drydocking or in-situ bottom survey every two and a half years.
Cost of revenue and vessel operating expenses
Cost of revenue and vessel operating expenses include the following major cost categories: vessel operating costs; personnel costs; repair and maintenance; and leasing costs. These operating costs are incurred for both our FSRU and terminal services revenues and gas sales revenues.
Direct cost of gas sales
Direct cost of gas sales includes the cost of LNG and other fuel and direct costs incurred in selling natural gas and LNG, which are significant variable operating costs. These costs fluctuate in proportion to the amount of our natural gas and LNG sales as well as LNG prices.
Depreciation and amortization expenses
Depreciation expense is recognized on a straight-line basis over the estimated useful lives of our property and equipment assets, less an estimated residual value. Certain recurring repairs and maintenance expenditures required by regulators are amortized over the required maintenance period.
Selling, general and administrative expenses
Selling, general and administrative expenses ("SG&A") consist primarily of
compensation and other employee-related costs for personnel engaged in executive
management, sales, finance, legal, tax and human resources. SG&A also consists
of expenses associated with office facilities, information technology, external
professional services, business development, legal costs and other
administrative expenses.
50
--------------------------------------------------------------------------------Restructuring, transition and transaction expenses
We incurred restructuring, transition and transaction expenses related to consulting, legal, and audit costs incurred as part of and in preparation for our IPO.
Other income, net
Other income, net, primarily contains interest income, gains or losses from the effect of foreign exchange rates and gains and losses on asset sales.
Interest expense and Interest expense - related party
Our interest expense is primarily associated with our finance leases liabilities and loan agreements with external banks and related parties.
Earnings from equity-method investment
Earnings from equity-method investment relate to our 45% ownership interest in the Nakilat JV, which we acquired in 2018.
Provision for income taxes
Excelerate is a corporation forU.S. federal and state income tax purposes. EELP, is treated as a pass-through entity forU.S. federal income tax purposes and, as such, has generally not been subject toU.S. federal income tax at the entity level. Instead, EELP'sU.S. income is allocated to its Class A and Class B partners proportionate to their interest. Accordingly, our provision for income taxes includesU.S. taxes incurred at theExcelerate corporate level beginning inApril 2022 . In addition, EELP has international operations that are subject to foreign income tax andU.S. corporate subsidiaries subject toU.S. federal tax. These taxes are also included in our provision for income taxes.
Net income (loss) attributable to non-controlling interest
Net income (loss) attributable to non-controlling interests includes earnings allocable to our shares of Class B Common Stock as well as earnings allocable to the third-party equity ownership interests in our subsidiary,Excelerate Energy Bangladesh, LLC .
Net income (loss) attributable to non-controlling interest - ENE Onshore
Net income (loss) attributable to non-controlling interest - ENE Onshore includes the earnings allocable to the equity ownership interests inExcelerate New England Onshore, LLC ("ENE Onshore"). OnOctober 17, 2022 ,EE Holdings , the indirect sole member of ENE Onshore, and EELP, the sole member ofExcelerate New England Lateral, LLC ("ENE Lateral"), entered into a merger agreement, pursuant to which ENE Onshore was merged with and into ENE Lateral (the "ENE Onshore Merger"), effectiveOctober 31, 2022 . ENE Lateral was the surviving entity and ENE Onshore ceased to exist as a separate entity. Prior to the ENE Onshore Merger,Excelerate consolidated ENE Onshore as a variable interest entity asExcelerate was determined to be the primary beneficiary of ENE Onshore. As a result of the ENE Onshore Merger,Excelerate ceased to have a non-controlling interest related to ENE Onshore.
Factors Affecting the Comparability of Our Results of Operations
As a result of a number of factors, our historical results of operations may not be comparable from period to period or going forward. Set forth below is a brief discussion of the key factors impacting the comparability of our results of operations.
Impact of the Reorganization
Following the completion of the IPO inApril 2022 , we are a corporation forU.S. federal and state income tax purposes. EELP, is treated as a pass-through entity forU.S. federal income tax purposes and, as such, is generally not subject toU.S. federal income tax at the entity level. Accordingly, unless otherwise specified, our historical results of operations prior to the IPO do not include provision forU.S. federal income tax for EELP. The reorganization undertaken in connection with the IPO, as described under "Organizational Structure-The Reorganization" in the Prospectus (the "Reorganization"), was accounted for as a reorganization of entities under common control. As a result, our consolidated financial statements recognized the assets and liabilities received in the Reorganization at their historical carrying amounts, as reflected in the historical consolidated financial statements of EELP. In addition, in connection with the Reorganization and the IPO, we have entered into the Tax Receivable Agreement (the "TRA") with the TRA Beneficiaries, pursuant to which we will be required to pay the TRA Beneficiaries 85% of the net cash savings, if any, that we are deemed to realize as a result of our utilization of certain tax benefits described under "Certain Relationships and Related Person Transactions-Proposed Transactions withExcelerate Energy, Inc. -Tax Receivable Agreement" in our Prospectus. Also included in the Reorganization is our acquisition of all of the issued and outstanding membership interests inExcelsior, LLC andFSRU Vessel (Excellence), LLC (f/k/aExcellence, LLC ) (collectively, the "Foundation Vessels"). The acquisition ofExcelsior, LLC was accounted for as an acquisition of property and equipment at the completion of the Reorganization. The Foundation Vessels 51 -------------------------------------------------------------------------------- have historically been accounted for as finance leases in our historical financial statements. In 2018, EELP entered into an agreement with a customer to lease the Excellence vessel with the vessel transferring ownership to the customer at the conclusion of the agreement for no additional consideration. Historically, EELP, as a lessor, has accounted for the Excellence vessel contract with our customer as a sales-type lease in the consolidated balance sheet in accordance with Accounting Standards Codification 842, Leases. The Excellence vessel will continue to be accounted for as a sales-type lease and thus did not result in an adjustment to property and equipment. The difference between the consideration given to acquire the Excellence and the historical finance lease liability resulted in a$21.8 million early extinguishment of lease liability loss on our consolidated statements of income.
Public Company Costs
We have incurred and expect to continue to incur incremental, non-recurring costs related to our transition to a publicly traded corporation, including the costs of the IPO and the costs associated with the initial implementation of our Sarbanes-Oxley Section 404 internal control reviews and testing. We also expect to incur additional significant and recurring expenses as a publicly traded corporation, including costs associated with compliance under the Exchange Act, annual and quarterly reports to common stockholders, registrar and transfer agent fees, national stock exchange fees, audit fees, incremental director and officer liability insurance costs and director and officer compensation.
Impact of Covid-19
InMarch 2020 , theWorld Health Organization declared the Coronavirus Disease 2019 ("Covid-19") a global pandemic. The Covid-19 outbreak reached across the globe, resulting in the implementation of significant governmental measures, including lockdowns, closures, quarantines, and travel bans intended to control the spread of the virus. While most of these measures have been relaxed around the world, future prevention and mitigation measures reinstituted in the event of repeat waves of the virus and any variants could have an adverse impact on global economic conditions and consumer confidence and spending, which could materially adversely affect the timing of demand, or users' ability to pay, for our products and services. In response to the Covid-19 pandemic, we took several precautions that may adversely impact employee productivity, such as requiring many office employees to work remotely, imposing travel restrictions, and temporarily closing office locations. In addition, we instituted additional procedures and precautions related to our crews on our FSRU vessels. As ofDecember 31, 2022 , most of these measures have been relaxed, but we continue to incur additional expenses as compared to pre-pandemic. We incurred incremental costs during the years endedDecember 31, 2022 , 2021 and 2020, of approximately$2.7 million ,$5.6 million and$4.2 million , respectively, related to these precautionary measures. For additional information, see "Risk Factors-Risks Related to Our Business-Outbreaks of epidemic and pandemic diseases and governmental responses thereto could adversely affect our business." and other risk factors included in the "Risk Factors" section in Item 1A that describe risks to us attributable to the Covid-19 pandemic.
How We Evaluate Our Operations
We operate in a single reportable segment. However, we use a variety of qualitative, operational and financial metrics to assess our performance and valuation. Among other measures, management considers each of the following in assessing our business: Adjusted Gross Margin; Adjusted EBITDA; Adjusted EBITDAR; and Capital Expenditures. Adjusted Gross Margin We use Adjusted Gross Margin, a non-GAAP financial measure, which we define as revenues less direct cost of sales and operating expenses, excluding depreciation and amortization, to measure our operational financial performance. Management believes Adjusted Gross Margin is useful because it provides insight on profitability and true operating performance excluding the implications of the historical cost basis of our assets. Our computation of Adjusted Gross Margin may not be comparable to other similarly titled measures of other companies, and you are cautioned not to place undue reliance on this information.
Adjusted EBITDA and Adjusted EBITDAR
Adjusted EBITDA is a non-GAAP financial measure included as a supplemental
disclosure because we believe it is a useful indicator of our operating
performance. We define Adjusted EBITDA as net income before interest, income
taxes, depreciation and amortization, non-cash long-term incentive compensation
expense and items such as charges and non-recurring expenses that management
does not consider as part of assessing ongoing operating performance. In the
second quarter of 2022, we revised the
52
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definition of Adjusted EBITDA to adjust for the impact of non-cash long-term
incentive compensation expense, which we did not have prior to becoming a public
company, and the early extinguishment of lease liability related to the
acquisition of the Excellence vessel, as management believes such items do not
directly reflect our ongoing operating performance.
Adjusted EBITDAR is a non-GAAP financial measure included as a supplemental
disclosure because we believe it is a valuation measure commonly used by
financial statement users to more effectively compare the results of our
operations from period to period and against other companies without regard to
our financing methods or capital structure. We define Adjusted EBITDAR as
Adjusted EBITDA adjusted to eliminate the effects of rental expenses for vessels
and other infrastructure, which are normal, recurring cash operating expenses
necessary to operate our business. Following the anticipated purchase of the
Sequoia in the second quarter of 2023, we will no longer incur rental expense
for the Sequoia bareboat charter. We will cease reporting Adjusted EBITDAR in
2023.
We adjust net income for the items listed above to arrive at Adjusted EBITDA and
Adjusted EBITDAR because these amounts can vary substantially from company to
company within our industry depending upon accounting methods and book values of
assets, capital structures and the method by which the assets were acquired.
Adjusted EBITDA and Adjusted EBITDAR should not be considered as an alternative
to, or more meaningful than, net income as determined in accordance with GAAP or
as an indicator of our operating performance or liquidity. These measures have
limitations as certain excluded items are significant components in
understanding and assessing a company's financial performance, such as a
company's cost of capital and tax structure, as well as the historic costs of
depreciable assets, none of which are components of Adjusted EBITDA and Adjusted
EBITDAR. Adjusted EBITDAR should not be viewed as a measure of overall
performance or considered in isolation or as an alternative to net income
because it excludes rental expenses for vessels and other infrastructure, which
are normal, recurring cash operating expenses that are necessary to operate our
business. Our presentation of Adjusted EBITDA and Adjusted EBITDAR should not be
construed as an inference that our results will be unaffected by unusual or
non-recurring items. Our computations of Adjusted EBITDA may not be comparable
to other similarly titled measures of other companies. For the foregoing
reasons, each of Adjusted EBITDA and Adjusted EBITDAR has significant
limitations that affect its use as an indicator of our profitability and
valuation, and you are cautioned not to place undue reliance on this
information.
Capital Expenditures
We incur capital expenditures as part of our regular business operations.
Capital expenditures are costs incurred to expand our business operations,
increase efficiency of business operations, extend the life of an existing
asset, improve an asset's capabilities, increase future service of an asset,
repair existing assets in order to maintain their service capability, and
provide upkeep required for regulatory compliance. Costs related to prospective
projects are capitalized once it is determined to be probable that the related
assets will be constructed.
The tables below reconcile the financial measures discussed above to the most
directly comparable financial measure calculated and presented in accordance
with GAAP:
Years ended December 31,
2022 2021 2020
(In thousands)
FSRU and terminal services revenues $ 445,157 $ 468,030 $ 430,843
Gas sales revenues 2,027,816 420,525 -
Cost of revenue and vessel operating expenses (209,195 ) (192,723 )
(150,478 )
Direct cost of gas sales (1,906,781 ) (390,518 ) -
Depreciation and amortization expense (97,313 ) (104,908 ) (104,167 )
Gross Margin $ 259,684 $ 200,406 $ 176,198
Depreciation and amortization expense 97,313 104,908 104,167
Adjusted Gross Margin $ 356,997 $ 305,314 $ 280,365
Years ended December 31,
2022 2021 2020
(In thousands)
Net income $ 79,996 $ 41,189 $ 32,891
Interest expense 59,539 80,814 89,430
Provision for income taxes 28,326 21,168 13,937
Depreciation and amortization expense 97,313 104,908 104,167
Restructuring, transition and transaction expenses 6,900 13,974
-
Long-term incentive compensation expense 956 -
-
Early extinguishment of lease liability on vessel acquisition 21,834 -
-
Adjusted EBITDA$ 294,864 $ 262,053 $ 240,425 Vessel and infrastructure rent expense 36,233 28,998 15,772 Adjusted EBITDAR$ 331,097 $ 291,051 $ 256,197 53
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Consolidated Results of Operations
Years Ended
For the years ended December 31, Change
2022 2021 2020 2022 vs. 2021 2021 vs. 2020
(In thousands)
Revenues
FSRU and terminal services
$ (22,873 ) $ 37,187 Gas sales 2,027,816 420,525 - 1,607,291 420,525 Total revenues 2,472,973 888,555 430,843 1,584,418 457,712 Operating expenses Cost of revenue and vessel operating expenses 209,195 192,723 150,478 16,472 42,245 Direct cost of gas sales 1,906,781 390,518 - 1,516,263 390,518
Depreciation and amortization 97,313 104,908 104,167
(7,595 ) 741
Selling, general and
administrative 66,099 47,088 42,942 19,011 4,146
Restructuring, transition and
transaction 6,900 13,974 - (7,074 ) 13,974
Total operating expenses 2,286,288 749,211 297,587 1,537,077 451,624
Operating income 186,685 139,344 133,256 47,341 6,088
Other income (expense)
Interest expense (33,927 ) (31,892 ) (37,460 ) (2,035 ) 5,568
Interest expense - related
party (25,612 ) (48,922 ) (51,970 ) 23,310 3,048
Earnings from equity-method
investment 2,698 3,263 3,094 (565 ) 169
Early extinguishment of lease
liability on vessel acquisition (21,834 ) - - (21,834 ) -
Other income (loss), net 312 564 (92 ) (252 ) 656
Income before income taxes 108,322 62,357 46,828 45,965 15,529
Provision for income taxes (28,326 ) (21,168 ) (13,937 ) (7,158 ) (7,231 )
Net income 79,996 41,189 32,891 38,807 8,298
Less net income attributable to
non-controlling interests 55,119 3,035 2,622 52,084 413
Less net loss attributable to
non-controlling interests - ENE
Onshore (1,396 ) (2,964 ) (8,484 ) 1,568 5,520
Less pre-IPO net income
attributable to EELP 12,950 41,118 38,753 (28,168 ) 2,365
Net income attributable to
shareholders $ 13,323 $ - $ - $ 13,323 $ -
Additional financial data:
Gross Margin $ 259,684 $ 200,406 $ 176,198 $ 59,278 $ 24,208
Adjusted Gross Margin 356,997 305,314 280,365 51,683 24,949
Adjusted EBITDA 294,864 262,053 240,425 32,811 21,628
Adjusted EBITDAR 331,097 291,051 256,197 40,046 34,854
Capital expenditures 119,267 36,091 41,258 83,176 (5,167 )
Year Ended
Net income
Net income was$80.0 million for the year endedDecember 31, 2022 , an increase of$38.8 million , as compared to$41.2 million for the year endedDecember 31, 2021 . Net income was higher primarily due to direct margin earned on gas sales inBrazil ,Finland andNew England during the year endedDecember 31, 2022 ($121.0 million ), which exceeded direct margin earned on gas sales that occurred inBangladesh ,China andBrazil during the year endedDecember 31, 2021 ($30.0 million ), less interest expense - related party incurred in the year endedDecember 31, 2022 due to the acquisition of the Foundation Vessels ($21.1 million ), less depreciation expense ($7.6 million ), as discussed below, lower restructuring, transition and transaction expenses after the completion of our IPO inApril 2022 ($7.1 million ), and higher interest income received on cash balances invested in money market funds ($4.4 million ), partially offset by fewer opportunities to sub-charter our available vessels to third parties during the year endedDecember 31, 2022 ($27.8 million ), the early extinguishment of the Excellence vessel finance lease liability as part of the vessel acquisition ($21.8 million ), an increase in general and administrative expenses ($19.0 million ), as discussed below, increases in cost of revenue and vessel operating expenses ($16.5 million ), primarily due to the commencement of theBahia Terminal lease in the fourth quarter of 2021, foreign currency exchange losses ($7.2 million ), and an increase in provision for income taxes ($7.2 million ), as discussed below. 54 --------------------------------------------------------------------------------
Gross Margin and Adjusted Gross Margin
Gross Margin was$259.7 million for the year endedDecember 31, 2022 , an increase of$59.3 million , as compared to$200.4 million for the year endedDecember 31, 2021 . Adjusted Gross Margin was$357.0 million for the year endedDecember 31, 2022 , an increase of$51.7 million , as compared to$305.3 million for the year endedDecember 31, 2021 . Gross Margin and Adjusted Gross Margin were higher primarily due to direct margin earned on gas sales inBrazil ,Finland andNew England during the year endedDecember 31, 2022 ($121.0 million ), which exceeded direct margin earned on gas sales that occurred inBangladesh ,China andBrazil during the year endedDecember 31, 2021 ($30.0 million ), partially offset by fewer opportunities to sub-charter our available vessels to third parties during the year endedDecember 31, 2022 ($27.8 million ) and increases in cost of revenue and vessel operating expenses ($16.5 million ), primarily due to the commencement of theBahia Terminal lease in the fourth quarter of 2021. Gross Margin was also higher due to less depreciation expense ($7.6 million ), as discussed below.
Adjusted EBITDA and Adjusted EBITDAR
Adjusted EBITDA was$294.9 million for the year endedDecember 31, 2022 , an increase of$32.8 million , as compared to$262.1 million for the year endedDecember 31, 2021 . Our Adjusted EBITDAR was$331.1 million for the year endedDecember 31, 2022 , an increase of$40.0 million , as compared to$291.1 million for the year endedDecember 31, 2021 . Adjusted EBITDA and Adjusted EBITDAR were higher primarily due to direct margin earned on gas sales inBrazil ,Finland andNew England during the year endedDecember 31, 2022 ($121.0 million ), which exceeded direct margin earned on gas sales that occurred inBangladesh ,China andBrazil during the year endedDecember 31, 2021 ($30.0 million ), and higher interest income received on cash balances invested in money market funds ($4.4 million ), partially offset by fewer opportunities to sub-charter our available vessels to third parties during the year endedDecember 31, 2022 ($27.8 million ), an increase in general and administrative expenses ($19.0 million ), as discussed below, increases in cost of revenue and vessel operating expenses ($16.5 million ), primarily due to the commencement of theBahia Terminal lease in the fourth quarter of 2021, and foreign currency exchange losses ($7.2 million ).
For more information regarding our non-GAAP measures Adjusted Gross Margin, Adjusted EBITDA and Adjusted EBITDAR, and a reconciliation to their most comparable GAAP measures, see "-How We Evaluate Our Operations."
FSRU and terminal services revenues
FSRU and terminal services revenues were$445.2 million for the year endedDecember 31, 2022 , a decrease of$22.8 million , as compared to$468.0 million for the year endedDecember 31, 2021 . FSRU and terminal services revenues were lower primarily due to fewer opportunities to sub-charter our available vessels to third parties during the first quarter of 2022, partially offset by benefits of the Exemplar lease beginning with Gasgrid Finland in the fourth quarter of 2022. Gas sales revenues Gas sales revenues were$2,027.8 million for the year endedDecember 31, 2022 , an increase of$1,607.3 million , as compared to$420.5 million for the year endedDecember 31, 2021 . The gas sales that occurred in the year endedDecember 31, 2022 related to our terminal operations inBrazil ,Finland andNew England , which exceeded gas sales to customers inBangladesh ,China andBrazil during the year endedDecember 31, 2021 . Operations at theBahia Terminal inBrazil began inDecember 2021 , while operations at theInkoo Terminal inFinland began inDecember 2022 .
Cost of revenue and vessel operating expenses
Cost of revenue and vessel operating expenses was$209.2 million for the year endedDecember 31, 2022 , an increase of$16.5 million , as compared to$192.7 million for the year endedDecember 31, 2021 . The increase in cost of revenue and vessel operating expenses was primarily due to the additional cost of operations inBrazil as we began operations at theBahia Terminal during the fourth quarter of 2021 ($19.4 million ), which includes an increase in vessel and infrastructure rent expense ($7.2 million ), as well as higher reimbursable local crewing costs inArgentina ($4.9 million ), and higher maintenance at one of our terminal locations ($3.9 million ), partially offset by decreased fuel and positioning costs ($11.7 million ), which were higher in 2021 as part of servicing increased sub-charters.
Direct cost of gas sales
Direct cost of gas sales was$1,906.8 million for the year endedDecember 31, 2022 , an increase of$1,516.3 million , as compared to$390.5 million for the year endedDecember 31, 2021 . The increase was primarily due to gas sales that occurred in the year endedDecember 31, 2022 related to our terminal operations inBrazil ,Finland andNew England , partially offset by costs related to gas sales inBangladesh ,China andBrazil during the year endedDecember 31, 2021 . 55 --------------------------------------------------------------------------------
Depreciation and amortization expenses
Depreciation and amortization expenses were$97.3 million for the year endedDecember 31, 2022 , a decrease of$7.6 million , as compared to$104.9 million for the year endedDecember 31, 2021 . Depreciation and amortization decreased primarily due to the release of our one conventional LNGC that was on a finance lease from short term charter operations inDecember 2021 , partially offset by the acquisition of the Excelsior vessel.
Selling, general and administrative expenses
Selling, general and administrative expenses were$66.1 million for the year endedDecember 31, 2022 , an increase of$19.0 million , as compared to$47.1 million for the year endedDecember 31, 2021 . The increase was primarily due to incremental costs incurred in conjunction with our transition to a publicly traded company and additional business development activities.
Restructuring, transition and transaction expenses
Restructuring, transition and transaction expenses were$6.9 million for the year endedDecember 31, 2022 , a decrease of$7.1 million , as compared to$14.0 million for the year endedDecember 31, 2021 . The decrease was due to the completion of our IPO inApril 2022 .
Interest expense
Interest expense was
Interest expense - related party
Interest expense - related party was$25.6 million for the year endedDecember 31, 2022 , a decrease of$23.3 million , as compared to$48.9 million for the year endedDecember 31, 2021 . Interest expense decreased primarily due to the acquisition of the Foundation Vessels.
Early extinguishment of lease liability on vessel acquisition
In the year ended
Other income (expense), net
Other income (expense), net was$0.3 million for the year endedDecember 31, 2022 , a decrease of$0.3 million , as compared to$0.6 million for the year endedDecember 31, 2021 . The decrease was primarily due to foreign currency exchange losses related to our operations inBrazil andArgentina , partially offset by higher interest income received on cash balances invested in money market funds.
Provision for income taxes
The provision for income taxes for the years endedDecember 31, 2022 and 2021 was$28.3 million and$21.2 million , respectively. The increase was primarily attributable to the year-over-year change in the geographical distribution of income and theU.S. income tax incurred at the level ofExcelerate Energy, Inc. sinceApril 2022 of$3.6 million for the year endedDecember 31, 2022 . The effective tax rate for the years endedDecember 31, 2022 and 2021 was 26.1% and 33.9%, respectively. The decrease was primarily driven by the geographical distribution of income and the varying tax regimes of jurisdictions. Our effective tax rate was also impacted by the reduction of income before tax due to the loss on early extinguishment of the lease liability on acquisition of the Excellence vessel without a corresponding tax benefit, which increased our effective tax rate by 4.2% for the year endedDecember 31, 2022 . Additionally, our effective tax rate was impacted by 3.3% for the year endedDecember 31, 2022 due to additional tax recorded since being subject toU.S. income taxes at the corporate level beginning inApril 2022 .Excelerate is a corporate entity forU.S. federal and state income tax purposes.Excelerate's accounting predecessor, EELP is treated as a pass-through entity for income tax purposes and has generally not been subject toU.S. federal and most state income taxes. Instead, EELP'sU.S. income is allocated to its Class A and Class B partners proportionate to their interest. As such, the Company's provision for income tax includesU.S. taxes incurred at the corporate level beginning inApril 2022 . The Company has international operations that are also subject to foreign income tax andU.S. corporate subsidiaries subject toU.S. federal tax. Therefore, our effective income tax rate is dependent on many factors, including the Company's geographical distribution of income, a rate benefit attributable to the portion of the Company's earnings not subject to corporate level taxes, foreign exchange impacts, and the impact of nondeductible items and foreign exchange impacts as well as varying tax regimes of jurisdictions. 56 -------------------------------------------------------------------------------- In one jurisdiction, the Company's tax rate is significantly less than the applicable statutory rate as a result of a tax holiday that was granted. This tax holiday will expire in 2033 at the same time that our contract and revenue with our customer ends.
Net income attributable to non-controlling interest
Net income attributable to non-controlling interest was$55.1 million for the year endedDecember 31, 2022 , an increase of$52.1 million , as compared to$3.0 million for the year endedDecember 31, 2021 . The increase in net income attributable to non-controlling interest was primarily due to the addition of non-controlling interest related to owners of our Class B Common Stock after our IPO, partially offset by higher maintenance costs at one of our terminal locations.
Net loss attributable to non-controlling interest - ENE Onshore
Net loss attributable to non-controlling interest - ENE Onshore was$(1.4) million for the year endedDecember 31, 2022 , a decrease of$1.6 million , as compared to$(3.0) million for the year endedDecember 31, 2021 . Net loss attributable to non-controlling interest - ENE Onshore decreased primarily due to additional capacity sales revenue.
Year Ended
Net income
Net income was$41.2 million for the year endedDecember 31, 2021 , an increase of$8.3 million , as compared to$32.9 million for the year endedDecember 31, 2020 . Net income was higher due to LNG and natural gas sales during the year endedDecember 31, 2021 . No natural gas or LNG was sold during 2020 due to our decision to pursue long-term sales contracts in theNew England market. During the year endedDecember 31, 2021 , we pursued sales of natural gas opportunistically in the region while we sought to secure a long-term contract. These increases were partially offset by restructuring, transition and transaction expenses, as discussed below.
Gross Margin and Adjusted Gross Margin
Gross Margin was$200.4 million for the year endedDecember 31, 2021 , an increase of$24.2 million , as compared to$176.2 million for the year endedDecember 31, 2020 . Adjusted Gross Margin was$305.3 million for the year endedDecember 31, 2021 , an increase of$24.9 million , as compared to$280.4 million for the year endedDecember 31, 2020 . Gross Margin was higher primarily due to$30.0 million of direct margin earned on LNG and natural gas sales related to new opportunities in our terminal operations inBangladesh andBrazil during the year endedDecember 31, 2021 , and$11.4 million of additional revenues from seasonal regasification services provided inArgentina , which was partially offset by a$10.5 million increase in maintenance expenses in 2021 primarily due to repairs delayed due to Covid-19 in 2020, a$7.4 million increase in cost of revenue and vessel operating expenses related to the beginning of service at theBahia Terminal , including the utilization of the Sequoia vessel in selling natural gas at the terminal, and$1.4 million in incremental vessel operating costs due to Covid-19 preventative measures.
Adjusted EBITDA and Adjusted EBITDAR
Our Adjusted EBITDA was$262.1 million and$240.4 million during the years endedDecember 31, 2021 and 2020, respectively. Our Adjusted EBITDAR was$291.1 million and$256.2 million in the years endedDecember 31, 2021 and 2020, respectively. The increase in our Adjusted EBITDA and Adjusted EBITDAR was primarily due to LNG and natural gas sales during the year endedDecember 31, 2021 , as discussed above, partially offset by increases in selling, general and administrative expenses, as discussed below.
For more information regarding our non-GAAP measures Adjusted Gross Margin, Adjusted EBITDA and Adjusted EBITDAR, and a reconciliation to their most comparable GAAP measures, see "-How We Evaluate Our Operations."
FSRU and terminal services revenues
FSRU and terminal services revenues were$468.0 million for the year endedDecember 31, 2021 , an increase of$37.2 million , as compared to$430.8 million for the year endedDecember 31, 2020 . Revenue increased primarily due to$11.4 million of additional revenues from seasonal regasification services provided inArgentina and additional revenues generated from a full year of Sequoia vessel operations in 2021, which entered service inJune 2020 , as well as higher charter hire rates for vessels not under long-term contracts as compared to reduced demand in 2020 as a result of Covid-19 related market conditions.
Gas sales revenues
Gas sales revenues were$420.5 million for the year endedDecember 31, 2021 , as a result of LNG and natural gas sales that occurred in 2021 related to our terminal operations inBangladesh andBrazil . No natural gas or LNG was sold during 2020 due to our decision to pursue long-term sales contracts in theNew England market. During the year endedDecember 31, 2021 , we pursued sales of natural gas opportunistically in the region while we sought to secure a long-term contract. 57 --------------------------------------------------------------------------------
Cost of revenue and vessel operating expenses
Cost of revenue and vessel operating expenses were$192.7 million for the year endedDecember 31, 2021 , an increase of$42.2 million , as compared to$150.5 million for the year endedDecember 31, 2020 . The variance in cost of revenues and vessel operating expenses was primarily driven by$15.6 million in operating and lease expense for the Sequoia vessel entering service inJune 2020 , increased sub-charters and maintenance expenses on our vessels in 2021 as compared to Covid-19 related service delays that occurred in 2020, and$1.4 million in incremental vessel operating costs due to Covid-19 preventative measures.
Direct cost of gas sales
Direct cost of gas sales was
Depreciation and amortization expenses
Depreciation and amortization expenses were$104.9 million for the year endedDecember 31, 2021 , an increase of$0.7 million , as compared to$104.2 million for the year endedDecember 31, 2020 . Depreciation and amortization were essentially flat.
Selling, general and administrative expenses
Selling, general and administrative expenses were$47.1 million for the year endedDecember 31, 2021 , an increase of$4.1 million , as compared to$42.9 million for the year endedDecember 31, 2020 . The increase was primarily a result of an increase in compensation expense, primarily due to increased management and leadership hiring, and an increase in consulting expenses related to new project development.
Restructuring, transition and transaction expenses
Restructuring, transition and transaction expenses of$14.0 million were incurred in 2021 due to consulting, legal, and audit services utilized as part of and in preparation for the IPO. No restructuring, transition and transaction expenses were incurred during the year endedDecember 31, 2020 .
Interest expense
Interest expense was
Interest expense - related party
Interest expense - related party was$48.9 million for the year endedDecember 31, 2021 , a decrease of$3.1 million , as compared to$52.0 million for the year endedDecember 31, 2020 . Interest expense - related party decreased primarily due to lower balances remaining on our finance leases, as well as lower average borrowings, primarily due to the settlement of the ENE Lateral Facility (as defined herein).
Other income (expense), net
Other income (expense), net was$0.6 million for the year endedDecember 31, 2021 , an increase of$0.7 million , as compared to$(0.1) million for the year endedDecember 31, 2020 . Other income (expense), net was essentially flat.
Provision for income taxes
The effective tax rate for the years endedDecember 31, 2021 and 2020 was 33.9% and 29.8%, respectively. The increase in the effective rate for the year endedDecember 31, 2021 was due to an audit settlement and uncertain tax positions recorded in the 2021 period. EELP is treated as a pass-through entity for income tax purposes and, as such, is not subject toU.S federal and most state income taxes. Instead, EELP'sU.S. income tax activity is allocated to individuals and entities affiliated with EELP. The Company also has international operations that are subject to foreign income tax requirements andU.S. corporate subsidiaries subject toU.S. federal tax. Therefore, our effective income tax rate is dependent on many factors, including the Company's geographical distribution of income, a rate benefit attributable to the portion of the Company's earnings not subject to corporate level taxes, and the impact of nondeductible items. In one jurisdiction, the Company's tax rate is significantly less than the applicable statutory rate as a result of a tax holiday that was granted. This tax holiday will expire in 2033 at the same time as our contract and revenue with our customer ends.
Net income attributable to non-controlling interest
Net income attributable to non-controlling interest was$3.0 million for the year endedDecember 31, 2021 , an increase of$0.4 million , as compared to$2.6 million for the year endedDecember 31, 2020 . Net income attributable to non-controlling interest was higher in 2021 primarily due to lower interest expense. 58 --------------------------------------------------------------------------------
Net loss attributable to non-controlling interest - ENE Onshore
Net loss attributable to non-controlling interest - ENE Onshore was$(3.0) million for the year endedDecember 31, 2021 , a decrease of$5.5 million , as compared to$(8.5) million for the year endedDecember 31, 2020 . Net loss attributable to non-controlling interest - ENE Onshore was lower in 2021 primarily due to additional capacity sales revenue and lower interest expense on its debt and the ENE Onshore Merger inOctober 2022 .
Liquidity and Capital Resources
Based on our cash positions, cash flows from operating activities and borrowing capacity on our debt facilities, we believe we will have sufficient liquidity for the next 12 months for ongoing operations, planned capital expenditures, other investments, debt service obligations, payment of tax distributions and our announced and expected quarterly dividends, as described in Part II, Item 5-Our Dividend and Distribution Policy, the first of which were paid onSeptember 7, 2022 . For more information regarding our planned dividend payments, see Note 13 - Equity. As ofDecember 31, 2022 , we had$516.7 million in unrestricted cash and cash equivalents. Our proceeds from the IPO inApril 2022 were approximately$416.2 million , after deducting underwriting discounts and commissions, but before deducting IPO-related expenses of$7.6 million . Approximately$50.0 million of the IPO net proceeds were used to fund, in part, EELP's purchase of the Foundation Vessels. The remaining proceeds are expected to be used to fund our growth strategy, working capital, and other general corporate purposes. During the third quarter of 2021, we signed a lease on an LNG terminal inBahia, Brazil from Petrobras, and inDecember 2021 , we started importing LNG and selling regasified natural gas to Petrobras. InDecember 2022 , we began selling LNG and natural gas to European customers via theInkoo Terminal inFinland . In addition to Petrobras and customers inEurope , we have plans to sell regasified natural gas to other downstream customers, including inBrazil andBangladesh . Some of these inventory purchases could potentially exceed cash on hand at certain times. We plan to fund any cash shortfalls with borrowings under the EE Revolver (as defined herein). For more information regarding the EE Revolver, see Note 10 - Long-term debt to the Consolidated Financial Statements. Management believes the EE Revolver will provide sufficient liquidity to execute contractual purchase obligations. In the event sufficient funds were not available under the EE Revolver, we would seek alternative funding sources. We have historically funded our business, including meeting our day-to-day operational requirements, repaying our indebtedness and funding capital expenditures, through debt financing, capital contributions and our operating cash flows as discussed below. We expect that our future principal uses of cash will also include additional capital expenditures to fund our growth strategy, pay income taxes and make distributions from EELP to fund income taxes, fund our obligations under the TRA, and pay cash dividends and distributions. Any determination to pay dividends to holders of our common stock and distributions to holders of EELP's Class B interests will be at the discretion of our board of directors and will depend upon many factors, including our financial condition, results of operations, projections, liquidity, earnings, legal requirements, covenant compliance, restrictions in our existing and any future debt and other factors that our board of directors deems relevant. In the future we may enter into arrangements to grow our business or acquire or invest in complementary businesses which could decrease our cash and cash equivalents and increase our cash requirements. As a result of these and other factors, we could use our available capital resources sooner than expected and may be required to seek additional equity or debt.
Cash Flow Statement Highlights
Years ended
Years ended December 31,
2022 2021 2020
Net cash provided by (used in): (In thousands) Operating activities$ 225,090 $ 141,613 $ 108,964 Investing activities (119,267 ) (36,091 ) (41,258 ) Financing activities 341,184 (124,097 ) (31,438 ) Net increase (decrease) in cash, cash equivalents, and restricted cash$ 447,007 $ (18,575 ) $ 36,268 Operating Activities
Cash flows used in operating activities increased by
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a
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a
59
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a$21.8 million early extinguishment of lease liability on vessel acquisition in the year endedDecember 31, 2022 , as described in "- Consolidated Results of Operations-Net income";
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a
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partially offset by a$600.0 million decrease in accounts payable and accrued liabilities, primarily due to decreased outstanding LNG cargo purchase payments related toBrazil natural gas sales as ofDecember 31, 2022 . Cash flows provided by operating activities increased by$32.6 million for the year endedDecember 31, 2021 , as compared to the year endedDecember 31, 2020 , primarily due to:
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a
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an
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partially offset by a
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partially offset by a
Investing Activities and Capital Expenditures
Cash flows used in investing activities were comprised of capital expenditures made for the purchases of property and equipment, which increased by$83.2 million for the year endedDecember 31, 2022 , as compared to the same period in 2021. The increase in cash used for purchases of property and equipment was primarily due to the purchase of the Foundation Vessels, our first installment payment on the Newbuild Agreement, and our power barge project inAlbania . Cash flows used in investing activities decreased by$5.2 million for the year endedDecember 31, 2021 , as compared to the year endedDecember 31, 2020 . The decrease was primarily due to decreased vessel drydocking spending in 2021.
Financing Activities
Cash flows provided by financing activities increased by$465.3 million for the year endedDecember 31, 2022 , as compared to the year endedDecember 31, 2021 , primarily due to$412.1 million of net IPO proceeds, a$78.2 million decrease in net cash outflows toKaiser-Francis Management Company, L.L.C. ("KFMC") from EELP on a promissory note that was terminated inNovember 2021 and a$28.3 million decrease in finance lease payments, partially offset by$25.0 million in cash payments made as part of the early extinguishment of a lease liability related to the IPO transaction,$26.7 million of net payments on our other long-term debt, and a$4.8 million increase in deferred financing costs paid. Cash flows used in financing activities increased by$92.7 million for the year endedDecember 31, 2021 , as compared to the year endedDecember 31, 2020 , primarily due to$88.5 million of net borrowings by KFMC from EELP under related party note receivables. Debt Facilities
Revolving Credit Facility and Term Loan Facility
OnApril 18, 2022 , EELP entered into a senior secured revolving credit agreement ("Credit Agreement"), by and among EELP, as borrower,Excelerate , as parent, the lenders party thereto, the issuing banks party thereto andJPMorgan Chase Bank, N.A ., as administrative agent, pursuant to which the lenders and issuing banks thereunder made available the EE Revolver, including a letter of credit sub-facility, to EELP. The EE Revolver enabled us to borrow up to$350 million over a three-year term originally set to expire inApril 2025 . As ofDecember 31, 2022 , the Company had issued$40.0 million in letters of credit under the EE Revolver and was in compliance with the covenants under its debt facilities. As a result of the EE Revolver's financial ratio covenants and after taking into account the outstanding letters of credit issued under the facility, all of the$310 million of undrawn capacity was available for additional borrowings as ofDecember 31, 2022 .
Also, on
OnMarch 17, 2023 , EELP entered into an amended and restated senior secured credit agreement ("Amended Credit Agreement"), by and among EELP, as borrower,Excelerate , as parent, the lenders party thereto, the issuing banks party thereto andWells Fargo Bank, N.A. , as administrative agent. The Amended Credit Agreement provides for, among other things (i) a new$250 million term loan facility (the "Term Loan Facility" and, together with the EE Revolver, the "EE Facilities"), (ii) an extension of the maturity date of the EE Revolver, (iii) an increase in the maximum consolidated total leverage by 0.50x to 3.50x, provided that, if the aggregate value of all unsecured debt is equal to or greater than$250 million , maximum consolidated total leverage increases to 4.25x, and (iv) collateral 60 -------------------------------------------------------------------------------- vessel maintenance coverage to be not less than the greater of (i)$750 million and (ii) 130% of the sum of the total credit exposure under the Amended Credit Agreement. Proceeds from the Term Loan Facility are intended to be used for the acquisition of the FSRU Sequoia. The commitments under the Term Loan Facility expire onMay 1, 2023 , if the acquisition of the Sequoia does not occur by such date. The EE Facilities mature inMarch 2027 . Proceeds from the EE Revolver are intended to be used for letters of credit, working capital, and other general corporate purposes. Borrowings under the EE Revolver bear interest at a per annum rate equal to the term SOFR reference rate for such period plus an applicable margin, which applicable margin is based on EELP's consolidated total leverage ratio as defined and calculated under the Credit Agreement. The unused portion of the EE Revolver is subject to an unused commitment fee calculated at a rate per annum ranging from 0.375% to 0.50% based on EELP's consolidated total leverage ratio. The Amended Credit Agreement contains customary representations, warranties, covenants (affirmative and negative, including maximum consolidated total leverage ratio, minimum consolidated interest coverage ratio, and collateral vessel maintenance coverage covenants), and events of default, the occurrence of which would permit the lenders to accelerate the maturity date of amounts borrowed under the EE Facilities.
Experience Vessel Financing
InDecember 2016 , we entered into a sale leaseback agreement with a third party to provide$247.5 million of financing for the Experience vessel. Due to our requirement to repurchase the vessel at the end of the term, the transaction was accounted for as a failed sale leaseback (a financing transaction). Under failed sale leaseback accounting, we are deemed the owner of the vessel and will continue to recognize the vessel on our consolidated balance sheets, with the proceeds received recorded as a financial obligation. ThroughDecember 2021 , we made quarterly principal payments of$5.0 million and paid interest at the three-month LIBOR plus 4.2%. The original loan matured in 2026 when the remaining balance of$49.5 million was payable. InDecember 2021 , the agreement was amended to extend the term toDecember 2033 , reduce the interest margin to 3.25% and reduce the quarterly principal payments to$3.1 million . After the final quarterly payment inDecember 2033 , there will be no remaining balance due. We incurred debt issuance costs of$1.2 million related to the amendment, which will be amortized over the life of the loan. Debt issuance costs of$6.0 million related to the original loan are presented as a direct deduction from the debt and have been amortized over the life of the original loan. The agreement contains certain security rights related to the Experience vessel in the event of default. Our vessel financing loan has certain financial covenants as well as customary affirmative and negative covenants, which we must maintain to remain compliant with the loan. We must maintain a minimum equity of$500.0 million , a maximum debt to equity ratio of 3.5 to 1 and a minimum cash and cash equivalents balance including loan availability of$20.0 million . Our agreement also requires that a three-month debt service reserves be funded and that the value of the vessel equal or exceed 110% of the remaining amount outstanding, in addition to other affirmative and negative covenants customary for vessel financings. The financing also requires the vessel to carry typical vessel marine insurances.
2017 Bank Loans
OnJune 23, 2017 , we entered into two loan agreements with external banks (the "2017 Bank Loans") to finance the MLNG terminal inBangladesh . The first arrangement allowed us to borrow up to$32.8 million . The loan accrues interest at the 6-month LIBOR plus 2.42%. Payments are due semi-annually with an original scheduled maturity date ofApril 15, 2030 . We partially prepaid the loan during 2019. As a result of this prepayment, the loan matures onOctober 15, 2029 . The debt issuance costs of$1.3 million are presented as a direct reduction from the debt liability and are amortized over the life of the loan. The second arrangement allowed us to draw funds up to$92.8 million . The loan accrues interest at the 3-month LIBOR plus 4.5%. Payments are due quarterly with an original scheduled maturity date ofApril 15, 2030 . We partially prepaid the loan during 2019. As a result of this prepayment, the loan matures onOctober 15, 2029 . Debt issuance costs of$4.8 million are presented as a direct deduction from the debt liability and are amortized over the life of the loan. The agreement contains certain security rights related to MLNG terminal assets and project contracts in the event of default. The 2017 Bank Loans require compliance with certain financial covenants, as well as customary affirmative and negative covenants associated with limited recourse project financing facilities. The loan agreements also require that a 6-month debt service reserve amount be funded and that an off-hire reserve amount be funded monthly to cover operating expenses and debt service while the vessel is away during drydock major maintenance. The loan agreements also require that the MLNG terminal and project company be insured on a stand-alone basis with property insurance, liability insurance, business interruption insurance and other customary insurance policies. The respective project company must have a quarterly debt service coverage ratio of at least 1.10 to 1. In 2021, a waiver was obtained for a non-financial covenant. The waiver allows the Company to obtain a higher insurance deductible than the$0.3 million deductible originally required by the lenders since such deductible was not available to the Company during the 2020 and 2021 renewals. An additional waiver was obtained inAugust 2022 to also allow a higher deductible under the insurance policy renewal and to address additional non-financial exclusions. 61 --------------------------------------------------------------------------------
Exquisite Vessel Financing
InJune 2018 , we entered into a sale leaseback agreement with the Nakilat JV, our equity method investment, to provide$220.0 million of financing via a fifteen-year lease agreement for the Exquisite vessel at 7.73%. The lease agreement has a symmetrical put and call option at the end of the original term or, optionally, two five-year extensions with symmetrical put and call options after each extension. The agreement did not meet the terms for recognition of a sale leaseback transaction and instead was treated as financing due to the terms of the transaction. The agreement contains certain security rights related to the Exquisite vessel in the event of default.
KFMC Note
OnNovember 9, 2018 , EELP entered into a promissory note with KFMC, an affiliate of Kaiser as lender, which allowed EELP to draw funds up to$100 million (as amended, restated, supplemented or otherwise modified, the "KFMC Note"). The KFMC Note was amended onNovember 17, 2020 to (i) extend the final payment date fromDecember 31, 2020 toDecember 31, 2022 , (ii) increase the per annum interest rate from LIBOR plus 1.5% to LIBOR plus 1.55% and (iii) make certain revisions to prepayment conditions. The KFMC Note was further amended and restated in its entirety onSeptember 29, 2021 to (i) make certain changes to the final payment date, including removing KFMC's ability to demand payment, and extending the final payment date toDecember 31, 2023 and (ii) allow EELP to draw funds at EELP's discretion without prior approval by KFMC. The KFMC Note was further amended onOctober 1, 2021 to increase the maximum aggregate principal amount from$100 million to$250 million . InApril 2022 , the Company borrowed under the EE Revolver and used the proceeds to repay the KFMC Note in full. The KFMC Note was terminated in connection with such repayment, as discussed in Note 10 - Long-term debt.
KFMC-ENE Onshore Note
InSeptember 2021 , in connection with the Northeast Gateway Contribution, ENE Lateral assigned to KFMC all of its right, title and interest to receive payment under a note with ENE Onshore (the "KFMC-ENE Onshore Note"), which assignment was made in partial satisfaction of the amounts owed by ENE Lateral under a promissory note it entered into with KFMC inDecember 2015 (as amended, restated, supplemented or otherwise modified, the "ENE Lateral Facility"). As a result of such assignment, ENE Onshore was obligated to pay to KFMC all amounts under the KFMC-ENE Onshore Note. InNovember 2021 , ENE Onshore received an equity contribution sufficient to allow it to remit payment to KFMC of the then-outstanding KFMC-ENE Onshore Note balance, and KFMC and ENE Onshore subsequently entered into an amended and restated note allowing a maximum commitment of$25 million . The KFMC-ENE Onshore Note was settled in full and canceled in connection with the ENE Onshore Merger.
As of
Foundation Vessels Purchase
In exchange for (i) 7,854,167 shares of Class A Common Stock with a fair market value of$188.5 million , (ii) a cash payment of$50.0 million and (iii)$21.5 million of estimated future payments under the TRA, EELP purchased fromMaya Maritime LLC , a wholly-owned subsidiary of the Foundation, all of the issued and outstanding membership interests in the Foundation Vessels. In 2018, EELP entered into an agreement with a customer to lease the Excellence vessel with the vessel transferring ownership to the customer at the conclusion of the agreement for no additional consideration. Historically, EELP, as a lessor, has accounted for the Excellence vessel contract with our customer as a sales-type lease in the consolidated balance sheet in accordance with Accounting Standards Codification 842, Leases. The Excellence vessel will continue to be accounted for as a sales-type lease and thus did not result in an adjustment to property and equipment. The difference between the consideration given to acquire the Excellence and the historical finance lease liability resulted in a$21.8 million early extinguishment of lease liability loss on our consolidated statements of income. Other Contractual Obligations Operating Leases We lease a vessel, terminal and offices in various locations under noncancelable operating leases. As ofDecember 31, 2021 , we had future minimum lease payments of$120.2 million . As ofDecember 31, 2022 , we had future minimum lease payments totaling$88.6 million and are committed to$37.6 million in year one,$47.8 million for years two and three,$1.9 million for years four and five and$1.3 million thereafter. Finance Leases Certain enforceable vessel charters and pipeline capacity agreements are classified as finance leases, and the right-of-use assets are included in property and equipment. As ofDecember 31, 2021 , we had future minimum lease payments totaling$784.8 million . As ofDecember 31, 2022 , we had future minimum lease payments totaling$307.3 million and are committed to$33.2 million in payments in year one,$66.5 million for years two and three,$66.5 million for years four and five, and$141.0 million thereafter. 62 --------------------------------------------------------------------------------
Newbuild Agreement Commitments
As part of the Newbuild Agreement, we currently expect to pay approximately$330 million , subject to adjustment. Related payments are due in five installments with the final installment due concurrently with the delivery of the vessel, which is expected in 2026. During the year endedDecember 31, 2022 , we made the first installment payment of approximately$30.0 million . Our future payment commitments related to the Newbuild Agreement are expected to be approximately$50.0 million in 2024 and$250.0 million in 2025-2026.
Tax Receivable Agreement
In connection with the IPO, we entered into the TRA with the TRA Beneficiaries. The TRA will provide for payment by us to the TRA Beneficiaries of 85% of the amount of the net cash tax savings, if any, that we are deemed to realize as a result of our utilization of certain tax benefits resulting from (i) certain increases in the tax basis of assets of EELP and its subsidiaries resulting from exchanges of EELP partnership interests in the future, (ii) certain tax attributes of EELP and subsidiaries of EELP (including the existing tax basis of assets owned by EELP or its subsidiaries and the tax basis of certain assets purchased from the Foundation) that exist as of the time of the IPO or may exist at the time when Class B interests of EELP are exchanged for shares of Class A Common Stock, and (iii) certain other tax benefits related to us entering into the TRA, including tax benefits attributable to payments that we make under the TRA. See "Certain Relationships and Related Person Transactions-Proposed Transactions withExcelerate Energy , Inc-Tax Receivable Agreement" in the Prospectus for more information about the TRA. The payments that we will be required to make under the TRA, including those made if we elected to terminate the agreement early, have the potential to be substantial. Based on certain assumptions, including no material changes in the relevant tax law and that we earn sufficient taxable income to realize the full tax benefits that are the subject of the TRA, we expect that future payments to the TRA Beneficiaries (not includingExcelerate ) will equal$76.7 million in the aggregate, although the actual future payments to the TRA Beneficiaries will vary based on the factors discussed in "Certain Relationships and Related Person Transactions-Proposed Transactions withExcelerate Energy , Inc-Tax Receivable Agreement" in the Prospectus and estimating the amount of payments that may be made under the TRA is by its nature imprecise, insofar as the calculation of amounts payable depends on a variety of factors and future events. The TRA payment forecasted to be made in 2023 as ofDecember 31, 2022 , is$3.7 million . In addition, payments we make under the TRA will be increased by any interest accrued from the due date (without extensions) of the corresponding tax return. IfEE Holdings were to have exchanged all of its EELP interests as of the balance sheet date, we would recognize a liability for payments under the TRA of approximately$420.4 million , assuming (i) thatEE Holdings exchanged all of its EELP interests using EE'sDecember 31, 2022 closing market price of$25.05 per share of Class A Common Stock, (ii) no material changes in relevant tax law, (iii) a constant combined effective income tax rate of 21% and (iv) that we have sufficient taxable income in each year to realize on a current basis the increased depreciation, amortization and other tax benefits that are the subject of the TRA. The actual future payments to the TRA Beneficiaries will vary, and estimating the amount and timing of payments that may be made under the TRA is by its nature imprecise, as the calculation of amounts payable depends on a variety of factors and future events. We expect to receive distributions from EELP in order to make any required payments under the TRA. However, we may need to incur debt to finance payments under the TRA to the extent such distributions or our cash resources are insufficient to meet our obligations under the TRA as a result of timing discrepancies or otherwise.
Venture Global SPA
InFebruary 2023 , we executed a 20-year LNG sales and purchase agreement with Venture Global LNG. Under the Venture Global SPA,Excelerate will purchase 0.7 MT per annum of LNG on a FOB basis from the Plaquemines LNG facility inPlaquemines Parish, Louisiana .
Sequoia Purchase Option
InMarch 2023 , we exercised our option to purchase the FSRU Sequoia for a purchase price of$265 million (the "Sequoia Purchase"), which is currently under a bare boat charter with a third party until mid-2025. We expect to close the Sequoia Purchase inApril 2023 , with payment of the purchase price due on closing. As discussed above, we intend to use proceeds from the Term Loan Facility to fund the Sequoia Purchase.
Off Balance Sheet Arrangements
BeforeExcelerate's IPO, EELP, certain of its subsidiaries and other affiliates of Kaiser were guarantors to a Kaiser revolving loan facility, and EELP provided a first lien against one of EELP's vessels to collateralize this facility. The facility was a committed line of credit of$600 million with a third-party bank that would have expired onSeptember 30, 2022 (the "Kaiser Credit Line"). EELP utilized the Kaiser Credit Line to issue letters of credit or bank guarantees to counterparties to guarantee its performance. In connection with the IPO, the first lien against an EELP vessel and other collateral and guarantees provided by EELP and its subsidiaries was released by the 63 --------------------------------------------------------------------------------
lender under the Kaiser Credit Line and certain credit support previously provided to EELP by Kaiser under the Kaiser Credit Line was replaced with credit support under the EE Revolver.
Critical Accounting Policies and Estimates
The accounting policies and estimates discussed below are considered by
management to be critical to an understanding of our financial statements as
their application requires the most significant judgments from management in
estimating matters for financial reporting that are inherently uncertain. For
additional information about our accounting policies and estimates, see the Note
2 - Summary of significant accounting policies to the Consolidated Financial
Statements.
Leases
We account for leases under the provisions of Accounting Standards Codification
("ASC") 842, Leases. In the application of ASC 842 for leases in which we are
the lessee, certain estimates and management judgments are required such as
determining the useful life of a leased asset, the discount rate used in
calculating the present value of lease payments, and when leases have extension
or termination options that are likely to be exercised. When we are the lessor,
estimates are required in allocating the contract consideration between the
lease component and non-lease components on a relative standalone selling price
basis.
Lessee Accounting
As of the lease commencement date, we recognize a liability for our lease
obligation, initially measured at the present value of lease payments not yet
paid, and an asset for our right to use the underlying asset, initially measured
equal to the lease liability and adjusted for lease payments made at or before
lease commencement, lease incentives, and any initial direct costs. The discount
rate used to determine the present value of the lease payments is the rate of
interest that we would have to pay to borrow on a collateralized basis over a
similar term for an amount equal to the lease payments in a similar economic
environment.
The initial recognition of the lease obligation and right-of-use asset excludes
short-term leases. Short-term leases are leases with an original term of one
year or less, excluding those leases with an option to extend the lease for
greater than one year or an option to purchase the underlying asset that the
lessee is deemed reasonably certain to exercise. We have elected, as an
accounting policy, not to apply the recognition requirements to short-term
leases. Instead, we may recognize the lease payments in the statements of income
on a straight-line basis over the lease term.
We have certain lease agreements that provide for the option to extend or
terminate early, which was evaluated on each lease to arrive at the lease term.
If we were reasonably certain to exercise a renewal or termination option, this
period was factored into the lease term. As of December 31, 2022 , we did not
have any lease agreements with residual value guarantees or material
restrictions or covenants.
Lessor Accounting
We determined that our time charter contracts contain a lease and a performance obligation for the provision of time charter and other regasification services. Leases are classified based upon defined criteria either as sales-type, direct financing, or operating leases by the lessor. For those leases classified as sales-type, the underlying asset is derecognized and the net investment in the lease is recorded. We have determined that these contracts contain a lease component for the use of the vessel and non-lease components relating to operation of the vessels. We have allocated the contract consideration between the lease component and non-lease components on a relative standalone selling price basis. We utilize a combination of approaches to estimate the standalone selling prices when the directly observable selling price is not available by utilizing information available such as market conditions and prices, entity-specific factors, and internal estimates when market data is not available. Given that there are no observable standalone selling prices for either of these two components, judgment is required in determining the standalone selling price of each component.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. New assets, modifications to existing assets which improve the asset's operational efficiency, capacity or useful life, and our finance leases are assigned a useful life. Useful lives of property and equipment are determined using various assumptions, including our expected use of our assets and the supply of and demand for LNG and natural gas in the markets we serve, normal wear and tear of assets, and the expected extent and frequency of maintenance. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, less an estimated residual value.
Asset retirement obligations ("ARO")
We recognize liabilities for retirement obligations associated with tangible
long-lived assets when there is a legal obligation associated with the
retirement of such assets and the amount can be reasonably estimated. The fair
value of a liability for an ARO is
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recognized in the period which it is incurred, if a reasonable estimate of fair
value can be made. In order to estimate the fair value, we use judgments and
assumptions for factors including the existence of legal obligations for an ARO;
technical assessments of the assets; discount rates; inflation rates; and
estimated amounts and timing of settlements. The offsetting asset retirement
cost is recorded as an increase to the carrying value of the associated property
and equipment on the consolidated balance sheets and depreciated over the
estimated useful life of the asset. In periods subsequent to the initial
measurement of an ARO, we recognize period-to-period changes in the liability
resulting from the passage of time and revisions to either the timing or the
amount of the original estimate of undiscounted cash flows.
Income taxes
We are a corporation forU.S. federal and state income tax purposes. EELP, is treated as a pass-through entity forU.S. federal income tax purposes and, as such, is generally not subject toU.S. federal income tax at the entity level. As part of our income tax accounting process, we are required to make certain assumptions and estimations.
We record valuation allowances to reflect the estimated amount of certain deferred tax assets that are more likely to not be realized. In making such a determination, we evaluate a variety of factors, including our operating history, accumulated deficit, and the existence of taxable or deductible temporary differences and reversal periods.
The effect of tax positions is recognized only if those positions are more likely than not of being sustained. Conclusions reached regarding tax positions are continually reviewed based on ongoing analyses of tax laws, regulations, and interpretations thereof. To the extent that our assessment of the conclusions reached regarding tax positions changes as a result of the evaluation of new information, such change in estimate will be recorded in the period in which such determination is made. We recognize the tax benefit from an uncertain tax provision only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the tax position.
Tax receivable agreement
In connection with the IPO, we entered into the TRA with the TRA Beneficiaries. The TRA will provide for payment by us to the TRA Beneficiaries of 85% of the amount of the net cash tax savings, if any, that we are deemed to realize as a result of our utilization of certain tax benefits. The amount and timing of future payments to the TRA Beneficiaries will vary as the calculation depends on a variety of factors and future events. Potential future actions taking by the Company, such as mergers or other forms of business combinations that would constitute a change in control, may influence the timing and amount of payments we make under the TRA in a manner that does not correspond to our use of the corresponding tax benefits.
Recent Accounting Pronouncements
Refer to Note 2 - Summary of significant accounting policies to the notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for information regarding recently issued accounting pronouncements.
Implications of Being an
As a company with less than$1.07 billion in revenue during 2021,Excelerate qualified as an emerging growth company ("EGC") as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). For so long asExcelerate remained an EGC, it was permitted, and elected, to rely on exemptions from specified disclosure requirements that are applicable to other public companies that are not EGCs. These exemptions included:
•
being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced "Management's Discussion and Analysis of Financial Condition and Results of Operations" disclosure;
•
not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting under the Sarbanes-Oxley Act, for up to five years or until we no longer qualify as an EGC;
•
not being required to comply with any requirement that may be adopted by the
•
reduced disclosure obligations regarding executive compensation pursuant to the rules applicable to smaller reporting companies, which means we do not have to include a compensation discussion and analysis and certain other disclosures regarding our executive compensation; and
•
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and obtaining stockholder approval of any golden parachute payments not previously approved.
As
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Annual Report for the year ending
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