IPO Update: Excelerate Energy Readies $360 Million IPO

A Quick Take On Excelerate Energy

Excelerate Energy (EE) has filed to raise $360 million from the sale of its Class A common stock in an IPO, according to an amended registration statement.

The company provides flexible LNG regasification services in emerging markets via its floating storage and regasification units.

Excelerate appears to be launching its IPO at a time of strong natural gas demand and the IPO appears within reason as to valuation.

My opinion on the stock is a Buy at up to $22.50 per share.

Company & Technology

The Woodlands, Texas-based Excelerate was founded to use storage and regasification facilities to provide regasified liquid natural gas [LNG] to countries including:

• Brazil

• Pakistan

• Bangladesh

• Kuwait

• Israel

• UAE

• USA

Management is headed by President and CEO Steven M. Kobos, who has been with the firm since 2006 and was previously a graduate of the University of Oklahoma.

Management believes LNG will play an important part in the transition of the world’s energy to lower carbon emissions.

Excelerate has received at least $1 billion in equity investment from investors including Excelerate Energy Holdings and George Kaiser Family Foundation, both controlled by George Kaiser.

Excelerate – Customer Acquisition

The firm seeks customer relationships in emerging markets with customers in need of natural gas, via supply contracts with a variety of term lengths.

Management expects to enhance its growth potential through targeted acquisitions and to ‘integrate new infrastructure assets downstream’ from its floating LNG terminals.

Selling, G&A expenses as a percentage of total revenue have dropped as revenues have increased over the past 2 years, as the figures below indicate:

Selling, G&A	Expenses vs. Revenue
Period	Percentage
2021	5.3%
2020	10.0%

(Source)

The Selling, G&A efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Selling, G&A spend, was 9.7x in the most recent reporting period. (Source)

Excelerate’s Market & Competition

According to a 2021 market research report by ResearchAndMarkets, the global market for LNG regasification was an estimated 46,458 billion cubic feet in 2020 and is forecast to reach 68,292 billion cubic feet by 2025.

This represents a forecast average annual growth rate [AAGR] of 7.7%.

This expected rate of growth is almost double that of the period from 2015 to 2020.

Also, major countries accounting for regasification capacity in 2020 included the U.S., Japan, South Korea, Spain and China.

Major competitive or other industry participants include:

• New Fortress Energy

• AES

• Hoegh LNG

• GasLog

Excelerate Energy Financial Performance

The company’s recent financial results can be summarized as follows:

• Strong topline revenue growth in 2021

• Growing gross profit

• Reduced gross margin

• Increased operating profit but reduced operating margin

• Growing cash flow from operations

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue
Period	Total Revenue	% Variance vs. Prior
2021	$ 888,555,000	106.2%
2020	$ 430,843,000
Gross Profit (Loss)
Period	Gross Profit (Loss)	% Variance vs. Prior
2021	$ 305,314,000	8.9%
2020	$ 280,365,000
Gross Margin
Period	Gross Margin
2021	34.36%
2020	65.07%
Operating Profit (Loss)
Period	Operating Profit (Loss)	Operating Margin
2021	$ 139,344,000	15.7%
2020	$ 133,256,000	30.9%
Net Income (Loss)
Period	Net Income (Loss)	Net Margin
2021	$ 41,189,000	4.6%
2020	$ 32,891,000	3.7%
Cash Flow From Operations
Period	Cash Flow From Operations
2021	$ 141,613,000
2020	$ 108,964,000
(Glossary Of Terms)

(Source)

As of December 31, 2021, Excelerate had $72.8 million in cash and $1.5 billion in total liabilities.

Free cash flow during the twelve months ended December 31, 2021, was $105.5 million.

Excelerate Energy IPO Details

EE intends to sell 16 million shares of Class A common stock at a proposed midpoint price of $22.50 per share for gross proceeds of approximately $360 million, not including the sale of customary underwriter options.

No existing or potentially new shareholders have indicated an interest to purchase shares at the IPO price.

Class A and Class B stockholders will be entitled to one vote per share, but Class B shareholders will not be entitled to any dividends.

The S&P 500 Index no longer admits firms with multiple classes of stock into its index.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO (excluding underwriter options) would approximate $3.7 billion.

The float to outstanding shares ratio (excluding underwriter options) will be approximately 15.11%. A figure under 10% is generally considered a ‘low float’ stock which can be subject to significant price volatility.

Per the firm’s most recent regulatory filing, it plans to use the net proceeds as follows:

approximately $281.0 million of the net proceeds of this offering to fund our growth strategy, including our projects in Brazil at the Bahia Regasification Terminal, Albania at the Vlora LNG Terminal, the Philippines at the Filipinas LNG Gateway and Bangladesh at the Payra LNG Terminal;

approximately $50.0 million of the net proceeds of this offering to fund in part EELP’s purchase of the Foundation Vessels in connection with the Reorganization;

approximately $9.2 million to pay the expenses incurred by us in connection with this offering and the Reorganization; and

…the remainder for working capital and other general corporate purposes.

(Source)

Management’s presentation of the company roadshow is available here until the IPO is completed.

Regarding outstanding legal proceedings, management believes any current legal proceedings would not have a material adverse impact on its financial condition or operations.

The listed bookrunners of the IPO are Barclays, JPMorgan, Morgan Stanley and other investment banks.

Valuation Metrics For Excelerate

Below is a table of the firm’s relevant capitalization and valuation metrics at IPO, excluding the effects of underwriter options:

Measure [TTM]	Amount
Market Capitalization at IPO	$2,382,200,010
Enterprise Value	$3,727,857,010
Price / Sales	2.68
EV / Revenue	4.20
EV / EBITDA	26.75
Earnings Per Share	$0.38
Operating Margin	15.68%
Net Margin	4.64%
Float To Outstanding Shares Ratio	15.11%
Proposed IPO Midpoint Price per Share	$22.50
Net Free Cash Flow	$105,522,000
Free Cash Flow Yield Per Share	4.43%
Debt / EBITDA Multiple	4.90
Revenue Growth Rate	106.24%
(Glossary Of Terms)

(Source)

Commentary About EE

EE wants to go public to fund its expansion projects in regasification and LNG terminals.

The firm’s financials have produced significant topline revenue growth, increasing gross profit, lowered gross margin, higher operating profit but reduced operating margin and increasing cash flow from operations.

Free cash flow for the twelve months ended December 31, 2021, was $105.5 million.

Selling, G&A expenses as a percentage of total revenue have dropped as revenue has increased and its Selling, G&A efficiency multiple was 9.7x in 2021.

The firm currently plans to pay dividends totaling $0.10 annualized per Class A share, or 0.44% annual dividend yield.

The market opportunity for regasification services is large and expected to grow at a substantial rate of growth in the coming years, so the firm has positive industry growth dynamics in its favor, especially as countries seek to reduce their CO2 emissions through increased usage of natural gas products.

Barclays is the lead underwriter and IPOs led by the firm over the last 12-month period have generated an average return of negative (31.3%) since their IPO. This is a lower-tier performance for all major underwriters during the period.

The primary risk to the company’s outlook is its current revenue concentration among a small number of customers, with the related credit or geopolitical risks potentially having an outsized impact on its financial results.

As for valuation, compared to a basket of U.S. publicly held Oil & Gas distribution companies compiled by Dr. Aswath Damodaran, which showed an EV/Sales multiple of 3.59x in January 2022, while the comparison isn’t exact, the firm’s proposed EV/Revenue multiple of 4.2x is reasonable.

Excelerate appears to be launching its IPO at a time of strong natural gas demand environment and the IPO appears within reason as to valuation.

My outlook on the stock is a Buy at up to $22.50 per share.

Expected IPO Pricing Date: April 12, 2022.