PAR Pacific Holdings, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; compared with the same periods in 2020. Par operates refining, retail and logistics businesses in Hawaii, Washington and Wyoming, alongside retail operations in Idaho, and holds a 46% interest in Laramie Energy. Unless otherwise noted, dollar amounts below are in millions.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $1,217.5 | $515.3 | $2,106.2 | $1,719.4 |
| Operating loss | $(84.5) | $(25.4) | $(129.2) | $(206.6) |
| Net loss | $(109.0) | $(40.6) | $(171.2) | $(262.9) |
| Loss per share, basic and diluted | $(1.84) | $(0.76) | $(3.01) | $(4.94) |
| Adjusted EBITDA, non-GAAP | $(6.7) | $(50.3) | $(50.0) | $(36.7) |
| Adjusted net loss, non-GAAP | $(48.0) | $(90.8) | $(132.4) | $(118.0) |
| Cash from operating activities | Not provided separately | Not provided separately | $1.8 | $33.8 |
- Margins and segments: Q2 refining Adjusted Gross Margin was $19.2, versus $(22.3) a year earlier; logistics was $23.4 versus $14.5; retail was $31.8 versus $34.2. These are non-GAAP measures. Q2 segment operating results were refining loss of $99.1, logistics income of $14.5 and retail income of $12.7.
- Cash and liquidity: Cash and cash equivalents were $174.3 at June 30, plus $2.0 restricted cash. Management reported total liquidity of $243.5, including cash and available financing resources. Working-capital movements helped keep first-half operating cash flow positive despite the net loss; inventory rose $184.1 and receivables rose $99.5, while inventory-financing obligations increased $199.6.
- Debt: Debt principal was $588.1; debt net of discounts and deferred financing costs was $571.0, including $10.8 current maturities. Par also had $699.4 of current obligations under inventory financing agreements. Long-term debt net of current maturities was $560.1. Total debt principal fell from $731.5 at year-end 2020.
- Balance sheet: Total assets were $2,524.4, total liabilities $2,354.7 and stockholders’ equity $169.7. Current assets were $1,030.7 and current liabilities $1,369.7.
Material changes versus prior periods
- Q2 revenue rose 136%, reflecting recovery in crude and product prices, higher refining sales volumes and improved product cracks. Q2 GAAP net loss nevertheless widened, primarily because of unfavorable inventory valuation adjustments and higher renewable fuel credit (RINs) costs. Adjusted EBITDA loss improved, reflecting stronger demand, crack spreads and realized derivatives.
- For the first half, revenue rose 22% and GAAP net loss narrowed, helped by the absence of prior-year impairments and a $63.9 gain on sale-leaseback transactions. Adjusted EBITDA loss widened and adjusted net loss increased, reflecting RINs costs, Hawaii contract price lag and higher inventory-intermediation costs.
- First-half operating cash flow fell to $1.8 from $33.8. Investing cash flow was $88.8, primarily from asset-sale proceeds, versus $30.2 of outflow in 2020.
- Par issued 5.75 million shares in March for approximately $87.2 net proceeds. It sold 22 Hawaii retail properties for approximately $112.8 net and leased them back; the transactions generated a $63.9 gain and added lease obligations. Shares outstanding were 60.2 million at June 30.
Outlook, management commentary and risks
- Management said retail and logistics profitability had recovered to more than 90% of pre-pandemic levels, while emphasizing that COVID-19 effects remained uncertain and could be material. The Delta variant was identified as a risk. No earnings or revenue guidance was provided.
- Management expected cash flows and available capital resources to cover current capital and turnaround expenditures, working capital and debt service for the next 12 months, while noting that additional capital may be sought and cannot be assured on acceptable terms. The 2021 capital expenditure and deferred turnaround budget was $35–$45.
- RINs and other environmental credit obligations were $354.5 at market value, up from $150.5 at year-end; related credits held in inventory had a carrying cost of $60.6. EPA had not set 2021 renewable fuel requirements, and the company’s estimated 2021 obligation was based on 2020 requirements.
- Commodity prices, refining margins, feedstock costs, RIN prices and interest rates are key exposures. A $1 per barrel change in average gross refining margins was estimated to change annualized operating income by approximately $50.7. A 1% increase in variable rates was estimated to add approximately $3.3 to annual cost of revenues and $3.5 to annual interest expense.
- Environmental matters include a $16.0 accrual for well-understood Wyoming refinery remediation components and estimated costs of approximately $11.6 for a replacement wastewater treatment system. Some remediation costs remain unestimable. The filing also describes unresolved Delta-related claims totaling approximately $22.4, against which approximately $0.5 was accrued; management said issuing stock for the full claim amount was remote.
- Par reported compliance with debt instruments. It repaid the remaining $48.7 of 5% convertible notes at maturity, repaid several smaller loans, and redeemed $36.8 principal of 12.875% notes at a premium, incurring $8.1 of first-half debt extinguishment and commitment costs overall. The new Hawaii supply-and-offtake agreement runs to May 2024 and includes minimum-liquidity requirements and a discretionary draw facility beginning July 2021.
Most important facts for investors to verify
- Whether refining margins, volumes and cash generation improve without reliance on asset-sale proceeds or working-capital financing changes.
- The scale and cash-settlement timing of RINs obligations, and how 2021 EPA requirements or waiver decisions affect costs.
- Available liquidity after inventory-financing needs, contractual minimum-liquidity tests, debt service and planned refinery turnaround spending.
- The ongoing cost and balance-sheet effect of the Hawaii sale-leasebacks, including lease commitments and reduced property ownership.
- Exposure to COVID-19 recovery reversals, commodity and crack-spread volatility, environmental compliance costs, and outstanding legal and remediation contingencies.