Business context and reporting period
The supplied filing is NextEra Energy Partners, LP’s unaudited Form 10-Q for the quarter ended September 30, 2016—not a filing identified as XPLR Infrastructure, LP. Confirm the registrant before relying on this summary. NEP owns contracted wind and solar projects and, following its 2015 acquisition, seven long-term contracted Texas natural gas pipelines. Its financial statements consolidate NEP OpCo, in which NEP held an approximately 34.8% limited partner interest at quarter-end.
Financial results and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $186 million | $115 million | $539 million | $348 million |
| Operating income | $79 million | $48 million | $232 million | $152 million |
| Operating margin | 42.5% | 41.7% | 43.0% | 43.7% |
| Net income attributable to NEP | $27 million | $1 million | $40 million | $6 million |
| EPS attributable to NEP | $0.62 | $0.05 | $0.99 | $0.28 |
| Distribution per common unit | $0.3300 | $0.2350 | $0.9563 | $0.6350 |
For the nine months, operating cash flow was $247 million, investing cash outflow was $1.220 billion, and financing cash inflow was $940 million. Cash and cash equivalents were $133 million at September 30, versus $164 million at year-end 2015.
Total debt, including current maturities, was $3.664 billion, compared with $3.435 billion at year-end 2015; long-term debt fair value was estimated at $3.876 billion. Current assets were $628 million and current liabilities $459 million. Management reported liquidity of $794 million, including $346 million due under the related-party cash sweep and credit support agreement and available credit facilities, net of borrowings and letters of credit.
Material changes versus the prior comparable period
- Revenue increased 62% in Q3 and 55% for the nine months. Management attributed the increases chiefly to the Texas pipelines, stronger wind and solar resources, and two wind facilities that began commercial operations in December 2015. Generation rose to 1,906 GWh in Q3 from 1,575 GWh and to 6,176 GWh for nine months from 5,218 GWh.
- Q3 net income included a $101 million gain from reducing the estimated fair value of contingent consideration for the Texas pipeline acquisition; the nine-month gain was $118 million. This non-cash revaluation materially boosted reported earnings.
- Interest expense rose to $203 million for nine months from $85 million, reflecting interest-rate-swap mark-to-market losses after hedge accounting was discontinued in January 2016, as well as acquisition-related and assumed debt. The filing reports $85 million of swap losses recognized in interest expense for the nine-month period.
- NEP acquired two wind businesses from NEER during 2016: Seiling I and II, totaling about 299 MW, and Cedar Bluff and Golden Hills, totaling about 285 MW. After quarter-end, it acquired a 24% interest in the 550 MW Desert Sunlight solar facility for $218 million plus a working-capital adjustment.
- NEP issued 23.6 million common units during the nine months; outstanding units increased to 54.2 million from 30.6 million at year-end 2015. The issuance supported acquisitions and increased NEP’s ownership interest in NEP OpCo.
Outlook, risks and unusual items
Management expected operating cash flow and liquidity to cover operating costs, capital expenditures, debt service and distributions, while noting that acquisitions, project expansions and distribution growth depend partly on acceptable access to debt and equity markets. The board authorized a $0.34125-per-unit distribution payable November 14, 2016. Planned Texas pipeline capital expenditures were approximately $24 million for the remainder of 2016 and $150 million in 2017, primarily for expansion projects.
Key risks include reliance on NEER/NEE for management, credit support and cash-sweep arrangements; $346 million of cash sweep amounts held by NEER or affiliates; substantial indebtedness and variable-rate exposure; dependence on project performance, weather, counterparties and long-term contracts; and pipeline expansion, integrity and regulatory risks. The filing notes Canadian FIT domestic-content audits could put contracts and revenues at risk if requirements were not met. Contingent consideration for the Texas pipelines remained subject to performance and capital-spending thresholds, and a separate $200 million indemnity holdback was retained through April 2017. Management said there were no material changes to the risk factors in the 2015 Form 10-K.
Approximately 25% of long-term debt was exposed to interest-rate risk; a hypothetical 10% decrease in rates would increase estimated debt fair value by about $52 million. At October 31, 2016, subsidiaries were reported in compliance with project-financing covenants. Management excluded the Texas pipeline business from its September 30 internal-control assessment; the business represented about 29% of consolidated assets and 26% of nine-month revenue, and was expected to be included in the year-end assessment.
Important facts for investors to verify
- Confirm the intended issuer: the provided filing is for NextEra Energy Partners, LP, not XPLR Infrastructure, LP.
- Assess earnings excluding the $101 million Q3 and $118 million nine-month contingent-consideration gains, and consider the effect of swap mark-to-market losses.
- Review the terms, returnability and credit support for the $346 million related-party cash sweep balance and the dependence on NEER/NEE.
- Verify acquisition holdback outcomes, Texas pipeline expansion spending and the related revenue and cash-flow assumptions.
- Evaluate dilution from unit issuance, debt maturities and variable-rate exposure, and the cash available to support distributions.