NGL Energy Partners LP — Form 10-Q Summary
Reporting period: Fiscal first quarter, the three months ended June 30, 2021; comparison is with the three months ended June 30, 2020. NGL operates Water Solutions, Crude Oil Logistics, and Liquids Logistics businesses. Unless noted otherwise, amounts below are in U.S. dollars.
Financial results and liquidity
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Revenue | $1,488.7 million | $844.4 million |
| Cost of sales | $1,324.8 million | $677.0 million |
| Gross profit (revenue less cost of sales) | $163.9 million; 11.0% margin | $167.4 million; 19.8% margin |
| Operating loss | $69.3 million | $10.8 million |
| Net loss | $134.5 million | $35.3 million |
| Net loss attributable to NGL Energy Partners LP | $134.9 million | $35.3 million |
| Net loss per common unit | $1.23 | $0.44 |
| Adjusted EBITDA, non-GAAP | $91.1 million | $90.7 million |
| Cash from operating activities | $(5.2) million | $80.4 million |
| Capital expenditures, cash basis | $46.8 million | $97.8 million |
Revenue growth chiefly reflected higher commodity prices and increased activity, but cost of sales rose faster. The quarter included a $67.5 million net loss on asset disposals or impairments, including a $60.1 million loss on the Sawtooth sale. Interest expense increased to $67.1 million from $44.0 million, principally following issuance of the 7.5% secured notes. The $51 million gain on early extinguishment of liabilities in the prior-year quarter also made the net-loss comparison less favorable.
Cash used in operations reflected an $85.5 million unfavorable working-capital change, including increases in receivables and inventory. Cash used in investing was $42.9 million, including $63.5 million net proceeds from the Sawtooth disposition; financing activities provided $45.7 million. Cash was $2.5 million at June 30, 2021, down from $4.8 million at March 31.
At June 30, current assets were $1.208 billion and current liabilities were $1.010 billion, a $197.9 million excess. Long-term debt, net of issuance costs and current maturities, was $3.371 billion; total debt book value including current maturities was approximately $3.373 billion. The $500 million asset-based revolving facility had $77 million drawn and approximately $122.9 million of letters of credit outstanding. NGL reported compliance with its debt covenants and no continuing Cash Dominion Event.
Material changes and operating performance
- Water Solutions revenue increased to $130.2 million from $88.1 million and segment operating income improved to $7.6 million from a $16.0 million loss. Produced-water volumes rose 22% to about 1.67 million barrels per day, mainly on stronger Delaware Basin activity.
- Crude Oil Logistics revenue rose to $553.6 million from $276.0 million, largely with higher crude prices, but the segment shifted from $23.3 million operating income to an $11.6 million loss. Lower Grand Mesa Pipeline volumes and derivative losses contributed; pipeline financial volumes averaged about 77,000 barrels per day versus 119,000.
- Liquids Logistics revenue rose to $804.8 million from $480.0 million, primarily reflecting higher product prices. The segment recorded a $53.4 million operating loss versus $4.6 million income, including the Sawtooth disposition loss. Excluding derivative effects, product margins varied: butane margin weakened, while other-product margin improved with biodiesel and renewable identification number prices.
- NGL sold its approximately 71.5% interest in Sawtooth on June 18 for $70.0 million less estimated expenses of approximately $2.1 million. The sale generated $63.5 million net cash proceeds and a $60.1 million recorded loss; it was not classified as discontinued operations.
- Total assets were $5.907 billion versus $5.947 billion at March 31. Total equity declined to $763.1 million from $948.2 million.
Outlook, management commentary, and risks
- Management expects fiscal 2022 capital expenditures of $100 million to $125 million. It anticipates minimal acquisition or expansion needs and says operating cash flow and ABL borrowing capacity are expected to meet liquidity needs, while noting seasonal working-capital demands.
- Common-unit distributions have been suspended since the quarter ended December 31, 2020, and preferred-unit distributions since the quarter ended March 31, 2021, to reduce leverage and satisfy the 2026 secured-note indenture’s 4.75-to-1.00 leverage condition. Reinstatement will be evaluated in light of leverage, liquidity, sustainable cash flows, maturities, capital spending, and business performance. Preferred distributions continue to accumulate unpaid.
- Management said the continuing effects of COVID-19, including variants and possible renewed restrictions, remain uncertain. Refined-product demand, crude prices, drilling activity, weather, commodity volatility, counterparty performance, and access to capital are among the stated risks.
- Debt maturities are concentrated: approximately $539.4 million in fiscal 2024, $383.1 million in fiscal 2025, and $2.130 billion in fiscal 2026, including the $2.050 billion 7.5% secured notes. The ABL facility also matures in 2026, subject to an earlier-maturity provision.
- The LCT litigation remains pending for a new trial limited to quantum meruit damages; NGL accrued $2.5 million. The filing reports a $1.6 million environmental liability and a potential subsidy obligation ranging from $0 to $4.9 million.
- Adjusted EBITDA is a non-GAAP measure and includes management adjustments; it should not be treated as a substitute for GAAP earnings or operating cash flow.
Most important facts for investors to verify
- Whether operating cash flow improves as seasonal inventory and working-capital needs change, given the quarter’s cash use and low cash balance.
- Progress against the 4.75-to-1.00 leverage condition, debt-refinancing needs, and the availability of borrowing under the ABL facility after borrowing-base and letter-of-credit requirements.
- Whether operating performance improves without reliance on higher commodity prices, and the extent to which derivative results affect reported earnings and Adjusted EBITDA.
- Final Sawtooth disposition accounting and any further asset impairment or disposal charges.
- Developments in the LCT litigation, environmental matters, and other disclosed contingencies.
- Whether and when suspended common and preferred distributions may resume; unpaid preferred distributions are cumulative.