Par Pacific Holdings, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024, compared with the three months ended March 31, 2023, unless otherwise stated. Par operates refining, retail and logistics businesses serving the western United States, and holds an equity investment in Laramie Energy. The quarter included a full period of contributions from the Billings, Montana refinery and related assets acquired in June 2023; those assets were not included in Q1 2023 results.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Revenue | $1,980.8 million | $1,685.2 million; up 18% |
| Operating income | $9.5 million | $261.4 million |
| Net income (loss) | $(3.8) million; $(0.06) per diluted share | $237.9 million; $3.90 per diluted share |
| Adjusted EBITDA (non-GAAP) | $94.7 million | $167.6 million |
| Adjusted Net Income (non-GAAP) | $41.7 million | $137.5 million |
| Operating cash flow | $25.4 million | $139.1 million |
| Capital expenditures | $22.6 million | $13.2 million |
| Cash and cash equivalents | $228.3 million | $279.1 million at December 31, 2023 |
| Debt principal | $654.1 million | $665.6 million at December 31, 2023 |
| Liquidity, as defined by management | $575.0 million | Includes cash, ABL availability and J. Aron facility availability |
Net cash decreased by $50.8 million during the quarter. Financing cash outflow was $53.6 million, including $34.1 million of share repurchases and net debt repayments. Total liabilities were $2.46 billion at quarter-end. Debt principal is subject to floating rates; the company also reported $662.7 million of inventory-financing obligations, which are separate from debt principal.
Changes versus the prior comparable period
- Revenue rose mainly because of the Billings acquisition, but lower refining profitability drove operating income down sharply and the company moved from substantial net income to a small net loss.
- Refining segment operating income fell to $22.6 million from $263.1 million. Management cited weaker crack spreads, higher environmental costs, higher inventory-financing costs and lower legacy-refinery sales volumes. Q1 2023 included significant environmental-credit settlement gains that did not recur.
- Refining Adjusted Gross Margin (non-GAAP) was $207.1 million versus $211.6 million. Logistics operating income increased to $20.4 million from $12.6 million, principally reflecting acquired assets; retail operating income declined to $11.0 million from $13.5 million.
- General and administrative expense rose $22.5 million to $41.8 million, including $13.1 million of stock-based compensation tied to the CEO transition. Depreciation and amortization increased $8.3 million, primarily due to Billings.
- Operating cash flow was lower, reflecting the earnings decline and working-capital movements, including higher receivables and inventory. The prior-year quarter included a $10.7 million Laramie distribution.
Outlook, management commentary and risks
- Management expects cash flows and available capital resources to be sufficient for capital and turnaround spending, working capital and debt service over the next 12 months. The filing provides no specific earnings or revenue guidance.
- Management reported lower refining crack-spread indices year over year. It noted geopolitical and supply risks and cited an EIA April 2024 forecast of average Brent crude prices of $89 per barrel for 2024; this is an external forecast, not company guidance.
- The March 2024 ABL amendment increased total revolver commitments to $1.4 billion, subject to conditions including termination of the existing J. Aron intermediation agreement. The J. Aron Supply and Offtake Agreement was due to expire May 31, 2024; the LC Facility matures July 25, 2024. The filing describes these as upcoming refinancing and liquidity considerations.
- On April 8, 2024, the Term Loan Credit Agreement was amended to reduce its applicable margin by 50 basis points and eliminate the 10-basis-point Term SOFR adjustment. The company said it was in compliance with its debt instruments at March 31, 2024.
- Environmental exposures include an EPA notice concerning alleged Hawaii Consent Decree violations, for which resolution could involve material penalties or capital spending; ongoing Wyoming refinery remediation and wastewater-system work; and potential costs to comply with Washington emissions and clean-fuel programs. The company had accrued $13.7 million for certain Wyoming remediation components and estimated approximately $11.6 million for a new wastewater treatment system.
- Management said no material risk-factor changes occurred from the 2023 Form 10-K. Commodity-price, environmental-credit, interest-rate, geopolitical and counterparty risks remain relevant. A $1 per barrel change in average gross refining margins would, all else equal, change annualized operating income by approximately $65.1 million, according to the filing.
- CEO William Pate announced retirement effective May 1, 2024. CEO-transition equity-award changes generated $13.1 million of Q1 stock-based compensation expense; the non-GAAP reconciliation also excludes an estimated $2.3 million legal settlement unrelated to current operating activities.
Important facts for investors to verify
- Whether the J. Aron agreement was replaced as planned, and the resulting availability, cost and terms of the new intermediation arrangements and ABL facilities.
- Whether refining margins, throughput and operating performance recover after planned maintenance and the weaker Q1 crack-spread environment.
- The timing, ultimate cost and potential financial impact of environmental matters, including Hawaii Consent Decree allegations, Wyoming remediation and Washington compliance obligations.
- The composition and sustainability of Adjusted EBITDA and Adjusted Net Income; these are non-GAAP measures, include exclusions, and the company changed aspects of their definitions and presentation.
- Progress on the Billings acquisition integration and internal controls; management expected to include the acquired refinery in the scope of internal-control design and operation for the year ending December 31, 2024.