NGL Energy Partners LP — FY2013 Form 10-K
Period: Fiscal year ended March 31, 2013. Although the request metadata says “2012 Q4,” this filing is an annual report for FY2013, not a standalone quarterly filing. Amounts below are in U.S. dollars; financial comparisons are substantially affected by acquisitions and are not like-for-like.
Business context and reporting period
NGL operates four businesses: crude oil logistics, water services, natural gas liquids (NGL) logistics, and retail propane. During FY2013, acquisitions—particularly High Sierra, Pecos, Third Coast and retail propane businesses—expanded the partnership into crude transportation and marketing and wastewater services, as well as increasing its propane operations.
Key financial metrics
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $4,417.8 million | $1,310.5 million |
| Cost of sales | $4,039.1 million | $1,217.0 million |
| Gross profit (revenue less cost of sales) | $378.7 million; 8.6% margin | $93.5 million; 7.1% margin |
| Operating income | $87.3 million; 2.0% margin | $15.0 million; 1.1% margin |
| Net income | $48.2 million; 1.1% margin | $7.9 million; 0.6% margin |
| Basic and diluted earnings per common unit | $0.96 | $0.32 |
| Adjusted EBITDA (non-GAAP) | $177.9 million | $36.3 million |
| Cash from operating activities | $132.2 million | $90.3 million |
| Cash from investing activities | $(546.2) million | $(296.9) million |
| Cash from financing activities | $417.7 million | $198.1 million |
| Cash and cash equivalents at year-end | $11.6 million | $7.8 million |
| Total debt, including current maturities | $749.1 million | $218.7 million |
| Total current assets / current liabilities | $762.1 million / $659.3 million | $198.6 million / $144.8 million |
Operating income by segment was $34.2 million for crude oil logistics, $8.6 million for water services, $30.3 million for NGL logistics and $46.9 million for retail propane; corporate and other expenses were $32.7 million. FY2013 included $5.8 million of loss on early extinguishment of debt and $10.1 million of restricted-unit compensation expense.
Material changes versus the prior comparable period
- Revenue rose more than threefold, and operating and net income increased substantially. The increase chiefly reflects acquired businesses and expanded operations, rather than organic growth alone.
- FY2013 included only partial-year results for High Sierra and later acquisitions. The crude oil and water services segments were new during the year; FY2012 had no reported results for those segments.
- Operating cash flow increased to $132.2 million, while investment outflows rose to $546.2 million. The partnership spent $490.4 million in cash on acquisitions and $72.5 million on capital expenditures, including $58.7 million of expansion capital.
- Total debt increased sharply to $749.1 million, reflecting acquisition financing. The partnership issued $250 million of 6.65% senior notes and used revolving facilities.
- Cash distributions increased during the year: quarterly payments per unit rose from $0.3625 to $0.4625. A $0.4775 distribution was declared after year-end.
Outlook, risks, contingencies and unusual items
- Management stated that anticipated operating cash flows and revolving-credit availability were expected to meet liquidity needs for the next 12 months; additional capital might be needed if plans change or acquisitions are made. No specific earnings or cash-flow guidance was provided.
- In May 2013, credit-facility capacity was increased from $242.5 million to $325 million for working capital and from $527.5 million to $725 million for expansion capital; the amendment incurred approximately $2.1 million of fees. At March 31, 2013, reported leverage was about 3.0x against a 4.25x maximum, and interest coverage was about 7.0x against a 2.75x minimum. The partnership reported covenant compliance.
- Cash generation and distributions are exposed to seasonality, weather, commodity prices and margins, producer activity, customer concentration, counterparty performance, acquisitions and integration, and access to capital. Management also identifies competition, transportation and storage disruptions, environmental and safety regulation, and hydraulic-fracturing restrictions as risks.
- Goodwill and intangible assets totaled approximately $1.006 billion at year-end; no impairment was recorded. Acquisition fair-value estimates for Pecos, Third Coast and certain other acquired businesses remained subject to change.
- The partnership settled Pemex litigation for $3.1 million, recorded in High Sierra acquisition accounting. A Canadian tax authority assessed approximately $14.9 million; NGL recorded that liability and a $14.1 million receivable for expected customer recovery. A crude transportation customer disputed $2.2 million in billed fees and counterclaimed for $5.5 million previously paid; NGL had not recognized the disputed $2.2 million as revenue. Management did not expect these matters to materially affect results, but outcomes remained uncertain.
- Management and the auditor concluded internal control over financial reporting was effective as of March 31, 2013, but the assessment excluded acquired businesses representing approximately 68% of assets and 73% of revenue. Integration and control implementation for acquired operations was ongoing. The financial-statement audit opinion was unqualified.
Important facts for investors to verify
- How much of reported growth and earnings came from acquisitions, and whether acquired operations are delivering expected returns after financing, integration and ongoing costs.
- Current debt, facility availability, covenant headroom, interest-rate exposure and the effect of subsequent credit-facility amendments.
- Cash available for distributions after maintenance capital, working-capital needs and debt service; distributions are not guaranteed and depend on available cash and credit restrictions.
- Resolution and potential cash exposure from the Canadian tax assessment and customer dispute, including recoverability of the recorded receivable.
- Completion of acquisition accounting and internal-control integration, particularly for businesses excluded from the FY2013 control assessment.
- Customer concentration, seasonal cash-flow volatility, commodity and derivative exposures, and the sustainability of margins across the four segments.