Business context and reporting period
The supplied filing is NextEra Energy Partners, LP (NYSE: NEP), not a filing identified as XPLR Infrastructure, LP. It is an unaudited Form 10-Q for the quarter and nine months ended September 30, 2020. NEP owns contracted wind and solar generation assets and natural-gas pipeline interests; reported consolidated results include substantial noncontrolling interests.
Financial performance and position
- Third quarter: Revenue was $240 million, down 5% from $253 million. Operating income was $68 million versus $88 million; operating margin was approximately 28%, compared with 35%. Consolidated net income was $195 million, while net income attributable to NEP was $56 million, or $0.83 per basic common unit ($0.76 diluted), versus a $72 million attributable loss in 2019.
- Nine months: Revenue was $705 million, up 9% from $649 million. Operating income was $207 million versus $190 million; operating margin was approximately 29% in both periods. NEP reported a consolidated net loss of $398 million and an attributable loss of $119 million, compared with losses of $488 million and $122 million, respectively, in 2019. Loss per unit was $1.80 versus $2.12.
- Revenue mix and drivers: Third-quarter renewable sales declined to $187 million from $201 million, principally on lower wind resource; pipeline service revenue was $53 million versus $52 million. Nine-month renewable sales rose to $546 million from $494 million, reflecting acquired projects and higher wind and solar resource.
- Interest and earnings volatility: Third-quarter interest-related results included a $93 million credit, versus $372 million of expense in 2019, primarily due to favorable mark-to-market changes in interest-rate derivatives. For nine months, interest expense was $730 million versus $735 million; unfavorable derivative mark-to-market activity affected 2020 results. Derivative fair-value movements materially influence reported earnings but are not equivalent to current-period cash interest.
- Cash flow: Nine-month operating cash flow was $482 million, up from $252 million. Investing cash outflow was $283 million versus $1.519 billion, as 2019 included a major acquisition; 2020 capital expenditures and other investments were $236 million. Financing cash outflow was $232 million, versus $1.311 billion of inflow in 2019. Cash, cash equivalents and restricted cash ended at $99 million.
- Debt and liquidity: Long-term debt, including current maturities, was $3.903 billion at September 30, versus $4.144 billion at year-end 2019. Total liabilities were $5.609 billion. Reported liquidity was $763 million, including $95 million cash, $82 million due under the CSCS agreement, and net available revolving-credit capacity. NEP reported compliance with financial debt covenants.
Material changes and notable items
- Equity-method earnings increased, mainly from the Meade pipeline interests acquired in November 2019 and higher Desert Sunlight earnings. NEP received approximately $65 million from Desert Sunlight after PG&E emerged from bankruptcy and related defaults were cured.
- NEP spent more on repowering wind facilities and pipeline expansions; remaining commitments under related construction contracts were approximately $97 million. One Texas pipeline expansion entered service in August 2020. A wind repowering project was completed in October, with another expected in the fourth quarter.
- During the quarter, approximately $300 million of convertible notes converted into about 5.7 million common units, and 1.8 million preferred units converted one-for-one. Common units outstanding reached 73.0 million at quarter-end, up from 65.5 million at year-end 2019. An additional 1.2 million preferred units converted in October.
- Common distributions paid during the first nine months totaled approximately $110 million. The board authorized a $0.5950-per-unit distribution payable November 13, 2020.
- Net derivative liabilities were approximately $1.020 billion, compared with $418 million at year-end 2019. Related derivative liabilities and mark-to-market accounting contributed materially to period-to-period earnings volatility.
Outlook, risks and contingencies
Management said liquidity and operating cash flows were expected to cover operating costs, maintenance capital, distributions and liquidity commitments. Acquisitions, expansion spending and future distribution growth depend partly on access to capital on acceptable terms. The filing provides no quantified earnings or distribution-growth guidance; the declared distribution is the stated near-term distribution.
NEP said COVID-19 had not materially affected operations, financial performance or liquidity to date, but its future effects remained uncertain. Key risks include weather and renewable resource variability, project and pipeline operating risks, customer and counterparty performance, access to financing, debt and distribution restrictions, interest-rate exposure, dependence on NEE/NEER and the return of funds held by affiliates. Approximately $82 million of cash-sweep amounts was held in affiliate accounts and included in amounts due from related parties. Construction commitments and asset-retirement obligations are additional cash demands. The filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm the intended issuer: the supplied 10-Q names NextEra Energy Partners, LP (NEP), not XPLR Infrastructure, LP.
- Separate cash operating performance from noncash derivative mark-to-market effects when assessing the reported profit and loss.
- Review the composition and accessibility of reported $763 million liquidity, including affiliate-held cash-sweep balances and revolver conditions.
- Assess the dilution and distribution implications of the note and preferred-unit conversions, and whether cash flows support distributions and planned capital spending.
- Check the status, cost and timing of pipeline expansion and wind repowering projects, and monitor COVID-19, counterparty, financing and affiliate-credit risks.