SEC filing summary
Registrant and period: The supplied filing is NextEra Energy Partners, LP’s unaudited Form 10-Q for the quarter and six months ended June 30, 2016. This differs from the request metadata naming XPLR Infrastructure, LP; the figures below are for the registrant identified in the filing.
Financial results
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $171 million | $125 million | $336 million | $233 million |
| Operating income | $75 million | $58 million | $148 million | $102 million |
| Net income | $28 million | $28 million | $16 million | $52 million |
| Net income attributable to NEP | $8 million | $4 million | $13 million | $4 million |
| EPS, basic and diluted | $0.19 | $0.16 | $0.33 | $0.24 |
Operating margin was approximately 44% in Q2 2016 versus 46% a year earlier; for the six-month periods it was approximately 44% in both years. Interest expense rose to $77 million in Q2 from $29 million and to $162 million for six months from $54 million. The filing attributes the increase mainly to interest-rate swap mark-to-market losses after hedge accounting ended in January 2016, additional borrowings, and debt assumed with the Texas pipelines.
Six-month operating cash flow was $145 million, versus $136 million. Investing cash outflow was $373 million, versus $585 million, including $324 million for acquisitions and $27 million of capital expenditures. Financing cash inflow was $306 million, versus $454 million. Cash and cash equivalents were $244 million at June 30, 2016.
Balance sheet, liquidity and distributions
Total debt, including current maturities, was approximately $3.58 billion; total liabilities were $4.97 billion. NEP reported liquidity of $655 million, including cash, amounts due under the cash sweep and credit support agreement, and available facilities net of borrowings and letters of credit. Subsidiaries were in compliance with financial debt covenants at quarter-end. Management said liquidity and operating cash flows were expected to cover operating costs, capital expenditures, distributions and liquidity commitments, while future growth depends partly on access to capital markets on acceptable terms.
Distributions per common unit were $0.3188 for Q2 and $0.6263 for the first six months, compared with $0.2050 and $0.4000, respectively, in 2015. A $0.33-per-unit distribution was declared July 26, payable August 12, 2016.
Material changes and notable items
- Revenue rose by $46 million in Q2 and $103 million for six months, primarily reflecting the Texas pipeline acquisition completed in October 2015; stronger wind resource also contributed to the six-month increase. Generation was 1,835 GWh in Q2 versus 1,880 GWh, and 3,732 GWh for six months versus 3,642 GWh.
- NEP acquired the approximately 299-MW Seiling I and II wind facilities in March for about $323 million plus working capital, and assumed approximately $257 million of differential membership interest liabilities. After quarter-end, it acquired the approximately 285-MW Bayhawk wind assets for about $312 million plus working capital and assumed approximately $253 million of related liabilities.
- A public offering and at-the-market unit sales generated approximately $303 million net during the first six months. Common units outstanding increased to 42.3 million from 30.6 million at year-end 2015.
- The company recorded a $17 million reduction in the estimated fair value of a contingent Texas pipeline acquisition holdback. A Canadian-asset reorganization generated approximately $12 million of income tax benefits in Q2; reported six-month income tax benefit was $12 million.
- NEP discontinued hedge accounting for interest-rate swaps in January. It recognized $84 million of swap losses in interest expense for the first six months; the swap liability was $141 million at June 30.
Outlook, risks and contingencies
The filing provides no numeric earnings or distribution-growth guidance. Management expects to fund operations primarily from internally generated cash, and acquisitions and other investments through cash, debt and equity financing. Planned Texas pipeline capital expenditures were approximately $39 million for the remainder of 2016 and $91 million in 2017, primarily for expansion projects; estimates may change.
Key risks include variable wind and solar output, weather and equipment performance, reliance on long-term contracts and counterparties, pipeline expansion and integrity risks, interest-rate and currency exposure, debt and covenant restrictions, and dependence on NEE and its affiliates. The filing reports no material changes to the risk factors in the 2015 Form 10-K. Canadian wind FIT contracts remain subject to audits of domestic-content requirements; noncompliance could threaten contract revenues. The Texas pipeline business, representing about 32% of consolidated assets and 24% of six-month revenue, was excluded from management’s June 30 internal-control assessment pending evaluation, with inclusion planned for year-end 2016.
Investor facts to verify
- Confirm that the intended issuer is NextEra Energy Partners, LP, rather than XPLR Infrastructure, LP.
- Review the effect of swap accounting changes and underlying interest-rate exposure on recurring earnings and cash flows.
- Assess Texas pipeline acquisition holdbacks, planned expansion spending and the assumptions behind projected pipeline cash flows.
- Check post-quarter Bayhawk acquisition financing, covenant capacity and the resulting debt and unit dilution.
- Evaluate the sustainability of distributions against cash available from subsidiaries, project reserves and amounts swept or held by NEE affiliates.
- Track the Texas pipeline business’s internal-control assessment and the Canadian FIT domestic-content audit exposure.