NGL Energy Partners LP — Form 10-Q Summary
Reporting period: Three months ended June 30, 2022, the partnership’s first quarter of fiscal 2023. Financial statements are unaudited. NGL operates Water Solutions, Crude Oil Logistics and Liquids Logistics businesses.
Key financial results
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Revenue | $2.497 billion | $1.489 billion |
| Operating income (loss) | $87.3 million | $(69.3) million |
| Net income (loss) | $23.1 million | $(134.5) million |
| Net income (loss) attributable to NGL | $22.9 million | $(134.9) million |
| Net loss allocated to common unitholders | $(4.7) million; $(0.04) per unit | $(159.3) million; $(1.23) per unit |
| Adjusted EBITDA, non-GAAP | $123.9 million | $91.1 million |
| Cash from operating activities | $2.5 million | $(5.2) million |
| Capital expenditures, cash basis | $41.0 million | $46.8 million |
Revenue rose about 68%, reflecting higher commodity prices and activity, as well as segment-specific volume and mix changes. Cost of sales also rose substantially; gross profit was approximately $242.4 million, or 9.7% of revenue, compared with $163.9 million, or 11.0%, a year earlier. The prior-year operating loss included a $60.1 million Sawtooth disposition loss in Liquids Logistics and other asset losses; the current quarter also benefited from lower depreciation and amortization.
Operating income improved in all three segments: Water Solutions to $53.6 million from $7.6 million; Crude Oil Logistics to $19.0 million from a loss of $11.6 million; and Liquids Logistics to $26.6 million from a loss of $53.4 million. Management cited stronger water volumes and recovered-oil revenue, improved crude oil margins, and better refined-products margins. Commodity derivative effects remain significant and can make reported results volatile.
Balance sheet, debt and liquidity
- At June 30, cash was $0.8 million; current assets were $1.749 billion and current liabilities $1.392 billion, leaving approximately $356.9 million of working capital.
- Debt carrying value was approximately $3.387 billion, plus $2.4 million of current maturities. Face principal was $3.427 billion. Debt includes $2.05 billion of 7.5% secured notes due 2026 and $171 million drawn on the ABL revolver.
- The amended ABL facility has $600 million of commitments, with approximately $143.6 million of letters of credit outstanding; the commitment must return to $500 million by March 31, 2023. The facility’s weighted-average borrowing rate was 4.84% at quarter-end. NGL reported compliance with debt covenants and no Cash Dominion Event.
- Interest expense was $67.3 million, broadly unchanged year over year. NGL repurchased $23.3 million face value of 2023 Notes for $21.5 million cash during the quarter; in July it repurchased another $14.2 million of 2023 Notes and $1.5 million of 2026 Notes.
Operating cash flow was only slightly positive despite $139.6 million of cash generation before working-capital changes; receivables and inventory absorbed cash. Financing activities provided $30.9 million, including net revolver borrowing. NGL expects fiscal 2023 capital expenditures of approximately $100 million and said operating cash flow and ABL availability should meet liquidity needs. It expects minimal acquisition or expansion needs. Liquids Logistics seasonality and higher commodity prices can increase inventory funding requirements.
Outlook, distributions and material risks
- No specific revenue, earnings or Adjusted EBITDA guidance was provided. Management cautioned that interim results are not necessarily indicative of full-year results.
- All common and preferred distributions remain suspended while NGL seeks to deleverage and meet the 4.75-to-1.00 leverage condition in the 2026 secured-note indenture. The board will consider reinstatement in light of leverage, liquidity, cash-flow sustainability, maturities, capital spending and business performance.
- Unpaid preferred distributions continue to accumulate. At June 30, amounts due were $44.7 million for Class B, $6.9 million for Class C and $103.9 million for Class D. Class B and Class D distribution rates increased or reset beginning July 1, 2022, as described in the filing.
- Management cited commodity-price volatility, inflation and supply-chain constraints related to the COVID-19 pandemic and Russia’s invasion of Ukraine. It also described induced seismicity concerns in Texas and New Mexico; NGL has reduced injection volumes or temporarily shut some facilities, but reported no negative impact to date.
- A quantum-meruit claim by LCT Capital is scheduled for a damages trial in November 2022; NGL had accrued $2.5 million. Environmental liabilities were $1.7 million. Other legal claims were not expected by management to have a material adverse effect, though outcomes are uncertain.
- Other exposures include commodity derivative and counterparty risk, substantial fixed and variable debt obligations, and significant purchase, pipeline, lease and other contractual commitments. NGL reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether operating cash flow and revolver availability can support seasonal working capital, planned capital spending and debt service, particularly if commodity prices or receivables move adversely.
- Debt maturities and refinancing capacity, especially the 2023 Notes, and the effect of the ABL commitment reverting to $500 million by March 31, 2023.
- Progress toward the leverage condition for distribution reinstatement, and the continuing accumulation and future cost of unpaid preferred distributions.
- How much reported segment performance depends on commodity prices, derivative settlements and valuation adjustments; Adjusted EBITDA is a non-GAAP measure and should be assessed alongside GAAP results and cash flow.
- Developments in the LCT litigation, environmental obligations, and regulatory responses to induced seismicity and water disposal.