Business context and reporting period
The filing is NextEra Energy Partners, LP’s unaudited Form 10-Q for the quarter ended March 31, 2016—not a filing under the name XPLR Infrastructure, LP shown in the request metadata. NEP owns contracted renewable-energy projects and, since October 2015, seven contracted Texas natural-gas pipeline assets. Comparative 2015 figures were retrospectively adjusted for common-control acquisitions.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Operating revenue | $165 million | $108 million |
| Operating income | $73 million | $44 million |
| Operating margin | 44.2% | 40.7% |
| Net income (loss), consolidated | $(14) million | $25 million |
| Net income attributable to NEP | $5 million | $2 million |
| Basic and diluted earnings per common unit | $0.14 | $0.08 |
| Distributions per common unit | $0.3075 | $0.1950 |
| Cash provided by operating activities | $49 million | $40 million |
| Cash used in investing activities | $(389) million | $(160) million |
| Cash provided by financing activities | $308 million | $85 million |
Revenue rose approximately 53%, primarily from $47 million of Texas pipeline revenue and stronger wind resources. Operating income increased approximately 66%; operating margin improved. The consolidated net loss contrasts with positive income attributable to NEP, reflecting the allocation of results to noncontrolling interests.
Interest expense increased to $86 million from $25 million, mainly because hedge accounting for interest-rate swaps was discontinued in January 2016, resulting in $47 million of swap mark-to-market losses recognized in interest expense, and because of the Texas pipeline acquisition. Equity-method investee losses were $13 million, also largely reflecting swap valuation losses. No separate cash-flow or net-profit margin guidance is provided.
At March 31, cash and cash equivalents were $133 million, versus $163 million at year-end; restricted cash was $49 million. Reported liquidity was $566 million, including $83 million due under the cash sweep and credit support agreement and available facility capacity. Total debt was approximately $3.5 billion, including current maturities and short-term borrowings; long-term debt and current maturities were reported at $3.533 billion, excluding $12 million of short-term debt. Total liabilities were $4.921 billion. One project had an approximately $2 million debt-reserve funding shortfall, although subsidiaries were in compliance with financial debt covenants.
Material changes and significant transactions
- On March 1, NEP acquired Seiling I and II, two Oklahoma wind facilities with combined capacity of approximately 299 MW, for approximately $323 million plus working capital, and assumed $257 million of existing differential-membership-interest liabilities. The transaction included a $25 million related-party receivable tied to turbine performance issues.
- The Texas pipeline acquisition contributed substantially to revenue and operating-cost increases. A $187 million contingent acquisition holdback was recorded as current at quarter-end; a separate $200 million indemnity holdback remains subject to seller claims through April 2017.
- NEP issued 11.155 million common units in a public offering for approximately $287 million and issued additional units through its at-the-market program. Period-end common units outstanding were 41.9 million, compared with 30.6 million at December 31, 2015.
- Investing cash use included $325 million for subsidiary interests; financing included $292 million of net unit-issuance proceeds. Capital expenditures were $12 million in the cash-flow statement; management separately reports capital expenditures of $12 million for Q1 2016 versus $178 million for Q1 2015.
Outlook, risks, and unusual items
Management said liquidity and operating cash flows were expected to cover operating and capital needs, debt service, distributions, and liquidity commitments. Future acquisitions, expansions, and distribution growth depend in part on access to debt and equity markets on acceptable terms. Estimated remaining-2016 capital expenditures were $16 million for renewables; planned pipeline expansion spending was approximately $53 million for the remainder of 2016 and $80 million in 2017. These estimates may change.
After quarter-end, NEP announced a distribution of $0.31875 per common unit, payable May 13, 2016. Management noted that cash available for distribution can fluctuate with wind conditions, project performance, maintenance and outages, debt-service timing, and other factors. The filing identifies risks from project performance and weather, pipeline expansion and natural-gas supply, customer and contract concentration, debt and capital-market access, interest-rate and currency movements, and reliance on NEE/NEER, including related-party cash-sweep arrangements. Approximately $83 million was held by NEER or affiliates under those arrangements at quarter-end.
NEP reported no material changes to the risk factors in its 2015 Form 10-K. The Texas pipeline business represented approximately 33% of consolidated assets and 28% of quarterly revenue; management excluded it from its March 31 internal-control assessment and planned to include it in the year-end 2016 assessment. Disclosure controls were deemed effective at a reasonable-assurance level. Canadian wind FIT contracts remain subject to domestic-content audits, and failure to meet requirements could put contracts at risk.
Important facts for investors to verify
- Confirm the correct registrant: the supplied filing identifies NextEra Energy Partners, LP, not XPLR Infrastructure, LP.
- Review the cash and distribution implications of the $47 million derivative mark-to-market loss, discontinued hedge accounting, and the $110 million interest-rate-contract liability reported at fair value.
- Assess the Texas pipeline acquisition’s contingent and indemnity holdbacks, planned expansion spending, and expected financial performance and capital thresholds.
- Evaluate the availability and return terms of related-party swept cash, NEER credit support, and NEP’s dependence on NEE/NEER.
- Check subsequent distribution declarations, debt-reserve funding, covenant compliance, and the planned inclusion of the Texas pipeline business in the year-end internal-control assessment.