Business context and reporting period
This summary covers the unaudited quarter and six months ended June 30, 2015. The filing is for NextEra Energy Partners, LP (NEP), not XPLR Infrastructure, LP as stated in the request metadata. NEP owned contracted wind and solar projects and held a 22.2% limited partnership interest in NEP OpCo; consolidated results include the noncontrolling interest held by NEE Equity. Prior periods were retrospectively adjusted for acquisitions under common control.
Key financial metrics
| Metric | Three months ended June 30, 2015 | Six months ended June 30, 2015 | Comparable 2014 period |
|---|---|---|---|
| Revenue | $107 million | $194 million | $99 million and $170 million, respectively |
| Operating income | $50 million | $83 million | $54 million and $88 million, respectively |
| Net income | $23 million | $30 million | $23 million and $30 million, respectively |
| Net income attributable to NEP | $4 million | $4 million | Clear comparable values are not provided in the extracted statement |
| EPS attributable to NEP | $0.16 | $0.24 | Clear comparable values are not provided in the extracted statement |
| Operating cash flow | Not stated separately | $81 million | $94 million for six months |
Operating margin was approximately 46.7% for the quarter and 42.8% for the six months, versus approximately 54.5% and 51.8% in the respective 2014 periods. Cash and cash equivalents were $100 million at June 30, 2015. NEP reported liquidity of $314 million, including cash, amounts due under the CSCS agreement and available facility capacity, net of borrowings and letters of credit. Current liabilities were $501 million versus current assets of $225 million.
At June 30, total reported debt was approximately $2.28 billion: $325 million short-term debt, $89 million current maturities and $1.87 billion long-term debt. The filing reports six-month capital expenditures of $133 million in its MD&A; cash-flow statement capital expenditures were $74 million, reflecting a different presentation that should be reconciled.
Material changes versus prior comparable periods
- Quarterly revenue rose $8 million and six-month revenue rose $24 million, primarily from projects entering commercial operation; lower wind generation partly offset growth. Generation was 1,469 GWh for the quarter and 2,838 GWh for six months, compared with 1,058 GWh and 2,057 GWh.
- Operating income declined $4 million for the quarter and $5 million for six months. Higher operations and maintenance and depreciation costs from new projects were the main stated drivers.
- Interest expense increased $1 million for the quarter and $5 million for six months, reflecting new financings and revolver borrowings, partly offset by debt repayments.
- Six-month operating cash flow decreased $13 million. Investing cash use increased to $557 million, including $716 million of project acquisition payments, partly offset by $174 million of net CSCS-related receipts. Financing provided $471 million, including short-term borrowing and common-unit issuance proceeds.
- NEP acquired four operating wind projects in May for approximately $424 million cash, plus assumption of approximately $269 million of debt and tax-equity financing. It also made an investment in three California solar projects under construction, expected to total 277 MW.
Outlook, commentary, risks and unusual items
- NEP expected to acquire NET Midstream, a Texas pipeline business, early in Q4 2015 for approximately $2 billion less assumed debt, subject to closing conditions. The proposed funding included available cash, revolver capacity, and future debt and equity; a $1 billion bridge-loan commitment was described. The deal would materially expand NEP beyond wind and solar.
- NEP estimated NET Midstream had seven pipeline assets with approximately 4 Bcf/day capacity, of which 3 Bcf/day was contracted under firm ship-or-pay arrangements. Planned expansions could add 0.9 Bcf/day of contracted capacity. These are forward-looking estimates, not completed results.
- Management said existing liquidity and operating cash flow were expected to cover operating needs, capital expenditures, distributions and liquidity commitments, while warning that cash-flow declines could reduce borrowing capacity. Estimated remaining-2015 capital expenditures were $18 million, excluding the pending pipeline acquisition.
- NEP declared a $0.2350-per-unit distribution after quarter-end, payable August 14, 2015. Cash available for distribution may fluctuate with wind conditions, project performance, maintenance, debt service and reserves.
- Risk factors include weather and project performance, counterparty and contract concentration, project debt covenants, dependence on NEE and its credit support, and access to financing. Stateline was below its debt-service coverage threshold for distributions at quarter-end; a July refinancing was expected to permit distributions again.
- Additional proposed-acquisition risks include financing and closing uncertainty, integration, dependence on PEMEX for a significant share of expected contracted revenue, pipeline regulation and integrity costs, and an ongoing FERC investigation of trading activity at a subsidiary that NEP said it would not acquire. NEP disclosed an indemnity for specified FERC-related remedies but could not predict the outcome.
- Management reported disclosure controls were not effective at a reasonable assurance level because of a material weakness in accounting for income taxes, including deferred tax valuation and accuracy. Remediation was in progress and not yet validated.
- NEP stated it expected not to pay meaningful U.S. federal income tax for approximately 15 years, based on assumptions about future income, capital spending, cash flows and distributions; NOL availability could be affected by ownership changes.
Important facts for investors to verify
- Confirm the registrant and period: the supplied filing is NEP’s Q2 2015 Form 10-Q, not an XPLR Infrastructure filing.
- Reconcile the $74 million cash-flow capital-expenditure figure with the $133 million MD&A figure and review acquisition-related cash flows and assumed financing.
- Assess the NET Midstream transaction’s eventual closing, funding mix, debt burden, customer concentration and realized performance against forecasts.
- Review debt covenants, Stateline’s post-refinancing distribution capacity, and the availability and return of funds held under related-party cash-sweep arrangements.
- Track remediation and independent validation of the income-tax material weakness, and assess the assumptions and potential limitations behind the NOL outlook.