NGL Energy Partners LP — Form 10-Q Summary
Business context and reporting period. This is the unaudited quarterly report for the three months ended June 30, 2015, the first quarter of fiscal 2016 (not calendar 2015 Q1). NGL operates in crude oil logistics, water solutions, wholesale liquids, retail propane, and refined products and renewables. Comparative results are affected by acquisitions, particularly TransMontaigne, acquired in July 2014.
Financial performance and liquidity
| Metric | Three months ended June 30, 2015 | Prior comparable period |
|---|---|---|
| Revenue | $3.538 billion | $3.649 billion |
| Revenue less cost of sales | $215.9 million | $114.6 million |
| Operating loss | $14.7 million | $20.6 million |
| Net loss | $38.5 million | $39.9 million |
| Net loss allocated to limited partners | $57.8 million; $0.56 loss per common unit | $49.4 million; $0.61 loss per common unit |
| Cash provided by operating activities | $81.8 million | $9.2 million |
- Revenue fell about 3%, while revenue less cost of sales rose to 6.1% of revenue from 3.1%. Operating margin improved to approximately -0.4% from -0.6%.
- Management-reported Adjusted EBITDA was $88.9 million versus $39.3 million. This non-GAAP measure adds back, among other items, $40.2 million of equity-based compensation in 2015; it should not be treated as GAAP earnings or operating cash flow.
- Cash was $43.5 million at June 30. Current assets were $1.587 billion and current liabilities $1.089 billion, leaving working capital of approximately $498.7 million.
- Total debt was $2.972 billion, up from $2.750 billion at March 31. Net debt, after cash, was approximately $2.929 billion. Interest expense increased to $30.8 million from $20.5 million.
- Operating cash flow was more than offset by investing outflows of $222.7 million, including $122.1 million of purchases of long-lived assets and $63.9 million of acquisitions. Financing provided $143.1 million; cash increased $2.2 million.
Material changes and segment results
- Crude oil logistics: Operating income rose to $12.0 million from $1.5 million. Higher volumes and storage opportunities in a contango market helped, although crude-oil sales revenue declined with lower prices and per-barrel crude margin fell to $0.71 from $1.12.
- Water solutions: Operating loss widened to $3.1 million from $0.9 million. Acquired and developed facilities increased service-fee revenue, but recovered-hydrocarbon revenue per water barrel declined with crude prices.
- Liquids: Operating loss narrowed to $0.5 million from $0.9 million. Higher volumes and other-product margins partly offset weaker propane margins amid falling prices.
- Retail propane: Operating loss narrowed to $0.7 million from $1.6 million, mainly on improved propane margins. The business is seasonal, with stronger activity generally in the heating season.
- Refined products and renewables: Operating income was $33.0 million versus a $1.3 million loss, reflecting the TransMontaigne acquisition, increased refined-product volumes, and stronger reported product margins.
- Corporate and other: Operating loss increased to $55.5 million from $17.4 million, principally as equity-based compensation expense rose to $36.3 million from $7.9 million and other corporate expense also increased.
Outlook, risks, and unusual items
- No quantitative earnings or cash-flow guidance is provided. Management said anticipated operating cash flows and revolving-credit capacity should meet liquidity needs, while noting additional capital may be needed if plans change or acquisitions are pursued.
- NGL announced plans for a joint venture with Meritage Midstream to develop crude-oil gathering and water-services infrastructure in Wyoming’s Powder River Basin.
- At June 30, the revolving facility had $2.296 billion of capacity, with $1.607 billion borrowed and $129.9 million of letters of credit. Availability is subject to facility terms and the working-capital borrowing base. NGL reported covenant compliance, a leverage ratio of approximately 3.3x versus a 4.25x maximum, and interest coverage of 5.9x versus a 2.75x minimum.
- Key exposures include commodity-price volatility, changes in oil and gas production and demand, seasonality, interest rates, counterparty credit, and environmental and regulatory requirements. Management noted low crude prices could reduce producer activity and water volumes; contango can benefit crude logistics storage.
- Significant contractual commitments include $530.2 million of operating leases, $482.2 million of minimum pipeline-throughput payments, and $620.2 million of construction commitments. These figures are contractual obligations, not necessarily immediate cash outlays.
- Acquisitions included six water facilities purchased for $59.3 million cash plus 386,383 common units, and a retail propane business acquired for $4.6 million cash. Acquisition valuations remained preliminary for certain deals. The quarter also included $1.5 million of revenue from amortization of an acquired unfavorable-contract liability.
- The July 2015 distribution was declared at $0.6325 per unit. Management cautioned that interim results are not necessarily indicative of the full fiscal year.
Important facts for investors to verify
- Confirm the period being analyzed: the filing covers fiscal Q1 ended June 30, 2015; the request’s “2015 Q1” label can be misleading.
- Review Adjusted EBITDA’s reconciliation and the large equity-compensation addback, along with the effect of acquisitions on comparability.
- Check revolving-credit availability, borrowing-base constraints, covenant headroom, and upcoming debt maturities; the revolving facilities mature in November 2018.
- Assess whether planned expansion spending and construction commitments can be funded while distributions and acquisition activity continue.
- Track crude-price effects on recovered-hydrocarbon revenue, producer activity and water volumes, and performance of the refined-products business and acquired assets.