Par Pacific Holdings, Inc. — Q1 2023 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2023; comparisons are with Q1 2022. Par operates refining, retail and logistics businesses, with refineries in Hawaii, Wyoming and Washington, and holds a 46% interest in Laramie Energy. The filing reports four segments, including Corporate and Other.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $1.685 billion | $1.350 billion |
| Operating income (loss) | $261.4 million | ($121.1 million) |
| Net income (loss) | $237.9 million; diluted EPS $3.90 | ($137.1 million); diluted EPS ($2.31) |
| Adjusted EBITDA (non-GAAP) | $167.6 million | $12.4 million |
| Adjusted net income (loss) (non-GAAP) | $137.5 million | ($27.4 million) |
| Operating cash flow | $139.1 million | ($7.7 million) |
| Capital expenditures | $13.2 million | $16.3 million |
At March 31, cash and cash equivalents were $661.3 million; management reported total liquidity of $750.5 million. Total debt principal was $550.0 million ($534.3 million net carrying value), and inventory financing obligations were $871.6 million. Total liabilities were $2.439 billion and stockholders’ equity was $888.0 million. The filing does not provide a consolidated gross-margin percentage as a headline metric.
Material changes versus the prior period
- Revenue rose 25%. Refining operating income improved to $263.1 million from a $118.3 million loss; logistics income was $12.6 million versus $9.9 million, and retail income was $13.5 million versus $4.0 million.
- Refining results benefited from stronger crack spreads, higher sales volumes, more favorable inventory-financing derivative valuations, and a $94.7 million gain from settling certain renewable fuel obligation (RVO) liabilities. Par said the gain reflected the difference between the carrying value of retired renewable identification numbers (RINs) and the market value of obligations settled.
- GAAP net income also included $10.7 million of Laramie Energy equity earnings, recorded for a one-time distribution when Par’s investment carrying value was zero, and $17.7 million of debt extinguishment and commitment costs. Adjusted EBITDA and adjusted net income exclude several such items and other specified adjustments.
- Operating cash flow improved substantially, although working-capital changes used cash. Cash increased by $170.4 million during the quarter.
Debt, outlook, risks and unusual items
- In February 2023, Par refinanced its prior debt with a $550 million senior secured term loan due 2030, bearing floating-rate interest at SOFR plus 4.25% (subject to a stated rating step-down). The transaction repaid the Term Loan B and retired the 7.75% and 12.875% senior secured notes. Par reported $17.7 million in related extinguishment and commitment costs. Using March 31 rates, estimated undiscounted future interest payments increased to $295 million. The loan includes quarterly principal payments and may require excess-cash-flow prepayments.
- After quarter-end, on April 26, Par replaced its ABL revolver with a new asset-based facility initially sized at up to $150 million, expandable in connection with the planned Billings acquisition. The filing does not establish the acquisition’s final funding or closing outcome.
- Par expected to close the Billings, Montana refinery and related assets acquisition in Q2 2023. The base purchase price is $310 million plus hydrocarbon inventory and adjusted working capital; a $30 million deposit had been paid. Q1 included $5.3 million of acquisition costs.
- Management said cash flows and available capital resources should meet capital expenditure, working-capital and debt-service needs for the next 12 months. No specific earnings or operating guidance was provided. Management cited an EIA forecast of average Brent crude pricing of $85 per barrel in 2023; this is an external forecast, not company guidance.
- Key exposures include volatile crude and refined-product prices, floating interest rates, RIN and Washington climate-compliance credit costs, and environmental regulation. A $1 per barrel change in average gross refining margins would change annualized operating income by approximately $47.8 million, all else equal. Par had $346.7 million of gross environmental-credit obligations, partly offset by $193.2 million of related credits carried in inventory.
- Environmental and legal contingencies include accrued Wyoming refinery remediation costs of $14.8 million and estimated wastewater-system design and construction costs of about $11.6 million. Two Delta bankruptcy-related claims totaling approximately $22.4 million remained unresolved; Par had accrued about $0.5 million for claims it considered probable and estimable. The company disputed Hawaii tax-related allegations and said an unfavorable outcome was neither probable nor reasonably estimable.
- Par reported compliance with its debt instruments at March 31, 2023. Disclosure controls were deemed effective, and the filing reported no material changes in internal control over financial reporting.
Important facts for investors to verify
- How much of Q1’s reported profitability is repeatable after separating the $94.7 million RVO settlement gain, commodity and inventory-financing valuation effects, Laramie distribution, and refinancing costs.
- Final Billings acquisition closing terms, inventory and working-capital funding, purchase accounting, and expected operating contribution.
- Current borrowing availability, covenant headroom and floating-rate exposure under the new ABL facility and 2030 term loan; the stated $750.5 million liquidity figure is as of March 31 and precedes the ABL replacement.
- Future RIN and Washington climate-compliance costs, including the effect of credit prices and regulatory requirements on cash flows and margins.
- Progress and potential cost ranges for Wyoming remediation and wastewater projects, and developments in the unresolved tax and Delta-related matters.