PAR Pacific Holdings, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Par operates refining, retail and logistics businesses, with four refineries in Hawaii, Wyoming, Washington and Montana. The Billings refinery and related assets were acquired on June 1, 2023.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $2,579.3 million | $2,056.3 million | $6,048.4 million | $5,512.9 million |
| Operating income | $196.9 million | $284.2 million | $504.7 million | $337.1 million |
| Net income | $171.4 million | $267.4 million | $439.3 million | $279.5 million |
| Diluted EPS | $2.79 | $4.47 | $7.18 | $4.68 |
| Adjusted EBITDA (non-GAAP) | $255.7 million | $214.1 million | $574.2 million | $468.5 million |
- Q3 revenue increased 25%, primarily reflecting Billings acquisition contribution and higher legacy refining volumes. Net income fell 36%, chiefly because of lower refining operating income, higher corporate costs, acquisition costs and taxes. Adjusted EBITDA nevertheless rose, reflecting stronger adjusted refining performance.
- Nine-month net income increased 57%; adjusted EBITDA rose 23%. Refining operating income increased $185.5 million year over year, while acquisition and integration costs were $17.2 million.
- Q3 segment operating income: refining $194.8 million, logistics $20.7 million and retail $13.3 million. Refining operating income declined $71.3 million year over year; Q3 logistics improved and retail declined.
- Q3 adjusted gross margin, a non-GAAP measure, was $350.6 million for refining, $35.3 million for logistics and $38.2 million for retail. Legacy refinery crack spreads were generally lower; Billings and favorable crude differentials contributed to refining results.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $581.4 million, versus $369.1 million in 2022. Investing cash outflow was $631.8 million, including $595.4 million for Billings and $53.7 million of capital expenditures. Financing cash outflow was $79.0 million.
- Cash, cash equivalents and restricted cash totaled $365.6 million at September 30, down from $494.9 million at December 31, 2022. Management reported total liquidity of $778.2 million and stated cash flows and available resources should cover current capital, working-capital and debt-service needs for the next 12 months.
- Debt principal was $552.2 million ($536.9 million net of discounts and financing costs). The $547.3 million term loan matures in 2030 and carries floating-rate interest; the company refinanced and retired its prior 2025–2026 notes and Term Loan B during 2023. It reported compliance with debt covenants at quarter-end.
- Inventory financing obligations were $841.8 million. The ABL had no revolver borrowings and $49.4 million of letters of credit outstanding at quarter-end. Subsequent to quarter-end, the ABL commitment was increased to $900 million, with potential further increases; the Washington refinery intermediation agreement was also wound down under an October 4 agreement.
Material changes and unusual items
- The Billings acquisition cost approximately $625.4 million, funded with cash and ABL borrowings. Its purchase-price allocation remained preliminary, particularly for inventory, property and equipment, and environmental liabilities. Acquired assets contributed $839.9 million of Q3 revenue and $68.2 million of Q3 net income; results are included from June 1.
- In February 2023, Par refinanced with a $550 million term loan due 2030. Nine-month debt extinguishment and commitment costs were $17.7 million. The company estimated undiscounted future interest payments of $344 million using rates in effect at March 31, 2023.
- Nine-month results included $10.7 million of Laramie Energy distribution income. The company also recorded a $99.7 million gain from settling 2020 and 2021 renewable-fuel obligations using RINs.
- The board expanded the share repurchase authorization to $250 million in August. Par repurchased $29.9 million of shares in the first nine months; $213.6 million remained authorized at September 30. The company does not expect to pay dividends in the foreseeable future.
Outlook, risks and contingencies
- No formal earnings or operating guidance is provided. Management cited an EIA forecast of average Brent crude prices of $95 per barrel in 2024 and anticipated higher jet fuel consumption, but these are external forecasts, not company guidance. Commodity prices, crack spreads and crude differentials can materially affect results and liquidity.
- Par’s income-tax valuation allowance covered substantially all net deferred tax assets. Management said continued profitability could support reassessment and a possible valuation-allowance reversal within 12 months; realization is uncertain.
- Environmental exposures include a September 2023 EPA letter alleging Clean Air Act consent-decree violations at the Hawaii refinery, with potential penalties or capital requirements that could be material; Wyoming remediation and wastewater-system costs; and compliance-credit exposure under Washington’s climate and clean-fuel programs and federal renewable-fuel rules.
- Billings acquisition environmental liabilities are expected to be incurred over 20–30 years. Final purchase accounting could materially change reported amounts. The filing also describes ongoing Hawaii tax litigation and audits, a Washington tax assessment appeal, and unresolved Delta-related claims; outcomes are uncertain.
- Floating-rate debt, inventory financing, derivatives and environmental credit prices create market and liquidity exposure. The filing estimates that a 1% increase in variable rates would raise annual costs by approximately $0.8 million in cost of revenues and $7.4 million in interest expense, after hedging and rate floors.
Important facts for investors to verify
- Billings’ post-acquisition operating performance, integration progress, final purchase-price allocation and environmental obligations.
- Whether refining margins and cash generation remain resilient amid changing crude prices, crack spreads, inventory-financing costs and derivative effects.
- Availability and terms of the amended ABL, the LC facility and inventory financing, including the effect of the Washington intermediation wind-down.
- Potential costs or outcomes of EPA, Washington climate-program, Wyoming remediation and tax matters, and any change in the deferred-tax valuation allowance.
- Capital allocation after share repurchases, including debt service, capital spending and remaining repurchase authorization.