NGL Energy Partners LP (NGL) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2013 NGL Energy Partners LP earnings conference call. My name is Karis, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

(Operator Instructions)

As a reminder, this call is being recorded for replay purposes. And I would now like to turn a call over to your host for today, Mr. Mike Krimbill, Chief Executive Officer and Chief Financial Officer. Please proceed.

Thank you and welcome to the call. This conference call will include forward-looking statements and information. While NGL Energy Partners believes that its expectations are based on reasonable assumptions, there can be no assurance that such expectations will prove to be correct. A number of factors could cause actual results to differ materially from the projections, anticipated results, or other expectations included in the forward-looking statements.

These factors include the prices and market demand for one, natural gas is crude oil; two, the level of production of crude oil natural gas; three, the effect of weather conditions on demand for oil and natural gas -- natural gas liquids; and four, the ability to successfully identify and consummate strategic acquisitions at purchase prices that are accretive to final financial results and to successfully integrate acquired assets and businesses. Other factors that could impact any forward-looking statements are described in risk factors and the partnership's annual report on Form 10-K, quarterly report on Form 10-Q, and other public filings and press releases.

NGL Energy Partners LP undertakes no obligation to publicly update or revise any forward-looking statements as a result of new information, future events, or otherwise. Please also see the partnership's website at www.NGLEnergyPartners.com under Investor Relations for reconciliation to differences between any non-GAAP measures discussed on this conference call and the most directly comparable GAAP financial measures.

So with that, let's jump into the results. I'd like to go through the adjusted EBITDA for the quarter. And in our Q, we had mentioned a few items that we think we'll talk about to give us a more complete picture of the quarter. Adjusted EBITDA, as you know from the press release and the Q, for the quarter was $26.3 million, and for the six months was $19.9 million. We have M&A costs included in expenses for the acquisition's one-time charges, $0.6 million for the quarter and $4.4 million for the six month year-to-date.

And on the last call, we talked about this weight COG issue where we -- our weighted average cost of gas that included the pre-buy gallons at high prices compared today's spot versus the prorated barrels we're getting are being -- are causing us to record losses on the sale of our ratable gallons. For the second quarter, that dropped down to $1.4 million of additional expense in our cost of sales, and for year-to-date $9.3 million. So we have these numbers up for the second quarter. We look at the adjusted EBITDA including the M&A adjustment in the weight COG adjustment of $28.3 million, and for year-to-date $33.6 million.

Now we don't have really comparable numbers for the prior-year. So we thought on this call we'd give you our budget which is an accumulation of the projected EBITDA from our models for each merger and acquisition. So for the second quarter, our budget was $23.2 million. So the adjusted EBITDA for the Q was $26.3 million. So we beat our budget by $3 million. When you add back the M&A and weight COG adjustment, we beat it by $5 million. For year-to-date, the budget is $26.2 million, our adjusted was $19.9 million, and then adding back M&A and weight COG we were $33.6 million. So we beat the budget by $7.4 million. So we were very happy with the numbers.

And what we'd like to do is go forward and give you the estimates for actually our budget for the next two quarters, the third and fourth quarters of the fiscal year. And as you know, since the end of the quarter, September 30, we have completed about $200 million worth of acquisitions. And the multiple that we purchased -- the amount of EBITDA is 5 times. So that was about an additional $40 million of EBITDA for a full total 12 months. And as you know, we issued of that $200 million, about $57 million of additional equity, and the remainder was borrowings under our revolving credit. So I hope this isn't too confusing, I hope it's helpful that for the next two quarters our budget -- so for December 31 quarter and the third quarter, is $71.9 million. And again, this includes all the acquisitions since September 30.

So we're including the additional acquisitions for the part of the third quarter that we own them and all of the fourth quarter. So it's $71.9 million for the third quarter, and $85.6 million for the fourth quarter. So if we take the actual for the first six months -- and what we're going to do is go back to the actual adjusted EBITDA per the Q and press release, excluding the weight COG and M&A, that was about $26.3 million for the quarter, the prior quarter was actually a negative $6.5 million. So when we take those two actuals and add into $71 million and the $85 million, I think we're about to $177 million EBITDA is what we anticipate for fiscal 2013 ending, of course, March 31.

All right, and then we can give you the 2014 numbers for the quarters which would include all our businesses, all the acquisitions, for a full 12 months. We'd anticipate that we would have additional acquisitions, but we'll give you the run rate for everything that we own today which is $210 million. And that's broken down by first quarter which would June 30, '13 of $26 million; second quarter $33 million; third quarter $71 million; and the fourth quarter $80 million. So that will give you better idea.

Now really from our first quarter of this year to the first quarter of next year, we had a minus $6.5 million to a positive $26 million. That's predominately the inclusion of High Sierra for a full quarter. This year we only had them in our numbers for 11 days. And then you can see the remaining three quarters are fairly similar to the numbers we gave you. So hopefully that clears up some things and gives you some comparisons for the next two quarters. So with that, we can open it up for Q&A.

(Operator Instructions)

T.J. Schultz, RBC Capital Markets.

I think I followed all of that. I appreciate all of the detail and color on the budget. Just on the $200 million of acquisitions you made since the quarter, and a lot of that's Pecos, but it looks like you've got now toe holds into the Permian and Eagle Ford on the water handling side. Maybe just a little bit more color there? I don't know how large of acquisitions those are, but assuming those give you toe holds there, maybe just some specifics on your position now in those two plays? And maybe how, with those toe holds,, you could look to grow from here?

Yes, the Permian and the Eagle Ford are predominantly salt water disposal -- disposal of water. So our technology that we have in the Niobrara in the Anticline, at the present time, is not something we're going to take down there. But we purchased some salt water disposal wells. We also purchased additional permitted sites to drill. So we are now both expanding by drilling additional salt water disposal wells, and then trying to sign up with producers to fill those wells up.

Okay. And is that -- so right now are you primarily on the spot business now there, and how does that evolve over time? Do you look to convert more of those businesses to some of the taker pay like you have elsewhere? How does the contractual profile evolve as you enter these basins?

You are correct. Those basins are much different than the DJ or the Anticline because it is more of a spot business where you're dealing more with the trucking companies taking water to your wells versus of our term contract with the producer. But of course we will be trying to transition into longer-term contracts with producers.

Okay. The retail propane, you made a couple acquisitions there. Where geographically were these? And were they smaller -- I'm assuming they were smaller than some of the past retail deals you've done?

Yes, these were really blend-ins into our North Georgia operations and up into New England. So they were two smaller, one site, and I think one was a site with some satellite storage. So I think the total was around $10 million. Part of the strategy where something comes up in our footprint then we will be interested.

Okay. I guess the budget you gave assumed no other acquisitions, but do you have any guidance on how active you may look to continue to be as we look through calendar '13 and '14?

We haven't put out any guidance. We previously had attached a presentation to our website which showed $200 million at a 5 multiple. And the purpose of that was to show what it would take to be able to maintain 1.5 times coverage and still raise the distribution 12% to 15% a year. So we haven't given any guidance. You can look at what we've done so far which is probably $1.5 billion in 18 months. We don't expect that to continue. But if I had to pick some numbers, we'd certainly feel comfortable with $200 million plus.

Okay. Just lastly, after the acquisitions in October and November, what's your current debt outstanding?

It was right at $390 million long-term debt outstanding on the revolver, and then we have $250 million on the private placement.

$390 million on the revolver and $250 million on the private placement. So we're just over 3 times, maybe a little -- yes, just a tad over 3 times.

On a pro forma basis?

Correct.

(Operator Instructions)

Ethan Bellamy, Baird.

So much going on here, I'm not even sure where to start. With respect to the budget, what kind of volumetric assumptions are you making? Is there organic growth for propane volumes per barrel? For the quarter, are those good run rates or should we look for organic growth there?

We don't have any organic growth in the budget. So we are -- to the extent we're doing -- when we are doing things, I think we've told you in the past, we're converting some terminals from propane to butane, and we're increasing capacity through some of those terminals as well. But I'm looking around here, do we -- I don't think we have any internal growth in the budget, no.

No.

Okay. And then with respect to -- you obviously have a lot of [niche] in High Sierra specifically for organic CapEx. What type of potential project announcement or any sort of stacked up growth that you can lock at High Sierra?

We are drilling some additional salt water disposal wells at our facilities in the DJ, increasing our capacity there. Anticline is waiting for an increase in gas prices to pick up drilling, so nothing there. Crude oil, we're increasing volumes, just expanding as more producers want us to handle their barrels. We are contracting more barges out of our Port of Catoosa. But other than not, we really haven't talked about anything else.

So is it safe to say that the acquisition capital spending is probably still going to continue to outpace organic spending in calendar '13?

Yes, definitely.

Okay. All right, thanks a lot, Mike. Nice work, appreciate it.

And at this time, there are no further questions in queue, and I would now like to hand the call back over to management for closing remarks.

We appreciate your continued interest, and we are excited about the next two quarters. So we frankly are pretty -- we're really anticipating the next call to be another good one. With that, we'll sign off.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.