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01/11 03:45
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary and Q&A reveal strong performance in the Water Solutions segment and strategic repurchases of units, indicating positive financial health. The reaffirmation of full-year EBITDA guidance and potential for guidance revision add optimism. Risks are acknowledged but seem manageable. The Q&A supports a positive sentiment with clear responses and no evasive answers. The unit repurchase plan and Class D preferred units repurchase enhance shareholder returns, contributing to a positive outlook.
Consolidated adjusted EBITDA $167.3 million in the second quarter, up 12% year-over-year from $149.4 million. The increase was primarily driven by the performance of the Water Solutions business segment.
Water Solutions adjusted EBITDA $151.9 million in the second quarter, an 18% increase from $128.9 million in the prior year. The increase was driven by higher disposal revenues due to increased produced water volumes, higher water pipeline revenue from the LEX II pipeline, and higher skim oil revenue from more skim oil recovered.
Physical water disposal volumes 2.8 million barrels per day in the second quarter, a 4% increase from 2.68 million barrels per day in the prior year. The increase was due to higher produced water volumes processed from contracted customers.
Total water disposal volumes (including deficiency volumes) 3.15 million barrels per day in the second quarter, up 14% from 2.77 million barrels per day in the prior year. The increase was driven by higher produced water volumes and additional contracted volumes.
Operating expenses for Water Solutions $0.22 per barrel, consistent with previous quarters.
Crude Oil Logistics adjusted EBITDA $16.6 million in the second quarter. Physical volumes on the Grand Mesa pipeline averaged 72,000 barrels per day, a 30% increase from 63,000 barrels per day in the prior year. The increase was due to higher transportation volumes.
Class D preferred units repurchased 88,506 units since April, representing 15% of outstanding units. This results in $10.4 million in annual distribution savings.
Term Loan B interest savings $15 million annually achieved through two repricings and Fed rate cuts, reducing the SOFR margin from 375 basis points to 350 basis points.
Common unit repurchases 4.4 million units repurchased in the quarter, totaling 6.8 million units (5% of outstanding units) at an average price of $4.57.
Water Solutions adjusted EBITDA: Increased to $151.9 million in Q2 FY26, up 18% from $128.9 million in Q2 FY25, driven by higher disposal revenues, increased produced water volumes, and higher water pipeline revenue.
Crude Oil Logistics adjusted EBITDA: Reported at $16.6 million in Q2 FY26, with Grand Mesa pipeline volumes up 30% compared to Q1 FY26.
Water disposal volumes: Surpassed 3 million barrels per day for an entire month, with new growth capital projects for 750,000 barrels per day of newly contracted volume commitments.
Delaware Basin asset position: Expanded to over 5 million barrels per day of permitted injection capacity, with 800 miles of pipeline, including 700 miles of 12-30 inch diameter pipelines.
Cost per barrel: Operating expenses remained steady at $0.22 per barrel.
Term Loan B repricing: Achieved annual interest savings of $15 million through two repricings and Fed rate cuts.
Capital allocation: Redeemed 88,506 Class D preferred units, saving $10.4 million annually in distributions, and repurchased 6.8 million common units under the Board-authorized plan.
Corporate strategy: Focused on becoming a pure-play water company by simplifying business operations, selling non-core assets, and increasing adjusted EBITDA from water operations.
Market Conditions: Potential negative macroeconomic events could impact the company's ability to strengthen its balance sheet and achieve its financial goals.
Regulatory Hurdles: The company is navigating the Texas Commission on Environmental Quality permitting process for a large-scale produced water treatment plant, which could face delays or challenges.
Strategic Execution Risks: The company has increased growth capital expenditures by $100 million to meet new contract volume commitments, which could strain resources or face execution challenges.
Leverage and Debt Management: The company is working to reduce leverage to less than 4x and eliminate Class D preferred units, but this depends on continued financial performance and market conditions.
Competitive Pressures: The company faces competition in the water disposal and treatment market, requiring continuous investment in infrastructure and innovation to maintain its leadership position.
Full Year Adjusted EBITDA Guidance: Increased from $615 million-$625 million to $650 million-$660 million for fiscal year 2026, driven by strong performance in the Water Solutions segment.
Leverage and Cash Flow Projections: Projected zero ABL balance at the end of the fiscal year and approximately 4x leverage.
Water Disposal Volumes: Recently surpassed 3 million barrels per day of physical volumes for an entire month. New growth capital projects for 750,000 barrels per day of newly contracted volume commitments are scheduled to be placed into service by the end of this calendar year. Total volume commitments of 1.5 million barrels per day going into fiscal 2027 with an average remaining term of almost 9 years.
Delaware Basin Capacity: Over 5 million barrels per day of permitted injection capacity at 131 injection wells and 57 water processing facilities. Largest capacity pipeline system in the Delaware Basin with more than 800 miles of pipe.
Produced Water Treatment Plant: Received the first draft permit for a treated produced water discharge permit in Texas, with influent volumes of approximately 800,000 barrels per day. This initiative aims to provide alternative disposal options and support sustainability.
Growth Capital Expenditures: Increased growth CapEx guidance by $100 million to support new contract volumes. Majority of adjusted EBITDA from these projects will be generated in fiscal 2027.
Fiscal 2027 Adjusted EBITDA Guidance: Initial guidance of at least $700 million, reflecting growth from new projects.
Long-Term Corporate Strategy: Focus on becoming a pure-play water company, with substantial growth capital allocated to the Water Solutions division. Targeting leverage below 4x and further reduction of Class D preferred units.
Unit Repurchase Plan: Under the Board-authorized unit repurchase plan, NGL Energy Partners has purchased an additional 4.4 million units in the quarter, totaling approximately 6.8 million units, which equates to about 5% of the outstanding units. The average price for the units repurchased since the inception of the plan is $4.57.
Class D Preferred Units Repurchase: Since April, NGL Energy Partners has purchased 88,506 units of the Class D preferred, representing approximately 15% of the outstanding units. This results in $10.4 million in annual distribution savings going forward.
The earnings call summary and Q&A reveal strong performance in the Water Solutions segment and strategic repurchases of units, indicating positive financial health. The reaffirmation of full-year EBITDA guidance and potential for guidance revision add optimism. Risks are acknowledged but seem manageable. The Q&A supports a positive sentiment with clear responses and no evasive answers. The unit repurchase plan and Class D preferred units repurchase enhance shareholder returns, contributing to a positive outlook.
The earnings call presents a mixed picture. Positive aspects include increased EBITDA driven by Water Solutions and successful repurchase plans. However, challenges like declining Grand Mesa pipeline volumes, reduced Liquids Logistics EBITDA, and reliance on butane blending pose concerns. The Q&A shows management's strategic flexibility, but lack of clear guidance and dependency on market conditions add uncertainty. Overall, the positives and negatives balance out, suggesting a neutral stock price movement.
The company's strong financial performance, with EBITDA exceeding guidance and increased water disposal volumes, is a positive indicator. Despite some segment declines, the overall financial health is solid. Asset sales have provided significant capital, and the focus on reducing leverage by repurchasing preferred shares is prudent. While management's responses in the Q&A lacked clarity on some points, the market strategy and financial health remain strong, supporting a positive sentiment.
The earnings call shows mixed results: strong performance in Water Solutions and exceeding EBITDA guidance are positives, but declines in Crude and Liquids Logistics, along with unclear management responses, create uncertainty. The market's reaction may be tempered by these mixed signals, leading to a neutral stock price movement.
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