EnLink Midstream(ENLC) - 2022 Q1 - Quarterly Report

Form 10-Q General Information This section provides general information about the Form 10-Q filing, including registrant details and securities status Filing Details This section details the filing of the Quarterly Report (Form 10-Q) by ENLINK MIDSTREAM, LLC for Q1 2022, identifying it as a 'Large accelerated filer' - The report is a Quarterly Report (Form 10-Q) for the period ended March 31, 2022[2] - The registrant, ENLINK MIDSTREAM, LLC, has filed all required reports and has been subject to filing requirements for the past 90 days[3] - The registrant is classified as a 'Large accelerated filer'[3] Registrant Information Details the registrant, ENLINK MIDSTREAM, LLC, as a Delaware entity with principal offices in Dallas, Texas, and its SEC file number - Registrant's exact name: ENLINK MIDSTREAM, LLC[2] - State of organization: Delaware[2] - Principal executive offices: 1722 Routh St., Suite 1300, Dallas, Texas 75201[2] Securities and Filer Status Outlines the company's common units, traded on the NYSE under ENLC, with 483 million units outstanding as of April 28, 2022 Securities Registered on Exchange | Title of Each Class | Trading Symbol | Name of Exchange on which Registered | | :---------------------------------------------------- | :------------- | :----------------------------------- | | Common Units Representing Limited Liability Company Interests | ENLC | The New York Stock Exchange | - As of April 28, 2022, the Registrant had 483,011,794 common units outstanding[3] Table of Contents This section provides an organized list of all major parts and items included in the report PART I—FINANCIAL INFORMATION Part I outlines financial statements, management's discussion, market risk disclosures, and controls and procedures - Item 1: Financial Statements (Page 5)[6] - Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations (Page 29)[6] - Item 3: Quantitative and Qualitative Disclosures About Market Risk (Page 47)[6] - Item 4: Controls and Procedures (Page 50)[6] PART II—OTHER INFORMATION Part II covers legal proceedings, risk factors, unregistered equity sales, and exhibits - Item 1: Legal Proceedings (Page 51)[7] - Item 1A: Risk Factors (Page 51)[7] - Item 2: Unregistered Sales of Equity Securities and Use of Proceeds (Page 51)[7] - Item 6: Exhibits (Page 52)[7] Definitions Provides definitions for key financial measures, company entities, joint ventures, and industry-specific terminology used in the report - Adjusted gross margin is defined as Revenue less cost of sales, exclusive of operating expenses and depreciation and amortization, and is a non-GAAP financial measure[9] - ENLC refers to EnLink Midstream, LLC, while ENLK refers to EnLink Midstream Partners, LP or its consolidated subsidiaries[9] - Key joint ventures include Ascension JV (50% interest in NGL pipeline), Cedar Cove JV (30% interest in gathering and compression assets), and Delaware Basin JV (50.1% interest in processing facilities)[9] PART I—FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited consolidated financial statements, including balance sheets, statements of operations, comprehensive income, equity changes, cash flows, and detailed notes Consolidated Balance Sheets Total assets increased to $8,640.2 million at March 31, 2022, from $8,483.2 million at December 31, 2021, driven by current assets Consolidated Balance Sheets (in millions) | ASSETS (in millions) | March 31, 2022 (Unaudited) | December 31, 2021 | | :------------------------------- | :------------------------- | :---------------- | | Cash and cash equivalents | $68.7 | $26.2 | | Total current assets | $1,177.8 | $920.4 | | Property and equipment, net | $6,321.8 | $6,388.3 | | Total assets | $8,640.2 | $8,483.2 | | LIABILITIES AND MEMBERS' EQUITY (in millions) | March 31, 2022 (Unaudited) | December 31, 2021 | | Total current liabilities | $1,184.3 | $898.9 | | Long-term debt, net | $4,315.0 | $4,363.7 | | Total members' equity | $2,905.8 | $2,987.0 | | Total liabilities and members' equity | $8,640.2 | $8,483.2 | Consolidated Statements of Operations Net income significantly increased to $66.0 million for Q1 2022, up from $12.6 million in the prior year, due to higher revenues and operating income Consolidated Statements of Operations (in millions) | (In millions) | Three Months Ended March 31, 2022 (Unaudited) | Three Months Ended March 31, 2021 | | :---------------------------- | :-------------------------------------------- | :-------------------------------- | | Total revenues | $2,227.7 | $1,248.4 | | Cost of sales | $1,794.5 | $934.7 | | Operating expenses | $120.9 | $56.3 | | Depreciation and amortization | $152.9 | $151.0 | | Operating income | $125.3 | $80.4 | | Net income | $66.0 | $12.6 | | Earnings per common unit - Basic | $0.07 | $(0.03) | | Earnings per common unit - Diluted | $0.07 | $(0.03) | Consolidated Statements of Comprehensive Income Comprehensive income attributable to ENLC improved to $35.3 million for Q1 2022, from a $9.1 million loss in Q1 2021, reflecting increased net income Consolidated Statements of Comprehensive Income (in millions) | (In millions) | Three Months Ended March 31, 2022 (Unaudited) | Three Months Ended March 31, 2021 | | :------------------------------------------------ | :-------------------------------------------- | :-------------------------------- | | Net income | $66.0 | $12.6 | | Unrealized gain on designated cash flow hedge | $0.1 | $3.6 | | Comprehensive income | $66.1 | $16.2 | | Comprehensive income attributable to non-controlling interest | $30.8 | $25.3 | | Comprehensive income (loss) attributable to ENLC | $35.3 | $(9.1) | Consolidated Statements of Changes in Members' Equity Members' equity decreased to $2,905.8 million at March 31, 2022, from $2,987.0 million at December 31, 2021, due to distributions and unit repurchases Consolidated Statements of Changes in Members' Equity (in millions) | (In millions) | Balance, December 31, 2021 | Balance, March 31, 2022 | | :------------------------------------------------ | :------------------------- | :---------------------- | | Common Units (equity) | $1,325.8 | $1,291.5 | | Non-Controlling Interest | $1,662.6 | $1,615.6 | | Total Members' Equity | $2,987.0 | $2,905.8 | | Net income (three months ended March 31, 2022) | N/A | $66.0 | | Distributions (three months ended March 31, 2022) | N/A | $(91.0) | | Redemption of Series B Preferred Units | N/A | $(50.5) | | Common units repurchased | N/A | $(17.0) | Consolidated Statements of Cash Flows Net cash from operating activities increased to $307.7 million for Q1 2022, offset by higher cash used in investing and financing activities Consolidated Statements of Cash Flows (in millions) | (In millions) | Three Months Ended March 31, 2022 (Unaudited) | Three Months Ended March 31, 2021 | | :------------------------------------------------ | :-------------------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $307.7 | $225.8 | | Net cash used in investing activities | $(59.2) | $(19.2) | | Net cash used in financing activities | $(206.0) | $(173.4) | | Net increase in cash and cash equivalents | $42.5 | $33.2 | | Cash and cash equivalents, end of period | $68.7 | $72.8 | Notes to Consolidated Financial Statements Provides detailed disclosures on business organization, accounting policies, debt, equity, segments, derivatives, and commitments Note 1. General Clarifies the company's organizational structure and details its midstream energy services across a vast asset network - ENLC is a Delaware limited liability company, owning all of ENLK's common units and managing ENLK's operations[34] - The company primarily provides midstream energy services: gathering, compressing, treating, processing, transporting, storing, and selling natural gas; fractionating, transporting, storing, and selling NGLs; and gathering, transporting, stabilizing, storing, trans-loading, and selling crude oil and condensate, plus brine disposal[35] - The asset network includes approximately 12,100 miles of pipelines, 22 natural gas processing plants (5.5 Bcf/d capacity), seven fractionators (320,000 Bbls/d capacity), and various other facilities[36] Note 2. Significant Accounting Policies Outlines unaudited financial statement preparation and revenue recognition policies, primarily from fee-based contractual arrangements - Financial statements are unaudited and prepared in accordance with Form 10-Q, with recurring adjustments[42] - Revenue is primarily earned through fee-based contractual arrangements, including MVC and firm transportation provisions, with fees recognized during volume shortfalls[41][43] Contractually Committed Fees (in millions) | Contractually Committed Fees (in millions) | Amount | | :--------------------------------------- | :----- | | 2022 (remaining) | $110.3 | | 2023 | $132.0 | | 2024 | $112.0 | | 2025 | $65.1 | | 2026 | $57.9 | | Thereafter | $289.7 | | Total | $767.0 | Note 3. Intangible Assets Intangible assets, mainly customer relationships, are amortized over 10-20 years, with a net carrying amount of $1,016.9 million at March 31, 2022 - Intangible assets, mainly customer relationships, are amortized straight-line over 10-20 years (weighted average 14.9 years)[45] Intangible Assets (in millions) | Intangible Assets (in millions) | March 31, 2022 | December 31, 2021 | | :------------------------------ | :------------- | :---------------- | | Customer relationships, net | $1,016.9 | $1,049.7 | | Amortization expense (3 months) | $32.8 | $30.9 | Estimated Aggregate Amortization Expense (in millions) | Estimated Aggregate Amortization Expense (in millions) | Amount | | :----------------------------------------------------- | :----- | | 2022 (remaining) | $95.6 | | 2023 | $127.6 | | 2024 | $127.6 | | 2025 | $110.2 | | 2026 | $106.3 | | Thereafter | $449.6 | | Total | $1,016.9 | Note 4. Related Party Transactions Details transactions with related parties, including Cedar Cove JV and a new pro rata common unit repurchase agreement with GIP Transactions with Cedar Cove JV (in millions) | Transactions with Cedar Cove JV (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | | Cost of sales | $10.6 | $3.2 | | Accounts payable (as of period end) | $5.8 | $1.6 | - A Unit Repurchase Agreement was entered into with GIP on February 15, 2022, to repurchase ENLC common units pro rata, maintaining GIP's economic ownership percentage[51] Note 5. Long-Term Debt Long-term debt decreased to $4,315.0 million at March 31, 2022, due to repayments on the AR Facility and Consolidated Credit Facility Long-Term Debt (in millions) | Long-Term Debt (in millions) | March 31, 2022 | December 31, 2021 | | :--------------------------------------------------------- | :------------- | :---------------- | | Consolidated Credit Facility due 2024 | $0 | $15.0 | | AR Facility due 2024 | $315.0 | $350.0 | | ENLK's 4.40% Senior unsecured notes due 2024 | $522.4 | $522.5 | | ENLK's 4.15% Senior unsecured notes due 2025 | $720.4 | $720.4 | | ENLK's 4.85% Senior unsecured notes due 2026 | $490.7 | $490.7 | | ENLC's 5.625% Senior unsecured notes due 2028 | $500.0 | $500.0 | | ENLC's 5.375% Senior unsecured notes due 2029 | $498.7 | $498.7 | | ENLK's 5.60% Senior unsecured notes due 2044 | $349.8 | $349.8 | | ENLK's 5.05% Senior unsecured notes due 2045 | $444.6 | $444.5 | | ENLK's 5.45% Senior unsecured notes due 2047 | $499.9 | $499.9 | | Long-term debt, net of unamortized issuance cost | $4,315.0 | $4,363.7 | - No outstanding borrowings under the Consolidated Credit Facility as of March 31, 2022, but $44.3 million in outstanding letters of credit[55] - The AR Facility had $315.0 million in outstanding borrowings against a $350.0 million borrowing base as of March 31, 2022[57] Note 6. Income Taxes Income tax expense increased to $3.2 million for Q1 2022, with a net deferred tax liability of $140.5 million and a $144.5 million valuation allowance Income Tax Expense (in millions) | Income Tax Expense (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------- | :-------------------------------- | :-------------------------------- | | Current income tax expense | $(0.2) | $(0.1) | | Deferred income tax expense | $(3.0) | $(1.3) | | Income tax expense | $(3.2) | $(1.4) | Deferred Tax Balances (in millions) | Deferred Tax Balances (in millions) | March 31, 2022 | December 31, 2021 | | :---------------------------------- | :------------- | :---------------- | | Deferred tax liabilities, net | $140.5 | $137.5 | | Deferred tax assets | $484.8 | $481.6 | | Valuation allowance | $144.5 | $151.6 | - A valuation allowance is established primarily for federal and state tax operating loss carryforwards where realization of tax benefit is not more likely than not[62] Note 7. Certain Provisions of the ENLK Partnership Agreement Details the redemption of 3,333,334 Series B Preferred Units for $50.5 million in January 2022 and related distribution plans - In January 2022, 3,333,334 Series B Preferred Units were redeemed for $50.5 million plus accrued distributions, leading to the cancellation of corresponding ENLC Class C Common Units[65] Series B Preferred Units Outstanding | Series B Preferred Units Outstanding | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :------------- | :---------------- | | Number of units | 54,168,359 | 57,501,693 | Series B Preferred Unit Distributions (in millions) | Series B Preferred Unit Distributions (in millions) | Q4 2021 (paid Feb 2022) | Q1 2022 (payable May 2022) | | :-------------------------------------------------- | :---------------------- | :------------------------- | | Distribution amount | $19.2 | $17.5 | Note 8. Members' Equity Reauthorized common unit repurchase program for $100.0 million, with 2,093,842 units repurchased for $17.0 million in Q1 2022, and basic EPS of $0.07 - The common unit repurchase program was reauthorized for up to $100.0 million, with 2,093,842 units repurchased for $17.0 million in Q1 2022[69][70] - A GIP Repurchase Agreement was established on February 15, 2022, to repurchase GIP's pro rata share of common units, maintaining its economic ownership percentage[71] Net Income (Loss) Attributable to ENLC per unit | Net Income (Loss) Attributable to ENLC per unit | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Basic | $0.07 | $(0.03) | | Diluted | $0.07 | $(0.03) | Distributions per Common Unit | Distributions per Common Unit | Q4 2021 (paid Feb 2022) | Q1 2022 (payable May 2022) | | :---------------------------- | :---------------------- | :------------------------- | | Amount | $0.11250 | $0.11250 | Note 9. Employee Incentive Plans Unit-based compensation expense was $6.6 million for Q1 2022, with $24.5 million and $15.5 million in unrecognized costs for restricted and performance units Unit-Based Compensation Expense (in millions) | Unit-Based Compensation Expense (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | | Total unit-based compensation expense | $6.6 | $6.5 | - As of March 31, 2022, $24.5 million of unrecognized compensation costs related to non-vested ENLC restricted incentive units are expected to be recognized over a weighted-average period of 2.0 years[82] - As of March 31, 2022, $15.5 million of unrecognized compensation costs related to non-vested ENLC performance units are expected to be recognized over a weighted-average period of 1.9 years[85] Note 10. Derivatives Uses interest rate and commodity swaps to manage market risks, reporting a $0.1 million unrealized gain on interest rate swaps and a $31.2 million loss on commodity swaps for Q1 2022 Interest Rate Swaps (in millions) | Interest Rate Swaps (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Change in fair value of interest rate swaps | $0.1 | $4.7 | | Unrealized gain on designated cash flow hedge | $0.1 | $3.6 | | Interest expense (from accumulated comprehensive loss) | $0.1 | $4.8 | Commodity Swaps (in millions) | Commodity Swaps (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Change in fair value of derivatives | $(15.1) | $(7.9) | | Realized loss on derivatives | $(16.1) | $(75.5) | | Loss on derivative activity | $(31.2) | $(83.4) | Net Fair Value of Commodity Swaps (in millions) | Net Fair Value of Commodity Swaps (in millions) | March 31, 2022 | December 31, 2021 | | :---------------------------------------------- | :------------- | :---------------- | | Net fair value of commodity swaps | $(29.6) | $(14.5) | Note 11. Fair Value Measurements Commodity swaps had a net fair value liability of $29.6 million at March 31, 2022, while long-term debt had a carrying value of $4,315.0 million Fair Value Measurements (in millions) | Fair Value Measurements (in millions) | March 31, 2022 | December 31, 2021 | | :------------------------------------ | :------------- | :---------------- | | Commodity swaps (Level 2) | $(29.6) | $(14.5) | Financial Instruments (in millions) | Financial Instruments (in millions) | Carrying Value (Mar 31, 2022) | Fair Value (Mar 31, 2022) | Carrying Value (Dec 31, 2021) | Fair Value (Dec 31, 2021) | | :---------------------------------- | :---------------------------- | :------------------------ | :---------------------------- | :------------------------ | | Long-term debt | $4,315.0 | $4,154.6 | $4,363.7 | $4,520.0 | | Installment payable | $10.0 | $10.0 | $10.0 | $10.0 | | Contingent consideration | $6.9 | $6.9 | $6.9 | $6.9 | - Fair values of senior unsecured notes are based on Level 2 inputs from third-party market quotations[97] Note 12. Segment Information Operates through five segments (Permian, Louisiana, Oklahoma, North Texas, Corporate), with Permian having the highest identifiable assets at $2,500.2 million - Operating segments are primarily based on geographic regions: Permian, Louisiana, Oklahoma, North Texas, and Corporate[99] Segment Identifiable Assets (in millions) | Segment Identifiable Assets (in millions) | March 31, 2022 | December 31, 2021 | | :---------------------------------------- | :------------- | :---------------- | | Permian | $2,500.2 | $2,358.6 | | Louisiana | $2,442.9 | $2,428.6 | | Oklahoma | $2,582.9 | $2,619.5 | | North Texas | $866.8 | $896.8 | | Corporate | $247.4 | $179.7 | | Total identifiable assets | $8,640.2 | $8,483.2 | Note 13. Other Information Other current assets increased to $112.7 million and other current liabilities to $215.4 million at March 31, 2022 Other Current Assets (in millions) | Other Current Assets (in millions) | March 31, 2022 | December 31, 2021 | | :--------------------------------- | :------------- | :---------------- | | Natural gas and NGLs inventory | $73.6 | $49.4 | | Prepaid expenses and other | $39.1 | $34.2 | | Total Other current assets | $112.7 | $83.6 | Other Current Liabilities (in millions) | Other Current Liabilities (in millions) | March 31, 2022 | December 31, 2021 | | :-------------------------------------- | :------------- | :---------------- | | Accrued interest | $71.5 | $47.2 | | Accrued wages and benefits | $9.6 | $33.1 | | Accrued ad valorem taxes | $12.6 | $28.3 | | Capital expenditure accruals | $22.2 | $23.2 | | Deferred revenue | $24.1 | $3.7 | | Short-term lease liability | $20.3 | $18.1 | | Installment payable | $10.0 | $10.0 | | Inactive easement commitment | $9.9 | $9.8 | | Operating expense accruals | $11.7 | $9.6 | | Other | $23.5 | $19.9 | | Total Other current liabilities | $215.4 | $202.9 | Note 14. Commitments and Contingencies Involved in litigation from Winter Storm Uri, including a $53.9 million billing dispute, but management expects no material adverse effect - A litigation with Koch Energy Services, LLC involves a $53.9 million billing dispute related to gas delivery during Winter Storm Uri, where the company asserts a valid force majeure declaration[107] - Another subsidiary is involved in multi-district litigation for personal injury and property damage claims arising from Winter Storm Uri[108] - Management believes that any liabilities from current litigation and administrative proceedings will not materially adversely affect the company's financial position, results of operations, or cash flows[110] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides an overview of financial condition, operational results, market environment, recent developments, non-GAAP measures, and liquidity Overview ENLC provides midstream energy services across five segments, with approximately 90% of adjusted gross margin from fee-based arrangements - ENLC's assets include all outstanding common units of ENLK and membership interests of the General Partner, with all midstream assets owned and operated by ENLK and its subsidiaries[114] - The company's midstream energy asset network includes approximately 12,100 miles of pipelines, 22 natural gas processing plants (5.5 Bcf/d capacity), and seven fractionators (320,000 Bbls/d capacity)[115] - Approximately 90% of the adjusted gross margin for the three months ended March 31, 2022, was derived from fee-based contractual arrangements with minimal direct commodity price exposure[119] Major Customers (Consolidated Revenues > 10%) | Major Customers (Consolidated Revenues > 10%) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | | Marathon Petroleum Corporation | 16.1% | 14.8% | | Dow Hydrocarbons and Resources LLC | 13.9% | 14.5% | Recent Developments Affecting Industry Conditions and Our Business Discusses market volatility, regulatory changes, the development of a CCS business, and common unit repurchase program reauthorization Current Market Environment Commodity prices recovered in 2021-2022 due to demand and geopolitical factors, leading to increased producer capital investments, especially in the Permian Basin - Commodity markets have recovered from the 2020 COVID-19 downturn, with oil and natural gas prices rising rapidly in 2021 and 2022 due to demand rebound, supply issues, and geopolitical risks (e.g., Russia's invasion of Ukraine)[130] - Capital investments by U.S. oil and natural gas producers have modestly increased in response to higher prices, with drilling activity concentrated in the Permian Basin, leading to increased volumes in the company's Permian segment[131][132][133] - The Louisiana segment's performance is less dependent on gathering/processing and more on industrial demand for natural gas and NGLs, which has remained strong[134] Extreme Weather Events Winter Storm Uri in February 2021 severely impacted operations, causing volume reductions and ongoing billing disputes, with uncertain financial impact - Winter Storm Uri in February 2021 caused production freeze-offs and well shut-ins, significantly reducing gathering and processing volumes (44-92% decline depending on region)[136] - The full impact of Winter Storm Uri is uncertain, pending the outcome of billing disputes, litigation with customers, and regulatory actions[137] COVID-19 Update COVID-19 has not caused significant operational disruptions, but long-term economic impact and market volatility remain uncertain - The company has not experienced significant COVID-19 related operational disruptions since the pandemic began[138] - Considerable uncertainty remains regarding the duration and economic impact of the COVID-19 pandemic and its variants on business, liquidity, financial condition, results of operations, and cash flows[139] Regulatory Developments Biden Administration's climate policies could increase costs and reduce demand, though public land operations account for only 6% of segment profit - Biden Administration's executive orders and policies related to climate change and oil/gas production (e.g., rejoining Paris Agreement, suspending new leases on public lands) could affect operations[142] - New federal leases will require higher royalties (18.75% from 12.5%) and the Department of the Interior made significantly fewer acres available for drilling[142] - Only about 6% of the company's total segment profit is expected from operations on public lands in the Delaware Basin[143] Other Recent Developments Includes a CCS initiative in Louisiana, relocation of the Thunderbird plant, reauthorization of a $100.0 million unit repurchase program, and a GIP repurchase agreement - Signed a memorandum of understanding with Talos Energy Inc. in February 2022 to provide a complete Carbon Capture, Sequestration (CCS) offering in Louisiana[145] - Relocating the Thunderbird processing plant from Central Oklahoma to the Midland Basin, expected to increase Permian Basin processing capacity by approximately 200 MMcf/d by Q4 2022[146] - Reauthorized the common unit repurchase program for up to $100.0 million, repurchasing 2,093,842 units for $17.0 million in Q1 2022[147][148] - Entered into a GIP Repurchase Agreement on February 15, 2022, to repurchase a pro rata portion of ENLC common units held by GIP, maintaining GIP's economic ownership percentage[149] - Redeemed 3,333,334 Series B Preferred Units in January 2022 for $50.5 million plus accrued distributions[151] Non-GAAP Financial Measures Utilizes non-GAAP measures like adjusted gross margin, adjusted EBITDA, and free cash flow after distributions to assess performance and liquidity Adjusted Gross Margin Adjusted gross margin, a non-GAAP measure, increased to $433.2 million for Q1 2022 from $313.7 million in Q1 2021 - Adjusted gross margin is a non-GAAP measure defined as revenues less cost of sales, exclusive of operating expenses and depreciation and amortization[154] Adjusted Gross Margin (in millions) | Adjusted Gross Margin (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Total revenues | $2,227.7 | $1,248.4 | | Cost of sales (exclusive of op. exp. & D&A) | $(1,794.5) | $(934.7) | | Gross margin | $159.4 | $106.4 | | Adjusted gross margin | $433.2 | $313.7 | Adjusted EBITDA Adjusted EBITDA, net to ENLC, increased to $304.3 million for Q1 2022, up from $249.4 million in Q1 2021 - Adjusted EBITDA is a non-GAAP measure used to assess financial performance without regard to financing methods, capital structure, or historical cost basis, and to evaluate cash generation for interest, indebtedness, and distributions[157] Adjusted EBITDA (in millions) | Adjusted EBITDA (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net income | $66.0 | $12.6 | | Interest expense, net of interest income | $55.1 | $60.0 | | Depreciation and amortization | $152.9 | $151.0 | | Unrealized loss on commodity swaps | $15.1 | $7.9 | | Adjusted EBITDA before non-controlling interest | $316.9 | $256.5 | | Non-controlling interest share of adjusted EBITDA | $(12.6) | $(7.1) | | Adjusted EBITDA, net to ENLC | $304.3 | $249.4 | Free Cash Flow After Distributions Free cash flow after distributions increased to $104.9 million for Q1 2022 from $94.2 million in Q1 2021 - Free cash flow after distributions is a principal cash flow metric used to assess the ability of assets to generate cash for interest, debt repayment, cash distributions, and capital expenditures[164] Free Cash Flow After Distributions (in millions) | Free Cash Flow After Distributions (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :----------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $307.7 | $225.8 | | Adjusted EBITDA, net to ENLC | $304.3 | $249.4 | | Growth capital expenditures, net to ENLC | $(40.5) | $(15.9) | | Maintenance capital expenditures, net to ENLC | $(13.9) | $(4.7) | | Interest expense, net of interest income | $(55.1) | $(60.0) | | Distributions declared on common units | $(55.5) | $(46.7) | | Free cash flow after distributions | $104.9 | $94.2 | Results of Operations Gross margin increased to $159.4 million in Q1 2022 from $106.4 million in Q1 2021, driven by strong segment performance and higher volumes Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021 Gross margin increased by $53.0 million, with Permian segment showing the largest increase of $27.0 million due to higher volumes and reduced derivative losses Financial Data (in millions) | Financial Data (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--------------------------- | :-------------------------------- | :-------------------------------- | | Gross margin | $159.4 | $106.4 | | Adjusted gross margin | $433.2 | $313.7 | | Segment profit | $312.3 | $257.4 | Midstream Volumes (MMbtu/d or Bbls/d or Gals/d) | Midstream Volumes (MMbtu/d or Bbls/d or Gals/d) | March 31, 2022 | March 31, 2021 | | :---------------------------------------------- | :------------- | :------------- | | Permian Gathering and Transportation | 1,347,100 | 925,600 | | Permian Processing | 1,256,300 | 876,100 | | Permian Crude Oil Handling | 150,700 | 108,200 | | Louisiana Gathering and Transportation | 2,497,700 | 2,151,300 | | Louisiana NGL Fractionation | 8,033,900 | 7,106,200 | | Oklahoma Gathering and Transportation | 1,000,700 | 937,300 | | Oklahoma Processing | 1,029,500 | 955,400 | - Permian Segment gross margin increased by $27.0 million, driven by an $87.3 million increase in adjusted gross margin (higher volumes and decreased realized derivative losses) offset by a $57.1 million increase in operating expenses (utility credits in prior year, higher construction fees)[172][173] - North Texas Segment gross margin decreased by $13.6 million, primarily due to a $11.5 million decrease in adjusted gross margin, attributed to favorable market pricing from Winter Storm Uri in Q1 2021[179] Interest Expense (in millions) | Interest Expense (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :----------------------------- | :-------------------------------- | :-------------------------------- | | Total Interest Expense | $55.1 | $60.0 | - Loss from unconsolidated affiliate investments decreased by $5.2 million, primarily due to a $5.0 million reduction in loss from the GCF investment as assets were idled[184] - Net income attributable to non-controlling interest increased by $5.5 million, mainly due to increases from the Delaware Basin JV and Ascension JV[186] Critical Accounting Policies Critical accounting policies are incorporated by reference from the Annual Report on Form 10-K for December 31, 2021 - Critical accounting policies are detailed in the Annual Report on Form 10-K for the year ended December 31, 2021[187] Liquidity and Capital Resources Net cash from operating activities increased to $307.7 million in Q1 2022, with $279 million in remaining 2022 capital requirements Cash Flows from Operating Activities Net cash from operating activities increased to $307.7 million for Q1 2022, primarily due to a $110.1 million rise in operating cash flows before working capital Operating Cash Flows (in millions) | Operating Cash Flows (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $307.7 | $225.8 | | Operating cash flows before working capital | $257.8 | $147.7 | | Changes in working capital | $49.9 | $78.1 | - The $110.1 million increase in operating cash flows before changes in working capital was primarily due to a $110.3 million increase in gross margin (excluding D&A, non-cash commodity swap activity, utility credits, and unit-based compensation)[188][189] Cash Flows from Investing Activities Net cash used in investing activities increased to $59.2 million for Q1 2022, driven by higher property and equipment additions for expansion Investing Activities (in millions) | Investing Activities (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Additions to property and equipment | $(60.2) | $(23.5) | | Net cash used in investing activities | $(59.2) | $(19.2) | - The increase in capital expenditures was due to expansion projects to accommodate increased volumes on the company's systems[191] Cash Flows from Financing Activities Net cash used in financing activities increased to $206.0 million for Q1 2022, due to debt repayments, distributions, and unit repurchases Financing Activities (in millions) | Financing Activities (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Net repayments on the AR Facility | $(35.0) | $(100.0) | | Net repayments on the Consolidated Credit Facility | $(15.0) | $0 | | Distributions to members | $(56.4) | $(47.1) | | Redemption of Series B Preferred Units | $(50.5) | $0 | | Common unit repurchases | $(17.0) | $0 | | Net cash used in financing activities | $(206.0) | $(173.4) | Capital Requirements Remaining 2022 capital requirements are estimated at $279 million, primarily for plant relocation and CCS, expected to be funded by operating cash flows Expected Remaining Capital Requirements for 2022 (in millions) | Expected Remaining Capital Requirements for 2022 (in millions) | Amount | | :------------------------------------------------------------- | :----- | | Capital expenditures, net to ENLC | $245 | | Operating expenses associated with processing facilities relocation | $34 | | Total | $279 | - Primary capital projects for 2022 include the relocation of the Phantom processing plant, CCS-related initiatives, and continued development of existing systems[196] - Remaining 2022 capital requirements are expected to be funded from operating cash flows[196] Off-Balance Sheet Arrangements The company had no off-balance sheet arrangements as of March 31, 2022 - The company had no off-balance sheet arrangements as of March 31, 2022[198] Total Contractual Cash Obligations Total contractual cash obligations were $7,102.1 million at March 31, 2022, with $255.6 million due in the remainder of 2022 Total Contractual Obligations (in millions) | Total Contractual Obligations (in millions) | Total | Remainder 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | | :------------------------------------------ | :------ | :------------- | :------ | :-------- | :------ | :------ | :--------- | | ENLC's & ENLK's senior unsecured notes | $4,032.3 | $0 | $0 | $521.8 | $720.8 | $491.0 | $2,298.7 | | AR Facility | $315.0 | $0 | $0 | $315.0 | $0 | $0 | $0 | | Interest payable on fixed long-term debt | $2,308.9 | $175.2 | $201.2 | $189.7 | $163.3 | $148.3 | $1,431.2 | | Operating lease obligations | $116.6 | $17.7 | $19.2 | $10.5 | $9.8 | $8.9 | $50.5 | | Total contractual obligations | $7,102.1 | $255.6 | $276.1 | $1,083.5 | $935.7 | $681.3 | $3,869.9 | - Contractual cash obligations for the remainder of 2022 are expected to be funded from operating cash flows and available capacity under the Consolidated Credit Facility and AR Facility[204] Indebtedness As of March 31, 2022, $315.0 million was outstanding under the AR Facility and $4.0 billion in unsecured senior notes - As of March 31, 2022, $315.0 million was outstanding under the AR Facility (borrowing base $350.0 million)[205] - The company had $4.0 billion in aggregate principal amount of outstanding unsecured senior notes maturing from 2024 to 2047[205] - No outstanding borrowings under the Consolidated Credit Facility, but $44.3 million in outstanding letters of credit as of March 31, 2022[205] Inflation U.S. inflation accelerated in late 2021 and Q1 2022, potentially increasing costs which the company aims to pass on to customers - U.S. inflation accelerated in 2021 and Q1 2022, with expectations for continued increases[210] - Higher inflation may increase costs for property, equipment, labor, and supplies, which the company intends to pass on to customers through higher fees or contractual clauses[210] Recent Accounting Pronouncements No recently issued accounting pronouncements effective in Q1 2022 are expected to materially impact consolidated financial statements - No recently issued accounting pronouncements effective in Q1 2022 are expected to have a material impact on the consolidated financial statements[211] Disclosure Regarding Forward-Looking Statements The report contains forward-looking statements subject to risks, including COVID-19 impact, GIP conflicts, customer dependence, and commodity price volatility - The report contains forward-looking statements, and actual results may differ materially due to various assumptions, risks, and uncertainties[212][214] - Key risk factors include the impact of COVID-19, potential conflicts of interest with GIP, dependence on significant customers, adverse developments in the midstream business, competition, decreases in volumes, ESG scrutiny, regulatory initiatives (e.g., climate change), changes in capital availability, volatile commodity prices, debt levels, operating hazards, and demand reductions for NGL products[214] Item 3. Quantitative and Qualitative Disclosures about Market Risk Examines market risks from commodity price and interest rate fluctuations, managed with derivatives, with 90% of adjusted gross margin being fee-based Commodity Price Risk Exposed to commodity price fluctuations on 10% of adjusted gross margin, hedged with OTC derivatives, resulting in a $29.6 million net fair value liability for commodity swaps - Approximately 90% of adjusted gross margin is from fee-based arrangements, with the remaining 10% exposed to direct commodity price fluctuations, primarily in gas processing[220] - The company uses OTC derivative financial instruments (swaps) to hedge exposure to natural gas, NGLs, and crude oil prices[226][227] Commodity Swaps Net Fair Value (in millions) | Commodity Swaps Net Fair Value (in millions) | March 31, 2022 | | :------------------------------------------- | :------------- | | Net fair value of commodity swaps | $(29.6) | - A hypothetical 10% change in gas, crude, and NGL prices would result in an approximate $25.4 million change in the net fair value of these contracts[233] Interest Rate Risk Exposed to interest rate risk on floating-rate debt, where a 1.0% rate increase would change AR Facility annualized interest expense by $3.2 million - Exposure to interest rate risk on the Consolidated Credit Facility and the AR Facility, which bear interest at floating rates (based on LIBOR)[234][235] - A 1.0% increase or decrease in interest rates would change annualized interest expense by approximately $3.2 million for the AR Facility[234] - The phase-out of LIBOR could result in higher interest rates for the AR Facility and Consolidated Credit Facility if alternative rates are higher or if the prime rate is applied[235] - Distributions on ENLK's Series C Preferred Units will become floating rate (LIBOR + 4.11%) starting December 15, 2022, increasing sensitivity to interest rate changes[238] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2022, with no material changes in internal control Evaluation of Disclosure Controls and Procedures CEO and CFO concluded disclosure controls and procedures were effective as of March 31, 2022, ensuring timely and accurate information reporting - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2022[239] Changes in Internal Control Over Financial Reporting No material changes in internal control over financial reporting occurred during Q1 2022 - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2022[240] PART II—OTHER INFORMATION Item 1. Legal Proceedings Involved in various litigation and administrative proceedings, including those related to Winter Storm Uri, as detailed in Note 14 - The company is involved in various litigation and administrative proceedings, including those arising from Winter Storm Uri[243] - Further details on legal proceedings are incorporated by reference from Note 14, 'Commitments and Contingencies,' in Part I of this report[243] Item 1A. Risk Factors Risk factors remain consistent with those presented in the Annual Report on Form 10-K for December 31, 2021 - Risk factors do not materially differ from those presented in the Annual Report on Form 10-K for the year ended December 31, 2021[244] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Re-acquired 2,646,065 ENLC common units in Q1 2022, including 2,093,842 units for $17.0 million under its repurchase program Common Units Purchased (Q1 2022) | Common Units Purchased (Q1 2022) | Total Number of Units Purchased | Average Price Paid Per Unit | | :------------------------------- | :------------------------------ | :-------------------------- | | Total | 2,646,065 | $8.03 | - 552,223 units were received from employees for payment of personal income tax withholding on vesting transactions[246] - 2,093,842 common units were repurchased for an aggregate cost of $17.0 million (average $8.12 per unit) under the reauthorized common unit repurchase program[246] - A Unit Repurchase Agreement with GIP was established on February 15, 2022, for pro rata repurchases to maintain GIP's economic ownership percentage[246] Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including organizational documents, the GIP Unit Repurchase Agreement, and certifications - Includes Certificate of Formation and Operating Agreement for EnLink Midstream, LLC and its managing member[248] - Lists the Unit Repurchase Agreement dated February 15, 2022, between EnLink Midstream, LLC, GIP III Stetson I, L.P. and GIP III Stetson II, L.P[248] - Includes certifications from the Principal Executive Officer and Principal Financial Officer (31.1, 31.2, 32.1) and financial information in iXBRL format (101, 104)[248] SIGNATURES The report was signed by J. Philipp Rossbach, Vice President and Chief Accounting Officer, on behalf of EnLink Midstream, LLC on May 4, 2022 - The report was signed by J. Philipp Rossbach, Vice President and Chief Accounting Officer (Principal Accounting Officer) of EnLink Midstream Manager, LLC, as the managing member of EnLink Midstream, LLC[251] - The signing date was May 4, 2022[251]