EnLink Midstream(ENLC) - 2023 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements Unaudited consolidated financial statements for Q1 2023 show decreased revenues but increased operating and net income, with a slight decrease in total assets and an increase in long-term debt Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $859.1 | $982.8 | | Total assets | $8,546.4 | $8,651.0 | | Total current liabilities | $708.4 | $875.4 | | Long-term debt, net | $4,828.0 | $4,723.5 | | Total liabilities | $5,696.5 | $5,738.3 | | Total members' equity | $2,841.9 | $2,912.7 | Consolidated Statements of Operations Consolidated Statement of Operations (in millions, except per unit data) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total revenues | $1,767.5 | $2,227.7 | | Operating income | $173.7 | $125.3 | | Net income | $94.2 | $66.0 | | Net income attributable to ENLC | $58.2 | $35.2 | | Diluted EPS | $0.12 | $0.07 | - The decrease in total revenues was primarily driven by a significant drop in Product sales from $2.04 billion in Q1 2022 to $1.48 billion in Q1 2023, offset by increased Midstream services revenue and a shift from a loss to a gain on derivative activity[14] Consolidated Statements of Cash Flows Consolidated Statement of Cash Flows Highlights (in millions) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $272.1 | $307.7 | | Net cash used in investing activities | $(150.0) | $(59.2) | | Net cash used in financing activities | $(71.9) | $(206.0) | | Net increase in cash | $50.2 | $42.5 | - The increase in cash used for investing activities was primarily due to higher additions to property and equipment ($100.7 million vs. $60.2 million) and new contributions to unconsolidated affiliate investments of $49.7 million in Q1 2023[28] - The decrease in cash used for financing activities was mainly due to lower net repayments on borrowings and the absence of the $50.5 million Series B Preferred Units redemption that occurred in Q1 2022, partially offset by higher common unit repurchases in Q1 2023 ($51.4 million vs. $17.0 million)[28] Notes to Consolidated Financial Statements The notes detail accounting policies, segment performance, debt, equity transactions, and legal contingencies, including the Central Oklahoma acquisition and Winter Storm Uri litigation - On December 19, 2022, the company completed the Central Oklahoma Acquisition for a total consideration of $102.2 million, adding approximately 900 miles of pipeline and two processing plants[44][45] - The company repurchased 4.4 million common units for $51.4 million in Q1 2023 under its repurchase program, and in February 2023, repurchased 4,500 Series C Preferred Units for $3.9 million[83][78] - The company is involved in litigation with Koch Energy Services over a $53.9 million dispute related to a force majeure declaration during Winter Storm Uri[135] Segment Profit (in millions) | Segment | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Permian | $96.0 | $73.0 | | Louisiana | $96.4 | $90.5 | | Oklahoma | $94.7 | $85.8 | | North Texas | $76.1 | $63.0 | | Total Segment Profit | $363.2 | $312.3 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes increased adjusted gross margin and segment profit to higher volumes and acquisitions, offsetting lower commodity prices, with a strong focus on fee-based contracts and strategic growth projects Overview and Recent Developments - Approximately 85% of the company's adjusted gross margin for Q1 2023 was derived from fee-based contractual arrangements, providing minimal direct commodity price exposure[142] - The company is building a carbon capture, transportation, and sequestration (CCS) business along the Mississippi River corridor in Louisiana, leveraging its existing pipeline network[149] - Key organic growth projects include relocating the Cowtown processing plant to the Permian (as Tiger II) to add 150 MMcf/d of capacity by Q2 2024, and restarting the GCF assets with operations expected in 2024[162][163] - In April 2023, the company issued an additional $300.0 million of its 6.500% senior notes due 2030, using the proceeds to repay borrowings under its Revolving Credit Facility[167] Non-GAAP Financial Measures Non-GAAP Financial Measures Reconciliation (in millions) | Measure | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Adjusted Gross Margin | $495.6 | $433.2 | | Adjusted EBITDA, net to ENLC | $323.7 | $304.3 | | Free Cash Flow After Distributions | $5.7 | $104.9 | - The significant decrease in Free Cash Flow After Distributions was primarily driven by a $49.7 million contribution to unconsolidated affiliates (Matterhorn JV and GCF) and a $10.5 million payment to redeem a non-controlling interest, both of which did not occur in the prior-year period[185] Results of Operations - Consolidated adjusted gross margin increased by $62.4 million YoY, from $433.2 million to $495.6 million[191] - The decrease in total revenues and cost of sales was primarily due to lower commodity prices in 2023 compared to 2022, partially offset by higher volumes, which increased midstream services revenue by $64.3 million[193] Segment Adjusted Gross Margin (in millions) | Segment | Q1 2023 | Q1 2022 | Change | | :--- | :--- | :--- | :--- | | Permian | $144.1 | $118.3 | +$25.8 | | Louisiana | $130.0 | $123.5 | +$6.5 | | Oklahoma | $119.4 | $106.8 | +$12.6 | | North Texas | $102.1 | $84.6 | +$17.5 | - The Permian segment's adjusted gross margin increase of $25.8 million was driven by higher volumes from existing customers and favorable derivative activity, partially offset by lower commodity prices[201] Liquidity and Capital Resources - Net cash from operating activities decreased to $272.1 million in Q1 2023 from $307.7 million in Q1 2022, primarily due to changes in working capital[206] Remaining 2023 Capital Requirements (in millions) | Item | Amount | | :--- | :--- | | Capital expenditures, net to ENLC | $313 | | Operating expenses for plant relocation | $15 | | Contributions to unconsolidated affiliates | $25 | | Total | $353 | Total Contractual Cash Obligations as of March 31, 2023 (in millions) | Obligation | Total Amount | | :--- | :--- | | Senior unsecured notes | $4,009.2 | | Revolving Credit Facility | $505.0 | | AR Facility | $355.6 | | Interest payable on fixed debt | $2,390.0 | | Total Contractual Obligations | $8,367.1 | Quantitative and Qualitative Disclosures About Market Risk The company manages commodity price and interest rate risks through fee-based contracts and hedging, with a hypothetical 10% commodity price change impacting derivatives by $19.8 million - The company's primary market risks are changes in the prices of natural gas, NGLs, condensate, and crude oil, as well as changes in interest rates on its floating-rate debt[237] - As of March 31, 2023, a hypothetical 10% change in commodity prices would result in a change of approximately $19.8 million in the net fair value of the company's outstanding commodity derivative contracts[248] - To manage interest rate risk, the company entered into a $400.0 million interest rate swap in January 2023, paying a fixed rate of 3.8565% in exchange for a variable SOFR-based rate through February 2026[107][251] - A 1.0% change in interest rates would alter annualized interest expense by approximately $5.1 million for the Revolving Credit Facility and $3.6 million for the AR Facility, partially offset by a $4.0 million change from the interest rate swap[252] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting - Management concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective[255] - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2023, that materially affected, or are reasonably likely to materially affect, internal controls[256] PART II—OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, with specific details on ongoing litigation, including matters related to Winter Storm Uri, provided in Note 16 - The company refers to Note 16, "Commitments and Contingencies," for a discussion of its ongoing litigation and administrative proceedings[259] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - Risk factors have not materially changed from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[260] Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2023, the company repurchased 5.8 million common units at an average price of $11.79, with $148.6 million remaining available under its repurchase program Common Unit Repurchases for Q1 2023 | Period | Total Units Purchased | Average Price Paid Per Unit | Units Purchased Under Program | | :--- | :--- | :--- | :--- | | Jan 2023 | 1,359,821 | $12.56 | 703,587 | | Feb 2023 | 3,503,904 | $11.61 | 2,835,075 | | Mar 2023 | 907,954 | $11.35 | 905,753 | | Total | 5,771,679 | $11.79 | 4,444,415 | - The 2023 common unit repurchase program was reauthorized in December 2022 for up to $200.0 million, with approximately $148.6 million remaining available under the program as of the end of March 2023[262][263] Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, debt indentures, compensatory plan agreements, and required officer certifications - The exhibits filed with this report include the Form of 2023 Performance Unit Agreement, certifications by the Principal Executive Officer and Principal Financial Officer, and financial data formatted in iXBRL[265]