NGL Energy Partners LP(NGL) - 2020 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported record adjusted EBITDA exceeding $200 million, which is at least 20% higher than any retail analyst projection [6] - The 12-month trailing common unit coverage ratio increased from 1 time to 1.5x [6][12] - Total debt outstanding was just under $3.1 billion, resulting in a total leverage of 5x [15] - Adjusted EBITDA for the quarter was approximately $200 million and almost $428 million year-to-date [16] Business Line Data and Key Metrics Changes - Crude Oil segment generated approximately $56 million of adjusted EBITDA for the quarter, with a year-to-date total of $162 million [17] - Water segment adjusted EBITDA was $62 million for the quarter and totaled $160 million year-to-date [18] - Liquids segment achieved record adjusted EBITDA of $69 million for the quarter, totaling $100 million year-to-date [23] - Refined Products segment adjusted EBITDA for continuing operations was $24 million for the quarter, totaling $34 million year-to-date [26] Market Data and Key Metrics Changes - The company expects water disposal volumes to continue to increase, particularly with the upcoming Poker Lake project [20] - The average disposal fee for the quarter was $0.62 per barrel, consistent with year-to-date figures [20] - The company is well-positioned from an inventory standpoint to manage potentially warmer weather impacting volumes [24] Company Strategy and Development Direction - The company is focused on self-funding and continued deleveraging, with a targeted leverage metric of 4x or lower [11] - The strategy includes increasing acreage dedications, MVCs, and extending the tenure of existing contracts [11] - The company aims to simplify its business while maintaining a diverse cash flow [27] Management's Comments on Operating Environment and Future Outlook - Management indicated that water volumes are approximately three months behind original expectations but are expected to ramp up significantly [23] - The company is optimistic about future water volumes, particularly with the development plans of major customers [62] - Management emphasized the importance of reducing operating expenses and achieving synergies from recent acquisitions [62] Other Important Information - The company closed the Hillstone acquisition during the quarter and exited additional smaller refined products businesses [6] - The company has significantly reduced capex in fiscal 2021 and is approaching free cash flow positive status [9] Q&A Session Summary Question: Water volumes delay and exit rate expectations - Management indicated that water volumes are about three months behind schedule, and the exit rate for the end of the calendar year will not include Poker Lake [30][31] Question: Margin expectations for the Water business - Management expects net margins to be larger on a go-forward basis, with operating expenses anticipated to decrease significantly [41][42] Question: Competitive dynamics for new water deals - The competitive environment is tough as many long-term dedications have already been secured, limiting new opportunities for competitors [55] Question: Credit risk associated with Grand Mesa - Management monitors credit risk closely and feels comfortable with the current customer base, despite some credit concerns [64] Question: Purchase of third-party volumes and margin implications - The purchase of third-party volumes is consistent with pipeline operations, and margins are generally in line with basin differentials [70] Question: Role of the new Executive VP of Strategic Initiatives - The role focuses on ensuring the company does not miss strategic acquisition opportunities and enhancing communication with investors [72]