Executive Summary

Q2 FY2020 Adjusted EBITDA from continuing operations was $118.98M (+30% YoY) driven by stronger Water Solutions and steady Crude Oil Logistics; total revenues were $4.29B; GAAP net loss was $(201.37)M due largely to discontinued operations related to the refined products sale .
Segment guidance updated: Crude raised to $200–$220M, Liquids raised to $85–$95M; Water lowered to $270–$300M reflecting timing/volume ramp and Hillstone integration; Refined Products cut to $15–$30M as TPSL exited—net effect is mix shift to fee-based, contracted cash flows .
Balance sheet and liquidity actions: sale of TPSL reduced working capital borrowings ~$300M; amended revolver to $1.79B capacity and eliminated leverage covenant per amendments; total debt at 9/30/19 was $2.774B; liquidity ~$503.5M .
Strategic pivot accelerates: closed Mesquite (July 2) and Hillstone (Oct 31), creating the largest U.S. produced-water network with long-term acreage dedications/MVCs; management targeting >70% piped water and 1.8–2.0MM bpd disposal exit run-rate for FY2020 .
Consensus estimates from S&P Global were not available at the time of analysis; estimate comparisons are omitted.

What Went Well and What Went Wrong

What Went Well

Water Solutions EBITDA rose to $56.9M (+47% YoY), with 1.258MM bpd processed (+24.9% YoY) as Mesquite volumes ramped; average disposal fee was ~$0.64/bbl; skim oil realized ~$58/bbl after hedges .
Crude Oil Logistics remained steady: Adjusted EBITDA $54.6M (vs. $48.5M YoY); Grand Mesa averaged ~128 kbpd with volumes trending higher into October/November per management .
Liquids execution: Adjusted EBITDA $19.3M, supported by strong butane and Chesapeake export facility utilization; segment guidance raised to $85–$95M for FY2020 .

Management quote: “We have established the largest water system in the U.S. with nearly 3 million barrels a day of disposable capacity… long-term contracts… Mesquite 95% piped, Hillstone 100% piped” — CEO Mike Krimbill .

What Went Wrong

Headline GAAP net loss of $(201.37)M, driven by a $(202.02)M loss from discontinued operations as TPSL was sold and wound down; net loss per common unit was $(1.72) .
Water Solutions full-year guidance lowered to $270–$300M (from $290–$320M) reflecting integration timing and updated volume ramp, despite strong Q2 segment EBITDA .
Operating costs in Water remained above target ($0.38/bbl in Q2 vs. $0.30/bbl target), with ongoing automation and grid power transitions needed to reach cost goals .

Financial Results

Consolidated P&L and EPS

Metric	Q4 2019	Q1 2020	Q2 2020
Total Revenues ($USD Billions)	$5.141	$6.638	$4.289
Operating Income ($USD Millions)	$82.28	$46.55	$46.40
Net Income (Loss) ($USD Millions)	$43.22	$8.04	$(201.37)
Net Income (Loss) per Common Unit (Basic)	$0.20	$(0.96)	$(1.72)
Loss from Continuing Ops per Unit (Basic)	$0.21	$(0.96)	$(0.13)
(Loss) Income from Discontinued Ops per Unit (Basic)	$(0.01)	—	$(1.59)

Note: Q2’s net loss primarily reflects discontinued operations from the refined products divestiture .

Adjusted EBITDA (Continuing Ops) and Segment Breakdown ($USD Millions)

Segment	Q4 2019	Q1 2020	Q2 2020
Crude Oil Logistics	$51.25	$52.07	$54.63
Water Solutions	$40.08	$41.09	$56.88
Liquids	$31.78	$12.41	$19.30
Refined Products & Renewables (cont.)	$16.38	$(11.24)	$(0.52)
Corporate & Other	$(6.92)	$(7.58)	$(11.32)
Adjusted EBITDA – Continuing Ops	$132.17	$86.76	$118.98

KPIs

KPI	Q4 2019	Q1 2020	Q2 2020
Water: Disposal Volumes (bpd)	860,223	848,887	1,258,353
Water: Solids Processed (bpd)	7,654	5,442	5,759
Water: Skim Oil Sold (bpd)	3,723	2,860	3,079
Water: Avg Disposal Fee ($/bbl)	N/A	N/A	$0.64
Water: % Delivered via Pipe	N/A	N/A	~60% (ex-Hillstone)
Crude: Grand Mesa Volumes (bpd)	129,000	133,000	~128,000
Liquids: Total Product Margin ($/gallon)	N/A	$0.047	$0.045

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Adjusted EBITDA – Crude	FY2020	$190–$210M	$200–$220M	Raised
Adjusted EBITDA – Water	FY2020	$290–$320M	$270–$300M	Lowered
Adjusted EBITDA – Liquids	FY2020	$75–$90M	$85–$95M	Raised
Adj. EBITDA – Refined Products (cont.)	FY2020	$40–$60M	$15–$30M	Lowered
Corporate & Other	FY2020	$(30)M	$(30)M	Maintained
G&A	FY2020	~$30M (implied continuity)	~$30M (unchanged)	Maintained
Distribution	FY2020	Maintain $1.56 annualized (prior commentary)	Maintain $1.56 annualized	Maintained
Growth Capex (next FY)	FY2021	N/A	$200–$250M (ex-M&A)	New disclosure

Earnings Call Themes & Trends

Topic	Previous Mentions (Q-2 and Q-1)	Current Period (Q2 2020)	Trend
Water strategy (pipelines, contracts, MVCs)	Focus on pipelines, dedications; Mesquite to add $110–$120M EBITDA; aim for 3P growth	Largest U.S. water system; >70% committed rising to 80–85%; 30% of committed on MVCs; disposal fee ~$0.64/bbl	Strengthening and scaling
Portfolio simplification	Pruning non-core; evaluating refined products; distribution coverage ≥1.3x	TPSL sold; refined products contribution reduced; leverage and WC borrowings lowered	Executed/continuing
Leverage and liquidity	Target 3.25x compliance; all-in <5x; refinance/notes issued	Total leverage ~4.8x; amended revolver to $1.79B; WC borrowings down ~$300M, targeting another $200–$250M	Improving
ESG/recycling	Recycling valuable in NM; economics vs. freshwater	R&D collaborations (CSM $0.8M, NMSU $1.0M); “fit-for-purpose” water treatment goals	Elevated focus
Distribution vs. buybacks	Coverage build first; later consider buybacks vs. distribution	At high yields, prefer buybacks over distribution increases	Consistent

Management Commentary

Strategic repositioning: “We have removed a significant amount of volatility and seasonality… grown our water solutions infrastructure… moved this segment to a true midstream model” — CEO .
Scale and contracts: “Mesquite… 95% piped and long-term contracts… Hillstone… MVCs 10- to 20-year acreage dedications” — CEO .
ESG initiatives: “Committed $1 million to New Mexico State University… donated $800,000 to Colorado School of Mines” — CEO .
Leverage and guidance: “Pro forma LTM adjusted EBITDA at 9/30/2019 is ~ $575M… total leverage ~4.8x… raised Crude & Liquids guidance; Water $270–$300M; maintain $1.56 distribution” — CFO .

Q&A Highlights

Contract quality/mix: ~70% of Delaware volumes under acreage dedication or MVCs, trending to ~80–85%; of the 70% committed, ~30% MVCs .
Recycling strategy: Focus on centralized, scalable facilities feeding recycle ponds via pipe; typical site 50–100 kbpd capacity with 10-year acreage dedication at McCloy Ranch .
Capital allocation: At double-digit yields, management would favor buybacks over raising distribution; decisions depend on unit price and coverage/leverage progress .
Leverage path and M&A: After Mesquite/Hillstone to secure basin position, “nothing left” in terms of large-scale acquisitions; expect water EBITDA growth and leverage decline over time .
Regulatory risk: Management views risk of federal-land drilling bans as unlikely (“fake news”); citing legal opinion and lack of permit surge in NM as indicators .

Estimates Context

S&P Global (Capital IQ) consensus estimates for Q2 FY2020 revenue and EPS were unavailable at the time of analysis; comparisons to Street estimates are therefore omitted.

Key Takeaways for Investors

Water-led transformation is delivering: record volumes, higher fees, and increasing pipeline delivery underpin more stable, fee-based cash flows; segment now the core earnings driver .
Guidance mix shift is constructive: raised Crude and Liquids offset lower Water and refined products; overall trajectory tied to Delaware ramp and Hillstone integration .
Balance sheet de-risking: WC reduction and revolver amendments improve flexibility; leverage at ~4.8x with a path lower as volumes scale and working capital winds down .
Near-term catalysts: integration synergies, disposal volume exit of 1.8–2.0MM bpd, Chesapeake export throughput, and potential solids/recycling revenue .
Watch items: Water OpEx reduction to $0.30/bbl target, execution on contractual ramps (e.g., Poker Lake), and any pricing pressure on expiring water contracts over time .
Capital returns: With coverage building and leverage improving, management signals buybacks could take precedence over distribution hikes at high yields .

Appendix: Additional Data

Operating segment details and reconciliation tables, balance sheets, and operational KPIs are provided in the Q2 FY2020 8-K (Nov 8, 2019) and the earnings call transcript (Nov 8, 2019) .
Prior trend references: Q1 FY2020 8-K and call (Aug 8–9, 2019) and Q4 FY2019 8-K and call (May 30, 2019) .

NGL Energy Partners LP (NGL)·Q2 2020 Earnings Summary