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NGL Energy Partners LP (NGL)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 FY2024 revenue was $1.87B (+1.6% q/q, -12.6% y/y) and EPS turned positive to $0.08, driven by strong Liquids Logistics and steady Water Solutions; net income margin improved to ~2.4% .
  • Consolidated adjusted EBITDA guidance maintained at $645M and Water at $500M+, while asset sale guidance was raised from $100M to $150M; management emphasized deleveraging and disciplined growth underpinned by MVCs .
  • Balance sheet catalyst: completed a $2.9B refinancing (new 2029/2032 secured notes and $700M term loan), extended maturities ~3 years, improved flexibility, and paid 50% of preferred arrearages with visibility to complete remaining 50% near-term .
  • Operationally, LEX II produced water expansion (to 340K bpd in 2024, expandable to 500K bpd) and Grand Mesa 5-year MVC recontracting reduce working capital needs and enhance ratable fee-based cash flows .
  • Near-term stock drivers: continued preferred arrearage catch-up, water volumes normalization post completion timing, and Grand Mesa contract updates; FY2025 guidance for higher EBITDA and growth capex to be provided at year-end call .

What Went Well and What Went Wrong

  • What Went Well

    • Asset sale guidance raised to $150M; permanent working capital release of $18–$20M from Grand Mesa MVC and incremental land sale proceeds at attractive multiples .
    • Liquids Logistics delivered $22.4M adjusted EBITDA on stronger butane blending margins; refined product supply/demand normalized vs prior-year dislocations .
    • Debt refinancing executed earlier than planned; ABL extended to 2029; ratings upgraded by S&P and Moody’s to single B; Fitch initiated at single B (BB- secured/term loan) .
    • Quote: “We are trying not to disappoint, but rather establish a reputation for beating expectations.” — CEO H. Krimbill .

  • What Went Wrong

    • Crude Oil Logistics adjusted EBITDA fell to $17.0M vs $33.3M y/y driven by lower crude sales margins, WTI below $75, weaker differentials, and lower DJ Basin production; Grand Mesa physical volumes ~70K bpd .
    • Water volumes down sequentially to 2.38M bpd (timing of completions and MVC counterparty system pressure); deficiency volumes paid but not reflected in physical barrels .
    • Corporate and Other posted a $(11.9)M adjusted EBITDA loss vs prior-year non-recurring other income benefit; ongoing legal and insurance costs also affected prior-period comparisons .

Financial Results

MetricQ1 2024Q2 2024Q3 2024
Revenue ($USD Millions)$1,616.1 $1,841.1 $1,869.8
EPS ($ per common unit, basic)$(0.11) $(0.05) $0.08
Net Income Attributable to NGL ($USD Millions)$19.3 $28.0 $45.7
Net Income Margin (%)1.2% (calc from $19.3/$1,616.1) 1.5% (calc from $28.0/$1,841.1) 2.4% (calc from $45.7/$1,869.8)

Segment revenue breakdown:

Segment Revenue ($USD Millions)Q1 2024Q2 2024Q3 2024
Water Solutions$181.3 $197.2 $179.3
Crude Oil Logistics$464.4 $489.7 $425.3
Liquids Logistics$970.4 $1,154.1 $1,265.2

KPIs (Water Solutions):

KPIQ1 2024Q2 2024Q3 2024
Service fee ($/barrel)$0.64 $0.69 $0.65
Operating expense ($/barrel)$0.25 $0.24 $0.25
Produced water processed (bpd)~2.46M 2.48M 2.49M
Skim oil sold (bpd)—4,378 3,663

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Consolidated Adjusted EBITDAFY2024$645M+ $645M+ affirmed Maintained
Water Adjusted EBITDAFY2024$500M+ (raised Q2) $500M+ affirmed Maintained
Asset SalesFY2024$100M (raised Q2) $150M (raised Q3) Raised
Growth CapexFY2024$65M (Q1 reset) $100M (raised Q2) Raised
Preferred DistributionsFY2024 (Q4 timing)Suspended 50% arrearages paid (B: $4.44/unit, C: $4.07/unit; D: ~$115M), remainder expected “very near future” Initiated arrearage catch-up

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Deleveraging & Capital StructureAggressive debt reduction; planned refi in 1H CY24; asset sales increased to $75–100M Completed $2.9B refi; maturities extended ~3 years; ABL extended to 2029; ratings improved Positive execution ahead of plan
Preferred DistributionsNo reinstatement expected FY2024; focus on refi first 50% arrearages paid; remaining 50% targeted near-term Material improvement
Water Expansion (LEX II)Water EBITDA raised; strong Delaware volumes; margin efficiencies LEX II expansion to 340K bpd in 2024 (expandable to 500K); MVC underpinned by investment-grade customer Capacity-led growth
MVCs & Grand MesaPhysical volumes ~70–72K bpd; weaker DJ production; hedging CMA roll New 5-year MVC with shipper; $18–$20M permanent WC release; physical ~70K bpd Stability via contracts
Working Capital & ABLFocus on reducing ABL due to higher cost vs notes Q&A: ABL balance “0 today”; Q4 WC change ~$50–55M Strong liquidity
Hedging StrategyCostless collars for skim oil through FY 80–90% skim hedged via collars through fiscal year Stable margins
FY2025 OutlookSeasonality; no quarterly EBITDA guidance FY2025 guidance to be higher (EBITDA and growth capex) and announced at year-end call Upward trajectory expected

Management Commentary

  • “We have reduced leverage... completed the refi... reducing our refinancing risk and providing financial flexibility... We expect to grow adjusted EBITDA each year for the foreseeable future led by our Delaware Water Solutions business.” — H. Krimbill, CEO .
  • “On January 5, we closed the open season on Grand Mesa and have a new 5-year MVC... freeing up $18–$20M of working capital... turns crude logistics into a more ratable, long-term fee-based business with more MVCs.” — Brad Cooper, CFO .
  • “LEX II expansion... from 140K to 340K bpd in 2024... fully underwritten by a MVC with an investment-grade producer; expandable to 500K bpd.” — Prepared remarks .

Q&A Highlights

  • Working capital and liquidity: management expects Q4 working capital change “~$50–55M”; ABL balance “0 today” as free cash flow paid it down .
  • Asset sales: guidance includes $18–$20M permanent WC release (Grand Mesa) and a land position sale at mid-to-high single-digit EBITDA multiple .
  • Skim oil: relationship between skim and disposal volumes to hold in FY2025; ~80–90% skim oil hedged via collars through FY .
  • Grand Mesa contracts: smaller contract rolls off late CY2024; larger equivalent contract has “another couple of years” .
  • Leverage targets: near-term leverage 3.75–4.0x, moving to ~3.5x after addressing Class D preferreds .

Estimates Context

  • S&P Global consensus (Revenue, EPS) for Q3 FY2024 was not available due to data access limits at time of analysis; comparisons to Street estimates are therefore not included. Values retrieved or cited herein are from company filings and transcripts.

Key Takeaways for Investors

  • Balance sheet inflection: $2.9B refinancing and ABL extension to 2029 materially de-risk maturities and improve flexibility; ratings actions provide validation .
  • Cash flow quality: MVCs (Grand Mesa, Water) and LEX II expansion support more ratable, fee-based EBITDA; permanent WC release improves cash conversion .
  • Shareholder overhang easing: 50% preferred arrearages paid; credible path to full catch-up near-term, enabling discussion of common distributions post arrearage resolution .
  • Operational cadence: near-term water volume lumpiness from completion timing is transitory; deficiency payments mitigate physical volume dips; butane margins supportive .
  • Guidance stance: asset sale guidance raised; consolidated and water EBITDA guidance maintained; FY2025 expected higher (structural growth plus capex) .
  • Risk monitoring: DJ Basin production trends and commodity price/differential volatility impacting crude margins; litigation outcomes (e.g., LCT Capital) and regulatory seismicity measures warrant oversight .
  • Near-term catalysts: remaining preferred arrearage payment, additional Grand Mesa contracting, FY2025 guidance in June year-end call — all likely narrative drivers .