August 2, 2018 - 6:45 AM EDT
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Tallgrass Energy Reports Strong Second Quarter 2018 Results

LEAWOOD, Kan.

  • Pro Forma Net Income, Adjusted EBITDA and Cash Available for Dividends of $51.2 million, $202.7 million and $165.1 million respectively
  • Pro Forma Cash Available for Dividends of $0.59 per share, Declared Dividend of $0.4975 per share, resulting in dividend coverage of 1.18x
  • TGE financial leverage of approximately 2.7x; proportionally consolidated (REX) financial leverage results in approximately 4.2x at TGE
  • Average daily throughput on Pony Express of approximately 348,000 barrels per day for the second quarter

Tallgrass Energy, LP (NYSE: TGE) ("TGE") today reported financial and operating results for the second quarter of 2018.

"In the second quarter, our team successfully executed a smooth, seamless combination transaction while delivering outstanding financial, commercial and operational results," said President and CEO David Dehaemers Jr. "Excluding merger costs, Pro Forma Net Income and Adjusted EBITDA would have been approximately $56 million and $208 million respectively. Driving the quarter's results were our highest-ever quarterly average daily throughput on Pony Express and strong performance in our Natural Gas Transportation and Gathering, Processing and Terminalling segments. With the merger completed, a strong balance sheet, healthy dividend coverage and improved cost of capital, TGE is well-positioned as one of the country's leading core infrastructure companies."

Second Quarter Dividend

As previously announced, the board of directors of TGE's general partner declared a quarterly cash dividend of $0.4975 per Class A share for the second quarter of 2018. This quarterly dividend represents $1.99 per Class A share on an annualized basis, a sequential increase of 2.1 percent from the first quarter 2018 dividend and an increase of 45.3 percent from the second quarter 2017 dividend. The quarterly dividend will be paid on Aug. 14, 2018, to Class A shareholders of record as of the close of business on July 31, 2018.

Tallgrass Energy, LP Summary Financial Information

       
Three Months Ended June 30, Six Months Ended June 30,
2018   2018
    As     As
(in thousands, except coverage and per unit data)

Pro Forma(1)

Reported(2)

Pro Forma(1)

Reported(2)

 
Net income $ 108,962 $ 109,701 $ 212,277 $ 224,014
Net income attributable to noncontrolling interests   (57,804 )   (108,638 )   (110,839 )   (206,216 )
Net income attributable to TGE $ 51,158 $ 1,063 $ 101,438 $ 17,798
Add:
Interest expense, net 31,282 12,403 61,043 23,189
Depreciation and amortization expense(3) 27,294 9,942 53,148 18,438
Distributions from unconsolidated investments 94,250 53,808 182,083 97,299
Non-cash compensation expense(4) 1,189 1,009 4,003 1,971
Deferred income tax expense 17,548 16,809 35,238 23,501
Net income attributable to Exchange Right Holders 56,536 38,424 107,810 87,389
Less:
Equity in earnings of unconsolidated investments (78,187 ) (44,554 ) (146,589 ) (76,967 )
Loss (gain) on disposal of assets(3) 279 103 (9,138 ) (3,109 )
Non-cash loss (gain) related to derivative instruments(3) 1,449 559 (1,225 ) (313 )
Deficiency payments, net(3)   (71 )   (43 )   11,124     3,737  
Adjusted EBITDA(5) $ 202,727   $ 89,523   $ 398,935   $ 192,933  
Less:
Cash interest cost (30,104 ) (11,899 ) (58,564 ) (22,181 )
Maintenance capital expenditures, net(3)   (7,521 )   (2,745 )   (10,551 )   (3,771 )
Cash Available for Dividends(5) $ 165,102 $ 74,879 $ 329,820 $ 166,981
Less:
Dividends to Class A (TGE) (77,052 ) (105,368 )
Dividends to Class B (Exchange Right Holders) (62,339 ) (124,110 )
Distribution to TEP public unitholders       (46,391 )
Amounts in excess of dividends $ 25,711   $ 53,951  
Dividend coverage 1.18x 1.20x
 
Class A shares outstanding(6) 154,878 154,878
Class B shares outstanding(6) 125,305 125,305
Cash Available for Dividend per share $ 0.5900 $ 1.1800
Dividend per share $ 0.4975 $ 0.9850
 
(1)   Indicated amounts presented for the three and six months ended June 30, 2018, are on a pro forma basis (excluding dividend/distribution figures, dividend coverage figures and Class A and Class B shares outstanding) assuming that our combination transaction with TEP (the "TEP Merger Transaction") had closed on Jan. 1, 2018.
 

(2)

As reported amounts presented are based on actual Tallgrass Equity, LLC ("Tallgrass Equity") ownership in Tallgrass Energy Partners, LP ("TEP") net of noncontrolling interests associated with the TEP common units held by the public prior to the closing of the TEP Merger Transaction, which was effective June 30, 2018.

 

(3)

Net of noncontrolling interest in operating assets.

 

(4)

Represents TGE's portion of non-cash compensation expense related to Equity Participation Shares and TEP Equity Participation Units, excluding amounts allocated to Tallgrass Development, LP ("TD") prior to the merger of TD into Tallgrass Development Holdings, LLC, a wholly-owned subsidiary of Tallgrass Equity, on Feb. 7, 2018.

 

(5)

Adjusted EBITDA and Cash Available for Dividends are non-GAAP measures. For additional detail see "Non-GAAP Measures" below.

 

(6)

Class A and B shares represent the actual number of shares as of the dividend record date for the second quarter 2018.

 

Conference Call

Please join Tallgrass Energy for a conference call and webcast to discuss second quarter 2018 results at 3:30 p.m. Central Time on Thursday, Aug. 2, 2018. Interested parties may listen via a link posted on the Investor Relations section of our website and the replay will be available on our website for at least seven days following the live call.

Tallgrass Energy, LP Merger Adjusted Segment Overview(1)

The following summary provides a reconciliation of the operating income and Segment Adjusted EBITDA for each of our reporting segments with the amounts adjusted for the impact of the TEP Merger Transaction, assuming it had closed on the first day of the period presented. Merger Adjusted Segment Adjusted EBITDA is a Non-GAAP Measure. For additional detail see "Non-GAAP Measures" below.

       
Three Months Ended June 30, Six Months Ended June 30,
2018     2017 2018     2017
(in thousands)
Natural Gas Transportation
Operating income $ 16,882 $ 14,726 $ 36,266 $ 32,894
Add:
Depreciation and amortization expense 4,851 4,792 9,678 9,575
Distributions from unconsolidated investment 91,806 59,290 179,639 89,415
Other, net 720 282 1,554 352
Less:
Non-cash gain related to derivative instruments               (116 )
Merger Adjusted Segment Adjusted EBITDA(3) $ 114,259   $ 79,090   $ 227,137   $ 132,120  
 
Less:
Merger Adjustments   (53,175 )   (39,734 )   (95,401 )   (67,249 )
Segment Adjusted EBITDA as Reported in 6/30/18 10Q $ 61,084   $ 39,356   $ 131,736   $ 64,871  
 
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
(in thousands)
Crude Oil Transportation
Operating income $ 65,714 $ 50,259 $ 112,241 $ 93,984
Add:
Depreciation and amortization expense(2) 13,593 13,359 26,872 26,646
Non-cash loss (gain) related to derivative instruments(2) 16 (634 )
Deficiency payments, net (2) (1,035 ) 7,016 6,974 20,703
Less:
Adjusted EBITDA attributable to noncontrolling interests       (1,000 )   (350 )   (1,871 )
Merger Adjusted Segment Adjusted EBITDA(3) $ 78,272   $ 69,650   $ 145,737   $ 138,828  
 
Less:
Merger Adjustments   (49,767 )   (35,859 )   (82,361 )   (70,469 )
Segment Adjusted EBITDA as Reported in 6/30/18 10Q $ 28,505   $ 33,791   $ 63,376   $ 68,359  
 
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
(in thousands)
Gathering, Processing & Terminalling
Operating income $ 5,722 $ 6,777 $ 29,027 $ 11,883
Add:
Depreciation and amortization expense(2) 7,674 4,404 14,786 8,201
Non-cash loss (gain) related to derivative instruments 1,449 68 (1,225 ) 278
Loss (gain) on disposal of assets(2) 279 129 (9,138 ) (1,319 )
Distributions from unconsolidated investments 2,444 573 2,444 1,267
Deficiency payments, net 574 1,264 3,377 3,648
Other, net 143 143
Less:
Adjusted EBITDA attributable to noncontrolling interests   (1,268 )   51     (2,679 )   43  
Merger Adjusted Segment Adjusted EBITDA(3) $ 16,874   $ 13,409   $ 36,592   $ 24,144  
 
Less:
Merger Adjustments   (10,707 )   (6,726 )   (20,269 )   (12,310 )
Segment Adjusted EBITDA as Reported in 6/30/18 10Q $ 6,167   $ 6,683   $ 16,323   $ 11,834  
 
(1)   Segment reporting does not include corporate general and administrative costs or intersegment eliminations.
 

(2)

Net of noncontrolling interest in operating assets.

 

(3)

Represents Adjusted EBITDA which is a non-GAAP measure. For additional detail see "Non-GAAP Measures" below.

 

Rockies Express Pipeline LLC Summary Financial Information

TEP acquired a 25 percent interest in Rockies Express Pipeline LLC ("REX") effective May 6, 2016, and an additional 24.99 percent interest in REX effective March 31, 2017. Tallgrass Equity acquired a 25.01 percent interest in REX effective Feb. 7, 2018. The financial results of TGE subsequent to Feb. 7, 2018, include its aggregate 75 percent membership interest in REX. The table below is a reconciliation of REX's Adjusted EBITDA and Distributable Cash Flow for the three and six months ended June 30, 2018 and 2017, presented to provide additional information on REX's financial results. REX's Adjusted EBITDA and Distributable Cash Flow are non-GAAP measures. For additional detail see "Non-GAAP Measures" below.

       
Three Months Ended June 30, Six Months Ended June 30,
2018     2017 2018     2017
(in thousands)
Rockies Express Pipeline LLC
Net income $ 88,662 $ 70,945 $ 179,630 $ 137,195
Add:
Interest expense, net 41,483 42,051 83,453 83,877
Depreciation and amortization expense   54,962     54,608     109,824     108,799  
Adjusted EBITDA   185,107     167,604     372,907     329,871  
Less:
Cash interest cost (40,649 ) (41,217 ) (81,785 ) (82,209 )
Change in contract asset (15,575 ) (31,150 )
Maintenance capital expenditures   (7,226 )   (3,359 )   (11,022 )   (6,940 )
Distributable Cash Flow $ 121,657   $ 123,028   $ 248,950   $ 240,722  
 
Distributions to Members $ (122,808 ) $ (118,604 ) $ (254,548 ) $ (239,105 )
Contributions from Members $ 1,691 $ 22,289 $ 6,419 $ 49,060
Financial Leverage(1) 3.00x 3.90x 3.00x 3.90x
 
(1)   Calculated in accordance with the definitions in REX's revolving credit facility.
 

TEP Merger Transaction

In connection with the merger agreement announced on March 26, 2018, that closed effective June 30, 2018, TGE acquired the TEP common units held by the public in a taxable share-for-unit merger transaction at a ratio of 2.0 TGE Class A shares for each outstanding TEP common unit. Approximately 85 percent of the outstanding TEP units were voted and of that amount, greater than 99 percent voted in favor of the merger. Effective July 2, 2018, TEP's common units ceased trading on the New York Stock Exchange.

Non-GAAP Measures

Adjusted EBITDA, Cash Available for Dividends, and Distributable Cash Flow are non-GAAP supplemental financial measures that TGE management and external users of our consolidated financial statements and financial statements of our subsidiaries and unconsolidated investments, such as industry analysts, investors, lenders and rating agencies, may use to assess:

• our operating performance as compared to other publicly traded midstream infrastructure companies, without regard to historical cost basis or, in the case of Adjusted EBITDA, financing methods;

• the ability of our assets to generate sufficient cash flow to make dividends to our shareholders;

• our ability to incur and service debt and fund capital expenditures; and

• the viability of acquisitions and other capital expenditure projects and the returns on investment of various expansion and growth opportunities.

We believe that the presentation of Adjusted EBITDA, Cash Available for Dividends, and Distributable Cash Flow provides useful information to investors in assessing our financial condition and results of operations. Adjusted EBITDA, Cash Available for Dividends, and Distributable Cash Flow should not be considered alternatives to net income, operating income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP, nor should Adjusted EBITDA, Cash Available for Dividends, and Distributable Cash Flow be considered alternatives to available cash or other definitions in our partnership agreement. Adjusted EBITDA, Cash Available for Dividends, and Distributable Cash Flow have important limitations as analytical tools because they exclude some but not all items that affect net income and net cash provided by operating activities. Additionally, because Adjusted EBITDA, Cash Available for Dividends, and Distributable Cash Flow may be defined differently by other companies in our industry, our definition of Adjusted EBITDA, Cash Available for Dividends, and Distributable Cash Flow may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

We generally define Adjusted EBITDA as net income excluding the impact of interest, income taxes, depreciation and amortization, non-cash income or loss related to derivative instruments, non-cash long-term compensation expense, impairment losses, gains or losses on asset or business disposals or acquisitions, gains or losses on the repurchase, redemption or early retirement of debt, and earnings from unconsolidated investments, but including the impact of distributions from unconsolidated investments and deficiency payments received from or utilized by our customers. We also use Cash Available for Dividends and Distributable Cash Flow, which we generally define as Adjusted EBITDA, less cash interest costs, maintenance capital expenditures, distributions to noncontrolling interests in excess of earnings allocated to noncontrolling interests, and certain cash reserves permitted by our governing documents. Adjusted EBITDA and Cash Available for Dividends are both calculated and presented at the Tallgrass Equity level, before consideration of noncontrolling interest associated with the Exchange Right Holders or calculating distributions from Tallgrass Equity to us, on one hand, and to the Exchange Right Holders, on the other. We believe calculating these measures at Tallgrass Equity provides investors the most complete picture of our overall financial and operational results and provides a consistent metric for period over period comparisons that is not impacted by any future exercises by the Exchange Right Holders of the right to exchange TGE Class B Shares and Tallgrass Equity Units for an equal number of TGE Class A Shares (the "Exchange Right"), which does not have a dilutive effect on TGE's net income per share. For a reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures, please see "Summary Financial Information" above.

In this press release we have also presented Merger Adjusted Segment Adjusted EBITDA for each of our reporting segments. We define Merger Adjusted Segment Adjusted EBITDA as Adjusted EBITDA for such segment as adjusted for the impact of the TEP Merger Transaction, assuming it had closed on the first day of the period presented. We believe that the presentation of this measure on a merger adjusted basis provides useful information to investors in assessing our financial condition and results of operations for each of our reporting segments because the accounting treatment of our ownership interests in TEP prior to the TEP Merger Transaction and the impact of non-controlling interests for the period was significantly impacted by the TEP Merger Transaction during the period but is not representative of the comparable measures during our historical periods. For a reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures, please see "Tallgrass Energy, LP Merger Adjusted Segment Overview" above.

Cautionary Note Concerning Forward-Looking Statements

Disclosures in this press release contain "forward-looking statements." All statements, other than statements of historical facts, included in this press release that address activities, events or developments that management expects, believes or anticipates will or may occur in the future are forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this press release specifically include whether TGE is well-positioned as one of the country's leading core infrastructure companies. Forward-looking statements may also include the expectations of plans, strategies, objectives and growth and anticipated financial and operational performance of TGE and its subsidiaries, including: the ability to pursue expansions and other opportunities for incremental volumes; natural gas and crude oil production growth in TGE's operating areas; expected future benefits of acquisitions or expansion projects; timing of anticipated spending on planned expenses and maintenance capital projects; and distribution rate and growth, including variability of quarterly distribution coverage. These statements are based on certain assumptions made by TGE based on management's experience and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of TGE, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. These include risks relating to TGE's financial performance and results, availability of sufficient cash flow to pay dividends and execute its business plan, the demand for natural gas storage, processing and transportation services and for crude oil transportation services, operating hazards, the effects of government regulation, tax position and other risks incidental to transporting, storing and processing natural gas or transporting crude oil and other important factors that could cause actual results to differ materially from those projected, including those set forth in reports filed by TGE with the Securities and Exchange Commission. Any forward-looking statement applies only as of the date on which such statement is made and TGE does not intend to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.

About Tallgrass Energy

Tallgrass Energy, LP (NYSE: TGE) is a growth-oriented midstream energy infrastructure company operating across 11 states with transportation, storage, terminal, water, gathering and processing assets that serve some of the nation's most prolific crude oil and natural gas basins.

To learn more, please visit our website at www.tallgrassenergy.com.

Tallgrass Energy, LP Financial Statements

 
TALLGRASS ENERGY, LP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
       
June 30, 2018 December 31, 2017
(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 5,031 $ 2,593
Accounts receivable, net 213,973 118,615
Receivable from related parties 2,923 1,340
Inventories 21,063 21,609
Prepayments and other current assets   12,829   13,165

Total Current Assets

255,819 157,322
Property, plant and equipment, net 2,595,063 2,394,337
Goodwill 404,838 404,838
Intangible assets, net 134,663 97,731
Unconsolidated investments 1,475,056 909,531
Deferred financing costs, net 11,116 12,563
Deferred tax asset 298,112 312,997
Deferred charges and other assets   3,529   2,694
Total Assets $ 5,178,196 $ 4,292,013
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable $ 196,705 $ 98,882
Accounts payable to related parties 5,342
Accrued taxes 19,221 19,272
Accrued interest 46,448 25,167
Accrued liabilities 14,653 10,540
Deferred revenue 99,991 88,471
Other current liabilities   11,937   11,202
Total Current Liabilities 388,955 258,876
Long-term debt, net 2,535,555 2,292,993
Other long-term liabilities and deferred credits   20,036   18,965
Total Long-term Liabilities 2,555,591 2,311,958
Commitments and Contingencies
Equity:
Class A Shareholders (154,878,296 and 58,085,002 shares outstanding at June 30, 2018 and December 31, 2017, respectively) 1,744,665 48,613
Class B Shareholders (125,305,459 and 99,154,440 shares outstanding at June 30, 2018 and December 31, 2017, respectively)    
Total Partners' Equity 1,744,665 48,613
Noncontrolling interests   488,985   1,672,566
Total Equity   2,233,650   1,721,179
Total Liabilities and Equity $ 5,178,196 $ 4,292,013
 
 
TALLGRASS ENERGY, LP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
       
Three Months Ended June 30, Six Months Ended June 30,
2018     2017 2018     2017
(in thousands, except per unit amounts)
Revenues:
Crude oil transportation services $ 101,166 $ 89,855 $ 185,904 $ 174,186
Natural gas transportation services 31,474 29,429 63,670 61,114
Sales of natural gas, NGLs, and crude oil 37,250 22,918 75,395 38,299
Processing and other revenues   23,699     18,661     47,714     31,664  
Total Revenues   193,589     160,863     372,683     305,263  
Operating Costs and Expenses:
Cost of sales 27,694 19,386 54,045 31,756
Cost of transportation services 12,664 14,758 23,084 28,261
Operations and maintenance 18,440 15,254 34,839 28,157
Depreciation and amortization 27,690 22,091 53,813 43,494
General and administrative 19,085 15,334 37,511 29,551
Taxes, other than income taxes 8,462 6,912 17,341 15,138
Loss (gain) on disposal of assets   279     184     (9,138 )   (1,264 )
Total Operating Costs and Expenses   114,314     93,919     211,495     175,093  
Operating Income   79,275     66,944     161,188     130,170  
Other Income (Expense):
Equity in earnings of unconsolidated investments 78,187 42,741 146,589 63,479
Interest expense, net (31,282 ) (21,114 ) (61,043 ) (37,131 )
Other income, net   330     272     781     2,227  
Total Other Income (Expense)   47,235     21,899     86,327     28,575  
Net income before tax 126,510 88,843 247,515 158,745
Deferred income tax expense   (16,809 )   (9,676 )   (23,501 )   (12,340 )
Net income 109,701 79,167 224,014 146,405
Net income attributable to noncontrolling interests   (108,638 )   (70,414 )   (206,216 )   (125,623 )
Net income attributable to TGE $ 1,063   $ 8,753   $ 17,798   $ 20,782  
Net income per Class A share:
Basic net income per Class A share $ 0.02   $ 0.15   $ 0.30   $ 0.36  
Diluted net income per Class A share $ 0.02   $ 0.15   $ 0.30   $ 0.36  
Basic average number of Class A shares outstanding 59,397 58,075 58,745 58,075
Diluted average number of Class A shares outstanding 59,397 58,192 58,745 58,187
 
 
TALLGRASS ENERGY, LP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
   
Six Months Ended June 30,
2018     2017
(in thousands)
Cash Flows from Operating Activities:
Net income $ 224,014 $ 146,405
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization 56,955 47,939
Equity in earnings of unconsolidated investments (146,589 ) (63,479 )
Distributions from unconsolidated investments 145,581 63,374
Deferred income tax expense 23,501 12,340
Other noncash items, net (6,504 ) (1,079 )
Changes in components of working capital:

Accounts receivable and other

(93,157 ) 2,067
Accounts payable and accrued liabilities 106,592 3,150
Deferred revenue 10,711 24,593
Other current assets and liabilities 7,631 2,241
Other operating, net   2,525     419  
Net Cash Provided by Operating Activities   331,260     237,970  
Cash Flows from Investing Activities:
Capital expenditures (176,275 ) (53,995 )
Acquisition of BNN North Dakota, net of cash acquired (95,000 )
Sale of Tallgrass Crude Gathering 50,046
Distributions from unconsolidated investments in excess of cumulative earnings 36,502 27,308
Acquisition of Pawnee membership interest (30,600 )
Contributions to unconsolidated investments (22,513 ) (17,835 )
Acquisition of 38% membership interest in Deeprock North (19,500 )
Acquisition of Rockies Express membership interest (400,000 )
Acquisition of Terminals and NatGas (140,000 )
Acquisition of Douglas Gathering System (128,526 )
Other investing, net   (12,521 )   (13,986 )
Net Cash Used in Investing Activities   (269,861 )   (727,034 )
Cash Flows from Financing Activities:
Borrowings under revolving credit facilities, net 242,000 332,000
Distributions to noncontrolling interests (198,837 ) (145,109 )
Acquisition of Pony Express membership interest (50,000 )
Dividends paid to Class A shareholders (49,662 ) (32,813 )
Proceeds from public offering of TEP common units, net of offering costs 112,762
Proceeds from issuance of long-term debt 350,000
Partial exercise of call option (72,381 )
Repurchase of TEP common units from TD (35,335 )
Other financing, net   (2,462 )   (21,646 )
Net Cash (Used in) Provided by Financing Activities   (58,961 )   487,478  
Net Change in Cash and Cash Equivalents 2,438 (1,586 )
Cash and Cash Equivalents, beginning of period   2,593     2,459  
Cash and Cash Equivalents, end of period $ 5,031   $ 873  
 

Tallgrass Energy, LP
Investor and Financial Inquiries
Nate Lien, 913-928-6012
[email protected]
or
Media and Trade Inquiries
Phyllis Hammond, 303-763-3568
[email protected]


Source: Business Wire (August 2, 2018 - 6:45 AM EDT)

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