Tallgrass Energy Partners, LP (NYSE: TEP) (“TEP” or the
“Partnership”) today reported financial and operating results for
the first quarter of 2014. The Partnership closed its initial
public offering on May 17, 2013 and this earnings release relates
to the financial and operating results of the Partnership and its
Predecessor as described under “About Tallgrass Energy Partners,
LP” below.
Summary Financial
Information
Three Months Ended March 31, (in thousands, except coverage
and per unit data)
2014
2013 Net income $ 12,900 $ 5,071
Add: Interest expense (income), net 1,324 5,564 Depreciation and
amortization expense 6,514 7,546 Non-cash loss related to
derivative instruments 351 919 Non-cash compensation expense 941 -
Distributions from unconsolidated investment 508 - Less: Equity in
earnings of unconsolidated investment (444 ) -
Adjusted EBITDA $ 22,094 $ 19,100 Less: Maintenance
capital expenditures (839 ) (264 ) Cash interest cost (1,173
) (1,691 ) (a) Distributable cash flow (DCF) 20,082 17,145
(a) Less: Distributions (13,688 ) (b) (11,881 ) (a)
DCF in excess of distributions 6,394 5,264
(a) Distribution coverage 1.47x 1.44x (a) Limited
partner units outstanding 40,500 40,500 (a) Distribution per unit $
0.3250
(a) Indicated amounts presented for the
three months ended March 31, 2013 are on a pro forma basis, which
assumes that our initial public offering and related formation
transactions, including borrowings under our $500 million revolving
credit facility, had closed on January 1, 2013. No cash
distributions were paid with respect to the first quarter of 2013.
Pro forma distributions for the first quarter of 2013 were
calculated using the minimum quarterly distribution under our
partnership agreement. Pro forma interest expense (inclusive of
commitment fees) for the three months ended March 31, 2013 includes
$230 million of borrowings at a rate of 2.50%.
Management believes the pro forma
presentation of distributable cash flow and distribution coverage
provides investors with useful information to compare our
historical financial results. These pro forma financial measures
are presented for illustrative purposes only and are not
necessarily indicative of the operating results or the financial
position that would have been achieved had the initial public
offering and related formation transactions been consummated on
January 1, 2013 or of the results that may be obtained in the
future.
(b) Distributions to be paid on May 14,
2014 for the first quarter of 2014 will be based on the total
number of common units outstanding as of April 30, 2014, which was
40,885,140. The actual number of common units outstanding as of
March 31, 2014 was 40,500,000.
Tallgrass President and CEO David G. Dehaemers, Jr. said, “TEP’s
strong performance in the first quarter of 2014, the third
consecutive increase in our quarterly distribution and our
acquisition of Trailblazer on April 1st combine for an outstanding
beginning of the year. Although we expect some variability in our
quarterly coverage, particularly for our second quarter when we
anticipate increased spending on planned expenses and maintenance
capital projects, we continue to be confident in our 2014 guidance
given earlier this year. Our recently completed Trailblazer
acquisition and the related distribution growth that we expect
beginning for the second quarter of 2014 is an example of the
growth that we remain focused on delivering for our
unitholders.”
Segment Overview
The first quarter 2014 results by segment are summarized
below:
Three Months Ended
March 31, 2014 Three Months Ended March 31, 2013
Summary Financial
Information
Gas Transportation Corporate Gas
Transportation Corporate (in thousands)
and Storage Processing
and Other Total and Storage
Processing and Other
Total Operating Income (Loss) $ 7,484 $
7,141 $ (1,566 ) $ 13,059 $ 5,081 $ 5,215 $ - $ 10,296 Add:
Depreciation and amortization expense 4,567 1,947 - 6,514 5,927
1,619 - 7,546 Non-cash loss related to derivative instruments 351 -
- 351 919 - - 919 Other income 721 - - 721 339 - - 339 Non-cash
compensation expense - - 941 941 - - - - Distributions from
unconsolidated investment - 508
- 508 -
- - -
Segment Adjusted EBITDA $ 13,123 $ 9,596
$ (625 ) $ 22,094 $ 12,266 $
6,834 $ - $ 19,100
Adjusted EBITDA in the Gas Transportation and Storage
segment for the first quarter of 2014 was $13.1 million,
representing an increase of $0.9 million as compared to the first
quarter of 2013. As expected, average firm contracted
transportation capacity of 636 MMcf/d for the first quarter of 2014
was slightly lower as compared to 667 MMcf/d for the first quarter
of 2013. The capacity decrease is primarily due to the termination
of TIGT’s contract with TMID in the fourth quarter of 2013, but the
gross margin impact of that termination is more than offset by
higher average transportation rates partially attributable to the
expansion of and new volumes on the West end of the system. In
addition, gas sales in a favorable pricing market also contributed
to the increase in Adjusted EBITDA for the first quarter of 2014 as
compared to the first quarter of 2013. When comparing TIGT’s
Adjusted EBITDA for the first quarter of 2014 of $13.1 million to
its Adjusted EBITDA for the fourth quarter of 2013 of $15.9
million, the decrease is primarily attributable to lower gas
recoveries and the revenues received from TMID in the fourth
quarter of 2013 for the buyout of its transportation contract.
The Processing segment generated Adjusted EBITDA of $9.6
million for the first quarter of 2014, representing an increase of
$2.8 million as compared to the first quarter of 2013. The increase
was primarily due to higher average inlet volumes as a result of
our expanded capacity and higher commodity prices in our remaining
spread-based contracts. Approximate average inlet volumes were 151
MMcf/day for the first quarter of 2014 as compared to 127 MMcf/day
for the first quarter of 2013. The Processing segment also began
receiving distributions from a fresh water transportation joint
venture in the first quarter of 2014. When comparing TMID’s
Adjusted EBITDA for the first quarter of 2014 of $9.6 million to
its Adjusted EBITDA for the fourth quarter of 2013 of $7.5 million,
the increase is primarily attributable to higher commodity prices,
joint venture distributions and the payment made to TIGT in the
fourth quarter of 2013 for the buyout of its transportation
contract.
Conference Call
Please join Tallgrass for a conference call and webcast related
to its first quarter 2014 results at 4:00 pm Central Time on
Wednesday, May 7, 2014. The webcast will be accompanied by a slide
deck. A link posted in the Investor Relations section of our
website will allow interested parties to listen and the replay will
be available on our website for a limited time following the end of
the live call. In addition, the slide presentation will be
available on our website following the call.
About Tallgrass Energy Partners,
LP
Tallgrass Energy Partners, LP (NYSE: TEP) is a publicly traded,
growth-oriented limited partnership formed to own, operate, acquire
and develop midstream energy assets in North America. We currently
provide natural gas transportation and storage services for
customers in the Rocky Mountain and Midwest regions of the United
States through our Tallgrass Interstate Gas Transmission and
Trailblazer Pipeline systems and provide processing services for
customers in Wyoming through our Casper and Douglas natural gas
processing and West Frenchie Draw natural gas treating facilities.
We believe we are well-positioned to capture growing natural gas
volumes produced in the Denver-Julesburg Basin and the Niobrara and
Mississippi Lime shale formations.
Tallgrass closed its initial public offering on May 17, 2013,
and the earnings release relates to the financial information of
the Partnership and “TEP Predecessor.” TEP Predecessor refers to
the ownership of Tallgrass Interstate Gas Transmission, LLC (TIGT)
and Tallgrass Midstream, LLC (TMID) by Tallgrass Development from
November 13, 2012 to the closing of the initial public offering
(IPO) on May 17, 2013. TEP, or the Partnership, as used herein
refers to the consolidated financial results and operations for TEP
Predecessor from its inception through its contribution to TEP and
thereafter.
In connection with the closing of the initial public offering,
Tallgrass entered into a revised partnership agreement which
requires it to pay distributions, subject to certain limitations
more fully described in the “Our Cash Distribution Policy and
Restrictions on Distributions” section in Tallgrass’ prospectus,
within 45 days after the end of each quarter, beginning with the
second quarter of 2013. As previously announced, the board of
directors of Tallgrass’ general partner declared a quarterly cash
distribution to partners of $0.3250 per common unit for the first
quarter of 2014. This quarterly distribution represents $1.30 on an
annualized basis. The quarterly distribution will be paid on
Wednesday, May 14, 2014, to unitholders of record as of the close
of business on Wednesday, April 30, 2014.
To learn more, please visit our website at
www.tallgrassenergy.com.
Non-GAAP Measures
Adjusted EBITDA and distributable cash flow are non-GAAP
supplemental financial measures that management and external users
of our combined financial statements, such as industry analysts,
investors, lenders and rating agencies, may use to assess:
- our operating performance as compared
to other publicly traded partnerships in the midstream energy
industry, 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 distributions to our unitholders;
- 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 and
distributable cash flow provides useful information to investors in
assessing our financial condition and results of operations.
Adjusted EBITDA and distributable cash flow should not be
considered alternatives to net income, operating income, cash from
operations or any other measure of financial performance or
liquidity presented in accordance with GAAP, nor should Adjusted
EBITDA and distributable cash flow be considered alternatives to
available cash, operating surplus, distributions of available cash
from operating surplus or other definitions in our partnership
agreement. Adjusted EBITDA 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 and
distributable cash flow may be defined differently by other
companies in our industry, our definition of Adjusted EBITDA and
distributable cash flow may not be comparable to similarly titled
measures of other companies, thereby diminishing their utility.
We 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 disposals, 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. We define distributable cash flow as
Adjusted EBITDA less cash interest cost and maintenance capital
expenditures. Neither Adjusted EBITDA nor distributable cash flow
will be impacted by changes in working capital balances that are
reflected in operating cash flow. For a reconciliation of these
non-GAAP measures to their most directly comparable GAAP financial
measures, please see “Summary Financial Information” 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 the earnings and cash distribution accretion
expected to be realized by Tallgrass Energy Partners as a result of
the Trailblazer acquisition, the expectations of plans, strategies,
objectives and growth and anticipated financial and operational
performance of Tallgrass Energy Partners and its subsidiaries,
including: the ability to pursue expansions and other opportunities
for incremental volumes; natural gas production growth in Tallgrass
Energy Partners' 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 Tallgrass Energy Partners 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 Tallgrass Energy Partners, which may cause actual
results to differ materially from those implied or expressed by the
forward-looking statements. These include risks relating to
Tallgrass Energy Partners’ financial performance and results,
availability of sufficient cash flow to pay distributions and
execute its business plan, the demand for natural gas storage and
transportation services, operating hazards, the effects of
government regulation, tax position and other risks incidental to
transporting, storing and processing natural gas and other
important factors that could cause actual results to differ
materially from those projected, including those set forth in
reports filed by Tallgrass Energy Partners with the Securities and
Exchange Commission. Any forward-looking statement applies only as
of the date on which such statement is made and Tallgrass Energy
Partners 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.
Financial Statements
TALLGRASS ENERGY PARTNERS, LP
CONDENSED CONSOLIDATED BALANCE
SHEETS
(UNAUDITED)
March 31, 2014 December 31, 2013 ASSETS (in
thousands) Current Assets: Accounts receivable, net $ 25,663 $
27,615 Gas imbalances 2,743 2,598 Inventories 11,352 5,148
Prepayments and other current assets 4,264 16,986
Total Current Assets 44,022 52,347 Property, plant
and equipment, net 593,301 594,911 Goodwill 304,474 304,474
Unconsolidated investment 3,031 1,255 Deferred financing costs
4,255 4,512 Deferred charges and other assets 9,994
10,299 Total Assets $ 959,077 $ 967,798 LIABILITIES AND
PARTNERS' CAPITAL Current Liabilities: Accounts payable $ 43,021 $
54,621 Accounts payable to related parties 3,655 7,134 Gas
imbalances 9,176 3,142 Derivative liabilities at fair value 535 184
Accrued taxes 5,172 4,427 Accrued other current liabilities
12,073 14,777 Total Current Liabilities 73,632 84,285
Long-term debt 135,000 135,000 Other long-term liabilities and
deferred credits 4,510 4,572 Total Long-term
Liabilities 139,510 139,572 Partners' Capital:
Common unitholders (24,300,000 units
issued and outstanding at March 31, 2014 and December 31, 2013)
457,230 455,197
Subordinated unitholder (16,200,000 units
issued and outstanding at March 31, 2014 and December 31, 2013)
274,570 274,666
General partner (826,531 units issued and
outstanding at March 31, 2014 and December 31, 2013)
14,135 14,078 Total Partner's Capital 745,935
743,941 Total Liabilities and Partners' Capital $ 959,077 $
967,798
TALLGRASS ENERGY PARTNERS,
LPCONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME(UNAUDITED)
Three Months Three Months
Ended Ended March 31, 2014 March 31, 2013 (in thousands)
Revenues: Natural gas liquids sales $ 48,907 $ 33,401 Natural gas
sales 2,196 301 Transportation services 27,051 24,337 Processing
and other revenues 6,808 2,219 Total
Revenues 84,962 60,258 Operating
Costs and Expenses: Cost of sales and transportation services
50,446 29,470 Operations and maintenance 7,286 6,535 Depreciation
and amortization 6,514 7,546 General and administrative 6,201 4,634
Taxes, other than income taxes 1,456 1,777
Total Operating Costs and Expenses 71,903
49,962 Operating Income 13,059
10,296 Other (Expense) Income: Interest
(expense) income, net (1,324 ) (5,564 ) Equity in earnings of
unconsolidated investment 444 - Other income, net 721
339 Total Other Expense (159 ) (5,225 )
Net Income $ 12,900 $ 5,071 Total comprehensive
income $ 12,900 $ 5,071 Allocation of income
for the three months ended March 31, 2014: General partner interest
in net income $ 382 Common and subordinated unitholders' interest
in net income 12,518 Net Income $ 12,900 Basic
net income per common and subordinated unit $ 0.31 Diluted
net income per common and subordinated unit $ 0.30 Basic
average number of common and subordinated units outstanding 40,500
Diluted average number of common and subordinated units outstanding
41,272
TALLGRASS ENERGY PARTNERS, LP
CONDENSED CONSOLIDATED STATEMENT OF
CASH FLOWS
(UNAUDITED)
Three Months Three Months Ended Ended March 31, 2014 March
31, 2013 (in thousands) Cash Flows from Operating Activities: Net
income $ 12,900 $ 5,071
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 6,843 8,297 Noncash compensation
expense 941 - Noncash change in fair value of derivative financial
instruments 351 919 Equity in earnings of unconsolidated investment
(444 ) - Distributions from unconsolidated investment 444 - Changes
in components of working capital: Accounts receivable and other
2,461 (565 ) Gas imbalances 628 307 Inventories (942 ) (2,181 )
Accounts payable and accrued liabilities (9,865 ) 20,066 Other, net
6,290 107 Net Cash Provided by
Operating Activities 19,607 32,021
Cash Flows from Investing Activities: Capital expenditures
(5,947 ) (8,943 ) Net cash paid for purchase and sale of gas in
underground storage (31 ) - Unconsolidated investment (1,841 ) -
Distributions from unconsolidated
investment in excess of cumulative earnings
64 -
Proceeds from disposal of property, plant
and equipment (net of removal costs)
29 6 Net Cash Used in Investing
Activities (7,726 ) (8,937 ) Cash Flows from
Financing Activities: Distributions to Member, net - (23,084 )
Distributions to unitholders (13,082 ) - Reimbursement of stock
compensation expense from TD 1,201 -
Net Cash Used in Financing Activities (11,881 )
(23,084 ) Net Change in Cash and Cash Equivalents - - Cash
and Cash Equivalents, beginning of period - -
Cash and Cash Equivalents, end of period $
-
$
-
Tallgrass Energy Partners, LPInvestor RelationsNate Lien(913)
928-6012investor.relations@tallgrassenergylp.com
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