LEAWOOD, Kan.--(BUSINESS WIRE)--Tallgrass Energy, LP (NYSE: TGE) ("TGE") today reported financial and operating results for the third quarter of 2018.
"Again this quarter our teams demonstrated a continued commitment to operating our assets safely and efficiently, delivering outstanding operating and financial results," said President and CEO David Dehaemers Jr. "We remain focused on improving our cost of capital and delivering projects that serve our customers and grow our business. Our recent announcements on the Powder River Gateway, the Seahorse Pipeline and the Plaquemines Liquids Terminal are examples of projects that will continue to develop the country’s midstream infrastructure, and from which our customers and shareholders will benefit."
Third Quarter Dividend
As previously announced, the board of directors of TGE's general partner declared a quarterly cash dividend of $0.5100 per Class A share for the third quarter of 2018. This quarterly dividend represents $2.04 per Class A share on an annualized basis, a sequential increase of 2.5 percent from the second quarter 2018 dividend and an increase of 43.7 percent from the third quarter 2017 dividend. The quarterly dividend will be paid on Nov. 14, 2018, to Class A shareholders of record as of the close of business on Oct. 31, 2018.
Tallgrass Energy, LP Summary Financial Information
|
Three Months Ended |
Nine Months Ended September 30, 2018 | ||||||||||||||
| (in thousands, except coverage and per unit data) | As Reported(1) | Pro Forma(2) | As Reported(1) | ||||||||||||
| Net income | $ | 118,712 | $ | 330,989 | $ | 342,726 | |||||||||
| Net income attributable to noncontrolling interests | (59,162 | ) | (170,001 | ) | (265,378 | ) | |||||||||
| Net income attributable to TGE | $ | 59,550 | $ | 160,988 | $ | 77,348 | |||||||||
| Add: | |||||||||||||||
| Interest expense, net | 34,019 | 95,062 | 57,208 | ||||||||||||
| Depreciation and amortization expense(3) | 27,356 | 80,504 | 45,794 | ||||||||||||
| Distributions from unconsolidated investments | 100,720 | 282,803 | 198,019 | ||||||||||||
| Deficiency payments, net(3) | 3,468 | 14,592 | 7,205 | ||||||||||||
| Non-cash compensation expense(4) | 2,767 | 6,770 | 4,738 | ||||||||||||
| Loss on debt retirement | 2,245 | 2,245 | 2,245 | ||||||||||||
| Deferred income tax expense | 11,997 | 47,235 | 35,498 | ||||||||||||
| Net income attributable to Exchange Right Holders | 57,780 | 165,590 | 145,169 | ||||||||||||
| Less: | |||||||||||||||
| Equity in earnings of unconsolidated investments | (76,268 | ) | (222,857 | ) | (153,235 | ) | |||||||||
| Gain on disposal of assets(3) | (279 | ) | (9,417 | ) | (3,388 | ) | |||||||||
| Non-cash gain related to derivative instruments(3) | (2,993 | ) | (4,218 | ) | (3,306 | ) | |||||||||
| Adjusted EBITDA(5) | $ | 220,362 | $ | 619,297 | $ | 413,295 | |||||||||
| Less: | |||||||||||||||
| Cash interest cost | (32,728 | ) | (91,292 | ) | (54,909 | ) | |||||||||
| Maintenance capital expenditures, net(3) | (4,638 | ) | (15,189 | ) | (8,409 | ) | |||||||||
| Cash Available for Dividends(5) | $ | 182,996 | $ | 512,816 | $ | 349,977 | |||||||||
| Less: | |||||||||||||||
| Dividends to Class A (TGE) | (79,717 | ) | (185,085 | ) | |||||||||||
| Dividends to Class B (Exchange Right Holders) | (63,183 | ) | (187,293 | ) | |||||||||||
| Distribution to TEP public unitholders | — | (46,391 | ) | ||||||||||||
| Amounts in excess of dividends | $ | 40,096 | $ | 94,047 | |||||||||||
| Dividend coverage |
1.28x |
|
1.22x |
|
|||||||||||
| Class A shares outstanding(6) | 156,309 | 156,309 | |||||||||||||
| Class B shares outstanding(6) | 123,888 | 123,888 | |||||||||||||
| Total Shares outstanding | 280,197 | 280,197 | |||||||||||||
| Cash Available for Dividend per share | $ | 0.6500 | $ | 1.8300 | |||||||||||
| Dividend per share | $ | 0.5100 | $ | 1.4950 | |||||||||||
| (1) | 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. | |
| (2) | Indicated amounts presented for the nine months ended Sept. 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. | |
| (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 third quarter 2018. | |
Conference Call
Please join Tallgrass Energy for a conference call and webcast to discuss third quarter 2018 results at 3:30 p.m. Central Time on Wednesday, Oct. 31, 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 |
Nine Months Ended |
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| 2018 | 2017 | 2018 | 2017 | |||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Natural Gas Transportation | ||||||||||||||||||||
| Operating income | $ | 17,372 | $ | 17,016 | $ | 53,638 | $ | 49,910 | ||||||||||||
| Add: | ||||||||||||||||||||
| Depreciation and amortization expense | 4,861 | 4,794 | 14,539 | 14,369 | ||||||||||||||||
| Distributions from unconsolidated investment | 98,503 | 138,132 | 278,142 | 227,547 | ||||||||||||||||
| Other income, net | 697 | 455 | 2,251 | 807 | ||||||||||||||||
| Less: | ||||||||||||||||||||
| Non-cash gain related to derivative instruments | — | — | — | (116 | ) | |||||||||||||||
| Merger Adjusted Segment Adjusted EBITDA(3) | $ | 121,433 | $ | 160,397 | $ | 348,570 | $ | 292,517 | ||||||||||||
| Less: | ||||||||||||||||||||
| Merger Adjustments | — | (91,732 | ) | (95,401 | ) | (158,981 | ) | |||||||||||||
| Segment Adjusted EBITDA as Reported in 9/30/18 10Q | $ | 121,433 | $ | 68,665 | $ | 253,169 | $ | 133,536 | ||||||||||||
|
Three Months Ended |
Nine Months Ended |
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| 2018 | 2017 | 2018 | 2017 | |||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Crude Oil Transportation | ||||||||||||||||||||
| Operating income | $ | 69,295 | $ | 51,478 | $ | 181,536 | $ | 145,462 | ||||||||||||
| Add: | ||||||||||||||||||||
| Depreciation and amortization expense(2) | 13,627 | 13,027 | 40,499 | 39,673 | ||||||||||||||||
| Non-cash loss (gain) related to derivative instruments(2) | — | 202 | — | (432 | ) | |||||||||||||||
| Deficiency payments, net (2) | 4,645 | 5,016 | 11,619 | 25,719 | ||||||||||||||||
| Less: | ||||||||||||||||||||
| Adjusted EBITDA attributable to noncontrolling interests | — | (1,024 | ) | (350 | ) | (2,895 | ) | |||||||||||||
| Merger Adjusted Segment Adjusted EBITDA(3) | $ | 87,567 | $ | 68,699 | $ | 233,304 | $ | 207,527 | ||||||||||||
| Less: | ||||||||||||||||||||
| Merger Adjustments | — | (31,274 | ) | (82,361 | ) | (101,743 | ) | |||||||||||||
| Segment Adjusted EBITDA as Reported in 9/30/18 10Q | $ | 87,567 | $ | 37,425 | $ | 150,943 | $ | 105,784 | ||||||||||||
|
Three Months Ended |
Nine Months Ended |
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| 2018 | 2017 | 2018 | 2017 | |||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Gathering, Processing & Terminalling | ||||||||||||||||||||
| Operating income | $ | 9,680 | $ | 9,045 | $ | 38,707 | $ | 20,928 | ||||||||||||
| Add: | ||||||||||||||||||||
| Depreciation and amortization expense(2) | 7,688 | 5,651 | 22,474 | 13,852 | ||||||||||||||||
| Non-cash (gain) loss related to derivative instruments | (2,993 | ) | 486 | (4,218 | ) | 764 | ||||||||||||||
| Gain on disposal of assets(2) | (279 | ) | — | (9,417 | ) | (1,319 | ) | |||||||||||||
| Distributions from unconsolidated investments | 2,217 | 696 | 4,661 | 1,963 | ||||||||||||||||
| Deficiency payments, net | (1,566 | ) | (2,728 | ) | 1,811 | 920 | ||||||||||||||
| Other income (expense), net | 314 | (1 | ) | 314 | 142 | |||||||||||||||
| Less: | ||||||||||||||||||||
| Adjusted EBITDA attributable to noncontrolling interests | (1,382 | ) | (389 | ) | (4,061 | ) | (346 | ) | ||||||||||||
| Merger Adjusted Segment Adjusted EBITDA(3) | $ | 13,679 | $ | 12,760 | $ | 50,271 | $ | 36,904 | ||||||||||||
| Less: | ||||||||||||||||||||
| Merger Adjustments | — | (14,147 | ) | (20,269 | ) | (26,457 | ) | |||||||||||||
| Segment Adjusted EBITDA as Reported in 9/30/18 10Q | $ | 13,679 | $ | (1,387 | ) | $ | 30,002 | $ | 10,447 | |||||||||||
| (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 nine months ended Sept. 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 |
Nine Months Ended |
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| 2018 | 2017 | 2018 | 2017 | |||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Rockies Express Pipeline LLC | ||||||||||||||||||||
| Net income | $ | 90,709 | $ | 233,990 | $ | 270,339 | $ | 371,185 | ||||||||||||
| Add: | ||||||||||||||||||||
| Interest expense, net | 34,079 | 42,102 | 117,532 | 125,979 | ||||||||||||||||
| Depreciation and amortization expense | 54,832 | 54,761 | 164,656 | 163,560 | ||||||||||||||||
| Other non-cash loss | 2,769 | — | 2,769 | — | ||||||||||||||||
| Less: | ||||||||||||||||||||
| Change in contract asset | (15,575 | ) | — | (46,725 | ) | — | ||||||||||||||
| Adjusted EBITDA | 166,814 | 330,853 | 508,571 | 660,724 | ||||||||||||||||
| Less: | ||||||||||||||||||||
| Cash interest cost | (33,345 | ) | (41,267 | ) | (115,130 | ) | (123,476 | ) | ||||||||||||
| Maintenance capital expenditures | (2,948 | ) | (2,386 | ) | (13,970 | ) | (9,326 | ) | ||||||||||||
| Distributable Cash Flow | $ | 130,521 | $ | 287,200 | $ | 379,471 | $ | 527,922 | ||||||||||||
| Distributions to Members | $ | (131,358 | ) | $ | (276,508 | ) | $ | (385,906 | ) | $ | (515,613 | ) | ||||||||
| Contributions from Members | $ | 554,454 | $ | 23,334 | $ | 560,873 | $ | 72,394 | ||||||||||||
| Financial Leverage(1) | 2.94x | 3.03x | 2.94x | 3.03x | ||||||||||||||||
| (1) | Calculated in accordance with the definitions in REX's revolving credit facility. | |
Tallgrass Energy, LP Financial Statements
TGE's financial statements for the quarter ended Sept. 30, 2018 will be available in TGE's quarterly report on Form 10-Q that is expected to be filed with the Securities and Exchange Commission on Wednesday, Oct. 31, 2018.
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. In addition, Adjusted EBITDA at Rockies Express excludes the impact of other non-cash gains or losses and includes the impact of the change in contract asset, which represents the cumulative amount by which the revenue recognized exceeds the actual cash collected from the customer. 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 estimated average daily throughput on Pony Express for October 2018 and the feasibility, cost, execution, in-service timing, capabilities, and expected benefits of the Powder River Gateway, the Seahorse Pipeline and the Plaquemines Liquids Terminal projects. 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.