OREANDA-NEWS. PennTex Midstream Partners, LP (NASDAQ:PTXP) (the “Partnership”) today reported second quarter 2016 financial and operational results.

Financial and operational highlights for the quarter include:

  • Net income of $4.2 million, up 19% from first quarter 2016
  • Net operating cash flow of $14.9 million, up 27% from first quarter 2016
  • Adjusted EBITDA(1) of $15.5 million, up 3% from first quarter 2016
  • Distributable cash flow (“DCF”)(1) of $14.0 million, up 5% from first quarter 2016
  • Average daily processing volumes of 266,000 MMBtu/d

Other highlights:

  • Increased full-year 2016 DCF guidance(2) to $60-$63 million, up from $56-$59 million
  • Announced second quarter 2016 distribution of $0.2846 per unit, a 3.5% increase over first quarter 2016 distribution
  • Improved distribution coverage ratio of 1.22x for second quarter 2016 and decreased leverage ratio to 2.7x as of June 30, 2016
  • Minimum volume commitments under the Partnership’s gathering and processing agreements with its primary customer increased to 460,000 MMBtu/d effective July 1, 2016
       
(1 )   Please see “Supplemental Non-GAAP Financial Measures” for a description and reconciliation of Adjusted EBITDA and distributable cash flow.
(2 )   Please see “2016 Guidance Update” for a discussion of the unavailability of a comparable GAAP measure on a forward-looking basis.

Commenting on the results, Thomas F. Karam, Chairman and Chief Executive Officer, said, “We are very pleased with this quarter’s results. Our operating results were above expectations, allowing us to increase our distribution for the first time while simultaneously strengthening our distribution coverage and decreasing our leverage ratio. Our primary customer’s minimum volume commitments ramped up to the full nameplate capacity of our processing plants at the beginning of the third quarter and we generate the vast majority of our revenue from take-or-pay agreements. We believe PennTex is now in an even stronger position to execute on our strategy of predictable and attractive growth.”

Second Quarter 2016 Results

Operating revenues for the three months ended June 30, 2016 were $19.2 million and total operating expenses were $13.4 million, resulting in operating income of $5.8 million. In addition, the Partnership recorded $3.9 million of deferred revenue primarily related to undelivered minimum volume commitments. The Partnership reported net income of $4.2 million, or $0.13 per unit, and net operating cash flow of $14.9 million. For the three months ended June 30, 2016, the Partnership generated Adjusted EBITDA of $15.5 million and distributable cash flow of $14.0 million.

Operational Update

The Partnership processed an average of 266,000 MMBtu/d during the second quarter 2016. Minimum volume commitments under the Partnership’s gathering and processing agreements with its primary customer were 345,000 MMBtu/d during the second quarter 2016, and increased to 460,000 MMBtu/d effective July 1, 2016.

Second Quarter 2016 Distribution

On July 21, 2016, the Partnership announced a quarterly distribution of $0.2846 per unit, or approximately $1.14 per unit on an annualized basis, for the second quarter 2016. The distribution represents a 3.5% increase over the distribution declared for the first quarter. The distribution will be paid on August 12, 2016 to unitholders of record as of August 1, 2016.

2016 Guidance Update

The Partnership increased its outlook for full-year 2016 distributable cash flow from $56-$59 million to $60-$63 million. Distributable cash flow is a non-GAAP measure and, on a forward-looking basis, a comparable GAAP measure is unavailable because the Partnership is unable to predict with reasonable certainty and without unreasonable effort items such as changes in working capital, impairments, depreciation and amortization and non-cash general and administrative expenses. These items are uncertain, depend on various factors and could be material to the Partnership’s results calculated in accordance with GAAP.

Financial Position and Liquidity

As of June 30, 2016, the Partnership had $1.7 million in cash on hand. As of June 30, 2016, the Partnership’s total indebtedness was $158.0 million, including letters of credit outstanding, and the Partnership had an additional $117.0 million available borrowing capacity under its revolving credit facility.

Permian Right of First Offer

On July 27, 2016, the Conflicts Committee of PennTex Midstream GP, LLC (the “General Partner”), the general partner of the Partnership, made a recommendation to the board of directors of the General Partner that the Partnership decline to exercise its right of first offer with respect to the sale of PennTex Permian, LLC (“Permian”) by PennTex Midstream Partners, LLC, an affiliate of the General Partner (“PennTex Development”). The Conflicts Committee, which consisted solely of the three independent directors of the General Partner, retained independent financial and legal advisors in connection with its evaluation. On August 4, 2016, PennTex Development announced that it had entered into a definitive agreement to sell Permian to a third party.

About PennTex Midstream Partners, LP

PennTex Midstream Partners, LP is a growth-oriented master limited partnership focused on owning, operating, acquiring and developing midstream energy infrastructure assets in North America.  PTXP provides natural gas gathering and processing and residue gas and natural gas liquids transportation services to producers in the Terryville Complex in northern Louisiana.

PENNTEX MIDSTREAM PARTNERS, LP
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per unit amounts)
 
      Three months ended June 30,   Six months ended June 30,
      2016   2015(1)   2016   2015(1)
Revenues   $ 19,153     $ 2,696     $ 36,802     $ 2,924  
                   
Operating expenses:                
Cost of revenues   3,296     —     5,487     —  
General and administrative expense   4,077     2,679     8,014     4,933  
Operating and maintenance expense   2,384     808     5,003     1,460  
Depreciation and amortization expense   3,381     740     6,727     1,057  
Impairment of surplus assets   —     2,483     —     2,483  
Taxes other than income taxes   227     68     453     137  
  Total operating expenses   13,365     6,778     25,684     10,070  
Operating income (loss)   5,788     (4,082 )   11,118     (7,146 )
Interest expense, net   1,620     88     3,433     88  
  Net income (loss)   4,168     (4,170 )   7,685     (7,234 )
Less: Predecessor loss prior to the Offering on June 9, 2015   —     3,620     —     6,684  
Partnership’s interest in net income subsequent to the Offering on June 9, 2015   $ 4,168     (550 )   $ 7,685     (550 )
                   
Earnings per common unit:                
Basic   $ 0.13     $ (0.01 )   $ 0.25     $ (0.01 )
Diluted   $ 0.13     $ (0.01 )   $ 0.25     $ (0.01 )
                   
Weighted average common and common equivalent units outstanding:                
Basic   20,041,722     20,000,000     20,020,861     20,000,000  
Diluted   20,041,722     20,000,000     20,020,861     20,000,000  
                           
(1 ) The historical financial data for the three and six months ended June 30, 2015 is derived from the unaudited financial statements of the Partnership’s accounting predecessor, PennTex North Louisiana, LLC. In connection with the closing of the Partnership’s initial public offering on June 9, 2015, PennTex North Louisiana, LLC became a wholly-owned subsidiary of the Partnership.
                           

PENNTEX MIDSTREAM PARTNERS, LP
SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES
(Unaudited)

Adjusted EBITDA and distributable cash flow are non-GAAP financial measures. The GAAP liquidity measure most directly comparable to Adjusted EBITDA and distributable cash flow is net cash provided by operating activities. Adjusted EBITDA and distributable cash flow should not be considered alternatives to net income, operating income, cash flows from operations or any other measure of financial performance or liquidity presented in accordance with GAAP.

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. You should not consider Adjusted EBITDA or distributable cash flow in isolation or as substitutes for analysis of results as reported under GAAP.

Adjusted EBITDA is defined as net income (loss), plus interest expense, income taxes, depreciation and amortization, changes in deferred revenues, equity-based compensation expense, non-cash general and administrative expense, non-cash loss (income) related to derivative instruments and impairments on long-term assets. Distributable cash flow is defined as Adjusted EBITDA, less cash interest expense related to operating activities, net of interest income, income taxes paid and maintenance capital expenditures, and distribution equivalents paid in cash.

The following table reconciles Adjusted EBITDA to the most directly comparable GAAP financial and liquidity measures for the periods presented, and further reconciles Adjusted EBITDA for the three and six months ended June 30, 2016 and 2015 to distributable cash flow attributable to the Partnership:

 
      Three months ended June 30,   Six months ended June 30,
      2016   2015   2016   2015
      (in thousands)
Reconciliation to Net Cash Provided by Operating Activities:                
Net cash provided by operating activities   $ 14,902     $ (3,307 )   $ 26,644     $ (8,435 )
  Plus:                
  Cash interest expense related to operating activities   1,286     35     2,767     35  
  Changes in working capital   (656 )   3,686     1,220     6,144  
  Other   —     (106 )   —     (183 )
Adjusted EBITDA   15,532     308     30,631     (2,439 )
  Less:                
  Predecessor Adjusted EBITDA   —     (747 )   —     (3,494 )
  Cash interest expense related to operating activities   1,286     35     2,767     35  
  Maintenance capital expenditures   32     3     189     3  
  Distribution equivalents paid in cash(1)   227     42     401     42  
Distributable cash flow   $ 13,987     $ 975     $ 27,274     $ 975  
   
 (1 ) Represents distribution equivalent rights paid in cash in respect of the applicable period to the extent reflected as changes in equity.
   

The following table provides the calculation of Adjusted EBITDA as defined above:

 
  Three months ended June 30,   Six months ended June 30,
  2016   2015   2016   2015
  (in thousands)
Net income (loss) $ 4,168     $ (4,170 )   $ 7,685     $ (7,234 )
Add:              
Interest expense, net 1,620     88     3,433     88  
Depreciation and amortization expense 3,381     740     6,727     1,057  
Changes to deferred revenue 3,912     528     8,028     528  
Equity-based compensation expense 1,210     231     2,360     231  
Non-cash contribution for general and administrative expense 1,241     408     2,398     408  
Non-cash impairment on long-term assets —     2,483     —     2,483  
Adjusted EBITDA $ 15,532     $ 308     $ 30,631     $ (2,439 )