01—Abstract
Summary
Summary of the 10-K filed February 20, 2020. Cited figures are marked; the original filing is the authoritative source.
Targa Resources Corp. (NYSE: TRGP) reported its 2019 annual results with Adjusted EBITDA of $1,435.5 milliona, up 11% from $1,291.1 million in 2018, and distributable cash flow of $947.2 million, roughly flat year over year.
Reported GAAP results were weaker: revenues fell 17% to $8,671.1 millionb on lower NGL and natural gas prices, and the company posted a net loss attributable to common shareholders of $334.0 million, versus a $119.3 million loss in 2018. The loss was driven by a $243.2 million impairment of property, plant and equipment (including $225.3 million in Q4 on North Texas and Coastal gathering and processing assets), a $71.3 million other operating expense, and $91.7 million plus $33.1 million in preferred dividends and deemed dividends. Operating margin rose 15% to $1,759.7 million, led by Gathering and Processing (up 7%) and Logistics and Transportation (up 46%, to $867.2 million), as the Grand Prix NGL pipeline entered full service and Train 6 began operations.
Management reports that fee-based margin rose from 70% to 80% of the mix. Growth capital spending was $2.57 billionc, and the company guided 2020 net growth capex to $1.2 to $1.3 billion, with maintenance capex near $150 million. Liquidity was about $2.47 billion as of February 14, 2020, and the company funded its 2019 program with asset sales (a 45% stake in Targa Badlands for $1.6 billion) and senior note issuances.
Leverage remains a central investor concern. Total debt was $7.87 billiond at year-end, and the company's senior unsecured debt is rated BB by S&P and Ba3 by Moody's, both non-investment grade. Management is also pursuing further divestitures, including the Permian Midland crude gathering business, and leadership is transitioning, with Matthew Meloy becoming CEO and Joe Bob Perkins becoming Executive Chairman effective March 1, 2020.
02—Key points
Key Highlights
- Adjusted EBITDA rose 11% to $1,435.5 million, a company record, while distributable cash flow was $947.2 million, roughly flat versus 2018 and covering the common dividend of $3.64 per share.
- GAAP net loss attributable to common shareholders widened to $334.0 million, driven by a $243.2 million PP&E impairment and preferred dividends, despite operating margin growth of 15% to $1,759.7 million.
- Logistics and Transportation operating margin jumped 46% to $867.2 million as Grand Prix NGL pipeline and Train 6 fractionator came online, while Gathering and Processing margin grew 7% to $1,006.4 million.
- Revenue fell 17% to $8,671.1 million, reflecting lower NGL and natural gas prices, even as volumes grew; Permian plant inlet volumes rose 32% to about 2.09 Bcf/d.
- Total debt of $7.87 billion, with senior unsecured ratings of BB (S&P) and Ba3 (Moody's), keeps leverage and access to capital central investor concerns.
- 2019 growth capex of $2.57 billion is expected to fall to $1.2 to $1.3 billion in 2020, with the company funding growth through asset sales, joint ventures, and debt rather than common equity in 2019.
- Management transition: Matthew Meloy becomes CEO and Joe Bob Perkins becomes Executive Chairman effective March 1, 2020; the Permian Delaware crude gathering sale closed in January 2020 and the Permian Midland crude business is being marketed.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2019, Targa Resources Corp. lost $0.02.
- Revenue$8.67B100.0%
- Cost of revenue−$6.12B70.6%
- Gross profit$2.55B29.4%
- Operating costs−$2.36B27.2%
- Operating income$192.9M2.2%
- Interest, other & tax−$402.1M4.6%
- Net income−$209.2M2.4%
Where FY2019 revenue went
$8.67B- Cost of revenue: $6.21B, 72% of revenue
- Operating costs: $2.27B, 26% of revenue
- Operating income: $192.9M, 2.2% of revenue
Kept 2.2% as operating incomeOperating income $192.9M · 2.2%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 20, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $8.67B$10.48B | −17.3% |
| Cost of Revenue | $6.21B$8.24B | −24.6% |
| Gross Profit | $2.55B$2.25B | +13.7% |
| Operating Income | $192.90M$237.50M | −18.8% |
| Net Income | -$209.20M$1.60M | −13175.0% |
| EPS (Basic) | $-1.44$-0.53 | −171.7% |
| EPS (Diluted) | $-1.44$-0.53 | −171.7% |
| Shares Outstanding (Basic) | 232.50M224.20M | +3.7% |
| Shares Outstanding (Diluted) | 232.50M224.20M | +3.7% |
05—Questions
Frequently Asked Questions
Why did Targa report a net loss to common shareholders despite higher operating margin and record Adjusted EBITDA?
The loss reflects non-cash and financing items rather than weak core operations. Targa recorded a $243.2 million impairment of PP&E, mainly on North Texas and Gulf Coast gathering and processing assets, and a $71.3 million other operating expense, largely a $59.5 million loss on the held-for-sale Permian Delaware crude business. Preferred stock dividends of $91.7 million and deemed dividends of $33.1 million are also deducted before arriving at the common shareholder figure. Net income attributable to noncontrolling interests was $250.4 million, which reduces income attributable to Targa's common holders.
How is the company funding its growth program and what is its leverage profile?
In 2019 Targa funded growth through the sale of a 45% interest in Targa Badlands to Blackstone for $1.6 billion, contributions from joint venture partners Stonepeak and Blackstone, and senior note issuances totaling about $2.5 billion. Total debt was $7.87 billion at year-end, with $7.03 billion of fixed-rate senior notes at the Partnership level. Management did not issue common equity in 2019 and has $1.13 billion remaining under its ATM programs. Investors should weigh the non-investment-grade BB/Ba3 ratings, which raise the cost of capital and collateral requirements.
What drove the growth in Logistics and Transportation, and what is the outlook?
Operating margin in this segment rose 46% to $867.2 million, driven by Grand Prix entering full service in Q3 2019, Train 6 starting up in Q2 2019, and higher LPG export volumes. Grand Prix had a gross cost of about $2 billion and is the largest project in company history. Train 7 and Train 8 are expected to start by the end of Q1 2020 and Q3 2020, respectively, and the Galena Park export expansion is slated for Q3 2020. These projects should support further fee-based growth in the segment.
What are the main risks to cash flow and dividend coverage?
Commodity exposure remains significant: the company's percent-of-proceeds contracts expose it to NGL and natural gas prices, and its hedges cover only part of equity volumes and run through 2024. The 2019 impairments show the sensitivity of Barnett Shale and Gulf Coast assets to lower gas production. Dividends are not guaranteed, the Partnership's debt covenants can restrict distributions, and the company's cash reserves depend on continued Permian production growth. Investors should also note that management reported 2019 distributable cash flow of $947.2 million against $964.8 million of dividends and distributions paid, a coverage shortfall on a cash basis.
06—Continue