10-QPeriod: Q1 FY2020

Targa Resources Corp. Quarterly Report for Q1 Ended Mar 31, 2020

Filed May 7, 2020For Securities:TRGP

Summary

Targa Resources Corp. reported a significant net loss for the first quarter of 2020, primarily driven by a substantial impairment charge of $2.44 billion related to long-lived assets, largely within its Gathering and Processing segment. This impairment reflects the severe downturn in commodity prices experienced in the quarter, exacerbated by the COVID-19 pandemic and increased global oil production. Despite the large reported loss, the company's operational performance showed resilience in certain areas, with an increase in Adjusted EBITDA and Distributable Cash Flow compared to the prior year, demonstrating the benefit of its fee-based contracts and hedging strategies. In response to market conditions, Targa Resources has reduced its quarterly common dividend and significantly cut its 2020 capital expenditure guidance. The company's liquidity remains adequate, supported by available borrowing capacity on its credit facilities. Investors should monitor the ongoing impact of commodity prices, the effectiveness of cost-reduction measures, and the company's ability to manage its debt and capital expenditures in the challenging energy market.

Financial Highlights

46 data points
Beta

Revenue

$2.05B

41.3% Gross Margin

Net Income

-$1.74B

-84.8% Net Margin

EPS (Diluted)

$-7.60

Total Assets

$16.03B

Cash & Equivalents

$375.20M

Free Cash Flow

$110.90M

Financial Statements
Beta
Revenue$2.05B
Cost of Revenue$1.20B
Gross Profit$846.80M
Operating Income-$2.08B
Net Income-$1.74B
EPS (Basic)$-7.60
EPS (Diluted)$-7.60
Shares Outstanding (Basic)233.00M
Shares Outstanding (Diluted)233.00M

Key Highlights

  • 1Reported a significant net loss of $1.82 billion for Q1 2020, largely due to a $2.44 billion non-cash impairment of long-lived assets.
  • 2Adjusted EBITDA increased by 41% to $428.1 million, and Distributable Cash Flow increased by 61% to $301.9 million, indicating operational strength despite commodity price declines.
  • 3Total revenues decreased by 11% to $2.05 billion, reflecting lower commodity prices and midstream service fees.
  • 4The company reduced its quarterly common dividend to $0.10 per share and cut its 2020 growth capital expenditure guidance by 40% in response to market conditions.
  • 5Liquidity remains sufficient, with $3.38 billion in total cash and availability under credit facilities as of May 1, 2020.
  • 6Long-term debt remained substantial at $7.64 billion as of March 31, 2020.
  • 7The company experienced a notable increase in operating margin for both its Gathering and Processing (7%) and Logistics and Transportation (93%) segments.

Frequently Asked Questions

The primary reason for the significant net loss of $1.82 billion was a substantial non-cash impairment charge of $2.44 billion. This impairment was recognized on long-lived assets, primarily within the Gathering and Processing segment, due to the sharp decline in commodity prices caused by the COVID-19 pandemic and increased global oil production.

Targa Resources has taken several measures, including reducing its quarterly common dividend to $0.10 per share, cutting its 2020 estimated growth capital expenditures by approximately 40%, and implementing cost reduction initiatives. The company also repurchased a portion of its outstanding senior notes.

As of May 1, 2020, Targa Resources had approximately $3.38 billion in total cash and availability under its credit facilities. Management believes this liquidity, combined with operating cash flows, is adequate to meet its obligations for the next twelve months. However, the company's financial performance remains subject to the volatility of commodity prices and broader economic conditions.

The COVID-19 pandemic has significantly impacted global demand for energy commodities, leading to sharp price declines and reduced producer activity. This has negatively affected Targa's operations by potentially reducing future volumes and demand for services. The company has also experienced volatility in commodity prices and is uncertain about future market demand, though its fee-based contracts and hedging activities help mitigate some of this risk.