10-QPeriod: Q2 FY2020

Targa Resources Corp. Quarterly Report for Q2 Ended Jun 30, 2020

Filed August 6, 2020For Securities:TRGP

Summary

Targa Resources Corp. (TRGP) reported its second-quarter 2020 results, which were significantly impacted by the volatile commodity price environment and the ongoing COVID-19 pandemic. The company experienced a substantial decline in revenues and recognized significant impairment charges related to long-lived assets, primarily in its Gathering and Processing segment. Despite these headwinds, Targa generated positive operating cash flow and maintained compliance with its debt covenants. The company also took steps to strengthen its financial position by reducing its quarterly common dividend and cutting capital expenditures. Management highlighted the company's fee-based business components and hedging strategies as key mitigants against commodity price volatility. The company's financial performance in the first half of 2020 was marked by a large impairment charge of $2.44 billion, largely impacting its Mid-Continent and Coastal operations within the Gathering and Processing segment. This impairment was driven by the significant drop in commodity prices due to global demand destruction from COVID-19 and supply-side factors. While revenues decreased year-over-year, the company managed to improve its operating margin and gross margin, driven by cost reduction measures and a shift in contract mix, particularly within the Logistics and Transportation segment. Targa ended the period with a solid liquidity position, supported by its revolving credit facilities.

Financial Highlights

48 data points
Beta

Revenue

$1.52B

42.2% Gross Margin

Net Income

$81.00M

5.3% Net Margin

EPS (Diluted)

$0.21

Total Assets

$15.97B

Cash & Equivalents

$196.20M

Free Cash Flow

$12.10M

Financial Statements
Beta
Revenue$1.52B
Cost of Revenue$880.10M
Gross Profit$643.40M
Operating Income$213.10M
Net Income$81.00M
EPS (Basic)$0.21
EPS (Diluted)$0.21
Shares Outstanding (Basic)233.10M
Shares Outstanding (Diluted)233.80M

Key Highlights

  • 1Significant impairment charge of $2.44 billion recorded in the first half of 2020, primarily impacting Gathering and Processing assets, due to depressed commodity prices.
  • 2Total revenues decreased by 17% to $3.57 billion for the six months ended June 30, 2020, compared to the same period in 2019.
  • 3Operating margin improved by 42% to $1.15 billion for the six months ended June 30, 2020, reflecting cost controls and a strong performance in the Logistics and Transportation segment.
  • 4Net cash provided by operating activities increased by 34% to $738.9 million for the six months ended June 30, 2020.
  • 5The company reduced its quarterly common dividend to $0.10 per share and cut growth capital expenditures for 2020, demonstrating a focus on financial flexibility and debt reduction.
  • 6Liquidity remains strong with $2.01 billion in total liquidity available through revolving credit facilities and cash on hand as of June 30, 2020.
  • 7Compliance with debt covenants was maintained throughout the period, indicating financial stability despite market challenges.

Frequently Asked Questions

The primary driver of the net loss of $1.64 billion for the six months ended June 30, 2020, was a non-cash impairment charge of $2.44 billion. This charge was recognized due to the significant decline in commodity prices caused by the COVID-19 pandemic and other market factors, which led to a reassessment of the recoverability of certain long-lived assets, primarily within the Gathering and Processing segment.

The COVID-19 pandemic has significantly impacted Targa's operations by reducing global demand for energy commodities, leading to depressed prices and increased market volatility. This has affected the company's revenues and contributed to the impairment charges. Management has implemented cost-saving measures and reduced capital expenditures in response to these market conditions.

As of June 30, 2020, Targa Resources had $2.01 billion in total liquidity available, comprising cash on hand and borrowing capacity under its revolving credit facilities. The company believes this liquidity, combined with expected operating cash flows, is sufficient to meet its working capital needs, debt service obligations, and capital expenditure requirements for at least the next twelve months.

Yes, in response to market conditions, Targa Resources reduced its quarterly common dividend to $0.10 per share from $0.91 per share. Additionally, the company reduced its estimated 2020 growth capital expenditures by approximately 40% to a range of $700 million to $800 million, focusing on ongoing major projects and cost reduction measures.