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CS on NGLWhat Happened? NGL reported FY1Q22 EBITDA of $91mm, below the CSe of $114mm and Street mean of $116mm. Adverse crude hedging related impacts largely drove the miss. Mgmt expects to realize ~$15mm of unrealized inventory benefits during the remainder of the year. Lower than expected liquids volumes also contributed to the miss. Stronger than expected water results partially offset. ▪ What’s Important? NGL now expects FY22 results to skew toward the low-end of the EBITDA guidance range of $570-600mm following the FY1Q22 miss and Sawtooth sale. Full year guidance implies quarterly EBITDA increases 75% (+$69mm) from FY1Q22 levels. Seasonally higher liquids results, ramping water and crude volumes, and the $15mm inventory benefit likely drive the majority of the increase which should be back-half weighted. The miss and guide down somewhat overshadows strong Water results. At the same time, guidance remaining within the range highlights Water strength. Annualizing Water results in over $320mm of EBITDA. Based on mgmt’s sequential growth guidance, results could be closer to $350mm for FY22. ▪ What Changed? No changes to FY22 capex guidance of $100-125mm. Focus remains on deleveraging with excess cash flows. Leverage remains above 7x in FY1Q22 (TTM) as elevated working capital outflows and the aforementioned EBITDA impacts reduced cash flow available to de-lever. NGL repurchased $18.7mm of 2023 notes during the quarter though. Mgmt expects cash flows and EBITDA growth in the last three quarters of FY22 to drive lower leverage. Additional non-core asset sales appear limited following the sale of the Sawtooth JV interest ($70mm). ▪ How Will The Stock React? We expect a negative reaction to the miss and guide to the low end of the FY22 EBITDA range. That said, the Street mean is 3% below the low end of the guide, which may mitigate the negative reaction. Maintain Underperform, TP $2.25 |
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