UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): August 5, 2020
___________
(Exact Name of Registrant as Specified in Charter)
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification Number) | ||||||||||||
| (Address of principal executive offices) | (Zip code) | |||||||||||||
(432 ) 221-7400
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| (NASDAQ Global Select Market) | ||||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Item 2.02. Results of Operations and Financial Condition.
On August 5, 2020, Rattler Midstream LP, a subsidiary of Diamondback Energy, Inc., issued a press release reporting financial and operating results for the second quarter ended June 30, 2020 and the second quarter 2020 cash distribution. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.
Item 9.01. Financial Statements and Exhibits.
Exhibits
| Number | Exhibit | ||||||||||
| 99.1 | |||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL). | ||||||||||
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| RATTLER MIDSTREAM LP | ||||||||||||||
| By: | Rattler Midstream GP LLC, its general partner | |||||||||||||
| Date: | August 5, 2020 | |||||||||||||
| By: | /s/ Teresa L. Dick | |||||||||||||
| Name: | Teresa L. Dick | |||||||||||||
| Title: | Chief Financial Officer, Executive Vice President and Assistant Secretary | |||||||||||||
 | Exhibit 99.1 | |||||||
RATTLER MIDSTREAM LP, A SUBSIDIARY OF DIAMONDBACK ENERGY, INC., REPORTS SECOND QUARTER 2020 FINANCIAL AND OPERATING RESULTS
MIDLAND, Texas, August 5, 2020 (GLOBE NEWSWIRE) -- Rattler Midstream LP (NASDAQ: RTLR) (“Rattler” or the “Company”), a subsidiary of Diamondback Energy, Inc. (NASDAQ: FANG) (“Diamondback”), today announced financial and operating results for the second quarter ended June 30, 2020.
SECOND QUARTER 2020 HIGHLIGHTS
•Q2 2020 consolidated net income (including non-controlling interest) of $12.5 million, consolidated adjusted net income (as defined and reconciled below) of $27.9 million
•Consolidated Adjusted EBITDA (as defined and reconciled below) of $53.9 million
•Board of Directors of Rattler's general partner approved a cash distribution for the second quarter of 2020 of $0.29 per common unit ($1.16 annualized); implies a 14% annualized yield based on the August 4, 2020 unit closing price of $8.06
•Q2 2020 cash operated capital expenditures of $39.5 million
•Q2 2020 average produced water gathering and disposal volumes of 771 MBbl/d, flat from Q2 2019 and down 18% from Q1 2020
•Q2 2020 average sourced water volumes of 78 MBbl/d, down 83% from both Q2 2019 and Q1 2020; 30% of total sourced water volumes in Q2 2020 sourced from recycled produced water
•Q2 2020 average crude oil gathering volumes of 91 MBbl/d, up 17% over Q2 2019 and down 6% from Q1 2020
•Q2 2020 average gas gathering volumes of 108 BBtu/d, up 27% over Q2 2019 and down 9% from Q1 2020
“The second quarter of 2020 presented historic volatility in global energy demand and commodity prices. Rattler, despite all of its operations being located in the premier low-cost shale basin and operated by a low-cost operator in Diamondback, was not spared from this volatility. Diamondback made the prudent decision to suspend completion activity and curtail production in the quarter, directly impacting Rattler’s second quarter volumes,” stated Travis Stice, Chief Executive Officer of Rattler’s general partner.
Mr. Stice continued, “Looking ahead, while this quarter reflected the effects of a severe disruption in the pace of expected development activity on Rattler’s assets, we are focused on reducing capital expenditures and operating costs across our asset base to increase free cash flow in a lower growth environment. Additionally, with three of our major equity method investments in full service, and minimal operated growth capex expected to be required in the future, Rattler is positioned to provide significant free cash flow to support its distribution. Rattler, with its equity method investment build cycle nearing completion, operated assets generating free cash flow and conservative financial leverage, is well-situated to weather this commodity cycle."
OPERATIONS AND FINANCIAL UPDATE
During the second quarter of 2020, the Company recorded total operating income of $28.5 million, down 53% compared to the first quarter of 2020 and a decrease of 49% from the second quarter of 2019. During the second quarter of 2020, the Company recorded consolidated net income (including non-controlling interest) of $12.5 million, inclusive of a $15.8 million impairment charge associated with goodwill related to its interest in the OMOG JV, a decrease of 77% from the first quarter of 2020 and a decrease of 73% from the second quarter of 2019. Second quarter 2020 adjusted net income (as defined and reconciled below) was $27.9 million, down 49% from the first quarter of 2020 and down 40% from the second quarter of 2019. Second quarter 2020 Adjusted EBITDA (as defined and reconciled below) was $53.9 million, down 33% from the first quarter of 2020 and down 19% from the second quarter of 2019.
Average produced water gathering and disposal volumes for Q2 2020 were 771 MBbl/d, flat from Q2 2019 and down 18% from Q1 2020. Average sourced water volumes were 78 MBbl/d, down 83% from both Q2 2019 and Q1 2020 due to Diamondback suspending almost all completion activity between mid April and late June. Average crude oil gathering volumes were 91 MBbl/d, up 17% over Q2 2019 and down 6% from Q1 2020. Average gas gathering volumes were 108 BBtu/d, down 9% from Q1 2020 and up 27% over Q2 2019.
Second quarter operated capital expenditures totaled $39.5 million, and aggregate contributions to equity method joint ventures were $33.5 million. Rattler also received proceeds of $8.1 million in distributions from equity method investments. As of June 30, 2020, the Company had $11.2 million of cash and $77.0 million available under its $600.0 million revolving credit facility.
SENIOR NOTES OFFERING
On July 14, 2020, the Company completed an offering (the “Notes Offering”) of $500.0 million in aggregate principal amount of its 5.625% Senior Notes due 2025. The Company received net proceeds of approximately $489.5 million from the Notes Offering. The Company loaned the gross proceeds to Rattler Midstream LLC, which used such proceeds to pay down borrowings under its revolving credit facility. As of June 30, 2020, pro forma for this offering, Rattler had $11.2 million of cash and $566.5 million available under its $600.0 million revolving credit facility, resulting in total liquidity of $577.7 million.
CASH DISTRIBUTION
On July 31, 2020, the Board of Directors of Rattler's general partner approved a cash distribution for the second quarter of 2020 of $0.29 per common unit, payable on August 24, 2020 to unitholders of record at the close of business on August 17, 2020.
GUIDANCE UPDATE
Below is Rattler's revised guidance for the full year 2020, with net income, capital expenditure and equity method contribution guidance updated to reflect the latest base case operating plan.
| Rattler Midstream LP Guidance | |||||
| 2020 | |||||
Rattler Operated Volumes (a) | |||||
| Produced Water Gathering and Disposal Volumes (MBbl/d) | 800 - 900 | ||||
| Sourced Water Volumes (MBbl/d) | 150 - 250 | ||||
| Crude Oil Gathering Volumes (MBbl/d) | 85 - 95 | ||||
| Gas Gathering Volumes (BBtu/d) | 95 - 115 | ||||
| Financial Metrics ($ millions except per unit metrics) | |||||
| Net Income | $120 - $150 | ||||
| Adjusted EBITDA | $260 - $300 | ||||
Equity Method Investment EBITDA(b) | $30 - $50 | ||||
| Operated Midstream Capex | $125 - $150 | ||||
2020 Equity Method Investment Contributions(b) | $85 - $105 | ||||
| Depreciation, Amortization & Accretion | $45 - $60 | ||||
| Annualized Distribution per Unit | $1.16 | ||||
(a)Does not include any volumes from the EPIC, Gray Oak, Wink to Webster, OMOG and Amarillo Rattler joint ventures
(b)Includes the EPIC, Gray Oak, Wink to Webster, OMOG and Amarillo Rattler joint ventures
CONFERENCE CALL
Rattler will host a conference call and webcast for investors and analysts to discuss its results for the second quarter and full year of 2020 on Thursday, August 6, 2020 at 9:00 a.m. CT. Participants should call (877) 288-2756 (United States/Canada) or (470) 495-9481 (International) and use the confirmation code 1608579. A telephonic replay will be available from 11:20 a.m. CT on Thursday, August 6, 2020 through Thursday, August 13, 2020 at 11:20 a.m. CT. To access the replay, call (855) 859-2056 (United States/Canada) or (404) 537-3406 (International) and enter confirmation code 1608579. A live broadcast of the earnings conference call will also be available via the internet at www.rattlermidstream.com under the “Investors” section of the site. A replay will also be available on the website following the call.
About Rattler Midstream LP
Rattler Midstream LP is a growth-oriented Delaware limited partnership formed in July 2018 by Diamondback Energy, Inc. to own, operate, develop and acquire midstream infrastructure assets in the Midland and Delaware Basins of the Permian Basin. Rattler provides crude oil, natural gas and water-related midstream services to Diamondback under long-term, fixed-fee contracts. For more information, please visit www.rattlermidstream.com.
About Diamondback Energy, Inc.
Diamondback is an independent oil and natural gas company headquartered in Midland, Texas focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. For more information, please visit www.diamondbackenergy.com.
Forward-Looking Statements
This news release contains forward-looking statements within the meaning of the federal securities laws. All statements, other than historical facts, that address activities that Rattler assumes, plans, expects, believes, intends or anticipates (and other similar expressions) will, should or may occur in the future are forward-looking statements. The forward-looking statements are based on management’s current beliefs, based on currently available information, as to the outcome and timing of future events, including specifically the statements regarding expectations of plans, strategies, objectives and anticipated financial and operating results of Rattler, including Rattler's capital expenditure levels and other guidance discussed above. These forward-looking statements involve certain risks and uncertainties that could cause the results to differ materially from those expected by the management of Rattler. Information concerning these risks and other factors can be found in Rattler’s filings with the Securities and Exchange Commission (“SEC”), Forms 10-Q and 8-K and Annual Report on Form 10-K for the year ended December 31, 2019 which can be obtained free of charge on the SEC’s web site at http://www.sec.gov. Rattler undertakes no obligation to update or revise any forward-looking statement.
| Rattler Midstream LP | |||||||||||
| Consolidated Balance Sheets | |||||||||||
| (unaudited, in thousands) | |||||||||||
| June 30, | December 31, | ||||||||||
| 2020 | 2019 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash | $ | 11,170 | $ | 10,633 | |||||||
| Accounts receivable—related party | 4,456 | 50,270 | |||||||||
| Accounts receivable—third party, net | 7,694 | 9,071 | |||||||||
| Sourced water inventory | 10,400 | 14,325 | |||||||||
| Other current assets | 688 | 1,428 | |||||||||
| Total current assets | 34,408 | 85,727 | |||||||||
| Property, plant and equipment: | |||||||||||
| Land | 88,309 | 88,509 | |||||||||
| Property, plant and equipment | 1,037,264 | 930,768 | |||||||||
| Accumulated depreciation, amortization and accretion | (81,572) | (61,132) | |||||||||
| Property, plant and equipment, net | 1,044,001 | 958,145 | |||||||||
| Right of use assets | 86 | 418 | |||||||||
| Equity method investments | 514,110 | 479,558 | |||||||||
| Real estate assets, net | 96,473 | 98,679 | |||||||||
| Intangible lease assets, net | 6,579 | 8,070 | |||||||||
| Deferred tax asset | 78,134 | — | |||||||||
| Other assets | 5,232 | 5,796 | |||||||||
| Total assets | $ | 1,779,023 | $ | 1,636,393 | |||||||
| Rattler Midstream LP | |||||||||||
| Consolidated Balance Sheets - Continued | |||||||||||
| (unaudited, in thousands, except unit amounts) | |||||||||||
| June 30, | December 31, | ||||||||||
| 2020 | 2019 | ||||||||||
| Liabilities and Unitholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 149 | $ | 147 | |||||||
| Accrued liabilities | 55,386 | 76,625 | |||||||||
| Taxes payable | 406 | 189 | |||||||||
| Short-term lease liability | 86 | 418 | |||||||||
| Total current liabilities | 56,027 | 77,379 | |||||||||
| Long-term debt | 523,000 | 424,000 | |||||||||
| Asset retirement obligations | 13,272 | 11,347 | |||||||||
| Deferred income taxes | — | 7,827 | |||||||||
| Total liabilities | 592,299 | 520,553 | |||||||||
| Commitment and contingencies | |||||||||||
| Unitholders’ equity: | |||||||||||
| General partner—Diamondback | 939 | 979 | |||||||||
Common units—public (43,996,243 units issued and outstanding as of June 30, 2020 and 43,700,000 units issued and outstanding as of December 31, 2019) | 400,928 | 737,777 | |||||||||
Class B units—Diamondback (107,815,152 units issued and outstanding as of June 30, 2020 and as of December 31, 2019) | 939 | 979 | |||||||||
| Accumulated other comprehensive loss | (320) | (198) | |||||||||
| Total Rattler Midstream LP unitholders’ equity | 402,486 | 739,537 | |||||||||
| Non-controlling interest | 785,239 | 376,928 | |||||||||
| Non-controlling interest in accumulated other comprehensive loss | (1,001) | (625) | |||||||||
| Total equity | 1,186,724 | 1,115,840 | |||||||||
| Total liabilities and unitholders’ equity | $ | 1,779,023 | $ | 1,636,393 | |||||||
| Rattler Midstream LP | |||||||||||||||||||||||
| Consolidated Statements of Operations | |||||||||||||||||||||||
| (unaudited, in thousands, except per unit data) | |||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Revenues—related party | $ | 78,031 | $ | 103,066 | $ | 194,614 | $ | 191,642 | |||||||||||||||
| Revenues—third party | 7,175 | 5,078 | 16,275 | 8,565 | |||||||||||||||||||
| Rental income—related party | 1,417 | 1,256 | 2,819 | 1,971 | |||||||||||||||||||
| Rental income—third party | 1,885 | 2,038 | 3,786 | 4,105 | |||||||||||||||||||
| Other real estate income—related party | 53 | 81 | 169 | 154 | |||||||||||||||||||
| Other real estate income—third party | 174 | 255 | 467 | 513 | |||||||||||||||||||
| Total revenues | 88,735 | 111,774 | 218,130 | 206,950 | |||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||
| Direct operating expenses | 37,378 | 26,406 | 70,252 | 46,592 | |||||||||||||||||||
| Cost of goods sold (exclusive of depreciation and amortization) | 4,744 | 15,849 | 20,705 | 28,902 | |||||||||||||||||||
| Real estate operating expenses | 590 | 695 | 1,318 | 1,221 | |||||||||||||||||||
| Depreciation, amortization and accretion | 12,100 | 10,158 | 24,606 | 20,062 | |||||||||||||||||||
| General and administrative expenses | 4,175 | 3,068 | 8,689 | 4,437 | |||||||||||||||||||
| Loss (gain) on disposal of property, plant and equipment | 1,243 | (4) | 2,781 | (4) | |||||||||||||||||||
| Total costs and expenses | 60,230 | 56,172 | 128,351 | 101,210 | |||||||||||||||||||
| Income from operations | 28,505 | 55,602 | 89,779 | 105,740 | |||||||||||||||||||
| Other expense: | |||||||||||||||||||||||
| Interest expense, net | (1,926) | (85) | (4,547) | (85) | |||||||||||||||||||
| Loss from equity method investments | (13,034) | (114) | (13,279) | (64) | |||||||||||||||||||
| Total other expense, net | (14,960) | (199) | (17,826) | (149) | |||||||||||||||||||
| Net income before income taxes | 13,545 | 55,403 | 71,953 | 105,591 | |||||||||||||||||||
| Provision for income taxes | 1,083 | 8,724 | 4,903 | 19,556 | |||||||||||||||||||
| Net income | $ | 12,462 | $ | 46,679 | $ | 67,050 | $ | 86,035 | |||||||||||||||
| Net income before initial public offering | $ | — | $ | 26,639 | $ | — | $ | 65,995 | |||||||||||||||
| Net income subsequent to initial public offering | $ | — | $ | 20,040 | $ | — | $ | 20,040 | |||||||||||||||
| Net income attributable to non-controlling interest | 9,640 | 15,237 | 51,197 | 15,237 | |||||||||||||||||||
| Net income attributable to Rattler Midstream LP | $ | 2,822 | $ | 4,803 | $ | 15,853 | $ | 4,803 | |||||||||||||||
| Net income attributable to limited partners per common unit: | |||||||||||||||||||||||
| Basic | $ | 0.05 | $ | 0.11 | $ | 0.33 | $ | 0.11 | |||||||||||||||
| Diluted | $ | 0.05 | $ | 0.11 | $ | 0.33 | $ | 0.11 | |||||||||||||||
| Weighted average number of limited partner common units outstanding: | |||||||||||||||||||||||
| Basic | 43,812 | 43,197 | 43,756 | 43,197 | |||||||||||||||||||
| Diluted | 43,812 | 44,340 | 43,756 | 44,340 | |||||||||||||||||||
| Rattler Midstream LP | |||||||||||
| Consolidated Statements of Cash Flows | |||||||||||
| (unaudited, in thousands) | |||||||||||
| Six Months Ended June 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 67,050 | $ | 86,035 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Provision for deferred income taxes | 4,903 | 19,556 | |||||||||
| Depreciation, amortization and accretion | 24,606 | 20,062 | |||||||||
| Loss (gain) on disposal of property, plant and equipment | 2,781 | (4) | |||||||||
| Unit-based compensation expense | 4,339 | 831 | |||||||||
| Loss from equity method investments | 13,279 | 64 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable—related party | 28,166 | (15,439) | |||||||||
| Accounts receivable—third party | 130 | 173 | |||||||||
| Accounts payable, accrued liabilities and taxes payable | (18,787) | 44,842 | |||||||||
| Other | 5,397 | (16,723) | |||||||||
| Net cash provided by operating activities | 131,864 | 139,397 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Additions to property, plant and equipment | (91,587) | (102,935) | |||||||||
| Contributions to equity method investments | (66,032) | (37,420) | |||||||||
| Distributions from equity method investments | 17,870 | — | |||||||||
| Proceeds from the sale of fixed assets | 42 | 18 | |||||||||
| Net cash used in investing activities | (139,707) | (140,337) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from borrowings from credit facility | 99,000 | 10,000 | |||||||||
| Payments on credit facility | — | (9,000) | |||||||||
| Distribution equivalent rights | (1,296) | — | |||||||||
| Net proceeds from initial public offering—public | — | 719,627 | |||||||||
| Net proceeds from initial public offering—General Partner | — | 1,000 | |||||||||
| Net proceeds from initial public offering—Diamondback | — | 999 | |||||||||
| Units repurchased for tax withholding | (1,365) | — | |||||||||
| Distribution to General Partner | (40) | — | |||||||||
| Distribution to public | (25,346) | — | |||||||||
| Distribution to Diamondback | (62,573) | (726,513) | |||||||||
| Net cash provided by (used in) financing activities | 8,380 | (3,887) | |||||||||
| Net increase (decrease) in cash | 537 | (4,827) | |||||||||
| Cash at beginning of period | 10,633 | 8,564 | |||||||||
| Cash at end of period | $ | 11,170 | $ | 3,737 | |||||||
| Supplemental disclosure of non-cash financing activity: | |||||||||||
| Contributions from Diamondback | $ | — | $ | 456,055 | |||||||
| Supplemental disclosure of non-cash investing activity: | |||||||||||
| Increase in long term assets and inventory due to contributions from Diamondback | $ | — | $ | 456,055 | |||||||
| Accounts payable related to capital expenditures | $ | 57,357 | $ | 68,617 | |||||||
| Rattler Midstream LP | |||||||||||||||||
| Pipeline Infrastructure Assets | |||||||||||||||||
| (unaudited, in miles) | |||||||||||||||||
| As of June 30, 2020 | |||||||||||||||||
(miles)(a) | Delaware Basin | Midland Basin | Permian Total | ||||||||||||||
| Crude oil | 108 | 44 | 152 | ||||||||||||||
| Natural gas | 151 | — | 151 | ||||||||||||||
| Produced water | 266 | 237 | 503 | ||||||||||||||
| Sourced water | 27 | 74 | 101 | ||||||||||||||
| Total | 552 | 355 | 907 | ||||||||||||||
(a) Does not include any assets of the EPIC, Gray Oak, Wink to Webster, Amarillo Rattler or OMOG joint ventures.
| Rattler Midstream LP | |||||||||||||||||||||||
| Capacity/Capability | |||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||
| As of June 30, 2020 | |||||||||||||||||||||||
(capacity/capability)(a) | Delaware Basin | Midland Basin | Permian Total | Utilization | |||||||||||||||||||
| Crude oil gathering (Bbl/d) | 180,000 | 56,000 | 236,000 | 39 | % | ||||||||||||||||||
| Natural gas compression (Mcf/d) | 135,000 | — | 135,000 | 59 | % | ||||||||||||||||||
| Natural gas gathering (Mcf/d) | 150,000 | — | 150,000 | 53 | % | ||||||||||||||||||
| Produced water gathering and disposal (Bbl/d) | 1,481,500 | 1,842,300 | 3,323,800 | 23 | % | ||||||||||||||||||
| Sourced water (Bbl/d) | 120,000 | 455,000 | 575,000 | 14 | % | ||||||||||||||||||
(a) Does not include any assets of the EPIC, Gray Oak, Wink to Webster, Amarillo Rattler or OMOG joint ventures.
| Rattler Midstream LP | |||||||||||||||||||||||
| Throughput and Volumes | |||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
(throughput)(a) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Crude oil gathering volumes (Bbl/d) | 91,256 | 78,066 | 94,275 | 76,326 | |||||||||||||||||||
| Natural gas gathering volumes (MMBtu/d) | 107,502 | 84,426 | 112,631 | 72,546 | |||||||||||||||||||
| Produced water gathering and disposal volumes (Bbl/d) | 771,337 | 770,091 | 856,483 | 740,807 | |||||||||||||||||||
| Sourced water gathering volumes (Bbl/d) | 78,059 | 447,823 | 262,386 | 400,476 | |||||||||||||||||||
(a) Does not include any volumes of the EPIC, Gray Oak, Wink to Webster, Amarillo Rattler or OMOG joint ventures.
NON-GAAP FINANCIAL MEASURES
Adjusted EBITDA is a supplemental non-GAAP financial measure used by management and external users of its financial statements, such as industry analysts, investors, lenders and rating agencies. Management believes Adjusted EBITDA is useful because the measure allows it to more effectively evaluate the Company's operating performance and compare the results of its operations period to period without regard to its financing methods or capital structure.
The Company defines Adjusted EBITDA as net income before income taxes, interest expense, net of amount capitalized, its proportional impairment related to equity method investments, non-cash unit-based compensation expense, depreciation, amortization and accretion on assets and liabilities of Rattler Midstream Operating LLC, its proportional interest of depreciation and interest on its equity method investments and other non-cash transactions. Adjusted EBITDA should not be considered an alternative to net income or any other measure of financial performance or liquidity presented in accordance with generally accepted accounting principles in the United States ("GAAP"). The GAAP measure most directly comparable to Adjusted EBITDA is net income. Adjusted EBITDA excludes some, but not all, items that affect net income, and these measures may vary from those of other companies. As a result, Adjusted EBITDA as presented below may not be comparable to similarly titled measures of other companies.
The Company does not provide guidance on the reconciling items between forecasted Net Income and forecasted Adjusted EBITDA due to the uncertainty regarding timing and estimates of these items. Rattler provides a range for the forecasts of Net Income and Adjusted EBITDA to allow for the variability in timing and uncertainty of estimates of reconciling items between forecasted Net Income and forecasted Adjusted EBITDA. Therefore, the Company cannot reconcile forecasted Net Income to forecasted Adjusted EBITDA without unreasonable effort.
The following table presents a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP financial measure for each of the periods indicated:
| Rattler Midstream LP | |||||||||||||||||||||||
| Adjusted EBITDA | |||||||||||||||||||||||
| (unaudited, in thousands) | |||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Reconciliation of Net Income to Adjusted EBITDA: | |||||||||||||||||||||||
| Net income | $ | 12,462 | $ | 46,679 | $ | 67,050 | $ | 86,035 | |||||||||||||||
| Interest expense, net of amount capitalized | 1,926 | 85 | 4,547 | 85 | |||||||||||||||||||
| Depreciation, amortization and accretion | 12,100 | 10,158 | 24,606 | 20,062 | |||||||||||||||||||
| Depreciation and interest expense related to equity method investments | 7,244 | 149 | 11,010 | 149 | |||||||||||||||||||
| Impairment related to equity method investments | 15,839 | — | 15,839 | — | |||||||||||||||||||
| Non-cash unit-based compensation expense | 2,120 | 831 | 4,339 | 831 | |||||||||||||||||||
| Other non-cash transactions | 1,105 | — | 2,565 | — | |||||||||||||||||||
| Provision for income taxes | 1,083 | 8,724 | 4,903 | 19,556 | |||||||||||||||||||
| Adjusted EBITDA | 53,879 | 66,626 | 134,859 | 126,718 | |||||||||||||||||||
| Less: Adjusted EBITDA prior to the IPO | — | 40,651 | — | 100,743 | |||||||||||||||||||
| Adjusted EBITDA subsequent to the IPO | 53,879 | 25,975 | 134,859 | 25,975 | |||||||||||||||||||
| Less: Adjusted EBITDA attributable to non-controlling interest | 38,288 | 18,483 | 95,912 | 18,483 | |||||||||||||||||||
| Adjusted EBITDA attributable to Rattler Midstream LP | $ | 15,591 | $ | 7,492 | $ | 38,947 | $ | 7,492 | |||||||||||||||
Adjusted net income is a non-GAAP financial measure equal to net income adjusted for impairment related to equity method investments and related income tax adjustments. The Partnership's computation of adjusted net income may not be comparable to other similarly titled measures of other companies or to such measure in our credit facility or any of our other contracts.
| Rattler Midstream LP | |||||
| Adjusted Net Income | |||||
| (unaudited, in thousands, except per unit data) | |||||
| Three Months Ended June 30, 2020 | |||||
| Pre-Tax Amounts | |||||
| Net income | $ | 12,462 | |||
| Impairment related to equity method investments | 15,839 | ||||
| Adjusted income excluding above items | 28,301 | ||||
| Income tax adjustment for above items | (367) | ||||
Adjusted net income(1) | 27,934 | ||||
| Less: Adjusted net income attributable to non-controlling interest | 20,889 | ||||
| Adjusted net income attributable to Rattler Midstream LP | $ | 7,045 | |||
| Adjusted net income attributable to limited partners per common unit | $ | 0.15 | |||
(1) Adjusted net income was equal to net income for the three months ended March 31, 2020 and three months ended June 30, 2019.
Investor Contact:
Adam Lawlis
+1 432.221.7467
IR@rattlermidstream.com
Source: Rattler Midstream LP; Diamondback Energy, Inc.