Q4 2019 Earnings Call

This is scheduled to begin shortly please continue to standby.

Thank you for standing by and welcome to the Marty Midstream Partners' fourth quarter 2019 earnings conference call webcast.

At this time, all participants are in listen only mode.

For the speaker presentation, there will be a question answer session to ask a question. During this session you will need to press star one on your telephone if your car any further systems. Please press star zero. Please be advised to today's conference is being recorded.

Oh, no like to hand, the conference over to your Speaker today, Sharon Taylor director of Finance and Investor Relations. Please go ahead ma'am.

Thank you Sydney.

Good morning, everyone and welcome to the Martin Midstream Partners Conference call to discuss fourth quarter 2019 result.

In the room with me is Ruben Martin President and Chief Executive Officer, Bob Bond, Chief Financial Officer, Danny Cabin Director, that's Pmnine and David Kanen director of financial reporting.

Where we get started I'll remind you that management, maybe making forward looking statements as defined by the FCC such statements are based on our current judgments regarding the factors that could impact the future performance the Martin the actual outcomes could be materially different.

You should review the risk factors and other information discussed in our filings with the FCC and form your own opinion about Martin's future performance.

We will discuss non-GAAP financial measures on today's call. Please refer to the table in our earnings press release posted isn't the Investor Relations section of our website to find a reconciliation of non-GAAP financial measures referenced in today's call to their corresponding GAAP measures I'll now turn the call over to Mr. breathing Martin.

Thanks Sam.

Good morning, He's shown our press release issued yesterday, we reset our per unit distribution to 25 cents annually.

Which equates to a quarter quarterly unit distribution of six in the quarter cents per unit.

Over the last 18 months, we have announced an executed on a number of strategic goal aimed at strengthening the balance sheet, reducing leverage and increasing coverage.

While we have not made progress toward these targets, we're not where we want and need to be therefore, we're taking this step to ensure we meet our objectives in the not so distant future.

In addition to resetting the distribution. We also have implemented a distribution policy the quite simply stage that the distribution remains where it is as long as our leverage exceeds four times.

Further once our labor just below four times, we will not considered increase I'm not sure coverages above 1.3 times.

Calculated with the increase.

Looking at EUR 2020 guidance, we currently expect to maintain the quarterly distribution.

This level throughout the year.

As a company were dedicated to optimizing our current assets to enhance profitability and provide safe reliable operations for our employees and our customers will continue to focus on capital discipline and seek out ways to maximize efficiencies to provide value to our unit holders.

And ensure that we have the ability to capitalize on opportunities such as those that are harbor Allen in Beaumont terminal facilities.

So now I'll turn it over to Bob bond around to discuss our fourth quarter in 2019 results. Thank you.

Okay. Thanks Rubin.

I'd like to discuss our fourth quarter performance, which exceeded our adjusted EBITDA forecast by 3.4 million or 10.6%.

Actual adjusted EBITDA was 35.5 million compared to our adjusted forecast of 32.1 million.

We exceeded guidance in two areas are silver services segment, and our natural gas liquids segments.

I had an alternative and storage segment and it had a very slight miss in our transportation segments.

Or sulfur services segment exceeded forecast by 2.7 million.

Taking it out between our two business lines in this segment, our fertilizer group exceeded forecast by made in a half appear sulfur business exceeded forecast by 1.2 million.

You know fertilizer group excess cash flow or forecast was primarily due to very strong ammonium del Sol page sells primarily in south Texas.

The strength of this ammonium.

Full plate demand in the fourth quarter was because farmers in south Texas have planted and are planning more corn and less cotton in previous years due to the strength in corn prices relative to cotton.

As many of you know corn acres planted this is a significant driver of up the lawn fertilizer business as corn production requires more usage of our products than any other agricultural commodity.

We believe the playing a corn in south, Texas could foreshadow strong corn plantings in other areas in the country, which should support our 2020 fertilizer forecast.

And the pure sulfur side of our business, we exceeded our fourth quarter forecast as a result of insurance proceeds received from our business interruption claims as a result, more ship loader casualty loss, which occurred in may.

We will also receive additional business interruption proceeds in early 2020 and these proceeds are included in our 2020 guidance.

As of yesterday, the new ship loader is operational and ARQ <unk> grilling ship bloating operations at Beaumont or back online.

Additionally, our pulling operations at the board of Stockton, California exceeded forecast as a result of increased sulfur volumes from Bay area refineries.

West Coast refineries, which support our started operations experience more than normal downtime throughout 2019, but they appear to be now operating at normal salt for production levels.

Now moving to our natural gas liquids segment, we exceeded forecast by point 8 million, primarily in our butane logistics business.

Also our propane wholesale distribution business exceeded forecast as a result of better margins than forecasted.

Our butane logistics business experienced normal historical seasonal price differential when compared to last year's anomaly as we had adjusted EBITDA of 9.4 million in the fourth quarter.

Because of last year's energy price collapse, which negatively affected our butane book in the fourth quarter 2019, and the first quarter of 20.

Excuse me fourth quarter 2018 in the first quarter 2019 were much more aggressive in hedging our inventory this year.

As we were approximately 100% hedge going into the fourth quarter selling season.

This protected and locked in our cash flow for this business.

As a result of walking in our profits we did experience an opportunity cost of approximately 4.2 million in the fourth quarter as butane market prices averaged higher than our hedge position price, but we felt it was very important to protect our book against any possibility of a repeat of last year's energy market collapse.

And our transportation segment, we misguidance by $100000.

Our marine transportation segment exceeded guidance by 700000 as result of almost 100% utilization and a continuing improvement in our in an average day rate.

And our land transportation business, we misguidance by 800000, as we achieved 4.7 million adjusted EBITDA in the fourth quarter compared to a forecast five and a half million.

Dismiss was again, primarily attributable to reduced silver production from Belmont very refineries during the fourth quarter when compared to our forecast.

Although we did see a 7% so for production increase from our refinery customers in the fourth quarter.

When compared to the third quarter it was not as much as anticipated.

However, we have seen an 18% increase in silver production in January of 2020.

From our refinery customers when compared to the fourth quarter, which is in line with what we believe will happen throughout 2020.

Now for the year Orlando Transportation business, which we acquired January Onest of 29 team had EBITDA 19 point Threemillion.

This was less than or acquisition economics, which originally forecasted 23.6 million of EBITDA for 29 gene.

The Miss in our annual forecasted EBITDA was primarily due to reduce silver production from our refinery customers, which occurred throughout the year.

Our overall daily truckload cat was down 9% in 29 team compared to 2018, primarily because sulfur production from refineries, we service was down 17%.

This was due to extended turnarounds in downtime throughout the year.

However, based on our conversations with our refinery customers. We believe silver production will be returned to more normal levels, and 2020, which will benefit our land transportation business.

Our Germans services segment had adjusted EBITDA of 11.6 made in the fourth quarter.

Which is almost right on forecast.

So with that being said I'd like to turn the call over to Sharon to discuss our balance sheet capital resources in our 2020 guidance release yesterday.

Thanks, Bob.

On December 31st Tony 19, the partnership balance sheet reflected long term funded debt of 570 million plus short term debt related to finance lease obligations 7 million for a total of 577 million of debt net of unamortized debt issuance cost and amort.

Hi issuance premium.

Actual funded debt outstanding was 582 million, which is a reduction of 39 million from the third quarter.

We had 201 million outstanding under our 400 million revolving credit facility, resulting in total available liquidity of 199 million.

From a leverage perspective, our debt to adjusted EBITDA ratio for the fourth quarter ended December 31st 2019 as calculated under our credit facility with 4.69 times compared to 5.1 times in the third quarter.

As a reminder, our total debt ratio is shown with adjustments from a working capital carve out sublimit, which excludes certain debt directly attributed to our seasonal NGL inventory build if the volumes have been hedged for four weeks old.

At December 31st the calculated debt related to that inventory build was 50 million, which accordingly was excluded from the total debt calculation.

All in all on December 31st the partnership with in full compliance with all covenants.

Moving to capital spending our gross capital during the fourth quarter totaled approximately 3.6 million.

In addition to that was 3.5 million related to the ship loader replacement at the natures facility.

As was mentioned in the press release, the new ship loader was commissioned and placed in service slightly ahead of schedule with the first prilled sulfur shipment targeted for February 1st.

As an update our total capital expenditures for the new ship later are still anticipated to be approximately 12 million. The majority of this will be funded by property insurance proceeds.

At the totaled 12 million 7.7 million was spent in 2019 with the remaining 4.3 to be spent in the first quarter of 2020 .

As to the timing of the property insurance proceeds related to the ship letter, we received two and a half million in the fourth quarter of 19 for a total of 5 million and 2019 with the remaining proceeds we received in the first quarter 20 Twond.

Distributable cash flow for the quarter told her totaled 20.7 million and includes maintenance capex of approximately 4.1 million.

This equates to 2.11 times coverage for the quarter.

For the full year of 2019 total distributable cash flow was 51.5 million for a total unit coverage of 1.05 times.

Turning to our 2020 cash flow and capital spending guidance.

Attached to the press release yesterday was our 2020 financial guidance, which provides detailed by segment and by quarter.

The presentation can also be found on our website at M.M.L.P. dotcom.

We are forecasting 117.1 million of adjusted EBITDA. After unallocated S. DNA of approximately 16 million for the full year 2020 .

And that number approximately 62% is attributable to fee based contracts.

We've been on Terminalling and storage segment, we expect Martin lubricants to have another strong year as our greif business continues to expand both its customer base and its geographical footprint.

And the second quarter of 2020, we are scheduled to open a new facility in Phoenix, Arizona to service, our West coast customers.

This facility will free up capacity at both our Houston, and Kansas City locations, and we will benefit from lower distribution costs.

Now also within the Terminalling and storage segment as we've spoken too there is a reduction in EBITDA at the Smackover refinery. This is related to capital recovery fees that are rolling off and 2020 and 2021.

As well as contract renegotiation that suspended the cpis adjustment for 2020 .

Moving to sulfur services, our fertilizer guidance is reflective of a normalized planting and harvest season.

While we cannot predict sweater corn prices and the U.S. de <unk> outlook for corn acres planted in 2020 , both remained strong which as Bob mentioned is supportive to our fertilizer business.

Guidance for the sulfur services segment also includes cash receipt of 3 million in the first quarter for business interruption insurance proceeds and that as well is related to the natures ship luck.

Turning to transportation.

While rates and utilization and on Marine inland fleet remains strong the contract on our offshore ATP units renewed on December 19th 2019 at a reduced rate, which decreased our guidance for the marine business for 2020, when compared to 2019.

And for anti the land transport business, our 2020 guidance reflects both load count and mileage related to sell for hauling returning to historical norms, which as Bob pointed out has occurred in January .

And finally, the natural gas liquid segment guidance reflects a baseline view of a typical winter summer spread for the butane and propane businesses.

Now comparing our full year 2019 results to our 2020 outlook.

We have forecasted adjusted EBITDA for for your 2020 717.41 million for an increase of 8.8 million.

In 2019, our actual adjusted EBITDA from continuing operations was 108.3 million, which excludes approximately 11 million related to the natural gas storage assets, which were sold effective June Thirtyth 2090.

Moving onto our estimated capital expenditures for 20 funny.

We anticipate maintenance maintenance capex to be approximately 17 million for the year and gross capital expenditures to be approximately 11 million.

Of the 11 million over 50% will be spent in the first quarter with the majority related to the new Phoenix GRI plant.

And as I spoke to earlier, we are forecasting 4.3 million to be spent on replacement cost for the new ship loader, which will be offset by property insurance proceeds received in the first quarter.

Finally during the first quarter 2020 , we are addressing the refinancing of our senior notes that mature in February of 2021.

The recent success of energy companies in the debt markets is encouraging as investor enthusiasm seems to have returned after being absent in the last month of 29.

We also feel that given the results of our efforts to de lever the balance sheet.

Coupled with the retained cash flow following the distribution cuts. It was announced we will have a successful offering however.

Given the state of the debt markets, we do expect our interest rate for the new senior notes to be higher than our current 7.25%.

We also intend to the amount of the notes issued to be similar to the outstanding amount today.

This concludes our prepared remarks for this morning, I'll now turn the call back to Sydney for acuity.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound Keith please standby won't be compiled acuity roster.

And our first question comes from Kyle Me with capital. One. Please proceed with your question.

Hi, good morning.

So with the with the distribution can you indicated that Martin wants to improve the leverage ratio below four times and the coverage ratio above 1.3 times.

Just wondering first how you think about the balance between improving these two metrics and then secondly, when do you think Martin could reach these goals.

Could you repeat the first part of your question Carl I'm sorry.

Sure no problem.

So and I'll just repeat the whole thing I'm. So you had talked about improving the improving the leverage ratio below four times and the coverage ratio above 1.3, so as we're thinking about I guess the balance between these two metrics how do you think about balancing between improving leverage right.

Yeah.

And improving the coverage and then secondly, when do you think Martin will reach these goals.

So.

First of all I think when it when we start looking at our 2020 numbers, you'll see that the coverage ratio is going to be above 1.3 times.

Substantially above 1.3 times. So we're focused still on a leverage ratio getting below four times when we look out at our current forecast that occurs after 21, so around the first and second quarter of 2022.

With the assets, we own today and just at a stable cash flow.

No increase in cash.

Correct.

And I'll say this will move the DCF coverage, you know roughly that's going to be roughly 50 maintenance triple cash distributions are 10 million. So roughly five times cover next year ballpark.

Okay got it.

Okay. Good that's that's very helpful and.

Yes.

One of the things.

Hey can I know you touched on the the Marine transportation business can you, maybe going a little bit more detail on what you're seeing between I guess the offshore in the insurance and kind of the mix between those two businesses in 2020.

Yes, so oh.

This year offshore business said these are rough numbers cash flow of about.

No 3 million roughly and the balance of was in line with this contract adjustments, who are all should be about $800000 roughly.

And then we'll be Oh, I see the numbers here about line, but not in half and that's that's after unallocated. Yes, you know you a 5 million dollar. So so the numbers you did not have has is applying the full 5 million up on allocated as you know so as a business unit, it's 14, plus on inland and about eight.

Hundred thousand on offshore.

And ER and then there's going to allocate issued this unit five to get it down to roughly the $10 million.

10 or $11 million. So that's the breakup. We just have one offshore unit. It is the M. 6000 that that works for the private company, a and then the balances or in London, roughly about a third of our cash flow from the marine business comes from a private company the general part.

Okay.

[noise], Okay got it that's helpful. That's all from me. Thank you.

Hmm and kick off [noise].

Thank you and as a reminder to ask a question. Please press star one on your telephone and our next question comes from TJ Schultz with RBC capital. Please proceed with your question.

Great. Thanks.

In the guidance for 2020 EBITDA of 117 million does that make.

Any assumptions on on changes in contracts between MRM C and and.

MLP that would fully offset.

The impact from lower distributions, Tim RMC or or is that something we need to consider.

That any contract changes with MRM C and but we expect to occur in 2020 are already loaded into this guidance.

As well as the distribution.

When we talked about DC.

Right now we're looking at MRM sees percentage as EBITDA or in MLP as percent of EBITDA associated with MRM seems to be approximately 25%.

Got it okay.

At Beaumont, and and Corpus, what's the latest there I know.

Harbor Island, Carlyle planned kinda fizzled out for the crude port or at least there's still some pushback from port Aransas, So it's something meaningful at Beaumont more likely just update there. Thanks.

Yeah. This is rubin.

I've had meetings over the last week and have a.

Two more scheduled between now and next week.

Were visiting that facility, we've got all of the the numbers we've we've.

Had some interest now relative to.

And I'm talking about corpus, mainly right now, but we've had some interest and of course Beaumont, we've got consistent.

Interest.

In Beaumont and doing facilities there for a different.

A lot of different products. So yeah, we've had a lot of interest slightly it was very difficult now to to look at longer term contracts with dedicated crude, especially with some of the pipelines in west, Texas now loosening up it's it's tough to get people to come across with a longer long term contracts, but what we have had some interim.

Because I think of the call some things on the single point Moring is is a expensive relative to what we can do we could we could do it a lot cheaper if we can get support to victory dredged to 75 feet to do the L.C.C. So.

That's what we're working so it's it's a it's still going I think carlyle or the JV that they had kind of distracted a lot of the.

The talking at some point in time and diverted it now that that is kind of falling apart or people are about calling us.

Okay makes sense or just lastly on the Devry financing.

Or the distribution cut and the recent results here enough to get that done in your view or are there other.

Liquidity measures you may have to consider whether that's asset sales a private capital just any more thoughts on that process as you enter the debt markets here.

Yeah as we have been looking at this and for a little while now we are actually and in the process at the beginning what I'd call to kick off we believe right now that that what we've done will allow us to access the public debt markets and we should be complete without process before the end of the first quarter and.

To any asset sales you know we've spoken before about noncore asset sales, we still have some smaller assets that are either.

Either not in service at this time or outside of of our refinery business and that that were concentrated on so when we might have some additional small or asset sales still out there and again those won't move the needle much but every piece of that help.

Thank you answered the question too is that the answer is yes, we can get there with what we've done now.

And any asset sales if we did decide to do any we don't have too, but if we did it would just moves that timeline up.

Got it makes sense thanks, everyone.

Thank you and again, ladies and gentlemen to ask a question. Please press star one on your telephone and our next question comes from Sunil Sibal with Seaport Global Securities. Please proceed with your question.

Hi, good morning, guys.

Couple of course shows on the balance sheet.

My understanding is that just thought as does the secured revolver is concerned you have in leverage Oh limit of 2.75 on that.

Can you confirm that and then they ever did you end up at the end of the yet on that metrics.

Yes, that's a senior secured leverage was 2.75.

We were at 1.77 at the end of year.

Okay.

Then kind of related to that in.

Comes off you know when you're looking at refinancing to senior unsecured <unk> potential to guide them through lesson that burden of the new by using some of this you know margin that you have on the secured site how is that something into secured which prohibits you from a using this margin to say buyback.

Secured bond in the market or something like that.

We are looking as I spoke to for the B note amounts to be substantially similar to where we are today, which is 374 million.

And to the last part of your question. There is nothing that would preclude us from moving now to Mount around as needed.

Okay.

Thanks for that and then in terms of Ah.

Yes, so far more Jim.

Oh, well or more so on the butane margins for the Q1.

His thoughts so.

Margin pretty much hedged in I know you mentioned the do it pretty hedged going into the fourth quarter that I was wondering how should we think about Dod for the first quarter.

Yes, we were significantly heads going into the into the quarter.

So based upon our inventory cost position as hedges are we feel very comfortable about our first quarter performance in the butane business and there's a potential to possibly exceed it [noise].

Okay.

And then last one for me I think you mentioned that so as far as you know contracts between and the middle PNM am I see about 25% of they bid.

It's coming from M. A C in 2020 .

Could you remind us what was that what platinum what has been historically close it too.

It's very similar plus or minus a few percentage points.

Okay got it.

Thanks, guys, that's all I had.

Thank you.

Thank you and I'm not showing any further questions at this time I'll now turn the call to Bob entourage for any further remarks.

Okay. Thank you Sydney effect as well to everyone listening to the call. This morning, I want to take the opportunity to emphasize once more that our targets remain the same.

Leverage below four times it covers greater than 1.3 times through continued emphasis on capital discipline and efficient management of our business, we will make progress toward those targets. In addition to improving the balance sheet management top priorities include one delivering on our 2020 guidance.

To identifying opportunities provide value to unit holders business partners and employees and three.

Positioning the company for the future.

Thank you for your interest in investment in Martin Midstream partners.

Ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.