Q1 2020 Earnings Call

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Now my pleasure to turn the floor over to trace Shocker.

Right you may begin.

Thanks doing here and thank you to all of you for growing our first quarter 2020 earnings call.

Tradeshow winter with Investor Relations for Holly Energy partners [laughter], joining us today, our revolver, President and John Hendrickson, Senior Vice President and CFO.

This morning, we issued a press release announcing results for the quarter ending March 30, Onest 2020.

If you would like a copy of today's press release, you may find one on our website at Holly energy Dotcom before Retuned. John proceed with their remarks. Please note the safe Harbor disclosure statement in today's press release and.

In summary, it says statements made regarding management expectations judgments or predictions are forward looking statements.

These statements are intended to be covered under the safe Harbor provisions of federal Securities laws.

There are many factors that could cause results to differ from expectations, including those noted in our SEC filings.

Today's statements are not guarantees of future outcomes.

Also please note that information presented on todays call speak only as of today may six 2020.

Any time sensitive information provided may no longer be accurate at the time of any webcast replay or reading of the transcript.

Finally, today's call May include discussion of non-GAAP measures.

Please see todays press release for reconciliations to GAAP financial measures and with that I'll turn the call over to rich.

Thanks, Trey good afternoon, everyone and thank you for joining the call today.

On behalf Poly energy partners, we hope you and your families are safe and well during this unprecedented time.

Cobiz 19 pandemic has created a challenging environment for all.

I would like to applaud our employees for their continued hard work dedication.

In response to covert 19, and with the health and safety of our employees as our top priority.

We implemented several actions to help protect our team.

These include limiting onsite staff to essential operational personnel only.

During shifts and monitoring health for everyone in our pipeline control Center.

And work from home policy for certain employees.

These actions have allow for seamless operation and we continue to closely monitor the covert 19 developments to properly address these policies going forward.

Despite the challenges presented by Coven 19, AHGP delivered solid first quarter 2020 results.

Driven by safe and reliable operations.

As always these results are supported by long term minimum volume commitments across our assets.

For context.

In 2019 these commitments represented approximately 70% of our revenue.

The majority of our uncommitted revenue is tied to our Salt Lake City in southwest area assets.

Aside from the Uinta basin, the SLC and frontier pipelines are the primary source of crude oil supply to the Salt Lake City refiners.

So you know pipeline plays a similar role as the route from Salt Lake.

To southern Utah, and Las Vegas product markets.

Looking ahead to the second quarter, consistent with public disclosure and data, we expect to see reduce run rates across our customers.

However, these assets play a strategic role and operational support to the refineries in these regions.

And we expect to see continued non MVC related revenue from across these assets.

Additionally, it's important to note that approximately.

87% of our 2019 revenue was generated from investment grade customers.

Turning to our project updates were excited to announce the start of the terminal portion of the cushion connect joint venture.

The 1.5 million barrel barrels of crude storage is projected to generate approximately two and a half million dollars an annualized EBITDA to a GP.

The Cushing connect pipeline remains on schedule with an anticipated start date in the first quarter of 2020.

We expect the pipeline to produce $5 million, an annualized EBITDA to EGP.

Both joint venture assets are supported by long term minimum volume commitment.

In addition to the Christian connect assets effective April one we have re contracted the unused pipeline that connects big spring to our terminal in Wichita Falls, Texas.

We expect the new contract to provide over $4 million in annualized revenue.

As we previously announced HCP has changed its distribution strategy to allow for improved near and long term financial strength and flexibility.

The new quarterly cash distribution of 35 cents.

Per limited partner unit or $1.40 annually.

It is projected to retain an incremental $130 million per year.

This strategic shift as a disciplined and prudent measure intended to fund all capital projects.

And growth within cash flow.

While reducing leverage.

And we'll provide AHGP with a stronger coverage ratio going forward.

As we continue to navigate the covered 19 pandemic.

As health and safety our employees remains our top priority.

And as an essential.

Infrastructure business, we remain focused on operating safely and responsibly in order to support the continuity of our business during this challenging time.

Again, we hope everyone stays healthy during this period and with that I'll turn the call over to John.

Thanks, Rich for the first quarter of 2020 net income attributable to HBP was $24.9 million compared to 51.2 million in the first quarter of 2019.

The decrease was primarily due to a charge of 25.9 million related to the early redemption of our 6% senior notes.

Excluding that charge net income attributable to AHGP was $50.8 million.

First quarter, adjusted EBITDA was $91.1 million compared to 93.5 million in the first quarter of 2019, we have provided a table, reflecting these adjustments in our press release.

During the quarter HCP generated distributable cash flow of $70.7 million, which is a 100000 dollar increase over the same period last year.

As rich mentioned, we previously announced a quarterly cash distribution of 35 cents per LP unit.

Resulting in a distribution coverage ratio just over 2.0 times for the first quarter. This is significantly over our new long term target of 1.3 times.

Capital expenditures and joint venture investments during the quarter were approximately $18 million, including 2 million and maintenance Capex and $12 million for the Cushing connect joint venture.

Piece projected capital expenditures and share of joint venture investments for 2020 remained unchanged at $58 million to $69 million.

During the quarter, we refinanced 500 million of our 6% senior notes due 2024 with a new issuance of 5% senior notes due 2028.

This refinancing will save approximately 4 million per year of interest expense, while extending maturity another four years.

As of March 30, Onest 2020, AHGP had $1.5 billion of total debt outstanding consisting of 500 million of senior notes due 2028, and approximately $1 billion drawn on our $1.4 billion revolving credit facility.

The revolver matures in July of 2022, and does not have any borrowing base restrictions.

Our liquidity at the end of the first quarter was over $400 million and our current debt to trailing 12 month. Adjusted EBITDA ratio was 4.2 times, which is well below our leverage covenant of 5.25 times.

Looking ahead, we intend to fund all capital investment with cash flow from operations that will use incremental retained cash flow to reduce leverage our revised long term leverage target is now three to 3.5 times.

In summary, AHGP delivered a solid quarter, despite the challenging market environment, and we believe will be well positioned when conditions improve.

And with that I will turn the call back to the operator for questions.

Thanks.

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Thank you and your first question comes from inspired units from Credit Suisse. Your line is open.

Good afternoon guys.

Let's start with Nbcs, Hey, rich.

Thinking about Nbcs here I think there about 70% of your revenues based on on 2019, but rich you mentioned that you expect to see revenues I guess in excess of NBC through some at this downturn I guess, how should we think about the impact into Q with refineries running below 80% utilization sounds like you might not actually absorbed and targeted.

And is that fair.

When you say that fair you mean.

Absorbed in 100% SMB non committed revenue.

Yes, so in other words, if refineries are running at 70%.

Other words down 30%.

Are you shielded in any part of that way down as a refinery runs decrease.

Yeah, absolutely. So the Best example, I can give you and I think that logic extends.

I would be on the Frontend SLC pipelines, there is effectively no commitment on those lines.

And that represents a large portion of our uncommitted revenue.

That said the selling value now, it's not perfect and it's moving around depending on Uinta basin production, but the reality is.

Plants are running at 70% lines are probably going to be utilized on that order of magnitude.

The valley can't run without crude offer.

Thats system.

So now we did we don't expect they'll lose 30% of our revenue anywhere even close to that on a year over year basis on the second quarter.

And as you can imagine right, it's changing week to week, so it's a little harder to get more specific than that but I.

I think you're you're concept here is correct, we're not going to absorb that kind of shutdown.

Okay.

Sense and yes, I think everyone is crystal balls that Fogging. These days. So appreciate you brought up a little color there.

Second question, just sticking with the MVC, but looking a little bit forward here can you just walk us through any upcoming expirations with HFC, specifically and maybe what mechanisms are already in place when it comes to automatic renewals and maintaining the current tariff rate.

Yes, so I'm just checking here our next expiration.

HFC.

Typically.

In 2022.

Like realistically on the list of things I lose sleep over.

HFC and AHGP renewals is not high on the left the assets at AHGP owns our critical infrastructure the HFC.

And there is a strong desire on both sides to continue to do business.

And then the renewal we executed last year on some of the initial dropdown assets. If you will probably a good good guidebook for how these these renewals will go going forward.

Okay, and then just for for our benefits, maybe remind us kind of some of the metrics around that or how that went.

Yes that was effectively we moved some of the pieces of the edges and redesign the commitment but the end of today. The economics are very similar to both sides.

And the renewed contract from the prior.

Perfect. Thanks for the time today, guys do well.

Thank you too.

There are no further questions ill turn the floor back over to trade for closing remarks.

Okay.

Thanks again for joining the call today feel free to reach out to Investor Relations. If you have any questions.

This concludes today's conference call you may now disconnect. Thank you for joining and have a great day.

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