Q1 2020 Earnings Call

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Now I'd like to hand, the conference over to your speaker.

Director of finance and Investor Relations.

Sharon Taylor Madam. Please go ahead.

Thank you repeat and good morning, everyone.

Joining me on the call. This morning, our Ruben Martin, our President and CEO bump on brand our CFO.

Randy Coucher, our C O Oh.

Oh for joining us it was Daddy Danny cabin director of F., PNM, and David Kanen director of financial reporting.

Before we get started I'd like to 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 of Martin, including facts and assumptions related to the impact of the covered 19 pandemic.

But actual outcomes could be materially different.

You should review the rest faster and other information discussed in our FCC filings and form your own opinions about Martin future performance.

We will discuss non-GAAP financial measures on today's call.

Please refer to the table in our earnings press release posted in the Investor Relations section of our website to find information regarding those non-GAAP financial measures.

Including a reconciliation of historical non-GAAP financial measures referenced in today's call to their corresponding GAAP measures I'll now turn the call ever semester Ruben Martin.

Thank you Karen good morning, everyone and thanks for being on the call at night.

As we all know the world is turned upside down since our last earnings call on January 29, see overnight thing pandemic has grown and spread throughout the nation and we've seen oil prices dropped down below zero for the first time than our lives. The economy has been disrupted and we're all Warner and work when things were returned to normal and what this.

Normal will look like so here at Martin, we prioritize the health and safety ever employs the businesses that we serve in the communities, we live and work in specifically, we put safety initiatives in place to ensure that the bars would not be spread in our workplace order locations we serve.

To that end, we implemented work from home initiative for all eligible employees and we stay used equipment in resources. So the support is readily available for them.

We began awareness training for all of our drivers our best will crude blending operators and other affected personnel regarding preventative measures one delivering to locations are working and our around our dogs vessels and trucks. Our communication lines are opened 24, seven for the environmental health and safety Division land and Marine logistics.

Sales and marketing team.

At this time all of our assets are operational and we're servicing our customers in a dependable manner. They have come to expect from US we have diversified businesses that serve the refinery Andrew industry and that diversification has been crucial as we navigate this crisis.

We enjoy long term contracts, many with minimum volume commitments and over the last few years had limited our upstream exposure by selling our pipeline in natural gas storage assets. However, we're not immune from the current situation.

And we picked up on our financial results to be impacted by decline in refined product demand across the industries we serve.

So we've identified what we can control and are taken actions to fortify our businesses protect our assets and contain cost.

Across the company, we are finalizing cost containment initiatives, and where safety and regulatory concerns are not an issue we're planning to defer capital expenditures to 2021.

I have confidence in our leadership team to continue to find and exploit additional avenues to provide value to our shareholders.

Only I want to take a moment to thank our employees, many or who are managing their work flow and remotely while continuing to support the businesses and each other they have remained committed and dedicated to their jobs. During this demanding time and I'm very grateful.

I'll now turn it over to our CFO, Bob Bond dropped to discuss our quarterly finance.

Okay. Thank you Rubin.

I'd like to begin with discussing our first quarter performance, which still shorter forecast by 4.7 million or 13%.

<unk> adjusted EBITDA was 31 million compared to guidance at 35.7 million.

Or cermak services business exceeded guidance by point 7 million, primarily at the Smackover refinery, which benefited from lower utility cost and other operating expenses.

We also exceeded forecast in our package lubricants business as a result, a better than anticipated margins in the first quarter.

As we think about the near term and the impact of the economic shut down from a cobot not t. bars on our Terminalling segment.

There should be minimal impact on the storage component of this business due to minimum volume commitment contracts. However, there is a downside risk in our packaged lubricant, Greece businesses due to anticipated reduced demand for more oil and gas production customers and our construction customers.

However, we should continue to see strong demand from our customers, which distribute our lubricant and Greece products to the agricultural industry.

Now our transportation segment fell short of guidance by <unk> point Threemillion as we realize adjusted EBITDA of 7.9 million compared to our forecast of 8.2 million.

Our marine Transportation group exceeded guidance by point Sixmillion as overall barge demand remained strong and we continued to experience increased pricing primarily in our dirty toes.

Our near term outlook currently remains cautiously optimistic for marine transportation as we're now seeing demand for the use of barges that's floating storage for crude oil, which should support barge utilization if refinery barge demand decreases.

And all and transportation business, we Misguidance 5.9 million as we began to see a deterioration in our load count beginning in March primarily from a refinery customers.

Demand destruction for Prime refined products began in March as result of the economic shut down and talk about cobot 19, we sell refinery utilization slowly reduce.

This resulted in pure daily truckloads from these refineries.

As we look forward and comparing to overall guidance, we believe our truck transportation EBITDA will be the partnership's most negatively impacted business line as we anticipate refinery utilization to negatively impact our daily truck load count, which will reduce the adjusted EBITDA in our truck transportation business.

Now moving to our natural gas liquids segment, we missed guidance in this segment by 1.9 million, primarily in our butane logistics business.

Our butane logistics business had adjusted EBITDA of 3.4 million compared to our guidance of 5.7 million.

This Miss was primarily due to smaller margins than originally anticipated associated with a generally weaker demand from the foundry customers as the utilization slowly fell throughout the quarter.

Looking forward, we reduced guidance in our butane logistics business as we are concerned about the reduced butane production out of third party refiners as they run at lower utilization rates during the economic shut down.

As a result, we don't have precise visibility on how much butane volumes, we can purchase and store. This summer in order to sell back to refiners during the winter blending season.

However, we believe working capital invested in this business will be significantly less than last year, primarily due to a depressed energy prices, meaning our debt level supporting our butane inventory will be lower in 2020.

Our silver services segment misguided spot 3.2 million.

The majority of the Miss was in our fertilizer group, which misguidance by 2 million as volumes sold was less than forecasted.

However, we believe most of this volume shortfall will be made up in the second quarter based upon the visibility about a month to date cells in April.

Also we still believe the amount of corn acres to be planted this year will be greater than a year ago.

Therefore, we remain optimistic about the performance of the fertilizer group for the remainder of the year.

On the pure Silverstein of the business, we missed guidance by 1.2 million, which point 4 million was in our molten sulfur business and point 8 million was in our sole propelling business.

In the molten sulfur side of the business, our ocean going to which provides the horsepower to move sulphur from Beaumont to Tampa experienced a blown engine in the quarter, which negatively impacted our operating cost 5.4 million accounting for the guidance Miss in the molten business.

And that's all for pulling business, we forecasted to collect 3 million in business interruption insurance for more ship loader casualty loss, we experienced last may.

The actual collections in the quarter was 2.7 million.

The balance of the Miss was primarily due to reduced so for volumes run through our silver pillars, which impacts the operating fees, we'd go our customers.

We do sell for volumes. We experienced was the result of third party refinery utilization, which began to decrease as a result with the demand destruction caused by coping 19.

As we talked about the remainder of the gear, we believe our molten sulfur business will not be affected as we are paid a monthly logistics be five primary customer.

However, we do believe there will be reduced overall sulfur volumes from third party refinery, which will negatively impact our pulling volume, which will in turn impact our operating fee revenue.

We of course will still be paid or reservation fees no matter what amount of sold for volumes this process through approach.

So to summarize.

First quarter Miss in cash flow was primarily a result of reduced third party refinery utilization, which impacted our butane prilled sulfur and land trench land transportation businesses.

The other Miss was in our fertilizer business, but we expect a substantial recovery and corelogic casual in the second quarter provided the weather continues to cooperate.

As we thought about a guidance revision for 2020 due to the economic shut down as a result of cobot 19.

We believe reduced third party refinery utilization will continue to negatively impact us in our butane prilled sulfur inland transportation businesses.

Also we should see some decline in our package lubricants and Greece business.

We felt it was appropriate with our guidance revision to disclose a range of adjusted EBITDA for the year as it is difficult to <unk> Dick exactly when third party refinery utilization returns to normal.

Also to save capital in the near term, we're deferring maintenance capital expenditures of 2.7 million into 2021.

And also deferring growth capital expenditures of 2.3 million into 2021.

Finally between permanent and furloughed reductions in the workforce on an annualized basis, we expect to reduce operating and asked you need costs by total approximating $5 million.

So now I would like to turn the call back to Sharon to discuss our balance sheet liquidity and financial strategy.

Thank you Bob.

I'll begin with the normal walk through at the debt components of our balance sheet define our bank ratios at quarter end, then discuss our capital spending during the first quarter and then to our revised full year 2020 guidance.

On March 31st 2020, the partnership's balance sheet reflected approximately 535 million about long term and current installments of funded debt.

The current installment amount includes our senior unsecured notes due February of 2021, which I will discuss further in a moment and current finance lease obligation.

Long term debt related to our revolving credit facility our balance sheet funded debt is shown before and unamortized debt issuance and unamortized issuance premium as actual funded debt outstanding was 534 million.

Reconciling the amount at quarter end, our revolving credit facility was 170 million and the notional amount of our senior unsecured notes with 364 million.

Our total available liquidity on March 31st reducing those amounts by outstanding letters of credit of 17.1 million was 213 million based on our 400 million revolving credit facility.

For the quarter ended March 31st 2020, our bank compliant leverage ratios defined as senior secured indebtedness to adjusted EBITDA and total indebtedness to adjusted EBITDA or 1.48 times and 4.7 times respectively.

Our total debt ratio is shown without adjustments from the working capital carve out sub limit.

There are several and that allows us to exclude certain that directly attributed to the seasonal NGL inventory build where the partnership has either forward sold or hedged inventory.

Our total debt to EBITDA calculation. However.

First quarter is typically the end of our selling season and this year, we have not began to seasonal NGL inventory build out.

Therefore that carve out mechanism was not utilized as of March 31st.

Our banking client interest coverage ratio as defined by adjusted EBITDA to consolidated interest expense was 2.72 times.

So on March 31st the partnership was in full compliance with all covenant either banking or otherwise.

Now I'll move to a brief discussion of our senior unsecured notes.

During the first quarter, the partnership repurchased and retired approximately 9 million of our senior unsecured notes.

Since we repurchased starting out sort of discount you'll find a three and a half million gain on the retirement within the other income statement at the other income section of the income statement.

We believe that with the current market disruption value can be.

Be created by repurchasing our notes at a discount however, according to the terms of our revolving credit facility any repurchases. The partnership make must be funded within 90 days every seat proceeds from an asset sale.

At this time, we have you fully utilized any available pets.

As we discussed on our previous earnings call, we were optimistic but the senior unsecured notes would be refinance prior to the ended the first quarter.

The disruption surrounding the cobot 19 pandemic has contributed to on favorable conditions and the credit market.

Management remains confident in our ability to refinance the senior notes prior to the Springer and our revolving credit facility, which states. If the notes are not refinanced by August 19th 2020, the revolver will mature.

To assist us with the refinancing we engaged Stephens Inc. One of the largest privately held independent financial service firms in the country as a financial advisor to assist us and exploring strategic alternatives to address this near term maturities.

Now, let's turn our focus the capitalized spending during the quarter.

First discussing gross capital expenditures they were approximately 5.4 million not including amounts related to the natures ship loader replacement.

At year end, we anticipated the majority of growth capital spent in the first quarter would be related to the new Phoenix, Greece plant.

However, there has been a delay in the permitting of the facility due to the cobot 19 pandemic and we now expect the capital spend to occur in the second quarter.

Our largest gross capital spend in quarter, one with upgrading the ammonia storage system at nature to service a five year contract.

Turning to the capital spend related to the ship loader replacement at the nature facility. During the first quarter. We spent approximately 2.2 million and anticipate spending an additional 700000 in the second quarter.

Those amounts.

We'll be offset by insurance proceeds and this is property insurance proceeds not business interruption that Bob spoke to.

We will have insurance proceeds of 1.8 million that was received in the first quarter and an anticipated 4.9 million to be received in the second quarter.

In total the capital spend during 2019 and 2020 to replace the nature ship bladder is anticipated to be approximately 12.2 million with insurance proceeds offsetting 11.7 million.

As a reminder that shift later was placed back in service in late January.

Her team to maintenance capital during the first quarter, we spent approximately 3.2 million.

The partnership had distributable cash flow of 18.3 million, which equated to 7.45.

7.4, or five times coverage for the quarter.

And finally regarding our revised EBITDA guidance for 2020.

Given the current uncertainties around the full impact of covered 19 around the world and the anticipated economic impact on the partnership's businesses, we felt it necessary to withdraw 2020 guidance that was given in January.

Further due to lack of visibility around current and long term market demand, we felt it appropriate to provide less detailed guidance and disclose a range of cash flow that could result from the various impacts on each of our operating segment that Bob described in his remarks.

We are now guiding to adjusted EBITDA for full year 2020 to be between 95 million and 107 million, the midrange being 101 million or an approximate 14% reduction through our original forecast.

Also as mentioned earlier by Bob we intend to save capital by deferring approximately 2.7 million of maintenance capital expenditures and 2.3 million of gross capital expenditures into 2021.

And in addition to be it identified deferral, we anticipate our ability to complete the original capital expenditure forecast will be impacted by social dispensing and other factors related to the covered 19 pandemic.

Accordingly, we have revised both our growth and maintenance 2020, Capex forecast and provided a range of expected capital spend.

Growth or expects expansion capital is now expected to be between nine and 10 million and maintenance capital is expected to be between 14 and 16 million.

The partnership intends to provide our usual detailed forecast by business line and operating segment when energy markets stabilize and the impact of covert 19 clarified.

This concludes our prepared remarks. This morning, I'll now turn the call back to the operator for today.

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All your question press the pound G.

Please standby, while we can probably Q when a roster.

Our first question some some alive.

Oh, TJ Schultz of RBC capital markets. Your line is open.

Great. Thanks, Good morning, everybody I think just first I appreciate the effort on the updated guidance in the range. There can you.

Frame some of your assumptions in there to get to that range for 2020, what does the low end or or high end assume for timing for some sort of recovery on the demand side or or trend and refinery utilization.

So the funded this is Bob the fundamental driver of course for US is reform refinery utilization. So as we thought about it we looked at Kurt So let me back up we operate primarily in <unk>.

Oh really in the pad three world of refinery on the Gulf Coast or.

The U.S.

So we focus on what we think refinery utilization will be in that world No current pad for utilization I think is about 73.8%.

As we thought about it we we actually thought about right below that for Q2.

On average slowly improving in Q3.

Slowly improving again in Q4.

But not not getting back to full utilization at all this year.

So that's big picture thoughts that's affecting the trucking business in the sulfur sulfur business, primarily and we think it our butane business. The impact is really more on the supply side, we're getting this summer.

And we do think whatever we will be able to buy this summer and store on the butane business will be sold 100% back to refiners.

In a in the fourth quarter of this year in first quarter next year. So we really don't have referred to utilization going back to normal in our thought process until next year.

Okay makes sense.

And then just moving to a sum the barges how much capacity do you have there to take advantage of storing crude oil on barges and have those discussions or or arrangements already started at this point.

Yeah. This is Randy.

You know what one would go on the barges utilization was very tight.

Oh rates were continuing to go up.

In the last week.

Changing some product flows.

Elevation isn't as tight in the <unk> and the rates are going up at this point.

Oh, we're still not in a position with the current contango.

To be able to utilize barges to store oil for a significant amount of time.

You know the.

Markets are quite volatile and we'll just have to to see what happens there.

Okay. Good I, just lastly on and the refinancing so that August at Springer date.

I guess just first is there any potential to extend that day, just given some of the logistical challenges.

And what you may have to address with your financial alternatives, that's your advisors or.

Also said that you're confident on on refinancing those so just any color you have on on the progress or attraction.

You're getting to address the 21 nuts. Thanks.

So as you know when we talked about we hired Stephens a few weeks back they have made some.

Contact with some of our largest bondholders the feedback there has been very positive and very constructive. So at this point management believes that we will get those notes refinanced before we even have to look at addressing the springer, but we have a very supportive bank group.

With that we are in discussions with at all times I.

I feel confident I'm very optimistic that should the need or rice for the spring or to be adjusted we would be able to push that out to allow the company additional time and the market additional time to stabilize so we can finalize our refinance.

Makes sense. Thank you very much.

Okay.

Okay.

Thank you as a reminder to ask a question. Please press star one on your telephone again that star one to ask a question.

Our next question comes from the line is child May have capital one Securities. Your question. Please.

Good morning cult following up on T. Jays question about the barges.

Are you able to use any of your other storage assets to take advantage of the contango opportunity in the market.

Yeah. This is Randy again, most of our stores assets.

We already have contracted out so we don't see a lot of volatility the terminal section of the business now we do have.

Storage assets in Tampa, Florida.

Which would probably do not have under contract and yes. There were significant interest in those assets at this point in time.

Okay got it. Thank you and then one other question maybe looking at the lubricants section.

First do you have the sales volumes for the first quarter and then secondly can you talk about your expectations for the balance of the year.

Yeah, Yeah. This is Bob.

Yeah, I don't have much <unk>, depending bonds afforded me I'll have to get back to you on that and expectations for the rest of year.

I think on I think on the packaged lubricant side were sold one flight volume decrease were primarily seen an impact in our Greece business.

We sell a lot of Greece into the Frac goals side.

Business, we also so.

If certain type of Greece for.

Construction, one color postpone changed post integration configured to name a as far as volume decline I.

I think big picture and lubricant package business were impacting maybe a 10% to 12% decline and overall cash flow.

So I don't have that's helpful.

I remember the big picture numbers.

No. That's helpful. That's all for me today. Thank you.

Good Thanks Kyle.

Thank you My next question comes from Selman.

Hi, Joe of Stifel. Your line is open.

Thank you a good morning, just a couple of little detail questions I'm.

On the printing operations, you said part of the Miss was due to less business interruption insurance 3 million was anticipated 2.7 million came in do you expect the remaining quite threed, becoming it or is that just.

Going no I know I think we're done on that I think we fully collected to be outside Oh, we do as Sharon said earlier, we do it knowing dissipated casual we're always spending 700000 in Q2 on on the final property impact on the ship loader. We anticipate what did you say 4.9 million coming in for fun.

5.5, so we will have a cash gain in Q2 related to this activity, but it won't grow through the Pinedale that was just de lever.

All right I'm very good and then just sort of following up on the last question.

On the list can you referenced several markets there in I think you'd also took that agriculture in here.

And your comments as well so can you just sort of break down that is we think about or if I were to say construction agriculture versus.

Oil field services.

I would say the majority of our business, because our largest customers or distributors.

To the agriculture business. So the majority of our business on the packaged lubricant side angry tends to migrate toward agriculture, but we know that incremental I think on the earlier question from cow already and pack is about till 10% to 12% of EBITDA in the overall packaged lubricant slash Greece business.

And that's coming from those two areas. So I don't have the exact detailed the break down but I know AG is probably the largest piece and Randy you have any other comments.

Obama speaking there at all.

And in both Greece, and the packaging the oilfield is a component of the sales a smaller component, but a component does not nonetheless and in Greece, you post tension in Greece. The construction business is a is a more significant component.

Oh, so so when you're thinking about degrees and lubricants going forward.

Well, we have seen in March and April I think takes it to you know there's a probability that we're going to be 10 is to 20 percentage decline in that business is a reasonable probability.

I appreciate that Tim.

In the last couple for me you guys think about pad three refinery.

Utilization are you referenced the 73 I guess two questions number one is currently anyone shutdown that you're serving.

And then number two do you anticipate anyway shutting down as you go through the second quarter.

For the balance of the year. Thank you.

Yeah. So so the pad three.

You have the largest most complex refineries.

In the United States in the World.

In the pad three and while we've seen a decline there from you know low ninetys percentage to two to mid Seventys. The declines we've seen and the other pads has been greater.

Oh the refineries.

We serve significantly and are empty I adore, so for business, particularly.

The Beaumont Port Arthur area.

We have we have seen them there'd be clients to be less than what we have observed in other parts of pad three.

And we can't sit here today and project what we what we think it's kind of happened going forward because it just such a.

Wide range of outcomes.

We have not seen them other than one refinery, which had a planned turnaround I have any significant reduction.

In the services, we provide for them yet.

Thank you very much.

Thank you. Your next question comes from somebody else Subhaul of Seaport Global Securities. Your question. Please.

Yes, hi, good morning, guys and Ah. Thanks on the Trinity I just wanted to go back on the on the refinancing I think previously you talked about I'm trying to access the private markets also for the refinancing.

I'm wondering if you could talk little bit about you know what are you seeing in that market and what kind of pride you know what does it public markets or is that market seen right now.

Good morning Sunil.

So I think on to the public side, we'll look at that first you you've seen a little bit of opening and in the high yield market I think that it's early days on that and why we've hired Stephens to be able to two advisors on the private side, we continue to have discussions.

With.

Private capital, mostly to assist with our refinancing to bring in maybe a new loan money component through discussions with them but.

We don't have a lot of detail the though really.

We're going to share today, just our optimism from discussions that but we feel like we're going to be successful and the refinancing and we won't need to address the revolving credit maturity or Springer.

Okay got it.

And then just a follow up on some information splendid earlier. So I think you mentioned one study I sit in Florida, which you could.

Utilize the contango.

But it does how big is that.

You know told me no.

Well the three tanks that that we don't have contracted today.

A little over a quarter of a million barrels storage.

Okay, and then do you know the.

The rates that are out there today for storage.

It.

That's what kind of term you can get shorter term. Obviously, you can go get a higher rate longer term.

The rates are.

30 to 30% to 40% depressed from what the shorter term rates would be.

Okay.

So the point is there's there's.

No no union tend to have pinch of.

Upside.

You know tap the thanks.

To the extent, we can get only stuff.

And I'll follow on with that just to be clear that in our revised guidance, we do not contemplate and any additional EBITDA associated with those tanks.

Okay and to the extent that you have a use unless you're coming nodes.

How should we think about duration of those contracts that can be some keysight.

Could you repeat the question.

Didn't follow it.

Oh, So I was curious in it to the extent that you have seen recent contracts on though.

On a timing it was supposed to date what is a you know to become duration on those.

Oh directional on or or or storage contracts on average but.

Yes.

Approximately three years.

Okay.

Thanks, guys. Thanks, that's all that.

Thank you smell.

Thank you at this time I'd like to turn the call back over to CFO, Bob bond to rent for closing remarks, Sir.

Thank you Latoya chief.

Our company has been very resilient over the years managing through difficult operating environments, and we have a plan to manage through these very unusual circumstances as well.

Beginning in 2018 or partnership has taken steps to refocus the company by selling assets in order to eliminate our direct upstream exposure and to also reduce our financial leverage.

We believe the strategy to primarily become a refinery services focused company will serve us well over the long term.

Refineries typically run at normal utilization no matter the price of crude oil.

However, with the recent crude price collapse. There's also been a reduction in third party refinery utilization do that to the economic shut down from Kobin 19, we know this reduced utilization will impact our cash flow to certain degree in the near term, but nothing like it would have been if we still had direct upstream exposure.

We believe this lack of direct upstream exposure and the general stability of our cash flow will benefit us in the long run and also in the near term as we execute our plan refinancing or notes during the second quarter.

Thank you all for your time today.

Well, ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

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