Q2 2020 Martin Midstream Partners LP Earnings Call

<unk>.

I got turned on.

Good morning, ladies and gentlemen, and welcome to the more in midstream Partners' second quarter 2020 earnings webcast. At this time all participants are in they listen only mode. Later, we'll conduct a question answer session and instructions will follow at that time.

Anyone should require assistance during the conference. Please press Star then deeper on your Touchtone telephone as a reminder, this conference call. This is being recorded.

I'd now like to turn the conference over to your host Sharon Taylor director of Finance and Investor Relations.

Thanks Whitney.

Morning, everyone.

I'm here with Ruben Martin President and CEO.

Mondrian, CFO and Randy Pausch or C of O all for joining us in the room is Danny cabin director, that's DNA and David Kanen director of financial reporting.

As we get started I need to remind you that management, maybe making forward looking statements are 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 cobot 19 pandemic, but actual outcomes.

This could be materially different you should review the risk factors 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 posters 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.

This call to their corresponding GAAP measures I'll now turn the call over to ball Bonder and Oh, sorry, I'm sure.

Historically on this call as we walk through our quarterly performance by segment.

Your actual performance the guidance.

However for this call and the remaining calls for this year, we will not be comparing actual performance the guidance as we pulled or de Joe quarterly guidance by segment due to the uncertainty of Kobin 19.

However, we were placed a specific specific quarterly guidance with an overall guidance range for the entire partnership of 95 to 107 million for 2020.

We continue to support.

For the second quarter, our adjusted EBITDA was 23.9 million.

It's exceeded our internal non public guidance as actual pad three refinery utilization was greater than what we internally forecast it's.

Benefiting our truck transportation so for businesses.

No for today's discussion I would like to compare our second quarter performance by segment and 2020 to last year's corresponding quarter provide some limited outlook for the third quarter.

For the second quarter 2020, we had adjusted EBITDA of 23.9 million compared to 25.1 billion for the second quarter of last year.

For the six first six months of 2020, we had adjusted EBITDA of 54.9 million compared to 50.8 million for the first six months of 29 thing.

Our silver services segment was our largest casual provider in the second quarter as adjusted EBITDA was 2.8 million compared to 8.6, making a year ago.

Within this segment, our fertilizer business experienced minimal impact from Cowen 19, and had adjusted EBITDA of 6.8 million in the second quarter compared to 5.7 million a year ago.

The increase this year compared to last year was primarily due to better weather conditions in 2020.

Last year, we have tremendous amounts of rain, which impacted both volume and margin.

Looking for the third quarter, we should experience the normal seasonal cash flow decline in the fertilizer business. That's this is the period when farmers typically harvester crops, causing fertilizer demand to significantly decrease.

Oh Pierce oversaw the silver services segment had adjusted EBITDA of 3.9 main in the second quarter compared to 2.9 man a year ago.

The second quarter last year, we experienced a casualty loss due to extreme weather at our Nexus terminal, which impacted the operations about prilled sulfur ship loader and kept it out of service or May have 20, not team to February of this year.

This negatively impacted our software operations last year compared to normal operations this quarter.

However, we do expressed a degree of impact from Cowen <unk> team as pad three refinery utilization was 76% in the second quarter compared to 93% last year.

This negatively impacted total sold for volume handled as refinery production of sulfur was less due to reduced utilization.

Looking forward to third quarter Pedra utilization has been approximately 81% so far in July which is greater than the second quarter average of 76%.

At this level of refinery utilization corresponding silver production holds we believe our financial performance and appears oversaw the business.

Pure sulfur side of the sulfur services segment.

Should at least be similar to the second quarter.

Our next largest contributor cash flow in the second quarter was our Terminalling segment.

Segment had adjusted EBITDA up 10.6 million in the second quarter 2020, compared to 12.3 made a year ago, a decline of 1.7 million.

$1 million. This decline was in our Martin lubricants and Greece business.

At 800000 of the decline was in the fee based side of determining business, primarily at our Smackover refinery.

Because of cold in 19, we anticipate or try to cash flow when our packaged lubricant and Greece business due to decreased demand from the oil field and from commercial construction and this is exactly what happened.

Also because sales prices declined as a result of overall reduced demand, we realize smaller than that normal margins in our Greece business due to the selling up higher cost inventory compared to the new sales price environment.

However, we did see a significant strengthening their cash so in this business in June compared to April at night. So we believe the outlook for packaged lubricant agrees, it's continuing to improve.

Regarding to reduce cash flow the snack over lubricant refinery relative to last year. The decline in cash flow was anticipated due to the repricing of the refinery processing and transfer station fees, which were effective at the beginning of the year.

Now looking towards the third quarter since the fee based portion of our children businesses, primarily supported by minimum volume contracts, there's been minimal cash will impact from coburn not Jane and we anticipate the same performance going forward.

Additionally, the partnership is just signed a long term contract to store crude oil that had previously itll take in our Tampa terminal.

We will be making certain capital upgrades to the tank, but expected to be placed in service in the fourth quarter.

Our third largest contributor cash on the second quarter was our transportation services segment would that which had adjusted EBITDA of 4.9 million in second quarter 2020, compared to 8.7 billion a year ago It declined $3.8 million.

This decline was not unexpected due to cover not team.

In April when we adjusted our overall guidance for 2020, we've communicated to the market that both land and marine transportation would be impacted by koby 19, due to reduce refinery utilization in PADD three.

This expectation or reduce cash flow from this segment certainly came to pass during the second quarter.

In Orlando Transportation business, we had adjusted EBITDA of 3.3 million in the second quarter compared to 5.1 million a year ago.

This was primarily a result of reduced demand from land for land transportation services due to the economic slowdown caused by Koby 19.

Our mileage in the second quarter of 2020 was down 23% compared to our mileage the previous year.

A significant majority of this reduce mileage occurred in April and May as we saw June knowledge only down 12% from the previous June so the business trend is improving.

Looking towards the third quarter, our cash flow will still primarily be a function of pad three refinery utilization in addition to economic expansion.

So far in July average criteria utilization is 5% higher than the average for the second quarter.

Our marine transportation business had adjusted EBITDA of 1.6, meaning the second quarter compared to 3.6 made a year ago.

Similar to land transportation, our Marine Transportation group is primarily dependent on refinery was utilization.

Which was significantly lower in the second quarter this year.

As a result, our board utilization declined 12%.

And the inside of the business.

Additionally, the one offshore vessel, we operate was re contracted at a reduced stay right at the beginning of the year.

As a result, our offshore cash flow was down from the previous year. In addition to the inland cash flow decline caused by Copel 19.

Looking towards the third quarter, we continue to see weakness in marine transportation utilization.

Based on this week your near term outlook, we plan to accelerate the remaining for regulatory required barge dry dockings from the fourth quarter into the third quarter.

This move will position us with maximum operating capacity in the fourth quarter. When we believe marine transportation demand could be stronger relative to the third quarter.

Moving to our natural gas services segment, our adjusted EBITDA was 1.6 million in the second quarter compared to negative point 2 million a year ago.

A year ago, we experienced butane inventory write downs, which we do not experienced this year as butane pricing has remained relatively strong due to limited supply from refineries you'd or decrease refinery utilization.

The second quarters also when we are buying installing butane supply in anticipation of selling back to refineries beginning in October as gasoline vapor pressure rules are relaxed at that time.

As a result cells are limited in the second quarter due to minimal refinery demand. So we typically have a seasonal trough of cash flow in the second quarter.

We continue to buy butane supply the third quarter moving into storage. So there will also be minimal cash flow from this business in the third quarter.

Now I'd like to turn the call back over to share to discuss early participation results of our exchange offer our balance sheet and liquidity.

Thanks, Bob.

Start with a discussion of the exchange and cash tender offer for 16 notes that it's currently in the market.

On July nine the partnership announced the launch of the offer to certain investors as a means and refinancing our notes due in February 2021.

We felt that the offer was attracted for our note holders, while still being constructed to the partnership, especially in these unprecedented times.

On Friday July 24th we announced the early participation tender amount of approximately 335.5 million and corresponding percentage of a little over 92%.

The restructuring support agreement that was negotiated between the partnership and are supporting note holders, who owns 74 quarter percent of outstanding notes.

<unk> for 95%, 95% participation in exchange for it to be effective.

The plan felicitation offer expire on August six we fully expect to meet the required percentage threshold and settled a transaction on August 12.

In connection with exchange transaction, we entered into an immense amount with our revolving credit facility lenders to among other things allow for the one in half and second lien notes that were offered in the exchange transaction.

The amendment also lowers the outstanding commitments from 400 million to 300 million.

Revises, the total leverage senior leverage and interest coverage cabinets and limits our ability to increase distributions until our total leverage is below 3.75 times.

It should be noted, though that the amendment is not effective and fall until the exchange offer closes.

I wanted to take a moment to take our lending group as well as a note holders for their supported the partnership.

Obviously these are uncertain times and none of us notice when the virus will be contained or our economy will recover but these groups were able to see beyond the current environment and continue their support of the partnership and the management team.

Moving to our quarter end balance sheet components.

Thirtyth partnership balance sheet reflected approximately 545 million at both long term and current installments its funded debt.

This was a slight increase approximately 11 million from March 31st and second quarter begins the buying season for our butane optimization business.

The current installment amount includes our senior note due February 2021, which the majority as discussed earlier will be refinanced via the exchange and reclassified back and long term debt on our September thirtyth balance sheet.

Any notes not tendered in the offer will remain current until redeemed.

At quarter end, our revolving credit facility balance was 181 million and the notional amount of our senior unsecured notes was 364 million.

Our total available liquidity on June Thirtyth reduced by outstanding letters of credit of approximately 22 million with 197 million based on current 400 million revolving credit facility.

At quarter end, our bank compliant ratios of senior secured leverage and total leverage were 1.6 times and 4.76 times respectively.

On June Thirtyth, we had 11 and half million of debt assigned to the working capital carve out which is directly attributed to the seasonal NGL inventory build or the partnership has either for sold or hedged inventory.

Accordingly, this was carved out from total debt for the total leverage calculation.

And finally, our interest coverage ratio was 2.83 times and all the partnership was in full compliance with all covenants at quarter end.

Looking at capitalize spending in the quarter. This included 3.2 million of expansion capital.

Added to that end 2020, we have spent approximately 2.7 million related to the nature ship loader replacement.

That amount will be offset by insurance proceeds of 1.8 million that was received in the first quarter and 4.9 million that we expect to receive in the third quarter.

Amounts related to the ship colder are not included in our expansion Capex guidance numbers.

The new Phoenix, Greece plant, which is expected to be operational in the third quarter was the largest contributor to the growth capital spend.

And lastly, we are increasing our 2020 expansion capital guidance range by approximately 2 million, bringing the range to between 10 and 13 million. The additional dollars are associated with updates on the tank at the Tampa terminal needed to service the long term terminal agreement that Bob.

Spoke to earlier.

Switching to maintenance capital during the second quarter, we spent approximately 2.4 million for a year to date total of 5.5 million.

We are affirming our estimated 2020 total maintenance capex and between 14 and 16 million.

The partnership had distributable cash flow of 12.5 million for the quarter or 5.1 times coverage.

Finally regarding our adjusted EBITDA guidance for 2020, we are still forecasting between 95 and 107 million.

And until we see stabilization across the economy, we intend to continue giving guidance by an annual range.

This concludes our prepared remarks to the morning, I will now turn the call back to the operator for queuing.

Whitney.

Ladies and gentlemen, if you have a question at this time please press the star and the number one on your telephone keypad. If your question has been answered or you wish to remove yourself from the Q. Please press the pound team.

<unk>.

You do have a question from Selman equal what stifle.

[noise]. Thank you good morning.

I guess just a couple quick questions for me. So first of all of your Tampa Bay.

[music].

Terminal can you just talked about how long that agreement is and maybe sort of what kind of cash flows you're expecting.

In total from the.

It does have to take leases a five year agreement.

We're going to spend.

Well over a million a half dollars over the next 60 to 75 days a group capex.

That contract will.

Generating revenue.

Into the fourth quarter, so for the EBITDA contribution for 2020.

It does not meaningful.

But but overall if you remember last time, we spoke we had a threed retained for release, there isn't and we put about.

Looking into a million a half dollar value.

All that.

And we captured somewhere in the ballpark of half of that.

All this on the swings.

Got it and then.

Is there still potential for at least in the other two tanks I mean.

There is coming you can make there is any discussions going on.

The other two things smaller tax.

There are opportunities, we don't have anything eminent at the moment.

All right appreciate that.

And then maybe can you just talk a little bit about more what you're seeing on.

I guess the refinery side.

And.

You know how things you expect to play out kind of going into the second half of the are there.

Yes, making about all Smackover refinery.

Yes.

Yeah, so so the refineries running well.

We are running at a slightly reduced rate.

Which means our our gas and chemical.

You on or chemical costs are less so so we would expect.

In the third and fourth quarter.

And outperformance at the refinery.

Due to the low fuel costs.

Okay. Thank you very much.

Your next question is from the line of Michael Blum with Wells Fargo.

Oh, great. Good morning, everyone, I really said, one or sort of high levels tragic question just in regards to how you dealt.

Decide to go ahead with the the debt restructuring just curious your thought process on why you chose to go that route versus.

And with me in a public company versus taking another <unk>, which would have taken new private.

Well.

Michael This is Sharon.

I think that as a management team we looked at all the opportunities to refinance our 2021 note for both what I'll say short term opportunities and longer term as you've pointed out.

And as a management team and a board of directors refinancing the notes and continuing as a public company.

Was the right outcome I don't think that currently with.

The the MLP structure, although we know there's challenges there with investors that is the right route for Martin and when you look at corporate tax rates and what it would take to convert.

I will make an additional comment you know.

We always believed our our unit price was.

Severely depressed because of this overhang of refinancing that was one piece. We believe if we can de lever we can trade does that values equity value.

And really grow the unit price over the course, the next 234 years relative to what we thought we could get bored today in a private transaction.

We believe we were better off to say public and grow that de lever and or even at these lower valuations that equity price should rise into extent, there's any expansion of equity valuations because the world changes over the next two or three years, we think there could be enough with there. So we did do we did I'm not going probably off right we did bankrupt.

But but that was our analysis and why we decided to go that route.

Alright, thanks very much appreciated.

Again to ask a question press star one.

I'm showing no further questions at this time I would now like I'm sorry, there was no question.

Okay I'm showing no further questions at this time I wouldn't like to turn the conference back to Bob Bondurant.

Okay. Thank you Whitney.

Again, we're very pleased with the early results for a bond exchange offer which currently has 92% approval.

We are highly confident that we'll be able to execute exchange by August the 12, and I'll be forced to go through any prepackaged bankruptcy razzi process.

Execution to exchange will eliminate both a bond and bank credit facility maturity issue that has been an overhang for our company over the last year.

Going forward, our management team will be laser focused on reducing leverage as we retain future earnings to achieve our debt reduction go.

This plan will position us to then be able to execute on opportunistic internal growth projects that would create cash flow at levels greater than our cost of capital.

Finally, I want to publicly said, thank Peter Bogo Bank group and our note holders for supporting us through the looming debt maturity issues, we have been facing with their combined support we're now positioned to return to focusing on growing equity value for current and long term unitholders.

Thanks to all for joining us today.

Ladies and gentlemen. This concludes today's conference. Thank you for your participation have a wonderful day you may all disconnect.