Q3 2020 Martin Midstream Partners LP Earnings Call
Excuse me, ladies and gentlemen. This is the operator today's conference is scheduled to begin momentarily until that time your lines will again be placed on could be cool. Thank you for your patience.
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Thank you for standing by and welcome to <unk> third quarter Twentytwenty earnings call.
Conference call and webcast at <unk>.
This time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone please be advised that todays conference is being recorded.
If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Mr., Bob Bondurant, Chief Financial Officer. Thank you Sir Please go ahead.
Thank you Paul and good.
Good morning, everyone on the call today, we have Ruben Martin President and CEO, Randy Josh or Chief operating Officer also Joe.
Also joining us is Danny cabin director of financial planning and analysis, and David Kanen director of financial reporting.
One person missing today, Sharon Taylor director of Finance and Investor Relations.
Sure and currently has a significant personal situation with their daughter, Charlie who is in a devastating head on collision last week.
Properly sharing will not be with us on the call today as she is being a mother to her daughter.
Numerous surgeries over the past few days.
Please pray for healing for Charlie and support comfort and peace for sure.
Now before we get started with the partnership comments.
I remind you that management may be 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 COVID-19.
Actual outcomes 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 speech or performance.
We will discuss non-GAAP financial measures on the call today.
Please refer to the table in our earnings press release posted in the Investor Relations section on our website to find information regarding those non-GAAP financial measures.
Getting a reconciliation of historical.
Measures referenced in today's call to their corresponding GAAP measures.
Now, let's discuss our performance in the third quarter.
As it was this was the case with our second quarter earnings call, we will not be comparing our third quarter performance. The third quarter guidance by segment as we previously pulled our quarterly guidance due to the uncertainty around COVID-19.
However, we have given its adjusted EBITDA guidance range of 95 to 107 million for 2020.
Two to three months for the excuse me for the three quarters of 2020, we have realized adjusted EBITDA of 77, and a half million compared to 72.8 million for the first three quarters of 2019.
Now for the third quarter, which is always our seasonally weakest quarter or.
Our adjusted EBITDA was 22, and a half million compared to 22 million for the third quarter of 19.
The third quarter's adjusted EBITDA performance of 22, and a half million exceeded exceeded our internal non public guidance in spite of frequent Gulf coast Hurricane activity and the continued negative impact of COVID-19 on refinery utilization.
I would now like to compare our third quarter performance by segment and 2020 to last years third quarter and also provide some limited outlook for the fourth quarter.
[laughter] or term.
Our terminal and storage segment was our largest cash flow provider in the third quarter as adjusted EBITDA was 14.2 million compared to 13.3 million a year ago.
Well the fee based portion of our training center segment cash flow for the third quarter was marginally better year over year. The majority of the cash flow increase was primarily driven by improved performance in our packaged lubricant business.
Although our third quarter volume was slightly less this year compared to last we experienced better margins due to lower supply and production cost.
Now looking toward the fourth quarter, we believe our overall turn cash flow will be less than the third quarter due to anticipated seasonal decline in customer demand customer demand of our packaged lubricants, which primarily occurs during the slower sales season between Thanksgiving to new year.
Now our second largest contributor to cash flow in the third quarter was our transportation segment, which had adjusted EBITDA of five and a half million compared to 8.2 million a year ago.
Decline of 2.7 million.
The majority of this year over year decline for the third quarter occurred in our marine transportation business as its cash flow fell 2.3 million.
Our inland marine utilization fell from 96% a year ago.
65% in the third quarter this year.
This decline is a direct result of continued reduced refinery utilization, which has been negatively impacted by cold at night chain.
Refinery utilization was also impacted the third quarter.
Hurricane activity this year.
Including Hurricane Laura and beta.
Which had a significant impact on the lake Charles area refineries and to a lesser extent Beaumont area refineries.
Our truck transportation was down 8.3 million compared to a year ago, primarily due to the impact of Gulf coast Hurricane activity, which significantly lowered our Daddy locale in late August and early September.
Now looking toward the fourth quarter, we believe marine transportation utilization will remain similar to the third quarter.
Well, we believe our average daily truck transportation locale should increase as a result of an increase in butane demand from refineries and from wholesale propane customers wish.
We should also have no hurricane disruption in the fourth quarter.
No third largest contributor cash flow in the well.
With our sulfur services segment.
Which had adjusted EBITDA of $4.2 million compared to 3.1 million a year ago.
Our pure sulfur side of the silver service excuse me sulfur services segment had adjusted EBITDA of three and a half million compared to 1.3 million a year ago.
This year's third quarter cash flow is normal last year, our sulfur ship loader was out of service due to a windstorm casualty loss, which occurred in may of 2019, causing last year's third quarter cash flow in this business to be weaker than normal.
Our fertilizer business said cash 4.6 million in the third quarter compared to 1.9 million a year ago. We.
We had longer downtime due to our annual third quarter plant turnarounds this year compared to last year.
As a result, our production levels at Plainview in Nature's were significantly less than they were a year ago, causing a negative impact to cash flow this quarter.
However, all facilities have been producing fertilizer products in the fourth quarter, and we should be able to maximize production in anticipation of the annual first quarter demand for fertilizer products.
Now moving to our natural gas services segment, our adjusted EBITDA of 2.8 million in the third quarter compared to 1.6 million a year ago.
In September of this year, we saw a significant increase in butane demand from some of our refinery customers relative to a year ago accounting for the increase in cash flow this quarter.
Now looking toward the fourth quarter, we anticipate we will fill a significant portion of our butane inventory inventory.
Inventory currently in storage and realize anticipated cash flow performance for this business.
Our butane inventory by him is currently two thirds hedged.
Now I would like to discuss our recent bond exchange balance sheet and liquidity.
I'll begin with a recap of the settlement of the exchange and cash tender offer for 2021 notes, which was effective on August 12.
With the closing we have extending the maturities of the majority of our senior notes out to 2025 with him.
With a minimal balance of the 2021 notes due in February which I will discuss further in a moment.
The transaction was accounted for as a debt modification under U.S. gap and thus the partnership was required to recognize an eight and a half million dollar loss primarily related to the expensing of non Linda related costs incurred with the debt restructuring.
The transaction allowed us to extend our debt maturities, reducing the outstanding commitments of our revolving credit facility from 400 million to 300 million and adjust our total leverage senior leverage and interest coverage covenants. So that they flex down as we work through our de leveraging plan to a total leverage ratio of less.
3.75 times.
Under the new adventure, while the total leverage ratio is greater than our target leverage ratio. The partnership can use 25% of any excess free cash flow to reduce the obligation under the 2025 note indenture.
Taking the annual offered to all holders of the 2025 notes, but 100% of the principal amount. However, there is no obligation up on any of the note holders to accept this offer.
No at September Thirtyth, the partnerships balance sheet reflected approximately 573 million of both long term and current installments of funded debt.
This was an increase of approximately 28 million from June Thirtyth and is primarily attributed to the inventory build associated with our butane optimization business.
As I mentioned earlier the current installment amount includes the remaining tranche of our senior unsecured notes due February 2021 that were not tendered during the recent exchange and also includes current capital lease obligations.
The untendered balance remaining of the 2021 notes totals approximately 29 million and the.
And this balance will be funded with proceeds from the revolving line of credit when the notes mature in February.
Long term debt relates to our revolving credit facility and the new senior notes due in February 2024 and 25.
Our balance sheet funded debt is shown before unamortized debt issuance costs of 10 million as acts.
As actual funded debt outstanding was 551 million right.
Reconciling this amount at quarter end.
Although bobbing current credit facility was 205 million the notional amount of our senior secured second lien notes due in 25 was 292 million.
And the notional amount of our senior secured one and a half lien notes due in 24 was 54 million.
Our total available liquidity on September thirtyth reduced by outstanding letters of credit of approximately 17.4 million.
Was 78 million based on our current 300 million revolving credit facility.
At quarter end, our bank compliant ratios of senior secured leverage and total leverage were 1.81 times and 4.87 times respectively.
On September Thirtyth, we had 31.2 million of debt assigned to the working capital carve out which is directly attributed to the seasonal NGL inventories build where the partnership has either Ford sold or hedged inventory occur.
Accordingly, this amount of debt was carved out from the total debt for the total leverage calculation.
And finally, our interest coverage ratio was 2.8 times and all.
And all the partnership was in full compliance with all covenants at quarter end.
Capital spending in the quarter included 2 million of expansion capital.
In addition in 2020, we have spent approximately 3 million related to the nature ship loader replacement and 10.7 million over the entire project.
This expenditure amount was offset by net proceeds from insurance recoveries of 10.3 million with 5 million received in Threenineteen.
8.8 million received in the first quarter and the balance which was received in the third quarter.
[noise] amounts related to the ship loader are not included in our expansion Capex guidance numbers.
With respect to the quarter a majority of the expansion capital spent was allocated to completing the development of the new Phoenix Grease plant.
The updates on an underutilized tank at our Tampa terminal.
With respect to the new Phoenix Grease plant construction on the facility is complete and we are waiting one final inspection and approval, which we anticipate to occur in the next several weeks and rugged.
And regarding the Tampa terminal the new tank storage agreement will begin generating revenue no later than December 1st.
In all we anticipate total spending for expansion Capex to remain in the range of 10 and 13 million.
Switching to maintenance Capex.
During the third quarter, we spent approximately 3 million for year to date total of eight and a half million.
For the balance of 2020, we are estimating a total spend of approximately 1 million to cover the cost of repairs incurred from the recent Gulf Coast Hurricanes, and we expect our total maintenance capex spend for 2020 to remain in the range of 14 to 16 million.
Now the partnership had distributable cash flow of 8.1 million for the quarter, an excess free cash flow of 4.8 million.
For 2020, the measurement period for excess free cash flow spans from the month of September through December today.
To date, approximately <unk> point threemillion can be used as consideration to buy back 2025 notes starting in January of 21.
Finally regarding adjusted EBITDA for 2020 with the favorable performance from the quarter we.
We feel comfortable that our performance for the fourth quarter will allow our annual adjusted EBITDA to fall within the previously provided range of 95 to 107 million.
With continued volatility in the economies specifically within the energy space, We will continue giving guidance by an annual range.
This concludes our repaired prepared remarks for this morning, I will now turn the call back to poly for the Q and a.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please stand by while we compile the human a roster.
And your first question comes from the line of TJ Schultz with RBC capital.
Hi, TJ, great Hey, Thanks, good morning.
I think first so I know in the past MRM sees relied in part on it.
MLP dividends to support.
Its capital structure and now with the with the cut to the MLP dividends, let's say or distribution, what's the expectation that.
Contract terms or rates between the MLP in MRM see may need to change in order to support that.
MRM see and if you could just quantify what that cash flow impact could be to the MLP or or if it would impact.
Maybe MLP result at Smackover potentially thank you.
Yeah. The when the distribution was cut back in April there were a contract adjustments then and that had been that has been reflected in our guidance and we anticipate no further contract adjustments at this time.
Okay. That's it for me.
I appreciate that.
And then on Marine transport I understand there's some hurricane impact in Threeq you.
And then you're pointing to for Q utilization being similar I think to threeq levels. So.
Hi, I'm, just kind of looking for what it takes for utilization and your mind to improve on in the inland marine there outside kinda weather impacts if you can speak to a refinery utilization there and what may help see that business come back a bit makes sure I I'm going ask Randy to kind of Oh, okay.
That question go ahead Randy.
Sure This is Randy.
Yeah, Yeah, Marine Marine had a very up and.
Very up and down here.
This year, driven by Cobi coven and refinery utilization refinery utilization.
In the pad three drop to the evil.
Even the high Sixtys low seventys.
Seventys and kind of worked its way back up to the summer to the 80% to 85% and as that happens.
The the rates and utilization or pretty decent in July and August we had pretty good months in marine.
In September.
After the hurricane hit in late August.
They did all that damage on Lake Charles.
We saw we saw utilization dropped again even.
Even today, even with them coming back on it like Charles said go starting up this week for example, we still see refinery utilization the pad three at just under 70% so.
So you know as long as the refinery utilization is low it sure looks like if somebody is holding a lot of clean toes hauling gasoline and diesel.
Market I'm, not going to call not existed, but but there's not much demand.
Spot those in that particular market.
What we called Dirty market, which is.
The asphalt anything that he needed barges.
Little bit better, but it's still it's still well off of where it was earlier in the year say a thousand Bucks a day or two off from where it was and utilization is lower so.
So we really are for them.
For the marine right start picking up we need the utilization to pick up.
The nation to pick up we need refineries to run harder than they are today.
So so so any estimate on one that's going to improve for US is really tied to only funded again running harder.
Okay makes sense I'll just leave it there and my thoughts are certainly that Sharon's, daughter, and Michelle Thanks for the time.
Thanks TJ.
And again, if you would like to ask a question simply press Star then the number one on your telephone keypad. Your next question comes from the line of Selman Akyol with Stifel.
Thank you.
Two quick ones for me. So first of all can you talk maybe a little bit about your expectations for the butane blending season, obviously.
Maybe just thoughts and relative to last year I know you already got two thirds hedged I guess why not have the other piece.
Portion hedged as well and then you know maybe if you could just talk a little bit about sort of what you expect between for Q1 Q.
Yeah go ahead Randy.
So it's on the butane business that is correct.
That is correct. We are two thirds had but we're working through October quickly and we're we're selling significant volumes in October and so as we enter.
November one which is which is just next week will be significantly more hedged the two thirds of that as the volumes move out in October so, it's our hedge position will be.
Much greater than that two thirds as as we get to November one we still won't be a 100% hedged what you noticed.
There's still there's still upside and downside.
But we what we will be significantly.
At that point and we'll have the ability to have more if we feel like we said that that's in our best interest in that Todd.
Relative to last year.
I think I think this year sets up very similarly to last year.
And and but you know what when we think about our butane business tied to the fourth quarter.
Fourth quarter, we get about two.
Two thirds of the value.
Generally the first quarter about third of the value of the winter months that such that generally the way it has worked overtime but.
That could change depending upon.
How's it how the sales program and the falling.
I appreciate that and then.
And then also just in terms of thinking about Capex and I understand where you're coming in for this year in terms of expansion, but can you talk maybe a little bit about what you're seeing next year.
Randy go ahead.
Are you asking about maintenance or growth.
Well it really I was thinking about expansion capital.
Phantom capital Yeah.
This year.
A range I believe was $10 million to $12 million.
For us and this year over the course of the year.
We had some we ended up not doing that we thought we would and some some investments we thought we'd make it beginning of year Atlanta, not making because of.
Because of what was happening in the marketplace and we had other investments that we weren't planning on at the beginning of the year such as such as the Tampa tanks that we ended up making over the course of the 'cause opportunity.
Well I would say you know what worked and we were planning for that right now for next year, but I don't see a scenario right now we're going to be planning for more Capex next year.
Greater amount of Capex and 2021 than we spent in 2012 I don't I don't see that be in the scenario right now.
It probably even come in slightly less than what we have had.
It has been in 2020.
Got it and then.
I know.
Do you have the right to ask the bondholders fear of cashing take 25% of it and try to redeem some of those bonds.
But they have no obligation to say, yes, if I understood you correctly. So then my question is you know presuming you have this and use the gold and just to build cash on the balance sheet.
Well, we will the cash is generated by our company, we'll we'll pay down our revolving line of credit. So you will see the actual absolute debt reduction over time because of that that's where we'll put the cash guidance.
Got it okay.
All right. That's all I had thank you.
So.
And at this time there are no further audio questions I will turn the conference back over to Mr., Bob Grant for closing remarks.
Thanks Holly.
No.
Yeah, Thanks Polys overall.
Overall, we were pleased with our third quarter adjusted EBITDA outperformance relative to our internal forecast and certainly glad we have our bond exchange behind us now.
Regarding this mornings press release I'm grateful for the confidence of our board and I'm very excited about my new role as CEO of the partnership began beginning January one of next year.
I would like to lay out my near term vision for the company.
First and foremost we have to make our partnership attractive again to investors how do we do that.
Number one we must continue to de lever the partnership to our target leverage of 3.75 times or less number.
Number two we must be more consistent on delivering on expected cash flows which will provide the fundamental path to our leverage go now.
Number three we must also increase the utilization of our existing asset base through expanding existing commercial relationships and creating new commercial relationships number.
Number four we need to become more cost conscious throughout the entire organization.
And finally number five we must identify and execute on low risk organic growth opportunities, having your returns significantly above our cost of capital.
If we can execute this plan I believe in the next 12 to 14 24 months, we can improve our current enterprise valuation multiple of 5.7 times reflected in our current equity price.
We can grow our valuation multiple to being more lot more in line with our and memo for MLP small cap peer group, which trades around 7.8 times.
Coupled with growing our equity value through absolute debt reduction I believe we can deliver strong equity returns for our current unit holders based on our current unit price.
Now finally, I want to thank Rubin first leadership of our partnership over the last 18 years and I want to publicly let him know how much I appreciate his mentorship and friendship over the last 38 years.
I know you will continue to bring value to our partnership through your business development ROE and as chairman of the board.
Ruben would you like to share any closing comments.
Oh, Thank you Bob for those kind words, but.
I just felt that this was the right time to transition leadership since we recently completed our challenging so.
Let's say, the least bond exchange, which sets him MLP up for future financial success, I will remain as president and Chief Executive officer of the process of being as chairman of the board of MLP.
We'll also be involved in business development for MLP as I say this is a very important given MRM see significant ownership interest in MLP.
This means I'm not completely exiting the picture I'm, just turning over the leadership and strategic planning to.
To Oh, Im MLP to Bob <unk>.
Vision can be the guiding light.
Our MLP future I'm excited for Bob and I think he's a great choice to lead M.L. see into the future that I want to thank everyone and thank everyone for being on our call today anything else Bob.
No poly this concludes our call. Thank you.
Thank you [laughter] [laughter]. Thank you.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect presenters. Please hold on one moment.
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