Q4 2020 Martin Midstream Partners LP Earnings Call
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Ladies and gentlemen, and thank you for standing by and welcome to the and then LP fourth quarter 2020 earnings call.
At this time all participants lines 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 today's 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, Sharon Taylor Chief Financial Officer. Thank you. Please go ahead.
Thank you and good morning, everyone I'm joined by Bob Bonder, and President and CEO, Randy Tauscher, Chief operating officer.
David Cannon controller, and Danny Cavin director of F. PMA.
Before we get started with our comments I'll remind you that management may be making forward looking statements as defined by the SEC such statements are based on our current judgments regarding the factors that could impact for future performance of Martin, including facts and assumptions related to the impact of the COVID-19, pandemic, but actual outcomes could be materially.
Different you should review the risk factors and other information discussed on our SEC filings and form your own opinions about Martin feature performance.
We will discuss non-GAAP financial measures on today's call. Please refer to the table and 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 and now I will turn it over to Bob Bondurant.
First I'd like to comment on last week's weather event, and Texas and the impact and May have on our business and the first quarter.
Generally I'm very optimistic about the first quarter, but know this weather event will have some negative financial impact to our Q1 cash flow.
Theres currently it's hard to quantify but will impact us financially and our land transportation segment due to ice roads and downtime from our refinery customers.
Actually I want to commend our employees for their can do attitude of working it and see that our assets operated as best as they could during this weather event.
Single safety and the health of all of our affected employees job well done and all.
Now I want to start off by acknowledging the fourth quarter cash flow did not meet our internal forecast.
The lower performance was primarily in two areas one expected and unexpected we're expected to reduce cash flow performance and marine transportation due to the impact of the COVID-19 pandemic on refinery utilization.
But the other significant negative impact to our cash flow was and our butane logistics business, which was not expected when we had our last earnings call in October.
Primarily as a result of the weakness and these two areas our fourth quarter. Adjusted EBITDA was $17 4 million compared to 35 for 5 million and the fourth quarter of 2019.
For the year, our adjusted EBITDA was $94 9 million compared to $108 3.002 million 19, primarily due to the negative impact of COVID-19 on refinery utilization and on the overall U S economy.
Let me begin the discussion by focusing on our natural gas services business.
For the fourth quarter. This segment had adjusted EBITDA of $2 million compared to $11 4 million a year ago. The.
And the significant majority of that difference was and our butane logistics business.
And the most significant portion of this miss occurred in December.
Yeah.
Three things happened in December that converge to negatively impact on butane logistics business.
Number one.
There were significant backwardation and the market.
Number two and it's called refineries to slow their view drained purchases and hopes of getting a much cheaper price and January compared to December.
And number three the reduced amount of butane volume, we sold for our refinery customers because of this backwardation met there was not enough physical sales volume to cover our existing hedge position.
Now, let me describe these three points and more detail and.
And the month of December for Us for normal butane and began at 80 cents per gallon and me.
$2 14 per gallon and by the end of the month.
It's driving price would normally be good for us because of our inventory and storage. However.
However, the January futures price was significantly backward dated to the day.
Market price is.
December January Backwardation and began a month at 12 cents per gallon and grew to 32 cents per gallon and by the end of the month and the backwardation for the entire month average 17 cents per gallon.
Because of this on a refinery customers and made the decision to buy significantly fewer butane barrels and normal in December and moved those purchases to January and February.
Because of their decision the volume sold out of storage and December was only 33% of the historical average soldier on refinery customers and December.
Additionally, we had hedged 73 per cent of our historical December inventory sales volume.
Because we only sold 33% of normal December volume, we did not have enough physical sales at higher market prices to cover our hedge loss position.
Since the butane market rose significantly in December we realized hedge losses of $5 8 million of which $4 1 million had no physical corresponding sales.
Impacting our December and total fourth quarter butane logistics cash flow.
The $4 1 million of hedge losses that had no corresponding physical sales.
Impact of selling only 33% of normal December volume impacted our butane book by approximately $5 million and do simple.
Now looking towards the first quarter of 2021, which we will complete the sales season of normal butane to our refinery customers. We are extremely optimistic about a significant increase in cash flow when compared to the fourth quarter.
Pre things that's happened so far this quarter.
First of all the Mont Belvieu price for butane for January averaged 88 cents per gallon and the price for February has so far averaged over 94 cents per gallon.
We do have some hedges in place that are significantly higher prices and our fourth quarter hedge prices, but unlike the fourth quarter, we feel very confident our physical volume so it will be greater than our hedged volume.
Because we currently believe the first quarter do you think cash flow will be strong as a result of current heavy refinery volume demand and despite our fourth quarter cash flow the anticipated cash flow for butane logistics over the entire sales season of October through March shooting total D. What we internally forecast.
For the fourth quarter of 2020, plus the first quarter of 2021.
However, unlike our original internal forecast the significant majority of the actual butane cash flow will be realized and the first quarter of 2021, instead of the fourth quarter of 2020.
Now I'd like to discuss the two business segments that have been primarily negatively affected by the COVID-19 pandemic through reduced refinery utilization.
First is our transportation segment.
Our total adjusted EBITDA and the transportation segment was $1 7 million and the fourth quarter.
<unk> to $9 1 million a year ago.
Our loan and transportation net adjusted EBITDA of $3 million and the fourth quarter.
Compared to $4 7 million a year ago, as our mileage was down 13% and our daily load count was down 11% and the fourth quarter compared to a year ago.
Fundamentally this decrease and knowledge and low count was driven by reduced patry refinery utilization.
The average, 77% this fourth quarter compared to 91% and last year's fourth quarter.
Additionally, the lack of butane demand from storage to refineries and the fourth quarter due to price Backwardation also had negatively impacted our load count.
While marine transportation business has been severely impacted by COVID-19, and its impact on refinery utilization.
Had negative adjusted EBITDA of $1, three main and the fourth quarter compared to positive for $4 million a year ago.
Our third party utilization was only 41% and the fourth quarter compared to 98% a year ago. As a result of COVID-19, and its negative impact on refinery utilization.
As a result, we have taken steps to eliminate some of our fixed costs by releasing underutilized lease vessels and optimizing our owned assets.
Looking toward the first quarter of 2021, and Orlando Transportation business, we are expecting and have been experiencing a slight increase and our daily low cap compared to the fourth quarter.
And therefore subject to last week's weather event, we believe we will see and improved cash flow and land transportation and the first quarter compared to the fourth.
Turning to marine transportation, although the utilization of our fleet of Dirty inland barges is improving the outlook for marine transportation and Q1 continues to be weak.
Our fleet of clean towels remain out of service, but we have recently seen some interest and spot charters for these clean tones.
Now as refinery utilization slowly improves and we feel on a clean barge fleet will begin to be placed back into service.
Looking forward, we believe due to the COVID-19 vaccine rollout, we should see improved refinery utilization beginning in early summer.
This should increase demand for both our land and Marine transportation services.
The second segment that has been negatively impacted by COVID-19 through reduced refinery utilization was our sulfur services segment.
Although total sulfur services segment, adjusted EBITDA was seven $4 million and the fourth quarter for both 2020 and 2019.
And the mix between the pure sulfur side of the business and our fertilizer business very significantly.
And our pure sulfur side of the segment adjusted EBITDA was $2 4 million and the fourth quarter compared to $3 9 million a year ago.
This decline was primarily driven by the business interruption proceeds of $1 2 million, we received last year and the fourth quarter.
Also our daily sulfur volume into our Beaumont terminal facilities was 5% lower than the fourth quarter a year ago.
Looking towards the first quarter subject to last week's weather event, we are forecasting a slight improvement of sulfur volumes into our Beaumont facility's because of slightly increasing refinery utilization.
On the positive side of our sulfur services segment, our fertilizer business had adjusted EBITDA of $5 million and the fourth quarter compared to $3 5 million a year ago.
Fertilizer sales volume was up 44% and the fourth quarter compared to last year as agriculture commodity prices, particularly corn are higher this year.
At the end of 2020, corn was $4 84 per bushel compared to $4 11 per virtual a year ago.
We feel based on forecasted corn acres to be planted with the first quarter cash flow performance from our fertilizer business will be quite strong and we look for and exceptional overall year from this group.
Finally, our Terminalling and storage segment, which has had minimal impact to cash flow from the COVID-19 pandemic, primarily due to long term fixed fee contracts with our largest cash flow provider and the fourth quarter as adjusted EBITDA was $10 6 million compared to $11 5 million a year ago.
The decline between quarters can be attributed to our shore based terminal business as its adjusted EBITDA was <unk> 1 million and the fourth quarter compared to $1 million a year ago.
This reduction and cash flow was the result of soft Gulf of Mexico drilling activity, which was driven by weaker oil prices throughout 2020.
This has negatively impacted shore based terminal revenue due to reduced diesel volume throughput and reduced throughput rates from a year ago.
Now looking toward the first quarter, we should see similar cash flows and our terminal segment when compared to the fourth quarter due to the long term fixed fee contracts that support this business segment.
I will now turn the call back over to Sharon to discuss our balance sheet capital resources, and our 2021 guidance.
Thanks, Bob.
Just a few brief comments on balance sheet metrics for liquidity and capital allocation before I move to our 2021 guidance.
At year, and the total and our long term debt outstanding was $526 million that consisted of $148 million drawn on our 300 million revolving credit facility $30 million and capital leases and $375 million of one five lien and second lien notes due 2024 and.
2025, respectively.
We also had $29 million of short term senior unsecured notes that matured this february which we regained using revolver availability.
During the quarter, we repaid $57 million of revolver Outstandings.
That amount approximately 22 million was from proceeds related to the sales as our Mega lubricants assets and like December.
However, our adjusted leverage ratio increased quarter over quarter as our trailing four quarter EBITDA now contains and majority of quarters, where earnings have been negatively impacted by the COVID-19 pandemic.
While debt has been reduced there is EBITDA and as a result leverage increased to 536 times.
Further we expect leverage to remain elevated until we enter the second half of 2020 line and then begin to lower as the economy recovers and the quarters, where EBITDA was impacted by Covid are no longer a component and the leverage calculation.
And regarding the other piece of the equation debt level.
Our priority remains to optimize the utilization of our assets, increasing free cash for which will be used to reduce debt and strengthen the balance sheet.
For the fourth quarter, our distributable cash flow with <unk> 8 million and approximately $40 million for full year 2020.
As a reminder, our revolving credit facility covenants mandate that our distribution not be increased from the current <unk> annually until on leverage drops below 375 times.
Turning to capital expenditures and the fourth quarter, we spent roughly $3 1 million and maintenance Capex and $1 7 million and gross capex bring.
Our 2020 total to $11 6 million for maintenance and $10 8 million and progress.
And while our gross Capex is in the middle of our guidance range maintenance capex with the low the range by 17%.
The majority of that will be carried over to 2021 as we spend the capital to ensure the safety and reliability of our assets.
Now I'll speak to 'twenty 'twenty, one guidance, which you can find on page six of the slide deck length in our press release or going to the Investor Relations section of our website under events and presentations for.
For now we will continue to issue guidance and and annual range, but intend to provide greater detail into each business segment as soon as the economy begins to recover and we return to pre Covid normal.
For 2020 line, we expect EBITDA to range between 95, and 102 million maintenance capital expenditures of between 17 and $19 million and that estimate does include a turnaround at our stack on a refinery.
We expect gross capex of between four and 5 million low.
Leading to distributable cash flow of 29% to $34 million and adjusted free cash flow of $22 million to $26 million.
Our assumptions for 2021 guidance to begin with the premise.
Debt with wider distribution and the vaccine and we will see refined product demand increase as we enter the second half of the year driving refinery utilization to pre COVID-19 norms.
Both the butane and fertilizer businesses positively as you heard Bob say earlier ethane sales have been strong for far and the first quarter of 2021 with became prices rising since year end.
And our fertilizer outlook is bolstered by rising prices across the board as global levels of corn supply are tightening.
Specific to our fertilizer assets corn yields were down last year. So the corn stockpile is dwindling, while corn prices and forecasted acres for corn planting are rising in 2021.
All of which creates tailwind for that business on.
On the other hand, we view the marine transportation business to be extremely challenging as refinery utilization rates have tested the inland marine market and we see that continuing and her utilization rate and prove to historically normal levels.
This concludes our prepared remarks for this morning, and I will now turn the call back to the operator for Q&A.
Thank you.
To ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key please standby, while we compile the Q&A roster.
Yeah.
Okay.
Your first question comes from Selman <unk> with Stifel. Please go ahead.
Okay.
Hi, guys. This is will on for Selman and hope all is going well following the weather in Texas and Bob Congrats on officially step and the new role.
First question is just around guidance. Besides you guys, specifically mentioned vaccine distribution and the economy continuing to open can you share any other meaningful drivers that could put you towards the high and or.
Opposite.
And the low end of your range.
Well I'll comment first and open up for <unk>.
And if they would like to comment I think there is.
As we saw on the fourth quarter, there is variability and our butane business and so that is sometimes a bit harder predict and if we have a.
And more normal for a better than normal butane year compared to historical I think we'd be at the high end of the range. The other will be windows marine really kind of kick into cash flowing.
<unk>.
Does it really begin and the second quarter and the third quarter, our vision is more and the.
And the third quarter more on the summer range, so to the extent that can improve.
And.
And there is a little bit of.
Hope there and I'll just leave it at that that it could improve quicker on that would be the other driver.
To be at the higher end of the range.
I think everybody shaking their head and agreement with me so those and the two areas probably.
Okay. That's helpful.
Can you guys share just where you are for.
Percentage wise in terms of your hedge volumes for.
For 'twenty one.
Yes for 'twenty one.
And so.
Randy you have that kind of figures I think.
And what we're going to sell versus what's left on the hedges.
Yes.
And we didn't have many hedges and January and the price settled in January at 88, So for January.
It looks like that's going to be a very strong month.
We do have.
Quite a few hedges on and February anticipated sales somewhere around 60% to 70% of our anticipated sales we have hedged.
But we put those hedges on primarily and can use with prices and had already moved up.
Because we had we moved our February hedges that we had earlier and the year at a much lower prices.
Got it Okay and then last question how do you guys view your portfolio going forward.
Are there any more non core type assets that you guys may try to capitalize on monetize on.
Yes, and so we are still looking as you know to Delever, our balance sheet as quickly as possible. So to the extent that we do have a non core asset that we receive.
And a good multiple for we are still looking at opportunities like that.
Okay, and then any specific with any specific segment.
And you guys might be looking toward.
Spinning off.
Just anything that's not directly related to refinery services, we've really made of.
The push toward moving our company that way so if it isn't directly tied to refinery services those would be more apt to be considered.
Alright. Thank you very much have a good day. Thank.
Thank you. Thank you.
As a reminder to ask a question and is star one on your telephone Youre on.
Next question comes from Patrick Fitzgerald with Baird. Please go ahead.
Hi, guys on.
How much just just.
And that clarification how much.
Net.
And Meg and lubricants.
How much EBITDA was and that 2020 numbers.
So for 'twenty and 'twenty.
And we actually had guided for around $1 1 million just for the Mega live it.
On assets that came in at about 315000.
You want to quantify that or clarify that a piece of our mega lubricants business resides within our land transportation and on Marine transportation.
And that number that I gave you did not include that piece.
Okay. So you sold that.
315000, and EBITDA this year and.
The 21 million and absolutely.
It would be higher because of because of the cash flow that was thrown off and the marine business and that and.
<unk> not Martin transport trucking business. So it's roughly three 3 million of EBITDA that we sold.
On a historic on coffee.
And then some of that and get some.
On the bottom of inventory right.
Yeah and thought about.
And of the sales proceeds I think it was roughly a little over $3 million of inventory.
Yes, that's correct.
Okay.
Alright, and then.
Yes.
Are there any other.
Maybe just color on assets. So my question, but are there any on there.
Deleveraging.
Asset sales debt.
And it could potentially help you with your.
Youre getting somewhat tied on.
And you have maintenance covenants, especially up in the third quarter of this year.
So I guess.
Is there anything like that on the horizon and how do you plan to deal with that.
Refinery utilization isn't quite as robust.
<unk> modeled out here.
And for.
For the first part of your question.
And having ongoing discussions and related to.
Asset sales debt will help for the deleveraging process, and we really don't want to get and tad or detail around that.
For your second question, we have a very supportive bank group.
As we move through the first quarter and.
And see how became sales go as far as moving from the fourth quarter to first quarter as we deal with this winter event.
And then as we index to.
And the vaccination being rolled out quicker and the economy recovering faster and we're monitoring those covenant levels and we would.
Address it with our bank, if we believe we need to do that.
Yes.
Okay.
Thank you for that and.
And then.
Just I'll have to go back through the call.
<unk>.
Trying to understand the explanation on the butane business and the fourth quarter, but I guess.
And I'm, saying are you kind of took away was maybe on edge state would have been $10 million higher and the fourth quarter.
Is that fair.
That's.
Pretty close and it probably be high single digits higher.
And we wouldn't have had hedges in.
The fourth quarter, the one thing that impacted our fourth quarter. This year different and other uses of volume much lower and sale.
And the fourth quarter of this year relative to.
Previous fourth quarters.
But high single digits is approximately where we would've been on hedge that's correct.
Okay.
Alright, Thanks, a lot.
Thank you.
And there are no further questions at this time I will now turn the call back to Bob <unk>, President and CEO for closing remarks.
Thank you and thanks to everyone for your participation today to reemphasize, our near term goal continues to be reducing our debt to a target level of 375 times, our annual cash flow by using free cash flow to execute this strategy.
Subject to the winter Vantiv last week, we feel very optimistic about our first quarter cash flows, especially in our butane and fertilizer businesses.
Now I would like to take a moment to make a comment about the coming energy transition strategy from hydrocarbons to renewables.
I believe this transition will be over a very long period of time and also believe.
Our geographic footprint and the long term relationships, we are serving some of the largest and most sophisticated refineries and the world positions our company well for the future.
And Martin we are and will continue to be committed to accelerate and safety and environmental stewardship through operational excellence and the coming year, we intend to speak more to the internal priorities and strategies that governance sustainability within our organization and the communities we work in and around.
Thank you again this concludes my remarks.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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