Q1 2021 Holly Energy Partners LP Earnings Call

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Welcome to the Holly Energy partners first quarter 2021 conference call and webcast at this time all participants have been placed in a listen only mode.

The floor will be opened for your questions. Following the presentation. If you would like to ask a question and at that time. Please press Star then the number one on your Touchtone phone if at any point. Your question has been answered you may remove yourself from the queue by pressing the pound key.

If you should require operator assistance, please press star zero and.

We ask that you. Please pickup your handset to allow optimal sound quality. Please note that this conference is being recorded it is now my pleasure to turn the floor over to try and Fanta trade may begin.

Thanks, Sean and thank you all for joining our first quarter 2021 earnings call on.

<unk> shown on here with Investor Relations and for Holly Energy partners.

Joining us today are Richard Oliver President and John Harrison Senior Vice President and CFO. This morning, we issued a press release announcing the results for the quarter ending March 31, 2021, if you would like a copy of today's press release, you may find one on our website at Holly energy Dot com.

Before rich and John proceed with their remarks. Please note the safe Harbor disclosure statement and today's press release.

In summary, it says statements made regarding management expectations judgments or predictions are forward looking statements. These statements are intended to be covered under the safe Harbor provisions of federal Securities laws.

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

Today's statements are not guarantees of future outcomes.

Also please note that information presented on today's call speaks only as of today may four 2021 anytime.

And any time sensitive information provided may no longer be accurate at the time of any webcast replay or reading of the transcript. Finally today's call may include discussion of non-GAAP measures.

Please see today's press release for reconciliations to GAAP financial measures.

And with that I'll turn the call over to rich.

Thanks, Trey thanks to each of you for joining our call. This afternoon.

<unk> generated solid results and the first quarter revenue remained stable as compared to the first quarter of 2020 despite.

Despite a decrease and overall volume due largely to the impact of winter storm here.

From Holly Frontier's Tulsa refinery.

And the and the petroleum refinery operations, and Holly Frontier's and Cheyenne refinery.

And then.

<unk> itself experienced no damage from Yuri Thanks for the great work of our personnel and the field.

On the refined product side, we continue to see demand improvement for transportation fuels and across our regions and we anticipate incremental demand as we head into the summer driving season.

During the quarter, we announced a 35 per LP unit quarterly cash distribution to be paid on may 13th to unit holders on record as of May 3rd.

We intend to hold the distribution flat during the year and plan to use excess cash flow after capital investments and distributions for further deleveraging.

Turning to project updates due to the year to date accumulation of weather related delays are Cushing pipeline is now expected to be in service in early July.

And the Navajo tank project is currently on schedule and budget with an expected startup later this month.

We continue to make progress on the frontier pipeline expansion, which is currently on schedule and expect it to be and service and the fourth quarter of 2021.

Looking forward, our focus remains a consistent operational execution.

Continue to see improvement across our markets.

And I'll now turn the call over to John.

Thanks, Rich for the first quarter of 2021 net income attributable to Holly energy partners closed $64 4 million.

Compared to $24 9 million and the first quarter of 2020.

The increase was primarily due to a $25 million gain on sales type leases, partially offset by an $11 million goodwill impairment charge and collectively increased net income by approximately $14 million versus first quarter, 2020, which had a $26 million early extinguishment of debt charge.

First quarter 2021, adjusted EBITDA was $87 9 million.

Compared to $91 1 million and the same period last year, a reconciliation table, reflecting these adjustments can be found in our press release.

During the quarter <unk> generated distributable cash flow of $73 2 million and increase of $2 5 million compared to the same period last year. Our distribution coverage ratio was just under two times for the current quarter.

Capital expenditures and joint venture investments during the quarter were approximately $33 million.

Which includes $18 million per the Cushing connect joint venture.

For full year 2021, we expect to spend between 49% and $61 million and total capex inclusive of our share of joint venture investments and we expect to fund all capex with cash generated from operations.

As of March 31, <unk> had $1 4 billion of total debt outstanding.

<unk> and a $500 billion of senior notes due 2028 and $896 million drawn on our revolving credit facility.

On April 30, we successfully extended the maturity of our revolving credit facility to July of 2025, and right size the facility to $1 2 billion consistent with our deleveraging strategy.

The key financial maintenance covenants remain unchanged under the amended facility.

Our liquidity at the end of the first quarter was approximately $525 million and our debt to trailing 12 month adjusted EBITDA was right at four times during the quarter, we repaid approximately $18 million on our revolving credit facility and absent any growth opportunities. We plan to continue using retained cash flow to further <unk>.

<unk> leverage down to our target range of three to three five times.

Now I'd like to turn the call back to the operator for any questions.

Thank you the floor is now open for questions. If you would like to ask a question at this time. Please press Star then the number one on your Touchtone phone if at any point. Your question has been answered you may remove yourself from the queue by pressing the pound key.

Again, we ask that you please pick up your handset to allow optimal sound quality.

On a moment.

Your first question comes from the line of spiral Donlin from credit Suisse.

Hey, rich and John Hey, Andrew and.

<unk> per hour you don't.

Oh Wow.

Rich I was hoping you could talk a little bit about some of the segments.

And the business and there may be still to some degree lagging pre COVID-19 levels and now we're kind of almost back to normal here, but just curious if there's any segments that really haven't picked up like the others and to the extent that we will actually see a recovery there will go up and up.

Or has that been something that lethal now and have been largely attracted a shielded by mvc's.

And a fair I think there's probably a couple of places where we've got some.

Some slack if you will relative to pre COVID-19 and wanted to be crude gathering.

We're we're not shipping as much volume up to Cushing as we were previously.

And there I think it's a little more demand in general would help that out.

<unk>.

Charlotte has seen less demand on pre COVID-19 levels, and I think thats a function of Vegas demand.

Especially vis vis salt Lake city, so as we see demand recover there, where we expect to see more volume on <unk>.

And those will be the two that probably have and have slack versus the pre COVID-19 range.

Got it okay, so just a little bit towards the upside there on the recovery.

Second question, maybe sticking with NBC that bad, but just thinking about the outlook.

And like you said backdrop, improving getting real close to normally are and generally speaking.

And I guess over the next few years correct me, if I'm wrong, but I think there is anywhere between 30% to $40 million per year of mecs or at least is kind of rolling off of expiring and.

Just curious how we should think about your position on that front and are.

Are these assets that are highly utilized now and will continue to be just try and get a sense of how much we should risk risk any of that if at all.

No. These are all spiral pretty highly utilized assets and remember these are all assets that are.

Our critical infrastructure funds.

Binaries that we serve.

So we're expecting to see these commitments renewed going forward and are really.

Obviously and the last year on year and a half Cheyenne has been the place that you Havent change.

But I think that was specific to the competitive nature of that refinery, we don't see that kind of risk with any of the other refineries that we serve.

Okay good to know.

Last one if I could sneak it and just a quick housekeeping question.

And sorry, if you addressed this but it looks like tariffs not recorded as revenue we're closer to $70 million. This quarter I think typically that numbers that have been on.

Maybe closer to $2 million to $3 million I'm curious what drove that uptick on that line item and if thats something thats going to be sustainable.

Sure. So we did have some new sales type lease adjustments.

Particularly related to the Cheyenne assets as well as.

Our lubes rack at Tulsa.

And so that's what drove it and it is going to be recurring.

So youll see kind of that those two adjustments netted together of a positive $5 million on.

On a quarterly basis going forward.

Great and makes sense.

Thank you gentlemen, and stay well.

Thanks Darryl.

Once again, if you do have a question. Please press star one on your Touchtone phone at this time.

Okay and there are no further questions and I will turn the floor back over to Trey for any closing remarks.

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

This concludes.

Today's conference call you May now disconnect. Thank you for joining and have a great day.

Okay.

And then.

Good day.