Q1 2021 Martin Midstream Partners LP Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the and N. L. P. First quarter 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session you'll need for 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 and.
And now like to hand, the conference over to MS. Sharon Taylor Chief Financial Officer. Please go ahead.
Thank you operator, and good morning, everyone.
I'm joined by ball, Bonder, and President and CEO, Randy Tauscher, Chief operating Officer, David Cannon Controller, and Danny Cavin Director of F. D N a.
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 the future performance and Martin, including facts and assumptions related to the impact of the COVID-19, pandemic, but actual outcomes could be materially different.
And you should review the risk factors and other information discussed in our SEC filings and form your own opinions about Martin future performance.
We'll 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.
A reconciliation of historical non-GAAP financial measures referenced in today's call to their corresponding GAAP measures.
And now I will turn the call over to Bob for his remarks on our first quarter earnings results Bob.
Thank you Sharon.
I would like to start the call off by saying I was very pleased with our cash flow performance and the first quarter as we exceeded our internal guidance in spite of the extreme freeze caused by winter storm Yuri.
As we all know this winter storm had significant impact to the Gulf Coast refineries and also had significant impact to our land transportation business.
Again in spite of the impact just by this winter storm, we exceeded our internal guidance by more than 10%.
Our first quarter adjusted EBITDA for 2020, one was $30 9 million compared to 31 million for the first quarter of 2020.
However included in last year's first quarter EBITDA was $2 7 million of nonrecurring business interruption insurance proceeds that were related to our Pearl and sulfur ship loader casualty losses, which occurred in may of 2019.
Also last year's first quarter included <unk> 5 million of EBITDA for Mega Lubricants, which was sold in December of 2020.
So without business interruption insurance proceeds and net cash flow contribution of the Mega lubricants business last year's first quarter. Adjusted EBITDA would have been $27 8 million compared to this year's adjusted EBITDA of $30 9 million.
Now first let me begin the operating performance discussion by focusing on our natural gas liquid segment, which was our largest cash flow contributor and the first quarter.
This segment contributed adjusted EBITDA of $12 2 million compared to five and a half million a year ago.
This cash flow improvement was primarily a result of the strong performance of our butane logistics business.
Driving our butane logistics performance was the strong Mont Belvieu price of butane for the first quarter, which to average 88 and January 19 for since in February and on a dollar to and March.
These prices were significantly above our inventory carrying costs.
We did have approximately 50% of our first quarter butane sales covered with financial hedges at prices less than the average first quarter market prices, but still greater than our fourth quarter average prices.
As a result of our butane adjusted EBITDA was $10 3 million and the first quarter.
Compared to $3 for me in a year ago and <unk>.
Paired to $1 million and the fourth quarter of 2020.
So as we think about the butane and selling season for the fourth quarter of 2020, and the first quarter 2021, we.
We had combined adjusted EBITDA of $11 3 million.
This includes butane hedge losses of $1 7 million and the first quarter of 2020 one and.
$8 1 million and the fourth quarter of 2020.
As a result of these hedge losses, we experienced a negative impact and our butane logistics business for the selling season and nine 8 million.
This was the opportunity cost we experienced in order to protect our downside risk.
Obviously, our net.
Originally we would've been better off by not hedging our inventory. This particular be trained and selling season. However, going forward. We will continue to have some level of our butane inventory and storage and order to continue to protect the downside risk for this business line.
Our second largest cash flow generator and the first quarter was our terminal segment.
This segment had adjusted EBITDA of $10 6 million and the first quarter compared to $11 5 million a year ago.
This segment also included a half a million of adjusted EBITDA for them.
Meg and lubricants business and last year's first quarter.
So factoring that out on last year's cash flow are terming segment's cash flow was down approximately <unk> 4 million from a year ago.
This reduction was primarily driven by the scheduled contract adjustment to the per barrel throughput rate related to capital recovery fees and our smack over refinery, which became effective January one 2020 one.
As we look toward the second quarter, we should continue to see similar cash flow and our terminix business due to the primarily fee based contractual structure of this segment.
Any cash flow variability and this segment usually comes from our margin base Martin lubricants business.
However, the outlook for Martin lubricants remains strong due to the tight supply of packaged lubricants and Greece <unk>.
Combined with increasing demand for our products as the country recovers from the pandemic.
Now I would like to discuss the two business segments that have been affected by the pandemic and where.
Were also affected by winter storm here.
Due to reduced refinery utilization on the Gulf Coast.
These two segments are our sulfur services segment and our transportation segment.
Before I get into detailed discussions of these two segments I want to lay out how pad three refinery utilization was impacted by winter storm here.
For the first six weeks for the quarter.
I had three refinery utilization averaged 84%.
Still down from the pre COVID-19 norms of approximately 95%.
Due to the impact on winter storm here for the next for weeks refinery utilization averaged 59%.
Recovering two and an average of 82% for the last three weeks for the quarter.
With this background lets move to the discussion of our sulfur services segment.
For the first quarter. This segment had adjusted EBITDA of $9 2 million compared to $10 1 million a year ago.
And our pure sulfur side of this segment adjusted EBITDA was $2 1 million and the first quarter.
<unk> to $5, two main and the first quarter a year ago.
A year ago, we had $2 $7 million of business interruption proceeds that are non recurring so eliminating those proceeds provides a comparable basis of two and a half million and EBITDA for $2 1 million for first quarter of this year.
This minimal cash flow decline was the result of reduced sulfur production due to reduced refinery utilization as a result of winter storm Yuri.
The other piece of the silver serves this segment is our fertilizer business, which had adjusted EBITDA of $7 1 million and the first quarter.
Impaired to for 9 million a year ago.
Our fertilizer volume, so and the first quarter was 28% greater this year than last year.
Commodity prices for corn, soybeans, and wheat had been higher this year compared to last year.
Helping drive increased fertilizer demand from our customers.
In addition, last year's wet weather conditions delayed the planting season impacting fertilizer sales negatively and the first quarter of 2020.
As we look towards the second quarter, we should see improved performance and the pure sulfur side of the business as expected pass through refinery utilization or was it the current utilization rate of 86% for.
Or improves.
Our fertilizer cash flow should continue to be strong and the second quarter.
And though most likely not as strong as the first quarter.
It is our opinion debt sales volume will be slightly less and the second quarter as the demand from farmers will be reduced compared to the exceptionally strong first quarter demand.
The final segment that was impacted by the freeze during the.
First quarter was our transportation segment.
The first quarter adjusted EBITDA for both land and Marine Transportation was $2 7 million compared to $7 9 million a year ago.
Our land transportation and adjusted EBITDA of $3 7 million and the first quarter compared to $4 8 million a year ago.
Compared to a year ago, our load count was down 17%.
Part of this low count reduction was due to the pandemic, but some of it was due to winter storm here.
During the first quarter, our daily load count averaged 375 and January dropping to $2 90 and February as a result of the winter storm.
And increased to 384 and March.
This reduction and the February daily low count was caused by both the icy roads and our area of operation and from the negative impact of the freeze on refinery utilization on the Gulf Coast.
Looking toward the second quarter, we should see improvement and the adjusted EBITDA of land transportation as this market is now very tight.
For the supply of trucking capacity compared to increasing customer demand.
As a result, we are beginning to receive rate increases from our customer base.
Our marine transportation business had adjusted EBITDA of negative $1 million compared to a positive $3 1 million a year ago.
And this segment the winter storm exacerbated the lack of demand caused by the pandemic from our refinery customers.
Our utilization with our in and third party customers was approximately 60%.
And to 86% a year ago.
For the fourth quarter of 2020, our third party inland utilization was only 41%. So there was utilization improvement over the prior quarter.
We continue to operate under spot contracts at lower rates compared to operating with a majority of term contracts a year ago.
And looking forward, we continue to believe marine transportation will be weak for at least another quarter before beginning to recover and refinery utilization should improve this summer as a result for the country continuing to overcome the pandemic shut down.
This concludes my operating performance discussion. So I will now turn the call over to Sharon to discuss our balance sheet capital resources and liquidity.
Thank you Bob.
At quarter and the total of our long term debt outstanding was 522 million, which consisted of $176 million drawn on our 300 million revolving credit facility $54 million of secured one and a half lien notes due 2024 and 292 million.
On a secured second lien notes due 2025.
During the quarter $29 million of senior unsecured notes matured and were redeemed using revolver availability, resulting in an increase to the revolver outstandings of $28 million quarter over quarter.
As of March 31, 2021, our first lien leverage ratio and adjusted leverage ratio or 177 times and five for four times respectively.
Our adjusted leverage ratio increased slightly from last quarter, even as debt was reduced.
And this is attributable to the working capital carve out related to our seasonal NGL inventory, which totaled 21 million on December 31, 2020, and 9 million on March 31 2021.
At this time, we expect leverage to remain elevated for the third quarter of 2021, and then begin to lower and fiscal quarters, where earnings were impacted significantly by COVID-19 are no longer a component of the leverage calculation.
Our distributable cash flow for the first quarter of 2021 totaled $12 8 million.
We do think that number for gross capital expenditures and capital lease payments results and calculated free cash flow of $9 6 million.
Management continues to focus on retaining cash flows and further our debt reduction to reach our goal of 375 times calculated leverage as always evolving credit facility covenants restrict us from increasing our distribution from the current and Houston annually until our leverage drops.
Flow that ratio.
Capital expenditures for the first quarter were as follows for.
For <unk> 2 million and maintenance Capex, $1 5 million and turnaround cost at the snack over refinery and 800000 and growth Capex.
We expect the total turnaround cost to be slightly less than budget as noted in our earnings release, we were able to minimize refinery downtime I beginning turnaround preparation during winter storm here.
Our 2021 guidance remains the same and as outlined on page five and the slide deck linked in our press release.
We expect EBITDA of between 95, and 102 million maintenance capital expenditures of between 17 and $19 million, which does include the refinery turnaround and growth capex of between four and $5 million.
This leads to distributable cash flow of 29% to $34 million and adjusted free cash flow of 22 to 26 million that is all on an annual basis.
This concludes our prepared remarks for this morning, and I will now turn the call back to the operator for Q&A.
If you'd like to ask a question at this time. Please press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key well pause for just a moment to compile the Q&A roster.
First question comes from Selman <unk> with Stifel.
I appreciate all the detail in the prepared comments I guess really.
If we could just sort of addressing in terms of think about marketing and how does that look for the second quarter on.
Prices continued to be strong for the Ngls and I don't know.
I know it's seasonally.
Usually weaker but was there any uplift from the stronger prices.
Yes, some of them.
This is Randy for.
The question yes.
Second quarter is a.
A slow time for our NGL business because.
And the butane season, and and the propane season, both and February and March timeframe, and and now were and entering into the part of the season, we're starting to.
And think about building our inventories for the next winter season, and so so the first quarter April and May as generally is the slow time and.
And building the inventories and that they'll starts picking up.
As we get later into the summer.
For for for propane sales that has definitely slowed down significantly as the weather has improved.
Still are seeing some butane sales going out in April.
We think we have some demand.
With what we had and inventory being shipped out.
I think April we will still see a pretty good number from butane business, but then after that I wouldn't expect to see much from the NGL businesses until we get to next fall.
Very good I appreciate that and then just thinking about transportation and getting very appreciate it in terms of thinking about sort of daily load counts by month.
Can you just say what youre seeing in <unk>.
April so far and how its tracking maybe to March is it for.
Flat with March or do you think it might be up.
April looks an awful lot like March.
March was a very good month for the MTI business.
Martin Transport February we got clobbered, obviously, with the freeze and low count and the mileage and and.
And everything for two to three week period.
And when real low on us, but March was a good month.
For all through 221 days has proven to be very good month demand is strong for our trucking services right now and getting stronger and we think that's going to continue through the summer.
Alright, Thank you very much.
Thank you.
Once again to ask a question. Please press star one on your telephone keypad once again Thats Star one and we have a question from Patrick Fitzgerald with Baird. Please go ahead.
Yeah, Hi, guys.
Good morning could you just could you just clarify.
I think you've talked about your your leverage.
And third.
You know remaining elevated through the third quarter and then dropping.
How do you feel with.
Covenant headroom.
I think that is.
As we look at our EBITDA projections of between 95, and 102 million and we remain within our covenants.
As you know our third quarter is typically our weakest quarter just in terms of the seasonality of our business. So where there is a you know a little bit of tightness, we see that and the third quarter and but again all of our internal projections show that we are well within our covenants.
Going forward.
Mhm, Okay and then in terms of you said you were at $3 7 million higher and then.
Budgeted internally.
I'm just wondering is that.
You gave guidance.
<unk>.
95 to one or two.
So was that like three $3 7 million.
Kind of better than you thought when you gave that guidance or was that just kind of based on.
And the quarter, obviously, you had some difficult.
<unk> aspects to it this year.
And there's a lot on this board there's a lot of give and takes on that I think you know my COO.
Comments earlier about the fertilizer business, we probably had some of the benefit there that we'd probably forecast and maybe a little bit and the second quarter.
But there, but we're seeing the trucking business, probably running at a stronger than what our internal forecast might've been within the marine business, maybe a little bit weaker than what we had been so I think as you net net this all these puts and takes it's probably.
Feeling somewhat and somewhere in the midpoint of that 95 to one or two at this time.
Okay and.
And then you know fertilizer you said the second quarter is going to be down sequentially I think.
Is that down year over year as well.
Oh.
[noise] I don't have a sick and affordable last year in front of me.
And your memorandum and I have it here yes.
I would anticipate we're going to be down year over year from last year and and the reason for that is is because our sales and the first quarter.
This year 2021 were very strong for sales volumes.
And so our inventories that we have available to sell and the second quarter. This year.
And our less than what we had.
A year ago, and the second quarter.
So we still anticipate a strong second quarter, but from the second quarter 2020 I would expect we will not hit that same number.
Okay and.
And are you guys comfortable with the you know the assets you have currently or is there any opportunity do you think to sell and are attractive multiple any of yours are smaller.
Smaller segment and smaller businesses.
I think debt.
And we've discussed we are open to looking at divesting and some of our non core asset if the and.
If the rate is appropriate.
Think that during this time as kind of.
I don't know, if we Wanna say post COVID-19, but maybe just leveling off.
And Ah Covid, we still don't think that the multiples are there and we are exploring and we continue to look at ways that we can delever, a little bit quicker than just relying on our annual earnings.
Okay. Thanks, a lot.
Thank you Patrick.
Once again to ask a question. Please press the Star then the number one on your telephone keypad.
And you do not have any questions at this time and I'll turn the call over to Mr. Bonder and.
Thank you.
I'd like to thank everyone today, who participated on the call.
Despite winter storm here and continue to demand destruction from Covid impacting refinery utilization, we had a strong first quarter.
As I spoke to and our last earnings call. We were highly optimistic around both the butane and fertilizer business and we were not disappointed as both business businesses outperformed expectations.
As we look forward our emphasis remains on optimizing our assets to maximize free cash flow and order to reduce debt and strengthen the balance sheet.
Our target of three seven times leverage remains and know it will take time, we will continue to make this a priority.
Last I'd like to commend our employees, who have been committed to supporting Martin with remotely or on location on a marine vessel on a truck or wherever they may have been the last year has been difficult for folks professionally and personally our employees have been diligent regarding the health and safety of each other as well as.
The communities, where they work and live.
I appreciate how COVID-19 has been and applaud their dedication and ingenuity to get the job done. Thank you.
And this concludes today's conference call you may now disconnect.
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