Q2 2021 Martin Midstream Partners LP Earnings Call
Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily until that time of your lines will again be placed on music hold thank you for your patience.
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Good day, and thank you for standing by welcome.
Welcome to the M and L. P second quarter, 2020.1 earnings call.
At this time all participants are in a listen only mode.
After the Speakers' remarks, there will be a question and answer session.
To ask a question during the session. Please press star 1 on your telephone keypad.
Please be advised that today's conference is being recorded.
I'd now like to hand, the conference over to Sharon Taylor. Please go ahead.
Thank you operator, and good morning, everyone.
Im joined by Bob <unk>, President and CEO, Randy Tauscher, Chief operating Officer, David Cannon, and our controller and Danny Cavin director of F. P&A.
Before we get started with our comment I'll remind you that management may be making forward looking statements as defined for the SEC.
The 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 COVID-19 pandemic the actual outcomes could be materially different and you should review the risk factors and other information discussed in our SEC filings and form.
And your own opinion about Martin future 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 segment of our website to find information regarding the non-GAAP financial measures, including a reconciliation of historical non-GAAP financial measures referenced in today's call.
And <unk> to their corresponding GAAP measures and.
And now I will turn the call over to Bob for his remarks on our second quarter earnings results.
Thanks Sharon.
To begin I would like to say that I am pleased with the first 6 months of performance and 2021.
And as it is on pace with the annual projected adjusted EBITDA of between $95 million to $102 million.
Also for the first 6 months, we have generated free cash flow of $15.6 million also in line with our internal free cash flow forecast.
Let's now discuss our second quarter performance by business segment.
For the second quarter, our overall adjusted EBITDA was 22, and a half million compared to $23.9 million and the second quarter of 2020.
The adjusted EBITDA and are terminating natural gas liquids and transportation services segment were very similar and this year's second quarter compared to last year's second quarter. The <unk>.
1 segment that underperformed compared to a year ago was our sulfur services segment, which I will discuss shortly.
Our largest cash flow contributor for the second quarter was our Terminalling and storage segment, which had adjusted EBITDA of $10.6 million, both this year and last year.
Even though our terminalling and storage cash flow was the same year over year. There was some variability within the segment.
The cash flow at the smack over refinery was down $6 million compared to a year ago.
This reduction was primarily due to the scheduled contract adjustment to the throughput rate related to capital recovery fees, which became effective January 1 of this year.
Offsetting this was a $6 million improvement over last year, and our lubricants and specialty products business.
Both of the supplier of packaged lubricants and packaged Greece's remain very tight coming out of the pandemic and as a result, we have experienced increasing sales volumes, which reflect current market conditions.
We continue to believe this market will remain and tight supply over the near term, which should positively impact of the third quarter.
Our next largest cash flow contributor and the second quarter was our sulfur services segment, which had adjusted EBITDA of $8.9 million compared to $10.8 million a year ago.
We were very pleased with the fertilizer portion of our sulfur services segment as it had adjusted EBITDA of $6.9 million and the second quarter compared to $6.8 million a year ago.
For the first 6 months, which is the primary earnings period for the fertilizer business, we had adjusted EBITDA of $14 million compared to $11.8 million for the first 6 months of 2020.
Moving to the third quarter, we will see the normal seasonal decline and Fertiliser earnings due to reduced demand.
As such we will perform the majority of our fertilizer plant and maintenance work to coincide with the reduced seasonal demand for our products.
This maintenance work also reduces our normal fertilizer production rates.
And as a result, we will see a normal decrease and cash flow for the third quarter and our fertilizer business.
And our pure silver side of the segment and.
Adjusted EBITDA was $1.9 million and the second quarter compared to $3.9 million a year ago.
Our pure sulfur volume was down 12% and the second quarter compared to a year ago.
This was driven by reduced production volume from our suppliers compared to the year ago.
Since our sulfur distribution system carries a significant amount of fixed cost dismissing incremental production volume from our suppliers as a significant negative impact of our cash flow.
Looking to the third quarter, we are anticipating and now seeing improved sulfur volumes from our suppliers, which should allow our pure sulfur business law and to produce cash flow more in line with our historical norms.
The third largest cash flow generator for the second quarter was our transportation segment, which had adjusted EBITDA of $5 million compared to $4.9 million a year ago.
Despite this consistent cash flow performance there was variability between our transportation business lines when comparing this year's second quarter for last year.
Our truck transportation business line net adjusted EBITDA of $5.5 million and the second quarter compared to $3.3 million a year ago.
We experienced a 19% increase and mileage and this quarter compared to a year ago.
Due to the pandemic last year's pad 3 refinery utilization was 76% and the second quarter compared to 89% and this year's second quarter.
The improvement of refinery utilization was the main driver and the significant recovery and the earnings this quarter compared to last year.
Our Marine Transportation segment had adjusted EBITDA of negative <unk> $5 million and the second quarter compared to $1.6 million a year ago.
A year ago in spite of overall demand reduction for marine transportation due to the pandemic, we still have several inland tows under term contracts at higher term rates.
And the second quarter of this year, our inland fleet was primarily in the spot market and reduce rates compared to year ago.
However, we are now beginning to experience slowly increasing demand for our marine transportation services as Patrick refinery utilization has continued to increase.
We will also see and improved cash flow and our offshore marine transportation as the 1 offshore tow and we have had sitting idle since January 1 went into service in late May under a new 6 month contracts.
As a result of the improvement in both the inland and offshore side of the business.
We expect marine transportation, adjusted EBITDA to improve and the third quarter compared to the second.
Finally, I would like to discuss our natural gas liquids segment.
For the second quarter, we had adjusted EBITDA of $1.7 million compared to $1.6 million a year ago.
As a reminder, the second and third quarters are seasonally weakest quarters for the natural gas liquids as refineries are accessing butane supply, which we moved to underground storage using both truck and rail transportation.
We then sell the stored butane inventories back to refiners and the fourth and first quarters.
Also our wholesale propane sales are minimal and the second and third quarter due to the warmer weather during these months.
Therefore, as a result of continued lack of significant seasonal demand and the third quarter for both the butane and propane we should see similar cash flow performance and the third quarter relative to the second quarter.
This concludes my operating performance discussion. So I will now turn the call over to Sharon to discuss our balance sheet liquidity and capital resources.
Thanks, Bob.
At quarter and the total of our long term debt outstanding was $526 million, which consisted of $180 million drawn on our revolving credit facility $54 million of secured 1 and a half lien notes due 2024 and $292 million of secured second lien notes due 2002.
5.
As of June 32021, our first lien leverage ratio and adjusted leverage ratios were 1.6 times and 531 times respectively.
And the second quarter begins our seasonal NGL inventory build I want to remind everyone that our debt ratio include adjustments from the working capital carve out supplement which allows us to exclude debt attributed to the NGL inventory build from the total debt portion of our leverage.
And if the volumes are either forward sold or hedged.
Looking back at the end of the first quarter adjusted leverage was impacted positively through the inventory working capital carve out by a reduction to debt of $8.5 million.
That carve out increased to $30 million at the end of the second quarter and inventory volume increase along with forward sales and hedge at this.
And this results and a reduction and adjusted leverage for them.
5 for 4 times to 531 times, even as total debt increased slightly.
Looking forward to third quarter, which is historically, our lowest cash flows due to the seasonality of our butane and fertilizer businesses, we anticipate leverage to increase slightly as we continued to build the NGL inventory and our trailing 12 month EBITDA still includes quarterly earning.
<unk> debt were significantly impacted by COVID-19.
However, our forecasted year end 2021.
Results and a significant reduction and leverage year over year as we continue to focus on reducing debt through free cash flow generation to reach our goal of 3.7 times adjusted leverage.
Our distributable cash flow for the second quarter of 2021, total $7.3 million and $20.1 million for the first half of the year.
Reducing that number for growth capital expenditures and capital lease payments results and calculated free cash flow of $6 million for the quarter and $15.6 million for the first 6 months of 2021.
Turning to capital expenditures maintenance Capex was approximately $2.4 million and growth capital with the $1.1 million for the second quarter for the year.
Net capital totaled $8.1 million, including $1.5 million and turnaround cost at the snack of of refinery.
Growth capital totaled $2 million for the year with the majority related to trailer conversions and the land transportation group.
Yesterday, along with earnings we announced the amendment of our revolving credit facility.
Due to rising commodity prices along with the continued negative impact of COVID-19.
We felt it appropriate to address anticipated tightness around our forecasted total leverage and interest coverage ratios, specifically and the third quarter as our working capital requirements are forecasted to be significantly above the working capital supplement Max and then due to the elevate.
And commodity prices.
In addition to addressing certain ratios, we reduced the commitments and 300 million to $275 million in order to rightsize, the borrowing facility, while still retaining ample liquidity.
Our 2021 guidance remains the same and as outlined on page 6 of the slide deck and our press release.
EBITDA is still expected to be between 95 and $102 million with no changes to our forecast of $17 million to $19 million and maintenance Capex, which includes the refinery turnaround and growth Capex remains between 4 and $5 million.
This calculates to distributable cash flow of $29 million to $34 million and adjusted free cash flow of $22 million to $26 million on an annual basis.
This concludes our prepared remarks for the morning, I will now turn the call back to the operator for Q&A.
Thank you at this time, if you'd like to ask a question press star and the number 1 on your telephone keypad again that is star 1.
And your first question is from Selman <unk> of Stifel.
Okay.
Thank you good morning.
Good morning, gentlemen.
Can you talk maybe a little bit about you said your supplies of sulfur were down this quarter, which I would've thought it was a function of.
And where utilization and then obviously you noticed you noted transportation was up due to higher <unk>.
Utilization of that the refinery. So can you maybe just talk about those 2 pieces.
Sure This is Randy.
And then thanks for the question so regarding the sulfur.
So for at the beginning of the Covid, obviously took the.
It was 1 of your utilization went down so for the <unk>.
Deliveries into Beaumont.
Declined significantly and then we went the other occasions and we went through the winter storm.
And even even and the second quarter. When you look at the first half of the year delay.
Deliveries and to Beaumont, and it was well below even with the increasing utilization for the second quarter was well below the historical.
And so.
And that's just it's just that the.
And issue the sulfur business has had to overcome the good news is in the <unk>.
First 3 weeks of July the.
So for deliveries into Beaumont have increased significantly from where they were the first half of the year plus 20%.
And to Beaumont.
So sort of the refineries as a is it getting back to there the low 90 percentile.
And our area.
I havent spoken with him, but I'm surviving and they've up there still for content and the crude a little bit and so we've seen the scope for deliveries.
Increase of Cigna.
Significantly and so that's good news for the sulfur business going forward is as far as MTI.
And that's driven by a lot of things.
And the refineries included but also the petrochemicals.
The big for the MTI because of the whole lot of the lubricants out.
Of that of more of the lubricants.
The processing plants.
So that's the MTI is driven by a lot of things on top of the refinery.
I've seen a lot of the strength of that business.
Got it. Thank you and then just in marine transportation, you've talked about and.
Offshore.
And so went into service for 6 months.
Any thoughts on how that.
Would be re contracted for me because it just go back to being idle or do you think youre seeing a pick up and you would anticipate that being free contract to the longer term.
So we moved the and 6000 for the Gulf Coast, where it had been.
Employed.
Years ago, and then the sitting more in the last couple of years and it's actually been utilized we moved it up to the northeast and we have.
And on 6 month contract.
With a customer in the northeast.
And we're hopeful of that goes very well and that will continue to operate up in the northeast with debt unit ongoing.
Understood.
And then on the Capex you talked about it as terms of I guess it sounded like maybe you're expanding capacity for the transportation segment.
So far in terms of.
And what you've invested and this year should we think of the balance of the Capex growth Capex budget being the same for the same kind of items.
Yes that that was related to some of our trailers and.
And I think so I think when we're looking at growth Capex, we've refocused on the and land transportation businesses. We don't have any other large growth capex planned for any of the other segments.
Alright that does it for me thank you.
Thank you gentlemen.
And again as a reminder to asking the question Press Star 1 and your next question is from Patrick Fitzgerald with Baird.
Hi, Thank you for taking the question.
How is the butane business given what's going on in the pricing.
Tracking for the fourth quarter 'twenty, 1 and the first quarter of 22 versus the fourth quarter, 'twenty and first quarter 'twenty 1.
Given the risk.
Hedging issues last year and.
Prices have moved up so.
Any color on that would be helpful.
Okay.
This is Randy Patrick.
So when you think about the butane business.
The issue relative to last year and there's a lot of difference is last year, we watch.
Crude was much lower last year, our prices of inventory prices into the hole.
Lower than they are this year.
This year of the when you look at the butane CWT ice Brent.
Excuse me it's about the.
The 70 ish percent 70, 273 currently that's higher than you would typically see.
And on a year.
But there's good reason for that and Thats the fundamentals.
And we've seen steel production for butane and very similar year on year, and we've seen exports volume significantly year on year. Most of the same story of the speed of the propane business the price would be.
And the places where do you think business.
And so where are we at this year, we can't sit here today and give you.
A poorer prediction of financially how we're going to do we have started putting on the hedge position.
Which is a little bit earlier than we were able to a year ago.
Approximately a third and at this point and time.
And the fundamentals are favorable.
To us.
You know, we're still in the middle of the build season.
And we're still several months of away from the beginning of the sales season.
Okay and so any.
I mean, I know, there's a lot of moving pieces, but the.
I mean would you expect it to be.
Up down from last year or what.
And you just can't say.
Every day.
Season and view.
Thanks.
Jake.
And I stopped.
And really cant give you a projection relative to what we achieved last year.
Okay.
Okay and.
In terms of your.
It sounds like.
Free cash flow in terms of operating cash flow of minus capex.
There's going to be pretty back end loaded given the you know.
The NGL working capital and everything.
I mean do you expect free cash flow to be pretty close to your adjusted free cash flow guidance.
Yes, we do that is coming straight from our projection of numbers and we would expect to be right within that range.
Okay. So you have.
Like the 1.5 lien notes I believe there and start they're callable soon.
And and you know you obviously got an amendment on the revolver would you want to take care of kind of the top part of the capital structure.
Before you can deal with the second lien notes are or how you're thinking about that.
So the second lien notes are callable August of 2020 Q the.
And 1 and a half of.
Our callable now at a premium I think it's 1 of the 3 next August and there'll be 1 of 2 and 1 on 1.
So as we sit here today and look at the capital markets. We certainly wish that we had the ability to take the Kols out right now and we don't and we're gonna have to sit and wait and and my thought at the moment and that when we get and teams that August timeframe next year, we're looking at redoing the entire capital.
Structure of the revolver and the Kols and at the same time and then if it makes sense, obviously, the 1 and a half.
Okay, Yeah that makes sense okay. Thank you.
Thank you.
And once again, if you would like to ask a question press Star 1.
Your next question is from Jason Mandel of RBC capital markets.
Good morning, Jami. Thanks for good morning, how are you. Thank you for the time and.
Bunch of my questions were just answered and that last question, but maybe just a quick follow up on the revolver Amendment.
So the the revolver was amended to give a little bit of a room under the covenants for a potentially weak working capital quarter.
What what what is right now the available liquidity.
Last quarter, there was limitations on the availability due to covenants and obviously now we have changes what is the actual dollar amount that's available right now.
And I can say at 630 or maximum available would have been $220 million. So we had about $40 million at that time that would've been available.
Okay, Great. That's very helpful. All right. Thank you very much.
Alright, thank you.
Yeah.
Thank you there are no further questions at this time I will turn the call back over to Bob Bondurant for closing remarks.
Thank you Christie.
In summary, our outlook for the second half of the year remains positive as of our economy continues to recover refinery utilization has improved and at this time is only a small percentage. That's the historical norms that improvement is showing up and increased customer demand for our services.
Before concluding I want to take a moment and discuss the ongoing COVID-19 pandemic, including the Delta variant.
And while acknowledging that the delta variant and spreading we believe that consumer and industrial demand will continue to recover and while politics is certainly a factor so no real risk to a country wide shutdown like we experienced last year.
And the evidence is overwhelming that those who are vaccinated are highly protected.
And if they are diagnosed positive the severity of their illness and the risk of debt is greatly lessened.
While the and vaccinated.
Face and elevated risk there are smaller percentage of the U S population.
So of cases for the and vaccinated may continue to rise, but overall hospitalizations and mortality should not.
So and our view the economic recovery will continue for.
<unk> returning to their offices increased business and leisure travel and rich.
Turning to what we regard as normal all of this points toward our continued robust increase in demand.
I'd like to thank everyone, who listen and on the call today looking forward to speaking with you again next quarter. Thank you.
Yeah.
And thank you. This does conclude today's conference call you may now disconnect.