Q3 2021 Martin Midstream Partners LP Earnings Call
Ladies and gentlemen, disappear operator today's call is scheduled to begin momentarily.
Until that time your lines will again be placed on music hold thank you for your patience.
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Ladies and gentlemen, thank you for standing by and welcome to be M. M. L. P third quarter 2021 earnings call. At 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 today's conference is being recorded if you require any further assistance. Please press Star then zero I would now like to hand, the conference over to your Speaker today Sharon Taylor. Thank you. Please go ahead.
Thank you operator, and good morning, everyone.
Going by ball Bonder ants, President and CEO, Randy Tauscher, Chief operating Officer, David Cannon Controller, and Danny Cavin director of S. P 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 of Martin, including facts and assumptions related to the impact of the COVID-19 pandemic.
Actual outcomes could be materially different.
Should review the risk factors and other information discussed in our SEC.
I'm drillings and form your own opinions about Martin's future performance.
We will discuss non-GAAP financial measures on today's call. Please refer to the table in our earnings press release posted in the Investor Relations section of our website to find information regarding those non-GAAP financial measures.
<unk> our records.
Filiation 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 third quarter results Bob.
Thanks Sharon.
First I want to let our investor base and our employees know.
<unk> pleased with our performance in the third quarter.
We exceeded our internal EBITDA forecast by over $2 million.
As a result of the stronger third quarter performance I believe we are positioned to exceed the range of our disclosed EBITDA forecast of $95 million to $102 million for 2021.
Our third quarter performance, along with the anticipated fourth quarter performance will be a significant catalyst to helping us achieve our deleveraging goals.
This should set us up for a beneficial refinancing of our high cost secured notes next fall.
I truly appreciate every employee at Martin midstream for.
Together to help us positively position the company towards the refinancing of our notes.
Let's now discuss our third quarter performance by business segment.
Overall for the third quarter, we had adjusted EBITDA of $21 5 million compared to $22 5 million in the third quarter.
For 2020.
While our cash flow was less than a year ago as I. Just said, we did exceed our internal forecast by over $2 million.
Which I believe positions us to exceed our range of EBITDA guidance provided at the first of the year.
Our largest cash flow contributor for the third quarter was.
Quarter of doing and storage segment, which had adjusted EBITDA of $11 3 million compared to $14 2 million a year ago.
While our cash flow from this segment in this quarter was less than a year ago.
Was the strongest cash flow quarter in this segment this year, primarily due to strengthening margins in our packaged lubricant.
Turning grease business.
Compared to a year ago, the cash flow with the smack over refinery was down $1 3 million.
This was due to the scheduled contract adjustment to the throughput rate related to capital recovery fees, which became effective January 1st of this year.
Additionally, the refinery experienced.
Kent increased natural gas costs compared to a year ago.
However, the refinery is protected against any natural gas cost about $4 per mcf by throughput contract that runs through 2031.
The cash flow from our specialty terminals was down <unk> 9 million.
Compared.
And a year ago, primarily due to increased operating expenses for required mechanical integrity testing at our Beaumont area terminals.
This particularly testing requirement will not be repeated again for five years.
Finally in this segment our shore based terminals were down four 6 million compared to a year ago.
However, cash flow in last year's third quarter included the early termination of a commercial contract, which period extraordinary exit payment of $1 million.
So excluding the one time exit payment from a year ago, our shore based cash flow actually improved by <unk> 4 million.
Looking toward the fourth.
Fourth quarter, we should see similar cash flow performance in this segment compared to the third quarter.
Our next largest cash flow generator for the third quarter was our transportation segment, which had adjusted EBITDA of $7 6 million compared to $5 5 million a year ago.
The increase in this segment is from our land transportation.
Rotation business as cash flow increased $3 1 million in the third quarter this year when compared to last year.
Our load count was up 23% in the third quarter when compared to a year ago as last year's demand was very soft due to the pandemic combined with two major hurricanes that made landfall near.
Lake Charles Louisiana.
This impacted refinery utilization and chemical transportation demand.
Looking forward, we expect continued demand growth for our trucking services, which should offset the inflationary pressure on our cost structure and provide strong cash flow again in the fourth quarter.
Our marine transportation was down $1 million in the third quarter, when compared to a year ago.
However, when compared to the previous quarter, our cash flow in our marine transportation segment increased almost $1 million.
So we saw improvement to our marine transportation cash flow for the second consecutive quarter when compared.
Compared to the previous quarter we.
We believe this improving trend will continue into the fourth quarter as our asset utilization continues to slowly strengthen.
Our next largest cash flow generator in the third quarter was our sulfur services segment that had adjusted EBITDA of $4 9 million compared to $4 two.
A year ago.
Fertilizer had a very strong quarter, considering the third quarter is our seasonally weakest quarter.
Cash flow for fertilizer was $2 2 million in the third quarter compared to $1 6 million a year ago.
We had very strong demand in our Ats product line. This.
<unk> compared to a year ago accounting for the majority of the improvement.
Looking forward to the fourth quarter, we plan to take the Ats production facility down for turnaround in November. So we will have lower production volumes of Ats, which will limit some of our fixed cost absorption.
Offsetting.
This year is could be early demand from farmers of Ams product, which we manufacture in plainview.
And our pure sulfur side of this segment adjusted EBITDA was $2 7 million in the third quarter compared to $3 5 million a year ago, and $1 9 million in the second quarter.
Setting the compared to a year ago sulfur margins were down by 14%.
Also a year ago, we received a contractual settlement of $1 2 million that did not occur this year.
We also had no export sales out of our Stockton terminal in the third quarter solely due to the timing of sales opportunities compared to.
Go when we had two large export vessel sales.
More importantly, though is the point $8 million increase in cash flow from the second quarter of this year to the third quarter.
This is primarily a result of sulfur production in pad, three becoming more stabilized and approaching normal levels.
Youre looking toward the fourth quarter, our pure sulfur business should be similar to the third quarter due to a more stabilized refinery production environment in pad three.
Finally, I would like to discuss our natural gas liquid segment.
For the third quarter, we had adjusted EBITDA of $1 8 million compared.
The $2 8 million a year ago.
This quarterly cash flow difference can be explained by the timing of seasonal sales in last year's third quarter.
As deliveries to our refinery customers started earlier in the 2020 butane blending season.
As prices sit today, we are.
Paired to position to have a strong fourth quarter in this segment based on our carrying cost of inventory and storage compared to current market prices.
Now 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.
At quarter end, the total of our long term debt outstanding was $555 million, which consisted of $209 million drawn on our revolving credit facility $54 million of secured one five lien notes due 2024 and $292 million of secured.
Our second lien notes due 2025.
First lien leverage and adjusted leverage ratios were 172 times and 547 times, respectively. After adjusting debt for the working capital sub limit related to our NGL inventory volumes that are either forward sold or hedge.
Hedge.
As I reminded folks on last quarter's call. The third quarter brings an increase in working capital needs related to our butane optimization business as we began acquiring and storing inventory to be delivered to our customers and the butane blending season, which began in Q4 of this year continuing.
In Q1 of next year.
As a result, although transitory or leverage as it did this year should increase and peak annually in the third quarter as a result of higher working capital needs that occurred during our lowest cash flow quarter due to the seasonal nature of both.
Kane and fertilizer businesses.
In addition, this year due to rising commodity prices, our working capital requirements exceeded the maximum allowed sublimate reduction of $50 million.
As we move further into the blending season, we anticipate our working cap.
Little needs and our leverage to be significantly reduced as a result of increased cash flows from the butane optimization business and improvement in our earnings results as the impacts of COVID-19 continue to abate distributable cash flow for the third quarter totaled $5 2 million and 20.
$5 3 million through nine months of 2021 free cash flow calculated as DCF less growth capital expenditures and lease payments was $3 8 million for the quarter and $19 4 million year to date.
Gross capital totaled $1 4 million for the quarter and $3 3 million.
For the year with no changes to our guidance of between four and $5 million for the full year.
Maintenance Capex was approximately $2 9 million for the third quarter and $11 1 million year to date again, no changes to our guidance, which is between 17 and $19 million for the year.
And those numbers include our current forecast for maintenance Capex at the Bouchon terminal due to hurricane Ida.
Our EBITDA guidance has been between 95 and $102 million for the year, but as you have read in the press release and heard in Bob's remarks today at this time, we are positioned to reach the.
At end of that range.
Which will result in approximately $34 million in distributable cash flow and $26 million of adjusted free cash flow in 2021.
This concludes our prepared remarks for this morning, and I will now turn the call back to the operator for Q&A.
A heightened ladies and gentlemen at this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Again to ask a question please press star and the number one.
We will pause for just a moment to compile the Q&A roster.
Okay.
Your first question is from the line of Selman agile with Stifel.
Good morning.
Morning.
First of all we just start off on I guess, the pace of activity that youre seeing at refineries and.
I think you noted it was good for transportation.
But can you just talk a little bit about what you see.
You see that.
Rolling into Q4 and beyond.
Yes, so Ben this is Randy.
Hi, good morning.
Foundry utilization and that's really where we are primarily concerned.
It's continued to improve throughout the year.
At the end.
End of the third quarter in the fourth quarter, we've actually seen a decline really since hurricane either came through and knocked out some hurricanes in north Louisiana area, but seven of those nine refineries came came back on pretty quickly two of the nine are still down.
But in the last in the last month, we have seen in.
<unk> with about 88, 5% declined 87%.
[noise] excuse me in the last week it was down to between 82 and 83% that's.
Three refinery utilization.
Because it's a slightly heavier turnaround slate.
And then we have seen in the.
You know year and a half because of Covid.
Yeah.
Really don't have that.
For the turnaround so late in the first and second quarter next year yet.
I would anticipate it's going to be heavier than what we've seen in the last several years.
Got it. Thank you that's helpful.
It is of the two refineries.
Backup or use is one of those of your customers as well.
One of them.
Yeah.
No no they are not our customers.
The alliance refinery had a breach.
From flooding over there and they're going to be down for for some time and then the other.
Or is that it is not somebody we do business with.
Okay.
And then.
Just kind of going back to either our understanding is a lot of barge capacity was taken out.
Came rolling through did your assets get impacted and then.
You know is the strengthening of that market or the less capacity they're benefiting.
Refineries.
Well, we've heard that also.
We didn't have any of our barges impact us or any of our equipment was not impacted.
We are in the month of September really into the third quarter in general we did not see an improvement in utilization.
Or or not much.
Do you by any of this just a little improvement in utilization from the Q2 Q3 Q.
As we're looking at the first three weeks of October we actually have seen another impact or uptick in utilization.
And even for the first time this week and this is first time I can remember 15 months.
<unk>.
Have a wanted received calls from customers wanting to put marine equipment to work.
And we didn't have marine of equipment available to put to work for them. So.
So you know, we're a small part of the market and the marine world, but it but it sure seems like it's finally, starting to tighten in the Marine World.
From from what we've seen over the last 18 months or so.
But then just so I'm clear here do you have any excess capacity that you could put to work.
Anything rolling off that might roll on at higher prices.
We still have.
Four barges.
That debt without power we don't.
More for them, we can get power when a.
When we feel like we can put them to work and keep them utilize enough to bring the crews back in and take the fire of the power out on a full time basis to put put them to work. So so yes, everything we have available today, we have employed we do have some more equipment that we can put to work.
Neither.
Have powered buses all operating today I'd say, we're generally on shorter term contracts to some extent the market tightens.
And prices increase we can realize that all existing equipment fairly quickly I would say.
Okay. Thank you for that.
Thinking about sort of the forward curve for butane, it's backward dated I know you.
As signaled a strong <unk>.
For Q.
He is your <unk> already hedged and therefore.
Think of it as being locked in.
So our our hedge position is the same as the last time, we spoke 90 days ago or approximately 33%.
I don't.
Butane book.
And and you know.
90 days ago.
July Belvieu average price was a little over about 30 for the month.
And as we're sitting here today on the 21st October Belvieu average price for the month is about 30 cents higher than that so.
We.
We have chosen not to increase our hedge position.
We spoke a little bit about the last call because of the macro trends in the butane market.
We're favorable then and we consider them still to be favorable today.
Gotcha.
I'm sorry.
It's just going to say it and so as you look at it towards in November and December.
Remember, you're pretty confident there as well too.
Well, yeah, I mean, you're you're you're never another four market, but if you look at the you look at the fundamentals we looked at the.
The amount of butane being stored in inventory on the Gulf coast and around the country.
Is is very low.
If you look at.
The the.
Butane production, it's very similar to what it was a year ago. The butane exports are much higher than it was a year ago and it looks like that's going to continue to be the strongest core market for butane the.
W. T I continues to increase and in the Dr. Bob.
Bob in the butane spread.
Couple of days ago, even yesterday was 85, so very wide. So yeah. We think the fundamentals are in favor of the of the butane book at this point.
Do you have I don't.
Cost of service agreements and E C. P. I P P I adjustors.
I appreciate you calling out the natural gas above $4, but is there anything else you can point to get into a rising price environment.
Yeah, well for the first for the first part of May because I think we've done.
A really good job keeping up Oh.
Especially in the trucking business, we we've gone to our customers our customers.
Who are primarily large refiners and large cable companies understand and inflationary pressure and they understand the need for drivers and so we've been on an emphasis to increase driver pay.
And we can keep our driver pool, and we've done a really good job of passing those costs through and increasing our rates and you're you're seeing in the numbers in the third quarter.
And our trauma business, we have a CPI adjustments on an annual basis. So it just depends on the contract when those will roll through.
But.
But yes, we're protected there.
So I think we are positioned in a good place.
It's a tight market our customers understand the need for increasing rates and I think we've been a very effective and will continue to be alright.
Alright, thank you.
Again.
To ask a question. Please press star one on your telephone keypad again, that's star and the number one we will pause for just a moment to compile the Q&A roster.
Yeah.
Again Thats star one.
Okay.
Okay.
Okay.
Yeah.
Okay.
Yes.
Okay.
And there are no further questions I will now turn the call over to Bob Bondurant for closing remarks.
Okay. Thanks to everyone on the call. This morning I appreciate your interest in MLP.
You know I heard a quote now too long ago that stuck with me and although I really can't cite the source I wanted to share.
Eric do not confuse the topography of the path with the trajectory of the journey.
What does that mean why is that meaningful to our investors. Its a reminder, that the slight increase in leverage at the end of the third quarter was expected and is transitory due to the cyclical nature of our butane and fertilizer businesses.
And that looking forward.
We are positioned today for strengthening cash flows even as we manage supply chain disruptions and inflationary pressures.
As has been our focus will use those cash flows to delever, our balance sheet as a means of returning value to our unit holders, believing that ultimately debt reduction corresponds to unit appreciation.
Thanks, again to all and have a great day.
This concludes the N M L. P third quarter 2021 earnings call. Thank you for your participation you may now disconnect.
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