Q2 2022 Martin Midstream Partners LP Earnings Call
Good morning, My name is Chris and I'll be your conference operator today at.
At this time I would like to welcome everyone to the N F. L. P Q2, 2022 earnings call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
He would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
To withdraw your question. Please press star one again.
Thank you Sharon Taylor Chief Financial Officer, you May begin.
Thank you operator, and good morning, everyone with me on the call today are Bob <unk> CEO , Randy Tauscher C O O 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 the 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 in our SEC filings and form there.
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, including a reconciliation of historical.
Stork, all 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 second quarter 2022 results Bob.
Thanks, Sharon for.
For the sixth consecutive quarter Martin Midstream partners exceeded its EBITDA forecast is our second quarter 2022, adjusted EBITDA was $38 3 million compared to our published forecast guidance range of 23% to $25 million.
All four of our business segments beat our forecast in the second quarter. The significant majority of our outperformance came from our transportation and sulfur segments, which I will discuss shortly in more detail.
We believe the fundamentals in several of our business lines continued to remain strong in spite of the current inflation rate and current recessionary fears based.
Based on our revised outlook, we have increased guidance for the remainder of the year.
Our new guidance range for 2022 is now 126 million to $135 million.
Now I would like to discuss our second quarter performance in more detail by business segment.
Overall in the second quarter as I mentioned earlier, our adjusted EBITDA was $38 3 million compared to adjusted EBITDA of $22 5 million in the second quarter of 2021.
For the first six months of 2022, our adjusted EBITDA was $78 3 million compared to $53 4 million for the first six months of 2021.
For the second quarter, our largest cash flow contributor was our transportation segment, which had adjusted EBITDA of $14 6 million compared to $5 million a year ago.
Land transportation portion of this segment continues to improve its performance as adjusted EBITDA was $12 4 million compared to $5 5 million a year ago.
During the second quarter, our daily load count averaged 475 loads per day compared to 401 a year ago.
We have also increased our driver count 13% from a year ago.
This growth has been driven by strong demand from our refinery and lubricant customers.
Also we have expanded our trucking operations at our central Florida in order to service growing fertilizer demand.
Overall on a macro scale truck transportation services remain tight so.
So we believe this business will continue to be a strong performer for the remainder of the year.
Our marine Transportation business also saw a significant improvement as it had adjusted EBITDA of $2 2 million in the second quarter compared to negative <unk> 5 million a year ago.
Compared to a year ago, our marine transportation asset utilization improved 24% as pad three refinery utilization averaged greater than 95% during the quarter.
There is currently tightness in the inland tank barge transportation market, which has not only helped improved our asset utilization, but has also allowed us to increase our day rates by an average of 14% compared to a year ago.
These two factors have driven our improved marine transportation cash flow performance.
Looking towards the remainder of the year, we see continued tightness in the inland tank barge market based on the current refinery utilization rates.
This means we should have marine transportation quarterly cash flows for the remainder of the year to be similar to the second quarter.
Our second largest cash flow generator was our sulfur services segment, which had adjusted EBITDA of $13 9 million in the second quarter compared to $8 9 million a year ago.
In this segment, our fertilizer business had adjusted EBITDA of $10 million compared to $6 9 million a year ago.
Compared to a year ago, we did see a reduction of our sales volume, but that was offset by stronger fertilizer margins.
Looking towards the remainder of the year in our fertilizer business, we will see that normal seasonal weakness in the third quarter as demand from our customers slow significantly.
We will also perform our annual seasonal turnaround projects at our fertilizer production facilities during the third quarter.
We would then expect to see a performance rebound in the fourth quarter as customer demand should begin to return in our fertilizer production facilities come back into full service.
Our pure sulfur side of our sulfur services segment had adjusted EBITDA of $3 9 million in the second quarter compared to $2 million a year ago.
And the Beaumont sulfur market, we handled approximately 3400 tons per day in the second quarter.
Impaired to approximately 2900 tonnes per day a year ago.
This 17% volume increase was a result of increased refinery utilization compared to last year and was the main driver of our improved performance.
Looking towards the remainder of the year, we continue to project strong refinery utilization and pad III, which should allow us to have a more consistent pure sulfur cash flow than what we experienced last year.
Our third largest cash flow contributor in the second quarter was our Terminalling and storage segment, which had adjusted EBITDA of $12 9 million compared to $10 6 million a year ago.
The growth in cash flow came from our margin based packaged lubricant and grease business, which had adjusted EBITDA of $6 1 million in the second quarter compared to $3 4 million a year ago.
Compared to a year ago, we experienced increased lubricant and grease sales volume and margins due to strong fundamentals in both these businesses.
Supply continues to remain tight leading to stronger actual and forecasted margins than a year ago.
Looking towards the remainder of the year, we continued to see strength in our margin based packaged lubricant and grease business.
Consistent cash flow from our fee based terminal assets.
Okay.
Our final business segment to discuss is our natural gas liquid segment, which had adjusted EBITDA of $1 3 million in the second quarter compared to $1 7 million a year ago.
Both the second and third quarters are seasonally weak cash flow quarters for natural gas liquids as demand for butane significantly decreases.
This is a result of seasonal gasoline blending vapor pressure rule changes that forced refiners to produce excess butane supply.
We purchased in store this excess butane production from April through September in order to sell back to our refinery customers in the winter when seasonal rule changes allow them to blend butane back into their gasoline pool.
This process also drives our growth in our store to butane inventory throughout our summer buying season.
This inventory growth also has a corresponding increase in short term working capital debt throughout the summer.
This butane inventory will be liquidated in the fourth and first quarter and we will have a corresponding decrease in short term working capital debt throughout the winter selling season.
Based on the seasonal flow of our butane logistics business model, we expect minimal cash flow in the third quarter.
Followed by seasonal improvement beginning in the fourth quarter.
However, we are forecasting fourth quarter margins to be less this year than the fourth quarter of 2021.
This concludes my operating performance discussion for the second quarter and the outlook for the remainder of the year.
Now I would like to turn the call over to Sharon to discuss our balance sheet leverage capital resources and changes in our 2022 financial guidance.
Thanks, Bob first lets walk through the debt components of our balance sheet and bank ratios.
At June 32020 care. The total of our long term debt outstanding was 494 million a slight increase of $5 million spent $489 million at the end of the first quarter.
This increase was expected as we entered into the butane inventory storage season in earnest, thus, increasing our working capital needs.
The components of the $494 million in outstanding debt.
$149 million drawn under the revolving credit facility.
$54 million of secured one five lien notes due 2024 and $291 million of secured second lien notes due 2025.
Total available liquidity with approximately $87 million under our revolving credit facility.
At quarter end, our adjusted leverage ratio was 346 times and our first lien leverage ratio was <unk> 99 times.
Both of these leverage calculations include our working capital subordinate carve out which excludes certain debt attributed to our seasonal NGL inventory build when the inventory has been either forward sold or hedged at June 30, the total debt related to the carve out and therefore excluded from the adjusted.
Leverage and first lien leverage calculations was approximately $11 million.
Looking forward leverage in the third quarter May increase as we continue to purchase and storing butane for the winter blending season.
The partnership's interest coverage ratio was 281 times at the end of the quarter and we are in full compliance with all covenants banking or otherwise.
Now I will address capital spending.
Net capital for the second quarter totaled $3 3 million, which was below our estimate for the quarter of $7 million. The majority of the shortfall being from project timing different Chris. However, we still expect our full year maintenance capital spending to be approximately $25 million.
As far as growth capital expenditures Q2 expenditures were approximately $1 5 million for the quarter, a total of $4 6 million year to date.
Gross Capex is also running slightly behind guidance due to timing of projects, but we maintain our full year forecast of approximately $8 million.
Finally, I'll walk through our revised 2022 guidance, which can be found on slide five of the latest presentation posted to the Investor Relations section of our website.
When we revised guidance last quarter, we believe there is more upside potential than downside risk to the projections, but elected to remain conservative around our assumptions regarding management of supply chain issues and the impact inflation could have on demand for our products and services in the second half of 2002.
Turning to you Andrew.
And while those risks remain with the strength of our second quarter earnings and robust demand for our transportation services, we are increasing our adjusted EBITDA guidance to between 126 and $135 million.
The increase to adjusted EBITDA guidance, along with no change in our capital expenditure projections results and our full year forecast of between $53 $62 million in distributable cash flow and between 44 and $53 million of adjusted free cash flow.
I will now turn the call back to the operator for Q&A.
Thank you.
As a reminder, if you'd like to ask a question. Please press Star then one on your telephone keypad.
Our first question is from Selman <unk> with Stifel. Your line is open.
Thank you.
Congratulations on a very nice quarter.
Thank you.
Yes, let me just start off on the transportation side I mean, clearly we've seen refinery utilization continue to tick up here early in the third quarter I think most recently around 98%.
So when you look forward and you noted your stronger transportation outlook.
What are you assuming for turnarounds in there.
For refineries.
Yes, Selman this is Randy thank you for the question.
We have spoken with.
Our customers' expectations.
For the remainder of the year.
We continue to expect to operate at a very high level further.
For the foreseeable future.
The markets are demanding products.
So we've been 95% to 98%.
Much of the second quarter, I think it would be difficult to maintain that utilization, but it should be strong relative to normal.
When you think about the turnarounds there has been one.
Major refinery or one major refining company.
It is a large refinery in Louisiana and one in Texas that has noted.
In their release that they are going to have.
She is going to have extended maintenance in the second half of this year.
That would impact us very soon.
Very minor extent.
Because we just primarily provided little trucking out of that refinery and then you have the.
For refineries in the Beaumont Port Arthur area.
But we're still and greater with particularly from a trucking and sulfur perspective.
Only one of those to our knowledge today is planning on.
As planned maintenance and that would be four to six weeks sometime late in the third quarter.
So the impacts on us I think would be would be very moderate.
A lot of it would be trucking, but we're.
We're having no problem today.
Redeploying those truck drivers to other work when a refinery would take some maintenance.
Got it and then I think previously you had said you had added 20.
Drivers.
Can you just say, where the count I guess year to date.
Year to date, we're running about in the $4 60 to $4 70 drive a range I think is at the higher end of that and we continue to have a large number in trading when I say large anywhere on a particular week 20 to 30 up to sometimes 40.
So.
We're very bullish on continuing to grow our.
Driver count a lot of that growth has been in our Florida market, we've expanded they're really leveraging on <unk>.
A large fertilizer customer that we've had a long time sulfur relationship with.
And so we've had the ability to grow that business and it has helped our positioning in the trucking market and central Florida because of that relationship.
The only thing I would add that as the $4 78.
We're currently at and then we began the year at about 400000. So we're up about 50 drivers over the course of the year.
Very helpful.
And then I guess just.
Just thinking about marine.
<unk>.
At a point, where youre seeing enough strength, where you can.
Term things out in <unk>.
Sort of a year long two year long kind of contracts.
Most of the business continues to be on a spot basis.
When somebody comes with term.
Generally so far under the spot market.
We're not interested in participating in that at this point in time.
So the rates are continuing to escalate in that business even in even this month as we speak.
At the beginning at the end of the first quarter we were.
We're in the sixes and then we were kind of 7500 8500 today as we've worked our way through the second quarter.
And today as we speak half of our spot fleet at over 8500.
Dollar per day is a day rates so.
The market, particularly for the heated barges continues to tighten rates.
Rates continue to escalate.
No we haven't put any any entre.
This continued to be on spot.
Got you and you're still having.
95% to 100% utilization at those higher rates.
Yeah fleet Utilizations in the mid Ninety's that's correct.
Got it okay.
Very helpful and then as I think about the sulfur segment.
It seems like margins were very strong.
For fertilizer.
Any comment there or anything.
No.
And everything from that standpoint.
I was just surprised to see how strong the margins were there was there anything.
Should we be thinking about.
Volumes coming down but for whatever little volume. There is do you still expect strong margins in the back half of the year.
So yes, there is.
Good question Theres, a lot to that question.
So yes the volumes in the.
Second quarter were less than we've historically done in less than what we anticipated.
By about 30% the margins, depending upon which fertilizer product youre talking about.
Sure.
33% to greater than 100% higher than we would typically.
Anticipate in the fertilizer business, but that wasn't unusual for the entire fertilizer business that we didn't see anything.
Was it market driven.
And so right now the margins have narrowed in a little bit from where we were in the second quarter.
But they are still strong.
And we think the macro environment is such that as we enter into the winter season, and they are going to continue to be strong in the winter season.
Got it helpful.
And then as I think about.
Sort of butane business.
<unk>.
Can you just sort of say what.
What your demand as you or how you think things are going to break out between Q1 and Q4.
So.
Typically Q4.
We're going to build to.
Somewhere about 1 million barrels of inventory, which is slightly less than we typically have.
And we typically think about in Q4, we get 60% of our sales and then Q1 will take about 40% at that time, and we do not anticipate given the market having a problem moving the inventory this year.
Got it helpful.
And then I guess just real quickly on.
Terminalling your fee based business you would continue to expect to be there.
Yes.
It sounds like you.
You did lubricants.
Is that should CEB is strong.
Going into Q3, and Q4 as well I mean, it sounds like prices continue to still be higher margin struck pretty strong there off of the non fee based business.
Yes, everything you said, we agree with that's all correct, we expect strong margins.
The lubricants packaging in the grease business.
Through the rest of the year.
And I'll add one small comment they are typically in the fourth quarter, we do see a slowing of volume.
Given through new year's we Didnt really experienced that last year.
No.
It may or may not happen I don't know that we have the full visibility on that but there could be a slight tick down in cash flow in Q4 relative to Q3, if that phenomenon happens as normal.
Yes, Jim.
Hey.
And I guess.
Pitching more over to the balance sheet.
I guess you originally you had talked about trying to do some refinancing on the notes can you just talk about.
What your plan is now and.
Or do you think the market is.
Yeah. So as you know those are QL notes.
The callable at par sometime in mid August .
So what we have done and what we've spoken to you that we're going to be opportunistic around refinancing those notes in the market is there.
We want to be prepared to go out and reduce our interest rate. Those are currently at 11 and a half we think based on our earnings and based on.
The strengthening of our balance sheet through the last call. It 18 months, we should be able to bring that interest rate down and when we reissued those notes. So we're on the sidelines. We're watching the market is not there right now so.
We'll continue to keep a watch on that.
Gotcha.
Tier ones that carry then I guess just in terms of your hedge and just remind me. What are you are you actually directly hedging butane are you using another commodity due to hedge.
We directly hedged to entertain.
The majority of the time.
Alright, Okay Thats all I got it. Thank you once again congrats.
Hey, Selman Thanks Robyn.
Again as a reminder, if you'd like to ask a question. Please press Star then one on your telephone keypad.
And it appears that we have no further questions I'll turn it over to Bob Bondurant for any closing remarks.
Thank you Chris I'd like to thank everyone on the call for your interest in Martin Midstream and.
In closing a few comments on our unit price for several years, our partnership has traded at a discounted multiple relative to our peers.
For example, today the medium enterprise value divided by EBITDA multiple for the midstream sector is around eight three times.
As our trading multiple is currently approximately five times.
And while capital flows in the energy space are still challenged relative to years past.
Believe the moves we have made in the last few years, including the sale of noncore assets meaningful debt reduction and a significant improvement in earnings should soon be recognized and begin to have a positive impact on our unit price.
Our leadership team and our business leaders can only control what they can control, which is the operating performance of our company.
As long as we all continue to focus on performance and execute our strategic plan I believe the equity markets will ultimately value our company more in line with our peers.
Thanks to all again.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may all disconnect.
Okay.
Please wait the conference will begin shortly.
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