Martin Midstream Partners L.P. Q1 2023 Earnings Call
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Speaker 2: Please wait, the conference will begin shortly.
Speaker 3: I would like to welcome everyone to the MMLP first quarter earnings call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the start key, followed by the number one on your telephone keypad.
Speaker 3: If you would like to withdraw your question, press star 1 again.
Speaker 3: At this time I would like to turn the conference over to Sharon Taylor, Chief Financial Officer. Please go ahead.
Speaker 4: Thank you, operator, and good morning, everyone. With me today, our Bob Bondrant CEO , Randy Towsher, COO, David Cannon, Controller, and Danny Kavan, Director of FPNA.
Speaker 4: I'll begin with our cautionary statements. During this call, management may be making forward-looking statements as defined by the SEC. These statements are based upon our current beliefs as well as assumptions and information currently available to us. Please refer to our press release issued yesterday afternoon.
Speaker 4: as well as our latest filings with the SEC for a list of factors that could impact the future performance of Martin and cause our actual results to differ from our expectations.
Speaker 4: We will discuss non- GAAP financial measures on today's call, such as adjusted EBITDAW, Distributable Cash Flow, and Free Cash Flow. In addition, we will refer to adjusted EBITDAW after giving effect to the exit of the butane optimization business.
Speaker 4: You will find a reconciliation of these non-GAAP measures to their nearest GAAP measures in our earnings press release posted on our website. Now I will turn the call over to Bob to discuss first quarter results by segment.
Speaker 4: reconciliation of these non- GAAP measures to their nearest GAAP measures in our earnings press release posted on our website. Now I will turn the call over to Bob to discuss first quarter results by segments. Thanks, Sharon.
Speaker 5: I would like to discuss our first quarter performance in comparison to first quarter guidance which we published in mid-February.
Speaker 5: We had adjusted IBITDA of $30.6 million after giving effect to the exit of the butane optimization business, which was in line with our first quarter adjusted IBITDA guidance of $31.4 million, a difference of 2%.
Speaker 5: For the trailing 12 months, after giving effect to the exit of the Mutane Optimization Business, we had adjusted EBITDA of $117.6 million through the first quarter of 2023.
Speaker 5: For the first quarter, our largest cash flow generator was our transportation segment, which had adjusted if it doff 13.2 million compared to guidance of 11.6 million.
Speaker 5: Within that segment, our land transportation business had adjusted a bit of 10.7 million compared to guidance of 9.5 million.
Speaker 5: The primary driver of this excess positive cash flow with our line-hole revenue, which exceeded our forecast by $1 million as we beat forecasted mileage by 2% and beat our forecasted rate per mile by 1%.
Speaker 5: Looking forward while there is general discussion regarding the possibility of a recession.
Speaker 5: which we accounted for in the second half of this year's guidance.
Speaker 5: Based on our current visibility, we are still optimistic about achieving our annual guidance in our land transportation business.
Speaker 5: A Marine Transportation business had adjusted EBITDA of 2.6 million.
Speaker 5: Compared to guidance of 2.1 million.
Speaker 5: Our day rate revenue exceeded forecasts by a half a million dollars, accounting for the excess cash flow in our actual performance compared to guidance.
Speaker 5: We forecasted and achieved only 90% utilization during the quarter due to seven different barges being in dry dock at various times due to regulatory inspections. However, we exceeded our first quarter-day rate forecast by approximately 7%.
Speaker 5: from continued strengthening in the Emman-Borge Market Day Rate.
Speaker 5: Looking forward, we believe that strength will continue along with improved utilization of a large fleet. Our second strongest cash load generator in the first quarter was our terming and storage business, which had a gested EBITDAB 9.1 million compared to guidance of 8.4 million.
Speaker 5: Overall, in this segment, we misforecasted revenue by less than 1%, but benefited from lower operating costs, which were 7% less than forecasted. Looking forward, we believe actual operating costs will increase to be more in line with our original forecast.
Speaker 5: And we feel confident about our annual guidance in this business segment.
Speaker 5: Now I would like to discuss our Silver Services segment, which was our third largest cash flow provider in the first quarter.
Speaker 5: We had adjusted EBITDAF 7.2 million compared to guidance of 9.6 million.
Speaker 5: The cashflow missing our guidance was driven by underperformance in our fertilizer group, which had a justedibida of 3.9 million in the first quarter compared to guidance of 6.7 million.
Speaker 5: The primary driver of the Caselo Miss with the quantity of fertilizer sold.
Speaker 5: We missed our volume forecast by approximately 27 percent as agriculture demand has been significantly delayed due to the impact of unfavorable weather in our marketplace. Also because of reduced fore-lager demand, our margins have been negatively impacted relative to our guidance. However, currently in April .
Speaker 5: We are seeing increased fertilizer demand as compared to March and are optimistic we can achieve our second quarter volume forecast, especially considering the USDA estimated 92 million acres of corn forecasted to be planted.
Speaker 5: Our pure sulfur side of our sulfur services segment had adjusted the evidaw of 3.4 million in the first quarter compared to guidance of 2.9 million.
Speaker 5: The excess cash on this business was achieved from the benefit and the rise in the first quarter-camping Postings which increased $40 per ton when compared to the fourth quarter Now would like to discuss the performance of our specially products business segment In this segment we had adjusted if it die after giving effect to the exit of the butane
Speaker 5: retail distributors which have significant exposure to the agriculture market.
Speaker 5: We believe due to negative weather impacts, planting of spring crops have been delayed impacting our lubricant cells that feed that market.
Speaker 5: Additionally, in this segment, our Propane Group Ms. 1-quarter cash load guidance primarily due to unusual warm weather in our wholesale market area.
Speaker 5: Looking forward in our specialty product segment, we believe our packaged lubricant business will recover when anticipated sales to the agriculture market begin to improve.
Speaker 5: We also continue to see strong demand and performance in our specially greased business in the near term.
Speaker 5: Finally, I would like to discuss the performance of our butane optimization business which we are exiting. In the first quarter we liquidated approximately 730,000 barrels of butane inventory.
Speaker 5: Looking toward the second quarter, we believe we will collect proceeds of approximately $20 million, which will be used to pay down our revolving run of credit as we complete our butane inventory liquidation.
Speaker 5: Now we would like to turn the call back to Sharon to discuss our balance sheet and capital resources.
Speaker 4: Thank you Bob and I'll begin right there.
Speaker 4: As for capital allocation, we remain committed to further debt reduction in order to reach our goal of 3.75 times leverage. It is important to note that during the first quarter of 2023, we amended and extended our revolving credit facility.
Speaker 4: which among other things removed the working capital debt sub-limit carve-out for purposes of calculating leverage.
Speaker 4: This was due to the anticipated exit from the butane optimization business. So beginning with this quarter, instead of carving out that under a sublimit, we excluded the results of the butane optimization business to arrive at adjusted EBITDA to calculate our leverage ratios.
Speaker 4: At the end of 4th quarter 2022, we announced the tested leverage of 4.27 times, which included a debt sublimit carveout of 29.7 million. In order to compare December 31st, 2022,
Speaker 4: to March 31, 2023, the December ratio needs to be adjusted to exclude the $29.7 million to get FED limit carve out.
Speaker 4: Bringing the December 31st leverage ratio to 4.53 times.
Speaker 4: compared to 4.25 times at March 31st, a reduction of 0.28 times.
Speaker 4: At March 31, 2023, the total of our long-term debt outstanding was $500 million, which is a reduction of $16 million from the end of last quarter.
Speaker 4: The outstanding debt consisted of 100 million drawn on our 200 million revolver that matures in 2027 and 400 million of senior secured second-line notes due to 2028. In terms of liquidity, we add approximately 40 million additional barring capacity under our revolving credit facility.
Speaker 4: All in all, the partnership was in compliance with all bank ratios at the end of the quarter.
Speaker 4: All in all, the partnership was in compliance with all bank ratios at the end of the quarter. Next, I'll go over our capital expenditures.
Speaker 4: During the first quarter we spent $6.6 million in maintenance capex and $800,000 in growth capex.
Speaker 4: Distributable cash flow for the quarter calculated using adjusted EBITDAW after giving effect to the exit of the butane optimization business was 9.5 million and free cash flow was 8.7 million.
Speaker 4: Finally, I'll give a brief high-level update on the DSM STEMI Cam Joint Venture Project.
Speaker 4: permits for the construction of the electronic level for furoreq acid or ELSA production facility have been received from the Texas Commission on Environmental Quality.
Speaker 4: The process of recruiting and hiring employees to staff the ELSA facility has been initiated.
Speaker 4: The standalone project of installing an oleum tower at our Plainview location in support of the Elsa production facility is on schedule and as of March 31st, approximately 400,000 of the total expected capital of 12.7 million for that expansion has been spent.
Speaker 4: As of today, I am not aware of any delays in permitting or construction that would significantly impact the timing of the startup of the ELSA facility. That concludes our prepared remarks. I'll turn the call over to the operator for Q&A.
Speaker 3: Thank you. At this time I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We'll pause just a moment.
Speaker 3: We'll take our first question from Selma in Accoy at Stiefel.
Speaker 3: We'll take our first question from Selman and Aquia Stefall. Thank you. Good morning all.
Speaker 6: I guess first just starting off on transportation and nice numbers there. Tonight you heard you loud and clear in terms of you kind of thinking about a recession in the second half. Is we looking to the next quarter in 2Q2?
Speaker 6: in 3Q. Anything in terms of refinery turn around so we should be aware of impacting your thinking there at all?
Speaker 7: Good morning, Zillman. This is Randy. You know, we had heard this was going to be a...
Speaker 7: A very heavy turnaround year if you look at this.
Speaker 7: DOE, PAD-3, refinery utilization statistics up to now. It looks like a normal year. And I will tell you the refineries we service, we have observed the same. It's been a normal year. Most refineries we service already. We will have their turn around. Or they are getting ready to be.
Speaker 7: through with their turnaround and it's just a matter of getting back to normal operations.
Speaker 7: So, no, we don't see any impact in the negative way from turn-arounds at this point in time.
Speaker 6: And then you also had previously picked up some contracts in Florida and I was wondering how that was going and do you see that curtailing as you go through the rest of the year or you expect that to be?
Speaker 7: at the same level. Well, we've got a couple of terminals in full. They have opened up in recent years. I assume you're speaking about the one specifically over in the Tampa market. And we have a very large customer over there that has a lot of ways they can utilize. Esse is a visualize test.
Speaker 7: the trucks irregardless of their ongoing production at the site. And we think that the spring is obviously generally a very strong time for them, so we expect that to be very strong through the spring. In the summer months they have proven to use us quite extensively also.
Speaker 7: So that has been going well and we believe it's going to continue to do well.
Speaker 6: them going well and we believe it's going to continue to do well. Understood. And then
I don't want to be too optimistic here, but then should I think of transportation as potentially given your budget being somewhat conservative as we roll through the rest of the year? Yes, I'm optimistic on both the land and the marine as we move forward through the rest of the year. Now to the last comments.
Earlier, we have heard from the chemical guys that they're expecting a slow down as we start working our way through the year. We certainly haven't seen that up to this point or if we've seen it, we've seen it very sporadic from a geographer's standpoint.
But all in all, it's looking very strong from what we can see as we sit here today. And Selma and Mrs. Bobb, and to that point, and I didn't make it in my earlier comments, we did forecast for that. So as you review our guidance in Q3 and Q4, we've kind of sort of factored that in. So the extent there is
Any very mild recession or no recession, I think we definitely have some outside. Yeah, that's kind of the way I was looking at it as well.
My other session or no recession, I think we definitely have some outside. Yeah, that's kind of the way I was looking at it as well.
Let me just flip over to terminal and storage. I guess really two questions there. On the shore based terminals, I think you had a recontracting with your general partner. And so has that kicked in? Is there still an uplift to come?
with the volumes that we forecasted. We would anticipate about a million dollars per quarter.
In that business to the MOP going forward, you're right, we did not achieve that in the first quarter. We do expect the volumes to pick up.
for that business in May and we expect to see better performance from that business May forward.
Understood. And then on the underground storage, and I know most of that's been related to butane, have you looked at trying to recontract it anywhere else just on a sort of fixed fee basis either for propane or maybe some other NGLs and is there any update on that?
There really isn't an update on that. We have looked at it. We continue to look at that. I would say right now the interest has been slight to moderate, not high for third-party contracting. I think this is even worse for third-party- filibod vegetarian.
And I would expect that we will see a contract between the MOP and the general partner for that in the next 30 or 45 days or so.
Got it. And then just over on sulfur, was there anything in particular about the prilling side because you certainly handled the expectations there.
The volumes were a little bit better than we anticipated them to be. We averaged 3,200 tons a day going through the terminals, not just the Priller, but the terminals in Beaumont last year.
And we expected the turnarounds to impact it more than it did in the first quarter. And we moved over 3,000 tons a day through there. And then I think it's just a function of when some of the operating costs hit would drive a little bit of volatility in that business. But in the end it has kind of accelerated the growth and especially with
Got it. And then I guess just sort of the last one it sounds like you expect another 20 million to roll in so it looks you know from liquidating to butane so looks like you're on track to sort of hit the 480 million dollar mark I think you guys had laid out as a goalpost. Anything I should be thinking about that.
That is still our expectations on debt reduction for the year. We expect that we will come in somewhere between the 70 to 80 million on the revolver for this year. That does it for me. Thanks so much.
That is still our expectations on debt reduction for the year and so we expect that we will come in somewhere between the 70 to 80 million on the revolver for this year. That does it for me. Thanks so much. Thank you.
And as a reminder, if you would like to ask a question, please press star 1. We'll pause just a moment.
And we have no further questions at this time. I would like to turn the conference back to Bob Bondura for closing remarks. Thank you, Audra.
I'd like to close by saying thank you to everyone that was on the call and thank you so much for the good questions route we received
I'm pleased with our start to 2023 and I'm proud of the progress we have made to strengthen our balance sheet and improve our leverage profile.
Looking forward, I'm confident that we are positioned to deliver the financial results that we shared with you in our guidance. I look forward to speaking with you again next quarter, and if you have any further questions or want to have a follow-up conversation with management, please reach out to us. Have a great day.
I'm confident that we are positioned to deliver the financial results that we shared with you in our guidance. I look forward to speaking with you again next quarter. If you have any further questions or want to have a follow-up conversation with management, please reach out to us. Have a great day.
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