Q4 2023 Martin Midstream Partners L.P. Earnings Call
Thank you for standing by the conference will begin in approximately two minutes.
Operator: Thank you for standing by. The conference will begin in approximately two minutes. Thank you, and please continue to stand by. Please wait; the conference will begin shortly. Good morning, my name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the MMLP fourth-quarter earnings conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise.
And please continue to standby.
Please wait the conference will begin shortly.
[music].
Good morning, My name is Audrey and I will be your conference operator today.
At this time I would like to welcome everyone to the M. M. L. P fourth quarter earnings Conference 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 star key followed by the number one on your telephone keypad.
Operator: And for this week's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1. At this time, I'd like to turn the conference over to Sharon Taylor, Chief Financial Officer. Okay.
If you would like to withdraw your question Press Star one again.
At this time I'd like to turn the conference over to Sharon Taylor Chief Financial Officer. Please go ahead.
Thank you operator, and good morning, everyone and thank you for joining us today.
Sharon L. Taylor: Thank you, operator, and good morning, everyone. Thank you for joining us today. In the room are Bob Bondurant, CEO, Randy Tauscher, COO, David Cannon, controller, and Danny Cavan, director of. I'll begin with our cautionary statement. 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, 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. We will discuss non-GAAP financial measures on today's call, such as adjusted EBITDA, distributable cash flow, and free cash flow. In addition, we will refer to adjusted EBITDA after giving effect to the exit of the butane optimization. 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 fourth quarter and full year results. Thanks, Sharon.
In the room or Bob Bonder at CEO, Randy Tauscher, CFO, David Cannon controller, and Danny Cavin director of SG&A.
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.
Refer to our press release issued yesterday afternoon, 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.
We will discuss non-GAAP financial measures on today's call such as adjusted EBITDA distributable cash flow and free cash flow.
In addition, we will refer to adjusted EBITDA after giving effect to the exit of the butane optimization business 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 fourth quarter and full year.
<unk>.
Thanks Sharon.
Robert D. Bondurant: I would now like to begin my discussion with a recap of Martin Midstream Partners' execution of significant achievements in 2023. In February, we refinanced our existing secured notes, extending their maturity to February 2028. At the same time, we amended our revolving credit facility and extended its maturity to February 2027. In the second quarter of 2023, we completed our exit from the volatile butane optimization business, while retaining the stable cash flow component of the business associated with our North Louisiana underground storage asset. We began construction of the Oleum Tower at our sulfuric acid plant in Plainview, Texas, in order to be the supplier of oleum to the DSM-Semikin Joint Venture. This joint venture is between us. Samsung, C&T America, Inc.
I would now like to begin my discussion with a recap of Martin Midstream partners execution of significant achievements in 2023.
In February we refinanced our existing secured notes extending the maturity to February 2028 at.
At the same time, we amended our revolving credit facility and extended its maturity to February 2027.
In the second quarter 2023, we completed our exit from the volatile butane optimization business.
Turning the stable cash flow component of the business associated with our north Louisiana underground storage assets.
Also in 2023, we began construction of the Eliot tower at our sulfuric acid plant in Plainview, Texas in order to be the supplier of OEM to the DSM CME can joint venture.
This joint ventures between Us Sam.
Samsung TNT America, Inc, and <unk> USA.
Robert D. Bondurant: The joint venture is currently in the construction phase of facilities that will provide electronic level sulfuric acid, commonly known as ELSA, to the Semiconductor Manufacturing Industry. The final significant achievement we had in 2023 was exceeding our disclosed if-it-dog guidance and also meeting our targeted leverage ratio of 3.75 times. I would like to acknowledge and thank our team of executive leadership, segment leadership, and the entire Martin Midstream workforce for executing our 2023 game plan in order to achieve these goals. Now, I would like to focus on our fourth quarter operating performance. For the fourth quarter, we had adjusted EBITDA of $29.2 million compared to a fourth quarter revised guidance of $26.9 million, an improvement over guidance of 2.3 million, or 9 percent. For the year, we had adjusted EBITDA of $117.7 million, exceeding our beginning of the year guidance of $115.4 million.
The joint venture is currently in the construction phase of facilities that will provide electronic level. So pure gas it commonly known as <unk> to the semiconductor manufacturing industry.
The final significant achievement, we had in 2023 was exceeding our disclosed EBITDA guidance and also meeting our targeted leverage ratio of 375 times.
I would like to acknowledge and thank our team of executive leadership segment leadership and the entire Martin midstream workforce for executing our 2023 game plan in order to achieve these goals.
Now I would like to focus on our fourth quarter operating performance.
For the fourth quarter, we had adjusted EBITDA of $29 2 million compared to a fourth quarter revised guidance of $26 9 million an improvement over guidance of $2 3 million or 9%.
For the year, we had adjusted EBITDA of $117 7 million exceeding our beginning of the year guidance of $115 4 million.
Robert D. Bondurant: For the fourth quarter, our largest cash flow generator was our transportation segment, which had adjusted if it dove $12 million compared to revised guidance of $11.3 million. Within this segment, our land transportation business had adjusted a dividend of $9.6 million, prepared to revise guidance of $7.3 million. During the fourth quarter, our revenue per load was greater than forecasted as we began to see a recovery in our longer-distance loads. We also began to see a reduction in our equipment repair and maintenance costs as we continue to lower the average age of our fleet with new leased equipment purchases.
For the fourth quarter, our largest cash flow generator was our transportation segment, which had adjusted EBITDA of $12 million compared to revise guidance of $11 3 million.
Within this segment, our land transportation business had adjusted EBITDA of $9 6 million.
Paired to revise guidance of $7 3 million.
During the fourth quarter, our revenue per load was greater than forecasted as we began to see a recovery in our longer distance loads.
We also began to see a reduction in our equipment repair and maintenance costs as we continue to lower the average age of our fleet with new leased equipment purchases. The effect of this recapitalization of our equipment fleet over the longer term will be to increase our equipment lease expense, which will be partially offset by <unk>.
Robert D. Bondurant: The effect of this recapitalization of our equipment fleet over the longer term will be to increase our equipment lease expense, which will be partially offset by reduced repair and maintenance costs. We also believe your equipment will help our drivers. Our marine transportation business had adjusted EBITDA of $2.3 million. We are preparing to revise guidance of $ 4 million. The primary reason for this IFFET.miss was due to supplemental insurance calls from our Protection and Indemnity Insurance Carrier. These supplemental calls, totaling $1.1 million, were due to losses incurred by our P&I carrier related to their overall underwriting losses. These losses were not the result of Martin Midstream's marine transportation loss performance but were the result of the entire global marine industry loss performance.
Reduced repair and maintenance cost.
We also believe your equipment will help our driver retention.
Our marine transportation business had adjusted EBITDA of $2 3 million compared to revise guidance of $4 million.
The primary reason for this EBITDA Miss was due to supplemental insurance calls for more protection and indemnity insurance carrier.
These supplemental cost totaling $1 1 million were due to losses incurred by our P&I carrier related to their overall underwriting losses.
These losses were not the result of Martin Midstream Marine transportation loss performance.
Where are the result of the entire global marine industry loss performance.
Robert D. Bondurant: This was a one-time charge hitting the fourth quarter income statement. Our second strongest cash flow generator in the fourth quarter was our terming and storage segment, which had a dividend of $9 million, which was the same as our fourth quarter guide, overall in this segment. Our revenue slightly mis-forecast by 3%, primarily due to reduced throughput volume, which was offset by a 5% reduction in operating expenses from lower utility costs when compared to guidance. Now I would like to discuss the performance of our Sulphur Services segment, which was our third largest cash flow generator in the fourth quarter. In this segment, we had adjusted EBITDA of $7.4 million, and we prepared guidance of six million. The Fertilizer Group had adjusted Ibbett Dahl 3.9 million compared to guidance of 3 million.
This was a one time charge hitting the fourth quarter income statement.
Our second strongest cash flow generator in the fourth quarter was our Terminalling and storage segment, which had adjusted EBITDA of $9 million, which was the same as our fourth quarter guidance.
Overall in this segment, our revenue slightly missed forecast by 3% primarily due to reduced throughput volumes.
Which were offset by a 5% reduction in operating expenses from lower utility cost when compared to guidance.
Now I would like to discuss the performance of our sulfur services segment, which was our third largest cash flow generator in the fourth quarter.
In this segment, we had adjusted EBITDA of seven 4 million compared to guidance of $6 million.
Our fertilizer group had adjusted EBITDA of $3 9 million compared to guidance of $3 million.
We have stronger fourth quarter sales compared to forecast for both liquid fertilizer and degradable sulfur products.
Robert D. Bondurant: We had stronger fourth-quarter sales compared to forecast for both liquid fertilizer and degradable sulfur products. This positive sales performance compared to forecast was partially offset by reduced ammonium sulfate sales in the fourth quarter, which we believe are being delayed to the first quarter. The Pure Sulphur side of our Sulphur Services Segment had adjusted debit to $3.6 million and prepared guidance of $3 million. We experienced very strong sulfur production from our refinery suppliers.
This positive sales performance compared to forecast was partially offset by reduced ammonium sulfate sales in the fourth quarter, which we believe are being delayed to the first quarter.
The pure sulfur side of our sulfur services segment had adjusted EBITDA of $3 6 million compared to guidance of $3 million.
We experienced very strong sulfur production from our refinery suppliers as total sulfur volume received was 17% greater than our fourth quarter forecast.
Robert D. Bondurant: Total sulfur volume received was 17% greater than our fourth quarter forecast, allowing this business line to exceed its financial forecast for the quarter. Finally, I would like to discuss the fourth quarter performance of our specialty products segment. In this segment, we had adjusted EBITDA of $4.9 million compared to guidance of $4.9 million. In this segment, we have added strength in our grease business line offset by slight underperformance in our packaged lubricant line of business. I will summarize our fourth quarter performance. We exceeded revised guidance by 2.3 million.
Allowing this business line to exceed its financial forecast for the quarter.
Finally, I would like to discuss the fourth quarter performance of our specialty products segment.
In this segment, we had adjusted EBITDA of $4 9 million compared to guidance of $4 9 million.
In this segment, we had strengthened our grease business line offset by slight underperformance in our packaged lubricant line of business.
To summarize our fourth quarter performance.
Exceeded revised guidance by $2 3 million.
The bulk of our outperformance came from our land transportation business and our sulfur services segment, partially offset by the one time insurance charge in our marine transportation business.
Sharon L. Taylor: The bulk of our outperformance came from our land transportation business and our sulfur services segment, partially offset by the one-time insurance charge in our marine transportation business. Now, I would like to turn the call back over to Sharon to discuss our 2024 guidance, along with our balance sheet and capital resources. Thank you, Bob.
Now I would like to turn the call back over to Sharon to discuss our 2024 guidance along with our balance sheet and capital resources. Thank you Bob.
Sharon L. Taylor: As of December 31st, 2023, the partnership had total long-term debt out, [inaudible] $1 million on December 31, 2021. A 73.6 million reduction year over. Of this balance, $42.5 million was drawn under a $175 million credit, leaving us with $109 million in availability under the facility after consideration of outstanding letters of credit and a slight constraint due to our leverage ratio coverage. For the last few years, the partnership has focused on strengthening the balance, through DebtReduct, using free cash flow and divesting non-core assets in order to reach our targeted leverage ratio of 3.75 times or lower. As Bob spoke about earlier, after adjusting for losses related to the exit of the butane optimization business, we met that goal, as our bank-compliant adjusted leverage was 3.75 times as of December 31st. However, we know we still have work to do to ensure that we remain at or below that target on a sustainable basis, and that knowledge will continue to guide our decisions regarding capital allocation. Also, at December 31st, our senior leverage was 0.36 times, and our interest coverage was 2.19.
December 31, 2023, the partnership had total long term debt outstanding of $442 5 million compared to $516 1 million on December 31, 2022, a $73 6 million reduction year over year.
This balance $42 5 million was drawn under our $175 million credit facility, leaving us with $109 million in availability under the facility after consideration of outstanding letters of credit and a slight constraint due to our leverage ratio covenant for.
For the last few years. The partnership is focused on strengthening the balance sheet through debt reduction using free cash flow and divesting non core assets in order to reach our targeted leverage ratio of 375 times or lower.
As Bob spoke to earlier after adjusting for losses related to the exit at the butane optimization business.
With that goal as our bank compliant adjusted leverage was 375 times as of December 31.
However, we know we still have work to do to ensure that we remain at or below that target on a sustainable basis and that knowledge will continue to guide our decisions regarding capital allocation.
Also at December 31, our senior leverage was three six times and our interest coverage was 219 times at year end. The partnership was in compliance with all covenants debt or otherwise and is forecasted to remain so.
Sharon L. Taylor: At year-end, the partnership, We are all clients with all covenants, debt or otherwise, and it's forecasted to remain so. Moving on to capital extend. Total CapEx for the quarter was $12.1 million, of which $4.9 million was gross, including $3.7 million related to the DSM Semi-Chem Joint Venture, also referred to as the ELSA project. Maintenance capex for the quarter was $7.2 million, which includes $2.5 million in turnaround costs at our fertilizer plant. Total CapEx for the year was $40.1 million, including $11 million for growth, of which $8.3 million was related to the ELSA project and $29.1 million was maintenance capex, including a total of $4.8 million for turnaround costs at our fertilizer plant. For the quarter, distributable cash flow was $8.6 million and adjusted free cash flow was $3.7 million, bringing distributable cash flow for the year to $32.8 million and adjusted free cash flow
Moving on to capital expenditures total capex for the quarter was $12 1 million of which $4 9 million with growth, including $3 7 million related to the DSM semi Kim joint venture also referred to as the <unk> project.
Maintenance Capex for the quarter was $7 2 million, which includes $2 5 million in turnaround cost at our fertilizer plants.
Total capex for the year was $40 1 million, including $11 million for growth of which $8 3 million was related to the al <unk> project and $29 1 million was maintenance capex, including a total of $4 8 million for turnaround cost at our fertilizer plants.
For the quarter distributable cash flow was $8 6 million and adjusted free cash flow was $3 7 million.
Bringing distributable cash flow for the year to $32 8 million and adjusted free cash flow to $21 7 million both of those numbers presented after adjusting for losses associated with our butane optimization business.
Sharon L. Taylor: Both of those numbers were presented after adjusting for losses associated with the butane optimization that Now I'd like to walk through our guidance for 2024, which is on page 5 of the presentation attached to our earnings press release yesterday afternoon and can also be found on our web site. The partnership is forecasting approximately $116.1 million in adjusted EBITDA for 2022, 71% of which is provided by.
Now I'd like to walk through our guidance for 2024, which is on page five of the presentation attached to our earnings press release yesterday afternoon, and can also be found on our website.
The partnership is forecasting approximately $116 1 million and adjusted EBITDA for 2024.
Of the total 71% is provided by fixed fee contracts with 29% being margin based.
Sharon L. Taylor: Contracts, with 29% being margin-based. In 2024, we anticipate transportation Services will generate $41.2 million of adjusted EBITDA as compared to actual results of $46.8 million in 2021. While we anticipate the marine group to continue to benefit from the higher day rate environment we've experienced this past year, the land group will see reduced EBITDA from higher equipment leasing, offset somewhat by lower repairs and maintenance.
Now, let's look at each segment individually.
In 2024, we anticipate transportation services to generate $41 2 million of adjusted EBITDA as compared to actual results of $46 8 million in 2023.
While we anticipate the marine group to continue to benefit from the higher day rate environment, we've experienced this past year.
<unk> will see reduced EBITDA from higher equipment lease expense offset somewhat by lower repairs and maintenance expense.
Sharon L. Taylor: The forecast for adjusted EBITDA in the terminaling and storage segment is $37.7 million, which is an improvement of $1.8 million from 2023's actual results. [inaudible] should improve results year over year. The Silver Services segment adjusted EBITDA is projected to be $29.7 million in 2024 compared to 2023's results of $28.1 million. And while the pure sulfur side looks to remain relatively flat, we are projecting the fertilizer business will experience higher margins, slightly offset by sales volume.
The forecast for adjusted EBITDA in the Terminalling and storage segment is $37 7 million, which is an improvement of $1 8 million from 2020 Three's actual results the.
The businesses in this segment are fee based with some contract escalators that along with anticipated reductions in operational expenses showed improved results year over year.
The sulfur services segment adjusted EBITDA is projected to be $29 7 million in 2024 compared to 2023 as a result of $28 1 million and while the pure sulfur side looks to remain relatively flat. We are projecting the fertilizer business will experience higher margins slightly off.
Offset by decreased sales volumes and new to the sulfur services segment. This year is approximately 835000 of EBITDA forecasted to begin in the fourth quarter for reservation fees associated with the Al <unk> project.
Sharon L. Taylor: New to the Sulphur Services segment this year is approximately $835,000 of EBITDA forecasted to begin in the fourth quarter for reservation fees associated with the ELSA project. Lastly, the specialty product segment is forecasted to generate $22.7 million in adjusted EBIT. The businesses within this segment are projected to remain relatively stable as compared to 2023's actual results.
Lastly, the specialty products segment is forecasted to generate $22 7 million in adjusted EBITDA. The businesses. Within this segment are projected to remain relatively stable as compared to 2020 Three's actual results of $22 8 million.
For 2024, we are forecasting gross capital expenditures of approximately $17 4 million.
With $10 4 million for the Oleum tower expansion at plain view, which is part of the capital spend relating to the al <unk> project.
Kyle May: For 2024, we are forecasting growth capital expenditures of approximately $17.4 million, with $10.4 million for the Oleum Tower expansion at Plainview, which is part of the capital spend relating to the ELSA project. Also included in the growth number is $6.5 million for our cash contribution related to the partnership's 10% ownership in that joint venture. Maintenance capital is anticipated to be approximately $32 million for the year, which is above average for the partners. We do have some larger expenditures forecasted, including $8.1 million for regulatory inspections related to our marine equipment. $4 million in turnaround costs at our fertilizer plants, where 50% of that is at our sulfuric acid plant in Plano. $4.8 million for the Smackover Refinery turnaround, which occurs every two years.
Also included in the gross number is $6 5 million for our cash contribution related to the partnership's, 10% ownership in that joint venture.
Maintenance capital is anticipated to be approximately $32 million for the year, which is above average for the partnership.
We do have some larger expenditures forecasted, including $8 1 million for regulatory inspections related to our marine equipment.
$4 million in turnaround cost at our fertilizer plants, where 50% of that is at our sulfuric acid plant in plain view and $4 8 million for the snack over refinery turnaround, which occurs every two years.
Finally for full year 2024, we anticipate distributable cash flow to be $30 4 million and free cash flow of $13 3 million.
With that I will turn it back to the operator for Q&A.
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 go first to Kyle May at Sidoti <unk> Company.
Hi, good morning, everyone.
Good morning, good morning.
Maybe starting with the Terminalling and storage segment.
Kyle May: Finally, for full year 2024, we anticipate distributable cash flow to be $30.4 million and free cash flow of $13.3 million. With that, I will turn it back to the operator. Thank you. At this time, I would like to remind everyone in order to ask a question, press start and the number one on your telephone keypad. We'll go first to Kyle May at Sidoti Income. Hi. Good morning.
You mentioned that volumes were lower in the fourth quarter.
Just wondering if maybe you could provide some context of what happened in <unk> and then how youre thinking about those volumes in <unk> and the remainder of 'twenty four.
Yes. This is Randy Kyle Thank you for the question.
Specifically to the terminals most of the shortfall in the fourth quarter a matter of fact, all of the shortfall in the fourth quarter came around the shore based terminals.
We had really low.
Sales volumes in the month of October and November.
Randall L. Tauscher: [inaudible] Yeah, this is Randy Kyle. Thank you for the question. Specifically, the terminals, most of the shortfall in the fourth quarter, matter of fact, all the shortfall in the fourth quarter came around the shore-based terminals, where we had really low diesel sales volumes in the month of October and November. In the month of December, and what we've seen through the first 45 days of 2024, those sales have improved significantly, and we expect that improvement in that business to stay because we have agreed to a new contract We do have minimum volume commitments that we didn't have in 2023. So yes, we expect that business to be stable going into 2024. Right, that's very helpful. And then, maybe, a question for Sharon.
In the month of December and what we've seen through the first 45 days of 2020 for those sales have improved significantly.
And we expect.
Net improvement in that business to stay because we have agreed to a new contract beginning in January one of 2024, but we do have minimum volume commitments.
We didn't have in 2023.
So, yes, we expect that to be.
That business will be stable going into 2024.
Great that's very helpful.
And then maybe a question for Sharon.
As we're thinking about the Capex in 2024 I.
I was wondering if maybe you could kind of help us out with a cadence because I know you've got the OEM tower and then you've got the.
$6 5 million contribution so how should we think about that kind of through the course of the year.
Yes, the $10 4 million.
We should spend in the first and second quarters of this year and the $6 5 million will be spent in the second quarter actually towards the first or the second quarter.
Sharon L. Taylor: As we're thinking about the CapEx in 2024, I was wondering if maybe you could kind of help us out with the cadence, because I know you've got the Oleum Tower and then you've got the six and a half million contributions. So how should we think about that kind of over the course of the year? Yes, the $10.4 million we should spend in the first and second quarters of this year, and the $6.5 million will be spent in the second quarter, actually towards the beginning of the second quarter. I'll throw in on that that the $6 and a half million is contingent on the completion of the DSM joint venture, and that's the ELSA plan itself. And that's projected to be done in the second quarter, but that's something Martin doesn't really have control of.
Okay, Great that's helpful Ed.
This is Randy.
All in on that.
The $6 $5 million is contingent on the completion of the DSM.
Joint venture <unk> plant itself.
That's projected to be down in the second quarter, but thats something Martin doesn't really have.
<unk> 11 to the extent that slips a $6 $5 million commitment slips also.
Okay got it that makes sense and all of the DSM semi chem.
Maybe can you give us a little bit more insight into the progression of that project because you do have the the Elsa contribution showing in the fourth quarter excuse me in your guidance.
But just maybe how we think about that going forward.
Yes so.
The fourth quarter.
Sharon L. Taylor: And to the extent that that slips, that six and a half million dollar commitment slips also. Okay, got it. That makes sense. And on the DSM Semi-Chem, maybe you can give us a little bit more insight into the progression of that project?
The EBITDA contribution you see around that.
As due to the completion of the Martin capital commitments to build the OEM tower and <unk>.
We've committed to the project.
And so to the extent, we get get that done in the second quarter, which we're expecting to.
Sharon L. Taylor: Because you do have the ELSA contribution showing in the fourth quarter, excuse me, in your guidance. But just maybe, you know, how do we think about that going? Yeah, so.
Those payments to US begin no later than the fourth quarter and so thats why we have that.
Dan.
The <unk>.
So thats really for the.
The reservation fee, we have we will receive from DSA.
Sharon L. Taylor: The fourth quarter, the EBITDA contribution you see around that is due to the completion of the Martin Capital commitments to build the Oleum Tower and everything we've committed to the project. And so, to the extent we get that done in the second quarter, which we're expecting to, those payments to us will begin no later than the fourth quarter. And so, that's why we have that penned in for the 4Q.
Okay, and then just to start planning it down the line than the rest of the.
EBITDA contribution we expect primarily from the DSM joint venture will begin when actual sales begin.
We do anticipate sales in the fourth Q, but a very small amount because most of our intended customers.
Sure.
Designing their projects and so those sales won't begin until those projects.
Kyle May: So, that's really for the reservation fee that we have, and we'll receive from DSA. Okay, and then just to start playing it down the line, then the rest of the EBITDA contribution we expect, primarily from the DSM joint venture, will begin when actual sales begin. We do anticipate sales in the 4Q, but only a small amount because most of our intended customers are delaying their projects, and so those sales won't begin until those projects actually start securing their raw materials, which should be into 2025. Okay, great. I appreciated the color this morning.
Actually start securing their raw materials, which should be into 2025.
Yes.
Okay great.
<unk>.
Color this morning, I'll jump back in the queue.
Thank you Paul.
We will go next to Selman <unk> at Stifel.
Thank you good morning.
Just following up on.
On Elsa and DSM.
So sales start in the fourth quarter, and then roll forward into 2025, Youre getting paid for reservation is there any.
Yes, sort of where you would owe them services in lieu of the reservation fee or should we kind of think because this is a steady.
In run rate as we enter into 2025.
Can you expand your question a little bit more of a tough time conducting suddenly I apologize okay. No worries no worries. So yeah, I think you guided to like 850000 from a reservation payment and as we roll forward into 2025 of the reservation, if theres no volumes associated.
Selman Akyol: I'll jump back. Thank you, Kyle. We'll go next to Selman Akyol. Thank you. Good morning.
Selman Akyol: So just following up on ELSA and DSM. So sales start in the fourth quarter and then roll forward into 2025. You're getting paid for a reservation. Is there any?
With it is there any catch up they get to do so when we think about <unk> 25 is it still sort of a ratable reservation fee of 850000 or is there a catch up is there anything that would take you off that sort of call it $1 million run rate as we go further out okay.
Selman Akyol: I guess, sort of. [inaudible] run rate as we enter into this. Can you expand your question a little bit more? I had a tough time connecting Selman, I apologize. Okay, Nate, no worries, no worries.
Okay. Thank you understand clearly when you said $1 million.
Selman Akyol: So, I think you got it to like $850,000 from the reservation payment. And as we roll forward into 2025, if the reservation, you know, if there's no volumes associated with it, is there any catch-up they have to do? So, when I think about 1Q25, is it still sort of a ratable reservation fee of $850,000, or is there a catch-up? Is there anything that would take you off that sort of, you know, call it a million-dollar run rate as we go further out? Okay, thank you. I understand clearly.
Youre talking about on a quarterly basis so yes.
Yes.
We get a reservation fee of approximately a million bucks a quarter going forward and we have cost.
Some of that of course, but yes. There is no catch up that that is going forward for the for the term of the agreement.
And then.
And I know customers are kind of moving a little bit to the right, but at one point I thought there was some discussion of maybe.
Could this get larger as you guys go along is there any of those discussions that are continuing or should we just sort of think about.
What you guys have planned right now is what we should expect over the next several years.
We haven't had any formal discussions.
Any expansion.
But we certainly have the ability from the OEM production standpoint to do that.
Randall L. Tauscher: Now, when you said the million dollars, you're talking about on a quarterly basis. So, yeah, we get a reservation fee of approximately a million bucks a quarter going forward. And we have costs that offset some of that, of course. But yeah, there's no catch to that.
And if you look at the fundamentals with the new plants getting built in.
And the types of semiconductors.
They're going to build.
The consumption of the asset and we're producing sure looks like thats poised for growth going forward.
But we haven't had any significant discussions around that yet at this point in time.
Randall L. Tauscher: That is going forward for the term of the agreement. Got you, and then. [inaudible] Could this get larger as you guys go along? Is there any of those discussions that are ongoing, or should we just sort of think about it? What you guys have planned right now is what we should expect over the next several. We haven't had any formal discussions about any expansion at that site, but we certainly have the ability from an oil production standpoint to do that. And if you look at the fundamentals with the new plants getting built in the and if you look at the fundamentals with the new plants getting built in the, and the types of semiconductors that they're going to build, they're going to build consumption of the acid we're producing.
Understood and then.
Just pivoting back to transportation.
On the marine rates.
I E.
Any locking up at all or are you guys really still doing everything in the spot market there.
Any one year contracts or any discussions centered around that at all.
Yes, we've already locked up for four year lengths are offshore equipment. Those those two those two units.
The inland Tows, you know we have 11.
Those units we have currently four on spot.
And then on on some sort of.
Three to six month contract arrangement.
And that's what we anticipate going forward, we have five toes coming off of contract within the next 30 to 60 days, we anticipate renewing those at.
Selman Akyol: Sure looks like that's poised for growth going forward, but we haven't had any significant discussions around that yet at this point in time. And then, just pivoting back to transportation, on the marine rates, I ask: Any locking up at all, or are you guys really still doing everything in the spot market there? Any one-year contracts, or any discussions in and around that at all?
Another three to six month arrangement, but nothing longer than that.
Got it and can you just say how pricing is going on that is.
Is that it to be at a higher level in line any indications you can give there.
Pricing has been good.
Sure.
Two years ago last year, one of 2000 Bucks a day on average.
A year ago to now is up about a 1000 <unk> hundred dollars a day.
Our spot agreements are above our contract agreements.
Randall L. Tauscher: Yeah, we've only locked up for a year length, our offshore equipment, those two units, the inland tows, you know, we have 11 of those units; we currently have four on spot, and seven on, on some sort of, you know, three to six-month contract arrangement, and that's what we anticipate going forward. We have five tows coming off of contract within the next 30 to 60 days, and we anticipate renewing those at... Another three- to six-month arrangement, but nothing longer than that. I got it.
I would assume the contract agreements are going to move up a little bit when theres, a renegotiated, but they havent been negotiated yet.
Got you and then does your guidance also assume that or did you guys you guys fairly conservative there.
Yes, our guidance assumes that.
Okay.
And then last one from me just on the free cash flow share. It if I heard everything correctly that will just be directed at debt reductions.
And so hopefully at the end of the year, you're $10 million plus a little less.
Yes that we will continue to direct free cash flow to reducing outstandings under the revolver and.
We talked about what we're trying to do is to state. Yes. We're at 375 times when we consider the cadence of our capital expenditures this year, which are heavily weighted to the first half of the year along with our interest payments on our notes Ciena, we see that by the end of the year, we are still below the three.
Randall L. Tauscher: And can you just say how pricing's going on that? Is it expected to be at a higher level in line? Any indications you can give?
Sharon L. Taylor: The pricing's been good. I mean, you know. Two years ago, last year, we went up $2,000 a day on average. A year ago to now, it's up about $1,000 to $1,500 a day. Our spot agreements are above our contract agreements, so I would assume the contract agreements are going to move up a little bit when those are renegotiated, but they haven't been negotiated yet. Gotcha. And then does your guidance also assume that, or did you guys guide fairly conservatively? Yes, our guidance. And then last one for me, just on the free cash flow, Sharon. If I heard everything correctly, that will just be directed at debt reduction. And so hopefully, at the end of the year, you'll be $10 million plus a little less. Yes, we will continue to direct free cash flow to reducing outstandings under the revolver.
75 times, but.
Order every quarter in 2024, we could see some lift in that leverage ratio.
Mike This is Bob additional comment, which we really.
Don't really forecast significant changes in working capital there could be some slight variability of working capital is up or down that could.
In fact that number to a smaller degree.
Got you Yeah, I know you guys have been chasing that leverage ratio for a while so congratulations on the improvement.
Thank you.
Okay.
We will go next to Patrick Fitzgerald at Baird.
Thanks for taking the questions.
$32 million.
Maintenance Capex.
Could you provide a little more detail on where that's going.
Yes, so like if you bought.
Some new tank trucks to replace old tanker trucks.
Is that maintenance or is that.
That growth there.
How do you think about that.
So the maintenance Capex.
And I think Sharon.
A little bit in her comments.
We have about $32 million.
Patrick John Fitzgerald: We talked about what we're trying to do is to state, yes, we're at 3.75 times when we consider the cadence of our capital expenditures this year, which are heavily weighted to the first half of the year, along with our interest payments on our notes. We see that by the end of the year, we're still below the 3.75 times, but quarter over quarter, in 2024, we could see some lift in that leverage ratio. And I'll make this, Mr. Bob, an additional comment which we really don't really forecast significant changes in working capital. There could be some slight variability if working capital is up or down, and that could impact that number to a smaller degree. Yeah, I know you guys have been chasing that leverage ratio for a while, so congratulations. Thank you. We'll go next to Patrick Fitzgerald at Baird.
Which is which is up.
Almost $30 million this past year.
We have from our marine perspective, if you take our MBS equipment out of there. So you just look at our.
11, two large tows in our offshore equipment, we have 16 piece of equipment out of R. R.
37% rate go into drive so we have almost 40% of our marine fleet go into dry dock.
This year, which is a very high number because the two bars. They only do every five years.
So we have a larger.
<unk> of Marine equipment go into dry dock and normal and then the turnarounds.
At the.
Refinery turnaround as an every other year event, we happen to have one in 2024 and then the.
The turnaround for the fertilizer Plaza planned view.
<unk> and Beaumont are annual and if you add all that up is 55% of the maintenance capex.
The trucking.
And the new equipment. There is replacement has very little to do we don't spend very much of the $32 million in the trucking business most of theirs would fall through on repairs and maintenance and just flow through the <unk>.
Randall L. Tauscher: Thanks for taking the questions. $32 million in... [inaudible] Could you provide a little more detail on where that's going? Yeah, so like if you bought some new tank trucks to replace old tank trucks. Uh, is that maintenance or is that growth or, you know, how do you think about that? So the maintenance capex. And I think Sharon mentioned this a little bit in her comments.
EBITDA calculation.
This is Bob additional comment to that is the equipment, we do buy in the trucking business is under.
Effectively the operating lease so it doesn't really flow through capital investment.
Maintenance Capex.
Okay.
Yes, okay.
That's helpful color.
The transportation segment.
So.
How much of that you just talked about it with the previous question.
Randall L. Tauscher: We have about $32 million, which is up almost $30 million this past year. We have, from a marine perspective, we take our MES equipment out of it, so you just look at our 11 two-barge tows and our offshore equipment. We have 16 pieces of equipment out of our 37 or 8 going to dry dock.
In terms of the marine but.
Is the what's the right contract lengths on.
Truck side.
And.
Is that essentially.
That would seem like the hardest segment to forecast.
But maybe I'm wrong there.
So.
Like.
Could you talk about how you forecast that.
How much of that is just pure spot versus actually.
Randall L. Tauscher: So we have almost 40% of our marine fleet going to dry dock this year, which is a very high number because the two-barge tows only go every five days. So we have a larger percentage of marine equipment going to dry dock than normal. And then the turnarounds, the refinery turnaround is an every other year event. We happen to have one in 2024.
More contractual in nature. Thanks.
Most of the we do have some some contracts annualize in that business. For example, the most of the land transportation business is based on relationships.
Performance.
And so.
The way we forecast that.
Randall L. Tauscher: And then the turnarounds for the fertilizer plants at Plainview and ATS down in Beaumont are annual. And if you add all that up, that's 55% of the maintenance capex. The trucking and the new equipment there and the replacement have very little to do with it. We don't spend very much of the $32 million in the trucking business. Most of theirs would fall through on repairs and maintenance and just flow through the EBITDA calculation. And this is Bob.
And the reason you've seen it down in the last several years is because of the reimbursement that we have had.
Into building up a newer fleet of trucks and also bringing some newer trailers in so.
So we can provide the types of services we need to.
And that has hit our operating expense.
But yes, you are correct.
Land transportation is probably other than fertilizer, our most difficult business to forecast.
It is so.
Robert D. Bondurant: Additional comment to that is the equipment we do buy in the trucking business is under effectively an operating lease, so it doesn't really flow through capital investment, i.e., maintenance capex. OK. Yeah, okay, no, that's helpful, color.
The key is to is the key to that business as our customers needing our services. So there are plants operated where they anticipate them to operate.
And then having the shipments.
Are you anticipating that we are prepared to handle.
And this is Bob again, I'll say from a macro level as far as forecasting we run a very consistent.
Patrick John Fitzgerald: The Transportation Segment. So, uh... How much of that, you know, you just talked about it with the previous question, in terms of the marine, but is the, what's the like contract length on the? [inaudible] and, is that essentially, you know, that would seem like the hardest segment to forecast. Um, but maybe I'm wrong there.
A number of miles per month or per year, and so that's the fundamental starting point and the forecast is yes.
Do you estimate your mileage you estimate your revenue per mile which has been ticking up.
As inflationary times over time.
That's the fundamental beginning place knowing our consistency with our customer base because of our strong performance.
And service provider customers.
Randall L. Tauscher: Uh, so, you know, like how you forecast that and, you know, like how much of that is just pure spot versus actually a more contractual nature, thanks. You know, most of the we do have some some contracts for annualized in that business, for example, but most of the land transportation business is based on relationships and performance.
Alright, Thanks, a lot that's helpful.
And at this time there are no further questions I would like to turn the conference over to Bob <unk> CEO for closing remarks.
Thank you Andre.
I'll conclude the call with further comments on the DSM semi Ken joint venture or else the project.
As the partnership is concentrated on debt reduction and improved leverage the past few years. We have told you that our strategy for revenue and cash flow growth.
Randall L. Tauscher: And so the way we forecast that, and the reason you've seen it down in the last several years is because of the reinvestment that we have had into building up a newer fleet of trucks and also bringing some newer trailers in so we can provide the types of services we need to. And that has hit our operating expenses. But you're correct, land transportation is probably, other than fertilizer, our most difficult business to forecast because it is so. The key to that business is our customers needing our services so their plants operate the way they anticipate them to operate and them having the shipments that they are anticipating and that we are prepared to handle. And this is Bob again. I'll say from a macro level as far as forecasting is concerned, we run a very consistent number of miles per month or per year.
Within expanding our surfaces to current customers.
Creating strategic alliances around our existing core assets.
So project as a result of focus on that strategy.
Alliance with Samsung and Don Jan utilizes our existing assets in plain view as a base for expansion as low capital requirements and provides an entry point into an industry poised for a decade of growth.
Even with the delays in construction of our facilities.
Due to labor and material availability also project is an exciting growth opportunity for the partnership and our investors.
Thanks for joining the call. This morning, we look forward to speaking with you again on our next quarterly Investor call. Thank you.
And this concludes today's conference call. Thank you for your participation you may now disconnect.
Please wait the conference will begin shortly.
Robert D. Bondurant: And so that's the fundamental starting point in the forecast is you estimate your mileage, you estimate your revenue per mile, which has been ticking up in these inflationary times. So that's the fundamental starting point, knowing our consistency with our customer base because of the strong performance and service we provide our customers. Right. Thanks a lot. That's helpful.
Okay.
Sure.
Sure.
Okay.
Yes.
Okay.
Yes.
Okay.
Yes.
Okay.
Okay.
Sure.
Okay.
[music].
Yes.
[music].
Yes.
[music].
Okay.
Okay.
Okay.
Sure.
Yes.
Yes.
Yes.
Okay.
Okay.
Yes.
Robert D. Bondurant: And at this time, there are no further questions. I would like to turn the conference over to Bob Bondurant, CEO, for closing remarks. Well, thank you, Audra.
Sure.
Yes.
<unk>.
Okay.
Robert D. Bondurant: I'll conclude the call with further comments on the DSM-Semican Joint Venture, or ELSA. As the partnership has concentrated on debt reduction and improved leverage over the past few years, we have told you that our strategy for revenue and cash flow growth lies in expanding our services to current customers and creating strategic alliances around our existing core assets. The ELSA Project is a result of focus on that strategy. This alliance with Samsung and Danjin utilizes our existing assets in plain view as a base for expansion, with low capital requirements, and provides an entry point into an industry poised for a decade of growth. Even with the delays in the construction of our facilities due to labor and material availability, the ELSA project is an exciting growth opportunity for the partnership and our investors.
[music].
Yes.
Yes.
Yes.
[music].
Yes.
Thanks.
[music].
Operator: Thanks for joining the call this morning. We look forward to speaking with you again on the next quarterly investor call. Thank you. And this concludes today's conference call. Thank you for your participation. You may now disconnect. Please wait; the conference will begin shortly. Please wait; the conference will begin shortly.