Q3 2024 Martin Midstream Partners L.P. Earnings Call
Audra: Good morning, my name is Audra and I will be your conference operator today.
Audra: At this time, I would like to welcome everyone to the M.M.L.P. 3rd Quarter earnings conference call.
Speaker Change: Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker'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 one again. At this time, I would like to turn a conference over to Sharon Taylor, Chief Financial Officer. Please go ahead.
Speaker Change: Good morning, and thank you to everyone joining us on the call today. Here in the room our Bob Bondurant CEO Randy Towsher COO David Cannon, controller and Danny Kevin director of FP&A.
Speaker Change: During this call, we will make forward-looking statements as defined by the SEC. These statements are based upon our current beliefs as well as assumptions made by the management team and information currently available to us. Please refer to our earnings press release issued yesterday afternoon and posted on our website 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 materially from our expectations.
Speaker Change: We will discuss non-gap financial measures on today's call. The earnings press release includes the reconciliation of these non-gap financial measures to their comparable gap financial measures. And with that, I will turn it over to Bob to discuss third quarter earnings.
Bob Bondurant: Thank you.
Bob Bondurant: First, I would like to begin with comments regarding the impact of Hurricane Milton on our people and on our assets.
Bob Bondurant: Our Martin team members who operate and manage our Tampa terminal and our trucking operations in central Florida are all safe in a count of four. We shut down both operations within 24 hours before landfall and as a result, our people were able to reposition themselves to safety.
Bob Bondurant: Regarding our assets, our Tampa terminal had no storm surge issues, but the heavy rain filled our tank farm in field and submerged several of our pumps which will be repaired.
Bob Bondurant: We also have some tank insulation damage that will also need to be repaired. Our trucking terminal located in Mulberry had only very minor damage.
Bob Bondurant: All in all, we feel very blessed to have experienced minimal impact to our people and to our locations.
Bob Bondurant: Now I would like to focus on our overall third quarter operating performance.
Bob Bondurant: For the third quarter, we fell short of guidance by 1.3 million, as we had adjusted EBITDAV 25.1 million. Compared to the third quarter, guidance of 26.4 million.
Bob Bondurant: As I mentioned in yesterday's press release, the primary contributor to our guidance shortfall was an increase in expense related to our long-term incentive plans which are tied to the fair market value of our common units.
Bob Bondurant: As a result, we recognize an additional 1.4-main in expense when compared to guidance.
Bob Bondurant: With out this expense recognition, we would have had exceeded 4 cast by .1 million.
Bob Bondurant: The impact of this expense recognition went compared to guidance, negatively impacted our turning and storage segment by 0.6 million.
Bob Bondurant: Both our sulfur services and our specialty products segments 5.3 million each and our transportation segment 5.2 million.
Bob Bondurant: Now I would like to break down our adjusted-ivit-duper formus by each segment.
Bob Bondurant: For the third quarter, our largest cash flow generator was once again our transportation segment, which had adjusted EBITDA of 11.6 million compared to guidance of 10.8 million.
Bob Bondurant: Within this segment, our land transportation business had a very stable quarter and had adjusted it to $6.5 million compared to guidance of $6.4 million.
Bob Bondurant: We believe this ability will continue in the fourth quarter in this business.
Bob Bondurant: Our Marine Transportation Business had adjusted if a 5.1 million compared to guidance of 4.4 million.
Bob Bondurant: While our forecasted utilization was on target with guidance, our average in the day rate exceeded forecast by 8%.
Bob Bondurant: We continue to cease stability and rates through the tightness in the end of the market and as a result expect stable cash only in this business line in the fourth quarter.
Bob Bondurant: Our next strongest cash flow generator in the third quarter was our turning and storage segment, which had adjusted to give a dog of 8.4 million compared to guidance of 9 million.
Bob Bondurant: The missing guidance can be entirely attributed to the increased incentive compensation expense of 0.6 million.
Bob Bondurant: Without this charge, our turning in store saying it was in line with guidance.
Bob Bondurant: Looking toward the fourth quarter, we believe both operations and adjusted it to our remain stable for our termling and storage segment.
Bob Bondurant: Our third largest cash flow generator was our specialty product segment, which had adjusted the dividend of $6.6 million, compared to the guidance of $6.5 million, a miss of $1.9 million.
Bob Bondurant: Excluding the long-term incentive compensation expense charge of 0.3 million, we missed guidance by 1.6 million.
Bob Bondurant: This miss was primarily the result of week performance from both our package lubricant and grease business lives.
Bob Bondurant: Both groups saw weaker demand for their products in forecasted. We believe this week demand is being driven by the slowing US economy.
Bob Bondurant: Looking toward the fourth quarter, the overall week-ur-economic combined with the seasonal reduced demand for our lubricant and grease products should result in softer cast on the fourth quarter relative to the other three quarters.
Bob Bondurant: Finally, I would like to discuss the performance of our sulfur services segment, which had adjusted Hibida 4.2 million compared to guidance of 3.7 million.
Bob Bondurant: With the help of long-term incentive-based compensation charge of 0.3 million, we would have exceeded guidance in this segment by 0.8 million.
Bob Bondurant: The pure sulfur side of our sulfur service this segment at adjusted EBITDA 3.7 million compared to guidance of 3.1 million.
Bob Bondurant: The primary driver of this app performance with the strong volume of sulfur production from our Gulf Coast Refinery Customers.
Bob Bondurant: The daily volume of sulfur handled was 12% greater than our forecast as we logistically manage approximately 3600 tons per day of sulfur production into our through our Beaumont terminals.
Bob Bondurant: Looking toward the fourth quarter, subject to any unexpected refinery turner rounds, we remain optimistic that self-reproduction from all refinery customers will continue to remain at these higher levels, but should allow us to achieve or exceed guidance in the pure self-recyt of the business.
Bob Bondurant: Our fertilizer group had adjusted the EBITDA.0.4 man, which was 0.3 man less than EBITDA guidance for the third quarter.
Bob Bondurant: While the volume of fertilizers sold in the third quarter was 27% less than forecast, we realized an improvement in actual gross margin per ton relative to guidance.
Bob Bondurant: This margin improvement was a result of the mix of fertilizer products sold in the third quarter when compared to our forecast.
Bob Bondurant: Looking toward the fourth quarter, we anticipate the normal seasonal trough and cash flow relative to the first and second quarters for the fertilizer business.
Bob Bondurant: Before I turn the call over to Sharon, I would like to make a few comments regarding our pending transaction with Martin Resource Management Corporation.
Bob Bondurant: As you know, MRMC approached MMLP with initial buy-out proposal on May 24, 2024, which was reviewed by our Board's Conference Committee, which consists of three independent directors and was assisted by independent financial and legal advisors.
Bob Bondurant: A robust process ensued and the committee negotiated hard on behalf of the unaffiliated unit holders to maximize value.
Bob Bondurant: The pending transaction will deliver nearly a dollar more per unit than the initial proposal.
Bob Bondurant: In the weeks ahead, we will follow a proxy statement with more detail on the transaction and we look forward to engaging with unit holders as we work to secure the necessary approvals to complete the transaction.
Bob Bondurant: Well, we look forward to keeping you all updated until the proxy is filed. We have no more information to share regarding the pending transaction.
Bob Bondurant: As such, the focus of our calls today will be on our third quarter for formance. We ask that you please keep questions focused on our financial and operational performance.
Speaker Change: Now I'll turn the call back over Sharon.
Sharon: Thank you, Bob.
Speaker Change: As of September 30, 2024, our total long-term debt outstanding was 486.5 million.
Speaker Change: of which 86.5 million was drawn under our revolving credit facility and the remaining 400 million consists of our second lien, 11.5% notes due February 20, 28.
Speaker Change: Our available borrowing capacity under a 150 million revolving credit facility with approximately 54.3 million, including a reduction for approximately 9.2 million of issued letters of credit.
Speaker Change: Our Bank Compliant adjusted leverage ratio with 4.14 times at the end of the quarter and Interscrubler was 2.23 times.
Speaker Change: While both are total outstanding debt and adjusted leverage increased from the second quarter.
Speaker Change: Due to working capital needs coupled with the August interest payment on our outstanding notes, we remain committed to debt reduction and anticipate exiting the year at a debt level that reduces our adjusted leverage to below four times.
Speaker Change: At the end of the quarter, the partnership was in full compliance with all of our covenants, banking or otherwise.
Speaker Change: Capital expenditures in the third quarter were 12.5 million consisting of 8.6 million in maintenance capbacks and 3.9 million in expansion capbacks.
Speaker Change: The majority of maintenance cat backs during the quarter was associated with regulatory inspection costs on marine equipment and turn around at our furlager plants.
Speaker Change: The expansion cap-ex was primarily related to improvements to the OEM Tower in Plainview Texas in support of the Elsa Joint Mentor.
Speaker Change: Our forecast for full-year 2020-4 capital expenditures now total 57.4 million down from the previous 58.4 million discussed during the second quarter conference call.
Speaker Change: We currently anticipate full-year maintenance catbacks to be 34.8 million and full-year expansion catbacks to be 22.6 million.
Speaker Change: which includes 18.8 million for the Elsa J.V. either through improvements to the O'Liam Tower or cash contributions for our 10% ownership of the joint venture.
Speaker Change: As Bob discussed, overall the partnership performed well in the third quarter, allowing us to maintain our adjusted EBITDA guidance for full year 2024 of 116.1 million.
Speaker Change: For the fourth quarter we have adjusted our forecast slightly for both the marine and sulfur services divisions.
Speaker Change: You will find our 2024 adjusted EBITDA guidance for each individual business under our four reportable segments in the presentation attached to yesterday's earnings press release.
Speaker Change: That concludes my remarks for today and I will turn it back over to Audra for Q&A.
Speaker Change: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Speaker Change: We'll take our first question from Selman Actual as default.
Speaker Change: Hi guys, this is Tim on for Selman. I appreciate you taking my call.
Speaker Change: So I just wanted to start off in Florida and I appreciate the update and I'm glad.
Speaker Change: The person now are all okay, but just wanted to kind of see if this will have any implications for The remainder of the year as far as you know cash flow from those assets and potentially any You know capital that needs to be allocated to kind of fixed some of the minor damage there
Speaker Change: Morning, Ken, this is Randy. In our Tampa terminal, this is staying a little bit of damage, insulation on some of the tanks. Pump's are going to have to be repaired. So we're going to have a capex outlay of somewhere between half a million and a million dollars over the fourth quarter and first quarter to cover those expenses.
Speaker Change: Other than that, we don't expect much impact commercially.
Speaker Change: Got it, appreciate that. And then I guess jumping over to Elsa just wanted to get any updates there, everything, you know, so on track. And then, has there been any other indications from Samsung on potential feature prospects for growth out of that JV?
Speaker Change: Yeah, so...
Speaker Change: You know, the, the also a plant was supposed to began taking the feedstock from Martin in August and talked about that the last call in July. It hasn't taken the feedstock yet.
Speaker Change: We're ready to provide the feedstock as soon as DSM is ready to take it. We expect that to be within the month of October.
Speaker Change: So, but I'm told not this week, so next week, they should be ready to start taking the feast stock and that's going to start the whole process of producing else, testing the else, improving their processes and then qualifying it with the customers.
Speaker Change: So that is imminent. In terms of the sales program, I think the sales program is likely to be delayed from what we thought it was going to be.
Speaker Change: I love you.
Speaker Change: You've probably seen the news articles out there on delays, we've seen some public announcements for that. I think sales in 2025 probably are not going to be as robust.
Speaker Change: As we were hoping, they would be, and until we see that development, there's probably not going to be much discussion around the next plant, because we need to make sure this plant is commercial first.
Speaker Change: i
Speaker Change: and I'll add one more comment is that we do have a reservation fee that does begin October 1st. That will be that will be earned.
Speaker Change: But to Randy's point, the sales of actual Elsa to the customers will be slightly muted for a while.
Speaker Change: I just turned to the barge business that you kind of highlighted strength there and it's certainly outperforms but just kind of curious on what you're currently seeing for rates and any updates to contracting there.
Speaker Change: Yes, so the rates are currently 11,000 to 11,500 today.
Speaker Change: which is a couple thousand dollars greater than it was a year ago and the clean rates are currently ninety six hundred and ninety eight hundred dollars per day which is on par of work was a year ago. So we've seen a continued rise in the heated rates we've seen.
Speaker Change: Stable over the last year in the clean rates now. What we are seeing now is the stable market for the heated rates. We don't see those rates.
Speaker Change: Continuing to rise at least through the winter months at Adam and they've stabilized out.
Speaker Change: but what we expect that business is very well in the fourth quarter and in the first quarter. In terms of the term of the rates, we have one of our third party toes in dry dock. Other than that, we have 50% of our toes locked up.
Speaker Change: on term into 2025, think some of those are five, some of those are 12 months long, yet we're remaining, and then we have...
Speaker Change: 20% of remaining fleet on a term contract with coming to his hand. Here's the next 30 or 45 days and those rates will be negotiated. The rest of them are on spot.
Speaker Change: Got it. And then one last one, if I could and I understand that you guys can't answer it, but just regarding the proposed merger.
Speaker Change: Will the vote be kind of a simple majority or will it be a majority of the holders outside of inside ownership?
Speaker Change: Yeah, that will be a simple majority vote.
Speaker Change: Okay, got it. That's all I had. Thank you guys so much for the time.
Speaker Change: Thank you, Ken.
Speaker Change: We'll move next to Kyle May at Sudody.
Speaker Change: Hey, good morning everybody
Speaker Change: Good morning, Kyle.
Kyle May: So I appreciate it too soon for formal guidance next year, but just wondering if you can give us any preliminary thoughts about a capital spend in 2025, just given where we're probably getting wrapped up on the capital needed for Elsa, so just curious kind of preliminary thoughts about next year.
Kyle May: Here we go.
Kyle May: Yeah, so from a close capital perspective.
Speaker Change: I'm not in there as significant as what we saw this year because the else of the else is still has a few dollars to spend.
Speaker Change: but I think somewhere in the ballpark of a million as we believe and we'll be done with everything we committed to on that project. From the maintenance perspective, we haven't really haven't gotten to our Beijing process yet. I will tell you we don't.
Speaker Change: Right now I will plan refinery turnaround for next year and we have less barges going to the shipyard.
Speaker Change: Next year. So I would think that we would be under the 34.8 million. That looks like we're going to achieve this year. We don't, we have enough yet to talk with any certainty around that.
Speaker Change: Okay, great, that's helpful.
Speaker Change: And then another question on the Elsa project, I believe previously, you've indicated that once it's fully operational, it could generate about six million on an annual basis for Martin, can you give us an update on your outlook, maybe first on that total amount, you know, once it's fully operational, that's six million still a good figure, and then with the slowdown next year.
Speaker Change: Just kind of how you're thinking about that progression to that full run rate.
Speaker Change: And so as Bob come in and we're getting the reservation fee starting this month. And when we originally ran the economics and values, he also, when he also would get sold to the consumers about 60 to 70% of the value in the project.
Speaker Change: would come with the reservation fee.
Speaker Change: and the other 30 to 40% would come depending upon the ultimate sales price we get in the volume.
Speaker Change: we would sell. So I would say for 2025, again, we're working on our budget for next year. We'll be relying, we'll remember, we're in my norty.
Speaker Change: Okay, got it. Appreciate the time this morning.
Speaker Change: Thank you guys.
Speaker Change: We'll move next to Patrick Fitzgerald at Baird.
Patrick Fitzgerald: Hi, thank you for taking the questions, so I guess the guidance implies that you're going to have about 55 or so of
Patrick Fitzgerald: Borrowings on the revolver at the end of the years, that, cure.
Speaker Change: Yes, I think we're going to end up somewhere between 55 and 60ish million at year end.
Speaker Change: Okay.
Speaker Change: But in the free cash flow outlook, I guess, you know, given your commentary in the last question about CapEx.
Speaker Change: No major projects, your free cash flow generation will be improved in 2025.
Speaker Change: So...
Speaker Change: Yes, sir, that's fair.
Speaker Change: We think, well we haven't got our projections out there but probably somewhere in the neighborhood of 30 million.
Speaker Change: Awesome.
Speaker Change: and then just on the acquisition financing, I think there's some confusion out there of...
Speaker Change: you know how it relates to the MMLP debt structure. So if you could just, I mean, I don't really think that's a question.
Speaker Change: That would be prohibited, but maybe this, but if you could just talk about like the financing and how it impacts and the NLP, that would be helpful. Thank you.
Speaker Change: and I'm going to tell you what I'm going to do with this.
Speaker Change: Sure, as far as MMLP, nothing at the MMLP level will change, related to our capital structure after the transaction is closed, should it close? So, our notes remain outstanding.
Speaker Change: and our credit facility remains outstanding and we don't type believe the credit facility.
Speaker Change: The Church in 27 and the notes mature in 28, but there is no consideration at this moment for anything changing within either of those two facilities.
Speaker Change: and you're not borrowing anything at MMLP to help finance the acquisition, right?
Speaker Change: That's correct, no, we are not.
Speaker Change: Okay, and I guess it's only like...
Speaker Change: would just be, I guess, a little bit more lever.
Speaker Change: I'm not sure I understand the question, but I'll go back to the contracts. We have numerous contracts between MRMC and MMLP that are outstanding and will continue to be outstanding. Those have been negotiated.
Speaker Change: Prior to this deal, and have gone through MMLP's conflicts committee for approval. And then on the MRM seaside, they have their own financing, which will be effective with the...
Speaker Change: with the finalization of the buyout.
Speaker Change: Okay.
Speaker Change: I'm...
Speaker Change: All right, and then what would be the...
Speaker Change: would there be kind of increase need to distribute cash up to.
Speaker Change: MRMC, so that they could deal with their financing or how that work.
Speaker Change: i
Speaker Change: So MRMC as the sole unit holder, again, depending on whether or not the deal closes, which is subject to a unit holder boat, MRMC would at that time be the recipient of any distributions that MMLP should choose to make when they are able to or when we are able to under the constraints of our current revolving credit facility and the indenture under the notes.
Speaker Change: Okay.
Speaker Change: It's very helpful. Thank you very much.
Speaker Change: Thank you.
Speaker Change: and that concludes our Q&A session. For today, I will now turn the conference back over to Bob Bondurant for closing remarks.
Bob Bondurant: Thank you. In closing, I'd like to thank you again for participating in our call today. Circling back to the merger agreement with M.R.M.C. Are we iterate that we will file a proxy statement in the coming weeks? Which will provide more detail on the transaction? But until a proxy is filed, we have no more information to share. Thanks again and have a great day.
Speaker Change: This concludes today's conference call again. Thank you for your participation. You may now disconnect.
Speaker Change: The The