Q2 2019 Earnings Call
Good morning, and welcome to todays call on the call today are Brad Barron start energy Lps, President and CEO , and Tom Shoaf, Executive Vice President and CFO , along with other members of our management team.
Before we get started we would like to remind you that during the course of this call Newstar management will make statements about our current views concerning the future performance of new stores that are forward looking statements. These statements are subject to the various risks uncertainties and assumptions described in our filings with the Securities and Exchange Commission.
Actual results may differ materially from those described in the forward looking statements.
During the course of this call. We will also refer to certain non-GAAP financial measures. These non-GAAP financial measures should not be considered as alternatives to GAAP measures reconciliations of certain of these non-GAAP measures to U.S. GAAP may be found in our earnings press release with additional reconciliations located on the financials page of the Investor section of our website at least our energy dotcom.
With that I will turn the call over to Brad Barron.
Good morning, Thank you for joining us today, I'll turn the call over to Tom for more details.
Well take a few minutes to walk you through some highlights on new stars performance for the second quarter.
Our progress on our 2019 capital projects.
As well as what we expect for new store in the second half of 2019 and beyond.
First for the highlights on the strong results, we generated second quarter in a word we were up.
Over second quarter 2018 on all of our key indicators.
Total pipeline is toward revenue up 7%.
Adjusted EBITDA of 8%.
Adjusted net income of 85%.
Adjusted EBITDA was up 20%, even with the impact of our merger and simplifying our structure and eliminate our IDR.
DCF available limb common limited partners of nearly 10%.
There was one key metric however that was down in the second quarter compared to Q2 2018.
I think we all agree that in this case down is better than up or second quarter debt to EBITDA ratio was 3.95 times significantly lower than the 4.72 times, we reported at the end of Q2 2018.
In addition to the EBITDA increases I mentioned, another key factor in longer debt to EBITDA ratio. This year is our sale of the saying Eustatius operations.
I'm very pleased we were able to close on our sale.
Say eustatius at a healthy double digit multiple in July .
And that sale EBITDA improvements for the quarter, our port earlier has allowed us to lower our year end 2019 debt to EBITDA projection of 4.1 times improved from our prior guidance of 4.3 times well under our revolver debt covenant of five times.
What's more the sale of things they separations not only lowered our leverage it also simplified our business reduce our risk profile lowers our 2019 reliability capital and allows us to focus 100% on our core business here in North America.
Speaking of our core business, we've made great progress on our 2019 capital projects from the summer I want to congratulate and thank our project teams for what they have accomplished.
As you know.
We have capital projects in 2019 totaling between 500 and $550 million, marking a high point in new starts historical capital spending.
The majority of our 2019 spending is earmarked for three things.
The continued build out of our Permian crude system.
[noise] project to deploy.
Underutilized assets to supply refined products in northern Mexico.
And our Corpus Christi export project.
Starting with the Permian.
We continue expand our system keep pace with our customer needs. So far this year, we've expanded our capacity by 100000 barrels per day from 460000 barrels per day to 560000 barrels per day.
We've also added.
25, additional well connections and completed connections to third party pipelines and facilities.
To ensure we have the flexibilities for shippers need.
And our volumes continue to grow and reflect our Permian team's hard work the quality of our dedicated acreage and the skill and experience of our producers.
Our system throughput has now grown been amazing 200% since we acquired it in May 2017, far outpacing overall Permian basin throughput, which has grown about 80%.
We're currently moving nearly 400000 barrels per day.
Based on what we know from our producer forecast, we still expect to exit the year around 450000 barrels per day.
As I've mentioned before we work closely with our producers to understand their drilling plans and meet their needs.
Contrary to some commentary we've heard about the Permian overall production growth slowdown our producers are proceeding full speed ahead on our dedicated acreage.
Turning to our project to supply.
Refined products in Northern Mexico, Our early service for Valero on the label rental project is scheduled to go in service this quarter.
Our valley pipeline expansion.
It is also on schedule to be in service. This quarter. We're pleased that our open season for the Valley line was fully subscribed.
Finally, turning to our Corpus Christi export project.
We're happy to announce that the first stage of the project, which utilizes our 16 inch pipeline in south Texas to receive and transport W. T from a connection the cactus to Corpus Christi export facility is now complete and ready for service.
We're excited to report that is starting to seize early next week.
A corpus Christi dock facility will be the first four to Corpus Christi export barrels transported south Texas being one of the three large Permian long haul pipeline projects.
The second stage of our export project, a new eight mile 30 inch pipeline to transport diabetes from a connection to cactus too and Taft or Corpus Christi terminal is on schedule to be in service this quarter.
I'd like to add.
Even in advance of completions significant project.
We are seeing volumes on our south Texas crude system up to around 180000 barrels per day significantly above our minimum volume commitments of 106000 barrels per day for the system near the record volumes, we transport on the system back in 2015.
And that increased pipeline volumes also increased utilization of our Corpus Christi terminal storage.
In addition, we now expect to connect our South Texas crude system. The Grail, how we 97.
We should bring additional volumes to our system as early as the beginning of fourth quarter.
We expect our strategic capital spending to peak in the third quarter as we get as we begin completing these projects.
Moving to our expectations for the full year, we continue to expect 2019 adjusted EBITDA in the range of 665 to 715 million.
And we now expect to finish 2019.
Our DCF coverage in the range of 1.3 times to 1.4 times also improved from our prior guidance of 1.2 to 1.3 times.
Beyond 2019.
Well, we won't be able to provide the specifics on 2020 to later in the year I can tell you that next year as the cash flows from those completed projects ramp up fully we're also planning to spend significantly less strategic capital, which we expect will lead to another solid year.
2020.
We plan to execute on a smaller scale capital program on low cost low multiple project to enhance our existing assets, while providing world class service across our footprint, we continue to build financial flexibility.
Improve our debt metrics.
Our balance sheet.
For remainder of this year.
We are focused on completing our projects and operating efficiently and safely drill and continue to generate solid consistent growth demonstrated by our second quarter results.
Now I'll turn it over to Tom for more details on those results.
Thanks, Brad and good morning, everyone.
Before I get started I just want to have a few housekeeping items related to our sell the same station its operations a first because of that sale. The site Eustatius operation results for all periods presented in our earnings tables are now reported as discontinued operations.
Further discontinued operations for the prior year periods includes the results of our European operations, which were sold in late 2018.
Our reported second quarter results, which include adjusted net income adjusted EPU adjusted EBITDA DCF and related metrics include results for both continuing and discontinuing operations.
Excluding these measures is a noncash impairment charge totaling 8.4 million related to our site Eustatius divestiture.
For the second quarter of 2019, we generated adjusted EBITDA of $169 million up $12 million over the second quarter 2018, adjusted EBITDA of 150 657 million.
Adjusted net income for the second quarter of 2019 was $54 million.
Up $25 million or 85% over the adjusted net income of $29 million in the second quarter of 2018.
Second quarter 2019, adjusted earnings per unit was 18 cents compared to adjusted EPU of 15 cents for the second quarter 2018.
Second quarter 2019, DCF available to common limited partners was $90 million.
$8 million compared to DCF available to common limited partners of $82 million for the second quarter of 2018, and our distribution coverage ratio for the common limited partners was a strong 1.39 times.
Second quarter 2019, EBITDA in our pipeline segment was $120 million of $18 million or 18%.
From the second quarter of 2018.
Due to continued throughput volume ramp in our Permian crude system increased crude volumes on our Ardmore system, resulting from our recent connection to the Sunrise pipeline at Wichita Falls.
For segment reporting we exclude the divested St Eustatius and European operations from all prior periods.
For an apples to apples comparison of our results between periods.
Our second quarter 2019, EBITDA in our storage segment was $62 million comparable to second quarter 2018 EBITDA.
While we have seen increased storage and dock fee revenues at our site or I'm, sorry, our Corpus Christi North Beach terminal.
From increased quarterly volume receipts on our south Texas crude oil system.
As well as the start up of revenue from some recently completed west coast bio fuel storage projects those increases were offset by onetime accounting entry related to contract termination.
In the second quarter of 2018.
Second quarter 2019, EBITDA in our fuels marketing segment was 3 million essentially flat compared to the second quarter of 2018.
On may 16th we raised $500 million by issuing 6% seven year senior notes. This bond offering was significantly oversubscribed subscriber and we used a portion of these proceeds to refinance $350 million of notes that matured in 2018 and for general corporate purposes, including funding our capital spending program and repayment of our outstanding borrowings on our revolving credit facility.
Our June Thirtyth debt balance was 3.5 billion and our debt to EBITDA.
Ratio was 3.95 times significantly below.
Our credit agreement Covenant threshold of five times.
Turning to our projections for full year 2019.
Which now include our recent sale of the site Eustatius operations. We continue to expect Nustars 2019, adjusted EBITDA to be in the range of $665 million to $715 million.
With regard to 2019 capital spending Brad mentioned that we continue to expect $500 million to $550 million of spending for strategic and other capital in 2019, which is primarily made up of approximately $175 million on the Permian crude system $150 million for the northern Mexico refined products supply projects and about $105 million for our Corpus Christi, North Beach terminal export projects.
Regarding our reliability spending for 2019, we now expect to spend 60 to 80 million, which is lower.
Then our prior estimate range.
Based on these projections as Brad noted in his remarks, we now expect our common unit distribution coverage ratio for 2019 to be in the range of 1.3 to 1.4 times and our year end debt to EBITDA ratio to be around 4.1 times and with that I will turn the call back over to Brad for his closing remarks.
Thanks, Tom.
Thank you all for listening today give me the opportunity to talk to you about what our employees have accomplished so far in 2019.
Look forward to reporting more good news as the year progresses.
More positive results more projects completed and more information about the growth and improvement we plan for 2020.
And with that ill open it up for Q and a.
Thank you ladies and gentlemen, if you have a question at this time please press.
Number one key on your telephone keypad. If your question has been answered I wish to remove yourself from the queue. Please press the pound key.
To prevent any background noise. We ask you. Please please your line on mute once your question hasn't stated and our first question comes from the line of Jeremy Tonet with JP Morgan Your line is open.
Hi, This is Joe for Jeremy.
I wanted to ask first just kind of accounting wise, the 62 million I think you mentioned for storage EBITDA.
Is that before or after the 8 million impairment for staying in spaces.
No. It doesn't it doesn't include that that's a.
Thats not there now 62 million does not include the $8 million.
Okay.
So then including on it it would be $8 million.
Okay, well that's been move that's down in.
All the result of that.
Related to the same stations in all the results were seeing patients are included in a line called discontinued operations. None of that seems stages results are included in the storage segment results towards segment earnings for either period.
Okay that makes sense that's helpful.
And then also I wanted to ask.
With the topline numbers will proceed and could you just kind of.
Talk about the opportunities you're seeing out your St. James terminal and the possible size and timing of any expansion you may see that.
Yeah, Joe This is Danny Oliver.
We're working on a project right now to get our portion our connection there reverse.
We plan on being in service.
The time that they've said cap line will be reversed we've got.
Many customers in the facility that are interested in that connection and we expect that it will.
Increased throughputs at the terminal, probably very significantly and we'll just continue to monitor that interest and look for opportunities, possibly even to build more storage if the volumes.
Tom.
Great. That's helpful. Thanks, Thats all from me.
Thank you and once again, ladies and gentlemen that is star and then the number one key to ask a question. Our next question comes from Ryan Levine from Citi. Your line is open.
Good morning warrant.
Can you.
What are the volumes that you're expecting to come off of Graham I think in your prepared remarks, you mentioned some kind of activity that you're building there.
Yes, we've got to the activity some of our customers want that connection.
We're expecting at least initially the bulk of the volume coming in from the Permian to come in on the Cactus line with.
One of our customers. We don't we don't have a specific volume that we're anticipating.
Coming over there, but they will supplement.
Their exports with volumes off of great.
What's the capacity that you're able to take up the great work.
Through this connection because it flows through our Eagle Ford system, we could probably run.
50 to 75000 barrels a day.
Through that system or from that system from that point.
Okay. Thanks, and then in terms of the reliability capex, what's driving the lower lower numbers that youre guiding to.
Pulling Sasha stations out.
Okay.
And then to your point about your leverage is coming down you're expecting more work or.
Consolidated free cash flow for next year.
And are you more open to strategic acquisitions.
And is there a certain types of assets that.
You are more focused on today.
No I'd say right now we're really focused on.
Completing our projects lowering our leverage.
Okay, great business.
So we want to continue to grow our business and our organic opportunities.
At this point look better than anything we see out on the market.
Okay, great. Thank you.
Thank you and I'm showing no further questions at this time I would now like to turn the call back to Tim Taylor Garcia for closing remarks.
Thank you Sidney we would once again like to thank everyone for joining us on the call today. If anyone has any additional questions. Please feel free to contact Newstar Investor relations. Thanks, again and have a great day.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect everyone have a great day.