Martin Midstream Partners LP (MMLP) 2009 Q1 法說會逐字稿

Good day, and welcome to the Martin Midstream Partners first quarter first quarter 2009 conference call. Today's call is being recorded. At this time, I'd like to turn the conference over to your host, Mr. Joe McCreery, Vice President of Finance and Head of Investor Relations. Please go ahead, sir.

Thank you, Kelly. Let me start today by introducing the Martin team on the call with me. First, Ruben Martin, President, Chief Executive Officer and a Director of the Company. Second, Bob Bondurant, Chief Financial Officer, and Wes Martin, Vice President of Business Development.

Before we get started with financial results, I need to make this disclaimer. Certain statements during this call may be forward-looking statements relating to financial forecasts, future performance or our ability to make distributions to our unit holders. The words anticipate, estimate, expect and similar expressions are intended to be among the statements to identify forward-looking statements during this call.

We report our financial results in accordance with generally accepted accounting principles and use certain non-GAAP financial measures within the meanings of the SEC Regulation G, such as distributable cash flow and EBITDA. We use these measures because we believe it provides the users of our financial information meaningful comparisons between the current results and prior reported results. It can be a meaningful measure of the partnership's cash available to pay distributions. Distributable cash flow should not be considered an alternative to cash flow from operating activities. Furthermore, distributable cash flow is not a measure of financial performance or liquidity under GAAP, and should not be considered in isolation as an indicator of our performance.

We included in our press release yesterday a reconciliation of distributable cash flow to the most comparable GAAP financial measure. Both our earnings press release and our first quarter 10-Q are available at our website at www.MartinMidstream.com.

With that out of the way, I'd like to hand the call over to Bob Bondurant to discuss our first quarter financial performance.

Thank you, Joe. For the first quarter, we had net income of $4.9 million, or $0.28 per limited partner unit. In the first quarter, because of certain commodity and interest rate hedges that did not qualify for hedge accounting, our net earnings were negatively impacted by $1.1 million, or $0.08 per limited partner unit. So without this negative net non-cash impact to our financials, our earnings would have been approximately $6 million, or $0.36 per limited partner unit.

As with other MLPs, the most important measure of our performance is distributable cash flow. Our distributable cash flow for the first quarter was $13.9 million, a distribution coverage of 1.17 times. Due to the continued weakness in the financial markets and the corresponding lack of access to new capital, we are continuing to keep our distribution flat at $0.75 per unit per quarter. Based upon our current $0.75 quarterly distribution and yesterday's close price of $19.82, our LP units are currently yielding 15.1%.

Now I'd like to discuss our first quarter performance by segment, comparing net performance to the fourth quarter. First, in our terminalling segment, our cash flow, which is defined as operating income plus depreciation and amortization, was $5.1 million in the first quarter compared to $6.7 million in the fourth quarter of 2008. We experienced an $800,000 decrease in our lubricant cash flow as sales prices fell in the first quarter, negatively impacting margins as we reduced our higher-priced lubricant inventories against those sales.

Also beginning in the second quarter, we sold our terminalling lubricants inventory at our full-service and lubricant terminals to Martin Research Management for $4.9 million, the carrying value of the inventory at the date of transfer. The purpose of this transaction is to transfer products that generate non-qualifying revenue to Martin Midstream Partners and replace them with qualifying throughput service revenue. As a result, this transfer will be cash flow-neutral to the partnership on an operating basis, but the partnership will gain an additional $4.9 million of liquidity.

Lubricant sales related to our June 2007 acquisition of Mega Lubricants will remain in the financial statements due to their qualifying nature.

Also, at March 31, 2009, we have a receivable from our insurance carrier for $4.6 million for terminal property losses we have paid that were experienced during Hurricane Ike. We will be receiving $2.5 million of this insurance receivable in the second quarter, and the balance later in the year.

Looking forward to the second quarter, we continue to see stability in our terminalling segment, and anticipate our cash flow to be similar to our first quarter.

In our natural gas services segment, we had operating income of $2.5 million in the first quarter, compared to $1.2 million in the fourth quarter. In the first quarter, we had a $300,000 non-cash mark to market loss, compared to a $3.4 million non-cash mark to market benefit in the fourth quarter. Complementing our natural gas services is our cash flow from our unconsolidated entities, which is primarily our 50% owned Waskom gas processing plant.

For the first quarter, our cash flow generated from these unconsolidated entities was $3.1 million, compared to $2.6 million in the fourth quarter. So without the impact of non-cash mark to market adjustments, plus our distributions from our unconsolidated entities, our natural gas services cash flow for the first quarter was $6.9 million, compared to $1.4 million in the fourth quarter.

The increase was driven by improved margins in our wholesale propane business. Due to generally accepted accounting principles, we were forced to write down inventory to lower cost of market, negatively impacting the fourth quarter by $2.7 million. As a result of that lower cost inventory, we realized average margins of $0.06 per gallon in our wholesale propane business in the first quarter. As a result of our wholesale propane business, cash flow improved $5 million in the first quarter compared to the fourth quarter.

To touch on the natural gas processing side of our NGL segment, Waskom's current contract mix is 45% of liquids, 39% fee-based, 16% percent of proceeds and less than 1% keep whole. We currently have 47% of our 2009 volumes hedged and 21% of our 2010 volumes hedged. When factoring in our hedge volumes for 2009, a $1 change in natural gas pricing affects our cash flow $50,000 per month, and a $10 change in oil pricing changes our cash flow $90,000 per month.

Looking forward to the second quarter, our cash flow from this segment will decrease as a result of reduced propane volume sales in our wholesale marketing business. Also, we will experience some scheduled downtime at our Waskom plant in the second quarter. This downtime will correspond with two of our major customers who plan to be down in the second quarter for scheduled maintenance. Currently, we are averaging 250 million cubic feet per day through our Waskom plant and see that volume remaining stable other than our scheduled downtime.

Also, regarding our competitive position in the East Texas gas processing market, we continue to operate the only gas plant in our market area that has full fractionation capability, giving us a competitive advantage to other gas plants in the area.

In our marine transportation segment, we had cash flow of $5 million in the first quarter, compared to $4.9 million in the fourth quarter. Although the cash flow between periods was approximately the same for both periods, we experienced a decrease in cash flow in our offshore side of the business, offset by a large decrease in SG&A when compared to the fourth quarter. This decrease in SG&A was the result of a $1.3 million bad debt that occurred in the fourth quarter and was non-recurring.

In the first quarter, our offshore cash flow was down $1.9 million as a result of decreased utilization. One offshore tow which works in a spot market had a 68% decrease in revenue, driven by reduced demand for its services. A second offshore tow which is under a long-term contract went into its scheduled ABS dry dock inspection in March. This vessel came back on charter at the end of April. The market demand for our one spot offshore tow continues to remain soft in the second quarter.

Our inland portion of the marine business continues to remain stable. Our continued progressive movement to newer inland equipment has helped stabilize this portion of our business through longer term contracts and reduced maintenance expense. We continue to see the inland side of the business stable, as all of our operating barges remain under day rate contracts.

Of our current 40 inland barges, 33 are under contract, five are laid-up single skins and two are working in the spot market. We are looking at alternative service such as fertilizer hauling for our laid-up single-skin equipment. Fertilizer and related products are not subject to the double-skin regulatory mandate.

In our sulfur services segment, our cash flow was $3.4 million in the first quarter, compared to $16.7 million in the fourth quarter. As we discussed in our fourth quarter earnings call, the fourth quarter was a very unusual situation as the price of sulfur fell $467 per ton in that quarter. And due to the contract structure with our largest customer, we experienced extraordinary margins in the fourth quarter.

In reviewing the first quarter compared to our internal forecast, our sulfur volumes were below expectations. This was driven by reduced demand for sulfur by the large US fertilizer producers in the first quarter as a result of the softer economy.

Additionally, in our own downstream sulfur fertilizer business, we saw reduced demand from our customers. This reduced demand was driven more by wet weather conditions, which delayed volume demand from the first quarter to the second quarter. As a result, we anticipate improved cash flow from our sulfur services segment in the second quarter when compared to the first quarter.

Now I'd like to discuss our liquidity and capital resources. At March 31, 2009, we had $301.7 million drawn against our $325 million credit facility. Our debt to total capitalization at the end of March was 57%, and our bank facility rolling 12-month leverage ratio, defined as total debt to EBITDA, was 3.36 to 1. Based on that leverage ratio, our interest rate is LIBOR plus 200.

Currently, regarding our total debt outstanding, we have fixed $235 million of our bank facility through interest rate hedges at an average interest of 4.15%. When added to the applicable margin of 200 basis points, our hedge rate is 6.15%. The balance of our debt is borrowed under 1-month LIBOR plus 200 basis points, making its average rate approximately 2.5%.

As many of you may have noticed from our Monday press release, we closed the sale of our railcar unloading terminal to Enterprise Products Operating LLC for $23.1 million. This facility had negligible cash flow for MMLP, and was not strategic to our terminalling segment. As a result of liquidity generated by this transaction, our debt level as of today is $285 million. We are continuing to pursue other non-core asset sales in 2009 that will help preserve and strengthen our liquidity position.

Our maintenance capital expenditures for the first quarter were $1.7 million. Looking for the remainder of the year, we still anticipate total maintenance capital expenditures to be $9 million to $10 million. Please note that these maintenance capital expenditures will be a bit lumpy by quarter. The second quarter forecast is to be approximately $3.6 million. This is due to the larger expenditures surrounding our offshore tow that came out of the shipyard in late April.

Looking to the remainder of 2009, we have approximately a net of $20 million of growth capital forecast. These growth capital expenditures are spread between all four of our segments.

Now this concludes my formal comments. Kelly, please open the phone lines for questions. Is the operator there?

Yes. I apologize. (Operator Instructions) We will pause for just a moment to assemble a queue. Okay, and we will take our first question from Ron Londe with Wachovia.

Thank you. Could you give us some perspective on where you -- where you see the NGL volumes going over the next couple of quarters? And also, the gas volumes in your area? And what you're seeing with regard to drilling and/or lack of drilling in that area?

Yeah, Ron. This is Ruben. So far we've been able to maintain. Our volumes are pretty good there in East Texas. A lot of the old heritage -- the old Cotton Valley production is still running through the plant and being processed. And like I said, and as Bob said in his -- when you have the fractionator there, we have the best mousetrap in East Texas, not having to pipeline everything to Mont Belvieu for fractionation. So we see that as staying fairly steady in the future.

Do you think next quarter's going to be similar to this quarter? Or do you see any improvement?

Yeah, I think -- I think the volumes will be at $250 million a day. Now when we take our plant down for turnaround to correspond with our two major customers' turnaround, we'll have to bypass some of those volumes. So the same volumes are going to be running through, but the removal of the liquids will be less in the second quarter. And then they'll come on line back in June, and those volumes will remain $250 million to $260 million a day going forward. Like Ruben hinted at, it's old Cotton Valley production, a lot of it.

Yeah.

And so that tends to be stable.

Okay. In the marine transport business, can you give us a feel for what the day rates are doing now and how you're reacting to the volumes that -- volume volatility of the refining sector?

Well, the day rates, obviously -- out of our 35 barge -- inland barges operating, 33 are under contract. And we have three tows, which would be six barges, coming up in October 2009 for renewal. We're in negotiations for that. They'll probably be down approximately -- those -- the turnover of those rates may be 10% or so. But we feel very confident that we'll be extended. Fortunately for us, that's the only barges coming up in 2009.

We took a strategic op plan when the market was really tight to really go all under contract and go for longer terms. So, fortunately for us, we're tied up for a good while as far as under contracts. So we see that as a lower risk for our inland business. And the next set of contract turns don't happen until 2010. And so, when those contracts start rolling over, we feel like demand should be improved from where it is today in the spot market, and feel comfortable that those will roll over at maybe the same numbers, or just a slight discount.

What we've seen in actual movement of volumes, we've seen a definite improvement here in the last month or so. I think you're seeing companies that are producing products. They're kind of -- destocking has happened, and they're now needing to restock. And so we just sense that it's getting a little firmer.

So that was a long-winded answer to your question. But that's kind of our situation as of today.

Okay. From the standpoint of fun and games in the sulfur business, can you give an idea -- give us a feel for your situation within sulfur and how your priller is doing and your expansion there? I know you had an expansion there, I think. And what you see going forward with regard to sulfur volumes and price?

Yeah, Ron. This is Ruben again. The -- we've seen, of course, in -- domestically our customers are back on line and running good. They're anticipating a reasonably good fertilizer season, although it is a little bit delayed. The future for the priller, though, is very good. Our second priller is on line. We have capacities of around 4,000 tons per day now. Above that, we're already on the books and looking at another priller that we hope to be on line by the end of the year. There's a lot of activity there. We've been prilling a lot. The prices are good internationally. They're actually better internationally than they are domestically. So we're seeing good utilization for the priller. We're seeing good utilization for ourselves using our own equipment. So it's back to normal. And it's a lot of good volumes. And we've got a lot of good things going on in the sulfur business from the standpoint of expansion and so forth.

So do you expect the first quarter to be the worst quarter? Or what kind of -- kind of sequential improvement do you see?

Yeah. No, we expect -- I think the first quarter will probably be the worst quarter in that segment. Now you do -- of course, as you get through the fertilizer portion of it into the third quarter, the fertilizer will slow down. And then you get into the fall fill season that'll pick it back up. So if you look purely at the sulfur side, first quarter was our worst quarter. If you look at the fertilizer side, it could be third quarter. We're -- you just -- it depends a lot on the delays of the farmers and so forth and how the fall fill works. But right now we anticipate that to be a good segment over the remainder of the year.

And I'll comment, too. In the third quarter in the fertilizer, when it is traditionally soft, we have a one-time run that happens every year for an industrial -- really not industrial -- a retail fertilizer demand. And it's foreign.

Yeah.

That we run that has very good margins. So that somewhat offsets that slower third quarter in the fertilizer business that we traditionally experience.

Okay. Thank you.

You're welcome.

(Operator Instructions) And we'll take our next question from [Emily Wayne] with Raymond James.

Hi. Good morning, guys.

Good morning.

Good morning. My first question was about some of the potential asset sales that you guys are looking at. I know a couple of conference calls ago, you guys were talking about selling some of those offshore tows. How's that been tracking?

We are in negotiations on selling one of those offshore tows. Best case, it would close in June. But nothing's for certain. So I would like to not comment beyond that. The second offshore tow that we had marketed, actually -- we actually had an inquiry yesterday on it. So -- but it's a soft market for asset sales. But I feel fairly confident about one. And the other one is not as confident.

Emily Wayne. Okay. Switching gears, when you guys sold off the (inaudible) facility to Enterprise, I know that you said that the annual EBITDA was minimal. Approximately how much was that generating for you guys each year?

Rolling 12 months from March, it was less than $50,000.

Okay. And then my final question was just regarding your credit facility. I see that it's due next November 2010. First of all, have you guys started negotiations with your creditors? And if so, what sort of LIBOR spreads have they been talking about?

We have commenced, Emily, conversations with the lenders in the bank group, kind of polling them to see where they are in our name. And I can't give you any sort of feel as to the respect to the pricing. I think it's fair to say it's obviously going to be going up when we mark to market that facility. But I won't comment beyond that.

Okay, great. Thank you so much.

(Operator Instructions) We'll just pause for a moment. Okay, at this time, there are no further questions in queue. I'd like to go ahead and turn the conference back to Mr. Ruben Martin, present of Martin Midstream Partners.

Well thanks, guys. I appreciate everybody calling and interest in our Company. I think you've seen that the NGL segment had good margins and the terminalling and natural gas that offset that softness in those particular markets. But as you can see, our diversity has really been a strong asset of ours. And the benefit that we realize from that is a little bit more stable. And going forward our liquidity looks good, at least through the years or so. And we feel very comfortable about the Company. We're very pleased with our coverage in the first quarter. And our trailing 12-months coverage is very good. So we appreciate your continued support. Thanks again.

And that does conclude today's conference. We thank you for your participation.