Martin Midstream Partners LP (MMLP) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Martin Midstream Partners L.P. first quarters 2013 earnings conference call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session, with instructions to follow at that time. (Operator Instructions). As a reminder this conference is being recorded.

I would now like to turn the call over to your host, Mr. BobBondurant, Chief Financial Officer. Sir, you may begin.

Thank you, Ben. That is a hard name, so anyway. Let everyone who is on the call today. We have Ruben Martin, President and CEO; Joe McCreery, VP of Finance and Head of Investor Relations; and Wes Martin, VP of Business Development.

Before we get started with the financial and operational results for the first quarter, I need to make this disclaimer. Certain statements made during this conference call may be forward-looking statements relating to financial forecast, future performance, and our ability to make distributions to unit holders. We report a financial result in accordance with generally accounting principles and use certain non-GAAP financial measures within the meaning of SEC Reg G, such as distributable cash flow and earnings before interest, taxes, depreciation and amortization.

We use these measures because we believe it provides users of our financial information with meaningful comparison between current results and prior reported results, and it can be a meaningful measure of the Partnership's cash available to pay distributions. DCF should not be considered an alternative to cash flow from operating activities. Furthermore, DCF is not a measure of financial performance or liquidity under gap and shouldshould not be considered in isolation as an indicator of our performance.

We also included in our press release yesterday a reconciliation of DCF to the most comparable GAAP financial measure. The earnings press release is available at our website, www.martinmidstream.com.

Now I would like to discuss our first quarter performance. For the first quarter we had net income from continues operations of $16.6 million, compared to $9.2 million of the fourth quarter. As with other MLPs, we believe the most important measure of performance is distributable cash flow. Our total distributable cash flow, or DCF, for the first quarter was $28.9 million, adistribution coverage of 1.38 times.

This coverage ratio does not include any IDR payments to the general partner, as we have suspended IDR payments until a cumulative suspension of $18 million is met. AtMarch 31, our cumulative suspension amount was $3.4 million.

Now I would like to discuss our first quarter cash flow from continuing operations compared to the fourth quarter. In the Terminalling segment our first quarter cash flow, which is defined as operating income plus depreciation and amortization, but excluding any gain or loss of sale of assets, was $17.7 million compared to $12.9 million in the fourth quarter.

Other specialty terminals, which now includes our newly acquired lubricant packaging business, had cash flow of $12.6 million in the first quarter compared to $9.2 million in the fourth quarter. Our lubricant packaging business accounting for the majority of this cash flow increase. The cash flow from the packaging business was $4.3 million in the first quarter compared to $2.2 million in the fourth quarter.

The performance in the first quarter is a reflection of a more normal quarter, as there is some negative seasonal demand in this lube packaging business every fourth quarter. Also our Corpus Christi crude terminal had an increase in cash flow of $1.3 million in the first quarter compared to the fourth. Crude throughput volume increased approximately 33% in the first quarter compared to the fourth quarter at this terminal.

The other portion of our Terminalling segment, marine shore bases, had cash flow of $5.1 million in the first quarter compared to $3.7 million in the fourth. The increase was primarily driven by increase diesel throughput volume from our Talen's acquisition, which closed at year end of 2012.

Now looking toward the second quarter, we believe the specialty and shore based terminals will remain strong and should actually improve when compared to first quarter performance.

In our Sulfur Services segment our cash flow was $12 million in the first quarter compared to $8.6 million in the fourth quarter. Our cash flow on the fertilizer side of the Sulfur Services business was $9.6 million in the first quarter compared to $5.1 million in the fourth quarter. The increase in cash flow was driven by a 55% increase in volume sold and a 13% increase in margins. This improvement was anticipated, as a fertilizer business experiences a stronger demand in the first quarter compared to the fourth, as the planting season agriculture products significantly increases.

Now, on the pure sulfur side of the business our cash flow was $2.4 million in the first quarter compared to $3.5 million in the fourth quarter. The decrease in the first quarter when compared to the fourth was primarily driven by reduced volumes from refineries. This was the result of several refinery turnarounds which occurred in the quarter. Most of the turnarounds have been completed, so we anticipate increased volumes in the second quarter and corresponding increased cash flow in this business.

Now moving to our Natural Gas Services segment, we had cash flow of $8.4 million in the first quarter compared to $8.8 million in the fourth quarter. Overall volumes were down 12%, which contributed to our slight decrease in cash flow. This decrease was primarily in our refinery butane business, as we refineries began to transition away from butane demand in March due to regulatory blending requirements that begin every year on April 1.

Looking forward to the second, cash flow in this segment will decrease as seasonal demand for refinery grade butanes will end and will not pick up again until the fourth quarter.

In addition to the wholesale NGL marketing business, we own 100% of Redbird Gas Storage, which now owns a 42.4% class A interest in Cardinal Gas Storage and a fully diluted 39.2% interest. For the first quarter we had distributions from Cardinal of $0.5 million compared to $800,000 for the fourth quarter. For the second quarter we anticipate receiving a distribution of $800,000.

Now, in our Marine Transportation segment we had cash flow of $3.7 million in the first quarter compared to $6.1 million in the fourth quarter. While the offshore side of the business remained flat, our inland cash flow was down $1.1 million, primarilydriven by increased repair and maintenance costs driven by required Coast Guard drydocking.

Also in the fourth quarter of 2012 we benefited by $1.2 million from the recovery of a previously written off bad debt. For the first quarter we had no such recovery benefit, so our SG&A costs were up $1.2 million quarter over quarter.

Now looking forward, we see an improvement in the second quarter cash flow from Marine Transportation, primarily on the inland side of the business, as repair maintenance costs should decline.

Finally, our unallocated SG&A was $3.9 million in the first quartercompared to $5.3 million in the fourth quarter. The decrease driven by transaction costs that were incurred in the fourth quarter that did not occur if the first quarter.

So to summarize, MMLP had overall cash flow from continuing operations and including distributions from Cardinal of $37.9 million in the first quarter compared to $31.9 million in the fourth quarter, an improvement of $6 million or 19%. For the first quarter we had maintenance capital expenditures and turnaround costs of $1.7 million. For all of 2013 we continue to forecast approximately $13 million to $15 million in total maintenance and turnaround costs.

Now I would like to turn the call over to Joe McCreery, who will speak about liquidity and capital resources.

Thanks Bob. I'll start with our normal walk-through of the debt components of the balance sheet, and this discuss our bank ratios. I'll highlight the M&A activity for the Partnership, followed by an overview of the financing activities that impacted our liquidity position. My first quarter remarks will be brief today so we can get to Q&A.

At March 31, 2013, the Partnership had total fund to debt of approximately $520 million. This consists of approximately $423 million of senior unsecured notes, approximately $91 million drawn under our $600 million revolving credit facility, and approximately $9 million of capitalized lease obligations and other long term notes payable. Thus the Partnership's available liquidity on March 31 was $509 million. This large increase in the liquidity is attributable to two financings which took place in the quarter, which I'll highlight momentarily.

For the first quarter of 2013 our bank compliant leverage ratios, defined as senior secured indebtedness to adjusted EBITDA and total indebtedness to adjusted EBITDA were 0.75 times and 3.92 times respectively. Additionally, our bank compliant interest coverage ratio as defined by adjusted EBITDA to consolidated interest expense was 4.70 times.

Looking at the balance sheet, our total funded debt to total capitalization was 59.5%, which is slightly higher than the year end September 13 number as a result of growth capital spending in the quarter. In all, at March 31 the Partnership was in full compliance with all banking covenants, financial or otherwise. As of last Friday, May 3, the current amount borrowed under revolving credit facility was $102 million.

Now let's discuss the Partnership's M&A and growth initiatives during the further quarter. Back in February the Partnership purchased six liquefied petroleum gas pressure barges and two commercial push boats for approximately $50.8 million from affiliates of from Florida Marine Transporters, Inc. Organizationally, the new acquired barges will be housed in our Natural Gas Services segment, greatly enhancing our NGL storage, handling and transportation capabilities. The Partnership intends to use the barges to facility NGL logistics on the Gulf Coast.

We believe incremental production volumes from the Eagle Ford shale are driving the need for this particular type of asset. Our current estimate for cash flow impact from the NGL barges is $6 million to $7 million for 2013.

Now let's move to financing activities for partnership during the first quarter. As we previously discussed on our last call, we completed a private placement of senior unsecured eight-year notes to qualified institutional buyers under Rule 144a in February. Net proceeds to the Partnership after fees and expenses were approximately $245 million, all of which was used to pay borrowings under our credit facility at the time. The notes were priced at 7.25% and mature in February 2021.

Just prior to a quarter end the Partnership amended and restated its revolving credit facility, upsizing from $400 million to $600 million of lender commitments. During the process six new banks were added to the syndicate, resulting in a group of 20 participating lenders. In addition to providing upsized borrowing capacity, we were able to relax certain financial covenants the Partnership is required to maintain, as noted.

Our new funded debt to EBITDA leverage test -- total funded debt to EBITDA leverage test is 5.25 times, and our new senior secure debt to EBITDA leverage test is now 3.5 times. Likewise, our interest covered ratio also came in our direction, with a new minimum level of 2.5 times. Finally, we've extended the [tenor] facility by approximately two years, with a new maturity date of March 28, 2018.

Ben, this concludes our remarks this morning. We would like to open the lines to questions and answers.

(Operator Instructions). We have a question from the line of Michael Gaidin of Robert W. Baird. Your line is open. Please go ahead.

Good morning, thanks for taking my question. I was hoping to ask if you could provide some more detail around the strength in the lubricant side of the business and prospects for that continuing not only in the second quarter throughout the balance of the year?

Sure, Michael. I think as we look at the lubricant side,the first quarter was the first full quarter of the integrated business model after the drop-down from Cross into the Partnership, and I think we've organized that very well during the quarter. You saw [from] performance.

We're thinking now that particular side of the business could do anywhere from maybe $15 million to $16 million cash flow this year, which dropping the assets down we thought it was maybe $11 million to $15 million. So it's certainly better than we anticipated one quarter out of the gate. And that being said, I think as we alluded to in our public remarks, it's also a very strong growth platform for us, and I think we're looking closely at several growth initiatives in that side of the business.

Great, thank you. And can you maybe share what accounts for that upside and expected cash flow performance. Is that revenue? Is that cost savings? What is driving that there?

It has been revenue on the demand side for those products.

Yes, there are certain larger wholesale distributors -- or I guess retail distributors; we're sell to wholesale companies -- large big-box type stores that becoming new customers, and we're spreading out countrywide on those types of customers.

That's great. Thank you. And can I lastly ask, as you guys think about growth opportunities over the balance of the year and where you want to spend your expansion capital, is there one part of the business that sticks out versus the other, or are there a few that bubble up to the top as the most likely to receive those incremental expansion dollars?

Yes, I think on balance the disproportion of that capital spending will be in Terminalling and Storage. We have an opportunity to continue to expand at Corpus Christi, and we have the opportunity, as I mentioned, to continue to expand our growth platform with the Cross side, the lubricant side of the business. So I think an abnormal amount of attention will be at the Terminalling and Storage side.

Great, thank you.

Thank you. (Operator Instructions). Our next question comes from T.J. Schultz. Your line is open. Please go ahead.

Hey, guys, just on the Corpus Christi terminal, I missed beginning of the call, but if you could just give any progress on contracting out the last 300,000 barrels of that facility? And then if you could maybe just expand on what other potential crude [logistical] opportunities that could be in and around the asset?

At Corpus we very close with a contract announcement there. We're continuing to work with the counter party, and I suspect that will happen this quarter. As we think about the build out there, T.J., you probably have nine months to the years. So in our models for 2014 we're showing those assets, the last 300,000, coming on the line kind of in the late first quarter.

I think it's important to note too that on that last 300,000 we are adding dock capacity too. One of the biggest problems that we have at Corpus Christi is getting to the dock. And so thiswill allow additional throughput through, simply because we'll have a dedicated dock for our storage that allows to mix and match when it comes to timing on the dock. It should help increase throughput.

Of the original six.

Yes, of the original six. So we'll have more docks.

Okay, great. I guess just last for modeling purposes, on the maintenance CapEx did you say you were still looking at $13 million to $15 million this year? So is that -- should we just kind of [bravely put that across] --

Yes, correct, we spent basically $2 million in the first quarter, so thatmeans you have an incremental $11 million to $13 million the last three quarters.

Okay, great. Thanks guys.

You bet.

Thank you. The next question comes from the line of Selman Akyol from Stifel Nicolaus. Your line is open. Please go ahead.

Thank you. Good morning, and I appreciate all the color on Corpus Christi. Just really quickly, on Cardinal you talked about $500,000 versus $800,000 in the prior quarter, and you expect it to go back up the next quarter of $800,000. Can you just talk a little bit about the variance of what is going on there?

Yes, this is Wes. I'll take that. It's really a timing of certain contracts rolling over, and then also a contribution of interruptible revenue. So we had this -- as Bob mentioned, $500,000 last quarter. It went back up to $800,000. We -- and I think we see that flat lining from this point forward now that all the contracts have rolled over. So in that $700,000 to $800,000 range is where we see it.

Great. All right, thanks again.

Thank you. And I'm showing no further questions in queue. I would like to turn the conference back over to management for any closing remarks.

Yes, this is Ruben. I think everybody needs to keep in mind that we did go up on our distribution recently, and we had a good strong quarter. I think every -- all the segments performed well, and we see that as we go forward we've got different drivers in different segments that are going help keep everything balanced. So we see a lot of growth in Corpus in packaging and in our lubricant side of the business.

So we appreciate everybody's time, and thanks for your interest in our Company.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect. Have a great rest of the day.