Martin Midstream Partners LP (MMLP) 2015 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the Martin Midstream Partners L.P. first-quarter 2015 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions). As a reminder, this conference is being recorded.

I would like to introduce your host for today's conference, Mr. Bob Bondurant, Chief Financial Officer. Sir, you may begin.

Thank you, Terea. And to let everyone know who is on the call today, we have Joe McCreery, Vice President of Finance and Head of Investor Relations; and Wes Martin, Vice President of Corporate Development. Unfortunately, Ruben Martin is on an airplane at this very moment and will not be able to join us this morning.

But before we get started with 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 forecasts, future performance, and our ability to make distributions to unitholders.

We report our financial results in accordance with Generally Accepted Accounting Principles, and use certain non-GAAP financial measures within the meanings of SEC Regulation G, such as distributable cash flow or DCF, and earnings before interest, taxes, depreciation, amortization, or EBITDA, and we also use adjusted EBITDA. We use these measures because we believe it provides users of our financial information with meaningful comparisons between current results and prior reported results, and it can be a meaningful measure of the Partnership's cash available to pay distributions.

We also included in our press release issued yesterday a reconciliation of EBITDA, adjusted EBITDA, and distributable cash flow to the most comparable GAAP financial measure. Our earnings press release is available at our website, martinmidstream.com.

Now I'd like to discuss our first-quarter 2015 performance compared to the fourth quarter of 2014. For the first quarter, we had adjusted EBITDA of $50.4 million compared to $42.6 million in the fourth quarter, an 18% increase totaling $7.8 million.

Our distributable cash flow for the first quarter was $37.1 million, a distribution coverage of 1.12 times based on our distribution of $33.2 million paid out in the first quarter. This first-quarter distribution paid in February 2015 also included IDR distributions of $3.7 million, as our suspension of IDR distributions expired in the first quarter.

Now I'd like to discuss our first-quarter performance compared to the fourth quarter of 2014 by segment. In our terminaling segment, our first-quarter EBITDA was $17.7 million compared to $12.3 million in the fourth quarter, an increase of $5.4 million. The fee-based portion of our terminaling segment, which includes our specialty and shore-based terminals, and across refinery, had an increase in cash flow in the first quarter of $2.7 million when compared to the fourth quarter.

Our crude throughput volume at our Corpus Christi terminal increased 3% to over 180,000 barrels per day during the first quarter, and has remained at that volume level through April. However, our throughput volumes at our shore basis and the cross refining were temporarily down in the first quarter, but our cash flow was protected by minimum throughput contracts with our General Partner. The throughput volume at the refinery was down as a result of a 21-day turnaround, which occurred during the quarter.

Our next refinery turnaround is scheduled for early 2017, so two years from now. Also in our terminaling segment, our package lubricants business experienced its anticipated recovery in the first quarter, as EBITDA grew by $2.7 million when compared to the fourth quarter of 2014. As I'm sure most of you remember, we had a $0.7 million loss in this business in the fourth quarter of 2014, as both sales volume and sales price fell significantly due to the rapid fall in crude pricing, coupled with our customers' inventory destocking efforts.

In the first quarter of 2015, pricing stabilized, which allowed our margins to return to more normal levels. We anticipate continued improvement in EBITDA, as we should experience improved margins and also improved sales volume in the second quarter in our packaging business.

Now on our Natural Gas Services segment, our first-quarter EBITDA was $16.8 million compared to $17.9 million in the fourth quarter of 2014. The decrease in cash flow was primarily at Cardinal gas storage. Cardinal earns fuel revenue from our firm customers during injection season, but does not earn fuel revenue during withdrawal season. We received fuel revenue in the fourth quarter of 2014, as there was injected gas volume during the back quarter. However, as might be expected, the first-quarter of 2015 was primarily withdrawal season, and the result, very minimal fuel revenue was earned during the quarter.

Looking toward the second quarter, we most likely will see a slight decline in cash flow, primarily from our wholesale propane business, due to the seasonality of the propane heating season. However, the seasonality from this lack of heating demand will not negatively reflect -- affect Cardinal due to its firm contract business model. In addition to the cash flow generated at our Natural Gas Services segment, we received a $2.1 million distribution from our West Texas LPG pipeline joint venture in the first quarter of 2015.

Now moving to our Sulphur Services segment, our EBITDA was $11.7 million in the first quarter compared to $6 million in the fourth quarter of 2014. Our fertilizer EBITDA was $7.6 million in the first quarter compared to $1.5 million in the fourth quarter. This increase was anticipated, as the first and second quarters are the highest seasonal demand periods in the fertilizer business, due to the timing of farmers planting their crops.

Our first-quarter performance in the fertilizer business was slightly below internal forecast due to increased rainfall in our market areas. We believe some of the missed sales forecast in the first quarter will transition to the second quarter, as farmers should finally be able to get back into their fields to plant their crops.

Now in the Pure Sulphur side of the business, first-quarter EBITDA was $4.1 million compared to $4.5 million in the fourth quarter of 2014. This slight decrease in cash flow was primarily driven by an increase in operating expenses, including the temporary one-month need to employ an outside inland marine tug during March.

Now in our Marine Transportation segment, we had EBITDA of $6.1 million in the first quarter compared to $6.4 million in the fourth quarter of 2014. The slight decline in cash flow was on the inland side of the business, as three inland tugs came off term contracts and reentered the market under spot tow contracts.

Looking towards the second quarter, we anticipate a slight decline in Marine Transportation cash flow, as one offshore tow will come off contract in early May. We plan to place this vessel in the shipyard for some very minor repair work before it is placed under a new term contract that should begin in the third quarter.

Our Partnership's unallocated SG&A costs, excluding non-cash unit compensation expense, was $4.4 million in the first quarter compared to $4.3 million in the fourth quarter of 2014. This slight increase was a result of increased professional fees. We continue to hold a $15 million note receivable due from Martin Energy Trading, an affiliate of our General Partner. This investment generated $0.6 million of interest income, each of the first quarter of 2015 and the fourth quarter of 2014, and should continue at that rate throughout 2015.

Our maintenance capital expenditures and turnaround costs for the first quarter were $3.2 million. And, for the year, we continue to forecast a total of $14 million to $15 million of capitalized maintenance and turnaround costs.

Now I would like to turn the call over to Joe McCreery, who will speak on our liquidity, growth projects, and capital resource.

Thanks, Bob. I'll start with our normal walk-through of the debt components of the balance sheet and our bank ratios. I'd then like to discuss the Partnership's outlook, and provide some insight on our current growth projects.

On March 31, 2015, the Partnership's balance sheet reflected total long-term funded debt of approximately $849.4 million. This balance sheet debt level is now net of unamortized debt issuance and unamortized issuance premiums, reflecting the incorporation of recent changes in FASB accounting standards, whereby debt issuance costs, related to a recognized debt liability presented in the balance sheet, are now a direct deduction from the carrying amount of that debt liability.

Before FASB adjustments of $12.6 million, our revolving credit facility balance was $460 million, and our senior unsecured notes were $402 million for a quarter-over-quarter (technical difficulty) debt of $862 million. Thus, the Partnership's total available liquidity under the revolving credit facility at March 31, 2015 was $440 million.

For the first-quarter 2015, our bank-compliant leverage ratios, defined as senior secured indebtedness to adjusted EBITDA, and total indebtedness to adjusted EBITDA, were 2.51 times and 4.69 times, respectively. Additionally, our bank-compliant interest coverage ratio is defined by adjusted EBITDA to total consolidated interest expense was 3.89 times.

Looking at the balance sheet, total debt to total capitalization at March 31, 2015 was 64.4%. In all, at March 31, the Partnership was in full compliance with all banking covenants, financial or otherwise.

The Partnership had no capital raises during the first quarter, as we elected not to issue equity in its environment under our ATM nor access the debt capital markets. So now I'd like to discuss the environment in which the Partnership is currently operating.

As we mentioned last call and at our Analyst Day, we felt strongly that our assets and contracted nature of our cash flow would prove to be resilient in the current commodity price environment. By and large, that is, and continues to be proven true. The Partnership's adjusted EBITDA of $50.4 million and distribution coverage ratio of 1.12 times were both strong for the first quarter.

The limited areas where we were exposed to commodity prices, namely our NGL businesses, where we seek to capture a seasonal and/or basis differential margin, were generally our weakest performers during the quarter. That being said, our more traditional MLP type assets performed very well -- terminaling and storage, for example. We continue to view the majority of our assets as refinery-facing, and we saw the benefit of strong refinery utilization during the quarter.

Now I'd like to talk about the Partnership's growth. We mentioned in our last call that MLP's growth could be muted in 2015, and that we had approximately $65 million of growth capital expenditures approved in this year's budget. We continue to believe that CapEx will be around $65 million for 2015, with an increase depending on potential development projects, like the South Texas asphalt terminal or the Corpus Christi crude terminal expansion.

As it relates to the South Texas asphalt terminal, the Partnership is close to completing the engineering, design and necessary permitting phase for a new facility to service the growing San Antonio and surrounding South and Central Texas markets. MLP plans to develop the terminal under a long-term, fee-based, minimum throughput contract with MRMC to provide up to 180,000 barrels of asphalt storage and handling.

MLP anticipates spending approximately (technical difficulty) $30 million to $35 million on the project at a 6 to 8 times multiple. Assuming second-quarter 2015 Board approval, the project is expected to be operational and online by the end of 2016.

Now let's discuss Corpus Christi. As mentioned during our 2015 Analyst and Investor Day, we have the ability to add additional crude oil storage coming from the Eagle Ford Shale into Corpus Christi market. We are currently seeking a long-term, fee-based contract to provide additional crude storage for our customer.

Total cost for the incremental tank is expected to be approximately $50 million to $60 million. And, assuming the negotiation, approvals and permitting continue favorably, we seek to be operational again by the end of 2016. With that, approximately 1/3 of the capital necessary for this expansion would be spent in 2015 if commercial terms were agreed to.

Next, let's move to the Arcadia rail terminal. On this project, we are about 30 days from commencing commercial operations in Arcadia, Louisiana, adjacent to the Partnership's underground natural gas liquids storage facility. The rail terminal, designed to expand the geographical sourcing of NGLs for the storage asset, has been under construction since the first quarter of 2014.

The Partnership expects to utilize the terminal during this summer's refinery grade butane seasonal storage phase. We note that the invested capital for this project was included in our 2015 budget.

Finally, I'd like to discuss the West Texas LBG Pipeline. Discussions are underway with our joint venture partner, One Oak Partners, to increase the value of our asset. We continue to believe that West Texas LPG will be one of the key growth engines over the next couple of years. Currently, we are focused on opportunities that require little to no additional capital; namely, we believe we can achieve operational efficiencies and potential new customer interconnects that could allow for additional throughput of up to 15,000 barrels per day.

As we previously articulated, growth capital expenditures at the West Texas LPG level will be minimal, if at all, in 2015. However, long-term, through 2018, we continue to believe that the growth capital of up to $150 million could be spent on this asset and its expansion.

And then finally today, one housekeeping item. I'd like to draw your attention in advance to a regulatory filing we anticipate making next week. An S8 filing will allow us to continue our Martin Unit Purchase Plan, or the MUPP, as we call it -- a plan in place since 2006 that allows employees a convenient opportunity to purchase existing and outstanding partnership units through features such as direct payroll deduction.

All MUPP purchases are in the open market of previously-issued, freely-trading units, and therefore, not dilutive in any way to our Limited Partners. We are pleased to say that the initial 500,000 units authorized by the Board of Directors of MRMC have all been acquired by the employees. And accordingly, we would like, pending approval from the Board of Directors of MRMC, the ability to purchase an additional 500,000 units in the open market.

Terea, this concludes our prepared remarks this morning. We would now like to open the lines for questions and answers. Thank you.

(Operator Instructions). Gabe Moreen, Bank of America Merrill Lynch.

A couple questions, I guess, to start with West Texas LPG, just on those interconnects that you're talking about, the potential additional 15,000 barrels. Is that something where the producers are going to be spending the CapEx to basically connect to the system? And then also, can you talk about maybe what the EBITDA contribution you're expecting from that incremental volume will be?

Hey, Gabe, this is Wes. I'll take that. In terms of the expected EBITDA contribution, no, we can't really talk about that right now. But with respect to the interconnect, I think that would be most likely the producers invest in that capital to make that happen. Maybe in a few situations, it might be the opposite. But I think, overall, it would more so be on the producer side.

Understood. And then I guess shifting kind of to the Corpus Christi potential expansion, is there real potential variability in terms of the size of that investment, depending on how commercial customers come back? And is it something where you could -- I think you laid out $50 million to $60 million -- where you could size it smaller or bigger? And is that an expectation at this point?

Yes -- this is Wes again. I think, yes, there is some variability behind that. And I think it could be larger or smaller dependent upon customer needs. Right now, we are still comfortable with the, call it, plus or minus $60 million concept that we threw out at the Investor Day. But yes, there is a chance that it could go higher or lower than that. But right now, we think $60 million is probably the right number.

And I'll just add that I think we are honing in, Gabe, on about 400,000 barrels of additional storage. And that's what's driving that number at this point.

Understood. And then last question, it's kind of a cliched one, but I assume someone's going to ask if it's not me, just in terms of the distribution policy. Obviously, the unit prices recovered from the doldrums it was at a couple months ago, although I'm sure it's not as high as you would like to see it. Coverage was good, your proven pretty resilient. How are you thinking about the distribution and the environment you're in right now?

Well, this is Bob. I'll take that. I think we as a group, the management and the Board, would like to see a continued improved distribution coverage. We are very pleased with the way we covered in the first quarter, especially with the IDR's kicking back in. So, in the near-term, we want to build that distribution coverage a bit before we start ramping back up with some increased distributions.

And I'll add to that. I think, with respect to if you look at historically on our -- on a quarterly basis, we do have some of the seasonality going into the second and third quarters. So I think we would like to see the second and third quarters play out. And again, to Bob's point, build that coverage a little bit more before we would do that.

Understood. Thanks, guys.

Thank you.

(Operator Instructions). T.J. Schultz, RBC Capital Markets.

So the $30 million to $35 million CapEx for the South Texas Project, just so I'm clear, that's not in the 2015 CapEx guidance right now, is that correct?

That's correct.

Okay. So what happens -- what needs to happen near-term to greenlight that project? And then how quickly would you be spending money on that project?

Sure. In terms of the timing of it, I think -- or the process, internally, we are wrapping up sort of the front-end engineering design work, working on some of the permitting. But I think, ultimately, we would plan to bring that to the Board probably late second-quarter or early third-quarter, and go for Board approval on that front.

All systems are go on that front from our perspective right now. But we would hope to take it to the Board by the end of the second-quarter or early third-quarter. And then the timing of the CapEx on that would probably begin immediately thereafter. So I would say it'd leak somewhat into the third quarter and then start to ramp up in the fourth quarter of this year.

Okay. So -- I mean, your $65 million CapEx budget right now for 2015, is it fair to say between that project, and then if you spend one-third of the capital on the Corpus, your upsides maybe up to about $100 million of CapEx if those projects move forward?

I think that's on the high side. I don't think we will quite spend that much in 2015, to be honest. I think with respect to the Southeast -- or excuse me, South Texas terminal, that will be a little bit -- it's a longer project that's going to -- the timing of that would be into 2016.

So I would say that would be on the high side. I'd say it would be closer to the, I'd say, $80 million, $85 million, plus or minus.

Okay. So leverage at quarter-end was still around 4.7 times. Have you utilized ATM in April? Or just general thoughts there on kind of view to get below the -- or around the --closer to the 4.5, I think, is your target leverage?

Right. That is the target, correct. And, T.J., I think we are getting closer; I would say that -- obviously, we did not use the ATM the first quarter, I think we are kind of creeping back into the range where we might consider it again, and go to the Board and say we think there's some delevering that needs to be accomplished here. But I think for now, we are probably going to limp along at 4.7-ish in the near-term. But we are getting closer.

Okay. And then just any update on kind of discussions with the General Partner on potential dropdowns or transactions there? And that's it for me.

Yes, this is Wed. You know, I think even though our unit price recovered pretty strongly in the first quarter, given where we are on a yield basis and our cost of capital right now, makes doing a deal -- particularly a large one -- pretty difficult from our standpoint. So our focus internally is to continue to be blocking and tackling, if you will, and focusing on the things that we can control.

As we mentioned at the Investor Day, we -- and I think in a previous earnings call, talked about refocus on the drawdown story. But I think when you really look at the numbers and you looked at where our cost of capital is right now, anything on that front would be pretty difficult to get to.

So, I think when we look at that sort of possibility out in the future -- again, I think we talked about coverage a little bit, trying to improve our coverages, and I think we'd like to see a little bit more consistent performance internally through these next second and third quarter, to help sort of -- hopefully, in the longer run, drive that cost of capital down a little bit, and then make it a little bit -- any material improvements on that front, essentially, I think coming from those efforts would put us in a better position.

But as we sit right now, no. There's really no developments on that front.

Okay. Thank you.

Thank you. And at this time, I'm showing no further participants in the queue. I'd like to turn the call back to management for any closing remarks.

Thank you, Terea. And this is Bob speaking. We are very pleased that the Partnership is off to really a great start in 2015. And we continue to see relative strength in the business so far in Q2.

And we anticipate there's going to be less seasonal weakness in the second and third quarter relative to previous years. And we see a shift in some of our fertilizer cash flow to the second quarter due to the farmers' planting issues.

We also have some good contracts in the butane business lined up for the second and third quarter. And now we have the Cardinal baked into our business, so there's a good stability of cash flow there. So, again, we will probably see less seasonal weakness than historically we've had in the second and third quarter.

And finally, our packaging businesses continue to show a positive trend line, especially from where it was at the end of 2014. So, all in all, very pleased with the quarter; very pleased with the prospects. And very pleased that you joined us on the call this morning. And thank you for your attendance and appreciate your covering us. Thank you.

Ladies and gentlemen, thank you for your participation on today's conference. This concludes the program. You may now disconnect. Everyone have a great day.