NGL Energy Partners LP (NGL) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3, 2013 NGL Energy Partners LP earnings conference call. My name is Matthew, and I will be your Operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of this conference.

(Operator Instructions)

As a reminder, this call is being recorded for replay purposes. Now would like to turn the call over to Mr. Mike Krimbill, CEO and CFO of NGL Energy Partners LP. Please proceed, sir.

Thank you, and thanks for joining us this morning. This conference call will include some forward-looking statements and information. While NGL Energy Partners believes that its expectations are based on reasonable assumptions, there can be no assurance that such expectations will prove to be correct. A number of factors could cause actual results to differ materially from the projections, anticipated results or other expectations included the forward-looking statements. These factors include the prices and market demand for natural gas liquids and crude oil; the level of production of crude oil and natural gas; the effect of weather conditions; demand for oil and natural gas, and natural gas liquids; and the ability to successfully identify and consummate strategic acquisitions at purchase prices that are accretive to financial results, and to successfully integrate acquired assets and businesses.

Other factors that could impact any forward-looking events are described in Risk Factors in the partnership's annual report on Form-10K, quarterly report on Form 10-Q, and other public filings and press releases. NGL Energy Partners undertakes no obligation to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise. Please see the partnership's website at www.NGLEnergyPartners.com under Investor Relations for reconciliations of the differences between any non-GAAP measures discussed on this call and the most directly comparable GAAP financial measures.

So with that, again, we thank you for being here. As you know, our third and fourth quarters, fiscal quarters, which our third quarter is this quarter ending December 31, and next quarter ending March 31, 2013, are our two largest EBITDA quarters, and a chance for everyone to verify that we are hitting our numbers, and for us to convert to some extent what is pro forma into some actual results. So with that, I'd like to turn it over to our Senior VP of Finance, Atanas, to go through the numbers, and after that we will open it up for Q&A.

Thank you, Mike. As Mike indicated, we are pleased with the results for the quarter. Net income for the quarter came in at $40.5 million, and $25.8 million for the nine months ended 12/31/12. Adjusted EBITDA for the quarter is $73.2 million, resulting in $93.1 million of EBITDA year-to-date. The quarterly adjusted EBITDA of $73.2 million, which includes $800,000 of acquisition costs, exceeds previous guidance of $71.9 million by $1.3 million. Excluding these one-time acquisition costs, adjusted EBITDA is $74 million, and exceeds our previous guidance by $2.1 million. The year-to-date adjusted EBITDA of $93.1 million includes $5.2 million of acquisition costs, and if we exclude these one-time acquisition costs, the adjusted EBITDA is $98.3 million, which exceeds our guidance for the quarter by -- year-to-date by $6.5 million.

If you take a look at the cash flow statements in the Q you will notice that CapEx year-to-date is at $37.4 million. This includes approximately $8.6 million of maintenance CapEx, and we expect to incur about $3.4 million in the fourth fiscal quarter, for a total maintenance CapEx of $12 million for fiscal 2013. We realize that this is lower than the $22.5 million we had previously indicated, and the main driver behind the lower maintenance CapEx is the result of integrating retail propane acquisitions, which has allowed us to consolidate vehicle fleets and not purchase as many new vehicles. The impact of such efficiencies is generally one-time, so going forward we anticipate our maintenance CapEx to be in the range of $20 million to $22 million for fiscal 2014.

Previously, we had included DCF guidance of $153 million, which was based on a run rate of $210 million. And this included interest expense of $35 million and maintenance CapEx of $22 million, which resulted in distribution coverage of 1.5 times based on $1.85 distribution per unit. If we take those same numbers and simply reduce the maintenance CapEx by -- down to $12 million, the distribution coverage would be 1.6 times. We confirm our previous guidance of $177 million for fiscal 2013, and that number includes $5.2 million of acquisition costs. So as we said, overall we are very, very pleased with the quarter, and we expect to hit the target for the remainder of the year.

Okay. Thank you, and let's turn it -- open it up for questions.

Thank you.

(Operator Instructions)

Ethan Bellamy, Robert W. Baird & Company.

Good morning, gentlemen. Atanas, is there any lumpiness we should expect in maintenance CapEx for this year going forward?

No, as I said previously, in terms of maintenance CapEx we expect to incur about $3.4 million, $3.5 million, which was -- basically will bring us to $12.5 million. On the run rate -- so that is consistent with what we have thought. Overall on a run rate basis, if you look at what we have been saying previously, if you look at the set of assets we have, we should be at about $20 million to $25 million. But because of the fact that we've had acquisitions in the retail space, and we've been able to consolidate the vehicle fleets, we don't have to replace as many of the old vehicles. So, going forward, roughly 10% of your run rate, which we have said is $210 million, so you wind with about $20 million to $22 million of CapEx. But we don't anticipate we'll have any major changes in terms of maintenance CapEx to jump to $10 million or $15 million next quarter.

Ethan, I would add into that, the vehicles that are typically purchased in the summer, which is our first and second fiscal quarters, so you're not -- we're not spending a lot in the wintertime.

Yes.

So there is somewhat of a seasonal part to it. I think we indicated in prior calls, our $22 million we thought was pretty conservative, that it would not exceed that, and obviously, whatever year, we'll try to be as efficient as we can and stay below that number.

Okay. And we want to thank you guys for doing the Analyst Day, I thought that was pretty good. But for the benefit of the folks that could not make it, Mike, could you just -- a very, very big picture about kind of overall strategy and game plan, and internal verses third-party M&A, kind of where you are headed in terms of how the business is going to grow?

Sure. This is Mike. I believe we have been consistent on prior calls as well. We're looking to the water treatment and the crude oil logistic segments, is where the majority of the growth will be. We will grow, albeit at a much -- probably smaller pace in retail and NGL logistics. We have been very active acquisition-wise, as you know, and we continue to look for things that make sense. We are focused -- you know, once you have this set of assets, you can start focusing on internal growth projects. Atanas, I think, referred to the $37 million of non-acquisition CapEx in the cash flow statement. So you can see where we spent $20 million-something on -- almost $30 million on internal growth projects, which will continue to grow. The EBITDA from those are not in our guidance yet, so when we file our 10-K, we would expect to revise our guidance upward and include those internal growth projects. Hopefully that answered the question?

Definitely. Thank you very much Mike, I appreciate that.

David Askew, RBC Capital Markets.

Hi guys, I am on for T.J. here. I just wanted to ask a little bit about the Third Coast acquisition, kind of just if you can talk -- is it kind of a marketing margin, or is it a fee-based margin, and maybe what kind of volumes it could add to the crude volumes there?

The acquisition was based on the fee margin piece of it, so that it was repeatable. I think historically, the barge business was hauling crude for others. So we will continue doing that, getting the fee, but when there's an opportunity for us to purchase the crude and pick up the spreads, we will do that as well. It is not a -- I don't know that we actually disclosed what we purchased, but I believe it is 4 tows and about 10 barges. You might say we're kind of starting out small. We'll use those both in South Texas and at the Port of Catoosa, and then we'll look to expand the fleet if we have more opportunities.

Thanks, that's hopeful. And then I guess just generally on the crude volumes, they were kind of flat sequentially, despite the addition of Pecos and maybe some of the other smaller operations there. So I wondering if you could kind of touch on that a little bit?

Yes, actually, our volumes I think, what you generally see, like if you look at the Q you will see that it is 7.6 million barrels for the quarter, but that does not include all of the barrels that we touch. If you look at our -- basically where we are today, we are close to 125,000 barrels a day of crude oil that we touch, which is both sales and transportation. So we have a much higher run rate, if you will, which is consistent with what we have been presenting previously. But again in the Q, strictly if you look at the number, that is purely barrels that we have sold but not necessarily touched.

Great, so you said you touch about 125,000 a day. Is that a pretty good run rate to assume? I mean, are there some with the barge acquisition as well?

With the barge acquisition, that rate is going to go up.

Okay. Thank you for that. I guess just lastly, the wholesale propane margins were very good. I was just wondering if you could talk about how much of that is related to some of the catch-up in terms of the weighted average cost accounting, the things you guys -- in the past two quarters, and how much is maybe just a lower benchmark pricing, and maybe how much is optimization? And then further, could you give us a sense of what is assumed in the $210 million run rate EBITDA guidance, in terms of a propane margin there?

Is that retail or wholesale? When you say margin?

No I was looking at the wholesale propane NGL margins?

Yes, if you look at our wholesale margins in general, when we look at wholesale, this is what we have indicated during the analyst meeting in Denver, we're looking at $0.02 to $0.025 in general, closer to $0.02 on wholesale per gallon. If you look at our margins this quarter, they're higher than that, they are closer to $0.05, and like you correctly pointed out, part of that is catch-up for the weight COG, the weighted average cost of goods sold. So that is a catch-up with some of the loss that we -- timing loss that we had experienced in previous quarters. Another component that has helped the margin is the pre-sales, because we are on track of pulling all of our pre-sales though the end of this year. More than two-thirds of those have been pulled through December 31, and generally the pre-sold margins, the pre-sold gallons carry a higher margin than your normal rack sales.

So, instead of having $0.025, you may have $0.05, $0.06, $0.07 or $0.10, so that is what's helped the margins for the quarter, and we expect that trend to continue through the end of the quarter ended March 31 as all of those pre-sold volumes get pulled. And so far, we are ahead of schedule on the pre-sales. As we have talked before, one of the good things about our wholesale propane business is the fact that we have a natural hedge though those pre-sold volumes, because we lock into a margin, generally we try to pre-sell 20% to 25% of our wholesale volumes, and they get pulled by the end of the fiscal year, which is March 31.

Regardless of the weather.

Regardless of the weather.

That is helpful. Thanks. And I promise, just one more. Have you guys done any more acquisitions since the quarter? You guys talked last quarter, you kind of gave us a number of what you had done. Is there anything similar here?

We have not made any acquisitions in January or February to date. Next question?

(Operator Instructions)

Matt Niblack, HITE.

Just to follow-up on that question about acquisitions. It sounds like, you not having done any in the first month and-a-half here, is that reflective of a change of focus to the more sort of internal opportunities with the other segments, or of any slowdown in the availability of the profile of acquisitions you are looking at? Or is this just sort of an anomaly?

Well, it is nice to have a month of not having an acquisition become an anomaly, but no change in strategy at all. We are all constantly evaluating opportunities, which we still are. This -- I think part of it is just this time of the year, when a lot of deliveries are going on, a lot of activity, that folks are focused on delivering to their customer and not as involved in, you know, selling their businesses. So we actually are delighted we have got a couple of months here to integrate, and make sure we don't make any mistakes, and so far everything is going well. The numbers are proving that. But no, we would expect to start up acquisition activity as soon as we can. It may not be until the first quarter of '14, which starts in April.

Right, well yes, certainly the numbers reflect the success you have had integrating, so congratulations on that. Now as you are evaluating acquisitions, is it still predominantly in the propane areas, as you focus on internal projects in crude and water, or are you evaluating things in those segments as well?

It is predominantly water and crude. We have -- some of our internal growth projects are focused on our terminals.

Right.

So we have been, I would say, upgrading terminals to handle both butane and propane, and in the past they may have only handled propane. We have been upgrading in the Northeast, so that we can bring in more propane. So water, I guess, is one where we have done a fair bit of internal growth projects as well, but we are constantly evaluating opportunities to acquire assets.

Okay. Then, lastly, maybe comment on your financing strategy for the year? Let's presume that there is not sort of a major acquisition. But to this point, you've focused predominantly on financing, at least the smaller acquisitions, with things like share exchanges, up until the larger equity offering that you did in December. You may reflect on what you see as your financing strategy going forward?

Sure. We have upsized our revolver to $770 million. That gives us about $100 million of dry powder. This is the time of year when we will pay down our acquisition line. You guys can look at $210 million, minus the interest and maintenance of $12 million-ish, so we think we would probably pay down debt $40 million or $50 million. We do have the ability to increase the acquisition facility by another $50 million. So if you add all that up, we're probably around $200 million of availability in the next couple of months. Then, obviously, we have folks that we purchased or merged with that are interested in our equity, so that would be some additional dry powder, you might say.

And then we are evaluating the markets to see, does it make sense to -- you know, if we need additional capital, do you we go out and do some more private placements? Does a high-yield deal look like that would be more attractive? When would an equity issuance to the public look attractive? At the current price of $24 to $25, that is not attractive at all.

Right, right, no we certainly agree that the price should be higher, and so I appreciate that. Okay. That is very helpful. Thank you.

Raymond Wetegrove, Majadas Investments.

Yes, good morning, gentlemen. Could you -- I joined the call late, I apologize. Could you give a little color on your acquisition in the barge business in December, because I didn't -- I just heard a little bit about what you had addressed. I understand -- I think I caught the part where you touch 125,000 barrels per day, and hope that number is going to go up?

Exactly. The barge business -- one of our strategies, certainly in the logistics segments, is to go from the producer all the way to the end market. And what we were missing were the barge part of that. We have two ports that we ship out of, and one on the Arkansas and one down in Texas, and we were having to lease barges and tows. So we think it is very attractive. It allows us to get more of the spreads on the crudes if we own the barges. So we put our toe in the water, I guess you'd say, and so we had 4 tows and 10 barges. We will be using those in our two ports, and then if it looks attractive we will grow that fleet.

So, this is your first foray, then, into the actual ownership of barges and tows?

Correct.

Okay. That's very helpful. Thank you.

Thank you for your questions. With no other questions, we will conclude this call. I'd like to hand it over to Mike Krimbill for the closing remarks.

Well, again, we had a -- we are very pleased with the quarter. I think we're off to a good start in the fourth fiscal quarter. We actually had some fairly good weather in January. So again, we expect to be on target or exceed our guidance that we gave you previously. Thank you very much for your time, and we'll talk to you again in a few months.

Thank you Mike. Ladies and gentlemen, that is the end of your conference call for today, and this concludes your presentation. You may now disconnect. Good day.