Blueknight Energy Partners L.P.

Thank you for standing by. This is the conference operator. Welcome to the Blue Knight fourth quarter and year-end conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Mr. Matt Lewis, Chief Financial Officer. Please go ahead.

Thank you, and good morning. We are pleased to welcome you to Blue Night's conference call, where we will discuss financial and operating results for the fourth quarter and full year ended December 31st, 2021. Please note that our earnings release, which can be found on our website, includes financial disclosures and reconciliations for certain non-GAAP financial measures, that should help you analyze our results. Additionally, supplemental information will be available in our annual report on Form 10-K, which will be filed tomorrow with the SEC. I would like to remind you that comments and answers to questions during the call today may include forward-looking statements that refer to management's expectations or future predictions. These statements are made as of the date of this call, and management is under no obligation to update these forward-looking statements in the future. They are subject to risks and uncertainties that could cause actual results to differ from management's expectations. Finally, as previously mentioned during our third quarter earnings call, on October 8th, Blue Knight's Board of Directors of the General Partner received a non-binding cash offer from Ergon, Inc. to acquire all of the outstanding publicly held preferred and common units. The Conflicts Committee, which is comprised solely of Blue Knight's three independent directors, has retained independent financial and legal advisors to assist in their evaluation and negotiation of the offer. Given that the Conflicts Committee's review is still ongoing, management is unable to comment about the process. I will now turn it over to Andy Woodward, our Chief Executive Officer.

Thanks, Matt. And good morning to everyone who dialed in. I'm pleased to review our performance during 2021, the various milestones achieved, and where our business stands today, along with updating you on the current macro environment and our growth strategy, including the two new projects announced at year end. Matt will then provide more details on our financials, capital allocation strategy, and 2022 guidance before we open the lines for Q&A. As Matt mentioned already, but worth reiterating, the Ergon Take Private offer is still ongoing and under negotiation. I can certainly understand and even empathize with the various levels of interest and feelings you might have regarding the process, timing, and ultimate outcome. That said, I hope you can appreciate our inability to comment on the matter and due to ongoing negotiations, the need for management to be particularly thoughtful about our forward-looking statements during these prepared remarks and Q&A. Also, please note that the process between Oregon and the Conflicts Committee is handled independently from management, outside of us answering questions on the business. This independence allows management to remain fully dedicated and focused on the business and executing our strategy. Furthermore, I'd like to add during this period, we have also received the necessary support from our board to deliver on our strategic plans as evidenced by the approvals received on our recent growth projects and common unit distribution increase. I am thankful for the support and look forward to sharing more of these details later on. Now, turning back to our business and highlights during 2021. I'd like to start by saying how proud I am of the Blue Knight team and the year we just had. As I reflected on the year ahead of this call, I'm reminded of how far we have come in a rather short amount of time. Our aim was high and we hit several critical milestones across many aspects of our business and continue to build upon our track record of executing on our strategic objectives. This includes achieving superb results in our environmental health and safety program, where we continue to demonstrate progress year after year, improving on all measurements we track by 50% versus the prior three-year averages. This is a strong testament to our team and culture. Our employees and operators have a sense of pride, personal responsibility, and ownership over their respective operations. And it shows not only in our continual EH&S outperformance, but also how we strive to better serve our customers and the communities in which we operate. Another key milestone during 2021 was the successful close of our crude oil transaction. This transaction was truly monumental in rewriting the Blue Knight story. Strategically, it sharpened our focus and enhanced our positioning as a pure play downstream terminaling company with the largest independent asphalt network in the nation, which we are now showing evidence of expanding. Our team is now fully dedicated to developing and growing this business garnering 100% of our full attention versus managing four different disparate business segments prior. Pro forma, the investment thesis of our business and risk profile have improved dramatically. We no longer have a portion of our business tied directly to changes in commodity prices or indirectly subjected to producer drilling activities and volume volatility. Our asphalt take-or-pay contracts are the most coveted type in the industry and what we believe the MOP structure was always intended for. As a result, our revenue is approximately 95% take-or-pay, the majority of which is from investment grade counterparties and from long-term contracts with a weighted average length over five years. Just as important, our crude oil transaction has led to best-in-class financial metrics and significantly strengthened the stability of our underlying cash flows. Post-transaction, our leverage dropped to two times and stands today near 1.8 times. Additionally, the timing could not have been more ideal as we looked to refinance our credit facility in the spring. We encountered a challenging banking market with strength. which led to extending our facility for another four years at competitive rates and terms. Since Blue Night went public, dating back to 2007, this is likely the first time in a very long time that we have a supportive and healthy balance sheet with the financial flexibility to pursue our strategy and growth in a disciplined and sustainable manner. Finally, crude oil transaction delivered significant value back to our investors without materially sacrificing cash flow. We ended 2021 with LTM coverage of 1.38 times on all distributions and increased our common distribution six and a quarter percent for the first time since 2015. It also gives me great pleasure to report that we've now achieved and exceeded with our long-term targets on leverage and distribution coverage. Shifting now to operations. During 2021, the base business had another strong year. This time last year, as you may recall, we had approximately 20% of our tank capacity expiring by year end. We successfully recontracted that available capacity at either current or more favorable terms. For 2022, 13% of our tank capacity will expire by year end, and there are no expirations expected in 2023, which should lead to further stability over the next few years. As for volumes, total asphalt delivered from our facilities during 2021 was slightly higher, up 2% versus the prior year, which, as a reminder, was also a strong year during the height of the pandemic. Year-over-year volumes did vary by region, driven by certain demand factors, competition, and supply changes. However, this also highlights the benefits of our diversified portfolio that, when taken together, often result in stable, growing volumes year-over-year. Looking forward as it relates to future volumes and roadwork activity, We are encouraged by the passage of the Infrastructure Investment and Jobs Act, a landmark and historic bill for our industry that has the potential to stimulate growth over multiple years. The bill contains a five-year reauthorization of the FAST Act, which was the prior federal funding program for roads, plus an additional $110 billion in new funding for roads, bridges, and other projects. When appropriated in full annually, this represents an approximately 50% increase in federal funding versus recent years past. As it relates to the appropriation of the funds, we anticipate that occurring sometime in the first half of this year, which implies the real benefits will likely be seen in 2023 and thereafter. As for 2022, We are encouraged by existing budgets and funds available at the federal and state level. We see healthy state surpluses, solid lettings and spendings, and expected growth across our regions in support of infrastructure and road work. For instance, in November of 2021, voters approved 89% of the state and local transportation ballot measures. These initiatives are estimated to generate an additional $7 billion of funding. Again, based on a combination of factors, we see strong footing for road work in 2022 and see most of the benefit from the new infrastructure law taking effect in 2023 and beyond. Now, with even that said, we do remain cautious with these expectations and continue to revisit our assumptions in the context of an ever-changing macro environment impacted by the Russian and Ukraine war and rising commodity prices, along with other inflationary measures. We do not know the full extent of how these factors could impact spending on infrastructure and road work, if at all. Turning back to 2021 and our achievements, we also delivered on our synergy targets throughout the year and continue to find efficiencies in our business. we estimate that run rate synergies at the end of the year reached $2 million, helping to offset increases elsewhere in the business. Collectively, these activities and many others during 2021 led to adjusted EBITDA up 9% year over year and distributive cash flow up 15% year over year. Matt will be spending more time on our financial performance I am incredibly pleased with this outcome. Finally, 2021 also marked the start of executing our new and refined strategy in earnest, initiating a new growth process in a meaningful way and reorienting our culture and organization at all levels around having a growth mindset. In our pursuit of growth, we now characterize our efforts into three different tiers. Tier 1 is within asphalt, which remains our core focus, leveraging on our competitive positioning, our core competencies, and customer relationships. We see growth in Tier 1 similar as before from either new organic developments or acquisitions. Tier 2 is serving similar customers, but in a complementary products and services outside of asphalt, either at existing sites or even new greenfield locations. And then lastly, Tier 3 is more opportunistic and regionally specific. It's capturing opportunities that better utilize our excess land for industrial use. These opportunities will likely be driven more by regional demand around our sites and could come in the form of long-term leases from various parcels of our excess land. I am pleased to report that this strategy, process, and renewed focus on growth led to announcing two new projects at the end of the year. The first opportunity was an acquisition of an existing asphalt terminal in the high-growth state of Colorado, which included a 200-acre industrial park. The second opportunity was an organic expansion of an existing site, adding rail and tankage and improving certain capabilities. Combined, these two projects require approximately $15 million of capital for an additional $5 to $10 million of growth capital over time. Matt will share more details on expected incremental cash flow timing and how they align with our risk-adjusted targeted returns. That said, I'm excited to report that we closed the Colorado acquisition in January and we received all permitting and regulatory approvals for the organic expansion in February. These two projects are perfect examples of our approach and symbolic of our investment strategy and growth aspirations. Not only are these sites a good example of Tier 1 opportunities as just described, but they also have the potential to lead to Tier 2 and 3 opportunities over time, providing additional potential upside. In summary, I'm incredibly proud of this team, these pivotal milestones, our progress, and our ability to deliver on what we said we would do. With that, I'll turn it over to Matt to walk through key financial details in our 2022 outlook. Matt?