This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk04: Ladies and gentlemen, thank you for standing by and welcome to the MNLP first quarter 2021 earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to Ms. Sharon Taylor, Chief Financial Officer. Please go ahead. Thank you, Operator, and good morning, everyone. I'm joined by Bob Bondurant, President and CEO, Randy Tauscher, Chief Operating Officer, David Cannon, Controller, and Danny Cabin, Director of FP&A. Before we get started with our comments, I'll remind you that management may be making forward-looking statements as defined by the SEC. Such statements are based on our current judgments regarding the factors that could impact the future performance of Martin, including facts and assumptions related to the impact of the COVID-19 pandemic, but actual outcomes could be materially different. You should review the risk factors and other information discussed in our SEC filings and form your own opinions about Martin's future performance. We will discuss non-GAAP financial measures on today's call. Please refer to the table in our earnings press release posted in the investor relations section of our website to find information regarding those non-GAAP financial measures, including a reconciliation of historical non-GAAP financial measures referenced in today's call to their court funding GAAP measures. And now I will turn the call over to Bob for his remarks on our first quarter earnings results. Bob?
spk01: Thank you, Sharon. I would like to start the call off by saying I was very pleased with our cash flow performance in the first quarter as we exceeded our internal guidance in spite of the extreme freeze caused by winter storm Uri. As we all know, this winter storm had significant impact to the Gulf Coast refineries and also had significant impact to our land transportation business. Again, in spite of the impact to us by this winter storm, we exceeded our internal guidance by more than 10%. Our first quarter adjusted EBITDA for 2021 was $30.9 million compared to $31 million for the first quarter of 2020. However, including last year's first quarter EBITDA was $2.7 million of non-recurring business interruption insurance proceeds that were related to our thrilled sulfur shiploader casualty loss, which occurred in May of 2019. Also, last year's first quarter included $0.5 million of EBITDA from Mega Lubricants, which was sold in December of 2020. So without business interruption insurance proceeds and the cash flow contribution of the Mega Lubricants business, last year's first quarter adjusted EBITDA would have been $27.8 million compared to this year's adjusted EBITDA of $30.9 million. Now, first, let me begin the operating performance discussion by focusing on our natural gas liquid segment, which was our largest cash flow contributor in the first quarter. This segment contributed adjusted EBITDA of $12.2 million compared to $5.5 million a year ago. This cash flow improvement was primarily a result of the strong performance of our butane logistics business. Driving our butane logistics performance was the strong Mount Bellevue price of butane for the first quarter, which averaged $0.88 in January, $0.94 in February, and $1.02 in March. These prices were significantly above our inventory carrying costs. We did have approximately 50% of our first quarter butane sales covered with financial hedges at prices less than the average first quarter market prices, but still greater than our fourth quarter hedge prices. As a result, our butane adjusted EBITDA was 10.3 million in the first quarter compared to 3.4 million a year ago and compared to 1 million in the fourth quarter of 2020. So as we think about the butane selling season of the fourth quarter of 2020 and the first quarter of 2021, we had combined adjusted EBITDA of 11.3 million. This includes butane hedge losses of $1.7 million in the first quarter of 2021 and $8.1 million in the fourth quarter of 2020. As a result of these hedge losses, we experienced a negative impact in our butane logistics business for the selling season of $9.8 million. This was opportunity costs we experienced in order to protect our downside risk. Obviously, financially, we would have been better off by not hedging our inventory this particular butane selling season. However, going forward, we will continue to hedge some level of our butane inventory in storage in order to continue to protect the downside risk of this business life. Our second largest cash flow generator in the first quarter was our terminal segment. This segment had adjusted EBITDA of $10.6 million in the first quarter compared to $11.5 million a year ago. This segment also included a half a million of adjusted EBITDA from our mega lubricants business in last year's first quarter. So factoring that out of last year's cash flow, our terming segment's cash flow was down approximately $0.4 million from a year ago. This reduction was primarily driven by the scheduled contract adjustment to the per-barrel throughput rate related to capital recovery fees at our Smackover Refinery, which became effective January 1, 2021. As we look toward the second quarter, we should continue to see similar cash flow in our terming business due to the primarily fee-based contractual structure of this segment. Any cash flow variability in this segment usually comes from our margin-based Martin Lubricant business. However, the outlook for Martin lubricants remains strong due to the tight supply of packaged lubricants in Greece, combined with increasing demand for our products as the country recovers from the pandemic. Now I would like to discuss the two business segments that have been affected by the pandemic and were also affected by winter storm Yuri, mainly due to reduced refinery utilization on the Gulf Coast. These two segments are our sulfur services segment and our transportation segment. Before I get into detailed discussions of these two segments, I want to lay out how Pad 3 refinery utilization was impacted by winter storm Uri. For the first six weeks of the quarter, Pad 3 refinery utilization averaged 84%, still down from the pre-COVID norms of approximately 95%. Due to the impact of winter storm URI, for the next four weeks, refinery utilization averaged 59%, recovering to an average of 82% for the last three weeks of the quarter. With this background, let's move to the discussion of our sulfur services segment. For the first quarter, this segment had adjusted EBITDA of $9.2 million compared to $10.1 million a year ago. In our pure sulfur side of this segment, adjusted EBITDA was $2.1 million in the first quarter compared to $5.2 million in the first quarter a year ago. A year ago, we had $2.7 million of business interruption proceeds that are non-recurring. So eliminating those proceeds provides a comparable basis of $2.5 million in EBITDA to $2.1 million in the first quarter this year. This minimum cash flow decline was the result of reduced sulfur production due to reduced refinery utilization as a result of winter storm fury. The other piece of the sulfur services segment is our fertilizer business, which had adjusted EBITDA of $7.1 million in the first quarter compared to $4.9 million a year ago. Our fertilizer volume sold in the first quarter was 28% greater this year than last year. Commodity prices for corn, soybeans and wheat have been higher this year compared to last year, helping drive increased fertilizer demand from our customers. In addition, last year's wet weather conditions delayed the planting season, impacting fertilizer sales negatively in the first quarter of 2020. As we look toward the second quarter, we should see improved performance in the pure sulfur side of the business. if, as expected, patch-through refinery utilization holds at the current utilization rate of 86% or improves. Our fertilizer cash flow should continue to be strong in the second quarter, although most likely not as strong as the first quarter. It is our opinion that sales volume will be slightly less in the second quarter as the demand from farmers will be reduced compared to the exceptionally strong first quarter demand. The final segment that was impacted by the freeze during the first quarter was our transportation segment. The first quarter adjusted EBITDA for both land and marine transportation was $2.7 million compared to $7.9 million a year ago. Our land transportation had adjusted EBITDA of $3.7 million in the first quarter compared to $4.8 million a year ago. Compared to a year ago, our load cap was down 17%. Part of this low count reduction was due to the pandemic, but some of it was due to winter storm Yuri. During the first quarter, our daily low count averaged 375 in January, dropping to 290 in February as a result of the winter storm, then increased to 384 in March. This reduction in the February daily low count was caused by both the icy roads in our area of operation and from the negative impact of the freeze on refinery utilization on the Gulf Coast. Looking toward the second quarter, we should see improvement in the adjusted EBITDA of land transportation as this market is now very tight due to the supply of trucking capacity compared to increasing customer demand. As a result, we are beginning to receive rate increases from our customer base. Our marine transportation business had adjusted if it died of negative 1 million compared to a positive 3.1 million a year ago. In this segment, the winter storm exacerbated the lack of demand caused by the pandemic from our refinery customers. Our utilization with our inland third-party customers was approximately 60% compared to 86% a year ago. For the fourth quarter of 2020, our third-party inland utilization was only 41%, so there was utilization improvement over the prior quarter. We continue to operate under spot contracts at lower rates compared to operating with a majority of term contracts a year ago. Looking forward, we continue to believe marine transportation will be weak for at least another quarter before beginning to recover as refinery utilization should improve this summer as a result of the country continuing to overcome the pandemic shutdown. This concludes my operating performance discussion, so I will now turn the call over to Sharon to discuss our balance sheet, capital resources, and liquidity.
spk04: Thank you, Bob. At quarter end, the total of our long-term debt outstanding was $522 million, which consisted of $176 million drawn on our $300 million revolving credit facility, 54 million of secured one and a half lien notes due 2024, and 292 million of secured second lien notes due 2025. During the quarter, 29 million of senior unsecured notes matured and were redeemed using revolver availability, resulting in an increase to the revolver outstandings of 28 million quarter over quarter. As of March 31, 2021, our first lien leverage ratio and adjusted leverage ratio were 1.77 times and 5.44 times, respectively. Our adjusted leverage ratio increased slightly from last quarter, even as debt was reduced. This is attributable to the working capital carve-out related to our seasonal NGL inventory, which totaled $21 million on December 31, 2020, and $9 million on March 31, 2021. At this time, we expect leverage to remain elevated through the third quarter of 2021 and then begin to lower as fiscal quarters where earnings were impacted significantly by COVID-19 are no longer a component of the leverage calculation. Our distributable cash flow for the first quarter of 2021 totaled $12.8 million. Reducing that number for gross capital expenditures and capital lease payments results in calculated free cash flow of $9.6 million. management continues to focus on retaining cash flows to further our debt reduction to reach our goal of 3.75 times calculated leverage as our revolving credit facility covenants restrict us from increasing our distribution from the current two cents annually until our leverage drops below that ratio capital expenditures for the first quarter were as follows 4.2 million in maintenance capex $1.5 million in turnaround costs at the Smackover Refinery, and $800,000 in gross capex. We expect the total turnaround costs to be slightly less than budget. As noted in our earnings release, we were able to minimize refinery downtime by beginning turnaround preparations during winter storm Yuri. Our 2021 guidance remains the same and is outlined on page five of the slide deck linked in our press release. We expect EBITDA of between $95 and $102 million, maintenance capital expenditures of between $17 and $19 million, which does include the refinery turnaround, and growth capex of between $4 and $5 million. This leads to distributable cash flow of $29 to $34 million and adjusted free cash flow of $22 to $26 million. That is all on an annual basis. This concludes our prepared remarks for this morning, and I will now turn the call back to the operator for Q&A. If you would like to ask a question at this time, please press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. We'll pause for just a moment to compile the Q&A roster. First question comes from Selman Echo with Steeple.
spk02: I appreciate all the detail in the prepared comments. I guess, really, if we could just sort of address in terms of thinking about marketing and how does that look for the second quarter. Prices continue to be strong for the NGLs, and I know it's usually weaker, but is there any uplift from the stronger prices?
spk00: Yeah. This is Randy. I appreciate the question. You know, second quarter is a slow time for our NGL business because, you know, the butane season and the propane season, both end February-March timeframe, and now we're entering into the part of the season we're starting to think about building our inventories for the next winter season. So the first quarter, April and May, is generally a slow time in building the inventories, and that bill starts picking up as we get later into the summer. For propane sales, that has definitely slowed down significantly. The weather has improved. We still are seeing some butane sales going out in April. We have some demand with what we had in inventory being shipped out. So I think April we will still see a pretty good number from the butane business. But then after that, I wouldn't expect to see much from the NGO businesses until we get to next fall.
spk02: Very good. Appreciate that. And then just thinking about transportation and, again, very appreciative in terms of thinking about sort of daily load counts by month. Can you just say what you're seeing in, you know, April so far and how it's tracking maybe to March? Is it, you know, flat with March, or do you think it might be up?
spk00: April looks an awful lot like March. March was a very good month for the MTI business, the Martin Transport. February we got clobbered, obviously, with the freeze and load count and the mileage and everything for a two- to three-week period. It went real low on us. But March was a good month. April through, you know, 21 days has proven to be a very good month. Demand is strong for our trucking services right now and getting stronger, and we think that's going to continue through the summer.
spk02: All right. Thank you very much.
spk04: Thank you. Once again, to ask a question, please press star 1 on your telephone keypad. Once again, that's star 1. And we have a question from Patrick Fitzgerald with Baird. Please go ahead.
spk03: Yeah. Hi, guys. Morning. Could you just clarify, I think you talked about your leverage at third, you know, remaining elevated through the third quarter and then dropping. How do you feel with, you know, covenant headroom?
spk04: I think that as we look at our EBITDA projections of between 95 and 102 million, we remain within our covenants. As you know, our third quarter is typically our weakest quarter just in terms of the seasonality of our business. So where there is, you know, a little bit of tightness, we see that in the third quarter. But again, all of our internal projections show that we are well within our covenants going forward.
spk03: Okay. And then in terms of, you said you're 3.7 million higher than budgeted internally. I'm just wondering, is that, you know, you gave guidance of, 95 to 102. So was that like 3.7 million kind of better than you thought when you gave that guidance, or was that just kind of based on the quarter obviously had some difficult aspects to it this year?
spk01: Yeah, there's a lot of give and take on that. I think, you know, my comments earlier about the fertilizer business, we probably – Had some of the benefit there that we probably forecasted maybe a little bit in the second quarter. But we're seeing the trucking business probably running at a stronger than what our internal forecast might have been. But then the marine business may be a little bit weaker than what we had been. So I think as you net this, all these puts and takes, it's probably feeling somewhat somewhere in the midpoint of that 95 to 102 at this time. Okay. Okay.
spk03: And then, you know, fertilizer, you said the second quarter is going to be down sequentially, I think. Is that down year over year as well?
spk01: I don't have the second quarter of last year in front of me.
spk00: Do you remember, Randy? I have it here, yes. Yeah, I would anticipate we're going to be down year over year from last year. And the reason for that is because our sales in the first quarter this year, 2021, were very strong, our sales volumes. And so our inventory that we have available to sell in the second quarter this year are less than what we had a year ago in the second quarter. So we still anticipate a strong second quarter, but from the second quarter of 2020, I would expect we will not get that same number.
spk03: Okay. And are you guys comfortable with the assets you have currently, or is there any opportunity, do you think, to sell at an attractive multiple, any of your smaller businesses?
spk04: I think that, as we've discussed, we are open to looking at divesting at some of our non-core assets if the rate is appropriate. I think that during this time of kind of, I don't know if we want to say post-COVID, but maybe just leveling off of COVID, we still don't think that the multiples are there but we are exploring and we continue to look at ways that we can deliver a little bit quicker than just relying on our our annual earnings okay thanks a lot thank you patrick once again to ask a question please press star then the number one on your telephone keypad and we do not have any questions at this time i'll turn the call over to mr bondurant
spk01: Thank you. I'd like to thank everyone today who participated on the call. Despite winter storm Yuri and continued demand destruction from COVID impacting refinery utilization, we had a strong first quarter. As I spoke to in our last earnings call, we were highly optimistic around both the butane and fertilizer business, and we were not disappointed as both businesses outperformed expectations. As we look forward, our emphasis remains on optimizing our assets to maximize free cash flow in order to reduce debt and strengthen the balance sheet. Our target of 3.7 times leverage remains, and though it will take time, we will continue to make this a priority. Last, I'd like to commend our employees who have been committed to supporting Martin, whether remotely or on location or on a marine vessel or in a truck or wherever they may have been. last year has been difficult for folks professionally and personally our employees have been diligent regarding the health and safety of each other as well as the communities where they work and live i appreciate how tough it has been and applaud their dedication and ingenuity to get the job done thank you this concludes today's conference call you may now
Disclaimer