Martin Midstream Partners L.P.

Good morning, my name is Audra and I will be your conference operator today. At this time, I would like to welcome everyone to the MMLP Q2 earnings call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I would like to turn the conference over to Sharon Taylor, Chief Financial Officer. Please go ahead.

Thank you, Operator, and good morning to everyone who has joined the call. With me today are Bob Bondurant, CEO, David Cannon, Controller, and Danny Cavan, Director of FP&A. I'll begin with our cautionary statements. During this call, management may be making forward-looking statements as defined by the SEC. These statements are based upon our current beliefs as well as assumptions and information currently available to us. Please refer to our press release issued yesterday afternoon as well as our latest filings with the SEC for a list of factors that could impact the future performance of Martin and cause our actual results to differ from our expectations. We will discuss non-GAAP financial measures on today's call, such as adjusted EBITDA, distributable cash flow, and free cash flow. In addition, we will refer to adjusted EBITDA after giving effect to the exit of the butane optimization business. You will find a reconciliation of these non-GAAP measures to their nearest GAAP measures in our earnings press release posted on our website. Now, I will turn the call over to Bob to discuss second quarter results by segment.

Thanks, Sharon. Before I speak to the performance of our continuing operations, I want to briefly discuss the final liquidation and exit of our butane optimization business. We sold the remaining butane inventory in stores during the month of April, using the proceeds to pay down our revolving line of credit. However, because butane prices continued to fall during the month of April, we realized negative EBITDA of 6.3 million in the second quarter, And for the six months, we had negative Ibidyn butane of 15.1 million. Finally, for the trailing 12 months, we had negative Ibidyn butane optimization of 27.4 million. These losses are not included in our bank leverage test as we have exited the butane optimization business. However, we will continue to operate our underground NGL storage facility in North Louisiana, which has both truck and rail access utilizing a fee-based, volume-driven business model. The results of our underground storage facility are included in the terminating and storage segment. I would now like to discuss the performance of our ongoing operations, comparing the actual results of the second quarter to our second quarter guidance. Excluding the losses of the butane optimization business, we had adjusted EBITDA of $31.8 million compared to our second quarter adjusted EBITDA guidance of 32.2 million, a difference of 1%. For the trading 12 months, excluding the results of the butane optimization business, we had adjusted EBITDA of 111.3 million through the second quarter of 2023. For the second quarter, our largest cash flow generator was our transportation segment, which had adjusted EBITDA of 12.1 million compared to guidance of $11.6 million. Within this segment, our land transportation business had adjusted EBITDA of $8.7 million compared to guidance of $8.8 million. Our actual line haul revenue was approximately $1.2 million less than forecasted as we missed our mileage forecast by 4%. This revenue miss was offset by the associated reduction in our variable costs from fewer miles driven and also from reduced fixed costs, which were less than our second quarter forecast. Our marine transportation business had adjusted EBITDA of $3.5 million compared to guidance of $2.8 million. For the second quarter, we exceeded our average daily tow rate forecast by approximately 11%. These improved day rates are reflective of the strong supply-demand fundamentals in the inland barge markets. Looking forward, we believe that rates should continue to strengthen, and we should also continue to have very strong utilization of our barge fleet. Our second strongest cash flow generator in the second quarter was our terminal and storage segment, which had adjusted EBITDA of $9.6 million and reduced operating costs. the majority of which were reduced natural gas costs at the Smackover Refinery when compared to forecast. Looking forward, based on current natural gas pricing fundamentals, we should continue to see reduced natural gas costs relative to our original forecast the remainder of the year. Now I would like to discuss our sulfur services segment, which was our third largest cash flow provider in the second quarter. This segment had adjusted EBITDA of $8 million compared to guidance of $10.6 million. The cash flow miss in our guidance was driven by the underperformance in our fertilizer group, which had adjusted EBITDA of $4.9 million in the second quarter compared to guidance of $7.7 million. When the second quarter began, we were still optimistic our fertilizer group would meet our volume projections and ultimately cash flow projections for the quarter. However, during the quarter, poor weather conditions, which included droughts in the southwest and winter weather continuing into spring in the Midwest, negatively impacted farmer demand for fertilizer products. As a result, our forecasted sales volumes were off 17%. Additionally, because of overall reduced agriculture demand in the U.S. due to poor weather conditions, fertilizer prices continued to fall throughout the second quarter. This negatively impacted our margins as we destocked higher cost inventory. As a result, our margin per ton was 27% less than forecasted in the second quarter. While the performance in our fertilizer group was disappointing, it was not unique to us. Most, if not all, fertilizer producers will likely report reduced earnings in the second quarter as a result of these poor market conditions. Looking toward the remainder of the year, we have reduced our fertilizer guidance by approximately $1 million, primarily due to high industry inventory levels caused by slow fertilizer sales. For the full year, when considering the actual results to forecast, we've brought annual guidance for the fertilizer business down by 6.6 million. The pure sulfur side of our sulfur services segment had adjusted EBITDA of 3.2 million in the second quarter, compared to guidance of 2.9 million. In the second quarter, we saw an increase in sulfur production from area refineries. As a result, the sulfur we handled in the quarter was approximately 16% greater than our forecast. This volume increase was the primary driver of our outperformance in the pure sulfur side of the business. Now I would like to discuss the performance of our specialty products business segment. In this segment, excluding the impact of our exit of the butane optimization business, we had adjusted EBITDA at $5.9 million compared to guidance at $6 million. While we had strength in our NGL and propane groups, which both outperformed guidance, we faced continued weakness in our packaged lubricant business. This particular business had significant exposure to the agriculture market, which provided weak product demand in the second quarter. This week, agriculture demand was primarily driven by the same poor weather conditions that impacted our fertilizer business. Looking forward, we see some continued weakness in the agriculture markets in the third quarter, and as a result, have reduced our packaged lubricant guidance in the third quarter by $1 million, or $2.3 million for the entire year. Now, let me take a moment to summarize. From our ongoing operations, we missed second quarter guidance by 0.4 million. However, if we exclude the guidance missed from our two business lines that have significant agriculture exposure, both fertilizer and packaged lubricants, we would have exceeded guidance by 3.3 million. Using the same thought process of excluding fertilizer and packaged lubricants for the first six months, instead of missing guidance by 1.2 million, we would have exceeded guidance by 5.7 million. I'm making this point to demonstrate the strength of our performance in the majority of our business line, which we believe will continue in the last half of the year. Regarding our two lines of business having significant agriculture exposure, subject to unusual negative weather events, we believe the agriculture market should begin to recover and we should see more normal performance from these two business lines, most likely beginning in the fourth quarter. This concludes my thoughts, and I would now like to turn the call over to Sharon to discuss our balance sheet, capital resources, and further revisions to our 2023 guidance.