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spk02: 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 second quarter 2024 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'd 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.
spk03: Thank you. Good morning, everyone, and welcome to the Martin Midstream Partners conference call to discuss second quarter 2024 earnings. During this call, we will make forward-looking statements as defined by the SEC. These statements are based upon our current beliefs as well as assumptions made by the management team and information currently available to us. Please refer to our earnings press release issued yesterday afternoon and posted on our website, 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 materially from our expectations. We will discuss non-GAAP financial measures on today's call. The earnings press release includes a reconciliation of these non-GAAP financial measures to their comparable GAAP financial measures. With me on the call today are Bob Bondrant, CEO of Martin Midstream, Randy Tauscher, COO, David Cannon, Controller, and Danny Cavan, Director of FP&A. Now I'll turn it over to Bob to discuss second quarter earnings.
spk00: Thanks, Sharon. I would like to begin the discussion by focusing on our overall second quarter operating performance. For the second quarter, we exceeded guidance by $0.5 million as we had adjusted EBITDA of 31.7 million compared to second quarter guidance of 31.2 million. We exceeded guidance by 0.5 million despite two separate and distinct casualty losses that totaled 2 million in the second quarter. I will discuss these events later in my segment comments. For the second quarter, our largest cash flow generator was once again our transportation segment which had adjusted EBITDA of $11.2 million compared to guidance of $10.2 million. Within this segment, our land transportation business had adjusted EBITDA of $8.2 million compared to guidance of $6.5 million. Our revenue exceeded forecast by $1.4 million as we beat our second quarter forecasted mileage by 5%. Also, operating expenses were $0.4 million below forecast, primarily due to lower truck and trailer operating costs when compared to forecast. This operating expense trend relative to guidance should continue as we slowly replace older equipment with new. Looking toward the third quarter, we continue to see strength in our sulfur hauling from Beaumont area refineries, but have seen a bit of a slowdown in other product lines such as chemicals and lubricants. However, We believe we should be at or near guidance for the third quarter in our land transportation business. Our marine transportation business had adjusted EBITDA of 2.9 million compared to guidance of 3.8 million. The majority of the miss in our marine transportation performance can be explained by a 0.5 million casualty loss that occurred in May. This loss represents two separate insurance deductibles under our marine transportation protection and indemnity coverage policy and our whole coverage policy. This casualty loss was the result of a bridge elision in Galveston, Texas, which occurred in May. A balance of the underperformance relative to guidance was the result of lower inland fleet utilization than forecasted. This was the result of scheduled marine equipment and dry dock during the second quarter that took longer than forecasted. Also, we had reduced revenue from the inland tow that was involved in the Bridge Elysian incident. Looking toward the third quarter, we continue to see day rates stronger than our original forecast, and we also foresee full utilization of our marine fleet. providing the opportunity to exceed third quarter guidance in our marine transportation business. Our next strongest cash flow generator in the second quarter was our sulfur services segment, which had adjusted EBITDA of 10.6 million compared to guidance of 9.8 million. Our fertilizer group had adjusted EBITDA of 6.7 million, which was the same as our EBITDA guidance for the second quarter. While the volume of fertilizer sold in the second quarter was 15% less than forecast, we realized a 20% improvement in actual gross margin per ton relative to guidance. This margin improvement was a result of the mix of fertilizer products sold in the second quarter when compared to our forecast. Looking toward the third quarter, we anticipate the normal seasonal trough and cash flow for the fertilizer business as farmers transition from planting to harvesting their fields. The pure sulfur side of our sulfur services segment had adjusted EBITDA of $3.8 million compared to guidance of $3.1 million. The primary driver of this outperformance was the strong volume of sulfur production from our Gulf Coast refinery customers. The daily volume of sulfur handled was 14% greater than our forecast as we logistically managed approximately 3,700 tons per day of sulfur production into or through our Beaumont terminals. Looking toward the third quarter, subject to Gulf Coast weather events, we remain optimistic that sulfur production from our refinery customers will continue to remain at these higher levels, which should allow us to achieve or exceed guidance in the pure sulfur side of the business. Our third largest cash flow generator in the second quarter was our terminal and storage segment, which had adjusted EBITDA of $8 million compared to guidance of $9.4 million. While our specialty, shore-based, and underground storage terminals were spot-on relative to guidance, we missed our forecast at the Smackover Refinery due to a casualty loss caused by a crude oil pipeline spill that occurred in mid-June. The pipeline in question moves crude oil from our storage tanks to the refinery. Because of the spill, we accrued a casualty loss equaling our total insurance deductibles of 1.5 million under both our pollution policy and our general liability policy. The impact of this casualty loss fully explains the terminating and storage segment miss of 1.4 million when compared to guidance. Looking toward the third quarter, We believe this segment's cash flow should return to guidance. Finally, I would like to discuss the second quarter performance of our specialty product segment. In this segment, we had adjusted EBITDA of $5.7 million compared to guidance of $5.6 million. Relative to guidance, we had outperformance in our grease business, which was almost entirely offset by underperformance in our packaged lubricant business. The main driver of our grease business outperformance was an improvement in our margin per pound of grease sold compared to forecast. Conversely, the underperformance of our packaged lubricant business was due to a reduced margin per gallon when comparing actual margins to guidance. In the grease business, we have benefited from falling additive costs, while in the packaged lubricant business, we have had to substitute higher-cost third-party base oils, driving up our unit cost. Looking toward the third quarter, we believe we should continue to perform at or near guidance in our specialty product segment. Overall, barring any unusual operating or weather events, we believe Martin Midstream's third quarter performance should approximate guidance. Now I'd like to turn the call back over to Sharon to discuss our balance sheet, capital expenditures, and capital resources.
spk03: Thanks, Bob. As of June 30, 2024, we had total long-term debt outstanding of $458 million, which was an $8 million increase from our balance on March 31. Our revolving credit facility balance was $58 million, and the notional amount of our second lien secured notes was $400 million. Our available borrowing capacity under our $150 million revolving credit facility was $83 million, which includes approximately $9 million of issued letters of credit. As you recall, that facility commitment dropped from $175 million to $150 million on June 30, 2024. At the end of the quarter, our bank-compliant adjusted leverage ratio was 3.88 times and interest coverage was 2.21 times. Our leverage goal remains below 3.75 times on a sustained basis, and we continue to work toward that. We spent a total of 20.2 million on capital expenditures during the second quarter, with 12.4 million on gross capital projects. Of that number, gross capital spending related to the ELSA project was 10.6 million, which includes 4.1 million on the oleum tower, and the $6.5 million contribution to the ELSA joint venture. For a variety of reasons, which I will discuss in a moment, we are adjusting our total anticipated CapEx spend for 2024 to $58.4 million, up from $49.4 million. Growth capital expenditures are now expected to be approximately $23.1 million which is a $6 million increase from our original budget of $17.1 million. The majority of the increase is related to two projects, one in our fertilizer division to build additional storage capacity at our Seneca facility, and the other in our grease business for improvements at our Kansas City facility. On the maintenance side, we have increased forecasted CapEx by approximately $3.3 million to $35.3 million for the year. as we have increased the anticipated turnaround costs at our fertilizer plants and incurred higher regulatory inspection costs on the marine equipment used in our sulfur services business. Our 2024 adjusted EBITDA guidance remains $116.1 million. Even though actual results for the quarter were slightly better, we have reduced foliar guidance in the shore-based terminals group in anticipation of maintenance expense impacts related to Hurricane Beryl. Please review the presentation attached to our earnings press release yesterday for 2024 adjusted EBITDA guidance for each individual business. In a moment, I will turn the call back to the operator, but first I need to inform you that during the Q&A session of today's call, we will not be taking questions about the buyout offer we received from Martin Resource Management Corporation. The MMLP conflicts committee, which is made up of our three independent directors, remains in discussions with MRMC, and we will not speculate as to the direction or outcome of those discussions. So please refrain from questions on this topic. With that, I'll turn it over to the operator for any other questions you may have.
spk02: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
spk05: We'll take our first question from Selma Nackel at Stiefel. Can you guys hear me?
spk04: Okay, great. Good morning. So, first of all, just in terms of ELSA, everything on track there? Any update to timing? Any chance the tower comes on sooner than expected? Anything to just note there?
spk07: Yeah. This is Randy. Good morning. Everything is on track. We will have the oleum tower and the tie-ins to the ELSA plants complete by the end of July. We anticipate beginning to ship them the speeds, the stock in the middle of the OLEM in the middle of August. And at that point, the ELSA plants and Venture will begin their processing and testing and qualification with potential customers. And then the timing of sales potential hasn't changed since the last several times we spoke about it.
spk04: Great. Thank you for that. And then in terms of marine, I heard you in terms of day rates, any opportunity to put any of those contracts on term at all?
spk07: Yeah, so we have all of our contracts currently. Nothing's in the spot market. It's all on some sort of term. Much of it getting us to the end of the third quarter, some of us getting to the end of the year, and two of the contracts into early the first quarter. of next year. So we have been looking to expand the term as the customers have been willing to do so.
spk04: Great. Appreciate that update. And then in terms of the bridge incident and the pipeline leak, is that all behind you or is there going to be any increased regulatory looks? Is there anything that's going to linger beyond?
spk07: Yeah, so the bridge elision, which happened mid-May, that is now in maintenance mode, which basically means we're monitoring the areas that were impacted by the spill, and we expect that to be behind us. On the crude oil spill in Smackover, which happened in the middle of last month, earlier this week, we went from emergency mode to remediation mode. So we still do have some weeks or months in front of us on remediation there. Bob, did you have anything?
spk00: No, I do not. Well, I will add this. We have accrued the full deductible, so we don't believe as far as economic impact to us, there should be any more. But it is, as Randy said, an ongoing monitoring of really both situations.
spk04: Got it. And then could you maybe just, you alluded to Beryl, and it sounded like you guys were impacted. Can you just maybe expand on that a little bit?
spk07: Yeah, I mean, you know, that hurricane hit us Beaumont over to the Houston area. We have several different sites in Houston that were impacted. I'd say from a maintenance perspective, I'd call it non-material. And then, you know, down from really being able to operate for over an entire week there, which, you know, as we work our way through the year, probably won't impact us financially that much. But it also did hit our shore bases in Galveston and Port Arthur. And we'll just have to see how the customers all come back from that. We could have some impact financially on the shore base site in that regard. But I'd say the damage would be non-material at our locations, although we had damage at all of our facilities.
spk00: And I'll add, we really saw no impact of refinery production of sulfur through that storm. Is that a fair statement?
spk07: That's true.
spk00: Yeah.
spk07: As Bob mentioned earlier, we had 3,700 tons a day during the third quarter and, excuse me, during the second quarter. And then during July, just a tad under that, which I don't think Earl had anything to do with that.
spk04: Got it. And then just sort of my last question here, and it kind of relates to that topic. In terms of refinery turnarounds, anything expected or you expect no turnarounds during this upcoming quarter?
spk05: Typically, there are turnarounds late in the third quarter, early fourth quarter.
spk07: We don't have any knowledge at this point of how the turnarounds would impact us.
spk05: Got it. Okay. Thank you very much. Thank you. We'll take our next question from Kyle May at Sedonian Company. Hi. Good morning, everyone. Morning. Good morning.
spk06: Sharon, I know you said you're not going to talk about the buyout offer, but maybe just from a different perspective, I was wondering if you can give us any information about the potential timeline of the events going forward.
spk03: I don't think that I can speak on that. The negotiations that will be occurring are still occurring between MMLP's conflicts committee and MRMC's advisory firm. I do not have a timeline. on when they anticipate completing those negotiations, nor do I know if those will be, if we will come to an agreement. So I wouldn't like to speculate there.
spk06: Understood. Appreciate it. And then maybe in the transportation segment, like you pointed out, land transportation was really strong. Just wondering if you could maybe expand on some of the fundamentals of what you experienced in the second quarter and how you think about that continuing in the third.
spk07: Yeah, this is Randy. That's a great question and one that has us scratching our heads a little bit, too, because April and May were fabulous. We were strong across the board in all commodities and all routes. June, we saw chemicals and lubricants drop. And then we, you know, seasonally, the butane, of course, and the propane is weak. And that is the same trend as we saw a year ago. June and July, those get a little bit slower, and then picking back up as we work our way through the summer. So, you know, we'll see how things go here over the next couple months in that regard. July, the first week was tremendous. The second week, after growth, you know, tweaked down. a little bit. We've had our Plainview Acid Plant, which we haul all of our raw materials into there by truck. We've had that down months of June and July. That'll be coming back up in August. And so we're thinking as we get to August, we might see an uptick again in that business.
spk06: Okay, great. That's really helpful. And last one for me, just with the higher CapEx budget this year, wondering if you could give us an update on You know, how you're thinking about the leverage ratio, maybe exiting the year. I know you're looking for that sustained average, yeah, the sustained target of 3.75 on the leverage ratio. Just any thoughts about how you see the progression there?
spk03: Yeah, I think that where we are right now at 3.88 times when we consider CapEx through the back half of the year, we think we'll exit the year at about this same level.
spk05: All right, great. Appreciate the time this morning. Thank you, Kyle. Next, we'll move to Patrick Fitzgerald at Baird. Sorry, I was on mute.
spk01: Yeah, sorry about that. Yeah, is there any way you could talk about the kind of, you know, returns you're expecting to get out of the additional investment in the fertilizer business?
spk07: Yeah, so that's going to, you know, the warehouse is just about complete right now. What that's going to allow us to do up in the Illinois area is run harder during the summer months because the fertilizer that we make up there is traditionally a fall and early winter fertilizer. So we're expecting, you know, $600,000 to $800,000 bump from doing that, and we expect that to hit
spk05: I think we put in the fourth quarter, the fourth quarter in the guidance. Okay.
spk01: All right. And then, you know, the ELSA's coming online in the fourth quarter. You're expecting to get .9 million of EBITDA from that in the fourth quarter. Could you just remind us how that, you know, I'm looking at the slide from last year on kind of all the puts and takes. Could you remind us how you expect that to ramp in terms of additional EBITDA beyond just the fourth quarter, which you have guided out to, and how much more CapEx needs to go into that? And then there's like $6.5 million in cash upon... commencement of operations. So just if you could talk about that, that would be helpful.
spk07: Sure. So we have three different streams which we're going to secure revenue by in those agreements. And the first is a reservation fee to pay us back for the capital we had to spend on the oleum tower so we could provide the feedstock to the venture between the three parties. And that will begin in October. And that's that 900,000-ish you see. And that will be per quarter, and that will be ongoing. And then the second stream would be a processing fee we get for actually providing them the OEM. And that will ramp up when the sales for the partnership begin to, for the venture begin to ramp up. And we think there might be some sales in the fourth quarter yet this year. The marketing plan definitely has some sales in for early 2025. The marketing plan currently has that ramping up in the second half of 2025. Now, that's contingent on the FAB clients getting built and operating. And then at that point, of course, when the ELSA sales pick up, the venture will start seeing revenue. on our percentage share of the venture. And ultimately, we expect a $5 to $6 million in the total investment. The total investment we expect to be $26 to $27 million, which was our capital front and the capital we're putting into the venture.
spk03: So I'll add on there, the $6.5 million that you spoke to, that was spent this quarter. That was the contribution to the ELSA joint venture itself. And as far as through the oleum tower, we have an additional approximate $3 million left on that project.
spk05: Okay. Thanks. Thanks a lot.
spk02: And that concludes our Q&A session. I would like to turn the conference back over to Bob Bondurant for closing remarks.
spk00: Well, thank you, Audra. Appreciate everyone on the call today. And just a final note, we were pleased to have a ribbon-cutting ceremony for the DSM semi-chem plant with our Dongjin Samsung partners on Monday and look forward to beginning production at the facility very soon. Thanks again.
spk02: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
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