Holly Energy Partners, L.P.

Q3 2021 Earnings Conference Call

11/2/2021

spk00: Welcome to Hawley Energy Partners' third quarter 2021 conference call and webcast. At this time, all participants have been placed in a listen-only mode. The floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star then the number one on your touchtone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing star one again. If you should require operator assistance, please press star zero. We would ask that you please pick up your handset to allow optimal sound quality. Please note that this conference is being recorded. It is now my pleasure to turn the floor over to Trey Shonter. Trey, you may begin.
spk04: Thanks, Julianne, and thank you all for joining our third quarter 2021 earnings call. I'm Trey Shonter with Investor Relations for Holley Energy Partners. Joining us today are Rich Volova, President, and John Harrison, Senior Vice President and CFO. This morning, we issued a press release announcing results for the quarter ending September 30th, 2021. If you would like a copy of today's press release, you may find one on our website at HolleyEnergy.com. Before Rich and John proceed with their remarks, please note the Safe Harbor disclosure statement in today's press release. In summary, it says statements made regarding management expectations, judgments, or predictions are forward-looking statements. These statements are intended to be covered under the safe harbor provisions of federal securities laws. There are many factors that could cause results to differ from expectations, including those noted in our SEC filings. Today's statements are not guarantees of future outcomes. Also, please note that information presented on today's call speaks only as of today, November 2, 2021. Any time-sensitive information provided may no longer be accurate at the time of any webcast replay or reading of the transcript. Finally, today's call may include discussion of non-GAAP measures. Please see today's press release for reconciliations to GAAP financial measures. And with that, I'll turn the call over to Rich.
spk02: Thank you, Trey. Thanks to each of you for joining the call this afternoon. HEP delivered solid results in the third quarter, driven by record volumes on our SLC and Frontier pipelines, and outstanding operations across our business. During the third quarter, we surpassed one year without an employee recordable injury. Congratulations to our entire team on this important milestone. HEP announced a 35 cent per LP unit quarterly cash distribution to be paid on November 12th to unit holders of record as of November 1st. Turning to project updates, we are excited to announce the completion of the Cushion Connect pipeline, which went into service at the end of September. We also advanced construction on the Frontier Pipeline expansion, which is expected to be in service at the beginning of 2022. This expansion will allow for an additional 10,000 barrels per day of crude oil into the Salt Lake City market and is supported by long-term minimum buy increments with third-party refiners. Looking forward, we still expect to close the acquisition of Sinclair's logistics assets by mid-2022. subject to closing conditions, and we remain focused on strong operational execution and our near-term leverage target of 3.5 times debt to EBITDA. I will now turn the call over to John.
spk03: Thanks, Rich. For the third quarter of 2021, net income attributable to Holley Energy Partners was $49.2 million, compared to $17.8 million in the third quarter of 2020. which included special items that collectively decreased net income by a total of $29.6 million. Excluding these items, third quarter 2020 net income was $47.4 million. The year-over-year increase was primarily due to higher joint venture earnings and lower depreciation, partially offset by lower revenues and higher operating expenses. Third quarter 2021 adjusted EBITDA was $83.3 million. compared to $86.4 million in the same period last year. A reconciliation table reflecting these adjustments can be found in our press release. During the quarter, HEP generated distributable cash flow of $66.8 million, with a quarterly distribution coverage ratio of 1.8 times and 1.9 times year-to-date. Capital expenditures and joint venture investments during the quarter were approximately $19 million, including $11 million for the Cushion Connect joint venture and $3 million in maintenance capex. For full year 2021, we are slightly reducing our capital guidance from $60 to $71 million down to $57 to $69 million. Our updated capital guidance includes $40 to $45 million of expansion capital and joint venture investment, $15 to $20 million for maintenance capital, and $2 to $4 million for refinery processing unit turnarounds. As of September 30th, HEP had approximately $1.3 billion of total debt outstanding, consisting of $500 million of senior notes due 2028 and $841 million drawn on our revolving credit facility. Our liquidity at the end of the third quarter was approximately $360 million, and our debt to trailing 12-month adjusted EBITDA ratio was 3.8 times. During the quarter, we continued to execute on our deleveraging strategy. by repaying 30 million of borrowings on our credit facility. Looking forward, we plan to continue using retained cash flow to reduce debt down to our target leverage ratio of 3.0 to 3.5 times. Now I'd like to turn the call over to the operator for any questions.
spk00: Thank you. The floor is now open for your questions. If you would like to ask a question at this time, please press star then the number one on your touchtone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing star one again. Again, we ask that you please pick up your handset to allow optimal sound quality. Thank you. Your first question comes from Spiro Dunas from Credit Suisse. Please go ahead. Your line is open.
spk01: Thanks, operator. Hey, Rachel, John.
spk02: Hi, Spiro.
spk01: Doing well. Good, good. Just wanted to start maybe with Puget Sound, just on the back of the transaction closing earlier this week. And maybe just get your latest thinking around some of the logistics assets there. I think at some point, maybe slated for drop-down. Of course, you've got Sinclair in the mix now in that process proceeding. So I'm just curious how you think about maybe the potential timing and how we're thinking about structuring that drop at some point.
spk02: Yeah, I think we've put that on the back burner, Spiro, with obviously Sinclair coming. Focus is there right now. So no immediate plans with respect to Puget Sound.
spk01: Okay, got it. And then just as we're thinking about volumes and the outlook here for the rest of the year, I think you all had some turnarounds and maybe some maintenance this quarter that impacted volumes a little bit. I'm just curious, as we get into the fourth quarter, anything to call out there just from a volume trajectory and how you're thinking about volumes overall as we head into next year?
spk02: Yeah, we will. Holly Frontier's Navajo Refinery is in the latter stages of a turnaround right now, so we will see impact from that, both in terms of crude and to a greater extent on affiliate product volumes in the fourth quarter. We would expect that to bounce back then in the first quarter and going forward from there.
spk01: Okay, perfect. Last one, if I could sneak it in. So one of your peers had mentioned just tracking renewables and the potential for that to be MLP qualifying income at some point and potentially opening up some opportunities for them on the renewable side. I would imagine you're watching that as well, but I don't know how sort of close you are to moving on some renewable projects. But is that something you're also watching, and is there anything else going on in Washington right now that you're sort of focused on from an MLP perspective?
spk02: So, I don't think we know anything more or less than anyone else does. We read the daily updates on the last-minute changes to trillion-dollar bills. So, look, we're actively paying attention here. It could be potentially very interesting for HEP, but more to come. We'll clearly pay attention to what's happening there.
spk01: Yeah, I understand that. It's about as clear as mud. Appreciate the time, guys. Be well.
spk02: Thank you, sir.
spk00: Once again, if you do have a question, you may press star 1 on your touchtone phone at this time. If there are no further questions, I will turn the floor back over to Trey for any closing remarks.
spk04: All right. Thanks again for joining the call today, and feel free to reach out to Investor Relations if you have any questions. Thank you.
spk00: This concludes today's conference call. You may now disconnect. Thank you for joining, and have a great day.
Disclaimer

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.

-

-