Martin Midstream Partners L.P.
Q2 2020 Earnings Call Transcript

Published: 28 Jul 2020

[Operator:]

Good morning, ladies and gentlemen, and welcome to the Martin Midstream Partners Second Quarter 2020 Earnings Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Sharon Taylor, Director of Finance and Investor Relations.

[Sharon Taylor:]

Thanks, Whitney. Good morning, everyone. I'm here with Ruben Martin, President and CEO; Bob Bondurant, CFO; and Randy Tauscher, COO. Also joining us in the room is Danny Cavin, Director of FP&A; and David Cannon, Director of Financial Reporting.

[Robert Bondurant:]

Thanks, Sharon. Historically, on this call, as we walk through our quarterly performance by segment, we have compared our actual performance to guidance. However, for this call and the remaining calls for this year, we will not be comparing actual performance to guidance as we pulled our detailed quarterly guidance by segment due to the uncertainty of COVID-19. However, we replaced a specific quarterly guidance with an overall guidance range for the entire partnership of $95 million to $107 million for 2020, which we continue to support. For the second quarter, our adjusted EBITDA was $23.9 million, which exceeded our internal non-public guidance as actual PADD 3 refinery utilization was greater than what we internally forecasted, benefiting our truck transportation and sulfur businesses. Now for today's discussion, I would like to compare our second quarter performance by segment in 2020 to last year's corresponding quarter and provide some limited outlook for the third quarter. For the second quarter of 2020, we had adjusted EBITDA of $23.9 million compared to $25.1 million for the second quarter of last year. For the first six months of 2020, we had adjusted EBITDA of $54.9 million compared to $50.8 million for the first six months of 2019. Our Sulfur Services segment was our largest cash flow provider in the second quarter as adjusted EBITDA was $10.8 million compared to $8.6 million a year-ago. Within this segment, our fertilizer business experienced minimal impact from COVID-19 and had adjusted EBITDA of $6.8 million in the second quarter compared to $5.7 million a year-ago. The increase this year compared to last year was primarily due to better weather conditions in 2020. Last year, we had tremendous amounts of rain, which impacted both volume and margin.

[Sharon Taylor:]

Thanks, Bob. I want to start with a discussion of the exchange and cash tender offer for our 16 notes that it's currently in the market. On July 9, the partnership announced the launch of the offer to certain investors as a means of refinancing our notes due in February of 2021. We felt that the offer was attractive for our noteholders while still being constructed to the partnership, especially in these unprecedented times. On Friday, July 24, we announced the early participation tender amount of approximately $335.5 million and corresponding percentage of a little over 92%. The restructuring support agreement that was negotiated between the partnership and our supporting noteholders who own 74.25% of the outstanding notes calls for 95% participation in the exchange for it to be effective. The plan and solicitation offer expire on August 6. We fully expect to meet the required percentage threshold and settle the transaction on August 12. In connection with the exchange transaction, we entered into an amendment with our revolving credit facility lenders to, among other things, allow for the 1.5 and second lien notes that were offered in the exchange transaction.

[Operator:]

We do have a question from Selman Akyol with Stifel.

[Selman Akyol:]

Thank you. Good morning. I guess, just a couple of quick questions for me. So first of all, on your Tampa Bay terminal, can you just talk about how long that agreement is? And maybe sort of what kind of cash flows you're expecting in total for that?

[Robert Bondurant:]

Yes. The Tampa Tank lease is a five-year agreement. We're going to spend a little over $1.5 million over the next 60 to 75 days of growth CapEx. So that contract will begin generating revenue into the fourth quarter, so the EBITDA contribution for 2020 is not meaningful. But overall, if you remember last time we spoke, we had three tanks for lease there. And we put about $1 million to $1.5 million value on that, and we captured somewhere in the ballpark of half of that on this lease.

[Selman Akyol:]

Got it. And then, is there still potential for leasing the other two tanks? I mean, is there any comment you can make there? Or are there discussions going on?

[Robert Bondurant:]

The other two tanks are the smaller tanks. But there are opportunities. We don't have anything eminent at the moment.

[Selman Akyol:]

All right. Appreciate that. And then maybe can you just talk a little bit about more what you're seeing on, I guess, the refinery side, and how things you expect to play out kind of going into the second half of the year there?

[Robert Bondurant:]

You're thinking about our Smackover refinery?

[Selman Akyol:]

Yes.

[Robert Bondurant:]

Yes. So the refinery is running well. We are running at a slightly reduced rate, which means our gas and chemical or fuel and our chemical costs are less. So we would expect in the third and fourth quarter and outperformance at the refinery due to the low fuel cost.

[Selman Akyol:]

Okay. Thank you very much.

[Operator:]

Your next question is from the line of Michael Blum with Wells Fargo.

[Michael Blum:]

Great. Good morning, everyone. I really just had one sort of high-level strategy question. Just in regards to how you dealt decide to go ahead with the debt restructuring. Just curious your thought process on why you chose to go that route versus – and remain a public company versus taking another route, which would have taken it private? Thanks.

[Sharon Taylor:]

Michael, this is Sharon. I think that as a management team, we looked at all the opportunities to refinance our 2021 notes, both, or what I'll say short-term opportunities and longer term as you've pointed out. And as a management team and a Board of Directors, refinancing the notes and continuing as a public company was the right outcome. I don't think that currently with the MLP structure, although we know there's challenges there with investors. That is the right route for Martin. And when you look at corporate tax rates and what it would take to convert.

[Robert Bondurant:]

I'll make an additional comment. We always believed our unit price was severely depressed because of this overhang of refinancing. That was one piece. We believe if we can delever, we can trade those debt values to equity value and really grow the unit price over the course of the next two, three, four years, relative to what we thought we could get for today in a private transaction, we believe we were better off to stay public and grow that, delever. And even at these lower valuations, that equity price should rise. And to the extent there's any expansion of equity valuations because the world changes over the next two or three years, we think there could be an uplift there. So we did do – I'm not going to be – I'm going to be out frank. We did think about it, but that was our analysis and why we decided to go that route.

[Michael Blum:]

All right. Thanks very much. Appreciate it.

[Operator:]

I am showing no further questions at this time. I would now like to turn the conference back to Bob Bonderant.

[Robert Bondurant:]

Okay. Thank you, Whitney. Again, we are very pleased with the early results of our bond exchange offer, which currently has 92% approval. We are highly confident that we'll be able to execute the exchange by August 12 and not be forced to go through any prepackaged bankruptcies reprocess. The execution of the exchange will eliminate both the bond and bank credit facility maturity issue that has been an overhang for our company over the last year. Going forward, our management team will be laser focused on reducing leverage as we retain future earnings to achieve our debt reduction goal. This plan will position us to then be able to execute on opportunistic internal growth projects that would create cash flow at levels greater than our cost of capital. Finally, I want to publicly say thank you to both our bank group and our noteholders for supporting us through the looming debt maturity issues we have been facing. With their combined support, we are now positioned to return to focusing on growing equity value for our current and long-term unitholders. Thanks to all for joining us today.

[Operator:]

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.