PBF Logistics LP
Q3 2021 Earnings Call Transcript

Published: 28 Oct 2021

[Operator:]

Good day, everyone and welcome to the PBF Logistics LP Third Quarter 2021 Earnings Conference Call Webcast. Please note this conference is being recorded. It is now my pleasure to turn the floor over to Colin Murray of Investor Relations. Sir, you may begin.

[Colin Murray:]

Thank you, Shamali. Good morning and welcome to today’s call. With me today are Matt Lucey, Executive Vice President; Erik Young, our CFO; and several other members of the partnership’s senior management team. If you would like a copy of our earnings release, it is available on our website. Before we begin, I would like to direct your attention to the forward-looking statements disclaimer contained in today’s press release. In summary, it outlines that statements in the press release and on this conference call that state the partnership’s or management’s expectations or predictions of the future are forward-looking statements intended to be covered by the Safe Harbor provisions under federal securities laws. There are many factors that could cause actual results to differ from our expectations, including those we have described in our filings with the SEC. As noted in our press release, we will be using certain non-GAAP measures while describing the partnership’s operating performance and financial results. For reconciliations of non-GAAP measures to the appropriate GAAP figure, please refer to the supplemental tables provided in today’s press release. I will now turn the call over to Matt Lucey.

[Matt Lucey:]

Thank you, Colin. Good morning, everyone and thank you for joining us on today’s call. PBF Logistics operated well during the third quarter. The partnership’s consistent results through 2020 and the third quarter of 2021 highlight the stability of our business and the strong relationship with our sponsor. We continue to expect partnership revenues for 2021 to be in the $350 million range, the 2021 EBITDA in the $225 million range, slightly above our previous guidance range. Our consistent revenues and cash generation continue to allow the partnership to maintain healthy distribution coverage while reducing net debt. By continuing to focus on reducing our revolver balance and strengthening the balance sheet, we are preserving our ability to make meaningful investments to grow the partnership in the future. In the near-term, maintaining financial flexibility, debt pay-down and strengthening liquidity are the priorities. Today, we announced a distribution of $0.30 per unit. We will continue to review our distribution policy going forward with respect to company performance, market conditions and alternate use of funds. With that, I will turn it over to Erik.

[Erik Young:]

Thank you, Matt. Good morning, everyone and thank you for joining us on today’s call. We reported third quarter net income attributable to the limited partners of $36.7 million this morning. Adjusted partnership EBITDA was $57.9 million, which includes roughly $1.1 million of non-cash unit-based compensation and environmental remediation costs associated with the East Coast Terminals. During the quarter, we spent roughly $3.4 million in total CapEx, including approximately $800,000 for maintenance. For 2021, we currently expect capital expenditures to be roughly $10 million to $15 million, inclusive of roughly $2 million in multiple small strategic projects. We ended the quarter with approximately $399.6 million in liquidity after repaying an additional $35 million in debt during the third quarter. Our liquidity consists of a cash balance of $28.6 million and approximately $371 million of availability under our revolving credit facility. Net debt to annualized adjusted EBITDA was 2.7x. We expect to continue using excess cash to improve our leverage ratios and strengthen the balance sheet. Operator, we have concluded our opening remarks. And now, we will open the call for questions.

[Operator:]

Our first question is from Spiro Dounis with Credit Suisse. Please proceed with your question.

[Spiro Dounis:]

Thanks, operator. Hey, Matt. Hey, Eric. I want to start off with the MLP structure. They come up on the PBF call and it sounds like the MLP structure here is to stay for now, but you did mention some participation in growth going forward and kind of an optionality around keeping the structure around. So curious, can you just outline some specific examples how you are thinking about how PBFX can participate in some of that growth and how contingent that is on capital markets? In other words, was the presumption here that PBFX can self-fund a lot of this growth or do you see yourselves kind of having to go back to issue capital to fund that?

[Matt Lucey:]

Part of it I’ll leave to Erik on the capital markets, but business is always dynamic. But to say the environment we are in now is dynamic on steroids is to say the least. Over the last couple of weeks, we have seen the MLP market news come out that the Congress and the administration are considering the elimination of MLPs to the expansion of qualified income in the MLPs. So, I believe the MLPs are safe in regards to what the administration is trying to do now. That seems to be very clear over the last week. And I think there is a reasonable chance what qualified income is could be expanded. So, PBFX has done what it’s supposed to do, which is operate, operate well, de-lever, which gives us more financial flexibility going forward. We certainly believe we will have access to capital markets if that’s necessary, but I will turn that over to Erik.

[Erik Young:]

Yes. I think to follow on Matt’s comments we have done the right thing. We have now put the partnership in a position where if there are incremental growth opportunities, we are not relying on or we will not be reliant on the capital markets. However, the biggest growth opportunity will be and it will require a change is, if renewable suddenly becomes qualifying income. If that happens, I think the base assumption should be that there will be some type of quasi-rotation into the equities of the existing MLP markets. I don’t think we are necessarily banking on that, because again we have got enough financial flexibility here by our leverage ratios well below 3x, where if there is an opportunity for us to grow, we can ultimately just use the existing balance sheet that we have.

[Spiro Dounis:]

Got it. That’s helpful. Thanks for that guys. Second one, just thinking about next year, I know you are not providing yet – guidance yet for 2022, but obviously, just improved the outlook for this year to $225 million for EBITDA. And so maybe we just put it in larger buckets as we think about the puts and takes in 2022, that’s either going to drive that number higher or lower. Big ticket items I am thinking of are recontracting. Obviously, the recovery is a tailwind. I think Tom talked about 2022 volumes and demand being stronger than 2021. So, maybe just outline some of those big movers as we think about next year?

[Matt Lucey:]

I would tell you that PBFX has demonstrated consistent earnings going back over the last 1.5 years as we just talked about. And I’d expect consistent earnings going forward. In the past, we have mentioned we had a processing deal with Maersk that wasn’t extended and – but we have options and opportunities to potentially explore providing that service to other parties. So, I don’t envision big swings other than what’s already been contemplated in the market.

[Erik Young:]

Yes. And I think the only thing that we know of that is concrete at this point is for the Delaware City or East Coast based rail contracts, those contracts will be stepping down. This has already been outlined in previous calls. It’s ultimately going to go down by – easy math is about $20 million in EBITDA. So, I think that’s probably what we know of as of today. And then we are in the process of going through ‘22 budgeting. And we will sit before our board by the end of the year and then early next year, we will come out with guidance for the year. But I think that’s a concrete contract stipulation that’s already built in.

[Spiro Dounis:]

Got it. Last one if I could, just around debt, I guess at this pace with the credit facility, you are sort of on pace now to repay the entire thing by the end of next year. Then of course, you have got the 2023 notes coming up in May of 2023. So just curious as we think about the trajectory for debt, is it sort of ratable pay-down over the next year? And then maybe just help us think about how you plan on dealing with the 2023s and then what happens after that? Your leverage is going to be pretty low at that point. Do you want to keep going lower or how to think about your view of the balance sheet?

[Erik Young:]

I think we are really going to be queuing off of what the market tells us in terms of – again, if the MLP market suddenly starts to turn and we suddenly have the availability of renewables as qualifying income, there is probably one path. In the event that, that doesn’t occur and the MLP market continues to shrink in terms of numbers of companies, overall market cap and also I would say just interest in the asset class overall, there is probably a slightly different path. I think right now, we have been reducing the overall leverage. We are feeling pretty comfortable about all of the bank relationships that we have with our revolver and I would say in that latter path, right, you probably don’t want to pay up for some type of no call provision in a long-term bond. You would want to keep your interest expense as low as possible. That means a slightly shorter dated piece of paper. But I think we have enough time here through, call it, next summer to determine exactly which way things are going to go. And I think we are just – we are waiting to get some clarity from Washington, D.C. at this point.

[Spiro Dounis:]

Okay. That’s all I had. Thanks for the time today, guys.

[Erik Young:]

Thank you.

[Operator:]

And at this time, we have no further questions. And I will now turn the call back to Matt Lucey for closing remarks.

[Matt Lucey:]

I certainly appreciate everyone listening to today’s call and look forward to speaking again next quarter. Have a great day.

[Operator:]

And this concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation.