PBF Logistics LP
Q1 2018 Earnings Call Transcript

Published: 6 May 2018

[Operator:]

Welcome to the PBF Logistics First Quarter 2018 Earnings Conference Call and Webcast. [Operator Instructions] And this conference may be 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, Erica. 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'd like a copy of our earnings release, it is available on our website. Before we begin, I'd like to direct your attention to the forward-looking statement 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've 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. Now I will turn the call over to Matt Lucey.

[Matt Lucey:]

Thanks, Colin. Good morning, everyone, and thanks for joining us on the call. Before Erik provides information on earnings, I'd like to recap the acquisition announcement made in April and that -- how that all folds into our broader growth efforts. In February, we announced a multiyear organic growth initiative that is expected to add $100 million of EBITDA over the next four years. Few weeks ago, the partnership announced a number of transactions that is expected to generate an annualized run rate EBITDA of approximately $18 million. Run rate EBITDA will ramp over the next 1.5 year. For the remainder of '18, we expect base EBITDA to increase between $5 million and $10 million. For full year 2019, we expect to generate over $15 million of EBITDA from these assets, and over $18 million in EBITDA in 2020. PBFX acquired the third-party Cummins Terminals on April 16. The Cummins Terminals were acquired for approximately $58 million. The assets to be acquired from PBF Energy and the investment projects totaled $67 million of additional investment. We anticipate that the execution of definitive agreements for and the closing of the assets to be acquired from PBF Energy will occur in the second quarter. The assets to be acquired from PBF Energy include the Toledo rail products facility, which will be upgraded to facilitate clean products exports. We expect the upgrade project to be complete in Q4 of this year. The Chalmette Truck Rack dedicated to loading gasoline, distillate as well as delivering ethanol for blending will contribute to EBITDA from July onwards. The Paulsboro Lube Oil Terminal, which is being expanded with additional tankage and infrastructure will come online in early Q4. Additionally, the partnership will be investing in two independent growth projects

[Erik Young:]

Thanks, Matt. This morning, we reported first quarter net income attributable to the limited partners of $18.3 million or $0.43 per common unit, net of IDRs and partnership EBITDA of approximately $36.3 million. Revenue for the quarter was $64 million and total expenses were $28.8 million, including operating and maintenance expense, G&A and depreciation and amortization. Interest expense and financing costs totaled approximately $9.9 million. During the quarter, we spent approximately $4 million in CapEx, which includes $2.7 million for our organic projects and $1.3 million for maintenance capital. As a result, we generated $26.2 million of cash available for distribution, which represents a quarterly coverage ratio of approximately 1.1 times. It is important to note that our first quarter results include approximately $400,000 of nonrecurring expense items, of which approximately half will be reimbursed in the next 3 to 6 months. Excluding these items, adjusted coverage is 1.12 times, which is slightly above our budget for the corresponding period. During the first quarter, we unloaded approximately 57,500 barrels per day of crude at our East Coast rail facilities. Given the current market outlook, our sponsor expects to increase utilization, and we are targeting rail unloading between 65,000 and 75,000 barrels per day for the remainder of the year. Based on this outlook, we have amended our rail agreements, maintaining the current MVCs at a combined 125,000 barrels per day and more closely aligning the partnership and sponsor in terms of incenting utilization of the assets. Importantly, these amendments will insulate the partnership from potential cost increases associated with increased rail utilization and provide PBFX with an earnings stream that is consistent with our original expectations. We ended the quarter with approximately $358 million in liquidity, including $22 million of cash and approximately $336 million under our revolving credit facility. As a result, our net debt-to-EBITDA ratio was approximately 3.6 times on an annualized basis. We remain confident in our annual guidance for the base business, and we expect that the contributions of the Cummins Terminals, assets and projects acquired from PBF Energy should increase our cumulative 2018 EBITDA to between $155 million and $160 million. We are pleased to announce our 14th consecutive distribution increase to $0.49 per unit per quarter. This represents a 63% increase to our minimum quarterly distribution and a compound annual growth rate of approximately 14% since the date of our IPO. Erica, we've concluded our opening remarks. And now we'll open the call for questions.

[Operator:]

[Operator Instructions] And your first question comes from Justin Jenkins from Raymond James.

[Justin Jenkins:]

I guess starting on the growth front, it's great to see the project announcements and really appreciate all the incremental details you gave today. But maybe beyond that organic footprint and the new growth opportunities, you've definitely seen a few bolt-on M&A deals throughout the partnership's history and again, here with the Tennessee terminals. Are those still the type of bolt-on type of deals that's the focus for third-party M&A? And then maybe just the general sense of how the midstream M&A market looks here today?

[Matt Lucey:]

All right. To answer your question, yes. We’re constantly looking and quite frankly, working with our sponsor and it's always been our position that bidding on assets where we have no operations as a refining company or logistics companies is a difficult errand, but doing in conjunction with our sponsor, makes it a very achievable and realistic probability to grow. So the Cummins Terminal came to us, and we're able to create synergies with PBF. And I have no doubt that we'll be able to acquire other facilities going forward in a similar context. So what was your second question?

[Justin Jenkins:]

Just a general sense of midstream M&A market today, given kind of the turmoil in this space.

[Matt Lucey:]

I think it's -- it is -- I think it's under a little turmoil itself and that asset values that we've seen get executed seem to be disconnected a bit from the reality in the MLP space, and I think there's probably going to be a little lag to that. The broader MLP market is -- yields have gone up. So I'd expect asset values to decline as a result of that. It's been a little bit slower than I would expect. But we simply focus on our business and being able to weather our business -- our operational business to grow the business, and we're excited about the prospects going forward.

[Justin Jenkins:]

Great. That's helpful. And then we've covered most of the rest that I had in the prepared remarks. So I guess, I would just kind of bolt-on to that last comment you made in the turmoil in the MLP space and maybe how you're thinking PBFX strategically, whether it's the IDRs or type of assets or even the MLP structure more broadly. Just curious how you're thinking about the MLP landscape here?

[Matt Lucey:]

Yes, I think -- one, I think the MLP construct of the market still makes sense, certainly makes sense for a refining company like PBF. So we're committed to doing what we do, which is operate our asset safely, generate a stable cash flow for our investors and grow that cash flow over time, and we expect we'll be able to do that. In regards to IDRs and other structural issues, we're constantly evaluating what's in the best interest of PBFX's shareholders, and we'll continue to do that on a continual basis. So I've nothing else to announce other than -- we'll continually track the market and track our company and make sure we're in line with where we should be.

[Operator:]

[Operator Instructions] Our next question comes from Ryan Levine with Citi.

[Ryan Levine:]

Just following up on that -- the comment around the market dislocation, are you looking or would you be willing to partner any joint ventures to help fund some of your more meaningful growth opportunity? Is that a part of your plan?

[Matt Lucey:]

Just as a company, we don't dismiss anything out of hand. So if there was a partnership or some sort of arrangement that is nontraditional or something that we haven't done in the past, by no means does it mean that we won't do it in the future. So we look at anything and everything, and we have completely what we perceive to be a very open and entrepreneurial mind when it comes to new opportunities.

[Ryan Levine:]

Okay. And then just to try and dive a little bit more into the two projects that you highlighted around the LPG rail and ethanol. Is there any more color you could provide around maybe volumes? Or how those contracts are structuring?

[Matt Lucey:]

Yes. The -- PBF is backstopping with contracts, the LPG and ethanol, there is going to be 7-year contracts. But you have over 10,000 barrels a day of LPG unloading capacity down at Chalmette. There is -- I think, the total capacity on the ethanol loading out of Del City is about 10,000 barrels a day. That's not the full extent of the projects. There is, obviously, the project at Paulsboro to increase the lube oil tankage that is actually being leased to a third party. That will eventually be 300,000 barrels a day of tank capacity. And then the Toledo rail products facility, which is being increased in size and allowing PBF to export clean products to Canada is about 10,000 barrels a day. I think that wraps it up. Unlike Elon Musk, we think all questions are cool. So we appreciate your participation, and we look forward to speaking to you next quarter.

[Operator:]

Thank you. And we'd like to thank everybody for their participation on today's conference call. Please feel free to disconnect your line at any time.