PBF Logistics LP
Q3 2018 Earnings Call Transcript

Published: 31 Oct 2018

[Operator:]

Good day and welcome to the PBF Logistics Third Quarter 2018 Earnings Conference Call and Webcast. At this time all participants have been placed in a listen-only mode and the floor will be open for your questions following management’s prepared remarks. [Operator Instructions] And please note this call 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, Keith. Happy Halloween, and welcome to today's call. With me today are Matt Lucey, our Executive Vice President; Erik Young, our CFO; and several other members of the Partnership 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 the statements in the press release and on this conference call that state the partnerships 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’ll 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. Before Erik provides information on our earnings, I'd like to recap our recent acquisition announcement and the growth we expect to achieve as we progress towards our run rate EBITDA in the coming years. On October 1, we finalized the acquisition of our East Coast Storage Assets. We are pleased to add these assets to the Partnership, and welcome our newest employees. The facility is dedicated to crude oil, fuel oil, intermediates and asphalt, and has 4 million barrels of storage capacity, over half of which is heated. As of January 1, 2019, the tanks will be fully contracted, and we expect to hit our run rate EBITDA of $15.5 million by January 1, 2020, a full year ahead of our initial guidance we provided when we announced the transaction in August. In addition to the storage tanks, the facility has ideal proximity and accessibility to PBF Energy's East Coast refining and logistics system. With IMO around the corner, we believe that there – we believe that there will be incremental opportunities to increase profitability at the facility above our stated guidance. With this acquisition, our East Coast Logistics system now includes over 3 million barrels of clean product storage and approximately 5 million barrels of heavy storage. To recap 2018, so far, we have announced a multiyear organic growth initiative that's expected to add $100 million of EBITDA over the next four years; executed two third party acquisitions, the Knoxville Terminals and the East Coast Storage Assets; and completed a series of smaller drop-down acquisitions from PBF Energy. In total, we expect the acquisitions and drop-downs to generate run rate EBITDA of $34 million, for a total cost of approximately $243 million. For 2018, we expect our full year partnership EBITDA to be in the $155 million to $116 million range. 100% of the $34 million of EBITDA projections from the acquisitions and growth projects will be achieved on run-rate basis in the first quarter of 2020. In 2019, our full year of drop downs, East Coast Storage Assets and projects to complete – to be completed at Knoxville Terminals should generate an incremental $10 million to $15 million above 2018. These initial steps towards executing the multiyear growth plan announced earlier this year are very meaningful to the Partnership. Importantly, we have demonstrated our continued ability and commitment to growing the Partnership for the benefit of our unitholders. With that, I'll turn the call over to Erik.

[Erik Young:]

Thank you, Matt. This morning, we reported third quarter net income attributable to the limited partners of $18.7 million or $0.42 per common unit, which is net of IDRs. Partnership EBITDA was $38.9 million, including $830,000 or approximately $0.02 per common unit of acquisition-related expenses. EBITDA attributable to the Partnership also excludes $6.1 million of EBITDA, which is attributable to the non-controlling interest. Revenue for the quarter was $70.6 million and total expenses were $33 million, including operating and maintenance expenses, G&A and depreciation and amortization. Interest expense and financing costs totaled approximately $10.6 million. During the quarter, we spent approximately $1.3 million in maintenance CapEx and approximately $19.6 million on growth projects. As a result, we generated $28.5 million of cash available for distribution, which represents a quarterly coverage ratio of approximately 1.07 times. During the third quarter, we unloaded approximately 75,000 barrels per day at our East Coast rail facilities. Given the current market outlook, our sponsor is continuing to source advantaged North American feedstocks, and we expect to maintain utilization at current levels for our rail and loading facilities. We ended the quarter with approximately $464 million in liquidity, including $18 million of cash and approximately $446 million of availability under our revolving credit facility. Net debt to run rate EBITDA was 3.45 times. We are pleased to announce our 16th consecutive distribution increase to $0.50 per unit per quarter. Lastly, and as Matt mentioned, subsequent to the end of the quarter, we completed our acquisition of the East Coast Storage Assets, and we funded the initial payment of $75 million plus working capital, with funds drawn from our revolving credit facility. Operator, we concluded our opening remarks, and we'll open the call for questions.

[Operator:]

[Operator Instructions] Our first question comes from Ryan Levine with Citi. Please go ahead, your line open.

[Ryan Levine:]

Good morning.

[Matt Lucey:]

Good morning.

[Ryan Levine:]

Can you elaborate on the potential decision that PBF mentioned that they were considering, related to PBFX on the call earlier this morning? Is there any color you could provide around what you're potentially considering?

[Matt Lucey:]

I don't know how much color, but I can repeat what I said earlier in that PBFX is executing a strategy and executing it quite well, frankly. We announced our broad program earlier in the year in terms of developing organic projects. We're in the midst of that. We've already began evidencing that. And then, in addition to that, we've completed a number of third party acquisitions. And so in terms of things we can control and executing our strategy, we've been doing what we said we're going to do, which I think is a good thing. That being said, if you take a step back in the broader market, there's no question, there's been a number of headwinds in terms of capital inflows and outflows into the marketplace, and there's been a number of transactions that – where people have addressed the structure of the MLP and they've done that in multiple forms, including the rail recently announcing that they're buying in [indiscernible] for simplifications. It is not empty words for me to say that we're evaluating that continually and certainly not ignoring it. We have nothing to announce today, other than the fact that I would expect over the next number of months and other earnings call next quarter, that we'll not only continue to evaluate, but we'll actually start taking some action. That being said, I can't – I'm not going to provide any more color other than we're assessing it and do what's in the absolute best interest of unitholders of PBFX.

[Ryan Levine:]

Thanks for that. And then just one follow-up on that. Is a change in the distribution policy one of the levers that you're considering in its evaluation? Or is that not on the table?

[Matt Lucey:]

At this time, well, first of all, we're evaluating everything, just as a matter of good course. But this time, I don't envision any change in distribution strategy.

[Ryan Levine:]

Okay. And then the debt-to-EBITDA metric that you cited, that was pretty close to this transaction. Where do you stand pro forma for the – that close, October 1?

[Erik Young:]

We expected that will probably generate next year, circa $7 million to $9 million of EBITDA. And then by the end, as Matt said, by the end of 2019 as we enter into first quarter 2020, that thing should generate about $15.5 million of EBITDA.

[Ryan Levine:]

Okay. And all revolver finance?

[Erik Young:]

Yes, all revolver finance at this point.

[Ryan Levine:]

Okay, great. Thank you.

[Operator:]

[Operator Instructions] And it appears we have no further questions. I'll return the floor to Matt Lucey for additional or closing remarks.

[Matt Lucey:]

Well, I appreciate everyone listening to the call. We look forward to concluding the year on a strong note and look forward to speaking with you again next quarter. Thank you very much.

[Operator:]

This will conclude today's program. Thanks for your participation. You may now disconnect. Have a great day.