USD Partners LP
Q4 2020 Earnings Call Transcript

Published: 4 Mar 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the USD Partners LP Fourth Quarter 2020 Results Conference Call. . It is now my pleasure to turn the call over to Jennifer Waller, Director of Financial Reporting and Investor Relations for opening remarks. Please go ahead, Jennifer.

[Jennifer Waller:]

Thank you, Holly. Good morning, and thank you for joining us. Welcome to our fourth quarter 2020 earnings call. With me today are Dan Borgen, our Chief Executive Officer; Adam Altsuler, our Chief Financial Officer; Brad Sanders, our Chief Commercial Officer; Josh Ruple, our Chief Operating Officer as well as several other members of our senior management team.

[Daniel Borgen:]

Thank you, Jennifer and good morning, and thanks everyone for joining us on the call today. We appreciate your ongoing support and we hope everyone is staying healthy and safe during these challenging times. The partnership had another strong quarter as our terminals continued to perform well under our long-term take-or-pay contracts. In addition, we had a very constructive year 2020. Our terminals perform safely and reliably throughout the year, our financial performance continued to be strong and steady generating a significant amount of free cash flow. We were successful in optimizing our operations and have seen benefit from that in our recent quarterly earnings and we follow through with our previously stated guidance to delever by approximately $20 million to $25 million on an annualized basis. In fact, we exceeded that and have paid down more than $30 million on a revolving credit facility since the first quarter of 2020. As we've referenced in previous calls, our strong contract structure and our customer's investment-grade credit profile continued to provide the foundation for our business. We also continue to make progress on our sponsor previously announced Diluent Recovery Unit or DRU project, which we expect will be placed into service in the second quarter or early in the third quarter of this year. The Partnership sponsor has secured the necessary financing, obtained all material permits and entered into fixed price EPC contracts regarding the construction of the project. There been references made to the DRU on other public company earnings calls and we are pleased to see the industry begin to get behind the program. We look forward to becoming an industry standard as more customers start to adopt a strategy. Josh will also give us an update later on this call detailing where we are with our sponsors development activities.

[Adam Altsuler:]

Thank you Dan and thank you for joining us on the call this morning. Yesterday afternoon we issued our fourth quarter earnings release, which included the details of our operating and financial results for the fourth quarter and full year 2020 and we plan to issue our 2020 10K with additional details after close of market today. With our take-or-pay contracts and primarily investment grade customers, the partnership had another strong quarter and relatively steady and resilient year in 2020 given all the challenges the country had faced over the last 12 months. For the quarter we reported net income of $6.5 million, net cash provided by operating activities of $12.1 million, adjusted EBITDA of $14.9 million and distributable cash flow of $12.9 million. In addition, our efforts to strengthen our balance sheet continue to produce results as we pay down more than $30 million of revolver debt since the first quarter of 2020 which is above our previous guidance of approximate $20 million to $25 million on annualized basis. This has created additional liquidity to the partnership and has helped position us for a potential refinancing of our revolving credit facility in November. Notably our credit facility leverage ratio is currently 3.5 times and trending lower and our distributable cash flow yield over the last 12 months continues to be strong and greater than 30% based on our current unit price. As Dan mentioned, the partnership's terminals continue to perform well and we continue to generate a significant amount of free cash flow as evidenced by our strong DCF coverage of over four times during the quarter. And now I'll go into details of the quarter, the partnership's operating results for the fourth quarter of 2020 relative to the same quarter in 2019 were primarily influenced by higher revenue at the Stroud terminal due to higher rates that are based on crude oil index pricing differentials. The partnership experienced lower operating cost during the fourth quarter of 2020 as compared to the fourth quarter of 2019 due primarily to lower subcontracted rail services costs associated with lower throughput. Net income for the quarter increased as compared to the fourth quarter of 2019 primarily as a result of the operating factors discussed already coupled with lower interest expense incurred resulting from a lower weighted average balance of debt outstanding and lower interest rates during the quarter as well as foreign currency transaction gains.

[Daniel Borgen:]

Thank you, Adam. Now I'll Brad to give us a quick commercial update regarding the Western Canadian Select market and the impact of the recent market events. Brad?

[Brad Sanders:]

Dan, thank you. So as a reminder in the early COVID days, demand for crude oil decreased late in the first and into the second quarter of 2020. Lower demand led to lower prices and the eventual shut-in production of approximately 2 million barrels a day in US and a million barrels a day in Canada. Today due to the efforts to reopen the economy and the accelerated rollout of vaccinations, we have seen almost a full recovery in demand and the stabilization of oil prices.

[Josh Ruple:]

Thanks Brad. As Dan mentioned previously in our coordination efforts with our customers, the railroads and our DRU origin partner Gibson our Phase I DRU initiative is tracking slightly ahead of plan, which is good news. Again we're fully permitted and are deep into both the design and construction processes with our EPC vendors. Our COVID-19 HS&E protocols and our procurement strategies have proven to be effective and currently, we are progressing on schedule and on budget at both ends of the DRU network at Hardisty and PAT or Port Arthur respectively. With substantial completion planned late Q2 and formal commissioning in early Q3 of this year, we are right on track with our project execution goals and our teams are focused and poised to deliver Phase I successfully in the coming months and I just know with our patented DRU process, we are currently permitted for growth at both DRU, at Hardisty and at Port Arthur, enabling us to immediately engage with our customers and quickly provide an improved takeaway option for their Canadian heavy barrels as a Phase 2 to our current DRU initiative. Finally with regard to DRU just to echo both Dan and Brad's previous comments, we are very well positioned to provide a competitive long-term solution to Canada's market excess needs. The benefit of the DRU are material and provide a safer, nonhazardous egress solution that optimizes the cost of diluents, reduces the cost of freight and improves the value of bitumen in the value chain. Not to mention as Brad previously mentioned, the scalability advantages associated with DRU. So again we're super excited about our efforts, where we're at and where we plan to go with DRU. And Brad, to your point if I may, I'd like to just mention quickly some updates in regards to our rail development efforts around storage and transit and first and last mile services to include transloading. As both you and Dan have mentioned on the call today, this is a space we participated for quite some time and currently have operating assets at Texas Deepwater and Bayport to provide services to both the railroads and our collective customers. We continue to work with our railroad partners on a regional basis and as an update regarding this initiative we're very close on a few new asset development efforts in Canada, the Midwest, the Southwest and on the East Coast. As we continue to support the railroads in their PSR transition efforts, we focus on growth, we look forward to sharing a bit more detail on these developments in the very near future. And with those comments, I'll hand it back to you Dan.

[Daniel Borgen:]

Thank you Brad and Josh for an exciting update of our current business our future business. So with that, we'll open up the call for any additional questions.

[Operator:]

Okay. And we have a question in the queue and that will come from the line of John French, a private investor.

[Unidentified Analyst:]

Thanks so much. Appreciate the information that you all shared, sound like a successful 2020 and some good projections for 2021 and I was curious if you all have any insight as to any update or change to the distribution plans for 2021 that you envision? Similar emphasis on possibly paying down the revolver or perhaps consideration on returning the distribution to slightly higher level, understanding none of us can predict the future but just wasn't sure if you have any thoughts at this time on that, and that's the only question thanks.

[Adam Altsuler:]

Hey John, this is Adam Altsuler. Thanks for the question, that's a great question. We feel good about what we've done over the 12 months by meeting, exceeding guidance with regard to paying down debt. Obviously the distribution question is subject to the board's discretion on a quarterly basis, but I think I can say that the fact that there were 3.5 times and trending lower, generating a significant amount of DCF coverage and DCF yield. So only those things help the discussion with regard to distribution policy going forward. So it's nice to see those things trending in the right direction. Again we'll address that on a quarterly basis, but feel much better about our position with regard to that discussion going forward.

[Operator:]

Thank you. And at this time, I see no further questions in the queue. Dan, I'll turn it over to you for closing comments.

[Daniel Borgen:]

Thank you, Holly and first let me say thank you for your continued support and confidence in USD Partners business. We appreciate it very much, it's been a challenging year for all of us, but I do feel good about where we came out in '20 and the actions we took in '20 to strengthen the balance sheet, to increase our strategic position in the market and prepare for the increase in activity as the market continues to return to pre-COVID levels hopefully mid to later this year. We'll continue to keep you updated and look forward to additional announcements regarding our progress on the DRU and Port Arthur and other growth initiatives we have in the future. Again thanks again. We appreciate the support and thanks for joining the call today.

[Operator:]

Once again, we would like to thank you for participating in today's USD Partners LP fourth quarter 2020 results conference call. You may now disconnect.