Martin Midstream Companions L.P. (NASDAQ:MMLP) Q2 2024 Outcomes Convention Name July 18, 2024 9:00 AM ET
Firm Contributors
Sharon Taylor – Chief Monetary OfficerBob Bondurant – CEORandy Tauscher – COODavid Cannon – ControllerDanny Cavin – Director of FP&A
Convention Name Contributors
Selman Akyol – StifelKyle Could – Sidoti & CompanyPatrick Fitzgerald – Baird
Operator
Good morning. My identify is Audra, and I might be your convention operator at the moment. Right now, I want to welcome everybody to the MMLP Second Quarter 2024 Earnings Name. At this time’s convention is being recorded [Operator Instructions]. Right now, I want to flip the convention over to Sharon Taylor, Chief Monetary Officer. Please go forward.
Sharon Taylor
Thanks. Good morning, everybody. And welcome to the Martin Midstream Companions convention name to debate second quarter 2024 earnings. Throughout this name, we are going to make forward-looking statements as outlined by the SEC. These statements are based mostly upon our present beliefs in addition to assumptions made by the administration group and knowledge presently obtainable to us. Please check with our earnings press launch issued yesterday afternoon and posted on our Site in addition to our newest filings with the SEC for an inventory of things that would impression the longer term efficiency of Martin and trigger our precise outcomes to vary materially from our expectations. We are going to focus on non-GAAP monetary measures on at the moment’s name. The earnings press launch features a reconciliation of those non-GAAP monetary measures to their comparable GAAP monetary measures. With me on the decision at the moment are Bob Bondurant, CEO of Martin Midstream; Randy Tauscher, COO; David Cannon, Controller; and Danny Cavin, Director of FP&A. Now I am going to flip it over to Bob to debate second quarter earnings.
Bob Bondurant
Thanks, Sharon. I want to start the dialogue by focusing on our general second quarter working efficiency. For the second quarter, we exceeded steering by $0.5 million as we had adjusted EBITDA of $31.7 million in comparison with second quarter steering of $31.2 million. We exceeded steering by $0.5 million regardless of two separate and distinct casualty losses that totaled $2 million within the second quarter. I’ll focus on these occasions later in my section feedback. For the second quarter, our largest money stream generator was as soon as once more our Transportation section, which had adjusted EBITDA of $11.2 million in comparison with steering of $10.2 million. Inside this section, our land transportation enterprise had adjusted EBITDA of $8.2 million in comparison with steering of $6.5 million. Our income exceeded forecast by $1.4 million as we beat our second quarter forecasted mileage by 5%. Additionally, working bills had been $0.4 million under forecast primarily because of decrease truck and dealer working prices when in comparison with the forecast. This working expense development relative to steering ought to proceed as we slowly exchange older gear with new.
Trying in the direction of the third quarter, we proceed to see power in our sulfur hauling from Beaumont space refineries however have seen a little bit of a slowdown in different product traces akin to chemical compounds and lubricants. Nonetheless, we imagine we needs to be at or close to steering for the third quarter in our land transportation enterprise. Our Marine Transportation enterprise had adjusted EBITDA of $2.9 million in comparison with steering of $3.8 million. The vast majority of the miss in our Marine Transportation efficiency could be defined by a $0.5 million [casualty] loss that occurred in Could. This loss represents two separate insurance coverage deductibles below our Marine Transportation safety and indemnity protection coverage and our entire protection coverage. This casualty loss was the results of a bridge allision in Galveston, Texas which occurred in Could. The steadiness of the underperformance relative to steering was the results of decrease inland fleet utilization than forecasted. This was the results of scheduled marine gear and dry dock in the course of the second quarter that took longer than forecasted. Additionally, we had decreased income from the inland tow that was concerned within the bridge allision incident. Trying in the direction of the third quarter, we proceed to see day charges stronger than our unique forecast and we additionally foresee full utilization of our marine fleet, offering the chance to exceed third quarter steering in our Marine Transportation enterprise.
Our subsequent strongest money stream generator within the second quarter was our Sulfur Providers section, which had adjusted EBITDA of $10.6 million in comparison with steering of $9.8 million. Our fertilizer group had adjusted EBITDA of $6.7 million, which was the identical as our EBITDA steering for the second quarter. Whereas the quantity of fertilizers bought within the second quarter was 15% lower than forecast, we realized a 20% enchancment in precise gross margin per ton relative to steering. This margin enchancment was a results of the combination of fertilizer merchandise bought within the second quarter when in comparison with our forecast. Trying in the direction of the third quarter, we anticipate the traditional seasonal trough and money stream for the fertilizer enterprise as farmers transition from planting to harvesting their fields. The pure sulfur aspect of our Sulfur Providers section had adjusted EBITDA of $3.8 million in comparison with steering of $3.1 million. The first driver of this outperformance was a robust quantity of sulfur manufacturing from our Gulf Coast refinery clients. The day by day quantity of sulfur dealt with was 14% better than our forecast as we logistically managed roughly 3,700 tons per day of sulfur manufacturing into or by our Beaumont terminals. Trying in the direction of the third quarter, topic to Gulf Coast climate occasions, we stay optimistic that sulfur manufacturing from our refinery clients will proceed to stay at these larger ranges, which ought to permit us to attain or exceed steering within the pure sulfur aspect of the enterprise.
Our third largest money stream generator within the second quarter was our Terminalling and Storage section, which had adjusted EBITDA of $8 million in comparison with steering of $9.4 million. Whereas our specialty shore based mostly and underground storage terminals had been spot on relative to steering, we missed our forecast on the Smackover refinery because of a casualty loss brought on by a crude oil pipeline spill that occurred in mid-June. The pipeline in query strikes crude oil from our storage tanks to the refinery. Due to the spill, we accrued a casualty loss equaling our complete insurance coverage deductibles of $1.5 million below each our air pollution coverage and our basic legal responsibility coverage. The impression of this casualty loss absolutely explains the Terminalling and Storage section miss of $1.4 million when in comparison with steering. Trying in the direction of the third quarter, we imagine this section’s money stream ought to return to steering.
Lastly, I want to focus on the second quarter efficiency of our Specialty Merchandise section. On this section, we had adjusted EBITDA of $5.7 million in comparison with steering of $5.6 million. Relative to steering, we had outperformance in our grease enterprise, which was virtually totally offset by underperformance in our packaged lubricant enterprise. The primary driver of our grease enterprise outperformance was an enchancment in our margin per pound of grease bought in comparison with forecast. Conversely, the underperformance of our packaged lubricant enterprise was because of a decreased margin per gallon when evaluating precise margins to steering. Within the grease enterprise, we have now benefited from falling additive price. Whereas within the packaged lubricant enterprise, we have now needed to substitute larger price third social gathering base oils driving up our unit price. Trying in the direction of the third quarter, we imagine we must always proceed to carry out at or close to steering in our Specialty Merchandise section. Total, barring any uncommon working or climate occasions, we imagine Martin Midstream’s third quarter efficiency ought to approximate steering. Now I might like to show the decision again over to Sharon to debate our steadiness sheet, capital expenditures and capital assets.
Sharon Taylor
Thanks, Bob. As of June 30, 2024, we had complete long run debt excellent of $458 million, which was an $8 million enhance from our steadiness on March thirty first. Our revolving credit score facility steadiness was $58 million and the notional quantity of our second lien secured notes was $400 million. Our obtainable borrowing capability below our $150 million revolving credit score facility was $83 million, which incorporates roughly $9 million of issued letters of credit score. As you recall, that facility dedication dropped from $175 million to $150 million on June 30, 2024. On the finish of the quarter, our financial institution compliant adjusted leverage ratio was 3.88 occasions and curiosity protection was 2.21 occasions. Our leverage purpose stays under 3.75 occasions on a sustained foundation and we proceed to work towards that. We spent a complete of $20.2 million on capital expenditures in the course of the second quarter with $12.4 million on progress capital initiatives. Of that quantity, gross capital spending associated to the ELSA undertaking was $10.6 million, which incorporates $4.1 million on the oleum tower and the $6.5 million contribution to the ELSA three way partnership. For quite a lot of causes, which I’ll focus on in a second, we’re adjusting our complete anticipated CapEx spend for 2024 to $58.4 million, up from $49.4 million. Progress capital expenditures at the moment are anticipated to be roughly $23.1 million, which is a $6 million enhance from our unique finances of $17.1 million. The vast majority of the rise is said to 2 initiatives. One in our fertilizer division to construct further storage capability at our Seneca facility and the opposite in our Greece enterprise for enhancements at our Kansas Metropolis facility.
On the upkeep aspect, we have now elevated forecasted CapEx by roughly $3.3 million to $35.3 million for the yr as we have now elevated the anticipated turnaround prices at our fertilizer crops and incurred larger regulatory inspection prices on the marine gear utilized in our Sulfur Providers enterprise. Our 2024 adjusted EBITDA steering stays $116.1 million. Despite the fact that precise outcomes for the quarter had been barely higher, we have now decreased full yr steering within the shore based mostly terminals group in anticipation of upkeep expense impacts associated to Hurricane Beryl. Please evaluation the presentation connected to our earnings press launch yesterday for 2024 adjusted EBITDA steering for every particular person enterprise. In a second, I’ll flip the decision again to the operator. However first, I would like to tell you that in the course of the Q&A session of at the moment’s name, we won’t be taking questions in regards to the buyout provide we obtained from Martin Useful resource Administration Company. The MMLP Conflicts Committee, which is made up of our three unbiased administrators, stays in discussions with MRMC and we won’t speculate as to the course or final result of these discussions. So please chorus from questions on this matter. With that, I am going to flip it over to the operator for some other questions you could have.
Query-and-Reply Session
Operator
[Operator Instructions] We’ll take our first query from Selman Akyol at Stifel.
Selman Akyol
So to begin with, simply by way of [ELSA], every little thing on observe there. Any replace to timing, any probability tower comes on before anticipated or something to only observe there?
Randy Tauscher
All the things is on observe. We could have the oleum tower and the tie-ins to the ELSA plant full by the tip of July. We anticipate starting to ship them with speeds — the inventory in the midst of the OEM in the midst of August. And at that time, the additionally plant enterprise will start their processing and testing and qualification with potential clients. After which the timing of gross sales potential hasn’t modified because the final a number of occasions we spoke about it.
Selman Akyol
After which by way of marine, and I heard you by way of day charges. Any alternative to place any of these contracts on time period in any respect?
Randy Tauscher
So we have now all of our contracts. At present, nothing is within the spot market. It is all on some kind of time period. A lot of it getting us by the tip of the third quarter, a few of us attending to the tip of the yr and two of the contracts into early the primary quarter of subsequent yr. So we have now been trying to broaden the time period as the shoppers have been wanting to take action.
Selman Akyol
After which by way of the bridge incident and the pipeline leak. Is that every one behind you or is there going to be any elevated regulatory seems to be, is there something that is going to linger past?
Randy Tauscher
So the bridge allision which occurred mid-Could that’s now in upkeep mode, which principally means we’re monitoring the areas that had been impacted by the spill, and we count on that, that could possibly be behind us. On the crude oil spill in Smackover, which occurred in the midst of final month, earlier this week, we went from emergency mode to remediation mode. So we nonetheless do have some weeks or months in entrance of us on remediation there. Bob, did you’ve gotten something so as to add…
Bob Bondurant
No, I don’t. Effectively, I’ll add this. We now have accrued the total deductible, so we do not imagine so far as financial impression to us, there needs to be any extra. However that’s, as Randy stated, an ongoing monitoring of actually each conditions.
Selman Akyol
After which may you perhaps simply — you alluded to Beryl, and it sounded such as you guys had been impacted. Are you able to simply perhaps broaden on that somewhat bit?
Randy Tauscher
That hurricane hit us, Beaumont over to the Houston space. We now have a number of totally different websites in Houston that had been impacted. I might say, from a upkeep perspective, I’ll name it nonmaterial after which down from actually with the ability to function for over a complete week there, which as we work our approach by the yr in all probability will not impression us financially that a lot, nevertheless it additionally did hit our shore bases in Galveston and Port Arthur. And we’ll simply should see how the shoppers all come again from that. We may have some impression financially on the shore based mostly aspect in that regard. However I might say the injury could be nonmaterial at our places, though, we had injury in any respect of our amenities.
Bob Bondurant
And I am going to add we actually noticed no impression of refinery manufacturing of sulfur by that storm. Is {that a} honest assertion?
Randy Tauscher
That is true. As Bob talked about earlier, we have now 3,700 tons a day in the course of the third quarter and — in the course of the second quarter. After which throughout July, we have only a tad below that, which I do not assume Beryl had something to do with that.
Selman Akyol
After which simply kind of my final query right here and it sort of pertains to that matter. When it comes to refinery turnarounds, something anticipated or do you count on them — no turnarounds throughout this upcoming quarter?
Randy Tauscher
Sometimes, there are turnarounds late within the third quarter, early fourth quarter. We have no data at this level of how the turnarounds would impression us.
Operator
We’ll take our subsequent query from Kyle Could at Sidoti & Firm.
Kyle Could
So Sharon, I do know you stated you are not going to speak in regards to the buyout provide. However perhaps simply from a distinct perspective, I used to be questioning in the event you can provide us any details about the potential time line of the occasions going ahead?
Sharon Taylor
I do not assume that I can converse on that. The negotiations that might be occurring are nonetheless occurring between MMLP’s Conflicts Committee and MRMC’s advisory agency. I would not have a time line on after they anticipate finishing these negotiations nor do I do know if these might be if we are going to come to an settlement. So I would not like to take a position there.
Kyle Could
After which perhaps within the transportation section, such as you identified, land transportation was actually sturdy. Simply questioning in the event you can perhaps broaden on among the fundamentals of what you skilled within the second quarter and the way you assume that — about that persevering with within the third?
Randy Tauscher
That is a terrific query and one which has us query our heads somewhat bit, too, as a result of April and Could had been fabulous. We had been sturdy throughout the board in all commodities and throughout to June. June, we noticed chemical compounds and lubricants drop. After which seasonally, the butane after all and the propane is weak. And that’s the similar development as we noticed a yr in the past, June and July, each be somewhat bit slower after which selecting again up as we work our approach by the summer season. So we’ll see how issues go right here over the following couple of months. In that regard, July, the primary week was super. The second week after Beryl tweaked down somewhat bit. We have had our Plainview acid plant, which we do — we haul all of our uncooked supplies into there by truck. We now have had that down months of June and July and that might be coming again up in August. And so we’re pondering as we get to August we’d see an uptick once more in that enterprise.
Kyle Could
And final one for me. Simply with the upper CapEx finances this yr. Questioning in the event you may give us an replace on the way you’re fascinated by the leverage ratio, perhaps exiting the yr? I do know you are in search of that sustained — the sustained goal of three.75 occasions on the leverage ratio. Simply any ideas about the way you see the development there.
Sharon Taylor
I believe that the place we’re proper now at 3.88 occasions once we contemplate CapEx by the again half of the yr, we expect we’ll exit the yr at about the identical stage.
Operator
Subsequent, we’ll transfer to Patrick Fitzgerald at Baird.
Patrick Fitzgerald
Sure, is there any approach you could possibly speak in regards to the sort of returns you are anticipating to get out of the extra funding within the fertilizer enterprise?
Randy Tauscher
In order that’s going to — warehouse is nearly full proper now. We’ll — what that is going to permit us to do up within the Illinois space is run tougher in the course of the summer season months, as a result of the fertilizer that we make up there’s historically a fall and early winter fertilizer. So we’re anticipating $600,000 to $800,000 bump from doing that and we count on that to hit. I believe we put within the fourth quarter — the fourth quarter within the steering.
Patrick Fitzgerald
After which the ELSA’s coming on-line within the fourth quarter, you are anticipating to get $0.9 million of EBITDA from that within the fourth quarter. Might you simply remind us how that — I am wanting on the slide from final yr on sort of all of the places and takes, like may you remind us like the way you count on that to ramp by way of like further EBITDA past simply the fourth quarter, which you’ve gotten guided out to, and like how way more CapEx wants to enter that? After which there’s like $6.5 million in money upon graduation of operations. So simply in the event you may discuss that, that will be useful.
Randy Tauscher
So we have now three totally different streams, which we’ll safe income by in these agreements. And the primary is a reservation price to pay us again for the capital we needed to spend the oleum tower so we may present the feedstock to the enterprise between the three events. And that may start in October and that is that 900,000-ish you see and that might be on — per quarter, and that might be on constructing. After which the second stream could be a processing price we get, we’re truly offering them the oleum. And that may ramp up when the gross sales for the partnership started to — for the enterprise start to ramp up. And we expect there could be some gross sales within the fourth quarter but this yr, the advertising and marketing plan undoubtedly has some gross sales in for early 2025. Advertising and marketing plan presently has as that ramping up within the second half of 2025. In order that’s contingent on the fab shoppers getting constructed and working. After which at that time, after all, when the ELSA gross sales decide up the enterprise, we’ll begin seeing income on our share share of the enterprise. And in the end, we count on a $5 million to $6 million of the full funding and the full funding we count on to be $26 million to $27 million, which was our capital undertaking and the capital we’re placing into the enterprise.
Sharon Taylor
So I am going to add on there. The $6.5 million that you just spoke to, that was spent this quarter. That was the contribution to the ELSA three way partnership itself. And so far as, by the oleum tower, we have now a further approximate $3 million left on that undertaking.
Operator
And that concludes our Q&A session. I want to flip the convention again over to Bob Bondurant for closing remarks.
Bob Bondurant
Effectively, thanks, Audra. I respect everybody on the decision at the moment. And only a remaining observe, we had been happy to have a ribbon slicing ceremony for the DSM Semichem plant with our Dongjin, Samsung companions on Monday and look ahead to starting manufacturing on the facility very quickly. Thanks once more.
Operator
And this concludes at the moment’s convention name. Thanks in your participation. It’s possible you’ll now disconnect.
