F.N.B. Q3 2024 Earnings Call Transcript

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October 17, 2024

There are 7 speakers on the call.

Operator

Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the MMLP Third Quarter Earnings Conference Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise.

Operator

After the speakers' remarks, there will be a question and answer session. At this time, I would like to turn the conference over to Sharon Taylor, Chief Financial Officer. Please go ahead.

Speaker 1

Good morning, and thank you to everyone joining us on the call today. Here in the room are Bob Bondurant, CEO Randy Tauscher, COO David Cannon, Controller and Danny Caban, Director of FP and A. During this call, we will make forward looking statements as defined by the SEC. These statements are based upon our current beliefs as well as assumptions made by the management team and information currently available to us. Please refer to our earnings press release issued yesterday afternoon and posted on our website as well as our latest filings with the SEC for a list of factors that could impact the future performance of Martin and cause our actual results to differ materially from our expectations.

Speaker 1

We will discuss non GAAP financial measures on today's call. The earnings press release includes a reconciliation of these non GAAP financial measures to their comparable GAAP financial measures. And with that, I will turn it over to Bob to discuss Q3 earnings.

Speaker 2

Thanks, Sharon. First, I would like to begin with comments regarding the impact of Hurricane Milton on our people and on our assets. Our Martin team members who operate and manage our Tampa terminal and our trucking operations in Central Florida are all safe and accounted for. We shut down both operations more than 24 hours before landfall and as a result, our people were able to reposition themselves to safety. Regarding our assets, our Tampa terminal had no storm surge issues, but the heavy rain filled our tank farm infield and submerged several of our pumps, which will be repaired.

Speaker 2

We also have some tank insulation damage that will also need to be repaired. Our trucking terminal located in Mulberry had only very minor damage. All in all, we feel very blessed to have experienced minimal impact to our people and to our locations. Now I would like to focus on our overall Q3 operating performance. For the Q3, we fell short of guidance by $1,300,000 as we had adjusted EBITDA of $25,100,000 compared to 3rd quarter guidance of $26,400,000 As I mentioned in yesterday's press release, the primary contributor to our guidance shortfall was an increase in expense related to our long term incentive plans, which are tied to the fair market value of our common units.

Speaker 2

As a result, we recognized an additional $1,400,000 in expense when compared to guidance. Without this expense recognition, we would have had exceeded forecast by 100,000 The impact of this expense recognition when compared to guidance negatively impacted our Terminalling and Storage segment by $600,000 both our Sulfur Services and our Specialty Products segments by $300,000 each and our Transportation segment by $200,000 Now I would like to break down our adjusted EBITDA performance by each segment. For the Q3, our largest cash flow generator was once again our Transportation segment, which had adjusted EBITDA of $11,600,000 compared to guidance of $10,800,000 Within this segment, our land transportation business had a very stable quarter and had adjusted EBITDA of $6,500,000 compared to guidance of $6,400,000 We believe this stability will continue in the 4th quarter in this business. Our marine transportation business had adjusted EBITDA of $5,100,000 dollars compared to guidance of $4,400,000 While our forecasted utilization was on target with guidance, our average inland day rate exceeded forecast by 8%. We continue to see stability in rates due to tightness in the inland market and as a result expect stable cash flow in this business line in the Q4.

Speaker 2

Our next strongest cash flow generator in the Q3 was our Terminalling and Storage segment, which had adjusted EBITDA of $8,400,000 compared to guidance of $9,000,000 The missing guidance can be entirely attributed to the increased incentive compensation expense of 600,000 dollars Without this charge, our Terminalling and Storage segment was in line with guidance. Looking toward the Q4, we believe both operations and adjusted EBITDA will remain stable for our Terminalling and Storage segment. Our 3rd largest cash flow generator was our Specialty Products segment, which had adjusted EBITDA of $4,600,000 compared to guidance of $6,500,000 a miss of 1,900,000 dollars Excluding the long term incentive compensation expense charge of $300,000 we missed guidance by $1,600,000 This miss was primarily the result of weak performance from both our packaged lubricant and grease business lines. Both groups saw weaker demand for their products than forecasted. We believe this weak demand is being driven by the slowing U.

Speaker 2

S. Economy. Looking toward the 4th quarter, the overall weaker economy combined with the seasonal reduced demand for our lubricant and grease products should result in softer cash flow in the Q4 relative to the other 3 quarters. Finally, I would like to discuss the performance of our Sulfur Services segment, which had adjusted EBITDA of $4,200,000 compared to guidance of $3,700,000 Without the long term incentive based compensation charge of $300,000 we would have exceeded guidance in this segment by $800,000 The PureSulfur side of our Silver Services segment had adjusted EBITDA of $3,700,000 compared to guidance of 3,100,000 The primary driver of this outperformance was the strong volume of sulfur production from our Gulf Coast refinery customers. The daily volume of sulfur handled was 12% greater than our forecast as we logistically manage approximately 3,600 tons per day of sulfur production into or through our Beaumont terminals.

Speaker 2

Looking toward the Q4, subject to any unexpected refinery turnarounds, we remain optimistic that sulfur production from our refinery customers will continue to remain at these higher levels, which should allow us to achieve or exceed guidance in the pure sulfur side of the business. Our fertilizer group had adjusted EBITDA of $400,000 which was $300,000 less than EBITDA guidance for the Q3. While the volume of fertilizer sold in the Q3 was 27% less than forecast, we realized an improvement in actual gross margin per ton relative to guidance. This margin improvement was a result of the mix of fertilizer products sold in the Q3 when compared to our forecast. Looking toward the Q4, we anticipate the normal seasonal trough in cash flow relative to the 1st and second quarters for the fertilizer business.

Speaker 2

Before I turn the call over to Sharon, I would like to make a few comments regarding our pending transaction with Martin Resource Management Corporation. As you know, MRMC approached MMLP with initial buyout proposal on May 24, 2024, which was reviewed by our Board's Conflicts Committee, which consists of 3 independent directors and was assisted by independent financial and legal advisors. A robust process ensued and the committee negotiated hard on behalf of the unaffiliated unitholders to maximize value. The pending transaction will deliver nearly $1 more per unit than the initial proposal. In the weeks ahead, we will follow a proxy statement with more detail on the transaction and we look forward to engaging with unitholders as we work to secure the necessary approvals to complete the transaction.

Speaker 2

While we look forward to keeping you all updated, until the proxy is filed, we have no more information to share regarding the pending transaction. As such, the focus of our call today will be on our Q3 performance. We ask that you please keep questions focused on our financial and operational performance. Now I'll turn the call back over to Sharon.

Speaker 1

Thank you, Bob. As of September 30, 2024, our total long term debt outstanding was $486,500,000 of which $86,500,000 was drawn under our revolving credit facility and the remaining $400,000,000 consists of our 2nd lien 11.5 percent notes due February 2028. Our available borrowing capacity under our $150,000,000 revolving credit facility was approximately $54,300,000 including a reduction for approximately $9,200,000 of issued letters of credit. Our bank compliant adjusted leverage ratio was 4.14 times at the end of the quarter and interest coverage was 2.23 times. While both our total outstanding debt and adjusted leverage increased from the 2nd quarter due to working capital needs coupled with the August interest payment on our outstanding notes, we remain committed to debt reduction and anticipate exiting the year at a debt level that reduces our adjusted leverage to below 4 times.

Speaker 1

At the end of the quarter, the partnership was in full compliance with all of our covenants, banking or otherwise. Capital expenditures in the 3rd quarter were $12,500,000 consisting of $8,600,000 in maintenance CapEx and $3,900,000 in expansion CapEx. The majority of maintenance CapEx during the quarter was associated with regulatory inspection costs on marine equipment and turnarounds at our fertilizer plants. The expansion CapEx was primarily related to improvements to the Oleum tower in Plainview, Texas in support of the ELSA joint venture. Our forecast for full year 2024 capital expenditures now totals 57,400,000 dollars down from the previous $58,400,000 discussed during the Q2 conference call.

Speaker 1

We currently anticipate full year maintenance CapEx to be $34,800,000 and full year expansion CapEx to be $22,600,000 which includes $18,800,000 for the Elsa JV either through improvements to the OEM tower or cash contributions for our 10% ownership of the joint venture. As Bob discussed, overall, the partnership performed well in the Q3, allowing us to maintain our adjusted EBITDA guidance for full year 2024 of 116,100,000 dollars For the Q4, we have adjusted our forecast slightly for both the Marine and Sulfur Services divisions. You will find our 2024 adjusted EBITDA guidance for each individual business under our 4 reportable segments in the presentation attached to yesterday's earnings press release. That concludes my remarks for today, and I will turn it back over to Audra for Q and A.

Operator

Thank you. We will now begin the question and answer session. We'll take our first question from Selman Akyol at Stifel.

Speaker 3

Hi, guys. This is Tim on for Selman. Appreciate you taking my call. So I just wanted to start off in Florida and I appreciate the update and I'm glad the personnel are all okay. But just wanted to kind of see if this will have any implications for the remainder of the year as far as cash flow from those assets and potentially any capital that needs to be allocated to kind of fix some of the minor damage there?

Speaker 4

Morning, Ken. This is Randy. Our Tampa terminal did sustain a little bit of damage insulation on some of the tanks. Pumps are going to be repaired. So we're going to have a CapEx outlay of somewhere between $500,000 $1,000,000 over the Q4 and Q1 to cover those expenses.

Speaker 4

Other than that, we don't expect much impact commercially.

Speaker 3

Got it. Appreciate that. And then I guess jumping over to Elsa, just wanted to get any updates there, everything still on track? And then has there been any other indications from Samsung on potential future prospects for growth out of that JV?

Speaker 4

Yes. So the Elsa plant was supposed to begin taking feedstock from Martin in August. We talked about that the last call in July. It hasn't taken feedstock yet. We're ready to provide the feedstock as soon as DSM is ready to take it.

Speaker 4

We expect that to be within the month of October. So but I'm told not this week. So next week, it should be ready to start taking the feedstock and that's going to start the whole process of producing ALS, testing the ALS, ALS, improving their processes and then qualifying it with the customers. So that is imminent. In terms of the sales program, I think the sales program is likely to be delayed from what we thought it was going to be.

Speaker 4

You've probably seen the news articles out there on delays. We've seen some public announcements for that. But I think sales in 2025 probably are not going to be as robust as we were hoping they would be. And until we see that development, there's probably not going to be much discussion around the next plant because we need to make sure this plant is commercial first.

Speaker 2

And I'll add one more comment is that we do have a reservation fee that does begin October 1. That will be earned. But to Randy's point, the sales of the actual ELSA to the customers will be most likely muted for a while.

Speaker 3

Understood. Thanks for the clarification. And then I guess turning to the barge business that you guys kind of highlighted strength there and it's certainly outperformed, but just kind of curious on what you're currently seeing for rates and any updates to contracting there?

Speaker 4

Yes. So, the rates are currently $11,000 to $11,500 a day, which is a couple $1,000 greater than it was a year ago. And the clean rates are currently $9,600 to $9,800 per day, which is on par of where it was a year ago. So we've seen a continued rise in the heated rates. We've seen stable over the last year in the clean rates now.

Speaker 4

What we are seeing now is a stable market for the heated rates. We don't see those rates continuing to rise at least through the winter months at a minimum. They've stabilized out. But we expect that business to do very well in the Q4 and Q1. In terms of the term of the rates, we have one of our 3rd party tows in dry dock.

Speaker 4

Other than that, we have 50% of our tows locked up on term into 2025. I think some of those are 5, some of those are 12 months long yet remaining. And then we have 20% of our remaining fleet on a term contract that's coming to its end during the next 30 or 45 days and those rates are being negotiated. The rest of them are on spot.

Speaker 3

Got it. And then one last one, if I could, and I understand if you guys can't answer it. But just regarding the proposed

Speaker 5

merger,

Speaker 3

will the vote be kind of a simple majority or will it be a majority of the holders outside of inside ownership?

Speaker 1

Yes, that will be a simple majority vote.

Speaker 3

Okay, got it. That's all I had. Thank you guys so much for the time.

Speaker 1

Thank you, Ken.

Operator

We'll move next to Kyle May at Sidoti.

Speaker 6

Hey, good morning, everybody.

Speaker 4

Good morning, Kyle.

Speaker 6

So I appreciate it's too soon for formal guidance next year, but just wondering if you can give us any preliminary thoughts about capital spend in 2025, just given we're probably getting wrapped up on the capital needed for Elsa. So just curious kind of preliminary thoughts about next year.

Speaker 4

Either way.

Speaker 1

Go ahead.

Speaker 4

Yes. So from a growth capital perspective, not near as significant as what we saw this year because of the ELCA. The ELCA still has a few dollars to spend, but I think somewhere in the ballpark of $1,000,000 as we believe in and we'll be done with everything we committed to on that project. From a maintenance perspective, we haven't really haven't gotten to our budgeting process yet. I will tell you we don't right now have a planned refinery turnaround for next year.

Speaker 4

And we have less barges going to the shipyard next year. So I would think that we would be under the $34,800,000 that looks like we're going to achieve this year. But we don't we haven't done enough yet to talk with any certainty around that.

Speaker 6

Okay, great. That's helpful. And then another question on the Elsa project. I believe previously, you've indicated that once it's fully operational, it could generate about $6,000,000 on an annual basis for Martin. Can you give us an update on your outlook?

Speaker 6

Maybe first on that total amount, once it's fully operational, is that $6,000,000 still a good figure? And then with the slowdown next year, just kind of how you're thinking about that progression to that full run rate?

Speaker 4

Yes. So as Bob commented, we're getting the reservation fee starting this month. And when we originally ran the economics and values ELSO, when the ELSO would get sold to the consumers, about 60% to 70% of the value in the project would come with the reservation fee and the other 30% to 40% would come depending upon the ultimate sales price we get in the volume we would sell. So, I would say for 2025, again, we're working on our budget for next year. We're relying remember, we're minority in this.

Speaker 4

We're relying on our marketer, Samsung, to feed us with that information. We don't have good information yet what their expectations are around 2025.

Speaker 6

Okay. I appreciate the time this morning.

Speaker 1

Thank you, Kyle.

Operator

We'll move next to Patrick Fitzgerald at Baird.

Speaker 5

Hi. Thank you for taking the questions. So I guess the guidance implies that you're going to have about $55,000,000 or so of borrowings on the revolver at the end of the year. Is that fair?

Speaker 1

Yes. I think we're going to end up somewhere between $55,000,000 $60 ish million at year end.

Speaker 5

Okay. But and then the free cash flow outlook, I guess, given your commentary in the last question about CapEx, no major projects, your free cash flow generation will be improved in 2025. Is that fair?

Speaker 1

Yes, sir. That's fair. We think well, we haven't got our projections out there, but probably somewhere in the neighborhood of $30,000,000

Speaker 5

Awesome. And then just on the acquisition financing, I think there's some confusion out there of how it relates to the MMLP debt structure. So if you could just, I mean, I don't really think that's a question that would be prohibited, but maybe this. But if you could just talk about like the financing and how it impacts, MMLP, that would be, helpful. Thank you.

Speaker 1

Sure. As far as MMLP, nothing at the MMLP level will change related to our capital structure after the transaction is closed, should it close. So our notes remain outstanding and our credit facility remains outstanding. And we don't I believe the credit facility matures in 27 and the notes mature in 2028. But there is no consideration at this moment for anything changing within either of those two facilities.

Speaker 5

And you're not borrowing anything at MMLP to help finance the acquisition, right?

Speaker 1

That's correct. No, we are not.

Speaker 5

Okay. And I guess the only like potential headwind is the one of your because you have a relationship on, I think the Smackover refinery, they Martin Resources would just be, I guess, a little bit more levered?

Speaker 1

So I'm not sure I understand the question, but I'll go back to the contracts. We have numerous contracts between MRMC and MMLP that are outstanding and will continue to be outstanding. Those have been negotiated prior to this deal and have gone through MMLP's Conflicts Committee for approval. And then on the MRMC side, they have their own financing, which will be effective with the finalization of the buyout.

Speaker 5

Okay. All right. And then what would be the would there be a kind of increased need to distribute cash up to MRMC so that they could deal with their financing or how would that work?

Speaker 1

So MRMC as the sole unit holder, again, depending on whether or not the deal closes, which is subject to a unit holder vote, MRMC would at that time be the recipient of any distributions that MMLP should choose to make when they are able to or when we are able to, under the constraints of our current revolving credit facility and the indenture under the notes.

Speaker 5

Okay. Very helpful. Thank you very much.

Speaker 1

Thank you.

Operator

And that concludes our Q and A session for today. I will now turn the conference back over to Bob Bondurant for closing remarks.

Speaker 2

Thank you. In closing, I'd like to thank you again for participating in our call today. Circling back to the merger agreement with MRMC, I'll reiterate that we will file a proxy statement in the coming weeks, which will provide more detail on the transaction. But until the proxy is filed, we have no more information to share. Thanks again and have a great day.

Operator

This concludes today's conference call. Again, thank you for your participation. You may now disconnect.

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