Martin Midstream Partners Q1 2024 Earnings Call Transcript

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April 18, 2024

There are 6 speakers on the call.

Operator

Thank you for standing by. My name is Christa, and I'll be your conference operator today.

Operator

At this time, I would like to welcome everyone to the Martin Midstream Partners First Quarter 2024 Earnings Conference Call. Thank you. I will now turn the conference over to Sharon Taylor, Chief Financial Officer. Sharon, you may begin.

Speaker 1

Thank you. Good morning, everyone, and welcome to the Martin Midstream Partners conference call to discuss Q1 2024 earnings. 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. With me on the call today are Bob Bondurant, CEO of Martin Midstream Randy Tauscher, COO David Cannon, Controller and Danny Kavan, Director of FP and A. Now, I'll turn it over to Bob to discuss first quarter earnings.

Speaker 2

Thanks, Sharon. I would like to begin the discussion by focusing on our overall Q1 operating performance. For the Q1, we had adjusted EBITDA of $30,400,000 compared to 1st quarter guidance of $31,600,000 a modest $1,200,000 miss compared to forecast. For the Q1, our largest cash flow generator was once again our transportation segment, which had adjusted EBITDA of $13,200,000 compared to guidance of $10,200,000 Within this segment, our land transportation business had adjusted EBITDA of $9,000,000 compared to guidance of 7,100,000 Our revenue exceeded forecast by approximately $1,000,000 as we beat our anticipated 1st quarter mileage by 8%, even though the number of loads from refinery sulfur producers was down significantly due to their extended turnarounds. Also operating expenses were $800,000 below forecast due to lower truck and trailer maintenance expense, which should be a future trend as we continue to replace older equipment with new.

Speaker 2

Our marine transportation business had adjusted EBITDA of $4,200,000 compared to guidance of $3,100,000 Marine transportation revenue exceeded forecast by $800,000 dollars as average inland transportation day rates exceeded forecast by 4%, while achieving approximately 100% utilization. Additionally, we had reduced operating expenses compared to forecast of approximately $300,000 dollars Looking toward the Q2, we believe the performance of both of our transportation business lines will continue to remain strong and both have the potential to outperform 2nd quarter guidance. Our 2nd strongest cash flow generator in the 4th quarter was our Terminalling and Storage segment, which had adjusted EBITDA of $9,000,000 compared to guidance of 9,400,000 dollars While revenues approximated our forecast, our expenses were higher by approximately 500,000 dollars The primary cause of the expense overage was repair and maintenance costs at our Smackover refinery. These costs were associated with the January restart of the refinery after we had taken it offline due to the extreme cold weather during the week of January 14. Looking toward the Q2, all of our terminal locations are continuing to operate normally and based on the consistency of revenue generated by this segment's fee based business model, our Terminalling Group should perform at forecast for the 2nd quarter.

Speaker 2

Now, I'd like to discuss the performance of our Sulfur Services segment, which was our 3rd largest cash flow generator in the 1st quarter. In this segment, we had adjusted EBITDA of $6,700,000 compared to guidance of 9,800,000 dollars Our fertilizer group had adjusted EBITDA of $4,200,000 compared to guidance of 6,600,000 Overall for the Q1, we had sales volume which exceeded our forecast of tons sold by 11%. Offsetting this were lower product margins per ton than forecasted. The combination of higher volume sales offset by lower margins fully account for the $2,400,000 miss when compared to fertilizer guidance. Continued competitive pressure throughout the quarter did not allow us to realize higher forecasted sales prices, which negatively impacted 1st quarter fertilizer margins.

Speaker 2

Looking toward the 2nd quarter, we continue to see solid sales volumes and believe that should continue throughout the quarter. We still see headwinds regarding margin expansion and as a result, there is some chance we might not fully achieve our 2nd quarter fertilizer forecast. The Pure Sulfur side of our Sulfur Services segment had adjusted EBITDA of $2,500,000 compared to guidance of $3,200,000 The primary driver of the miss in forecast was reduced sulfur volumes produced by our Gulf Coast refinery suppliers. This was due to the extended turnarounds many of these refiners experienced in the Q1. Actual volumes received were significantly less than forecast as our average daily volume received was only 2,450 tons per day.

Speaker 2

This compares to the 4th quarter average daily volume received of 3,550 tons per day. Looking toward the Q2, Gulf Coast refineries are back to producing normal sulfur volumes as we are currently receiving approximately 3,550 tons per day. Based on this data, we believe we should achieve our 2nd quarter forecast for the pure sulfur side of our sulfur services segment. Finally, I would like to discuss the Q1 performance of our Specialty Products segment. In this segment, we had adjusted EBITDA of $5,400,000 compared to guidance of 6,000,000 dollars While our grease business along with our remaining NGL businesses achieved forecast, the entire EBITDA miss can be accounted for by the underperformance of our packaged lubricant business.

Speaker 2

In the Q1, this business actually achieved its forecasted sales volume while realizing slightly poorer margins than forecasted. An additional problem for our packaged lubricant business in achieving its forecast were operating issues that occurred in the month of January, beginning with the same extreme cold weather that impacted our refinery. Since January, management of this business have taken corrective actions and have been intimately involved in day to day operations. This has resulted in a more streamlined operating environment with improved blending process flows, which has positively driven operating results more toward forecasted performance. Looking toward the Q2, we currently see significant improvement in our packaged lubricant business when compared to the Q1 and believe our Specialty Products segment will achieve its 2nd quarter guidance.

Speaker 2

Overall, looking to the 2nd quarter for our entire company, we see potential upside to 2nd quarter guidance in our transportation business with some slight downside risk to guidance in our fertilizer business. All of our other business lines should approximate their forecast. Now, I'd like to turn the call back over to Sharon to discuss our balance sheet, capital expenditures and capital resources.

Speaker 1

Thank you, Bob. I'll begin with a normal walk through of the debt components of the balance sheet, discuss our bank ratios and liquidity, capital spending for the quarter and end with a brief discussion of 2024 guidance. On March 31, 2024, the partnership had total long term debt outstanding of $450,000,000 compared to $442,500,000 on December 31, 2023. Our revolving credit facility balance was $50,000,000 and the notional amount of our second lien secured notes was $400,000,000 Our total liquidity was $101,400,000 based on our $175,000,000 revolving credit facility adjusted for a slight leverage constraint and outstanding letters of credit. Looking ahead, the commitment under the revolving credit facility will decrease to $150,000,000 on June 30, 2024.

Speaker 1

We anticipate this decrease in liquidity to have no operational impact on the partnership. At the end of the quarter, our bank compliant adjusted leverage ratio was 3.81 times. Senior leverage was 0.42 times and interest coverage was 2.21 times. An adjusted leverage ratio of 3.75 times or lower remains our long term goal and management will continue to focus our efforts on that target as we contemplate capital allocation. Total capital investments in the Q1 were $17,400,000 which was comprised of $6,200,000 for growth capital projects, dollars 5,300,000 in refinery turnaround costs and $5,900,000 in maintenance capital expenditures.

Speaker 1

Included in the growth capital number was $4,800,000 in improvements to our Plainview facility to produce oleum to be delivered to the DSM, Semicham or ELSA joint venture. We are maintaining our 2024 adjusted EBITDA guidance of $116,100,000 even though the Q1 was a slight miss. The presentation attached to our earnings press release yesterday outlines the shift in forecasted earnings between the business segments when compared to the forecast we discussed on our last earnings call. The material differences in forecasted earnings are in the Transportation and Sulfur segments as we now anticipate higher earnings for both our Land and Marine Transport division offset by competitive pressure on our fertilizer business and extended refinery turnarounds that reduced our sulfur services volumes in the Q1. I'll now turn the call back to the operator for Q and A.

Operator

Your first question comes from the line of Kyle May from Sidoti. Please go ahead.

Speaker 3

Hi, good morning everyone and thanks for all the additional detail today.

Speaker 1

Good morning. Good morning.

Speaker 3

I wanted to start with the transportation segment and again, I know you kind of gave a lot of details, but wondering if you could just kind of give us an update on the rate environment for both the marine and land transportation? And then secondly, maybe if you could kind of give us a little bit more color on the difference in 1Q results versus what you're seeing in your guidance for 2Q?

Speaker 4

Hey, Kyle, this is Randy. Good morning and thank you for the question. I'll start with marine. And to start with marine, I think you really have to go back to the end of the Q1 of 2022 and compare that to the end of the Q1 of 2023 and we saw a 25% increase in rates. And then you go forward another year to the end of Q1 of 2024 and you see a 20% increase in rates.

Speaker 4

So we saw basically a 50% increase in rates in the marine business over the last 2 years. And over the course of the Q1 they were still escalating. We were 8% higher at the end of the Q1 than we were at the end of the Q4. So we have taken this opportunity now with the rates have gone to and locked in more term than we traditionally have on our inland toes in that business. And so we have basically all of our tows locked up term except for those that are in dry dock now are going to dry dock over the next month.

Speaker 4

And so we had about 5 month term on that. And so the rates right now, I'll tell you are between I'll give you a wide range between $11,000 $12,000 a day. So very strong rates in the marine business and we largely have that locked into the end of Q3 of this coming year. Going to MTI, I would call the rates stable. We're certainly not seeing an increase in rates.

Speaker 4

We have fluctuations in our revenue per mile given some of the changes we've had in the trucking business over the last 90 days. Excuse me, for example, down in Beaumont as Bob said in his comments, we had a dearth of sulfur loads due to extended refinery turnarounds and that certainly impacted our performance there. But on the chemical and the lubricant side, we saw an increase from what we had expected and those are generally longer routes for us. And so we saw improvement there. So I would say as we're looking forward in that business, the refineries and Beaumont are now running like we expect to see them run and like they like to run, which is fairly high utilization.

Speaker 4

We're still having good long haul sales to the chemicals and lubricant space. So I would expect the rates for MTI to be stable at least into the immediate future.

Speaker 2

And I'm going to add one comment. In fact, on marine, we're always looking at what's the growth in new equipment coming online, and we're not seeing really any significant build programs by any of our competitors. So our vision is these rates will be higher for a longer period of time than what has historically been the case.

Speaker 3

Okay, great. That's all really helpful. And then maybe switching over to the fertilizer business. If I'm looking at the guidance correctly, you raised the outlook for fertilizer in the Q4 of this year from $2,400,000 to $3,200,000 Just kind of curious what's driving that change, if it's just timing or if there's something else going on?

Speaker 4

Yes. We've made a small growth investment up in Seneca where we have expanded our warehouse there. So we're going to be able to operate longer into the summer months, have more inventory up there to sell during the season where we sell our dispersal, which is primarily the fall and early winter season. So we see an improvement in fertilizer EBITDA from what we were projecting earlier in the year to now.

Speaker 3

Okay. That makes sense. And then one more for me. I think recently, there was news that Samsung received a sizable grant that will be used to build a second chip making factory. I'm just curious if a second factory would fall under the DSM, Semicham joint venture or if maybe that's a potential upside down the road?

Speaker 4

Yes. The 2nd chip factory and they have committed to a 2nd chip factory. We don't know precisely what size of chips they're going to be producing yet, which makes a difference into what asset they need. So that's an unknown. So no, there's no commitment to us on a second ship factory down in Taylor, but that certainly is upside for the future.

Speaker 3

Okay, great. Appreciate all the information. I'll jump back in queue.

Operator

And our next question comes from the line of Selman Akyol from Stifel. Please go ahead.

Speaker 5

Thank you. Good morning all. So I guess just a few follow ups. So just kind of going back to the bars you talked about going into dry dock. Can you say how many are going into dry dock or is this going to be a heavier dry docking than others?

Speaker 4

Yes. So this is a heavy dry dock year for marine. But we got a lot of that out of the way in the Q1, settlement. And in the Q2, we have 2 of our inland barge tows going to dry dock. And in the Q4, we will only have 1.

Speaker 4

So by the time we reach the end of the second quarter, we'll have most of our maintenance work done for the year in terms of the marine equipment.

Speaker 5

Got it. Understood. And then just kind of going back to Elsa, besides Samsung, are you guys having any other conversations with any other companies given sort of the U. S. Is trying to ramp up chip production?

Speaker 4

The answer is yes. And Samsung is the marketer for the DSM semi chem joint venture. So they are handling those discussions.

Speaker 2

But the

Speaker 5

answer is yes.

Speaker 4

We anticipate selling a significant amount to parties other than Samsung and Taylor through Samsung's efforts in marketing.

Speaker 5

And any idea on when some of that might come to fruition?

Speaker 4

Yes. I mean, it's the same as when we spoke 60 days ago. The projects have been delayed and we anticipate significant sales to begin occurring in the second half of twenty twenty five, which is about a year delay from when we entered into this project several years ago.

Speaker 5

Right. And then but just when you get your oleum tower up and complete, we should still expect some revenue in the Q4?

Speaker 4

Yes. When we get the OEM tower up and complete and the Olin tower is commissioned, we will start receiving a reservation fee. And that's where the capital that we spent to construct the old tower and the tie ins. And that will happen no later than October of 2024.

Speaker 5

Got it. Got it. And then just kind of going back to transportation, anything in terms of just sort of like potentially new contracts you guys could be inking out there? Are you seeing any sort of increased demand for your services?

Speaker 4

I would say that we would define services in both the marine and the trucking as stable. We're not looking at any new opportunities for significant growth in those business, just utilizing our current assets and possibly some incremental growth on the trucking side to the extent we think we can can get the truck driver, get all the equipment we need to do it and be able to sell the services.

Speaker 5

Okay. Last one for me. On the turnaround expense for you guys, Was there anything unusual about that? I mean, it just seemed awfully large to us. And I'm just trying to understand, was there something unusual or are we just seeing inflation there?

Speaker 4

We had a heavy turnaround here. Inflation is certainly part of that equation Selman, but we have a heavy year. We budgeted at the beginning of the year $32,000,000 We're still there. The Q1, we had a significant part of that because we had our refinery turnarounds in the Q1 and that was in excess of $5,000,000 at an every other year event. The Q2, so you're not surprised, will also be large.

Speaker 4

I would say by the end of the second quarter of our $32,000,000 we're going to have spent $24,500,000 to $26,500,000 because of the refinery, because of the Plainview turnaround that we move forward this year earlier than typical, so we can tie into DSM Semmichem and provide good operations for them going forward. And then because of the maintenance program we've had on the Marine vessel, which were very heavy this year. We have both offshore units already in the shipyard this year. And then we had about 40% of our inland barges and vessels had to go this year. And that's all just regulatory driven and timing driven.

Speaker 5

Understood. Thank you so much.

Operator

Thank you. That concludes our question and answer session. I will now turn the call back over to Bob Bondurant for closing remarks.

Speaker 2

Thank you, operator. I want to thank Kyle and Selman for the questions and interest today, and we look forward to continuing to execute our business plan and feel optimistic about our future performance. This will conclude our Q1 call.

Operator

This concludes today's conference call. Thank you for your participation and you may now disconnect.

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