Marten Transport Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 18, 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 Second Quarter 2024 Earnings 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

Thank you. Good morning, everyone, and welcome to the Martin Midstream Partners conference call to discuss Q2 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 2nd quarter earnings.

Speaker 2

Thanks, Sharon. I would like to begin the discussion by focusing on our overall Q2 operating performance. For the Q2, we exceeded guidance by $500,000 as we had adjusted EBITDA of $31,700,000 compared to Q2 guidance of $31,200,000 We exceeded guidance by $500,000 despite 2 separate and distinct casualty losses that totaled $2,000,000 in the 2nd quarter. I will discuss these events later in my segment comments. For the Q2, our largest cash flow generator was once again our transportation segment, which had adjusted EBITDA of $11,200,000 compared to guidance of $10,200,000 Within this segment, our land transportation business had adjusted EBITDA of $8,200,000 compared to guidance of $6,500,000 dollars Our revenue exceeded forecast by $1,400,000 as we beat our 2nd quarter forecasted mileage by 5%.

Speaker 2

Also operating expenses were $400,000 below forecast, primarily due to lower truck and trailer operating cost when compared to forecast. This operating expense trend relative to guidance should continue as we slowly replace older equipment with new. Looking toward the Q3, we continue to see strength in our sulfur hauling from Beaumont area refineries, but have seen a bit of a slowdown in other product lines such as chemicals and lubricants. However, we believe we should be at or near guidance for the Q3 in our Land Transportation business. Our marine transportation business had adjusted EBITDA of $2,900,000 compared to guidance of $3,800,000 The majority of the miss in our marine transportation performance can be explained by a $500,000 casualty loss that occurred in May.

Speaker 2

This loss represents 2 separate insurance deductibles under our Marine Transportation Protection and Indemnity coverage policy and our whole coverage policy. This casualty loss was the result of a bridge elision in Galveston, Texas, which occurred in May. A balance of the underperformance relative to guidance was the result of lower inland fleet utilization than forecasted. This was the result of scheduled marine equipment and dry dock during the Q2 that took longer than forecasted. Also, we had reduced revenue from the inland tow that was involved in the bridge Elision incident.

Speaker 2

Looking toward the Q3, we continue to see day rates stronger than our original forecast and we also foresee full utilization of our marine fleet, providing the opportunity to exceed our 3rd quarter guidance in our marine transportation business. Our next strongest cash flow generator in the Q2 was our Sulfur Services segment, which had adjusted EBITDA of $10,600,000 compared to guidance of $9,800,000 Our fertilizer group had adjusted EBITDA of $6,700,000 which was the same as our EBITDA guidance for the Q2. While the volume of fertilizer sold in the 2nd quarter was 15% less than forecast, we realized a 20% 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 Q2 when compared to our forecast. Looking toward the Q3, we anticipate the normal seasonal trough in cash flow for the fertilizer business as farmers transition from planting to harvesting their fields.

Speaker 2

The Pure Sulfur side of our Sulfur Services segment had adjusted EBITDA of $3,800,000 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 14% greater than our forecast as we logistically managed approximately 3,700 tons per day of sulfur production into or through our Beaumont terminals. Looking toward the Q3, subject to Gulf Coast weather events, 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 3rd largest cash flow generator in the Q2 was our Terminalling and Storage segment, which had adjusted EBITDA of $8,000,000 compared to guidance of $9,400,000 While our specialty shore based and underground storage terminals were spot on relative to guidance, we missed our forecast at the Smackover refinery due to a casualty loss caused by a crude oil pipeline spill that occurred in mid June. The pipeline in question moves crude oil from our storage tanks to the refinery.

Speaker 2

Because of the spill, we accrued a casualty loss equaling our total insurance deductibles of $1,500,000 under both our pollution policy and our general liability policy. The impact of this casualty loss fully explains the Terminalling and Storage segment miss of $1,400,000 when compared to guidance. Looking toward the Q3, we believe this segment's cash flow should return to guidance. Finally, I would like to discuss the Q2 performance of our Specialty Products segment. In this segment, we had adjusted EBITDA of $5,700,000 compared to guidance of $5,600,000 Relative to guidance, we had outperformance in our grease business, which was almost entirely offset by underperformance in our packaged lubricant business.

Speaker 2

The main driver of our grease business outperformance was an improvement in our margin per pound of grease sold compared to forecast. Conversely, the underperformance of our packaged lubricant business was due to a reduced margin per gallon when comparing actual margins to guidance. In the grease business, we have benefited from falling additive cost, while in the packaged lubricant business, we have had to substitute higher cost third party base oils driving up our unit cost. Looking toward the Q3, we believe we should continue to perform atornearguidanceinourspecialtyproductsegment. Overall, barring any unusual operating or weather events, we believe Martin Midstream's 3rd quarter performance should approximate guidance.

Speaker 2

Now I would like to turn the call back over to Sharon to discuss our balance sheet, capital expenditures and capital resources.

Speaker 1

Thanks, Bob. As of June 30, 2024, we had total long term debt outstanding of $458,000,000 which was an $8,000,000 increase from our balance on March 31. Our revolving credit facility balance was $58,000,000 and the notional amount of our second lien secured notes was $400,000,000 Our available borrowing capacity under our $150,000,000 revolving credit facility was $83,000,000 which includes approximately $9,000,000 of issued letters of credit. As you recall, that facility commitment dropped from $175,000,000 to $150,000,000 on June 30, 2024. At the end of the quarter, our bank compliant adjusted leverage ratio was 3.88 times and interest coverage was 2.21 times.

Speaker 1

Our leverage goal remains below 3.75 times on a sustained basis and we continue to work toward that. We spent a total of $20,200,000 on capital expenditures during the second quarter with $12,400,000 on growth capital projects. Of that number, gross capital spending related to the Elsa project was $10,600,000 which includes $4,100,000 on the Oleum tower and the $6,500,000 contribution to the Elsa joint venture. For a variety of reasons, which I will discuss in a moment, we are adjusting our total anticipated CapEx spend for 2024 to $58,400,000 up from 49,400,000 Gross capital expenditures are now expected to be approximately $23,100,000 which is a $6,000,000 increase from our original budget of $17,100,000 The majority of the increase is related to 2 projects. 1 in our fertilizer division to build additional storage capacity at our Seneca facility and the other in our Greece business for improvements at our Kansas City facility.

Speaker 1

On the maintenance side, we have increased forecasted CapEx by approximately $3,300,000 to $35,300,000 for the year, as we have increased the anticipated turnaround costs at our fertilizer plants and incurred higher regulatory inspection costs on the marine equipment used in our sulfur services business. Our 2024 adjusted EBITDA guidance remains $116,100,000 Even though actual results for the quarter were slightly better, we have reduced full year guidance in the shore based terminals group in anticipation of maintenance expense impacts related to Hurricane Barrel. Please review the presentation attached to our earnings press release yesterday for 2024 adjusted EBITDA guidance for each individual business. In a moment, I will turn the call back to the operator, but first I need to inform you that during the Q and A session of today's call, we will not be taking questions about the buyout offer we received from Martin Resource Management Corporation. The MMLP Conflicts Committee, which is made up of our 3 independent directors remains in discussions with MRMC and we will not speculate as to the direction or outcome of those discussions.

Speaker 1

So please refrain from questions on this topic. With that, I'll turn it over to the operator for any other questions you may have.

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

Can you guys hear me?

Speaker 1

Yes. Yes. Good morning.

Speaker 3

Okay, great. Good morning. So first of all, just in terms of Alpha, everything on track there? Any update to timing? Any chance tower comes on sooner than expected?

Speaker 3

Anything to just note there?

Speaker 4

Yes. Samir, this is Randy. Good morning. Everything is on track. We will have the OEM tower and the tie ins to the ELSO plants complete by the end of July.

Speaker 4

We anticipate beginning to ship them the speeds the stock in the middle of the OEM in the middle of August. And then at that point, the also plants and Venture will begin their processing and testing and qualification with potential customers. And then the timing of sales potential hasn't changed since the last several times we spoke about it.

Speaker 3

Great. Thank you for that. And then in terms of marine, I heard you in terms of day rates, any opportunity to put any of those contracts on term at all?

Speaker 4

Yes. So we have all of our contracts currently. Nothing is in the spot market. It's all on some sort of term. Much of it getting us through the end of the Q3, some of us getting to the end of the year and 2 of the contracts into early Q1 of next year.

Speaker 4

So we have been looking to expand the term as the customers have been willing to do so.

Speaker 3

Great. Appreciate that update. And then in terms of the bridge incident in the pipeline leak, is that all behind you or is there going to be any increased regulatory looks? Is there anything that's going to linger beyond?

Speaker 4

Yes. So the bridge division, which happened mid May, that is now in maintenance mode, which basically means we're monitoring the areas that were impacted by this bill and we expect that that to be behind us. On the crude oil spill in Smackover, which happened in the middle of last month. Earlier this week, we went from emergency mode to remediation mode. So we still do have some weeks or months in front of us on remediation there.

Speaker 4

Bob, did you have anything to add on anything else? No, I

Speaker 2

do not. Well, I will add this. We have accrued the full deductible. So we don't believe as far as economic impact to us, there should be any more. But that is, as Randy said, an ongoing monitoring of really both situations.

Speaker 3

Got it. And then could you maybe just you alluded to barrel and it sounded like you guys were impacted. Can you just maybe expand on that a little bit?

Speaker 4

Yes. I mean that hurricane hit us Beaumont over to the Houston area. We have several different sites in Houston that were impacted. I'd say from a maintenance perspective, I call it nonmaterial. And then down from really being able to operate for over an entire week there, which as we work our way through the year probably won't impact us financially that much.

Speaker 4

But it also did hit our short bases in Galveston and Port Arthur. And we'll just have to see how the customers all come back from that. We could have some impact financially on the shore based side in that regard. But I'd say the damage would be nonmaterial at our locations, although we had damage at all of our facilities.

Speaker 2

And I'll add, we really saw no impact to refinery production of sulfur through that storm. Is that a fair statement?

Speaker 4

That's true. As Bob mentioned earlier, we have 3,700 tons a day during the Q3 and excuse me, during the Q2 and then during July, we've just a tad under that, which I don't think Earl had anything to do with that.

Speaker 3

Got it. And then just sort of my last question here and it kind of relates to that topic. In terms of refinery turnarounds, anything expected or do you expect them no turnarounds during this upcoming quarter?

Speaker 4

Typically there are turnarounds late in Q3, early Q4. We don't have any knowledge at this point of how the turnarounds would impact us.

Speaker 3

Got it. Okay. Thank you very much.

Speaker 2

Thank you.

Operator

We'll take our next question from Kyle May at Sidoti and Company.

Speaker 5

Hi, good morning everyone.

Speaker 2

Good morning. Good morning.

Speaker 5

So Sharon, I know you said you're not going to talk about the buyout offer, but maybe just from a different perspective, I was wondering if you can give us any information about the potential timeline of the events going forward?

Speaker 1

I don't think that I can speak on that. The negotiations that will be occurring are still occurring between MMLP's Conflicts Committee and MRMC's advisory firm. I do not have a timeline on when they anticipate completing those negotiations nor do I know if those will be if we will come to an agreement. So I wouldn't like to speculate there.

Speaker 5

Understood. Appreciate it. And then maybe in the transportation segment, like you pointed out, land transportation was really strong. Just wondering if you can maybe expand on some of the fundamentals of what you experienced in the Q2 and how you think that about that continuing in the 3rd?

Speaker 4

Yes. This is Randy. That's a great question and one that has us scratching our heads a little bit too because April May were fabulous. We were strong across the board in all commodities and all routes. June, we saw chemicals and lubricants drop.

Speaker 4

And then seasonally, the butane, of course, and the propane is weak. And that is the same trend as we saw a year ago, June July, those get a little bit slower and then picking back up as we work our way through the summer. So we'll see how things go here over the next couple of months in that regard. July 1st week was tremendous, the 2nd week after Geryl tweaked down a little bit. And we've had our Plainview asset plant, which we do, we haul all of our raw materials into there by truck.

Speaker 4

We've had that down once of June July. That will be coming back up in August. And so we're thinking as we get to August, we might see an uptick again in that business.

Speaker 5

Okay, great. That's really helpful. And last one for me, just with the higher CapEx budget this year, wondering if you could give us an update on how you're thinking about the leverage ratio, maybe exiting the year. I know you're looking for that sustained target of 3.75 on the leverage ratio. Just any thoughts about how you see the progression there?

Speaker 1

Yes. I think that where we are right now at 3.88x when we consider CapEx through the back half of the year, we think we'll exit the year at about the same level.

Operator

Next, we'll move to Patrick Fitzgerald at Baird.

Speaker 6

Yes, sorry about that. Yes, is there any way you could talk about the kind of returns you're expecting to get out of the additional investment in the fertilizer business?

Speaker 4

Yes. So that's going to warehouse is just about complete right now. We're going to what this can allow us to do up in the Illinois areas is run harder during the summer months because the fertilizer that we make up there is traditionally a fall and early winter fertilizer. So we're expecting $600,000 to $800,000 bump from doing that and we expect that to hit, I think we put in the 4th quarter in the guidance.

Speaker 6

Okay. All right. And then the else is coming online in the 4th quarter. You're expecting to get $900,000 of EBITDA from that in the 4th quarter. Could you just remind us how that I'm looking at the slide from last year on kind of all the puts and takes.

Speaker 6

Like could you remind us like how you expect that to ramp in terms of like additional EBITDA beyond just the Q4, which you have guided out to? And like how much more CapEx needs to go into that and then there's like a $6,500,000 in cash upon commencement of operations. So just if you could talk about that, that would be helpful.

Speaker 4

Sure. So we have 3 different streams which we're going to secure revenue by in those agreements. And the first is a reservation fee to pay us back for the capital we had to spend on the OEM tower so we could provide the feedstock to the venture between the 3 parties. And that will begin in October. And that's that 900,000 issue C and that will be on per quarter and that will be ongoing.

Speaker 4

And then the second string would be a processing fee we get for actually providing them the OEM. And that will ramp up when the sales for the partnership begin to for the venture begin to ramp up. And we think there might be some sales in the Q4 yet this year. The marketing plan definitely has some sales in

Speaker 5

for early

Speaker 4

2025. Marketing plan currently has that ramping up in the second half of twenty twenty five. Now that's contingent on the fab plants getting built and operating. And then at that point, of course, when the ELSI sales pick up the venture, we'll start seeing revenue on our percentage share of the venture. And ultimately, we expect a $5,000,000 to $6,000,000 from the total investment.

Speaker 4

The total investment we expect to be $26,000,000 to $27,000,000 which was our capital front and the capital we're putting into the venture.

Speaker 1

So I'll add on there. The $6,500,000 that you spoke to, that was spent this quarter. That was the contribution to the Elsa joint venture itself. And as far as through the Oleum tower, we have an additional approximate $3,000,000 left on that project.

Speaker 6

Okay. Thanks. Thanks a lot.

Operator

And that concludes our Q and A session. I would like to turn the conference back over to Bob Bonduram for closing remarks.

Speaker 2

Well, thank you, Audra. Appreciate everyone on the call today. And just a final note, we were pleased to have a ribbon cutting ceremony for the DSM semi chem plant with our Dongjun Samsung partners on Monday and look forward to beginning production at the facility very soon. Thanks again.

Operator

And this concludes today's conference call. Thank you for your participation. You may now disconnect.

Remove Ads
Powered by Quartr
Earnings Conference Call
Marten Transport Q2 2024
00:00 / 00:00
Remove Ads