Q1 2024 Martin Midstream Partners LP Earnings Call

Participants

Sharon Taylor; Chief Financial Officer and Vice President; Martin Midstream Partners LP

Robert Bondurant; President, Chief Executive Officer, Director of Martin Midstream GP LLC; Martin Midstream Partners LP

Randall Tauscher; Chief Operating Officer, Executive Vice President and Director; Martin Midstream Partners LP

Kyle May; Analyst; Sidoti & Company, LLC

Selman Akyol; Analyst; Stifel, Nicolaus & Company, Inc.

Presentation

Operator

Thank you for standing by. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the to the Martin Midstream Partners First Quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session if you'd like to ask a question during that time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw that question again, press star one.
Thank you. I will now turn the conference over to Sharon Taylor, Chief Financial Officer. Sharon, you may begin.

Sharon Taylor

Thank you. Good morning, everyone, and welcome to the Martin Midstream Partners conference call to discuss first quarter 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. 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, CO., David Cannon, Controller, and Danny KEVIN, Director of FP&A. Now I will turn it over to Bon to discuss first quarter earnings.

Robert Bondurant

I would like to begin the discussion by focusing on our overall first quarter operating performance. For the first quarter, we had adjusted EBITDA of $30.4 million compared to first quarter guidance of $31.6 million, a modest $1.2 million miss compared to forecast. For the first quarter. Our largest cash flow generator was once again our transportation segment, which had adjusted EBITDA of $13.2 million compared to guidance of $10.2 million. Within this segment, our land transportation business had adjusted EBITDA of $9 million compared to guidance of $7.1 million.
Our revenue exceeded forecast by approximately $1 million as we beat our anticipated first 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 $0.8 million 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.
Our marine transportation business had adjusted EBITDA of $4.2 million compared to guidance of $3.1 million. Marine Transportation revenue exceeded forecast by $0.8 million 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 $0.3 million.
Looking toward the second quarter we believe the performance of both of our transportation business lines will continue to remain strong and both have the potential to outperform second quarter guidance. Our second strongest cash flow generator in the fourth quarter was our Terminalling and Storage segment, which had adjusted EBITDA of $9 million compared to guidance of $9.4 million. While revenues approximated our forecast our expenses were higher by approximately $0.5 million. 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 towards the second quarter, 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 second quarter.
Now I'd like to discuss the performance of our sulfur services segment, which was our third largest cash flow generator in the first quarter. In this segment, we had adjusted EBITDA of $6.7 million compared to guidance of $9.8 million. Our fertilizer group had adjusted EBITDA of $4.2 million compared to guidance of $6.6 million. Overall, for the first quarter, we had sales volume, which exceeded our forecast of tons sold by 11%. Offsetting this were lower product margins per ton and forecasted the combination of higher volume sales offset by lower margins fully account for the $2.4 million 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 first quarter fertilizer margins.
Looking toward the second quarter, we continued 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 second quarter fertilizer forecast. The pure sulfur side of our Sulfur Services segment had adjusted EBITDA of $2.5 million compared to guidance of $3.2 million. The primary driver of the miss and 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 first quarter. Actual volumes received were significantly less than forecast as our average daily volume received was only 2,450 tons per day. This compared to the fourth quarter average daily volume received of 3,550 tonnes per day.
Looking towards the second quarter, 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 second quarter forecast for the pure sulfur side of our sulfur services segment.
Finally, I would like to discuss the first quarter performance of our Specialty Products segment. In this segment, we had adjusted EBITDA of $5.4 million compared to guidance of $6 million. 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 in the first quarter. This business actually achieved its forecasted sales volume while realizing slightly poorer margins than forecasted an additional problem for our packaged lubricant business and achieving its forecast for 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 second quarter, we currently see significant improvement in our packaged lubricant business when compared to the first quarter and believe our Specialty Products segment, we'll achieve second quarter guidance overall, looking to the second quarter for our entire company we see potential upside to second 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 and cleanup.

Sharon Taylor

I'll begin with a normal walk through the debt components and 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 million compared to $442.5 million on December 31, 2023, our revolving credit facility balance was $50 million and the notional amount of our second-lien secured notes was $400 million. Our total liquidity was $101.4 million based on our $175 million 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 million on June 30, 2024. 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 first quarter were $17.4 million, which was comprised of $6.2 million for growth capital projects, $5.3 million in refinery turnaround costs and $5.9 million of maintenance capital expenditures, included in the growth capital number was $4.8 million in improvements to our Plainview facility to produce OEM to be delivered to the DSN. semicon or LCD joint venture.
We are maintaining our 2024 adjusted EBITDA guidance of $116.1 million, even though the first quarter was a slight miss that presentation attached to our earnings press release yesterday outlined 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 segment 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 first quarter.
I'll now turn the call back to the operator for Q&A.

Question and Answer Session

Operator

Thank you. (Operator Instructions)
Kyle May from Sidoti. Please go ahead.

Kyle May

Hi. Good morning, everyone, and thanks for all the additional detail today. 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 that, the difference in 1Q results versus what you're seeing and your guidance for 2Q?

Randall Tauscher

Kyle, this is Randy. Good morning and thank you for the question. And I'll start with Marine and just start with Marine. I think you really have to go back to the end of the first quarter of 2022 and compare that to the end of the first quarter 2023, and we saw a 25% increase in rates and then you go forward another year to the end of the first quarter of 2024, you see at 20% increases in rates. So we saw basically a 50% increase in rates in the marine business over the last two years. And over the course of the first quarter, they were still escalating. We were 8% higher than the first quarter than we will at the end of the fourth quarter. 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 tows in that business. And so we have basically all of our tows locked up term except for those that are in dry dock Now I'll go into dry dock over the next month. And so we had about five month term on that. And so the rates right now, I'll tell you are between so I'll give you a wide range between $11,000 and $12,000 a day. So a very strong regional marine business, and we largely have that locked into the end of the third quarter of this coming year.
Going to MTII. what I would call the rates stable, we're certainly not seeing an increase in rates. We have fluctuations in our revenue per mile, given given some of the changes we've had in the trucking business over the last 90 days and excuse me, export, for example, down and down in Beaumont as Bob said in his comments, we we had a dearth of sulfur loads due to extended refinery turnarounds, and that's certainly impacted our performance there. But on the on the chemical and lubricant side, we saw an increase from what we had expected, and those are generally longer longer routes for us. So we saw improvement there. So I would say, as we're looking forward in that business to refineries in the Beaumont are now running. Like we we expect to see them run and like they like to run, which is a fairly high utilization so we're still having good long-haul sales to the chemicals and lubricants space. So I would expect the rates for MTO to be stable, at least into immediate immediate future. And I'm going to add one comment back on Marine.
You know, we're always looking at what was 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 higher for a longer period of time. And then what is historically been the case.

Kyle May

Okay, great. That's 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 fourth quarter of this year from $2.4 million to $3.2 million. Just kind of curious, what's driving that change if it's just timing? Or is there something else going on there?

Randall Tauscher

Yes, we made a small growth investments up in semicap, 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 disposal, 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.
Turning to now.

Kyle May

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

Randall Tauscher

We have been the second chip factory and they have committed to a second shift because 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 so that's an unknown for us and some others, no commitment to us on a second chip factory down in Taylor, but that certainly is upside for the future.

Kyle May

Okay. Great. Appreciate all the information, and I'll jump back in queue.
Selman Akyol from Stifel.

Selman Akyol

Thank you. Good morning, all of. So I guess just a few follow ups. So just kind of going back to the barge, you talk about going into dry dock Can you say how many are going into drydock or just going to be a heavier dry docking and others?

Robert Bondurant

Yes. So this is a heavy drydock year for marine, but we got a lot of that out of the way in the first quarter phenomenon in the second quarter, we have two of our inland barge tows go into drydock and in the fourth quarter, we will only have one. 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.

Selman Akyol

Got it. Understood. And then just kind of going back to Elsa on the side, Samsung, are you guys having any other conversations with any other companies given sort of the US is trying to ramp up your production?

Robert Bondurant

The answer is yes. And Samsung is the marketer for the DSM. semicap joint venture. So they are handling those discussions. But yet the answer is yes, we anticipate selling a significant amount to parties other than Samsung at Taylor through through Samsung's efforts in marketing.

Selman Akyol

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

Robert Bondurant

Yes, and I guess 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 2025, which is about a year delay from when we entered into this project several years ago.

Selman Akyol

Right. And then just when you get your volume tower up and complete, we should still expect some revenue in the fourth quarter?

Robert Bondurant

Yes, when we get the only tower up and complete and the also plant is commissioned, we will start receiving a reservation fee, and that's what the capital that we spent to construct the old Intel and the tie-ins. And that will happen no later than October of 2024.

Selman Akyol

Okay. 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 thinking out there? Are you seeing any sort of increased demand for your services?

Robert Bondurant

I would say that we would define the services in both the marine and the trucking is stable. We're not 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 you don't get the truck driver, get all the equipment we need to do it and then be able to sell the services.

Selman Akyol

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

Robert Bondurant

We had a heavy turnaround year inflation, certainly part of that equation, Selman, but we'll have we have a heavy year. We budgeted at the beginning of the year, $32 million. We're still there the first quarter we had a significant part of that because we had our refinery turnarounds in the first quarter that was in excess of $5 million and every other year events of the second quarter. So you're not surprised will also be large, I would say by the end of the second quarter of our $32 million with an estimated $24.5 million to $26.5 million because of the refinery because of the play, the turnaround that we move forward this year, it's earlier than typical. And so we can tie into tiers and semi-cap and provide good operations for them going forward.
And then because of the maintenance program, we've had on the marine vessels, which were very heavy this year. We had both offshore units already in the shipyard this year. And then we had about 40% of our inland barges and the vessels had to go this year. And that's all just regulatory driven and timing driven.

Selman Akyol

Understood. Thank you so much.

Operator

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

Robert Bondurant

Thank you, operator. Our call Hillman 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 first quarter call.

Operator

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