Southcross Energy Partners, L.P. (SXE)

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Southcross Energy Partners L.P. (SXE)

Q4 2012 Earnings Call

March 28, 2013 9:30 AM ET

Executives

Michael Anderson – SVP and CFO

David Biegler – Chairman, President and CEO

Analysts

John Tysseland – Citigroup

Michael Blum – Wells Fargo

Helen Ryoo – Barclays Capital

Selman Akyol – Stifel Nicolaus

Ethan Bellamy – Robert W. Baird Research

Matt Niblack – HITE Hedge Asset Management

Presentation

Operator

Good morning and welcome to the Southcross Energy Partners’ Fourth Quarter and Year-End 2012 Financial and Operating Results call. As a reminder, today’s call is being recorded, and your participation implies consent to such recording. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

With that, I will turn the call over to Mr. Michael Anderson, Senior Vice President and Chief Financial Officer.

Michael Anderson

Thank you and good morning everyone. We appreciate your joining us for the Southcross Energy Partners’ fourth quarter and year-end 2012 financial and operating results conference call. With me today is David Biegler, our Chairman, President and Chief Executive Officer.

And before we begin, I would like to remind all participants that our comments today may include forward-looking statements. It should be noted that a variety of factors could cause the Partnership’s actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements. For a complete discussion of these risks, we encourage you to read the Partnership’s earning release and our documents filed with the SEC.

Today’s call may also contain certain non-GAAP financial measures. You can refer to the press release we issued this morning for important disclosures regarding such measures and their reconciliations. You can obtain a copy of our press release in the investor relations tab of our website at southcrossenergy.com.

And with that, I will hand the call over to David Biegler. David?

David Biegler

Thank you, Michael. I will start by summarizing recent events that has a lot of content in our earnings release that we issued this morning. First, fourth quarter results were below expectations, primarily due to difficulties we encountered in the start of our new Bonnie View fractionation facility and several other events I’ll cover later.

While these events are now largely behind us, their impact will affect our full-year results, and as a result, we are today modifying our guidance for 2013 regarding Adjusted EBITDA, distribution growth, and expansion capital expenditures.

While this is obviously disappointing, we’ve remained committed to our unit holders and to our growth plans, as we believe we’re still in the early stages of growth at Southcross Energy. Our sponsor Charlesbank Capital Partners is the majority owner of the holding company that owns all of our general partner and approximately 58.5% of Southcross Energy Partners.

In conjunction with our announcements today, as I will discuss in more detail shortly, Charlesbank is providing additional capital support for Southcross. We remain convinced there is a significant value and growth potential for the partnership. The first question is what’s changed since our last quarter’s conference call? The predominant portion of the change has been caused by several events. It took longer than we had anticipated to reach the expected level of performance of our new Bonnie View NGL fractionator, curtailments and other actions by our third-party processor, which we believe were not contractually justified and we have taken actions to enforce, caused us to bypass gas from being processed or to process gas at reduced profit levels, and earlier and more extensive turnaround maintenance at our Gregory plant resulted an added and unanticipated operating expenses.

Collectively, these three items impacted negatively Adjusted EBITDA by an estimated $8.6 million during the fourth quarter. Because some of the effects of these events are carried over into the first quarter of 2013, Adjusted EBITDA for that quarter will also be lower. We anticipate and estimate first quarter of Adjusted EBITDA of $4 million to $6 million. With a slower than anticipated start to the year, we are revising our previous 2013 adjusted EBITDA guidance to a range of $42 million to $55 million. The change in wider range are a result of continuing uncertainty around the pace of earnings growth, from the newly constructed assets put into service over the past few months.

We believe there is more potential variability in NGL prices and processing volumes going forward. We expect our fourth quarter 2013 Adjusted EBITDA to be in the range of $14 million to $17 million. While not the pace of growth over the course of 2013 that we had planned, we believe getting to this fourth quarter run rate puts Southcross on track with our original profitability and growth targets. In essence and in summary, we believe we’ve been delayed about two quarters from our original plan.

With this change, we are also revising our guidance related to distribution growth to be that our quarterly distributions will meet or exceed our target minimum quarterly distributions of $0.40 per unit over the course of the year. Largely as a result of reduced profitability since our IPO, we plan to bolster our capital structure over the next 45 days principally with additional capital support from Charlesbank. In conjunction with this capital support, we have reached agreement with our lending group, that eliminates any foreseeable restriction on our ability to pay our first quarter distribution, specifically the amendment to our credit facility affected as of yesterday, will allow us to borrow and make our first quarter 2013 distribution, regardless of whether we are in compliance with certain financial covenants for the period ending March 31, 2013.

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