Buckeye Partners L.P. (BPL)

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Buckeye Partners, L.P. (BPL)

Q2 2013 Earnings Call

August 02, 2013 10:00 am ET


Clark C. Smith - Chief Executive Officer of Buckeye Gp, President of Buckeye Gp and Director of Buckeye Gp Llc

Todd J. Russo - Vice President of Buckeye Gp Llc, Secretary of Buckeye Gp Llc and General Counsel of Buckeye Gp Llc

Keith E. St. Clair - Chief Financial Officer of Buckeye GP LLC and Executive Vice President of Buckeye GP LLC

Robert A. Malecky - Senior Vice President of Buckeye GP LLC and President of Domestic Pipelines & Terminals Business Unit

Khalid A. Muslih - President of International Pipelines & Terminals Business Unit of Buckeye GP LLC


Steven C. Sherowski - Goldman Sachs Group Inc., Research Division

Brian J. Zarahn - Barclays Capital, Research Division

Jeremy Tonet - JP Morgan Chase & Co, Research Division

Derek Walker - BofA Merrill Lynch, Research Division

Matthew J. Phillips - Clarkson Capital Markets, Research Division

Connie Hsu - Morningstar Inc., Research Division

Selman Akyol - Stifel, Nicolaus & Co., Inc., Research Division



Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Buckeye Partners 2013 Second Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to hand the conference over to our host for today, Mr. Clark C. Smith, President and Chief Executive Officer. Sir, please go ahead.

Clark C. Smith

Thank you, Karen. Good morning, everyone, and welcome to the Buckeye Partners Second Quarter 2013 Conference Call. Also speaking on the call today will be Keith St. Clair, our Executive Vice President and Chief Financial Officer. After I make some introductory remarks and discuss some important highlights for the quarter, Keith will review our financial results in further detail. Also on the call today are Bob Malecky, President of Domestic Pipelines & Terminals; Khalid Muslih, President of International Pipelines & Terminals; Jerry Ashcroft, President of Buckeye Services; Jeff Beason, Vice President and Controller; and Todd Russo, Vice President and General Counsel.

Following our prepared remarks, we'll open the call to questions. But first, I would like for Todd to provide our forward-looking statements disclaimer.

Todd J. Russo

Thanks, Clark. Before we begin, I'd like to remind everyone that we may make statements on the call today that could be construed as forward-looking statements as defined by the SEC. Future results are subject to numerous contingencies, many of which are outside our control, and any forward-looking statements we make are qualified by the risk factors and other information set forth in our Form 10-K for the year ended December 31, 2012, and our most recent Form 10-Q, each as filed with the SEC.

In addition, during the call, we will be discussing Buckeye's adjusted EBITDA and certain other non-GAAP measures. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is included in the press release that we issued earlier this morning, which is posted on the Investors Center section of Buckeye's website, www.buckeye.com.

With that, I turn the call back over to Clark.

Clark C. Smith

All right. Thanks, Todd. With safety being the top priority of Buckeye, I'd like to begin my comments by recognizing that Buckeye experienced another good quarter in terms of safety and operating performance. Buckeye is focused on continuous improvement on all aspects of personal and pipeline safety, so as to prevent incidents and reduce risks to our employees, our contractors and the public.

Turning to our operating results. I'm pleased to report another strong quarter. Adjusted EBITDA of $148.5 million is a second quarter record for Buckeye and represents a 24% improvement over the second quarter of 2012.

Our Domestic Pipelines & Terminals showed the largest gain, improving $19.5 million or 22% from last year, and our International and Energy Services segments also delivered significant increases compared to the prior-year quarter.

Contributions from capital investments in our Terminals and International business, as well as strength in underlying business conditions, drove this performance. Energy Services also had a strong quarter contributing $4.8 million of adjusted EBITDA.

Buckeye's distribution coverage was 1.02x for the quarter and 1.16x over the past 12 months. As we announced earlier this morning, we again increased our distribution by $0.0125 over the prior sequential quarter to a total quarterly distribution of $1.0625 per limited partner unit. We stated last quarter that our board evaluates many factors such as the business environment, our historical and projected financial performance, as well as other considerations in determining distribution policy. Although the board determines distribution payments each quarter, they do take a long-term view and absent some material change in business conditions, we expect distribution increases to be maintained at current levels for the near term. As business conditions warrant, a further increase to distributions could be considered.

One additional comment I'd like to make about the quarter's results is the seasonality of our business, which we've talked about in the past. The second and third quarters, historically, have generated lower cash flows than the first and fourth quarters. For example, in the winter months, our Pipelines & Terminals segment benefit from butane blending and heating oil volumes. Additionally, as with the Pipes & Terminals, the BES fourth quarter is impacted by heating oil volumes in the earnings contribution from low-die hub services, which is also skewed toward the fourth quarter. This seasonality contributed to the decline in sequential performance we saw this quarter, and we expect the seasonality to impact the third quarter as well. Coverage will also be challenged in the third quarter as a result of the expected conversion of the Class B units to common units, which Keith will discuss in further detail.

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