MMLP

Martin Midstream Partners L.P. (MMLP)

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Martin Midstream Partners LP (MMLP)

Q3 2012 Earnings Call

November 06, 2012 9:00 am ET

Executives

Robert D. Bondurant - Chief Financial Officer of Martin Midstream GP LLC, Executive Vice President of Martin Midstream GP LLC, Chief Financial Officer of Martin Resource Management and Director of Martin Resource Management

Joe McCreery - Head of Investor Relations and Vice President of Finance

Wes Martin

Analysts

James Spicer - Wells Fargo & Company

Ethan H. Bellamy - Robert W. Baird & Co. Incorporated, Research Division

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

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Martin Midstream Partners LP Third Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to your host for today, Mr. Bob Bondurant. Sir, you may begin.

Robert D. Bondurant

Thank you, Ben. Let everyone know who's on the call today, we have Ruben Martin, President and Chief Executive Officer; Joe McCreery, Vice President of Finance and Head of our Investor Relations; and Wes Martin, Vice President of Business Development.

Before we get started with the financial and operational results for the third quarter, I need to make this disclaimer.

Certain statements made during this conference call may be forward-looking statements relating to financial forecasts, future performance and our ability to make distributions to unitholders. We

report our financial results in accordance with Generally Accepted Accounting Principles and use certain non-GAAP financial measures within the meanings of SEC Regulation G, such as distributable cash flow and earnings before interest, taxes, and depreciation. We use these measures because we believe it provides users of our financial information with meaningful comparisons between current results and prior-reported results, and it can be a meaningful measure of the partnership's cash available to pay distributions. Distributable cash flow should not be considered an alternative to cash flow from operating activities. Furthermore, distributable cash flow is not a measure of financial performance or liquidity under GAAP and should not be considered, in isolation, as an indicator of our performance.

We also included in our press release issued yesterday a reconciliation of distributable cash flow to the most comparable GAAP financial measure.

Our earnings press release and third quarter 10-Q is available at our website, www.martinmidstream.com.

Now I'd like to discuss our third quarter performance.

For the third quarter, as a result of the sale of our Prism assets to CenterPoint Energy, we are continuing to report our financial performance segregated between continuing operations and discontinued operations. Our continuing operations are what remain after the sale of the Prism assets, and our discontinued operations information reflects the performance of the Prism assets, as well as the gain on the sale of those assets. The comments I make today will focus primarily on our continuing operations.

For the third quarter of 2012, we had net income from continuing operations of $8.8 million, compared to $5.2 million for the second quarter. For the 9 months of 2012, we had net income from continuing operations of $22.8 million, compared to $13.8 million for the prior year's first 9 months. As with other MLPs, we believe the most important measure of performance is distributable cash flow. Our distributable cash flow from continuing operations, or DCF, for the third quarter was $18.7 million, a distribution coverage of 0.96x, including the impact of the incentive distribution right payment. DCF coverage without the IDR payment, which is what will actually happen on the distribution date of November 14, was 1.03x.

It should not be considered unusual that our third quarter continuing operations' DCF coverage was low, for 2 reasons: First, we do not lower our LP distribution per unit even though we sold Prism Gas; and second, the third quarter is usually our weakest quarter due to seasonality in the wholesale NGL business, as well as the fertilizer business.

Now I'd like to discuss our third quarter cash flow from continuing operations compared to the second quarter.

In the Terminalling segment, our cash flow, which is defined as operating income plus depreciation and amortization, but excluding any gain or loss on sale of assets, was $11.7 million in the third quarter compared to $9.6 million in the second quarter. Our specialty terminals, which include our Cross Oil lubricant processing operations and our new crude tanks at Corpus Christi, had cash flow of $8 million in the third quarter compared to $5.9 million in the second quarter. The Corpus Christi terminal accounted for the majority of the increase, as its cash flow increased $1.6 million over the second quarter.

Since the end of the quarter, we have put into service our fifth and sixth 100,000-barrel tanks, so the cash flow from the Corpus crude tank should increase again in the fourth quarter. The other portion of our Terminalling segment, marine shore bases, had cash flow of $3.7 million in both quarters. We remain long-term bullish in the shore base business as we continue to believe there will be an increase in the Gulf of Mexico rig count year-over-year. As a result, our diesel throughput volume should increase, driving an improvement in operating cash flow.

Moving on to our Sulfur Services segment. Our cash flow was $7.9 million in the third quarter compared to $14.1 million in the second quarter. Our cash flow on the fertilizer side of business was $4 million in the third quarter compared to $9.9 million in the second quarter. During the third quarter, we experienced what we normally experience each year in the fertilizer business: slower demand. Fertilizer volume decreased 30% in the third quarter compared to the second quarter as a result of this weaker seasonal demand. Also during the third quarter, we performed a turnaround on our sulfuric acid plant. This temporarily increases expenses and decreases utilization. The turnaround normally happens in the third quarter, as this is our slowest fertilizer demand quarter. Looking toward the fourth quarter, we should see an increase in fertilizer sales volumes as there should be an increase in fertilizer demand as a result of the winter planting season.

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