MARTIN MIDSTREAM PARTNERS L.P. Q4 FY2022 earnings call

Management Statement and Operational Highlights

• Exit of Butane Optimization Business: Experienced an EBITDA loss of $10.7 million in fourth quarter 2022 due to butane inventory not hedged and pricing not improving. Decided to exit the business, will sell remaining inventory with majority sold in Q1 and remaining in April-May. Proceeds to be used to pay down revolving line of credit, expected to approximate $45 million to $50 million. Will operate as fee-based butane logistics business using North Louisiana underground storage assets, eliminating commodity risk, reducing cash flow and earnings volatility, and lowering working capital requirements.
• Fourth Quarter Operating Performance: Adjusted EBITDA for fourth quarter was $17.8 million compared to $39.7 million a year ago, difference due to butane optimization business. Excluding butane optimization, fourth quarter adjusted EBITDA was $28.5 million compared to $28.7 million a year ago. For the year, adjusted EBITDA was $114.9 million compared to $114.5 million a year ago. Excluding butane optimization, adjusted EBITDA was $122.1 million compared to $92.2 million a year ago, an increase of approximately $30 million.
• Debt Refinance: In February 2023, completed a senior secured second lien note offering of $400 million and amendment to revolving credit facility. Revolving credit facility commitment to be reduced over time, with covenants including maximum total leverage, first lien leverage, and interest rate coverage. The revolver matures in February 2027.

Segment Performance

• Transportation Segment: For the fourth quarter, adjusted EBITDA was $14.7 million compared to $8.8 million a year ago. Land transportation had adjusted EBITDA of $11.3 million compared to $7.6 million a year ago, with a 28% increase in load count and improved revenue per mile. Marine Transportation had adjusted EBITDA of $3.4 million compared to $1.2 million a year ago, with a 30% increase in average M&A rate and 10% improvement in utilization. For the year, Transportation segment had adjusted EBITDA of $54.9 million compared to $24.1 million a year ago. Land transportation had adjusted EBITDA of $45.5 million compared to $23.9 million a year ago, with a 25% increase in load count. Marine Transportation had adjusted EBITDA of $9.4 million in 2022 compared to $0.2 million in 2021, with a 20% increase in both inland barge utilization and day rates.
• Terminalling and Storage Segment: Fourth quarter adjusted EBITDA was $10.5 million compared to $11 million a year ago. Shore-based terminals had an increase in cash flow of $0.5 million compared to a year ago due to amended throughput contract. Specialty Terminals and packaged lubricants and grease business had decreases. For the year, adjusted EBITDA was $47.3 million compared to $43.5 million a year ago. Packaged lubricant and grease business improved to $21.4 million in 2022. Shore-based business saw increased cash flow of $0.5 million. Specialty Terminals had a decrease of $1.2 million.
• Sulfur Services Segment: Fourth quarter adjusted EBITDA was $5.7 million compared to $11.4 million a year ago. Fertilizer business had adjusted EBITDA of $2.7 million compared to $7.8 million a year ago, down 35% in volumes sold. Pure sulfur side had adjusted EBITDA of $3.1 million compared to $3.5 million a year ago, due to sale of Stockton prilling sulfur processing facility. For the year, adjusted EBITDA was $30.7 million compared to $34.3 million a year ago. Fertilizer business had adjusted EBITDA of $21.6 million compared to $24 million a year ago. Pure sulfur side had adjusted EBITDA of $9.1 million compared to $10.2 million a year ago. Going forward, pure sulfur side expected to approximate $12 million in annual adjusted EBITDA under normal refinery conditions.
• NGL Segment: Fourth quarter adjusted EBITDA was negative $9.1 million compared to $12.8 million a year ago, with a negative swing of $21.9 million. Excluding butane optimization business, fourth quarter adjusted EBITDA was $1.7 million compared to $1.8 million a year ago. Full year adjusted EBITDA was negative $1.3 million compared to $28.4 million in 2021, with a negative swing of $29.7 million. Excluding butane optimization business, full year adjusted EBITDA was $5.9 million compared to $6.1 million in 2021.

Guidance

• Full year 2023 adjusted EBITDA expected to be approximately $115 million after exit of butane optimization business, which is forecasted to have negative adjusted EBITDA of $9.9 million.
• 2023 segment expectations: Transportation Services to generate adjusted EBITDA of $46 million; Terminalling and Storage forecasted EBITDA of $33.3 million; Sulfur Services segment's adjusted EBITDA projected to be $30.2 million; Specialty Products segment forecasted to have $23.1 million in EBITDA after exit of butane optimization business.
• Capital expenditures: Forecasted growth capital expenditures of approximately $17.5 million, maintenance capital expenditures of approximately $26.6 million.
• Distributable cash flow expected to be $23.5 million and free cash flow of $6 million for full year 2023. Cash from liquidation of butane optimization inventory expected to be used to repay debt, approximately $45 million to $50 million.

Risks

• Commodity Risk: Previously associated with butane optimization business, but now eliminated with exit, but other commodity price fluctuations could impact segments like sulfur.
• Customer Purchasing Timing: Uncertainty in customers' fertilizer purchasing timing, as seen in delayed purchases in 2022 and early 2023, affecting sulfur services segment.
• Market Price Volatility: Fluctuations in ammonia and sulfur prices could impact fertilizer business and overall financial performance.

Q: Selman Akyol asked about the revolver status, how much is borrowed and expected reduction from butane proceeds.

A: Sharon Taylor said the revolver today has approximately $121 million borrowed, expected to be reduced by between $35 million and $40 million from butane sales proceeds.

Q: Selman Akyol asked about JV timing, investment, and caverns re-leasing.

A: Randy Tauscher said JV timing is still first quarter 2024, investment amount is still $12.5 million with $7.5 million remaining, and caverns re-leasing is in process with meetings to happen in February and March.

Q: Patrick Fitzgerald asked about revolver balance, butane business transition, Transportation segment visibility.

A: Bob Bondurant said total debt would be $400 million plus $80 million from revolver unwind, butane business is transitioning to fee-based logistics, and Transportation segment's land business is expected to have contraction from 2022 due to customer feedback on chemical producers' potential pullback.

Q: Patrick Fitzgerald asked about hardest business to forecast after butane exit.

A: Randy Tauscher said fertilizer business is the largest margin-based business and anticipated to have the most volatility going forward.