Market Overview

Genesis Energy, L.P. Reports Third Quarter 2017 Results

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Genesis Energy, L.P. (NYSE:GEL) today announced its third quarter
results.

Certain highlights of our results for the quarter ended September 30,
2017 included the following items:

We completed the $1.325 billion accretive acquisition of the world's
largest producer of natural soda ash. We funded that acquisition and the
related transaction costs with proceeds from a $750 million private
placement of convertible preferred units, a $550 million public offering
of notes, our revolving credit facility, and cash on hand.

We announced a strategic reallocation of capital, allocating more
capital to debt repayments and growth opportunities (and less to current
distributions). As part of this, we declared a quarterly distribution of
$0.50 per common unit for the quarter ended September 30, 2017, to be
paid on November 14, 2017 to unitholders of record at the close of
business on October 31, 2017. From this re-setting of our current
quarterly distribution to common unitholders, we have enhanced our
balance sheet and financial flexibility, facilitating our plan to:

  • Increase our quarterly distribution by at least $0.01 per quarter for
    each of the next twenty quarters
  • Increase our distribution coverage ratio
  • Reduce our leverage ratio
  • Opportunistically pursue accretive organic projects and acquisitions

We confirmed prior guidance and provided additional guidance metrics,
including:

  • Projecting record net income, cash flow from operations, Adjusted
    EBITDA and Available Cash before Reserves in future periods
  • Targeting distribution coverage of the new distribution profile of
    1.40 to 1.60 times on a cash basis, as historically calculated and
    presented
  • Targeting leverage ratios approaching 4.75, 4.25 and 3.75 times for
    year ends 2018, 2019 and 2020, respectively, as historically
    calculated and presented

We generated the following financial results for the third quarter of
2017:

  • Net Income Attributable to Genesis Energy, L.P. of $6.3 million
    generating $0.01 of net income per common unit. Net income was
    negatively affected by approximately $25.2 million, or $0.21 per unit,
    due to transaction and financing expenses, as well as an increase in
    interest expense, primarily driven by our acquisition of the Alkali
    Business during the quarter.
  • Cash Flows from Operating Activities of $33.8 million. This result was
    negatively affected by certain non-recurring costs described above as
    well as an increase in net working capital that is not necessarily
    meaningful to the underlying performance of the partnership's
    businesses.
  • Available Cash before Reserves of $91.8 million. Available Cash before
    Reserves provided 1.50 coverage for the quarterly distribution of
    $0.50 per common unit attributable to the third quarter. We will pay
    distributions on our convertible preferred units in the form of
    162,234 additional convertible preferred units.
  • Adjusted EBITDA of $140.1 million. Our Adjusted Debt to Pro Forma
    EBITDA ratio is 5.28 as of September 30, 2017. These amounts are
    calculated and further discussed later in this press release.

Grant Sims, CEO of Genesis Energy, said, "We recently made the strategic
decision to re-set our quarterly distribution and provided guidance for
visible, achievable long term distribution growth and a clear path
forward to deleveraging. These steps, along with the future stable and
repeatable cash flows from our recently completed acquisition as well as
the anticipated ramp from our recent strategic investments, we believe
further enhance our financial flexibility to opportunistically pursue
accretive organic projects and acquisitions should they present
themselves. In this context, however, we would reiterate, we currently
have no plans to access the equity capital markets in the immediate
future, including under our 'at the market' equity program, which in
fact has never been used. Overall, we believe these actions to
strengthen our balance sheet and enhance our financial flexibility are
the best actions we can take to allow us to generate strong total
returns for our unitholders in the years ahead.

Our quarterly results were negatively impacted by a number of events
such as Hurricane Harvey (a 1,000-year hurricane), the planned
regulatory dry-docking of our M/T American Phoenix as required every
five years, some extended turnarounds at several offshore hubs, and
turnarounds at several facilities in Alberta. Notwithstanding these
negatives, our legacy businesses are performing as expected, and we are
seeing increased contributions from our recently completed organic
projects in the Baton Rouge corridor, in and around Texas City and in
Wyoming. Additionally, the quarter reflects only one month of
contribution from our recently acquired soda ash operations, which
performance is exceeding our expectations. Even under these
circumstances and closing on a $1.325 billion acquisition, our leverage
ratio declined on a sequential quarterly basis, and our reported
distribution coverage of 1.50 times was exactly in the middle of our
recently announced targeted range.

The financial results for the quarter ended September 30, 2017, in our
opinion, should not be the focus. As we recently discussed, we expect to
report record net income, cash flows from operations, Adjusted EBITDA
and Available Cash before Reserves in future periods. Even with some of
the headwinds in certain of our legacy businesses about which we have
been very forthright and explicit, we have built a company currently
capable of generating EBITDA approaching $700 million annually, with
visible growth in front of it and positively leveraged to cyclical
recovery in certain of its businesses.

Earlier this year, we announced and discussed our intent to market
certain non-strategic assets with targeted proceeds of $50-$75 million.
While not yet fully recognized in our reported results, we have to date
consummated sales for total cash proceeds of approximately $76 million,
representing in the aggregate a GAAP gain of approximately $40 million
and at an implied multiple to us of in excess of 30 times, none of which
directly flows through our non-GAAP measures of EBITDA or Available
Cash. We continue to evaluate other non-strategic assets in our
portfolio, although there can be no assurances of additional
transactions.

Finally, I want to recognize our professional and dedicated employees
and warmly welcome the some 900 plus that have recently joined Genesis
as a result of our recent acquisition. We will continue to work together
to drive value for all of our stakeholders while never losing sight of
our commitment to safe, reliable and responsible operations."

Preferred Unit Distributions

With respect to our Class A Convertible Preferred Units, we have
declared a payment-in-kind ("PIK") of the quarterly distribution, which
will result in the issuance of an additional 162,234 Class A Convertible
Preferred Units. This PIK amount, as pro-rated based on the period these
units were outstanding, equates to a distribution of $0.2458 per Class A
Convertible Preferred Unit for the 2017 Quarter, or $2.9496 annualized.
These distributions will be payable on November 14, 2017 to unitholders
holders of record at the close of business on November 3, 2017.

Financial Results

Segment Margin

On September 1, 2017, we acquired Tronox Limited's ("Tronox's") trona
and trona-based exploring, mining, processing, producing, marketing and
selling business (the "Alkali Business") for approximately $1.325
billion. We funded that acquisition and the related transaction costs
with proceeds from a $750 million private placement of convertible
preferred units, a $550 million public offering of notes, our revolving
credit facility, and cash on hand. At the closing, we entered into a
transition service agreement to facilitate a smooth transition of
operations and uninterrupted services for both employees and customers.

Beginning in the fourth quarter of 2016, we started reporting our
results on a comparative basis in four business segments. Due to the
increasingly integrated nature of our onshore operations, the results of
our onshore pipeline transportation segment, formerly reported under its
own segment, is now reported in our onshore facilities and
transportation segment. The onshore facilities and transportation
segment also now includes what was formerly reported in our supply and
logistics segment. This segment was renamed in the second quarter of
2017 to more accurately describe the nature of its operations. We will
report the results of the Alkali Business in our renamed sodium and
sulfur services segment, which will include the Alkali Business as well
as our historical refinery services operations.

Variances between the third quarter of 2017 (the "2017 Quarter") and the
third quarter of 2016 (the "2016 Quarter") in these components are
explained below.

Segment results for the 2017 Quarter and 2016 Quarter were as follows:

 
    Three Months Ended
September 30,
2017   2016

(in thousands)

Offshore pipeline transportation $ 78,228 $ 86,557
Sodium minerals and sulfur services 30,031 20,526
Onshore facilities and transportation 25,606 17,560
Marine transportation 12,649   16,697  
Total Segment Margin $ 146,514   $ 141,340  
 

Offshore pipeline transportation Segment Margin for the 2017 Quarter
decreased $8.3 million, or 9.6%, from the 2016 Quarter. The 2017 Quarter
was negatively impacted by both anticipated and unanticipated downtime
at several major fields, including weather related downtime, affecting
certain of our deepwater Gulf of Mexico customers and thus certain of
our key crude oil and natural gas assets, including our Poseidon
pipeline and certain associated laterals which we own. While such
downtime was temporary, we expect additional downtime relating to
weather and maintenance involving certain customers' fields during the
fourth quarter of 2017. The quarter also reflects the effects of a
contractual step down to a lower transportation rate for a certain
lateral which we own that will be in place going forward. In addition,
the 2016 Quarter benefited from the temporary diversion of certain
natural gas volumes from third party gas pipelines to one of our gas
pipelines and related facilities due to disruptions at onshore
processing facilities where such volumes typically flow.

Sodium minerals and sulfur services Segment Margin for the 2017 Quarter
increased $9.5 million, or 46.3%. This increase is principally due to
the inclusion of one month's contribution from the Alkali Business. This
was partially offset by the results of our refinery services business
and related NaHS and caustic soda activities. The 2017 Quarter results
for these activities were in line with our expectations and include the
effects of previously disclosed commercial discussions with certain of
our host refineries and several NaHS customers, which resulted in
extending the term and tenor of a large number of contractual
relationships.

Onshore facilities and transportation Segment Margin increased by $8.0
million, or 45.8%, between the two quarters. In the 2017 Quarter, this
increase is primarily attributable to the ramp up in volumes on our
pipeline, terminal and rail infrastructure on our infrastructure in the
Baton Rouge corridor. In addition, relative to the 2016 Quarter, we
experienced an increase in volumes on our Texas pipeline system as the
repurposing of our Houston area crude oil pipeline and expansion of our
terminal infrastructure became operational in the second quarter of 2017.

Marine transportation Segment Margin for the 2017 Quarter decreased $4.0
million, or 24.2%, from the 2016 Quarter. The decrease in Segment Margin
is primarily due to lower day rates on our inland and offshore fleets
(which offset higher utilization as adjusted for planned dry docking
time). The M/T American Phoenix was also undergoing regulatory dry
docking inspections for approximately one month during the 2017 Quarter,
which negatively impacted Segment Margin. In our inland fleet, weaker
demand continued to apply pressure on our rates, which we expect to
continue into the fourth quarter. In our offshore barge fleet, as a
number of our units have come off longer term contracts, we have
continued to choose to primarily place them in spot service or
short-term (less than a year) service, as we continue to believe the day
rates currently being offered by the market are at, or approaching,
cyclical lows.

Other Components of Net Income

In the 2017 Quarter, we recorded Net Income Attributable to Genesis
Energy, L.P. of $6.3 million compared to $32.1 million in the 2016
Quarter. Impacting net income are increases in transaction related third
party financing, accounting and legal costs primarily attributable to
our acquisition of the Alkali Business, as well as an increase in
interest expense. These items had a combined effect of $25.2 million.
For the 2017 Quarter, our operating results include one month of
activity related to the Alkali Business for the month of September.

Earnings Conference Call

We will broadcast our Earnings Conference Call on Friday, November 3,
2017, at 8:00 a.m. Central time (9:00 a.m. Eastern time). This call can
be accessed at www.genesisenergy.com.
Choose the Investor Relations button. For those unable to attend the
live broadcast, a replay will be available beginning approximately one
hour after the event and remain available on our website for 30 days.
There is no charge to access the event.

Genesis Energy, L.P. is a diversified midstream energy master limited
partnership headquartered in Houston, Texas. Genesis' operations include
offshore pipeline transportation, sodium minerals and sulfur services,
marine transportation and onshore facilities and transportation.
Genesis' operations are primarily located in Texas, Louisiana, Arkansas,
Mississippi, Alabama, Florida, Wyoming and the Gulf of Mexico.

 

GENESIS ENERGY, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

(in thousands, except per unit amounts)

 
  Three Months Ended   Nine Months Ended
September 30, September 30,
2017   2016 2017   2016

REVENUES

$ 486,114 $ 460,050 $ 1,308,328 $ 1,284,440
 
COSTS AND EXPENSES:
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