SunCoke Energy Partners, L.P. Announces Full-Year 2018 Results And Provides 2019 Guidance

LISLE, Ill., Feb. 5, 2019 /PRNewswire/ -- SunCoke Energy Partners, L.P. SXCP (the "Partnership") today reported fourth quarter and full-year 2018 results, which reflect continued strong throughput volumes at the Partnership's Convent Marine Terminal ("CMT") and solid performance from Middletown and Haverhill coke facilities, offset by an extended outage and machinery fire at Granite City.

"While the extended outage at Granite City, which we completed in November, impacted our fourth quarter and full-year 2018 results, we expect this will enhance the long-term reliability and operational performance of these assets," said Mike Rippey, Chairman, President and Chief Executive Officer of SunCoke Energy Partners, L.P.  "The other facilities across the SXCP portfolio continued to deliver strong results in 2018, including handling record volumes at CMT and solid operating performances from our Middletown and Haverhill coke facilities."

Rippey continued, "As we move forward into 2019, we are focused on delivering operational excellence and the Partnership expects Adjusted EBITDA attributable to SXCP to be between $215 million and $225 million."

In addition, the Partnership also announced it has entered into a definitive merger agreement with SunCoke Energy, Inc. SXC whereby SXC will acquire all outstanding common units of SXCP not already owned by SXC in a stock-for-unit exchange transaction ("Simplification Transaction").  Pursuant to the terms of the merger agreement, SXCP unaffiliated common unitholders will receive 1.40 SXC common shares for each SXCP common unit.

CONSOLIDATED RESULTS 

Total revenues decreased $10.8 million for the fourth quarter 2018 and increased $46.5 million for the full-year 2018. The full-year increase reflects the pass-through of higher coal prices in our Domestic Coke segment. The impact of higher coal prices in the fourth quarter was more than offset by the absence of deferred revenue recognized in our Logistics segment.

Comparisons between quarterly results is impacted by the recognition of deferred revenue on throughput volumes for certain Logistics take-or-pay contracts. In the fourth quarter of 2017, we recognized $16.4 million of deferred revenue related to these contracts due to volume shortfalls during the year. Throughout most of 2018, our coal export customers provided volumes in excess of the take-or-pay contract minimums; therefore, we did not recognize any deferred revenue from these contracts in the fourth quarter of 2018. Rather, revenue was recognized throughout 2018 based on volumes handled. The timing and recognition of deferred revenue affects quarterly comparisons but does not have an impact on full-year results.

Fourth quarter 2018 Adjusted EBITDA decreased $18.7 million to $52.9 million, primarily driven by the timing of revenue recognized on our Logistics coal export take-or-pay contracts discussed above.

Full-year Adjusted EBITDA decreased $12.2 million to $212.5 million, driven primarily by the incremental costs and lower revenues related to planned maintenance outages at our cokemaking facilities during the year.

Prior period net income attributable to SXCP was impacted by the 2017 final qualifying income regulations, which resulted in deferred income tax expense of $145.6 million relating to the future tax obligation expected to be owed for the projected book to tax differences at the end of the 10-year transition period. A deferred income tax benefit of $67.4 million was also recorded in connection with the tax legislation passed in the fourth quarter 2017, which resulted in the remeasurement of U.S. deferred income tax liabilities and assets at the lower enacted corporate tax rates.

Excluding the impact of these 2017 tax events, net income attributable to SXCP decreased $22.9 million for the fourth quarter 2018 and reflects higher depreciation expense, primarily due to the revisions in the estimated useful lives of certain assets in our Domestic Coke segment and the timing of deferred revenue recognition. Excluding the 2017 tax events, net income attributable to SXCP decreased $2.6 million for the full-year due to operating results discussed above and higher depreciation expense in our Domestic Coke segment mostly offset by the absence of a loss recognized in 2017 in connection with debt refinancing activities.

SEGMENT INFORMATION RESULTS

Domestic Coke
Domestic Coke segment consists of our 98 percent interest in the Haverhill, Middletown and Granite City cokemaking facilities and heat recovery operations.

• Revenues increased $4.5 million and $37.0 million, for the fourth quarter and full-year 2018, respectively, primarily as a result of the pass-through of higher coal prices.
• Adjusted EBITDA decreased $1.5 million, for the fourth quarter 2018, driven by $3.6 million of incremental costs and lower revenues from increased scope and duration of planned maintenance outages partially offset by lower operating and maintenance costs.
• Adjusted EBITDA decreased $12.8 million for the full-year 2018, primarily driven by increased scope and duration of planned maintenance outages as well as a machinery fire that occurred at Granite City, which negatively impacted results by $8.4 million and $2.6 million, respectively.

Logistics
Logistics consists of the handling and mixing services of coal and other aggregates operated by SXCP at our CMT, Lake Terminal and Kanawha River Terminals ("KRT").

• Revenues and Adjusted EBITDA decreased $15.3 million and $16.7 million for the fourth quarter 2018 and increased $9.5 million and $1.9 million for the full-year 2018, respectively. CMT achieved record volumes in 2018, including throughput volumes above the minimums on our coal export take-or-pay contracts, which resulted in higher revenues throughout 2018 and no deferred revenue recognized in the fourth quarter 2018 for take-or-pay volume shortfalls as compared to the $16.4 million that was recognized in the fourth quarter 2017. The full-year benefit from record volumes was partially offset by high-water costs of $2.0 million and higher operating costs of $2.2 million.

Corporate and Other
Corporate and other costs increased $0.5 million and $1.3 million, to $4.0 million and $16.6 million for the fourth quarter and full-year 2018, respectively, compared with the same prior year periods, primarily as a result of costs to resolve certain legal matters. The full-year increase was also impacted by higher cost allocations from SXC.

2019 OUTLOOK

Our 2019 guidance is as follows:

• Adjusted EBITDA attributable to SXCP is expected to be between $215 to $225 million
• Distributable Cash Flow expect to be between $93 to $108 million
• Capital expenditures are projected to be between $55 to $60 million, expect $6 million related to completing our Granite City gas sharing project

RELATED COMMUNICATIONS

Today, we will host an investor conference call at 12:00 p.m. Eastern Time (11:00 a.m. Central Time). Investors may participate on this call by dialing 1-833-236-5757 in the U.S. or 1-647-689-4185 if outside the U.S., confirmation code 1497078. This conference call will be webcast live and archived for replay in the Investor Relations section of www.suncoke.com.

ABOUT SUNCOKE ENERGY PARTNERS, L.P.

SunCoke Energy Partners, L.P. SXCP is a publicly traded master limited partnership that manufactures high-quality coke used in the blast furnace production of steel and provides export and domestic material handling services to coke, coal, steel, power and other bulk and liquids customers.  In our cokemaking business, we utilize an innovative heat-recovery technology that captures excess heat for steam or electrical power generation and have long-term, take-or-pay coke contracts that pass through commodity and certain operating costs.  Our logistics terminals have the collective capacity to mix and transload more than 40 million tons of material each year and are strategically located to reach Gulf Coast, East Coast, Great Lakes and international ports. SXCP's General Partner is a wholly owned subsidiary of SunCoke Energy, Inc. SXC, which has more than 50 years of cokemaking experience serving the integrated steel industry.  To learn more about SunCoke Energy Partners, L.P., visit our website at www.suncoke.com.

DEFINITIONS

• Adjusted EBITDA represents represents earnings before interest, taxes, depreciation and amortization ("EBITDA"), adjusted for loss (gain) on extinguishment of debt, transaction costs related to the Simplification Transaction and changes to our contingent consideration liability related to our acquisition of CMT. Adjusted EBITDA does not represent and should not be considered an alternative to net income or operating income under GAAP and may not be comparable to other similarly titled measures in other businesses.
• Management believes Adjusted EBITDA is an important measure of the operating performance and liquidity of the Partnership's net assets and its ability to incur and service debt, fund capital expenditures and make distributions. Adjusted EBITDA provides useful information to investors because it highlights trends in our business that may not otherwise be apparent when relying solely on GAAP measures and because it eliminates items that have less bearing on our operating performance and liquidity. EBITDA and Adjusted EBITDA are not measures calculated in accordance with GAAP, and they should not be considered an alternative to net income, operating cash flow or any other measure of financial performance presented in accordance with GAAP.
• Adjusted EBITDA attributable to SXCP equals Adjusted EBITDA less Adjusted EBITDA attributable to noncontrolling interests.
• Distributable Cash Flow equals Adjusted EBITDA plus sponsor support and Coal Logistics deferred revenue, less net cash paid for interest expense, ongoing capital expenditures, accruals for replacement capital expenditures, and cash distributions to noncontrolling interests; plus amounts received under the Omnibus Agreement and acquisition expenses deemed to be Expansion Capital under our Partnership Agreement. Distributable Cash Flow is a non-GAAP supplemental financial measure that management and external users of SXCP's financial statements, such as industry analysts, investors, lenders and rating agencies use to assess:
• SXCP's operating performance as compared to other publicly traded partnerships, without regard to historical cost basis;
• the ability of SXCP's assets to generate sufficient cash flow to make distributions to SXCP's unitholders;
• SXCP's ability to incur and service debt and fund capital expenditures; and
• the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

We believe that Distributable Cash Flow provides useful information to investors in assessing SXCP's financial condition and results of operations. Distributable Cash Flow should not be considered an alternative to net income, operating income, cash flows from operating activities, or any other measure of financial performance or liquidity presented in accordance with generally accepted accounting principles (GAAP). Distributable Cash Flow has important limitations as an analytical tool because it excludes some, but not all, items that affect net income and net cash provided by operating activities and used in investing activities. Additionally, because Distributable Cash Flow may be defined differently by other companies in the industry, our definition of Distributable Cash Flow may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.

• Distributable Cash Flow Coverage Ratio equals Distributable Cash Flow divided by estimated distributions to the limited and general partners.
• Operating Cash Flow Coverage Ratio equals net cash provided by operating activities divided by total estimated distributions to the limited and general partners. Operating cash flow is generally expected to be higher than Distributable Cash Flow as Distributable Cash Flow is further reduced by certain cash reserves including capital expenditures, an investing cash flow item. Additionally, Distributable Cash Flow represents only the Partnership's share of available cash by excluding Adjusted EBITDA attributable to noncontrolling interest, while operating cash flow is reported on a consolidated basis.
• Ongoing capital expenditures ("capex") are capital expenditures made to maintain the existing operating capacity of our assets and/or to extend their useful lives. Ongoing capex also includes new equipment that improves the efficiency, reliability or effectiveness of existing assets. Ongoing capex does not include normal repairs and maintenance, which are expensed as incurred, or significant capital expenditures. For purposes of calculating distributable cash flow, the portion of ongoing capex attributable to SXCP is used.
• Replacement capital expenditures ("capex") represents an annual accrual necessary to fund SXCP's share of the estimated costs to replace or rebuild our facilities at the end of their working lives. This accrual is estimated based on the average quarterly anticipated replacement capital that we expect to incur over the long term to replace our major capital assets at the end of their working lives. The replacement capex accrual estimate will be subject to review and prospective change by SXCP's general partner at least annually and whenever an event occurs that causes a material adjustment of replacement capex, provided such change is approved by our conflicts committee.

IMPORTANT NOTICE TO INVESTORS

This communication includes important information about an agreement for the acquisition by SXC of all publicly held common units of SXCP. SXC expects to file a registration statement on Form S-4 with the Securities and Exchange Commission ("SEC") containing a prospectus/consent statement/proxy statement of SXC and SXCP.  SXC and SXCP security holders are urged to read the prospectus/consent statement/proxy statement and other documents filed with the SEC regarding the proposed transaction carefully and in their entirety when they become available because they will contain important information. Investors will be able to obtain a free copy of the prospectus/consent statement/proxy statement, as well as other filings containing information about the proposed transaction, without charge, at the SEC's internet site (http://www.sec.gov). Copies of the prospectus/consent statement/proxy statement and the filings with the SEC that will be incorporated by reference in the prospectus/consent statement/proxy statement can also be obtained, without charge, by directing a request either to SXC, 1011 Warrenville Road, 6th Floor, Lisle, IL 60532 USA, Attention: Investor Relations or to SXCP, 1011 Warrenville Road, 6th Floor, Lisle, IL 60532 USA, Attention: Investor Relations.

The respective directors and executive officers of SXC and SXCP may be deemed to be "participants" (as defined in Schedule 14A under the Securities Exchange Act of 1934 as amended) in respect of the proposed transaction. Information about SXC's directors and executive officers is available in SXC's annual report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC on February 15, 2018. Information about SXCP's directors and executive officers is available in SXCP's annual report on Form 10-K for the fiscal year ended December 31, 2017 filed with the SEC on February 15, 2018. Other information regarding the participants in the solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the prospectus/consent statement/proxy statement and other relevant materials to be filed with the SEC when they become available.

This communication shall not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the U.S. Securities Act of 1933, as amended.

FORWARD-LOOKING STATEMENTS

Some of the statements included in this press release constitute "forward-looking statements."  Forward-looking statements include all statements that are not historical facts and may be identified by the use of such words as "believe," "expect," "plan," "project," "intend," "anticipate," "estimate," "predict," "potential," "continue," "may," "will," "should" or the negative of these terms or similar expressions. Forward-looking statements are inherently uncertain and involve significant known and unknown risks and uncertainties (many of which are beyond the control of SXCP) that could cause actual results to differ materially.

Such risks and uncertainties include, but are not limited to domestic and international economic, political, business, operational, competitive, regulatory and/or market factors affecting SXCP, as well as uncertainties related to:  pending or future litigation, legislation or regulatory actions; liability for remedial actions or assessments under existing or future environmental regulations; gains and losses related to acquisition, disposition or impairment of assets; recapitalizations; access to, and costs of, capital; the effects of changes in accounting rules applicable to SXCP; and changes in tax, environmental and other laws and regulations applicable to SXCP's businesses.

Forward-looking statements are not guarantees of future performance, but are based upon the current knowledge, beliefs and expectations of SXCP management, and upon assumptions by SXCP concerning future conditions, any or all of which ultimately may prove to be inaccurate. The reader should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release.  SXCP does not intend, and expressly disclaims any obligation, to update or alter its forward-looking statements (or associated cautionary language), whether as a result of new information, future events or otherwise after the date of this press release except as required by applicable law.

SXCP has included in its filings with the Securities and Exchange Commission cautionary language identifying important factors (but not necessarily all the important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by SXCP. For information concerning these factors, see SXCP's Securities and Exchange Commission filings such as its annual and quarterly reports and current reports on Form 8-K, copies of which are available free of charge on SXCP's website at www.suncoke.com. All forward-looking statements included in this press release are expressly qualified in their entirety by such cautionary statements. Unpredictable or unknown factors not discussed in this release also could have material adverse effects on forward-looking statements.