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Genesis Energy, L.P. Reports First Quarter 2019 Results

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

We generated the following financial results for the first quarter of
2019:

  • Net Income Attributable to Genesis Energy, L.P. of $16.0 million for
    the first quarter of 2019 compared to Net Income Attributable to
    Genesis Energy, L.P. of $8.0 million for the same period in 2018.
  • Cash Flows from Operating Activities of $114.0 million for the first
    quarter of 2019 compared to $86.3 million for the same period in 2018,
    an increase of $27.7 million.
  • Total Segment Margin in the first quarter of 2019 of $173.6 million.
  • Available Cash before Reserves of $95.9 million for the first quarter
    of 2019, which provided 1.42X coverage for the quarterly distribution
    of $0.55 per common unit attributable to the first quarter.
  • We declared distributions on our preferred units in the form of
    364,180 additional convertible preferred units attributable to the
    first two months of the quarter and a cash distribution of $0.2458 for
    each preferred unit attributable to the last month of the quarter,
    which equates to a cash distribution of approximately $6.1 million and
    is reflected as a reduction to Available Cash before Reserves to
    common unitholders.
  • Adjusted EBITDA of $164.0 million for the first quarter of 2019. Our
    bank leverage ratio, calculated consistent with our credit agreement,
    is 5.08X as of March 31, 2019 and is discussed further in this release.

Grant Sims, CEO of Genesis Energy, said, "We are pleased to announce
Total Segment Margin of $173.6 million in the quarter which was
negatively impacted by several non-recurring events that have or are
expected to be resolved in the near future. Despite these challenges, we
remain on track with our previously announced guidance for 2019.

During the quarter, our soda ash operations experienced lower production
volumes due to unscheduled downtime caused by an electrical transformer
failure at one of our production facilities which reduced quarterly
segment margin by approximately $5.0 million. The transformer has since
been replaced and we are back to running at full capacity. We expect to
offset this first quarter negative with higher volumes and stronger
pricing in both the domestic and export markets and remain on track for
our full year guidance for 2019. The international market supply/demand
balance continues to remain tight, and we believe prices are likely to
strengthen in the coming years.

Our onshore facilities and transportation segment experienced a negative
impact from the Alberta government's imposed production curtailments,
which was reflected in our first quarter with approximately zero volumes
moved through our Scenic Station facility in February and March. On a
sequential basis, this reduced segment margin by approximately $6.5
million assuming that volumes would have remained the same with the
fourth quarter of 2018. Physical volumes resumed in April, albeit below
the minimum take-or-pay volumes, but we now expect volumes in May and
June to be at or above our minimum take-or-pay volumes. Future spreads
indicate a tightening in takeaway capacity thus making rail movements
out of Alberta economical. We expect our main customer to utilize
pre-paid transportation credits from the first quarter for any over
performance in the second quarter with any continued over performance
not being reflected in our results until the second half of 2019.

Margin contribution from our marine transportation segment continues to
perform at expectations. We remain optimistic that we are at the bottom
for the quarterly segment contribution from our entire fleet of assets,
and recent strength in near term day rates and utilization rates is
reflective of an ever-so-slightly tightening market.

Our refinery services business continues to perform at expectations and
we believe it will continue to do so for the foreseeable future.

Turning to our offshore business, during the quarter we saw increased
volumes across our asset footprint and we began receiving volumes on
Poseidon and CHOPS from production delivered to us by a third party
pipeline that has insufficient capacity to directly deliver all of its
committed volumes to shore. Given the activity levels in the Gulf of
Mexico and our excess capacity and connectivity to multiple markets on
certain of our systems, we expect to continue to benefit from this trend
for the foreseeable future.

We remain on track to exit 2019 with an additional 40-50 thousand
barrels per day, or kbd, relative to the fourth quarter of 2018, from
infield development drilling and sub-sea tiebacks, including the
LLOG-operated Buckskin prospect. Our team continues to finalize
agreements adding incremental, dedicated volumes approaching 80 kbd in
2020 (including Atlantis Phase 3), 70 kbd in 2021 and 150 kbd in 2022
(including Mad Dog 2), none of which requires any capital expenditures
by us. We are in early but active discussions regarding incremental
volumes that could possibly come in the 2022-2025 time-frame. We believe
we are well positioned to capture incremental volumes as we are the only
major pipeline operator in the central Gulf that does not have
affiliated capacity production to be concerned with and has current
significant excess capacity to shore. However, unless and until the
parties enter into definitive agreements, there is no guarantee that we
will be successful in capturing some or any of these volumes.

Our businesses generated financial results that provided 1.42X coverage
to our common unitholders, inclusive of the preferred cash distribution,
and a leverage ratio that slightly decreased on a sequential basis. We
expect our coverage ratio to be slightly lower in future periods,
everything else the same, as we move completely out of the paid-in-kind
period on our preferred units. We currently expect for our quarterly
distribution rate to remain at $0.55 per common unit for the foreseeable
future.

Our outlook for the remainder of 2019 remains unchanged from our
previously stated guidance. We continue to enjoy a strong distribution
coverage ratio and will use any excess cash flow to repay amounts
outstanding under our revolving credit facility or to internally fund
potential organic growth opportunities. This coupled with our expected
growth from our existing asset footprint, which requires little or no
capital, keeps us on track to naturally de-lever our balance sheet. We
remain encouraged by our view of the operating environment for our
businesses in 2019, especially in the Gulf of Mexico with a number of
exciting tie-backs being completed in the second half of the year. As
always, we intend to be prudent and diligent in maintaining our
financial flexibility to allow the partnership to opportunistically
build long term value for all stakeholders without ever losing our
commitment to safe, reliable and responsible operations."

Financial Results

Segment Margin

Variances between the first quarter of 2019 (the "2019 Quarter") and the
first quarter of 2018 (the "2018 Quarter") in these components are
explained below.

Segment margin results for the 2019 Quarter and 2018 Quarter were as
follows:

 

Three Months Ended
March 31,

2019   2018
(in thousands)
Offshore pipeline transportation $ 76,390 $ 73,173
Sodium minerals and sulfur services 58,639 64,391
Onshore facilities and transportation 25,603 21,689
Marine transportation 12,932   10,987
Total Segment Margin $ 173,564   $ 170,240
 

Offshore pipeline transportation Segment Margin for the 2019 Quarter
increased $3.2 million, or 4%, from the 2018 Quarter, primarily due to
higher volumes on our crude oil pipeline systems. These increased
volumes more than offset the approximately $3.9 million in pipeline
capacity reservation fees, related to our interest in Poseidon Oil
Pipeline, LLC ("Poseidon"), that we received during the 2018 Quarter.
These minimum bill payments ended during June 2018. During the 2019
Quarter, we began receiving volumes on our CHOPS and Poseidon pipeline
systems, due to deliveries from a third party pipeline that has
insufficient capacity to directly deliver all of its committed volume to
shore. Additionally, we are still anticipating several new dedicated
tie-backs scheduled to come on-line in the second half of the year
representing up to an additional 40-50 thousand barrels per day, or kbd,
of throughput exiting 2019.

Sodium minerals and sulfur services Segment Margin for the 2019 Quarter
decreased $5.8 million, or 9%, from the 2018 Quarter. This decrease is
primarily due to lower soda ash volumes during the 2019 Quarter, which
was due to the timing of certain maintenance activities and temporary
electrical equipment failures at our plant sites that drove lower
production volumes. Overall, the contributions from our soda ash
business (our "Alkali Business") have continued to exceed our
expectations and we expect continued strong performance throughout the
remainder of 2019. Costs impacting the results of our Alkali Business,
many of which are similar in nature to costs related to our sulfur
removal business, include costs associated with processing and producing
soda ash (and other alkali products) and marketing and selling
activities. In addition, costs include activities associated with mining
and extracting trona ore (including energy costs and employee
compensation). Additionally, our refinery services business continues to
perform as expected. NaHS volumes slightly decreased during the 2019
Quarter due to lower deliveries to certain of our international mining
customers, primarily located in South America, and our domestic pulp and
paper customers.

Onshore facilities and transportation Segment Margin for the 2019
Quarter increased by $3.9 million, or 18%, from the 2018 Quarter. The
2019 Quarter was positively impacted by overall increased rail unload
volumes at our Raceland facility relative to the 2018 Quarter. The total
volumes at our Baton Rouge facilities, including rail, terminal and
pipeline volumes, slightly declined overall due to the previously
mentioned production curtailments in Alberta. However, we were able to
recognize our minimum take or pay obligation in segment margin during
the 2019 Quarter. This was offset partially by the margin recognized
during the 2018 Quarter associated with our previously owned Powder
River midstream assets that were divested in the fourth quarter of 2018.

Marine transportation Segment Margin for the 2019 Quarter increased $1.9
million, or 18%, from the 2018 Quarter. The increase in Segment Margin
is primarily attributable to higher overall utilization and improved day
rates in both our spot and shorter term contracts. While we have seen a
slight uptick in day rates, we have continued to enter into short term
contracts (less than a year) in both the inland and offshore markets
because we believe the day rates currently being offered by the market
are still near cyclical lows. These increases were partially offset by
an increase in operating costs during the 2019 Quarter due to an
increase in our dry-docking costs.

Other Components of Net Income

In the 2019 Quarter, we recorded Net Income Attributable to Genesis
Energy, L.P. of $16.0 million compared to Net Income Attributable to
Genesis Energy, L.P. of $8.0 million in the 2018 Quarter. Net Income
Attributable to Genesis Energy, L.P. in the 2019 Quarter benefited from
an increase in segment margin of $3.3 million and an increase in equity
in earnings of equity investees of $2.4 million, which was offset by
higher depreciation, depletion, and amortization expense of $2.4
million. Additionally, the 2018 Quarter was negatively impacted by a
loss on debt extinguishment associated with the redemption of our 2021
senior unsecured notes of $3.3 million.

Earnings Conference Call

We will broadcast our Earnings Conference Call on Thursday, May 2, 2019,
at 8:30 a.m. Central time (9:30 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
March 31,
2019   2018
REVENUES $ 620,009 $ 725,808
 
COSTS AND EXPENSES:
Costs of sales and operating expenses 468,656 579,798
General and administrative expenses 11,686 11,674
Depreciation, depletion and amortization 77,638   75,255  
OPERATING INCOME 62,029 59,081
Equity in earnings of equity investees 12,997 10,572
Interest expense (55,701 ) (56,136 )
Other expense (2,976 ) (5,244 )
INCOME BEFORE INCOME TAXES 16,349 8,273
Income tax expense (402 ) (375 )
NET INCOME 15,947 7,898
Net loss attributable to noncontrolling interests 7   136  
NET INCOME ATTRIBUTABLE TO GENESIS ENERGY, L.P. $ 15,954   $ 8,034  
Less: Accumulated distributions attributable to Class A Convertible
Preferred Units
(18,415 ) (16,888 )
NET LOSS AVAILABLE TO COMMON UNITHOLDERS $ (2,461 ) $ (8,854 )
NET LOSS PER COMMON UNIT:    
Basic and Diluted $ (0.02 ) $ (0.07 )
WEIGHTED AVERAGE OUTSTANDING COMMON UNITS:
Basic and Diluted 122,579 122,579
 
 
GENESIS ENERGY, L.P.
OPERATING DATA - UNAUDITED
 
Three Months Ended
March 31,
2019   2018
Offshore Pipeline Transportation Segment
Crude oil pipelines (barrels/day unless otherwise noted):
CHOPS 241,754 199,721
Poseidon (1) 253,469 238,693
Odyssey (1) 151,877 109,365
GOPL 8,337   9,756  
Offshore crude oil pipelines total 655,437   557,535  
 
Natural gas transportation volumes (MMbtus/d) (1) 419,999 464,757
 
Sodium Minerals and Sulfur Services Segment
NaHS (dry short tons sold) 35,743 37,214
Soda Ash volumes (short tons sold) 870,529 917,000
NaOH (caustic soda) volumes (dry short tons sold) (2) 20,802 30,260
 
Onshore Facilities and Transportation Segment
Crude oil pipelines (barrels/day):
Texas 42,981 29,526
Jay 11,483 16,911
Mississippi 5,916 7,613
Louisiana (3) 95,824 115,188
Wyoming   31,189  
Onshore crude oil pipelines total 156,204   200,427  
 
Free State- CO2 Pipeline (Mcf/day) 105,991 96,709
 
Crude oil and petroleum products sales (barrels/day) 33,752 52,376
 
Rail load/unload volumes (barrels/day) (4) 85,090 52,681
 
Marine Transportation Segment
Inland Fleet Utilization Percentage (5) 96.6 % 92.2 %
Offshore Fleet Utilization Percentage (5) 96.3 % 94.7 %
 

(1)

 

Volumes for our equity method investees are presented on a 100%
basis. We own 64% of Poseidon and 29% of Odyssey, as well as
equity interests in various other entities.

(2)

Caustic soda sales volumes also include volumes sold from our
Alkali Business.

(3)

Total daily volume for the three months ended March 31, 2019
includes 52,302 barrels per day of intermediate refined products
associated with our Port of Baton Rouge Terminal pipelines. Total
daily volume for the three months ended March 31, 2018 includes
40,330 barrels per day of intermediate refined products associated
with our Port of Baton Rouge Terminal pipelines.

(4)

Indicates total barrels for which fees were charged for unloading
at all rail facilities.

(5)

Utilization rates are based on a 365 day year, as adjusted for
planned downtime and dry-docking.

 
   
GENESIS ENERGY, L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

(in thousands, except number of units)

 
March 31,
2019
December 31,
2018
ASSETS
Cash and cash equivalents $ 11,204 $ 10,300
Accounts receivable - trade, net 307,390 323,462
Inventories 80,147 73,531
Other current assets 41,329   35,986  
Total current assets 440,070 443,279
Fixed assets and mineral leaseholds, net 4,937,439 4,977,514
Investment in direct financing leases, net 114,704 116,925
Equity investees 350,258 355,085
Intangible assets, net 150,494 162,602
Goodwill 301,959 301,959
Right of use assets, net 200,788
Other assets, net 119,099   121,707  
Total assets $ 6,614,811   $ 6,479,071  
LIABILITIES AND CAPITAL
Accounts payable - trade $ 144,629 $ 127,327
Accrued liabilities 258,337   205,507  
Total current liabilities 402,966 332,834
Senior secured credit facility 942,000 970,100
Senior unsecured notes, net of debt issuance costs 2,464,247 2,462,363
Deferred tax liabilities 12,828 12,576
Other long-term liabilities 402,610   259,198  
Total liabilities 4,224,651   4,037,071  
Mezzanine capital:
Class A convertible preferred units 778,508 761,466
Partners' capital:
Common unitholders 1,621,314 1,690,799
Accumulated other comprehensive income 939 939
Noncontrolling interests (10,601 ) (11,204 )
Total partners' capital 1,611,652   1,680,534  
Total liabilities, mezzanine capital and partners' capital $ 6,614,811   $ 6,479,071  
 
Common Units Data:
Total common units outstanding 122,579,218   122,579,218  
 
 
GENESIS ENERGY, L.P.
RECONCILIATION OF NET INCOME TO SEGMENT MARGIN - UNAUDITED

(in thousands)

 
Three Months Ended
March 31,
2019   2018
Net income attributable to Genesis Energy, L.P. $ 15,954 $ 8,034
Corporate general and administrative expenses 11,100 10,460
Depreciation, depletion, amortization and accretion 79,937 78,008
Interest expense, net 55,701 56,136
Income tax expense 402 375
Equity compensation adjustments 65 (76 )
Provision for leased items no longer in use (190 ) 186
Plus (minus) Select Items, net 10,595   17,117  
Segment Margin (1) $ 173,564   $ 170,240  

(1)

 

See definition of Segment Margin later in this press release.

 
GENESIS ENERGY, L.P.

RECONCILIATIONS OF NET INCOME TO ADJUSTED EBITDA AND AVAILABLE
CASH BEFORE RESERVES- UNAUDITED

(in thousands)

 
Three Months Ended
March 31,
2019   2018
(in thousands)
Net income attributable to Genesis Energy, L.P. $ 15,954 $ 8,034
Interest expense, net 55,701 56,136
Income tax expense 402 375
Depreciation, depletion, amortization, and accretion 79,937   78,008  
EBITDA 151,994 142,553
Plus (minus) Select Items, net 12,016   19,597  
Adjusted EBITDA, net 164,010 162,150
Maintenance capital utilized(1) (6,125 ) (4,300 )
Interest expense, net (55,701 ) (56,136 )
Cash tax expense (150 ) (150 )
Cash distributions to preferred unitholders (6,138 )
Other   6  
Available Cash before Reserves(2) $ 95,896   $ 101,570  
   

(1)

 

Maintenance capital expenditures in the 2019 Quarter and 2018
Quarter were $18.0 million and $10.0 million, respectively. Our
maintenance capital expenditures are principally associated with
our alkali and marine transportation businesses.

(2)

Represents the Available Cash before Reserves to common
unitholders.

 
 
GENESIS ENERGY, L.P.

RECONCILIATION OF NET CASH FLOWS FROM OPERATING ACTIVITIES TO
ADJUSTED EBITDA - UNAUDITED

(in thousands)

 
Three Months Ended
March 31,
2019   2018
Cash Flows from Operating Activities $ 114,021 $ 86,328
Adjustments to reconcile net cash flow provided by operating
activities to Adjusted EBITDA:
Interest Expense, net 55,701 56,136
Amortization of debt issuance costs and discount (2,682 ) (4,161 )
Effects of available cash from equity method investees not included
in operating cash flows (1)
5,425 9,277
Net effect of changes in components of operating assets and
liabilities
(3,200 ) 3,782
Non-cash effect of long-term incentive compensation expense (1,702 ) (20 )
Expenses related to acquiring or constructing growth capital assets 117 1,687
Differences in timing of cash receipts for certain contractual
arrangements (1)
(2,287 ) (3,331 )
Loss on debt extinguishment 3,339
Other items, net (1,383 ) 9,113  
Adjusted EBITDA $ 164,010   $ 162,150  

 

 

(1)

 

Includes the difference in timing of cash receipts from customers
during the period and the revenue we recognize in accordance with
GAAP on our related contracts. For purposes of our Non-GAAP
measures, we add those amounts in the period of payment and deduct
them in the period in which GAAP recognizes them.

 
 
GENESIS ENERGY, L.P.

ADJUSTED DEBT-TO-ADJUSTED CONSOLIDATED EBITDA RATIO - UNAUDITED

(in thousands)

 

March 31, 2019

Senior secured credit facility $ 942,000
Senior unsecured notes 2,464,247
Less: Outstanding inventory financing sublimit borrowings (23,600 )
Less: Cash and cash equivalents (11,204 )
Adjusted Debt (1) $ 3,371,443  
 
Pro Forma LTM
March 31, 2019
Consolidated EBITDA (per our senior secured credit facility) (2) $ 674,891
Acquisitions, material projects and other Consolidated EBITDA
adjustments (3)
(10,753 )
Adjusted Consolidated EBITDA (per our senior secured credit
facility) (4)
$ 664,138  
 
Adjusted Debt-to-Adjusted Consolidated EBITDA 5.08X
 

(1)

We define Adjusted Debt as the amounts outstanding under our
senior secured credit facility and senior unsecured notes
(including any unamortized premiums or discounts) less the amount
outstanding under our inventory financing sublimit, less cash and
cash equivalents on hand at the end of the period.

 

(2)

Consolidated EBITDA for the four-quarter period ending with the
most recent quarter, as calculated under our senior secured credit
facility.

 

(3)

This amount reflects the adjustment we are permitted to make under
our senior secured credit facility for purposes of calculating
compliance with our leverage ratio. It includes a pro rata portion
of projected future annual EBITDA from material projects (i.e.
organic growth) and includes Adjusted EBITDA (using historical
amounts and other permitted amounts) since the beginning of the
calculation period attributable to each acquisition completed
during such calculation period, regardless of the date on which
such acquisition was actually completed. This adjustment may not
be indicative of future results.

 

(4)

Adjusted Consolidated EBITDA for the four-quarter period ending
with the most recent quarter, as calculated under our senior
secured credit facility.

 

This press release includes forward-looking statements as defined under
federal law. Although we believe that our expectations are based upon
reasonable assumptions, we can give no assurance that our goals will be
achieved. Actual results may vary materially. All statements, other than
statements of historical facts, included in this press release that
address activities, events or developments that we expect, believe or
anticipate will or may occur in the future, including but not limited to
statements relating to future financial and operating results and our
strategy and plans, are forward-looking statements, and historical
performance is not necessarily indicative of future performance. Those
forward-looking statements rely on a number of assumptions concerning
future events and are subject to a number of uncertainties, factors and
risks, many of which are outside our control, that could cause results
to differ materially from those expected by management. Such risks and
uncertainties include, but are not limited to, weather, political,
economic and market conditions, including a decline in the price and
market demand for products, the timing and success of business
development efforts and other uncertainties. Those and other applicable
uncertainties, factors and risks that may affect those forward-looking
statements are described more fully in our Annual Report on Form 10-K
for the year ended December 31, 2018 filed with the Securities and
Exchange Commission and other filings, including our Current Reports on
Form 8-K and Quarterly Reports on Form 10-Q. We undertake no obligation
to publicly update or revise any forward-looking statement.

NON-GAAP MEASURES

This press release and the accompanying schedules include non-generally
accepted accounting principle (non-GAAP) financial measures of Adjusted
EBITDA and total Available Cash before Reserves. In this press release,
we also present total Segment Margin as if it were a non-GAAP measure.
Our Non-GAAP measures may not be comparable to similarly titled measures
of other companies because such measures may include or exclude other
specified items. The accompanying schedules provide reconciliations of
these non-GAAP financial measures to their most directly comparable
financial measures calculated in accordance with generally accepted
accounting principles in the United States of America (GAAP). Our
non-GAAP financial measures should not be considered (i) as alternatives
to GAAP measures of liquidity or financial performance or (ii) as being
singularly important in any particular context; they should be
considered in a broad context with other quantitative and qualitative
information. Our Available Cash before Reserves, Adjusted EBITDA and
total Segment Margin measures are just three of the relevant data points
considered from time to time.

When evaluating our performance and making decisions regarding our
future direction and actions (including making discretionary payments,
such as quarterly distributions) our board of directors and management
team have access to a wide range of historical and forecasted
qualitative and quantitative information, such as our financial
statements; operational information; various non-GAAP measures; internal
forecasts; credit metrics; analyst opinions; performance, liquidity and
similar measures; income; cash flow; and expectations for us, and
certain information regarding some of our peers. Additionally, our board
of directors and management team analyze, and place different weight on,
various factors from time to time. We believe that investors benefit
from having access to the same financial measures being utilized by
management, lenders, analysts and other market participants. We attempt
to provide adequate information to allow each individual investor and
other external user to reach her/his own conclusions regarding our
actions without providing so much information as to overwhelm or confuse
such investor or other external user.

AVAILABLE CASH BEFORE RESERVES

Purposes, Uses and Definition

Available Cash before Reserves, also referred to as distributable cash
flow, is a quantitative standard used throughout the investment
community with respect to publicly traded partnerships and is commonly
used as a supplemental financial measure by management and by external
users of financial statements such as investors, commercial banks,
research analysts and rating agencies, to aid in assessing, among other
things:

(1) the financial performance of our assets;

(2) our operating performance;

(3) the viability of potential projects, including our cash and overall
return on alternative capital investments as compared to those of other
companies in the midstream energy industry;

(4) the ability of our assets to generate cash sufficient to satisfy
certain non-discretionary cash requirements, including interest payments
and certain maintenance capital requirements; and

(5) our ability to make certain discretionary payments, such as
distributions on our preferred and common units, growth capital
expenditures, certain maintenance capital expenditures and early
payments of indebtedness.

We define Available Cash before Reserves ("Available Cash before
Reserves") as Adjusted EBITDA as adjusted for certain items, the most
significant of which in the relevant reporting periods have been the sum
of maintenance capital utilized, net cash interest expense, cash tax
expense, and cash distributions paid to our Class A convertible
preferred unitholders.

Disclosure Format Relating to Maintenance Capital

We use a modified format relating to maintenance capital requirements
because our maintenance capital expenditures vary materially in nature
(discretionary vs. non-discretionary), timing and amount from time to
time. We believe that, without such modified disclosure, such changes in
our maintenance capital expenditures could be confusing and potentially
misleading to users of our financial information, particularly in the
context of the nature and purposes of our Available Cash before Reserves
measure. Our modified disclosure format provides those users with
information in the form of our maintenance capital utilized measure
(which we deduct to arrive at Available Cash before Reserves). Our
maintenance capital utilized measure constitutes a proxy for
non-discretionary maintenance capital expenditures and it takes into
consideration the relationship among maintenance capital expenditures,
operating expenses and depreciation from period to period.

Maintenance Capital Requirements

Maintenance Capital Expenditures

Maintenance capital expenditures are capitalized costs that are
necessary to maintain the service capability of our existing assets,
including the replacement of any system component or equipment which is
worn out or obsolete. Maintenance capital expenditures can be
discretionary or non-discretionary, depending on the facts and
circumstances.

Initially, substantially all of our maintenance capital expenditures
were (a) related to our pipeline assets and similar infrastructure, (b)
non-discretionary in nature and (c) immaterial in amount as compared to
our Available Cash before Reserves measure. Those historical
expenditures were non-discretionary (or mandatory) in nature because we
had very little (if any) discretion as to whether or when we incurred
them. We had to incur them in order to continue to operate the related
pipelines in a safe and reliable manner and consistently with past
practices. If we had not made those expenditures, we would not have been
able to continue to operate all or portions of those pipelines, which
would not have been economically feasible. An example of a
non-discretionary (or mandatory) maintenance capital expenditure would
be replacing a segment of an old pipeline because one can no longer
operate that pipeline safely, legally and/or economically in the absence
of such replacement.

As we exist today, a substantial amount of our maintenance capital
expenditures from time to time will be (a) related to our assets other
than pipelines, such as our marine vessels, trucks and similar assets,
(b) discretionary in nature and (c) potentially material in amount as
compared to our Available Cash before Reserves measure. Those
expenditures will be discretionary (or non-mandatory) in nature because
we will have significant discretion as to whether or when we incur them.
We will not be forced to incur them in order to continue to operate the
related assets in a safe and reliable manner. If we chose not to make
those expenditures, we would be able to continue to operate those assets
economically, although in lieu of maintenance capital expenditures, we
would incur increased operating expenses, including maintenance
expenses. An example of a discretionary (or non-mandatory) maintenance
capital expenditure would be replacing an older marine vessel with a new
marine vessel with substantially similar specifications, even though one
could continue to economically operate the older vessel in spite of its
increasing maintenance and other operating expenses.

In summary, as we continue to expand certain non-pipeline portions of
our business, we are experiencing changes in the nature (discretionary
vs. non-discretionary), timing and amount of our maintenance capital
expenditures that merit a more detailed review and analysis than was
required historically. Management's recently increasing ability to
determine if and when to incur certain maintenance capital expenditures
is relevant to the manner in which we analyze aspects of our business
relating to discretionary and non-discretionary expenditures. We believe
it would be inappropriate to derive our Available Cash before Reserves
measure by deducting discretionary maintenance capital expenditures,
which we believe are similar in nature in this context to certain other
discretionary expenditures, such as growth capital expenditures,
distributions/dividends and equity buybacks. Unfortunately, not all
maintenance capital expenditures are clearly discretionary or
non-discretionary in nature. Therefore, we developed a measure,
maintenance capital utilized, that we believe is more useful in the
determination of Available Cash before Reserves. Our maintenance capital
utilized measure, which is described in more detail below, constitutes a
proxy for non-discretionary maintenance capital expenditures and it
takes into consideration the relationship among maintenance capital
expenditures, operating expenses and depreciation from period to period.

Maintenance Capital Utilized

We believe our maintenance capital utilized measure is the most useful
quarterly maintenance capital requirements measure to use to derive our
Available Cash before Reserves measure. We define our maintenance
capital utilized measure as that portion of the amount of previously
incurred maintenance capital expenditures that we utilize during the
relevant quarter, which would be equal to the sum of the maintenance
capital expenditures we have incurred for each project/component in
prior quarters allocated ratably over the useful lives of those
projects/components.

Because we did not initially use our maintenance capital utilized
measure, our future maintenance capital utilized calculations will
reflect the utilization of solely those maintenance capital expenditures
incurred since December 31, 2013.

ADJUSTED EBITDA

Purposes, Uses and Definition

Adjusted EBITDA is commonly used as a supplemental financial measure by
management and by external users of financial statements such as
investors, commercial banks, research analysts and rating agencies, to
aid in assessing, among other things:

(1) the financial performance of our assets without regard to financing
methods, capital structures or historical cost basis;

(2) our operating performance as compared to those of other companies in
the midstream energy industry, without regard to financing and capital
structure;

(3) the viability of potential projects, including our cash and overall
return on alternative capital investments as compared to those of other
companies in the midstream energy industry;

(4) the ability of our assets to generate cash sufficient to satisfy
certain non-discretionary cash requirements, including interest payments
and certain maintenance capital requirements; and

(5) our ability to make certain discretionary payments, such as
distributions on our units, growth capital expenditures, certain
maintenance capital expenditures and early payments of indebtedness.

We define Adjusted EBITDA ("Adjusted EBITDA") as earnings before
interest, taxes, depreciation and amortization (including impairment,
write-offs, accretion and similar items, often referred to as EBITDA)
after eliminating other non-cash revenues, expenses, gains, losses and
charges (including any loss on asset dispositions), plus or minus
certain other select items that we view as not indicative of our core
operating results (collectively, "Select Items"). Although, we do not
necessarily consider all of our Select Items to be non-recurring,
infrequent or unusual, we believe that an understanding of these Select
Items is important to the evaluation of our core operating results. The
most significant Select Items in the relevant reporting periods are set
forth below.

The table below includes the Select Items discussed above as applicable
to the reconciliation of Adjusted EBITDA and Available Cash before
Reserves to net income:

   
Three Months Ended
March 31,
2019   2018
I. Applicable to all Non-GAAP Measures
Differences in timing of cash receipts for certain contractual
arrangements (1)
$ (2,287 ) $ (3,331 )
Adjustment regarding direct financing leases (2) 2,028 1,839
Certain non-cash items:
Unrealized loss on derivative transactions excluding fair value
hedges, net of changes in inventory value
3,865 2,181
Loss on debt extinguishment 3,339
Adjustment regarding equity investees (3) 4,828 9,057
Other 2,161   4,032  
Sub-total Select Items, net (4) 10,595 17,117
II. Applicable only to Adjusted EBITDA and Available Cash before Reserves
Certain transaction costs (5) 117 1,687
Equity compensation adjustments (137 ) (156 )
Other 1,441   949  
Total Select Items, net (6) $ 12,016   $ 19,597  
 

(1)

 

Includes the difference in timing of cash receipts from customers
during the period and the revenue we recognize in accordance with
GAAP on our related contracts. For purposes of our Non-GAAP
measures, we add those amounts in the period of payment and deduct
them in the period in which GAAP recognizes them.

(2)

Represents the net effect of adding cash receipts from direct
financing leases and deducting expenses relating to direct
financing leases.

(3)

Represents the net effect of adding distributions from equity
investees and deducting earnings of equity investees net to us.

(4)

Represents all Select Items applicable to Segment Margin, Adjusted
EBITDA and Available Cash before Reserves.

(5)

Represents transaction costs relating to certain merger,
acquisition, transition, and financing transactions incurred in
acquisition activities.

(6)

Represents Select Items applicable to Adjusted EBITDA and
Available Cash before Reserves.

 

SEGMENT MARGIN

Our chief operating decision maker (our Chief Executive Officer)
evaluates segment performance based on a variety of measures including
Segment Margin, segment volumes where relevant and capital investment.
We define Segment Margin as revenues less product costs, operating
expenses, and segment general and administrative expenses, after
eliminating gain or loss on sale of assets, plus or minus applicable
Select Items. Although, we do not necessarily consider all of our Select
Items to be non-recurring, infrequent or unusual, we believe that an
understanding of these Select Items is important to the evaluation of
our core operating results.

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