Martin Midstream Partners Q3 2024 Earnings Report

Martin Midstream Partners EPS Results

• Actual EPS: -$0.08
• Consensus EPS: -$0.03
• Beat/Miss: Missed by -$0.05
• One Year Ago EPS: -$0.03

Martin Midstream Partners Revenue Results

• Actual Revenue: $170.93 million
• Expected Revenue: $176.43 million
• Beat/Miss: Missed by -$5.50 million
• YoY Revenue Growth: N/A

Martin Midstream Partners Announcement Details

• Quarter: Q3 2024
• Date: 10/16/2024
• Time: After Market Closes
• Conference Call Date: Thursday, October 17, 2024
• Conference Call Time: 9:00AM ET

Martin Midstream Partners (NASDAQ:MMLP) is a publicly traded midstream energy partnership that provides storage, transportation and distribution services for petroleum and chemical products. The company’s operations encompass bulk liquid terminals, marine transportation services and handling facilities designed to support a variety of feedstocks and refined products. Through its network of terminals and pipelines, Martin Midstream serves refineries, petrochemical plants and other industrial customers, offering solutions that help optimize logistics and maintain supply chain reliability.

With core assets located along the U.S. Gulf Coast and the Mississippi River corridor, Martin Midstream operates multiple tank farms, marine docks and pipeline interconnects that collectively offer millions of barrels of storage capacity. The partnership also owns and operates a sulphur handling and pelletizing facility at an underground salt mine in Louisiana, one of only a handful of such assets in North America. In addition, the company provides anhydrous ammonia distribution services that support agricultural and industrial applications across its service territory.

Martin Midstream was formed in 2011 as a master limited partnership sponsored by Martin Resource Management Corp., drawing on decades of experience in energy logistics and terminal operations. Headquartered in Tulsa, Oklahoma, the partnership is managed by a dedicated general partner with a leadership team that includes industry veterans in operations, supply chain management and environmental health and safety. The company continues to pursue opportunities that enhance its asset footprint and improve the efficiency of product flows for its customers.

Martin Midstream Partners Q3 2024 Earnings Call Transcript

Key Takeaways

• Q3 adjusted EBITDA of $25.1 M fell $1.3 M short of guidance due to a $1.4 M increase in long-term incentive compensation expense.
• Transportation segment outperformed with $11.6 M in adjusted EBITDA versus $10.8 M guidance, driven by stable land rates and an 8% higher marine inland day rate.
• Specialty Products segment missed guidance by $1.9 M (before incentive expense) on weaker lubricant and grease demand amid a slowing U.S. economy, with softer Q4 expected.
• Sulfur Services segment beat guidance by $0.5 M (before incentive expense) with a 12% volume increase in PureSulfur handling, and Q4 remains optimistic.
• Full-year outlook sees CapEx lowered to $57.4 M, adjusted EBITDA guidance maintained at $116.1 M, and net debt at $486.5 M with leverage at 4.14× targeted below 4× by year-end.

Presentation

[Operator]

Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the MMLP third quarter earnings conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I would like to turn the conference over to Sharon Taylor, Chief Financial Officer. Please go ahead.

[Sharon Taylor, CFO at Martin Midstream Partners]

Good morning, and thank you to everyone joining us on the call today. Here in the room are Bob Bondurant, CEO, Randy Tauscher, COO, David Cannon, Controller, and Danny Cavin, Director of FP&A. During this call, we will make forward-looking statements as defined by the SEC. These statements are based upon our current beliefs, as well as assumptions made by the management team and information currently available to us. Please refer to our earnings press release issued yesterday afternoon and posted on our website, as well as our latest filings with the SEC for a list of factors that could impact the future performance of Martin and cause our actual results to differ materially from our expectations. We will discuss non-GAAP financial measures on today's call. The earnings press release includes a reconciliation of these non-GAAP financial measures to their comparable GAAP financial measures.

[Sharon Taylor, CFO at Martin Midstream Partners]

With that, I will turn it over to Bob to discuss third-quarter earnings.

[Bob Bondurant, CEO at Martin Midstream Partners]

Thanks, Sharon. First, I would like to begin with comments regarding the impact of Hurricane Milton on our people and on our assets. Our Martin team members who operate and manage our Tampa terminal and our trucking operations in Central Florida are all safe and accounted for. We shut down both operations more than twenty-four hours before landfall, and as a result, our people were able to reposition themselves to safety. Regarding our assets, our Tampa terminal had no storm surge issues, but the heavy rain filled our tank farm infield and submerged several of our pumps, which will be repaired. We also have some tank insulation damage that will also need to be repaired. Our trucking terminal, located in Mulberry, had only very minor damage. All in all, we feel very blessed to have experienced minimal impact to our people and to our locations.

[Bob Bondurant, CEO at Martin Midstream Partners]

Now, I would like to focus on our overall third-quarter operating performance. For the third quarter, we fell short of guidance by $1.3 million, as we had Adjusted EBITDA of $25.1 million, compared to third quarter guidance of $26.4 million. As I mentioned in yesterday's press release, the primary contributor to our guidance shortfall was an increase in expense related to our long-term incentive plans, which are tied to the fair market value of our common units. As a result, we recognized an additional $1.4 million in expense when compared to guidance. Without this expense recognition, we would have had exceeded forecast by $0.1 million.

[Bob Bondurant, CEO at Martin Midstream Partners]

The impact of this expense recognition, when compared to guidance, negatively impacted our terminal ling and storage segment by $0.6 million, both our sulfur services and our specialty products segments by $0.3 million each, and our transportation segment by $0.2 million. Now, I would like to break down our adjusted EBITDA performance by each segment. For the third quarter, our largest cash flow generator was once again our transportation segment, which had adjusted EBITDA of $11.6 million, compared to guidance of $10.8 million. Within this segment, our land transportation business had a very stable quarter and had adjusted EBITDA of $6.5 million, compared to guidance of $6.4 million. We believe this stability will continue in the fourth quarter in this business.

[Bob Bondurant, CEO at Martin Midstream Partners]

Our marine transportation business had Adjusted EBITDA of $5.1 million, compared to guidance of $4.4 million. While our forecasted utilization was on target with guidance, our average inland day rate exceeded forecast by 8%. We continued to see stability in rates due to tightness in the inland market and, as a result, expect stable cash flow in this business line in the fourth quarter. Our next strongest cash flow generator in the third quarter was our terminalling and storage segment, which had Adjusted EBITDA of $8.4 million, compared to guidance of $9 million. The missing guidance can be entirely attributed to the increased incentive compensation expense of $0.6 million. Without this charge, our terminal ling and storage segment was in line with guidance.

[Bob Bondurant, CEO at Martin Midstream Partners]

Looking toward the fourth quarter, we believe both operations and Adjusted EBITDA will remain stable for our terminal ling and storage segment. Our third largest cash flow generator was our specialty products segment, which had Adjusted EBITDA of $4.6 million, compared to guidance of $6.5 million, a miss of $1.9 million. Excluding the long-term incentive compensation expense charge of $0.3 million, we missed guidance by $1.6 million. This miss was primarily the result of weak performance from both our packaged lubricant and grease business lines. Both groups saw weaker demand for their products than forecasted. We believe this weak demand is being driven by the slowing U.S. economy.

[Bob Bondurant, CEO at Martin Midstream Partners]

Looking toward the fourth quarter, the overall weaker economy, combined with the seasonal reduced demand for our lubricant and grease products, should result in softer cash flow in the fourth quarter relative to the other three quarters. Finally, I would like to discuss the performance of our Sulfur Services segment, which had Adjusted EBITDA of $4.2 million, compared to guidance of $3.7 million. Without the long-term incentive-based compensation charge of $0.3 million, we would have exceeded guidance in this segment by $0.8 million. The pure sulfur side of our Sulfur Services segment had Adjusted EBITDA of $3.7 million, compared to guidance of $3.1 million. The primary driver of this outperformance was the strong volume of sulfur production from our Gulf Coast refinery customers.

[Bob Bondurant, CEO at Martin Midstream Partners]

The daily volume of sulfur handled was 12% greater than our forecast, as we logistically managed approximately 3,600 tons per day of sulfur production into or through our Beaumont terminals. Looking toward the fourth quarter, subject to any unexpected refinery turnarounds, we remain optimistic that sulfur production from our refinery customers will continue to remain at these higher levels, which should allow us to achieve or exceed guidance in the pure sulfur side of the business. Our Fertilizer group had Adjusted EBITDA of $0.4 million, which was $0.3 million less than EBITDA guidance for the third quarter. While the volume of fertilizer sold in the third quarter was 27% less than forecast, we realized an improvement in actual gross margin per ton relative to guidance.

[Bob Bondurant, CEO at Martin Midstream Partners]

This margin improvement was a result of the mix of fertilizer products sold in the third quarter when compared to our forecast. Looking toward the fourth quarter, we anticipate the normal seasonal trough in cash flow relative to the first and second quarters for the Fertilizer business. Before I turn the call over to Sharon, I would like to make a few comments regarding our pending transaction with Martin Resource Management Corporation. As you know, MRMC approached MMLP with an initial buyout proposal on May twenty-fourth, 2024, which was reviewed by our board's Conflicts Committee, which consists of three independent directors and was assisted by independent financial and legal advisors. A robust process ensued, and the committee negotiated hard on behalf of the unaffiliated unitholders to maximize value. The pending transaction will deliver nearly $1 more per unit than the initial proposal.

[Bob Bondurant, CEO at Martin Midstream Partners]

In the weeks ahead, we will file a Proxy Statement with more detail on the transaction, and we look forward to engaging with unitholders as we work to secure the necessary approvals to complete the transaction. While we look forward to keeping you all updated, until the Proxy Statement is filed, we have no more information to share regarding the pending transaction. As such, the focus of our call today will be on our third quarter performance. We ask that you please keep questions focused on our financial and operational performance. Now I'll turn the call back over to Sharon.

[Sharon Taylor, CFO at Martin Midstream Partners]

Thank you, Bob. As of September 30, 2024, our total long-term debt outstanding was $486.5 million, of which $86.5 million was drawn under our revolving credit facility, and the remaining $400 million consists of our second lien 11.5% notes due February 2028. Our available borrowing capacity under our $150 million revolving credit facility was approximately $54.3 million, including a reduction for approximately $9.2 million of issued letters of credit. Our bank-compliant adjusted leverage ratio was 4.14 times at the end of the quarter, and interest coverage was 2.23 times.

[Sharon Taylor, CFO at Martin Midstream Partners]

While both our total outstanding debt and adjusted leverage increased from the second quarter due to working capital needs, coupled with the August interest payment on our outstanding notes, we remain committed to debt reduction and anticipate exiting the year at a debt level that reduces our adjusted leverage to below four times. At the end of the quarter, the partnership was in full compliance with all of our covenants, banking or otherwise. Capital expenditures in the third quarter were $12.5 million, consisting of $8.6 million in maintenance CapEx and $3.9 million in expansion CapEx. The majority of maintenance CapEx during the quarter was associated with regulatory inspection costs on marine equipment and turnarounds at our fertilizer plants. The expansion CapEx was primarily related to improvements to the oleum tower in Plainview, Texas, in support of the ELSA joint venture.

[Sharon Taylor, CFO at Martin Midstream Partners]

Our forecast for full-year 2024 capital expenditures now totals $57.4 million, down from the previous $58.4 million discussed during the second quarter conference call. We currently anticipate full-year maintenance CapEx to be $34.8 million and full-year expansion CapEx to be $22.6 million, which includes $18.8 million for the ELSA JV, either through improvements to the oleum tower or cash contributions for our 10% ownership of the joint venture. As Bob discussed, overall, the partnership performed well in the third quarter, allowing us to maintain our adjusted EBITDA guidance for full-year 2024 of $116.1 million. For the fourth quarter, we have adjusted our forecast slightly for both the Marine and Sulfur Services divisions.

[Sharon Taylor, CFO at Martin Midstream Partners]

You will find our 2024 Adjusted EBITDA guidance for each individual business under our four reportable segments in the presentation attached to yesterday's earnings press release. That concludes my remarks for today, and I will turn it back over to Audra for Q&A.

[Operator]

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. We'll take our first question from Selman Akyol at Stifel.

[Tim Opler, Analyst at Stifel]

Hi, guys. This is Tim on for Salman. Appreciate you taking my call, so I just wanted to start off in Florida, and I appreciate the update, and I'm glad the personnel are all okay, but just wanted to kind of see if this will have any implications for the remainder of the year as far as you know, cash flow from those assets and potentially any you know, capital that needs to be allocated to kind of fix some of the minor damage there.

[Randy Tauscher, COO at Martin Midstream Partners]

Morning, Tim. This is Randy. In our Tampa terminal did sustain a little bit of damage, insulation on some of the tanks. Pumps are gonna have to be repaired. So we're gonna have a CapEx outlay of somewhere between $500,000 and $1 million over the fourth quarter and first quarter to cover those expenses. Other than that, we don't expect much impact commercially.

[Tim Opler, Analyst at Stifel]

Got it. Appreciate that. And then I guess jumping over to ELSA, just wanted to get any updates there, everything, you know, still on track. And then has there been any other indications from Samsung on, you know, potential future prospects for growth out of that JV?

[Randy Tauscher, COO at Martin Midstream Partners]

Yeah. So, you know, the ELSA plant was supposed to begin taking feedstock from Martin in August. We talked about that the last call in July. It hasn't taken feedstock yet. We're ready to provide the feedstock as soon as DSM is ready to take it. We expect that to be within the month of October. So but I'm told not this week. So, next week, they should be ready to start taking the feedstock, and that's gonna start the whole process of producing ELSA, testing the ELSA, improving their processes, and then qualifying it with the customers. So, that is imminent. In terms of the sales program, I think the sales program is likely to be delayed from what we thought it was gonna be.

[Randy Tauscher, COO at Martin Midstream Partners]

You've probably seen the news articles out there on delays. We've seen some public announcements for that. I think sales in 2025 probably are not gonna be as robust as we were hoping they would be, and until we see that development, there's probably not gonna be much discussion around the next plant because we need to make sure this plant is commercial first.

[Bob Bondurant, CEO at Martin Midstream Partners]

I'll add one more comment, is that we do have a reservation fee that does begin October first. That will be earned, but to Randy's point, the sales of the actual ELSA to the customers will be most likely muted for a while.

[Tim Opler, Analyst at Stifel]

Understood. Thanks for the clarification. And then, I guess turning to the barge business, you guys have kind of highlighted strength there, and it's certainly outperformed. But just kind of curious on what you're currently seeing for rates and any updates to contracting there.

[Randy Tauscher, COO at Martin Midstream Partners]

Yeah. So, the rates are currently $11,000 to $11,500 a day, which is a couple thousand dollars greater than it was a year ago. And the clean rates are currently $9,600 to $9,800 per day, which is on par of where it was a year ago. So we've seen a continued rise in the heated rates. We've seen stable over the last year in the clean rates. Now, what we are seeing now is a stable market for the heated rates. We don't see those rates continuing to rise, at least through the winter months at a minimum. They've stabilized out, but we expect that business to do very well in the fourth quarter, and the first quarter.

[Randy Tauscher, COO at Martin Midstream Partners]

In terms of the term of the rates, we have one of our third-party tows in dry dock. Other than that, we have 50% of our tows locked up on term into 2025. I think some of those are five, some of those are 12 months long, yet remaining. And then we have 20% of our remaining fleet on a term contract that's coming to its end during the next 30 or 45 days, and those rates are being negotiated. The rest of them are on spot.

[Tim Opler, Analyst at Stifel]

Got it. And then one last one, if I could. I understand if you guys can't answer it, but just regarding the proposed merger, will the vote be kind of a simple majority, or will it be a majority of the holders outside of inside ownership?

[Sharon Taylor, CFO at Martin Midstream Partners]

... Yeah, that will be a simple majority vote.

[Tim Opler, Analyst at Stifel]

Okay, got it. That's all I had. Thank you, guys, so much for the time.

[Sharon Taylor, CFO at Martin Midstream Partners]

Thank you, Ken.

[Operator]

We'll move next to Kyle May at Sidoti.

[Kyle May, Analyst at Sidoti]

Hey, good morning, everybody.

[Sharon Taylor, CFO at Martin Midstream Partners]

Good morning, Kyle.

[Kyle May, Analyst at Sidoti]

So, I appreciate it's too soon for formal guidance next year but just wondering if you can give us any preliminary thoughts about capital spend in 2025. Just given, you know, we're probably getting wrapped up on the capital needed for ELSA. So, just curious, kind of preliminary thoughts about next year.

[Randy Tauscher, COO at Martin Midstream Partners]

Either way.

[Sharon Taylor, CFO at Martin Midstream Partners]

Go ahead.

[Randy Tauscher, COO at Martin Midstream Partners]

Yeah. So from a growth capital perspective, not near as significant as what we saw this year because of the ELSA. The ELSA still has a few dollars to spend, but you know, I think somewhere in the ballpark of $1 million, as we believe, and we'll be done with everything we committed to on that project. From a maintenance perspective, we haven't really gotten to our budgeting process yet. I will tell you, we don't right now have a planned refinery turnaround for next year, and we have less barges going to the shipyard next year. So I would think that we would be under the $34.8 million.

[Randy Tauscher, COO at Martin Midstream Partners]

So, it looks like we're gonna achieve this year, but we haven't done enough yet to talk with any certainty around that.

[Kyle May, Analyst at Sidoti]

Okay, great. That's helpful. And then another question on the ELSA project. I believe previously, you've indicated that once it's fully operational, it could generate about $6 million on an annual basis for, Martin. Can you give us an update on your outlook? Maybe first, on that total amount, you know, once it's fully operational, is that $6 million still a good figure? And then with the downtime next year, just kinda how you're thinking about that progression to that full run rate.

[Randy Tauscher, COO at Martin Midstream Partners]

Yeah. So, as Bob commented, we're getting the reservation fee starting this month. And then when we originally ran the economics and values, the ELSA, when the ELSA would get sold to the consumers, about 60%-70% of the value in the project would come with the reservation fee, and the other 30%-40% would come depending upon the ultimate sales price we get and the volume we would sell. I would say for 2025, again, we're working on our budget for next year. We're relying. Remember, we're minority in this. We're relying on our marketer, Samsung, to feed us with that information. We don't have good information, yet what their expectations are around 2025.

[Kyle May, Analyst at Sidoti]

Okay. Appreciate the time this morning.

[Sharon Taylor, CFO at Martin Midstream Partners]

Thank you, Kyle.

[Operator]

We'll move next to Patrick Fitzgerald at Baird.

[Patrick Fitzgerald, Managing Director and Analyst/Strategist at Baird]

Hi, thank you for taking the questions. So I guess the guidance implies that you're gonna have about 55 or so of borrowings on the revolver at the end of the year. Is that fair?

[Sharon Taylor, CFO at Martin Midstream Partners]

Yes. I think we're gonna end up somewhere between $55 million and $60-ish million at year-end.

[Patrick Fitzgerald, Managing Director and Analyst/Strategist at Baird]

Okay. But... And then the free cash flow outlook, I guess, you know, given your commentary in the last question about CapEx, no major projects, your free cash flow generation will be improved in 2025. Is that fair?

[Sharon Taylor, CFO at Martin Midstream Partners]

Yes, sir, that's fair.

[Patrick Fitzgerald, Managing Director and Analyst/Strategist at Baird]

Okay.

[Sharon Taylor, CFO at Martin Midstream Partners]

We haven't got our projections out there, but probably somewhere in the neighborhood of $30 million.

[Patrick Fitzgerald, Managing Director and Analyst/Strategist at Baird]

Awesome. And then just on, you know, the acquisition financing, I think there's some confusion out there of, you know, how it relates to the MMLP debt structure. So, if you could just, I mean, I don't really think that's a question that would be prohibited, but maybe it is. But if you could just talk about, like, the financing and how it impacts MMLP, that would be helpful. Thank you.

[Sharon Taylor, CFO at Martin Midstream Partners]

Sure. As far as MMLP, nothing at the MMLP level will change related to our capital structure after the transaction is closed, should it, should it close. So, our notes remain outstanding, and our credit facility remains outstanding, and we don't. I believe the credit facility matures in 2027, and the notes mature in 2028. But there is. There's no consideration at this moment for anything changing within either of those two facilities.

[Patrick Fitzgerald, Managing Director and Analyst/Strategist at Baird]

You're not borrowing anything at MMLP to help finance the acquisition, right?

[Sharon Taylor, CFO at Martin Midstream Partners]

That's correct. No, we are not.

[Patrick Fitzgerald, Managing Director and Analyst/Strategist at Baird]

Okay. And I guess the only, like, potential headwind is the, one of your, you know, because you have a relationship on, I think, the Smackover refinery. They, you know, Martin Resources, would just be, I guess, a little bit more levered.

[Sharon Taylor, CFO at Martin Midstream Partners]

So, I'm not sure I understand the question, but I'll go back to the contracts. We have numerous contracts between MRMC and MMLP that are outstanding and will continue to be outstanding. Those have been negotiated prior to this deal and have gone through MMLP's Conflicts Committee for approval. And then on the MRMC side, they have their own financing, which will be effective with the finalization of the buyout.

[Patrick Fitzgerald, Managing Director and Analyst/Strategist at Baird]

Okay. All right, and then would there be a kind of increased need to distribute cash up to MRMC so that they could deal with their financing, or how would that work?

[Sharon Taylor, CFO at Martin Midstream Partners]

So MRMC, as the sole unitholder, again, depending on whether or not the deal closes, which is subject to a unitholder vote, MRMC would, at that time, be the recipient of any distributions that MMLP should choose to make when they are able to or when we are able to, under the constraints of our current revolving credit facility and the indenture under the notes.

[Patrick Fitzgerald, Managing Director and Analyst/Strategist at Baird]

Okay. Very helpful. Thank you very much.

[Sharon Taylor, CFO at Martin Midstream Partners]

Thank you.

[Operator]

And that concludes our Q&A session for today. I will now turn the conference back over to Bob Bondurant for closing remarks.

[Bob Bondurant, CEO at Martin Midstream Partners]

Thank you. In closing, I'd like to thank you again for participating in our call today. Circling back to the merger agreement with MRMC, I reiterate that we will file a proxy statement in the coming weeks, which will provide more detail on the transaction. But until a proxy is filed, we have no more information to share. Thanks again and have a great day.

[Operator]

This concludes today's conference call. Again, thank you for your participation. You may now disconnect.

Participants

Executives

• Sharon Taylor, CFO
• Randy Tauscher, COO
• Bob Bondurant, CEO

Analysts

• Tim Opler, Analyst at Stifel
• Patrick Fitzgerald, Managing Director and Analyst/Strategist at Baird
• Kyle May, Analyst at Sidoti