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 EndedMarch 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 EndedMarch 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
EndedMarch 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 EndedMarch 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 EndedMarch 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 EndedMarch 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 EndedMarch 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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Genesis Energy, L.P.Ryan SimsSVP - Finance and Corporate
Development(713) 860-2521
Genesis Energy (NYSE:GEL)
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