Genesis Energy, L.P. (NYSE: GEL) today announced its second
quarter results.
We generated the following financial results for the second
quarter of 2019:
- Net Income Attributable to Genesis Energy, L.P. of $40.1
million for the second quarter of 2019 compared to Net Income
Attributable to Genesis Energy, L.P. of $11.0 million for the same
period in 2018.
- Cash Flows from Operating Activities of $81.6 million for the
second quarter of 2019 compared to $64.5 million for the same
period in 2018.
- Total Segment Margin in the second quarter of 2019 of $184.1
million.
- Available Cash before Reserves to common unitholders of $93.5
million for the second quarter of 2019, which provided 1.39X
coverage for the quarterly distribution of $0.55 per common unit
attributable to the second quarter.
- We declared distributions on our preferred units in the form of
a cash distribution of $0.7374 for each preferred unit, which
equates to a cash distribution of approximately $18.7 million and
is reflected as a reduction to Available Cash before Reserves to
common unitholders.
- Adjusted EBITDA of $174.1 million in the second quarter of
2019. Our bank leverage ratio, calculated consistent with our
credit agreement, is 4.96X as of June 30, 2019 and is discussed
further in this release.
Grant Sims, CEO of Genesis Energy, said, “We are pleased to
announce a total Segment Margin of $184.1 million and a calculated
bank leverage ratio of 4.96X for the second quarter. Despite
several unexpected challenges over the previous twelve months, our
diverse and market-leading businesses continue to perform, and we
continue to naturally de-lever our balance sheet.
During the quarter, our offshore pipeline transportation segment
saw consistent volumes across our asset footprint and continues to
benefit from increasing activity in the deep water, including both
in-field drilling and new standalone developments. The quarter was
highlighted by first oil flow in late June from the LLOG operated
Buckskin development. Buckskin is a subsea tie-back to the existing
Lucius production platform and is 100% dedicated for the life of
its lease term to our SEKCO system, our longest lateral in the Gulf
of Mexico, and to our Poseidon system for ultimate transportation
to shore. The development has an anticipated peak production rate
of 30 kbd and we expect to see a meaningful financial impact as
production ramps throughout the second half of 2019. Importantly,
the Buckskin development required zero capital expenditures from us
and highlights the significant operating leverage of our offshore
footprint. It is also representative of the types of developments
and opportunities we are seeing across our market leading asset
base in the central Gulf of Mexico.
In early July, we experienced temporary throughput disruptions
on our offshore systems as the producing community shut in
production as Hurricane Barry made its way through the Gulf of
Mexico. We experienced no permanent damage to our assets but do
expect some negative financial impact to our third quarter results.
Additional disruptions as we move through hurricane season could
further negatively affect the third quarter.
Our onshore facilities and transportation segment performed as
expected. Rail volumes delivered from Canada to our Baton Rouge
complex resumed in April with increased volumes in May and June
that exceeded the minimum take-or-pay volumes which allowed our
main customer to utilize all of the pre-paid credits they accrued
in the first quarter of 2019. We continue to monitor the easing of
production curtailments by the government of Alberta and currently
expect similar activity levels in the third quarter as we
experienced in the second quarter. While there can be no
guarantees, we believe based on current economic conditions, the
incentive exists for rail volumes to return to fourth quarter 2018
levels by the end of 2019. The second quarter also benefited from a
cash payment of $10 million associated with the resolution of a
crude oil supply agreement.
Our soda ash operations experienced lower production volumes
during the quarter due to a longer than anticipated planned move of
our longwall mining machine. During the move, we proactively
completed several additional debottlenecking projects and
maintenance related items. The longwall move along with the
additional work has successfully been completed and we are back
running at full capacity. We remain on track in 2019 for our full
year estimate in our soda ash business as we expect higher volumes
along with stronger export pricing in the second half of the year.
Our view of the international market supply/demand balance for the
remainder of the year remains unchanged and we believe prices are
likely to strengthen in the coming years. Our refinery services
business performed as expected despite some unexpected challenges,
including unplanned turnarounds and production issues at a number
of our host refineries.
Our marine transportation segment continues to perform as
expected and segment margin increased slightly for the sixth
quarter in a row. As previously discussed, we continue to remain
optimistic that we have seen 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
improving market.
Our businesses generated financial results that provided 1.39X
coverage to our common unitholders, inclusive of a full quarter of
cash distributions paid to our preferred unitholders, and a
sequentially decreasing leverage ratio below 5.00X to 4.96X. Our
target coverage ratio, including all preferred cash distributions,
remains 1.4X to 1.6X and we expect our quarterly distribution rate
will remain at $0.55 per common unit for the foreseeable
future.
As we look towards the second half of the year, it is likely we
will end up towards the lower end of our previous Adjusted EBITDA
guidance for 2019 of $685-$715 million. Notwithstanding generally
non-recurring challenges which can arise in any given quarter, the
long term fundamentals across our businesses are strong and appear
to us to be getting stronger. Therefore, we remain confident that
the growth anticipated from our existing businesses keeps us on
track to naturally de-lever our balance sheet and achieve our
long-term leverage target of 4.00X in the coming years.
As always, we intend to be prudent, diligent and intelligent in
achieving and maintaining the financial flexibility to allow the
partnership to opportunistically build long-term value for all our
stakeholders without ever losing our commitment to safe, reliable
and responsible operations.”
Financial Results
Segment Margin
Variances between the second quarter of 2019 (the “2019
Quarter”) and the second 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 June 30,
2019
2018
(in thousands)
Offshore pipeline transportation
$
76,528
$
71,602
Sodium minerals and sulfur services
57,705
64,542
Onshore facilities and transportation
35,920
25,744
Marine transportation
13,959
11,966
Total Segment Margin
$
184,112
$
173,854
Offshore pipeline transportation Segment Margin for the 2019
Quarter increased $4.9 million, or 7%, from the 2018 Quarter,
primarily due to higher volumes on our crude oil pipeline systems.
These increased volumes are the result of: (i) the continued
receipt of additional volumes on our CHOPS and Poseidon systems due
to deliveries from a third party pipeline that had insufficient
capacity to deliver its committed volumes to shore, and (ii) first
oil flow in the second half of the 2019 Quarter from the Buckskin
and Hadrian North production fields, both of which are fully
dedicated to our SEKCO pipeline and further downstream, our
Poseidon oil pipeline system. As the Buckskin and Hadrian North
volumes began near the end of the 2019 Quarter, contributions to
segment margin were minimal in the period. However, we expect the
contributions to increase throughout the remainder of 2019 and
beyond. These increased volumes during the 2019 Quarter more than
offset the approximately $3.9 million in platform 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.
Sodium minerals and sulfur services Segment Margin for the 2019
Quarter decreased $6.8 million, or 11% from the 2018 Quarter. This
decrease is primarily due to lower volumes during the 2019 Quarter,
including both our soda ash business (our "Alkali Business") and
refinery services business. Soda ash volumes in the 2019 Quarter
were negatively impacted by longer than expected mine downtime due
to hoist maintenance and repairs performed during the move of our
longwall mining machine to a different section of our mine. Our
refinery services business continues to perform as expected. NaHS
volumes slightly decreased during the 2019 Quarter due to lower
demand from certain of our international customers, primarily
located in South America, and our domestic pulp and paper
customers.
Onshore facilities and transportation Segment Margin for the
2019 Quarter increased $10.2 million, or 40% from the 2018 Quarter.
This increase is partially due to increased volumes at our Raceland
and Scenic Station rail facilities during the 2019 Quarter. Our
main customer associated with our Baton Rouge infrastructure
exceeded the minimum take-or-pay volumes, including rail, terminal
and pipeline movements, during the 2019 Quarter to a level that
utilized and exceeded 100% of the prepaid transportation credits
that accumulated during the first quarter of 2019. We also received
a cash payment of $10 million during the 2019 Quarter associated
with the resolution of a crude oil supply agreement. Additionally,
while the volumes on our Texas system increased during the 2019
Quarter, we were only able to recognize our minimum volume
commitment because our main customer utilized some of its prepaid
transportation credits. This was partially offset 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 $2.0 million, or 17%, from the 2018 Quarter. This
increase in Segment Margin is primarily attributable to higher
inland and offshore barge utilization during the 2019 Quarter along
with an increase in average day rates in the market that have been
advantageous in both spot and 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. This was partially offset
by an increase in operating costs during the 2019 Quarter relative
to the 2018 Quarter due to an increase in dry-docking costs in both
our inland and offshore fleet.
Other Components of Net Income
In the 2019 Quarter, we recorded Net Income Attributable to
Genesis Energy, L.P. of $40.1 million compared to Net Income
Attributable to Genesis Energy, L.P. of $11.0 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 $10.3
million, positive changes in estimated abandonment costs for
certain of our non-operating offshore gas assets of $15.7 million
(which is included within "Offshore pipeline transportation
operating costs" on the Unaudited Condensed Consolidated Statements
of Operations), and an increase in equity in earnings of equity
investees of $6.7 million. These were offset by higher
depreciation, depletion, and amortization expense of $1.7 million
and an unrealized loss from the valuation of the embedded
derivative associated with our Class A Convertible Preferred units
of $4.7 million during the 2019 Quarter compared to an unrealized
loss of $0.2 million during the 2018 Quarter.
Earnings Conference Call
We will broadcast our Earnings Conference Call on Tuesday,
August 6, 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, onshore facilities and transportation
and marine 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 June 30,
Six Months Ended June 30,
2019
2018
2019
2018
REVENUES
$
634,785
$
752,388
$
1,254,794
$
1,478,196
COSTS AND EXPENSES:
Costs of sales and operating expenses
455,072
600,279
923,728
1,180,077
General and administrative expenses
13,412
13,529
25,098
25,203
Depreciation, depletion and
amortization
79,353
77,680
156,991
152,935
OPERATING INCOME
86,948
60,900
148,977
119,981
Equity in earnings of equity investees
15,046
8,324
28,043
18,896
Interest expense
(55,507
)
(57,909
)
(111,208
)
(114,045
)
Other expense
(4,692
)
(188
)
(7,668
)
(5,432
)
INCOME BEFORE INCOME TAXES
41,795
11,127
58,144
19,400
Income tax expense
(143
)
(256
)
(545
)
(631
)
NET INCOME
41,652
10,871
57,599
18,769
Net loss (income) attributable to
noncontrolling interests
(1,532
)
126
(1,525
)
262
NET INCOME ATTRIBUTABLE TO GENESIS
ENERGY, L.P.
$
40,120
$
10,997
$
56,074
$
19,031
Less: Accumulated distributions
attributable to Class A Convertible Preferred Units
(18,684
)
(17,257
)
(37,099
)
(34,145
)
NET INCOME (LOSS) AVAILABLE TO COMMON
UNITHOLDERS
$
21,436
$
(6,260
)
$
18,975
$
(15,114
)
NET INCOME (LOSS) PER COMMON
UNIT:
Basic and Diluted
$
0.17
$
(0.05
)
$
0.15
$
(0.12
)
WEIGHTED AVERAGE OUTSTANDING COMMON
UNITS:
Basic and Diluted
122,579
122,579
122,579
122,579
GENESIS ENERGY, L.P.
OPERATING DATA - UNAUDITED
Three Months Ended June 30,
Six Months Ended June 30,
2019
2018
2019
2018
Offshore Pipeline Transportation
Segment
Crude oil pipelines (barrels/day unless
otherwise noted):
CHOPS
228,931
181,291
235,307
190,455
Poseidon (1)
264,802
225,559
259,167
232,090
Odyssey (1)
150,039
90,326
150,953
99,793
GOPL
11,990
9,110
10,173
9,431
Offshore crude oil pipelines total
655,762
506,286
655,600
531,769
Natural gas transportation volumes
(MMbtus/d) (1)
445,734
431,853
432,888
453,910
Sodium Minerals and Sulfur Services
Segment
NaHS (dry short tons sold)
34,527
38,090
70,270
75,304
Soda Ash volumes (short tons sold)
824,881
936,000
1,695,410
1,853,000
NaOH (caustic soda) volumes (dry short
tons sold) (2)
20,525
27,573
41,327
57,833
Onshore Facilities and Transportation
Segment
Crude oil pipelines (barrels/day):
Texas
47,229
20,643
45,117
25,060
Jay
10,171
13,004
10,823
14,947
Mississippi
6,032
6,367
5,974
6,986
Louisiana (3)
131,456
151,807
113,738
133,598
Wyoming
—
32,210
—
31,703
Onshore crude oil pipelines total
194,888
224,031
175,652
212,294
Free State- CO2 Pipeline (Mcf/day)
76,297
103,867
91,062
100,308
Crude oil and petroleum products sales
(barrels/day)
30,788
49,278
32,262
50,818
Rail load/unload volumes (barrels/day)
(4)
99,519
53,005
92,345
52,844
Marine Transportation Segment
Inland Fleet Utilization Percentage
(5)
98.7
%
93.5
%
97.7
%
92.9
%
Offshore Fleet Utilization Percentage
(5)
93.9
%
92.0
%
95.1
%
93.4
%
(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 and six
months ended June 30, 2019 includes 64,574 and 58,472 barrels per
day, respectively, of intermediate refined products associated with
our Port of Baton Rouge Terminal pipelines. Total daily volume for
the three and six months ended June 30, 2018 includes 69,614 and
55,053 barrels per day, respectively, 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)
June 30, 2019
December 31, 2018
ASSETS
Cash and cash equivalents
$
9,579
$
10,300
Accounts receivable - trade, net
297,847
323,462
Inventories
84,094
73,531
Other current assets
44,877
35,986
Total current assets
436,397
443,279
Fixed assets and mineral leaseholds,
net
4,903,204
4,977,514
Investment in direct financing leases,
net
112,428
116,925
Equity investees
344,583
355,085
Intangible assets, net
147,178
162,602
Goodwill
301,959
301,959
Right of use assets, net
191,497
—
Other assets, net
117,697
121,707
Total assets
$
6,554,943
$
6,479,071
LIABILITIES AND CAPITAL
Accounts payable - trade
$
132,026
$
127,327
Accrued liabilities
220,975
205,507
Total current liabilities
353,001
332,834
Senior secured credit facility
967,000
970,100
Senior unsecured notes, net of debt
issuance costs
2,466,137
2,462,363
Deferred tax liabilities
12,911
12,576
Other long-term liabilities
397,690
259,198
Total liabilities
4,196,739
4,037,071
Mezzanine capital:
Class A convertible preferred units
790,115
761,466
Partners' capital:
Common unitholders
1,575,599
1,690,799
Accumulated other comprehensive income
939
939
Noncontrolling interests
(8,449
)
(11,204
)
Total partners' capital
1,568,089
1,680,534
Total liabilities, mezzanine capital
and partners' capital
$
6,554,943
$
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 June 30,
2019
2018
Net income attributable to Genesis Energy,
L.P.
$
40,120
$
10,997
Corporate general and administrative
expenses
13,502
13,466
Depreciation, depletion, amortization and
accretion
66,104
79,862
Interest expense, net
55,507
57,909
Income tax expense
143
256
Equity compensation adjustments
—
50
Provision for leased items no longer in
use
(182
)
(47
)
Plus (minus) Select Items, net
8,918
11,361
Segment Margin (1)
$
184,112
$
173,854
(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 June 30,
2019
2018
(in thousands)
Net income attributable to Genesis Energy,
L.P.
$
40,120
$
10,997
Interest expense, net
55,507
57,909
Income tax expense
143
256
Depreciation, depletion, amortization, and
accretion
66,104
79,862
EBITDA
161,874
149,024
Plus (minus) Select Items, net
12,270
14,742
Adjusted EBITDA, net
174,144
163,766
Maintenance capital utilized(1)
(6,425
)
(4,700
)
Interest expense, net
(55,507
)
(57,909
)
Cash tax expense
(60
)
(150
)
Cash distributions to preferred
unitholders(2)
(18,684
)
—
Other
—
(7
)
Available Cash before Reserves(3)
$
93,468
$
101,000
(1)
Maintenance capital expenditures in the
2019 Quarter and 2018 Quarter were $25.2 million and $22.2 million,
respectively. Our maintenance capital expenditures are principally
associated with our alkali and marine transportation
businesses.
(2)
Distributions to preferred unitholders
that is attributable to the 2019 Quarter and payable on August 14,
2019 to unitholders of record at the close of business on July 31,
2019.
(3)
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 June 30,
2019
2018
Cash Flows from Operating Activities
$
81,589
$
64,488
Adjustments to reconcile net cash flow
provided by operating activities to Adjusted EBITDA:
Interest Expense, net
55,507
57,909
Amortization of debt issuance costs and
discount
(2,688
)
(2,659
)
Effects of available cash from equity
method investees not included in operating cash flows
5,386
8,551
Net effect of changes in components of
operating assets and liabilities
41,107
30,373
Non-cash effect of long-term incentive
compensation expense
(2,258
)
(1,551
)
Expenses related to acquiring or
constructing growth capital assets
341
2,896
Differences in timing of cash receipts for
certain contractual arrangements (1)
(9,848
)
(1,148
)
Other items, net
5,008
4,907
Adjusted EBITDA
$
174,144
$
163,766
(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)
June 30, 2019
Senior secured credit facility
$
967,000
Senior unsecured notes
2,466,137
Less: Outstanding inventory financing
sublimit borrowings
(30,300
)
Less: Cash and cash equivalents
(9,579
)
Adjusted Debt (1)
$
3,393,258
Pro Forma LTM
June 30, 2019
Consolidated EBITDA (per our senior
secured credit facility) (2)
$
689,428
Acquisitions, material projects and other
Consolidated EBITDA adjustments (3)
(5,242
)
Adjusted Consolidated EBITDA (per our
senior secured credit facility) (4)
$
684,186
Adjusted Debt-to-Adjusted Consolidated
EBITDA
4.96X
(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 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 preferred and common 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 June 30,
2019
2018
I.
Applicable to all Non-GAAP Measures
Differences in timing of cash receipts for
certain contractual arrangements (1)
$
(9,848
)
$
(1,148
)
Adjustment regarding direct financing
leases (2)
2,079
1,884
Certain non-cash items:
Unrealized loss on derivative transactions
excluding fair value hedges, net of changes in inventory value
9,065
641
Adjustment regarding equity investees
(3)
5,675
10,037
Other
1,947
(53
)
Sub-total Select Items, net (4)
8,918
11,361
II.
Applicable only to Adjusted EBITDA and
Available Cash before Reserves
Certain transaction costs (5)
341
2,896
Equity compensation adjustments
—
61
Other
3,011
424
Total Select Items, net (6)
$
12,270
$
14,742
(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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version on businesswire.com: https://www.businesswire.com/news/home/20190806005277/en/
Genesis Energy, L.P. Ryan Sims SVP - Finance and Corporate
Development (713) 860-2521
Genesis Energy (NYSE:GEL)
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