Genesis Energy, L.P. (NYSE: GEL) today announced its second
quarter results.
We generated the following financial results for the second
quarter of 2020:
- Net Loss Attributable to Genesis Energy, L.P. of $326.7 million
for the second quarter of 2020, inclusive of non-cash impairment
charges of $277.5 million (as discussed later in this release),
compared to Net Income Attributable to Genesis Energy, L.P. of
$40.1 million for the same period in 2019.
- Cash Flows from Operating Activities of $62.6 million for the
second quarter of 2020 compared to $81.6 million for the same
period in 2019.
- Total Segment Margin in the second quarter of 2020 of $139.3
million.
- Available Cash before Reserves to common unitholders of $50.4
million for the second quarter of 2020, which provided 2.74X
coverage for the quarterly distribution of $0.15 per common unit
attributable to the second quarter.
- We declared cash distributions on our preferred units 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 $130.7 million in the second quarter of
2020. Our bank leverage ratio, calculated consistent with our
credit agreement, is 5.28X as of June 30, 2020 and is discussed
further in this release.
Grant Sims, CEO of Genesis Energy, said, "As we said in our
first quarter call, we believed Genesis, and most other energy and
industrial companies, would be facing generational economic
headwinds from the widespread demand destruction resulting from
shutting down large portions of the world’s economies to slow the
spread of Covid-19. This turned out in fact to be the case,
especially for us in our Sodium Minerals and Sulfur Services
segment. Nonetheless, during the quarter we still managed to reduce
total Adjusted Debt (as defined in our existing senior secured
facility) by approximately $33 million.
In recent months, we have focused on taking the steps necessary
to improve our financial flexibility and be cash flow positive even
in such a difficult operating environment:
- We reduced our quarterly distribution resulting in
approximately $200 million in annual cash savings to be used
principally to reduce debt;
- We amended our agreements with GSO Capital Partners to allow us
to delay the capital expenditures associated with our Granger
Optimization Project by up to twelve months;
- We received permission from our banks to use revolver capacity
to purchase up to $340 million of our outstanding senior unsecured
notes;
- We implemented cost savings initiatives that are expected to
generate approximately $38 million in annual savings beginning this
quarter; and
- We amended, with the unanimous support of 19 banks, our senior
secured credit facility to be able to add back $13.5 million in
one-time charges associated with the $38 million of annual savings
from our cost savings initiatives, to increase our Consolidated
Leverage Ratio Covenant to 5.75X through 1Q 2021 and to lower our
Consolidated Interest Coverage to 2.75X through 1Q 2021, both of
the latter as defined in our existing senior secured credit
facility.
During the quarter, were it not for a $4-5 million negative
effect to Offshore Segment margin from Tropical Storm Cristobal,
our businesses performed as expected with the obvious exception of
Sodium Minerals and Sulfur Services. Our historical refinery
services business was negatively affected as mines in South America
were mandated to be either closed or operated at significantly
below capacity in order to address the spread of Covid-19. Most of
such restrictions have subsequently been lifted, and generally
speaking, we would expect our sales of sodium hydrosulfide to
recover rather quickly as we go through the remainder of 2020.
Beginning in May and accelerating into June, our domestic and
international customers for soda ash began cancelling orders for
the remainder of the year as they adjusted to the demand
destruction associated with Covid-19 for their final products in
which soda ash is used. In fact, since our last earnings call, we
have received cancellations of orders for slightly more than
300,000 tons through the rest of this year alone. This physical
demand destruction dwarfs the downdraft to our soda operations
experienced during the financial crisis of 2008-2009. To respond to
such imbalance, we made the decision to cold stack (meaning we
could return to normal operations in 3-6 months) our existing
operations at Granger, currently our highest cost facility,
resulting in a reduction in our supplies to be sold by some 550,000
tons on an annual basis. We know other domestic producers have also
reduced supplies, and we are aware of a major synthetic producer in
China shutting down as the worldwide market for soda ash adjusts to
the current environment. Additionally, we delayed our Granger
expansion project by a full year and currently expect to bring on a
fully expanded Granger facility in late 2023 at a full expanded
capacity of 1.2 million tons a year and optimized such that it will
join our Westvaco facility as one of the most economic soda ash
production facilities in the world. The market for soda ash can
tighten very quickly as demand recovers along with increases in
economic activity, especially given the supply responses we have
already seen.
The pace and scope of the recovery in the world’s economies is
unfortunately not abundantly clear and could well extend into 2021.
However, based upon the steps we have already taken, we believe we
are well positioned to weather the storm regardless of duration and
will still be cash flow positive and be a net payer of debt this
year and in subsequent years.
For the full year of 2020, we would expect Adjusted Consolidated
EBITDA, as defined by our banks and used to calculate compliance
with our covenants, to be $570 to $610 million, or generally in
line with current street expectations of around $600 million.
More importantly, from our perspective, is the recognition of
the significant operating leverage we have to produce increasing
financial results in future periods as the world’s economies
re-open. There is no doubt that the demand for soda ash will
ultimately rebound and that we will benefit from being one of the
world’s largest and lowest cost suppliers of such a critical
industrial component. Additionally, we confirmed during the quarter
the anticipated timing of several major offshore projects which are
already contracted to our expansive infrastructure in the central
Gulf of Mexico. Argos (formerly Mad Dog 2) and the King’s Quay FPS
(Khaleesi, Mormont & Samurai fields) are still scheduled for
first production in late 2021 or early 2022 and early to mid-2022,
respectively. These two fields alone, which required almost zero
capital from us, are expected to generate well in excess of $100
million of annual segment margin to us when ramped up to
anticipated full production.
While challenges certainly remain, given the steps we have
already taken and given our lack of future capital requirements, we
believe we have positioned the company to comfortably live within
its means and be able to harvest the benefits of its operating
leverage from known and contracted opportunities as well as a
general recovery in industrial activity worldwide.
I would like to once again recognize our entire workforce, and
especially our miners, mariners and offshore personnel who live and
work in close quarters during this time of social distancing. I am
extremely proud to say we have safely operated our assets under our
own Covid-19 safety procedures and protocols with no impact to our
business partners and customers with limited confirmed cases
amongst our some 2,000 employees. As always, we intend to be
prudent, diligent and intelligent and focus on delivering long-term
value for everyone in our capital structure without ever losing our
commitment to safe, reliable and responsible operations."
Financial Results
Segment Margin
Variances between the second quarter of 2020 (the “2020
Quarter”) and the second quarter of 2019 (the “2019 Quarter”) in
these components are explained below.
Segment margin results for the 2020 Quarter and 2019 Quarter
were as follows:
Three Months Ended June 30,
2020
2019
(in thousands)
Offshore pipeline transportation
$
75,148
$
76,528
Sodium minerals and sulfur services
24,824
57,705
Onshore facilities and transportation
21,215
35,920
Marine transportation
18,138
13,959
Total Segment Margin
$
139,325
$
184,112
Offshore pipeline transportation Segment Margin for the 2020
Quarter decreased $1.4 million, or 2%, from the 2019 Quarter,
primarily due to lower volumes on our crude oil and natural gas
pipeline systems. These lower volumes are attributable to planned
downtime, which in some cases was extended due to the economic
environment, certain producer shut-ins (specifically in May) that
impacted the throughput on our crude oil systems, and weather
interruptions from Tropical Storm Cristobal. For the most part, the
production from these fields came back online during June at or
near their normal levels. These lower volumes were almost fully
offset by increased flow from the Buckskin and Hadrian North fields
during the 2020 Quarter, which saw first production late in the
2019 Quarter. The Buckskin and Hadrian North fields are both fully
dedicated to our 100% owned SEKCO pipeline, and further downstream,
our 64% owned Poseidon oil pipeline system.
Sodium minerals and sulfur services Segment Margin for the 2020
Quarter decreased $32.9 million, or 57%, from the 2019 Quarter.
This decrease is primarily due to lower volumes and pricing in our
Alkali Business and lower NaHS volumes in our refinery services
business. During the 2020 Quarter, we experienced lower export
pricing due to supply and demand imbalances that existed at the
time of our re-contracting phase in December 2019 and January 2020,
which is expected to continue, to some extent, for at least the
rest of 2020. This was coupled with lower ANSAC and domestic sales
volumes of soda ash during the 2020 Quarter due to the demand
destruction from the worldwide economic shutdowns and uncertainty
from the pandemic, which we expect to continue until restrictions
are lifted globally. During the 2020 Quarter, we also made the
decision to cold stack our existing Granger facility, removing
approximately 550,000 tons of annual soda ash production to
facilitate balancing supply with the significantly reduced demand
worldwide resulting from Covid-19. As currently configured, Granger
is our highest cost production facility. While we could resume
operations at Granger within a 3-6 month period subject to market
requirements, it is our intent at this point to keep it in cold
stack mode and bring an optimized Granger facility, expanded to
more than 1.2 million tons a year of production capacity, into full
production mode in late 2023. Such optimized and expanded Granger
facility will have production costs in-line with our Westvaco
facility, which is one of the most economic soda ash production
facilities in the world. In our refinery services business, we
experienced a decline in NaHS volumes during the 2020 Quarter due
to lower demand from certain of our mining customers, both
domestically and in South America, and lower demand from our
domestic pulp and paper customers. In South America (primarily in
Peru), the lower volume demand is directly a result of customer
shut-ins amidst the spread of Covid-19 and we expect these volumes
to return to their normal levels later in 2020. Domestically, many
of our pulp and paper customers' spring turnarounds and outages
were pushed back or even cancelled due to Covid-19. We saw
improvement near the end of the 2020 Quarter as it relates to these
domestic customers with pulp mills back up and running at their
normal capacity.
Onshore facilities and transportation Segment Margin for the
2020 Quarter decreased by $14.7 million, or 40.9%, from the 2019
Quarter primarily due to the 2019 Quarter including the receipt of
a cash payment of $10 million associated with the resolution of a
crude oil supply agreement. Additionally, during the 2020 Quarter,
we had lower volumes throughout our onshore facilities and
transportation asset base, primarily in Louisiana at our Baton
Rouge corridor assets and our Raceland rail facility. Due to the
decline in crude oil prices and the collapse in the differential of
Western Canadian Select (WCS) to the Gulf Coast, which has made
crude-by-rail to the Gulf Coast uneconomic, the volumes at our
Baton Rouge facilities were below our minimum take-or-pay levels
and we were only able to recognize our minimum volume commitment in
segment margin during the 2020 Quarter. We anticipate volumes will
remain below our minimum take-or-pay levels at our Baton Rouge
facilities throughout the remainder of 2020. These lower volumes
were partially offset by our ability to use our available crude oil
storage capacity to profit on contango opportunities during the
2020 Quarter.
Marine transportation Segment Margin for the 2020 Quarter
increased $4.2 million, or 30%, from the 2019 Quarter. During the
2020 Quarter, in our offshore barge operation, we benefited from
the continual improving rates in the spot and short term markets
coupled with increased utilization relative to the 2019 Quarter. In
our inland business, we continued to see increased day rates
throughout the period which offset the lower utilization. We expect
to see continued pressure on our utilization, and to an extent, the
spot rates in our inland business as refineries continue to lower
their utilization rates to better align with overall demand as a
result of Covid-19 and the current operating environment. 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 have yet to fully
recover from their cyclical lows.
Other Components of Net Income
In the 2020 Quarter, we recorded Net Loss Attributable to
Genesis Energy, L.P. of $326.7 million compared to Net Income
Attributable to Genesis Energy, L.P. of $40.1 million in the 2019
Quarter. As a result of lower current demand and the current
outlook for our crude-by-rail logistics assets, we recorded a
non-cash impairment expense of $277.5 million associated with our
onshore facilities and transportation segment in the 2020 Quarter.
Net Loss Attributable to Genesis Energy, L.P. in the 2020 Quarter
was also negatively impacted, relative to the 2019 Quarter, by: (i)
lower segment margin of $44.8 million; (ii) an unrealized
(non-cash) loss from the valuation of the embedded derivative
associated with our Class A Convertible Preferred Units of $21.8
million compared to an unrealized (non-cash) loss of $4.7 million
during the 2019 Quarter (which is recorded within "other income
(expense)" on the Unaudited Condensed Consolidated Statements of
Operations); (iii) higher general and administrative expenses
primarily due to a one-time charge of approximately $13 million
associated with certain severance and restructuring costs; and (iv)
lower non-cash revenues of $21.5 million within our offshore
pipeline transportation and onshore facilities and transportation
segments as a result of how we recognize revenue in accordance with
GAAP on certain contracts. Additionally, the 2019 Quarter included
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).
These decreases were partially offset by cancellation of debt
income of $18.5 million associated with the open market repurchase
and extinguishment of certain of our senior unsecured notes and
lower interest expense of $3.9 million during the 2020 Quarter.
Earnings Conference Call
We will broadcast our Earnings Conference Call on Wednesday,
August 5, 2020, 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,
2020
2019
2020
2019
REVENUES
$
388,467
$
634,785
$
928,390
$
1,254,794
COSTS AND EXPENSES:
Costs of sales and operating expenses
283,659
455,072
680,690
923,728
General and administrative expenses
25,413
13,412
34,786
25,098
Depreciation, depletion and
amortization
80,120
79,353
154,477
156,991
Impairment expense
277,495
—
277,495
—
OPERATING INCOME (LOSS)
(278,220
)
86,948
(219,058
)
148,977
Equity in earnings of equity investees
12,618
15,046
26,777
28,043
Interest expense
(51,618
)
(55,507
)
(106,583
)
(111,208
)
Other income (expense)
(4,550
)
(4,692
)
5,708
(7,668
)
INCOME (LOSS) BEFORE INCOME
TAXES
(321,770
)
41,795
(293,156
)
58,144
Income tax expense
(795
)
(143
)
(430
)
(545
)
NET INCOME (LOSS)
(322,565
)
41,652
(293,586
)
57,599
Net loss (income) attributable to
noncontrolling interests
10
(1,532
)
26
(1,525
)
Net income attributable to redeemable
noncontrolling interests
(4,159
)
—
(8,245
)
—
NET INCOME (LOSS) ATTRIBUTABLE TO
GENESIS ENERGY, L.P.
$
(326,714
)
$
40,120
$
(301,805
)
$
56,074
Less: Accumulated distributions
attributable to Class A Convertible Preferred Units
(18,684
)
(18,684
)
(37,368
)
(37,099
)
NET INCOME (LOSS) AVAILABLE TO COMMON
UNITHOLDERS
$
(345,398
)
$
21,436
$
(339,173
)
$
18,975
NET INCOME (LOSS) PER COMMON
UNIT:
Basic and Diluted
$
(2.82
)
$
0.17
$
(2.77
)
$
0.15
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,
2020
2019
2020
2019
Offshore Pipeline Transportation
Segment
Crude oil pipelines (barrels/day unless
otherwise noted):
CHOPS
196,962
228,931
219,572
235,307
Poseidon (1)
253,341
264,802
266,261
259,167
Odyssey (1)
114,006
150,039
133,375
150,953
GOPL
2,631
11,990
4,940
10,173
Offshore crude oil pipelines total
566,940
655,762
624,148
655,600
Natural gas transportation volumes
(MMbtus/d) (1)
329,876
445,734
375,283
432,888
Sodium Minerals and Sulfur Services
Segment
NaHS (dry short tons sold)
21,942
34,527
52,024
70,270
Soda Ash volumes (short tons sold)
594,810
824,881
1,417,057
1,695,410
NaOH (caustic soda) volumes (dry short
tons sold) (2)
20,326
20,525
36,629
41,327
Onshore Facilities and Transportation
Segment
Crude oil pipelines (barrels/day):
Texas
62,261
47,229
73,380
45,117
Jay
5,067
10,171
7,540
10,823
Mississippi
4,883
6,032
5,646
5,974
Louisiana (3)
62,537
131,456
112,637
113,738
Onshore crude oil pipelines total
134,748
194,888
199,203
175,652
Free State- CO2 Pipeline (Mcf/day)
94,282
76,297
114,558
91,062
Crude oil and petroleum products sales
(barrels/day)
21,874
30,788
23,996
32,262
Rail unload volumes (barrels/day) (4)
4,150
99,519
49,095
92,345
Marine Transportation Segment
Inland Fleet Utilization Percentage
(5)
87.6
%
98.7
%
90.5
%
97.7
%
Offshore Fleet Utilization Percentage
(5)
96.8
%
93.9
%
98.1
%
95.1
%
(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 include volumes
sold from our Alkali and Refinery Services businesses.
(3)
Total daily volume for the three and six
months ended June 30, 2020 includes 28,851 and 36,586 barrels per
day 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, 2019 includes 64,574 and 58,472
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)
June 30, 2020
December 31, 2019
ASSETS
Cash, cash equivalents and restricted
cash
$
45,501
$
56,405
Accounts receivable - trade, net
238,300
417,002
Inventories
109,531
65,137
Other current assets
79,458
54,530
Total current assets
472,790
593,074
Fixed assets and mineral leaseholds,
net
4,504,928
4,850,300
Investment in direct financing leases,
net
102,738
107,702
Equity investees
322,412
334,523
Intangible assets, net
131,969
138,927
Goodwill
301,959
301,959
Right of use assets, net
166,016
177,071
Other assets, net
66,625
94,085
Total assets
$
6,069,437
$
6,597,641
LIABILITIES AND CAPITAL
Accounts payable - trade
$
118,606
$
218,737
Accrued liabilities
185,051
196,758
Total current liabilities
303,657
415,495
Senior secured credit facility
1,053,000
959,300
Senior unsecured notes, net of debt
issuance costs
2,379,576
2,469,937
Deferred tax liabilities
12,770
12,640
Other long-term liabilities
388,687
393,850
Total liabilities
4,137,690
4,251,222
Mezzanine capital:
Class A convertible preferred units
790,115
790,115
Redeemable noncontrolling interests
133,378
125,133
Partners' capital:
Common unitholders
1,018,342
1,443,320
Accumulated other comprehensive loss
(8,188
)
(8,431
)
Noncontrolling interests
(1,900
)
(3,718
)
Total partners' capital
1,008,254
1,431,171
Total liabilities, mezzanine capital
and partners' capital
$
6,069,437
$
6,597,641
Common Units Data:
Total common units outstanding
122,579,218
122,579,218
GENESIS ENERGY, L.P.
RECONCILIATION OF NET INCOME(LOSS) TO
SEGMENT MARGIN - UNAUDITED
(in thousands)
Three Months Ended June 30,
2020
2019
Net income (loss) attributable to Genesis
Energy, L.P.
$
(326,714
)
$
40,120
Corporate general and administrative
expenses
24,867
13,502
Depreciation, depletion, amortization and
accretion
82,580
66,104
Impairment expense
277,495
—
Interest expense, net
51,618
55,507
Income tax expense
795
143
Provision for leased items no longer in
use
58
(182
)
Cancellation of debt income
(18,532
)
—
Redeemable noncontrolling interest
redemption value adjustments (1)
4,159
—
Plus (minus) Select Items, net
42,999
8,918
Segment Margin (2)
$
139,325
$
184,112
(1)
Includes distributions paid in kind (PIK)
attributable to the period and accretion on the redemption
feature.
(2)
See definition of Segment Margin later in
this press release.
GENESIS ENERGY, L.P.
RECONCILIATIONS OF NET INCOME(LOSS) TO
ADJUSTED EBITDA AND AVAILABLE CASH BEFORE RESERVES -
UNAUDITED
(in thousands)
Three Months Ended June 30,
2020
2019
Net income (loss) attributable to Genesis
Energy, L.P.
$
(326,714
)
$
40,120
Interest expense, net
51,618
55,507
Income tax expense
795
143
Depreciation, depletion, amortization, and
accretion
82,580
66,104
Impairment expense
277,495
—
EBITDA
85,774
161,874
Redeemable noncontrolling interest
redemption value adjustments (1)
4,159
—
Plus (minus) Select Items, net
40,809
12,270
Adjusted EBITDA
130,742
174,144
Maintenance capital utilized (2)
(9,900
)
(6,425
)
Interest expense, net
(51,618
)
(55,507
)
Cash tax expense
(150
)
(60
)
Cash distributions to preferred
unitholders (3)
(18,684
)
(18,684
)
Available Cash before Reserves (4)
$
50,390
$
93,468
(1)
Includes PIK distributions attributable to
the period and accretion on the redemption feature.
(2)
Maintenance capital expenditures in the
2020 Quarter and 2019 Quarter were $13.0 million and $25.2 million,
respectively. Our maintenance capital expenditures are principally
associated with our alkali and marine transportation
businesses.
(3)
Distributions to preferred unitholders
that is attributable to the 2020 Quarter are payable on August 14,
2020 to unitholders of record at close of business on July 31
2020.
(4)
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,
2020
2019
Cash Flows from Operating Activities
$
62,610
$
81,589
Adjustments to reconcile net cash flow
provided by operating activities to Adjusted EBITDA:
Interest Expense, net
51,618
55,507
Amortization and write-off of debt
issuance costs and discount
(3,444
)
(2,688
)
Effects of available cash from equity
method investees not included in operating cash flows
5,974
5,386
Net effect of changes in components of
operating assets and liabilities
(11,984
)
41,107
Non-cash effect of long-term incentive
compensation plans
(1,380
)
(2,258
)
Expenses related to acquiring or
constructing growth capital assets
21
341
Differences in timing of cash receipts for
certain contractual arrangements (1)
11,638
(9,848
)
Cancellation of debt income
18,532
—
Other items, net
(2,843
)
5,008
Adjusted EBITDA
$
130,742
$
174,144
(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, 2020
Senior secured credit facility
$
1,053,000
Senior unsecured notes
2,379,576
Less: Outstanding inventory financing
sublimit borrowings
(32,300
)
Less: Cash and cash equivalents
(4,761
)
Adjusted Debt (1)
$
3,395,515
Pro Forma LTM
June 30, 2020
Consolidated EBITDA (per our senior
secured credit facility)
$
625,562
Consolidated EBITDA adjustments (2)
17,434
Adjusted Consolidated EBITDA (per our
senior secured credit facility) (3)
$
642,996
Adjusted Debt-to-Adjusted Consolidated
EBITDA
5.28X
(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
from our restricted subsidiaries.
(2)
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 organic projects and cost savings initiatives we are
permitted to add back. This adjustment may not be indicative of
future results.
(3)
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, the impact of
our cost saving measures and the amount of such cost savings, our
expectations regarding the potential impact of the Covid-19
pandemic, 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 (which may be affected by the
actions of OPEC and other oil exporting nations) and a reduction in
demand for our services resulting in impairments of our assets, the
outbreak or continued spread of disease (including Covid-19), the
timing and success of business development efforts and other
uncertainties, and the realized benefits of the preferred equity
investment in Alkali Holdings by affiliates of GSO Capital Partners
LP or our ability to comply with the Granger transaction agreements
and maintain control and ownership of our Alkali Business. 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, 2019
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 to 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,
2020
2019
I.
Applicable to all Non-GAAP Measures
Differences in timing of cash receipts for
certain contractual arrangements (1)
$
11,638
$
(9,848
)
Adjustment regarding direct financing
leases (2)
2,294
2,079
Certain non-cash items:
Unrealized losses on derivative
transactions excluding fair value hedges, net of changes in
inventory value (3)
21,108
9,065
Adjustment regarding equity investees
(4)
5,776
5,675
Other
2,183
1,947
Sub-total Select Items, net (5)
42,999
8,918
II.
Applicable only to Adjusted EBITDA and
Available Cash before Reserves
Certain transaction costs (6)
21
341
Other
(2,211
)
3,011
Total Select Items, net (7)
$
40,809
$
12,270
(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)
The 2020 Quarter includes a $21.8 million
unrealized loss from the valuation of the embedded derivative
associated with our Class A Convertible Preferred Units and the
2019 Quarter includes a $4.7 million unrealized loss from the
valuation of the embedded derivative.
(4)
Represents the net effect of adding
distributions from equity investees and deducting earnings of
equity investees net to us.
(5)
Represents all Select Items applicable to
Segment Margin, Adjusted EBITDA and Available Cash before
Reserves.
(6)
Represents transaction costs relating to
certain merger, acquisition, transition, and financing transactions
incurred in acquisition activities.
(7)
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/20200805005349/en/
Genesis Energy, L.P. Ryan Sims SVP - Finance and Corporate
Development (713) 860-2521
Genesis Energy (NYSE:GEL)
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