Genesis Energy, L.P. (NYSE: GEL) today announced its third
quarter results.
We generated the following financial results for the third
quarter of 20181:
- Net Loss Attributable to Genesis
Energy, L.P. of $0.3 million for the third quarter of 2018 compared
to Net Income Attributable to Genesis Energy, L.P. of $6.3 million
for the same period in 2017.
- Cash Flows from Operating Activities of
$156.7 million for the third quarter of 2018 compared to $30.1
million for the same period in 2017, an increase of $126.6 million,
principally due to a decrease in working capital effects and an
increase in segment margin during the 2018 Quarter.
- Available Cash before Reserves of
$112.7 million for the third quarter of 2018, inclusive of a
one-time gain on sale of assets of $3.4 million. Excluding the gain
on sale of assets, Available Cash before Reserves provided 1.65X
coverage for the quarterly distribution of $0.54 per common unit
attributable to the third quarter. We will pay distributions on our
convertible preferred units in the form of 523,132 additional
convertible preferred units.
- Adjusted EBITDA of $176.9 million for
the third quarter of 2018, inclusive of a one-time gain on sale of
assets of $3.4 million. Excluding the gain on sale of assets,
Adjusted EBITDA would have been $173.5 million.
1 We have recast our prior period non-GAAP measures to conform
to our revised approach to defining and presenting such measures,
which we adopted in the fourth quarter of 2017. For additional
information, please refer to the section entitled “Non-GAAP
Measures,” below.
Grant Sims, CEO of Genesis Energy, said, “On October 11, 2018,
we completed the sale of our Powder River Basin midstream assets
for net proceeds of approximately $300 million inclusive of the $30
million option payment we received in August. We used the net
proceeds to reduce the balance outstanding under revolving credit
facility. As the terms of our facility requires pro forma credit
for this transaction, we were pleased to report our credit
agreement leverage ratio at 5.24 times Adjusted EBITDA.
The closing of this transaction coupled with the improving
financial performance of our businesses, makes us feel increasingly
confident that approaching our leverage target of 4.5 times by the
end of 2019 is reasonably achievable.
Turning to our financial results, our businesses continued to
perform well in the quarter. We generated recurring financial
results that provided for 1.65 times coverage of our sequentially
increased distribution.
In the quarter, we were pleased to see the increase in the
contribution of our onshore facilities and transportation
businesses primarily driven by increasing volumes flowing through
our infrastructure in the Baton Rouge corridor in Louisiana. These
increased volumes are the realization of the expected growth in
this business that we have discussed over the last few quarters. We
believe the market fundamentals are intact to see increasing
volumes and margin contributions both in Louisiana as well as in
Texas over the next several quarters to levels sustainable for
certainly the next several years. While the ramp in contribution
from our organic growth projects has taken longer than originally
anticipated, we are beginning to see the expected results that
underpinned these investments.
Even after reflecting the sale of our Powder River Basin
midstream assets, we would expect margin contribution from our
onshore facilities and transportation segment to increase
sequentially in the fourth quarter. This comes from physically
handling increased volumes of crude oil discussed above rather than
marketing or merchant fees which, for context, contributed less
than $1 million for the third quarter.
In our offshore business, we have continued to experience an
inordinate amount of scheduled and unscheduled downtime at several
of the production facilities connected to our offshore
infrastructure. Notwithstanding these short term negatives, longer
term we are quite bullish on, and pleased with, the activity in and
around our substantial footprint of assets in the Gulf of Mexico.
Additionally, we are currently seeing increasing demand for our
assets from production that is currently dedicated to 3rd party
pipelines but is unable to get to shore due to such competitive
pipelines being, in our estimation, oversubscribed. Given our
excess capacity and connectivity on certain of our systems, we
expect to benefit from this takeaway capacity constraint in future
periods.
Our soda ash operations continue to exceed our original
expectations when we purchased them a year ago. As we disclosed
last quarter, they are on track to produce $165 - $175 million in
margin in 2018, up from the original range of $155 - $165 million.
Our refinery services business continues to perform at or above our
expectations with increased volumes in the quarter.
Margin in our marine segment actually increased slightly on a
sequential quarterly basis for the third quarter in a row. We are
reasonably hopeful we’ve put in a bottom for the quarterly segment
margin from our entire fleet of assets, but we continue to have no
expectation of the fundamentals for marine transportation showing
any significant improvement through at least the next several
years.
We continue to enjoy a strong coverage ratio and remain on our
path to naturally de-lever our balance sheet. 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
On September 1, 2017, we acquired our trona and trona-based
exploring, mining, processing, producing, marketing and selling
business, which we refer to as our Alkali business, for
approximately $1.325 billion. We report the results of our Alkali
business in our sodium and sulfur services segment, which includes
our Alkali business as well as our sulfur removal refinery services
operations, which remove sulfur from gas streams for
refineries.
Variances between the third quarter of 2018 (the “2018 Quarter”)
and the third quarter of 2017 (the “2017 Quarter”) in these
components are explained below.
Segment margin results for the 2018 Quarter and 2017 Quarter
were as follows:
Three Months EndedSeptember 30, 2018 2017 (in
thousands) Offshore pipeline transportation $ 70,963 $ 78,228
Sodium minerals and sulfur services 63,942 30,031 Onshore
facilities and transportation 36,189 25,606 Marine transportation
12,113 12,649 Total Segment Margin $ 183,207 $
146,514
Offshore pipeline transportation Segment Margin for the 2018
Quarter decreased $7.3 million, or 9%, from the 2017 Quarter,
primarily due to lower volumes on the Poseidon pipeline and certain
associated laterals which we own that connect into Poseidon. We
have continued to experience an inordinate amount of scheduled and
unscheduled downtime at several of the production facilities
connected to our offshore infrastructure. Notwithstanding these
short term negatives, longer term we are quite bullish on, and
pleased with, the activity in and around our substantial footprint
of assets in the Gulf of Mexico. Additionally, we are currently
seeing increasing demand for our assets from production that is
currently dedicated to 3rd party pipelines but is unable to get to
shore due to such competitive pipelines being, in our estimation,
oversubscribed. Given our excess capacity and connectivity on
certain of our systems, we expect to benefit from this takeaway
capacity constraint in future periods.
Sodium minerals and sulfur services Segment Margin for the 2018
Quarter increased $33.9 million, or 113%. This increase is
primarily due to the inclusion of contributions from our Alkali
Business for a full quarter during 2018 relative to one month's
contribution during the 2017 Quarter. The contributions thus far
from our Alkali Business have exceeded our expectations, and we
expect continued strong performance throughout 2018 and into 2019.
Additionally, our refinery services business continues to perform
well with increased NaHS volumes during the 2018 Quarter due to
increased demand from certain of our international mining
customers, primarily located in South America, and our domestic
mining and pulp and paper customers.
Onshore facilities and transportation Segment Margin for the
2018 Quarter increased $10.6 million, or 41%. This increase in the
2018 Quarter is primarily attributable to increased volumes flowing
through our infrastructure in the Baton Rouge corridor in
Louisiana. These increased volumes are the realization of the
expected growth in this business that we have discussed over the
last few quarters. We expect to see volume throughput to continue
to increase this year and into 2019 both in Louisiana as well as
the expected completion in Texas of the integrity work on a
downstream pipeline which physical flows remain constrained to
under the minimum volume commitment of our customer. Even after
reflecting the sale of our Powder River Basin midstream assets, we
would expect margin contribution from our onshore facilities and
transportation segment to increase sequentially in the fourth
quarter. This comes from actually moving increased volumes of crude
oil rather than marketing or merchant fees which, for context,
contributed less than $1 million for the third quarter.
Marine transportation Segment Margin for the 2018 Quarter
decreased $0.5 million, or 4%, from the 2017 Quarter. This decrease
in Segment Margin is primarily attributable to our offshore barge
fleet entering into short-term spot price contracts, which can lead
to a less favorable rebill structure and higher operating costs, as
our last legacy long term contract rolled off during the first
quarter of 2018. Additionally, we had an increase in operating
costs during the 2018 Quarter relative to the 2017 Quarter due to
an increase in dry-docking costs. 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 at, or approaching, cyclical lows. These
decreases were partially offset by increased segment margin in the
2018 Quarter related to the M/T American Phoenix. During the 2017
Quarter, the M/T American Phoenix underwent its planned regulatory
dry-docking inspections for approximately one month which
negatively impacted segment margin. The 2018 Quarter also had
higher utilization on our inland barge operation relative to the
2017 Quarter. We are reasonably hopeful that we've put in a bottom
for the quarterly segment margin from our entire fleet of assets,
but we have no expectation of the fundamentals for marine
transportation showing any significant improvement through at least
the next several years.
Other Components of Net Income
In the 2018 Quarter, we recorded Net Loss Attributable to
Genesis Energy, L.P. of $0.3 million compared to Net Income
Attributable to Genesis Energy, L.P. of $6.3 million in the 2017
Quarter. The 2018 Quarter was negatively impacted by an increase in
interest expense and depreciation expense of $11.4 million and
$28.5 million, respectively, principally related to the acquisition
of our Alkali business, and an increase in general and
administrative expenses of $4.8 million principally due to certain
dispute costs. These items were partially offset by our $36.7
million increase in segment margin as discussed above and a gain on
sale of assets of $3.4 million.
Earnings Conference Call
We will broadcast our Earnings Conference Call on Thursday,
November 1, 2018, at 8:00 a.m. Central time (9:00 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 EndedSeptember 30, Nine Months
EndedSeptember 30, 2018 2017 2018 2017
REVENUES $ 745,278 $ 486,114 $ 2,223,474 $ 1,308,328
COSTS AND EXPENSES: Costs of sales and operating expenses
586,408 359,873 1,766,485 962,692 General and administrative
expenses 24,209 19,409 49,412 38,723 Depreciation and amortization
91,876 63,732 244,811 176,453 Gain on sale of assets (3,363 ) —
(3,363 ) (26,684 )
OPERATING INCOME 46,148 43,100
166,129 157,144 Equity in earnings of equity investees 9,492 13,044
28,388 34,805 Interest expense (58,819 ) (47,388 ) (172,864 )
(122,117 ) Other income (expense) 1,828 (2,276 ) (3,604 )
(2,276 )
INCOME BEFORE INCOME TAXES (1,351 ) 6,480 18,049
67,556 Income tax expense (283 ) (320 ) (914 ) (878 )
NET INCOME
(LOSS) (1,634 ) 6,160 17,135 66,678 Net loss attributable to
noncontrolling interests 1,311 152 1,573 457
NET INCOME (LOSS) ATTRIBUTABLE TO GENESIS ENERGY,
L.P. $ (323 ) $ 6,312 $ 18,708 $ 67,135
Less: Accumulated distributions attributable to Class A Convertible
Preferred Units (17,635 ) (5,469 ) (51,780 ) (5,469 )
NET
INCOME(LOSS) AVAILABLE TO COMMON UNITHOLDERS $ (17,958 ) $ 843
$ (33,072 ) $ 61,666
NET INCOME(LOSS) PER COMMON
UNIT: Basic and Diluted $ (0.15 ) $
0.01 $ (0.27 ) $ 0.51
WEIGHTED AVERAGE OUTSTANDING
COMMON UNITS: Basic and Diluted 122,579 122,579 122,579 121,198
GENESIS ENERGY, L.P.
OPERATING DATA - UNAUDITED
Three Months EndedSeptember 30, Nine Months
EndedSeptember 30, 2018 2017 2018 2017
Offshore
Pipeline Transportation Segment Crude oil pipelines
(barrels/day unless otherwise noted): CHOPS 225,186 203,697 202,159
220,374 Poseidon (1) 224,053 257,093 229,382 258,031 Odyssey (1)
129,777 135,787 109,897 122,433 GOPL 13,217 8,317
10,707 8,166 Offshore crude oil pipelines total
592,233 604,894 552,145 609,004
Natural gas transportation volumes (MMbtus/d) (1) 447,460 467,095
436,023 516,974
Sodium Minerals and Sulfur Services
Segment NaHS (dry short tons sold) 39,242 30,381 114,546 95,575
Soda Ash volumes (short tons sold) 886,253 336,000 2,739,253
336,000 NaOH (caustic soda) volumes (dry short tons sold) (2)
29,357 21,746 87,190 55,962
Onshore Facilities and
Transportation Segment Crude oil pipelines (barrels/day): Texas
33,948 45,329 28,055 28,418 Jay 13,548 13,716 14,475 14,480
Mississippi 5,603 8,104 6,520 8,478 Louisiana (3) 150,322 130,862
139,234 115,436 Wyoming 38,391 22,204 33,957
19,816 Onshore crude oil pipelines total 241,812
220,215 222,241 186,628 Free State- CO2
Pipeline (Mcf/day) 104,628 68,363 101,764 73,042 Crude oil
and petroleum products sales (barrels/day) 44,288 52,082 48,618
49,255 Rail load/unload volumes (barrels/day) (4) 83,557
42,221 63,194 55,010
Marine Transportation Segment
Inland Fleet Utilization Percentage (5) 98.6 % 90.8 % 94.7 % 90.5 %
Offshore Fleet Utilization Percentage (5) 90.9 % 99.3 % 92.5 % 98.4
% (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 nine
months ended September 30, 2018 includes 60,896 and 57,022 barrels
per day, respectively, of intermediate refined products associated
with our Port of Baton Rouge Terminal pipelines. Total daily volume
for the three and nine months ended September 30, 2017 includes
66,048 and 54,974 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 either loading or 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)
September 30,2018 December 31,2017
ASSETS Cash and cash equivalents $ 11,878 $ 9,041 Accounts
receivable - trade, net 365,646 495,449 Inventories 85,722 88,653
Assets held for sale 255,519 — Other current assets 42,659
42,890
Total current assets 761,424 636,033 Fixed
assets and mineral leaseholds, net 5,084,744 5,430,535 Investment
in direct financing leases, net 119,093 125,283 Equity investees
356,468 381,550 Intangible assets, net 168,291 182,406 Goodwill
325,046 325,046 Other assets, net 120,102 56,628
Total assets $ 6,935,168 $ 7,137,481
LIABILITIES AND CAPITAL Accounts payable - trade $ 194,489 $
270,855 Accrued liabilities 235,517 185,409
Total
current liabilities 430,006 456,264 Senior secured credit
facility 1,220,700 1,099,200 Senior unsecured notes, net of debt
issuance costs 2,460,486 2,598,918 Deferred tax liabilities 12,293
11,913 Other long-term liabilities 275,823 256,571
Total liabilities 4,399,308 4,422,866
Mezzanine capital: Class A convertible preferred units 744,727
697,151 Partners' capital: Common unitholders 1,799,409 2,026,147
Accumulated other comprehensive loss (604 ) (604 ) Noncontrolling
interest (7,672 ) (8,079 )
Total partners' capital 1,791,133
2,017,464
Total liabilities, mezzanine capital and
partners' capital $ 6,935,168 $ 7,137,481
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 EndedSeptember 30, 2018 2017 Net
income (loss) attributable to Genesis Energy, L.P. $ (323 ) $ 6,312
Corporate general and administrative expenses 23,760 18,230
Depreciation, depletion, amortization and accretion 94,522 66,436
Interest expense, net 58,819 47,388 Tax expense 283 320 Gain on
sale of assets (3,363 ) — Equity compensation adjustments 40 (401 )
Provision for leased items no longer in use (181 ) — Other — (25 )
Plus (minus) Select Items, net 9,650 8,254 Segment
Margin (1) $ 183,207 $ 146,514 (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 EndedSeptember 30, 2018 2017 (in
thousands) Net income (loss) attributable to Genesis Energy, L.P. $
(323 ) $ 6,312 Interest expense, net 58,819 47,388 Income tax
expense 283 320 Depreciation, depletion, amortization, and
accretion 94,522 66,436 EBITDA 153,301 120,456 Plus
(minus) Select Items, net 23,634 19,654 Adjusted
EBITDA, net(1) 176,935 140,110 Maintenance capital utilized(2)
(5,200 ) (3,375 ) Interest expense, net (58,819 ) (47,388 ) Cash
tax expense (234 ) (170 ) Other 1 1,860 Available
Cash before Reserves $ 112,683 $ 91,037 (1)
Includes a one-time gain on sale of assets of $3.4 million. (2)
Maintenance capital expenditures in the 2018 Quarter and 2017
Quarter were $21.9 million and $10.9 million, respectively. This
increase principally is a result of expenditures associated with
our Alkali business.
GENESIS ENERGY, L.P.
RECONCILIATION OF NET CASH FLOWS FROM
OPERATING ACTIVITIES TO ADJUSTED EBITDA - UNAUDITED
(in thousands)
Three Months EndedSeptember 30, 2018 2017 Cash
Flows from Operating Activities $ 156,748 $ 30,069 Adjustments to
reconcile net cash flow provided by operating activities to
Adjusted EBITDA: Interest Expense, net 58,819 47,388 Amortization
of debt issuance costs and discount (2,669 ) (2,894 ) Effects of
available cash from equity method investees not included in
operating cash flows 8,214 7,961 Net effect of changes in
components of operating assets and liabilities (61,485 ) 34,575
Non-cash effect of long-term incentive compensation expense (1,745
) 3,566 Expenses related to acquiring or constructing growth
capital assets 1,550 10,595 Differences in timing of cash receipts
for certain contractual arrangements (1) (792 ) (5,847 ) Other
items, net 14,932 14,697 Gain on sale of assets 3,363 —
Adjusted EBITDA $ 176,935 $ 140,110 (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)
September 30, 2018 Senior secured credit
facility $ 1,220,700 Senior unsecured notes 2,460,486 Pro forma
adjustment for estimated proceeds of Powder River Basin assets(1)
(270,000 ) Less: Outstanding inventory financing sublimit
borrowings (30,100 ) Less: Cash and cash equivalents (11,878 )
Adjusted Debt (2) $ 3,369,208 Pro Forma LTM September
30, 2018 Consolidated EBITDA (per our senior secured credit
facility)(3) $ 650,422 Acquisitions, material projects and other
Consolidated EBITDA adjustments(4) (7,856 ) Adjusted Consolidated
EBITDA (per our senior secured credit facility)(5) $ 642,566
Adjusted Debt-to-Adjusted Consolidated EBITDA (6) 5.24X
(1) Our credit facility requires pro forma credit for
asset sales completed subsequent to the reporting period but prior
to the date our compliance certificate is due for such period.
(2) 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. (3)
Consolidated EBITDA for the four-quarter period ending with the
most recent quarter, as calculated under our senior secured credit
facility. (4) 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. (5)
Adjusted Consolidated EBITDA for the four-quarter period ending
with the most recent quarter, as calculated under our senior
secured credit facility. (6) We received approximately $300
million in aggregate net proceeds relating to the sale of our
Powder River Basin midstream assets, which was paid in two
installments, $30 million in August 2018 (which we used to reduce
our credit facility balance prior to September 30) and
approximately $270 million on October 11, 2018 (which we used to
reduce our credit facility balance after September 30 and pro forma
our leverage ratio as of September 30).
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 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, 2017 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.
In the fourth quarter of 2017, we revised portions of the format
and definitions relating to our presentation of non-GAAP financial
measures. Amounts attributable to prior periods have been
recast.
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 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 and cash tax expense.
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 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 EndedSeptember 30, 2018 2017 I.
Applicable to all Non-GAAP Measures Differences in timing of cash
receipts for certain contractual arrangements(1) $ (792 ) $ (5,847
) Adjustment regarding direct financing leases(2) 1,931 1,751
Certain non-cash items: Unrealized loss on derivative transactions
excluding fair value hedges, net of changes in inventory value
(1,989 ) 2,168 Adjustment regarding equity investees(3) 7,552 7,136
Other 2,948 3,046 Sub-total Select Items, net(4)
9,650 8,254 II. Applicable only to Adjusted EBITDA and Available
Cash before Reserves Certain transaction costs(5) 1,550 10,595
Equity compensation adjustments 39 (501 ) Other(6) 12,395
1,306 Total Select Items, net(7) $ 23,634 $ 19,654
(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) Includes general and
administrative costs associated with certain dispute costs during
the third quarter of 2018. (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/20181101005270/en/
Genesis Energy, L.P.Bob Deere, 713-860-2516Chief Financial
Officer
Genesis Energy (NYSE:GEL)
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