Sprague Resources LP (“Sprague”) (NYSE: SRLP) today reported its
financial results for the third quarter ended September 30,
2018.
Third Quarter 2018 Highlights
- Net sales were $618.5 million for the third quarter of 2018,
compared to net sales of $491.4 million for the third quarter of
2017.
- GAAP net loss was $18.4 million for the third quarter of 2018,
compared to net loss of $14.3 million for the third quarter of
2017.
- Adjusted gross margin(1) was $46.1 million for the third
quarter of 2018, compared to adjusted gross margin of $48.5 million
for the third quarter of 2017.
- Adjusted EBITDA(1) was $8.6 million for the third quarter of
2018, compared to adjusted EBITDA of $14.8 million for the third
quarter of 2017.
"Challenging market conditions in Refined Products limited our
traditional purchasing opportunities in the quarter and, combined
with increased interest costs, led to lower coverage," said Mr.
David Glendon, President and Chief Executive Officer. "While
these headwinds are expected to persist for the remainder of 2018,
we continue to see compelling growth prospects in our business and
look forward to providing additional detail on our earnings
conference call and webcast."
Refined Products
- Volumes in the Refined Products segment decreased 2% to 246.7
million gallons in the third quarter of 2018, compared to 251.5
million gallons in the third quarter of 2017.
- Adjusted gross margin in the Refined Products segment decreased
$5.4 million, or 17%, to $26.6 million in the third quarter of
2018, compared to $32.0 million in the third quarter of 2017.
“The convergence of sulfur specifications in the Northeast
heating oil markets limited blending opportunities and a less
attractive distillate market to purchase and store inventory also
affected results," said Mr. Glendon. "This decline was
partially offset by increased volume in diesel and gasoline
sales."
Natural Gas
- Natural Gas segment volumes decreased 2% to 10.7 million Bcf in
the third quarter of 2018, compared to 11.0 million Bcf in the
third quarter of 2017.
- Natural Gas adjusted gross margin decreased $0.2 million, or
6%, to $3.0 million for the third quarter of 2018, compared to $3.2
million for the third quarter of 2017.
"Natural Gas performance was in line with our expectations and
prior year results," added Mr. Glendon.
Materials Handling
- Materials Handling adjusted gross margin increased by $3.3
million, or 29%, to $14.7 million for the third quarter of 2018,
compared to $11.4 million for the third quarter of 2017.
"Materials Handling adjusted gross margin increased due to the
transition of Kildair's asphalt marketing business to a storage and
service contract," said Mr. Glendon. "We also saw increased
asphalt activity at our Providence, RI and Newington, NH facilities
following last year's capital investments."
2018 Guidance
Sprague is confirming fiscal year 2018 guidance provided in our
press release dated August 8, 2018, with the exception of the
following:
- Adjusted EBITDA is expected to be in the range of $110 million
to $120 million.
- It is anticipated that selling, general and administrative
expenses will be in the range of $81 million to $86 million.
- Maintenance capex is anticipated to be between $11 million and
$14 million.
- Sprague expects to maintain the fourth quarter 2018
distribution at the current distribution level.
- The distribution coverage ratio(1) for full-year 2018 is
expected to be slightly below 1.0x.
Quarterly Distribution
On October 26, 2018, the Board of Directors of Sprague’s
general partner, Sprague Resources GP LLC, announced a cash
distribution of $0.6675 per unit for the quarter ended
September 30, 2018, representing a 7% increase over the
distribution declared for the quarter ended September 30,
2017. The distribution will be paid on November 13, 2018, to
unitholders of record as of the close of business on November 6,
2018.
Financial Results Conference Call
Management will review Sprague’s third quarter 2018 financial
results in a teleconference call for analysts and investors today,
November 7, 2018.
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Date and Time: |
November 7, 2018 at 1:00 PM ET |
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Dial-in numbers: |
(866) 516-2130 (U.S. and Canada) |
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(678) 509-7612 (International) |
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Participation Code: |
6157579 |
The conference call may also be accessed live by a webcast
available on the "Investor Relations - Calendar of Events" page of
Sprague's website at www.spragueenergy.com and will be archived on
the website for one year.
About Sprague Resources LPSprague Resources LP
is a master limited partnership engaged in the purchase, storage,
distribution and sale of refined petroleum products and natural
gas. Sprague also provides storage and handling services for a
broad range of materials.
Non-GAAP Financial MeasuresEBITDA, adjusted
EBITDA, adjusted gross margin, and distribution coverage ratio are
measures not defined by GAAP. Sprague defines EBITDA as net
income (loss) before interest, income taxes, depreciation and
amortization.
We define adjusted EBITDA as EBITDA increased for unrealized
hedging losses and decreased by unrealized hedging gains (in each
case with respect to refined products and natural gas inventory,
prepaid forward contracts and natural gas transportation
contracts), changes in fair value of contingent consideration, the
net impact of biofuel excise tax credits in 2017 and 2013, and
commencing in the fourth quarter of 2017, adjusted for the impact
of acquisition related expenses. Accordingly, adjusted EBITDA
for prior periods have been revised to conform to the current
presentation.
We define adjusted gross margin as net sales less cost of
products sold (exclusive of depreciation and amortization)
decreased by total commodity derivative gains and losses included
in net income (loss) and increased by realized commodity derivative
gains and losses included in net income (loss), in each case with
respect to refined products and natural gas inventory, prepaid
forward contracts and natural gas transportation contracts.
Adjusted gross margin has no impact on reported volumes or net
sales.
To manage Sprague's underlying performance, including its
physical and derivative positions, management utilizes adjusted
gross margin. Adjusted gross margin is also used by external users
of our consolidated financial statements to assess our economic
results of operations and its commodity market value reporting to
lenders. EBITDA and adjusted EBITDA are used as supplemental
financial measures by external users of our financial statements,
such as investors, trade suppliers, research analysts and
commercial banks to assess the financial performance of our assets,
operations and return on capital without regard to financing
methods, capital structure or historical cost basis; the ability of
our assets to generate sufficient revenue, that when rendered to
cash, will be available to pay interest on our indebtedness and
make distributions to our equity holders; repeatable operating
performance that is not distorted by non-recurring items or market
volatility; and, the viability of acquisitions and capital
expenditure projects.
Sprague defines the distribution coverage ratio as the ratio of
distributable cash flow to the quarterly or annual distribution
payable on all outstanding common and subordinated units and
incentive distributions. Sprague believes that the
distribution coverage ratio provides important information relating
to the relationship between Sprague's financial operating
performance and its cash distribution capability.
Sprague believes that investors benefit from having access to
the same financial measures that are used by its management and
that these measures are useful to investors because they aid in
comparing its operating performance with that of other companies
with similar operations. The adjusted EBITDA and adjusted gross
margin and other data presented by Sprague may not be comparable to
similarly titled measures at other companies because these items
may be defined differently by other companies. Please see the
attached reconciliations of net income to adjusted EBITDA and
operating income to adjusted gross margin.
With regard to guidance, reconciliation of non-GAAP adjusted
EBITDA or the distribution coverage ratio to the closest
corresponding GAAP measure (expected net income (loss)) is not
available without unreasonable efforts on a forward-looking basis
due to the inherent difficulty and impracticality of forecasting
certain amounts required by GAAP such as unrealized gains and
losses on derivative hedges, which can have a significant and
potentially unpredictable impact on our future GAAP financial
results.
Cautionary Statement Regarding Forward Looking
Statements
This press release includes forward looking statements regarding
future expectations, plans, beliefs, goals and prospects for
Sprague Resources LP. Sprague’s statements regarding
future expectations, plans, beliefs, goals, or prospects,
constitute forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934. Any statements that are
not statements of historical fact (including statements containing
the words “believes,” “plans,” “anticipates,” “expects,”
“estimates” and similar expressions) should also be considered
forward-looking statements. You are cautioned not to place
undue reliance on these forward-looking statements, which speak
only as of the date of this press release. These forward-looking
statements involve risks and uncertainties and other factors that
are difficult to predict and many of which are beyond management’s
control. Although Sprague believes that the assumptions underlying
these statements are reasonable, investors are cautioned that such
forward-looking statements are inherently uncertain and involve
risks that may affect our business prospects and performance
causing actual results to differ from those discussed in the
foregoing release. Such risks and uncertainties include, by
way of example and not of limitation: increased competition for our
products or services; adverse weather conditions; changes in supply
or demand for our products or services; nonperformance by major
customers or suppliers; changes in operating conditions and costs;
changes in the level of environmental remediation spending;
potential equipment malfunction and unexpected capital
expenditures; our ability to complete organic growth and
acquisition projects; our ability to integrate acquired assets;
potential labor issues; the legislative or regulatory environment;
terminal construction/repair delays; political and economic
conditions; and, the impact of security risks including terrorism,
international hostilities and cyber-risk. These are not all of the
important factors that could cause actual results to differ
materially from those expressed in forward looking
statements. Other applicable risks and uncertainties have
been described more fully in Sprague’s most recent Annual Report on
Form 10-K filed with the U.S. Securities and Exchange Commission
(“SEC”) on March 14, 2018 and in the Partnership's subsequent Form
10-Q, Form 8-K and other documents filed with the SEC. Sprague
undertakes no obligation and does not intend to update any
forward-looking statements to reflect new information or future
events. Actual results may differ materially from those
described in the forward-looking statements.
(Financial Tables Below)
Sprague Resources
LPSummary Financial Data
|
|
Three Months Ended September
30, |
|
Nine Months Ended September
30, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
|
($ in
thousands) |
| Statements of Operations Data: |
|
|
|
|
|
|
Net sales |
$ |
618,455 |
|
|
$ |
491,393 |
|
|
$ |
2,691,259 |
|
|
$ |
1,922,826 |
|
|
Operating costs and expenses: |
|
|
|
|
|
|
|
| Cost of products sold (exclusive of depreciation and
amortization) |
581,624 |
|
|
456,656 |
|
|
2,462,279 |
|
|
1,720,860 |
|
| Operating expenses |
21,047 |
|
|
16,891 |
|
|
66,537 |
|
|
50,624 |
|
| Selling, general and administrative |
16,923 |
|
|
17,559 |
|
|
63,349 |
|
|
63,472 |
|
| Depreciation and amortization |
8,343 |
|
|
6,655 |
|
|
25,146 |
|
|
19,537 |
|
| Total operating costs and expenses |
627,937 |
|
|
497,761 |
|
|
2,617,311 |
|
|
1,854,493 |
|
|
Operating (loss) income |
(9,482 |
) |
|
(6,368 |
) |
|
73,948 |
|
|
68,333 |
|
| Other income |
293 |
|
|
— |
|
|
293 |
|
|
183 |
|
| Interest income |
123 |
|
|
75 |
|
|
404 |
|
|
247 |
|
| Interest expense |
(9,073 |
) |
|
(7,170 |
) |
|
(28,369 |
) |
|
(22,604 |
) |
|
(Loss) income before income taxes |
(18,139 |
) |
|
(13,463 |
) |
|
46,276 |
|
|
46,159 |
|
| Income tax provision |
(295 |
) |
|
(853 |
) |
|
(2,984 |
) |
|
(3,768 |
) |
|
Net (loss) income |
(18,434 |
) |
|
(14,316 |
) |
|
43,292 |
|
|
42,391 |
|
| Incentive distributions declared |
(2,055 |
) |
|
(1,024 |
) |
|
(5,824 |
) |
|
(2,620 |
) |
|
Limited partners’ interest in net (loss)
income |
$ |
(20,489 |
) |
|
$ |
(15,340 |
) |
|
$ |
37,468 |
|
|
$ |
39,771 |
|
|
Net (loss) income per limited partner unit: |
|
|
|
|
|
|
|
| Common - basic |
$ |
(0.90 |
) |
|
$ |
(0.68 |
) |
|
$ |
1.65 |
|
|
$ |
1.80 |
|
| Common - diluted |
$ |
(0.90 |
) |
|
$ |
(0.68 |
) |
|
$ |
1.65 |
|
|
$ |
1.78 |
|
| Units used to compute net (loss) income per limited
partner unit: |
|
|
|
|
|
|
| Common - basic |
22,727,284 |
|
|
22,543,527 |
|
|
22,726,645 |
|
|
22,093,578 |
|
| Common - diluted |
22,727,284 |
|
|
22,543,527 |
|
|
22,766,725 |
|
|
22,368,432 |
|
|
Distribution declared per unit |
$ |
0.6675 |
|
|
$ |
0.6225 |
|
|
$ |
1.9875 |
|
|
$ |
1.8225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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|
Sprague Resources
LPVolume, Net Sales and Adjusted Gross Margin by
Segment
|
|
Three Months Ended September
30, |
|
Nine Months Ended September
30, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
|
($ and volumes in
thousands) |
| Volumes: |
|
|
|
|
|
|
| Refined products (gallons) |
246,666 |
|
|
251,496 |
|
|
1,127,154 |
|
|
994,518 |
|
| Natural gas (MMBtus) |
10,705 |
|
|
10,963 |
|
|
43,287 |
|
|
44,677 |
|
| Materials handling (short tons) |
735 |
|
|
603 |
|
|
2,105 |
|
|
1,879 |
|
| Materials handling (gallons) |
137,928 |
|
|
74,214 |
|
|
335,538 |
|
|
301,896 |
|
|
Net Sales: |
|
|
|
|
|
|
|
| Refined products |
$ |
551,489 |
|
|
$ |
425,492 |
|
|
$ |
2,396,374 |
|
|
$ |
1,638,066 |
|
| Natural gas |
46,908 |
|
|
49,694 |
|
|
235,263 |
|
|
235,068 |
|
| Materials handling |
14,711 |
|
|
11,395 |
|
|
42,077 |
|
|
34,118 |
|
| Other operations |
5,347 |
|
|
4,812 |
|
|
17,545 |
|
|
15,574 |
|
| Total net sales |
$ |
618,455 |
|
|
$ |
491,393 |
|
|
$ |
2,691,259 |
|
|
$ |
1,922,826 |
|
| Reconciliation of Operating (Loss) Income
to Adjusted Gross Margin: |
|
|
|
|
|
|
| Operating (loss) income |
$ |
(9,482 |
) |
|
$ |
(6,368 |
) |
|
$ |
73,948 |
|
|
$ |
68,333 |
|
| Operating costs and expenses not
allocated to operating segments: |
|
|
|
|
|
|
| Operating expenses |
21,047 |
|
|
16,891 |
|
|
66,537 |
|
|
50,624 |
|
| Selling, general and administrative |
16,923 |
|
|
17,559 |
|
|
63,349 |
|
|
63,472 |
|
| Depreciation and amortization |
8,343 |
|
|
6,655 |
|
|
25,146 |
|
|
19,537 |
|
| Add/(deduct): |
|
|
|
|
|
|
|
| Unrealized gain (loss) on inventory |
3,281 |
|
|
13,673 |
|
|
(19,309 |
) |
|
(15,374 |
) |
| Unrealized (loss) on prepaid forward contract |
— |
|
|
(667 |
) |
|
— |
|
|
(907 |
) |
| Unrealized gain (loss) on natural gas
transportation contracts |
5,939 |
|
|
760 |
|
|
(4,413 |
) |
|
(6,105 |
) |
| Total adjusted gross margin: |
$ |
46,051 |
|
|
$ |
48,503 |
|
|
$ |
205,258 |
|
|
$ |
179,580 |
|
|
Adjusted Gross Margin: |
|
|
|
|
|
|
|
| Refined products |
$ |
26,646 |
|
|
$ |
32,014 |
|
|
$ |
111,652 |
|
|
$ |
95,307 |
|
| Natural gas |
3,007 |
|
|
3,197 |
|
|
46,010 |
|
|
44,355 |
|
| Materials handling |
14,683 |
|
|
11,395 |
|
|
42,100 |
|
|
34,118 |
|
| Other operations |
1,715 |
|
|
1,897 |
|
|
5,496 |
|
|
5,800 |
|
| Total adjusted gross margin |
$ |
46,051 |
|
|
$ |
48,503 |
|
|
$ |
205,258 |
|
|
$ |
179,580 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sprague Resources
LPReconciliation of Net Income to Non-GAAP
Measures
|
|
Three Months Ended September
30, |
|
Nine Months Ended September
30, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
|
($ in
thousands) |
|
Reconciliation of net (loss) income to EBITDA,
Adjusted EBITDA and Distributable Cash
Flow: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
$ |
(18,434 |
) |
|
$ |
(14,316 |
) |
|
$ |
43,292 |
|
|
$ |
42,391 |
|
|
Add/(deduct): |
|
|
|
|
|
|
|
| Interest expense, net |
8,950 |
|
|
7,095 |
|
|
27,965 |
|
|
22,357 |
|
| Tax provision |
295 |
|
|
853 |
|
|
2,984 |
|
|
3,768 |
|
| Depreciation and amortization |
8,343 |
|
|
6,655 |
|
|
25,146 |
|
|
19,537 |
|
|
EBITDA |
$ |
(846 |
) |
|
$ |
287 |
|
|
$ |
99,387 |
|
|
$ |
88,053 |
|
|
Add/(deduct): |
|
|
|
|
|
|
|
|
Unrealized gain (loss) on inventory |
3,281 |
|
|
13,673 |
|
|
(19,309 |
) |
|
(15,374 |
) |
|
Unrealized (loss) on prepaid forward contract |
— |
|
|
(667 |
) |
|
— |
|
|
(907 |
) |
|
Unrealized gain (loss) on natural gas transportation contracts |
5,939 |
|
|
760 |
|
|
(4,413 |
) |
|
(6,105 |
) |
|
Biofuel tax credit |
— |
|
|
— |
|
|
(4,022 |
) |
|
— |
|
|
Acquisition related expenses (2) |
30 |
|
|
722 |
|
|
725 |
|
|
1,707 |
|
| Other adjustments (3) |
204 |
|
|
— |
|
|
595 |
|
|
— |
|
|
Adjusted EBITDA |
$ |
8,608 |
|
|
$ |
14,775 |
|
|
$ |
72,963 |
|
|
$ |
67,374 |
|
|
Add/(deduct): |
|
|
|
|
|
|
|
| Cash interest expense, net |
(7,619 |
) |
|
(5,360 |
) |
|
(23,960 |
) |
|
(17,155 |
) |
| Cash taxes |
(973 |
) |
|
(723 |
) |
|
(3,034 |
) |
|
(2,814 |
) |
| Maintenance capital expenditures |
(2,586 |
) |
|
(4,322 |
) |
|
(8,321 |
) |
|
(8,535 |
) |
| Elimination of expense relating to incentive
compensation and directors fees expected to be paid in common
units |
(335 |
) |
|
(243 |
) |
|
(91 |
) |
|
1,703 |
|
| Other |
(265 |
) |
|
159 |
|
|
39 |
|
|
897 |
|
|
Distributable cash flow |
$ |
(3,170 |
) |
|
$ |
4,286 |
|
|
$ |
37,596 |
|
|
$ |
41,470 |
|
| (1) |
|
Please refer to
Reconciliation of Non-GAAP Measures. |
| (2) |
|
Beginning in the fourth
quarter of 2017, we excluded the impact of acquisition related
expenses from our calculation of adjusted EBITDA. We incur expenses
in connection with acquisitions and given the nature, variability
of amounts, and the fact that these expenses would not have
otherwise been incurred as part of our continuing operations,
adjusted EBITDA excludes the impact of acquisition related
expenses. Adjusted EBITDA for prior periods have been revised
to conform to this presentation. |
| (3) |
|
Represents the change
in fair value of contingent consideration related to the 2017 Coen
Energy acquisition and other expense. |
| |
|
|
Investor Contact:Susan Kelly Trahan+1
800.225.1560investorrelations@spragueenergy.com
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