Genesis Energy, L.P. (NYSE: GEL) today announced its first
quarter results.
We generated the following financial results for the first
quarter of 2020:
- Net Income Attributable to Genesis Energy, L.P. of $24.9
million for the first quarter of 2020 compared to Net Income
Attributable to Genesis Energy, L.P. of $16.0 million for the same
period in 2019.
- Cash Flows from Operating Activities of $89.6 million for the
first quarter of 2020 compared to $114.0 million for the same
period in 2019.
- Total Segment Margin in the first quarter of 2020 of $169.3
million.
- Available Cash before Reserves to common unitholders of $81.8
million for the first quarter of 2020, which provided 4.45X
coverage for the quarterly distribution of $0.15 per common unit
attributable to the first 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 $164.4 million in the first quarter of 2020.
Our bank leverage ratio, calculated consistent with our credit
agreement, is 5.13X as of March 31, 2020 and is discussed further
in this release.
Grant Sims, CEO of Genesis Energy, said, “For the quarter, our
diversified businesses delivered financial results consistent with,
if not slightly greater than, our expectations. The results were
positively driven by solid pipeline volumes out of the Gulf of
Mexico, strong crude-by-rail volumes out of Canada and robust
demand for marine transportation across our different classes of
assets. During the quarter, however, we began to recognize the
prospective challenges from two exogenous events.
While we are not directly impacted by the price of crude oil,
when the OPEC Plus deal fell apart around March 1, the differential
between Canadian barrels at their source and the Gulf Coast
collapsed, making crude-by-rail out of Canada uneconomic. Volumes
have gone to zero as of April 1, and we would expect them to remain
so for the rest of the year. We do have certain protections to the
downside in terms of minimum take-or-pay volumes, but we expect to
experience some $15-$20 million less in terms of reported margin
than what we would have otherwise expected for the remainder of
2020.
Of more significance to us, and what should be to virtually
every other energy/industrial company, is the across the board
demand destruction resulting from shutting down substantial
economic activity worldwide as we deal with COVID-19. This demand
destruction will, in our opinion, significantly pressure crude
prices worldwide for an extended period of time, notwithstanding
the apparent production cuts that are scheduled to occur. It will
also pressure the demand for finished products for which soda ash
and sodium hydrosulfide are building blocks.
Because of the challenges presented by these events, which are
by no means unique or necessarily any more challenging to Genesis,
we made the pro-active decision to reduce our quarterly
distribution, saving approximately $200 million a year for the
foreseeable future which will be used to directly pay down debt and
manage and maintain our financial flexibility. We also amended our
senior secured revolving credit facility to give us more
flexibility in managing our total outstanding debt. Finally, we
amended our agreements with GSO Capital Partners to allow us to
delay the expenditures associated with our Granger optimization
project by as much as twelve months. We still believe in the
economics of the expansion but felt it was appropriate in the
current operating environment to somewhat delay the date of first
production. We believe these actions and lack of future capital
needs give us all the flexibility we need to manage throughout the
rest of this year and successfully into the future.
We expect volumes out of the Gulf of Mexico to remain strong and
growing through this year and in the years to come. We currently do
not know of or expect any significant production that flows on our
systems to be intentionally shut in due to the current crude oil
price environment. While certain new projects that have yet to be
sanctioned might be delayed under the current circumstances, we see
little risk to the completion of, or significant delays, in the
contracted and known/sanctioned projects in progress like Atlantis
Phase 3, Argos and King’s Quay that will flow exclusively through
our pipelines for decades to come.
In onshore facilities and transportation, for the remainder of
the year, there are contango opportunities that will help to
offset, but by no means totally make up for, lost margin from
crude-by-rail out of Canada. In addition, we expect marine
fundamentals to remain relatively consistent with the first
quarter, and any future softening, especially in the brown water
world, might lead us to redeploying our assets as floating storage
to take advantage of contango.
The second quarter for certain is going to be challenging from a
volume perspective for our sodium and sulfur businesses. Our legacy
refinery services business has experienced some short term volume
loss, especially in South America as mining activities have been
curtailed or shuttered in response to mitigating COVID-19. We
expect these volumes to come back as soon as more and more of the
activity restrictions are lifted. Volumes in the soda ash business
are challenged because of dramatic reductions in demand, including
primarily export markets. We have reacted to this demand
destruction by putting our Granger facility in “hot hold” mode,
probably through the end of September, thereby reducing our total
production by some 300,000 tons. We believe this is necessary to
balance our annual production with our total anticipated sales,
both domestically and internationally for 2020.
Looking forward for the remainder of 2020, and assuming a
challenging operating environment for the second and third
quarters, we would reasonably expect to finish the year at the
bottom end of our previous guidance for Adjusted EBITDA, if not
below, primarily due to the mitigation efforts and demand impacts
related to the COVID-19 pandemic. However, given the action we took
on our distribution in late March, it is important to point out
that our annual fixed obligations are now approximately $410-$420
million, before growth capital and ARO. Given our de minimis growth
capital requirements for the foreseeable future, outside of the
Granger expansion which can be funded through our agreements with
GSO Capital Partners, we have no need to access the capital markets
and expect to be a net payer of debt in 2020 and beyond.
Therefore, we believe we have taken all the necessary steps and
have all the tools we need in place to navigate through the
challenges ahead and manage our balance sheet, especially
compliance with our total funded debt covenant. There will be a
recovery. The only question is when and whether such recovery is
V-shaped, U-shaped or like the “Nike swoosh”. We have confidence in
the resiliency of our businesses. They have existed, survived and
thrived for many decades, across and through numerous previous
cycles. There’s no reason to doubt that they will again.
I would like to recognize our entire workforce, and specifically
our miners, mariners and offshore personnel during this time of
social distancing. I am proud to say we have safely operated all of
our assets under our own COVID-19 safety procedures with no impact
to our customers and limited confirmed cases amongst our 2,200
employees. As always, we intend to be prudent, diligent and
intelligent in achieving long-term value for all our stakeholders
without ever losing our commitment to safe, reliable and
responsible operations.”
Financial Results
Segment Margin
Variances between the first quarter of 2020 (the “2020 Quarter”)
and the first 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 March 31,
2020
2019
(in thousands)
Offshore pipeline transportation
$
85,246
$
76,390
Sodium minerals and sulfur services
36,941
58,639
Onshore facilities and transportation
28,099
25,603
Marine transportation
19,002
12,932
Total Segment Margin
$
169,288
$
173,564
Offshore pipeline transportation Segment Margin for the 2020
Quarter increased $8.9 million, or 12%, from the 2019 Quarter,
primarily due to higher volumes on our crude oil pipeline systems.
These increased volumes are primarily the result of first oil flow
from the Buckskin and Hadrian North production fields during the
second quarter of 2019, both of which are fully dedicated to our
SEKCO pipeline, and further downstream, our Poseidon oil pipeline
system ("Poseidon"). Additionally, during the second half of 2019,
we entered into agreements to move sixty thousand barrels per day
on either CHOPS or Poseidon that are delivered to us by a
third-party pipeline that has insufficient capacity. These
agreements contain ship-or-pay provisions, have terms as long as
five years and required no additional capital on our part.
Sodium minerals and sulfur services Segment Margin for the 2020
Quarter decreased $21.7 million, or 37%, 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 the rest of 2020
and until we re-contract such pricing at the end of the year for
2021 volumes. This was coupled with lower domestic sales of soda
ash during the 2020 Quarter. We expect to see lower soda ash sales
volumes in the next few quarters as a result of COVID-19 and until
restrictions are lifted globally. In our refinery services
business, we experienced a decline in NaHS volumes during the 2020
Quarter due to lower demand from certain of our domestic mining and
pulp and paper customers. Costs impacting the results of our sodium
minerals and sulfur services segment include costs associated with
processing and producing soda ash (and other alkali specialty
products), NaHS and marketing and selling activities. In addition,
costs include activities associated with mining and extracting
trona ore (including energy costs and employee compensation).
Onshore facilities and transportation Segment Margin for the
2020 Quarter increased $2.5 million, or 10%, from the 2019 Quarter.
This increase is primarily due to increased volumes on our Texas
and Louisiana crude oil pipeline systems, and slightly increased
overall volumes at our rail unload facilities. During the 2020
Quarter, we were able to recognize incremental margin on the
increased volumes on our Texas system as our main customer utilized
all of its prepaid transportation credits during 2019.
Additionally, our pipeline, rail and terminal assets in the Baton
Rouge corridor had significantly higher volumes during the 2020
Quarter as the 2019 Quarter was negatively impacted by production
curtailments imposed by the government of Alberta. These increases
were partially offset by lower volumes at our Raceland rail
facility during the 2020 Quarter.
Marine transportation Segment Margin for the 2020 Quarter
increased $6.1 million, or 47%, 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
along with reported utilization level of 99.4%. In our inland
business, we continued to see increased day rates throughout the
period which more than offset the slightly lower utilization
reported. 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 Income Attributable to
Genesis Energy, L.P. of $24.9 million compared to Net Income
Attributable to Genesis Energy, L.P. of $16.0 million in the 2019
Quarter. Net Income Attributable to Genesis Energy, L.P. in the
2020 Quarter benefited from: (i) an unrealized gain from the
valuation of the embedded derivative associated with our Class A
Convertible Preferred Units of $32.5 million compared to an
unrealized loss of $3.0 million during the 2019 quarter recorded in
other income (expense); (ii) lower general and administrative
expenses of $2.3 million primarily due to the assumptions used to
value our long term incentive compensation plans during the 2020
Quarter; and (iii) lower depreciation, depletion and amortization
expense of $3.3 million. These increases were offset by: (i) the
transaction costs and write-off of the unamortized issuance costs
and discount associated with the extinguishment of our 2022 Notes
of $23.5 million during the 2020 Quarter included in other income
(expense); (ii) lower segment margin during the 2020 Quarter of
$4.3 million; and (iii) $4.1 million of our Net Income during the
2020 Quarter being attributed to our redeemable noncontrolling
interests.
Earnings Conference Call
We will broadcast our Earnings Conference Call on Wednesday, May
6, 2020, at 9 a.m. Central time (10 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 March 31,
2020
2019
REVENUES
$
539,923
$
620,009
COSTS AND EXPENSES: Costs of sales and operating
expenses
397,031
468,656
General and administrative expenses
9,373
11,686
Depreciation, depletion and amortization
74,357
77,638
OPERATING INCOME
59,162
62,029
Equity in earnings of equity investees
14,159
12,997
Interest expense
(54,965
)
(55,701
)
Other income (expense)
10,258
(2,976
)
INCOME BEFORE INCOME TAXES
28,614
16,349
Income tax (expense) benefit
365
(402
)
NET INCOME
28,979
15,947
Net loss attributable to noncontrolling interests
16
7
Net income attributable to redeemable noncontrolling interests
(4,086
)
-
NET INCOME ATTRIBUTABLE TO GENESIS ENERGY, L.P.
$
24,909
$
15,954
Less: Accumulated distributions attributable to Class A Convertible
Preferred Units
(18,684
)
(18,415
)
NET INCOME (LOSS) AVAILABLE TO COMMON UNITHOLDERS
$
6,225
$
(2,461
)
NET INCOME (LOSS) PER COMMON UNIT: Basic and Diluted
$
0.05
($
0.02
)
WEIGHTED AVERAGE OUTSTANDING COMMON UNITS: Basic and Diluted
122,579
122,579
GENESIS ENERGY, L.P.
OPERATING DATA - UNAUDITED
(in thousands, except number of units)
Three Months Ended March 31,
2020
2019
Offshore Pipeline Transportation Segment Crude oil
pipelines (barrels/day unless otherwise noted): CHOPS
242,182
241,754
Poseidon (1)
279,181
253,469
Odyssey (1)
149,440
151,877
GOPL
7,249
8,337
Offshore crude oil pipelines total
678,052
655,437
Natural gas transportation volumes (MMBBtus/d) (1)
416,564
419,999
Sodium Minerals and Sulfur Services Segment NaHS (dry
short tons sold)
30,082
35,743
Soda Ash volumes (short tons sold)
822,247
870,529
NaOH (caustic soda) volumes (dry short tons sold) (2)
16,303
20,802
Onshore Facilities and Transportation Segment Crude
oil pipelines (barrels/day): Texas
84,499
42,981
Jay
10,013
11,483
Mississippi
6,409
5,916
Louisiana (3)
162,736
95,824
Onshore crude oil pipelines total
263,657
156,204
Free State- CO2 Pipeline (Mcf/day)
134,834
105,991
Crude oil and petroleum products sales (barrels/day)
26,118
33,752
Rail unload volumes (barrels/day) (4)
94,040
85,090
Marine Transportation Segment Inland Fleet
Utilization Percentage(5)
93.4
%
96.6
%
Offshore Fleet Utilization Percentage(5)
99.4
%
96.3
%
(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 months
ended March 31, 2020 includes 44,322 barrels per day of
intermediate refined products associated with our Port of Baton
Rouge Terminal pipelines. Total daily volume for the three months
ended March 31, 2019 includes 52,302 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
March 31,2020 December 31,2019
ASSETS Cash, cash equivalents
and restricted cash
$
41,509
$
56,405
Accounts receivable - trade, net
315,645
417,002
Inventories
70,161
65,137
Other current assets
69,565
54,530
Total current assets
496,880
593,074
Fixed assets and mineral leaseholds, net
4,811,353
4,850,300
Investment in direct financing leases, net
105,251
107,702
Equity investees
327,942
334,523
Intangible assets, net
136,071
138,927
Goodwill
301,959
301,959
Right of use assets, net
175,889
177,071
Other assets, net
79,113
94,085
Total assets
$
6,434,458
$
6,597,641
LIABILITIES AND CAPITAL Accounts payable - trade
151,868
218,737
Accrued liabilities
172,941
196,758
Total current liabilities
324,809
415,495
Senior secured credit facility
977,400
959,300
Senior unsecured notes, net of debt issuance costs
2,463,171
2,469,937
Deferred tax liabilities
12,125
12,640
Other long-term liabilities
366,281
393,850
Total liabilities
4,143,786
4,251,222
Mezzanine capital: Class A convertible preferred units
790,115
790,115
Redeemable noncontrolling interests
129,219
125,133
Partners' capital: Common unitholders
1,382,126
1,443,320
Accumulated other comprehensive loss
(8,431
)
(8,431
)
Noncontrolling interests
(2,357
)
(3,718
)
Total partners' capital
1,371,338
1,431,171
Total liabilities, mezzanine capital and partners' capital
$
6,434,458
$
6,597,641
Common Units Data: Total common units outstanding
122,579,218
122,579,218
GENESIS ENERGY, L.P.
RECONCILIATION OF NET INCOME TO SEGMENT
MARGIN - UNAUDITED
(in thousands)
Three Months Ended
March 31,
2020
2019
Net income attributable to Genesis Energy, L.P.
$
24,909
$
15,954
Corporate general and administrative expenses
6,492
11,100
Depreciation, depletion, amortization and accretion
75,978
79,937
Interest expense, net
54,965
55,701
Income tax expense (benefit)
(365
)
402
Equity compensation adjustments
-
65
Provision for leased items no longer in use
(130
)
(190
)
Redeemable noncontrolling interest redemption value adjustments (1)
4,086
-
Plus (minus) Select Items, net
3,353
10,595
Segment Margin (2)
$
169,288
$
173,564
(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 TO
ADJUSTED EBITDA AND AVAILABLE CASH BEFORE RESERVES-
UNAUDITED
(in thousands)
Three Months Ended March 31,
2020
2019
(in thousands)
Net income attributable to Genesis Energy, L.P.
$
24,909
$
15,954
Interest expense, net
54,965
55,701
Income tax (benefit) expense
(365
)
402
Depreciation, depletion, amortization, and accretion
75,978
79,937
EBITDA
155,487
151,994
Redeemable noncontrolling interest redemption value adjustments (1)
4,086
-
Plus (minus) Select Items, net
4,806
12,016
Adjusted EBITDA
164,379
164,010
Maintenance capital utilized(2)
(8,800
)
(6,125
)
Interest expense, net
(54,965
)
(55,701
)
Cash tax expense
(150
)
(150
)
Cash distributions to preferred unitholders(3)
(18,684
)
(6,138
)
Available Cash before Reserves(4)
$
81,780
$
95,896
(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 $20.6 million and $18.0 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 May 15,
2020 to unitholders of record at close of business on May 1,
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 March 31,
2020
2019
Cash Flows from Operating Activities
$
89,552
$
114,021
Adjustments to reconcile net cash flow provided by operating
activities to Adjusted EBITDA: Interest Expense, net
54,965
55,701
Amortization and write-off of debt issuance costs and discount
(11,527
)
(2,682
)
Effects of available cash from equity method investees not included
in operating cash flows
7,060
5,425
Net effect of changes in components of operating assets and
liabilities
(7,534
)
(3,200
)
Non-cash effect of long-term incentive compensation plans
5,027
(1,702
)
Expenses related to acquiring or constructing growth capital assets
-
117
Differences in timing of cash receipts for certain contractual
arrangements (1)
4,490
(2,287
)
Loss on debt extinguishment (2)
23,480
-
Other items, net
(1,134
)
(1,383
)
Adjusted EBITDA
$
164,379
$
164,010
(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)
Includes our transaction costs associated
with the tender of $527.9 million and redemption of $222.1 million
of our 2022 Notes in the first quarter of 2020, along with the
write-off of the unamortized issuance costs and discount associated
with these notes.
GENESIS ENERGY, L.P.
ADJUSTED DEBT-TO-ADJUSTED CONSOLIDATED
EBITDA RATIO - UNAUDITED
(in thousands)
March 31, 2020 Senior secured credit facility
$
977,400
Senior unsecured notes
2,463,171
Less: Outstanding inventory financing sublimit borrowings
(7,700
)
Less: Cash and cash equivalents
(3,983
)
Adjusted Debt (1)
$
3,428,888
Pro Forma LTM March 31, 2020 Adjusted Consolidated EBITDA
(per our senior secured credit facility) (2)
$
668,965
Adjusted Debt-to-Adjusted Consolidated EBITDA 5.13X
(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)
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, 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), the outbreak 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 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 March 31,
2020
2019
I. Applicable to all Non-GAAP Measures Differences in timing
of cash receipts for certain contractual arrangements(1)
$
4,490
$
(2,287
)
Adjustment regarding direct financing leases(2)
2,238
2,028
Certain non-cash items: Unrealized losses (gains) on derivative
transactions excluding fair value hedges, net of changes in
inventory value(3)
(31,002
)
3,865
Loss on debt extinguishment (4)
23,480
-
Adjustment regarding equity investees(5)
6,406
4,828
Other
(2,259
)
2,161
Sub-total Select Items, net(6)
3,353
10,595
II. Applicable only to Adjusted EBITDA and Available Cash before
Reserves Certain transaction costs(7)
-
117
Equity compensation adjustments
-
(137
)
Other
1,453
1,441
Total Select Items, net(8)
$
4,806
$
12,016
(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 $32.5 million
unrealized gain from the valuation of the embedded derivative
associated with our Class A Convertible Preferred units and the
2019 Quarter includes a $3.0 million unrealized loss from the
valuation of the embedded derivative.
(4)
Includes our transaction costs associated
with the tender of $527.9 million and redemption of $222.1 million
of our 2022 Notes in the first quarter of 2020, along with the
write-off of the unamortized issuance costs and discount associated
with these notes.
(5)
Represents the net effect of adding
distributions from equity investees and deducting earnings of
equity investees net to us.
(6)
Represents all Select Items applicable to
Segment Margin, Adjusted EBITDA and Available Cash before
Reserves.
(7)
Represents transaction costs relating to
certain merger, acquisition, transition, and financing transactions
incurred in acquisition activities.
(8)
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/20200506005353/en/
Genesis Energy, L.P. Ryan Sims SVP - Finance and Corporate
Development (713) 860-2521
Genesis Energy (NYSE:GEL)
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