MMLP

Business Context and Reporting Period

Company: Martin Midstream Partners L.P.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Business Overview: A publicly traded limited partnership operating in the U.S. Gulf Coast region with four primary segments: terminalling and storage, natural gas services, marine transportation, and sulfur services. The Partnership is managed by Martin Midstream GP LLC, a subsidiary of Martin Resource Management (MRMC), which owns approximately 35.7% of the outstanding units.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 58% for the three months and 55% for the nine months ended September 30, 2009, compared to the same periods in 2008. This was primarily driven by significantly lower commodity prices for natural gas, NGLs, and sulfur.
• Segment Performance:
  • Natural Gas Services: Revenues dropped 45% (Q3) and 53% (YTD) due to lower prices, though margins improved due to contract revisions.
  • Sulfur Services: Revenues plummeted 89% (Q3) and 79% (YTD) due to an 88% decrease in average sales prices.
  • Terminalling and Storage: Operating income increased 66% YTD, aided by a $5.3 million gain on the sale of the Mont Belvieu railcar unloading facility.
• Capital Expenditures: Capital expenditures for property and equipment decreased significantly to $31.7 million for the nine months ended September 30, 2009, compared to $72.2 million in the prior year period, reflecting a strategy to maximize liquidity.
• Asset Disposal: The Partnership sold the Mont Belvieu railcar unloading facility in April 2009 for net proceeds of $19.6 million, recognizing a gain of $5.3 million.

Guidance, Outlook, Risks, and Unusual Items

• Credit Facility Risk: The Partnership's $225 million credit facility expires on November 9, 2010. Management is actively seeking an extension or replacement. There is a risk of default on the debt-to-EBITDA leverage ratio covenant as of December 31, 2009, unless pending transactions with MRMC are consummated.
• Subsequent Events (Nov 4, 2009):
  • Asset Contribution: Agreed to acquire specialty lubricants processing assets from MRMC for $45 million in exchange for new common and subordinated units.
  • Equity Investment: Agreed to receive a $20 million cash investment from MRMC in exchange for new common units. Proceeds will be used to repay debt.
• Legal Proceedings:
  • Coast Guard Investigation: An investigation is ongoing regarding a potential violation of the Act to Prevent Pollution from Ships involving the tug Martin Explorer. No formal charges have been asserted.
  • MRMC Litigation: Ongoing litigation between executive officers of MRMC (Scott D. Martin vs. Ruben S. Martin, III) regarding governance and fiduciary duties. While the Partnership is not a party, the outcome could impact control of the General Partner and trigger credit facility defaults.
• Hedging: As of September 30, 2009, the Partnership had hedged approximately 56% of its 2009 commodity risk and 27% of its 2010 risk by volume.

Investor Verification Checklist

• Credit Facility Status: Verify the status of the credit facility extension/amendment process and the consummation of the pending MRMC asset contribution and equity investment to ensure compliance with leverage covenants.
• Commodity Price Exposure: Assess the impact of continued low commodity prices on the Natural Gas and Sulfur segments, which drive the majority of revenue volatility.
• Related Party Transactions: Review the terms of the new Tolling Agreement and the pricing of the new units issued to MRMC to ensure fairness to existing unitholders.
• Litigation Impact: Monitor the resolution of the MRMC internal litigation and the Coast Guard investigation for potential financial liabilities or governance disruptions.
• Liquidity Position: Confirm that cash flows from operations and available credit ($22.9 million as of Sept 30, 2009) are sufficient to fund distributions and maintenance capital expenditures.