MMLP

Business Context and Reporting Period

Company: Martin Midstream Partners L.P.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: A publicly traded limited partnership focused on the U.S. Gulf Coast region with four primary segments: terminalling and storage, natural gas services, marine transportation, and sulfur services. The Partnership is closely affiliated with Martin Resource Management, which owns approximately 34.9% of the limited partnership interest and controls the general partner.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 58% ($180.3 million) for the three months ended June 30, 2009, compared to the same period in 2008. This was primarily driven by a 59% drop in natural gas services revenues and a 78% drop in sulfur services revenues due to significantly lower commodity prices.
• Operating Income Increase: Despite the revenue decline, operating income increased 156% to $11.0 million for the quarter. This improvement was largely due to a $5.1 million gain on the sale of the Mont Belvieu railcar unloading facility and improved margins in the terminalling and sulfur segments.
• Segment Performance:
  • Terminalling & Storage: Operating income increased 181% to $7.7 million, boosted by the asset sale gain.
  • Natural Gas Services: Operating income improved from a loss of $2.7 million to a profit of $0.6 million, despite a 59% revenue drop, due to lower costs and hedging activities.
  • Marine Transportation: Operating income turned negative ($1.8 million loss) compared to a $2.0 million profit in 2008, due to decreased charter rates and vessel downtime.
  • Sulfur Services: Operating income increased 52% to $5.9 million despite an 81% drop in average sales prices, as costs decreased more significantly than revenues.
• Equity in Earnings: Equity in earnings of unconsolidated entities decreased 76% to $1.0 million, primarily due to the Waskom plant shutdown for expansion.

Guidance, Outlook, Risks, and Unusual Items

• Unusual Items: The financial results for the quarter include a one-time gain of approximately $5.3 million from the sale of the Mont Belvieu railcar unloading facility. Additionally, the Partnership recorded a non-cash charge of $1.3 million related to hurricane damage (Gustav and Ike) with an expected insurance recovery of $2.6 million.
• Liquidity and Capital Resources: The Partnership maintains $25.7 million in availability under its revolving credit facility. Management notes that the current economic crisis and credit market constraints may limit access to capital for new projects. The focus remains on maintaining liquidity and the current distribution rate.
• 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.
  • Shareholder Litigation: A lawsuit between Scott D. Martin and Ruben S. Martin, III regarding Martin Resource Management governance resulted in a judgment awarding damages and specific performance. The judgment is currently stayed pending appeal. The Partnership is not a party to this suit.
• Commodity Hedging: As of June 30, 2009, the Partnership had hedged approximately 56% of its 2009 commodity risk by volume. Hedging activities resulted in non-cash mark-to-market adjustments that impacted reported revenues.

Investor Verification Checklist

• Asset Sale Impact: Verify the sustainability of operating income by excluding the $5.1 million gain from the Mont Belvieu facility sale.
• Commodity Price Exposure: Assess the impact of continued low natural gas and sulfur prices on future margins, noting that 56% of 2009 volumes are hedged.
• Debt Covenants: Confirm continued compliance with credit facility covenants, specifically the EBITDA to interest expense ratio (minimum 3.0:1) and total funded debt to EBITDA (maximum 4.75:1).
• Related Party Transactions: Review the extent of reliance on Martin Resource Management for management services, land transportation, and storage, which accounted for significant portions of costs and revenues.
• Legal Contingencies: Monitor the status of the Coast Guard investigation and the appeal of the Martin vs. Martin litigation, as outcomes could affect management stability or result in fines.