Martin Midstream Partners L.P. — 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. The filing also reports fourth-quarter results. The Partnership provides Gulf Coast-focused terminalling and storage, transportation, sulfur services, and natural gas liquids (NGL) services.
Financial performance and liquidity
Amounts below are in millions of dollars unless otherwise noted.
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $672.1 | $847.1 | Down 20.7% |
| Operating income | $46.5 | $58.1 | Down 20.0% |
| Net income (loss) | $(6.8) | $(174.9) | 2019 included a large discontinued-operations loss |
| Net income (loss) from continuing operations | $(6.8) | $4.5 | Turned to a loss |
| EBITDA from continuing operations | $102.6 | $118.2 | Down 13.2% |
| Adjusted EBITDA from continuing operations | $94.9 | $108.3 | Down 12.4% |
| Distributable cash flow from continuing operations | $39.7 | $41.8 | Down 4.9% |
| Cash from operating activities | $64.8 | $75.8 | Down 14.5% |
| Capital expenditures and plant turnaround costs | $30.1 | $36.3 | Down |
Cash and cash equivalents were $5.0 million at year-end. Current assets were $135.6 million and current liabilities were $119.4 million. The Partnership reported approximately $525.5 million of debt outstanding, including $148.0 million drawn on its revolving facility. Although the facility had $135.3 million of nominal remaining capacity after borrowings and letters of credit, financial covenants limited additional borrowing to approximately $20.5 million.
Interest expense was $46.2 million, down from $51.7 million. The Partnership reported a net loss of $0.17 per limited partner unit for 2020, compared with a net loss of $4.44 in 2019; the 2019 result was heavily affected by a $179.5 million discontinued-operations loss.
Material changes and notable items
- COVID-19-related demand weakness and lower refinery utilization particularly affected Transportation and NGL operations. Revenue fell in all four segments; NGL revenue declined 32% and Transportation revenue declined 18%.
- Segment operating income after eliminations was $22.2 million for Terminalling and Storage, $22.1 million for NGL, and $36.3 million for Sulfur Services. Transportation recorded a $16.1 million operating loss, compared with a $7.4 million loss in 2019.
- The Partnership sold Mega Lubricants for $22.4 million in December 2020, recording a $10.1 million gain and using the proceeds to repay revolver borrowings. The sale was not presented as discontinued operations.
- An August 2020 exchange and tender transaction restructured most of the 7.25% notes due 2021 into $292.0 million of 11.5% secured notes due 2025 and $53.8 million of 10.0% secured notes due 2024, alongside cash payments. The Partnership recorded an $8.8 million exchange loss and a $3.5 million gain on retirement of notes.
- In February 2021, the remaining $28.8 million of 2021 notes matured and was repaid using the revolving credit facility.
- Reported 2020 operating income included a $4.9 million gain on involuntary conversion of property, plant and equipment, insurance-related recoveries and asset-disposition gains. The Partnership also recorded $4.4 million of long-lived asset impairments. No goodwill impairment was recorded.
- Cash distributions fell to $0.14 per common unit for 2020 from $1.25 in 2019. The fourth-quarter 2020 distribution was $0.005 per unit, or $0.02 annualized, paid in February 2021.
Outlook, risks and other disclosures
Management expected some adverse COVID-19 effects on Transportation in the first half of 2021, while anticipating improved refinery utilization and service demand in the second half. This outlook is uncertain; the filing provides no quantified earnings or cash-flow guidance. Management said the pandemic’s duration and financial effects could not be predicted.
- The credit facility restricts quarterly distributions above $0.005 per unit unless the defined total leverage ratio is below 3.75:1, and prohibits distributions in specified default or covenant circumstances. The Partnership said it was covenant-compliant at year-end and expected compliance over the next 12 months.
- Key risks include high indebtedness, limited covenant-based borrowing capacity, refinancing and interest-rate exposure, reduced demand for refined products, customer and counterparty credit risk, commodity-price volatility, weather and operational interruptions, environmental liabilities, and the Partnership’s dependence on Martin Resource Management Corporation (MRMC).
- MRMC owns 15.7% of the common units, controls the general partner, supplies operating personnel and support services, and is a significant customer and supplier. The Partnership reimbursed MRMC $125.3 million in direct costs and expenses and $16.4 million in indirect expenses in 2020. Related-party sales represented about 13% of 2020 revenue.
- The filing describes an unresolved customer-related defense and indemnity dispute; management said it could not determine the Partnership’s potential exposure if the case is reopened or the related insurance claim succeeds. Management did not believe ordinary-course legal matters, in aggregate, would materially affect the Partnership.
- The independent auditor issued an unqualified opinion on the financial statements and identified goodwill valuation for Terminalling and Storage as a critical audit matter. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor was not engaged to attest to internal-control effectiveness.
Investor verification points
- Review the amended credit agreement, covenant calculations, and actual borrowing availability after the February 2021 note repayment.
- Assess whether operating cash flow and distributable cash flow can support debt service, required capital spending, and the minimum distribution.
- Track recovery in refinery utilization and the resulting Transportation and NGL volumes, margins, and segment performance.
- Verify the economics and continuing effects of the 2020 debt exchange, including the 10.0% and 11.5% secured-note obligations and their collateral priority.
- Evaluate the sustainability of gains, insurance recoveries, asset sales, and other items affecting reported segment results and adjusted EBITDA.
- Review MRMC-related expenses, commercial dependence, governance conflicts, and the status of the customer indemnity and insurance dispute.