Genesis Energy, L.P. — Q2 2013 Form 10-Q
Business context and period. The partnership operates Gulf Coast-focused pipeline transportation, refinery services, and supply and logistics businesses. This unaudited report covers the quarter and six months ended June 30, 2013; dollar amounts below are in millions unless stated otherwise.
Financial performance and position
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $1,213.7 | $1,013.4 | $2,360.9 | $1,974.1 |
| Operating income | $33.7 | $27.7 | $63.8 | $54.4 |
| Net income | $26.9 | $18.6 | $49.7 | $38.2 |
| Net income per common unit | $0.33 | $0.23 | $0.61 | $0.50 |
| Segment Margin | $70.4 | $62.8 | $142.5 | $123.1 |
| Available Cash before Reserves (non-GAAP) | $45.7 | $43.2 | Not stated in the cited discussion | Not stated in the cited discussion |
- Quarterly revenue rose 20%, largely reflecting higher supply and logistics volumes; costs also rose 20%. Management noted crude and petroleum product prices had limited effect on segment margin.
- Q2 Segment Margin increased 12%: pipeline transportation rose 27%, refinery services 8%, and supply and logistics 2%. Six-month Segment Margin increased approximately 16%, led by supply and logistics, up 28%.
- Cash from operations was $95.8 million for the first half, versus $99.3 million a year earlier. Investing activities used $167.0 million, including $107.2 million for fixed and intangible assets and $66.2 million invested in equity investees. Financing activities provided $78.6 million. Cash increased to $18.7 million.
- At June 30, cash was $18.7 million, current assets $486.0 million and current liabilities $396.3 million. Working capital was approximately $89.7 million.
- Total long-term debt was $1,019.9 million: $319.1 million under the secured facility and approximately $700.8 million in unsecured notes. The partnership reported $666.5 million of available revolver capacity and compliance with debt covenants.
- Fixed-asset and intangible-asset expenditures were $113.9 million in the first half; total capital expenditures including equity-investee investments were $180.1 million. The second-quarter distribution of $0.51 per unit, totaling $42.3 million, was scheduled for payment August 14, 2013.
Material changes versus prior periods
- Net income rose 45% in Q2 and 30% for the first half. Revenue increased 20% in both comparisons, with volume growth in supply and logistics a key driver.
- Supply and logistics throughput increased 33% in Q2 and 30% for the first half. Pipeline margin benefited from tariff indexing, higher onshore throughput and improved CHOPS contribution; refinery services benefited from caustic soda sales and pricing.
- Q2 results included approximately $2.5 million of adverse offshore pipeline impacts from production variability and Eugene Island System downtime, and approximately $2.9 million of adverse supply and logistics impacts, including vessel repairs and downtime, demurrage, facility turnaround, hedge ineffectiveness and measurement losses.
- Interest expense increased to $12.3 million in Q2 and $23.7 million for the first half, in part reflecting the February 2013 issuance of $350 million of 5.75% notes. Proceeds were used to repay revolver borrowings and for general partnership purposes.
- Comparative 2012 revenue and cost figures were corrected to present certain sales gross rather than net; management stated the corrections did not affect operating income, net income or Segment Margin.
Outlook, commentary and risks
- No specific earnings guidance was provided. Management said internally generated funds and available credit capacity were expected to meet ordinary-course capital needs, while noting future capital needs depend on access to debt and equity financing.
- The partnership agreed to acquire substantially all of Hornbeck Offshore Transportation’s downstream transportation assets for approximately $230 million, principally nine barges and nine tugboats. Closing was expected by the end of Q3 2013, subject to customary conditions and regulatory approvals; management expected to use revolver capacity.
- Projects under construction were estimated at approximately $580 million in total, including prior spending, with approximately $410 million anticipated in 2013. Projects include Gulf Coast infrastructure, rail facilities, refinery services capacity and the SEKCO deepwater pipeline, expected to enter service by mid-2014.
- Management declared a quarterly distribution of $0.51 per unit, describing it as the partnership’s 32nd consecutive quarterly increase.
- Risks include interruptions or downtime in pipelines, processing facilities and marine operations; commodity and hedging exposure; throughput, customer and refinery activity; acquisition execution and integration; significant capital requirements and financing access; environmental, safety, regulatory and litigation matters. The partnership reported no material expected effect from currently pending lawsuits or regulatory examinations and no material changes to previously disclosed contractual obligations.
Important facts for investors to verify
- Whether the Hornbeck acquisition closed on the expected timetable and its final funding, integration costs and contribution to cash flow.
- Execution, timing and cost of the stated growth projects, including the $580 million project estimate and 2013 spending expectations.
- Whether increased volumes convert into durable segment margin and cash generation, particularly given reported operational disruptions and working-capital sensitivity.
- Debt levels, revolver availability, covenant compliance and the partnership’s capacity to fund capital spending and distributions.
- Distribution coverage: Available Cash before Reserves is a non-GAAP measure, and the filing cautions that it may not be comparable with similarly titled measures at other companies.