Martin Midstream Partners L.P. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. The partnership operates Gulf Coast-focused terminalling and storage, transportation, sulfur services, and natural gas liquids (NGL) businesses. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $201.0 | $198.9 |
| Operating income | $15.7 | $15.6 |
| Net income | $2.5 | $8.8 |
| Net income per limited partner unit | $0.06 | $0.22 |
| Adjusted EBITDA (non-GAAP) | $30.9 | $31.0 |
| Distributable cash flow (non-GAAP) | $12.8 | $18.3 |
| Adjusted free cash flow (non-GAAP) | $9.6 | $11.1 |
| Cash from operating activities | $3.9 | $44.9 |
- Operating margin was approximately 7.8%, broadly flat year over year. Net income fell despite slightly higher revenue and operating income, reflecting interest expense of $13.0 million versus $9.9 million and the absence of the prior-year $3.5 million gain on retirement of senior unsecured notes.
- Operating cash flow declined 91%, primarily due to an unfavorable $39.0 million working-capital variance and lower operating results. Capital spending and turnaround costs totaled $4.2 million; financing cash outflow was $3.5 million.
- At March 31, cash was $1.1 million and total assets were $570.2 million. Partners’ capital remained in deficit at $44.3 million.
- Balance-sheet debt, net of issuance costs, was $513.3 million: revolving facility borrowings of $172.5 million and secured notes of $340.8 million. Management separately reports $176.0 million drawn on the revolver, apparently before debt issuance costs. The $28.8 million 2021 notes matured and were repaid in February using revolver borrowings.
- The $300 million revolving facility matures August 2023. Letters of credit were $20.4 million; stated undrawn capacity was $103.6 million, but additional borrowing capacity after financial covenants was approximately $29.3 million. The partnership reported compliance with debt covenants.
- Quarterly cash distribution declared after quarter-end was $0.005 per common unit, or $0.020 annualized.
Changes versus Q1 2020
- Revenue increased 1.1%, but performance varied by segment. NGL revenue rose 19% and operating income rose to $11.1 million, supported by higher market prices and improved per-barrel margins despite 12% lower sales volume.
- Transportation revenue fell 25% and the segment recorded a $1.3 million operating loss, as lower marine utilization, tows, rates, and land miles weighed on results.
- Sulfur services revenue rose 23%, largely reflecting higher selling prices, but operating income fell to $6.4 million from $11.3 million. Q1 2020 included $6.8 million of other operating income, including insurance recoveries and asset-disposal gains; 2021 sulfur volumes were lower.
- Terminalling and storage revenue declined 22%, in part following the sale of the Mega Lubricants shore-based terminal assets in December 2020. Segment operating income increased to $3.4 million from $1.0 million, partly because prior-year other operating losses did not recur.
- Interest expense increased 31%, primarily because of higher senior-note interest costs. Distributable cash flow declined 30%.
Outlook, risks and notable items
- Management expected COVID-19-related pressure on transportation to continue through mid-2021, while anticipating improved refinery utilization in the second half as vaccinations and economic recovery support refined-product demand. The filing provides no numerical earnings or cash-flow guidance.
- Winter Storm Uri reduced Gulf Coast refinery activity and affected transportation and sulfur services. The Smackover refinery was offline for about nine days and resumed operations March 9 after coordination with its planned turnaround.
- Management warned that prolonged pandemic effects could harm results, liquidity, asset recoverability, inventory values, and credit-loss estimates; it reported no material pandemic-related financial-statement impact as of March 31.
- Commodity prices and variable-rate debt are material exposures. A $0.10 change in expected NGL hedge settlement prices was estimated to affect net income by about $0.9 million; a 100-basis-point rate increase was estimated to add about $1.8 million of annual interest expense.
- The revolver restricts distributions above $0.005 per unit unless the leverage ratio is below 3.75:1. The distribution declared was at the stated threshold.
- A customer’s disputed request for defense and indemnity related to motor-oil marketing litigation remains unresolved. The partnership says its exposure, if any, cannot currently be determined. Management believes other ordinary-course legal matters will not have a material adverse effect.
- Related-party transactions are significant: Martin Resource Management Corporation controls the general partner, supplies services, and accounted for approximately 10% of revenue; related-party costs were approximately 19% of total costs and expenses in the quarter.
Most important facts for investors to verify
- Reconcile the reported $176.0 million revolver balance in MD&A with the $172.5 million net carrying amount on the balance sheet, and monitor covenant-adjusted borrowing capacity and maturities.
- Track operating cash flow and working-capital movements, given the sharp year-over-year decline and low quarter-end cash balance.
- Assess whether transportation activity recovers as refinery utilization improves, and whether NGL and sulfur margins persist if commodity prices or volumes change.
- Review distribution sustainability against distributable cash flow, debt covenants, and the $0.005-per-unit distribution limit.
- Monitor the unresolved customer indemnity matter, COVID-19 and severe-weather effects, and the partnership’s substantial related-party dependence.