Genesis Energy, L.P. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2015. Unaudited results. Genesis is a Gulf Coast-focused midstream master limited partnership operating pipeline, refinery services, marine transportation, and supply and logistics businesses.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Revenue | $526.9 million | $1,019.7 million, down 48% |
| Operating income | $24.8 million | $35.4 million |
| Net income | $20.2 million | $29.8 million |
| Net income per common unit | $0.21 | $0.34 |
| Segment Margin (non-GAAP) | $94.1 million | $77.4 million, up 22% |
| Available Cash before Reserves (non-GAAP) | $64.0 million | $53.4 million, up 20% |
| Operating cash flow | $62.5 million | $106.1 million |
| Capital expenditures | $125.5 million | $102.9 million |
- Lower commodity prices drove the sharp decline in reported revenue and costs: average WTI fell 50% year over year, to $48.64 per barrel. Management said the effect on Segment Margin is more limited because much activity is fee-based, hedged, or structured with offsetting purchases and sales.
- Cash and cash equivalents were $11.1 million at quarter-end. Current assets of $307.9 million were below current liabilities of $342.6 million.
- Total long-term debt was $1.699 billion, up from $1.601 billion at December 31, 2014. This included $648.4 million drawn on a $1 billion revolving credit facility; reported remaining borrowing availability was $340.4 million, including the effect of letters of credit. Genesis was in compliance with debt covenants.
- Operating cash flow fell primarily because of higher working-capital needs. Cash used in investing activities was $103.6 million; financing activities provided $42.8 million, including net credit-facility borrowings.
Material changes and operating drivers
- Offshore pipeline Segment Margin rose to $25.2 million from $13.4 million, mainly reflecting SEKCO joint-venture minimum fees and its start of crude throughput in January 2015. Throughput had not yet exceeded the level at which revenues would surpass minimum payments.
- Marine transportation Segment Margin increased to $25.7 million from $20.5 million, mainly due to a full quarter of operations from the M/T American Phoenix, acquired in November 2014.
- Supply and logistics Segment Margin increased to $9.7 million from $7.9 million, reflecting improved heavy fuel oil operations, partly offset by lower rail-handling fees and volumes.
- Refinery services Segment Margin declined to $19.2 million from $20.9 million, principally due to lower NaHS sales volumes, attributed largely to timing of South American deliveries. Onshore pipeline Segment Margin was broadly stable at $14.3 million versus $14.7 million.
- Higher depreciation and amortization ($27.1 million versus $19.3 million) and interest expense ($19.2 million versus $12.8 million) partly offset operating gains. Management attributed the increases mainly to assets acquired or placed in service and higher average debt.
Outlook, capital allocation, risks, and unusual items
- Management anticipated that operating cash generation and credit-facility availability would support ordinary-course capital needs, while noting that growth depends on access to debt and equity financing and successful project execution. No specific full-year earnings guidance was provided.
- Projects under construction were estimated to require approximately $520 million in total, including about $290 million during 2015. Key projects included the Baton Rouge terminal, expected to be operational by the end of Q3 2015; the Raceland rail facility, expected in the second half of 2015; and new inland barges and push boats, with deliveries extending into 2016.
- On April 10, 2015, after quarter-end, Genesis issued 4.6 million Class A units and received approximately $198 million net. Proceeds were intended for general partnership purposes, including growth projects or repayment of revolving-credit borrowings.
- Genesis declared a $0.61 per-unit Q1 2015 distribution, totaling approximately $60.8 million and payable May 15, 2015. Management described it as the 39th consecutive quarterly increase. The distribution was a 10.9% increase over the Q1 2014 rate.
- Q1 2015 net income included a $1.5 million unrealized derivative loss, compared with a $3.9 million unrealized gain in Q1 2014. Derivative fair values and margin requirements can affect reported results and cash flows.
- Principal disclosed risks include commodity-market and throughput changes, customer or refinery interruptions, project execution and financing access, pipeline or marine incidents, environmental and regulatory matters, and competition. The filing reported no material change in previously disclosed risk factors, no material legal developments, and no material changes in contractual obligations.
- Management reported effective disclosure controls and procedures and no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether SEKCO throughput grows enough to exceed minimum-payment levels, and how that affects distributions from the joint venture.
- Project budgets, schedules, and remaining funding needs, particularly for the Baton Rouge terminal and Raceland rail facility.
- Debt and liquidity after the April unit offering, including use of proceeds, revolving-credit availability, and covenant headroom.
- Distribution sustainability relative to cash generation, capital requirements, and management’s non-GAAP Available Cash before Reserves measure.
- Exposure to working-capital swings, commodity hedging and margin calls, and the timing-related variability of refinery-services sales.