Business Context and Reporting Period
Company: Martin Midstream Partners L.P.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2009
Overview: A publicly traded limited partnership operating primarily in the U.S. Gulf Coast region. The Partnership focuses on four business lines: terminalling and storage, natural gas services, marine transportation, and sulfur services. It 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
| Metric (in thousands) | Q1 2009 | Q1 2008 |
|---|---|---|
| Total Revenues | $156,906 | $313,016 |
| Operating Income | $7,227 | $9,008 |
| Net Income | $4,870 | $8,017 |
| Net Income per Unit (Basic) | $0.28 | $0.51 |
| Cash Flow from Operations | $17,152 | $21,944 |
| Capital Expenditures | $(12,864) | $(33,600) |
| Long-Term Debt | $301,700 | $295,000 |
| Cash and Equivalents | $7,965 | $7,983 |
Liquidity: As of March 31, 2009, the Partnership had $21.2 million available under its revolving credit facility. Total indebtedness was $301.7 million, consisting of $171.7 million in revolving loans and $130.0 million in term loans.
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 50% to $156.9 million, driven primarily by a 56% drop in natural gas services revenues and a 62% drop in sulfur services revenues due to lower commodity prices and reduced volumes from the economic downturn.
- Segment Performance:
- Natural Gas Services: Operating income improved significantly to $2.5 million from a loss of $0.2 million in Q1 2008, despite revenue declines, due to improved margins on sales contracts priced in 2008.
- Sulfur Services: Operating income fell 73% to $1.9 million due to a 52% decrease in average sales prices.
- Terminalling & Storage: Operating income increased 23% to $1.8 million due to increased service activity.
- Marine Transportation: Operating income increased 33% to $1.7 million.
- Equity in Earnings: Equity in earnings of unconsolidated entities decreased 41% to $2.1 million, reflecting lower inlet volumes and commodity prices at joint ventures (Waskom, Matagorda, PIPE).
- Capital Spending: Capital expenditures decreased significantly to $12.9 million from $33.6 million year-over-year, with a shift toward maintenance spending ($1.7 million) versus expansion ($11.2 million).
Outlook, Risks, and Unusual Items
- Economic Environment: Management notes that the current economic crisis has created constraints on liquidity and access to capital markets. The Partnership expects these constraints to persist over the next 12 months.
- Subsequent Events:
- April 2009: Sold terminalling lubricants inventory to Martin Resource Management for $4.98 million to convert non-qualifying revenues to qualifying throughput service revenues.
- April 30, 2009: Sold the Mont Belvieu railcar unloading facility to Enterprise Products Operating LLC for net proceeds of $19.6 million. Proceeds are required to be used to pay down revolving debt.
- Legal Proceedings:
- Coast Guard Investigation: An investigation is ongoing regarding a possible violation of the Act to Prevent Pollution from Ships involving the tug Martin Explorer. No formal charges have been asserted as of the filing date.
- Shareholder Litigation: Ongoing lawsuits involving Martin Resource Management executives (Scott D. Martin vs. Ruben S. Martin, III) regarding fiduciary duties and control of the parent company. The Partnership is not a party to these suits, but they involve directors of the general partner.
- Hedging: As of March 31, 2009, the Partnership had hedged approximately 48% of its 2009 commodity risk by volume. Interest rate swaps cover a significant portion of variable rate debt, with a weighted average fixed rate of 4.22% on the hedged portion.
Investor Verification Checklist
- Commodity Price Exposure: Verify the extent of unhedged commodity risk for 2009 and 2010 given the volatility in natural gas and NGL prices.
- Related Party Transactions: Review the Omnibus Agreement with Martin Resource Management, noting that the Partnership reimburses the parent for direct and indirect expenses (capped at $3.5 million annually for indirect expenses).
- 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).
- Liquidity Constraints: Assess the impact of the economic downturn on the Partnership's ability to access capital markets for future growth projects.
- Legal Contingencies: Monitor the status of the Coast Guard investigation and the shareholder litigation involving the general partner's directors for potential material adverse effects.