Business context and reporting period
Genesis Energy, L.P. is a midstream energy and natural soda ash partnership operating across offshore pipelines, soda and sulfur services, onshore facilities and transportation, and marine transportation. This unaudited Form 10-Q covers the three and six months ended June 30, 2023; dollar amounts below are in millions unless noted. ANSAC became wholly owned on January 1, 2023, adding its export marketing and logistics operations to consolidated results.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $804.7 | $721.7 | $1,595.3 | $1,353.7 |
| Operating income | $102.8 | $96.6 | $152.2 | $148.3 |
| Net income | $55.7 | $69.5 | $59.1 | $74.0 |
| Net income attributable to Genesis | $49.3 | $35.3 | $47.7 | $30.1 |
| Net income (loss) attributable to common unitholders | $26.4 | $16.7 | $0.8 | $(7.3) |
| Basic and diluted earnings (loss) per common unit | $0.22 | $0.14 | $0.01 | $(0.06) |
| Segment Margin, a non-GAAP measure | $214.6 | $219.3 | $409.7 | $376.7 |
Q2 revenue rose 11%; operating income increased 6%. Higher soda ash volumes and pricing, offshore activity, and marine day rates supported results. Net income was lower than the prior-year quarter, which included a $40 million asset-sale gain and a $10.7 million non-cash preferred-unit derivative gain. Genesis-attributable income benefited from the absence of $22.6 million of prior-year adjustments related to redeemed Alkali Holdings preferred units. Preferred distributions and returns reduced common-unit income by $22.9 million in Q2 and $46.9 million in the first half.
Segment Margin in Q2 decreased 2% year over year. Soda and sulfur services increased to $89.3 million from $71.7 million; marine transportation rose to $25.8 million from $17.6 million; offshore pipeline transportation was $93.3 million versus $119.0 million, mainly reflecting the prior-year $32 million Independence Hub sale-related distribution; and onshore facilities and transportation declined to $6.3 million from $11.0 million.
Operating cash flow was $157.7 million in Q2, per management, versus $104.0 million a year earlier. For the six months, operating cash flow was $255.3 million versus $158.3 million. Six-month investing cash outflow was $231.7 million, including $247.4 million of fixed and intangible asset payments; financing cash outflow was $19.9 million. Six-month capital expenditures, including equity investees, were $220.1 million. Available Cash before Reserves, a non-GAAP measure, was $96.3 million in Q2, down 21% from $121.2 million.
At June 30, cash and cash equivalents were $11.5 million and restricted cash was $18.8 million. Current assets were $965.7 million and current liabilities were $858.0 million. Total debt principal was approximately $3.6 billion: $133.6 million under the revolving credit facility, $3.0 billion of senior unsecured notes, and $425.0 million of Alkali secured notes. The partnership reported $707.9 million of revolving-credit availability, subject to covenant compliance. Net interest expense was $61.6 million for Q2 and $122.5 million for the first half.
Material changes versus prior comparable periods
- Revenue growth partly reflects ANSAC consolidation from January 2023. ANSAC contributed $102.3 million of Q2 revenue and $4.2 million of Genesis-attributable income; management notes that sales of third-party-supplied soda ash added revenue with little direct effect on Segment Margin.
- Q2 soda and sulfur services Segment Margin improved 24%, driven by Alkali pricing and volumes; however, NaHS volumes fell amid refinery outages and a host refinery’s renewable-diesel conversion.
- Marine Segment Margin increased 47% in Q2 on higher day rates. Onshore Segment Margin fell 43%, primarily due to lower rail unloading and pipeline volumes.
- Interest expense rose $5.7 million in Q2 and $11.4 million in the first half, reflecting higher rates and debt costs, including the 2030 notes issued in January.
- In January, Genesis issued $500 million of 8.875% notes due 2030 and retired its remaining 2024 notes. The new $850 million revolving facility was entered into in February.
Outlook, risks and notable items
- Management expected the Granger Optimization Project to be completed in the second half of 2023, adding approximately 750,000 tons of annual soda ash production. The original Granger facility had restarted and ramped to its approximately 500,000-ton annual nameplate capacity.
- Offshore growth projects, including CHOPS expansion and the SYNC pipeline, were expected to require approximately $550 million of capital net to Genesis’s ownership interests. First oil was expected in late 2024 or 2025; projects are supported by long-term take-or-pay agreements.
- Management expected 2023 weighted-average soda ash selling prices to exceed 2022 levels, while noting emerging pricing volatility from slower-than-anticipated Chinese reopening and anticipated new global supply. It also cited continued strong marine demand and expected benefits from King’s Quay and Argos production.
- Genesis stated that it was focused on deleveraging, while expecting operating cash flow and revolving-facility availability to fund ordinary-course needs and remaining growth spending. No formal earnings or cash-flow guidance was provided.
- Risks include commodity and freight-price volatility, interest rates and capital-market access, project execution and cost, weather and service interruptions, refinery outages, environmental obligations, and potential impairments if market conditions weaken. The filing says pending ordinary-course litigation and regulatory matters are not expected to materially affect financial position, results, or cash flows; no material change to previously reported risk factors was noted.
- Common distributions remained $0.15 per unit quarterly. The preferred distribution rate is 11.24% annually. Genesis redeemed 741,620 preferred units in April 2023 and disclosed a further redemption agreement in July, after quarter-end.
Important facts for investors to verify
- Progress, completion timing, remaining costs, and production ramp for the Granger Optimization Project and offshore growth projects.
- Whether higher Alkali pricing and volumes persist, given the stated global supply and demand uncertainty and refinery-related NaHS disruptions.
- Debt maturities, refinancing terms, covenant headroom, interest expense, and the effect of the higher-cost 2030 notes on deleveraging.
- Cash generation relative to capital spending and common and preferred distributions; assess non-GAAP Segment Margin and Available Cash before Reserves alongside GAAP results.
- ANSAC consolidation’s ongoing effects on reported revenue, working capital, and comparability with prior periods.