Martin Midstream Partners L.P. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Dollar figures are in millions unless otherwise noted. The Partnership operates four Gulf Coast-focused segments: terminalling and storage, transportation, sulfur services, and natural gas liquids (NGLs).
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $279.2 | $201.0 |
| Operating income | $25.4 | $15.7 |
| Net income | $11.5 | $2.5 |
| Limited partners’ net income per unit, diluted | $0.29 | $0.06 |
| Operating margin | 9.1% | 7.8% |
| Net cash provided by operating activities | $28.4 | $3.9 |
| Adjusted EBITDA | $40.0 | $30.9 |
| Distributable cash flow | $20.9 | $12.8 |
| Adjusted free cash flow | $17.7 | $9.6 |
Revenue increased 39%, while operating income rose 62% and net income more than quadrupled. Management attributed the operating-cash-flow increase to improved operating results and a favorable $17.7 million working-capital variance; this makes the comparison especially sensitive to working-capital movements.
At March 31, cash was $0.3 million, current assets $170.2 million, and current liabilities $101.2 million. Long-term debt, net, was $483.2 million; this included $143.0 million of credit-facility borrowings, $53.8 million of 10% notes due 2024, and $292.0 million of 11.5% notes due 2025, before unamortized issuance costs. The $275 million revolving facility had $25.4 million of letters of credit and $106.6 million of remaining borrowing availability after covenant limits. Total liabilities were $612.1 million and partners’ capital was in deficit by $38.0 million.
Investing activities used $11.4 million, including $10.2 million of property, plant and equipment spending and $1.4 million of turnaround costs. Financing activities used $16.8 million. Cash distributions paid during the quarter were $0.2 million.
Changes by segment
- Terminalling and storage: Revenue increased 37% to $52.8 million; operating income rose 14% to $2.9 million. Product revenue benefited from higher prices and volume, while product costs and utilities also increased.
- Transportation: Revenue increased 53% to $46.7 million; operating income improved to $1.8 million from a $5.5 million loss. Higher land freight activity, fuel surcharges, marine utilization, and rates contributed to revenue growth; operating costs also rose.
- Sulfur services: Revenue increased 70% to $59.1 million and operating income rose 78% to $14.8 million, primarily reflecting higher sulfur and fertilizer prices and increased sulfur volumes.
- NGLs: Revenue increased 23% to $120.6 million, but operating income fell 30% to $10.1 million. A 65% increase in average selling price was outweighed in profitability by an 81% increase in average cost per barrel and a 26% decline in sales volume.
Outlook, risks, and unusual items
- The filing provides no numerical full-year earnings or cash-flow guidance. Management expects liquidity needs to be met through operating cash flow, credit-facility borrowings, and access to debt and equity markets; it expected to remain in covenant compliance for the next 12 months.
- The credit facility matures August 31, 2023 and bears a variable rate; its weighted-average rate was 4.50% at quarter-end. Management estimated that a 100-basis-point increase in rates would raise annual interest expense by approximately $1.4 million. The 2024 and 2025 notes carry fixed rates of 10% and 11.5%.
- Commodity prices and seasonal demand affect NGL and fertilizer results. The Partnership had NGL hedges covering 80,000 barrels settling April–May 2022; it reported $0.4 million of unrealized hedge losses in accumulated other comprehensive income. A $0.10 change in expected settlement price was estimated to affect net income by about $0.3 million.
- The Partnership declared a first-quarter distribution of $0.005 per common unit, or $0.020 annualized, payable May 13, 2022. The credit agreement generally limits quarterly distributions above $0.005 per unit unless the leverage ratio is below 3.75:1.
- On April 14, 2022, the Partnership purchased approximately $0.6 million principal amount of 2025 notes under its excess-cash-flow offer, versus an offer capacity of $9.3 million.
- A customer’s counterclaims seek recovery of costs related to settled marketing lawsuits. The Partnership disputes liability, intends to defend the claims, and said its potential exposure could not be determined. Management said other ordinary-course claims were not expected to have a material adverse effect.
- Martin Resource Management Corporation controls the general partner, owns about 15.7% of common units, provides personnel and services, and is both a customer and supplier. Related-party sales were about 8% of revenue; related-party transactions accounted for about 17% of total costs and expenses. The Partnership has no employees and reimburses direct related-party costs without a stated monetary limit.
- Management reported effective disclosure controls, no material changes in internal control over financial reporting, and no material changes to risk factors since the 2021 Form 10-K.
Key facts for investors to verify
- Whether operating cash generation and distributable cash flow remain strong after separating working-capital effects from recurring performance.
- Whether NGL margins recover given higher input costs and lower sales volumes, and whether price and volume trends in sulfur and transportation persist.
- Credit-facility covenant headroom, borrowing availability, variable-rate exposure, and refinancing plans ahead of the August 2023 maturity.
- The implications of the very low declared distribution and the debt agreement’s distribution restrictions for future distributions.
- Any developments in the customer counterclaims, related-party arrangements, and the Partnership’s reliance on Martin Resource Management Corporation.