Genesis Energy, L.P. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless stated otherwise. Genesis is a U.S. midstream partnership with offshore pipeline, sodium minerals and sulfur services, onshore facilities and transportation, and marine transportation businesses. Amounts below are in U.S. dollars.
Financial results and liquidity
- Revenue: $521.2 million, down 3% from $539.9 million.
- Operating income: $28.0 million, versus $59.2 million. Operating margin was approximately 5.4%, versus 11.0%.
- Net result: Net loss attributable to Genesis of $34.2 million, compared with net income of $24.9 million. Loss available to common unitholders was $52.9 million, or $0.43 per unit, versus income of $6.2 million, or $0.05 per unit.
- Cash flow: Operating cash flow was $77.2 million, versus $89.6 million. Investing activities used $30.1 million; financing activities used $40.3 million. Cash, including restricted cash, ended at $33.8 million.
- Segment Margin (non-GAAP): $156.1 million, down 8% from $169.3 million. Available Cash before Reserves (non-GAAP) was $54.6 million, down 33% from $81.8 million.
- Debt and liquidity: Long-term debt, net of issuance costs, was $3.37 billion at March 31. The partnership reported $699 million drawn on its prior $1.7 billion secured facility and $999.7 million of borrowing availability, subject to covenants. It stated that it was in compliance with debt covenants.
- Capital returns: The Q1 common distribution was declared at $0.15 per unit; the preferred distribution was $0.7374 per unit. The common distribution was substantially reduced beginning in 2020.
Material changes and operating drivers
- Marine Segment Margin fell to $7.1 million from $19.0 million, with lower inland utilization and day rates and weaker offshore rates. Inland barge utilization was 72.0%, versus 93.4%.
- Onshore Segment Margin declined to $21.0 million from $28.1 million. Lower refinery-related pipeline and rail volumes and the prior-year contribution from the divested Free State pipeline weighed on results. Higher NEJD pipeline repayment receipts partly offset the decline.
- Sodium minerals and sulfur services Segment Margin rose to $43.7 million from $36.9 million, primarily due to Westvaco production improvements and cost efficiencies, partly offset by lower soda ash volumes and domestic pricing.
- Offshore Segment Margin was $84.3 million, nearly unchanged from $85.2 million. Lower volumes, including CHOPS being out of service through February 3, were partly offset by increased equity-investee distributions. CHOPS returned to service on February 4 using a bypass.
- Interest expense increased to $57.8 million from $55.0 million, reflecting higher-cost unsecured notes, partly offset by lower credit-facility interest expense. Depreciation, depletion and amortization declined by $8.1 million, mainly because rail assets had been impaired in Q2 2020.
Outlook, risks and unusual items
- Management reported signs of recovery entering 2021, including offshore volumes returning toward normal and Westvaco selling all of its production. It noted continuing pressure on inland marine utilization and spot rates. No specific full-year earnings or cash-flow guidance was provided.
- The Granger expansion is expected to be completed in late 2023 and add approximately 750,000 tons of annual production capacity. Management did not anticipate material growth capital spending on individual projects during the rest of 2021 apart from this project.
- After quarter-end, Genesis entered a new secured credit agreement on April 8: a $300 million term loan and $650 million revolver, with a potential $200 million revolver increase subject to conditions. It matures in March 2024, with possible extensions. On April 22, Genesis issued an additional $250 million of 8.00% notes due 2027, intending to use proceeds partly to repay revolver borrowings. Management said these transactions left no scheduled long-term debt maturities until 2024, apart from small term-loan amortization payments beginning late in 2021.
- Unusual earnings item: the preferred-unit rate-reset embedded derivative generated an $18.4 million unrealized loss in Q1 2021, versus a $32.5 million unrealized gain in Q1 2020. The derivative liability was $70.8 million at quarter-end. Genesis also recorded a $1.6 million loss on redeeming its remaining 2023 notes.
- COVID-19, commodity and demand volatility, refinery utilization, service interruptions, and potential asset impairment remain risks. Management warned that deterioration in conditions could trigger impairment reviews and material charges. The filing reported no material change to previously disclosed risk factors and no material expected effect from currently pending legal matters.
Important facts for investors to verify
- Whether operating recovery and marine utilization improve enough to stabilize Segment Margin and operating cash flow.
- How much of the quarter’s cash generation and onshore margin reflected NEJD principal repayments rather than recurring operations; Genesis reported a $52.5 million remaining NEJD receivable at March 31.
- Debt balances, borrowing capacity, covenant compliance, and use of proceeds following the April refinancing and additional notes issuance.
- Granger project completion timing, funding and execution, and the operational implications of its planned 2023 start-up.
- The sensitivity of the preferred-unit derivative valuation, liquidity and asset values to market conditions and the course of the pandemic.