Martin Midstream Partners L.P. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. The partnership operates Gulf Coast-focused terminalling and storage, transportation, sulfur services, and natural gas liquids (NGL) businesses. Amounts below are in millions unless noted.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $184.3 | $140.6 | $385.3 | $339.5 |
| Operating income | $7.6 | $8.0 | $23.3 | $23.6 |
| Operating margin | 4.1% | 5.7% | 6.1% | 6.9% |
| Net income (loss) | $(6.6) | $(2.2) | $(4.1) | $6.6 |
| Limited partners’ loss per unit | $(0.17) | $(0.06) | $(0.10) | $0.17 |
| Adjusted EBITDA | $22.5 | $23.9 | $53.4 | $54.9 |
| Distributable cash flow | $7.3 | $12.5 | $20.1 | $30.8 |
- Cash flow: Six-month operating cash flow was $6.1 million, down from $44.6 million, principally reflecting a $30.7 million unfavorable working-capital variance and weaker operating results. Investing cash use was $9.8 million; financing cash use was $0.6 million. Cash declined to $0.7 million from $5.0 million at year-end.
- Debt and liquidity: June 30 balance-sheet long-term debt was $517.3 million, net, including $176.1 million drawn on the revolver and $341.2 million of secured notes. Separately, MD&A reports $179.5 million of revolver borrowings, $26.7 million of letters of credit, $93.8 million of nominal remaining facility availability, and approximately $40.6 million of additional covenant-permitted borrowing capacity. The filing does not reconcile the differing revolver figures in the excerpts provided. The partnership reported compliance with covenants at quarter-end.
- Interest: Six-month net interest expense rose 36% to $26.3 million. The 2024 and 2025 secured notes carry fixed rates of 10.0% and 11.5%; the revolver rate averaged 5.0% at June 30.
- Capital and distribution: Partners’ capital remained in deficit at $(51.1) million. The partnership declared a Q2 distribution of $0.005 per common unit, or $0.02 annualized.
Material changes and operating drivers
- Q2 revenue rose 31%, driven largely by higher NGL and sulfur product prices. Six-month revenue increased 13%, while operating income was nearly flat and net results moved from profit to loss, reflecting higher interest costs and other factors.
- NGL segment revenue rose with commodity prices, but sales volumes fell 26% in Q2 and 18% for the six-month period; segment operating income nevertheless increased year over year for six months.
- Sulfur services revenue increased, but Q2 operating income fell 15%; six-month operating income fell 32%, partly because the prior-year period included business-interruption recoveries and an asset-sale gain. Sulfur volumes were lower.
- Transportation’s six-month operating result shifted to a $0.6 million loss from $2.9 million income, with marine activity affected by lower utilization, rates, and equipment. Q2 segment operating income improved to $0.7 million from $0.6 million.
- Terminalling and storage six-month revenue declined 13%, partly following the December 2020 sale of the Mega Lubricants shore-based terminal assets; segment operating income increased 63%, helped by lower prior-year asset-disposal losses.
Outlook, risks, and unusual items
- Management expected refinery utilization to improve in the second half of 2021 as vaccination, stimulus, and economic recovery supported refined-product demand. It anticipated continued adverse COVID-19 effects in marine transportation and cautioned that pandemic duration and variants could materially affect results, liquidity, asset recoverability, inventory values, and credit losses.
- Winter Storm Uri reduced activity in transportation and sulfur services and shut the Smackover Refinery for about nine days. Preparations for a planned turnaround helped limit additional downtime; the refinery returned to operation by March 9.
- On July 16, 2021, the revolver commitment was reduced from $300 million to $275 million and financial covenants were modified. The amendment sets leverage and interest-coverage thresholds that tighten over time, increasing the importance of future performance and borrowing headroom.
- The partnership hedged 390,000 barrels of NGLs settling July–December 2021. It estimated that a $0.10 change in expected settlement prices would affect net income by about $1.6 million. A 100-basis-point increase in rates on unhedged floating debt was estimated to increase annual interest expense by about $1.8 million.
- A customer’s disputed request for defense and indemnity related to motor-oil marketing litigation remains unresolved; the insurer denied the customer’s claim. If the claim succeeds, the partnership could have reimbursement exposure, which management said it could not quantify.
- Martin Resource Management Corporation controls the general partner, supplies personnel and services, and is a significant customer and supplier. Related-party sales were 11% of Q2 revenue and 10% of six-month revenue; the partnership has no monetary cap on reimbursable direct expenses.
- No formal full-year financial guidance is provided in the supplied filing text. Management said it expected covenant compliance over the next 12 months. The filing reports no material changes to previously disclosed risk factors and no material environmental costs in the first half.
Important facts for investors to verify
- Reconcile the revolver borrowings reported in the debt note and MD&A, and confirm covenant-adjusted borrowing capacity under the amended facility.
- Track compliance with the new interest-coverage and leverage tests, revolver maturity in August 2023, and the partnership’s ability to refinance or repay high-coupon secured notes.
- Assess whether operating cash flow and distributable cash flow recover from the first-half decline and support debt service, capital spending, and the minimal distribution.
- Monitor marine transportation recovery, post-Uri performance, commodity-price exposure, and NGL and sulfur margins and volumes.
- Review the related-party arrangements, cash reimbursement obligations, and the unresolved customer indemnity and insurance dispute.