Genesis Energy, L.P. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Unless noted, dollar amounts are in millions. Genesis is a midstream energy partnership with offshore pipelines, soda ash and sulfur services, onshore facilities and transportation, and marine transportation operations.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change / context |
|---|---|---|---|
| Revenue | $790.6 | $631.9 | Up 25%; includes ANSAC consolidation from Jan. 1, 2023, so comparison is not fully like-for-like. |
| Operating income | $49.4 | $51.7 | Down 4%; operating margin was approximately 6.2% versus 8.2%. |
| Net income | $3.4 | $4.4 | Net loss attributable to Genesis was $1.6 versus $5.3; preferred distributions increased the common-unit loss. |
| Net loss per common unit | $(0.21) | $(0.20) | Preferred-unit distributions were $24.0 versus $18.7. |
| Operating cash flow | $97.7 | $54.2 | Increase attributed primarily to higher segment margin. |
| Capital expenditures | $85.7 | $75.2 | Includes fixed and intangible assets and equity-investee spending. |
| Available Cash before Reserves | $77.7 | $55.7 | Non-GAAP measure; up 39%. |
Total Segment Margin, a non-GAAP measure, increased 24% to $195.1. The largest gains were offshore pipelines ($97.9, up 38%) and marine transportation ($25.7, up 112%); soda and sulfur services was $66.1, down 2%, and onshore facilities and transportation was $5.4, down 23%. Revenue growth was partly offset in reported operating income by $27.1 of non-cash unrealized commodity-derivative losses, compared with $6.2 of unrealized gains a year earlier.
At March 31, cash and cash equivalents were $18.1 and restricted cash was $18.7. Total assets were $6.59 billion and total liabilities were $4.85 billion. Debt principal was approximately $3.58 billion ($3.54 billion net carrying value): $124.4 of revolver borrowings, $3.03 billion of senior unsecured notes, and $425 million principal of Alkali secured notes. Revolver availability was $717.1, subject to covenants.
Material changes and notable items
- Genesis became ANSAC’s sole member on January 1 and consolidated it as a business combination with no consideration transferred. ANSAC contributed $127.1 of Q1 revenue and $1.0 of net income attributable to Genesis; the purchase-price allocation remains preliminary.
- Offshore volumes and margin benefited from the King’s Quay FPS ramp-up and less maintenance downtime. Marine margin benefited from higher utilization and day rates. Alkali sales volumes were lower due partly to winter weather and rail disruption, while higher pricing largely offset the volume impact.
- Genesis issued $500 million of 8.875% notes due 2030 and used proceeds to retire the remaining 2024 notes and reduce revolver borrowings. The new $850 million revolving facility matures in February 2026, subject to extension options and stated conditions. Interest expense rose $5.8 million year over year.
- Common distributions remained $0.15 per unit quarterly. Preferred distributions were $0.9473 per unit quarterly; the preferred annual rate reset to 11.24% in 2022.
Outlook, risks and contingencies
No formal earnings or cash-flow guidance was provided. Management expected 2023 soda ash pricing to exceed 2022 levels, normal NaHS production to resume in Q2, and the Granger Optimization Project to finish in the second half of 2023, adding expected annual production capacity of approximately 750,000 tons. Management also anticipated offshore volumes from Argos, which achieved first oil in April 2023, to ramp during 2023. Offshore growth projects are expected to require approximately $550 million of capital net to Genesis, with completion aligned to producer plans for first oil in late 2024 or 2025; management expects to fund growth spending from operating cash flow and revolver capacity.
Management cited uncertainty from the Ukraine war, inflation, interest rates, potential recession, commodity and product demand, weather, supply-chain interruptions, refinery activity, and access to capital. These factors could affect operations, cash generation, asset values, and distributions. The filing warns that covenant limits and capital-market access may constrain financing. Environmental laws and operating hazards are ongoing risks; the partnership said pending lawsuits and regulatory matters were not expected to materially affect its financial position, results, or cash flows. No material risk-factor changes or material legal-proceeding developments were reported.
Important facts for investors to verify
- How much reported revenue growth reflects ANSAC consolidation versus underlying volume, pricing, and margin performance.
- Progress, remaining cost, and funding of the Granger project and offshore capital projects, including Argos volume ramp-up.
- Leverage, interest costs, covenant headroom, revolver availability, and refinancing conditions for upcoming maturities.
- Whether operating cash flow and Available Cash before Reserves sustain growth spending and common and preferred distributions; note that Available Cash before Reserves is non-GAAP.
- Effects of derivative valuation volatility, weather and logistics, and soda ash and marine market conditions on reported results and cash flows.