Genesis Energy, L.P. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; unaudited. Genesis is a midstream energy and natural soda ash partnership operating across offshore pipelines, sodium minerals and sulfur services, onshore facilities and transportation, and marine transportation. Financial amounts below are in U.S. dollars; figures are in millions unless stated otherwise.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $518.8 | $443.1 | $1,543.9 | $1,371.5 |
| Operating income (loss) | $34.5 | $4.0 | $88.1 | $(215.0) |
| Net loss attributable to Genesis | $(20.9) | $(29.7) | $(96.8) | $(331.5) |
| Net loss available to common unitholders | $(39.6) | $(48.4) | $(152.9) | $(387.6) |
| Net loss per common unit | $(0.32) | $(0.39) | $(1.25) | $(3.16) |
| Operating cash flow | $54.2 | $143.5 | $242.4 | $295.6 |
| Segment Margin (non-GAAP) | $153.9 | $161.9 | $462.1 | $470.5 |
| Available Cash before Reserves (non-GAAP) | $48.2 | $70.7 | Not provided here | Not provided here |
Q3 revenue rose 17%, while operating income improved by $30.5 million. The partnership nevertheless remained loss-making, including a $39.6 million loss available to common unitholders after preferred-unit distributions. Q3 interest expense was $59.9 million, up $8.6 million year over year. The filing does not provide a clear Q3 gross or operating margin percentage; Segment Margin is a company-defined non-GAAP measure.
Cash and debt at September 30, 2021: Cash and cash equivalents were $10.4 million and restricted cash was $5.1 million. Current assets were $481.7 million versus current liabilities of $378.1 million. Long-term debt, net, totaled $3,359.6 million: $430.6 million under the senior secured credit facility and $2,929.0 million of senior unsecured notes. The partnership reported $515.7 million of remaining revolving borrowing capacity, subject to covenants, and stated it was in compliance with applicable financial covenants. Total debt principal was $3,389.7 million before unamortized premiums and issuance costs.
Nine-month investing cash outflow was $193.8 million, including $233.9 million of capital expenditures for fixed and intangible assets and equity investees. Financing cash outflow was $60.1 million. Net cash, restricted cash and cash equivalents declined $11.5 million during the nine-month period to $15.5 million.
Material changes and segment performance
- Offshore pipelines: Q3 Segment Margin increased 33% to $76.0 million, chiefly reflecting higher throughput and recovery from the 2020 CHOPS outage and hurricane-related downtime. CHOPS resumed service in February 2021. Hurricane Ida caused some Q3 downtime, especially on Poseidon; management said some financial impact would carry into Q4.
- Sodium minerals and sulfur services: Q3 Segment Margin increased 44% to $39.6 million, as soda ash volumes and export pricing improved with demand recovery. Nine-month soda ash sales volumes rose to 2.22 million tons from 2.01 million. Granger remained in cold standby; management expects it to return to production after the Granger Optimization Project is completed, anticipated in the second half of 2023.
- Onshore facilities and transportation: Q3 Segment Margin fell 52% to $29.1 million. The key comparison was lower cash receipts associated with the previously owned NEJD pipeline, along with the prior-year contribution from the Free State pipeline, sold in October 2020. Lower minimum-volume commitments and customer use of prepaid transportation credits also weighed on year-to-date performance.
- Marine transportation: Q3 Segment Margin declined 42% to $9.0 million, reflecting lower inland and tanker day rates. Management cited continuing refinery utilization and market-rate pressure. The M/T American Phoenix was contracted through Q1 2022 at a better rate than its initial short-term contracts, but below its prior five-year contract rate.
Total Segment Margin decreased 5% in Q3 and 2% for the first nine months. Q3 Available Cash before Reserves fell 32% year over year. Management attributed the lower Q3 operating cash flow mainly to higher prior-year receipts under the former NEJD finance lease and working-capital timing.
Outlook, financing, and risks
- Management said economic recovery continued across much of the asset base in 2021, including offshore volumes and Alkali demand. It described core-business fundamentals as strong and said it remained focused on deleveraging. No specific full-year earnings or cash-flow guidance was provided.
- The April 2021 credit agreement provides a $650 million revolving facility and a $300 million term loan, maturing March 15, 2024, with conditional extension options. Maximum consolidated leverage is 5.75x through March 31, 2022 and 5.50x thereafter; the filing does not state the actual leverage ratio.
- Genesis issued an additional $250 million of 8.00% notes due 2027 in April 2021. Management said refinancing left no scheduled long-term debt maturities until 2024, apart from term-loan amortization beginning at year-end 2021.
- The Granger Optimization Project is funded in part by preferred investment commitments from Blackstone-affiliated entities. The project’s anticipated completion is the second half of 2023, with expected additional production capacity of approximately 750,000 tons per year. Preferred distributions are paid in kind during the construction period.
- Common-unit distributions remained $0.15 per unit quarterly; the Q3 distribution was declared for payment November 12, 2021. The preferred-unit distribution was $0.7374 per unit for the quarter. Distributions are discretionary and depend on cash generation and other considerations.
- Covid-19, commodity and market volatility, refinery utilization, weather and hurricanes, service interruptions, customer and counterparty conditions, and access to capital could affect results. Management warned that worsening conditions could trigger further impairment reviews. No impairment was recorded in 2021; the comparable 2020 nine-month period included $280.8 million of impairment expense, mainly for rail logistics assets.
- An embedded preferred-unit rate-reset derivative was a Level 3 liability of $83.4 million at quarter-end. It generated a $31.0 million unrealized loss in the first nine months of 2021, despite a $1.7 million unrealized gain in Q3; fair value depends on significant model assumptions.
- The company disclosed environmental and routine legal and regulatory matters, but did not expect currently pending matters to materially affect financial position, results or cash flows. It reported no material changes to previously disclosed risk factors, no material legal-proceeding developments, and effective disclosure controls.
Important facts for investors to verify
- Whether operating cash flow and distributable cash generation can sustain common and preferred distributions while supporting debt reduction and capital spending.
- Actual leverage and covenant headroom, including the effect of the 8.00% notes and scheduled term-loan repayments.
- Execution, remaining funding, and timing of the Granger Optimization Project, plus the terms and accretion of Alkali Holdings preferred units.
- Recovery in marine rates and refinery utilization, and the extent of any Hurricane Ida-related Q4 impact.
- Assumptions and potential volatility behind the $83.4 million preferred-unit derivative liability, and any future impairment indicators.