Martin Midstream Partners L.P. — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with fiscal 2020. Financial amounts below are in millions of dollars unless otherwise stated.
Business context
The Partnership operates primarily along the U.S. Gulf Coast in four segments: terminalling and storage, transportation, sulfur services, and natural gas liquids (NGLs). It has no employees; Martin Resource Management Corporation (MRMC) supplies personnel and support services and is also a significant customer and supplier. At year-end, MRMC owned 15.8% of common units and indirectly controlled 100% of the general partner. Incentive distribution rights were contributed to the Partnership and cancelled in November 2021.
Financial and operating performance
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $882.4 | $672.1 | +31% |
| Operating income | $57.3 | $46.5 | +23% |
| Net loss | $(0.2) | $(6.8) | Loss narrowed |
| Interest expense | $54.1 | $46.2 | +17% |
| Net cash from operating activities | $35.7 | $64.8 | −45% |
| Adjusted EBITDA (non-GAAP) | $114.5 | $94.9 | +21% |
| Distributable cash flow (non-GAAP) | $44.6 | $39.7 | +12% |
| Adjusted free cash flow (non-GAAP) | $37.2 | $24.3 | +53% |
Operating margin was approximately 6.5%, compared with 6.9% in 2020. Revenue growth largely reflected higher commodity prices: NGL revenue rose 67% as average selling prices increased, despite 10% lower volumes; sulfur-services revenue rose 34%, with prices up and volumes down. Transportation revenue increased 7%, driven by higher land-transport rates and fuel surcharges. Terminalling and storage revenue fell 3%, partly reflecting the 2020 sale of the Mega Lubricants business.
Cash from operations fell partly because of working-capital movements, including higher receivables and inventory. Capital expenditures and plant turnaround costs totaled $20.2 million. Cash at year-end was $0.052 million; current assets were $173.7 million and current liabilities $104.1 million.
Debt, liquidity and distributions
Principal debt outstanding was approximately $505.5 million at December 31, 2021. This included $159.5 million under a $275 million revolving credit facility, with $92.9 million of additional borrowing capacity after letters of credit and covenant limitations. The facility matures in August 2023. The Partnership also had $53.8 million of 10% secured notes due 2024 and $292.0 million of 11.5% secured notes due 2025. Total liabilities exceeded assets by approximately $48.0 million, leaving partners’ capital in deficit.
The Partnership reported compliance with debt covenants at year-end and expected compliance for the following 12 months. The credit agreement restricts distributions, including generally limiting quarterly distributions to $0.005 per unit unless leverage is below specified thresholds. A fourth-quarter 2021 distribution of $0.005 per common unit was declared and paid in February 2022; the annualized rate was $0.02 per unit.
Material changes, outlook and risks
- Operating environment: COVID-19 continued to weigh on marine transportation, while management expected improving refinery utilization and refined-product demand to help the business. The duration and financial effects of the pandemic remained uncertain.
- Weather: Winter Storm Uri reduced refinery activity and affected transportation and sulfur services; the Smackover refinery was down about nine days. Hurricane Ida affected refinery utilization but caused no material Partnership damage; reported restoration costs were approximately $0.1 million.
- Debt and financing: Higher interest expense and significant leverage constrain financial flexibility and distributions. Variable-rate debt creates rate exposure; management estimated a 100-basis-point increase could raise annual interest expense by about $1.6 million. The credit facility referenced LIBOR, whose phase-out transition remained under evaluation.
- Related parties: MRMC received $134.7 million in direct expense reimbursements in 2021 and $14.4 million in approved indirect reimbursements. MRMC accounted for about 9% of Partnership revenue and approximately 16% of total costs and expenses. These arrangements, dependence on MRMC, and related-party conflicts merit attention.
- Other risks and contingencies: Risks include commodity-price and seasonal volatility, customer concentration in NGLs, environmental and climate regulation, severe weather, asset impairment, and dependence on third-party infrastructure. A customer’s reopened lawsuit seeks defense and settlement costs related to prior marketing litigation; the Partnership stated it could not yet determine its potential exposure and intends to defend the claims.
- Unusual items: No long-lived-asset impairment was recorded in 2021; 2020 included $4.4 million of impairment charges and notable asset-disposition and insurance-related gains. The 2021 amended refinery tolling agreement with Cross Oil runs through November 2031 and includes a minimum throughput commitment of 6,500 barrels per day.
KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. The audit identified recoverability testing for a transportation asset group as a critical audit matter, emphasizing sensitivity to forecast revenue assumptions. Management reported no goodwill impairment in 2021.
Important facts for investors to verify
- Whether operating cash flow and working capital improve, and whether adjusted EBITDA and distributable cash flow convert into cash available for debt reduction and distributions.
- Debt-covenant headroom, the August 2023 credit-facility maturity and refinancing options, borrowing availability, and the ability to manage high-cost secured notes.
- Whether the $0.005 quarterly distribution can be sustained under debt restrictions and cash-reserve requirements.
- How much NGL and sulfur performance depends on commodity prices versus volumes and margins, and the impact of NGL customer concentration.
- Potential exposure from the customer litigation, related-party arrangements, and future impairment sensitivity in transportation assets.