Genesis Energy, L.P. — Q2 2021 Form 10-Q
Business context and reporting period. This unaudited report covers the three and six months ended June 30, 2021, for the midstream and natural soda ash partnership. Its four segments are offshore pipeline transportation, sodium minerals and sulfur services, onshore facilities and transportation, and marine transportation. Dollar figures below are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $503.9 | $388.5 | $1,025.1 | $928.4 |
| Operating income (loss) | $25.5 | $(278.2) | $53.6 | $(219.1) |
| Net loss attributable to Genesis Energy, L.P. | $(41.7) | $(326.7) | $(75.9) | $(301.8) |
| Net loss per common unit | $(0.49) | $(2.82) | $(0.92) | $(2.77) |
| Segment Margin (non-GAAP) | $152.1 | $139.3 | $308.2 | $308.6 |
| Cash from operating activities | $111.0 | $62.6 | $188.2 | $152.2 |
Q2 revenue rose 30%, while six-month revenue increased about 10%. Q2 operating income improved substantially from the prior-year loss, which included a $277.5 million rail-logistics impairment. Q2 net loss still reflected interest costs and a $14.3 million non-cash loss on the preferred-unit rate-reset derivative. Available Cash before Reserves, a company-defined non-GAAP measure, was $49.6 million for Q2 versus $50.4 million a year earlier.
For the six months, investing cash outflow was $94.4 million and financing cash outflow was $74.5 million. Cash, cash equivalents and restricted cash totaled $46.3 million at June 30. Cash capital expenditures paid were $111.4 million; the filing reports $152.4 million of capital expenditures incurred for fixed and intangible assets, including amounts not yet paid.
Long-term debt, net, was $3.343 billion at June 30, down $50.6 million from year-end 2020. The balance sheet also reported $24.2 million of cash and $22.1 million of restricted cash. Under its new $950 million secured facility, Genesis reported $530.5 million of remaining revolving borrowing capacity, subject to covenants, and compliance with its financial covenants. The partnership declared a common distribution of $0.15 per unit and a preferred distribution of $0.7374 per unit for Q2, payable August 13, 2021.
Material changes versus the prior comparable period
- Q2 Segment Margin rose $12.8 million, or 9%. Offshore pipeline margin increased $8.0 million and sodium minerals and sulfur services increased $13.4 million; marine transportation declined $9.7 million. Onshore margin rose $1.2 million.
- Higher soda ash volumes and export pricing, improved NaHS demand, and stronger offshore throughput supported results. Marine margin weakened on lower inland utilization and rates and lower offshore rates.
- Six-month Segment Margin was nearly flat year over year: $308.2 million versus $308.6 million. Marine and onshore declines largely offset improvement in offshore and sodium businesses.
- Q2 general and administrative expense fell $12.5 million, mainly because Q2 2020 included about $13 million of severance and restructuring costs. Depreciation, depletion and amortization fell $12.6 million, largely following the 2020 rail-asset impairment.
- Interest expense increased $7.6 million in Q2 and $10.4 million for the first half, mainly due to higher-cost unsecured notes. The 2020 comparison also included debt-cancellation income and, for the first half, a debt-extinguishment loss.
- In April 2021, Genesis refinanced its secured facility and issued an additional $250 million of 8.00% notes due 2027. Management said there were no scheduled long-term debt maturities before 2024, apart from term-loan installments beginning at year-end 2021.
Outlook, commentary and risks
- No specific earnings or cash-flow guidance is provided. Management reported recovery in offshore volumes and soda ash demand and pricing, while noting continued commodity-market uncertainty.
- The Granger Optimization Project is expected to be completed in the second half of 2023, with anticipated production capacity increasing by about 750,000 tons per year. Management said the project is expected to be funded up to 100% by Alkali Holdings preferred-unit proceeds, subject to agreement covenants. No other material growth projects were anticipated for the remainder of 2021.
- Management’s stated priorities include deleveraging and directing excess cash toward revolving debt reduction and opportunistic note repurchases. It said internally generated funds and facility availability are expected to meet ordinary-course capital needs; access to capital and execution of the growth strategy are not assured.
- Management expects continued pressure on marine inland utilization and, to some extent, spot rates; short-term contracts were being used while market day rates remained below prior levels. Onshore results face lower customer minimum-volume commitments, use of prepaid transportation credits, and the Free State pipeline divestiture.
- COVID-19, commodity and product demand and price volatility, refinery utilization, weather and service interruptions, customer credit, financing and covenant access, environmental and operating hazards, and potential asset impairments remain risks. Management warned that deterioration in market conditions could require impairment testing and potentially material charges.
- The preferred-unit rate-reset embedded derivative was a Level 3 liability of $85.2 million at June 30; valuation is sensitive to management estimates and market inputs. The Alkali Holdings preferred units had a reported $248.9 million hypothetical redemption amount at that date.
- The filing reports no material developments in legal proceedings and no material change in previously disclosed risk factors. Management assessed disclosure controls as effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether operating cash generation and Segment Margin can be sustained as marine weakness, onshore contract step-downs and prepaid-credit usage continue.
- Debt service, covenant headroom and the cost of the 8.00% notes; confirm the timing and source of funds for scheduled term-loan repayments.
- Progress, remaining funding commitments and execution risks for the Granger project, including the expected second-half 2023 completion.
- Whether common and preferred distributions remain supported by cash generation after maintenance needs, capital spending and debt service; consider that Available Cash before Reserves is a non-GAAP measure.
- Denbury’s remaining $35.0 million receivable under the NEJD payment agreement and the sensitivity of the preferred-unit derivative valuation.