Genesis Energy, L.P. — Q3 2013 Form 10-Q
Reporting period: Three and nine months ended September 30, 2013. Genesis is a Gulf Coast-focused midstream partnership with pipeline transportation, refinery services, and supply and logistics operations. Unless stated otherwise, financial amounts below are in millions of dollars.
Financial performance and liquidity
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $1,259.8 | $1,041.8 | $3,620.7 | $3,016.0 |
| Operating income | $24.6 | $29.1 | $88.4 | $83.5 |
| Net income | $18.5 | $31.2 | $68.2 | $69.4 |
| Net income per common unit | $0.22 | $0.39 | $0.83 | $0.90 |
| Segment Margin | $64.8 | $65.9 | $207.3 | $189.0 |
- Revenue rose 21% in the quarter and 20% year to date, primarily reflecting higher supply-and-logistics volumes and commodity prices. Supply and logistics revenue is largely pass-through product sales; revenue growth did not translate into higher quarterly Segment Margin.
- Q3 Segment Margin was led by pipeline transportation at $29.9 million, refinery services at $19.2 million, and supply and logistics at $15.8 million. Compared with Q3 2012, pipeline margin rose 28%, refinery services rose 1%, and supply and logistics fell 33%. Nine-month margin increased 10% overall.
- Q3 net income fell 41% year over year. Management attributed the decline partly to an $8.2 million tax benefit recognized in Q3 2012, higher interest expense, and increased growth-transaction costs. Nine-month net income was broadly flat.
- Operating cash flow for the first nine months was $109.3 million, down from $142.9 million. Investing cash flow was negative $493.9 million, including $230.9 million for the offshore marine acquisition; financing cash flow was positive $390.2 million. Cash increased to $16.9 million.
- At September 30, current assets were $524.1 million and current liabilities $410.2 million; trade receivables were $364.1 million and inventory $119.1 million. Current assets included $16.9 million of cash.
- Total debt was $1.112 billion, up from $850.9 million at year-end 2012. It comprised $411.3 million drawn on the $1 billion revolving facility and $700.8 million of senior notes. The partnership reported $573.4 million of facility borrowing availability and compliance with debt covenants.
- Nine-month capital spending totaled $510.8 million, including $208.4 million for fixed and intangible assets, $230.9 million for the marine acquisition, and $71.4 million invested in equity investees. Cash distributions to unitholders were $122.1 million.
Material changes and notable items
- In August, Genesis acquired substantially all of Hornbeck Offshore’s downstream transportation business for approximately $230.9 million. The assets included nine barges and nine tugboats; the acquired business contributed $8.7 million in revenue and $2.5 million in net income after acquisition during the reported periods.
- In February, Genesis issued $350 million of 5.75% senior notes due 2021, using proceeds to repay revolving-credit borrowings and for general partnership purposes. In September, it issued 5.75 million Class A units for net proceeds of approximately $263.6 million, used for general purposes including debt repayment.
- The partnership declared a Q3 distribution of $0.5225 per unit, payable November 14, 2013, a 10.6% increase from the Q3 2012 distribution. Available Cash before Reserves, a non-GAAP measure, was $43.3 million for Q3 versus $45.9 million a year earlier.
- The Q3 2012 comparative revenue and product-cost figures were corrected to present certain sales gross rather than net; the corrections did not affect operating income, net income, or Segment Margin. Q3 2012 net income also included the $8.2 million reversal of uncertain tax positions following tax audit settlements and statute expirations.
Outlook, risks, and contingencies
- No formal earnings guidance is provided. Management stated it expects internally generated funds and available credit capacity to meet ordinary-course capital needs, while noting that funding growth depends on access to debt and equity capital and successful execution of projects.
- Management estimated approximately $700 million of capital expenditures on projects under construction, including prior spending, with approximately $425 million expected in 2013. Projects included Gulf Coast infrastructure, crude-by-rail facilities, refinery services capacity, and the SEKCO deepwater pipeline, expected to begin service by mid-2014.
- Quarterly results faced operating disruptions and costs: refinery turnarounds reduced rail and pipeline throughput; railcar rental and storage costs preceded project completion; and weak refined-product margins led Genesis to defer sales of hedged inventory. Management believed margins could normalize, but outcomes depend on commodity-margin recovery and the timing of sales.
- Other disclosed risks include commodity-price and hedging exposure, customer refinery outages, pipeline interruptions, marine operating and pollution hazards, environmental and regulatory matters, capital-market access, and the ability to integrate acquisitions and complete growth projects. Genesis said pending lawsuits and regulatory examinations were not expected to materially affect its financial position, results, or cash flows; it also cautioned that environmental releases could materially affect the business.
- There were no material changes to previously disclosed contractual obligations or market-risk disclosures, and the partnership reported no off-balance-sheet arrangements beyond those previously disclosed.
Investor verification points
- Assess whether supply-and-logistics margins recover as deferred hedged inventory is sold and rail projects reach planned operating dates.
- Track project spending, completion schedules, and expected returns against the approximately $700 million construction estimate and 2013 spending plan.
- Review debt levels, revolving-facility availability, covenant headroom, and the funding required for distributions and growth investments.
- Compare distributable cash generation with declared distributions; the filing reports $43.3 million of Q3 Available Cash before Reserves and a $46.3 million Q3 distribution payable in November, but does not state a specific coverage ratio for these figures.
- Monitor throughput and customer refinery downtime, commodity margins and hedge results, and environmental or marine incidents.