Genesis Energy, L.P. Reports First Quarter 2014 Results

HOUSTON--()--Genesis Energy, L.P. (NYSE:GEL) today announced its first quarter results. Our results for the quarter ended March 31, 2014 included the following items:

  • We generated total Available Cash before Reserves of $53.4 million in the first quarter of 2014, an increase of $4.7 million, or 9.7%, from the first quarter of 2013. Adjusted EBITDA increased $5.8 million, or 9.6% over the prior year quarter, to $66.6 million. Available Cash before Reserves and Adjusted EBITDA are non-GAAP measures that are defined and reconciled later in this press release to the most directly comparable GAAP financial measure, net income.
  • We reported net income from continuing operations of $29.8 million, or $0.34 per unit for the first quarter of 2014 compared to $22.7 million, or $0.28 per unit, for the same period in 2013.
  • On May 15, 2014, we will pay a total quarterly distribution of $48.8 million attributable to our financial and operational results for the first quarter of 2014, based on our quarterly declared distribution of $0.55 per unit. Our Available Cash before Reserves provided 1.10 times coverage for this quarterly distribution.

Grant Sims, CEO of Genesis Energy, said, "We are pleased with the overall financial performance of our operations. Although this was the third consecutive negative quarter for our heavy fuel oil business, we believe, based upon our most recent performance, we have transitioned those operations (in terms of cost structure, size and scope) to operate profitably in future periods regardless of then current market conditions.

In spite of those challenges in our heavy fuel oil operations, we were able to deliver the thirty-fifth consecutive increase in our quarterly distribution, thirty of which have been 10% or greater over the prior year quarter and none less than 8.7%.

In early March, we completed and commissioned our pipeline connecting our Port Hudson Terminal on the Mississippi River to the ExxonMobil Baton Rouge Refinery. We continue construction on related facilities at Scenic Station, a unit train crude oil unloading facility, which will be connected to that pipeline and should become operational late in June.

We also continue to move forward on our other projects in south Louisiana - our unit train unloading facility at Raceland, scheduled for completion in early 2015, and our new crude oil, intermediates and refined products import/export terminal that will be pipeline-connected to existing deepwater docks at the Port of Greater Baton Rouge, scheduled for completion in mid-2015.

The SEKCO pipeline in the deepwater Gulf of Mexico, a joint venture with Enterprise Products, should be mechanically complete by July 1 and contribute financially in the third quarter.

These growth projects, and the expected ramp up in volumes from our other growth initiatives in Texas, Wyoming, Mississippi and Florida, which are in various stages of start-up, should increasingly contribute to our financial performance in the second half of 2014 and into 2015, when we expect those projects to be in full service.

As a result, we believe we are well-positioned to continue to achieve our goals of delivering low double-digit growth in distributions, maintaining a better than investment grade leverage ratio and delivering an increasing coverage ratio, all without ever losing focus on our absolute commitment to safe, responsible and reliable operations."

Financial Results

Available Cash before Reserves was $53.4 million in the first quarter of 2014 (or "2014 Quarter") . The primary components impacting Available Cash before Reserves are Segment Margin, corporate general and administrative expenses (excluding certain non-cash charges), interest expense and maintenance capital expenditures.

Variances from the first quarter of 2013 (or "2013 Quarter") in these components are explained as follows:

Segment Margin

Segment Margin (a non-GAAP measure) is defined below and reconciled later in this press release to income from continuing operations before income taxes.

Segment results for the first quarters of 2014 and 2013 were as follows:

 

Three Months Ended

March 31,

2014     2013
(in thousands)
Pipeline transportation $ 28,092 $ 25,196
Refinery services 20,872 17,965
Supply and logistics 28,387 28,904
Total Segment Margin (1) $ 77,351 $ 72,065

(1) We define Segment Margin as revenues less product costs, operating expenses (excluding non-cash charges, such as depreciation and amortization), and segment general and administrative expenses, plus our equity in distributable cash generated by our equity investees. In addition, our Segment Margin definition excludes the non-cash effects of our stock appreciation rights plan and includes the non-income portion of payments received under direct financing leases. A reconciliation of Segment Margin to income from continuing operations before income taxes is presented for periods presented in the table at the end of this release.

Pipeline transportation Segment Margin increased $2.9 million, or 11%, between the first quarter periods. The increase was primarily the result of higher volumes transported in our offshore pipelines as a result of additional wells being connected to the pipeline in the existing fields that they service. In the 2014 Quarter, crude oil tariff revenues of onshore crude oil pipelines increased primarily due to upward tariff indexing of approximately 4.6% for our FERC-regulated pipelines effective in July 2013. In addition, our Louisiana pipeline system, a new 18-mile 24-inch diameter crude oil pipeline connecting Port Hudson to the Baton Rouge Scenic Station and continuing downstream to the Anchorage Tank Farm began operations in the latter part of the 2014 Quarter. Those increases were somewhat offset by a decrease in volumes on our Texas pipeline system.

Refinery services Segment Margin increased $2.9 million, or 16%, between the first quarter periods as a result of a 12% increase in NaHS sales volumes to a total of 40,900 DST for the quarter. NaHS sales revenues increased primarily as a function of the increase in NaHS sales volumes, which increase was partially offset by a decrease in the average index prices for caustic soda (which is a component of our sales price) and the other components referenced below. The pricing in our sales contracts for NaHS includes adjustments for fluctuations in commodity benchmarks, freight, labor, energy costs and government indexes. The frequency at which these adjustments are applied varies by contract, geographic region and supply point. The mix of NaHS sales volumes to which these adjustments apply varies between periods.

Supply and logistics Segment Margin decreased by $0.5 million, or 2%, between the first quarter periods. In the 2014 Quarter, we continued to experience negative impacts as we worked through the dislocations in the prices/margins for the underlying commodities in our refined products business. We have transitioned our operations to a level and structure designed to operate within current market conditions in terms of costs, size and type of activity.

Other Components of Available Cash

Corporate general and administrative expenses included in the calculation of Available Cash before Reserves were comparable between the two quarters, decreasing by $0.2 million.

Interest costs for the first quarter of 2014 increased by $1.4 million from the first quarter of 2013 primarily as a result of increased borrowings for acquisitions and other growth projects, a portion of which were financed with our issuance in the first quarter of 2013 of $350 million of senior unsecured notes bearing interest at 5.75% per annum. This increase was net of capitalized interest costs attributable to our growth capital expenditures and investments in the SEKCO pipeline joint venture.

Several adjustments to net income are required to calculate Available Cash before Reserves.

The calculation of Available Cash before Reserves for the quarters ended March 31, 2014 and 2013 was as follows:

 

Three Months Ended

March 31,

2014   2013
(in thousands)
Net income $ 29,775 $ 22,846
Depreciation and amortization 19,280 15,049
Cash received from direct financing leases not included in income 1,338 1,232
Cash effects of sales of certain assets and discontinued operations 72 332
Effects of distributable cash generated by equity method investees not included in income 5,777 6,564
Cash effects of legacy stock appreciation rights plan (810 ) (1,523 )
Non-cash legacy stock appreciation rights plan expense 7 4,630
Expenses related to acquiring or constructing growth capital assets 784 216
Unrealized gain on derivative transactions excluding fair value hedges (3,911 ) (52 )
Maintenance capital utilized(1) (112 ) (819 )
Non-cash tax expense (benefit) 341 (323 )
Other items, net 894   542  
Available Cash before Reserves $ 53,435   $ 48,694  

(1) Maintenance capital expenditures in the 2014 Quarter were $2.3 million.

Other Components of Net Income

In the 2014 Quarter, we recorded net income of $29.8 million compared to $22.8 million in the 2013 Quarter.

In addition to the factors impacting Available Cash before Reserves, our derivative positions resulted in a $3.9 million non-cash unrealized gain in the 2014 Quarter compared to a $0.1 million non-cash unrealized gain in the 2013 Quarter.

Depreciation and amortization expense increased $4.2 million between the quarterly periods primarily as a result of the acquisition of our offshore marine transportation assets and recently completed internal growth projects.

Distributions

We have increased our quarterly distribution rate for thirty-five consecutive quarters. Thirty of those quarterly increases have been 10% or greater as compared to the same quarter in the preceding year. Over the last four quarters, we have increased the distribution rate on our common units by a total of $0.0525 per unit, or 10.6%. Distributions attributable to each quarter of 2014 and 2013, are as follows:

Distribution For   Date Paid   Per Unit

Amount

2014
1st Quarter May 15, 2014 $ 0.5500
2013
4th Quarter February 14, 2014 $ 0.5350
3rd Quarter November 14, 2013 $ 0.5225
2nd Quarter August 14, 2013 $ 0.5100
1st Quarter May 15, 2013 $ 0.4975

Earnings Conference Call

We will broadcast our Earnings Conference Call on Friday, May 2, 2014, at 8:30 a.m. Central time. This call can be accessed at www.genesisenergy.com. Choose the Investor Relations button. For those unable to attend the live broadcast, a replay will be available beginning approximately one hour after the event and remain available on our website for 30 days. There is no charge to access the event.

Genesis Energy, L.P. is a diversified midstream energy master limited partnership headquartered in Houston, Texas. Genesis' operations include pipeline transportation, refinery services and supply and logistics. The Pipeline Transportation Division is engaged in the pipeline transportation of crude oil and carbon dioxide. The Refinery Services Division primarily processes sour gas streams to remove sulfur at refining operations. The Supply and Logistics Division is engaged in the transportation, storage and supply and marketing of energy products, including crude oil, refined products and certain industrial gases. Genesis' operations are primarily located in Texas, Louisiana, Arkansas, Mississippi, Alabama, Florida, Wyoming and the Gulf of Mexico.

 
GENESIS ENERGY, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

(in thousands, except per unit amounts)

 
 

Three Months Ended March 31,

2014     2013  
REVENUES $ 1,019,719 $ 1,014,808
 
COSTS AND EXPENSES:
Costs of sales 953,027 958,143
General and administrative expenses 12,010 11,611
Depreciation and amortization 19,280   15,049  
OPERATING INCOME 35,402 30,005
Equity in earnings of equity investees 7,818 3,936
Interest expense (12,804 ) (11,441 )
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 30,416 22,500
Income tax (expense) benefit (641 ) 203  
INCOME FROM CONTINUING OPERATIONS 29,775 22,703
Income from discontinued operations   143  
NET INCOME $ 29,775   $ 22,846  
BASIC AND DILUTED NET INCOME PER COMMON UNIT:
Continuing operations $ 0.34 $ 0.28
Discontinued operations    
Net income per common unit $ 0.34   $ 0.28  
WEIGHTED AVERAGE OUTSTANDING COMMON UNITS:
Basic and Diluted 88,691 81,203
 
GENESIS ENERGY, L.P.
OPERATING DATA - UNAUDITED
 
 

Three Months Ended March 31,

2014     2013
Pipeline Transportation Segment  
Onshore crude oil pipelines (barrels/day):
Texas 48,811 53,412
Jay 27,853 28,098
Mississippi 15,180   18,983
Onshore crude oil pipelines total 91,844   100,493
Offshore crude oil pipelines (barrels/day):
CHOPS (1) 191,326 114,174
Poseidon (1) 211,012 204,550
Odyssey (1) 45,003 43,174
GOPL 7,449   8,926
Offshore crude oil pipelines total 454,790   370,824
CO2 pipeline (Mcf/day)
Free State 191,593   208,416
 
Refinery Services Segment
NaHS (dry short tons sold) 40,902   36,622
NaOH (caustic soda dry short tons sold) 24,033   19,230
 
Supply and Logistics Segment
Crude oil and petroleum products sales (barrels/day) 100,856   96,233

(1) Volumes for our equity method investees are presented on a 100% basis.

 
GENESIS ENERGY, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

(in thousands, except number of units)

 
 

March 31,

2014

 

December 31,

2013

ASSETS
Cash and cash equivalents $ 11,676 $ 8,866
Accounts receivable - trade, net 307,978 368,033
Inventories 97,029 85,330
Other current assets 37,653   72,994
Total current assets 454,336 535,223
Fixed assets, net 1,203,754 1,128,744
Investment in direct financing leases, net 150,250 151,903
Equity investees 626,195 620,247
Intangible assets, net 59,914 62,928
Goodwill 325,046 325,046
Other assets, net 38,058   38,111
Total assets $ 2,857,553   $ 2,862,202
LIABILITIES AND PARTNERS’ CAPITAL
Accounts payable - trade $ 302,695 $ 316,204
Accrued liabilities 98,738   130,349
Total current liabilities 401,433 446,553
Senior secured credit facility 640,500 582,800
Senior unsecured notes 700,740 700,772
Deferred tax liabilities 16,285 15,944
Other long-term liabilities 18,536 18,396
Partners' capital:
Common unitholders 1,080,059   1,097,737
Total liabilities and partners' capital $ 2,857,553   $ 2,862,202
 
Units Data:
Total common units outstanding 88,690,985   88,690,985
 
GENESIS ENERGY, L.P.
RECONCILIATION OF SEGMENT MARGIN TO INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES - UNAUDITED

(in thousands)

 
 

Three Months Ended March 31,

2014   2013
Segment Margin (1) $ 77,351 $ 72,065
Corporate general and administrative expenses (11,061 ) (10,837 )
Non-cash items included in general and administrative costs 316 846
Cash expenditures not included in Adjusted EBITDA 784 216
Cash expenditures not included in net income (810 ) (1,536 )
Adjusted EBITDA 66,580 60,754
Depreciation and amortization (19,280 ) (15,049 )
Interest expense, net (12,804 ) (11,441 )
Cash expenditures not included in Adjusted EBITDA or net income 26 1,320
Adjustment to exclude distributions from equity investees and include equity in investees net income (5,777 ) (6,564 )
Non-cash legacy stock appreciation rights plan expense (7 ) (4,630 )
Other non-cash items 1,678 (1,743 )
Discontinued operations   (147 )
Income from continuing operations before income taxes $ 30,416   $ 22,500  

(1) Our reconciliation of Segment Margin to income from continuing operations before income taxes reflects that Segment Margin (as defined above) excludes corporate general and administrative expenses, depreciation and amortization, interest expense, certain non-cash items, the most significant of which are the non-cash effects of our stock appreciation rights plan and unrealized gains and losses on derivative transactions not designated as hedges for accounting purposes. Items in Segment Margin not included in income before income taxes are distributable cash from equity investees in excess of equity in earnings (or losses) and cash payments from direct financing leases in excess of earnings.

 
GENESIS ENERGY, L.P.
ADJUSTED DEBT-TO-PRO FORMA EBITDA RATIO - UNAUDITED

(in thousands)

 
  March 31, 2014
Senior secured credit facility $ 640,500
Senior unsecured notes (excluding unamortized premium of $740) 700,000
Less: Outstanding inventory financing sublimit borrowings (71,600 )
Less: Cash and cash equivalents (11,676 )
Adjusted Debt (1) $ 1,257,224  
 
Pro Forma LTM
March 31, 2014
LTM Adjusted EBITDA (as reported) (2) $ 244,130
Acquisitions and material projects EBITDA adjustment (3) 50,184  
Pro Forma EBITDA $ 294,314  
 
Adjusted Debt-to-Pro Forma EBITDA 4.27 x

(1) We define Adjusted Debt as the amounts outstanding under our senior secured credit facility and senior unsecured notes (excluding any unamortized premiums or discounts), less the amount outstanding under our inventory financing sublimit, less cash and cash equivalents on hand at the end of the period.

(2) Last twelve months ("LTM") Adjusted EBITDA. The most comparable GAAP measure to Adjusted EBITDA, income from continuing operations before income taxes, was $26.7 million for the second quarter of 2013, $18.6 million for the third quarter of 2013, $17.1 million for the fourth quarter of 2013 and $30.4 million for the first quarter of 2014. Reconciliations of Adjusted EBITDA to income from continuing operations before income taxes for all periods presented are available on our website at www.genesisenergy.com.

(3) This amount reflects the adjustment we are permitted to make under our credit agreement for purposes of calculating compliance with our leverage ratio. It includes a pro rata portion of projected future annual EBITDA from material projects (i.e. organic growth) and includes Adjusted EBITDA (using historical amounts and other permitted amounts) since the beginning of the calculation period attributable to each acquisition completed during such calculation period, regardless of the date on which such acquisition was actually completed. This adjustment may not be indicative of future results.

This press release includes forward-looking statements as defined under federal law. Although we believe that our expectations are based upon reasonable assumptions, we can give no assurance that our goals will be achieved. Actual results may vary materially. All statements, other than statements of historical facts, included in this release that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements, and historical performance is not necessarily indicative of future performance. Those forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of uncertainties, factors and risks, many of which are outside our control, that could cause results to differ materially from those expected by management. Such risks and uncertainties include, but are not limited to, weather, political, economic and market conditions, including a decline in the price and market demand for products, the timing and success of business development efforts and other uncertainties. Those and other applicable uncertainties, factors and risks that may affect those forward-looking statements are described more fully in our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission and other filings, including our Current Reports on Form 8-K and Quarterly Reports on Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statement.

This press release and the accompanying schedules include non-generally accepted accounting principle (non-GAAP) financial measures of available cash and Adjusted EBITDA. The accompanying schedules provide reconciliations of these non-GAAP financial measures to their most directly comparable financial measures calculated in accordance with generally accepted accounting principles in the United States of America (GAAP). Our non-GAAP financial measures should not be considered as alternatives to GAAP measures of liquidity or financial performance. We believe that investors benefit from having access to the same financial measures being utilized by management, lenders, analysts and other market participants.

Available Cash before Reserves. Available Cash before Reserves, also referred to as distributable cash flow, is commonly used as a supplemental financial measure by management and by external users of financial statements such as investors, commercial banks, research analysts and rating agencies, to assess: (1) the financial performance of our assets without regard to financing methods, capital structures or historical cost basis; (2) the ability of our assets to generate cash sufficient to pay interest costs and support our indebtedness; (3) our operating performance and return on capital as compared to those of other companies in the midstream energy industry, without regard to financing and capital structure; and (4) the viability of projects and the overall rates of return on alternative investment opportunities. Because Available Cash before Reserves excludes some items that affect net income or loss and because these measures may vary among other companies, the Available Cash before Reserves data presented in this press release may not be comparable to similarly titled measures of other companies.

Available Cash before Reserves, including applicable pro forma presentations, is a performance measure used by our management to compare cash flows generated by us to the cash distribution paid to our common unitholders. This is an important financial measure to our public unitholders since it is an indicator of our ability to provide a cash return on their investments. Among other things, this financial measure aids investors in determining whether or not we are generating cash flows at a level that can support a quarterly cash distribution to the partners. Lastly, Available Cash before Reserves is the quantitative standard used throughout the investment community with respect to publicly-traded partnerships.

Available Cash before Reserves is net income as adjusted for specific items, the most significant of which are the addition of certain non-cash expenses (such as depreciation and amortization), the substitution of distributable cash generated by our equity investees in lieu of our equity income attributable to our equity investees, the elimination of gains and losses on asset sales (except those from the sale of surplus assets), unrealized gains and losses on derivative transactions not designated as hedges for accounting purposes, the elimination of expenses related to acquiring or constructing assets that provide new sources of cash flows and the subtraction of maintenance capital utilized. Maintenance capital is capitalized costs that are necessary to maintain the service capability of our existing assets, including the replacement of any system component or equipment which is worn out or obsolete. Our quarterly maintenance capital utilized is intended to represent the amount of cash reserves we believe is prudent to establish each quarter attributable to maintenance capital requirements in connection with determining the amount of distributable or discretionary cash flow attributable to that quarter, which cash flow we refer to as Available Cash before Reserves. We believe the most useful quarterly maintenance capital utilized amount is that portion of the amount of previously incurred maintenance capital expenditures that we realize and/or utilize during the relevant quarter, which would be equal to the sum of the maintenance capital expenditures we have incurred for each project/component in prior quarters allocated ratably over the useful lives of those projects/components. Because we have not historically used maintenance capital utilized, our future maintenance capital utilized calculations will reflect the realization and/or utilization of solely those maintenance capital expenditures incurred since December 31, 2013.

Adjusted EBITDA. Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA"), including applicable pro forma presentations, is commonly used as a supplemental financial measure by management and external users of our financial statements, such as investors, commercial banks, research analysts and rating agencies. Since Adjusted EBITDA excludes some, but not all, items that affect net income or loss and because these measures may vary among other companies, the Adjusted EBITDA data presented in this press release may not be comparable to similarly titled measures of other companies.

We define Adjusted EBITDA as net income or loss plus net interest expense, income taxes, depreciation and amortization plus other specific items, the most significant of which are the addition of cash received from direct financing leases not included in income, non-cash equity-based compensation expense, expenses related to acquiring assets that provide new sources of cash flow and the effects of available cash generated by equity method investees not included in income. We also exclude the effect on net income or loss of unrealized gains or losses on derivative transactions.

Contacts

Genesis Energy, L.P.
Chief Financial Officer
Bob Deere, 713-860-2516

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Contacts

Genesis Energy, L.P.
Chief Financial Officer
Bob Deere, 713-860-2516