Genesis Energy, L.P. (NYSE: GEL) today announced its fourth
quarter results.
We generated the following financial results for the fourth
quarter of 2018:
- Net Loss Attributable to Genesis
Energy, L.P. of $24.8 million for the fourth quarter of 2018
compared to Net Income Attributable to Genesis Energy, L.P. of
$15.5 million for the same period in 2017.
- Cash Flows from Operating Activities of
$82.5 million for the fourth quarter of 2018 compared to $117.2
million for the same period in 2017, a decrease of $34.8 million,
principally due to an increase in working capital.
- Total Segment Margin in the fourth
quarter of 2018 of $185.5 million.
- Available Cash before Reserves of
$150.8 million for the fourth quarter of 2018, inclusive of a
one-time gain on sale of assets of $38.9 million. Excluding the
gain on sale of assets, Available Cash before Reserves provided
1.66X coverage for the quarterly distribution of $0.55 per common
unit attributable to the fourth quarter. We paid distributions on
our preferred units in the form of 534,576 additional convertible
preferred units.
- Adjusted EBITDA of $213.2 million for
the fourth quarter of 2018, inclusive of a one-time gain on sale of
assets of $38.9 million. Excluding the gain on sale of assets,
Adjusted EBITDA would have been $174.3 million.
Grant Sims, CEO of Genesis Energy, said, “We are pleased to
announce Total Segment Margin of $185.5 million in the quarter
which is a testament to the strength of our underlying diverse
business segments. This was primarily driven by continued over
performance in our soda ash business and continued ramping up of
volumes on our Louisiana infrastructure.
As we have previously alluded, we have identified and are
currently evaluating several organic growth opportunities that are
complementary to our existing core businesses with apparent
multiples to Adjusted EBITDA of plus or minus 5 times. In
conjunction with our desire to internally fund these potential
investments and possibly other future opportunities and to further
strengthen our balance sheet and maintain our financial
flexibility, our Board of Directors has made the decision to hold
our quarterly distribution rate flat at $0.55 per common unit
beginning with the distribution attributable to the quarter ending
March 31, 2019. We intend to use our capital for the highest and
best use for all of our stakeholders. We will revisit our
distribution policy quarterly, but we currently expect for our
quarterly distribution rate to remain at $0.55 per common unit for
the foreseeable future.
Turning to our quarterly financial results, our business
continued to perform well, generating consistent financial results
that provided 1.66X coverage for our increased quarterly
distribution. Our distribution coverage ratio should be slightly
lower in future periods, everything else the same, as we move out
of the paid-in-kind period on our preferred equity units beginning
on March 1, 2019 and start paying the 8.75% preferred payment in
cash on a go forward basis.
In our offshore business, we continue to be encouraged by the
current activity in and around our substantial footprint in the
Gulf of Mexico. We are currently seeing increasing demand for our
assets from production that is currently dedicated to pipelines of
our competitors that, in our estimation, appear to be
oversubscribed. Given our excess capacity and connectivity on
certain of our systems, we expect to benefit from this takeaway
capacity constraint for the next twelve to twenty-four months.
In addition, we have several new dedicated tie-backs scheduled
to come on-line in the second half of 2019 representing up to an
additional 40-50 thousand barrels per day, or kbd, of throughput
exiting 2019. In fact, we have either executed or are in the
process of finalizing agreements adding incremental, dedicated
volumes approaching 80 kbd in 2020 (including Atlantis Phase 3), 70
kbd in 2021 and 150 kbd in 2022 (including Mad Dog 2) none of which
requires any capital expenditures by us. We are in early but active
discussions regarding an incremental 300 kbd that could quite
possibly come on in the 2022-2025 time-frame, a portion of which
represents one of the strategic capital opportunities mentioned
earlier. However, unless and until the parties enter into
definitive agreements, there is no guarantee that we will be
successful in capturing some or any of these volumes.
Our soda ash operations continue to exceed our original
acquisition date expectations. In 2018, we beat our previously
raised target range of $165-$175 million in segment margin
contribution driven by strong export pricing supported by higher
than expected international demand growth and lower than expected
international supply growth. We currently expect this tight
international supply/demand balance to stay in place in 2019 and,
in all likelihood, to strengthen into 2020 and 2021. During the
2019 domestic contract season, we gained some domestic market share
to bring our portfolio back in line with the domestic-international
mix of the average U.S. producer, after incurring some domestic
losses over the last couple years. Our intent is to maintain this
balanced portfolio moving forward.
Our refinery services business continues to perform at or above
our expectations and to be a remarkably steady contributor.
Margin in our marine segment actually increased slightly for the
fourth quarter in a row. We are reasonably hopeful we’ve put in a
bottom for the quarterly segment margin from our entire fleet of
assets and have seen some strength in near term day rates and
utilization rates. It will be interesting to see how IMO 2020 plays
out, as we would otherwise expect an increased demand for our type
of inland barge that can get the right intermediate refined barrel
to the right refinery location under the more stringent
requirements for finished products. Also, there has been a recent
firming in Jones Act tanker rates, possibly indicating that more
and more shale crude oil volumes delivered to the Gulf Coast are
further transported to the East and West coasts of the US on Jones
Act vessels, in addition to international exports.
In the quarter, even after reflecting the sale of our Powder
River Basin midstream assets at the beginning of the fourth
quarter, our segment margin contribution from our onshore
facilities and transportation segment increased from the third
quarter. That increase was primarily driven by increasing crude by
rail volumes flowing through our infrastructure in the Baton Rouge
corridor in Louisiana. Those increased volumes were primarily
attributable to Imperial Oil shipping a portion of its equity
Canadian production via rail to ExxonMobil’s Baton Rouge refinery
for consumption and export through our capital Aframax capable
facilities at the Port of Baton Rouge.
As many have read, on December 2, 2018 the government of Alberta
took an unprecedented action of intervention in a free market by
imposing mandatory upstream production curtailments on Canadian
producers. We believe that artificially impacted the short to near
term spread between WCS and WTI and resulted in making rail
movements out of Canada uneconomical. We believe that, over the
long term, the market takeaway capacity supply and demand dynamics
are in place to ultimately return to fourth quarter volumes, but we
expect to see a reduction in volume in the first half of 2019. The
government of Alberta has already eased its curtailment and will
continue to revisit its policy from time to time.
Touching on the outlook for 2019, we are excited about the
overall current operating environment for our business segments,
notwithstanding the loss of segment margin expected in onshore
facilities and transportation in the first half of 2019 relating to
the Alberta production curtailment, as mentioned above. We expect
2019 Adjusted EBITDA to be in a range of $685 to $715 million,
which assumes an Adjusted EBITDA reduction of approximately $15
million due to the Alberta situation described above. We expect our
fourth quarter Adjusted EBITDA to be in a range of $180 to $190
million, driven by a reasonable recovery of crude by rail volumes
and expected growth from our offshore segment attributable to the
startup of several new dedicated tie-backs in the second half of
the year, discussed in more detail above. 1
We continue to enjoy a strong distribution coverage ratio and
remain on our path to naturally de-lever our balance sheet. We are
encouraged by our view of the operating environment for 2019 for
our businesses, especially after the Alberta oil production
curtailment ends. As always, we intend to be prudent and diligent
in maintaining our financial flexibility to allow the partnership
to opportunistically build long term value for all stakeholders
without ever losing our commitment to safe, reliable and
responsible operations.”
1 We are unable to provide a reconciliation of the
forward-looking Adjusted EBITDA, a non-GAAP financial measure, to
the most directly comparable GAAP financial measure without
unreasonable efforts. The probable significance is that such
comparable GAAP financial measure may be materially different.
Financial Results
Segment Margin
Variances between the fourth quarter of 2018 (the “2018
Quarter”) and the fourth quarter of 2017 (the “2017 Quarter”) in
these components are explained below.
Segment margin results for the 2018 Quarter and 2017 Quarter
were as follows:
Three Months EndedDecember 31, 2018 2017 (in
thousands) Offshore pipeline transportation $ 69,276 $ 74,012
Sodium minerals and sulfur services 67,613 66,469 Onshore
facilities and transportation 36,296 24,377 Marine transportation
12,272 10,526 Total Segment Margin $ 185,457 $
175,384
Offshore pipeline transportation Segment Margin for the 2018
Quarter decreased $4.7 million, or 6%, from the 2017 Quarter. The
decrease is primarily attributable to lower cash distributions
received from our equity investees, specifically Poseidon, during
the 2018 Quarter. Poseidon has pipeline capacity reservation
agreements with certain producers in the Gulf of Mexico that
require them to make minimum bill payments to us in excess of the
standard throughput fee charged per barrel. These minimum bill
payments ended prior to the 2018 Quarter. This decrease was
partially offset by higher overall volumes and throughput fees on
the Poseidon system, and higher volumes on our CHOPS pipeline
system and its associated laterals.
Sodium minerals and sulfur services Segment Margin for the 2018
Quarter increased $1.1 million, or 2%. The contributions thus far
from our Alkali Business have exceeded our expectations, and we
expect continued strong performance into 2019. Although soda ash
volumes were slightly down during the 2018 Quarter, we were able to
take advantage of favorable export pricing supported by higher than
expected international demand growth and lower than expected
international supply growth. Additionally, our refinery services
business continues to perform as expected. NaHS volumes were
slightly lower during the 2018 Quarter due to the timing of certain
of our sales to our international customers.
Onshore facilities and transportation Segment Margin for the
2018 Quarter increased $11.9 million, or 49%. Even after reflecting
the sale of our Powder River Basin midstream assets and realizing
no margin from the associated assets during the 2018 Quarter, our
margin contribution from the segment increased sequentially from
the third quarter and from the 2017 Quarter. This increase in the
2018 Quarter is primarily attributable to increased volumes flowing
through our infrastructure in the Baton Rouge corridor in
Louisiana. These increased volumes are the realization of the
expected growth in this business that we have discussed over the
last few quarters. This comes from actually moving increased
volumes of crude oil rather than marketing or merchant fees which,
for context, contributed less than $1 million for the fourth
quarter.
Marine transportation Segment Margin for the 2018 Quarter
increased $1.7 million, or 17%, from the 2017 Quarter. This
increase in Segment Margin is primarily attributable to an increase
in utilization during the 2018 Quarter on our inland barge
operation. This was partially offset by our offshore barge fleet
entering into more short-term spot price contracts, which can lead
to a less favorable rebill structure and higher operating costs, as
our last legacy long term contract rolled off during the first
quarter of 2018. Additionally, we had an increase in operating
costs during the 2018 Quarter relative to the 2017 Quarter due to
an increase in dry-docking costs. We have continued to enter into
short term contracts (less than a year) in both the inland and
offshore markets because we believe the day rates currently being
offered by the market are at, or approaching, cyclical lows. We are
reasonably hopeful that we've put in a bottom for the quarterly
segment margin from our entire fleet of assets and have seen some
strength in near term day rates and utilization, but we have no
expectation of the fundamentals for marine transportation showing
significant improvement through at least the next several
years.
Other Components of Net Income
In the 2018 Quarter, we recorded Net Loss Attributable to
Genesis Energy, L.P. of $24.8 million compared to Net Income
Attributable to Genesis Energy, L.P. of $15.5 million in the 2017
Quarter. The 2018 Quarter was negatively impacted by impairment
expense of $120.2 million associated with: (i) an impairment of
$23.1 million on the goodwill associated with our supply and
logistics reporting unit, which primarily consists of our legacy
crude oil and refined products marketing and trucking businesses;
(ii) an impairment of certain of our non-core offshore gas pipeline
and platform assets of approximately $75.9 million for which the
abandonment timing has accelerated; and (iii) an impairment of
approximately $21.2 million related to our remaining non-core
assets in the Powder River Basin.
This decrease was offset by an increase in the 2018 Quarter on
gains on asset sales, primarily due to the closing of our Powder
River Basin asset sale. Additionally, we reported an increase in
segment margin during the 2018 Quarter of $10.1 million, a decrease
in general and administrative expenses of $10.2 million principally
due lower corporate and transaction costs, and other income
(expense) effects of approximately $23.0 million primarily driven
by the valuation of the embedded derivative associated with our
Class A Convertible Preferred Units and a loss on debt
extinguishment, which was recognized during the 2017 Quarter.
Earnings Conference Call
We will broadcast our Earnings Conference Call on Wednesday,
February 20, 2019, at 8:30 a.m. Central time (9:30 a.m.
Eastern 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 offshore pipeline transportation, sodium
minerals and sulfur services, marine transportation and onshore
facilities and transportation. 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 EndedDecember 31, Year
EndedDecember 31, 2018 2017 2018 2017
REVENUES
$ 689,296 $ 720,049 $ 2,912,770 $ 2,028,377
COSTS AND
EXPENSES: Costs of sales and operating expenses 511,931 566,544
2,278,416 1,529,236 General and administrative expenses 17,486
27,698 66,898 66,421 Depreciation, depletion and amortization
74,401 76,027 313,190 252,480 Impairment expense 120,260 — 126,282
— Gain on sale of assets (38,901 ) (13,627 ) (42,264 ) (40,311 )
OPERATING INCOME 4,119 63,407 170,248 220,551 Equity in
earnings of equity investees 15,238 16,241 43,626 51,046 Interest
expense (56,327 ) (54,645 ) (229,191 ) (176,762 ) Other income
(expense) 8,627 (14,439 ) 5,023 (16,715 )
INCOME
BEFORE INCOME TAXES (28,343 ) 10,564 (10,294 ) 78,120 Income
tax benefit (expense) (584 ) 4,837 (1,498 ) 3,959
NET INCOME (LOSS) (28,927 ) 15,401 (11,792 ) 82,079 Net loss
attributable to noncontrolling interests 4,144 111
5,717 568
NET INCOME (LOSS) ATTRIBUTABLE TO
GENESIS ENERGY, L.P. $ (24,783 ) $ 15,512 $ (6,075 ) $
82,647 Less: Accumulated distributions attributable to Class
A Convertible Preferred Units (18,021 ) (16,526 ) (69,801 ) (21,995
)
NET INCOME(LOSS) AVAILABLE TO COMMON UNITHOLDERS $ (42,804
) $ (1,014 ) $ (75,876 ) $ 60,652
NET INCOME(LOSS) PER
COMMON UNIT: Basic and Diluted $
(0.35 ) $ (0.01 ) $ (0.62 ) $ 0.50
WEIGHTED AVERAGE
OUTSTANDING COMMON UNITS: Basic and Diluted 122,579 122,579
122,579 121,546
GENESIS ENERGY, L.P.
OPERATING DATA - UNAUDITED
Three Months EndedDecember 31, Year
EndedDecember 31, 2018 2017 2018 2017
Offshore
Pipeline Transportation Segment Crude oil pipelines
(barrels/day unless otherwise noted): CHOPS 202,008 193,210 202,121
213,527 Poseidon (1) 251,512 240,241 234,960 253,547 Odyssey (1)
131,088 98,529 115,239 116,408 GOPL 8,485 8,243
10,147 8,185 Offshore crude oil pipelines total
593,093 540,223 562,467 591,667
Natural gas transportation volumes (MMbtus/d) (1) 421,104 434,591
432,261 496,302
Sodium Minerals and Sulfur Services
Segment NaHS (dry short tons sold) 36,125 37,829 150,671
133,404 Soda Ash volumes (short tons sold) 929,953 965,031
3,669,206 1,274,421 NaOH (caustic soda) volumes (dry short tons
sold) (2) 22,917 28,854 110,107 84,816
Onshore Facilities
and Transportation Segment Crude oil pipelines (barrels/day):
Texas 48,877 45,343 33,303 32,684 Jay 12,733 13,189 14,036 14,155
Mississippi 5,879 7,732 6,359 8,290 Louisiana (3) 165,426 152,954
159,754 135,310 Wyoming (4) — 29,789 33,957
22,329 Onshore crude oil pipelines total 232,915
249,007 247,409 212,768 Free State- CO2
Pipeline (Mcf/day) 125,213 92,397 107,674 77,921 Crude oil
and petroleum products sales (barrels/day) 37,617 59,237 45,845
51,771 Rail load/unload volumes (barrels/day) (5) 165,902
46,544 89,082 52,877
Marine Transportation Segment
Inland Fleet Utilization Percentage (6) 97.0 % 90.0 % 95.2 % 90.4 %
Offshore Fleet Utilization Percentage (6) 96.5 % 97.5 % 93.5 % 98.2
% (1) Volumes for our equity method investees are
presented on a 100% basis. We own 64% of Poseidon and 29% of
Odyssey, as well as equity interests in various other entities. (2)
Caustic soda sales volumes also include volumes sold from our
Alkali business. (3) Total daily volume for the three and twelve
months ended December 31, 2018 includes 49,802 and 55,202 barrels
per day, respectively, of intermediate refined products associated
with our Port of Baton Rouge Terminal pipelines. Total daily volume
for the three and twelve months ended December 31, 2017 includes
62,012 and 56,748 barrels per day, respectively, of intermediate
refined products associated with our Port of Baton Rouge Terminal
pipelines. (4) Volumes on our Wyoming system during 2018 represent
actual throughput as of September 30, 2018 as the relevant assets
were divested at the beginning of the 2018 Quarter. (5) Indicates
total barrels for which fees were charged for either loading or
unloading at all rail facilities. (6) Utilization rates are based
on a 365 day year, as adjusted for planned downtime and
dry-docking.
GENESIS ENERGY, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS -
UNAUDITED
(in thousands, except number of units)
December 31,2018 December 31,2017
ASSETS Cash and cash equivalents $ 10,300 $ 9,041 Accounts
receivable - trade, net 323,462 495,449 Inventories 73,531 88,653
Other current assets 35,986 42,890
Total current
assets 443,279 636,033 Fixed assets and mineral leaseholds, net
4,977,514 5,430,535 Investment in direct financing leases, net
116,925 125,283 Equity investees 355,085 381,550 Intangible assets,
net 162,602 182,406 Goodwill 301,959 325,046 Other assets, net
121,707 56,628
Total assets $ 6,479,071
$ 7,137,481
LIABILITIES AND CAPITAL Accounts payable
- trade $ 127,327 $ 270,855 Accrued liabilities 205,507
185,409
Total current liabilities 332,834 456,264
Senior secured credit facility 970,100 1,099,200 Senior unsecured
notes, net of debt issuance costs 2,462,363 2,598,918 Deferred tax
liabilities 12,576 11,913 Other long-term liabilities 259,198
256,571
Total liabilities 4,037,071
4,422,866 Mezzanine capital: Class A convertible preferred
units 761,466 697,151 Partners' capital: Common unitholders
1,690,799 2,026,147 Accumulated other comprehensive income (loss)
939 (604 ) Noncontrolling interests (11,204 ) (8,079 )
Total
partners' capital 1,680,534 2,017,464
Total
liabilities, mezzanine capital and partners' capital $
6,479,071 $ 7,137,481
Common Units
Data: Total common units outstanding 122,579,218
122,579,218
GENESIS ENERGY, L.P.
RECONCILIATION OF NET INCOME TO SEGMENT
MARGIN - UNAUDITED
(in thousands)
Three Months EndedDecember 31, 2018 2017 Net
income (loss) attributable to Genesis Energy, L.P. $ (24,783 ) $
15,512 Corporate general and administrative expenses 16,997 26,335
Depreciation, depletion, amortization and accretion 70,816 77,808
Impairment expense 120,260 — Interest expense, net 56,327 54,645
Income tax expense (benefit) 584 (4,837 ) Gain on sale of assets
(38,901 ) (13,627 ) Equity compensation adjustments (126 ) (283 )
Provision for leased items no longer in use (434 ) — Other — 2,987
Plus (minus) Select Items, net (15,283 ) 16,844 Segment
Margin (1) $ 185,457 $ 175,384 (1) See
definition of Segment Margin later in this press release.
GENESIS ENERGY, L.P.
RECONCILIATIONS OF NET INCOME TO
ADJUSTED EBITDA AND AVAILABLE CASH BEFORE RESERVES-
UNAUDITED
(in thousands)
Three Months EndedDecember 31, 2018 2017 (in
thousands) Net income (loss) attributable to Genesis Energy, L.P. $
(24,783 ) $ 15,512 Interest expense, net 56,327 54,645 Income tax
expense (benefit) 584 (4,837 ) Depreciation, depletion,
amortization, and accretion 70,816 77,808 Impairment expense
120,260 — EBITDA 223,204 143,128 Plus (minus) Select
Items, net (10,024 ) 21,652 Adjusted EBITDA, net(1) 213,180
164,780 Maintenance capital utilized(2) (5,755 ) (3,750 ) Interest
expense, net (56,327 ) (54,645 ) Cash tax expense (benefit) (301 )
270 Other — 53 Available Cash before Reserves(1) $
150,797 $ 106,708 (1) Includes a gain on sale
of assets of $38.9 million related to the sale of our Powder River
Basin midstream assets. (2) Maintenance capital expenditures in the
2018 Quarter and 2017 Quarter were $27.3 million and $35.7 million,
respectively. These expenditures are primarily related to our
Alkali business.
GENESIS ENERGY, L.P.
RECONCILIATION OF NET CASH FLOWS FROM
OPERATING ACTIVITIES TO ADJUSTED EBITDA - UNAUDITED
(in thousands)
Three Months EndedDecember 31, 2018 2017 Cash
Flows from Operating Activities (1) $ 82,475 $ 117,166 Adjustments
to reconcile net cash flow provided by operating activities to
Adjusted EBITDA: Interest Expense, net 56,327 54,645 Amortization
of debt issuance costs and discount (2,676 ) (4,949 ) Effects of
available cash from equity method investees not included in
operating cash flows (1) 2,937 9,665 Net effect of changes in
components of operating assets and liabilities 29,482 (36,418 )
Non-cash effect of long-term incentive compensation expense (832 )
(121 ) Expenses related to acquiring or constructing growth capital
assets 2,970 5,324 Differences in timing of cash receipts for
certain contractual arrangements (2) (1,358 ) (5,846 ) Loss on debt
extinguishment — 6,242 Other items, net 4,954 5,445 Gain on sale of
assets 38,901 13,627 Adjusted EBITDA $ 213,180
$ 164,780 (1) Amounts for the 2017 periods have been
re-cast in accordance with our retrospective adoption of the FASB's
update to ASC 230. (2) Includes the difference in timing of cash
receipts from customers during the period and the revenue we
recognize in accordance with GAAP on our related contracts. For
purposes of our Non-GAAP measures, we add those amounts in the
period of payment and deduct them in the period in which GAAP
recognizes them.
GENESIS ENERGY, L.P.
ADJUSTED DEBT-TO-ADJUSTED CONSOLIDATED
EBITDA RATIO - UNAUDITED
(in thousands)
December 31, 2018 Senior secured credit facility $
970,100 Senior unsecured notes 2,462,363 Less: Outstanding
inventory financing sublimit borrowings (17,800 ) Less: Cash and
cash equivalents (10,300 ) Adjusted Debt (2) $ 3,404,363
Pro Forma LTM December 31, 2018 Consolidated EBITDA (per our
senior secured credit facility)(3) $ 670,957 Acquisitions, material
projects and other Consolidated EBITDA adjustments(4) (7,351 )
Adjusted Consolidated EBITDA (per our senior secured credit
facility)(5) $ 663,606 Adjusted Debt-to-Adjusted
Consolidated EBITDA 5.13X (1) Our credit facility
allows for pro forma credit for asset sales completed subsequent to
the reporting period but prior to the date our compliance
certificate is due for such period. (2) We define Adjusted
Debt as the amounts outstanding under our senior secured credit
facility and senior unsecured notes (including 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. (3) Consolidated EBITDA for
the four-quarter period ending with the most recent quarter, as
calculated under our senior secured credit facility. (4)
This amount reflects the adjustment we are permitted to make under
our senior secured credit facility 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. (5) Adjusted Consolidated
EBITDA for the four-quarter period ending with the most recent
quarter, as calculated under our senior secured credit facility.
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 press 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, 2017 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.
NON-GAAP MEASURES
This press release and the accompanying schedules include
non-generally accepted accounting principle (non-GAAP) financial
measures of Adjusted EBITDA and total Available Cash before
Reserves. In this press release, we also present total Segment
Margin as if it were a non-GAAP measure. Our Non-GAAP measures may
not be comparable to similarly titled measures of other companies
because such measures may include or exclude other specified items.
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 (i) as
alternatives to GAAP measures of liquidity or financial performance
or (ii) as being singularly important in any particular context;
they should be considered in a broad context with other
quantitative and qualitative information. Our Available Cash before
Reserves, Adjusted EBITDA and total Segment Margin measures are
just three of the relevant data points considered from time to
time.
When evaluating our performance and making decisions regarding
our future direction and actions (including making discretionary
payments, such as quarterly distributions) our board of directors
and management team have access to a wide range of historical and
forecasted qualitative and quantitative information, such as our
financial statements; operational information; various non-GAAP
measures; internal forecasts; credit metrics; analyst opinions;
performance, liquidity and similar measures; income; cash flow; and
expectations for us, and certain information regarding some of our
peers. Additionally, our board of directors and management team
analyze, and place different weight on, various factors from time
to time. We believe that investors benefit from having access to
the same financial measures being utilized by management, lenders,
analysts and other market participants. We attempt to provide
adequate information to allow each individual investor and other
external user to reach her/his own conclusions regarding our
actions without providing so much information as to overwhelm or
confuse such investor or other external user.
In the fourth quarter of 2017, we revised portions of the format
and definitions relating to our presentation of non-GAAP financial
measures. Amounts attributable to prior periods have been
recast.
AVAILABLE CASH BEFORE RESERVES
Purposes, Uses and Definition
Available Cash before Reserves, also referred to as
distributable cash flow, is a quantitative standard used throughout
the investment community with respect to publicly traded
partnerships and 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 aid in assessing, among other things:
(1) the financial performance of our
assets;
(2) our operating performance;
(3) the viability of potential projects,
including our cash and overall return on alternative capital
investments as compared to those of other companies in the
midstream energy industry;
(4) the ability of our assets to generate
cash sufficient to satisfy certain non-discretionary cash
requirements, including interest payments and certain maintenance
capital requirements; and
(5) our ability to make certain discretionary
payments, such as distributions on our units, growth capital
expenditures, certain maintenance capital expenditures and early
payments of indebtedness.
We define Available Cash before Reserves ("Available Cash before
Reserves") as Adjusted EBITDA as adjusted for certain items, the
most significant of which in the relevant reporting periods have
been the sum of maintenance capital utilized, net cash interest
expense and cash tax expense.
Disclosure Format Relating to Maintenance Capital
We use a modified format relating to maintenance capital
requirements because our maintenance capital expenditures vary
materially in nature (discretionary vs. non-discretionary), timing
and amount from time to time. We believe that, without such
modified disclosure, such changes in our maintenance capital
expenditures could be confusing and potentially misleading to users
of our financial information, particularly in the context of the
nature and purposes of our Available Cash before Reserves measure.
Our modified disclosure format provides those users with
information in the form of our maintenance capital utilized measure
(which we deduct to arrive at Available Cash before Reserves). Our
maintenance capital utilized measure constitutes a proxy for
non-discretionary maintenance capital expenditures and it takes
into consideration the relationship among maintenance capital
expenditures, operating expenses and depreciation from period to
period.
Maintenance Capital Requirements
Maintenance Capital Expenditures
Maintenance capital expenditures are
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.
Maintenance capital expenditures can be discretionary or
non-discretionary, depending on the facts and circumstances.
Initially, substantially all of our
maintenance capital expenditures were (a) related to our pipeline
assets and similar infrastructure, (b) non-discretionary in nature
and (c) immaterial in amount as compared to our Available Cash
before Reserves measure. Those historical expenditures were
non-discretionary (or mandatory) in nature because we had very
little (if any) discretion as to whether or when we incurred them.
We had to incur them in order to continue to operate the related
pipelines in a safe and reliable manner and consistently with past
practices. If we had not made those expenditures, we would not have
been able to continue to operate all or portions of those
pipelines, which would not have been economically feasible. An
example of a non-discretionary (or mandatory) maintenance capital
expenditure would be replacing a segment of an old pipeline because
one can no longer operate that pipeline safely, legally and/or
economically in the absence of such replacement.
As we exist today, a substantial amount of
our maintenance capital expenditures from time to time will be (a)
related to our assets other than pipelines, such as our marine
vessels, trucks and similar assets, (b) discretionary in nature and
(c) potentially material in amount as compared to our Available
Cash before Reserves measure. Those expenditures will be
discretionary (or non-mandatory) in nature because we will have
significant discretion as to whether or when we incur them. We will
not be forced to incur them in order to continue to operate the
related assets in a safe and reliable manner. If we chose not make
those expenditures, we would be able to continue to operate those
assets economically, although in lieu of maintenance capital
expenditures, we would incur increased operating expenses,
including maintenance expenses. An example of a discretionary (or
non-mandatory) maintenance capital expenditure would be replacing
an older marine vessel with a new marine vessel with substantially
similar specifications, even though one could continue to
economically operate the older vessel in spite of its increasing
maintenance and other operating expenses.
In summary, as we continue to expand certain
non-pipeline portions of our business, we are experiencing changes
in the nature (discretionary vs. non-discretionary), timing and
amount of our maintenance capital expenditures that merit a more
detailed review and analysis than was required historically.
Management’s recently increasing ability to determine if and when
to incur certain maintenance capital expenditures is relevant to
the manner in which we analyze aspects of our business relating to
discretionary and non-discretionary expenditures. We believe it
would be inappropriate to derive our Available Cash before Reserves
measure by deducting discretionary maintenance capital
expenditures, which we believe are similar in nature in this
context to certain other discretionary expenditures, such as growth
capital expenditures, distributions/dividends and equity buybacks.
Unfortunately, not all maintenance capital expenditures are clearly
discretionary or non-discretionary in nature. Therefore, we
developed a measure, maintenance capital utilized, that we believe
is more useful in the determination of Available Cash before
Reserves. Our maintenance capital utilized measure, which is
described in more detail below, constitutes a proxy for
non-discretionary maintenance capital expenditures and it takes
into consideration the relationship among maintenance capital
expenditures, operating expenses and depreciation from period to
period.
Maintenance Capital Utilized
We believe our maintenance capital utilized
measure is the most useful quarterly maintenance capital
requirements measure to use to derive our Available Cash before
Reserves measure. We define our maintenance capital utilized
measure as that portion of the amount of previously incurred
maintenance capital expenditures that we 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 did not initially use our
maintenance capital utilized measure, our future maintenance
capital utilized calculations will reflect the utilization of
solely those maintenance capital expenditures incurred since
December 31, 2013.
ADJUSTED EBITDA
Purposes, Uses and Definition
Adjusted EBITDA 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 aid in assessing, among other things:
(1) the financial performance of our assets
without regard to financing methods, capital structures or
historical cost basis;
(2) our operating performance as compared to
those of other companies in the midstream energy industry, without
regard to financing and capital structure;
(3) the viability of potential projects,
including our cash and overall return on alternative capital
investments as compared to those of other companies in the
midstream energy industry;
(4) the ability of our assets to generate
cash sufficient to satisfy certain non-discretionary cash
requirements, including interest payments and certain maintenance
capital requirements; and
(5) our ability to make certain discretionary
payments, such as distributions on our units, growth capital
expenditures, certain maintenance capital expenditures and early
payments of indebtedness.
We define Adjusted EBITDA (“Adjusted EBITDA”) as earnings before
interest, taxes, depreciation and amortization (including
impairment, write-offs, accretion and similar items, often referred
to as EBITDA) after eliminating other non-cash revenues, expenses,
gains, losses and charges (including any loss on asset
dispositions), plus or minus certain other select items that we
view as not indicative of our core operating results (collectively,
"Select Items"). Although, we do not necessarily consider all of
our Select Items to be non-recurring, infrequent or unusual, we
believe that an understanding of these Select Items is important to
the evaluation of our core operating results. The most significant
Select Items in the relevant reporting periods are set forth
below.
The table below includes the Select Items discussed above as
applicable to the reconciliation of Adjusted EBITDA and Available
Cash before Reserves to net income:
Three Months EndedDecember 31, 2018 2017 I.
Applicable to all Non-GAAP Measures Differences in timing of cash
receipts for certain contractual arrangements(1) $ (1,358 ) $
(5,846 ) Adjustment regarding direct financing leases(2) 1,979
1,794 Certain non-cash items: Unrealized loss (gain) on derivative
transactions excluding fair value hedges, net of changes in
inventory value (11,288 ) 8,253 Adjustment regarding equity
investees(3) 1,442 6,286 Other (6,058 ) 115 Sub-total Select
Items, net(4) (15,283 ) 16,844 II. Applicable only to Adjusted
EBITDA and Available Cash before Reserves Certain transaction
costs(5) 2,970 5,324 Equity compensation adjustments (151 ) (373 )
Other 2,440 (143 ) Total Select Items, net(6) $ (10,024 ) $
21,652 (1) Includes the difference in timing of cash
receipts from customers during the period and the revenue we
recognize in accordance with GAAP on our related contracts. For
purposes of our Non-GAAP measures, we add those amounts in the
period of payment and deduct them in the period in which GAAP
recognizes them. (2) Represents the net effect of adding cash
receipts from direct financing leases and deducting expenses
relating to direct financing leases. (3) Represents the net effect
of adding distributions from equity investees and deducting
earnings of equity investees net to us. (4) Represents all Select
Items applicable to Segment Margin, Adjusted EBITDA and Available
Cash before Reserves. (5) Represents transaction costs relating to
certain merger, acquisition, transition, and financing transactions
incurred in acquisition activities. (6) Represents Select Items
applicable to Adjusted EBITDA and Available Cash before Reserves.
SEGMENT MARGIN
Our chief operating decision maker (our Chief Executive Officer)
evaluates segment performance based on a variety of measures
including Segment Margin, segment volumes where relevant and
capital investment. We define Segment Margin as revenues less
product costs, operating expenses, and segment general and
administrative expenses, after eliminating gain or loss on sale of
assets, plus or minus applicable Select Items. Although, we do not
necessarily consider all of our Select Items to be non-recurring,
infrequent or unusual, we believe that an understanding of these
Select Items is important to the evaluation of our core operating
results.
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version on businesswire.com: https://www.businesswire.com/news/home/20190220005281/en/
Genesis Energy, L.P.Bob DeereChief Financial Officer(713)
860-2516
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