Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Transmontaigne Partners L.P. (NYSE:TLP)

Q1 2013 Earnings Call

May 7, 2013 11:00 am ET

Executives

Charles L. Dunlap – Chief Executive Officer

Frederick W. Boutin – Executive Vice President, Chief Financial Officer and Treasurer

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the TransMontaigne Partners Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Charles Dunlap. Mr. Dunlap, go ahead please.

Charles L. Dunlap

Thank you, Gene. Welcome everyone to this TransMontaigne first quarter earnings call. Joining me as in the past will be Fred Boutin, our Chief Financial Officer, and Greg Pound, our Chief Operating Officer.

Before I begin, I would just like to remind you that the statements made during this call might include the partnerships expectations or predictions and should be considered forward-looking statements and are covered by the safe harbor provisions of the Securities Act. I would also direct you to our Annual Report in the Form 10-K for the year ended December 31, 2012 for discussion of the Risk factors that could cause our future results to differ from our present expectations and I’ll also direct you to our first quarter report filed today.

With that I will turn it over to Fred to take you through the first quarter financial results and then I will circle back and review some of the highlights regarding our TSA renewal and an update on the BOSTCO project. Fred?

Frederick W. Boutin

Thank you, Chuck. Distributable cash flow for our quarter ended, March 31, 2013 was $17.8 million compared to $16 million for the first quarter of last year. This quarter’s results were record for us in terms of distributable cash flow. So overall, we had an excellent quarter. These significant items affecting our results of operations include the following; we had increased revenue of approximately $2.8 million. We benefited from higher revenues in all our regions except the River which experienced a slight revenue decrease.

Direct operating cost increased year-over-year from $14 million to $16.7 million. Our capitalized maintenance was flat at approximately $0.9 million. We generally experienced lower direct operating costs in our first and sometimes second quarters as the third and fourth quarters are generally the most conducive to performing repairs and maintenance.

Direct G&A expenses were down about $2.1 million. As you may recall, last year, we had to switch auditors when we discovered an independence problem with our prior auditors. As a result, we had to have certain prior periods, re-audited and re-reviewed. Accordingly, our accounting and tax expenses were abnormally high in the first quarter of last year. This year, we had no abnormal accounting or auditing expenses in the first quarter hence we had a significant decrease in these expenses this quarter compared to the year-ago quarter.

I’ll go ahead and tell you right now that that in the second quarter of last year, we’ve received a reimbursement of approximately $2.2 million from our previous auditor related to the whole matter. So, next quarter, you should expect an unfavorable comparison in this line item because we recognize the benefit of the $2.2 million reimbursement in the quarter a year-ago.

Operationally some of the changes that impacted our revenue were following; our Cushing crude oil tanks were in service this quarter and generated approximately $1.1 million of revenue whereas they were not in service in the year ago quarter. This quarter, we began leasing the Ella-Brownsville pipeline from a third party and collecting tariff revenue from another third party that is moving propane on the line. This line transports propane to our Brownsville terminal from other locations in Texas.

Previously our General Partner had leased this line and transported the propane for his own account. Overall, this resulted in additional pipeline revenue for the Brownsville segment of approximately $0.6 million and additional operating cost of approximately $0.5 million.

Next our product gain income was down about $0.3 million. Our wages and benefits were up slightly due to higher health insurance costs. Repairs and maintenance were about $1 million higher than in the year ago quarter but considerably lower than in the fourth quarter of last year. As we’ve discussed before, our repairs and maintenance do move around from quarter-to-quarter.

I did not believe that too much should be made for the quarterly fluctuations in repairs and maintenance and suggest that those who are focused on this line item should study the trend of our repairs and maintenance on an annual basis by reviewing our 10-Ks. I would like to call your attention to the disclosure, we have added regarding a TSA that we entered into regarding our terminal, our River terminals, which is in our MD&A discussion of terminaling services fees.

Additionally, I would like to call your attention to the disclosure we have added regarding the status of our negotiations with Morgan Stanley, concerning our TSAs with them in Florida, the Midwest and the Southeast. This disclosure is in the recent development section of our MD&A and also includes an update on the status of the negotiations between TransMontaigne, Inc. and us, TransMontaigne partners regarding the renewal of our Omnibus agreement. Chuck will provide an update on these in his comments.

Moving down to a brief discussion of our liquidity; our credit facility which matures on March 9, 2016, provides for a maximum borrowing line of credit of $350 million. At March 31, we had an outstanding balance of $246 million and a leverage ratio of 3.35 times our consolidated EBITDA.

As of March 31, we had approved investments and expansion projects with remaining expenditures of approximately $50 million, almost all of which relates to our Phase I investments in BOSTCO. Attachment B to the press release includes our computation of the distributable cash flow that we generated during the quarter. We use this as a major of how we’re performing relative to our quarterly distributions.

During the quarter, we generated $17.8 million of distributable cash flow, which was an increase of $1.8 million over the year ago quarter. For the quarter, we are distributing $10.6 million, I think today is the payment date. So we generated distributable cash flow in excess of our distributions of approximately $7.2 million or 68%.

With that, I’ll turn it back to Chuck.

Charles L. Dunlap

Thanks, Fred. I think once again you can see that we’ve delivered a very strong quarter of earnings performance with a record distributable cash flow of $17.8 million coupled with strong earnings at $0.70 per unit versus $0.62 per unit in the year’s previous quarter.

Our EBITDA came in at $73.5 million versus $68 million for the year’s previous quarter. A large part of this consistent and strong performance that we’ve delivered is due to the efforts of men and women who operate our 50 terminals in the safe to an environmentally responsible manner, my complements to their support and hard work.

I’m also pleased to announce that, we received the U.S. Department of Transportation small operations pipeline Excellence Award and we are also been nominated to receive the IOTA Safety Award as International Liquids Terminal Association, the Trade Association that governs the terminal operations in this country.

Regarding the TSA renewals, let me begin with our River system. Effective April 2013, we entered into a new three year terminaling services agreement with the third-party customer for a minimum monthly throughput commitments of approximately 0.6 million barrels, 6,000 barrels of light refined product at certain of our River terminals. This new agreement provides for additional revenues to be earned for excess throughput amounts and for additional ancillary services. Our previous agreement with this same third-party customer, which expired on March 31, 2013, committed this customer to approximately 1.1 million barrels of light products storage capacity.

So, based on the terms of the new agreement, we expect our firmly committed quarterly revenues to decrease by approximately $1.4 million at our River system unless and until we are able to re-contract any excess storage capacity, not used by this third-party customer and we are working diligently to place this surplus capacity in service.

Our terminaling services agreement with the Morgan Stanley Group relating to our Florida terminals and the Razorback system expires on May 31, 2014 unless it is extended prior to November of this year, similar we are our terminaling services agreement with the Morgan Stanley Capital Group relating to the south-east terminals, expires on December 31, 2014 and again unless it’s extended prior to December of 2013.

In the aggregate, these agreements account for about 60% of our revenue for the year-ended December 31, 2012. At this time, we remain in negotiations with Morgan Stanley to renew these agreements and while we’re not sure of the ultimate outcome of these negotiations.

Representatives of Morgan Stanley have indicated that they’re likely to agree to renew the terminal capacity, covered under the existing south east agreement at the same throughput rates and minimum throughput commitments as in the existing agreement for a term of approximately 24 months with an ongoing automatic renewal feature thereafter.

With respect to the Florida light oil terminaling capacity, in our ongoing negotiations, again Morgan Stanley has indicated to us that they’re likely to agree to renew the Florida light oil terminaling capacity at the same throughput rates and minimum throughput commitments as in the existing agreement for a term of approximately 18 months, again with an ongoing automatic renewal feature.

With respect to the Florida tanks that are presently dedicated to the bunker fields, as well as our Razorback system, Morgan Stanley has indicated to us that they plan to allow these existing commitments to expire pursuant to their existing terms on May 31 of 2014.

For the year ended December 31, 2012, the revenues attributable to this Florida bunker tankage as well as the Razorback system were approximately 14% of our total revenues. In addition, we are currently in negotiations with TransMontaigne, Inc. to extend the Omnibus agreement, which expires on December 31 of 2014.

And on those negotiations we’ve also received indications that they are likely to agree to extend the Omnibus agreement, following its current expiration date, pursuant to the same remaining terms as conditions that exist in the present Omnibus agreement, including calculation of the annual administrative fee, and other reimbursement for direct expenses. So for both Florida bunkers and the Razorback system, we are currently pursuing negotiations with third-parties in efforts to make sure that we have this capacity committed well before the 2014 expiration date.

Now moving to BOSTCO, our big terminal project on the Houston Ship Channel, you will recall that we have a 42.5% interest in the BOSTCO terminal, it’s under construction and the first phase comprises 6.1 million barrels of storage for black oils and feed stocks. We expect our share of the total payments, capital payments to be approximately $183 million when the first phase is completed. This project I’m pleased to report is on schedule, first operation should begin October 1 of this year and it is on budget.

We have also approved the construction of an additional 900,000 barrels of distillate storage that could start construction as early as December. This project has a total capital budget of $54 million and we believe it will be operational in the latter part of 2014. This project will have a very attractive rate of return since much of the infrastructure will already be in place as a result of the first phase construction but this is not the end of BOSTCO. We have room fro an additional 3 billion barrels of storage, so you can see that we have total capital projects flowing from BOSTCO that could reach over $300 million for TLPs share.

Lastly, we continue to work on opportunities within our existing terminal system and in the crude oil arena with our affiliates. These opportunities include gathering systems, rail terminals, trucking of crude oil for these new facilities and also development of our existing product terminals.

These are opportunities along with the BOSTCO project that will be changing our footprint for future growth. So with that operator, I will turn it over for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And we have first question Selman Akyol, go ahead please and you may want to please announce your last name.

Unidentified Analyst

Good morning, guys this is Brian on for Selman.

Charles Dunlap

Good morning, Brian.

Unidentified Analyst

I just had two quick questions. First off, it looks like at Brownsville you guys had an incremental $3 million in revenue over first quarter 2012. I didn’t know if you could provide any additional color over the additional it looks like $600,000 from the tariff revenue?

Frederick W. Boutin

I think year-over-year the increase in revenue in Brownsville is about 1.6 but some of the things, that there is a tank that is under contract now that was not under contract, a year-ago and then, I mentioned this Ella Brownsville pipeline and which we are now leasing from the third-party owner of it and collecting the tariff revenue associated with that and that accounted for about $600,000 of the increase, the additional tank capacity, it was about five and then there were some management fees, it’s about $300,000 management fee income and cost reimbursement, some of this relates to the pipeline, the MB pipeline that we manage for PMI that goes between Brownsville and Cadereyta.

And then there were some cost reimbursements that we have received from third-parties and once again, some of this was PMI. But just for work that we were doing on some projects. But the total that I see is about year-over-year this quarter versus the year ago quarter is about $1.6 million.

Unidentified Analyst

Yes, I’m sorry. I was looking at the external customers?

Frederick W. Boutin

Okay

Unidentified Analyst

Follow-up question I had. As we look at BOSTCO coming online, what is kind of an appropriate coverage or excess cash flow, distribution cash flow?

Frederick W. Boutin

Well, I mean…

Charles L. Dunlap

I think go ahead, Fred.

Frederick W. Boutin

I was going to say that we’ve always stated that ultimately we’re shooting for a distribution cushion of around 10%. But that really depends on a few important factors for instance the makeup of our capital structure, which today is all bank debt at very low rates. So I would expect at overtime, we would refinance some of that at higher interest rates and that chew up some other cushion, and also just making sure that we get through some of these recontracting situations, and so the 10% of the ultimate, probably goal. But if we had our capital structure fixed with high yield notes and that sort of thing. We might actually been running lower coverage than 10%. So it really, it depends where you’re at with you’re capital structure to some extent. But BOSTCO is definitely expected to be accretive.

Unidentified Analyst

Perfect. Thank you. And lastly, on this new expansion, the 900,000 barrel storage, the $54 million is a total cost you shared to be approximately $23 million?

Frederick W. Boutin

That’s correct.

Unidentified Analyst

And you can have on the credit facility; you can invest to $300 million at BOSTCO. Is that correct?

Frederick W. Boutin

Yeah.

Unidentified Analyst

Perfect. Thank you.

Charles L. Dunlap

Yeah.

Operator

No other questions from queue at this time.

Charles L. Dunlap

Were there any other questions, Jean?

Operator

No other questions in queue at this time.

Charles L. Dunlap

Okay, we’ll then ramp-up the call.

Frederick W. Boutin

Thanks everyone.

Charles L. Dunlap

Jean, do you want to give the replay information?

Operator

I will, yes, okay. And do you want to go back into a private conference?

Charles L. Dunlap

No.

Operator

Okay. The call will be replayed from May 7, 2013 to May 14 2013. The replay dialing number is 1 (800) 475-6701 and again that was 1 (800) 475-6701 and the caller pay number is (320) 365-3944 and the access code is 239199.

Charles L. Dunlap

Thank you.

Frederick W. Boutin

Thanks, Jean

Operator

And that does conclude the conference for today. Thank you for your participation. Thank you for using AT&T Executive TeleConference Services. You may disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Transmontaigne Partners's CEO Discusses Q1 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts