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TransMontaigne Partners L.P. (NYSE:TLP)

Q3 2013 Earnings Conference Call

November 5, 2013 11:00 AM ET

Executives

Chuck Dunlap - CEO

Fred Boutin - CFO

Greg Pound - COO

Analysts

Derek Walker - Bank of America

Brian Brungardt - Stifel Nicolaus

Operator

Ladies and gentlemen, thank you for standing by and welcome to the TransMontaigne Partners Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) And as a reminder, this conference is being recorded. I would now like to turn the conference over to our host Chuck Dunlap, Chief Executive Officer. Please go ahead, sir.

Chuck Dunlap

Thank you, Roxanne. Welcome everyone to the TransMontaigne's third quarter earnings call. Joining me today on the call will be Fred Boutin, our Chief Financial Officer; and Greg Pound, our Chief Operating Officer. If any of you need a copy of the press release, it is available on our website.

Before we get started I'd like to direct your attention to the forward-looking statement disclaimer contained in the press release. In summary it states that statements in the press release and on this call that express the company's or management's expectations or predictions of the future are forward-looking statements, intended to be covered by the Safe Harbor Provisions, under the Federal Securities laws. These are many factors that could; there are many factors that could cause the actual results to differ from our expectations including those we describe in our filings with the SEC. On today's call I'm going to change the batting order a little bit and have Fred lead off with the Financial and Operations update.

Fred Boutin

Distributable cash flow for our quarter and nine months ended September 30, 2013, was $13.5 million and $44.8 million respectively. This compares to $15.3 and $47.8 million for the three and nine months ended September 30 2012, the significant items affecting our results of operation this quarter compared to the year ago quarter, include the following; revenue was relatively flat at $38.4 million compared to $38.9 million, we experienced decreases in revenue at our Gold Coast river in southeast terminals of approximately 800,000, 1.1 million and 300,000 respectively offset by an increase in revenue at our Brownsville terminal of approximately 1.7 million. The decreases in revenue at our Gold Coast and Southeast terminals were primarily attributable to lower product gains and more tanks being out of service for repair. As we've mentioned on previous calls the decrease in revenue at our river terminals is the result of a third party customer in April of this year re-contracting for less capacity than it had contracted for previously. We are working to re-contract the unused capacity. These decreases in revenue were mostly offset by an increase in revenue at our Brownsville terminal. In January of this year, we re-contracted our Brownsville and Mexico LPG terminals and pipeline capacity to a third party that has significant operations in Mexico, this new customer has increased LPG throughput volume, which has increased our pipeline revenue on our Diamondback pipeline, our LPG capacity had previously been under contract with TransMontaigne Inc. In connection with the re-contracting of this capacity, we also leased a pipeline that delivers LPG to Brownsville which had previously been leased by TransMontaigne Inc. During the quarter, we made lease payments of approximately $0.5 million to a third party which are included in our operating costs, and received tariff revenue from our new third party customer related to this leased pipeline for approximately $700,000. Additionally, for our Brownsville segment we received various reimbursements which totaled approximately $0.5 million.

To further our growth opportunities we recently sold the Mexican portion of our LPG facilities to this new customer. These operations consist of 7,000 barrel LPG storage terminal in Matamoros, Mexico and a seven mile pipeline system connecting the Matamoros terminal to our Diamondback pipeline system at the U.S. border. With this sale we no longer have any operations in Mexico.

Our LPG assets in Brownsville and our Diamondback pipeline will continue to be the sole means of delivering LPG to the Matamoros terminal. Direct ownership of these assets should motivate our customer to grow its operations which should increase revenue from our LPG facilities. Did sales did result in a book loss of 1.4 million, while the book loss did not impact our distributable cash flow, it is one of the primary reasons for our decline in net earnings and net earnings per limited partner unit this quarter versus the year ago quarter.

The other primary reason for the decline in net earnings and earnings per limited partnering unit is the timing of our repairs and maintenance. The timing of our repairs and maintenance did impact our distributable cash flow for the quarter. We have repairs and maintenance this quarter of approximately 5.4 million, which was an increase of about 1.4 million from the year ago quarter. Last year we incurred only 19% of our total repairs and maintenance for the year in the third quarter. And in the fourth quarter of last year we incurred 40%.

So during 2013 we have attempted to perform major repairs and maintenance more ratably throughout the year. So that's why our repairs and maintenance were a little bit higher this quarter and hopefully they will be a little bit lower next quarter in comparison to the fourth quarter of last year.

Moving now to a brief discussion of our liquidity, our credit facility matures March 9, 2016 provides for a maximum borrowing line of credit of 350 million. At September 30, we had an outstanding balance of 207 million and a leverage ratio of 3.01 times are consolidated EBITDA. On July 24, 2013 we issued pursuant to another written public offering 1,450,000 common units at a public offering price of $43.32, on July 30, 2013 the underwriters exercised their over-allotment option to purchase an additional 217,500 common units at the same price.

The net proceeds from the offerings were approximately $68.8 million, after deducting underwriting discounts commissions and offering expenses. Additionally, our general partner made cash contribution of $1.5 million to maintain its general partner interest. The net proceeds of this offering were used to repay outstanding borrowings under our credit facility. At September 30, we had approved investments in expansion projects with remaining expenditures of approximately $45 million, most of which relates to the expected Phase 1 and Phase 1A investments in BOSTCO.

Attachment B to the press release includes our computation of distributable cash flow that we generated during the quarter and the year. And we use this as a measure of how we are performing relative to our quarterly distributions.

As previously discussed during the quarter we generated $13.5 million of distributable cash flow, and for the quarter we distributed $12.1 million resulting in a distribution cushion of approximately 1.4 million or 11%.

With that I'll give it back to Chuck.

Chuck Dunlap

We had a very busy quarter and as Fred mentioned highlighted by a successful public offering where we raised net proceeds of about $69 million and the over allotment of the underwriters their option was also exercised. This is the first public offering we’ve had since January of 2010.

I’d also like to focus on sale of our Mexican assets. And as Fred mentioned, this is to one of our customers and enables us to develop a strategic relationship that will allow our customer to grow its operations which will also enhance the amount of throughput at our Brownfield terminal and our U.S. Diamondback pipeline system. While we did incur a book loss the strategic and operational benefits far away the short term accounting impact of this transaction. Regarding our Fisher Island terminal, we have been leasing two tanks to TransMontaigne Inc and that lease will expire at the end of this year. This lease generates about $1.8 million a year in revenue and we will most likely struggle to be able to replace that full amount of revenue.

On the positive side I’m pleased to report that in September we entered into a new five year terminaling services agreement with a third party customer for all of our 760,000 barrels of storage at our Tampa, Florida terminal. Our customer will have the option to extend this agreement through two additional five year terms. This agreement replaces Morgan Stanley, our customer, at the Tampa terminal and we expect to generate the same amount of revenue while diversifying our customer base in the Florida region.

We also finalized the TSA with our crude oil affiliate to provide for 50,000 barrels of crude oil storage per month at our Evansville, Indiana River terminal. While the revenue contribution is a modest one, this represents our first effort in storing crude on term basis at one of our product terminals. Horizontal drilling is in its early stages in Southern Illinois but could be very promising, and this gives us an opportunity to get in with producers on the ground floor.

On October 7, we announced the commencement of our commercial operations for phase one of BOSTCO. This is our Houston Ship terminal joint venture project with Kinder Morgan. And during October approximately 20 of the 50 phase one storage tanks we’ll place in the service and the remaining phase one tanks are expected to come on line during the next six months. The two berth ship docks and 12 barge berths were also placed in the service in October, and work on the approximately 900,000 barrels of diesel tank expansion started in the second quarter of 2013 and is expected to began commercial operations in the fourth quarter of 2014.

In determining the amount of cash to distribute to our unit holders you’ve recognized the distributions from our investments in unconsolidated subsidiaries when such distributions are received. And accordingly, we expect to receive our first distribution from BOSTCO through the fourth quarter of 2013 during the first quarter 2014. We expect our distributions received from BOSTCO to increase our 2014 year as the tanks come on line.

Regarding phase two of BOSTCO we are currently evaluating the merits at building an additional 3.5 million barrels of storage for black oil and distillery along with ship docks deepwater docks three and four. There will also be more barge and rail capacity. CapEx will be in the range of about 270 million. The permitting process is underway and there are discussions with a significant number of customers. So in summary, we are fully engaged in negotiations with third parties regarding lease renewals for our Midwest segment and Florida bunker tanks.

As previously disclosed these leases will expire in May of 2014 and we’re working hard to assure that we will have new customer in place well before these exploration dates. While we may not replace all of the revenue under the current agreements the timing of the BOSTCO tanks coming into service in 2014 will provide a strong buffer. We’re also working on a lot of new projects that will enable us to grow future distributions and I plan to give you more details on these projects early next year.

So with that we’ll open the call up to questions, operator.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question is from Derek Walker with Bank of America. Please go ahead.

Derek Walker - Bank of America

Chuck, just a quick one around the contract. I think you said the revenue for the Tampa re-contracting agreement was similar to the prior agreement with Morgan Stanley. Is there a delta there or is that about the same?

Chuck Dunlap

No, it’s about the same. The revenue is about $5.5 million. It might be slightly more even, but it’s pretty close to the same.

Derek Walker - Bank of America

Got it, and I guess just a little more clarity around; you mentioned some uncertainty with the expiring contract on the Fisher side. Any more color you can give there as far as what the third party environment looks like there?

Chuck Dunlap

Yes, Fisher Island, those tanks were related to some other business with the third party customer. This has been renewed and we’re in the market right now and to see what the alternatives are, but given our sense to the market it’s probably going to be difficult to replicate the existing revenue and what the delta will be we’ll probably know more in the first quarter.

Derek Walker - Bank of America

And then just in general, are you expecting, just the conversations with Morgan Stanley, do you expect them to turn back any additional contract capacity at this point?

Chuck Dunlap

No.

Operator

(Operator Instructions) We have a question from Brian Brungardt with Stifel Nicolaus. Please go ahead.

Brian Brungardt - Stifel Nicolaus

Just one quick follow up from an accounting perspective on BOSTCO, should we look at the cash payments on a quarterly perspective or is that going to be occurring monthly?

Fred Boutin

We expect to receive distributions from BOSTCO on a quarterly basis and just to reiterate what Chuck said, BOSTCO will complete its quarters, it will be viewed with operations and determined what the appropriate distribution is and we will receive the distribution for whatever quarter that is in the subsequent quarter and we will include those distributions in our distributable cash flow in the quarter in which we receive them. So there will be one quarter lag between the results of operations at BOSTCO and the inclusion of our cash distribution in our distributable cash flow.

Operator

(Operator Instructions) At this time, there are no other questions in queue.

Chuck Dunlap

Thank you. Roxanne.

Operator

Does that conclude your conference for today?

Chuck Dunlap

Yes. You want to give the replay information?

Operator

Yes, well, ladies and gentlemen, this conference will be available for replay after 1:00 p.m. today running through November 12 at 12:30 at midnight. You may access the AT&T executive playback service at anytime by dialing 1-800-475-6701 and entering the access code 305695. Again, the phone number is 1-800-475-6701 and the access code is 305695.

That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.

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