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TransMontaigne Partners L.P. (NYSE:TLP)

Q4 2013 Earnings Conference Call

March 11, 2014 11:00 am ET

Executives

Charles L. Dunlap - CEO

Frederick W. Boutin - EVP, CFO and Treasurer

Gregory J. Pound - President and COO

Analysts

Gabriel Moreen - Bank of America

James Jampel - HITE Hedge Asset Management

Brian Brungardt - Stifel Nicolaus

Operator

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

Charles L. Dunlap

Thank you, operator. Good morning and welcome everyone to the TransMontaigne's earnings call for the year ended 2013. Joining me, as in the past, on this call will be Fred Boutin, our Chief Financial Officer, and Greg Pound, our Chief Operating Officer.

My lawyers remind me that I have to tell you that statements made during this call that might include the Partnership's expectations or predictions should be considered forward-looking statements and are covered by the Safe Harbor provisions of the Securities Act. Important factors that could cause our actual results to differ materially from these forward-looking statements are disclosed in our annual report on Form 10-K which we filed with the SEC earlier today.

2013 was a record year for us in terms of revenues of $158.9 million versus $156.2 million, and distributable cash flow of $60.6 million versus $58.1 million for 2012. Quarter-on-quarter results were also very strong and Fred will give you more details when he covers the financial results and operational results.

As I indicated in my last quarter analyst call, we were busy working on several major re-contracting opportunities. In January, we entered into a 10-year capacity lease agreement with Magellan Pipeline Company, effective March 1, 2014, covering 100% of the capacity of our Razorback terminals and the Razorback Pipeline system, which runs from Mt. Vernon to Rogers. The existing agreement for these facilities with Morgan Stanley Capital Group terminated on February 28, 2014. And we expect this new agreement with Magellan will generate approximately the same total annual revenue as the Morgan Stanley agreement.

The other new terminaling services agreement covers our bunker tanks in the Port Everglades North and Fisher Island terminals, which totals about 1.35 million barrels of aggregate tank capacity. This agreement is for a three year term with Chemoil Corporation and also gives them an option to extend for an additional three years. The agreement will replace Morgan Stanley's lease for these tanks effective June 1, 2014. We expect that this new agreement will generate slightly less revenue related to the bunker tanks at Fisher Island and Port Everglades than the Morgan Stanley agreement generates with respect to these tanks.

Our BOSTCO joint venture with Kinder Morgan continues to see Phase 1 and Phase 1a move towards full operations. As of March 1, we have 33 of the 51 tanks in Phase 1, now in service and generating revenue. The balance will kick-in at a rate of about eight tanks per month and Phase 1 will be complete and in full operation by June of this year. Phase 1a, pertaining to the distillate tankage totaling about 900,000 barrels of capacity, is under construction and on schedule to be completed by the year-end. So cash distributions will begin ramping up each quarter.

On December 20, 2013, Morgan Stanley announced that it is exploring strategic options for its ownership interest in TransMontaigne Inc. This process is well underway and I can't comment any further until a definitive agreement is reached, although additional information on this front can be found in our 10-K under the Business Risk Factors and MD&A sections.

You will also note that in our release, we negotiated a termination of a portion of the tankage at Collins, Mississippi, effective December 31, 2015. This tankage at Collins is of strong interest to several third parties and could be of strategic importance to a future owner of TLP.

And lastly, we continue to look for new opportunities to lease the balance of our bunker tanks at Cape Canaveral and Port Manatee. We're also evaluating building new tankage at Collins, Brownsville, and refurbishing and repurposing tanks at certain terminals where the tankage in underutilized. So even though Morgan Stanley has process to evaluate strategic alternatives for its ownership interest in TransMontaigne, we are continuing to focus on growing our core business.

So with that, I will turn the phone over to Fred.

Frederick W. Boutin

Distributable cash flow for our quarter and year ended December 31, 2013, was $15.8 million and $60.6 million respectively. This compares to $10.2 million and $58.1 million for the three months and year ended December 31 2012. The significant items affecting our results of operations this quarter compared to the year ago quarter include the following.

Revenue was relatively flat at $40.2 million compared to $40.1 million. We experienced increases in revenue at our Gulf Coast and Brownsville terminals of approximately $400,000 and $1.1 million respectively, offset by decreases in revenue at our Midwest, River and Southeast terminals of approximately $300,000, $700,000 and $400,000 respectively.

The increase in revenue at our Gulf Coast terminals was due to fewer out-of service credits and higher product gain income. The increase in revenue at our Brownsville terminal was due to higher throughput fees, steam heating revenue and an insurance recovery. The decrease in revenue at our Midwest terminals was attributable to lower product gain income and lower pipeline transportation fees.

The decrease in revenue at our River terminals was, as we mentioned on previous calls, the result of a third-party customer who in April of 2013 re-contracted for less capacity than they had contracted previously. We're currently working to re-contract this unused capacity.

The decrease in revenue at our Southeast terminals was attributable to a change in the timeframe over which we recognized certain deferred revenue as a result of the extension of the Morgan Stanley terminaling services agreement. This change had no impact on our distributable cash flow.

The primary reason for our increase in Q4 net operating margin is a result of the timing of our repairs and maintenance. Our repairs and maintenance cost were about $2.8 million compared to the year ago quarter and down slightly year-over-year. Our repairs and maintenance performed very rateably this year.

Regarding our balance sheet, long-term debt is up about $30 million over the last year. This is primarily due to investing about $104 million in the BOSTCO, offset by proceeds of about $70 million from our equity offering in July. Please note that compared to December 31, 2012, our trade accounts receivable have increased and our due from affiliates have decreased. This is primarily due to re-contracting our LPG assets in Brownsville to one third-party and our Tampa terminal to another third-party. You can expect this trend to continue in 2014 with our re-contracting of the Razorback system to Magellan and the Port Everglades and Fisher Island bunker tanks to Chemoil.

Since the beginning of 2013, we have entered into contract extensions with Morgan Stanley and re-contracted with third-parties as follows. We extended the TSA with Morgan Stanley in the Southeast; we extended the light oil TSA with Morgan Stanley in Florida; we re-contracted the entire LPG system in Brownsville to a third-party; we re-contracted the entire Tampa terminal to a third-party; we re-contracted the entire Razorback system to a third-party; and we re-contracted the bunker fuel tankage at Port Everglades and Fisher Island to a third-party.

I'll move now 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 December 31, we had an outstanding balance of $212 million and a leverage ratio of 2.97x our consolidated EBITDA. I'd like to point out that there are no results from BOSTCO included in our EBITDA. BOSTCO will start contributing to our EBITDA as we start receiving distributions from it in 2014, which will make our leverage ratio even lower than it already is.

At December 31, we had approved investments and expansion projects with remaining expenditures of approximately $30 million, most of which relates to our Phase 1 and Phase 1a investments in BOSTCO. Attachment B to the press release includes our computation of our distributable cash flow that we generated during the quarter and the year. We use this as a measure of how we are performing relative to our quarterly distributions.

As previously discussed on this call, during the quarter we generated $15.8 million distributable cash flow. For the quarter, we are distributing $12.1 million, resulting in a distribution cushion of approximately $3.7 million or 31%.

Linda, that concludes my remarks. So if there are questions, we can take them at this time.

Question-and-Answer Session

Operator

(Operator Instructions) We will go to the line of Gabriel Moreen with Bank of America. Please go ahead.

Gabriel Moreen - Bank of America

Chuck, you had mentioned about expansions at Collins, potentially also Brownsville, can you talk a little bit more about what you're contemplating there, sort of products you envision handling as well as maybe the size that you're envisioning?

Charles L. Dunlap

At Collins, we are in discussions with a couple of parties to add about a million barrels of storage, that would be mostly jet and distillate.

Gabriel Moreen - Bank of America

Got it. And any idea, how good the timing is on getting that across the finish line, whether that could be CapEx in 2014?

Charles L. Dunlap

It is project that could begin in 2014. At Brownsville, we're looking at additional tankage for our joint venture partner, PMI. I believe that's naphtha tankage, and I'm not sure exactly on the amount. Well, Greg is on the call. Greg, you may have more details.

Gregory J. Pound

The amount is yet to be determined but we are looking at their product and a few other opportunities for them and some other customers, Chuck.

Gabriel Moreen - Bank of America

Great, thank you. And then you talked I think about the Magellan renewal, about the bunkering renewals being kind of close to where your rates were previously. Fred went through a list of other renewals you had kind of come up, that had kind of come up and then renewed. Can you just speak to where those rates were renewed at relative to where they were before?

Charles L. Dunlap

I would say all of the rates are at or maybe slightly better than where we were before, with the exception of the bunker tanks. The bunker tanks are slightly below the revenue in our Morgan Stanley contract.

Gabriel Moreen - Bank of America

Got it. The last one for me is just, can you just provide an update on Phase 2 at BOSTCO and where things stand there?

Charles L. Dunlap

We have a Board meeting coming up the end of April, Gabe, where we'll be reviewing Phase 2 and most likely we'll be asked to approve that project. That will be about 3 million barrels of storage, probably split equally between distillate and black oil, and the interest being expressed to-date from various third-party customers is very strong.

Gabriel Moreen - Bank of America

Great. Good luck. Thanks guys.

Operator

Next we'll go to the line of James Jampel with HITE. Please go ahead.

James Jampel - HITE Hedge Asset Management

Can you talk a little bit about Port Manatee and Cape Canaveral? Assuming the contracts run off in May, I mean what will be the EBITDA impact of losing revenue there?

Frederick W. Boutin

We haven't disclosed that but I think you may be able to do enough math to get you fairly close. I mean those locations are both smaller than Port Everglades and Fisher Island. So it's – and there are other products at those terminals. So I think that's important to bear in mind that it's not the whole terminal, it's just the bunker tanks at those terminals.

Charles L. Dunlap

I would add that we are getting expressions of interest from third parties for those bunker tanks. It's very possible that we could secure commitments in this timeframe.

James Jampel - HITE Hedge Asset Management

So I mean do you expect it to have a material impact on EBITDA starting June 1?

Charles L. Dunlap

No, not a material impact at all. The existing bunker tanks at Port Manatee and Cape Canaveral, this may help you, the revenue from those is about – I think of about 2.5% of our total revenue.

James Jampel - HITE Hedge Asset Management

Okay. And then assuming that Morgan Stanley is not a customer there end of June, about what percent of your revenue will be from Morgan Stanley with all the re-contracting that's going on?

Frederick W. Boutin

I don't have a number on my fingertips but it's probably going to start trending down more towards about 50%.

Charles L. Dunlap

Yes, we're currently a little bit above 60%, we'll be trending to 50%.

James Jampel - HITE Hedge Asset Management

I see. Okay, thank you.

Operator

(Operator Instructions) Next we'll go to the line of Brian Brungardt with Stifel. Please go ahead. Brian, your line is open.

Brian Brungardt - Stifel Nicolaus

Good morning guys and congratulations on the successful renegotiations. Just a couple of quick follow-up questions. As it relates to the impact from the fire at Exxon's King Ranch, are there any minimum to-replete or storage fees associated with the third-party on your pipeline or at the Brownsville terminal?

Charles L. Dunlap

Yes, there are significant minimum throughput commitments with that customer, and assuming that we're able to collect all those minimum throughput commitments, the impact of that will be pretty minor.

Brian Brungardt - Stifel Nicolaus

Okay, great. And are there any capital costs associated with meeting the needs for these new customers who have signed on to replace volumes at the various facilities which Morgan Stanley previously contracted?

Frederick W. Boutin

Nothing meaningful at all. I mean I think that, just to go through the list, there is nothing with Morgan Stanley in the Southeast or Florida, the LPG system in Brownsville, nothing, Tampa, if there's anything it's really minor, nothing at Razorback, and really nothing with the bunkers, so, no.

Brian Brungardt - Stifel Nicolaus

Okay, great. And then just lastly, as the funding needs for BOSTCO start to decline and the Partnership begins to realize the cash flows from the facility, how should we look at kind of the targeted DPU coverage?

Charles L. Dunlap

I'm sorry, targeted what coverage?

Brian Brungardt - Stifel Nicolaus

Distribution coverage.

Charles L. Dunlap

Okay. I think we're going to stick with our targeted long-term distribution coverage ratio of about 10%, and certainly BOSTCO coming on is going to help. We talked a few minutes ago about the terminals in Port Manatee and Cape which are still – the bunker tanks at those two locations, and those are still question marks. So there could be a negative impact there.

BOSTCO is going to be a pretty big positive impact, and so it will have a very positive impact on our distributable cash flow. But we factor other things into our coverage ratio like how are we financing the Company at any point in time, today it's all bank debt, so we might hold back a little bit on the distribution in case we want to have high-yield debt offering. But I think over the long haul, we haven't moved off of our 10% coverage ratio.

Brian Brungardt - Stifel Nicolaus

Okay, that is all. Thank you.

Operator

Okay, then that does conclude our question-and-answer session. Ladies and gentlemen, this conference will be available for replay after 1.00 PM Eastern today through March 18, 2014. You may access the replay system at anytime by dialing 1-800-475-6701 and entering the access code 321094. Again, that number is 1-800-475-6701 and the access code is 321094. Thank you for your participation. You may now disconnect.

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