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Transmontaigne Partners L.P. (NYSE:TLP)

Q1 2014 Earnings Call

May 06, 2014 11:00 am ET

Executives

Charles L. Dunlap - Chief Executive Officer of Transmontaigne GP LLC

Frederick W. Boutin - Chief Financial Officer of Transmontaigne GP LLC, Executive Vice President of Transmontaigne GP LLC and Treasurer of Transmontaigne GP LLC

Analysts

Gabriel P. Moreen - BofA Merrill Lynch, Research Division

Erik M. Keener - River Road Asset Management, LLC

Selman Akyol - Stifel, Nicolaus & Company, Incorporated, Research Division

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the TransMontaigne earnings call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to our host, Chuck Dunlap. Please go ahead.

Charles L. Dunlap

Thank you, Rose. Good morning, and welcome, everyone, to the TransMontaigne earnings call for the quarter ended March 31, 2014. As always, joining me on the call will be Fred Boutin, our Chief Financial Officer; and Greg Pound, our Chief Operating Officer.

I would like to remind you that the statements that we are going to make during this call might include the partnership's expectations or predictions and should be considered forward-looking statements 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 quarterly report Form 10-Q, which has been filed today. I will turn the phone over to Fred and then I will come back and recap some of the highlights and significant developments during the quarter. Fred?

Frederick W. Boutin

Distributable cash flow for our quarter ended March 31, 2014 was $16.6 million. This compares to $17.8 million for the 3 months ended March 31, 2013 and $15.8 million last quarter. The significant items affecting our results of operations this quarter compared to the year ago quarter include the following: revenue was $38.1 million compared to $41.6 million. We experienced decreases in revenue at our Midwest, Brownsville, River and Southeast terminals of approximately $200,000, $1.4 million, $1.3 million and $700,000 million, respectively. Revenue was flat at our Gulf Coast terminals. Although Gulf Coast revenue was about flat compared to the year ago quarter, we moved about $2 million from the affiliates line to the external customers line. This reflects the recontracting of our Tampa terminal to a third party for slightly more than what we previously received from Morgan Stanley, offset by a small loss of revenue at our Fisher Island terminal associated with our non-bunker tankage there.

The decrease in revenue at our Midwest terminals was attributable to lower product gain income. Effective March 1, 2014, our Razorback system was contracted with Magellan which also contributed more revenue from external customers and less revenue from affiliates. The decrease in revenue at our Brownsville terminal was primarily due to the fire that shut down Exxon's King Ranch natural gas processing plant. This plant supplies most of the LPG that our customer transports on our system into Mexico. We do not anticipate this production coming back online before the end of the third quarter. Had our customer transported their minimum throughput commitment during the quarter, our revenue would have been approximately $1.3 million higher.

The decrease in revenue at our River terminals was, as we've mentioned on previous calls, the result of a third party customer, who, effective March 1, 2013, recontracted for less capacity than they had previously contracted. We're working to recontract this unused capacity of these terminals. 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 last summer's extension of the Southeast terminaling services agreement with Morgan Stanley. And this is something that did not affect our distributable cash flow. And a decrease in product gain income.

Operating costs for the quarter were down about $1.3 million compared to the year ago quarter, primarily due to the timing of repairs and maintenance.

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. On March 31, we had an outstanding balance of $234 million and a leverage ratio of 3.35x our consolidated EBITDA. It's worth noting that although March -- that through March only $100,000 from BOSTCO is included in our EBITDA, BOSTCO should contribute significantly more to our EBITDA over the next few quarters, which should push our leverage ratio even lower.

At March 31, we had approved investments and expansion projects with remaining expenditures of approximately $20 million, most of which relates to our expected Phase I and Phase IA 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 measure of how we are performing relative to our quarterly distributions. During the quarter, we generated approximately $16.6 million of distributable cash flow. For the quarter, we are distributing $12.5 million, resulting in a distribution cushion of approximately $4.1 million or 33%. Although the distribution we received from BOSTCO during the quarter ended March 31 was only about $100,000, we do expect it to grow considerably over the next several quarters as the remaining Phase I tanks come online. Please note that we include the distributions we received from our JVs, including BOSTCO, in our distributable cash flow in the quarter in which they are received. Accordingly, there is a 1 quarter lag between our JV's operating results and the inclusion of the distribution by TLP in the computation of our distributable cash flow. Chuck?

Charles L. Dunlap

Thank you, Fred. Let me focus on some of the highlights and recent developments during the quarter. On April 14, we raised our distribution to $0.66 per unit, this was a $0.01 increase over the previous quarter. And as Fred had mentioned, we've been quite busy during the first quarter with recontracting. We recontracted our Midwest system to Magellan. So they took over March 1. This covers our Rogers and Mt. Vernon terminals and also the Razorback Pipeline. This was a 10-year term. We also recontracted our bunker tanks at Port Everglades and Fisher Island to Chemoil and that will take effect here on June 1. And as we have previously reported, we also entered into an agreement with Metroplex for our total Tampa terminal in Florida. So these recontracting leases have significantly mitigated our recontracting risks going forward. As Fred also mentioned in his remarks, the revenue and distributable cash flow were down versus the prior year's quarter. But I want to stress that distributions from our unconsolidated affiliates and joint ventures will more than offset these revenue losses going forward.

With regard to BOSTCO, which is going to be a significant contributor, we placed 10 tanks into service in March and 6 more tanks in April. We now have 49 out of the 51 tanks in Phase I on revenue, the final 2 coming into service next month. Phase I, which is the 6.1 million barrels of black oil storage is largely complete, with a final CapEx of about $450 million. TLP's share would $191 million of that. The safety and environmental record for this project of this size has been outstanding. So kudos to our project manager, Kinder Morgan. Phase IA, which is the 900,000 barrels of distillate storage is under construction, on schedule and on budget, and will be completed in August of this year. Capital spend for this phase will be approximately 53 -- $53.4 million. We expect TLP to receive approximately $19 million per year from the BOSTCO project once Phase I and IA are complete.

Looking at Phase II, the final engineering is well underway and operating permits are expected to be received this June. The final configuration has not been decided, but we have capacity to build another 3.5 million barrels of storage and most likely, we'll do that in stages with 1.75 million barrels of distillate storage starting construction this year, and the remaining tankage to be built as it is contracted. This 1.75 million barrels of distillate storage is expected to cost approximately $144 million, of which TLP's share would be approximately $61 million. These remaining projects at BOSTCO are expected to generate attractive rates of return. We continue also to look forward to new opportunities to lease the balance of our bunker tanks at Cape Canaveral and Port Manatee. We're also evaluating construction of additional tankage at Collins, Mississippi. And looking at repurposing tanks at various terminals where this tankage is underutilized today. So with the BOSTCO Phase II, and the other projects we have identified, TLP will have a pipeline of projects totaling $150 million that we can roll out over the next couple of years. This is on top of the $225 million that we will expend on BOSTCO Phase I and 1A.

And lastly, regarding the process underway at Morgan Stanley to find a new owner for TransMontaigne Inc. and Transmontaigne Partners, I can report that the process is moving ahead, interest is very strong and I would expect that we'll have an announcement before the next scheduled analyst call. I really can't comment any further on any of the details until we have a definitive agreement.

So with that, operator, I am ready to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Gabe Moreen, with Bank of America.

Gabriel P. Moreen - BofA Merrill Lynch, Research Division

On the backlog at Collins and Brownsville, I was just wondering if you could put little bit more color on the timing and size of those individual projects, just so -- I guess, for modeling purposes, we know when to slot those in.

Charles L. Dunlap

Collins would be about 1 million barrels of distillate storage. And timing could be as early as the third quarter.

Gabriel P. Moreen - BofA Merrill Lynch, Research Division

Got it. Sorry, go ahead.

Charles L. Dunlap

And that would be -- CapEx will probably be in the $30 million range per dollar.

Gabriel P. Moreen - BofA Merrill Lynch, Research Division

Okay. And I guess, contract structure for these expansions, how long term are your contracts growing up and backstopping some of the expansions here?

Charles L. Dunlap

Well, the contracts at BOSTCO are all 5 years, a couple of them are actually 7 years. Collins would be a minimum of 5.

Gabriel P. Moreen - BofA Merrill Lynch, Research Division

Great. And then I guess turning to the balance sheet, I guess I'm just wondering in terms of funding the growth backlog here. I guess it looks like you're in the 3-ish debt-to-EBITDA range, I think, normalizing for distributions from BOSTCO ramping up. Can you talk about where you're comfortable taking leverage too, on the balance sheet, ultimately?

Frederick W. Boutin

Gabe, this is Fred. As BOSTCO comes online that will push the leverage ratio down considerably. And the covenant and the credit facility is 4.75. But we're probably not going to operate it at a level that high. So -- but we're comfortable, certainly comfortable over the long term, operating between 3, 3.5, it might go to a little higher than that for short periods of time.

Operator

[Operator Instructions] Our next question comes from the line of Erik Keener with River Road Asset Management.

Erik M. Keener - River Road Asset Management, LLC

I wanted to go back to BOSTCO. And I heard you guys give a number for EBITDA for the quarter. I missed that number. And then, the $19 million that you guys gave for the year from BOSTCO, once Phase I is complete, is that dividends to TransMontaigne or is that an EBITDA number as well?

Charles L. Dunlap

Yes. The $19 million is when Phase I and IA, the 900,000 barrels of distillate, is complete. So we won't see that $19 million until 2015 when we get the full benefit of all these projects being online. And that is a distribution, a cash distribution from the joint venture to TransMontaigne. It's not an earnings number.

Frederick W. Boutin

Yes, and I'd just add, I think it'll start -- we'll start to realize, on a quarterly basis, at that rate, probably -- hopefully in the first quarter of 2015. And then, by the end of 2015, we'll have 4 quarters that add up to the 19.

Erik M. Keener - River Road Asset Management, LLC

Okay. Do you have an available EBITDA number or a target distribution coverage?

Frederick W. Boutin

We don't really focus on the EBITDA at BOSTCO. The EBITDA at BOSTCO is not going to flow into our results. The thing that we -- that will flow into our results is the distribution that we receive from BOSTCO. So that's why we've focused on that number.

Erik M. Keener - River Road Asset Management, LLC

Understand. So you and partners Kinder Morgan, do you have a target distribution coverage for distributions coming out of BOSTCO to you?

Frederick W. Boutin

That's essentially -- I'm not quite sure I know what you mean by coverage. But there is no debt at BOSTCO. So the EBITDA is very close to the distribution.

Erik M. Keener - River Road Asset Management, LLC

Okay. So it's basically one times coverage. Got it. Then I wanted to ask...

Frederick W. Boutin

Okay. Yes. I think I get your point now in terms of a distribution coverage at BOSTCO. Yes, the plan at BOSTCO is distribute more or less all the cash. And we're not going to retain cash at BOSTCO.

Erik M. Keener - River Road Asset Management, LLC

Okay. Excellent. Then I wanted to ask about the Collins/Purvis Terminals and all of the storage there. On previous calls, you guys have talked about the strategic value of that asset and how that may be important to a buyer, and to clients overall throughout the country. Could you give us a little bit more detail on why that asset is so strategically important?

Charles L. Dunlap

Well, it's the key terminus for shipping barrels North for the refineries coming from the Gulf Coast and Louisiana. And so it is a key nexus to determine how far up you want to go in the system. And so having a strong tankage position there is of a fair amount of importance. And that's why we negotiated with Morgan Stanley for a term on a significant portion of those barrels to expire at the end of December of 2015. So we'll have the flexibility to either renew that with them or a new owner coming in, deciding what they want to do that tankage.

Frederick W. Boutin

Yes. A couple of other points there is that Colonial Pipeline is not allocated to get to that point. And then it is allocated beyond that. So it's a good place to stage barrels. And it's also a location where barrels can be crossed over between Colonial and Plantation. So there's a lot of reasons why that's a key location.

Operator

Our next question comes from the line of Selman Akyol with Stifel.

Selman Akyol - Stifel, Nicolaus & Company, Incorporated, Research Division

Just as you go into the quarter -- second quarter, and I understand the distributions from BOSTCO are 1 quarter in arrears. How many tanks do you expect to have contributing to your results in the second quarter, generating cash flow? I try to think about it that way. Is it 35?

Charles L. Dunlap

Yes, that's about right. I'd say mid-30s. I don't really have that number right here but we had 6 come on in April, 10 in March.

Frederick W. Boutin

Selman, I think you're going to start to really see the distribution that we received from BOSTCO ramp up considerably in our third quarter. The third and fourth quarter of this year is where you're going to really see it grow. So I think it'll grow in the second quarter, in terms of the distribution we receive. But in BOSTCO, we'll be generating a lot more cash flow for the second quarter. But we're not going to get that until our third quarter. That's why I really tried to make a point about the 1 quarter lag.

Selman Akyol - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay. And then, I appreciate the limited comments you can make around the general partner. But as you guys think about going into 2015 and just -- can you talk about in terms of some of the opportunities that you're seeing, that either at this point, you can't pursue because you don't have clarity there or -- I'm just trying to wonder is it going to 2015, what is the ability for you guys to invest within your footprint? Are there large opportunities out there that you see that you just can't do at this point?

Charles L. Dunlap

At this point, we're limited because of the constraints at projects -- really organic projects in the buildout of BOSTCO. We haven't had the luxury of being able to look at larger projects beyond $40 million or $50 million. Nor have we been able to look at joint ventures. And there's just a tremendous amount of activity in projects. You can look at what's being built and what has been announced. And we have really been foreclosed from participating in those. So a new owner is going to give us the opportunity to really jumpstart this platform, which, I think, is a great one. If you look at a lot of the infrastructure that is still -- remains to be built. There could be merger opportunities, acquisition opportunities, of smaller companies that may not have the wherewithal to grow and handle some of these projects. So I'm pretty excited about that prospect. I don't know how else to categorize it. But we just haven't been in the mainstream of a lot of that project flow because people know that we have these restrictions. That goes away with a new owner.

Operator

Thank you. ladies and gentlemen, this conference will made available for replay after 1:00 p.m. Eastern today until May 13, 2014 at midnight. You may access the AT&T executive playback service at any time by dialing 1 (800) 475-6701 and entering access code 325993. That does conclude our conference for today. Thank you for your participation and for using AT&T teleconference service. You may now disconnect.

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