World Point Terminals, LP (WPT) Q4 2015 Results - Earnings Call Transcript

| About: World Point (WPT)

World Point Terminals, LP (NYSE:WPT)

Q4 2015 Earnings Conference Call

March 30, 2016 9:00 AM ET

Executives

Liz McGee - Investor Relations

Kenneth Fenton - President and Chief Operating Officer

Jonathan Affleck - Vice President and Chief Financial Officer

Analysts

Gabe Moreen - Bank of America Merrill Lynch

Matt Schmid - Stephens Inc.

Selman Akyol - Stifel, Nicolaus & Company, Inc.

Eric Wolff - Hawk Ridge Management LLC

Operator

Welcome to the World Point Terminals Fourth Quarter 2015 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. Following management’s prepared remarks, we will hold a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded today.

I would now like to turn the call over to Liz McGee, Head of Investor Relations.

Liz McGee

Thank you, operator, and good morning, everyone. Thank you for joining us today on this 2015 financial results conference call.

Joining me today is our President and Chief Operating Officer, ken Fenton; and our Vice President and Chief Financial Officer, JQ Affleck.

After market close yesterday, we issued a press release announcing our financial results, which is available on our website at www.worldpointlp.com. The release also provides information on how to access the replay of this call.

I would like to remind listeners that comments made during this call will include forward-looking statements within the meaning of federal securities laws. These forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from any anticipated results.

For a list and description of those risks and uncertainties, please review World Point filings with the Securities and Exchange Commission. Please note that the content of this call contains time-sensitive information that is accurate only as of today, March 30, 2016.

World Point disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether as a result of new information, future events or otherwise.

With that being said, I will now turn the call over to Ken Fenton.

Kenneth Fenton

Good morning, everyone, and thank you for joining us today. We are pleased to report our 2015 performance results and believe they reflect our ability to deliver operational execution to our customers for sound conservative approach to the business.

In 2015, we increased our total available storage capacity by approximately 860,000 barrels, or roughly 5.6% due to Greensboro’s terminal drop downs in the Salisbury terminal acquisition. Additionally, we’re able to grow our revenue and EBITDA more quickly than our storage capacities by challenging market condition and the expiration of several contracts at our Galveston terminal.

These positive results were partially driven by the median impact of the Greensboro and Salisbury terminal additions and the storage agreements in place with Apex Oil. The Chickasaw and Blakeley Island terminal in Mobile also were key contributors to the revenues and EBITDA growth because of the majority of the operating expense at these terminal was present for the second-half of 2014. But during 2015, we completed substantial repairs of its terminal align us to place more tankage into service.

We purchased the Mobile terminal in 2014 for approximately $14 million and since then have incurred approximately $8 million in capital expenditure bringing the terminal closer to full operational capacity. At the time of the acquisition, we acknowledged it would require significant spending to return the terminals at full capacity, and we have taken a conservative approach by prioritizing deal permits [ph] has required to meet potential customer needs.

As of December 31, 2015, we had approximately 45% of available storage capacity at Blakeley Island and 33% of available storage capacity at Chickasaw under contract. In the first few months of 2016, we have farther increased these utilization rates to 72% and 64%, respectively.

Taking into account the purchase price paid and the capital expenditures required to bring tanks back in service, our future projection for Mobile terminal imply an adjusted EBITDA multiple of between four to five times. In September 2015, we acquired the Salisbury, Maryland terminal for approximately $1 million. Apex had committed to take approximately 150,000 barrels of storage on a three-year term.

At our North Little Rock terminal, we’re completing constructions on two tanks that will add approximately 180,000 barrels of storage. We expect to have this under contract in the second quarter of 2016. We expect our expansion capital expenditure in 2016, will be relative consistent with 2015, but anticipate that our maintenance capital expenditure once we – as we complete some large repairs and maintenance project.

As we reported in earlier filing, during 2015, we had high unutilized storage volumes at our Galveston terminal. We believe this resulted, at least, in part from significant build out of the residual fuel storage infrastructure in the Gulf Coast over the last few years. Although the long-term nature of storage contracts made it difficult to mainly replace our former customers. Over the fourth quarter of 2015, we increased the storage capacity under contract at our Galveston terminal to 89%.

Despite headwinds in the marketplace, we have grown our total storage capacity under contract at year-end from 82% in 2014 to 88% in 2015. And through continued efforts in the first quarter of 2016, we currently have approximately 91% of our total terminal storage capacity under contract. Because of our measured and conservative approach, we are positioned in the MLP space with zero debt on the balance sheet and the flexibility and experience necessary to capitalize on opportunities that complement our business plans.

We appreciate your interest in World Point and we remain committed to delivering the operational excellence our customers expect by growing the business at a steady pace.

With that, I will turn the call over to JQ for discussions of the financial results.

A - Jonathan Affleck

Thank you, Ken, and thank you to everyone for joining us this morning. As Ken mentioned, we were able to increase our key financial metrics across the board in 2015.

I’ll now walk you through some details on our financial results. Our revenues increased by $6 million, or 7% year-over-year. The majority of this increase came from a $5.7 million increase in base storage fees, primarily attributable to the inclusion of the Mobile terminals for a full-year and the addition of the Greensboro terminal.

Our operating expenses increased by $1.6 million, or little less than 6% year-over-year, representing a slower rate in our revenue increase, which resulted in a boost to our bottom line. This increase is mainly related to increased labor costs due to the acquisition of the Chickasaw, Blakeley Island, Greensboro, and Salisbury terminals, as well as additional property taxes associated with such acquisitions.

Our SG&A expenses decreased by $900,000, or 13% as compared to 2014, largely, because we had additional IPO expenses of approximately 900,000 in 2014 that were not occurred – incurred in 2015. And we experienced efficiencies in our second full-year as a public company. These decreases were partially offset by an increase in unit-based compensation.

Depreciation and amortization expense increased $5.3 million, or 26% as compared to 2014. This is largely a good sign from our perspective, as it represents growth in our asset base and is primarily attributable to a full-year of depreciation expense for the Mobile terminals and the acquisition of the Greensboro terminal at January 1, 2015.

The income from our joint venture increased approximately $400,000 to 72% versus 2014. This increase is primarily related to the placement in service of approximately 236,000 barrels of storage capacity at the Cenex terminal during 2015. Based on these results, our net income for the year increased by $600,000 as compared to 2014 for a total of $33.1 million, or $0.95 per unit.

Our adjusted EBITDA increased over 10% to $62.7 million for 2015. That represented an EBITDA of approximately $16 million for the fourth quarter of 2015, as compared to $13.5 million for the fourth quarter of 2014.

From a liquidity standpoint, we paid our quarterly distributions of $0.30 per unit, or a $1.20 on an annualized basis throughout 2015. Our cash and investments decreased by approximately $7.9 million largely because we have continued to fund our expansion CapEx with cash from our operations.

Our expansion capital expenditures for 2015 totaled $19.3 million, excluding the Greensboro dropdown. And we have our full $200 million secured credit line available to us with no outstanding balance at this point in time.

Lastly, before we open up for the Q&A session, I want to clear up any confusion regarding our filing for an extension for our Form 10-K. Historically, we have filed as a non-accelerated filer. There appears to have been some miscommunication with our advisors following our IPO, which led us to believe that the benefits of our status as an emerging growth company included in extended filing period.

In conversations with our legal advisors, following their routine review of a draft of our Form 10-K and just prior to the 75-day deadline for accelerated filers this year, we clarified those miscommunications and we’ll file an accelerated filer going forward.

With those comments, I will turn the call over to the operator to open the floor up for questions.

Question-and-Answer Session

Operator

The floor is now open for questions. [Operator Instructions] Your first question comes from Gabe Moreen of Bank of America.

Gabe Moreen

Hey, good morning, everyone. A couple questions for me. I guess, given the discussion around the counterparties that a lot of MLPs has been having. Can you just talk about Apex a bit? And what kind of year they had? What kind of leverages kind of being run at the Apex level at this point, so maybe I’ll start there?

Kenneth Fenton

Sure. First and foremost, we understand that the counterparty topic to be a pretty hot button issue in the MLP space right now. Generally, I just want to point out, I think, we feel we’re pretty insulated from that problem, because we do not have many E&P customers and we consider our customer base to be very high-quality with strong credit ratings. I think, if you look at the doubtful receivable balance in the footnotes to our financial statements does see that counterparty credit risk has not really presented much of an issue for us.

From the Apex perspective, obviously there are biggest customer representing approximately 38% of our revenue for 2015. Apex obviously did not disclose its financials. But it has done very well during the recent market conditions and we consider them to be a very strong from a credit perspective. We’re not really in a position to disclose kind of their debt balances or any specifics with regards to their financials, but we don’t see them posing any risk.

Gabe Moreen

That’s helpful. And then I guess as a follow-up, I know this is in the 10-K, there were some language around entering into a profit-sharing agreement with Apex at one of the terminals. Can you just talk about that, is that going to be significant and is that going to be also a shift, and I guess, any other arrangements with Apex around contractual arrangements?

Jonathan Affleck

That won’t be significant. It could be potentially up to $1 million.

Gabe Moreen

Okay. And that’s a one-time sort of contract where probably doesn’t happen tank capacity elsewhere?

Kenneth Fenton

That’s just related to one of our terminals.

Gabe Moreen

Okay. And then around maintenance catalogue, I think you mentioned a bit of a bump in expectations for 2016. Can you talk a little bit about sort of the magnitude of the bump relative to historical levels?

Kenneth Fenton

There’s some new environmental regulations come into place up in the New Jersey area. And we got to bring some tanks and compartments with new codes [ph]. So that’s were most of that money has been spent.

Gabe Moreen

Okay. But in terms of dollar amount, I mean…

Kenneth Fenton

Oh! I’m sorry. Right now – I’ll give you the dollar amounts.

Gabe Moreen

Sure.

Kenneth Fenton

The dollar amount for – basically for maintenance next year is $15 million.

Gabe Moreen

Okay. So pretty sizable bump, and is that something where you think that sort of a one-time bump, and you go back to something closer to 2015 and 2014 levels beyond 2016 or…

Kenneth Fenton

Yes.

Gabe Moreen

…is that going to be more going? Okay, similar one-time, okay. Thanks, everyone.

Kenneth Fenton

Thank you.

Operator

Your next question comes from Matt Schmid of Stephens.

Matt Schmid

Hey, good morning.

Kenneth Fenton

Good morning, Matt.

Matt Schmid

As you all heard, it’s been putting more capacity under contract over the course of 2015 and sort of year-to-date 2016. Can you just give any color broadly just on a rate trends and how those are looking?

Kenneth Fenton

Right now, I’m seeing rates to be a firm. As you know, last year we talked about how rates were falling, but right now there’s a little bit more demand for tankage. So right now I’m probably getting somewhere around 5% to 10% more than we were talking a year ago.

Matt Schmid

Okay, great. Thanks. And then the color you provided on the Mobile terminals was helpful. Maybe can you just touch on the M&A environment and just how you are thinking about growth opportunities, both from an acquisition standpoint, or organically in 2016?

Jonathan Affleck

Yes. I think our preference as a strategy has been to try to grow the company through the third-party acquisitions and organic growth. From our advantage point right now, it does appear that the depressed oil prices have limited to some degree. The M&A activity was so much uncertainty in the marketplace. Additionally, it seems that the idea that companies would be forced to monetize our assets hasn’t necessarily come true, at least, in the midstream market. And so we’ve not seen as many deals as people may have expected.

We have pursued a few third-party acquisition opportunities that haven’t come to fruition for us. But we perceive or expect to continue to do so and try to build out at our existing terminals.

Matt Schmid

Okay, thanks. That’s helpful. I appreciate the color.

Jonathan Affleck

No problem.

Operator

Your next question comes from Selman Akyol of Stifel.

Selman Akyol

Thank you. So I guess, just the couple of question for me. Number one, I guess, you talked about first quarter being around 91% contracted. Do you expect that to tick higher as the year unfolds, or do you think that’s going to be the high watermark?

Kenneth Fenton

I think we gave you forward-looking statements. But I can tell you in the second quarter that number will be up, but I’ll only give you the percentage, but I don’t have it calculated in my head. But I knew, I know there’s additional tanks coming on available are being leased.

Selman Akyol

I got you. And then on your CapEx commentary, as we walk through 2016, you anticipate getting into your revolver then?

Jonathan Affleck

Well, I’ll say that up till now the Board has decided to fund our growth CapEx through cash from operations. Obviously, we’ve noted in our filings that at some point in time, we maybe in a position that we will need to draw on the facility to continue that. But we don’t know exactly when that will occur. And we do feel like we have sufficient coverage right now to continue with the current plan without necessarily taking access of the credit facility, but that’s certainly there in the event that we needed.

Selman Akyol

All right. And then, I guess, just longer-term as we think about sort of the export opportunities, do you have any longer-term thoughts there on what you’re seeing, or what might be planned?

Kenneth Fenton

I’m going to ask you to repeat the question, because I think our phone kicked up just up here.

Selman Akyol

No worry. So just in terms of just thinking about with the bans being lifted in terms of crude oil, is there any opportunity on that for you guys, I know your mostly refined products. But are you seeing any opportunities there for you guys longer-term? And I’m thinking, in particular, Galveston as well?

Kenneth Fenton

There has been some discussion with Galveston at this stage, yes. And we’ve also had some discussions out of our Albany terminal as well.

Selman Akyol

All right. Thank you.

Operator

[Operator Instructions] Your next question comes from Eric Wolff of Hawk Ridge.

Eric Wolff

Hello. A couple of questions. On the growth CapEx for next year, what projects are you focused on for incremental growth CapEx, as we think about next year, be mostly done spent with what you need to on Chickasaw near the Mobile terminal, or do you have more to go there this year?

Kenneth Fenton

Yes. We do have some more build out expected down at the Mobile terminals. I think that that should comprise a good portion of that CapEx forecast. But it’s somewhat dependent upon following through with the customer and their needs. So other than that or across the spectrum of the other terminals, I’m not sure Ken looks at anything. But that will be a significant chunk.

Jonathan Affleck

Yes, when I gave that number, approximately half of our CapEx will be in the Mobile and Chickasaw terminals. We were completing the build out in 2016, as a North Little Rock terminal. We’re spending some capital up in Glenmont, because we have a couple of tanks that will be coming back to us, that will be putting into petroleum products. So that’s the three major areas where we got CapEx budgeted right now.

Eric Wolff

And the growth CapEx you said, you should expect a similar amount this year to last year, is that right, or meaningfully higher or lower?

Jonathan Affleck

Approximately the same, yes.

Eric Wolff

Okay. The – I know in the past when you’ve done drop downs, I think you’ve done with stock. Just curious with the stock at this valuation, is that something that you would – if you use stock as currency on any acquisition?

Jonathan Affleck

Well, I think that’s something we’ll evaluate when a proposed acquisition or drop down is kind of eminent. I understand where you’re coming from there and with the depressed price of the stock. It makes sense maybe for it to be more of a blend, if it were to be current. But we don’t know sort of what the future holds with regards to when any of those acquisitions or drop downs would occur.

Eric Wolff

I appreciate the conservative nature of the balance sheet, at the same time, I think your business is relatively stable. And one could argue that that a very, very modest, not that even just one or two times is exceptionally safe given the stability of the assets historically. What’s been the aversion, so even taking on a modest amount of debt?

Jonathan Affleck

Well, I think that’s kind of been a message from our Board that we do like to operate in a very conservative nature. I think there’s a premium on having some flexibility in the business. As you’ve seen the capital markets kind of freeze up for MLPs. We feel like we’re in a very strong position to have the access to the funding through our debt facility as opposed to maybe being at that one or two times level that you speak off and then having to access the capital markets if we wanted to maintain that ratio.

So I think it’s just kind of the conservative and flexibility aspect that we’ve been looking at to provide opportunity for us.

Eric Wolff

Okay. And one last question, Jonathan I appreciate, it’s great to hear you on Board and on this call. In the past, it’s been very difficult for us to kind of have conversations with management and just in general the investor communications has been almost non-existent. And I guess I’m curious if there is any potential change to that thought process, especially given where the stock trades relative to your comps?

Jonathan Affleck

I think right now we’re going along the current path of this annual call. We use that as our opportunity for the investor community. We’ll reevaluate that with our Board meeting. But we don’t plan on providing I guess any more regular access to management. We think that for us we are a smaller operation and we want the results to speak for themselves. And so I wouldn’t expect or anticipate much of a change in the policy.

Eric Wolff

Thank you.

Operator

At this time there are no further questions. I would now turn the floor back over to Liz McGee for any additional or closing remarks.

Liz McGee

Thank you, operator, and thank you everyone for joining us today. This concludes today’s call. Please have a great day.

Operator

Thank you everyone for joining us today. This concludes today’s teleconference. Please disconnect your lines at this time and have a terrific day.

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