Martin Midstream Partners' (MMLP) CEO Ruben Martin on Q1 2016 Results - Earnings Call Transcript

| About: Martin Midstream (MMLP)

Martin Midstream Partners L.P. (NASDAQ:MMLP)

Q1 2016 Earnings Conference Call

April 28, 2016 9:00 AM ET

Executives

Bob Bondurant – Chief Financial Officer

Joe McCreery – VP-Finance and Head-Investor Relations

Ruben Martin – Chief Executive Officer

Wes Martin – VP-Corporate Development

Analysts

Gabe Moreen – Bank of America

Matt Schmid – Stephens

T.J. Schultz – RBC Capital

Selman Akyol – Stifel

Charles Marshall – Capital One

Operator

Good day, ladies and gentlemen, and welcome to the Martin Midstream Partners, LLP, First Quarter 2016 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 follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn your conference over to Bob Bondurant, Chief Financial Officer. You may begin.

Bob Bondurant

Thank you, Kieran. And let everyone know who's on the call today we have Ruben Martin, our CEO; Joe McCreery, our VP of Finance and Head of Investor Relations; and Wes Martin, our VP of Corporate Development.

Before we get started with the financial and operating results for the quarter, I need to make this disclaimer. Certain statements made during this conference call may be forward-looking statements relating to financial forecast, future performance, and our ability to make distributions to unitholders. We report our financial results in accordance with generally accepted accounting principles, and use non-GAAP financial measures within the meanings of SEC Reg G, such as distributable cash flow, or DCF, earnings before interest, tax depreciation and amortization or EBITDA, and also adjusted EBITDA.

We use these measures because we believe it provides users of our financial information with meaningful comparisons between current results and prior reported results, and can be a meaningful measure of the partnership's cash available to pay distributions. We also included in our press release issued yesterday a reconciliation of EBITDA, adjusted EBITDA, and distributable cash flow to the most comparable GAAP financial measure. Our earnings press release is available at our website, MartinMidstream.com, and also we plan to file our 10-Q after the market closes today.

Now, I would like to discuss our first quarter 2016 performance compared to the fourth quarter of 2015. For the first quarter, we had adjusted EBITDA of $49.3 million, compared to $51.4 million for the fourth quarter of 2015. Our distributable cash flow for the first quarter was $32.5 million for distribution coverage of 0.98 times. This distribution coverage includes incentive distribution right payments of $3.9 million in the first quarter. Without the IDR payment, our DCF coverage would have been 1.09 times.

Although our DCF was slightly below our one times coverage, we experienced an abnormally heavy first quarter in maintenance capital expenditures and refinery turnaround costs. Our total for these costs were $7 million. These expenditures which occurred in Q1, or 25% of the calendar year, represent approximately 40% of our 2016 forecasted maintenance and turnaround cost.

The largest component of these first quarter maintenance costs were our refinery turnaround, a dry-docking of our offshore sulfur tow, and several tank repairs in our terminalling segment. Looking toward the remaining three quarters of 2016, on average, we should experience much lower maintenance capital expenditures per quarter when compared to the recently completed first quarter.

Now, I would like to discuss our first quarter performance compared to the fourth quarter. In our natural gas services segment, our first quarter EBITDA was $20 million compared to fourth quarter EBITDA of $24.9 million. The cash flow from our Cardinal Gas Storage assets was $11.5 million in the first quarter compared to $11 million in the fourth quarter. While Cardinal revenue was basically flat between periods, we benefited from reduced operating costs, primarily repairs and maintenance, which were higher than normal in the fourth quarter.

The cash flow from our NGL Logistics business was $8.5 million in the first quarter compared to $13.9 million in the fourth quarter. The decline between periods was due to a reduction of butane volume sold to our refinery customers in the first quarter when compared to the fourth quarter. This is not unusual, as refineries' butane demand drops in March as refineries begin to eliminate purchases of butane as vapor pressure rules become more restrictive beginning April 1.

We have now begun the process of purchasing railcar butane supply and we are transporting it to our North Louisiana underground salt dome storage to begin storing product for the refinery demand and the resulting sales that will begin late in the third quarter. In addition to the cash flow generated in our natural gas services segment, we received a $2.5 million distribution from West Texas LPG in the first quarter, down from a distribution of $3.4 million received in the fourth quarter. This decrease was driven by lower throughput on the system associated with well freeze-offs and higher operating expenses associated with the timing of certain maintenance projects.

Throughput on the system has recovered and is currently at the levels experienced in the fourth quarter. However, we have lowered our distribution expectations for at least the next two quarters from our interest in West Texas LPG as a result of a recent order signed by the Railroad Commission of Texas in a proceeding based on complaints filed by several shippers on the system. These complaints challenged several rates that were increased by West Texas LPG on July 1 of 15.

Prior to filing the new tariff rates, the operator of the West Texas LPG system performed a thorough investigation to determine market rates for this system, and despite the recommendation of the hearing examiners in this proceeding to allow the new rates to remain in place during the pendency of this proceeding, the commissioners of the Railroad Commission of Texas elected to order West Texas LPG effective as of March 8 of 2016 to revert back to the rates that were in place on June 30, 2015, until a final decision is rendered.

The Commission has indicated it supports market-based rates, and we expect a final ruling to be issued in the fourth quarter of 2016 or the first quarter of 2017. If the Commission affirms the higher rates in a final ruling in this proceeding, West Texas LPG will seek to recover the higher rates from shippers retroactively as indicated in its current tariff.

Now moving to our terminalling segment, our first quarter EBITDA was $17.2 million in the first quarter compared to $15.3 million in the fourth quarter, an increase of $1.9 million. $1.5 million of this increase was from the operations of our Smackover naphthenic lubricant refinery. Half of the refinery's cash flow increase came from increased throughput rates to our general partner, and the other half came from improved operating cost.

The balance of the terminalling segment's cash flow increase came from our Corpus Christi crude terminal. Although our volume averaged 93,000 barrels a day in the first quarter compared to 120,000 barrels per day in the fourth quarter, we had significant reduction in operating cost, primarily due to an unusually heavy repair and maintenance spend in the fourth quarter of 2015.

Also in our terminal segment is our packaged lubricant business, which cash flow of $1.8 million for both the first and fourth quarters. However, based on our current visibility, we believe the cash flow for this business is poised to significantly increase in the second quarter, allowing us to meet previously disclosed packaged lubricant guidance.

In our sulfur segment, our EBITDA was $10.8 million compared to $8.6 million in the fourth quarter. Our fertilizer EBITDA was $7.7 million in the first quarter compared to $3.5 million in the fourth quarter. Our fertilizer sales volume increased 85% in the first quarter compared to the fourth quarter. In spite of the seasonal increase, we did not meet our internal volume targets, as wet weather has delayed some demand.

As a result, we believe we have not missed any sales volume, it has just been delayed. Also, our lower feed stock cost is helping us to improve our margin per ton sold. Because of these factors, we believe our fertilizer cash flow will exceed our original internal projection for the second quarter.

In the refinery sulfur byproduct business, our first quarter EBITDA was $3.2 million compared to $5.1 million in the fourth quarter. The decrease was driven by a service contract renewal with our largest molten sulfur customer, and also a reduction of our overall gross margin per ton, specifically the prilled sulfur side of the business on the West Coast.

We anticipate a recovery of our West Coast prilled sulfur margins in the second quarter. We should also see an increase in our West Coast buy-ins as the Bay Area refineries that supply our sulfur had multiple turnarounds in the first quarter.

We also had our offshore tow down for a turnaround during the quarter, impacting molten sulfur sales volume. This vessel is back in service beginning in mid-April, which will help improve our future sulfur cash flow.

In our marine transportation segment, we had EBITDA of $2.5 million compared to $4.1 million in the fourth quarter. The decrease in cash flow was primarily on the inside of our business, as inland EBITDA fell $1.3 million in the first quarter compared to the fourth quarter, as inland revenues fell by $1.5 million. The revenue impact for the 7% decline we experienced in our utilization was $0.8 million, and the 6% decline in our average day rate impacted inland revenue by $0.7 million.

Our inland utilization was negatively impacted by the fleet having more spot tows in Q1 compared to the previous quarter. This was driven by decreased refinery utilization, as several refineries had maintenance turnarounds in the first quarter.

Looking toward the second quarter, we believe our inland marine cash flow should improve due to increased utilization, as we have increased our term tows relative to our spot tows in the second quarter. Also, we believe inland rates have stabilized and are beginning to firm due to the increased demand from Gulf Coast refineries.

Our partnership's unallocated SG&A cost excluding non-cash unit compensation expense was $4 million in the first quarter compared to $4.3 million in the fourth quarter of 2015. This reduction is primarily due to reduced overhead charge from our general partner in 2016.

We continue to hold a $15 million note receivable due for Martin Energy Trading and affiliate of our general partner. This investment generated $2.3 million of interest income in 2015 and should continue in 2016. This interest income is included as EBITDA for calculating our bank leverage covenants.

Now I would like to turn the call over to Joe McCreery, who will speak on our balance sheet, our amended bank deal, and our reconciliation to guidance.

Joe McCreery

Thanks, Bob. I'll start with our normal walkthrough of the debt components of our balance sheet and our bank ratios. I'll then discuss the recent bank amendment, and finally provide some first quarter benchmarks against cash flow guidance for the full year 2016.

On March 31, 2016, the partnership's balance sheet reflected total long-term funded debt of approximately $874 million. Our balance sheet funded debt is shown before unamortized debt issuance and unamortized issuance premiums, as actual funded debt outstanding was $880 million.

So reconciling this amount at quarter end, our revolving credit facility balance was $506 million and the usual [ph] amount of our senior unsecured notes was $374 million. Thus, the partnership's total available liquidity under our revolving credit facility on March 31 was $194 million based on our then $700 million revolving credit facility.

For the quarter ended March 31, 2016, our bank-compliant leverage ratios, defined as senior secured indebtedness to adjusted EBITDA and total indebtedness to adjusted EBITDA were 2.66 times and 4.62 times respectively. In a difficult environment, this represents a modest total leverage increase of only three basis points from the year ended 2015 level of 4.59 times.

The partnership remains focused on leverage improvement, and again seeking to achieve our long-term standing goal of 4.5 times or better, it is our highest priority. To that end, we're exploring all avenues, including the sale of assets to reduce our leverage, and we commit to leaving no stone unturned to address what we feel is the strongest headwind the partnership currently faces.

Our bank-compliant interest coverage ratio, defined as adjusted EBITDA to consolidated interest expense, was 4.73 times. Looking at the balance sheet, total debt to total capitalization on March 31, 2016, was 69.9 times, about 1% higher than our year ended 2015 level.

In all, on March 31, 2016, the partnership was in full compliance with all covenants banking financial or otherwise. Yesterday, we announced the closing of an eminent extended revolving credit facility. A two-year extension was achieved in the face of difficult energy-lending conditions. Accordingly, our facility, which is our primary source of liquidity, now matures in March of 2020. Our committed facility will be $664 million compared to the previous level of $700 million. With fewer committed dollars, the partnership will benefit from paying less unused fees in the future and still retain ample liquidity based on our forecasted capital spending needs.

Likewise, our lending syndicate going forward will be smaller as we reduce the total number of lenders from 24 to 18. As was previously the case, MMLP retains the ability to increase its commitment amount up to $300 million through an accordion feature in our agreement should additional credit facility requirements arise.

With so much uncertainty surrounding energy in the capital markets, we chose to preemptively extend our bank facility now as opposed to waiting until the fourth quarter of this year. We are pleased with the outcome of our refinancing and appreciate the fact that many of our long-term relationship banks stepped up and actually increased their commitments to MMLP while six banks exited.

To be clear, MMLP's cost of borrowing will increase, but only by 25 basis points across our leverage-based grid, and our maturity date has been pushed out four years, which we view overwhelmingly favorable.

Staying on the liability side of our capital structure, during the quarter we are pleased that MMLP's long-term credit ratings were affirmed by both S&P and Moody's. We believe the agencies rewarded the partnership on a relative basis for the de-levering that took place during calendar 2015. We achieved this affirmation amid a plethora of downgrades given to our Midstream peers.

Now let's shift to the partnership's performance. Last month, the Partnership provided full year 2016 adjusted EBITDA guidance levels by segment, and further by asset. Let's take a look at the cash flow in the first quarter by segment compared to our guidance levels.

For the purposes of our comparison, we assume that 25% of the annual adjusted EBITDA guidance would be achieved through the first quarter, thus not adjusting for seasonality, which exists among our segments. Starting with our natural gas services segment, our adjusted EBITDA was $22.5 million during the quarter compared to a guidance level of $21.1 million.

Cardinal Gas Storage, butane, and propane all outperformed guidance, offset by the West Texas LPG joint venture and our legacy NGL business.

Next, within terminalling and storage, adjusted EBITDA was $17.2 million, short of our guidance level of $18 million. Our specialty terminals, the Corpus Christi crude terminal, and our Smackover refinery were ahead of plan for the quarter, however more than offsetting those divisions were weaker than anticipated performance within our Martin Lubricants business and our shore-based terminal operations.

Similar to what we saw in 2015, our sulfur services segment provided the largest favorable varianced plan, beating guidance by approximately 48%. The segment posted adjusted EBITDA of $10.8 million compared to our guidance level of $7.3 million. And, as Bob mentioned, we anticipate continued strength during the second quarter as some fertilizer application was delayed by weather and soil conditions. We continue to appreciate that the sulfur services businesses are counter-cyclical to a degree and have an ability to perform well when crude oil and related byproduct commodities, which comprise our raw materials, are lower.

Finally, the marine transportation segment missed our guided level of $3.6 million, as adjusted EBITDA was $2.5 million during the quarter. Both day rates and utilization were weaker than anticipated, as additional assets previously not working in our market have become available supply to our customers. For your benefit, we've posted a slide to our website comparing the first quarter actual performance to our guidance levels by asset.

Next, let me provide a quick update on the growth side, a construction project of [indiscernible] Hondo Asphalt Terminal, which is underway on an accelerated basis. We now expect the $25 million to $30 million asset to be completed by the summer of 2017. As previously mentioned, in the current environment, we believe the cost of capital is too high for MMLP to develop this asset. At a point when our cost to capital is restored to more normalized levels, we will likely drop that asset into the terminalling and storage segment of MMLP.

Lastly, for those interested, our 2015 annual report will be available for downloading from our website starting on Monday, May 2nd. Again, this year, in an effort to reduce overhead cost, we will not be sending hardcopies to unit holders.

Kieran, this concludes our prepared remarks. We would now like to open up lines for question and answers. Thank you.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from Gabe Moreen from Bank of America. Your line is open.

Gabe Moreen

Hey, good morning, everyone. Quick question from me on the West Texas LPG redevelopments. In terms of how – are you still going to be recognizing revenue from that as if you have the rate increase through the rest of the year, assuming that the Texas RRC grants you that rate increase, it sounds like at the end of the year? Or is that something where you're not going to be recognize the increase and then if the Texas RRC gives you the increase retroactively and then just, I guess that that would show up first or second quarter next year?

Bob Bondurant

Gabe, we are not going to recognize the revenue. We're going to take the conservative route and the hearing is scheduled for October 19th. Obviously, when do they rule? We don't know. But at whatever point in time they rule – and we believe they'll rule in our favor, because they've actually talked that market rates should prevail, and we know we are the lowest cost provider coming out of the Permian Basin – whenever they do rule, at that time we'll have a catch-up, provided they do allow us to retroactively go back and collect those funds.

Gabe Moreen

Understood. Thanks, Bob. And are there any numbers you can provide around I guess kind of rate differentials and sort of how many of your shippers challenged? Was it all the shippers that challenged the rates, or was it just a minority?

Ruben Martin

Yes, Gabe, this is Ruben. Yeah, only 4 out of 22 shippers challenged the rate, and one of those really is not a shipper, one of their customers is a shipper. So they've challenged the rate. You're going to have to address the dollar amount exactly if that's where you want to get to.

Bob Bondurant

Yeah, and I think in our guidance we had $14.4 million. We think the distribution this year, provided the rates did not increase we would net approximately…

Joe McCreery

$5 million to $7 million lower.

Bob Bondurant

$5 million to $7 million lower.

Ruben Martin

But let me be real clear is that the law says that we can recapture it. We will be doing our homework to be sure that the railroad commissioners allow us to recapture it. And again, the Railroad Commission has said that these are market-based rates, which we can 100% support that based upon new shippers on our line and based upon the alternatives that the existing shippers have.

And so, we don’t think that there’s any problem concerning all of that, and I don’t believe that the Pandora’s box wants to be opened up on regulated rates in the state of Texas, because it would create a situation that would be chaos. And so, that’s not – we don’t feel like that’s even been a realm of possibility, so we feel very comfortable with it. We’ve got four out of 22 shippers that are unhappy, and we believe we can handle that situation very easily.

Gabe Moreen

Thanks, Ruben. And then just I guess it sounds like you’re not willing to settle, like you’re just going to take this to the RRC, basically.

Ruben Martin

Absolutely.

Gabe Moreen

Okay. Just turning gears to natural gas storage and surfaces, it sounded – you know, the curve has steepened pretty drastically here over the last couple of months. It sounds like you had a little bit of IT revenue upside in the quarter. Could you just talk to what you’re seeing and what the upside opportunity is, given the curve’s steepened here?

Wes Martin

Yes, Gabe, this is Wes. I’ll take that. With respect to the curve, you’re right, it has steepened and that has worked in our favor slightly. I will say that when you look out past 2016, 2017, that that sort of seasonal spread that we would like to see up in the buck or greater than a buck range, it sort of falls back down to the $0.50, $0.60, $0.70 range, depending upon what timeframe you look like. So looking further out into the future, it hasn’t steepened as much as obviously we would like from the storage side, but to your question or your point about the interruptible side, we continue to see some pretty good activity around one or two of our facilities on the interruptible front, and we continue to think that that’s going to happen for the foreseeable future.

So on the interruptible side, we are optimistic on that front, and then further out as you look, the spread is not as steep as it is currently, but we continue to believe that with some of the O&G, the Mexico export demand, that over time that that will correct itself.

Gabe Moreen

Thanks, Wes. And just a last one from me, Joe, on the new credit facility, the 5.25 covenant, which I think was the one with the last one. I didn’t catch whether that had changed or not with the new facility, if that’s still in place.

Joe McCreery

Yes, same covenant package, Gabe, for leverage. That’s correct. 5.25 total, 3.5 senior secured.

Gabe Moreen

Thanks.

Operator

Thank you. And our next question comes from Matt Schmid with Stephens. Your line is open.

Matt Schmid

Hey, good morning.

Joe McCreery

Morning, Matt.

Matt Schmid

Looking at Corpus Christi, clearly [ph] all have the minimum volume commitments there, but has there been any signs of volume stabilization there or maybe you can give sort of updated thoughts about expectations?

Bob Bondurant

Basically, you know, we averaged – what did I say? 92,000 barrels for the quarter. That’s – it’s probably running about the low to mid-80s. Our minimum is at 85,000 barrels a day. We believe and we’re internally forecasting that it’ll be at the minimums or below, so therefore we’re projecting we’re going to be collecting revenue on 85,000 barrels a day for the rest of the year.

Joe McCreery

And Matt, this is Joe. Just to reiterate, the guidance that we gave last month, I think it was based on 95,000 barrels a day, which is kind of where we were 30 days ago. But to Bob’s point, it has declined below that for the quarter run rate about 92,000.

Bob Bondurant

And that last 10,000 barrels a day is at a cheaper price than the first 85.

Matt Schmid

Okay. Thank you. That’s helpful. And then moving to the lubricants business, as Bob mentioned, you expect a significant increase in the second quarter, so maybe that’s sort of turning the corner a little bit there. Is that just a function of finally working through this higher cost inventory?

Bob Bondurant

That’s a part of it, but the bigger piece of it, our sales volume is really starting to pick up, and we’ve also expanded in the last year into the grease business, and grease is nothing more than taking lube oil and putting some soap in it. So we went a little more deeper focused with some higher margin products, and that business is picking up as well.

And so, we got visibility more so on the volume side, but also the combination of working through the higher cost inventories to our margins have expanded as well.

Matt Schmid

Okay, great. Well, thank you. That’s all I had. Thanks for the color.

Operator

Thank you. [Operator Instructions] And our next question comes from T.J. Schultz from RBC Capital. Your line is open.

T.J. Schultz

Great, thanks. Hey, guys. Just one question from me as we think about the leverage headwind, which you acknowledged kind of as your highest priority. Just curious if you are looking at things that are maybe more strategic in nature. Here we’ve seen actions by others in the MLP space to address the balance sheet through various tools, whether it’s hybrid securities, temporary distribution reductions, pursuing JVs, those sort of things. Are those things that you’re discussing or looking at, and then how may a lender be involved as you try to turn over all the stones, or is the plan just to be more methodical as you look to bring leverage down, and obviously we’re moving into a market with better commodities and you’ve talked about asset sales, that sort of thing. Just any color there. Thanks.

Wes Martin

Yes, this is Wes. I’ll give you a little color with respect to the asset side of things. I think right now we’re currently reviewing some alternatives with respect to some of our non-core, non-strategic assets. We’ve received a pretty significant amount of legitimate unsolicited interest from multiple parties on multiple asset fronts. So we think at this point in time, it’s prudent to run some of those opportunities to ground with the ultimate goal, as Joe had mentioned, of improving our balance sheet to sort of provide us with the flexibility to better take advantage of some of the opportunities if and when they arise.

So I think we are open to the concept with respect to some of our non-core/non-strategic assets, if you will, and we are currently pursuing those efforts in earnest. So I think with respect to that, that’s our focus right now. I think that’s our – particularly with respect to some of these assets that we’re looking at, our biggest bang for our buck in terms of how we get our leverage down and sort of get back to growth mode ultimately in the long run. So I’d say that’s our primary focus.

I’ll let Joe or Bob or Ruben address some of the capital issues or the capital structure issues with some of these preferred securities that are getting issued in some other opportunities on that front.

Joe McCreery

Yes, T.J., this is Joe. Good morning. I think that’s right. We have explored in earnest some of the preferred securities that have been issued by other MLPs, and I think to some extent that does resonate with us. Not to discount what Wes has just talked about and what he’s up to on the corporate development side with the potential divestitures, but certainly that’s something that we are considering closely an avenue for de-levering.

To your point about Alinda Capital Partners, we have reached out to them. There’s a chance that they could actually participate in an offering of that nature, and so those links and those dots have been connected. So it’s kind of an all strategy, if you will, all hands on deck, with respect to the de-levering efforts here, but through asset divestiture and/or hybrid security issuance, I think that’s where we ultimately will fall out.

Wes Martin

And if I could just make one more comment with respect to the preferred, I mean, when you look at the all-in returns that those investors are looking for, those are still, when you talk to those guys, those are still high teens, low 20s-type returns that they’re looking for. So from our perspective, again, back to the comment about bang for your buck, I think if you were to ask specifically what’s the better route, I think to the extent that some of these assets have more value to somebody else than they do us internally, that’s a better numbers game. But to Joe’s point, we understand that asset divestitures deals of that type aren’t always in your control, right? So we’re looking at addressing that through multiple fronts.

T.J. Schultz

Okay, great. Thanks. All very helpful.

Operator

Thank you. And our next question comes from Selman Akyol with Stifel. Your line is open.

Selman Akyol

Thank you. Just one quick one for me, because most things have been asked and answered. But you guys talked about sulfur services and you’re expecting a pretty good recovery in the second quarter, volumes increasing. Can you just go ahead and do a little bit more detail on why you’re expecting that?

Ruben Martin

Yes, so really two components. On the fertilizer side, we expect another strong quarter. I always like to think when you think about the fertilizer season, it really runs from January through June, and where do your sales fall relative to March 31, which for the fertilizer world is kind of an arbitrary date. And we had forecasted more in the first quarter than the second quarter, because the wet weather, that’s going to be – some of those sales are being pushed out and very high margin sales into Q2. That’s the fertilizer side of the equation.

On the sulfur side, a couple things. Really, on the West Coast in the San Francisco Bay Area refineries, there were multiple refineries that were down for turnarounds. So our volumes on the West Coast that roll through Stockton that are prilled, they ultimately go to Asia because the volume was down so much there were no sales on that front.

And then secondly, because the Margaret Sue was down in turnaround for Q1 and it came out of the shipyard April 15th, we were not able to move significant volume to the Tampa market, and so obviously we’ll be able to do that in Q2. So really, a combination of strategic assets on the marine side, and also sulfur turnarounds, both on the Gulf Coast and the San Francisco Bay Area impacted our refinery byproduct sulfur business.

And just one addition. The price of sulfur, you may or may not know, it changes quarterly. It’s not like crude oil, changing hourly or daily. Sulfur changes prices once a quarter, and the sulfur price fell $25 a ton effective April 1. We believe our fertilizer business will benefit from that. What we’re seeing is the ability to keep most of that in our margins, so we think that’ll be additive to our cash flow as well.

Wes Martin

Yes. One other thing, too, with back to the fertilizer point, I think when we were doing our budgets toward the end of last year, I think, you know, as you guys might know, that business is somewhat dependent upon corn acreage planted. And some of the most recent numbers that have come out from the USDA have shown a significant increase relative to what the expected corn acreage was late last year. I think it was, we had budgeted $90 million, I think, on a U.S. basis, and I think they’re talking about $93 million to $94 million currently. So we continue to see some positive fundamentals from the corn acreage side of things.

Selman Akyol

Okay, great. Thanks.

Operator

Thank you. And our next question comes from Charles Marshall with Capital One. Your line is open.

Charles Marshall

Hey, good morning, everyone.

Bob Bondurant

Good morning, Charles.

Charles Marshall

I just want to reconfirm here, given – in light of the weaker than expected cash flows from West Texas LPG Pipeline, it seems like at least you’re reiterating or not changing your guidance, if you will, for adjusted EBITDA for the year. Is that correct? And if so, where are you seeing marginal improvements to keep your $184 million flat for the year?

Joe McCreery

Yes, I think with that one specifically, we would be changing our guidance, Chuck, just because of the fact that we’ve talked about. It’s, you know, $5 million or $6 million of cash flow off the 14-4 that we gave guidance to. That West Texas LPG is probably in limbo, at least in the near term, until we get some resolution out of Texas Railroad Commission. So I think you can adjust your forecast accordingly on that basis.

Ruben Martin

I was going to say, but even though that’s the case in the short run, in the long run, we do believe and we have firmly committed to this, is that we will ultimately achieve the higher rates and retroactively be able to collect it. So we will have, in the Q2 and Q3, impacted, but depending upon when the Railroad Commission rules after October 19th hearing, we believe there’s a strong possibility of collecting that back. So I want you to think about that as you model.

Charles Marshall

Great, guys. That’s it for me. Thank you.

Operator

And I’m showing no further questions. I would now like to turn the call back to Ruben Martin for any further remarks.

Ruben Martin

Thank you. You know, I think that everybody needs to look at, too, that our maintenance CapEx, we experienced higher than normal in the first quarter, but it should be normalized for the rest of the year, and it was around 40% I believe is the total. Q2, we should benefit from the delayed fertilizer application.

We’re getting very good interruptible at Cardinal for our pipeline connections and so forth that are creating revenue and income there. And again, we didn’t give any GP support for our LP distributions. It wouldn’t have taken very much to put us at a one-to-one this time. And so, we feel very comfortable with the cash flows and the coverages here. You know, until we can get some direction on West Texas LPG, which is we – there’s all kinds of filings and things going on right now, so we should get a little bit more transparency on that in the next few weeks.

So with that, I want to thank everybody. Thanks, everybody, for their support and dialing in. We appreciate it.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone have a great day.

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