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Transmontaigne Partners L.P. (NYSE:TLP)

Q3 2012 Earnings Call

November 06, 2012 11:00 am ET

Executives

Charles L. Dunlap - Chief Executive Officer of TransMontaigne GP LLC, Chief Executive Officer of TransMontaigne Inc and President of TransMontaigne Inc

Frederick W. Boutin - Chief Financial Officer of Transmontaigne Gp L L C - Gp, Executive Vice President of Transmontaigne Gp L L C - Gp and Treasurer of Transmontaigne Gp L L C - Gp

Analysts

James Jampel

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the TransMontaigne Partners Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Chief Executive Officer, Mr. Chuck Dunlap. Please go ahead.

Charles L. Dunlap

Thank you, Greg. Good morning, and welcome, everyone, to TransMontaigne's Third Quarter Earnings Call. It's a lovely day here in Denver, and we have completed another solid performance. We had another good quarter. Our distributable cash flow was $15.3 million compared to $13.1 million for the quarter ended in September 30, 2011. Our operating income for the quarter was $10.7 million compared to $8.7 million for the prior year's quarter. Our revenues were the highest of any of the 2012 quarterly periods, coming in at $38.9 million compared to $37.1 million, and this was largely due to increases in the Gulf Coast, Midwest and Brownsville regions. I'd focus on the Midwest because we benefited by the 1 million barrels of storage that was completed at Cushing and is now in full operation.

Our operating expenses came in slightly under the previous year's third quarter at $16.2 million. We expect our fourth quarter operating efforts -- operating expenses to be a little bit higher, but we do also expect the full year expenses to come in within budget. Fred's going to give you a little bit more detail and color regarding our operating expenses.

The EBITDA for the quarter just ended with $18.1 million compared to $16.4 million for the 2011 third quarter. As a result of our quarterly net earnings -- as a result, our quarterly net earnings increased to $9.9 million from $7.7 million of net earnings per unit for the third quarter. And the per-unit earnings increased to $0.59 per unit from $0.46 per unit due to the increases in our operating income, which I previously discussed.

We're also moving forward with butane blending projects at our Collins, Mississippi terminal and our Brownsville terminal. This will result in increased revenues and increased accretion to our earnings. We're also continuing the due diligence process on the Houston Ship Channel terminal project, which we refer to as the BOSTCO project, regarding the exercise of our purchase option. At this point, we can't predict whether we'll be able to exercise or sell our option, but we remain very hopeful.

So with those comments, I will give Fred the opportunity to get into the results of operations. Fred?

Frederick W. Boutin

As Chuck said, this quarter's distributable cash flow was $15.3 million compared to $13.1 million for the year-ago quarter, and this quarter's operating income was $10.7 million compared to $8.6 million for the year-ago quarter. The significant items impacting these comparisons include the following. We have revenue increases in our Gulf Coast, Midwest, River and Brownsville terminals that were reduced by small revenue decrease at our Southeast terminals. Overall, our revenue increased from $37.1 million to $38.9 million. Approximately $700,000 of this increase is attributable to the new tanks at our Cushing facility. Additionally, we had slightly higher product gain income and higher management fee income.

Second, direct operating costs and expenses were $16.2 million compared to $16.5 million in the year-ago quarter, due primarily to the timing of repairs and maintenance. We tried to perform our repairs and maintenance as ratably throughout the year as possible, but it is common for us to spend more in the second half of the year. We do expect our repairs and maintenance expenditures to be higher in the fourth quarter of 2012. Overall, we expect our repairs and maintenance for 2012 to be slightly higher than they were in 2011.

Third, our maintenance capital expenditures for the quarter were $1.3 million compared to $1.5 million in the year-ago quarter.

Next, I would like to call your attention to the disclosure we have in our press release regarding our firmly committed revenue. Year-to-date, approximately 75% of our total revenue was firmly committed, and approximately 86% of that firmly committed revenue was attributable to contracts with the remaining terms of 1 year or more.

A brief note on our liquidity now. Our credit facility, which matures in March 2016, provides for maximum borrowing line of credit equal to $250 million, and we do have a $100 million accordion feature to that credit facility. At September 30, we had outstanding balances of $102 million and a leverage ratio, redefined as our debt divided by EBITDA, of about 1.4x. So we had very low leverage. At September 30, we had approved expansion projects with the remaining capital expenditures of approximately $3 million to $5 million. So we have about $150 million of liquidity, and we only have about $3 million to $5 million of commitments.

Attachment B to the press release includes our computation of the distributable cash flow that we generated during the quarter. We used this as a measure of how we are performing relative to our quarterly distribution. During the quarter, we generated $15.3 million of distributable cash flow, which was an increase of $2.2 million compared to the third quarter of last year. We paid the distribution for the quarter of $0.64 per limited partner unit, which was an increase of $0.02 over the distribution we paid for the third quarter of last year. Together with the distribution paid to our general partner, we distributed approximately $10.6 million for the quarter. We generated distributable cash flow in excess of our distribution of approximately $4.7 million or 45%.

Greg, at this point, we'd like to see if there are any questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of James Jampel from HITE.

James Jampel

On the BOSTCO option, is that something that you guys are actively marketing to sell? Or how do the process work to find a buyer for that?

Charles L. Dunlap

James, that's a good question. We're really focusing more on the due diligence process of tracking the day-to-day construction progress so that our first objective being to reenter the project as a partner, and we'll be in a position to be able to do that very quickly. The secondary or fallback option is that for some reason we can't reenter the project, then we would look to find a buyer for the option. And we have potential candidates for that, but that's not really our first objective. Our first objective is to get back into the project as a partner and participate for the long term.

James Jampel

And what drives your ability to do that?

Charles L. Dunlap

We're -- ultimately, the decision of Morgan Stanley permit us to reenter the project.

James Jampel

I see. So would it have been fair to say that there's little risk that it would -- that the value of the option would be 0?

Charles L. Dunlap

Yes.

Operator

Your next question comes from the line of James Tools [ph], a private investor.

Unknown Attendee

Yes, since your distributable cash flow is in excess of your dividend payments, are you anticipating increasing dividends in the future?

Frederick W. Boutin

We do think we'll be able to raise the distribution in the future, but we've maintained a fairly large distribution cushion primarily because we do expect someday to issue some senior notes which would be at a much higher interest rate than what we're paying on our bank debt today. And we also think that as a relatively small MLP, that we -- that it's prudent to maintain some extra cushion in our distribution that we pay.

Unknown Attendee

Would that mean also that perhaps you're thinking of doing an equity offering instead of a debt offering?

Frederick W. Boutin

Well, that depends on how the future plays out. Today, we have very little debt on a relative basis. So if we're able to get back into the BOSTCO project that Chuck just spoke of, then we would be initially incurring quite a bit of debt in order to finance that and, in all likelihood, would do an equity offering at some point. If on the other hand we're not able to get back into the BOSTCO project, but we actually sold the BOSTCO option, then we would be realizing some cash there and we'd actually pay down our debt, so we would not have any need to do an equity offering in the near term in that case.

Unknown Attendee

When will like that, the BOSTCO option, take place?

Frederick W. Boutin

I think we're going to know -- well, the BOSTCO option only goes through January 20, as that expires on January 20, 2013. So, it will play out one way or another before then.

Operator

[Operator Instructions] And at this time, there are no further questions. Ladies and gentlemen, this conference will be available for replay after 1:00 p.m. Eastern Time today through November 13. You may access the AT&T TeleConference replay system at any time by dialing 1 (800) 475-6701 and entering the access code 270089. That does conclude your conference for today. Thank you for your participation and for using the AT&T Executive TeleConference. You may now disconnect.

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