PBF Logistics LP (PBFX) Q2 2018 Results - Earnings Call Transcript

|
About: PBF Logistics LP (PBFX)
by: SA Transcripts

PBF Logistics LP. (NYSE:PBFX) Q2 2018 Results Earnings Conference Call August 2, 2018 11:00 AM ET

Executives

Colin Murray - Investor Relations

Matt Lucey - Executive Vice President

Erik Young - Chief Financial Officer

Analysts

Justin Jenkins - Raymond James

Ryan Levine - Citi

Operator

Welcome to the PBF Logistics Second Quarter 2018 Earnings Conference Call and Webcast. At this time all participants have been placed in a listen-only mode and the floor will be open for your questions following management’s prepared remarks [Operator Instructions] And this call may be recorded. It is now my pleasure to turn the floor over to Colin Murray of Investor Relations. Sir, you may begin.

Colin Murray

Thank you, Erica. Good morning, and welcome to today’s call. With me today are Matt Lucey, Executive Vice President; Erik Young, our CFO; and several other members of the partnership senior management team. If you’d like a copy of our earnings release, it is available on our website.

Before we begin, I’d like to direct your attention to the forward-looking statement disclaimer contained in today’s press release. In summary, it outlines the statements in the press release and on this conference call that state the partnerships or management’s expectations or predictions of the future are forward-looking statements intended to be covered by the Safe Harbor provisions under Federal Securities Laws. There are many factors that could cause actual results to differ from our expectations including those we've described in our filings with the SEC.

As noted in our press release, we will be using certain non-GAAP measures while describing the partnership’s operating performance and financial results. For reconciliations of non-GAAP measures to the appropriate GAAP figure, please refer to the supplemental tables provided in today’s press release.

I’ll now turn the call over to Matt.

Matt Lucey

Thanks, Colin. Good morning, everyone, and thank you for joining us on the call. Before Erik provides information on our earnings, I would like to recap our recent acquisition announcements and growth we expect to achieve as we progress towards our run-rate EBITDA in the coming years.

In February, we announced a multiyear organic growth initiative that is expected to add $100 million of EBITDA over the next four years. While we have started to deliver on this growth pipeline, we continue to develop new organic projects and are more than comfortable that we will deliver as stated.

In April, we acquired the Knoxville Terminals and announced multiple organic projects, which closed this week. In July, we announced the pending acquisition of the East Coast Storage Assets, formally known as Axeon Specialty Products, which is subject to HSR deal that is expected to close in the fourth quarter. In total, the announced transactions are expected to generate run-rate EBITDA of $34 million for a total cost of approximately $243 million. The run-rate EBITDA growth is staged in and will be achieved over the next few years as we progress through certain projects and opportunities around each of the transactions.

For 2018, we expect our EBITDA to increase to $155 million to $160 million for the year as we indicated in our May Investor Presentation. In 2019, we expect to add the East Coast Storage Assets, complete projects at the Knoxville Terminals and the full year of drop-downs should generate an incremental $10 million to $15 million. In 2020, the project work will be complete and EBITDA should increase by another $5 million. Beginning in 2021, we expect to achieve full run-rate EBITDA of $34 million, assuming all transactions are consummated and projects are completed as planned.

These initial steps towards executing the multiyear growth plan announced earlier this year are very meaningful to the partnership. We are executing on our announced growth strategy. These two growth packages delivered $34 million of run rate EBITDA at 7.1 times EBITDA -- at a 7.1 times EBITDA multiple, which is good accretive growth to DCF per unit.

Importantly, we have demonstrated our continued ability and commitment to growing the partnership for the benefit of our unitholders. Our sponsor remains supportive, and we have introduced new partners to further the growth of PBF Logistics. In a challenging equity environment, the - financing supports our belief that equity capital is available to fund attractive transactions that generate strong returns for the partnership.

With that, I’ll turn it over to Erik.

Erik Young

Thank you, Matt. This morning, we reported second quarter net income attributable to the limited partners of $16.7 million or $0.39 per common unit, which is net of IDRs and includes the impact of the recent common unit issuances. Partnership EBITDA was $36.1 million, including $2.6 million or $0.07 per common unit of expenses related to stock based compensation and acquisitions, resulting in adjusted EBITDA of $38.7 million. Revenue for the quarter was $67.4 million. And total expenses were $32.5 million including operating and maintenance expense, G&A and depreciation and amortization. Interest expense and financing costs totaled approximately $10.4 million.

During the quarter, we spent approximately $700,000 in maintenance CapEx and approximately $58.8 million related to the acquisition of the Knoxville Terminals and associated growth projects. As a result, we generated $28.1 million of cash available for distribution which represents a quarterly coverage ratio of approximately 1.07 times. Excluding the effects of the July common unit issuances, pro forma coverage was 1.15 times. During the second quarter, we unloaded approximately 75,000 barrels per day at our East Coast rail facilities. Given the current market outlook, our sponsor expects to increase utilization, and we are targeting rail unloading above that level in the third quarter.

We ended the quarter with approximately $291.7 million in liquidity, including $19.7 million of cash and approximately $272 million of availability under our revolving credit facility. As announced today in our press release, we have successfully upsized our credit facility to $500 million. The upsized facility when combined with the recent $35 million common unit issuance increases our total liquidity to approximately $450 million. I’d like to thank our lending syndicate for their continued support of the partnership and our future growth.

Lastly, we are pleased to announce our 15th consecutive distribution increase to $0.495 per unit per quarter. This represents a 65% increase to our minimum quarterly distribution. Operator, we’ve concluded our opening remarks. And now we’ll open the call for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And we’ll go first to Justin Jenkins from Raymond James. Please go ahead

Justin Jenkins

Great. Thanks. Good morning guys. I guess, starting on the growth front. It’s great to see the recent announcements and appreciate all the additional color. But with the focus of the parent seemingly shifting to optimizing Chalmette, I know it’s mostly refinery operations. But is there anything incremental that the MLP can do to help Chalmette beyond what we’ve seen already?

Matt Lucey

Yes, and we’re evaluating. We have nothing to announce. But quite frankly, there are birds on the ground, both big and small. And we -- that's how we're going to successfully grow, is working with our parent, sort of a integrated strategy. And where there is opportunities for PBFX to use its capital because it creates a - we can create a stable cash flow stream. We’ll look to employ the partnership. And so absolutely, I expect opportunities to bear out of this sort of renewed focus on Chalmette.

Justin Jenkins

Perfect. Appreciate that, Matt. And with IMO 2020, such a big topic in refining, is the opportunity -- or maybe potential uplift related to logistics opportunities on that front, is that incorporated into the guidance given for the recent East Coast asset acquisition? Or is there any other color on that front you can give?

Matt Lucey

Well, I think the import of those assets increase in a post MARPOL world. There is – it’s a facility with 4 million barrels of storage, 1 million of which is dedicated to asphalt storage and long-term contracts. And you have 3 million barrels of storage that a good bid is heeded. We would probably expect to incrementally heed some more tanks. I think 1 million barrels of the existing 3 million barrels is heeded. We would increase that, and it would have the ability to handle high sulfur fuel oil, any and a number of projects. So I do think IMO is going to certainly play a part in the East Coast Storage Assets.

Justin Jenkins

Perfect. And last one for me, if I could. We’ve got another simplification transaction in midstream today. Just curious what your latest thoughts on the current structure of PBFX is and how that could evolve, if at all.

Matt Lucey

Well, we continue to grow the partnership, and we continue to pay attention to the market. And we consider ourselves not only people but a company of the market. And so we have nothing to announce. But we evaluate it, and we are constantly looking at it.

Operator

Thank you [Operator Instructions] And we will go next to Ryan Levine from Citi. Please go ahead.

Ryan Levine

Good morning. Just wondering if you could update us on your thoughts around equity advancing strategy in light of the recent deal. Are you more willing to approach the equity capital markets through private placements or public offering? Or are you still evaluating a host of alternatives?

Matt Lucey

My answer - I’ll turn it over to Erik, but my answer is yes to all of the above. Good transactions. I think we have capital to finance somewhat. It may not be, it may be nontraditional, but we’ll explore any and all possibilities. But Erik, do you want to...

Erik Young

I think the only thing I really have to add is that we need to be creative. We’ve said that now for the better part of two years in terms of how we’re financing these transactions. The regular way equity market still seems to be a bit sideways. And at least what our investment banking partners are telling us, it doesn’t feel like the right time to kind of wade in. This most recent equity transaction was a negotiated deal between two parties. And to follow on Matt’s comments, there’s definitely the possibility we do more of those in the future. But ultimately, we think that reasonable people will follow good transactions. And as long as we continue to execute on those and we can be nimble in the markets, we’ll try to navigate what appears to be continues to be very, very choppy waters.

Ryan Levine

In your plan for the next 12 months, is there any anticipated future capital needs to execute on what you've laid out in your plan?

Matt Lucey

Outside capital needs?

Ryan Levine

Yes.

Matt Lucey

No.

Ryan Levine

Okay. And then regarding your recent East Coast Storage acquisition, in your press release, you highlighted some synergies opportunities. Well, can you further elaborate on what that is? I assume it’s related to IMO. But what’s contemplated in the base plan? And then some of the issues that you highlighted in the previous question, will that all be added upside?

Matt Lucey

Yeah. I mean, I think it’s a terminal asset. So the upside is somewhat limited because we’re not taking on commodity or position risks. But as I said, the import of those assets goes up in a post-2020 world. So it’s a facility that is obviously very close proximity to our other terminal in Paulsboro. It’s a couple of miles away. It obviously has very close proximity to the PBS refinery in Paulsboro as well as PBS Delaware City refinery 30 miles down the river in Delaware. So there’s going to be, I think, opportunities in the future to potentially work with the parent. And it’s a storage facility that can handle a lot has warming capabilities, has deep water, has access to rail. So I think there is going to be plenty of opportunities to optimize not only that facility but that facility along with our other facilities within PBFX and then working with PBF.

Ryan Levine

Okay. And then in previous quarters, you’ve provided some update around various organic growth opportunities that you’re pursuing across your footprint. Is there any updated color that you may be able to provide as those projects progress?

Matt Lucey

Yeah. No, look, we’ve got an active team. And I know we spent a good bit of time talking about, I guess, which is six months ago back in February, where we laid out where our focus is. And it continues to be our focus on projects, where it’s not simply a transfer of EBITDA or a transfer of money, it is developing projects that grow EBITDA for not only our partnership but for our sponsor. We continue to develop those projects. We’ve executed on some of them. And like I said in my comments, we stand behind our ability to deliver on what we’ve said. In fact, I would argue it’s probably conservative. But at this point, we’re three months in or six months in since our announcement and our disclosure around it, and so we’re right on track.

Ryan Levine

Are there any areas that are more focused today than they may have been six months ago?

Matt Lucey

No. I mean, I do think the opportunities like this in California are plentiful. I mentioned earlier on our PBF call, there's a fair amount of work being done down in Chalmette, so I do think there’ll be opportunities there. But it goes across our system, and we’ve got a dedicated team, and that team works very closely with our sponsor and to develop projects. So it's a system that's working pretty well and one that we're excited about.

Operator

And at this time, I'd like to turn it back over to Matt Lucey for closing comments.

Matt Lucey

Well, I appreciate you listening today and your continued support in the company. We look forward to talking again next quarter. Have a good day.

Operator

We'd like to thank everybody for their participation on today's conference call. Please feel free to disconnect your line at any time, and have a good day.