Valero Energy Partners LP (NYSE:VLP) Q3 2018 Earnings Conference Call October 25, 2018 3:00 PM ET
John Locke – Vice President, Investor Relations
Joe Gorder – Chairman and Chief Executive Officer
Donna Titzman – Executive Vice President and Chief Financial Officer
Jeremy Tonet – JPMorgan
Good day, ladies and gentlemen, and welcome to the Third Quarter 2018 Valero Energy Partners 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]
And I would now like to introduce your host for today’s call, Mr. John Locke. Sir, you may begin.
Good afternoon, and welcome to Valero Energy Partners’ third quarter 2018 earnings conference call. With me today are Joe Gorder, our Chairman and Chief Executive Officer; Rich Lashway, our President and Chief Operating Officer; Donna Titzman, our Executive Vice President and Chief Financial Officer; Jay Browning, our General Counsel; Mark Schmeltekopf, our Controller; and several members of the Partnership’s senior management team.
If you have not received the earnings release and would like a copy, you could find one on our website at valeroenergypartners.com. Also attached to the earnings release are tables that provide additional information on our business and reconciliations for non-GAAP financial measures. If you have any questions after reviewing the tables, please feel free to contact our Investor Relations team after the call.
Now I’d like to direct your attention to the forward-looking statement disclaimer contained in the press release. In summary, it says that statements in the press release and on this conference call that state the Partnership’s or management’s expectations or predictions of the future, including those related to the proposed merger with Valero, are forward-looking statements. Many factors could cause actual results to differ from our expectations, including those we described in our filings with the SEC.
Now I’ll turn the call over to Joe for opening remarks.
Thanks, John, and good afternoon, everyone. As you saw on last week’s announcement and heard on Valero’s earnings call this morning, Valero and the Partnership entered into an agreement to acquire all of the outstanding publicly held common units of the Partnership at a price of $42.25 per unit. The transaction will close as soon as possible after meeting customary closing conditions. Since we formed the Partnership in 2013, investors’ sentiment has shifted away from assigning a premium valuation to the high-distribution growth and equity-funded drop-down model to a model that favors slower distribution growth and self-funded organic growth.
During this transition in investor sentiment, Valero has been a supportive sponsor by providing subordinated loans and taking partnership equity for assets sold to VLP. All the while, cost-effective access to the MLP equity market deteriorated for drop-down MLPs, and the Partnership’s yield, historically among the lowest of its peers, has risen to over 6%. This is a long way from the Partnership’s 2.9% yield shortly after IPO. As we said on the past few earnings calls, the strength and support of our sponsor and the Partnership’s solid operations afforded VLP the luxury of being patient and prudent to the MLP volatility while remaining focused on consistent execution of our strategy.
As a result of this transition in MLP investor sentiment, Valero performed a strategic review and evaluated a wide range of options. Ultimately, Valero and the Partnership concluded that a merger would provide the best outcome for Valero shareholders and the Partnership’s unitholders. The merger offers unitholders a premium to average trading prices of VLP’s units and the immediate conversion of the Partnership’s equity to cash.
I’ll now hand the call over to Donna to discuss the third quarter results.
Thank you, Joe. Revenues were $141 million for the third quarter of 2018 compared to $109 million for the third quarter of 2017. Third quarter 2018 net income was $70 million, and EBITDA was $104 million. Net cash provided by operating activities was $89 million, and distributable cash flow was $88 million. We declared a total distribution of $56 million for the third quarter, resulting in a coverage ratio of 1.6 times.
The Partnership expects 2018 capital expenditures to be between $15 million and $20 million for expansion projects and between $15 million and $20 million for maintenance. Pipeline throughput volumes for the third quarter 2018 were 1.1 million barrels per day, and terminal throughput volumes were 3.8 million barrels per day.
At the end of the third quarter, we had $878 million of total liquidity, which includes $128 million of cash and cash equivalents and $750 million available under the revolver. Total debt was $1.3 billion. And our debt-to-EBITDA ratio was 3.3 times.
Last week, the Board of Directors of our general partner approved a cash distribution for the third quarter of $0.551 per unit, which is payable on November 9 to unitholders of record on November 1. This concludes our opening remarks. We’ll now open the call to questions.
Thank you. [Operator Instructions] And our first question comes from the line of Jeremy Tonet with JPMorgan. Your line is now open.
Just want to see, with the deal closing, it doesn’t seem like there’s anything that was holding you guys up or preventing you from closing at this point. Just kind of curious if you could walk us through what’s left in the time line, I guess, before this could be brought to conclusion.
Sure. So we have to file an information statement with the SEC, and we have no control over whether or not the SEC will choose to review and comment on that document. Obviously, VLP has been consolidated on VLO’s financials since its inception. We hope that, that fact actually makes this whole process a little simpler. But as I said, we have no control as to whether or not the SEC will choose to comment. So it’s a little bit out of our hands, but we are hoping to close as soon as possible.
Great. That’s all for me. Thank you for taking my question.
Thank you, Jeremy.
Thank you. And I’m showing no further questions at this time. And I’d like to return the call to Mr. John Locke for any – I apologize, a question has just joined the queue.
Yes. Thanks, Sandra. Listen, we appreciate everybody joining us today. Please give us a call and the IR team here at Valero Energy Partners if you have any additional questions. Thanks.
Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.