Martin Midstream Partners(MMLP) - 2020 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements The Partnership achieved net income of $8.8 million in Q1 2020, facing asset declines and debt reclassification that raise going concern issues Consolidated and Condensed Balance Sheets Balance Sheet Summary (in thousands) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $127,469 | $181,364 | | Total Assets | $612,199 | $667,156 | | Total Current Liabilities | $448,914 | $107,280 | | Long-term Debt, net | $165,543 | $569,788 | | Total Liabilities | $641,700 | $703,352 | | Total Partners' Capital (Deficit) | $(29,501) | $(36,196) | - Total current liabilities increased significantly from $107.3 million to $448.9 million, primarily due to the reclassification of long-term debt maturing in February 2021[14][54] Consolidated and Condensed Statements of Operations Statement of Operations Summary (in thousands, except per unit amounts) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Total Revenues | $198,883 | $240,033 | | Operating Income | $15,600 | $9,606 | | Net Income (Loss) | $8,815 | $(3,656) | | Limited Partners' Interest in Net Income (Loss) | $8,584 | $(3,581) | | Net Income (Loss) per Unit - Basic | $0.22 | $(0.09) | - The Partnership reported a net income of $8.8 million in Q1 2020, compared to a net loss of $3.7 million in Q1 2019, despite a 17% decrease in total revenues. The improvement was driven by lower cost of products sold and a $3.5 million gain on the retirement of senior unsecured notes[17] Consolidated and Condensed Statements of Cash Flows Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $44,889 | $40,603 | | Net Cash used in Investing Activities | $(6,295) | $(33,946) | | Net Cash used in Financing Activities | $(41,382) | $(6,730) | | Net Decrease in Cash | $(2,788) | $(73) | - Cash from operations increased to $44.9 million from $40.6 million YoY. Cash used in investing activities decreased significantly due to the absence of acquisitions in Q1 2020, which amounted to $23.7 million in Q1 2019. Cash used in financing increased due to higher net payments of long-term debt[28][202][203] Notes to Consolidated and Condensed Financial Statements - The COVID-19 pandemic has impacted performance, leading to triggering events for impairment testing. This resulted in impairment charges of $4.4 million related to long-lived assets in Q1 2020[36][37] - The 7.25% senior unsecured notes due February 2021 have been reclassified as a current liability. The amended revolving credit facility's maturity accelerates to August 19, 2020, if these notes are not refinanced. This situation has raised substantial doubt about the Partnership's ability to continue as a going concern[57] - In March 2020, the Partnership repurchased $9.3 million of its 2021 Notes on the open market, resulting in a gain on retirement of $3.5 million[58] - On April 22, 2020, the Partnership declared a quarterly cash distribution of $0.0625 per common unit for Q1 2020[132] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the COVID-19 pandemic's adverse impact on demand, noting revenue declines but increased operating income, and reiterates critical liquidity challenges - The COVID-19 pandemic has negatively impacted performance starting in February 2020 and is expected to continue affecting results throughout the year due to reduced demand for refined products. The company anticipates downside risk in its packaged lubricant, land transportation, and butane optimization businesses[141][142] - The Partnership has been executing a strategy to strengthen its balance sheet by divesting non-core assets, resulting in a debt paydown of $300.5 million. Additionally, the annual cash distribution was reduced by $0.75 per unit, retaining $29.2 million annually to further support the balance sheet[147] Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net income (loss) | $8,815 | $(3,656) | | EBITDA from Continuing Operations | $34,326 | $24,510 | | Adjusted EBITDA from Continuing Operations | $31,044 | $25,619 | | Distributable Cash Flow from Continuing Operations | $18,297 | $4,753 | Results of Operations by Segment - Terminalling and Storage: Operating income fell to $1.0 million from $5.1 million YoY, primarily due to decreased throughput fees and an impairment charge of $3.1 million classified under 'Other operating income (loss), net'[176] - Transportation: Operating income decreased to $2.4 million from $3.5 million YoY, mainly due to lower land transportation freight revenue and higher depreciation expense[181][182] - Sulfur Services: Operating income surged to $11.3 million from $3.8 million YoY. This was driven by a $6.8 million increase in 'Other operating income, net', which included business interruption insurance recoveries and gains on asset dispositions, despite lower product revenues[187][191] - Natural Gas Liquids: Operating income increased significantly to $5.3 million from $1.7 million YoY. Although revenues fell 29% due to lower prices and volumes, cost of products sold decreased even more (33%), leading to an 83% increase in margin per barrel[192][193] Liquidity and Capital Resources - As of March 31, 2020, the Partnership had $0.1 million in cash and $46.2 million of available borrowing capacity under its revolving credit facility[224] - The revolving credit facility's maturity will accelerate from August 2023 to August 19, 2020, if the 2021 Senior Notes are not refinanced. Failure to refinance would result in a default[210][227] Contractual Cash Obligations as of March 31, 2020 (in thousands) | Type of Obligation | Total Obligation | Less than One Year | | :--- | :--- | :--- | | Revolving credit facility | $170,000 | $— | | 7.25% senior unsecured notes, due 2021 | $364,456 | $364,456 | | Operating leases | $30,668 | $9,519 | | Finance lease obligations | $5,640 | $5,114 | | Total contractual cash obligations | $603,774 | $409,284 | Quantitative and Qualitative Disclosures About Market Risk The Partnership faces commodity price and interest rate risks, with minimal hedges, where a 100 basis point rate increase would raise annual interest expense by approximately $1.7 million - The Partnership has hedging arrangements for NGLs with a gross notional quantity of 25,000 barrels settling in April 2020[234] - Based on unhedged floating rate debt as of March 31, 2020, a 100 basis point (1%) increase in interest rates would result in an approximate $1.7 million annual increase in interest expense[235] Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2020[238] - No material changes to internal controls over financial reporting occurred during the first quarter of 2020[239] PART II. OTHER INFORMATION Legal Proceedings The Partnership is involved in various ordinary course legal proceedings, including a specific dispute regarding customer indemnity, with no material adverse impact anticipated - The company is involved in a legal dispute with a customer in its lubricants packaging business regarding a demand for defense and indemnity. The ultimate exposure, if any, is currently indeterminable[118][120] Risk Factors A new material risk factor highlights the adverse impact of the COVID-19 pandemic on refined product demand, affecting operations, cash flows, and financial condition - A new material risk factor has been added regarding the adverse effects of the COVID-19 pandemic on the demand for refined products, which negatively impacts the company's operations, cash flows, and financial condition[244] Exhibits This section incorporates by reference the Index to Exhibits, listing all documents filed as part of the quarterly report