Genesis Energy(US:GEL)2022-10-26 16:00PART I. FINANCIAL INFORMATION Item 1. Financial Statements The financial statements for the period ended September 30, 2022, reflect increased revenues, a return to net income, and growth in total assets, with stable operating cash flow Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | September 30, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :--- | :--- | :--- | | Total current assets | 726,430 | 542,484 | | Net fixed assets | 4,020,324 | 3,912,185 | | TOTAL ASSETS | 6,169,539 | 5,905,801 | | Total current liabilities | 645,317 | 496,939 | | Total liabilities | 4,411,349 | 3,925,666 | | Total partners' capital | 866,281 | 930,452 | | TOTAL LIABILITIES, MEZZANINE CAPITAL AND PARTNERS' CAPITAL | 6,169,539 | 5,905,801 | Condensed Consolidated Statements of Operations Highlights (Unaudited) | Income Statement Item | Three Months Ended Sep 30, 2022 ($ thousands) | Three Months Ended Sep 30, 2021 ($ thousands) | Nine Months Ended Sep 30, 2022 ($ thousands) | Nine Months Ended Sep 30, 2021 ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | Total revenues | 721,248 | 518,821 | 2,074,920 | 1,543,895 | | OPERATING INCOME | 75,095 | 34,494 | 223,351 | 88,052 | | NET INCOME (LOSS) | 8,573 | (13,827) | 82,537 | (79,042) | | NET LOSS ATTRIBUTABLE TO COMMON UNITHOLDERS | (15,299) | (39,583) | (22,570) | (152,857) | | Basic and Diluted NET LOSS PER COMMON UNIT | $(0.12) | $(0.32) | $(0.18) | $(1.25) | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Cash Flow Item | Nine Months Ended Sep 30, 2022 ($ thousands) | Nine Months Ended Sep 30, 2021 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | 252,595 | 242,357 | | Net cash used in investing activities | (254,212) | (193,752) | | Net cash provided by (used in) financing activities | 1,110 | (60,127) | Note 1. Organization and Basis of Presentation and Consolidation - Genesis Energy, L.P. is a master limited partnership focused on midstream crude oil and natural gas services, as well as natural soda ash production, primarily operating in the U.S. Gulf Coast, Wyoming, and the Gulf of Mexico19 - The company manages its business through four reportable segments: Offshore pipeline transportation, Sodium minerals and sulfur services, Onshore facilities and transportation, and Marine transportation2023 Note 9. Debt Debt Obligations Summary | Debt Instrument | Net Value (Sep 30, 2022, $ thousands) | Net Value (Dec 31, 2021, $ thousands) | | :--- | :--- | :--- | | Senior secured credit facility | 120,200 | 49,000 | | Senior unsecured notes | 2,854,874 | 2,930,505 | | Alkali senior secured notes | 402,254 | — | | Total long-term debt | 3,377,328 | 2,979,505 | - In May 2022, the company issued $425 million of 5.875% senior secured notes due 2042 (Alkali senior secured notes), generating net proceeds of $408 million, with a portion used to redeem outstanding Alkali Holdings preferred units54 - During 2022, the company repurchased some of its senior unsecured notes on the open market, resulting in a cancellation of debt income of $8.6 million for the nine months ended September 30, 202258 Note 10. Partners' Capital, Mezzanine Capital and Distributions - A quarterly cash distribution of $0.15 per common unit was declared for Q3 2022, consistent with prior quarters62 - On May 17, 2022, the company fully redeemed all 251,750 outstanding Alkali Holdings preferred units for $288.6 million using proceeds from the new Alkali senior secured notes issuance72 - Holders of the Class A Convertible Preferred Units elected a one-time rate reset, increasing the annual distribution rate from 8.75% to 11.24%, effective for distributions declared for the quarter ending December 31, 202268 Note 12. Business Segment Information Segment Margin Performance (in thousands) | Segment | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Offshore pipeline transportation | $91,402 | $76,045 | | Sodium minerals & sulfur services | $80,067 | $39,649 | | Onshore facilities & transportation | $9,442 | $29,145 | | Marine transportation | $15,279 | $9,023 | | Total Segment Margin | $196,190 | $153,862 | Total Assets by Segment (in thousands) | Segment | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Offshore pipeline transportation | $2,214,924 | $2,103,140 | | Sodium minerals and sulfur services | $2,230,163 | $2,132,588 | | Onshore facilities and transportation | $974,464 | $923,064 | | Marine transportation | $692,303 | $703,030 | | Total consolidated assets | $6,169,539 | $5,905,801 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported significant financial improvement in Q3 2022, driven by increased Segment Margin and strategic debt issuance to enhance liquidity and fund growth projects Overview - Net Income Attributable to Genesis Energy, L.P. was $3.4 million in Q3 2022, a significant improvement from a Net Loss of $20.9 million in Q3 2021125 - The improvement was primarily driven by a $42.3 million (28%) increase in Segment Margin, which reached $196.2 million for the quarter126129 - Available Cash before Reserves increased by 92% to $92.6 million for Q3 2022 compared to the prior-year quarter128 Results of Operations Segment Margin Contribution (in thousands) | Segment | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Offshore pipeline transportation | $91,402 | $76,045 | | Sodium minerals and sulfur services | $80,067 | $39,649 | | Onshore facilities and transportation | $9,442 | $29,145 | | Marine transportation | $15,279 | $9,023 | | Total Segment Margin | $196,190 | $153,862 | - The Offshore Pipeline segment's margin increased 20% YoY, driven by new volumes from the King's Quay floating production system, which began operations in April 2022147148 - The Sodium Minerals and Sulfur Services segment's margin more than doubled (up 102% YoY) due to higher export pricing and volumes for soda ash amid strong global demand and tight supply152 - The Marine Transportation segment's margin grew 69% YoY, benefiting from higher utilization (inland barge utilization at 100%) and increased day rates165163 - The Onshore Facilities and Transportation segment's margin decreased 68% YoY, primarily because the prior-year period included $17.5 million in cash receipts from a previously owned asset and a one-time billing161 Liquidity and Capital Resources - As of September 30, 2022, the company had $525.3 million of available borrowing capacity under its revolving credit facility183 - In May 2022, the company issued $425 million of 5.875% Alkali senior secured notes, using the proceeds to redeem higher-cost preferred units (with an implied 12-13% rate) and repay borrowings, thereby lowering its cost of capital182 - The company is funding significant growth projects, including the Granger soda ash expansion (GOP) and the new SYNC offshore pipeline, with expected net capital expenditures of approximately $500 million over the next three years198199 Non-GAAP Financial Measures Available Cash before Reserves Reconciliation (in thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net income (loss) attributable to Genesis Energy, L.P. | $3,385 | $(20,899) | | Depreciation, depletion, amortization and accretion | $76,301 | $69,665 | | Plus (minus) Select Items, net | $45,583 | $24,309 | | Maintenance capital utilized | $(14,400) | $(13,500) | | Distributions to preferred unitholders | $(18,684) | $(18,684) | | Available Cash before Reserves | $92,595 | $48,209 | - The company uses non-GAAP measures like Available Cash before Reserves and Segment Margin to aid investors and management in assessing financial performance, operating performance, and the ability to make distributions215222 Item 3. Quantitative and Qualitative Disclosures about Market Risk The company reports no material changes to its market risk disclosures since its last Annual Report, with details on derivatives in Note 15 - There have been no material changes to the quantitative and qualitative disclosures about market risk since the company's Annual Report238 Item 4. Controls and Procedures Management identified a material weakness in internal control over financial reporting, with ongoing remediation efforts, concluding that disclosure controls are not yet effective, though financial statements are fairly presented - A material weakness in internal control over financial reporting was identified in Q2 2022, with remediation efforts implemented in Q3 2022, including additional review procedures and training239 - Due to the ongoing monitoring of remediation, management assessed that disclosure controls and procedures were not effective as of the end of the quarter240 - Despite the material weakness, management believes the consolidated financial statements fairly represent the company's financial condition and results of operations240 PART II. OTHER INFORMATION Item 1. Legal Proceedings No material developments in legal proceedings have occurred since the last Annual Report on Form 10-K - No material developments in legal proceedings have occurred since the filing of the Annual Report on Form 10-K for the year ended December 31, 2021244 Item 1A. Risk Factors The company reports no material changes to its risk factors as previously disclosed in its Annual Report on Form 10-K - There has been no material change in the company's risk factors from those disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021246 Item 4. Mine Safety Disclosures Mine safety disclosures for the Wyoming mines are provided in Exhibit 95 of the Form 10-Q - Mine safety disclosures for the Wyoming mines are included in Exhibit 95 to this Form 10-Q249