Martin Midstream Partners(MMLP) - 2023 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements Q1 2023 saw a $5.1 million net loss, down from $11.5 million net income, due to lower revenues and debt extinguishment Consolidated and Condensed Balance Sheets | | March 31, 2023 (Unaudited, in thousands) | December 31, 2022 (Audited, in thousands) | | :--- | :--- | :--- | | Total current assets | $161,872 | $211,127 | | Total assets | $542,875 | $598,851 | | Total current liabilities | $95,664 | $110,925 | | Long-term debt, net | $475,237 | $512,871 | | Total liabilities | $607,552 | $658,296 | | Total partners' capital (deficit) | $(64,677) | $(59,445) | - Total assets decreased from $598.9 million at the end of 2022 to $542.9 million as of March 31, 2023, driven by a decrease in current assets, particularly inventories which fell from $109.8 million to $76.6 million[15] Consolidated and Condensed Statements of Operations | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total revenues | $244,529 | $279,201 | | Operating income (loss) | $17,505 | $25,449 | | Net income (loss) | $(5,086) | $11,478 | | Limited partners' interest in net income (loss) | $(4,968) | $11,219 | | Net income (loss) per unit - basic & diluted | $(0.13) | $0.29 | - The company reported a net loss of $5.1 million for Q1 2023, compared to a net income of $11.5 million in Q1 2022. The decline was driven by lower total revenues (down to $244.5 million from $279.2 million) and a $5.1 million loss on extinguishment of debt[17] Consolidated and Condensed Statements of Cash Flows | Cash Flow Activity | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $49,264 | $28,375 | | Net cash used in investing activities | $(4,218) | $(11,354) | | Net cash used in financing activities | $(45,034) | $(16,761) | - Net cash from operating activities increased to $49.3 million in Q1 2023 from $28.4 million in Q1 2022, primarily due to a significant positive change in inventories. Net cash used in financing activities increased substantially to $45.0 million due to debt refinancing activities, including $13.6 million in debt issuance costs[26] Notes to Consolidated and Condensed Financial Statements Key notes detail a $400 million debt refinancing, segment reorganization, and a $0.005 per unit cash distribution - On February 8, 2023, the Partnership issued $400 million in 11.500% senior secured second lien notes due 2028. The proceeds were used to repurchase its 2024 and 2025 notes, resulting in a $5.1 million loss on debt extinguishment[43] - Effective January 1, 2023, the Partnership reorganized its segments. The underground NGL storage division was moved to the Terminalling and Storage segment, and the packaged lubricants and grease businesses were moved to the Specialty Products segment. Prior period information has been revised to reflect these changes[107] - On April 19, 2023, the Partnership declared a quarterly cash distribution of $0.005 per common unit for the first quarter of 2023, payable on May 15, 2023[123] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Operating income declined to $17.5 million due to segment performance, alongside debt refinancing and strategic business changes Significant Recent Developments - In February 2023, the company refinanced its debt by issuing $400 million of 2028 Notes, using the proceeds to tender for and redeem its 2024 and 2025 notes and extend its credit facility maturity to 2027[129] - The company announced its planned exit from the butane optimization business, expected to conclude in the second quarter of 2023[130] - The company entered a joint venture, DSM Semichem LLC, to produce electronic level sulfuric acid (ELSA), with an expected capital expenditure of approximately $20.0 million in 2023 and 2024[131] Non-GAAP Financial Measures | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :--- | :--- | :--- | | Net income (loss) | $(5,086) | $11,478 | | EBITDA | $25,307 | $39,934 | | Adjusted EBITDA | $21,735 | $39,954 | | Distributable cash flow | $9,460 | $15,160 | | Adjusted free cash flow | $8,697 | $12,000 | Results of Operations by Segment Overall operating income decreased to $17.5 million, with mixed segment performance driven by commodity price impacts | Segment | Operating Income (Loss) Q1 2023 (in thousands) | Operating Income (Loss) Q1 2022 (in thousands) | | :--- | :--- | :--- | | Terminalling and storage | $3,108 | $(112) | | Transportation | $9,442 | $6,982 | | Sulfur services | $4,553 | $12,652 | | Specialty products | $4,600 | $10,049 | Liquidity and Capital Resources The company held $0.05 million cash and $39.6 million effective borrowing capacity after a major debt refinancing - As of March 31, 2023, the company had $100.0 million outstanding under its $200.0 million credit facility, with an available borrowing capacity of $80.8 million. Factoring in financial covenants, the actual borrowing ability was approximately $39.6 million[188][202] - The credit facility was amended on February 8, 2023, reducing commitments to $200.0 million (with scheduled step-downs) and extending the maturity to February 8, 2027[189] | Type of Obligation | Total Obligation (in thousands) | | :--- | :--- | | Credit facility | $100,000 | | 11.5% senior secured notes, due 2028 | $400,000 | | Operating leases | $47,113 | | Interest payable on fixed long-term debt | $223,426 | | Total contractual cash obligations | $770,542 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces commodity and interest rate risks; a 100 basis point rate increase would raise annual interest expense by $1.0 million - The company has no outstanding commodity hedging positions as of March 31, 2023[211] - The company is exposed to interest rate risk on its credit facility. A 100 basis point increase in interest rates would result in an approximate $1.0 million annual increase in interest expense based on debt levels at March 31, 2023[213] Item 4. Controls and Procedures Management confirmed effective disclosure controls and procedures, with no material changes to internal controls during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[216] - No material changes to internal controls over financial reporting occurred during the first quarter of 2023[217] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ongoing legal proceedings, including a customer dispute over defense and indemnity obligations - The company is involved in ongoing litigation with a customer from its lubricants packaging business regarding defense and indemnity obligations. The trial is expected in 2024, and the ultimate exposure, if any, is currently indeterminable[111][112] Item 1A. Risk Factors No material changes to the company's risk factors were reported since the prior annual filing - No material changes to the company's risk factors were reported for the period[220] Item 6. Exhibits This section incorporates by reference the Index to Exhibits, detailing all documents filed as part of the quarterly report - The report includes various exhibits, such as organizational documents, debt agreements, and officer certifications, as detailed in the Index to Exhibits[221][223]