Genesis Energy, L.P. (NYSE:GEL) today announced its first
quarter results.
Certain highlights of our results for the quarter ended
March 31, 2017 included the following items:
- We reported the following results for
the first quarter of 2017 compared to the same quarter in 2016:
- Net Income Attributable to Genesis
Energy, L.P. of $27.1 million, or $0.23 per unit, for the first
quarter of 2017 compared to $35.3 million, or $0.32 per unit, for
the same period in 2016, representing a decrease of $8.2 million,
or 23%.
- Cash Flows from Operating Activities of
$64.6 million for the first quarter of 2017 compared to $41.1
million for the same period in 2016, representing an increase of
$23.5 million, or 57%.
- Available Cash before Reserves of $93.0
million in the first quarter of 2017, a decrease of $4.8 million
over the prior year quarter, or 5%, providing 1.05 coverage for our
quarterly distribution to unitholders attributable to that quarter,
which is discussed below. Absent the effect of the new units we
issued in the first quarter of 2017, Available Cash before Reserves
would have provided 1.10 coverage for our quarterly distribution to
unitholders attributable to that quarter.
- Adjusted EBITDA for the first quarter
of 2017 was $131.4 million, a decrease of $2.5 million, or 2%,
compared to the prior year quarter. Our Adjusted Debt to Pro Forma
EBITDA ratio is 5.25 as of March 31, 2017. These amounts are
calculated and further discussed later in this press release.
- On May 15, 2017, we will pay a
total quarterly distribution of $88.3 million based on our
quarterly declared distribution of $0.72 per unit attributable to
our financial and operational results for the first quarter of
2017. This represents an increase in our distribution for the
forty-seventh consecutive quarter.
Grant Sims, CEO of Genesis Energy, said, “While certain
headwinds persist, we are encouraged by the performance of our base
businesses some of which we feel are clearly bottoming and poised
to potentially deliver increased financial contributions in future
periods with little or no additional capital required. As expected,
even though we experienced certain delays, our growth projects are
starting to contribute meaningfully and should accelerate as we
reach full operational capability across our suite of projects. If
anything, based in part on actual first quarter activities as well
as nominated volumes for the second quarter, we have reason to
believe the ultimate performance of our investments will likely
exceed our original expectations.
We recently identified and contracted for approximately $100
million of bolt on type organic opportunities, with by far the
largest spend to be in and around our existing Baton Rouge corridor
footprint. The capital should be fully deployed and contributing to
financial results no later than the end of the first quarter of
2018. These incremental opportunities underpinned our decision to
raise $140 million of equity during the quarter in a bought deal.
We are in the process of finalizing other arrangements to fully
deploy the rest of the equity we did raise, and we continue to
identify and pursue acquisition or organic opportunities. We also
continue to evaluate sales of certain assets to third parties that
value them, for their own particular reasons, in excess of what we
do. We would ultimately expect sales potentially in the $50-$75
million range.
Finally, we are in the process of extending our revolving credit
agreement. As of today, we have executed commitments from existing
lenders in excess of those needed to extend our facility at its
current level into mid-2022. Additionally, we expect to have an
expanded debt covenant over the next year or so to enhance our
financial and opportunistic flexibility during this peak leverage
period where we have spent lots of money and just now are starting
to see the ramp up in the financial contribution from those
investments. We are working towards finalizing and closing the
extended facility in the very near future.”
Financial Results
Segment Margin
Beginning in the fourth quarter of 2016, we started reporting
our results on a comparative basis in four business segments. Due
to the increasingly integrated nature of our onshore operations,
the results of our onshore pipeline transportation segment,
formerly reported under its own segment, is now reported in our
supply and logistics segment.
Variances between the first quarter of 2017 (the “2017 Quarter”)
and the first quarter of 2016 (the “2016 Quarter”) in these
components are explained below.
Segment results for the 2017 Quarter and 2016 Quarter were as
follows:
Three Months Ended March 31, 2017
2016 (in thousands) Offshore pipeline transportation $
87,089 $ 78,618 Refinery services 17,496 21,199 Marine
transportation 12,963 18,916 Supply and logistics 21,097 26,148
Total Segment Margin $ 138,645 $ 144,881
Offshore pipeline transportation Segment Margin for the 2017
Quarter increased $8.5 million, or 11%, from the 2016 Quarter. The
increase was the result of new production primarily attributable to
2016 drilling activity which predominantly occurred near existing
infrastructure due to the attractive economics even in current
pricing conditions. Our extensive pipeline network benefited
ratably from this activity.
Refinery services Segment Margin for the 2017 Quarter decreased
$3.7 million, or 17%. The 2017 Quarter results include the effects
of commercial discussions with certain of our host refineries as
well as a large number of our NaHS customers, which resulted in
extending the term and tenor of our contractual relationships. This
includes the extension of our largest refinery services agreement
at our Westlake facility through 2026. We would expect the effects
of these discussions and reworked contractual relationships to
continue going forward.
Marine transportation Segment Margin for the 2017 Quarter
decreased $6.0 million, or 31%, from the 2016 Quarter. The decrease
in Segment Margin is primarily due to a combination of slightly
lower utilization and lower day rates on our inland fleet, as well
as lower day rates on our offshore fleet (which offset higher
utilization as adjusted for planned dry-docking time). This
excludes the M/T American Phoenix which is under long term contract
through September 2020. In our inland fleet, we experienced a
temporary drop in utilization in the first month in the 2017
Quarter resulting from a temporary decline in demand from one of
our major refinery customers; however we ended that quarter at
close to full utilization. We continue to see a strengthening in
utilization and stabilization in spot day rates, especially in the
black oil, or heavy intermediate refined products trade, the trade
to which we have almost exclusively committed our inland barges. In
addition, several of our inland units came off of higher rate term
contracts and were placed temporarily into spot service before
being placed into higher rate term service towards the end of the
2017 Quarter. In our offshore barge fleet, as a number of our units
have come off longer term contracts, we have continued to choose to
primarily place them in spot service or short-term (less than a
year) service, as we continue to believe the day rates currently
being offered by the market are at, or approaching, cyclical lows.
This includes one of our last legacy offshore contracts, which
expired and was re-priced into the spot market.
Supply and logistics Segment Margin decreased by $5.1 million,
or 19%, between the two quarters. This was primarily the result of
an indefinite reduction in the southward bound legacy
pipeline volumes to the Texas City refining market. Our
historical customers in Texas City made alternative arrangements to
receive crude oil as a result of our expansion and repurposing of
our facilities which were placed into service on May 1, 2017. These
decreases were partially offset by a ramp up in volumes associated
with our rail and other infrastructure included in our Baton Rouge
facilities during the 2017 Quarter. The decrease in Segment Margin
is also partially due to lower demand for our services in our
historical back-to-back, or buy/sell, crude oil marketing business
associated with aggregating and trucking crude oil from producers'
leases to local or regional re-sale points. We have found it
difficult to compete with certain participants in the market who
are willing to lose money on local gathering because they are
attempting to minimize their losses from minimum volume or
take-or-pay commitments they previously made in anticipation of new
production that has not yet and is unlikely to come online.
Other Components of Net Income
In the 2017 Quarter, we recorded Net Income Attributable to
Genesis Energy, L.P. of $27.1 million compared to $35.3 million in
the 2016 Quarter.
This decrease principally relates to an increase in depreciation
expense for assets placed into service (including those at our Port
of Baton Rouge Facility placed into service during 2016) and an
overall decrease in Segment Margin (as discussed in more detail
above).
Somewhat offsetting the above decreases in net income was a
decrease in general and administrative expenses, which was
primarily related to the $3.3 million in severance and
restructuring expenses we took during the 2016 Quarter. In
addition, net income for the 2016 Quarter included a $1.7 million
unrealized loss on derivative positions as compared to a $0.1
unrealized loss on derivative positions in the 2017 Quarter.
We have increased our quarterly distribution rate for the
forty-seventh consecutive quarter. Distributions attributable to
each quarter of 2017 and 2016, are as follows:
Per Unit Distribution For Date
Paid Amount
2017 1st Quarter May 15, 2017 $ 0.7200
2016 4th Quarter February 14, 2017 $ 0.7100 3rd Quarter
November 14, 2016 $ 0.7000 2nd Quarter August 12, 2016 $ 0.6900 1st
Quarter May 13, 2016 $ 0.6725
Earnings Conference Call
We will broadcast our Earnings Conference Call on Thursday,
May 4, 2017, at 8:30 a.m. Central time (9:30 a.m. Eastern
time). This call can be accessed at www.genesisenergy.com. Choose
the Investor Relations button. For those unable to attend the live
broadcast, a replay will be available beginning approximately one
hour after the event and remain available on our website for 30
days. There is no charge to access the event.
Genesis Energy, L.P. is a diversified midstream energy master
limited partnership headquartered in Houston, Texas. Genesis’
operations include offshore pipeline transportation, refinery
services, marine transportation and supply and logistics. Genesis’
operations are primarily located in Texas, Louisiana, Arkansas,
Mississippi, Alabama, Florida, Wyoming and the Gulf of Mexico.
GENESIS ENERGY, L.P. CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS - UNAUDITED
(in thousands, except per unit
amounts)
Three Months Ended March 31, 2017
2016
REVENUES $ 415,491 $ 378,414
COSTS AND
EXPENSES: Costs of sales and operating expenses 296,806 259,710
General and administrative expenses 9,976 12,221 Depreciation and
amortization 56,112 46,635
OPERATING INCOME
52,597 59,848 Equity in earnings of equity investees 11,335 10,717
Interest expense (36,739 ) (34,387 )
INCOME BEFORE INCOME
TAXES 27,193 36,178 Income tax expense (255 ) (1,001 )
NET
INCOME 26,938 35,177 Net loss attributable to noncontrolling
interests 152 126
NET INCOME ATTRIBUTABLE TO
GENESIS ENERGY, L.P. $ 27,090 $ 35,303
NET
INCOME PER COMMON UNIT: Basic and Diluted $ 0.23
$ 0.32
WEIGHTED AVERAGE OUTSTANDING COMMON
UNITS: Basic and Diluted 118,388 109,979
GENESIS ENERGY, L.P. OPERATING DATA - UNAUDITED
Three Months Ended March 31, 2017
2016
Offshore Pipeline Transportation Segment Crude
oil pipelines (barrels/day unless otherwise noted): CHOPS 238,111
196,873 Poseidon (1) 260,307 249,615 Odyssey (1) 114,617 107,789
GOPL 9,474 6,194 Offshore crude oil pipelines total
622,509 560,471 Natural gas transportation
volumes (MMbtus/d) (1) 571,023 603,407
Refinery Services
Segment NaHS (dry short tons sold) 34,529 31,806 NaOH (caustic
soda dry short tons sold) 16,407 18,762
Marine
Transportation Segment Inland Fleet Utilization Percentage (2)
90.1 % 95.0 % Offshore Fleet Utilization Percentage (2) 96.5 % 85.4
%
Supply and Logistics Segment Crude oil pipelines
(barrels/day): Texas 7,914 73,358 Jay 15,305 13,773 Mississippi
8,818 11,614 Louisiana (3) 82,632 29,525 Wyoming 16,546
7,192 Onshore crude oil pipelines total 131,215
135,462 Free State- CO2 Pipeline (Mcf/day) 90,942
131,625 Crude oil and petroleum products sales (barrels/day)
47,065 69,982 Rail load/unload volumes (barrels/day) (4)
53,573 21,209 (1) Volumes for our equity method
investees are presented on a 100% basis. (2) Utilization rates are
based on a 365 day year, as adjusted for planned downtime and
dry-docking. (3) Total daily volume for the three months ended
March 31, 2017 includes 32,061 barrels per day of intermediate
refined products associated with our new Port of Baton Rouge
Terminal pipelines which became operational in the fourth quarter
of 2016. (4) Indicates total barrels for which fees were charged
for either loading or unloading at all rail facilities.
GENESIS ENERGY, L.P. CONDENSED CONSOLIDATED BALANCE
SHEETS - UNAUDITED
(in thousands, except number of units)
March 31, December 31, 2017 2016
ASSETS Cash and cash equivalents $ 10,773 $ 7,029 Accounts
receivable - trade, net 214,866 224,682 Inventories 92,578 98,587
Other current assets 34,351 29,271
Total current
assets 352,568 359,569 Fixed assets, net 4,222,769 4,214,864
Investment in direct financing leases, net 131,034 132,859 Equity
investees 399,466 408,756 Intangible assets, net 199,149 204,887
Goodwill 325,046 325,046 Other assets, net 56,159 56,611
Total assets $ 5,686,191 $ 5,702,592
LIABILITIES AND PARTNERS’ CAPITAL Accounts payable - trade $
118,794 $ 119,841 Accrued liabilities 112,660 140,962
Total current liabilities 231,454 260,803 Senior secured
credit facility 1,210,000 1,278,200 Senior unsecured notes, net of
debt issuance costs 1,814,712 1,813,169 Deferred tax liabilities
26,094 25,889 Other long-term liabilities 200,171 204,481 Partners'
capital: Common unitholders 2,214,193 2,130,331 Noncontrolling
interests (10,433 ) (10,281 )
Total partners' capital
2,203,760 2,120,050
Total liabilities and
partners' capital $ 5,686,191 $ 5,702,592
Units Data: Total common units outstanding 122,579,218
117,979,218
GENESIS ENERGY, L.P.
RECONCILIATION OF SEGMENT MARGIN AND ADJUSTED EBITDA TO NET
INCOME - UNAUDITED
(in thousands)
Three Months Ended March 31, 2017
2016 Total Segment Margin (1) $ 138,645 $ 144,881 Corporate
general and administrative expenses (8,327 ) (11,358 ) Non-cash
items included in general and administrative costs 485 88 Cash
expenditures not included in Adjusted EBITDA 587 256 Cash
expenditures not included in net income (28 ) (41 ) Adjusted EBITDA
131,362 133,826 Depreciation, amortization and accretion (58,395 )
(49,175 ) Interest expense, net (36,739 ) (34,387 ) Cash
expenditures not included in Adjusted EBITDA or net income (559 )
(215 ) Adjustment to exclude distributable cash generated by equity
investees not included in income and include equity in investees
net income (9,290 ) (10,614 ) Differences in timing of cash
receipts for certain contractual arrangements 2,681 2,842 Other
non-cash items (1,715 ) (5,973 ) Income tax expense (255 ) (1,001 )
Net income attributable to Genesis Energy, L.P. $ 27,090 $
35,303 (1) See definition of Segment Margin
later in this press release.
GENESIS ENERGY,
L.P. RECONCILIATIONS OF NET INCOME AND NET CASH FLOWS FROM
OPERATING ACTIVITIES TO AVAILABLE CASH BEFORE RESERVES-
UNAUDITED
(in thousands)
Three Months Ended March 31, 2017
2016 (in thousands) Net income attributable to Genesis
Energy, L.P. $ 27,090 $ 35,303 Depreciation, amortization and
accretion 58,395 49,175 Cash received from direct financing leases
not included in income 1,667 1,511 Cash effects of sales of certain
assets 1,234 2,974 Effects of distributable cash generated by
equity method investees not included in income 9,290 10,614
Expenses related to acquiring or constructing growth capital assets
587 256 Unrealized (gain) loss on derivative transactions excluding
fair value hedges, net of changes in inventory value (959 ) 2,154
Maintenance capital utilized (1) (2,775 ) (1,570 ) Non-cash tax
expense 205 700 Differences in timing of cash receipts for certain
contractual arrangements (2,681 ) (2,842 ) Other items, net 978
(481 ) Available Cash before Reserves $ 93,031 $
97,794 (1) Maintenance capital
expenditures in the 2017 Quarter and 2016 Quarter were $8.7 million
and $4.8 million, respectively. Three Months
Ended March 31, 2017 2016 (in thousands) Cash Flows
from Operating Activities $ 64,605 $ 41,106 Maintenance capital
utilized (1) (2,775 ) (1,570 ) Proceeds from asset sales 1,234
2,974 Amortization of debt issuance costs and discount (2,582 )
(2,441 ) Effects of available cash from joint ventures not included
in operating cash flows 5,518 5,788 Net effect of changes in
operating accounts not included in calculation of Available Cash
before Reserves 29,068 52,067 Non-cash effect of equity based
compensation expense (1,144 ) 400 Expenses related to acquiring or
constructing growth capital assets 587 256 Differences in timing of
cash receipts for certain contractual arrangements (2,681 ) (2,842
) Other items affecting available cash 1,201 2,056
Available Cash before Reserves $ 93,031 $ 97,794 (1)
Maintenance capital expenditures in the 2017 Quarter
and 2016 Quarter were $8.7 million and $4.8 million, respectively.
GENESIS ENERGY, L.P. RECONCILIATION OF NET CASH
FLOWS FROM OPERATING ACTIVITIES TO ADJUSTED EBITDA - UNAUDITED
(in thousands)
Three Months Ended March 31, 2017
2016 Cash Flows from Operating Activities $ 64,605 $ 41,106
Interest Expense 36,739 34,387 Amortization of debt issuance costs
and discount (2,582 ) (2,441 ) Effects of available cash from
equity method investees not included in operating cash flows 5,518
5,788 Net effect of changes in components of operating assets and
liabilities not included in calculation of Adjusted EBITDA 29,068
52,067 Non-cash effect of equity based compensation expense (1,144
) 400 Expenses related to acquiring or constructing growth capital
assets 587 256 Differences in timing of cash receipts for certain
contractual arrangements (2,681 ) (2,842 ) Other items, net 1,252
5,105 Adjusted EBITDA $ 131,362 $ 133,826
GENESIS ENERGY, L.P. ADJUSTED
DEBT-TO-PRO FORMA EBITDA RATIO - UNAUDITED
(in thousands)
March 31, 2017 Senior secured credit facility
$ 1,210,000 Senior unsecured notes 1,814,712 Less: Outstanding
inventory financing sublimit borrowings (70,000 ) Less: Cash and
cash equivalents (10,773 ) Adjusted Debt (1) $ 2,943,939
Pro Forma LTM March 31, 2017 LTM Adjusted EBITDA (as
reported) (2) $ 529,767 Acquisitions and material projects EBITDA
adjustment (3) 31,500 Pro Forma EBITDA $ 561,267
Adjusted Debt-to-Pro Forma EBITDA 5.25 x
(1) We define Adjusted Debt as the amounts outstanding under our
senior secured credit facility and senior unsecured notes
(including any unamortized premiums or discounts) less the amount
outstanding under our inventory financing sublimit, less cash and
cash equivalents on hand at the end of the period.
(2) Last twelve months ("LTM") Adjusted EBITDA. The most
comparable GAAP measure to Adjusted EBITDA, Net Income Attributable
to Genesis Energy L.P., was $27.1 million for the first quarter of
2017, $23.7 million for the second quarter of 2016 , $32.1 million
for the third quarter of 2016, and $29.6 million for the fourth
quarter of 2016. Reconciliations of Adjusted EBITDA to net income
for all periods presented are available on our website at
www.genesisenergy.com.
(3) This amount reflects the adjustment we are permitted to make
under our credit agreement for purposes of calculating compliance
with our leverage ratio. It includes a pro rata portion of
projected future annual EBITDA from material projects (i.e. organic
growth) and includes Adjusted EBITDA (using historical amounts and
other permitted amounts) since the beginning of the calculation
period attributable to each acquisition completed during such
calculation period, regardless of the date on which such
acquisition was actually completed. This adjustment may not be
indicative of future results.
This press release includes forward-looking statements as
defined under federal law. Although we believe that our
expectations are based upon reasonable assumptions, we can give no
assurance that our goals will be achieved. Actual results may vary
materially. All statements, other than statements of historical
facts, included in this press release that address activities,
events or developments that we expect, believe or anticipate will
or may occur in the future are forward-looking statements, and
historical performance is not necessarily indicative of future
performance. Those forward-looking statements rely on a number of
assumptions concerning future events and are subject to a number of
uncertainties, factors and risks, many of which are outside our
control, that could cause results to differ materially from those
expected by management. Such risks and uncertainties include, but
are not limited to, weather, political, economic and market
conditions, including a decline in the price and market demand for
products, the timing and success of business development efforts
and other uncertainties. Those and other applicable uncertainties,
factors and risks that may affect those forward-looking statements
are described more fully in our Annual Report on Form 10-K for the
year ended December 31, 2016 filed with the Securities and
Exchange Commission and other filings, including our Current
Reports on Form 8-K and Quarterly Reports on Form 10-Q. We
undertake no obligation to publicly update or revise any
forward-looking statement.
NON-GAAP MEASURES
This press release and the accompanying schedules include
non-generally accepted accounting principle (non-GAAP) financial
measures of Adjusted EBITDA and total Available Cash before
Reserves. In this press release, we also present total Segment
Margin as if it were a non-GAAP measure. Our Non-GAAP measures may
not be comparable to similarly titled measures of other companies
because such measures may include or exclude other specified items.
The accompanying schedules provide reconciliations of these
non-GAAP financial measures to their most directly comparable
financial measures calculated in accordance with generally accepted
accounting principles in the United States of America (GAAP). Our
non-GAAP financial measures should not be considered (i) as
alternatives to GAAP measures of liquidity or financial performance
or (ii) as being singularly important in any particular context;
they should be considered in a broad context with other
quantitative and qualitative information. Our Available Cash before
Reserves, Adjusted EBITDA and total Segment Margin measures are
just three of the relevant data points considered from time to
time.
When evaluating our performance and making decisions regarding
our future direction and actions (including making discretionary
payments, such as quarterly distributions) our board of directors
and management team has access to a wide range of historical and
forecasted qualitative and quantitative information, such as our
financial statements; operational information; various non-GAAP
measures; internal forecasts; credit metrics; analyst opinions;
performance, liquidity and similar measures; income; cash flow; and
expectations for us, and certain information regarding some of our
peers. Additionally, our board of directors and management team
analyze, and place different weight on, various factors from time
to time. We believe that investors benefit from having access to
the same financial measures being utilized by management, lenders,
analysts and other market participants. We attempt to provide
adequate information to allow each individual investor and other
external user to reach her/his own conclusions regarding our
actions without providing so much information as to overwhelm or
confuse such investor or other external user.
AVAILABLE CASH BEFORE RESERVES
Purposes, Uses and Definition
Available Cash before Reserves, also referred
to as distributable cash flow, is a quantitative standard used
throughout the investment community with respect to publicly traded
partnerships and is commonly used as a supplemental financial
measure by management and by external users of financial statements
such as investors, commercial banks, research analysts and rating
agencies, to aid in assessing, among other things:
(1) the
financial performance of our assets; (2) our operating performance;
(3) the viability of potential projects, including our cash and
overall return on alternative capital investments as compared to
those of other companies in the midstream energy industry; (4) the
ability of our assets to generate cash sufficient to satisfy
certain non-discretionary cash requirements, including interest
payments and certain maintenance capital requirements; and (5) our
ability to make certain discretionary payments, such as
distributions on our units, growth capital expenditures, certain
maintenance capital expenditures and early payments of
indebtedness.
We define Available Cash before Reserves as
net income as adjusted for specific items, the most significant of
which are the addition of certain non-cash gains or charges (such
as depreciation and amortization), the substitution of
distributable cash generated by our equity investees in lieu of our
equity income attributable to our equity investees (includes
distributions attributable to the quarter and received during or
promptly following such quarter), the elimination of gains and
losses on asset sales (except those from the sale of surplus
assets), unrealized gains and losses on derivative transactions not
designated as hedges for accounting purposes, the elimination of
expenses related to acquiring or constructing assets that provide
new sources of cash flows and the subtraction of maintenance
capital utilized, which is described in detail below.
Disclosure Format Relating to Maintenance
Capital
We use a modified format relating to
maintenance capital requirements because our maintenance capital
expenditures vary materially in nature (discretionary vs.
non-discretionary), timing and amount from time to time. We believe
that, without such modified disclosure, such changes in our
maintenance capital expenditures could be confusing and potentially
misleading to users of our financial information, particularly in
the context of the nature and purposes of our Available Cash before
Reserves measure. Our modified disclosure format provides those
users with information in the form of our maintenance capital
utilized measure (which we deduct to arrive at Available Cash
before Reserves). Our maintenance capital utilized measure
constitutes a proxy for non-discretionary maintenance capital
expenditures and it takes into consideration the relationship among
maintenance capital expenditures, operating expenses and
depreciation from period to period.
Maintenance Capital Requirements
Maintenance Capital Expenditures
Maintenance capital expenditures are
capitalized costs that are necessary to maintain the service
capability of our existing assets, including the replacement of any
system component or equipment which is worn out or obsolete.
Maintenance capital expenditures can be discretionary or
non-discretionary, depending on the facts and circumstances.
Initially, substantially all of our
maintenance capital expenditures were (a) related to our pipeline
assets and similar infrastructure, (b) non-discretionary in nature
and (c) immaterial in amount as compared to our Available Cash
before Reserves measure. Those historical expenditures were
non-discretionary (or mandatory) in nature because we had very
little (if any) discretion as to whether or when we incurred them.
We had to incur them in order to continue to operate the related
pipelines in a safe and reliable manner and consistently with past
practices. If we had not made those expenditures, we would not have
been able to continue to operate all or portions of those
pipelines, which would not have been economically feasible. An
example of a non-discretionary (or mandatory) maintenance capital
expenditure would be replacing a segment of an old pipeline because
one can no longer operate that pipeline safely, legally and/or
economically in the absence of such replacement.
As we exist today, a substantial amount of
our maintenance capital expenditures from time to time will be (a)
related to our assets other than pipelines, such as our marine
vessels, trucks and similar assets, (b) discretionary in nature and
(c) potentially material in amount as compared to our Available
Cash before Reserves measure. Those expenditures will be
discretionary (or non-mandatory) in nature because we will have
significant discretion as to whether or when we incur them. We will
not be forced to incur them in order to continue to operate the
related assets in a safe and reliable manner. If we chose not make
those expenditures, we would be able to continue to operate those
assets economically, although in lieu of maintenance capital
expenditures, we would incur increased operating expenses,
including maintenance expenses. An example of a discretionary (or
non-mandatory) maintenance capital expenditure would be replacing
an older marine vessel with a new marine vessel with substantially
similar specifications, even though one could continue to
economically operate the older vessel in spite of its increasing
maintenance and other operating expenses.
In summary, as we continue to expand certain
non-pipeline portions of our business, we are experiencing changes
in the nature (discretionary vs. non-discretionary), timing and
amount of our maintenance capital expenditures that merit a more
detailed review and analysis than was required historically.
Management’s recently increasing ability to determine if and when
to incur certain maintenance capital expenditures is relevant to
the manner in which we analyze aspects of our business relating to
discretionary and non-discretionary expenditures. We believe it
would be inappropriate to derive our Available Cash before Reserves
measure by deducting discretionary maintenance capital
expenditures, which we believe are similar in nature in this
context to certain other discretionary expenditures, such as growth
capital expenditures, distributions/dividends and equity buybacks.
Unfortunately, not all maintenance capital expenditures are clearly
discretionary or non-discretionary in nature. Therefore, we
developed a measure, maintenance capital utilized, that we believe
is more useful in the determination of Available Cash before
Reserves. Our maintenance capital utilized measure, which is
described in more detail below, constitutes a proxy for
non-discretionary maintenance capital expenditures and it takes
into consideration the relationship among maintenance capital
expenditures, operating expenses and depreciation from period to
period.
Maintenance Capital Utilized
We believe our maintenance capital utilized
measure is the most useful quarterly maintenance capital
requirements measure to use to derive our Available Cash before
Reserves measure. We define our maintenance capital utilized
measure as that portion of the amount of previously incurred
maintenance capital expenditures that we utilize during the
relevant quarter, which would be equal to the sum of the
maintenance capital expenditures we have incurred for each
project/component in prior quarters allocated ratably over the
useful lives of those projects/components.
Because we did not initially use our
maintenance capital utilized measure, our future maintenance
capital utilized calculations will reflect the utilization of
solely those maintenance capital expenditures incurred since
December 31, 2013.
ADJUSTED EBITDA
Purposes, Uses and Definition
Adjusted EBITDA is commonly used as a
supplemental financial measure by management and by external users
of financial statements such as investors, commercial banks,
research analysts and rating agencies, to aid in assessing, among
other things:
(1) the
financial performance of our assets without regard to financing
methods, capital structures or historical cost basis; (2) our
operating performance as compared to those of other companies in
the midstream energy industry, without regard to financing and
capital structure; (3) the viability of potential projects,
including our cash and overall return on alternative capital
investments as compared to those of other companies in the
midstream energy industry; (4) the ability of our assets to
generate cash sufficient to satisfy certain non-discretionary cash
requirements, including interest payments and certain maintenance
capital requirements; and (5) our ability to make certain
discretionary payments, such as distributions on our units, growth
capital expenditures, certain maintenance capital expenditures and
early payments of indebtedness.
We define Adjusted EBITDA (“Adjusted EBITDA”)
as net income or loss plus net interest expense, income taxes,
non-cash gains and charges (other than certain non-cash equity
based compensation expense), depreciation and amortization plus
other specific items, the most significant of which are the
addition of cash received from direct financing leases not included
in income, expenses related to acquiring assets that provide new
sources of cash flow and the effects of available cash generated by
equity method investees not included in income. We also exclude the
effect on net income or loss of unrealized gains or losses on
derivative transactions.
SEGMENT MARGIN
Our chief operating decision maker (our Chief
Executive Officer) evaluates segment performance based on a variety
of measures including Segment Margin, segment volumes where
relevant and capital investment. We define Segment Margin as
revenues less product costs, operating expenses (excluding non-cash
gains and charges, such as depreciation, amortization and
accretion), and segment general and administrative expenses, plus
our equity in distributable cash generated by our equity investees.
In addition, our Segment Margin definition excludes the non-cash
effects of our legacy stock appreciation rights plan and unrealized
gains and losses on derivative transactions not designated as
hedges for accounting purposes. Our Segment Margin definition also
includes the non-income portion of payments received under direct
financing leases.
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version on businesswire.com: http://www.businesswire.com/news/home/20170504005399/en/
Genesis Energy, L.P.Bob Deere, 713-860-2516Chief Financial
Officer
Genesis Energy (NYSE:GEL)
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