Genesis Energy, L.P. (NYSE: GEL) today announced its fourth
quarter results.
Certain highlights of our results for the quarter ended
December 31, 2017 included the following items:
-We continue to integrate our recently acquired soda ash
operations and performance continues to exceed our
expectations.
-We obtained long-term commitments from a leading operator for
the production from approximately 300,000 acres for downstream
transportation on our existing infrastructure in the emerging
Powder River Basin.
-We effectively extended the term for $350 million of our
outstanding notes to 2026 (from 2021) through a new notes offering
and a tender offer for existing notes in December and a planned
redemption for the balance of all untendered notes in February.
-We increased our quarterly distribution rate per common unit by
$.01, consistent with our strategy to increase that distribution
rate by at least $.01 per quarter, and we declared a
payment-in-kind distribution on our preferred units, which will
result in the issuance of approximately 490,252 additional
preferred units.
We generated the following financial results for the fourth
quarter of 20171:
- Net Income Attributable to Genesis
Energy, L.P. of $15.5 million, resulting in a loss of $0.01 of net
income per common unit for the fourth quarter of 2017 (after giving
effect to distributions on our preferred units) compared to $22.1
million, or income of $0.19 per common unit, for the same period in
2016.
- Cash Flows from Operating Activities of
$121.1 million for the fourth quarter of 2017 compared to $69.9
million for the same period in 2016, an increase of $51.2 million,
or 73%, principally due to an increase in cash flows from
operations reflecting a full quarter of our Alkali Business and a
decrease in working capital needs.
- Available Cash before Reserves of
$106.7 million for the fourth quarter of 2017, compared to $95.4
million for the same period in 2016, an increase of $11.3 million,
or 12%. Available Cash before Reserves provided 1.71 coverage for
the quarterly distribution of $0.51 per common unit attributable to
the fourth quarter. We will pay distributions on our convertible
preferred units in the form of 490,252 additional convertible
preferred units.
- Adjusted EBITDA of $164.8 million for
the fourth quarter of 2017, compared to $133.1 million for the same
period in 2016, an increase of $31.7 million, or 23.8%. Our bank
leverage ratio, calculated consistent with our credit agreement, is
5.34 as of December 31, 2017. These amounts are calculated and
further discussed later in this press release.
Grant Sims, CEO of Genesis Energy, said, "We are pleased to
announce that we remain on track with our previously announced
guidance for visible, achievable long term distribution growth and
a clear path forward to deleveraging.
Our quarterly results reflect the first full quarter of our
recently acquired soda ash operations, which have continued to
exceed our expectations and remain on track to meet previously
announced guidance. Our legacy businesses continue to perform as
expected and we are seeing increased volumes and contributions from
our organic projects in the Baton Rouge corridor, in and around the
Texas City area and in Wyoming. Our quarterly results were
negatively impacted by a number of events including Hurricane Nate,
which had an even bigger temporary impact than Hurricane Harvey on
our offshore operations, limited railroad capacity out of Canada to
the Gulf Coast and operating issues on downstream facilities in
Texas. Despite these challenges, which we believe are short term in
nature, our reported distribution coverage ratio of 1.71 exceeded
our targeted range and our bank calculated leverage ratio slightly
increased on a sequential basis as we organically funded the
continued build out of our Baton Rouge deepwater terminal to
facilitate crude exports and our recently announced expansion of
our Powder River infrastructure.
Given our recent and continuing actions to increase liquidity
and strengthen our balance sheet, the integration and financial
contribution of the soda ash business and the continued ramp up of
our recent organic capital program along with contributions from
our legacy businesses, we believe we are well positioned for the
rest of this year and beyond to continue to deliver long term value
to all stakeholders without ever losing our absolute commitment to
safe, reliable and responsible operations."
1 We have recast our prior period non-GAAP measures to conform
to our revised approach to defining and presenting such measures,
which we adopted in the fourth quarter of 2017. For additional
information, please refer to the section entitled “Non-GAAP
Measures,” below.
Financial Results
Segment Margin
On September 1, 2017, we acquired our trona and trona-based
exploring, mining, processing, producing, marketing and selling
business (the "Alkali Business") for approximately $1.325
billion. At the closing, we entered into a transition service
agreement to facilitate a smooth transition of operations and
uninterrupted services for both employees and customers. We report
the results of our Alkali Business in our renamed sodium and sulfur
services segment, which includes our Alkali Business as well as our
sulfur removal refinery services operations, which remove sulfur
from gas streams for refineries.
Variances between the fourth quarter of 2017 (the “2017
Quarter”) and the fourth quarter of 2016 (the “2016 Quarter”) in
these components are explained below.
Segment margin results for the 2017 Quarter and 2016 Quarter
were as follows:
Three Months EndedDecember 31, 2017 2016 (in
thousands) Offshore pipeline transportation $ 74,012 $ 87,163
Sodium minerals and sulfur services 66,469 17,922 Onshore
facilities and transportation 24,377 19,395 Marine transportation
10,526 16,384 Total Segment Margin $ 175,384 $
140,864
Offshore pipeline transportation Segment Margin for the 2017
Quarter decreased $13.2 million, or 15.1%, from the 2016 Quarter.
The 2017 Quarter was negatively impacted by both anticipated and
unanticipated downtime at several major fields, including weather
related downtime, affecting certain of our deepwater Gulf of Mexico
customers and thus certain of our key crude oil and natural gas
assets, including our Poseidon pipeline and certain associated
laterals that we own. The 2017 period also reflects the effects of
a contractual adjustment to a lower rate during 2017 on a lateral
we own, which lower rate we anticipate will be in place going
forward. In addition, the 2016 Quarter benefited from the temporary
diversion of certain natural gas volumes from third party gas
pipelines to one of our gas pipelines and related facilities due to
one-time disruptions at onshore processing facilities where such
volumes typically flow.
Sodium minerals and sulfur services Segment Margin for the 2017
Quarter increased $48.5 million, or 270.9%. This increase is
principally due to the inclusion of contributions from the Alkali
Business (which we acquired on September 1, 2017). In addition, in
the 2017 Quarter we experienced stronger demand for and sales of
NaHS, particularly from our mining customers, relative to the 2016
Quarter.
Onshore facilities and transportation Segment Margin increased
by $5.0 million, or 25.7%, between the two quarters. The 2017
Quarter includes the effects of the ramp up in volumes on our
pipeline, rail and terminal infrastructure on our recently
completed infrastructure in the Baton Rouge corridor, as well as
the ramp up in volumes on our Wyoming and repurposed Texas pipeline
systems. The increases from these activities were partially offset
by 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.
Marine transportation Segment Margin for the 2017 Quarter
decreased $5.9 million, or 35.8%, from the 2016 Quarter. The
decrease in Segment Margin is primarily due to lower day rates on
our inland and offshore fleets (which offset higher utilization as
adjusted for planned dry docking time in our offshore fleet). In
our inland fleet, weaker demand continued to apply pressure on our
rates, which we expect to continue into 2018. 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.
Other Components of Net Income
In the 2017 Quarter, we recorded Net Income Attributable to
Genesis Energy, L.P. of $15.5 million compared to $22.1 million in
the 2016 Quarter. In addition to the overall increase in Segment
Margin as discussed above, net income for the 2017 Quarter was
positively impacted by gains on the sale of certain non-core assets
of $13.6 million, as well as a tax benefit of $4.8 million as a
result of newly passed federal tax laws in the 2017 Quarter. These
items were more than offset by certain items resulting in a
decrease in net income in the 2017 Quarter relative to the 2016
Quarter, including an increase in interest expense of $19.4 million
(principally related to the financing of the acquisition of our
Alkali Business), an increase in depreciation and amortization
expense of $10.6 million (principally related to assets we acquired
in the acquisition of our Alkali Business), a $6.2 million loss on
debt extinguishment in the 2017 Quarter relating to activities
associated with refinancing $350 million of our notes due in 2021,
an $8.2 million charge relating to the quarterly re-measurement of
the derivative features included in our convertible preferred units
and an increase in general and administrative expenses of $16.8
million (which includes approximately $14.6 million of accruals
made in the 2017 Quarter for a variety of items, including
approximately $7.5 million relating to our annual bonus
program).
Earnings Conference Call
We will broadcast our Earnings Conference Call on Thursday,
February 15, 2018, at 9:30 a.m. Central time (10:30 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, sodium
minerals and sulfur services, marine transportation and onshore
facilities and transportation. 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 EndedDecember 31, Year
EndedDecember 31, 2017 2016 2017 2016
REVENUES
$ 720,049 $ 428,053 $ 2,028,377 $ 1,712,493
COSTS AND
EXPENSES: Costs of sales and operating expenses 566,544 308,336
1,529,236 1,238,245 General and administrative expenses 27,698
10,909 66,421 45,625 Depreciation and amortization 76,027 65,396
252,480 222,196 Gain on sale of assets (13,627 ) — (40,311 )
—
OPERATING INCOME 63,407 43,412 220,551 206,427
Equity in earnings of equity investees 16,241 12,582 51,046 47,944
Interest expense (54,645 ) (35,290 ) (176,762 ) (139,947 ) Other
expense (14,439 ) — (16,715 ) —
INCOME BEFORE
INCOME TAXES 10,564 20,704 78,120 114,424 Income tax benefit
(expense) 4,837 (383 ) 3,959 (3,342 )
NET
INCOME 15,401 20,321 82,079 111,082 Net loss attributable to
noncontrolling interests 111 1,797 568 2,167
NET INCOME ATTRIBUTABLE TO GENESIS ENERGY, L.P. $
15,512 $ 22,118 $ 82,647 $ 113,249
Less: Accumulated distributions attributable to Class A Convertible
Preferred Units (16,526 ) — (21,995 ) —
NET INCOME
AVAILABLE TO COMMON UNITHOLDERS $ (1,014 ) $ 22,118 $
60,652 $ 113,249
NET INCOME PER COMMON UNIT:
Basic and Diluted $ (0.01 ) $ 0.19
$ 0.50 $ 1.00
WEIGHTED AVERAGE OUTSTANDING
COMMON UNITS: Basic and Diluted 122,579 117,979 121,546 113,433
GENESIS ENERGY, L.P.
OPERATING DATA - UNAUDITED
Three Months EndedDecember 31, Year
EndedDecember 31, 2017 2016 2017 2016
Offshore
Pipeline Transportation Segment Crude oil pipelines
(barrels/day unless otherwise noted): CHOPS 193,210 215,794 213,527
204,533 Poseidon (1) 240,241 272,905 253,547 262,829 Odyssey (1)
98,529 107,859 116,408 106,933 GOPL 8,243 12,321
8,185 7,468 Offshore crude oil pipelines total
540,223 608,879 591,667 581,763
Natural gas transportation volumes (MMbtus/d) (1) 434,591 749,262
496,302 679,862
Sodium Minerals and Sulfur Services
Segment NaHS (dry short tons sold) 37,829 29,650 133,404
125,766 Soda Ash volumes (short tons sold) (2) 1,062,000 —
1,398,000
— NaOH (caustic soda) volumes (dry short tons sold) (3) 28,854
20,219 84,816 80,021
Onshore Facilities and
Transportation Segment Crude oil pipelines (barrels/day): Texas
45,343 10,306 32,684 33,814 Jay 13,189 15,769 14,155 14,815
Mississippi 7,732 9,176 8,290 10,247 Louisiana (4) 152,954 73,568
135,310 44,295 Wyoming 29,789 13,808 22,329
10,959 Onshore crude oil pipelines total 249,007
122,627 212,768 114,130 Free State- CO2
Pipeline (Mcf/day) 92,397 88,417 77,921 97,955 Crude oil and
petroleum products sales (barrels/day) 59,237 49,854 51,771 62,484
Rail load/unload volumes (barrels/day) (5) 46,544 38,592
52,877 19,691
Marine Transportation Segment Inland
Fleet Utilization Percentage (6) 90.0 % 91.4 % 90.4 % 91.4 %
Offshore Fleet Utilization Percentage (6) 97.5 % 88.3 % 98.2 % 90.5
%
(1) Volumes for our equity method
investees are presented on a 100% basis. We own 64% of Poseidon and
29% of Odyssey, as well as equity interests in various other
entities.
(2) Includes sales volumes from September
1, 2017, the date on which we acquired the Alkali Business.
(3) Caustic soda sales volumes also
include volumes sold for the month of September from our new Alkali
Business.
(4) Total daily volume for the three
months and twelve months ended December 31, 2017 includes 35,459
and 14,117 barrels per day, respectively of crude oil transported
by our new Raceland Pipeline which became fully operational in the
second quarter of 2017.
(5) Indicates total barrels for which fees
were charged for either loading or unloading at all rail
facilities.
(6) Utilization rates are based on a 365
day year, as adjusted for planned downtime and dry-docking.
GENESIS ENERGY, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS -
UNAUDITED
(in thousands, except number of units)
December 31,2017 December 31,2016
ASSETS Cash and cash equivalents $ 9,041 $ 7,029 Accounts
receivable - trade, net 495,449 224,682 Inventories 88,653 98,587
Other current assets 42,890 29,271
Total current
assets 636,033 359,569 Fixed assets and mineral leaseholds, net
5,430,535 4,214,864 Investment in direct financing leases, net
125,283 132,859 Equity investees 381,550 408,756 Intangible assets,
net 182,406 204,887 Goodwill 325,046 325,046 Other assets, net
64,849 56,611
Total assets $ 7,145,702
$ 5,702,592
LIABILITIES AND CAPITAL Accounts payable
- trade $ 270,855 $ 119,841 Accrued liabilities 185,409
140,962
Total current liabilities 456,264 260,803
Senior secured credit facility 1,099,200 1,278,200 Senior unsecured
notes, net of debt issuance costs 2,598,918 1,813,169 Deferred tax
liabilities 20,134 25,889 Other long-term liabilities 256,571
204,481
Total liabilities 4,431,087
3,582,542 Mezzanine capital: Class A convertible preferred
units 697,151 — Partners' capital: Common unitholders
2,025,543 2,130,331 Noncontrolling interests (8,079 ) (10,281 )
Total partners' capital 2,017,464 2,120,050
Total liabilities, mezzanine capital and partners' capital $
7,145,702 $ 5,702,592
Common Units
Data: Total common units outstanding 122,579,218
117,979,218
GENESIS ENERGY, L.P.
RECONCILIATION OF NET INCOME TO SEGMENT
MARGIN - UNAUDITED
(in thousands)
Three Months EndedDecember 31, Year
EndedDecember 31, 2017 2016 2017 2016 Net
Income Attributable to Genesis Energy, L.P. $ 15,512 $ 22,118
$ 82,647 $ 113,249 Corporate general and
administrative expenses 26,335 8,636 60,029 40,905 Depreciation,
depletion, amortization and accretion 77,808 62,072 262,021 230,563
Interest expense, net 54,645 35,290 176,762 139,947 Tax expense
(4,837 ) 383 (3,959 ) 3,342 Gain on sale of assets (13,627 ) —
(40,311 ) — Equity compensation adjustments (283 ) (251 ) (940 )
(317 ) Provision for leased items no longer in use — — 12,589 —
Other 2,987 — 2,962 — Plus (minus) Select Items, net 16,844
12,616 42,743 41,882 Segment
Margin (1) $ 175,384 $ 140,864 $ 594,543
$ 569,571
(1) See definition of Segment Margin later
in this press release.
GENESIS ENERGY, L.P.
RECONCILIATIONS OF NET INCOME TO
ADJUSTED EBITDA AND AVAILABLE CASH BEFORE RESERVES-
UNAUDITED
(in thousands)
Three Months EndedDecember 31, Year Ended
December 31,
2017 2016 2017 2016 (in thousands) (in
thousands) Net income attributable to Genesis Energy, L.P. $ 15,512
$ 22,118 $ 82,647 $ 113,249 Interest expense, net 54,645 35,290
176,762 139,947 Income Tax expense (4,837 ) 383 (3,959 ) 3,342
Depreciation, depletion, amortization, and accretion 77,808
62,072 262,021 230,563
EBITDA 143,128 119,863 517,471 487,101 Plus (minus) Select Items,
net 21,652 13,268 59,295
45,128 Adjusted EBITDA, net 164,780 133,131 576,766 532,229
Maintenance capital utilized(1) (3,750 ) (2,446 ) (13,020 ) (7,696
) Interest expense, net (54,645 ) (35,290 ) (176,762 ) (139,947 )
Cash tax expense 270 (300 ) (100 ) (1,200 ) Other 53 305
2,148 855 Available Cash before Reserves $
106,708 $ 95,400 $ 389,032 $ 384,241
(1) Maintenance capital expenditures in
the 2017 Quarter and 2016 Quarter were $35.7 million and $6.8
million, respectively. This increase principally is a result of
expenditures associated with our Alkali Business.
GENESIS ENERGY, L.P.
RECONCILIATION OF NET CASH FLOWS FROM
OPERATING ACTIVITIES TO ADJUSTED EBITDA - UNAUDITED
(in thousands)
Three Months EndedDecember 31, Year
EndedDecember 31, 2017 2016 2017 2016 Cash
Flows from Operating Activities $ 121,068 $ 69,941 $ 338,858 $
298,338 Interest Expense, net 54,645 35,290 176,762 139,947
Amortization of debt issuance costs and discount (4,949 ) (2,575 )
(13,103 ) (10,138 ) Effects of available cash from equity method
investees not included in operating cash flows 5,763 4,701 20,280
21,353 Net effect of changes in components of operating assets and
liabilities (36,418 ) 27,243 (10,156 ) 90,650 Non-cash effect of
equity based compensation expense (121 ) (990 ) 4,549 (7,316 )
Expenses related to acquiring or constructing growth capital assets
5,324 579 16,833 1,945 Differences in timing of cash receipts for
certain contractual arrangements (1) (5,846 ) (3,624 ) (17,540 )
(13,253 ) Other items, net 11,687 2,566 19,972 10,703 Gain on sale
of assets 13,627 — 40,311 —
Adjusted EBITDA $ 164,780 $ 133,131 $
576,766 $ 532,229
(1) Represents adjustments attributable to
certain cash payments received from customers under certain of our
minimum payment obligation contracts that are not recognized as
revenue under GAAP in the period in which such payments are
received. For purposes of our Non-GAAP measures, we add
those amounts in the period of payment and deduct them in the
period in which GAAP recognizes them.
GENESIS ENERGY, L.P.
RECONCILIATION OF NET CASH FLOWS FROM
OPERATING ACTIVITIES TO ADJUSTED EBITDA - UNAUDITED
(in thousands)
December 31, 2017 Senior secured credit facility $
1,099,200 Senior unsecured notes 2,598,918 Less: Outstanding
inventory financing sublimit borrowings (29,000 ) Less: Cash and
cash equivalents (9,041 ) Adjusted Debt (1) $ 3,660,077
Pro Forma LTM December 31, 2017 Consolidated EBITDA (per our
senior secured credit facility) (2) $ 561,961 Acquisitions,
material projects and other Consolidated EBITDA adjustments (3)
123,815 Adjusted Consolidated EBITDA (per our senior secured
credit facility) (4) $ 685,776 Adjusted
Debt-to-Adjusted Consolidated EBITDA 5.34 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) Consolidated EBITDA for the
four-quarter period ending with the most recent quarter, as
calculated under our senior secured credit facility.
(3) This amount reflects the adjustment we
are permitted to make under our senior secured credit facility 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.
(4) Adjusted Consolidated EBITDA for the
four-quarter period ending with the most recent quarter, as
calculated under our senior secured credit facility.
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.
In the fourth quarter of 2017, we revised portions of the format
and definitions relating to our presentation of non-GAAP financial
measures. Amounts attributable to prior periods have been recast.
We believe our revised presentation:
- better aligns our non-GAAP financial
measures with a broader array of criteria management uses to
evaluate our performance, liquidity and other activities and
conditions in light of the increasing size, diversity and
complexity of our operations;
- enhances transparency;
- improves readability; and
- provides a general format that is more
consistent with many of our peers.
The primary substantive changes in our presentation are (i) to
include "gains on asset sales" (approximately $40.3 million) in
Available Cash before Reserves and Adjusted EBITDA and (ii) to
include the effects of a provision for certain leased assets no
longer in use (approximately $12.6 million). Some of our peers
exclude "gains on asset sales" from some or all of their non-GAAP
financial measures and others include "proceeds from asset sales."
For purposes of Available Cash before Reserves and Adjusted EBITDA,
we view that portion of the cash proceeds from an asset sale that
are in excess of the carrying value of our investment as cash
generated by our operating activities, which can be used for
discretionary purposes, similar to operating income generated by an
asset.
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
("Available Cash before Reserves") as Adjusted EBITDA as adjusted
for certain items, the most significant of which in the relevant
reporting periods have been the sum of maintenance capital
utilized, net cash interest expense and cash tax expense.
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 earnings before interest, taxes, depreciation and amortization
(including impairment, write-offs, accretion and similar items,
often referred to as EBITDA) after eliminating other non-cash
revenues, expenses, gains, losses and charges (including any loss
on asset dispositions), plus or minus certain other select items
that we view as not indicative of our core operating results
(collectively, "Select Items"). Although, we do not necessarily
consider all of our Select Items to be non-recurring, infrequent or
unusual, we believe that an understanding of these Select Items is
important to the evaluation of our core operating results. The most
significant Select Items in the relevant reporting periods are set
forth below.
The table below includes the Select Items discussed above as
applicable to the reconciliation of Adjusted EBITDA and Available
Cash before Reserves to net income:
Three Months EndedDecember 31, Year EndedDecember 31,
2017 2016 2017 2016 I. Applicable to all Non-GAAP
Measures Differences in timing of cash receipts for certain
contractual arrangements1 $ (5,846 ) $ (3,624 ) $ (17,540 ) $
(13,253 ) Adjustment regarding direct financing leases2 1,794 1,632
6,921 6,277 Revaluation of certain liabilities and assets3 — 6,044
— 6,044 Certain non-cash items: Unrealized (gain) loss on
derivative transactions excluding fair value hedges, net of changes
in inventory value 8,253 545 9,942 1,790 Loss on debt
extinguishment 6,242 — 6,242 — Adjustment regarding equity
investees5 6,286 8,458 31,852 39,276 Other 115 (439 ) 5,326
1,748 Sub-total Select Items, net4 (Segment Margin)
16,844 12,616 42,743 41,882 II. Applicable only to Adjusted EBITDA
and Available Cash before Reserves Certain transaction costs6 5,324
579 16,833 1,945 Equity compensation adjustments (373 ) (540 )
(1,227 ) (763 ) Other (143 ) 613 946 2,064
Total Select Items, net7 $ 21,652 $ 13,268 $ 59,295
$ 45,128
(1) Represents adjustments attributable to
certain cash payments received from customers under certain of our
minimum payment obligation contracts that are not recognized as
revenue under GAAP in the period in which such payments are
received. For purposes of our Non-GAAP measures, we add
those amounts in the period of payment and deduct them in the
period in which GAAP recognizes them.
(2) Represents the net effect of adding
cash receipts from direct financing leases and deducting expenses
relating to direct financing leases.
(3) Represents a valuation allowance
related to the collectibility of certain disputed receivables and
claims.
(4) Represents all Select Items applicable
to Segment Margin.
(5) Represents the net effect of adding
distributions from equity investees and deducting earnings of
equity investees net to us.
(6) Represents transaction costs relating
to certain merger and acquisition and financing transactions and
certain interest payments on acquisition indebtedness incurred in
advance of acquisition.
(7) Represents Select Items applicable to
Adjusted EBITDA and Available Cash before Reserves.
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, and segment general and
administrative expenses, after eliminating gain or loss on sale of
assets, plus or minus applicable Select Items. Although, we do not
necessarily consider all of our Select Items to be non-recurring,
infrequent or unusual, we believe that an understanding of these
Select Items is important to the evaluation of our core operating
results.
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version on businesswire.com: http://www.businesswire.com/news/home/20180215005320/en/
Genesis Energy, L.P.Bob Deere, 713-860-2516Chief Financial
Officer
Genesis Energy (NYSE:GEL)
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