Bob Bondurant - CFO Ruben Martin - CEO Joe McCreery - VP, Finance and Head, IR Wes Martin - VP, Corporate Development.

Tom Murphy - Raymond James Matt Schmid - Stephens Robert Balsamo - FBR Mike Gyure - Janney James Spitzer - Wells Fargo TJ Schultz - RBC Capital Selman Akyol - Stifel.

Good day, ladies and gentlemen and welcome to the Martin Midstream Partners LP First Quarter 2017 Earnings and Webcast Information and Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.

[Operator Instructions] I would now like to turn the call over to Bob Bondurant, CFO. Please go ahead..

Thank you, Leanne, and to let everyone know who is on the call today, we have Joe McCreery, our VP of Finance and Head of Investor Relations, and Wes Martin, VP of Commercial Corporate Development - excuse me.

Before we get started with the financial and operational results for the first quarter and the year, I need - excuse for the first quarter, I need to make this disclaimer.

Certain statements made during this conference call maybe forward-looking statements relating to financial forecast, future performance and our ability to make distributions to unit holders.

We report our financial results in accordance with Generally Accepted Accounting Principles and use non-GAAP financial measures within the meanings of SEC Regulation G, such as distributable cash flow or DCF, earnings before interest, tax, depreciation and amortization or EBITDA and also adjusted EBITDA.

We use these measures because we believe it provides users of our financial information with meaningful comparisons between current results and prior reported results and it can be a meaningful measure of the partnership's cash available to pay distributions.

We also included in our press release issued yesterday, a reconciliation of EBITDA, adjusted EBITDA, distributable cash flow and quarterly adjusted EBITDA guidance to the most comparable GAAP financial measure. Our earnings press release and our 10-Q which was also filed yesterday are available at our website martinmidstream.com.

Now I would like to discuss our first quarter performance, compared to the fourth quarter and also discuss our quarterly performance, compared to our guidance. For the first quarter we had adjusted EBITDA of $46.8 million, compared to $52.3 million in the fourth quarter.

Our distributable cash flow for the first quarter was $30.3 million, which provided a quarterly distribution coverage ratio of 1.68 times on the actual distribution paid in the first quarter.

Now by segment, I would like to discuss our first quarter operating performance, compared against the prior quarter and discuss our operating performance, compared to our segment guidance.

In our Natural Gas Service segment, our first quarter adjusted EBITDA was $20.7 million, compared to $28.1 million in the fourth quarter, including in our Natural Gas Services Segment was an adjustment of $3.8 million in unrealized mark-to-market gains in the first quarter and $3.8 million in unrealized mark-to-mark losses in the fourth quarter.

These derivative instruments are used to hedge our NGL inventory. Also included in adjusted EBITDA was $1.2 million in distributions from West Texas LPG in the first quarter and $1.4 million in distributions from West Texas LPG in the fourth quarter.

The significant portion of the decrease in cash flow between quarters for our natural gas services segment was primarily from our Butane Logistics business. Our butane margin per gallon contracted 35% between quarters, and spot demand from our refineries fell, as the butane blending season began to wrap up in late February this year.

As a reminder, we build butane inventory for our refining customers in the second and third quarters and we sell these customers butane in the fourth and first quarters of the year.

We primarily utilize our North Louisiana underground storage facility, which is serviced by truck and rail to facilitate our logistic services for these refinery customers.

The bad for the Natural Gas Services segment, cash flow decreased, was from our wholesale propane distribution business as spot demand for propane fell in the first quarter, compared to the fourth quarter, due to very warm weather in our geographic market. This negatively impacted our margins between quarters.

Now compared to our first quarter guidance, our natural gas services segment, miss-forecast by 9% or $2 million. The largest portion of the miss was $1.4 million from our wholesale propane business, as a result of the warm weather, we experienced in our market area, which negatively impacted, both sales volume and margins.

Our butane business slightly missed its mark by $600,000, due to reduced spot demand from refineries. These forecast misses were offset by positive performance, at Cardinal Gas Storage, as it exceeded forecast by $700,000, primarily from interruptible services.

Finally our distribution in West Texas LPG missed its mark by $600,000, as a result of reduced volumes on the pipeline during the quarter. NGL volumes average 175,000 barrels a day, versus our forecast of 109,000 barrels per day. Currently for April volume has improved as we have average of 187,000 barrels per day.

So going forward we should see cash flow improvement, when compared to the first quarter. Regarding West Texas LPG's rate hearings in front of the Texas Railroad Commission, a hearing on our rates was held in front of the hearings examiner, during the week of March 27th of this year.

We believe the hearings examiner will make a recommendation to the railroad commission in August and a final road solution on this matter is expected before the end of 2017.

For our Natural Gas Services segment, as laid out in our quarterly guidance slides, posted yesterday, we will experience reduced cash flow in the second quarter, as a result of the seasonality of our butane logistics business which services our refinery customers.

We have begun our butane inventory purchases and we'll build inventory during the second and third quarters, before significant refinery sales return in the fourth quarter. Now moving to our terminalling and storage segment, our first quarter adjusted EBITDA was $14.6 million compared to $16.7 million in the fourth quarter.

The primary cause for the reduction of cash flow between periods was from the loss cash flow from our Corpus Christy crude terminal which we sold in December 2016. This accounted for $2.4 million of the decrease. We did experienced increased cash flow in our packaged lubricant business of 1.1 million, due to increased volume and increased margins.

Now compared to our first quarter guidance, our terminalling and storage segment exceeded forecast by $800,000. Our shore-based terminals exceeded guidance by $600,000 due to increased marine lubricant margins.

Additionally our packaged lubricant business, known as Martin Lubricants exceeded guidance by $500,000, also as a result of improved margins, compared to forecast. Offsetting this was our Specialty Terminals Group which missed guidance by $500,000 due to unforeseen repair and maintenance cost.

Now, looking towards the second quarter our guidance forecast, our terminal storage segment's adjusted EBITDA should be similar to the first quarter. In our Sulfur Services segment, our first quarter adjusted EBITDA was $13.5 million compared to $8.7 million in the fourth quarter.

Our fertilizer business had an increase in adjusted EBITDA of $4.9 million while our pure sulfur byproduct business adjusted EBITDA was flat between quarters. The increase in our fertilizer adjusted EBITDA was primarily from 120% increase in sales volume between quarters.

This was a result of the anticipated seasonal increase in demand from our customers to service the agricultural planning season. Now compared to the first quarter guidance, our Sulfur Services segment exceeded forecast by $3.1 million, primarily from outperformance of our fertilizer business.

This outperformance was primarily result of the stronger fertilizer margins than were originally forecasted.

Now, looking to our second quarter Sulfur Services guidance, we anticipate a reduction in cash flow from our fertilizer business, relative to the first quarter, as we expects sales volume to decline, as demand should weaken late in the second quarter due to the seasonality of the planting season.

In our marine transportation segment, we had adjusted EBITDA in the first quarter of $2.2 million, compared to $2.5 million in the fourth quarter. This decrease was primarily from the inland side of the business.

Our inland utilization fell from 91% in the fourth quarter to 86% in the first quarter, as a result of one of our truck boats, being in the shipyard for scheduled maintenance. On the positive side, we did experience an improvement in average day rates by approximately $100 dollars per day.

Now, when compared to our first quarter guidance, our marine transportation segment exceeded forecast by $600,000 primarily as a result of reduced operating expenses.

And looking towards the second quarter, we are forecasting a slight reduction in adjusted EBITDA from our marine transportation segment, as we anticipate an increase in some operating expenses.

Finally, our partnership's unallocated SG&A cost, excluding non-cash unit compensation expense was $4.2 million in the first quarter, compared to $3.9 million in the fourth quarter. This was also slightly higher than guidance due to diligence cost and professional fees, associated with the Hondo dropdown which occurred in February.

Our maintenance capital expenditures and turnaround cost for the first quarter totaled $6.1 million. Also we sold some of our assets held for sale, raising $1.5 million in proceeds.

We are still carrying $14.3 million of assets held for sale on our balance sheet, the majority of which are contracted to be sold, pending appropriate diligence processes for each of the assets held for sale.

Now I would like to turn the call over to Joe, to discuss our balance sheet, bank ratios and additional information related to our quarterly guidance..

Thanks Bob. I'll start with a walk through to debt components of the balance sheet that tie to our bank ratios at quarter end. Then I'll discus full year guidance for 2017 as pertains to capital spending and leverage.

On March 31, 2017 the partnership's balance sheet reflected total long-term funded debt of approximately $751 million a reduction of approximately $57 million dollars from the year end 2016 level.

Our balance sheet funded debt is shown before unamortized debt issuance and unamortized issuance premiums, as actual funded debt outstanding was $759 million, reconciling this amount at quarter end our revolving credit balance was $385 million, and a notional amount on our senior unsecured notes was $374 million.

Thus our total available liquidity on March 31st was $278 million, based on our $664 million revolving credit facility. For the quarter ended March 31, 2017 our bank compliant leverage ratios, defined a senior secured indebtedness to adjusted EBITDA and total indebtedness to adjusted EBITDA were 2.24 times and 4.42 times respectively.

As mentioned in the yesterday's earning release, this quarter end ratio represents an improvement of almost 50 basis points, compared to our 2016 year-end total leverage ratio and our best leverage ratio in almost four years.

During the quarter we continue to reduce working capital, all inventory sales, and experienced a positive benefit of debt reduction from the proceeds of our follow-on equity offering completed in February.

With our leverage ratio improvement the partnership will benefit from cost of borrowing reduction and revolving credit facility of 25 basis points, as our leverage fell below 4.5 times for the first time since the second quarter of 2013.

Our bank compliant interest coverage ratio, as defined by adjusted EBITDA to consolidated interest expense was 4.06 times.

Looking at the balance sheet total debt to total capitalization on March 31st, was 68%, an improvement over 4% again reflecting the working capital decreases in our business during the first quarter and the impact of the equity offering. On March 31, 2017, the partnership was in full compliance of all banking covenant financial or otherwise.

Now let me highlight the partnership's capital ratings during the first quarter. As mentioned, we successfully placed approximately 3 million common units to our follow-on offering with net proceeds to the partnership of $51.2 million.

This issuance was in conjunction with our $36 million Hondo Asphalt Terminal dropdown and further assisted in the partnerships de-levering during the quarter. Now let me discuss some enhancements to our guidance for 2017.

As you may have seen the slides attached to our earnings release yesterday, we've expanded a level of detail on our 2017 cash flow guidance to include quarterly estimates. Improving communication and transparency of the partnership has been our objectives since we initiated the guidance process in 2015.

This year for the first time, analysts and investors will have the benefit of detailed cash flow estimates within each segment by asset and by quarter. We are providing this information to highlight the seasonal impact of our cash flows and the normal seasonal swings, we encounter during the quarter calendar year.

As Bob highlighted, we're off to a good start this year, tracking approximately 5% ahead of our first quarter adjusted EBITDA target. Today with the same objective, we're also providing additional detail on our 2017 capital spending forecast.

First, with respect to our growth capital expenditures, we spent approximately $31 million during the first quarter which includes approximately $28 million from the dropdown acquisition of the Hondo Asphalt Terminal from MRMC. For the remainder of 2017, we anticipate additional growth CapEx of approximately $12 million.

With this our full year growth CapEx guidance is $43 million. Now switching to the maintenance CapEx, we're holding our guidance in from the range previously disclosed of $20 million to $25 million with a narrow range of $22 million to $24 million.

During the first quarter, our maintenance CapEx spent was $6.1 million and we anticipate approximately $17 million for the remainder of 2017. We expect to fund all remaining CapEx utilizing availability under our revolving credit facility as we have no current plans to issue additional equity this year.

Based on this capital spending forecast, the seasonal nature of our cash flows and the normal ramp in working capital, we expect our leverage ratio - our leverage ratio will increase by approximately 30 basis points to 40 basis points by year-end.

So wrapping this all together, based on the first quarter results and this narrow range of maintenance CapEx guidance, we are affirming our previously disclosed distribution coverage target of 1.2 times for 2017. So I - this concludes our prepared remarks this morning. We would now like to open the lines for questions and answers..

Thank you. [Operator Instructions] Our first question is from Tom Murphy with Raymond James. Your line is now open..

Good morning.

My first question related to the West Texas rate case and the step-up in distribution from $1.5 million in 2Q to $2.6 million in 3Q, can you just talk about the assumption behind that, is that volume driven or is there a rate assumption involved?.

No, when we - this is Wes Martin, when we originally put guidance out, there was an assumption there that there was some additional cash flow or distribution coming from WTLPG from the rate resolution. I think Bob had given some indication here on the August time table.

I think when we - as we get closer to that day we may revise and we look at that and give additional guidance based upon sort of our feel as the way the things are going. So you could see that theoretically coming down, given the fact that we did have some, some rate improvement built in there.

But I would say, as we sit here today and talk about this internally the - there is a lot of upside in some of these other businesses that would help to offset any sort of reduction and that is and so, I think when we are talking about our net guidance basis on a total adjusted EBITDA, I think we're still comfortable with where we are and - but there is some chance and potential call it, in the next, the next time we get on the phone with you guys, where we would have some, some revisions to that.

Got it, thanks.

And then the second one if I may, in regards to the interest expense step-up from 2Q to 3Q, can we kind of assume that the organic CapEx you are going to be more backend loaded?.

Yeah. I think, I think, I'm sorry, I think the rate as well probably change, right. Yeah on the Q3, yeah the answer to your question, we'll wrap-up the Asphalt, it's been the majority of that million dollar, Joe talked about was on the Hondo terminal. But we do have a reduction in our revolver because we were at 4.42….

I'm not going to -.

…4.5, I think that - that we get the benefit of that in Q2 and we anticipate because of our inventory build on the revolver, our - in our butane business that will our sumon the revolver, and we'll tick-up a 4.5 in Q3 - for the Q3 interest cost, correct..

Got it. Thank you very much..

Our next question is from Matt Schmid with Stephens. Your line is now open..

Hey, good morning guys..

Good morning..

Good morning, Matt..

The terminalling and storage segment had a little bit of outperformance this quarter on lubricant side and the shore-based terminal side.

You mentioned the improved margins, I know it's been very competitive in the lubricants business can you just maybe talk a little bit more detail about the trends you're seeing in the lubricants business and just the reasons behind the outperformance?.

Yeah. The nuts and bolts reason is, we have been able to expand our margins. I think we've been - we have - we did out, I would say some of those customers that we were not really making money on, we've gotten focused, more focused targeted sales group.

We're trying to do, I know this is kind of soft answer but trying to do better what we do things well at.

Additionally we are running some, winning this new customer base we're getting - we are able to run more volumes through the plan and so we're actually able to capitalize if you will more of our fixed cost, as we are running more products for our newer customer.

So it's a combination of reducing customers with lower margins, picking up high value customers and handling for those high value customers we have like one more product or manufacturing process to capitalize more on the fixed cost into the cost of inventory..

And I'll just add Matt, this is Joe. With respect to that phenomenon it is demand driven. We have seen some kind of market wide price increases in our product that has kind of stuck and so that is a good sign I think for things to come that, the fact that it's a demand pull thing that we've been price takers for a long time here..

Well, great that's good to hear.

Then hopping over the Cardinal, clearly the interruptible business has been, seems like it's been a tailwind for a few quarters now maybe, can you just talk a little bit more about current trends and potential upside through the rest of the year, so it's seems like it's pretty well positioned?.

Yeah. This is Wes. Yeah you are exactly right for, for gosh, things like better part of a year now, the interruptible have been carrying them to an outperformance relative to budget.

And I think as we look forward that, that we expect that to continue on the interruptible side, I think when you look at what's going on, close to Arcadia in the North Louisiana area with some of the drilling that's going on that's bringing additional volumes through our facilities and through that system, as well as Monroe to a lesser extent continues to outperform relative to budget on the interruptible side.

So we had a meeting with those guys yesterday and they continue to be positive on the outlook for the rest of this year, is the drilling and we expect the drilling to continue to improve, volumes coming through our system..

Okay, great. Well thank you. Appreciate the color..

You're welcome..

Our next question is from Robert Balsamo with FBR. Your line is now open..

Hi. Good morning. Congrats on a nice quarter..

Thanks, Robert..

So just some quick questions here, on Cardinal Gas, I wondered if you could give us any kind market color on activity around Perryville and just kind of what you're is hearing as, we are closer to projects, coming online from the North East any kind of buzz there with around activity?.

Yeah, I think. Sure this is Wes. When we were - when we made Investor Day I think we had given to market some color on that, that we had recently run and open season. We are continuing to negotiate some of those from contract so we'll wait to see, how that all shakes out. I would just say in general and I think we mentioned this before.

When you just look at the intrinsic seasonal spreads if you will into 2018, there still not outstanding they still, I mean, it depends on which numbers you're looking at that are plus or minus in the $0.40 range.

But I think we mentioned as well in the Analyst Day presentation that some customers are seeing some extrinsic value that they are willing to pay for. And I think we'll wait to see again once we got all the contracts executed on the Perryville side, we are converting that 4 Bcf cavern, if you recall, that should be in service in August of this year.

But right now on the intrinsic side just the color on that spreads continue to be relatively flat and not quite what we would like them to be. But again we're talking to new customers, potentially bringing in new customers at high rates, relative to what the spread say, and we hope we can go execute on those contracts..

Great.

And then just a little bit - one more question on that West Texas LPG to follow up, the volumes were a little bit softer, which I mentioned already coming back during the quarter is that soft as I assume it's not Permian related volumes?.

Yeah, that's correct we had a customer hop off the system in the - what I'll call the central region of it Barnet Shell. And it's my understanding you guys correct me, if I am wrong, that customer has put more volumes back on it..

That's correct, my understanding yes..

Yep..

Okay. That's helpful. That's it from me..

Our next question is from Mike Gyure with Janney. Your line is now open..

Yeah, can you just talk a little bit about the I guess about the Hondo acquisition and kind of like, I thinks you indicated maybe maturing your five months as yet, basically expectation about $8 million more spending kind of what's going on, I guess with the timing versus what you originally thought and kind of what's still left to go there?.

Yeah, it's basically the way we built that plan was to send it up to work, you can get inbound shipments and early we've executed that part of it. So, we have actually brought Asphalt in, the tanks are full. And then the truck load out to be able to truck it back to our market areas, is what's being completed now.

So, we think we'll be able to load Asphalt volumes out not blended Asphalt which is more especially where you had plastic components to an Asphalt but pure Asphalt we'll be able to load out about by May 20 to May 25th. And in the full fleet of products, we'll be able to offer, through the blending process will be a July 1.

So, as you look in the model we do have, we show the cash flow beginning on our - in our guidance, beginning July 1. So, to sum up and answer your question, we've completed the majority of it. We're basically building out the load rack systems to truck the volumes out..

Great, thank you very much..

Just add to that the cash flow guidance was $5 million on annual basis, so for 2017, you should see $2.5 million in the guidance numbers for terminalling and storage, specialty terminals..

Great. Thank you Very much..

Our next question is from James Spitzer with Wells Fargo. Your line is now open..

Hi, guys. Beyond the $12 million in growth CapEx that you have identified for the remainder of the year. Can you talk a little bit about some of the other opportunities that might be out there either internally or via acquisition is that can really drive longer-term growth for the company?..

Hi, James this is Wes. Yeah. I think internally we got a lot of discussion about this over the last few months. And I think, as we look forward, I think we are laser focused on debt reduction and keeping our coverage above 1.2 times. I think - so that's first and foremost on our minds here internally.

So that said, we continue to go out there and look on the organic side for strategic opportunities to go spend capital at low multiples to expand and grow those businesses. We might have the potential and I think Joe has talked about this in the past to, to look at some additional Asphalt investments, Asphalt Terminals, et cetera.

But I think right now as we said, 2017 is sort of our viewpoint, I don't see a lot on the horizon in the next couple of quarters, again as we sort of work through our balance sheet and again try to get some continued outperformance if you will through our operations, before we start going to spend capital on, on other things..

Okay. Great, great and understand. And then just on that note, the focus on the balance sheet, your bonds are obviously callable.

Do you have any interest in refinancing or retiring that debt, when you think about overall kind of balance sheet objectives here?.

James, this is Joe.

We continue to, to look at that kind of real time we have been actively in dialogue with underwriters, there is nothing eminent on that front necessarily but I think you're exactly right terming out some of this debt is probably prudent, giving what feels like a long-term rates continue to move against us, from fixed debt perspective.

So we are actively looking at debt..

All right, thank you..

Our next question is from TJ Schultz with RBC Capital. Your line is now open..

Great, thanks, good morning. First appreciate all the detailed guidance that you guys gave that's very helpful.

Wes, I think you mentioned then in response to an earlier question, that you all have kind of identified areas of upside potential and guidance that could offset the potential revision to that West Texas rate in the third quarter, so just generally, where are - do you all feel like you have the most opportunity to beat your guidance as it primarily what you mentioned on Cardinal or if there is anything else out there, I know fertilizer margins seems pretty strong?.

Sure, yeah, so you hit on two of them, Cardinal and fertilizer.

I would say based on past experience enjoyed, still had on the lubricant side, I think we have in the past I know thought that market was back and have gotten optimistic and then it's turned on and so that's still TBB, but again the fundamentals as Bob outlined before have been positive and as well as some of the internal things that we're doing, so I would circle that one as well.

And if you look at marine, marine I think we've guided $7 million plus or minus on the year and that - I think the first quarter was relatively strong, relative to where we were thinking here internally. So I think there is, there is potential there too.

So when you add-up all of those Cardinal and fertilizer alone could offset that, but I think we're seeing some positive signs in those others but it's well too early to go and start changing guidance based upon that..

Yeah. I think that's right, this is Joe.

I think cardinal and fertilizer from a revenue perspective, TJ, look good from an outperformance perspective and then to Wes' point on marine that's really a cost side of the income statement, if you will, they've done a very good job getting that cost structure intact and that's sticky in the context of will it continue for the remainder of the year, I think the answer is yes.

And further we've got some non-commercial assets that are in the held-for-sale category that we will divest of on a go forward basis or continue to decrease our cost structure as we move forward.

So feel good about that and the job those guys have done, getting that business which has been and certainly in a lower trough to perform well from a cost point of view..

Okay.

Beyond what you have in that kind of held-for-sale bucket, any other asset sales that you guys are kind of considering as you're thinking about the balance sheet this year?.

At this moment and time, I would say no we're constantly having our business leaders will evaluate that same main situation and evaluate our assets and return on capital and to the extent we find opportunities to divest and deliver in a creative way we'll continue to do so..

Okay.

Just last quick question on the quarter wholesale propane, you had missed there and I think you mentioned just some weather, right, is it just weather is there anything else going on there that you would point out, on wholesale propone?.

No, it was - it was specifically weather, our volumes were kind of similar but what happened, the demand so weak where we hold our inventory primarily North Louisiana, we were having the truck into a broader geographic market to basically move our inventory, we were carrying to get rid of it before we come out in the winter, so that extension of our market area if you will increased our cost and so that reduced our margins.

So but that was primarily driven by the warm weather..

Got it. Okay. Thanks..

Okay..

Our next question is from Selman Akyol with Stifel. Your line is now open..

Thank you, good morning. I'd like to echo the settlements I appreciate all the details you guys have provided. Just one, quick one from me, since most have been asked.

In terms of your $14.3 million, you still have being held assets for sale, how quickly you expect to realize that are there any major hurdles to getting that completed?.

There are really two large assets one is in our terminalling business and one is in the marine business and both of them, one we have a contract under but it's a function of him gathering his financing, which he is very close and he has made payments all along of significant amounts, so we know he has fundamentally invested and into this opportunity for himself and opportunity for us to divest.

The marine asset is very early stage, but we do have a Letter of Intent and that's really about all I can say. So, opportunistic I think we might show one of the second quarter and maybe one of the third quarter..

Thank you so much..

You bet..

Thank you. And I'm showing no further questions. I would now like to turn the call back over to Bob Bondurant for any further remarks..

Thank you, Aula. I just want to summarize about our first quarter, we did have a successful execution with our fundamental goal to increase our distribution coverage and to increase our partnership leverage, which we'll continue throughout 2017.

As noted earlier, we also expect our Hondo cash flows to come on line in July 1st, effort of the success we dropdown we experienced in Q1. We additionally pleased that we're able to provide additional level of guidance detail to the market, this is a - we've been wanted to do this for a long time, we felt very comfortable finally doing that.

And but we also want to communicate to that process the fact we do have seasonal impact of coverage and leverage primarily in the second quarter and third quarter. And then finally I want to continue affirm a 1.2 times distributable cash flow coverage guidance. Appreciate everybody's participation today and your continued support of our company.

Thank you..

Ladies and gentlemen, thank you for participating in today's conference. You may all disconnect. Everyone have a great day..