Good day and thank you for standing by. Welcome to the MMLP Second Quarter 2021 Earnings Call. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Sharon Taylor. Please go ahead..

Thank you, operator and good morning everyone. I am joined by Bob Bondurant, President and CEO; Randy Tauscher, Chief Operating Officer; David Cannon, our Controller; and Danny Cavin, Director of FP&A. Before we get started with our comments, I will remind you that management maybe making forward-looking statements as defined by the SEC.

Such statements are based on our current judgments regarding the factors that could impact the future performance of Martin, including facts and assumptions related to the impact of the COVID-19 pandemic, but actual outcomes could be materially different.

You should review the risk factors and other information discussed in our SEC filings and form your own opinions about Martin’s future performance..

Thanks, Sharon. To begin, I would like to say that I am pleased with our first 6 months of performance in 2021 as it is on pace with our annual projected adjusted EBITDA of between $95 million to $102 million. Also for the first 6 months, we have generated free cash flow of $15.6 million, also in line with our internal free cash flow forecast.

Let’s now discuss our second quarter performance by business segment. For the second quarter, our overall adjusted EBITDA was $22.5 million compared to $23.9 million in the second quarter of 2020.

The adjusted EBITDA in our Terminalling, Natural Gas Liquids and Transportation Services segment were very similar in this year’s second quarter compared to last year’s second quarter. The one segment that underperformed compared to a year ago was our Sulfur Services segment, which I will discuss shortly.

Our largest cash flow contributor for the second quarter was our Terminalling and Storage segment, which had adjusted EBITDA of $10.6 million both this year and last year. Even though our Terminalling and Storage cash flow was the same year-over-year, there was some variability within the segment.

The cash flow at the Smackover Refinery was down $0.6 million compared to a year ago. This reduction was primarily due to the scheduled contract adjustment to the throughput rate related to capital recovery fees, which became effective January 1 of this year.

Offsetting this was a $0.6 million improvement over last year in our lubricants and specialty products business. Both the supply of packaged lubricants and packaged greases remain very tight coming out of the pandemic, and as a result, we have experienced increasing sales volumes, which reflect current market conditions.

We continue to believe this market will remain in tight supply over the near term, which should positively impact the third quarter. Our next largest cash flow contributor in the second quarter was our Sulfur Services segment, which had adjusted EBITDA of $8.9 million compared to $10.8 million a year ago.

We are very pleased with the fertilizer portion of our Sulfur Services segment as it had adjusted EBITDA of $6.9 million in the second quarter compared to $6.8 million a year ago.

For the first 6 months, which is the primary earnings period for the fertilizer business, we had adjusted EBITDA of $14 million compared to $11.8 million for the first 6 months of 2020..

Thanks Bob. At quarter end, the total of our long-term debt outstanding was $526 million, which consisted of $180 million drawn on our revolving credit facility; $54 million of secured 1.5 lien notes due 2024; and $292 million of secured second lien notes due 2025.

As of June 30, 2021, our first lien leverage ratio and adjusted leverage ratios were 1.6x and 5.31x, respectively.

As the second quarter begins our seasonal NGL inventory build, I want to remind everyone that our debt ratio includes adjustments from the working capital carve-out supplement, which allows us to exclude debt attributed to the NGL inventory build from the total debt portion of our leverage calculation if the volumes are either forward sold or hedged.

Looking back at the end of the first quarter, adjusted leverage was impacted positively through the inventory working capital carve-out by a reduction to debt of $8.5 million. That carve-out increased to $30 million at the end of the second quarter as inventory volumes increased along with forward sales and hedges.

This results in a reduction in adjusted leverage from 5.44x to 5.31x, even as total debt increased slightly..

Thank you. And your first question is from Selman Akyol of Stifel..

Thank you. Good morning..

Good morning, Selman..

Can you talk maybe a little bit about – you said your supplies of sulfur were down this quarter, which I would have thought was a function of refinery utilization. And then obviously, you noticed – you noted transportation was up due to higher utilization at the refinery.

So can you maybe just talk about those two pieces?.

Sure. This is Randy, Selman. Thanks for the question. So regarding the sulfur, sulfur, at the beginning of COVID, obviously took – refinery utilization went down with sulfur – deliveries into Beaumont declined significantly. And then we went through the hurricanes, and we went through the winter storm.

And even in the second quarter, when you look at the first half of the year, deliveries into Beaumont, it was well below. Even with the increase in utilization in the second quarter, it was well below historical. And so that’s just an issue the sulfur business has had to overcome.

The good news is in the first 3 weeks of July, the sulfur deliveries into Beaumont have increased significantly from where they were in the first half of the year, plus 20% up into Beaumont.

So the refineries, as they are getting back to their low 90-ish percentile, in our area, I haven’t spoken with them, but I’m surmising they have upped their sulfur content in the crude a little bit. And so we’ve seen the sulfur deliveries increase significantly. And so that’s good news for the sulfur business going forward.

As far as MTI, that’s driven by a lot of things, the refineries included, but also petrochemicals is big for the MTI business. They haul a lot of lubricants out of that of more lubricant processing plant. So, that MTI is driven by a lot of things on top of the refinery, where we have seen a lot of the strength in that business..

Got it. Thank you. And then just in Marine Transportation, you talked about in offshore, tow went into service for 6 months.

Any thoughts on how that would be recontracted? I mean does it just go back to being idle or do you think you’re seeing a pickup and you’d anticipate that being recontracted longer term?.

So we moved the M6000 from the Gulf Coast where it had been employed years ago and have been sitting more in the last couple of years, and it’s actually been utilized. We moved it up to the Northeast. So we have it on 6-month contract with a customer in the Northeast.

And we’re hopeful that goes very well and that we will continue to operate up in the Northeast with that unit ongoing..

Understood. And then on the CapEx, you talked about it as terms of – I guess, it sounded like maybe expanding capacity for the Transportation segment.

So far, in terms of what you had invested in this year, should we think of the balance of the CapEx – growth CapEx budget being the same – for the same kind of items?.

Yes. That was related to some of our trailers. And I think so, I think when we are looking at growth CapEx, we are focused on the land transportation business. We don’t have any other large growth CapEx plan for any of the other segment..

Alright. Thank you..

Thank you, Selman..

And your next question is from Patrick Fitzgerald of Baird..

Hi. Thank you for taking the question.

How is the butane business, given what’s going on with pricing, tracking for the fourth quarter of ‘21 and the first quarter of ‘22 versus the fourth quarter of ‘20 and first quarter of ‘21, given there was some hedging issues last year and the prices have moved up? So, any color on that would be helpful?.

Okay. This is Randy, Patrick. So, when you think about the butane business this year relative to last year, there is a lot of differences. Last year, we went – crude was much lower last year. Our prices – inventory prices into the whole were much lower than they are this year.

This year – when you look at the butane to WTI spread, it’s about low-70% ish, 72%, 73% currently. That’s higher than you would typically see this time of year. But there is good reason for that, and that’s the fundamentals. We have seen field production for butane very similar year-on-year. And we have seen exports rise significantly year-on-year.

Much the same story you see in the propane business applies to the butane business. So, where are we at this year, no, we can’t sit here today and give you a forward projection on financially how we are going to do. We have started putting on a hedge position, which is a little bit earlier than we were able to a year ago.

We are approximately a third hedged at this point in time. We think the fundamentals are favorable to us, but we are still in the middle of the build season, and we are still several months away from beginning the sell season..

Okay. So, any – I mean, I know there is a lot of moving pieces.

But I mean, would you expect it to be up, down from last year or what or you just can’t say?.

Every season in butane is unique. And I really can’t give you a projection relative to what we achieved last year..

Okay. In terms of your – it sounds like free cash flow, in terms of operating cash flow minus CapEx, is going to be pretty back-end loaded, given the NGL working capital and everything.

I mean do you expect free cash flow to be pretty close to your adjusted free cash flow guidance?.

Yes, we do. That is coming straight from our projections, those numbers, and we would expect to be right within that range..

Okay. So, you have – like the 1.5 lien notes, I believe they already start – they are callable soon. And you obviously got an amendment on the revolver.

Would you want to take care of kind of the top part of the capital structure before you can deal with the second lien notes or how are you thinking about that?.

So, the second lien notes are callable August of 2022. The 1.5 are callable now at a premium, I think its 1.03 and next August, it will be 1.02 or 1.01. So, as we sit here today and look at the capital markets, we certainly wish that we had the ability to take those two Ls out right now. But we don’t, we are going to have to sit and wait.

And my thought at the moment is that when we get into that August timeframe next year, we are looking at redoing the entire capital structure, the revolver and the 2 Ls at the same time and then if it makes sense, obviously, the 1.5..

Okay, got it. That makes sense. Okay. Thank you..

Thank you..

Your next question is from Jason Mandel of RBC Capital Markets..

Good morning. How are you? Thank you for the time. And a bunch of my questions were just answered in that last question, but maybe just a quick follow-up on the revolver amendment. So, the revolver was amended to give a little bit more room under the covenants for a potentially weak working capital quarter.

What is right now the available liquidity? I think last quarter there was limitations on the availability due to covenants. And obviously, now we have changes.

So, what is the actual dollar amount that’s available right now?.

I can say at June 30, our maximum available would have been $220 million. So, we had about $40 million at that time that would have been available..

Okay, great. That’s very helpful. Alright. Thank you very much..

Alright. Thank you..

Thank you. There are no further questions at this time. I will turn the call back over to Bob Bondurant for closing remarks..

Thank you, Christy. In summary, our outlook for the second half of the year remains positive as our economy continues to recover. Refinery utilization has improved and at this time, is only a small percentage less than historical norms. That improvement is showing up in increased customer demand for our services.

Before concluding, I want to take a moment to discuss the ongoing COVID-19 pandemic, including the Delta variant.

While acknowledging that the Delta variant is spreading, we believe that consumer and industrial demand will continue to recover and while politics is certainly a factor, see no real risk to a countrywide shutdown like we experienced last year. The evidence is overwhelming that those who are vaccinated are highly protected.

And if they are diagnosed positive, the severity of their illness and the risk of death is greatly lessened. While the unvaccinated face an elevated risk, they are a smaller percentage of the U.S. population. So, cases for the unvaccinated may continue to rise, but overall, hospitalizations and mortalities should not.

So in our view, the economic recovery will continue; folks returning to their offices, increased business and leisure travel and return to what we regard as normal, All this points toward a continued robust increase in demand. I would like to thank everyone who listened in on the call today. Looking forward to speaking with you again next quarter.

Thank you..

And thank you. This does conclude today’s conference call. You may now disconnect..