MMLP

Good morning. My name is [Audra] (ph), and I will be your conference operator today. At this time, I would like to welcome everyone to the MMLP Third Quarter Earnings Conference Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] At this time, I would like to turn the conference over to Sharon Taylor, Chief Financial Officer. Please go ahead.

Good morning and thank you to everyone joining us on the call today. Here in the room are Bob Bondurant, CEO; Randy Tauscher, COO; David Cannon, Controller; and Danny Cavin, Director of FP&A. During this call, we will make forward-looking statements as defined by the SEC. These statements are based upon our current beliefs as well as assumptions made by the management team and information currently available to us. Please refer to our earnings press release issued yesterday afternoon and posted on our website, as well as our latest filings with the SEC for a list of factors that could impact the future performance of Martin and cause our actual results to differ materially from our expectations. We will discuss non-GAAP financial measures on today's call. The earnings press release includes a reconciliation of these non-GAAP financial measures to their comparable GAAP financial measures. And with that, I will turn it over to Bob to discuss third quarter earnings.

Thanks, Sharon. First, I would like to begin with comments regarding the impact of Hurricane Milton on our people and on our assets. Our Martin team members who operate and manage our Tampa terminal and our trucking operations in Central Florida are all safe and accounted for. We shut down both operations more than 24 hours before landfall, and as a result, our people were able to reposition themselves to safety. Regarding our assets, our Tampa terminal had no storm surge issues, but the heavy rain filled our tank farm infield and submerged several of our pumps, which will be repaired. We also have some tank insulation damage that will also need to be repaired. Our trucking terminal located in Mulberry had only very minor damage. All in all, we feel very blessed to have experienced minimal impact to our people and to our locations. Now, I'd like to focus on our overall third quarter operating performance. For the third quarter, we fell short of guidance by $1.3 million as we had adjusted EBITDA of $25.1 million, compared to third quarter guidance of $26.4 million. As I mentioned in yesterday's press release, the primary contributor to our guidance shortfall was an increase in expense related to our long-term incentive plans, which are tied to the fair market value of our common units. As a result, we recognized an additional $1.4 million in expense when compared to guidance. Without this expense recognition, we would have had exceeded forecast by $0.1 million. The impact of this expense recognition when compared to guidance negatively impacted our Terminalling and Storage segment by $0.6 million, both our sulfur services and our specialty products segments by $0.3 million each, and our transportation segment by $0.2 million. Now, I would like to breakdown our adjusted EBITDA performance by each segment. For the third quarter, our largest cash flow generator was once again our Transportation segment, which had adjusted EBITDA of $11.6 million compared to guidance of $10.8 million. Within this segment, our land transportation business had a very stable quarter and had adjusted EBITDA of $6.5 million, compared to guidance of $6.4 million. We believe this stability will continue in the fourth quarter in this business. Our marine transportation business had adjusted EBITDA of $5.1 million, compared to guidance of $4.4 million. While our forecasted utilization was on target with guidance, our average inland day rate exceeded forecast by 8%. We continue to see stability in rates due to tightness in the inland market, and as a result, expect stable cash flow in this business line in the fourth quarter. Our next strongest cash flow generator in the third quarter was our Terminalling and Storage segment, which had adjusted EBITDA of $8.4 million, compared to guidance of $9 million. The missing guidance can be entirely attributed to the increased incentive compensation expense of $0.6 million. Without this charge, our Terminalling and Storage segment was in line with guidance. Looking toward the fourth quarter, we believe both operations and adjusted EBITDA will remain stable for our Terminalling and Storage segment. Our third largest cash flow generator was our Specialty Products segment, which had adjusted EBITDA of $4.6 million compared to guidance of $6.5 million, a miss of $1.9 million. Excluding the long-term incentive compensation expense charge of $0.3 million, we missed guidance by $1.6 million. This miss was primarily the result of weak performance from both our packaged lubricant and grease business lines. Both groups saw weaker demand for their products than forecasted. We believe this weak demand is being driven by the slowing U.S. economy. Looking toward the fourth quarter, the overall weaker economy combined with the seasonal reduced demand for our lubricant and grease products should result in softer cash on the fourth quarter relative to the other three quarters. Finally, I would like to discuss the performance of our Sulfur Services segment, which had adjusted EBITDA of $4.2 million, compared to guidance of $3.7 million. Without the long-term incentive-based compensation charge of $0.3 million, we would have exceeded guidance in this segment by $0.8 million. The pure sulfur side of our Sulfur Services segment had adjusted EBITDA of $3.7 million, compared to guidance of $3.1 million. The primary driver of this outperformance was the strong volume of sulfur production from our Gulf Coast refinery customers. The daily volume of sulfur handled was 12% greater than our forecast as we logistically managed approximately 3,600 tons per day of sulfur production into or through our Beaumont terminals. Looking toward the fourth quarter, subject to any unexpected refinery turnarounds, we remain optimistic that sulfur production from our refinery customers will continue to remain at these higher levels, which should allow us to achieve or exceed guidance in the pure sulfur side of the business. Our fertilizer group had adjusted EBITDA 0.4 million, which was 0.3 million less than EBITDA guidance for the third quarter. While the volume of fertilizer sold in the third quarter was 27% less than forecast, we realized an improvement in actual gross margin per ton relative to guidance. This margin improvement was a result of the mix of fertilizer products sold in the third quarter when compared to our forecast. Looking toward the fourth quarter, we anticipate the normal seasonal trough and cash flow relative to the first and second quarters for the fertilizer business. Before I turn the call over to Sharon, I would like to make a few comments regarding our pending transaction with Martin Resource Management Corporation. As you know, MRMC approached MMLP with an initial buyout proposal on May 24, 2024, which was reviewed by our Board's Conflicts Committee, which consists of three independent directors and was assisted by independent financial and legal advisors. A robust process ensued and the committee negotiated hard on behalf of the unaffiliated unit holders to maximize value. The pending transaction will deliver nearly a dollar more per unit than the initial proposal. In the weeks ahead, we will file a proxy statement with more detail on the transaction, and we look forward to engaging with unit holders as we work to secure the necessary approvals to complete the transaction. While we look forward to keeping you all updated, until the proxy is filed we have no more information to share regarding the pending transaction. As such, the focus of our call today will be on our third quarter performance. We ask that you please keep questions focused on our financial and operational performance. Now, I'll turn the call back over to Sharon.

Thank you, Bob. As of September 30, 2024, our total long-term debt outstanding was $486.5 million, of which $86.5 million was drawn under our revolving credit facility and the remaining $400 million consists of our second lien 11.5% notes due February 2028. Our available borrowing capacity under our $150 million revolving credit facility was approximately $54.3 million including a reduction for approximately $9.2 million of issued letters of credit. Our bank compliant adjusted leverage ratio was 4.14 times at the end of the quarter, and interest coverage was 2.23 times. While both our total outstanding debt and adjusted leverage increased from the second quarter, due to working capital needs coupled with the August interest payment on our outstanding notes, we remain committed to debt reduction and anticipate exiting the year at a debt level that reduces our adjusted leverage to below four times. At the end of the quarter, the partnership was in full compliance with all of our covenants, banking or otherwise. Capital expenditures in the third quarter were $12.5 million consisting of $8.6 million in maintenance CapEx and $3.9 million in expansion CapEx. The majority of maintenance CapEx during the quarter was associated with regulatory inspection costs on marine equipment and turnarounds at our fertilizer plants. The expansion CapEx was primarily related to improvements to the Oleum tower in Plainview, Texas in support of the ELSA joint venture. Our forecast for full-year 2024 capital expenditures now totals $57.4 million down from the previous $58.4 million discussed during the second quarter conference call. We currently anticipate full-year maintenance CapEx to be $34.8 million and full-year expansion CapEx to be $22.6 million which includes $18.8 million for the ELSA JV either through improvements to the Oleum Tower or cash contributions for our 10% ownership of the joint venture. As Bob discussed, overall, the partnership performed well in the third quarter, allowing us to maintain our adjusted EBITDA guidance for full-year 2024 of $116.1 million. For the fourth quarter, we have adjusted our forecast slightly for both the marine and sulfur services divisions. You will find our 2024 adjusted EBITDA guidance for each individual business under our four reportable segments in the presentation attached to yesterday's earnings press release. That concludes my remarks for today, and I will turn it back over to Audra for Q&A.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] We'll take our first question from Selman Akyol at Stifel.

Hi, guys. This is Tim on for Selman. Appreciate you taking my call. So, I just wanted to start off in Florida, and I appreciate the update, and I'm glad the personnel are all okay. But just wanted to see if this will have any implications for the remainder of the year as far as cash flow from those assets and potentially any capital that needs to be allocated to fix some of the minor damage there?

Good morning, Ken. This is Randy. Our Tampa terminal did sustain a little bit of damage, insulation on some of the tanks, pumps are going to have to be repaired. So, we're going to have a CapEx outlay of somewhere between $0.5 million and $1 million over the fourth quarter and first quarter to cover those expenses. Other than that, we don't expect much impact commercially.

Got it, appreciate that. And then, I guess, jumping over to ELSA, just wanted to get any updates there, everything, still on track, and then, has there been any other indications from Samsung on potential future prospects for growth out of that JV?

Yes. So, the ELSA plant was supposed to begin taking feedstock from Martin in August. We talked about that in the last call in July. It hasn't taken feedstock yet. We're ready to provide the feedstock as soon as DSM is ready to take it. We expect that to be within the month of October, but I'm told not this week. So, next week, it should be ready to start taking the feedstock, and that's going to start the whole process of producing ELSA, testing the ELSA, improving their processes, and then qualifying it with the customers. So, that is imminent. In terms of the sales program, I think the sales program is likely to be delayed from what we thought it was going to be. You've probably seen the news articles out there on delays. We've seen some public announcements for that. I think sales in 2025 probably are not going to be as robust as we were hoping they would be. And until we see that development, there's probably not going to be much discussion around the next plant, we need to make sure this plant is commercial first.

And I'll add one more comment is that we do have a reservation fee that does begin October 1st. That will be earned. But to Randy's point, the sales of the actual ELSA to the customers will be most likely muted for a while.

Understood, thanks for the clarification. And then, I guess, turning to the barge business that you guys kind of highlighted strength there and it's certainly outperformed, but just curious on what you're currently seeing for rates and any updates to contracting there?

Yes. So, the rates are currently $11,000 to $11,500 a day, which is $2,000 greater than it was a year ago. And the clean rates are currently $9,600 to $9,800 per day, which is on par of where it was a year ago. So, we've seen a continued rise in the heated rates. We've seen stable over the last year in the clean rates now. What we are seeing now is a stable market for the heated rates. We don't see those rates continuing to rise at least through the winter months at a minimum. They've stabilized out, but we expect that business to do very well in the fourth quarter and the first quarter. In terms of the term of the rates, we have one of our third-party tows in dry dock. Other than that, we have 50% of our tows locked up on term into 2025. I think some of those are five, some of those are 12 months long, yet remaining. And then, we have 20% of our remaining fleet on a term contract that's coming to its end during the next 30 to 45 days, and those rates are being negotiated. The rest of them are on spot.

Got it. And then, one last one, if I could, and I understand if you guys can't answer it, but just regarding the proposed merger, will the vote be of a simple majority, or will it be a majority of the holders outside of inside ownership?

Yes, that will be a simple majority vote.

Okay, got it. That's all I had. Thank you guys so much for the time.

Thank you, Ken.

We'll move next to Kyle May at Sidoti.

Hey, good morning, everybody.

Good morning, Kyle.

So, I appreciate it's too soon for formal guidance next year, but just wondering if you can give us any preliminary thoughts about capital spend in 2025, just given we're probably getting wrapped up on the capital needed for ELSA, so, just curious kind of preliminary thoughts about next year?

Yes. So, from a growth capital perspective, not near as significant as what we saw this year because of the ELSA. The ELSA still has a few dollars to spend, but I think somewhere in the ballpark of a million as we believe in, and we'll be done with everything we committed to on that project. From a maintenance perspective, we haven't really haven't gotten to our budgeting process yet. I would tell you we don't right now, we plan refinery turnaround for next year, and we have less barges going to the shipyard next year. So, I would think that we would be under the $34.8 million, that looks like we're going to achieve this year, but we don't, we haven't done enough yet to talk with any certainty around that.

Okay, great. That's helpful. And then, another question on the ELSA project, I believe previously, you've indicated that once it's fully operational, it could generate about $6 million on an annual basis for Martin. Can you give us an update on your outlook, maybe first on that total amount once it's fully operational? Is that $6 million still a good figure? And then, with this go down next year, just kind of how you're thinking about that progression to that full run rate?

Yes. So, as Bob commented, we're getting the reservation fee starting this month. And when we originally ran the economics and values the ELSA, when the ELSA would get sold to the consumers, about 60% to 70% of the value in the project would come with a reservation fee, and the other 30% to 40% would come depending upon the ultimate sales price we get and the volume we would sell. So, I would say for 2025, again, we're working on our budget for next year. We're relying -- remember, we're a minority in this. We're relying on our marketer Samsung to feed us with that information. We don't have good information yet for what their expectations are around 2025.

Okay. I appreciate the time this morning.

Thank you, Kyle. We'll move next to Patrick Fitzgerald at Baird.

Hi, thank you for taking the questions. So, I guess the guidance implies that you're going to have about 55 or so of borrowings on the revolver at the end of the year. Is that fair?

Yes, I think we're going to end up somewhere between 55 and 60-ish million at year end.

Okay. And then, the free cash flow outlook, I guess, given your commentary in the last question about CapEx, no major projects, your free cash flow generation will be improved in 2025. Is that fair?

Yes, sir. That's fair.

Okay.

Well, we haven't got our projections out there, but probably somewhere in the neighborhood of 30 million.

Awesome. And then, just on the acquisition financing, I think there's some confusion out there of how it relates to the MMLP debt structure. So, if you could just, I mean, I don't really think that's a question that would be prohibited, but maybe it is. But if you could just talk about like the financing and how it impacts MMLP, that would be helpful. Thank you.

Sure. As far as MMLP, nothing at the MMLP level will change related to our capital structure after the transaction is closed, should it close. So, our notes remain outstanding and our credit facility remains outstanding. And we don't -- I believe the credit facility matures in '27 and the notes mature in '28, but there is no consideration at this moment for anything changing within either of those two facilities.

And you're not borrowing anything at MMLP to help finance the acquisition, right?

That's correct. No, we are not.

Okay. And I guess, the only potential headwind is the -- one of your -- because you have a relationship on, I think the smack over refinery, they, Martin resource would just be, I guess, a little bit more levered.

So, I'm not sure I understand the question, but I'll go back to the contracts. We have numerous contracts between MRMC and MMLP that are outstanding and will continue to be outstanding. Those have been negotiated prior to this deal and have gone through MMLP's Conflicts Committee for approval. And then, on the MRMC side, they have their own financing, which will be effective with the finalization of the buyout.

Okay, all right. And then, what would be the -- would there be a kind of increased need to distribute cash up to MRMC so that they could deal with their financing or how would that work?

So, MRMC as the sole unit holder, again, depending on whether or not the deal closes, which is subject to a unit holder vote, MRMC would at that time be the recipient of any distributions that MMLP should choose to make when they are able to, or when we are able to, under the constraints of our current revolving credit facility, and the indenture under the notes.

Okay, very helpful. Thank you very much.

Thank you.

And that concludes our Q&A session for today. I will now turn the conference back over to Bob Bondurant for closing remarks.

Thank you. In closing, I'd like to thank you again for participating in our call today. Circling back to the merger agreement with MRMC, I'll reiterate that we will file a proxy statement in the coming weeks, which will provide more detail on the transaction, but until a proxy is filed, we have no more information to share. Thanks, again, and have a great day.

This concludes today's conference call. Again, thank you for your participation. You may now disconnect.

Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the MMLP Second Quarter 2024 Earnings Call. Today's conference is being recorded [Operator Instructions]. At this time, I would like to turn the conference over to Sharon Taylor, Chief Financial Officer. Please go ahead.

Thank you. Good morning, everyone. And welcome to the Martin Midstream Partners conference call to discuss second quarter 2024 earnings. During this call, we will make forward-looking statements as defined by the SEC. These statements are based upon our current beliefs as well as assumptions made by the management team and information currently available to us. Please refer to our earnings press release issued yesterday afternoon and posted on our Web site as well as our latest filings with the SEC for a list of factors that could impact the future performance of Martin and cause our actual results to differ materially from our expectations. We will discuss non-GAAP financial measures on today's call. The earnings press release includes a reconciliation of these non-GAAP financial measures to their comparable GAAP financial measures. With me on the call today are Bob Bondurant, CEO of Martin Midstream; Randy Tauscher, COO; David Cannon, Controller; and Danny Cavin, Director of FP&A. Now I'll turn it over to Bob to discuss second quarter earnings.

Thanks, Sharon. I would like to begin the discussion by focusing on our overall second quarter operating performance. For the second quarter, we exceeded guidance by $0.5 million as we had adjusted EBITDA of $31.7 million compared to second quarter guidance of $31.2 million. We exceeded guidance by $0.5 million despite two separate and distinct casualty losses that totaled $2 million in the second quarter. I will discuss these events later in my segment comments. For the second quarter, our largest cash flow generator was once again our Transportation segment, which had adjusted EBITDA of $11.2 million compared to guidance of $10.2 million. Within this segment, our land transportation business had adjusted EBITDA of $8.2 million compared to guidance of $6.5 million. Our revenue exceeded forecast by $1.4 million as we beat our second quarter forecasted mileage by 5%. Also, operating expenses were $0.4 million below forecast primarily due to lower truck and trader operating costs when compared to the forecast. This operating expense trend relative to guidance should continue as we slowly replace older equipment with new. Looking towards the third quarter, we continue to see strength in our sulfur hauling from Beaumont area refineries but have seen a bit of a slowdown in other product lines such as chemicals and lubricants. However, we believe we should be at or near guidance for the third quarter in our land transportation business. Our Marine Transportation business had adjusted EBITDA of $2.9 million compared to guidance of $3.8 million. The majority of the miss in our Marine Transportation performance can be explained by a $0.5 million [casualty] loss that occurred in May. This loss represents two separate insurance deductibles under our Marine Transportation protection and indemnity coverage policy and our whole coverage policy. This casualty loss was the result of a bridge allision in Galveston, Texas which occurred in May. The balance of the underperformance relative to guidance was the result of lower inland fleet utilization than forecasted. This was the result of scheduled marine equipment and dry dock during the second quarter that took longer than forecasted. Also, we had reduced revenue from the inland tow that was involved in the bridge allision incident. Looking towards the third quarter, we continue to see day rates stronger than our original forecast and we also foresee full utilization of our marine fleet, providing the opportunity to exceed third quarter guidance in our Marine Transportation business. Our next strongest cash flow generator in the second quarter was our Sulfur Services segment, which had adjusted EBITDA of $10.6 million compared to guidance of $9.8 million. Our fertilizer group had adjusted EBITDA of $6.7 million, which was the same as our EBITDA guidance for the second quarter. While the volume of fertilizers sold in the second quarter was 15% less than forecast, we realized a 20% improvement in actual gross margin per ton relative to guidance. This margin improvement was a result of the mix of fertilizer products sold in the second quarter when compared to our forecast. Looking towards the third quarter, we anticipate the normal seasonal trough and cash flow for the fertilizer business as farmers transition from planting to harvesting their fields. The pure sulfur side of our Sulfur Services segment had adjusted EBITDA of $3.8 million compared to guidance of $3.1 million. The primary driver of this outperformance was a strong volume of sulfur production from our Gulf Coast refinery customers. The daily volume of sulfur handled was 14% greater than our forecast as we logistically managed approximately 3,700 tons per day of sulfur production into or through our Beaumont terminals. Looking towards the third quarter, subject to Gulf Coast weather events, we remain optimistic that sulfur production from our refinery customers will continue to remain at these higher levels, which should allow us to achieve or exceed guidance in the pure sulfur side of the business. Our third largest cash flow generator in the second quarter was our Terminalling and Storage segment, which had adjusted EBITDA of $8 million compared to guidance of $9.4 million. While our specialty shore based and underground storage terminals were spot on relative to guidance, we missed our forecast at the Smackover refinery due to a casualty loss caused by a crude oil pipeline spill that occurred in mid-June. The pipeline in question moves crude oil from our storage tanks to the refinery. Because of the spill, we accrued a casualty loss equaling our total insurance deductibles of $1.5 million under both our pollution policy and our general liability policy. The impact of this casualty loss fully explains the Terminalling and Storage segment miss of $1.4 million when compared to guidance. Looking towards the third quarter, we believe this segment's cash flow should return to guidance. Finally, I would like to discuss the second quarter performance of our Specialty Products segment. In this segment, we had adjusted EBITDA of $5.7 million compared to guidance of $5.6 million. Relative to guidance, we had outperformance in our grease business, which was almost entirely offset by underperformance in our packaged lubricant business. The main driver of our grease business outperformance was an improvement in our margin per pound of grease sold compared to forecast. Conversely, the underperformance of our packaged lubricant business was due to a reduced margin per gallon when comparing actual margins to guidance. In the grease business, we have benefited from falling additive cost. While in the packaged lubricant business, we have had to substitute higher cost third party base oils driving up our unit cost. Looking towards the third quarter, we believe we should continue to perform at or near guidance in our Specialty Products segment. Overall, barring any unusual operating or weather events, we believe Martin Midstream's third quarter performance should approximate guidance. Now I'd like to turn the call back over to Sharon to discuss our balance sheet, capital expenditures and capital resources.

Thanks, Bob. As of June 30, 2024, we had total long term debt outstanding of $458 million, which was an $8 million increase from our balance on March 31st. Our revolving credit facility balance was $58 million and the notional amount of our second lien secured notes was $400 million. Our available borrowing capacity under our $150 million revolving credit facility was $83 million, which includes approximately $9 million of issued letters of credit. As you recall, that facility commitment dropped from $175 million to $150 million on June 30, 2024. At the end of the quarter, our bank compliant adjusted leverage ratio was 3.88 times and interest coverage was 2.21 times. Our leverage goal remains below 3.75 times on a sustained basis and we continue to work toward that. We spent a total of $20.2 million on capital expenditures during the second quarter with $12.4 million on growth capital projects. Of that number, gross capital spending related to the ELSA project was $10.6 million, which includes $4.1 million on the oleum tower and the $6.5 million contribution to the ELSA joint venture. For a variety of reasons, which I will discuss in a moment, we are adjusting our total anticipated CapEx spend for 2024 to $58.4 million, up from $49.4 million. Growth capital expenditures are now expected to be approximately $23.1 million, which is a $6 million increase from our original budget of $17.1 million. The majority of the increase is related to two projects. One in our fertilizer division to build additional storage capacity at our Seneca facility and the other in our Greece business for improvements at our Kansas City facility. On the maintenance side, we have increased forecasted CapEx by approximately $3.3 million to $35.3 million for the year as we have increased the anticipated turnaround costs at our fertilizer plants and incurred higher regulatory inspection costs on the marine equipment used in our Sulfur Services business. Our 2024 adjusted EBITDA guidance remains $116.1 million. Even though actual results for the quarter were slightly better, we have reduced full year guidance in the shore based terminals group in anticipation of maintenance expense impacts related to Hurricane Beryl. Please review the presentation attached to our earnings press release yesterday for 2024 adjusted EBITDA guidance for each individual business. In a moment, I will turn the call back to the operator. But first, I need to inform you that during the Q&A session of today's call, we will not be taking questions about the buyout offer we received from Martin Resource Management Corporation. The MMLP Conflicts Committee, which is made up of our three independent directors, remains in discussions with MRMC and we will not speculate as to the direction or outcome of those discussions. So please refrain from questions on this topic. With that, I'll turn it over to the operator for any other questions you may have.

[Operator Instructions] We'll take our first question from Selman Akyol at Stifel.

So first of all, just in terms of [ELSA], everything on track there. Any update to timing, any chance tower comes on sooner than expected or anything to just note there?

Everything is on track. We will have the oleum tower and the tie-ins to the ELSA plant complete by the end of July. We anticipate beginning to ship them with speeds -- the stock in the middle of the OEM in the middle of August. And at that point, the also plant venture will begin their processing and testing and qualification with potential customers. And then the timing of sales potential hasn't changed since the last several times we spoke about it.

And then in terms of marine, and I heard you in terms of day rates. Any opportunity to put any of those contracts on term at all?

So we have all of our contracts. Currently, nothing is in the spot market. It's all on some sort of term. Much of it getting us through the end of the third quarter, some of us getting to the end of the year and two of the contracts into early the first quarter of next year. So we have been looking to expand the term as the customers have been wanting to do so.

And then in terms of the bridge incident and the pipeline leak. Is that all behind you or is there going to be any increased regulatory looks, is there anything that's going to linger beyond?

So the bridge allision which happened mid-May that is now in maintenance mode, which basically means we're monitoring the areas that were impacted by the spill, and we expect that, that could be behind us. On the crude oil spill in Smackover, which happened in the middle of last month, earlier this week, we went from emergency mode to remediation mode. So we still do have some weeks or months in front of us on remediation there. Bob, did you have anything to add…

No, I do not. Well, I will add this. We have accrued the full deductible, so we don't believe as far as economic impact to us, there should be any more. But that is, as Randy said, an ongoing monitoring of really both situations.

And then could you maybe just -- you alluded to Beryl, and it sounded like you guys were impacted. Can you just maybe expand on that a little bit?

That hurricane hit us, Beaumont over to the Houston area. We have several different sites in Houston that were impacted. I'd say, from a maintenance perspective, I’ll call it nonmaterial and then down from really being able to operate for over an entire week there, which as we work our way through the year probably won't impact us financially that much, but it also did hit our shore bases in Galveston and Port Arthur. And we'll just have to see how the customers all come back from that. We could have some impact financially on the shore based side in that regard. But I'd say the damage would be nonmaterial at our locations, although, we had damage at all of our facilities.

And I'll add we really saw no impact of refinery production of sulfur through that storm. Is that a fair statement?

That's true. As Bob mentioned earlier, we have 3,700 tons a day during the third quarter and -- during the second quarter. And then during July, we've just a tad under that, which I don't think Beryl had anything to do with that.

And then just sort of my last question here and it kind of relates to that topic. In terms of refinery turnarounds, anything expected or do you expect them -- no turnarounds during this upcoming quarter?

Typically, there are turnarounds late in the third quarter, early fourth quarter. We don't have any knowledge at this point of how the turnarounds would impact us.

We'll take our next question from Kyle May at Sidoti & Company.

So Sharon, I know you said you're not going to talk about the buyout offer. But maybe just from a different perspective, I was wondering if you can give us any information about the potential time line of the events going forward?

I don't think that I can speak on that. The negotiations that will be occurring are still occurring between MMLP's Conflicts Committee and MRMC's advisory firm. I do not have a time line on when they anticipate completing those negotiations nor do I know if those will be if we will come to an agreement. So I wouldn't like to speculate there.

And then maybe in the transportation segment, like you pointed out, land transportation was really strong. Just wondering if you can maybe expand on some of the fundamentals of what you experienced in the second quarter and how you think that -- about that continuing in the third?

That's a great question and one that has us question our heads a little bit, too, because April and May were fabulous. We were strong across the board in all commodities and all around to June. June, we saw chemicals and lubricants drop. And then seasonally, the butane of course and the propane is weak. And that is the same trend as we saw a year ago, June and July, both be a little bit slower and then picking back up as we work our way through the summer. So we'll see how things go here over the next couple of months. In that regard, July, the first week was tremendous. The second week after Beryl tweaked down a little bit. We've had our Plainview acid plant, which we do -- we haul all of our raw materials into there by truck. We have had that down months of June and July and that will be coming back up in August. And so we're thinking as we get to August we might see an uptick again in that business.

And last one for me. Just with the higher CapEx budget this year. Wondering if you could give us an update on how you're thinking about the leverage ratio, maybe exiting the year? I know you're looking for that sustained -- the sustained target of 3.75 times on the leverage ratio. Just any thoughts about how you see the progression there.

I think that where we are right now at 3.88 times when we consider CapEx through the back half of the year, we think we'll exit the year at about the same level.

Next, we'll move to Patrick Fitzgerald at Baird.

Yes, is there any way you could talk about the kind of returns you're expecting to get out of the additional investment in the fertilizer business?

So that's going to -- warehouse is just about complete right now. We're going to -- what that's going to allow us to do up in the Illinois area is run harder during the summer months, because the fertilizer that we make up there is traditionally a fall and early winter fertilizer. So we're expecting $600,000 to $800,000 bump from doing that and we expect that to hit. I think we put in the fourth quarter -- the fourth quarter in the guidance.

And then the ELSA's coming online in the fourth quarter, you're expecting to get $0.9 million of EBITDA from that in the fourth quarter. Could you just remind us how that -- I'm looking at the slide from last year on kind of all the puts and takes, like could you remind us like how you expect that to ramp in terms of like additional EBITDA beyond just the fourth quarter, which you have guided out to, and like how much more CapEx needs to go into that? And then there's like $6.5 million in cash upon commencement of operations. So just if you could talk about that, that would be helpful.

So we have three different streams, which we're going to secure revenue by in those agreements. And the first is a reservation fee to pay us back for the capital we had to spend the oleum tower so we could provide the feedstock to the venture between the three parties. And that will begin in October and that's that 900,000-ish you see and that will be on -- per quarter, and that will be on building. And then the second stream would be a processing fee we get, we’re actually providing them the oleum. And that will ramp up when the sales for the partnership began to -- for the venture begin to ramp up. And we think there might be some sales in the fourth quarter yet this year, the marketing plan definitely has some sales in for early 2025. Marketing plan currently has as that ramping up in the second half of 2025. So that's contingent on the fab clients getting built and operating. And then at that point, of course, when the ELSA sales pick up the venture, we'll start seeing revenue on our percentage share of the venture. And ultimately, we expect a $5 million to $6 million of the total investment and the total investment we expect to be $26 million to $27 million, which was our capital project and the capital we're putting into the venture.

So I'll add on there. The $6.5 million that you spoke to, that was spent this quarter. That was the contribution to the ELSA joint venture itself. And as far as, through the oleum tower, we have an additional approximate $3 million left on that project.

And that concludes our Q&A session. I would like to turn the conference back over to Bob Bondurant for closing remarks.

Well, thank you, Audra. I appreciate everyone on the call today. And just a final note, we were pleased to have a ribbon cutting ceremony for the DSM Semichem plant with our Dongjin, Samsung partners on Monday and look forward to beginning production at the facility very soon. Thanks again.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.

Thank you for standing by. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Martin Midstream Partners First Quarter 2024 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to Sharon Taylor, Chief Financial Officer. Sharon, you may begin.

Thank you. Good morning, everyone and welcome to Martin Midstream Partners conference call to discuss first quarter 2024 earnings. During this call, we will make forward-looking statements as defined by the SEC. These statements are based upon our current beliefs as well as assumptions made by the management team and information currently available to us. Please refer to our earnings press release issued yesterday afternoon and posted on our website as well as our latest filings with the SEC for a list of factors that could impact the future performance of Martin and cause our actual results to differ materially from our expectations. We will discuss non-GAAP financial measures on today's call. The earnings press release includes a reconciliation of these non-GAAP financial measures to their comparable GAAP financial measures. With me on the call today are Bob Bondurant, CEO of Martin Midstream; Randy Tauscher, COO; David Cannon, Controller; and Danny Cavin, Director of FP&A. Now, I'll turn it over to Bob to discuss first quarter earnings.

Thanks, Sharon. I would like to begin the discussion by focusing on our overall first quarter operating performance. For the first quarter, we had adjusted EBITDA of $30.4 million compared to first quarter guidance of $31.6 million. A modest $1.2 million miss compared to forecast. For the first quarter, our largest cash flow generator was once again our transportation segment, which had adjusted EBITDA of $13.2 million compared to guidance of $10.2 million. Within this segment, our land transportation business had adjusted EBITDA of $9 million compared to guidance of $7.1 million. Our revenue exceeded forecast by approximately $1 million as we beat our anticipated first quarter mileage by 8%. Even though the number of loads from refinery sulfur producers was down significantly due to their extended turnarounds. Also, operating expenses were $0.8 million below forecast due to lower truck and trailer maintenance expense, which should be a future trend as we continue to replace older equipment with new. Our marine transportation business had adjusted EBITDA of $4.2 million compared to guidance of $3.1 million. Marine transportation revenue exceeded forecast by $0.8 million as average inland transportation day rates exceeded forecast by 4%, while achieving approximately 100% utilization. Additionally, we had reduced operating expenses compared to forecast of approximately $0.3 million. Looking towards the second quarter, we believe the performance of both of our transportation business lines will continue to remain strong and both have the potential to outperform second quarter guidance. Our second strongest cash flow generator in the fourth quarter was our Terminalling and Storage segment, which had adjusted EBITDA of $9 million compared to guidance of $9.4 million. While revenues approximated our forecast, our expenses were higher by approximately $0.5 million. The primary cause of the expense overage was repair and maintenance costs at our Smackover refinery. These costs were associated with the January restart of the refinery after we had taken it offline due to the extreme cold weather during the week of January 14. Looking toward the second quarter, all of our locations are continuing to operate normally and based on the consistency of revenue generated by this segment's fee-based business model, our terminalling group should perform at forecast for the second quarter. Now I'd like to discuss the performance of our Sulfur Services segment, which was our third largest cash flow generator in the first quarter. In this segment, we had adjusted EBITDA of $6.7 million compared to guidance of $9.8 million. Our fertilizer group had adjusted EBITDA of $4.2 million compared to guidance of $6.6 million. Overall, for the first quarter, we had sales volume, which exceeded our forecast of tons sold by 11%. Offsetting this were lower product margins per ton than forecasted. The combination of higher volume sales offset by lower margins fully account for the $2.4 million miss when compared to fertilizer guidance. Continued competitive pressure throughout the quarter did not allow us to realize higher forecasted sales prices, which negatively impacted first quarter fertilizer margins. Looking towards the second quarter, we continue to see solid sales volumes and believe that should continue throughout the quarter. We still see headwinds regarding margin expansion. And as a result, there is some chance we might not fully achieve our second quarter fertilizer forecast. The pure sulfur side of our Sulfur Services segment had adjusted EBITDA of $2.5 million compared to guidance of $3.2 million. The primary driver of the miss in forecast was reduced sulfur volumes produced by our Gulf Coast refinery suppliers. This was due to the extended turnarounds many of these refiners experienced in the first quarter. Actual volumes received were significantly less than forecast as our average standing volume received was only 2,450 tons per day. This compares to the fourth quarter average daily volume received of 3,550 tons per day. Looking toward the second quarter, Gulf Coast refineries are back to producing normal sulfur volumes as we are currently receiving approximately 3,550 tons per day. Based on this data, we believe we should achieve our second quarter forecast for the pure sulfur side of our Sulfur Services segment. Finally, I would like to discuss the first quarter performance of our Specialty Products segment. In this segment, we had adjusted EBITDA of $5.4 million compared to guidance of $6 million. While our Greece business, along with our remaining NGL businesses achieved forecast, the entire EBITDA mix can be accounted for by the underperformance of our packaged lubricant business. In the first quarter, this business actually achieved its forecasted sales volume while realizing slightly poorer margins than forecasted. An additional problem for our packaged lubricant business and achieving its forecast were operating issues that occurred in the month of January, beginning with the same extreme cold weather that impacted our refinery. Since January, management of this business have taken corrective actions and have been intimately involved in day-to-day operations. This has resulted in a more streamlined operating environment with improved blending process flows, which has positively driven operating results more toward forecasted performance. Looking toward the second quarter, we currently see significant improvement in our packaged lubricant business when compared to the first quarter and believe our Specialty Products segment will achieve its second quarter guidance. Overall, looking to the second quarter for our entire company, we see potential upside to second quarter guidance in our transportation business with some slight downside risk to guidance in our fertilizer business. All of our other business lines should approximate their forecast. Now, I'd like to turn the call back over to Sharon to discuss our balance sheet, capital expenditures and capital resources.

Thank you, Bob. I'll begin with a normal walk through of the debt components of the balance sheet, discuss our bank ratios and liquidity, capital spending for the quarter and end with a brief discussion of 2024 guidance. On March 31, 2024, the partnership had total long-term debt outstanding of $450 million compared to $442.5 million on December 31, 2023. Our revolving credit facility balance was $50 million, and the notional amount of our second lien secured notes was $400 million. Our total liquidity was $101.4 million based on our $175 million revolving credit facility, adjusted for a slight leverage constraint and outstanding letters of credit. Looking ahead, the commitment under the revolving credit facility will decrease to $150 million on June 30, 2024. We anticipate this decrease in liquidity to have no operational impact on the partnership. At the end of the quarter, our bank compliant adjusted leverage ratio was 3.81x. Senior leverage was 0.42x and interest coverage was 2.21x. An adjusted leverage ratio of 3.75x or lower remains our long-term goal and management will continue to focus our efforts on that target as we contemplate capital allocation. Total capital investments in the first quarter were $17.4 million, which was comprised of $6.2 million for growth capital projects, $5.3 million in refinery turnaround costs and $5.9 million of maintenance capital expenditures. Included in the growth capital number was $4.8 million in improvements to our Plainview facility to produce oleum to be delivered to the DSM Semichem or ELSA joint venture. We are maintaining our 2024 adjusted EBITDA guidance of $116.1 million, even though the first quarter was a slight miss. The presentation attached to our earnings press release yesterday outlined the shift in forecasted earnings between the business segments when compared to the forecast we discussed on our last earnings call. The material differences in forecasted earnings are in the transportation and sulfur segment as we now anticipate higher earnings for both our land and marine transport division offset by competitive pressure on our fertilizer business and extended refinery turnarounds that reduced our sulfur services volumes in the first quarter. I'll now turn the call back to the operator for Q&A.

[Operator Instructions] Your first question comes from the line of Kyle May from Sidoti.

And thanks for all the additional detail today. I wanted to start with the transportation segment and again, I know you kind of gave a lot of details, but wondering if you could just kind of give us an update on the rate environment for both the marine and land transportation. And then secondly, maybe if you could kind of give us a little bit more color on the difference in 1Q results versus what you're seeing in your guidance for 2Q?

Kyle, this is Randy. Thank you for the question. I'll start with Marine. And to start with, Marine, I think you really have to go back to the end of the first quarter of 2022 and compare that to the end of the first quarter of 2023, we saw a 25% increase in rates. And then you go forward another year to the end of the first quarter of 2024, you see a 20% increase in rates. So we saw basically a 50% increase in rates in the marine business over the last 2 years. And over the course of the first quarter, they were still escalating. We were 8% higher at the end of the first quarter than we were at the end of the fourth quarter. So we have taken this opportunity now with the rates have gone to and locked in more term than we traditionally have or even toes in that business. And so we have basically all of our toes locked up term, except for those that are in dry dock now are going to dry dock over the next month. And so we have about 5 months term on that. And so the rates right now, and I'll tell you are between will give you a wide range between $11,000 and $12,000 a day. So very strong rates in the business, and we largely have it locked into the end of the third quarter of this coming year. Going to MTI, I would call the rates stable. We're certainly not seeing an increase in rate. We have fluctuations in our revenue per mile given some of the changes we've had in the trucking business over the last 90 days. For example, down in Beaumont, as Bob said in his comments, we had sulfur loads due to extended refinery turnarounds and that certainly impacted our performance there. But on the chemical and the lubricant side, we saw an increase from what we had expected and those are generally longer routes for us. And so we saw improvement there. So I would say, as we're looking forward in that business, the refineries in Beaumont are now running like we expect to see them run and like they like to run, which is a fairly high utilization. We're still having good long-haul sales to the chemicals in the lubricant space. So I would expect the rates for MTI to be stable, at least into the immediate future.

And I'm going to add one comment back on Marine. We're always looking at what's the growth in new equipment coming online, and we're not seeing really any significant build programs by any of our competitors. So our vision is these rates will be higher for a longer period of time than what has historically been the case.

Okay. Great. That's all really helpful. And then maybe switching over to the fertilizer business if I'm looking at the guidance correctly, you raised the outlook for fertilizer in the fourth quarter of this year from $2.4 million to $3.2 million. Just kind of curious what's driving that change? If it's just timing or if there's something else going on?

Yes. We made a small growth investment up in Senate Cap where we have expanded our warehouse there. So we're going to be able to operate longer into the summer months, have more inventory, up there to sell during the season where we sell our dispersal, which is primarily the fall and early winter season. So we see an improvement in fertilizer EBITDA from what we were projecting earlier in the year to now.

Okay. That makes sense. And then one more for me. I think recently, there was news Samsung received a sizable grant that will be used to build a second chip making factory. I'm just curious of the second factory would fall under the DSM Semichem joint venture or maybe that's potential upside down the road?

Yes. The second shift factory and they have committed to a second shift factor. We don't know precisely what size of ships they're going to be producing it, which makes a difference into what asset they need. So that's an unknown. So no there's no commitment to us on a second ship factory down in Taylor, but that certainly is upside for the future.

Your next question comes from the line of Selman Akyol from Stifel.

So I guess just few follow-ups. So just kind of going back to the barge you talked about going into dry dock. Can you say how many are going into dry dock? Or is this going to be a heavier dry docking than others?

Yes. So this is a heavy dry-dock year for Marine. But we got a lot of that out of the way in the first quarter, Sel. And in the second quarter, we had 2 of our line barge toes going to dry-dock. And in the fourth quarter, we will only have one. So by the time we reach the end of the second quarter, we'll have most of our maintenance work done for the year in terms of the marine equipment.

Got it. Understood. And then just kind of going back to ELSA. Besides Samsung, are you guys having any other conversations with any other companies, given sort of the U.S. is trying to ramp up chip production?

The answer is yes. And Samsung is the marketer for the DSM Semichem joint venture. So they are handling those discussions. But yes, the answer is yes. We anticipate selling a significant amount to parties other than Samsung and Taylor through Samsung's efforts and marketing.

And any idea on when some of that might come to fruition?

Yes. I mean it's the same as when we spoke 60 days ago. The projects have been delayed, and we anticipate significant sales to begin occurring in the second half of 2025, which is about a year delay from when we entered into this project several years ago.

Right. And then -- but just when you get your oleum tower up and complete, we should still expect some revenue in the fourth quarter?

Yes. When we get the oleum tower up and complete, and the ELSA plan is commissioned, we will start receiving a reservation fee. And that's what the capital that we spent to construct the holding tower and the tie-ins and that will happen no later than October 2024.

Got it. Got it. And then just kind of going back to transportation, anything in terms of just sort of like potentially new contracts you guys could be inking out there? Are you seeing any sort of increased demand for your services?

I would say that we would define the services in both the marine and the trucking as stable. We're not looking at any new opportunities for significant growth in this business, just utilizing our current assets and possibly some incremental growth on the trucking side to the extent we think we can get the truck driver, get all the equipment we need to do it and be able to sell the services.

Okay. Last one for me. On the turnaround expense for you guys, was there anything unusual about that? I mean, it just seems awfully large to us. I'm just trying to understand, was there something unusual? Or are we just seeing inflation there?

We had a heavy turnaround year. Inflation is certainly part of that equation, Selman. But we have a heavy year. We budgeted at the beginning of the year, $32 million were still there. The first quarter, we had a significant part of that because we had a refinery turnaround in the first quarter, and that was in excess of $5 million. That's an every other year event in the second quarter. So you're not surprised we'll also be large I would say by the end of the second quarter of our $32 million, we're going to have spent $24.5 million to $26.5 million because of the refinery, because of the Plainview turnaround that we move forward this year earlier than typical, so we can tie into DSM Semichem and provide good operations for them going forward. And then because of the maintenance program we've had on the marine vessel which were very heavy this year. We have both offshore units already in the shipyard this year and then we had about 40% of our barges and vessels had to go this year. And that's all just regulatory driven and timing driven.

That concludes our question-and-answer session. I will now turn the call back over to Bob Bondurant for closing remarks.

Thank you, operator. I want to thank Kyle and Selman for the questions and interest today. And we look forward to continuing to execute our business plan and feel optimistic about our future performance. This will conclude our first quarter call.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.