Equity | 6. Equity Series A Preferred Units On May 29, 2018 (the “Closing Date”), we entered into a Series A Preferred Unit Purchase Agreement (the “Preferred Unit Purchase Agreement”) with Stephenson Equity, Co. No. 3 which subsequently assigned the units to Charles C. Stephenson, Jr. (the “Purchaser”), an affiliate of our General Partner, where we issued and sold in a private placement 5,769,231 Series A Preferred Units representing limited partner interests in the Partnership (the “Preferred Units”) to the Purchaser for a cash purchase price of $7.54 per Preferred Unit, resulting in proceeds to the Partnership of $43.5 million. We used proceeds from the transaction to reduce outstanding borrowings on our revolving credit facility. Concurrent with the closing of this transaction, we entered into an amended and restated Credit Agreement dated as of May 29, 2018, to amend and restate the terms of our credit facility, as more fully described in Note 4. The Preferred Unit Purchase Agreement also provides us with the right to exercise an option at any time during the six months after the Closing Date, to issue and sell to the Purchaser up to $6.5 million of additional Preferred Units. The Preferred Unit Purchase Agreement sets forth the method of determining the purchase price of these additional units, which price would, in turn, determine the number of units to be issued and sold. The Preferred Unit Purchase Agreement contains customary representations, warranties, and covenants of the Partnership and the Purchaser. The Partnership and the Purchaser agreed to indemnify each other and their respective officers, directors, managers, employees, agents, counsel, accountants, investment bankers, and other representatives against certain losses resulting from breaches of their respective representations, warranties, and covenants, subject to certain negotiated limitations and survival periods set forth in the Preferred Unit Purchase Agreement. Pursuant to the Preferred Unit Purchase Agreement, and in connection with the closing of this transaction, our General Partner executed the First Amendment to First Amended and Restated Agreement of Limited Partnership of the Partnership, which authorizes and establishes the rights and preferences of the Preferred Units. The Preferred Units shall have voting rights that are identical to the voting rights of the common units into which such Preferred Units would be converted at the then-applicable conversion rate. The Purchaser is entitled to receive quarterly distributions that represent an annual return of 9.5% on the Preferred Units. Of this 9.5% annual return, we will be required to pay at least 2.5% in cash and will have the option to pay the remaining 7.0% in kind (in the form of issuing additional preferred units) for the first twelve quarters after the Closing Date. We intend to pay the first distribution on the Preferred Units of $1.4 million in November 2018 in cash. After the third anniversary of the Closing Date, the Purchaser will have the option to convert the Preferred Units into common units on a one-for-one basis. If certain conditions are met after the third anniversary of the Closing Date, we will have the option to cause the Preferred Units to convert to common units. After the third anniversary of the Closing Date, we will also have the option to redeem the Preferred Units. The Partnership may redeem the Preferred Units (a) before November 29, 2018 at a redemption price equal to 100% of the issue price (plus $0.2 million), (b) at any time after the third anniversary of the closing date and on or prior to the fourth anniversary of the closing date at a redemption price equal to 105% of the issue price, and (c) at any time after the fourth anniversary of the closing date at a redemption price equal to 101% of the issue price. Earnings Per Unit Our net income (loss) Income attributable to our preferred unitholder Net income (loss) attributable to noncontrolling interests Net loss attributable to the General Partner Net income (loss) attributable to common unitholders Basic net income (loss) per common limited partner unit net income (loss) attributable to common unitholders Diluted net income (loss) per common limited partner unit net income attributable to preferred unitholder basic net income per common limited partner unit Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 (in thousands, except per unit data) Net income attributable to common unitholders $ 3,620 $ 1,554 $ 7,385 $ 178 Weighted average common units outstanding 11,940 11,884 11,924 10,903 Basic net income per common limited partner unit $ 0.30 $ 0.13 $ 0.62 $ 0.02 The following summarizes the calculation of the diluted net income per common limited partner unit Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 (in thousands, except per unit data) Net income attributable to common unitholders $ 3,620 $ 1,554 $ 7,385 $ 178 Net income attributable to preferred unitholder 1,045 — 1,412 — Net income attributable to limited partners $ 4,665 $ 1,554 $ 8,797 $ 178 Weighted average common units outstanding 11,940 11,884 11,924 10,903 Effect of dilutive securities: Weighted average preferred units outstanding 5,769 — 2,628 — Long-term incentive plan unvested units 431 111 418 208 Diluted weighted average common units outstanding 18,140 11,995 14,970 11,111 Diluted net income per common limited partner unit $ 0.26 $ 0.13 $ 0.59 $ 0.02 Cash Distributions The following table summarizes the cash distributions declared and paid to our limited partners since our IPO. Total Cash Per Unit Cash Total Cash Distributions Payment Date Distributions Distributions to Affiliates (a) (in thousands) Total 2014 Distributions 1.104646 13,064 8,296 Total 2015 Distributions 1.625652 19,232 12,284 Total 2016 Distributions 1.625652 19,258 12,414 February 13, 2017 0.406413 4,823 3,107 May 13, 2017 0.210000 2,495 1,606 August 12, 2017 0.210000 2,495 1,607 November 14, 2017 0.210000 2,497 1,608 Total 2017 Distributions 1.036413 12,310 7,928 February 14, 2018 0.210000 2,498 1,599 May 15, 2018 0.210000 2,506 1,604 August 14, 2018 0.210000 2,506 1,604 November 14, 2018 (b) 0.210000 2,509 1,606 Total 2018 Distributions 0.840000 10,019 6,413 Total Distributions (since IPO) $ 6.232363 $ 73,883 $ 47,335 (a) Approximately 63.9% of the Partnership’s outstanding common units at September 30, 2018 were held by affiliates. (b) Third quarter 2018 distribution was declared and will be paid in the fourth quarter of 2018. In addition, the owner of the Series A Preferred Units is entitled to receive quarterly distributions that represent an annual return of 9.5% on the Preferred Units. Of this 9.5% annual return, we will be required to pay at least 2.5% in cash and will have the option to pay the remaining 7.0% in kind (in the form of issuing additional preferred units) for the first twelve quarters after the Closing Date. We expect to pay the first distribution on the Preferred Units in November 2018 in the amount of $1.4 million in cash. Equity Compensation Our General Partner has adopted a long-term incentive plan (“LTIP”) that authorizes the issuance of up to 1,182,600 common units. Certain directors and employees of the Partnership have been awarded Phantom Restricted Units under the terms of the LTIP. The fair value of the awards is determined based on the quoted market value of the publicly-traded common units at each grant date, adjusted for a discount to reflect the fact that distributions are not paid on the restricted units during the vesting period. Compensation expense is recorded on a straight-line basis over the vesting period of each grant. We recorded expense of $0.9 million and $1.1 million during the nine months ended September 30, 2018 and 2017, respectively, related to the unit awards. We have historically granted annual LTIP awards to key employees in the second quarter of each year. The following table summarizes the LTIP unit activity for the nine months ended September 30, 2018 and 2017: Nine Months Ended September 30, 2018 2017 Weighted Weighted Average Average Grant Grant Number Date Fair Number Date Fair of Units Value / Unit of Units Value / Unit Unvested units at January 1 664,509 $ 8.46 573,902 $ 9.86 Unvested units granted 396,484 $ 3.24 249,120 $ 7.11 Units vested (75,222 ) $ 13.56 (43,930 ) $ 16.56 Unvested units forfeited (85,092 ) $ 7.07 (39,722 ) $ 8.51 Unvested units at September 30 900,679 $ 5.87 739,370 $ 8.61 The majority of the awards vest in three tranches, with one-third of the units vesting three years from the grant date, one-third vesting four years from the grant date, and one-third vesting five years from the grant date. However, certain of the awards have different, and typically shorter, vesting periods. One grant of 29,602 units vests three years from the grant date, contingent upon the recipient meeting certain performance targets. Total unearned compensation associated with the LTIP was $3.2 million at September 30, 2018, and the awards had an average remaining life of 2.31 years. |