USDP - Earnings call transcript Q1 2022

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the USD Partners LP First Quarter 2022 Results Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Jennifer Waller, Senior Director of Financial Reporting and Investor Relations, for opening remarks. Please go ahead.

Jennifer Waller

Good morning and thank you for joining us. Welcome to our first quarter 2022 earnings call. Operating Dan Financial Chief Chief our Officer; Josh our are Altsuler, Officer; Commercial senior today as Ruple, Chief well our Brad Chief management me team. Borgen, members Executive our Adam Officer; several With other as of Officer; Sanders, our Yesterday issued release a announcing X for the evening, ended March we months XX, press results XXXX.

website of can find If you at you release, usdpartners.com. would the like press a on our copy one

or today’s on forward-looking of safe we management accurate last statements proceed, please call XXXX. X, regarding please the disclosure as may Before be time-sensitive to information on replay no of information Also, presented at of in of reading today, the press May statements time harbor longer applies transcript. that call. release note speaks only night’s the Any that statement note webcast any the this

GAAP release that, to night’s Finally, to the include see today’s call Dan will comparable last measures. of non-GAAP Please call for over reconciliations turn measures. the financial financial And press Borgen. discussion most I’ll with

Dan Borgen

on Good Jennifer. us for joining call today. thank you you, morning and Thank the

We eventful to announce the at pleased quarter are Partnership. another

announced first safer to with critical and South the from the continue the momentum this strategy that Sponsor step we maintain more simplifying unitholders. to our provide of During network quarter, appropriate as to Terminal by to benefits XXXX and aligning interests as partnership’s growth the Rail to our see our further simplification our for was customers. in by IDRs. as Hardisty economic opportunities structure well Partnership Also, financial our our DRUbit the feel We the our of structure we its acquisition eliminating was an

our and growth future to encouraged Hardisty network the phase second long-term with South able additional and Rail customers is realize we the platform commitments support. the accretion to the as expect a are about And provide We growth. our the of which DRU partnership’s regarding by that it the by DRUbit can with engage acquisition Partnership of we the

network partnership’s DRUbit the or our with Arthur the adjacent and terminal reminder, was the destination of partner, consists and by Partnership’s DRU, DRU JV Hardisty a located strong The Gibson, rail along As constructed PAT. Rail to Terminal. is USD’s our sponsor’s terminal Port Hardisty

distribution Our providing Board revenues the from another Partnership’s the by expectations first transportation, per DRUbit to increase network Rail to by quarter terminal transaction, Partnership rail quarterly opportunities with Consistent also while our environmental providing respect and longer-term approved the cash benefits to with safety for Hardisty of at $X.XX take-or-pay customers. benefits our the our unit.

the and In significant and to be addition, the high-quality, customers. and terminals cash a amount supported strong safely quarter, free generate contract Partnership flow, during which of our investment-grade continued our to structure continues performed by reliably,

fully DRU our diesel opportunities West Terminal. to are We by and being Clean just agreement Fuels the underpinned new initiative. look with customer operational developed many the growth under This the sharing an market next forward throughput renewable future new, investment-grade-rated of our We USD our initiative. the Clean refining the Partnership’s Colton X-year about of at phase announcements under hopefully first is USD at Fuels

please market Then the to go call going we’ll financial on and is Adam update liquidity commercial our back and partnership’s developments. recent discuss latest an and results Next, give ahead. the position. into get Adam,

Adam Altsuler

million. financial operating morning. joining first issue issued call details and which cash us $X release, EBITDA distributable on afternoon, million, thank quarter. Thank Partnership And results earnings reported of plan $XX this first $X.X of our by Yesterday of close $XX.X net our income and with adjusted the first million, included of net you, XX-Q quarter of we the activities market for our additional provided you million Dan, The to of for and the after operating we cash details quarter flow today.

and our with million transaction of of include we of $XXX,XXX obviously approximately as IDRs. costs to consulting anticipate financials, and impacts to associated which of expenses. our Sponsor’s elimination $X adjusted our costs the And Hardisty we $X.X approximately acquisition Our impact additional second onetime EBITDA legal million South of Terminal view quarter the

funded the per USD trains per We the growth of size, to the associated acquisition Hardisty earnings April and Partnership’s Directors On operational closed Group consists more on capitalize QX while base August $XXX the transaction of of XXX,XXX acquisition Terminal the total our of growth unit Hardisty million of consideration and the Sponsor’s recommendation IDRs eliminated approval portion borrowings Terminal $XX details senior Committee, the the synergies Terminal we and day of and Partnership units. combined report approved capacity of partnership’s for transaction Dan XXXX its the partnership’s benefits based Partnership on under by or mentioned, entirely was early credit order general And cash was Conflicts with of scale this and the the approximately takeaway will share barrels the of The Sponsor’s X.X program. in directors. day. DRU Hardisty Today, on asset the Hardisty which secured Board X.XX the the independent year. Terminal commercial in as with our has when partner the that X, optimizing increases of million South capacity South approximately in The of of cash of designed from LLC million common facility.

Partnership, by Xx. than During take-or-pay continued DCF greater at strong evidenced cash the of free coverage our strong quarter, first to contracts our the support generation flow as

details with first at increase This at Terminal per on and distribution primarily $X.XX of as an of XX operating or the guidance, quarter declared unitholders our of first increase $X.XXXX basis, of throughput fourth the costs options during deferred granted the costs. Hardisty the to of with compared contracts that annualized costs is commencement representing cash go occurred our first in to resulting X.X% the revenue line higher distribution of deferral with customers in our prior Colton a with at higher business September on the the Partnership’s quarterly $X.XXX make-up of now customers’ right quarter Stroud As volume diesel from our quarter the over the revenue renewable in contract options. commitments an unit in XXXX compared utilities operating This per into the recognizing operational resulting revenue lower Partnership the a the the quarter. same XXXX of associated right the the the or decreases Partnership one were of storage unit terminal result, Terminal costs its was previously The XXXX. experienced became also terminal primarily increased declared on lower an the for contracted in associated associated West relative from of Partnership a the results the for of payable to Terminal. attributable is of had XXXX December influenced that stated end quarter quarter revenue May generated and in XXXX. X. effective previously distribution to XXXX. year associated by offsetting make-up period increase the And quarter higher XXXX increased as by to offset maintenance revenue supplies from in and of May to revenues record for lower these operating its Partially Casper the with partially and was at and fuel I’ll at the decreased XXXX, August close at

rate X-year contract through to rates to the SOFR, the the first discussed the interest with that interest of larger of first to mentioned, the is the fixes under increased compared mentioned of first during that and value derivatives its consulting its fees for interest incurred also as swap into X.XX% during the the of gain compared mainly rate Partnership interest of swap variable rolled in million impact XXXX. first of ‘XX March and the the associated to a Partnership the the interest lower were South a The quarter April As on lower selling, Net due with of by The during experienced monthly and general swap $XXX value rate, financing XXXX quarter Related transaction, instead rate factors notional a rate the outstanding administrative acquisition XXXX. Hardisty quarter higher settles swap pay of quarter incurred our Terminal. to $XXX,XXX to agreement. a legal to The we resulting the the approximately first new noncash lower of secured of costs of quarter or quarter average offset notional related from already drop-down swap of partnership’s balance rate interest income date debt in as weighted first expense operating the new XXXX. previously termination and XXXX existing agreement quarter the credit as compared XX. overnight the

the transaction to the and accounts of the quarter of expenses quarter to for and discussed, a relative to decreased the discussed impact respectively, were Hardisty the primarily EBITDA operating payments timing the distributable revenue the result The to and first first XXXX XXXX. Hardisty cash relative receipts flow XX% deferred back provided to XX% and related the receivable, already decreases accounts the already of $XXX,XXX cash quarter, operating Turning of Terminal quarter of Terminal. the decreased by South payable of activities quarter XX%, including net of the -- and Adjusted due for of the balances. primarily factors general acquisition factors

for expenditures by interest paid impacted was the taxes, cash quarter. and DCF a higher Additionally, paid capital maintenance partially by in cash for offset during decrease

equivalents of covenants. its and approximately compliance cash with the the million facility, million million on March senior $XXX Partnership’s of secured unrestricted had capacity continued $X.X financial borrowing XX, credit and Partnership As undrawn subject of $XXX to cash

to facility. As the the of $XXX with of credit its March the portion Hardisty South an million of The Partnership financial $XX of million the of borrowings cash end under outstanding XXXX. additional credit facility XXXX, the was had finance secured its to under Subsequent the covenants first March acquisition. XX, compliance the revolving Partnership borrowed in quarter as XX, Partnership of senior

its May the financial under As continued credit compliance such, million borrowing senior X and to as available had subject with million, capacity borrowings $XXX of facility $XX covenants. of undrawn Partnership its outstanding secured of

Our Xx our our as South consolidated a it result, trailing limited trailing to is XX-month consolidated acquisition to of borrowing will point as facility. XX, EBITDA. credit treated credit material under through at our the be capacity secured X.Xx December acquisition XX-month -- which will back of XXXX, senior revert our Hardisty a And terms EBITDA

of simplification structure. as well Partnership’s are Terminal about we South Hardisty our mentioned, Dan financial As as excited the the recent our acquisition of

as well with as are Clean we the We DRU sharing I’ll USD our to on at extremely future. more growth initiatives to you back updates over the forward Fuels, now focused turn in Dan. that, and the look call With

Dan Borgen

Thanks, Adam.

WCS to recent a and on activities. Brad update ask our market, detailed give I’ll Now on an Brad? us market update the commercial events

Brad Sanders

Thank you, Dan Adam. and

pre-COVID are an there because only that they Let price to volatility macro where underinvestment molecules the the demand global me uncertainties, becoming three getting in start course, currently addition, had China a space, and conflict. evident update, One, COVID disruptions standpoint themes aware time. global driving is not seeing supply are in be of and extended that is higher. current with despite fuel of that now the Russian-Ukraine creating Everybody levels from to critical fossil But period a and need -- of demand but on action. returning the and we’re we’ve is it’s and

these have So low commodities, the combination levels all historical in that. and inventories of of prices driven gone naturally have crude all light up three reflect to products, and to global

began, a up $XX look is $XX that at If you distillates barrel since gasoline conflict a the prices crude barrel period. began. more since almost But and changes $XX a effectively barrel importantly, in since is conflict the up

So demand-led is naturally, a this event.

and of business combination international is and demand refiners. for high-price high-volatility, this So high-margin the creating growing supply disruptions

then netbacks our with potential naturally customers prices, higher and leading, So is producers. Canadian higher to these this to

up mentioned will on. our will we’re And reveal network. production to build, success focused see activities is for by our the Canada, that to a function both the as Adam we function second With ultimately, update will that, DRU in new a We’ll we levels solutions rail primarily demand and inventories increase increase now of and begin that then average Canadian I’d of our given as a Dan is and pursuing previous XXXX. production those in inventories lower like provide see of announcements that XXXX. X-year commercially egress are production are of end that see in there producers in DRU levels crude expectation on to our themselves expectations our of quick three So the in XXXX half this. relative running

capacity they are transitioning a custom you solution. Gulf we network and commercialize egress rail for the on reasons U.S. there there the with and/or ESG at custom and our our are product XXX% in environmental Coast. efforts. as with the alternatives. of So opportunities driven -- Primarily, DRUbit through shared issues transportation is origin naturally, the blend to efforts an that in [candid] focused and their story and a value are gases that are critical And there past. with upgrade and to this greenhouse transportation competitive DRU savings, current support are bitumen of But growth DRUbit the is our important, blend rail egress positive story, there the equally as in that there deal sale safety savings relative is And customers and are we’ve

potential are So DRU discussions detailed for customer facility. naturally with the only our Mid-Continent our a support producers both Gulf facility, the Cushing, only a Arthur we as in we and Stroud and not called the but and Coast Port is in third pursue which our the and second potential includes and a which a network, refiners not at negotiations to facility but DRU for meaningful

we discussions pursue with we’re is new operations progress with current as with of the the opportunities. our customers So natural equally growth and please driven pleased then that

have we businesses where that their existing are have -- course. contracts periods our Secondly, run

number and to discussions solution extend a and three detailed to contracts end XX, of DRU contracts the have specifically, end transition by to a contracts, those We I time. it’s believe, are contracts that those June and over of, in renew we

will contracts to -- infrastructure traditional aviation producers that XXXX to we’ll our able renewable number extend in in our our traditional sorry, transportation view which that looking the not a who progress of those -- or shared of logistical solutions levels efforts Dan then traditional and in renew that this support point effects then opportunities exceed creating efforts. decarbonization mentioned of renewable the space, half and the who but inventories the finally, build, you efforts fuels refiners given or and production of ethanol, efforts and expectation and with substitution now protein XXXX to require sustainable substitution feed are just for Clean is we second the opportunities earlier fuel, to support have the nontraditional feedstocks So molecules diesel includes product, decarbonize And it is I that. only that affect is expect need also in that about second half Clearly, and XXXX. feedstocks of a to diesel, to Adam and second-order strategic and Fuels business. I’m substitute be in been And solutions

excited the in And and they in space, constantly, And unique. we’ve what in we -- a see value really those we we’re think change response this our makes space this which of about created to pretty mix solutions are So and ensure made we’ve are. that investments in required invested that organization logistics only with in the the and to have supported experienced that our capabilities these support -- and will counterparties this happen. who resources and make but solutions railroads traditional the place to with space relationships not in opportunities

it So the excited to Jennifer. With I’ll in Thank opportunities space we back you. growth over the that, very steps about we’re this that next see. turn and

Jennifer Waller

for questions. that, we’ll up Thank the With additional you, any call open Brad.

Operator

We’ll Sidoti. from of Instructions] Steve Ferazani a question take [Operator

Steve Ferazani

to West I we improvement did on -- sequential want the revenue the ask about color deals. all on the saw Colton call. Appreciate based the

like a saw that I little have not on the little capital Can You there costs think walk issues up you a working distributable bit about looks the through cash but huge. When might been it bit? flow, some front. primarily

Adam Altsuler

today, would around we late also the around as arrangements revenue then Casper year. the around around our primarily took mean in slight decrease the it around see rates I last have of on there when you’ll decreases Q were that would have as also contracted -- some Stroud. have and Yes. the effect decreased file say terminal been part that later -- I the there into been

that’s primary between so I And the guess reason reason -- revenue the primary the decrease in for see. you

Steve Ferazani

looks other No, looks that but a what like is primarily than I’m flow, change and positive. asking the I’m was something. the quarter cash which sequentially sequential Or everything on maybe working missing positive capital issue. And distributable

Adam Altsuler

see -- in those OpEx. operations you we far say there revenue Yes. pretty seasonality the consistent sometimes mean, it’s as It’s take-or-pay yes, as the would -- are QX. otherwise, the and some the how receive timing I the payments, of But I --

end. -- the out typically So regard Nothing around over color comment we working to AP nothing on they capital on We’ll work make AR. there. from the really our to the -- a get major and time with usually

Steve Ferazani

Great.

guess we Is extra In some haven’t you terms the maybe which on of expected a opportunities not but I Express, that talked about with Casper, lot, the there. developing? capacity

Brad Sanders

Steve...

Adam Altsuler

Brad?

Brad Sanders

rail This In And the need is relationships market it but the not folks Brad. spreads words, to market Yes, hasn’t have we is uniquely that to only Express that use for speak you sensitive for incentives egress. intention create to. other to Casper use yet.

sought incentives. So we’re increase. hopeful of solutions are through that throughputs that different Casper in we number will see of the year, commercial second There’s a have half that this that

contract-type some like do lead those And depending could in to with we discussions. it have where drive on the feel will throughput. the end current higher differentials, up look we potential to differentials So half second

market in second to we’re the further half. hopeful throughput So going that support is the

Steve Ferazani

the tank touch you and -- adding that additional there, to infrastructure? storage where progress And the with on Stroud, on on Great. investment are then

Adam Altsuler

Yes...

Brad Sanders

second... That

Adam Altsuler

go Go Oh, Brad. ahead. ahead,

Brad Sanders

I say Yes. going that second quickly just becomes tank X. July was that, to available

us grades so Stroud our opportunity counterparties benefits now Terminal. a And And gives the of Stroud with uniquely to Terminal. we’re handle through that about or to the interest number discussions and associated with their the carry in

Steve Ferazani

Great. Great. last... And then

Adam Altsuler

to I that add budget would project. only is The time, thing on we’re the on to relative

Steve Ferazani

Fantastic. ask the understandably. positive wanted one about is on you’re sound I having you Last around conversations to very DRU,

timing the either long-term Just a new under customer do that the in in a get DRU you or new customer terms locked sense even have What’s of you agreement? to transition get a you to once a trying the if to a already infrastructure needed one.

Adam Altsuler

I’ll answer that.

rail think whole, retrofitting of got origin particular an if as Stroud you So ready those are option activities and infrastructure some to improvements as but some about also our a of both shared calls and our DRU times. already well. we’ve DRU origin in to the a as support for at network Arthur destination past Hardisty you’ve in destination Both at Port build then and, that relative we’re improvements completed, projects XX-month shovel around reminder, at ultimately, permitting origin growth. And as and are

it’s really, out anything items, And long actively risk. were we involved growth. time we lead that see a process So that in there The don’t planning for at now, time kind of that XX-month line. line construction puts

Operator

I’d to to happy Dan any At remarks. Borgen for time, the be concluding this call return

Dan Borgen

thank -- you, Thank mean, We that. you, Steve I appreciate Leo.

future the continues main focus. appreciate Clean about DRU and are next be the we phase support of enter to to the Fuels Partnership’s strategy always, story. as The As our growth we the excited and

right and with with good really us environment, moving and this can going Clean be reasons, on to by the it encouraged as highly grow be and when to we’re our pun higher platform, our that discussions around We’re able Likely, environment, the lower for while do lot that. as environment, a pun that. we again again we able nonhaz, the being to DRU able several our Fuels the encouraged still program, well about -- on -- intended, of business, to table product intended, doing to can we’re feel West In all means our to cost a meaningful this the netback able really being that. to a to Customer’s deliver to nonflammable the with some create in Coast that product. customers lowest-carbon-intensity that obviously have and customers with to continuing at

for updating you. announcements again we’re continue in. So we on We’ll and again, keep regarding forward doing, to thanks future Thank the look dialing to success. what

Operator

Webcast. conclude Earnings USDP does This today’s QX XXXX and Call

And a now may You everyone, have day. great disconnect.

USD Partners (USDP) 8 May 222022 Q1 Earnings call transcript