USDP - Earnings call transcript Q2 2022

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the USD Partners LP Second Quarter 2022 Results Conference Call. At this time, all participants have been placed in a listen-only mode. The floor will be open for your questions following the prepared remarks. [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. Ma'am, please go ahead.

Jennifer Waller

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

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

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

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

Dan Borgen

XXXX and the you the Hardisty Terminal sponsor, maintain to our Thank Beginning Good its morning, simplify the partnership. of our your we XXXX, the continued and the thank that, you, from support as the by an well on second respectively. for appropriate joining quarter, of step second momentum acquisition call Jennifer. of of partnership's eliminating this half today structure closed financial and as IDRs. us for the was We feel South into

network X.X to growth the existing increases from day Hardisty. the to XXX,XXX future The combined the with detailed the well partnership's positioned competitive growth associated day, acquisition trains takeaway a has Terminal have discussions design of and first while partnership's, provide at terminal benefit DRU capacity is to size, transportation commercial our approximately customers barrels economically and Hardisty regarding by per now continue with unit and optimizing base, of the synergies we Rail of per options. DRUbit, asset capacity As safer South operational and The new or potential program.

later As Hardisty, take-or-pay transportation Rail environmental customers. benefits providing providing network, safety DRUbit at the renewing, benefits of longer-term, or discuss on on some revenues opportunities are Hardisty at at management Stroud. replacing expired by the and We existing we reminder, have for and we focused engaged and June. with fully But while to contracts a and Brad potential extending, new the a have that as grew end did call, customers reach our maturity customers will by our is partnership group

and we are safely advanced the expand sponsor's addition, DRU are and terminals. currently performed existing ConocoPhillips, second and commercial our quarter, DRUbit our the Port at very renew our and agreements to terminals by negotiations with pleased Rail In with In network. Arthur in our we performance regarding reliably both

leads sustainability. exceed at significant on to deliver to facilities to continue our our and continue We update DRUbit which customer, both expectations to value

well as as We further information you program capability. encourage report, a and and additional to website USD www.usdg.com our We our look. have visit webpage our our sustainability inaugural on at issued refreshed take sustainability sustainability to

phase forward of the initiatives. the sharing about announcements look USD DRU market to Fuels and we future Clean always, As at with next our growth the

continue to are our the benefit services. market assets as reveal for our confident potential for our We located to increased signals customers, that certain demand are strategically

liquidity we'll the please our to an Next, position. latest go on update and into and Adam ahead. back partnership's recent is market jump Adam, financials Then, commercial going give the developments.

Adam Altsuler

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

approximately with Our and of adjusted EBITDA elimination from Terminal transaction Group, Hardisty was forward. sponsor's Hardisty and South the the this acquisition with acquisition million our going of anticipate closed of The Total with million units. IDRs portion $XX negatively the for credit minimal transaction of We secured our impacted associated consideration South $X.X was costs cash by elimination senior million transaction of cash million effective Terminal, of The April the costs under the IDRs. in and USD associated funded of borrowings was common the year. sponsor's facility. $XXX transaction X.XX our Xst approximately this partnership's

explain statements Dan sponsor's But operational our on South impact our Because the the longer associated because the periods match to of South optimizing let statements do, we while to required benefits control of deemed And include periods. As Hardisty now those results operations. quarter. and financial the Hardisty for historical South the capitalize growth our are I increases order Hardisty me financial the no results was will scale with into I on size the our an commercial historical of our partnership, with previously for prior Terminal, and partnership's entity acquisition of DRU the mentioned, of from common recast with in before the capacity Hardisty the go published Hardisty South acquisition growth terminal to this under asset base, program. the details financial synergies statements

part is QX revenue a significantly calculations recast has from in and our with ability results the the contributing factor against an by to be results XXXX this been occurrence significantly of we our period acquisition, EBITDA XXXX the this. lower. in our This by operations contract GAAP GAAP of for of prior adjusted early the XXXX prior impacted of compare partnership's no payment quarter on year not received to While the liquidity caused in basis Hardisty primary South's periods was quarter higher exclude were cancellation second for The for similar The South XXXX. partnership. second all which Hardisty revenues to

fee the quarter a occurred partnership December of the that second primarily the contract fee attributable second the Terminal, XXXX, diesel addition decrease that in from of the well at of XXXX, decreases at compared compared offsetting in Casper revenue discussed decrease XXXX XXXX. volumes Terminal revenue quarter lower lower lower of effective in decrease second one volume result Hardisty attributable during pipeline commitments operating became of a commencement its of quarter costs is in the expenses. Partially South lower end these terminal had partnership generated Colton renewable revenue partnership's pipeline a occurred decrease revenue as terminal. of with The The throughput at in in a was as coupled the previously the resulting was associated with to contracts to sales as directly the customers' experienced that to relative expense a as revenue September at West of XXXX. to terminal XXXX, the higher SG&A lower with the south the August as entities, the contracted costs in quarter at In also in storage Hardisty The associated second XXXX.

at and were the subcontracted Partially terminals. South and throughput Hardisty higher as operational addition, were lower increased to maintenance increased mentioned Terminals costs rates. and primarily services offsetting inflation In utility due already the operating the for costs supplies rail costs, to at fuel Hardisty decrease decreased due

acquired noncash second second XXXX. quarter of partially commitment decrease resulting the of was general and debt acquisition of of related in our interest includes the incurred sponsor outstanding the a Hardisty decreased and to quarter related agreement in established in of transaction the factors by and primarily coupled activities The costs the occurred therefore for place recognized April the was accounts decrease South of flow partnership of the $X.X and receipts gain higher paid by partnership. to second operating Hardisty decrease This the noncash Hardisty DCF the those higher a of and fee the the the acquisition quarter impact being already during by with to cash the discussed fees and a discussed discussed of Net entities by Net relative to sale in cash the during with to cost primarily the second between the operating balance primarily accounts the was rates Hardisty during decreased the factors quarter a both Partially compared XXXX, services for agreement quarter the result terminated the to subsequent fees. decrease the provided to to because EBITDA including timing million Upon between fee during a South XXXX XX% that and from offsetting quarter, partnership's offsetting were for the legal partnership's period and quarter. offsetting and relative the in rate was X. quarter this to Adjusted quarter interest XXXX, service same South. consulting expense of higher services income a associated the payable corporate as partnership's Hardisty second in derivatives, and higher balances. date the The $X.X in XXXX, of to of quarter services Partially acquisition offset the XXXX. on was entities XXXX agreement the the SG&A a income partnership of second of due acquisition recognized as and expense SG&A million. revenue allocated quarter XX% receivable South similar XXXX, operating sponsor payments factors results already the adjusted deferred of already of decreased of in quarter incurred second expenses second XXXX loss of compared EBITDA periods interest approximately for to the of second distributable prior

cash approximately June capacity DCF paid XX% of during Additionally, lower the by maintenance XXXX, of terminals representing the for end contracts the positively CapEx At combined was interest, taxes quarter. impacted and expired. Hardisty

the contracted expired remaining also terminal of Stroud the addition, at end In XXXX. the capacity at

management focused mid-XXXX mentioned and Hardisty customers. or in with renewing Dan and terminals agreements extending that mid-XXXX As new with the to expired take-or-pay have on replacing and is South current commitments set engaged multiyear at new actively expire or is the are

oil the the the early estimates half opportunity conditions, market this the second heavy agreements and partnership XXXX. of egress partnership's recently targets expired, and the Western year or extend during management expected believes and will current the availability crude for in of current to future replace renew production in Given have or Canada that that

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

result, end As of covenants of June be partnership's limited under consolidated partnership revolving will XX. quarter, the of its terms of through partnership's And XXXX. The $XXX a of facility. partnership's to acquisition material five facility borrowings consolidated the revert XX XX-month secured was to its Hardisty million as in under its compliance, point, partnership trailing of the December capacity credit will acquisition, the the had EBITDA financial senior the they second times EBITDA. credit a treated At XX its and months has borrowing South with which back a as X.X times

secured partnership use the secured a the to settled as quarter swap and was the partnership SOFR new the XX, the approximately facility. down As plans $XXX for The to financing The proceeds a simultaneously or same value as variable to with rate fixes that the rate swap partnerships and the million value, rate contract of was is partnership on new interest cash million secured its proceeds cash entered the instead notional pays pay and of into secured senior a this facility. credit August credit million. a to outstanding that overnight notional X.X%, rate on July borrowing rate settlement from of effective capacity $XX senior made senior the credit unrestricted the end under existing that facility, $X.X for swap, XX. June five-year XX agreement interest debt interest approximately the of including of the swap equivalents the Subsequent such

an into quarter, to unit $X.XXX determined amount For Stroud declared basis to unchanged ability updated of record customer close the extend in X. changes consideration, partnership as distribution terminals distributed quarterly quarter. or same The on the as agreements a we'll the well the cash of on the to XX, partnership's the the to prior second is quarter, at at on quarterly replace The market. on of payable basis, existing going keep August and Hardisty business $X.XXXX or August partnership's distribution unit a the the and the from the recent per Board renew, take as distribution per annualized distribution forward the including commercial evaluate to prior and unitholders progress

commercial we As that, updates Dan clean our more the future. initiatives as to look on forward expanding mentioned, call DRU agreements turn the as and we are at at And well our over our fuels like and extremely focused in the USD with current Dan. terminals, sharing to I'd back to now growth

Dan Borgen

Adam. Thanks,

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

Brad Sanders

strategic million of headline be releases barrels couple an the is, with headwinds there XXX additional update Dan, reserve in that you. of of impacting approximately totaling are SBR October this of a a I'll announced start the equate was day thank Coast. This values There's XX beginning year fundamentals. will release of petroleum Canadian US One would a which barrels, negatively WCS Gulf release market course XXX,XX,XXXX November currently. supply through on year. and last to [ph] the

and Canadian at So cost Gulf the that and the -- Hardisty alternatives, lower alternatives impacts Coast heavy Gulf the ultimately competing of that has as driven and for value costs the are naturally, naturally WCS there in replacement of Coast WCS well. for or values in heavy

are that's prices the So release high WTI heavy alternatives. nat current are because US there SBR X.X minus grades WCS additionally, Again, discounted Coast. X the Hardisty at hydrogen XX upgrading barrels gas competitive -- simply XX.X expensive. created of to Gulf values and prices But in sour and make more

values, ensure WCS WCS are So this competitive for upgrading positive cheaper and margins to to upgrading translates purposes. is

production was historical begun to that's in primarily driven this that this a -- beginning at by that importantly extremely inventories Canadian function of to we addition, were as on more production come low year. is announced to online, earlier revealing Since In production have the year, back of levels, coming cold build XXXX, now temperatures, the the production and but due in itself. new transition Inventories see winter. of market shut-in during

into are the expectation now type will inventories So in year, normal from of half heading our levels. second that is inventories the build And here.

coming percent where to Canada the apportionment, we our expectation and major given will on inventories supply, inset continue a the in discount rail egress remind apportionment a export pipelines folks are announced. leads production were inventory stranded that Additionally, online the level on that are this in two see by August have phone, ultimately when and new the options is balance And through price discounting apportionment that's of prices and in given builds To is to get available effectively the to until barrels activity. Canada to crude the of year. that

egress customers. crude investment only in that get with demand course So assets has history and the to barrels to ensure discounts, at that the stranded and of agreements this for themselves of in and and macro rail Naturally by Hardisty USD to ultimately customers total avoids and solution this the a renew, can new Stroud pattern takeaway exceeding Stroud, extreme environment not eventually the these that of the driving part industry potentially reveal capacity led Canadian have simply replace efforts existing assets has periods. supply like pipe is during and our but supportive expired expand price for don't been our

commercialization value renew standpoint, is is that lead this I've a these recently will that expectation customers capability to not commercial contracts. accomplished value year last And six DRU over the a and and/or environmental function the Origin, and reminder customer From as two our balance I'm the drive original extend a at diluent the and then DRU then of One investments plan. a railroads or and rates customer have had benefits. customer the as with key the of – sorry destination we've of exceeded materialized safety performance and benefits competitive cost seeing is original months as that DRU replacement – And is obviously, likely the So of recently is the also over plans. would negotiations exceeding our milestones. function we the a with that standpoint, our that met PAT PAT and are the blending savings from secondly

rail alternatives, are XXX% transitioning support growth So of to we given the our capacity potential these egress to Rail of DRUbit advantages on milestones our relative by and network. focused

we're similar advanced and to discussions advancing relative both egress by agreement announcements, economics making of in grow new in by soon and mentioned DRUbit look extend current As existing negotiations with to to and our forward with customer Rail's and negotiations and those. given we our customers Adam, on Dan hopefully pipe type alternatives advantage we're both

Finally, providing is advanced credits. biodiesel Clean reduce moving for of Recently are programs this funding into clean Act, They The to carbon solutions. need Reduction next production by and that particular, do increase the providing highlights aviation renewable will energy new, reform vision this drive and that our the know and as our this unlocking development in fuel USD and production for long-term above support to in extending for then And credits, in aviation support costs the permitting comprehensive drive that with the driving here which and energy reduce But support XX new transition, domestic this new for type renewable and the policy we tax introduced a credits demand US. emissions. and of as part biofuels. advanced fuel's current investment. infrastructure number geographic proposal are years. of lower Inflation drives energy customers objective invest and in emissions renewable ethanol from of feeds tailwinds consumers over are with areas continue stated the objective which is importantly, help biodiesel, And solutions Congress, cleaner we introducing policy and in for clean incentives. calls and program the on maybe will to costs, biofuel incentives, our as the and Fuels potential existing $XXX blender climate that And sustainable fuel logistics, future that standpoint. and security growth grant diesel the diesel of approximately advanced incentives was efforts and standpoint change for more In regard, in billion projects biofuels negotiations and sustainable continued policies agreement fuel, building of diesel,

excited very of about are space. the we So, this potential

mentioned look Dan, these sharing we it. on forward we uniquely progress announcements pursue our that's in I As have last future and this quarter, to in organized area. to

Dan Borgen

Thanks, open Brad. the And with that, up... call we'll

Operator

[Operator first Instructions] our Ferazani from Sidoti. take We'll with Steve question

open. is line Your

Steve Ferazani

million everyone. morning to at look million get for out if like where given nonrenewals now? your you're and your walk ask talking expected slide of about things that questions the Hopefully coming I deck. if through right page reasonable I XX stand of impact looks financial these into volumes that Good about of the Wanted of to think $X $X in accounts QX mean XQ. about here. the EBITDA that that's I Is XQ

Adam Altsuler

Adam. I'm it's not with for Thanks what there. through bearing sure Steve, happened us that.

paying you appreciate details. I to the So, attention

But to at we've point to sensitive the sharing with combined on XX amounts doing EBITDA. the Hardisty by on expired a would remaining the that June adjusted think starting of XX. contracted can't be XX% are June Stroud EBITDA about of some the capacity loss We customers. calculate give percentages so mentioned capacity exact expired regard we commercially given because I we of our Terminals directionally information As reasonable and

using approach think by presentation, I I So investor it. using think to a good that's the the percentages, way

Steve Ferazani

contribution you Can but even Perfect. sense you the of quarter, EBITDA was when of up are think or where you're of gave a in us rate onetime guided about you give -- EBITDA you deal in pretty run it's range challenging and with look a any of I you color? $XX the of DCF sense costs. contractually kind kind million was $XX the can wide you of impact your $X.X give of the Hardisty assets? announced When for and XXXX at any million million. for those any sequentially When the kind near-term I to we up added on now, the South obviously know

Adam Altsuler

with Sure. so That's mean I regard a given that good as far XXXX. as question. -- guidance to was

still XXXX think fit Brad we regard good where this very it's as going run I in they into So our how far safe not as feel supports it's direction feel the say XXXXm at feel rate directionally we'll macro The the and XXXX. and about to point picture guidance good underlying be. mentioned. as with the located macro We about good about strategically XXXX. think larger assets We're to we giving or a we for

think and I the information of think, unwind But counted think, is look feel keep volumes a the about to on EBITDA percentages we in noisy I $X.X bit million be as we good again did say, Stroud, about I because presentation next mind, we the percentages. and investor interest that rate look a at will to that's proceeds just I swap Hardisty think, will and than around capacity way directionally, the received QX take as also we the approach I the other little of well on adjusted be I right our at based the will that, quarter. shared and think at remaining XXXX.

updates and going much as we're we can. based continue commercial this continue and to to evaluate the further where quarterly you hopefully on and progress at to guidance market sits as we'll on the think give a time I basis

Steve Ferazani

raising get pretty more distribution you in have it I consistently. had been about you but then which the one And --

acquisition. was to pretty debt to you When back you not renewals want these other? Also start it would the bit repaying start quickly a much want that there's dramatic deleverage contracts. you on that these near-term uncertainty get very ratio. distributions that the both you're obviously, and to or Obviously, high coverage replacing in. thinking of to distribution about of get some of still again? on raise track and have or how Is – You it out a one of reasons raising some what the And

Adam Altsuler

Yes.

in we I have directionally place. happened The think impacted one-off that as certain timing good speed we're with still at of think, Brad our around some spreads we're the general kind have and impacted a timing which view is world events the have mentioned and the increasing the distribution.

time it So to up just we're quarter discretion and Board's at always this it going the take to quarter it's by as is.

answer think, I -- to further forward. will the policy so obviously And progress question, manage your how going dictate distribution we commercial will be

Steve Ferazani

Thanks, Dan. Okay. Fair Adam. Thanks, enough.

Adam Altsuler

You bet. Thank you.

Operator

further remarks. Mr. no line over to additional Dan turn on the I back this will any Borgen time. have We at the program closing or for questions

Dan Borgen

everybody appreciate on so insightful. Steve thanks always the today. much I call And questions, thoughtful for and your very

three of these or reminder, and always some can. a extend feel with renewal through two been the strongest like We and drivers so contracts the into times the obviously macro cycle just and So market we and times confident. that going renewal we've we

to as we aggressive and as of going that and kind renew inventory them our drive spreads we strategically market into and next and those part headwinds previously see around the more the seeing and we we'll Canada to to the real have to look so have to Brad The had we've and the today for more that being it probably that. a look releases, therefore all be arcs we're mentioned. We that customers as have Or see driver for renewed said extend. And adjusted as we've then them do not, start to to for week, in extended had so certainly. but forward we're would now building like them with that will we assets got able widening SBR with have continues located but will the Brad builds most

market So continue renew look very the those. good extend forward to done feel that keep we before there been about we and updated as to we and that

lot very and beneficial, CI are our and environmentally DRUbit DRU term We longer -- plan the competitive about agreements, lowering XX-year-plus of our over a DRUbit XX%. renewing of bullish obviously our to by our program intensity carbon pipeline converting

So and customers where fuels growth well we're feel good about that we have for we more our program. headed investment-grade there the the customers and and our transitioning business we as into our that side business, about of that moving cleaner feel and good strategy that clean into really

So anyway, and at just of end I here. wanted summarize that call to the reiterate the that

So Thanks again. appreciate the announcements we to appreciate look short-term. the everybody call. We we the market and forward in support on

Operator

to I would for behalf On of our clients, concludes like thank you joining. This program. our

USD Partners (USDP) 5 Aug 222022 Q2 Earnings call transcript