Earnings call transcript Q4 2022

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the USD Partners LP Fourth 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. quarter call. fourth our to XXXX earnings Welcome Operating With Officer; Officer; Adam are of Dan our our Brad other team. as Chief Executive Borgen, our Chief Ruple, Altsuler, Josh our senior Commercial me as members Chief well several today Sanders, Officer; Officer; our management Chief Financial

ended press XXXX. Yesterday a results the XX, release evening, we X December for announcing issued months and year

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

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

discussion last comparable for financial call non-GAAP measures. will today's financial measures. see GAAP to include reconciliations Please Finally, release of the press night's most

over I'll And with the Borgen. to turn Dan that, call

Daniel Borgen

and you, the you us joining partnership. for support today and your the morning, call Thank all on and of thank for good Jennifer, continued

a Canadian to due in year conditions surrounding market the The XXXX had heavy partnership macro. challenging oil crude primarily

improved story, in DRUbit underlying Gulf and of moving full the despite the the However, fourth challenging macro Hardisty significantly from in XXXX. XXXX the year to economics for Coast positive quarter were

our Hardisty terminal. includes rail exceed terminal. evidenced minimum To rail economics by moved is our above for which by improving the customer capacity The rail network, barrels the XX DRUbit at million have we partnership's volume DRUbit its DRU and to through over the and DRUbit positive date, nameplate commitment continue Hardisty operating

DRUbit of a customers reliable safer And As given offers lower to new unique, footprint. and the for better of a DRUbit challenges our markets, with competitive, opportunities netback network destination opportunities method delivering markets. and barrels creates blending all transportation heavier a our modes, carbon reminder,

is as DRUbit the nonhazardous rail the allows communities and benefit partners pleased reliability, the its be DRUbit which pertains customers partnership safety it are nonflammable, and customers to rail with serve. and see network we Finally, to to by further aligned our and

have economically detailed provide Canadian options. existing crude continue and customers to to with safer discussions new beneficial We and transportation

remain we capacity as build And which, sustainable our a program, by on converting reminder, longer-tenure supported is focused contracts. the XX-year their partnership's DRUbit with to longer-term

in of oil As always, but we also point are are future. the crude headed markets updating constantly view where where today, market our are markets on crude

to help that And rely we our and on our indicators core We maximize our provides to observable unitholders. best our network and strategic the customers focused value and options and facts to always to growing priorities. market are do remain business evaluating drive on strategy

egress the levels alternatives utilization for oil averages in industry's currently storage egress, the existing exceeding XXXX, and end of potential high heavy production Canadian the XXXX rail. for With in the Canadian around expectations availability the by of historical we sands the to at driving oil see production need continue crude future and growth

the this in on distribution the position announced, XX.X previously fourth right this re-contracting units liquidity a As support million order weigh to quarter partnership remaining partnership's the without to the decided to during sponsor to impacting the unitholders. cycle, distribution

DRUbit we to was our Stroud are recent program given around believes around as do recent Management having prudent momentum discussions well thing the our this as expanding terminal.

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

Adam Altsuler

XXXX. the earnings our and fourth our morning. to Yesterday XX-K details results year on which financial us issue few of in We sometime next afternoon, we thank operating you, days. fourth the quarter and Dan, full the the additional our Thank plan you release, for this issued joining included quarter for details XXXX and call

$X.X cash of a $X.X $X.X of million, million. reported net operating of cash net provided million by $XX.X loss activities EBITDA distributable Partnership of and adjusted million,

a quarter of second between control. business brief Terminal occurred our Hardisty combination acquisition, South in under reminder, which As a XXXX, the represented entities common

recast As partnership's statements have been financial a result, the results include South. of retrospectively the pre-acquisition to Hardisty

the capacity Hardisty lower Partnership's X, for XXXX. the that now XXXX quarter. primarily was terminal XXXX reduction were effective quarter due from relative contracted to of And to details in at for revenues the fourth same the a July quarter in

in also as the to quarter quarter the lower compared were exchange contracts of on the terminal dollar-denominated Hardisty during XXXX. July Stroud Canadian Revenues the rate sole contracts at the to variance Revenue partnership's Canadian unfavorable service conclusion due to fourth customer lower was XXXX XXXX. Partnership's the of an due effective the terminal X, its fourth at contract, of with terminalling the

quarter make-up generated fourth the of the impacting XXXX that similar was revenues volumes. right had Casper its in fourth at with the Also at no variance during Stroud in of associated quarter occurred revenues also throughput Partnership revenue occurrence lower lower associated the Terminal the with of options XXXX. deferral terminal with

December decreases revenue lower the of operating costs Hardisty to higher pipeline the attributable fourth partnership fourth commencement XXXX. quarter the Partnership quarter directly XXXX. experienced was these XXXX. which revenue previously the in decrease to from the associated XXXX Partnership's of revenues the fee diesel at compared resulting renewable Terminal, compared contract during Terminal experienced as offsetting to the West Partially Colton of in discussed is in expense, fourth as The quarter of lower the

recognized XXXX. of as fourth Casper net terminal asset impairment $X.X throughput XXXX resulting million lower from Depreciation the primarily of of net due lower million of In in of the XXXX, The to $X.X a fourth quarter due terminals. the fourth expenses loss the in to in partnership XXXX. was that decreased addition, decrease the quarter in the compared income September the at in value carrying had quarter the of at were service rail and amortization were subcontracted costs the to

the higher higher and due is discussed, offset already to in interest debt to XXXX, a during fourth balance as with primarily commitment operating outstanding incurred rates partially factors expense the higher XXXX. compared during fourth the interest by coupled resulting the decrease the quarter decrease quarter, quarter of of The fees from

with the derivatives interest were losses had Partnership recognized quarter by rate noncash also XXXX. the the that of the in in offset derivatives associated XXXX from partially partnership's higher interest the partnership's cash fourth proceeds of October rate settlement

resulting the partially previously offset of for Net some decreased by cash the decrease settlement fourth mentioned agreements in activities of the the of flow XX% rate the provided the conclusion by partnership's XXXX. was interest in cash operating quarter of cash the terminalling to relative from partnership's operating October. partnership's derivative The quarter

receipts the by Net deferred of XXXX increased settlement the in to partnership's and by and by of operating in rate compared accounts occurred the also that payable general and XXXX the timing payments interest the impacted cash balances. when provided of accounts fourth derivative revenue of XX% Adjusted EBITDA same October. receivable, activities aforementioned includes for quarter was of the period impact

taxes Distributable cash cash due current the to flow fourth of interest decreased by for the XX% higher to the and quarter. during quarter quarter paid for XXXX relative

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

million covenants fourth of of cash of million The borrowings had capacity December the end as of revolving under unrestricted credit quarter outstanding senior $XX.X $XXX XX, XXXX. and under and of borrowing as credit was facility, its approximately financial As in XXXX, compliance equivalents, available including the the December Partnership borrowings was partnership facility. XX. with the of secured cash

senior the relief the provides secured from In January replacements facility. credit compliance maturity partnership date, as partnership with maximum leverage credit secured obtain current coverage facilities through commercial an ratio and entered senior amendment works credit to minimum with agreements. XXXX, the renewals, secured other Among facility's the consolidated into consolidated management to of things, ratio extensions amendment or its senior the

the filed credit details on Partnership's XXXX. facility Form the February are partnership possible is the in in financing the senior as sources replacement the of potential the agent X, lender banks as discussions X or expires amendment with report facility. of and November partnership's within other included regarding on current renewal year. regarding the credit group secured other senior extension, Additional secured active this X-K well And on administrative

including a prior at of February going February XX The take the distribution $X.XXXX cash on the regarding the forward, or quarterly unit or terminals, per on prior of distribution distribution keep and January the into paid close partnership's and replace the distributed quarter record same updated the X. ability commercial Stroud On per consideration on partnership customer Board in conditions was basis, annualized as progress, determined unchanged management's the unitholders declared quarterly the on quarter. agreements the renew, The to $X.XXX performance. to business a to unit to XX, Hardisty an we'll future and its at and basis extend evaluate amount the partnership's distribution current market expectations from the

on longer-term sustainable mentioned, dilbit our Dan focused DRUbit we remain to As partnership's the converting program. capacity

to that look on we sharing always, As future. more the forward in you updates with

to like now to back call the With I Dan. that, over turn would

Daniel Borgen

Thanks, Adam.

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

Brad Sanders

Thank Dan. you,

finished the higher a start XX approximately at Canadian brief of million history, which inventories you me with inventories since a range specifically, if Let the market look top. sour and tank update. represents year at heavy at barrels, end

at significant is event happened a year-end. that that So

weeks to shutdown [indiscernible]. issues. the repair origin We The key to for stranded driver ultimately at approximately barrels X led week and derated significantly to some was additional in simply the build need pipeline. an shut for Keystone operational simply of This the down and

on matter? rail ultimately this market the potential the tank simply discussed drives and So As by capacity This for egress incremental demand egress. need tops single our we've with why for with to biggest does to at investors, driver transition discussions to previously rail no a build. Canadian in inventories for this is call

expected Canadian As could egress. opening in to transition in this Dan is the versus year-on-year, rail catalyst for to higher higher demand be XXXX. current to mentioned remarks, production XXXX grow And inventory these levels, so in his growth production given

in in destination about specifically, we remain this we in these contact transition therefore, producers, railroads demand of will from transition. and refiners this Hardisty origin our assets, potential think As rail And and benefit both and assets for assets. Stroud with anticipation constant of

growth transition efforts. our Let's DRU our Phase now commercialization X plans, to

just development not macro dependent First and the I safety as and low its story, as Canadian footprint features on cost and reminder, the foremost, is carbon a described. its Instead, given DRU opportunities Coast for solution egress the producers blending access Gulf export, unique creation at destinations, domestic to refiners. most like and to all ability refiners advantaged the and it value things custom competitiveness, is

solution DRU our our are therefore, and we all our commercialize X. our purposed to current to are Phase naturally, confident transition and in And to business ability

our look fact, on its discussions progress. and you soon in updating current Given negotiations, we forward to

efforts. on Finally, I'd like Fuels to to update our transition an Clean

aviation Fuels As that its biodiesel, diesel, have ethanol the National operational in terminal BNSF sustainable year, of Clean fuel. served advanced announced City, access to this be build U.S. to Terminal origin the our XXXX. transload in us capability a January biofuels Midwest USD Fuels. to will the Coast terminal become reminder, give a renewable early Clean railroad that is will and will And and new by Gulf by California, and intention expectation

on Gulf will of be and ultimately advanced Texas provide make terminals growing terminals Washington, Oregon, Clean infrastructure Coast include expected customer network will California, solely needed more the that of Fuels logistics production feedstocks the to interest. USD and biofuel will Fuels terminal Canada downstream that anticipates are based second of and the efficient. railroad These This terminal strong the Clean

excited updates again, about we've very excited We're space to progress this as and, the appropriate, very forward potential we're providing about Dan? made. in So the look

Daniel Borgen

Brad. that, Thank any up with for open questions. the additional you, call And we'll

Operator

Instructions]. [Operator

from will we Steve with question So Sidoti. first Ferazani take our

Stephen Ferazani

new I'll credit the of appreciate in the mode know of detail wait-and-see on refinance. you're me except agreement rail we I but maneuvering that is of through call. on dependent now. a I agreements? conditions on your a the Right if ability I ability your everyone's to with think start in this, really on sort mind I ability color some to and of terms announce in don't lot right now, it's to refinance your anyway, terms you challenging know give can

Adam Altsuler

the or a Steve, it's having with I Adam. supportive, that banks, and story. get ability XX-K amendment. and day lot are out They the the our Casper sell in very in with One by actually approval manage to constantly we our them, been And to see manage thing did always looking our the where evidenced Board discussions of our it We're macro liquidity. we add is, where we we're they've contact next are alternatives in agreement our would at you'll also, to in X, strategic as with as credit terminal. understand comes as

source And And XX-K our so in that event liquidity. see. that's a will subsequent of potential that a be you'll

in and being as say directly say we're our So we're more I customers kind would wait I and proactive wouldn't of our as communicating possible. with and we're banks, see.

Stephen Ferazani

now, In terms of is the couple gotten get the on anything enough relief in to next do the you think agreements violations of through? pending enough additional barring covenants you quarters, mean, the is or relief I you've you think covenants? there

Adam Altsuler

address near-term just of to this was and get this and We're the set our of as always looking as well we what re-contracting to period. with really negotiated the really issues commercial negotiations us liquidity kind covenants banks at our through projections,

Stephen Ferazani

you of terms at obviously Western next this in Canadian talked well last the about the as year? additional in are that tie releases, threat and expectations SPR of closely to that of production year, options. several -- which will lack Where agreements a much terms production rising, you was the In is of how the problem ramping least as the additional egress of

Adam Altsuler

take question. let to question. a going and that commercial I'm Brad Dan That's

Brad Sanders

And makes respond. happy Dan, if add I'm it to sense. can you

years look I assets as we you assets years. think when of at the later, the the then it's these day, period grew those end X just X and built at

in the were the what lined call into we catalyst market feeling all were which and prices means the for then that short going within a up of the CBR period parity, did and was the signed time, the And work all pain. producers actually activity contracts So very began.

it's create our patient incentives regard. of for it's not investors. think We're be they're as early for and I step benefit -- people in aware participate to well, trying to reactive just likely thing -- in is long-term, It's very to and our So just good them that. too this to a us early

and should point, So the we has at expectations a and realize to reveals that potential we're our like work that for market there's expect this the are, itself here. production that actually high do comfortable facts pretty it and in the if to say

Daniel Borgen

-- that grows and these the arb it's call Customers cycles understand Steve, been before. on it Dan here. with production arb, Consistent and what a And when we've the very limited the Brad said, is when good responsive Gulf. are of through the obviously, with responsive. it's there have if coming. some is if discounting fact-based to egress I'll Customers This scenario is very adding the subtraction, occurred, on, why had terms will, this Obviously, hadn't what's of that's production we've egress, wouldn't in the because had in going right? fact-based, the builds, we the you deep banks the SPR discussions need. is

for here it's as contracts. -- think to anybody, forward we -- forward which good is been look So of before, manipulation opinion, it complete reupping look don't the certainly, personal of kind Brad market, reupping the a political I but

this DRU month that fact-based As it's to more has dynamic. really Brad large able a plus a -- commitment are further detailed later about expansion program on to said, the is nothing netback, market with XX-year announcement our program. but DRU hope It's we give commitment to about be excited we our but just -- do very

that. So we're very bullish about

Stephen Ferazani

the anything update QX, significantly to versus QX. give in of in Anything months I cash should anything was we that X would interest mean of the the settlement forward to Look at see on QX this be settlement? different the excluding operationally, Dan. derivative rate QX, to the flow. expect QX terms We're driver of when quarter, you cash significantly -- can looking primary into that, I'm flow obviously, different

Daniel Borgen

still heavy or operationally, No, Stroud, would anything Steve, But like that. say, smooth. any it's have of nothing just I near and in -- been Hardisty weather pretty guess we're anomalies but kind no pretty would extreme at We that. I negotiations like reported

Stephen Ferazani

thought Was the distribution, suspending I now? -- been the know has to any that distribution sponsor wave there there to thought the any right

Daniel Borgen

something taking the analysis do significant things we and This macro and done activity, through around that, every when a with pretty those the quarter, always we decisions, a we lot into market, make we commercial at is of look the looking different contracting. of the Board amount every oil where quarter and macro, we've are crude the at heavy

of subject to with that and variables, lot guess, So decision the would through we're really say is my evaluating I is a because the for lens always best I that Board. answer that same

Operator

will questions back for appears program at I Borgen remarks. further time. Dan turn this closing It we no have the to now over that

Daniel Borgen

been to a the on one as said benefits forward, the still started around growth and our underlying that. We're I rail We Thank to renewal. business, the further of you. assets the we're dilbit some to look the in capacity I We're here the We've you've takes help investment-grade detailed focused support the Obviously has DRU and underlying moving we're the us of about. issues bit the been the DRU. said, earlier, -- I mean cyclical convert dialing that on we XX-XX since we've the blended our of of appreciate discuss, on hands as and our the intent, assets capacity along focused as which DRU, we all this that the heard morning. out nature as announcement like which takes been a DRUbit. this purpose talking put to well long term, capacity, of before. And

and grow you. to So future this We're look the again. I'll thanks for say hard business that, appreciate to Thank all us forward with support. we working announcements. We

Operator

your teleconference. you participation. today's for concludes Thank That

You may now disconnect.

Jennifer Waller	Associate Director, Financial Reporting & IR
Daniel Borgen	Chairman, CEO & President
Adam Altsuler	EVP, CFO & Principal Accounting Officer
Brad Sanders	EVP & Chief Commercial Officer
Stephen Ferazani	Sidoti & Company

USD Partners (USDP) 2 Mar 232022 Q4 Earnings call transcript