USD Partners LP Announces Second Quarter 2020 Results

HOUSTON–(BUSINESS WIRE)–USD Partners LP (NYSE: USDP) (the “Partnership”) announced today its operating and financial results for the three and six months ended June 30, 2020. Financial highlights with respect to the second quarter of 2020 include the following:

  • Generated Net Cash Provided by Operating Activities of $5.4 million, Adjusted EBITDA(1) of $12.8 million and Distributable Cash Flow(1) of $9.7 million
  • Reported Net Income of $1.2 million
  • Declared a quarterly cash distribution of $0.111 per unit ($0.444 per unit on an annualized basis) with over 3.0x Distributable Cash Flow Coverage

“We are pleased to report another solid quarter for the Partnership,” said Dan Borgen, the Partnership’s Chief Executive Officer. “We continue to execute on our plan to divert some of our free cash flow towards paying down debt. During the second quarter, the Partnership paid down $6 million on our Revolver which is consistent with our intent to de-lever by approximately $20-$25 million on an annual basis.”

“In addition, we continue to be excited about our Sponsor’s previously announced diluent recovery unit (“DRU”) project, which we expect will be placed into service in the second quarter of 2021. The Partnership’s Sponsor has secured the necessary financing, obtained all material permits and entered into fixed-price construction contracts regarding the construction of the project. Upon the successful construction and completion of the DRU, approximately 32% of the Partnership’s Hardisty terminal’s capacity will be automatically extended under a long-term committed agreement through mid-2031,” added Mr. Borgen. “USD and our partner, Gibson, are currently in commercial discussions with other potential producer and refiner customers to secure additional long-term, take-or-pay agreements to support future expansions of capacity at the DRU, and we look forward to keeping the market updated as things continue to develop.”

Partnership’s Second Quarter 2020 Liquidity, Operational and Financial Results

Substantially all of the Partnership’s cash flows are generated from multi-year, take-or-pay terminalling services agreements related to its crude oil terminals, which include minimum monthly commitment fees. The Partnership’s customers include major integrated oil companies, refiners and marketers, the majority of which are investment-grade rated.

The Partnership’s operating results for the second quarter of 2020 relative to the same quarter in 2019 were primarily influenced by higher revenue at its Hardisty terminal associated with contracted throughput that exceeded the Partnership’s existing capacity at its Hardisty terminal and increased rates on a portion of the terminalling services agreements that became effective July 1, 2019. Additionally, in the third quarter of 2019, the Partnership entered into a terminalling services agreement with the Hardisty South facility owned by the Partnership’s Sponsor to provide terminalling services for the contracted throughput that exceeded the Hardisty terminal’s transloading capacity. Under this arrangement, the Partnership incurred operating costs payable to the Partnership’s Sponsor representing the same rate, on a per barrel basis, that the Partnership received in revenue for such contracted throughput.

Lower revenue at the Partnership’s Casper terminal resulting from the conclusion of a customer agreement in August 2019 partially offset the higher revenue at Hardisty during the quarter.

Net income for the quarter increased as compared to the second quarter of 2019, primarily as a result of the operating factors discussed above coupled with lower interest expense incurred resulting from lower interest rates during the quarter partially offset by a higher weighted average balance of debt outstanding in the second quarter of 2020. The Partnership also had a smaller non-cash loss associated with the five-year interest rate derivative instrument that the Partnership entered into in November 2017 when compared to the prior period. Partially offsetting this increased net income were higher foreign currency transactions losses.

Net Cash Provided by Operating Activities for the quarter decreased by 42% relative to the second quarter of 2019, primarily due to the general timing of receipts and payments of accounts receivable, accounts payable and deferred revenue balances.

Adjusted EBITDA and Distributable Cash Flow (“DCF”) increased by 5% and 10%, respectively, for the quarter relative to the second quarter of 2019. The increase in Adjusted EBITDA was primarily a result of the operating factors discussed above. DCF was also impacted by a decrease in cash paid for interest and income taxes during the quarter.

As of June 30, 2020, the Partnership had approximately $3 million of unrestricted cash and cash equivalents and undrawn borrowing capacity of $167 million on its $385 million senior secured credit facility, subject to the Partnership’s continued compliance with financial covenants. Pursuant to the terms of the Partnership’s Credit Agreement, the Partnership’s borrowing capacity is currently limited to 4.5 times its trailing 12-month consolidated EBITDA, as defined in the Credit Agreement. As such, the Partnership’s available borrowings under the senior secured credit facility, including unrestricted cash and cash equivalents, was approximately $29 million as of June 30, 2020. The Partnership was in compliance with its financial covenants, as of June 30, 2020.

On July 23, 2020, the Partnership declared a quarterly cash distribution of $0.111 per unit ($0.444 per unit on an annualized basis), the same amount as distributed in the prior quarter. The distribution is payable on August 14, 2020, to unitholders of record at the close of business on August 4, 2020. Given the current uncertainty in the energy industry, the board of directors made a proactive decision to strengthen the Partnership’s financial position by reducing its quarterly distribution and redeploying certain free cash flow to pay down debt. The decision to reduce the quarterly distribution was not driven by any material deterioration in the performance of the Partnership’s underlying business, but rather represents a conscious effort to enhance long-term value by proactively strengthening the Partnership’s balance sheet. During the second quarter of 2020, the Partnership repaid $6 million of the outstanding balance of its revolving credit facility.

Second Quarter 2020 Conference Call Information

The Partnership will host a conference call and webcast regarding second quarter 2020 results at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) on Thursday, August 6, 2020.

To listen live over the Internet, participants are advised to log on to the Partnership’s website at www.usdpartners.com and select the “Events & Presentations” sub-tab under the “Investors” tab. To join via telephone, participants may dial (877) 266-7551 domestically or +1 (339) 368-5209 internationally, conference ID 7459481. Participants are advised to dial in at least five minutes prior to the call.

An audio replay of the conference call will be available for thirty days by dialing (800) 585-8367 domestically or +1 (404) 537-3406 internationally, conference ID 7459481. In addition, a replay of the audio webcast will be available by accessing the Partnership’s website after the call is concluded.

About USD Partners LP

USD Partners LP is a fee-based, growth-oriented master limited partnership formed in 2014 by US Development Group, LLC (“USD”) to acquire, develop and operate midstream infrastructure and complementary logistics solutions for crude oil, biofuels and other energy-related products. The Partnership generates substantially all of its operating cash flows from multi-year, take-or-pay contracts with primarily investment grade customers, including major integrated oil companies and refiners. The Partnership’s principal assets include a network of crude oil terminals that facilitate the transportation of heavy crude oil from Western Canada to key demand centers across North America. The Partnership’s operations include railcar loading and unloading, storage and blending in on-site tanks, inbound and outbound pipeline connectivity, truck transloading, as well as other related logistics services. In addition, the Partnership provides customers with leased railcars and fleet services to facilitate the transportation of liquid hydrocarbons and biofuels by rail.

USD, which owns the general partner of USD Partners LP, is engaged in designing, developing, owning, and managing large-scale multi-modal logistics centers and energy-related infrastructure across North America. USD solutions create flexible market access for customers in significant growth areas and key demand centers, including Western Canada, the U.S. Gulf Coast and Mexico. Among other projects, USD is currently pursuing the development of a premier energy logistics terminal on the Houston Ship Channel with capacity for substantial tank storage, multiple docks (including barge and deepwater), inbound and outbound pipeline connectivity, as well as a rail terminal with unit train capabilities. For additional information, please visit texasdeepwater.com. Information on websites referenced in this release is not part of this release.

Non-GAAP Financial Measures

The Partnership defines Adjusted EBITDA as Net Cash Provided by Operating Activities adjusted for changes in working capital items, interest, income taxes, foreign currency transaction gains and losses, and other items which do not affect the underlying cash flows produced by the Partnership’s businesses. Adjusted EBITDA is a non-GAAP, supplemental financial measure used by management and external users of the Partnership’s financial statements, such as investors and commercial banks, to assess:

  • the Partnership’s liquidity and the ability of the Partnership’s businesses to produce sufficient cash flows to make distributions to the Partnership’s unitholders; and
  • the Partnership’s ability to incur and service debt and fund capital expenditures.

The Partnership defines Distributable Cash Flow, or DCF, as Adjusted EBITDA less net cash paid for interest, income taxes and maintenance capital expenditures. DCF does not reflect changes in working capital balances. DCF is a non-GAAP, supplemental financial measure used by management and by external users of the Partnership’s financial statements, such as investors and commercial banks, to assess:

  • the amount of cash available for making distributions to the Partnership’s unitholders;
  • the excess cash flow being retained for use in enhancing the Partnership’s existing business; and
  • the sustainability of the Partnership’s current distribution rate per unit.

The Partnership believes that the presentation of Adjusted EBITDA and DCF in this press release provides information that enhances an investor’s understanding of the Partnership’s ability to generate cash for payment of distributions and other purposes. The GAAP measure most directly comparable to Adjusted EBITDA and DCF is Net Cash Provided by Operating Activities. Adjusted EBITDA and DCF should not be considered alternatives to Net Cash Provided by Operating Activities or any other measure of liquidity presented in accordance with GAAP. Adjusted EBITDA and DCF exclude some, but not all, items that affect Net Cash Provided by Operating Activities and these measures may vary among other companies. As a result, Adjusted EBITDA and DCF may not be comparable to similarly titled measures of other companies. Reconciliations of Net Cash Provided by Operating Activities to Adjusted EBITDA and DCF are presented on page 10 of this press release.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of U.S. federal securities laws, including statements with respect to the ability of the Partnership and USD to achieve contract extensions, new customer agreements and expansions; the ability of the Partnership and USD to develop existing and future additional projects and expansion opportunities (including successful completion of USD’s DRU) and whether those projects and opportunities developed by USD would be made available for acquisition, or acquired, by the Partnership; volumes at, and demand for, the Partnership’s terminals; and the amount and timing of future distribution payments and distribution growth. Words and phrases such as “expect,” “plan,” “intent,” “believes,” “projects,” “begin,” “anticipates,” “expects,” “subject to” and similar expressions are used to identify such forward-looking statements. However, the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements relating to the Partnership are based on management’s expectations, estimates and projections about the Partnership, its interests and the energy industry in general on the date this press release was issued. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Factors that could cause actual results or events to differ materially from those described in the forward-looking statements include the impact of the novel coronavirus (COVID-19) pandemic and related economic downturn and changes in general economic conditions and commodity prices, as well as those factors set forth under the heading “Risk Factors” and elsewhere in the Partnership’s most recent Annual Report on Form 10-K and in the Partnership’s subsequent filings with the Securities and Exchange Commission (many of which may be amplified by the COVID-19 pandemic and the recent significant reductions in demand for and prices of crude oil, natural gas and natural gas liquids). The Partnership is under no obligation (and expressly disclaims any such obligation) to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

_____________

(1)

 

The Partnership presents both GAAP and non-GAAP financial measures in this press release to assist in understanding the Partnership’s liquidity and ability to fund distributions. See “Non-GAAP Financial Measures” on page 4 and reconciliations of Net Cash Provided by Operating Activities, the most directly comparable GAAP measure, to Adjusted EBITDA and Distributable Cash Flow on page 10 of this press release.

USD Partners LP
Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2020 and 2019
(unaudited)
 
For the Three Months Ended For the Six Months Ended
June 30, June 30,

2020

2019

2020

2019

(in thousands)
Revenues
Terminalling services

$

22,309

 

$

19,730

$

46,544

 

$

39,728

 

Terminalling services — related party

 

3,800

 

 

5,525

 

7,888

 

 

11,163

 

Fleet leases — related party

 

983

 

 

983

 

1,967

 

 

1,967

 

Fleet services

 

51

 

 

51

 

101

 

 

108

 

Fleet services — related party

 

228

 

 

228

 

455

 

 

455

 

Freight and other reimbursables

 

64

 

 

298

 

686

 

 

701

 

Freight and other reimbursables — related party

 

1

 

 

1

 

 

61

 

Total revenues

 

27,436

 

 

26,815

 

57,642

 

 

54,183

 

Operating costs
Subcontracted rail services

 

2,688

 

 

3,699

 

6,133

 

 

7,264

 

Pipeline fees

 

5,395

 

 

4,902

 

11,742

 

 

9,963

 

Freight and other reimbursables

 

65

 

 

298

 

687

 

 

762

 

Operating and maintenance

 

2,564

 

 

2,510

 

5,645

 

 

5,721

 

Operating and maintenance — related party

 

2,065

 

 

4,092

 

Selling, general and administrative

 

2,620

 

 

2,722

 

5,800

 

 

5,199

 

Selling, general and administrative — related party

 

1,835

 

 

2,225

 

3,828

 

 

4,675

 

Goodwill impairment loss

 

33,589

 

Depreciation and amortization

 

5,203

 

 

5,283

 

10,625

 

 

10,017

 

Total operating costs

 

22,435

 

 

21,639

 

82,141

 

 

43,601

 

Operating income (loss)

 

5,001

 

 

5,176

 

(24,499

)

 

10,582

 

Interest expense

 

2,256

 

 

2,982

 

4,995

 

 

6,169

 

Loss associated with derivative instruments

 

332

 

 

1,074

 

3,205

 

 

1,746

 

Foreign currency transaction loss

 

1,150

 

 

20

 

1,058

 

 

202

 

Other expense (income), net

 

(111

)

 

21

 

(843

)

 

(3

)

Income (loss) before income taxes

 

1,374

 

 

1,079

 

(32,914

)

 

2,468

 

Provision for (benefit from) income taxes

 

188

 

 

128

 

(319

)

 

198

 

Net income (loss)

$

1,186

 

$

951

$

(32,595

)

$

2,270

 

USD Partners LP
Consolidated Statements of Cash Flows
For the Three and Six Months Ended June 30, 2020 and 2019
(unaudited)
 
For the Three Months Ended For the Six Months Ended
June 30, June 30,

2020

2019

2020

2019

Cash flows from operating activities: (in thousands)
Net income (loss)

$

1,186

 

$

951

 

$

(32,595

)

$

2,270

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization

 

5,203

 

 

5,283

 

 

10,625

 

 

10,017

 

Loss associated with derivative instruments

 

332

 

 

1,074

 

 

3,205

 

 

1,746

 

Settlement of derivative contracts

 

(283

)

 

(289

)

 

1

 

Unit based compensation expense

 

1,630

 

 

1,582

 

 

3,265

 

 

2,996

 

Deferred income taxes

 

(189

)

 

(154

)

 

(541

)

 

(403

)

Other

 

207

 

 

249

 

 

414

 

 

707

 

Goodwill impairment loss

 

33,589

 

Changes in operating assets and liabilities:
Accounts receivable

 

82

 

 

(884

)

 

690

 

 

(193

)

Accounts receivable – related party

 

195

 

 

(43

)

 

(746

)

 

(671

)

Prepaid expenses and other assets

 

(351

)

 

(2,227

)

 

(1,571

)

 

(1,474

)

Other assets – related party

 

(260

)

 

20

 

 

(510

)

 

40

 

Accounts payable and accrued expenses

 

(1,552

)

 

1,983

 

 

(1,145

)

 

2,052

 

Accounts payable and accrued expenses – related party

 

(578

)

 

(762

)

 

(87

)

 

(43

)

Deferred revenue and other liabilities

 

811

 

 

2,731

 

 

3,846

 

 

2,929

 

Deferred revenue – related party

 

(1,024

)

 

(467

)

 

(1,024

)

 

(467

)

Net cash provided by operating activities

 

5,409

 

 

9,336

 

 

17,126

 

 

19,507

 

Cash flows from investing activities:
Additions of property and equipment

 

(230

)

 

(2,433

)

 

(377

)

 

(2,677

)

Net cash used in investing activities

 

(230

)

 

(2,433

)

 

(377

)

 

(2,677

)

Cash flows from financing activities:
Distributions

 

(3,182

)

 

(10,384

)

 

(13,837

)

 

(20,517

)

Payments for deferred financing costs

 

(7

)

Vested Phantom Units used for payment of participant taxes

 

(1,788

)

 

(1,821

)

Proceeds from long-term debt

 

11,000

 

 

10,000

 

 

20,000

 

Repayments of long-term debt

 

(6,000

)

 

(2,000

)

 

(12,000

)

 

(13,000

)

Other financing activities

 

(13

)

Net cash used in financing activities

 

(9,182

)

 

(1,384

)

 

(17,625

)

 

(15,358

)

Effect of exchange rates on cash

 

1,427

 

 

217

 

 

438

 

 

605

 

Net change in cash, cash equivalents and restricted cash

 

(2,576

)

 

5,736

 

 

(438

)

 

2,077

 

Cash, cash equivalents and restricted cash – beginning of period

 

12,822

 

 

8,724

 

 

10,684

 

 

12,383

 

Cash, cash equivalents and restricted cash – end of period

$

10,246

 

$

14,460

 

$

10,246

 

$

14,460

 

USD Partners LP
Consolidated Balance Sheets
(unaudited)
 
June 30, December 31,

2020

2019

ASSETS (in thousands)
Current assets
Cash and cash equivalents

$

3,093

 

$

3,083

 

Restricted cash

 

7,153

 

 

7,601

 

Accounts receivable, net

 

4,515

 

 

5,313

 

Accounts receivable — related party

 

2,461

 

 

1,778

 

Prepaid expenses

 

2,129

 

 

1,915

 

Other current assets

 

995

 

 

954

 

Other current assets — related party

 

55

 

 

343

 

Total current assets

 

20,401

 

 

20,987

 

Property and equipment, net

 

140,976

 

 

147,737

 

Intangible assets, net

 

67,796

 

 

74,099

 

Goodwill

 

33,589

 

Operating lease right-of-use assets

 

11,948

 

 

11,804

 

Other non-current assets

 

2,663

 

 

1,335

 

Other non-current assets — related party

 

800

 

 

15

 

Total assets

$

244,584

 

$

289,566

 

 
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities
Accounts payable and accrued expenses

$

1,633

 

$

3,087

 

Accounts payable and accrued expenses — related party

 

374

 

 

465

 

Deferred revenue

 

5,531

 

 

6,104

 

Deferred revenue — related party

 

410

 

 

1,482

 

Operating lease liabilities, current

 

5,130

 

 

4,649

 

Other current liabilities

 

4,524

 

 

3,150

 

Total current liabilities

 

17,602

 

 

18,937

 

Long-term debt, net

 

216,066

 

 

217,651

 

Deferred income tax liabilities, net

 

31

 

 

458

 

Operating lease liabilities, non-current

 

6,961

 

 

7,386

 

Other non-current liabilities

 

9,542

 

 

4,078

 

Total liabilities

 

250,202

 

 

248,510

 

Commitments and contingencies
Partners’ capital
Common units

 

(5,670

)

 

61,013

 

Subordinated units

 

(22,597

)

General partner units

 

1,784

 

 

2,767

 

Accumulated other comprehensive loss

 

(1,732

)

 

(127

)

Total partners’ capital

 

(5,618

)

 

41,056

 

Total liabilities and partners’ capital

$

244,584

 

$

289,566

 

USD Partners LP
GAAP to Non-GAAP Reconciliations
For the Three and Six Months Ended June 30, 2020 and 2019
(unaudited)
 
For the Three Months Ended For the Six Months Ended
June 30, June 30,

2020

2019

2020

2019

(in thousands)
 
Net cash provided by operating activities

$

5,409

 

$

9,336

 

$

17,126

 

$

19,507

 

Add (deduct):
Amortization of deferred financing costs

 

(207

)

 

(207

)

 

(414

)

 

(657

)

Deferred income taxes

 

189

 

 

154

 

 

541

 

 

403

 

Changes in accounts receivable and other assets

 

334

 

 

3,134

 

 

2,137

 

 

2,298

 

Changes in accounts payable and accrued expenses

 

2,130

 

 

(1,221

)

 

1,232

 

 

(2,009

)

Changes in deferred revenue and other liabilities

 

213

 

 

(2,264

)

 

(2,822

)

 

(2,462

)

Interest expense, net

 

2,253

 

 

2,970

 

 

4,968

 

 

6,150

 

Provision for (benefit from) income taxes

 

188

 

 

128

 

 

(319

)

 

198

 

Foreign currency transaction loss (1)

 

1,150

 

 

20

 

 

1,058

 

 

202

 

Other income

 

(25

)

 

(42

)

Non-cash deferred amounts (2)

 

1,119

 

 

161

 

 

1,556

 

 

110

 

Adjusted EBITDA

 

12,778

 

 

12,186

 

 

25,063

 

 

23,698

 

Add (deduct):
Cash paid for income taxes

 

(116

)

 

(329

)

 

(433

)

 

(607

)

Cash paid for interest

 

(2,874

)

 

(2,995

)

 

(4,957

)

 

(5,815

)

Maintenance capital expenditures

 

(82

)

 

(45

)

 

(114

)

 

(45

)

Distributable cash flow

$

9,706

 

$

8,817

 

$

19,559

 

$

17,231

 

 

(1)

Represents foreign exchange transaction amounts associated with activities between the Partnership’s U.S. and Canadian subsidiaries.

(2)

Represents the change in non-cash contract assets and liabilities associated with revenue recognized at blended rates based on tiered rate structures in certain of the Partnership’s customer contracts and deferred revenue associated with deficiency credits that are expected to be used in the future prior to their expiration. Amounts presented are net of the corresponding prepaid Gibson pipeline fee that will be recognized as expense concurrently with the recognition of revenue.

Category: Earnings

Contacts

Adam Altsuler

Senior Vice President, Chief Financial Officer

(281) 291-3995

[email protected]

Jennifer Waller

Director, Financial Reporting and Investor Relations

(832) 991-8383

[email protected]

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