Genesis Energy, L.P. Reports Third Quarter 2012 Results

Genesis Energy, L.P. Reports Third Quarter 2012 Results

HOUSTON--(BUSINESS WIRE)-- Genesis Energy, L.P. (NYS: GEL) today announced its third quarter results. Results for the quarter ended September 30, 2012 included the following items:

  • For the third quarter of 2012, we generated a record total Available Cash before Reserves of $45.9 million, an increase of $8.8 million, or 23.8%, over the third quarter of 2011. Adjusted EBITDA increased $11.4 million to $56.6 million, or 25%, over the prior year period. Available Cash before Reserves and Adjusted EBITDA are non-GAAP measures that are defined and reconciled later in this press release to the most directly comparable GAAP financial measure, net income.

  • We recorded net income for the quarter ended September 30, 2012 of $31.2 million, or $0.39 per unit, compared to $19.1 million, or $0.27 per unit, for the same period in 2011. Net income for the 2012 quarter included a non-cash $8.2 million benefit from the one-time reversal of certain tax provisions. Without this benefit, net income would have been $23 million, representing an increase of $3.9 million over the year earlier quarter.

  • On November 14, 2012, we will pay a total quarterly distribution of $38.4 million attributable to our financial and operational results for the third quarter of 2012, based on our quarterly declared distribution of $0.4725 per unit. Our Available Cash before Reserves provided 1.20 times coverage for this quarterly distribution.

Grant Sims, CEO of Genesis Energy, said, "We are pleased to yet again announce a record quarter of Available Cash before Reserves for the partnership. Volume growth, whether on our pipelines, in our trucks or barges, or related to our refinery service operations, is a critical operating metric, and we continue to demonstrate the relative insensitivity of our financial results to volatile (absolute or relative) commodity price levels.


Our measured, stable growth allowed us to increase distributions to unitholders for the twenty-ninth consecutive quarter, twenty-four of which have been 10% or greater, and never less than 8.7%, over the year earlier quarter. None of this would have been possible without the hard work of our dedicated employees, and their, as well as management's, commitment to safe, reliable and responsible operations.

Subsequent to the end of the quarter, we facilitated the orderly exit of several large unitholders. I believe the important message in those transactions is that our largest unitholders and management actually significantly increased their ownership in the partnership.

As we look forward to the fourth quarter and into 2013, we would expect to see continuing sequential quarterly growth as we will benefit from the end to the extended maintenance at several offshore fields dedicated to our pipeline transportation segment, the return of development drilling at those dedicated fields, the contribution from our previously announced projects at Walnut Hill, in Texas City, and Natchez, as well as the continuing integration of our substantially expanded asset footprint, service capabilities and customer relationships. Consequently, we believe we are well positioned to achieve our goals of continuing to deliver double-digit growth in distributions, increasing our coverage ratio and maintaining a better than investment grade leverage ratio, all without ever losing sight of our commitment to safe, reliable and responsible operations."

Financial Results

Available Cash before Reserves (a non-GAAP measure) increased to $45.9 million in the third quarter of 2012 as compared to $37 million for the same period in 2011. The primary components impacting Available Cash before Reserves are Segment Margin, corporate general and administrative expenses (excluding non-cash charges), interest expense and maintenance capital expenditures. Variances from the third quarter of 2011 in these components are explained as follows:

Segment Margin

Segment Margin is defined and reconciled later in this press release to income before income taxes. During the third quarter of 2012 (or "2012 Quarter"), Segment Margin increased $13 million over the third quarter of 2011 (or "2011 Quarter") primarily reflecting the impact of acquisitions and higher volumes in our pipeline transportation and supply and logistics segments.

Segment results for the third quarters of 2012 and 2011 were as follows:

Three Months Ended
September 30,

2012

2011

(in thousands)

Pipeline transportation

$

23,295

$

16,030

Refinery services

18,983

17,992

Supply and logistics

23,651

18,909

Total Segment Margin (1)

$

65,929

$

52,931

(1) We define Segment Margin as revenues less product costs, operating expenses (excluding non-cash charges, such as depreciation and amortization), and segment general and administrative expenses, plus our equity in distributable cash generated by our equity investees. In addition, our Segment Margin definition excludes the non-cash effects of our stock appreciation rights plan and includes the non-income portion of payments received under direct financing leases. A reconciliation of Segment Margin to income before income taxes is presented for periods presented in the table at the end of this release.

Pipeline transportation Segment Margin increased $7.3 million, or 45%, between the third quarter periods. The contribution from our interests in the Gulf of Mexico pipelines that we acquired in 2012 and higher crude oil tariff revenues were the primary factors increasing Segment Margin. These increases were partially offset by a decrease in the contribution to Segment Margin from CHOPS as a result of ongoing improvements being made by producers at several connected production fields. Improvements at those fields were substantially completed late in the 2012 Quarter.

Our refinery services Segment Margin increased $1 million, or 6%, between the quarters due to increased NaHS sales volumes and operating efficiencies realized at several of our sour gas processing facilities as well as our favorable management of the acquisition and utilization of caustic soda in our, and our customers', operations and our logistics operations.

Supply and logistics Segment Margin increased $4.7 million, or 25%, between the quarters. The primary factors for Segment Margin increasing quarter-over-quarter were the contribution of the black oil barge transportation assets that we acquired in August 2011 and February 2012 and increased volumes handled by our expanded trucking and barge fleets. Our total volumes of crude oil and refined products increased 30% as a result of these expansions.

Other Components of Available Cash

Corporate general and administrative expenses included in the calculation of Available Cash before Reserves increased by $1.6 million primarily due to increased salaries and benefits associated with additional personnel to support our growth and increased equity compensation expense driven by a higher common unit price. Interest costs increased $2.2 million from the 2011 Quarter primarily as a result of increased borrowings for acquisitions and other growth projects. Capitalized interest costs of $1.3 million attributable to our growth capital expenditures and investments in the SEKCO pipeline joint venture partially offset the increase in interest expense, resulting in a net increase in interest expense of $0.9 million.

Several adjustments to net income are required to calculate Available Cash before Reserves.

The calculation of Available Cash before Reserves for the quarters ended September 30, 2012 and 2011 was as follows:

Three Months Ended
September 30,

2012

2011

(in thousands)

Net income

$

31,194

$

19,088

Depreciation and amortization

14,838

14,706

Cash received from direct financing leases not included in income

1,278

1,167

Cash effects of sales of certain assets

13

3,269

Effects of distributable cash generated by equity method investees not included in income

5,613

3,701

Cash effects of equity-based compensation plans

(466

)

(306

)

Non-cash equity-based compensation expense (benefit)

2,001

(930

)

Expenses related to acquiring or constructing assets that provide new sources of cash flow

228

1,008

Unrealized gain on derivative transactions excluding fair value hedges

(75

)

(4,355

)

Maintenance capital expenditures

(701

)

(2,244

)

Non-cash tax benefit

(8,717

)

(48

)

Other items, net

653

1,985

Available Cash before Reserves

$

45,859

$

37,041

Other Components of Net Income

In the 2012 Quarter, we recorded net income of $31.2 million compared to $19.1 million for the third quarter of 2011. In addition to the factors impacting Available Cash before Reserves, income tax expense decreased $8.7 million between the quarterly periods primarily due to the reversal of uncertain tax positions as a result of tax audit settlements and the expiration of statutes of limitations. Our derivative positions resulted in a $0.1 million non-cash unrealized gain in the 2012 Quarter compared to a $4.4 million non-cash unrealized gain in the 2011 Quarter. In the 2012 Quarter, we recorded a non-cash expense related to certain equity-based compensation plans of $2 million. In the 2011 Quarter, we recorded a non-cash benefit of $0.9 million. Fluctuations in the market price of our common units were the reasons for the difference.

Distributions

We have increased our quarterly distribution rate for twenty-nine consecutive quarters. During that period, twenty-four of those quarterly increases have been 10% or greater year-over-year. Over the last four quarters, we have increased the distribution rate on our common units by a total of $0.045 per unit, or 10.5%. Distributions paid over the last four quarters, and the distribution to be paid on November 14, 2012 for the third quarter of 2012, are as follows:

Distribution For

Date Paid

Per Unit

Amount

2012

3rd Quarter

November 14, 2012

$

0.4725

2nd Quarter

August 14, 2012

$

0.4600

1st Quarter

May 15, 2012

$

0.4500

2011

4th Quarter

February 14, 2012

$

0.4400

3rd Quarter

November 14, 2011

$

0.4275

Earnings Conference Call

We will broadcast our Earnings Conference Call on Tuesday, November 6, 2012, at 8:00 a.m. Central time. This call can be accessed at www.genesisenergy.com. Choose the Investor Relations button. Listeners should go to this website at least fifteen minutes before this event to download and install any necessary audio software. For those unable to attend the live broadcast, a replay will be available beginning approximately one hour after the event and remain available on our website for 30 days. There is no charge to access the event.

Genesis Energy, L.P. is a diversified midstream energy master limited partnership headquartered in Houston, Texas. Genesis' operations include pipeline transportation, refinery services and supply and logistics. The Pipeline Transportation Division is engaged in the pipeline transportation of crude oil and carbon dioxide. The Refinery Services Division primarily processes sour gas streams to remove sulfur at refining operations. The Supply and Logistics Division is engaged in the transportation, storage and supply and marketing of energy products, including crude oil, refined products, and certain industrial gases. Genesis' operations are primarily located in Texas, Louisiana, Arkansas, Mississippi, Alabama, Florida and the Gulf of Mexico.

GENESIS ENERGY, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

(in thousands, except per unit amounts)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2012

2011

2012

2011

REVENUES

$

942,334

$

830,200

$

2,797,945

$

2,282,788

COSTS AND EXPENSES:

Costs of sales

888,003

777,957

2,639,047

2,146,954

General and administrative expenses

10,375

8,905

29,934

25,339

Depreciation and amortization

14,838

14,706

45,447

43,100

OPERATING INCOME

29,118

28,632

83,517

67,395

Equity in earnings (losses) of equity investees

3,432

(412

)

7,971

3,377

Interest expense

(9,873

)

(8,960

)

(30,697

)

(26,670

)

INCOME BEFORE INCOME TAXES

22,677

19,260

60,791

44,102

Income tax benefit (expense)

8,517

(172

)

8,591

(626

)

NET INCOME

$

31,194

$

19,088

$

69,382

$

43,476

NET INCOME PER COMMON UNIT:

Basic and Diluted

$

0.39

$

0.27

$

0.90

$

0.65

WEIGHTED AVERAGE OUTSTANDING COMMON UNITS:

Basic and Diluted

79,901

70,447

77,410

66,580

GENESIS ENERGY, L.P.

OPERATING DATA - UNAUDITED

Three Months Ended
September 30,

Nine Months Ended
September 30,

2012

2011

2012

2011

Pipeline Transportation Segment

Onshore crude oil pipelines (barrels/day):

Jay

22,841

17,720

19,931

16,499

Texas

52,767

44,149

50,327

46,020

Mississippi

17,942

20,884

18,377

20,883

Onshore crude oil pipelines total

93,550

82,753

88,635

83,402

Offshore crude oil pipelines (barrels/day):

CHOPS (1)

91,377

90,312

78,817

123,034

Poseidon (1) (2)

215,474

206,596

Odyssey (1) (2)

31,869

35,994

GOPL (2)

8,300

16,979

Offshore crude oil pipelines total

347,020

90,312

338,386

123,034

CO2 pipeline (Mcf/day)

Free State

188,165

192,041

177,527

166,302

Refinery Services Segment

NaHS (dry short tons sold)

34,372

33,396

107,321

106,709

NaOH (caustic soda dry short tons sold)

21,152

23,440

56,740

74,289

Supply and Logistics Segment

Crude oil and petroleum products sales (barrels/day)

100,095

77,179

91,444

71,770

(1)

Volumes for our equity method investees are presented on a 100% basis.

(2)

Acquired in January 2012.

GENESIS ENERGY, L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED

(in thousands, except number of units)

September 30,
2012

December 31,
2011

ASSETS

Cash and cash equivalents

$

15,461

$

10,817

Accounts receivable - trade, net

318,892

237,989

Inventories

67,298

101,124

Other current assets

25,616

26,174

Total current assets

427,267

376,104

Fixed assets, net

535,951

416,925

Investment in direct financing leases, net

158,698

162,460

Equity investees

547,925

326,947

Intangible assets, net

79,140

93,356

Goodwill

325,046

325,046

Other assets, net

33,128

30,006

Total assets

$

2,107,155

$

1,730,844

LIABILITIES AND PARTNERS' CAPITAL

Accounts payable - trade

$

254,688

$

199,357

Accrued liabilities

63,691

50,071

Total current liabilities

318,379

249,428

Senior secured credit facility

483,000

409,300

Senior unsecured notes

350,924

250,000

Deferred tax liabilities

11,598

12,549

Other long-term liabilities

15,321

16,929

Partners' capital:

Common unitholders

927,933

792,638

Total liabilities and partners' capital

$

2,107,155

$

1,730,844

Units Data:

Total common units outstanding

81,202,752

71,965,062

GENESIS ENERGY, L.P.

RECONCILIATION OF SEGMENT MARGIN TO INCOME BEFORE INCOME TAXES - UNAUDITED

(in thousands)

Three Months Ended
September 30,

2012

2011

Segment margin

$

65,929

$

52,931

Corporate general and administrative expenses