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Edited Transcript of MMLP earnings conference call or presentation 27-Apr-17 1:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Martin Midstream Partners LP Earnings Call

Kilgore May 3, 2017 (Thomson StreetEvents) -- Edited Transcript of Martin Midstream Partners LP earnings conference call or presentation Thursday, April 27, 2017 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joe McCreery

Martin Midstream Partners L.P. - Head of IR for Martin Midstream GP LLC and VP of Finance for Martin Midstream GP LLC

* Robert D. Bondurant

Martin Midstream Partners L.P. - CFO of Martin Midstream GP LLC, EVP of Martin Midstream GP LLC and Director of Martin Midstream GP LLC

* Stephen W. Martin

Martin Midstream Partners L.P. - VP of Corporate Development for Martin Midstream GP LLC

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Conference Call Participants

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* Foster Matthews Schmid

Stephens Inc., Research Division - Research Analyst

* James Spicer

Wells Fargo & Company - EVP, Group Executive and Chief Information Officer of Wells Fargo Corporate Technology

* Michael Christopher Gyure

Janney Montgomery Scott LLC, Research Division - Director of Forensic Accounting and Master Limited Partnerships

* Robert Francis Balsamo

FBR Capital Markets & Co., Research Division - SVP and Senior Research Analyst

* Selman Akyol

Stifel, Nicolaus & Company, Incorporated, Research Division - MD

* Thomas Murphy

* TJ Schultz

RBC Capital Markets, LLC, Research Division - Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Martin Midstream Partners L.P. First Quarter 2017 Earnings and Webcast Information Conference Call. (Operator Instructions) I would now like to turn the call over to Bob Bondurant, CFO. Please go ahead.

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Robert D. Bondurant, Martin Midstream Partners L.P. - CFO of Martin Midstream GP LLC, EVP of Martin Midstream GP LLC and Director of Martin Midstream GP LLC [2]

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Thank you, Ayla. And to let everyone know who's on the call today, we have Joe McCreery, our VP of Finance and Head of Investor Relations; and Wes Martin, VP of Commercial -- Corporate Development, excuse me. Before we get started with the financial and operational results for the first quarter and the year, I need -- excuse me, for the first quarter, I need to make this disclaimer. Certain statements made during the conference call may be forward-looking statements related to financial forecast, future performance and our ability to make distributions to unitholders. We report our financial results in accordance with the generally accepted accounting principles and use non-GAAP financial measures within the meanings of the SEC Regulation G such as distributable cash flow, or DCF; earnings before interest, taxes, distribution, and amortization, or EBITDA; and also adjusted EBITDA. We use these measures because we believe it provides users of our financial information with meaningful comparisons between current results and prior reported results. And it can be a meaningful measure of the partnership's cash available to pay distributions.

We also include in our press release issued yesterday a reconciliation of EBITDA, adjusted EBITDA, distributable cash flow, and quarterly adjusted EBITDA guidance to the most comparable GAAP financial measure.

Our earnings press release and our 10-Q, which was also filed yesterday, are available at our website, martinmidstream.com.

Now, I would like to discuss our first quarter performance compared to the fourth quarter and also discuss our quarterly performance compared to our guidance.

For the first quarter, we had adjusted EBITDA of $46.8 million, compared to $52.3 million in the fourth quarter. Our distributable cash flow for the first quarter was $30.3 million which provided quarterly distribution coverage ratio of 1.68x on the actual distribution paid in the first quarter.

Now, by segment I would like to discuss our first quarter operating performance compared against the prior quarter and discuss our operating performance compared to our segment guidance. In our natural gas services segment, our first quarter adjusted EBITDA was $20.7 million compared to $28.1 million in the fourth quarter.

Including in our Natural Gas Services segment was an adjustment of $3.8 million in unrealized mark-to-market gains in the first quarter and $3.8 million in unrealized mark-to-market losses in the fourth quarter.

These derivative instruments are used to hedge our NGL inventory. Also included in adjusted EBITDA was $1.2 million in distributions from West Texas LPG in the first quarter and $1.4 million in distributions from West Texas LPG in the fourth quarter.

The significant portion of the decrease in cash flow between quarters for our Natural Gas Services segment was primarily from our butane logistics business.

Our butane margin per gallon contracted 35% between quarters as spot demand from refineries failed as the butane blending season began to wrap up in late February this year. As a reminder, we built butane inventory for our refinery customers in this second and third quarters, and then sell these customers butane in the fourth and first quarters of the year. We primarily utilize our North Louisiana underground storage facility which is serviced by truck and rail to facilitate our logistic services for these refinery customers.

The balance of the Natural Gas Services segment cash flow decrease was from our wholesale propane distribution business as spot demand for propane failed in the first quarter compared to the fourth quarter due to very warm weather in our geographic market.

This negatively impacted our margins between quarters. Now, compared to our first quarter guidance, our Natural Gas Services segment missed forecast by 9% or $2 million.

The largest portion of the miss was $1.4 million from our wholesale propane business as a result of the warm better we experienced in the market area, which negatively impacted both sales volume and margins. Our butane business slightly missed its mark by $600,000 due to reduced spot demand from refineries. These forecast misses were offset by positive performance at Cardinal Gas Storage as it exceeded forecast by $700,000, primarily from unbudgeted interruptible services.

Finally, our distribution in West Texas LPG missed its mark by $600,000 as a result of reduced volumes on the pipeline during the quarter. NGL volumes averaged 175,000 barrels a day versus our forecast of 190,000 barrels per day.

Current, for April, volume has improved as we have averaged 187,000 barrels per days. So going forward we should see cash flow improvement when compared to the first quarter.

Regarding West Texas LPG's rate hearings in front of the Texas Railroad Commission, a hearing on our rates was held in front of the hearings examiner during the week of March 27 of this year.

We believe, the hearings examiner will make a recommendation to the Railroad Commission in August and a final resolution on this matter is expected before the end of 2017.

For Natural Gas Services segment as laid out in our quarterly guidance slides posted yesterday, we will experience reduced cash flow in the second quarter as a result of the seasonality of our butane logistics business which services our refinery customers.

We have begun our butane inventory purchases and will build inventory during the second and third quarters before significant refinery sales return in the fourth quarter.

Now moving to our Terminal storage segment. Our first quarter adjusted EBITDA was $14.6 million compared to $16.7 million in the fourth quarter. The primary cause for the reduction of cash flow between periods was from the lost cash flow from our Corpus Christi crude terminal, which we sold in December 2016.

This accounted for $2.4 million of the decrease. We did experience increased cash flow in our package lubricant business of $1.1 million due to increased volume and increased margins. That compared to our first quarter guidance, our terminal storage segment exceeded forecast by $800,000.

Our shore-based terminals exceeded guidance by $600,000 due to increased marine lubricant margins. Additionally, our package lubricant business, known as Martin lubricants, exceeded guidance by $500,000 also as a result of improved margins compared to forecast.

Offsetting this was our specialty terminals group, which missed Guidance by $500,000 due to unforeseen repair and maintenance cost.

Now looking toward the second quarter, our guidance forecast, our terminal storage segment's adjusted EBITDA should be similar to the first quarter. In our Sulfur Services segment, our first quarter adjusted EBITDA was $13.5 million, compared to $8.7 million in the fourth quarter.

Our fertilizer business had an increase in adjusted EBITDA of $4.9 million while our pure sulfur byproduct business adjusted EBITDA was flat between quarters.

The increase in our fertilizer adjusted EBITDA was primarily from 120% increase in sales volume between quarters. This was a result of the anticipated seasonal increase in demand from our customers to service the agriculture planning season.

Now compared to our first quarter guidance, our Sulfur Services segment exceeded forecast by $3.1 million, primarily from outperformance of our fertilizers business. This outperformance was primarily a result of the stronger fertilizer margins than were originally forecasted.

Now looking towards second quarter Sulfur Services guidance. We anticipate a reduction in cash flow from our fertilizer business relative to first quarter as we expect sales volume to decline as demand should weaken late in the second quarter due to the seasonality of the planting season.

In our Marine Transportation segment, we had adjusted EBITDA in the first quarter of $2.2 million compared to $2.5 million in the fourth quarter. This decrease is primarily from the inland side of the business. Our inner utilization fell from 91% in the fourth quarter to 86% in the first quarter as a result of one of our tugboats being in the shipyard for scheduled maintenance. On the positive side, we did experience an improvement in average day rates by approximately $100 per day. Now, when compared to our first quarter guidance, our Marine Transportation segment exceeded forecast by $600,000, primarily as a result of reduced operating expenses.

And looking toward a second quarter, we are forecasting a slight reduction in adjusted EBITDA from our Marine Transportation segment as we anticipate an increase in some operating expenses.

Finally, our partnership's unallocated SG&A cost excluding noncash unit compensation expense, was $4.2 million in the first quarter compared to $3.9 million in the fourth quarter.

This was also slightly higher than guidance due to diligence costs and professional fees associated with the Hondo drop-down which occurred in February. Our maintenance capital expenditures and turnaround costs for the first quarter totaled $6.1 million. Also, we sold some of our assets held for sale, raising $1.5 million in proceeds. We are still carrying $14.3 million of assets held for sale on our balance sheet, the majority of which are contracted to be sold pending appropriate diligence processes for each of the assets held for sale.

Now I would like to turn the call over to Joe, to discuss our balance sheet, bank ratios, and additional information related to our quarterly guidance.

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Joe McCreery, Martin Midstream Partners L.P. - Head of IR for Martin Midstream GP LLC and VP of Finance for Martin Midstream GP LLC [3]

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Thanks, Bob. I'll start with a walk-through of the debt components of the balance sheet and tie to our bank ratios at quarter end. Then I'll discuss full year guidance of 2017 as it pertains to capital spending and leverage.

On March 31, 2017, the partnership's balance sheet reflected total long-term funded debt of approximately $751 million, a reduction of approximately $57 million from the year end 2016 level.

Our balance sheet funded debt is shown before unamortized debt issuance and unamortized issuance premiums as actual funded debt outstanding was $759 million. Reconciling this amount, at quarter end, our revolving credit balance was $385 million, and the notional amount under senior unsecured notes was $374 million. Thus, our total available liquidity on March 31 was $278 million based on our $664 million revolving credit facility.

For the quarter ended March 31, 2017, our bank compliant leverage ratios defined as senior secured indebtedness to adjusted EBITDA and total indebtedness to adjusted EBITDA, were 2.24x and 4.42x, respectively. As mentioned in yesterday's earnings release, this quarter end ratio represents an improvement of almost 50 basis points compared to our 2016 year-end total leverage ratio. And our best leverage ratio in almost 4 years.

During the quarter, we continued to reduce working capital. Our inventory sales experienced the positive benefit of debt reduction from the proceeds of our follow-on equity offering completed in February.

With our leverage ratio improvement, the partnership will benefit from the cost of borrowing reduction on a revolving credit facility of 25 basis points. As our leverage fell below 4.5x for the first time since the second quarter of 2013.

Our bank compliant interest coverage ratio, as defined by adjusted EBITDA to consolidated interest expense, was 4.06x.

Looking at the balance sheet. Total debt to total capitalization on March 31 was 68%, an improvement of over 4%, again reflecting the working capital decreases in our business during the first quarter and the impact of the equity offering.

In all, on March 31, 2017, the partnership was in full compliance of all banking covenants, financial or otherwise.

Now let me highlight the partnership's capital raised during the first quarter.

As mentioned, we successfully placed approximately $3 million common units to our follow-on offering with net proceeds to the partnership of $51.2 million. This issuance was in conjunction with our $36 million Hondo Asphalt Terminal drop-down and further assisted in the partnerships delevering during the quarter.

Now let me discuss some enhancements to our guidance for 2017.

As you may have seen the slides attached to our earnings release yesterday, we have expanded the level of detail on our 2017 cash flow guidance to include quarterly estimates. Improving the communication and the transparency of the partnership has been our objective since we initiated the guidance process in 2015. This year, for the first time, analysts and investors will have the benefit of detailed cash flow estimates within each segment by asset and by quarter.

We are providing this information to highlight the seasonal impact of our cash flows and the normal seasonal swings we conquered during the quarter calendar year.

As Bob highlighted, we are off to a good start this year tracking approximately 5% ahead of our first quarter adjusted EBITDA target.

Today, with the same objective, we are also providing additional detail on our 2017 capital spending forecast.

First, with respect to our growth capital expenditures. We spent approximately $31 million during the first quarter which includes approximately $28 million from the drop-down acquisition of the Hondo Asphalt Terminal from MRMC. For the remainder of 2017, we anticipate additional growth CapEx of approximately $12 million.

With this, a full year growth CapEx guidance is $43 million. Now, switching to the maintenance CapEx. We're honing our guidance in from the range previously disclosed of $20 million to $25 million, with a new range of $22 million to $24 million.

During the first quarter, our maintenance CapEx spend was $6.1 million and we anticipate approximately $17 million for the remainder of 2017.

We expect to fund all remaining CapEx utilizing availability under our revolving credit facility as we have no current plans to additional -- to issue additional equity this year.

Based on this capital spending forecast, the seasonal nature of our cash flows and the normal ramp up in working capital, we expect our leverage ratio will increase by approximately 30 to 40 basis points by year-end.

So wrapping this all together, based on the first quarter results, and its nearer range of maintenance CapEx guidance, we are affirming our previously disclosed distribution coverage target of 1.2x for 2017.

So, Ayla, this concludes our prepared remarks this morning. We would now like to open the lines for questions and answers.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Tom Murphy with Raymond James.

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Thomas Murphy, [2]

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My first question related to the West Texas rate case. And the step up in distribution from $1.5 million in 2Q to $2.6 million in 3Q. Can you just talk about the assumptions behind that? Is that volume driven or is there a rate assumption involved?

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Stephen W. Martin, Martin Midstream Partners L.P. - VP of Corporate Development for Martin Midstream GP LLC [3]

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No, we -- this is Wes Martin, when we originally put guidance out, there was an assumption there that there was some additional cash flow or distribution coming from WTLPG from the rate resolution. I think Bob had given some indication here on the August timetable. I think, when we, as we get closer to that date, we may revise and look at -- relook at that and give additional guidance based upon sort of our feel as to the way that things are going.

So you could see that, theoretically, coming down given the fact that there will be -- did has some rate improvement built in there. But I would say, as we sit here today and talk about this internally, there's a lot of upside in some of these other businesses that would help to offset any sort of reduction in that.

And so I think, when we are talking about our net guidance basis on a total adjusted EBITDA. I think we're still comfortable with where we are, and -- but there is some chance and potential, call it in the next time we get on the phone with you guys, well, we will have some revisions to that.

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Thomas Murphy, [4]

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Got it, thanks. And the second one, if I may. In regards to the interest expense step up from to 2 to 3Q. Can we kind of assume that the organic CapEx is going to be more back-end weighted?

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Stephen W. Martin, Martin Midstream Partners L.P. - VP of Corporate Development for Martin Midstream GP LLC [5]

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Yes, I think.

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Robert D. Bondurant, Martin Midstream Partners L.P. - CFO of Martin Midstream GP LLC, EVP of Martin Midstream GP LLC and Director of Martin Midstream GP LLC [6]

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I am sorry, I think the rate as well probably change. Yes, on the Q3, yes, the answer your question. We will wrap up the asphalt spend the majority of that $12 million Joe talked about was on the Hondo terminal. But we do have a reduction in our revolver because we're at 4 4 2.

(inaudible)

We get the benefit of that in Q2, and we anticipate because of our inventory build on the revolver are -- in our butane business that we bought are some on the revolver, and will take about 4.5 in -- for the Q3 interest cost.

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Stephen W. Martin, Martin Midstream Partners L.P. - VP of Corporate Development for Martin Midstream GP LLC [7]

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Correct.

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Operator [8]

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Our next question is from Matt Schmid with Stephens.

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Foster Matthews Schmid, Stephens Inc., Research Division - Research Analyst [9]

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The terminal in that storage segment had a little bit of outperformance this quarter, on the lubricants side and the shore-based terminal side. You mentioned the improved margins, I know it's been very competitive in the lubricants business. Can you just maybe talk in a little bit more detail about the trends you're seeing in the lubricants business and just the reasons behind the outperformance?

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Robert D. Bondurant, Martin Midstream Partners L.P. - CFO of Martin Midstream GP LLC, EVP of Martin Midstream GP LLC and Director of Martin Midstream GP LLC [10]

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Yes, the nuts and bolts reason is, we have been able to expand our margins. I think we've been -- we have weeded out I would say, some of those customers that we were not really making money on. We have gotten focused -- more focused targeted sales group. What we're trying to do, I know this is kind of a soft answer.

But trying to do better what we do -- things we are at. Additionally, we are running some -- and this new customer base we are getting -- we are able to run more volume through the plant so we're actually able to capitalize, if you will, more of our fixed cost as we are running more products for our newer customers.

So it's a combination of reducing customers with lower margins, picking up higher value customers, and then for those higher value customers being able to run more products through our manufacturing process to capitalize more of the fixed cost into the cost of inventory.

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Joe McCreery, Martin Midstream Partners L.P. - Head of IR for Martin Midstream GP LLC and VP of Finance for Martin Midstream GP LLC [11]

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And I would add to that, this is Joe, with respect to that phenomenon, it is demand-driven. We have seen some kind of market-wide price increases in our product that has kind of stuck and so that is a good sign, I think, for things to come. The fact that it is a demand pull, seems that we've been price takers for a long time here.

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Foster Matthews Schmid, Stephens Inc., Research Division - Research Analyst [12]

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Great. That's good to hear. Then hopping over to the Cardinal, clearly the interruptible business has been. Seems like it's been a tailwind for a few quarters now.

Maybe can you just talk a little bit more about current trends and potential upside through the rest of the year because it seems like it's pretty well positioned?

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Stephen W. Martin, Martin Midstream Partners L.P. - VP of Corporate Development for Martin Midstream GP LLC [13]

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Yes, this is Wes. Yes, you're exactly right, for Gas it seems like better part of a year now. The interruptibles have been carrying them to an outperformance relative to budget. And I think, as we look forward, that's -- we expect that to continue on the interruptible side. I think when you look at what's going close to Arcadia and the North Louisiana area where some of the drilling is going on, that's bringing additional volumes through our facilities and through that system.

As well as Monroe, to a lesser extent continues to outperform relative to budget on the interruptible side.

So we had a meeting with those guys yesterday and they continue to be positive on that outlook for the rest of this year. Is the drilling -- we expect the drilling to continue to improve volumes coming through our system.

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Operator [14]

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Our next question is from Robert Balsamo with FBR.

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Robert Francis Balsamo, FBR Capital Markets & Co., Research Division - SVP and Senior Research Analyst [15]

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So just some quick questions here, on Cardinal Gas, I wonder if you could give us any kind of market color on activity around Perryville? And just kind of what you're hearing as we get closer to projects coming online from the Northeast? Any kind of buzz there with around activity?

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Stephen W. Martin, Martin Midstream Partners L.P. - VP of Corporate Development for Martin Midstream GP LLC [16]

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Sure, this is Wes. When we were -- when we met at Investor Day, I think we had given the market some color on that. That we had recently run an open season.

We are continuing to negotiate some of those firm contracts so we wait to see how that all shakes out.

I would just say. In general, and I think we mentioned this before, when you just look at the intrinsic seasonal spreads, if you will and in 2018, there's still not outstanding, they still -- it depends on which numbers you're looking at better -- plus or minus in the 40 cent range.

But I think we mentioned as well in the Analyst Day presentation that some customers are seeing some extrinsic value that they're willing to pay for. And I think we'll wait to see, again, once we've got all the contracts executed on the Perryville side. We are converting that 4 Bcf Cadeville, if you recall. That should be in service in August of this year. But right now, on the extrinsic side, just for color on that, spreads continue to be relatively flat.

And not quite what we would like them to be. But again, we're talking to a new customers, potentially bringing in new customer at higher rates. Relative to what the spreads say, and we hope we can go execute on these contracts.

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Robert Francis Balsamo, FBR Capital Markets & Co., Research Division - SVP and Senior Research Analyst [17]

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Great. And then just one more question on the West Texas LPG, it's a follow-up. The volumes are little bit softer but you mentioned already coming back during the quarter. Is that softness I assume that's not Permian(inaudible).

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Stephen W. Martin, Martin Midstream Partners L.P. - VP of Corporate Development for Martin Midstream GP LLC [18]

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Yes, that's correct. We had a customer hop off the system, in the -- what I'll call the central region of the Barnett Shale, and it's my understanding, you guys correct me if I'm wrong, that, that customer has put some more volumes back on.

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Operator [19]

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Our next question is from Mike Gyure with Janney.

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Michael Christopher Gyure, Janney Montgomery Scott LLC, Research Division - Director of Forensic Accounting and Master Limited Partnerships [20]

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Can you guys talk a little bit I guess about the Hondo acquisition? And I kind of like -- I think you indicated it maybe on the queuing your highlights that you had basically expectation about the $8 million more of spending. It's kind of what's going on I guess with the timing versus the which you originally thought and kind of what's still left to go there?

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Robert D. Bondurant, Martin Midstream Partners L.P. - CFO of Martin Midstream GP LLC, EVP of Martin Midstream GP LLC and Director of Martin Midstream GP LLC [21]

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Yes, basically, the way we built that plant was to set it up to work to get inbound shipments in early. We've executed that part of it. So we have actually brought asphalt in, the tanks are full. And then the truckload out to be able to truck it back to our market areas is what's being completed now.

So we think that we'll be able to load asphalt volumes out, not blended asphalt which is more especially where you add plastic components to an asphalt.

But pure asphalt will be at a load about by May 20 to 25. And then the full fleet of products we'll be able to offer through the blending process, will be July 1.

So as you look in the model, we do have -- we show the cash flow beginning on our -- in our guidance beginning July 1. So to sum up the answer to your question, we have completed the majority of it, we're basically building out the load rack systems to truck the volumes out.

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Joe McCreery, Martin Midstream Partners L.P. - Head of IR for Martin Midstream GP LLC and VP of Finance for Martin Midstream GP LLC [22]

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Just add to that, the cash flow guidance was $5 million on an annual basis. So for 2017 you should see $2.5 million in the guidance numbers for Terminalling and Storage, especially terminals.

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Operator [23]

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Our next question is from James Spicer with Wells Fargo.

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James Spicer, Wells Fargo & Company - EVP, Group Executive and Chief Information Officer of Wells Fargo Corporate Technology [24]

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Beyond the $ 12 million in growth CapEx that you've identified for the remainder of the year, can you talk a little bit about some of the other opportunities that might be out there either internally or via acquisitions that can really drive longer term growth for the company?

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Stephen W. Martin, Martin Midstream Partners L.P. - VP of Corporate Development for Martin Midstream GP LLC [25]

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James, this is Wes. Yes, I think, Internally we've had a lot of discussion about this over the last few months and I think, as we look forward -- I think, we are laser-focused on debt reduction and keeping our coverages above 1.2x. I think -- so that's first and foremost on our minds here internally.

So that said, we continue to go out there and look on the organic side for strategic opportunities to go spend capital at low multiples, to expand and grow those businesses.

We might have the potential, I think Joe has talked about this in the past, to look at some additional asphalt investments. Asphalt terminals et cetera. But I think right now, as we sit -- 2017 is sort of our viewpoint. I don't see a lot on the horizon, in the next couple of quarters. Again, as we sort of work through our balance sheet and again try to get some continued outperformance if you will, through our operations, before we start in going to spend capital on other things.

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James Spicer, Wells Fargo & Company - EVP, Group Executive and Chief Information Officer of Wells Fargo Corporate Technology [26]

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Okay, great, great. Now I understand. And then just on that note. The focus on the balance sheet, your bonds are obviously, callable. Do you have any interest in refinancing or retiring that debt when you think about the overall kind of balance sheet objectives here?

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Joe McCreery, Martin Midstream Partners L.P. - Head of IR for Martin Midstream GP LLC and VP of Finance for Martin Midstream GP LLC [27]

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James, this is Joe. We continue to look at that kind of real time. We have been actively in dialogue with underwriters. If there's nothing imminent on that front, necessarily, but I think you're exactly right. Coming out some of this debt is probably prudent, giving what feels like long-term rates continue to move against us, from fixed debt perspective. So we are actively looking at that.

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Operator [28]

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Our next question is from TJ Schultz with RBC Capital.

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TJ Schultz, RBC Capital Markets, LLC, Research Division - Analyst [29]

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First, appreciate all the detail guidance that you guys gave. That's very helpful. Wes, I think you mentioned in response to an earlier question that you all have kind of identified areas of upside potential and guidance that could offset the potential revision to that West Texas rate in the third quarter. So just generally, where do you all feel like you have the most opportunity to beat your guidance? Is it primarily what you mentioned on Cardinal or if there is anything else out there, I know fertilizer margin seems pretty strong.

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Stephen W. Martin, Martin Midstream Partners L.P. - VP of Corporate Development for Martin Midstream GP LLC [30]

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Sure. Yes, you have hit on two of them. Cardinal and fertilizer. I would say, based on past experience, the jury's still out on the lubricant side. I think, we have in the past, I know thought that, that market was back and have gotten optimistic and then it turned on us. So that's still TBD but, again, the fundamentals as Bob outlined before, have been positive. And as well as some of the internal things that we're doing. So I would circle that one as well. If you look at Marine. Marine, I think we guided $7 million, plus or minus on the year. And that -- I think the first quarter was relatively strong relative to where we were thinking here, internally.

So I think there's potential here. When you add up all of those. Cardinal and fertilizer alone could offset that, but I think we are seeing some positive signs in those others but it's well too early to go and start changing guidance based upon that.

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Joe McCreery, Martin Midstream Partners L.P. - Head of IR for Martin Midstream GP LLC and VP of Finance for Martin Midstream GP LLC [31]

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Yes, I think that's right. This is Joe. I think Cardinal and fertilizer from a revenue perspective, TJ, look from an outperformance perspective, and then to Wes' point on Marine, that's really a cost side of the income statement, if you will.

They've done a very good job, getting that cost structure intact. And that's sticky in the context of, will it continue for the remainder of the year. I think the answer is, yes. And further, we've got some noncommercial assets that are in the held for sale category, that we will divest on a go forward basis to continue to decrease our cost structure as we move forward. So feel good about that and the job those guys have done. Getting that business which has been in -- certainly in a lower trough to perform well from a cost point of view.

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TJ Schultz, RBC Capital Markets, LLC, Research Division - Analyst [32]

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Okay. Beyond what you have in that kind of held for sale bucket. Any other asset sales that you guys are kind of considering as you thinking about the balance sheet this year?

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Robert D. Bondurant, Martin Midstream Partners L.P. - CFO of Martin Midstream GP LLC, EVP of Martin Midstream GP LLC and Director of Martin Midstream GP LLC [33]

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At this moment in time, I would say, no. We're constantly having our business leaders to reevaluate that same situation. And evaluate our assets and return on capital and to the extent we find opportunities to divest and delever in an accretive way, we'll continue to do so.

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TJ Schultz, RBC Capital Markets, LLC, Research Division - Analyst [34]

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Okay, just last quick question on the quarter wholesale propane. You had a miss there and I think you mentioned just some weather, right? It is it just whether or is there anything else going on there that you can point out on wholesale propane?

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Robert D. Bondurant, Martin Midstream Partners L.P. - CFO of Martin Midstream GP LLC, EVP of Martin Midstream GP LLC and Director of Martin Midstream GP LLC [35]

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No, it was specific. Whether our buying were kind of similar but what happened was the demand was so weak. Where we hold our inventory, primarily North Louisiana. We were having the truck to a broader geographic market to basically move our inventory we were carrying to get rid of it before it come out in the winter. So that extension of our market area, if you will, increased our cost and so that reduced our margins. So that was primarily driven by the warm weather.

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Operator [36]

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Our next question is from Selman Akyol with Stifel.

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Selman Akyol, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [37]

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Just wanted -- quick one for me. Since most have been asked. In terms of your $14.3 million you still have being held assets for sale. How quickly expect to realize that and are there really any major hurdles to getting that completed?

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Stephen W. Martin, Martin Midstream Partners L.P. - VP of Corporate Development for Martin Midstream GP LLC [38]

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There is a -- there are really 2 large assets. One is in our Terminalling business and one is in Marine business. And both of them -- one we have a contract under, but it's a function of him gathering his financing, which he is very close and he has made payments all along, a significant amount, so we know he's fundamentally invested into this opportunity for himself and opting for us to divest. The Marine asset is very early stage but we do have a letter of intent. And that's really about all I can say. So opportunistic, I think we might sell in the second quarter and maybe one in the third quarter.

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Operator [39]

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And I'm showing no further questions. I would now like to turn the call back over to the Bob Bondurant, for any further remarks.

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Robert D. Bondurant, Martin Midstream Partners L.P. - CFO of Martin Midstream GP LLC, EVP of Martin Midstream GP LLC and Director of Martin Midstream GP LLC [40]

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Thank you, Ayla. I just want to summarize about the -- about our first quarter. We did have successful execution with our fundamental goal to increase our distribution coverage and decrease our partnership leverage. Which will continue throughout 2017 as noted earlier, we also expect our Hondo cash flows to come online in July 1. As far as the 6 successful drop-down we experienced in Q1. We additionally pleased that we are able to provide additional level of guidance details to the market.

This is a -- we've been wanting to do this for a long time. We felt very comfortable finally doing that. And -- but we also want to communicate to that process. The fact we do have seasonal impact of coverage and leverage, primarily in the second and third quarter. And then finally I want to continue to affirm our 1.2x distributable cash flow coverage guidance. Appreciate everybody participation in day and your continued support of our company. Thank you.

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Operator [41]

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Ladies and gentlemen, thank you for participating in today's conference. You may all disconnect. Everyone, have a great day.