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Edited Transcript of PBFX earnings conference call or presentation 14-Feb-19 4:00pm GMT

Q4 2018 PBF Logistics LP Earnings Call

Parsippany Feb 19, 2019 (Thomson StreetEvents) -- Edited Transcript of PBF Logistics LP earnings conference call or presentation Thursday, February 14, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* C. Erik Young

PBF Logistics LP - Senior VP, CFO & Director of PBF Logistics GP LLC

* Colin Murray

PBF Logistics LP - Head of IR

* Matthew C. Lucey

PBF Logistics LP - President & Director of PBF Logistics GP, LLC

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Conference Call Participants

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* Justin Scott Jenkins

Raymond James & Associates, Inc., Research Division - Senior Research Associate

* Ryan Michael Levine

Citigroup Inc, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the PBF Logistics Fourth Quarter and Full Year 2018 Earnings Conference Call and Webcast. (Operator Instructions) As a note, today's call is being recorded. And it's my pleasure to turn the floor over to Colin Murray of Investor Relations. Sir, you may begin.

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Colin Murray, PBF Logistics LP - Head of IR [2]

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Thank you, Keith. Good morning. Happy Valentine's Day, and welcome to today's call. With me today are Matt Lucey, Executive Vice President; and Erik Young, our CFO; and several other members of the partnership's senior management team. If you'd like a copy of our earnings release, it is available on our website.

Before we begin, I'd like to direct your attention to the forward-looking statement disclaimer contained in today's press release. In summary, it outlines that statements in the press release and on this conference call that state the partnership's or management's expectations or predictions of the future are forward-looking statements intended to be covered by the safe harbor provisions under federal securities laws. There are many factors that could cause actual results to differ from our expectations, including those we've described in our filings with the SEC.

As noted in our press release, we will be using certain non-GAAP measures while describing the partnership's operating performance and financial results. For reconciliations of non-GAAP measures to the appropriate GAAP figure, please refer to the supplemental tables provided in today's press release.

Additionally, today we also provided slides accompanying our remarks, and these slides can be found on the PBF Logistics website.

I'll now turn the call over to Matt Lucey.

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Matthew C. Lucey, PBF Logistics LP - President & Director of PBF Logistics GP, LLC [3]

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Thank you, Colin. Good morning, everyone, and thanks for joining the call.

PBF Logistics is pleased to announce the execution of an immediately accretive IDR simplification agreement. In exchange for 10 million common units, representing a total equity value of $215 million or 11x forecasted 2019 IDR cash flow, PBF Energy has agreed to the elimination of the IDR structure. This is an important transaction for both the partnership and PBF Energy and we think better positions the partnership to execute its growth initiatives.

We remain committed to delivering that growth. Last year at this time, we announced a $100 million organic growth plan that we will deliver over the coming 4 to 5 years. Over the course of 2018 and into '19, we have invested and continue to invest approximately $40 million in our organic projects that will deliver approximately $10-million-plus of run rate EBITDA by the end of this year.

In addition to the organic growth pipeline, we continue to pursue third-party opportunities to expand our business. In 2018, this accounted for $23 million of incremental EBITDA.

Additionally, today we announced a toll-processing agreement for our East Coast Storage Assets with Maersk, a global shipping company. This agreement will provide a predictable earnings stream with no commodity or market risk. We will be using a currently idled processing unit to supply the IMO 2020-compliant 0.5% weight sulfur marine fuel to Maersk. This agreement represents incremental EBITDA that will be generated by these assets above what was originally contemplated.

I'm also pleased to announce the early extension of PBF Energy's rail unloading contracts at Del City. The current contracts will remain in place until the end of '21, and the extension will run from January 1, '22 until the end of '25, providing 7 years of visibility for the partnership.

PBF Logistics performed well in 2018 and delivered growth in a challenging market for MLPs. We were able to fund our growth internally and through variable -- valuable strategic partnerships. We are starting 2019 in a very strong position, making some significant strategic steps in terms of simplifying our structure and extending our largest contracts. Despite the challenges in the MLP market, PBF Logistics is positioned to deliver growth in 2019 and beyond.

We are pleased to announce -- I'm pleased to announce our 17th consecutive distribution increase today and reaffirm our previously announced distribution growth guidance and long-term leverage and coverage targets.

With that, Erik will go through the financials.

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C. Erik Young, PBF Logistics LP - Senior VP, CFO & Director of PBF Logistics GP LLC [4]

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Thank you, Matt. This morning, we reported fourth quarter net income attributable to the limited partners of $21.8 million or $0.48 per common unit. The partnership EBITDA was $41.1 million, including $1.8 million or $0.04 per common unit of incremental incentive compensation and transaction-related expenses.

During the quarter, we spent approximately $2.7 million in maintenance CapEx and approximately $86.4 million on acquisitions and growth projects. As a result, we generated $28.7 million of cash available for distribution, which represents a quarterly coverage ratio of approximately 1.01x.

Our coverage reflects the impact to the IDR simplification transaction, and we expect future coverage metrics to increase as current investments in organic projects should result in incremental DCF over the next 18 months.

We ended the quarter with approximately $360 million in liquidity, including $19.9 million of cash and approximately $340 million of availability under our revolving credit facility. Net debt to adjusted run rate EBITDA was 3.8x.

We are pleased to announce our 17th consecutive distribution increase to $0.505 per unit per quarter. As we look forward, our simplified structure and lower cost of capital should provide a stable platform for the execution of our 3-pronged strategy to deliver accretive growth.

Operator, we've concluded our opening remarks and now we'll open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from Justin Jenkins with Raymond James.

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Justin Scott Jenkins, Raymond James & Associates, Inc., Research Division - Senior Research Associate [2]

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Congrats on what looks like a pretty good deal here for the IDRs. I guess, I want to start on the announcement here, the agreement with Maersk. First question, I guess, can you give us a sense of the possible incremental EBITDA generation you expect here? And second, any expected capital costs related to restarting the crude unit?

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Matthew C. Lucey, PBF Logistics LP - President & Director of PBF Logistics GP, LLC [3]

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Yes. In regards to incremental EBITDA, well, one, I think the processing probably starts towards the end of this year. That can be accelerated if the counterparty is interested in doing that. But at the moment, the sort of base case is that will start up, an operational startup, at the end of this year. There's, call it, $4 million to $5 million of startup costs. There's going to be a small turnaround in just getting the facility ready to process it. And there's going to be an incremental $6 million of run rate EBITDA for the partnership. I should point out that this deal came together not only in conjunction with PBFX and Maersk, but with the previous owner of the facility. They actually did quite a good work in sourcing the opportunity. And so this was something that was contemplated in startup. And as a result, we're going to be sharing cash flows, not only EBITDA cash flows, but startup cash flows. So the net result for PBFX is, call it, $2 million, $2.5 million investment over the course of this year and $6 million of EBITDA to PBFX. The sellers will be getting the other portion.

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Justin Scott Jenkins, Raymond James & Associates, Inc., Research Division - Senior Research Associate [4]

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Perfect. I appreciate that detail, Matt. And second question for me then, on the ACE pipeline. Anything you can share there related to the expected timing maybe for reaching FID and possible share of project costs? Or it's still a little bit too early there?

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Matthew C. Lucey, PBF Logistics LP - President & Director of PBF Logistics GP, LLC [5]

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I think it's too early other than it's a project that we're excited about. We think it makes a lot of sense. We're very, very pleased with the partners that we have in the project. We think it gives a lot of credence to the deliverability of the project. You have 2 sponsors that bring with it 2 refineries, i.e. demand. And then you bring another sponsor, which is bringing an existing pipeline, as well as access to a third refinery. And so we think the project makes a lot of sense, and it's right in line with the type of organic projects that we started advertising [here].

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Operator [6]

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(Operator Instructions) We go next to Ryan Levine with Citi.

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Ryan Michael Levine, Citigroup Inc, Research Division - Equity Analyst [7]

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With the IDR deal announced, can you update us on your thoughts on capital allocation decisions between organic growth and your dividend policy, your distribution policy?

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Matthew C. Lucey, PBF Logistics LP - President & Director of PBF Logistics GP, LLC [8]

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I think our distribution policy is unchanged from before to after, essentially delivering mid-single-digit distribution growth. And we'll focus on delivering that for our unit holders and feel like we're in as good, if not a better position, to deliver that today than we were yesterday.

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Ryan Michael Levine, Citigroup Inc, Research Division - Equity Analyst [9]

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Is there any change to your organic growth execution time line? Or are there -- any color you could provide as to the status of those projects?

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Matthew C. Lucey, PBF Logistics LP - President & Director of PBF Logistics GP, LLC [10]

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Well, there's no change. We continue -- we -- nothing in terms of delivering organic projects is going to be gradable, but I think we came out of gate. And like I said, we executed some projects. Some projects we've announced are in development, and we'll continue to develop projects that we haven't announced yet. But there's -- it certainly hasn't declined. We think we -- today we've strengthened the partnership, and so our ability to execute more transaction improves as our unit price improves.

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C. Erik Young, PBF Logistics LP - Senior VP, CFO & Director of PBF Logistics GP LLC [11]

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I think, Ryan, it's also important -- it's important to note too that the third-party acquisitions are also a key part of the growth strategy. And so in the (inaudible) those typically are timing-wise 100% out of our control. So in the event that we do have an accretive third-party acquisition, that would ultimately -- there is a chance that, that pushes the timing around on some of the organic projects. We tend to look at organic and third-party and even the drop downs over kind of a multiyear growth trajectory, and I think that's what we're comfortable reaffirming that distribution growth guidance that Matt mentioned, as well as the coverage and leverage targets that we've always talked about. So target long-term coverage of 1.15x and net debt-to-EBITDA within that kind of 3x to 4x range.

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Ryan Michael Levine, Citigroup Inc, Research Division - Equity Analyst [12]

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Okay. And then could you speak to how you came to the 11x IDR multiple in light of some of the recent business transaction?

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Matthew C. Lucey, PBF Logistics LP - President & Director of PBF Logistics GP, LLC [13]

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I think you'll find and what we try to -- I think what you'll find is we did this at the low end of the range, and there is the correct alignment of interest between PBF and PBFX. PBF is -- owns a significant amount of the LP units, so I think the alignment of interest will set up properly. We worked very, very hard and spoke to a large number of people, did a fair amount of analysis in finding the right balance. I believe, we did. Obviously, the market will have its own perspective, but we've definitely tried to put our best foot forward in terms of striking the right balance and setting up the partnership for continued success.

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Operator [14]

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And it appears we have no further questions. I'll return the floor to Matt Lucey for any additional or closing remarks.

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Matthew C. Lucey, PBF Logistics LP - President & Director of PBF Logistics GP, LLC [15]

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Well, great. I appreciate everyone's time, and I look forward to talking to you next month -- or next quarter. Have a good day.

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Operator [16]

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And this will conclude today's program. Thank you for your participation. You may now disconnect.