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Edited Transcript of PBFX earnings conference call or presentation 1-May-19 3:00pm GMT

Q1 2019 PBF Logistics LP Earnings Call

Parsippany May 22, 2019 (Thomson StreetEvents) -- Edited Transcript of PBF Logistics LP earnings conference call or presentation Wednesday, May 1, 2019 at 3:00:00pm 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 - Executive VP & 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 First Quarter 2019 Earnings Conference Call and Webcast. (Operator Instructions) Please note today's call is being recorded.

And it's now my pleasure to turn the floor over to Colin Murray of Investor Relations. Please go ahead.

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

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

Before we begin, I'd like to direct your attention to the forward-looking statements disclaimer contained in today's press release. In summary, it outlines that statements in the press release and on this 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 will also -- pardon me. Now I will turn the call over to Matt Lucey.

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

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Thanks, Colin. Good morning, everyone. Thanks for joining the call.

Last week, we preannounced our earnings in conjunction with the announcement of the $200 million dropdown acquisition of the remaining 50% interest of the Torrance Valley Pipeline Company. This transaction has strategic importance for PBF Logistics on a couple of levels in that it consolidates ownership of a major asset within the partnership and secures the partnership's near-term growth requirements. Our highly successful capital raise satisfies the partner's equity financing needs for this transaction and through 2020.

In combination with our ongoing growth projects, the dropdown delivers our targeted growth for 2019. We do intend to continue growing at $0.005 per quarter. With that, we're pleased to announce our eighth consecutive distribution increase of $0.51 per unit for the current quarter.

Our organic projects, announced a year ago, are currently being executed, with a significant portion of those assets generating free cash today. Our base EBITDA of $177 million for 2019 incorporates these activities, and our new 2019 target will increase to approximately $195 million of EBITDA with half a year of contribution from the Torrance Valley Pipeline.

Our total growth CapEx for 2019 is expected to be approximately $15 million to $20 million, with much of that investment being focused on the development of opportunities at East Coast Storage Assets in terms of tank refurbishment, converting storage to heated tanks and efforts to increase boiling capabilities.

In 2020, we expect our annual EBITDA to increase to approximately $220 million, which includes a full year of 100% ownership of the Torrance Valley Pipeline and $15 million for the East Coast Storage Assets operations and contributions from Maersk processing arrangement, as discussed on our last call.

It is important to note that the updated growth plan excludes any acquisition opportunities and the potential ACE Pipeline. By way of an update, the ACE Pipeline open season is still ongoing. It's a highly strategic project that brings support from PBF's Chalmette Refinery, and we expect to provide future updates on this project after the open season closes.

The partnership continues to demonstrate its ability to grow through our three-pronged approach of organic projects, third-party acquisitions and, most recently, dropdowns. We will continue to develop our organic projects and follow our significant strategic steps to deliver growth this year and into the future.

With that, I'll turn it over to Erik.

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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 first quarter net income attributable to the limited partners of $17.4 million. Adjusted partnership EBITDA was $43 million, excluding $6.1 million of expenses primarily associated with the accretive IDR simplification transaction, environmental remediation costs associated with our East Coast Terminals, stock-based compensation and a true-up for revenue associated with the Paulsboro Natural Gas Pipeline due to a reduction in its pipeline tariff based on the lower-than-budget project costs.

During the quarter, we spent approximately $1.5 million in maintenance CapEx and roughly $10 million on the growth projects Matt mentioned a moment ago. Our total CapEx for 2019 is expected to be approximately $30 million to $35 million.

Based on reported EBITDA and pro forma for our recent equity offering, first quarter coverage was 0.8x. We expect our full year 2019 coverage excluding onetime expenses to be approximately 1.05x. We maintain our long-term outlook for targeted coverage of 1.15x and expect to meet and exceed this as our current investments in organic projects and the full Torrance Valley Pipeline contribution results in incremental DCF over the next 18 to 24 months.

We ended the quarter with over $350 million in liquidity, including $16.4 million of cash and over $335 million of availability under our revolving credit facility. Net debt-to-adjusted run rate EBITDA was 3.8x.

We expect to fund the Torrance Valley Pipeline dropdown with a $65 million drawdown on our acquisition revolver and $135 million of gross proceeds from last week's equity raise. This capital raise was the largest in the partnership's history since our IPO. Through our confidentially marketed process, the partnership was successful in generating significant demand in an oversubscribed common unit offering at a 3.5% discount to our last close. We were able to upsize the offering in an equity market that has been challenging for MLPs in recent years. This offering proves that equity capital is available from investors with an appetite to invest in high-quality opportunities in the MLP space.

As we look forward, our simplified structure and the execution of our three-pronged strategy to deliver accretive growth should continue to drive improving liquidity and increased coverage.

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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Great. Appreciate all the color here. I guess just starting from a clarification standpoint on the dropdown. Second quarter close, is it right to think about it maybe mid-quarter? Or is it towards the back end of 2Q here from a close standpoint?

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C. Erik Young, PBF Logistics LP - Senior VP, CFO & Director of PBF Logistics GP LLC [3]

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It's probably closer to the back end, simply driven by the fact that we're in the midst of board meetings and earnings calls this week, and we'd like to keep a relatively clean accounting cutoff. So it's probably the end of May.

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

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Perfect. And then on the growth front from here, looks like the CapEx program was weighted mostly towards the first quarter. Should we expect that the balance of the growth spend for 2019 is more ratable throughout the rest of the year? Is it more of a front half, 1 half program?

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C. Erik Young, PBF Logistics LP - Senior VP, CFO & Director of PBF Logistics GP LLC [5]

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It's probably more front half and even through kind of the first 3 quarters of this year simply because we -- most of that growth CapEx is obviously associated with assets that we'd like to get into service sooner rather than later.

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Justin Scott Jenkins, Raymond James & Associates, Inc., Research Division - Senior Research Associate [6]

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Perfect. And probably won't get real far here but last question for me is on the ACE Pipeline, just thinking through the potential scope and timing. Now you said you'd share more after the open season closes, but just any thoughts on when we can expect maybe an FID or something like that?

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Matthew C. Lucey, PBF Logistics LP - Executive VP & Director of PBF Logistics GP, LLC [7]

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We're not going to get into the specific dates on that. We continue to be excited about the project. We think it's a resilient project. And we look forward to talking to you more about it when we can.

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Operator [8]

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

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

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In terms of your funding plan going forward, clearly, you were able to raise capital in the equity market. Is this going to be more opportunistic? Or can we see proactively approaching equity investors maybe not through overnights but through this mechanism to fund some of your organic growth?

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C. Erik Young, PBF Logistics LP - Senior VP, CFO & Director of PBF Logistics GP LLC [10]

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Well, I think over the past year to 18 months, we've been very vocal about difficulties in accessing the MLP equity market. But clearly, our -- from our perspective, it's been, you need to take a little bit of extra time and be very strategic with, a, who you approach; and b, we really needed to make sure that people understood the transition from a pure-play dropdown story to a much more multifaceted approach to growth here. And as a result, we also cleaned up our IDR structure during the first quarter, which we think was a key ingredient in kind of helping us get over the $135 million offering last week.

So I think from our perspective now, we've tried to lay out for investors a pretty clean path here around how we're going to basically fund our internal plans. That's a combination of organic projects and dropdowns. And as we sit here today, based on everything that we see internally that we have control over, it does not feel like we'll need to access the equity markets again. We've got kind of 18 months here to get us through the end of 2020. We're obviously looking at third-party acquisition opportunities, and we'll have to tackle those as they come.

But ultimately, to be able to pinpoint timing and size and strategic importance is very difficult to do on an earnings call. And quite frankly, these transactions tend to kind of ebb and flow. And so ultimately, we've been much more focused on things that we can control, investing in our organic projects today that will ultimately lead to free cash flow for the partnership over the next 18 to 24 months.

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Ryan Michael Levine, Citigroup Inc, Research Division - Equity Analyst [11]

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And to follow up, there's been comments in this call and the call earlier this morning about acquisitions and your appetite for looking at strategic deals. Would -- in that scope, is the preference for that to be done at the PBF level? Or does PBFX have a willingness to participate in some type of a transaction that would involve both securities?

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Matthew C. Lucey, PBF Logistics LP - Executive VP & Director of PBF Logistics GP, LLC [12]

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PPF and PBFX are always evaluating opportunities that exist outside of our company. Sometimes those opportunities go hand in hand, and sometimes there are discrete opportunities for each company. We are always looking for ways to improve the shareholder value. So that obviously includes looking at third-party acquisitions.

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Ryan Michael Levine, Citigroup Inc, Research Division - Equity Analyst [13]

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Okay. And then lastly, in terms of organic growth, there's a been of number of projects that have been outlined over the last couple of years. Is there any update as to any of those projects that are moving closer to start or pursuing more aggressively?

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Matthew C. Lucey, PBF Logistics LP - Executive VP & Director of PBF Logistics GP, LLC [14]

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Yes. How I'd describe it, I think a year ago -- don't remember the exact date of the call, but a year ago call in April, we announced organic projects and the spending associated with that. And I would describe it as 90% of that work has been complete. And so we should be achieving 90% of the EBITDA that we targeted on a run rate basis today.

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Operator [15]

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

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Matthew C. Lucey, PBF Logistics LP - Executive VP & Director of PBF Logistics GP, LLC [16]

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Well, I thank everyone for participating. We look forward to talk to you next quarter. Have a great day.

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Operator [17]

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This will conclude today's program. Thanks for your participation. You may now disconnect.