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Edited Transcript of PBFX.N earnings conference call or presentation 29-Oct-20 3:00pm GMT

·8 min read

Q3 2020 PBF Logistics LP Earnings Call Parsippany Jan 9, 2021 (Thomson StreetEvents) -- Edited Transcript of PBF Logistics LP earnings conference call or presentation Thursday, October 29, 2020 at 3:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * 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 ================================================================================ Conference Call Participants ================================================================================ * Spiro Michael Dounis Crédit Suisse AG, Research Division - Director ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Welcome to the PBF Logistics Third Quarter 2020 Earnings Conference Call and Webcast. (Operator Instructions) It is now my pleasure to turn the floor over to Colin Murray of Investor Relations. Sir, you may begin. -------------------------------------------------------------------------------- Colin Murray, PBF Logistics LP - Head of IR [2] -------------------------------------------------------------------------------- Thank you, Chloe. Good morning, 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 our 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 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. I'll now turn the call over to Matt Lucey. -------------------------------------------------------------------------------- Matthew C. Lucey, PBF Logistics LP - Executive VP & Director of PBF Logistics GP, LLC [3] -------------------------------------------------------------------------------- Thank you, Colin. The pandemic continues to drive a very challenging environment with everyone struggling to find normal routines. Despite these challenges, PBF Logistics continues to operate well, as can be seen in the consistency of our earnings for the past several quarters. We have seen an overall modest decline in throughput levels but much less than what can be seen in the drop in demand nationally for the products we move, store and deliver. Our revenue has remained relatively stable as a result of our base demand, and the strong contract structure provides support for our business. Our EBITDA and distributable cash flow were up versus last quarter as a result of lower costs. Operating expenses came down to lower throughputs, and corporate expense reductions provided savings. Today, our sponsor and partner, PBF Energy, announced their strategic restructuring of its East Coast refining system, whereby the Paulsboro refinery will be idling several major processing units and expected output from the refinery will decrease. For 2020, we do not expect this to impact the partnership's earnings, and in 2021, the impact is expected to equate to less than 1% of partnership EBITDA. Another impact of the current environment will be the -- will be that the partnership will no longer be processing materials for Maersk fuel business at our East Coast Storage Assets. This arrangement has always been a year-to-year agreement, and due to the pandemic, Maersk has elected not to renew the contract. We initially acquired the East Coast Storage Assets for $107 million or a 6.9x multiple based on the terminaling EBITDA forecast, which remains unchanged following the Maersk exit. The cash flow derived from the processing agreement essentially reduced our net investment by $10 million, which effectively lowers our realized acquisition multiple from 6.9x to 6.3x. Going forward, with changes I just mentioned, we expect distribution coverage to remain healthy and to continue generating ample cash flow to delever the business. Today, we maintain our distributions of -- distribution of $0.30 per unit. We will continue to review our distribution policy going forward with respect to the company performance, market conditions and alternative use of funds. I'll now turn the call over to Erik. -------------------------------------------------------------------------------- C. Erik Young, PBF Logistics LP - Senior VP, CFO & Director of PBF Logistics GP LLC [4] -------------------------------------------------------------------------------- Thank you, Matt. Good morning, everyone, and thank you for joining us on today's call. We reported third quarter net income attributable to the limited partners of $44.2 million. Adjusted partnership EBITDA was $60.5 million, which includes approximately $1.2 million of continued environmental remediation costs associated with our East Coast terminals and noncash unit-based compensation. During the quarter, we spent approximately $1 million in maintenance CapEx and $1.7 million in total CapEx. Our total CapEx for the year is expected to be in the $15 million to $20 million range. With respect to Matt's comments regarding the termination of the Maersk agreement, in the third quarter, we recognized a net noncash benefit of approximately $4.7 million. As we finalize the process unit decommissioning, we expect to incur approximately $7 million of noncash incremental expense in Q4 that will be included in depreciation and amortization. We ended the quarter with approximately $310 million in liquidity, including a cash balance of $27.9 million and roughly $282 million of availability under our revolving credit facility. During the quarter, we repaid approximately $35 million on our revolving credit facility. Net debt to annualized adjusted EBITDA was 2.9x. We expect to continue using excess cash to improve leverage ratios and strengthen the balance sheet. Operator, we've concluded our opening remarks, and now we'll open the call for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) And we will take our first question from Spiro Dounis from Credit Suisse. -------------------------------------------------------------------------------- Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [2] -------------------------------------------------------------------------------- My first question, just with respect to the sponsor and some of the decisions being made at that level. It sounds like not a material impact with respect to the East Coast assets going into next year, but it also still sounds like there's a lot going on beyond the scenes to preserve cash flow and potentially might end up with more rationalization or optimization of the system. So just maybe, more broadly, when thinking about the relationship with the sponsor and the potential impact going forward, obviously, you're pretty well MVC-protected. And so I think what we're trying to figure out is what are some of the other factors that we should be expecting going forward, other potential impacts from optimization. And ultimately, at what point is PBFX asked to be part of the solution here to maybe reduce costs by way of renegotiation? -------------------------------------------------------------------------------- Matthew C. Lucey, PBF Logistics LP - Executive VP & Director of PBF Logistics GP, LLC [3] -------------------------------------------------------------------------------- Look, I think on the last call, PBF -- the last PBF call, we, as management, were clear that nothing's off the table. Everything is on the table, and we're continually analyzing every aspect of our business. How that relates to PBFX, there's nothing to report. As you mentioned, we have strong contracts, and there's nothing as of right now that we see changing in regards to our business. You reiterated my comments from just a couple of minutes ago. Obviously, there's a big announcement today in regards to the East Coast reconfiguration, but the impacts to 2021 are very modest, and that's just reduced. There will be actually some positives at Delaware, some negatives at Paulsboro, taking down volumes above the MVCs, but we don't see it as being impactful to PBFX. -------------------------------------------------------------------------------- Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [4] -------------------------------------------------------------------------------- Okay. Great. And then, I guess, in that vein, if things are still sort of fairly solid on your end, the balance sheet looks like in great shape, dividends are actually fairly well covered, if I look at your debt, obviously, it's traded off here in October, appears to be trading about $0.80 on the dollar. So I guess just curious. Obviously, you talked about deleveraging as well as one of the capital use buckets. How are you assessing the ability to maybe go out to the open market and purchase some of that debt at a discount? -------------------------------------------------------------------------------- Matthew C. Lucey, PBF Logistics LP - Executive VP & Director of PBF Logistics GP, LLC [5] -------------------------------------------------------------------------------- We're -- Erik can comment, but we'll assess all our opportunities and make market decisions as we go. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- (Operator Instructions) And it does appear we have no further questions at this time. I will now turn the call back to Matt Lucey for any closing remarks. . -------------------------------------------------------------------------------- Matthew C. Lucey, PBF Logistics LP - Executive VP & Director of PBF Logistics GP, LLC [7] -------------------------------------------------------------------------------- I appreciate your time today, and look forward to speaking again next quarter. Have a good day. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- This does conclude today's program. Thank you for your participation. You may disconnect at any time.