Company Overview
Martin Midstream Partners L.P. (MMLP) is a publicly traded limited partnership with a diverse set of operations focused primarily in the Gulf Coast region of the United States. The partnership's four primary business lines include terminalling, processing, and storage services for petroleum products and by-products, land and marine transportation services for petroleum products and by-products, chemicals, and specialty products, sulfur and sulfur-based products processing, manufacturing, marketing, and distribution, and marketing, distribution, and transportation services for natural gas liquids and blending and packaging services for specialty lubricants and grease.
History and Development
The company was formed in 2002 by Martin Resource Management Corporation, a privately-held company whose initial predecessor was incorporated in 1951 as a supplier of products and services to drilling rig contractors. Since then, Martin Resource Management Corporation has expanded its operations through acquisitions and internal expansion initiatives as its management identified and capitalized on the needs of producers and purchasers of petroleum products and by-products and other bulk liquids. Martin Resource Management Corporation began operating the company's NGL business in the 1950s and its sulfur business in the 1960s. It entered the land transportation business in the early 1980s and the marine transportation business in the late 1980s. The company further diversified its operations by entering the fertilizer and terminalling and storage businesses in the early 1990s. In 2015, MMLP faced a significant challenge when it received a demand from a customer in its lubricants packaging business for defense and indemnity in connection with various lawsuits filed against the customer. The partnership disputed and continues to dispute any obligation to defend or indemnify the customer for the customer's conduct, with the litigation still ongoing. More recently, in 2020, the company experienced a loss of $6.8 million due to the COVID-19 pandemic's impact on demand, though it was able to navigate through this challenge and return to profitability in the following years.
Ownership Structure
As of September 30, 2024, Martin Resource Management Corporation owned 15.70% of MMLP's total outstanding common limited partner units and 100% of MMGP Holdings, LLC Holdings, which is the sole member of Martin Midstream GP LLC MMGP, MMLP's general partner. MMGP owns a 2% general partner interest in the partnership.
Financial Performance
For the third quarter of 2024, MMLP reported adjusted EBITDA of $25.1 million, missing its guidance of $26.4 million. The primary contributor to the guidance shortfall was an increase in expense related to the partnership's long-term incentive plans, which are tied to the fair market value of its common units. Excluding this expense recognition, the partnership would have exceeded its forecast by $0.1 million.
MMLP's Transportation segment was once again its largest cash flow generator, with adjusted EBITDA of $11.6 million, exceeding guidance of $10.8 million. The Terminalling and Storage segment generated adjusted EBITDA of $8.4 million, in line with guidance, while the Specialty Products segment missed guidance by $1.9 million, primarily due to weaker demand for the partnership's packaged lubricant and grease products. The Sulfur Services segment outperformed guidance by $0.8 million, excluding the long-term incentive-based compensation charge.
For the nine months ended September 30, 2024, MMLP reported total revenues of $536.29 million, a decrease from $616.86 million in the same period of the prior year. This decline was primarily driven by the partnership's exit from its butane optimization business in the second quarter of 2023. Net income for the nine-month period was $3.73 million, compared to $5.07 million in the prior-year period.
For the most recent fiscal year (2023), MMLP reported revenue of $797.96 million and a net loss of $4.55 million. Operating cash flow for 2023 was $137.47 million, while free cash flow was $103.15 million. In the most recent quarter (Q3 2024), revenue was $170.93 million with a net loss of $3.32 million. Operating cash flow for Q3 2024 was negative $15.75 million, and free cash flow was negative $25.62 million.
Financial Position and Liquidity
As of September 30, 2024, MMLP had total long-term debt outstanding of $486.5 million, of which $86.5 million was drawn under its revolving credit facility and the remaining $400 million consisted of its second lien 11.5% notes due February 2028. The partnership's available borrowing capacity under its $150 million revolving credit facility was approximately $54.3 million, including a reduction for approximately $9.2 million of issued letters of credit.
MMLP's bank-compliant adjusted leverage ratio was 4.14 times at the end of the third quarter, and interest coverage was 2.23 times. The partnership remains committed to debt reduction and anticipates exiting the year at a debt level that reduces its adjusted leverage to below four times.
The partnership's liquidity position as of September 30, 2024, included $56,000 in cash and $54.3 million available on its credit line. MMLP's debt-to-equity ratio stood at -7.65, indicating a high level of leverage. The current ratio was 1.57, and the quick ratio was 1.11, suggesting the partnership has sufficient short-term liquidity to meet its immediate obligations.
Recent Developments
In October 2024, MMLP entered into a merger agreement with Martin Resource Management Corporation, under which Martin Resource Management Corporation will acquire all of the outstanding common units of MMLP not already owned by Martin Resource Management Corporation and its subsidiaries. The transaction is subject to customary closing conditions, including regulatory approval and approval of MMLP's unitholders.
Segment Performance
Terminalling and Storage Segment: For the three months ended September 30, 2024, this segment reported revenues of $22.56 million, a 2% increase compared to the same period in 2023. Operating income decreased by 14% to $2.67 million. For the nine-month period, revenues increased 2% to $67.45 million, while operating income decreased 10% to $9.63 million.
Transportation Segment: In Q3 2024, this segment reported revenues of $56.51 million, a 3% increase year-over-year. Operating income increased by 29% to $8.58 million. For the nine-month period, revenues increased 4% to $172.49 million, with operating income increasing 5% to $26.45 million.
Sulfur Services Segment: This segment faced challenges in Q3 2024, with revenues decreasing 24% to $24.66 million and operating income decreasing 54% to $1.25 million. For the nine-month period, revenues decreased 12% to $95.53 million, while operating income decreased 1% to $12.40 million.
Specialty Products Segment: In Q3 2024, revenues increased 1% to $67.21 million, but operating income decreased 35% to $3.88 million. For the nine-month period, revenues decreased 28% to $200.82 million due to the exit from the butane optimization business, while operating income increased 2% to $13.38 million.
Guidance and Outlook
MMLP maintained its full-year 2024 adjusted EBITDA guidance of $116.1 million. For the fourth quarter of 2024, the partnership expects its Terminalling and Storage segment and Transportation segment to remain stable. However, the Specialty Products segment is anticipated to see softer cash flow due to the overall weaker economy and seasonal reduction in demand for lubricant and grease products. In the Sulfur Services segment, MMLP remains optimistic that sulfur production from its refinery customers will continue to remain at higher levels, potentially allowing the company to achieve or exceed guidance in the pure sulfur side of the business.
Challenges and Outlook
MMLP has faced several challenges in recent years, including the impact of the COVID-19 pandemic on its operations and the exit from its butane optimization business. However, the partnership has demonstrated resilience, with its diversified business model and focus on cost management helping to mitigate the effects of these challenges.
Looking ahead, MMLP will need to navigate ongoing market volatility, inflationary pressures, and the integration of the ELSA joint venture, which is expected to contribute to the partnership's future growth. Additionally, the outcome of the proposed merger with Martin Resource Management Corporation will be a key factor in determining the partnership's long-term strategic direction.
Conclusion
Overall, MMLP's diversified midstream operations, long-standing relationships with major industry players, and commitment to debt reduction position the partnership to weather the current market environment. However, investors should closely monitor the partnership's progress in executing its strategic initiatives and managing its financial obligations as it navigates the challenges and opportunities ahead.