Attached files
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| 8-K - 8-K - Southcross Energy Partners, L.P. | a2014q28-kearningsrelease.htm |
NEWS RELEASE
Southcross Energy 1700 Pacific Avenue, Suite 2900, Dallas, Texas 75201, 214-979-3720
Southcross Energy Partners, L.P. Reports Second Quarter 2014
Financial and Operating Results
DALLAS, Texas, August 6, 2014 - Southcross Energy Partners, L.P. (NYSE: SXE) (“Southcross”) today announced second quarter 2014 financial and operating results.
Highlights
• | Completed the acquisition of rich gas system assets in the Eagle Ford region in South Texas formerly owned by TexStar Midstream Services, LP (“TexStar”), consisting of a 300 MMcf/d gas processing facility and over 230 miles of rich gas and residue gas pipelines |
• | Issued 14,633,000 new payment-in-kind (“PIK”) Class B Southcross convertible units to partially fund the acquisition |
• | Completed a refinancing of the entire Southcross debt capital structure with a new $450 million term loan B facility and a $200 million revolving credit facility |
• | Reported improved operational performance with processed gas volumes up 9% and NGL volumes sold up 14% over the first quarter of 2014 |
• | Reported Adjusted EBITDA for the second quarter of $10.2 million, which was negatively impacted by accelerated timing of projects for plant maintenance and upgrades |
• | Commenced physical construction of the Webb Pipeline which extends Southcross’ rich gas pipeline system in the western region of the Eagle Ford |
Second Quarter Results
“We are enthused to have completed the combination of TexStar and Southcross Energy LLC, as well as the acquisition by Southcross of the TexStar rich gas system assets,” said David Biegler, Chairman and Chief Executive Officer of Southcross’ general partner. “These transactions create a larger, integrated midstream company focused on the Eagle Ford region and provide attractive growth opportunities to Southcross through both the acquired assets and potential future drop downs.
“During the second quarter, we completed important plant upgrades and maintenance in anticipation of further processed gas volume increases and in preparation for tying in the TexStar assets. Our facilities are running well and we are ready for an increase in our volumes as we integrate the acquisition and complete our Webb Pipeline, which is expected to come online in the fourth quarter.”
Southcross’ Adjusted EBITDA (as defined below) was $10.2 million for the three month period ended June 30, 2014, compared to $6.2 million for the same period in the prior year. Gross operating margin (as defined below) totaled $26.2 million for the three month period ended June 30, 2014, compared to $21.3 million for the same period in the prior year. Net loss was $3.0 million for the three month period ended June 30, 2014, compared to $6.2 million for the same period in the prior year.
Processed gas volumes averaged 268,297 MMBtu/d during the three month period ended June 30, 2014, an increase of 23% compared to 217,315 MMBtu/d during the same period in the prior year. NGLs sold during the three month period ended June 30, 2014 averaged 16,386 barrels per day, an increase of 53% compared to 10,740
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barrels per day for the same period in the prior year. Processed gas volumes during the three month period ended June 30, 2014 were approximately 9% higher than first quarter 2014 volumes and sales volumes of NGLs were approximately 14% higher than first quarter 2014 volumes as new processed gas volumes entered the Southcross system.
Second quarter Adjusted EBITDA was negatively affected by approximately $1.7 million related to plant upgrades and maintenance work which resulted in lower than expected processed gas volumes and NGL recoveries, as well as incremental operating expenses.
Capital Expenditures
Growth capital expenditures for the six month period ended June 30, 2014 included spending for the Webb Pipeline and totaled $53 million, compared to $68 million for the same period in the prior year. Growth capital expenditures for the remainder of 2014 are expected to include costs to complete the Webb Pipeline and approximately $15 million of additional growth capital associated with recently added gas supply and gas sales contracts. Southcross expects that growth capital expenditures for the full year 2014 will be in the range of $100 million to $120 million.
Capital and Liquidity
In conjunction with the acquisition of the rich gas assets, Southcross completed a refinancing of its debt capital structure with the closing of a new $450 million term loan B facility and a $200 million revolving credit facility. The seven-year term loan is priced at LIBOR plus 4.25%, with a 1.00% LIBOR floor, while the five-year revolving credit facility maintains Southcross’ same leverage-based pricing grid ranging from LIBOR plus a margin of 2.00% to 3.25%. The revolving credit facility’s initial pricing is set at LIBOR plus 3.25%.
“We are extremely pleased with the market reception and terms we obtained with the closing of our new credit facility,” stated J. Michael Anderson, Chief Financial Officer of Southcross’ general partner. “This facility provides us with attractive pricing, strong availability and good terms that should enable us to grow our business.”
Confirmation of Fourth Quarter 2014 Guidance
Consistent with its prior guidance forecast, Southcross continues to expect that its Adjusted EBITDA for the fourth quarter of 2014 will be in the range of $22 million to $28 million.
The guidance above sets forth management’s best estimate based on current and anticipated market conditions and other factors. While we believe that these estimates and assumptions are reasonable, they are inherently uncertain and are subject to, among other things, significant business, economic, regulatory, environmental and competitive risks and uncertainties that could cause actual results to differ materially from those that we anticipate, as set forth under “Forward-Looking Statements.”
Cash Distributions and Distributable Cash Flow
On July 25, 2014, Southcross announced that it would pay on August 14, 2014 to all unitholders of record on August 8, 2014, including the previous Series A convertible preferred unitholders that have converted to common units as the result of the combination of TexStar and Southcross Energy LLC, a cash distribution of $0.40 per common unit for the three month period ended June 30, 2014.
Distributable cash flow for the three month period ended June 30, 2014 was $7.5 million, compared to $2.6 million for the same period in the prior year.
Conference Call Information
Southcross will hold a conference call on Wednesday, August 6, 2014, at 10:00 a.m. Central Time (11:00 a.m. Eastern Time) to discuss its second quarter 2014 financial and operating results. The call can be accessed live over the telephone by dialing (877) 705-6003 or, for international callers, (201) 493-6725. The replay of the call
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will be available shortly after the call and can be accessed by dialing (877) 870-5176 or, for international callers, (858) 384-5517. The passcode for the replay is 13587887. The replay of the conference call will be available for approximately two weeks following the call.
Interested parties may also listen to a simultaneous webcast of the call on Southcross’ website at www.southcrossenergy.com under the “Investors” section. A replay of the webcast will also be available for approximately two weeks following the call.
About Southcross Energy Partners, L.P.
Southcross Energy Partners, L.P. is a master limited partnership that provides natural gas gathering, processing, treating, compression and transportation services and NGL fractionation and transportation services. It also sources, purchases, transports and sells natural gas and NGLs. Its assets are located in South Texas, Mississippi and Alabama and include four gas processing plants, two fractionation plants and approximately 3,000 miles of pipeline. The South Texas assets are located in or near the Eagle Ford shale region. Southcross is headquartered in Dallas, Texas. Visit www.southcrossenergy.com for more information.
Forward-Looking Statements
This press release includes certain statements concerning expectations for the future that are forward-looking within the meaning of the federal securities laws. Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, events, performance or achievements, and may contain the words “expect,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “will be,” “will continue,” “will likely result,” and similar expressions, or future conditional verbs such as “may,” “will,” “should,” “would” and “could.” Without limiting the generality of the foregoing, forward-looking statements contained in this news release specifically include the expectations, plans, strategies, objectives and growth of Southcross and its subsidiaries, including guidance regarding Adjusted EBITDA, infrastructure programs (including the timing and cost with respect to the Webb Pipeline); acquisition activity, including Southcross’ ability to complete any potential future drop-down transaction; projected capital expenditures and sources of funds for capital expenditures; liquidity and financing requirements, including funding sources for a drop-down transaction; and anticipated synergies from the acquisition of the rich gas system assets from TexStar. Although Southcross believes the expectations and forecasts reflected in these and other forward-looking statements are reasonable, Southcross can give no assurance they will prove to be correct. Forward-looking statements contain known and unknown risks and uncertainties (many of which are difficult to predict and beyond management’s control) that may cause Southcross’ actual results in future periods to differ materially from anticipated or projected results. An extensive list of specific material risks and uncertainties affecting Southcross is contained in its Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 5, 2014 and in other documents and reports filed from time to time with the SEC. Any forward-looking statements in this press release are made as of the date hereof and Southcross undertakes no obligation to update or revise any forward-looking statements to reflect new information or events.
Use of Non-GAAP Financial Measures
We report our financial results in accordance with accounting principles generally accepted in the United States, or GAAP. We also present the non-GAAP financial measures of Adjusted EBITDA, gross operating margin and distributable cash flow. We define Adjusted EBITDA as net income, plus interest expense, income tax expense, depreciation and amortization expense, certain non-cash charges such as non-cash equity compensation and unrealized gains/losses on derivative contracts, major litigation net of recoveries, transaction expense, revenue deferral adjustment and selected charges that are unusual or non-recurring; less interest income, income tax benefit, unrealized gains on commodity derivative contracts and selected gains that are unusual or non-recurring. Adjusted EBITDA should not be considered an alternative to net income, operating cash flow or any other measure of financial performance presented in accordance with GAAP. We define gross operating margin as the sum of contract revenues less the cost of natural gas and NGLs sold. We define distributable cash flow as Adjusted EBITDA plus interest income, less cash paid for interest (net of capitalized costs and fair value changes associated with interest rate swap contracts), income tax expense and maintenance capital expenditures.
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We believe that the presentation of these non-GAAP financial measures will provide useful information to investors in assessing our results of operations. Our non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measure. Each of these non-GAAP financial measures has important limitations as an analytical tool because it excludes some but not all items that affect the most directly comparable GAAP financial measure. You should not consider any of Adjusted EBITDA, gross operating margin or distributable cash flow in isolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted EBITDA, gross operating margin and distributable cash flow may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
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Contact:
Southcross Energy Partners, L.P.
Kristin Donnally, 214-979-3720
Investor Relations
investorrelations@southcrossenergy.com
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SOUTHCROSS ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for unit and per unit data)
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Revenues | $ | 195,063 | $ | 154,703 | $ | 408,654 | $ | 298,954 | |||||||
Expenses: | |||||||||||||||
Cost of natural gas and liquids sold | 168,826 | 133,407 | 355,229 | 258,795 | |||||||||||
Operations and maintenance | 11,745 | 10,284 | 22,606 | 20,173 | |||||||||||
Depreciation and amortization | 8,978 | 8,261 | 17,506 | 15,510 | |||||||||||
General and administrative | 6,693 | 5,582 | 12,796 | 11,623 | |||||||||||
Gain on sale of assets | (45 | ) | — | (42 | ) | — | |||||||||
Total expenses | 196,197 | 157,534 | 408,095 | 306,101 | |||||||||||
Income (loss) from operations | (1,134 | ) | (2,831 | ) | 559 | (7,147 | ) | ||||||||
Interest expense | (1,771 | ) | (3,101 | ) | (4,744 | ) | (5,148 | ) | |||||||
Loss before income tax expense | (2,905 | ) | (5,932 | ) | (4,185 | ) | (12,295 | ) | |||||||
Income tax expense | (56 | ) | (260 | ) | (64 | ) | (279 | ) | |||||||
Net loss | (2,961 | ) | (6,192 | ) | (4,249 | ) | (12,574 | ) | |||||||
Series A convertible preferred unit in-kind distribution | (738 | ) | (560 | ) | (1,272 | ) | (560 | ) | |||||||
Series A preferred unit valuation adjustment to maximum redemption value | (5,062 | ) | (4,666 | ) | (5,029 | ) | (4,666 | ) | |||||||
Net loss attributable to partners | (8,761 | ) | (11,418 | ) | (10,550 | ) | (17,800 | ) | |||||||
General partner's interest in net loss | (59 | ) | (124 | ) | (84 | ) | (252 | ) | |||||||
Limited partners' interest in net loss | $ | (8,702 | ) | $ | (11,294 | ) | $ | (10,466 | ) | $ | (17,548 | ) | |||
Earnings per unit and distributions declared | |||||||||||||||
Net loss allocated to limited partner common units | $ | (7,382 | ) | $ | (7,982 | ) | $ | (8,398 | ) | $ | (11,108 | ) | |||
Weighted average number of limited partner common units outstanding | 21,472,420 | 12,222,692 | 19,887,523 | 12,218,178 | |||||||||||
Loss per common unit | $ | (0.34 | ) | $ | (0.65 | ) | $ | (0.42 | ) | $ | (0.91 | ) | |||
Distributions declared per common units | $ | 0.40 | $ | 0.40 | $ | 0.80 | $ | 0.80 | |||||||
Net loss allocated to limited partner subordinated units | $ | (1,320 | ) | $ | (3,312 | ) | $ | (2,068 | ) | $ | (6,440 | ) | |||
Weighted average number of limited partner subordinated units outstanding | 12,213,713 | 12,213,713 | 12,213,713 | 12,213,713 | |||||||||||
Loss per subordinated unit | $ | (0.11 | ) | $ | (0.27 | ) | $ | (0.17 | ) | $ | (0.53 | ) | |||
Distributions declared per subordinated units | $ | 0.40 | $ | 0.40 | $ | 0.80 | $ | 0.80 | |||||||
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SOUTHCROSS ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for unit data)
(Unaudited)
June 30, 2014 | December 31, 2013 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 10,908 | $ | 3,349 | |||
Trade accounts receivable | 63,925 | 57,669 | |||||
Prepaid expenses | 1,285 | 3,061 | |||||
Other current assets | 6,588 | 5,105 | |||||
Total current assets | 82,706 | 69,184 | |||||
Property, plant and equipment, net | 662,755 | 575,795 | |||||
Intangible assets, net | 1,539 | 1,568 | |||||
Other assets | 5,280 | 5,768 | |||||
Total assets | $ | 752,280 | $ | 652,315 | |||
LIABILITIES, PREFERRED UNITS AND PARTNERS' CAPITAL | |||||||
Current liabilities: | |||||||
Accounts payable and accrued liabilities | $ | 84,214 | $ | 62,451 | |||
Other current liabilities | 5,984 | 5,344 | |||||
Total current liabilities | 90,198 | 67,795 | |||||
Long-term debt | 226,850 | 267,300 | |||||
Other non-current liabilities | 2,256 | 1,692 | |||||
Total liabilities | 319,304 | 336,787 | |||||
Commitments and contingencies | |||||||
Series A convertible preferred units (1,832,399 and 1,769,915 units issued and outstanding as of June 30, 2014 and December 31, 2013, respectively) | 46,805 | 40,504 | |||||
Partners' capital: | |||||||
Common units (23,163,713 and 13,963,713 units authorized; 21,465,046 and 12,253,985 units outstanding as of June 30, 2014 and December 31, 2013, respectively) | 289,465 | 169,141 | |||||
Subordinated units (12,213,713 units authorized and outstanding as of June 30, 2014 and December 31, 2013) | 87,887 | 99,726 | |||||
General Partner interest | 8,819 | 6,367 | |||||
Accumulated other comprehensive loss | — | (210 | ) | ||||
Total partners' capital | 386,171 | 275,024 | |||||
Total liabilities, preferred units and partners' capital | $ | 752,280 | $ | 652,315 | |||
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SOUTHCROSS ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30, | |||||||
2014 | 2013 | ||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (4,249 | ) | $ | (12,574 | ) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||
Depreciation and amortization | 17,506 | 15,510 | |||||
Unit-based compensation | 1,611 | 1,093 | |||||
Amortization of deferred financing costs | 675 | 602 | |||||
Gain on sale of assets | (42 | ) | — | ||||
Unrealized loss on financial instruments | 312 | — | |||||
Other, net | 54 | 19 | |||||
Changes in operating assets and liabilities: | |||||||
Trade accounts receivable | (5,526 | ) | 2,349 | ||||
Prepaid expenses and other current assets | 2,128 | 823 | |||||
Other non-current assets | (20 | ) | (69 | ) | |||
Accounts payable and accrued liabilities | 12,107 | (7,123 | ) | ||||
Other liabilities | (855 | ) | (966 | ) | |||
Net cash provided by (used in) operating activities | 23,701 | (336 | ) | ||||
Cash flows from investing activities: | |||||||
Capital expenditures | (55,891 | ) | (69,449 | ) | |||
Expenditures for assets subject to property damage claims, net of insurance proceeds and deductibles | (970 | ) | (2,622 | ) | |||
Proceeds from sale of assets | 45 | 24 | |||||
Business acquisition | (38,636 | ) | — | ||||
Net cash used in investing activities | (95,452 | ) | (72,047 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from issuance of common units, net | 144,671 | — | |||||
Borrowings under our credit agreements | 134,000 | 85,500 | |||||
Repayments under our credit agreements | (174,450 | ) | (40,000 | ) | |||
Payments on capital lease obligations | (307 | ) | (261 | ) | |||
Financing costs | (166 | ) | (2,045 | ) | |||
Proceeds from issuance of Series A convertible preferred units, net of issuance costs | — | 38,835 | |||||
Contributions from general partner | 3,115 | 800 | |||||
Payments of distributions and distribution equivalent rights | (27,516 | ) | (15,955 | ) | |||
LTIP tax withholdings on vested units | (37 | ) | — | ||||
Net cash provided by financing activities | 79,310 | 66,874 | |||||
Net increase (decrease) in cash and cash equivalents | 7,559 | (5,509 | ) | ||||
Cash and cash equivalents — Beginning of period | 3,349 | 7,490 | |||||
Cash and cash equivalents — End of period | $ | 10,908 | $ | 1,981 | |||
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SOUTHCROSS ENERGY PARTNERS, L.P.
SELECTED FINANCIAL AND OPERATIONAL DATA
(In thousands, except for operating data)
(Unaudited)
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Financial data: | |||||||||||||||
Adjusted EBITDA | $ | 10,178 | $ | 6,247 | $ | 22,663 | $ | 10,789 | |||||||
Gross operating margin | 26,237 | 21,296 | 53,425 | 40,159 | |||||||||||
Maintenance capital expenditures | 1,375 | 635 | 2,739 | 1,345 | |||||||||||
Growth capital expenditures | 43,429 | 19,604 | 53,152 | 68,104 | |||||||||||
Distributable cash flow | 7,491 | 2,607 | 15,989 | 4,641 | |||||||||||
Cash distributions declared | 14,574 | 9,986 | 28,335 | 19,959 | |||||||||||
Operating data: | |||||||||||||||
Average throughput volumes of natural gas (MMBtu/d) | 684,951 | 584,513 | 679,270 | 609,676 | |||||||||||
Average volume of processed gas (MMBtu/d) | 268,297 | 217,315 | 257,420 | 228,474 | |||||||||||
Average volume of NGLs sold (Bbls/d) | 16,386 | 10,740 | 15,363 | 10,448 | |||||||||||
Realized prices on natural gas volumes sold ($/MMBtu) | $ | 4.67 | $ | 4.20 | $ | 4.88 | $ | 3.80 | |||||||
Realized prices on NGL volumes sold ($/gallon) | 0.87 | 0.82 | 0.91 | 0.83 | |||||||||||
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SOUTHCROSS ENERGY PARTNERS, L.P.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands)
(Unaudited)
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Reconciliation of gross operating margin to net loss: | |||||||||||||||
Gross operating margin | $ | 26,237 | $ | 21,296 | $ | 53,425 | $ | 40,159 | |||||||
Add (deduct): | |||||||||||||||
Income tax expense | (56 | ) | (260 | ) | (64 | ) | (279 | ) | |||||||
Interest expense | (1,771 | ) | (3,101 | ) | (4,744 | ) | (5,148 | ) | |||||||
Gain on sale of assets | 45 | — | 42 | — | |||||||||||
General and administrative expense | (6,693 | ) | (5,582 | ) | (12,796 | ) | (11,623 | ) | |||||||
Depreciation and amortization expense | (8,978 | ) | (8,261 | ) | (17,506 | ) | (15,510 | ) | |||||||
Operations and maintenance expense | (11,745 | ) | (10,284 | ) | (22,606 | ) | (20,173 | ) | |||||||
Net loss | $ | (2,961 | ) | $ | (6,192 | ) | $ | (4,249 | ) | $ | (12,574 | ) | |||
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Reconciliation of net loss to Adjusted EBITDA and distributable cash flow: | |||||||||||||||
Net loss | $ | (2,961 | ) | $ | (6,192 | ) | $ | (4,249 | ) | $ | (12,574 | ) | |||
Add (deduct): | |||||||||||||||
Depreciation and amortization expense | 8,978 | 8,261 | 17,506 | 15,510 | |||||||||||
Interest expense | 1,771 | 3,101 | 4,744 | 5,148 | |||||||||||
Income tax expense | 56 | 260 | 64 | 279 | |||||||||||
Unrealized loss | 175 | — | 131 | — | |||||||||||
Revenue deferral adjustment | 444 | — | 1,626 | — | |||||||||||
Unit-based compensation | 1,082 | 685 | 1,611 | 1,093 | |||||||||||
Gain on sale of assets | (45 | ) | — | (42 | ) | — | |||||||||
Major litigation costs, net of recoveries | 630 | — | 903 | — | |||||||||||
Transaction expenses for acquisition | 4 | — | 307 | — | |||||||||||
Other, net | 44 | 19 | 62 | 19 | |||||||||||
Expenses associated with significant items | — | 113 | — | 1,314 | |||||||||||
Adjusted EBITDA | $ | 10,178 | $ | 6,247 | $ | 22,663 | $ | 10,789 | |||||||
Cash interest, net of capitalized costs | (1,256 | ) | (2,745 | ) | (3,871 | ) | (4,524 | ) | |||||||
Income tax expense | (56 | ) | (260 | ) | (64 | ) | (279 | ) | |||||||
Maintenance capital expenditures | (1,375 | ) | (635 | ) | (2,739 | ) | (1,345 | ) | |||||||
Distributable cash flow | $ | 7,491 | $ | 2,607 | $ | 15,989 | $ | 4,641 | |||||||
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