Sprague Resources LP - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - August 9, 2017

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8-K - 8-K - Sprague Resources LPsrlp8-k2q2017earnings.htm


Exhibit 99.1


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News Release

Investor Contact:
Kory Arthur
+1 603.766.7401
karthur@spragueenergy.com
Sprague Resources LP Reports Second Quarter 2017 Results

Portsmouth, NH (August 9, 2017) - Sprague Resources LP (“Sprague”) (NYSE: SRLP) today reported its financial results for the second quarter June 30, 2017.
Second Quarter 2017 Highlights

•
Net sales were $513.6 million for the second quarter of 2017, compared to $477.5 million for the second quarter of 2016.
•
Net loss was $7.8 million for the second quarter of 2017, compared to net loss of $9.7 million for the second quarter of 2016.
•
Adjusted gross margin was $40.7 million for the second quarter of 2017, compared to $48.7 million for the second quarter of 2016.
•
Adjusted EBITDA was $4.3 million for the second quarter of 2017, compared to $13.9 million for the second quarter of 2016.

“Our results reflect seasonally weak demand for our products, while recent acquisitions are starting to make contributions. Our acquisition pipeline remains active as we focus on opportunities to expand our geographic footprint, and produce more ratable cash flow,” said David Glendon, President and Chief Executive Officer. “Reflecting the results for the second quarter, we expect full-year adjusted EBITDA to be at the lower end of the previously issued guidance of $115 to $130 million,” said Mr. Glendon.
Refined Products

•
Volumes in the Refined Products segment increased 3% to 270.3 million gallons in the second quarter of 2017, compared to 263.4 million gallons in the second quarter of 2016.
•
Adjusted gross margin in the Refined Products segment increased $0.1 million to $23.8 million in the second quarter of 2017.





“Sprague's Refined Products sales volumes increased 3% in the second quarter, supported by recent acquisitions," said Mr. Glendon. “The Refined Products adjusted gross margin was flat as volume increases were offset by small declines in unit margin."
Natural Gas
 
•
Natural Gas segment volumes decreased 5% to 13.5 million Bcf in the second quarter of 2017, compared to 14.2 million Bcf in the second quarter of 2016.
•
Natural Gas adjusted gross margin decreased $7.3 million, or 74%, to $2.6 million for the second quarter of 2017, compared to $9.8 million for the second quarter of 2016.

“Our Natural Gas adjusted gross margin declined by $7.3 million for the quarter, with extended maintenance on the Algonquin pipeline increasing our supply costs to our customers, and reduced volatility limiting the level of supply optimization opportunities relative to the prior year," said Mr. Glendon. "Timing differences in the second quarter, related to forward positions and the fair value discount of the forward book, accounted for most of the remaining decline."
Materials Handling
 
•
Materials Handling adjusted gross margin decreased by $0.3 million, or 3%, to $12.8 million for the second quarter of 2017, compared to $13.1 million for the second quarter of 2016.

"Sprague's Materials Handling adjusted gross margin decreased due to a reduction of heavy lift windmill activity offset by increased asphalt storage and handling fees with the completion of the asphalt conversion project at our Portsmouth terminal," reported Mr. Glendon.
Quarterly Distribution Increase

On July 26, 2017, the Board of Directors of Sprague’s general partner, Sprague Resources GP LLC, announced its thirteenth consecutive distribution increase and approved a cash distribution of $0.6075 per unit for the quarter ended June 30, 2017, representing a 3% increase over the distribution declared for the quarter ended March 31, 2017. The distribution will be paid on August 11, 2017 to unitholders of record as of the close of business on August 7, 2017.
Financial Results Conference Call
Management will review Sprague’s second quarter 2017 financial results in a teleconference call for analysts and investors today, August 9, 2017.
Date and Time:
August 9, 2017 at 1:00 PM ET
 
 
Dial-in numbers:
(866) 516-2130 (U.S. and Canada)
 
 
 
(678) 509-7612 (International)
 
 
Participation Code:
37160764
The conference call may also be accessed live by a webcast available on the "Investor Relations" page of Sprague's website at www.spragueenergy.com and will be archived on the website for one year.




About Sprague Resources LP
Sprague Resources LP is a master limited partnership engaged in the purchase, storage, distribution and sale of refined petroleum products and natural gas. Sprague also provides storage and handling services for a broad range of materials.
Non-GAAP Financial Measures
Adjusted EBITDA, adjusted gross margin and adjusted unit margin are measures not defined by GAAP. We define EBITDA as net income (loss) before interest, income taxes, depreciation and amortization. We define adjusted EBITDA as EBITDA increased by unrealized hedging losses and decreased by unrealized hedging gains, in each case with respect to refined products and natural gas inventory, prepaid forward contracts and natural gas transportation contracts. We define adjusted gross margin as net sales less cost of products sold (exclusive of depreciation and amortization) and decreased by total commodity derivative gains and losses included in net income (loss) and increased by realized commodity derivative gains and losses included in net income (loss), in each case with respect to refined products and natural gas inventory, prepaid forward contracts and natural gas transportation contracts.
To manage Sprague's underlying performance, including its physical and derivative positions, management utilizes adjusted gross margin. Adjusted gross margin is also used by external users of our consolidated financial statements to assess our economic results of operations and its commodity market value reporting to lenders. EBITDA and adjusted EBITDA are used as supplemental financial measures by external users of our financial statements, such as investors, trade suppliers, research analysts and commercial banks to assess the financial performance of our assets, operations and return on capital without regard to financing methods, capital structure or historical cost basis; the ability of our assets to generate sufficient revenue, that when rendered to cash, will be available to pay interest on our indebtedness and make distributions to our equity holders; repeatable operating performance that is not distorted by non-recurring items or market volatility; and, the viability of acquisitions and capital expenditure projects.
Sprague believes that investors benefit from having access to the same financial measures that are used by its management and that these measures are useful to investors because they aid in comparing its operating performance with that of other companies with similar operations. The adjusted EBITDA, adjusted gross margin and adjusted unit margin data presented by Sprague may not be comparable to similarly titled measures at other companies because these items may be defined differently by other companies. Please see the attached reconciliations of net income to adjusted EBITDA and operating income to adjusted gross margin.
With regard to guidance, reconciliation of non-GAAP adjusted EBITDA to the closest corresponding GAAP measure (expected net income (loss)) is not available without unreasonable efforts on a forward-looking basis due to the inherent difficulty and impracticality of forecasting certain amounts required by GAAP such as unrealized gains and losses on derivative hedges, which can have a significant and potentially unpredictable impact on our future GAAP financial results.
Forward Looking Statements
This press release may include forward-looking statements that we believe to be reasonable as of today's date. These forward-looking statements involve risks and uncertainties and other factors that are difficult to predict and many of which are beyond management’s control. Although Sprague believes that the assumptions underlying these statements are reasonable, investors are cautioned that such forward-looking




statements are inherently uncertain and involve risks that may affect our business prospects and performance causing actual results to differ from those discussed in the foregoing release. Such risks and uncertainties include, by way of example and not of limitation: increased competition or changes in the marketplace for our products or services; changes in supply or demand for our products or services; security and cyber-risks; adverse weather conditions or economic conditions; changes in operating conditions and costs; changes in the level of environmental remediation spending; potential equipment malfunction; potential labor issues; the legislative or regulatory environment; unexpected terminal construction/repair or delays; nonperformance by major customers or suppliers; our ability to successfully complete our organic growth and acquisition projects and realize anticipated benefits; and, political and economic conditions, including the impact of potential terrorist acts and international hostilities. These and other applicable risks and uncertainties have been described more fully in Sprague’s most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 10, 2017, and in our subsequent Form 10-Q, Form 8-K and other documents filed with or furnished to the SEC.
Sprague undertakes no obligation and does not intend to update any forward-looking statements to reflect new information or future events. You are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date of this press release.
*****
This release is intended to be a qualified notice under Treasury Regulation Section 1.1446-4(b). Brokers and nominees should treat one hundred percent (100.0%) of Sprague’s distributions to non-U.S. investors as being attributable to income that is effectively connected with a United States trade or business. Accordingly, Sprague’s distributions to non-U.S. investors are subject to federal income tax withholding at the highest applicable effective tax rate.
###
(Financial Tables Below)





Sprague Resources LP
Summary Financial Data
Three and Six Months Ended June 30, 2017 and 2016
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
($ in thousands)
 
($ in thousands)
Statement of Operations Data:
 
 
 
 
 
 
 
Net sales
$
513,626

 
$
477,487

 
$
1,431,433

 
$
1,200,394

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of products sold (exclusive of depreciation and amortization)
469,058

 
441,107

 
1,264,204

 
1,080,727

Operating expenses
16,901

 
16,524

 
33,733

 
33,353

Selling, general and administrative
19,624

 
18,234

 
45,913

 
42,364

Depreciation and amortization
6,950

 
5,641

 
12,882

 
10,672

Total operating costs and expenses
512,533

 
481,506

 
1,356,732

 
1,167,116

Operating income (loss)
1,093

 
(4,019
)
 
74,701

 
33,278

Other income (expense)
119

 
—

 
183

 
(95
)
Interest income
88

 
212

 
172

 
339

Interest expense
(8,279
)
 
(6,511
)
 
(15,434
)
 
(13,494
)
(Loss) income before income taxes
(6,979
)
 
(10,318
)
 
59,622

 
20,028

Income tax provision
(813
)
 
573

 
(2,915
)
 
48

Net (loss) income
(7,792
)
 
(9,745
)
 
56,707

 
20,076

Incentive distributions declared
(854
)
 
(381
)
 
(1,596
)
 
(656
)
Limited partners’ interest in net (loss) income
$
(8,646
)
 
$
(10,126
)
 
$
55,111

 
$
19,420

Net (loss) income per limited partner unit:
 
 
 
 
 
 
 
Common - basic
$
(0.39
)
 
$
(0.48
)
 
$
2.52

 
$
0.91

Common - diluted
$
(0.39
)
 
$
(0.48
)
 
$
2.48

 
$
0.89

Subordinated - basic and diluted
N/A

 
$
(0.48
)
 
N/A

 
$
0.91

Units used to compute net income per limited partner unit:
 
 
 
 
 
 
 
Common - basic
22,319,704

 
11,229,805

 
21,864,875

 
11,169,860

Common - diluted
22,319,704

 
11,229,805

 
22,200,070

 
11,456,519

Subordinated - basic and diluted
N/A

 
10,071,970

 
N/A

 
10,071,970

Distribution declared per unit
$
0.6075

 
$
0.5475

 
$
1.2000

 
$
1.0800







Sprague Resources LP
Volume, Net Sales and Adjusted Gross Margin by Segment
Three and Six Months Ended June 30, 2017 and 2016
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
($ and volumes in thousands)
 
($ and volumes in thousands)
Volumes:
 
 
 
 
 
 
 
Refined products (gallons)
270,312

 
263,382

 
743,022

 
740,754

Natural gas (MMBtus)
13,510

 
14,158

 
33,714

 
32,989

Materials handling (short tons)
695

 
615

 
1,276

 
1,252

Materials handling (gallons)
152,418

 
81,018

 
227,682

 
156,408

Net Sales:
 
 
 
 
 
 
 
Refined products
$
430,984

 
$
390,725

 
$
1,212,574

 
$
980,669

Natural gas
65,708

 
68,769

 
185,374

 
184,388

Materials handling
12,798

 
13,153

 
22,723

 
24,544

Other operations
4,136

 
4,840

 
10,762

 
10,793

Total net sales
$
513,626

 
$
477,487

 
$
1,431,433

 
$
1,200,394

Reconciliation of Operating Income (loss) to Adjusted Gross Margin:
 
 
 
 
 
 
Operating income (loss)
$
1,093

 
$
(4,019
)
 
$
74,701

 
$
33,278

Operating costs and expenses not allocated to operating segments:
 
 
 
 
 
 
Operating expenses
16,901

 
16,524

 
33,733

 
33,353

Selling, general and administrative
19,624

 
18,234

 
45,913

 
42,364

Depreciation and amortization
6,950

 
5,641

 
12,882

 
10,672

Add: unrealized (gain) loss on inventory derivatives
(4,539
)
 
8,652

 
(29,047
)
 
11,956

Add: unrealized (gain) loss on prepaid forward contract derivatives
(267
)
 
(560
)
 
(240
)
 
(1,041
)
Add: unrealized loss (gain) on natural gas transportation contracts
949

 
4,205

 
(6,865
)
 
4,549

Total adjusted gross margin:
$
40,711

 
$
48,677


$
131,077


$
135,131

Adjusted Gross Margin:
 
 
 
 
 
 
 
Refined products
$
23,815

 
$
23,735

 
$
63,293

 
$
65,377

Natural gas
2,568

 
9,839

 
41,158

 
40,961

Materials handling
12,798

 
13,129

 
22,723

 
24,521

Other operations
1,530

 
1,974

 
3,903

 
4,272

Total adjusted gross margin
$
40,711

 
$
48,677


$
131,077


$
135,131







Sprague Resources LP
Reconciliation of Net Income to Non-GAAP Measures
Three and Six Months Ended June 30, 2017 and 2016
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
(unaudited)
 
($ in thousands)
 
($ in thousands)
Reconciliation of net income to EBITDA, Adjusted EBITDA
  and Distributable Cash Flow:
 
 
 
 
 
 
Net (loss) income
$
(7,792
)
 
$
(9,745
)
 
$
56,707

 
$
20,076

Add/(deduct):
 
 
 
 
 
 
 
     Interest expense, net
8,191

 
6,299

 
15,262

 
13,155

     Tax provision
813

 
(573
)
 
2,915

 
(48
)
     Depreciation and amortization
6,950

 
5,641

 
12,882

 
10,672

EBITDA
$
8,162

 
$
1,622


$
87,766


$
43,855

Add: unrealized (gain) loss on inventory derivatives
(4,539
)
 
8,652

 
(29,047
)
 
11,956

Add: unrealized (gain) loss on prepaid forward contract derivatives
(267
)
 
(560
)
 
(240
)
 
(1,041
)
Add: unrealized loss (gain) on natural gas transportation contracts
949

 
4,205

 
(6,865
)
 
4,549

Adjusted EBITDA
$
4,305

 
$
13,919


$
51,614


$
59,319

Add/(deduct):
 
 
 
 
 
 
 
Cash interest expense, net
(5,739
)
 
(5,282
)
 
(11,795
)
 
(11,211
)
Cash taxes
(1,251
)
 
62

 
(2,091
)
 
(545
)
Maintenance capital expenditures
(2,673
)
 
(2,107
)
 
(4,213
)
 
(3,736
)
Elimination of expense relating to incentive compensation and directors fees expected to be paid in common units
1,018

 
787

 
1,946

 
1,023

Other
1,378

 
300

 
1,723

 
612

Distributable cash flow
$
(2,962
)
 
$
7,679


$
37,184


$
45,462

 



Sprague Resources LP Reports