USD Partners LP has announced its operating and financial results for the three months and year ended December 31, 2022. Financial highlights with respect to the fourth quarter of 2022 include the following:
- Generated Net Cash Provided by Operating Activities of $8.3 million, Adjusted EBITDA(1) of $13.3 million and Distributable Cash Flow(1) of $9.6 million
- Reported Net Loss of $3.2 million
- Declared a quarterly cash distribution of $0.1235 per unit ($0.494 per unit on an annualized basis)
- Announced that its sponsor will waive the fourth quarter distribution on all of its 17.3 million units, reducing this quarterly distribution by approximately $2.1 million
“The underlying economics that support our DRUbit™ by Rail™ network were positive in 2022 and improved significantly in the fourth quarter of the year. As a result, the network continues to operate at or above our expected capacity transporting DRUbit™ through the Partnership’s Hardisty terminal to our Sponsor’s destination terminal in Port Arthur, TX,” said Dan Borgen, the Partnership’s Chief Executive Officer. “With Canadian storage utilization levels currently at the high end of the historical averages and the industry’s current expectations around growth in Canadian oil sands production in 2023 and 2024, we are focused on renewing, extending, or replacing agreements that expired during 2022 and those that are set to expire this year. Given the non-hazardous and non-flammable characteristics of the DRUbit™ product that we are moving, we continue to have detailed discussions regarding our DRUbit™ by Rail™ network with new and existing customers to provide safer and economically beneficial Canadian crude transportation options. We remain committed to continuing the conversion of our dilbit capacity to our long term sustainable DRUbit™ program.”
“Also, as previously mentioned, in order to support the Partnership’s current liquidity position during this recontracting cycle, our Sponsor decided to waive its right to the fourth quarter distribution on its 17.3 million units without impacting the distribution to the remaining unitholders,” Borgen added.
Partnership’s Fourth Quarter 2022 Liquidity, Operational and Financial Results
Substantially all of the Partnership’s cash flows are generated from multi-year, take-or-pay terminalling services agreements related to its crude oil terminals, which include minimum monthly commitment fees. The Partnership’s customers include major integrated oil companies, refiners and marketers, the majority of which are investment-grade rated.
The Partnership’s financial statements have been retrospectively recast to include the pre-acquisition results of the Hardisty South acquisition that occurred in the second quarter of 2022 because the acquisition represented a business combination between entities under common control.
The Partnership’s revenues for the fourth quarter of 2022 relative to the same quarter in 2021 were lower primarily due to lower revenues at the combined Hardisty Terminal due to a reduction in contracted capacity at both the legacy Hardisty and Hardisty South terminals that was effective July 1, 2022. Revenues were also lower at the combined Hardisty terminal due to an unfavorable variance in the Canadian exchange rate on the Partnership’s Canadian-dollar denominated contracts during the fourth quarter of 2022 as compared to the fourth quarter of 2021. Revenue was lower at the Stroud Terminal due to the conclusion of the Partnership’s terminalling services contracts with the sole customer effective July 1, 2022. Also impacting the variance in revenues at the Stroud terminal was the deferral of revenues associated with make-up right options that occurred during the fourth quarter of 2021 with no similar occurrence in the fourth quarter of 2022. The Partnership also had lower revenue generated at its Casper Terminal associated with lower throughput volumes at the terminal. Partially offsetting these decreases in revenue was higher revenue at the Partnership’s West Colton Terminal resulting from the commencement of the renewable diesel contract that occurred in December 2021.
The Partnership experienced lower operating costs during the fourth quarter of 2022 as compared to the fourth quarter of 2021. Selling, general and administrative costs (“SG&A costs”) associated with the Hardisty South entities were lower, as discussed in more detail below. The Partnership also experienced lower pipeline fee expense which is directly attributable to the associated decrease in the combined Hardisty terminal revenues previously discussed, as compared to the fourth quarter of 2021. In addition, subcontracted rail services costs were lower due to decreased throughput at the terminals. Depreciation and amortization expenses were lower in the fourth quarter of 2022 as compared to the same period in 2021, primarily associated with the decrease in the carrying value of the assets at the Casper terminal due to the impairment that was recognized in September 2022.
Fourth quarter 2021 SG&A costs include service fees paid by Hardisty South to the Sponsor related to a services agreement that was in place with the Sponsor prior to the Partnership’s acquisition of Hardisty South. Upon the Partnership’s acquisition of Hardisty South, the services agreement between the acquired entities and the Sponsor was terminated and a similar agreement was established between those entities and the Partnership. This resulted in the service fee income being allocated to the Partnership, and therefore offsetting the expense in Hardisty South for periods subsequent to the acquisition date of April 1, 2022.
The Partnership had a net loss of $3.2 million in the fourth quarter of 2022 as compared to net income of $4.3 million in the fourth quarter of 2021. The decrease is primarily because of the operating factors discussed above coupled with higher interest expense incurred during the fourth quarter of 2022 resulting from higher interest rates and a higher balance of debt outstanding during the quarter, partially offset by a decrease in commitment fees, as compared to the fourth quarter of 2021. The Partnership also had higher non-cash losses associated with the Partnership’s interest rate derivatives recognized in the fourth quarter of 2022 that were partially offset by the cash proceeds from the settlement of the Partnership’s interest rate derivative that occurred in October 2022.
Net Cash Provided by Operating Activities for the quarter decreased 33% relative to the fourth quarter of 2021. The decrease in the Partnership’s operating cash flow resulting from the conclusion of some of the Partnership’s terminalling agreements was partially offset by the previously mentioned cash settlement of the Partnership’s interest rate derivative that occurred in October 2022. Net cash provided by Operating Activities was also impacted by the general timing of receipts and payments of accounts receivable, accounts payable and deferred revenue balances.
Adjusted EBITDA for the fourth quarter of 2022 increased by 12% when compared to the same period in 2021 and includes the impact of the aforementioned settlement of the Partnership’s interest rate derivative that occurred in October 2022. Distributable Cash Flow (“DCF”) decreased 10% for the current quarter relative to the fourth quarter of 2021 due to higher cash paid for interest and taxes during the quarter.
As of December 31, 2022, the Partnership had approximately $2.5 million of unrestricted cash and cash equivalents and undrawn borrowing capacity of $60 million on its $275.0 million senior secured credit facility, subject to the Partnership’s continued compliance with financial covenants. As of the end of the fourth quarter of 2022, the Partnership had borrowings of $215.0 million outstanding under its revolving credit facility. The Partnership’s acquisition of Hardisty South is treated as a Material Acquisition under the terms of its senior secured credit facility. As a result, the Partnership’s available borrowings was limited to 5.0 times its 12-month trailing consolidated EBITDA through December 31, 2022, at which point it reverted back to 4.5 times the Partnership’s 12-month trailing consolidated EBITDA. As such, the borrowing capacity and available borrowings under the senior secured credit facility, including unrestricted cash and cash equivalents, was approximately $55.5 million as of December 31, 2022. The Partnership was in compliance with its financial covenants as of December 31, 2022.
In January 2023, the Partnership entered into an amendment to its senior secured credit facility. Among other things, the amendment provides the Partnership with relief from compliance with the senior secured credit facility’s maximum consolidated leverage ratio and minimum consolidated interest coverage ratio through the senior secured credit facility’s current maturity date, as Management works to obtain renewals, extensions or replacements of agreements that expired during 2022 and those that are set to expire this year. Additional details regarding the amendment are included in the Partnership’s Current Report on Form 8-K filed on February 6, 2023.
The Partnership’s senior secured credit facility expires on November 2, 2023. The Partnership is in active discussions with the administrative agent and other banks within the lender group, as well as other potential financing sources, regarding the possible extension, renewal or replacement of the senior secured credit facility.
On January 26, 2023, the Partnership declared a quarterly cash distribution of $0.1235 per unit ($0.494 per unit on an annualized basis), the same as the amount distributed in the prior quarter. The Sponsor waived the fourth quarter distribution on all of its 17.3 million units, reducing this quarterly distribution by approximately $2.1 million. The distribution was paid on February 17, 2023, to unitholders of record at the close of business on February 8, 2023. The Partnership’s board determined to keep the distribution unchanged from the prior quarter and to evaluate the distribution on a quarterly basis going forward and will take into consideration updated commercial progress, including the Partnership’s ability to renew, extend or replace its customer agreements at the Hardisty and Stroud Terminals, current market conditions, and management’s expectations regarding future performance.
Fourth Quarter 2022 Conference Call Information
The Partnership will host a conference call and webcast regarding fourth quarter 2022 results at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) on Thursday, March 2, 2023.
To listen live over the Internet, participants are advised to log on to the Partnership’s website at www.usdpartners.com and select the “Events & Presentations” sub-tab under the “Investors” tab. To join via telephone, participants may dial (800) 225-9448 domestically or +1 (203) 518-9708 internationally, conference ID 8541298. Participants are advised to dial in at least five minutes prior to the call.
An audio replay of the conference call will be available for thirty days by dialing (800) 839-2391 domestically or +1 (402) 220-7205 internationally, conference ID 8541298. In addition, a replay of the audio webcast will be available by accessing the Partnership’s website after the call is concluded.
For more information visit investor.usdpartners.com/investors/investor-center-home/default.aspx
