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Marlin Midstream Partners, LP Reports Third Quarter 2013 Financial Results

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HOUSTON, Oct. 30, 2013 (GLOBE NEWSWIRE) -- Marlin Midstream Partners, LP (Nasdaq:FISH), a Delaware limited partnership ("Marlin" or "the Partnership"), today announced financial results for the third quarter ended September 30, 2013.

On July 31, 2013, the Partnership completed the IPO of 6,875,000 common units, representing a 38.6% limited partner interest, to the public for $20.00 per common unit, less an underwriting discount of $1.20 per common unit. After the closing of the IPO, substantially all the Partnership's gross margin is generated under fee-based commercial agreements, the substantial majority of which have minimum volume commitments.

Financial statements for the third quarter of 2013 reflect one month (July) of pre-IPO results attributable to Marlin's midstream natural gas business only, and two months (August and September) of Marlin's post-IPO operations which include both the midstream natural gas business segment and the crude oil logistics business segment as the crude oil logistics business segment had no material assets or operations prior to the IPO.

"Our results for the two months following our IPO on July 31st exceeded our expectations, reflecting the strength and potential of our strategically-located operating assets and the value of our relationships with our sponsor and affiliates," said Chairman and CEO W. Keith Maxwell III. "The majority of our gross margin is now generated from fee-based volume committed commercial agreements including a gathering and processing capacity agreement and three transloading agreements that commenced at the close of the IPO. The current quarter ending December 31st will represent the first full quarter of results reflecting these key contracts."

Mr. Maxwell continued, "Looking ahead, we see multiple avenues for growth, including the development of a number of midstream energy assets by our sponsor NuDevco Partners, LLC. For our crude oil logistics business we are considering opportunities presented to us by our sponsor to expand our transloading services in Utah to accommodate increasing demand. Marlin is well positioned overall with a business strategy based on stable cash flows, financial flexibility and disciplined growth."

Summary Third Quarter 2013 Financial Results

For the third quarter ended September 30, 2013, Marlin reported gross margin of $12.5 million compared to gross margin of $8.3 million, for the third quarter of 2012. The gross margin increase is attributable to the new crude oil logistics business segment and related contracts as well as the new gathering and processing contract entered into with AES at the closing of the IPO.

For the third quarter of 2013, net income totaled $1.9 million and adjusted EBITDA1 was $6.7 million. Distributable cash flow1 for the post-IPO period was $5.3 million resulting in a coverage ratio1 of 1.31x for the period.

Using net proceeds from the upsized IPO of $125.3 million (after underwriting discount, structuring fees and other direct IPO costs), the Partnership repaid a majority of its outstanding debt and entered into a new credit facility to fund expansions, acquisitions and working capital requirements for operations and general partnership purposes. As of September 30, 2013, there was $8.5 million outstanding.

1 Please see the tables at the end of this release for a reconciliation of non-GAAP to GAAP measures and calculation of the coverage ratio.

Segment Overview

Midstream Natural Gas The Partnership's primary midstream natural gas assets consist of two related natural gas processing facilities located in Panola County, Texas, a natural gas processing facility located in Tyler County, Texas, two natural gas gathering systems connected to the Panola County processing facilities, and two NGL transportation pipelines that connect the Panola County and Tyler County processing facilities to third party NGL pipelines. The gathering and processing segment provides natural gas gathering, transportation, treating and processing services and natural gas liquids transportation services.

For the third quarter ended September 30, 2013, gathering and processing segment gross margin was $10.2 million and adjusted EBITDA was $6.5 million. This compares to gathering and processing segment gross margin of $8.3 million and adjusted EBITDA of $3.4 million for the third quarter ended September 30, 2012.

Crude Oil Logistics The crude oil logistics assets consist of two crude oil transloading facilities: the Wildcat facility located in Carbon County, Utah, and the Big Horn facility, located in Big Horn County, Wyoming. Transloaders are used to unload crude oil from tanker trucks and load crude oil into railcars and temporary storage tanks. Currently, one skid transloader and two ladder transloaders are operated at the Wildcat facility, and one skid transloader and one ladder transloader are operated at the Big Horn facility.

For the third quarter ended September 30, 2013, crude oil logistics segment gross margin was $2.3 million and adjusted EBITDA was $2.1 million. Marlin's crude oil logistics assets became fully operational at July 31, 2013. As such, there are no material results of operations or material assets related to this segment for the periods prior to Marlin's IPO on July 31, 2013.

Quarterly Distribution

On October 18, 2013, the board of directors of Marlin's general partner declared a quarterly prorated cash distribution of $0.23 per unit to its partners for the third quarter ended September 30, 2013. This distribution represents the prorated amount of Marlin's full minimum quarterly distribution of $0.35 per unit for each whole quarter or $1.40 on an annualized basis, based on the number of days between the closing of the Partnership's IPO on July 31, 2013 and the end of the third quarter. The quarterly distribution will be paid on November 4, 2013 to all unitholders of record on October 29, 2013.

Capital Expenditures

For the nine months ended September 30, 2013 and 2012, Marlin incurred a total of $1.6 million and $2.1 million, respectively, for maintenance capital expenditures and incurred a total of $9.7 million and $5.9 million, respectively, for expansion capital expenditures.

Conference Call and Webcast

Marlin will host a conference call to discuss third quarter 2013 results at 12:00 p.m. CT (1:00 p.m. ET) on Thursday, October 31, 2013.

Interested parties can listen to a live webcast of the call from the Events & Presentations page of the Marlin Investor Relations website at http://investor.marlinmidstream.com/events.cfm. An archived replay of the webcast will be available for 12 months following the live presentation.

The call can be accessed live over the telephone by dialing 1-888-549-7750, or 1-480-629-9643 for international callers. The passcode for the call is 4646051. A telephonic replay of the call will be available through November 7, 2013 and can be accessed by dialing 1-800-406-7325, or 1-303-590-3030 for international callers, with conference ID number 4646051.

About Marlin

Marlin is a fee-based, growth oriented Delaware limited partnership formed to develop, own, operate and acquire midstream energy assets. Marlin currently provides natural gas gathering, transportation, treating and processing services, NGL transportation services and crude oil transloading services. Headquartered in Houston, Texas, Marlin's assets include two related natural gas processing facilities located in Panola County, Texas, a natural gas processing facility located in Tyler County, Texas, two natural gas gathering systems connected to its Panola County processing facilities, two NGL transportation pipelines that connect its Panola County and Tyler County processing facilities to third party NGL pipelines and two crude oil transloading facilities containing five crude oil transloaders.

www.marlinmidstream.com

Forward-Looking Statements

This press release may contain forward-looking statements concerning Marlin's operations, economic performance and financial condition. These statements can be identified by the use of forward-looking terminology including "may," "will," "believe," "expect," "anticipate," "estimate," "continue," or other similar words. These statements discuss future expectations, contain projections of results of operations or financial condition or include other "forward-looking" information. Although Marlin believes that the expectations reflected in such forward-looking statements are reasonable, the Partnership can give no assurance that such expectations will be realized.

These forward-looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from expectations include, but are not limited to, the following risks and uncertainties:

  • the volume of natural gas we gather and process and the volume of NGLs we transport;
  • the volume of crude oil that we transload;
  • the level of production of crude oil and natural gas and the resultant market prices of crude oil, natural gas and NGLs;
  • the level of competition from other midstream natural gas companies and crude oil logistics companies in our geographic markets;
  • the level of our operating expenses;
  • regulatory action affecting the supply of, or demand for, crude oil or natural gas, the transportation rates we can charge on our pipelines, how we contract for services, our existing contracts, our operating costs or our operating flexibility;
  • capacity charges and volumetric fees that we pay for NGL fractionation services;
  • realized pricing impacts on our revenues and expenses that are directly subject to commodity price exposure;
  • the creditworthiness and performance of our customers, suppliers and contract counterparties, and any material nonpayment or non-performance by one or more of these parties;
  • damage to pipelines, facilities, plants, related equipment and surrounding properties caused by hurricanes, earthquakes, floods, fires, severe weather, explosions and other natural disasters and acts of terrorism including damage to third party pipelines or facilities upon which we rely for transportation services;
  • outages at the processing or fractionation facilities owned by us or third parties caused by mechanical failure and maintenance, construction and other similar activities;
  • leaks or accidental releases of products or other materials into the environment, whether as a result of human error or otherwise;
  • the level and timing of our expansion capital expenditures and our maintenance capital expenditures;
  • the cost of acquisitions, if any;
  • the level of our general and administrative expenses, including reimbursements to our general partner and its affiliates for services provided to us;
  • our debt service requirements and other liabilities;
  • fluctuations in our working capital needs;
  • our ability to borrow funds and access capital markets;
  • restrictions contained in our debt agreements;
  • the amount of cash reserves established by our general partner;
  • other business risks affecting our cash levels; and
  • other factors discussed below and elsewhere in "Risk Factors" in our Prospectus.

Such risks and uncertainties could cause actual results to differ materially from those contained in any forward-looking statement. Except as required by law, Marlin undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Gross Margin, Adjusted EBITDA and Distributable Cash Flow

Marlin uses gross margin, or revenues less cost of revenues, as the primary performance measure. Gross margin represents our profitability with minimal exposure to commodity price fluctuations, which we believe are not significant components of our operations. Marlin also uses adjusted EBITDA to analyze its performance and defines it as net income (loss) before interest expense (net of amounts capitalized) or interest income, Texas margin tax, non-cash equity based compensation, depreciation expense and any gain/loss from interest rate derivatives. Although Marlin has not quantified distributable cash flow on a historical basis, after the closing of the IPO Marlin intends to compute and present this measure, defined as adjusted EBITDA plus interest income, less cash paid for interest expense, Texas margin tax, and maintenance capital expenditures.

Gross margin, adjusted EBITDA and distributable cash flow are non-GAAP supplemental financial measures that management and external users of Marlin's condensed consolidated and combined financial statements, such as industry analysts, investors, commercial banks and others, may use to assess:

  • the financial performance of Marlin's assets without regard to financing methods, capital structure or historical cost basis;
  • the ability of Marlin's assets to generate earnings sufficient to support the decision to make cash distributions to the unitholders and our general partner;
  • the ability to fund capital expenditures and incur and service debt;
  • Marlin's operating performance and return on capital as compared to those of other companies in the midstream energy sector, without regard to financing or capital structure; and
  • the attractiveness of capital projects and acquisitions and the overall rates of return on alternative investment opportunities.

Marlin's partnership agreement requires that, within 45 days after the end of each quarter, beginning with the quarter ending September 30, 2013, all of Marlin's available cash be distributed to unitholders of record on the applicable record date. Marlin's cash distribution for the period from the completion of the IPO through September 30, 2013 was adjusted based on the actual length of the period.

Note Regarding Non-GAAP Financial Measures

Gross margin, adjusted EBITDA, and distributable cash flow are not financial measures presented in accordance with GAAP. Marlin believes that the presentation of these non-GAAP financial measures will provide useful information to investors in assessing Marlin's financial condition and results of operations. The GAAP measure most directly comparable to gross margin is operating income. The GAAP measure most directly comparable to adjusted EBITDA and distributable cash flow is net income. These measures should not be considered as an alternative to operating income, net income, or any other measure of financial performance presented in accordance with GAAP. Each of these non-GAAP financial measures has important limitations as an analytical tool because it excludes some but not all items that affect net income. You should not consider these non-GAAP financial measures in isolation or as a substitute for analysis of Marlin's results as reported under GAAP. Additionally, because each of these non-GAAP financial measures may be defined differently by other companies in the industry, Marlin's definition of them may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

MARLIN MIDSTREAM PARTNERS, LP
CONDENSED CONSOLIDATED AND COMBINED BALANCE SHEETS AS OF SEPTEMBER 30, 2013
AND DECEMBER 31, 2012
(in thousands)
September 30, 2013 December 31, 2012
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,953 $ 5,555
Accounts receivable 4,291 6,722
Accounts receivable—affiliates 3,422 96
Inventory 423 294
Prepaid assets 375 95
Other current assets 453 836
Total current assets 14,917 13,598
PROPERTY, PLANT AND EQUIPMENT, NET 162,685 165,139
OTHER ASSETS 808 2,059
TOTAL ASSETS $ 178,410 $ 180,796
LIABILITIES AND PARTNERS' CAPITAL AND MEMBER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,782 $ 1,900
Accrued liabilities 2,598 1,319
Accounts payable—affiliates 1,975 4,034
Fair value of derivative liabilities 72
Current portion of long-term debt 6,250
Total current liabilities 8,355 13,575
LONG-TERM LIABILITIES
Accounts payable—affiliates 14,692
Long-term debt 8,500 120,250
Total liabilities 16,855 148,517
PARTNERS' CAPITAL AND MEMBER'S EQUITY
Member's equity 32,279
Common units (8,724,545 issued and outstanding at September 30, 2013) 143,080
Subordinated units (8,724,545 issued and outstanding at September 30, 2013) 17,751
General partner units (356,104 issued and outstanding at September 30, 2013) 724
Total partners' capital and member's equity 161,555 32,279
TOTAL LIABILITIES AND PARTNERS' CAPITAL AND MEMBER'S EQUITY $ 178,410 $ 180,796
MARLIN MIDSTREAM PARTNERS, LP
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(in thousands)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2013 2012 2013 2012
(unaudited) (unaudited)
REVENUES:
Natural gas, NGLs and condensate revenue $ 7,026 $ 12,480 $ 14,106 $ 27,074
Gathering, processing, transloading and other revenue 7,321 5,108 17,995 10,273
Gathering, processing, transloading and other revenue—affiliates 4,603 64 4,650 190
Total Revenues 18,950 17,652 36,751 37,537
OPERATING EXPENSES:
Cost of natural gas, NGLs and condensate revenue 5,045 7,078 7,419 11,331
Cost of natural gas, NGLs and condensate revenue—affiliates 1,434 2,268 4,268 5,395
Operation and maintenance 2,961 3,498 10,048 11,213
Operation and maintenance—affiliates 1,322 241 1,830 512
General and administrative 849 760 2,927 1,990
General and administrative—affiliates 1,633 236 2,287 757
Property and other taxes 302 240 879 668
Depreciation expense 2,058 1,949 6,093 5,727
Total operating expenses 15,604 16,270 35,751 37,593
Operating income 3,346 1,382 1,000 (56)
Interest expense, net of amounts capitalized (1,382) (1,194) (4,171) (3,455)
Interest and other income 22 22
Loss on interest rate swap (42) (243) (47) (684)
Net income (loss) 1,922 (33) (3,218) (4,173)
Other comprehensive income (loss)
Deferred gain from cash flow hedges 689
Reclassification of deferred gain from cash flow hedges into net income (752)
Comprehensive income (loss) $ 1,922 $ (33) $ (3,218) $ (4,236)
Net income (post-IPO, August 1, 2013 to September 30, 2013) $ 2,785
Less: general partner interest in net income $ (55)
Limited partner interest in net income $ 2,730
Net income per limited partner unit - basic $ 0.16
Net income per limited partner common unit - diluted $ 0.15
Net income per limited subordinated unit - diluted $ 0.16
MARLIN MIDSTREAM PARTNERS, LP
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(in thousands)
Nine Months Ended September 30,
2013 2012
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (3,218) $ (4,173)
Adjustments to reconcile net loss to net cash flows provided by operating activities:
Depreciation expense 6,093 5,727
Amortization of deferred financing costs 1,198 274
Equity-based compensation 1,284
Unrealized loss on derivatives (57) (905)
Unrealized loss on derivatives—affiliates (344)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 2,431 (822)
(Increase) decrease in accounts receivable—affiliates (3,323) 1,279
Increase in inventory (129) (73)
Increase in prepaid assets (280) (14)
Decrease in other current assets 227
Decrease in other assets 47
Increase in accounts payable 1,321 167
Increase in accrued liabilities 1,279 560
Increase (decrease) in accounts payable—affiliates (5,064) 12,932
Net cash provided by operating activities 1,582 14,835
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (10,947) (8,617)
Net cash used in investing activities (10,947 (8,617)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions 3,574 2,337
Borrowing of long-term debt 34,000
Repayments on long-term debt (152,000) (4,875)
Payment of deferred financing costs (1,140)
Proceeds from IPO, net of underwriting discount and other costs 125,329
Net cash provided by (used in) financing activities 9,763 (2,538)
NET INCREASE IN CASH AND CASH EQUIVALENTS 398 3,680
CASH AND CASH EQUIVALENTS—Beginning of Period 5,555 431
CASH AND CASH EQUIVALENTS—End of Period $ 5,953 $ 4,111
Supplemental Cash Flow Information:
Cash paid for interest $ 3,362 $ 3,309
Accrual of Construction-in-progress and capital expenditures $ 1,196 $ 1,113
Cash paid for income taxes $ 40 $ 11
Net assets contributed to NuDevco Midstream Development, LLC $ 9,385 $ —
Intercompany accounts payable assigned to NuDevco Midstream Development, LLC $ 11,692 $ —

SEGMENT INFORMATION

The Partnership's revenues are derived from two operating segments: gathering and processing, and crude oil logistics. These segments, along with our corporate segment, are monitored separately by management for performance and are consistent with internal financial reporting. These segments have been identified based on the differing products and services, regulatory environment, and expertise required for their respective operations.

The following table presents financial information by segment:

Three months ended September 30, 2013 Consolidated
Gathering & Crude Oil Corporate and Marlin Midstream
In Thousands Processing Logistics Consolidation Partners, LP
Total Revenues $ 16,634 $ 2,316 $ — $ 18,950
Cost of revenues 6,479 6,479
Operation and maintenance 3,737 546 4,283
General and administrative 2,482 2,482
Other operating expenses 2,355 5 2,360
Total operating expenses 12,571 551 2,482 15,604
Operating income 4,063 1,765 (2,482) 3,346
Interest expense, net of amounts capitalized (1,382) (1,382)
Gain (loss) on interest rate swap (42) (42)
Net income (loss) $ 4,063 $ 1,765 $ (3,906) $ 1,922

KEY PERFORMANCE METRICS

Management uses a variety of financial and operating metrics to analyze performance. These metrics are significant factors in assessing the results of operations and profitability and include: (i) gross margin; (ii) volume commitments and throughput volumes (including gathering, plant, and transloader throughput); (iii) operation and maintenance expenses; (iv) adjusted EBITDA; and (v) distributable cash flow.

In Thousands, except volume data Three Months Ended September 30, Nine Months Ended September 30,
2013 2012 2013 2012
Gross Margin $ 12,471 $ 8,306 $ 25,064 $ 20,811
Gas volumes (MMcf/d) (2) 224
Transloading volumes (Bbls/d) (2) 18,980
Adjusted EBITDA $ 6,699 $ 3,356 $ 8,412 $ 5,701
Distributable Cash Flow (1) $ 5,346
(1) We will distribute available cash within 45 days after the end of the quarter, beginning with the quarter ending September 30, 2013. For the three months ended September 30, 2013, distributable cash is prorated from our IPO on July 31, 2013 through September 30, 2013.
(2) Volumes reflect the minimum volume commitment under our fee-based contracts or actual throughput, whichever is greater, for the post-IPO period.

Gross margin is calculated as follows:

(in thousands) Three Months Ended September 30, Nine Months Ended September 30,
2013 2012 2013 2012
Total operating income (loss) $ 3,346 $ 1,382 $ 1,000 $ (56)
Operation and maintenance 2,961 3,498 10,048 11,213
Operation and maintenance-affiliates 1,322 241 1,830 512
General and administrative 849 760 2,927 1,990
General and administrative-affiliates 1,633 236 2,287 757
Property and other taxes 302 240 879 668
Depreciation expense 2,058 1,949 6,093 5,727
Gross Margin $ 12,471 $ 8,306 $ 25,064 $ 20,811

Adjusted EBITDA is calculated as follows:

(in thousands) Three Months Ended September 30, Nine Months Ended September 30,
2013 2012 2013 2012
Net loss $ 1,922 $ (33) $ (3,218) $ (4,173)
Interest expense, net of amounts capitalized 1,382 1,194 4,171 3,455
State franchise tax 11 3 35 9
Long-term incentive plan 1,284 1,284
Loss on interest rate swap 42 243 47 684
Depreciation expense 2,058 1,949 6,093 5,726
Adjusted EBITDA $ 6,699 $ 3,356 $ 8,412 $ 5,701

Distributable cash flow is calculated as follows:

Distributable cash flow for the period from July 31, 2013
to September 30, 2013:
In Thousands
Net income post IPO $ 2,785
Add:
Equity based compensation 1,284
Interest expense, net of amounts capitalized 174
Depreciation expense 1,321
Texas margin tax 8
Adjusted EBITDA 5,572
Less:
Maintenance capital expenditures (133)
Cash interest expense (85)
Texas margin tax (8)
Distributable cash flow $ 5,346

Coverage ratio is calculated as follows:

Coverage ratio:
Target distribution per unit (2 months prorated at $1.40) $ 0.23
Multiply by:
Total outstanding units 17,805,194
Prorated third quarter 2013 distribution 4,095,195
(in thousands except ratio)
Distributable cash flow 5,346
Divide by:
Prorated third quarter 2013 distribution 4,095
Coverage 1.31

CONTACT: Investor Contact: Financial Profiles, Inc. Kristen McNally, (206) 623-2233 FISH@finprofiles.com

Source:Marlin Midstream Partners, LP