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Southcross Energy Partners, L.P. Reports Second Quarter 2016 Results

DALLAS, Texas, Aug. 05, 2016 (GLOBE NEWSWIRE) -- Southcross Energy Partners, L.P. (NYSE:SXE) (“Southcross” or the “Partnership”) today announced second quarter 2016 financial and operating results including significant debt reduction and enhanced liquidity.

Second Quarter Results

Southcross’ net loss was $7.4 million for the quarter ended June 30, 2016, compared to $15.5 million for the same period in the prior year and $15.5 million for the quarter ended March 31, 2016.

Adjusted EBITDA (as defined below) was $15.6 million for the quarter ended June 30, 2016, compared to $18.7 million for the same period in the prior year and $20.7 million for the quarter ended March 31, 2016. Adjusted EBITDA for the second quarter was below the prior quarter due to lower processed gas volumes, higher operations and maintenance expense which had been deferred from the first quarter of 2016 and an increase in general and administrative expenses.

Processed gas volumes during the quarter averaged 319 MMcf/d, a decrease of approximately 25% compared to 423 MMcf/d for the same period in the prior year and a decrease of 7% compared to 343 MMcf/d for the quarter ended March 31, 2016. The sequential quarter volumetric decline primarily represents a full quarter impact of previously discussed customer elections including a contract termination and a competitor that redirected gas to its own processing facilities. The impact of these volumetric declines was offset in part by the late April restart of a Southcross Holdings LP (“Holdings”) treatment facility that feeds gas to the Partnership’s processing plants.

“We remain focused on best positioning Southcross for the current market environment including our ongoing efforts to reduce our debt and increase our liquidity,” said John Bonn, President and Chief Executive Officer of Southcross’ general partner. “We continue to evaluate opportunities to add new gas packages to our system while executing on cost reduction initiatives.”

Capital Expenditures

For the quarter ended June 30, 2016, growth capital expenditures were $6.1 million and were related primarily to work to enhance system efficiency and capability. Southcross continues to expect that growth capital expenditures for full year 2016 will be in the range of $20 to $30 million.

Capital and Liquidity

As of June 30, 2016, Southcross had total outstanding debt of $570 million including $131 million under its revolving credit facility as compared to total outstanding debt of $639 million as of March 31, 2016. Unused borrowing capacity under the revolving credit facility as of June 30, 2016 was $53 million. Based on the current terms of its credit facilities, Southcross’ total leverage ratio (as generally defined as debt divided by credit agreement EBITDA) was 5.4 to 1 as of June 30, 2016.

The significant reduction in debt and increase in liquidity on a sequential quarter basis is due to the benefit of the receipt of past-due intercompany balances by the Partnership associated with the completion of the Holdings restructuring in April 2016, the sale of non-core assets and the equity cure from Holdings. The asset sales have no earnings impact.

Distributable Cash Flow

Distributable cash flow (as defined below) for the quarter ended June 30, 2016 was $6.7 million, compared to $8.6 million for the same period in the prior year and $10.3 million for the quarter ended March 31, 2016.

Conference Call Information

Southcross will hold a conference call on Friday, August 5, 2016, at 10:00 a.m. Central Time (11:00 a.m. Eastern Time) to discuss its second quarter 2016 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 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 13641908. The replay of the 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 3,100 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.

About Southcross Holdings LP

Southcross Holdings LP, through its subsidiary Southcross Holdings Borrower LP, owns 100% of Southcross Energy Partners GP, LLC, the general partner of Southcross, as well as a portion of Southcross' common units, and all of Southcross' subordinated units and Class B convertible units. Holdings also owns natural gas gathering and treating assets as well as NGL pipelines and fractionation facilities in South Texas.

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 press release specifically include: the expectations, plans, strategies, objectives and growth of Southcross; and anticipated capital expenditures and Adjusted EBITDA. 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 April 14, 2016 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 and distributable cash flow.

We define Adjusted EBITDA as net income/loss, plus interest expense, income tax expense, depreciation and amortization expense, equity in losses of joint venture investments, certain non-cash charges (such as non-cash unit-based compensation, impairments, loss on extinguishment of debt and unrealized losses on derivative contracts), major litigation costs net of recoveries, transaction-related costs, revenue deferral adjustment, loss on sale of assets and selected charges that are unusual or non-recurring; less interest income, income tax benefit, unrealized gains on derivative contracts, equity in earnings of joint venture investments 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.

Adjusted EBITDA is a key metric used in measuring our compliance with our financial covenants under our debt agreements and is used as a supplemental measure by our management and by external users of our financial statements, such as investors, commercial banks, research analysts and others, to assess the ability of our assets to generate cash sufficient to support our indebtedness and make future cash distributions; 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 investment opportunities.

We define distributable cash flow as Adjusted EBITDA, plus interest income and income tax benefit, less cash paid for interest (net of capitalized costs), income tax expense and maintenance capital expenditures. We use distributable cash flow to analyze our liquidity. Distributable cash flow does not reflect changes in working capital balances. Distributable cash flow is used to assess the ability of our assets to generate cash sufficient to support our indebtedness and make future cash distributions to our unitholders; and the attractiveness of capital projects and acquisitions and the overall rates of return on alternative investment opportunities.

Adjusted EBITDA and distributable cash flow are not financial measures presented in accordance with GAAP. We believe that the presentation of these non-GAAP financial measures provides useful information to investors in assessing our financial condition, results of operations and cash flows from operations. Reconciliations of Adjusted EBITDA and distributable cash flow to their most directly comparable GAAP measure are included in this press release. Net income and net cash provided by operating activities are the GAAP measures most directly comparable to Adjusted EBITDA. The GAAP measure most directly comparable to distributable cash flow is net cash provided by operating activities. 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 each excludes some but not all items that affect the most directly comparable GAAP financial measure. You should not consider Adjusted EBITDA or distributable cash flow in isolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted EBITDA 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.

SOUTHCROSS ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per unit data)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2016 2015 2016 2015
Revenues:
Revenues $100,141 $146,129 $195,596 $324,620
Revenues - affiliates 24,561 21,091 48,832 28,538
Total revenues 124,702 167,220 244,428 353,158
Expenses:
Cost of natural gas and liquids sold 85,619 124,595 165,066 265,710
Operations and maintenance 19,615 19,834 36,393 42,388
Depreciation and amortization 18,908 17,571 37,449 34,603
General and administrative 8,162 9,003 16,048 16,809
Impairment of assets 193 193
Loss (gain) on sale of assets, net (12,576) (38) (12,576) 180
Total expenses 119,728 171,158 242,380 359,883
Income (loss) from operations 4,974 (3,938) 2,048 (6,725)
Other expense:
Equity in losses of joint venture investments (3,534) (3,604) (6,963) (7,155)
Interest expense (8,833) (7,900) (18,003) (15,398)
Total other expense (12,367) (11,504) (24,966) (22,553)
Loss before income tax benefit (expense) (7,393) (15,442) (22,918) (29,278)
Income tax benefit (expense) (3) (9) 3 (78)
Net loss $(7,396) $(15,451) $(22,915) $(29,356)
General partner unit in-kind distribution (26) (61) (26) (137)
Net loss attributable to Holdings (1,103) (4,258)
Net loss attributable to partners $(7,422) $(14,409) $(22,941) $(25,235)
Earnings per unit and distributions declared
Net loss allocated to limited partner common units $(3,953) $(6,928) $(11,782) $(11,830)
Weighted average number of limited partner common units outstanding 33,921 26,477 31,183 25,143
Basic and diluted loss per common unit $(0.12) $(0.26) $(0.38) $(0.47)
Net loss allocated to limited partner subordinated units $(1,423) $(3,194) $(4,613) $(5,744)
Weighted average number of limited partner subordinated units outstanding 12,214 12,214 12,214 12,214
Basic and diluted loss per subordinated unit $(0.12) $(0.26) $(0.38) $(0.47)
Distributions declared and paid per common unit $ $0.40 $ $0.80


SOUTHCROSS ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for unit data)
(Unaudited)
June 30, 2016 December 31, 2015
ASSETS
Current assets:
Cash and cash equivalents $4,859 $11,348
Trade accounts receivable 29,860 39,585
Accounts receivable - affiliates 16,269 49,734
Prepaid expenses 2,576 3,915
Deposits to suppliers 3,837
Other current assets 961 1,256
Total current assets 58,362 105,838
Property, plant and equipment, net 1,034,266 1,066,001
Investments in joint ventures 138,461 140,526
Other assets 1,675 6,595
Total assets $1,232,764 $1,318,960
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Accounts payable and accrued liabilities $36,081 $66,458
Accounts payable - affiliates 7,304 7,871
Current portion of long-term debt 4,500 4,500
Other current liabilities 6,472 10,406
Total current liabilities 54,357 89,235
Long-term debt 552,685 604,518
Other non-current liabilities 10,341 3,871
Total liabilities 617,383 697,624
Commitments and contingencies
Partners' capital:
Common units (36,902,492 and 28,420,619 units outstanding as of June 30, 2016 and December 31, 2015, respectively) 274,990 271,236
Class B Convertible units (16,522,484 and 15,958,990 units issued and outstanding as of June 30, 2016 and December 31, 2015) 295,801 300,596
Subordinated units (12,213,713 units issued and outstanding as of June 30, 2016 and December 31, 2015) 32,995 37,920
General partner interest 11,595 11,584
Total partners' capital 615,381 621,336
Total liabilities and partners' capital $1,232,764 $1,318,960


SOUTHCROSS ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
2016 2015
Cash flows from operating activities:
Net loss $(22,915) $(29,356)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 37,449 34,603
Unit-based compensation 1,706 2,475
Amortization of deferred financing costs and PIK interest 1,904 1,727
Loss (gain) on sale of assets, net (12,576) 180
Unrealized loss (gain) on financial instruments (55) 221
Equity in losses of joint venture investments 6,963 7,155
Distribution from joint venture investment 390
Impairment of assets 193
Other, net (184) (2)
Changes in operating assets and liabilities:
Trade accounts receivable, including affiliates 44,409 16,951
Prepaid expenses and other current assets 1,502 780
Deposits paid to suppliers (3,837)
Other non-current assets 76
Accounts payable and accrued liabilities (27,808) (31,404)
Other liabilities, including affiliates 3,000 904
Net cash provided by operating activities 29,948 4,503
Cash flows from investing activities:
Capital expenditures (12,434) (64,959)
Insurance proceeds from property damage claims, net of expenditures 125 100
Net proceeds from sales of assets 20,402 4,693
Consideration paid for Holdings' drop-down acquisition (15,000)
Investment contributions to joint venture investments (5,287) (2,474)
Net cash provided by (used in) investing activities 2,806 (77,640)
Cash flows from financing activities:
Borrowings under our credit facility 3,110 102,000
Repayments under our credit facility (54,250) (15,000)
Repayments under our term loan agreement (2,250) (2,250)
Payments on capital lease obligations (204) (276)
Financing costs (86) (602)
Tax withholdings on unit-based compensation vested units (57)
Payments of distributions and distribution equivalent rights (23,306)
Expenses paid by Holdings on behalf of Valley Wells' assets 17,858
Borrowing of senior unsecured PIK notes 14,000
Repayment of senior unsecured PIK notes and PIK interest (14,260)
Valley Wells operating expense cap adjustment 2,637
Contributions from general partner 1,281
Common unit issuances to Holdings related to equity cures 11,884
Interest on receivable due from Holdings 233
Net cash provided by (used in) financing activities (39,243) 79,705
Net increase (decrease) in cash and cash equivalents (6,489) 6,568
Cash and cash equivalents — Beginning of period 11,348 1,649
Cash and cash equivalents — End of period $4,859 $8,217


SOUTHCROSS ENERGY PARTNERS, L.P.
SELECTED FINANCIAL AND OPERATIONAL DATA
(In thousands, except for operating data)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2016 2015 2016 2015
Financial data:
Adjusted EBITDA $15,599 $18,658 $36,295 $35,640
Maintenance capital expenditures $836 $3,091 $3,112 $5,618
Growth capital expenditures 6,124 20,866 9,322 59,341
Distributable cash flow $6,714 $8,621 $15,024 $16,371
Cash distributions declared 11,782 21,720
Operating data:
Average volume of processed gas (MMcf/d) 319 423 331 435
Average volume of NGLs produced (Bbls/d) 35,912 40,654 37,771 41,264
Average daily throughput Mississippi/Alabama (MMcf/d) 147 169 151 193
Realized prices on natural gas volumes ($/Mcf) $1.88 $2.69 $1.90 $2.81
Realized prices on NGL volumes ($/gal) 0.30 0.37 0.33 0.39


SOUTHCROSS ENERGY PARTNERS, L.P.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2016 2015 2016 2015
Net cash provided by operating activities $47,119 $2,455 $29,948 $4,503
Add (deduct):
Depreciation and amortization (18,908) (17,571) (37,449) (34,603)
Unit-based compensation (725) (1,662) (1,706) (2,475)
Amortization of deferred financing costs and PIK interest (831) (902) (1,904) (1,727)
Gain (loss) on sale of assets, net 12,576 38 12,576 (180)
Unrealized gain (loss) on financial instruments 85 (54) 55 (221)
Equity in losses of joint venture investments (3,534) (3,604) (6,963) (7,155)
Distribution from joint venture investment (390)
Impairment of assets (193) (193)
Other, net 62 14 184 2
Changes in operating assets and liabilities:
Trade accounts receivable, including affiliates (35,310) 1,356 (44,409) (16,951)
Prepaid expenses and other current assets (329) (1,077) (1,502) (780)
Other non-current assets (280) 94 (76)
Accounts payable and accrued liabilities 9,145 3,771 27,808 31,404
Deposits paid to suppliers (11,463) 3,837
Other liabilities, including affiliates (5,003) 1,884 (3,000) (904)
Net loss $(7,396) $(15,451) $(22,915) $(29,356)
Add (deduct):
Depreciation and amortization $18,908 $17,571 $37,449 $34,603
Interest expense 8,833 7,900 18,003 15,398
Income tax (benefit) expense 3 9 (3) 78
Unrealized loss on commodity swap derivatives 112
Loss (gain) on sale of assets, net (12,576) (38) (12,576) 180
Revenue deferral adjustment 754 754 1,508 1,508
Unit-based compensation 725 1,662 1,706 2,475
Major litigation costs, net of recoveries 118 38 243 491
Transaction-related costs 871 6 1,172
Equity in losses of joint venture investments 3,534 3,604 6,963 7,155
Severance expense 16 734 16 734
Retention bonus due from Holdings 898 1,796
Valley Wells' operating expense cap adjustment 1,415 518 2,406 518
Fees related to Equity Cure Agreement 67 577
Distribution from joint venture investment 390
Other, net (1) 300 486 726 572
Adjusted EBITDA $15,599 $18,658 $36,295 $35,640
Cash interest, net of capitalized costs (8,046) (6,937) (18,162) (13,573)
Income tax benefit (expense) (3) (9) 3 (78)
Maintenance capital expenditures (836) (3,091) (3,112) (5,618)
Distributable cash flow $6,714 $8,621 $15,024 $16,371

(1) These amounts include an immaterial amount related to the effects of presenting our financial results on an as-if pooled basis (in connection with the May 2015 drop-down acquisition).


Contact: Southcross Energy Partners, L.P. David Lawrence, 214-979-3720 Investor Relations investorrelations@southcrossenergy.com

Source:Southcross Energy Partners, L.P.