USD Partners LP Announces First Quarter 2022 Results

Source: 5/4/2022, Location: North America

USD Partners LP announced its operating and financial results for the three months ended March 31, 2022. Financial highlights with respect to the first quarter of 2022 include the following:

- Generated Net Cash Provided by Operating Activities of $10.7 million, Adjusted EBITDA(1) of $10.0 million and Distributable Cash Flow(1) of $8.4 million
- Reported Net Income of $9.0 million
- Declared a quarterly cash distribution of $0.1235 per unit ($0.494 per unit on an annualized basis) with approximately 2.4x Distributable Cash Flow Coverage(2)

“We are pleased to announce another eventful quarter at the Partnership,” said Dan Borgen, the Partnership’s Chief Executive Officer. “During the first quarter, we announced the acquisition of Hardisty South from USDG as well as the simplification of the Partnership’s financial structure by eliminating its IDRs and economic GP interest. We feel that this was an appropriate step to maintain our momentum in 2022 as we continue to see opportunities for our DRUbit™ by Rail™ network to provide safer and more economic benefits to our customers.”

“The acquisition of Hardisty South is expected to provide the Partnership with a growth platform by which it can realize the accretion and additional long-term commitments that our DRUbit™ by Rail™ network is able to support. Also, simplifying the Partnership’s structure was critical to our growth strategy in further aligning our interests with our unitholders,” added Mr. Borgen. “Consistent with our expectations from the transaction, the Partnership’s board approved another increase to our quarterly cash distribution with respect to the first quarter of $0.0025 per unit.”

Acquisition of Hardisty South
On April 6, 2022, the Partnership announced that it had closed the acquisition of the Hardisty South Terminal assets (“Hardisty South”) from USD Group LLC (“USDG” or the “Sponsor”), and exchanged the Sponsor’s economic general partner interest in the Partnership (“GP Interest”) for a non-economic GP Interest and eliminated the Sponsor’s incentive distribution rights (“IDRs”) in the Partnership for total consideration of $75 million in cash and approximately 5.75 million common units (the “Transaction”). The cash portion of the transaction was funded with borrowings under the Partnership’s $275 million senior secured credit facility.

Today, the Partnership’s combined Hardisty Terminal has the designed takeaway capacity of three and one-half unit trains per day, or approximately 262,500 barrels per day, including the newly-acquired Hardisty South Terminal. The acquisition of the Hardisty South Terminal increases the size, scale and growth capacity of the Partnership’s asset base, while optimizing operational and commercial synergies of the Hardisty Terminal in order to capitalize on the growth benefits associated with the Sponsor’s Diluent Recovery Unit (“DRU”) program.

The Transaction was approved by the Board of Directors of the general partner of the Partnership based on the approval and recommendation of its Conflicts Committee, which consists entirely of independent directors.

Partnership’s First 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 operating results for the first quarter of 2022 relative to the same quarter in 2021 were primarily influenced by lower revenue at its Stroud terminal during the quarter. This lower revenue was associated with a decrease in contracted volume commitments at the terminal that became effective August 2021, partially offset by recognizing previously deferred revenue in the current quarter associated with the make-up right options we granted to our customers as compared to a deferral of revenue in the prior year period associated with make-up right options. The Partnership also had lower storage revenue generated by our Casper Terminal associated with the end of one of our customer contracts that occurred in September 2021. Partially offsetting these decreases in revenue was higher revenue at our West Colton Terminal due to the commencement of the renewable diesel contract that occurred in December 2021.

The Partnership experienced higher operating costs during the first quarter of 2022 as compared to the first quarter of 2021 primarily attributable to an increase in operating and maintenance costs at the Hardisty Terminal for increased operational supplies and utilities costs resulting from increased throughput volumes and higher fuel costs. The Partnership also experienced higher selling, general and administrative costs during the current quarter as compared to the first quarter in 2021, mainly due to approximately $0.5 million of legal and consulting fees incurred in the current period related to the aforementioned acquisition of the Hardisty South Terminal.

Net income increased in the first quarter of 2022 as compared to the first quarter of 2021. The impact of the operating factors discussed above to Net income were offset by a larger non-cash gain associated with the Partnership’s interest rate derivatives and lower interest expense incurred during the first quarter of 2022 resulting from lower interest rates and a lower weighted average balance of debt outstanding during the quarter as compared to the first quarter of 2021.

Net Cash Provided by Operating Activities for the quarter decreased 15% relative to the first quarter of 2021, primarily due to the operating factors discussed above and the general timing of receipts and payments of accounts receivable, accounts payable and deferred revenue balances.

Adjusted EBITDA and Distributable Cash Flow (“DCF”) decreased by 31% and 33%, respectively, for the quarter relative to the first quarter of 2021. The decrease in Adjusted EBITDA and DCF was primarily a result of the factors discussed above. Adjusted EBITDA and DCF for the three months ended March 31, 2022 include the impact of the aforementioned $0.5 million of transaction expenses incurred during the period associated with our recent drop down acquisition of the Hardisty South Terminal assets. Additionally, DCF was impacted by higher cash paid for taxes, partially offset by a decrease in cash paid for interest and maintenance capital expenditures during the quarter. The Partnership expects to incur between approximately $2.0 million and $2.5 million of additional expenses during the second quarter of 2022 associated with the acquisition.

As of March 31, 2022, the Partnership had approximately $4.5 million of unrestricted cash and cash equivalents and undrawn borrowing capacity of $112.0 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 first quarter of 2022, the Partnership had borrowings of $163.0 million outstanding under its revolving credit facility. The Partnership was in compliance with its financial covenants as of March 31, 2022.

Subsequent to March 31, 2022, the Partnership borrowed an additional $75.0 million under the senior secured credit facility to finance the cash portion of the Hardisty South acquisition. As such, the Partnership had outstanding borrowings of $238.0 million as of May 2, 2022 and available undrawn borrowing capacity under our senior secured credit facility of $37.0 million, subject to our continued compliance with financial covenants. Our acquisition of Hardisty South is treated as a Material Acquisition under the terms of our senior secured credit facility. As a result, our borrowing capacity will be limited to 5.0 times our 12-month trailing consolidated EBITDA through December 31, 2022, at which point it will revert to 4.5 times our 12-month trailing consolidated EBITDA.

On April 21, 2022, the Partnership declared a quarterly cash distribution of $0.1235 per unit ($0.494 per unit on an annualized basis), representing an increase of $0.0025 per unit, or 2.1% over the distribution declared for the fourth quarter of 2021. The distribution is payable on May 13, 2022, to unitholders of record at the close of business on May 4, 2022.

First Quarter 2022 Conference Call Information
The Partnership will host a conference call and webcast regarding first quarter 2022 results at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) on Thursday, May 5, 2022.

To listen live over the Internet, participants are advised to log on to the Partnership’s website at and select the “Events & Presentations” sub-tab under the “Investors” tab. To join via telephone, participants may dial (866) 518-6930 domestically or +1 (203) 518-9797 internationally, conference ID 9626417. 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 (888) 269-5319 domestically or +1 (402) 220-7322 internationally, conference ID 9626417. In addition, a replay of the audio webcast will be available by accessing the Partnership's website after the call is concluded.

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