MARTIN MIDSTREAM PARTNERS L.P. Overview
We are a publicly traded limited partnership with a diverse set of operations focused primarily in theGulf Coast region of theU.S. Our four primary business lines include:
•Terminalling, processing, storage and packaging services for petroleum products and by-products including the refining of naphthenic crude oil;
•Land and marine transportation services for petroleum products and by-products, chemicals, and specialty products;
•Sulfur and sulfur-based products processing, manufacturing, marketing, and distribution; and
•NGL marketing, distribution, and transportation services.
The petroleum products and by-products we collect, transport, store and market are produced primarily by major and independent oil and gas companies who often turn to third parties, such as us, for the transportation and disposition of these products. In addition to these major and independent oil and gas companies, our primary customers include independent refiners, large chemical companies, and other wholesale purchasers of these products. We operate primarily in theGulf Coast region of theU.S. This region is a major hub for petroleum refining, natural gas gathering and processing, and support services for the exploration and production industry.
Significant Recent Developments
Issuance of 2028 Notes to Refinance Existing Secured Notes. OnFebruary 8, 2023 , we completed the sale of$400.0 million in aggregate principal amount of our 2028 Notes. We used the proceeds of the 2028 Notes to complete the tender offers for substantially all of our 2024 Notes and 2025 Notes, redeem all 2024 Notes and 2025 Notes that were not validly tendered, repay a portion of the indebtedness under our credit facility, and pay fees and expenses in connection with the foregoing. Simultaneously with the issuance of the 2028 Notes we amended our credit facility to, among other things, reduce the commitments thereunder from$275.0 million to$200.0 million (with further scheduled reductions to$175.0 million onJune 30, 2023 and$150.0 million onJune 30, 2024 ) and extend the scheduled maturity date of the credit facility toFebruary 8, 2027 . Exit from Butane Optimization Business. InJanuary 2023 , we announced that we anticipate the exit of our butane optimization business at the conclusion of the butane selling season during the second quarter of 2023. Electronic Level Sulfuric Acid Joint Venture. OnOctober 19, 2022 ,Martin ELSA Investment LLC , our affiliate, entered into definitive agreements with Samsung C&T America, Inc. andDongjin USA, Inc. , an affiliate of Dongjin Semichem Co., Ltd., to form DSM. DSM will produce and distribute ELSA. By leveraging our existing assets located inPlainview, Texas and installing the ELSA Facility as required, DSM will produce ELSA that meets the strict quality standards required by the recent advances in semiconductor manufacturing. In addition to owning a 10% non-controlling interest in DSM, we will be the exclusive provider of feedstock to the ELSA Facility. We, through our affiliate MTI, will also provide land transportation services to end-users of the ELSA produced by DSM. The Partnership expects to fund approximately$20.0 million in aggregate capital expenditures in connection with this joint venture and the Partnership's related services in 2023 and 2024. Divestiture ofStockton, California Sulfur Terminal . OnOctober 7, 2022 , we closed on the sale of ourStockton Sulfur Terminal toGulf Terminals LLC for net proceeds of approximately$5.25 million , which were used to reduce outstanding borrowings under our credit facility.
For more information about the potential physical effects of climate change and environmental regulation on our business, see our environmental and climate change related risk factors in Section 1A "Risk Factors."
Subsequent Events
Quarterly Distribution. OnJanuary 23, 2023 , we declared a quarterly cash distribution of$0.005 per common unit for the fourth quarter of 2022, or$0.02 per common unit on an annualized basis, which was paid onFebruary 14, 2023 to unitholders of record as ofFebruary 7, 2023 .
Critical Accounting Policies and Estimates
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Our discussion and analysis of our financial condition and results of
operations are based on the historical consolidated financial statements
included elsewhere herein. We prepared these financial statements in conformity
with U.S. generally accepted accounting principles ("U.S. GAAP" or "GAAP"). The
preparation of these financial statements required us to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. We based our estimates on historical
experience and on various other assumptions we believe to be reasonable under
the circumstances. We routinely evaluate these estimates, utilizing historical
experience, consultation with experts and other methods we consider reasonable
in the particular circumstances. Our results may differ from these estimates,
and any effects on our business, financial position or results of operations
resulting from revisions to these estimates are recorded in the period in which
the facts that give rise to the revision become known. Changes in these
estimates could materially affect our financial position, results of operations
or cash flows. You should also read Note 2, "Significant Accounting Policies" in
Notes to Consolidated Financial Statements. The following table evaluates the
potential impact of estimates utilized during the periods ended December 31,
2022 and 2021:
Effect if Actual Results Differ
Description Judgments and Uncertainties from Estimates and Assumptions
Impairment of Long-Lived Assets
We periodically evaluate whether Our impairment analyses require Applying this impairment review
the carrying value of long-lived management to use judgment in methodology, no impairment was
assets has been impaired when estimating future cash flows and recorded during the years ended
circumstances indicate the carrying useful lives, as well as assessing December 31, 2022 or 2021. We
value of the assets may not be the probability of different recorded an impairment charge of
recoverable. These evaluations are outcomes. $3.1 million and $1.3 million in
based on undiscounted cash flow our Terminalling and Storage and
projections over the remaining Transportation segments,
useful life of the asset. The respectively, during the year
carrying value is not recoverable ended December 31, 2020.
if it exceeds the sum of the
undiscounted cash flows. Any
impairment loss is measured as the
excess of the asset's carrying
value over its fair value.
Impairment of Goodwill
Goodwill is subject to a fair-value As part of the quantitative Based upon the most recent annual
based evaluation, we determine fair value review as of August 31, 2022, no
impairment test on an annual basis, using accepted valuation goodwill impairment exists within
or more frequently if events or techniques, including discounted our reporting units for the year
changes in circumstances indicate cash flow, the guideline public ended December 31, 2022. No
that the fair value of any of our company method and the guideline goodwill impairment was recorded
reporting units is less than its transaction method. These analyses during the years ended December
carrying amount. When assessing the require management to make 31, 2021 or 2020.
recoverability of goodwill , we may assumptions and estimates regarding
first assess qualitative factors in industry and economic factors,
determining future operating results and
whether it is more likely than not discount rates. We conduct that the fair value of a reporting impairment testing using present unit is less than its carrying
economic conditions, as well as
amount. After assessing qualitative future expectations.
factors, if we determine that it is
not more likely than not that the
fair value of a reporting unit is
less than its carrying amount, then
performing a quantitative
assessment is not required. If an
initial qualitative assessment
indicates that it is more likely
than not the carrying amount
exceeds the fair value of a
reporting unit, a quantitative
analysis will be performed. We may
also elect to bypass the
qualitative assessment and proceed
directly to a quantitative analysis
depending on the facts and
circumstances.
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Our Relationship with
Martin Resource Management Corporation directs our business operations through its ownership of our general partner and under the Omnibus Agreement. In addition to the direct expenses payable toMartin Resource Management Corporation under the Omnibus Agreement, we are required to reimburseMartin Resource Management Corporation for indirect general and administrative and corporate overhead expenses. For the years endedDecember 31, 2022 , 2021 and 2020, the board of directors of our general partner approved reimbursement amounts of$13.5 million ,$14.4 million and$16.4 million , respectively, reflecting our allocable share of such expenses. The board of directors of our general partner will review and approve future adjustments in the reimbursement amount for indirect expenses, if any, annually. We are required to reimburseMartin Resource Management Corporation for all direct expenses it incurs or payments it makes on our behalf or in connection with the operation of our business.Martin Resource Management Corporation also licenses certain of its trademarks and trade names to us under the Omnibus Agreement. We are both an important supplier to and customer ofMartin Resource Management Corporation . All of these services and goods are purchased and sold pursuant to the terms of a number of agreements between us andMartin Resource Management Corporation . For a more comprehensive discussion concerning the Omnibus Agreement and the other agreements that we have entered into withMartin Resource Management Corporation , please see "Item 13. Certain Relationships and Related Transactions, and Director Independence."
Non-GAAP Financial Measures
To assist management in assessing our business, we use the following non-GAAP
financial measures: earnings before interest, taxes, and depreciation and
amortization ("EBITDA"), adjusted EBITDA (as defined below), distributable cash
flow available to common unitholders ("Distributable Cash Flow"), and free cash
flow after growth capital expenditures and principal payments under finance
lease obligations ("Adjusted Free Cash Flow"). Our management uses a variety of
financial and operational measurements other than our financial statements
prepared in accordance with U.S. GAAP to analyze our performance.
Certain items excluded from EBITDA and Adjusted EBITDA are significant components in understanding and assessing an entity's financial performance, such as cost of capital and historical costs of depreciable assets.
EBITDA and Adjusted EBITDA. We define Adjusted EBITDA as EBITDA before
unit-based compensation expenses, gains and losses on the disposition of
property, plant and equipment, impairment and other similar non-cash
adjustments. Adjusted EBITDA is used as a supplemental performance and liquidity
measure by our management and by external users of our financial statements,
such as investors, commercial banks, research analysts, and others, to assess:
•the financial performance of our assets without regard to financing methods,
capital structure, or historical cost basis;
•the ability of our assets to generate cash sufficient to pay interest costs,
support our indebtedness, and make cash distributions to our unitholders; and
•our operating performance and return on capital as compared to those of other
companies in the midstream energy sector, without regard to financing methods or
capital structure.
The GAAP measures most directly comparable to adjusted EBITDA are net income
(loss) and net cash provided by (used in) operating activities. Adjusted EBITDA
should not be considered an alternative to, or more meaningful than, net income
(loss), operating income (loss), net cash provided by (used in) operating
activities, or any other measure of financial performance presented in
accordance with GAAP. Adjusted EBITDA may not be comparable to similarly titled
measures of other companies because other companies may not calculate Adjusted
EBITDA in the same manner.
Adjusted EBITDA does not include interest expense, income tax expense, and
depreciation and amortization. Because we have borrowed money to finance our
operations, interest expense is a necessary element of our costs and our ability
to generate cash available for distribution. Because we have capital assets,
depreciation and amortization are also necessary elements of our costs.
Therefore, any measures that exclude these elements have material limitations.
To compensate for these limitations, we believe that it is important to consider
net income (loss) and net cash provided by (used in) operating activities as
determined under GAAP, as well as adjusted EBITDA, to evaluate our overall
performance.
Distributable Cash Flow. We define Distributable Cash Flow as Net Cash Provided
by (Used in) Operating Activities less cash received (plus cash paid) for closed
commodity derivative positions included in Accumulated Other Comprehensive
Income (Loss), plus changes in operating assets and liabilities which (provided)
used cash, less maintenance capital
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expenditures and plant turnaround costs. Distributable Cash Flow is a
significant performance measure used by our management and by external users of
our financial statements, such as investors, commercial banks and research
analysts, to compare basic cash flows generated by us to the cash distributions
we expect to pay unitholders. Distributable Cash Flow is also an important
financial measure for our unitholders since it serves as an indicator of our
success in providing a cash return on investment. Specifically, this financial
measure indicates to investors whether or not we are generating cash flow at a
level that can sustain or support an increase in our quarterly distribution
rates. Distributable Cash Flow is also a quantitative standard used throughout
the investment community with respect to publicly-traded partnerships because
the value of a unit of such an entity is generally determined by the unit's
yield, which in turn is based on the amount of cash distributions the entity
pays to a unitholder.
Adjusted Free Cash Flow. We define Adjusted Free Cash Flow as Distributable Cash
Flow less growth capital expenditures and principal payments under finance lease
obligations. Adjusted Free Cash Flow is a significant performance measure used
by our management and by external users of our financial statements and
represents how much cash flow a business generates during a specified time
period after accounting for all capital expenditures, including expenditures for
growth and maintenance capital projects. We believe that Adjusted Free Cash Flow
is important to investors, lenders, commercial banks and research analysts since
it reflects the amount of cash available for reducing debt, investing in
additional capital projects, paying distributions, and similar matters. Our
calculation of Adjusted Free Cash Flow may or may not be comparable to similarly
titled measures used by other entities.
The GAAP measure most directly comparable to Distributable Cash Flow and
Adjusted Free Cash Flow is Net Cash Provided by (Used in) Operating Activities.
Distributable Cash Flow and Adjusted Free Cash Flow should not be considered
alternatives to, or more meaningful than, Net Income (Loss), Operating Income
(Loss), Net Cash Provided by (Used in) Operating Activities, or any other
measure of liquidity presented in accordance with GAAP. Distributable Cash Flow
and Adjusted Free Cash Flow have important limitations because they exclude some
items that affect Net Income (Loss), Operating Income (Loss), and Net Cash
Provided by (Used in) Operating Activities. Distributable Cash Flow and Adjusted
Free Cash Flow may not be comparable to similarly titled measures of other
companies because other companies may not calculate these non-GAAP metrics in
the same manner. To compensate for these limitations, we believe that it is
important to consider Net Cash Provided by (Used in) Operating Activities
determined under GAAP, as well as Distributable Cash Flow and Adjusted Free Cash
Flow, to evaluate our overall liquidity.
Non-GAAP Financial Measures
The following tables reconcile the non-GAAP financial measurements used by
management to our most directly comparable GAAP measures for the years ended
Reconciliation of Net Loss to EBITDA and Adjusted EBITDA
Year Ended December 31,
2022 2021
(in thousands)
Net loss $ (10,334) $ (211)
Adjustments:
Interest expense 53,665 54,107
Income tax expense 7,927 3,380
Depreciation and amortization 56,280 56,751
EBITDA 107,538 114,027
Adjustments:
(Gain) loss on disposition of property, plant and equipment (5,669) 534
Gain on involuntary conversion of property, plant and equipment - (196)
Unrealized mark-to-market on commodity derivatives - (207)
Lower of cost or market and other non-cash adjustments 12,850 -
Unit-based compensation 161 384
Adjusted EBITDA 114,880 114,542
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Reconciliation of
Distributable Cash Flow, and Adjusted Free Cash Flow
Year Ended December 31,
2022 2021
(in thousands)
Net cash provided by operating activities $ 16,148 $ 35,729
Interest expense 1 50,513 50,740
Current income tax expense 2,183 948
Lower of cost or market and other non-cash adjustments 12,850 -
Loss on exchange of senior unsecured notes - -
Non-cash impact related to exchange of senior unsecured notes - -
Commodity cash flow hedging gains reclassified to earnings 901 -
Net cash received for closed commodity derivative positions included in AOCI
(85) (816)
Changes in operating assets and liabilities which (provided) used cash: Accounts and other receivables, inventories, and other current assets
38,179 42,936
Trade, accounts and other payables, and other current liabilities
(4,428) (14,346)
Other (1,381) (649)
Adjusted EBITDA 114,880 114,542
Adjustments:
Interest expense (53,665) (54,107)
Income tax expense (7,927) (3,380)
Deferred income taxes 5,744 2,432
Amortization of deferred debt issuance costs 3,152 3,367
Payments for plant turnaround costs (5,176) (4,109)
Maintenance capital expenditures (19,074) (14,115)
Distributable Cash Flow 37,934 44,630
Principal payments under finance lease obligations (279) (2,707)
Expansion capital expenditures (6,883) (4,705)
Adjusted Free Cash Flow 30,772 37,218
1 Net of amortization of debt issuance costs and discount and premium, which are
included in interest expense but not included in net cash provided by operating
activities.
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--------------------------------------------------------------------------------Results of Operations
The results of operations for the years endedDecember 31, 2022 , 2021, and 2020 have been derived from our consolidated financial statements. Discussions of the year endedDecember 31, 2020 that are not included in this Annual Report on Form 10-K and year-to-year comparisons of the year endedDecember 31, 2021 and the year endedDecember 31, 2020 can be found in "Management's Discussion and Analysis of Financial Condition and the Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
We evaluate segment performance on the basis of operating income, which is derived by subtracting cost of products sold, operating expenses, selling, general and administrative expenses, and depreciation and amortization expense from revenues.
Our consolidated results of operations are presented on a comparative basis below. There are certain items of income and expense which we do not allocate on a segment basis. These items, including interest expense, and indirect selling, general and administrative expenses, are discussed after the comparative discussion of our results within each segment.
The following table sets forth our operating revenues and operating income by
segment for the years ended
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Operating Operating
Revenues Revenues Operating Income Income (loss)
Operating Intersegment after Operating Intersegment after
Revenues Eliminations Eliminations Income (loss) Eliminations Eliminations
(In thousands)
Year Ended December 31, 2022 :
Terminalling and storage $ 228,793 $ (6,509) $ 222,284 $ 18,902 $ (4,009) $ 14,893
Natural gas liquids 398,425 (3) 398,422 (16,268) 14,415 (1,853)
Sulfur services 179,164 - 179,164 24,186 9,960 34,146
Transportation 239,275 (20,267) 219,008 41,357 (20,366) 20,991
Indirect selling, general and
administrative - - - (16,914) - (16,914)
Total $ 1,045,657 $ (26,779) $ 1,018,878 $ 51,263 $ - $ 51,263
Year Ended December 31, 2021 :
Terminalling and storage $ 185,629 $ (6,597) $ 179,032 $ 15,462 $ (4,677) $ 10,785
Natural gas liquids 414,043 - 414,043 25,566 12,532 38,098
Sulfur services 145,042 - 145,042 23,965 9,007 32,972
Transportation 161,180 (16,866) 144,314 8,416 (16,862) (8,446)
Indirect selling, general and
administrative - - - (16,129) - (16,129)
Total $ 905,894 $ (23,463) $ 882,431 $ 57,280 $ - $ 57,280
Year Ended December 31, 2020 :
Terminalling and storage $ 191,041 $ (6,877) $ 184,164 $ 23,969 $ (1,816) $ 22,153
Natural gas liquids 247,484 (5) 247,479 9,660 12,444 22,104
Sulfur services 108,020 (13) 108,007 29,001 7,255 36,256
Transportation 150,285 (17,793) 132,492 1,781 (17,883) (16,102)
Indirect selling, general and
administrative - - - (17,909) - (17,909)
Total $ 696,830 $ (24,688) $ 672,142 $ 46,502 $ - $ 46,502
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Terminalling and Storage Segment
Comparative Results of Operations for the Years EndedDecember 31, 2022 and 2021 Year Ended December 31, 2022 2021 Variance Percent Change (In thousands) Revenues: Services$ 86,664 $ 81,762 $ 4,902 6% Products 142,129 103,867 38,262 37% Total revenues 228,793 185,629 43,164 23% Cost of products sold 116,117 83,081 33,036 40% Operating expenses 58,748 52,972 5,776 11% Selling, general and administrative expenses 6,626 6,052 574 9% Depreciation and amortization 28,234 28,210 24 -% 19,068 15,314 3,754 25% Other operating loss, net (166) (48) (118) (246)% Gain on involuntary conversion of property, plant and equipment - 196 (196) (100)% Operating income$ 18,902 $ 15,462 $ 3,440 22% Shore-based throughput volumes (gallons) 85,569 50,526 35,043 69%Smackover refinery throughput volumes (guaranteed minimum BBL per day) 6,500 6,500 - -% Services revenues. Service revenues increased$4.9 million . Revenue at ourSmackover Refinery increased$3.7 million , including$2.7 million in natural gas surcharge revenue,$0.9 million in reservation fees and$0.8 million in throughput fees, offset by a decrease of$0.8 million in pipeline revenue. In addition, revenue at our specialty terminals increased$0.7 million as a result of$0.6 million in throughput revenue and$0.1 million in service revenue. Our shore-based terminals increased$0.5 million due to$1.0 million in throughput revenue, offset by a reduction in space rent of$0.5 million .
Products revenues. A 31% increase in average sales price combined with a 4%
increase in sales volumes at our blending and packaging facilities resulted in a
Cost of products sold. A 34% increase in average cost per gallon combined with a 4% increase in sales volumes at our blending and packaging facilities resulted in a$32.8 million increase in cost of goods sold.
Operating expenses. Operating expenses increased primarily as a result of
natural gas utilities of
Selling, general and administrative expenses. Selling, general and administrative expenses increased primarily as a result of increased employee-related expenses.
Depreciation and amortization. Depreciation and amortization remained relatively consistent.
Other operating loss, net. Other operating loss, net represents gains and losses from the disposition of property, plant and equipment.
Gain on involuntary conversion of property, plant and equipment. The
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--------------------------------------------------------------------------------Transportation Segment
Comparative Results of Operations for the Years EndedDecember 31, 2022 and 2021 Year Ended December 31, 2022 2021 Variance Percent Change (In thousands) Revenues$ 239,275 $ 161,180 $ 78,095 48% Operating expenses 176,198 129,449 46,749 36% Selling, general and administrative expenses 8,215 7,670 545 7% Depreciation and amortization 14,567 15,719 (1,152) (7)% 40,295 8,342 31,953 383% Other operating income, net 1,062 74 988 1,335% Operating income$ 41,357 $ 8,416 $ 32,941 391% Marine Transportation Revenues. Inland and offshore revenues increased$12.2 million and$2.5 million , respectively, primarily related to higher utilization and transportation rates. Revenue was also impacted by an increase in pass-through revenue (primarily fuel) of$5.1 million . Land Transportation Revenues. Freight revenue increased primarily due to a 25% increase in load count combined with a 7% increase in total miles, which resulted in a$34.4 million increase. Additionally, ancillary revenue increased$23.8 million . Operating expenses. The increase in operating expenses is primarily a result of increased employee-related expenses of$24.2 million , pass through expenses (primarily fuel) of$14.0 million , insurance premiums of$2.0 million , lease expense of$1.7 million , and outside towing of$1.6 million .
Selling, general and administrative expenses. Selling, general and administrative expenses increased primarily due to increased employee-related expenses.
Depreciation and amortization. Depreciation and amortization decreased as a result of recent disposals, offset by recent capital expenditures.
Other operating income, net. Other operating income, net represents gains from the disposition of property, plant and equipment.
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--------------------------------------------------------------------------------Sulfur Services Segment
Comparative Results of Operations for the Years EndedDecember 31, 2022 and 2021 Year Ended December 31, 2022 2021 Variance Percent Change (In thousands) Revenues: Services$ 12,337 $ 11,799 $ 538 5% Products 166,827 133,243 33,584 25% Total revenues 179,164 145,042 34,122 24% Cost of products sold 127,018 95,287 31,731 33% Operating expenses 15,335 10,203 5,132 50% Selling, general and administrative expenses 6,081 5,284 797 15% Depreciation and amortization 11,099 10,432 667 6% 19,631 23,836 (4,205) (18)% Other operating income, net 4,555 129 4,426 3,431% Operating income$ 24,186 $ 23,965 $ 221 1% Sulfur (long tons) 452.0 456.0 (4.0) (1)% Fertilizer (long tons) 211.0 301.0 (90.0) (30)% Sulfur services volumes (long tons) 663.0 757.0 (94.0) (12)%
Services Revenues. Services revenues increased slightly as a result of a contractually prescribed, index-based fee adjustment.
Products Revenues. Products revenues increased$57.2 million as a result of a 43% rise in average sulfur services sales prices. Products revenues decreased an offsetting$23.7 million due to a 12% decrease in sales volumes, primarily related to a 30% decrease in fertilizer volumes. Cost of products sold. An 52% increase in product cost impacted cost of products sold by$49.7 million , resulting from an increase in commodity prices. A 12% decrease in sales volumes resulted in an offsetting decrease in cost of products sold of$18.0 million . Margin per ton increased$9.90 , or 20%. Operating expenses. Operating expenses increased due to an increase in marine fuel expense of$2.1 million , outside towing of$1.2 million , insurance premiums and claims of$0.5 million , contract labor of$0.4 million , repairs and maintenance of marine assets of$0.3 million , and assist tugs of$0.3 million .
Selling, general and administrative expenses. Selling, general and
administrative expenses increased
Depreciation and amortization. Depreciation and amortization increased as a result of increased amortization of turnaround costs with a slight offset due to certain assets being fully depreciated.
Other operating income, net. Other operating income, net increased
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--------------------------------------------------------------------------------Natural Gas Liquids Segment
Comparative Results of Operations for the Years EndedDecember 31, 2022 and 2021 Year Ended December 31, 2022 2021 Variance Percent Change (In thousands) Products Revenues$ 398,425 $ 414,043 (15,618) (4)% Cost of products sold 403,922 375,239 28,683 8% Operating expenses 4,540 4,061 479 12% Selling, general and administrative expenses 4,069 6,098 (2,029) (33)% Depreciation and amortization 2,380 2,390 (10) -% (16,486) 26,255 (42,741) (163)% Other operating income (loss), net 218 (689) 907 132% Operating income (loss)$ (16,268) $ 25,566 $ (41,834) (164)% NGLs Volumes (barrels) 5,791 7,121 (1,330) (19)% Products Revenues. Our NGL average sales price per barrel increased$10.66 , or 18%, resulting in an increase to products revenues of$75.9 million . The increase in average sales price per barrel was a result of an increase in market prices. Product sales volumes decreased 19%, decreasing revenues$91.5 million . Cost of products sold. Our average cost per barrel increased$13.81 , or 26%, increasing cost of products sold by$98.3 million . The increase in average cost per barrel was a result of an increase in market prices. The decrease in sales volume of 19% resulted in a$88.4 million decrease to cost of products sold. Our margins decreased$3.15 per barrel, or 58% during the period.
Operating expenses. Operating expenses increased
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased
Other operating income (loss), net. Other operating income (loss), net represents gains and losses from the disposition of property, plant and equipment.
Interest Expense Comparative Components of Interest Expense, Net for the Years EndedDecember 31, 2022 and 2021 Year Ended December 31, 2022 2021 Variance Percent Change (In thousands) Credit facility$ 9,654 $ 9,498 $ 156 2% Senior notes 38,903 39,303 (400) (1)% Amortization of deferred debt issuance costs 3,152 3,367 (215) (6)% Amortization of debt premium - - - Other 1,948 1,916 32 2% Finance leases 8 23 (15) (65)% Capitalized interest - - - Total interest expense, net$ 53,665 $ 54,107 $ (442) (1)% 56
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Indirect Selling, General and Administrative Expenses
Year Ended December 31,
2022 2021 Variance Percent Change
(In thousands)
Indirect selling, general and administrative expenses $ 16,914 $ 16,129 $ 785 5%
Indirect selling, general and administrative increased primarily due to
increases in employee-related expenses of
Martin Resource Management Corporation allocates to us a portion of its indirect selling, general and administrative expenses for services such as accounting, treasury, clerical, engineering, legal, billing, information technology, administration of insurance, general office expenses and employee benefit plans and other general corporate overhead functions we share withMartin Resource Management Corporation's retained businesses. This allocation is based on the percentage of time spent byMartin Resource Management Corporation personnel that provide such centralized services. GAAP also permits other methods for allocation of these expenses, such as basing the allocation on the percentage of revenues contributed by a segment. The allocation of these expenses betweenMartin Resource Management Corporation and us is subject to a number of judgments and estimates, regardless of the method used. We can provide no assurances that our method of allocation, in the past or in the future, is or will be the most accurate or appropriate method of allocation for these expenses. Other methods could result in a higher allocation of selling, general and administrative expense to us, which would reduce our net income. Under the Omnibus Agreement, we are required to reimburseMartin Resource Management Corporation for indirect general and administrative and corporate overhead expenses. The board of directors of our general partner approved the following reimbursement amounts: Year Ended December 31, 2022 2021 Variance Percent Change (In thousands) Board approved reimbursement amount$ 13,491 $ 14,386 $ (895) (6)% The amounts reflected above represent our allocable share of such expenses. The board of directors of our general partner will review and approve future adjustments in the reimbursement amount for indirect expenses, if any, annually.
Liquidity and Capital Resources
General
Our primary sources of liquidity to meet operating expenses, service our
indebtedness, pay distributions to our unitholders and fund capital expenditures
have historically been cash flows generated by our operations, borrowings under
our credit facility, and access to debt and equity capital markets, both public
and private. Set forth below is a description of our cash flows for the periods
indicated.
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Cash Flows - Year Ended
The following table details the cash flow changes between the years endedDecember 31, 2022 and 2021: Year Ended December 31, 2022 2021 Variance Percent Change (In thousands) Net cash provided by (used in): Operating activities$ 16,148 $ 35,729 $ (19,581) (55)% Investing activities (24,644) (19,241) (5,403) (28)% Financing activities 8,489 (21,394) 29,883 140%
Net increase (decrease) in cash and cash equivalents $ (7)
$ (4,906) $ 4,899 100%
Net cash provided by operating activities. Net cash provided by operating
activities for the year ended
Net cash used in investing activities. Net cash used in investing activities for the year endedDecember 31, 2022 increased$5.4 million . An increase in cash used of$12.2 million resulted from higher payments for capital expenditures and plant turnaround costs in 2022. Offsetting this increase, net proceeds from the sale of property, plant and equipment increased$7.1 million . Net cash provided by (used in) financing activities. Net cash provided by (used in) financing activities for the year endedDecember 31, 2022 increased$29.9 million primarily as a result of a$30.6 million increase in net proceeds from long-term debt. Total Contractual Obligations
A summary of our total contractual obligations as of
Payments due by period
Total Less than 1-3 3-5 Due
Type of Obligation Obligation One Year Years Years Thereafter
Credit facility 1 $ 171,000 $ -
$ -
291,381 - 291,381 - -
10.0% senior secured notes, due 2024 53,750 - 53,750 - -
Operating leases 45,756 12,151 17,760 8,792 7,053
Finance lease obligations 9 9 - - -
Interest payable on finance lease
obligations - - - - -
Interest payable on fixed long-term debt
obligations 80,218 38,884 41,334 - -
Total contractual cash obligations
1 The credit facility was amended onFebruary 8, 2023 to extend the maturity date toFebruary 8, 2027 . See more detailed discussion in the section captioned "Description of Our Indebtedness" below.
The interest payable under our credit facility is not reflected in the above table because such amounts depend on the outstanding balances and interest rates, which vary from time to time.
Letters of Credit. AtDecember 31, 2022 , we had outstanding irrevocable letters of credit in the amount of$20.8 million , which were issued under our credit facility.
Off Balance Sheet Arrangements. We do not have any off-balance sheet financing arrangements.
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--------------------------------------------------------------------------------Description of Our Indebtedness
Credit Facility
AtDecember 31, 2022 , we maintained a$275.0 million credit facility that was scheduled to mature onAugust 31, 2023 . As ofDecember 31, 2022 , we had$171.0 million outstanding under the credit facility and$20.4 million of outstanding irrevocable letters of credit, leaving a maximum amount available to be borrowed under our credit facility for future borrowings and letters of credit of$83.6 million . After giving effect to our then current borrowings, outstanding letters of credit and the financial covenants contained in our credit facility, we had the ability to borrow approximately$62.7 million in additional amounts thereunder as ofDecember 31, 2022 . EffectiveFebruary 8, 2023 , in connection with the completion of our sale of the 2028 Notes, we amended our credit facility (the "amended credit facility") to, among other things, reduce the commitments thereunder from$275.0 million to$200.0 million (with further scheduled reductions to$175.0 million onJune 30, 2023 and$150.0 million onJune 30, 2024 ) and extend the scheduled maturity date of the amended credit facility toFebruary 8, 2027 . The commitments under the amended credit facility can be increased from time to time upon our request, subject to certain conditions (including the consent of the increasing lenders), up to an additional$50.0 million . The amended credit facility is used for ongoing working capital needs and general partnership purposes, including to finance permitted investments, acquisitions and capital expenditures. During the year endedDecember 31, 2022 , the outstanding balance of our credit facility has ranged from a low of$141.5 million to a high of$219.0 million . The amended credit facility is guaranteed by substantially all of our subsidiaries, other thanMartin ELSA Investment LLC . Obligations under the amended credit facility are secured by first priority liens on substantially all of our assets and those of the guarantors, including, without limitation, inventory, accounts receivable, bank accounts, marine vessels, equipment, fixed assets and the interests in certain subsidiaries. We may prepay all amounts outstanding under the amended credit facility at any time without premium or penalty (other than customary breakage costs associated with Term SOFR (as defined in the amended credit facility), subject to certain notice requirements. The amended credit facility requires mandatory prepayments of amounts outstanding thereunder with excess cash that exceeds$25.0 million and the net proceeds of certain asset sales. Indebtedness under the credit facility bears interest at our option at the Adjusted Term SOFR (as defined in the amended credit facility), plus an applicable margin, or the Alternate Base Rate (the highest of the Federal Funds Rate plus 0.50%, the one-month Adjusted Term SOFR plus 1.0%, or the administrative agent's prime rate) plus an applicable margin. We pay a per annum fee on all letters of credit issued under the amended credit facility, and we pay a commitment fee per annum on the unused revolving credit commitments under the amended credit facility. The letter of credit fee, the commitment fee and the applicable margins for our interest rate vary quarterly based on our Total Leverage Ratio (as defined in the amended credit facility, being generally computed as the ratio of total funded debt to consolidated earnings before interest, taxes, depreciation, amortization and certain other non-cash charges) and are as follows: Term SOFR Rate Loans and Letters of Leverage Ratio ABR Loans Credit Less than 3.00 to 1.00 1.75 % 2.75 % Greater than or equal to 3.00 to 1.00 and less than 3.50 to 1.00 2.00 % 3.00 % Greater than or equal to 3.50 to 1.00 and less than 4.00 to 1.00 2.25 % 3.25 % Greater than or equal to 4.00 to 1.00 and less than 4.50 to 1.00 2.50 % 3.50 % Greater than or equal to 4.50 to 1.00 2.75 % 3.75 %
The applicable margin for LIBOR borrowings at
The amended credit facility includes financial covenants that are tested on a quarterly basis, based on the rolling four quarter period that ends on the last day of each fiscal quarter, that require maintenance of: • a minimum Interest Coverage Ratio (as defined in the amended credit facility) of at least 2.00:1.00; • a maximum Total Leverage Ratio of not more than 4.75:1.00, stepping down to 4.50:1.00 onMarch 31, 2025 ; and 59 --------------------------------------------------------------------------------
• a maximum First Lien Leverage Ratio (as defined in the amended credit facility) of not more than 1.50:1.00.
In addition, the amended credit facility contains various covenants, which, among other things, limit our and our subsidiaries' ability to: (i) grant or assume liens; (ii) make investments (including investments in our joint ventures) and acquisitions; (iii) enter into certain types of hedging agreements; (iv) incur or assume indebtedness; (v) sell, transfer, assign or convey assets; (vi) repurchase our equity, make distributions (including a limit on our ability to make quarterly distributions to unitholders in excess of$0.005 per unit unless our Total Leverage Ratio is below 3.75:1:00, pro forma first lien leverage is less than 1.00 to 1.00, and our pro forma liquidity is greater than or equal to 35% of the commitments under our amended credit facility) and certain other restricted payments; (vii) change the nature of our business; (viii) engage in transactions with affiliates; (ix) enter into certain burdensome agreements; (x) make certain amendments to the Omnibus Agreement and our material agreements; and (xi) permit our joint ventures to incur indebtedness or grant certain liens. The amended credit facility contains customary events of default, including, without limitation: (i) failure to pay any principal, interest, fees, expenses or other amounts when due; (ii) failure to meet the quarterly financial covenants; (iii) failure to observe any other agreement, obligation, or covenant in the amended credit facility or any related loan document, subject to cure periods for certain failures; (iv) the failure of any representation or warranty to be materially true and correct when made; (v) our, or any of our subsidiaries' default under other indebtedness that exceeds a threshold amount; (vi) bankruptcy or other insolvency events involving us or any of our subsidiaries; (vii) judgments against us or any of our subsidiaries, in excess of a threshold amount; (viii) certain ERISA events involving us or any of our subsidiaries, in excess of a threshold amount; (ix) a change in control (as defined in the amended credit facility); and (x) the invalidity of any of the loan documents or the failure of any of the collateral documents to create a lien on the collateral. The amended credit facility also contains certain default provisions relating toMartin Resource Management Corporation . IfMartin Resource Management Corporation no longer controls our general partner, the lenders under the amended credit facility may declare all amounts outstanding thereunder immediately due and payable. In addition, an event of default byMartin Resource Management Corporation under its credit facility could independently result in an event of default under our amended credit facility if it is deemed to have a material adverse effect on us. If an event of default relating to bankruptcy or other insolvency events occurs with respect to us or any of our subsidiaries, all indebtedness under our amended credit facility will immediately become due and payable. If any other event of default exists under our amended credit facility, the lenders may terminate their commitments to lend us money, accelerate the maturity of the indebtedness outstanding under the amended credit facility and exercise other rights and remedies. In addition, if any event of default exists under our amended credit facility, the lenders may commence foreclosure or other actions against the collateral.
2025 Senior Secured Notes and Indenture
Pursuant to our exchange offer (the "the Exchange Offer") to certain eligible holders of our 7.25% senior unsecured notes due 2021 (the "2021 Notes"), we andMartin Midstream Finance Corp. , our wholly owned subsidiary (collectively the "Issuers") issued$292.0 million in aggregate principal amount of the Issuers' 11.50% senior secured second lien notes due 2025 (the "2025 Notes"). The 2025 Notes were issued to eligible holders that participated in the Exchange Offer pursuant to an indenture, dated as ofAugust 12, 2020 (the "2025 Notes Indenture"), among the Issuers, the guarantors party thereto,U.S. Bank National Association , as trustee, andU.S. Bank National Association as collateral trustee. The 2025 Notes were guaranteed on a full, joint and several basis by each of the Partnership's domestic restricted subsidiaries (other thanMartin Midstream Finance Corp. andTalen's Marine & Fuel, LLC ). The 2025 Notes and the guarantees thereof were secured on a third-priority basis by a lien on substantially all assets of the Issuers and the guarantors, subject to the terms of an intercreditor agreement and certain other exceptions. The 2025 Notes were scheduled to mature onFebruary 28, 2025 . Interest on the 2025 Notes accrued at a rate of 11.50% per annum and was payable semi-annually in cash in arrears onFebruary 15 andAugust 15 of each year. OnFebruary 8, 2023 , we used the net proceeds of the 2028 Notes to complete a tender offer for substantially all of the 2025 Notes and redeem all of the 2025 Notes that were not validly tendered.
2024 Senior Secured Notes and Indenture
Pursuant to the rights offering in connection with the Exchange Offer, the Issuers issued$53.8 million aggregate principal amount of the Issuers' 10.00% senior secured 1.5 lien notes due 2024 (the "2024 Notes"). The 2024 Notes were issued to eligible holders that participated in the Exchange Offer pursuant to an indenture, dated as ofAugust 12, 2020 (the "2024 60 --------------------------------------------------------------------------------
Notes Indenture"), among the Issuers, the guarantors party thereto,
The 2024 Notes were guaranteed on a full, joint and several basis by the guarantors of the 2025 Notes. The 2024 Notes and the guarantees thereof were secured on a second-priority basis by a lien on substantially all assets of the Issuers and the guarantors, subject to the terms of an intercreditor agreement and certain other exceptions. The 2024 Notes were scheduled to mature onFebruary 29, 2024 . Interest on the 2024 Notes accrued at a rate of 10.00% per annum and was payable semi-annually in cash in arrears onFebruary 15 andAugust 15 of each year. OnFebruary 8, 2023 , we used the net proceeds of the 2028 Notes to complete a tender offer for substantially all of the 2024 Notes and redeem all of the 2024 Notes that were not validly tendered.
2028 Senior Secured Notes and Indenture
General
OnFebruary 8, 2023 , the Issuers issued$400.0 million aggregate principal amount of their 11.50% senior secured second lien notes due 2028 (the "2028 Notes"). The 2028 Notes were issued under an indenture, dated as ofFebruary 8, 2023 (the "2028 Notes Indenture"), among the Issuers, the guarantors party thereto, andU.S. Bank Trust Company, National Association , as trustee and as collateral trustee. The 2028 Notes are guaranteed on a full, joint and several basis by each of the Partnership's domestic restricted subsidiaries (other thanMartin Midstream Finance Corp. ). The 2028 Notes will be guaranteed in the future by each of our domestic restricted subsidiaries, in each case, if and so long as such entity guarantees (or is an obligor with respect to) any other indebtedness for borrowed money of either the Issuers or any guarantor. The 2028 Notes and the guarantees thereof are secured on a second-priority basis by a lien on substantially all assets of the Issuers and the guarantors, subject to the terms of an intercreditor agreement (the "Intercreditor Agreement") and certain exceptions. The 2028 Notes and the guarantees thereof are, pursuant to the Intercreditor Agreement, secured by second-priority liens and thus are effectively junior to any obligations under our credit facility, which are secured on a "first-lien" basis, to the extent of the value of the collateral securing such first-lien and second-lien obligations. The 2028 Notes and the guarantees thereof rank effectively senior to all of the Issuers' existing and future unsecured indebtedness to the extent of the value of the collateral securing the 2028 Notes and such guarantees.
Maturity and Interest
The 2028 Notes will mature on
Redemption
At any time prior toAugust 15, 2025 , the Issuers may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 2028 Notes at a redemption price of 111.50% of the principal amount of the 2028 Notes redeemed, plus accrued and unpaid interest to the redemption date, with an amount not greater than the net cash proceeds of one or more equity offerings by the Partnership, so long as the redemption occurs within 180 days of completing such equity offering and 65% of the aggregate principal amount of the 2028 Notes remains outstanding immediately after such redemption. In addition, at any time prior toAugust 15, 2025 , the Issuers may redeem all or a portion of the 2028 Notes at a redemption price equal to 100% of the principal amount of the 2028 Notes redeemed, plus an applicable make-whole premium and accrued and unpaid interest to the redemption date. On and afterAugust 15, 2025 , the Issuers may redeem all or a portion of the 2028 Notes at redemption prices set forth in the 2028 Indenture, plus accrued and unpaid interest to the redemption date.
If a Change of Control (as defined in the 2028 Indenture) occurs, the Partnership must offer to repurchase the 2028 Notes at a price equal to 101% of the aggregate principal amount of the 2028 Notes, plus accrued and unpaid interest to the date of repurchase.
Certain Covenants and Events of Default
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The terms of the 2028 Notes Indenture, among other things, limit the ability of
the Partnership and certain of its subsidiaries to make distributions and other
restricted payments, sell assets, make investments, create liens on assets,
enter into sale and leaseback transactions, and consolidate, merge or transfer
all or substantially all of its assets and the assets of its subsidiaries.
The 2028 Notes Indenture provides for customary events of default, which include
(subject in certain cases to customary grace and cure periods), among others:
nonpayment of principal or interest; breach of other agreements in the
Indenture; defaults in failure to pay certain other indebtedness; the failure to
pay final judgments of certain amounts of money against the Partnership or
certain of its subsidiaries; the failure of certain guarantees to be
enforceable; and certain events of bankruptcy or insolvency. Generally, if an
event of default occurs and is not cured within the time periods specified, the
trustee under the 2028 Notes Indenture or the holders of at least 25% in
principal amount of the 2028 Notes may declare all the 2028 Notes to be due and
payable immediately.
Capital Resources and Liquidity
Historically, we have generally satisfied our working capital requirements and funded our debt service obligations and capital expenditures with cash generated from operations and borrowings under our revolving credit facility. AtDecember 31, 2022 , we had cash and cash equivalents of$0.05 million and available borrowing capacity of$83.6 million under our credit facility with$171.0 million of borrowings outstanding. After giving effect to our then current borrowings, letters of credit, and the financial covenants contained in our credit facility, we had the ability to borrow approximately$62.7 million in additional amounts thereunder as ofDecember 31, 2022 . AtDecember 31, 2022 , our credit facility was scheduled to mature onAugust 31, 2023 . We amended our credit facility effective as ofFebruary 8, 2023 , to, among other things, reduce the commitments thereunder from$275.0 million to$200.0 million (with further scheduled reductions to$175.0 million onJune 30, 2023 and$150.0 million onJune 30, 2024 ) and extend the scheduled maturity date of the credit facility toFebruary 8, 2027 . We expect that our primary sources of liquidity to meet operating expenses, service our indebtedness, pay distributions to our unitholders and fund capital expenditures will be provided by cash flows generated by our operations, borrowings under our credit facility and access to the debt and equity capital markets. Our ability to generate cash from operations will depend upon our future operating performance, which is subject to certain risks. For a discussion of such risks, please read "Item 1A. Risk Factors" of this Form 10-K. In addition, due to the covenants in our credit facility, our financial and operating performance impacts the amount we are permitted to borrow under that facility.
The Partnership is in compliance with all debt covenants as of
Interest Rate Risk
We are subject to interest rate risk on our credit facility due to the variable interest rate and may enter into interest rate swaps to reduce this variable rate risk. Seasonality A substantial portion of our revenues is dependent on sales prices of products, particularly NGLs and fertilizers, which fluctuate in part based on winter and spring weather conditions. The demand for NGLs is strongest during the winter heating season and refinery blending season. The demand for fertilizers is strongest during the early spring planting season. However, our Terminalling andStorage and Transportation business segments and the molten sulfur business are typically not impacted by seasonal fluctuations and a significant portion of our net income is derived from our Terminalling and Storage, Sulfur Services and Transportation business segments. Further, extraordinary weather events, such as hurricanes, have in the past, and could in the future, impact our Terminalling and Storage, Sulfur Services, and Transportation business segments. 62 --------------------------------------------------------------------------------
Impact of Inflation
Inflation did not have a material impact on our results of operations in 2022,
2021 or 2020. Inflation may increase the cost to acquire or replace property,
plant and equipment. It may also increase the costs of labor and supplies. In
the future, increasing energy prices for products consumed by our operations,
such as diesel fuel, natural gas, chemicals, and other supplies, could adversely
affect our results of operations. An increase in price of these products would
increase our operating expenses which could adversely affect net income. We
cannot provide assurance that we will be able to pass along increased operating
expenses to our customers.
Environmental Matters
Our operations are subject to environmental laws and regulations adopted by
various governmental authorities in the jurisdictions in which these operations
are conducted. We incurred no material environmental costs, liabilities or
expenditures to mitigate or eliminate environmental contamination during 2022,
2021 or 2020.
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