Sprague Resources LP Reports Second Quarter 2014 Results

PORTSMOUTH, N.H., Aug. 13, 2014 /PRNewswire/ -- Sprague Resources LP ("Sprague") (NYSE: SRLP) today reported its financial results for the second quarter ended June 30, 2014. 

Sprague completed its initial public offering ("IPO") on October 30, 2013 and, as a result, Sprague's second quarter 2013 results include the financial and operating results of Sprague's predecessor company, which included Kildair, the Canadian business that is not part of Sprague's assets or operations following the completion of the IPO.  The following discussion of financial results excludes the contribution of Kildair prior to Sprague's IPO.  Please see the accompanying financial tables for additional information.   

"Sprague produced results in line with our expectations for the quarter.  As a result of our strong first half of 2014, we have decided to raise our distribution to $0.4275 per unit, representing a 3.6% increase over the distribution declared for the first quarter and in line with our stated target of achieving annual distribution growth of six to eight percent," said David Glendon, President and Chief Executive Officer.  "In addition, we are maintaining full year 2014 adjusted EBITDA guidance between $70 and $80 million." 

Second Quarter 2014 Highlights

  • Adjusted gross margin was $25.8 million for the second quarter of 2014, compared to pro forma adjusted gross margin of $28.0 million for the second quarter of 2013. 
  • Adjusted EBITDA was $3.5 million for the second quarter of 2014, compared to pro forma adjusted EBITDA of $8.1 million for the second quarter of 2013.      
  • Net sales were $846.8 million for the second quarter of 2014, compared to pro forma net sales of $772.8 million for the second quarter of 2013.
  • Net loss was $9.5 million for the second quarter of 2014, compared to pro forma net loss of $2.0 million for the second quarter of 2013.  Net loss per common unit was $0.47 in the second quarter of 2014. 

Sprague reported distributable cash flow of $3.5 million for the second quarter of 2014, compared to $0.9 million, on a pro forma basis, for the second quarter of 2013.  This represents a distribution coverage ratio of 0.4x for the second quarter of 2014, and 2.8x for the first six months of the year.   

EBITDA, adjusted EBITDA, pro forma adjusted EBITDA and adjusted gross margin are not prepared in accordance with United States generally accepted accounting principles ("GAAP"), and are discussed in greater detail below under "Non-GAAP Financial Measures."  Readers should refer to the financial tables provided in this news release for reconciliation to the most comparable GAAP financial measures for the three and six months ended June 30, 2014.

Refined Products

  • Volumes in the Refined Products segment rose 6% to 254.5 million gallons in the second quarter of 2014, compared to 239.9 million gallons in the second quarter of 2013. 
  • Adjusted gross margin in the Refined Products segment decreased $1.7 million, or 10%, to $14.5 million in the second quarter of 2014, compared to the second quarter of 2013.

"Sprague's Refined Products business segment continued to benefit from our acquisition of the Hess commercial fuels business at the end of 2013, with higher diesel volumes in the second quarter partially offsetting lower year-over-year contribution from heating oil.  The multi-state transition from high to low sulfur heating oil this spring reduced sales volumes and margins as market participants reduced inventories of high sulfur fuel," said Mr. Glendon.  "However, Sprague's Refined Products team continued to strengthen its position in key markets by signing a multiple year exclusive terminal operating agreement with Dunellen Inc., for over one million barrels of distillate storage at its Capital Terminal in East Providence, Rhode Island, extending Sprague's marketing presence to both sides of Providence Harbor."

Natural Gas

  • Natural Gas segment volumes decreased 3% to 11.5 Bcf in the second quarter 2014, compared to 11.9 Bcf in the second quarter of 2013.   
  • Natural Gas adjusted gross margin decreased 25% to $2.7 million for the second quarter of 2014, compared to $3.6 million for the second quarter of 2013.

"The Natural Gas team continues to build on its position in our core Northeast footprint, and slightly cooler weather in the second quarter was responsible for the decline in volume compared to the second quarter of 2013.  Reduced price volatility also led to fewer opportunities to leverage our asset portfolio, accounting for most of the quarter's adjusted gross margin decline," stated Mr. Glendon.

Materials Handling

  • Materials Handling gross margin increased by $0.4 million, or 5%, to $8.3 million for the second quarter 2014, compared to the second quarter 2013.

"Sprague's Materials Handling segment continues to provide valuable diversification and consistency to our earnings stream," said Mr. Glendon.  "Second quarter handling revenue from salt shipments provided significant uplift on the heels of this winter's inventory drawdowns.  Results also benefitted from higher fees for liquid bulk storage and increasing windmill component activity." 

On July 29, 2014, the Board of Directors of Sprague's general partner, Sprague Resources GP, approved a cash distribution of $0.4275 per unit for the quarter ended June 30, 2014, representing a 3.6% increase over the distribution declared for the quarter ended March 31, 2014.  The distribution will be paid on August 14, 2014 to unitholders of record on August 8, 2014.

"We remain very pleased with our results for the year to date and believe we are well positioned to execute on additional growth opportunities," said Mr. Glendon.   

Financial Results Conference Call
Management will review Sprague's second quarter 2014 financial results in a teleconference call for analysts and investors today, August 13th, 2014.

Date and Time:

August 13th, 2014 at 10:00 AM ET

Dial-in numbers:

(866) 270-6057 (U.S. and Canada)


(617) 213-8891 (International)

Participation Code:

71489941

The call will also be webcast live and archived on the investor relations section of Sprague's website, www.spragueenergy.com.

About Sprague Resources LP
Sprague Resources LP is a master limited partnership engaged in the purchase, storage, distribution and sale of refined petroleum products and natural gas. Sprague also provides storage and handling services for a broad range of materials.

Non-GAAP Financial Measures
EBITDA, adjusted EBITDA, pro forma adjusted EBITDA and adjusted gross margin are used as supplemental financial measures by management and external users of Sprague's financial statements, such as investors, commercial banks, trade suppliers and research analysts, to assess:

  • The financial performance of Sprague's assets, operations and return on capital without regard to financing methods, capital structure or historical cost basis;
  • The ability of Sprague's assets to generate cash sufficient to pay interest on its indebtedness and make distributions to its equity holders;
  • The viability of acquisitions and capital expenditure projects;
  • The market value of its inventory and natural gas transportation contracts for financial reporting to its lenders, as well as for borrowing base purposes; and
  • Repeatable operating performance that is not distorted by non-recurring items or market volatility.

Sprague defines EBITDA as net income before interest, income taxes, depreciation and amortization.  Sprague defines adjusted EBITDA as EBITDA decreased by total commodity derivative gains and losses included in net income (loss) and increased by realized commodity derivative gains and losses included in net income (loss), in each case with respect to refined products and natural gas inventory and natural gas transportation contracts, and adjusted for the gain on acquisition of a business, write-off of deferred offering costs and bio-fuel excise tax credits. 

Sprague defines adjusted gross margin as gross margin decreased by total commodity derivative gains and losses included in net income (loss) and increased by realized commodity derivative gains and losses included in net income (loss), in each case with respect to refined products and natural gas inventory and natural gas transportation contracts.

EBITDA, adjusted EBITDA, pro forma adjusted EBITDA and adjusted gross margin are not prepared in accordance with GAAP. These measures should not be considered as alternatives to net income, income from operations, cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP.  

Forward Looking Statements
This press release may include forward-looking statements.  These forward-looking statements involve risks and uncertainties.  When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in Sprague's prospectus and filings with the United States Securities and Exchange Commission (the "SEC"), including those set forth under Item 1A, "Risk Factors" of Sprague's Annual Report on Form 10-K for the year ended December 31, 2013, and as updated by any subsequent reports Sprague files with the SEC.  Sprague undertakes no obligation and does not intend to update these forward-looking statements to reflect events or circumstances occurring after this press release.  You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. 

(Financial Tables Below)


 

Sprague Resources LP

Volume, Net Sales, Gross Margin and Adjusted Gross Margin

by Segment (Excluding Kildair)

Three and Six Months Ended June 30, 2014 and 2013 

















Three Months Ended


Six Months Ended






June 30, 


June 30, 








2013




2013






2014


Predecessor


2014


Predecessor






(unaudited)


(unaudited)


(unaudited)


(unaudited)






($ and volumes in thousands)


($ and volumes in thousands)










Volumes:











Refined products (gallons)

254,520


239,862


808,458


655,410



Natural gas (MMBtus)

11,493


11,858


27,989


28,329



Materials handling (short tons)

525


623


1,219


1,078



Materials handling (gallons)

45,360


54,516


112,182


122,556



Other operations (short tons)

20


23


65


71














Net Sales:











Refined products

$            768,800


$            699,008


$          2,520,944


$         2,012,772



Natural gas

67,342


64,398


201,682


173,081



Materials handling

8,322


7,943


16,401


14,528



Other operations

2,309


1,462


7,137


4,807



Total net sales

$            846,773


$            772,811


$         2,746,164


$         2,205,188














Gross Margin:











Refined products

$              13,659


$              14,826


$              65,456


$              48,841



Natural gas

(3,393)


2,180


60,388


25,238



Materials handling

8,316


7,937


16,393


14,519



Other operations

321


299


568


977



Total gross margin

$              18,903


$              25,242


$            142,805


$              89,575














Adjusted Gross Margin:(1)











Refined products

$              14,515


$              16,201


$              59,436


$              45,204



Natural gas

2,666


3,569


38,010


23,986



Materials handling

8,316


7,937


16,393


14,519



Other operations

321


299


568


977



Total adjusted gross margin

$              25,818


$              28,006


$            114,407


$              84,686














Calculation of Adjusted Gross Margin:











Total gross margin

$              18,903


$              25,242


$            142,805


$              89,575



Deduct: total commodity derivative (gains) losses











        included in net income

8,985


(10,307)


12,817


686



Add: realized commodity derivative gains (losses)











        included in net income

(2,070)


13,071


(41,215)


(5,575)



Total adjusted gross margin

$              25,818


$              28,006


$            114,407


$              84,686














1) Adjusted gross margin represents gross margin decreased by total commodity derivative gains and losses included in net income (loss) and increased 


by realized commodity derivative gains and losses included in net income (loss), in each case with respect to refined products and natural gas inventory


and natural gas transportation contracts






















 

Sprague Resources LP

Summary Historical Financial and Operating Data

Three and Six Months Ended June 30, 2014 and 2013 

















Three Months Ended


Six Months Ended






June 30, 


June 30, 








2013




2013






2014


Predecessor


2014


Predecessor






(unaudited)


(unaudited)


(unaudited)


(unaudited)






($ in thousands)


($ in thousands)


Statement of Operations Data:










Net sales

$           846,773


$           921,820


$          2,746,164


$         2,466,773


Cost of products sold

827,870


889,703


2,603,359


2,367,864


     Gross margin

18,903


32,117


142,805


98,909














Operating costs and expenses:










     Operating expenses

12,354


13,562


25,878


27,600


     Selling, general and administrative

9,936


12,300


35,393


27,056


     Depreciation and amortization

2,348


4,338


4,687


8,437


          Total operating costs and expenses

24,638


30,200


65,958


63,093


Operating income

(5,735)


1,917


76,847


35,816


     Other income (expense)

-


973


-


816


     Interest income

160


136


266


260


     Interest expense

(4,194)


(7,096)


(9,689)


(14,639)














Income before income taxes

(9,769)


(4,070)


67,424


22,253


     Income tax benefit (provision)

275


1,351


(1,583)


(10,638)














Net (loss) income

$             (9,494)


$             (2,719)


$              65,841


$             11,615














Adjusted EBITDA(1)(unaudited)


$               3,528


$               9,992


$              53,136


$             35,159














Net income per limited partner unit: 










     Common - basic


$               (0.47)




$                  3.27




     Common - diluted


$               (0.47)




$                  3.27




     Subordinated - basic and diluted


$               (0.47)




$                  3.27




Units used to compute net income per limited partner unit - 










     Common - basic


10,091,388




10,081,840




     Common - diluted


10,091,388




10,084,821




     Subordinated - basic and diluted


10,071,970




10,071,970
















Other Financial and Operating Data (unaudited)










     Capital expenditures


$                 868


$               5,977


$                1,665


$               8,117


     Total refined products volumes sold (gallons in thousands)


254,520


239,862


808,458


655,410


     Total natural gas volumes sold (MMBtus in thousands)


11,493


11,858


27,989


28,329














1) Adjusted EBITDA represents EBITDA decreased by total commodity derivative gains and losses included in net income (loss) and increased by realized 


commodity derivative gains and losses included in net income (loss), in each case with respect to refined products and natural gas inventory and natural gas 


transportation contracts, and adjusted for bio-fuel excise tax credits









 

Sprague Resources LP


Summary Pro Forma Financial and Operating Data


Three and Six Months Ended June 30, 2014 and 2013 


















Three Months Ended


Six Months Ended







June 30, 


June 30, 









2013




2013







2014


Predecessor


2014


Predecessor







(unaudited)


Pro Forma(1)
(unaudited)


(unaudited)


Pro Forma(1)
(unaudited)







($ in thousands)


($ in thousands)












Statement of Operations Data:











Net sales

$           846,773


$       772,811


$          2,746,164


$         2,205,188



Cost of products sold

827,870


747,569


2,603,359


2,115,613



     Gross margin

18,903


25,242


142,805


89,575
















Operating costs and expenses:











     Operating expenses

12,354


10,913


25,878


22,014



     Selling, general and administrative

9,936


10,064


35,393


24,409



     Depreciation and amortization

2,348


2,317


4,687


4,670



          Total operating costs and expenses

24,638


23,294


65,958


51,093



Operating income

(5,735)


1,948


76,847


38,482



     Other income (expense)

-


1,040


-


907



     Interest income

160


138


266


260



     Interest expense

(4,194)


(5,312)


(9,689)


(11,380)
















Income before income taxes

(9,769)


(2,186)


67,424


28,269



     Income tax benefit (provision)

275


145


(1,583)


(1,873)
















Net (loss) income

$             (9,494)


$         (2,041)


$              65,841


$              26,396





























Adjusted EBITDA(2)(unaudited)


$               3,528


$           8,069


$              53,136


$              34,149
















1) The unaudited pro forma information gives effect to certain pro forma adjustments as if they had occurred as of January 1, 2013. The adjustments are based upon 



currently available information and certain estimates and assumptions; therefore, actual adjustments will differ from the pro forma adjustments. Pro forma



adjustments reflect the following:











  a) The distribution to a wholly-owned subsidiary of Sprague Holdings of 100% of its interest in Sprague Energy Canada Ltd, a wholly-owned subsidiary of the 



  Predecessor, which owns all of the equity interest in Kildair








  b) The pro forma adjustment for interest expense and deferred financing fees under the new credit agreement. The calculation is based on the monthly average 



  working capital and acquisition facility multiplied by the decreases in the borrowing rate of 0.50% for borrowings under the working capital facility, less the increase 



  of commitment fees due to the increased size of the facility








  c) The elimination of corporate overhead charges from the Parent offset by increases in incentive compensation







  d) The adjustments to reflect the conversion of the Predecessor to a partnership resulting in the elimination of all U.S. federal income taxes, as well as an adjustment 



  of income taxes in certain state jurisdictions in which the partnership operates, and to record estimated taxes for the activities conducted by the Partnership at the 



  applicable state statutory rates





















2) Adjusted EBITDA represents EBITDA decreased by total commodity derivative gains and losses included in net income (loss) and increased by realized commodity



derivative gains and losses included in net income (loss), in each case with respect to refined products and natural gas inventory and natural gas transportation contracts,



and adjusted for bio-fuel excise tax credits








 

Sprague Resources LP

Historical and Pro Forma Reconciliation of Net Income to EBITDA and Adjusted EBITDA

Three and Six Months Ended June 30, 2014 and 2013 



















Three Months Ended


Six Months Ended








June 30, 


June 30, 










2013




2013








2014


Predecessor


2014


Predecessor








(unaudited)


(unaudited)


(unaudited)


(unaudited)








($ in thousands)


($ in thousands)


















Reconciliation of net (loss) income to adjusted EBITDA:











Net (loss) income

$              (9,494)


$              (2,719)


$              65,841


$              11,615




  Add/(deduct):











     Interest expense, net

4,034


6,960


9,423


14,379




     Tax (benefit) expense

(275)


(1,351)


1,583


10,638




     Depreciation and amortization

2,348


4,338


4,687


8,437




EBITDA(2)

$              (3,387)


$                7,228


$              81,534


$              45,069




  Deduct: total commodity derivative (gains) losses











        included in net income

8,985


(15,712)


12,817


(1,851)




  Add: realized commodity derivative gains (losses)











        included in net income

(2,070)


18,476


(41,215)


(3,038)




  Add/(deduct):











     Bio-fuel excise tax credits

-


-


-


(5,021)




Adjusted EBITDA(3)

$                3,528


$                9,992


$              53,136


$              35,159




































Three Months Ended


Six Months Ended








June 30, 


June 30, 










2013




2013








2014


Predecessor


2014


Predecessor








(unaudited)


Pro Forma(1)
(unaudited)


(unaudited)


Pro Forma(1)
(unaudited)








($ in thousands)


($ in thousands)


















Reconciliation of net (loss) income to adjusted EBITDA:











Net (loss) income

$              (9,494)


$              (2,041)


$              65,841


$              26,396




  Add/(deduct):











     Interest expense, net

4,034


5,174


9,423


11,120




     Tax (benefit) expense

(275)


(145)


1,583


1,873




     Depreciation and amortization

2,348


2,317


4,687


4,670




EBITDA(2)

$              (3,387)


$                5,305


$              81,534


$              44,059




  Deduct: total commodity derivative (gains) losses











        included in net income

8,985


(10,307)


12,817


686




  Add: realized commodity derivative gains (losses)











        included in net income

(2,070)


13,071


(41,215)


(5,575)




  Add/(deduct):











     Bio-fuel excise tax credits

-


-


-


(5,021)




Adjusted EBITDA(3)

$               3,528


$                8,069


$              53,136


$              34,149


















1) The unaudited pro forma information gives effect to certain pro forma adjustments as if they had occurred as of January 1, 2013. The adjustments are based upon 




currently available information and certain estimates and assumptions; therefore, actual adjustments will differ from the pro forma adjustments. Pro forma 




adjustments reflect the following:












  a) The distribution to a wholly-owned subsidiary of Sprague Holdings of 100% of its interest in Sprague Energy Canada Ltd, a wholly-owned subsidiary of the 




  Predecessor, which owns all of the equity interest in Kildair












  b) The pro forma adjustment for interest expense and deferred financing fees under the new credit agreement. The calculation is based on the monthly average 




  working capital and acquisition facility multiplied by the decreases in the borrowing rate of 0.50% for borrowings under the working capital facility, less the increase 




  of commitment fees due to the increased size of the facility












  c) The elimination of corporate overhead charges from the Parent offset by increases in incentive compensation








  d) The adjustments to reflect the conversion of the Predecessor to a partnership resulting in the elimination of all U.S. federal income taxes, as well as an adjustment 




  of income taxes in certain state jurisdictions in which the partnership operates, and to record estimated taxes for the activities conducted by the Partnership at the 




  applicable state statutory rates












2) EBITDA represents net income before interest, income taxes, depreciation and amortization.  









3) Adjusted EBITDA represents EBITDA decreased by total commodity derivative gains and losses included in net income (loss) and increased by realized commodity




derivative gains and losses included in net income (loss), in each case with respect to refined products and natural gas inventory and natural gas transportation contracts,




and adjusted for bio-fuel excise tax credits












 


Sprague Resources LP


Pro Forma Reconciliation of Adjusted EBITDA to Distributable Cash Flow

Three and Six Months Ended June 30, 2014 and 2013 















Three Months Ended


Six Months Ended







June 30, 


June 30, 









2013




2013







2014


Predecessor


2014


Predecessor







(unaudited)


Pro Forma(1)(unaudited)


(unaudited)


Pro Forma(1)(unaudited)







($ in thousands)


($ in thousands)



Reconciliation of adjusted EBITDA to distributable cash flow:










Adjusted EBITDA(2)

$               3,528


$               8,069


$             53,136


$             34,149
















     Add/(deduct):










          Cash interest expense, net

(3,351)


(4,390)


(8,056)


(9,552)



          Cash taxes

101


145


(813)


(1,873)



          Maintenance capital expenditures

(705)


(1,749)


(1,320)


(2,141)



          Estimated incremental selling, general and administrative










             expense of being a publicly traded partnership

-


(514)


-


(1,029)



          Gain on fixed assets

-


(781)


-


(781)



          Elimination of expense relating to incentive compensation










             and directors fees expected to be paid in common units

3,609


76


3,609


1,214



          Equity-based compensation expense

77


-


615


-



          Other

269


-


310


-
















Distributable cash flow

$               3,528


$                 856


$             47,481


$             19,987
















1) The unaudited pro forma information gives effect to certain pro forma adjustments as if they had occurred as of January 1, 2013. The adjustments are based upon 



currently available information and certain estimates and assumptions; therefore, actual adjustments will differ from the pro forma adjustments. Pro forma 



adjustments reflect the following:







  a) The distribution to a wholly-owned subsidiary of Sprague Holdings of 100% of its interest in Sprague Energy Canada Ltd, a wholly-owned subsidiary of the 



  Predecessor, which owns all of the equity interest in Kildair








  b) The pro forma adjustment for interest expense and deferred financing fees under the new credit agreement. The calculation is based on the monthly average 



  working capital and acquisition facility multiplied by the decreases in the borrowing rate of 0.50% for borrowings under the working capital facility, less the increase 



  of commitment fees due to the increased size of the facility








  c) The elimination of corporate overhead charges from the Parent offset by increases in incentive compensation







  d) The adjustments to reflect the conversion of the Predecessor to a partnership resulting in the elimination of all U.S. federal income taxes, as well as an adjustment 



  of income taxes in certain state jurisdictions in which the partnership operates, and to record estimated taxes for the activities conducted by the Partnership at the 



  applicable state statutory rates





















2) Adjusted EBITDA represents EBITDA decreased by total commodity derivative gains and losses included in net income (loss) and increased by realized 



commodity derivative gains and losses included in net income (loss), in each case with respect to refined products and natural gas inventory and natural gas



transportation contracts, and adjusted for bio-fuel excise tax credits




















 

SOURCE Sprague Resources LP



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