USD Partners LP Announces Second Quarter 2020 Results

HOUSTON–(BUSINESS WIRE)–USD Partners LP (NYSE: USDP) (the “Partnership”) announced today its operating and financial results for the three and six months ended June 30, 2020. Financial highlights with respect to the second quarter of 2020 include the following:

Generated Net Cash Provided by Operating Activities of $5.4 million, Adjusted EBITDA⁽¹⁾ of $12.8 million and Distributable Cash Flow⁽¹⁾ of $9.7 million
Reported Net Income of $1.2 million
Declared a quarterly cash distribution of $0.111 per unit ($0.444 per unit on an annualized basis) with over 3.0x Distributable Cash Flow Coverage

“We are pleased to report another solid quarter for the Partnership,” said Dan Borgen, the Partnership’s Chief Executive Officer. “We continue to execute on our plan to divert some of our free cash flow towards paying down debt. During the second quarter, the Partnership paid down $6 million on our Revolver which is consistent with our intent to de-lever by approximately $20-$25 million on an annual basis.”

“In addition, we continue to be excited about our Sponsor’s previously announced diluent recovery unit (“DRU”) project, which we expect will be placed into service in the second quarter of 2021. The Partnership’s Sponsor has secured the necessary financing, obtained all material permits and entered into fixed-price construction contracts regarding the construction of the project. Upon the successful construction and completion of the DRU, approximately 32% of the Partnership’s Hardisty terminal’s capacity will be automatically extended under a long-term committed agreement through mid-2031,” added Mr. Borgen. “USD and our partner, Gibson, are currently in commercial discussions with other potential producer and refiner customers to secure additional long-term, take-or-pay agreements to support future expansions of capacity at the DRU, and we look forward to keeping the market updated as things continue to develop.”

Partnership’s Second Quarter 2020 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 second quarter of 2020 relative to the same quarter in 2019 were primarily influenced by higher revenue at its Hardisty terminal associated with contracted throughput that exceeded the Partnership’s existing capacity at its Hardisty terminal and increased rates on a portion of the terminalling services agreements that became effective July 1, 2019. Additionally, in the third quarter of 2019, the Partnership entered into a terminalling services agreement with the Hardisty South facility owned by the Partnership’s Sponsor to provide terminalling services for the contracted throughput that exceeded the Hardisty terminal’s transloading capacity. Under this arrangement, the Partnership incurred operating costs payable to the Partnership’s Sponsor representing the same rate, on a per barrel basis, that the Partnership received in revenue for such contracted throughput.

Lower revenue at the Partnership’s Casper terminal resulting from the conclusion of a customer agreement in August 2019 partially offset the higher revenue at Hardisty during the quarter.

Net income for the quarter increased as compared to the second quarter of 2019, primarily as a result of the operating factors discussed above coupled with lower interest expense incurred resulting from lower interest rates during the quarter partially offset by a higher weighted average balance of debt outstanding in the second quarter of 2020. The Partnership also had a smaller non-cash loss associated with the five-year interest rate derivative instrument that the Partnership entered into in November 2017 when compared to the prior period. Partially offsetting this increased net income were higher foreign currency transactions losses.

Net Cash Provided by Operating Activities for the quarter decreased by 42% relative to the second quarter of 2019, primarily due to the general timing of receipts and payments of accounts receivable, accounts payable and deferred revenue balances.

Adjusted EBITDA and Distributable Cash Flow (“DCF”) increased by 5% and 10%, respectively, for the quarter relative to the second quarter of 2019. The increase in Adjusted EBITDA was primarily a result of the operating factors discussed above. DCF was also impacted by a decrease in cash paid for interest and income taxes during the quarter.

As of June 30, 2020, the Partnership had approximately $3 million of unrestricted cash and cash equivalents and undrawn borrowing capacity of $167 million on its $385 million senior secured credit facility, subject to the Partnership’s continued compliance with financial covenants. Pursuant to the terms of the Partnership’s Credit Agreement, the Partnership’s borrowing capacity is currently limited to 4.5 times its trailing 12-month consolidated EBITDA, as defined in the Credit Agreement. As such, the Partnership’s available borrowings under the senior secured credit facility, including unrestricted cash and cash equivalents, was approximately $29 million as of June 30, 2020. The Partnership was in compliance with its financial covenants, as of June 30, 2020.

On July 23, 2020, the Partnership declared a quarterly cash distribution of $0.111 per unit ($0.444 per unit on an annualized basis), the same amount as distributed in the prior quarter. The distribution is payable on August 14, 2020, to unitholders of record at the close of business on August 4, 2020. Given the current uncertainty in the energy industry, the board of directors made a proactive decision to strengthen the Partnership’s financial position by reducing its quarterly distribution and redeploying certain free cash flow to pay down debt. The decision to reduce the quarterly distribution was not driven by any material deterioration in the performance of the Partnership’s underlying business, but rather represents a conscious effort to enhance long-term value by proactively strengthening the Partnership’s balance sheet. During the second quarter of 2020, the Partnership repaid $6 million of the outstanding balance of its revolving credit facility.

Second Quarter 2020 Conference Call Information

The Partnership will host a conference call and webcast regarding second quarter 2020 results at 11:00 a.m. Eastern Time (10:00 a.m. Central Time) on Thursday, August 6, 2020.

To listen live over the Internet, participants are advised to log on to the Partnership’s website at www.usdpartners.com and select the “Events & Presentations” sub-tab under the “Investors” tab. To join via telephone, participants may dial (877) 266-7551 domestically or +1 (339) 368-5209 internationally, conference ID 7459481. 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 (800) 585-8367 domestically or +1 (404) 537-3406 internationally, conference ID 7459481. In addition, a replay of the audio webcast will be available by accessing the Partnership’s website after the call is concluded.

About USD Partners LP

USD Partners LP is a fee-based, growth-oriented master limited partnership formed in 2014 by US Development Group, LLC (“USD”) to acquire, develop and operate midstream infrastructure and complementary logistics solutions for crude oil, biofuels and other energy-related products. The Partnership generates substantially all of its operating cash flows from multi-year, take-or-pay contracts with primarily investment grade customers, including major integrated oil companies and refiners. The Partnership’s principal assets include a network of crude oil terminals that facilitate the transportation of heavy crude oil from Western Canada to key demand centers across North America. The Partnership’s operations include railcar loading and unloading, storage and blending in on-site tanks, inbound and outbound pipeline connectivity, truck transloading, as well as other related logistics services. In addition, the Partnership provides customers with leased railcars and fleet services to facilitate the transportation of liquid hydrocarbons and biofuels by rail.

USD, which owns the general partner of USD Partners LP, is engaged in designing, developing, owning, and managing large-scale multi-modal logistics centers and energy-related infrastructure across North America. USD solutions create flexible market access for customers in significant growth areas and key demand centers, including Western Canada, the U.S. Gulf Coast and Mexico. Among other projects, USD is currently pursuing the development of a premier energy logistics terminal on the Houston Ship Channel with capacity for substantial tank storage, multiple docks (including barge and deepwater), inbound and outbound pipeline connectivity, as well as a rail terminal with unit train capabilities. For additional information, please visit texasdeepwater.com. Information on websites referenced in this release is not part of this release.

Non-GAAP Financial Measures

The Partnership defines Adjusted EBITDA as Net Cash Provided by Operating Activities adjusted for changes in working capital items, interest, income taxes, foreign currency transaction gains and losses, and other items which do not affect the underlying cash flows produced by the Partnership’s businesses. Adjusted EBITDA is a non-GAAP, supplemental financial measure used by management and external users of the Partnership’s financial statements, such as investors and commercial banks, to assess:

the Partnership’s liquidity and the ability of the Partnership’s businesses to produce sufficient cash flows to make distributions to the Partnership’s unitholders; and
the Partnership’s ability to incur and service debt and fund capital expenditures.

The Partnership defines Distributable Cash Flow, or DCF, as Adjusted EBITDA less net cash paid for interest, income taxes and maintenance capital expenditures. DCF does not reflect changes in working capital balances. DCF is a non-GAAP, supplemental financial measure used by management and by external users of the Partnership’s financial statements, such as investors and commercial banks, to assess:

the amount of cash available for making distributions to the Partnership’s unitholders;
the excess cash flow being retained for use in enhancing the Partnership’s existing business; and
the sustainability of the Partnership’s current distribution rate per unit.

The Partnership believes that the presentation of Adjusted EBITDA and DCF in this press release provides information that enhances an investor’s understanding of the Partnership’s ability to generate cash for payment of distributions and other purposes. The GAAP measure most directly comparable to Adjusted EBITDA and DCF is Net Cash Provided by Operating Activities. Adjusted EBITDA and DCF should not be considered alternatives to Net Cash Provided by Operating Activities or any other measure of liquidity presented in accordance with GAAP. Adjusted EBITDA and DCF exclude some, but not all, items that affect Net Cash Provided by Operating Activities and these measures may vary among other companies. As a result, Adjusted EBITDA and DCF may not be comparable to similarly titled measures of other companies. Reconciliations of Net Cash Provided by Operating Activities to Adjusted EBITDA and DCF are presented on page 10 of this press release.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of U.S. federal securities laws, including statements with respect to the ability of the Partnership and USD to achieve contract extensions, new customer agreements and expansions; the ability of the Partnership and USD to develop existing and future additional projects and expansion opportunities (including successful completion of USD’s DRU) and whether those projects and opportunities developed by USD would be made available for acquisition, or acquired, by the Partnership; volumes at, and demand for, the Partnership’s terminals; and the amount and timing of future distribution payments and distribution growth. Words and phrases such as “expect,” “plan,” “intent,” “believes,” “projects,” “begin,” “anticipates,” “expects,” “subject to” and similar expressions are used to identify such forward-looking statements. However, the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements relating to the Partnership are based on management’s expectations, estimates and projections about the Partnership, its interests and the energy industry in general on the date this press release was issued. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Factors that could cause actual results or events to differ materially from those described in the forward-looking statements include the impact of the novel coronavirus (COVID-19) pandemic and related economic downturn and changes in general economic conditions and commodity prices, as well as those factors set forth under the heading “Risk Factors” and elsewhere in the Partnership’s most recent Annual Report on Form 10-K and in the Partnership’s subsequent filings with the Securities and Exchange Commission (many of which may be amplified by the COVID-19 pandemic and the recent significant reductions in demand for and prices of crude oil, natural gas and natural gas liquids). The Partnership is under no obligation (and expressly disclaims any such obligation) to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

_____________

⁽¹⁾

The Partnership presents both GAAP and non-GAAP financial measures in this press release to assist in understanding the Partnership’s liquidity and ability to fund distributions. See “Non-GAAP Financial Measures” on page 4 and reconciliations of Net Cash Provided by Operating Activities, the most directly comparable GAAP measure, to Adjusted EBITDA and Distributable Cash Flow on page 10 of this press release.

USD Partners LP
Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2020 and 2019
(unaudited)

	For the Three Months Ended					For the Six Months Ended
	June 30,					June 30,
	2020			2019		2020			2019
	(in thousands)
Revenues
Terminalling services	$	22,309		$	19,730	$	46,544		$	39,728
Terminalling services — related party		3,800			5,525		7,888			11,163
Fleet leases — related party		983			983		1,967			1,967
Fleet services		51			51		101			108
Fleet services — related party		228			228		455			455
Freight and other reimbursables		64			298		686			701
Freight and other reimbursables — related party		1			—		1			61
Total revenues		27,436			26,815		57,642			54,183
Operating costs
Subcontracted rail services		2,688			3,699		6,133			7,264
Pipeline fees		5,395			4,902		11,742			9,963
Freight and other reimbursables		65			298		687			762
Operating and maintenance		2,564			2,510		5,645			5,721
Operating and maintenance — related party		2,065			—		4,092			—
Selling, general and administrative		2,620			2,722		5,800			5,199
Selling, general and administrative — related party		1,835			2,225		3,828			4,675
Goodwill impairment loss		—			—		33,589			—
Depreciation and amortization		5,203			5,283		10,625			10,017
Total operating costs		22,435			21,639		82,141			43,601
Operating income (loss)		5,001			5,176		(24,499	)		10,582
Interest expense		2,256			2,982		4,995			6,169
Loss associated with derivative instruments		332			1,074		3,205			1,746
Foreign currency transaction loss		1,150			20		1,058			202
Other expense (income), net		(111	)		21		(843	)		(3	)
Income (loss) before income taxes		1,374			1,079		(32,914	)		2,468
Provision for (benefit from) income taxes		188			128		(319	)		198
Net income (loss)	$	1,186		$	951	$	(32,595	)	$	2,270

USD Partners LP
Consolidated Statements of Cash Flows
For the Three and Six Months Ended June 30, 2020 and 2019
(unaudited)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Cash flows from operating activities:	(in thousands)
Net income (loss)	$	1,186		$	951		$	(32,595	)	$	2,270
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		5,203			5,283			10,625			10,017
Loss associated with derivative instruments		332			1,074			3,205			1,746
Settlement of derivative contracts		(283	)		—			(289	)		1
Unit based compensation expense		1,630			1,582			3,265			2,996
Deferred income taxes		(189	)		(154	)		(541	)		(403	)
Other		207			249			414			707
Goodwill impairment loss		—			—			33,589			—
Changes in operating assets and liabilities:
Accounts receivable		82			(884	)		690			(193	)
Accounts receivable – related party		195			(43	)		(746	)		(671	)
Prepaid expenses and other assets		(351	)		(2,227	)		(1,571	)		(1,474	)
Other assets – related party		(260	)		20			(510	)		40
Accounts payable and accrued expenses		(1,552	)		1,983			(1,145	)		2,052
Accounts payable and accrued expenses – related party		(578	)		(762	)		(87	)		(43	)
Deferred revenue and other liabilities		811			2,731			3,846			2,929
Deferred revenue – related party		(1,024	)		(467	)		(1,024	)		(467	)
Net cash provided by operating activities		5,409			9,336			17,126			19,507
Cash flows from investing activities:
Additions of property and equipment		(230	)		(2,433	)		(377	)		(2,677	)
Net cash used in investing activities		(230	)		(2,433	)		(377	)		(2,677	)
Cash flows from financing activities:
Distributions		(3,182	)		(10,384	)		(13,837	)		(20,517	)
Payments for deferred financing costs		—			—			—			(7	)
Vested Phantom Units used for payment of participant taxes		—			—			(1,788	)		(1,821	)
Proceeds from long-term debt		—			11,000			10,000			20,000
Repayments of long-term debt		(6,000	)		(2,000	)		(12,000	)		(13,000	)
Other financing activities		—			—			—			(13	)
Net cash used in financing activities		(9,182	)		(1,384	)		(17,625	)		(15,358	)
Effect of exchange rates on cash		1,427			217			438			605
Net change in cash, cash equivalents and restricted cash		(2,576	)		5,736			(438	)		2,077
Cash, cash equivalents and restricted cash – beginning of period		12,822			8,724			10,684			12,383
Cash, cash equivalents and restricted cash – end of period	$	10,246		$	14,460		$	10,246		$	14,460

USD Partners LP
Consolidated Balance Sheets
(unaudited)

	June 30,			December 31,
	2020			2019
ASSETS	(in thousands)
Current assets
Cash and cash equivalents	$	3,093		$	3,083
Restricted cash		7,153			7,601
Accounts receivable, net		4,515			5,313
Accounts receivable — related party		2,461			1,778
Prepaid expenses		2,129			1,915
Other current assets		995			954
Other current assets — related party		55			343
Total current assets		20,401			20,987
Property and equipment, net		140,976			147,737
Intangible assets, net		67,796			74,099
Goodwill		—			33,589
Operating lease right-of-use assets		11,948			11,804
Other non-current assets		2,663			1,335
Other non-current assets — related party		800			15
Total assets	$	244,584		$	289,566

LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities
Accounts payable and accrued expenses	$	1,633		$	3,087
Accounts payable and accrued expenses — related party		374			465
Deferred revenue		5,531			6,104
Deferred revenue — related party		410			1,482
Operating lease liabilities, current		5,130			4,649
Other current liabilities		4,524			3,150
Total current liabilities		17,602			18,937
Long-term debt, net		216,066			217,651
Deferred income tax liabilities, net		31			458
Operating lease liabilities, non-current		6,961			7,386
Other non-current liabilities		9,542			4,078
Total liabilities		250,202			248,510
Commitments and contingencies
Partners’ capital
Common units		(5,670	)		61,013
Subordinated units		—			(22,597	)
General partner units		1,784			2,767
Accumulated other comprehensive loss		(1,732	)		(127	)
Total partners’ capital		(5,618	)		41,056
Total liabilities and partners’ capital	$	244,584		$	289,566

USD Partners LP
GAAP to Non-GAAP Reconciliations
For the Three and Six Months Ended June 30, 2020 and 2019
(unaudited)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
	(in thousands)

Net cash provided by operating activities	$	5,409		$	9,336		$	17,126		$	19,507
Add (deduct):
Amortization of deferred financing costs		(207	)		(207	)		(414	)		(657	)
Deferred income taxes		189			154			541			403
Changes in accounts receivable and other assets		334			3,134			2,137			2,298
Changes in accounts payable and accrued expenses		2,130			(1,221	)		1,232			(2,009	)
Changes in deferred revenue and other liabilities		213			(2,264	)		(2,822	)		(2,462	)
Interest expense, net		2,253			2,970			4,968			6,150
Provision for (benefit from) income taxes		188			128			(319	)		198
Foreign currency transaction loss ⁽¹⁾		1,150			20			1,058			202
Other income		—			(25	)		—			(42	)
Non-cash deferred amounts ⁽²⁾		1,119			161			1,556			110
Adjusted EBITDA		12,778			12,186			25,063			23,698
Add (deduct):
Cash paid for income taxes		(116	)		(329	)		(433	)		(607	)
Cash paid for interest		(2,874	)		(2,995	)		(4,957	)		(5,815	)
Maintenance capital expenditures		(82	)		(45	)		(114	)		(45	)
Distributable cash flow	$	9,706		$	8,817		$	19,559		$	17,231

⁽¹⁾		Represents foreign exchange transaction amounts associated with activities between the Partnership’s U.S. and Canadian subsidiaries.
⁽²⁾		Represents the change in non-cash contract assets and liabilities associated with revenue recognized at blended rates based on tiered rate structures in certain of the Partnership’s customer contracts and deferred revenue associated with deficiency credits that are expected to be used in the future prior to their expiration. Amounts presented are net of the corresponding prepaid Gibson pipeline fee that will be recognized as expense concurrently with the recognition of revenue.