SemGroup Reports Improved Earnings for Second Quarter 2018

8/8/2018

TULSA, Okla., Aug. 08, 2018 (GLOBE NEWSWIRE) -- SemGroup® Corporation (NYSE:SEMG) today reported second quarter 2018 net loss of $2.7 million, compared to net loss of $33 million in first quarter 2018 and net income of $9.6 million in second quarter 2017. The improvement in quarter over quarter earnings is primarily due to lower income tax and interest expense pertaining to non-recurring items recognized during the first quarter.

Adjusted EBITDA (adjusted earnings before interest, taxes, depreciation and amortization) was $99 million in second quarter 2018, compared to $93.4 million in first quarter 2018, and $65.4 million in second quarter 2017. Adjusted EBITDA is a non-GAAP measure and is reconciled to net income below. Second quarter Adjusted EBITDA results were 6 percent higher over the prior quarter due to stronger crude volumes and margins, as well as the absence of a one-time insurance claim write-off recognized during the first quarter.

"We delivered solid financial results during the second quarter with improved earnings in five of our six segments," said SemGroup President and Chief Executive Officer Carlin Conner. "Improving crude oil and gas volumes, coupled with contributions from our organic growth projects, will continue to provide increasing cash flows. As we look to the second half of 2018, one of our highest priorities is executing additional capital raise measures that allow us to reach our leverage goals."

Recent Developments
On August 7, SemGroup announced that its Board of Directors had declared a quarterly cash dividend to common shareholders. A dividend in the amount of $0.4725 per share, or $1.89 per share annualized, will be paid on August 29, 2018 to all common shareholders of record on August 20, 2018.

The Board of Directors also declared a dividend to holders of its 7% Series A Cumulative Perpetual Convertible Preferred Stock. The company elected, pursuant to the terms of the convertible preferred shares, to have the aggregate amount of $6.2 million that would have been payable in cash as a dividend added to the liquidation preference of such shares as a payment in kind. The payment date for the payment in kind on the shares of convertible preferred stock is August 29, 2018 and the record date is August 20, 2018.

Segment Profit
SemGroup management believes segment profit is a valuable measure of the operating and financial performance of the company's operating segments. Segment profit is defined as revenue, less cost of products sold (exclusive of depreciation and amortization) and operating expenses, plus equity earnings and is adjusted to remove unrealized gains and losses on commodity derivatives and to reflect equity earnings on an EBITDA basis. Reconciliations can be found in the tables of this release.

     
  Three Months Ended Six Months Ended
  June 30, March 31 June 30,
Segment Profit: 2018 2017 2018 2018 2017
Crude Transportation $ 37,865   $ 29,028   $ 34,310   $ 72,175   $ 57,279  
Crude Facilities 9,683   9,481   9,341   19,024   19,045  
Crude Supply and Logistics (1,959 ) (2,173 ) (6,583 ) (8,542 ) (4,601 )
HFOTCO 34,804     30,988   65,792    
SemGas 15,437   19,483   14,277   29,714   37,711  
SemCAMS 21,448   19,038   22,113   43,561   35,902  
Other and eliminations (172 ) 8,296   10,963   10,791   16,663  
Total Segment Profit $ 117,106   $ 83,153   $ 115,409   $ 232,515   $ 161,999  
                               

Performance by Segment Profit - Second Quarter vs. First Quarter 2018

  • Crude Transportation increased $3.6 million driven by higher White Cliffs Pipeline volumes.
  • Crude Facilities was relatively flat as storage and throughput volumes remained consistent.
  • Crude Supply and Logistics improved due to location differentials.
  • HFOTCO increased due to the absence of a $4 million write-off of an insurance claim during the first quarter.
  • SemGas increased primarily due to higher STACK volumes.
  • SemCAMS results were flat; volumes decreased due to planned KA plant turnaround.
  • Other down due to the absence of divested assets, SemLogistics and SemMexico.
       
Select Operating Statistics 2Q 2018 1Q 2018 2Q 2017
Crude Transportation      
Transportation Volumes (mbbl/d) 188 182 182
White Cliffs Pipeline Volumes (mbbl/d) 135 107 107
Crude Facilities      
Cushing Terminal Utilization % 97% 98% 94%
HFOTCO      
Average Terminal Utilization % 97% 97% n/a
SemGas(1)      
Total Average Processing Volumes (mmcf/d) 367 305 277
SemCAMS(2)      
Total Average Throughput Volumes (mmcf/d) 382 441 349
       

(1)  SemGas volumes include total processed volumes -  Oklahoma and Texas plants
(2)  SemCAMS volumes include total processed volumes - K3, KA and West Fox Creek facilities

Guidance Outlook
Based on our year-to-date results and expectations for the remainder of 2018, SemGroup is affirming its financial guidance provided earlier this year.

Earnings Conference Call
SemGroup will host a conference call for investors at 11 a.m. Eastern, August 9, 2018. The call can be accessed live over the telephone by dialing 855-239-1101, or for international callers, 412-542-4117. Interested parties may also listen to a simultaneous webcast of the conference call by logging onto SemGroup's Investor Relations website at www.semgroupcorp.com. A replay of the webcast will be available following the call. The second quarter 2018 slide deck will be posted under presentations.

About SemGroup
SemGroup® Corporation (NYSE:SEMG) moves energy across North America through a network of pipelines, processing plants, refinery-connected storage facilities and deep-water marine terminals with import and export capabilities. SemGroup serves as a versatile connection between upstream oil and gas producers and downstream refiners and end users. Key areas of operation and growth include western Canada, the Mid-Continent and the Gulf Coast. SemGroup is committed to safe, environmentally sound operations. Headquartered in Tulsa, Okla., the company has additional offices in Calgary, Alberta; Platteville, Colo.; and Houston, Texas.

SemGroup uses its Investor Relations website and social media outlets as channels of distribution of material company information. Such information is routinely posted and accessible on our Investor Relations website at www.semgroupcorp.com, our Twitter account and LinkedIn account.

Non-GAAP Financial Measures
SemGroup’s non-GAAP measures, Adjusted EBITDA, Cash Available for Dividends ("CAFD") and Total Segment Profit, are not GAAP measures and are not intended to be used in lieu of GAAP presentation of their most closely associated GAAP measures, net income (loss) for Adjusted EBITDA and CAFD and operating income for Total Segment Profit.

Adjusted EBITDA represents earnings before interest, taxes, depreciation and amortization, adjusted for selected items that SemGroup believes impact the comparability of financial results between reporting periods.  In addition to non-cash items, we have selected items for adjustment to EBITDA which management feels decrease the comparability of our results among periods. These items are identified as those which are generally outside of the results of day to day operations of the business. These items are not considered non- recurring, infrequent or unusual, but do erode comparability among periods in which they occur with periods in which they do not occur or occur to a greater or lesser degree. Historically, we have selected items such as gains on the sale of NGL Energy Partners LP common units, costs related to our predecessor’s bankruptcy, significant business development related costs, significant legal settlements, severance and other similar costs. Management believes these types of items can make comparability of the results of day to day operations among periods difficult and have chosen to remove these items from our Adjusted EBITDA. We expect to adjust for similar types of items in the future. Although we present selected items that we consider in evaluating our performance, you should be aware that the items presented do not represent all items that affect comparability between the periods presented. Variations in our operating results are also caused by changes in volumes, prices, mechanical interruptions and numerous other factors. We do not adjust for these types of variances.

CAFD is based on Adjusted EBITDA, as defined above, and reduced for cash income taxes, cash interest expense, preferred stock cash dividends and maintenance capital expenditures, as adjusted for selected items which management feels decrease the comparability of results among periods.  CAFD is a performance measure utilized by management to analyze our performance after the payment of cash taxes, servicing debt obligations and making sustaining capital expenditures.

Total Segment Profit represents revenue, less cost of products sold (exclusive of depreciation and amortization) and operating expenses, plus equity earnings and is adjusted to remove unrealized gains and losses on commodity derivatives and to reflect equity earnings on an EBITDA basis. Reflecting equity earnings on an EBITDA basis is achieved by adjusting equity earnings to exclude our percentage of interest, taxes, depreciation and amortization from equity earnings for operated equity method investees. For our investment in NGL Energy, we exclude equity earnings and include cash distributions received. Segment profit is the measure by which management assess the performance of our reportable segments.

These measures may be used periodically by management when discussing our financial results with investors and analysts and are presented as management believes they provide additional information and metrics relative to the performance of our businesses. These non-GAAP financial measures have important limitations as analytical tools because they excludes some, but not all, items that affect the most directly comparable GAAP financial measures. You should not consider non-GAAP measures in isolation or as substitutes for analysis of our results as reported under GAAP. Management compensates for the limitations of our non-GAAP measures as analytical tools by reviewing the comparable GAAP measures, understanding the differences between the non-GAAP measure and the most comparable GAAP measure and incorporating this knowledge into its decision-making processes. We believe that investors benefit from having access to the same financial measures that our management uses in evaluating our operating results. Because all companies do not use identical calculations, our presentations of non-GAAP measures may be different from similarly titled measures of other companies, thereby diminishing their utility.

Forward-Looking Statements
Certain matters contained in this Press Release include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995.

All statements, other than statements of historical fact, included in this Press Release including the prospects of our industry, our anticipated financial performance, our anticipated annual dividend growth rate, management's plans and objectives for future operations, planned capital expenditures, business prospects, outcome of regulatory proceedings, market conditions and other matters, may constitute forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause actual results to differ include, but are not limited to, our ability to generate sufficient cash flow from operations to enable us to pay our debt obligations and our current and expected dividends or to fund our other liquidity needs; any sustained reduction in demand for, or supply of, the petroleum products we gather, transport, process, market and store; the effect of our debt level on our future financial and operating flexibility, including our ability to obtain additional capital on terms that are favorable to us; our ability to access the debt and equity markets, which will depend on general market conditions and the credit ratings for our debt obligations and equity; the failure to realize the anticipated benefits of our acquisition of  100 percent of the equity interests in Buffalo Parent Gulf Coast Terminals LLC, the parent company of Buffalo Gulf Coast Terminals LLC and HFOTCO LLC, doing business as Houston Fuel Oil Terminal Company (“HFOTCO”); the loss of, or a material nonpayment or nonperformance by, any of our key customers; the amount of cash distributions, capital requirements and performance of our investments and joint ventures; the consequences of any divestitures of non-strategic operating assets or divestitures of interests in some of our operating assets through partnerships and/or joint ventures; the amount of collateral required to be posted from time to time in our commodity purchase, sale or derivative transactions; the impact of operational and developmental hazards and unforeseen interruptions; our ability to obtain new sources of supply of petroleum products; competition from other midstream energy companies; our ability to comply with the covenants contained in our credit agreements, continuing covenant agreement, and the indentures governing our notes, including requirements under our credit agreements and continuing covenant agreement to maintain certain financial ratios; our ability to renew or replace expiring storage, transportation and related contracts; the overall forward markets for crude oil, natural gas and natural gas liquids; the possibility that the construction or acquisition of new assets may not result in the corresponding anticipated revenue increases; any future impairment of goodwill resulting from the loss of customers or business; changes in currency exchange rates; weather and other natural phenomena, including climate conditions; a cyber attack involving our information systems and related infrastructure, or that of our business associates; the risks and uncertainties of doing business outside of the U.S., including political and economic instability and changes in local governmental laws, regulations and policies; costs of, or changes in, laws and regulations and our failure to comply with new or existing laws or regulations, particularly with regard to taxes, safety and protection of the environment; the possibility that our hedging activities may result in losses or may have a negative impact on our financial results; general economic, market and business conditions; as well as other risk factors discussed from time to time in each of our documents and reports filed with the SEC.

Readers are cautioned not to place undue reliance on any forward-looking statements contained in this press release, which reflect management’s opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements.

Contacts:
Investor Relations:
Alisa Perkins
918-524-8081
investor.relations@semgroupcorp.com

Media:
Tom Droege
918-524-8560
tdroege@semgroupcorp.com

     
Condensed Consolidated Balance Sheets
(in thousands, unaudited)
   
     
  June 30, 2018 December 31, 2017
ASSETS    
Current assets $ 695,864   $ 902,899  
Property, plant and equipment, net 3,415,505   3,315,131  
Goodwill and other intangible assets 639,142   655,945  
Equity method investments 276,120   285,281  
Other noncurrent assets, net 145,044   132,600  
Noncurrent assets held for sale   84,961  
Total assets $ 5,171,675   $ 5,376,817  
LIABILITIES, PREFERRED STOCK AND OWNERS' EQUITY    
Current liabilities:    
Current portion of long-term debt $ 6,000   $ 5,525  
Other current liabilities 608,196   761,036  
Total current liabilities 614,196   766,561  
Long-term debt, excluding current portion 2,534,894   2,853,095  
Other noncurrent liabilities 90,937   85,080  
Noncurrent liabilities held for sale   13,716  
Total liabilities 3,240,027   3,718,452  
Preferred stock 347,130    
Total owners' equity 1,584,518   1,658,365  
Total liabilities, preferred stock and owners' equity $ 5,171,675   $ 5,376,817  
             

 

     
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts, unaudited)
     
  Three Months Ended Six Months Ended
  June 30, March 31, June 30,
  2018 2017 2018 2018 2017
Revenues $ 595,794   $ 473,089   $ 661,609   $ 1,257,403   $ 929,189  
Expenses:          
Costs of products sold, exclusive of depreciation and amortization shown below 412,089   340,107   496,132   908,221   689,105  
Operating 90,245   73,346   69,791   160,036   125,429  
General and administrative 22,886   26,819   26,477   49,363   48,531  
Depreciation and amortization 51,755   25,602   50,536   102,291   50,201  
Loss (gain) on disposal or impairment, net 1,824   (234 ) (3,566 ) (1,742 ) 2,176  
Total expenses 578,799   465,640   639,370   1,218,169   915,442  
Earnings from equity method investments 14,351   17,753   12,614   26,965   34,844  
Operating income 31,346   25,202   34,853   66,199   48,591  
Other expenses, net 37,685   11,966   44,805   82,490   45,537  
Income (loss) before income taxes (6,339 ) 13,236   (9,952 ) (16,291 ) 3,054  
Income tax expense (benefit) (3,613 ) 3,625   23,083   19,470   3,720  
Net income (loss) (2,726 ) 9,611   (33,035 ) (35,761 ) (666 )
Less: cumulative preferred stock dividends 6,211     4,832   11,043    
Net income (loss) attributable to common shareholders $ (8,937 ) $ 9,611   $ (37,867 ) $ (46,804 ) $ (666 )
Net income (loss) $ (2,726 ) $ 9,611   $ (33,035 ) $ (35,761 ) $ (666 )
Other comprehensive income, net of income tax 6,180   8,952   18,171   24,351   14,985  
Comprehensive income (loss) $ 3,454   $ 18,563   $ (14,864 ) $ (11,410 ) $ 14,319  
           
Net income (loss) per common share:          
Basic $ (0.11 ) $ 0.15   $ (0.48 ) $ (0.60 ) $ (0.01 )
Diluted $ (0.11 ) $ 0.15   $ (0.48 ) $ (0.60 ) $ (0.01 )
Weighted average shares (thousands):          
Basic 78,319   65,749   78,198   78,259   65,717  
Diluted 78,319   66,277   78,259   78,259   65,717  
                     

 

     
Reconciliation of Net Income to Adjusted EBITDA:
(in thousands, unaudited)
     
  Three Months Ended Six Months Ended
  June 30, March 31, June 30,
  2018 2017 2018 2018 2017
Net income (loss) $ (2,726 ) $ 9,611   $ (33,035 ) $ (35,761 ) $ (666 )
Add: Interest expense 35,904   13,477   42,461   78,365   27,344  
Add: Income tax expense (3,613 ) 3,625   23,083   19,470   3,720  
Add: Depreciation and amortization expense 51,755   25,602   50,536   102,291   50,201  
EBITDA 81,320   52,315   83,045   164,365   80,599  
Selected Non-Cash Items and Other Items Impacting Comparability 17,690   13,095   10,326   28,016   45,478  
Adjusted EBITDA $ 99,010   $ 65,410   $ 93,371   $ 192,381   $ 126,077  
                               

 

     
Selected Non-Cash Items and
Other Items Impacting Comparability
(in thousands, unaudited)
     
  Three Months Ended Six Months Ended
  June 30, March 31, June 30,
  2018 2017 2018 2018 2017
Loss (gain) on disposal or impairment, net $ 1,824   $ (234 ) $ (3,566 ) $ (1,742 ) $ 2,176  
Foreign currency transaction loss (gain) 2,314   (1,011 ) 3,294   5,608   (1,011 )
Adjustments to reflect equity earnings on an EBITDA basis 4,886   6,692   4,883   9,769   13,401  
M&A transaction related costs 648   5,453   1,156   1,804   5,453  
Employee severance and relocation expense 211   312   137   348   870  
Unrealized loss (gain) on derivative activities 4,409   (928 ) 2,226   6,635   (901 )
Non-cash equity compensation 3,398   2,803   2,196   5,594   5,560  
Loss on early extinguishment of debt   8       19,930  
Selected Non-Cash Items and Other Items Impacting Comparability $ 17,690   $ 13,095   $ 10,326   $ 28,016   $ 45,478  
                               

 

     
Segment Profit and Adjusted EBITDA:
(in thousands, unaudited)
     
  Three Months Ended Six Months Ended
  June 30, March 31, June 30,
Segment Profit: 2018 2017 2018 2018 2017
Crude Transportation $ 37,865   $ 29,028   $ 34,310   $ 72,175   $ 57,279  
Crude Facilities 9,683   9,481   9,341   19,024   19,045  
Crude Supply and Logistics (1,959 ) (2,173 ) (6,583 ) (8,542 ) (4,601 )
HFOTCO 34,804     30,988   65,792    
SemGas 15,437   19,483   14,277   29,714   37,711  
SemCAMS 21,448   19,038   22,113   43,561   35,902  
Other and eliminations (172 ) 8,296   10,963   10,791   16,663  
Total Segment Profit 117,106   83,153   115,409   232,515   161,999  
Less:          
General and administrative expense 22,886   26,819   26,477   49,363   48,531  
Other income (533 ) (508 ) (950 ) (1,483 ) (726 )
Plus:          
M&A related costs 648   5,453   1,156   1,804   5,453  
Employee severance and relocation 211   312   137   348   870  
Non-cash equity compensation 3,398   2,803   2,196   5,594   5,560  
Consolidated Adjusted EBITDA $ 99,010   $ 65,410   $ 93,371   $ 192,381   $ 126,077  
                               

 

     
Reconciliation of Operating Income to Total Segment Profit:
(in thousands, unaudited)
     
  Three Months Ended Six Months Ended
  June 30, March 31, June 30,
  2018 2017 2018 2018 2017
Operating income $ 31,346   $ 25,202   $ 34,853   $ 66,199   $ 48,591  
Plus          
Adjustments to reflect equity earnings on an EBITDA basis 4,886   6,692   4,883   9,769   13,401  
Unrealized loss (gain) on derivatives 4,409   (928 ) 2,226   6,635   (901 )
General and administrative expense 22,886   26,819   26,477   49,363   48,531  
Depreciation and amortization 51,755   25,602   50,536   102,291   50,201  
Loss (gain) on disposal or impairment, net 1,824   (234 ) (3,566 ) (1,742 ) 2,176  
Total Segment Profit $ 117,106   $ 83,153   $ 115,409   $ 232,515   $ 161,999  
                               

 

 
Cash Available for Dividends:
(in thousands, unaudited)
 
  Three Months Ended Six Months Ended
  June 30, March 31, June 30,
  2018 2017 2018 2018 2017
Adjusted EBITDA $ 99,010   $ 65,410   $ 93,371   $ 192,381   $ 126,077  
Less: Cash interest expense 34,870   18,396   32,530   67,400   36,372  
Less: Maintenance capital 11,550   11,850   7,729   19,279   20,122  
Less: Cash paid for income taxes 12,900   1,721   1,800   14,700   2,876  
Selected items impacting comparability          
Add back: Mexico disposal cash taxes 10,955       10,955    
Cash available for dividends $ 50,645   $ 33,443   $ 51,312   $ 101,957   $ 66,707  
           
Dividends declared $ 37,022   $ 35,171   $ 37,004   $ 74,026   $ 64,755  
           
Dividend coverage ratio 1.4 x 1.0 x 1.4 x 1.4 x 1.0 x

Primary Logo

Source: SemGroup Corp.

SemGroup®, SemCrude®, SemGas®, SemStream®, SemMaterials MexicoMR , White Cliffs Pipeline®, and Rose Rock Midstream® are registered trademarks of SemGroup Corporation. ©2017 SemGroup. All Rights Reserved. Terms & Conditions