Genesis Energy, L.P. (NYSE:GEL) today announced its fourth quarter results. Our results for the quarter ended December 31, 2014 included the following items:
-- We generated total Available Cash before Reserves of $62.9 million in the fourth quarter of 2014, an increase of $14.5 million, or 30.0%, from the fourth quarter of 2013. Adjusted EBITDA increased $20.5 million, or 33.1% over the prior year quarter, to $82.5 million. Available Cash before Reserves and Adjusted EBITDA are non-GAAP measures that are defined and reconciled later in this press release to the most directly comparable GAAP financial measure, income from continuing operations.
-- We reported income from continuing operations of $26.2 million, or $0.28 per unit for the fourth quarter of 2014 compared to $16.7 million, or $0.19 per unit, for the same period in 2013.
-- We expanded our reporting segments to five from our historical three.
-- On February 13, 2015, we paid a total quarterly distribution of $56.5 million based on our quarterly declared distribution of $0.595 per unit attributable to our financial and operational results for the fourth quarter of 2014. Our Available Cash before Reserves provided 1.11 times coverage for this quarterly distribution.
-- We increased our distribution to all unitholders for the thirty-eighth consecutive quarter, thirty-three of which have been 10% or greater over the prior year's quarter and none less than 8.7%.
Grant Sims, CEO of Genesis Energy, said, "We delivered another solid quarter, including generating a record amount of Available Cash before Reserves of $62.9 million in the fourth quarter of 2014. Our fourth quarter of 2014 results include non-recurring charges related to our decision to exit certain third-party terminal facilities historically leased by us to support our heavy fuel oil business, including non-recurring costs of $5.0 million. Our results also include the effects of the change in our unit price on our equity-based compensation plan expense included in Available Cash before Reserves, which had a positive impact of approximately $3.5 million.
The charge we took in our heavy fuel oil business is intended to allow us to "right size" that business prospectively to match the lower volumes of blend materials currently available for us to economically handle compared to the volumes that have historically been available to us. This new market reality has resulted, primarily, from the general lightening of refineries' crude slates resulting in a better supply/demand balance between heavy refined bottoms and domestic coker and asphalt requirements. Somewhat offsetting this charge was a reduction in our equity-based compensation expenses attributable to the decrease in the market price of our common units. We accrue the anticipated cash cost under our equity-based compensation plan based upon time and performance vesting, as well as market prices at the end of any reporting period. For the fourth quarter, our accrual was based on a common unit price of $42.50 per unit, which reflects the approximate closing price at December 31, 2014. We estimate that our accrual to compensation expense in the first quarter will change approximately $375,000 for each $1 change in our unit price.
The current lower commodity price environment is highlighting some of the benefits of our strategy to primarily focus on customers further downstream in the energy value chain, like refiners (as opposed to producers). For example, refiners are the shippers of over 85% of the volumes transported on our onshore crude pipelines, and refiners contract for more than 90% of the use of our inland barges, which primarily are used to transport intermediate refined products (not crude oil) between refining complexes.
Our crude oil pipelines in the Gulf of Mexico represent the single largest departure from our "refinery-centric" customer strategy. The shippers on those pipelines are primarily integrated and large independent energy companies who have developed, and continue to explore for, numerous world-class, long-lived crude oil properties whose production is ideally suited for the vast majority of refineries along the Gulf Coast, unlike the lighter crude oil and condensates produced from numerous onshore shale plays. Those world-class properties and the related pipelines and other infrastructure needed to develop them are capital intensive and yet, we believe, economically viable, in most cases, even in this lower commodity price environment. There is a variety of data indicating this lower commodity price environment is not materially slowing exploration or development efforts relating to large reservoirs in the Gulf of Mexico to the same extent as is occurring onshore. For example, the number of mobile offshore drilling units working in the deepwater Gulf of Mexico last week was 43 versus 41 in the last week of June 2014, compared to 1,298 and 1,800 onshore land rigs in such periods, respectively.
We are pleased with the announcement of production commencing in the Lucius field in January, which will allow for additional contributions to our financial results as throughput on Poseidon ramps throughout 2015 and the minimum volumes on SEKCO are achieved and exceeded. We continue to progress on our projects in Louisiana, stretching from Port Hudson, through Baton Rouge, and south to Raceland, all designed to provide services for multiple refining complexes in Louisiana. Although a small portion of that infrastructure is in operation, we would not expect to see meaningful volumes until those facilities are completed in the second half of 2015. We are also pleased to announce that we have completed the integration of the M/T American Phoenix into our marine transportation operations.
In spite of this lower commodity price environment, our businesses are performing well, and we expect them to continue to do so. We are being well-served by our business strategies, including being primarily refinery-centric and supporting world-class oil developments of integrated and large independent energy companies operating in the deepwaters of the Gulf of Mexico. Our business strategies, coupled with our complementary acquisitions and growth projects that will be ramping up throughout 2015, should position us well to continue to achieve our goals of delivering low double-digit growth in distributions, an increasing coverage ratio and an investment grade leverage ratio, all without ever losing our cultural focus on providing safe, responsible and reliable services."
Financial Results
Available Cash before Reserves was $62.9 million in the fourth quarter of 2014 (or "2014 Quarter"). The primary components impacting Available Cash before Reserves are Segment Margin, corporate general and administrative expenses (excluding certain non-cash charges), interest expense and maintenance capital utilized. Our fourth quarter results include $5.0 million of non-recurring charges attributable to "right sizing" our heavy fuel oil business, as described above. Those non-recurring charges relate to accruals for rent, termination and facility cleaning obligations under certain storage facility leases from third-parties. Our results also include the effects of the change in our unit price on our equity-based compensation expense included in Available Cash before Reserves, approximately one-third of which is allocated to Segment Margin and two-thirds of which is reflected in corporate general and administrative expense and which had an overall positive impact of approximately $3.5 million.
Beginning with the fourth quarter of 2014, we will be reporting our results on a comparative basis in five business segments. Our previously reported pipeline segment will be reported in two segments, one containing the results of our onshore pipelines and the other containing the results of our offshore pipelines. Additionally, due to the growth of our marine business, we will report those results separately from the remaining businesses in our supply and logistics segment.
Variances from the fourth quarter of 2013 (or "2013 Quarter") in these components are explained as follows:
Segment Margin
Segment Margin (a non-GAAP measure) is defined below and reconciled later in this press release to income from continuing operations.
Segment results for the fourth quarters of 2014 and 2013 were as follows:
Three Months Ended December 31, ---------------------- 2014 2013 ------------ -------- (in thousands) Onshore pipeline transportation $ 14,657 $ 14,326 Offshore pipeline transportation 25,094 13,041 Refinery services 20,497 19,537 Marine transportation 24,727 17,820 Supply and logistics 7,467 8,305 ------------ -------- Total Segment Margin (1) $ 92,442 $ 73,029 ======== =======
(1) We define Segment Margin, which is a "non-GAAP" measure because it is not contemplated by or referenced in accounting principles generally accepted in the U.S., also referred to as GAAP, as revenues less product costs, operating expenses (excluding non-cash charges, such as depreciation and amortization), and segment general and administrative expenses, plus our equity in distributable cash generated by our equity investees. In addition, our Segment Margin definition excludes the non-cash effects of our stock appreciation rights plan and includes the
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