Southcross Energy Partners, L.P. Reports Second Quarter Results

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DALLAS, Aug. 09, 2017 (GLOBE NEWSWIRE) — Southcross Energy Partners, L.P. (NYSE:SXE) (“Southcross” or the “Partnership”) today announced second quarter financial and operating results. 

Southcross’ net loss was $15.9 million for the quarter ended June 30, 2017, compared to $7.4 million for the same period in the prior year and $15.4 million for the quarter ended March 31, 2017. Adjusted EBITDA (as defined below) was $17.1 million for the quarter ended June 30, 2017, compared to $15.6 million for the same period in the prior year and $18.0 million for the quarter ended March 31, 2017. Adjusted EBITDA for the second quarter was 5% lower than the prior quarter due to normal seasonal variations at our Mississippi and Alabama assets. This was partially offset by lower companywide general and administrative expenses resulting from cost savings initiatives.

Processed gas volumes during the quarter averaged 267 MMcf/d, a decrease of 16% compared to 319 MMcf/d for the same period in the prior year and an increase of 4% compared to 256 MMcf/d for the quarter ended March 31, 2017. The quarter-over-quarter increase reflects improved rig count activity in our core areas.

Capital Expenditures

For the quarter ended June 30, 2017, growth and maintenance capital expenditures were $6.1 million and were related primarily to the installation of a new gas gathering pipeline in Mississippi and required safety and reliability upgrades. Southcross continues to expect that net capital expenditures for full-year 2017, including growth and maintenance expenditures, will be in the range of $15 million to $20 million and will be limited to projects with contractually committed volumes, along with recurring maintenance spending.

Capital and Liquidity

As of June 30, 2017, Southcross had total outstanding debt of $547 million, including $113 million under its revolving credit facility, as compared to total outstanding debt of $560 million as of December 31, 2016.  

Cash Distributions and Distributable Cash Flow

Distributable cash flow (as defined below) for the quarter ended June 30, 2017 was $8.0 million, compared to $6.7 million for the same period in the prior year and $8.9 million for the quarter ended March 31, 2017. The Partnership did not make a cash distribution for the quarter ended June 30, 2017 and is restricted from making cash distributions until the Partnership’s consolidated total leverage ratio, as defined under its credit agreement, is at or below 5.0x to 1.

About Southcross Energy Partners, L.P.

Southcross Energy Partners, L.P. is a master limited partnership that provides natural gas gathering, processing, treating, compression and transportation services and NGL fractionation and transportation services. It also sources, purchases, transports and sells natural gas and NGLs. Its assets are located in South Texas, Mississippi and Alabama and include two gas processing plants, one fractionation plant and approximately 3,100 miles of pipeline. The South Texas assets are located in or near the Eagle Ford shale region. Southcross is headquartered in Dallas, Texas. Visit www.southcrossenergy.com for more information.

Forward-Looking Statements

This press release includes certain statements concerning expectations for the future that are forward-looking within the meaning of the federal securities laws. Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, events, performance or achievements, and may contain the words “expect,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “will be,” “will continue,” “will likely result,” and similar expressions, or future conditional verbs such as “may,” “will,” “should,” “would” and “could.” Without limiting the generality of the foregoing, forward-looking statements contained in this press release specifically include: the expectations, plans, strategies, objectives and growth of Southcross; and anticipated capital expenditures and Adjusted EBITDA.    Although Southcross believes the expectations and forecasts reflected in these and other forward-looking statements are reasonable, Southcross can give no assurance they will prove to be correct. Forward-looking statements contain known and unknown risks and uncertainties (many of which are difficult to predict and beyond management’s control) that may cause Southcross’ actual results in future periods to differ materially from anticipated or projected results. An extensive list of specific material risks and uncertainties affecting Southcross is described in reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K and in subsequent reports, which are available through the SEC’s  EDGAR system at www.sec.gov and on our website.  Any forward-looking statements in this press release are made as of the date hereof and Southcross undertakes no obligation to update or revise any forward-looking statements to reflect new information or events.

Use of Non-GAAP Financial Measures

We report our financial results in accordance with accounting principles generally accepted in the United States, or GAAP. We also present the non-GAAP financial measures of Adjusted EBITDA and distributable cash flow.

We define Adjusted EBITDA as net income/loss, plus interest expense, income tax expense, depreciation and amortization expense, equity in losses of joint venture investments, certain non-cash charges (such as non-cash unit-based compensation, impairments, loss on extinguishment of debt and unrealized losses on derivative contracts), major litigation costs net of recoveries, transaction-related costs, revenue deferral adjustment, loss on sale of assets, severance expense and selected charges that are unusual or non-recurring; less interest income, income tax benefit, unrealized gains on derivative contracts, equity in earnings of joint venture investments, gain on sale of assets and selected gains that are unusual or non-recurring. Adjusted EBITDA should not be considered an alternative to net income, operating cash flow or any other measure of financial performance presented in accordance with GAAP.

Adjusted EBITDA is a key metric used in measuring our compliance with our financial covenants under our debt agreements and is used as a supplemental measure by our management and by external users of our financial statements, such as investors, commercial banks, research analysts and others, to assess the ability of our assets to generate cash sufficient to support our indebtedness and make future cash distributions; operating performance and return on capital as compared to those of other companies in the midstream energy sector, without regard to financing or capital structure; and the attractiveness of capital projects and acquisitions and the overall rates of return on investment opportunities.

We define distributable cash flow as Adjusted EBITDA, plus interest income and income tax benefit, less cash paid for interest (net of capitalized costs), income tax expense and maintenance capital expenditures. We use distributable cash flow to analyze our liquidity. Distributable cash flow does not reflect changes in working capital balances. Distributable cash flow is used to assess the ability of our assets to generate cash sufficient to support our indebtedness and make future cash distributions to our unitholders; and the attractiveness of capital projects and acquisitions and the overall rates of return on alternative investment opportunities.

Adjusted EBITDA and distributable cash flow are not financial measures presented in accordance with GAAP. We believe that the presentation of these non-GAAP financial measures provides useful information to investors in assessing our financial condition, results of operations and cash flows from operations. Reconciliations of Adjusted EBITDA and distributable cash flow to their most directly comparable GAAP measure are included in this press release. Net income and net cash provided by operating activities are the GAAP measures most directly comparable to Adjusted EBITDA. The GAAP measure most directly comparable to distributable cash flow is net cash provided by operating activities. Our non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measure. Each of these non-GAAP financial measures has important limitations as an analytical tool because each excludes some but not all items that affect the most directly comparable GAAP financial measure. You should not consider Adjusted EBITDA or distributable cash flow in isolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted EBITDA and distributable cash flow may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

 
SOUTHCROSS ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per unit data)
(Unaudited)
 
  Three Months Ended June 30, Six Months Ended June 30,
  2017 2016 2017 2016
Revenues:        
Revenues $127,970  $100,141  $242,357  $195,596 
Revenues – affiliates 40,308  24,561  81,079  48,832 
Total revenues 168,278  124,702  323,436  244,428 
         
Expenses:        
Cost of natural gas and liquids sold 132,948  85,619  251,639  165,066 
Operations and maintenance 15,195  19,615  29,501  36,393 
Depreciation and amortization 18,302  18,908  36,152  37,449 
General and administrative 4,863  8,162  13,059  16,048 
Impairment of assets     649   
Gain on sale of assets (129) (12,576) (191) (12,576)
Total expenses 171,179  119,728  330,809  242,380 
         
Income (loss) from operations (2,901) 4,974  (7,373) 2,048 
Other income (expense):        
Equity in losses of joint venture investments (3,331) (3,534) (6,647) (6,963)
Interest expense (9,636) (8,833) (18,739) (18,003)
Gain on insurance proceeds     1,508   
Total other expense (12,967) (12,367) (23,878) (24,966)
Loss before income tax benefit (expense) (15,868) (7,393) (31,251) (22,918)
Income tax benefit (expense) (2) (3) (2) 3 
Net loss $(15,870) $(7,396) $(31,253) $(22,915)
General partner unit in-kind distribution (22) (26) (30) (26)
Net loss attributable to partners $(15,892) $(7,422) $(31,283) $(22,941)
         
Earnings per unit        
Net loss allocated to limited partner common units $(9,648) $(3,953) $(19,020) $(11,782)
Weighted average number of limited partner common units outstanding 48,538 33,921 48,530 31,183
Basic and diluted loss per common unit $(0.20) $(0.12) $(0.39) $(0.38)
         
Net loss allocated to limited partner subordinated units $(2,426) $(1,423) $(4,786) $(4,613)
Weighted average number of limited partner subordinated units outstanding 12,214 12,214 12,214 12,214
Basic and diluted loss per subordinated unit $(0.20) $(0.12) $(0.39) $(0.38)
                 
 
SOUTHCROSS ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for unit data)
(Unaudited)
     
  June 30, 2017 December 31, 2016
ASSETS    
Current assets:    
Cash and cash equivalents $17,221  $21,226 
Trade accounts receivable 34,586  51,894 
Accounts receivable – affiliates 26,344  7,976 
Prepaid expenses 1,911  2,751 
Other current assets 2,091  4,343 
Total current assets 82,153  88,190 
     
Property, plant and equipment, net 943,651  971,286 
Investments in joint ventures 117,678  124,096 
Other assets 2,428  2,504 
Total assets $1,145,910  $1,186,076 
     
LIABILITIES AND PARTNERS’ CAPITAL    
Current liabilities:    
Accounts payable and accrued liabilities $48,865  $50,639 
Accounts payable – affiliates 249  524 
Current portion of long-term debt 4,256  4,500 
Other current liabilities 11,428  10,976 
Total current liabilities 64,798  66,639 
     
Long-term debt 532,655  543,872 
Other non-current liabilities 13,522  11,936 
Total liabilities 610,975  622,447 
     
Commitments and contingencies    
     
Partners’ capital:    
Common units (48,538,451 and 48,502,090 units outstanding as of June 30, 2017 and December 31, 2016, respectively) 237,504  255,124 
Class B Convertible units (17,709,865 and 17,105,875 units issued and outstanding as of June 30, 2017 and December 31, 2016) 273,142  278,508 
Subordinated units (12,213,713 units issued and outstanding as of June 30, 2017 and December 31, 2016) 14,163  19,240 
General partner interest 10,126  10,757 
Total partners’ capital 534,935  563,629 
Total liabilities and partners’ capital $1,145,910  $1,186,076 
         
 
SOUTHCROSS ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
   
  Six Months Ended June 30,
  2017 2016
Cash flows from operating activities:    
Net loss $(31,253) $(22,915)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 36,152  37,449 
Unit-based compensation 414  1,706 
Amortization of deferred financing costs, original issuance discount and PIK interest 1,830  1,904 
Gain on sale of assets (191) (12,576)
Unrealized gain on financial instruments (19) (55)
Equity in losses of joint venture investments 6,647  6,963 
Distribution from joint venture investment   390 
Impairment of assets 649   
Gain on insurance proceeds (1,508)  
Other, net (348) (184)
Changes in operating assets and liabilities:    
Trade accounts receivable, including affiliates 638  44,409 
Prepaid expenses and other current assets 1,459  1,502 
Deposits paid to suppliers   (3,837)
Other non-current assets 65   
Accounts payable and accrued expenses, including affiliates (684) (27,808)
Other liabilities (2,567) 3,000 
Net cash provided by operating activities 11,284  29,948 
Cash flows from investing activities:    
Capital expenditures (12,936) (12,479)
Aid in construction payment receipts 6,644  45 
Insurance proceeds from property damage claims, net of expenditures 2,000  125 
Net proceeds from sales of assets 2,794  20,402 
Investment contributions to joint venture investments (230) (5,287)
Net cash provided by (used in) investing activities (1,728) 2,806 
Cash flows from financing activities:    
Borrowings under our credit facility   3,110 
Repayments under our credit facility (10,000) (54,250)
Repayments under our term loan agreement (3,225) (2,250)
Payments on capital lease obligations (247) (204)
Financing costs (44) (86)
Tax withholdings on unit-based compensation vested units (45) (57)
Borrowing of senior unsecured paid in-kind notes   14,000 
Repayment of senior unsecured paid in-kind notes and paid in-kind interest   (14,260)
Valley Wells operating expense cap adjustment   2,637 
Common unit issuances to Holdings for equity contributions   11,884 
Interest on receivable due from Holdings   233 
Net cash used in financing activities (13,561) (39,243)
     
Net decrease in cash and cash equivalents (4,005) (6,489)
Cash and cash equivalents — Beginning of period 21,226  11,348 
Cash and cash equivalents — End of period $17,221  $4,859 
         
SOUTHCROSS ENERGY PARTNERS, L.P.
SELECTED FINANCIAL AND OPERATIONAL DATA
(In thousands, except for operating data)
(Unaudited)
     
  Three Months Ended June 30, Six Months Ended June 30,
  2017 2016 2017 2016
Financial data:        
Adjusted EBITDA $17,070  $15,599  $35,088  $36,295 
         
Maintenance capital expenditures $248  $836  $928  $3,112 
Growth capital expenditures 5,823  6,124  12,008  9,322 
         
Distributable cash flow $7,993  $6,714  $16,912  $15,024 
         
Operating data:        
Average volume of processed gas (MMcf/d) 267  319  262  331 
Average volume of NGLs produced (Bbls/d) 32,945  35,912  32,092  37,771 
Average daily throughput Mississippi/Alabama (MMcf/d) 166  147  167  151 
         
Realized prices on natural gas volumes ($/Mcf) $3.22  $1.88  $3.28  $1.90 
Realized prices on NGL volumes ($/gal) 0.65  0.30  0.62  0.33 
             
 
SOUTHCROSS ENERGY PARTNERS, L.P.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands)
(Unaudited)
 
 Three Months Ended June 30, Six Months Ended June 30,
 2017 2016 2017 2016
Net cash provided by operating activities$11,094  $47,119  $11,284  $29,948  
Add (deduct):       
Depreciation and amortization(18,302) (18,908) (36,152) (37,449) 
Unit-based compensation(157) (725) (414) (1,706) 
Amortization of deferred financing costs, original issuance discount and PIK interest(879) (831) (1,830) (1,904) 
Gain on sale of assets129  12,576  191  12,576  
Unrealized gain on financial instruments2  85  19  55  
Equity in losses of joint venture investments(3,331) (3,534) (6,647) (6,963) 
Distribution from joint venture investment      (390) 
Impairment of assets    (649)   
Gain on insurance proceeds    1,508    
Other, net63  62  348  184  
Changes in operating assets and liabilities:       
Trade accounts receivable, including affiliates10,619  (35,310) (638) (44,409) 
Prepaid expenses and other current assets(2,089) (329) (1,459) (1,502) 
Other non-current assets(4) (280) (65)   
Accounts payable and accrued expenses, including affiliates(11,415) 9,145  684  27,808  
Deposits paid to suppliers  (11,463)   3,837  
Other liabilities(1,600) (5,003) 2,567  (3,000) 
Net loss$(15,870) $(7,396) $(31,253) $(22,915) 
Add (deduct):       
Depreciation and amortization$18,302  $18,908  $36,152  $37,449  
Interest expense9,636  8,833  18,739  18,003  
Gain on insurance proceeds    (1,508)   
Income tax (benefit) expense2  3  2  (3) 
Impairment of assets    649    
Gain on sale of assets(129) (12,576) (191) (12,576) 
Revenue deferral adjustment754  754  1,508  1,508  
Unit-based compensation157  725  414  1,706  
Major litigation costs, net of recoveries116  118  149  243  
Equity in losses of joint venture investments3,331  3,534  6,647  6,963  
Severance expense414  16  2,748  16  
Retention bonus funded by Holdings  898    1,796  
Valley Wells’ operating expense cap adjustment  1,415    2,406  
Fees related to Equity Cure Agreement  67    577  
Distribution from joint venture investment      390  
Expenses related to shut-down of Conroe processing plant and conversion of Gregory processing plant313    607    
Other, net44  300  425  732  
Adjusted EBITDA$17,070  $15,599  $35,088  $36,295  
Cash interest, net of capitalized costs(8,827) (8,046) (17,246) (18,162) 
Income tax benefit (expense)(2) (3) (2) 3  
Maintenance capital expenditures(248) (836) (928) (3,112) 
Distributable cash flow$7,993  $6,714  $16,912  $15,024  
                 
Contact:
Southcross Energy Partners, L.P.                                  
Mallory Biegler, 214-979-3720
Investor Relations
investorrelations@southcrossenergy.com