USD Partners LP (USDP)·Q1 2023 Earnings Summary

Executive Summary

• Q1 2023 was liquidity- and recontracting-driven: USDP closed the Casper Terminal sale for $33.0M cash, reduced debt with $19.1M of proceeds in April, suspended its quarterly distribution, and engaged advisors to evaluate strategic options as its $275M credit facility approaches 11/2/2023 maturity .
• Fundamentals weakened: Revenue fell to $21.1M, Adjusted EBITDA to $3.3M, and DCF to ($1.6)M; EBITDA margin compressed sharply to ~15.6% (incl. ~$1.9M Casper transaction costs), and operating cash flow was ($0.6)M .
• Management’s near-term focus: recontracting Hardisty/Stroud, accelerating transition from Dilbit to DRUbit, and refinancing/renewing the revolver; board suspended distributions to preserve liquidity until visibility improves .
• Potential medium-term catalysts flagged by management: additional DRUbit take-or-pay commitments, and new Uinta waxy volumes at Stroud beginning Q3’23, which could diversify revenue mix and support utilization recovery .

What Went Well and What Went Wrong

• What Went Well

  • Closed Casper Terminal sale ($33.0M), recorded ~$6.2M gain, and repaid ~$19.1M of debt in April, improving flexibility for recontracting/refinancing .
  • DRU operations performing “per plan” on ratability and yields; management cites ~22M barrels moved to date and ongoing advanced discussions for expansion (longer-term take-or-pay) .
  • Identified new opportunity at Stroud: expect to start throughputting Uinta basin waxy crude in Q3 2023, creating a scalable destination solution for growing production .

• What Went Wrong

  • Material earnings/cash flow deterioration: Adjusted EBITDA fell to $3.3M (down ~67% YoY) with DCF negative ($1.6)M, and OCF at ($0.6)M, reflecting lower contracted capacity at Hardisty, termination of Stroud’s contract mid-2022, FX headwinds, higher interest expense, and derivative losses .
  • Distribution suspended to support liquidity, underscoring near-term pressure and the need to secure recontracting and refinancing outcomes before the 11/2/2023 facility maturity .
  • EBITDA margin compression driven by revenue declines and ~$1.9M transaction costs tied to the Casper sale, highlighting non-recurring headwinds on an already soft base .

Financial Results

Notes:

• Q1 2023 Adjusted EBITDA includes ~$1.9M of Casper transaction costs; Q1 also recorded ~$6.2M gain on sale of Casper .
• EPS was not disclosed in the Q1 2023 press release; USDP typically emphasizes DCF for distributions .

KPIs and Liquidity

Operational revenue/cost drivers (YoY, mgmt commentary): Lower Hardisty revenue from reduced contracted capacity and FX; Stroud revenue down post-contract expiration in July 2022; lower pipeline fees and subcontracted rail costs with lower throughput; higher interest expense; derivative P/L swung to loss .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• CEO on strategy and market context: “We remain primarily focused on transitioning from transloading Dilbit to... longer term, more sustainable DRUbit... through expansions to our sponsor’s [DRU] joint venture.”
• Distribution decision: “The Board... made the decision to suspend the Partnership’s quarterly distribution and to utilize free cash flow to support the Partnership’s operations and to potentially pay down debt.”
• CFO on Q1 results: “Net income of $2 million… net cash used in operating activities of $600,000, adjusted EBITDA of $3.3 million and distributable cash flow of negative $1.6 million. Adjusted EBITDA included... approximately $1.9 million of transaction costs associated with the sale of the Casper Terminal.”
• CCO on macro timing: “Renewing contracts in our traditional Dilbit business remains challenged, and our ability to possibly commercialize our Hardisty capacity is more likely in the second half of 2023.”
• COO on DRU operations: “Ratables... are per plan. Yields for both DRUbit and condensate are also per plan... successful test on an alternative Dilbit feed.”
• CCO on Stroud: “Beginning in the third quarter of ‘23, we expect to begin throughputting waxy crude from the Uinta basin... a new and scalable destination solution.”

Q&A Highlights

• Distribution reinstatement timing: Board will evaluate quarterly; improving DCF from recontracting (Dilbit) and/or DRUbit expansion would support reinstatement; liquidity and credit facility maturity also factor into prudence .
• Confidence on DRUbit expansion: Active weekly discussions with existing and new customers; customers satisfied with performance/financials; timing depends on customer approval processes and capital priorities .
• Liquidity posture: Choice to suspend distribution aimed at preserving liquidity and reducing net debt through recontracting/refinance cycle; management reiterated commitment to long-term sustainability .

Estimates Context

• We attempted to pull S&P Global consensus for Revenue, EPS, and EBITDA for Q3’22–Q1’23, but data could not be retrieved at this time (tool limit exceeded). As a result, Wall Street consensus comparisons are unavailable for this recap. If needed, we can refresh and add estimate comparisons once access is restored.

Key Takeaways for Investors

• Liquidity first: Distribution suspension, Casper sale, and partial debt paydown signal a conservative stance until recontracting and refinancing are secured ahead of the 11/2/23 revolver maturity .
• Core profitability compressed: Q1 Adjusted EBITDA of $3.3M and DCF of ($1.6)M reflect contract roll-offs at Hardisty and Stroud and macro headwinds; note ~$1.9M transaction costs in the quarter .
• Strategic pivot to DRUbit intact: Management is pushing to transition capacity to longer-tenure DRUbit take-or-pay; advanced customer talks remain the primary upside catalyst .
• Near-term operational optionality: Stroud Uinta waxy startup in Q3’23 could add incremental throughput and diversify volume sources .
• Refinancing watch item: Available borrowings declined from ~$55.5M (12/31/22) to ~$41.0M (3/31/23) even as undrawn capacity stayed ~$60M; progress on refinancing/extension and contract wins are key de‑risking events .
• Macro sensitivity: Hardisty utilization remains linked to Canadian supply growth vs. egress capacity; management sees better odds for commercialization in 2H’23 if growth materializes .
• Monitoring list: New DRUbit commitments, recontracting updates at Hardisty/Stroud, revolver extension/replacement, and Q3’23 Stroud Uinta ramp.

Citations:

• Q1 2023 press release/8‑K: revenues, income, cash flow, liquidity, Casper, distribution, guidance context .
• Q1 2023 earnings call: strategy, DRU operations, macro timing, Stroud Uinta initiation, Q&A .
• Q4 2022 press release/8‑K and call: comparative KPIs, liquidity baseline, distribution history, macro/DRU context .
• Q3 2022 press release/8‑K and call: comparative revenue/EBITDA/DCF, liquidity, macro framing .