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USD Partners LP (USDP)·Q4 2022 Earnings Summary

Executive Summary

  • Q4 2022 delivered resilient cash generation despite contract roll-offs: Net Cash from Operations $8.3M, Adjusted EBITDA $13.3M (+12% YoY), and DCF $9.6M; however, GAAP net loss was $(3.2)M as revenue fell on lower contracted capacity and FX headwinds .
  • DRUbit by Rail network operated at or above expected capacity, with the customer exceeding minimum commitments; management emphasized strengthening DRU economics and ongoing Phase 2 commercialization discussions .
  • Liquidity actions and support: distribution held at $0.1235 per unit while the Sponsor waived distributions on 17.3M units (~$2.1M reduction), and the credit facility was amended in January 2023 to provide covenant relief through the current maturity (Nov 2, 2023) .
  • Key near-term catalysts: recontracting at Hardisty/Stroud (post capacity expirations in mid-2022), potential Casper terminal sale approved by the Board (subsequent event), and Clean Fuels network expansion; macro tailwinds include rising Canadian heavy production and inventory/tank-top dynamics .

What Went Well and What Went Wrong

What Went Well

  • Adjusted EBITDA up 12% YoY to $13.3M, aided by the October settlement of interest rate derivatives; DCF of $9.6M supported the held distribution .
  • DRUbit network performance above nameplate with customer exceeding minimum commitments; over 20M barrels moved to date, reinforcing value proposition (safety, ESG, netback) .
  • Operating costs fell YoY (pipeline fees, subcontracted rail services, depreciation) reflecting lower throughput and prior Casper impairment; SG&A benefited from Hardisty South service fee structure post-acquisition .

What Went Wrong

  • Revenue declined materially YoY on reduced contracted capacity at Hardisty and expiration of Stroud contracts; FX headwinds on CAD-denominated contracts further pressured revenues .
  • GAAP net loss of $(3.2)M vs. $4.3M profit in Q4’21, driven by lower revenue and higher interest expense; non-cash derivative losses also weighed on results .
  • Borrowing capacity modestly decreased QoQ ($55.5M at 12/31/22 vs. $57.8M at 9/30/22), underscoring urgency of recontracting and financing actions ahead of facility maturity .

Financial Results

Consolidated Financials (Quarterly progression: oldest → newest)

MetricQ2 2022Q3 2022Q4 2022
Total Revenues ($USD Thousands)33,741 21,479 20,649
Net Income (Loss) ($USD Thousands)3,805 (69,353) (3,211)
Net Cash Provided by Operating Activities ($USD Thousands)6,215 13,521 8,272
Adjusted EBITDA ($USD Thousands)11,594 12,255 13,330
Distributable Cash Flow ($USD Thousands)10,212 9,550 9,631
EBITDA Margin (%)34.3% 57.0% 64.5%
Net Income Margin (%)11.3% (322.7%) (15.6%)

Notes: EBITDA Margin and Net Income Margin are computed from cited Revenue and Adjusted EBITDA/Net Income sources.

Q4 Year-over-Year Comparison (Q4 2021 → Q4 2022)

MetricQ4 2021Q4 2022YoY Δ
Total Revenues ($USD Thousands)33,897 20,649 (39.1%)
Net Income (Loss) ($USD Thousands)4,286 (3,211) nm
Adjusted EBITDA ($USD Thousands)11,914 13,330 +11.9%

Segment/Terminal Directional Commentary

TerminalQ2 2022Q3 2022Q4 2022
Hardisty (incl. South)Lower revenue vs prior year due to prior early cancellation payment in Q2’21; later reduced contracted volume commitments Lower revenue on reduced contracted capacity and FX headwinds; deferral of make‑up right revenues Lower revenue on reduced contracted capacity and FX headwinds
StroudLower revenue on decreased commitments effective Aug 2021 Contracts expired July 1, 2022 → revenue decline Contracts concluded July 1, 2022 → lower revenue
CasperLower storage/throughput volumes Lower storage revenue post contract end in Sept 2021 Lower throughput volumes; depreciation lower post Sept 2022 impairment
West Colton (Clean Fuels)Higher revenue on renewable diesel contract start Dec 2021 Higher revenue from renewable diesel contract Higher revenue from renewable diesel contract

Distribution and Coverage (reported/structural)

MetricQ2 2022Q3 2022Q4 2022
Distribution per unit ($)0.1235 0.1235 0.1235
Sponsor WaiverNone disclosedNone disclosedWaived 17.3M units (~$2.1M distribution reduction)
Coverage (as discussed)2.5x (Q2) ~2.3x (Q3) Method disclosed; distributions ≈$2.0M after waiver

Guidance Changes

Metric/TopicPeriodPrevious Guidance/StatusCurrent Guidance/StatusChange
Distribution per unitQuarterly$0.1235 maintained $0.1235 maintained; Sponsor waived Q4 on 17.3M units Maintained; waiver reduces payout
Credit facility covenantsThrough maturity (Nov 2, 2023)Standard covenants; leverage cap 5.0x through 12/31/22 January 2023 amendment provides relief from max leverage and min coverage ratios through maturity Amended (relief granted)
Borrowing capacity (incl. cash)Q3 2022 vs Q4 2022~$57.8M at 9/30/22 ~$55.5M at 12/31/22 Lower
Recontracting focus2022–H1 2023Contracts expired mid‑2022; active renewal/extension efforts Continued focus on renew/extend/replace at Hardisty/Stroud in 2023 Ongoing

Earnings Call Themes & Trends

TopicQ2 2022 (Aug 4)Q3 2022 (Nov 2)Q4 2022 (Mar 2)Trend
DRUbit commercializationAdvanced negotiations; asset synergies from Hardisty South; netback/safety/ESG advantages Continued detailed discussions; DRU Phase 2 emphasized; long‑term contracts Operating above capacity; customer exceeding minimums; expecting Phase 2 update soon Strengthening; execution progress
Canadian heavy macro & egressInventories rebuilding; apportionment expected; crude‑by‑rail parity likely ahead Forward curve implies rail parity in 1H23; SPR releases depressing Gulf values Inventory at tank-top post Keystone outage; production growth expected 2023–2024 Tailwinds building
SPR impact on differentialsHeadwind to WCS values and Gulf replacement costs SPR widened local discounts, muting net spread; expected to end by year‑end SPR cited as prior headwind; focus on DRU non‑pipe dynamics Fading headwind
Liquidity & refinancingUndrawn capacity $43M; swap reset; distribution maintained Capacity ~$58M; swap proceeds; maturity Nov 2023; active lender discussions Capacity ~$55.5M; covenant relief amendment in Jan 2023; active refinance discussions Proactive measures
Stroud/Casper operationsStroud commitments expired; Casper throughput weaker Stroud low activity; Casper impairment; ops costs rationalized Casper sale approved by Board (liquidity option) Portfolio optimization
Clean Fuels initiativesWest Colton RD ramp; IRA tailwinds Destination/biofuels terminals; feedstock logistics New National City biofuels terminal announced; network expansion (CA/OR/WA/Canada/Texas GC) Expansion underway

Management Commentary

  • “The underlying economics that support our DRUbit by Rail network were positive in 2022 and improved significantly in the fourth quarter… [network] continues to operate at or above our expected capacity” — CEO Dan Borgen .
  • “Adjusted EBITDA for the fourth quarter of 2022 increased by 12%… includes the impact of the settlement of the Partnership’s interest rate derivative that occurred in October 2022” — CFO Adam Altsuler .
  • “Canadian inventories since a year at the higher end of the range… heavy sour inventories finished at approximately 35 million barrels, which… represents tank top… single biggest driver… need for egress by rail” — CCO Brad Sanders .
  • “Our Sponsor decided to waive its right to the fourth quarter distribution on its 17.3 million units” — CEO Dan Borgen .
  • “We did get Board approval to sell our Casper terminal. And so that’s a potential source of liquidity” — CFO Adam Altsuler .

Q&A Highlights

  • Refinancing tied to recontracting progress; banks supportive post amendment; Casper sale approved as liquidity lever (subsequent event in 10‑K) .
  • Covenant relief deemed sufficient to bridge re‑contracting, with ongoing lender engagement; continuous scenario analysis on distributions .
  • Operational cadence expected similar Q1 vs Q4 absent anomalies; distribution evaluated quarterly; Board discretion remains paramount .
  • DRU Phase 2 commercialization update anticipated; DRU viewed as independent of macro due to cost/ESG advantages .
  • TMX uncertainty (timing/cost) supports DRU conversion strategy and longer‑term, sustainable contracts .

Estimates Context

  • Wall Street consensus for Q4 2022 EPS and revenue was unavailable due to access limitations to S&P Global data during retrieval (Daily Request Limit exceeded). Values retrieved from S&P Global.
  • Company did not provide formal revenue/EPS guidance; Street comparisons are therefore not incorporated. Near-term estimate revisions likely reflect: (i) YoY revenue decline and net loss, (ii) +12% YoY Adjusted EBITDA, and (iii) liquidity measures including covenant relief and potential asset sale .

Key Takeaways for Investors

  • Cash generative quarter despite revenue pressure: Adjusted EBITDA rose YoY to $13.3M and DCF held near $9.6M, underpinning maintained distribution as Sponsor waived its payout to preserve liquidity .
  • DRUbit performance and unit-train economics are strengthening, with Phase 2 discussions advancing; this is a core medium‑term value driver less exposed to pipe differentials .
  • Recontracting at Hardisty/Stroud is the near-term swing factor; macro signals (tank‑top inventories, production growth, fading SPR effects) are supportive of crude-by-rail parity in 2023 .
  • Balance sheet actions are credible: covenant relief through maturity and potential Casper sale provide time and optionality to execute commercial plans .
  • Watch liquidity runway and borrowing capacity trend (~$55.5M at 12/31/22) ahead of Nov 2023 facility expiry; successful recontracting and DRU Phase 2 could be stock catalysts .
  • Clean Fuels expansion (National City and broader network) diversifies revenue and adds ESG-aligned optionality; West Colton’s renewable diesel contract continues to contribute .
  • Trading setup: absent Street estimates, narrative catalysts are DRU Phase 2 announcement, recontracting updates, and financing extension; downside risks include delayed recontracting or macro setbacks impacting spreads .