# Martin Midstream Partners L.P.: Form 10-Q for the period ended Jun 30, 2023

- Company: [Martin Midstream Partners L.P.](/companies/mmlp.md) (CIK 1176334)
- Form: 10-Q
- Filed: 2023-07-25
- Accepted by EDGAR: Jul 25, 2023, 16:13 ET
- Period: 2023-06-30
- Accession: 0001176334-23-000140
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1176334/000117633423000140/mmlp-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1176334/000117633423000140/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $195.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $440.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $97.2m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $237.1m | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2023-04-01 to 2023-06-30 | $8.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-01-01 to 2023-06-30 | $19.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | $17.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | $34.8m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $996.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $2.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $1.1m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | −$4.0m | us-gaap:NetIncomeLoss |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $98.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-04-01 to 2023-06-30 | $9.8m | us-gaap:PaymentsToAcquireProductiveAssets |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $17.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-06-30 | $57.0k | us-gaap:Cash |
| Current assets | at 2023-06-30 | $117.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $502.8m | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $88.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $566.6m | us-gaap:Liabilities |
| Long-term debt | at 2023-06-30 | $436.5m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-06-30 | $0 | us-gaap:LongTermDebtCurrent |

## Management's discussion and analysis

As filed, 70,225 characters.

You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated and condensed financial statements and the notes thereto included elsewhere in this quarterly report.

### Overview

We are a publicly traded limited partnership with a diverse set of operations focused primarily in the Gulf Coast region of the U.S. Our four primary business lines include:

- Terminalling, processing, and storage services for petroleum products and by-products including the refining of naphthenic crude oil;
- Land and marine transportation services for petroleum products and by-products, chemicals, and specialty products;
- Sulfur and sulfur-based products processing, manufacturing, marketing, and distribution; and
- Marketing, distribution, and transportation services for natural gas liquids and blending and packaging services for specialty lubricants and grease.

The petroleum products and by-products we collect, transport, store and market are produced primarily by major and independent oil and gas companies who often turn to third parties, such as us, for the transportation and disposition of these products. In addition to these major and independent oil and gas companies, our primary customers include independent refiners, large chemical companies, and other wholesale purchasers of these products. We operate primarily in the Gulf Coast region of the U.S. This region is a major hub for petroleum refining, natural gas gathering and processing, and support services for the exploration and production industry.

We were formed in 2002 by Martin Resource Management Corporation, a privately-held company whose initial predecessor was incorporated in 1951 as a supplier of products and services to drilling rig contractors. Since then, Martin Resource Management Corporation has expanded its operations through acquisitions and internal expansion initiatives as its management identified and capitalized on the needs of producers and purchasers of petroleum products and by-products and other bulk liquids. Martin Resource Management Corporation is an important supplier and customer of ours. As of June 30, 2023, Martin Resource Management Corporation owned 15.7% of our total outstanding common limited partner units. Furthermore, on December 28, 2021, Martin Resource Management Corporation indirectly acquired, through its wholly owned subsidiary, Martin Resource LLC, the remaining 49% voting interest (50% economic interest) in MMGP Holdings, LLC ("Holdings"), which is the sole member of Martin Midstream GP LLC ("MMGP"), our general partner. Such interests were previously held by certain affiliated investment funds managed by Alinda Capital Partners, which sold the interests to Senterfitt Holdings Inc. (“Senterfitt”) on November 23, 2021. At such time, Senterfitt granted Martin Resource LLC the right to purchase such interests for a period of ten years, which right was exercised on December 28, 2021. As a result, Martin Resource Management Corporation indirectly owns 100% of MMGP. Martin Resource Management Corporation directs our business operations through its ownership of our general partner. MMGP owns a 2.0% general partner interest in us, and, until November 23, 2021, MMGP owned all of our incentive distribution rights. On November 23, 2021, MMGP contributed to us all of our incentive distribution rights for no consideration, whereupon the incentive distribution rights were cancelled and cease to exist.

We entered into the Omnibus Agreement that governs, among other things, potential competition and indemnification obligations among the parties to the agreement, related party transactions, the provision of general administration and support services by Martin Resource Management Corporation and our use of certain of Martin Resource Management Corporation’s trade names and trademarks. Under the terms of the Omnibus Agreement, the employees of Martin Resource Management Corporation are responsible for conducting our business and operating our assets.

Martin Resource Management Corporation has operated our business since our inception in 2002. Martin Resource Management Corporation began operating our NGL business in the 1950s and our sulfur business in the 1960s. It began our land transportation business in the early 1980s and our marine transportation business in the late 1980s. It entered into our fertilizer and terminalling and storage businesses in the early 1990s.

### Significant Recent Developments

*Exit from Butane Optimization Business.* In the second quarter of 2023, we completed the previously announced exit of our butane optimization business at the conclusion of the butane selling season. Going forward, with respect to butane, we will operate as a fee-based butane logistics business, primarily utilizing our north Louisiana underground storage assets, which have both truck and rail capability. This logistics business will also utilize our truck transportation assets for fee-based product movements. As a result of this new business model, we will no longer carry butane inventory going forward, enabling us to reduce commodity risk exposure, cash flow and earnings volatility, and working capital requirements.

The following revenues and costs, which are included in the historical financial results for the twelve months ended June 30, 2023, will not be incurred under the new fee-based butane logistics business model.

|  | Three Months Ended September 30, 2022 | Three Months Ended December 31, | Three Months Ended March 31, 2023 | Three Months Ended June 30, | Twelve Months Ended June 30, |
| --- | ---: | ---: | ---: | ---: | ---: |
| Products revenue | $28,398 | $55,912 | $56,890 | $13,650 | $154,850 |
| Cost of products sold | 47,926 | 60,338 | 56,208 | 16,074 | 180,546 |
| Selling, general and administrative expenses | 504 | 309 | 372 | 140 | 1,325 |
|  | $(20,032) | $(4,735) | $310 | $(2,564) | $(27,021) |

*Issuance of 2028 Notes to Refinance Existing Secured Notes*. On February 8, 2023, we completed the sale of $400.0 million in aggregate principal amount of our 2028 Notes. We used the proceeds of the 2028 Notes to complete the tender offers for substantially all of our 2024 Notes and 2025 Notes, redeem all 2024 Notes and 2025 Notes that were not validly tendered, repay a portion of the indebtedness under our credit facility, and pay fees and expenses in connection with the foregoing. Simultaneously with the issuance of the 2028 Notes we amended our credit facility to, among other things, reduce the commitments thereunder from $275.0 million to $200.0 million (with further scheduled reductions to $175.0 million on June 30, 2023 and $150.0 million on June 30, 2024) and extend the scheduled maturity date of the credit facility to February 8, 2027.

*Electronic Level Sulfuric Acid Joint Venture.* On October 19, 2022, Martin ELSA Investment LLC, our affiliate, entered into definitive agreements with Samsung C&T America, Inc. and Dongjin USA, Inc., an affiliate of Dongjin Semichem Co., Ltd., to form DSM Semichem LLC (“DSM”). DSM will produce and distribute electronic level sulfuric acid (“ELSA”). By leveraging our existing assets located in Plainview, Texas and installing additional facilities (the “ELSA Facility”) as required, DSM will produce ELSA that meets the strict quality standards required by the recent advances in semiconductor manufacturing. In addition to owning a 10% non-controlling interest in DSM, we will be the exclusive provider of feedstock to the ELSA Facility. We, through our affiliate MTI, will also provide land transportation services of the ELSA produced by DSM. The Partnership expects to fund approximately $20.0 million in aggregate capital expenditures in connection with this joint venture and the Partnership’s related services in 2023 and 2024.

### Subsequent Events

*Quarterly Distribution.* On July 19, 2023, we declared a quarterly cash distribution of $0.005 per common unit for the second quarter of 2023, or $0.020 per common unit on an annualized basis, which will be paid on August 14, 2023 to unitholders of record as of August 7, 2023.

### Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on the historical consolidated and condensed financial statements included elsewhere herein. We prepared these financial statements in conformity with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. We routinely evaluate these estimates, utilizing historical experience, consultation with experts and other methods we consider reasonable in the particular circumstances. Our results may differ from these estimates, and any effects on our business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Changes in these estimates could materially affect our financial position, results of operations or cash flows. See the "Critical Accounting Policies and Estimates" section in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 2, "Significant Accounting Policies" in Notes to Consolidated Financial Statements included within our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 2, 2023.

### Our Relationship with Martin Resource Management Corporation

Martin Resource Management Corporation is engaged in the following principal business activities:

- distributing asphalt, marine fuel and other liquids;
- providing marine bunkering and other shore-based marine services in Texas, Louisiana, Mississippi, Alabama, and Florida;
- operating a crude oil gathering business in Stephens, Arkansas;
- providing crude oil gathering, refining, and marketing services of base oils, asphalt, and distillate products in Smackover, Arkansas;
- providing crude oil marketing and transportation from the well head to the end market;
- operating an environmental consulting company;
- supplying employees and services for the operation of our business; and
- operating, solely for our account, the asphalt facilities in Hondo, South Houston and Port Neches, Texas, and Omaha, Nebraska.

We are and will continue to be closely affiliated with Martin Resource Management Corporation as a result of the following relationships.

### Ownership

Martin Resource Management Corporation owns approximately 15.7% of the outstanding limited partner units. In addition, following its acquisition of the remaining 49% voting interest (50% economic interest) in Holdings, which is the sole member of MMGP, Martin Resource Management Corporation indirectly owns 100% of MMGP, our general partner. MMGP owns a 2% general partner interest in us.

### Management

Martin Resource Management Corporation directs our business operations through its ownership interests in and control of our general partner. We benefit from our relationship with Martin Resource Management Corporation through access to a significant pool of management expertise and established relationships throughout the energy industry. We do not have employees. Martin Resource Management Corporation employees are responsible for conducting our business and operating our assets on our behalf.

### Related Party Agreements

The Omnibus Agreement requires us to reimburse Martin Resource Management Corporation for all direct expenses it incurs or payments it makes on our behalf or in connection with the operation of our business. We reimbursed Martin Resource Management Corporation for $36.5 million of direct costs and expenses for the three months ended June 30, 2023 compared to $40.2 million for the three months ended June 30, 2022. We reimbursed Martin Resource Management Corporation for $77.4 million of direct costs and expenses for the six months ended June 30, 2023 compared to $79.3 million for the six months ended June 30, 2022. There is no monetary limitation on the amount we are required to reimburse Martin Resource Management Corporation for direct expenses.

In addition to the direct expenses, under the Omnibus Agreement, we are required to reimburse Martin Resource Management Corporation for indirect general and administrative and corporate overhead expenses. In each of the three months ended June 30, 2023 and 2022, the Conflicts Committee approved reimbursement amounts of $3.5 million and $3.4 million, respectively. In each of the six months ended June 30, 2023 and 2022, the Conflicts Committee approved reimbursement amounts of $7.0 million and $6.7 million, respectively. The Conflicts Committee will review and approve future adjustments in the reimbursement amount for indirect expenses, if any, annually. These indirect expenses covered the centralized corporate functions Martin Resource Management Corporation provides for us, such as accounting, treasury, clerical, engineering, legal, billing, information technology, administration of insurance, general office expenses and employee benefit plans and other general corporate overhead functions we share with Martin Resource Management Corporation’s retained businesses. The Omnibus Agreement also contains significant non-compete provisions and indemnity obligations. Martin Resource Management Corporation also licenses certain of its trademarks and trade names to us under the Omnibus Agreement.

These additional related party agreements include, but are not limited to, a master transportation services agreement, marine transportation agreements, terminal services agreements, a tolling agreement, and a sulfuric acid sales agency agreement. Pursuant to the terms of the Omnibus Agreement, we are prohibited from entering into certain material agreements with Martin Resource Management Corporation without the approval of the Conflicts Committee.

For a more comprehensive discussion concerning the Omnibus Agreement and the other agreements that we have entered into with Martin Resource Management Corporation, please refer to "Item 13. Certain Relationships and Related Transactions, and Director Independence" set forth in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 2, 2023.

### Commercial

We have been and anticipate that we will continue to be both a significant customer and supplier of products and services offered by Martin Resource Management Corporation. In the aggregate, the impact of related party transactions included in total costs and expenses accounted for approximately 22% and 18% of our total costs and expenses during the three months ended June 30, 2023 and 2022, respectively. In the aggregate, the impact of related party transactions included in total costs and expenses accounted for approximately 21% and 17% of our total costs and expenses during the six months ended June 30, 2023 and 2022, respectively.

Correspondingly, Martin Resource Management Corporation is one of our significant customers. Our sales to Martin Resource Management Corporation accounted for approximately 17% and 9% of our total revenues for the three months ended June 30, 2023 and 2022, respectively. Our sales to Martin Resource Management Corporation accounted for approximately 13% and 9% of our total revenues for the six months ended June 30, 2023 and 2022, respectively.

For a more comprehensive discussion concerning the agreements that we have entered into with Martin Resource Management Corporation, please refer to "Item 13. Certain Relationships and Related Transactions, and Director Independence" set forth in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 2, 2023.

### Approval and Review of Related Party Transactions

If we contemplate entering into a transaction, other than a routine or in the ordinary course of business transaction, in which a related person will have a direct or indirect material interest, the proposed transaction is submitted for consideration to the board of directors of our general partner or to our management, as appropriate. If the board of directors of our general partner is involved in the approval process, it determines whether to refer the matter to the Conflicts Committee of our general partner's board of directors, as constituted under our limited partnership agreement. If a matter is referred to the Conflicts Committee, the Conflicts Committee obtains information regarding the proposed transaction from management and determines whether to engage independent legal counsel or an independent financial advisor to advise the members of the committee regarding the transaction. If the Conflicts Committee retains such counsel or financial advisor, it considers such advice and, in the case of a financial advisor, such advisor’s opinion as to whether the transaction is fair and reasonable to us and to our unitholders.

### Non-GAAP Financial Measures

To assist management in assessing our business, we use the following non-GAAP financial measures: earnings before interest, taxes, and depreciation and amortization ("EBITDA"), adjusted EBITDA (as defined below), adjusted EBITDA after giving effect to the exit of the butane optimization business, distributable cash flow available to common unitholders (“Distributable Cash Flow”), and free cash flow after growth capital expenditures and principal payments under finance lease obligations ("Adjusted Free Cash Flow"). Our management uses a variety of financial and operational measurements other than our financial statements prepared in accordance with U.S. GAAP to analyze our performance.

Certain items excluded from EBITDA and Adjusted EBITDA are significant components in understanding and assessing an entity's financial performance, such as cost of capital and historical costs of depreciable assets.

*EBITDA and Adjusted EBITDA*. We define Adjusted EBITDA as EBITDA before unit-based compensation expenses, gains and losses on the disposition of property, plant and equipment, impairment and other similar non-cash adjustments. Adjusted EBITDA is used as a supplemental performance and liquidity measure by our management and by external users of our financial statements, such as investors, commercial banks, research analysts, and others, to assess:

- the financial performance of our assets without regard to financing methods, capital structure, or historical cost basis;
- the ability of our assets to generate cash sufficient to pay interest costs, support our indebtedness, and make cash distributions to our unitholders; and
- our operating performance and return on capital as compared to those of other companies in the midstream energy sector, without regard to financing methods or capital structure.

The GAAP measures most directly comparable to adjusted EBITDA are net income (loss) and net cash provided by (used in) operating activities. Adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income (loss), operating income (loss), net cash provided by (used in) operating activities, or any other measure of financial performance presented in accordance with GAAP. Adjusted EBITDA may not be comparable to similarly titled measures of other companies because other companies may not calculate Adjusted EBITDA in the same manner.

Adjusted EBITDA does not include interest expense, income tax expense, and depreciation and amortization. Because we have borrowed money to finance our operations, interest expense is a necessary element of our costs and our ability to generate cash available for distribution. Because we have capital assets, depreciation and amortization are also necessary elements of our costs. Therefore, any measures that exclude these elements have material limitations. To compensate for these limitations, we believe that it is important to consider net income (loss) and net cash provided by (used in) operating activities as determined under GAAP, as well as adjusted EBITDA, to evaluate our overall performance.

*Distributable Cash Flow.* We define Distributable Cash Flow as Net Cash Provided by (Used in) Operating Activities less cash received (plus cash paid) for closed commodity derivative positions included in Accumulated Other Comprehensive Income (Loss), plus changes in operating assets and liabilities which (provided) used cash, less maintenance capital expenditures and plant turnaround costs. Distributable Cash Flow is a significant performance measure used by our management and by external users of our financial statements, such as investors, commercial banks and research analysts, to compare basic cash flows generated by us to the cash distributions we expect to pay unitholders. Distributable Cash Flow is also an important financial measure for our unitholders since it serves as an indicator of our success in providing a cash return on investment. Specifically, this financial measure indicates to investors whether or not we are generating cash flow at a level that can sustain or support an increase in our quarterly distribution rates. Distributable Cash Flow is also a quantitative standard used throughout the investment community with respect to publicly-traded partnerships because the value of a unit of such an entity is generally determined by the unit's yield, which in turn is based on the amount of cash distributions the entity pays to a unitholder.

*Adjusted Free Cash Flow.* We define Adjusted Free Cash Flow as Distributable Cash Flow less growth capital expenditures and principal payments under finance lease obligations. Adjusted Free Cash Flow is a significant performance measure used by our management and by external users of our financial statements and represents how much cash flow a business generates during a specified time period after accounting for all capital expenditures, including expenditures for growth and maintenance capital projects. We believe that Adjusted Free Cash Flow is important to investors, lenders, commercial banks and research analysts since it reflects the amount of cash available for reducing debt, investing in additional capital projects, paying distributions, and similar matters. Our calculation of Adjusted Free Cash Flow may or may not be comparable to similarly titled measures used by other entities.

The GAAP measure most directly comparable to Distributable Cash Flow and Adjusted Free Cash Flow is Net Cash Provided by (Used in) Operating Activities. Distributable Cash Flow and Adjusted Free Cash Flow should not be considered alternatives to, or more meaningful than, Net Income (Loss), Operating Income (Loss), Net Cash Provided by (Used in) Operating Activities, or any other measure of liquidity presented in accordance with GAAP. Distributable Cash Flow and Adjusted Free Cash Flow have important limitations because they exclude some items that affect Net Income (Loss), Operating Income (Loss), and Net Cash Provided by (Used in) Operating Activities. Distributable Cash Flow and Adjusted Free Cash Flow may not be comparable to similarly titled measures of other companies because other companies may not calculate these non-GAAP metrics in the same manner. To compensate for these limitations, we believe that it is important to consider Net Cash Provided by (Used in) Operating Activities determined under GAAP, as well as Distributable Cash Flow and Adjusted Free Cash Flow, to evaluate our overall liquidity.

The following tables reconcile the non-GAAP financial measurements used by management to our most directly comparable GAAP measures for the three and six months ended June 30, 2023 and 2022, which represents EBITDA, adjusted EBITDA, adjusted EBITDA after giving effect to the exit of the butane optimization business, distributable cash flow, and adjusted free cash flow:

**Reconciliation of Net Income (Loss) to EBITDA, Adjusted EBITDA, and Adjusted EBITDA After Giving Effect to the Exit of the Butane Optimization Business**

*(in thousands)*

*(in thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| **Net income (loss)** | $1,081 | $6,606 | $(4,005) | $18,084 |
| Adjustments: |  |  |  |  |
| Interest expense | 15,263 | 12,846 | 30,920 | 25,275 |
| Income tax expense | 996 | 2,037 | 2,831 | 3,578 |
| Depreciation and amortization | 12,547 | 14,800 | 25,448 | 29,286 |
| **EBITDA** | 29,887 | 36,289 | 55,194 | 76,223 |
| Adjustments: |  |  |  |  |
| Gain on disposition of property, plant and equipment | (673) | (246) | (285) | (260) |
| Loss on extinguishment of debt | — | — | 5,121 | — |
| Lower of cost or net realizable value and other non-cash adjustments | (3,717) | 2,242 | (12,850) | 2,242 |
| Unit-based compensation | 38 | 45 | 90 | 79 |
| **Adjusted EBITDA** | $25,535 | $38,330 | $47,270 | $78,284 |
| Adjustments: |  |  |  |  |
| Less: net (income) loss associated with butane optimization business | 2,564 | 942 | 2,255 | (4,752) |
| Plus: lower of cost or net realizable value and other non-cash adjustments | 3,717 | $(369) | 12,850 | (369) |
| **Adjusted EBITDA after giving effect to the exit of the butane optimization business** | $31,816 | $38,903 | $62,375 | $73,163 |

40

**Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA, Adjusted EBITDA After Giving Effect to the Exit of the Butane Optimization Business, Distributable Cash Flow, and Adjusted Free Cash Flow**

*(in thousands)*

*(in thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| **Net cash provided by (used in) operating activities** | $49,510 | $(2,494) | $98,774 | $28,451 |
| Interest expense 1 | 13,903 | 12,061 | 27,485 | 23,707 |
| Current income tax expense | 306 | 654 | 964 | 1,274 |
| Lower of cost or net realizable value and other non-cash adjustments | (3,717) | 2,242 | (12,850) | 2,242 |
| Commodity cash flow hedging gains reclassified to earnings | — | (82) | — | 734 |
| Net cash paid for closed commodity derivative positions included in AOCI | — | (700) | — | (85) |
| **Changes in operating assets and liabilities which (provided) used cash:** |  |  |  |  |
| Accounts and other receivables, inventories, and other current assets | (43,135) | 68,797 | (91,517) | 64,901 |
| Trade, accounts and other payables, and other current liabilities | 7,171 | (41,182) | 23,145 | (42,795) |
| Other | 1,497 | (966) | 1,269 | (145) |
| **Adjusted EBITDA** | 25,535 | 38,330 | 47,270 | 78,284 |
| Adjustments: |  |  |  |  |
| Less: net (income) loss associated with butane optimization business | 2,564 | 942 | 2,255 | (4,752) |
| Plus: lower of cost or net realizable value and other non-cash adjustments | 3,717 | (369) | 12,850 | (369) |
| **Adjusted EBITDA after giving effect to the exit of the butane optimization business** | 31,816 | 38,903 | 62,375 | 73,163 |
| Adjustments: |  |  |  |  |
| Interest expense | (15,263) | (12,846) | (30,920) | (25,275) |
| Income tax expense | (996) | (2,037) | (2,831) | (3,578) |
| Deferred income taxes | 690 | 1,383 | 1,867 | 2,304 |
| Amortization of debt discount | 600 | — | 1,000 | — |
| Amortization of deferred debt issuance costs | 760 | 785 | 2,435 | 1,568 |
| Payments for plant turnaround costs | (432) | (165) | (661) | (1,600) |
| Maintenance capital expenditures | (7,438) | (3,155) | (14,072) | (8,554) |
| **Distributable cash flow** | 9,737 | 22,868 | 19,193 | 38,028 |
| Principal payments under finance lease obligations | (3) | (60) | (9) | (119) |
| Expansion capital expenditures | (1,925) | (1,455) | (2,682) | (4,556) |
| **Adjusted free cash flow** | $7,809 | $21,353 | $16,502 | $33,353 |

1 Net of amortization of debt issuance costs and discount, which are included in interest expense but not included in net cash provided by (used in) operating activities.

### Results of Operations

The results of operations for the three and six months ended June 30, 2023 and 2022 have been derived from our consolidated and condensed financial statements.

We evaluate segment performance on the basis of operating income, which is derived by subtracting cost of products sold, operating expenses, selling, general and administrative expenses, and depreciation and amortization expense from revenues. The following table sets forth our operating revenues and operating income by segment for the three and six months ended June 30, 2023 and 2022. The results of operations for these interim periods are not necessarily indicative of the results of operations which might be expected for the entire year.

Effective January 1, 2023, we reorganized our Terminalling and Storage and Natural Gas Liquids operating segments. The underground NGL storage division of our Natural Gas Liquids operating segment was moved to the Terminalling and Storage operating segment. Further, our packaged lubricants and grease businesses were moved from the Terminalling and Storage operating segment to the Specialty Products operating segment (formerly named the Natural Gas Liquids segment). All prior period financial information has been revised to reflect these changes.

Our consolidated and condensed results of operations are presented on a comparative basis below. There are certain items of income and expense which we do not allocate on a segment basis. These items, including interest expense and indirect selling, general and administrative expenses, are discussed following the comparative discussion of our results within each segment.

### Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022

*(in thousands)*

| Three Months Ended June 30, 2023 | Operating Revenues | Intersegment Revenues Eliminations | Operating Revenues after Eliminations | Operating Income (Loss) | Operating Income (Loss) Intersegment Eliminations | Operating Income (Loss) after Eliminations |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Terminalling and storage | $23,906 | $(2,222) | $21,684 | $4,446 | $(2,210) | $2,236 |
| Transportation | 58,395 | (3,645) | 54,750 | 9,016 | (3,671) | 5,345 |
| Sulfur services | 40,330 | — | 40,330 | 5,286 | 3,207 | 8,493 |
| Specialty products | 78,898 | (26) | 78,872 | 2,475 | 2,674 | 5,149 |
| Indirect selling, general and administrative | — | — | — | (3,894) | — | (3,894) |
| Total | $201,529 | $(5,893) | $195,636 | $17,329 | $— | $17,329 |

*(in thousands)*

| Three Months Ended June 30, 2022 | Operating Revenues | Intersegment Revenues Eliminations | Operating Revenues after Eliminations | Operating Income (Loss) | Operating Income (Loss) Intersegment Eliminations | Operating Income (Loss) after Eliminations |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Terminalling and storage | $23,622 | $(3,199) | $20,423 | $(99) | $(3,177) | $(3,276) |
| Transportation | 60,902 | (5,070) | 55,832 | 11,249 | (5,095) | 6,154 |
| Sulfur services | 56,953 | — | 56,953 | 9,134 | 2,866 | 12,000 |
| Specialty products | 133,818 | (30) | 133,788 | 5,596 | 5,406 | 11,002 |
| Indirect selling, general and administrative | — | — | — | (4,390) | — | (4,390) |
| Total | $275,295 | $(8,299) | $266,996 | $21,490 | $— | $21,490 |

42

### Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022

*(in thousands)*

| Six Months Ended June 30, 2023 | Operating Revenues | Intersegment Revenues Eliminations | Operating Revenues after Eliminations | Operating Income (Loss) | Operating Income (Loss) Intersegment Eliminations | Operating Income (Loss) after Eliminations |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Terminalling and storage | $47,825 | $(5,283) | $42,542 | $7,554 | $(5,254) | $2,300 |
| Transportation | 120,334 | (9,861) | 110,473 | 18,458 | (9,934) | 8,524 |
| Sulfur services | 76,009 | — | 76,009 | 9,839 | 6,058 | 15,897 |
| Specialty products | 211,175 | (34) | 211,141 | 7,075 | 9,130 | 16,205 |
| Indirect selling, general and administrative | — | — | — | (8,092) | — | (8,092) |
| Total | $455,343 | $(15,178) | $440,165 | $34,834 | $— | $34,834 |

*(in thousands)*

| Six Months Ended June 30, 2022 | Operating Revenues | Intersegment Revenues Eliminations | Operating Revenues after Eliminations | Operating Income (Loss) | Operating Income (Loss) Intersegment Eliminations | Operating Income (Loss) after Eliminations |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Terminalling and storage | $45,993 | $(6,173) | $39,820 | $(211) | $(6,122) | $(6,333) |
| Transportation | 112,799 | (10,257) | 102,542 | 18,231 | (10,288) | 7,943 |
| Sulfur services | 116,076 | — | 116,076 | 21,786 | 5,051 | 26,837 |
| Specialty products | 287,827 | (68) | 287,759 | 15,645 | 11,359 | 27,004 |
| Indirect selling, general and administrative | — | — | — | (8,512) | — | (8,512) |
| Total | $562,695 | $(16,498) | $546,197 | $46,939 | $— | $46,939 |

43

### Terminalling and Storage Segment

### Comparative Results of Operations for the Three Months Ended June 30, 2023 and 2022

*(In thousands, except BBL per day)*

|  | Three Months Ended June 30, 2023 | 2022 | Variance | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $23,906 | $23,622 | $284 | 1% |
| Cost of products sold | 25 | 4 | 21 | 525% |
| Operating expenses | 13,932 | 16,014 | (2,082) | (13)% |
| Selling, general and administrative expenses | 333 | 539 | (206) | (38)% |
| Depreciation and amortization | 5,195 | 7,172 | (1,977) | (28)% |
|  | 4,421 | (107) | 4,528 | 4,232% |
| Other operating income, net | 25 | 8 | 17 | 213% |
| Operating income (loss) | $4,446 | $(99) | $4,545 | 4,591% |
| Shore-based throughput volumes (gallons) | 42,434 | 14,100 | 28,334 | 201% |
| Smackover refinery throughput volumes (guaranteed minimum BBL per day) | 6,500 | 6,500 | — | —% |

*Revenues.* Revenues increased $0.3 million, of which $0.9 million was primarily a result of increased fuel throughput at our shore-based terminals. In addition, revenue at our specialty terminals increased $0.4 million primarily as a result of higher throughput revenue as a result of contractually prescribed, index-based fee adjustments. Revenue at our Smackover refinery decreased $1.1 million as a result of decreased pipeline revenue of $1.5 million and natural gas surcharge revenue of $0.2 million, offset by increases in throughput revenue of $0.3 million and reservation fees of $0.3 million.

*Operating expenses.* Operating expenses decreased primarily as a result of lease expense of $1.5 million and natural gas utilities of $0.6 million at our Smackover refinery.

*Selling, general and administrative expenses.* Selling, general and administrative expenses decreased primarily due to employee-related expenses.

*Depreciation and amortization.* The decrease in depreciation and amortization is primarily the result of asset disposals, offset by capital expenditures.

*Other operating income, net.* Other operating income, net represents gains and losses from the disposition of property, plant and equipment.

### Comparative Results of Operations for the Six Months Ended June 30, 2023 and 2022

*(In thousands, except BBL per day)*

|  | Six Months Ended June 30, 2023 | 2022 | Variance | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $47,825 | $45,993 | $1,832 | 4% |
| Cost of products sold | 31 | 9 | 22 | 244% |
| Operating expenses | 28,240 | 30,954 | (2,714) | (9)% |
| Selling, general and administrative expenses | 882 | 1,034 | (152) | (15)% |
| Depreciation and amortization | 10,794 | 14,172 | (3,378) | (24)% |
|  | 7,878 | (176) | 8,054 | 4,576% |
| Other operating loss, net | (324) | (35) | (289) | (826)% |
| Operating income (loss) | $7,554 | $(211) | $7,765 | 3,680% |
| Shore-based throughput volumes (gallons) | 85,783 | 27,543 | 58,240 | 211% |
| Smackover refinery throughput volumes (guaranteed minimum) (BBL per day) | 6,500 | 6,500 | — | —% |

*Revenues.* Revenues increased $1.8 million, of which $1.8 million was primarily a result of increased fuel throughput, offset by a $0.4 million decrease in space rent at our shore-based terminals. In addition, revenue at our specialty terminals increased $0.8 million primarily as a result of higher throughput revenue resulting from contractually prescribed, index-based fee adjustments. Revenue at our Smackover refinery decreased $0.6 million as a result of decreased pipeline revenue of $2.8 million, offset by increases in natural gas surcharge revenue of $1.0 million, throughput revenue of $0.6 million, and reservation fees of $0.6 million.

*Operating expenses.* Operating expenses decreased primarily as a result of lease expense at our Smackover refinery.

*Selling, general and administrative expenses.* Selling, general and administrative expenses decreased primarily due to employee-related expenses.

*Depreciation and amortization.* The decrease in depreciation and amortization is primarily the result of asset disposals, offset by capital expenditures.

*Other operating loss, net.* Other operating loss, net represents gains and losses from the disposition of property, plant and equipment.

### Transportation Segment

### Comparative Results of Operations for the Three Months Ended June 30, 2023 and 2022

*(In thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | Variance | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $58,395 | $60,902 | $(2,507) | (4)% |
| Operating expenses | 44,285 | 44,528 | (243) | (1)% |
| Selling, general and administrative expenses | 1,981 | 1,789 | 192 | 11% |
| Depreciation and amortization | 3,760 | 3,590 | 170 | 5% |
|  | 8,369 | 10,995 | (2,626) | (24)% |
| Other operating income, net | 647 | 254 | 393 | 155% |
| Operating income | $9,016 | $11,249 | $(2,233) | (20)% |

45

*Marine Transportation Revenues*. Inland revenues increased $2.0 million, primarily related to higher transportation rates. Revenue was also impacted by a decrease in pass-through revenue (primarily fuel) of $1.0 million.

*Land Transportation Revenues.* Revenue increased $1.0 million, primarily due to a 30% increase in load count, offset by a decrease in ancillary revenue of $4.5 million.

*Operating expenses*. The decrease in operating expenses is primarily a result of pass-through expenses (primarily fuel) of $3.3 million. Offsetting this decrease is higher lease expense of $1.1 million, employee-related expenses of $1.0 million, repairs and maintenance of $0.8 million, and insurance premiums of $0.5 million.

*Selling, general and administrative expenses*. Selling, general and administrative expenses increased primarily due to employee-related expenses.

*Depreciation and amortization.* Depreciation and amortization increased as a result of capital expenditures, offset by disposals.

*Other operating income, net.* Other operating income, net represents gains from the disposition of property, plant and equipment.

### Comparative Results of Operations for the Six Months Ended June 30, 2023 and 2022

*(In thousands)*

|  | Six Months Ended June 30, 2023 | 2022 | Variance | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $120,334 | $112,799 | $7,535 | 7% |
| Operating expenses | 90,475 | 83,730 | 6,745 | 8% |
| Selling, general and administrative expenses | 4,530 | 3,958 | 572 | 14% |
| Depreciation and amortization | 7,522 | 7,163 | 359 | 5% |
|  | $17,807 | $17,948 | $(141) | (1)% |
| Other operating income, net | 651 | 283 | 368 | 130% |
| Operating income | $18,458 | $18,231 | $227 | 1% |

*Marine Transportation Revenues.* Inland revenues increased $4.8 million, primarily related to higher utilization and transportation rates. Revenue was also impacted by a decrease in pass-through revenue (primarily fuel) of $1.4 million.

*Land Transportation Revenues.* Revenue increased $7.3 million primarily due to a 32% increase in load count combined with a 5% increase in total miles, offset by a decrease in ancillary revenue of $3.1 million.

*Operating expenses.* The increase in operating expenses is primarily a result of employee-related expenses of $5.5 million, repairs and maintenance of $2.2 million, lease expense of $2.0 million and insurance premiums of $0.7 million, offset by pass-through expenses (primarily fuel) of $3.5 million.

*Selling, general and administrative expenses.* Selling, general and administrative expenses increased primarily due to higher employee-related expenses.

*Depreciation and amortization.* Depreciation and amortization increased as a result of capital expenditures, offset by disposals.

*Other operating income, net.* Other operating income, net represents gains and losses from the disposition of property, plant and equipment.

### Sulfur Services Segment

### Comparative Results of Operations for the Three Months Ended June 30, 2023 and 2022

*(In thousands)*

| Revenues: | Three Months Ended June 30, 2023 | 2022 | Variance | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Services | $3,357 | $3,084 | $273 | 9% |
| Products | 36,973 | 53,869 | (16,896) | (31)% |
| Total revenues | 40,330 | 56,953 | (16,623) | (29)% |
| Cost of products sold | 28,141 | 39,181 | (11,040) | (28)% |
| Operating expenses | 3,186 | 4,227 | (1,041) | (25)% |
| Selling, general and administrative expenses | 962 | 1,537 | (575) | (37)% |
| Depreciation and amortization | 2,756 | 2,882 | (126) | (4)% |
|  | 5,285 | 9,126 | (3,841) | (42)% |
| Other operating income, net | 1 | 8 | (7) | (88)% |
| Operating income | $5,286 | $9,134 | $(3,848) | (42)% |
| Sulfur (long tons) | 123 | 118 | 5 | 4% |
| Fertilizer (long tons) | 73 | 62 | 11 | 18% |
| Total sulfur services volumes (long tons) | 196 | 180 | 16 | 9% |

*Services revenues.* Services revenues increased slightly as a result of a contractually prescribed, index-based fee adjustment.

*Products revenues.* Products revenues decreased $19.9 million as a result of a 37% drop in average sulfur services sales prices, offset by an increase of $3.0 million due to a 9% increase in sales volumes, primarily related to an 18% increase in fertilizer volumes.

*Cost of products sold.* A 34% decrease in product cost impacted cost of products sold by $13.3 million, resulting from a drop in commodity prices. A 9% increase in sales volumes resulted in an offsetting increase in cost of products sold of $2.3 million. Margin per ton decreased $36.54, or 45%.

*Operating expenses.* Operating expenses decreased due to decreases in outside towing of $0.4 million and marine fuel and lube expense of $0.4 million. There were no other individually significant fluctuations between periods.

*Selling, general and administrative expenses.* Selling, general and administrative expenses decreased primarily due to lower employee-related expenses.

*Depreciation and amortization.* Depreciation and amortization decreased largely due to the sale of the Stockton assets in the fourth quarter of 2022.

*Other operating income, net.* Other operating income, net represents gains and losses on the disposition of property, plant and equipment.

### Comparative Results of Operations for the Six Months Ended June 30, 2023 and 2022

*(In thousands)*

| Revenues: | Six Months Ended June 30, 2023 | 2022 | Variance | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Services | $6,715 | $6,168 | $547 | 9% |
| Products | 69,294 | 109,908 | (40,614) | (37)% |
| Total revenues | 76,009 | 116,076 | (40,067) | (35)% |
| Cost of products sold | 52,090 | 78,439 | (26,349) | (34)% |
| Operating expenses | 6,085 | 7,255 | (1,170) | (16)% |
| Selling, general and administrative expenses | 2,579 | 3,041 | (462) | (15)% |
| Depreciation and amortization | 5,433 | 5,591 | (158) | (3)% |
|  | 9,822 | 21,750 | (11,928) | (55)% |
| Other operating income, net | 17 | 36 | (19) | (53)% |
| Operating income | $9,839 | $21,786 | $(11,947) | (55)% |
| Sulfur (long tons) | 197 | 232 | (35) | (15)% |
| Fertilizer (long tons) | 134 | 146 | (12) | (8)% |
| Total sulfur services volumes (long tons) | 331 | 378 | (47) | (12)% |

*Services revenues.* Services revenues increased as a result of a contractually prescribed, index-based fee adjustment.

*Products revenues.* Products revenues decreased $30.8 million as a result of a 28% drop in average sulfur services sales prices. Products revenues decreased $9.8 million due to a 12% decrease in sales volumes, primarily related to a 15% decrease in sulfur volumes.

*Cost of products sold.* A 24% decrease in product cost impacted cost of products sold by $18.9 million, resulting from a drop in commodity prices. A 12% decrease in sales volumes resulted in an additional decrease in cost of products sold of $7.4 million. Margin per ton decreased $31.28, or 38%.

*Operating expenses.* Operating expenses decreased due to decreases in outside towing of $0.6 million and marine fuel and lube expense of $0.6 million. There were no other individually significant fluctuations between periods.

*Selling, general and administrative expenses.* Selling, general and administrative expenses decreased primarily due to lower employee-related expenses.

*Depreciation and amortization.* Depreciation and amortization decreased largely due to the sale of the Stockton assets in the fourth quarter of 2022.

*Other operating income, net.* Other operating income, net represents gains and losses on the disposition of property, plant and equipment.

### Specialty Products Segment

### Comparative Results of Operations for the Three Months Ended June 30, 2023 and 2022

*(In thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | Variance | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Products revenues | $78,898 | $133,818 | $(54,920) | (41)% |
| Cost of products sold | 74,270 | 125,296 | (51,026) | (41)% |
| Operating expenses | 18 | 34 | (16) | (47)% |
| Selling, general and administrative expenses | 1,299 | 1,712 | (413) | (24)% |
| Depreciation and amortization | 836 | 1,156 | (320) | (28)% |
|  | 2,475 | 5,620 | (3,145) | (56)% |
| Other operating loss, net | — | (24) | 24 | 100% |
| Operating income | $2,475 | $5,596 | $(3,121) | (56)% |
| NGL sales volumes (Bbls) | 827 | 1,153 | (326) | (28)% |
| Other specialty products volumes (Bbls) | 90 | 103 | (13) | (13)% |
| Total specialty products volumes (Bbls) | 917 | 1,256 | (339) | (27)% |

*Products Revenues.* Our average sales price per barrel decreased $20.50, or 19%, decreasing revenues by $25.8 million. The decrease in average sales price per barrel was due to a drop in commodity prices. Sales volumes decreased 27%, lowering revenues by $29.2 million.

*Cost of products sold.* Our average cost per barrel decreased $18.77, or 1%, decreasing cost of products sold by $23.6 million. The decrease in average cost per barrel was due to a drop in commodity prices. The decrease in sales volume of 27% resulted in a $27.4 million reduction to cost of products sold. Our margins declined $1.74 per barrel, or 26%, during the period.

*Selling, general and administrative expenses.* Selling, general and administrative expenses decreased primarily due to lower employee-related expenses.

*Depreciation and amortization.* Depreciation and amortization decreased due to certain assets becoming fully depreciated during the fourth quarter 2022.

*Other operating loss, net.* Other operating loss, net represents gains and losses from the disposition of property, plant and equipment.

### Comparative Results of Operations for the Six Months Ended June 30, 2023 and 2022

*(In thousands)*

|  | Six Months Ended June 30, 2023 | 2022 | Variance | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Products revenues | $211,175 | $287,827 | $(76,652) | (27)% |
| Cost of products sold | 198,721 | 265,076 | (66,355) | (25)% |
| Operating expenses | 32 | 72 | (40) | (56)% |
| Selling, general and administrative expenses | 3,589 | 4,650 | (1,061) | (23)% |
| Depreciation and amortization | 1,699 | 2,360 | (661) | (28)% |
|  | 7,134 | 15,669 | (8,535) | (54)% |
| Other operating loss, net | (59) | (24) | (35) | (146)% |
| Operating income | $7,075 | $15,645 | $(8,570) | (55)% |
| NGL sales volumes (Bbls) | 2,518 | 2,750 | (232) | (8)% |
| Other specialty products volumes (Bbls) | 174 | 201 | (27) | (13)% |
| Total specialty products volumes (Bbls) | 2,692 | 2,951 | (259) | (9)% |

*Products Revenues.* Products revenues decreased $56.3 million as a result of an 20% drop in average specialty products sales prices. Products revenues decreased $20.3 million due to a 9% reduction in sales volumes, primarily related to a 13% decrease in other specialty products volumes.

*Cost of products sold.* An 18% decrease in product cost impacted cost of products sold by $47.2 million, resulting from a drop in commodity prices. A 9% reduction in sales volumes resulted in an additional decrease in cost of products sold of $19.1 million.

*Selling, general and administrative expenses.* Selling, general and administrative expenses decreased primarily as a result of lower employee-related expenses.

*Depreciation and amortization.* Depreciation and amortization decreased due to certain assets becoming fully depreciated during the fourth quarter 2022.

*Other operating loss, net.* Other operating loss, net represents gains and losses from the disposition of property, plant and equipment.

### Interest Expense

### Comparative Components of Interest Expense, Net for the Three Months Ended June 30, 2023 and 2022

*(In thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | Variance | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Credit facility | $1,941 | $1,663 | $278 | 17% |
| Senior notes | 11,627 | 9,832 | 1,795 | 18% |
| Amortization of deferred debt issuance costs | 760 | 785 | (25) | (3)% |
| Amortization of debt discount | 600 | — | 600 |  |
| Other | 342 | 564 | (222) | (39)% |
| Finance leases | — | 2 | (2) | (100)% |
| Capitalized interest | (7) | — | (7) |  |
| Total interest expense, net | $15,263 | $12,846 | $2,417 | 19% |

### Comparative Components of Interest Expense, Net for the Six Months Ended June 30, 2023 and 2022

*(In thousands)*

|  | Six Months Ended June 30, 2023 | 2022 | Variance | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Credit facility | $4,725 | $3,586 | $1,139 | 32% |
| Senior notes | 21,840 | 19,137 | 2,703 | 14% |
| Amortization of deferred debt issuance costs | 2,435 | 1,568 | 867 | 55% |
| Amortization of debt discount | 1,000 | — | 1,000 |  |
| Other | 931 | 979 | (48) | (5)% |
| Finance leases | — | 5 | (5) | (100)% |
| Capitalized interest | (11) | — | (11) |  |
| Total interest expense, net | $30,920 | $25,275 | $5,645 | 22% |

### Indirect Selling, General and Administrative Expenses

*(In thousands)*

*(In thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | Variance | Percent Change 2023 | Six Months Ended June 30, 2022 |  | Variance | Percent Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Indirect selling, general and administrative expenses | $3,894 | $4,390 | $(496) | (11)% | $8,092 | $8,512 | $(420) | (5)% |

Indirect selling, general and administrative expenses decreased for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 as a result of decreased employee-related expenses. Indirect selling, general and administrative expenses decreased for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 as a result of decreased employee-related expenses of $0.7 million, offset by an increase in overhead expenses allocated from Martin Resource Management Corporation of $0.2 million and increased professional fees of $0.1 million.

Martin Resource Management Corporation allocates to us a portion of its indirect selling, general and administrative expenses for services such as accounting, legal, treasury, clerical, billing, information technology, administration of insurance, engineering, general office expense and employee benefit plans and other general corporate overhead functions we share with Martin Resource Management Corporation retained businesses. This allocation is based on the percentage of time spent by Martin Resource Management Corporation personnel that provide such centralized services. GAAP also permits other methods for allocation of these expenses, such as basing the allocation on the percentage of revenues contributed by a segment. The allocation of these expenses between Martin Resource Management Corporation and us is subject to a number of judgments and estimates, regardless of the method used. We can provide no assurances that our method of allocation, in the past or in the future, is or will be the most accurate or appropriate method of allocation for these expenses. Other methods could result in a higher allocation of selling, general and administrative expenses to us, which would reduce our net income.

Under the Omnibus Agreement, we are required to reimburse Martin Resource Management Corporation for indirect general and administrative and corporate overhead expenses. The Conflicts Committee of our general partner approved the following reimbursement amounts during the three and six months ended June 30, 2023 and 2022:

*(In thousands)*

*(In thousands)*

|  | Three Months Ended June 30, 2023 | 2022 | Variance | Percent Change 2023 | Six Months Ended June 30, 2022 |  | Variance | Percent Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Conflicts Committee approved reimbursement amount | $3,496 | $3,373 | $123 | 4% | $6,991 | $6,745 | $246 | 4% |

The amounts reflected above represent our allocable share of such expenses. The Conflicts Committee will review and approve future adjustments in the reimbursement amount for indirect expenses, if any, annually.

### Liquidity and Capital Resources

### General

Our primary sources of liquidity to meet operating expenses, service our indebtedness, fund capital expenditures and pay distributions to our unitholders have historically been cash flows generated by our operations, borrowings under our credit facility and access to debt and equity capital markets, both public and private. Set forth below is a description of our cash flows for the periods indicated.

### Cash Flows - Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

The following table details the cash flow changes between the six months ended June 30, 2023 and 2022:

*(In thousands)*

| Net cash provided by (used in): | Six Months Ended June 30, 2023 | 2022 | Variance | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| Operating activities | $98,774 | $28,451 | $70,323 | 247% |
| Investing activities | (13,410) | (15,545) | 2,135 | 14% |
| Financing activities | (85,352) | (12,915) | (72,437) | (561)% |
| Net increase (decrease) in cash and cash equivalents | $12 | $(9) | $21 | 233% |

*Net cash provided by operating activities.* The increase in net cash provided by operating activities for the six months ended June 30, 2023 includes a decrease in operating results and other non-cash charges of $18.7 million offset by a favorable variance in working capital of $89.1 million. The favorable variance in working capital of $89.1 million includes $75.1 million related to the liquidation of working capital associated with our butane optimization business which will be non-recurring in future reporting periods.

*Net cash used in investing activities.* Net cash used in investing activities for the six months ended June 30, 2023 decreased $2.1 million. A decrease in cash used of $1.5 million resulted from lower payments for capital expenditures and plant turnaround costs in 2023. In addition, net proceeds from the sale of property, plant and equipment increased $3.6 million.

*Net cash used in financing activities.* Net cash used in financing activities for the six months ended June 30, 2023 increased primarily as a result of a $59.5 million increase in net payments of long-term borrowings. Additionally, payments of debt issuance costs increased $14.6 million.

### Total Contractual Obligations

A summary of our total contractual cash obligations as of June 30, 2023, is as follows:

| Type of Obligation | Payments due by period Total Obligation | Less than One Year | 1-3 Years | 3-5 Years | Due Thereafter |
| --- | ---: | ---: | ---: | ---: | ---: |
| Credit facility | $60,500 | $— | $— | $60,500 | $— |
| 11.5% senior secured notes, due 2028 | 400,000 | — | — | 400,000 | — |
| Operating leases | 59,906 | 15,438 | 24,403 | 13,753 | 6,312 |
| Interest payable on fixed long-term debt obligations | 211,926 | 46,000 | 92,000 | 73,926 | — |
| Total contractual cash obligations | $732,332 | $61,438 | $116,403 | $548,179 | $6,312 |

The interest payable under our credit facility is not reflected in the above table because such amounts depend on the outstanding balances and interest rates, which vary from time to time.

*Letters of Credit.* At June 30, 2023, we had outstanding irrevocable letters of credit in the amount of $11.5 million, which were issued under our credit facility.

*Off-Balance Sheet Arrangements.* We do not have any off-balance sheet financing arrangements.

### Description of Our Indebtedness

### Credit Facility

At June 30, 2023, we maintained a $175.0 million credit facility that matures on February 8, 2027. As of June 30, 2023, we had $60.5 million outstanding under the credit facility and $11.5 million of outstanding irrevocable letters of credit, leaving a maximum available amount to be borrowed under our credit facility for future revolving credit borrowings and letters of credit of $103.1 million. After giving effect to our then current borrowings, letters of credit, and the financial covenants contained in our credit facility, we had the ability to borrow approximately $56.3 million in additional amounts thereunder as of June 30, 2023.

Effective February 8, 2023, in connection with the completion of our sale of the 2028 Notes, we amended our credit facility (the “amended credit facility”) to, among other things, reduce the commitments thereunder from $275.0 million to $200.0 million (with further scheduled reductions to $175.0 million on June 30, 2023 and $150.0 million on June 30, 2024) and extend the scheduled maturity date of the amended credit facility to February 8, 2027. The commitments under the amended credit facility can be increased from time to time upon our request, subject to certain conditions (including the consent of the increasing lenders), up to an additional $50.0 million.

The amended credit facility is used for ongoing working capital needs and general partnership purposes, and to finance permitted investments, acquisitions and capital expenditures. Prior to the credit facility amendment, the level of outstanding draws on our credit facility from January 1, 2023 through February 8, 2023 ranged from a low of $148.5 million to a high of $184.0 million. From February 8, 2023 through June 30, 2023, the level of outstanding draws on our amended credit facility ranged from a low of $60.5 million to a high of $138.0 million.

The amended credit facility is guaranteed by substantially all of our subsidiaries, other than Martin ELSA Investment LLC. Obligations under the amended credit facility are secured by first priority liens on substantially all of our assets and those of the guarantors, including, without limitation, inventory, accounts receivable, bank accounts, marine vessels, equipment, fixed assets and the interests in certain subsidiaries.

We may prepay all amounts outstanding under the amended credit facility at any time without premium or penalty (other than customary breakage costs associated with Adjusted Term SOFR (as defined in the amended credit facility), subject to certain notice requirements. The amended credit facility requires mandatory prepayments of amounts outstanding thereunder with excess cash that exceeds $25.0 million and the net proceeds of certain asset sales.

Indebtedness under the credit facility bears interest at our option at the Adjusted Term SOFR (as defined in the amended credit facility), plus an applicable margin, or the Alternate Base Rate (the highest of the Federal Funds Rate plus 0.50%, the one-month Adjusted Term SOFR plus 1.0%, or the administrative agent’s prime rate) plus an applicable margin. We pay a per annum fee on all letters of credit issued under the amended credit facility, and we pay a commitment fee per annum on the unused revolving credit commitments under the amended credit facility. The letter of credit fee, the commitment fee and the applicable margins for our interest rate vary quarterly based on our Total Leverage Ratio (as defined in the amended credit facility, being generally computed as the ratio of total funded debt to consolidated earnings before interest, taxes, depreciation, amortization and certain other non-cash charges) and are as follows:

| Leverage Ratio | ABR Loans | Term SOFR Rate Loans and Letters of Credit |
| --- | ---: | ---: |
| Less than 3.00 to 1.00 | 1.75% | 2.75% |
| Greater than or equal to 3.00 to 1.00 and less than 3.50 to 1.00 | 2.00% | 3.00% |
| Greater than or equal to 3.50 to 1.00 and less than 4.00 to 1.00 | 2.25% | 3.25% |
| Greater than or equal to 4.00 to 1.00 and less than 4.50 to 1.00 | 2.50% | 3.50% |
| Greater than or equal to 4.50 to 1.00 | 2.75% | 3.75% |

The applicable margin for Adjusted Term SOFR borrowings at June 30, 2023 is 3.50%. The applicable margin for Adjusted Term SOFR borrowings effective July 19, 2023 is 3.50%.

The amended credit facility includes financial covenants that are tested on a quarterly basis, based on the rolling four quarter period that ends on the last day of each fiscal quarter, that require maintenance of:

- a minimum Interest Coverage Ratio (as defined in the amended credit facility) of 2.00:1.00;
- a maximum Total Leverage Ratio of 4.75:1.00, stepping down to 4.50:1.00 on March 31, 2025; and
- a maximum First Lien Leverage Ratio (as defined in the amended credit facility) of 1.50:1.00.

In addition, the amended credit facility contains various covenants, which, among other things, limit our and our subsidiaries’ ability to: (i) grant or assume liens; (ii) make investments (including investments in our joint ventures) and acquisitions; (iii) enter into certain types of hedging agreements; (iv) incur or assume indebtedness; (v) sell, transfer, assign or convey assets; (vi) repurchase our equity, make distributions (including a limit on our ability to make quarterly distributions to unitholders in excess of $0.005 per unit unless our pro forma Total Leverage Ratio is less than 4.50:1.00, our pro forma First Lien Leverage Ratio is less than 1.00 to 1.00, and our pro forma liquidity is greater than or equal to 35% of the commitments under our amended credit facility) and certain other restricted payments; (vii) change the nature of our business; (viii) engage in transactions with affiliates; (ix) enter into certain burdensome agreements; (x) make certain amendments to the Omnibus Agreement and our material agreements; and (xi) permit our joint ventures to incur indebtedness or grant certain liens.

The amended credit facility contains customary events of default, including, without limitation: (i) failure to pay any principal, interest, fees, expenses or other amounts when due; (ii) failure to meet the quarterly financial covenants; (iii) failure to observe any other agreement, obligation, or covenant in the amended credit facility or any related loan document, subject to cure periods for certain failures; (iv) the failure of any representation or warranty to be materially true and correct when made; (v) our, or any of our subsidiaries’ default under other indebtedness that exceeds a threshold amount; (vi) bankruptcy or other insolvency events involving us or any of our subsidiaries; (vii) judgments against us or any of our subsidiaries, in excess of a threshold amount; (viii) certain ERISA events involving us or any of our subsidiaries, in excess of a threshold amount; (ix) a change in control (as defined in the amended credit facility); and (x) the invalidity of any of the loan documents or the failure of any of the collateral documents to create a lien on the collateral.

The amended credit facility also contains certain default provisions relating to Martin Resource Management Corporation. If Martin Resource Management Corporation no longer controls our general partner, the lenders under the amended credit facility may declare all amounts outstanding thereunder immediately due and payable. In addition, an event of default by Martin Resource Management Corporation under its credit facility could independently result in an event of default under our amended credit facility if it is deemed to have a material adverse effect on us.

If an event of default relating to bankruptcy or other insolvency events occurs with respect to us or any of our subsidiaries, all indebtedness under our amended credit facility will immediately become due and payable. If any other event of default exists under our amended credit facility, the lenders may terminate their commitments to lend us money, accelerate the maturity of the indebtedness outstanding under the amended credit facility and exercise other rights and remedies. In addition, if any event of default exists under our amended credit facility, the lenders may commence foreclosure or other actions against the collateral.

### 2028 Notes

For a description of our 2028 Notes, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Description of Our Long-Term Debt" in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 2, 2023.

### Capital Resources and Liquidity

Historically, we have generally satisfied our working capital requirements and funded our debt service obligations and capital expenditures with cash generated from operations and borrowings under our credit facility.

On June 30, 2023, we had cash and cash equivalents of $0.05 million and available borrowing capacity of $103.1 million under our credit facility with $60.5 million of borrowings outstanding. After giving effect to our then current borrowings, letters of credit, and the financial covenants contained in our credit facility, we had the ability to borrow approximately $56.3 million in additional amounts thereunder as of June 30, 2023. As discussed above, we amended our credit facility effective as of February 8, 2023, to, among other things, reduce the commitments thereunder from $275.0 million to $200.0 million (with further scheduled reductions to $175.0 million on June 30, 2023 and $150.0 million on June 30, 2024) and extend the scheduled maturity date of the credit facility to February 8, 2027.

We expect that our primary sources of liquidity to meet operating expenses, service our indebtedness, pay distributions to our unitholders and fund capital expenditures will be provided by cash flows generated by our operations, borrowings under our credit facility and access to the debt and equity capital markets. Our ability to generate cash from operations will depend upon our future operating performance, which is subject to certain risks. For a discussion of such risks, please read "Item 1A. Risk Factors" of our Form 10-K for the year ended December 31, 2022, filed with the SEC on March 2, 2023. In addition, due to the covenants in our credit facility, our financial and operating performance impacts the amount we are permitted to borrow under that facility.

We are in compliance with all debt covenants as of June 30, 2023 and expect to be in compliance for the next twelve months.

### Interest Rate Risk

We are subject to interest rate risk on our credit facility due to the variable interest rate and may enter into interest rate swaps to reduce this variable rate risk.

### Seasonality

A substantial portion of our revenues is dependent on sales prices of products, particularly NGLs and fertilizers, which fluctuate in part based on winter and spring weather conditions. The demand for NGLs is strongest during the winter heating season. The demand for fertilizers is strongest during the early spring planting season. However, our Terminalling and Storage and Transportation business segments and the molten sulfur business are typically not impacted by seasonal fluctuations and a significant portion of our net income is derived from our Terminalling and Storage, Sulfur Services and Transportation business segments. Further, extraordinary weather events, such as hurricanes, have in the past, and could in the future, impact our Terminalling and Storage, Sulfur Services, and Transportation business segments.

### Impact of Inflation

Inflation did not have a material impact on our results of operations for the six months ended June 30, 2023 or 2022. Inflation may increase the cost to acquire or replace property, plant and equipment. It may also increase the costs of labor and supplies. In the future, increasing energy prices for products consumed by our operations, such as diesel fuel, natural gas, chemicals, and other supplies, could adversely affect our results of operations. An increase in price of these products would increase our operating expenses which could adversely affect net income. We cannot provide assurance that we will be able to pass along increased operating expenses to our customers.

### Environmental Matters

Our operations are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdictions in which these operations are conducted. We incurred no material environmental costs, liabilities or expenditures to mitigate or eliminate environmental contamination during the six months ended June 30, 2023 or 2022.

## Market risk

As filed, 3,144 characters.

The Partnership is exposed to commodity risk and interest rate risk in its normal business activities. The following disclosures about market risk provide an update to, and should be read in conjunction with, “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” set forth in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 2, 2023.

***Commodity Risk.*** The Partnership from time to time uses derivatives to manage the risk of commodity price fluctuation. Commodity risk is the adverse effect on the value of a liability or future purchase that results from a change in commodity price. We have established a hedging policy and monitor and manage the commodity market risk associated with potential commodity risk exposure. In addition, we focus on utilizing counterparties for these transactions whose financial condition is appropriate for the credit risk involved in each specific transaction.

Our hedging strategy is designed to protect us from excessive pricing volatility. However, since we do not typically hedge 100% of our exposure, abnormal price volatility in any of these commodity markets could influence operating income. We had no outstanding hedging positions as of June 30, 2023.

For derivatives designated in cash flow hedging relationships, we record the gains and losses from the use of these instruments in accumulated other comprehensive income (loss) on the consolidated balance sheets and subsequently recognize the accumulated gains and losses into cost of products sold in the same period when the associated underlying transactions occur. At June 30, 2023, there were no unrealized gains or losses to report in accumulated other comprehensive income (loss). All other commodity derivatives are marked-to-market and recognized into cost of products sold with the offset recognized as an asset or accrued liability. See Note 9, Derivative Instruments and Hedging Activities,to the consolidated and condensed financial statements for further information on our outstanding derivatives.

***Interest Rate Risk.*** We are exposed to changes in interest rates as a result of our credit facility, which had a weighted-average interest rate of 8.85% as of June 30, 2023. Based on the amount of unhedged floating rate debt owed by us on June 30, 2023, the impact of a 100 basis point increase in interest rates on this amount of debt would result in an increase in interest expense and a corresponding decrease in net income of approximately $0.6 million annually.

We are not exposed to changes in interest rates with respect to our 2028 Notes as these obligations are at a fixed rate. Based on the quoted prices for identical liabilities in markets that are not active at June 30, 2023, the estimated fair value of the 2028 Notes was $387.4 million. Market risk is estimated as the potential decrease in fair value of our long-term debt resulting from a hypothetical increase of a 100 basis point increase in interest rates. Such an increase in interest rates at June 30, 2023, would result in a $12.1 million decrease in the fair value of our 2028 Notes.

## Controls and procedures

As filed, 1,215 characters.

*Evaluation of disclosure controls and procedures.* In accordance with Rules 13a-15 and 15d-15 of the Exchange Act, we, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer of our general partner, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of our general partner concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this report, to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

There were no changes in our internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

## Risk factors

As filed, 181 characters.

There have been no material changes to the Partnership's risk factors since our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 2, 2023.

Filed Jul 25, 2023.
Source: SEC EDGAR, the filing index for accession 0001176334-23-000140. Last ingested by Listed: Oct 26, 2026, 16:14 ET. No prices; not investment advice.