OREANDA-NEWS. Southcross Energy Partners, L.P. (NYSE:SXE) (“Southcross” or the “Partnership”) today announced second quarter 2016 financial and operating results including significant debt reduction and enhanced liquidity. 

Second Quarter Results

Southcross’ net loss was $7.4 million for the quarter ended June 30, 2016, compared to $15.5 million for the same period in the prior year and $15.5 million for the quarter ended March 31, 2016. 

Adjusted EBITDA (as defined below) was $15.6 million for the quarter ended June 30, 2016, compared to $18.7 million for the same period in the prior year and $20.7 million for the quarter ended March 31, 2016. Adjusted EBITDA for the second quarter was below the prior quarter due to lower processed gas volumes, higher operations and maintenance expense which had been deferred from the first quarter of 2016 and an increase in general and administrative expenses. 

Processed gas volumes during the quarter averaged 319 MMcf/d, a decrease of approximately 25% compared to 423 MMcf/d for the same period in the prior year and a decrease of 7% compared to 343 MMcf/d for the quarter ended March 31, 2016. The sequential quarter volumetric decline primarily represents a full quarter impact of previously discussed customer elections including a contract termination and a competitor that redirected gas to its own processing facilities.  The impact of these volumetric declines was offset in part by the late April restart of a Southcross Holdings LP (“Holdings”) treatment facility that feeds gas to the Partnership’s processing plants. 

“We remain focused on best positioning Southcross for the current market environment including our ongoing efforts to reduce our debt and increase our liquidity,” said John Bonn, President and Chief Executive Officer of Southcross’ general partner.  “We continue to evaluate opportunities to add new gas packages to our system while executing on cost reduction initiatives.” 

Capital Expenditures

For the quarter ended June 30, 2016, growth capital expenditures were $6.1 million and were related primarily to work to enhance system efficiency and capability.  Southcross continues to expect that growth capital expenditures for full year 2016 will be in the range of $20 to $30 million. 

Capital and Liquidity

As of June 30, 2016, Southcross had total outstanding debt of $570 million including $131 million under its revolving credit facility as compared to total outstanding debt of $639 million as of March 31, 2016. Unused borrowing capacity under the revolving credit facility as of June 30, 2016 was $53 million.  Based on the current terms of its credit facilities, Southcross’ total leverage ratio (as generally defined as debt divided by credit agreement EBITDA) was 5.4 to 1 as of June 30, 2016.

The significant reduction in debt and increase in liquidity on a sequential quarter basis is due to the benefit of the receipt of past-due intercompany balances by the Partnership associated with the completion of the Holdings restructuring in April 2016, the sale of non-core assets and the equity cure from Holdings.  The asset sales have no earnings impact.  

Distributable Cash Flow

Distributable cash flow (as defined below) for the quarter ended June 30, 2016 was $6.7 million, compared to $8.6 million for the same period in the prior year and $10.3 million for the quarter ended March 31, 2016. 

Conference Call Information

Southcross will hold a conference call on Friday, August 5, 2016, at 10:00 a.m. Central Time (11:00 a.m. Eastern Time) to discuss its second quarter 2016 financial and operating results. The call can be accessed live over the telephone by dialing (877) 705-6003 or, for international callers, (201) 493-6725. The replay of the call will be available shortly after the call and can be accessed by dialing (877) 870-5176 or, for international callers, (858) 384-5517. The passcode for the replay is 13641908. The replay of the call will be available for approximately two weeks following the call.

Interested parties may also listen to a simultaneous webcast of the call on Southcross’ website at www.southcrossenergy.com under the “Investors” section. A replay of the webcast will also be available for approximately two weeks following the call.

About Southcross Energy Partners, L.P.

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

About Southcross Holdings LP

Southcross Holdings LP, through its subsidiary Southcross Holdings Borrower LP, owns 100% of Southcross Energy Partners GP, LLC, the general partner of Southcross, as well as a portion of Southcross' common units, and all of Southcross' subordinated units and Class B convertible units. Holdings also owns natural gas gathering and treating assets as well as NGL pipelines and fractionation facilities in South Texas.

Forward-Looking Statements

This press release includes certain statements concerning expectations for the future that are forward-looking within the meaning of the federal securities laws. Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, events, performance or achievements, and may contain the words “expect,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “will be,” “will continue,” “will likely result,” and similar expressions, or future conditional verbs such as “may,” “will,” “should,” “would” and “could.” Without limiting the generality of the foregoing, forward-looking statements contained in this press release specifically include: the expectations, plans, strategies, objectives and growth of Southcross; and anticipated capital expenditures and Adjusted EBITDA. Although Southcross believes the expectations and forecasts reflected in these and other forward-looking statements are reasonable, Southcross can give no assurance they will prove to be correct. Forward-looking statements contain known and unknown risks and uncertainties (many of which are difficult to predict and beyond management’s control) that may cause Southcross’ actual results in future periods to differ materially from anticipated or projected results. An extensive list of specific material risks and uncertainties affecting Southcross is contained in its Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 14, 2016 and in other documents and reports filed from time to time with the SEC. Any forward-looking statements in this press release are made as of the date hereof and Southcross undertakes no obligation to update or revise any forward-looking statements to reflect new information or events.

Use of Non-GAAP Financial Measures

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

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

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

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

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

 
SOUTHCROSS ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per unit data)
(Unaudited)
 
    Three Months Ended June 30,   Six Months Ended June 30,
    2016   2015   2016   2015
Revenues:                
Revenues   $ 100,141     $ 146,129     $ 195,596     $ 324,620  
Revenues - affiliates   24,561     21,091     48,832     28,538  
Total revenues   124,702     167,220     244,428     353,158  
                 
Expenses:                
Cost of natural gas and liquids sold   85,619     124,595     165,066     265,710  
Operations and maintenance   19,615     19,834     36,393     42,388  
Depreciation and amortization   18,908     17,571     37,449     34,603  
General and administrative   8,162     9,003     16,048     16,809  
Impairment of assets   —     193     —     193  
Loss (gain) on sale of assets, net   (12,576 )   (38 )   (12,576 )   180  
Total expenses   119,728     171,158     242,380     359,883  
                 
Income (loss) from operations   4,974     (3,938 )   2,048     (6,725 )
Other expense:                
Equity in losses of joint venture investments   (3,534 )   (3,604 )   (6,963 )   (7,155 )
Interest expense   (8,833 )   (7,900 )   (18,003 )   (15,398 )
Total other expense   (12,367 )   (11,504 )   (24,966 )   (22,553 )
Loss before income tax benefit (expense)   (7,393 )   (15,442 )   (22,918 )   (29,278 )
Income tax benefit (expense)   (3 )   (9 )   3     (78 )
Net loss   $ (7,396 )   $ (15,451 )   $ (22,915 )   $ (29,356 )
General partner unit in-kind distribution   (26 )   (61 )   (26 )   (137 )
Net loss attributable to Holdings   —     (1,103 )   —     (4,258 )
Net loss attributable to partners   $ (7,422 )   $ (14,409 )   $ (22,941 )   $ (25,235 )
                 
Earnings per unit and distributions declared                
Net loss allocated to limited partner common units   $ (3,953 )   $ (6,928 )   $ (11,782 )   $ (11,830 )
Weighted average number of limited partner common units outstanding   33,921   26,477   31,183   25,143
Basic and diluted loss per common unit   $ (0.12 )   $ (0.26 )   $ (0.38 )   $ (0.47 )
                 
Net loss allocated to limited partner subordinated units   $ (1,423 )   $ (3,194 )   $ (4,613 )   $ (5,744 )
Weighted average number of limited partner subordinated units outstanding   12,214   12,214   12,214   12,214
Basic and diluted loss per subordinated unit   $ (0.12 )   $ (0.26 )   $ (0.38 )   $ (0.47 )
Distributions declared and paid per common unit   $ —     $ 0.40     $ —     $ 0.80  
 
SOUTHCROSS ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for unit data)
(Unaudited)
 
    June 30, 2016   December 31, 2015
ASSETS        
Current assets:        
Cash and cash equivalents   $ 4,859     $ 11,348  
Trade accounts receivable   29,860     39,585  
Accounts receivable - affiliates   16,269     49,734  
Prepaid expenses   2,576     3,915  
Deposits to suppliers   3,837     —  
Other current assets   961     1,256  
Total current assets   58,362     105,838  
         
Property, plant and equipment, net   1,034,266     1,066,001  
Investments in joint ventures   138,461     140,526  
Other assets   1,675     6,595  
Total assets   $ 1,232,764     $ 1,318,960  
         
LIABILITIES AND PARTNERS’ CAPITAL        
Current liabilities:        
Accounts payable and accrued liabilities   $ 36,081     $ 66,458  
Accounts payable - affiliates   7,304     7,871  
Current portion of long-term debt   4,500     4,500  
Other current liabilities   6,472     10,406  
Total current liabilities   54,357     89,235  
         
Long-term debt   552,685     604,518  
Other non-current liabilities   10,341     3,871  
Total liabilities   617,383     697,624  
         
Commitments and contingencies        
         
Partners' capital:        
Common units (36,902,492 and 28,420,619 units outstanding as of June 30, 2016 and December 31, 2015, respectively)   274,990     271,236  
Class B Convertible units (16,522,484 and 15,958,990 units issued and outstanding as of June 30, 2016 and December 31, 2015)   295,801     300,596  
Subordinated units (12,213,713 units issued and outstanding as of June 30, 2016 and December 31, 2015)   32,995     37,920  
General partner interest   11,595     11,584  
Total partners' capital   615,381     621,336  
Total liabilities and partners' capital   $ 1,232,764     $ 1,318,960  
 
SOUTHCROSS ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
    Six Months Ended June 30,
    2016   2015
Cash flows from operating activities:        
Net loss   $ (22,915 )   $ (29,356 )
Adjustments to reconcile net loss to net cash provided by operating activities:        
Depreciation and amortization   37,449     34,603  
Unit-based compensation   1,706     2,475  
Amortization of deferred financing costs and PIK interest   1,904     1,727  
Loss (gain) on sale of assets, net   (12,576 )   180  
Unrealized loss (gain) on financial instruments   (55 )   221  
Equity in losses of joint venture investments   6,963     7,155  
Distribution from joint venture investment   390     —  
Impairment of assets   —     193  
Other, net   (184 )   (2 )
Changes in operating assets and liabilities:        
Trade accounts receivable, including affiliates   44,409     16,951  
Prepaid expenses and other current assets   1,502     780  
Deposits paid to suppliers   (3,837 )   —  
Other non-current assets   —     76  
Accounts payable and accrued liabilities   (27,808 )   (31,404 )
Other liabilities, including affiliates   3,000     904  
Net cash provided by operating activities   29,948     4,503  
Cash flows from investing activities:        
Capital expenditures   (12,434 )   (64,959 )
Insurance proceeds from property damage claims, net of expenditures   125     100  
Net proceeds from sales of assets   20,402     4,693  
Consideration paid for Holdings' drop-down acquisition   —     (15,000 )
Investment contributions to joint venture investments   (5,287 )   (2,474 )
Net cash provided by (used in) investing activities   2,806     (77,640 )
Cash flows from financing activities:        
Borrowings under our credit facility   3,110     102,000  
Repayments under our credit facility   (54,250 )   (15,000 )
Repayments under our term loan agreement   (2,250 )   (2,250 )
Payments on capital lease obligations   (204 )   (276 )
Financing costs   (86 )   (602 )
Tax withholdings on unit-based compensation vested units   (57 )   —  
Payments of distributions and distribution equivalent rights   —     (23,306 )
Expenses paid by Holdings on behalf of Valley Wells' assets   —     17,858  
Borrowing of senior unsecured PIK notes   14,000     —  
Repayment of senior unsecured PIK notes and PIK interest   (14,260 )   —  
Valley Wells operating expense cap adjustment   2,637     —  
Contributions from general partner   —     1,281  
Common unit issuances to Holdings related to equity cures   11,884     —  
Interest on receivable due from Holdings   233     —  
Net cash provided by (used in) financing activities   (39,243 )   79,705  
         
Net increase (decrease) in cash and cash equivalents   (6,489 )   6,568  
Cash and cash equivalents — Beginning of period   11,348     1,649  
Cash and cash equivalents — End of period   $ 4,859     $ 8,217