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Azure Midstream Partners, LP Reports Third Quarter 2016 Financial Results

DALLAS, Nov. 1, 2016 /PRNewswire/ -- Azure Midstream Partners, LP (OTCQB: AZUR) ("Azure" or the "Partnership"), announced third quarter 2016 financial and operating results, including, significant debt reduction.

Third Quarter 2016 Results

Azure's net income was $14.4 million for the quarter ended September 30, 2016, compared to a net loss of $8.4 million for the prior quarter. As discussed below, this increase in earnings relates primarily to the recognition of previously deferred revenue of $18.5 million.

Adjusted EBITDA for the quarter ended September 30, 2016 increased to $1.4 million from $0.8 million for the second quarter of 2016.  Deferred revenue associated with our minimum revenue commitment agreements and several minimum volume commitment agreements was $2.0 million for both the second and third quarter, of 2016. These amounts are billed to our customers on an annual basis and are included in our distributable cash flows in the amounts for which we are entitled to receive for the applicable quarter. Distributable cash flow for the quarter was negative by $0.2 million. If the partnership were in compliance with all of its bank covenants, interest expense for the quarter would have been lower by approximately $0.9 million, implying a hypothetical distributable cash flow of $0.7 million, $0.063 per limited partner unit, or $0.25 on an annualized basis at 1.0 times distribution coverage.

"We are pleased to see the increase in earnings as a result of recent initiatives completed by the partnership", said I.J. "Chip" Berthelot, II, Chief Executive Officer. "We remain focused on creating value for stakeholders, and continue to see positive momentum in our commercial endeavors."

Adjusted EBITDA and distributable cash flow are explained in greater detail under "Use of Non-GAAP Financial Measures," and reconciliations of these measures to their most directly comparable GAAP measures are included in the tables at the end of this release.

Gross margin for the gathering and processing segment for the third quarter 2016 was $25.1 million, which includes a one-time recognition of the minimum revenue commitment ("MRC") previously deferred and included on the balance sheet.  Based upon facts known in the third quarter, it was determined that all of the revenue recognition criteria related to the MRC revenues, previously deferred under this contract had been met.  This was due to the determination that based on current facts the likelihood that our customer would be able to generate revenues in excess of its future MRC as an offset to future gathering fees is highly unlikely.  Gross margin, excluding this one-time recognition, was $6.6 million as compared to $6.9 million in the second quarter 2016.  Gathered gas volumes were 235 MMcf/d and gas processed volumes were 65 MMcf/d for the third quarter 2016.  Gathered gas volumes were 246 MMcf/d and gas processed volumes were 62 MMcf/d for the second quarter 2016. 

The Partnership's third quarter 2016 recurring operating expenses were $3.2 million, recurring general and administrative expenses were $2.7 million, depreciation and amortization expenses were $3.4 million, and interest expense was $4.0 million.  Debt, net of cash, was $162.4 million as of September 30, 2016.

As previously discussed, on August 4, 2016 Azure completed the sale of its 100 MMcf/d Panola I processing plant and Murvaul pipeline to Align Midstream Partners for $44.9 million in cash proceeds.  Azure used $41.0 million of the sale proceeds to further reduce debt and improve leverage.  Additionally, Azure recorded a $4.8 million gain on the sale of these assets during the third quarter of 2016.

On October 28, 2016 Azure obtained a waiver from its revolving credit facility lenders to continue to pursue various strategic alternatives.

Third Quarter 2016 Conference Call and Webcast

Azure will host a conference call to discuss third quarter 2016 results at 11:00 am CT (12:00 pm ET) on Tuesday, November 1, 2016.

Interested parties can listen to a live webcast of the call from the Events & Presentations page of the Azure Investor Relations website at http://investor.azuremidstreampartners.com/phoenix.zhtml?c=253822&p=irol-calendar.  An archived replay of the webcast will be available for 12 months following the live presentation.

To dial by telephone, please preregister by following the following link: https://level3.cwebcast.com/ses/j2_Gd8ipkS0-V47etU_vfQ~~. After registering for the event, you will receive an email with your personal access information.

 


AZURE MIDSTREAM PARTNERS, LP

SELECTED BALANCE SHEET DATA

(Unaudited)

(In Thousands, except unit amounts)



September 30, 2016


December 31, 2015

Selected Balance Sheet Data:




Cash and cash equivalents

$                       11,154


$                        7,511

Total assets

375,531


563,964

Debt, net of deferred borrowing costs (1)

171,943


228,474

Total partners' capital

$                     196,150


$                    316,447





Azure Limited Partners' Capital:




Limited partner units outstanding September 30, 2016

11,284,341


21,769,199



(1)

 Debt was classified as a current liability at September 30, 2016 and as a non-current liability at December 31, 2015.

 

AZURE MIDSTREAM PARTNERS, LP

SELECTED STATEMENT OF OPERATIONS DATA

(Unaudited)

(In Thousands)



Three Months Ended


Nine Months Ended


September 30,


September 30,


2016


2015


2016


2015 (1)

Total operating revenues

$               29,503


$            21,198


$               53,022


$               59,982

Operating expenses








   Cost of natural gas and NGLs

4,312


5,130


11,612


12,251

   Operation and maintenance

3,222


4,956


11,600


13,161

   General and administrative

4,648


3,205


10,716


15,579

   Non-cash equity based compensation

304


432


1,046


5,437

   Impairments (2)

-


215,758


107,477


215,758

   Depreciation and amortization expense

3,388


5,914


12,976


14,381

Total operating expenses

15,874


235,395


155,427


276,567

Operating (loss) income

13,629


(214,197)


(102,405)


(216,585)

Gain on sale of assets

(4,752)


-


(4,752)


-

Other (income) expense, net

(144)


(5)


(63)


(5)

Interest expense

3,979


1,973


10,133


4,781

Net (loss) income before tax

14,546


(216,165)


(107,723)


(221,361)

Income tax expense (benefit)

182


269


(125)


996

Net (loss) income

$               14,364


$          (216,434)


$          (107,598)


$           (222,357)



(1)

The pro forma income statement for the nine months ended September 30, 2015 presents the full nine months of the historical Marlin business and includes the impacts of the business combination and the contribution of the Legacy System as of the closing of this combination.  The pro forma income statement includes the effects of the ETG contribution for the three months ended September 30, 2015 only.

(2)

The Partnership's impairments include $215.8 million for goodwill impairment for the third quarter September 30, 2015, and $107.5 million of fixed asset and customer intangible impairment recognized in the first six months of 2016.

 

The following table presents a reconciliation of net income (loss) to Adjusted EBITDA and distributable cash flow for the three and nine months ended September 30, 2016 and the three months ended September 30, 2015, and pro forma nine months ended September 30, 2015.

 

AZURE MIDSTREAM PARTNERS, LP

NON-GAAP FINANCIAL MEASURES

(Unaudited)


(In Thousands)

Three Months Ended

September 30,


Nine Months Ended

September 30,


2016


2015


2016


2015 (5)

Net income (loss)

$                 14,364


$          (216,434)


$          (107,598)


$           (222,357)

Add (deduct):








Interest expense

3,979


1,973


10,133


4,781

Income tax expense (benefit)

182


269


(125)


996

Depreciation and amortization expense

3,388


5,914


12,976


14,381

Asset impairment

-


215,758


107,477


215,758

Gain on sale of assets

(4,752)


-


(4,752)


-

Deferred revenue (1)

(18,520)


-


(18,520)


-

Non-cash equity based compensation

304


432


1,046


5,437

Other adjustments (2)

2,429


851


4,655


9,820

Adjusted EBITDA

$                   1,374


$                 8,763


$                 5,292


$               28,816

Deduct:








 Cash interest expense

3,264


1,667


8,385


4,113

  Cash taxes

9


-


39


306

  Maintenance capital expenditures

270


909


419


1,810

Add:








Adjustments related to MRC/MVC shortfall payments (3)

2,005


1,735


5,962


1,735

Distributable cash flow

$                    (164)


$                 7,922


$                 2,411


$               24,322

















Distributions to limited partners (4)

$                           -


$                 8,213


$                        -


$               23,163

Distributions paid per limited partner unit

$                           -


$                   0.37


$                        -


$                   1.11

Distribution coverage ratio



0.96x




                  1.05x



(1)

Includes recognition of revenue that was previously deferred in connection with minimum revenue commitments ("MRC").



(2)

Other adjustments is comprised of non-recurring and non-cash items, including: (i) non-recurring expenses associated with transactions, (ii) severance payments, (iii) retention bonuses, (iv) debt issuance costs, and (v) non-cash volumetric natural gas imbalance adjustments.



(3)

Deferred revenue associated with our minimum revenue commitment ("MRC") agreement and several minimum volume commitment ("MVC") agreements.  We include a proportional amount of the expected MRC/MVC cash receipts in each quarter in respect of the annual period for which we actually receive the payment to ensure our distributable cash flow reflects the amount of cash we are entitled to receive on an annual basis under these MRC/MVC agreements.  These adjustments have not been billed to our customers and are not recognized in our unaudited condensed consolidated financial statements. In previous releases and SEC disclosure, the Partnership included adjustments for shortfall payments in Adjusted EBITDA. 



(4)

The Partnership has updated the classification of this non-GAAP adjustment to distributable cash flow to better align presentation to the liquidity measure. The Partnership has suspended the distribution for the quarterly periods ended March 31, 2016, June 30, 2016, and September 30, 2016.



(5)

The pro forma income statement for the nine months ended September 30, 2015 presents the full nine months of the historical Marlin business and includes the impacts of the business combination and the contribution of the Legacy System as of the closing of this combination.  The pro forma income statement includes the effects of the ETG contribution for the three months ended September 30, 2015 only.

 

AZURE MIDSTREAM PARTNERS, LP

SELECTED OPERATING DATA

(Unaudited)



Three Months Ended


Nine Months Ended


September 30, 2016


September 30, 2015


September 30, 2016


September 30, 2015

Average throughput volumes of natural gas (MMcf/d) (1)

235


275


247


219

Average volumes of processed gas (MMcf/d)

65


121


64


163

Transloading facilities (BBls/d), primarily MCV volumes

-


22,458


-


22,497



(1)

Average throughput volumes reflected for September 30, 2015 represent nine months of the Legacy and ETG Systems and seven months of Marlin.

 

About Azure Midstream Partners, LP

Azure Midstream Partners, LP, headquartered in Dallas, Texas, is a fee-based, growth oriented limited partnership formed to develop, operate, and acquire midstream energy assets. The Partnership provides natural gas gathering, transportation, and processing services; as well as NGL transportation and crude oil logistics services. The Partnership's assets include 963 miles of gathering lines in the Shelby Trough sub-play of the Haynesville Shale and the horizontal Cotton Valley play located in east Texas and north Louisiana that are capable of gathering 1.9 Bcf/d. The Partnership also has three natural gas processing facilities with 210 MMcf/d of cumulative processing capacity located in the Panola, San Augustine and Tyler Counties of Texas, two NGL transportation pipelines that connect its Panola County and Tyler County processing facilities to third party NGL pipelines capable of transporting 20,000 barrels per day, and three crude oil transloading facilities containing six crude oil transloaders with a combined capacity of 31,200 Bbls/d.

Additional information about Azure Midstream Partners, LP can be found at www.azuremidstreampartners.com.

About Azure Midstream Energy, LLC

Azure Energy is a midstream company with a focus on owning, operating, developing and acquiring midstream energy infrastructure in core producing areas in the United States. Azure Energy owns 100% of Azure Midstream Partners GP, LLC, the Partnership's general partner, and 90% of the incentive distribution rights in the Partnership. In addition to its ownership of the Partnership, Azure Energy provides natural gas gathering, compression, treating and processing services in north Louisiana and east Texas in the prolific Haynesville and Bossier Shale formations.

www.azuremidstream.com

Use of Non-GAAP Financial Measures

We report financial results in accordance with GAAP. We also present adjusted EBITDA and distributable cash flow each of which are non-GAAP financial measures. We define gross margin as total revenues less cost of natural gas and NGLs. We define Adjusted EBITDA as net income (loss), plus interest expense, income tax expense, depreciation and amortization expense, certain non-cash charges (such as non-cash equity based compensation, impairments, gains and losses on the sale of assets), transaction-related costs and selected charges that are unusual and non-recurring; less interest income, income tax benefit and select gains that are unusual or non-recurring.

We define distributable cash flow as adjusted EBITDA plus cash interest income, less cash interest paid, income tax expense and maintenance capital expenditures. Our definitions of these non-GAAP financial measures may differ from the definitions of similar measures used by other companies. Management uses these non- GAAP financial measures in making financial, operating and planning decisions and in evaluating our financial performance. Furthermore, management believes that these non-GAAP financial measures may provide users with additional meaningful comparisons between current results and results of prior periods as they are expected to be reflective of our core ongoing business. These measures have limitations, and investors should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Reconciliations of GAAP to non-GAAP financial measures are included in this release.

Forward-Looking Statements

This press release contains forward-looking statements. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. In particular, statements, express or implied, concerning future actions, conditions or events, future operating results or the ability to generate revenues, income or cash flow or to make distributions are forward-looking statements. The forward-looking statements in this press release include statements regarding Azure and its affiliates, including statements about (1) the anticipated benefits of the recent transactions described herein, including Azure's ability to improve its financial condition, (2) future expectations and projections of results of operations or financial condition (3) the anticipated financial performance of Azure, and (4) our ability to comply with the restrictions contained in the agreements governing our debt. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future actions, conditions or events and future results of operations of Azure may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results are beyond Azure's ability to control or predict. These statements are necessarily based upon various assumptions involving judgments with respect to the future, including, among others: conditions in the capital and credit markets; the ability to achieve synergies and revenue growth; national, international, regional and local economic, competitive and regulatory conditions and developments; technological developments; inflation rates; interest rates; the political and economic stability of oil producing nations; energy markets; commodity prices; weather conditions; environmental conditions; business and regulatory or legal decisions; the timing and success of business development efforts; terrorism; and other uncertainties. In addition, an extensive list of specific material risks and uncertainties affecting Azure is contained in its 2015 Annual Report on Form 10-K, its subsequent Quarterly Reports on Form 10-Q, and in its other public filings and press releases. There is no assurance that any of the actions, events or results of the forward-looking statements will occur, or if any of them do, what impact they will have on Azure's results of operations or financial condition. Because of these uncertainties, you are cautioned not to put undue reliance on any forward-looking statement.

 

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SOURCE Azure Midstream Partners, LP

Steven C. Sullivan 518-587-5995