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Azure Midstream Partners, LP Reports First Quarter 2016 Financial Results

DALLAS, May 9, 2016 /PRNewswire/ -- Azure Midstream Partners, LP (NYSE: AZUR) ("Azure" or the "Partnership"), announced financial and operating results for the three months ended March 31, 2016. 

Adjusted EBITDA for the first quarter 2016 was $5.1 million, compared to pro forma adjusted EBITDA of $8.6 for the first quarter of 2015, and distributable cash flow was $2.4 million, or $0.11 per limited partner unit, compared to pro forma distributable cash flow of $7.2 million, or $0.40 per limited partner unit in the first quarter of 2015. The Partnership recognized a net loss of $113.6 million for the quarter due primarily to a $107.5 million non-cash impairment of tangible and intangible assets related to the AES and NuDevco restructure.   This compares to a pro forma net loss of $7.6 million for the first quarter of 2015. Adjusted EBITDA and distributable cash flow are explained in greater detail under "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.

"While the challenging commodity market persists, we have just completed the strategic restructuring plan with AES and its parent, NuDevco according to the plans we outlined during our recent earnings call," said I.J. "Chip" Berthelot, President and Chief Executive Officer. "This allows us to reduce outstanding units by fifty percent, focus more intensely on our core gas business and proceed with additional strategic initiatives as a more streamlined organization." 

The execution of the AES restructure agreement accelerated a letter of credit which on April 1, 2016 was used to reduce the outstanding debt at the end of the first quarter by $15.0 million.  Additionally, effective April 1, 2016, NuDevco surrendered to the Partnership 1,939,265 common units, 8,724,545 subordinated units and 10 IDR units of the Partnership which were held by NuDevco and its subsidiary.  This reduced the number of outstanding units of the Partnership from approximately 21.7 million units to 11.1 million common units.  In return, the Partnership agreed to terminate both the gathering and processing and transloading agreements coupled with a mutual release of future claims with AES, and AES assigned all of its rights and interests in third party contracts to the Partnership.

Giving full effect to the restructure, on a pro forma basis, the Partnership could have generated $0.22 per limited partner unit with 11.1 million units outstanding for the first quarter of 2016.

First Quarter 2016 Results

AES was the anchor tenant for the transloading business.  As a result of the restructure, the transloading business will be combined with the gathering and processing segment for reporting purposes going forward.  Our transloading sites are located in underserved oil producing regions and provided a crucial oil transport service when energy prices were more robust.  In this environment, we will use this opportunity to evaluate the viability of each location and seek opportunity to reduce cost in the near term to position for optimization in the long-term.

Gross margin for the gathering and processing segment for the first quarter 2016 was $9.4 million compared to $7.5 million in the first quarter of 2015. Gathered gas volumes were 260 MMcf/d and gas processed volumes were 66 MMcf/d for the first quarter 2016.  Gathered gas volumes were 249 MMcf/d and gas processed volumes were 183 MMcf/d for the first quarter 2015.

The Partnership's first quarter 2016 recurring operating expenses were $4.0 million, recurring general and administrative expenses were $2.4 million, depreciation and amortization expenses were $6.0 million, and interest expense was $3.0 million.  Debt, net of cash, was $215.6 million as of March 31, 2016.  Pro forma debt, net of cash, considering the effects of the $15.0 million debt reduction was $200.6 million as of March 31, 2016.

In connection with the AES restructure, the Partnership recorded a non-cash impairment loss of $107.5 million in the first quarter of 2016.  The impairment was comprised of a $78.3 million impairment to the processing tangible assets and $29.2 million impairment to the intangible asset identified as part of the purchase price allocation to the Partnership's assets acquired related to the customer relationship with AES.

Suspension of Distributions

The Partnership has suspended distributions for the quarterly period ended March 31, 2016.  The Partnership's board of directors and management believe the suspension to be in the best long-term interest of all stakeholders.  The board of directors will continue to evaluate the Partnership's ability to reinstate the distribution, although reinstatement of distributions is not expected in the near term absent substantial improvement in our operating performance and compliance with the terms of our credit agreement.

First Quarter 2016 Conference Call and Webcast

Azure will host a conference call to discuss first quarter 2016 results at 10:00 am CT (11:00 am ET) on Monday, May 9, 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.

The call can be accessed live over the telephone by dialing 1-877-815-2357, 1-330-968-0354 for international callers. The conference ID for the call is 1385069. A telephonic replay of the call will be available for 7 days and can be accessed by dialing 1-855-859-2056 or 1-404-537-3406 for international callers, with conference ID number 1385069.

 

AZURE MIDSTREAM PARTNERS, LP
SELECTED BALANCE SHEET DATA
(Unaudited)
(In Thousands, except unit amounts)









March 31, 2016


December 31, 2015


Selected Balance Sheet Data:






Cash and cash equivalents

$                    15,961


$                   7,511



Total assets

454,933


563,964



Long-term debt, net of deferred borrowing costs

228,665


228,474



Total partners' capital

$                  203,300


$               316,447








Azure Limited Partners' Capital:






Limited partner units outstanding March 31, 2016

21,788,763


21,769,199









 

AZURE MIDSTREAM PARTNERS, LP
SELECTED STATEMENT OF OPERATIONS DATA
(Unaudited)
(In Thousands)








Quarter Ended

March 31, 2016


Pro Forma

Quarter Ended

March 31, 2015 (1)












Total operating revenues

$                            12,681


$                            17,318



Operating expenses






   Cost of natural gas and NGLs

3,330


2,982



   Operation and maintenance

4,000


4,340



   General and administrative

2,335


8,473



   Non-cash equity based compensation

424


5,005



   Asset impairment

107,477


-



   Depreciation and amortization expense

5,990


3,234



Total operating expenses

123,556


24,034



Operating loss

(110,875)


(6,716)



Other expense, net

95


-



Interest expense

3,001


828



Net loss before tax

(113,971)


(7,544)



Income tax expense (benefit)

(400)


81



Net loss

$                       (113,571)


$                           (7,625)












(1)

The pro forma income statement for the first quarter of 2015 presents the full three 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 the Transactions.

 

The following table presents a reconciliation of net loss to Adjusted EBITDA and DCF for first quarter 2016 and pro forma first quarter 2015.

AZURE MIDSTREAM PARTNERS, LP
NON-GAAP FINANCIAL MEASURES
(Unaudited)





(In Thousands)

Quarter Ended

March 31, 2016


Pro Forma

Quarter Ended

March 31, 2015 (4)



Net loss

$                   (113,571)


$                        (7,625)

Add (deduct):




Interest expense

3,001


828

Income tax expense

(400)


81

Depreciation and amortization expense

5,990


3,234

Asset impairment

107,477


-

Non-cash equity based compensation

424


5,005

Other adjustments (1)

2,146


7,105

Adjusted EBITDA

$                          5,067


$                          8,628

Deduct:




Cash interest expense

(2,574)


(738)

  Cash taxes

(7)


(81)

  Maintenance capital expenditures

(55)


(609)

Distributable cash flow

$                          2,431


$                          7,200





DCF per limited partner unit (2)

$                            0.11


$                            0.40

Distributions to limited partners (3)

$                                  -


$                          6,630

Distributions per limited partner unit

$                                  -


$                            0.37

Distribution coverage ratio



1.1x 



(1)

Other adjustments primarily relate to the 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 Adjusted EBITDA reflects the amount of cash we are entitled to receive on an annual basis under these MRC/MVC agreements.



(2)

DCF per limited partner unit is calculated using the shares outstanding at March 31, 2016 of 21.8 million shares.  Pro forma DCF per limited partner unit, considering the effects of the AES settlement, would be $0.22.



(3)

The Partnership has suspended the distribution for the quarterly period ended March 31, 2016.



(4)

The pro forma results for the first quarter of 2015 present the full three months of the historical Marlin business and include the impacts of the business combination and the contribution of the Legacy System as of the closing of the Transactions.  We view Pro Forma Adjusted EBITDA and Pro Forma DCF for the first quarter of 2015 as the key financial metrics used to compare the performance of the combined Partnership as compared to the first quarter of 2016.

 

AZURE MIDSTREAM PARTNERS, LP
SELECTED OPERATING DATA
(Unaudited)









Quarter Ended


Quarter Ended




March 31, 2016


March 31, 2015


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

260


249


Average volume of processed gas (MMcf/d)

66


183


Transloading facilities (BBls/d), primarily MVC volumes


-


22,536




(1)

Average throughput volumes reflected for March 31, 2015 represent three months of the Legacy System and one month 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 1,013 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 four natural gas processing facilities with 305 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 attached to 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 benefits of the recent transactions described herein, including Azure's ability to successfully make future acquisitions, to maintain or increase future distributions, and to capitalize on certain commercial and operational synergies, (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 2014 Annual Report on Form 10-K, as amended, and in our 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