Southcross Energy Partners, L.P. Reports Third Quarter 2016 Results

DALLAS, Texas, Nov. 08, 2016 (GLOBE NEWSWIRE) -- Southcross Energy Partners, L.P. (NYSE:SXE) ("Southcross" or the "Partnership") today announced third quarter 2016 financial and operating results. 

Southcross' net loss was $32.6 million for the quarter ended September 30, 2016, compared to $9.7 million for the same period in the prior year and $7.4 million for the quarter ended June 30, 2016.  Net loss for the third quarter was higher than the prior quarter loss due primarily to higher depreciation and amortization expense and lower gain on sale of assets. 

Adjusted EBITDA (as defined below) was $14.8 million for the quarter ended September 30, 2016, compared to $23.6 million for the same period in the prior year and $15.6 million for the quarter ended June 30, 2016. Adjusted EBITDA for the third quarter was below the prior quarter due to lower processed gas volumes, partially offset by lower expenses. 

Processed gas volumes during the quarter averaged 299 MMcf/d, a decrease of 32% compared to 441 MMcf/d for the same period in the prior year and a decrease of 6% compared to 319 MMcf/d for the quarter ended June 30, 2016. The sequential quarter volumetric decline primarily represents a producer that reduced volumes below the minimum volume commitment level.  Any deficiency payments associated with this volumetric shortfall will be determined at the end of the year.     

Southcross implemented several key initiatives during the quarter that are expected to reduce operating expenses and lower future capital expenditure requirements.  These initiatives include the planned shut-down and sale of two of its older and less efficient processing facilities and the reconfiguration of assets at the Lone Star processing facility to reduce electricity costs.  In 2017, Southcross expects to realize $2 million in annual cost savings and $6 million in reduced annual capital expenditure requirements.  Southcross also expects to receive $12 million in proceeds in 2017 related to these activities, which includes insurance recoveries and the sale of emissions credits. These represent the initial steps of a comprehensive cost savings program that has been approved by Southcross' Board of Directors and will be realized throughout 2017.

Capital Expenditures

For the quarter ended September 30, 2016, growth capital expenditures were $3.9 million and were related primarily to work to enhance system efficiency and capability. Growth capital expenditures for the nine months ended September 30, 2016 were $13.3 million. Southcross expects that growth capital expenditures for full year 2016 will be less than $30 million. 

Capital and Liquidity

As of September 30, 2016, Southcross had total outstanding debt of $561 million including $123 million under its revolving credit facility as compared to total outstanding debt of $570 million as of June 30, 2016. The reduction in debt on a sequential quarter basis is due to the use of free cash flow from the business to pay down the revolver as well as the mandatory term loan amortization payment.    

As of September 30, 2016, we were not in compliance with the consolidated total leverage ratio of our Financial Covenants absent an equity cure of $17.0 million. We believe that we will have the ability to fund this equity cure through the Equity Cure Contribution Agreement. Management is pursuing multiple alternatives to enhance the Partnership's liquidity, including negotiation of amendments to certain covenants and terms contained in our Revolving Credit Agreement, which may include modifications to our existing Financial Covenants.

Distributable Cash Flow

Distributable cash flow (as defined below) for the quarter ended September 30, 2016 was $5.8 million, compared to $12.7 million for the same period in the prior year and $6.7 million for the quarter ended June 30, 2016. 

Conference Call Information

Southcross will hold a conference call on Tuesday, November 8, 2016, at 10:00 a.m. Central Time (11:00 a.m. Eastern Time) to discuss its third 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 13645847. 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 September 30,   Nine Months Ended September 30,
  2016   2015   2016   2015
Revenues:              
Revenues $ 123,043     $ 147,114     $ 316,673     $ 471,735  
Revenues - affiliates 21,619     32,455     72,418     60,993  
Total revenues 144,662     179,569     389,091     532,728  
               
Expenses:              
Cost of natural gas and liquids sold 108,572     133,401     273,638     399,111  
Operations and maintenance 17,781     19,139     54,173     61,528  
Depreciation and amortization 31,449     17,853     68,898     52,456  
General and administrative 6,831     6,803     22,879     23,612  
Impairment of assets 476         476     193  
Loss (gain) on sale of assets, net (179 )   (33 )   (12,755 )   146  
Total expenses 164,930     177,163     407,309     537,046  
               
Income (loss) from operations (20,268 )   2,406     (18,218 )   (4,318 )
Other expense:              
Equity in losses of joint venture investments (3,694 )   (3,567 )   (10,656 )   (10,722 )
Interest expense (8,598 )   (8,688 )   (26,601 )   (24,087 )
Total other expense (12,292 )   (12,255 )   (37,257 )   (34,809 )
Loss before income tax benefit (32,560 )   (9,849 )   (55,475 )   (39,127 )
Income tax benefit     190     2     113  
Net loss $ (32,560 )   $ (9,659 )   $ (55,473 )   $ (39,014 )
General partner unit in-kind distribution (12 )   (28 )   (38 )   (165 )
Net loss attributable to Holdings             (4,258 )
Net loss attributable to partners $ (32,572 )   $ (9,687 )   $ (55,511 )   $ (34,921 )
               
Earnings per unit and distributions declared              
Net loss allocated to limited partner common units $ (17,915 )   $ (4,799 )   $ (29,235 )   $ (16,711 )
Weighted average number of limited partner common units outstanding   36,947       28,372       33,119       26,234  
Basic and diluted loss per common unit $ (0.48 )   $ (0.17 )   $ (0.88 )   $ (0.64 )
               
Net loss allocated to limited partner subordinated units $ (5,920 )   $ (2,065 )   $ (10,777 )   $ (7,777 )
Weighted average number of limited partner subordinated units outstanding   12,214       12,214       12,214       12,214  
Basic and diluted loss per subordinated unit $ (0.48 )   $ (0.17 )   $ (0.88 )   $ (0.64 )
Distributions declared and paid per common unit $     $ 0.40     $     $ 1.20  
                               

SOUTHCROSS ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for unit data)
(Unaudited)
 
  September 30, 2016   December 31, 2015
ASSETS      
Current assets:      
Cash and cash equivalents $ 4,115     $ 11,348  
Trade accounts receivable 37,120     39,585  
Accounts receivable - affiliates 5,283     49,734  
Prepaid expenses 3,995     3,915  
Other current assets 1,526     1,256  
Total current assets 52,039     105,838  
       
Property, plant and equipment, net 1,008,342     1,066,001  
Investments in joint ventures 134,457     140,526  
Other assets 2,222     6,595  
Total assets $ 1,197,060     $ 1,318,960  
       
LIABILITIES AND PARTNERS' CAPITAL      
Current liabilities:      
Accounts payable and accrued liabilities $ 48,074     $ 66,458  
Accounts payable - affiliates     7,871  
Current portion of long-term debt 4,500     4,500  
Other current liabilities 7,466     10,406  
Total current liabilities 60,040     89,235  
       
Long-term debt 544,409     604,518  
Other non-current liabilities 8,665     3,871  
Total liabilities 613,114     697,624  
       
Commitments and contingencies      
       
Partners' capital:      
Common units (36,987,913 and 28,420,619 units outstanding as of September 30, 2016 and December 31, 2015, respectively) 257,977     271,236  
Class B Convertible units (16,811,649 and 15,958,990 units issued and outstanding as of September 30, 2016 and December 31, 2015) 288,080     300,596  
Subordinated units (12,213,713 units issued and outstanding as of September 30, 2016 and December 31, 2015) 26,689     37,920  
General partner interest 11,200     11,584  
Total partners' capital 583,946     621,336  
Total liabilities and partners' capital $ 1,197,060     $ 1,318,960  
               

SOUTHCROSS ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
  Nine Months Ended September 30
  2016   2015
Cash flows from operating activities:      
Net loss $ (55,473 )   $ (39,014 )
Adjustments to reconcile net loss to net cash provided by operating activities:      
Depreciation and amortization 68,898     52,456  
Unit-based compensation 2,635     3,513  
Amortization of deferred financing costs and PIK interest 2,796     2,615  
Loss (gain) on sale of assets, net (12,755 )   146  
Unrealized loss (gain) on financial instruments (116 )   289  
Equity in losses of joint venture investments 10,656     10,722  
Distribution from joint venture investment 740     500  
Impairment of assets 476     193  
Other, net (247 )   (69 )
Changes in operating assets and liabilities:      
Trade accounts receivable, including affiliates 46,444     5,613  
Prepaid expenses and other current assets (656 )   (1,516 )
Other non-current assets (63 )   77  
Accounts payable and accrued liabilities (24,685 )   (14,180 )
Other liabilities, including affiliates 2,553     3,163  
Net cash provided by operating activities 41,203     24,508  
Cash flows from investing activities:      
Capital expenditures (17,329 )   (93,946 )
Insurance proceeds (expenditures) from property damage claims 125     (2,482 )
Net proceeds from sales of assets 20,734     4,693  
Consideration paid for Holdings' drop-down acquisition     (15,000 )
Investment contributions to joint venture investments (5,327 )   (2,474 )
Net cash used in investing activities (1,797 )   (109,209 )
Cash flows from financing activities:      
Borrowings under our credit facility 3,110     136,000  
Repayments under our credit facility (62,250 )   (31,000 )
Repayments under our term loan agreement (3,375 )   (3,375 )
Payments on capital lease obligations (314 )   (406 )
Financing costs (130 )   (685 )
Tax withholdings on unit-based compensation vested units (122 )   (420 )
Payments of distributions and distribution equivalent rights     (35,088 )
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 4,053     518  
Contributions from general partner     1,301  
Common unit issuances to Holdings related to equity cures 12,416      
Interest on receivable due from Holdings 233      
Net cash provided by (used in) financing activities (46,639 )   84,703  
       
Net increase (decrease) in cash and cash equivalents (7,233 )   2  
Cash and cash equivalents — Beginning of period 11,348     1,649  
Cash and cash equivalents — End of period $ 4,115     $ 1,651  
               

SOUTHCROSS ENERGY PARTNERS, L.P.
SELECTED FINANCIAL AND OPERATIONAL DATA
(In thousands, except for operating data)
(Unaudited)
 
  Three Months Ended September 30,   Nine Months Ended September 30,
  2016   2015   2016   2015
Financial data:              
Adjusted EBITDA $ 14,834     $ 23,573     $ 51,129     $ 58,991  
               
Maintenance capital expenditures $ 969     $ 3,351     $ 4,081     $ 8,968  
Growth capital expenditures 3,926     25,636     13,248     84,978  
               
Distributable cash flow $ 5,830     $ 12,662     $ 20,853     $ 28,818  
Cash distributions declared     11,826         33,546  
               
Operating data:              
Average volume of processed gas (MMcf/d) 299     441     320     432  
Average volume of NGLs produced (Bbls/d) 29,675     43,541     35,043     42,031  
Average daily throughput Mississippi/Alabama (MMcf/d)   136       216       146       234  
               
Realized prices on natural gas volumes ($/Mcf) $ 2.76     $ 3.61     $ 2.15     $ 3.07  
Realized prices on NGL volumes ($/gal) 0.18     0.34     0.34     0.38  
                       

SOUTHCROSS ENERGY PARTNERS, L.P.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands)
(Unaudited)
 
  Three Months Ended September 30,   Nine Months Ended September 30,
  2016   2015   2016   2015
Net cash provided by operating activities $ 11,256     $ 20,005     $ 41,203     $ 24,508  
Add (deduct):              
Depreciation and amortization (31,449 )   (17,853 )   (68,898 )   (52,456 )
Unit-based compensation (929 )   (1,038 )   (2,635 )   (3,513 )
Amortization of deferred financing costs and PIK interest (892 )   (888 )   (2,796 )   (2,615 )
Gain (loss) on sale of assets, net 179     33     12,755     (146 )
Unrealized gain (loss) on financial instruments 61     (68 )   116     (289 )
Equity in losses of joint venture investments (3,694 )   (3,567 )   (10,656 )   (10,722 )
Distribution from joint venture investment (350 )   (500 )   (740 )   (500 )
Impairment of assets (476 )       (476 )   (193 )
Other, net 63     67     247     69  
Changes in operating assets and liabilities:              
Trade accounts receivable, including affiliates (2,035 )   11,338     (46,444 )   (5,613 )
Prepaid expenses and other current assets (1,679 )   2,296     656     1,516  
Other non-current assets 63     (1 )   63     (77 )
Accounts payable and accrued liabilities (3,123 )   (17,224 )   24,685     14,180  
Other liabilities, including affiliates 445     (2,259 )   (2,553 )   (3,163 )
Net loss $ (32,560 )   $ (9,659 )   $ (55,473 )   $ (39,014 )
Add (deduct):              
Depreciation and amortization $ 31,449     $ 17,853     $ 68,898     $ 52,456  
Interest expense 8,598     8,688     26,601     24,087  
Income tax benefit     (190 )   (2 )   (113 )
Unrealized loss on commodity swap derivatives     (15 )       (126 )
Loss (gain) on sale of assets, net (179 )   (33 )   (12,755 )   146  
Revenue deferral adjustment 754     754     2,262     2,262  
Unit-based compensation 929     1,038     2,635     3,513  
Major litigation costs, net of recoveries 173     18     416     509  
Transaction-related costs     613     6     1,785  
Equity in losses of joint venture investments 3,694     3,567     10,656     10,722  
Severance expense         16     734  
Retention bonus due from Holdings 898         2,694      
Valley Wells' operating expense cap adjustment     505     2,406     1,023  
Fees related to Equity Cure Agreement 12         589      
Distribution from joint venture investment 350     500     740     500  
Impairment of assets 476         476     193  
Other, net (1) 240     (66 )   964     314  
Adjusted EBITDA $ 14,834     $ 23,573     $ 51,129     $ 58,991  
Cash interest, net of capitalized costs (8,035 )   (7,750 )   (26,197 )   (21,317 )
Income tax benefit     190     2     112  
Maintenance capital expenditures (969 )   (3,351 )   (4,081 )   (8,968 )
Distributable cash flow $ 5,830     $ 12,662     $ 20,853     $ 28,818  
                               

(1) These amounts include an immaterial amount related to the effects of presenting our financial results on an as-if pooled basis (in connection with the 2015 Holdings Acquisition).
Contact:Southcross Energy Partners, L.P.                                  David Lawrence, 214-979-3720Investor Relationsinvestorrelations@southcrossenergy.com

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