GlobeNewswire Inc | Aug 6, 2020 06:00AM EDT

August 06, 2020

PORTSMOUTH, N.H., Aug. 06, 2020 (GLOBE NEWSWIRE) -- Sprague Resources LP (Sprague) (NYSE: SRLP) today reported its financial results for the second quarter ended June30, 2020.

Second Quarter 2020 Highlights

-- Net sales were $358.2 million for the second quarter of 2020, compared to net sales of $662.0 million for the second quarter of 2019. -- GAAP net loss was $25.1 million for the second quarter of 2020, compared to net loss of $4.8 million for the second quarter of 2019. -- Adjusted gross margin* was $65.2 million for the second quarter of 2020, compared to adjusted gross margin of $48.3 million for the second quarter of 2019. -- Adjusted EBITDA* was $28.0 million for the second quarter of 2020, compared to adjusted EBITDA of $9.7 million for the second quarter of 2019.

"Sprague enjoyed a record second quarter as we capitalized on storage assets and benefited from a supportive market structure," said David Glendon, President and Chief Executive Officer.

Refined Products

-- Volumes in the Refined Products segment decreased 5% to 264.3 million gallons in the second quarter of 2020, compared to 279.6 million gallons in the second quarter of 2019. -- Adjusted gross margin in the Refined Products segment increased $25.2 million, or 91%, to $52.9 million in the second quarter of 2020, compared to $27.6 million in the second quarter of 2019.

While demand destruction associated with the pandemic led to reduced volumes in transportation fuels, storage capabilities generated substantial value in the quarter," stated Mr. Glendon.

Natural Gas

-- Natural Gas segment volumes decreased 14% to 11.1 million Bcf in the second quarter of 2020, compared to 12.9 million Bcf in the second quarter of 2019. -- Natural Gas adjusted gross margin decreased $6.9 million, or 148%, to $(2.2) million for the second quarter of 2020, compared to $4.6 million for the second quarter of 2019.

"Natural Gas results declined as our commercial and industrial customers curtailed usage due to the pandemic," added Mr. Glendon.

Materials Handling

-- Materials Handling adjusted gross margin decreased by $1.4 million, to $12.9 million for the second quarter of 2020, compared to $14.3 million for the second quarter of 2019.

"Materials Handling declined primarily due to the expiration of a crude-by-rail contract last year at Kildair and the elimination of newsprint handling in Maine, partially offset by increases in windmill activity."

2020 Guidance

Assuming normal weather and market structure conditions, we expect to achieve the following:

-- Adjusted EBITDA is expected to be in the range of $105 million to $120 million.

Quarterly Distribution

On July24, 2020, the Board of Directors of Spragues general partner, Sprague Resources GP LLC, announced a cash distribution of $0.6675 per unit for the quarter ended June30, 2020, and is equal to distributions in the first quarter in 2019. Sprague also announced that Sprague Resources Holdings LLC, a wholly owned subsidiary of Axel Johnson Inc. and the owner of Spragues General Partner will receive cash, in respect of the incentive distribution rights payable in connection with the distribution for the second quarter of 2020. The distribution will be paid on August10, 2020, to unitholders of record as of the close of business on August4, 2020.

Financial Results Conference Call

Management will review Spragues second quarter 2020 financial results in a teleconference call for analysts and investors today, August6, 2020.

Date and Time: August6, 2020 at 1:00 PM ET Dial-in Numbers: (866) 516-2130 (U.S. and Canada) (678) 509-7612 (International) Participation Code: 4867387

Participants can dial in up to 30 minutes prior to the start of the call. The conference call may also be accessed live by webcast link: https://edge.media-server.com/mmc/p/3bfzrfts. This link is also available on the "Investor Relations - Calendar of Events" page of Sprague's website at www.spragueenergy.comand will be archived on the website for one year. Certain non-GAAP financial information included in the earnings call will we available at the time of the call on the "Investor Relations - Featured Documents" section of Sprague's website.

About Sprague Resources LPSprague Resources LP is a master limited partnership engaged in the purchase, storage, distribution and sale of refined petroleum products and natural gas. Sprague also provides storage and handling services for a broad range of materials.

*Non-GAAP Financial MeasuresEBITDA, adjusted EBITDA and adjusted gross margin are measures not defined by GAAP. Sprague defines EBITDA as net income (loss) before interest, income taxes, depreciation and amortization.

We define adjusted EBITDA as EBITDA increased for unrealized hedging losses and decreased by unrealized hedging gains (in each case with respect to refined products and natural gas inventory, prepaid forward contracts and natural gas transportation contracts), changes in fair value of contingent consideration, adjusted for the impact of acquisition related expenses, and when applicable, adjusted for the net impact of retroactive legislation that reinstates an excise tax credit program available for certain of our biofuel blending activities that had previously expired.

We define adjusted gross margin as net sales less cost of products sold (exclusive of depreciation and amortization) decreased by total commodity derivative gains and losses included in net income (loss) and increased by realized commodity derivative gains and losses included in net income (loss), in each case with respect to refined products and natural gas inventory, prepaid forward contracts and natural gas transportation contracts. Adjusted gross margin has no impact on reported volumes or net sales.

To manage Sprague's underlying performance, including its physical and derivative positions, management utilizes adjusted gross margin. Adjusted gross margin is also used by external users of our consolidated financial statements to assess our economic results of operations and its commodity market value reporting to lenders. EBITDA and adjusted EBITDA are used as supplemental financial measures by external users of our financial statements, such as investors, trade suppliers, research analysts and commercial banks to assess the financial performance of our assets, operations and return on capital without regard to financing methods, capital structure or historical cost basis; the ability of our assets to generate sufficient revenue, that when rendered to cash, will be available to pay interest on our indebtedness and make distributions to our equity holders; repeatable operating performance that is not distorted by non-recurring items or market volatility; and, the viability of acquisitions and capital expenditure projects.

Sprague believes that investors benefit from having access to the same financial measures that are used by its management and that these measures are useful to investors because they aid in comparing its operating performance with that of other companies with similar operations. The adjusted EBITDA and adjusted gross margin data presented by Sprague may not be comparable to similarly titled measures at other companies because these items may be defined differently by other companies. Please see the attached reconciliations of net income to adjusted EBITDA and operating income to adjusted gross margin.

With regard to guidance, reconciliation of non-GAAP adjusted EBITDA to the closest corresponding GAAP measure (expected net income (loss)) is not available without unreasonable efforts on a forward-looking basis due to the inherent difficulty and impracticality of forecasting certain amounts required by GAAP such as unrealized gains and losses on derivative hedges, which can have a significant and potentially unpredictable impact on our future GAAP financial results.

Cautionary Statement Regarding Forward Looking StatementsAny statements in this press release about future expectations, plans and prospects for Sprague Resources LP or about Sprague Resources LPs future expectations, beliefs, goals, plans or prospects, constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Any statements that are not statements of historical fact (including statements containing the words believes, plans, anticipates, expects, estimates and similar expressions) should also be considered forward-looking statements. These forward-looking statements involve risks and uncertainties and other factors that are difficult to predict and many of which are beyond managements control. Although Sprague believes that the assumptions underlying these statements are reasonable, investors are cautioned that such forward-looking statements are inherently uncertain and involve risks that may affect our business prospects and performance causing actual results to differ from those discussed in the foregoing release. Such risks and uncertainties include, by way of example and not of limitation: increased competition for our products or services; adverse weather conditions; changes in supply or demand for our products or services; nonperformance by major customers or suppliers; changes in operating conditions and costs; changes in the level of environmental remediation spending; potential equipment malfunction and unexpected capital expenditures; our ability to complete organic growth and acquisition projects; our ability to integrate acquired assets; potential labor issues; the legislative or regulatory environment; terminal construction/repair delays; political and economic conditions; and, the impact of security risks including terrorism, international hostilities and cyber-risk. These are not all of the important factors that could cause actual results to differ materially from those expressed in forward looking statements. Other applicable risks and uncertainties have been described more fully in Spragues most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (SEC) on March 5, 2020 and in the Partnership's subsequent Form 10-Q, Form 8-K and other documents filed with the SEC. Sprague undertakes no obligation and does not intend to update any forward-looking statements to reflect new information or future events. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release.

Investor Contact:Paul Scoff+1 800.225.1560investorrelations@spragueenergy.com

(Financial Tables Below)

Sprague Resources LPSummary Financial DataThree and Six Months EndedJune30, 2020 and 2019

Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 (unaudited) (unaudited) (unaudited) (unaudited) ($ in thousands) ($ in thousands)Income Statements Data: Net sales $ 358,214 $ 662,018 $ 1,318,093 $ 1,920,326 Operating costs and expenses:Cost ofproducts sold(exclusive of 325,233 608,660 1,175,252 1,767,772 depreciationandamortization)Operating 18,471 21,075 39,283 44,864 expensesSelling,general and 18,923 17,827 38,956 38,739 administrativeDepreciationand 8,518 8,408 17,115 16,797 amortizationTotal operatingcosts and 371,145 655,970 1,270,606 1,868,172 expensesOperating (12,931 ) 6,048 47,487 52,154 (loss) incomeOther Income 64 128 64 128 Interest income 72 140 248 326 Interest (10,788 ) (10,038 ) (22,074 ) (21,997 )expense(Loss) incomebefore income (23,583 ) (3,722 ) 25,725 30,611 taxesIncome tax (1,542 ) (1,056 ) (4,113 ) (1,469 )provisionNet (loss) (25,125 ) (4,778 ) 21,612 29,142 incomeIncentivedistributions (2,072 ) (2,055 ) (4,144 ) (4,110 )declaredLimitedpartners' $ (27,197 ) $ (6,833 ) $ 17,468 $ 25,032 interest in net(loss) incomeNet (loss)income per limited partnerunit:Common - basic $ (1.19 ) $ (0.30 ) $ 0.76 $ 1.10 Common - $ (1.19 ) $ (0.30 ) $ 0.76 $ 1.10 dilutedUnits used to compute netincome per limited partner unit:Common - basic 22,922,902 22,733,977 22,871,943 22,733,977 Common - 22,922,902 22,733,977 22,937,273 22,754,556 dilutedDistributiondeclared per $ 0.6675 $ 0.6675 $ 1.3350 $ 1.3350 unit

Sprague Resources LPVolume, Net Sales and Adjusted Gross Margin by SegmentThree and Six Months Ended June30, 2020 and 2019

Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 (unaudited) (unaudited) (unaudited) (unaudited) ($ and volumes in thousands)Volumes: Refinedproducts 264,332 279,562 744,813 829,054 (gallons)Natural gas 11,141 12,929 29,469 32,733 (MMBtus)Materialshandling 391 523 1,277 1,445 (short tons)Materialshandling 148,872 144,687 227,319 250,910 (gallons)Net Sales: Refined $ 292,889 $ 584,313 $ 1,134,831 $ 1,704,436 productsNatural gas 47,988 58,108 143,766 172,275 Materials 12,974 14,313 28,531 30,794 handlingOther 4,363 5,284 10,965 12,821 operationsTotal net $ 358,214 $ 662,018 $ 1,318,093 $ 1,920,326 salesReconciliation of OperatingIncome to Adjusted Gross Margin:Operating $ (12,931 ) $ 6,048 $ 47,487 $ 52,154 (loss) incomeOperating costs andexpenses not allocated to operating segments:Operating 18,471 21,075 39,283 44,864 expensesSelling,general and 18,923 17,827 38,956 38,739 administrativeDepreciationand 8,518 8,408 17,115 16,797 amortizationAdd/(deduct): Change inunrealized 32,326 364 18,775 4,598 gain oninventory Change inunrealizedvalue onnatural gas (123 ) (5,446 ) (13,322 ) (13,434 )

transportationcontractsTotal adjusted $ 65,184 $ 48,276 $ 148,294 $ 143,718 gross margin:Adjusted Gross Margin:Refined $ 52,861 $ 27,646 $ 88,650 $ 72,384 productsNatural gas (2,245 ) 4,647 27,542 36,968 Materials 12,895 14,334 28,476 30,785 handlingOther 1,673 1,649 3,626 3,581 operationsTotal adjusted $ 65,184 $ 48,276 $ 148,294 $ 143,718 gross margin

Sprague Resources LPReconciliation of Net Income to Non-GAAP MeasuresThree and Six Months Ended June30, 2020 and 2019

Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 (unaudited) (unaudited) (unaudited) (unaudited) ($ in thousands) ($ in thousands)Reconciliation of net income toEBITDA, Adjusted EBITDA and Distributable CashFlow:Net (loss) income $ (25,125 ) $ (4,778 ) $ 21,612 $ 29,142 Add/(deduct): Interest expense, 10,716 9,898 21,826 21,671 net Tax provision 1,542 1,056 4,113 1,469 Depreciation and 8,518 8,408 17,115 16,797 amortizationEBITDA $ (4,349 ) $ 14,584 $ 64,666 $ 69,079 Add/(deduct): Change in unrealized 32,326 364 18,775 4,598 gain on inventoryChange in unrealizedvalue on natural gas (123 ) (5,446 ) (13,322 ) (13,434 )transportationcontractsAcquisition related 1 2 1 9 expensesOther adjustments (1) 161 174 320 346 Adjusted EBITDA $ 28,016 $ 9,678 $ 70,440 $ 60,598 Add/(deduct): Cash interest (8,314 ) (8,587 ) (18,144 ) (19,040 )expense, netCash taxes (1,659 ) (1,726 ) (4,719 ) (1,115 )Maintenance capital (1,271 ) (2,029 ) (4,034 ) (3,495 )expendituresElimination ofexpense relating toincentivecompensation and 853 140 1,261 (57 )directors feesexpected to be paidin common unitsOther (456 ) (128 ) 564 (128 )Distributable cash $ 17,169 $ (2,652 ) $ 45,368 $ 36,763 flow

(1) Represents the change in fair value of contingent consideration related to the 2017 Coen Energy acquisition and other expense.