Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated and condensed financial statements and the notes thereto included elsewhere in this quarterly report.
Overview
We are a publicly traded limited partnership with a diverse set of operations focused primarily in the Gulf Coast region of the U.S. Our four primary business lines include:
• Terminalling, processing, storage and packaging services for petroleum products and by-products including the refining of naphthenic crude oil;
• Land and marine transportation services for petroleum products and by-products, chemicals, and specialty products;
• Sulfur and sulfur-based products processing, manufacturing, marketing, and distribution; and
• NGL marketing, distribution, and transportation services.
The petroleum products and by-products we collect, transport, store and market are produced primarily by major and independent oil and gas companies who often turn to third parties, such as us, for the transportation and disposition of these products. In addition to these major and independent oil and gas companies, our primary customers include independent refiners, large chemical companies, and other wholesale purchasers of these products. We operate primarily in the Gulf Coast region of the U.S. This region is a major hub for petroleum refining, natural gas gathering and processing, and support services for the exploration and production industry.
We were formed in 2002 by Martin Resource Management Corporation, a privately-held company whose initial predecessor was incorporated in 1951 as a supplier of products and services to drilling rig contractors. Since then, Martin Resource Management Corporation has expanded its operations through acquisitions and internal expansion initiatives as its management identified and capitalized on the needs of producers and purchasers of petroleum products and by-products and other bulk liquids. Martin Resource Management Corporation is an important supplier and customer of ours. As of September 30, 2022, Martin Resource Management Corporation owned 15.7% of our total outstanding common limited partner units. Furthermore, on December 28, 2021, Martin Resource Management Corporation indirectly acquired, through its wholly owned subsidiary, Martin Resource LLC, the remaining 49% voting interest (50% economic interest) in MMGP Holdings, LLC ("Holdings"), which is the sole member of Martin Midstream GP LLC ("MMGP"), our general partner. Such interests were previously held by certain affiliated investment funds managed by Alinda Capital Partners, which sold the interests to Senterfitt Holdings Inc. (“Senterfitt”) on November 23, 2021. At such time, Senterfitt granted Martin Resource LLC the right to purchase such interests for a period of ten years, which right was exercised on December 28, 2021. As a result, Martin Resource Management Corporation indirectly owns 100% of MMGP. Martin Resource Management Corporation directs our business operations through its ownership of our general partner. MMGP owns a 2.0% general partner interest in us, and, until November 23, 2021, MMGP owned all of our incentive distribution rights. On November 23, 2021, MMGP contributed to us all of our incentive distribution rights for no consideration, whereupon the incentive distribution rights were cancelled and cease to exist.
We entered into the Omnibus Agreement that governs, among other things, potential competition and indemnification obligations among the parties to the agreement, related party transactions, the provision of general administration and support services by Martin Resource Management Corporation and our use of certain of Martin Resource Management Corporation’s trade names and trademarks. Under the terms of the Omnibus Agreement, the employees of Martin Resource Management Corporation are responsible for conducting our business and operating our assets.
Martin Resource Management Corporation has operated our business since our inception in 2002. Martin Resource Management Corporation began operating our NGL business in the 1950s and our sulfur business in the 1960s. It began our land transportation business in the early 1980s and our marine transportation business in the late 1980s. It entered into our fertilizer and terminalling and storage businesses in the early 1990s.
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Significant Recent Developments
Subsequent Events
Divestiture of Stockton, California Sulfur Terminal. On October 7, 2022, we closed on the sale of our Stockton Sulfur Terminal to Gulf Terminals LLC for net proceeds of approximately $5.25 million, which were used to reduce outstanding borrowings under our credit facility.
Quarterly Distribution. On October 19, 2022, we declared a quarterly cash distribution of $0.005 per common unit for the third quarter of 2022, or $0.020 per common unit on an annualized basis, which will be paid on November 14, 2022 to unitholders of record as of November 7, 2022.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on the historical consolidated and condensed financial statements included elsewhere herein. We prepared these financial statements in conformity with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. We routinely evaluate these estimates, utilizing historical experience, consultation with experts and other methods we consider reasonable in the particular circumstances. Our results may differ from these estimates, and any effects on our business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Changes in these estimates could materially affect our financial position, results of operations or cash flows. See the "Critical Accounting Policies and Estimates" section in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 2, "Significant Accounting Policies" in Notes to Consolidated Financial Statements included within our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022.
Our Relationship with Martin Resource Management Corporation
Martin Resource Management Corporation is engaged in the following principal business activities:
• distributing fuel oil, asphalt, marine fuel and other liquids;
• providing marine bunkering and other shore-based marine services in Texas, Louisiana, Mississippi, Alabama, and Florida;
• operating a crude oil gathering business in Stephens, Arkansas;
• providing crude oil gathering, refining, and marketing services of base oils, asphalt, and distillate products in Smackover, Arkansas;
• providing crude oil marketing and transportation from the well head to the end market;
• operating an environmental consulting company;
• supplying employees and services for the operation of our business; and
• operating, solely for our account, the asphalt facilities in Hondo, South Houston and Port Neches, Texas, and Omaha, Nebraska.
We are and will continue to be closely affiliated with Martin Resource Management Corporation as a result of the following relationships.
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Ownership
Martin Resource Management Corporation owns approximately 15.7% of the outstanding limited partner units. In addition, following its acquisition of the remaining 49% voting interest (50% economic interest) in Holdings, which is the sole member of MMGP, Martin Resource Management Corporation indirectly owns 100% of MMGP, our general partner. MMGP owns a 2% general partner interest in us.
Management
Martin Resource Management Corporation directs our business operations through its ownership interests in and control of our general partner. We benefit from our relationship with Martin Resource Management Corporation through access to a significant pool of management expertise and established relationships throughout the energy industry. We do not have employees. Martin Resource Management Corporation employees are responsible for conducting our business and operating our assets on our behalf.
Related Party Agreements
The Omnibus Agreement requires us to reimburse Martin Resource Management Corporation for all direct expenses it incurs or payments it makes on our behalf or in connection with the operation of our business. We reimbursed Martin Resource Management Corporation for $40.8 million of direct costs and expenses for the three months ended September 30, 2022 compared to $33.8 million for the three months ended September 30, 2021. We reimbursed Martin Resource Management Corporation for $120.1 million of direct costs and expenses for the nine months ended September 30, 2022 compared to $96.9 million for the nine months ended September 30, 2021. There is no monetary limitation on the amount we are required to reimburse Martin Resource Management Corporation for direct expenses.
In addition to the direct expenses, under the Omnibus Agreement, we are required to reimburse Martin Resource Management Corporat ion for indirect general and administrative and corporate overhead expenses. In each of the three months ended September 30, 2022 and 2021, the Conflicts Committee approved reimbursement amounts of $3.4 million and $3.6 million, respectively. In each of the nine months ended September 30, 2022 and 2021, the Conflicts Committee approved reimbursement amounts of $10.1 million and $10.8 million, respectively. The Conflicts Committee will review and approve future adjustments in the reimbursement amount for indirect expenses, if any, annually. These indirect expenses covered the centralized corporate functions Martin Resource Management Corporation provides for us, su ch as accounting, treasury, clerical, engineering, legal, billing, information technology, administration of insurance, general office expenses and employee benefit plans and other general corporate overhead functions we share with Martin R esource Management Corporation’s retained businesses. The Omnibus Agreement also contains significant non-compete provisions and indemnity obligations. Martin Resource Management Corporation also licenses certain of its trademarks and trade names to us under the Omnibus Agreement.
These additional related party agreements include, but are not limited to, a master transportation services agreement, marine transportation agreements, terminal services agreements, a tolling agreement, and a sulfuric acid sales agency agreement. Pursuant to the terms of the Omnibus Agreement, we are prohibited from entering into certain material agreements with Martin Resource Management Corporation without the approval of the Conflicts Committee.
For a more comprehensive discussion concerning the Omnibus Agreement and the other agreements that we have entered into with Martin Resource Management Corporation, please refer to "Item 13. Certain Relationships and Related Transactions, and Director Independence" set forth in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022.
Commercial
We have been and anticipate that we will continue to be both a significant customer and supplier of products and services offered by Martin Resource Management Corporation. In the aggregate, the impact of related party transactions included in total costs and expenses accounted for approximately 18% and 18% of our total costs and expenses during the three months ended September 30, 2022 and 2021, respectively. In the aggregate, the impact of related party transactions included in total costs and expenses accounted for approximately 18% and 19% of our total costs and expenses during the nine months ended September 30, 2022 and 2021, respectively.
Correspondingly, Martin Resource Management Corporation is one of our significant customers. Our sales to Martin Resource Management Corporation accounted for approximately 10% and 10% of our total revenues for the three months
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ended September 30, 2022 and 2021, respectively. Our sales to Martin Resource Management Corporation accounted for approximately 9% and 10% of our total revenues for the nine months ended September 30, 2022 and 2021, respectively.
For a more comprehensive discussion concerning the agreements that we have entered into with Martin Resource Management Corporation, please refer to "Item 13. Certain Relationships and Related Transactions, and Director Independence" set forth in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022.
Approval and Review of Related Party Transactions
If we contemplate entering into a transaction, other than a routine or in the ordinary course of business transaction, in which a related person will have a direct or indirect material interest, the proposed transaction is submitted for consideration to the board of directors of our general partner or to our management, as appropriate. If the board of directors of our general partner is involved in the approval process, it determines whether to refer the matter to the Conflicts Committee of our general partner's board of directors, as constituted under our limited partnership agreement. If a matter is referred to the Conflicts Committee, the Conflicts Committee obtains information regarding the proposed transaction from management and determines whether to engage independent legal counsel or an independent financial advisor to advise the members of the committee regarding the transaction. If the Conflicts Committee retains such counsel or financial advisor, it considers such advice and, in the case of a financial advisor, such advisor’s opinion as to whether the transaction is fair and reasonable to us and to our unitholders.
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Non-GAAP Financial Measures
To assist management in assessing our business, we use the following non-GAAP financial measures: earnings before interest, taxes, and depreciation and amortization ("EBITDA"), adjusted EBITDA (as defined below), distributable cash flow available to common unitholders (“Distributable Cash Flow”), and free cash flow after growth capital expenditures and principal payments under finance lease obligations ("Adjusted Free Cash Flow"). Our management uses a variety of financial and operational measurements other than our financial statements prepared in accordance with U.S. GAAP to analyze our performance.
Certain items excluded from EBITDA and Adjusted EBITDA are significant components in understanding and assessing an entity's financial performance, such as cost of capital and historical costs of depreciable assets.
EBITDA and Adjusted EBITDA . We define Adjusted EBITDA as EBITDA before unit-based compensation expenses, gains and losses on the disposition of property, plant and equipment, impairment and other similar non-cash adjustments. Adjusted EBITDA is used as a supplemental performance and liquidity measure by our management and by external users of our financial statements, such as investors, commercial banks, research analysts, and others, to assess:
• the financial performance of our assets without regard to financing methods, capital structure, or historical cost basis;
• the ability of our assets to generate cash sufficient to pay interest costs, support our indebtedness, and make cash distributions to our unitholders; and
• our operating performance and return on capital as compared to those of other companies in the midstream energy sector, without regard to financing methods or capital structure.
The GAAP measures most directly comparable to adjusted EBITDA are net income (loss) and net cash provided by (used in) operating activities. Adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income (loss), operating income (loss), net cash provided by (used in) operating activities, or any other measure of financial performance presented in accordance with GAAP. Adjusted EBITDA may not be comparable to similarly titled measures of other companies because other companies may not calculate Adjusted EBITDA in the same manner.
Adjusted EBITDA does not include interest expense, income tax expense, and depreciation and amortization. Because we have borrowed money to finance our operations, interest expense is a necessary element of our costs and our ability to generate cash available for distribution. Because we have capital assets, depreciation and amortization are also necessary elements of our costs. Therefore, any measures that exclude these elements have material limitations. To compensate for these limitations, we believe that it is important to consider net income (loss) and net cash provided by (used in) operating activities as determined under GAAP, as well as adjusted EBITDA, to evaluate our overall performance.
Distributable Cash Flow. We define Distributable Cash Flow as Net Cash Provided by (Used in) Operating Activities less cash received (plus cash paid) for closed commodity derivative positions included in Accumulated Other Comprehensive Income (Loss), plus changes in operating assets and liabilities which (provided) used cash, less maintenance capital expenditures and plant turnaround costs. Distributable Cash Flow is a significant performance measure used by our management and by external users of our financial statements, such as investors, commercial banks and research analysts, to compare basic cash flows generated by us to the cash distributions we expect to pay unitholders. Distributable Cash Flow is also an important financial measure for our unitholders since it serves as an indicator of our success in providing a cash return on investment. Specifically, this financial measure indicates to investors whether or not we are generating cash flow at a level that can sustain or support an increase in our quarterly distribution rates. Distributable Cash Flow is also a quantitative standard used throughout the investment community with respect to publicly-traded partnerships because the value of a unit of such an entity is generally determined by the unit's yield, which in turn is based on the amount of cash distributions the entity pays to a unitholder.
Adjusted Free Cash Flow. We define Adjusted Free Cash Flow as Distributable Cash Flow less growth capital expenditures and principal payments under finance lease obligations. Adjusted Free Cash Flow is a significant performance measure used by our management and by external users of our financial statements and represents how much cash flow a business generates during a specified time period after accounting for all capital expenditures, including expenditures for growth and maintenance capital projects. We believe that Adjusted Free Cash Flow is important to investors, lenders, commercial banks and research analysts since it reflects the amount of cash available for reducing debt, investing in additional capital projects, paying distributions, and similar matters. Our calculation of Adjusted Free Cash Flow may or may not be comparable to similarly titled measures used by other entities.
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The GAAP measure most directly comparable to Distributable Cash Flow and Adjusted Free Cash Flow is Net Cash Provided by (Used in) Operating Activities. Distributable Cash Flow and Adjusted Free Cash Flow should not be considered alternatives to, or more meaningful than, Net Income (Loss), Operating Income (Loss), Net Cash Provided by (Used in) Operating Activities, or any other measure of liquidity presented in accordance with GAAP. Distributable Cash Flow and Adjusted Free Cash Flow have important limitations because they exclude some items that affect Net Income (Loss), Operating Income (Loss), and Net Cash Provided by (Used in) Operating Activities. Distributable Cash Flow and Adjusted Free Cash Flow may not be comparable to similarly titled measures of other companies because other companies may not calculate these non-GAAP metrics in the same manner. To compensate for these limitations, we believe that it is important to consider Net Cash Provided by (Used in) Operating Activities determined under GAAP, as well as Distributable Cash Flow and Adjusted Free Cash Flow, to evaluate our overall liquidity.
The following tables reconcile the non-GAAP financial measurements used by management to our most directly comparable GAAP measures for the three and nine months ended September 30, 2022 and 2021, which represents EBITDA, Adjusted EBITDA, Distributable Cash Flow, and Adjusted Free Cash Flow:
Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(in thousands) (in thousands)
Net loss $ (28,043) $ (6,911) $ (9,959) $ (11,012)
Adjustments:
Interest expense 13,906 14,110 39,181 40,372
Income tax expense 1,891 954 5,469 2,111
Depreciation and amortization 13,721 13,945 43,007 42,862
EBITDA 1,475 22,098 77,698 74,333
Adjustments:
(Gain) loss on disposition of property, plant and equipment (790) (61) (1,050) 610
Gain on involuntary conversion of property, plant and equipment — (186) — (186)
Unrealized mark-to-market on commodity derivatives — (412) — (207)
Lower of cost or market and other non-cash adjustments 18,084 — 20,326 —
Unit-based compensation 46 48 125 336
Adjusted EBITDA $ 18,815 $ 21,487 $ 97,099 $ 74,886
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Reconciliation of Net Cash Provided By (Used In) Operating Activities to Adjusted EBITDA, Distributable Cash Flow, and Adjusted Free Cash Flow
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(in thousands) (in thousands)
Net cash used in operating activities $ (45,207) $ (18,491) $ (16,756) $ (12,406)
Interest expense 1
13,118 13,046 36,825 37,787
Current income tax expense 584 293 1,858 692
Lower of cost or market and other non-cash adjustments 18,084 — 20,326 —
Commodity cash flow hedging gains reclassified to earnings 167 — 901 —
Net cash paid for closed commodity derivative positions included in AOCI — 950 (85) 950
Changes in operating assets and liabilities which (provided) used cash:
Accounts and other receivables, inventories, and other current assets (5,651) 40,263 59,250 64,515
Trade, accounts and other payables, and other current liabilities 38,691 (14,584) (4,104) (16,449)
Other (971) 10 (1,116) (203)
Adjusted EBITDA 18,815 21,487 97,099 74,886
Adjustments:
Interest expense (13,906) (14,110) (39,181) (40,372)
Income tax expense (1,891) (954) (5,469) (2,111)
Deferred income taxes 1,307 661 3,611 1,419
Amortization of deferred debt issuance costs 788 1,064 2,356 2,585
Payments for plant turnaround costs (2,662) (985) (4,262) (2,679)
Maintenance capital expenditures (5,994) (1,945) (14,548) (8,386)
Distributable Cash Flow (3,543) 5,218 39,606 25,342
Principal payments under finance lease obligations (61) (753) (180) (3,344)
Expansion capital expenditures (926) (671) (5,482) (2,648)
Adjusted Free Cash Flow $ (4,530) $ 3,794 $ 33,944 $ 19,350
1 Net of amortization of debt issuance costs and discount, which are included in interest expense but not included in net cash provided by (used in) operating activities.
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Results of Operations
The results of operations for the three and nine months ended September 30, 2022 and 2021 have been derived from our consolidated and condensed financial statements.
We evaluate segment performance on the basis of operating income, which is derived by subtracting cost of products sold, operating expenses, selling, general and administrative expenses, and depreciation and amortization expense from revenues. The following table sets forth our operating revenues and operating income by segment for the three and nine months ended September 30, 2022 and 2021. The results of operations for these interim periods are not necessarily indicative of the results of operations which might be expected for the entire year.
Our consolidated and condensed results of operations are presented on a comparative basis below. There are certain items of income and expense which we do not allocate on a segment basis. These items, including interest expense and indirect selling, general and administrative expenses, are discussed following the comparative discussion of our results within each segment.
Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021
Operating Revenues Intersegment Revenues Eliminations Operating Revenues
after Eliminations Operating Income (Loss) Operating Income (Loss) Intersegment Eliminations Operating
Income (Loss)
after
Eliminations
Three Months Ended September 30, 2022 (in thousands)
Terminalling and storage $ 62,149 $ (1,596) $ 60,553 $ 5,576 $ (841) $ 4,735
Transportation 63,514 (4,521) 58,993 12,073 (4,546) 7,527
Sulfur services 28,868 — 28,868 (6,676) 2,733 (3,943)
Natural gas liquids 80,891 — 80,891 (18,957) 2,654 (16,303)
Indirect selling, general and administrative
— — — (4,260) — (4,260)
Total $ 235,422 $ (6,117) $ 229,305 $ (12,244) $ — $ (12,244)
Operating Revenues Intersegment Revenues Eliminations Operating Revenues
after Eliminations Operating Income (Loss) Operating Income (Loss) Intersegment Eliminations Operating
Income (Loss)
after
Eliminations
Three Months Ended September 30, 2021 (in thousands)
Terminalling and storage $ 51,226 $ (1,648) $ 49,578 $ 4,439 $ (1,170) $ 3,269
Transportation 42,568 (3,489) 39,079 3,927 (3,497) 430
Sulfur services 30,837 — 30,837 2,282 2,252 4,534
Natural gas liquids 91,764 — 91,764 1,579 2,415 3,994
Indirect selling, general and administrative
— — — (4,074) — (4,074)
Total $ 216,395 $ (5,137) $ 211,258 $ 8,153 $ — $ 8,153
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Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021
Operating Revenues Intersegment Revenues Eliminations Operating Revenues
after Eliminations Operating Income (Loss) Operating Income (Loss) Intersegment Eliminations Operating
Income (Loss)
after
Eliminations
Nine Months Ended September 30, 2022 (in thousands)
Terminalling and storage $ 174,942 $ (4,953) $ 169,989 $ 14,643 $ (2,973) $ 11,670
Transportation 176,313 (14,778) 161,535 30,304 (14,834) 15,470
Sulfur services 144,944 — 144,944 15,110 7,784 22,894
Natural gas liquids 299,037 (3) 299,034 (12,590) 10,023 (2,567)
Indirect selling, general and administrative
— — — (12,772) — (12,772)
Total $ 795,236 $ (19,734) $ 775,502 $ 34,695 $ — $ 34,695
Operating Revenues Intersegment Revenues Eliminations Operating Revenues
after Eliminations Operating Income (Loss) Operating Income (Loss) Intersegment Eliminations Operating
Income (Loss)
after
Eliminations
Nine Months Ended September 30, 2021 (in thousands)
Terminalling and storage $ 136,584 $ (4,918) $ 131,666 $ 11,567 $ (3,414) $ 8,153
Transportation 114,886 (11,066) 103,820 3,286 (11,068) (7,782)
Sulfur services 103,958 — 103,958 15,032 6,104 21,136
Natural gas liquids 257,081 — 257,081 13,360 8,378 21,738
Indirect selling, general and administrative
— — — (11,773) — (11,773)
Total $ 612,509 $ (15,984) $ 596,525 $ 31,472 $ — $ 31,472
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Terminalling and Storage Segment
Comparative Results of Operations for the Three Months Ended September 30, 2022 and 2021
Three Months Ended September 30, Variance Percent Change
2022 2021
(In thousands, except BBL per day)
Revenues:
Services $ 21,578 $ 20,628 $ 950 5 %
Products 40,571 30,598 9,973 33 %
Total revenues 62,149 51,226 10,923 21 %
Cost of products sold 32,998 24,618 8,380 34 %
Operating expenses 15,232 13,789 1,443 10 %
Selling, general and administrative expenses 1,596 1,528 68 4 %
Depreciation and amortization 6,747 7,049 (302) (4) %
5,576 4,242 1,334 31 %
Other operating income, net — 11 (11) (100) %
Gain on involuntary conversion of property, plant and equipment — 186 (186) (100) %
Operating income $ 5,576 $ 4,439 $ 1,137 26 %
Shore-based throughput volumes (guaranteed minimum) (gallons) 20,000 20,000 — — %
Smackover refinery throughput volumes (guaranteed minimum BBL per day) 6,500 6,500 — — %
Services revenues. Services revenues increased $1.0 million, of which $0.6 million was primarily a result of natural gas surcharge revenue, $0.2 million in reservation fees and $0.2 million in throughput fees at the Smackover refinery. In addition, the revenue at our specialty terminals increased $0.3 million as a result of $0.2 million in throughput revenue and $0.1 million in service revenues. Offsetting these increases, our shore-based terminals decreased $0.4 million primarily related to space rent.
Products revenues. A 29% increase in average sales price combined with a 3% rise in sales volumes at our blending and packaging facilities resulted in a $10.0 million increase to products revenues.
Cost of products sold. A 30% increase in average cost per gallon combined with a 3% rise in sales volumes at our blending and packaging facilities resulted in an $8.4 million increase in cost of products sold.
Operating expenses. Operating expenses increased primarily as a result of utilities of $0.8 million and employee-related expenses of $0.5 million.
Selling, general and administrative expenses. Selling, general and administrative expenses remained relatively consistent.
Depreciation and amortization. The decrease in depreciation and amortization is primarily the result of asset disposals, offset by capital expenditures.
Other operating income, net. Other operating income, net represents gains and losses from the disposition of property, plant and equipment.
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Comparative Results of Operations for the Nine Months Ended September 30, 2022 and 2021
Nine Months Ended September 30, Variance Percent Change
2022 2021
(In thousands, except BBL per day)
Revenues:
Services $ 64,724 $ 60,945 $ 3,779 6 %
Products 110,218 75,639 34,579 46 %
Total revenues 174,942 136,584 38,358 28 %
Cost of products sold 89,150 60,318 28,832 48 %
Operating expenses 44,069 39,246 4,823 12 %
Selling, general and administrative expenses 4,961 4,495 466 10 %
Depreciation and amortization 22,084 21,150 934 4 %
14,678 11,375 3,303 29 %
Other operating income (loss), net (35) 6 (41) (683) %
Gain on involuntary conversion of property, plant and equipment — 186 (186) (100) %
Operating income $ 14,643 $ 11,567 $ 3,076 27 %
Shore-based throughput volumes (guaranteed minimum) (gallons) 60,000 60,000 — — %
Smackover refinery throughput volumes (guaranteed minimum) (BBL per day) 6,500 6,500 — — %
Services revenues. Services revenues increased $3.8 million, of which $1.9 million was a result of natural gas surcharge revenue, $0.7 million in throughput fees and $0.6 million in reservation fees at the Smackover refinery. In addition, the revenue at our specialty terminals increased $0.6 million as a result of increases in throughput revenue of $0.4 million and service revenue of $0.2 million. Offsetting these increases, our shore-based terminals decreased $0.2 million related to space rent.
Products revenues. A 35% increase in average sales price and a 7% rise in sales volumes at our blending and packaging facilities resulted in a $34.5 million increase to products revenues.
Cost of products sold. A 37% increase in average cost per gallon and a 7% rise in sales volumes at our blending and packaging facilities resulted in a $28.8 million increase in cost of products sold.
Operating expenses. Operating expenses increased primarily as a result of utilities of $3.5 million and employee-related expenses of $1.0 million.
Selling, general and administrative expenses. Selling, general and administrative expenses increased primarily as a result of employee-related expenses of $0.3 million and legal expenses of $0.2 million.
Depreciation and amortization. The increase in depreciation and amortization is primarily the result of capital expenditures, offset by asset disposals.
Other operating income (loss), net. Other operating income (loss), net represents gains and losses from the disposition of property, plant and equipment.
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Transportation Segment
Comparative Results of Operations for the Three Months Ended September 30, 2022 and 2021
Three Months Ended September 30, Variance Percent Change
2022 2021
(In thousands)
Revenues $ 63,514 $ 42,568 $ 20,946 49 %
Operating expenses 46,499 33,053 13,446 41 %
Selling, general and administrative expenses 1,962 1,920 42 2 %
Depreciation and amortization 3,598 3,710 (112) (3) %
11,455 3,885 7,570 195 %
Other operating income, net 618 42 576 1,371 %
Operating income $ 12,073 $ 3,927 $ 8,146 207 %
Marine Transportation Revenues . Inland revenues increased $3.5 million, primarily related to higher utilization and transportation rates. Additionally, ancillary revenue increased $1.1 million.
Land Transportation Revenues. Revenue increased $9.5 million primarily due to a 29% increase in load count combined with a 13% increase in total miles. Additionally, ancillary revenue increased $6.8 million.
Operating expenses . The increase in operating expenses is primarily a result of increases in employee-related expenses of $7.2 million, pass-through expenses (primarily fuel) of $3.3 million, repairs and maintenance of $1.3 million, lease expense of $0.7 million, insurance premiums of $0.5 million and outside towing of $0.3 million.
Selling, general and administrative expenses . Selling, general and administrative expenses remained relatively consistent.
Depreciation and amortization. Depreciation and amortization decreased as a result of disposals, offset by capital expenditures.
Other operating income, net. Other operating income, net represents gains from the disposition of property, plant and equipment.
Comparative Results of Operations for the Nine Months Ended September 30, 2022 and 2021
Nine Months Ended September 30, Variance Percent Change
2022 2021
(In thousands)
Revenues $ 176,313 $ 114,886 $ 61,427 53 %
Operating expenses 130,229 94,042 36,187 38 %
Selling, general and administrative expenses 5,920 5,578 342 6 %
Depreciation and amortization 10,761 12,039 (1,278) (11) %
$ 29,403 $ 3,227 $ 26,176 811 %
Other operating income, net 901 59 842 1,427 %
Operating income $ 30,304 $ 3,286 $ 27,018 822 %
Marine Transportation Revenues. Inland revenues increased $8.6 million, primarily related to higher utilization and transportation rates. Offshore revenues increased $2.1 million primarily due to higher utilization and transportation rates. Additionally, ancillary revenue increased $3.7 million.
Land Transportation Revenues. Revenue increased $28.1 million primarily due to a 24% increase in load count combined with a 7% increase in total miles . Additionally, ancillary revenue increased $18.9 million.
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Operating expenses. The increase in operating expenses is primarily a result of employee-related expenses of $18.8 million, pass-through expenses (primarily fuel) of $10.9 million, repairs and maintenance of $3.3 million, insurance premiums of $1.3 million, outside towing of $1.1 million and lease expense of $0.9 million.
Selling, general and administrative expenses. Selling, general and administrative expenses increased primarily due to higher employee-related expenses .
Depreciation and amortization. Depreciation and amortization decreased as a result of disposals, offset by capital expenditures.
Other operating income, net. Other operating income, net represents gains and losses from the disposition of property, plant and equipment.
Sulfur Services Segment
Comparative Results of Operations for the Three Months Ended September 30, 2022 and 2021
Three Months Ended September 30, Variance Percent Change
2022 2021
(In thousands)
Revenues:
Services $ 3,085 $ 2,950 $ 135 5 %
Products 25,783 27,887 (2,104) (8) %
Total revenues 28,868 30,837 (1,969) (6) %
Cost of products sold 27,201 21,799 5,402 25 %
Operating expenses 3,978 2,849 1,129 40 %
Selling, general and administrative expenses 1,509 1,321 188 14 %
Depreciation and amortization 2,786 2,594 192 7 %
(6,606) 2,274 (8,880) (391) %
Other operating income (loss), net (70) 8 (78) (975) %
Operating income (loss) $ (6,676) $ 2,282 $ (8,958) (393) %
Sulfur (long tons) 95 145 (50) (34) %
Fertilizer (long tons) 24 57 (33) (58) %
Total sulfur services volumes (long tons) 119 202 (83) (41) %
Services revenues. Services revenues increased slightly as a result of a contractually prescribed, index-based fee adjustment.
Products revenues. Products revenues decreased $18.0 million due to a 41% decrease in sales volumes, primarily related to a 58% decrease in fertilizer volumes, offset by an increase of $15.9 million as a result of a 57% rise in average sulfur services sales prices.
Cost of products sold. A 112% increase in product cost impacted cost of products sold by $24.4 million, resulting from a rise in commodity prices. A 41% decrease in sales volumes resulted in an offsetting decrease in cost of products sold of $19.0 million. Margin per ton decreased $42.05, or 140%.
Operating expenses. Operating expenses increased due to increases in outside towing of $0.4 million, insurance premiums and claims of $0.3 million, marine fuel and lube expense of $0.2 million, contract labor of $0.1 million, and utilities of $0.1 million, offset by a decrease in harbor agency fees of $0.1 million.
Selling, general and administrative expenses. Selling, general and administrative expenses increased primarily due to higher employee-related expenses.
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Depreciation and amortization. Depreciation and amortization increased due to an increase in amortization of turnaround costs offset by certain assets being fully depreciated.
Other operating income (loss), net. Other operating income (loss), net represents gains and losses on the disposition of property, plant and equipment.
Comparative Results of Operations for the Nine Months Ended September 30, 2022 and 2021
Nine Months Ended September 30, Variance Percent Change
2022 2021
(In thousands)
Revenues:
Services $ 9,253 $ 8,849 $ 404 5 %
Products 135,691 95,109 40,582 43 %
Total revenues 144,944 103,958 40,986 39 %
Cost of products sold 105,640 69,619 36,021 52 %
Operating expenses 11,233 7,662 3,571 47 %
Selling, general and administrative expenses 4,550 3,777 773 20 %
Depreciation and amortization 8,377 7,882 495 6 %
15,144 15,018 126 1 %
Other operating income (loss), net (34) 14 (48) (343) %
Operating income $ 15,110 $ 15,032 $ 78 1 %
Sulfur (long tons) 327 364 (37) (10) %
Fertilizer (long tons) 170 236 (66) (28) %
Total sulfur services volumes (long tons) 497 600 (103) (17) %
Services revenues. Services revenues increased slightly as a result of a contractually prescribed, index-based fee adjustment.
Products revenues. Products revenues increased $68.7 million as a result of a 72% rise in average sulfur services sales prices. Products revenues decreased $28.1 million due to a 17% decrease in sales volumes, primarily related to a 28% decrease in fertilizer volumes.
Cost of products sold. A 112% increase in product cost impacted cost of products sold by $57.9 million, resulting from a rise in commodity prices. A 17% decrease in sales volumes resulted in an offsetting decrease in cost of products sold of $21.9 million.
Operating expenses. Operating expenses increased due to increases in marine fuel and lube expense of $1.5 million, outside towing of $0.8 million, insurance premiums and claims of $0.5 million, marine repairs and maintenance of $0.3 million, contract labor of $0.3 million, and assist tugs of $0.2 million.
Selling, general and administrative expenses. Selling, general and administrative expenses increased primarily due to higher employee-related expenses.
Depreciation and amortization. Depreciation and amortization increased due to an increase in amortization of turnaround costs offset by a decrease in depreciation as a result of certain assets being fully depreciated in the prior period.
Other operating income (loss), net. Other operating income (loss), net represents gains and losses on the disposition of property, plant and equipment.
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Natural Gas Liquids Segment
Comparative Results of Operations for the Three Months Ended September 30, 2022 and 2021
Three Months Ended September 30, Variance Percent Change
2022 2021
(In thousands)
Products revenues $ 80,891 $ 91,764 $ (10,873) (12) %
Cost of products sold 97,322 87,551 9,771 11 %
Operating expenses 1,210 1,088 122 11 %
Selling, general and administrative expenses 968 954 14 1 %
Depreciation and amortization 590 592 (2) — %
(19,199) 1,579 (20,778) (1,316) %
Other operating income, net 242 — 242
Operating income (loss) $ (18,957) $ 1,579 $ (20,536) (1,301) %
NGL sales volumes (Bbls) 1,180 1,435 (255) (18) %
Products Revenues. Our average sales price per barrel increased $4.61, or 7%, increasing revenues by $6.6 million. The increase in average sales price per barrel was due to a rise in commodity prices. Sales volumes decreased 18%, lowering revenues by $17.5 million.
Cost of products sold . Our average cost per barrel increased $5.82, or 10%, increasing cost of products sold by $8.4 million. The increase in average cost per barrel was due to a rise in commodity prices. The decrease in sales volume of 18% resulted in a $17.0 million reduction to cost of products sold. Our margins declined $1.22 per barrel, or 42%, during the period. In addition, a non-cash net realizable value adjustment was made to inventory during the third quarter of 2022, increasing cost of products sold by $18.5 million.
Operating expenses . Operating expenses increased due to brine pond operations at Martin Underground Storage.
Selling, general and administrative expenses . Selling, general and administrative expenses remained relatively consistent.
Depreciation and amortization. Depreciation and amortization remained relatively consistent.
Other operating income, net. Other operating income, net represents gains and losses from the disposition of property, plant and equipment.
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Comparative Results of Operations for the Nine Months Ended September 30, 2022 and 2021
Nine Months Ended September 30, Variance Percent Change
2022 2021
(In thousands)
Products revenues $ 299,037 $ 257,081 $ 41,956 16 %
Cost of products sold 303,376 234,239 69,137 30 %
Operating expenses 3,397 3,144 253 8 %
Selling, general and administrative expenses 3,287 3,858 (571) (15) %
Depreciation and amortization 1,785 1,791 (6) — %
(12,808) 14,049 (26,857) (191) %
Other operating income (loss), net 218 (689) 907 132 %
Operating income (loss) $ (12,590) $ 13,360 $ (25,950) (194) %
NGL sales volumes (Bbls) 3,930 4,839 (909) (19) %
Products Revenues. Our average sales price per barrel increased $22.96, or 43%, increasing revenues by $111.1 million. The increase in average sales price per barrel was due to a rise in commodity prices. Sales volumes decreased 19%, lowering revenues by $69.2 million.
Cost of products sold . Our average cost per barrel increased $24.00, or 50%, increasing cost of products sold by $116.1 million. The increase in average cost per barrel was the result of an increase in market prices. The decrease in sales volume of 19% resulted in a $65.8 million reduction to cost of products sold. Our margins declined $1.03 per barrel, or 22%. In addition, a non-cash net realizable value adjustment was made to inventory during the third quarter of 2022, increasing cost of products sold by $18.8 million.
Operating expenses . Operating expenses increased primarily due to higher utilities, brine pond operating costs, and insurance premiums at Martin Underground Storage.
Selling, general and administrative expenses . Selling, general and administrative decreased primarily as a result of decreased compensation expense.
Depreciation and amortization. Depreciation and amortization remained relatively consistent.
Other operating income (loss), net. Other operating income (loss), net represents gains and losses from the disposition of property, plant and equipment.
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Interest Expense, Net
Comparative Components of Interest Expense, Net for the Three Months Ended September 30, 2022 and 2021
Three Months Ended September 30, Variance Percent Change
2022 2021
(In thousands)
Credit facility $ 2,695 $ 2,631 $ 64 2 %
Senior notes 9,830 9,846 (16) — %
Amortization of deferred debt issuance costs 788 1,064 (276) (26) %
Other 592 564 28 5 %
Finance leases 1 5 (4) (80) %
Total interest expense, net $ 13,906 $ 14,110 $ (204) (1) %
Comparative Components of Interest Expense, Net for the Nine Months Ended September 30, 2022 and 2021
Nine Months Ended September 30, Variance Percent Change
2022 2021
(In thousands)
Credit facility $ 6,281 $ 6,948 $ (667) (10) %
Senior notes 28,966 29,349 (383) (1) %
Amortization of deferred debt issuance costs 2,356 2,585 (229) (9) %
Other 1,571 1,471 100 7 %
Finance leases 7 19 (12) (63) %
Total interest expense, net $ 39,181 $ 40,372 $ (1,191) (3) %
Indirect Selling, General and Administrative Expenses
Three Months Ended September 30, Variance Percent Change Nine Months Ended September 30, Variance Percent Change
2022 2021 2022 2021
(In thousands) (In thousands)
Indirect selling, general and administrative expenses $ 4,260 $ 4,074 $ 186 5 % $ 12,772 $ 11,773 $ 999 8 %
Indirect selling, general and administrative expenses increased for the three months ended September 30, 2022 compared to the three months ended September 30, 2021 primarily due to an increase in employee-related expenses of $0.3 million, offset by a $0.2 million decrease in the indirect expenses allocated from Martin Resource Management Corporation. Indirect selling, general and administrative expenses increased for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to an increase in employee-related expenses of $1.5 million, offset by a $0.7 million decrease in the indirect expenses allocated from Martin Resource Management Corporation.
Martin Resource Management Corporation allocates to us a portion of its indirect selling, general and administrative expenses for services such as accounting, legal, treasury, clerical, billing, information technology, administration of insurance, engineering, general office expense and employee benefit plans and other general corporate overhead functions we share with Martin Resource Management Corporation retained businesses. This allocation is based on the percentage of time spent by Martin Resource Management Corporation personnel that provide such centralized services. GAAP also permits other methods for allocation of these expenses, such as basing the allocation on the percentage of revenues contributed by a segment. The allocation of these expenses between Martin Resource Management Corporation and us is subject to a number of judgments and estimates, regardless of the method used. We can provide no assurances that our method of allocation, in the past or in the future, is or will be the most accurate or appropriate method of allocation for these expenses. Other methods could result in a higher allocation of selling, general and administrative expense to us, which would reduce our net income.
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Under the Omnibus Agreement, we are required to reimburse Martin Resource Management Corporation for indirect general and administrative and corporate overhead expenses. The Conflicts Committee of our general partner approved the following reimbursement amounts during the three and nine months ended September 30, 2022 and 2021:
Three Months Ended September 30, Variance Percent Change Nine Months Ended September 30, Variance Percent Change
2022 2021 2022 2021
(In thousands) (In thousands)
Conflicts Committee approved reimbursement amount
$ 3,373 $ 3,597 $ (224) (6) % $ 10,118 $ 10,790 $ (672) (6) %
The amounts reflected above represent our allocable share of such expenses. The Conflicts Committee will review and approve future adjustments in the reimbursement amount for indirect expenses, if any, annually.
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Liquidity and Capital Resources
General
Our primary sources of liquidity to meet operating expenses, service our indebtedness, fund capital expenditures and pay distributions to our unitholders have historically been cash flows generated by our operations, borrowings under our credit facility and access to debt and equity capital markets, both public and private. Set forth below is a description of our cash flows for the periods indicated.
Cash Flows - Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
The following table details the cash flow changes between the nine months ended September 30, 2022 and 2021:
Nine Months Ended September 30, Variance Percent Change
2022 2021
(In thousands)
Net cash provided by (used in):
Operating activities $ (16,756) $ (12,406) $ (4,350) (35) %
Investing activities (23,072) (13,629) (9,443) (69) %
Financing activities 39,821 27,860 11,961 43 %
Net increase (decrease) in cash and cash equivalents $ (7) $ 1,825 $ (1,832) (100) %
Net cash used in operating activities. The increase in net cash used in operating activities for the nine months ended September 30, 2022 includes an increase in operating results of $1.1 million and an unfavorable variance in working capital of $7.1 million. Offsetting this increase was a combined $1.7 million increase in other non-cash charges and other non-current assets and liabilities.
Net cash used in investing activities. Net cash used in investing activities for the nine months ended September 30, 2022 increased $9.4 million. A rise in cash used of $11.2 million resulted from higher payments for capital expenditures and plant turnaround costs in 2022. Offsetting, net proceeds from the sale of property, plant and equipment increased $2.0 million.
Net cash provided by financing activities. Net cash provided by financing activities for the nine months ended September 30, 2022 increased primarily as a result of a $10.2 million increase in net payments of long-term borrowings and a $1.3 million increase in cash used related to additional consideration paid to Martin Resource Management related to its acquisition of MTI. Additionally, payments of finance lease obligations decreased $2.5 million.
Total Contractual Obligations
A summary of our total contractual cash obligations as of September 30, 2022, is as follows:
Payments due by period
Type of Obligation Total
Obligation Less than
One Year 1-3
Years 3-5
Years Due
Thereafter
Credit facility $ 202,000 $ 202,000 $ — $ — $ —
11.5% senior secured notes, due 2025 291,381 — 291,381 — —
10.0% senior secured notes, due 2024 53,750 — 53,750 — —
Operating leases 41,167 10,899 14,194 8,617 7,457
Finance lease obligations 108 108 — — —
Interest payable on finance lease obligations 1 1 — — —
Interest payable on fixed long-term debt obligations 88,595 38,884 49,711 — —
Total contractual cash obligations $ 677,002 $ 251,892 $ 409,036 $ 8,617 $ 7,457
The interest payable under our credit facility is not reflected in the above table because such amounts depend on the outstanding balances and interest rates, which vary from time to time.
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Letters of Credit . At September 30, 2022, we had outstanding irrevocable letters of credit in the amount of $28.8 million, which were issued under our credit facility.
Off-Balance Sheet Arrangements. We do not have any off-balance sheet financing arrangements.
Description of Our Indebtedness
Credit Facility
At September 30, 2022, we maintained a $275.0 million credit facility that matures on August 31, 2023. As of September 30, 2022, we had $202.0 million outstanding under the credit facility and $28.8 million of outstanding irrevocable letters of credit, leaving a maximum available amount to be borrowed under our credit facility for future revolving credit borrowings and letters of credit of $44.2 million. After giving effect to our then current borrowings, letters of credit, and the financial covenants contained in our credit facility, we had the ability to borrow approximately $44.2 million in additional amounts thereunder as of September 30, 2022.
The credit facility is used for ongoing working capital needs and general partnership purposes, and to finance permitted investments, acquisitions and capital expenditures. During the nine months ended September 30, 2022, the level of outstanding draws on our credit facility has ranged from a low of $141.5 million to a high of $214.0 million.
The credit facility is guaranteed by substantially all of our subsidiaries. Obligations under the credit facility are secured by first priority liens on substantially all of our assets and those of the guarantors, including, without limitation, inventory, accounts receivable, bank accounts, marine vessels, equipment, fixed assets and the interests in our subsidiaries.
We may prepay all amounts outstanding under the credit facility at any time without premium or penalty (other than customary LIBOR breakage costs), subject to certain notice requirements. The credit facility requires mandatory prepayments of amounts outstanding thereunder with excess cash that exceeds $25.0 million and the net proceeds of certain asset sales, equity issuances and debt incurrences.
Indebtedness under the credit facility bears interest at our option at the Eurodollar Rate (LIBOR), with a floor for LIBOR of 1%, plus an applicable margin, or the Base Rate (the highest of the Federal Funds Rate plus 0.50%, the 30-day Eurodollar Rate plus 1.0%, or the administrative agent’s prime rate) plus an applicable margin. We pay a per annum fee on all letters of credit issued under the credit facility, and we pay a commitment fee per annum on the unused revolving credit commitments under the credit facility. The letter of credit fee, the commitment fee and the applicable margins for our interest rate vary quarterly based on our total leverage ratio (as defined in the credit facility, being generally computed as the ratio of total funded debt to consolidated earnings before interest, taxes, depreciation, amortization and certain other non-cash charges) and are as follows as of September 30, 2022:
Leverage Ratio
Base Rate Loans Eurodollar
Rate
Loans Letters of Credit
Less than 3.00 to 1.00 1.75 % 2.75 % 2.75 %
Greater than or equal to 3.00 to 1.00 and less than 3.50 to 1.00 2.00 % 3.00 % 3.00 %
Greater than or equal to 3.50 to 1.00 and less than 4.00 to 1.00 2.25 % 3.25 % 3.25 %
Greater than or equal to 4.00 to 1.00 and less than 4.50 to 1.00 2.50 % 3.50 % 3.50 %
Greater than or equal to 4.50 to 1.00 and less than 5.00 to 1.00 2.75 % 3.75 % 3.75 %
Greater than or equal to 5.00 to 1.00 3.00 % 4.00 % 4.00 %
The applicable margin for LIBOR borrowings at September 30, 2022 is 3.00%, with a 1% floor for LIBOR. The applicable margin for LIBOR borrowings effective November 2, 2022 is 3.25%. The credit facility includes financial covenants that are tested on a quarterly basis, based on the rolling four quarter period that ends on the last day of each fiscal quarter.
In addition, the credit facility contains various covenants, which, among other things, limit our and our subsidiaries’ ability to: (i) grant or assume liens; (ii) make investments (including investments in our joint ventures) and acquisitions; (iii) enter into certain types of hedging agreements; (iv) incur or assume indebtedness; (v) sell, transfer, assign or convey assets; (vi) repurchase our equity, make distributions (including a limit on our ability to make quarterly distributions to unitholders in
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excess of $0.005 per unit unless our total leverage ratio is below 3.75:1:00) and certain other restricted payments; (vii) change the nature of our business; (viii) engage in transactions with affiliates; (ix) enter into certain burdensome agreements; (x) make certain amendments to the Omnibus Agreement and our material agreements; and (xi) permit our joint ventures to incur indebtedness or grant certain liens.
The credit facility contains customary events of default, including, without limitation: (i) failure to pay any principal, interest, fees, expenses or other amounts when due; (ii) failure to meet the quarterly financial covenants; (iii) failure to observe any other agreement, obligation, or covenant in the credit facility or any related loan document, subject to cure periods for certain failures; (iv) the failure of any representation or warranty to be materially true and correct when made; (v) our, or any of our subsidiaries’ default under other indebtedness that exceeds a threshold amount; (vi) bankruptcy or other insolvency events involving us or any of our subsidiaries; (vii) judgments against us or any of our subsidiaries, in excess of a threshold amount; (viii) certain ERISA events involving us or any of our subsidiaries, in excess of a threshold amount; (ix) a change in control (as defined in the credit facility); and (x) the invalidity of any of the loan documents or the failure of any of the collateral documents to create a lien on the collateral.
The credit facility also contains certain default provisions relating to Martin Resource Management Corporation. If Martin Resource Management Corporation no longer controls our general partner, the lenders under the credit facility may declare all amounts outstanding thereunder immediately due and payable. In addition, an event of default by Martin Resource Management Corporation under its credit facility could independently result in an event of default under our credit facility if it is deemed to have a material adverse effect on us.
If an event of default relating to bankruptcy or other insolvency events occurs with respect to us or any of our subsidiaries, all indebtedness under our credit facility will immediately become due and payable. If any other event of default exists under our credit facility, the lenders may terminate their commitments to lend us money, accelerate the maturity of the indebtedness outstanding under the credit facility and exercise other rights and remedies. In addition, if any event of default exists under our credit facility, the lenders may commence foreclosure or other actions against the collateral.
Senior Secured Notes due 2025 and 2024
For a description of our 11.50% senior secured second lien notes due 2025 and 10.00% senior secured 1.5 lien notes due 2024, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Description of Our Long-Term Debt" in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022.
Capital Resources and Liquidity
Historically, we have generally satisfied our working capital requirements and funded our debt service obligations and capital expenditures with cash generated from operations and borrowings under our credit facility.
On September 30, 2022, we had cash and cash equivalents of $0.0 million and available borrowing capacity of $44.2 million under our credit facility with $202.0 million of borrowings outstanding. After giving effect to our then current borrowings, letters of credit, and the financial covenants contained in our credit facility, we had the ability to borrow approximately $44.2 million in additional amounts thereunder as of September 30, 2022. Our credit facility matures on August 31, 2023. We are currently seeking to extend the maturity date of the credit facility, although no assurance can be given.
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We expect that our primary sources of liquidity to meet operating expenses, service our indebtedness, pay distributions to our unitholders and fund capital expenditures will be provided by cash flows generated by our operations, borrowings under our credit facility and access to the debt and equity capital markets. Our ability to generate cash from operations will depend upon our future operating performance, which is subject to certain risks. For a discussion of such risks, please read "Item 1A. Risk Factors" of our Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022. In addition, due to the covenants in our credit facility, our financial and operating performance impacts the amount we are permitted to borrow under that facility.
If we are unable to extend the maturity date of the credit facility and are unable to repay the outstanding borrowings under our revolving credit facility on August 31, 2023, we would be in default under our revolving credit facility. An event of default under our revolving credit facility would allow the lenders to declare the balance outstanding thereunder due and payable in full, which could trigger cross-defaults under other agreements, which could also result in the acceleration of those obligations by the counterparties to those agreements. Management is in the process of refinancing the credit facility and presently believes the measures being taken will enable us to successfully extend the maturity date of the credit facility, although no assurance can be given.
We are in compliance with all debt covenants as of September 30, 2022 and expect to be in compliance for the next twelve months, provided the Partnership successfully executes an extension of the maturity date of the credit facility.
Interest Rate Risk
We are subject to interest rate risk on our credit facility due to the variable interest rate and may enter into interest rate swaps to reduce this variable rate risk.
Seasonality
A substantial portion of our revenues is dependent on sales prices of products, particularly NGLs and fertilizers, which fluctuate in part based on winter and spring weather conditions. The demand for NGLs is strongest during the winter heating season and refinery blending season. The demand for fertilizers is strongest during the early spring planting season. However, our Terminalling and Storage and Transportation business segments and the molten sulfur business are typically not impacted by seasonal fluctuations and a significant portion of our net income is derived from our Terminalling and Storage, Sulfur Services and Transportation business segments. Further, extraordinary weather events, such as hurricanes, have in the past, and could in the future, impact our Terminalling and Storage, Sulfur Services, and Transportation business segments.
Impact of Inflation
Inflation did not have a material impact on our results of operations for the nine months ended September 30, 2022 or 2021. Inflation may increase the cost to acquire or replace property, plant and equipment. It may also increase the costs of labor and supplies. In the future, increasing energy prices for products consumed by our operations, such as diesel fuel, natural gas, chemicals, and other supplies, could adversely affect our results of operations. An increase in price of these products would increase our operating expenses which could adversely affect net income. We cannot provide assurance that we will be able to pass along increased operating expenses to our customers.
Environmental Matters
Our operations are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdictions in which these operations are conducted. We incurred no material environmental costs, liabilities or expenditures to mitigate or eliminate environmental contamination during the nine months ended September 30, 2022 or 2021.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.