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Southcross Energy Partners, L.P. Reports First Quarter Results

DALLAS, Texas, May 09, 2017 (GLOBE NEWSWIRE) -- Southcross Energy Partners, L.P. (NYSE:SXE) (“Southcross” or the “Partnership”) today announced first quarter financial and operating results. 

Southcross’ net loss was $15.4 million for the quarter ended March 31, 2017, compared to $15.5 million for the same period in the prior year and $39.5 million for the quarter ended December 31, 2016.  Adjusted EBITDA (as defined below) was $18.0 million for the quarter ended March 31, 2017, compared to $20.7 million for the same period in the prior year and $18.4 million for the quarter ended December 31, 2016. Adjusted EBITDA for the first quarter was 2% lower than the prior quarter despite 11% lower processed gas volumes resulting from the planned shut-down of the Conroe processing facility, as operating cost savings initiatives and higher Y-grade production substantially offset the gross margin impact.  

Processed gas volumes during the quarter averaged 256 MMcf/d, a decrease of 25% compared to 343 MMcf/d for the same period in the prior year and a decrease of 11% compared to 287 MMcf/d for the quarter ended December 31, 2016.

“In the first quarter of 2017, we benefitted from companywide cost-savings initiatives started at the end of last year, including lower operational expenses at our facilities,” said Bruce A. Williamson, President and Chief Executive Officer of Southcross’ general partner. “When adjusting for the decrease in volumes from the planned shut-down of our Conroe facility, we are starting to see our processed gas volumes stabilize, which is consistent with the recent increase in rig counts in the Eagle Ford Shale.”

“This quarter we also made progress on improving our liquidity position through debt pay downs and a reduction in our outstanding collateral posted. Looking ahead, we will continue our focus on efficient and reliable management of our operations while remaining disciplined in our efforts to reduce operating expenses and strengthen our liquidity.”

Capital Expenditures

For the quarter ended March 31, 2017, growth and maintenance capital expenditures were $6.9 million and were related primarily to the installation of a new gas gathering pipeline in Mississippi to support sales to end-use markets in the area. Southcross expects that capital expenditures for full-year 2017, including growth and maintenance expenditures, will be in the range of $15 million to $20 million and will be limited to projects with contractually committed volumes, along with recurring maintenance spending.

Capital and Liquidity

As of March 31, 2017, Southcross had total outstanding debt of $548 million, including $113 million under its revolving credit facility, as compared to total outstanding debt of $560 million as of December 31, 2016.  

Cash Distributions and Distributable Cash Flow

Distributable cash flow (as defined below) for the quarter ended March 31, 2017 was $8.9 million, compared to $10.3 million for the same period in the prior year and $11.5 million for the quarter ended December 31, 2016. The Partnership did not make a cash distribution for the quarter ended March 31, 2017 and is restricted from making cash distributions until the Partnership’s consolidated total leverage ratio, as defined under its credit agreement, is at or below 5.0x to 1.

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 two gas processing plants, one fractionation plant 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.

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 described in reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K and in subsequent reports, which are available through the SEC’s  EDGAR system at www.sec.gov and on our website.  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, severance expense 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, gain on sale of assets 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 March 31,
  2017   2016
Revenues:      
Revenues $ 114,387     $ 95,455  
Revenues - affiliates 40,771     24,271  
Total revenues 155,158     119,726  
       
Expenses:      
Cost of natural gas and liquids sold 118,691     79,447  
Operations and maintenance 14,306     16,778  
Depreciation and amortization 17,850     18,541  
General and administrative 8,196     7,886  
Impairment of assets 649      
Gain on sale of assets (62 )    
Total expenses 159,630     122,652  
       
Loss from operations (4,472 )   (2,926 )
Other income (expense):      
Equity in losses of joint venture investments (3,316 )   (3,429 )
Interest expense (9,103 )   (9,170 )
Gain on insurance proceeds 1,508      
Total other expense (10,911 )   (12,599 )
Loss before income tax benefit (15,383 )   (15,525 )
Income tax benefit     5  
Net loss $ (15,383 )   $ (15,520 )
General partner unit in-kind distribution (8 )    
Net loss attributable to partners $ (15,391 )   $ (15,520 )
       
Earnings per unit      
Net loss allocated to limited partner common units $ (9,380 )   $ (7,643 )
Weighted average number of limited partner common units outstanding 48,522   28,446
Basic and diluted loss per common unit $ (0.19 )   $ (0.27 )
       
Net loss allocated to limited partner subordinated units $ (2,360 )   $ (3,280 )
Weighted average number of limited partner subordinated units outstanding 12,214   12,214
Basic and diluted loss per subordinated unit $ (0.19 )   $ (0.27 )


SOUTHCROSS ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for unit data)
(Unaudited)
 
  March 31, 2017   December 31, 2016
ASSETS      
Current assets:      
Cash and cash equivalents $ 4,441     $ 21,226  
Trade accounts receivable 33,315     51,894  
Accounts receivable - affiliates 16,996     7,976  
Prepaid expenses 2,346     2,751  
Other current assets 5,303     4,343  
Total current assets 62,401     88,190  
       
Property, plant and equipment, net 960,516     971,286  
Investments in joint ventures 120,948     124,096  
Other assets 2,446     2,504  
Total assets $ 1,146,311     $ 1,186,076  
       
LIABILITIES AND PARTNERS' CAPITAL      
Current liabilities:      
Accounts payable and accrued liabilities $ 39,408     $ 50,639  
Accounts payable - affiliates     524  
Current portion of long-term debt 4,256     4,500  
Other current liabilities 6,289     10,976  
Total current liabilities 49,953     66,639  
       
Long-term debt 533,310     543,872  
Other non-current liabilities 12,400     11,936  
Total liabilities 595,663     622,447  
       
Commitments and contingencies      
       
Partners' capital:      
Common units (48,538,451 and 48,502,090 units outstanding as of March 31, 2017 and December 31, 2016, respectively) 247,826     255,124  
Class B Convertible units (17,405,250 and 17,105,875 units issued and outstanding as of March 31, 2017 and December 31, 2016) 275,575     278,508  
Subordinated units (12,213,713 units issued and outstanding as of March 31, 2017 and December 31, 2016) 16,800     19,240  
General partner interest 10,447     10,757  
Total partners' capital 550,648     563,629  
Total liabilities and partners' capital $ 1,146,311     $ 1,186,076  


SOUTHCROSS ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
  Three Months Ended March 31,
  2017   2016
Cash flows from operating activities:      
Net loss $ (15,383 )   $ (15,520 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:      
Depreciation and amortization 17,850     18,541  
Unit-based compensation 257     981  
Amortization of deferred financing costs, original issuance discount and PIK interest 951     1,073  
Gain on sale of assets (62 )    
Unrealized loss (gain) on financial instruments (17 )   30  
Equity in losses of joint venture investments 3,316     3,429  
Distribution from joint venture investment     390  
Impairment of assets 649      
Gain on insurance proceeds (1,508 )    
Other, net (285 )   (121 )
Changes in operating assets and liabilities:      
Trade accounts receivable, including affiliates 11,257     9,099  
Prepaid expenses and other current assets (630 )   1,173  
Deposits paid to suppliers     (15,300 )
Other non-current assets 61     (280 )
Accounts payable and accrued expenses, including affiliates (12,099 )   (18,663 )
Other liabilities (4,167 )   (2,004 )
Net cash provided by (used in) operating activities 190     (17,172 )
Cash flows from investing activities:      
Capital expenditures (7,048 )   (5,474 )
Insurance proceeds from property damage claims 2,000     125  
Net proceeds from sales of assets 143      
Investment contributions to joint venture investments (168 )   (5,072 )
Net cash used in investing activities (5,073 )   (10,421 )
Cash flows from financing activities:      
Borrowings under our credit facility     3,110  
Repayments under our credit facility (9,500 )   (250 )
Repayments under our term loan agreement (2,161 )   (1,125 )
Payments on capital lease obligations (122 )   (103 )
Financing costs (74 )   (86 )
Tax withholdings on unit-based compensation vested units (45 )   (57 )
Borrowing of senior unsecured paid in-kind notes     14,000  
Valley Wells operating expense cap adjustment     1,647  
Common unit issuances to Holdings for equity contributions     11,884  
Net cash provided by (used in) financing activities (11,902 )   29,020  
       
Net increase (decrease) in cash and cash equivalents (16,785 )   1,427  
Cash and cash equivalents — Beginning of period 21,226     11,348  
Cash and cash equivalents — End of period $ 4,441     $ 12,775  


SOUTHCROSS ENERGY PARTNERS, L.P.
SELECTED FINANCIAL AND OPERATIONAL DATA
(In thousands, except for operating data)
(Unaudited)
 
  Three Months Ended March 31,
  2017   2016
Financial data:      
Adjusted EBITDA $ 18,018     $ 20,696  
       
Maintenance capital expenditures $ 680     $ 2,331  
Growth capital expenditures 6,185     3,143  
       
Distributable cash flow $ 8,919     $ 10,324  
       
Operating data:      
Average volume of processed gas (MMcf/d) 256     343  
Average volume of NGLs produced (Bbls/d) 31,230     39,651  
Average daily throughput Mississippi/Alabama (MMcf/d)   168       216  
       
Realized prices on natural gas volumes ($/Mcf) $ 3.13     $ 1.87  
Realized prices on NGL volumes ($/gal) 0.68     0.27  


SOUTHCROSS ENERGY PARTNERS, L.P.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands)
(Unaudited)
 
  Three Months Ended March 31,
  2017   2016
Net cash provided by (used in) operating activities $ 190     $ (17,172 )
Add (deduct):      
Depreciation and amortization (17,850 )   (18,541 )
Unit-based compensation (257 )   (981 )
Amortization of deferred financing costs, original issuance discount and PIK interest (951 )   (1,073 )
Gain on sale of assets 62      
Unrealized loss (gain) on financial instruments 17     (30 )
Equity in losses of joint venture investments (3,316 )   (3,429 )
Distribution from joint venture investment     (390 )
Impairment of assets (649 )    
Gain on insurance proceeds 1,508      
Other, net 285     121  
Changes in operating assets and liabilities:      
Trade accounts receivable, including affiliates (11,257 )   (9,099 )
Prepaid expenses and other current assets 630     (1,173 )
Other non-current assets (61 )   280  
Accounts payable and accrued expenses, including affiliates 12,099     18,663  
Deposits paid to suppliers     15,300  
Other liabilities 4,167     2,004  
Net loss $ (15,383 )   $ (15,520 )
Add (deduct):      
Depreciation and amortization $ 17,850     $ 18,541  
Interest expense 9,103     9,170  
Gain on insurance proceeds (1,508 )    
Income tax benefit     (5 )
Impairment of assets 649      
Gain on sale of assets (62 )    
Revenue deferral adjustment 754     754  
Unit-based compensation 257     981  
Major litigation costs, net of recoveries 33     125  
Equity in losses of joint venture investments 3,316     3,429  
Severance expense 2,334      
Retention bonus funded by Holdings     898  
Valley Wells' operating expense cap adjustment     991  
Fees related to Equity Cure Agreement     510  
Distribution from joint venture investment     390  
Expenses related to shut-down of Conroe processing plant 294      
Other, net 381     432  
Adjusted EBITDA $ 18,018     $ 20,696  
Cash interest, net of capitalized costs (8,419 )   (8,046 )
Income tax benefit     5  
Maintenance capital expenditures (680 )   (2,331 )
Distributable cash flow $ 8,919     $ 10,324  


Contact:
Southcross Energy Partners, L.P.                                 
Mallory Biegler, 214-979-3720
Investor Relations
investorrelations@southcrossenergy.com

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