Greetings and welcome to Genesis Energy Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Dwane Morley, Vice President of Investor Relations. Thank you. You may begin.

Good morning. Welcome to the 2022 third quarter conference call for Genesis Energy. Genesis Energy has 4 business segments. The Offshore Pipeline Transportation segment is engaged in providing the critical infrastructure to move oil produced from the long-lived world-class reservoirs from the deepwater Gulf of Mexico to onshore refining centers. The Sodium Minerals and Sulfur Services segment includes trona and trona-based exploring, mining, processing, producing, marketing and selling activities as well as the processing of sour gas streams to remove sulfur at refining operations. The Onshore Facilities and Transportation segment is engaged in the transportation, handling, blending, storage and supply of energy products, including crude oil and refined products. The Marine Transportation segment is engaged in the maritime transportation of primarily refined petroleum products. Genesis' operations are primarily located in Wyoming, the Gulf Coast states and the Gulf of Mexico. During this conference call, management may be making forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. The law provides safe harbor protection to encourage companies to provide forward-looking information. Genesis intends to avail itself of those safe harbor provisions and directs you to its most recently filed and future filings with the Securities and Exchange Commission. We also encourage you to visit our website at genesisenergy.com, where a copy of the press release we issued today is located. The press release also presents a reconciliation of non-GAAP financial measures to the most comparable GAAP financial measures. At this time, I would like to introduce Grant Sims, Chief Executive Officer of Genesis Energy, L.P. Mr. Sims will be joined by Bob Deere, Chief Financial Officer; and Ryan Sims, Senior Vice President, Finance and Corporate Development.

Thanks, Dwayne. Good morning to everyone and thanks for listening in. The third quarter was once again a great quarter for Genesis as our market-leading businesses exceeded the upper end of our internal expectations. The fundamentals and macro conditions for our business segments remain strong. and continue to provide the foundation for strong financial results and continuing improvement to our balance sheet over the coming periods. Our quarterly results were driven by a combination of strong operating performance across all of our business segments, steadily increasing volumes in our offshore segment and strong soda ash prices in all of our markets, especially in our export markets. Excuse me! Based on our financial performance over the first 3 quarters and our expectations for the remainder of the year, we are today once again raising our full year guidance for adjusted EBITDA to a range of $700 million to $710 million for 2022 which includes approximately $41 million of nonrecurring benefits we received in the second and third quarters. Said another way, our revised 2022 guidance range at its midpoint which suggests a normalized adjusted EBITDA of approximately $665 million which is over 15% higher than the midpoint of our original 2022 guidance range of $565 million to $585 million. Importantly, we expect to exit 2022 with a leverage ratio as calculated by our senior secured lenders at or below 4.25x which as I've said before, is the only relevant leverage covenant anywhere in our capital structure. As we look ahead to 2023, despite any potential recession-related risks that might be on the horizon for the broader economy, we remain confident that market dynamics in each of our respective businesses remain such that we do not believe we will see a meaningful impact to our expected earnings capability in 2023. This belief…

Thank you. [Operator Instructions] Our first question comes from Michael Blum with Wells Fargo. Please proceed with your question.

Thanks. Good morning, everyone. I wanted to ask about the soda ash business. Specifically, I just wanted to hear if you have any – just what the supply chain and shipping conditions are right now? And are there any bottlenecks you’re seeing to get your product to market? And then can you provide like a breakdown of end markets you’re selling into right now?

I mean I think in terms of delivery mechanisms, basically, the vast majority of our product out of Wyoming goes out via rail. And then as distributed domestically via trucks and other means at that point. But the rail goes to ports where we load onto vessels for exports. So at this point, we've not seen any disruptions in that ability to get there. It's important to note on our domestic sales which is about half of our sales we're just the agent for transportation. We don't take any -- we sell FOB, if you will, Wyoming to our domestic customers and we help a range but all of that. But on our international sales, our export sales, we do sell on a delivered basis. But given our size, that we have -- we think we have more favorable as the largest exporter coming out of the U.S., we have more favorable rates on both the railroads to get to the terminals and our maritime costs are lower than other people that are because of the volume discount that we get through NSA by moving more product than any other domestic exporter. Regarding the current breakdown of cells, I don't have that right at my fingertip but Michael, we can get that to you at some point.

Okay, great. Appreciate that. And then you had some comments in, I guess, the press release and your prepared remarks about upcoming maturities and your ability to deal with those. And I guess from what I understand the lease you don't really have any maturities until 2024 and it's not even that big maturity in '24. So I guess I just want to make sure I'm not missing something there. Is there something that we should be aware of? And as you think about those options for the maturities that are coming up, what maybe you could expand upon that?

No, you're exactly right. I mean we don't have any unsecured maturities until mid-2024 in our senior secured facility expires 90 days inside that. Some people have brought that up as a potential overhang given obviously the current dysfunctionality as I characterize it in regular way capital markets, really the unsecured market at this point. As you point out, it's only a $340 million issuance. It's very small. We don't see it as an issue at all. We have multiple ways to deal with it and handle it. And so yes, I was just really trying to address some of the comments that we get that that's a concern to some people in the capital structure. We just don't view it, especially given the momentum of our business and the increasing amounts of discretionary cash flow that we have very high visibility towards.

Okay, great. Thanks for clarifying.

Our next question comes from TJ Schultz with RBC Capital Markets. Please proceed with your question.

Great, thanks. Morning, Grant. Maybe just a broader question on tightness in the soda ash market beyond your Granger expansion. Are you expecting any other material supply additions in the U.S. market in the next 2 to 3 years? I’m just trying to think how the natural soda ash market would get less tight from where it is today beyond any demand movements. And if you could just touch on some of the dynamics that would all have to occur together to realize lower pricing next year?

Yes. I mean there's no other near-term expansions of natural production in the U.S. which, in our view, can occur prior to the 25, '26 time frame. There's probably some debottlenecking that could occur and brownfield expansions that could occur at the Sisecam site but it doesn't appear that it's in their 5-year capital plan. The Solvay has announced an opportunity to debottleneck and these are all in plus or minus 300,000 to 500,000 tons a year type deals but we don't -- again, we would think that, that would take 2 or 3 years. And given that Solvay is currently publicly separating, if you will, it's a bulk chemical business. It's soda ash business from its other businesses. We don't perceive that that's going to -- given that it's in one form or another, either for sale or going to be spun out that that's that expansion is going to occur. And again, not of it can occur in our mind before '25 or '26. As we look at some of the at least kick around or announced potential new greenfield developments to expand in the Trona Basin in Southwest Wyoming. I think those are at best case 2028 to 2030 time frame based upon our view of what it would cost to do a greenfield development that has been kicked around. And I think some of this is in the public domain in terms of some of the public discussions that has occurred, that the cost would be in excess of $1,000 a ton of incremental capacity. And given that there's no -- in the soda ash business, there's not really the concept of take-or-pay or multiyear contracts, we would expect that you would need a clear runway to, call it, plus or minus $120 a ton net EBITDA margin to support that expansion and by golly, if there's $120 net EBITDA margins across the board, we'll make $600 million a year off of our 4.8 million tons of existing installed production capacity.

Okay, great. Maybe just following up on the end markets for soda ash from Michael's question without getting into the exact percentages. Is the view essentially that autos have effectively already suffered. So you'll see growth there. And then as solar and meti grow as a percentage of mix, that can fully offset or substantially offset any potential weakness that you may see or we may see on construction?

Yes. I mean that's basically -- that's our feeling that the U.S. automobile manufacturers have been in the 13 million to 14 million unit rate for a couple of years, especially exacerbated by the chip shortage in our discussions with the automobile glass manufacturers in the automobile industry itself, they believe that, that ship shortage is going to be substantially addressed, call it by the first/second quarter of 2023. When it can get back to potentially given pent-up demand and other things to get back to 17 million to 18 million units on an annual basis. So that drives quite a bit of incremental demand. And then the demand from the green initiatives of solar panels and lithium carbonate for batteries and other things is conservatively about 0.5 million tons year of incremental demand. And so I think a pullback in construction activities, at least our view at this point, the pullback in construction activities is in large part going to be addressed by the growth that's coming from the green initiatives. So inventories are extremely low. And not all of the economies are going to see things. We're seeing robust demand growth continuing and developing economies, both in South America as well as Asia outside of China. So we feel quite confident in our discussions with customers as we start here the renegotiation period for 2023. I think that those dynamics are really holding up. So I got -- just as we've been sitting here, I'll kind of answer Michael's question which is part of your question also. But in general, about 54% of the total market is in glass of all kinds. So it's automobile glass, container glass, flat glass for construction activities. Generally, during recession, we see container glass absolutely go up. People tend to drink more for whatever reason apparently. Soaping detergent is about 16%. About 17% goes into chemicals and the rest is kind of in the metals, mining and pulp and paper business. So that's a general breakdown of where the sales are.

Okay, thank you.

[Operator Instructions] Our next question comes from Karl Blunden with Goldman Sachs. Please proceed with your question.

Hi, thanks very much for your time. I was interested in your comments on the copper mining and market. And I was curious if you could provide a bit more color there. Are you -- when you think about the forward outlook, there is that driven primarily by the production volumes of your customers. Is there any profitability tie in there for their profitability to your outlook or any market share opportunities?

No. We generally -- I mean we're at an absolute critical component the sodium hydrosulfide which is the byproduct or the product that we make in the removal of the sulfur that is in trained in crude oil that enters a refinery is used in copper mining to basically as a reagent to separate the copper from the molybdenum, was a very hard word to say. And so then you get the copper miner guess the revenue impact being able to sell the molybdenum as well as remove it from its typical and train molecular structure with copper. So we're critical but a very small part of the input. We structure everything on the basis of basically a fixed margin delivery from our perspective. So whether or not copper prices are $3.40 or $2.80 or $4.50, we get the same margin per ton of sodium hydrosulphide that we sell into that market. So it's our belief and you can read a lot of commentary from Freeport-McMoran and BHP and others that are large publicly traded copper producers that basically the cash cost of their cash cost of producing copper across their portfolio of mines worldwide is in the $1.40, pound range. And so with today's copper prices of $3.40, there's absolutely no -- they're producing everything that they possibly can. And so unless and until you see a long-term forward copper pricing curve of $2 or less. So we don't expect anything to any effect on our ability to market the tons. So, that's kind of the dynamic we see.

Yes, that's really helpful. It ties up with the commentary you've seen from the miners, too. With regard to the capital structure and we do appreciate the be proactively discussing that you have options to deal with the 24 and 25 maturities. When you think about the preferred options, should we still think about unsecured debt as the preferred way to go. Those bonds have rallied recently, close to 9% yields now. But is that the preferred option and to keep the capital structure simple over time? Or are you increasingly looking at things that could be lower cost, whether they're structured or equity linked, et cetera?

Yes. I think that we're looking at -- well, right now, even if with the Montreal to unsecured at 9%, that doesn't seem to be overly attractive at this point. But I think that we would like to -- we are looking at cheaper alternatives which could possibly be an expanded senior secured commitments in one form or another that gives us a cheaper cost of capital to go forward and simplify the capital structure and well as potentially harvest some of what we perceive to be mispriced bonds in our unsecured complex. So I think that given the radically improving financial performance of the business, the calculated the leverage and with the clear growth that we have in front of us in '23 and beyond, I think that we're in a very enviable position to be able to be creative in either regular way or other ways to simplify the capital structure and ultimately, with reducing the cost of capital, if you will, that exist on the balance sheet at this point.

That's really helpful. Thank you.

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Grant Sims for closing comments.

Okay. Well, again, we appreciate everybody listening in and we look forward to continuing to deliver good news on our fourth quarter call and as we go through 2023. So thanks, everyone and we’ll talk soon.

This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.