American Midstream Reports Fourth Quarter and Full Year 2018 Results

HOUSTON, April 1, 2019 /PRNewswire/ -- American Midstream Partners, LP (NYSE: AMID) ("American Midstream" or the "Partnership") today reported financial and operational results for the three and twelve months ended December 31, 2018. Net loss attributable to the Partnership was $7.8 million for the year ended December 31, 2018 compared to $223.0 million for 2017. Adjusted EBITDA ((1)) was $184.6 million for the year ended December 31, 2018, compared to $176.4 million for 2017. The Partnership's distributable cash flow was $69.8 million for the year ended December 31, 2018, compared to $91.1 million for 2017.


     
              SEGMENT PERFORMANCE




                                                                                                            Three months ended                                   Twelve months ended

                                                                                                            December 31,                                   December 31,

                                                                                                                                              ---

                                                                                              2018                   2017                    2018                    2017

                                                                                                                                                                   ---




     Offshore Pipelines and Services                                                      $45,636                $22,871                $134,106                $103,970



     Gas Gathering and Processing Services                                                 11,847                 10,946                  51,888                  48,053



     Liquid Pipelines and Services                                                         10,771                  9,698                  40,542                  39,870



     Natural Gas Transportation Services                                                    8,746                  6,306                  36,130                  23,005



     Terminalling Services                                                                  3,172                  6,869                  22,814                  29,956



     Total Segment Gross Margin (1)                                                       $80,172                $56,690                $285,480                $244,854

                                                                                                                                                                   ===




     (1) Adjusted EBITDA and Total Segment Gross Margin are Non-GAAP supplemental financial measures. Please read "Non-GAAP Financial Measures" in this press release.

Offshore Pipelines and Services

Segment gross margin was $45.6 million for the three months ended December 31, 2018, an increase of 100% compared to the same period in 2017. The increase was primarily a result of a 32% increase in throughput volumes on the Partnership's offshore consolidated assets, as well as rate and imbalance adjustments on the Destin and Okeanos pipelines. Quarterly cash distributions from unconsolidated affiliates, Delta House, Destin and Okeanos, were $29.8 million for the three months ended December 31, 2018, compared to $29.6 million for the same period in 2017.

Gas Gathering and Processing Services

Segment gross margin was $11.8 million for the three months ended December 31, 2018, an increase of 8% compared to the same period in 2017. The increase reflected producer development activity across the Partnership's Gas Gathering and Processing Services segment, which contributed to a 20% increase in throughput volumes on the Partnership's Permian Basin assets compared to the same period in 2017.

Liquid Pipelines and Services

Segment gross margin was $10.8 million for the three months ended December 31, 2018, an increase of 11% as compared to the same period in 2017. The Partnership benefited from increased producer activity across the segment, which contributed to an 11% increase in throughput volumes on the Partnership's consolidated assets compared to the same period in 2017. Quarterly cash distributions from unconsolidated affiliates were $3.7 million, a 60% increase compared to the same period in 2017. The increase in distributions was driven by a 43% increase in throughput volumes, primarily attributable to the Partnership's interest in the Cayenne pipeline, which commenced operation in January of 2018.

Natural Gas Transportation Services

Segment gross margin was $8.7 million for the three months ended December 31, 2018, a 39% increase compared to the same period in 2017. The increase was primarily attributable to the acquisition of Trans-Union pipeline in November 2017. Throughput volumes grew 43% compared to the same period in 2017.

Terminalling Services

Segment gross margin was $3.2 million for the three months ended December 31, 2018, a decrease of 54% compared to the same period in 2017. The decrease in gross margin was primarily a result of the sale of the Partnership's Marine Products Terminals, on August 1, 2018, for approximately $210 million and the Partnership's Refined Products Terminals, on December 20, 2018, for approximately $125 million.

Pending Merger

On March 18, 2019, the Partnership announced it had entered into a definitive agreement and plan of merger with an affiliate (the "Purchaser") of ArcLight Energy Partners Fund V, L.P. ("ArcLight"). The Purchaser will acquire, for cash, in a merger transaction, all outstanding common units of the Partnership not already held by affiliates of ArcLight, at a price of $5.25 per common unit.

The merger is expected to close in the second quarter of 2019. The merger is subject to customary closing conditions, including an amendment to the Partnership's credit agreement. The Partnership will not make any cash distributions on its common units or preferred units prior to the closing of the merger.

Upon closing of the merger, the Partnership will be a wholly owned subsidiary of the Purchaser and its common units will cease to be publicly traded.

As a result of the pending merger, the Partnership will not hold a conference call in connection with the issuance of this earnings release.

CAPITAL MANAGEMENT

As of December 31, 2018, the Partnership had approximately $1.0 billion of total debt outstanding, comprising of $515 million outstanding under its revolving credit facility, $425 million in outstanding 8.50% senior unsecured notes and $88 million in outstanding non-recourse senior secured notes. The Partnership had a consolidated total leverage ratio of approximately 5.8 times at December 31, 2018.

For the three months ended December 31, 2018, capital expenditures totaled approximately $24 million, including approximately $6 million of maintenance capital expenditures. For the twelve months ended December 31, 2018, capital expenditures totaled approximately $97 million, including approximately $16 million of maintenance capital expenditures.

Non-GAAP Financial Measures

This press release and the accompanying tables include supplemental non-GAAP financial measures, including "Adjusted EBITDA," "Total Segment Gross Margin," "Operating Margin," and "Distributable Cash Flow." For definitions and required reconciliations of supplemental non-GAAP financial measures to the nearest comparable GAAP financial measures, please read "Note About Non-GAAP Financial Measures" set forth in a later section of this press release.

About American Midstream Partners, LP

American Midstream Partners, LP is a limited partnership formed to provide critical midstream infrastructure that links producers of natural gas, crude oil, NGLs and condensate to end-use markets. American Midstream's assets are strategically located in some of the most prolific offshore and onshore basins in the Permian, Eagle Ford, East Texas, Bakken and Gulf Coast. American Midstream owns or has an ownership interest in approximately 5,100 miles of interstate and intrastate pipelines, as well as ownership in gas processing plants, fractionation facilities, an offshore semisubmersible floating production system with nameplate processing capacity of 90 MBbl/d of crude oil and 220 MMcf/d of natural gas; and terminal sites with approximately 3.0 MMBbls of storage capacity.

For more information about American Midstream Partners, LP, visit: www.americanmidstream.com. The content of our website is not part of this release.

Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. We have used the words "could," "expect," "intend," "may," "will," "would," and similar terms and phrases to identify forward-looking statements in this press release. Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. Many of the factors that will determine these results are beyond our ability to control or predict. These factors include actions by ArcLight, lenders, regulatory agencies, and other third parties, changes in market conditions, and information described in our public disclosure and filings with the SEC, including the risk factors and other information that will be included in our Annual Report on Form 10-K for the year ended 2018. All future written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the previous statements. The forward-looking statements herein speak as of the date of this press release. We undertake no obligation to update such statements for any reason, except as required by law.

Investor Contact
American Midstream Partners, LP
Mark Schuck
Director of Investor Relations
(346) 241-3497
ir@americanmidstream.com

                                                                                                         
              
                American Midstream Partners, LP and Subsidiaries


                                                                                                               
              
                Condensed Consolidated Balance Sheets


                                                                                                                     
              
                (Unaudited, in thousands)




                                                                                                                                                                                  December 31,                            December 31,
                                                                                                                                                                                          2018                     2017




     
                Assets



     Cash and cash equivalents                                                                                                                                                                    $
         9,069                          $
         8,782



     Restricted cash                                                                                                                                                                   30,868                     20,352



     Accounts receivable, net of allowance for doubtful accounts of $591 and $225 as of                                                                                                76,632                     98,132

           December 31, 2018 and December 31, 2017, respectively



     Inventory and other current assets                                                                                                                                                27,422                     26,386




           Total current assets                                                                                                                                                       143,991                    153,652



     Property, plant and equipment, net                                                                                                                                               997,708                  1,095,585



     Goodwill                                                                                                                                                                          51,723                    128,866



     Restricted cash - long term                                                                                                                                                        5,083                      5,045



     Intangible and other assets, net                                                                                                                                                 133,992                    174,010



     Investment in unconsolidated affiliates                                                                                                                                          337,796                    348,434



     Other assets, net                                                                                                                                                                 17,403                     17,874




     Total assets                                                                                                                                                                             $
         1,687,696                      $
         1,923,466




     
                Liabilities, Equity and Partners' Capital





     Total current liabilities (1)                                                                                                                                                              $
         649,892                        $
         137,493



     Asset retirement obligations                                                                                                                                                      67,451                     66,194



     Other long-term liabilities                                                                                                                                                       18,491                      2,080



     Long-term debt                                                                                                                                                                   500,739                  1,201,456



     Deferred tax liability                                                                                                                                                             1,421                      8,123



           Total liabilities                                                                                                                                                        1,237,994                  1,415,346




     Convertible preferred units                                                                                                                                                      324,624                    317,180




     Total Equity and partners' capital                                                                                                                                               125,078                    190,940




     Total liabilities, equity and partners' capital                                                                                                                                          $
         1,687,696                      $
         1,923,466




     
                __________________________



     
                (1)  Total current liabilities include $514.8 million outstanding under the Partnership's revolving credit facility, which matures September


     2019.

                                                                     
       
            American Midstream Partners, LP and Subsidiaries


                                                                     
       
            Condensed Consolidated Statements of Operations


                                                                   
       
           (Unaudited, in thousands, except for per unit amounts)




                                                                                                      Three months ended                               Twelve months ended

                                                                                
              
                December 31,                    
        
                December 31,


                                                                               2018                                          2017                2018                     2017




     Revenues                                                                         $
              176,962                               $
        163,037                           $
        805,354       $
          651,435




     Operating expenses:



          Cost of sales                                                    130,092                                         114,485                         592,040                     457,371



          Direct operating expenses                                         22,082                                          25,437                          87,677                      82,256



          Corporate expenses                                                19,786                                          27,489                          89,706                     112,058



          Termination fee                                                                                                                                 17,000



          Depreciation, amortization and accretion                          20,897                                          24,614                          87,171                     103,448



          Gain on sale of assets, net                                        4,373                                                                       (95,118)                    (4,063)



          Impairment of long-lived assets and intangible assets              1,610                                         116,609                           1,610                     116,609



          Impairment of goodwill                                                                                           77,961                                                     77,961




                Total operating expenses                                   198,840                                         386,595                         780,086                     945,640




     Operating income (loss)                                              (21,878)                                      (223,558)                          25,268                   (294,205)



     Other income (expense), net:



          Interest expense, net of capitalized interest                   (26,576)                                       (15,428)                       (82,410)                   (66,465)



     Other income (expense), net                                               498                                           4,006                             560                      36,254



     Earnings in unconsolidated affiliates                                  34,187                                          13,269                          81,929                      63,050




     Income (loss) from continuing operations before income taxes         (13,769)                                      (221,711)                          25,347                   (261,366)



     Income tax expense                                                      (950)                                          1,376                        (32,995)                    (1,235)




     Income (loss) from continuing operations                             (14,719)                                      (220,335)                         (7,648)                  (262,601)



     Income from discontinued operations, including gain on sale                                                            1,910                                                     44,095




     Net income (loss)                                                    (14,719)                                      (218,425)                         (7,648)                  (218,506)



     Net income attributable to noncontrolling interests                      (33)                                        (1,087)                          (116)                    (4,473)




     Net income (loss) attributable to the Partnership                               $
              (14,752)                            $
        (219,512)                          $
        (7,764)    $
          (222,979)






     Limited Partners' net income (loss) per common unit:



     Basic and diluted:



     Income (loss) from continuing operations                                          $
              (0.41)                               $
        (4.32)                           $
        (0.75)       $
          (5.70)



     Income from discontinued operations                                                                                     0.03                                                       0.85




     Net income (loss) per common unit                                                 $
              (0.41)                               $
        (4.29)                           $
        (0.75)       $
          (4.85)






     Weighted average number of common units outstanding



     Basic and diluted                                                      53,239                                          52,697                          53,136                      52,043

                                                                  
     
       American Midstream Partners, LP and Subsidiaries


                                                                  
     
       Condensed Consolidated Statements of Cash Flows


                                                                    
     
                (Unaudited, in thousands)




                                                                                                                                       Twelve months ended

                                                                                                                          
            
         December 31,


                                                                                                                              2018                     2017






     Net cash provided by operating activities                                                                                     $
       5,175                          $
      9,620





     Net cash provided by (used in) investing activities                                                                  248,800                            (40,491)





     Net cash used in financing activities                                                                              (243,134)                          (264,180)





     Net decrease in Cash, Cash equivalents, and Restricted cash                                                           10,841                           (295,051)





     
                Cash, cash equivalents and restricted cash



     Beginning of period                                                                                                   34,179                             329,230




     End of period                                                                                                                $
       45,020                         $
      34,179


                                                                                            
              
                American Midstream Partners, LP and Subsidiaries


                                                                                          
     
                Reconciliation of Net income (loss) attributable to the Partnership to


                                                                                              
              
                Adjusted EBITDA and Distributable Cash Flow


                                                                                                       
              
                (Unaudited, in thousands)




                                                                                                                                Three months ended                                                   Twelve months ended

                                                                                                           
              
                December 31,                                          
         
             December 31,


                                                                                                   2018                                             2017                      2018                                       2017




     
                Reconciliation of Net loss attributable to the Partnership to Adjusted


     
                EBITDA and DCF:



     
                Net loss attributable to the Partnership                                               $
              
                (14,752)                                        $
          
         (219,512)                    $
        
         (7,764)    $
         
        (222,979)




     Depreciation, amortization and accretion                                                   20,897                                                       24,593                                              87,171                     102,766



     Interest expense, net of capitalized interest                                              26,576                                                       15,428                                              82,410                      66,465



     Amortization of deferred financing costs                                                  (2,343)                                                     (1,507)                                            (7,485)                    (5,117)



     Gain on extinguishment of debt                                                                                                                                                                                                      (1,870)



     Debt issuance costs paid                                                                    2,276                                                        3,470                                               6,977                       5,705



     Unrealized loss (gain) on commodity derivatives, net                                        (350)                                                       (498)                                                  2



     Non-cash equity compensation expense                                                        1,112                                                        1,965                                               4,641                       8,032



     Transaction expenses                                                                        5,869                                                       11,705                                              28,791                      42,860



     Termination fee                                                                                                                                                                                           17,000



     Income tax expense                                                                            950                                                      (1,376)                                             32,995                       1,235



     Impairment of long-lived assets and intangible assets                                       1,610                                                      116,609                                               1,610                     116,609



     Impairment of goodwill                                                                                                                                 77,961                                                                         77,961



     Discontinued operations                                                                                                                                 (965)                                                                      (37,212)



     Distributions from unconsolidated affiliates                                               33,453                                                       31,870                                              97,713                      90,846



     General Partner contribution                                                                                                                                                                              17,732                      34,614



     Earnings in unconsolidated affiliates                                                    (34,187)                                                    (13,269)                                           (81,929)                   (63,050)



     Other income                                                                                  257                                                        (153)                                              (132)                      (409)



     (Gain) loss on sale of assets, net                                                          4,373                                                                                                        (95,118)                    (4,063)



     Gain on revaluation of equity interest                                                                                                                (3,616)                                                                      (35,999)




     
                                     Adjusted EBITDA                                                     $
              
                45,741                                           $
         
           42,705                     $
        
         184,614     $
        
           176,394






     Interest expense, net of capitalized interest                                            (26,576)                                                    (15,428)                                           (82,410)                   (66,465)



     Amortization of deferred financing costs                                                    2,343                                                        1,507                                               7,485                       5,117



     Unrealized (loss) gain on interest rate swaps                                               7,277                                                      (2,897)                                              1,154                     (1,109)



     Gain on extinguishment of debt                                                                                                                                                                                                        1,870



     Letter of credit fees                                                                                                                                     307                                                  21                         517



     Maintenance capital                                                                       (6,339)                                                     (2,322)                                           (15,970)                    (8,892)



     Preferred unit distributions                                                                                                                                                                            (25,061)                   (16,311)




     
                                  Distributable cash flow                                                $
              
                22,446                                           $
         
           23,872                      $
        
         69,833      $
        
           91,121




                                                                             
        
                American Midstream Partners, LP and Subsidiaries


                                                                         
     
       Reconciliation of Total Gross Margin to Net loss attributable to the Partnership


                                                                                   
              
                (Unaudited, in thousands)




                                                                                                                            Three months ended                                         Twelve months ended

                                                                                                      
              
                December 31,                             
         
                December 31,


                                                                                                     2018                                2017                   2018                                      2017




     
                Total Segment Gross Margin                                                                 $
              80,172                                         $
         56,690                           $
         285,480     $
          244,854



     Direct operating expenses                                                                  (21,297)                                       (21,047)                                 (78,012)                    (70,385)




     
                Operating margin                                                                58,875                                          35,643                                   207,468                      174,469





     Gains (losses) on commodity derivatives, net                                                  2,566                                            (86)                                    2,036                        (119)



     Corporate expenses                                                                         (19,784)                                       (27,488)                                 (89,706)                   (112,058)



     Termination fee                                                                                                                                                                    (17,000)



     Depreciation, amortization and accretion                                                   (20,897)                                       (24,615)                                 (87,171)                   (103,448)



     Gain (loss) on sale of assets, net                                                          (4,373)                                                                                  95,118                        4,063



     Impairment of long-lived assets and intangible assets                                       (1,610)                                      (116,609)                                   (1,610)                   (116,609)



     Impairment of goodwill                                                                                                                    (77,961)                                                             (77,961)



     Interest expense, net of capitalized interest                                              (26,576)                                       (15,428)                                 (82,410)                    (66,465)



     Other income, net                                                                               498                                           4,005                                       560                       36,254



     Other, net                                                                                  (2,468)                                            829                                   (1,938)                         508



     Income tax expense                                                                            (950)                                          1,375                                  (32,995)                     (1,235)



     Income (loss) from discontinued operations, including gain on sale                                                                           1,910                                                                44,095



     Net income attributable to noncontrolling interest                                             (33)                                        (1,087)                                    (116)                     (4,473)




     
                Net income (loss) attributable to the Partnership                                        $
              (14,752)                                     $
         (219,512)                          $
         (7,764)    $
        (222,979)


                                                                                  
         
             American Midstream Partners, LP and Subsidiaries


                                                                                      
        
                Segment Financial and Operating Data


                                                                                
       
         (Unaudited, in thousands, except for operating and pricing data)




                                                                                                                            Three months ended                        Twelve months ended

                                                                                                                            December 31,                            December 31,


                                                                                                         2018                            2017              2018                           2017




     
                Segment Financial and Operating Data:





     
                
                  Offshore Pipelines and Services Segment



     Financial data:



               Segment gross margin                                                                            $
              45,636                              $
       22,871                    $
      134,106  $
       103,970



     Direct operating expenses                                                                         7,373                                      6,988                        30,578               17,040




          Segment operating margin                                                                             $
              38,263                              $
       15,883                    $
      103,528   $
       86,930






     Distributions:



              Destin/Okeanos                                                                                   $
              12,726                              $
       12,000                     $
      46,205   $
       38,667



              Delta House                                                                             17,053                                     17,572                        40,385               43,746




                   Total                                                                                       $
              29,779                              $
       29,572                     $
      86,590   $
       82,413






          Operating data:



               Average throughput (MMcfe/d)                                                            557.2                                      422.8                         498.1                497.1



               Average Destin/Okeanos throughput (MMcf/d)                                            1,038.5                                    1,035.1                       1,029.9              1,094.0



               Average Delta House throughput (MBoe/d)                                                  89.4                                       63.3                          68.7                101.2





     
                
                  Gas Gathering and Processing Services Segment



     Financial data:



     Segment gross margin                                                                                      $
              11,847                              $
       10,946                     $
      51,888   $
       48,053



     Direct operating expenses                                                                         8,246                                      8,028                        28,000               34,040




                     Segment operating margin                                                                   $
              3,601                               $
       2,918                     $
      23,888   $
       14,013




     Operating data:



     Average throughput (MMcf/d)                                                                       176.8                                      192.7                         170.8                202.0





     
                
                  Liquid Pipelines & Services



     Financial data:



               Segment gross margin                                                                            $
              10,771                               $
       9,698                     $
      40,542   $
       39,870



     Direct operating expenses                                                                         2,883                                      5,152                        11,162               13,061




          Segment operating margin                                                                              $
              7,888                               $
       4,546                     $
      29,380   $
       26,809






     Distributions:



              Distributions from unconsolidated affiliates                                                      $
              3,675                               $
       2,298                     $
      11,123    $
       7,334





              Operating data:



                  Average unconsolidated affiliate throughput (MBbls/d)                                128.9                                       90.2                         117.1                 87.7



                  Average other liquid pipelines throughput (MBbls/d)                                   79.5                                       71.6                          76.8                 67.4







     
                
                  Natural Gas Transportation Services Segment



     Financial data:



     Segment gross margin                                                                                       $
              8,746                               $
       6,306                     $
      36,130   $
       23,005



     Direct operating expenses                                                                         2,795                                        883                         8,272                6,244




          Segment operating margin                                                                              $
              5,951                               $
       5,423                     $
      27,858   $
       16,761




     Operating data:



     Average throughput (MMcf/d)                                                                       612.4                                      429.4                         678.9                394.7





     
                
                  Terminalling Services Segment



     Financial data:



     Segment revenue                                                                                            $
              7,414                              $
       16,497                     $
      45,363   $
       54,541



     Cost of sales                                                                                     3,457                                      5,242                        12,885               12,715



     Direct operating expenses                                                                           785                                      4,386                         9,664               11,870




          Segment operating margin                                                                              $
              3,172                               $
       6,869                     $
      22,814   $
       29,956


Note About Non-GAAP Financial Measures

Total segment gross margin, operating margin, Adjusted EBITDA and distributable cash flow are performance measures that are non-GAAP financial measures. Each has important limitations as an analytical tool because they exclude some, but not all, items that affect the most directly comparable GAAP financial measures. Management compensates for the limitations of these non-GAAP measures as analytical tools by reviewing the comparable GAAP measures, understanding the differences between the measures and incorporating these data points into management's decision-making process.

You should not consider total segment gross margin, operating margin, Adjusted EBITDA or distributable cash flow in isolation or as a substitute for, or more meaningful than analysis of, our results as reported under GAAP. Total segment gross margin, operating margin, Adjusted EBITDA or 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.

Adjusted EBITDA is a supplemental non-GAAP financial measure used by our management and 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 flow to make cash distributions to our unitholders and our General Partner; our 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 alternative investment opportunities.

We define Adjusted EBITDA as net income (loss) attributable to the Partnership, plus depreciation, amortization and accretion expense ("DAA") excluding non-controlling interest share of DAA, interest expense, net of capitalized interest excluding , debt issuance costs paid during the period, unrealized gains (losses) on commodity derivatives, non-cash charges such as non-cash equity compensation expense, charges that are unusual such as transaction expenses primarily associated with our acquisitions, income tax expense, distributions from unconsolidated affiliates and General Partner's contribution, less earnings in unconsolidated affiliates, discontinued operations, gains (losses) that are unusual, such as gain on revaluation of equity interest and gain (loss) on sale of assets, net, and other non-recurring items that impact our business, such as construction and operating management agreement income ("COMA") and other post-employment benefits plan net periodic benefit. The GAAP measure most directly comparable to our performance measure Adjusted EBITDA is Net income (loss) attributable to the Partnership.

DCF is a significant performance metric used by us and by external users of the Partnership's 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 the Partnership's unitholders. Using this metric, management and external users of the Partnership's financial statements can quickly compute the coverage ratio of estimated cash flows to planned cash distributions. DCF is also an important financial measure for the Partnership's unitholders since it serves as an indicator of the Partnership's success in providing a cash return on investment. Specifically, this financial measure may indicate to investors whether we are generating cash flow at a level that can sustain or support an increase in the Partnership's quarterly distribution rates. DCF is also a quantitative standard used throughout the investment community with respect to publicly traded partnerships and limited liability companies 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). DCF will not reflect changes in working capital balances.

We define DCF as Adjusted EBITDA, less interest expense, net of capitalized interest excluding realized gain/(loss) on interest rate swaps and letter of credit fees, maintenance capital expenditures, and distributions related to the Series A and Series C convertible preferred units. The GAAP financial measure most comparable to DCF is Net income (loss) attributable to the Partnership.

Segment gross margin and total segment gross margin are metrics that we use to evaluate our performance. These metrics are useful for understanding our operating performance because it measures the operating results of our segments before DD&A and certain expenses that are generally not controllable by our business segment development managers, such as certain operating costs, general and administrative expenses, interest expense and income taxes. Operating margin is useful for similar reasons except that it also includes all direct operating expenses in order to assess the performance of our operating managers.

We define segment gross margin in our Gas Gathering and Processing Services segment as total revenue plus unconsolidated affiliate earnings less unrealized gains or plus unrealized losses on commodity derivatives, construction and operating management agreement income and the cost of natural gas, and NGLs and condensate purchased.

We define segment gross margin in our Liquid Pipelines and Services segment as total revenue plus unconsolidated affiliate earnings less unrealized gains or plus unrealized losses on commodity derivatives and the cost of crude oil purchased in connection with fixed-margin arrangements. Substantially all of our gross margin in this segment is fee-based or fixed-margin, with little to no direct commodity price risk.

We define segment gross margin in our Natural Gas Transportation Services segment as total revenue plus unconsolidated affiliate earnings less the cost of natural gas purchased in connection with fixed-margin arrangements. Substantially all of our gross margin in this segment is fee-based or fixed-margin, with little to no direct commodity price risk.

We define segment gross margin in our Offshore Pipelines and Services segment as total revenue plus unconsolidated affiliate earnings less the cost of natural gas purchased in connection with fixed-margin arrangements. Substantially all of our gross margin in this segment is fee-based or fixed-margin, with little to no direct commodity price risk.

We define segment gross margin in our Terminalling Services segment as total revenue less cost of sales and direct operating expense which includes direct labor, general materials and supplies and direct overhead.

Total segment gross margin is a supplemental non-GAAP financial measure that we use to evaluate our performance. We define total segment gross margin as the sum of the segment gross margins for our Gas Gathering and Processing Services, Liquid Pipelines and Services, Natural Gas Transportation Services, Offshore Pipelines and Services and Terminalling Services segments. The GAAP measure most directly comparable to total segment gross margin is Net Income (Loss) attributable to the Partnership.

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SOURCE American Midstream Partners, LP