Equity

3 Months Ended

Mar. 31, 2020

Equity [Abstract]

Equity

5. Equity

Series A Preferred Units

On May 29, 2018 (the “Closing Date”), we sold 5,769,231 Series A Preferred Units representing limited partner interests in the Partnership (the “Preferred Units”) to an affiliate (“the Purchaser”) for a cash purchase price of $7.54 per Preferred Unit, resulting in gross proceeds of $43.5 million.

The Purchaser is entitled to receive quarterly distributions that represent an annual return of 9.5% on the Preferred Units. Of this 9.5% annual return, we are required to pay at least 2.5% in cash and will have the option to pay the remaining 7.0% in kind (in the form of issuing additional preferred units) for the first twelve quarters after the Closing Date. The Preferred Units rank senior to our common units, and we must pay distributions on the Preferred Units (including any arrearages) before paying distributions on our common units. In addition, the Preferred Units rank senior to the common units with respect to rights upon liquidation.

After the third anniversary of the Closing Date, the Purchaser will have the option to convert the Preferred Units into common units on a one-for-one basis. If certain conditions are met after the third anniversary of the Closing Date, we will have the option to cause the Preferred Units to convert to common units. After the third anniversary of the Closing Date, we will also have the option to redeem the Preferred Units. We may redeem the Preferred Units (a) at any time after the third anniversary of the Closing Date and on or prior to the fourth anniversary of the Closing Date at a redemption price equal to 105% of the issue price, and (b) at any time after the fourth anniversary of the Closing Date at a redemption price equal to 101% of the issue price.

At-the-Market Equity Program

In April 2018, we established an at-the-market equity program (“ATM Program”), which will allow us to offer and sell common units from time to time, to or through the sales agent under the ATM Program, up to an aggregate offering amount of $7 million. We are under no obligation to sell any common units under this program. As of the date of this filing, we have not sold any common units under the ATM Program and, as such, have not received any net proceeds or paid any compensation to the sales agent under the ATM Program.

Employee Unit Purchase Plan

In November 2019, we established an employee unit purchase plan (“EUPP”), which will allow us to offer and sell up to 500,000 common units. Employees can elect to have up to 10 percent of their annual base pay withheld to purchase common units, subject to terms and limitations of the EUPP. The purchase price of the common units is 95% of the volume weighted average of the closing sales prices of our common units on the ten immediately preceding trading days at the end of each offering period. There have been no common unit issuances under the EUPP.

Net (Loss) Income per Unit

Our net (loss) income is attributable and allocable to three ownership groups: (1) our preferred unitholder, (2) the noncontrolling interests in certain subsidiaries, and (3) our common unitholders. Income attributable to our preferred unitholder represents the 9.5% annual return to which the owner of the Preferred Units is entitled. Net (loss) income attributable to noncontrolling interests represents 49% of the (loss) income generated by Brown and 51% of the (loss) income generated by CF Inspection. Net (loss) income attributable to common unitholders represents our remaining net (loss) income, after consideration of amounts attributable to our preferred unitholder and the noncontrolling interests.

Basic net (loss) income per common limited partner unit is calculated as net (loss) income attributable to common unitholders divided by the basic weighted average common units outstanding. Diluted net (loss) income per common limited partner unit includes the net (loss) income attributable to preferred unitholder and the dilutive effect of the potential conversion of the preferred units and the dilutive effect of the unvested equity compensation.

The following table summarizes the calculation of the basic net (loss) income per common limited partner unit for the three months ended March 31, 2020 and 2019:

	Three Months Ended March 31,
	2020			2019
	(in thousands, except per unit data)
Net (loss) income attributable to common unitholders	$	(1,822	)	$	567
Weighted average common units outstanding		12,096			11,971
Basic net (loss) income per common limited partner unit	$	(0.15	)	$	0.05

The following table summarizes the calculation of the diluted net (loss) income per common limited partner unit for the three months ended March 31, 2020 and 2019:

	Three Months Ended March 31,
	2020			2019
	(in thousands, except per unit data)
Net (loss) income attributable to common unitholders	$	(1,822	)	$	567
Weighted average common units outstanding		12,096			11,971
Effect of dilutive securities:
Weighted average preferred units outstanding		—			—
Long-term incentive plan unvested units		—			384
Diluted weighted average common units outstanding		12,096			12,355
Diluted net (loss) income per common limited partner unit	$	(0.15	)	$	0.05

For the three months ended March 31, 2020, the preferred units and long-term incentive plan unvested units would have been antidilutive and, therefore, were not included in the computation of diluted net (loss) income per common limited partner unit. For the three months ended March 31, 2019, the preferred units would have been antidilutive and, therefore, were not included in the computation of diluted net (loss) income per common limited partner unit. 

Cash Distributions

The following table summarizes the cash distributions declared and paid to our common unitholders for 2019 and 2020:

					Total Cash
	Per Unit Cash		Total Cash		Distributions
Payment Date	Distributions		Distributions		to Affiliates (a)
			(in thousands)
February 14, 2019	$	0.21	$	2,510	$	1,606
May 15, 2019		0.21		2,531		1,622
August 14, 2019		0.21		2,534		1,624
November 14, 2019		0.21		2,534		1,627
Total 2019 Distributions	$	0.84	$	10,109	$	6,479
February 14, 2020	$	0.21	$	2,534	$	1,627
May 15, 2020 (b)		0.21		2,562		1,648
Total 2020 Distributions (to date)	$	0.42	$	5,096	$	3,275

(a) 64% of the Partnership’s outstanding common units at March 31, 2020 were held by affiliates.

(b) First quarter 2020 distribution was declared and will be paid in the second quarter of 2020.

The following table summarizes the distributions paid to our preferred unitholder for 2019 and 2020:

	Cash		Paid-in-Kind		Total
Payment Date	Distributions		Distributions		Distributions
			(in thousands)
February 14, 2019	$	1,033	$	—	$	1,033
May 15, 2019		1,033		—		1,033
August 14, 2019		1,033		—		1,033
November 14, 2019		1,034		—		1,034
Total 2019 Distributions	$	4,133	$	—	$	4,133
February 14, 2020	$	1,033	$	—	$	1,033
May 15, 2020 (a)		1,033		—		1,033
Total 2020 Distributions (to date)	$	2,066	$	—	$	2,066

(b) First quarter 2020 distribution was declared and will be paid in the second quarter of 2020.

Long-Term Incentive Plan ("LTIP")

In May 2020, the Board of Directors approved 400,200 phantom units ("Units") to be awarded to employees and directors. Of these Units, 378,600 Units will vest in three equal tranches in April 2023, April 2024, and April 2025, respectively, and 21,600 Units will vest in three equal tranches in April 2021, April 2022, and April 2023, respectively, contingent only on the continued service of the recipients through the vesting dates.

Cypress Brown Integrity, LLC

Brown’s company agreement generally requires Brown to make an annual distribution to its members equal to or greater than the amount of Brown’s taxable income multiplied by the maximum federal income tax rate. In April 2020, Brown declared and paid a distribution of $1.3 million, of which $0.7 million was distributed to us and the remainder of which was distributed to noncontrolling interest owners.