Global Partners LP [GLP] Conference call transcript for 2024 q2
2024-08-07 12:03:12
Fiscal: 2024 q2
Operator: Good day, everyone, and welcome to the Global Partners Second Quarter 2024 Financial Results Conference Call. Today's call is being recorded. [Operator Instructions]. With us from Global Partners are President and Chief Executive Officer, Mr. Eric Slifka; Chief Financial Officer, Mr. Gregory Hanson; Chief Operating Officer, Mr. Mark Romaine; and Chief Legal Officer and Secretary, Mr. Sean Geary. At this time, I would like to turn the call over to Mr. Geary for opening remarks. Please go ahead, sir.
Sean Geary: Good morning, everyone. Thank you for joining us. Today's call will include forward-looking statements within the meaning of federal securities laws, including projections and expectations concerning the future financial and operational performance of Global Partners. No assurances can be given that these projections will be obtained or that these expectations will be met. Our assumptions and future performance are subject to a wide range of business risks, uncertainties and factors, which could cause actual results to differ materially as described in our filings with the Securities and Exchange Commission. Global Partners undertakes no obligation to revise or update any forward-looking statements. Now it's my pleasure to turn the call over to our President and Chief Executive Officer, Eric Slifka.
Eric Slifka: Thank you, Sean, and good morning, everyone. The company delivered year-over-year growth across all key profitability metrics in Q2. Our results continue to reinforce the strength of our business model and our integrated portfolio of liquid energy terminals, fueling stations and convenience markets. Looking at our overall performance in Q2, we posted gains in operating income, net income, DCF and adjusted EBITDA driven by strong results in both our Wholesale and GDSO segments. Over the past 9 months, we've invested more than $500 million to significantly expand our Wholesale segment footprint through the strategic acquisition of a combined 29 terminals from Motiva Enterprises and Gulf Oil, more than doubling our storage capacity to 21.4 million barrels. These terminals expand our geographic reach within New England, along the Eastern Seaboard and into Florida, the Gulf Coast and Texas. We have identified numerous opportunities to invest and optimize in these newly acquired terminals. As we've discussed on prior calls, the Motiva transaction is underpinned by a 25-year take-or-pay throughput agreement that includes minimum annual revenue commitment. I also want to highlight GDSO's solid performance. The segment continues to benefit from healthy retail fuel margins and successful merchandising initiatives in our convenience markets. Turning to our distribution. In July, the Board declared a quarterly cash distribution on our common units of $0.72 or $2.88 on an annualized basis. This distribution represents a 6.7% increase over the prior year and is payable on August 14 to unitholders of record as of the close of business on August 8. Let me turn the call over to Greg for the financial review. Greg?
Gregory Hanson: Thank you, Eric, and good morning, everyone. As we review the numbers, please note that unless otherwise noted, all comparisons will be with the second quarter of 2023. Adjusted EBITDA was $121.1 million in the second quarter compared with $90.4 million and net income of $46.1 million compared with $41.4 million in the second quarter of 2023. Distributable cash flow was $73.1 million in the second quarter of '24 compared with $54.8 million in 2023. And adjusted DCF was $74.2 million compared with $53.3 million. LTM distribution coverage as of June 30 was 1.8x or 1.6x after factoring in distribution to our preferred unitholders. Turning to our segment details. GDSO product margin increased $22.4 million in the quarter to $221.5 million. Product margin from gasoline distribution increased $19.4 million to $147.3 million, primarily reflecting higher fuel margins year-over-year. On a cents per gallon basis, fuel margins increased $0.05 to $0.36 in Q2 '24 from $0.31 in Q2 '23. Station operations product margin, which includes convenience store and prepared food sales, sundries and rental income increased $3 million to $74.2 million in the second quarter of 2024, highlighting the continued success of our merchandising efforts. At quarter end, our portfolio of fueling stations and C-store sites totaled 1,595. Additionally, we operate 64 sites under our Spring Partners Retail joint venture. Looking at the Wholesale segment. Second quarter 2024 product margin increased $32.2 million to $91.9 million. Product margin from gasoline and gasoline blendstocks increased $31.4 million to $70.4 million, primarily due to the acquisition of the Motiva terminals in December of '23 and more favorable market conditions in gasoline. Product margin from distillates and other oils increased $0.8 million to $21.5 million, primarily due to more favorable market conditions in distillates, partially offset by less favorable market condition in residual oil. I would also add, as we mentioned in the first quarter earnings call, certain products in our Wholesale segment were negatively impacted by the timing of mark-to-market valuation in the first quarter. Those impacts were fully recovered in the second quarter. Commercial segment product margin decreased $0.6 million to $6.2 million, primarily due to less favorable market conditions. Turning to expenses. Operating expenses increased $19.6 million to $130 million in the second quarter, largely related to the terminal acquisitions from Motiva and Gulf. SG&A expense increased $5.6 million in Q2 '24 to $72.3 million, primarily due to increases in long-term incentive comp, wages and benefits and professional fees. Interest expense increased $13.7 million to $35.5 million in the second quarter of '24, primarily due to the interest expense related to the 8.25% senior notes issued this past January, which were used to facilitate the Motiva acquisition, and higher average balances on our credit facilities as a result of the recent Gulf terminals acquisition. CapEx in the second quarter was $15.6 million, consisting of $8.9 million of maintenance CapEx and $6.7 million of expansion CapEx, primarily related to investments in our gasoline station and terminal businesses. For the full year of 2024, we currently expect maintenance capital expenditures in the range of $50 million to $60 million and expanded capital expenditures, excluding acquisitions, in the range of $60 million to $70 million, relating primarily to our gasoline station and terminal businesses. These current estimates depend in part on the timing of project completion, availability of equipment and workforce, weather and unanticipated events and opportunities requiring additional maintenance or investments. Our balance sheet remains strong at June 30 with leverage as defined in our credit agreement as funded debt to EBITDA at 3.48x, and ample excess capacity in our credit facilities. As of June 30, we had $281.2 million from borrowings outstanding on our working capital revolving credit facility and $200 million outstanding on our revolving credit facility. As I noted on our Q1 call, on April 15, we fully redeemed all the outstanding Series A fixed-to-floating rate cumulative redeemable perpetual preferred units. This transaction was immediately accretive to distributable cash flow and, at current interest rate, is expected to be approximately $0.09 accretive per unit on an annual basis. Turning to our upcoming Investor Relations calendar. Next week, we'll be participating in the Citi 2024 One-on-One Midstream & New Energy Infrastructure Conference. Please contact our IR team if you'd like to schedule a meeting during the conference. Now let me turn the call back to Eric for closing comments.
Eric Slifka: Thanks, Greg. In closing, we began the second half of the year with positive momentum. We look forward to building on our success in the first half of 2024 by continuing to execute our strategic growth objectives and deliver value for our unitholders. With that, Greg, Mark and I would be happy to take your questions. Operator, please open the line for Q&A.
Operator: [Operator Instructions] Our first question comes from the line of Selman Akyol with Stifel.
Selman Akyol: Congratulations on a nice quarter. Wanted to just follow up on your opening comments where you talked about the Wholesale, all the investment that you've done and you tied it up with sort of opportunities to invest. And I wanted to explore that. Can you just maybe explain that a little bit more in the sense of are you seeing more terminals to add? Are you talking about trying to fill in GDSO around terminals that you now have that you didn't previously? Maybe you could just explain that a little bit more.
Eric Slifka: Selman, it's Eric. I would say generally, M&A remains active, both in the terminal business as well as in the retail business. But we bought a lot of terminals relative to our total terminal count here in the last 6 months. And so I think there's a real opportunity to make sure that we're maximizing the value that we can get from each asset that we now have. And there will be some investment there, but it's also how we operate, how we operate differently, and it could be things that are around rail capacity and building out unit trade capacity. It's just about trying to provide flexibility around the existing assets that we have. And so I think there's a real opportunity for us to drive value just through the existing assets as well.
Selman Akyol: Got it. And then also, you talked about increased merchandising efforts. And I'm just wondering, has that rolled through out all your stores? Or should we expect that as an ongoing effort and to see benefits in future quarters as well?
Mark Romaine: Yes. It's Mark. Those efforts are spread across the entire portfolio. They're not new. I mean we have always tried to optimize our merchandising plan, optimize our SKUs, optimize our pricing and introduce new items as things change in the marketplace. So that's an ongoing effort. I think we continue to improve in that area. We continue to see the benefit of that through our execution. So that's something you -- that's an ongoing effort through the entire portfolio, and we'll continue to work away at that.
Selman Akyol: Understood. And then just the last one for me. Any update on your JV down in Houston and potentially more sites coming?
Gregory Hanson: Selman, it’s Greg. Yes, I mean we continue to be encouraged by the JV. And I think it opens up another geography for us on the retail front, especially very large state and one of the largest convenience store markets in the U.S. And yes, I mean we hope to continue to grow that joint venture. As Eric mentioned, the retail M&A market continues to be pretty active. So we can continue to look at all opportunities in that geography to potentially hopefully expand that.
Operator: I will now turn the call back to Mr. Slifka for closing comments.
Eric Slifka: Thanks for joining us this morning. We look forward to keeping you updated on our progress. Thanks so much, everyone.
Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
