Global Partners LP [GLP] Conference call transcript for 2022 q3
2022-11-04 11:24:16
Fiscal: 2022 q3
Operator: Good day, everyone and welcome to the Global Partners Third Quarter 2022 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'd 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. Before we begin, let me remind everyone that this morning's call will include forward-looking statements within the meaning of federal securities laws. These statements include projections, expectations and estimates concerning the future financial and operational performance of Global Partners. These forward-looking statements are based on assumptions regarding market conditions, business cycles, demand for liquid energy products and convenience store products, utilization of our assets and facilities, the regulatory and permitting the environment, the forward product pricing curve and other factors, which could influence our financial results. These statements involve significant risks and uncertainties, some of which are beyond the partnership's control, including without limitation, the impact and duration of COVID-19, and its impact on our counterparties, our customers and our operations, and other assumptions that could cause actual results to differ materially from the partnership's historical experience and present expectations or projections. We believe these assumptions are reasonable given currently available information. Our assumptions and future performance are subject to a wide range of business risks, uncertainties and factors, which are described in our filings with the Securities and Exchange Commission. Global Partners undertakes no obligation to revise or publicly release the results of our -- any revision to any forward-looking statements that may be made during today's conference call. With Regulation FD in effect, it is our policy that any material comments concerning future results of operations will be communicated through news releases, publicly announced conference calls or other means that will constitute public disclosure for the purposes of Regulation FD. Now it's my pleasure to turn the call over to our President and Chief Executive Officer Eric Slifka.
Eric Slifka: Thank you, Shauna. Good morning, everyone. We reported a strong third quarter with year-over-year growth in each segment of our business. Our performance is underpinned by solid financial and operational execution. As we've discussed many times on these calls, we have great storage terminaling and retail assets. And we've done an outstanding job integrating acquired sites into our portfolio. Our ability to successfully integrate these new sites into our network has enabled us to capture economies of scale and leverage our buying power to drive increased contribution from our GDSO segments. The segment continue to perform well in Q3 reflecting increased activity at our convenience stores as a result of our recent acquisitions, and higher retail few margins year-over-year. In our wholesale segment, we continue to effectively manage our fuel inventory, amid sustained backwardation in the gasoline and distillate markets. Our commercial segment -- sorry, year-over-year increase in bunkering activity in an area that has been very strong throughout 2022. On the M&A Front during the third quarter we expanded our GDSO footprint in the mid-Atlantic, with the acquisition of Tidewater Convenience, and its portfolio of 15 retail fuel and convenience store locations in Virginia. Our retail site count in Virginia has increased nearly sevenfold in the past year from 13 locations at the end of Q3 last year to 89 at the same point in 2022. The M&A pipeline remains very active across all years of our business, and we continue to evaluate potential opportunities that align with our strategic growth objectives. We continue to expand our efforts around renewable fuels. In September, we announced the received regulatory approval to increase storage capacity and to translate up to 1.8 billion gallons in the aggregate of renewable diesel, renewable feedstocks and ethanol at our CPBR terminal in Oregon. Our permits allow additional tickets and pipeline infrastructure, with the potential to provide more than 600,000 barrels of storage capacity at the terminal. Product flexibility, combined with its rail and deepwater access, enabled CPBR to serve as a renewable fuels hub for existing and emerging low carbon markets. We continue to employ our EV strategy of evaluating multiple ownership and or host site host opportunities. Earlier this year, we received additional funding from the Mass Department of Environmental Protection under the Mass Electric Vehicle Infrastructure Program to install direct current fast charging and four of our retail stores. In all of our operating states, we are actively involved in conversations regarding the national even deployment. Turning to our distribution in October, the board voted to increase quarterly distribution on our common units by $0.02 per unit to $0.6250 per unit or $2.50 per unit on an annualized basis. The distribution will be paid on November 14 for unit holders of record as of the close of business on November 8. Now let me turn the call over to Greg for the financial review. Greg.
Gregory Hanson: Thank you, Eric. Good morning, everyone. Across all the key performance metrics, Q3 was another strong quarter for Global. Net income for the third quarter was $101.4 million compared with $33.6 million for the same period in 2021. Adjusted EBITDA was $168.5 million versus $79.2 million for the year earlier period, and DCF increased to $128 million for $49.7 million for the third quarter of 2021. GCM distribution coverage as of September 30, was 4.5 times or 4.3 times after factoring in distributions to our preferred unit holders. Excluding the net gain on the sale of assets primarily related to the sale of our Revere Terminal in June, GCM distribution coverage was 3.5 times or 3.4 times after factoring in distributions to our preferred unit holders. Turning to our segment details. GDSO product margin was up $83.9 million the quarter to $261.6. The gasoline distribution contribution to product margin was up $75.6 million to $188 million primarily due to higher fuel markets and an increase in volume sold due to our recent acquisitions. Fuel margin increased $0.17 per gallon to $0.44 from $0.27 in last year's third quarter. Contributor to the fuel margin performance was the large $1.18 per gallon declined and NYMEX wholesale gasoline prices during the three months ended September 30 versus an increase of $0.01 per gallon during the same period last year. Station operations product margin which includes convenience store and prepared food sales, sundries and rental income, contributed $73.6 million, up $8.3 million from the third quarter of 2021, reflecting the increase in activity at our convenience stores and the contribution from recent acquisitions. At the end of the third quarter, our GDSO portfolio consisted of 1,684 sites, comprised of 356 company-operated sites, 293 commissioned agents, 196 leasing dealers, and 839 contract dealers. Looking at the wholesale segments third quarter '22 product margin was $79.3 million, up $37 million from the same period in 2021. Gasoline and gasoline bloodstock product margin increased $31.7 million to $54.2 million, primarily due to more favorable market conditions in gasoline. Product margin from other oils and related products, which includes distillate and residual oil increased $3.1 million to $25.7 million, primarily due to more favorable market conditions and distillate. Product market from crude oil was negative $0.6 million in the third quarter, up $2.2 million from negative $2.8 million in the same quarter a year ago, primarily due to the expiration of a pipeline connection agreement in August of last year. As Eric mentioned, in the third quarter, we saw the continuation of backwardation in the forward product pricing curves. Backwardation exists when contracts for the near term delivery of commodities are priced higher than those for longer term delivery. Due to the steep backwardation, we've seen an increase in the cost of carrying or head inventory and expect this cost at some point in the future offset a portion of the increased wholesale segment product margin we experienced in third quarter. Turning to the commercial segment, product margin increased $6.5 million year-over-year to $10.4 million largely due to our bunkering business. Looking at expenses, operating expense increased $27.4 million in the quarter to $119.5 million primarily in our GDSO segment, including our recent acquisitions due in part to increase credit card fees related to the increases in volume and price, higher salary expense, higher rent expense and an increase in our environmental reserve. SG&A expense increased $10.4 million to $65.1 million in the third quarter due to increased accrued incentive comp, wages and benefits and various other expenses. The increase was partially offset by $3.1 million expense incurred in the third quarter of 2021 for compensation resulting in the retirement of our former CFO in recognition of service. Interest expense for the quarter decreased to $19 million, compared with $19.7 million in the year earlier period, as significant cash flow generation in the quarter reduced our average working capital facility outstandings compared with the same period in 2021, offsetting the increase in interest rates. CapEx in the third quarter was approximately $23.4 million consisting of $10.5 million in maintenance CapEx and $12.9 million of expansion CapEx, the majority of which relate to our investments in our gasoline stations and C-stores. For the first nine months of 2022, we have maintenance CapEx of $27.8 million and expansion CapEx of $38 million excluding acquisition. For the full year, we continue to expect maintenance capital expenditures of approximately $45 million to $55 million and expansion capital expenditures excluding acquisitions of approximately $50 million to $6 million relating primarily to investments in our gasoline stations. Our balance sheet continues to be strong with leverage which is defined in our credit agreement as funded debt to EBITDA at approximately 1.87 times at the end of the third quarter. We continue to have ample excess capacity in our credit facilities. As of September 30, we had total borrowings outstanding under the credit agreement of $99 million. This consists of zero borrowings under our $1.1 billion working capital revolving credit facility, and $99 million under our $450 million revolving credit facility. Looking ahead on our Investor Relations calendar this month, we'll be hosting one-on-one meetings at the RBC Capital Markets Midstream and Energy Infrastructure Conference, and in December, we will be participating in the Wells Fargo Securities Midstream and Utilities Conference. If you're participating in these conferences, we look forward to meeting with you. Now let me turn the call back to Eric for closing comments, Eric.
Eric Slifka: Thanks, Greg. We have executed well through the first nine months of the year, and begin the final quarter of 2022 with strong operational and financial momentum. While economic uncertainty associated with the inflationary environment merits a level of caution, we remain focused on leveraging our supply marketing and terminailng assets to drive profitable growth across our businesses. Now, Greg, Mark and I will be happy to take your questions, operator.
Q - Selman Akyol : Thank you. Congratulations on another nice quarter. So you've had really two exceptional quarters back-to-back. You guys have benefited from favorable pricing. Clearly [indiscernible] declined through the quarter, gave you an uplift. And I'm just kind of wondering, how are you thinking about that? And I'm looking at your balance sheet. And, do you see your business operating with permanently less debt because of all the gains you've had? It is it enables you to be able to go out and do more on the acquisition front, and so then you're able to turn it into recurring revenue on a go forward basis by investing in GDSO and terminals. Or maybe you can just kind of help me understand how you view it and maybe what the strategy is going forward?
Operator: [Operator Instructions] Thank you, Mr. Slifka, I will turn the floor back over to you for closing comments.
Eric Slifka: Thank you for joining us this morning. We look forward to keeping you updated on our progress. Thanks, everybody, for your interest in the company.
Gregory Hanson: Thank you.
Operator: Ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
