Global Partners Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 9, 2023

There are 6 speakers on the call.

Operator

Good day, everyone, and welcome to the Global Partners Third Quarter 2023 Financial Results Conference Call. Today's call is being recorded. There will be an opportunity for questions at the end of the call. A brief question and answer session will follow the formal presentation. With us from Global Partners are President and Chief Executive Officer, Mr.

Operator

Eric Slifka, Chief Financial Officer Mr. Gregory Hansen, Chief Operating Officer Mr. Mark Romain and Chief Legal Officer, Mr. Sean Geary. At this time, I'd like to turn the call over to Mr.

Operator

Gere for opening remarks. Please go ahead, sir.

Speaker 1

Good morning, everyone. Thank you for joining us. Today's call will include forward looking statements within the meaning of federal securities laws. These statements include projections, expectations and It's concerning the future financial and operational performance of Global Partners, which are based on assumptions regarding market conditions, Demand for liquid energy products and convenience store products, the regulatory and permitting environment, the forward product pricing curve and other factors which Could influence our financial results. We believe these assumptions are reasonable given currently available information.

Speaker 1

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, which could cause actual results to differ materially from the partnership's historical experience and present expectations or projections. Global Partners undertakes no obligation to revise or update any forward looking statements. Any material comments concerning future results of operations will be Now it's my pleasure to turn the call over to our President and Chief Executive Officer, Eric Slifka.

Speaker 2

Thank you, Sean, and good morning, everyone. Let me begin with what we consider to be a transformational deal for Global, our definitive agreement to acquire 25 refined product terminals From Motiva Enterprises for $305,800,000 To put this acquisition in context, Today, we own or lease 24 bulk terminals, primarily in the Northeast, with a combined storage capacity of approximately 9,900,000 barrels. The addition of the Motiva terminals diversifies our terminaling operations into new geographies along the Atlantic Coast, In the Southeastern U. S. And in Texas, providing platforms for growth in supply, Wholesale, Commercial and Retail.

Speaker 2

In all, we will be adding approximately 8,400,000 barrels Of shell capacity for products including gasoline, ultra low sulfur diesel and ethanol. The terminal portfolio is well maintained and strategically located with direct connections to critical, highly utilized U. S. Refined product infrastructure, including the Colonial Plantation, Enterprise, Xplora and Magellan pipelines. The transaction is underpinned by a 25 year take or pay throughput agreement with Motiva.

Speaker 2

Let me provide a brief overview of the assets we're acquiring. The Atlantic Coast assets consist of 10 bulk terminals in Maryland, Virginia, North Carolina and South Carolina with a combined storage capacity of approximately 3,400,000 barrels. The Southeast assets consist of 8 bulk terminals in Florida and Georgia with a combined storage capacity of about 3,400,000 barrels. The Texas assets consist of 7 bulk terminals with a combined storage capacity of approximately 1,600,000 barrels. Upon closing, our storage capacity will be 18,300,000 barrels, an increase approximately of 85% from our capacity As of September 30.

Speaker 2

This transaction aligns with our strategy to acquire, Invest in and optimize assets that drive operating synergies. The terminals we are acquiring provide Critical midstream infrastructure with the flexibility to serve customers through multiple modes, including ship, barge, Pipeline, Rail and Truck. In addition, we gained further operational capacity for our own volumes as we continue to grow. We expect the Motiva transaction to close by the end of this year subject to customary closing conditions, including regulatory approvals. We look forward to optimizing and developing these terminal assets to their full potential.

Speaker 2

I also want to touch on our planned acquisition of 5 Gulf Oil refined product terminals in Maine, Massachusetts, Connecticut and New Jersey. We continue to diligently work through the regulatory review process and remain hopeful that we will be able to complete the acquisition this year. Turning to Q3. The global team delivered solid results in the quarter, which was in line with our expectations In a more normalized market compared with last year. We continue to deliver value across the midstream and downstream liquid energy markets, Providing customers with essential products and services through our integrated fuel storage, distribution and retail assets.

Speaker 2

As part of our alternative fuel strategy, we recently activated our 1st company owned electric vehicle charging stations. The DC fast charging stations are located at our Extra Mart convenience fueling station in Worcester, Massachusetts and at our newly opened All Town Fresh Kitchen and Marketplace in Fort Edward, New York. While the new charging stations Are the first owned by Global, they are not the first in our portfolio. We operate 2 EV charging station sites With charges owned by a 3rd party and have 5 more sites under construction. We continue to focus on contributing to state and regional energy initiatives.

Speaker 2

Given the scale of our GDSO business, we believe we are well positioned to play an integral role in the transition to alternative energy sources, Providing a range of multi fueling options for consumers. Turning to our distribution. In July, the Board approved a quarterly cash distribution of $68.50 or $2.74 on an annualized basis on all outstanding common units. The distribution will be paid on November 14 to unitholders of record as of the close of business on November 8, 2023. This marks the 8th consecutive quarter in which the Board has increased the cash distribution.

Speaker 2

With that, now let me turn the Call over to Greg for his financial review. Greg?

Speaker 3

Thank you, Everett, and good morning, everyone. As we noted this morning's earnings release, Our Q3 year over year comparison is somewhat challenging. With more normalized market conditions in the Q3 of this year compared to the record results We achieved in the Q3 of 2022 due to the strong backwardation in commodity market volatility that benefited the performance in that period. That said, and as Eric noted, we are pleased with our Q3 of 2023 results, which were in line with our expectations. For the Q3 of 2023, adjusted EBITDA was $77,700,000 compared with $168,500,000 in 2022.

Speaker 3

Net income for the Q3 was $26,800,000 compared with $111,400,000 in 2022 and DCF was $42,200,000 in the 3rd quarter Compared with $128,000,000 in 2022. Adjusted DCF, a new metric commencing this quarter was $43,300,000 In the Q3 of 2023 versus $128,000,000 in 2022, adjusted EBITDA and adjusted DCF includes our proportionate share EBITDA and DCF related to our 49.99 percent interest in our Spring Retails joint venture that we closed on this past June. Please note that adjusted DCF is not used in our partnership agreement to determine our ability to make cash distributions and may be higher or lower than DCF as calculated under our partnership agreement. Adjusted DCF is presented solely to provide investors an enhanced perspective of our financial performance. GTM distribution coverage as of September 30, 23, including the Q4, 2022 special distribution It was 1.5 times or 1.4 times after factoring distribution to our preferred unitholders.

Speaker 3

Turning to our segment details, GDSO product margin was down $55,100,000 in the quarter to $206,500,000 Product margin from gasoline distribution decreased $56,000,000 to $132,000,000 primarily due to lower fuel margins in Q3 2023 Compared to Q3 2022. On a $0.01 per gallon basis, fuel margins declined to $0.31 from $0.44 in last year's Q3. We experienced uniquely strong fuel margin in Q3 2022 with wholesale gasoline prices declining $1.18 from sixthirtytwenty22 to 930, 2022. In comparison, this year's Q3 wholesale gasoline prices declined $0.19 Station operations product margin, which includes convenience store and prepared food sales, sundries and rental income increased $900,000 to $74,500,000 in Q3 23, in part due to our September 2022 acquisition of Tidewater Convenience. GDSO product margins both from gasoline distribution station operations We're negatively impacted for the quarter due to excessive rain with the Northeast experiencing its 3rd wettest summer since record keeping began 129 years ago for the National Oceanic and Atmospheric Administration, which includes consumer demand for gasoline and C store products and sundries, such as car wash sales.

Speaker 3

At the end of the Q3, our GDSO portfolio consisted of 16 24 sites, comprised of 3 42 company operated sites, 300 commission agents, 184 VC dealers and 798 contract dealers. In addition, we operate 64 sites on behalf of our Spring Partners retail joint venture. Looking at the wholesale segment, 3rd quarter 2023 product margin decreased $42,100,000 to $37,200,000 primarily due to less favorable market conditions in gasoline, distillates and residual oil. Gasoline and gasoline blend stock product margin decreased 33,800,000 to $20,400,000 for the quarter and product margin from distillates and other oils decreased $8,300,000 to 16.8 Our commercial segment product margin decreased $2,000,000 to $8,400,000 primarily due to less favorable market conditions in bunkering. Looking at expenses, operating expenses decreased $3,600,000 to $115,900,000 in Q3 of 2023, Primarily in our GDSO segment, including a decrease in our environmental expenses due to additional reserve we booked in the Q3 of 2022 And lower rent expense offset by an increase in salary expense.

Speaker 3

SG and A expense decreased $1,600,000 in the Q3 of 2023 to $63,500,000 including a decrease in accrued discretionary incentive comp, partially offset by increases in acquisition costs and wages and benefits. Interest expense was $21,100,000 in Q3 of 2023 versus $19,000,000 in 2022, due in part to higher average balances on our credit facilities and higher interest rates. CapEx in the Q3 was $17,400,000 consisting of $12,200,000 of maintenance CapEx and $5,200,000 of expansion CapEx, primarily related to investments in our gasoline station business. Through the 1st 9 months of the year, we had $35,400,000 in maintenance CapEx And $19,300,000 in expansion CapEx. For the full year of 2023, we continue to expect maintenance capital expenditures in the range of $50,000,000 to 60,000,000 Based on our anticipated projects through the end of the year, primarily related to investments in our gasoline stations, we are revising our planned expansion CapEx from 2023 To a range of $35,000,000 to $45,000,000 from our previous expectations of $55,000,000 to $65,000,000 These current estimates depend in part on the timing of completion of projects, Availability of equipment and workforce, weather and unanticipated events or opportunities requiring additional maintenance or investments.

Speaker 3

Our balance sheet remains strong at 9:30 with leverage, which is defined in our credit agreement as funded debt to EBITDA of approximately 2.37 times at And we continue to have ample excess capacity in our credit facilities. As of September 30, 23, total borrowings Outstanding our credit agreement were $154,700,000 This consisted of $65,700,000 of borrowings outstanding under our 9 $50,000,000 working capital revolving credit facility $89,000,000 outstanding under our $600,000,000 revolving credit facility. Now let me provide some additional color on the announced transaction with Motiva. As Eric noted, we are acquiring 25 refined product terminals across the Atlantic Coast, Southeastern United States and Texas for a purchase price of $305,800,000 in cash. We expect to finance the acquisition under our bank facilities.

Speaker 3

On a pro form a basis, including the Motiva and Gulf transactions, we expect that levers as defined in our credit agreement will be within our long term target of 4 times. In addition, excluding 1st year transition related expenses, we expect the acquisition to be accretive in the 1st full year of operations. Looking at our upcoming Investor Relations calendar, next month we will be participating in the 2023 Wells Fargo Midstream and Utilities Conference in New York City. For those of you who are participating, we look forward to meeting with you. Now let me turn the call back to Eric for closing comments.

Speaker 3

Eric?

Speaker 2

Thank you, Greg. Looking ahead, we remain focused on our initiatives to drive growth through strategic M and A, asset optimization and balanced Capital allocation, creating long term value for our unitholders. Refined product demand in the U. S. Remains stable.

Speaker 2

We believe that our acquisition of the Motiva Terminals is a transformational deal for Global, one that builds on our reputation As a leading provider of critical midstream infrastructure. Now Greg, Mark and I will be happy to take your questions. Operator?

Operator

Thank you. We will now be conducting a question and answer session. One moment please while we poll for questions. Our first question comes from Selman Akyol with Stifel. Please proceed with your question.

Speaker 4

Hey, guys. Good morning. This is Tim on for Selman. Congrats on the terminal acquisition. Just wanted to To start off with that, I'm just wondering if you could expand a little bit on the opportunities and synergies and growth specs you see with this enhanced terminal footprint, and as well as how it may be relates to your ExxonMobil JV

Speaker 2

So I think we've a couple of us will Handle those questions. This is Eric. First, look, this is a deal that is banked That is backed by Motiva as an anchor tenant. And in a way, we look at that as sort of Hedging our bets here, because as an anchor tenant, they're providing a material source of revenue for the transaction. And then from there, obviously, we're in the terminalling business throughout the Northeast.

Speaker 2

I'd say historically, Tim, we started really in the retail heating oil business. We went into the wholesale heating oil business And then we bought terminals. This story is a little bit similar, maybe not in every market, but We are in many of the markets in the wholesale business. These are now taking assets and putting those assets Behind it, and we think it's going to put us in a position to expand that business as well as Potentially being more competitive on any retail acquisitions. We also think there's an opportunity around supply For these assets as well.

Speaker 2

And so it's really taking that vertically integrated business model That we've successfully deployed throughout the Northeast and now moving it down the coast into Florida as well as into Texas And really leveraging our physical position in these markets. Mark, I don't know if you have anything else that you want to add.

Speaker 5

Yes. The only one thing I would add to that is these assets, they've been owned by Motiva and run Successfully and for many years and they're very well maintained. That being said, I think we expect to find some opportunities Invest in these terminals and to optimize these assets. So that's the only thing I would add to that along with All of the strategic benefits and synergies that Eric highlighted.

Speaker 2

Yes. And look, you also asked a question around ExxonMobil and how does this play into that. This is a deal where we own the assets. Look, we're going to Try to provide the best value for all of our partners here. And so if there is a way to provide value To our JV, we're going to try to work with our partner to in fact do that, right.

Speaker 4

Understood. Sounds like a good set of opportunities out of you guys. And then just switching to the Gulf Acquisitions, just wondering what's the next, kind of thing to tackle To get the acquisition closed by year end.

Speaker 3

Yes. I mean, Sam, we continue to work with the regulatory agents, FTC in a diligent manner, and it's really all we're going to comment on.

Speaker 4

Got it. And then the last one for me. So obviously, you guys recently put a couple EV charging stations that you guys own into service and seems like a couple more on the way. Just wondering what kind of drove the rationale for you guys to own them? And then ultimately, if you'd like to expand this even further beyond what you have going on now?

Speaker 5

Yes. Tim, we've tried to lean into that space to the extent that we can. We realize that Energy transition will be coming at us. We're trying to stay at the forefront, in some cases lead. And it's not limited to EVs.

Speaker 5

We are handling volumes of renewable diesel today. I would say, one of the first In the market to be handling those volumes, we continue to invest in things like biodiesel blending. But on the EV front, We're trying to formulate our strategy. We're trying to take advantage of the incentives and funding And put that to work along with our own capital and really, like I said, lean in and learn how this works and watch it And continue to shape the strategy. So it's really an evolution, but it is something that we're spending A fair amount of time on and we're trying to invest where we can.

Speaker 2

Yes. And look, the goal is to make sure that we're financially disciplined, Right. And so part of what we're doing is working with the states and the local towns and the federal government To really put their dollars to work to make the transition happen quicker. And so it gives us a chance of having better returns and it lowers our risk.

Speaker 4

Understood. Thank you guys so much for the time.

Operator

There are no further questions at this time. I would now like to turn the floor back over to Mr. Spooka for closing comments.

Speaker 2

Thank you for joining us this morning. We look forward to

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Key Takeaways

  • Transformational acquisition: Global Partners signed a definitive agreement to acquire 25 refined-product terminals from Motiva for $305.8 million, adding 8.4 million barrels of capacity across the Atlantic Coast, Southeast and Texas under a 25-year take-or-pay agreement, with closing expected by year-end.
  • Q3 normalized results: Adjusted EBITDA was $77.7 million (vs. $168.5 million in Q3 2022) and net income totaled $26.8 million (vs. $111.4 million), reflecting more normalized market conditions after last year’s record backwardation.
  • Distribution growth: The board approved a quarterly cash distribution of $0.68 per common unit ($2.74 annualized), marking the eighth consecutive quarter of increases, payable November 14 to unitholders of record as of November 8.
  • Alternative fuels push: Global activated its first company-owned DC fast electric-vehicle charging stations and operates additional third-party sites, positioning itself for the energy transition alongside renewable and biodiesel blending investments.
  • Gulf Oil terminals pending: The planned acquisition of five refined-product terminals in Maine, Massachusetts, Connecticut and New Jersey is under regulatory review, with Global hopeful of closing the deal this year.
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Earnings Conference Call
Global Partners Q3 2023
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