Global Partners Q1 2023 Earnings Call Transcript

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May 5, 2023

Key Takeaways

  • Our GDSO segment delivered a 6.1% increase in product margin in Q1 2023, helping offset the impact of unseasonably warm weather on distillates and other products.
  • In March, we signed a joint venture agreement with ExxonMobil to acquire 64 convenience and fueling facilities in the greater Houston area, expected to close in Q2 2023 and expand our Texas footprint.
  • Global reported Q1 2023 adjusted EBITDA of $76 million and DCF of $46.3 million, with 3.3× distribution coverage (or 2.7× excluding one-time gains), supporting a quarterly cash distribution of $0.65 per unit.
  • We amended our credit agreement to extend the $1.55 billion facility maturity to May 2026, maintaining ample liquidity with leverage at ~1.75× funded debt to EBITDA.
  • Wholesale product margin rose $6 million overall but distillate and residual oil margins fell by $16.7 million year-over-year due to 60% warmer-than-normal temperatures in Q1 2023.
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Earnings Conference Call
Global Partners Q1 2023
00:00 / 00:00

There are 5 speakers on the call.

Operator

Good day, everyone, and welcome to the Global Partners First 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. With us from Global Partners are President and Chief Executive Officer, Mr. Eric Slifka Chief Financial Officer, Mr.

Operator

Gregory Hansen Chief Operating Officer, Mr. Mark Romain and Chief Legal Officer, Mr. Sean Geary. At this time, I would like I'll turn the call over to Mr. Gere for opening remarks.

Operator

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 estimates 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 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 And which could cause actual results to differ materially from the partnership's historical experience and present expectations or projections. Gold Partners undertakes no obligation to revise or update any forward looking statements. Any material comments concerning future results or operations It will be communicated through news releases, publicly announced conference calls or other means that will constitute public disclosure for the purposes of Regulation FD. It's now my pleasure to turn the call over to our President and Chief Executive Officer, Eric Zyska.

Speaker 2

Thank you, Sean, and good morning, everyone. Let me begin by thanking the entire global team for propelling us to a solid start in fiscal 2023. Our performance reflects the great work being done across our liquid energy terminal network and convenient markets every day to deliver quality products And superior service to our customers and guests. Q1 was another strong quarter for our GDSO segment, Which posted a 6.1% higher product margin. This increase helped more than offset the effects of warmer than normal temperatures on distillates And other weather related weather sensitive products.

Speaker 2

Our results speak to the diversification of our business model, Which serves us extremely well in what is frequently a dynamic weather environment. On our year end call, I spoke with you about 3 acquisitions we completed in These transactions have strengthened the earnings power of our GDSO portfolio, adding more than 60 company operated In March, We signed a joint venture agreement to invest alongside ExxonMobil to acquire 64 convenience and fueling facilities in the Greater Houston area. The agreement is expected to close in the Q2 of 2023. We are excited about the opportunity to our footprint into the fast growing Texas market and look forward to operating these sites on behalf of the joint venture. On the corporate governance front, during the Q1, we were extremely pleased to welcome Claire Miglory to our Board of Directors.

Speaker 2

As CFO and COO at Eteros, a $6,000,000,000 strategic investment firm, Clear has been instrumental in guiding growth oriented Businesses across a wide range of industries. She also brings more than 13 years of energy experience to our Board, Having served as CFO, EVP and Treasurer for Sunoco LP, we look forward to benefiting from Clear's strategic experience, Industry Perspectives and Leadership Background. Turning to our distribution. In April, the Board agreed upon Quarterly cash distribution of $65.50 or $2.62 on an annualized basis on all our outstanding common units For the period from January 1 to March 31, the distribution will be paid on May 15 to unitholders of record As of the close of business on May 9, 2023. Let me conclude my remarks by updating you on the status of our agreement with Gulf Oil Limited We are continuing to work through the regulatory review process and will share any material developments as appropriate.

Speaker 2

Now let me turn the call over to Greg for the financial review. Greg?

Speaker 3

Thank you, Eric, and good morning, everyone. Looking at our Q1 2023 results, adjusted EBITDA was $76,000,000 compared with $74,900,000 and net income was $29,000,000 compared with 30,500,000 For the same period in 2022. DCF was $46,300,000 compared with $49,900,000 in the same period last year. Please note that adjusted EBITDA and DCF include a net gain on sale and disposition of assets of $2,100,000 $4,900,000 for the Q1 of 2023 and 2022 respectively. TTM distribution coverage as of March 31, 2023, including the Q4 2022 one time special was 3.3 times or 3.2 times after factoring in distributions to our preferred unitholders.

Speaker 3

Excluding the net gain on the sale of assets, Which included the gain from our sale of our Rovier terminal in June of last year, TPM distribution coverage was 2.7 times Or 2.6 times after factoring in distributions to our preferred unitholders. Turning to our segment details. GDSO product margin was up $10,500,000 in the quarter to $183,500,000 The gasoline distribution contribution to product was up $5,900,000 to $120,800,000 primarily due to higher fuel margins and an increase in volumes sold due to our 2022 acquisitions. Fuel margins increased $0.01 per gallon to $0.32 per gallon in the Q1 of 2023 from $0.31 per gallon in the Q1 of 2022. Station operations product margin, which includes convenience stores and prepared food Green Store and Prepared Food sales, sundries and rental income, Increased $4,600,000 to $62,700,000 from the Q1 of 2022.

Speaker 3

This reflected an increase in activity at our convenience stores in part due to our 2022 acquisitions. At the end of the Q1, our GDSO portfolio consisted of 16.56 sites Looking at the wholesale segment, Q1 2023 product margin increased $6,000,000 to $53,100,000 Gasoline and gasoline blend stock product margin contributed $20,400,000 up $22,700,000 from the same period in 2022, Primarily reflecting more favorable market conditions year over year. Product margin from distillates and other oils decreased 16,700,000 to $32,700,000 primarily due to less favorable market conditions in distillates and residual oil, offset by improved margins in crude oil. Warmer weather negatively impacted our weather sensitive products as temperatures were 60% warmer than normal during the Q1 of 2023 And 13% warmer than the Q1 of 2022. In addition, in the Q1 of last year, we experienced extreme commodity price volatility As a result of the Russian invasion of Ukraine, which benefited the distillate product margin in that period.

Speaker 3

The improvement in crude oil primarily reflects A decrease in expenses related to the expiry of a pipeline commitment in the Q4 of 2022. Our Commercial segment product margin was flat at $8,100,000 the Q1 of 2023 2022. Looking at expenses, operating expenses increased $9,100,000 to 108,300,000 Largely associated with our GDSO operations, including our 2022 acquisitions, in part due to higher salary and rent expenses and an increase in maintenance and repair expenses. SG and A expenses increased $6,000,000 in the Q1 of 2023 to $62,300,000 reflecting increases in wages and benefits Various other expenses, partially offset by a decrease in accrued discretionary incentive compensation. Interest expense was $22,100,000 in the Q1 of 2023 Versus $21,500,000 in the same period of 2022 as increased interest rates were partially offset by lower borrowings under our credit facility.

Speaker 3

CapEx in the Q1 was $15,200,000 consisting of $9,600,000 of maintenance CapEx and $5,600,000 of expansion CapEx, primarily related to investments in our Gasoline Station business. For full year 'twenty three, we continue to expect maintenance capital expenditures the range of $50,000,000 to $60,000,000 and expansion capital expenditures, excluding acquisitions in the range of $55,000,000 to $65,000,000 Relating primarily to investments in our Gasoline Station business. These current estimates depend in part on timing of completion of projects, Availability of equipment and workforce, weather and unanticipated events or opportunities requiring additional maintenance or investments. Our balance sheet remains strong at threethirty one with leverage, which is defined in our credit agreement as funded debt to EBITDA of approximately 1.75 times at the end of the quarter. We continue to have ample excess capacity in our credit facility.

Speaker 3

As of March 31, 2023, total borrowings outstanding under their credit agreement for $346,300,000 This consisted of $247,300,000 under our $950,000,000 working capital revolving credit facility And $99,000,000 under our $600,000,000 revolving credit facility. Adding to our balance sheet strength, This past week, we entered into an amendment

Speaker 1

to our credit agreement with

Speaker 3

our bank group. The amendment extends the maturity date from May 2024 to May 2026. The total committed amount of the facility under the credit agreement remains at $1,550,000,000 Looking ahead on our Investor Relations calendar, On May 23 and May 24, we will be participating in EIC's 20th Annual Energy Infrastructure CEO and Investor Conference. In June, we will be at the Bank of America Energy Credit Conference. For those of you who are participating in this conference, we look forward to seeing you shortly.

Speaker 3

Now let me turn back the call to Eric for closing comments. Eric?

Speaker 2

Thank you, Greg. We remain focused on driving returns for our stakeholders through a combination of organic growth, Operational Efficiency and M and A. We're off to a solid start in 2023 and are well positioned to deliver on our strategic objectives. 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. Thank you. Our first question comes from the line of Selman Akyol with Stifel, please proceed with your question.

Speaker 4

Thank you. Good morning and congrats on another nice quarter. Let me just start off. On the Gulf Oil, is this taking longer than you originally anticipated? Or do you have any Comments there at all on that?

Speaker 4

When you think this could actually get done?

Speaker 3

Yes, sure. I'll start off, Salman. Did you hear from you? Yes. So I mean, it is not taking any longer than we anticipated.

Speaker 3

I mean, I think if you talk to a lot of companies out there, the FTC is taking longer to review a lot of things. We anticipate going into this acquisition that it potentially could be a long acquisition process with the FTC, We continue to endeavor to work with them and hopeful to get this thing closed as soon as we get the approval from them.

Speaker 4

Got it. Okay. And then turning to your announcement with Exxon, if you could maybe help us Dan that a little bit more. I doubt you'll answer me if I ask sort of for pricing or what the investment is. But What I guess I'm really trying to understand is they're going to supply the fuel you're going to manage The stations, can you just talk a little bit about how this arrangement is going to be?

Speaker 2

Hi, Selwyn, it's Eric. It's really a partnership. If you think about Exxon is good at certain things and Global is good at certain things. I think this is a partnership That will allow us to focus on what our expertise is, and that is operating sites, That is pricing sites. That is managing sites.

Speaker 2

And in terms of supply, look, They're a refining behemoth and they're going to their job is going to be to supply the locations, right? So We think it's a fit because for us it puts us in a market that we haven't been With ExxonMobil and obviously, we think ExxonMobil is going to be a fantastic partner for the company. And as we've shown in the past, once we end up with assets in markets, we've been able to Expand our footprint, right? And so the goal here is, operate these assets, Get comfortable with the business in Texas, and then look to grow it. Got it.

Speaker 2

And then I'm

Speaker 4

sorry, go ahead please.

Speaker 2

Jerry, just to add

Speaker 3

on the financials, I mean, it's very much almost an equal partnership. We have a 49.9% interest. They have the majority of the interest, the investment is very much similar. And on the return parameters, we haven't put out any numbers on the Echo investment. But I would guide you to It is in line with our target investment of sort of mid teens unlevered IRR on a deal like this and very similar to other acquisitions we've made In terms of multiples.

Speaker 4

Okay. I do appreciate that. And so then as you think about future expansion in this market, should we look for More of sort of this JV way of growing or do you think you would go out and actually More typically go out and buy, own, lease, manage for other folks that kind of thing?

Speaker 2

Yes. We're actively looking to grow the business there and whether it ends up being a partnership or operated by us, I mean, it will be 1 or the other.

Speaker 4

Got it. Okay. So there's nothing that precludes you from doing something outside

Speaker 2

of it? Obviously, they're our partner down there. And so for us, the focus would be To grow with them, but should that not happen, we're prepared to move forward on our own.

Speaker 4

Got it. Okay. And then Just pivoting over, just kind of curious, any improvement on sort of Utilization from EVs where you've installed chargers, are you seeing anything on that front? Anything you can talk about there?

Speaker 2

Yes. I think utilization has ticked up. And before it was in the low single digits, I'd say that's ticked up anywhere from It's a 6% to 8%. And my view just generally is as more vehicles, electric Vehicles come into use, those who have what I'll call is electric charging stations I got to garner a bigger part of that market. I still think it's difficult at that utilization rate To make money.

Speaker 2

That being said, with government support, there is some potential for Actual returns out of the business.

Speaker 4

So from that standpoint, as you kind of look forward, do you see adding more charging stations and Potentially accessing government funds and all that stuff?

Speaker 2

Yes. It's about but it's about scale. I mean, you've got to do it in a big enough way To move the needle, right? And you're proposing sites to the government and they're releasing funds and then you're building it. So any sort of real impact P and L wise is going to take a little bit, but we have our own riders Looking to get and be approved by the government for these funds.

Speaker 2

So I mean, we're on it. We're after it. It's just going to take a while to scale it up. I think we're still a little reticent to go after it on our own, right, because I'm not sure the return is there, but with government funds, We think there's a return there.

Speaker 4

Got it. And then just commentary in and around the acquisition market, if you'd be so kind.

Speaker 2

Yes. It's been very busy, continues to be busy. We're looking at everything and not just at the states that We're in, but we haven't won every potential deal that's out there, But we do like to see them and frankly missing some deals tells me that we're showing good financial discipline. But the deals that we think really fit and we can create value with, they're the ones that we're going to Hopefully, be successful at in the bids.

Speaker 4

Got it. Thank you so much.

Operator

We have reached the end of the question and answer session. Mr. Slifka, I'd now like to turn the floor back over to you for closing comments.

Speaker 2

Sure. Thank you for joining us this morning. We look forward to keeping you updated on our progress. Enjoy the weekend, everybody.

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.

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