Global Partners Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 4, 2023

There are 7 speakers on the call.

Operator

Day, everyone, and welcome to the Global Partners Second 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'd like to turn the call over to Mr. Geary 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 and permitting environment, Forage 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. Global Partners undertakes no obligation to revise or update any forward looking statements. Any material comments concerning future results of operations It's Now my pleasure to turn the call over to our President and Chief Executive Officer, Perich Levka.

Speaker 2

Thank you, Sean, and good morning, everyone. Let me begin this morning by recognizing the terrific work of our entire team in contributing to a solid second quarter With our wholesale and GDSO segments performing above our expectations, from our fueling stations and convenience markets To our liquid energy terminals, the relationships created by our team members with customers and guests every day Is a key differentiator that allows us to maintain a competitive advantage across our businesses. From an operating We bring in an exceptionally high level of technical, marketing and M and A expertise amassed over decades in the energy industry. This expertise powers the 3 core tenants of our growth strategy: acquire, invest And optimize. We continue to advance our strategy in the Q2.

Speaker 2

In June, the joint venture owned by subsidiaries of Global and Sun Mobile completed its acquisition of 64 convenience and fueling facilities in the Greater Houston area, Which expands our footprint into Texas. We invested approximately $69,500,000 in cash For 49.9 percent ownership interest in the joint venture and under an operations and maintenance agreement, We operate and manage these locations. Our planned acquisitions of 5 of Gulf's refined product terminals in New England and New Jersey Continues to work its way through the regulatory review process. We remain hopeful that the acquisition will close in the second half of this year. Including Gulf, in less than 2 years, we will have announced or completed more than $570,000,000 of acquisitions, While maintaining the strength and flexibility of our balance sheet.

Speaker 2

Applying our target mid teens returns, These deals are transformative for global, building on our competitive position and driving increased value for unitholders. We continue to put our energy to work in the clean fuel space. In June, we were the title sponsor for the inaugural Northeast Hydrogen Infrastructure Summit held at the Federal Reserve Bank of Boston. Through our team's vision, the event brought Together, a dynamic group of leaders in the hydrogen infrastructure, transportation and policy space as well as potential users to develop solutions To scale the Northeast Hydrogen Economy. We also recently brought in our first cargo of renewable diesel to our Albany terminal.

Speaker 2

From Albany, the product can be distributed throughout the Northeast. New York's ambitious climate goals coupled with sustainability oriented customers Eager to decarbonize their footprint made Albany the perfect location to test the product. We are encouraged by the early demand and interest Customers, both existing and new. Our infrastructure is positioned to play a vital role in storing and distributing fuels that will help our country decarbonize. We will continue to create opportunities in the low carbon transportation and power sectors through cultivation of relationships, policy advocacy and problem solving.

Speaker 2

Turning to our distribution. In July, the Board agreed upon a Quarterly cash distribution of $67.50 or $2.70 on an annualized basis on all our outstanding common units for the period of April 1 to June 30, 2023. The distribution will be paid on August 14 to unitholders of record as of the close of business on August 8, 2023. Now let me turn the call over to Greg for the financial review. Greg?

Speaker 3

Thank you, Eric, and good morning, everyone. We are very pleased with our Q2 results. However, I will note that the year over year comparison is challenging Given the exceptionally strong results of our wholesale segment in the Q2 of 2022, which were driven by the historically steep backwardation of the forward product pricing curves in that period. Also in comparing our year over year performance, keep in mind that net income, EBITDA and DCF for the Q2 of 2022 Included a net gain on sale and disposition of assets of $76,800,000 primarily related to the sale of our Revere terminal in June of last year. For the Q2 of 2023, adjusted EBITDA was $91,600,000 compared with $134,900,000 for the same period in 2022.

Speaker 3

Net income was $41,400,000 compared with $162,800,000 and DCF was $54,800,000 compared with 178,200,000 the same period last year. GTM distribution coverage continues to be strong at June 30, 2023. Including the Q4 2022 special distribution, It was 2.3 times or 2.1 times after factoring in distributions to our preferred unitholders. Turning to our segment details, GDSO product margin was up $200,000 in the quarter to 199,100,000 The gasoline distribution contribution to product margin was down $2,000,000 to $127,900,000 in part due to a decline in volume sold. Fuel margins continue to be strong at $0.31 per gallon in the Q2 of 2023, essentially flat compared with the Q2 of 2022.

Speaker 3

Station operations product margin, which includes convenience store and prepared food sales, sundries and rental income, increased $2,200,000 to 71,200,000 The Q2 of 2022 primarily due to an increase in activity at our convenience stores in part due to the acquisition of Tidewater Convenience last September. At the end of the Q2, our GDSO portfolio consisted of 1646 sites 341 company operating sites excludes the 64 sites in our joint venture in Texas. Looking at the Wholesale segment, 2nd quarter 2023 product margin decreased $30,800,000 to $59,700,000 primarily due to less favorable market conditions in distillates and residual oil. As I mentioned earlier, we experienced historically strong margins in our wholesale segment during the Q2 of 2022 as a result of steep backwardation and tight inventory conditions. Gasoline and gasoline blend stock product margin contributed $39,000,000 down $2,000,000 from the same period in 2022, primarily due to less favorable market conditions in gasoline, Partially offset by more favorable market conditions in gasoline blend stocks.

Speaker 3

Product margin from distillates and other oils Decreased $28,800,000 to $20,700,000 primarily due to less favorable market conditions in distillates and residual oil, partially offset by an increase in crude oil due to the expiration of a pipeline connection agreement in December of 2022. Our Commercial segment product margin decreased $5,700,000 to 6,800,000 primarily due to less favorable market conditions in bunkering. Looking at expenses, operating expenses increased $1,900,000 $110,400,000 in the Q2 of 2023, reflecting increases related to our acquisitions, partially offset by lower credit card fees related to decreases in price. SG and A expense increased $5,900,000 in the 2nd quarter to $66,700,000 reflecting increases associated with the sale of our Revere terminal, Higher wages and benefits and various other expenses, partially offset by a decrease in accrued discretionary incentive compensation. Interest expense was $21,800,000 in the Q2 of 2023 versus $21,000,000 in the same period of 2022.

Speaker 3

CapEx in the Q2 was $22,100,000 consisting of $13,600,000 of maintenance CapEx and $8,500,000 of expansion CapEx, primarily related to investments in our gasoline station business. Through the first half of the year, we had $23,200,000 in maintenance CapEx and $14,100,000 in expansion For full year 2023, we continue to expect maintenance capital expenditures in the range of $50,000,000 to $60,000,000 and expansion capital 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 the timing of completion of projects, availability of equipment and workforce, weather and unanticipated events Our balance sheet remains strong at 6.30 with leverage which is defined in our credit agreement funded debt to EBITDA of approximately 1.94 times at the end of the second quarter, and we continue to have ample excess capacity in our credit facility. As of June 30, 2023, total borrowings outstanding to our credit agreement were $212,400,000 in borrowings outstanding under our $950,000,000 working capital revolving credit facility and $119,000,000 outstanding under our $600,000,000 revolving credit facility. Looking ahead on our Investor Relations calendar, on August 22 23rd, we will be participating in the Citi Midstream Energy Infrastructure Conference.

Speaker 2

It continues to position us positively for long term growth. Looking ahead, we remain focused on executing our strategic priorities To maintain our competitive position and drive value for our unitholders. Now Greg, Mark and I would be happy to take any 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 Greg Brody with Bank of America.

Speaker 4

You talk a little bit about what you're seeing on the demand side in terms of behavior of the consumer at the pump and your observations there? And just Every quarter we talk about how the breakevens are improving from your perspective or they're going higher, which helps you For your competitor for the marginal provider of SF Gasoline, can you talk a little bit how that's trending?

Speaker 5

Yes, I missed the end of that, Greg. But I think on the demand side of the equation, Gasoline demand has been good at our stations and we're pleased with that year over year number. We still compare things to We've been tracking positively. From a diesel demand standpoint, we've seen a different story and We're down year over year in diesel, but I think that's consistent with the rest of the industry. I didn't hear the end part of that, so I'm not sure if it was a question about that.

Speaker 4

I can repeat. Just at the GDSO segment, every quarter we talk about how the margins It seems to be getting better and it's one of the arguments is that the breakevens keep going up. Can you talk a little bit how that's trending? Are you seeing anything different anything that's breaking that trend or it continues?

Speaker 5

I think overall, I mean, we're going to see we'll see some ups and downs. We'll see margins expand and compress. I mean, that's just the nature of the business. But I think overall, We continue to see margins trend positively. And I just think it's our overall bias that as we go forward, you're going to see that Margins expand somewhat due to increased cost to run the business, but we have seen expansion in And margins and our bias is that, that will continue.

Speaker 4

And then just moving over to the wholesale, I think it was last year where we started talking about How much more volatility there was in the business that was allowing you to earn greater margins and I think last year was a special year. But I'm just curious, is that element still there or is that tied down?

Speaker 5

I would say that I would last year As you said, it was a special year. Last year was very unique market conditions. I would say Market conditions like we had never seen before and that's that was true in 2020 as well. So we've seen a real we've seen extremes in Market conditions, I would say that what we're seeing this year is much more normalized. Last year, we saw everything was higher last year.

Speaker 5

Margins were higher, costs were higher, risks were higher. And so what we're seeing we're seeing the market kind of normalize back to what we're used to, Both on the volume and the margin side of the wholesale business.

Speaker 4

And then just last one on the M and A side. Just talk a little bit about the opportunity set and I don't know if you can give us specifics on the most recent acquisition, how much you're paying for them, how much synergies you're seeing or Just whatever you're comfortable telling us there.

Speaker 2

Sure. Greg, it's Eric Fluska. Just I'd say it continues to be very active. There's lots of opportunities out there, whether it's Terminals, whether it's retail, it's just finding the ones that fit us best And then trying to go after them and be the successful winner. I'd say, I've said this in the past, the good news is we don't win every one.

Speaker 2

So I think that tells us that we're not overpaying and we're In the right zone, but we continue to work hard to look at deals and be competitive. And The ones where we can bring the most value to are likely the ones that we're going to be the winners of, right? In terms of multiples, Maybe they're off a little bit. I wouldn't say that it sort of depends on the assets, Right. But as usual, there always seems to be better who may think it fits them a little bit better or maybe they're willing to pay another half a turn or a turn more, Right.

Speaker 2

So it really depends on the assets.

Speaker 4

When you say it's awful a little bit, are you saying valuations are lower

Speaker 2

Yes, I think I yes, I mean, I think it's I think what cost of money is higher And that people have to have more discipline, right? And even longer term financing is more expensive too. And That has to get baked in. I think it's hard to pretend that your cost of interest isn't higher. And so most of the competitors that are acquirers, They're borrowing money, right?

Speaker 2

And they may not even be borrowing it from banks, right? So they got more expensive money. And that has to depress Multiples a little bit, right? But once again, it depends, right? Because everybody's got a slightly different set of economics And somebody could say, oh, we're going to stretch a little for this because for them, it's really not a stretch.

Speaker 2

It just looks into the market, Right, because they have more value that they can bring to a particular transaction.

Speaker 4

And that's it for me guys. Thank you for the time.

Speaker 2

Thanks, Rick.

Operator

Thank you. Our next question comes from the line of Tyler Rakers with Stifel. Please proceed with your question.

Speaker 6

Hi, good morning. Tyler Rakers on for Selman. Could you guys share some color as to the GDSO volumes being a little Down year over year just given the acquisitions made during that period?

Speaker 3

Yes. We were 1.2% down year over year, Tyler, on a total basis. As Mark mentioned, we've seen diesel off Year over year, as I think a lot of the other industry participants have seen. We also it was not a great quarter from a weather traffic standpoint up here in the Northeast and Can't quantify how much that played a role, but definitely was a very wet June for us and I think it rains. We had a rainy day every weekend of June.

Speaker 3

So That factors that I think overall we're pretty happy where volumes are overall. Could they be better? Definitely they could be better, but I think gasoline demand is still decent out there. Yes. Let me just clarify

Speaker 5

a comment I made earlier with regard to gasoline demand and Specific to well, the comments I made were specific to our company operated stations, right? So where we and I think part of that is Got to do with when you talk about volume and margin, I think part of that's due to how we're running our sites, the quality of sites that we run and The experience that we create for the guests. So I just want to clarify that those comments around volume were specific to our company operated sites.

Speaker 6

Great. Thanks. And if I could ask with the as you said, Regarding the M and A environment with the higher interest we're seeing, if maybe we'd see, as well as with the Exxon deal, if we'd see more of these JV structure deals going forward?

Speaker 2

Yes, I don't really know. I mean, I'd say We're going to try to be opportunistic, right? And the concept, at least with the JV with Exxon is, Can we expand it? But we're already in Texas. We've been in Texas for a while doing wholesale.

Speaker 2

We think this is a natural extension for global regardless of that. And What I'd say generally is we're having more conversations now because we're recognized differently in that market, Which is frankly how we've built the business over decades of doing what we do, right?

Speaker 6

Great. Appreciate the color.

Speaker 1

Thanks, Todd.

Operator

Thank you. 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

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

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

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Key Takeaways

  • Global reported adjusted EBITDA of $91.6 million, net income of $41.4 million and DCF of $54.8 million in Q2 2023, down from the exceptional results in Q2 2022 but still maintaining a 2.3× distribution coverage ratio.
  • The company’s joint venture with Sun Mobile closed on 64 convenience and fueling sites in Greater Houston for $69.5 million (49.9% stake), while pending regulatory approval for Gulf terminal acquisitions aims to bolster its Northeast footprint.
  • Global advanced its clean-fuel strategy by sponsoring the Northeast Hydrogen Infrastructure Summit and receiving its first renewable diesel shipment at the Albany terminal to serve New York’s decarbonization goals.
  • Q2 capital expenditures totaled $22.1 million (62% maintenance, 38% expansion), and full-year guidance remains $50–60 million for maintenance and $55–65 million for expansion CapEx, focused on gasoline station investments.
  • The balance sheet is solid with net leverage of ~1.94× and ample revolver capacity, and the board approved a quarterly cash distribution of $0.675 per common unit ($2.70 annualized) payable August 14.
AI Generated. May Contain Errors.
Earnings Conference Call
Global Partners Q2 2023
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