Global Partners Q1 2024 Earnings Call Transcript

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May 8, 2024

Key Takeaways

  • Global Partners completed strategic acquisitions, doubling its terminal network from 9.9M to 21.3M barrels with Gulf Oil and Motiva purchases backed by 25-year take-or-pay agreements, enhancing growth and earning power.
  • Q1 Adjusted EBITDA declined to $56M from $76M, distributable cash flow fell to $15.8M from $46.3M, and the company reported a $5.6M net loss versus $29M net income in 2023.
  • The Board declared a quarterly distribution of $0.71 per unit (annualized $2.84), representing an 8.4% increase year over year with LTM coverage at 1.6x (1.5x including preferred distributions).
  • Balance sheet remains strong with leverage at 3.26x funded debt/EBITDA and the full redemption of perpetual preferred units is expected to be accretive by $0.09 per unit annually.
  • Full-year capital expenditure guidance remains at $50–60M for maintenance and $60–70M for expansion, subject to project timing, equipment availability, weather, and market conditions.
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Earnings Conference Call
Global Partners Q1 2024
00:00 / 00:00

There are 6 speakers on the call.

Operator

Good day, everyone, and welcome to the Global Partners First Quarter 2024 Financial Results Conference Call. Today's call is being recorded. With us from Global Partners are President and Chief Executive Officer, Mr. Eric Slifka Chief Financial Officer, Mr. Gregory Hansen Chief Operating Officer, Mr.

Operator

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.

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, including projections and expectations concerning the future financial and operational performance of Global Partners. No assurances can be given that these projections will be attained 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.

Speaker 1

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.

Speaker 2

Thank you, Sean, and good morning, everyone. Over the last 5 months, we've acquired 29 terminals, more than doubling our terminal network and total storage capacity from 9,900,000 barrels to 21,300,000 barrels. These strategic acquisitions strengthen our terminal operations, expand our growth opportunities and enhance our earning power. In April, we completed the purchase of 4 liquid energy terminals from Gulf Oil for approximately 212,000,000 dollars Their locations, Massachusetts, Connecticut and New Jersey, make these assets a perfect geographic and operational fit in our existing Northern Terminal network. Linden and Woodbury, New Jersey each represent new markets for our business.

Speaker 2

The New Haven terminal adds gasoline and distillate capabilities to our Connecticut portfolio allowing us to serve our wholesale customers as well as our extensive retail network. The Chelsea, Massachusetts terminal allows us to continue to serve the Boston market, replacing the capabilities of the nearby Revere Terminal, which we strategically divested for $150,000,000 in 2022 to Link Logistics of Blackstone Company. With the divestment of our Revere terminal, this acquisition will allow us to continue to service our Boston area gasoline and distillate customers without disruption. As you may know, we now operate 2 terminals in Chelsea allowing us to offer a full slate of products including biofuel, bunker fuels, commercial and industrial fuels, heating oil and diesel. We anticipate opportunities to invest in and optimize around these properties.

Speaker 2

Turning to our December acquisition of 25 liquid energy terminals from Motiva, we're extremely pleased with the progress of the transition, which was completed ahead of schedule in March. These are extremely well run, high value assets backed by a 25 year take or pay commitment from Motiva. We're excited about the ability to drive additional investment, expansion and operational efficiencies as we optimize these facilities. Looking at our distribution, in April, the Board declared a quarterly cash distribution on our common units of 0.71 dollars or $2.84 on an annualized basis. This distribution represents an 8.4% increase over the prior year period and is payable on May 15 to unitholders of record as of the close of business on May 9.

Speaker 2

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

Speaker 3

Thanks, Eric, and good morning, everyone. As we go through the numbers, please note that all comparisons will be to the Q1 of 2023, unless otherwise noted. Adjusted EBITDA was $56,000,000 in the Q1 of 2024 compared with $76,000,000 in 2023. We reported a net loss of $5,600,000 in the quarter compared with net income of $29,000,000 in 2023. Distributable cash flow was $15,800,000 in the Q1 of 2024 compared with $46,300,000 in 2023.

Speaker 3

And adjusted DCF was $16,000,000 in Q1 versus $46,300,000 in the same period in 2023. LTM distribution coverage as of March 31 was 1.6 times or 1.5 times after factoring in distributions to our preferred unitholders. Turning to our segment details. GDSO product margin increased $4,200,000 in the quarter to $187,700,000 Product margin from gasoline distribution increased $800,000 to 121,600,000 dollars primarily reflecting higher fuel margins year over year. On a $0.01 per gallon basis, fuel margins increased $0.01 to $0.33 in Q1 2024 from $0.32 in Q1 2023.

Speaker 3

Illustrating the resilience of our fuel margins despite wholesale gasoline prices increasing $0.66 from year end 2023 to threethirty onetwenty 4 compared with $0.24 increase for the same period in 2023. The Q1 of 2023 also benefited from a fall off in prices during the quarter as opposed to the Q1 of 2024, which had consistent increases in prices throughout the quarter. Stage and operation product margin, which includes convenience store, prepared food sales, sundries and rental income increased $3,400,000 to $66,100,000 in the Q1 as our team continues to execute well on our stores. At quarter end, we had a portfolio of 1601 sites. In addition, we operated 60 4 sites under our Spring Partners retail joint venture.

Speaker 3

Looking at the wholesale segment, Q1 2024 product margin decreased $3,700,000 to $49,400,000 Product margin from gasoline and gasoline blend stocks increased $9,300,000 to 29,700,000 dollars largely due to the acquisition of the Motiva terminals. This was partially offset by less favorable market conditions in gasoline in the Q1 of 2024 compared to the same period in 2023. Product margin from distillates and other oils decreased $13,000,000 to 19,700,000 dollars primarily due to less favorable market conditions in residual oil. As we mentioned in our press release, certain products in our Wholesale segment were negatively impacted by the timing of mark to market valuations, which we have seen largely recover quarter to date through April. Commercial segment product margin decreased $1,100,000 to 7,000,000 dollars primarily due to less favorable market conditions.

Speaker 3

Looking at expenses, operating expenses increased $11,800,000 to $120,100,000 in the first quarter, primarily related to the acquisition of the terminals from Motiva. SG and A expense increased $7,500,000 in Q1 to $69,800,000 including acquisition costs related to the Motiva Terminals acquisition and increases in wages and benefits and other SG and A expenses. Interest expense was $29,700,000 in the Q1 of 2024 compared with $22,100,000 in 2023. The increase was primarily due to the interest expense related to our 8.25 percent senior notes that we issued in January of 2024 and to a $1,400,000 write off of deferred financing fees. CapEx in the Q1 was $16,600,000 consisting of $11,700,000 of maintenance CapEx and $4,900,000 of expansion CapEx, primarily related to investments in our gas and oil station business.

Speaker 3

For the full year of 2024, we continue to expect maintenance capital expenditures in the range of $50,000,000 to $60,000,000 and expansion capital expenditures, excluding acquisitions in the range of $60,000,000 to $70,000,000 relating primarily to our gas station and terminalling business. 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. Our balance sheet remains strong at threethirty 1 with leverage as defined in our credit agreement as funded debt to EBITDA at 3.26 times and we continue to have ample excess capacity at our credit facilities. As of March 31, total borrowings outstanding under our credit agreement were $226,000,000 all of which were under our working capital revolver with 0 outstandings under our revolving credit facility. I'd also like to highlight that on April 15, we fully redeemed all the outstanding Series A fixed to floating rate cumulative redeemable perpetual preferred units.

Speaker 3

This transaction was immediately accretive to distributable cash flow and at current interest rates is expected to be approximately $0.09 accretive per unit on an annual basis. Now before I turn the call back to Eric for closing comments, let me review our upcoming Investor Relations calendar. This month, we'll be participating in the 21st Annual Energy Infrastructure Conference And in June, we'll be participating in the Stifel Cross Sector Insight Conference and the BofA Energy and Credit Conference. If you're attending 1 or more of these events, we look forward to meeting with you. Now let me turn the call back to Eric for closing comments.

Speaker 2

Thanks, Greg. In closing, I want to acknowledge our team for their outstanding work in completing 2 significant acquisitions and integrations over the past 5 months. We have a terrific business, well positioned assets and incredible people that I believe will continue to contribute in a meaningful way to shaping the future of the energy economy. Strategically, operationally and financially, we are well positioned for continued success. With that, Greg, Mark and I will be happy to take your questions.

Speaker 2

Operator?

Operator

Thank you. We will now be conducting a question and answer 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. I guess, first, just starting off on the Motiva acquisition. Have you guys been able to add new customers down there? Or are you seeing any increase in throughput since you guys have acquired that?

Speaker 5

Yes. Selma, good morning. It's Mark. Yes, we're effectively 4 months into the ownership of those terminals and operating those terminals. We completed a full cut over, including all systems roughly the end of March.

Speaker 5

So it's taken us some time to fully transition those terminals. That being said, we have actively been working on adding new volume to the terminals, understanding what opportunities exist for us to optimize those terminals, what opportunities exist for us to invest in those terminals. And there's a lot of positives dialed in around where the opportunity is to invest. So we're very encouraged by what we've seen so far. And I think we're we will are well on our way to starting to recognize those synergies.

Speaker 5

It will just take a little bit of time. But I think by the end of the year, we will have quite a bit of new

Speaker 4

good initially thought or as I said sort of in line?

Speaker 5

It's probably too early to get I don't want to get too far ahead of ourselves. I would say that we're what we're looking at today for the near term is going to be in line with our expectations. I do think longer term with all the investment opportunities and the optimization we can do around these assets, our hope is that we will exceed those expectations. And that seems like a reasonable expectation.

Speaker 2

Yes. Selman, it's Eric. These are extremely well located assets with lots of ways into and out of the assets with products. And we think that there are some real opportunities here just within the assets as they exist. But not only that, we think that there's a lot of expansion opportunities, as Mark mentioned, that once we spend a little bit of time with them, we'll try to go get permits and expand particular assets that we think have unique values.

Speaker 4

Got it. Any update on the JV and how it's performing and any growth expectations coming out of that?

Speaker 3

Yes. We

Speaker 4

continue to be excited about the JV

Speaker 3

and operating that area. I'd say the Q1 of the JV was a little lower than our expectations really, really horrible weather in the Houston market in January. You had a couple of days that froze and you had no traffic in there. So weather was weather definitely impacted the results down there in the Q1. And then you also have a more competitive margin environment down there, than some other areas of the country.

Speaker 3

But that said, we've invested in those sites. We've now finished a rebrand of those sites down there. We are very excited about their operating very We've got a very strong partner down there and we continue to look for opportunities to grow that business. Yes.

Speaker 2

And Selman, in terms it's Eric. In terms of growth, we're continuing to look at opportunities that exist down there. I would say there seems to be a stream of potential assets that may be for sale. So we're trying to look at everything in the market. And if we think there's something that will fit us down there, we'll try to go after it.

Speaker 2

I do think that there is a potential for complementing those assets with our new terminals down there as well. And so we think that that should hopefully give us a better position in terms of acquiring assets there.

Speaker 4

Understood. And then you sort of touched on M and A, but is there anything more as you look beyond other markets that you're seeing as well that you can comment on?

Speaker 2

Yes. I wouldn't say there's a steady stream of opportunities and we'll just make sure we're looking at them and trying to figure out which ones really fit the company and the best way to drive the highest returns, right? So it is it's active.

Speaker 4

Understood. And I realize dividend is always the Board's prerogative and consideration, and you'll never front run them. That I get. But that said, you guys have said you consistently have kind of been growing as you've been growing cash flows and doing acquisitions, etcetera. And then you also just highlighted that you redeemed the preferred day and that's $0.09 accretive to earnings.

Speaker 4

So would they consider that as well in terms of potential on go forward basis? Or should that just be looked at more in terms of seeing underlying growth in the business as opposed to financing?

Speaker 2

Yes. I mean, I guess,

Speaker 3

I can speak to it. It's Craig Selman. How are you doing? I think the Board sort of issued a vote of confidence by increasing the distribution of Patti this year and and appreciation of where we positioned ourselves in the growth. We've continued to grow that distribution.

Speaker 3

Our coverage now is 1.5 times on an LTM basis. We've been able to fully cover our LTM expansion CapEx with excess cash and also reinvest some of that cash by lowering debt and putting in the company. So we've been in a strong position from a distribution coverage standpoint. I think we're excited about the acquisitions. We do think they will continue to contribute to the bottom line for us.

Speaker 3

And so I can't speak to what the Board will do, but I think we are excited about the acquisitions and they should allow us to continue to grow our bottom line. And hopefully, that would lead to higher distributions at some point in the future.

Speaker 2

Okay. Thank you very much.

Operator

Thank you. I'll now turn the call back to Mr. Slifka for closing comments.

Speaker 2

Thanks, everyone, for joining us this morning. We look to keeping you updated on our progress. Have a good day.

Operator

Ladies and gentlemen, this does conclude today's teleconference.

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