Global Partners Q2 2024 Earnings Call Transcript

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August 7, 2024

There are 6 speakers on the call.

Operator

Good day, everyone, and welcome to the Global Partners Second 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 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. The company delivered year over year growth across all key profitability metrics in Q2. Our results continue to reinforce the strength of our business model and our integrated portfolio of liquid energy terminals, fueling stations and convenient markets. Looking at our overall performance in Q2, we posted gains in operating income, net income, DCF and adjusted EBITDA, driven by strong results in both our wholesale and GDSO segments. Over the past 9 months, we've invested more than 500,000,000 dollars to significantly expand our wholesale segment footprint through the strategic acquisition of a combined 29 terminals from Motiva Enterprise and Gulf Oil more than doubling our storage capacity to 21,400,000 barrels.

Speaker 2

These terminals expand our geographic reach within New England, along the Eastern Seaboard and into Florida, the Gulf Coast and Texas. We have identified numerous opportunities to invest and optimize in these newly acquired terminals. As we have discussed on prior calls, the Motiva transaction is underpinned by a 25 year take or pay throughput agreement that includes minimum annual revenue commitments. I also want to highlight GDSO's solid performance. The segment continues to benefit from healthy retail fuel margins and successful merchandising initiatives in our convenience markets.

Speaker 2

Turning to our distribution. In July, the Board declared a quarterly cash distribution on our common units of $0.72 or 2.88 on an annualized basis. This distribution represents a 6.7% increase over the prior year and is payable on August 14 to unitholders of record as of the close of business on August 8. Let me turn the call over to Greg for the financial review. Greg?

Speaker 3

Thank you, Eric, and good morning, everyone. As we review the numbers, please note that unless otherwise noted, all comparisons will be with the Q2 of 2023. Adjusted EBITDA was $121,100,000 in the 2nd quarter compared with $90,400,000 and net income of $46,100,000 compared with $41,400,000 in the Q2 of 2023. Distributable cash flow was $73,100,000 in the Q2 of 2024 compared with $54,800,000 in 2023 and adjusted DCF was $74,200,000 compared with $53,300,000 LTM distribution coverage as of June 30 was 1.8 times or 1.6 times after factoring in distribution to our preferred unitholders. Turning to our segment details.

Speaker 3

GDSO product increased $22,400,000 in the quarter to $221,500,000 Product margin from gasoline distribution increased $19,400,000 to $147,300,000 primarily reflecting higher fuel margins year over year. On a $0.01 per gallon basis, fuel margin increased $0.05 to $0.36 in Q2 2024 from $0.31 in Q2 2023. Station operations product margin, which includes convenience store and prepared food sales, sundries and rental income increased $3,000,000 to $74,200,000 in the Q2 of 2024, highlighting the continued success of our merchandising efforts. At quarter end, our portfolio of fueling stations and C store sites totaled 1595. Additionally, we operate 64 sites under our Spring Partners retail joint venture.

Speaker 3

Looking at the wholesale segment, 2nd quarter 2024 product margin increased $32,200,000 to 91,900,000 dollars Product margin from gasoline and gasoline blend stocks increased $31,400,000 to $70,400,000 primarily due to the acquisition of the Motiva terminals in December of 2023 and more favorable market conditions in gasoline. Product margin from distillates and other oils increased $800,000 to $21,500,000 primarily due to more favorable market conditions in distillates, partially offset by less favorable market conditions in residual oil. I would also add, as we mentioned in the Q1 earnings call, certain products in our wholesale segment were negatively impacted by the timing of mark to market valuations in the Q1. Those impacts were fully recovered in the Q2. Commercial segment product margin decreased $600,000 to $6,200,000 primarily due to less favorable market conditions.

Speaker 3

Turning to expenses, operating expenses increased $19,600,000 to $130,000,000 in the 2nd quarter, largely related to the terminal acquisitions from Motiva and Golf. SG and A expense increased $5,600,000 in Q2 2024 to $72,300,000 primarily due to increases in long term incentive comp, wages and benefits and professional fees. Interest expense increased $13,700,000 to $35,500,000 in the Q2 of 2024, primarily due to the interest expense related to the 8.25 percent senior notes issued this past January, which were used to facilitate the Motiva acquisition and higher average balances on our credit facilities as a result of the recent Gulf Terminals acquisition. CapEx in the second quarter was 15,600,000 consisting of 8,900,000 of maintenance CapEx and 6,700,000 of expansion CapEx, primarily related to investments in our gas filling station and terminal businesses. For the full year of 2024, we currently expect maintenance capital expenditures in the range of $50,000,000 to $60,000,000 and expanded capital expenditures excluding acquisitions in the range of $60,000,000 to $70,000,000 relating primarily to our gasoline station and terminalling businesses.

Speaker 3

These current estimates depend in part on the timing of project completion, availability of equipment and workforce, weather and unanticipated events and opportunities requiring additional maintenance or investments. Our balance sheet remains strong at June 30, with leverage as defined in our credit agreement as funded debt to EBITDA at 3.48 times and ample excess capacity in our credit facilities. As of June 30, we had $281,200,000 in borrowings outstanding on our working capital revolving credit facility and $200,000,000 outstanding on the revolving credit facility. As I noted on our Q1 call, on April 15, we fully redeemed all the outstanding Series A fixed to floating rate cumulative redeemable perpetual preferred units. 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.

Speaker 3

Turning to our upcoming Investor Relations calendar. Next week, we'll be participating in the Citi 2024 1 on 1 Midstream and New Energy Infrastructure Conference. Please contact our IR team if you'd like to schedule a meeting during the conference. Now let me turn the call back to Eric for closing comments.

Speaker 2

Thanks, Greg. In closing, we begin the second half of the year with positive momentum. We look forward to building on our success in the first half of twenty twenty four by continuing to execute our strategic growth objectives and deliver value for our unitholders. With that, Greg, Mark and I would be happy to take your questions. Operator, please open the line for Q and A.

Operator

Thank you. We will now be conducting a question and answer session. Thank you. Our first question comes from the line of Selman Akyol with Stifel. Please proceed with your question.

Speaker 4

Thank you very much. Congratulations on a nice quarter. Wanted to just follow-up on your opening comments where you talked about the wholesale, all the investment that you've done and you tied it up with sort of opportunities to invest and I wanted to explore that. Can you just maybe explain that a little bit more in the sense of are you seeing more terminals to add? Are you talking about trying to fill in GDSO around terminals that you now have that you didn't previously.

Speaker 4

Maybe you could just explain that a little bit more.

Speaker 2

Hi, Selman, it's Eric. I would say generally, M and A remains active, both in the terminalling business as well as in the retail business. But we've bought a lot of terminals relative to our Toni terminal account here in the last 6 months. And so I think there's a real opportunity to make sure that we're maximizing the value that we can get from each asset that we now have. And there'll be some investment there, but it's also how we operate, how we operate differently and it could be things that are around rail capacity and building up unit train capacity.

Speaker 2

It's just about trying to provide flexibility around the existing assets that we have. And so I think there's a real opportunity for us to drive value just through the existing assets as well.

Speaker 4

Got it. And then also you talked about increased merchandising efforts. And I'm just wondering, has that rolled throughout all your stores? Or should we expect that as an ongoing effort and to see benefits in future quarters as well?

Speaker 5

Yes. Good morning, Selwyn. It's Mark. Those efforts are spread across the entire portfolio. And they're not new.

Speaker 5

I mean, we have always tried to optimize our merchandising plan, optimize our SKUs, optimize our pricing and introduce new items as things change in the marketplace. So that's an ongoing effort. I think we continue to improve in that area. We continue to see the benefit of that through our execution. So that's something you that's an ongoing effort through the entire portfolio and we'll continue to work away at that.

Speaker 4

Understood. And then just the last one for me. Any update on your JV down in Houston and potentially more sites coming?

Speaker 3

Hey, Collin, it's Greg.

Speaker 2

How are you doing? Yes, I mean, we continue

Speaker 3

to be encouraged by the JV. I think it opens up another geography for us on the retail front, especially a very large state and one of the largest convenience store markets in the U. S. And yes, I mean, we hope to continue to grow that joint venture as Eric mentioned. The retail M and A market continues to be pretty active.

Speaker 3

So we can continue to look at all opportunities in that geography to potentially hopefully expand that.

Speaker 4

Got it. Thank you so much.

Operator

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

Speaker 2

Thanks for joining us this morning. We look forward to keeping you updated on our progress. Thanks so much, everyone.

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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Key Takeaways

  • The company delivered year-over-year growth across all key profitability metrics, with adjusted EBITDA rising to $121.1 million and net income increasing to $46.1 million in Q2 2024.
  • Global invested over $500 million to acquire 29 terminals from Motiva and Gulf Oil, doubling storage capacity to 21.4 million barrels and securing a 25-year take-or-pay throughput agreement.
  • The GDSO segment benefited from strong retail fuel margins of $0.36 per gallon and merchandising initiatives, driving station operations margin higher across 1,595 company-operated sites and 64 JV locations.
  • The Board declared a quarterly distribution of $0.72 per common unit, a 6.7% increase year over year, with coverage at 1.8 times distributable cash flow.
  • The balance sheet remains robust with a debt-to-EBITDA ratio of 3.48x, ample credit facility capacity, and the full redemption of Series A preferred units expected to be $0.09 per unit accretive annually.
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Earnings Conference Call
Global Partners Q2 2024
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