Global Partners Q2 2024 Earnings Report

Global Partners EPS Results

• Actual EPS: $1.10
• Consensus EPS: $1.50
• Beat/Miss: Missed by -$0.40
• One Year Ago EPS: N/A

Global Partners Revenue Results

• Actual Revenue: $4.41 billion
• Expected Revenue: $5.51 billion
• Beat/Miss: Missed by -$1.10 billion
• YoY Revenue Growth: N/A

Global Partners Announcement Details

• Quarter: Q2 2024
• Date: 8/7/2024
• Time: N/A
• Conference Call Date: Wednesday, August 7, 2024
• Conference Call Time: 10:00AM ET

Global Partners (NYSE:GLP) is a publicly traded master limited partnership engaged in the wholesale distribution and retail marketing of petroleum products. The company sources refined petroleum products from major refineries and suppliers and transports them through an integrated network of pipelines, terminals and storage facilities. Global Partners focuses on delivering fuel and related services to commercial, industrial and residential customers, positioning itself as a key midstream and downstream energy operator in its core markets.

Through its extensive terminal network in the northeastern United States and eastern Canada, Global Partners supplies gasoline, diesel, home heating oil, kerosene, propane and biofuels to a broad customer base. The partnership also owns and operates a chain of branded gasoline stations and convenience stores, serving consumers under various regional banners. In addition, Global Partners’ marine division provides bunkering and marine fueling services in the Caribbean and along the East Coast, leveraging dedicated deepwater terminals and storage facilities.

Headquartered in Waltham, Massachusetts, Global Partners LP has grown its asset footprint over multiple decades to support a diverse set of customers, including municipalities, utilities, commercial fleets and end-use consumers. The partnership’s integrated model combines midstream logistics with retail marketing, enabling it to optimize supply, distribution and pricing across its operations. Global Partners continues to pursue strategic acquisitions and infrastructure investments to strengthen its presence in core markets and enhance service offerings.

Global Partners Q2 2024 Earnings Call Transcript

Key Takeaways

• The company reported year-over-year growth across all profitability metrics in Q2, with operating income, net income, DCF, and adjusted EBITDA all increasing compared to Q2 2023.
• Global Partners completed the acquisition of 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 for stable minimum revenues.
• The board declared a quarterly cash distribution of $0.72 per common unit (annualized $2.88), a 6.7% increase over last year, reflecting confidence in distributable cash flow.
• Interest expense rose by $13.7 million to $35.5 million in Q2, driven by new 8.25% senior notes issued for the Motiva deal and higher credit facility usage, pushing funded debt/EBITDA to 3.48x.
• Operating and SG&A expenses increased by $19.6 million and $5.6 million respectively, largely due to acquisition-related costs, higher incentive compensation, wages, and professional fees, which may pressure margins.

Presentation

[Operator]

Good day, everyone, and welcome to the Global Partners Second Quarter 2024 Financial Results Conference Call. Today's call is being recorded. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. With us from Global Partners are President and Chief Executive Officer Mr. Eric Slifka, Chief Financial Officer Mr. Gregory Hanson, Chief Operating Officer Mr. 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.

[Sean Geary, Chief Legal Officer and Secretary at Global Partners]

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. 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.

[Eric Slifka, President and CEO at Global Partners]

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 convenience 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 nine months, we've invested more than $500 million to significantly expand our wholesale segment footprint through the strategic acquisition of a combined 29 terminals from Motiva Enterprises and Gulf Oil, more than doubling our storage capacity to 21.4 million barrels. These terminals expand our geographic reach within New England, along the Eastern Seaboard and into Florida, the Gulf Coast, and Texas.

[Eric Slifka, President and CEO at Global Partners]

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. 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 14th to unitholders of record as of the close of business on August 8th. Let me turn the call over to Greg for the financial review. Greg.

[Greg Hanson, CFO at Global Partners]

Thank you, Eric, and good morning, everyone. As we review the numbers, please note that unless otherwise noted, all comparisons will be with the second quarter of 2023. Adjusted EBITDA was $121.1 million in the second quarter, compared with $90.4 million. Net income was $46.1 million, compared with $41.4 million in the second quarter of 2023. Distributable cash flow was $73.1 million in the second quarter of 2024, compared with $54.8 million in 2023, and adjusted DCF was $74.2 million, compared with $53.3 million. LTM distribution coverage as of June 30th was 1.8 times, or 1.6 times, after factoring in distribution to our preferred unitholders. Turning to our segment details, GDSO product margin increased $22.4 million in the quarter to $221.5 million. Product margin from gasoline distribution increased $19.4 million to $147.3 million, primarily reflecting higher fuel margins year-over-year.

[Greg Hanson, CFO at Global Partners]

On a cents per gallon basis, fuel margin increased 5 cents to 36 cents in Q2 2024 from 31 cents in Q2 2023. Station operations product margin, which includes convenience store and prepared food sales, sundries, and rental income, increased $3 million to $74.2 million in the second quarter of 2024, highlighting the continued success of our merchandising efforts. At quarter end, our portfolio of fueling stations and C-store sites totaled 1,595. Additionally, we operate 64 sites under our Spring Partners retail joint venture. Looking at the wholesale segment, second quarter 2024 product margin increased $32.2 million to $91.9 million. Product margin from gasoline and gasoline blend stocks increased $31.4 million to $70.4 million, primarily due to the acquisition of the Motiva terminals in December of 2023 and more favorable market conditions in gasoline.

[Greg Hanson, CFO at Global Partners]

Product margin from distillates and other oils increased $0.8 million to $21.5 million, 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 first quarter earnings call, certain products in our wholesale segment were negatively impacted by the timing of mark-to-market valuations in the first quarter. Those impacts were fully recovered in the second quarter. Commercial segment product margin decreased $0.6 million to $6.2 million, primarily due to less favorable market conditions. Turning to expenses, operating expenses increased $19.6 million to $130 million in the second quarter, largely related to the terminal acquisitions from Motiva and Gulf. SG&A expense increased $5.6 million in Q2 2024 to $72.3 million, primarily due to increases in long-term incentive comp, wages and benefits, and professional fees.

[Greg Hanson, CFO at Global Partners]

Interest expense increased $13.7 million to $35.5 million in the second quarter of 2024, primarily due to the interest expense related to the 8.25% 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 $15.6 million, consisting of $8.9 million of maintenance Capex and $6.7 million of expansion Capex, primarily related to investments in our gasoline station and terminal businesses. For the full year of 2024, we currently expect maintenance capital expenditures in the range of $50 million-$60 million in expansion capital expenditures, excluding acquisitions, in the range of $60 million-$70 million, relating primarily to our gasoline station and terminal businesses.

[Greg Hanson, CFO at Global Partners]

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 30th, 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 30th, we had $281.2 million in borrowings outstanding on our Working Capital Revolving Credit Facility and $200 million outstanding on the revolving credit facility. As I noted on our Q1 call, on April 15th, we fully redeemed all of 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, it is expected to be approximately $0.09 accretive per unit on an annual basis.

[Greg Hanson, CFO at Global Partners]

Turning to our upcoming investor relations calendar, next week we will be participating in the Citi 2024 One-on-One 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.

[Eric Slifka, President and CEO at Global Partners]

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 2024 by continuing to execute our strategic growth objectives and deliver value for our unitholders. With that, Greg, Mark, and I will be happy to take your questions. Operator, please open the line for Q&A.

[Operator]

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, if you would like to ask a question, press star one on your telephone keypad. 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.

[Selman Akyol, Managing Director at Stifel]

Thank you very much. Congratulations on a nice quarter. I 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. 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? Maybe you could just explain that a little bit more.

[Eric Slifka, President and CEO at Global Partners]

Hi, Selman. It's Eric. I would say, generally, M&A remains active, both in the terminal business as well as in the retail business. But we've bought a lot of terminals relative to our total terminal count here in the last six 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 out unit train capacity. 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.

[Eric Slifka, President and CEO at Global Partners]

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

[Mark Romaine, COO at Global Partners]

Yes. Good morning, Selman. It's Mark. Those efforts are spread across the entire portfolio, and they're not new. 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 that's an ongoing effort through the entire portfolio, and we'll continue to work away at that.

[Selman Akyol, Managing Director at Stifel]

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

[Greg Hanson, CFO at Global Partners]

Hey, Selman. It's Greg. How are you doing? Yeah. I mean, we continue to be encouraged by the JV. I think it opens up another geography for us on the retail front, especially a large state and one of the largest convenience store markets in the U.S. And yeah, I mean, we hope to continue to grow that joint venture. As Eric mentioned, the retail M&A market continues to be pretty active, so we can continue to look at all opportunities in that geography to potentially, hopefully, expand that.

[Selman Akyol, Managing Director at Stifel]

Got it. Thank you so much.

[Operator]

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

[Eric Slifka, President and CEO at Global Partners]

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.

Participants

Executives

• Eric Slifka, President and CEO
• Greg Hanson, CFO
• Mark Romaine, COO
• Sean Geary, Chief Legal Officer and Secretary

Analysts

• Selman Akyol, Managing Director at Stifel