Q3 2019 Earnings Call
Today's call is being recorded there will be an opportunity for questions at the end of the cool.
At this time participants on this call me mode. They question and answer session will follow with a formal presentation. If anyone should require operate assistance during <unk>.
Please press Star then one the telephone keypad.
With us from global partners, our President and Chief Executive Officer, Mr., Eric <unk>.
Chief Financial Officer, Ms., Daphne Foster Chief operating Officer, Mr., Mark, Romania, and Executive Vice President General Counsel Mr. Edward Federal.
The thought I'd like to trying to call Orbitz understandable for opening remarks. Please go ahead Sir.
Hi, Good morning, everyone. Thank you for joining us today.
Yeah, Let me remind everyone that this morning, we'll be making forward looking statements within the meaning of federal securities laws.
These statements may include but are not limited to projections beliefs goals and estimates concerning the future.
Financial and operational performance of global partners.
Estimates for global partners EBITDA guidance in future performance are based on assumptions regarding market conditions, such as the crude oil market business cycles demand for petroleum products, including gasoline and gasoline blendstocks and renewable fuels.
Utilization of assets, some facilities, whether credit markets, the regulatory and permitting environment in the Ford product pricing curve, which could influence quarterly financial results.
We believe these assumptions are we stumbled given currently available information and our assessment of historical trends.
Because our assumptions in future performance are subject to a wide range of business risks and uncertainties. We can provide no assurance that actual performance will fall within guidance ranges.
In addition, such performance is subject to risk factors, including but not limited to those described in our filings with the Securities and Exchange Commission.
Global partners undertakes no obligation to revise your publicly released the results of any revision to the forward looking statements that may be made during today's conference call.
With regulation FD and effect. It is our policy then any material comments concerning future results of operations will be communicated through news releases.
Publicly announced conference calls or other means that will constitute public disclosure for the purposes of regulation FD now. Please allow me to turn the call over to our President and Chief Executive Officer, Eric Slifka.
Thank you Andy Good morning, everyone and thank you for joining US we delivered strong third quarter results highlighted by product margin increases.
Our gasoline distribution and station operations benefited from higher retail fuel margins.
Fourth quarter results from our Champlain in Cheshire oil portfolio of retail stations and convenient stores, which we acquired in July of last year.
And our wholesale segment product lines, primarily benefited from favorable market conditions.
Turning to our distribution in October the board raise a quarterly distribution on a common units from 51, and a half sense to 52 cents per unit or two away on an annualized basis. The distribution will be paid on November 14th the common unitholders of record as of November Eightth in summary, we had a strong performance or the first nine months of.
2019, and our terminal network and retail assets provide us with a strong foundation as we move forward.
Now I'll turn the call over to Daphne for her financial review data.
Thank you, Eric and good morning, everyone.
As we go through the numbers. Please keep in mind that as expected net income EBITDA adjusted EBITDA and DCF for Q3 of this year include is 13.1 million dollar lots on the early extinguishment of debt related to the 400 million issuance.
2027 senior notes.
The repurchase of the 2020 turned out.
The $13.1 million consists of a 6.9 million dollar call premium and a 6.2 million dollar noncash write off of deferred financing C.
And on amortized original issue discount.
Third quarter 2019, adjusted EBITDA was 66.1 million compared with 37.2 million in the third quarter 2018.
Net income was 15.1 million versus a net loss a 14.1 million in Q3 2018.
DCF was 30.4 million compared with 5.3 million and the same prior year period.
TTM distribution coverage at the ended the third quarter was 2.2 times after factoring in distributions to the preferred unit holders that coverage was 2.1 time.
Turning to margins combined product margin in the third quarter increased 53 million to 210 million driven by growth in Virginia, So and wholesale segments.
Do you do you sell product margin increased 20.1 million to 168.7 during.
The gasoline distribution contribution to chronic margin was up 16.3 million.
Merely due to higher fuel margins and to a lesser extent Champlain and Chester acquisitions.
Average fuel margin per gallon improved approximately 3.9 sat at 25.4 cents from 21.5 cents in last year's third quarter.
Year over year volume and the judicial segment decreased approximately 800000 gallons due in part to the sale of nonstrategic retail site, partially offset by the acquisitions.
Station operations product margin, which includes convenient store sale.
Lets sundries and rental income increased 3.8 million and 61.1 million, primarily due to the acquisition, which added 47 company operated sites to our portfolio.
And the ended the quarter, our GDS, though portfolio consisted of 50 and 66 sites comprised of 295 company operated stores do you want and 53 Commission agent 221 lessee dealers.
797 contracts dealers.
You know wholesale segment, the gasoline and gasoline Blendstocks product margin increased 14.6 million to 20.2 million, reflecting more favorable market conditions and the comparison to a weak third quarter 2018.
We mentioned on last years Q3 call product margin swings quarter to quarter can sometimes be a matter of timing.
As prices change for instance product margin variability can be caused by marks at the end of a corridor, thereby impacting quarter and hatch and inventory values.
Chronic margin from crude oil was negative 3.0 million compared with a negative 7.6 million in the third quarter 2018.
The improvement from Q3 of last year, primarily reflects lower railcar related expenses.
Gross margin from other oil and related products increased 11.9 million to 17.1 million.
This increase was largely due to a more favorable market conditions, primarily in distillate and also and residual oil.
Volume in our wholesale segment increased 71 million gallons were approximately 8% due primarily to increases in gasoline and gasoline blendstocks.
In our commercial segment product margin increased 1.7 million to 7.2 million in the third quarter of 2019 with increases in multiple product lines.
Volume in our commercial segment increased 5 million gallons on increases in distillate and gasoline.
Turning to expenses operating expenses increased 4 million 87.8 million in the third quarter.
Approximately 3.1 million of the increase was associated with GDS, though primarily the Champlain in Cheshire acquisitions.
Well the remaining point 9 million was associated with terminal operations.
After <unk> expenses in Q3 were up 3.2 million to 45.3 million.
This included increases in incentive compensation and increases in wages and benefits in parts to support our GDS, though business, including the 2018 acquisitions, partially offset by 3.6 million and acquisition costs incurred in Q3 2018 that would not have incurred in the same period of 2000.
The 19.
Interest expense was 22.1 million in Q3, 2019, compared with 22.6 million in the year earlier period.
The year over year decrease was primarily due to lower average balances in our credit facilities.
Outstandings on our 850 million dollar working capital facility were lower primarily due to lower commodity prices and outstanding under our $450 million revolver were lower in part due to proceeds from asset sales and the issuance of this 100 million dollar notes.
Capex in the third quarter was approximately 22.5 million consisting of roughly 12.2 million of maintenance Capex and 10.3 million of expansion Capex.
The majority of these expenditures related to our gas station and convenient store business.
For full year 2019, we now expect maintenance Capex in the range of 45 to 55 million compared with the prior range of 40 to 50 million and expansion Capex in the range of 35 to 45 million compared with a range of 40 to 59.
Turning to our balance sheet leverage to find in our credit agreement as funded de <unk> debt to EBITDA was approximately 3.0 times at the end of the third quarter.
We continue to have ample excess capacity under our credit facility.
As of September 30, we had total borrowings outstanding of 449.9 million under our 1.3 billion dollar facility.
Including 197 million under our $450 million revolving credit facility.
And 252.9 million I know, our 850 million dollar working capital facility.
The reduction in Iraq revolver from 220 million at yearend 2018 to 197 million at September 30 was due in part to proceeds from the sale of assets as well as the larger bond offerings.
Turning to guidance based on our performance for the first nine months of the year, we're raising our full year 2019, EBITDA to a range of 225 million to 240 million before recognition of the $13.1 million loss on the early extinguishment of debt in the third quarter of 2019.
Again related to the recently completed private offering.
This guidance excludes any gains or losses on the sale and disposition of assets and goodwill and long lived asset impairment charges.
Before we go to Q and <unk> I wanted to let you know than in November we will be hosting one on one meetings at the RBC capital markets Midstream conference in Dallas.
In December we will be at the Bank of America Merrill Lynch leveraged Finance conference in both overtime and the Wells Fargo MLP Symposium in New York City.
So all those attending we look forward to meeting with you.
With that Eric and I will be happy to take your questions operator.
Thank you.
At this time, we will be conducting a question and answer session. If you would like to ask your question. Please press star one on your telephone keypad. They come from Atento Monica. Your line is in the question Q you. My first thought too if you like to remove your question from the Q for participants using speaker equipment, and maybe necessarily to pick up your handset before passing the Starkey one moment. Please what.
We pull for questions.
[noise].
Our first question comes when a lot of Ned Birmingham of Wells Fargo. Please proceed with your question.
Hi, Good morning, Thanks for taking my question I'll start with one on guidance. So based on the midpoint of the revised guidance range. It seems you're expecting a significant step down EBITDA in the fourth quarter.
And that's more than what normal seasonal weakness would imply is this driven by conservatism on your part or are there other dynamics at play.
Yeah. Good morning AD I mean, certainly the increase in guidance reflects the strong year to date performance, but it's really too early to predict the fourth quarter. As you know price movements can impact fuel margin on the retail side of business and Judy If those segment you know certainly weather can have an impact and then you know obviously a singular that's a hard.
Yeah, you know such as like we had in September with a salary undrawn attacks, which can have an impact. So it's really too early to tell.
That's fair.
And what is the latest on the potential IDR elimination transaction.
Ah well, certainly others and they'll be facing eliminated their I'd yards. You know that said, we periodically review our capital structure, we always are examining all opportunities in the marketplace.
Got it and then I guess, while we're on the topic of simplification or restructuring has the retail format come up in your discussions it seems that your assets would be well suited for this type of structure and also there is a bloody same concept that.
Yeah same comment I mean, I'm looking at alternatives alternatives out there you know looking to maximize our you know our position both from a structural in a different standpoint.
Thanks for the time this morning, that's all I had.
Thank you. Our next question comes from a lot of Jefferies. Jeremy Tonet of JP Morgan. Please proceed with your question.
Hey, Good morning. This is Charlie on for Jeremy I, just stepping back to the Fourq, you well not fourq guidance, but the increased a annual guidance.
I understand that obviously will be price movements that that'll dictate where fuel margin shake out, but when you look at guidance and as you may be start looking forward to 2020, what's the what's the kind of run rate or fuel margin that you typically a embedded into your guidance numbers.
Hi, good morning, Charlie.
Yeah, I mean, I can't give me a number you know directly on that I mean in terms of is you know the Judaism segment of fuel margins can go up or down just depending on what's happening in terms of alumina prices and frankly, that's not something that we you know worry about because you know netting that is pretty much down the fairway on an annual basis.
Okay, and then I guess this past quarter I mean, what was it largely kind of a price swings or was there any nothing that anything fundamentally change that that is helping improve margins on on the fuel side.
Yeah, I think if you look at the Nymex if you look at wholesale prices during the quarter you see that you know it basically a peak somewhere and you know mid to late July you know and then it was pretty much down in August and bottomed out you know early in September and then of course, obviously when you're pricing your gas relative.
To that very local competition for every site. So margins continue to hold willing in the last two months of Evercore.
Okay and on Opex, sorry, if I Miss in the prepared remarks to the tick up as that is that largely Champlain and treasurer was there anything else there.
No I think it in general that third quarter second quarter in third quarter can run a little heavier in terms of a you know what's happening in maintenance at the channels, but also at the stations you know that I would say in general that 87 million in terms in the third quarter certainly is on the second quarter and quite a bit up from the first quarter, it's probably been happy.
Okay great.
It's seasonal maintenance seasonal maintenance on anything at this moment okay.
And then the last question then looking at Yea data and seen at this thoughts inventory in the northeast are they appear pretty well I don't know how much that is influenced by the refinery outage with has but.
What does that.
What can that do as we kinda enter the heating season D.C. This potentially college in an issue with a shortage of inventory can that be can that be rectified pretty easily in terms of just importing more on a you know more more supply coming from colonial or I guess.
Imports.
Yeah. Good morning, it's Mark you're right distillate inventories are.
I think they might be below that the right at a 10 year low heading into winter and.
Regarding your question as far as how that get solved in the amount that you know lets say winners cold and demand spikes yeah. The market will just attract more barrels.
It's off to attract more barrels thought what you know what the in the impact of the low inventories will be you know.
Any disruption will be so.
A little bit a little bit greater though it could be more volatility I would say the you know the risk is to the upside here.
I'm distillate prices so.
Yeah, that's but yes, the market needs a barrel finds outages is that more imports.
Sure. It makes sense a that's it for me. Thank you.
I would like to remind our participants at this time, if you would like to ask a question over the audio portion of the conference. Please press star one on your telephone keypad.
Our next question comes from a lot of Linson of Hite. Please proceed with your question.
Hi, good morning, Thanks for taking the column.
It's congratulations great quarter, Oh, I have a two question first it folder Judy so.
You reported gross margin Oh, So a couple of your peers also report the emerging fourth quarter.
Let me speak about a industry.
Should we think you know there's something fundamentally.
Change or structural change for the industry that by average in marginally better than it used to be maybe less competition or some other reason.
Yeah, you know Uh huh.
You know very very very broadly.
Let a tariff.
There's been a lot of consolidation in the business. So I think that's one piece of it.
I think that you have had a lot of assets.
Change here again and go into.
Older ships that is.
You know that borrows a lot of money in order to sit by their assets.
And so so it could in fact, the that there's you know some change in the market.
But all it takes is one player.
To come in and upset the market. So let's see so he so I think there's really a couple of things going on here, yes, I do it back believe that structurally there's consolidation in the market. That's one thing, but yet it is also a market.
That can have.
Other disruptions that take place by players executing in different ways right and there are large independents out there who in certain markets.
You know have been really successful in executing on different models I also think that theaters, there's that risk.
There as well, so, but but I think generally there is consolidation in the market for sure.
Companies are leveraging to do those acquisitions not in a in a bad way.
But but so their economics are deferred.
And then there's also that other piece out there, which on the other side says if somebody has a business model that they can execute on in a better fashion than others right. There their economics are kind of be different and that's always fun.
Risk side of the equation.
Great. Thank you and also.
You mentioned that go into the winter there distillate inventories low it is part of their I'm more 20, twond impact or what are there.
And more 2020 impact you can as you're seeing is going to see in Q4 Q1.
So when your question was what is the impact that we're going to see on on due to IMO 2020.
Yes.
Yeah, it's a little hard to say, what the impacts going to be obviously, there's going to be a greater demand for lower sulfur fuel and that is presumably contributing to you know is to lower distillate inventories on a.
Larger scale.
Our expectation like it was for this year with respect to our bunker and reserved business is that you know anytime you're going through a snack change, especially one of this nature you know there's going to be increased volatility there's going to be they will likely be supply dislocations our expectation is that.
Given our storage position and our experience in the markets that we operate I think we're well positioned to continue to run the business and capitalize on.
You know conditions in the marketplace as they as they come out so it's kind of hard to say exactly what the impacts going to be I would say, it's been a choppy.
2000, 2019. So you know expect that same choppiness is going to continue into 2020, but you know we should be fairly well positioned for it.
So do you already see some customer Oh.
Changed there like a demand Oh youre asset or.
Too early to Dizzy.
Yes, probably a little early there may be some there may be some some ship owners that are.
Either recently or will will.
I'll just start transitioning but on a large scale basis it hasn't been a major factor.
You know if its indeed, it's probably occurring as we speak and will likely continue as we get through the end of the year.
Great. Thank you very much appreciate.
Our next question comes from a line of settlement.
All of Stifel. Please proceed with your question.
Hi, Good morning. This is well on for Selman just a couple of questions. A US you know came in this quarter a bit above what we would estimate and so just wondering if you could.
You know just your outlook on us and if that 45 is a good run right good run rate.
Yes. Good morning, Yeah. They ask you to have 45 million on third quarter. That's up you know certainly from 41 million or sell which was in both in the first and second quarter and the increase is largely due to an accrued incentive comp.
Okay.
And then.
Could use.
Maybe talk about the M&A market. What you guys are seen on what's going on out there.
[laughter] I take it continues to be active.
Obviously you've had.
Some major assets, particularly in these markets change hands.
You know I mean multiples are pretty high from what I can see.
You know, we'll try to participate.
And.
Any processes that are out there, but but it does seem as if there is.
Quite a bit movement.
The net you know that's across you know thats across the board not just retail, but terminaling as well.
Okay. Thank you.
There are no further questions over the audio portion of the conference I when I like to turn the floor back over to Mr. Slifko for closing comments.
Thanks for joining us. This morning, we look forward to keeping you updated on our progress have great day everybody.
[noise]. This concludes today's conference. Thank you for your participation you may disconnect. Your lines at this time have a wonderful rest of your day.