Q1 2020 Earnings Call

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Morning Financial results Conference call.

Today's call is being recorded.

It would be an opportunity for questions at the end of the program.

Well, that's from global partners, our President and Chief Executive Officer, Mr., Eric Slifka.

Chief Financial Officer, Ms. Daphne Foster.

Chief operating officer, Mr. Mark Romaine.

And chief.

Executive Vice President and General Counsel Mr. Edward Fanueil.

At this time I'd like to turn the corner call over to Mr. Fanueil.

Thank you you may begin.

Thank you good morning, everyone. Thank you for joining us today before we begin let me remind everyone that this morning, we will be making forward looking statements within the meaning of federal securities laws.

These statements may include but are not limit it to projections beliefs goals estimates concerning the future financial and operational performance the global partners.

Forward looking statements 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.

Elimination of African facilities, whether credit markets, the regulatory and permitting environment and the forward product pricing curve, which could influence quarterly financial results.

These statements involve significant risks and uncertainties some of which are beyond the partnership's control.

Routing without limitation.

The impact in duration of the covert 19 pandemic.

Uncertainty around the timing of an economic recovery in the United States, which will impact the demand for the products, we sell and the services we provide.

Uncertainty around the impact of the carbon 19 pandemic to our counterparties and our customers and a corresponding ability to perform their obligations and or utilize their products. We sell indoor services we provide.

Uncertainty around the impact in duration of federal state and municipal regulations and direct is related to covert 19 pandemic and assumptions that could cause actual results could differ materially from the partnership historical experience and present expectations or projections.

We believe these assumptions are reasonable given currently available information and our assessment of historical trends.

Because our assumptions in future performance is subject to a wide range of business risks and uncertainties. We can provide no assurance that actual performance will fall within any guidance ranges. In addition, such performance is subject to risks factors, including but not limited to those described in our filings with the Securities Exchange Commission.

Well the partners undertakes no obligation to revise it publicly released the results of any revision to the forward looking statements that may be made during today's conference call.

With regulation FD in effect. It is our policy that any material comments concerning future results of operations will be communicated through news releases.

But we announced conference calls or other means that will constitute public disclosure for the appropriate purposes of regulation FD.

Now my pleasure. Please allow me to turn the call over to our President and Chief Executive Officer, Mr., Eric Slifka.

Thank you Ed Wirth, good morning, everyone and thank you for joining us in these difficult not certain times I hope that you and your families are staying safe.

Before reviewing the quarter I want to begin by thanking the people across our organization for their unyielding commitment to our guests and customers first and foremost we are critical energy infrastructure business, what I'm proudest job is the 3800 global employees on the front lines, including terminal operator.

Convenience store associates store managers and office staff.

This crisis they have <unk> they have come through for those who are also on the front lines first responders doctors nurses truck drivers and others by safely delivering fuel as well as other daily goods and services at a time when much of the country was understood.

Hey at home orders.

I also want to talk about the measures. We took early on to get ahead of the Corbett 19 from a health and safety perspective, specifically, we proactively mobilized our crisis incident management team in anticipation of the possibility that the virus could strike in the regions, where we operate.

Our real time crisis management exercises enabled us to successfully execute our business continuity planning in a measured and deliberate manner.

In addition, we have transit transitioned to our office staff to working remotely a move that has been successfully implemented and we believe has long term bandwidth.

We also put procedures in place across our terminals stations and retail stores were the primary focus in mind, continuing to provide essential products and services, while prioritizing the safety and well being of our employees guests customers.

And suppliers in the communities, where we do business.

Today, some eight weeks after Kobin 19 first made its present felt I'm proud to say that our locations are open.

Rating and fulfilling that commitment.

To navigate the challenges of this unprecedented environment, we've implemented a number of operational measures at our stations stores and terminals from providing gloves in mass for employees to putting in place social distancing procedures, all with an eye towards keeping our team members guests business and suppliers.

Safe.

We also have taken a number of actions to provide additional financial flexibility in this challenging environment. These include reducing the quarterly distribution on our common units amending our credit agreement drawing on our revolver and putting that cash on our balance sheet and reducing planned expenses and twentytwenty.

Capital spending.

Looking at our first quarter in light of the circumstances, we were pleased with our Q1 performance.

In our G.D.S., so segment gasoline distribution product margin was up 23% year over year.

This increase reflected the decline of wholesale gasoline prices due to covert 19, and the price war between Saudi Arabia in Russia.

While the decline in wholesale prices negatively impacted our wholesale segment product margin in the first quarter, our excess storage capacity in our terminal network position just to take advantage of the contango environment, resulting from the Steepening forward product pricing curve.

[noise] from mid March into April, we saw reductions of more than 50% and gasoline volume and more than 20% and convenient store sales fewer cars on the road translates to fewer guests at our stores, resulting in fewer sales at the register.

Social distancing guidelines and directives limiting food operations at our convenience stores have also contributed to a reduction in in store traffic and sales fuel margin to NRG Dsos segment declined in April but still remained strong.

Over the past few weeks, we've seen a slight uptick in volume customer count and convenience store sales, we could reasonably expect that increase to continue as states begin to lift restrictions and allow nonessential businesses to gradually reopened.

It's a promising sign but we remain cautious given the very many variables and uncertainties associated with coded 19.

I think it's fair to say that our businesses change in the past eight weeks. These changes will be with us for an indefinite period, and we would certainly expect to see an increasing cost to comply with both governmental directives and the other voluntary measures we adopt to support the safety of our employees customers.

Ours and suppliers.

That being said, we think that over the long term where advantage by having a strong and integrated asset base and while the near term outlook remains uncertain, we believe that our diversified product portfolio and significant storage capacity provide operating and financial flexibility that will enable us to.

Whether the current market challenges and capitalize on opportunities as market conditions improve.

Now, let me turn it over to Daphne to review our financial results in detail Daphne.

Thank you, Eric and good morning, everyone.

As you've heard our first quarter results reflected in part pandemic related demand destruction and the price war between Saudi Arabia, and Russia, which caused a rapid decline in prices.

This decline had a positive impact on fuel margin.

So segment, but a negative impact on the product margins in our wholesale segment.

In addition significantly warmer weather during this years first quarter negatively impacted margins of our weather sensitive products.

First quarter 2020, net income was 3.3 million compared with net income of 7.1 million for the same period of 2019.

Q1, 2020 net income reflects recognition of a 6.3 million dollar tax benefit.

Connection with the carry back of losses under the carriers Act for which we expect to receive cash refunds of approximately 15.8 million.

Adjusted EBITDA was 45.4 million in the first quarter of 2020.

This is 58.6 million in a year earlier period.

DCF was 22 million in this year's first quarter compared with DCF of 27.8 million in the same period of 2019.

[noise] trailing 12 month distribution coverage at the end of the first quarter was 1.33 times after factoring in distributions to the preferred unit holders that coverage was 1.23 times.

Turning to our segment details GDS Air product margin was I didn't 55.9 million up 17.5 million from 138.4 million in the first quarter of 2019 due to higher fuel margins.

Gasoline distribution contribution to product margin increased 19.8 million in the quarter.

The 107.2 million.

Reflecting the rapid decline in wholesale gasoline prices, which fell 97 cents per gallon between the beginning in the end of March.

Average fuel margin per gallon increased seven and a half sense, just 30.5 cents from 23 cents in the first quarter of 2019.

Volume declined 28 million gallons in part as states restricted travel and issued stay at home or similar like directives.

Station operations product margin, which includes convenient store sales sundries and rental income declined 2.4 million to 48.6 million also in part due to the pandemic and reduced in store foot traffic.

At the ended the quarter our GDS. So portfolio consisted of 50 836 sites comprised of 283 company operated stores 258 commissioned agents do you want in 14 lessee dealers in 781 contract to dealers.

Looking at the wholesale segment.

First quarter 2020 product margin declined 30 million to 4.9 million due to less favorable market conditions.

Including the Steepening forward product pricing curve caused by the rapid decline in prices.

Brazelton contango at the end of March was significant for all products we handle.

By example at the end of March in distillate.

The December 2020 price for U.S.P. futures was approximately 18 cents per gallon more than they may 2020 price for U.S. East futures.

Storage capacity in our terminal network positions us to be able to take advantage of this contango environment.

In Q1, 20 gasoline and gasoline Blendstocks product margin decreased 17.9 million to 9.1 million in part due to the rapid price decline in Steepening forward curve.

In contrast during the first quarter of 2019 gasoline product margin benefited from tight supply due in part due to planned and unplanned refinery outages.

Product margin from crude oil was negative 4.4 million.

An improvement from negative 6.2 million in the comparable period of 2019 in part due to lower railcar related expenses.

Product margin from other oils and related products was point 2 million down 13.9 million from Q1 2019.

The decrease was primarily due to less favorable market conditions largely in residual oil, but also in distillates again in part due to the steep price decline caused by cobot 19 and geopolitical events.

Significantly warmer weather in the first quarter of 2020, then in Q1 19 also adversely affected product margin and other oils and related products.

Temperatures in the first quarter of 2021, 19% warmer than normal and 15% warmer than a year earlier period.

Product margin in the commercial segment decreased point 5 million to 5.9 million.

Turning to expenses operating expenses were down point Fourmillion to 82.5 million in the first quarter of 2020.

<unk> expenses were down point 2 million to 40.9 million in the first quarter, reflecting lower incentive compensation and professional fees offset by increases in wages and benefits and other s. Gina expenses, primarily related to our gas station and convenience store business.

Interest expense of 21.6 million in the quarter was down 1.3 million year over year due to lower average balances on our credit facilities and lower interest rates.

Capex in the first quarter was approximately 11.7 million consisting of 7.3 million of maintenance Capex and 4.4 million of expansion Capex, primarily related to our gas station business.

As Eric noted, we have proactively taking a number of steps to maintain or financial flexibility in response to the on certain business environment.

These steps include a 25% reduction of the quarterly cash distribution on all outstanding common units for the period from January 1st to March 31st 2020.

We also have reduced planned expenses, such as discretionary expenses, a new hires and have reduced to 2020 capital expenditures.

For full year 2020, we currently expect maintenance capital expenditures of approximately 40 to 50 million.

Compared with our previous estimate a 45 to 55 million.

We expect expansion capital expenditures, excluding acquisitions of approximately 15 to 25 million compared with our previous estimate of 30 to 40 million.

We also in an abundance of caution borrowed 50 million under our revolving credit facility that is included in cash on the balance sheet.

Therefore, leveraged <unk>, which is defined in our credit agreement as funded debt to EBITDA was approximately 4.2 times at the end of the first quarter.

And includes the incremental 50 million borrowing.

Excluding that 50 million leverage would have been four times.

As of March 31st we had total borrowings outstanding for 51 point, Sixmillion, including 242.7 million under our revolving credit facility into a weight point 9 million under our working capital facility.

We have entered into an amendment to our credit facility that provides us with temporary covenant release for four quarters, starting June Thirtyth 2020, with an increase in our combined total leverage ratio covenant and a reduction in our combined interest coverage ratio covenant.

We voluntarily reduce the total facility commitment by 10% from 1.3 billion to 1.17 billion consisting of a 400 million dollar revolving line of credit down from 450 million.

And a $770 million working capital line of credit down from 850 million.

As noted in this morning's <unk> earnings release, given the uncertainty about the impact of Cobot 19 on operations and demand. We are withdrawing our previously issued full year 2020, EBITDA guidance, which was originally provided on March six 2020.

In summary, we believe that we are operationally nimble and that our portfolio of assets presents us with opportunities in these uncertain times and volatile markets.

With that Eric and I will be happy to take your questions operator.

[noise]. Thank you.

Ladies and gentlemen, we will now be conducting our culinary session if you'd like to ask a question. Please push star one on your telephone keypad now a confirmation towable indicate your line isn't the question Q.

You may push star to if you'd like to remove your question from the Q.

And for any participate using speaker equipment, it may be necessary to pick your per handset before pushing the starkey.

One moment, while we pull for questions.

Ladies and gentlemen, we have no questions in queue. At this time I would like to turn the floor back over to Mr. slifka for closing comments.

Thank you for joining us. This morning, we look forward to keeping you updated on our progress please everybody be safe. Thank you very much.

[noise]. Thank you ladies and gentlemen, this does conclude our teleconference. For today you may now disconnect. Your lines at this time. Thank you for your participation and have a wonderful wonderful.

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