Q4 2020 Global Partners LP Earnings Call
[music].
Good day, everyone and welcome to the global partners fourth quarter and full year 2020 financial results Conference call.
Today's call is being recorded.
At this time all participants are in a listen only mode.
Brief question and answer session will follow the formal presentation.
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, Ms Daphne Foster.
Chief operating officer, Mr. Mark Romaine and.
And executive Vice President and General Counsel, Mr. Edward Faneuil.
At this time I'd like to turn the call over to Mr. Faneuil for opening remarks. Please go ahead Sir.
Good morning, everyone. Thank you for joining us today.
Before we begin and 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 limited to projections beliefs goals estimates concerning the future financial and operational performance of global partners for.
Forward looking statements are based on assumptions regarding market conditions, such as and crude oil market business cycles demand.
And for petroleum products, including gasoline and gasoline blend stocks and renewable fuels.
Utilization of assets and facilities weather.
Market demand for C store offerings, and 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, including without limitation, the impact and duration of the COVID-19 pandemic.
Uncertainty around the timing of and economic recovery and the United States, which will impact the demand for the products, we sell and the services we provide.
Uncertainty around the impact of the COVID-19, pandemic to our counterparties and our customers and their corresponding ability to perform their obligations and will utilize the products, we sell and the services we provide and.
The uncertainty around the impact and duration of federal state and municipal regulations and directives related to the COVID-19 pandemic and as.
Assumptions that could cause actual results to differ materially from the partnership's historical experience and present expectations or projections. We believe these assumptions are reasonable given currently available information.
Our assumptions and future performance are subject to a wide range of business risks and uncertainties and addition, such performance and 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 or publicly release the results of any revision to any 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.
<unk> 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.
And it's my pleasure to turn the call over to our President and Chief Executive Officer, Eric Slifka.
Thank you Edward and good morning, everyone. Our global delivered extraordinary results in 2020 posting net income of $102 2 million adjusted EBITDA of $287 7 million and distributable cash flow of $156 4 million <unk>.
Increases in each metric year over year.
Global has always adapted and innovated for.
For me the most essential needs of the customers and the economic regions we serve.
Our performance in the face of a global pandemic underscores the resilience of our business model and highlights our fundamental role is a critical infrastructure company and.
And that role, we provide energy products and essential goods and services through a portfolio of fully integrated terminal supply and real estate assets.
And I also want to publicly acknowledge the outstanding work of our people from.
From the frontline associates, and our gas stations and convenience stores and terminals.
And our office personnel locations throughout the country.
And a year like no other they kept our operations running smoothly and ensuring the safety of our guests and customers, while helping us innovate and grow.
And as an organization philanthropy is and our DNA. This past year, we prioritize causes at a hyper local level supporting the residents and communities, where we live and work.
Throughout the pandemic, we have donated thousands of meals to frontline workers and those in need providing health care workers and first responders with free gift cards to fuel up at our retail locations and participated in a number of volunteer projects.
Turning to our distribution.
And January of this year the board of directors of our general partner declared a quarterly cash distribution of 55 cents per common unit or $2 20 on an annualized basis on all outstanding units for the period from October one to December 31, 2020.
The distribution, which was paid February 12 to unit holders of record as of the close of business on February eight mark the third consecutive quarter and which the board has increased the distribution.
It's worth noting that in 2020, we returned $64 8 million to common unitholders and the form of distributions.
We remain focused on delivering long term value for our unit holders through cash distributions as well as through capital investments and strategic acquisitions with the goal of mid teen returns are higher.
Moving to our recent operating highlights and December we tried and agreement to purchase the retail fuel and convenience store assets, our consumer petroleum of Connecticut incorporated.
The acquisition includes 27 company operated retail gas stations with wheels branded convenience stores in Connecticut, as well as fuel supply agreements for approximately 25 gas stations in Connecticut, and New York.
We expect the transaction to close and the first quarter of this year subject to regulatory approvals and other customer and customary closing conditions.
Separately, we are expanding our presence and the greater Philadelphia market with the addition of retail assets that complement our existing wholesale unbranded business and position us to grow our retail branded and independent dealer business.
And our rail and waterborne terminal and Oregon, we have begun receiving shipments of renewable diesel under long term contract with a leading downstream energy company.
In addition, we recently secured a U S department of agriculture grants to upgrade and expand five of our liquid energy terminals in the northeast to handle larger volumes of Biofuels.
Work that will broaden our ability to move these mandated deals through our network.
These efforts are part of a larger initiative at global.
It is and initiatives centered on leading and expanding our role and the distribution of renewable energy whether that is liquid fuels electric fuel stations or other environmentally sustainable solutions.
Across our businesses. We are thinking ahead, not just about next year or the year after but the coming decades, we are confident that our business and assets provide the bridge to a greener future and we are positioning to continue our legacy of providing essential energy and goods and a low carbon world.
Internally, we have formed and environmental social and government governance, working group, which has been tasked with identifying developing and initial set up.
Net of business relevant ESG metrics based on frameworks, including those developed by the sustainability accounting standards Board and the energy infrastructure Council.
Every day, our team is challenged to innovate adapt and grow.
From transforming our retail offerings and spaces to leading initiatives to promote increased adoption of greenfields to future proofing, our business for new new energy technologies and consumer choices, we are motivated and excited about the role our real estate and terminal assets play and the <unk>.
Future of the markets we serve.
Well I don't have a crystal ball to determine which technologies will emerge what I can say is that we are staying curious focusing on those that makes sense and our business model and taking advantage of opportunities to transition the business and a conscientious manor manor.
Now, let me turn the call over to Daphne.
For her financial review Daphne.
Thank you, Eric and good morning, everyone.
And as Eric highlighted we performed well in 2020, despite an uncertain macroeconomic environment our results speak to the resiliency of our integrated business model the quality of our assets and the versatility of our terminal network.
As we go through the results. Please keep in mind that net income EBITDA adjusted EBITDA and DCF in the fourth quarter and full year of 2020 include a $7.2 million.
For the loss on the early extinguishment of debt related to the October 2020 redemption of the 7% senior notes due 2020 three.
For full year 2019. These metrics include a $13 $1 million loss on the early extinguishment of debt related to our repurchase of the six and a quarter per cent senior notes due in 2020 two.
Adjusted EBITDA for the fourth quarter of 'twenty, and 'twenty with $49 9 million compared with $46 2 million for the same period of 2019.
The $3 7 million dollar increase was driven by a 13 point for a million dollar increase and combined product margin due largely to more favorable market conditions and our wholesale segment.
The increase was partially offset by the $7.2 million of loss on early extinguishment of debt and.
And a two and a half million dollar increase and combined operating and SG&A expenses.
For the full year adjusted EBITDA was 287.7 compared with $2 $33 seven for the same period and 2019.
The $54 million of inquiries increase was driven by a $51.6 million increase in product margin largely due to the extreme contango market structure and the dramatic shift of the forward product pricing curve during the year.
The 5.9 million dollar decrease and loss on early extinguishment of debt also contributed to the year over year increase and adjusted EBITDA.
Net income attributable to the partnership was for 4 million and the fourth quarter of 2020.
Compared with a net loss of <unk> 8 million for the same period and 2019.
For full year, 2020 net income was one O $2 2 million compared with $35 9.002 million 19.
DCF was $7 3 million and the fourth quarter of 'twenty, and 'twenty compared with $9 4 million and the prior year period DCF for full year, 2020 was $1 $56 4 million compared with $95 7.002 million 19.
TTM distribution coverage as of December 31st 'twenty, and 'twenty was a healthy 2.4 times or 2.3 times after factoring and distributions to our preferred unitholders.
We generated excess cash flow after distributions and after expansion Capex net of proceeds from asset sales of approximately $62 million.
Turning to our segment details.
Judy So product margin in Q4 was 143.6 million down $3 4 million compared with the year earlier period for.
Merrily, reflecting the adverse impact of COVID-19 on our convenience store sales.
And the gasoline distribution contribution to product margin was up a million and the quarter to $92 6 million were.
Reflecting a four cents per gallon increase in average fuel margin to 26 cents with more than which more than offset a 13% decrease and volume year over year.
Station operations contributed 51 million day product margin down for 4 million from the fourth quarter of 2019 due to less activity and our convenience stores.
For full year, 2020 G. D. So product margin increased $4 3 million to $603 9 million driven by a six cents per gallon increase and average fuel margin to 29 cents and twenty-twenty.
Which more than offset a 16% decrease in volume.
Gasoline distribution contributed 798 million net product margin for the full year up $23 5 million from 2019.
Station operations product margin, which includes convenience store sales sundries and rental income was $205 9 million for full year, 2020 down $19 2 million from 2019 due to the effects of the pandemic.
At the end of 2020, our G. D. S. O portfolio consisted of 15 and 48 sites comprised of 277 company operated stores 273 commissioned agents 208, lessee dealers and 790 contract dealers.
Looking at the wholesale segment fourth quarter, 'twenty, and 'twenty product margin increased $23 7 million to $39 1 million.
The fourth quarter of <unk>, 19 was a particularly weak quarter for wholesale due to an oversupplied market.
In contrast, and the fourth quarter of 'twenty, and 'twenty supply tightened and the forward product pricing curve flattened.
Gasoline and gasoline Blendstock product margin contributed $17 6 million to wholesale product margin up $10 2 million from the same period and 2019.
Product margin from other oils and related products, which include distillates and residual oil was up $13 2 million to $24 2 million.
Product margin from crude oil was negative $2 7 million and the fourth quarter slightly better than negative $3 million a year earlier.
For full year, 2020 wholesale segment product margin increased $60 6 million to $183 1 million from $122 5.002 million 19, due primarily to the extreme contango market structure and the dramatic shift and the forward product pricing curve during the year.
Our network of storage terminals and positioned us to take advantage of these favorable market conditions, which drove year over year margin increases in each of our wholesale product lines.
Gasoline and gasoline blend stocks product margin increased 16.8 million to 100.8 million for full year 2020.
Crude oil product margin increased $12 3 million to negative $700000 in 2020 from negative $13 million and full year 19.
Margin from other oils and related products was $83 million and full year, 2020, increasing $31 4 million from 51.6 million and 2019.
Turning to the commercial segment product margin decreased $6 9 million to $3 4 million and the fourth quarter of 2020, reflecting a decline and our bunkering business due to the pandemic.
And the drop off and Bunkering also was the primary detractor and the segment's full year results as product margin declined $13 3 million to $15 2 million.
Looking at expenses operating expenses decreased $3 4 million to 81.8 million and the fourth quarter and $19 1 million to $323 3 million for full year 2020. The decrease for these periods reflects lower expenses at our G. D S O sites, including lower.
Card fees due to the reduction in volume and price lower salary expense and part attributable to reduced store hours and lower maintenance and repair expenses.
The decrease in operating expenses at our G. D O S. G D. S O sites for the fourth quarter and for the full year 2020 was partially offset by increases and expenses associated with our terminal operations.
SG&A expenses increased $5 8 million to $49 4 million in the fourth quarter and part due to an increase and discretionary incentive compensation.
On a full year basis, SG&A was up 21.6 million to 192.5 million with increases primarily and incentive comp wages and benefits advertising professional fees and costs associated with the pandemic.
Interest expense was 21 million and Q4 of 2020 compared with 21.7 million and the year earlier period for.
Primarily due to lower average balances on our credit facilities as well as lower interest rates.
For full year, 2020 interest interest expense was $83 5 million down $6 3 million from the prior year for similar reasons.
Capex in the fourth quarter was approximately $36 7 million consisting.
Consisting of $22 2 million of maintenance and $14 5 million of expansion Capex, most of which relates to our gasoline station business.
Capex for the full year, 2020 was $76 3 million consisting of $47 million of maintenance Capex in line with our guidance of $45 million to $55 million and.
And expansion Capex of $29 3 million slightly below our guidance of $30 million to $40 million excluding acquisitions.
For full year 2021, we expect maintenance capex and the range of $45 million to $55 million.
And expansion Capex in the range of $40 million to $50 million.
We continue to manage our balance sheet prudently leverage which is defined and our credit agreement as funded debt to EBITDA was approximately 3.1 times at the end of the fourth quarter.
We continue to have ample excess capacity under our credit facility.
As of December 31, 2020 total borrowings outstanding under the credit agreement was three O $6 4 million, including $184 4 million under our $770 million working capital revolving credit facility.
And 122 million outstanding under our $400 million revolving credit facility.
In October we completed the sale of our previously announced a private offering of 350 million of six eight and seven 5% senior unsecured notes due 2029 and.
The net proceeds from the offering were used to fund the redemption of the 300 million seven per cent senior notes due 2020 three and to repay a portion of borrowings outstanding under our credit agreement.
As I noted at the beginning of my remarks, the redemption resulted in a loss in the fourth quarter of $7 2 million from the early extinguishment of debt associated with the call premium as well as the write off of unamortized deferred financing fees.
In summary, our 2020 performance was exceptional, particularly in light of the significant economic economic impact of COVID-19.
Our balance sheet is strong and our businesses are healthy.
Though we are not providing full year EBITDA guidance at this time our decision is based upon ongoing uncertainties surrounding the duration and impact of the pandemic on demand at the pump inside our stores and at our terminals.
We will of course continue to evaluate this decision as we move forward and gain more visibility into the timing of and economic recovery and those areas we serve.
With that let me turn the call back to Eric.
Thanks, Daphne and our ability to provide.
Liability, while adapting to changes and product demand continued to serve us well I.
And I want to close by again thanking our team for their commitment adaptability and innovation that allowed us to deliver the year's outstanding results and.
As we continue to embrace changes and consumer behavior and the demand for greener energy I am confident that our strategic assets and one global team, who will provide the essential goods and services that make life better now Daphne and I will be happy to take your questions 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.
And confirmation tone will indicate your line is and the question queue. You May Press Star two if you would like to remove your question from the queue.
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Yeah.
Thank you. Our first question comes from the line of Selman <unk> with Stifel. Please proceed with your question.
Thank you good morning, Joel So in your opening comments, you talked about sort of a bridge to a greener future and you specifically called out electric station. So I'm just sort of wondering what your <unk>.
Valuation there and is it getting anything to your existing footprint or would it be or.
Two two and existing station or would it be something as a separate station or is there anything you can share on that.
And it's it's it's Eric Slifka first of all I just want to correct. One statement that I made I inadvertently said consumers.
The company that we bought and Connecticut was going to close in Q1 and I meant Q2.
So I just wanted to sort of get that on the record. So there was no misunderstanding around there now Selman and regards to your question around sort.
Greener future and electric stations, we have one location, where we have a high speed electric charging a site that we partnered with Electrify America on AR and that site.
I can tell you has not had super high use.
And the capital Ah that Electrify America spent to do it was not and materials. So I think the goal for US here is to figure out a path.
That is profitable for the company two to include electric charging sites and locations typically they're off to the side, but there can be as many as five or six charging slots, what I'll call and you know I think we are considering it and every site.
And where we're tearing up the hard top and replacing and replacing tanks or replacing that hard top Ah, it's an opportunity where the ground is opened up to to basically put in the lines. So that we can that we can essentially if we decide to go to electric.
And what time, where we think we can make some profit we will pull the wires through and the conduit and then we'll make sure that where we're in a place to deliver.
That product to the consumer.
Understood. Thank you for that you also talked about.
Expanding terminal President I think for us.
For our energy or for.
For renewables there for Biofuels and.
Can you just maybe talk a little bit more about that and then I'll.
And so is that more.
Profitable relative to your current terminals.
So we think that there's a good return by making that investment on its face and essentially we're pushing very hard by example.
And taking a leadership role announcing a project carbon freedom and what that is is going to essentially.
State governments.
And providing an alternative fuel that lowers the carbon footprint.
And is cleaner than other other liquid or even electric alternatives today.
And it essentially is heating oil blended with biofuel.
And it's a partnership.
You know with bio producers to try and go to the states and say Hey look we have a fuel that is cleaner and better than the alternatives that are out there by example, natural gas and at certain blood levels and we think this is a good opportunity.
Opportunity to use the existing infrastructure, whether that is terminals or or tanks, and a consumer's home and their existing heating equipment to.
Actually push it as a better alternative to something that will be more costly.
Got it and then the last one you talked about sort of expanding your retail market presence and Philadelphia.
And maybe share some goalposts, there or do you think about it.
Yeah, I mean, there there was a couple of opportunities there with some some companies that were.
Getting out of the business or is it just had a few sites that we were able to pick up I think our total amount and Philadelphia, and and and I'm going to sort of look for my team there Mark Romaine and do you have the total count for.
For for that and fairly well for some reason I think it's about 15.
Mark Romaine and you're listening.
Yeah I was on I was on mute I think it's a bit higher than that I think it's like 27.
And with that we continue to add sites.
And so and and basically you know how are we thinking about that it's expanding our you know our retail footprint and to a different market place and my perspective is once you're on the ground.
And you sort of have a better feel for what deals are taking place and.
And it provides more opportunity growth for the company and multiple ways.
Very good thank you.
As a reminder, if you would like to ask a question press star one on your telephone keypad.
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Our next question comes from the line of Gregg Brody with Bank of America. Please proceed with your question.
Good morning, guys.
Hey, Greg.
Okay.
And so I, just you're increasing the dividend and points to obviously be here and you had which was better than it turned out better than expected and you cut it earlier and either.
What's the how you're thinking about that going forward.
Especially in light of the fact that you're not providing guidance yet.
Good morning, Greg It's Daphne.
And we you know we continue to have the same approaches I think we always have and which is basically you know in terms of making the distribution decision. We're looking at our performance and we're looking forward in terms of what our cash needs are you know for whether it's acquisitions or Capex and you know and keeping our balance sheet leverage in mind as well.
And so it's really a bit of a balancing act. Obviously this past year was particularly strong and you know as we cited the excess cash flow after distributions was very healthy.
Got it and then and your Capex guidance and the growth Capex number you provided.
How much of that would you say is fourthly and initiatives.
How much is from what sorry.
For some of your green initiatives.
I would say that the lion's share of the expansion Capex is really toward the retail side of the business you know the GDS Air segment.
And you know I don't think it's a material amount as of yet on the green side of the business.
Q2 for C entities initiatives Youre working on acquiring net growth.
Bumped and growth Capex, that's that's mature.
For I don't have and are you, saying for these initiatives.
Yes.
And using a high interest to cash flow testing and cleaner fuels and yeah. I mean, I think it's possible right I mean, there's we're having lots of conversations.
You know around other initiatives.
And you know.
There are deals that we have done but there are conversations and.
And.
You you won't know until you until you get there, but but certainly we have a what I would say is it is very busy day.
There's a lot of opportunity.
Okay. The field with the new administration is changing.
We're very aware of.
Of what those changes are and we're trying to make sure that we're plugged into them and.
And that we're opportunistic so that we can deliver solutions.
That that the government and the market is looking for.
And we're just trying to make sure that we're in position for that and what all of those ultimately end up being I don't know, but what I can tell you is just as we stepped into the renewable diesel transaction out on the West coast.
We continue to look to grow that business and fundamental ways and.
Anything else, you've got a you've got and manage the risk and the expenditure that surround it and you have to have the right contracts set up so that you're not taking unknown risk financial risk, but that's what we're driving towards.
And then just I've been noticing some announcements and areas that you're not as active wear and utilities and in the zone.
Or.
And to provide charging stations.
And you are are you and conversations with some of the utilities and and the areas that you operate for some people to participate and.
And joint ventures.
But.
So I would say more traditional.
Electric charging companies. So I'd say, we're you know sort of canvassing them. Because you know we look at the end of the day, what do I I believe I believe we have great real estate.
Okay that is going to be used.
By somebody to deliver energy.
Whether whether whether that energy is a electric or some other for them.
So I think we're positioned well to take advantage of that opportunity as it as it plays itself out.
The utilities are have not reached out to us, but the what I would say is the more traditional charging companies, where we've been in contact with most of them.
Right, but once again, it's about structure.
Does the demand a versus the cash.
Cost to do high speed charging.
At least in in these markets.
You know, it's a little bit of a tough process to do it on your own, but if you've canvassed partnerships and subsidies.
There there may be a possibility, but by example, you know we've got we've got stations are in Connecticut on the 95 corridor and that's an opportunity you know for electric as well right.
We've got stations that are off highways and those are all potential opportunities as well. It's just finding the right partnership that provides both of us value.
Got it and that's on the retail side, but I do think there's a terminalling opportunity well and you know we talk about the bio grant and that's a small investment and its timing and its permits, but and you're gonna grind away at it and build your blocks out and you know hopefully in the you know and in.
A couple of years will be in a position where you know we have biofuels and many more of our terminal facilities right.
Yeah, no it's a.
And I'm sure.
And maybe what's going on right now that's interesting to hear your perspective on that.
Yeah, Greg I do that I think we're really and a good position here, because we're hard asset company right and and we're in a highly travelled locations and.
So at the end of the day, you know whoever decides that they're going to if they're if they want to really build it out and a big way you know we can be a provider of those assets to do them right and the infrastructure that we have can in fact help them to deliver that need as it grew.
Rose right because there's not a question about is this growing it's going to grow whether it gets mandated or not.
Right and so the question is around what technology wins, right, what battery technology wins right.
And and and you know and what percentage of the market does that take over and how long has it right, but it's you know it's complex because there's going to have to be a lot of subsidies and a lot of mandates to make it happen.
We just think that we will have a role and it.
That makes sense and then and just my last question what's.
With the rise in crude prices you've seen subsequent to the quarter.
Is are you seeing any pressure on margin or are you still able to hold and traditional retail margin.
And you've been putting off for a couple of quarters.
Yeah.
And I basically I would say.
You know the market has been and and up mode for I don't know how many months a lot of months.
What I would say broadly as you can you can sort of go look at and the Nymex versus gas Buddy, but generally even though the margins are squeezed from what they were in the pandemic.
You're generally pretty good.
That's it for me Thank you Peter.
Yeah.
Our next question comes from the line of net Paramorph with Wells Fargo. Please proceed with your question.
Hi, good morning, Thanks for taking the questions. Most most of my questions have been asked and answered I had one for Daphne could you maybe talk about some of the drivers behind the increase and our SG&A expenses in the fourth quarter I did catch the incentive comp piece, but just wondering what is a good number to use going.
Forward.
Yeah. Good morning, Yeah. The SG&A was heavy in the quarter, it had 49, or so and and $49 million and that was in part due to incentive comp as you mentioned as well is really the timing of other expenses.
And I'd say, it's a bit heavy on a run rate basis not materially you know for the full year, we had 192 million, which is although up year over year by more than $21 million and part again due to professional fees salaries and incentive comp.
And some COVID-19 related expenses and we did under spend during the year and certain areas and <unk> and cost as you know go up so I'd say you know SG&A as heavy in the quarter, but it's not materially up.
Got it and then one one more if I may just if you could provide your latest thoughts on on <unk>.
Okay.
And I don't have really any comment on on the ideas and you know there's nothing really to announce with regards to you know the existing OTR structure.
And so that's all I had.
Okay.
Thank you we have reached the end of our allotted time for questions. Mr. Slifka, I would now like to turn the floor back over to you for closing comments.
Thank you for joining us. This morning, we look forward to keeping you updated on our progress and stay safe everybody. Thank you.
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.