Q1 2021 Global Partners LP Earnings Call
Good day, everyone and welcome to the Global Partners first quarter 2021 financial results Conference call.
Today's call is being recorded.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
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With us from global partners are President and Chief Executive Officer, Mr. Eric Slifka.
<unk> Financial Officer, Ms Daphne Foster.
Keep operating officer, Mr Mark Romaine and.
Treasurer and incoming CFO, Mr. Gregory Hanson 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 let me remind everyone that this morning, we will be making forward looking statements within the meaning and federal securities laws.
These statements may include but are not limited to projections beliefs estimates concerning the future financial and operational performance of global partners.
Forward looking statements are based on assumptions regarding market conditions, such as the crude oil market business cycles.
And from petroleum products, including gasoline and gasoline blend stocks and renewable fuels.
<unk> of assets and facilities weather credit markets demand for convenience 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.
And without limitation on 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 from 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 handle and neutralize the products, we sell and on the services we provide on <unk>.
Certainty around the impact and duration of federal state and municipal regulations and directives related to the COVID-19, pandemic and 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.
And with regulation FD in effect it is our policy that any material comments.
Sir and 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 it is my pleasure to turn the call and grew our president and Chief Executive Officer, Eric <unk>.
Thank you Edward and good morning, everyone before we review the quarter, let me take a moment to welcome our treasurer, Greg Hanson and his inaugural call.
As we announced in March Gregg assumes the role of CFO on September upon daphne's retirement from growth.
And I'll have more to say on our Q2 call in August about Daphne's outstanding contributions to global over the past 14 years and the great work, Greg has done and the lead up to his promotion and welcome Greg.
With more than one third of the U S. Now fully vaccinated against COVID-19, and a growing number of businesses reopening the economic landscape is improving and industry wide fuel demand is increasing as more people take to the roads.
And the first quarter of 2020, one our fuel volume and G. DSO they'll still off from the same period and 2020 showed signs of rebounding from COVID-19 lows, while retail fuel margins remained relatively strong despite our significant first quarter spike and wholesale gasoline prices, which were up more than <unk>.
70, <unk> through mid March.
And our wholesale segment product margin and the first quarter of 2021 $25 million better than the same period a year earlier.
The improvement was driven by more favorable market conditions, primarily in gasoline and other oils and related products as well as colder temperatures.
Looking at recent highlights and the first quarter, we launched project carbon freedom of pioneering coalition designed to responsibly Decarbonize Augie and help states meet their climate goals through policies that expands the use of buy a book Biofuels, and new England, and New York and throughout the northeast.
This initiative brings together heating oil distributors farmers domestic biodiesel producers and policymakers from the northeast and Midwest.
Through outreach education and advocacy the coalition aims to bring awareness to several important realities that aren't addressed by climate sales, calling to electrify home heating across our region.
Project carbon freedom supports optimizing existing supply chain infrastructures in order to meet state and federal Decarbonization targets with domestically produced renewable biofuels, which are already being used to heat homes across the northeast and beyond.
Since the March launch, we have seen tremendous support across a number of sectors for this common sense approach.
And just two months, we mobilized over 700 advocates from 21 states contacted more than 500 state and federal legislators and signed up nearly 90 coalition members.
Complementing the rollout of project carbon freedom, we continue to increase our ability to move renewable fuels and help customers reduce their carbon footprint.
Toward that and we recently secured a U S Department of Agriculture Grant that will allow us to expand biofuel capabilities and five of our terminals and distribute higher blends of low carbon biodiesel to customers and the northeast.
Turning to G DSO to our G DSO segment.
We are continuing to expand our retail footprint and the greater Philadelphia market with the addition of more than 30 sites since mid 2020, which strengthened the integration with our terminal network and the Pennsylvania, and New Jersey markets.
We have and expansion capex range of $40 million to $50 million in 2020, one and plan to deploy that capital across a broad range of projects, including raze and rebuilds new to industry sites and Remodels from.
On the strategic standpoint are focused real estate investments are vital to the future delivery of motoring profit products, whether they be liquid fuels electric charging stations or other forms of energy.
Appealing to a growing consumer niche and and it investment and sustainability, we continue to broaden our homegrown all towns and fresh market footprint.
Our market provides fresh locally sourced chapter of and meals and provisions and cafe inspired spaces to sit and enjoy freshly brewed coffee with seven currently in operation. We plan to open seven more in 2020 early 2020 two.
On the M&A front the pipeline is very active.
We continue to evaluate opportunities to expand our geographic footprint and complement our service offerings and drive profitability and growth and.
And as I've noted on previous calls our capital investments and strategic acquisition initiatives are designed with the goal of mid teen returns are higher.
We spoke with you last quarter about our acquisition of retail fuel and convenience store assets of consumer petroleum up Connecticut. We now expect this transaction to close in the third quarter.
Turning to our distribution last month, the board of directors of our general partner declared a quarterly cash distribution of $57 50 per common unit or 230 on an annualized basis on all outstanding units for the period from January one to March 31 2021.
This marks the fourth consecutive quarter and which the board has raised the distribution, which is an important component of our overall cash capital allocation strategy and commitment to drive value for our unitholders.
Looking at the demand forecast for the upcoming summer driving season energy information administration projects that U S gasoline consumption will improve slightly from 2020, but still remain remained below towards the 2019.
While the EIA expects ongoing effects from the pandemic day have a significant effect on petroleum markets. This summer.
And those effects are expected to lessen through 2020, one as an increasing percentage of the U S population is vaccinated.
For our retail fuel business, which operates across 10 states improving demand trends depend very much on the pace at which each region schools youth sports and other extracurricular activities fully reopened and the return of rush hour commuters and all the other events that people that put people in their cars.
Heading into summer, we're encouraged by the day the data that appears to show many states turning a corner and terms of the pandemic will have to see how the rest of the year plays out.
With that let me turn the call over to Daphne for her financial review Daphne.
Thank you, Eric and good morning, everyone.
Let me begin this morning by discussing our recently completed series B preferred unit offering, which further positions us to capitalize on acquisition and our plan.
And its expansion opportunity.
Total of 3 million units were sold at $25 per unit generating net proceeds of approximately $72 2 million, which were used to reduce indebtedness under our credit agreement.
Distributions on the series B and it will be payable quarterly and a fixed rate of 19%.
Thanks Graham.
As previously announced a prorated initial distribution of 33 65 will be payable on May 17 to holders of record after the opening of goodness on me there.
Turning to our results and.
Adjusted EBITDA for the first quarter of 2021 like $40 4 million.
Paired with $45 4 million from the same period of 2020.
The $5 million Delta and reflects a decrease and combined product margin.
Largely from lower volume and retail fuel margin and our GDS Air segment and.
Well, if and increase in SG&A expenses.
And net loss attributable to the partnership with $4 3 million and the first quarter of 2021.
Compared with net income of $3 3 million and for the same period of 2020.
DCF was $14 million from the first quarter 2021, compared with 22 million in the prior year period.
Both net income and DCF in the first quarter of 2020 included a tax benefit of $6 $3 million related to the carry back net operating losses afforded under the cares Act.
And the first quarter of 2021, we received $15 8 million and cash refunds.
Is it that carry that.
TTM distribution coverage and the March 31, 2021 was 2.04 times or one nine and four time, asking bathroom and you and distributions to our preferred unit holders.
Turning to our segment detail GDS, so product margin in Q1 was $134 million down $25 5 million from parents with a year earlier period.
Primarily reflecting lower retail fuel margins.
Ex the impact of COVID-19 for a full quarter on retail fuel volume.
The gasoline distribution contribution to product margin was down 27 million and the quarter to $80 2 million, reflecting a $6.05 per gallon decrease and fuel margin to 24 cents per gallon, coupled with a four 9% decrease and fuel volume.
Volume in the first quarter 2021 outperformed our expectations.
And we were pleased with the fuel margin performance in light of the sharp increase and wholesale gasoline prices.
Wholesale gasoline prices were up more than 20 cash in January and February and an additional 25 mid March before prices starting to see and.
In contrast, the fuel margin and last year's first quarter benefited from a rapid decline in wholesale gasoline prices.
Which fell 97 cents per gallon and between the beginning and the end of March.
Station operations contributed $50 2 million product margin up $1 5 million from the first quarter of 2020.
Primarily reflecting increases in net and sundry.
At the end of Q1 on.
E D S L portfolio consistent.
<unk> hundred 66 sites.
Comprised of 283 company operated store channel.
And and 81 Commission agents.
And I didn't think lessee dealers and 790 day contract dealers.
Looking at the wholesale segment first.
First quarter 2021 product margin increased 25 million to 30.
$80 5 million driven by more favorable market conditions and temperatures that were 16% colder year over year.
Keep in mind that wholesale margin and the first quarter of 2020 with one of the lowest in many years and pandemic related demand disruption and a price war between Saudi Arabia, and Russia caused a rapid decline in prices, resulting in a steepening of the forward product pricing per.
While that steepening adversely affected margins in the quarter.
Large catastrophe and our terminal network positions us to take advantage of the contango market.
Gasoline and gasoline Blendstock product margin contributed $16 4 million to wholesale product margin.
$6 9 million from the same period in 2020.
But was negatively impacted by end of quarter point and time valuation of inventories and just.
Product margin from other oils and related products, which include distillates and residual oil increased $18 2 million to $18 6 million.
Product margin from crude oil was negative $4 5 million and the first quarter of 2021 and 2020.
Turning to the commercial segment product margin decreased $1 1 million to $4 2 million and the first quarter of 2021, reflecting a decline and our bunkering business due to depend on it.
Looking at expenses operating expenses decreased $2 million to $80 5 million and the first quarter.
The decrease reflects lower expenses and our G D S L sites, including lower salary expense.
And part due to reduced store hours, and lower maintenance and repair expense and lower commissions and credit card fees related to the production and volume.
All of which were partly as a result of the pandemic.
SG&A expenses increased $5 4 million to $46 3 million and the first quarter.
Black and increases in crude incentive compensation.
Salaries and benefits and.
And acquisition related expenses, primarily related to the consumers petroleum transaction.
Interest expense was $20 4 million and Q1 compared to 21 6 million and the year earlier period.
Primarily due to lower average balances on our credit facility as well as lower interest rates.
Capex and the first Florida was approximately $16 9 million consisting of $7 million of maintenance Capex and $9 9 million of expansion Capex, excluding acquisitions, most of which relates to our gas station business.
For full year 2021, we continue to expect maintenance Capex and the range of 45 million and $55 million and expansion Capex and the range of 40 million and $50 million.
With the majority consisting of investments and a gasoline station and convenience store business.
Our balance sheet remains strong leverage defined and our credit agreement as funded debt to EBITDA of approximately two eight times at the end of the first quarter.
We continue to have ample excess capacity under our credit facility.
At March 31, total borrowings were $385 8 million, including $52 4 million under our $770 million working capital revolving credit facility.
And $33 4 million outstanding under our 400 million revolving credit facility.
Adding to our financial flexibility. This month, we entered into and amended credit agreement with our bank group on.
And my mother things between and extends the maturity date from April 2022 to May 2024.
It reduces the applicable rate for borrowings and letters of credit.
Increases their working capital revolving credit facility from seven and 78 million to $800 million.
And increases the revolving credit facility and 400 million to 459.
Looking at our Investor calendar, we will be participating virtually and several upcoming events, including the EIC Investor Conference.
<unk> energy credit conference.
And the Stifel Cross sector insight conference, but they're on.
And what have you who will be attending we look forward to meeting with you.
Now, let me turn the call back to Air Force.
A closing comment.
Thanks, Daphne and looking ahead, we're falling through on a number of strategic initiatives and positioning ourselves to take advantage of our infrastructure low carbon fuel and other opportunities.
We remain focused on our strategy to grow through organic initiatives and strategic M&A, we have a robust pipeline of retail investments and other projects planned for 2021 and believe that we are well positioned for the future.
Now Daphne and I are happy to take your questions operator.
Thank you and 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.
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Thank you. Our first question comes from the line of Sony and Agile with Stifel. Please proceed with your question.
Thank you good morning.
Morning.
Can you maybe talk a little bit more about what you're seeing and the M&A market.
Yeah, Hi, it's it's it's Eric you know it's just.
It's just very busy.
And on which is very busy so.
We continue to sort of look at companies and.
Try to do deals that will fit us and deals, where we can bring value and and be disciplined.
I don't look I I don't know if it's a you know people are being driven.
You know by taxes or other things, but.
It just continues to.
To be busy and there's a lot out there.
Are you seeing sellers expectations more reasonable more in line.
You know I think for us that we're in.
And I got to win every deal and.
And we do the deals that fit us that fit into our network and our system and so I don't know I'm not you know whether somebody thinks it's a lot or a little.
I think it's we just try to stay disciplined and and make sure that we'd get the returns for our investors and for the company.
Got it.
I think previously you had installed one or two charging stations and some of your stations and I'm just kind of curious how that was going.
Yeah, I mean, so so.
And so on one we've partnered.
And with Electrify America, and that's a high speed charging station I don't know the exact.
Trade, but very low single.
Very low single digits it might be one 2%.
Got it and and then the last one and you.
And you guys have been consistently.
Growing the distribution is there any comment you could make going forward.
Hi, gentlemen, and now and.
I don't think there's any kind of what we can give you in terms of forward guidance on distributions I think you know to the comment that we made and the script and and how we've always thought about it you know we're looking at what the investment opportunities are for us and how to provide the best return for investors, which doesn't and some distributions, so and making sure the balance sheets and.
Good shape and and deciding accordingly.
Alright, Thank you very much.
Our next question comes from the line of Theresa Chen with Barclays. Please proceed with your question.
Good morning, Thank you for taking my questions and I wanted to touch on the Biofuels front and just wanted to ask about your early learnings on your renewable diesel handling activities at Cross Tonight, and if that's you know and any of those lessons are translatable to what you were trying to do and the north.
East.
Yeah, I mean on it.
Terms are.
Say renewable diesel on the West coast.
It's for us the handling of it.
Has been I'd say.
Pretty seamless.
I think.
The production side of it.
Is maybe is maybe a little bit different than that and just how it gets transported but in terms of the facilities and our ability to take it and our ability to control it manage it it's been it's been pretty seamless.
Got it and just understanding a little bit on the puts and takes on the economic process related to COVID-19. So is the product primarily being distributed within Oregon and or do you also handle the low transportation that bad to California.
So yeah and that facility, where it's just a throughput it's a long term throughput agreement and you know and the business partner it takes it out by barge or ship and.
And they delivered to wherever they want to take it.
And then there's land and it's.
Its likely its going to California.
Okay and.
I can't tell you that with the 100 per sensor.
Got it and.
And as you know incremental production capacity is likely coming on line.
And need to throughput agreements Ah before destination terminals when you are.
And we negotiate or when you contract these agreements and to begin with what do you think about the economics on the fee relative to Oh, but like a traditional petroleum product would typically command.
Yeah, I mean, I don't I don't you know I don't think I don't think they're all that much different I mean, it's a you know that.
Particularly facility.
Has.
Rail and rail out.
It has tankage and.
And it has a large dock right and and those are really the premises that that help it to be.
The asset to be positioned well.
And the marketplace and.
And so.
The real question is and isn't on on the rates per se, but it's you've got to have those certain attributes to be competitive for.
That business.
Got it and.
As Washington State recently passed and its own Greenfield standard legislation and the state Assembly is that incremental opportunity for it that terminal on to handle additional products and you know there will be more and demand and the Pacific northwest.
I mean, specifically I believe that there will continue to be additional.
Pressure.
On every state to lower their carbon footprint.
Historically, California, so to lead the way on that I am not sure every stage is going to follow it exactly.
But I do believe as we move forward.
Whether it's a renewable diesel or some other liquid fuels.
And that there's going to be opportunities on the demand side and I think it's just generally just very generally got to be got to become a broader fuel that gets used not just on the west coast, but really you know throughout the country right. So at the end of the day, we have this base and infra.
And structure.
And how do we take that infrastructure and move those renewable fuels for either for ourselves or for partners because I do believe it's going to over time take a.
A piece of demand.
Away from what I would say is historical you know historical appeals.
So it's kind of a I think it's an opportunity.
So all of this change and this is just very generally all this change may create some anxiety, but it creates a lot of opportunity because because you have to change with the opportunities there are new and they were different and you've just got to be aware of them and then try to market into them.
Right. So I I look at it as a glass is half full.
Got it thank you.
Okay.
Our next question comes from the line of Med Derm off with Wells Fargo. Please proceed with your question.
Hi, Good morning, first off Daphne Congrats on your retirement and Greg Good luck and and your new role.
And my my first question is on fuel margins and the GDS low segment.
Could you maybe talk about how fuel margins have been trending in the months of April and May and.
And and what your expectation is for the rest of the year, given rising crude oil prices and likely higher fuel demand.
This is driving season shapes up to be more normal than what we saw last year.
Not sure I'll I'll give you the specifics on April and then in terms of margin, but I would say that overall and we've continued to see this over the last couple of years and certainly saw that this past quarter in terms of Ah in and off market margins continued to be better and I was actually looking back at first quarter of 19.
First quarter of 19 on price.
And so we're going after the 50 50 balance the last two months of that year, and then going back to 19, and 2000, Twenty's and obviously, an aberration and a.
Margins were 23 cents per gallon this quarter and they were twice.
<unk> per gallon and prices increased 70.
And through mid March and then back up above that.
And so we continue to be pleased with the margins relative.
In an upmarket and and so our bias would be that that should continue on and has been somewhat of an offset to the shortfall in volume, but the expectation is that volume will continue to.
And pickup and and.
And motor and traffic.
Got it thanks for this and then could.
Could you could you talk about the closing of the Connecticut acquisition. It seems that it was delayed by a quarter or so so just wondering what's driving the longer process here and and also to the extent and you can comment on this can you provide any financial metrics are related to this transaction.
Yeah. So so we just in terms of the timing it's just.
Just slipped a little bit you know and we continue to work with government agencies to come.
Come to a resolution so but.
And we really feel like it just slipped a little bit there.
And what was the second question again.
And if you could provide any financial metrics related to this transaction and I totally understand it you can't really comment on day given hopefully.
The completion of the deal.
Yeah, I you know what.
I'd say is as you know it you know in our and our comments today earlier on the call.
Our deals are.
Roughly you know mid teen kind of kind of deals I'd say that's consistent.
Okay got it. Thank you and then last question I presume the preferred issuance in March.
And there was the funding or vs. The bulk of the funding and you need to close book and how you could deal.
And you look at other potential M&A transactions and how how do you think about the potential fundings on future acquisitions.
Hi, Good morning, net well, we have three 3 million outstanding on our revolver today and a $450 million revolver. So you know we have you know size.
Sizable flexibility if you will having said that we're always going to be looking at our leverage and making sure that on balance sheet is in good order book.
And we Upsized back up from 450 on the revolver, and and obviously rates and perhaps being opportunistic more than anything else.
It makes sense and that's all I had thank you so much.
There are no further questions 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 everybody enjoy the weekend. Thank you.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.