Q2 2021 Global Partners LP Earnings Call
Good day, everyone and welcome to the Global Partners second quarter 2021 financial results Conference call.
A 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.
Today's call is being recorded.
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.
Treasurer and incoming CFO, Mr. Gregory Hanson.
And Mr. Sean Gary acting General Counsel, and vice president of mergers and acquisitions.
At this time I'd like to turn the call over to Mr. Gary 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 of federal Securities Law. These statements may include but are not limited to projections beliefs goals and 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 demand for petroleum products, including gasoline and gasoline blend stocks on renewable fuel.
Realization of assets and facilities weather credit markets demand for convenience store operators, 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 on duration of the COVID-19 pandemic uncertainty around the timing of an economic recovery in the United States, which will impact the demand for the products we sell on the services we provide on <unk>.
Certainty around the impact of the COVID-19, pandemic to our counterparties and our customers and their corresponding ability to perform their obligations <unk> utilize the products, we sell and the services, we provide uncertainty around the impact on duration of federal state and municipal regulations indirect is 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. 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 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 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.
Now it is my pleasure to turn the call over to our President and Chief Executive Officer, Eric Slifka.
Thank you Sean good morning, everyone and thank you for joining.
I'll begin this morning with an in memoriam in May we were deeply saddened by the sudden passing of our executive Vice President and General Counsel Edward Faneuil, Eddie was a tragic colleague a loyal friend and trusted adviser from I had the privilege of working with for the past 30 years.
Business he was a skilled negotiator and his personal and professional life.
He was his caring present and abundantly, giving to family friends and associates as anyone I've ever known.
It was a wonderful human being and colleague and we all Miss him dearly.
Okay.
Turning to our results our second quarter performance was solid, particularly in light of the extraordinary market conditions in Q2, 2020, and the rising commodity price environment in the second quarter. This year.
Our G DSO segment product margins were up nicely year over year.
Higher fuel volume helped drive the increase in our gasoline distribution product margin, suggesting at least for the moment.
Debt the significant demand destruction caused by COVID-19 has begun to subside.
Retail margins remained relatively healthy in Q2 of 'twenty, 1 despite a sharp rise in wholesale gasoline prices during the quarter.
The station operations component of GSO also performed well.
Product margin grew due in part to a rise in sales as foot traffic across our C stores increased.
While we were not immune from the effects of the driver shortages or supply chain issues that have affected many sectors of the economy in recent months, we saw no material impact from those issues.
Our associates and partners did an outstanding job, keeping our stores stocked and minimizing any disruptions.
And looking at our performance in the wholesale segment, it's important to put the results in contact with the extraordinary market environment of the second quarter of 2020.
Last year's second quarter was marked by a significant recovery in the supply demand imbalance caused by COVID-19 related demand destruction and the geopolitical events in Russia, and Saudi Arabia.
This recovery caused historic contango and ultimately flattening of the forward pricing curve substantially benefiting our wholesale product margins well.
This year's second quarter saw far less favorable market conditions. This segment performed consistent with our expectations.
On our Q1 call I highlighted the launch of project carbon freedom across industry effort organized by global to advocate for legislation that supports the growth of renewable liquid heating fuel in the northeast.
To date the initiatives has generated nearly 5800 advocacy letters for more than 800 advocates during this year state legislative sessions.
And I'm extremely pleased to report that since its March 8.1 large project carbon freedom or PCF.
Has supported the successful passage of landmark biodiesel mandates in New York, Rhode Island and Connecticut.
The heating season approaches PCF will continue to build out and work with its coalition of more than 100 organizations to empower industry stakeholders, including consumers with tools and resources to forge a responsible equitable path toward carbon neutral home heating.
Turning to our distribution last week the board of directors of our general partner declared a quarterly cash distribution of $57.50 per common unit or $2.30 on an annualized basis on all outstanding units for the period from April 1 to June 30.
2021 day.
The distribution will be paid August 13th to unitholders of record as of August night.
On the M&A front, we are hopeful that our acquisition of consumers patrol petroleum of Connecticut will close this quarter subject to finalizing pending regulatory approvals.
Looking ahead, we remain committed to building on the strength of our terminal and retooled retail portfolio through strategic acquisitions, and organic growth initiatives, raze and rebuilds and new to industry locations and site enhancements that enable us to deliver value quality and hospitality.
For our guests.
We recognize the growing changing consumer demands and fueling habits and are positioning ourselves to be a local a location of choice whatever the fuel type maybe.
We continue to prepare select retail sites for EV infrastructure explore other green technologies and expand our cafe Wi Fi and fresh food options. In addition to rolling out touch free purchase options.
Fuel terminals and stations are integral to the energy needs of the regions and we serve that.
<unk>, we serve and will remain so as we move forward.
As many of you know Daphne is retiring this month after nearly 15 years with global.
The past 8 as our accomplished an extremely hardworking CFO.
1 of the perks of my job is being able to work alongside with some of the best people in the industry.
Daphne has been a terrific business partner forging great relationships with our bank group guiding several successful financial transactions and helping to put us in a strong financial position.
She has also built a strong finance team, enabling us to promote from within our ranks our new CFO Greg Hanson.
Greg's business acumen leadership skills and outstanding relationships with our banking partners make him an ideal choice.
I want to thank Gaffney for all she has achieved and wish her a happy and healthy retirement and a lower handicap.
Vas.
Eric.
And good morning, everyone.
Before we dive into the numbers, let me take a moment to express my appreciation to Eric and to everyone at global I'm very grateful to have had the opportunity to work alongside the talented and dedicated team for the past 14 plus years.
And I am proud of everything we have accomplished.
It's been challenging exciting and rewarding and I have so many wonderful relationships during my time here.
We did see an extremely capable hands, Greg has done an outstanding job and our treasurer and my colleague since coming on board in 2013, and I know that he will be an outstanding CFO.
I also want to acknowledge the many well wishes I have received from our analysts.
Investors and banking partners since announcing my retirement in March it has been a pleasure working with you.
As Eric noted and looking at our second quarter results.
It's important to keep in mind the difficult comparison with our record performance in Q2 of last year.
Which benefited from the flattening of the forward product pricing curve, providing an extraordinary benefit to our wholesale segment product margin.
Net income for the second quarter of 2021 was $12.1 million compared with $76.3 million for the same period of 2020.
Adjusted EBITDA was $58.7 million compared with $126.6 million in the year earlier period, while DCF was $26.6 million versus $95.8 million in the second quarter of 2020.
Please note that EBITDA adjusted EBITDA and DCF for the 2021 period included $6.6 million for compensation and benefits, resulting from the passing of our general counsel and Matt.
TTM distribution coverage as of June 32021 was 1 times or 9 times after factoring in distributions to our preferred unit holders.
Turning to our segment details.
<unk> performed well despite a sharp increase in wholesale gasoline prices during the quarter.
So product margin in Q2 was $162.4 million up $16.8 million compared with the year earlier period and significantly higher retail fuel volumes more than offset a decline in retail fuel margins.
The gasoline distribution contribution to product margin was up $4.5 million in the quarter to 1 on $1.3 million.
Despite a 9 cents per gallon decrease since you're on margins to $25.6.
Retail fuel volume increased almost 42% to 2.
200 to 395 million gallons.
Volume for the second quarter of 2021 outperformed our expectations, although they continue to be below 2019.
In addition, we were pleased with fuel margins in light of the 22 cent per gallon rise in wholesale gasoline prices during this year's second quarter.
Wholesale gasoline prices were up approximately 5 cents per gallon during April.
During may and an additional 10 sense by the end of June.
Station operations also were strong contributing 61.1 million to product margin.
$12.3 million from the second quarter of 2020.
Due to an increase in activity at our convenience stores.
At the end of Q2, our GSO portfolio consisted of 564 sites comprised of 283 company operated stores 283 commissioned agents 2 O 5 lessee dealer.
793 contract dealers.
Looking at the wholesale segment second quarter product margin was $33.5 million down $78.5 million from the second quarter of 2020, reflecting the extreme and favorable shift in market structure during <unk> 'twenty.
For example, as we pointed out last year. The gasoline curve went from 20 contango at the beginning of April to 12 cents backwards at the end of June and.
In contrast throughout most of this year's second quarter, the gasoline curve with more than 20 backwards.
Similarly, the distillates curve decrease from $18.05 contango to 8 cents contango during <unk> 'twenty as compared to this year's second quarter when it shifted from slight contango to slight backwardation.
In terms of products wholesale gasoline and gasoline Blendstock product margin was $23.5 million in the second quarter of this year down $34.8 million from the second quarter of 2020.
Product margin in other oils on related products, which include distillates and residual oil with $13.3 million down $31.2 million from the year earlier period.
Product margin from crude oil was negative $3.3 million in the second quarter of 2021, compared with positive $9.2 million a year earlier.
Negative margin in <unk>. This year reflects very little activity and $3.6 million of expense for 2 pipeline commitments, 1 of which and in <unk> of this year, which will reduce the quarterly pipeline expense to approximately $2 million until the commitment and at the end of 2022.
No.
While there are varying market conditions that impact every quarter.
Note that the $33.5 million wholesale product margin in this year's second quarter compares to a range of 31 million to $39 million in each of the second quarter of 2017 to 2019.
Turning to the commercial segment product margin increased approximately <unk> 2 million to $2.7 million.
Looking at expenses SG&A was $54 million down $5 million from the comparable period of 2020.
During this year's second quarter, we incurred a $6.6 million expense associated with the passing of our general counsel.
The expense relates to contractual commitments, including the acceleration of grant previously awarded as well as a discretionary award in recognition of his more than 30 years of service.
Excluding the $6.6 million on a pro forma basis SG&A would have been down approximately $11.6 million, largely reflecting lower accrued incentive compensation expenses.
Operating expenses increased $11.5 million to $88.2 million in part due to an increase in credit card fees, which are a function of volume and price.
Higher rent and maintenance expenses also contributed to the increase due in part to greater activity at our stores as well as the expansion of our footprint in the greater Philadelphia area, where we have added more than 30 sites since mid 2020.
Interest expense was $20.3 million in Q2, compared with $21.1 million in the year earlier period.
Primarily due to lower average balances on our revolving credit facility as well as lower interest rates.
Now, let me turn the call over to Greg to discuss Capex and the balance sheet.
Thanks, Stephanie excuse me, thanks, Tom and good morning, everyone I want to Echo Eric's comments and thanks, Cathy for servicing loans.
Excuse me on an outstanding leader and I wish her the best in her retirement.
Capex in the second quarter was approximately $21.8 million.
Listing up $11.3 million on maintenance, Capex and $10.5 million on expansion Capex, excluding acquisitions. The majority of the Capex related to our gas station business for the full year 2021, we continue to expect maintenance capex in the range of $45 million to $55 million. We now expect expansion capex in the range of $50 million to $60 million.
With the majority consisting of investments in our gasoline stations and C stores, where we continue to see opportunities for projects with strong returns.
Our balance sheet remains strong leverage defined in our credit agreement as funded debt to EBITDA was approximately 3.7 times at the end of the second quarter on a trailing 12 month basis, we continue to have ample excess capacity under credit facility.
As a reminder, in May we entered into an amended credit agreement with our bank group.
On the other thing the agreement extended the maturities of debt maturity date from April 2020 to May 2024 reduced the repo borrowings and letters of credits increase their working capital revolving credit facility from $770 million $800 million an.
And increased our revolving credit facility from 400 to 450.
As of June 30, total borrowings were $376.3 million, including $342.9 million under our $800 million working capital revolving facility and $33.4 million outstanding under our $450 million revolving credit facility.
Looking at our Investor calendar, Eric and I will be participating in the Citi 2021, 1 on 1 midstream energy infrastructure conference taking place virtually on August 18th and 19th.
For those of you who will be attending we look forward to meeting with you.
Now, let me turn the call back to Eric for closing comments.
Thank you Greg.
Well, we are still mindful of the potential for economic uncertainty related to COVID-19.
We remain confident about the role of global partners will play.
We'll continue to play and fueling the nation's energy needs.
Now Daphne, Greg and I will be happy to take your questions operator.
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Thank you. Our first question comes from the line of Selman <unk> with Stifel. Please proceed with your question.
Thank you first off deftly have fun on the next leg of the journey.
And then Greg will look forward to working with you.
So let me just start off with you you referenced the volume sort of outperformed your expectations and I'm wondering can you just share any color on how that's gone since the end of the quarter.
Yes.
Yes.
Yes, Selman this is mark.
I think as you see.
We have said and you just mentioned volumes had had been have been outpacing our expectations, but keep in mind, that's where we're.
On a forecast a return of volumes, which obviously is difficult based on the situation, but I think we've been pleased with how volume has returned and sales have returned to the stores.
As we sit here in early August.
Sure.
We continue to see positive signs I will say that obviously our business as always can be impacted by things like weather in July it was a particularly tough months here in the northeast with respect to rein in attempts so.
That is a I think a factor of that.
Will affect us regardless of anything else, that's going on in the world, but you know as.
As we sit here today I think we're still pleased with where things are headed and obviously cautious about.
A resurgence in cases and whatnot. So we were.
We're cautiously optimistic.
Understood I think everyone is.
Concerned about sort of the.
Pre emergence and then can you just talk a little bit more about sort of EV infrastructure and maybe plans in.
Yes, with the U S. Now trying to aim to have 50% of car sales by 2030, EV, how you're just thinking about that or does it change your thinking at all.
I'll start this is mark again on now.
Eric can jump in if he's got some additional thoughts but.
Yes, I think it was yesterday's announcements.
No. We haven't really had time to fully digest that and sort through that I'm not sure that it changes our outlook radically because.
I think that's been something that.
It has been at the forefront of our minds for quite some time.
And the timing will be.
There's still a tremendous amount of uncertainty around timing I'm not sure yesterday's headline was a mandate, but it was it was maybe.
Something a little softer, but either way.
Just moving in that direction.
And so it's not crystal clear to us or perhaps even anybody how.
How things are going to unfold with respect to timing and exactly what that infrastructure and what the needs are going to be that being said we have we.
We have over the last few years, we've taken steps to either install.
Our partner with with other companies on installing EV charging infrastructure at a small number of our sites.
A lot of what we're looking at moving forward some of the projects that we have ongoing.
The raze and rebuilds are ntis, we are starting to plan for that infrastructure and it may not be a big deal, but it's things like designated parking spaces, bringing in conduit. So that we can wire transformers and Chargers.
Any new sites that will come on board or anything that we have to open up the ground floor.
So it's things like that and then obviously just trying to figure out how we play a role in.
Whatever comes whatever comes next.
It's like I said, not crystal clear at the moment, but we're trying to do the things that we can do now.
That may set us up to easily transition in the future.
So I'm gonna, it's Eric Slifka, I just want to add.
We have the base infrastructure.
That we believe ultimately is going to be used to deliver whatever that energy is so we have owned real estate. We have leased real estate locations that are in key geographies and we feel like we're going to play a role ultimately in any of that distribution.
And if the conversion goes.
Sort of goes to electric or hydrogen we think our locations are best suited to deliver that fuel of the future.
I can tell you I wish I could could made wave a wand and say, okay, I'm going to build a high speed charging network and I can make money on it.
I don't I don't know how to do that today.
And I don't know how long that's going to take.
And so although we can dip into the business of Evs.
Going full bore into it.
Today is not clear just because I don't know where those returns come from.
Understood.
So the utilization rates are low and frankly the costs are high right. You know if you wanted to do a fast charging you know facility.
It's 400.500000 Bucks.
To do fast charging right and in the utilization rates are still extremely low and that's not to say that that will change, but I think when the opportunity presents itself, we'll move forward with making the investments.
Got it.
And then maybe.
Can you comment a little maybe on just what youre seeing out there on the acquisition environment and then I guess.
Thinking about the whole ship DB.
It doesn't diminish your appetite for.
Acquisitions.
Yeah. So acquisitions continues to be very very busy and we're looking at.
The acquisitions of assets that fit our footprint and fit what we do well.
We will continue to chase that and it's about buying the right assets.
That that we think have long term value for the company.
Okay. Thank you very much.
Thanks Alan.
Once again, if you would like to ask a question press star 1 on your telephone keypad.
Okay.
Thank you we have reached the end of the question and answer session 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 enjoy the rest of the summer everybody. Thanks.
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.