Q4 2021 Global Partners LP Earnings Call
Good day, everyone and welcome to the Global partners fourth quarter 2021 financial results Conference call.
Today's call is being recorded.
There'll be an opportunity for questions at the end of the call.
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With us from global partners are President and Chief Executive Officer, Mr. Eric Slifka.
Chief Financial Officer, Mr. Gregory Hanson.
Chief operating officer, Mr. Mark Romaine.
And acting General counsel, and vice President of mergers and acquisitions, Mr. Sean Gary.
At this time I would like to turn the call over to Mr. Gary for opening remarks. Please go ahead Sir.
Good morning, everyone. Thank you for joining us before we begin let me remind everyone that this morning, we were making forward looking statements within the meaning of federal Securities laws. These statements may include but are not limited to projections beliefs goals and estimates concerning the future financial and operational performance of global.
Partners.
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 and renewable fuels utilization 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 and 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 and the services we provide.
Certainty around the impact of the COVID-19, pandemic to our counterparties and our customers and their corresponding ability to perform the obligations and utilize the products you sell and or the services we provide.
Uncertainty around the impact and duration of federal state and municipal regulations and directives related to the COVID-19 pandemic.
And other 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 faster 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.
It's 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 us sustained momentum in our G. DSO segment contributed to a solid fourth quarter performance for global <unk>.
Retail fuel volume and margins increased year over year in the quarter, while demand across our convenience store portfolio continued to improve amid the recovery in the U S economy.
Our Q4 results capped a successful 2021, and which we continue to navigate the pandemic and the related macro economic challenges that have affected virtually all industries during the past year.
Combined product margin, which came in at $802 million for the full year was on par with 2020.
That is remarkable.
That is a remarkable result, when you consider the extraordinary benefits of wholesale product margins that we saw in Q2 of 2020 as a result of the extreme shift and the forward product pricing curve.
Our performance this past year speaks to the strength of our vertically integrated assets.
High value portfolio comprised of approximately 401 and 450 leased property. These.
These assets help us create long term value for our unitholders and deliberate sexual performance for the consumers and businesses across the regions we serve.
Now, let me touch on our recent highlights which advance our strategy of driving profitable growth in consolidating market.
In November we signed an agreement to sell our Revere terminal in Boston Harbor for $150 million of cash the transaction is expected to close in the first half of this year subject to customary closing conditions.
As part of the agreement, we will lease back key infrastructure from the buyer and continue operations at the terminal post closing.
From a capital allocation perspective, the deal demonstrates our goal of optimizing our asset base.
Upon closing this transaction provides us with significant cash proceeds upfront and strong cash flows over the life of the agreement.
On the retail side, we recently closed two acquisitions that added nearly 50 company owned sites to our portfolio.
In January we completed the purchase of consumers petroleum of Connecticut.
The transaction included 26 company operated wheels convenience stores and the latest few operations in Connecticut and fuel supply agreements at 22 sites in Connecticut, and New York.
This month, we expanded our presence in Virginia with purchase of Miller's neighborhood market.
The transaction added 23 convenient stores, including 21 company operated sites and fuel supply agreements with 34 locations.
Like global consumers petroleum in Millers neighborhood market, our family founded businesses with a strong and loyal base of customers and in each case the acquisition enables us to leverage our scale supply relationships and integrated business model to enhance returns and our guests experience.
Turning to our distribution in January the board increased the distribution on a crummy yields by one cent per unit to $2 34 per unit on an annualized basis, maintaining our commitment to returning capital to our unitholders. This distribution was paid on February 14th to unitholders of record as of the close.
<unk> of business on February eight 2022 on.
On a personal note I'd like to express my gratitude to Ken watchmaker.
Tired from the board of directors in December Ken.
Kent had been a director since our initial public offering in 2005 and played a key role in our progress over the past 16 years and his retirement, we wish him health and happiness.
I'd also like to extend a warm welcome to Jamie Pereira, who joined the board in Q4, Jamie.
Jamie spent two decades as a partner at Ernst <unk> Young where he oversaw the firm's consumer products group in the northeast enacted as a coordinating partner for a variety of clients, including global.
Jamie brings to the board excellent accounting and financial skills as well as relevant consumer product experience, which will help us as we continue to grow.
Looking ahead, our strategy in 2022 is clear to.
To continue profitable growth by investing in and optimizing our portfolio and acquiring assets that complement our skills and enable us to generate mid teen returns. The M&A market remains very active and we continue to evaluate all opportunities that we consider appropriate to achieve our business objectives.
Our role in energy transition is also at the forefront of our plans we are aggressively pursuing opportunities to utilize our terminal assets for renewable fuels, while encouraging policies that promote and monetize their adoption.
To that end, we continue to advance our grassroots coalition project carbon freedom coalition of over 100 members and nearly a thousand advocates is promoting clean energy solutions that utilize the infrastructure and equipment. We have in place as a means to meet policy driven climate goals today.
Earlier this year, we on boarded an electric innovation strategy as part of our sustainability team the.
<unk> demonstrates our commitment to planning for electric vehicle adoption and responsibly, incorporating EV charging into our portfolio.
We continue to look for public private partnerships in the states and were recently awarded funds from the Commonwealth of Massachusetts to install fast charging electric vehicle charging ports at nine of our owned or controlled retail locations.
Finally, I want to acknowledge the global team, whose commitment growth mindset and execution allows us to continue delivering outstanding results.
As we look to 2022 we will continue to invest in our people, who underpin our ability to execute our strategy.
With that let me turn the call over to Greg for his financial review and Greg.
Thank you Eric and good morning, everyone as Eric noted, we kept a solid performance in 2020 , one with a strong fourth quarter highlighted by continued strength there Judy.
As we go through the results. Please keep in mind that net income EBITDA adjusted EBITDA and DCF and full year 2021 include a total of $9 7 million in compensation and benefits expenses associated with the passing of our general counsel and Matt and the retirement of our former CFO in August .
For the fourth quarter and full year of 2020. These metrics include a $7 2 million loss on the early extinguishment of debt related to the redemption of our 7% 2023 senior notes in the fourth quarter of 2020.
Adjusted EBITDA for the fourth quarter of 2021 was $66 million compared with $49 9 million for the same period in 2020.
The $16 1 million increase was due largely to our GDS air segment, which experienced higher fuel volume and margin as well as increased activity in the C stores.
For the full year adjusted EBITDA was $244 3 million compared with $287 7 million in the same period of 2020.
As Eric noted our full year 'twenty 'twenty results benefited from an extreme shift and the forward product pricing curve in the second quarter of the year and significantly strengthened our wholesale segment.
Net income for the fourth quarter of 2021 was $19 3 million compared with $4 4 million for the same period in 2020.
For full year 2021, net income attributable to the partnership was $60 8 million compared with $102 2 million for 2020.
DCF was $30 5 million for the fourth quarter of 2021, compared with $7 3 million in the prior year period D.
DCF for the full year of 2021 was $127 million compared with $156 4 million in 2020.
TTM distribution coverage as of December 31, 2021 was one five times or 1.3 times after factoring in distributions to our preferred unit holders.
Turning to our segment details GSO product margin in Q4, 'twenty, one was $177 million up $33 4 million from the year earlier period, reflecting a continuation of the strong margins increased fuel volume and C store activity, we saw in the second and third quarters of the year.
The gasoline distribution contribution to product margin was up $27 1 million in the quarter to $119 7 million, reflecting a four cent per gallon increase in average fuel margin to 30 from the prior year period.
While wholesale gasoline prices were relatively flat from the beginning to the end of the quarter the price volatility in the quarter led to an over 50 spread from the high to low prices experienced in the quarter.
Station operations product margin, which includes convenience store in prepared food sales sundries and rental income contributed $57 3 million up $6 3 million from the fourth quarter of 2020 due to increased activity at our convenience stores.
For full year 2021 junior so product margin increased $43 7 million to $647 6 million as a 13, 7% increase in volume offset two cents per gallon decrease in fuel margin to 27% from 29 cents in the prior year period.
Gasoline distribution contributed $413 7 million of product margin for the full year up $15 7 million from 2020.
Station operations product margin was $233 9 million for the full year 2021 up 28 million from 2020 at the end of 2021, our junior So portfolio consisted of 1595 sites comprised of 295 company operated sites 293 commissioned agents 201 and the C D.
<unk> and 806 contract dealers.
Looking at the wholesale segment fourth quarter 2021 product margin decreased $7 1 million to $32 6 million, reflecting less favorable market conditions and other oils and related products, partially offset by more favorable market conditions in gasoline and gasoline blend stocks largely in ethanol gasoline.
And gasoline Blendstock product margin contributed $23 9 million to wholesale product margin up $7 1 million from the same period in 2020.
Product margin from other oils and related products, which include distillates and residual oil was down $14 7 million to $10 8 million.
Product margin from crude oil was negative $2 1 million in fourth quarter up 500000 from a year earlier.
For full year 2021, wholesale product margin decreased $47 1 million to $138 9 million due to less favorable market conditions gasoline and gasoline blendstock product margin decreased $15 5 million to $86 3 million for the full year.
Product margin from other oils and related products was $65 4 million for the full year declining $19 5 million from 2020.
Crude oil product margin decrease from negative 700000 to negative $12 8 million.
Turning to the commercial segment product margin increased $1 9 million in the fourth quarter to $4 8 million, primarily due to an increase in volume sold and improve margins. Those factors also drove the segment's full year results as product margin increased $3 3 million to $15 6 million.
Looking at expenses operating expenses increased $10 9 million to $92 7 million for the fourth quarter and $30 3 million to $353 6 million for the full year. The increases were largely associated with our G. D. S. O operations, primarily reflecting increased credit card fees related to the increases in volume and price higher rent.
Expense and higher salary expense due in part to greater activity in our convenience stores.
SG&A expenses increased $8 5 million in the fourth quarter to $57 8 million in part due to higher wages and benefits and professional fees on a full year basis SG&A was up $20 4 million to $212 9 million as mentioned earlier during 2021, and we incurred a number of onetime SG&A expenses.
Excluding $9 7 million in one time compensation and benefits expenses mentioned earlier.
Excluding the $9 7 million SG&A would have been approximately $203 2 million for the year.
Interest expense was $19 7 million in the quarter.
Compared with 21 million a year earlier full year 2021 interest expense declined $3 4 million to $80 1 million.
Capex in the fourth quarter of 2021 was approximately $36 1 million consisting of $15 1 million of maintenance Capex and $21 million of expansion Capex, the majority of which relates to our convenience stores.
Capex for full year 2021 it was $101 7 million consisting of $43 2 million and maintenance capex slightly below our guidance of $45 million to $55 million and $58 5 million in expansion Capex in line with our guidance of $50 million to $60 million, excluding acquisitions for full year 2022, we expect maintenance capex in the range of four.
$45 million to $55 million and expansion capex, excluding acquisitions in the range of $50 million to $60 million.
We continue to manage our balance sheet prudently leverage which is defined in our credit agreement as funded debt to EBITDA was approximately three three times at the end of the fourth quarter, we continue to have ample excess capacity and aircraft facility.
As of December 31, 2021, total borrowings outstanding under the credit agreement were $398 1 million. This consisted of $354 7 million under our working capital revolving credit facility, which was increased in November by a 100 million to $900 million.
And $43 4 million under our $450 million revolving credit facility.
Looking at our upcoming IR calendar on March 10th we will be hosting one on one meetings at the credit Agricole, 15th annual global high yield and leverage Finance conference for those of you who are participating we look forward to meeting with you.
Now, let me turn the call back to Eric for closing comments.
Thanks, Greg as demonstrated by recent transactions, we continue to deliver on our strategy to optimize and grow our active wear.
We are focused on deals that provide ongoing cash flow and acquisitions to enable us to leverage our scale supply relationships and integrated business model.
We are putting significant effort into positioning our assets and infrastructure to play a critical role in the energy transition. While also investing in the people power that keeps us growing and innovating as critical infrastructure business, serving a significant portion of the U S. We are confident in our ability to provide the vital energy.
<unk> goods and services of today and Tomorrow now.
Now, Greg Mark and I will be happy to take your questions operator.
Thank you we will now be conducting a question and answer session.
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One moment, please while we poll for questions.
Thank you. Our first question comes from the line of Selman <unk> with Stifel. Please proceed with your question.
Thank you and good morning all.
Can you maybe just start off with just how are margins going in this current environment, given our consistent upward pressure we've seen on prices.
Okay.
Hey, Selman, it's Eric I would say, it's been really interesting over the past almost two years now.
There has clearly been a shift in the market.
As to how it passes through increased costs and margin and you know obviously there are no guarantees there, but you know over the last couple of years as we've seen markets increase.
You know in commodity cost margins have have either kept pace or increase at retail you know volumes give.
Given the change in flow are still low.
Bit off but.
It appears so far that those increase in costs.
And the margins that are needed to.
Increase with those costs have more than kept pace.
Alright, I appreciate that.
And then maybe could you discuss a little bit more.
What you're hoping or expecting out your out of your electric intubation strategist.
Yeah, I think and I don't know if there's any goalpost you can pull with that in terms of maybe how many charges you guys get installed or just anything we should be looking for I guess, yeah. I mean, I think I think look at the math, it's still difficult.
And so we're trying to be very thoughtful about how we approach it.
And are working with the state and the federal government to figure out how to expand that business in a thoughtful way is going to be really important.
That's not to say that you know and that's on the electric side right, but I do think.
They're very very broad brush way thinking about Terminalling. By example is there's gotta be a requirement to carry different fuels and different products.
That are less.
Less commodity than let's say gasoline.
And so I think that's going to be a fundamental pressure and change.
That happens to the business and I think theres going to be an opportunity around that.
Got it.
And then let me just ask you a little bit about G&A and I clearly hear you on the higher benefits wages coming out of Q3 as you noted there were some one time.
Fees in there for Daphne with $3 million. So when I look at the fourth quarter I'm really looking at sort of.
You know 51 to 57 and I'm just wondering is that.
The run rate sort of less higher professional fees should we be thinking about and is there any way you can maybe help quantify sort of what would the ongoing expense would be because you know clearly you've done a couple of acquisitions, you've had a disposition as well. So I'm just trying to figure out maybe the professional fees arent as recurring.
Just trying to get to a run rate.
Sure Hey, this is Greg asked us on how you're doing.
Does that help you out there yeah, I mean, even in the fourth quarter, we had a number of one time things. We didn't we didn't break them out, but we did have acquisition expense one time and we actually had some additional severance expense. Unfortunately from a passing of another another colleague in the in the quarter that said I would say overall you know our expectation is the run rate right now.
Little high we have we have added some overhead related to the acquisitions. We're also investing heavily on our HR and employee recruiting areas also in technology.
But we're also making a big push to hire additional top staff, who are sort of our human capital initiatives to help us further expand the business. So I'd say that the fourth quarter overall, it was a little bit a little bit heavy in that run rate should be a little bit better going forward.
Understood. Thanks, and then can you also just maybe just comment on the impacts you're seeing from inflation.
Yeah, I mean, I can start off and Erik and Mark you can you can go ahead, you know we I would say there has not been material impacts to our business I would say on the C store side, you know that we have seen some price increases from from our suppliers, but we've been able to pass those along to our consumers you know I think if you look historically the SEIS.
Door space has historically benefited not benefited but done much better during periods of inflation and Perry just potential recessions. So overall, we're not seeing and I would say we've seen some on the capex side from equipment and building materials, we've seen some inflation there that that could potentially impact the way we look at our.
Expansion Capex.
But nothing that's impacted our returns today.
Great.
And then last one for me you guys have any more potential assets for sale.
So we'd be thinking about that as being another source of cash this year, yes. So so so you know obviously, we always look to optimize well have you know and as you know.
Bye and consolidate businesses perspective.
It may change and so there is always a I'd say a natural churn of assets.
Is there anything material like that on the horizon, you know not that I'm aware of but that's not to say that that's not to say that you know.
If somebody came along and we thought we could get the right deal for the right asset that we wouldn't take a hard look at.
Doing something with it yeah, we have about 7 million in net proceeds from retail asset sales. Some into 2021, we still as Eric mentioned, we've got you know a number of sites that are on the market for sale, you know nothing big or material, but sort of our normal course upgrading of our portfolio as we turn through stuff. So you know I do from a.
Sort of capital financing perspective, I do view it as a as a source of proceeds to reinvest into our expansion capex on an enthusiasm raze and rebuilds, yeah, I mean, so and I do think it you know.
Hum.
Broadly.
Industrial space today.
Is is going for you.
Much bigger numbers than.
However.
And and and that Triple net prices that I don't think anybody would have ever imagined five years ago.
And so we're going to try and be efficient, if we can and if theres opportunity.
Got it okay. Thank you very much that does it for me.
Thanks, Adam.
Uh huh.
Thank you Mr. Slifka ahead, now I would 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 thanks, everyone and have a good day.
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.
Yeah.
Yeah.