Q1 2022 Global Partners LP Earnings Call

Good day, everyone and welcome to the Global Partners first quarter 2022 financial results Conference call.

Today's call is being recorded.

There will be an opportunity for questions at the end of the call.

If anyone should require operator assistance during the call. 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, Mr. Gregory Hanson.

Keep operating officer, Mr. Mark Romaine.

And Chief legal Officer, and Secretary, Mr. Sean Geely.

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 before we begin let me remind everyone that today's call will include forward looking statements within the meaning of federal Securities laws.

These statements include projections expectations and estimates concerning the future financial and operational performance of global partners.

These forward looking statements are based on assumptions regarding market conditions business cycles demand for liquid LNG products and convenience store products utilization of our assets and facilities, the regulatory and permitting environment. The forward looking products.

<unk> curve and other factors, which could influence our 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 and its impact on our counterparties, our customers and our operations as well as other assumptions that could cause actual results to differ materially from the partnership's.

Darko 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 uncertainties and factors, which are 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 it is my pleasure to turn the call over to our President and Chief Executive Officer, Eric Slifka.

Thank you Sean Good morning, everyone. We opened 2022 with a strong first quarter highlighting the value of our vertically integrated liquid energy distribution system.

We executed effectively in the quarter delivering significant increases in net income adjusted EBITDA and distributable cash flow.

As our Q1 performance demonstrates we are delivering on the key tenets of our strategy acquiring great assets and enhancing our portfolio through N T I's and raze and rebuilds, while managing our terminalling and wholesale business to maximize returns.

M&A remains a focal point of the company over the past 12 years, we have built a formidable retail presence.

Creative deals that have broadened our geographic footprint our.

Our recent acquisitions of consumers petroleum of Connecticut, and Miller's neighborhood market demonstrate our success in identifying acquiring and integrating additional assets into our portfolio generating synergies and adding to our scale.

These transactions added over 100 retail locations significantly increasing our retail presence in the mid Atlantic region highlighted by our first company operated locations in Virginia.

We spent a combined $215 million for these two acquisitions and we anticipate a return in the mid teens.

We also continue to advance our renewable fuel initiatives positioning the company to take advantage of new opportunities, whether those involve liquid renewables or other products.

Turning to our distribution in April the board voted to increase the quarterly distribution on our common units by one set per unit to $2 38 per unit on an annualized basis. The distribution will be paid on may 13th to unitholders of record as of the close of business on May nine.

Now, let me turn the call over to Greg for his financial review and Greg.

And good morning, everyone.

Net income for the first quarter was $30 5 million compared with a net loss of $4 3 million for the same period in 2021.

Adjusted EBITDA for the first quarter was $74 9 million compared with $40 4 million for the same period in 2021.

DCF increased to $49 9 million compared with $14 million for the first quarter of 2021. Please.

Please note that EBITDA adjusted EBITDA and DCF include a $4 9 million net gain on the sale and disposition of assets for the first quarter of 2022.

LTM distribution coverage as of March 31, 2022 was one nine times or one seven times after factoring in distributions to our preferred unit holders.

Turning to our segment details GSO product margin in Q1, 22 was $173 million up $42 6 million from the same period in 2021.

The gasoline distribution contribution to product margin was up $34 7 million in the quarter to $114 9 million, reflecting an increase in volumes sold and a seven cent per gallon increase in average fuel margin to 31 cents from 24 in last year's first quarter.

We were pleased with the fuel margin performance in light of the sharp increase in wholesale gasoline prices in the quarter Nymex gasoline prices increased 96 cents per gallon. During the three months ended March 31, 2022 versus an increase of 54 cents per gallon during the same period in 2021.

Station operations product margin, which includes convenience store in prepared food sales sundries and rental income contributed $58 1 million up $7 9 million from the first quarter of 2021, an increased activity at our convenience stores.

At the end of the first quarter. Our GDS. So portfolio consisted of 1689 sites comprised of 342 company operated sites 293 Commission agents 196 lease he dealers and 858 contract dealers.

As Eric mentioned, our GSO portfolio in our Q1 results in our <unk> segment reflect the inclusion of our recent acquisitions.

Looking at the wholesale segment first quarter 2022 product margin increased $16 6 million to $47 1 million, primarily reflecting more favorable market conditions conditions, and other oils and related products offset by less favorable market conditions in gasoline and gasoline blend stocks.

Product margin from other oils and related products, which include distillates and residual oil increased $18 6 million to $53 1 million gas.

Gasoline and gasoline Blendstock product margin was negative $2 3 million in the first quarter compared with positive $16 4 million in the same period last year.

Product margin from crude oil was negative $3 7 million in the first quarter up 778000 from a year earlier.

We are pleased with the results of the wholesale segment, which performed to our expectations. Despite the extreme commodity price volatility experienced in the first quarter of 2022.

We do expect that the current steep backwardation of the forward product pricing curve will increase the cost of carrying our hedged inventory in future periods, but should also contribute to continued strength in rack margins.

Turning to the commercial segment product margin increased $3 9 million in the first quarter to $8 1 million led by our Bunkering business, which had higher volumes and improved margins.

Looking at expenses operating expenses increased $18 7 million to $99 2 million for the fourth quarter.

Driven by increases in our <unk> segment due in part to our recent acquisitions higher salary and rent expense as well as higher credit card fees related to the increases in price and volume.

SG&A expense increased 10 million to $56 3 million in the first quarter in part due to increased incentive comp and higher wages and benefits.

Interest expense for the quarter was $21 5 million up from $20 4 million, partly due to higher average balances on our credit facilities from higher commodity prices and borrowings for our recent acquisitions.

Capex in the first quarter of 2021 was approximately $17 1 million consisting of $7 5 million of maintenance Capex and $9 6 million of expansion Capex, the majority of which relates to our convenience stores.

For full year 2022, we continue to expect maintenance capex in the range of 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 first quarter. We continue to have ample excess capacity of our credit facility as of March 31, 2022, total borrowings outstanding under the credit agreement for $606 6 million.

This consisted of $378 6 million under our $1 1 billion working capital revolving credit facility and $228 million under our 400 million revolving credit facility.

Looking at our upcoming Investor conferences in the coming weeks, we are participating in the energy infrastructure Council Investor Conference. The Bofa leveraged Finance conference and the Stifel Cross sector insight conference for those of you who are participating we look forward to meeting with.

Now, let me turn the call back to Eric for closing comments.

Thanks, Greg we're off to a strong start in 2022, we continue to identify new opportunities to further drive value through our integrated network and strategically located assets to enhance efficiencies and increase returns to unitholders and deliver an outstanding experience for our customers and.

Guests now, Greg Mark and I will be happy to take your questions.

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 good morning, very nice quarter.

Couple of things can you first just talk about inflation and how you're seeing that impact in.

Whereas you're dealing with it.

Sure Yeah, I mean, I think we as a as a whole we haven't been materially impacted by flu season as of yet.

We have seen cost increase pass throughs from our vendors.

We've been able to pass through a lot of that on the retail side and Havent hasn't really made a material impact at all we've seen some obviously wage inflation and you'll see that in our operating expenses line. That's somewhat stabilized this quarter the big increases in hourly wages, where really last last third quarter and we've been able to keep them.

Stable that said you know employment is still very tight it's hard to find people in our retail sides. Our HR team is doing a good job on it but it still continues to be a tough environment.

A lot of people.

Got it. Thank you and then have you guys seen any.

And it certainly doesn't look like it from volumes, but are you seeing any indications of demand destruction in April at all.

Well certainly last quarter I mean, you know what I would say is is demand.

If we're talking about gasoline demand is still off.

19, you know.

But it is interesting I think I think this holds true for both topics that you're you're identifying the first one around inflation I think until it breaks demand.

Youre going to have you're going to have some movement that hasnt happened yet.

Right I think there are other factors driving gasoline demand.

You know when you when you look at how many people are going into the office still you know its not when you look at the studies is still 40%.

And the markets that we're in that's all publicly available documents here you can see so driving at different times or different weird and youre going where consumers are driving is different.

You know you look at public transit they have the same issues. So I you know.

But that being said.

Demand and margin has still been pretty decent.

Okay. Good.

And then maybe could you just expand a little bit about the strengths in other oils and related products on the margin because that was pretty impressive.

Hey, guys. Good morning, Selman its mark good morning, Mark.

Yeah on the on you know we had a we had a good a good quarter.

Distillate.

Both.

On the supply side and on the rack margin side volume was decent we had some decent weather.

And you know margins, Greg touched on backwardation, a little bit earlier in his in his presentation.

<unk> and you know while that certainly increases cost for carrying inventory, we are seeing a lot of tightness in our wholesale racks.

And that is supporting a higher margin structure, we've seen good demand.

And our resilient bunker group, good demand and good margin there.

And that's those are the two key things that are really driving the you know the.

And in other oils.

Got it alright, thank you very much.

Thanks Al.

As a reminder, if you would like to ask a question press star one on your telephone keypad. One moment. Please while we report for any additional questions.

Yeah.

Thank you. Our next question comes from the line of Gregg Brody with Bank of America. Please proceed with your question.

Hey, good morning, guys.

It's just a question on M&A.

The M&A environment, maybe you could talk a little bit.

What youre seeing or there is a potential pick up in sales because of some of these smaller mom and pops can handle of course and capital needs for the business.

I bet, you're putting words in your mouth. So maybe you can just answer them, what's the M&A environment look like.

Yeah, Hi, Greg its Eric.

You know I do think.

Information and scale is important.

I think.

Our perspective historically has been.

It is an industry.

It is ripe for consolidation.

We still believe that.

And I think it's hard if you're if you have a small chain.

It's hard to get the scale to compete at every level and that's at the supply level, knowing what is a good price what isn't a good price.

But it's also on the supply and execution in the stores themselves right and so there is asset heavy NSF flight that exists within these businesses, but.

I think what Youre seeing is that consolidation continue.

To play itself out I think during the beginning of Covid I think we took a little bit of a break.

Right and because people were very unsure of volumes in market and what was going to come back and you know I just think the opportunity that we've identified and that we have historically executed on.

<unk> continues to be available and I think as the market is quote unquote settled down from Covid and certainly there are other issues here today, but I think I think those opportunities are just going to present themselves and continue to be there right and our footprint I think is going to allow us to continue to execute.

And growth through M&A as we have since being a public company.

Yeah, and just to add to Eric's comments, I mean, I think what we've seen from sort of smaller players in the industry is as we've seen operating expenses increased throughout you know from from equipment to insurance to salaries everything if you don't have scale youre definitely.

Is it more effective those operating expenses increase on your bottom line I think scale helps us to mitigate some of that but if you were a smaller player. It's definitely puts pressure on you.

That's very helpful.

I think coming back to the question someone is asking about if you see any impact on your business.

Higher prices.

And you pointed out that's it's pre COVID-19.

It had to pre COVID-19 levels I'm, just curious it and the inconvenience to our business.

In that particular segment are you seeing any consumer response.

Based on the <unk>.

Higher price for Sean just inflation in general.

Greg are you asking about what about the.

You're asking about the store kind of the same store performance.

Or would you say, it's more on the margin obviously prices have been going up since February .

Yeah.

On the cutting edge of where you are today are you seeing any behavior changes.

And I would say.

I would say not really you know the store performance has been pretty good we are Eric mentioned the comp versus 2019, I think he was talking about fuel volume by and large but we are also as you know we're seeing.

Sales are good margins good into store transactions are still lagging behind 2019.

And so we think theres an opportunity to you know to.

Try to.

Get back to pre COVID-19 levels on that but by and large the stores are performing well. They performed last year that continue to perform this year. So you know in a lot of that is through.

I would say intentional effort.

We've become you know every day, we become better organized around that Greg mentioned scale, we have.

So we've got a lot of talented resources that help run those stores do run those stores every day you know we've become we've got some price optimization tools at our disposal that are helping you now.

Make those decisions more efficient and more and more quickly for us and then we've added some.

We've added some lines to the business, we continue to get more.

Involved and increase our exposure to foodservice and that could look anything.

Like me.

Made to order.

Foodservice.

You know really high quality made to order food service all the way down to.

Expanded.

Expanded commentary lines and being a cup of coffee and things like that.

We've recently relaunched our loyalty App and we're seeing some success with that so we have a lot of initiatives that are going on that are that are contributing to the to the success that we're seeing in the stores and we think there's a tremendous upside to what we're doing there and so you know while.

Yeah, it's been a tough environment you know we're certainly there are some supply chain issues I think we've done a pretty good job mitigating those we've been very diligent around substituting.

You know items when when we have.

Manufacturer outages, we've been able to substitute in source shelves are full and our guests have a you know a good experience. So net net I think we're in a pretty good spot.

And then just just last one you touched on the wholesale outperformance.

And so there's good demand in Brazil, and bunker group.

Particularly surprising given the volatility that you have.

We saw them come bodies you on your storage assets I'm curious did it just someone who doesn't follow the day to day is that the opportunity for you to make money.

Persisted into this quarter, where it's sort of an outsize relative to.

Two o'clock trust took quite a weather isn't as much volatility.

Alright.

It wasn't.

I guess I'm trying to say is two to one to repeatable there.

I Didnt hear the tail end of that Greg I'm sorry.

Because once you repeatable for wholesale is really the question.

Now mix with commodities better goodbye.

I don't know.

I don't know we don't.

It's hard to look at it that way because every day is a little bit different certainly every quarter is a little bit different I think youre right in the sense that.

I think I heard you reference.

Opportunity in you know in light of volatility or and maybe because of the volatility in these markets or just a little bit different than than you know what we we've dealt with backward markets before we've dealt with tight margins before I will say, we've not at least in my.

Long time here, we haven't dealt with this degree of backwardation.

But you know you just manage your business a little bit differently and I think we've done a good job with that we've got to stay on our toes. We have done things like reduce our inventory levels to you know to them.

What we have are kind of working working inventory levels and we've been able to drive those levels down to.

Two.

Levels that I'm not sure we contemplated historically and so that obviously helps the the less inventory you can carry.

You know the more that helps you mitigate those costs of carrying that inventory and then yeah. The markets are moving big every day in and so it does you know while it does present challenges. It also presents opportunities. We're looking at every every deal. We do we're looking to we're scrutinizing every deal we do it gets a little pain staking, but that's how you got to operate in this environment.

And if you you know if you work hard enough and if you've paid close enough attention. You know you will find opportunities that being said you know it's.

You have to be able to execute on those and.

Its not automatic but it is you know it does you know I think if you have a team that is experienced and and you know is is looking at it the right way you have a shot and so I'm not sure. If we can say yeah. I expect Q2 to look like Q1, I mean, they don't look they don't look like anyway.

Normal time, so you know.

It's gonna be we're gonna have to just operate a little bit differently for the foreseeable future whether that's the balance of the year. If you think about two years ago.

Or yeah, two years ago, we had super contango, we had the exact opposite and so we were we were operating differently. There. So we're always trying to adjust accordingly based on the conditions and I think.

We will just continue to work as hard as we can to grab those opportunities and mitigate the risk.

Correct.

Appreciate.

I appreciate the color and I know, it's a tough one.

Two straight line interaction, but I appreciate it.

Thanks, Craig well see you are seeing in early June .

Thank you we have no further questions at this time, Mr. Slifka, I'd now 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 have a good day everybody.

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.