Q2 2022 Global Partners LP Earnings Call
continued emphasis on data analytics, which enables us to effectively manage inventory levels and product mix.
to respond to changes in the demand environment for both wholesale and retail.
In the second quarter, we benefited from continued momentum in our GDSO segment.
including our recently acquired retail sites, as well as favorable market conditions in our wholesale segment and an increase in bunkering activity in our commercial segment. dot com in our retirement kingdom, our compassion for our former visit, and the quedar vernica ?? s s second one spicy s?uly s ST s s m s s s s s s s s sunset s m s s s s s s s s s s s s s seniors x s s s s s s s s s s s s s s s s s s s s s s s magnet.
During these calls, I've spoken frequently about the high value of our real estate asset, including our storage, infrastructure, and retail locations. Including our storage, infrastructure, and retail locations.
Historically, we have not been able to, historically have we have not only been able to optimize these assets, but monetize them as well. In Q2 for example, we completed the sale of our 2.1 million verified controlling product thermal in Boston Harbor and VMS26.
The purchase price was 150 million in cash, and after closing costs and other considerations, the partner received net proceeds of approximately 99 million.
As part of the sale, we entered into an agreement with a buyer under which we lease back key infrastructure at the terminal, including certain tanks, dock access rights and loading racks in order to continue business operations at the facility. This news has changed it's business," George Morton said.
The key takeaway is that the transaction enables us to unlock the value of this asset and provide capital for future growth.
On that note, we continue to deliver our strategy to grow our GDSO business.
We are pleased with the contribution in Q2 of our two recent acquisitions, the consumer's petroleum of Connecticut and Miller's neighborhood market.
The Millis transaction provides us with our first company-operated locations in Virginia, where we continue to expand our presence this quarter by signing an agreement to purchase a portfolio of 13 owned and two leased gas stations and convenience stores, as well as six adjacent pieces of real estate.
The acquisition is expected to be completed by the end of Q3.
We continue to make investments in the sustainability space.
including further diversifying our EV offerings and sustainability business lines to create long-term value for our portfolio. Your
In May, we launched our first resilient convenience location with a microgrid linking solar energy, battery storage, and a DC fast charging station for electric vehicles.
We continue to be a leader in advancing renewable fuels policies and positioning our assets to deliver these products.
Turning to our distribution in July , the board voted to increase the quarterly distribution on our common unit. We are on our common unit. We are on our common unit.
by one set per unit to 242 per unit on an annualized basis.
The distribution will be paid on August 12 to unit holders of record at the close of business on August 8.
With that, now let me turn the call over to Greg for his financial review. Greg? Greg, are you there?
Thank you, Eric, and good morning, everyone. Across all of our key performance metrics, Q2 was an extremely strong quarter for global. Q2 was an extremely strong quarter for global.
Net income for the second quarter was $162.8 million.
Compared with 12.1 million for the same period in 2021.
Adjusted to EBITDA was 134.9 million versus 58.7 million of the year earlier period. The year earlier period.
DCF increased to $178.2 million from $26.6 million for the second quarter of 2021.
Please note that net income, EBITDA and DCM include a $76.8 million net gain on the sale and disposition of assets primarily related to the sale of our rear terminal.
TPM distribution coverage as of June 30, 2022 was 3.6 times or 3.5 times after factoring in distributions of blancster.
Excluding the net gain on asset and sale of assets, TTM distribution coverage was 2.7 times or 2.5 times after distributions three times more than Euro in fast enough to keep our brand new holders. up for a new hovel.
Turning to our segment details, GDSO product was up 36.5 million in the quarter to 198.9 million.
The gasoline distribution, the product margin, was up 28.6 million to 129.9 million, reflecting higher fuel margins and an increase in volume, doing part to our recent acquisitions.
Fuel margins increased by 5 cents per gallon to 31 cents from 26 cents in last year's second quarter. We were pleased with the fuel margin performance in light of wholesale gasoline prices in the quarter. 9X wholesale gasoline prices increased by 46 cents per gallon during the three months ended June 30, 2022, versus an increase of 29 cents per gallon during the same period last year.
Station Operations Product Margin, which includes convenience store and prepared food sale, sundries, and rental income, contributed $69 million, up $7.9 million from the second quarter of 2021. Reflecting an increase in activity in our TV stores, doing part to our recent acquisitions.
At the end of the second quarter, our GDSO portfolio consists of 1,683 sites comprised of 343 company operating sites, 292 commission agents, and 852 contract dealers. He has 366 olefish dealers, Thank you, contractors.
Looking at the wholesale segment, second quarter 2022 product margin was $9,269, up 57.19 from the same period in 2021.
primarily reflecting more favorable marking conditions, largely in distillates and gasoline.
Product margin from other oils and related products, which include distals and residual oil, increased 38.6 million to 51.99 million.
Gasoline and gasoline blend stock product margin increased 17.5 million to 41 million.
Product margin for crude oil was negative 2.3 million in the second quarter of the year ago.
primarily due to the expiration of the play playing connection agreement in August of 2021.
In the second quarter, we saw a continuation of the steep backgradation of the forward product pricing curve.
Backwardation exists when contracts for the near-term delivery of commodities are priced higher than those for longer-term delivery.
We do expect a steep degradation to increase the cost of carrying our head inventory at some point in the future.
But as we saw in the second quarter, it can also contribute to strength in our wholesale margins.
Starting to the commercial segment, product margin increased 9.8 million per second quarter to 12.59 million.
largely due to our bunkering business, which continued to see strong volumes and margins in the quarter.
Looking at expenses.
Operating expenses increased $20.3 million to $108.5 million in the quarter, primarily in our GDSO segment, including our recent acquisitions, due in part to increased credit card fees related to the increases in volume and price, higher salary expense, and higher rent expense.
SGNA expenses increase 6.8 million to 60.8 million in the second quarter, to increase incentive cost and wages and benefits.
offset by a $6.6 million expense incurred in the second quarter of 2021 for compensation and benefits resulting from the passing of our General Counsel.
Interest expense for the quarter increased to $21 million compared with $20.3 million in the year earlier period, in part due to a higher average balance under a revolving credit facility as a result of recent acquisitions.
CapEx in the second quarter was approximately $25.3 million, consisting of $9.8 million in maintenance CapEx and $15.5 million in expansion CapEx, the majority of which relates to our investments in our gasoline stations and sea stores.
For the first half of 2022, we had maintenance capex of 17.39 and expansion capex of 25.19, excluding acquisitions. For the moreover robot interaction of our United StatesONSN, motivate and continue operations.
For the full year, we continue to expect maintenance camp-backs of approximately $45 million to $55 million.
and expansion of CapEx, excluding acquisitions of approximately $50 to $60 million in 2022.
related primarily to investments in our death and education business.
Our balance sheet continues to be strong with leverage which is defined in our credit agreement as funded debt to EBITDA at approximately 2.4 times at the end of the second quarter.
We continue to have ample excess capacity in your credit facility. As of June 30th, 2022, we had total barring outstanding under the credit agreement of 193.7 million.
This consists of 70.7 million under our 1.1 billion working capital revolving credit facility.
And 123 million under 450 million dollar revolving craft facility.
Looking ahead on our investor relations calendar, next month we'll be hosting one-on-one meetings at the Wells Fargo Leverage Finance Conference.
If you're heading to Nashville for the conference, we look forward to meeting with you.
Now let me turn the call back to Eric for closing comments.
Thanks Greg.
We enter the second half of 2022 with solid momentum and believe we are well positioned to continue to deliver value for unit holders, 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, we'll be poll for questions.
Thank you. Our first question comes from a line of Selman Akiel with Steve Woll. Let's see with your question.
Thank you. Congratulations on a very nice quarter. Let me just start with the wholesale and distillates and your thinking and I guess you referred to the steep backwardation. But I guess you know how long do you see this continuing and especially as I think sort of a...
about the Northeast and being sort of short refinery capacity and diesel in general. So maybe could just give an outlook for that.
Yeah, Selma, good morning, it's Mark. Good morning, Mark.
Yeah, you know, we've seen.
Since the end of Q1, the markets are steeply backward. I will say they have softened, the curve has softened a bit, but the backwardation
is the declaration consists of exists out into even through 2023. So I think we're gonna be, the moment we're gonna be dealing with this, at least for the near future. And so we'll just continue to run the business the way we have. We've managed inventory accordingly. Certainly as we head into winter, we'll not be expanding the territory to meet the man a little bit. Okay, now we move on.
I don't see any. I don't see any.
anything different looking forward, we'll just continue to manage the business the same way we have, although the curve has softened a little bit.
And then can you also just
Talk about the uplift in bunkering fuels and maybe what's driving that and how sustainable that might be.
Demand's been great and we've also benefited from some market opportunities in the supply of those fuels. So our outlook is positive for that business and we'll just continue to drive value through that. Yeah, I think the only thing I'd add to that is that it's great. If you look back historically, that has always been a strong contributor to the commercial growth.
It was really impacted by COVID the last two years. And so it's been pretty muted. And now we're sort of getting back to more, although very strong, but a better, more normalized one grade.
bas.
Got it. Okay.
Till then...
You know in prior conversations I know
You know, you've invested in charging stations and you've said utilization has always been
pretty
underwhelming and so you're still continuing to do that and I'm just wondering are you starting to see any more uptick in
Utilization or you're just doing it to have the rounded product?
line. Any comments on that?
Sure, it's Eric Fluska.
essentially
The first one is, are utilization rates higher? The answer is yes.
but they're from a very small base. They may be as much as doubled, right? So that's the one, but it's from a very small base, right? Number two is we've been strategic in terms of partnerships around that.
And whether those partnerships are with other providers, so I spoke a little bit about our air mass facility and creating a microgrid, that was with a third party who spent the capital to put it in. The only capital we spent was for a backup. The only capital we spent was for a backup.
you know, backup generator on the site, which by the way, we're happy to do because at the end of the day, it's a larger site. It's got good inside format. And when there's electricity outages, you want to make sure that you're in a position to fulfill the need in the marketplace, right? So, that all works out well. But in that particular site, you know, there's solar on top of the canopy.
There's battery storage and all this has all been paid for by a third party and they've also they've also going to be charging on the site as well. So our role only there was backup generator on fossil fuels but for us it makes sense because it's such a large site right and important to the community.
Do you have other sites like that you would?
Yeah, I would say, yeah, we would be very interested in doing that in other sites. You know, this is a relatively new concept, but you know, it's a third party who can't come in or a fairly large one at that. So I mean, at the end of the day, we would consider this on other sites if we had parties that came to us and wanted to make that kind of investment.
Got it. And then you also just talked about real estate and being willing to realize the value of it. So I guess I would ask, you know, number one, is there any other opportunities you're pursuing right now in terms of liquidations with sale lease backs or then in particular you highlighted, I think it was Virginia where you got six, and like adjacent parcels.
Would you be looking to monetize those where you're looking to build on those?
Yes, this is Greg Hanson. I think one of the core tenants of our business is real estate, so we're always looking at our portfolio for opportunities.
Well, long term, I mean we've a very strong real estate position throughout the Northeast.
and these codes. And so we're continuing to always look at offer to date. And I would say for things like reviewer, I think that was someone of a one off that side of that facility and the location of the facility and the ability to get that kind of price. But that said, on the retail side, I mean, I think it's part of the game there. It's definitely a real estate and we'll continue to look at ways to optimize it. It's doing more reason. Rebuilds more NTIs looking at larger format stores or truck stuff like opportunities. So it's something we're always looking at. And so we're going to be able to get that. And so we're going to be able to get that kind of price. And so we're going to be able to get that kind of price.
All right, thank you very much. Our next question comes from the line of Greg Brody with Bank of America. Please proceed with your question.
Good morning, guys.
Good morning.
So just and she did a self-diviscy. You talk a little bit about what you're seeing at the pump and...
How, how, I guess we've had higher price lifts come down a little bit, but there's this general consumer nervous message. How you seeing it impact. How you seeing it impact.
that doesn't try it now. And do your duty to continue to keep margins and the case is in the right place. That's the case in the right place.
So Greg, your question is more about how the effect of the higher prices, in fact I can see more or potential recession fears impact at the sooner that's a weird event. Yeah, I mean if there's a way to isolate, I just pretty heard isolated of them, but I'm curious what you're seeing what you think is going to happen.
Yeah, so I think, you know, what we did see, you know, some demand destruction on the gasoline side during the really high prices in May and June .
Prices have obviously come off a tremendous amount in the third quarter so far, which I think provides a lot of relief to consumers on the gasoline side. I think we saw some softness, but obviously nothing like what we saw in COVID. But again, we continue to sort of status quo with any sort of volume declines that potentially are out there, have been more than offset by margin. And we continue to see that being a trend that we've seen since the beginning of COVID.
in 2020.
So.
No, I appreciated the business around them. I just wanted to understand my weakness, but clearly I dropped them posted itself. And forcing. but clearly it dropped in place and it just helped.
Just GDS, the wholesale business.
the wholesale business.
I understand you're worried about back-rotation.
Do you happen to understand a little bit more how you did so well this quarter? I'm always fine studying this business, interesting, but I'm curious what happened this quarter to give a little bit more color there.
Yeah, Greg, this is Mark. So the markets have been backwards. Anytime markets are backwards or even, you know, especially see-through backwards like they have been, that can increase the cost of carrying inventory from a few different angles. One, obviously, at a higher price level, you've got a higher cost to finance that inventory. But in addition to that, we run a hedge book and we roll all of our inventory from month to month. So in a backward market, that is a cost for us.
What we've seen, you know, so that's on the supply side. On the sales side, what we've seen is throughout the markets that we operate in, we've seen margins expand across the board, both on gasoline and distal. And, you know, the way I look at that is that is the market's response to the increased cost of carrying inventory.
In addition to that, as I mentioned earlier, we have taken a pretty aggressive stance on reducing inventory throughout our terminal and that's generally how we manage in contentment markets. We expand inventory back with markets. We reduce it. It gives us some level of risk mitigation, but a combination of higher margins at the wholesale rack level. And then we have seen markets soften a little bit, but there hasn't been a real meltdown in the curve, so to speak.
So timing can have something to do with that as well. And I do think that when markets flatten out, or perhaps even something to continue at some point, who knows when, but it'll happen. But that's when you'll see some of that additional costs come through.
But margins are, it's not dissimilar to the retail, as Greg pointed to, some lower volumes, we saw actually.
dramatically lower volumes during COVID, we are seeing some lower volumes now due to a high price environment. In most of those cases, or I would say in all those cases, we are seeing an offset in higher margins.
And it's no different in the world, so.
you can adjust it.
I'm sorry.
Do you think that to persist? Maybe it has changed.
No I think you know as I said I think a lot of it depends on a lot of it depends on the market so as the markets return to something return closer to normal as I said if you look at the distal curve now it's not as deeply backwards as it was before and we're seeing margins normalize a little bit or go.
directionally towards normal. They're not normal at this point. But I think you know it's a function of the market and I think as you see, you know as I said, it can persist as long as there is this extreme backwardation which is leading to dislocation. Sure, you know healthy margins can continue to exist, but it will be driven by, you know, it will be dictated by the structure of the market.
I appreciate it. Greg, this is, yeah, hey, Greg, Greg is Eric Soska, you know, just to follow up, I mean, the markets are.
These markets are very efficient.
Right, and they price to make sure that supply and risk and margin all meet.
so that the market can continue to fulfill the requirements.
right, and whether it was COVID, we saw low retail demand, the margins fixed on the other side, right? And so you had a margin that paid for the reduction in demand. You know, here in this instance, you have, you know, backwardation. And so, you know, there are fewer competitors, and you're seeing the margins expand to handle that additional cost.
But they operate very quickly. And then I think the key here is, as I said in my prepared remarks, we have a business model that really puts us in a position to adapt to and change as the markets move around. And we think our model is differentiated versus a pure retailer or pure wholesale, because we've integrated the business model and we have. MINjaw
better advantages given that that connection all the way down from storage supply, you know, term-length retail.
And I appreciate all that. You guys are consistently executed when the opportunity has been there like this. So thanks for explaining that to me because it's never that simple for us to try to model it over here. Last question for you. Operating costs, they're up quite a bit from last year. Is that M&A related or is there some other components driving that?
Yeah, hey Greg, great answer. Yeah, so we're up about 20.4 million over year over year. The majority of that is act with addition related. Also, with credit card fees, given the higher retail prices, we saw in the quarter. Obviously our credit card fees are variable based on price and volume. So that was significantly higher. But that is also related to additional volumes we brought on.
with the acquisitions and the different credit card fees there. So it's really a mixture of the majority of the acquisitions and then on top of that.
We are seeing some higher salaries at the site level year over year You know we've seen pressure on employment I think every retailer has so we've had an increase so we're starting salaries on an hourly basis year over year So that's in part of it, but the majority of it is related to the acquisitions
Thanks again for the time, guys. I hope you enjoyed this video. Thank you very much.
Great. Thank you for your time. Thank you.
We have reached the end of the question and answer session.
I would now like to turn the floor back over to Mr. Slyfka for closing comments.
Thank you for joining us this morning. We look forward to keeping you updated on our progress. They well and enjoy the remaining weeks of summer. Thanks everybody. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.