Q3 2022 Global Partners LP Earnings Call
Good day, everyone and welcome to the Global Partners third quarter 2022 financial results Conference call.
Today's call is being recorded.
If anyone should require operator assistance during the conference. 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.
Chief operating officer, Mr. Mark Romaine.
And Chief legal Secretary legal Officer, and Secretary, Mr. Sean Gary.
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 this mornings call will include forward looking statements within the meaning of federal Securities laws. These statements include projections and 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 energy products and convenience store products utilization of our assets and facilities, the regulatory and permitting environment. The forward product pricing 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 and other assumptions that could cause material 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 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 call.
Other means that will constitute public disclosure for the purposes of regulation FD.
My pleasure to turn the call over to our President and Chief Executive Officer, Eric Slifka.
Thank you, Sean and good morning, everyone.
We reported a strong third quarter with year over year growth in each segment of our business. Our performance is underpinned by solid financial and operational execution as.
As we've discussed many times on these calls we have great storage terminalling and retail assets and.
And we have done an outstanding job integrating acquired sites into our portfolio.
Our ability to successfully integrate these new sites into our network has enabled us to capture economies of scale and leverage our buying power to drive increased contribution from our <unk> segment the.
The segment continued to perform well in Q3, reflecting increased activity at our convenience stores as a result of our recent acquisitions and higher retail fuel margins year over year in our wholesale segment, we continue to effectively manage our fuel inventory amid sustained backwardation in the gasoline and distillate markets are.
<unk> segment, so our year over year increase in Bunkering activity in the area that has been very strong throughout 2022.
On the M&A front during the third quarter, we expanded our GSO footprint in the mid Atlantic with the acquisition of Tidewater can be.
And its portfolio of 15 retail fuel and convenience store locations in Virginia.
A retail site count in Virginia has increased nearly seven fold in the past year from 13 locations at the end of Q3 last year to 89 at the same point in 2022.
The M&A pipeline remains very active across all areas of our business and we continue to evaluate potential opportunities that align with our strategic growth objectives. We continue to we continue to expand our efforts around renewable fuels in September we announced the receipt of regulatory approvals to increase storage capacity.
Trans load up to one 8 billion gallons in the aggregate of renewable diesel renewable feedstocks and ethanol at our CPB our terminal in Oregon.
Our permits allow additional tankage and pipeline infrastructure with the potential to provide more than 600000 barrels of storage capacity at the terminal.
Product flexibility combined with its rail and deep water access enabled CPR to serve as a renewable fuels hub for.
Listing and emerging low carbon markets.
We continue to employ our EV strategy of evaluating multiple ownership and or site post opportunities earlier. This year. We received additional funding from the mass department of environmental protection under the mass electric vehicle infrastructure program to install direct card fast charge.
Four of our retail stores and all of our operating states. We are actively involved in conversations regarding the national EBIT deployment.
Turning to our distribution in October the board voted to increase quarterly distribution on our common units by <unk>.
<unk> per unit to $62 50 per unit or $2 50 per unit on an annualized basis. The distribution will be paid on November 14th to unit holders of record as of the close of business on November eight.
Now, let me turn the call over to Greg for the financial review Greg. Thanks.
Thank you Eric and good morning, everyone across all the key performance metrics Q3 was another strong quarter for global net income for the third quarter was $111 4 million compared with $33 6 million for the same period in 2021, adjusted EBITDA was $168 5 million versus $79 2 million for the year earlier period.
DCF increased to $128 million from $49 7 million for the third quarter of 2021.
TTM distribution coverage as of September 30 was four five times or four three times after factoring in distributions to our preferred unit holders.
Excluding the net gain on the sale of assets primarily related to the sale of our Revere terminal in June TTM distribution coverage was three five times or three four times after factoring in distributions to our preferred unit holders.
Turning to our segment details GSL product margin was up $83 9 million quarter 261 six.
The gasoline distribution contribution to product margin was up $75 6 million to $188 million, primarily due to higher fuel margins and an increase in volumes sold due to our recent acquisitions here.
Fuel margin increased 17 cents per gallon to <unk> 44 from.
From 2007 in last year's third quarter.
Contributing to the fuel margin performance was the large dollars 18 per gallon decline Nymex wholesale gasoline prices. During the three months ended September 30 versus an increase of one cent per gallon during the same period last year.
Station operations product margin, which includes convenience store in prepared food sales sundries and rental income contributed $73 6 million up $8 3 million from the third quarter of 2021, reflecting an increase in activity in our convenience stores and the contribution from recent acquisitions.
At the end of the third quarter. Our GSO portfolio consisted of 1684 sites comprised of 356 company operated sites 293 commissioned agents 296 leases dealers and 839 contract dealers.
Looking at the wholesale segment third quarter 'twenty to 'twenty two product margin was $79 3 million up $37 million from the same period in 2021.
Gasoline and gasoline Blendstock product margin increased $31 7 million to $54 2 million, primarily due to more favorable market conditions in gasoline.
Product margin from other oils and related products, which includes distillates and residual oil increased $3 1 million to $25 7 million, primarily due to more favorable market conditions and distillate.
Product margin from crude oil was negative <unk> 6 million in the third quarter up $2 2 million from negative $2 8 million in the same quarter a year ago.
Primarily due to the exploration of a pipeline connection agreement in August of last year.
As Eric mentioned in the third quarter, we saw the continuation of backwardation in the forward product pricing curve.
Backwardation exist when contracts for the near term delivery of commodities are priced higher than those for longer term delivery.
Due to the steep backwardation, we have seen an increase in the cost of carrying our hedged inventory and expect this cost at some point in the future offset a portion of the increased wholesale segment product margin, we experienced in the third quarter.
Turning to the commercial segment product margin increased to $6 5 million year over year to $10 4 million largely due to our bunkering business.
Looking at expenses operating expense increased $27 4 million in the quarter to $119 5 million, primarily in our <unk> segment, including our recent acquisitions due in part to increased credit card fees related to the increases in volume and price higher salary expense higher rent expense and an increase in our environmental <unk>.
<unk>.
SG&A expense increased $10 4 million to $65 1 million in the third quarter due to increased accrued incentive comp wages and benefits and various other expenses. The increase was partially offset by $3 $1 million expense incurred in the third quarter of 2021 for compensation resulted the retirement of our former CFO and recognition.
And a service.
Interest expense for the quarter decreased to $19 million compared with $19 7 million in the year earlier period and significant cash flow generation in the quarter reduced our average working capital facility Outstandings compared with the same period in 2021 offsetting the increase in interest rates.
Capex in the third quarter was approximately $23 4 million consisting of $10 5 million in maintenance Capex and $12 9 million on expansion Capex.
The majority of which relates to our investments in our gasoline stations and C stores.
For the first nine months of 2020, we had maintenance capex of $27 8 million in expansion capex of $38 million excludes.
Excluding acquisitions for.
For the full year, we continue to expect maintenance capital expenditures of approximately $45 million to $55 million and expansion capital expenditures.
Managers, excluding acquisitions of approximately $50 million to $60 million related primarily to investments in our gasoline station business.
Our balance sheet continues to be strong with leverage which is defined in our credit agreement as funded debt to EBITDA at approximately 187 times at the end of the third quarter.
We continue to have ample excess capacity in our credit facilities as of September 30, We had total borrowings outstanding under the credit agreement of $99 million.
This consisted of zero borrowings under our $1 $1 billion working capital revolving credit facility and $99 million under our $450 million revolving credit facility.
Looking ahead it on our Investor Relations calendar for this month will be hosting one on one meetings at the RBC capital markets Midstream and energy infrastructure conference and in December we will be participating in the Wells Fargo Securities Midstream and utilities conference.
We're participating these conferences, we look forward to meeting with you.
Now, let me turn the call back to Eric for closing comments Eric.
Thanks, Greg we have executed well through the first nine months of the year and begin the final quarter of 2022 with strong operational and financial momentum.
While economic uncertainty associated with the inflationary environment merits a level of caution we remain focused on leveraging our supply marketing and terminalling assets to drive profitable growth across our businesses 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 congratulations on another nice quarter.
So you've had really two exceptional quarters back to back you guys.
Benefited from favorable pricing.
Clearly are Bob declined through the quarter.
Gave you an uplift.
And I'm just kind of wondering how are you thinking about that and I'm looking at your balance sheet.
You know.
Do you see or your business operating with permanently less debt because of all the gains you've had is it that enables you to be able to go out and do more on the acquisition front and so then you are able to turn it into.
Recurring.
Our revenue on a go forward basis by investing and Judy Esso and terminals or maybe you can just kind of help me understand.
How you view it and maybe what the strategy is going forward.
Sure I'll take it and I'll, let Eric follow up with any questions as Greg has somehow you're doing yes, I mean, I think it wasn't our strong performance has led to significant cash flow in the quarter, our balance sheet and year to date, our balance sheet is very strong our leverage is very low historically.
We are comfortable with higher leverage levels on our balance sheet as we've said before.
We view the opportunity to look at acquisitions, we've been an acquisitive company for a number of years. We think there is still a good opportunity on the acquisition front.
Throughout our segments, which is good so I think we view this as a good opportunity to continue to expand our business. You know we're always looking at what's the best return for our use of our capital and so we will continue to be very prudent about where we invest to get the highest return, but we do think yeah. This the significant cash flow generation should give us a good advantage to go out and continue to expand the business.
This is Eric I don't know if I I mean, you know the story is is a little bit the same as it's been.
We have been acquiring companies.
You know, we we believe we can make decent returns on.
The assets that we've acquired.
We're going to continue to do the same.
Look I'd say.
We try to see every transaction out there.
We believe the company.
Regardless of the physician.
Right and so.
We're going to continue to look those.
Yield it's only the very largest deals.
That we still look at we got what we there's really no way to get that done because you're just too big.
And even with these kind of earnings I mean.
You know the multibillion dollar deal, it's going to be hard for us we haven't seen really any of those anyways right most of them have been smaller.
And so truthfully better fit for the company and we're going to continue to focus on.
On those opportunities as we go forward. So and then maybe just a little bit more and we're going to continue to use the same stuff that you were going to do with this.
We're going to do what we think is going to get us the best returns to make us. The most money we will be opportunistic as we can to figure out what's best to do both we're trying to make sure that we see every opportunity that's out there and decide what we can transact on.
Got it so in hearing that I guess, a here also that the.
The first priority really is to continue investing complete you know do acquisitions.
Hum.
Yeah, I guess, you would never consider doing like a special dividend because of these you know sort of excess margins or something like that.
Yeah I mean.
Tom as we said before the board makes the decision every quarter on the distributions you know that'll be up to the board today that quarterly distribution I do think this puts us in a very good position and we believe that there are still very strong returns in our industry to be made through the growth of our business.
Got it.
And then.
You also talked about some fast charging it stores I'm just kind of curious how is that going are you seeing.
Increase in utilization is it.
Low I mean, any just color you got there on how the adoption is going.
Yeah, and the last time I looked it still single digits.
But look I mean of utilization.
Yeah, I do I don't think it's a business that over time.
I'm just kind of grow.
I do think we have the right assets in the most convenient locations.
With the right setup to take advantage of that and so getting a strategy around it.
Whether it's somebody else, putting the money out for whether it's us putting money out making sure that we can make a return on that investment is going to be critical.
And part of it is in fact.
Having the government out there pushing the development of those stations. So you know we're going to continue to look at it.
It'd be opportune are around it as well, but I do think over time. This strategy will emerge when it looks like there's a real pathway to getting returns out of the business.
Okay. Thank you very much.
Thanks, Tom.
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.
Thank you Mr supposed to I will 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, everybody for your interest in the company. Thank you.
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.