Q4 2022 Global Partners LP Earnings Call
Good day, everyone and welcome to the Global partners fourth quarter 2022 financial results Conference call.
Today's call is being recorded.
There'll be an opportunity for questions at the end of the call.
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 officer, 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. Thank you for joining US today's call will include forward looking statements within the meaning of federal Securities laws.
This includes projections expectations and estimates concerning the future financial and operational performance of global partners, which are based on assumptions regarding market conditions demand for liquid energy products and convenience store products.
<unk> and permitting environment, the forward product pricing curve and other factors, which could influence our financial results.
These assumptions are reasonable given currently available information.
Sanctions and future performance are subject to a wide range of business risks uncertainties and factors, which are described in our filings with securities and Exchange Commission, which could cause actual results to differ materially from the partnership's historical experience and present expectations or projections.
Global partners undertakes no obligation to revise or update any forward looking statements 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's my pleasure to turn the call over to our President and Chief Executive Officer, Eric Slifka.
Thank you Sean and good morning, everyone. Let me begin by thanking our entire team for the hard work.
Creativity and grit that contributed to a strong year for <unk>.
For companies across our industry and many others 2022 was a year of significant challenges, including supply chain constraints steep commodity price volatility inflation, a tough labor market and the war in Ukraine.
Our team successfully navigated through these challenges in addition to the power of our people our company performance demonstrates the resilience of our business model the strength of our assets and the value that we deliver for the guests at our gas stations and convenience markets and the customers at our liquid energy Charles.
Every day.
For the fourth quarter, our wholesale segment product margin more than doubled from the same period in 2021 as market conditions and effective management of our inventories mid sustained backwardation in the digital edge markets combined to drive strong margin capture.
In our gasoline distribution and G. DSO segment, we continued to benefit from higher retail fuel margins and increased access activity at our convenience markets in part as a result of our recent acquisitions.
Our commercial segment also capped 2022 with a strong fourth quarter as bunkering activity remains robust.
With our focus on strategic transactions that strengthened our long term earnings power during the year, we closed on over $255 million of retail acquisitions with.
With the purchases of consumers petroleum of Connecticut, Miller oil co and Tidewater convenience, we added more than 60 company operated convenience markets and related fuel operations as well as fuel supply arrangements at more than 55 additional sites.
The consumers petroleum acquisition deepened our footprint in the new England region, while the mill of oil the Tidewater deal has expanded our reach into Virginia.
The retail fuel M&A pipeline remains very active and we continue to evaluate potential opportunities that align with our financial and operating objectives.
We also continue to focus on optimizing our terminal network in December we entered into a purchase agreement with Gulf oil limited partnership to acquire five of golf's refined product terminals for approximately $273 million in cash located in Connecticut, Maine, Massachusetts.
In New Jersey.
Our malls have an aggregate storage capacity of approximately $3 9 million barrels and locations that complement our network by making us more competitive in multiple products over a larger geographic base.
Transaction is expected to close in the first half of 2023 subject to customary closing conditions, including regulatory approval.
Turning to our distribution in January the board declared a fourth quarter cash distribution of $1 50 to $57 25 per unit on all of our outstanding common units consisting of a quarterly distribution of <unk> $63 50 per unit $2 54 per unit on an annualized annual.
Lies basis and a one time special distribution of $93 75 per common unit.
The distribution was paid on February 14th to unit holders of record as of the close of business on February eight.
In 2022, we made great strides in defining our role in the energy transition from actively crafting clean fuels policy to investing in the infrastructure to deliver low carbon solutions to creating mechanisms for people to lead with ingenuity, we are making progress on our sustainability journey.
In the renewable fuels area, we permitted we permitted Inc. Completed the installation of customizable biofuel systems at four of our terminals and began biofuel supply projects at two additional facilities.
We now offer renewable products had half of our 22 owned or controlled terminals.
On the EV front, our sustainability group welcomed and electric innovation strategist to evaluate educate and guide our strategy in the electric space, including electric vehicles and charger market.
Date, the group has secured more than 800000 in grants to deploy G. CFC EV charging station at six of our locations and has developed this fact for D. C. F. C stations at new all towns fresh locations.
As we continue to invest in optimizing our sites with an eye towards sustainability.
Know that the drivers of tomorrow will have different expectations and needs and the drivers of today.
But to understand those needs and envision the fueling infrastructure of the future. We sponsored fueling the future 2030, a student's design competition engaging more than 30 teams of undergraduate and graduate students attending schools across nine states.
The top five finals presented their entries and in awards presentation. In November we are thrilled to have learned from the creativity of these bright minds.
As part of our work in the clean fuel space, we formed an interdisciplinary team to research and evaluate hydrogen mobility supply and distribution opportunities.
As an organization, we have a responsibility to act thoughtfully and sustainably for all of our customers shareholders employees and communities.
On this objective.
This year, we published our inaugural corporate social responsibility report, which details the progress we've made along that journey.
This report is available on our website and I encourage you to review it.
By caring for the environment empowering people, particularly our employees and communities and practicing responsible governance. We have formed the foundation for an enduring business that has stood the test of time and continues to thrive.
Now, let me turn the call over to Brad for his financial review.
Thank you Eric and good morning, everyone as Eric noted diligent planning effective fuel inventory management and solid execution by the entire team a lot of continued strong performance in the fourth quarter of 2022.
Housing out a very strong year for the partnership highlighted by healthy margin contributions from all three segments of our business.
Adjusted EBITDA for the fourth quarter of 2022 was $106 9 million compared with 66 million for the same periods in 2021.
For the full year adjusted EBITDA was $485 2 million compared with $244 3 million in the same period of 2021.
The increases for the quarter and full year of 2022 were primarily driven by our wholesale and GSO segments.
Net income was $57 5 million for the fourth quarter of 2022, compared with $19 3 million for the same period in 2021 full year of 2022 net income increased to 3300, $62 2 million from $60 8 million in the prior year DCF was $57 3 million for the fourth quarter of 2022.
Compared with $30 5 million in the same period of 'twenty one.
For the full year, DCF was $413 4 million compared with $127 million in 'twenty one.
DCF for 2022 included a net gain of $79 9 million primarily related to the sale of our Revere terminal in June .
TTM distribution coverage as of December 31, 2022, including the one time special distribution was three four times or three three times after factoring in distributions to our preferred unit holders.
Excluding the net gain on the sale of assets TTM distribution coverage was two eight times or two six times after factoring in distributions to our preferred unitholders.
Turning to our segment details Judy so product margin was up $46 1 million in the quarter to $223 2 million to.
The gasoline distribution contribution to product margin was up $36 2 million.
$55 9 million, primarily due to higher fuel margin and an increase in volumes sold partially due to our recent acquisitions.
Fuel margins increased seven cents per gallon to 37 from 30 cents per gallon in the fourth quarter of 2021.
Although gasoline and diesel prices ended the fourth quarter at almost the same place they began the quarter inter quarter price volatility allowed for periods of strong margin capture.
Station operations, including decision operations product margin, which includes convenience store and prepared foods sales sundries and rental income rose $9 9 million to $67 2 million from the fourth quarter of 2021.
This reflected an increase in activity at our convenience stores and part due to our recent acquisitions.
For the full year GSL product margin was up 209 million to $856 6 million with fuel margins, increasing nine cents per gallon to 36 from 27 cents per gallon than a year earlier period.
Celine distribution contributed $588 7 million of product margin for the full year up $175 million from 2021.
<unk> operations product margin was $267 9 million for the full year of 2022 up $34 million from 2021.
At the end of 2022, our GTS. Our portfolio consisted of 1673 sites comprised of 353 company operated sites 295 Commission agents 192, easy dealers and 833 contract dealers.
Looking at the wholesale segment for the fourth quarter of 2022 product margin increased $38 1 million to $70 7 million.
Product margin from other oils and related products, which includes distillates and residual oil was up $48 5 million to $59 4 million, primarily due to more favorable market conditions and distillate.
Gasoline and gasoline Blendstock product margin contributed $14 million down $9 9 million from the same period in 2021.
Product margin from crude oil was negative $2 7 million for the fourth quarter down <unk> 5 million from a year earlier.
For the full year 2022 wholesale product margin increased $148 8 million to $287 7 million.
Product margin from other oils and related products increased to $190 1 million for the full year up $124 7 million from 2000 22021, excuse me, primarily due to more favorable market conditions, largely in just thoughts gasoline and gasoline blendstock product margin increased $20 7 million to $107 million for the <unk>.
Full year, primarily due to more favorable market conditions in gasoline during the second and third quarters of 2022.
Crude oil product margin improved to a negative $9 4 million up $3 4 million from a year earlier.
Turning to the commercial segment product margin in the fourth quarter increased $5 1 million year over year to $9 9 million for the full year commercial segment product margin increased $25 4 million to 41 million. The segment's performance for both periods was driven largely by an increase in bunkering activity.
Looking at expenses operating expenses increased $25 2 million to 118 million for the fourth quarter of $91 7 million to $445 3 million for the full year.
The increases were largely associated with our G. D S O operations, including our recent acquisitions.
<unk> higher credit card fees related to increases in volume and price higher salary and rent expenses, partially due to greater activity at our stores and increases in our environmental reserve and maintenance and repair expenses.
SG&A expenses increased $23 million in the fourth quarter to $88 million on a full year basis, SG&A was up $50 2 million.
$263 1 million the increase was in the quarter and the full year were in part due to increases in accrued discretionary incentive compensation in wages and benefits. In addition in the fourth quarter, we incurred expenses of approximately $7 5 million.
Connection with an ongoing dispute between us and a landlord at certain of our sites, which we are currently disputing.
Interest expense was $19 7 million in the fourth quarter in both 2022 and 2021.
For full year 2022 interest expense decreased $1 2 million to $81 3 million.
Capex in the fourth quarter of 2022 was approximately 41 million consisting of $26 6 million of maintenance Capex and $14 4 million of expansion Capex, the majority of which relates to our convenience stores <unk>.
Opex for the full year, 2022 was $106 $8 million, consisting of $54 4 million and maintenance Capex in line with our guidance of 45 million to $55 million and expansion Capex, excluding acquisitions of $52 4 million in line with our guidance of $50 million to $60 million.
For full year 2023, we expect maintenance capital expenditures in the range of $50 million to $60 million and expansion capital expenditures, excluding acquisitions in the range of 55 to 65.
<unk>, primarily to investments in our gasoline station business.
Current estimates depend in part on the timing of completion of projects availability of equipment and workforce, whether an unanticipated events for opportunities requiring additional maintenance or investments.
We continue to manage our balance sheet prudently leverage which are defined in our credit agreement as funded debt to EBITDA was approximately $1 seven four times at the end of the fourth quarter.
Continue to have ample excess capacity in our credit facility as of December 31, 2022, total borrowings outstanding under the credit agreements were $252 4 million.
Just have $153 4 million under our $1 $1 billion working capital revolving credit facility and $99 million under our $450 million revolving credit facility at 12 31 22.
Looking at our upcoming Investor Relations calendar next week, Mark and I will be participating in the Jpmorgan 2023, global high yield and leveraged Finance conference.
For those of you participating we look forward to meeting with you.
Let me turn the call back to Eric for closing comments. Thank you. Greg 2022 was an exceptionally strong year for global reflecting the dedication of our incredible team are vertically integrated assets adaptable operating model and strong balance sheet position us well for the year ahead, while macro economic.
Uncertainty remains we continue to focus on driving returns for unitholders through a combination of organic growth strategic acquisitions optimization and innovation now, Greg Mark and I will be happy to take your questions operator.
Thank you.
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One moment, please while we poll for questions.
Thank you. Our first question comes from the line of Gregg Brody with Bank of America. Please proceed with your question.
Good morning, guys.
All right.
Can I start with the the wholesale acquisition you announced.
December help us think about how much volume that is going to add and how to think about the normalized EBITDA associated with that.
Yeah sure Greg I mean, candidly, we're not offering a much more detail on the golf acquisition other than what we released in the 8-K in December .
We are going currently through the FTC process. So we need to respect that process. You know we are hopeful that that will close.
Within before June 30th this year, but again, you know where we're somewhat at the mercy of the FTC process, which we are currently in review of it.
Got it and then.
I know you normally don't provide EBITDA guidance, but you I was curious if you can give us some thoughts on the operating costs.
Cost side of the business and in SG&A is on how we should think about this year.
Oh, Yeah, I'm, sorry, you too yeah.
I'll give you I'll give you a.
A couple of sort of helpful data points, I mean, I would say SG&A in the quarter was extremely heavy you know one of the things with the illegal the legal expense, we incurred with the ongoing dispute we have with one of our landlords that was approximately $7 5 million.
Had a $2 million in charitable contributions on the oil donation, we get which is really one time, we had a number of incentive comp you know more one time things that related to the strong performance. In 2022, you know I'd say you know our expectation is probably 'twenty. Two is a very strong year for US you know, we you know the backwardation in the <unk>.
It was historically, our inventory management allowed us to take advantage of that you know our expectation is things will normalize over overtime for us. So you know I would.
We also expect our SG&A expense to normalize more over time and give you a sort of guidance to look at the first three quarters of 2022 for a more normalized run rate on SG&A.
Got it.
You provided what about on the on the operating cost side.
Sure Yeah, the operating cost side.
Not as much as it was many one time items in that as there are in SG&A.
I would say that we had.
And then in the fourth quarter, we had about $3 million in expense related to some known reserves. We took on the environmental side that'll be one time, but I would say that the most of the mostly operating expense is related to our GSO business and that as you know.
More related to the acquisition side you know the.
The bigger the biggest things in that in that expense budget or the <unk>.
Salaries at our site level and our credit card fees credit card fees, where we're extremely high all year long.
There were $4 million worse quarter over quarter.
In the fourth quarter, that's all dependent on price at the retail pump on the on the credit card fees.
<unk> seen prices somewhat normalized versus the earlier part of 'twenty 'twenty. Two you know we our volume is up year over year related to the acquisition. So.
I would say that that'll continue to somewhat normalize we have seen some price some wage pressures.
And the and the Opex side throughout 2022, we've seen that somewhat normalize over the year. Although you know labor is still continues to be tight not as tight as it was over the summer, but it's not it hasnt seen the slack that we thought we would see in it. So it continues to be tight, but you know I'd say our run rate on that would you know, it's probably going to be more like.
The fourth quarter or third quarter numbers that you're saying.
Got it.
And then those numbers how much inflation between SG&A and operating expense how much inflation are you assuming there.
Yeah. It's a good question I mean, I think what we saw sort of year over year was probably you know 15% ish.
Thanks.
I will say that the normalized sort of run rate from 'twenty to 'twenty, one to 2022.
Got it and then and you mentioned you expect wholesale to normalize GDS.
GDS, so you're still running at margins that are above history.
<unk> said the break evens are improved.
What do you think the right number is today for a normalized margin.
Margin.
I know you chuckling, because [laughter] keeps improving.
But I can give my my my two cents and I'll, let mark or a chip into you know I think.
We do believe that we have seen operating costs for all operators in the in the gas station business increase not just in salary, but also on equipment and credit card fees all of that has to be offset in pass through on the fuel margin, we believe and so we've seen it definitely shifts since COVID-19 on the fuel margin side.
We were seeing it before that too.
Historically margins have been creeping up.
As expenses increase and I think it impacts the smaller operators more than guys like us with scale, we have different levers we can pull on expenses as opposed to some of the smaller guys who is the only lever they can pull as fuel margin.
And I think you've heard a lot of other companies mentioned that but to your point, yeah, we'd see break even increasing.
Yeah.
And I think you know we've got to offset the costs.
I appreciate that color and maybe I'll just I'll just add one more I can so.
December is a little larger than than some of the other ones you've done.
Do you plan to just find it on the revolver and pay it down over time, if you take it.
My term that out in the bond market at some point.
Yeah, our expectation is we're going to funded under the revolver.
We only have 99 million are currently funded under that revolver and you may have seen our recent 8-K that came out in January we did an amendment upsized the.
The revolving capacity from $4 50 to 600.
So you know we currently have about $500 million of the revolver availability under the revolver and so well funded under that to 273 million of acquisition price will fund it out of the revolver and then you know as we've historically.
We looked in the past we have utilized the bond market to term out solve our longer term borrowings and yeah. There's potential there we'd look to the bond market again at some point.
Needed.
That's all the time guys I appreciate it.
That's correct.
Once again, if you would like to ask a question press star one on your telephone keypad.
Our next question comes from the line of Greg Fleissner with Stifel. Please proceed with your question.
It is a this is Greg congrats on a great end to a strong year.
Just wanted to know if you could give any color around kind of diesel margins or fuel margin that you've seen this year, so far given volatility and that it's going to be you know probably a pretty heavy year as far as refinery turnarounds go. It just really any color you could provide would be really helpful.
I'm going to start that Greg, Yes, sure sure.
Yeah, Good morning, Greg.
Mark I couldn't hear the entire question, but I think I got the gist around margins and refinery turnarounds and I assume you're talking about the.
The market in general.
The curve as we sit here today has flattened out a lot.
And so a lot of volatility in our cost of inventory that we saw in 2023 is a little bit different today.
I think were you know our expectations and who knows what's going to happen forward.
You know our expectations as we sit here today, our margin should and we have seen this margin should return.
Back towards something more normal.
You know as add as the curve has flattened as volatility has quieted down.
And as the cost of carrying inventory has decreased.
We've seen a corresponding downshift.
Down shift in margins towards more of a historical norm, although still at elevated levels and you know without knowing what's going to happen next I think as you look out the curve, it's reasonable to assume that that that those are the market conditions that we're gonna be dealing with for the balance of 'twenty. Three now obviously, if there's some sort of event or.
Are you now demand is stronger than anticipated, which I feel like the bias is that it will underperform not over perform but.
You know any event I would say.
<unk> is still on the on the tighter side, so any any event.
And cause and that in a different direction, but as we.
On our visibility right now.
We're starting to see things trend more towards historical norms than what we saw in 2022.
Great. Thank you that's really helpful. Sorry about the the mic issues I just one more question. If you can hear at odd just on the on the.
Special distribution. If 2023 is another really good year is that a tool that you're thinking about utilizing in the future or just kind of any any capital allocation.
Going forward.
Sure.
Yeah, I'd preface anything by saying that the board makes the decisions on on the distribution I would say that.
The special distribution was.
In light of this very strong year, we had in 2022 and also related to that there was some gains related to capital gains related to the Revere terminal sale you know I think you know going forward.
All depend on where we are in our capital allocation and what we think the best return of capital is to the unit holders. We've got an acquisition that we that that we think in December that we think is a great. One for the for the partnership on the golf acquisition and so I think it's going to be all dependent on what what the best use of capital that potential return at the time will be for the for <unk>.
The unit holder.
Great. That's all for me. Thank you yes.
Yeah.
Thank you we have no further questions at this time I would now like to turn the floor back over to Mr. Slifka for closing comments.
Thank you for joining us this morning, and we look forward to keeping you updated on our progress enjoy the week everyone.
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.