Global Partners LP Q1 2023 Earnings Call

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Good day, everyone and welcome to the Global Partners first quarter 2023 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 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.

Chief operating officer, Mr. Mark Romaine.

And Chief Legal officer, 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 and thank you for joining US 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 <unk> partners.

Based on assumptions regarding market conditions demand for liquid energy products. It could be just a project like this.

Alrighty permitting environment, the forward product pricing or other factors, which could influence our financial results.

We believe these assumptions are reasonable given.

Level of information.

Sumption 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.

Which could cause actual results to differ materially from the partnership's historical experience.

Hasn't expectations or projections goals.

<unk> undertakes no obligation to revise or update any forward looking statements any material comments concerning future results of operations.

Communicated through news releases publicly announced conference calls or other needs 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. Let me begin by thanking the entire global team for propelling us to a solid start in fiscal 2023.

Our performance reflects the great work being done across our liquid LNG terminal network and convenient markets every day to deliver quality products and superior service to our customers and guests.

Q1 was another strong quarter for our G. D S O segment, which posted a six 1% higher product margin.

This increase helped more than offset the effects of warmer than normal temperatures on distillate and other weather related weather sensitive products.

Our results speak to the diversification of our business model, which serves us extremely well in what is frequently a dynamic weather environment.

On our year end call I spoke with you about three acquisitions. We completed in 2022. These transactions have strengthened the earnings power of our GDS, so portfolio, adding more than 60 company operated convenience markets and related fuel operations, along with fuel supply arrangements at more than 55 additional sites.

In March we signed a joint venture agreement to invest alongside Exxonmobil to acquire 64 convenience and fueling facilities in the greater Houston area.

The agreement is expected to close in the second quarter of 2023.

We are excited about the opportunity to expand our footprint into the fast growing Texas markets and look forward to operating need sites on behalf of the joint venture.

On the corporate governance front during the first quarter, we were extremely pleased to welcome Clare Mcgrory to our board of directors as CFO and see Oh, Oh at a tariff it's a $6 billion strategic investment firm clear has been instrumental in guiding growth oriented businesses across a wide range of.

Industries.

She also brings more than 13 years of energy experience to our board, having served as CFO EVP and treasurer for Sunoco L. P.

Look forward to benefiting from clear strategic experience industry perspectives and leadership background.

Turning to our distribution in April the board agreed upon our quarterly cash distributions of $65 50, or $2 62 on an annualized basis on all our outstanding common units for the period from January one to March 31.

The distribution will be paid on may 15th to unitholders of record as of the close of business on May nine 2023.

Let me conclude my remarks by updating you on the status of our agreement with Gulf Oil limited partnership to acquire five of golf's refined product terminals in Connecticut, Maine, Massachusetts, and New Jersey.

We are continuing to work through the regulatory review process, and we will share any material developments as appropriate.

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

Thank you Eric and good morning, everyone looking at our first quarter 2023 results adjusted EBITDA was $76 million compared with $74 9 million and net income was 29 million compared with $30 5 million for the same period in 2022.

DCF was $46 3 million compared with $49 9 million in the same period last year.

Please note that adjusted EBITDA and DCF include a net gain on sale and disposition of assets of $2 1 million and $4 9 million for the first quarter of 2023 and 2022, respectively.

TTM distribution coverage as of March 31, 2023 included including the Q4 2022, one time special distribution was three three times or three two times after factoring in distributions to our preferred unit holders.

Excluding the net gain on the sale of assets, which included the gain from our sale of our Alere terminal in June of last year TTM distribution coverage was two seven times or two six times after factoring in distributions to our preferred unitholders.

Turning to our segment details GSO product margin was up $10 5 million in the quarter to $183 5 million.

The gasoline distribution contribution to product margin was up $5 9 million to $128 million, primarily due to higher fuel margins and an increase in volumes sold due to our 2022 acquisitions.

Fuel margins decreased one cents per gallon to 32 cents per gallon in the first quarter of 2023 from <unk> 31 per gallon in the first quarter of 2022.

Station operations product margin, which includes convenience stores and prepared foods three story in prepared foods sales sundries and rental income increased $4 69 to $62 7 million from the first quarter of 2022. This reflected an increase in activity in our convenience stores and part due to our 2022 acquisitions.

At the end of the first quarter, our <unk> portfolio consisted of 1656 sites.

The 343 company operated sites 297 Commission agents 188 D C dealers and 828 contract dealers.

Looking at the wholesale segment first quarter 2023 product margin increased $6 million to $53 1 million gas.

Gasoline and gasoline Blendstock product margin contributed $20 4 million up $22 7 million from the same period in 2022.

Primarily reflecting more favorable market conditions year over year.

Product margin from distillate and other oils decreased $16 7 million to $32 seven.

Primarily due to less favorable market conditions in distillates and residual oil offset by improved margins in crude oil.

Warmer weather negatively impacted our weather sensitive products as temperatures were 16% warmer than normal during the first quarter of 2023, and 13% warmer than the first quarter of 2022.

In addition in the first quarter of last year, we experienced extreme commodity price volatility as a result of the Russian invasion of Ukraine, which benefited the distillate product margin in that period.

The improvement in crude oil primary primarily reflects a decrease in expenses related to the expiry of a pipeline commitment in the fourth quarter of 2022.

Our commercial segment product margin was flat at $8 1 million in the first quarter of 'twenty, three and 'twenty two.

Looking at expenses operating expenses decreased $9 1 million to $108 3 million largely associated with our GDS, So operations, including our 2022 acquisitions in part due to higher salary and rent expenses and an increase in maintenance and repair expenses.

SG&A expenses increased $6 million in the first quarter of 'twenty, three to $62 3 million, reflecting increases in wages and benefits and various other expenses, partially offset by a decrease in accrued discretionary incentive compensation.

Interest expense was $22 1 million in the first quarter of 'twenty three versus 21 5 million in the same period of 2022 as increased interest rates were partially offset by lower borrowings under our credit facility.

Capex in the first quarter was $15 2 million consisting of $9 6 million of maintenance Capex and $5 6 million of expansion Capex, primarily related to investments in our gasoline station business.

For full year 'twenty three we continue to 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 million relating primarily to investments in our gasoline station business.

Eastern estimates it depends in part on timing of completion of projects availability of equipment and workforce, whether an unanticipated events or opportunities requiring additional maintenance or investments.

Our balance sheet remains strong at 331 with a leverage which is defined in our credit agreement as funded debt to EBITDA of approximately 175 times at the end of the quarter. We continue to have ample excess capacity and aircraft facility as of March 31, 2023 total borrowings outstanding under the credit agreement were $346 3 million.

This consisted of $247 3 million under our $950 million working capital revolving credit facility and $99 million under our $600 million revolving credit facility.

Adding to our balance sheet strength. This past week, we entered into an amendment to our credit. He was there a banker. The amendment extends the maturity date from May 2024 to May 2026, the total committed amount of the facility under the credit agreement remains at $1 55 billion.

Looking ahead on our Investor Relations calendar on May 23rd in May 24th we will be participating in eic's, 20th annual energy infrastructure, CEO and Investor Conference.

In June we will be at the Bank of America Energy Credit conference for those of you who are participating in conference and we look forward to seeing you shortly.

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

Thank you Greg we remain focused on driving returns for our stakeholders through a combination of organic growth.

Operational efficiency and M&A, we're off to a solid start in 2023 and are well positioned to deliver on our strategic objectives.

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. If you would like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line of my question queue.

You May press Star two if you would like to remove your question from the queue for.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

Yeah.

Thank you. Our first question comes from the line of Selman <unk> with Stifel. Please proceed with your question.

Thank you good morning.

Grant's on another nice quarter.

Let me just start off on the Gulf oil is this taking longer than you originally anticipated or you have any.

Comments there at all on that when do you think they start actually get done.

Yes, sure I'll start off some of them did it hurt you.

So I mean, it is not taking any longer than we anticipated and I mean, I think if you talk to you a lot of companies out there. The FTC is taking longer to reveal a lot of things we anticipated going into this acquisition that it potentially could be a long acquisition.

Process with the FTC, but we continue to endeavor to work with them and hopefully to get this thing closed as soon as we get the approval from them.

Got it.

Okay.

And then.

Turning to your announcement with.

Exxon if you could maybe help us understand that a little bit more.

M I.

I doubt you will answer to me, if I ask sort of a pricing or what the investment is but.

What I guess I'm really trying to understand is I E.

They're going to supply the fuel you're going to manage.

This the stations can you just talk a little bit about how this arrangement is going to be.

Hi, I tell them it's Eric.

You know, it's really a partnership if you think about you know Exxon is as good at certain things in global is good at certain things.

I think this is a partnership.

That will allow us to focus on what our expertise is and that is operating our sites.

Is pricing sites that is managing sites.

And in terms of supply look you know there there are a refining behemoth in and and they've been a you know their their job is gonna be to supply the locations right. So we take it's a fit because.

For us it puts us in a market that we haven't been in you know with with Exxonmobil and you know obviously, we take Exxonmobil, it's gonna be a fantastic partner for the company.

And as we've shown in the past you know once we end up with assets and markets, we've been able to expand our footprint right and so the goal here is.

Operate these assets get comfortable with the business in Texas.

And then look to grow it.

Got it.

Sure.

I'm sorry go ahead please.

Sure.

Financials I mean, it is very much a almost an equal partnership we have a 49, 9% interest they have the majority of the interesting investments is very much similar in on the return parameters, we haven't put out any numbers on the actual investment, but you know what I would guide you to that you know it. It is in line with our target investment in sort of mid teens.

Unlevered IRR on a deal like this is very similar to other acquisitions, we made in terms of multiples.

Okay I do appreciate that and so then as you think about future expansion in this market should we look for.

More of sort of this you know.

J V wave growing or do you think you would go out and actually.

You know E more.

More typically go out and buy one lease.

You know manage for other folks that kind of thing.

Yeah, we're actively looking to grow the business, there and whether it ends up being a partnership or or operated by US I mean, you know it'll be one or the other.

Got it okay. So so theres nothing that precludes you from doing something outside of it.

You know, obviously, they're our partner down there and and so you know for us the focus would be to grow with them, but should that not happen and we're prepared to move forward on our own.

Got it Okay and then.

Just pivoting over a just kind of curious any improvement on.

Sort of utilization from EV is where ive installed Chargers are you seeing anything on that front anything you can talk about there.

Yeah, I think I think you know utilization has ticked up.

And.

Before it was.

In the low single digits are you know I'd say, that's ticked up anywhere from six.

To six 8%.

And my view generally is.

As more vehicles electric vehicles come into into use are those who have.

What I'll call is electric charging stations.

I've got a kind of thought or you know a big part of I think a part of that market.

I still think it's difficult at that utilization rate to make money.

That being said with our government support Ah you know there there's some potential for actual returns out of the business.

So from that standpoint, as you kind of look forward do you see adding more charging stations and yeah.

Accessing government funds and all of that stuff, yeah, it's about but it's about scale and you know I mean, you've got a you've got to do it in a big enough way to to.

To move the needle right and you know you're proposing sites to the government and they are releasing funds and then you're building. It so any any sort of <unk>.

Any sort of real impact P&L wise, it's going to take a little bit, but you know we have our own lighters looking.

To get and be approved by the government for these funds. So I mean, we're we're on it. We're after it you know, it's just going to take awhile to scale it up.

I got it and then he can.

Yeah, I think we're still a little reticent to go after it on our own.

Right, because I'm not sure where the returns there, but but but with government funds that we think there's a return there.

Got it and then just commentary in and around the acquisition market, if you'd be so kind.

Yeah, you know it's been been very busy continues to be busy we're looking at everything you know and and not just at the stage that we're in but you know we haven't we haven't won every every potential deal that's out there, but we do like to see them and you know frankly missing some deals tells me that.

We're showing good financial.

Financial discipline.

But but the deals that we have we think really fit and we can create value with are the ones that we're going to hopefully be successful lab and the beds.

Got it thank you so much.

Yeah.

We have reached the end of the question and answer session. Mr. Slifka I'd now like to turn the floor back over to you for closing comments.

Sure. Thank you for joining us. This morning, we look forward to keeping you updated on our progress and enjoy the weekend 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.

Yeah.

Yeah.

Yeah.