Q2 2023 Global Partners LP Earnings Call
Good day, everyone and welcome to the Global Partners second 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. 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 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 and thank you for joining US today's call will include forward looking statements within the meaning of the federal Securities laws. These statements include 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 LNG products reached our products regulatory and permitting environment foreign product pricing curve and other factors, which could influence our financial results.
Believe these assumptions are reasonable given currently available information.
<unk> 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 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.
Those are for the purpose 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 this morning by recognizing the terrific work of our entire team and contributing to a solid second quarter with our wholesale of GSO segments performing above our expectations from our fueling stations and convenience markets through our <unk>.
<unk> energy terminals the relationships created by our team members with customers and guests every day is a key differentiator that allows us to maintain our competitive advantage across our businesses.
From an operating perspective, we bring in an exceptionally high level of technical marketing and M&A expertise amassed over decades in the energy industry.
This expertise powers of the three core tenants of our growth strategy acquire invest and optimize.
We continue to advance our strategy in the second quarter in June and the joint venture owned by subsidiaries of global and Exxonmobil completed its acquisition of 64 convenience and fueling facilities in the greater Houston area, which expands our footprint into Texas, we invested approximately $69.
$5 million in cash for a 49, 9% ownership interest in the joint venture.
And under an operations and maintenance agreement, we operate and manage these locations.
Our planned acquisitions of five of golf's refined product terminals in new England, and the New Jersey continues to work its way through the regulatory review process. We remain hopeful that the acquisition will close in the second half of this year.
Including golf and less than two years, we will have announced or completed more than $570 million of acquisitions, while maintaining the strength and flexibility of our balance sheet.
Lying our target mid teens returns. These deals are transformative for global building on our competitive position and driving increased value for unit holders.
We continue to put our energy to work in the clean fuel space in June was the title sponsor for the inaugural northeast hydrogen infrastructure summit held at the Federal Reserve Bank of Boston through our team's vision. The event brought together a dynamic group of leaders in the hydrogen infrastructure.
The expectation and policy space as well as potential users to develop solutions to scale. The northeast hydrogen economy. We also recently brought in our first cargo of renewable diesel to our Albany terminal from.
From Albany, the product can be distributed throughout the northeast New York ambitious climate goals, coupled with sustainability oriented customers eager to decarbonize their footprint made Albany, the perfect location to test the product. We are encouraged by the early demand and interest from customers both existing and new.
Our infrastructure is positioned to play a vital role in storing and distributing fields that will help our country decarbonize.
We will continue to create opportunities in the low carbon transportation and power sectors through cultivation of relationships policy advocacy and problem solving.
Turning to our distribution in July the board agreed upon our quarterly cash distributions of 6700, 50 or $2 70 on an annualized basis on all our outstanding common units for the period of April one to June 32023, the distribution will be paid on August 14th to unit holders of record.
As of the close of business on August eight 2023.
Now, let me turn the call over to Greg for the financial review Greg. Thank.
Thank you Eric and good morning, everyone. We are very pleased with our second quarter results. However, I would note that the year over year comparison is challenging given the exceptionally strong results of our wholesale segment in the second quarter of 2022, which were driven by the historically steep backwardation of the forward product pricing curve in that period.
Also in comparing our year over year performance keep in mind that net income EBITDA and DCF for the second quarter of 2022 included a net gain on sale and disposition of assets of $76 8 million primarily related to the sale of our Revere terminal in June of last year.
For the second quarter of 2023, adjusted EBITDA was $91 6 million compared with $134 9 million for the same period in 2022.
Net income was $41 4 million compared with $162 8 million and DCF was $54 8 million compared with $178 2 million in the same period last year.
TTM distribution coverage continues to be strong at June 32023 included in the Q4 2022 special distribution. It was two three times or two one times after factoring in distributions to our preferred unit holders.
Turning to our segment details G. D. S. L product margin was up $2 million in the quarter to $199 1 million the gasoline distribution contribution to product margin was down $2 million to $127 $9 million in part due to a client and decline in volume sold.
Fuel margins continued to be strong at 31 cents per gallon in the second quarter of 2023, essentially flat compared with the second quarter of 2022.
Station operations product margin, which includes convenience store in prepared foods sales sundries and rental income increased $2 2 million to $71 2 million from the second quarter of 2022, primarily due to an increase in activity at our convenience stores and part due to the acquisition of Tidewater convenience last September .
At the end of the second quarter. Our GSO portfolio consisted of 100, sorry, 1646 sites comprised of 341 company operated sites 298 Commission agents 187 leases dealers and 820 contract Dallas.
The 341 company operated sites excludes the 64 sites and our joint venture in Texas.
Looking at the wholesale segment second quarter 2023 product margin decreased $30 8 million to $59 7 million, primarily due to less favorable market conditions, and distillates and residual oil as I mentioned earlier, we experienced historically strong margins in our wholesale segment during the second quarter of 2022, as a result of steep backwardation and tight inventory.
Conditions.
Gasoline and gasoline Blendstock product margin contributed $39 million down 2 million from the same period in 2022, primarily due to less favorable market conditions in gasoline, partially offset by more favorable market conditions in gasoline blend stocks.
Product margin from just also another world.
Decreased $28 8 million to $20 7 million, primarily due to less favorable market conditions and just thoughts on residual oil partially offset by an increase in crude oil due to the exploration of a pipeline connection agreement in December of 2022.
Our commercial segment product margin decreased $5 7 million to $6 8 million, primarily due to less favorable market conditions and bunkering.
Looking at expenses operating expenses increased $1 9 million to $110 4 million in the second quarter of 2023, reflecting increases related to our acquisitions, partially offset by lower credit card fees related to decreases in price.
SG&A expense increased $5 9 million in the second quarter to $66 7 million, reflecting increases associated with the sale of our REO terminal higher wages and benefits and various other expenses, partially offset by a decrease in accrued discretionary incentive compensation.
Interest expense was $21 8 million in the second quarter of 'twenty three versus $21 million in the same period of 2022.
Capex in the second quarter was $22 1 million consisting of $13 6 million of maintenance Capex and $8 5 million of expansion Capex, primarily related to investments in our gasoline station business.
The first half of the year weird.
$23 2 million and maintenance Capex in $2014 1 million in expansion Capex.
For full year 2023, 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 million to $65 million relating primarily to investments in our gasoline station business.
These current estimates depend in part on the timing of the completion of projects availability of equipment and workforce, whether an unanticipated events or opportunities requiring additional maintenance of our investments.
Our balance sheet remains strong at 630 with leverage which is defined in our credit agreement as funded debt to EBITDA of approximately 1.94 times at the end of the second quarter and we continue to have ample excess capacity of our credit facility as of June 30th 2023, total borrowings outstanding Aircard agreements were $208 4 million. This consisted of $89 4 million.
Growing its outstanding under our $950 million working capital revolving credit facility and $119 million outstanding under our $600 million revolving credit facility.
Looking ahead on our Investor Relations calendar on August 20 seconds in 'twenty three wheeled artistic participating in the Citi Midstream infrastructure conference. We hope to see many of you out there now let me turn the call back to Eric for closing comments.
Greg we have a healthy and well capitalized balance sheet that continues to position us positively for long term growth.
Looking ahead, we remain focused on executing our strategic priorities to maintain our competitive position and drive value for our unitholders now, Greg Mark and I'd be happy to take any 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.
Yeah.
Thank you. Our first question comes from the line of Gregg Brody with Bank of America. Please proceed with your question.
Hey, good morning, guys.
Thanks for the time here.
Good morning can you talk about can you talk a little bit about what you're seeing on the demand side in terms of the behavior of the consumer at the pump and your observations there and just you know every quarter, we talk about how the break evens are improving from your perspective or are they going higher which helps you out for your competitor.
Marginal provider.
And so if gasoline can you talk a little bit how that's trending.
Yeah.
Yeah, I missed that I missed the end of that Greg, but I think on the on.
Demand side of the equation gasoline demand has been good.
At our stations and we're pleased with the year over year number we still compare things in 2019 and were still off you know similar to what we were seeing last year versus 2019, but from a gasoline standpoint.
We've been tracking positively from it from a diesel demand standpoint, we've seen a different story and went down.
We're down year over year than usual, but I think that's consistent with the rest of the industry I didn't hear the end part of that so I'm not sure.
Sure.
I can repeat just that the G DSO segment.
Yeah, well I mean every quarter, we talk about how the margins.
Seem to be getting better and it's one of the arguments that the break evens keeps coming up.
Can you talk a little bit how that's trending are you seeing anything that anything different or anything that's breaking that trend continues.
I think overall I mean, we're going to see you know, we'll see some ups and downs, we will see margins expand and compressed I mean, that's just the nature of the business, but I think overall, we continue to see.
We continue to see margins trend positively and I just think it's our overall bias that as we go forward.
Youre going to see that.
You know margins expand.
Somewhat due to increased cost to run the business.
But we have seen expansion in margins in our biases that that will continue.
And then just moving over to the wholesale I think it was last year, where we started talking about how.
How much more volatility there wasn't a business that will allow you to earn greater margins than last.
Last year was a special year.
But I'm just curious is that is that elements still there or is that or is that that though.
I would say that.
Last year was as you said it was a special year. Your last year was very unique market conditions.
So I would say.
Marketing market conditions like we had never seen before and that was true in 2020 as well. So we've seen a real we've seen extremes in.
Market conditions, I would say that what we're seeing this year is much more.
Normalized.
Last year, we saw.
Everything was higher last year margins were higher costs were higher risks were higher.
And so what we're seeing we're seeing the market kind of normalized back to what we used to.
Both on the both on the volume and the.
And the margin side and on the wholesale business.
And then just last one on the M&A side.
Just talk a little bit about the opportunity set in and I don't know if you can give us specifics on the most recent acquisition how much you're paying for them how much synergies you are seeing or just whatever you're comfortable telling us there.
Sure, Greg, it's et cetera, just.
I'd say it continues to be very active and there's lots of opportunities out there.
Whether it's terminals, whether it's retail.
It's just finding the ones.
That fit us best.
And then trying to go after them in and you know.
The the.
The successful winter.
And I've said this in the past you know the good news is we don't want everyone. So I think that tells us that we're not overpaying and we're in the right in the right zone.
But we continue to work hard to look at deals and be competitive and you know the ones, where we can bring the most value to us are likely the ones that we're going to be the winners right.
In terms of multiples.
Maybe they were off a little bit I wouldn't say that it sort of depends on the assets right, but as usual there always seems to be better who who may think it fits them a little bit better than maybe they are willing to pay another half a turn to return more.
So it really depends on the assets.
When you say its off a little bit are you seeing valuations alibaba or yeah.
Yeah I think.
Yeah, I mean, I think it's like you know I think what cost of money is higher in ER and that people have to have more discipline.
And even longer term financing is more expensive too and that has to get baked in I think it's hard.
To pretend that out of your.
Cost of interest isn't higher you know and so most of the competitors.
That are acquirers.
You know they are borrowing money right and they may not even be borrowing from banks right. So they've got more expensive money.
And that has the depressed.
Multiples, a little bit right, but once again it depends right because everybody's got a slightly different set of economics and somebody could say Oh, we're going to stretch a little for this because for them. It's really not a stretch it's just walks into the market right because they have more value the things that they can bring to a particular transaction.
That's it for me guys. Thank you for the time.
That's correct.
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One moment, please while he repo for any additional questions.
Thank you. Our next question comes from the line of Tyler Rakers with Stifel. Please proceed with your question.
Hi, Good morning, Tal rakers on for Selman, Oh did you guys share some colors the G DSO volumes being down.
Down year over year, just given the acquisitions made during that period.
Yeah.
Yeah, we are 1.2% down year over year Tyler on a total basis now as Mark mentioned, we've seen diesel off year over a year is I think a lot of the other industry participants are saying. We also you know it was not a great quarter from a weather traffic standpoint up here in the northeast and can't quantify how much that.
I played a role but definitely was a was a very wet June for us and I think that range. We've got a rainy day every weekend of June . So you know that that factors that I think.
I think overall, we're pretty happy with volumes are overall, they couldn't they couldn't be better definitely they could be better, but I think gasoline demand is still using out there.
Yeah, Let me just let me just clarify.
The comment I made earlier with regard to gasoline demand.
Specific to the comments I made was specific to our company operated stations.
So where we you know and I think part of that has got to do with you know when you talk about volume and margin I think part of that is due to how we're running our sites following the science of Iran.
The experience that we create but I guess, so I just wanted I want to clarify those comments around volume or specific to our company operated sites.
Okay.
Great Thanks, and if.
If I could ask with the as you said.
Regarding the M&A environment with the higher interest we're seeing.
If maybe we'd see AR as well as with the Exxon deal if we'd see more of these JV structure deals going forward.
Oh, Yeah, I don't either.
I don't really know I mean, I would say.
We're going to try to be opportunistic.
And you know in the.
The concept.
At least with the JV with Exxon is.
Can we expand it.
You know, but you know we're already in Texas, we've been in Texas for a while and do the whole sale.
Take this as a natural extension for global.
Regardless of that.
You know and you know what I'd say generally as we're having more conversations now because we are a recognized.
Recognized differently in that market, which is frankly.
How we built the business over decades.
What we do right.
Yeah.
Yeah.
Great I appreciate the color.
Thanks Todd.
Thank you 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.
Thank you for joining us. This morning, we look forward to keeping you updated on our progress enjoy the weekend everyone thinking.
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.