Q3 2023 Global Partners LP Earnings Call
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Good day, everyone and welcome to the Global Partners third 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. A brief question and answer session will follow the formal presentation.
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. Sharp, 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 and thank you for joining US today's call will include forward looking statements within the meaning of federal Securities laws. These.
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.
And for liquid energy products, and convenience store products, the regulatory and permitting environment the forward product pricing curve and other factors, which could influence our financial results. We believe these.
These assumptions are reasonable given currently available information.
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, 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 with what we consider to be a transformational deal for global our definitive agreement to acquire 25% refined product terminals for Motiva enterprises for $305 8 million.
To put this acquisition in context.
Today, we own or lease 24 bulk terminals, primarily in the northeast with the combined storage capacity of approximately $9 9 million barrels.
The addition of the Motiva terminals Diversifies, our terminalling operations into new geographies, along the Atlantic coast in the South Eastern U S and in Texas, providing platforms for growth and supply wholesale commercial and retail.
In all we will be adding approximately $8 4 million barrels of shell capacity for products, including gasoline ultra low sulfur diesel and ethanol.
The terminal portfolio is well maintained and strategically located with direct connections to critical highly utilized U S refined product infrastructure, including the colonial plantation enterprise explore and Magellan pipelines.
The transaction is underpinned by a 25 year take or pay throughput agreement with Motiva.
Let me provide a brief overview of the assets we're acquiring.
The Atlanta Coast assets consist of 10 bulk terminals in Maryland, Virginia, North Carolina, and South Carolina, where the combined storage capacity of approximately 3.4 million barrels.
The southeast assets consist of eight bulk terminals in Florida, and Georgia with a combined storage capacity of about $3 4 million barrels.
Texas assets consist of seven bulk terminals, where the combined storage capacity of approximately one 6 million barrels.
Upon closing our storage capacity will be $18 3 million barrels an increase of approximately of 85% from our capacity as of September 30.
This transaction aligns with our strategy to acquire invest in and optimize assets that drive operating synergies.
The terminals, we are acquiring provide critical midstream infrastructure with the flexibility to serve customers through multiple modes, including ship barge pipeline rail and truck.
In addition, we gain further operational capacity for our own volumes as we continue to grow.
We expect the Motiva transaction to close by the end of this year subject to customary closing conditions, including regulatory approvals.
We look forward to optimizing and developing these terminal assets to their full potential.
I also wanted to touch on our planned acquisition of five Gulf oil refined product terminals in Maine, Massachusetts, Connecticut, and New Jersey, we continue to diligently work through the regulatory review process and we remain hopeful that we will be able to complete the acquisition this year.
Turning to Q3, the global team delivered solid results in the quarter, which was in line with our expectations and a more normalized market compared with last year.
We continue to deliver value across the midstream and downstream liquid energy markets, providing customers with essential products and services through our integrated fuel storage distribution and retail assets.
As part of our alternative fuel strategy. We recently activated our first company owned electric vehicle charging stations. The DC fast charging stations are located our Xtra Mart convenience fueling station in Worcester, Massachusetts, and at our newly opened all town fresh kitchen and market play.
And for Edward New York, while the new charging stations or are the first owned by global they are not the first in our portfolio.
We operate two EV charging station sites with charges owned by a third party and have five more sites under construction, we continue to focus on contributing to state and regional energy initiatives.
Given the scale of our GSO business. We believe we are well positioned to play an integral role in the transition to alternative energy sources, providing a range of multi fueling options for consumers.
Turning to our distribution in July the board approved a quarterly cash distributions of 68, 50 or $2 74 on an annualized basis on all outstanding common units the.
The distribution will be paid on November 14th to unitholders of record as of the close of business on November eight 2023. This marks the eighth consecutive quarter in which the board has increased the cash distribution.
With that now let me turn the call over to Greg for his financial review of Greg. Thank.
Thank you ever and good morning, everyone. As we noted this morning in this morning's earnings release, our third quarter year over year comparison is somewhat challenging with more normalized market conditions in the third quarter of this year compared to the record results. We achieved in the third quarter of 2020, Q due to the strong backwardation in commodity market volatility that benefit.
Paresh.
That said and as Eric noted we are pleased with our third quarter of 2023 results, which were in line with our expectations.
For the third quarter of 2023, adjusted EBITDA was $77 7 million compared with $168 5 million in 2022.
Net income for the third quarter was $26 8 million compared with $111 4 million in 2020, Q and DCF was 42 2 million in the third quarter compared with $128 million.
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Adjusted DCF, a new metric commencing this quarter was $43 3 million in the third quarter of 23 versus a $128 million in 2022.
Adjusted EBITDA and adjusted DCF includes our proportionate share of EBITDA and DCF related to our 49, 99% interest in our spring retail joint venture that we closed this past June.
Please note that adjusted DCF is not using our partnership agreement to determine our ability to make cash distributions and may be higher or lower than tcf as calculated under our partnership.
Adjusted DCF is presented solely to provide investors enhanced perspective, all of our financial performance.
TTM distribution coverage as of September 30th 23, including the Q4 2022 special distributions was one five times or one four times after factoring in distributions to our preferred unitholders.
Turning to our segment details GDS L product margin was down $55 1 million in the quarter to $206 5 million.
Product margin from gasoline distribution, just decreased 56 million to $132 million, primarily due to lower fuel margins in Q3 23 compared to Q3 2022.
On a cents per gallon basis fuel margins declined to 31.
From 44 in last year's third quarter.
We experience uniquely strong fuel margin in third quarter 2022, with wholesale gasoline prices declining $1 18 from 632022 to <unk> 22 in comparison this year's third quarter wholesale gasoline prices declined 19.
Station operations product margin, which includes convenience stores in prepared food sales sundries and rental income increased <unk> 9 million to $74 5 million in third quarter of 'twenty three in part due to our September 2022 acquisitions for Tidewater convenience.
GDS L product margins, both from gasoline distribution and station operations were negatively impacted for the quarter due to excessive rain with the northeast experiencing its third wettest summer since record keeping began in 129 years ago part of the National Oceanic and atmospheric administration.
Which influence consumer demand for gasoline in Houston products, such as car wash sales.
At the end of the third quarter. Our GDS. So portfolio consisted of 1624 sites comprised of 342 company operated sites 300 commissioned agents hiring 84 D. C dealers and 798 contract dealers. In addition, we operates 64 sites on behalf of our spring partners retail joint venture.
Looking at the wholesale segment third quarter 2023 product margin decreased $42 1 million 30, 10.2 million, primarily due to less favorable market conditions in gasoline distillates and residual oil.
Gasoline and gasoline Blendstock product margin decreased $33 8 million to $20 4 million for the quarter and product market from just thoughts on other oils decreased $8 3 million to 60 points.
Our commercial segment product margin decreased 2 million $8 4 million, primarily due to less favorable market conditions in country.
Looking at expenses operating expenses decreased $3 six nine to $115 9 million in third quarter of 23, primarily in our GDS Air segment, including a decrease in our environmental expenses due to the additional reserve we booked in the third quarter of 2022, and lower rent expense expense offset by an increase in salary expense.
SG&A expense decreased 1.6 million in the third quarter of 23 to $63 5 million, including a decrease in accrued discretionary incentive comp, partially offset by increases in acquisition costs and wages and benefits.
Interest expense was $21 1 million in third quarter of 23 versus 19, nine 2022 due in part to higher average balances on our credit facility from higher interest rates.
Capex in the third quarter was $17 4 million, consisting of $12 2 million of maintenance Capex and $5 2 million of expansion Capex.
Were really related to investments in our gasoline station business is.
Through the first nine months of the year, we had $35 4 million and maintenance Capex of $19 3 million in expansion Capex.
For the full year 2023, we continue to expect maintenance capital expenditures in the range of $50 million to $60 million.
Based on our anticipated projects through the end of the year, primarily related to investments in our gasoline stations. We are revising our planned expansion capex from 2023 to a range of $35 million to $45 million from our previous expectations of $55 million to $65 million.
These current estimates dependent part on the timing of completion of projects availability of equipment and workforce, whether an unanticipated events or opportunities requiring additional maintenance for investments.
Our balance sheet remains strong at 930 with leverage where should define your credit agreement as funded debt to EBITDA of approximately 237 times at the end of the third quarter and we continue have ample excess capacity and aircraft facilities.
September 30th 23 total borrowings outstanding on our credit agreement for $154 7 million. This consisted of $65 7 million of borrowings outstanding under our $950 million working capital revolving credit facility and $89 million outstanding under our 600 million revolving credit facility.
Now let me provide some additional color on the announced transaction with Motiva.
Eric noted, we were acquiring twenty-five or refined product terminals across the Atlantic coast, and South Eastern United States, and Texas for a purchase price of $305 8 million in cash.
We expect to finance the acquisition under our bank facilities on a pro forma basis, including the Motiva Engulfs transactions, we expect that levers as defined in our credit agreement will be within our long term target of four times.
In addition, excluding first year transition related expenses, we expect the acquisition to be accretive in the first full year of operations.
Looking at our upcoming Investor Relations calendar next month, we'll be participating in the 2023 Wells Fargo Midstream and utilities Conference in New York City for those of you who are participating we look forward to meeting with you now.
Now, let me turn the call back to Eric for closing comments.
Okay.
Thank you Greg.
Looking ahead, we remain focused on our initiatives to drive growth through strategic M&A.
That optimization and balanced capital allocation and creating long term value for our unit holders refined product demand in the U S remained stable.
We believe that our acquisition of the Motiva terminals is a transformational deal for global one that builds on our reputation as a leading provider of critical midstream infrastructure.
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, a confirmation tone will indicate your line is in the question queue.
You May press star two if he would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star.
One moment, please while we poll for questions.
Our first question comes from Selman <unk> with Stifel. Please proceed with your question.
Hey, guys. Good morning. This is Tim on for Selman, Congrats on the terminal acquisition.
I'm just wondering to start start off with bad I'm, just wondering if you could expand a little bit on the.
The opportunities and synergies and growth prospects you see with this enhanced terminal footprint.
And as well as how it maybe relates to your Exxonmobil JV are down in Houston.
So so.
I think we are couple of vessel handle those questions out this is Eric.
First.
Well. If this is a deal that is being that is backed by motiva as an anchor tenant.
And you know in a way we look at that as sort of hedging hedging our bets here because as an anchor tenant they are providing a material source of revenue for the transaction and then from there obviously, we're in the Terminalling business throughout the northeast.
I'd say historically 10, we started you know really in the retail heating oil business. We went into the wholesale heating oil business and then we bought terminals. This story is a little bit similar maybe not in every market, but we are in and many of the markets in the wholesale business.
These are now taking assets and putting those assets behind it.
We think it's going to put us in a position to expand that business as well as potentially being more competitive on any retail acquisitions. We also think there's an opportunity around supply for these assets as well and so it's really taking.
Taking that vertically integrated business model that we've successfully deployed throughout the northeast and now moving it down the coast.
Into Florida, as well as into Texas, and really leveraging our physical position in these markets Mark I don't know if you have anything else that you want to add the only the only one thing I would add to that is as these assets you know they've been owned by Motiva and run successfully and for.
For many years and are very well maintained that being said I think we expect to find some opportunities to invest in these terminals and to optimize these assets. So.
That's the only thing I would add to that along with.
All of the strategic benefits and synergies and Erik highlighted.
Yeah, and look and you also asked a question around Exxonmobil and how does this play into that.
You know this is a deal where we own the assets.
Look we're going to.
Tried to provide the best value for all of our partners here and so if there is a way to provide value to our JV. You know, we're going to we're going to try to work with our partner to in fact do that right.
Understood sounds like a good set of opportunities that have you guys.
And then just switching to the golf acquisitions, just wondering what's the next.
Kind of.
Thing to tackle that get to get the the acquisition close by year end.
Yes, I mean Sam.
We continue to work with the regulatory agents FTC and intelligent manner, and that's really all we're going to comment on.
Got it and then the last one for me. So obviously you guys recently put a couple E.
E V charging stations that you guys own into service and it seems like a couple more on the way.
Just wondering what kind of drove the rationale for you guys to own them and then ultimately you know if you'd like to expand this even further beyond.
Beyond what you have going on now.
Yes, Tim.
So we've tried to lean into that space to the extent that we can you know we realize that.
Energy transition will you know will be coming at us where we're trying to.
Staying at the forefront in some cases lead.
And it's not limited to Evs you know we are we are handling volumes of renewable diesel today I would say you know one of the first in the market to be handling those volumes, we continue to invest in things like biodiesel blending but on the EV front you know we're trying to we're trying to formulate our strategy, we're trying to take advantage of inset.
And funding.
And put that to work along with our own capital and really.
Like I said lean in and learn how this works and watch it and you know continue to shape. The strategy. So it's it's really an evolution, but it is something that you know where we're spending a fair amount of time on and we're trying to invest where we can and look the goal is to make sure that we're financially disciplined right.
And so so part of what we're doing is working with the.
The states and the local towns and the federal government to really put their dollars to work to make the transaction transition will happen quicker you know and so it gives us.
A chance of.
Of having better returns and it lowers our risk.
Understood. Thank you guys so much for the time.
Thanks, Jim.
Yeah.
Yeah.
Yeah.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Okay.
There are 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, we look forward to keeping you updated on our progress thanks everybody.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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