Q2 2019 Earnings Call

Good day, everyone and welcome to the global Partners' second quarter 2019, and that's a result conference call.

Today's call is being recorded.

There will be an opportunity for questions at the end of the call.

If anyone should require operator assistance during the conference. Please press star zero from your telephone keypad.

That's for global partners are President and Chief Executive Officer, Mr., Eric Slifka, Chief Financial Officer, Ms. Daphne Foster.

Chief operating officer, Mr., Mark Romaine Executive Vice President and General Counsel Mr. Edward Faneuil.

At this time I'd like to turn the call over to Mr. Faneuil for opening remarks. Please go ahead Sir.

Hey, good morning, everyone. Thank you for joining us today before we begin let me remind everyone that this morning, we will be making forward looking statements.

Within the meaning of federal Securities laws.

These statements may include but are not limited to projections beliefs goals and estimates concerning the future financial and operational performance.

Estimates for global partners EBITDA guidance and future performance are based on assumptions regarding market conditions, such as the crude oil market business cycles demand for petroleum products, including gasoline and gasoline blendstocks in renewable fuels utilizations of assets the facility.

Weather credit markets, the regulatory and permitting environment and the four product pricing curve, which could it supports quarterly financial results.

We believe these assumptions are reasonable given currently available information and our assessment of historical trends.

Because our assumptions of future performance are subject to a wide range of business risks and uncertainties. We can provide no assurance that actual performance will fall within guidance ranges.

In addition, such performance is subject to risk factors, including but not limited to those 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 the forward looking statements that may be made during todays 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 calls or other means that will constitute public disclosure for purposes of regulation FD.

Now please allow me to turn the call over to our President and Chief Executive Officer, Eric Slifka.

Thank you Edward good morning, everyone and thank you for joining us.

We continued our solid performance in the second quarter highlighted by a product margin increase of approximately 16% and our G.D.S. So second.

That increase is primarily attributable to the last summers acquisition of chance plane, and Chester oil and to higher G.D.S.L. fuel margins.

Turning to our distributions in July the board increased quarterly distribution on our common units from 51 cents to 51 and a half cents per unit.

The distribution will be paid on August 14th to common unit holders of record as of August .

In summary, we had a solid performance through the first half of the year and our terminal network and retail assets.

Continue to provide us with a strong foundation moving forward.

Now I'll turn the call over to Daphne for her financial review Daphne.

Thank you, Eric and good morning, everyone.

Let me begin with an overview of our second quarter results.

Similar to the first quarter stronger fuel margin and contribution from our 2018 retail acquisition drove the year over year increases in Q2.

Second quarter 2019, adjusted EBITDA was 62.8 million compared with 56.1 million in the second quarter of 2018.

Net income in Q2, 2019, with 14.5 million versus net income of 6.4 million in Q2 2018.

DCF was 28.1 million in the second quarter of 2019, compared with 21 million in the same period of 2018.

<unk> distribution coverage at the end of the second quarter was 1.9 times.

After factoring in distribution to the preferred unit holder that coverage was 1.8.

Turning to margin combined product margin in the second quarter increased 18 million to 188 million.

Driven by growth in our GDS Air segment.

Tedious product margin increased 19.8 million to 145.4 million.

The gasoline distribution contribution to product margin was up 10.9 million, primarily due to higher fuel margins.

And the acquisition of Cheshire Champlain in July 2018.

Yeah average fuel margin per gallon improved approximately two cents.

To 21.4 cents from 19.5 cents in last years second quarter.

Volume in the D. adult segment increased approximately 16 million gallons year over year due primarily to the acquisition, partially offset by the sale of non strategic retail sector.

Station operations product margin, which include convenient store fail, they'll sundries and rental income increased 8.9 million to 57.6 million.

Primarily due to the acquisition, which added 47 company operated sites to our portfolio.

At the end of the quarter.

Yes, they'll portfolio consisted of.

1567 site comprised of 295 company operated store.

252 Commission agent.

226, lessee dealer and 794 contracts the other.

[noise] in our wholesale segment gasoline and gasoline Blendstocks product margin increased 5.9 million to 29.4 million, primarily due to more favorable market conditions.

Product margin from crude oil was negative 2.8 million compared with a positive 5.4 million in the second quarter of 2018.

Our product margins for the second quarter last year was positively impacted by 10.9 million in revenue related to a take or pay contracts with one particular customer which contract expired in June 2018.

Product margin from other wells and related products was down 2.2 million to 9.4 million.

This decrease was primarily due to less favorable market conditions in the digital while partially offset by improved margins in distillate.

Volume in our wholesale segment increased 267 million gallons or approximately 34% due primarily to increases in gasoline and gasoline blendstocks.

In our commercial segment product margin decreased 1.3 million to 4.5 million in the second quarter of 2019, largely due to less bunkering activity.

Volume in our commercial segment increased 27.8 million gallons due to an increase in gasoline.

Turning to expenses operating expenses increased 10.2 million to $86.4 million in the second quarter.

Reflecting the Champlain and check your acquisition and their associated head count and other expenses, including real estate taxes utilities and maintenance.

After <unk> expenses in Q2 increased a million to 41 million compared.

Primarily to support our GDS air business.

Interest expense was 22.1 million in Q2 2019.

Compared to 21.6 million in the year earlier period.

The year over year increase was primarily due to higher average balances on our credit facility due to the Champlain and check your acquisition.

Higher inventory volumes and higher interest rate.

Capex in the second quarter was approximately 19.7 million consisting of roughly 13.1 million at maintenance Capex.

And 6.6 million of expansion Capex.

The majority of these expenditures related to our gas station and convenience for our business.

For full year 2019, we continue to expect maintenance capex in the range of 40 to 50 million and expansion Capex in the range of 40 to 50 million.

On July 31st we completed the refinancing of a portion of our long term debt with a private offering of 400 million a 7% senior unsecured notes due in 2027.

Proceeds from the offering were used to fund the purchase of our 375 million a 6.25% senior notes due 2022 and should we pay a portion of our borrowings under our credit agreement.

Our third quarter 2019 financial results will reflect an extent from the early extinguishment of debt related to the private offering.

Turning to our balance sheet adoption of new required lease accounting under assay 842 has resulted in more than a 300 million dollar increase in our total assets and liabilities since 2018 year end.

Adoption of this new standard did not materially impact our statement of operations or cash flows for 2019, and our bank covenants are calculated using prior accounting protocol.

We continue to have ample excess capacity under our credit facility.

As of June 30, we had total borrowings outstanding of 568.1 million under our $1.3 billion facility, including 212 million under our $450 million revolving credit facility 356 million under our $850 million working capital facility.

Leverage as defined in our credit agreement as funded debt to EBITDA was approximately 3.4 times at the end of the second quarter.

Turning to guidance, we continue to expect full year 2019, EBITDA in the range of 200 million to 225 million before recognition of the early extinguishment of debt expense in the third quarter related to the private offering.

This guidance excludes any gains or losses on the sale and disposition of assets and goodwill and long lived asset impairment charges.

Before we go to <unk> I wanted to let you know that next week, we will be at the city one on one MLP midstream infrastructure conference in Las Vegas.

So all of those attending we look forward to meeting with you.

With that Eric and I will be happy to take your questions.

Operator.

Thank you.

We will now be conducting a question and answer session.

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

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Her 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, What's Gonna Star one to ask a question.

Thank you.

My first question is from Selman Akyol with Stifel. Please proceed with your question.

Thank you.

I guess a couple of quick ones for me first of all if you could just comment on.

The outlook I guess for.

Additional acquisitions.

Hey, Selman good morning, it's Eric Percher.

He continues to be active in and we continue to look at everything that's out there and and.

It does seem to be busy.

Any <unk> any thoughts or any comments on pricing at all on how you see that going kind of compared to where we've been.

Yeah, I mean, I you know what I've always said is a way for us to acquire assets there has to be real synergies.

To drive value I think that stays true and so multiples. You know may you know may may look high but at the end of the day, you know weve sort of going to focus on those mid teen type returns and.

You know and that's how we have to drive value or you know, we're not going to be successful in that acquisition mode right, but you know I you know I think we can still be aggressive and competitive and.

Still head towards those returns and you know maybe went into kit and occasional.

Occasional bit right.

Okay.

Any impact from closure from P. us.

Hi, good morning, Selman its mark.

Really nothing at the moment I think the market has solved for that you know supply disruption pretty quickly with additional.

Imports of gasoline and perhaps some more shipments of colonial long term it probably anytime you push the origin further away from destination the market becomes a little bit more delicate so at the moment there is no.

Impact is being felt but you know I would say that big picture. It may just it may just make the system a little more delicate to balance.

Okay. Thank you very much.

[noise].

Thank you.

As a reminder to ask a question to me press Star one.

Our next question comes from the line of Ned <unk> with Wells Fargo. Please proceed with your questions.

Good morning, and thanks for taking the questions could you maybe talk about the reasons behind the decision to refinance your 2022 senior notes.

Sure Good morning, Matt.

We continue to be you know take advantage of the market when it's a favorable and we have decided to take risk off the table and were very pleased with the execution of that offering.

Sounds good and then my second question is the usual one on I'd ours is there a change in how you think about the potential elimination of those.

No no change you haven't yet you know getting to look at structure from time to time, certainly in and look at different options, but no change at this moment.

Great. Thank you that's all I had.

Thank you.

There are no further questions at this time I would like to turn the floor back over to Mr., Eric Slifka for closing comments.

Thanks for joining us. This morning, we look forward to keeping you updated on our progress have a great day everyone.

Thank you. This does conclude today's conference you may disconnect your lines at this time.

Thank you for your participation.