Q1 2024 Global Partners LP Earnings Call

Participants

Sean Geary; Chief Legal Officer and Secretary of the General Partner; Global Partners LP

Eric Slifka; President, Chief Executive Officer, Vice Chairman of the Board of the General Partner; Global Partners LP

Gregory Hanson; Chief Financial Officer of the General Partner; Global Partners LP

Mark Romaine; Chief Operating Officer of the General Partner; Global Partners LP

Selman Akyol; Analyst; Stifel

Presentation

Operator

Good day, everyone, and welcome to the Global Partners First Quarter 2024 financial results conference call. Today's call is being recorded. 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 and Secretary, Mr. Sean Geary. At this time, I would like to turn the call over to Mr. Gary for opening remarks. Please go ahead, sir.

Sean Geary

Good morning, everyone, and thank you for joining us. Today's call will include forward-looking statements within the meaning of federal securities laws, including projections and expectations concerning the future financial and operational performance of Global Partners. No assurances can be given that these projections will be attained or that these expectations will be met. Our assumptions and future performance is subject to a wide range of business risks, uncertainties and factors which could cause actual results to differ materially as described in our filings with the Securities and Exchange Commission. Global Partners undertakes no obligation to revise or update any forward looking statements.
Now it's my pleasure to turn the call over to our President and Chief Executive Officer, Eric Slifka.

Eric Slifka

Thank you, Sean, and good morning, everyone. Over the last five months, we've acquired 29 terminals, more than doubling our terminal network and total storage capacity from $9.9 million barrels to $21.3 million barrels. These strategic acquisitions, strengthen our terminal operations, expand our growth opportunities and enhance our earning power. In April, we completed the purchase of four liquid energy terminals from Gulf Oil for approximately $212 million. Their locations in Massachusetts, Connecticut and New Jersey make these assets a perfect geographic and operational fit in our existing Northern terminal network, wind in Woodbury New Jersey, each represent new markets for our business. The New Haven terminal adds gasoline and distillate capabilities to our Connecticut portfolio, allowing us to serve our wholesale customers as well as our extensive retail network. The Chelsea, Massachusetts terminal allows us to continue to serve the Boston market, replacing the capabilities of the near nearby Revere terminal, which we strategically divested for $150 million in 2022 to make logistics a Blackstone company with the divestment of our Revere terminal. This acquisition will allow us to continue to service our Boston area, gasoline and distillate customers without disruption. As you may know, we now operate two terminals in Chelsea, allowing us to offer a full slate of products, including biofuel, bunker fuels commercial and industrial fuels, heating oil and diesel. We anticipate opportunities to invest in and optimize around these properties.
Turning to our December acquisition of 25 liquid energy terminals for Motiva We're extremely pleased with the progress of the transition, which was completed ahead of schedule in March. These are extremely well-run, high value assets backed by a 25 year take or pay commitment from Motiva. We're excited about the ability to drive additional investment expansion and operational efficiencies as we optimize these facilities.
Looking at our distribution in April, the Board declared a quarterly cash distributions on our common units of $0.71 or to 84 on an annualized basis. This distribution represents an 8.4% increase over the prior year period and is payable on May 15th to unitholders of record as of the close of business on May ninth.
With that, now let me turn the call over to Greg for his financial review. Greg?

Gregory Hanson

Thanks, Eric, and good morning, everyone. As we go through the numbers, please note that all comparisons will be to the first quarter of 2023, unless otherwise noted, adjusted EBITDA was $56 million in the first quarter of 2024 compared with $76 million in 23. We reported a net loss of $5.6 million in the quarter compared with net income of $29 million in 2023. Distributable cash flow was $15.8 million in the first quarter of 24 compared with $46.3 million in 23. And adjusted DCF was $16 million in Q1 versus $46.3 million in the same period in 23. LTM distribution coverage as of March 31 was 1.6 times or 1.5 times after factoring in distributions to our preferred unitholders.
Turning to our segment details, GDSO product margin increased $4.2 million in the quarter to $187.7 million. Product margin from gasoline distribution increased $0.8 million to $121.6 million, primarily reflecting higher fuel margins year over year. On a cents per gallon basis. Fuel margins increased $0.01 to $0.33 in Q1 24 from $0.32 in Q1 23, illustrating the resilience of our fuel margins by wholesale gasoline prices increasing $0.66 from year end 23 to three 31 24 compared with $0.24 increase for the same period in 2023. First quarter of 2023 also benefited from a fall-off in prices during the quarter as opposed to the first quarter of 2024, which had consistent increases in prices throughout the quarter. Station operations product margin, which includes convenience store, prepared foods, sales, sundries and rental income increased $3.4 million to $66.1 million in the first quarter as our team continues to execute well in our stores at quarter end, we had a portfolio of 1,601 sites. In addition, we operated 64 sites under our spring partners' retail joint venture. Looking at the wholesale segment, first quarter 2024 product margin decreased $3.7 million to $49.4 million. Product margin from gasoline and gasoline blendstocks increased $9.3 million to $29.7 million, largely due to the acquisition of the Motiva terminals. This was partially offset by less favorable market conditions in gasoline in the first quarter of 24 compared to the same period 23. Product margin from distillates and other oils decreased $13 million to $19.7 million, primarily due to less favorable market conditions and residual oil. As we mentioned in our press release, certain products in our wholesale segment were negatively impacted by the timing of mark to market valuations, which we have seen largely recover quarter to date through April, commercial segment product margin decreased $1.1 million to $7 million, primarily due to less favorable market conditions.
Looking at expenses, operating expenses increased $11.8 million to $120.1 million in the first quarter, primarily related to the acquisition of the terminals from motif. SG&A expense increased $7.5 million in Q1 to $69.8 million, including acquisition costs related to the Motiva terminals acquisition and increases in wages and benefits and other SG&A expenses. Interest expense was $29.7 million in the first quarter of 2024 compared with $22.1 million. A 23 increase was primarily due to primarily due to the interest expense related to our eight and a quarter senior notes that we issued in January of 24 and to a $1.4 million write-off of deferred financing fees. Capex in the first quarter was $16.6 million, consisting of $11.7 million of maintenance CapEx and $4.9 million of expansion CapEx, primarily related to investments in our gasoline station business. For the full year of 2024, 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 $60 million to $70 million relating primarily to our gas station and terminalling business. These current estimates dependent part on the timing of completion of projects, availability of equipment and workforce weather and unanticipated events or opportunities requiring additional maintenance or investments.
Our balance sheet remained strong at three 31 with leverage as defined in our credit agreement as funded debt to EBITDA at 3.26 times, and we continue to have ample excess capacity on our credit facilities. As of March 31, total borrowings outstanding on our credit agreements were $226 million, all of which were under our working capital revolver with zero outstandings under our revolving credit facility.
I'd also like to highlight that on April 15th, we fully redeemed all the outstanding Series B fixed-to-floating rate cumulative redeemable perpetual preferred units. This transaction was immediately accretive to distributable cash flow at current interest rates is expected to be approximately $0.09 accretive per unit on an annual basis.
Now before I turn the call back to Eric for closing comments, let me review our upcoming Investor Relations calendar this month, we'll be participating in the 21st Annual Energy Infrastructure Conference. And in June, we participating in the Stifel Cross Sector Insight Conference and via the energy credit conference if you're attending one or more of these events, we look forward to being with you.
Now let me turn the call back to Eric for closing comments.

Eric Slifka

Thanks, Gregg. In closing I want to acknowledge our team for their outstanding work and completing two significant acquisitions and integrations over the past five months. We have a terrific business, well positioned assets and incredible people that I believe will continue to contribute in a meaningful way to shaping the future of the energy economy.
Strategically, operationally and financially, we are well positioned for continued success with that, Greg, Mark and I will be happy to take your questions. Operator?

Question and Answer Session

Operator

(Operator Instructions) Selman Akyol, Stifel.

Selman Akyol

Thank you. Good morning, Tom. I guess first, just starting off on the Motiva acquisition, have you guys been able to add new customers down there or are you seeing any increase in throughput since you guys have acquired that?

Mark Romaine

Yes, somewhat. Good morning. It's Mark on. Yes, we we're effectively four months into the ownership of those terminals and operating those terminals, we completed a full cutover, including all systems for roughly the end of March. So it's taken us some time to go to fully transition those terminals that being said, we have actively been working on adding new volume to the terminals, understanding what opportunities exist for us to optimize those terminals, what opportunities exist for us to invest in those terminals and there's a lot of positives there. So our expectation is that as we move forward here, we will start to stream on new business. We will get a little bit more dialed in around where the opportunities to invest. And we're very encouraged by what we've seen so far. And I think where we will we are well on our way just starting to recognize those synergies do just take a little bit of time. But I think by the end of the year, we will have we will have quite a bit of new business through those terminals.

Selman Akyol

Got it. And so would you say sort of performing in line with your expectations? Are you seeing more opportunity there than maybe when you initially thought or as I said, sort of in line.

Mark Romaine

And Alex, probably it's probably too early to get. I don't want to get too far ahead of ourselves. I would say that we're what we're looking at today for the near term is going to be in line with our expectations. And I do think longer term with all the investment opportunities and the optimization we can do around these assets. Our hope is that we will exceed those expectations. And that seems like that seems like a reasonable expectation.

Eric Slifka

Yes, Selman, it's Eric, you know these are it's traditionally well-located assets with lots of ways into and out of the assets with products and on. And we think that there are some real opportunities here just within the assets as they exist, but not only not only that we think that there's a lot of expansion opportunities, as Martin mentioned, Tom, that once we spent a little bit of time with them trying to go get permits and expand a particular assets that we think have unique values.

Selman Akyol

I've got it on any update on the JV and how it's performing and any growth expectations coming out of that yet?

Gregory Hanson

We're still very excited about the JV operating in that area. I'd say the first quarter at the JV was a little lower than our expectations, really, really horrible weather in the Houston market in January. You had a couple of days of frozen. You had no traffic in there. So whether it was weather definitely impacted the result.
Then in the first quarter, you also have a more competitive margin environment down there than some other areas of the country. But that said, we've invested in those in those sites, and we've now finished or rebranded those sites down there. We are very excited about their operating very well. We've got a very strong partner down there, and we continue to look for opportunities to grow that that business.

Eric Slifka

Yes, the gentleman in term growth, it's Eric. In terms of growth, you know, we're continuing to look at opportunities that exist down there. I would say there seems to be a stream of potential assets that may be for sale. So we're trying to look at everything in the market. And if we think there's something that will fit us down there, you know, will transitional effort. I do think and that there is a potential for complementing those assets with our new terminals down there as well. And so we think that, that should hopefully give us a better position in terms of acquiring assets there.

Selman Akyol

Understood. And then you sort of touched on M&A, but is there anything more as you look beyond other markets that you're seeing as well that you can comment on?

Eric Slifka

Yes. I wouldn't say I wouldn't say there's a steady stream of opportunities and we'll just make sure we're looking at them and trying to figure out which ones really fit the company and the best way to drive the highest returns, right? So so it is it's active Understood.

Selman Akyol

And I realize dividend is always the Board's prerogative and consideration, and you'll never front run them that I get. But that said, you guys have said you consistently have kind of been growing and as you've been growing cash flows and doing acquisitions, et cetera. And then you also just highlighted that you redeemed the preferreds a and that's $0.09 accretive to earnings. So they consider that as well in terms of potential on a go-forward basis or should that just be looked at more in terms of seeing underlying growth in the business as opposed to financing?

Gregory Hanson

Yes. I mean, I guess I guess, Peter, it's Greg Summe. I do, and I'm doing I think that the Board sort of issue to go to competence by increasing that they are the distribution of penny this year and an appreciation of where we positioned ourselves that some of the growth. We've continued to grow that distribution. Our coverage now is 1.5 times on an LTM basis. We've able been able to fully cover our LTM expansion CapEx with excess cash and also reinvest some of that cash by lowering debt.
And finally, the company. So we've been in a strong position from a distribution coverage standpoint. I think we're excited about the acquisitions. We do think that will continue to contribute to the bottom line for us. And so I can't speak to what the Board will do, but I think we are excited about the acquisitions and that should allow us to continue to grow our bottom line. And hopefully that up that would lead to higher distributions at some point in the future.

Selman Akyol

Okay. Thank you very much.

Operator

Thank you. I'll now turn the call back to Mr. Slifka for closing comments.

Eric Slifka

And thanks, everyone, for joining us this morning. We look forward to keeping you updated on our progress and have a good day.

Operator

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.