Global Partners LP (GLP) Earnings Call Transcript & Summary

Good day, everyone, and welcome to the Global Partners Fourth Quarter 2023 Financial Results Conference Call. Today's call is being recorded. [Operator Instructions] 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 Geary. At this time, I'd like to turn the call over to Mr. Geary for opening remarks. Please go ahead, sir.

Good morning, everyone. 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 are 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.

Thank you, Sean, and good morning, everyone. I'll begin by recognizing the exceptional Global Partners team. Their hard work, operational excellence and creativity enabled us to execute our acquisition strategy while delivering solid fourth quarter and full year performance. 2023 was a transformative year for Global. We closed on the Motiva terminals and the retail JV with ExxonMobil. These accretive deals position the company to drive new growth opportunities and increase our earnings power. First, in June, we invested $69.5 million in cash for a 49.99% ownership interest in our Spring Partners Retail joint venture with ExxonMobil, acquiring 64 convenience and fueling facilities. This transaction enables us to apply our extensive operational and management expertise in the growing Houston Metro area. Second, in December, we acquired 25 liquid energy terminals from Motiva Enterprises for $313.2 million in cash. The Motiva transaction broadens and diversifies our footprint. We nearly doubled our storage capacity by adding terminals in 7 new states. These terminals with pipeline, rail and waterborne capabilities support the growth of our integrated supply, storage, wholesale and retail network in rapidly growing areas of the country. The acquisition is supported by a 25-year take-or-pay throughput agreement with Motiva, the anchor tenant at these facilities and includes minimum annual revenue commitments. Our integration of the Motiva assets is well underway, and we feel very good about being able to achieve our target acquisition multiple of below 7x in the second year of ownership. The Spring Partners Retail joint venture and the Motiva acquisition directly align with our strategy to acquire, invest in and optimize synergistic, high-quality assets that complement our operational capabilities. As I noted in this morning's earnings release, with these 2 deals, along with the strength of our legacy assets and business execution, our market diversification and growth potential have never been stronger. Between acquisitions and expansion CapEx, over the past 2 years, we invested more than $745 million to buy strategic assets and grow organically while maintaining the strength of our balance sheet. In January, the Board approved a quarterly cash distribution of $0.70 or $2.80 on an annualized basis on all outstanding common units. The distribution was paid on February 14, 2024, to unitholders of record as of the close of business on February 8, 2024. Before turning the call over to Greg, I want to briefly update you on our pending acquisition of refined product terminals from Gulf Oil. This morning, we announced that as part of an amended and restated purchase agreement, Gulf's refined products terminal in Portland, Maine will be removed from the transaction and that the purchase price of the transaction will be reduced to $212.3 million from $273 million. We continue to work through the regulatory process for this transaction. With that, let me turn the call over to Greg for the financial review. Greg?

Thank you, Eric, and good morning, everyone. As we go through the numbers, please note that all comparisons will be with the fourth quarter of 2022, unless otherwise noted. Adjusted EBITDA for the fourth quarter of 2023 was $112.1 million compared with $106.9 million in 2022 and net income for the fourth quarter was $55.3 million versus $57.5 million. Distributable cash flow was $59.4 million for the fourth quarter compared with $57.3 million in 2022, and adjusted DCF was $58.8 million versus $57.3 million in 2022. Adjusted EBITDA and adjusted DCF include our proportionate share of EBITDA and DCF related to our 49.9% (sic) [ 49.99% ] interest in our Spring Retail Partners joint venture. Adjusted DCF is not used in our partnership agreement to determine our ability to make cash distributions and may be higher or lower than DCF as calculated under our partnership agreement. Adjusted DCF is presented solely to provide investors with an enhanced perspective of our financial performance. Trailing 12-month distribution coverage as of December 31 was 1.9x or 1.85x after factoring in distributions to our preferred unitholders. Turning to our segment details. GDSO product margin increased $22.2 million in the quarter to $245.4 million. Product margin from gasoline distribution increased $21.8 million to $177.8 million, primarily reflecting higher fuel margins year-over-year. On a cents per gallon basis, fuel margins increased $0.07 to $0.44 from $0.37 in Q4 2022 as wholesale gasoline prices declined $0.34 from 9/30/'23 to 12/31/'23 versus decline in prices of $0.01 in Q4 2022. Station operations product margin, which includes convenience store and prepared food sales, sundries and rental income increased $0.4 million to $67.6 million in the fourth quarter of 2023. At quarter-end, our GDSO portfolio consisted of 1,627 sites, comprised of 341 company-operated sites, 302 commission agents, 182 lessee dealers and 802 contract dealers. In addition, we operate 64 sites on the behalf of our Spring Partners Retail joint venture. Looking at the Wholesale segment. Fourth quarter 2023 product margin decreased $18.8 million to $51.9 million. Product margin from distillates and other oils decreased $30.2 million to $26.5 million, primarily due to less favorable market conditions in distillates in the quarter. Product margin from gasoline and gasoline blendstocks increased $11.4 million to $25.4 million, primarily due to more favorable market conditions in gasoline year-over-year. Commercial segment product margin decreased $1.5 million to $8.4 million, primarily due to less favorable margins in our bunkering business. Looking at expenses. Operating expenses decreased $2 million to $116 million in the fourth quarter of 2023. SG&A expenses increased $0.5 million in the quarter to $81.3 million. Interest expense was $20.7 million in the quarter compared with $19.7 million in 2022. And CapEx in the fourth quarter was $34.1 million, consisting of $25.4 million of maintenance CapEx and $8.7 million of expansion CapEx, primarily related to investments in our gasoline station business. For full year 2023, we had $60.8 million in maintenance CapEx and $28 million in expansion CapEx. For the full year of 2024, we expect maintenance capital expenditures in the range of $50 million to $60 million and expansion capital expenditures, excluding acquisitions, in the range of $6 million to $7 million, relating primarily to our gasoline station and terminaling businesses. These current estimates depend in part on the timing of completion of projects, availability of equipment and workforce, weather and unanticipated events or opportunities requiring additional maintenance for investments. Our balance sheet remains strong at 12/31 with leverage, which is defined in our credit agreement as funded debt to EBITDA of approximately 2.86x. We continue to have ample excess capacity in our credit facilities. As of December 31, total borrowings outstanding in our credit agreement were $396.8 million. This consisted of $16.8 million of borrowings under our working capital revolver and $380 million outstanding under our revolving credit facility. In January, we completed the private offering of $450 million in aggregate principal amount of 8.250% senior unsecured notes due 2032. We used the proceeds from the offering to repay a portion of the borrowings outstanding under our credit -- current credit agreement, primarily related to the Motiva acquisition and for general corporate purposes. Now let me turn the call back to Eric for closing comments. Eric?

Thank you, Greg. We begin 2024 with a strong balance sheet and cash flows that position us to execute on our strategic priorities and the growth opportunities ahead. Operator, please open the call for questions.

[Operator Instructions] Our first question comes from the line of Selman Akyol with Stifel.

Maybe just starting off with the Gulf Oil amendment. Does that now -- presumably, you ex that out, and that was the big thing that was holding up HSR. So do you have a time line for closing?

It's Gregory Hanson. So we're not going to talk much about the Gulf transaction other than what we put in the 8-K. We are still working with the FTC to get -- to move that forward. And so that's all we're going to talk about at the moment.

Okay. Then can you -- as you enter 2024, what's your outlook for your JV with Exxon?

Yes. I mean I can speak to it and Eric and Mark, feel free to add. I mean I think we're very excited about the JV. We closed on it in June of last year. We've been -- we spent a lot of time on it getting it up to the standards of how we operate sites, and we're excited about that marketplace in Houston. We do think it's a potential good growth opportunity for us. In Texas, it's a growing market. It's the largest C-store market in the U.S. There's still a lot of fragmentation down there and consolidation that needs to happen and it's a whitespace for us, as you guys know, in the C-store space for us. So it has room for growth. So I think, overall, we're excited about the opportunity and look to continue to grow in '24.

So we should expect to see growth out of that in '24?

That's the goal.

Selman, I would say we're going to be opportunistic like we always are, and we'll try to look at every potential deal and every transaction. And there's a lot going on at the company. Motiva has a few assets. The Motiva assets were -- that are in the Texas market. So the question is, can we find the right deals, the right assets to create higher returns by utilizing our asset base.

Understood. Any comments on the strength in your cents per gallon this quarter?

Yes. I think overall, less volatile year, we continue to believe that margins are going to be higher than they have been historically given a number of factors, including higher expenses for lower-tier operators and higher breakevens for lower-tier operators. I think the fourth quarter was very strong, much stronger than the previous 9 months, and you had some of that just because of the falloff in prices to start the first quarter. There was a big decline in wholesale RBOB in October, and that sort of set the stage for the quarter. But I think overall, we continue to believe that margins may not be as strong as they were in the fourth quarter going forward, but they will continue to be stronger than they have been historically.

Understood. And then the last one for me. And as you look back over '23, you very consistently raised the distribution and I certainly don't expect you guys to opine on anything that the Board may or may not do. But when you think about running the business and your coverage ratio, is this a comfortable coverage ratio for you? Would you be comfortable at lower levels? Do you think it needs to go up? Is there any way you could maybe frame up some thoughts around that?

Sure. I think -- Yes. I think we're at a comfortable level -- we're very comfortable with the coverage ratio at 1.9x and 1.85x over the LTM basis for the year, partially that's reflected in the strength of the fourth quarter numbers. If you look back since we've gone public in 2005, our coverage ratio since 2005 has been 1.6x after the preferred distribution. So we've always maintained strong cash flows. I think we're comfortable definitely at a lower level than 1.9x, I would say. Our goal is to make sure that we have the capital to execute on our expansion capital budget and also maintain the strength of our balance sheet to continue to look at acquisitions. I mean we do think it will continue to be a consolidated market, both on the retail gasoline side and on the terminaling side. So we do expect there to be continued opportunities for acquisitions. And we need to make sure that we're keeping our balance sheet in a position to execute on those. And so retaining some excess cash flow is important for that piece. But I think it will depend on what the opportunities are out there and how our Board wants to capture those opportunities. But if there is a lack of opportunities, we may choose to distribute more than retain. But if there's more opportunities, we may need to retain a little bit more to keep our balance sheet strength.

Our next question comes from the line of Gregg Brody with Bank of America.

Just on the acquisition front, you touched on it, but maybe give us a better sense of what the opportunity set out there? Is it -- do we still expect it to be busy this year? Just some color there would be helpful.

Gregg, it's Eric. It still is busy. I would say there's going to be a lot of opportunity. The question is, do we think it will fit us. We've got to be very well aware of any overlaps that may exist too and the problems that may create. And so we'll try to look at everything like we always do. And then if the right deals come up in the right locations with the right assets, we'll try hard to see if we can buy it. And I think that's the same thing that we've done since really the history of the company, right, is acquisitions is key to us. It's key to our growth, and there are plenty of markets that we're still not in. So there's lots of opportunity out there.

Are there any markets that are particularly attractive to you that you're focused on getting into?

Yes. Well, I would say our preference, we think the assets that have the most flexibility in terms of how they're accessed have the most value. And so if you have assets that are waterborne and have large docks and have ways to get in and out and have good tankage, I mean, I think it's the same story for every terminal operator, but also access in by rail is important. So scale in all these markets is critical to make sure that you really have the best assets that are positioned in the future to provide the most flexibility for new users.

We have no further questions at this time. Mr. Slifka, I would like to turn the floor back over to you for closing comments.

Thank you all for joining us this morning. We look forward to keeping you updated on our progress. Thanks, everyone.

Thank you.

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.