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Edited Transcript of GLP earnings conference call or presentation 8-Aug-19 2:00pm GMT

Q2 2019 Global Partners LP Earnings Call

WALTHAM Aug 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Global Partners LP earnings conference call or presentation Thursday, August 8, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Daphne H. Foster

Global Partners LP - CFO & Director of Global GP LLC

* Edward J. Faneuil

Global Partners LP - Executive VP, General Counsel & Secretary of Global GP LLC

* Eric S. Slifka

Global Partners LP - President, CEO & Vice Chairman of Global GP LLC

* Mark A. Romaine

Global Partners LP - COO of Global GP LLC

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Conference Call Participants

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* Ned Antonov Baramov

Wells Fargo Securities, LLC, Research Division - Associate Analyst

* Selman Akyol

Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research

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Presentation

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Operator [1]

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Good day, everyone, and welcome to the Global Partners Second Quarter 2019 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, Ms. Daphne Foster; Chief Operating Officer, Mr. Mark Romaine; and 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.

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Edward J. Faneuil, Global Partners LP - Executive VP, General Counsel & Secretary of Global GP LLC [2]

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Thanks. 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 of Global Partners.

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 and renewable fuels; utilizations of assets and facilities; weather; credit markets; the regulatory and permitting environment; and the forward product pricing curve, which could influence quarterly financial results.

We believe these assumptions are reasonable, given currently available information and our assessment of historical trends. Because our assumptions and 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 today's 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 the purposes of Regulation FD.

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

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Eric S. Slifka, Global Partners LP - President, CEO & Vice Chairman of Global GP LLC [3]

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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% in our GDSO segment. That increase is primarily attributable to last summer's acquisition of Champlain and Cheshire Oil and to higher GDSO fuel margins.

Turning to our distributions. In July, the Board increased quarterly distribution on our common units from $0.51 to $0.515 per unit. The distribution will be paid on August 14 to common unitholders of record as of August 9.

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?

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Daphne H. Foster, Global Partners LP - CFO & Director of Global GP LLC [4]

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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 margins and contribution from our 2018 retail acquisitions 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 was $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.

TTM distribution coverage at the end of the second quarter was 1.9x. After factoring in distribution to the preferred unitholders, that coverage was 1.8x.

Turning to margin. Combined product margin in the second quarter increased $18 million to $188 million, driven by growth in our GDSO segment. GDSO 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 acquisitions of Cheshire and Champlain in July 2018. The average fuel margin per gallon improved approximately $0.02 to $0.214 from $0.195 in last year's second quarter. Volume in the GDSO segment increased approximately 16 million gallons year-over-year, due primarily to the acquisitions, partially offset by the sale of nonstrategic retail sites.

Station operations product margin, which includes convenience store sales, sale of sundries and rental income, increased $8.9 million to $57.6 million, primarily due to the acquisitions, which added 47 company-operated sites to our portfolio. At the end of the quarter, our GDSO portfolio consisted of 1,567 sites comprised of 295 company-operated stores, 252 commissioned agents, 226 lessee dealers and 794 contract dealers.

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 $0.8 million compared with a positive $5.4 million in the second quarter of 2018. Our product margin for the second quarter last year was positively impacted by $10.9 million in revenue related to a take-or-pay contract with one particular customer, which contract expired in June 2018.

Product margin from other oils and related products was down $0.2 million to $9.4 million. This decrease was primarily due to less favorable market conditions in residual oil, partially offset by improved margins in distillates.

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 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 Cheshire acquisitions and their associated headcount and other expenses, including real estate taxes, utilities and maintenance.

SG&A expenses in Q2 increased $1 million to $41 million compares -- primarily to support our GDSO business. Interest expense was $23.1 million in Q2 2019 compared with $21.6 million in the year earlier period. The year-over-year increase was primarily due to higher average balances on our credit facilities due to the Champlain and Cheshire acquisitions, higher inventory volumes and higher interest rates.

CapEx in the second quarter was approximately $19.7 million, consisting of roughly $13.1 million of maintenance CapEx and $6.6 million of expansion CapEx. The majority of these expenditures related to our gas station and convenience store business. For full year 2019, we continue to expect maintenance CapEx in the range of $40 million to $50 million and expansion CapEx in the range of $40 million to $50 million.

On July 31, we completed the refinancing of a portion of our long-term debt with a private offering of $400 million of 7% senior unsecured notes due in 2027. Proceeds from the offering were used to fund the purchase of our $375 million of 6.25% senior notes due 2022 and to repay a portion of our borrowings under our credit agreement. Our third quarter 2019 financial results will reflect an expense from the early extinguishment of debt related to the private offering.

Turning to our balance sheet. Adoption of new required lease accounting under ASC 842 has resulted in more than a $300 million 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 2Q '19, 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 3.4x 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 Q&A, I wanted to let you know that next week, we will be at the Citi One-on-One MLP/Midstream Infrastructure Conference in Las Vegas. To all of those attending, we look forward to meeting with you.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Selman Akyol with Stifel.

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Selman Akyol, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research [2]

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Just a couple of quick ones for me. First of all, if you could just comment on the outlook, I guess, for additional acquisitions.

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Eric S. Slifka, Global Partners LP - President, CEO & Vice Chairman of Global GP LLC [3]

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It's Eric Slifka. It continues to be active, and we continue to look at everything that's out there, and it does seem to be busy.

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Selman Akyol, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research [4]

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Any thoughts or any comments on pricing at all and how you see that going kind of compared to where we've been?

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Eric S. Slifka, Global Partners LP - President, CEO & Vice Chairman of Global GP LLC [5]

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Yes. I mean what I've always said is, for us to acquire assets, there has to be real synergies to drive value. I think that stays true. And so multiples may look high, but at the end of the day, we've sort of got to focus on those mid-teen-ish type returns. And that's how we have to drive value or we're not going to be successful in that acquisition mode, right? But I think we can still be aggressive and competitive and still head towards those returns. And maybe we'll look at an occasional bid, right?

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Selman Akyol, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research [6]

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Okay. Any impact from closure from PES?

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Mark A. Romaine, Global Partners LP - COO of Global GP LLC [7]

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It's Mark. Really nothing at the moment. I think the market has solved for that supply disruption pretty quickly with additional imports of gasoline and perhaps some more shipments of Colonial. Long term, it probably -- any time you push the origin further away from destination, the market becomes a little bit more delicate. So at the moment, there's no impact that's being felt. But I would say that big picture, it may just make the system a little more delicate to balance.

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Operator [8]

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(Operator Instructions) Our next question comes from the line of Ned Baramov with Wells Fargo.

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Ned Antonov Baramov, Wells Fargo Securities, LLC, Research Division - Associate Analyst [9]

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Could you maybe talk about the reasons behind the decision to refinance your 2022 senior notes?

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Daphne H. Foster, Global Partners LP - CFO & Director of Global GP LLC [10]

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Sure. We've continued to be -- take advantage of the market when it's favorable. And we decided to take risk off the table, and we're very pleased with the execution of that offering.

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Ned Antonov Baramov, Wells Fargo Securities, LLC, Research Division - Associate Analyst [11]

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Sounds good. And then my second question is the usual one on IDRs. Is there a change in how you think about the potential elimination of those?

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Daphne H. Foster, Global Partners LP - CFO & Director of Global GP LLC [12]

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No, no change. We haven't -- we continue to look at structure from time-to-time certainly and look at different options, but no change at this moment.

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Operator [13]

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

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Eric S. Slifka, Global Partners LP - President, CEO & Vice Chairman of Global GP LLC [14]

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Thanks for joining us this morning. We look forward to keeping you updated on our progress. Have a great day, everyone.

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Operator [15]

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