Q1 2023 Global Partners LP Earnings Call
Participants
Eric S. Slifka; President, CEO & Vice Chairman of Global GP LLC; Global Partners LP
Gregory B. Hanson; CFO of Global GP LLC; Global Partners LP
Sean T. Geary; Chief Legal Officer & Secretary; Global Partners LP
Selman Akyol; MD of Equity Research; Stifel, Nicolaus & Company, Incorporated, Research Division
Presentation
Operator
Good day, everyone, and welcome to the Global Partners First 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 would like to turn the call over to Mr. Geary for opening remarks. Please go ahead, sir.
Sean T. Geary
Good morning, everyone. Thank you for joining us. Today's call will include forward-looking statements within the meaning of federal securities laws. 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, demand 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 assumptions are reasonable given currently available information. Our 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 and 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 or 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.
It's now my pleasure to turn the call over to our President and Chief Executive Officer, Eric Slifka.
Eric S. Slifka
Thank you, Sean, and good morning, everyone. Let me begin by thanking the entire Global team for propelling us to a solid start in fiscal 2023. Our performance reflects the great work being done across our liquid energy terminal network and convenient markets every day to deliver quality products and superior service to our customers and guests. Q1 was another strong quarter for our GDSO segment, which posted a 6.1% higher product margin. This increase helped more than offset the effects of warmer than normal temperatures on distillates and other weather-related -- weather-sensitive products. Our results speak to the diversification of our business model, which serves us extremely well in what is frequently a dynamic weather environment. On our year-end call, I spoke with you about 3 acquisitions we completed in 2022. These transactions have strengthened the earnings power of our GDSO portfolio, adding more than 60 company-operated convenience markets and related fuel operations, along with fuel supply arrangements at more than 55 additional sites.
In March, we signed a joint venture agreement to invest alongside ExxonMobil to acquire 64 convenience and fueling facilities in the greater Houston area. The agreement is expected to close in the second quarter of 2023. We are excited about the opportunity to expand our footprint into the fast-growing Texas market and look forward to operating these sites on behalf of the joint venture.
On the corporate governance front, during the first quarter, we were extremely pleased to welcome Clare McGrory to our Board of Directors. As CFO and COO at Atairos a $6 billion strategic investment firm, Clare has been instrumental in guiding growth-oriented businesses across a wide range of industries. She also brings more than 13 years of energy experience to our Board, having served as CFO, EVP and Treasurer for Sunoco, LP. We look forward to benefiting from Clare's strategic experience, industry perspectives and leadership background.
Turning to our distribution. In April, the Board agreed upon a quarterly cash distribution of $0.6550 or $2.62 on an annualized basis on all our outstanding common units for the period from January 1 to March 31. The distribution will be paid on May 15 to unitholders of record as of the close of business on May 9, 2023. Let me conclude my remarks by updating you on the status of our agreement with Gulf Oil Limited Partnership to acquire 5 of Gulf's refined product terminals in Connecticut, Maine, Massachusetts and New Jersey. We are continuing to work through the regulatory review process, and we'll share any material developments as appropriate.
Now let me turn the call over to Greg for the financial review. Greg?
Gregory B. Hanson
Thank you, Eric, and good morning, everyone. Looking at our first quarter 2020 results. Adjusted EBITDA was $76 million compared with $74.9 million and net income was $29 million compared with $30.5 million for the same period in 2022. DCF was $46.3 million compared with $49.9 million in the same period last year. Please note that adjusted EBITDA and DCF included net gain on sale and disposition of assets of $2.1 million and $4.9 million for the first quarter of 2023 and 2022, respectively. TTM distribution coverage as of March 31, 2023, included -- including the Q4 2022 onetime special distribution was 3.3x or 3.2x after factoring in distribution to our preferred unitholders. Excluding the net gain on the sale of assets, which included the gain from our sale of our Revere terminal in June of last year, TTM distribution coverage was 2.7x or 2.6x after factoring in distributions to our preferred unitholders.
Turning to our segment details. GDSO product margin was up $10.5 million in the quarter to $183.5 million. The gasoline distribution contribution to product margin was up $5.9 million to $120.8 million primarily due to higher fuel margins and an increase in volumes sold due to our 2022 acquisitions. Fuel margins increased $0.01 per gallon to $0.32 per gallon in the first quarter of 2023 from $0.31 per gallon in the first quarter of 2022. Station operations product margin, which includes convenience stores and prepared food sales, sundries and rental income, increased $4.6 million to $62.7 million from the first quarter of 2022. This reflected an increase in activity in our convenience stores, in part due to our 2022 acquisitions. At the end of the first quarter, our GDSO portfolio consisted of 1,656 sites, comprised of 343 company-operated sites, 297 commission agents, 188 leasing dealers and 828 contract dealers.
Looking at the Wholesale segment. First quarter 2023 product margin increased $6 million to $53.1 million. Gasoline and gasoline blendstock product margin contributed $20.4 million, up $22.7 million from the same period in 2022, primarily reflecting more favorable market conditions year-over-year. Product margin from distillates and other oils decreased $16.7 million to $32.7 million, primarily due to less favorable market conditions in distillates and residual oil, offset by improved margins in crude oil. Warmer weather negatively impacted our weather-sensitive products as temperatures were 16% warmer than normal during the first quarter of 2023 and 13% warmer than the first quarter of 2022. In addition, in the first quarter of last year, we experienced extreme commodity price volatility as a result of the Russian engagement in Ukraine, which benefited the distillate product margin in that period. The improvement in crude oil primarily reflects a decrease in expenses related to the expiry of a pipeline commitment in the fourth quarter of 2022.
Our Commercial segment product margin was flat at $8.1 million in the first quarter of '23 and '22. Looking at expenses. Operating expenses increased $9.1 million to $108.3 million largely associated with our GDSO operations, including our 2022 acquisitions in part due to higher salary and rent expenses and an increase in maintenance and repair expenses. SG&A expenses increased $6 million in the first quarter of '23 to $62.3 million, reflecting increases in wages and benefits and various other expenses, partially offset by a decrease in accrued discretionary incentive compensation. Interest expense was $22.1 million in the first quarter of '23 versus $21.5 million in the same period of 2022 as increased interest rates were partially offset by lower borrowings under our credit facility. CapEx in the first quarter was $15.2 million, consisting of $9.6 million of maintenance CapEx and $5.6 million of expansion CapEx, primarily related to investments in our gasoline station business.
For full year '23, 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 $55 million to $65 million. relating primarily to investments in our gasoline station business. These current estimates depend in part on timing of completion of projects, availability of equipment and workforce, weather and unanticipated events or opportunities requiring additional maintenance or investments.
Our balance sheet remains strong at 3/31 with leverage, which is defined in our credit agreement as funded debt to EBITDA of approximately 1.75x at the end of the quarter. We continue to have ample excess capacity in our credit facility. As of March 31, 2023, total borrowings outstanding under the credit agreement were $346.3 million. This consisted of $247.3 million under our $950 million working capital revolving credit facility and $99 million under our $600 million revolving credit facility. Adding to our balance sheet strength, this past week, we entered into an amendment to our credit agreement with our bank group. The amendment extends the maturity date from May 2024 to May 2026. The total committed amount of the facilities under the credit agreement remains at $1.55 billion.
Looking ahead on our Investor Relations calendar. On May 23 and May 24, we will be participating in EIC's 20th Annual Energy Infrastructure CEO and Investor Conference. In June, we will be at the Bank of America Energy Credit Conference. For those of you who are participating in this conference, we look forward to seeing you shortly.
Now let me turn back the call to Eric for closing comments. Eric?
Eric S. Slifka
Thank you, Greg. We remain focused on driving returns for our stakeholders through a combination of organic growth, operational efficiency and M&A. We're off to a solid start in 2023 and are well positioned to deliver on our strategic objective. Now Greg, Mark and I will be happy to take your questions. Operator?
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from the line of Selman Akyol with Stifel.
Selman Akyol
Congrats on another nice quarter. Let me just start off. On the Gulf Oil, is this taking longer than you originally anticipated? Or do you have any comments there at all on that when you think this should actually get done?
Gregory B. Hanson
Yes, sure. I'll start off, Selman. Good to hear from you. Yes, so I mean it is not taking any longer than we anticipated. I mean I think if you talk to a lot of companies out there, the FTC is taking longer to review a lot of things. We anticipate going into this acquisition that it potentially could be a long acquisition process with the FTC, but we continue to endeavor to work with them and hopeful to get this thing closed as soon as we get the approval from them.
Selman Akyol
Got it. Okay. And then turning to your announcement with Exxon, if you could maybe help us understand that a little bit more. I doubt you'll answer me if I ask sort of for pricing or what the investment is. But what I guess I'm really trying to understand is they're going to supply the fuel, you're going to manage the stations. Can you just talk a little bit about how this arrangement is going to be?
Eric S. Slifka
Selman, it's Eric. It's really a partnership. If you think about Exxon is good at certain things and Global is good at certain things. I think this is a partnership that will allow us to focus on what our expertise is. And that is operating sites that is pricing sites, that is managing sites. And in terms of supply, look, they are refining behemoth and they're going to -- their job is going to be to supply to locations, right? So we think it's a fit because for us, it puts us in a market that we haven't been in with ExxonMobil. And obviously, we think ExxonMobil is going to be a fantastic partner for the company. And as we've shown in the past, once we end up with assets in markets, we've been able to expand our footprint, right? And so the goal here is operate these assets, get comfortable with the business in Texas and then look to grow it.
Selman Akyol
Got it. And then -- I'm sorry, go ahead, please.
Gregory B. Hanson
Just on the financial side, I mean it's very much almost an equal partnership. We have a 49.9% interest. They have the majority of the interest, but the investment is very much similar and on the return parameters, we haven't put out any numbers on the actual investment. But I would guide you to that it is in line with our target investment sort of mid-teens, unlevered IRR on a deal like this and very similar to other acquisitions we made in terms of multiples.
Selman Akyol
Okay. I do appreciate that. And so then as you think about future expansion in this market, should we look for more of sort of this JV way of growing? Or do you think you would go out and actually more typically go out and buy own lease, manage for other folks that kind of thing.
Eric S. Slifka
Yes. We're actively looking to grow the business there. and whether it ends up being a partnership or operated by us, I mean it will be one or the other.
Selman Akyol
Got it. Okay. So there's nothing that precludes you from doing something outside of it?
Eric S. Slifka
Obviously, they're our partner down there. And so for us, the focus would be to grow with them. But should that not happen, we're prepared to move forward on our own.
Selman Akyol
Got it. Okay. And then just pivoting over, just kind of curious any improvement on sort of utilization from EVs where you've installed charges? Are you seeing anything on that front? Anything you can talk about there?
Eric S. Slifka
Yes. I think utilization has ticked up and before it was in the low single digits, I'd say that's ticked up anywhere from 6% to 8%. And my view just generally is as more vehicles, electric vehicles come into use, those who have, what I'll call is electric charging stations are going to garner a bigger part of that market. I still think it's difficult that, that utilization rate to make money. That being said, with government support, there's some potential for actual returns out of the business.
Selman Akyol
So from that standpoint, as you kind of look forward, do you see adding more charging stations and potentially accessing government funds and all that stuff?
Eric S. Slifka
Yes. It's about -- but it's about scale. I mean, you've got you got to do it in a big enough way to move the needle, right? And you're proposing sites to the government, they're releasing funds and then you're building it. So any sort of real impact P&L wise is going to take a little bit, but we have our own riders looking to get and be approved by the government for these funds. So I mean, we're on it, we're after it. It's just going to take a while to scale it up. I think it's still -- yes, I think we're still a little reticent to go after it on our own, right? Because I'm not sure of the returns there, but with government funds, we think there's a return there.
Selman Akyol
Got it. And then just commentary in and around the acquisition market, if you'd be so kind.
Eric S. Slifka
Yes. It's been very busy. It continues to be busy. We're looking at everything and not just at the states that we're in. But we haven't won every potential deal that's out there, but we do like to see them. And frankly, missing some deals tells me that we're showing good financial discipline. But the deals that we think really fit and we can create value with those are the ones that we're going to hopefully be successful at in the bids.
Operator
We have reached the end of the question-and-answer session. Mr. Slifka, now like to turn the floor back over to you for closing comments.
Eric S. Slifka
Sure. Thank you for joining us this morning. We look forward to keeping you updated on our progress. Enjoy the weekend, everybody.
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.
