Q4 2023 Global Partners LP Earnings Call
Participants
Sean Geary; Chief Legal Officer and Secretary of the General Partner; Global Partners LP
Eric Slifka; President and Chief Executive Officer; Global Partners LP
Gregory Hanson; Chief Financial Officer of the General Partner; Global Partners LP
Selman Akyol; Analyst; Stifel Nicolaus and Company, Incorporated
Gregg Brody; Analyst; Bank of America Merrill Lynch
Presentation
Operator
Good day, everyone, and welcome to the Global Partners fourth quarter 2023 financial results. Conference call. Today's call is being recorded and there will be an opportunity for questions at the end of the call. If anyone should require operator assistance during the call, 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, Mr. Sean Geary. At this time, I'd like to turn the call over to Mr. Gary for opening remarks. Please go ahead, sir.
Sean Geary
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 through our President and Chief Executive Officer, Eric Slifka.
Eric Slifka
Thank you, Sean, and good morning, everyone. I'll begin by recognizing the exceptional global partners team for 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 golf, 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 acquired 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 for Motiva enterprises for $313.2 million in cash from Alteva transaction broadens and diversifies our footprint. We nearly doubled our storage capacity by adding terminals in seven 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 multiples of below seven times in the second year of ownership, spring partners, retail joint venture and the Motiva acquisitions directly aligned 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 two deals, along with the strength of our legacy assets and business execution, our market diversification and growth potential have never been stronger between the acquisitions and expansion CapEx over the past two 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 acquisitions of refined product terminals from Gulf Oil. This morning, we announce that as part of an amended and restated purchase agreement. Pulse 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?
Gregory Hanson
Thank you, 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 EBITDA 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% interest in our spring retail partners joint venture.
Adjusted DCF is not used in our partnership agreement to determine our ability to make cash receipts 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 or financial performance. Trailing 12-month distribution coverage as of December 31 was 1.9 times for 1.85 times 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 nine 30 23 to 1231 factory versus decline in prices of $0.01 in Q4 2022. Station operations product margin, which includes convenience, store and Prepared Foods 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 commissioned agents, 182 leads to dealers and 802 contractors. In addition, we operate noncore sites on how to screen partners Retail Direct. If you look at the wholesale segment, fourth quarter 2023 product margin decreased $18.8 million to $51.9 million product margin for distillates and other orders decreased $30.2 million to $26.5 million, primarily due to less favorable market conditions. A difficult 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 a year over year. Commercial segment product margin decreased $1.59 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. 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 related primarily to our gasoline station and terminal businesses. These current estimates dependent part on the timing of completion of projects, availability of equipment and will force whether an unanticipated events or opportunities requiring additional maintenance or invest.
Our balance sheet remains strong at 1231 with leverage, which is defined in our credit agreement as funded debt to EBITDA of approximately 2.86 times. 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 revolver credit or revolving credit facility. In January, we completed a private offering of $450 million aggregate principal amount of eight and a quarter senior unsecured secured 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 motif acquisition and for general corporate purposes.
Now let me turn the call back to Eric for closing comments.
Eric Slifka
Thank you, Greg. As 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.
Question and Answer Session
Operator
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line from your question, you may press star two. If you would like to remove your question from the queue For 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. Thank you. Our first question comes from the line of Selman Akyol with Stifel. Please proceed with your question.
Selman Akyol
Good morning. Maybe just starting off with the Gulf Oil amendment, does that now by 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?
Gregory Hanson
Yes. Sorry, Selman, how you doing? It's Greg Hanson.
So we're not going to talk much about the Gulf transaction other than what we put in the eight 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.
Selman Akyol
Okay. Then Q, as you enter 2024, what's your outlook for your JV with excellent?
Gregory Hanson
Yes. I mean, I guess we've been Eric and Mark, feel free to add. I mean, I think I think we were very excited about the JV we closed on in June of last year.
We've been we've spent a lot of time on it getting it up to the standards that we operate sites and we're excited about that marketplace and Houston, we do think it's a potential good growth opportunity for us in Texas to growing markets as long as the largest C-store market in the U.S., there's still a lot of fragmentation down there and consolidation that needs to happen on a whitespace for you for us, as you guys know, in the C-store space for us. So that has room for growth.
So I think overall, we're excited about the opportunity and look to continue to grow in 24.
Selman Akyol
So we should expect to see growth out of that in 24.
Gregory Hanson
That's the goal.
Eric Slifka
Right now that I would say we're going to be opportunist opportunistic like we always are and you know, we've tried to look at every level at every potential deal of every transaction on, you know, and there's a lot going on at the Company as various, you know, Motorola has had a few assets. Automotive assets were better in our Texas market. So the question is is can we find the right deals, the right assets to create higher returns by utilizing our asset base.
Selman Akyol
I understood. Any comments on the strength and your cents per gallon QUARTER?
Gregory Hanson
Yes, I think overall, in a less volatile year, we continue to believe that your margins are going to be higher than they have been historical 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 nine months. And you have some of that just because the falloff in prices to start the first quarter on the other. The big decline in wholesale are evolving 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 on board, but they will continue to be stronger than they have been historically first.
Selman Akyol
And then the last one for me and you look back over 23 years, very consistently raised the distribution arm. And I certainly don't expect you guys to opine on anything that the Board may or may not do 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?
Gregory Hanson
Sure. I think the I think we're at a comfortable level. We're very comfortable with the coverage ratio at 1.9 times and 1.85 times 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 and 1.6 times after the preferred preferred distribution. So we've always maintained strong cash flows.
I think we're comfortable definitely at a lower level than 1.9 times. 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 that it will continue to be a consolidating market, both on the both on the retail gasoline side and on the terminaling side. So we do expect there to be continued operating 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 business. But no, I think it'll depend on what the opportunities are out there and our Board wants to capture those opportunities. But there is a lack of opportunity that we may choose to distribute more than than retain, but there's more opportunities we may need to retain a little bit more to keep our balance sheet strength.
Selman Akyol
All right. Thank you very much.
Operator
Our next question comes from the line of Gregg Brody with Bank of America. Please proceed with your question.
Gregg Brody
Morning, everybody. I'm just it just on the acquisition front, you touched on it, but maybe get a better sense of what the opportunity set out there. Is it should we still expect to be busy this year? Some just some color there would be.
Eric Slifka
Yes. Hey, Greg, it's Eric on. It still is busy. I would say there is going to be a lot of opportunity. The question is, do we think it will set us on. We've got to be very well aware of any overlaps that may exist to the firms that may create. And so Tom will tried 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 that's the same thing that we've done since the 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 you know, there's lots of opportunity out there.
Gregg Brody
Are there any markets that are particularly attractive to you, but you put your focus on?
Eric Slifka
Yes. Well, I would say I would say from our preference, we think the assets that have the most flexibility in terms of how they're access. I 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 acreage, I mean, I think same story for every terminal operator, but also access and 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 funding users.
Gregg Brody
I appreciate the color, guys. Thank you.
Gregory Hanson
That's great.
Operator
Thank you. We have no further questions at this time. Mr. Slifka, I would like to turn the floor back over to you for closing comments.
Eric Slifka
Thank you all for joining us this morning, and we look forward to keeping you updated on our progress.
Operator
Thanks, everyone, and thank you, ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation and have a wonderful day.
