Global Partners LP

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and welcome to the Global Partners fourth quarter and full year 2020 financial results conference call. Today's call is being recorded. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. 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 Swiska, Chief Financial Officer, Ms. Daphne Foster, Chief Operating Officer, Mr. Mark Romain, and Executive Vice President and General Counsel, Mr. Edward Fanuel. At this time, I'd like to turn the call over to Mr. Fanuel for opening remarks. Please go ahead, sir.

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, estimates concerning the future financial and operational performance of global partners. Forward-looking statements are based on assumptions regarding market conditions, such as the crude oil market, business cycles, demand for petroleum products, including gasoline and gasoline blend stocks and renewable fuels, utilization of assets and facilities, weather, credit markets demand for c-store offerings the regulatory and permitting environment and the forward product pricing curve which could influence quarterly financial results these statements involve significant risks and uncertainties some of which are beyond the partnership's control including without limitation the impact and duration of the coven 19 pandemic Uncertainty around the timing of an economic recovery in the United States, which will impact the demand for the products we sell and the services we provide. Uncertainty around the impact of the COVID-19 pandemic to our counterparties and our customers and their corresponding ability to perform their obligations and or utilize the products we sell and or the services we provide. uncertainty around the impact and duration of federal, state, and municipal regulations and directives related to the COVID-19 pandemic, and assumptions that could cause actual results to differ materially from the partnership's historical experience and present expectations or projections. We believe these assumptions are reasonable given currently available information. Our assumptions and future performance are subject to a wide range of business risks and uncertainties. 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 any 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 it's my pleasure to turn the call over to our President and Chief Executive Officer, Eric Sliska.

Thank you, Edward, and good morning, everyone. Global delivered extraordinary results in 2020, posting net income of $102.2 million, Adjusted EBITDA of $287.7 million and distributable cash flow of $156.4 million. Increases in each metric year over year. Global has always adapted and innovated to meet the most essential needs of the customers and the economic regions we serve. Our performance in the face of a global pandemic underscores the resilience of our business model and highlights our fundamental role as a critical infrastructure company. In that role, we provide energy products and essential goods and services through a portfolio of fully integrated terminal, supply, and real estate assets. I also want to publicly acknowledge the outstanding work of our people from the frontline associates at our gas stations, convenience stores, and terminals, to our office personnel at locations throughout the country. In a year like no other, they kept our operations running smoothly, ensuring the safety of our guests and customers while helping us innovate and grow. As an organization, philanthropy is in our DNA, This past year, we prioritized causes at the hyper-local level, supporting the residents and communities where we live and work. Throughout the pandemic, we've donated thousands of meals to frontline workers and those in need, providing healthcare workers and first responders with free gift cards to fuel up at our retail locations, and participated in a number of volunteer projects. Turning to our distribution. In January of this year, the Board of Directors of our general partner declared a quarterly cash distribution of $0.55 per common unit or $2.20 on an annualized basis on all outstanding units for the period from October 1 to December 31, 2020. The distribution, which was paid February 12 to unit holders of record as of the close of business on February 8, marked the third consecutive quarter in which the Board has increased the distribution. It's worth noting that in 2020, we returned $64.8 million to common unit holders in the form of distributions. We remain focused on delivering long-term value for our unit holders through cash distributions as well as through capital investments and strategic acquisitions with a goal of mid-teen returns or higher. Moving to our recent operating highlights, in December we signed an agreement to purchase the retail fuel and convenience store assets of Consumer Petroleum of Connecticut, Incorporated. The acquisition includes 27 company-operated retail gas stations with Wheels-branded convenience stores in Connecticut, as well as fuel supply agreements for approximately 25 gas stations in Connecticut and New York. We expect the transaction to close in the first quarter of this year, subject to regulatory approvals and other customary closing conditions. Secondly, we are expanding our presence in the greater Philadelphia market with the addition of retail assets that complement our existing wholesale unbranded business and position us to grow our retail-branded independent dealer business. At our rail and water board terminal in Oregon, we have begun receiving shipments of renewable diesel under a long-term contract with a leading downstream energy company. In addition, we recently secured a U.S. Department of Agriculture grant to upgrade and expand five of our liquid energy terminals in the Northeast to handle larger volumes of biofuel work that will broaden our ability to move these mandated fuels through our network. These efforts are part of a larger initiative at Global. It is an initiative centered on leading and expanding our role in the distribution of renewable energy, whether that is liquid fuels, electric fuel stations, or other environmentally sustainable solutions. Across our businesses, we are thinking ahead, not just about next year or the year after, but the coming decades. We are confident that our business and assets provide the bridge to a greener future, and we are positioning to continue our legacy of providing essential energy and goods in a low-carbon world. Internally, we have formed an environmental, social, and governance working group, which has been tasked with identifying, developing an initial setup for set of business-relevant ESG metrics based on frameworks, including those developed by the Sustainability Accounting Standards Board and the Energy Infrastructure Council. Every day our team is challenged to innovate, adapt, and grow. from transforming our retail offerings and spaces to leading initiatives to promote increased adoption of green fuels to future-proofing our business through new energy technologies and consumer choices. We are motivated and excited about the role our real estate and terminal assets play in the future of the markets we serve. While I don't have a crystal ball to determine which technologies will emerge, what I can say is that we are staying curious focusing on those that make sense in our business model and taking advantage of opportunities to transition the business in a conscientious manner. Now, let me turn the call over to Daphne for her financial view. Daphne?

Thank you, Eric, and good morning, everyone. As Eric highlighted, we performed well in 2020 despite an uncertain macroeconomic environment. Our results speak to the resiliency of our integrated business model, the quality of our assets, and the versatility of our terminal network. As we go through the results, please keep in mind that net income, EBITDA, adjusted EBITDA, and DCF in the fourth quarter and full year of 2020 include a $7.2 million loss on the early extinguishment of debt related to the October 2020 redemption of the 7% senior notes due 2023. For full year 2019, these metrics include a $13.1 million loss on the early extinguishment of debt related to our repurchase of the 6.25% senior notes due 2022. Adjusted EBITDA for the fourth quarter of 2020 was $49.9 million compared with $46.2 million for the same period of 2019. The $3.7 million increase was driven by a $13.4 million increase in combined product margin due largely to more favorable market conditions in our wholesale segment. The increase was partially offset by the $7.2 million loss on early extinguishment of debt and a $2.5 million increase in combined operating and SG&A expenses. For the full year, adjusted EBITDA was 287.7 compared with 233.7 for the same period in 2019. The $54 million increase was driven by a $51.6 million increase in product margin, largely due to the extreme contango market structure and the dramatic shift of the forward product pricing curve during the year. The $5.9 million decrease in losses on early extinguishment of debt also contributed to the year-over-year increase in adjusted EBITDA. Net income attributable to the partnership was $4.4 million in the fourth quarter of 2020, compared with a net loss of $0.8 million for the same period in 2019. For full year 2020, net income was $102.2 million compared with $35.9 million in 2019. DCF was $7.3 million in the fourth quarter of 2020, compared with $9.4 million in the prior year period. DCF for full year 2020 was $156.4 million, compared with $95.7 million in 2019. TTM distribution coverage as of December 31, 2020, was a healthy 2.4 times or 2.3 times after factoring in distributions to our preferred unit holders. We generated excess cash flow after distributions and after expansion capex net of proceeds from asset sales of approximately $62 million. Turning to our segment details, GDSO product margin in Q4 was $143.6 million, down $3.4 million compared with the year-earlier period, primarily reflecting the adverse impact of COVID-19 on our convenience store sales. the gasoline distribution contribution to product margin was up a million in the quarter to 92.6 million, reflecting a $0.04 per gallon increase in average fuel margin to $0.26, which more than offset a 13% decrease in volume year over year. Station operations contributed $51 million to product margin, down $4.4 million from the fourth quarter of 2019, due to less activity at our convenience stores. For full year 2020, GDSO product margin increased 4.3 million to 603.9 million, driven by a $0.06 per gallon increase in average fuel margin to $0.29 in 2020, which more than offset a 16% decrease in volume. Gasoline distribution contributed $398 million to product margin for the full year, up $23.5 million from 2019. Station operations product margin, which includes convenience store sales, sundries, and rental income, was $205.9 million for full year 2020, down $19.2 million from 2019 due to the effects of the pandemic. At the end of 2020, our GDSO portfolio consisted of 1548 sites comprised of 277 company operated stores, 273 commissioned agents, 208 lessee dealers, and 790 contract dealers. Looking at the wholesale segment, fourth quarter 2020 product margin increased 23.7 million to 39.1 million. The fourth quarter of 19 was a particularly weak quarter for wholesale due to an oversupplied market. In contrast, in the fourth quarter of 2020, supply tightened, and the forward product pricing curve flattened. Gasoline and gasoline blend stock product margin contributed $17.6 million to wholesale product margin, up $10.2 million from the same period in 2019. Product margin from other oils and related products, which includes distillates and residual oil, was up $13.2 million to $24.2 million. Product margin from crude oil was negative $2.7 million in the fourth quarter, slightly better than negative 3 million a year earlier. For full year 2020, wholesale segment product margin increased 60.6 million to 183.1 million from 122.5 million in 2019, due primarily to the extreme contango market structure and the dramatic shift in the forward product pricing curve during the year. Our network of storage terminals positioned us to take advantage of these favorable market conditions which drove year-over-year margin increases in each of our wholesale product lines. Gasoline and gasoline blend stocks product margin increased $16.8 million to $100.8 million for full year 2020. Crude oil product margin increased $12.3 million to negative $700,000 in 2020 from negative $13 million in full year 2019. Product margin from other oils and related products was $83 million in full year 2020 increasing 31.4 million from 51.6 million in 2019. Turning to the commercial segment, product margin decreased 6.9 million to 3.4 million in the fourth quarter of 2020, reflecting a decline in our bunkering business due to the pandemic. The drop-off in bunkering also was the primary detractor in the segment's full-year results, as product margin declined 13.3 million to 15.2 million. Looking at expenses, operating expenses decreased 3.4 million to 81.8 million in the fourth quarter and 19.1 million to 323.3 million for full year 2020. The decrease for these periods reflects lower expenses at our GDSO sites, including lower credit card fees due to the reduction in volume and price, lower salary expense in part attributable to reduced store hours, and lower maintenance and repair expenses. The decrease in operating expenses at our GDSO sites for the fourth quarter and for the full year 2020 was partially offset by increases in expenses associated with our terminal operations. SG&A expenses increased $5.8 million to $49.4 million in the fourth quarter in part due to an increase in discretionary incentive compensation. On a full year basis, SG&A was up $21.6 million to 192.5 million, with increases primarily in incentive comp, wages and benefits, advertising, professional fees, and costs associated with the pandemic. Interest expense was 21 million in Q4 of 2020, compared with 21.7 million in the year earlier period, primarily due to lower average balances on our credit facilities, as well as lower interest rates. For full year 2020, interest expense was 83.5 million, down 6.3 million from the prior year for similar reasons. CapEx in the fourth quarter was approximately 36.7 million, consisting of 22.2 million of maintenance and 14.5 million of expansion CapEx, most of which relates to our gasoline station business. CapEx for the full year 2020 was 76.3 million, consisting of $47 million of maintenance CapEx, in line with our guidance of $45 to $55 million, and expansion CapEx of $29.3 million, slightly below our guidance of $30 to $40 million excluding acquisitions. For full year 2021, we expect maintenance CapEx in the range of $45 to $55 million, and expansion CapEx in the range of $40 to $50 million. We continue to manage our balance sheet prudently. leverage, which is defined in our credit agreement as funded debt to EBITDA, was approximately 3.1 times at the end of the fourth quarter. We continue to have ample excess capacity under our credit facility. As of December 31, 2020, total borrowings outstanding under the credit agreement was $306.4 million, including $184.4 million under our $770 million working capital revolving credit facility, and $122 million outstanding under our $400 million revolving credit facility. In October, we completed the sale of our previously announced private offering of $350 million of 6.875% senior unsecured notes due 2029. The net proceeds from the offering were used to fund the redemption of the $300 million 7% senior notes due 2023 and to repay a portion of borrowings outstanding under our credit agreement. As I noted at the beginning of my remarks, the redemption resulted in a loss in the fourth quarter of $7.2 million from the early extinguishment of debt associated with the call premium, as well as the write-off of unamortized deferred financing fees. In summary, our 2020 performance was exceptional, particularly in light of the significant economic impact of COVID-19. Our balance sheet is strong and our businesses are healthy. Although we are not providing full year EBITDA guidance at this time, our decision is based upon ongoing uncertainties surrounding the duration and impact of the pandemic on demand at the pump, inside our stores, and at our terminals. We will, of course, continue to evaluate this decision as we move forward and gain more visibility into the timing of an economic recovery in those areas we serve. With that, let me turn the call back to Eric.

Thanks, Daphne. Our ability to provide liability while adapting to changes in product demand continue to serve us well. I want to close by again thanking our team for their commitment, adaptability, and innovation that allowed us to deliver the year's outstanding results. As we continue to embrace changes in consumer behavior and the demand for greener energy, I am confident that our strategic assets and one global team will provide the essential goods and services that make life better. Now, Daphne and I will be happy to take your questions. Operator?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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. Once again, if you would like to ask a question, press star 1 on your telephone keypad. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Selman Akiol with Staple. Please proceed with your questions.

Thank you. Good morning to all. So in your opening comments, you talked about sort of a bridge to greener future, and you specifically called out electric stations. So I'm just sort of wondering what you're evaluating there, and is it adding anything to your existing footprint, or would it be to an existing station, or would it be something as a separate station, or is there anything you can share on that?

First of all, I just want to correct one statement that I made. I inadvertently said consumers. The company that we bought in Connecticut was going to close in Q1, and I meant Q2. So I just wanted to sort of get that on the record so there was no misunderstanding around that. Now, Selma, in regards to your question around sort of greener future and electric stations, have one location where we have a high-speed electric charging site that we partnered with Electrify America on. And that site, I can tell you, has not had super high use. And the capital that Electrify America spent to do it was not in materials. I think the goal for us here is to figure out a path that is profitable for the company to include electric charging sites at locations. Typically they're off to the side, but there can be as many as five or six charging slots, what I'll call. And, you know, I think we're considering it in every site where we're tearing up the hardtop and replacing tanks or replacing that hardtop. It's an opportunity where the ground is opened up to basically put in the lines so that we can essentially, if we decide to go to electric, at what time, where we think we can make some profit, we'll pull the wires through the conduit and then we'll make sure that we're in a place to deliver that product to the consumer.

Understood. Thank you for that. You also talked about expanding terminal presence, I think, for RNG or for renewables there, for biofuels. Can you just maybe talk a little bit more about that? And then also, is that more profitable relative to your current terminals?

So we think that there's a good return by making that investment on its face. And, you know, essentially we're pushing very hard, by example, and taking a leadership role, announcing Project Carbon Freedom. And what that is is going to essentially state governments and providing an alternative fuel, that lowers the carbon footprint and is cleaner than other liquid or even electric alternatives today. And it essentially is heating oil blended with biofuel. And it's a partnership with bioproducers to try and go to the states and say, hey, look, we have a fuel that is cleaner and better than the alternatives that are out there, by example, natural gas. and at certain blend levels, and we think this is a good opportunity to use the existing infrastructure, whether that is terminals or tanks in a consumer's home, in their existing heating equipment, to actually push it as a better alternative to something that will be more costly.

Got it. And then the last one you talked about sort of expanding your retail market presence in Philadelphia. Can you maybe share some goalposts there as you think about it?

Yeah, I mean, there was a couple opportunities there with some companies that were getting out of the business or just had a few sites that we were able to pick up. I think our total amount in Philadelphia, and I'm going to sort of look to my team there. Mark Romain, do you have the total count? for that in Philly. For some reason, I think it's about 15. Marco, man, are you listening?

I am. I was on mute. I think it's a bit higher than that. I think it's like 27 at the moment. We continue to add sites.

And basically, how are we thinking about that? It's expanding our retail footprint into a different marketplace and And my perspective is once you're on the ground, you sort of have a better feel for what deals are taking place, and it provides more opportunity growth for the company in multiple ways.

Very good. Thank you, Conor.

As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. If you're using a speakerphone, you may need to pick up the handset before you press the star keys. Our next question comes from the line of Greg Brody with Bank of America. Please proceed with your question.

Good morning, guys. Hey, Greg.

So your increase in the dividend points to, obviously, the year you had, which turned out better than expected when you cut it earlier in the year. How are you thinking about that going forward, especially in light of the fact that you're not providing guidance yet?

Good morning, Greg. It's Daphne. We continue to have the same approach as I think we always have, which is basically in terms of making the distribution decision. We're looking at our performance. We're looking forward in terms of what our cash needs are for whether it's acquisitions or CapEx and keeping our balance sheet leverage in mind as well. So it's really a bit of a balancing act. Obviously, this past year was particularly strong and You know, as we cited, you know, excess cash flow after distributions was very healthy.

Got it. And then in your CapEx number, guidance in the CapEx number you provided, how much of that would you say is for green initiatives?

How much is for what? Sorry?

For some of your green initiatives.

I would say that the lion's share of the expansion CapEx is really toward the retail side of the business, you know, the GDSO segment. And, you know, I don't think it's a material amount as of yet on the green side of the business.

Do you foresee any of these initiatives you're working on requiring a growth, a bump in growth context that's material?

Are you saying for green initiatives?

Yes, Green, I'm using Green just to catch the cleaner feels.

Yeah, I mean, I think it's possible, right? I mean, we're having lots of conversations, you know, around other initiatives. And, you know, there are deals that we have done, but there are conversations. And, yeah. You won't know until you get there, but certainly we have – what I would say is it's very busy. There's a lot of opportunity, okay? The field with the new administration is changing. We are very aware of what those changes are, and we're trying to make sure that we're plugged into them. and that we're opportunistic so that we can deliver solutions that the government and the market is looking for. And we're just trying to make sure that we're in position for them. What all of those ultimately end up being, I don't know. But what I can tell you is just as we stepped into the renewable diesel transaction out on the West Coast, You know, we continue to look to grow that business in fundamental ways. And, you know, it's like anything else. You've got to manage the risk and the expenditure that's around it, and you have to have the right contracts set up so that you're not taking unknown risk, financial risk. But that's what we're driving towards.

I've been noticing some announcements in areas that you're not as active where utilities in the south are trying to provide charging stations. Are you in conversations with some of the utilities in the areas that you operate for something to participate in joint ventures and things like that?

So I would say more traditional electric charging companies, So I'd say we're sort of canvassing them, because at the end of the day, what do I believe? I believe we have great real estate that is going to be used by somebody to deliver energy, whether that energy is electric or some other form. So I think we're positioned well to take advantage. of that opportunity as it plays itself out. The utilities have not reached out to us, but what I would say is the more traditional charging companies, we've been in contact with most of them. But once again, it's about structure, because the demand today versus the cost to do high-speed charging, at least in these markets, It's a little bit of a tough process to do it on your own, but if you canvass partnerships and subsidies, there may be a possibility. But by example, you know, we've got stations in Connecticut on the 95 corridor, and that's an opportunity, you know, for electric as well, right? We've got stations that are off highways. Those are all potential opportunities as well. It's just finding the right partnership that provides both of us value. And that's on the retail side. But I do think there's a termaling opportunity as well. And, you know, we talk about the bio grant, and that's a small investment, and it's timing and it's permits. But you're going to grind away at it and build your blocks out. And, you know, hopefully, you know, in a couple of years we'll be in a position where, you know, we have bio fuel at many more of our terminal facilities, right?

Yeah. No, I'm sure. It's fascinating what's going on right now. It's interesting to hear your perspective on things.

Yeah, Greg, I think we're really in a good position here because we're a hard asset company, right? And we're in highly traveled locations. And so at the end of the day, you know, whoever decides they're going to, if they want to really build it out in a big way, you know, we can be a provider of those assets to them. right and the infrastructure that we have can in fact help them to deliver that need as it grows right because there's not a question about is this growing it's going to grow whether it gets mandated or not right and so the question is around what technology wins right what battery technology wins right and what percentage of the market does that take over and how long is it, right? But it's complex because there's going to have to be a lot of subsidies and a lot of mandates to make it happen. We just think that we'll have a role in it.

That makes sense. And just my last question, with the rise in crude prices you've seen subsequent to the quarter, is are you seeing any pressure on margin or are you still able to hold your traditional retail margin, um, that you've been putting up the last couple of quarters?

Yeah, I, you know, I'm, I basically, I would say, you know, the market has been in an up mode for, I don't know how many months, a lot of months. Um, What I would say broadly is you can sort of go look at the NYMEX versus GasBuddy, but generally, even though the margins are squeezed from what they were in the pandemic, they're generally pretty good.

That's it for me, guys. Thank you for your time.

Our next question comes from the line of Ned Baramoff with Wells Fargo. Please proceed with your question.

Hi, good morning. Thanks for taking the questions. Most of my questions have been asked and answered. I had one for Daphne. Could you maybe talk about some of the drivers behind the increase in SG&A expenses in the fourth quarter? I did catch the incentive comp piece, but just wondering what is a good number to use going forward?

Yeah, good morning. Yeah, the SG&A was heavy in the quarter at $49 million or so. And that was in part due to incentive comp, as you mentioned, as well as really the timing of other expenses. I'd say it's a bit heavy on a run rate basis, not materially. You know, for the full year, we had $192 million, which is although up year over year by more than $21 million, in part, again, due to professional fees, salaries, incentive comp, and some COVID-related expenses. We did underspend during the year in certain areas, and costs, as you know, go up. So I'd say, you know, SG&A is heavy in the quarter, but it's not materially up.

Got it. And then one more, if I may, just if you could provide your latest thoughts on IDRs.

I don't have really any comment on the IDRs, and, you know, there's nothing really to announce with regards to, you know, the existing IDR structure.

Thank you. That's all I had.

Thank you. We have reached the end of our allotted time for questions. Mr. Sliska, I would now like to turn the floor back over to you for closing comments.

Thank you for joining us this morning. We look forward to keeping you updated on our progress. Stay safe, everybody. 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.