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spk00: Good day, everyone, and welcome to the Global Partners Second Quarter 2022 Financial Results Conference Call. Today's call is being recorded. 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 Hansen, Chief Operating Officer, Mr. Mark Romain, 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.
spk06: Good morning, everyone. Thank you for joining us. Before we begin, let me remind everyone that this morning's call will include forward-looking statements within the meaning of federal securities laws. These statements include projections, expectations, and estimates concerning the future financials and operational performance of global partners. These forward-looking statements are based on assumptions regarding market conditions, business cycles, demand for liquid energy products and convenience store products, utilization of our assets and facilities, the regulatory and permitting environment, the forward product pricing curve, and other factors which could influence our 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 COVID-19 and its impact on our counterparties, our customers, and our operations, and other 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 of 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. 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 Now it's my pleasure to turn the call over to our President and Chief Executive Officer, Eric Sliska.
spk05: Thank you, Sean, and good morning, everyone. By every measure, we delivered outstanding results in the second quarter. Our financial and operating performance in Q2 reflects great execution by our team and underscores the value drivers that fuel our business. specifically an integrated network of supply, storage, marketing, and retail assets, which enable us to quickly adapt to changing market conditions, a diverse portfolio of products and services relied on by our customers and guests every day, skilled and dedicated employees, and continued emphasis on data analytics, which enables us to effectively manage inventory levels and product mix to respond to changes in the demand environment for both wholesale and retail. In the second quarter, we benefited from continued momentum in our GDSO segment, including our recently acquired retail sites, as well as favorable market conditions in our wholesale segment and an increase in bunkering activity in our commercial segment. During these calls, I've spoken frequently about the high value of our real estate assets, including our storage infrastructure and retail locations. Historically, we have not only been able to optimize these assets, but monetize them as well. In Q2, for example, we completed the sale of our 2.1 million barrel refined petroleum product terminal in Boston Harbor in Revere, Massachusetts. The purchase price was $150 million in cash, and after closing costs and other considerations, The partner received net proceeds of approximately $99 million. As part of the sale, we entered into an agreement with the buyer under which we leased back key infrastructure at the terminal, including certain tanks, dock access rights, and loading racks in order to continue business operations at the facility. The key takeaway is that the transaction enables us to unlock the value of this asset and provide capital for future growth. On that note, we continue to deliver our strategy to grow our GDSO business. We are pleased with the contribution in Q2 of our two recent acquisitions, Consumers Petroleum of Connecticut and Miller's Neighborhood Market. The Miller's transaction provides us with our first company operated locations in Virginia, where we continue to expand our presence this quarter by signing an agreement to purchase a portfolio of 13 owned, and two leased gas stations and convenience stores, as well as six adjacent pieces of real estate. The acquisition is expected to be completed by the end of Q3. We continue to make investments in the sustainability space, including further diversifying our EV offerings and sustainability business lines to create long-term value for our portfolio. In May, we launched our first resilient convenience station location with a microgrid linking solar energy, battery storage, and a DC fast-charging station for electric vehicles. We continue to be a leader in advancing renewable fuels policies and positioning our assets to deliver these products. Turning to our distribution, in July, the Board voted to increase the quarterly distribution on our common units by $0.01 per unit to $2.42 per unit on an annualized basis. The distribution will be paid on August 12th to unit holders of record as the close of business on August 8th. With that, now let me turn the call over to Greg for his financial review. Greg?
spk03: Thank you, Eric, and good morning, everyone. Across all of our key performance metrics, Q2 was an extremely strong quarter for global. Net income for the second quarter was $162.8 million, compared with $12.1 million for the same period in 2021. Adjusted EBITDA was $134.9 million versus $58.7 million for the year-earlier period. DCF increased to $178.2 million from $26.6 million for the second quarter of 2021. Please note that net income, EBITDA, and DCF include a $76.8 million net gain on the sale and disposition of assets, primarily related to the sale of our Revere Terminal. TTM distribution coverage, as of June 30th, 2022 was 3.6 times or 3.5 times after factoring in distributions to our preferred unit holders. Excluding the net gain on sale of assets, TTM distribution coverage was 2.7 times or 2.5 times after distributions to our preferred unit holders. Turning to our segment details, GDSO product margin was up 36.5 million in the quarter to 198.9 million. The gasoline distribution contribution to product margin was up 28.6 million to 129.9 million, reflecting higher fuel margins and an increase in volume due in part to our recent acquisitions. Fuel margins increased by 5 cents per gallon to 31 cents from 26 cents in last year's second quarter. We were pleased with the fuel margin performance in light of wholesale gasoline prices in the quarter. NYMEX wholesale gasoline prices increased by 46 cents per gallon during the three months ended June 30, 2022. per gallon during the same period last year. Station operations product margin, which includes convenience store and prepared food sales, sundries, and rental income, contributed $69 million, up $7.9 million from the second quarter of 2021, reflecting an increase in activity at our convenience stores due in part to our recent acquisitions. At the end of the second quarter, our GDSO portfolio consisted of 1,683 sites comprised of 343 company-operated sites, 292 commission agents, 196 leafy dealers, and 852 contract dealers. Looking at the wholesale segment, second quarter 2022 product margin was $90.6 million, up $57.1 million from the same period in 2021, primarily reflecting more favorable market conditions, largely in distillates and gasoline. Product margin from other oils and related products, which include distillates and residual oil, increased $38.6 million to $51.9 million. Gasoline and gasoline blend stock product margin increased $17.5 million to $41 million. Product margin for crude oil was negative $2.3 million in the second quarter, up from negative $3.3 million in the same quarter a year ago, primarily due to the expiration of a pipeline connection agreement in August of 2021. In the second quarter, we saw a continuation of the steep backwardation of the forward product pricing curve. than those for longer-term delivery. We do expect a steep backwardation to increase the cost of carrying our hedged inventory at some point in the future, but as we saw in the second quarter, it can also contribute to strength in our wholesale margins. Turning to the commercial segment, product margin increased $9.8 million in the second quarter to $12.5 million, largely due to our bunkering business, which continued to see strong volumes and margins in the quarter. Looking at expenses, Operating expenses increased 20.3 million to 108.5 million in the quarter, primarily in our GDSO segment, including our recent acquisitions, due in part to increased credit card fees related to the increases in volume and price, higher salary expense, and higher rent expense. SG&A expenses increased 6.8 million to 60.8 million in the second quarter, primarily due to increased incentive comp and wage 2021 for compensation and benefits resulting from the passing of our general counsel. Interest expense for the quarter increased to $21 million compared with $20.3 million in the year earlier period, in part due to a higher average balance under our revolving credit facility as a result of recent acquisitions. CapEx in the second quarter was approximately $25.3 million, consisting of $9.8 million in maintenance CapEx and $15.5 million of our investments in our gasoline stations and C-stores. Through the first half of 2022, we had maintenance capex of $17.3 million and expansion capex of $25.1 million, excluding acquisitions. For the full year, we continue to expect maintenance capex of approximately $45 million to $55 million and expansion capex, excluding acquisitions, of approximately $50 to $60 million in 2022, relating primarily to investments in our gasoline station Our balance sheet continues to be strong, with leverage which is defined in our credit agreement as funded debt to EBITDA at approximately 2.4 times at the end of the second quarter. We continue to have ample excess capacity in our credit facility. As of June 30, 2022, we had total borrowing outstanding under the credit agreement of $193.7 million. This consisted of $70.7 million under our $1.1 billion working capital revolving credit facility and $123 million under our $450 million revolving credit facility. Looking ahead on our investor relations calendar, next month we'll be hosting one-on-one meetings at the Wells Fargo Leverage Finance Conference. If you're heading to Nashville for the conference, we look forward to meeting with you. Now let me turn the call back to Eric for closing comments. Eric?
spk05: Thanks, Greg. We enter the second half of 2022 with solid momentum and believe we are well-positioned to continue to deliver value for unit holders, customers, and guests. Now, Greg, Mark, and I will be happy to take your questions.
spk00: 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. One moment please while we poll for questions. Thank you. Our first question comes from the line of Selman Ackle with Stiefel. Please proceed with your question.
spk04: Thank you. Congratulations on a very nice quarter. Let me just start with the wholesale and distillates and your thinking and I guess you referred to the steep backwardation. But I guess, you know, how long do you see this continuing especially as I think sort of about the Northeast and being sort of short refinery capacity and diesel in general. So maybe you could just give an outlook for that.
spk01: Yeah. Selma, good morning. It's Mark.
spk04: Good morning, Mark.
spk01: Yeah. You know, we've seen since the end of Q1, you know, the markets have been steeply backwards. I will say they have softened. The curve has softened a bit, but the backwardation has, is you know the vaccination consists or exists out into you know even through 2023 so I think we're going to be at the moment looking forward we're going to be dealing with this at least for the near future um and so we'll just continue to to run the business the way we have we've managed inventories accordingly uh certainly as we head into winter we'll have to expand inventories to meet demand a little bit but um you know I don't see any I don't see any um anything different looking forward. You know, we'll just continue to manage the business the same way we have, although the curve has softened a little bit.
spk04: Okay. And then can you also just talk about the uplift in bunkering fuels and maybe what's driving that and how sustainable that might be?
spk01: Yeah, demand's been great. And, you know, we've also benefited from some market opportunities in the supply of those fuels. So, you know, our outlook for that business, you know, and we'll just continue to drive value through that.
spk03: Yeah, I think the only thing I'd add to that, I just want to straight answer. You know, if you look back historically, that has always been a strong contributor to the commercial group. It was really impacted by COVID the last two years, and so it's been pretty muted, and now we're sort of getting back to more, although very strong, but a better normalized hungry.
spk04: Got it. And then in prior conversations, I know you've invested in charging stations and you've said utilization has always been pretty underwhelming. And so you're still continuing to do that. And I'm just wondering, are you starting to see any more uptick in utilization or are you just doing it to have the rounded product? you know, line. Any comments on that?
spk05: Sure, Salman. It's Eric Flisca. So essentially, you know, two parts of your question. The first one is, are utilization rates higher? The answer is yes, but they're from a very small base. They may be as much as doubled, right? So that's the one, but it's from a very small base, right? Number two is we've been strategic in in terms of partnerships around that and whether those partnerships are with other providers. So, so I spoke a little bit about our, our air mass facility and creating a micro grid that was with a third party who spent the capital to put it in. The only capital we spent was for a backup facility. you know, backup generator on the site, which by the way, we're happy to do because at the end of the day, um, it's a larger site, it's got good inside format. Uh, and when there's an electricity outages, you want to make sure that you are in a position, uh, to, to, uh, fulfill the need in the marketplace. Right. So, um, so that all works out well, but in that particular site, you know, there's solar on, on top of the canopy. There's battery storage. All this has all been paid for by a third party. And they've also going to be charging on the site as well. So our role only there was backup generator on fossil fuels. But for us, it makes sense because it's such a large site, right, and important to the community.
spk04: Do you have other sites like that you would do that?
spk05: That would be, I'd say, Yeah, I would say, yeah, we would be very interested in doing that in other sites. You know, this is a relatively new concept, but, you know, it's a third party who's come in, a fairly large one at that. So, I mean, at the end of the day, we would consider this on other sites if we had parties that came to us and wanted to make that kind of an investment.
spk04: Got it. And then you also just talked about real estate and being willing to realize the value of it. So I guess I would ask, you know, number one, are there any other opportunities you're pursuing right now in terms of liquidations with sale leasebacks? Or then in particular, you highlighted, I think it was Virginia where you got six, sounded like adjacent parcels. Would you be looking to monetize those or are you looking to build on those?
spk03: I think one of the core tenets of our business is real estate, so we're always looking at our portfolio for opportunities long term. We have a very strong real estate position throughout the Northeast and the East Coast, and so we're continuing to always look at optimization. I would say for things like Revere, I think that was somewhat of a one-off. and rebuilds, more NTIs, looking at larger format stores or truck stop type opportunities. So it's something we're always looking at.
spk04: All right. Thank you very much.
spk00: Our next question comes from the line of Greg Brody with Bank of America. Please proceed with your question.
spk02: Good morning, guys. Hey, Greg. Good morning. So just in treating the soap business, can you talk a little bit about what you're seeing at the pump? I guess we've had higher prices have come down a little bit, but there's this general consumer nervousness. How are you seeing that impact the business right now? And do you think you can continue to keep margins at these levels?
spk03: So, Greg, your question is more about how the impact of the higher prices impact the consumer or potential recession fears impact the consumer. Is that sort of where you're getting at?
spk02: Yeah. I mean, if there's a way to isolate, I imagine it's pretty hard to isolate all of them. But I'm curious what you're seeing, what you think is going to happen.
spk03: Yeah. So I think, you know, we did see, you know, some demand destruction on the gasoline side during the really high prices in May and June. in the third quarter so far, which I think provides a lot of relief to consumers on the gasoline side. You know, I think we saw some softness, but obviously nothing like what we saw in COVID. But again, you know, we continue to sort of status quo, you know, any sort of volume declines that potentially are out there have been more than offset by margin. And we continue to see that being a trend that we've seen since the beginning of COVID in 2020.
spk02: Got it. No, I appreciate it. Things have moved around. I'm just wondering if you're seeing any more weakness, but clearly a drop in prices has helped. Just GDS, the wholesale business, I understand you're worried about backwardation. Can you help us understand a little bit more how you did so well this quarter? I'm always fine studying this business. It's interesting, but I'm curious what happened this quarter. Give a little bit more color there.
spk01: Yeah, Greg, this is Mark. So the markets have been backwards. Anytime markets are backwards or even, you know, especially steeply backwards like they have been, that can increase the cost of carrying inventory from a few different angles. One, obviously, at a higher price level, you've got a higher cost to finance that inventory. But in addition to that, we run a hedge book and we roll all of our inventory from month to month. So in a backward market, that is a cost for us. What we've seen, so that's on the supply side. On the sales side, what we've seen is throughout the markets that we operate in, we've seen margins expand across the board, both on gasoline and distal. The way I look at that is that is the market's response to the increased cost of carrying inventory. In addition to that, as I mentioned earlier, we have we have taken a pretty aggressive stance on reducing inventory throughout our terminal. And that's, you know, that's generally how we manage in Contango markets. We expand inventory back with markets. We reduce it. It gives us some level of risk mitigation. But, you know, a combination of higher margins at the wholesale rack level. And then, you know, we have seen markets soften a little bit. But, you know, there hasn't been a real meltdown in the curve, so to speak. So, you know, timing can have something to do with that as well. And I do think that, you know, when markets flatten out or perhaps even slip into contango at some point, who knows when, but it'll happen, you know, that's when you'll see some of that additional cost come through. But margins are, as Greg said, you know, it's not dissimilar to retail as, you know, Greg pointed to, you know, some lower volumes. We saw some dramatically lower volumes during COVID. We are seeing some lower volumes now due to the high price environment. In most of those cases, or I would say in all those cases, we are seeing an offset in higher margins, and it's no different in the wholesale.
spk02: Do you think that can persist for some time? I'm sorry? Do you think that can persist? I mean, it hasn't changed, it's still.
spk01: No, I think, you know, as I said, I think a lot of it depends on the market. So as the markets return closer to normal, as I said, if you look at the display curve now, it's not as steeply backwards as it was before. And we're seeing margins normalize a little bit or go directionally towards normal. They're not normal at this point, but... So I think it's a function of the market. And I think as you see, as I said, it can persist as long as there's this extreme backwardation, which is leading to dislocation. Sure, healthy margins can continue to exist. But it'll be driven by, it'll be dictated by the structure of the market. I appreciate that. Hey, Greg.
spk05: Greg, it's Eric Sluska. You know, just to follow up, I mean, the markets are very, these markets are very efficient, right? And they price to make sure that supply and risk and margin all meet so that the market can continue to fulfill the requirements, right? And whether it was COVID, we saw, you know, low retail demand, the margin's fixed on the other side. Right. And so you had a margin that paid for the reduction in demand. You know, here in this instance, you have you have, you know, backwardation. And so, you know, there are fewer competitors and you're seeing the margins expand to handle that that that additional cost. But they they operate very quickly. And then I think the key here is, you know, as I said in my prepared remarks, you know, we have a business model that really puts us in a position to adapt to and change as the markets move around, right? And we think our model is differentiated versus a pure retailer or a pure wholesaler, right? Because we've integrated the business model and we have better advantages given that connection all the way down from store and supply, you know, termaling to retail.
spk02: And I appreciate all that. You guys are consistently executed when the opportunity has been there like this. So thanks for explaining that to me because it's never that simple for us trying to model it over here. Last question for you. Operating costs. They're up quite a bit from last year. Is that M&A related or is there some other components driving that?
spk03: Yeah. Hey, Greg. It's great, Andy. 0.4 million year over year. The majority of that is acquisition related. Also, credit card fees, given the higher retail prices we saw in the quarter, obviously our credit card fees are variable based on price and volume. So that was significantly higher. But that is also related to the additional volumes we brought on with the acquisitions and the additional credit card fees there. So it's really a mixture of the Majority of the acquisitions and then on top of that, we are seeing some higher salaries at the site level year over year. We've seen pressure on employment, as I think every retailer has. So we've had to increase some of our starting salaries on an hourly basis year over year. So that's been part of it. But the majority of it is related to the acquisitions.
spk02: Great. Thanks again for your time, guys. We'll wrap up in a quarter.
spk03: Great. Thank you. I appreciate it. Thank you.
spk00: We have reached the end of the question and answer session. I would now like to turn the floor back over to Mr. Slivka for closing comments.
spk05: Thank you for joining us this morning. We look forward to keeping you updated on our progress. Stay well and enjoy the remaining weeks of summer. Thanks, everybody.
spk00: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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