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spk00: Good day, everyone, and welcome to the Global Partners Third Quarter 2023 Financial Results Conference Call. Today's call is being recorded. There will be an opportunity for questions at the end of the call. A brief question and answer session will follow the formal presentation. 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.
spk01: 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 findings 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 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 Slifka.
spk05: Thank you, Sean, and good morning, everyone. Let me begin with what we consider to be a transformational deal for Global, our definitive agreement to acquire 25 refined product terminals from Motiva Enterprises for $305.8 million. To put this acquisition in context, today we own or lease 24 bulk terminals, primarily in the Northeast, with a combined storage capacity of approximately 9.9 million barrels. The addition of the Motiva terminals diversifies our terminaling operations into new geographies along the Atlantic coast, in the southeastern US, and in Texas, providing platforms for growth in supply, wholesale, commercial, and retail. In all, we will be adding approximately 8.4 million barrels of shell capacity for products including gasoline, ultra-low sulfur diesel, and ethanol. The terminal portfolio is well maintained and strategically located with direct connections to critical, highly utilized U.S. refined product infrastructure, including the Colonial Plantation, Enterprise, Explorer, and Magellan pipelines. The transaction is underpinned by a 25-year take or pay throughput agreement with Motiva. Let me provide a brief overview of the assets we're acquiring. The Atlantic Coast assets consist of ten bulk terminals in Maryland, Virginia, North Carolina, and South Carolina, with a combined storage capacity of approximately 3.4 million barrels. The Southeast assets consist of eight bulk terminals in Florida and Georgia, with a combined storage capacity of about 3.4 million barrels. The Texas assets consist of seven bulk terminals with a combined storage capacity of approximately 1.6 million barrels. Upon closing, our storage capacity will be 18.3 million barrels, an increase approximately of 85% from our capacity as of September 30th. This transaction aligns with our strategy to acquire invest in, and optimize assets that drive operating synergies. The terminals we are acquiring provide critical midstream infrastructure with the flexibility to serve customers through multiple modes, including ship, barge, pipeline, rail, and truck. In addition, we gain further operational capacity for our own volumes as we continue to grow. We expect the Motiva transaction to close by the end of this year, subject to customary closing conditions, including regulatory approvals. We look forward to optimizing and developing these thermal assets to their full potential. I also want to touch on our planned acquisition of five Gulf Oil refined product thermals in Maine, Massachusetts, Connecticut, and New Jersey. We continue to diligently work through the regulatory review process and remain hopeful that we will be able to complete the acquisition this year. Turning to Q3, the global team delivered solid results in the quarter, which was in line with our expectations in a more normalized market compared with last year. We continue to deliver value across the midstream and downstream liquid energy markets providing customers with essential products and services through our integrated fuel storage, distribution, and retail assets. As part of our alternative fuel strategy, we recently activated our first company-owned electric vehicle charging stations. The DC fast charging stations are located at our Extra Mart convenience and fueling station in Worcester, Massachusetts, and at our newly opened Alltown Fresh kitchen and marketplace in Fort Edward, New York. While the new charging stations are the first owned by Global, they are not the first in our portfolio. We operate two EV charging station sites with charges owned by a third party and have five more sites under construction. We continue to focus on contributing to state and regional energy initiatives. Given the scale of our GDSO business, We believe we are well positioned to play an integral role in the transition to alternative energy sources, providing a range of multi-fueling options for consumers. Turning to our distribution. In July, the Board approved a quarterly cash distribution of $68.50 or $274 on an annualized basis on all outstanding common units. The distribution will be paid on November 14th to unit holders of record as of the close of business on November 8th, 2023. This marks the eighth consecutive quarter in which the Board has increased the cash distribution. With that, now let me turn the call over to Greg for his financial review. Greg?
spk04: Thank you, Everett, and good morning, everyone. As we noted this morning during release, our third quarter year-over-year comparison is somewhat challenging. With more normalized market conditions in the third quarter of this year, compared to the record results we achieved in the third quarter of 2022 due to the strong backwardation and commodity market volatility that benefited the performance in that period. That said, and as Eric noted, we are pleased with our third quarter of 2023 results, which were in line with our expectations. For the third quarter of 2023, adjusted EBITDA was $77.7 million, compared with $168.5 million in 2022. Net income for the third quarter was $26.8 million, compared with $111.4 million in 2022, and DCF was $42.2 million in the third quarter, compared with $128 million in 2022. Adjusted DCF, a new metric commencing this quarter, was $43.3 million in the third quarter of 2023 versus $128 million in 2022. Adjusted EBITDA and adjusted DCF includes our proportionate share of EBITDA and DCF related to our 49.99% interest and our spring retails joint venture that we closed on this past June. Please note that adjusted DCF is not used in our partnership agreement to determine our ability to make cash distributions. It may be higher or lower than DCF as calculated under our partnership agreement. Adjusted DCF is presented solely to provide investors an enhanced perspective of our financial performance. GTM distribution coverage as of September 30th, 23, including the Q4 2022 special distribution, was 1.5 times or 1.4 times after factoring distributions to our preferred unit holders. Turning to our segment details, GDSO product margin was down $55.1 million in the quarter to $206.5 million. Product margin from gasoline distribution decreased $56 million to $132 million, primarily due to lower fuel margins in Q3 2023 compared to Q3 2022. On a cents per gallon basis, fuel margins declined to 31 cents from 44 cents in last year's third quarter. We experienced uniquely strong fuel margins in third quarter 2022, with wholesale gasoline prices declining $1.18 from 6-30-2022 to 9-30-2022. In comparison, this year's third quarter, wholesale gasoline prices declined 19 cents. Station operations product margin, which includes convenience store and prepared food sales, sundries, and rental income, increased 0.9 million to 74.5 million in the third quarter of 23, in part due to our September 2022 acquisition of Tidewater Convenience. GDSO product margins, both from gasoline distribution and station operations, were negatively impacted for the quarter due to excessive rain, with the Northeast experiencing its third wettest summer since record keeping began 129 years ago, per the National Oceanic and Atmospheric Administration. which influenced consumer demand for gasoline and C-store products in sundries, such as car wash sales. At the end of the third quarter, our GDSO portfolio consisted of 1,624 sites, comprised of 342 company-operated sites, 300 commissioned agents, 184 VC dealers, and 798 contractors. In addition, we operate 64 sites on behalf of our spring partner, Retail Joint Venture. Looking at the wholesale segment, third quarter 2023 product margin decreased 42.1 million to 37.2 million, primarily due to less favorable market conditions in gasoline, distillates, and residual oil. Gasoline and gasoline blend stock product margin decreased 33.8 million to 20.4 million for the quarter, and product margin from distillates and other oils decreased 8.3 million to 16.8. Our commercial segment product margin decreased 2 million to 8.4 million, primarily due to less favorable market conditions in bunkering. Looking at expenses, operating expenses decreased $3.6 million to $115.9 million in the third quarter of 23, primarily in our GDSO segment, including a decrease in our environmental expenses due to additional reserve we booked in the third quarter of 2022 and lower rent expense offset by an increase in salary expense. SG&A expense decreased $1.6 million in the third quarter of 23 to $63.5 million, including a decrease in accrued discretionary incentive comp partially offset by increases in acquisition costs and wages and benefits. Interest expense was 21.1 million in the third quarter of 23 versus 19 million in 2022, due in part to higher average balances on our credit facilities and higher interest rates. CapEx in the third quarter was 17.4 million, consisting of 12.2 million of maintenance CapEx and 5.2 million of expansion CapEx, primarily related to investments in our gasoline station business. Through the first nine months of the year, We had $35.4 million in maintenance capex and $19.3 million in expansion capex. For the full year of 2023, we continue to expect maintenance capital expenditures in the range of $50 to $60 million. Based on our anticipated projects through the end of the year, primarily related to investments in our gasoline stations, we are revising our planned expansion capex from 2023 to a range of $35 to $45 million from our previous expectations of $55 to $65 million. These current estimates depend in part on the 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 930, with leverage which is defined in our credit agreement as funded debt to EBITDA of approximately 2.37 times at the end of the third quarter. And we continue to have ample excess capacity in our credit facilities. As of September 30th, 23, Total borrowings outstanding under our credit agreement were $154.7 million. This consisted of $65.7 million of borrowings outstanding under our $950 million working capital revolving credit facility and $89 million outstanding under our $600 million revolving credit facility. Now let me provide some additional color on the announced transaction with Motiva. As Eric noted, we are acquiring 25 refined product terminals across the Atlantic Coast, the Southeastern United States, and Texas for a purchase price of $305.8 million in cash. We expect to finance the acquisition under our bank facilities. On a pro forma basis, including the Motiva and Gulf transactions, we expect that leverage, as defined in our credit agreement, will be within our long-term target of four times. In addition, excluding first-year transition-related expenses, we expect the acquisition to be accretive in the first full year of operations. Looking at our upcoming investor relations calendar, next month we will be participating in the 2023 Wells Fargo Midstream and Utilities Conference in New York City. For those of you who are participating, we look forward to meeting with you. Now let me turn the call back to Eric for closing comments.
spk05: Eric? Thank you, Greg. Looking ahead, we remain focused on our initiatives to drive growth through strategic M&A, asset optimization, and balanced capital allocation, creating long-term value for our unit holders. Refined product demand in the U.S. remains stable. We believe that our acquisition of the Motiva terminals is a transformational deal for global, one that builds on our reputation as a leading provider of critical midstream infrastructure. Now, Greg, Mark, and I will be happy to take your questions. Operator?
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 that your line is in the question queue. You may press star two if you would like to remove your questions 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. Our first question comes from Selman Eckholt with Stiefel. Please proceed with your question.
spk03: Hey guys, good morning. This is Tim on for Selman. Congrats on the terminal acquisition. Just wanted to start off with that. I'm just wondering if you could expand a little bit on the opportunities and synergies and growth prospects you see with this enhanced terminal footprint and as well as how it maybe relates to your ExxonMobil JV Uh, down in Houston.
spk05: So, so, um, um, I think we, a couple of us will handle those questions. Uh, this is Eric, um, you know, first, um, look, this is a deal, uh, that is banked, uh, that is backed by Motiva as an anchor tenant. Um, and it, you know, in a way we look at that as, as sort of hedging, you know, hedging our bets here because as an anchor tenant, They're providing a material source of revenue for the transaction. And then from there, obviously we're in the terminaling business throughout the Northeast. I'd say historically, Tim, we started, you know, really in the retail heating oil business. We went into the wholesale heating oil business and then we bought terminals. This story is a little bit similar, maybe not in every market, but we are in many of the markets in the wholesale business. These are now taking assets and putting those assets behind it. And we think it's going to put us in a position to expand that business as well as potentially being more competitive on any retail acquisitions. We also think there's an opportunity around supply for these assets as well. And so it's really, taking that vertically integrated business model that we've successfully deployed throughout the Northeast and now moving it down the coast into Florida as well as into Texas and really leveraging our physical position in these markets. Mark, I don't know if you have anything else that you want to add.
spk02: Yeah, the only one thing I would add to that is these assets, you know, they've been owned by Motiva and run... successfully for many years and they're very well maintained. That being said, I think we expect to find some opportunities to invest in these terminals and to optimize these assets. So that's the only thing I would add to that, along with all of the strategic benefits and synergies that Eric highlighted.
spk05: Yeah. And look, you also asked a question around ExxonMobil and how does this play into that. You know, this is a deal where we own the assets. Look, we're going to try to provide the best value for all of our partners here. And so if there is a way to provide value to our JV, you know, we're going to try to work with our partner to, in fact, do that, right?
spk03: Understood. Sounds like a good set of opportunities out of you guys. And then just switching to the golf acquisitions, just wondering what's the next kind of thing to tackle to get the acquisition closed by year end?
spk04: Yeah, I mean, Sam, we continue to work with the regulatory agents, FTC, in a diligent manner, and that's really all we're going to comment on.
spk03: Got it. And then the last one for me, So obviously you guys recently put a couple EV charging stations that you guys own into service and it seems like a couple more on the way. Just wondering what kind of drove the rationale for you guys to own them and then ultimately, you know, if you'd like to expand this even further beyond what you have going on now.
spk02: Yeah, Tim, we've tried to lean into that space to the extent that we can. We realize that energy transition will be coming at us. We're trying to stay at the forefront, in some cases lead, and it's not limited to EVs. We are handling volumes of renewable diesel today. I would say one of the first in the market to be handling those volumes. We continue to invest in things like biodiesel blending. But on the EV front, we're trying to formulate our strategy. We're trying to take advantage of incentives and funding and put that to work along with our own capital and really, like I said, lean in and learn how this works and watch it and continue to shape the strategy. So it's really an evolution. but it is something that, you know, we're, we're spending a fair amount of time on and we're trying to invest where we can.
spk05: Yeah. And look, the goal is to make sure that we're financially disciplined. Right. And so, so part of what we're doing is working with, uh, the States and the local towns and the federal government, um, to really put their dollars to work, to make the transaction transition, uh, happen quicker. You know, and so it gives us a chance of having better returns and it lowers our risk.
spk03: Understood. Thank you guys so much for the time.
spk05: Thank you.
spk00: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. There are no further questions at this time. I would now like to turn the floor back over to Mr. Spilka for closing comments.
spk05: Thank you for joining us this morning. We look forward to keeping you updated on our progress. Thanks, everybody.
spk00: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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