Global Partners LP (GLP) 2005 Q4 法說會逐字稿

Good day everyone and welcome to the Global Partners Fourth Quarter and Year-End 2005 Financial Results Conference Call.

Today's call is being recorded.

With us from Global Partners are President and Chief Executive Officer, Mr. Eric Slifka, Executive Vice President and Chief Financial Officer, Mr. Thomas McManmon, Senior Vice President and Chief Accounting Officer, Mr. Charles Rudinsky and Executive Vice President and General Counsel, Mr. Edward Faneuil.

At this time, we would like to turn the call over to Mr. Faneuil for opening remarks. Please go ahead, sir.

Good morning everyone and thank you for joining us. Before we begin, let me remind everyone that during today's call we will make forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. The statements that are made [background disturbance] are not limited to projections, beliefs and estimates concerning future financial and operational performance of Global Partners.

The future performance and financial results of the partnership may differ materially from those expressed or implied in any such forward-looking statements. Although we believe these forward-looking statements are based on reasonable assumptions, statements made regarding future results are subject to a number of assumptions, uncertainties and risks many of which are beyond our control. Such risks include but are limited to those described in Global Partners filings with the Securities and Exchange Commission.

Global Partners undertakes no obligation to revise or publicly release the results of any revisions to the forward-looking statements that may be made during today's conference call. It is our policy that any material comments concerning future results of operations are communicated through press releases, publicly announced conference calls or other means that will constitute public disclosure for purposes of [inaudible-background disturbance].

Now allow me to turn the call over to our president and chief executive officer, Eric Slifka.

Thanks Edward and good morning everyone. Let me set the agenda for today's call. I'll spend the next few minutes recapping our financial results giving you an overall view of our business and discussing our strategy for 2006. Tom McManmon, our CFO will walk you through our numbers for the quarter and the year in more detail and then we'll take your questions.

From a financial perspective we enjoyed a great Q4 and full '05. Our fourth quarter gross profits increased 22% year over year to $29.9 million on sales of $1.3 billion reflecting strong margins across both the wholesale and commercial segments of our business.

For the year, gross profits increased 21% to $91.7 million on sales of $4 billion. On October 4th, we completed our IPO generating more than $100 million in gross proceeds through the sale of approximately 5.6 million common units after the exercise of the underwriters option.

Global's Board of Directors voted to increase our cash distribution by 3% to $0.425 for the three months ended December 31, 2005. The Q4 distribution our first as a publicly traded limited partnership was paid on February 14th and was prorated to account for the closing of our initial public offering on October 4th.

Before I talk about the performance of the two primary segments of our business, I thought it would be helpful to provide a brief overview of our company.

We were founded about 70 years ago as an independent home heating oil supplier. Today, our primary business is the terminal and marketing of refined petroleum products. In 2005, we sold on average approximately 174,000 barrels of refined petroleum products each day making us one of the largest wholesalers in New England. Our diverse products mix includes gasoline, residual oil and distillates such as diesel, home heating oil and kerosene.

In 2005, distillates accounted for approximately 52% of our total sales volume. Gasoline accounted for roughly 32% and residual oil 15%. About half the households in New England use heating oil as their primary source of heating energy. The absence of a pipeline infrastructure in New England limits potential competing distribution channels.

In New England, Global has a significant portion of the residual oil market and a major share of the home heating oil market. Our terminal network for refined petroleum products is one of the largest in the region. Global now operates from 16 bulk terminals with a storage capacity of 6.1 million barrels predominately in the northeast. We also have throughput or exchange agreements with seven additional bulk terminals and 33 inland storage facilities. The bottom line is we have ample capacity for growth.

Now let me turn to the two segments of our business. Wholesale and commercial.

The wholesale segment includes sales of distillates, unbranded gasoline and residual oils to wholesale distributors, retailers of home heating oil and unbranded resellers of gasoline. Our wholesale business accounted for about 89.5% of our total revenue in 2005.

Our commercial segment includes sales of home heating oil, diesel, kerosene, unbranded gasoline and residual oil to large commercial and industrial customers as well as to the public sector. Commercial sales accounted for approximately 10.5% of our total revenue in 2005.

Historically, our operating results are strongest in the first and fourth quarters of the calendar year coinciding with the winter demand for products, particularly home heating oil and residual oil.

Let me walk you through our percentage breakdown of our quarterly net income for '05.

The first quarter of '05 accounted for 62% of the yearly total. The second quarter accounted for a negative 5%. The third quarter was negative 11% and the fourth quarter represented 54% of annual net income.

Before Tom provides more detail on the numbers, I'll conclude my remarks this morning by talking briefly about the company's main focus to increase distributable cash flow and the strategies that we are using to accomplish this objective.

First. Organic growth. Organic growth focuses on the expansion of our traditional business lines through wholesale marketing arrangements and the attraction of new customers through our superior service and product availability. Organic growth also includes strategic initiatives that offset the seasonal elements of our business such as the development of our transportation fuels businesses.

Second. Both on strategic and accretive acquisitions within and outside of New England. By acquisitions, I'm talking about both terminals and petroleum marketing businesses. In January for example, we signed an agreement to purchase a refined products facility in Bridgeport, Connecticut. We expect this terminal which has storage capacity for roughly 109,000 barrels to expand our market share in southern New England. We expect to complete the Bridgeport acquisition in the second quarter. This acquisition will complement the distillate coverage we have in Connecticut. As we mentioned, when we announced the transaction, this terminal should be accretive on a cash available for distribution basis.

The third strategy is step out acquisitions that enable us to expand into new markets, add physical assets, leverage relationships and use our marketing expertise to maximize profitability and returns.

And with that, I'd like to turn the call over to Tom McManmon to discuss our financial results.

Thomas?

Thanks Eric. Looking first at the P&L in the fourth quarter of '05. We reported net income of $9.8 million, or $0.85 per limited partnership unit. Net income for the same period of 2004 was $6.8 million. Since we were not public in 2004, there's no per unit comparison.

For the 12 months ended December 31, '05, net income was $18.1 million, or $1.57 per unit. In 2004, the net income was $17.3 million. The number of heating degree days rose minimally year over year in '05 and was flat in the fourth quarter of '05 compared with the same period of '04.

EBITDA was $14.5 million for the fourth quarter of '05, an increase of 50% from the same period in '04.

For 2005, EBITDA increased 30% to $32.9 million from $25.2 million in '04. Please note that the financial tables in this morning's news release included a reconciliation of net income to EBITDA and cash flows for the operating activities to EBITDA for the three, 12-month ended December 31, 2005 and 2004. We also provided a reconciliation of net income to distributable cash flow which was $9.6 million from the period for the closing of our IPO on October 4th through December 31, 2005.

Reflecting increases in commodity prices. Sales for both the fourth quarter and the full year 2005 increased roughly 27% from the comparable period in 2004.

In the fourth quarter of 2005, sales were $1.3 billion compared with $1 billion for the same period in 2004 and for 2005 sales were $4 billion versus $3.2 billion in 2004.

By segment wholesale sales in the fourth quarter of 2005 increased 24% to $1.1 billion from $914 million in the same period of 2004. For the year, wholesale sales were up 26% to $3.6 billion in 2005 from $2.9 billion in 2004.

The commercial segment sales for the fourth quarter 2005, were $139.3 million an increase of 51% from 52 million -- 92 million from the same period 2004.

For the 12-month period ended December 31, 2005, commercial sales were up 30% to 423 million - - from 324.4 million in 2004.

We posted gross profit of $29.9 million for the fourth quarter of 2005, up 22% from the same period in 2004. For the year gross profit rose 21% to 91.7 million in 2005 from 75.9 million in 2004.

SG&A expenses for the fourth quarter of '05 were about 7% higher than the same period in '04. For the full year '05, SG&A was up 21% versus '04 largely reflecting fees and expenses associated with our public offering.

Operating expenses declined 5% in the fourth quarter of '05 for the same period of '04 and was essentially flat year over year.

Our interest expense increased 2.8 million for the fourth quarter of '05 from 1.9 million in the same period in '04. As a result of market price increases for products and expenses related to the formation of Global Partners.

In 2005, interest expense rose 5.3 million to approximately $10 million. This increased interest on the term loan of approximately $1.2 million and -- in '04 and 2.4 million in '05 was included in this number. This term loan was subsequently repaid by the public offering.

Turning to the balance sheet comparing December 31, '05 with December 31, '04, receivables have increased 75 million and inventories have increased 95 million. These increases were substantially supported by additional borrowings of 42 million and additional trade credit of 119 million as of December 31, '05.

The other substantial change in the balance sheet is the increase in net worth to 76.3 million from 23.2 million reflecting the impacts of the public offering and the quarters net income.

With that, we'd be happy to answer questions.

[OPERATOR INSTRUCTIONS]

Your first question comes from John Freeman with Raymond James.

Hey guys. Do you have the wholesale and commercial volumes during the quarter?

We do here, hold on.

The wholesale volume during the quarter. This is Chuck Rudinsky, by the way. The wholesale volume during the quarter was 670 million gallons and the commercial was 101 million gallons.

I'm sorry, you broke up. 101?

101.

101, okay. And a couple of questions. I'm trying to get a sense of how this current quarter is shaping up. Have you been able to tell here in the first quarter if just for the fact that natural gas has been down about 35% year to date and oils only down about couple percent if there's been a lot of natural gas switching that you've seen in the industrial side?

This is Eric Slifka. That's a great question. We have not seen yet a significant amount of switching. The reality is this if you go back to our S1 filing document what you'll see there is the way we manage our business by locking in term contracts and that's what we did this year as we do year in year out and that continues.

Okay and then kind of along that line of term contracts on specifically I guess moving away from the resid but looking at the heating oil volumes can you tell me how much of those volumes were sold on a fixed for contract heading into the winter? I know historically you'll try to keep it around 40%. Is that the case this year?

Historically, as you refer back to that S1, 35% and more on the resid side, 35% on the distillate and more on the resid side.

And that's about what it is heading into this winter?

That number that's reflected in the S1 is absolutely a good number.

Okay. Great. That's all I have. Thanks guys.

[OPERATOR INSTRUCTIONS]

Your next question comes from [Barrett Blaschke] with RBC Capital Market.

Hey guys.

Hi. Good morning.

Had a quick question for you. I noticed you accredited some of the rise in the revenue to commodity price increases and wondered if you could give us a little guidance on what the sensitivity is to the commodity prices?

Well to a great degree we're selling materials that have to be broken down into three categories. Those categories that are being used for under boiler uses are not going to be as sensitive to commodity pricing as they are to need and to temperature. Those products that are being sold to under boiler to produce steam are in fact part of a manufacturing process and are [unnecessary] and generally speaking not incredibly material component of the total manufacturing process. Those products that are driven by transportation needs whether it be diesel fuel or gasoline or the bunkering of ships are in fact obviously going to be sensitive to commodity prices but it is the requirement to move the piece of iron from A to B that is going to be the principal driver. We've seen in retail gasoline that at the height of the pricing phenomenon after Katrina the demand for gasoline fell off but it has been replaced now with a most recent indication in the first quarter of this year and the government figures that gasoline has restored its demand but is running about 1% ahead.

Okay. All right. I guess I was really wondering a little more how does the -- how much of an effect is the change in the commodity price affect revenue for you guys?

It puts pressure on our customers with regard to credit lines and they in turn have to put pressure on their customers with regard to monitoring credit lines and that you could say that you see across the board. We think that we are monitoring our customers credit requirements very closely. It has caused us to increase our overall size of our bank line in order to support an expanded balance sheet by a significant amount.

However, at the end of the day we have kept our receivables turn at approximately the same level that we had before we're keeping our inventories turned at about the same level and we have tried to utilize our own credit facility to support our customer base on a timely basis but on a prudent basis.

Okay. Only other thing I had was on this acquisition in Bridgeport have you got any guidance yet on how accretive we think that's going to be?

We don't give any forward guidance.

Okay. Thanks guys. That's all I have.

Thank you.

[OPERATOR INSTRUCTIONS]

That does conclude the question and answer session and I will now turn the call over to Mr. Eric Slifka for closing remarks. Sir?

Thank you for joining us this morning and we look forward to continuing to update you on our progress.

Thank you very much.

That concludes today's conference call. You may now disconnect.