Global Partners LP (GLP) 2006 Q3 法說會逐字稿

Good day, everyone, and welcome to the Global Partners Third Quarter 2006 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. Tom Hollister; Senior Vice President and Chief Accounting Officer, Mr. Charles Rudinsky; and Executive Vice President and General Counsel, Mr. Edward Faneuil. At this time, I would like to turn the call over to Mr. Edward Faneuil for opening remarks. Please go ahead, sir.

Good morning, everyone. 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. These statements may include, but are not limited to, projections, beliefs, and estimates concerning the 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 statement. Such factors include, but are not 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 revision to the 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 press releases, publicly announced conference calls, or other means that will constitute public disclosure for purposes of Regulation FD. Now, allow me to turn the call over to our President and Chief Executive Officer, Eric Slifka.

Good morning, everyone, and thank you for joining us. Global Partners delivered an outstanding third quarter, posting net income of $6.2 million, or $0.53 per diluted limited partner unit. For the nine months ended September 30, '06, net income increased 168% to $22.4 million from $8.3 million in the same period in '05. As we noted in this morning's news release, our bottom line performance can be attributed to favorable market conditions and the consistent execution of our strategy, which combines internally generated growth and accretive acquisitions.

What's driving our internal growth? We are maintaining a focus on higher margin products, we're expanding the non-weather sensitive areas of our business, enabling us to add new customers and broaden relationships with our existing ones. We have a strong and growing portfolio of assets to accommodate regulatory changes and increasing specialization within our business.

Let me give you an example of what I mean by specialization. Over time, the available pool of distillate products has expanded to include not only Number 2 heating oil, low sulfur diesel and low sulfur kerosene, but also now, ultra low sulfur diesel and ultra low sulfur kerosene. We're seeing a similar scenario in the area of renewable fuels where new federal regulations regarding ethanol have constrained available tankage, thereby helping to drive up product margins. Each new product requires its own expertise and supply, logistics, tankage and marketing. The imposition of new energy regulations have produced some inefficiencies in the marketplace, creating opportunities for higher margins. While margins may return to our historical norms as these specialty products mature, in the near term, we expect to continue to benefit in the current market environment. We are uniquely positioned to capitalize on these changes in the business due to the scope of our terminal assets and our operating expertise.

So with all this specialization, the question for the industry has become do you have the capacity to store and the ability to manage and sell this sophisticated mix of products? Particularly in the Northeast, there are many barriers to entry that make it challenging to add storage unless you have the necessary land and permits, all of which makes our extensive portfolio of terminals that much more valuable.

Our performance in the second and third quarters of this year also illustrates the progress we have made in mitigating the weather dependency within our business model. Within our wholesale segment, our gasoline and distillate sales underscore this point. Gasoline sales increased to $482 million in the third quarter of '06, up 15% over the third quarter of last year. Distillate sales grew to $421 million, up 25%, year over year. In Q3 of '06, our 19% sales increase within the wholesale segment was offset slightly by a decline in sales within the commercial segment, attributable in part to the comparatively low prices of natural gas in the period. Overall, as a result of our strong Q3 operating performance, Global raised its quarterly distribution for the three months ended September 30, '06 to $44.50 per unit. This represents a 1.7% increase from the previous quarter and is up nearly 8% since our initial public offering, last year.

Before I turn it over to Tom, I also want to talk briefly about our two recent terminal acquisitions. We have not had these assets for a full year so I can't provide a lot of color, but we are very pleased with the initial returns from our Bridgeport, Connecticut terminal, which we acquired last spring. We also expect that our Macungie, Pennsylvania terminal, purchased in the third quarter, will be a strong compliment to our portfolio. We continue to aggressively evaluate opportunities that meet our acquisition criteria, namely that they are accretive, strategically located, and provide value for our unit holders.

Global Partners has now completed four full quarters as a public company, and I am proud of the success we have achieved. We continue to increase the value of our assets by delivering service and quality to our customers. I expect acquisitions to play an important part in Global's growth over the long term, but I think it is important to not overlook the internal growth that is helping to drive margins, enhancement, and profitability. With that, I would like to turn the call over to Tom for his financial summary. Tom?

Eric, thank you. I presume all of you have received today's press release, a copy of which is available on the Investor Relations section of our website, so I won't spend time highlighting every line item. The key takeaways here, as Eric alluded to, are that we increased our gross margin by roughly 35% while growing our wholesale volume by 11% and that's what ultimately drove our bottom line performance in what historically has been a slower quarter for the company.

We have a strong balance sheet and that's where I'd like to focus my attention this morning. I think it's worthwhile to do so because I get the sense from speaking with investors that our balance sheet and debt profile may be somewhat misunderstood, and I thought some clarification might be in order.

Let me begin with the asset side of the balance sheet. In a summary way, I would describe our assets as liquid, hedged, and tangible. The balance sheet is liquid. Over 90% of our total assets are in the current asset category. Our receivables turn quickly and are typically collected within 30 days. Importantly, our credit losses over the last five years have been less than $250,000 a year. With respect to inventory, it is generally all our policy and practice to substantially hedge all of our inventories. The effectiveness of this approach proves out in our financial results, most recently with record net income achieved in the second and third quarters of 2006, during a period of oil price volatility. Finally, our $533 million of assets are tangible in nature with only $9.4 million of intangibles or less than 2% of our total assets.

On the liability side of the balance sheet, the only large number beyond accounts payable is our revolving line of credit. I believe this credit facility is misunderstood in one important respect. Although it is classified as long-term debt, it is, in reality, a working capital financing for receivables and inventory. At least one other MLP makes the point of subtracting term debt that finances inventory and is not considered a part of long-term debt. Using this approach, at September 30, 2006, our revolving line of credit exceeded inventory by only $9.6 million. Separately, we have two committed, unused, term financing facilities, a $15-million facility for general corporate purposes and a $35-million facility for acquisitions. Again, these two facilities are entirely unused.

As a final note, I want to step back and take a look at Global in a way that I think demonstrates our uniqueness in the MLP universe. Our current assets exceed our total liabilities. This is very unusual. For most energy, MLP's total liabilities exceed current assets. In effect, if an MLP were to liquidate its current assets and apply the proceeds to their liabilities, almost all MLPs have some leftover debt. This is not the case for Global. Our current assets have exceeded and continue to exceed our total liabilities. I mention this only as an indicator of the comparative health of our balance sheet and the potential flexibility to add term debt for the right strategic opportunities.

Now, we will be happy to take your questions. Operator? Operator, are you there?

Yes, sir. Thank you. [OPERATOR INSTRUCTIONS]. And we'll pause for just a moment to assemble our roster. We'll take our first question from Barrett Blaschke with RBC Capital Markets.

Good morning, guys. Great results this quarter.

Thank you.

I just had two quick questions. One was do you have a reconciliation number for the EITF charge? And the second one was is there a -- could you give me a breakdown, just in percentage terms, on the gross profit between the commercial and the wholesale divisions?

On the gross profit of -- the first one will be in the Q when we file the Q.

Okay.

On the percent of gross profit, wholesale to commercial, the gross profit -- it's actually net product margin because it's before the charge for depreciation.

Right.

For the three months, it was 10.8%. I'm sorry. Yes, 10.8% and 90.8% for wholesale.

Okay.

Or 90.2%. Sorry. For the quarter. 89.2%. Sorry. 89.2% and 10.8%, and for the nine months, it was 86.4% and 13.6%.

Okay. Great.

Any further questions, Mr. Blaschke?

Just one other one. Are we going to get to volume numbers in the Q?

You'll get the volume numbers as we break them out traditionally. You'll get volume for the wholesale segment and you'll get volume for the commercial segment.

Okay. But no breakdown on just what versus gasoline what any of the more detail than that?

No, we'll breakout net product margin in the wholesale group by distillate gasoline resid, and at product margin for the total pool, but no volume metric breakdown.

Okay. All right. Thanks, guys.

Thank you.

[OPERATOR INSTRUCTIONS]. And we'll pause now for just a few moments to give everyone a chance to signal. And, gentlemen, there appear to be no further questions at this time. I'd like to turn the call back over to you, Mr. Slifka, for any additional or closing remarks.

Thank you for joining us this morning and we look forward to continuing to update you on our progress. Have a great day, everybody. Thank you.

Thank you.

That does conclude today's conference. Thank you for your participation. You may disconnect at this time.