Global Partners LP (GLP) 2006 Q4 法說會逐字稿

Good day, everyone and welcome to the Global Partners Fourth Quarter and Year End 2006 Financial Results Conference Call. Today's call is being recorded.

With us from Global Partners are President and Chief Executive Office, Mr. Eric Slifka, Chief Operating Officer and Chief Financial Officer, Mr. Tom Hollister, Executive 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. Faneuil for opening remarks. Please go ahead sir.

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. 2006 marked a record year of profitability for global partners as we posted double digit increases in net income for the fourth quarter and full year.

For the quarter, net income increased 13.4% from the same period in '05. For the 12-month period, net income increased 85% to 33.5 million from 18.1 million in '05. The 2005 number includes some one-time charges related to our initial public offering and Tom will detail those in his comments.

If you add back those charges to our '05 net income, our annual net income in '06 increased by 50%.

As we noted in this morning's news release, our '06 earnings of 246 per diluted limited partner unit underscores our ability to optimize the value of our assets by focusing on higher margin customers and expanding the growth and overall contribution of non-weather sensitive products.

In 2006 we succeeded on both fronts.

In looking back at the year in total, we generated robust positive returns for our unit holders in each quarter of '06. These results are due to our continued focus on three primarily areas that drive our bottom line. Supply, terminaling, and marketing. Most importantly our emphasis on transportation fuels, especially gasoline and diesel has smoothed out some of the quarterly variations in our income.

Historically the company either lost or earned little money in the second and third quarters of the year.

In 2006, however, the company delivered considerable net income during these two periods. As we mentioned on our previous conference call, one of the factors behind our performance in 2006 was that margins have expanded somewhat in recent quarters due to the mandated introduction of additional products such as ethanol and ultra low sulfur diesel which have caused inefficiencies in the marketplace.

As a result, we have seen higher margin opportunities for Global within both our terminal operations and marketing as the marketplace becomes more accustomed to dealing with this broad variety of products, we expect marketing margins may return to a range closer to our historical norms.

However, storage capacity in the metropolitan terminal marketplace will continue to be constrained as it struggles to meet the challenges of handling the multitude of new fuels.

Gaining additional storage is extremely challenging in the Northeast region unless you already have the necessary land and permits. As a result, we believe we are well positioned to leverage our extensive terminal network.

During the year, we complemented our internal growth with - and higher margin performance with bolt on acquisition of a refined product terminal in Bridgeport Connecticut and the step out acquisition of a pipeline terminal in Macungie, Pennsylvania, a new market for Global. These facilities bring Global's total capacity to 6.9 million barrels and strengthens our competitive advantage in the market we serve.

Strategic acquisitions of terminals and adjacent markets and new geographic territories are a key focus for us in the oncoming quarters. We are committed to pursuing transactions that are accretive and allow us to continue to optimize the value of our assets.

Overall, the key success factor for us in 2006 was our underlying business model. A strong and expanding mix of products, higher sales of transportation fuels and higher margin customers.

For example, for the first time in the company's history, the volume of transportation fuels exceeded the volume of heating oil.

The financial success we achieved in 2006 enabled us to consistently increase our quarterly distribution. As we announced in January on the strength of our Q4 operating performance, the board voted to increase the quarterly distribution to 45.50 per unit for the three months ended December 31, 2006, an increase of 2.2% from the prior quarter and 7.1% for the year.

The total quarterly distribution of 5.2 million was paid February 14th, to unit holders of record as of the close of business on February 5th.

Before I turn the call over to Tom, one more achievement I want to highlight from 2006 is our bench strength, which has increased to accommodate the growth our business as well as our broader responsibilities as a public company.

Tom, who came on board as CFO in midyear, has a tremendous addition to the - has been a tremendous addition to the team. His background and experience, particularly in the area of M&A have truly contributed to making us a more efficient and focused organization. Tom's promotion last month to the position of Chief Operating Officer is well deserved.

I also want to acknowledge the outstanding work and contributions of Chief Accounting Officer Chuck Rudinsky who was recently appointed Executive Vice President and Treasurer. These promotions more accurately reflect the roles that Tom and Chuck play within Global and we look forward to their continued contributions.

With that, I'd like to turn the call over to Tom for his financial summary. Tom?

Eric, thank you. I presume all of you have today's press release, a copy of which is available on our website. So I wont spend to much time highlighting every line item. As Eric noted, Global concluded an outstanding 2006 with excellent fourth quarter results, particularly at the margin and net income levels. Our results show that our business model is working.

In the fourth quarter, the key takeaways here are that we increased our gross margin by 20% over the fourth quarter a year ago and our net income by 18%. During a time when temperatures where 19% warmer than 2005 and 18% warmer than the 30 year average as measured by aggregate heating degree-days.

Our annual numbers tell a similar story. The key line item to focus on, from a performance perspective, are the 24% increase in the gross margin versus 2005, and the 85% jump in net income. Let me point out that the net income number includes 4.2 million in one time costs associated with the company's IPO. This is back in 2005.

Even after adjusting for those charges, our net income for the year grew an impressive 50% and again, all of this margin improvement and net income growth is achieved in the year where temperatures were 15% warmer than in 2005 and 11% warmer than the 30-year average.

A small part of our success in 2006 can be contributed to the Connecticut and Pennsylvania terminals we acquired during the year. And we are confident that they will play a larger role going forward.

Global continues to have a strong and very liquid balance sheet and for a company with our operating profile and business expectations, having readily available capital is appropriate.

Toward that end, we recently filed a shelf registration statement enabling us to offer up to 400 million in the form of either common units or debt securities.

Under the terms of this registration statement, we may use the net proceeds from the sale of these securities for general partnership purposes include debt repayment, future acquisitions, capital expenditures in additions to working capital.

I want to touch on two points with respect to our balance sheet. First, as a result of our review of our financial statements year end, and some input from our auditors, borrowing under our revolving credit facility, which is a multi-year long-term commitment from our bank group, have been classified year end with 188 million as a current liability and 82 million as a long-term liability. I should point out that these borrowings all fall under the same facility.

Historically we classify all borrowings under our revolver as long-term, because it is a multi-year long-term commitment.

The accounting theory behind this new classification is that 88 - 188 million is the amount we expect to pay down during the course of the year? And therefore, expect 82 million to be outstanding during the entire year. For comparison purposes, we have also made this classification change on the 2005 balance sheet.

The critical point about our revolver borrowings is that it all supports our working capital requirements. At December 31, '06, in fact, our inventory levels exceeded our long-term debt by 17 million. This emphasizes and highlights the point that all of our existing debt is effectively working capital related which leaves us ample borrowing capacity for strategic growth opportunities.

Second point of the balance sheet is that for a number of years we have owned certain NYMEX exchange seats, this is the New York Mercantile Exchange, and related shares of NYMEX holdings. As a result of the NYMEX holdings IPO, on November 8, 2006, the shares - not the seats, but the shares, are required to be mark to market on our December 31, '06 balance sheet.

This mark to market requirement has increased the value of the NYMEX holding shares from 1.1 million on our September 30 '06 balance sheet, to 13.9 million at December 31. The related seats remained on the balance sheet at a value of 68,000 at December 31.

As a subsequent event, earlier this month, we sold our NYMEX holding shares and related seats in a private bundled transaction for $15,350,000 in proceeds to the partnership.

Before we turn the call over to questions, I want to briefly touch on our adjusted net income, an area that appears to be causing some confusion. As a result of EITF 0306, our GAAP net income calculation includes a theoretical distribution component.

In any quarter where the partnerships aggregate net income exceeds it aggregate distribution for that quarter, we are required to present net income per diluted limited partner unit as if all of the units for that - all of the earnings for that period were distributed.

For example, in the fourth quarter of '06, our net income prior to the theoretical distribution was $0.97 per diluted limited partner unit. But on a GAAP basis, that number is $0.78. What's important to understand is that EITF 0306 does not impact our overall net income or other financial results?

If you look at our 2006 results by quarter, EITF came info effect in our first, third, and fourth quarters, when net income exceeded our cash distributions. Now, we will be happy to take your questions.

[OPERATOR INSTRUCTIONS] We'll go first to [Barret Flashky] with RBC Capital Markets, please go ahead.

Good morning.

Morning, Barret.

Great quarter, guys. Quick question, what was the gross margin breakdown between the sectors? The commercial and the wholesale?

Once again we don't give guidance but we will be - you will see that breakout, Barret tomorrow when we --

Well the - no, no, I'm wondering on the December quarter, just what was the percentage came from wholesale and what percentage came from commercial?

It's fairly consistent to our past. It's about a 10% breakout commercial and 90% wholesale.

Okay.

You'll find that reasonably consistent, quarter-to-quarter.

Yes. All right, the other thing - just if I can ask one follow on, how long do we see the ultra low sulfur diesel margins and the terminal margins continuing at this level?

Hi, it's Eric.

Hi, Eric.

I think as long as the facilities have to be completely segregated to handle ultra low sulfur diesel, it just adds an additional strain to the system.

Okay.

And so it just puts everything under a little bit more pressure. That's all it does.

Okay. Thanks guys. I appreciate it.

[OPERATOR INSTRUCTIONS]. We'll go to a follow up from Barret Flashky. Please go ahead.

One follow on. Just the comment that transportation fuels outpaced the heating oil in volume this year - is that more for the - is that this quarter or for the total year?

That's for the total year.

For the total year? And -

First time, that's correct.

Is that something we kind of expect to see as a continuing trend?

We will continue to emphasize the importance of transportation fuels in our business mix.

Okay. Thanks guys.

[OPERATOR INSTRUCTIONS]. We'll go next to [Michael Sweeney] from Wells Fargo. Please go ahead.

Good morning gentlemen, how are you doing?

Good morning, Mike.

Congratulations on a great quarter, great year. Tom, just a quick question, on that - on the reclass of some of the revolver to the short term. Is that GAAP or is that just a company policy?

No, it's actually a better reading of the GAAP, Mike.

Okay.

We've reviewed this quite carefully and as a former banker myself this feels a little bit odd when you have a long-term commitment to classified part of it as current assets, but in the course of the year, we often will pay down and 188 million is the estimate of that 270 million at year end that we expect to pay down in the course of the year.

And consequently the right reading under FASB6 is to classify that as current - current liability. It's expected of course we'll borrow new monies, back up again later on in the year, but this is a better way to present our financial statements.

Great, thank you.

[OPERATOR INSTRUCTIONS]. We'll go to [Noah Barner] from Hart Capital. Please go ahead.

Hi, I was wondering if you could comment on what the P&L effect was on the write up of the holdings in the NYMEX.

No, it's really a two step process. Because of the IPO, in November, at year end on a mark to market basis the - net worth in the category other comprehensive income is written up by about 13.9 million. And therefore our net worth goes up and the holdings of the shares goes up on the asset side of the balance sheet. That did not run through the income statement.

As a separate subsequent event, we sold the shares earlier this month. We actually expect to get the proceeds in a settlement process early next week. And at that point, the net effect of it is our net worth will go up a little bit more and the assets, which are on the balance sheet will be turned into cash and then we'll probably apply it to the revolver and save some borrowing costs.

Technically it will run through retained earnings and it will be highlighted as earnings other than operating earnings and it will go through retained earnings and then there will be an offset in net worth where other comprehensive income will go down, so they'll wash. But the net effect is that if they're written up in year-end and it's turned into cash in the first quarter.

Great, thank you.

And having no more questions in the queue, I'd like to turn the call back over to Mr. Eric Slifka - Slifka, sorry, for any additional or closing remarks.

Thank you very much, everybody. Have a great day.

And ladies and gentlemen, that does conclude today's conference, we do thank you for your participation and you may now disconnect.