Global Partners LP (GLP) 2007 Q1 法說會逐字稿

Good day, everyone, and welcome to the Global Partners First Quarter 2007 Financial Results Conference Call. Today's call is being recorded. With us from Global Partners are President and Chief Executive Officer, Mr. Eric Slifka; Chief Operating Officer and Chief Financial Officer, Mr. Tom Hollister; Executive Vice President, Treasurer 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 within the meaning of federal securities laws. These statements may include, but are not limited to, projections, beliefs, goals, 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 our 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 please turn the call over to our President and Chief Executive Officer, Eric Slifka.

Thank you, Edward. Good morning, everyone, and thank you for joining us. Global enjoyed a superb first quarter. In discussing our results, all of the Q1 numbers we will refer to on this morning's call have been adjusted to exclude the 14.1 million in one-time gains we reported from the sale of our investment in NYMEX holdings and related NYMEX seats. Please see the financial tables in our quarterly news release for a reconciliation of non-GAAP financial measures.

For the quarter, we posted a 41% increase in distributable cash flow, which as calculated excludes the one-time gains. We also delivered a 42% increase in adjusted EBITDA, and a 48% increase in net income as adjusted for one-time gains. At the same time, our top line sales increased to 1.6 billion from 1.4 billion in the same period of '06.

The main takeaways from Q1 are higher volume in our transportation fuels and strong heating oil sales aided in part by colder temperatures year-over-year. Additionally, we benefited from favorable market conditions that enabled us to achieve a favorable net product margin in our wholesale residual oil business.

Our non-weather-sensitive products continued to experience solid growth. Wholesale gasoline volume increased 22% over the same period in 2006 while, as expected, net product margin declined year-over-year. The lower margin confirms what we have discussed with investors for the past few quarters. Namely, a return of margins to more historical norms as the industries have adjusted to the introduction of ethanol and various other transportation fuels.

From an operational perspective, the highlight of the first quarter was our agreement to purchase three refined product terminals in Albany and Newburgh, New York and Burlington, Vermont, from ExxonMobil for cash consideration of 101.5 million. From the outset, we told our unit holders we expected the transaction to close in the second quarter, and I am pleased to report that it closed yesterday.

I'd like to take this opportunity to personally welcome our new Global employees in New York and Vermont, and to thank our private placement investors, Kayne Anderson, Tortoise Capital, and Fiduciary Asset Management, for their support.

The ExxonMobil terminals broaden and strengthen our portfolio of high quality strategic assets throughout the Northeast, including the terminals we acquired in 2006 in Bridgeport, Connecticut and Macungie, Pennsylvania. With the addition of these five terminals, we have increased our total storage capacity during the past 15 months by approximately 30% to 8.1 million barrels. We continue to identify potentially attractive acquisition opportunities that enable us to continue to achieve our long-term growth objectives.

Our financial success continues to translate into distribution growth for unit holders. As we announced in April, the Board voted to increase the quarterly distribution to 46.50 per unit for the three months ended March 31, 2007, an increase of 9.4% year-over-year and 2.2% over the prior quarter. The distribution will be paid May 15 to unit holders of record as of the close of business on May 4.

Before I turn the call over to Tom, I would like to say a word or two about guidance. Historically, we have not provided specific guidance regarding future operating performance, and we do not intend to change our policy. However, based on investor feedback, today we will provide directional guidance on quarterly distributions for 2007. We also will expand on certain aspects of our Q1 '07 results, offer some additional color on our '06 performance, and discuss the long-term benefits of our ExxonMobil terminals.

Global Partners has a unique business model among MLPs. As a wholesale supply distribution and marketing company, we have a very stable base business that is relatively predictable. We also have the ability to profit from opportunities that arise in the marketplace that allow us to optimize values around our terminal assets. We have not provided specific guidance previously, as it is difficult to predict the amount of additional value we can create through market inefficiencies. We will attempt to highlight in this call the amount by which the 2006 and first quarter 2007 results benefited from these additional opportunities.

It is important to note that our cash distribution policy is determined relative to the stable base business and amounts generated above this base are reinvested into the partnership.

With that, I'd like to turn the call over to Tom. Tom?

Eric, thank you, and good morning, everyone. A copy of today's earnings release is available on our website, so I do not plan to go through every line item in detail. As Eric mentioned, Global enjoyed an outstanding quarter with strong year-over-year gains on both the top and bottom line. One of the key takeaways is that we increased our gross margin 31%, a 14% increase in volume. The improvement in gross margin was driven by enhancements in distillates residual oil products.

Net income as adjusted for one-time gains for the first quarter of 2007 was 18.8 million, compared to 12.7 million for the first quarter of 2006. Operating income increased 47% for the first quarter of 2007 to 22.6 million from 15.3 million for the same period 2006. Our balance sheet is healthier than ever before. In fact, if you took our book equity as of March 31, and adjusted it to include our just completed private equity placement, and also adjust it for our first quarter distribution, it would approximate 160 million, more than twice the partnership's equity as of year-end 2005, shortly after the completion of our initial public offering.

As Eric mentioned, today we are providing some guidance on 2007 distributions, highlighting certain aspects of our 2006 and first quarter 2007 results, and discussing the anticipated long-term financial benefits of our acquisition of the ExxonMobil terminals.

With respect to distributions, our goal is to put the partnership in a position to recommend to the Board of Directors an increase in the quarterly distributions over the course of 2007, and to aim for a distribution per unit in the fourth quarter of 2007 that would be approximately 7% more than the distribution paid in the fourth quarter of 2006. The intent of Management to make these distribution recommendations is, of course, subject to change, due to market conditions and/or operating results and the Board of Directors also may or may not accept Management's distribution recommendations.

With respect to 2006 operating results, we have said on previous calls that our results benefited during the course of the year from the industry's introduction of ultra low sulfur diesel and from market dislocations arising from the increased use of ethanol as an additive to gasoline. We estimate that the temporary inefficiencies in the marketplace, caused in part by these two factors, added approximately 5 to 6 million to our earnings in 2006. By the first quarter of this year, those market inefficiencies--or those market efficiencies had normalized and consequently our margins have returned to more historical norms.

On a go-forward basis, however, the general trend of increasing product offerings and product complexity will continue to favor terminal operating companies, such as Global, that have strategic and flexible terminaling assets.

Most of the margin advantages we saw from the market inefficiencies occurred in the second and third quarters last year, making earnings in those quarters particularly strong. Let me point out that it was only a few years ago that Global's predecessor company would actually breakeven or lose money in the second or third quarters of the year due to the seasonality of the business. The increased sale of transportation fuels has tempered some of that seasonality, but the sale of heating related fuels remains a core part of our business.

While our first quarter results were record breaking, approximately 3 to 4 million of the earnings increase in Q1 stemmed from favorable market conditions and buying opportunities in the residual fuel market. Global is an experienced and leading player in this market. To a significant degree, we create our own supply opportunities. But this particular quarter offered somewhat unique opportunities to capture a premium on some of our residual products. Our structure lends itself to capitalizing on this type of scenario, but it is not something we anticipate--but it is not something we anticipate on a consistent basis.

With respect to the ExxonMobil acquisition, we are very enthusiastic about the potential of this opportunity, even more so than when we first announced it in March. It is, however, a project that will require time to develop. Here are the four key financial points that we continue to drive home about this opportunity. First, this is a project with a contractual take or pay commitment from ExxonMobil. But full project success is predicated on building additional business at the terminals. We are confident that we can do this, as it is our core business, and we have done this over the years at our other terminal locations.

Second, our expectation is that the first 12 months will be slightly accretive. We expect those returns to increase over time as we realize the potential of these assets.

Third, the purchase price is based on our projection of EBITDA for the project with a price-to-EBITDA purchase multiple which is a low double-digit multiple in the first year of operations and a high single-digit multiple in the second year, and improving results expected thereafter.

Finally, separate and distinct from potential future distribution increases arising from our existing business, we expect that year two results from this project on a standalone basis should continue--should contribute to future distribution increases.

We hope that as a result of today's call you will now have a better perspective on our results for the first quarter of 2007, a more thorough understanding of our performance last year, and a good sense of Management's target for year-end 2007 distributions, and a reconfirmation of the potential of the ExxonMobil acquisition.

With that, we will be happy to take your questions. Operator?

Thank you, gentlemen. (Operator Instructions.) And we will take our first question from Barret Blaschke with RBC Capital Markets. Please go ahead.

Good morning, guys.

Good morning, Barret.

Hi, Barret.

Wow. Quite a quarter. And one quick question. Just wanted to know if we had a breakdown of gross margin or net margin between the wholesale and commercial business this time, just on a percentage basis.

On a percent basis, it's pretty similar to where it is on a typical quarter. It was 10% commercial and almost 90% on a wholesale basis.

Okay.

Pretty standard.

And I appreciate the distribution growth guidance. Why the--why 7%? Was that just the target for the--for you guys, or was there any--what was the reason behind it?

Barret, a number of investors have asked us questions around both our distribution policy as well as what parts of our business are opportunistic in nature in the--with respect to our earnings. And so, we thought it would be helpful at least for 2007 to give some guidance on distribution, just an approximate--.

--I appreciate that. And the other one was on the--we've talked in the past about transportation has become a bigger and bigger component of the business. Do we expect that trend to continue from here forward?

We can't comment on what the future will look like. Clearly, as an emphasis, we are emphasizing that part of our business.

Okay. Thanks, guys.

Thank you.

Thanks, Barret.

We'll take our next question from Ted Gardner with Raymond James. Please go ahead.

Thanks. Good morning, guys.

Good morning, Ted.

Good morning, Ted.

A quick question. You had talked a little bit about the cash flow impact in '06 from the--from the ultra low sulfur diesel and ethanol, et cetera. Just wondering if you guys are at liberty to quantify the residual fuels benefit that you saw here in the quarter, and what you think the sustainable--or the opportunity I guess that you realized during the quarter.

You may have missed it. We did mention--or I mentioned in my remarks that the first quarter we estimate about 3 to 4 million--.

--Okay--.

--Of opportunistic opportunities in the [present] markets.

Okay. That's all I had. Thanks.

Sure. Thanks, Ted.

(Operator Instructions.) We will take our next question from Ron Londe with A.G. Edwards. Please go ahead.

Thanks. Can you give us an idea of what the tax ramifications are of the gains you took on the recent filling of your seats?

I missed the beginning of the question--.

--The tax impact for unit holders on the one-time gain.

Of the sale--.

--Well, it will be included in--when you receive your K-1 for year 2007, it would be treated as net income. But it will be treated as a capital gain on the K-1.

Okay. But--okay. But there will be a tax impact?

Yes.

Okay. Thank you.

(Operator Instructions.) And gentlemen, it appears we have no further questions. I will turn the call back over to Mr. Slifka for closing comments.

Thank you very much, everyone, and have a good day.