Global Partners LP (GLP) 2007 Q3 法說會逐字稿

Good day, everyone. Thank you very much for holding, and welcome to the Global Partners Third Quarter 2007 Financial Results Conference Call. Today's call is being recorded. With us from Global Partners are President and Chief Executive Officer, Mr. Erik Slifka, Chief Operating Officer and Chief Financial Officer, Mr. Tom Hollister, Executive Vice President, Treasurer and Chief Accounting Officer, Mr. Charles Rudinski, and Executive Vice President and General Counsel, Mr. Edward Faneuil.

At this time, I'd like to turn the call over to Mr. Faneuil. 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 be making 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 statements. 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, please allow me to 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 to discuss Global Partners' third-quarter results. Overall, our financial performance was in line with our expectations. Wholesale volume increased significantly across all product lines, primarily as a result of our recent acquisition activity. Operating expenses were somewhat higher during the quarter, consistent with the expansion of our terminalling capacity and throughput volume.

Looking at the numbers in more detail, wholesale-product volumes increased in Q3 to more than 740 million gallons, from approximately 470 million gallons in the third quarter of '06. This 57% growth is attributable, in part, to new business arising from the 1.3 million barrels of storage capacity added through our acquisition of the ExxonMobil terminals in Albany and Newburgh, New York and Burlington, Vermont earlier this year.

Incidentally, this month, we are bringing back into service 145,000 barrels of previously idled storage capacity at our Burlington terminal, and we expect to bring an additional 94,000 barrels on line in the first quarter of '08. We've owned the New York and Vermont terminals for about six months, and I'm pleased to say that their performance is on plan.

Consistent with our previous comments, this acquisition should be slightly accretive in the first 12 months of operation and become meaningfully accretive, starting in year two, as the potential of these assets is more fully realized. For the nine-month period, we posted a net margin increase of 20% in our wholesale-product business and 15% on a combined basis, with our commercial division.

The story in Q3 is much the same as it was in Q2, as the gasoline market experienced tight margins in the third quarter. We successful offset that continuing margin weakness with our diversified product mix, especially our wholesale-distillates business, where we capitalized on attractive buying opportunities. As a result, our wholesale net-product margin was up 5% in the third quarter of '07, compared with the same period in '06.

Now, let me spend a few moments discussing our net-income performance, which was in line, or even slightly ahead, of our own expectations. Our net income was $2.5 million in Q3 of this year, compared with $6.2 million in the same quarter of '06. As noted on previous conference calls, our '06 financial results benefited from abnormally high margins driven by two factors; temporary market inefficiencies associated with the introduction of certain specialty fuels, and market dislocations related to the increasing use of ethanol in gasoline.

In looking at our bottom line, keep in mind that these factors added about $4 million to our net income in the third quarter of '06. Also remember that, historically, Q3 has been our seasonally weakest quarter. Notwithstanding our emphasis on transportation fuels, which are non-seasonal, the majority of our earnings remain in the first and fourth quarters.

During the third quarter, we announced the signing of an agreement to purchase two Long Island refined-products terminals from ExxonMobil. This acquisition remains on schedule to close this quarter. These facilities will add 430,000 barrels of storage capacity to our rapidly growing terminal network, and importantly, will continue to expand our market share in Long Island and surrounding areas.

Based on our positive experience with the first three ExxonMobil terminals we acquired, we are very enthusiastic about adding these high-quality assets to our terminal portfolio. Our completed and pending ExxonMobil acquisitions, including the capacity just brought on line in Burlington, add almost 1.9 million barrels to our terminal network. With the closing of the Long Island transaction this year, we expect to enter 2008 with total capacity of approximately 8.8 million barrels.

I am pleased that the success of Global Partners is producing tangible value to our unitholders in the form of steady distribution growth. In October, our board of directors of our general partner voted to increase the quarterly distribution to $0.48 per unit for the three months ended September 30, 2007, representing an increase of 7.9% year-over-year and 1.6% over the prior quarter. The distribution will be paid November 14th to unitholders of record as of the close of business on November 5th.

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

Thank you, Eric. And good morning, everyone. I'll keep my comments brief, as Eric has covered the high points of the third-quarter income statement, but I would like to discuss three particular items, the first of which is the 35% increase in our interest expense.

Approximately half of this amount is the borrowing cost associated with the purchase of the ExxonMobil terminals. The other half reflects an increase in our product volumes, higher commodity prices and a slight uptick in the underlying interest rates. The second point on the income statement is that total expenses were up modestly year-over-year.

As we note on our second-quarter call, our increased terminal capacity translates into higher product volumes, which, in turn, requires additional head count and equipment, as well as investments in IT infrastructure. We expect that the investments we're making in the business today will benefit our unitholders in the years ahead.

The third point reiterates a comment I made on our second-quarter call. That is, our newly acquired ExxonMobil assets and the Long Island terminals we expect to close on this quarter, carry a higher level of depreciation than our existing terminal assets. As a non-cash charge, depreciation will reduce reported net income. It will also reduce taxable net income for our unitholders. It will not, however, lower distributable cash flow.

For example, depreciation and amortization in the first quarter was $1.3 million. In the third quarter, which was our first full quarter owning the three ExxonMobil terminals, our depreciation and amortization was $2.8 million. The net effect of the increasing depreciation and amortization levels related to our recent ExxonMobil acquisition, as well as the pending Long Island transaction, is that the difference between net income and distributable cash flow will widen over time.

I also want to highlight our nine-month distributable cash flow, which increased approximately 4% in 2007 from the same period in 2006. For a true apples-to-apples comparison, however, we should factor out both the benefit we received in 2006 from market inefficiencies, as well as the favorable market conditions and buying opportunities in the residual fuel market that we highlighted in the first quarter of this year.

Again, we should adjust for the one-time $14.1 million gain on the sale of assets in the first quarter. And then, netting out the approximately $6 million in benefits from 2006 and the approximately $4 million of benefits in the first quarter of 2007, our distributable cash flow for the nine-month period increased approximately $3 million, or 16%, year-over-year. Finally, a number of investors have asked us to begin to comment on gross receipts, which, for the 2006 tax year, were $356.61 per unit.

Going forward, the key drivers for calculating gross receipts are product volumes, product prices and total units outstanding. Before we go to the question-and-answer session, let me mention that next Thursday, November 15th, we will be presenting at the RBC Capital Markets MLP Conference in Dallas. Our presentation is scheduled for 10:30 am Eastern time, and can be accessed via the Investors section of our website. For those investors planning to attend the conference, we look forward to the opportunity to meet with you.

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

Thank you.

(OPERATOR INSTRUCTIONS)

And our first question will come from Darren Horowitz, with Raymond James.

Good morning. Thank you. My first question is to the accretion of the new facilities -- the new terminals that you bought. Can you just help us understand, when you look 12 months out, when you say that it's going to be, obviously, incrementally more accretive, how much of that is just due to synergistic accretion relative to your ability to go out there and take on new customers and actually improve the overall efficiency of that asset?

Darren, it's Tom Hollister speaking. Your supposition is correct that it will be added new earnings from new customers added at these sites.

Okay. So it's -- so there's really no synergistic benefit or efficiency benefit from overlaying on existing assets or any ability to kind of trim the cost line a bit?

Well, I think -- let's pause for a second and make sure we're understanding each other. Both our recent acquisition in the second quarter, as well as the pending one this quarter, have certain base business with the terminals and operating expenses. Operating expenses will increase with the rate of inflation over time.

The reason these terminals will become much more valuable to us and accretive to our unitholders is because we will be adding new customers and new volume at these sites. And the customers we'll be selling to and the products we'll be selling are identical to what we've done at all of our other terminal sites that we have grown over the years. So does that make sense to you?

Oh, yes. It does. I just was looking for a little bit more clarification, and you covered it. I appreciate it. My second question, Tom, for you, is on the distillate side. You mentioned in the release the sales were strong. Can you just give us a little more clarity as to what was behind that? I mean, what kind of distillates -- was there jet fuel in there? I know that for some of the other specialty refiners, that was a positive in the quarter.

In the course of this particular quarter for us, we had some terrific buying opportunities that we've capitalized, both with diesel fuel and heating oil. Our jet fuel, we hardly ever sell, Darren.

Okay. I appreciate it. Thanks, Tom.

Sure. Thank you.

Ladies and gentlemen, at this time, there are no other questions holding in the roster. I'd like to turn things back over to Mr. Slifka for any additional comments today.

Thank you all for joining us today, and have a good day. Thanks.

Once again, everyone, thank you for dialing in today. That will conclude today's conference call. Enjoy your day.