Global Partners LP (GLP) 2013 Q3 法說會逐字稿

Good day everyone and welcome to the Global Partners third quarter 2013 financial results conference call. Today's call is being recorded. There will be an opportunity for questions at the end of the call. At this time, all participants are in a listen-only mode. (Operator Instructions)

With us from Global Partners are President and Chief Executive Officer, Mr. Eric Slifka; Chief Financial Officer, Ms. Daphne Foster; Chief Operating Officer, Mr. Mark Romaine; 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.

Good morning everyone. Thank you for joining us. 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.

Estimates for Global Partners future EBITDA are based on a number of assumptions regarding market conditions, including demand for petroleum products and renewable fuels, changes in commodity prices, weather, credit markets, and the forward product pricing curve. Therefore Global Partners can give no assurance that our future EBITDA will be as estimated.

The actual performance for Global Partners may differ materially from those expressed or implied by any such forward-looking statements. In addition, such performance is subject to risk factors, including but 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 let me 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. Year-over-year EBITDA for the third quarter of 2013 was up $7.7 million to $37.2 million, while distributable cash flow increased about $8 million to $23.2 million. We benefited from a strong performance in our gasoline distribution and station operations and favorable market conditions in wholesale distillates.

As expected, our performance was moderated by backwardation in wholesale gasoline blend stocks and supply dislocations in crude oil that compressed margins and reduced volumes. Through the first five weeks of Q4, we have seen a return to market conditions that support further growth in crude by rail volumes.

Looking in more detail at our businesses, net product margin in our gasoline distribution and station operations segment was up 24% to $64.7 million in the third quarter, from the same period a year earlier, driven in part by a lower retail gas price environment. Our performance also benefited from activities within our New to Industry and Raise and Rebuild program. For example, in 2013 we completely renovated and reopened 3 additional locations on the hefty trafficked Connecticut Turnpike. We have completed that work at 11 of our 23 Turnpike locations. The remaining 12 locations should be substantially completed over the next year or so.

Beyond the Connecticut Turnpike corridor, we continue to actively execute on our strategy to develop other locations. Year to date we have opened 2 new to industry sites and 1 raised and rebuilt facility. Our growth model concentrates on high return projects and we are pleased with their overall performance, which has resulted in increases in volume and C-store revenues. We expect to complete one more raise and rebuild and one major renovation by year-end.

In our wholesale segment, net product margin increased $7.3 million in the quarter to $42.3 million from $34.9 million in the third quarter of 2012. Increased crude oil logistics and marketing activities, as well as favorable market conditions in wholesale distillates more than offset the impact of backwardation in gasoline blend stocks and increased rack competition in the wholesale gasoline market.

Crude oil activities in Q3 were up on a year-over-year basis, reflecting our acquisitions early in 2013 of Cascade Kelly and Basin Transload, our take-or-pay contract with Phillips 66 and other term contracts at our terminals.

In North Dakota our Columbus Transload facility recently began receiving crude oil from a new seven-mile pipeline lateral connection constructed by Tesoro Logistics, which transports crude from various gathering points along the Tesoro High Plains pipeline system. The new 170,000 barrel Columbus tank should be completed by early 2014, bringing total storage capacity there to 270,000 barrels.

In Beulah, construction has been completed on an 140,000 barrel storage tank and truck and rail offloading system. We expect to complete construction of an additional 140,000 barrel tank there shortly. The capacity expansion at Columbus and Beulah, further positions us to benefit from the region's growing production.

Turning to our West Coast operations in Oregon, we have increased contractual commitments at our terminal and are pursuing expansion of the facility to accommodate simultaneous operations of the crude Transload facility and ethanol production.

One of the real advantages of our origin to destination system is flexibility. Our system allows us to pull barrels from various locations and respond to variable market conditions. Since early 2013, when we began operating our midcontinent and West Coast locations, we have successfully leveraged the optionality of that East-West rail system by directing product movements to the highest value market for our customers.

We are also expanding our energy logistics and marketing activities to Canada, with the opening of our office in Calgary. This initiative connects Canadian energy producers to US markets through our terminal network. Having a presence in Canada provides us better access to the growing and available production in the region.

Looking at other projects during the quarter, volumes at our rail fed propane and butane storage and distribution terminal in Albany are ahead of expectations. For this reason, we are expanding the facility from its current 540,000 gallons of tank capacity to almost 1 million gallons. In addition, we recently completed a new compressed natural gas loading station in Bangor, Maine. We have a multiyear agreement with Bangor Gas to supply natural gas to the facility. Several term customers have contracted to receive product from the station, with deliveries expected to commence in this quarter.

Turning to our distribution, in October, the Board of Directors of our general partner approved an increase in the quarterly distribution to $0.60 per unit. This translates to an annualized increase of $0.05 per unit from $2.35 to $2.40 per unit, resulting in distribution coverage on a trailing 12-month basis of 1.56 times. The Board will continue to review the distribution on a quarter-by-quarter basis.

Looking ahead, the fundamentals of our business are strong. Energy production in North America is booming. With our expanding midstream logistics and marketing infrastructure and virtual pipeline system, we are participating directly in the significant growth. Our portfolio of irreplaceable origin to destination assets represent an energy infrastructure gateway to premium markets across the country. Complimenting these assets, our gasoline distribution and station operations segment continues to contribute annuity like income.

With that, now let me turn the call over to Daphne for her financial review.

Thank you Eric. EBITDA and DCF were up significantly in the third quarter, increasing on a year-over-year basis by 26% and 55% respectively. These increases primarily reflect the strong performance in our gasoline station related business as well as a more favorable distillates market.

Our fuel net product margin and our gasoline distribution and station operations segment increased almost $10 million, from $33.5 million in the third quarter of 2012, to $43.4 million, due to the decline in gasoline prices. The NYMEX price for 87 RBOB decreased $0.50 from a high of $3.13 on July 16th, to $2.63 at the end of September. During the same timeframe, as an example, the AAA street price in Boston declined only approximately $0.25.

Total net product margins for the segment during the quarter was $64.7 million, which includes $21.3 million generated from station operations, primarily rental income and margin generated in our approximate 120 owned and operated convenience stores. On a trailing four-quarter basis, this segment generated $238 million in net product margin, which translates to a quarterly average of approximately $59 million.

In our wholesale segment, net product margin increased over $7 million or 21% to $42.2 million, due to stronger distillate margins year-over-year as well as activities at our new Transload terminals in North Dakota and Oregon. However, margins and volumes were negatively impacted in the segment by competitive pressures in our wholesale gasoline business, backwardation in gasoline blendstocks and supply dislocations in the crude oil market.

Our commercial segment, which consists of deliveries to end-user commercial and public sector customers of gasoline, heating oil, natural gas and bunker fuel, performed in line with last year, generating $4.7 million in net product margin. While a smaller segment, it has contributed on average, over $20 million in net product margin on a trailing four-quarter basis over the last few years.

Looking at expenses, total costs and operating expenses for the quarter were $82.5 million, up approximately $16.7 million compared with the third quarter of 2012. The variance in the year-over-year expenses is primarily attributable to the impact of the Basin and Cascade Kelly acquisitions, as well as the long-term Getty lease. Comparison to this year's second quarter is more meaningful.

Quarter-over-quarter, total SG&A and operating expenses, excluding amortization expense, which is primarily associated with our recent acquisitions, show a modest increase of $1.3 million, to $75.8 million.

Interest expense of $9 million was approximately in line with last year's quarter and reflects lower working capital borrowings and a lower borrowing rate, offset by increased borrowings to finance our acquisitions. Specifically, the $115 million term loan and the $70 million senior unsecured note.

Year-over-year third quarter net income was down approximately $3.5 million, due largely to a more than $9 million increase in depreciation and amortization, primarily associated with recent acquisitions.

Turning to the balance sheet, our long-term assets at September 30 were up about $220 million or 27% from year-end, as a result of the two acquisitions. Compared to 7.4 times a year ago, total debt to EBITDA was 5.5 times at September 30, based on trailing 12-months of EBITDA of $160 million.

Funded debt to EBITDA was 3.6 times at September 30th. And as a reminder, funded debt consists of our acquisition-related debt including the $115 million term loan, and the $70 million senior notes, which financed our Basin and Cascade Kelly acquisitions.

Turning to our guidance. Based upon our performance through the first nine months of 2013, we expect 2013 EBITDA in the range of $150 million to $175 million. Our guidance is based on assumptions regarding current market conditions, including demand for petroleum products and renewable fuels, changes in commodity prices, weather, credit markets, and the forward product pricing curve, which will influence quarterly financial results.

Now let me turn the call back over to Eric to conclude our prepared remarks.

Thanks Daphne. In summary, we are broadening our earnings capacity to expansion projects designed to further optimize our logistics capacity and capability and to increase the volume of products put through our terminalling system and our gasoline station network. These projects represent significant growth opportunities for Global in 2014 and beyond.

Before going to Q&A, let me note that we have several investor events scheduled for November, including the Jeffries Global Energy Conference in Houston, the Barclay Select Growth Conference in New York and the RBC Capital Markets MLP Conference in Dallas. We look forward to seeing you there.

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

(Operator Instructions) Teresa Chen, Barclays Capital.

Just two quick questions. First, would you mind providing some additional color on your plans to expand in Canada? Do you anticipate building or leasing any terminals there?

We're always looking to further our position in Canada and as those opportunities present themselves, we'll look to execute on them. Certainly we think it's important to have the ability to service our customers and give them the capability to buy products through various other locations and channels. So we're going to look at all those opportunities.

Secondly, in regards to the Tesoro pipeline spill in the Bakken, how will this or will this impact your crude loading volumes in the fourth quarter?

It was really very minimal. It wasn't down for a long time, so it's a (inaudible) issue.

(Operator Instructions) James Jampel, HITE Hedge Asset Management.

Just a couple of questions. Expanding on what you said about Canada, what direction of flows do you think might be most appealing, should you build something in Canada?

It really depends. There are lots of various products and the good thing is, I think we have a system that can move those volumes East and West. The West Coast logistics are closer, so you're moving maybe approximately 900 miles to get to our plant in Oregon. Going East it depends on the products, but the good news is, depending on what the market provides the higher value for the customer base, that's where they're going to push the products to. So it's really about trying to broaden our capacity to give our customers really the most locations to purchase product from.

You mentioned that the assets you had in this segment are irreplaceable, both on the origin and the destination. I kind of understand the destination side, but it seems like there's a lot of places to load crude on the origin side. What leads you to believe that they're irreplaceable on the origin side?

Look, at the end of the day, I think it's the connection of the assets. So that's unique. Having both origin and destination when you look at all the competitors out there, I think we're in -- we may not be the sole company with it, but there are not a lot of them.

Then my final one would be concerning, if I can call it the legacy wholesale business, if you will. Did I hear you mention some sort of new competitive dynamic there and what's going on there and can we expect to return to historical profitability there?

In terms of, you called it the legacy?

The wholesale gasoline business, affected by backwardation.

I think that's really just a short-term kind of effect. I don't really believe that that's going to continue on.

You mentioned competitive pressures at the rack.

I think you just have a little bit of restructuring with some of the refineries directly marketing those areas, but I think that over time settles out and it gets back to more historical amounts.

Do you see yourself competing for terminal acquisitions in your core area in the Northeast or is that something that's pretty much played out?

As the acquisitions come up, there's always a flow of competitors looking for those assets. For us to be interested, I think it's got to be strategic and that's the kind of an asset that we're going to buy. We're going to look at it and hopefully be able to do a lot more than just (inaudible) it looks like and that's really the kind of assets we're going to be competitive on when it comes to purchases.

The EBITDA guidance for the full year is still very wide comparingly at three quarters in the book. Is it really that difficult to narrow it at this point for the fourth quarter?

We've given you the guidance and that's what we're going to stick with.

(Operator Instructions) Rob Longnecker, Jovetree Capital.

Can you provide a little more detail on crude volumes in the quarter please?

What we've given historically, we've given some volumes that are through Albany and I do want to talk a little bit about that. Looking back in Q2, we announced about 100,000, maybe 102,000 barrels a day to the Albany facility. Q3 was somewhere around 80,000 barrels a day.

But looking forward, those volumes have really picked up substantially. Those numbers that I gave you were all products by rail. Those volumes have picked up more recently. So we think you'll sort of look back and take a look at the volumes that we've done in Q2 and we see us heading back to those kinds of numbers and maybe even more.

I know in the past you've moved some barrels sort of on your own account. Is that something you did in the quarter?

As an opportunity presents itself, we will move barrels ourselves. And obviously in Q3, as those opportunities were limited in crude, we did less of that. And then you had the other products. But I think the point is, it's interesting because if you look at the spread, roughly 100,000 barrels the prior quarter, ED in a quarter where the spreads had come way in. I think that really goes to the strength and stability of the business.

Spread obviously jumped around a lot in the quarter. When they got really bad, obviously it takes time for people to change their plans. Were there discussions that started to happen about people starting to back away or did it happen too quickly?

We had term business for the facility and that's really what drove the volumes. We do some spot business there but the base volumes are stable.

(Operator Instructions) There are no further questions at this time. I would now like to turn the floor back over to Mr. Slifka for closing comments.

Thank you for joining us this morning. We look forward to updating you on our progress next quarter and have a great day everybody. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.