Global Partners LP (GLP) 2018 Q1 法說會逐字稿

Good day, everyone, and welcome to Global Partners' first- quarter 2018 financial results conference call. Today's call is being recorded. (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; 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 today. Before we begin, let me remind everyone that this morning 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. Estimates of Global Partners' EBITDA guidance and future performance are based on assumptions regarding market conditions such as the crude oil market business cycles, demand for petroleum products and renewable fuels, utilization of assets and facilities, weather, credit markets, the regulatory and permitting environment and the forward product pricing curve, which could influence quarterly financial results.

We believe these assumptions are reasonable given currently available information and our assessment of historical trends. Because our assumptions and future performance are subject to a wide range of business risks and uncertainties, we can provide no assurance that actual performance will fall within guidance ranges.

In addition, such performance is subject to risk factors, including, but 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 news releases, publicly announced conference calls or other means that will constitute public disclosure for the purposes of Regulation FD.

Now please allow me to turn the call over to our President and Chief Executive Officer, Eric Slifka.

Thanks, Eddie. Good morning, everyone, and thank you for joining us. We performed in line with our expectations for the first quarter on strong results in our retail gasoline business and more favorable market conditions in wholesale gasoline and gasoline blendstocks.

Product margin in the Gasoline Distribution and Station Operations segment increased $7.6 million from the same period in 2017 due in part to the contribution of the Honey Farms acquisition and solid fuel margins. Honey Farms has been a great addition to our retail portfolio and we expect it to be accretive in its first full year of operations.

Throughput volumes in both the Wholesale and Commercial segments were strong in Q1. We are pleased with the performance of our terminal portfolio and our retail locations and continue to pursue accretive opportunities and drive additional volume through our facilities.

Our strategy remains focused on complementing our organic growth with acquisitions that enable us to build on our leadership position. The deal pipeline within the retail gas station and convenience store market continues to be very active and we are always evaluating potential opportunities to expand our portfolio.

Last month, the Board declared a quarterly cash distribution of $0.4625 per unit, or $1.85 on an annualized basis. The distribution will be paid May 15 to unitholders of record as of the close of business on May 12.

With that, let me turn it over to Daphne for her financial review. Daphne?

Thank you, Eric, and good morning, everyone. As discussed in this morning's earnings release, our Q1 results reflect a one-time $52.6 million non-cash gain from the extinguishment of a contingent liability related to the Volumetric Ethanol Excise Tax Credit, which tax credit program expired in 2011. Recall that we highlighted and excluded this item in the 2018 guidance provided in our Q4 earnings release and conference call. The recognition of this one-time income did not impact cash flows from operations for the three months ended March 31, 2018, and will not impact cash flows from operations for full-year 2018.

Looking at our results, combined product margin in the first quarter increased $3.7 million to $166.1 million, due to growth in the GDSO and Commercial segments, which more than offset a decrease in the Wholesale segment. Operating expenses increased $6.8 million to $74 million in the quarter primarily reflecting the addition of Honey Farms, the timing of maintenance and repairs at our terminals and an increase in credit card fees due in part to higher gasoline prices.

SG&A expenses in Q1 increased $2.6 million to $39.4 million primarily relating to headcount, incentive comp and other expenses to support our GDSO business.

EBITDA for the first quarter was $105.7 million and adjusted EBITDA, which excludes the net loss on sale and disposition of assets, was $107.6 million. Excluding the $52.6 million one-time gain, adjusted EBITDA would have been about $55 million compared with $60 million in the same quarter last year. The $5 million decrease reflects the increase in expenses, which more than offset the increase in product margin.

Interest expense is $21.4 million in Q1 2018 compared with $23.3 million in the year earlier period. The decrease was in part due to lower average balances on our credit facilities partially offset by an increase in interest rates. DCF for the first quarter was $79.7 million. Excluding the net loss on sale and disposition of assets of $1.9 million and the $52.6 million one-time gain, DCF would have been $29 million. DCF in 1Q of 2017 was $44.2 million, but when adjusted for gains and losses on sale of assets, would have been $32.3 million.

Net income for the first quarter was $59 million, which includes the one-time $52.6 million gain.

Now let me take you through our segments in more detail, beginning with GDSO. Comparing Q1 2018 with the same period in 2017, GDSO product margin increased $7.6 million to $113.6 million. The Gasoline Distribution contribution to product margin was up $3 million to $70.1 million in the first quarter of 2018, reflecting the Honey Farms acquisition, as well as an increase in fuel volume and fuel margin. The average fuel margin in the quarter was $0.185 per gallon compared to $0.183 per gallon in last year's first quarter.

Station Operations' product margin increased $4.6 million to $43.5 million primarily due to Honey Farms. At quarter-end, our GDSO portfolio consisted of 260 company-operated stores, 266 commissioned agents, 228 [lessee] dealers and 691 contract dealers, for a total of 1,445.

Turning to the Wholesale segment, the gasoline and gasoline blendstocks product margin increased $10 million to $25.4 million largely due to more favorable market conditions in gasoline blendstocks, primarily ethanol. Crude oil product margin was down $1.8 million to $5.1 million due in part to lower sales volume as the crude-by-rail differential continued to be challenged.

Revenue related to the absence of logistics nominations from one particular crude oil contract customer was $10.7 million in both the first quarter of last year and the first quarter of this year. Product margins from other oils and related products were down $13.2 million to $16.7 million primarily due to less favorable market conditions in distillates.

Commercial segment product margin increased $1 million to $5.2 million in part due to colder temperatures early in the first quarter of 2018 compared to the first quarter of 2017. Total volume increased 111 million gallons to 1.4 billion, primarily due to higher volumes of gasoline in our Wholesale segment.

Volume in our GDSO segment increased 12.2 million gallons to 378.3 million in Q1 2018, partly reflecting the addition of the Honey Farms portfolio.

CapEx in the first quarter was approximately $9.6 million, consisting of $6.1 million of maintenance CapEx, including $5.7 million related to our retail sites. Expansion CapEx was [$3.5] million in Q1, which related primarily to our retail gas stations.

For full-year 2018, we expect maintenance CapEx in the range of $40 million to $50 million and expansion CapEx in the range of $30 million to $40 million.

Turning to our balance sheet, as of March 31, we had total borrowings outstanding of $547.7 million under our $1.3 billion facility. Borrowings consisted of $196 million under our $450 million revolving credit facility and $351.7 million under our $850 million working capital facility.

Leverage, as defined in our credit agreement as funded debt to EBITDA, was approximately 4.1 at the end of the first quarter.

Turning to guidance, for full-year 2018, we expect to generate EBITDA in the range of $180 million to $210 million, which excludes any gain or loss on sale or disposition of assets and any goodwill and long-lived asset impairment charges. 2018 guidance excludes the one-time $52.6 million gain recognized in the first quarter as a result of the extinguishment of the contingent liability related to the Volumetric Ethanol Excise Tax Credit.

Before we go to Q&A, I wanted to let you know that we will be participating in one-on-one meetings May 23 and 24 at the MLP and Infrastructure Conference in Orlando, and June 12 at the Stifel Prospector Insight Conference in Boston. With that, Eric and I will be happy to take your questions. Operator?

(Operator Instructions). Ned Baramov, Wells Fargo.

So volumes in the Wholesale segment increased 11% year-over-year, and I think that marks the first quarter of year-over-year increases since maybe 2013. Could you talk about some of the key drivers there? I think you mentioned gasoline strength, but any additional details you could provide would be great.

Yes, sure. Good morning, Ned. This is Mark. I think we've seen growth in our Wholesale volumes and terminal throughput, and I think it's largely a function of a couple of things. Number one, a more intense focus on growing our Wholesale sales segment of the business. And then maybe equally or bigger picture as important is we really tried to develop relationships across the board, from a holistic view, across the entire portfolio of the Company, including retail, terminalling, supply and marketing. And so we've taken efforts to really align ourselves with business partners who we can grow the entire business with. And a lot of that includes what you'll see in the Wholesale segment.

Selman Akyol, Stifel.

A couple quick questions. So, I know you talked about the retail pipeline being active, and can you just talk about how pricing is, what you're seeing out there for additional retail locations?

When you say pricing, what do you mean? You mean acquisition costs or --?

Correct.

Look, I think it's competitive. I think it's active, but the bottom line is I think that we have a system that is large enough and competitive enough that we can drive synergies that not all competitors in our market can. And that's an advantage to us, and so I think it allows us to get into these competitive processes and not certainly win every single one of them, but there are instances where, for us, the acquisition may be more meaningful and have more value than others. And that drives ultimately any multiple that we may pay down, giving us and our investors a very decent return.

Got it. And then as you think about your portfolio, is there any more you're looking to do in terms of selling? Or do you think you've got pretty much of that behind you?

I think selling is going to -- that's going to be something that we always are looking at. I would say at the retail level, likely it will always be going on in some form if we're always buying companies, right? I think there are opportunities that may exist throughout all of our assets where maybe there's a better utilization for the proceeds, so we'll always look to be measuring what's the best for our portfolio. And whether we put something up for sale or not, we're always going to be looking at is there a better alternative for those assets. Always.

All right. Thank you very much.

Mike Gyure, Janney Montgomery Scott.

Can you guys talk a little bit more on your guidance for the growth capital? Kind of I guess where you are planning on spending that, I guess, between the segments? And then maybe if you have any kind of goals for the number of distribution locations you're thinking about increasing to.

Good morning. I think in terms of the expansion CapEx in the guidance we give of $30 million to $40 million, we don't bifurcate that, but certainly the expectation is that the majority consistent with the past would be spent on the GDSO segment. Whether it's NTIs, raise and rebuilds, and that sort of high return, accretive projects.

And in terms of -- I think your next question was distributions, which we don't give guidance on distributions going forward. And today, we are running at very healthy coverages and it's about 1.4 if you take out the non-cash gain. But the Board makes that decision every quarter.

Great. Thanks very much.

Ben Brownlow, Raymond James.

Given the positive performance around the terminal portfolio and your comment around the divestitures and being opportunistic there, are you seeing a renewed buyer interest in those product terminals that you intended to divest about a year ago?

Yes, I would say broadly we haven't decided to move forward with that process, but that being said, there are other opportunities that are alternative to maybe oil or energy. And so if somebody wants to buy a piece of real estate, we'll be happy to sell it if we can get the right value for it.

Okay, understood. And on the -- you mentioned in the preliminary comments the lack of nominations on the crude. Any color around the timing of when that would be realized?

Not sure what your question means. So what we've been doing, actually consistent over the last year, is when their lack of nominations we have been recognizing the revenue in the quarter. And it's been running a little bit south of $11 million a quarter. I think it was $10.7 million in this quarter and $10.7 million a year ago first quarter, and that contract finishes up at the end of June.

Okay, so that was recognized in the first quarter?

That's correct, yes.

Okay. I misunderstood. Great. Thank you, that's all I had.

Lin Shen, HITE.

Daphne, so for first quarter, both SG&A and OpEx are higher year-over-year. I think also higher maybe even than last quarter. So should we think this is a new run rate quarterly for SG&A and OpEx?

Yes, I think I sort of guided -- I think last quarter we had the question as to whether there would be some increase perhaps in SG&A. So the way I would look at it, if you look at the quarter, the OpEx was $74 million. It's not a bad run rate. There can be fluctuations. Certainly there is timing in terms of maintenance projects at terminals or maintenance at the gas stations, et cetera. And then credit card fees certainly are dependent on price, but it's not a bad run rate.

In terms of SG&A, a little bit over $39 million. That may be a bit light. Again, it's timing of investments to support our businesses and advertising and promotion, it's lumpy in terms of how they get expensed, for instance.

Got it. And also, Eric, you mentioned that, for the first quarter, there's a less favorable condition for Wholesale margin for distillate. Do you see this continuing for the second quarter given where you see the curves (inaudible)?

Lin, it's Mark. I don't think I -- I think -- I don't -- we don't expect -- you never know what market conditions, how they're going to develop and how they're going to change. At the moment, we don't expect the second half of the year or Q2 and beyond to be as challenging as the first quarter. But we'll have to wait and see how that unfolds.

Great, thank you. I think also James is also on the line.

It's James speaking. Given where we are with crude oil and with gasoline pricing, have you seen any affect yet on volume? And in either case, how do you think if these persistent high -- if these high prices continue to persist how that might affect your estimates going forward?

Are you talking about on retail gasoline volume?

Yes.

Yes, we have not seen any -- I would say we have not seen any impact due to high prices. It depends how high and how long they -- how high they go and how long they stay there. I think there's probably some psychological barriers in the marketplace that might affect people's buying patterns, but at the moment we haven't necessarily seen that filtered through yet.

And if you could remind us, at elevated price levels, what's the likely impact, beyond volume, on margins?

What I would say is that that in and of itself doesn't affect the margin. If your question is more around demand, I would say it's de minimis. But if it goes to $150, $200, that's a different story, right? But sort of within the ranges that we're talking about today, it will be de minimis on either side.

It also is important to keep an eye on what the general economy is doing, right, and the economy has been positive with employment going down and being low. And I think that's positive for sales.

Great, thank you.

Theresa Chen, Barclays.

Just wanted to get your thoughts on how this whole E15 thing might shake out and if we are going to be able to sell it year round, how that might affect your different businesses.

Good morning, Theresa. It's Mark. I think that we certainly need a lot more clarity around what this change may bring. So big picture, there's certainly a lot that needs to be worked out. But big picture we have been safely and profitably handling biofuels for many years. And so I would say directionally, whether it's a regulatory change or even a change in market conditions, anything that would force us, require us or allow us to handle higher volumes of biofuels I would say would generally for us be a positive.

We've got some good infrastructure and some good demand to absorb those higher blends. So I would say directionally, without knowing the specifics of what this is going to look like and how it may be phased in and all the moving parts, I would say directionally it should be a benefit for us.

Thank you.

Barrett Blaschke, MUFG Securities.

Just to lever a little further off the rising commodity price question, are you seeing spreads widening anywhere that's generating any opportunity for your business model at this point?

Nothing notable. Nothing to speak of at the moment. I think the one thing -- Barrett, the one thing that I would just add to that is, and I don't know how this is going to play out, but you are seeing crude spreads widen. Are they widening to the point where it makes sense for people to resume moving by rail? We haven't seen it yet. We haven't seen that opportunity, but we still have infrastructure in place that would allow us to capitalize on those opportunities if they should present themselves.

Okay, thank you.

Ned Baramov, Wells Fargo.

I just had a quick follow-up on M&A. Could you maybe talk about how you think about the potential funding of hypothetical transactions? Thank you.

Sure, good morning. Certainly with our units trading at an 11% yield or so, that's a very expensive source of capital. But there are ample sources of capital out there, certainly for -- create high return projects or investments. Certainly private capital and certainly there's preferred equity out there. We will continue on -- perhaps in a small scale -- but we will continue, as Eric mentioned, be looking at asset sales in terms of our retail deck as we continue to look at the nonstrategic sites. And we continue to run with healthy coverage.

Thank you.

I would now like to turn the call back over to Mr. Slifka for closing remarks.

Thanks for joining us this morning. We look forward to meeting with you at the upcoming conferences and keep you updated on our progress. Thanks, guys.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.