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Global Partners LP (NYSE:GLP)
Q4 2019 Earnings Call
Mar 6, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone and welcome to Global Partners Fourth Quarter 2019 Financial Results Conference Call. Today's call is being recorded. There will be an opportunity for questions at the end of the call. [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. I will now turn the call over to Mr. Faneuil. Please go ahead, sir.

Edward Faneuil -- Executive Vice President and General Counsel

Thank you. 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 law. These statements may include, but are not limited to, projections, beliefs, roles 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 cycle, demand for petroleum products, including gasoline and gasoline blendstocks 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 range. 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, Mr. Eric Slifka.

Eric Slifka -- President and Chief Executive Officer

Thank you, Edward. Good morning, everyone and thank you for joining us. We delivered strong results in 2019, exceeding our full year EBITDA guidance. Product margin in our gasoline distribution station operation segment increased more than $23 million for the year, attributable primarily to the acquisitions of Champlain and Cheshire Oil.

In the fourth quarter of 2019, our results were negatively impacted by less favorable market conditions in our Wholesale segment. Our GDSO segment continued to perform well in that quarter, recognizing that we did not see the exceptionally strong fuel margins that benefited this segment in the fourth quarter of 2018.

Turning to our distribution, in January, our Board raised a quarterly distribution on our common units from $0.52 cents to $0.5250 per unit or $2.10 on an annualized basis. The distribution was paid on February 14 to company unit holders of record as of February 10.

Our integrated portfolio of terminals and retail assets, together with our wholesale and commercial supply infrastructure, continue to position us well going forward. Before concluding, let me briefly touch on a topic that's on everyone's minds, the coronavirus. To date we have not seen any impact of the virus on our operations. That said, we are monitoring the situation closely and taking measures to ensure the health and safety of our employees and customers. Now with that, I'll turn the call over to Daphne for her financial review. Daphne?

Daphne Foster -- Chief Financial Officer

Thank you, Eric, and good morning everyone. Our Q4 2019 results were consistent with our expectations, particularly in the context of a very strong Q4 of 2018. Compared with the fourth quarter of 2019, the fourth quarter of 2018 saw significantly higher fuel margins in our GDSO segment as well as more favorable market conditions across the Wholesale segment.

Adjusted EBITDA for the fourth quarter of 2019 was $46.2 million compared with $109.8 million for the same period of 2018. For the full year, 2019 adjusted EBITDA was $233.7 million compared with adjusted EBITDA of $310.6 million for full year 2018.

As we go through the results, please keep in mind that EBITDA, adjusted EBITDA, net income and DCF for full year 2019 include a $13.1 million loss on the early extinguishment of debt related to our repurchase of the 6.25% senior notes. For full year 2018, these metrics include a one-time gain of approximately $52.6 million, resulting from the extinguishment of a contingent liability related to the Ethanol Excise Tax Credit.

For the fourth quarter of '19, we reported a net loss attributable to the partnership of $0.8 million versus net income of $52.5 million for the same period a year earlier. For full year 2019, net income was $35.9 million versus $103.9 million for 2018.

DCF in the fourth quarter of 2019 was $9.4 million compared with $67.6 million in the prior year period. DCF for the full year was $95.7 million compared with $173.7 million in 2018. TTM distribution coverage at the end of the fourth quarter was 1.3 times. After factoring in distributions to the preferred unit holders, that coverage was 1.2 times.

Turning to our segment detail, GDSO product margin in Q4 '19 was $147.1 million compared with $188.5 million in Q4 '18. The gasoline distribution contribution to product margin decreased $43.2 million in the quarter to $91.6 million. Keep in mind that the fourth quarter of 2018 was a record quarter for GDSO, benefiting from expanded fuel margins, primarily due to an $0.80 per gallon decrease in the wholesale gasoline prices from October 1 to December 31, 2018. The average fuel margin per gallon declined $0.10 to $0.225 in Q4 '19 from $0.325 in the fourth quarter of '18.

For the full year, GDSO product margin increased $23.2 million to $599.6 million in 2019, due primarily to contributions from the July 2018 acquisitions of Champlain Oil and Cheshire Oil. The gasoline distribution contribution to product margin was $374.6 million in 2019, up $1.2 million from the prior year due to a full-year of performance from those acquisitions, partially offset by a small decrease in average fuel margin per gallon.

Station operations product margin, which includes convenience store sales, sundries and rental income, increased $1.8 million to $55.5 million in the fourth quarter of 2019, due primarily to the acquisitions. For the full year, station operations product margin was up approximately $22 million to $225.1 million, also due primarily to the acquisitions.

At the end of 2019, our GDSO portfolio consisted of 1,551 sites, comprised of 289 company-operated stores, 258 commissioned agents, 216 lessee dealers and 788 contract dealers.

Looking at the Wholesale segment, fourth quarter 2019 product margin declined $33.1 million to $15.4 million from $48.5 million in the prior-year period, reflecting several factors. Less favorable market conditions in gasoline and gasoline blendstocks contributed to a $14.9 million product margin decrease, which came in at $7.4 million in the fourth quarter of 2019, compared with $22.3 million a year earlier.

Product margins from crude oil was negative $3 million in the fourth quarter compared with positive $4.3 million in Q4 '18. While expenses related to pipeline commitments were approximately $3.5 million in both quarters, in Q4 '18, we utilized our crude oil storage assets to take advantage of contango opportunities. Those opportunities were not present in the fourth quarter of 2019.

Product margins from other oils and related products was $11 million compared with $21.9 million in Q4 '18, reflecting less favorable market conditions, primarily in distillates. For the full year, Wholesale segment product margin was $122.5 million compared with $137.3 million in 2018, primarily due to lower crude oil product margin. The decrease in crude oil product margin was primarily due to the mid-2018 expiration of a take-or-pay contract with one particular customer. As a result of the expiration of that customer -- of that contract, $21.6 million in revenue recognized in 2018 was not recognized in 2019.

Crude oil product margin was negative $13 million for the full year versus positive $7.2 million in 2018, due to the expiration of that take-or-pay contract. Expenses related to pipeline commitments were approximately $40 [Phonetic] million in each year.

Gasoline and gasoline blendstock product margin increased $7.2 million to $84 million for full year 2019, primarily due to more favorable market conditions in gasoline, offset by less favorable market conditions in gasoline blendstocks, primarily ethanol. Product margin from other oils and related products was $51.6 million in the full year 2019, compared with $53.4 million in 2018. Our product margin in distillates for 2019 was negatively impacted due to less favorable market conditions, largely in the fourth quarter and to weather that was both warmer than normal and warmer than in 2018.

Turning to our Commercial segment, product margin increased $3.2 million to $10.3 million in the fourth quarter of 2019, due primarily to contributions from our bunkering business. For full year, Commercial segment product margin was up $4.9 million to $28.5 million also primarily due to favorable market conditions in bunkering.

Turning to expenses, operating expenses decreased $1.9 million to $85.2 million in the fourth quarter, primarily reflecting lower spending at our terminals. For the full year, expenses were up $21.3 million to $342.4 million, primarily reflecting the Champlain and Cheshire acquisitions.

SG&A expenses decreased $6 million to $43.5 million in the fourth quarter, primarily due to a decrease in discretionary incentive compensation. On a full year basis, SG&A remained flat at $171 million, with decreases in both incentive comp and acquisition costs, offset, in part, by increases in wages and benefits attributed in part to our GDSO business.

Interest expense was $21.7 million in Q4 of 2019, compared with $23.5 million in the year earlier period, primarily due to lower average balances on our credit facility as well as lower rates. For full year 2019, interest expense was $89.9 million, up about $0.7 million from the prior year.

Capex in the fourth quarter was approximately $30.4 million, consisting of $16.6 million of maintenance, and $13.8 million of expansion capex, most of which relates to our gas station and convenience store business. For full-year '19, maintenance capex was $49.9 million, in line with our guidance of $45 million to $55 million. Expansion capex was $33 million for full year, slightly below full-year guidance of $35 million to $45 million.

Turning to our balance sheet, leverage, which is defined in our credit agreement as funded debt to EBITDA, was approximately 3.8 times at the end of the fourth quarter. We continue to have ample excess capacity under our $1.3 billion credit facility. As of December 31, we had total borrowings outstanding of $516.6 million, including $192.7 million under our $450 million revolving credit facility and $323.9 million under our $850 million working capital facility. The reduction in our revolver from $220 million at year-end 2018 was due in part to proceeds from the sale of assets and the larger bond offering.

Turning to guidance, for full year 2020, we expect EBITDA in the range of $205 million to $230 million. This guidance excludes any gains or losses on the sale and disposition of assets and goodwill and long-lived asset impairment charges. With that, Eric and I will be happy to take your questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question is from David Schechter with Perspective Capital Management. Please proceed.

David Schechter -- Perspective Capital Management -- Analyst

Good morning and congratulations on beating the high end of guidance. I have one question, which is, at the low end of the current guidance, what would be the coverage ratio on the dividend as it is today at $0.53?

Daphne Foster -- Chief Financial Officer

Hey, good morning, David. I haven't done that calculation. You're talking about $205 million and what was the coverage state until then?

David Schechter -- Perspective Capital Management -- Analyst

Yeah, assuming all else being equal.

Daphne Foster -- Chief Financial Officer

I don't have them in a bucket [Phonetic].

David Schechter -- Perspective Capital Management -- Analyst

Okay. At the high end of guidance, it would be equivalent to what we did this year and the coverage ratio was very, very good, but the difference of $25 million might make a difference on the coverage ratio.

Daphne Foster -- Chief Financial Officer

Yeah, that's totally fair.

David Schechter -- Perspective Capital Management -- Analyst

Okay. All right, great. Thanks very much.

Operator

[Operator Instructions] We have reached the end of our question and answer session. I would like to turn the conference back over to Mr. Slifka for closing remarks.

Eric Slifka -- President and Chief Executive Officer

Thank you for joining us this morning. We look forward to keeping you updated on our progress. Thank you.

Operator

[Operator Closing Remarks]

Duration: minutes

Call participants:

Edward Faneuil -- Executive Vice President and General Counsel

Eric Slifka -- President and Chief Executive Officer

Daphne Foster -- Chief Financial Officer

David Schechter -- Perspective Capital Management -- Analyst

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