Global Partners - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 was solid operationally but down year over year on tough retail fuel margin comps; net income was $23.9M ($0.52/unit) and Adjusted EBITDA was $97.8M, both below Q4 2023, while total sales were $4.19B and gross profit $268.8M. Wholesale product margin strength (distillates and gasoline) partially offset softer GDSO fuel margins versus an unusually strong Q4 2023 backdrop.
• Sequentially vs Q3, EBITDA fell (Q4: $94.6M vs Q3: $119.1M) on seasonal retail pressures, though total volume rose to 1.8B gallons (from 1.7B) and Wholesale margin remained robust.
• 2025 capex outlook introduced: maintenance $60–70M; expansion (ex-acquisitions) $75–85M, focused on stations and terminalling; leverage (funded debt/EBITDA) at 3.47x with ample liquidity.
• Capital return: common distribution raised to $0.7400 for Q4 (+$0.01 vs Q3); this marked the 13th consecutive quarterly increase and remains a stock-reaction catalyst alongside continued terminal integration/M&A pipeline commentary.

What Went Well and What Went Wrong

• What Went Well
  • Wholesale segment outperformed: Q4 Wholesale product margin rose to $79.8M (from $51.9M); gasoline blendstocks $38.6M and distillates $41.2M on Motiva terminals and favorable market conditions.
  • Network expansion/integration: Management highlighted doubling terminal capacity to ~22MM barrels via Motiva, Gulf, and East Providence acquisitions, including a 25-year take-or-pay with Motiva, enhancing strategic optionality and returns.
  • Distribution growth and coverage: Q4 distribution lifted to $0.7400; trailing 12-month coverage cited at 1.81x (1.72x after preferreds) underscoring cash-flow resiliency.
• What Went Wrong
  • GDSO fuel margin normalization: Q4 GDSO product margin fell to $213.6M (from $245.4M) as cents/gal declined to $0.36 vs $0.44 in Q4 2023 due to less favorable wholesale price movements vs the exceptional volatility in late 2023.
  • Higher interest expense burden: Q4 interest expense increased to $34.4M (from $20.7M) tied to 8.25% senior notes and higher average revolver balances post-acquisitions.
  • Operating expense growth from footprint expansion: Q4 operating expenses rose to $128.1M (from $116.0M) reflecting the addition of ~30 terminals (Motiva, Gulf, East Providence).

Transcript

Operator (participant)

Good day, everyone, and welcome to the Global Partners Fourth Quarter and Full Year 2024 Financial Results Conference Call. Today's call is being recorded. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. With us from Global Partners are President and Chief Executive Officer, Mr. Eric Slifka; Chief Financial Officer, Mr. Gregory Hanson; Chief Operating Officer, Mr. Mark Romain; and Chief Legal Officer and Secretary, Mr. Sean Geary. At this time, I would like to turn the call over to Mr. Geary for opening remarks. Please go ahead, sir.

Sean Geary (Chief Legal Officer)

Good morning, everyone. Thank you for joining us. Today's call will include forward-looking statements within the meaning of federal securities laws, including projections and expectations concerning the future financial and operational performance of Global Partners. No assurances can be given that these projections will be attained or that these expectations will be met. Our assumptions and future performance are subject to a wide range of business risks, uncertainties, and factors which could cause actual results to differ materially, as described in our filings for the Securities and Exchange Commission. Global Partners undertakes no obligation to revise or update any forward-looking statements. Now, it is my pleasure to turn the call over to our President and Chief Executive Officer, Eric Slifka.

Eric Slifka (President and CEO)

Thank you, Sean. Good morning, everyone, and thank you for joining us on today's earnings call. 2024 was a transformative year of growth for Global Partners. We integrated 30 new terminals across the Atlantic Coast, the Southeast, Texas, and the Northeast, more than doubling our storage capacity to approximately 22 million barrels. Our expansion included 25 terminals acquired in December 2023, backed by a significant 25-year take-or-pay contract with Motiva Enterprises, a subsidiary of Saudi Aramco. In April, we added four Northeast terminals, complementing our network in that region. In November, we acquired a 959,000-barrel terminal located on a 730-acre parcel in East Providence, Rhode Island, with infrastructure capabilities to accommodate long-range vessels. These strategic investments, totaling more than $528 million, have solidified our role as an essential part of the U.S. energy infrastructure and enhanced our ability to serve our rapidly growing customer base.

We could not have accomplished this without the dedication, resilience, and innovative spirit of our employees across our businesses. From our terminal operations to our retail locations, every member of our team has played a crucial role in our success. I'm especially proud of the way in which we've navigated the dynamic energy landscape while maintaining our commitment to operational excellence and customer satisfaction. Despite severe weather during the year, our terminal staff has consistently demonstrated exceptional service for our customers, while our retail teams have continued to elevate the experience with new offerings for our guests at our fuel locations and convenience markets. Both our wholesale and GDSO segments demonstrated robust growth in 2024.

The $90 million increase in wholesale segment product margin reflected, in part, a full 12 months of contributions from the terminals acquired from Motiva and a partial year of ownership of the terminals acquired from Gulf and ExxonMobil. GDSO product margin was up almost $26 million for the year, even with a tough comparison due to an especially strong retail fuel margin in the fourth quarter of 2023. Let me briefly address the steps we are taking to prepare for the potential implementation of tariffs on oil and gas imports, particularly from Canada and Europe. We continue to actively monitor global economic conditions and the evolving supply landscape, holding, as we always do, daily meetings and additional scenario planning to assess potential impacts of any imposed and proposed tariffs.

Turning to our distribution, in January, the board declared a distribution of $0.74 on all outstanding common units for the fourth quarter. This marked the 13th consecutive quarterly increase and reflects our continued strong financial position. The distribution was paid on February 14 to unit holders of record as of February 10. In summary, as evidenced by our results, our diverse asset portfolio continues to drive strong performance. With our expanded operating footprint, greater access to critical pipeline and marine infrastructure, and a strong balance sheet, we are well positioned to leverage our supply terminal and marketing expertise to seize growth opportunities and create value for our unit holders. With that, let me turn the call over to Greg for his financial review. Greg?

Gregory Hanson (CFO)

Thank you, Eric. Good morning, everyone. As we review the numbers, please note that unless otherwise noted, all comparisons will be with the fourth quarter of 2023. Adjusted EBITDA for the fourth quarter of 2024 was $97.8 million, compared with $112.1 million in the same period of 2023. Adjusted DCF was $46.1 million versus $58.8 million in 2023. Across these numbers, the variance between the fourth quarter of 2024 and 2023 is primarily related to the exceedingly strong fuel margin environment we experienced in our GDSO segment in the fourth quarter of 2023. Trailing 12-month distribution coverage as of December 31 was 1.81 times, or 1.72 times after factoring in distributions for our preferred unit holders. Turning to our segment details, GDSO product margin decreased $31.8 million in the quarter to $213.6 million.

Product margin from gasoline distribution decreased $32.1 million to $145.7 million, primarily reflecting lower fuel margins year over year. On a cents per gallon basis, fuel margin decreased 8 cents to 36 cents in Q4 2024 from 44 cents in Q4 2023. This was primarily driven by the volatility in wholesale Arbor prices during the fourth quarter of 2023, when wholesale Arbor prices decreased 34 cents per gallon from the end of September to the end of December 2023. In contrast, wholesale Arbor prices increased 4 cents per gallon in the fourth quarter of 2024. That said, the retail fuel margin environment in the fourth quarter of 2024 continued to be constructive and above historical averages.

We are pleased with the results from gasoline distribution, which increased on a full-year basis for 2024 by $20.2 million, or 4%, over the corresponding period in 2023, with fuel margins on a cents per gallon basis for the full year of 2024 of $0.36 versus $0.34 in fiscal year 2023. Station operations product margin, which includes convenience store and prepared food sales, sundries, and rental income, increased $0.3 million to $67.9 million in the fourth quarter of 2024. During the year, we continued to optimize our retail portfolio through divestitures and conversions of certain company-operated sites. At quarter end, our GDSO portfolio of fueling stations and C-stores totaled 1,584 sites. In addition, we operate 64 sites under our Spring Partners retail joint venture. Looking at the wholesale segment, fourth quarter 2024 product margin increased $27.9 million to $79.8 million.

Product margin from gasoline and gasoline blend stocks increased $13.2 million to $38.6 million, primarily due to the acquisition of 25 terminals from Motiva in December of 2023 and to more favorable market conditions. Product margin from distillates and other oils increased $14.7 million to $41.2 million, primarily due to more favorable market conditions than distillates. The commercial segment product margin increased $0.2 million to $8.6 million. Looking at expenses, operating expenses increased $12.1 million to $128.1 million in the fourth quarter of 2024, primarily reflecting the addition of 30 terminals from Motiva, Gulf Oil, and East Providence acquisitions. SG&A decreased $1.9 million in the quarter to $79.4 million.

Interest expense was $34.4 million in the quarter, compared with $20.7 million in 2023, primarily due to interest expense related to our eight-and-a-quarter senior notes issued in January of 2024, which were used to facilitate the Motiva acquisition and to higher average balances on our credit facility, in part due to the Gulf terminals acquisition. Capex in the fourth quarter was $46.8 million, consisting of maintenance capex of $15 million and expansion capex of $31.8 million, primarily related to investments in our terminal and gasoline station business. For the full year of 2024, we had $46.9 million in maintenance capex and $56.4 million in expansion capex. For the full year of 2025, we expect maintenance capital expenditures in the range of $60-$70 million and expansion capital expenditures, including excluding acquisitions, in the range of $75-$85 million, relating primarily to our gasoline station and terminaling businesses.

These current estimates depend in part on the timing of project completion, availability of equipment and workforce, weather, and unanticipated events or opportunities requiring additional maintenance investments. Our balance sheet remains strong at December 31, with leverage as defined in our credit agreement as funded debt to EBITDA at 3.47 times and ample excess capacity in our credit facilities. As of December 31, we had $229.5 million in borrowings outstanding on our working capital revolving credit facility and $167 million outstanding on the revolving credit facility. Now, let me turn the call back to Eric for his closing comments.

Eric Slifka (President and CEO)

Thanks, Greg. We begin 2025 in a strong financial and operational position. Our strategic investments to expand our portfolio, strengthen our asset base, and broaden our customer relationships prepare us not only to capitalize on the dynamic market environment of today, but to thrive in the evolving energy landscape. We expect this to be a year of opportunity and growth for Global as we build on our success of the past year. We continue to integrate our recently acquired assets. We look to deliver continued value to our unit holders. I'm excited about the opportunities ahead. With that, Greg, Mark, and I will be happy to take your questions. Operator, please open the line for Q&A.

Operator (participant)

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, if you would like to ask a question, press star one on your telephone keypad. One moment, please, while we pull for questions. Thank you. Our first question comes from the line of Selman Akyol with Stifel. Please proceed with your question.

Selman Akyol (Analyst)

Thank you. Good morning. Appreciate all your comments on GDSO. In terms of your thoughts on tariffs, can you just say how much of your supply comes from outside U.S. borders?

Mark Romaine (COO)

Hey, Selman, it's Mark. Good morning. I can't tell you exactly what % of our supply comes. It's not something we break out for obvious reasons, for competitive reasons. I will say that Canadian barrels, they're an important part of the supply landscape, the entire supply landscape, really for New England, maybe into the Northeast. The further north you get, the more important that barrel is. Vermont, New Hampshire, Maine, and then as you move down into Boston and Providence, maybe into Connecticut. It's an important barrel for the region. I think for us, Eric talked about it in his comments. We're looking at this. We're meeting. We're doing scenario planning. We're trying to understand what the potential impact might be. We've never really dealt with this before, so it's a little bit unknown at the moment.

What I will say is that our system is designed to allow us to source barrels from anywhere. That is one of the great things about our system and our assets is that we are not tied into one source of supply. We can literally go anywhere for a barrel. I think that is important. While we will stay close to it, we will make sure that our system, we do the best to supply our system for our customers. I think we have flexibility to go anywhere to get a barrel. Whether that is shipping up Colonial, whether that is taking in imports from other regions, whether it be Canada, Europe, the Caribs, anywhere, we can take a barrel from anywhere. I am not that worried about the supply dynamic. The price will be the price. You may have to pay a little bit extra for a barrel.

I don't know. We'll see how that works out. I think the key thing for us is that our system really allows us to source barrels from anywhere. It's a key point, not just for this particular, for this potential event, but I think it's a key point in general when you look at our system because it allows us to source from anywhere, source the lowest cost barrel, optimize around that effort. I think we're very comfortable in that setting.

Selman Akyol (Analyst)

Understood. No doubt tariffs are creating a lot of uncertainty out there, and you're not the only company trying to wrap your head around it. Let me ask you, with that as a backdrop, does that in any way change sort of your thought plans or just in terms of maybe doing an acquisition, or does it change desire of where you would want to be more emphasis to get into other parts of the country?

Eric Slifka (President and CEO)

Yeah. Selman, it's Eric Slifka. It does not. What I want to be very clear about is the terminals in the Northeast that take a lot of product from Canada are incredibly flexible facilities because they can take product in from anywhere in the world. It is not a matter of if. It is a matter of what price because there are great clearing mechanisms. Our perspective here is, although it may increase costs of supply, the barrel is still going to be there. We, given our system, actually have the ultimate flexibility as to how we source and where we source that barrel. Albeit it might be not the best economic outcome for others, for the consumer, at the end of the day, we are going to make sure that the barrel gets supplied. It just might be a little bit more costly.

It is a minor bump in the road. Over time, those supply chains will adjust. By the way, because it is all on the water, literally, they will adjust in weeks. Our perspective is it is business as usual. It is going to change how supply moves around the globe. For us, we are going to be as efficient as we can be in supplying and sourcing the lowest cost barrels to make sure that we are delivering on our promise to our guests and customers. Long answer to the question, but it does not affect how we think about our business and how we want to invest and where we believe we actually have competitive advantages. Actually, we think this highlights our competitive advantages in the markets that we are in. I hate to say it, but it is positive for our business model.

I actually think it's one of the things that differentiates us versus our competitors.

Selman Akyol (Analyst)

Got it. Can you maybe talk about what you're seeing in Houston and maybe what the growth plans are for that? You've had it now for a while. Just kind of wondering what you're thinking on.

Mark Romaine (COO)

Yeah. Selman, it's Mark again. I mean, just broadly, we've got the retail down there. We've got terminals, and we've got a pretty sizable wholesale and branded rack business down there. I think from a growth standpoint, we'll look to grow all three legs of that stool. We'll look to, we consider new retail assets every time they become available. As you know, we're very disciplined. We're not going to do a deal for the sake of growing. We're going to do a deal if we think we can add value and we think we can drive synergies through it. We continue to look for retail opportunities to grow. Some of the assets that we bought and that we got in that Motiva transaction, we have seven terminals in Texas. Some of them have real growth opportunities. We'll look to kind of organically grow those.

It may take some time because there's permitting and things like that. These are not flip-the-switch opportunities like adding new customers. These are investments that I think we have the opportunity to make. We'll continue to try to leverage our sales and supply functions to grow that supply and wholesale presence. I think it is an area that we're very interested in. We're going to keep focusing on that and other regions and look for opportunities to grow through acquisition, but also look for opportunities to grow organically. If you just dial it back to retail, we've been operating those assets, I think, for a year and a half. I think we've got our arms around them. I think there's a lot of opportunity to grow those volumes and store sales on site.

We're very focused on that region, and I think we're positive about our opportunities down there.

Selman Akyol (Analyst)

Got it. Just last one, just in kind of staying on acquisitions, anything changing in terms of either the number of potentials you see out there or anything in terms of pricing, bid-ask spreads getting closer? Anything you can just make on commentary along those lines?

Eric Slifka (President and CEO)

Yeah. I mean, I think it continues to be really busy. I mean, there is lots of stuff out there, and there is lots of movements, whether that is retail or whether that is terminaling. We continue to look at whatever is out there. I think, generally speaking, depending, asset quality really matters as to what multiples things go at. I do think that there are some spreads that have opened up between certain types of sites, but we continue to be very active. We are hopeful that we will get some transactions done in the next year.

Selman Akyol (Analyst)

Okay. Thank you very much.

Operator (participant)

Thank you. We have reached the end of the question-and-answer session. Mr. Slifka, I would like to turn the floor back over to you for closing comments.

Eric Slifka (President and CEO)

Thanks for joining us this morning, everyone. We look forward to keeping you updated on our progress. Everyone, enjoy the weekend. Thank you.

Operator (participant)

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.