Edward Faneuil - EVP and General Counsel Eric Slifka - President and CEO Daphne Foster - CFO Mark Romaine - COO.

Andrew Burd - JPMorgan Barrett Blaschke - MUFJ Securities Matt Niblack - HITE Ben Brownlow - Raymond James.

Good day, everyone, and welcome to the Global Partners' Fourth Quarter 2017 Financial Results Conference Call. Today's call is being recorded. There will be 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. At this time, I would like to turn the call over to Mr. Faneuil for opening remarks. Please go ahead, sir..

Good morning, everyone, and 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 for 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, utilizations 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..

Thank you, Edward. Good morning, everyone, and thank you for joining us. We delivered results in 2017 that exceeded our full year expectations. Our full year results were driven by solid overall performance highlighted by our gasoline distribution and station operations segment which generated $28.4 million increase in product margin year-over-year.

Product margin also was up in our wholesale segment as refined product throughput in 2017 increased for the second consecutive year. In October, we acquired Honey Farms which expanded our retail portfolio with the addition of 33 locations.

As with our acquisitions of Warren Equities and Capitol Petroleum and consistent with our history as an acquirer, the Honey Farms transaction is another example of our success in integrating, optimizing and enhancing assets and growing market share. The Honey Farms acquisition is on course to be accretive in its first full year of operations.

Across our retail gasoline and C-store business, we've driven synergies and profitability by capitalizing on our scale and buying power. With an increasing number of retailers seeking to attract the traditional convenience store customer, we continue to invest in infrastructure to provide the highest quality customer experience.

Through focused management and strong performance, we generated additional cash flow to invest in assets fundamental to our growth. Our objective remains to grow the business through M&A and improved operations. Turning to our distribution, in January our Board announced a quarterly cash distribution of 46.25 or $1.85 on an annual basis.

The distribution was paid February 14 to unitholders of record on February 9. Before concluding, I want to express appreciation to Chuck Rudinsky who retired as EVP and Chief Accounting Officer in December after more than 30 years with our organization. Chuck joined us when we were private and played a key role in bringing the company public in 2005.

During his tenure, he was instrumental in managing the accounting aspects of our growth and expansion, as well as a key contributor in the evaluation and integration of our multiple acquisitions. We wish Chuck well as he steps away from full time responsibilities. At the same time, I want to welcome Matt Spencer, our new CAO.

Matt joined Global as Controller in 2012 and I know he will make an outstanding member of our leadership group. With that let me turn the call over to Daphne for financial review.

Daphne?.

Thank you Eric and good morning everyone. Let me start this morning by providing additional color regarding two items in our fourth quarter 2017 financials. During the quarter, we recorded a onetime non-cash tax benefit of $22.2 million related to the December 2017 Enactment of the Tax Cuts and Jobs Act.

The Act lowered the corporate federal income tax rate from 35% to 21% which resulted in our measurement of certain deferred tax assets and liabilities. We are still in the process of analyzing the impact of the Act and therefore the benefit was recorded based on provisional amount.

Also during the quarter, you recognize a loss in trustee taxes of $16.2 million and related to the New York State Audit of the Partnerships Fuel and Sales Tax Returns for the period between December 2008 and August 2013. The law consists of tax and interest without penalty.

We intend to appeal and believe we have defenses to recover a majority of the tax and interest effect. Now let me review our fourth quarter and full year results and provide our EBITDA guidance for 2018.

Combined product margin in the fourth quarter increase $3.1 million year-over-year to $179.1 million due to significant growth in the GDSO segment which more than offset declines in the wholesale and commercial segments. Total expenses increased in the quarter primarily reflecting investments in our GDSO segment.

Operating expenses of $74.9 million were up $5.1 million from the fourth quarter of 2016 largely related to the Honey Farms acquisition in October and an increase in credit card fees due to higher wholesale gasoline prices.

SG&A expenses in Q4 increased $2.1 million to $43.4 million primarily related to headcount and other expenses to support our GDSO business.

EBITDA for the fourth quarter was 41 million and adjusted EBITDA which excludes the loss on the sale and disposition of assets was $46.7 million compared with negative adjusted EBITDA of $14.4 million for the fourth quarter of 2016. As you may recall results for Q4 of 2016 included the $80.7 million lease termination expense.

Results for Q4 2017 were negatively impacted by the loss in Trustee taxes. Interest expense was 20.4 million in Q4 2017 compared with 21.1 million in the year earlier period. The decrease was due to lower average balances on our working capital revolving credit facility partially offset by an increase in interest rates.

DCF for the fourth quarter was $10 million and excluded a loss on sale and disposition of assets would have been $15.6 million which also reflects a negative impact of the loss in Trustee taxes.

Net income for the fourth quarter was $18.6 million this result included the $5.6 million loss on sale of disposition assets offset by the $22.2 million tax benefit. Now let me take you through our segments in more detail beginning with GDSO comparing Q4 2017 with the same period in 2016 GDSO product margin increased $30.6 million to $142.3 million.

The gasoline distribution contribution to that product margin was up $27 million to $95.9 million in the fourth quarter reflecting fuel margins which averaged $0.24 per gallon versus $0.17 per gallon in Q4 of 2016. Station operations product margin increased $3.6 million to 46.4 million primarily due to the October acquisition of Honey Farms.

At year end 2017 our GDSO portfolio consisted of 254 company operated stores 267 commissioned agents, 230 lessee dealers and 694 contracts dealers for a total of 1455 sites. Wholesale segment product margin declined 24.5 million to 32.2 million in the fourth quarter of 2017 primarily due to declines in crude oil and distillates.

Crude oil price margin was down $11.7 million to $4 million reflecting less revenue from one particular crude oil contract customer partially offset by lower railcar lease expense.

Crude oil product margins for both the fourth quarter and full year of 2016 included revenue of $28 million attributed to the absence of logistics nominations from that one contract customer.

In contrast crude oil price margins for the fourth quarter and full year of 2017 included revenue of $10.9 million and $43.2 million respectively related to the absence of logistics nominations from that same customer.

With the railcar lease termination at the end of 2016 railcar lease expense declined and was $3.1 million in the fourth quarter of 2017 versus $11 million in the fourth quarter of 2016. Product margin and other oils and related products was down $11.3 million to $10.5 million primarily due to less favorable market condition in distillate.

Gasoline and gasoline blend stocks product margins was done $1.5 million to $17.7 million also due to less favorable market conditions primarily in gasoline blend stocks. Commercial segment product margin decreased $2.9 million to $4.5 million due in part to the sale of our natural gas business in February 2017.

Total volume decreased approximately $129 million gallons to $1.2 billion primarily due to lower volumes of distillate in our wholesale segment.

Volume in GDSO segment declined by just 5 million gallons 400 million gallons in Q4 2017 versus Q4 2016 reflecting the retention of supply contracts with buyers at many of our sales sites, as well as the addition of the Honey Farm portfolio.

CapEx in the quarter was approximately $18.2 million consisting of $12.8 million of maintenance CapEx including $10 million related to our retail sites. Expansion CapEx excluding the Honey Farms acquisitions was $5.4 million in Q4 which related primarily to investment in our retail gas station, but also projects at our terminal and in IT.

Let me touch briefly on our full year operating results. Product margin increases $29.5 million year-over-year primarily due to the strong performance in the GDSO sales segment but also the increase in our wholesale segment. GDSO product margin increased $28.4 million with higher fuel margins on essentially flat volume.

That increases would partially offset by a decline in station operations reflecting the sale of sites including the direct sites in August 2016.

Wholesale segment product margin increased $7.3 million driven by a $20.4 million increase in crude oil margin reflecting increase revenues from a take-or-pay crude oil contract and lower railcar lease expense. Commercial segment product margin decreased $6.2 million largely due to the sale of our net GAAP business.

Total combined operating and SG&A expenses remained approximately flat year-over-year. SG&A expenses in 2017 of $155 million increased $5.3 million reflecting additional professional fees and incentives comps.

Operating expenses of $283.6 million declined $4.9 million in part due the sale sites in our GDSO segment, less activity at our North Dakota facility, and $3.1 million in tank cleaning costs in 2016 at our Oregon facility in order to convert that facility to ethanol transloading.

Interest expense of $86.2 million was in line with prior year but reflect lower average balances on our credit facilities and lower interest rates due to the expiration of an interest rate swap, partially offset by a full year of our financing obligation recognized in connection with our sales lease back transaction in June 2016.

Adjusted EBITDA was $224.2 million in 2017 compared with $129.8 million in 2016 or $210.4 million without the lease and termination expense.

DCF for the year was $108.3 million, excluding the net loss and sale and disposition of assets and long-lived asset impairment, DCF for the full year would have been $121.6 million which would have translated to a coverage at 1.9 times.

For full year 2017, maintenance CapEx was approximately $34.7 million, $27.9 million of which related to our investments in our gas station. Expense in CapEx excluding acquisition was approximately $15.1 million which consists of $8.7 million in investments in our gas station business and the remainder primarily related to investments and IT.

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 to $40 million. Turning to our balance sheet as of December 31, we had total borrowings outstanding of $422.7 million under our $1.3 billion facility.

Borrowings consisted of $196 million under our $450 million revolving credit facility and $226.7 under our $850 million working capital facility. Leverage is defined in our credit agreement as funded debt-to-EBITDA with effect under four times at the end of the fourth quarter.

Turning to guidance, for full year 2018 we expect to generate EBITDA of $180 million to $210 million which guidance excludes any gain or loss on the sale of disposition of assets and any goodwill along with asset impairment charges.

Furthermore, EBITDA guidance for 2018 excludes the recognition in the first quarter of a onetime income item of approximately $52.6 million as a result of the extinguishment of the contingent liability related to the biometric ethanol excise tax credit which tax credit program expired in 2011.

Based upon the significant passage of time from that 2011 date, including underlying statutes of limitations as of January 31, 2018 the partnership determined that the liability was no longer required. This recognition of one-time income will not impact cash flows from operations for the year ending December 31, 2018.

Let me provide additional commentary about our 2018 EBITDA guidance relative to our performance in 2017. The primary factor driving the variance was the existence of particularly strong fuel margin in 2017 in our GDSO segment which we did not build into our 2018 budget.

As I pointed out earlier fuel product margin in that segment was up 28 million year-over-year primarily due to higher fuel margins. We have of course factored in a full year of Honey Farms which we acquired in October 2017.

Regarding crude oil the take-or-pay contract with one particular customer which generated revenue of approximately $11 million per quarter in 2017 includes at the end of the second quarter of 2018 but crude oil price margin in 2017 was burdened by the $13.1 million expense related to the termination of the Tesoro pipeline.

Additionally crude oil railcar lease expense is expected to decline to approximately 6 million in 2018 from 11.3 million in 2017. While expenses will continue to reflect investments to support and grow our business. Expenses in 2017 were burdened by the $16.2 million loss on Trustee taxes. Now let me turn it back to Eric..

Okay. We'll actually start with the Q&A..

[Operator Instructions] Our first question comes from Andrew Burd with JPMorgan. Please state your question..

A couple of questions. First, thank you, Daphne, for giving some color on 2018 guidance versus the actuals reported in 2017. Can you help us bridge the 2018 guidance versus the 2017 guidance that you provided at this time last year, which I think was a tad higher? I presumed Honey Farms and the lost crude customers somewhat offset.

Were there any other kind of big, big factors helping us bridge last year's guidance with this year's guidance?.

That's an interesting question because last year's guidance certainly didn’t include the Tesoro pipeline expense that we ended up incurring inside of 2017, as well as the Trustee tax loss.

I think a simplest way to bridge it is really just to sit to how we landed in 2017 and comparing that to what we provided for 2018 guidance which as I spoke to is primarily the strong fuel margins with crude.

For the most part if you do that math it essentially of course with just our pipeline expense reduction and the crude oil contract customer and the decrease in railcar lease expense..

And on the trustee taxes, any color when we might hear about getting some of that back and how much of it?.

No, I don’t have any estimate at this point in terms of timing .As we stated feel confidence that we have the defenses to recover the majority of that tax and interest back..

And then last housekeeping question. As SG&A ticked up in 4Q, and really kind of incrementally increased quarter-over-quarter throughout the year, which I presume somewhat is from GDSO growth. But what's the right way to think about 2018 G&A.

Is the full year 2017 number a better proxy? Or recent trends, third quarter, fourth quarter G&A number is more appropriate?.

I think more of the latter, I think as we continue to invest and support our businesses particularly the growing GDSO segment, I expect it to be a modest increase in SG&A in 2018 relative to spend in 2017. Obviously we’ll continue to invest in marketing related expenses and loyalty and food services et cetera.

And I think of OpEx obviously with the acquisition of Honey Farms in the fourth quarter should increase for the full year of Honey Farm and potentially some timing it projects that terminal..

And my final question, and this is really just kind of a big picture strategic question around highlighting the value of your entire gasoline business, not just GDSO, but also, obviously, the upstream integration you have on the Wholesale gasoline business side.

Have you, at Global, ever considered reporting the Wholesale gasoline activities and GDSO together? I guess considering, first, that public market valuations consistently seem to value those businesses, especially the integrated business at greater multiples, than the Wholesale segment.

And also because generally speaking, I think there's some natural offset between wholesale and retail margins in periods of extreme fuel price volatility. So I'm just curious if that's something that you've looked into in the past or would be open to in the future. Thank you..

So when you think about our sort of businesses right, in one in one area we focus or lease terminals and then we supply those terminals. And we have third party customers who throughput to those terminals, as well as selling our own, what I would say unbranded fuels through those.

But then we also have on the other side a retail business that generally is clustered around those terminaling facilities.

And so, the way I really think about our business is, we are a terminaling business right, that has with it attached a components of supply and marketing, as well as obviously throughput from third parties and then we have a retail component.

And so their different business businesses driven by different volumes and different margin prefers if you will and also different levels of investment. And because of that they have broken out differently also as part of that businesses is our commercial business which is generally more delivered type business.

But it's also clustered in and around the terminal. Now as we look forward what are we hopeful? We're hopeful that we can expand those businesses in a little bit asset like way, so that we don't necessarily have to own and operate the terminals as well.

But in terms of growth potential for the company, we'll continue to look at terminals as well and if the right terminal package comes up, and we think it fits our business model we’ll look to expand upon that. But we do look at our assets broadly as integrate it if you will.

Meaning, we like the connectivity between terminaling supply throughput, as well as retail because it allows us to bring volume to those terminal assets and we think that that's actually a differentiator in terms of the value that we can drive to our assets..

That's understood. That's very helpful to get your thought process on that. One quick follow-up on that.

About what percentage of your Wholesale gasoline volumes are sold by your GDSO segment?.

Yes, we breakout in the K and Qs what gallonage goes to our GDSO segment from our terminals and that’s about a third of the volume. So it was 480 million in 2017..

Let me add just one quick. We do believe there is a real synergy between that business and the lines that you drive through your terminals. And we do think that is a competitive advantage..

Our next question comes from Barrett Blaschke with MUFJ Securities. Please state your question..

I appreciate the color that you've given so far.

Just a little housekeeping follow up and that is, as we think about 2018 and growth is this, are we looking more for sort of Honey Farms type transactions at the focus today or is it on other things more on the terminaling side? And how do you sort of view growth at this point?.

Well I think the market is broader and deeper as it relates to retail. And so I think there is a volume of deals out there that just continued sort of be marketed and so I think there is going to be more opportunity in the retail. For that being said, we will always continue to look at the terminaling as well right.

I just think that there is a lot fewer terminals then there are obviously gas stations or gas station chains, right. So I think by definition that’s going to lead you to more consolidation at the retail right and a bigger opportunity..

One other thing is, we've heard from a lot of other midstream players that you’re seeing more private equity activity bidding on assets, are you seeing that in the gas station market, as well or has it sort of stayed out of that?.

I mean I think there is a lot of competition and a lot of gas available to put into transactions and I think any business that a private equity shop would view as a platform type business. They're going to chase because I think they can bring values to a point. So I think you’ll see them involved everywhere..

Our next question comes from Matt Niblack with HITE. Please state your question..

So in terms of last couple of years there has been a lot of noise that there has been crude by rail on negative side and then just really outstanding perhaps unusual margins on the regional business in 2017 and so the margins kind of banged up and down a bit.

But if we look at your 2018 guidance, is that sort of good baseline where kind of from there forward the combination of expenses rolling off and exit by rail segment as well as these growth investments, we should sort of see that as a baseline from which EBITDA in a secular basis will start to grow again?.

I think that obviously 2018 the guidance we've provided is - does not - you can basically get the math in terms of where we think we’re going to be in terms of crude. I think the expectation today is that we don’t expect beyond that crude to become a significant contributor as the market stay as they are today.

And certainly on the retail side while if we don't necessarily count again in the same type as outside fuel margins that we might had in the back half of last year. Certainly hopeful that we will continue to not only expand that business but be able to capitalize in some of those opportunities that drop off.

So I think it's regional base line but as Eric talked about we’re certainly advocating in terms of opportunities that we want to take advantage of and continue to grow the business..

And then there has been discussion of this but what's your thought on trying to - how you can highlight the value that's in the sort of integrated particularly gasoline distribution business.

I think a lot of us have been kind of staring at your evaluation for a long time and seeing just a huge discount to what some of the comparables are out there? What’s your thought on what you can do there?.

Look I think just generally we are - I think competitively advantage in some markets and our ability to buy certain assets and that’s what’s going to allow us to move forward but I also think that we're well positioned to continue to consolidate markets.

And if you ask me what I think our expertise, its being able to acquire an integrate assets into our business model into our existing footprint, as well as outside of that footprint. But the existing assets that we have, we’ve got a lot of real estate right and we’ve got a lot of good real estate too.

And I think we have really strong cash flows that go through those businesses. So how the market chooses to value that I mean that will solve for itself right all we can do is execute and try to drive cash flow and do accretive transactions..

Our next question comes from Ben Brownlow with Raymond James. Please state your question..

Daphne thanks for the color around 2018 SG&A outlook. I was wondering if you could do a similar type of discussion around OpEx? You mentioned credit card fees in the fourth quarter being one of the drivers for the increase in OpEx year-over-year.

How should we think about or can you quantify the credit card fee job? And just how should we think about that run rate going forward?.

Well the primary increase fourth quarter-over-fourth quarter was Honey Farms. So you got a lot of company operating sites with 375 approximate employees et cetera. So that was the primary increase and then credit card fees was secondary reason for the increase.

And therefore going forward in 2018, I can't predict what commodity prices are going to be certainly and they do have an impact on credit card fee but the OpEx should increase year-over-year because of full year of Honey Farm..

Should we think of sort of I mean I guess embedded in your guidance are you assuming sort of a low single digit growth in the OpEx or is it more aligned with the increase that you saw in the fourth quarter year-over-year..

Probably with the latter..

And on the wholesale segment with the distillates gross profit half kind of year-over-year. You mentioned less favorable market conditions.

Can you just give a little bit more color around that and what you're seeing quarter to date?.

This is Mark. So to answer that question we have to look back at the strength in 2016. So the distillate market has some - still have some pretty attractive contango opportunities in 2016. So we had a really strong Q4 as a result of that. And then in addition to that, we were able to recognize some decent biodiesel blending opportunities in Q4 of 2016.

Neither of those market conditions occurred in Q4 2017. So that's where you get the delta there..

Our next question comes from Will Hardy with RBC Wealth Management. Please state your question. I'm sorry we have run out of time for questions. I'll turn the conference over to Eric Slifka. Please go ahead..

To summarize following the year which we delivered strong results, we began 2018 well positioned to execute on our growth strategy. Thanks for joining us this morning, and we look forward to reporting our results to you again next quarter. Thank you, guys..

This concludes today's conference. All parties may disconnect. Have a good day..