Good day and welcome to the Global Partners’ Third Quarter 2021 Earnings Conference Call. Today’s call is being recorded. With us from Global Partners are President and Chief Executive Officer, Eric Slifka; Chief Financial Officer, Mr. Gregory Hanson; Chief Operating Officer, Mr.

Mark Romaine; and Acting General Counsel, Secretary and Vice President of Mergers and Acquisitions, Mr. Sean Geary. Now, let me turn the call over to Mr. Geary. Please go ahead, sir..

Good morning, everyone. Thank you for joining us. 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.

Forward-looking statements are based on assumptions regarding market conditions, such as the crude oil market, business cycles, demand for petroleum products, including gasoline and gasoline blend stocks and renewable fuels, utilization of assets and facilities, weather, credit markets, demand for convenience store operators, the regulatory and permitting environment and the forward product pricing curve, which could influence quarterly financial results.

These statements involve significant risks and uncertainties, some of which are beyond the Partnership’s control, including without limitation the impact and duration of the COVID-19 pandemic, uncertainty around the timing of the economic recovery in the United States, which will impact the demand for the products we sell and the services we provide, uncertainty around the impact of the COVID-19 pandemic to our counterparties and our customers and their corresponding ability to perform their obligations and/or utilize the products we sell and/or the services we provide and uncertainty around the impact and duration of federal, state and municipal regulations and directions related to the COVID-19 pandemic, and assumptions that could cause actual results to differ materially from the Partnership’s historical experience and present expectations or projections.

We believe these assumptions are reasonable given currently available information. Our assumptions and future performance are subject to a wide range of business risks and uncertainties. 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 any forward-looking statements that maybe 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, it is my pleasure to turn over the call to our President and Chief Executive Officer, Eric Slifka..

Thank you, Sean. Good morning, everyone and thank you for joining us. By every measure, Q3 was a strong quarter for Global Partners as we posted margin gains across all three segments of our business.

Our Q3 performance was driven by a variety of factors, all connected by unifying theme, the resilience of our integrated business model, the way we create value through our strategically located terminal network, diverse portfolio of liquid energy products, and our retail fuel and convenience market locations.

Our GDSO segment sustained its strong momentum in the third quarter. With COVID-19 restrictions eased, the demand environment improved markedly from the third quarter of 2020. Margins and volume in our GDSO segment posted double-digit percentage growth in the quarter despite a significant increase in wholesale fuel prices year-over-year.

We saw not only more cars at the pumps, but also a nice uptick in activity across our convenience market portfolio. On a year-over-year basis, our wholesale segment benefited from favorable market conditions in gasoline and distillates in Q3, while our commercial segment saw improved volumes and margins.

Consistent with our M&A strategy, we completed the acquisition of 14 convenient stores and Citgo branded gas stations predominantly in Vermont. With respect to our planned acquisition of Consumers Petroleum of Connecticut, we are still in the process of finalizing regulatory approvals and envision a closing by year end.

Our Q3 performance underscores our role as a critical infrastructure company. Everyday we provide the essential products and services people need to fuel their vehicles, heat their homes, run their businesses and add convenience to their lives. Like other businesses, we encountered spot supply chain disruptions and labor shortages.

We were able to mitigate these issues, where possible minimizing impacts and our third quarter results were strong. Turning to our distribution last week, the Board declared a quarterly cash distribution of $57.50 per common unit or $2.30 on an annualized basis on all outstanding units for the period from July 1 to September 30, 2021.

The distribution will be paid November 12 to unitholders of record as of November 8. We continue to play an active role in advocating and planning for the expansion of liquid renewable fuels in our markets. We are in the process of upgrading 5 terminals for expanded biofuel capacity and are finishing the installation of our first micro grid.

The micro grid is being installed at our Alltown Fresh location in Ayer, Massachusetts. With that, now let me turn the call over to Greg for his financial review.

Greg?.

Thank you, Eric and good morning everyone. As Eric noted, we delivered a strong third quarter across all three segments, resulting in a $33.9 million increase in gross profit, 20% higher year-over-year.

We capitalized on favorable market conditions in the wholesale segment and the improving demand environment in our retail gas and convenience store business as COVID restrictions continued to ease and driving increased. Net income for the third quarter of 2021 was $33.6 million compared with $18.2 million for the same period of 2020.

Adjusted EBITDA increased to $79.2 million for the third quarter compared with $65.9 million in the same period in 2020, while DCF was $49.7 million compared with $31.3 million.

Please note that EBITDA, adjusted EBITDA and DCF for the 2021 period include a $3.1 million expense resulting from the retirement of our former Chief Financial Officer in August. TTM distribution coverage as of September 30, 2021 was 1.2x or 1.1x after factoring into distribution to our preferred unitholders.

Turning to our segment detail, GSO performed well, with higher year-over-year fuel volumes and increased convenience store activity, growing Q3 product margin to $177.7 million from $158.9 million. The gasoline distribution contribution to product margin was up $11 million to $112.4 million from $101.4 million.

Fuel margins in Q3 came in at approximately $0.27 per gallon in the quarter unchanged from a year earlier, while retail fuel volume increased to 417 million gallons from 376 million gallons a year earlier, up 11%.

The station operations were also strong, contributing $65.3 million to product margin, up $7.8 million from the third quarter of 2020 due to an increase in activity at our convenience stores.

At the end of Q3 of 2021, our GDSO portfolio consisted of 1,597 sites, comprised of 295 company-operated stores, 291 commissioned agents, and 203 lessee dealers and 808 contract dealers.

Looking at the wholesale segment, third quarter product margin was $42.3 million, up from $28.9 million primarily reflecting more favorable market conditions in gasoline and distillates. Wholesale gasoline and gasoline blend stocks contributed $22.5 million, up from $17.1 million.

Other oil and related products increased to $22.6 million from $14.5 million. Product margin from crude oil was negative $2.8 million in the third quarter of 2021 versus negative $2.7 million a year earlier.

Turning to the commercial segment, product margin increased $3.9 million from $1.5 million primarily due to an increase in volume sold and improved margins. Looking at expenses, operating expense totaled $92.1 million for the quarter compared with $82.2 million for the prior year period.

The primary driver was higher credit card fees resulting from higher retail prices and higher volumes. Two other factors also contribute to the variance.

An increase in salaries and benefits related to our convenience store employees due to a combination of higher wages and hours worked and increased rent expense related to our additional sites in the Philadelphia area. We have added more than 30 sites there since mid-2020.

SG&A was $54.7 million for the third quarter, up from $43.2 million in the prior year period. The increase primarily reflected higher incentive compensation in wages and benefits. As I noted, we incurred a $3.1 million expense for compensation resulting from the retirement of our former Chief Financial Officer in the quarter.

Interest expense for the quarter was $19.7 million, down from $19.9 million partly due to lower average balances on our revolver and to lower interest rates. CapEx in the third quarter was $26.8 million.

This consisted of $9.8 million in maintenance CapEx bringing the year-to-date total to $28.1 million and $17 million in expansion CapEx, excluding acquisitions bringing the year-to-date total to $37.4 million. The majority of the CapEx relates to our gas station business.

Given where we stand for the first 9 months of 2021, we expect maintenance CapEx to come in at the low end of our full year guidance range of $45 million to $55 million and continue to expect expansion CapEx of $50 million to $60 million for the year, with the majority consisting of investments in our gasoline stations and convenience stores.

I will note a portion of this spend will be dependent on the availability of equipment, which is subject to supply chain concerns. Our balance sheet remains strong. On a TTM basis, leverage defined in our credit agreement as funded debt to EBITDA was approximately 3.5x at the end of the third quarter.

We continue to have ample excess capacity under our credit facility. As of September 30, 2021, total borrowings were $296.3 million, consisting of $252.9 million under our $800 million working capital revolving facility and $43.4 million outstanding under our $450 million revolving credit facility.

Looking at our upcoming investor calendar, over the next several weeks, we will be participating in conferences hosted by RBC Capital Markets, BofA Securities and Wells Fargo Securities. If you are attending any of these events, we look forward to meeting with you.

If you would like to arrange a one-on-one, please e-mail our Investor Relations team at glp@investorrelations.com. Now, let me turn the call back to Eric for closing comments..

Thanks, Greg. Looking ahead, we are well positioned both financially and operationally as we prepare to close out 2021. While we remain mindful about the uncertainty of COVID-19, we are encouraged by the improved demand environment in our business.

With global supply shortages and a sharp rise in prices creating challenges for natural gas heading into the winter months, our industry will have the opportunity to reinforce the benefits of liquid fuels as a reliable and cost effective source of energy. Now, we will be happy to take your questions.

Operator?.

Thank you. [Operator Instructions] Our first question comes from the line of Theresa Chen with Barclays. Please proceed with your question..

Good morning. I wanted to ask about the strength in your GDSO segment, on the margin in particular, especially on the heels of rising commodity prices during the quarter.

Can you give us a little bit more color on what drove that?.

Good morning, Theresa. It’s Mark. I think we have talked about this, I think throughout the year and we have had rising prices pretty much since the beginning of the year. And typically that does tend to compress fuel margins. But we have seen margins stay pretty resilient despite the increase in cost. And so that’s obviously been a key driver for us.

And then in addition to that we have seen as Greg mentioned, we have seen some healthy return in sales to both fuel sales and store sales. And so that’s probably the other piece of it, but a big piece of that is the resiliency of margins throughout this increase in our base costs..

So looking forward, I guess, Mark, do you expect this to continue? Do you think that as volumes have normalized from the pandemic trough that this incremental margin could be competed away?.

Yes, it’s impossible to say, Theresa. I am not sure what to expect in the future. I think we have – we know what we have seen this year and that trend continues where it lands, I don’t know..

Okay, thank you..

Our next question comes from line of Selman Akyol with Stifel. Please proceed with your question..

Thank you. Congratulations on a very nice quarter. That was pretty impressive. A couple of quick questions here.

So, in regards to your terminals for biofuels, can you do say, if you are receiving a premium for those terminals at all for moving product through there, or is it just more, you are seeing demand, because you are doing biofuels through those terminals?.

Selman, it’s Mark. Good morning, I think it’s a combination of both. I think the more products we can handle that we get paid for handling, storing and handling products and redistributing. So, as we are able to introduce more biofuel and higher biofuel blends, it’s not every terminal can handle that.

So, the harder it is to handle the more margins tend to expand. That being said, it’s a very tight margin business, as it always has been. So, we look at this twofold.

We look to capture whatever opportunity we can in the front of the market, but we are also setting ourselves up for perhaps higher volumes of renewable fuels to flow through our system, as you know, as markets may transition in the future.

So, it’s the projects are kind of twofold, obviously, to capitalize on existing markets, but to set ourselves up for possible changes in the marketplace as well..

Yes. I mean those – it’s Eric Slifka. Those changes in the market could simply be consumer demand driven, or they could be regulatory, right. And making sure that we are best positioned to handle those fuels is about – is about setting ourselves up for what we think is coming in the future.

The fact of the matter is our Project Carbon Freedom has helped to support regulations in the State of Rhode Island, in the State of Connecticut, and a proposed regulation in the State of New York, for outside of the existing requirement for bio blends throughout the rest of the State of New York.

And so what we are really trying to do is just make sure that we are positioned to handle as broad array of fuels, as there is current demand for, but also the demand that’s coming, right. In order for states and government to reach their greenhouse gas goals, they are going to have to take the fuels that we carry today, and change them somewhat.

And I believe that directionally and broadly, our industry is in the best position to take these liquid fuels and distribute them, and they will have a lower carbon footprint. So, we think it’s really the best way for government to help support the transition to lower emission fuels, right.

And it’s our goal to make sure that we can deliver that as those requirements come in..

Yes, I am sure. Thank you..

But before we wrap on that one, can I just add, because I am thinking about why you might have asked that question. And I would not expect the material – just to be a material driver for the margin structure on the wholesale side at the moment, right.

Again, as we introduce higher blends, that may have a more dramatic impact, but at the moment, I wouldn’t expect this to be a material driver..

Understood. Thank you.

So, you referenced seeing more traffic and I am just curious, your premium stores in Alltown? Do you see them significantly outperforming your other stores in this environment?.

That’s a good question. And it’s I am not sure.

Are you talking about our new – our Alltown Fresh Concept stores?.

Yes..

Yes. So, that we have at the moment we have eight of those stores. Some were open, they were opened at various points in time over the last 2 years, 2.5 years. Some opened during the pandemic, which is you always – which was a challenge for anybody. I think we have seen a lot of positives out of those stores.

Keep in mind those stores are a lot different than anything else we operate in the sense that all eight of them have a full made to order, kitchens with high quality food service. So, they are quite a bit different than what we operate.

So, the comparison is a little bit difficult, because we have the – we have the food service element that we don’t have in many of our other stores. But I would say, on balance, we have seen some really positive signs out of this. We are also trying to figure out the model as we go, right.

It is a concept and we are learning from different things that we do, some things that are working, some things that aren’t working. But I would say that directionally, we are pleased with how they are performing. And we are taking learnings from each store that we open and trying to apply them to whatever comes next.

Including our expectation is what we will gain – the learnings that we gained from these concepts, we expect we will be able to apply a lot of those features and concepts to our existing portfolio..

Was your question also around sort of highway locations directionally versus locations that are inner – in the middle of the town?.

No, I mean, really what I was getting at, I mean it seemed like traffic was picking up.

And I am just wondering, are these stores having a significantly higher ROI compared to some of your other stores that you have? And then because there is such a large, the difference in capital costs between the two, is it paying off? That’s really where I was going with it, or thinking about?.

Yes. I mean, I would say broadly, the stores have been busier inside, and the gap that’s picked up outside, I would say the outperformers more recently, have been those highway locations, right, because they were probably off the most particularly commuter locations, but they were great real estate assets, right off the highways.

They were probably injured a little bit more during the pandemic, but they really started to come back on in the last quarter, right..

That’s helpful. Thank you for that.

Everyone is thinking about inflation is coming, it’s here, you guys are experiencing it, can you just remind us what levers you guys can pull in order to try to help to offset it?.

Yes. I mean some of the things that we are doing are self checkouts by example, and try to roll that out to as many places as you can in the chain, that takes some pressure off. That’s on the cost side, on the products that you are selling, you are trying to maintain your margins or increase them because the costs are higher and pass them through.

So, at the end of the day, if there is an increase in the cost of staffing a store, everybody has that pressure. And so everybody is going to figure out how to deal with it, and how to run as efficiently as you possibly can, but also then pass through that cost.

And that cost will come through in margin, but also the cost of the goods are rising as well, right. So, you are getting it all around. But I think the good news is all of your competitors are going through those same increases. And all the wholesale competitors are very smart and they have realized there is an increase in cost.

And in order to continue, they are increasing their margins as well..

Got it.

And then just last for me, any comments you can make on the acquisition market and kind of what you are seeing out there?.

It’s still very busy. There is lots going on. We have seen lots of transactions. And I think the company continues to position itself to take advantage of those opportunities as they come down the pipe..

Okay. Thank you so much..

We have reached the end of the question-and-answer session. 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 keeping you updated on our progress. Thanks, everybody. Have a great day..

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..