Good day, everyone, and welcome to the Global Partners Fourth Quarter 2021 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, Mr. Gregory Hanson, Chief Operating Officer, Mr.

Mark Romaine; and Acting General Counsel and Vice President of Mergers and Acquisitions, Mr. Sean Geary. At this time, I would like to turn the call over to Mr. Geary for opening remarks. 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 blendstocks and renewable fuels, utilization of assets and facilities, weather, credit markets, demand for convenient 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 an 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 the obligations and/or utilize the products we sell and/or the services we provide; uncertainty around the impact and duration of federal state and municipal regulations and directives related to the COVID-19 pandemic and other 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 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 it's my pleasure to turn the call over to our President and Chief Executive Officer, Eric Slifka..

to continue profitable growth by investing in and optimizing our portfolio and acquiring assets that complement our skills and enable us to generate mid-teen returns. The M&A market remains very active, and we continue to evaluate all opportunities that we consider appropriate to achieve our business objectives.

Our role in energy transition is also at the forefront of our plans. We are aggressively pursuing opportunities to utilize our terminal assets for renewable fuels, while encouraging policies that promote and monetize their adoption.

To that end, we continue to advance our grassroots coalition project Carbon Freedom, the coalition of over 100 members and nearly 1,000 advocates, is promoting clean energy solutions that utilize the infrastructure and equipment we have in place as a means to meet policy-driven climate goals today.

Earlier this year, we onboarded an electric innovation strategist as part of our sustainability team. The position demonstrates our commitment to planning for electric vehicle adoption and responsibly incorporating EV charging into our portfolio.

We continue to look for public-private partnerships in the space and were recently awarded funds from the Commonwealth of Massachusetts to install fast-charging electric vehicle charging ports at 9 of our old or controlled retail locations.

Finally, I want to acknowledge the global team whose commitment, growth mindset and execution allows us to continue delivering outstanding results. As we look to 2022, we will continue to invest in our people who underpin our ability to execute our strategy. With that, let me turn the call over to Greg for his financial review.

Greg?.

Thank you, Eric, and good morning, everyone. As Eric noted, we capped a solid performance in 2021 with a strong fourth quarter, highlighted by continued strength in our GDSO segment.

As we go through the results, please keep in mind that net income, EBITDA, adjusted EBITDA and DCF in full year 2021 include a total of $9.7 million in compensation and benefits and expenses associated with the passing of our General Counsel in May and the retirement of our former CFO in August.

For the fourth quarter and full year of 2020, these metrics include a $7.2 million loss on the early extinguishment of debt related to the redemption of our 7% 2023 senior notes in the fourth quarter of 2020. Adjusted EBITDA for the fourth quarter of 2021 was $66 million compared with $49.9 million for the same period in 2020.

The $16.1 million increase was due largely to our GDSO segment, which experienced higher fuel volume and margin as well as increased activity in the C-stores. For the full year, adjusted EBITDA was $244.3 million compared with $287.7 million in the same period of 2020.

As Eric noted, our full year 2020 results benefited from an extreme shift in the forward product pricing curve in the second quarter of the year that significantly strengthened our Wholesale segment. Net income for the fourth quarter of 2021 was $19.3 million compared with $4.4 million for the same period of 2020.

For full year 2021, net income attributable to the partnership was $60.8 million compared with $102.2 million for 2020. DCF was $30.5 million for the fourth quarter of 2021 compared with $7.3 million in the prior year period. DCF for the full year of 2021 was $120.7 million compared with $156.4 million in 2020.

TTM distribution coverage as of December 31, 2021, was 1.5x or 1.3x after factoring in distributions to our preferred unitholders. Turning to our segment details.

GDSO product margin in Q4 '21 was $177 million, up $33.4 million from the year earlier period, reflecting a continuation of the strong margins, increased fuel volume and C-store activity we saw in the second and third quarters of the year.

The gasoline distribution contribution to product margin was up $27.1 million in the quarter to $119.7 million, reflecting a $0.04 per gallon increase in average fuel margin to $0.30 from the prior year period.

While wholesale gasoline prices were relatively flat from the beginning to the end of the quarter, the price volatility in the quarter led to an over $0.50 spread from the high to low price experienced in the quarter.

Station operations product margin, which includes convenience store and prepared food sales, sundries and rental income contributed $57.3 million, up $6.3 million from the fourth quarter of 2020 due to increased activity at our convenience stores.

For full year 2021, GDSO product margin increased $43.7 million to $647.6 million as a 13.7% increase in volume offset a $0.02 per gallon decrease in fuel margin to $0.27 from $0.29 in the prior year period. Gasoline distribution contributed $413.7 million of product margin for the full year, up $15.7 million from 2020.

Station Operations product margin was $233.9 million for the full year 2021, up $28 million from 2020. At the end of 2021, our GDSO portfolio consisted of 1,595 sites, comprised of 295 company-operated sites, 293 commission agents, 201 lessee dealers and 806 contract dealers. Looking at the Wholesale segment.

Fourth quarter 2021 product margin decreased $7.1 million to $32.6 million, reflecting less favorable market conditions in other oils and related products, partially offset by more favorable market conditions in gasoline and gasoline blendstocks, largely in ethanol.

Gasoline and gasoline blendstock product market contributed $23.9 million to wholesale product margin, up $7.1 million from the same period in 2020. Product margin from other oils and related products, which include distillates and residual oil was down $14.7 million to $10.8 million.

Product margin from crude oil was negative $2.1 million in the fourth quarter, up $500,000 from a year earlier. For full year 2021, Wholesale product margin decreased $47.1 million to $138.9 million due to less favorable market conditions. Gasoline and gasoline blendstock product margin decreased $15.5 million to $86.3 million for the full year.

Product margin from other oils and related products was $65.4 million for the full year, declining $19.5 million from 2020. Crude oil product margin decreased from negative $700,000 to negative $12.8 million. Turning to the Commercial segment.

Product margin increased $1.9 million in the fourth quarter to $4.8 million, primarily due to an increase in volumes sold and improved margins. Those factors also drove the segment's full year results as product margin increased $3.3 million to $15.6 million. Looking at expenses.

Operating expenses increased $10.9 million to $92.7 million for the fourth quarter and $30.3 million to $353.6 million for the full year.

The increases were largely associated with our GDSO operations, primarily reflecting increased credit card fees related to the increases in volume and price, higher rent expense and higher salary expense due in part to greater activity at our convenience stores.

SG&A expenses increased $8.5 million in the fourth quarter to $57.8 million, in part due to higher wages and benefits and professional fees. On a full year basis, SG&A was up $20.4 million to $212.9 million.

As mentioned earlier, during 2021, we incurred a number of onetime SG&A expenses including $9.7 million in onetime compensation and benefits expenses mentioned earlier. Excluding the $9.7 million, SG&A would have been approximately $203.2 million for the year. Interest expense was $19.7 million in the quarter, compared with $21 million a year earlier.

For full year 2021, interest expense declined $3.4 million to $80.1 million. CapEx in the fourth quarter of 2021 was approximately $36.1 million, consisting of $15.1 million of maintenance CapEx and $21 million of expansion CapEx, the majority of which relates to our convenience stores.

CapEx for full year 2021 was $101.7 million, consisting of $43.2 million in maintenance CapEx, slightly below our guidance of $45 million to $55 million and $58.5 million in expansion CapEx, in line with our guidance of $50 million to $60 million, excluding acquisitions.

For full year 2022, we expect maintenance CapEx in the range of $45 million to $55 million and expansion CapEx, excluding acquisitions, in the range of $50 million to $60 million. We continue to manage our balance sheet prudently.

Leverage, which is defined in our credit agreement as funded debt-to-EBITDA was approximately 3.3x at the end of the fourth quarter. We continue to have ample excess capacity in our credit facility. As of December 31, 2021, total borrowings outstanding under the credit agreement were $398.1 million.

This consists of $354.7 million under our working capital revolving credit facility, which was increased in November by $100 million to $900 million and $43.4 million under our $450 million revolving credit facility. Looking at our upcoming IR calendar.

On March 10, we will be hosting one-on-one meetings at the Credit Agricole 15th Annual Global High Yield and Leveraged Finance Conference. For those of you who are participating, we look forward to meeting with you. Now let me turn the call back to Eric for closing comments..

Thanks, Greg. As demonstrated by recent transactions, we continue to deliver on our strategy to optimize and grow our assets. We are focused on deals that provide ongoing cash flow and acquisitions to enable us to leverage our scale, supply relationships and integrated business model.

We are putting significant effort into positioning our assets and infrastructure to play a critical role in the energy transition, while also investing in the people power that keeps us growing and innovating.

As a critical infrastructure business serving a significant portion of the U.S., we are confident in our ability to provide the vital energy products, goods and services of today and tomorrow. Now Greg, Mark and I will be happy to take your questions.

Operator?.

[Operator Instructions] Our first question comes from the line of Selman Akyol with Stifel..

Can you maybe just start off with just how our margins are going in this current environment given the consistent upward pressure we've seen on prices?.

Selman, it's Eric. I would say it's been really interesting over the past almost 2 years now. There has clearly been a shift in the market as to how it passes through increased costs and margin and obviously, there are no guarantees there.

But over the last couple of years, as we've seen markets increase, in commodity costs, margins have either kept pace or increased at retail. Volumes given the change in flow are still a little bit off, but it appears so far that those increasing costs and the margins that are needed to increase with those costs have more than kept pace..

All right. I appreciate that. And then maybe could you discuss a little bit more what you're hoping or expecting out of your Electric Innovation Strategist? I don't know if there's any goalpost you can pull with that in terms of maybe how many charges you guys get installed? Or just anything we should be looking for, I guess..

Yes. I mean I think, look, it's -- the math is still difficult. And so we're trying to be very thoughtful about how we approach it and working with the state and the federal governments to figure out how to expand that business in a thoughtful way is going to be really important.

That's not to say that -- and that's on the electric side, right? But I do think the very, very broad-brush way of thinking about terminalling, by example, is there's going to be a requirement to carry different fuels and different products that are less commodity than, let's say, gasoline.

And so I think that's going to be a fundamental pressure and change that happens to the business, and I think there's going to be an opportunity around that..

Got it. Then let me just ask you a little bit about G&A, and I clearly hear you on the higher benefits and wages. Coming out of Q3, as you noted, there were some onetime fees in there for Daphne of $3 million. So when I look at the fourth quarter, I'm really looking at sort of $51 million to $57 million.

And I'm just wondering, is that the run rate sort of less higher professional fees should we be thinking about? Is there any way you can maybe help quantify sort of what would the ongoing expense would be because clearly, you've done a couple of acquisitions. You've had a disposition as well.

So I'm just trying to figure out maybe the professional fees aren't as recurring and just trying to get to a run rate..

This is Greg Hanson, Selman. I will help you out there. I mean, even in the fourth quarter, we had a number of onetime things. We didn't break them out, but we did have acquisition expense onetime, and we actually had some additional severance expense, unfortunately, from passing of another colleague in the quarter.

That said, I would say, overall, our expectation is the run rate right now is a little high. We have added some overhead related to the acquisitions. We're also investing heavily on our HR and employee recruiting areas and also in technology.

But we're also making a big push to hire additional top staff for sort of our human capital initiatives to help us further expand the business. So I'd say that the fourth quarter overall was a little bit heavy, and the run rate should be a little bit better going forward..

Understood.

And then can you also just maybe just comment on the impacts you're seeing from inflation?.

Yes. I mean I can start off, and Eric and Mark, you can go ahead. I would say there has not been material impacts to our business. I would say on the C-store side, we have seen some price increases from our suppliers, but we've been able to pass those along to our consumers.

I think if you look historically, the C-store space has historically benefited -- not benefited, but done much better during periods of inflation and periods of potential recessions. So overall, we're not seeing it. I would say we've seen some on the CapEx side from equipment and building materials.

We've seen some inflation there that could potentially impact the way we look at our expansion CapEx, but nothing that's impacted our returns to date..

Great. And then last one for me. Do you guys have any more potential assets for sale.

Should we be thinking about that as being another source of cash this year?.

So obviously, we always look to optimize what we have. And as you buy and consolidate business with respect to our individual assets it may change. And so there is always, I'd say, a natural churn of assets.

Is there anything material like that on the horizon? Not that I'm aware of, but that's not to say that if somebody came along and we thought we could get the right deal for the right asset then we would take a hard look at doing something with it..

Yes. We have about $7 million in net proceeds from retail asset sales, Selman, in 2021. We still, as Eric mentioned, we've got a number of sites that are on the market for sale. Nothing big or material but sort of our normal course upgrading of our portfolio as we turn through stuff.

So I do from a sort of capital financing perspective, I do view it as a source of proceeds to reinvest into our expansion CapEx on NTIs and raze-and-rebuilds..

Yes. I mean, Selman, I do think very broadly, industrial space today is going for much, much bigger numbers than ever and at triple net prices that I don't think anybody would have ever imagined 5 years ago, right? And so we're going to try and be efficient if we can and if there's opportunity..

Mr. Slifka, now I would like to turn the floor back over to you for closing comments..

Thank you for joining us this morning. We look forward to keeping you updated on our progress. Thanks, everyone, and have a good 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..