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

Selman Akyol - Stifel Nicolaus Jeremy Tonet - JPMorgan James Jampel - HITE John Olson - Houston Energy Partners Gabe Moreen - Bank of America Merrill Lynch.

Welcome to the Global Partners Third Quarter 2016 Financial Results Conference 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; Executive Vice President and Chief Accounting Officer Mr.

Charles Rudinsky; 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..

Thank you. Good morning and 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.

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; renewable fuels; and logistics; 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 release, publicly announced conference calls, or other means that will constitute public disclosure for 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 and good morning, everyone. As we announced earlier today, in the third quarter we recorded a significant non-cash goodwill and long-lived asset impairment charge related to our wholesale segment. This is a result of the uncertainty surrounding the timing of a recovery in the crude oil markets, specifically crude by rail.

Despite this, we delivered adjusted EBITDA of $52 million for the quarter. This result reflected a solid performance in our GDSO segment and our ability to leverage our storage capacity across the Northeast to capitalize on favorable market opportunities.

Consistent with the plan we outlined earlier this year, we initiated a program to monetize nonstrategic assets, executed a financing transaction to further unlock value in our retail portfolio, cut expenses and reduced headcount. Let me review those steps we have taken through the end of the third quarter.

First, we have completed a $63.5 million sale-leaseback transaction with a premier institutional real estate investor. Second, we have sold 30 nonstrategic gasoline stations and convenience stores in New York and Pennsylvania to Mirabito Holdings for $40 million.

The deal that also includes long-term supply contracts for branded and unbranded gasoline and other petroleum products. Third, we have generated more than $15 million through other sales during the year and we are proceeding with the sale of nonstrategic retail sites in the Northeast and mid-Atlantic through NRC Realty & Capital Advisors.

Through the end of October, approximately half of the NRC's marketed sites have been sold or under agreement. We anticipate that most of this portfolio will close over the next several quarters. In summary, these three initiatives have generated approximately $120 million in cash proceeds.

Fourth, we have expanded our retail portfolio in western Massachusetts with the addition of 22 leased gas stations and C-stores. Fifth, following completion of the tank conversion and dock expansion at our Oregon terminal, we have begun to receive, store and sell ethanol from that facility.

Along with these steps, as part of our day-to-day operations we continuously evaluate our portfolio and growth opportunities. Through this process, we secured additional retail sites from Getty Realty as part of our long-term lease agreements.

Turning to our distribution, last month the Board announced a quarterly cash distribution of $0.4625, or $1.85 on an annual basis, unchanged from the second quarter of 2016. The distribution will be paid November 14 to unitholders of record as of the close of business November 8, 2016. Now, let me turn the call over to Daphne for her financial review.

Daphne?.

Thank you, Eric and good morning, everyone. As Eric noted, our operating results for the third quarter of 2016 reflected the weak crude oil environment, partly offset by the continuing strength of our wholesaling and terminaling assets and our solid retail gasoline business.

Given ongoing challenges and uncertain recovery in the crude oil market, including the effects of tight crude oil spreads on rail movements to the coast, during the third quarter we concluded our analysis of goodwill impairments in our wholesale segment and recognized a $121.7 million charge.

This charge is non-cash and represents the write-off of all of the wholesale segment's goodwill. For similar reasons, we also recognized a long-lived asset impairment charge of $26.1 million, primarily related to our crude oil transloading terminals in North Dakota.

In the quarter, we also recorded a $7.5 million net loss on sale and disposition of assets related to the ongoing disposition of certain retail gasoline sites. Now let me provide an overview of our operating results in the quarter. Combined, product margin for the third quarter was down 12% or $21.5 million year over year to $157.2 million.

Like the second quarter, this decline is primarily due to tight crude oil differentials, as Mid-Continent crude did not discount sufficiently to make rail transport to the East Coast competitive with imports.

SG&A expenses declined approximately $5.8 million year over year, or 14% in the quarter, to $36.7 million, reflecting ongoing cost-reduction initiatives. The decrease is attributable to lower professional fees and due diligence expenses related to potential acquisitions and growth opportunities, wages and benefits and various other expenses.

Operating expenses for the third quarter decreased $6.7 million, or 9%, to $70.6 million. About one-third of that decrease was associated with operating expenses at our terminal network. Another one-third was associated with our GDSO segment, including reductions in various expenses, such as rents, property taxes, credit card fees and maintenance.

The remainder related to reduced expenses at our North Dakota and Oregon facilities, reflecting lower volume and reduced staff. The $21.5 million decline in combined product margin was partially offset by lower SG&A and operating expenses, resulting in third quarter adjusted EBITDA of $51.6 million, down $8.4 million from the same period in 2015.

Interest expense was up about $550,000, or 3%, from the same period last year. The increase relates to $1.1 million associated with the sale-leaseback of 30 sites executed in the second quarter of this year, with a reclass of rent expense to interest expense.

This amount was partially offset by lower average balances on our revolving credit facility for the third quarter of 2016, compared to the same period in 2015 and lower interest rates with the expiration of a $100 million swap.

Excluding the non-cash impairment charges and net loss on sale and disposition of assets, DCF would have been $19.3 million, compared with $30.3 million for the same period in 2015. DCF, as defined by our partnership agreement, does not permit adjustments for certain non-cash charges, such as goodwill impairment.

We believe adding back these non-cash charges more accurately reflects the partnership's ability to make cash distributions. While distribution coverage was negative on a trailing 12-month basis, distribution coverage was 1.2 times when adjusting for the loss on sale of assets and impairment charges.

Let me take you through our segments in more detail, beginning with GDSO. Product margin was down $500,000 in the third quarter to $136.8 million.

This reduction in product margin reflects the sale of certain sites, notably the 30 sites sold as part of the Mirabito transaction, partly offset by the addition of 22 leased sites from O'Connell Oil this past April. GDSO's fuel margin was down less than $200,000 in the quarter to $88.1 million from $88.3 million a year earlier.

Station operations product margin of $48.7 million was about $300,000 less than the comparable period of 2015. Wholesale segment product margin decreased by $19.1 million in the third quarter to $16.1 million, due primarily to the weak crude oil environment.

Crude oil's product margin was negative $16.8 million in the quarter, compared with a positive $15.7 million for the third quarter of 2015. The decrease was due to tight crude oil differentials, as Mid-Continent crude did not discount sufficiently to make rail transport to the East Coast competitive with imports.

Our margin was also negatively impacted by fixed costs, including railcar leases and the absence of logistics nominations from one particular contract customer.

Due to the absence of third quarter 2016 nominations by that customer, the partnership expects additional revenue of approximately $8.2 million by December 31, 2016, related to the take-or-pay nature of the contract.

Revenue from this contract in the fourth quarter of 2016 will reflect amounts owed to Global for the lack of logistics nominations during the year which through the first three quarters of 2016 totaled $19.8 million.

Wholesale gasoline and gasoline blendstock product margin increased $14.3 million to $21.5 million, primarily reflecting more favorable market conditions in gasoline. Commercial segment product margin was down $1.9 million, or 31%, from last year's third quarter, primarily as a result of a decline in bunkering activities.

Total volume for the third quarter of 2016 was down about 137 million gallons for the quarter to 1.2 billion gallons. Increases in GDSO and commercial volume were offset by a 155 million gallon decrease in wholesale volume, due primarily to the weak crude oil market.

CapEx in the quarter was approximately $15.9 million, including $7.2 million in expansion CapEx and $8.7 million in maintenance CapEx. Expansion CapEx consisted of approximately $6.4 million in ongoing raze and rebuilds and other investments in improvement at our retail gasoline stations.

Maintenance CapEx included $6.8 million related to our retail sites. Year to date, our maintenance CapEx is $20.8 million, with $15.5 million related to our gasoline station business and the remainder consisting of investments in our terminal and IT. Year to date, our expansion CapEx totaled $33.9 million.

$22 million was invested in our GDSO segment, including $5.5 million from the O'Connell transaction earlier this year when we purchased certain assets and entered into a long-term lease at the rail property. $12 million was invested in our terminals and IT projects, with the largest investment being the dock expansion project at our Oregon facility.

We expect maintenance CapEx for the full year to be approximately $35 million and expansion CapEx to be approximately $45 million. Turning to our balance sheet, as of September 30 the Partnership had total borrowings of $498.9 million under our $1.475 billion facility.

Borrowings consisted of $180.8 million under our $575 million revolving credit facility and $318 million under our $900 million working capital facility. Our leverage, as defined in our credit agreement, was 4.5 times at the end of the quarter and well within our 5.5 times covenant.

As we've said on prior calls, our goal is to maintain a strong balance sheet with ample liquidity and we target long-term leverage of 4 times or lower.

For 2016, we expect to achieve EBITDA above the midpoint of our guidance of $170 million to $200 million which guidance excludes the gain or loss on the sale and disposition of assets and impairment charges. Before we go to Q&A, let me remind you about two upcoming events.

Tomorrow, we will be presenting and hosting one-on-one meetings at the Baird 2016 Global Industrial Conference in Chicago. On Wednesday, December 7, we will be participating in the Wells Fargo Pipeline, MLP and Utility Symposium. We look forward to seeing many of you there. With that, let me turn the call back to Eric..

Thanks, Daphne. In summary, our strategic asset divestiture program continues to make progress. We are pleased with the performance of our retail and wholesale business as it relates to gasoline, gasoline blendstocks, distillates and terminaling activities. With that, we are happy to take your questions.

Operator?.

[Operator Instructions]. Our first comes from the line of Gabe Moreen with Bank of America Merrill Lynch. Please proceed with your question..

A couple questions for me.

In terms of balancing the balance sheet and, I think, trying to actually play a little bit offensive M&A on M&A in acquiring some of these sites you just did, can you just talk about the puts and takes there? Does this mean you feel like you have the line of sight to getting the balance sheet to 4 times after the three transactions you mentioned earlier, Eric, or is it something where, hey, this M&A opportunity was so compelling you couldn't pass it up, even with the balance-sheet work?.

So, are you referencing O'Connell? Is that what you are, I'm not exactly--.

I think so, or weren't there -- didn't you allude to acquiring some Getty sites or -- I'm sorry if I misunderstood..

So, Gabe, I think just as a general statement, we will look to build our businesses in ways that don't have heavy capital requirements, right? So the best way to think about it is if there are assets that we feel fit the business, we can either lease them. We can lease them with small minimal payments. Usually these are high-return transactions.

There may even be options to purchase at the end of the leases. As we go out and build out and expand the portfolio, obviously there are multiple ways to finance the building of those assets out, so -- that aren't cash heavy, if you will. I'm not sure if that answers your question..

Yes, Gabe, the Getty was an addition of 18 sites to our unitary lease at the beginning of year and O'Connell's was also a lease. The leverage at the end of the quarter was 4.5 times which actually was slightly better than we had expected and as we continue to sell assets, we continue to look towards the 4 times leverage as our target..

Yes, but that being said, we want to make sure that we still see what's out there and there are many transactions that are out there.

I don't know that they will fit us perfectly, but certainly if we think it is consolidation in the markets that we are already in, we are going to chase it and see if we can get the transaction to fit the way we have got to go forward and try to grow the business, right?.

And then turning, I guess, look, your markets are a long way from what happened on Colonial, but can you just talk about any -- we have gotten some questions on that, any impact to your business from the Colonial incidents?.

It is Mark. There has been two Colonial incidents, one in -- I think towards the end of August and then one recently, a couple of weeks ago. And we haven't -- there has been minimal impact to our business based on that.

Most of that impact, I think, was felt in the Southeast and the mid-Atlantic, so certainly it caused a little bit of tightness in the product markets, but nothing significant for us..

And then, last question for me is just the ethanol efforts at Clatskanie, just a technical question as to where that is going to show up in the whole segment, whether it is in other oils or in gasoline blendstocks.

And then, has there been any impact yet from that or are we still waiting for the impact to really hit the bottom line? If you could just provide an update there..

Yes, Gabe, the ethanol is included in the gasoline and the gasoline blendstocks in terms of our segment reporting and business that we started to transload in the third quarter and making some progress and it will be a slow build..

Yes, just to add to that, Gabe. So we did start to transload ethanol, I believe, at the beginning of Q3 and started to ramp the business up throughout the quarter. We continue to grow the business in Q4. We have got some business booked further out in 2017. So it is a slow build.

We are competing for market share in a market that is pretty competitive, but we do believe that asset has some competitive advantages from a logistics standpoint, particularly as it relates to export, so the business is building and we're optimistic about the growth prospects there..

Our next comes from the line of Jeremy Tonet with JPMorgan. Please proceed with your question..

I was just wondering with regards to the contract that is paying the NVC payment in 4Q if you might be able to provide any color as far as the duration of those contracts or maybe even just the duration of whatever costs are associated with that business. That would be helpful for any thoughts there..

That contract that was -- we had closed a couple years ago.

It was a five-year take-or-pay contract for 91 million barrels and so this year as we have moved through the quarters, while there were some nominations earlier in the first quarter, there really hasn't been any activity in the second and the third quarter, so we have tried to disclose exactly what that revenue will be when it is collected on an annual basis.

The contract matures mid of 2018..

And then, just thinking about things from a higher level, Eric, I am just wondering if you could share any thoughts with us with regards to three or five years down the road how you see your business, what it looks like as far as the segment composition? Do they look similar? Do things -- one get larger or smaller? Any thoughts there would be great..

Yes, so obviously the Company has multiple business lines and I think what we try to do is take advantage of opportunities that exist in each one of those business lines. Some of them are event driven; others are permitting and investments.

So what I would say is look at the existing portfolio of businesses that we have and we will look to take advantage of each one of those businesses -- business lines that exist. Whether it is event driven, I can't speak as to when that may happen or not happen.

So I can't give you exact three- to five-year timelines, but I would say there is going to be -- there is going to continue to be opportunity in the retail business. There is going to continue to be, I think, opportunity in some of this terminaling business as well.

And just as a general statement, we will continue to try and grow those businesses in various different ways and if we're capital constrained, we will just try to do it in a non-capital-intensive way. That's all..

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

Just a couple quick ones for me.

First of all, as we take a look at the SG&A and the operating expenses, are those good run rates going forward or is there more to come out?.

Yes, I think the SG&A is pretty -- is a pretty good run rate and pretty comparable to what we had last quarter. There is a little bit of noise, but not much.

I think the OpEx which declined at $70 million -- a little shy of $71 million, relative to $75 million in the second quarter, means some of that is due to the sale of Mirabito, but I think it is a little bit on the low side. There is some variability and timing in OpEx. There is seasonal maintenance.

There is credit card fees, the timing of additional new sites, conversions to CA, so I think it's a little bit light at the $70.6 million, but somewhere in between second and third quarter is probably reasonable..

And then, let me just follow up a little bit on Gabe's question, because I think in your prepared remarks you talked about O&M being down and you referenced one-third being down due to North Dakota and Oregon. You talked about reduced staff. And so, I was just curious.

Is Oregon ramping slower than your expectations or could you just provide a little color on there on why you included it in terms of it being down?.

I think we were commenting on year over year, so year over year in terms of any activity, we are just beginning to build some of the transloading volume for ethanol. And in terms of expenses, we have -- we went through a RIF earlier in the year and some of that was included, both based in North Dakota facilities, as well as Oregon..

And that was in advance of our start to ethanol transloading. So we are sized properly right now for the business that we expect to build there. Obviously, we will look to flex up as necessary when we hit certain thresholds, but from an operating standpoint, we have the staff in place to handle the business that we had initially contemplated..

And then just turning to the crude oil margins, even if you back out, I guess, the nomination payment from the customer, things seem to get sequentially worse from the second quarter.

Can you just talk a little bit about what else was hitting that?.

Yes, it really is a decline in any spot volume, third-party volume, aside from the contract in the third quarter from the second quarter, so it really is a continuous decline..

Our next comes from the line of Lin Shen with HITE Hedge. Please proceed with your question..

It's James Jampel from HITE. Just a few questions. You mentioned a more favorable environment for gasoline in the third quarter.

Could you talk about whether that is continuing into the fourth and the nature of that?.

Yes, James, it is Mark. What we saw in the third quarter was unusually weak -- an unusually weak cash gasoline market to end the summer and typically that's one of the stronger times of the year. So it allowed us to position our inventory a little bit differently than we normally would.

And I think it was towards the end of August, we had the Colonial disruption which, as I mentioned earlier, didn't have a significant impact on our day-to-day business here, but it did tighten up cash enough that we were able to -- we have talked about our BP transition and in the fall, we end up that's a negative for us, but it turned out to be less negative than usual, given how we were positioning the cash and given the tightness in the market that was caused by Colonial.

So, those were unusual events, really Q3 events. You ask about Q4. Q4, we also did have a Colonial disruption here, but seems to be less of an impact from that than there was the first go-round in Q3. So I think Q4 doesn't necessarily hold anything special.

I think it's as we would expect, so I don't see any -- I wouldn't -- if you are asking if we're going to replicate Q3 in Q4, I would say probably not..

Now Buckeye mentioned in their conference call that they were looking at moving gasoline by rail from the Midwest to Albany.

Do you guys think there is anything in that for you guys? Is there a chance where Global could do something like that?.

Yes, we are continuously looking at different ways to source product into our system and rail, given our experience and our expertise in rail logistics, that would certainly be an opportunity that if it was available, if the ARBs were open, we would look to capitalize on that..

But you are not seeing what Buckeye is seeing in terms of it being available?.

Yes, I don't know specifically exactly what -- I can't speak to Buckeye's business. I read their release. It didn't get into a great amount of detail, other than that they were switching their terminal to be able to receive it. I didn't see any detail about business that they had anticipated. So, we are looking at it.

We think there will be opportunity from time to time to capitalize on refined products by rail and so we will continue to chase that..

James, I just want to add quickly, it has been a difficult move because the Midwestern facilities have not had what I would say unit train capability or large volume capability to move product out by rail and we see that changing a little bit.

And as those investments are made, that opportunity which we have seen for a long time, but just have not been able to physically execute on, we think that flow will begin to move..

A time frame? Could that be next year?.

I could guess. Maybe in the next year, yes..

Okay and then the last one for me, back to crude oil.

In the three months since the last conference call, is there anything -- have you perceived any changes positive or negative from the state of the crude oil market and your guys' ability to participate in it from the Mid-Continent to the East? Has anything changed for better or worse and does that impact any way that you guys might be adapting to that change situation or is it just more simply a run-off situation?.

Yes, I would say that we are not seeing any meaningful change in the business and so volumes continue to be -- volumes continue to stay in North Dakota and move into pipe..

Our next comes from the line of John Olson with Houston Energy Partners. Please proceed with your question..

Let me double back to the take-or-pay issue there. Down here, you're dealing with one great big refiner, et cetera, who usually is pretty prompt on paying his bills and the like.

I am wondering, what is the issue involved that they are slow walking this deal and is there any litigation involved?.

John, let me just help here. There is no issue. The counterparty is performing in line with the contract and it is an annual payment..

Okay.

Now, Daphne, may I ask you also if existing conditions continue, what kind of take-or-pay revenues would you expect in 2017?.

Yes, just for confidentiality reasons, we can't disclose what we are expecting from that particular contract. We're just trying to be -- steering people through this year as to the negative impact from the under listings or no listings and what we expect there for year to date..

Can I extrapolate anything from your comments about $8.2 million? Would that be a fair number to look at for -- on the surface, at least?.

For?.

For 2017. The numbers--.

Yes, I think the two comments I will make is certainly we have talked about $8 million in the second quarter, $8 million in the third quarter and then a small amount in the first quarter, so you get to your $19.8 million. So you have $8 million a quarter.

The only comment I will make is that there are -- there is some flexibility in the contract or in the structure in terms of ability to roll some barrels to later years..

Thank you. There are no further questions at this time. I would 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. Have a good day, everyone..

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation..