Edward Faneuil - EVP, Global GP LLC Eric Slifka - CEO, President and Director Daphne Foster - CFO and Director Mark Romaine - COO of Global GP LLC.

Gabriel Moreen - Bank of America Merrill Lynch Benjamin Brownlow - Raymond James & Associates, Inc. Matt Niblack - HITE Hedge Asset Management.

Welcome to the Global Partners First Quarter 2017 Financial Results Conference Call. Today's call is being recorded. [Operator Instructions]. As a reminder, this conference is being recorded. With us from Global Partners are President and Executive Chief 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 Chief 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, 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, 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 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 posted a solid first quarter and continue to position the partnership for growth. Over the past several quarters, we had focused on monetizing nonstrategic assets, capitalizing on the value of our real estate portfolio and reducing cost.

These steps, along with our recently restated credit agreement, has strengthened our financial position and increased our flexibility to invest in opportunities fundamental to our growth strategy.

Moving forward, we plan to continue to monetize assets that do not fit our long-term strategic objectives and reinvest those proceeds back into the business. We will maintain a tight rein on expenses and continue to run our operations as efficiently as possible. We remain pleased with the progress of our nonstrategic asset divesture program.

In February, we completed the sale of our natural gas and electricity brokerage businesses, generating more than $16 million in proceeds for the partnership. In addition, we generated approximately $8 million in proceeds from the sale of nonstrategic retail sites.

On the wholesale side of our business, we are soliciting proposals for the potential sale of fixed nonstrategic refined product terminals in New England, New York and Pennsylvania. We expect to receive proposals for those assets in the coming weeks.

On the West Coast, we are working to -- on finalizing permits to expand storage capacity and generate additional value from our Oregon facility. We continue to trend flow ethanol through that facility to both domestic and international customers. Looking at our key financial metrics.

Gross profit was up 8% from the first quarter of 2016 to $140 million. Net income was $22.9 million versus a net loss of last year's first quarter. EBITDA increased 69% to nearly $72 million from the same period in 2016, while adjusted EBITDA grew more than 23% to $60 million. And distributable cash flow was up 170% to more than $44 million.

Our wholesale business performed well in the quarter, generating a product margin increase of nearly $13 million or 33% year-over-year. The business was positively impacted by favorable conditions in the wholesale distillates market and improved margins in our crude oil business.

Crude oil expenses were significantly less in the quarter due to our early termination of railcar sublease at the end of last year. Our Gasoline Distribution and Station Operations business continues to be a strong contributor, accounting for approximately 65% of our combined product margin in the first quarter. Turning to our distribution.

In April, the Board of Directors announced a quarterly cash distribution of $0.4625, or $1.85, on an annual basis. The distribution will be paid on May 15 to unitholders of record as of the close of business on May 10, 2017. Before turning the call over to Daphne, let me share my thoughts on where we are headed.

With our increased financial flexibility, we are better positioned to increase our investments in organic growth opportunities, raze and rebuilds, new-to-industry sites and acquisitions. As always, we will be selective, focusing on accretive deals, including those that leverage our integrated network of terminals and retail sites.

We are also strengthening and expanding our retail assets through branding and marketing alliances, additional technology improvements and in-store enhancement designed to drive margin. Now let me turn the call over to Daphne.

Daphne?.

Thank you, Eric, and good morning, everyone. Let me begin with a review of our first quarter results. Combined product margin in the first quarter increased $7.9 million or 5% year-over-year to $162.4 million. The increase was driven by our Wholesale segment, which more than offset declines in the GDSO and Commercial segments.

Operating expenses declined $5 million or 7% from the first quarter of 2016 to $67.2 million, primarily due to decreases in our GDSO segment relating to the sale of nonstrategic sites, including those sold to Mirabito Holdings in August 2016, partially offset by expenses, including rents, associated with additional lease sites.

Lower volume and reduced staff at our facilities in North Dakota also contributed to the decrease in operating expenses. In addition, in last year's first quarter, we incurred expenses associated with the cleaning and conversion of tanks to ethanol at our Oregon facility.

As we review first quarter 2017 EBITDA and DCF, keep in mind that these metrics include a $14.2 million gain reflecting the sale of our natural gas business in February and a $2.3 million net loss on the sale and disposition of retail assets. The comparable period in 2016 included a $6.1 million net loss on the sale and disposition of retail assets.

EBITDA in the first quarter was $71.9 million compared with $42.6 million in the comparable period of '16. On an adjusted basis, EBITDA increased $11.4 million to $60.1 million in the first quarter of '17 versus $48.7 million in the same period last year.

Distributable cash flow was $44.2 million, an increase of $27.8 million from the comparable period in 2016. DCF, as defined by our partnership agreement, does not commit adjustments for certain noncash charges such as net losses on the sale and disposition of assets and long-lived asset impairment charges.

Including these charges, DCF would've been $46.5 million and $22.5 million for the 3 months ended March 31, 2017, and 2016, respectively, an increase of $24 million.

On a trailing 12-month basis, distribution coverage, after adjusting for the lease termination expense, net loss and sale and disposition of assets and the goodwill and long-lived asset impairment, would've been 1.9x. Now let me take you through our segments in more detail, beginning with GDSO.

Since the end of 1Q '16, we have sold approximately 85 sites, including the 30 company-operated sites sold to Mirabito Holdings. But we retained supply for the Mirabito sites and for the majority of other sites sold, and thus maintained a fuel margin. We have added sites, notably the 22 sites leased from O'Connell.

Comparing Q1 2017 with the same period in 2016, product margin was down $2.3 million to $106.1 million. The Gasoline Distribution portion of the GDSO segment product margin was up $1.8 million in the quarter to $67.1 million due to slightly higher volumes and increased margins.

In last year's first quarter, fuel margins were negatively impacted by the rise in wholesale gasoline prices, specifically a $0.35 per gallon increase in NYMEX 87 RBOB from the end of January to the end of March. This year, prices decreased in January and increased $0.18 per gallon from the end of January to the end of March.

In addition to that price movement, the year-over-year increase in our cents per gallon fuel margins, from $0.18 to $0.183, also reflects the change in the station mix. Station Operations product margin decreased $4 million to $38.9 million, due in part to the sale of sites and conversion to commission agents.

Wholesale segment product margin increased $12.9 million to $52.1 million in the first quarter 2017. Crude oil product margin was $6.9 million in the quarter compared with negative product margin of $2.4 million in the first quarter of 2016.

This improvement was due primarily to revenue related to a take-or-pay contract with one particular customer and a decrease in railcar lease expense as a result of our early lease termination in December 2016, partially offset by less volume through our system.

Wholesale gasoline and gasoline blendstocks product margin decreased $1 million to $15.4 million due to less favorable market conditions in gasoline blendstocks, primarily ethanol. Other oils and related products benefited from favorable market conditions in distillates, resulting in a $4.6 million increase in product margin to $29.9 million.

Commercial segment product margin decreased $2.7 million or 39% to $4.2 million from the first quarter of 2016, primarily due to the sale of our natural gas marketing business. Total volume for the first quarter of 2017 was down about 31 million gallons to 1.3 billion.

Increases in GDSO and commercial volumes were offset by a 37 million decrease in the Wholesale volume, due primarily to a decrease in crude oil sales resulting from the weak crude oil market.

CapEx in the quarter was approximately $8.3 million consisting of $5.3 million in maintenance CapEx, including $4 million related to our retail site and $3 million in expansion CapEx, primarily related to investments in IT and related equipment and to a lesser extent, improvements at our retail gasoline stations.

We continue to expect 2017 maintenance CapEx of approximately $35 million to $45 million and expansion CapEx of approximately $25 million to $35 million in 2017, relating primarily to investments in our gasoline station business. We are pleased with the recent renewal of our credit facility and continued support from our bank group.

Last month, we entered into an amended and restated credit agreement that provides, in part, for aggregate commitments of $1.3 billion consisting of an $850 million working capital facility and a $450 million revolving credit facility. You will recall that our previous facility had total commitments of $1.475 billion.

We chose to reduce the facility, $50 million on the working capital revolver and $125 million on the revolving credit facility, to align with our current operating needs while maintaining sufficient flexibility to pursue strategic opportunities.

With $201 million outstanding under our revolving credit facility, we have $250 million in excess borrowing capacity for CapEx, acquisitions and other investments. Our working capital borrowings were $327 million as of 3/31 relative to the current $850 million limit, and the credit facility includes a $300 million accordion feature.

The agreement provides us with lower pricing as well as increased flexibility with the addition or expansion of certain baskets, including a general investment basket and increase in sale leaseback basket and baskets for the purchase of common units or to repay certain junior indebtedness. The new agreement has a maturity date of April 30, 2020.

In terms of our divestiture of nonstrategic retail sites, in the first quarter of '17, we sold 17 sites for gross proceeds of approximately $8 million, and we received more than $16 million in cash proceeds from the sale of our nat gas business. We reduced borrowings under our revolving credit facility to $200.7 million as of March 31.

Our balance sheet leverage, as defined in our credit agreement, was approximately 4x at the end of the quarter, down from 4.3x at the end of 2016 and tracking to our targeted long-term leverage of 4x or lower.

Over the last year, one of our key goals has been to strengthen the balance sheet, and we are better positioned today to invest in our business. Turning to guidance.

For the full year 2017, we continue to expect to generate EBITDA in the range of $190 million to $220 million, which excludes the gain or loss on the sale and disposition of assets and any impairment charges. Before we go to Q&A, I wanted to let you know that we will be presenting at 2 upcoming conferences.

At the end of this month, we will be participating in the MLP Investor Conference in Orlando. On June 6, we will be presenting at the Bank of America Merrill Lynch Energy Credit Conference in New York City. We look forward to meeting with investors at these events. Now we are happy to take your questions.

Operator?.

[Operator Instructions]. Our first question comes from the line of Gabriel Moreen with Bank of America..

A quick question from me on just the ethanol expansion and sort of the permits required there and sort of what pushback now you're getting as well as kind of what CapEx is involved.

And then final question there is just, contractually, do you need to have further contracts there before you can go ahead with the expansion?.

It's Mark. I missed the first part of your question. You were worrying about the -- go ahead, I'm sorry..

Yes. It was just on the securing of the permits and kind of how easy or arduous the process you think that might be..

So we have been at this for a while. We feel like we're getting close on our ability to expand the facility. We continue to drive more business through that facility -- or a steady business through that facility, as Eric had mentioned earlier, both for -- predominantly for international export, but also for some domestic demand as well.

I think we're reasonably confident that we're going to -- that we'll be successful in our initiative to expand the facility. But to the second part of your conversation, I think -- or your question, sorry. I think it's going to require us to have some business lined up to support that expansion..

Got it.

And line of see, you -- do you feel good about getting line of sight of that with current customers? Or how are those discussions going?.

So the discussions that are ongoing, it's a little bit -- it's -- until we have final, final to go ahead and expand that facility, the conversations are somewhat preliminary. But there is some general interest in -- from some various different business partners in expanding and building some business through that facility..

And then a question for me in terms of, Eric, the bigger picture around where you kind of want to deploy incremental CapEx.

I know it sounds like tuck-in acquisitions and maybe not pursuing big M&A seems sort of on the table, but can you just talk about, I guess, a little more which areas you may be focused on? And also, whether it's additional CapEx or M&A, to what extent that might be dependent on closing the storage sales first?.

Yes. I don't feel that kind of pressure for your last comment.

I mean, I think we're going to do what we've always done, which is make sure that we see -- or try to see all the transactions that are out there, whether those transactions are terminal asset divestitures or sales or whether from third parties or whether it's retail companies or even single sites that are for sale.

So we'll continue to do what we've always done in the past, which is try to see everything that's out there, and then pursue that which we think fits us the best, right? So I'd say it's continue to be aggressive on that front and make sure we see what's there and be involved in the process.

And as in the past, the stuff that we think fits us the best is what we're likely to be able to buy because we don't have the lowest cost of capital. But we'll have a perspective on the business and how we can supply it, and that will be our sort of difference in the marketplace..

I guess stay tuned. And then there were a couple competitors that had some issues in terms of their refined products marketing businesses over the last quarter or 2. Can you just talk about marketing -- market dynamics doesn't appear to have impacted you at all. I think you also called out a favorable diesel market -- or distillates market conditions.

But can you just talk about general refined products marketing conditions?.

Yes. I think -- Gabe, it's Mark again. The refined products marketing, I mean, keep in mind, we have not only the marketing side of the equation, but also the supply and terminaling side of the equation. So -- and it -- this isn't a hard fast rule.

But generally, when there's weakness in supply markets, in other words, if products are oversupplied, the competition at the wholesale racks tends to be a lot more intense, and maybe that's a reflection of people trying to liquidate their storage and capture the contango value that, perhaps, they had locked in.

So for us, while I would agree that the wholesale markets have been very competitive, it's been a little bit of a tough market. I think that in our experience, that tends to be cyclical and somewhat dictated by the supply landscape.

But on the flip side of the equation, we've had some nice opportunities over the last 1.5 years to store product in our terminal network, source at attractive values and capture margin in that way. So while it may not be a direct offset, it is generally those 2.

I don't want to say it's a hedge, but there's -- you're generally capturing margin in one manner or another. But I do agree that on the wholesale side, the markets are pretty competitive..

Our next question comes from the line of Ben Brownlow with Raymond James..

Just a follow-up on the last question around the product margin.

When you look at the GDOS -- GDSO segment, given the decline and commodity costs and that favorable commodity backdrop, is that -- is it fair to assume that on the retail side, at least, that you've seen a favorable kind of quarter-to-date trends on fuel margins?.

Is the question regarding a drop in fuel prices?.

The drop in crude and the flow-through to commodity..

Yes. I think you're talking about the drop very recently. Because I think in Q1, as we look here at Q1 results, I think we were generally up a little bit. Prices -- if you just look at kind of base NYMEX costs, we're up a little bit. So I think we're flattish. I don't think there was a big move during the quarter with respect to that.

What I will say is that margins were generally stable and decent in Q1 on the retail side, but I don't think the margins were driven by a meaningful increase or decrease in NYMEX prices or the cost of product..

Yes. And I'll add just a little bit to that. I think there was week-to-week volatility in price. But over the period, and I'd have to look at the exact numbers, you sort of maybe had a bit upward pressure, but not any big pressure.

I think when you're looking to see if you're making bigger retail margins, if you will, you'll -- or tighter retail margins, longer-term trends that move up slowly or move down slowly benefit you the best or the most or at least define your margin in the best way.

Did you understand what I'm saying?.

Yes. No, that makes sense. I didn't know if April if you saw a benefit just from the fall-off in commodity prices..

Yes. I mean -- yes..

And it's -- I think you're talking about in April. I think -- so we're talking about things like RVP changes, and April is a little bit of a funny month with respect to supply and retailing. But it's -- I think when you look at the quarter here, I think the fuel margins were pretty steady..

Okay. Okay, that's helpful.

And on the Wholesale segment, the crude product margin, is it safe -- I mean, just given that your expenses and income are relatively fixed at this point for at least for 2017, is kind of a $6.5 million to $7 million product margin on the crude side a fair quarterly run rate to assume?.

Yes. Ben, it's Daphne. I think it's hard for us to say exactly what it's going to be this quarter because there'll be some movement from quarter to quarter. But absolutely, year-over-year, if you think about what our railcar lease expense was last year, sort of over the full year, it was $44 million to $11 million a quarter.

And we've been clear that this year, it's in the $12 million range. So you've got -- for the whole year. So it's a pickup of $8 million or so a quarter relative to last year. So that's a big shift. And also, we've got the take-or-pay contract revenue in the quarter..

Our next questions come from the line of Matt Niblack with HITE Hedge Asset Management..

Given the strength of this quarter and the fact that the guidance is not updated, should we read into that, that there's going to be some reversal in some of the goodness in margin this quarter? Or is that just a matter of being conservative? How do we think about that?.

Yes. I'd say it's early in the year. We are affirming guidance. It's early in the year..

Okay.

And then as you think about deploying capital now that you're starting to have a little bit of a breathing room, how do you think about balancing the organic opportunities that some of your competitors seem to see pretty bountifully versus starting to give guidance on increasing the distribution? And how do you work through the trade-off between those things?.

So your question is -- I'm not quite sure what's your -- what's the question..

So I guess, what's the philosophy in balancing increasing the distribution versus deploying excess cash toward organic opportunities?.

Yes. I mean, look, we -- obviously, we assess it every quarter.

But at the end of the day, we're going to try to develop as much business that has really good and healthy returns with it, right? And if you end up on a giant program, you're going to have to tap the financing of it in multiple different ways, right, and not just one way, right? So it'll -- the idea is, hopefully, you'll see increasing EBITDA and you'll be spending capital and developing, and you'll have to do a little bit of everything, right, I mean, if you have a large program..

Okay. So it sounds like the -- for now, getting back to some attractive investments is a higher priority than getting back to distribution growth..

Yes. I'd say you got to balance both, right? I mean, it's not one way or the other. You always got to assess as you're moving forward because development is hard, right? I mean, you got to get permits and things, whether it's a big terminal out in Oregon or whether it's a gas station up the street.

You just never know the timing or what's going to happen.

I mean, we've got more stories about stuff that we thought we'd sort of be able to move forward on quickly with that get marred and lots of disparate views from board members, right -- board members at the local town, right?.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Mr. Slifka for closing comment..

Thank you for joining us this morning. We look forward to keeping you updated on our progress. Thanks, guys..

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