Good day, everyone. And welcome to the Global Partners' Fourth Quarter and Year End 2018 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, Ms. Daphne Foster; Chief Operating Officer, Mr.

Mark Romaine; and Executive Vice President and General Counsel, Mr. Edward Faneuil. At this time, I would like to turn the conference over to Mr. Faneuil for opening remarks..

Good morning, everyone. 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 including gasoline and gasoline blend stocks and renewable fuels, utilizations of assets and facilities, weather, credit markets, the regulatory and permitting environment and the forward product pricing curve, which could influence quarterly financial results.

We believe these assumptions are reasonable given currently available information and our assessment of the historical trends. Because our assumptions and future performance are subject to a wide range of business risks and uncertainties, we can provide no assurance that actual performance will fall within guidance ranges.

In addition, such performance is subject to risk factors, including but not limited to, those described in our filings with the Securities and Exchange Commission. Global Partners undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements that may be made during today's conference call.

With Regulation FD in effect, it is our policy that any material comments concerning future results of operations will be communicated through news releases, publicly announced conference calls or other means that will constitute public disclosure for the purposes of Regulation FD.

Now, please allow me to turn the call over to our President and Chief Executive Officer, Eric Slifka..

Thank you, Edward. Good morning, everyone. And thank you for joining us. We capped a strong 2018 with a record fourth quarter in our Gasoline Distribution and Station Operations. GDSO segment product margin increased more than 46 million from the same period in 2017.

The increase was driven primarily by fuel margins that were significantly stronger than expected in November and December and a full quarter's performance of Champlain oil and Cheshire oil which we acquired in Q3 of 2018. Our wholesale and commercial segments each posted product margin gains of more than 50% compared with the fourth quarter of 2017.

Wholesale product margin was up more than 16 million in the quarter primarily reflecting more favorable market conditions in gasoline blendstock and distillates. Product margin in commercial increased nearly 3 million. Looking at the year as a whole, 2018 reflected the continued focus on optimizing assets and expanding the footprint of our business.

In GDSO, the Champlain and Cheshire acquisitions added 136 sites including 62 owned properties to our retail portfolio. These transactions further leverage our terminal assets and drive economies of scale. We're pleased with the integration and performance of these sites.

Results also benefited from a full year of the Honey Farms portfolio which was acquired in the fourth quarter of 2017. Honey Farms expanded our presence in Central Massachusetts.

In 2018, we completed Series A's preferred unit offering that generated more than 66 million in net proceeds for the partnership positioning us to take advantage of acquisitions and organic investment opportunities.

Turning to our distributions, in January the Board announced a quarterly distribution on our common units of $0.50 per unit or $2 on an annualized basis. The distribution was paid on February 14 the unitholders of record as of February 8. We continue to demonstrate our expertise in acquiring, integrating, operating, and leveraging high-quality assets.

Looking ahead, we are well positioned to capitalize on opportunities across our businesses. Now I'll turn the call over to Daphne for her financial review.

Daphne?.

Thank you, Eric. Good morning everyone. Fourth quarter 2018 adjusted EBITDA of $109.8 million increased $63.1 million from $46.7 million in 4Q 2017.

This result reflects stronger performance in all of our business segments with a $65 million increase in combined product margin to $244.1 million partially offset by an increase in expenses related in part to our Champlain and Cheshire acquisitions.

Net income for the fourth quarter was $52.5 million compared with net income of $18.6 million for the same period in 2017. EPS of $65.9 million after distributions to Series A preferred equity unitholders increased more than $55 million from $10 million in the fourth quarter of 2017.

Result for 4Q 2017 included a net loss on sales and disposition of assets of $5.6 million. Excluding this charge EPS would have been $15.6 million for the three months ended December 31, 2017.

TTM distribution coverage at year end was 2.6x, excluding the non-cash $52.6 million gain in Q1 related to the Volumetric Ethanol Excise Tax Credit, TTM distribution coverage at year-end would have been 1.8x. Turning to our segment detail, GDSO product margin in 4Q 2018 increased $46.2 million to $188.5 million.

The gasoline distribution contribution to product margin was up $38.9 million largely due to a standard fuel margin primarily attributable to declining wholesale gasoline prices which decreased $0.80 a gallon from October 1 to December 31.

The average fuel margin per gallon in the quarter improved more than $0.08 to $0.0325 from $0.24 in last year's fourth quarter. The acquisitions of Champlain and Cheshire also distributed to the year-over-year increase in gasoline distribution product margin.

Station operations product margin which include convenience, store sales, sale of sundries and rental income increased $7.3 million to $53.6 million largely due to the addition of Champlain and Cheshire.

At December 31, our GDSO portfolio consisted of 1579 sites comprised of 297 company-operated stores, 259 commission agents, 237 lessee dealers and 786 contract dealers.

In our wholesale segment, the gasoline and gasoline blend stock product margin increased $4.6 million to $23.3 million, primarily due to more favorable market conditions in gasoline blend stocks. Product margins from crude oil was approximately flat as compared to the fourth quarter of 2017.

Lower railcar lease and related expenses and utilization of our crude oil storage assets to take advantage of contango opportunities help offset the loss of revenue due to the expiration in June 2018 of our take or pay contract with one particular crude oil customer.

Product margin from other oils and related products was up $11.4 million to $21.9 million. This increase was primarily due to more favorable market conditions year-over-year distillates after a particularly weak fourth quarter in 2017.

In our Commercial segment, product margin increased $2.6 million to $7.1 million, due to an increase in bunkering activity. Turning to expenses, operating expenses increased $12.1 million to $87.1 million in the fourth quarter.

This increase primarily reflects the Champlain and Cheshire acquisitions in July 2018 with their associated headcount, real estate taxes, rent, utilities and maintenance expenses. SG&A expenses in Q4 increased $1 million to $49.6 million primarily due to higher accrued incentive compensation and our GDSO acquisitions.

Interest expense was $23.5 million in Q4 2018 compared with $20.4 million in the year earlier period. The year-over-year increase was due to higher revolver borrowings related to our acquisitions, higher working capital borrowings related to an increase in inventory and higher interest rates.

CapEx in the fourth quarter was approximately $25.7 million, maintenance CapEx was $12.8 million including $11.3 million related to our retail gas stations and convenience stores and expansion CapEx was $12.9 million of which $12.4 million related to GDSO.

For the year, maintenance CapEx was $38.6 million and expansion CapEx excluding acquisitions was $30.6 million.

For full year 2019, we expect maintenance CapEx in the range of $40 million to $50 million and expansion CapEx in the range of $40 million to $50 million Turning to our balance sheet, we continue to have ample excess capacity under our credit facility.

As of December 31, we had total borrowings outstanding of $473.3 million under our $1.3 billion facility including $220 million under $450 million revolving credit facility and $253.3 million under our $850 million working capital facility.

Leverage as defined in our credit agreement as funded debt to EBITDA was approximately 3.4x at the end of the fourth quarter. The strong fourth quarter performance was a key driver to our full year results. Full year adjusted EBITDA include the $52.6 million tax credit income in 1Q, 2018. Excluding this $52.6 million, adjusted EBITDA was $258 million.

As a reminder, the recognition of this one-time $52.6 million gain did not impact cash flow from operations for full year 2018. Turning to guidance, we expect full year 2019 EBITDA in the range of $200 million to $225 million.

This EBITDA guidance excludes the gains or losses on the sale and disposition of assets and goodwill and the long lay of asset impairment charges. Let me provide additional commentary with respect to our 2019 EBITDA guidance versus our 2018 performance. First, our 2019 guidance is based on the expectation for normal market conditions.

A key factor driving outperformance in 2018, was unusually high GDSO fuel margins, which we did not bill into our 2019 budget. As I pointed out, GDSO fuel product margin in Q4 was of approximately $39 million year-over-year, most of which was due to higher fuel margins including some contributions from our Champlain and Cheshire acquisitions.

For the full year, GDSO fuel product margins was up approximately $47 million. The average fuel margin per gallon year-over-year improved $0.022. Multiplying that $0.022 by GDSO's 2017 volume of 1.58 billion gallons equals approximately $35 million.

In addition, in 2018, we had revenue of approximately $22 million from the take or pay contract with one particular crude oil customer. That contract expired in accordance with the underlying term at the end of the second quarter.

These decreases will be partially offset by increased contributions from Champlain and Cheshire, which we owned for approximately 5 months in 2018.

Applying a single-digit multiple to the $166 million combined purchase price for these two acquisitions, results in low double-digit incremental EBITDA, excluding acquisition cost in 2018 of approximately $4 million. With that, Eric and I will be happy to take your questions. Operator.

[Operator Instructions] Our first question here is from Selman Akyol from Stifel. Please go ahead..

Couple of quick ones. First of all, on your G&A, I know you guys talked about incentive I guess accrued comp there.

But can you just talk about in terms of a run rate, is that how we should be thinking about or should we back with something off?.

SG&A was $49.5 million in the quarter, was an increase from $42 million in the third quarter primarily due to year end timing of certain accruals including incentive comp. I commented that last quarter while the $42 million, that did include those one-time acquisition costs in the third quarter, it was possibly light.

So but I would say at this point in time certainly the $49.7 million is heavy and that $42 million run rate is not a bad run rate going forward..

And then you also mentioned contango opportunities, you benefited that on the crude side.

Can you talk a little bit more about that and is there more to be realized in 2019?.

So, we have - as you know we have some storage in North Dakota. We own part of two transload assets with the combined storage of roughly 700,000 barrels in that neighborhood.

And so we took advantage of some of that storage when some contango opportunities existed early in Q4, that market strengthened as the quarter went on and whether or not there's anything on a additional margin to be realized will be depending on market condition. So, really can't guess on that one at the moment.

But obviously if we have storage, we'll look to optimize that storage..

And then last one from me.

Can you just talk a little bit about what you're seeing in the acquisition market or the opportunities?.

Yes, I mean, I think it's interesting. So, I think there's going to be some opportunities potentially in terminal link. I also think there'll be some opportunities in retail. It doesn't - for retail I think because those Q4 margins were so different, I think maybe some guys pulled back.

That doesn't mean that we're still not leaning in and projecting forward because we'd obviously like to find the right transaction to the right deals at the Company. So a little bit harder but I think there's still some stuff that hopefully we'll shake loose, right..

Our next question is from Ben Brownlow from Raymond James. Please go ahead..

Just on the GDSO segment, the fuel margin strength there, obviously a lot of that attributable to the commodity backdrop. But are there any underlying kind of price or cost optimization initiatives that you can point to? You indicated that Cheshire and Champlain were part of that margin expansion year-over-year..

Yes, I think there's - I think part of the strategy is to leverage the operating synergies we have in this marketplace, and that's the benefit of the portfolio that we put together through a series of acquisitions including Cheshire and Champlain over the summer.

So, yes, while certainly the key driver of the Q4 margin was the declining cost, pretty much straight down from the start to the end of the quarter. We continue to recognize or realize some of the synergies on the - particularly on the cost side, both inside and outside the store..

What historically, can you give a range of what historically synergies you captured as a percentage of acquired EBITDA?.

I think that's actually a hard question because every company is a little bit different. You know you could buy a family run company that literally has got 20 sites and it's all over the board about like systems and controls and so you go in there and likely in that example you probably going to have more synergies, but it's also smaller transaction.

And then you go in and you'll do a deal that maybe is 60, 70, 80 sites. They're operated better, right. So maybe you have synergies on fuel costs, maybe you don't have as much synergy on actually operating the stores themselves, right.

So it really depends on every transaction and I think the good news is we're in a position to really evaluate each transaction to figure out where we can bring additional money to the bottom line..

And just one last one from me.

The expansion capital, $40 million to $50 million, can you just talk about the major buckets there, any sort of detail on site openings that are planned for 2019?.

Yes, I mean, I think the majority of it is going to be in the GDSO segment and it is continuing to invest and regularly built and just a handful of new-to-industries. And then we've got some branding commitments as well that we spend CapEx on. So that's where the line share of the expansion has started in..

Our next question is from Jeremy Tonet from JPMorgan. Please go ahead..

Just want to build on the guidance a little bit more.

If you guys could just talk about what could drive towards the higher end or the lower end when you look into 2019 within that guidance range?.

Yes, I mean, as I - as we always do when we put forth our budget and guidance, we're looking at normal market conditions. So when you think about ups and downs, certainly weather has an impact on our distillate business.

Certainly we've seen in the past supply disruptions whether you know it's pipeline disruptions that we saw in 2016 or hurricane type weather in 2017, that can impact our performance, supply disruptions typically can be beneficial to us.

And then I think the fourth quarter certainly has an impact that do have some significant contango opportunities that can also be helpful..

And just wanted to turn to heating oil here and to see how the performance was in 4Q and so far in 1Q and how that compares to last year?.

Fourth quarter of 2018 versus fourth quarter of 2017, we made the comment that a lot of that up was because the fourth quarter of 2017 was particularly weak and that was really a function of the fact that we had some hurricane activity in the third quarter of 2017 and then prices dropped precipitously and therefore we got hurt a little bit on the shift.

So that really sort of address 4Q, 2017 to 2018. We don't really comment on first quarter of 2019 going forward, I mean, weather has been a tick warmer than normal. I think it's 4% to 5% warmer than normal in both Jan and Feb relative to normal..

Our next question is from Ned Baramov from Wells Fargo. Please go ahead..

I just wanted to go back to the GDSO fuel margins, and specifically, has some of the strength that you saw in the last couple of months of 2018 carried over into Q1, 2019?.

Can't give a whole lot of guidance in terms of first quarter of 2019, certainly you can look at what's been happening to wholesale gasoline prices. So, if you look at what's happened since 1/1, Jan 1, there has been a tick upward for the first two months of the year..

And you could also look at Gas Buddy and look at the retail prices and come to your own conclusion on what margins are right. So the data is out there if you want to dig it out and find it..

And then distributions increased in the fourth quarter, could you maybe talk about the trajectory of distributions going forward?.

It's a good question. We don't give guidance in distributions. It's basically - the Board decides on the distributions each quarter and it's always a bit of a balancing act in terms of excess cash and we continue to run with excess coverage..

And then last question from me and it's the usual question that I have on IDRs, maybe what are your latest thoughts on a potential simplification there?.

We continue to look at all options from a structural standpoint to make sure that we're continuing to enhance ourselves from a financial standpoint..

[Operator Instructions] Our next question is from Lin Shen from HITE. Please go ahead..

I have a question for the wholesale volume. I mean, last quarter you did billion barrels in total for wholesale. I think that's very strong volume.

I guess I'm trying to ask is that do you think for the wholesale volume you have more upside to capture more market share or more volume to be using a facility or using your already max value capacity?.

I think a large driver of the increase in wholesale volume or a key piece of it is in our gasoline operations. We may have mentioned this in the past, but we took additional tankage in New York earlier last year. That gives us opportunities to blend when markets intend to move barrels. So that's a key driver to the increase in volumes..

And what kind of capacity utilization, like, potential upside you can think about?.

I'm not sure I understood the question…..

And I'm just like, want to ask like, do you think you are like 100% utilize your tankage there or what kind of potential you can think you can bring more volume to your tankage?.

Well, I would - Daphne just mentioned the tankage in New York harbor, which is really – it's less about volume and it's more about our ability to lower our cost of supply. So, I wouldn't think about it from a volume or a market share standpoint.

If you are asking about volume through our terminal network, that's a little bit of a different story and we have - we continue to try to drive more volume through our terminal network. I think we've had some degree of success over the last several years.

Some of that success has been a function of the synergies that we have been able to realize between our retail portfolio and our terminal network. And so that's a key part of our strategy on a forward basis. So we have some terminals, I would say, our key terminals, I wouldn't say they're maxed out, they have some room for growth.

But it's, they're fairly well utilized. We have others that are perhaps distillate-only terminals where there has - they've got more capacity. The opportunity to grow the distillate-only terminal is probably much more limited than the gasoline..

Our next question is from David Schechter from Perspective Capital Management. Please go ahead..

I was lucky enough to visit the new Alltown Fresh location in Plymouth and it was absolutely gorgeous store, did a wonderful job with that.

What's the future of that concept and how does it play on your overall strategic thinking?.

So it's a new concept for us. The store is 4,800 square feet, it's got a kitchen with made to order meals. It is, we call it Alltown Fresh, we've sort of been very focused on making sure that we deliver the cleanest freshest experience that a consumer can have.

The site has approximately 12 gasoline fueling spots out-front, there are also some diesel out there. And then in the back we have high speed, three high speed diesel lane for 18 wheel trucks. There are some truck parking out back there as well.

And there is four or five spots for electric charging, and that's really Electrify America's 350 kilowatt fast charging chargers that they have there. I think it's the second one in the state. So, there aren't very many with that kind of high speed network. You have to find the right piece of property that is scaled and big enough to handle it.

I would say our initial P&L on the site looks pretty good. We've got a few more locations going up and we'll sort of see how it goes and test it out. If it takes off and goes really well and we can earn the investors a really good return with it, we'll look to try and do a little bit more with the concept..

It's a gorgeous store, and looks like Management is doing a great job there..

Thank you. This concludes the question-and-answer session. I'd like to turn the floor back to Mr. Slifka, for any closing comments..

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

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