Business Context and Reporting Period
Company: Global Partners LP
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2010
Business Overview: Global Partners LP is a master limited partnership engaged in the wholesale and commercial distribution of refined petroleum products (gasoline, distillates, residual oil) and natural gas in the Northeastern United States. The company operates through two segments: Wholesale and Commercial.
Key Financial Metrics
| Metric (in thousands) | Six Months Ended June 30, 2010 | Six Months Ended June 30, 2009 |
|---|---|---|
| Sales | $3,492,835 | $2,834,104 |
| Gross Profit | $73,118 | $78,503 |
| Operating Income | $22,762 | $27,914 |
| Net Income | $13,937 | $19,841 |
| Net Income per Diluted Unit | $0.88 | $1.46 |
| EBITDA (Non-GAAP) | $31,336 | $35,952 |
| Distributable Cash Flow (Non-GAAP) | $21,454 | $25,284 |
| Cash from Operating Activities | $50,564 | $20,181 |
| Total Debt Outstanding | $468,400 | $462,599 (Dec 31, 2009) |
| Cash and Equivalents | $4,271 | $662 |
Note: Debt figures represent total borrowings under the Credit Agreement as of June 30, 2010 ($468.4M) and December 31, 2009 ($462.6M).
Material Changes vs. Prior Period
- Sales Volume and Price: Sales increased 23% year-over-year to $3.49 billion, driven primarily by higher refined petroleum product prices. However, aggregate volume sold decreased by 8% (148 million gallons) due to significantly warmer temperatures (15% fewer heating degree days) and conservation efforts.
- Profitability: Gross profit decreased 7% to $73.1 million. Net product margin for distillates declined significantly due to warmer weather reducing demand for home heating oil. Conversely, gasoline margins improved.
- Acquisitions: The company completed the acquisition of three terminals (Warex Terminals) in New York for $46.0 million in June 2010, financed through its acquisition facility.
- Capital Markets: In March 2010, the company completed a public offering of 3.91 million common units, raising net proceeds of approximately $84.6 million, which were used to reduce indebtedness.
- Interest Expense: Interest expense increased 17% to $8.4 million, attributed to higher average inventory balances and increased borrowing costs following a May 2010 amendment to the credit agreement.
Guidance, Outlook, and Risks
- Seasonality: Management notes that results are generally better in the first and fourth quarters due to higher demand for heating oil. The second and third quarters typically generate lower cash flow, potentially requiring borrowing to maintain distributions.
- Weather Sensitivity: Warmer-than-normal temperatures in Q2 2010 (36% warmer than normal) significantly reduced distillate sales. Future results remain sensitive to weather conditions.
- Major Transaction: On May 24, 2010, the company entered into an agreement to acquire 190 Mobil-branded retail gas stations in Massachusetts, Rhode Island, and New Hampshire for $200 million. Closing is expected in late Q3 or early Q4 2010.
- Liquidity and Debt: The company amended its credit agreement in May 2010, increasing aggregate commitments to $950 million. Borrowing availability is subject to a borrowing base tied to eligible current assets, which can fluctuate with product prices.
- Risks: Key risks include commodity price volatility, credit market conditions affecting liquidity, environmental liabilities, and the potential for customers to switch from residual oil to natural gas.
Investor Verification Checklist
- Acquisition Financing: Verify the funding sources and impact on leverage ratios for the pending $200 million Mobil station acquisition.
- Weather Impact: Assess the sensitivity of Q3 and Q4 forecasts to heating degree day variances, given the significant volume decline in Q2.
- Debt Covenants: Confirm continued compliance with the amended Credit Agreement covenants, specifically the borrowing base limitations and leverage ratios.
- Environmental Liabilities: Review the status of remediation costs associated with the Warex Terminals acquisition and other historical sites.
- Distribution Coverage: Evaluate Distributable Cash Flow relative to the quarterly distribution of $0.4875 per unit to ensure sustainability.