Business Context and Reporting Period
Company: Global Partners LP
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2007
Business Overview: Global Partners LP is a publicly traded master limited partnership engaged in the wholesale and commercial distribution of refined petroleum products (gasoline, distillates, residual oil) and small amounts of natural gas. The company operates through two segments: Wholesale and Commercial.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 2007 | Nine Months Ended Sep 30, 2007 | Nine Months Ended Sep 30, 2006 |
|---|---|---|---|
| Sales | $1,598,461 | $4,555,727 | $3,378,210 |
| Gross Profit | $23,947 | $87,821 | $78,582 |
| Operating Income | $7,144 | $33,238 | $30,623 |
| Net Income | $2,530 | $36,015 | $22,402 |
| Net Income Available to Limited Partners | $2,486 | $18,903 | $21,953 |
| Distributable Cash Flow (Non-GAAP) | $4,545 | $25,381 | $24,482 |
| Adjusted EBITDA (Non-GAAP) | $9,915 | $39,345 | $34,274 |
Liquidity and Debt
- Cash and Cash Equivalents: $2.9 million (Sep 30, 2007) vs. $3.9 million (Dec 31, 2006).
- Working Capital: $135.0 million (Sep 30, 2007) vs. $148.3 million (Dec 31, 2006).
- Total Debt Outstanding: Approximately $410.0 million (including $354.4 million in revolving credit and $55.6 million in letters of credit).
- Credit Facility: $650.0 million total commitment. Average interest rate for the nine months ended Sep 30, 2007 was 6.4%.
Material Changes vs. Prior Period
- Revenue Growth: Sales increased 61% in Q3 and 35% for the nine-month period compared to 2006. This was driven by the May 2007 acquisition of three terminals (Albany, Newburgh, Burlington) and higher commodity prices.
- Volume Increase: Aggregate product volume sold increased by 50% in Q3 and 29% for the nine-month period.
- Net Income Volatility: While GAAP Net Income increased significantly for the nine months ($36.0M vs $22.4M), this was heavily influenced by a one-time $14.1 million gain on the sale of NYMEX Holdings. Excluding this gain, Net Income adjusted for one-time gains was $21.9 million, slightly lower than the prior year's $22.4 million.
- Margin Pressure: Gasoline net product margins declined significantly (72% drop in Q3) due to market adjustments for ethanol-based gasoline and start-up costs at new terminals. Distillate margins increased 57% in Q3.
- Operating Expenses: Increased 30% in Q3 and 18% for the nine months, primarily due to costs associated with operating newly acquired terminals.
Guidance, Outlook, and Risks
- Seasonality: The company notes that results are generally better in Q1 and Q4 due to higher demand for heating oil. Q2 and Q3 typically have lower cash flow, often requiring borrowing to fund distributions.
- Weather Sensitivity: Q3 2007 temperatures were 35% warmer than normal, negatively impacting heating oil demand. However, the nine-month period was 1% colder than normal.
- Acquisition Strategy: Management continues to pursue accretive acquisitions. A subsequent event noted an agreement to acquire two additional terminals in New York, expected to close in Q4 2007.
- Key Risks:
- Commodity price volatility and inability to fully hedge risk.
- Warmer weather reducing demand for heating products.
- Competition from alternative fuels (natural gas) and energy efficiency.
- Environmental liabilities and regulatory compliance costs.
- Reliance on credit facilities for working capital and distributions.
- Distributions: A quarterly distribution of $0.4800 per unit was declared for Q3 2007, payable in November 2007.
Investor Verification Checklist
- Non-GAAP Adjustments: Verify the reconciliation of Net Income to Distributable Cash Flow and Adjusted EBITDA, specifically the exclusion of the $14.1M NYMEX gain and the impact of the EITF 98-05 non-cash reduction ($16.4M) on per-unit earnings.
- Debt Covenants: Confirm compliance with the Credit Agreement, specifically the requirement to reduce the working capital revolving credit facility to $130.0 million or less for 10 consecutive days annually (Fifth Amendment).
- Environmental Liabilities: Review the $8.0 million reserve recorded for the acquired ExxonMobil terminals and the status of the remedial action plan with the NYDEC.
- Margin Trends: Monitor the sustainability of distillate margins versus the declining gasoline margins in the current market environment.
- Capital Expenditures: Assess the funding sources for the $102.6 million terminal acquisition and future maintenance capex ($2.6M for nine months 2007).