Good day, everyone, and welcome to the Global Partners’ Fourth Quarter 2015 Financial Results Conference Call. Today’s call is being recorded. There will be opportunity for questions at the end of the call. 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.

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 continuation of a competitive crude oil market, business cycles, demand for petroleum products and renewable fuels, utilization 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 historical trends. Because our assumptions and future performance are subject to our 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 purposes of Regulation FD. Now, please allow me to turn the call over to our President and Chief Executive Officer, Eric Slifka. Eric?

Thank you, Edward. Good morning, everyone, and thank you for joining us. Let me begin by saying that the company is committed to maintaining a sound balance sheet and providing sufficient liquidity to invest in the business without relying on outside sources of capital. In order to achieve these goals, we’ve taken several actions. We’ve reduced capital spending, reduced expenses, implemented an asset sales program and lowered our distribution. I want to acknowledge that the reduction in our quarterly distribution was an extremely difficult decision and one that may have been unexpected from many of our investors. The key challenge was and continues to be the fact that Mid-Continent crude is not discounting sufficiently to make rail transport to the coast competitive with imports. As a result, crude product margin declined $37 million in the fourth quarter of 2015 from the same period of 2014. This result reflects the high fixed cost associated with our crude business, which include pipeline commitments, time charter barges and leased railcars. In 2015, the primary fixed cost related to crude was our railcar lease expense of $49 million for the approximately 2,200 railcars we allocated to that business. More than half of these were in storage at the end of last year. Please keep in mind that these expenses are partially offset by significant revenues generated by a take-or-pay contract that continues for approximately two more years. In addition, we are taking advantage of opportunities to utilize our railcars for the movement of other products such as ethanol and biodiesel. We also are using our leased railcars and barges to service the 2 million barrels of storage at the Riverhead, New York terminal and taking advantage of opportunities to move barrels on a spot basis and under short-term contracts. While we can’t predict the…

Thank you, Eric, and good morning everyone. I will review our fourth quarter and full-year 2015 results, discuss our capital strategy and credit metrics and outline our EBITDA guidance for 2016. Combined product margin in the fourth quarter was fairly flat year-over-year at approximately a $157.4 million, but there were material variances within certain business lines, which offset each other. Tight differentials caused our crude margin to decline $37.3 million year-over-year. Warm weather in the quarter as well as competition at the rack contributed to a $7.5 million decline in the margin, for distillates and other products. This $44.8 million decline was offset in two areas, a $10.6 million improvement in wholesale gasoline and gasoline blendstocks product margin, due to more favorable market conditions in the fourth quarter of 2015, and a $34.2 million increase in GDSO product margin, as a result of the Warren and Capitol acquisitions. Turning to expenses, operating expenses increased $20.4 million to $72.2 million due to the Warren and Capitol acquisitions. SG&A declined $3.2 million to $40.4 million year-over-year, primarily due to reduction in incentive comp. This reduction more than offset increased overhead costs associated with Warren and Capitol, and the addition of new sites in our GDSO segment. Fourth quarter 2015 EBITDA of $45.8 million was down $16.1 million from the same period a year earlier, as a result of the flat combined product margin and the net increase in overhead expenses. Interest expense increased $10.2 million to $22.3 million, due to the issuance of the $300 million, 7% bonds in June, the sale leaseback accounting for capital and the resultant $2.4 million reclass from rental expense, as well as increased borrowings to fund a portion of the acquisitions. The increase in interest expense and a $4.2 million increase in maintenance CapEx, due to…

Thank you, Daphne. Looking ahead, we believe our strategically located terminal assets and GDSO portfolio provide diversification that will help us to navigate through this environment and grow as conditions improve. Keep in mind that our business consists of gas stations and related real estate, convenience stores and more than 9 million barrels of bulk storage in the Northeast, all of which provide a recurring income stream for the partnership. Our storage assets are critical to the way energy is supplied and distributed throughout the Northeast and provides significant opportunity to take advantage of contango markets such as the one that exists today. Now, operator, we are happy to take questions.

Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Selman Akyol with Stifel. Please go ahead with your question.

Thank you. Good morning. Well, okay. Just a couple quick questions for me. First of all, on your outlook for disposing of stations, how quickly do you think you will end up selling those?

I think approximately over the next year with it. We've been very active in pulling together all the information and trying to execute on it. And frankly, it's the right thing to do. And hopefully in the next 12 months we'll be in a good position here to say we've completed most of it.

I got you. And then sort of on the crude oil margin this quarter, is that a good run rate going forward for what you guys see? Or is there any deficiency payments? Is there any MVCs still to come through on that?

Yes. So the $6 million or so in product margin we did in the fourth quarter, and hard to say if that's a good run rate, obviously that's substantially less than what we did in the front half of the year, when we did about $15 million during the first six months. I think that MVCs are the appropriate assumption, and we are working to repurpose railcars, et cetera. So I think that it could be less, it could be more.

Okay. And then you briefly mentioned the contango market. Do you have anything from that included in your guidance for 2016?

Yes. In terms of the guidance, yes. The guidance, certainly considers the crude market, certainly considers the contango market, and considers the first quarter year-to-date warm weather.

All right.

That's all, that's always good. Okay. Then the last one from me – can you talk a little bit about Clatskanie and really what you are seeing out there in terms of demand? So kind of think the ethanol market is challenged right now, and so how do you see that unfolding as you go forward?

Yes. Good morning, this is Mark. I think on the West Coast that you referenced a challenge ethanol market. And I think if you're talking about pressure or production margins I would agree with you, but the demand for ethanol both domestically and internationally remains very high, and that ethanol still needs to move through some means of logistics channels by rail from the Mid-Continent to the East Coast and the West Coast. So, we feel that – we believe that by converting our system in the face of the current crude conditions, we feel that converting the terminal to ethanol service make sense. It is one of the few unit train capable ethanol facilities on the West Coast, and we feel that that gives us a competitive advantage versus market alternatives.

All right. Thank you very much.

Thank you. [Operator Instructions] Our next question comes from the line of Matt Niblack with HIFE. Please go ahead with your question.

Hi, thank you. Another related question on the railcars. For your EBITDA guidance, how much of a headwind from underutilized railcars is included there and, therefore, that you might roll off as we move into 2017?

Yes, I’m not sure I’m completely following that question. We’ve given you the railcar lease expense allocated to crude for 2016, 2017, 2018 and 2019. So you can see fairly flat for the first couple years, comes down in 2018 and then substantially in 2019. So…

But, obviously, that’s included in our guidance for 2016.

To put it in a negative or another way, how much negative EBITDA is that generating?

So it’s net of – we don’t, obviously, break it out by EBITDA. We don’t think about that business exactly like that.

And, remember, that’s captured in the product margin. Right? So the product margin is net of all the fixed costs. So you’ve got your revenues associated with crude and then any barge expenses, railcar expenses, pipeline commitments. That’s all netted out of product margin. So it’s all reflected in the EBITDA guidance.

Yes, I’m still trying to get at the crude-by-rail piece specifically to understand how much downside there might be further from that or how much upside as those cars roll off. But you’re not going to break that out, it sounds like?

Yes, I guess I would just point to the fourth quarter of 2015, that product margin of $6 million relative to 2015 or so in the first quarter, $37 million and the second quarter $16 million in the third quarter, you begin to see the lower volumes and the impact of those fixed costs.

Okay. And directionally, then, could that product margin go negative?

Yes, it’s possible that that product margin could go negative?

Okay, thank you.

Thank you. Our next question comes from the line of Sean Umelnick with Deutsche Asset Management. Please go ahead with your question.

Good morning. I was wondering if you could give us an idea related to the eventual operations related to ethanol on the West Coast and how they might compare, I guess, to some of the oil trading transportation business you had done. And secondarily, related to the oil transportation business, you had mentioned other costs related to moving things, such as pipeline commitments. Could you explain some of those and how long those commitments go on for?

Good morning, it’s Mark. I’ll take the first part of that question. Just to make sure I understand your question on the West Coast ethanol operation, could you restate that question?

If we could have an idea of the type of margins or the type of profitability we might see from such a business as compared to what you were doing related to oil?

Yes, okay. I think it’s very comparable to what we were doing in the crude business both from a margin and a volume standpoint. I would expect that the transload rate, if you will, would be very similar. There’s some variability in that. We don’t expect that we are going to have long-term contracts around that, but that business is a bit more mature than the crude by rail business, and it is an act of ratable spot business, if you will. That being said, I think the margins should be similar to the crude business. The volume should be similar to what we were moving by crude. Obviously, ethanol by demand is a smaller product. But when you look at what you were moving for crude and what we contemplate moving for ethanol, it should line up roughly in the same volume.

So with regard to the fourth quarter, we might actually see a better performance related to this business in the quarter for the fourth quarter?

Yes. Fourth quarter we were effectively doing nothing out of our West Coast facility. We were storing some crude, capture some of the contango that was available on the spreads, but we weren’t doing much through that facility in Q4.

Okay. And then related to the other costs of commitment that you have for transporting oil?

Sure. Yes, I can help with that. I think in our 10-K last year and again this year you will see sort of full color, but let me give you some numbers to help. In terms of pipeline commitments, the Meadowlark pipeline that was commissioned 1/1/2016, that is a seven-year commitment. It’s $55 million over seven years, so that’s $7.8 million a year. And then there’s the Tesoro commitment at Johnson’s Corner. That’s $36 million over seven years, so about $5 million a year. So it is collectively that’s $13 million. We’ve satisfied the Tesoro Pipeline connection at Stampede, and then we’ve got a longer-term commitment at a Tesoro at Beulah. That’s take-or-pay at $8 million, but that’s not till the final year, which is in year five. In terms of barges, you will see some large numbers in the K. It’s about $58 million in 2016 and steps down from there. But most of the barges that we have are of a refined product. So that’s for gasoline and for distillates and certainly can be repurposed. We do have one or two in crude to satisfy commitments there, but it’s a much smaller number. So that’s the pipelines and the barging, and then we’ve covered the railcar leases.

Okay.

Okay. Our next question comes from the line of Gregg Brody with Bank of America. Please go ahead with your question.

Good morning, guys. Just on the asset sales, the non-strategic locations, is there – it’s an estimate you are thinking about for that, what you will get from those assets. Maybe you can talk a little bit about what you are seeing out there in terms of pricing for gas stations.

We think we will get approximately $100 million gross out of it. We’ve gone to multiple parties to have the assets valued, and taking their evaluations and what they are telling us, they think that that’s in the ballpark.

And then, as you think about deleveraging, is there a number? Is there some potential additional asset sales you are thinking about, or is there a leverage that you are targeting right now that we could see what these asset sales and just your forecasted EBITDA?

I mean in terms of asset sales, I’d say we are always looking to maximize value. So you are always looking at potential alternatives, whether that’s sale, whether that’s lease, whether – whatever, right? So you are always considering those alternatives.

Yes. And Gregg, as I mentioned, certainly the asset sales will help move us toward 4 times the longer-term target from a leverage standpoint.

So how do you think about distribution from here when you are juggling the asset sales and the leverage target? Is it you are just going to wait and see a little bit, or has there sort of been a plan for where you would like to grow it or how you would like to grow it?

Just as a general statement, what we have done is we’ve tried to position the company, right, to be in a spot where we are comfortable with all of our metrics and ratios and our bank agreements, and I think that’s how we will try to operate. We’ve also tried to position the company where we have good assets, and we want to reinvest in those assets as long as there are good returns from them.

And just my last one for you. So the reduction in the size of your different credit facilities, was that a result of the banks asking you to reduce it along with the covenant, or was it more a realization that you just didn’t need it?

No, no. I was trying to make that really clear and probably didn’t. That was absolutely voluntary on our part. We’ve had a really, really excessive excess capacity, which we pay for. And so we certainly want to make sure we have lots of excess capacity, but felt that it was completely appropriate to bring the working capital facility down by $100 million and the revolver by $200 million.

I appreciate all the color. Thank you.

And the next question comes from the line of L.J. Harrington with Marble Harbor. Please go ahead with your question.

Hi, thank you for taking my call. I just had a question on your forecast for expansion CapEx in 2016. And I may have missed it, but what are you expecting or forecasting to be devoted to the subsegment of new site development, raze and rebuilds, expansion and improvements?

Okay. So, on the expansion CapEx, what we are targeting, $30 million to $35 million, we didn’t give the specific number, but we have some completion of some raze and rebuilds, which obviously has an expansion piece to it, and we have a handful of NTIs that we are working on. So ballpark it’s probably half of that amount.

Okay. Great, thank you.

Thank you. And our next question comes from the line of Simon Crocker with MSD Partners. Please go ahead with your question.

Hi, thanks for taking my question. Just trying to understand the crude by rail business a little better and I may have missed it earlier in the call. But in 2018 or 2019, when the contract with Phillips rolls off, if conditions haven’t improved, what would the negative margins be from the crude by rail business?

So your question is, if the contract rolls off and we don’t sell any crude, there’s no business at all.

Yes, yes, if the business isn’t economic, moving those barrels the way you plan to move them, given the shift in basis differential, if that business is no longer necessary, are you stuck with a material fixed cost or…

Well, the railcar expenses go down substantially. It’s $20 million or so in 2019, and just those cars can be used either in crude, in biodiesel, in ethanol. So they are multiproduct type cars.

So on that piece, you don’t expect to have to stick those cars in storage and spend money to do that?

2019 is a long way off.

Fair point. And then are there other fixed costs in that business, in the terminals?

Yes. Are there other fixed costs in the terminaling business? I mean the OpEx on our income statement reflects both our terminals, which is actually workers in the terminals, as well as utilities and rent and property taxes, et cetera. So some of those are fixed, if you will, and some of them certainly are variable in terms of, for instance, staffing. And then the other large…

Sorry. I don’t mean to interrupt you, but my question was more with respect to the crude-by-rail business.

Okay.

Outside of the railcar leases, are there other fixed expenses that we ought to be thinking about in that business?

I think it’s really the barging, the pipeline commitments and the railcar leases.

Got it. Okay. Thank you.

Thank you. This concludes our question-and-answer session. I would like to turn the call back to Mr. Slifka for closing remarks.

Thank you. We look forward to meeting with many of you as we go out on the road to meet with investors and in the coming quarters. This concludes today’s call. Thank you.