Good day, everyone, and welcome to the Global Partners first quarter 2022 financial results conference call. Today's call is being recorded. There will be an opportunity for questions at the end of the call. If anyone should require operator assistance during the call, please press star zero on your telephone keypad. With us from Global Partners are President and Chief Executive Officer, Mr. Eric Slifka, Chief Financial Officer, Mr. Gregory Hanson, Chief Operating Officer, Mr. Mark Romaine, and Chief Legal Officer and Secretary, Mr. Sean Geary. At this time, I'd like to turn the call over to Mr. Geary for opening remarks. Please go ahead, sir.
Good morning, everyone. Thank you for joining us. Before we begin, let me remind everyone that today's call will include forward-looking statements within the meaning of federal securities laws. These statements include projections, expectations, and estimates concerning the future financial and operational performance of Global Partners. These forward-looking statements are based on assumptions regarding market conditions, business cycles, demand for liquid energy products and convenience store products, utilization of our assets and facilities, the regulatory and permitting environment, the forward-looking product pricing curve, and other factors which could influence our financial results.
These statements involve significant risks and uncertainties, some of which are beyond the partnership's control, including without limitation the impact and duration of the COVID-19 pandemic and its impact on our counterparties, our customers, and our operations, as well as other assumptions that could cause actual results to differ materially from the partnership's historical experience and present expectations or projections. We believe these assumptions are reasonable given currently available information. Our assumptions and future performance are subject to a wide range of business risks, uncertainties, and factors, which are 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 any 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 it is my pleasure to turn the call over to our President and Chief Executive Officer, Eric Slifka.
Thank you, Sean. Good morning, everyone. We opened 2022 with a strong first quarter, highlighting the value of our vertically integrated liquid energy distribution system. We executed effectively in the quarter, delivering significant increases in net income, adjusted EBITDA, and distributable cash flow. As our Q1 performance demonstrates, we are delivering on the key tenets of our strategy, acquiring great assets and enhancing our portfolio through NTIs and raze and rebuilds, while managing our terminaling and wholesale business to maximize returns. M&A remains a focal point of the company. Over the past 12 years, we have built a formidable retail presence through accretive deals that have broadened our geographic footprint. Our recent acquisitions of Consumers Petroleum of Connecticut and Miller's Neighborhood Market demonstrate our success in identifying, acquiring, and integrating additional assets into our portfolio, generating synergies, and adding to our scale.
These transactions added over 100 retail locations, significantly increasing our retail presence in the Mid-Atlantic region, highlighted by our first company-operated locations in Virginia. We spent a combined $215 million for these two acquisitions, and we anticipate a return in the mid-teens. We also continue to advance our renewable fuel initiatives, positioning the company to take advantage of new opportunities, whether those involve liquid renewables or other products. Turning to our distribution, in April, the board voted to increase the quarterly distribution on our common units by $0.01 per unit to $0.238 per unit on an annualized basis. The distribution will be paid on May 13 to unit holders of record as of the close of business on May 9. Now let me turn the call over to Greg for his financial review. Greg?
Thank you, Eric, and good morning, everyone. Net income for the first quarter was $30.5 million, compared with a net loss of $4.3 million for the same period in 2021. Adjusted EBITDA for the first quarter was $74.9 million, compared with $40.4 million for the same period in 2021. DCF increased to $49.9 million, compared with $14 million for the first quarter of 2021. Please note that EBITDA, adjusted EBITDA, and DCF include a $4.9 million net gain on the sale and disposition of assets for the first quarter of 2022. LTM distribution coverage as of March 31, 2022 was 1.9 times or 1.7 times after factoring in distributions to our preferred unit holders.
Turning to our segment details, GDSO product margin in Q1 2022 was $173 million, up $42.6 million from the same period in 2021. The gasoline distribution contribution to product margin was up $34.7 million in the quarter to $114.9 million, reflecting an increase in volume sold and a 7-cent per gallon increase in average fuel margin to 31 cents from 24 cents in last year's first quarter. We were pleased with the fuel margin performance in light of the sharp increase in wholesale gasoline prices in the quarter.
NYMEX gasoline prices increased $0.96 per gallon during the three months ended March 31, 2022 versus an increase of $0.54 per gallon during the same period in 2021. Station operations product margin, which includes convenience store and prepared food sales, sundries, and rental income, contributed $58.1 million, up $7.9 million from the first quarter of 2021 on increased activity at our convenience stores. At the end of the first quarter, our GDSO portfolio consisted of 1,689 sites, comprised of 342 company-operated sites, 293 commission agents, 196 lessee dealers, and 858 contract dealers. As Eric mentioned, our GDSO portfolio and our Q1 results in our GDSO segment reflect the inclusion of our recent acquisitions.
Looking at the wholesale segment, first quarter 2022 product margin increased $16.6 million– $47.1 million, primarily reflecting more favorable market conditions in other oils and related products, offset by less favorable market conditions in gasoline and gasoline blend stocks. Product margin from other oils and related products, which include distillates and residual oil, increased $18.6 million– $53.1 million. Gasoline and gasoline blend stock product margin was -$2.3 million in the first quarter, compared with $16.4 million in the same period last year. Product margin from crude oil was -$3.7 million in the first quarter, up $778,000 from a year earlier.
We are pleased with the results of the wholesale segment, which performed to our expectations despite the extreme commodity price volatility experienced in the first quarter of 2022. We do expect that the current steep backwardation of the forward product pricing curve will increase the cost of carrying our hedged inventory in future periods, but should also contribute to continued strength in rack margins. Turning to the commercial segment, product margin increased $3.9 million in the first quarter to $8.1 million, led by our bunkering business, which had higher volumes and improved margins.
Looking at expenses, operating expenses increased $18.7 million– $99.2 million for the first quarter, driven by increases in our GDSO segment, due in part to our recent acquisitions, higher salary and rent expense, as well as higher credit card fees related to the increases in price and volume. SG&A expense increased $10 million– $56.3 million in the first quarter, in part due to increased incentive comp and higher wages and benefits. Interest expense for the quarter was $21.5 million, up from $20.4 million, partly due to higher average balances on our credit facilities from higher commodity prices and borrowings for our recent acquisitions.
CapEx in the first quarter of 2021 was approximately $17.1 million, consisting of $7.5 million of maintenance CapEx and $9.6 million of expansion CapEx, the majority of which relates to our convenience stores. For full year 2022, we continue to expect maintenance CapEx in the range of $45 million-$55 million and expansion CapEx, excluding acquisitions, in the range of $50 million-$60 million. We continue to manage our balance sheet prudently. Leverage, which is defined in our credit agreement as funded debt to EBITDA, was approximately 3.3 times at the end of the first quarter. We continue to have ample excess capacity in our credit facility. As of March 31, 2022, total borrowings outstanding under the credit agreement were $606.6 million.
This consisted of $378.6 million under our $1.1 billion working capital revolving credit facility and $228 million under our $400 million revolving credit facility. Looking at our upcoming investor conferences, in the coming weeks, we are participating in the Energy Infrastructure Council Investor Conference, the BofA Leveraged Finance Conference, and the Stifel Cross Sector Insight Conference. For those of you who are participating, we look forward to meeting with you. Now let me turn the call back to Eric for closing comments. Eric? Thanks, Greg. We're off to a strong start in 2022. We continue to identify new opportunities to further drive value through our integrated network and strategically located assets to enhance efficiencies, increase returns to unitholders, and deliver an outstanding experience for our customers and guests.
Now, Greg, Mark, and I will be happy to take your questions.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, if you would like to ask a question, press star one on your telephone keypad. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Selman Akyol with Stifel. Please proceed with your question.
Thank you. Good morning. Very nice quarter. Couple things. Can you first just talk about inflation and how you're seeing that impact and ways you're dealing with it?
Sure. Yeah, I mean, I think, you know, we as a whole, we haven't been materially impacted by inflation as of yet. You know, we have seen cost increase pass-through from our vendors. You know, we've been able to pass through a lot of that on the retail side, and hasn't really made a material impact at all. We've seen some obviously wage inflation, and you'll see that in our operating expenses line. You know, that's somewhat stabilized this quarter. The big increases in hourly wages were really last third quarter. We've been able to keep them stable. That said, you know, employment is still very tight.
It's hard to find people in our retail sites. Our HR team is doing a good job on it, but it still continues to be a tough environment to find people. Got it. Thank you.
Are you guys seeing, and it certainly doesn't look like it from the volumes, but are you seeing any indications of demand destruction in April at all?
Well, certainly last quarter. I mean, you know, what I would say is demand, if we're talking about gasoline demand is still off from 2019. You know? It is interesting. I think this holds true for both topics that you're identifying. The first one around, you know, inflation. I think until it breaks demand, right? You're gonna have some movement. That hasn't happened yet, right? I think there are other factors driving gasoline demand. You know, when you look at how many people are going into the office still, you know, it's not. You know, you look at the studies, it's still, you know, 40%, you know, in the markets that we're in. That's all publicly available documents that you can see. So driving is different.
Times are different. Where you're going, you know, where consumers are driving is different. You know, you look at public transit, they have the same issues. I, you know, but that being said, demand and margin have still been, you know, pretty decent.
Okay. Good. Maybe could you just expand a little bit about the strength in other oils and related products on the margin? 'Cause that was pretty impressive.
Good morning, Selman. It's Mark.
Good morning, Mark.
Yeah. You know, we had a good quarter in distillates, both on the supply side and on the rack margin side. Volume was decent. We had some decent weather. You know, margins. Greg touched on backwardation a little bit earlier in his presentation. You know, while that certainly increases costs for carrying inventory, we are seeing a lot of tightness in our wholesale racks. That is supporting a higher margin structure. We've seen good demand in our residual and bunker group. Good demand and good margin there. You know, those are the two key things that are really driving the quarter in other oils.
Got it. All right. Thank you very much.
Thanks, Selman.
As a reminder, if you would like to ask a question, press star one on your telephone keypad. One moment please, while we re-poll for any additional questions. Thank you. Our next question comes from the line of Gregg Brody with Bank of America. Please proceed with your question.
Good morning, guys. Just a question on, you know, the M&A environment. Maybe you could talk a little bit about what you're seeing. Is there potential pickup in sales because, you know, some of these small mom- and- pops can't handle the working capital needs for the business? I might be putting words in your mouth, so maybe you can just answer what's the M&A environment look like.
Yeah. Hi. Hi, Greg. It's Eric. You know, I do think information and scale is important. I think our perspective historically has been it is an industry that is ripe for consolidation. We still believe that. I think it's hard if you have a small chain. It's hard to get the scale to compete at every level. That's at the supply level knowing what is a good price, what isn't a good price. It's also on the supply and execution in the stores themselves, right? There is asset- heavy and asset- light that exists within these businesses. You know, I think what you're seeing is that consolidation continue to play itself out.
I think during the beginning of COVID-19, I think we took a little bit of a break, right? 'Cause people were very unsure of volumes and market and what was gonna come back. You know, I just think the opportunity that we've identified and that we have historically executed on, you know, continues to be available. I think as the market has quote- unquote "settled down" from COVID-19, certainly there are other issues there today, but I think you know, those opportunities are just gonna present themselves and continue to be there, right? Our footprint, I think, is gonna allow us to continue to execute and grow through M&A as we have, you know, since being a public company.
Yeah. Just to add to Eric's comments. I mean, I think what we've seen from sort of smaller players in the industry is as we've seen operating expenses increase throughout, you know, from equipment to insurance to salaries, everything, if you don't have scale, you're definitely have more effect of those operating expenses increase on your bottom line. I think scale helps us to mitigate some of that. If you're a smaller player, it definitely puts pressure on you.
That's very helpful. I think coming back to the question someone's asking about, do you see any impact in your business from higher prices, and you pointed out that it's pre-COVID-19, you know, the pre-COVID-19 levels. I'm just curious. In the convenience store business, in that particular segment, are you seeing any consumer response based on, you know, the higher price for fuel and just inflation in general?
Greg, you're asking about the store, kind of the same store performance in
Yeah. Just, it's more on the margin, like, but obviously prices have been going up since February. I mean, down.
Yeah. I mean.
Up.
Yeah.
Are you on the cutting edge of where you are today, are you seeing any behavior changes in the way the consumer is-
I would say not really. You know, the store performance has been pretty good. Eric mentioned the comp versus 2019. I think he was talking about fuel volume by and large. We are also seeing, you know, sales are good, margins good in the store. Transactions are still lagging behind 2019. We think there's an opportunity to, you know, to try to get back to pre-COVID-19 levels on that. You know, by and large, the stores are performing well. They performed last year. They continue to perform this year. You know, a lot of that is through, I would say intentional effort. We've become. You know, every day we become better organized around that. Eric mentioned scale. We have...
You know, we've got a lot of talented resources that help run those stores or do run those stores every day. You know, we've got some price optimization tools at our disposal that are helping, you know, make those decisions more efficient and more and more quickly for us. We've added some lines to the business. You know, we've added some lines to the business. We continue to get more involved and increase our exposure to food service, and that could look like anything like made to order food service, you know, really high quality made to order food service, all the way down to, you know, expanded commissary lines and bean- to- cup coffee and things like that. We've recently relaunched our loyalty app, and we're seeing some success with that.
We have a lot of initiatives that are going on that are you know contributing to the success that we're seeing in the stores, and we think there's a tremendous upside to what we're doing there. You know, while yeah, it's been a tough environment. You know, we're certainly there are some supply chain issues. I think we've done a pretty good job mitigating those. We've been very diligent around substituting you know items when we have you know manufacturer outages. We've been able to substitute in so our shelves are full, and our guests have a you know a good experience. Net, I think we're in a pretty good spot.
Just last one for you. You touched on the wholesale outperformance, and so you said there's good demand in the residual and bunker group, which doesn't particularly surprise us given the volatility what we saw in commodities and, you know, in your storage assets. I'm curious, did just someone who doesn't follow the day-to-day, has the opportunity for you to make money around those assets persisted into this quarter where it's sort of been outsized relative to a quarter where there isn't as much volatility? Or was it. I guess I'm trying to say is 2Q. Is 1Q repeatable there?
I didn't hear the tail end of that, Greg. I'm sorry.
Is Q1 repeatable for wholesale is really the question based on the dynamics with commodities that are volatile.
I don't know. It's hard to look at it that way because every day is a little bit different. Certainly every quarter is a little bit different. I think you're right in the sense that I think I heard you reference opportunity, you know, in light of volatility or maybe because of the volatility. You know, these markets are just a little bit different than what we've dealt with backwardated markets before. We've dealt with tight markets before. I will say we've not, at least in my long time here, we haven't dealt with this degree of backwardation. You know, you just manage your business a little bit different, and I think we've done a good job with that. We've got to stay on our toes.
We have done things like reduce our inventory levels to, you know. We have our kind of working, you know, inventory levels, and we've been able to drive those levels down to, you know, levels that I'm not sure we contemplated historically. That obviously helps. The less inventory you can carry, you know, the more that helps you mitigate those costs of carrying that inventory. The markets are moving big every day. You know, while it does present challenges, it also presents opportunities. We're looking at every deal we do. We're looking at or scrutinizing every deal we do. It gets a little painstaking, but that's how you got to operate in this environment.
If you know, if you work hard enough and if you pay close enough attention, you know, you will find opportunities. That being said, you know, you have to be able to execute on those and, you know, it's not automatic, but it is, you know, it does. You know, I think if you have a team that is experienced and, you know, is looking at it the right way, you have a shot. I'm not sure if we can say, yeah, I expect, you know, Q2 to look like Q1. I mean, they don't look alike anyway in normal times. You know, it's gonna be. We're gonna have to just operate a little bit differently for the foreseeable future, whether that's the balance of the year.
Two years ago, we had super contango. We had the exact opposite, and so we were operating differently there. We're always trying to adjust accordingly, you know, based on the conditions, and I think, you know, we'll just continue to work as hard as we can to grab those opportunities and mitigate the risk.
Great. I appreciate the color. I know it's a tough one to straight line in any direction, but appreciate it.
Thanks, Greg. We'll see you in early June, hopefully.
Thank you. We have no further questions at this time. Mr. Slifka, I would like to turn the floor back over to you for closing comments.
Thank you for joining us this morning. We look forward to keeping you updated on our progress. Have a good day, everybody.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.