Good day, and welcome to the Global Partners third quarter 2021 earnings conference call. Today's call is being recorded. With us from Global Partners are President and Chief Executive Officer, Eric Slifka; Chief Financial Officer, Mr. Gregory Hanson; Chief Operating Officer, Mr. Mark Romaine; and Acting General Counsel, Secretary, and Vice President of Mergers and Acquisitions, Mr. Sean Geary. Now let me turn the call over to Mr. Geary. Please go ahead, sir.
Good morning, everyone. Thank you for joining us. Before we begin, let me remind everyone that this morning we'll 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. Forward-looking statements are based on assumptions regarding market conditions such as the crude oil market, business cycle, demand for petroleum products, including gasoline and gasoline blendstocks and renewable fuels, utilization of assets and facilities, weather, credit markets, demand for convenience store operators, the regulatory and permitting environment, and the forward product pricing curve, which could influence quarterly 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, uncertainty around the timing of the economic recovery in the United States, which will impact the demand for the products we sell and the services we provide, uncertainty around the impact of the COVID-19 pandemic to our counterparties and our customers and their corresponding ability to perform their obligations and/or utilize the products we sell and/or the services we provide, and uncertainty around the impact of the duration of federal, state, and municipal regulations and directives related to the COVID-19 pandemic and 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 and uncertainties. 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 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 over the call to our President and Chief Executive Officer, Eric Slifka.
Thank you, Sean. Good morning, everyone, and thank you for joining us. By every measure, Q3 was a strong quarter for Global Partners as we posted margin gains across all three segments of our business. Our Q3 performance was driven by a variety of factors, all connected by a unifying theme, the resilience of our integrated business model, the way we create value through our strategically located terminal network, diverse portfolio of liquid energy products, and our retail fuel and convenience market locations. Our GDSO segment sustained its strong momentum in the third quarter. With COVID-19 restrictions eased, the demand environment improved markedly from the third quarter of 2020. Margins and volume in our GDSO segment posted double-digit % growth in the quarter despite a significant increase in wholesale fuel prices year-over-year.
We saw not only more cars at the pumps, but also a nice uptick in activity across our convenience market portfolio. On a year-over-year basis, our wholesale segment benefited from favorable market conditions in gasoline and distillates in Q3, while our commercial segment saw improved volumes and margins. Consistent with our M&A strategy, we completed the acquisition of 14 convenience stores and CITGO-branded gas stations, predominantly in Vermont. With respect to our planned acquisition of Consumers Petroleum of Connecticut, we are still in the process of finalizing regulatory approvals and envision a closing by year-end. Our Q3 performance underscores our role as a critical infrastructure company. Every day, we provide the essential products and services people need to fuel their vehicles, heat their homes, run their businesses, and add convenience to their lives. Like other businesses, we encountered spot supply chain disruptions and labor shortages.
We were able to mitigate these issues where possible, minimizing impacts, and our third quarter results were strong. Turning to our distribution, last week, the board declared a quarterly cash distribution of $0.5750 per common unit or $2.30 on an annualized basis on all outstanding units for the period from July 1 to September 30, 2021. The distribution will be paid November 12 to unit holders of record as of November 8. We continue to play an active role in advocating and planning for the expansion of liquid renewable fuels in our markets. We are in the process of upgrading five terminals for expanded biofuel capacity and are finishing the installation of our first microgrid. The microgrid is being installed at our Alltown Fresh location in Ayer, Massachusetts. With that, now let me turn the call over to Greg for his financial review. Greg?
Thank you, Eric, and good morning, everyone. As Eric noted, we delivered a strong third quarter across all three segments, resulting in a $33.9 million increase in gross profit, 20% higher year-over-year. We capitalized on favorable market conditions in the wholesale segment and the improving demand environment in our retail gas and convenience store business as COVID restrictions continued to ease and driving increased. Net income for the third quarter of 2021 was $33.6 million, compared with $18.2 million for the same period of 2020. Adjusted EBITDA increased to $79.2 million for the third quarter, compared with $65.9 million in the same period in 2020, while DCF was $49.7 million, compared with $31.3 million.
Please note that EBITDA, adjusted EBITDA and DCF for the 2021 period include a $3.1 million expense resulting from the retirement of our former chief financial officer in August. TTM distribution coverage as of September 30, 2021 was 1.2 times or 1.1 times after factoring in the distribution to our preferred unit holders. Turning to our segment detail, GDSO performed well with higher year-over-year fuel volumes and increased convenience store activity, growing Q3 product margin to $177.7 million from $158.9 million. The gasoline distribution contribution to product margin was up $11 million- $112.4 million from $101.4 million.
Fuel margins in Q3 came in at approximately $0.27 per gallon in the quarter, unchanged from a year earlier, while retail fuel volume increased to 417 million gallons from 376 million gallons a year earlier, up 11%. The station operations were also strong, contributing $65.3 million to product margin, up $7.8 million from the third quarter of 2020 due to an increase in activity at our convenience stores. At the end of Q3 of 2021, our GDSO portfolio consisted of 1,597 sites, comprised of 295 company-operated stores, 291 commissioned agents, 203 lessee dealers, and 808 contract stores.
Looking at the wholesale segment, Q3 product margin was $42.3 million, up from $28.9 million, primarily reflecting more favorable market conditions in gasoline and distillates. Wholesale gasoline and gasoline blend stocks contributed $22.5 million, up from $17.1 million. Other oils and related products increased to $22.6 million from $14.5 million. Product margin from crude oil was negative $2.8 million in the third quarter of 2021 versus negative $2.7 million a year earlier. Turning to the commercial segment, product margin increased $3.9 million from $1.5 million, primarily due to an increase in volume sold and improved margins. Looking at expenses, operating expense totaled $92.1 million for the quarter, compared with $82.2 million for the prior year period.
The primary driver was higher credit card fees resulting from higher retail prices and higher volumes. Two other factors also contributed to the variance, an increase in salaries and benefits related to our convenience store employees due to a combination of higher wages and hours worked, and increased rent expense related to our additional sites in the Philadelphia area. We have added more than 30 sites there since mid-2020. SG&A was $54.7 million for the third quarter, up from $43.2 million in the prior year period. The increase primarily reflected higher incentive compensation and wages and benefits. As I noted, we incurred a $3.1 million expense for compensation resulting from the retirement of our former chief financial officer in the quarter.
Interest expense for the quarter was $19.7 million, down from $19.9 million, partly due to lower average balances on our revolver and to lower interest rates. CapEx in the third quarter was $26.8 million. This consisted of $9.8 million in maintenance CapEx, bringing the year-to-date total to $28.1 million and $17 million in expansion CapEx excluding acquisitions, bringing the year-to-date total to $37.4 million. The majority of the CapEx relates to our gas station business.
Given where we stand through the first nine months of 2021, we expect maintenance CapEx to come in at the low end of our full year guidance range of $45 million-$55 million and continue to expect expansion CapEx of $50 million-$60 million for the year, with the majority consisting of investment in our gasoline stations and convenience stores. I will note a portion of this spend will be dependent on the availability of equipment which is subject to supply chain concerns. Our balance sheet remains strong on a TTM basis, leverage defined in our credit agreement as funded debt EBITDA was approximately 3.5 times at the end of the third quarter. We continue to have ample excess capacity under our credit facility.
As of September 30, 2021, total borrowings were $296.3 million, consisting of $252.9 million under our $800 million working capital revolving facility and $43.4 million outstanding under our $450 million revolving credit facility. Looking at our upcoming investor calendar, over the next several weeks, we will be participating in conferences hosted by RBC Capital Markets, BofA Securities, and Wells Fargo Securities. If you're attending any of these events, we look forward to meeting with you. If you'd like to arrange a one-on-one, please email our investor relations team at glp@investorrelations.com. Now let me turn the call back to Eric for closing comments.
Thanks, Greg. Looking ahead, we're well positioned both financially and operationally as we prepare to close out 2021. While we remain mindful about the uncertainty of COVID-19, we are encouraged by the improved demand environment in our business. With global supply shortages and a sharp rise in prices creating challenges for natural gas heading into the winter months, our industry will have the opportunity to reinforce the benefits of liquid fuels as a reliable and cost-effective source of energy. Now, we will be happy to take your questions. Operator?
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 Theresa Chen with Barclays. Please proceed with your question.
Good morning. I wanted to ask about the strength in your GDSO segment, on the margin, particularly, especially on the heels of rising commodity prices during the quarter. Can you give us a little bit more color on what drove that?
Hey, good morning, Theresa. It's Mark. You know, I think we've talked about this, I think, throughout the year, and we've had rising prices, pretty much since the beginning of the year. Typically that does tend to compress fuel margins. We've seen margins stay pretty resilient despite the increase in cost. That's obviously been a key driver for us. Then in addition to that, we've seen, as Greg mentioned, you know, some healthy return in sales to both fuel sales and store sales and, you know, so that's probably the other piece of it. A big piece of that is the resiliency of margins throughout this increase in our base costs.
Looking forward, I guess, Mark, do you expect this to continue? Do you think that as volumes have normalized, from the pandemic trough, that this, you know, incremental margin could be competed away?
Yeah, it's impossible to say, Theresa. I'm not sure, you know, what to expect in the future. I think, you know, we know what we've seen this year, and that trend continues. You know, where it lands, I don't know.
Okay, thank you.
Our next question comes from the line of Selman Akyol with Stifel. Please proceed with your question.
Thank you. Congratulations on a very nice quarter. That was pretty impressive. Couple quick questions here. In regards to your terminals for biofuels, can you just say if you're receiving a premium for those terminals at all for moving product through there? Or is it just more you're seeing demand because you're doing biofuels through those terminals?
Selman, it's Mark. Good morning. I think it's a combination of both. I think that, you know, the more products we can handle, you know, we get paid for handling, storing and handling products and redistributing. As we're able to introduce more biofuel and higher biofuel blends, it's not every terminal can handle that. You know, the harder it is to handle, you know, the more margins tend to expand. That being said, it's a very tight margin business as it always has been. You know, we look at this twofold.
We look to capture, you know, whatever opportunity we can in the front of the market, but we're also setting ourselves up for, you know, perhaps higher volumes of renewable fuels to flow through our system as, you know, as markets may transition in the future. It's the projects are kinda twofold, obviously, to capitalize on existing markets, but to set ourselves up for possible changes in the marketplace as well.
Selman, it's Eric Slifka. Those changes in the market could simply be consumer demand driven or they could be regulatory, right? You know, and making sure that we're best positioned to handle those fuels is about setting ourselves up for what we think is coming in the future. The fact of the matter is our Project Carbon Freedom has helped to support regulations in the state of Rhode Island and the state of Connecticut, and a proposed regulation in the state of New York for outside of the existing requirement for bioblends throughout the rest of the state of New York.
What we're really trying to do is just make sure that we are positioned to handle a broad array of fuels as there is current demand for, but also the demand that's coming, right? In order for states and government to reach their greenhouse gas goals, you know, they're gonna have to take the fuels that we carry today and change them somewhat. I believe that directionally and broadly, our industry is in the best position to take these liquid fuels and distribute them, and they'll have a lower carbon footprint. We think it's really the best way for government to help support the transition to lower emission fuels, right? It's our goal to make sure that we can deliver that as those requirements come in.
Yeah. Thank you.
Before we wrap on that one, can I just add, 'cause I'm thinking about why you might have asked that question and I would not expect the material, you know, this to be a material driver of the margin structure on the wholesale side at the moment, right? We're again, as we introduce higher blends, it may have a more dramatic impact, but at the moment, I wouldn't expect this to be a material driver.
Understood. Thank you. You referenced seeing more traffic, and I'm just curious, your premium stores Alltowns, do you see them significantly outperforming your other stores in this environment?
That's a good question. I'm not sure. Are you talking about our new Alltown Fresh concept stores?
Yes.
We have at the moment eight of those stores. You know, they were opened at various points in time over the last 2.5 years. Some opened, you know, during the pandemic, which was a challenge for anybody. I think we've seen a lot of positives out of those stores. Keep in mind, those stores are a lot different than anything else we operate in the sense that all 8 of them have full made to order kitchens with high quality food service. They're quite a bit different than what we operate.
The comparison is a little bit difficult because we have, you know, the food service element that we don't have in many of our other stores. I would say, you know, on balance, we have seen some really positive signs out of this. We're also trying to figure out the model as we go, right? It is a concept, and we're learning from different things that we do, some things that are working, some things that aren't working. I would say that directionally, we're pleased with how they're performing and, you know, we're taking learnings from each store that we open and trying to apply them to whatever comes next. Including, you know, our expectation is what we will gain.
The learnings that we gain from these concepts, we expect we will be able to apply a lot of those features and concepts to our existing portfolio.
Got it.
Was your question also around, sort of highway locations directionally versus locations that are in or, you know, in the middle of town?
No. I mean, really what I was getting at, I mean, it seemed like traffic was picking up, and I'm just wondering, are these stores having a significantly higher ROI compared to some of your other stores that you have? Because they're such a large, you know, the difference in capital costs between the two, you know, is it paying off? That's really where I was going with it or thinking about.
Yeah. I mean, I would say broadly, the stores have been busier inside, and the gas has picked up outside. I would say the out-performers more recently have been those highway locations, right? Because they were probably off the most, particularly commuter locations, but they were great real estate assets right off the highways. They were probably injured a little bit more during the pandemic, but they've really started to come back on in the last quarter, right?
That's helpful. Thank you for that. Everyone, you know, is thinking about inflation's coming, it's here, you guys are experiencing it. Can you just remind us what levers you guys can pull, in order to try to help offset it?
Yeah. I mean, some of the things that we're doing, you know, are self-checkouts, by example, and trying to roll that out to as many places you can in the chain. That takes some pressure off. You know, that's on the cost side. On the products that you're selling, you know, you're trying to maintain your margins or increase them because the costs are higher and pass them through. At the end of the day, you know, if there's an increase in the cost of staffing a store, everybody has that pressure. Everybody's gotta figure out how to deal with it and how to run as efficiently as you possibly can, you know, but also then pass through that cost, and that cost will come through in margin.
Also the cost of the goods are rising as well, right? You're getting it all around. I think the good news is all of your competitors are going through those same increases, and all the, you know, most of the competitors are very smart and they realize there's an increase in cost. In order to continue, they're increasing their margins as well.
Got it. Just the last for me. Any comments you can make on the acquisition market and kinda what you're seeing out there?
You know, it's still very busy. There's lots going on. We've seen lots of transactions, and I think the company continues to position itself to take advantage of those opportunities as they come down the pipe.
Okay. Thank you so much.
We have reached the end of the question and answer session. I would now like to turn the floor back over to Mr. Slifka for closing comments.
Thank you for joining us this morning. We look forward to keeping you updated on our progress. Thanks, everybody, and have a great day.
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.