Global Partners LP: Form 10-Q for the period ended Sep 30, 2023

The following discussion and analysis of financial condition and results of operations of Global Partners LP should be read in conjunction with the historical consolidated financial statements of Global Partners LP and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Forward-Looking Statements

Some of the information contained in this Quarterly Report on Form 10-Q may contain forward-looking statements. Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, events, performance or achievements, and may contain the words “may,” “believe,” “should,” “could,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “continue,” “will likely result,” or other similar expressions although not all forward-looking statements contain such identifying words. In addition, any statement made by our management concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible actions by us are also forward-looking statements. Forward-looking statements are not guarantees of performance. Although we believe these forward-looking statements are based on reasonable assumptions, statements made regarding future results are subject to a number of assumptions, uncertainties and risks, many of which are beyond our control, which may cause future results to be materially different from the results stated or implied in this document. These risks and uncertainties include, among other things:

• We may not have sufficient cash from operations to enable us to pay distributions on the Series A Preferred Units or the Series B Preferred Units (each as defined in Note 13 of Notes to Consolidated Financial Statements) or maintain distributions on our common units at current levels following establishment of cash reserves and payment of fees and expenses, including payments to our general partner.
• A significant decrease in price or demand for the products we sell or a significant increase in the cost of our logistics activities could have an adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders.
• COVID-19 and certain developments in global petroleum markets have had, and may from time to time continue to have, material adverse consequences for general economic, financial and business conditions, and could materially and adversely affect our business, financial condition and results of operation and those of our customers, suppliers and other counterparties.
• The impact on the global economy and commodity prices resulting from the conflicts in Ukraine and the Middle East may have a negative impact on our financial condition and results of operations.
• We depend upon marine, pipeline, rail and truck transportation services for a substantial portion of our logistics activities in transporting the products we sell. Implementation of regulations and directives that adversely impact the market for transporting these products by rail or otherwise could adversely affect those activities. In addition, implementation of regulations and directives related to these aforementioned services as well as a disruption in any of these transportation services could have an adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders.
• We have contractual obligations for certain transportation assets such as railcars, barges and pipelines. A decline in demand for the products we sell could result in a decrease in the utilization of our transportation assets, which could negatively impact our financial condition, results of operations and cash available for distribution to our unitholders.
• We may not be able to fully implement or capitalize upon planned growth projects. Even if we consummate acquisitions or expend capital in pursuit of growth projects that we believe will be accretive, they may in fact result in no increase or even a decrease in cash available for distribution to our unitholders.
• Erosion of the value of major gasoline brands could adversely affect our gasoline sales and customer traffic.
• Our motor fuel sales could be significantly reduced by a reduction in demand due to higher prices and new technologies and alternative fuel sources, such as electric, hybrid, battery powered, hydrogen or other alternative fuel-powered motor vehicles. In addition to new technologies and alternative fuel sources, changing consumer preferences or driving habits could lead to new forms of fueling destinations or potentially fewer customer visits to our sites, resulting in a decrease in gasoline sales and/or sales of food, sundries and other on-site services. Any of these outcomes could negatively affect our financial condition, results of operations and cash available for distribution to our unitholders.
• Effects of climate change and impacts to areas prone to sea level rise or other extreme weather events could have the potential to adversely affect our assets and operations.
• Changes in government usage mandates and tax credits could adversely affect the availability and pricing of ethanol and renewable fuels, which could negatively impact our sales.
• Our petroleum and related products sales, logistics activities, convenience store operations and results of operations have been and could continue to be adversely affected by, among other things, changes in the petroleum products market structure, product differentials and volatility (or lack thereof), implementation of regulations that adversely impact the market for transporting petroleum and related products by rail and other modes of transportation, severe weather conditions, significant changes in prices, labor and equipment shortages and interruptions in transportation services and other necessary services and equipment, such as railcars, barges, trucks, loading equipment and qualified drivers.
• Our risk management policies cannot eliminate all commodity risk, basis risk or the impact of unfavorable market conditions, each of which can adversely affect our financial condition, results of operations and cash available for distribution to our unitholders. In addition, noncompliance with our risk management policies could result in significant financial losses.
• Our results of operations are affected by the overall forward market for the products we sell, and pricing volatility may adversely impact our results.
• Our businesses could be affected by a range of issues, such as changes in demand, commodity prices, energy conservation, competition, the global economic climate, movement of products between foreign locales and within the United States, changes in refiner demand, weekly and monthly refinery output levels, changes in the rate of inflation or deflation, changes in local, domestic and worldwide inventory levels, changes in health, safety and environmental regulations, including, without limitation, those related to climate change, failure to obtain permits, amend existing permits for expansion and/or to address changes to our assets and underlying operations, or renew existing permits on terms favorable to us, seasonality, supply, weather and logistics disruptions and other factors and uncertainties inherent in the transportation, storage, terminalling and marketing of refined products, gasoline blendstocks, renewable fuels and crude oil.
• Increases and/or decreases in the prices of the products we sell could adversely impact the amount of availability for borrowing working capital under our credit agreement, which credit agreement has borrowing base limitations and advance rates.
• Warmer weather conditions could adversely affect our home heating oil and residual oil sales. Our sales of home heating oil and residual oil continue to be reduced by conversions to natural gas and/or electric heat pumps and by utilization of propane and/or natural gas (instead of heating oil) as primary fuel sources.
• We are exposed to trade credit risk and risk associated with our trade credit support in the ordinary course of our businesses.
• The condition of credit markets may adversely affect our liquidity.
• Our credit agreement and the indentures governing our senior notes contain operating and financial covenants, and our credit agreement contains borrowing base requirements. A failure to comply with the operating and financial covenants in our credit agreement, the indentures and any future financing agreements could impact our access to bank loans and other sources of financing as well as our ability to pursue our business activities.
• A significant increase in interest rates could adversely affect our results of operations and cash available for distribution to our unitholders and our ability to service our indebtedness.
• Our gasoline station and convenience store business could expose us to an increase in consumer litigation and result in an unfavorable outcome or settlement of one or more lawsuits where insurance proceeds are insufficient or otherwise unavailable.
• Congress has given the Food and Drug Administration (“FDA”) broad authority to regulate tobacco and nicotine products, and the FDA, states and some municipalities have enacted and are pursuing enaction of numerous regulations restricting the sale of such products. These governmental actions, as well as national, state and municipal campaigns to discourage smoking, tax increases, and imposition of regulations restricting the sale of flavored tobacco products, e-cigarettes and vapor products, have and could result in reduced consumption levels, higher costs which we may not be able to pass on to our customers, and reduced overall customer traffic. Also, increasing regulations related to and restricting the sale of flavored tobacco products, e-cigarettes and vapor products may offset some of the gains we have experienced from selling these types of products. These factors could materially affect the sale of this product mix which in turn could have an adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders.
• Our results can be adversely affected by unforeseen events, such as adverse weather, natural disasters, terrorism, cyber attacks, pandemics, or other catastrophic events which could have an adverse effect on our financial condition, results of operations and cash available for distributions to our unitholders.
• Our businesses could expose us to litigation and result in an unfavorable outcome or settlement of one or more lawsuits where insurance proceeds are insufficient or otherwise unavailable.
• Adverse developments in the areas where we conduct our businesses could have a material adverse effect on such businesses and could reduce our ability to make distributions to our unitholders.
• A serious disruption to our information technology systems could significantly limit our ability to manage and operate our businesses efficiently.
• We are exposed to performance risk in our supply chain.
• Our businesses are subject to federal, state and municipal environmental and non-environmental regulations which could have a material adverse effect on such businesses.
• Our general partner and its affiliates have conflicts of interest and limited fiduciary duties, which could permit them to favor their own interests to the detriment of our unitholders.
• Unitholders have limited voting rights and are not entitled to elect our general partner or its directors or remove our general partner without the consent of the holders of at least 66 2/3% of the outstanding common units (including common units held by our general partner and its affiliates), which could lower the trading price of our units.
• Our tax treatment depends on our status as a partnership for federal income tax purposes.
• Unitholders may be required to pay taxes on their share of our income even if they do not receive any cash distributions from us.

Additional information about risks and uncertainties that could cause actual results to differ materially from forward-looking statements is contained in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2022 and Part II, Item 1A, “Risk Factors,” in this Quarterly Report on Form 10-Q.

We expressly disclaim any obligation or undertaking to update these statements to reflect any change in our expectations or beliefs or any change in events, conditions or circumstances on which any forward-looking statement is based, other than as required by federal and state securities laws. All forward-looking statements included in this Quarterly Report on Form 10-Q and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.

Overview

We are a master limited partnership formed in March 2005. We own, control or have access to one of the largest terminal networks of refined petroleum products and renewable fuels in Massachusetts, Maine, Connecticut, Vermont, New Hampshire, Rhode Island, New York, New Jersey and Pennsylvania (collectively, the “Northeast”). We are one of the region’s largest independent owners, suppliers and operators of gasoline stations and convenience stores. As of September 30, 2023, we had a portfolio of 1,624 owned, leased and/or supplied gasoline stations, including 342 directly operated convenience stores, primarily in the Northeast. We are also one of the largest distributors of gasoline, distillates, residual oil and renewable fuels to wholesalers, retailers and commercial customers in the New England states and New York. We engage in the purchasing, selling, gathering, blending, storing and logistics of transporting petroleum and related products, including gasoline and gasoline blendstocks (such as ethanol), distillates (such as home heating oil, diesel and kerosene), residual oil, renewable fuels, crude oil and propane and in the transportation of petroleum products and renewable fuels by rail from the mid-continent region of the United States and Canada.

Collectively, we sold approximately $4.0 billion and $11.7 billion of refined petroleum products, gasoline blendstocks, renewable fuels and crude oil for the three and nine months ended September 30, 2023, respectively. In addition, we had other revenues of approximately $0.2 billion and $0.4 billion for the three and nine months ended September 30, 2023, respectively from convenience store and prepared food sales at our directly operated stores, rental income from dealer leased and commissioned agent leased gasoline stations and from cobranding arrangements, and sundries.

We base our pricing on spot prices, fixed prices or indexed prices and routinely use the New York Mercantile Exchange (“NYMEX”), Chicago Mercantile Exchange (“CME”) and Intercontinental Exchange (“ICE”) or other counterparties to hedge the risk inherent in buying and selling commodities. Through the use of regulated exchanges or derivatives, we seek to maintain a position that is substantially balanced between purchased volumes and sales volumes or future delivery obligations.

2023 Events

***Purchase Agreement—***On November 8, 2023, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Motiva Enterprises LLC pursuant to which we will acquire 25 refined product terminals along the Atlantic Coast, in the Southeast and in Texas, as more specifically set forth in the Purchase Agreement (the “Terminal Facilities”), and assets related to the Terminal Facilities, for a purchase price of $305.8 million in cash, subject to certain customary adjustments, taking into account the actual amounts of certain assets and liabilities of the Terminal Facilities as of the closing date. The Terminal Facilities have an aggregate shell capacity of approximately 8.4 million barrels. The acquisition is expected to close by the end of 2023 subject to regulatory approvals and other customary closing conditions. We expect to finance the transaction with borrowings under our revolving credit facility.

***Acquisition of Houston Sites—***On June 1, 2023, Spring Partners Retail LLC, a joint venture owned by subsidiaries of ours and Exxon Mobil Corporation, completed its acquisition of 64 Houston-area convenience and fueling facilities from Landmark Industries, LLC and its related entities. See Note 11 of Notes to Consolidated Financial Statements for additional information.

***Amendments to the Credit Agreement—***On February 2, 2023, we and certain of our subsidiaries entered into the eighth amendment to our credit agreement which, among other things, permits us to request up to two reallocations per calendar year of the lending commitments among our facilities under our credit agreement. On May 2, 2023, we and certain of our subsidiaries entered into the ninth amendment to third amended and restated credit agreement and joinder which, among other things, increased the applicable revolver rate by 25 basis points on borrowings under the revolving credit facility and extended the maturity date from May 6, 2024 to May 2, 2026. See “—Liquidity and Capital Resources—Credit Agreement.”

2022 Event

***Acquisition of Terminals—***On December 15, 2022, we entered into a purchase agreement with Gulf Oil Limited Partnership pursuant to which we will acquire five refined-products terminals located in New Haven, CT, Thorofare, NJ, Portland, ME, Linden, NJ and Chelsea, MA for approximately $273.0 million in cash, subject to certain customary adjustments. We expect to finance the transaction with borrowings under our revolving credit facility. We continue to work through the process of obtaining regulatory approvals and other customary closing conditions.

Operating Segments

We purchase refined petroleum products, gasoline blendstocks, renewable fuels and crude oil primarily from domestic and foreign refiners and ethanol producers, crude oil producers, major and independent oil companies and trading companies. We operate our businesses under three segments: (i) Wholesale, (ii) Gasoline Distribution and Station Operations (“GDSO”) and (iii) Commercial.

Wholesale

In our Wholesale segment, we engage in the logistics of selling, gathering, blending, storing and transporting refined petroleum products, gasoline blendstocks, renewable fuels, crude oil and propane. We transport these products by railcars, barges, trucks and/or pipelines pursuant to spot or long-term contracts. We sell home heating oil, branded and unbranded gasoline and gasoline blendstocks, diesel, kerosene and residual oil to home heating oil retailers and wholesale distributors. Generally, customers use their own vehicles or contract carriers to take delivery of the gasoline, distillates and propane at bulk terminals and inland storage facilities that we own or control or at which we have throughput or exchange arrangements. Ethanol is shipped primarily by rail and by barge.

In our Wholesale segment, we obtain Renewable Identification Numbers (“RIN”) in connection with our purchase of ethanol which is used for bulk trading purposes or for blending with gasoline through our terminal system. A RIN is a renewable identification number associated with government-mandated renewable fuel standards. To evidence that the required volume of renewable fuel is blended with gasoline, obligated parties must retire sufficient RINs to cover their Renewable Volume Obligation (“RVO”). Our U.S. Environmental Protection Agency (“EPA”) obligations relative to renewable fuel reporting are comprised of foreign gasoline and diesel that we may import and blending operations at certain facilities.

Gasoline Distribution and Station Operations

In our GDSO segment, gasoline distribution includes sales of branded and unbranded gasoline to gasoline station operators and sub-jobbers. Station operations include (i) convenience store and prepared food sales, (ii) rental income from gasoline stations leased to dealers, from commissioned agents and from cobranding arrangements and (iii) sundries (such as car wash sales and lottery and ATM commissions).

As of September 30, 2023, we had a portfolio of owned, leased and/or supplied gasoline stations, primarily in the Northeast, that consisted of the following:

(1) Excludes 64 sites operated by our joint venture, Spring Partners Retail LLC (see Note 11 of Notes to Consolidated Financial Statements).

At our company-operated stores, we operate the gasoline stations and convenience stores with our employees, and we set the retail price of gasoline at the station. At commissioned agent locations, we own the gasoline inventory, and we set the retail price of gasoline at the station and pay the commissioned agent a fee related to the gallons sold. We receive rental income from commissioned agent leased gasoline stations for the leasing of the convenience store premises, repair bays and/or other businesses that may be conducted by the commissioned agent. At dealer-leased locations, the dealer purchases gasoline from us, and the dealer sets the retail price of gasoline at the dealer’s station. We also receive rental income from (i) dealer-leased gasoline stations and (ii) cobranding arrangements. We also supply gasoline to locations owned and/or leased by independent contract dealers. Additionally, we have contractual relationships with distributors in certain New England states pursuant to which we source and supply these distributors’ gasoline stations with ExxonMobil-branded gasoline.

Commercial

In our Commercial segment, we include sales and deliveries to end user customers in the public sector and to large commercial and industrial end users of unbranded gasoline, home heating oil, diesel, kerosene, residual oil and bunker fuel. In the case of public sector commercial and industrial end user customers, we sell products primarily either through a competitive bidding process or through contracts of various terms. We respond to publicly issued requests for product proposals and quotes. We generally arrange for the delivery of the product to the customer’s designated location. Our Commercial segment also includes sales of custom blended fuels delivered by barges or from a terminal dock to ships through bunkering activity.

Seasonality

Due to the nature of our businesses and our reliance, in part, on consumer travel and spending patterns, we may experience more demand for gasoline during the late spring and summer months than during the fall and winter months. Travel and recreational activities are typically higher in these months in the geographic areas in which we operate, increasing the demand for gasoline. Therefore, our volumes in gasoline are typically higher in the second and third quarters of the calendar year. As demand for some of our refined petroleum products, specifically home heating oil and residual oil for space heating purposes, is generally greater during the winter months, heating oil and residual oil volumes are generally higher during the first and fourth quarters of the calendar year. These factors may result in fluctuations in our quarterly operating results.

Outlook

This section identifies certain risks and certain economic or industry-wide factors that may affect our financial performance and results of operations in the future, both in the short-term and in the long-term. Our results of operations and financial condition depend, in part, upon the following:

• Our businesses are influenced by the overall markets for refined petroleum products, gasoline blendstocks, renewable fuels, crude oil and propane and increases and/or decreases in the prices of these products may adversely impact our financial condition, results of operations and cash available for distribution to our unitholders and the amount of borrowing available for working capital under our credit agreement. Results

from our purchasing, storing, terminalling, transporting, selling and blending operations are influenced by prices for refined petroleum products, gasoline blendstocks, renewable fuels, crude oil and propane, price volatility and the market for such products. Prices in the overall markets for these products may affect our financial condition, results of operations and cash available for distribution to our unitholders. Our margins can be significantly impacted by the forward product pricing curve, often referred to as the futures market. We typically hedge our exposure to petroleum product and renewable fuel price moves with futures contracts and, to a lesser extent, swaps. In markets where future prices are higher than current prices, referred to as contango, we may use our storage capacity to improve our margins by storing products we have purchased at lower prices in the current market for delivery to customers at higher prices in the future. In markets where future prices are lower than current prices, referred to as backwardation, inventories can depreciate in value and hedging costs are more expensive. For this reason, in these backward markets, we attempt to reduce our inventories in order to minimize these effects. Our inventory management is dependent on the use of hedging instruments which are managed based on the structure of the forward pricing curve. Daily market changes may impact periodic results due to the point-in-time valuation of these positions. Volatility in petroleum markets may impact our results. When prices for the products we sell rise, some of our customers may have insufficient credit to purchase supply from us at their historical purchase volumes, and their customers, in turn, may adopt conservation measures which reduce consumption, thereby reducing demand for product. Furthermore, when prices increase rapidly and dramatically, we may be unable to promptly pass our additional costs on to our customers, resulting in lower margins which could adversely affect our results of operations. Higher prices for the products we sell may (1) diminish our access to trade credit support and/or cause it to become more expensive and (2) decrease the amount of borrowings available for working capital under our credit agreement as a result of total available commitments, borrowing base limitations and advance rates thereunder. When prices for the products we sell decline, our exposure to risk of loss in the event of nonperformance by our customers of our forward contracts may be increased as they and/or their customers may breach their contracts and purchase the products we sell at the then lower market price from a competitor.

• We commit substantial resources to pursuing acquisitions and expending capital for growth projects, although there is no certainty that we will successfully complete any acquisitions or growth projects or receive the economic results we anticipate from completed acquisitions or growth projects. We are continuously engaged in discussions with potential sellers and lessors of existing (or suitable for development) terminalling, storage, logistics and/or marketing assets, including gasoline stations, convenience stores and related businesses, and also consider organic growth projects. Our growth largely depends on our ability to make accretive acquisitions and/or accretive development projects. We may be unable to execute such accretive transactions for a number of reasons, including the following: (1) we are unable to identify attractive transaction candidates or negotiate acceptable terms; (2) we are unable to obtain financing for such transactions on economically acceptable terms; or (3) we are outbid by competitors. Many of these transactions involve numerous regulatory, environmental, commercial and legal uncertainties beyond our control. Required approvals, permits and licenses may not be obtained, may be delayed or may be obtained with conditions that materially alter the expected return associated with the underlying projects. In addition, we may consummate transactions that we believe will be accretive but that ultimately may not be accretive. If any of these events were to occur, our future growth and ability to increase or maintain distributions on our common units could be limited. We can give no assurance that our transaction efforts will be successful or that any such efforts will be completed on terms that are favorable to us.
• The condition of credit markets may adversely affect our liquidity. In the past, world financial markets experienced a severe reduction in the availability of credit. Possible negative impacts in the future could include a decrease in the availability of borrowings under our credit agreement, increased counterparty credit risk on our derivatives contracts and our contractual counterparties could require us to provide collateral. In addition, we could experience a tightening of trade credit from our suppliers.
• We depend upon marine, pipeline, rail and truck transportation services for a substantial portion of our logistics activities in transporting the products we sell. Implementation of regulations and directives related to these aforementioned services as well as disruption in any of these transportation services could have an adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders. Hurricanes, flooding and other severe weather conditions could cause a disruption in the transportation services

we depend upon and could affect the flow of service. In addition, accidents, labor disputes between providers and their employees and labor renegotiations, including strikes, lockouts or a work stoppage, shortage of railcars, trucks and barges, mechanical difficulties or bottlenecks and disruptions in transportation logistics could also disrupt our business operations. These events could result in service disruptions and increased costs which could also adversely affect our financial condition, results of operations and cash available for distribution to our unitholders. Other disruptions, such as those due to an act of terrorism or war, could also adversely affect our businesses.

• We have contractual obligations for certain transportation assets such as railcars, barges and pipelines. A decline in demand for the products we sell could result in a decrease in the utilization of our transportation assets, which could negatively impact our financial condition, results of operations and cash available for distribution to our unitholders.
• Our gasoline financial results in our GDSO segment can be lower in the first and fourth quarters of the calendar year due to seasonal fluctuations in demand. Due to the nature of our businesses and our reliance, in part, on consumer travel and spending patterns, we may experience more demand for gasoline during the late spring and summer months than during the fall and winter months. Travel and recreational activities are typically higher in these months in the geographic areas in which we operate, increasing the demand for gasoline. Therefore, our results of operations in gasoline can be lower in the first and fourth quarters of the calendar year.
• Our heating oil and residual oil financial results can be lower in the second and third quarters of the calendar year. Demand for some refined petroleum products, specifically home heating oil and residual oil for space heating purposes, is generally higher during November through March than during April through October. We obtain a significant portion of these sales during the winter months.
• Warmer weather conditions could adversely affect our results of operations and financial condition. Weather conditions generally have an impact on the demand for both home heating oil and residual oil. Because we supply distributors whose customers depend on home heating oil and residual oil for space heating purposes during the winter, warmer-than-normal temperatures during the first and fourth calendar quarters can decrease the total volume we sell and the gross profit realized on those sales.
• Our gasoline, convenience store and prepared food sales could be significantly reduced by a reduction in demand due to higher prices and inflation in general and new technologies and alternative fuel sources, such as electric, hybrid, battery powered, hydrogen or other alternative fuel-powered motor vehicles. Technological advances and alternative fuel sources, such as electric, hybrid, battery powered, hydrogen or other alternative fuel-powered motor vehicles, may adversely affect the demand for gasoline. We could face additional competition from alternative energy sources as a result of future government-mandated controls or regulations which promote the use of alternative fuel sources. A number of new legal incentives and regulatory requirements, and executive initiatives, including various government subsidies including the extension of certain tax credits for renewable energy, have made these alternative forms of energy more competitive. Changing consumer preferences or driving habits could lead to new forms of fueling destinations or potentially fewer customer visits to our sites, resulting in a decrease in gasoline sales and/or sales of food, sundries and other on-site services. In addition, higher prices and inflation in general could reduce the demand for gasoline and the products and services we offer at our convenience stores and adversely impact our sales. A reduction in our sales could have an adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders.
• Energy efficiency, higher prices, new technology and alternative fuels could reduce demand for our heating oil and residual oil. Increased conservation and technological advances have adversely affected the demand for home heating oil and residual oil. Consumption of residual oil has steadily declined over the last four decades. We could face additional competition from alternative energy sources as a result of future government-mandated controls or regulations further promoting the use of cleaner fuels. End users who are dual-fuel users have the ability to switch between residual oil and natural gas. Other end users may elect to convert to natural gas, electric heat pumps or other alternative fuels. During a period of increasing residual oil prices relative to the prices of natural gas, dual-fuel customers may switch and other end users may convert to natural gas. During periods of

increasing home heating oil prices relative to the price of natural gas, residential users of home heating oil may also convert to natural gas, electric heat pumps or other alternative fuels. As described above, such switching or conversion could have an adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders.

• Changes in government usage mandates and tax credits could adversely affect the availability and pricing of ethanol and renewable fuels, which could negatively impact our sales. The EPA has implemented a Renewable Fuels Standard (“RFS”) pursuant to the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007. The RFS program seeks to promote the incorporation of renewable fuels in the nation’s fuel supply and, to that end, sets annual quotas for the quantity of renewable fuels (such as ethanol) that must be blended into transportation fuels consumed in the United States. A RIN is assigned to each gallon of renewable fuel produced in or imported into the United States. We are exposed to volatility in the market price of RINs. We cannot predict the future prices of RINs. RIN prices are dependent upon a variety of factors, including EPA regulations related to the amount of RINs required and the total amounts that can be generated, the availability of RINs for purchase, the price at which RINs can be purchased, and levels of transportation fuels produced, all of which can vary significantly from quarter to quarter. If sufficient RINs are unavailable for purchase or if we have to pay a significantly higher price for RINs, or if we are otherwise unable to meet the EPA’s RFS mandates, our results of operations and cash flows could be adversely affected. Future demand for ethanol will be largely dependent upon the economic incentives to blend based upon the relative value of gasoline and ethanol, taking into consideration the EPA’s regulations on the RFS program and oxygenate blending requirements. A reduction or waiver of the RFS mandate or oxygenate blending requirements could adversely affect the availability and pricing of ethanol, which in turn could adversely affect our future gasoline and ethanol sales. In addition, changes in blending requirements or broadening the definition of what constitutes a renewable fuel could affect the price of RINs which could impact the magnitude of the mark-to-market liability recorded for the deficiency, if any, in our RIN position relative to our RVO at a point in time. Changes proposed by EPA for the renewable volume obligations may increase the cost to consumers for transportation fuel, which could result in a decline in demand for fuels and lower revenues for our business.
• Governmental action and campaigns to discourage smoking and use of other products may have a material adverse effect on our revenues and gross profit. Congress has given the FDA broad authority to regulate tobacco and nicotine products, and the FDA, states and some municipalities have enacted and are pursuing enaction of numerous regulations restricting the sale of such products. These governmental actions, as well as national, state and municipal campaigns to discourage smoking, tax increases, and imposition of regulations restricting the sale of flavored tobacco products, e-cigarettes and vapor products, have and could result in reduced consumption levels, higher costs which we may not be able to pass on to our customers, and reduced overall customer traffic. Also, increasing regulations related to and restricting the sale of flavored tobacco products, e-cigarettes and vapor products may offset some of the gains we have experienced from selling these types of products. These factors could materially affect the sale of this product mix which in turn could have an adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders.
• New, stricter environmental laws and other industry-related regulations or environmental litigation could significantly impact our operations and/or increase our costs, which could adversely affect our results of operations and financial condition. Our operations are subject to federal, state and municipal laws and regulations regulating, among other matters, logistics activities, product quality specifications and other environmental matters. The trend in environmental regulation has been towards more restrictions and limitations on activities that may affect the environment over time. For example, President Biden signed an executive order calling for new or more stringent emissions standards for new, modified and existing oil and gas facilities, and the EPA has released both a proposed rule and a supplemental proposal to that effect. Our businesses may be adversely affected by increased costs and liabilities resulting from such stricter laws and regulations. We try to anticipate future regulatory requirements that might be imposed and plan accordingly to remain in compliance with changing environmental laws and regulations and to minimize the costs of such compliance. Risks related to our environmental permits, including the risk of noncompliance, permit interpretation, permit modification, renewal of permits on less favorable terms, judicial or administrative challenges to permits by citizens groups or federal, state or municipal entities or permit revocation are inherent in the operation of our businesses, as it is with

other companies engaged in similar businesses. We may not be able to renew the permits necessary for our operations, or we may be forced to accept terms in future permits that limit our operations or result in additional compliance costs. There can be no assurances as to the timing and type of such changes in existing laws or the promulgation of new laws or the amount of any required expenditures associated therewith. Climate change continues to attract considerable public and scientific attention. In recent years environmental interest groups have filed suit against companies in the energy industry related to climate change. Should such suits succeed, we could face additional compliance costs or litigation risks.

Results of Operations

Evaluating Our Results of Operations

Our management uses a variety of financial and operational measurements to analyze our performance. These measurements include: (1) product margin, (2) gross profit, (3) earnings before interest, taxes, depreciation and amortization (“EBITDA”) and adjusted EBITDA, (4) distributable cash flow and adjusted distributable cash flow, (5) selling, general and administrative expenses (“SG&A”), (6) operating expenses and (7) degree days.

Product Margin

We view product margin as an important performance measure of the core profitability of our operations. We review product margin monthly for consistency and trend analysis. We define product margin as our product sales minus product costs. Product sales primarily include sales of unbranded and branded gasoline, distillates, residual oil, renewable fuels and crude oil, as well as convenience store and prepared food sales, gasoline station rental income and revenue generated from our logistics activities when we engage in the storage, transloading and shipment of products owned by others. Product costs include the cost of acquiring products and all associated costs including shipping and handling costs to bring such products to the point of sale as well as product costs related to convenience store items and costs associated with our logistics activities. We also look at product margin on a per unit basis (product margin divided by volume). Product margin is a non-GAAP financial measure used by management and external users of our consolidated financial statements to assess our business. Product margin should not be considered an alternative to net income, operating income, cash flow from operations, or any other measure of financial performance presented in accordance with GAAP. In addition, our product margin may not be comparable to product margin or a similarly titled measure of other companies.

Gross Profit

We define gross profit as our product margin minus terminal and gasoline station related depreciation expense allocated to cost of sales.

EBITDA and Adjusted EBITDA

EBITDA and adjusted EBITDA are non-GAAP financial measures used as supplemental financial measures by management and may be used by external users of our consolidated financial statements, such as investors, commercial banks and research analysts, to assess:

• our compliance with certain financial covenants included in our debt agreements;
• our financial performance without regard to financing methods, capital structure, income taxes or historical cost basis;
• our ability to generate cash sufficient to pay interest on our indebtedness and to make distributions to our partners;
• our operating performance and return on invested capital as compared to those of other companies in the wholesale, marketing, storing and distribution of refined petroleum products, gasoline blendstocks, renewable

fuels, crude oil and propane, and in the gasoline stations and convenience stores business, without regard to financing methods and capital structure; and

• the viability of acquisitions and capital expenditure projects and the overall rates of return of alternative investment opportunities.

Adjusted EBITDA is EBITDA further adjusted for gains or losses on the sale and disposition of assets, goodwill and long-lived asset impairment charges and our proportionate share of EBITDA related to our joint venture which is accounted for using the equity method. EBITDA and adjusted EBITDA should not be considered as alternatives to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. EBITDA and adjusted EBITDA exclude some, but not all, items that affect net income, and these measures may vary among other companies. Therefore, EBITDA and adjusted EBITDA may not be comparable to similarly titled measures of other companies.

Distributable Cash Flow and Adjusted Distributable Cash Flow

Distributable cash flow is an important non-GAAP financial measure for our limited partners since it serves as an indicator of our success in providing a cash return on their investment. Distributable cash flow as defined by our partnership agreement is net income plus depreciation and amortization minus maintenance capital expenditures, as well as adjustments to eliminate items approved by the audit committee of the board of directors of our general partner that are extraordinary or non-recurring in nature and that would otherwise increase distributable cash flow.

Distributable cash flow as used in our partnership agreement also determines our ability to make cash distributions on our incentive distribution rights. The investment community also uses a distributable cash flow metric similar to the metric used in our partnership agreement with respect to publicly traded partnerships to indicate whether or not such partnerships have generated sufficient earnings on a current or historical level that can sustain distributions on preferred or common units or support an increase in quarterly cash distributions on common units. Our partnership agreement does not permit adjustments for certain non-cash items, such as net losses on the sale and disposition of assets and goodwill and long-lived asset impairment charges.

Adjusted distributable cash flow is a non-GAAP financial measure intended to provide management and investors with an enhanced perspective of our financial performance. Adjusted distributable cash flow is distributable cash flow (as defined in our partnership agreement) further adjusted for our proportionate share of distributable cash flow related to our joint venture which is accounted for using the equity method. Adjusted distributable cash flow is not used in our partnership agreement to determine our ability to make cash distributions and may be higher or lower than distributable cash flow as calculated under our partnership agreement.

Distributable cash flow and adjusted distributable cash flow should not be considered as alternatives to net income, operating income, cash flow from operations, or any other measure of financial performance presented in accordance with GAAP. In addition, our distributable cash flow and adjusted distributable cash flow may not be comparable to distributable cash flow or similarly titled measures of other companies.

Selling, General and Administrative Expenses

Our SG&A expenses include, among other things, marketing costs, corporate overhead, employee salaries and benefits, pension and 401(k) plan expenses, discretionary bonuses, non-interest financing costs, professional fees and information technology expenses. Employee-related expenses including employee salaries, discretionary bonuses and related payroll taxes, benefits, and pension and 401(k) plan expenses are paid by our general partner which, in turn, are reimbursed for these expenses by us.

Operating Expenses

Operating expenses are costs associated with the operation of the terminals, transload facilities and gasoline stations and convenience stores used in our businesses. Lease payments, maintenance and repair, property taxes, utilities, credit card fees, taxes, labor and labor-related expenses comprise the most significant portion of our operating expenses. While the majority of these expenses remains relatively stable, independent of the volumes through our system, they can fluctuate depending on the activities performed during a specific period. In addition, they can be impacted by new directives issued by federal, state and local governments.

Degree Days

A “degree day” is an industry measurement of temperature designed to evaluate energy demand and consumption. Degree days are based on how far the average temperature departs from a human comfort level of 65°F. Each degree of temperature above 65°F is counted as one cooling degree day, and each degree of temperature below 65°F is counted as one heating degree day. Degree days are accumulated each day over the course of a year and can be compared to a monthly or a long-term (multi-year) average, or normal, to see if a month or a year was warmer or cooler than usual. Degree days are officially observed by the National Weather Service and officially archived by the National Climatic Data Center. For purposes of evaluating our results of operations, we use the normal heating degree day amount as reported by the National Weather Service at its Logan International Airport station in Boston, Massachusetts.

Key Performance Indicators

The following table provides a summary of some of the key performance indicators that may be used to assess our results of operations. These comparisons are not necessarily indicative of future results (gallons and dollars in thousands):

(1) EBITDA and adjusted EBITDA are non-GAAP financial measures which are discussed above under “—Evaluating Our Results of Operations.” The table below presents reconciliations of EBITDA and adjusted EBITDA to the most directly comparable GAAP financial measures.

(2) Distributable cash flow and adjusted distributable cash flow are non-GAAP financial measures which are discussed above under “—Evaluating Our Results of Operations.” As defined by our partnership agreement, distributable cash flow is not adjusted for certain non-cash items, such as net losses on the sale and disposition of assets and goodwill and long-lived asset impairment charges. The table below presents reconciliations of distributable cash flow and adjusted distributable cash flow to the most directly comparable GAAP financial measures.

(3) Distributable cash flow for the three and nine months ended September 30, 2023 includes $1.2 million and $2.4 million, respectively, of income from our equity method investment related to our 49.99% interest in our Spring Partners Retail LLC joint venture (see Note 11 of Notes to Consolidated Financial Statements).

(4) Distributable cash flow for the nine months ended September 30, 2022 includes a net gain on sale and disposition of assets of $81.5 million, primarily related to the sale of the Revere Terminal (see Note 12 of Notes to Consolidated Financial Statements).

(5) Distillates and other oils (primarily residual oil and crude oil).

(6) Segment reporting results for the three and nine months ended September 30, 2022 have been reclassed within the Wholesale segment to conform to our current presentation. Specifically, results from crude oil previously shown separately are included in distillates and other oils as results from crude oil are immaterial.

(7) Station operations consist of convenience store and prepared food sales, rental income and sundries.

(8) Product margin is a non-GAAP financial measure which is discussed above under “—Evaluating Our Results of Operations.” The table above includes a reconciliation of product margin on a combined basis to gross profit, a directly comparable GAAP measure.

(9) Excludes 64 sites at September 30, 2023 that are operated by our joint venture, Spring Partners Retail LLC (see Note 11 of Notes to Consolidated Financial Statements).

The following table presents reconciliations of EBITDA and adjusted EBITDA to the most directly comparable GAAP financial measures on a historical basis for each period presented (in thousands):

(1) Represents our proportionate share of net income and EBITDA, as applicable, related to our 49.99% interest in our Spring Partners Retail LLC joint venture (see Note 11 of Notes to Consolidated Financial Statements).

The following table presents reconciliations of distributable cash flow and adjusted distributable cash flow to the most directly comparable GAAP financial measures on a historical basis for each period presented (in thousands):

(1) Distributable cash flow and adjusted distributable cash flow are non-GAAP financial measures which are discussed above under “—Evaluating Our Results of Operations.” As defined by our partnership agreement, distributable cash flow is not adjusted for certain non-cash items, such as net losses on the sale and disposition of assets and goodwill and long-lived asset impairment charges.

(2) Distributable cash flow for three and nine months ended September 30, 2023 includes $1.2 million and $2.4 million, respectively, of income from our equity method investment related to our 49.99% interest in our Spring Partners Retail LLC joint venture (see Note 11 of Notes to Consolidated Financial Statements).

(3) Distributable cash flow for the nine months ended September 30, 2022 includes a net gain on sale and disposition of assets of $81.5 million, respectively, primarily related to the sale of the Revere Terminal (see Note 12 of Notes to Consolidated Financial Statements).

(4) Represents our proportionate share of net income and distributable cash flow, as applicable, related to our 49.99% interest in our Spring Partners Retail LLC joint venture (see Note 11 of Notes to Consolidated Financial Statements).

(5) Distributions to preferred unitholders represent the distributions payable to the Series A preferred unitholders and the Series B preferred unitholders earned during the period. These distributions are cumulative and payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year.

Results of Operations

Consolidated Sales

Our total sales were $4.2 billion and $4.6 billion for the three months ended September 30, 2023 and 2022, respectively, a decrease of $0.4 billion, or 9%, primarily due to a decrease in prices, partially offset by an increase in volume sold. Our aggregate volume of product sold was 1.4 billion gallons and 1.3 billion gallons for the three months ended September 30, 2023 and 2022, respectively, increasing 54 million gallons from the prior-year period (consisting of increases of 51 million gallons and 6 million gallons in our Wholesale and Commercial segments, respectively, offset by a decrease of 3 million gallons in our GDSO segment).

Our total sales were $12.1 billion and $14.4 billion for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $2.3 billion, or 16%, primarily due to a decrease in prices, partially offset by an increase in volume sold. Our aggregate volume of product sold was 4.1 billion gallons for each of the nine months ended September 30, 2023 and 2022, increasing 10 million gallons from the nine months ended September 30, 2022 (consisting of an increase of 19 million gallons in our Wholesale segment, offset by decreases of 5 million gallons and 4 million gallons in our GDSO and Commercial segments, respectively).

Gross Profit

Our gross profit was $228.5 million and $328.4 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of $99.9 million, or 30%. In our GDSO segment, our gasoline product margin declined primarily due to lower fuel margins (cents per gallon) in 2023 compared to significantly higher fuel margins in 2022 due to especially favorable market conditions experienced in 2022. Product margins in both gasoline distribution and station operations in our GDSO segment were negatively impacted by excessive amounts of rain in the Northeast, particularly in July, which influenced consumer travel patterns and decreased demand for our products and services at our gasoline stations and convenience stores. Our Wholesale segment product margins decreased in 2023 due to less favorable market conditions compared to 2022 when market conditions were more favorable, primarily in gasoline and gasoline blendstocks but also in distillates and other oils. In our Commercial segment, our product margin decreased, primarily due to less favorable market conditions in bunkering.

Our gross profit was $693.2 million and $816.1 million for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $122.9 million, or 15%. Our Wholesale segment product margins decreased in 2023 due to less favorable market conditions compared to 2022 when market conditions were more favorable, primarily in distillates and other oils but also in gasoline and gasoline blendstocks. In our GDSO segment, our gasoline distribution product margin decreased due in part to lower fuel margins (cents per gallon), while our station operations product margin increased due to an increase in activity at our convenience stores. Our GDSO product margins benefitted from our September 2022 acquisition of Tidewater Convenience, Inc. (“Tidewater”). In our Commercial segment, our product margin decreased, primarily due to less favorable market conditions in bunkering.

Results for Wholesale Segment

Gasoline and Gasoline Blendstocks. Sales from wholesale gasoline and gasoline blendstocks were $1.6 billion for each of the three months ended September 30, 2023 and 2022, decreasing $9.1 million, or 1%, due to a decrease in prices, partially offset by an increase in volume sold. Our gasoline and gasoline blendstocks product margin was $20.4 million and $54.2 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of $33.8 million, or 62%, primarily due to less favorable market conditions in gasoline compared to the same period in 2022 when market conditions were more favorable.

Sales from wholesale gasoline and gasoline blendstocks were $4.2 billion and $5.0 billion for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $0.8 billion, or 16%, primarily due to a decrease in prices. Our gasoline and gasoline blendstocks product margin was $79.8 million and $93.0 million for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $13.2 million, or 14%, primarily due to less favorable market conditions in gasoline in the third quarter of 2023, partially offset by more favorable market conditions in gasoline and gasoline blendstocks in the first quarter of 2023.

Distillates and Other Oils. Sales from distillates and other oils (primarily residual oil and crude oil ) were $0.7 billion and $0.9 billion for the three months ended September 30, 2023 and 2022, respectively, decreasing $171.5 million, or 19%, primarily due to a decrease in distillate prices and a decline in residual oil volume sold, partially offset by an increase in distillate volume sold. Our product margin from distillates and other oils was $16.8 million and $25.1 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of $8.3 million, or 33%, primarily due to less favorable market conditions in distillates and residual oil compared to the same period in 2022 when market conditions were more favorable. The decrease in product margin was offset by an increase in crude oil due to the expiration of a pipeline connection agreement in December of 2022.

Sales from distillates and other oils were $2.7 billion and $3.2 billion for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $0.5 billion, or 16%, primarily due to a decrease in prices and a decline in distillate volume sold, partially offset by an increase in residual oil volume sold. Our product margin from distillates and other oils was $70.2 million and $124.0 million for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $53.8 million, or 43%, primarily due to less favorable market conditions in distillates and residual oil compared to the same period in 2022 when market conditions were more favorable, offset by an increase in crude oil due to the expiration of a pipeline connection agreement in December of 2022. Our sales, volumes sold and product margins related to weather-sensitive products were negatively impacted for the first nine months of 2023 due to warmer weather in the first quarter when temperatures were 16% warmer than normal and 13% warmer than the first quarter of 2022.

Results for Gasoline Distribution and Station Operations Segment

Gasoline Distribution. Sales from gasoline distribution were $1.4 billion and $1.6 billion for the three months ended September 30, 2023 and 2022, respectively, decreasing $170.4 million, or 10%, primarily due to decreases in prices and in volume sold. Our product margin from gasoline distribution was $132.0 million and $188.0 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of $56.0 million, or 30%, primarily due to lower fuel margins (cents per gallon) in 2023 compared to significantly higher fuel margins in 2022 due to especially favorable market conditions experienced in 2022. Our sales, volume sold and product margin in gasoline distribution were also negatively impacted for the third quarter of 2023 due to excessive amounts of rain in the Northeast, particularly in July, which influenced consumer travel patterns and decreased demand for gasoline.

Sales from gasoline distribution were $4.0 billion and $4.7 billion for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $0.7 billion, or 15%, primarily due to a decrease in prices and in volume sold. Our product margin from gasoline distribution was $380.7 million and $432.7 million for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $52.0 million, or 12%, in part due to lower fuel margins (cents per gallon), offset by an increase in volume sold due to the acquisition of Tidewater.

Station Operations. Our station operations, which include (i) convenience store and prepared food sales at our directly operated stores, (ii) rental income from gasoline stations leased to dealers or from commissioned agents and from cobranding arrangements and (iii) sale of sundries, such as car wash sales and lottery and ATM commissions, collectively generated revenues of $156.7 million and $158.9 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of $2.2 million, or 1%. Our product margin from station operations was $74.5 million and $73.6 million for the three months ended September 30, 2023 and 2022, respectively, an increase of $0.9 million, or 1%, primarily due to an increase in activity at our convenience stores, in part due to the acquisition of Tidewater. Our sales and product margin from station operations were negatively impacted for the third quarter of 2023 due to excessive amounts of rain in the Northeast, particularly in July, which influenced consumer demand for our products and services at our convenience stores.

Sales from our station operations were $431.9 million and $419.1 million for the nine months ended September 30, 2023 and 2022, respectively, an increase of $12.8 million, or 3%. Our product margin from station operations was $208.4 million and $200.7 million for the nine months ended September 30, 2023 and 2022, respectively, an increase of $7.7 million, or 4%. The increases in sales and product margin are primarily due to an increase in activity at our convenience stores, in part due to the acquisition of Tidewater.

Results for Commercial Segment

Our commercial sales were $273.8 million and $326.1 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of $52.3 million or 16%, primarily due to a decrease in prices, partially offset by an increase in volume sold. Our commercial product margin was $8.4 million and $10.4 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of $2.0 million, or 19%, primarily due to less favorable market conditions in bunkering.

Our commercial sales were $0.8 billion and $1.0 billion for the nine months ended September 30, 2023 and 2022, respectively, decreasing $261.3 million or 26%, primarily due to decreases in prices and, to a lesser extent, volume sold. Our commercial product margin was $23.3 million and $31.0 million for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $7.7 million, or 25%, primarily due to less favorable market conditions in bunkering.

Selling, General and Administrative Expenses

SG&A expenses were $63.5 million and $65.1 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of $1.6 million, or 2%, including a decrease of $5.7 million in accrued discretionary incentive compensation, offset by increases of $2.4 million in acquisition costs and $1.7 million in wages and benefits.

SG&A expenses were $192.4 million and $182.3 million for the nine months ended September 30, 2023 and 2022, respectively, an increase of $10.1 million, or 6%, including increases of $8.7 million in wages and benefits, $6.8 million of expenses associated with the sale of our Revere Terminal (see Note 12 of Notes to Consolidated Financial Statements), $1.8 million in acquisition costs, $1.3 million in professional fees and $1.2 million in various other SG&A expenses. The increase in SG&A expenses was offset by a decrease of $9.7 million in accrued discretionary incentive compensation.

Operating Expenses

Operating expenses were $115.9 million and $119.5 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of $3.6 million, or 3%, due to a decrease of $4.1 million in our GDSO segment including a decrease in our environmental expenses due to an additional reserve recorded in the third quarter of 2022 and to lower rent expense, offset by an increase in salary expense. Operating expenses associated with our terminal operations increased $0.5 million.

Operating expenses were $334.7 million and $327.3 million for the nine months ended September 30, 2023 and 2022, respectively, an increase of $7.4 million, or 2%, largely due to an increase of $6.3 million associated with our GDSO operations, including the Tidewater acquisition, in part due to higher salary expense and an increase in maintenance and repair expenses, offset by decreases in our environmental reserve and in credit card fees due to lower gasoline prices. Operating expenses associated with our terminal operations increased $1.1 million, partially due to an increase in maintenance and repair expenses.

Amortization Expense

Amortization expense related to intangible assets was $2.0 million and $2.1 million for the three months ended September 30, 2023 and 2022, respectively, and $6.1 million and $6.7 million for the nine months ended September 30, 2023 and 2022, respectively.

Net Gain (Loss) on Sale and Disposition of Assets

Net gain on sale and disposition of assets was $0.9 million and $2.1 million for the three and nine months ended September 30, 2023, respectively, primarily due to the sale of GDSO sites.

Net (loss) on sale and disposition of assets was ($0.3 million) for the three months ended September 30, 2022, primarily due to the sale of GDSO sites. Net gain on sale and disposition of assets was $81.5 million for the nine months ended September 30, 2022, primarily related to the sale of the Revere Terminal (see Note 12 of Notes to Consolidated Financial Statements for more information).

Income from Equity Method Investment

Income from equity method investment was $1.2 million and $2.4 million for the three and nine months ended September 30, 2023, representing our proportional share of earnings from our Spring Partners Retail LLC joint venture (see Note 11 of Notes to Consolidated Financial Statements).

Interest Expense

Interest expense was $21.1 million and $19.0 million for the three months ended September 30, 2023 and 2022, respectively, an increase of $2.1 million, or 11%, due in part to higher average balances on our credit facilities and higher interest rates.

Interest expenses was $64.9 million and $61.5 million for the nine months ended September 30, 2023 and 2022, respectively, an increase of $3.4 million, or 5%, due in part to higher interest rates and a $0.5 million write-off of deferred financing fees associated with the amendment to our credit agreement in May 2023, offset by lower average balances on our credit facilities,

Income Tax Expense

Income tax expense was $1.3 million and $10.8 million for the three months ended September 30, 2023 and 2022, respectively, and $2.4 million and $14.9 million for the nine months ended September 30, 2023 and 2022, respectively. The respective income tax expense predominantly reflects the income tax expense from the operating results of GMG, which is a taxable entity for federal and state income tax purposes.

Liquidity and Capital Resources

Liquidity

Our primary liquidity needs are to fund our working capital requirements, capital expenditures and distributions and to service our indebtedness. Our primary sources of liquidity are cash generated from operations, amounts available under our working capital revolving credit facility and equity and debt offerings. Please read “—Credit Agreement” for more information on our working capital revolving credit facility.

Working capital was $125.8 million and $197.8 million at September 30, 2023 and December 31, 2022, respectively, a decrease of $72.0 million. Changes in current assets and current liabilities decreasing our working capital primarily include a decrease of $175.9 million in inventories and an increase of $27.3 million in accounts payable, both in part due to lower prices. The decrease in working capital was offset by decreases of $87.7 million in the current portion of our working capital revolving credit facility and $25.7 million in accrued expenses and current liabilities and an increase of $42.6 million in accounts receivable.

Cash Distributions

Common Units

During 2023, we paid the following cash distributions to our common unitholders and our general partner:

(1) This distribution consists of a quarterly distribution of $0.6350 per unit and a one-time special distribution of $0.9375 per unit. Our general partner agreed to waive its incentive distribution rights with respect to the special distribution.

In addition, on October 24, 2023, the board of directors of our general partner declared a quarterly cash distribution of $0.6850 per unit ($2.74 per unit on an annualized basis) on all of our outstanding common units for the period from July 1, 2023 through September 30, 2023 to our common unitholders of record as of the close of business on November 8, 2023. We expect to pay the total cash distribution of approximately $25.8 million on November 14, 2023.

Preferred Units

During 2023, we paid the following cash distributions to holders of the Series A Preferred Units and the Series B Preferred Units:

In addition, on October 16, 2023, the board of directors of our general partner declared a quarterly cash distribution of $0.77501 per unit ($3.10 per unit on an annualized basis) on the Series A Preferred Units for the period from August 15, 2023 through November 14, 2023 to our Series A preferred unitholders of record as of the opening of business on November 1, 2023. The applicable distribution rate on the Series A Preferred Units for such period, as calculated by our calculation agent, is approximately 12.40%. We expect to pay the total cash distribution of approximately $2.1 million on November 15, 2023.

The board of directors of our general partner also declared a quarterly cash distribution of $0.59375 per unit ($2.375 per unit on an annualized basis) on the Series B Preferred Units for the period from August 15, 2023 through November 14, 2023 to our Series B preferred unitholders of record as of the opening of business on November 1, 2023. We expect to pay the total cash distribution of approximately $1.8 million on November 15, 2023.

Contractual Obligations

We have contractual obligations that are required to be settled in cash. The amounts of our contractual obligations at September 30, 2023 were as follows (in thousands):

(1) Includes principal and interest on our working capital revolving credit facility and our revolving credit facility at September 30, 2023 and assumes a ratable payment through the expiration date. Our credit agreement has a contractual maturity of May 2, 2026 and no principal payments are required prior to that date. However, we repay amounts outstanding and reborrow funds based on our working capital requirements. Therefore, the current portion of the working capital revolving credit facility included in the accompanying consolidated balance sheets is the amount we expect to pay down during the course of the year, and the long-term portion of the working capital revolving credit facility is the amount we expect to be outstanding during the entire year. Please read “—Credit Agreement” for more information on our working capital revolving credit facility.

(2) Includes principal and interest on our senior notes. No principal payments are required prior to maturity. See Note 9 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information.

(3) Includes operating lease obligations related to leases for office space and computer equipment, land, gasoline stations, railcars and barges.

(4) Includes amounts related to our brand fee agreement and amounts related to our access right agreements and our pension and deferred compensation obligations.

(5) Includes lease rental payments in connection with (i) the acquisition of Capitol Petroleum Group (“Capitol”) related to properties previously sold by Capitol within two sale-leaseback transactions; and (ii) the sale of real property assets and convenience stores. These transactions did not meet the criteria for sale accounting and the lease rental payments are classified as interest expense on the respective financing obligation and the pay-down of the related financing obligation. See Note 9 of Notes to Consolidated Financial Statement in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information.

Capital Expenditures

Our operations require investments to maintain, expand, upgrade and enhance existing operations and to meet environmental and operational regulations. We categorize our capital requirements as either maintenance capital expenditures or expansion capital expenditures. Maintenance capital expenditures represent capital expenditures to repair or replace partially or fully depreciated assets to maintain the operating capacity of, or revenues generated by, existing assets and extend their useful lives. Maintenance capital expenditures also include expenditures required to maintain equipment reliability, tank and pipeline integrity and safety and to address certain environmental regulations. We anticipate that maintenance capital expenditures will be funded with cash generated by operations. We had approximately $35.4 million and $27.8 million in maintenance capital expenditures for the nine months ended September 30, 2023 and 2022, respectively, which are included in capital expenditures in the accompanying consolidated statements of cash flows, of which approximately $32.2 million and $25.0 million for the nine months ended September 30, 2023 and 2022, respectively, are related to our investments in our gasoline station business. Repair and maintenance expenses associated with existing assets that are minor in nature and do not extend the useful life of existing assets are charged to operating expenses as incurred.

Expansion capital expenditures include expenditures to acquire assets to grow our businesses or expand our existing facilities, such as projects that increase our operating capacity or revenues by, for example, increasing dock capacity and tankage, diversifying product availability, investing in raze and rebuilds and new-to-industry gasoline stations and convenience stores, increasing storage flexibility at various terminals and by adding terminals to our storage network. We have the ability to fund our expansion capital expenditures through cash from operations or our credit agreement or by issuing debt securities or additional equity. We had approximately $19.3 million and $38.0 million in expansion capital expenditures, excluding acquired property and equipment, for the nine months ended September 30, 2023 and 2022, respectively, primarily related to investments in our gasoline station business.

We currently expect maintenance capital expenditures of approximately $50.0 million to $60.0 million and expansion capital expenditures, excluding acquisitions, of approximately $35.0 million to $45.0 million in 2023, relating primarily to investments in our gasoline station business. These current estimates depend, in part, on the timing of completion of projects, availability of equipment and workforce, weather and unanticipated events or opportunities requiring additional maintenance or investments.

We believe that we will have sufficient cash flow from operations, borrowing capacity under our credit agreement and the ability to issue additional equity and/or debt securities to meet our financial commitments, debt service obligations, contingencies and anticipated capital expenditures. However, we are subject to business and operational risks that could adversely affect our cash flow. A material decrease in our cash flows would likely have an adverse effect on our borrowing capacity as well as our ability to issue additional equity and/or debt securities.

Cash Flow

The following table summarizes cash flow activity (in thousands):

Operating Activities

Cash flow from operating activities generally reflects our net income, balance sheet changes arising from inventory purchasing patterns, the timing of collections on our accounts receivable, the seasonality of parts of our businesses, fluctuations in product prices, working capital requirements and general market conditions.

Net cash provided by operating activities was $343.0 million and $576.9 million for the nine months ended September 30, 2023 and 2022, respectively, for a period-over-period decrease in cash flow from operating activities of $233.9 million.

Except for net income, the primary drivers of the changes in operating activities include the following (in thousands):

For the nine months ended September 30, 2023, the increases in accounts receivable and accounts payable are in part due to timing of sales and payments, offset by a decrease in prices. The decrease in inventories is primarily due to the decrease in prices.

For the nine months ended September 30, 2022, the increases in accounts receivable and accounts payable are in part due to the increase in prices. The decrease in inventories is primarily due to carrying lower levels of inventories during the period, offset by the increase in prices.

Investing Activities

Net cash used in investing activities was $121.8 million for the nine months ended September 30, 2023 and included $69.5 million in expenditures associated with our equity method investment (see Note 11 of Notes to Consolidated Financial Statements), $35.4 million in maintenance capital expenditures, $19.3 million in expansion capital expenditures, $8.1 million in seller note issuances which represent notes we received from buyers in connection with the sale of certain of our gasoline stations and $1.5 million in an immaterial acquisition. Net cash used in investing activities was offset by $12.0 million in proceeds from the sale of property and equipment.

Net cash used in investing activities was $194.7 million for the nine months ended September 30, 2022 and included $255.2 million in acquisitions ($154.7 million for Consumers Petroleum, $60.1 million for Miller Oil and $40.4 million for Tidewater), $38.0 million in expansion capital expenditures and $27.8 million in maintenance capital expenditures. Net cash used in investing activities was offset by $126.3 million in proceeds from the sale of property and equipment, primarily related to the sale of the Revere Terminal.

Please read “—Capital Expenditures” for a discussion of our capital expenditures for the nine months ended September 30, 2023 and 2022.

Financing Activities

Net cash used in financing activities was $213.9 million for the nine months ended September 30, 2023 and included $114.9 million in cash distributions to our limited partners (preferred and common unitholders) and our general partner, $87.7 million and $10.0 million in net payments on our working capital revolving credit facility and our revolving credit facility, respectively, $0.7 million in the repurchase of common units pursuant to our repurchase program for future satisfaction of our LTIP obligations, $0.5 million in LTIP units withheld for tax obligations and $0.1 million in distribution equivalent rights.

Net cash used in financing activities was $377.6 million for the nine months ended September 30, 2022 and included $354.7 million in net payments on our working capital revolving credit facility, $74.3 million in cash distributions to our limited partners (preferred and common unitholders) and our general partner, $2.6 million in the repurchase of common units pursuant to our repurchase program for future satisfaction of our LTIP obligations and $1.6 million in LTIP units withheld for tax obligations related to awards that vested in 2022. Net cash used in financing activities was offset by $55.6 million in net borrowings from our revolving credit facility, primarily to fund our acquisitions.

See Note 7 of Notes to Consolidated Financial Statements for supplemental cash flow information related to our working capital revolving credit facility and revolving credit facility.

Credit Agreement

Certain subsidiaries of ours, as borrowers, and we and certain of our subsidiaries, as guarantors, have a $1.55 billion senior secured credit facility. We repay amounts outstanding and reborrow funds based on our working capital requirements and, therefore, classify as a current liability the portion of the working capital revolving credit facility we expect to pay down during the course of the year. The long-term portion of the working capital revolving credit facility is the amount we expect to be outstanding during the entire year. The credit agreement expires on May 2, 2026.

On February 2, 2023, we and certain of our subsidiaries entered into the eighth amendment to the third amended and restated credit agreement (the “Eighth Amendment”) which, among other things, permits us to request up to two reallocations per calendar year of the lending commitments among our facilities under our credit agreement (see “Eighth Amendment to the Credit Agreement” below). On May 2, 2023, we and certain of our subsidiaries entered into the ninth amendment to third amended and restated credit agreement and joinder (the “Ninth Amendment”) which, among other things, increased the applicable revolver rate by 25 basis points on borrowings under the revolving credit facility and extended the maturity date from May 6, 2024 to May 2, 2026. All other material terms of the credit agreement remain substantially the same as disclosed in Note 9 of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2022.

As of September 30, 2023, there were two facilities under the credit agreement:

• a working capital revolving credit facility to be used for working capital purposes and letters of credit in the principal amount equal to the lesser of our borrowing base and $950.0 million; and
• a $600.0 million revolving credit facility to be used for general corporate purposes.

Availability under the working capital revolving credit facility is subject to a borrowing base which is redetermined from time to time and based on specific advance rates on eligible current assets. Availability under the borrowing base may be affected by events beyond our control, such as changes in petroleum product prices, collection cycles, counterparty performance, advance rates and limits and general economic conditions.

Borrowings under the working capital revolving credit facility bear interest at (1) the Daily or Term secured overnight financing rate (“SOFR”) plus a 0.10% SOFR adjustment plus a margin of 2.00% to 2.50% depending on the Utilization Amount (as defined in the credit agreement), or (2) the base rate plus a margin of 1.00% to 1.50% depending on the Utilization Amount.

Commencing May 2, 2023, borrowings under the revolving credit facility bear interest at (1) the Daily or Term SOFR plus a 0.10% SOFR adjustment plus a margin of 2.00% to 3.00%, depending on the Combined Total Leverage Ratio (as defined in the credit agreement), or (2) the base rate plus a margin of 1.00% to 2.00% depending on the Combined Total Leverage Ratio.

The average interest rates for the credit agreement were 7.5% and 4.1% for the three months ended September 30, 2023 and 2022, respectively, and 7.0% and 3.1% for the nine months ended September 30, 2023 and 2022, respectively.

As of September 30, 2023, we had $65.7 million borrowings outstanding on the working capital revolving credit facility and $89.0 million outstanding on the revolving credit facility. In addition, we had outstanding letters of credit of $138.2 million. Subject to borrowing base limitations, the total remaining availability for borrowings and letters of credit was $1.26 billion and $1.12 billion at September 30, 2023 and December 31, 2022, respectively.

The credit agreement imposes financial covenants that require us to maintain certain minimum working capital amounts, a minimum combined interest coverage ratio, a maximum senior secured leverage ratio and a maximum total leverage ratio. We were in compliance with the foregoing covenants at September 30, 2023.

Please read Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Credit Agreement” in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information on the credit agreement.

Eighth Amendment to the Credit Agreement

On February 2, 2023, we and certain of our subsidiaries entered into the Eighth Amendment which, among other things, permits us to request up to two reallocations per calendar year (each, a “Reallocation”) of a portion of the working capital revolving credit facility, the working capital interim facility and/or the revolving credit facility to the working capital revolving credit facility, the working capital interim facility and/or the revolving credit facility, as applicable. Each Reallocation shall be in a minimum amount of $50.0 million and, after giving effect to any such Reallocation, the amount of the aggregate commitments shall remain the same.

Pursuant to the terms of the credit agreement, we requested, and the lenders under the credit agreement agreed to, a Reallocation of $150.0 million of the working capital revolving credit facility to the revolving credit facility. After giving effect to such Reallocation, the working capital revolving credit facility is $950.0 million, and the revolving credit facility is $600.0 million.

Senior Notes

We had 7.00% senior notes due 2027 and 6.875% senior notes due 2029 outstanding at September 30, 2023 and December 31, 2022. Please read Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Senior Notes” in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information.

Financing Obligations

We had financing obligations outstanding at September 30, 2023 and December 31, 2022 associated with historical sale-leaseback transactions that did not meet the criteria for sale accounting. Please read Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financing Obligations” in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

The significant accounting policies and estimates that we have adopted and followed in the preparation of our consolidated financial statements are detailed in Note 2 of Notes to Consolidated Financial Statements, “Summary of Significant Accounting Policies,” included in our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes in our policies that had a significant impact on our financial condition and results of operations for the periods covered in this report.

During the three and nine months ended September 30, 2023, there has been no material change to our critical accounting estimates discussed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2022.

Recent Accounting Pronouncements

A description and related impact expected from the adoption of certain new accounting pronouncements is provided in Note 17 of Notes to Consolidated Financial Statements included elsewhere in this report.

Market risk is the risk of loss arising from adverse changes in market rates and prices. The principal market risks to which we are exposed are interest rate risk and commodity risk. We currently utilize various derivative instruments to manage exposure to commodity risk.

Interest Rate Risk

We utilize variable rate debt and are exposed to market risk due to the floating interest rates on our credit agreement. Therefore, from time to time, we utilize interest rate collars, swaps and caps to hedge interest obligations on specific and anticipated debt issuances.

As of September 30, 2023, we had total borrowings outstanding under our credit agreement of $154.7 million. Please read Part I, Item 2. “Management’s Discussion and Analysis—Liquidity and Capital Resources—Credit Agreement,” for information on interest rates related to our borrowings. The impact of a 1% increase in the interest rate on this amount of debt would have resulted in an increase in interest expense, and a corresponding decrease in our results of operations, of approximately $1.5 million annually, assuming, however, that our indebtedness remained constant throughout the year.

Commodity Risk

We hedge our exposure to price fluctuations with respect to refined petroleum products, renewable fuels, crude oil and gasoline blendstocks in storage and expected purchases and sales of these commodities. The derivative instruments utilized consist primarily of exchange-traded futures contracts traded on the NYMEX, CME and ICE and over-the-counter transactions, including swap agreements entered into with established financial institutions and other credit-approved energy companies. Our policy is generally to purchase only products for which we have a market and to structure our sales contracts so that price fluctuations do not materially affect our profit. While our policies are designed to minimize market risk, as well as inherent basis risk, exposure to fluctuations in market conditions remains. Except for the controlled trading program discussed below, we do not acquire and hold futures contracts or other derivative products for the purpose of speculating on price changes that might expose us to indeterminable losses.

While we seek to maintain a position that is substantially balanced within our commodity product purchase and sales activities, we may experience net unbalanced positions for short periods of time as a result of variances in daily purchases and sales and transportation and delivery schedules as well as other logistical issues inherent in our businesses, such as weather conditions. In connection with managing these positions, we are aided by maintaining a constant presence in the marketplace. We also engage in a controlled trading program for up to an aggregate of 250,000 barrels of commodity products at any one point in time. Changes in the fair value of these derivative instruments are recognized in the consolidated statements of operations through cost of sales. In addition, because a portion of our crude oil business may be conducted in Canadian dollars, we may use foreign currency derivatives to minimize the risks of unfavorable exchange rates. These instruments may include foreign currency exchange contracts and forwards. In conjunction with entering into the commodity derivative, we may enter into a foreign currency derivative to hedge the resulting foreign currency risk. These foreign currency derivatives are generally short-term in nature and not designated for hedge accounting.

We utilize exchange-traded futures contracts and other derivative instruments to minimize or hedge the impact of commodity price changes on our inventories and forward fixed price commitments. Any hedge ineffectiveness is reflected in our results of operations. We utilize regulated exchanges, including the NYMEX, CME and ICE, which are exchanges for the respective commodities that each trades, thereby reducing potential delivery and supply risks. Generally, our practice is to close all exchange positions rather than to make or receive physical deliveries.

At September 30, 2023, the fair value of all of our commodity risk derivative instruments and the change in fair value that would be expected from a 10% price increase or decrease are shown in the table below (in thousands):

The fair values of the futures contracts are based on quoted market prices obtained from the NYMEX, CME and ICE. The fair value of the swaps and option contracts are estimated based on quoted prices from various sources such as independent reporting services, industry publications and brokers. These quotes are compared to the contract price of the swap, which approximates the gain or loss that would have been realized if the contracts had been closed out at September 30, 2023. For positions where independent quotations are not available, an estimate is provided, or the prevailing market price at which the positions could be liquidated is used. All hedge positions offset physical exposures to the physical market; none of these offsetting physical exposures are included in the above table. Price-risk sensitivities were calculated by assuming an across-the-board 10% increase or decrease in price regardless of term or historical relationships between the contractual price of the instruments and the underlying commodity price. In the event of an actual 10% change in prompt month prices, the fair value of our derivative portfolio would typically change less than that shown in the table due to lower volatility in out-month prices. We have a daily margin requirement to maintain a cash deposit with our brokers based on the prior day’s market results on open futures contracts. The balance of this deposit will fluctuate based on our open market positions and the commodity exchange’s requirements. The brokerage margin balance was $25.4 million at September 30, 2023.

We are exposed to credit loss in the event of nonperformance by counterparties to our exchange-traded derivative contracts, physical forward contracts, and swap agreements. We anticipate some nonperformance by some of these counterparties which, in the aggregate, we do not believe at this time will have a material adverse effect on our financial condition, results of operations or cash available for distribution to our unitholders. Exchange-traded derivative contracts, the primary derivative instrument utilized by us, are traded on regulated exchanges, greatly reducing potential credit risks. We utilize major financial institutions as our clearing brokers for all NYMEX, CME and ICE derivative transactions and the right of offset exists with these financial institutions. Accordingly, the fair value of our exchange-traded derivative instruments is presented on a net basis in the consolidated balance sheet. Exposure on physical forward contracts and swap agreements is limited to the amount of the recorded fair value as of the balance sheet dates.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that the information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of our principal executive officer and principal financial officer, management evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were operating and effective as of September 30, 2023.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, which could materially affect our business, financial condition or future results.