Q4 2019 Earnings Call
Welcome to the Crossamerica partners fourth quarter 2019 earnings call. My name is I wouldn't I love your operator for today's call. At this time all participants are in listen only mode. Later, we will conduct a question answer session. Please note that this conference is being recorded at.
I'll now turn the call over to John Benfield interim Chief Financial Officer.
Thank you operator, good morning, and thank you for joining up at cross Americas fourth quarter and year end 2019 earnings call.
With me today, our Charles My phone CEO, and President and other members of our executive leadership team.
Charles will provide some opening comments a brief overview crossamericas operational performance and highlights from the full year and quarter and then I will discuss financial result.
At the end, we will open up the called the question I should point out that today's call will follow some presentation slides that we will utilize during this morning's about these slides are available as part of the webcast and are posted on the Crossamerica website.
Before we would begin I would like to remind everyone that today's call, including the questions and answers Nason may include forward looking statements regarding expected revenue future plans future operational metrics and opportunities and expectations of the organization.
It could be no assurance that management's expectations beliefs, and projections will be achieved or that actual results will not differ from expectations.
Please see cross Americans filings with the Securities and Exchange Commission, including annual reports on form 10-K, and quarterly reports on form 10-Q for a discussion of important factors that could affect our actual results forward looking statements represent the judgment of Crossamericas management as of today's date and the organization disclaims any intent.
Dan or obligation to update any forward looking statements.
During today's call. We may also provide certain performance measures that do not conform to U.S. generally accepted accounting principle or gap, we provided schedules that reconcile these non-GAAP measures with our reported results on a GAAP basis as part of the earnings press release.
Today's call is being webcast and a recording of this conference call will be available on the Crossamerica web site for a period of 60 days with that I will now turn the call over to Charles.
Thank you John.
We reported our full year and fourth quarter 2019 earnings results yesterday afternoon.
I will briefly go through some of the highlights and strategic objectives and John will go through the financials in more detail and a few minutes.
First I wanted to say that it does a pleasure to be here this morning and to be back at the partnership I.
I was previously at the partnership until early 2015, leading the acquisitions capital markets and strategy functions.
That's great sense that I've been working in the wholesale and retail business, which Joe topper currently our largest unit holder and chairman of the board.
Second I look forward to working with our team here across America.
While there were some transition evolving circle K transaction at the senior management level for the most part the core of a team is unchanged.
Hey, Ryan Act was previously at the partnership for over a decade until 2017, its back as executive Vice President of wholesale.
John Backfill, our interim CFO has come across America since its IPO in 2012, so there's a lot of continuity and management of the same time healthy amount of change of leadership that will enable us to examine how we operate to find ways of being better.
As part of his team I will of course be working closely with Joe Topper was very much along with our unit holders will be looking to me and our team to increase unitholder value over the long term.
Finally in my New role you can expect that I will be spending some time investment community as I'll be attending investor and analyst meetings and conferences. So I look forward to meeting those of you that have not met before in the coming months with that let's move onto the operating results of the fourth quarter and full year of 2019.
You turn to slide four I'll briefly review some of the results.
For the fourth quarter of 2019, while our wholesale fuel volume was relatively flat compared to the same period of 2018, we did see a decline in the wholesale fuel margin per gallon year over year, driving our wholesale fuel gross profit down 11% for the quarter.
The fourth quarter of 2018, we reported a robust fuel margin of 7.6 cents per gallon, primarily driven by a dealer tank wagon fuel margins during that period crude oil prices went from $75 a barrel on October onest 2018 to $45 a barrel on December 30, Onest 2018, and approximately 40%.
Decline.
This is a great great for fuel margins on a rack to retail basis, while we still reported a good wholesale fuel margin of 6.8 cents per gallon for the fourth quarter of 2019. It was just not as strong environment as we had the previous year.
If you look at our rental and other gross profit for the fourth quarter, we reported $17.2 million, which was an increase of approximately 10% relative to last year.
After adjusting for the new lease accounting guidelines that went into effect on January Onest 2000 Nike.
For the fourth quarter, we reduced our operating SGN, hey expenses by 23% on a combined basis and continue to focus on overall expense control.
Our adjusted EBITDA was $25.6 million distributable cash flow was $18.8 million for the fourth quarter.
Both were impacted by lower fuel margins and a new lease accounting guidance that I mentioned earlier.
If you move to the right hand side of the chart for the full year 2019, we reported an increase of 3% wholesale fuel gross profit.
The increase of 7% and the wholesale fuel margin per gallon, which was 7.2 cents per gallon for 2019.
Our rental and other gross profit increased 6% after adjusting for the new lease accounting guidance.
Rental and other continues to be a significant portion of our overall gross profit represented 42% of total gross profit in 2019.
Both operating and general and administrative expenses declined for the year down, 15% and 6% respectively.
The decrease in operating expenses was due primarily to divestitures and the dealer association of sites that occurred during 2018 and 2019.
DNA expenses, primarily decline due to a decrease in acquisition related costs.
Synergies, resulting from a dealer position of the company operated sites and a decrease in legal fees.
While adjusted EBITDA was down slightly for the year distributable cash flow increased 5% to $80.1 million. The primary drivers for the increase where a tax benefit related to taking bonus depreciation on assets acquired in the asset exchange and a reduction in operating in general and administrative expenses that I just mentioned.
You will turn to slide five I want to revisit a few highlights from 2019.
Our wholesale fuel margin story for the full year 2019 was 7.2 cents per gallon, which was a 7% increase over the full year 2018.
As of the highest level in the partnership's history for full calendar here and this growth and margin per gallon also reflects the impact of the fuel synergies that were mentioned over the past few quarters.
As I noted earlier rent and other continues to be a large part of our gross profit and represented 42% of overall gross profit in 2019.
Our expenses continue to decline in 2019, but the overall decrease of 13%.
While there were a number of specific events that took place in 2019 Metro down these expenses such as some divestitures and the dealer resumption of our company operated sites.
You should still expect that we will continue to be disciplined with our expenses in 2020.
If you turn to the next slide slide six I will continue with a couple more highlights from 2019.
We completed two asset exchanges with Coos targets circle K during 2019.
Almost completed on may 22nd and the other onset timber fair or a total of 116 sites.
After dealerized and are under our wholesale segment now.
On November 19th Joe Topper, our founder and now Chairman of the Board has Investor group purchase the general partner.
I'd ours, approximately 7.5 million capital in years for Costar.
During the start of a new chapter for the partnership the GP and partnership took another important step forward on February six of this year.
Our elimination transaction close.
As a result, our chairman and barges unit holder is even further align with all of our public unitholders.
We turn to slide seven I want to outline our key areas of focus in 2020.
First we are continuing to work on completing the remaining asset exchanges in agreement that was entered into with two starts are okay December of 2008.
There are 76 sites remaining as part of that overall asset exchange and based on our current timeline. We expect the remaining sites be dealerize. The final asset exchange, we completed by the first quarter or early second quarter 2020.
While we had previously noted that we expected to complete the remaining exchanges by the first quarter. Some of that exchange transactions may move into the early part of the second quarter due to the timing of progress.
Second when we announced the general partner acquisition in November of last year. We also announced another exchange agreement to start a circle K I detailed exchange of us wholesale fuel supply contracts from Foodstar across America from 17.5% limited partner interest in CST fuel supply.
Based on our track timeline, we still anticipate closing on this transaction for the end of the first.
We're also working on the acquisition of wholesale and retail assets that was announced on January 15 2020.
This acquisition includes retail operations of 172 sites in wholesale fuel supply to 114 sites that we will be acquiring propensities affiliated with Joe topper.
We continue to expect to complete this transaction sometime during the second quarter 2020.
With this transaction, we will not only be added wholesale fuel contracts to our portfolio, but we'll be adding retail assets and a retail and a retail capability that will enable the partnership to pursue a broader range of acquisition opportunities and provides greater flexibility for optimizing the class of trade for each asset and our current portfolio.
If you'll please turn to next slide slide eight.
Once we have completed the asset exchanges and acquisition and I just discussed our focus will be to make sure that these assets our transition integrated into our business units efficiently and that the assets our position for the future.
Next the real estate optimization is overall review of our real estate portfolio in order to determine if there are properties within the portfolio that may no longer meet our needs are not assets that we want the whole long term.
This is an initiative that will continue on throughout this year as a real estate portfolio has not been reviewed with this focus in several years. It will help us at the margin did lever as well.
We will also continue to focus on fuel synergies as noted in the past quarters and optimizing our relationships with fuel suppliers and a number of brands that we offer.
Finally, I want to conclude by noting that we remain comfortable with the guidance that we provided earlier this year.
We announced transactions and initiatives, we still anticipate generating between 125 $135 million of adjusted EBITDA and distributable cash flow between 101 hundred $10 million in 2012.
With that I'll turn it back over to John.
Thank you Charles if you. Please turn to slide 10, I would like to review, our fourth quarter and full year results for the partnership.
For the fourth quarter 2019, we reported adjusted EBITDA of 25.6 million compared to 28.7 million for the same period of 2018, representing a decline of 11% our distributable cash flow for the fourth quarter 2019 was 18.8 million versus 21 million in 2018.
Also a decrease of 11% year over year.
Both adjusted EBITDA and distributable cash flow for the fourth quarter were impacted by lower fuel margin and the new lease accounting guidance that Charles mentioned earlier, our distribution coverage on a paid basis for the fourth quarter 2019, with 1.04 times versus 1.16 times for the fourth quarter 2018.
For the full year, our adjusted EBITDA was worth 103.7 million, representing a decline of 2% with distributable cash flow, increasing 5% to 80.1 million our distribution coverage on a paid basis for the full year 2019 was 1.11 times, which was an improvement over the 1.01 time.
That we experience for the 12 month ended December 31 2018.
As Charles touched on earlier, we have adjusted both for three and 12 month periods of 2018 for the new lease accounting guidance that went into effect on January Onest 2019, we've provided reconciliations for the lease adjustments for 2018 in the appendix of the presentation slides.
If you returned to the next slide Slide 11, we ended the year with the leverage ratio as defined under our credit facility, our 4.70 times and remain in compliance with our financial Covenant ratios, we have sufficient liquidity to execute our plans and as of February 20, Onest, we had $79 million available on our credit facility with nominal.
Capacity of 226 million and another 300 million of additional accordion capacity from our lender group under our credit facility.
The partnership paid a distribution of 52 and a half cent per unit during the fourth quarter 2019 attributable to the third quarter 2019 for a total of over $18 million and as I noted on the previous slide. This resulted in a coverage ratio of 1.11 times on a paid basis for the 12 months.
Our required investment in the business remains relatively modest with total capital expenditures of $24.6 million for 2019 with $22.2 million that being growth capex.
This has been primarily associated with the rebranding and Reimaging program in Alabama and ever had had a positive impact on volumes and margins and the rebuilding in Florida from Hurricane Michael in 2018.
In January of this year, we provided guidance that Charles touched on earlier part of that guidance with long term goals for coverage of 1.2 to 1.3 time and leverage of 4.0 to 4.25 times that we will be working toward as we go through 2020 and beyond.
In conclusion, we believe we are in good position as we enter 2020, we expect to continue to improve both our coverage and leverage ratios and manage our balance sheet as we see the benefits from the asset exchanges the acquisition and other strategic initiatives with that we will now open it up for questions.
Thank you we will now begin the question and answer session. If you have a question. Please press Star then one on your Touchtone phone if you wish to be removed from the Q. Please press the pound fine art, the hash key and will be a delay before the first question is announced.
You are using a speaker phone you'll need to pick up the handset first before pressing the numbers. Once again if you have a question. Please press Star then one on your Touchtone phone.
Yes.
Please.
Animal.
Yes, we have a question from Dane Reinhart with Baird. Please go ahead.
Hey, good morning, guys.
Just one quick one for me.
I was wondering how much of a step down you guys were expecting and Capex. This year, considering that rebranding in Alabama Don.
If there are any expectations for further spending around.
Around the acquisitions, our asset exchanges that you guys have.
Thanks, Dave for your question I think the the and what we anticipate for 2020 use capex too.
Still be higher than it than it has been historically, we still have some mb.
Card upgrades to do at our dispensers.
But you're right the blip in 2019 from Hurricane Michael.
And the Alabama rebranding is largely done.
Okay. Thank you.
How big is M&A market for you guys I know there's been talk.
With other companies and and the market I don't know how much you can comment on that or how much more you see.
On that front.
There's a trial so no obviously were continually being brought deals to us.
I'd say, we touched on our marketing our focus really especially for the first lease for the first half a year is on closing acquisitions that we've already announced and making sure that they are integrated and so while we will look at the M&A market really our focus on making sure that we closed these acquisitions and integrate them effectively into the organization.
Okay. Thanks, guys, let that for me.
Thanks.
And once again, ladies and gentlemen for any questions Patrick Tarpon line. Our next question Chuck Sharon Lui with all charcoal. Please go ahead.
Hi, good morning.
Hey, good morning.
If you could maybe.
Page this fourth quarter, we solve what you're expecting for full year in 2020, I think you mentioned that you're still comfortable with guidance. Just 50 can provide any detailed in terms of how you would get to like the annualized.
Fourth quarter numbers first full year 2020 answer.
Yes.
Well, obviously, if you look at our fourth quarter. There. So a number of assets that that arc and therefore, the acquisitions that we've announced so we've we've still got the remaining asset exchanges to complete we've got the transaction involving the exchange of the CST fuel supply for the national wholesale fuels assets from circle K come out.
Board and we've got.
Retail transactions coming over so there's a lot to goal going on from that were at the Annualizing. Our fourth quarter is not going to be indicative of what the partnership is going to look like a few months would all those transactions come onboard so I don't necessarily that exercises in of itself all that useful.
But if you look again with our guidance that we provided we provided the impact of what all these things together should do in the aggregate also adjusted for the expected timing on when those acquisitions will come online for us.
Okay. So it didnt mean benefit.
From those transactions is there any I guess.
Underlying assumptions in terms of why margins may look like or your expense.
Well, obviously on the.
Expense side I win for the core business that we have in place today theres not going to be a dramatic change in the expense structure. There will continue to do things to improve on a margin at that but you're going to see particularly with bringing the retail over thats going to change what our financials will look like because there's a cost structure embedded with that I will come over that will add on.
Operating expense side and also for DNA, so that those results for the comparable when you look at the fourth quarter again, but net net those transactions are positive for US and will result, an increased EBITDA for the partnership.
Okay, and then I guess a question of maintenance Capex.
Increase.
During the fourth quarter is this a good burn rate going forward.
So on maintenance Capex, Sharon I think with what you should see is we've been in that one to 2 million dollar territory for a number of years now I think thats, what we would anticipate going forward with the exception that bringing on the retail will bring with it some maintenance capex as well.
But again I'll, just reiterate that the expectations for that maintenance capex already built into the numbers that we provided for guidance, particularly as it relates to the distributable cash flow numbers that we've we put out for guidance for full year 2020.
Okay alright, thank you.
And once again, ladies and gentlemen for any questions. Please press Star then one on your Touchtone Todd.
Im showing no further questions. Thank you at this time.
Yes, so for everyone out there. Thank you for joining us today.
We appreciate your interest in the partnership we have a lot of work to do this year and we're working hard to execute our plans and then for our investors on the line. We wanted to know that were focused on our ultimate goal, creating value for you our unit holders and Thats. The focus of what were trying to do here at the partnership.
Thank you for joining todays call and if you have any further questions. Please don't hesitate to reach out to us. Thank you very much.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating and you may now disconnect.
[music].