Q2 2020 Crossamerica Partners LP Earnings Call
At this time all participants result, listen only mode. Later, we will conduct a question answer session. Please note. This conference is being recorded.
Well now turn the call over to John Backfield interim Chief Financial Officer, you may begin Sir.
Thank you operator, good morning, and thank you for joining the Crossamerica partners second quarter 2020 earnings call with me today are Charles nights on CEO, and President and other members of our executive leadership team.
I should point out that today's call will follow some presentation slides that we will utilize during this morning's of that.
Slides are available as part of the webcast and are posted on the Crossamerica website.
Before we begin I would like to remind everyone that today's call, including the question and answer session May include forward looking statements regarding expected revenue future plans future operational metrics and opportunities and expectations of the organization.
It can be no assurance that management's expectations beliefs, and projections will be achieved with an actual results will not differ from expectations.
Please see cross Americas 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 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 principles or gap, we provided schedules that reconcile these non-GAAP measures with our reported results on a GAAP basis as part of our 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.
I appreciate everyone joining us this morning.
We thank you for your interest in a partnership and hope that you all are well.
During today's call I will briefly go through some of the operating highlights for the second quarter.
I'll also provide some color on the impacts from cope with my team along with a few other updates along the lines of what I provided in our first quarter earnings call.
John will then review in more detail the financial results.
[music] you turn to slide four I will briefly review some of our results from the quarter.
The second quarter of 2020, our wholesale fuel volume increased 1% well compared to the second quarter 2019.
Largely due to the impact of acquisitions and exchanges that were completed over the past past months offset by the impact of co with Nike.
Well, we only experienced a slight increase in overall fuel volume for the quarter. We saw strong increase in our wholesale fuel margin per gallon year over year, driving our wholesale fuel gross profit up 48% for the core.
In terms of volume given the changes in our business an asset mix. The overall volume comparison to prior quarters is not particularly useful.
Just last quarter I will provide some color on same site wide performance to provide more insight on business conditions.
In terms of same site you over your volume performance weekly volumes at the start of April or off 45% to 50% on a comparable weak year over year basis.
Since that low weekly fuel volumes have been pretty consistently on a week over week and year over year comparable week basis.
In recent weeks.
Same site year over year comparable weak volumes have been all my high single digits to low double digits compared to the prior year.
In other words are seems like weekly volumes have increased from a lower being down around approximately 50% to the prior year to now being down around approximately 10% compared to the prior year, which is a substantial improvement.
Our wholesale fuel margin of 10.8 cents per gallon, an increase of 46% year over year was primarily driven by our dealer tank wagon fuel margins, which as a reminder, our variable fuel margin accounts with certain of our third party wholesale dealers.
Also how we supply company operated and commission retail sites.
The percentage of our wholesale fuel gallons that it's variable or dealer type black and white also increased with our recent retail and wholesale acquisition.
It is now approximately 28% of our overall gallons compared to 17% for the fourth quarter of 2020.
As in the first quarter the strength of our variable rate margins helped to offset the loss in volume we have experienced due to cobot Nike.
In terms of margin the margin environment at the start of the quarter April was very strong given the continued decrease in crude oil prices during April.
Crude oil prices have stabilized increase since then which tends to lower our fuel margins. The overall margin environment since may and continuing pass a quarter and has been in a more historically normal range.
Fuel margins, although good have not been extraordinary in this period as they were in March in parts of April.
Additionally, the crude oil prices stay where they are terms discount component of our fuel margins will be lower relative to the prior year.
If you look at our rental gross profit for the second quarter, we reported $14.3 million.
Down 6% year over year.
Due primarily to the termination of leases at sites in connection with the retail and wholesale acquisition.
We now operate rather than mcduffie sites and the underlying economics at the sites have not changed.
At the transaction has resulted in effectively moving in the revenues recorded on the income statement 40 sites.
In terms of Brad April and May with a peak period of rent related issues in June and July we saw steady improvement in our recollection performance with July not being far off tomorrow historical performance in terms of recollection.
Overall, we provided approximately $500000 and run flavors for the quarter for approximately 2% of our base rent.
In addition separately as reflected in our DNA expense, we recorded and approximately $500000 bad debt expense for 2% of our base rent for the quarter.
Offsetting those drivers was impact from our close acid exchanges with circle K.
And the conversion of company operated sites to fewer operated sites the third quarter of 2019.
For August although it is early it would appear recollection is in line with July and within our historically normal performance.
For the second quarter, we did see an increase in both our operating and ask DNA expenses.
The increase in operating expenses was primarily driven by the increase in our average company operated site count year over year from 55 sites to 128 sites.
As well be acquisitions and exchanges that work that increased our overall number of controlled fuel cell sites.
In addition, we had an 800000 dollar increase in management fees recorded operating expenses related to the increasing headcount associated with our recent acquisitions.
Contributing to the increase in asking expense with the 500000 dollar credit loss expense associated with cobot back to payment, which I mentioned moments ago, and a 400000 dollar increase in management fees related to the increasing headcount.
Our adjusted EBITDA was $27.7 million.
Distributable cash flow was $26 million for the second quarter 2020.
If you turn to slide five as we noted during our last earnings call. We completed our acquisition of retail and wholesale pockets on April 14.
With this acquisition, we now have 150 company operated slides retail segment.
The increase of over 200% year over year.
In terms of our retail store operations and comparing the performance of the slide since April 14th 2020 transaction. The results for the comparable period for 40 sites were in the partnership inside sales at our company operated sites have remained relatively strong throughout the quarter.
On a comparable weak year over year basis, our inside store sales have been up since early may.
Over approximately the last six weeks same store inside sales have been up in a range of 5% to 10% a year over year comparable week basis.
This strong performance illustrates the resiliency of convenience store sales in general and is also a testament some of the initiatives that we are executing our store operations.
Same store volume performance at our retail sites has also been slightly better than that of our wholesale segment overall.
Reviewing our retail segment performance is important to remember the wholesale segment supply their retail segment on a DTW basis for the overall profitability of these sites and split between our wholesale and retail segments.
The DPW margin to our retail sites makes a meaningful contribution to our wholesale segment profitability and our overall profitability.
We continue to work with circle K to complete the remaining asset exchanges from the agreement posing as into December of 2018.
We completed two additional exchanges during the second quarter.
Presenting approximately $44 million assets.
As noted in our earnings release in the 10-Q.
Not only 23 circle K properties and for Crossamerica properties remains to be exchange as part of that overall asset exchange agreement.
And based on our current timeline.
We expect remaining sites, we converted to dealer sites and the final asset changed we completed the second half of 2020.
During the second quarter as part of our real estate optimization plans, we divested seven properties for a total of $4.4 million.
As I mentioned during our last call. While this is not a significant number of properties $4. You will continue to review our portfolio work to divest non core properties in coming quarters.
Spike over 19, we continue to make progress in these plants.
Finally, I wanted to take a moment thank everyone in the organization for their continued hard work and dedication.
We have executed on a significant volume of transactions this year and dealt with the disruption due to cope with my team.
Through it all persevere to ensure we are able to provide fuel and other essential goods and services to millions of in consumers.
Those team members that may be listening. Thank you for your efforts.
With that I will turn it over to John for more detailed financial review in the quarter.
Thank you Charles if you please turn to slide seven I would like to review our second quarter results for the partnership we reported adjusted EBITDA of 27.7 million for the second quarter 2020, which was flat to the same period of 2019, our distributable cash flow for the second quarter of 2020.
With $26 million versus 22.3 million for the second quarter of 2019, reflecting an increase of 17% year over year.
Our distributable cash flow for the second quarter benefited from the performance of our wholesale segment and from lower cash interests and current tax expense.
Our distribution coverage on a paid basis for the second quarter of 2020 was 1.31 times versus 1.24 times for the second quarter 2019.
Our distribution coverage on a trailing 12 month basis was one point 21 times, which was an improvement over the 1.06 times that we experience for the 12 months ended June Thirtyth 2019.
As Charles touched on earlier, our operating expenses increased $11 million for the second quarter 2020, compared to the second quarter 2019, Our company operated sites drove 9 million of that increase excluding rent expense operating expenses that our company operated sites increased $6 million or 122% our average company.
Operator site count increased a 134%.
Additionally, a greater percentage of our company operated sites are least than in the prior year and so the rent component of operating expenses at our company operated sites increased $2 million.
On the wholesale side operating expenses increased $2 million driven predominantly by the increase in our controlled site count as a result of the transactions closed on since the second quarter of last year.
If you had please please turn to the next slide slide eight we ended the quarter with the leverage ratio as defined under our credit facility of 3.96 times and remain in compliance with our financial covenant ratios. Despite the additional borrowings to fund the retail and wholesale acquisition during the quarter along with the negative impacts of Cobot 19, we were able to.
Improve our leverage from 4.19 times as of March 30, Onest 2020, and 4.70 times as of December 30, Onest 29 team.
We have sufficient liquidity to execute our plans and as of July 31st we had $198 million available on our credit facility and increase of $34 million compared to our variability at March 30, Onest 2020, and $106 million compared to our availability at December 30, Onest 2019.
Touching briefly on the balance sheet inventory property and equipment intangible assets and accounts payable to related parties are all up fairly significantly compared to the December 30, Onest 2019 balances primarily as a result of the transactions closed on in the first six months of the year.
Accounts payable and motor fuel and sales taxes payable are higher than the December 30, Onest 2019 balances due primarily to timing, which benefited our cash flow from operating activities on the cash flow statement relative to the first six months of 2019.
Equity increased $40 million as a result of 77 million in net income largely driven by the gain on our divestiture of our investment in CST fuel supply, partially offset by $38 million and distributions.
The partnership paid a distribution of 52 and a half cent per unit during the second quarter 2020 attributable to the first quarter 2020 for a total of almost $20 million and as I noted on the previous slide. This resulted in a coverage ratio of 1.21 times on a paid basis for the 12 months.
During the second quarter of 2020, our distributable cash flow again benefited from a current tax benefit driven by losses incurred by our taxable subsidiaries relating primarily to bonus depreciation on qualifying assets acquired in the quarter.
Given the cares act in the expectation of a final traunch closing in the back half of 2020, we anticipate distributable cash flow will benefit from additional losses in our taxable subsidiary in the back half of 2020.
In conclusion, we believe we are in good financial position as we entered the third quarter 2020, despite the challenging environment, we continue to improve both our coverage and leverage ratios and manage our balance sheet. During the second quarter as we see the benefits from the asset exchanges, our acquisition of retail and wholesale assets and our other strategic initiatives. We then.
Ample capacity under our credit facility and continue to have a relatively modest amount of annual capital expenditures with that we will open it up for questions.
Thank you we will now begin the question answer session.
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Hi.
We can't from Arabic growth, we have Walter Morris. Please go ahead.
Excellent quarter gentlemen, congratulations.
Thank you guys Charles Thank you Walter.
How much seasonally stronger is for third quarter normally and our you're saying that trends, so far and Nextshares third quarter.
Hey, Walter this is Paul so.
I guess, what you're asking indirectly as sort of the volume performance and as I touched on in my comments.
Earlier.
Basically what we've seen so far is that for last several weeks year over year, we've been on a volume basis down around 10%, sometimes more sometimes less on that.
In terms of.
The rest of your Quanta look like obviously, that's that's a tough wanted to answer given all the uncertainty with coated going on I mean for example, whats back to school going to look like.
Just.
I would hesitate to make a gas in terms of what things will be obviously as what you touched on you know the second and third quarters tend to be our strongest volume quarters, and we're just going to have to see how things play out in regards to that.
Thank you.
One other question could you discuss your capital deployment strategies going forward.
Now that Youre breakage pure.
Our targeted goals are now stand at November over 1.1 times plus coverage ratio.
Our leverage ratio and look forward to Florida quarter range.
Yes. So again this is Charles.
So I think given workover theres, obviously still lot of uncertainty in regards to how things will progress from here. So you should expect us to see cross to continue to be conservative I think all things being equal we're going to look to improve our coverage ratio and then there as it relates to.
Capital expenditures, while we're still trying to full extent possible how somewhat business are far more in terms of how we view capital expenditures were obviously being.
Very cautious on regard so what the environment is who will review any significant outlays.
Thank you Charles.
From Wells Fargo, we have Sharon Lui. Please go ahead.
Hi, good morning.
Good morning, maybe to share some of the volume trends by reaching given the shift I guess sort of co the key to sort of state senior footprint.
Yes so.
No as I said for the last several weeks on average we have been around 10% off year over year, but that varies by geography based on your question. So we still see in the northeast that they've been lacking. So for example, how new Jersey has been a laggard stake throughout the whole process and they continue to be so also new York as well.
Youre in particular, we have a lot of sites through way and they've been significantly impacted by the lack of travel along that maker faire.
In terms of states that seem to be doing a lot better Alabama bright spot for us in terms of its volume performance for the year.
They've been very strong and then also Virginia is also not been that path for us either as you've touched on though it does seem to vary in regards to whether severity of cobot outbreaks, but also to in terms of how the states individually are handling the covert outbreak in terms of the restrictions that they havent place. So for example.
I will highlight our 11 year had a lot more onerous restrictions in place late we saw significant decline in volume there.
That's come back, but given that state government there if they would choose to go back into Lockdown mode. We would see obviously a significant drop off in volume.
Okay.
And I guess, just a question on your expectations and margins going forward.
You are a bit more conservative relative to some of your competitors can you maybe share some of your assumptions or what you expect going forward in terms of margins.
Well, I guess I'll touch on and Rick talked regardless the margin sort of this quarter. Obviously, the first part of the quarter was very strong event since then.
Hey, Ben good, but not extraordinary there weren't a first part of quarter, but the interesting part about that is the margins remained good.
In an environment, where typically you would have seen margins compressed more given that crude oil prices increase during the quarter and so you know I've seen others comment on this as well.
I think that.
With co read what we're entering into uncharted territories in regards to what what margins will do because.
Given the drop in volume, obviously margin as a much more important component for the profitability of store operations now because there is lot just.
Not as much.
Inside sales, perhaps to go around and you're looking at perhaps operators grief bank.
Now they view that and so I wouldn't be surprised.
Margins reset to perhaps at higher levels than what they would have been in the past, but it's really too early to say, if that's going to being the case or not but we're optimistic that perhaps it will be.
Okay. Thank you.
And once again, if you do have a question. Please delstar what's on your phone keypad judging by for any further questions.
Okay. It looks like we have no further questions at the moment.
Okay off there no further questions that will conclude today's call. We appreciate each of you joining us today. Thank you for your interest in the partnership and if you have any follow up questions feel free to contact us. So we look forward to speaking with you next quarter and thank you again.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.