Q4 2020 Crossamerica Partners LP Earnings Call
[music].
Good morning, and welcome to the Cross of America Partners fourth quarter 2020 earnings Conference call. My name is Brandon and I'll be your operator for today at this time the all participants for in a listen only mode. Later, we will conduct a question and answer session during which you made the all star one is the other question. Please note. This conference is being recorded.
I will now turn the presentation over to our CFO, Eric <unk> you may begin sir.
Thank you operator, good morning, and thank you for joining the cross of America Partners' fourth quarter and year end 2020 earnings call with me today are Charles Nifong, CEO and President and other members of our executive leadership team.
Charles will provide some opening comments a brief overview of cross Americas operational performance and highlights from the full year and quarter and then I will discuss the financial results at the end, we will open up the call for questions I should point out that today's call will follow some presentation slides that we will utilize during this morning's event the fly.
The available as part of the webcast and are posted on the Cross America website.
Before I begin I would like to remind everyone that todays 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.
There can 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 America's 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 cross Americas management as of today's date and the organization disclaims.
<unk> 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 GAAP. We have 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 Cross America website for a period of 60 days with that I'll now turn the call over to Charles.
Thank you Eric I appreciate everyone joining us this morning as always we thank you for your interest in the partnership and hope that you're all well.
During today's call I will briefly go through some of the operating highlights for the fourth quarter and full year 2020.
I'll also provide some color on the continuing impacts from COVID-19, along with a few other update similar to what I provided during our prior calls this past year.
Eric will then review in more detail of the financial results.
If you turn to slide for I'll briefly review some of our results.
For the fourth quarter of 2020, our wholesale fuel volume increased 22% when compared to the fourth quarter of 2019, largely due to the acquisitions and exchanges that were completed during 2020 offset by the impact of COVID-19.
Along with the strong increase in overall volume for the quarter relative to last year.
We also saw a 15% increase in our wholesale fuel margin per gallon for year over year, driving our wholesale fuel gross profit up 39% for the quarter.
As I have done in prior quarters I'll provide some color on the same store volume performance to provide insight on business conditions.
In terms of same store comparable weak year over year volume performance.
Weekly volumes at the start of the quarter were generally off of the high single digits relative to the prior year.
Beginning in mid November as Covid mitigation efforts across the country intensified.
We saw a decline of same store volumes from this trend level.
We experienced a sharp drop in volumes of week of Thanksgiving.
Same store volumes of about 15% to 20% from the prior year.
December volumes were off of the range of low double digits on a same store year over year basis.
For the quarter overall same store volume was off the low double digits relative to the prior year.
Going into the new year volumes began to improve on a year over year basis and volume has generally been off in the upper <unk> to mid single digits relative to the prior year since then.
Recent weeks have seen some weather impacts given the significant winter storms that many parts of the country of experiences.
In terms of margin our wholesale fuel margin for the quarter was seven eight cents per gallon, an increase of one cent per gallon or 15% over the prior year.
The year over year increase was 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 and also how we supply of company operated and commission retail sites.
The percentage of our wholesale fuel gallons is the variable our dealer tank wagon price increase with our recent retail and wholesale acquisition.
It is now approximately 29% of our overall gallons compared to 18% for the fourth quarter of 2019 rare.
Relative to the third quarter, our wholesale fuel margin decreased by one six cents per gallon the.
The decrease was due to a decline in our DPW margins for the fourth quarter relative to the third quarter, primarily driven by the increase in crude prices and consequently, an increase in the cost of fuel purchased during the quarter.
<unk> increased 26% during the quarter, which in turn growth of our price is higher by approximately 18% as.
As we have discussed previously during periods of rising prices, our variable price fuel margins tend to contract due to retail prices not adjusting as quickly as wholesale cost too.
Relative to the prior periods of increasing crude prices, though the margin environment for the quarter was good.
If you look at our rental gross profit for the fourth quarter, we reported $14 $2 million down 14% year over year due primarily to the termination of leases at sites in connection with the retail and wholesale acquisition.
We now retail operating sites in the place of rental income, we reported retail fuel and merchandize revenue along with the associated operating expenses with these revenue streams.
In terms of rent, we did not experience any COVID-19 related rent collection issues during the quarter and our performance was in line with historical pre Covid performance.
On the retail side and comparing the performance of the retail sites for the quarter for the comparable period before the sites were in the partnership inside sales at our company operated sites remained strong throughout the quarter.
As with our gallon retail inside sales declined from trend from mid November through December due to the increased COVID-19 mitigation efforts across the country.
Despite the decline from trend on a comparable week year over year basis, our inside store sales were up in the low single digits. During this period.
Overall for the quarter same store inside sales were up in the mid to high single digits relative to the prior year.
Since the start of the year same store comparable week inside store sales have generally been up over 10% year over year, although the recent weeks have been somewhat lower due to the adverse weather.
Retail fuel volume has followed similar trends to what I mentioned earlier in my wholesale comments.
The retail store sales and volume figures illustrate the strength of these assets and demonstrating the convenience channels durability and relevance with the consumer in the Covid environment.
In reviewing our retail segment financial performance. It is important to remember the wholesale segment supplies of our retail segment on a D. Tw for variable margin basis. So the overall fuel profitability of these sites the split between our wholesale and retail segments in the day.
<unk> fuel margin to our retail sites makes a meaningful contribution to our wholesale segment and to our overall profitability.
For the fourth quarter, we did see an increase in both of our operating and G&A expenses compared to the prior year the.
The increase in operating expenses was primarily driven by the increase of our average company operated site count year over year from zero sites to 149 sites.
Contributing to the increase in G&A for the fourth quarter was an $800000 increase of management fees related to the increase in head count associated with the acquisition and exchanges completed this year.
A significant driver of the increase in head count relative to the prior year was the transaction earlier in the year were exchanged our ownership of CST fuel supply and non operational non controlling economic interest only of fuel margin for controlled operational wholesale assets.
Our adjusted EBITDA was $24 4 million and distributable cash flow was $26 2 million for the fourth quarter of 2020.
Moving onto a summary of our full year. If you look at the right hand side of the chart for the full year 2020, we reported an increase of 43% on our wholesale fuel gross profit.
Led by an increase of 28% and the wholesale fuel margin per gallon, which was $9 <unk> per gallon for 2020 versus seven <unk> in 2019.
Our rental gross profit declined 7% due primarily to the termination of leases at sites in connection with the retail and wholesale acquisition that I noted earlier.
Brent income continues to be an important and stable profit stream for us represented 27% of total gross profit in 2020.
Both operating and general and administrative expenses were up for the year driven by the increase of the number of company operated sites and additional head count associated with our acquisitions that I touched on the moments ago.
Adjusted EBITDA was $107 4 million, an increase of 4% and distributable cash flow of increased 28% to $102 5 million.
The primary drivers for the increase in distributable cash flow, where the performance of the wholesale segment and a decrease in cash interest.
Both periods benefited from a current tax benefit primarily related to taking bonus depreciation of assets acquired in the asset exchange and capital expenditures.
If you turn to slide five I wanted to review some of the highlights from 2020.
Our wholesale segment profit increased 19% in 2020 rising to $155 5 million.
The $131 1 million in 2019.
Fuel margin for the full year of 2020 was $9 two per gallon, which was a 28% increase for the full year of 2019.
This is the highest level of the partnership's history for a full calendar year driven in part by the acquisitions that we executed during the year.
Despite COVID-19 fuel volume increased 11% in 2020 with over $1 1 billion gallons distributed during the year on the strength of our completed acquisitions.
Brent as I mentioned earlier continues to be an important part of the partnership's profitability for <unk>.
Presented 32% of the wholesale segment in 2020.
With our wholesale of retail acquisition that was completed in April.
Now operate 150 convenient stores, along with 208 Commission sites.
With this transaction, we reestablished the retail capability that enables us to pursue a broader range of acquisition opportunities and provides greater flexibility for optimizing the class of trade for each asset in our portfolio.
If you would turn to the next slide slide six I will continue for a few more highlights from 2020.
We had a busy year day during 2020 executing several strategic transformed transactions in the depths of the Covid pandemic.
On January 15th the partnership entered into an equity restructuring agreement with the general partner and Dunne Manning to eliminate the incentive distribution rights of the partnership.
This transaction closed on February six and aligns, our founder and chairman and largest unitholder, Joe topper with all of our other unit holders.
March 25th we completed an asset exchange with circle K as we exchanged our 17, 5% interest in CST fuel supply for 331 of circle K's U S wholesale fuel supply contracts.
33 owned at least convenience store properties and approximately $14 million of cash at closing.
With this transaction, we exchanged a non operational non controlling economic interest only of fuel margin for controlled operational wholesale assets.
If youll turn to slide seven I will continue for some final highlights from 2020.
We completed our acquisition of wholesale and retail assets on April 14th of this acquisition included retail operations of 169 sites wholesale fuel supply the 110 sites and leasehold interest at 62 sites with.
With this transaction, we not only added wholesale fuel contracts to our portfolio, but out of retail assets and a retail capability that enables the partnership to pursue a broader range of acquisition opportunities and provides greater flexibility for optimizing the class of trade of each asset in our portfolio.
We completed for asset exchanges with Couche Tard and circle K during 2020.
These changes were completed on February 25th April 7th of May 5th and the final exchange was completed on September 15th these.
Of these sites of our dealer operated and reside within our wholesale segment.
With the six total asset exchanges to in 2019 and for 2020 across America received 191 properties from Circle K and circle K received the real property of 56 U S convenience of retail fuel stores, while the <unk> 17 company operated convenient sites in the upper Midwest.
If you turn to slide eight I want to provide a few thoughts on 2021.
We executed a number of strategic transactions. During 2020, I spent the latter half of the year working to integrate and optimize our new assets.
We will continue during 2021 to work to optimize the operations of acquired assets for the most appropriate format and class of trade in order to provide for more stable cash flows and to maximize our investment return.
Internally, we continue to work to provide better experiences and better service to all of our customer base and to be more efficient and effective and all of that we do.
Our relationships with major oil companies remain an important focus of ours and we will work with our supply partners to find mutually beneficial ways to grow our business together.
On the capital side, we want to continue the real estate rationalization plan that we initiated last year and had good success with.
Through these efforts, we were able to recycle capital and to invest in growth opportunities within our existing portfolio.
In terms of acquisitions for the partnership has a long history of growing through acquisitions.
The partnership has completed approximately $1 $2 billion worth of acquisitions in the span of a little more than eight years.
But the bulk of those acquisitions being completed by members of the current management team.
We are always evaluating opportunities.
Rely on us to be disciplined in our pursuit of acquisitions.
We look for strong sites with long term prospects and good locations at reasonable prices.
We would much rather not do a deal than do a deal that does not meet these criteria.
As always a big Thank you is due to everyone here across America the <unk>.
<unk> executed a number of difficult complex transactions. This year during the depths of the Covid pandemic, which was a tremendous accomplishment.
Throughout the year the team has not let optical stop them and has simply done what was needed without fail.
For the team members listening in.
The half of myself senior leaders and our unit holders.
The debt of gratitude for all of your efforts this past year.
Thank you.
That I will turn it over to Eric for more detailed financial review.
Thanks Charles.
If you'd please turn to slide 10, I'd like to review, our fourth quarter and full year results for the partnership.
We reported adjusted EBITDA of $24 4 million for the fourth quarter of 2020, which was the decline of 4% when compared to the same period of 2019, our distributable cash flow for the fourth quarter of 2020 was $26 2 million versus $18 8 million for the fourth quarter of 2009.
<unk>, reflecting an increase of 40% year over year, our distributable cash flow for the fourth quarter benefited from the performance of our wholesale segment lower cash interest and a current tax benefit from bonus depreciation on eligible capital expenditures our distribution coverage on a paid basis for the fourth quarter.
For a 2020 was $1 three two times of.
27% improvement versus 1.0 for times for the fourth quarter of 2019.
As Charles touched on earlier, our operating expenses increased over $17 million for the fourth quarter of 2020 compared to the fourth quarter of 2019, driven by the increase in our company operated site count as a result of the April 2020 acquisition of retail and wholesale assets our average company operated.
Site count increased to 149 sites from zero sites in the fourth quarter of 2019. Additionally, a fair number of our company operated sites are leased and so the rent component of operating expenses at our company operated sites increased $3 2 million.
For the full year, our adjusted EBITDA was $107 4 million.
Representing an increase of 4% with distributable cash flow, increasing 28% to $102 5 million our distribution coverage on a paid basis for the full year of 2020 was 131 times, which was an improvement over the 111 times that we experienced for the 12 months ended.
December 21 December 31 2019.
Slide 11.
If you turn to the next slide we ended the quarter, where the leverage ratio as defined under our credit facility of 4.06 times and remain comfortably in compliance with our financial covenant ratios. Despite the additional borrowings to fund the retail and wholesale acquisition during the second quarter, along with the negative impacts of COVID-19.
And higher capital expenditures, we were able to improve our leverage from the $4 seven times as of December 31, 2019.
We have sufficient liquidity to execute on our plans and as of February 20 <unk>.
We had $166 million available on our credit facility, an increase of $75 million compared to our availability at December 31 2019.
The partnership paid a distribution of <unk> 52, five cents per unit during the fourth quarter of 2020, which was an aggregate distribution of almost $20 million to our unit holders.
This distribution was attributable to the third quarter of 2020 and as I noted on the previous slide. This resulted in a coverage ratio of 131 times on of paid basis for the 12 months.
In regards to our capital spending during the fourth quarter and the full year of 2020, we did see an increase in our growth related capital expenditures as a result of dispenser upgrades.
The upgrades and rebranding of certain sites due to our fuel initiatives.
Each of the spend during the year was effectively funded by our non core property site sales of.
Also it is important to note for site brand conversions, we generally are reimbursed by suppliers for a substantial portion and in some cases all of the upfront spend either over a period of time post conversion or Apple after final completion.
While we expect to have some growth capex spent in the first quarter and during 2021 as we invest in our sites for the long term, we do anticipated decline from the levels in 2020 in conclusion. We believe we are in a good position as we enter 2021, we expect to continue to stay within both our coverage and leverage.
Target ranges as we see the benefits from the 2020 asset exchanges and acquisitions and our other strategic initiatives.
With that we'll open it up for questions.
Thank you and we will now begin the question and answer session. If you have a question. Please press star one on your touch tone phone, if you'd like to be removed from the queue. Please press the pound sign for Heska.
There may be of delay before each question does the note if you're under speakerphone. Please pick up your handset first before dialing once again if you ask the question. Please press star one on your telephone keypad.
And we will stand by for your questions.
From there the gross we have Walter Morris. Please go ahead.
Yes, gentlemen, congratulations on navigating the crosscurrents of 2020.
Thank you my question relates to the tax benefits realized in 2020 could you go into greater detail on the background.
Tax laws that produced gross tax benefits.
And now that the.
The Couche tard exchanges are completed.
Should we.
Or no.
Tax benefits going forward.
Q.
Yes, so as it relates to the tax benefits that we recorded during the year. There are a few sources for all of them, but the main the main benefit that we had was from the accelerated depreciation.
Due to all of the acquisitions that we did during the year and so going forward to the extent that there is less acquisitions, you should see that impact being reduced in the future.
Uh huh.
Without any additional acquisitions would that number go to essentially zero going forward.
Yes, I don't want to go into too much like predicting or forecasting the future, but suffice it to say that the tax being in a tax benefit position is in large part driven by the benefit of being able to take the 100% accelerated depreciation so to the extent there.
Not continuing current new acquisitions, you Shouldnt expect to see that same type of position going forward right and obviously, it's all subject to.
Current tax laws in the future as well.
Thank you gentlemen.
Thank you.
And once again, if you do have a question. Please don't star one of your phone keypad and standing by for any further questions.
And from RBC capital markets, we have Elvira Scotto. Please go ahead.
Hey, good morning, everyone.
Quick question around Capex.
It looks like can you just talk about the capex spend for the year first quarter and second quarter were about 5 million third quarter and fourth quarter of about $10 million to $12 million just how do we think about that that capex spend.
Cadence of that and what drove that.
Yes, so for last year, there are a few factors going on one of the significant ones that we touched on in the industry was the need to upgrade dispensers for ENB compliant and so a fair amount of that was related to those types of activities and then also in addition, as part of our fuel initiative.
We've done a fair amount of brand conversions. So you also see that number in there as well and as we touched on in our comments for the fuel conversion.
That is a number of that typically from the suppliers. We are reimbursed for it over time or after completion, so there'll be a lag between.
When you see that number of spend and when it comes in and also given the way that were reimbursed for it over time, youre not necessarily going to see that reimbursement comment.
On the cash flow statement, it sometimes will comment through the through other means.
Okay. Great. That's helpful. And then can you just talk a little bit about.
The environment for M&A.
You know what youre seeing out there.
Yes. So it continues to be an active environment as we touched on in our comments, we're always seeing opportunities.
The question for now Thats out there in the marketplace is when you're evaluating opportunities what's the framework in which you are evaluating them because the seller is certainly have expectations that youre going to look at things through a return to normal environment and obviously as buyers we have of different framework through which we view things and the question is.
In terms of the Covid impact what is going to be transitory and when will that COVID-19 impact and in what is perhaps permanent and so I think there is some friction there between buyers and sellers in regards to expectations for economics, and what set of numbers that people want to evaluate transactions on but the marketplace can.
<unk> to be active but from our perspective, we're going to be continuing to be focused on the things that I touched on in the call and be disciplined about what types of sites that we're going to go after.
Great. Thank you.
And standing by for the questions. Once again of Star one if you do your other question.
Alright.
For the questions Mr. Jonathan I'll turn it back to you for closing remarks.
Yes. Thank.
Thank you everyone for joining we appreciate it.
And obviously to the extent there are other questions you know where to find us, but I think you all thank you all for joining this morning.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.
Everyone else has left.