Q1 2021 Crossamerica Partners LP Earnings Call
I will now turn the call over to Jon Benfield, Chief Accounting Officer, you may begin Sir.
Thank you operator, good morning, and thank you for joining the Cross America Partners first quarter 2021 earnings call with me today is Charles Nifong, CEO and President Charles will provide some opening comments a brief overview of cross Americas operational performance and highlights from the quarter and then I will discuss the financial results.
At the end, we will open up the call to questions I should point out that today's call will follow some presentation slides that we will utilize during this morning's event.
These slides are available as part of the webcast and are posted on the Cross America website.
Before we 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 American 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 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 will now turn the call over to Charles.
Thank you John 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 first quarter of 2021.
I will also provide some color on the recently announced the agreement with 711 and the <unk>.
The impacts from COVID-19, along with a few other update similar to what I provided during our quarterly calls this past year.
John will then review in more detail the financial results.
Now if you turn to slide four I will briefly review some of our results.
For the first quarter of 2021, our wholesale fuel volume increased 32% compared to the first quarter of 2020.
Largely due to the acquisitions and exchanges that were completed during 2020 of.
<unk> offset by the impact of COVID-19.
While we saw a strong increase in overall volume for the quarter relative to last year.
We also saw a 19% decrease of our wholesale fuel margin per gallon year over year.
Primarily impacted by a decline in our dealer tank wagon margins.
Despite the decline in fuel margin per gallon, our wholesale fuel gross profit increased 7% for the quarter.
As I have done in prior quarters I'll provide some color on same store volume performance to provide insight on business conditions.
We've now been operating in dealing with COVID-19 for over a year and it was during the March of last year that the initial society of wide shutdown due to COVID-19 occurred.
Basically for the first quarter of 2020 Jan.
January and February of were normal in the March was COVID-19, which was as we all appreciate decidedly not normal.
As I go through my comments on our volume performance for the quarter keep that bottom line.
The volume of environment is obviously decidedly better than at this time last year.
For example, our same site volume for the last week of March was up approximately 80% year over year.
If you look at the quarter overall, our same site volume was down approximately 3% relative to 2020.
Which again was two relatively normal months and then the severe COVID-19 impact in March.
For additional context on our same site volume basis, the first quarter of 2021 relative to 2019 was down three 5%.
For our year to date the same site volume performance through late April we are up approximately 5% year over year as we overtake some of the severe volume declines from last year.
Illustrating this effect same site volume for the recent weeks in April are up 50% or more relative to the same week in 2020.
Relative to 2019, our same site volume performance for the year to date period was down approximately three 2%.
Which shows a continued improving environment given the improved volume performance from the quarter end number.
A further reason for optimism is that if you look at the volume on a sequential week over week basis.
We are seeing the same site volume building, which is both a normal pattern as we head into the summer months.
And a further sign that miles driven and People's mobility are approaching it returned to pre pandemic levels.
In terms of margin our wholesale fuel margin for the quarter was seven three per gallon.
A decline of one seven per gallon for 19% from the prior year.
The year over year decrease was driven by our dealer tank wagon fuel margins, which as a reminder, our variable fuel margin accounts with select third party wholesale dealers and also how we supply of company operated and commission retail sites.
The decrease in fuel margin was due to a decline in our <unk> margins for the first quarter relative to the first quarter of 2020, which was primarily driven by the movement in crude prices during the two periods.
<unk> increased 28% during the first quarter of 2021.
Which in turn drove <unk> price is higher by 31%, which negatively impacted our fuel margins per gallon.
In contrast.
The first quarter of 2020, there was a 66% decline in <unk> from.
From a daily spot price of $61 14 per barrel on December 31, 2019 to $20 51 per barrel of March 31 2020.
Which drove an almost equal 65% decline of <unk> prices for the same period.
Although crude and fuel prices trended down during the first quarter of last year and March there was a rapid and steep decline due to COVID-19, which these figures reflect.
The dramatic decline in these costs inputs positively impacted our fuel margins for the prior year period.
As we have discussed previously during periods of rising prices, our variable price fuel margins tend to contract due to retail fuel prices not adjusting as quickly as wholesale cost too which was the case this quarter.
As with our fourth quarter relative to other periods of increasing crude prices the margin environment for the quarter was favorable.
In terms of rent.
From the prior quarter, we did not experienced any COVID-19 related rent collection issues on our rent collection results were inline with historical pre COVID-19 performance.
For our retail operations, we continue to see strong inside sales at our company operated sites.
Overall for the quarter same store inside sales were up approximately 13% year over year.
For additional context relative to the first quarter of 2019.
Same store inside sales were up for the quarter over 14%.
Which indicates our stores are performing well even relative to pre pandemic results.
Year to date for the periods for approximately the end of April our same store inside sales are up approximately 15% year over year.
As we have discussed before.
The initial COVID-19 impact on our retail inside store sales was considerably less than the volume impact.
Also as we saw over the course of the last year, the consumers gravitated to our stores to do their convenience and enhanced product offerings.
For the quarter, our retail stores also performed well on the volume side.
On a same store basis for the quarter, our retail same store volume was up approximately 3% year over year.
Year to date as of approximately the end of April our retail store same site volume was up 16% year over year.
Both of these volume metrics are stronger than our overall wholesale portfolio metrics.
The strong retail same store performance both for inside sales and volume is proof of the success of the initiatives that we have underway for our retail operations.
And indicative of the operational focus we intend to bring to the retail operations and our recently announced the acquisition.
As we noted in prior quarters and reviewing our retail segment financial performance. It is important to remember the wholesale segment supplies, our retail segment on a D tw or variable margin basis. So the overall fuel profitability of these sites of split between our wholesale and retail segments and the D Tw fuel margin.
For our retail sites makes a meaningful contribution in our wholesale segment and our overall profitability.
For the first quarter, we did see an increase in both of our operating and G&A expenses compared to the prior year.
The increase in operating expenses was primarily driven by the increase of our company operated and commission side of count, which increased 150 for sites or 76% year over year <unk>.
Contributing to the increase in G&A for the first quarter was a $900000 increase in acquisition related costs, primarily due to our announced the acquisition and an additional $900000 increase of management fees related to the increasing head count associated with the acquisition and exchanges completed last year, particularly driven by.
The CST fuel supply of exchange, where we exchanged a non operational economic interest for operational wholesale assets.
The operating and G&A expense line item that we do closely track.
And we expect the incremental G&A burden for our new acquisition to be significantly less than what we experienced for our acquisitions this past year.
If you'll turn to the next slide slide five I want to discuss our recently announced the agreement with seven of 11 to acquire 106 sites for $263 million.
We are acquiring sites in the mid Atlantic and northeast regions of the U S that fit very well within our existing asset base.
Most of the sites currently operate under the Speedway brand.
90 of the size of our fee ownership and 16 of the sites are leased.
These are attractive locations good square footage with solid metrics of gallons and merchandise sold.
For the year ending December 31, 2020, the site sold 154 million gallons of fuel and generated $136 million of merchandise sales.
For an average of one for 5 billion gallons per site and $1 million to $8 million of merchandise sales per site.
We plan to close on this acquisition on a rolling basis that will become 60 to 90 days after the closing of seven elevens transaction with marathon.
The closings will take place over several weeks as at each individual site, we have to do a complete rebranding of the site and convert all of the store systems, such as payment processing over to our and our supplier's networks.
We currently plan to finance the transaction through either Undrawn capacity under our revolving credit facility for additional debt financing from other sources.
Please turn to slide six.
As we noted in the press announcement and that I touched on a moment ago, we will be rebranding these sites.
On the fuel side, we will partner with our existing branded fuel suppliers to bring nationally well known fuel brands for the sites.
On the store side, we intend the brand new sites as Jos quick March.
Which is one of our proprietary store brands for.
For Joe's quick March we've been working on Redevelopments and re imaging this brand for the past 18 months the.
The timing of the acquisition of correspond perfectly with this rebranding initiative and.
And allows us to accelerate our rollout of the re image and refreshed chose quick March brand.
As I stated earlier, we believe these are great assets in prime locations.
In terms of the locations the site's fit well within our existing store network and we will be able to manage the site efficiently within our retail network.
We anticipate this transaction to be immediately accretive to distributable cash flow to limited partners and expect it to provide value to our unit holders over the long term.
We are eager to get into the execution phase of the transaction.
And to welcome our new colleagues working at the sites to the Cross America team.
We look forward to providing you more details on this transaction when the disclosed.
In conclusion, while our results for the first quarter were not as strong as we wanted there is a lot of positive momentum for us.
We assume mobility moving back towards pre pandemic levels and economic activity increasing.
While in the short term this may lead to a further for further increases in crude prices that impact our fuel margins longer term. These are positive developments for our business that we are well positioned to capitalize on.
We have signed up a great transaction strong assets at an attractive valuation that provides immediate value to our unit holders the <unk>.
<unk> team here across America is excited about this transaction and the opportunities it provides us.
The team understands that we have a lot of hard work in front of us and we all are committed to doing whatever it takes to ensure a successful execution.
With that I'll turn it over to John for a more detailed financial review.
Thank you Charles if you would please turn to slide eight I would like to review our first quarter results for the partnership we reported adjusted EBITDA of $27 million for the first quarter of 2021, which was the decline of 18% when compared to the first quarter of 2020.
Our distributable cash flow for the first quarter of 2021 was $15 8 million versus $24 million for the first quarter of 2020, reflecting a decrease of 23% year over year, both adjusted EBITDA and DCF are lower primarily due to the lower variable fuel margins and higher operating and <unk>.
<unk> expenses Charles discussed earlier.
Our distribution coverage on a paid basis for the trailing 12 months ended March 31, 2021 was 123 times of 3% improvement versus 119 times for the trailing 12 months ended March 31 2020.
For the current quarter our coverage on the paid basis was <unk> 79 times compared to 1.08 times for the first quarter of 2020.
While we prefer to stay above 1.0 times coverage, even for the quarterly period, we have historically seen our coverage the weakest in the first quarter and it was below 1.0 times for the first quarter periods of 2014 to 2019 bouncing back above 1.0 times in the second quarter.
As we do see some seasonality in our business. This is the primary reason we tend to focus on the trailing 12 month coverage ratio. We will continue to target of one two to one three times trailing 12 months coverage ratio.
If you would turn to the next slide slide nine we ended the quarter with the leverage ratio as defined under our credit facility of 454 times and remain in compliance with our financial Covenant ratios.
Leverage ratio is higher than our year end ratio of 4.06 times because of the weaker results compounded by the fact that we didn't have any significant proceeds from our real estate optimization efforts in the first quarter of 2021.
We have sufficient liquidity to execute our plans and as of May six we had $123 million available on our credit facility.
The partnership paid a distribution of <unk> 52, five cents per unit during the first quarter of 2021 attributable to the for fourth quarter of 2020 for a total of almost $20 million and as I noted on the previous slide. This resulted in the coverage ratio of 123 times on the paid basis for the 12 months.
In regards to our capital spending during the first quarter, we did see an increase in our growth related capital expenditures as a result of the <unk> upgrades and rebranding of certain sites due to our fuel initiatives.
Ignoring capital spending related to our recently announced the acquisition. We currently expect our overall capital expenditures to decline meaningfully from the left from the levels in 2020.
With regard to incremental capital spending related to our pending acquisition, we anticipate receiving financial support from our fuel suppliers of approximately 70% of our estimated 2021 capital spending.
In conclusion as we enter the summer driving season, we believe we are in a good position.
We expect over the long term to continue to stay within both our coverage and leverage ratio target ranges and manage our balance sheet as we see the benefits from the 2020 transaction, our pending acquisition and our other strategic initiatives with that we will open it up for questions.
Thank you and we will now begin the question and answer session.
The question. Please press star one the Newfield keypad, if you'd like to be removed from the queue. Please press the pound side or the hash key there may be a delay before each question just announced if you're on a speakerphone. Please pick up your handset first before tightly.
Once again, if you have the question. Please press star one on your phone keypad.
And we are standing by for questions.
From the RBC from RBC, we have Elvira Scotto. Please go ahead.
Hey, good morning, everyone couple of questions for me can you provide any more.
Detail around when the.
Yeah.
You know that the.
The acquisition.
Curtis.
I know you said, it's sort of on a rolling basis, but can you give a little bit.
More granular timeline.
Yeah. This is Charles so.
Look at the closing of our acquisition is dependent upon the closing of the marathon set of 11 acquisition and so.
If you followed what they've been saying on that most recently on the Marathon conference call. They indicated that the timing for that acquisition to close was a matter of weeks and thats consistent with our understanding.
Once that acquisition closes our transaction can began to close 60 to 90 days after that and based on our rolling close we're looking at our transaction closing over a matter of weeks from the start of that period.
Okay.
Okay.
Great.
And then in terms of.
How does that work in terms of.
Number of stories is it.
There's interest you do one store at a time of the into like a content stores with the rebranding.
Yeah. So the way that we're contemplating doing it we'll be doing it in groups.
Sickly of weak, we'll see a cluster of sites come over because as I touched on in the comments.
You have to rebrand the store and then significantly with a lot of the back office equipment, we've got to take out of that equipment and putting our equipment. So that were hooked up with our networks and our suppliers' network. So it's not as simple as.
What you might see an ex standard transaction or can a transaction, where you have a period of time to convert the branding over we're doing all of this at closing, but the good thing for that is that we anticipate that.
In terms of the actual operations of the side, we're looking at only for a few hours on the initial day of conversion, where the science will be not available to customers, but then immediately after that there'll be back up and running.
Got it great and then.
Other question I have is.
With the colonial pipeline shut down.
Any impact for your operations.
Yeah. So we obviously have assets within the footprint of the colonial and Youre basically talking about the southeastern part of the United States and so from our suppliers right now we're not getting a whole lot of additional information beyond what is publicly available and that the colonial expects to resume substantial.
The normal operations by the end of the week I'd say right now at the moment, we are seeing certain terminals that are having a supply outages, but nothing widespread and if it does resolve by the end of the week I think that you will see things are resuming back to normal on supply being back to normal with the.
Then.
A few days after that if it goes on longer than this weekend, then youll start to see more disruption and it's not that there is a lack of supply out there, it's really that the ultimate supply points, particularly for some of the markets will be much further away and at the moment. There is a shortage of drivers in the industry, which this will exacerbate.
Further such that you could see more severe disruptions and what we've seen to date, but as of right now it's been minimal for us.
But again, we do have we do have a pretty substantial footprint in the market, but for so far it's been manageable.
Okay, great. Thank you very much.
For the buyer.
From Wells Fargo, we have net Burma. Please go ahead.
Hey, good morning, Thanks for taking the question could you discuss the if there is of Florida, where your wholesale margin could go given the continued strength in the WCS prices.
Okay.
Well, so I think the way to think about our of wholesale margins and we've given some information of lines before is that on the wholesale side roughly 70% of our wholesale contracts are our fixed pricing, which means that really the only variability in those contracts is going to be what happens with the terms discount.
Which will vary with the price of crude and this case higher crude prices will boost that discount that we get and then the other of 30% or so that's variable price margin, which is really going to be reflective of what happens with the rack to retail pricing, what's the spread between the wholesale cost at the terminal and.
And the price that people are paying at the pump itself.
So for that what we've seen here is so since the period of basically the end of October we've seen a a very steady and consistent rise in prices.
And typically with that type of environment that really hurts, our margins and as I touched on in my comments relative to other periods, where we've seen that type of price increase our margins have done.
Well relative to those prior periods so.
Based on.
What other people have said for the environment and COVID-19 or are we seeing of repricing of re expectation of where the.
The other dealers are expecting their what their margins need to be I don't know all I can say is that.
With volumes being down obviously of People's break evens are of higher and that does seem to reflect be reflective in pricing that we've seen on on the street and so whether or not that will continue that way as volume to get more back to normal remains to be seen but so far we've seen a relatively positive pricing environment. Despite the increase in crude.
<unk>.
Thanks for the color that's all I had.
Thank you.
And once again, if you do have the question. Please star one on your phone keypad standing by for any further questions.
Okay.
Okay. It looks like no further questions at this time I will now turn it to Jon Benfield for closing remarks.
Alright, Thank you for listening in today and we appreciate you joining us and we look forward to talking with you again soon.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.
Okay.