Q3 2021 Crossamerica Partners LP Earnings Call
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Paul.
Yeah.
Yes.
Yeah.
At 55 million gallons for the third quarter of 2021.
An increase of 8% when compared to the same period in 2020.
Largely due to the acquisition of assets from 711 as well as the continuing recovery from COVID-19.
In terms of same store volume performance in wholesale for the quarter, we were up approximately 4% year over year.
For the quarter on a same site basis relative to 2019, we were down slightly more than 3%.
We did see some relative weakness in volume permit August to early September as the Delta variant or fears of the delta were at their peak.
Year to date wholesale same site volume was up approximately 8% relative to last year and down approximately 3% relative to 2019.
In terms of our volume mix with the addition of our newly acquired retail sites for.
For the third quarter of 2021, we received a fixed markup per gallon on approximately 67% of gallons sold to our customers.
With the remaining gallons being primarily D. T. W are variably priced contracts with third party customers or with our retail segment.
We also saw an increase in our wholesale fuel margin per gallon for the quarter reporting nine six cents per gallon compared to $9.04 per gallon for the third quarter of 2020, an increase of 2%.
The year over year increase was primarily driven by three factors.
First we benefited from increased volumes across Americas company operated retail sites.
Which as I just noted we supply on a variable margin basis.
Second we benefited from better sourcing cost due to the execution of certain strategic initiatives such as our brand consolidation.
Finally, our wholesale fuel margin per gallon also benefited from higher terms discounts as crude oil prices increased 73% from $40 89 per barrel for the third quarter of 2020 to $70 58 per barrel for the third quarter of 2021.
While we increased our wholesale fuel margin per gallon for the quarter the macro fuel margin environment for the quarter was mixed to negative.
We have now been in a generally rising crude oil price environment since late October of last year.
Crude oil prices are up over 95% from the start of the fourth quarter of 2020 through the end of the third quarter.
For the first half of the third quarter crude oil prices declined, but then began to increase in the latter half of the quarter and have continued to rise since that albeit with summer spike over the last few weeks or so.
As we noted on prior calls typically crude oil price increases of that magnitude, we have experience would lead to materially lower fuel margins and what we achieved in the third quarter and earlier in the year.
The fact that fuel margins have diverged from historical experience and have consistently done. So this year provide support the theory that COVID-19 has altered the dynamics of the fuel market perhaps permanently.
In terms of rent.
Not experienced any COVID-19 related issues for several quarters now.
Our rent for the quarter benefited from a favorable comparison to the prior year and the associated rent concessions made during the quarter and 2020.
Our retail segment also performed well during the quarter as gross profit rose $8 4 million or 43% when compared to the third quarter of 2020.
Our motor fuel gross profit increased 122% and our merchandise gross profit rose, 26% when compared to the same period in 2020.
For volume on a same site comparable week basis, our retail volume was up 14% for the quarter year over year.
On a same site comparable week basis relative to the quarter in 2019 retail volume was down approximately 1%.
For inside sales on a same site comparable week basis, our inside sales were flat relative to last year and up approximately 9% relative to 2019.
Our retail sites have continued to perform well on both volume and inside sales metrics.
On the volume side, our retail locations have significantly outperformed relative to the overall wholesale portfolio.
And compare favorably to data we have relative to the industry overall, particularly when we look at our performance relative to 2019.
While inside sales were flat for the quarter are still up 9% relative to 2019.
On both volume and inside sales metrics, our retail sites are continuing to perform strongly.
Which reflects the ongoing success of our retail initiatives and the impact of capital. We have spent on brand imaging and site upgrades in the past 12 months to 18 months.
Our retail segment results. This quarter also include our newly acquired sites from 711.
These sites were acquired on a rolling basis throughout the quarter. So they included results are not reflective of anywhere near a full quarter's financial results for these assets.
Nonetheless, our results do reflect a meaningful contribution from these newly acquired locations.
Although it is early we've been pleased by the performance of the sites and in particular, our fuel margin environment at the location.
We continue to put a lot of energy and effort into successfully integrating these locations into our operations and.
And ensuring our new team members have the tools and knowledge they need to be successful.
As we noted in prior quarters.
Doing our segment retail segment financial performance is important to remember the wholesale segment supplies, our retail segment on a D T W or variable margin basis. So the overall fuel profitability of these sites are split between our wholesale and retail segments.
As I mentioned, a moment ago, the wholesale fuel margin to our retail sites contributed to our overall increase in wholesale fuel margin per gallon for the quarter relative to the prior year.
Overall, the D T W fuel margin to our retail sites makes a meaningful contribution to our wholesale segment and our overall profitability that is not apparent in looking at the retail segment financial results in isolation.
As we work through the integration of the 711 slides, we have seen an increase in both our operating and G&A expenses compared to the prior year.
The increase in operating expenses was primarily driven by the addition of the 711 sites.
<unk> an increase in our average company operated site count increasing 29% year over year.
We have also experienced increases in labor costs at our retail sites.
System with what has been experienced in the broader economy overall.
The primary drivers for the increase in G&A for the third quarter with the acquisition costs associated with the 711 transaction and an increase in management fees related to the increase in head count.
In regards to the announced agreement with 711 to acquire 106 sites as of the end of the quarter. We had closed on 98 sites for total consideration of $262 million, including inventory and other working capital.
As of November 4th the partnership at close on an additional five sites for total consideration of $10 $4 million, including inventory and other working capital.
We anticipate closing on the final three properties. Once we are in receipt of all required operational licenses and permits.
As I touched on briefly in my retail comments earlier, while we have had the sites only a relatively short amount of time, we are pleased with how the sites are performing.
And with holiday overall integration process and the rebranding of these sites has gone so far.
We are already seeing a positive impact from these sites and we believe the acquired assets are positioned to perform well going forward.
We also continue to evaluate our portfolio and look for opportunities to divest non core properties.
We had a busy quarter for property sells divesting 14 sites for $4 $9 million in proceeds.
Through September 32021, we had divested 23 properties for $8 $8 million in proceeds.
We continue to have a strong pipeline of transactions and expect to have an active fourth quarter.
Looking forward, we will continue the process of recycling capital to invest in growth opportunities within our portfolio.
Overall, despite the challenges this quarter, we had a strong quarter and are beginning to demonstrate some of the financial results of our strategic initiatives.
As I noted earlier, we have substantially completed our transaction with 711 and our results. This quarter provide a brief glimpse of the positive financial impact of these assets.
We believe these sites will be great contributors to our overall financial performance in the coming months and years.
Across America team have done a tremendous job in integrating these assets and in executing our overall strategic plan.
Their efforts and dedication are appreciated.
So all across America team members listening in thank you.
In summary, we believe we are in a good position as we exited the third quarter to continue to execute on our plans and to provide growth and strong returns for our unit holders with that I will turn it over tomorrow for a more detailed financial review.
Thank you Charles.
If you would please turn to slide six I would like to review our third quarter results for the partnership.
We reported net income of $8 $8 million at the third quarter of 2021 compared to $21 $2 million in the third quarter of 2020.
During the third quarter at 2020.
Net income benefited from a 12.9 million again, primarily driven by gains related to the property sold asset exchanges with circle K.
Compared to a 4 million dollar gain on the sale of property sale gains.
Third quarter at 2020 one.
Adjusted EBITDA was $35 $9 million in third quarter, 2021, which was an increase of 20% when compared to the third quarter of 2020.
Our distributable cash flow for the third quarter F 2021 with $34 million.
$29 $7 million for the third quarter of 2020 looks.
Reflecting an increase of 2% year over year.
Distributable cash flow in the third quarter of 2020 benefited kind of current tax benefit of $3 $8 million compared to a tax expense and figure out $22 million in the third quarter 2021.
The 20% increase in adjusted EBIT that was primarily driven by increases in operating income, but the wholesale and retail segment and the addition of our assets acquired from 711 is Charles covered.
Our distribution coverage for the current quarter was 1.53 times compared to 1.5 here at time.
Third quarter of 2020.
For the trailing 12 months ended September 32021, our.
Our distribution coverage was one point to two times.
Slight decline versus 1.24 times for the trailing 12 months ended September 30th 2020.
If you would please turn to the next slide.
The partnership paid a distribution of 52 and a half cent per unit during the third quarter of 2021.
Both for the second quarter of 2021.
A total of almost $20 million.
And as I noted on the previous slide this resulted in a coverage ratio of one point to two times on a paid basis for the 12 months.
In regards to our capital expenditures during the third quarter, we spent $10 $5 million overall.
With $9 five of that total being growth related capital expenditures.
This represented a year over year decline of approximately $3 $2 million for the quarter.
Growth related capital projects during the quarter, including included $5 million on the rebranding of the certain sites being acquired from 711.
$1 million on rebranding websites in our existing portfolio.
And $3 $5 million on other projects, including ENV upgrades and site improvements.
As we mentioned last quarter for St brand conversion, including those related to the sites acquired from 711.
We generally are reimbursed by suppliers for a substantial portion of the upfront spend at or over a period of time post conversion.
Or after final project completion.
The impact of certain of our spending in the current and prior quarters as evidenced in the strong gallons and sales performance at our site, particularly in the retail segment.
If you turn to slide eight.
I wanted to review, our new capital structure, the new J can credit facility and our existing capital credit facility, which were discussed during our second quarter earnings call.
On July 16th 2021 capital J Cam partners, an indirect wholly owned subsidiary of Cross America entered into a new credit agreement. We call. This the Joe's quick March for J P M. Its credit facility.
This facility is a $200 million senior secured credit facility, consisting of a $185 million delayed draw term loan.
And a $15 million revolving credit facility.
The delayed draw term loan portion of the facility has been used to fund the acquisition of the 100 and fixed convenience store properties from 711.
And the revolver is available to support the ongoing working capital needs of the just quick March business as we move forward.
We also amended our preexisting capital credit agreement as of July 28, 2021.
The amendment increased our maximum leverage ratio under this facility through 2022.
To provide us with financial flexibility to better manage our ongoing acquisition and integration of assets from <unk>.
711.
Due to the structure of our acquisition.
Our leverage ratio calculation under the cap L credit facility does not allow us to include the pro forma EBITDA for our newly acquired assets until the cash flows from the assets are actually generated.
As these new assets are fully on boarded to our organization.
Our leverage ratio under the capital credit facility will step down as our revolver balance is paid down with cash generated from these new assets.
And our credit facility defined EBITDA increases as a result of these cash flows.
As a result, we anticipate that leverage this quarter and next quarter will be our highest level due to the structural definition.
As we look at and present, our financial leverage going forward.
We will report our two credit facilities defined leverage ratios.
But also speak to our blended aggregate leverage ratio for the organization as a whole to the investor community.
As of September 30th 2021.
We went to calculate our leverage ratio for the organization overall.
As defined in our credit agreements.
Taking into account, our total debt levels and the benefit of the pro forma impact of our newly acquired assets are.
Our blended aggregate leverage ratio would be around five two times.
I noted previously with our credit facility to find leverage ratios and this blended aggregate ratio will move down over the course of the next 24 months.
We will continue to move toward our target level for Q4, and a quarter times from both the credit facility defined and a blended aggregate basis.
Well, we and our board review, our quarterly distribution on a regular basis.
Based on our current financial position.
Our outlook for operations we.
We do not expect that this will have any impact on our current distribution rate.
As Charles noted earlier.
We've been pleased with the integration process regarding the 711 sites and their early financial performance.
We believe that this is a great acquisition and will provide value to our unit holders for years to come.
I should note that we did file a form 8-K last week, providing some pro forma statements for the acquired properties.
These pro forma statements layer in the balance sheet and income statement information for the acquired locations.
For 2020.
In the first six months of 2021 is operated by the prior owners.
On top of the similar period results for Cross America with.
With certain adjustments for acquisition accounting and our financing.
As noted in the 8-K. These pro forma statements do not include any adjustments to the historical performance of the location.
Including the impacts of the COVID-19 pandemic.
Non recurring items.
Other factors insulins in the industry.
These pro forma statements also do not include any SG&A charges incurred by the prior owners.
Or to be incurred across America partners.
If they only included store level profit and loss information.
In conclusion as Charles noted earlier.
Our wholesale and retail segments performed well during the third quarter.
Tribute into a strong overall quarter with.
With the bulk of the 711 and site integration behind US we are.
We're in a good financial position entering the fourth quarter and the new year.
As I noted we have a plan to reduce our leverage over the next 12 to 24 months in.
And expect our coverage ratio to stay within our target range.
Looking forward, we will continue to manage our balance sheet as you see the continued benefits from our 2020 transactions.
Our acquisition of the 711 sites and our other strategic initiatives on our overall performance.
With that we will open it up for questions.
Thank you we will now begin the question and answer.
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Yeah.
Yeah.
Okay.
And presenters at this time I show no questions. Thank you Oh, we do have a question that just populate it Elvira scotto from RBC. Your line is now open.
Hey, good morning, everyone can you talk a little bit more about what youre seeing on B on the labor front and how you see that kind of developing over the next.
You know few quarters.
Yeah.
Hey, Elvira good morning, this is Charles.
So on the labor front at the retail stores, we just like everyone else. It's certainly been tight in terms of finding folks out there depending upon the market, we're seeing shortages and we've had to adjust rates in some cases, we've implemented temporary programs in other cases, it's been permanent.
<unk> and base rate.
So in terms of the outlook.
Obviously, there was the expectation that in September with the end of some of the enhanced unemployment benefits that things would improve somewhat and depending upon the market. We may have seen that but it's still overall, it's very tied out there and we expect it to continue for several quarters at least.
It's tough to say, how things necessarily get better, but it's definitely.
<unk> added two expense at the store level.
But so far we've been able to manage it fairly well I think.
Okay, and then can you provide a little more detail. When you were talking sort of about your I think the wholesale fuel margin you know the divergence between the margin and how historically that has trended versus changes in crude oil prices, but you know the pandemic appears to have changed that maybe.
Talk a little bit more about that and do you think that trend stays.
Yes, so I think I've been saying for a while now that I've been a little bit more hesitant to say, it's been a permanent change in how the market is but certainly if you listen to others out there in some of our competitors as well I mean, they know and they make valid points about breakeven margins for operators being <unk>.
Higher and certainly that's the case and what we've seen is also from operators in the past that I would say.
Put less emphasis on fuel margin in terms of their business and it was more of a <unk>.
Fuel was a draw to get people inside their store they seem to have.
Awakened to the fact that fuel margin is also important because of either increase in labor cost declines in certain parts of their store offering in terms of sales such that there seems to be overall a.
A bias towards higher fuel margins that continued in the market I mean, certainly if you look at what has happened this year with crude oil prices typically our margin would have been in the mid to low single digits and we've not been anywhere near that.
Whether that will continue once COVID-19 becomes.
More and more endemic I don't know, but certainly it has lasted much longer than I think we would have expected initially.
Great.
Thank you that's all for me.
Yes. Thank you.
Thank you. Our next question comes from that Bear most from Wells Fargo. Your line is now open.
Hey, good morning, Thanks for taking the questions on the last three stores from the 711 deal could you provide a rough timeline of when you expect to secure all of the remaining licenses and permits and complete the transaction.
Yes, so those three stores happen to be in the Philadelphia market and there are some peculiarities associated with Philadelphia in terms of getting those permits. So I don't have great visibility right now on when those sites will come over I will say in terms of both their purchase price and contribution to the overall portfolio theyre not material.
Substantially as I've said in my comments, we're substantially complete with the transaction with what we've acquired to date and we finish those acquisitions at the start of October so.
We're optimistic we'll get those three sites over but whether they come over or not anytime soon it's certainly not material to the overall impact of the acquisition.
Got it thanks for those Charles and then could you maybe talk about the level of activity in the M&A market just generally.
Then maybe your appetite to participate when leveraged metrics normalize over the next 12 to 24 months.
Yeah. So I'll address the second part of that question first so as mark touched on in her comments, obviously right now we're focused on from a capital perspective, bringing down our leverage and also to from operational perspective, integrating these assets and ensure that the acquisition that we've just completed performs the way that it should so that's our primary focus.
For the time being as you astutely pointed out I think that means that we're not going to be all that active in the market until we'll say mid to the latter half of that year next year in terms of looking.
From the market overall, so our deal notwithstanding we've seen.
Purchase price expectations from sellers in the market continued to be high and from our perspective. It has to be something special for us to want to do something at those elevated elevated levels, but again for the time being while we continue to look and monitor the market. It would have to be something that was really special our strategic.
For us in order to do something at this moment, while we're still processing what we've just finished from a 711 sites.
Thank you that's all I had.
Yes. Thank you.
Thank you as a reminder, if you'd like to ask a question. Please press Star then one on your Touchtone phone.
Well it doesn't look like there are any further questions in the queue again, we thank everyone for joining us today on the call and wish you well. Thanks.
Thank you ladies and gentlemen, this concludes today's conference.
Thank you for your participation you may now disconnect.
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