Crossamerica Partners LP (CAPL) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Q1 2013 Lehigh Gas Partners L.P. earnings conference call. My name is Sandra, and I will be your operator today. At this time, all participants are on a listen-only line. (Operator instructions). As a reminder, this call is being recorded for replay purposes. And now I'd like to hand the call over to Mark Miller, Chief Financial Officer.

Welcome to the first-quarter 2013 earnings conference call for Lehigh Gas Partners. At this time, all participants are in a listen-only mode. Late in the call, we will conduct a question-and-answer session. Instructions will be given to you at that time for how you may participate. This conference call may contain forward-looking statements within the meaning of the Section 21-E for the Securities Exchange Act of 1934, as amended relating to the Partnership's business expectations and predictions and financial conditions and results of operations. These forward-looking statements involve certain risks and uncertainties.

The Partnership has listed some of the important factors that may cause actual results to differ materially from those discussed in such forward-looking statements, which are referred to as cautionary statements in its first-quarter 2013 earnings news release, which was issued Monday. The news release may be viewed on the Lehigh Gas Partners website at www.lehighgaspartners.com. All subsequent listings and oral forward-looking statements attributable to the Partnership or persons acting on its behalf are expressly qualified in their entirety by such cautionary statements. As a reminder, this conference call is being recorded. I will now turn the conference call over to the host, Mark Miller, Chief Financial Officer of the Partnership. Please proceed.

Thank you, and good morning. Welcome to Lehigh Gas Partners' first-quarter 2013 earnings call. Joining me on the call today are Job Topper, CEO and Chairman of the Board; and David Hrinak, President. The purpose of today's call is to view our first-quarter 2013 results. Once we have concluded our prepared remarks, we will open the session to questions. Before getting started, I would like to re-emphasize what the operator just explained about forward-looking statements. Any forward-looking statements are based upon our current views and assumptions regarding future events, and operating performance are inherent subject -- inherently subject to risk and we encourage you to review our SEC filings, specifically our Form 10-K for a detailed review of the risks, uncertainties, and other factors that could cause actual results to differ materially from any forward-looking statements. In addition, certain non-GAAP financial measures will be discussed on this call. We have provided a description of these measures as well as a discussion of why we believe this information is useful for management in our Form 8-K, furnished to the SEC yesterday. Our Form 8-K may be accessed through a link on our website at www.lehighgaspartners.com. Finally, I would encourage all of you to sign up for LGP's e-communication via the partnership's website to keep up to date on activities of the partnership.

The first quarter of 2013 represented the Partnership's first full quarter as a public partnership. In addition to the actual financial results for the quarter, the Partnership is providing certain pro forma results for the period ending March 31, 2012. The Partnership completed its initial public offering in October 30, 2012, and as such, management believes the pro forma results for March 31, 2012, provide investors with a more relevant comparison of the natural results of our predecessor for the period ending March 31, 2012.

Net income for the first quarter of 2013 totaled $3.8 million, or $0.25 per common unit. For the quarter, EBITDA totaled $12.4 million, adjusted EBITDA totaled $12.6 million, and distributable cash flow amounted to $9.3 million, or $0.16 per common unit. The partnership declared a first-quarter distribution of $45.25 cents per unit, a 3.4% increase over the current quarterly distribution. Based on our distributed cash flow, $0.62 per common unit, the coverage ratio on the declared first-quarter distribution is 1.4 times. During the first quarter, we distributed 149.7 million gallons of fuel, resulting in a $3.81 average selling price per gallon and a $6.9 cents average margin per gallon. Gross profit from fuel sales for the quarter totaled $10.3 million. For the first quarter of 2012, the Partnership distributed 132.8 million gallons on an average selling price of $3.17 per gallon, and a $5.5 cents average margin per gallon. Gross profit from fuel sales for the first quarter of 2012 totaled $7.2 million.

Relative to the pro forma results for the first quarter of 2012, our fuel volume increased 12.7% and our gross profit for fuel sales increased 41.7% for the first quarter of 2013. The increase in gross profits in fuel sales was driven by higher volume and margin for the quarter relative to the previous year. Net rental income -- rental income, less for any expenses, for the quarter totaled $6.4 million. On a pro forma basis, the Partnership recorded $3.5 million in net rental income in the first quarter of 2012. The increase in net rental income for the first quarter of 2013, relative to 2012, was primarily due to the increased rent associated with the Getty leases in the express lane and Dunmore acquisition completed last year.

On the expense side, operating expenses for the first quarter of 2013 totaled $800,000; and selling, general, and administrative expenses totaled $3.9 million. For the first of quarter 2012, operating expenses totaled $700,000; and selling, general, and administrative expenses totaled $2.5 million. Increase in selling, general, and administrative expenses in the first quarter of 2013, relative to 2012, is primarily due to the increased professional fees, taxes, and public company expenses. Overall, we are pleased with the financial results for the quarter. While fuel margins normalized relative to the results from the fourth quarter of 2012, the added fuel volume and rental income from our acquisitions added positively to our EBITDA and distributed cash flow. At this point, I would like to introduce Joe Topper, Chairman and CEO of Lehigh Gas Partners, to review the distribution increase and to provide an update on our acquisition and leasing activities. Joe.

Thanks, Mark. Thanks, everyone, for joining us this morning on Lehigh Gas Partners' earnings conference call. As Mark noted, the Partnership announced yesterday a 3.4% increase in its quarterly cash distribution. The 3.4% increase represents an increase of $0.015 per unit and raises the quarterly distribution from $43.75 cents per unit to $45.25 cents per unit. We are extremely pleased to be able to announce a distribution increase in our first full quarter as a public partnership. We are committed to growing our distributable cash flow and distributions, and this increase is a sign of that commitment. As a policy note, we intend to announce our quarterly distribution going forward, concurrently with our earnings release. Our ability to grow our distributable cash flow and distribution will be driven by successful acquisitions. Last quarter, we reported two large acquisitions, Express Lane and Dunmore, and we work hard to integrate these acquisitions this quarter; and it's clear that they've made a meaningful impact on our financial results. We continue to evaluate additional acquisition opportunities.

As Mark will discuss in more detail after the quarter end, we were able to expand and modify our credit facility to provide us with additional capital and flexibility to pursue acquisitions. In short, we continue to be well positioned to pursue acquisition opportunities. Our current pipeline is active and our commitment to you is that we will continue to work hard and to be disciplined in our pursuit of acquisitions.

On the leasing side, I wanted to highlight one transaction for you. During the quarter, we leased 19 sites in the Cleveland market to 7-Eleven. These sites have previously been leased to Lehigh Gas Ohio. 7-Eleven will rebrand these locations as 7-Eleven and manage the convenience store. The Partnership will continue to supply fuel to these sites. We were pleased to be able to lease these sites to such a great tenant at 7-Eleven. We continuously evaluate our portfolio for opportunities such as this to diversify our tenant base and to add great, high-quality tenants.

In summary, it was a great quarter overall and we are particularly pleased to announce the distribution increase and to return more cash to our unit holders. I will now turn it back to Mark -- over to Mark Miller, our CFO, to provide an update on our capital structure.

Thank you, Joe. As Joe touched on in his comments, the Partnership announced yesterday that it had increased the size of the credit facility by $75 million to $324 million. In addition to the increase in the facility size, the facility also amended to modify certain terms of the agreement to allow for greater leverage and flexibility in regards to acquisitions. A more detailed description of the credit facility amendment may be found on Form 8-K filed yesterday with the Securities and Exchange Commission. As of March 31, 2013, under the Partnership's credit facilities, we had $183.8 million of outstanding borrowings and $125.7 million available for borrowing, net of outstanding borrowings, and letters of credit (inaudible) giving effect to the increase in the facility size. We are very pleased to complete the facility increase and amendment. With the facility's expansion and modification, we have ample capacity and flexibility to complete acquisitions. That concludes our prepared remarks. We want to thank all of you for listening in on our call today. Operator, we would now like to open the line for questions. Thank you.

I would like to just inform everybody that Lehigh Gas Partners will be presenting at the NAPTP conference in Connecticut on Wednesday, May 22, at 3.30. We are looking forward to seeing our existing investors, as well as meeting any prospective investors at the conference. Thank you.

Operator, we are now prepared to take questions.

(Operator Instructions) Ben Brownlow, Raymond James.

Congratulations on another good quarter.

Thank you very much.

On the SG&A side, that with a little bit higher than I modeled. Can you just give a little color on the higher rate there? And for modeling, any insight into the run rate going forward?

Sure. We incurred probably some additional professional fees in the first quarter more than we anticipated, and a lot of them had to do with year-end activities. On a go-forward basis, we do expect that our professional fees will decline in the forward quarters.

Okay. And then on the net rental income, the variance between the fourth quarter and the first quarter, I assume, was probably partially the Florida acquisition? Is that rental income for the first quarter the net rental income a fair run rate going forward?

Yes. That would be correct. In the fourth quarter of last year, we've only had 10 days worth of rental income recorded, approximately. I'm sorry. It would probably be more like seven days of rental income recorded as it related to Dunmore and Express Lane; whereas in the first quarter of this year, we would have had a full three months worth of rental income for both Dunmore and Express Lane.

Great. Thank you, and congrats, again.

Ty Brookman, Park West.

What coverage ratio do you guys want to have? It seems like the coverage ratio that you have right now is way too high and you don't get paid for it.

Ty, I think when we went out and when we talked, we said that we were going to target to get to a 1.2, but that the acquisitions would probably raise it up to a 1.5 and that we would bring it down over time. So, at this point, it is high, but it gives us a lot of opportunity to raise it in the future. But it also gives us time to get more comfortable with the integration of the acquisitions that we've done.

When do you think you guys will try to get down to that 1.2?

In the relatively near future, but our policy is more of a consistent growth in the dividend rather than a lump step.

But do you think you guys will get there by the end of the year?

We could.

I think your cost of equity would benefit a lot by doing that. Given that you are a Company who is supposed to grow through acquisition, it seems like that is prudent.

I think increasing the dividend in a prudent manner will lower our cost of equity. I agree with you.

Okay. And I guess, one last question. Do you guys intend to raise the dividend every quarter instead of increasing the dividend when you do accretive acquisitions?

I think our policy would be to be more consistent on a quarterly basis rather than when we do acquisitions.

Does that mean that you intend to raise it every quarter or just -- I'm not sure how to interpret that.

We are not going to be in the business of doing forward statements, but I would tell you, we've said a number of times we like consistent increases to the dividend.

Okay. Hopefully, we will see that 120 covered ratio sooner rather than later.

Hopefully, we'll be able to increase our earnings faster than we can increase our dividend.

Okay.

Matt Marblack, Hite.

Congratulations on the great quarter. Just a couple quick questions. Given the visibility in the run rate that you have between the acquisition pipeline actually that you have recently done, the coverage ratio -- what range of distribution growth would you expect over the next year or two?

I think the 1.5 that we increased was a 13.5% increase on an annual basis. And I would say that between 12% and 18% would be a reasonable expectation for growth in the dividend.

Okay. And is that something, given what you know in the acquisition market, do you think is sustainable at those levels for multiple years, or is this just going to be -- would we expect that this is just going to be an outstanding year?

I think it's sustainable for a long period of time. It was sustainable from when I started with one gas station, so I don't think anything has really changed in the industry. The pipeline is robust and it keeps getting added as far as opportunities to grow. And so if we have capital to spend, I think there will be a very rational use for it for a number of years to come.

Great. And then, last question. You have this fantastic story that seems to be undercovered, underappreciated, and we've enjoyed being a part of that. But are you also undergoing efforts to get broader analyst coverage in any way to expand the awareness of this story? I think that would be a real benefit.

I think that's one of the reasons we are presenting next week at the NAPTP; and, yes, we are trying to increase our coverage in the industry. We are a relatively young company in the public market, but we don't have -- everything we can to broaden our exposure.

Great. Well, we greatly appreciate opportunity to be a part of the story and look forward to continuing to do so. Thank you.

Thank you.

Michael Gadon, Robert W. Baird.

If I complete asked about the revolver and availability under the revolver. Could I please ask, given your view on the acquisition pipeline and this additional availability, are those two well matched -- i.e., does this revolver availability give you the gunpowder that you need to go out there and successfully ink any acquisitions that you are contemplating in the near term?

Absolutely, it does.

Great. And relative to flexing that revolver by another $100 million, could you characterize the additional hurdles that you might have to jump through to get that additional $100 million of availability?

Well, we've closed on it yesterday, so that is available today.

Okay. Very good. And then can I lastly ask an operational question? Could you provide any color on the CNG build out and any very early reads on how that's going?

Let me clarify. We closed on the first $75 million. The second $100 million of (inaudible), we have not closed on.

Okay.

But that is subject to us growing the earnings to make it available. So we will not be needing that for a period of quarters, I would guess.

Okay. Thanks a lot.

And then my follow-up question about the CNG business. Any color there?

Yes. Good. We just opened up our fifth location. We are doing -- I think Clean Energy announced that they are doing six PECO stations in Philadelphia. We are a partner in that with them also. We are starting to see some volume at those sites, not that much. I think it's going to be a slow path to get there, but we think with Clean Energy and a couple of the other partners, we will build an infrastructure that will have people come to it.

Great. Thanks, Mark.

Thank you. We have no more questions at the moment. (Operator Instructions)

Thank you all for your time. I appreciate your interest and look forward to many more good quarters in the future. Thank you very much.

Thank you for your participation today. Ladies and gentlemen, that concludes your presentation. You may now disconnect. Thank you.