Crossamerica Partners LP (CAPL) 2013 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the second-quarter 2013 earnings conference call for Lehigh Gas Partners. At this time, all participants are in listen-only mode. Later in the call, we will conduct a question-and-answer session. Instructions will be given to you at that time on how you may participate.

This conference call may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, relating to the Partnership's future 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 second-quarter 2013 earnings news release. The news release may be viewed on the Lehigh Gas Partners' website at www.lehighgaspartners.com. All subsequent written 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.

In addition, certain non-GAAP financial measures will be discussed on this call. The Partnership has provided a description of these measures as well as a discussion of why they believe this information is useful to management in its Form 8-K furnished to the SEC yesterday. The Form 8-K may be accessed through the link on the Partnership's website at www.lehighgaspartners.com. In addition to accessing the Form 8-K on the Partnership's website, you can also sign up for LGP eBlast communications to keep you up to date on the activities on the Partnership, and be notified of the latest Partnership news.

As a reminder, this conference call is being recorded.

I will now turn the conference call over to the host, Joe Topper, the Chairman and CEO. Please proceed.

Thank you, and good morning. Welcome to Lehigh Gas Partners' second-quarter 2013 earnings call. Joining me on the call today are Mark Miller, CFO; and David Hrinak, President. The purpose of today's call is to review our second-quarter 2013 results. Once we have concluded our prepared remarks, we will open the session to questions.

I will first walk through a brief overview of our second-quarter results; comment on the two transactions that we recently announced; and review our announced distribution increase. Mark will then provide a more detailed review of the second quarter.

Net income for the second quarter 2013 totaled $5.5 million or $0.36 per common unit. For the quarter, EBITDA totaled $14.1 million; adjusted EBITDA totaled $14.9 million; and distributable cash flow amounted to $11.2 million or $0.75 per common unit.

The Partnership declared a second-quarter distribution of $0.4775 per unit, a 5.5% increase over the current quarterly distribution. Based upon our distributable cash flow of $0.75 per common unit, the coverage ratio on the declared second-quarter distribution is approximately 1.6 times. As Mark will touch on in his comments, we had a strong quarter from a fuel margin perspective, which helped drive our solid financial performance.

As we have stated on previous calls, our ability to grow our distributable cash flow and distributions will be driven by acquisitions. We are pleased to announce the two recent transactions. They are great transactions for us, allowing us to acquire quality assets in scale in a new market in Tennessee that we are excited about.

The larger transaction that we announced last week for the Rocky Top portfolio was for an aggregate consideration of $36.9 million. In the transaction, we acquired 30 fee sites; four leasehold properties, along with seven third-party supply contracts; and other assets associated with the sites. The Partnership will acquire certain sites at closing for a total consideration of $10.7 million. At closing, we will also enter into a lease for the remaining site, 29 in total; and then buy those properties on August 1, 2015, or later, for the remaining consideration of $26.2 million.

The lease component of the transaction was structured to enable the seller to avoid a prepayment penalty on debt currently on the property, while allowing us immediate use of the properties. So, effectively, through the lease structure, we have locked in the price today to purchase the assets in the future, while also securing the ability to use the properties immediately.

The transaction enhances the Partnership's geographic diversity and provides it access to a new market region. The 34 sites are located in and around the Knoxville, Tennessee, region and along Interstates Highway 40 and 75. In aggregate, the included -- the two third-party supply contracts, the total portfolio has sold 34.1 million gallons of motor fuel in 2012.

31 of the 34 sites are Shell branded. We expect the transaction to close during the third quarter. We intend to use the funds available under our corporate credit facility to fund the transaction.

The second transaction that we announced on Wednesday was for a portfolio of 17 assets in the Tri-City, Tennessee, area for $21.1 million. We acquired these assets from Rogers Petroleum and affiliates, and they consist of 14 fee and three leasehold sites. The sites are located in eastern Tennessee with a concentration in the Tri-Cities region and along Interstate 81.

The portfolio geography is highly complementary with the Rocky Top assets. And, together, the Rocky Top and Rogers assets provide us a large platform in the region and give us immediate scale. The Rogers sites in aggregate had fuel volumes of 18.7 million in 2012.

We also expect this transaction to close during the third quarter of 2013, and we will fund it from the proceeds available under our corporate credit facility. Concurrent with the funding of both of these transactions, we entered into a long-term supply and rental agreement with Lehigh Gas-Ohio, whereby the Partnership will lease the sites to Lehigh Gas-Ohio and supply fuel to the sites for 15 years.

In separate agreements with the sellers, Lehigh Gas-Ohio also agreed to purchase a fuel and merchandise inventory and certain other assets at the sites associated with the rental operations.

In summary, these two great transactions are complementary to each other and provide us immediate scale in a new market region. We are excited about these deals and hope that they will lead to further opportunities to expand the portfolio.

We will work diligently to close on the transactions and integrate them into the Partnership. The aggregate consideration for these two acquisitions is approximately $58 million, which when combined with our year-end Dunmore and Express Lane acquisitions of $74.4 million, puts us at a total announced acquisitions since our IPO of $132.4 million. We are pleased at the success we have had in the acquisition market, and we will continue to work hard to execute on quality transactions that are accretive to our unitholders.

As part of that commitment to our unitholders, we are pleased to announce a 5.5% increase in our quarterly distribution. The 5.5% increase represents a $0.025 increase per unit in our quarterly distribution. The increase raises the distribution to $0.4775 per unit on a quarterly basis, or $1.91 per unit on an annual basis.

Based on the Partnership's closing price, as of August 6, of $26.87, the $1.91 per unit annual distribution represents 7.1% distribution rate on the common units. The distribution increase is our second consecutive quarterly distribution increase. Given that we have only been a public partnership for two full quarters, we think that is an impressive track record.

Since our IPO, our annual distribution rate has increased by 9.1% or $0.16 per unit from our initial annual distribution rate of $1.75 per unit. Our Board of Directors will review our distribution policy quarterly; and, as noted last quarter, we will announce our quarterly distribution concurrent with our earnings release.

I will now turn it over to Mark for a more detailed review of the financial results of the quarter.

Thank you, Joe. For the second quarter of 2013 -- represented the Partnership's second 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 June 30, 2012, in our earnings press release.

The Partnership completed its initial public offering in October 30, 2012. And as such, management believes the pro forma results for June 30, 2012, provide investors with a more relevant comparison than the actual results of our predecessor for the period ending June 30, 2012.

For the second-quarter 2012 on a pro forma basis, the Partnership distributed 154 million gallons at an average selling price of $3.09 per gallon, and a $0.069 average margin per gallon. Gross profit from motor fuel sales for the second quarter of 2012 on a pro forma basis totaled $10.7 million.

Relative to the pro forma results for the second quarter of 2012, our fuel margin increased 4.4%, and our gross profit from motor fuel sales increased 12% for the second-quarter 2013. The increase in gross profit from motor fuel sales is driven by both the higher volume and margin for the quarter, relative to the previous year.

Net rental income less than expense for the quarter totaled $6.4 million. On a pro forma basis, the Partnership recorded $3 million in net rental income in the second-quarter 2012. The increase in net rental income for the second-quarter 2013 relative to 2012 is primarily due to the increased rent associated with the Express Lane and Dunmore acquisitions completed at the end of last year; and, to a lesser extent, the Getty leases signed during the second quarter and at the end of last year.

On the expense side, operating expenses for the second quarter of 2013 totaled $1.1 million. And selling, general, and administrative expenses totaled $3.8 million. For the second quarter of 2012, operating expenses totaled approximate $600,000. And selling, general, and administrative expenses totaled $2.5 million.

The increase in selling, general, and administrative expenses in the second-quarter 2013 relative to 2012 is primarily due to increased professional fees, equity compensation expense, and public company expenses. The increase in operating expenses in the second-quarter 2013 relative to last year is due to a large number of sites in the portfolio during the second quarter as compared to a year ago.

Overall, we had another strong quarter. From a margin perspective, we were able to achieve stronger results. While the strong margin did serve to lower motor fuel volumes somewhat, we were comfortable with the trade-off, and we're pleased at the growth in our motor fuels gross profit margin.

Our acquisitions from last year continue to perform for us and add to our financial results. We look forward to speaking with you at the end of next quarter when we can update you on the status of our two recently announced acquisitions.

On the financing side, as we discussed in our last quarter's call, we increased the size of our credit facility during the quarter by $75 million to $324 million. In addition to the increase in the credit facility size, the credit facility was also amended to modify certain terms of the credit agreement to allow for greater leverage and flexibility in regards to the acquisitions.

We also have the ability to expand the credit facility further by an additional $100 million, to $424 million, subject to certain terms and conditions and approval of our lenders.

As of June 30, 2013, under the Partnership's credit facility, we had $184.9 million of outstanding borrowings, and $124.5 million available for borrowing, net of outstanding borrowings and letters of credit. We were pleased to get the credit facility extension and the amendment completed during the quarter. The increased capacity and flexibility has already benefited us, as evidenced by our two recently announced transactions.

At this time, I will turn the call back over to Joe.

I want to thank everyone for joining the call today, and we appreciate your interest in the Partnership. With that, I would like to open up the line for questions.

(Operator Instructions). Ben Brownlow, Raymond James.

Hey, good morning. Congratulations on the acquisitions in the quarter.

Thank you very much, Ben.

Just trying to get a sense of the EBITDA contribution from the -- I guess EBITDA from last year, or going forward, on that two acquisitions. Can you give a little detail on how the fuel margin is comparable to your existing fuel margins, and the rental income that you expect?

Ben, we didn't disclose it in the press release. At this point, that's competitive information right now. And what we -- it's a very active market out there. And we're not going to disclose that, because we end up either bidding against ourselves from prior releases, or with other competitors now that have that information and have our metrics. I would tell you that they are within the guidelines of what we have acquired in the past, and we hold true to those guidelines going forward.

Are there any upfront CapEx requirements, or are you pretty happy with the asset quality?

No, these assets are very good, outstanding assets. Most have been rebuilt within the last 5 to 7 years. They are in very good shape.

Okay. And from another perspective, on the acquisition environment, what sort of range and multiples are you seeing out there for wholesale supply contracts and both fee-based acquisitions? And has that changed materially from the last year or so?

How do I want to answer that? There is still an attractive group of acquisitions that are available in the multiples that we would like to buy. There are some transactions that are going higher than we think, and there are some transactions that are going lower for different reasons. I guess at this point, we're probably looking at somewhere between five and eight different transactions that are in the multiple of -- that are attractive to us. There are some things that are going at a higher multiple, but they are not as attractive to us.

Okay. And just one last one for me. On the fuel margin, were there any RIN credits embedded in that?

There's two things going on with the RIN credits. Some of the markets that we are in, the RIN credits are actually showing up in the rack pricing. In some of the markets that we're in, the RIN credits are showing up as rebates off of the rack. So, yes, there are RIN credits, both direct and indirect in those numbers.

Okay, great. Thank you.

Ethan Bellamy, R. W. Baird.

Morning, everybody. Congrats on a solid quarter. What kind of annual acquisition value are you targeting now, Joe? And then a follow-up to that, do you have the human capital in place to fully integrate these acquisitions? Or do you need to build out the team to manage this success you're having in the roll out?

Thanks, Ethan, for the compliment on the quarter, and I'll try to get the other two as good answers. I don't have a goal to acquire a dollar amount of assets in a year. I would tell you that I am very comfortable saying that -- I think when we went public, we talked about a range of $50 million to $75 million a year in acquisitions.

I think the market of attractive assets would probably push that target up to a higher range of $150 million of potential acquisitions for the next couple of years -- somewhere in the $50 million to $150 million, depending on whether they meet our criteria.

On the other side, evidenced by this quarter was that we integrated the last two acquisitions seamlessly, and they were accretive to the Partnership. We are scaling up, and have plans that put us in place to double the size of the Company within the next 2 to 3 years. So, yes, we need additional human capital. But that's part of our plan, and we are in the process of acquiring it.

Thank you, that's helpful. And then just one more. Who are you out there competing with in the acquisition market right now? It seems like you still have a fairly first-mover advantage in terms of being public and being out there hunting with the public currency.

I'd break it into three categories. 7-Eleven, Questar, obviously the lead in the marketplace for what they want to buy. Then of the large jobber market, we would obviously be the -- have the leading edge, based upon our capital structure to do it. But there are other competitors out there that are trying to grow, knowing that they need to grow in this environment. And a lot of those think they want to follow where we went. And they think that this was an attractive outcome for us, and other competitors want to get there. But I think we have still a year, 1.5 year advantage on any next competitors.

All right. How do volumes look so far this quarter? I'm sorry if I missed it. I joined late.

The second quarter? Second-quarter volumes, store-over-store, were down slightly for a couple of reasons. One was we were repositioning some of the Getty assets from -- when we acquired the Getty leases last year, we had the right to give back assets. And as we have gone through and done a better analysis of it, we are giving some of those assets back.

Some of it is because we converted some of the stations from commission to dealer. And there's some pricing issues that occur from when a dealer starts having to price his own products, which we envision to work through that. There were some difficulty with the volumes in the Northeast, some of it in the Utica Shale area, where they were -- they Marcellus Shale, where they have cut back on the drilling up there. That affected the volume. So we are a little bit lower volume, but we made it up in margin, which is -- we made more money.

Got it. And calendar 3Q so far?

Calendar Q3 volumes are -- I don't see anything wrong in those numbers. And I don't see anything wrong in the margin numbers.

Excellent. Thank you very much.

I will give you a heads-up. The fourth quarter, when Sandy hit and the price of fuel dropped by a lot of money last fourth quarter -- I think we did like $0.098 a gallon. I'm not sure we're going to be meeting that this year. But I'm confident of the full-year number.

Excellent. Thank you.

Suzanne Hannigan, Janney.

My question has actually been asked and answered. But congratulations, guys.

Thank you very much. I'm glad you liked the answers, Suzanne.

Thank you. We have no questions at this time. So now I'd like to hand the call back over to Joe Topper for closing remarks.

Thank you very much. Thank you for the good questions. Appreciate your interest, and we will continue to work hard to represent the unitholders in increasing the dividend going forward. Thank you very much.

Thank you, ladies and gentlemen. That concludes your call. You may now disconnect. Have a good day.