Crossamerica Partners LP (CAPL) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the fourth-quarter 2013 earnings conference call for Lehigh Gas Partners. (Operator Instructions). This conference may contain forward-looking statements relating to the Partnership's future business expectations and predictions and financial condition and results of operation. 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 fourth-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 a 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's [e-blast] communications to keep you up to date on the activities of the Partnership and be notified of the latest Partnership news. As a reminder, this conference is being recorded. I would now like to turn the conference call over to your host, Joe Topper, the Chairman and CEO.

Thank you and good morning. Welcome to Lehigh Gas Partners' fourth-quarter 2013 earnings call. Joining me on the call today are Mark Miller, Chief Financial Officer and Dave Hrinak, President. I will provide a brief overview of our fourth-quarter results, as well as some initial commentary followed by a review of our fourth consecutive quarterly distribution increase and then briefly touch on the Manchester acquisition that we completed during the quarter and finally review our recent financing activity. Mark will then provide a more detailed review of the fourth quarter. Once we have conducted our prepared remarks, we will open the session for your questions.

Net income for the fourth quarter of 2013 totaled $3.9 million or $0.25 per basic common unit. For the quarter, EBITDA totaled $12.3 million, adjusted EBITDA totaled $13.2 million and distributable cash flow amounted to $9 million or $0.57 per basic common unit. Our wholesale gross margin for the quarter was $0.063 cents per gallon. As we have discussed on previous calls, our fuel margins will vary generally within a range and tend to be negatively affected by rising gasoline fuel prices. The general trend during the year of declining fuel prices in our market was reversed during the fourth quarter with the latter half of the fourth quarter having generally rising retail gas prices.

From a demand perspective, we also were more affected by the weather in the fourth and first quarters. When winter storms hit our markets, we typically see a slight uptick in retail volume in advance of the storms and then obviously volumes are down during the periods of the weather winter as people stay off the roads. Winter weather events tend to be demand-destructive from a motor fuel consumption perspective as people generally don't make up miles they did not drive during the winter weather event. Based upon National Climatic Data Center data, there were two winter weather events in the Northeast in December with a significant or notable societal impact -- the winter storm from December 13 through the 16th and the winter storm from December 30 through January 3. These storms ranked 40th and 43rd on a list of historical storms. The highest impact on the Northeast urban corridor according to data from the National Climatic Data Center.

Our sensitivity to winter weather is mitigated by our increasing geographic diversity and also by our rental income, which is a stable, recurring revenues stream that is not affected by temporary weather events. We recorded $6.9 million in net rental income for the quarter, approximately 40% of our total gross profit for the quarter.

The Partnership declared a fourth-quarter distribution of $0.5125 per unit, a 2% increase over the current quarterly distribution. Based upon our distributable cash flow of $0.57 per basic common unit, the covered ratio for the declared fourth-quarter distribution is approximately 1.1 times. When we review our distribution policy and coverage, we look at the distribution in the context of an entire year, which tends to mitigate the impact of fuel gross margin swings on a quarterly basis.

Our gross margin this quarter was lower, which negatively impacted our coverage ratio. In the context of an entire cycle, we believe a coverage ratio of approximately 1.2 times is an appropriate level for the Partnership. Our intent with our distribution policy is to first generate a sustainable level of distributions and second grow these distributions in a durable manner over time. With that philosophy in mind, we believe a $0.01 distribution increase is an appropriate level for the current market conditions.

In total, the annual cash distribution per unit increased 17.1% or $0.30 per unit during the past year from an annual distribution rate of $1.75 per unit as of December 31, 2012. As a reference point for this number, the weighted average annual distribution growth for the Alerian MLP index of 2013 was 7.3%. Distributing cash back to our unitholders and growing the distribution in a prudent manner is our goal here at Lehigh. Our results for this past year are indicative of the focus and execution we've put in to achieving that goal.

Moving onto acquisitions, as previously announced, we closed the acquisition of certain assets of Manchester Marketing on December 19, 2013. The total consideration net of working capital and other adjustments was $10.7 million in cash. The acquisition consisted of 44 independent dealer supply contracts, five subjobber supply contracts and certain other assets. The acquired supply contracts primarily for branded motor fuels and the weighted average remaining terms of the supply contracts is approximately nine years. We are excited to enter a new market for us in the Richmond, Virginia area. The transaction provides us immediate scale in the region and a base upon which to add additional assets in the future. As always, we continue to be on the lookout for attractive acquisitions and are constantly evaluating potential opportunities.

On the financing front, we are pleased to complete during the quarter our first follow-on equity offering. 3.565 million unit offering generated net proceeds of approximately $91.4 million, which the Partnership used to repay debt outstanding under its credit facility and for general [partnershipping] purposes. We were gratified at the reception of the transaction by the market and it accomplished a number of important objectives for us. The capital base allowed us to reduce our leverage and replenish our acquisition capacity for 2014. Also, as a result of the transaction, we broadened our institutional relationships, increased the number of retail distribution systems in which our common units are held and expect to expand the analyst research coverage for the Partnership.

At the same time we completed the equity offering, we began the process of replacing our existing credit facility, which we completed earlier this week. Our new facility increases the capital available by approximately $126 million and enhances our ability to do acquisitions. Mark will provide additional details on the facility in his remarks. With the completion of these two financings, we are well-positioned to execute additional acquisitions in 2014 and beyond. I will now turn it over to Mark for a more detailed review of the financial results of the quarter.

Thank you, Joe. The fourth quarter 2013 was our first full quarter since our IPO on October 30, 2012. Therefore, in addition to the actual results in the quarter, our earnings release provides certain pro forma results for the periods ending December 31, 2012. We believe these pro forma results offer investors a more relevant comparison. During the fourth quarter 2013, we distributed on a wholesale basis 167 million gallons of motor fuels. That resulted in an average selling price of $2.79 per gallon and a $0.063 average wholesale margin per gallon. Wholesale gross profit from motor fuel sales totaled $10.5 million for the quarter.

In our retail segment, which represents our [commission aging class of trade], we distributed 15.3 million gallons resulting in an average selling price of $3.33 per gallon and a $0.026 average retail margin per gallon. Retail gross profit from fuel sales was $397,000 for the quarter. Because we wholesale distribute to our retail segment, our aggregate total motor fuel distributed for the quarter is 167 million gallons, not 167 million wholesale gallons, plus 15 million retail gallons.

The fourth quarter 2012 on a pro forma basis, the Partnership wholesale distributed 153.1 million gallons at an average selling price of approximately $3 per gallon and a $0.093 average margin per gallon. Gross profit from fuel sales for the fourth quarter 2012 on a pro forma basis totaled $14.2 million. There is no retail segment in the fourth quarter 2012. Relative to the pro forma results for the fourth quarter 2012, our wholesale fuel volume increased by 9% and our wholesale gross profit from fuel sales decreased 26% for the fourth quarter 2013.

As we have commented at the same time in 2012, the wholesale gross profit margin in the fourth quarter of 2012 was unusually high, which drove the gross profit margin decrease for the 2013 on a comparative basis. On a more normalized basis, our wholesale fuel gross profit margin would have increased year over year. The quarter's net rental income, which is rental income less rent expense, totaled $6.9 million. On a pro forma basis, the Partnership recorded $4.1 million in net rental income in the fourth quarter 2012. The increase in 2013 compared to 2012 is mainly due to the increase in net rent associated with this past year's acquisitions. Our net rental income for the fourth quarter 2013 represented approximately 40% of our total gross profit margin for the quarter.

On the expense side, operating expenses for the fourth quarter 2013 totaled $1.4 million and SG&A expenses totaled $4.6 million. SG&A expenses for the quarter included approximately $300,000 of expenses for completed acquisitions. For the quarter, the Partnership recorded a net income tax benefit of $1.7 million. The benefit involved approximately $1.9 million in non-cash items, including a $1.2 million tax benefit related to the release of our valuation allowance on the previous recorded deferred tax asset.

Excluding these non-cash items, the Partnership would have recorded a net income tax expense for the quarter of approximately $200,000. In calculating our DCF, we only include the current income tax expense of the Partnership, which excludes the impact of any non-cash charges or benefits. Details of this calculation are included in our press release.

For the quarter ended December 31, 2012, the pro forma operating expenses totaled $800,000 and SG&A expenses totaled $10.3 million. The increase in operating expenses for the fourth quarter 2013 relative to 2012 was due to an increase in owned and leased sites relative to the previous year. The decrease in SG&A expenses in the fourth quarter 2013 relative to 2012 is due to certain IPO expenses that were included in the fourth quarter of 2012. These IPO expenses were offset by increases (technical difficulties). As Joe noted, rising motor fuel prices tend to depress our motor fuel margins. On a sequential basis, our wholesale fuel margin went (technical difficulties) for continued growth in 2014. The equity offering reduced our leverage by allowing us to pay down borrowings we had used to finance our acquisitions during the past year.

Our general financing strategy is to use our revolver to finance acquisitions [we close on them] and then issue equity at an appropriate point later in time to pay down the revolver to free up our capacity for more acquisitions. We generally target a 50/50 mix of debt to equity on a long-term basis to finance our acquisitions. So over time, we will increase permanently our overall revolver utilization as we close on acquisitions.

As such, our recently completed credit facility provides us the needed capacity to grow over the long term. It increases our borrowing capacity by $126 million and extends the term of the facility to five years. In addition, it provides us additional flexibility both in structuring and financing additional growth. We were very pleased by the strong response we had syndicating the facility and we have added several new quality institutions as capital providers to the Partnership. As of December 31, 2013, the Partnership had $146.3 million of outstanding borrowings under the previous credit facility. Pro forma for the new facility, the Partnership had $291.4 million available for borrowing net of outstanding borrowings and letters of credit.

On the acquisition side, the acquisition of the Manchester assets that Joe referenced was financed through our credit facility. The net purchase price of the assets was $10.7 million after certain working capital and other adjustments.

Turning to the balance sheet, you will see that the impact of the Manchester acquisition primarily in the increase in the intangible assets relative to the third quarter. The bulk of the acquired assets consisted of motor fuel distribution contracts. The other significant changes involved a reduction in long-term debt and the increase in partner's capital relative to the third quarter as a result of the equity offering. At this time, I'll turn the call back over to Joe.

Thank you, Mark. That concludes our prepared remarks. Operator, I would like to open up the line for questions.

(Operator Instructions). Ben Brownlow, Raymond James.

Good morning. Thanks for taking the question. On the retail fuel margins, that $0.0266 per gallon, that obviously just reflects the gross profit dollar markup above what was already made on the wholesale margin.

That is correct. On the commission class of trade you are talking about?

Yes and can you just remind us how -- obviously, to no surprise, those margins are going to be volatile on a quarter-to-quarter basis, but can you just remind us again kind of the annual range or historical annual range that you have seen in those margins?

Yes, thanks, Ben. Historically, we have been talking about this for this year. Historically, we have been averaging around $0.066, $0.067 per gallon on a historical average. Historically, the range has been somewhere around 5.3 to 9, 9.5. So we had a much larger range of variance than we've had this year. And as I've talked about earlier, with our geographic diversity, we have seen a narrowing of that range of dispersions. So I would expect that the range would narrow from a 5.5 to 5.7 to upwards of close to 8. So that we will still have some volatility, but we will not have as wide a volatility as we have had in the past.

Okay, and that is on the retail, the commission side?

No, that is on the wholesale side. On the retail side -- that volatility on the retail side could be $0.02 to $0.10.

Okay, great. And that is the annual kind of range, $0.02 to $0.10?

On annual basis, I would envision it to be around $0.05.

Okay, great, that is extremely helpful.

And that $0.05 is net of credit cards and other expenses that occur.

Great. Extremely helpful. And then just one last one for me, on the implied average gallon per independent dealer side, kind of backing into it, it seems like that average gallon per third party or independent side is notably higher year over year. Is that from exiting lower volume sites in the first half of 2013? And then just how should we think about the Virginia acquisition with those 44 sites on a volume basis relative to the existing chain?

The Virginia sites I think were a little bit above average. I don't know the exact number; I'm going to say were about $800,000. I would say the year-over-year increase in the sites is because we were buying better performing assets and we were shedding lower performing assets. So our mix was getting better.

Great, thanks and best of luck.

Thank you.

And we have no further questions at this moment.

Thank you all for listening. I appreciate your time in investing in Lehigh Gas. We look forward to continuing to produce good numbers for you. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.