Crossamerica Partners LP (CAPL) 2016 Q4 法說會逐字稿

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Operator: Welcome to the CrossAmerica partners fourth quarter year end 2016 earnings. My name is John ask I'll be your operator. All participants are in listen-only mode. Later we'll conduct a question-and-answer session. Please note this conference is being recorded. And now I'll turn the call over to Randy palmer executive director of investor relations. Mr. Palmer, you may begin.

Thank you, operator. Good morning and thank you for joining the CrossAmerica Partners fourth quarter 2016 earnings call. With me today are Kim lubel, Chairman; Jeremy Bergeron, President; Clay Killinger, Chief Financial Officer; Steven Stellato, Chief Accounting Officer and other members of our executive leadership team. Jeremy will provide a brief overview of CrossAmerica's operational performance and an update on current strategic initiatives and then we will turn the call over to Steve to 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 CrossAmerica website. Before we begin I would like to remind everyone that today's 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 believes and projections will be achieved or that actual results will not differ from expectations. Please see CrossAmerica's filings with the Securities and Exchange Commission including annual reports on Form 10 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 CrossAmerica's 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 you US Generally Accepted Accounting Principles Or GAAP. We've provided schedules to 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 CrossAmerica website for a period of 60 days. And with That I will now turn the call over to Jeremy Bergeron.

Thank you, Randy. Yesterday afternoon we reported a fourth quarter which Steve will go through detail in a few minutes.But first I wanted to review some of the highlights from 2016 and discuss our strategic and operational initiatives. Turn to slide 4 at the end of 2016 we had over 1,250 locations across the United States distributed 1.40 billion call HROPBs of fuel and gross income of $80.76 convenience stores in the upper midwest market and 70.5% interest fuel supply generates a wholesale fuel margin on $1.8 billion distributed. As of the end of December, the partnership has a market cap of approximately 850 Million with an enterprise value of 1.3 billion. On slide 5 I'll quickly review the fourth quarter and year end operating results. As we have stayed before, grow our business. Through our acquisition strategy we are increasing our fuel distributions sites and gallons distrib booth and integration and dealerization STKRAT SKWREU which has the effect of lowing the count and rental gallons retails distributed but significantly grows a more stable rental income stream as well as lowering our general administer I have and operating expenses. So while 2016 was a challenging year from a fuel margin perspective for us and many in our industry, these Polio optization efforts have stabilized our cash flow and place ourselves at the end of the year in a strong financial position. Furthering this point on slide 6, we continue to focus on reducing operating and general and administrative expenses where we can find opportunities. In 2016 while we did experience slight decline in gallons sold it was impacted by the determination of low margin commercial wholesale fuel splay contracts and disposing of other assets acquired in the acquisitions. This reduced our wholesale fuel supply by $80 billion and by divestiture with cash flow positive. During the year as I mentioned earlier we continued our dealerization strategy. So while we may miss out on the expanded opportunities in the future with fewer company operating sites we continue to believe that this is the right strategy for our investors who value stable qualifying cash flow and reduced capital,, general and administrative and operating expenses necessary to run the business. On the next slide as you look at the pie charts you can can see how the segment has shifted from 2017 to 2016. 62% of our segment gross TPRO fit was STKWREPB rated by the wholesale business and this increased to 73% in 2016. You can see the significant shift from the retail elements of our business to wholesale fuel and rent. Rent increased from 27% of gross pro fitsed in 2015 to 38% in 2016 and is now our HRAORPBLGest category driver. Once again this is a testament to our acquisition, integration and dealerization strategies which are a more stable and qualifying cash flow. If you turned to the next slide I would like to recap some of the highlights from 2016. During the year we made 2 acquisitions which were both in the upper midwest and began with the acquisition of 31 franchise holiday stations store located in Wisconsin and Minnesota minute from S & G corporation for $52.4 million. It included the land associated with 27 of the sites. We closed for certain assets in the Chicago market that consistent of 57 controlled sites being operated and 2 non-fuel tenant location and 25 dealer account and certain other is a SPETS for $41.9 million. This transaction expanded the market to approximately 140 gallons. Following the close of this acquisition, we completed a transaction with the leading institutional real estate investor for the sale and lease back of 17 properties acquired as part of the deal for net proceeds of $25 million. The lease of the 6.5 capitalization rate and initial term of 15 years with additional 15 years of refuel options. The proceeds were used to pay down borrowings and further strengthening our balance sheet.Throughout 2016 the team continued to have an intense focus with the 21% or $23 million reduction from 2015.Our leverage stood 4.2 times and we successfully amended our facility late last year to provide us with flexibility and functionality. At the beginning of the 2016 we set a target growth rate attributable of 5-7% over 2015 levels and met that goal with 6.1 increase. With sixty-one .25 cents per unit we have grown our distribution for 11 consecutive quarters. Final highlight that I want to mention is in regards to pending merger between circle k and the own her of our general partner. While the merger have not been finalized we remain excited about potential benefits this for CrossAmerica and look forward to sharing more about our long term plans in the near future. With this transaction, on track to close in the second quarter of 2017 we're not in a position at this time to provide growth targets for the balance of the year. However, as we have demonstrated and leadership has stated up port of we remain committed to executing our growth strategy by completing transactions with intense focus on controlling expenses, stabilizing our cash flow and mag managing our balance sheet. And with that I'll turn it over to Steve.

Thank you, Jeremy. If you would, please turn to slide 10. I would like to touch on your overall fourth quarter year end results CrossAmerica. More than $27 million and ka shall flow of nearly $22 million. The total disTREUB PWAOUGSZ paid in the fourth quarter of 2016 were $20 million resulting in a coverage ratio of 1.07 times. For the full year I adjusted EBITDA was $104 million and distributable cash flow was $82 million. The total distributions paid for 2016 were $80 million resulting in a coverage of 1.02 times. On the next slide, we compare our performance of the fourth quarter of this year compared to 2015. The primarily driver of our year over year TKPWROEFTSDZ resolved around our acquisitions and overall integration efforts.You can see the positive contribution associated with our holiday and State Oil acquisitions and the expense reduction associated with this integration efforts on prior transactions. During the fourth quarter of 2016 we saw crude and wholesale gasoline prices rise during the period with west Texas crude oil prices increasing 17% as compared to the same period for 2015. With this increase, we experienced a slight decline associated with our wholesale dealer margins. However, this was more than offset by positive impact from the pay terms discount we received from our suppliers as a percentage of the total invoice on the fuel we purchased. Turning to slide 12 we also have a comparison of our performance in 2016 against the full year in TWREPBT 15. The primary driver of our year over year growth once again resolved around the acquisitions and overall integration efforts. You can see the positive contribution associated with our 2015 and 2016 acquisitions and along with the act itselfeds associated with our prior transactions. During 2016 we saw crude and wholesale gas prices begin to riseburg the back half of the year. However, overall, west Texas intermediate crude oil prices were still 11% lower in 2016 as compared to the same period for 2015. With this decrease, we experienced a $2.6 million decreases related to our prompt pay terms discount. Our wholesale dealer also declined slightly for the year as the daily spot price decreased approximately 35% from the last 6 months of 2015 compared to increase of approximately 10% during the same period of 2016. This added TPURTD UTDer pressure in the back half of 2016. Turning to slide 13. We announced on January 26th that the board of the directors of the general partner declared the distribution of sixty-one .25 cents and this is a half cent increase disTRAOUGS and Jeremy noted marks are 11 consecutive quarterly distribution increase.As Jeremy mentioned earlier we set a target growth rate attributable to 2016 of 5-7% and met that goal with a 6.1% growth rate. And we continue to target long term distribution coverage ratio at or above 1.1 times. As we look at 2017 we expect the cash flow growth to continue to be driven by combination of an acquisitions and strong business performance and further expense reduction associated with the integration of our acquisitions.In addition, to further improving our coverage ratio, we have continued to take steps to strengthen our balance sheet including the amendment to our credit facility back in December. As of February 24th, we had $84 million of available capacity on our revolver. Our leverage RAEURB ratio was 4.2 times at December 31st, 2016. In closing, we are very pleased with our fourth quarter and full year 2016 results. Special especially considering the challenging fuel margin environment we experienced. We feel that the steps we are taking throughout the organization are demonstrating our ability to execute on the growth strategy in a prudent manner. The velocity at which we grow will be dependant upon the market environment and capital availability. Folking using on strengthening the balance sheet and execution on the transactions is the right strategy today for our unit holders and positions us well as the equity markets continue to show signs of returning. With that we'll open it up for questions.

Operator: Thank you. We'll now begin the question-and-answer session. If you have a question press star and then 1 on your touch tone 1 phone. There will be a delay before the first question is an I nounsed. If you're using a speaker phone pick up the hand set first before pressing the numbers. Press star and then 1 on your touch tone phone. Our first question is from Chris from Jefferies.

Yeah, hi, good morning. Jeremy, so I guess fuel demands have been topical year-to-date and we noticed in Q4 your gallons on a personal per day basis are down 7%. What are you seeing currently from your customers and as well as in your own stores as it relates to what your KPERBGTtations are for 2017?

Sure. 2016 we same store performance was really strong for the partnership and as we go into 2017, we look at it and what we have seen other reports in the industry I think we're actually are performing on a basis better than what has been reported across the industry. We like where we are and where our geographies are and further down in the east coast. So things have been good. We haven't provided a lot of detail in the past specifically with regards to same store. But very completioned with kind of performance across the system in January and all of 2016.

And then, the other one I actually have, in terms of the news that came out last night around the mandate and potentially changing the plan of obligation. Is there any indirect or directed impact on your business and what you are considering if there is?

You know, at this time I think as we continue to analyze things we don't necessarily see a direct impact at this time, but things have to be further evaluated.

Fair enough. Thanks, guys.

Operator: Our next question is from Ben Bienvenu from Stephens INc.

It appears to be EUPBS SUL lating you on some other earnings with some of your competitors in the market. Do you have an expectation for the number of sites you want to convert to dealers in 2017 and then longer term what do you think the optimal mix of dealer versus company operated sites should be?

Sure, thanks, Ben. Where we stand at the end of the year we're at 76 sites. As you know, our strategy was continued to transition our retail operating sites into the locations. No, we really do believe that the sites we acquired in the upper midwest for the transaction and the holiday station stores, those really make good sea store sites to operate. As we work with our general partner sponsors we think those are good sites to be transitioned into that mix for them. Looking to potentially move those locations and with as we go forward what has happened with this pending transaction it's continued conversation with them as well in terms of where is the optimal place for those sites. That's why you have seen stay at that level for the past couple of quarters. We continue to evaluate and doing a great job of operating locations and looking into what's the right mix with our general partner sponsor into where those sites end. What's the right mix for us in total? I think you'll continue to see fluctuation.As we go forward with further acquisitions, I think you may see additional growth in the retail site growth and then being brought down. The last transaction that we did with State Oil done at the end of accepts, that was pre no, ma'am Dantley a wholesale acquisition so there was no change as a result of that. I think you'll continue to see TPHUBGS weighings and I think you'll continue to see its work with our general partner sponsor to see what's the right number of sites and we moved over potentially there and optimized the portfolio as we move forward.

Okay, great. And then secondly, on acquisitionsacquisitions. Now that we cycled through, do you see expectation becoming more rational and then if you could compare the appetite of buyers to consolidate in the market today relative to the last several years. That would be help.As well. Do you think it's higher or lower than prior?

It's always something that is hesitant to too much on. It continues to be a robust opportunity for us to continue to execute on our acquisition strategies and plans. I think there continues to be buyers in the market that are looking fortunety to grow. You know, and we're in the same boat. We see opportunity to further consolidate the space. But you know, our desire to execute on that is very dependant upon the multiples in which those can be acquired. So, the opportunities that are there today I would say not all that different that's been there over the past couple of years. And it's certainly enough to satisfy our growth appetite today. And we'll continue to evaluate it. There is still a lot of sellers that are looking to potentially monetize their investment over the years and to look to get out. And we think we provide a very compelling story for us to go and acquire throws locations and further optimize the assets.

Great, thanks. Best of luck.

Thanks.

Operator: Our next question is from Robert from FDr and Company.

Good morning.

Good morning.

I what was wondering in the wholesale segment and operating expenses, 2q and 4q is higher than 1q and 3. Think about the operating exfences in that segment moving forward. Think about the same trend moving forward.

I'll provide a 57 comment. I think a lot of that is dependant upon when acquisitions are closed. We saw introduction of some expensions associated with that transaction. Then as we dealerize locations throughout the year you've seen some of those being eliminated op the retail side and maybe a slight increase on the wholesale side but not much. I think it's the lumpness going in and out of those segments.

The only other thing I may add to that Robert, the fact that the type of expenses you see if that segment are relatively fixed in necessary so that -- so what Jeremy is talking is exactly that. In and out that we see from those sites from retail to wholesale. From the modeling standpoint you can relatively look at operating expenses on a site basis.

Great. And then just you mentioned the eliminating the low margin contract. Is there anything else you are targeting in way of efficiencies or contract improvements for 2017?

Is I mean sure we're also looking at those opportunities. There is a -- the main driver in our business is clearly distributable cash flow and how we maximize that. If we theed to sacrifice either certain elements within the business, if it's better for our investors and generates more cash flow we'll look to do it.We did that as we mentioned with the pmI divestiture. We still think there are some dealerization that can occur with the 76 site that we have. We continue to execute on that. A lot of those we think will make good sites and move over to the sponsor and but there is still some improvement there. So yeah, there is a constant focus of trying to making sure we're getting the most out of our assets that we have in the portfolio today. But nothing specific to mention on the call right now.

All right, great. That does it for me.

Thanks, appreciate it.

Operator: Our next question is from Mike Gyure from Janney Montgomery.

Any opportunities that see coming along that path?

Yeah. So as we mentioned earlier we did a modification to our credit facility and you know, I think our banks recognize and see the TPAOUPBty for us and how it is -- how it'sed a 57 tabling us for us to utilize the strong real estate market to help with our growth strategy going forward. What we saw with State Oil is going in and acquiring those assets for approximately $42 million and then turning around and selling a small portion to the assets to the real estate marketed at 25 million. You can run the numbers and see the transaction for the partnership and we still think that there's some opportunities doing that with acquisitions going forward. So, it is more of a forward-looking view of utilizing that opportunity more so than leveraging any of our existing assets. That's how we see kind of the real estate market and how it can be used to our advantage going forward.

Okay.And then maybe you can talk a little bit about your investment fuel supply. How ultimately do you see that panning out changing with respect to the transaction. Do you see that expanding or declining?

Sure. I mean, I'll be reluctant to comment specifically on how they move out with with respect to Couche-Tard acquiring the general partner. We are obviously working with them and through this due diligence integration process we're looking to -- as they say and they stated looking to ensure we are maximizing the value for both investment basis. Specifically how that's going to work, we certainly respect and understand that our investors have a lot of questions in terms of how that's going to look perspectively. But I will say that we are working diligently with them and having good conversations in terms of what exactly that may look like. I would be hesitant giving you any detail with regards to how that could look going forward.

Thanks very much.

Sure.

Operator: Our next question is from Ben from Raymond James.

My first question was answered. On financing on acquisitions going forward are you targeting that mix and how comfortable are you and how much of that 84 million available on the revolver would be comfortable utilizing?

You know what, I can comment this is obviously every acquisition is opportunistic. And at this point equity still relatively expensive from our view. But as Jeremy noted, looking for acquisition opportunities where we can go in and be a leverage of real estate associated with those transactions and sames lease backs will result much more to the unit holder of the 84 million we -- I think -- I can't really comment forward on how much we would look at using. But obviously I think the partnership continues to evaluate a portfolio of acquisitions and expects to continue to grow with the acquisitions going forward.

That's helpful. On the 6.5% cap rate for that lease back, is that -- I mean, how do you view that in the opportunity of getting another similar type of rate if you find another acquisition? That's a very, very relatively low rate from what I have seen in the past.

Yeah. So I mean, look, that transaction, that opportunity with that institutional real estate fund, I think it's not something that I would say is a typical. I think it's something that we have a strong relationship with a lot of those real estate funds today. I think they understand the strength of our balance sheet and the ability to kind of move forward and continue to make those lease payments. And I think the rate is come mens rate with how they view the risk of the partnership. I don't see that as necessarily an anomaly. I see that as something we see going forward as opportunity. Is the next deal going to be at the same rate that's something we can't comment on but I think it's certainly come mens rat with where we see ourselves in the space today.

One last one for me. On the G&A run rate that's been sustaining a Sustaining a pretty good level,, a level for the TPALT few quarters, is that 6.2 run rate fair on assumption going forward?

You know, we do have some quarter-to-quarter acquisition costs that are imimbedded within that G&A gross number. I think you could probably see that in our adjusted EBITDA and reconciliation tables. But when we look at our G&A and what we've been able to remove from our system, it's been the result of a lot of the integration. Both on a go-forward basis and safe to say it's going PO be fairly consistent quarter-to-quarter unless an acquisition takes place.

Thanks and congrats on the quarter.

Appreciate that.

Operator: Once again. If you have a question press star and 1 on your touch tone phone. Our next question is from Patrick from Baird.

Thanks for taking my question. Just going back to 2017 volume trends, I know you touched on this earlier, but can you comment high level on any weather trends and/or performance across the geographies. Have you seen any benefit from unseasonably warm weather that may be offsetting other weather headwinds?

No, nothing specifically worth mentioning. I think you understand the space. There is all kinds of different weather patterns and things that will --period from period and quarter to period and certain periods and others not. I think what we have seen on same store for January across the system we have continued to see same store numbers that's better than I think the numbers that have been reported industry wide. There's been a little softness in January certainly. Others have stayed it.But I think the softness we have seen not been to the same level that has been reported. But nothing specifically in any particular region. We are pretty well spread out as I mentioned with midwest, upper midwest and northeast and further around into the Virginia and all the way down to Florida.We have a pretty good spread to inSol late us a bit from any one particular region but I wouldn't say that any specific weather pattern is calling an area of concern for us going further into the first quarter.

Okay, inches that. That's great to hear. And just going really quick over to the commercial pmI divestitures. Just to confirm was that process completely done by the end of the third quarter or a bit of the divestitures in the fourth quarter?

You know, pretty much I think it was done towards the -- I mean, there's still a small portion of those volumes that are still remaining, but pretty much I would say it's complete in the fourth quarter.

Okay, that's helpful. That's it for me.

Thanks.

Operator: We have no further questions at this time. I'll turn it back over to you, Randy, for any closing remarks.

Okay.Well thank you, operator. That does complete our call today and we appreciate each of you joining us. If you do have follow-up questions, feel free to contact us. Thanks lot.

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