CrossAmerica Partners LP
Q4 2020 Earnings Call Transcript

Published: 2 Mar 2021

[Operator:]

Good morning and welcome to the CrossAmerica Partners Fourth Quarter 2020 Earnings Conference Call. My name is Brandon, and I'll be your operator for today. At this time, all participants are in a listen only mode. Later we will conduct the question-and-answer session . Please note that this conference is being recorded. I will now turn the presentation over to our CFO, Eric Javidi. You may begin sir.

[Eric Javidi:]

Thank you, operator. Good morning, and thank you for joining the CrossAmerica Partners fourth quarter and year-end 2020 earnings call. With me today are Charles Nifong, CEO and President; and other members of our executive leadership team. Charles will provide some opening comments, a brief overview of CrossAmerica's operational performance and highlights from the full year and quarter, and then I will discuss the financial results. At the end, we will open up the call to questions.

[Charles Nifong:]

Thank you Eric. I appreciate everyone joining us this morning. As always, we thank you for your interest in the partnership and hope that you are well. During today's call, I will briefly go through some of the operating highlights for the fourth quarter and full year of 2020. I will also provide some color on the continuing impacts from COVID-19 along with a few other updates similar to what I provided during our prior calls this past year. Eric will then review in more detail the financial results. If you turn to slide 4, I will briefly review some of our results. For the fourth quarter of 2020, our wholesale fuel volume increased 22% when compared to the fourth quarter of 2019 largely due to the acquisitions and exchanges that were completed during 2020, offset by the impact of COVID-19. Along with a strong increase in last year, we also saw a 15% increase in our wholesale fuel margin per gallon year-over-year driving our wholesale fuel gross profit up 39% for the quarter.

[Eric Javidi:]

Thanks Charles. If you please turn to Slide 10 I'd like to review our fourth quarter and full year results for the partnership. We reported adjusted EBITDA of $24.4 million for the fourth quarter of 2020 which was a decline of 4% when compared to the same period of 2019. Our distributable cash flow for the fourth quarter of 2020 was $26.2 million versus $18.8 million for the fourth quarter of 2019 reflecting an increase of 40% year-over-year. Our distributable cash flow for the fourth quarter benefited from the performance of our wholesale segment, lower cash interest and a current tax benefit from bonus depreciation on eligible capital expenditures. Our distribution coverage on a paid basis for the fourth quarter of 2020 was 1.32x a 27% improvement versus 1.04x for the fourth quarter of 2019. As Charles touched on earlier our operating expenses increased over $17 million for the fourth quarter of 2020 compared to the fourth quarter of 2019, driven by the increase in our company-operated site count as a result of the April 2020 acquisition of retail and wholesale assets. Our average company-operated site count increased to 149 sites from 0 sites in the fourth quarter of 2019. Additionally, a fair number of our company-operated sites are leased and so the rent component of operating expenses at our company-operated sites increased $3.2 million. For the full year, our adjusted EBITDA was $107.4 million representing an increase of 4% with distributable cash flow increasing 28% to $102.5 million. Our distribution coverage on a paid basis for the full year of 2020 was 1.31x which was an improvement over the 1.11x that we experienced for the 12 months ended December 31, 2019. Slide 11, if you turn to the next slide we ended the quarter with a leverage ratio as defined under our credit facility of 4.06x and remain comfortably in compliance with our financial covenant ratios. Despite the additional borrowings to fund the retail and wholesale acquisition during the second quarter along with the negative impacts of COVID-19 and higher capital expenditures we were able to improve our leverage from the 4.7x as of December 31, 2019. We have sufficient liquidity to execute on our plans and as of February 22, we had $166 million available on our credit facility, an increase of $75 million compared to our availability at December 31, 2019. The partnership made a distribution of $0.525 per unit during the fourth quarter of 2020 which was an aggregate distribution of almost $20 million to our unit-holders. This distribution was attributable to the third quarter of 2020. And as I noted on the previous slide this resulted in a coverage ratio of 1.31x on a paid basis for the 12 months. In regards to our capital spending during the fourth quarter and the full year of 2020 we did see an increase in our growth-related capital expenditures as a result of dispenser upgrades, EMV upgrades and rebranding of certain sites due to our fuel initiatives. Much of this spend during the year was effectively funded by our non-core property site sales. Also it is important to note for site brand conversions we generally are reimbursed by suppliers for a substantial portion and in some cases all of the upfront spend, either over a period of time post-conversion or after final completion. While we expect to have some growth CapEx spend in the first quarter and during 2021 as we invest in our sites for the long term, we do anticipate a decline from the levels in 2020. In conclusion, we believe we are in a good position as we enter 2021. We expect to continue to stay within both our coverage and leverage target ranges, as we see the benefits from the 2020 asset exchanges and acquisitions and our other strategic initiatives. With that, we'll open it up for questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. And from Baraboo Growth we have Walter Morris. Please, go ahead.

[Walter Morris:]

Yes, gentlemen. Congratulations on navigating the cross currents of 2020.

[Charles Nifong:]

Thank you.

[Walter Morris:]

My question relates to the tax benefits realized in 2020. Could you go into greater detail on the background and tax laws that produced those tax benefits? And now that the Couche-Tard exchanges are completed, should we expect a little or no tax benefits going forward? Thank you.

[Charles Nifong:]

Yes. So, as it relates to the tax benefits that we recorded during the year, there are a few sources for them, but the main benefit that we had was from the accelerated depreciation due to all the acquisitions that we did during the year. And so, going forward to the extent that there is less acquisitions, you should see that impact being reduced in the future.

[Walter Morris:]

Without any additional acquisitions, would that number go to essentially zero going forward?

[Charles Nifong:]

Yes. I don't want to go into too much in, like, predicting or forecasting the future, but suffice it to say that, the tax -- being in a tax benefit position is in large part driven by the benefit of being able to take the 100% accelerated depreciation. So to the extent they're not continuing current new acquisitions you shouldn't expect to see that same type of position going forward.

[Eric Javidi:]

Right. And obviously, it's all subject to current tax loss in the future as well.

[Walter Morris:]

Thank you, gentlemen.

[Eric Javidi:]

Thank you.

[Operator:]

And from RBC Capital Markets we have Elvira Scotto. Please go ahead.

[Elvira Scotto:]

Hey, good morning, everyone. A quick question around CapEx. It looks like -- can you just talk about the CapEx spend for the year? First quarter and second quarter were about $5 million, third quarter and fourth quarter were about $10 million to $12 million. Just how do we think about that CapEx spend, the cadence of that? And what drove that?

[Charles Nifong:]

Yes. So, for last year there are a few factors going on. One of the significant ones that we touched on in the industry was the need to upgrade dispensers for EMV compliance. And so a fair amount of that was related to those types of activities. And then also in addition as part of our fuel initiative, we've done a fair amount of brand conversions. So, you also see that number in there as well. And as we touched on in our comments, for the fuel conversion, that is a number that typically from the suppliers we are reimbursed for it over time or after completion. So, there'll be a lag between when you see that number spend and when it comes in. And also given the way that we're reimbursed for it over time you're not necessarily going to see that reimbursement come in on the cash flow statement it sometimes will come in through other means.

[Elvira Scotto:]

Okay, treat. That's helpful. And then can you just talk a little bit about the environment for M&A and what you're seeing out there?

[Charles Nifong:]

Yes. So, it's continued to be an active environment. As we touched on in our comments we're always seeing opportunities. I think the question for now that's out there in the marketplace is when you're evaluating opportunities what's the framework in which you're evaluating them because sellers certainly have expectations that you're going to look at things through a return to normal environment. And obviously, as buyers, we have a different framework through which we view things. And the question is in terms of the COVID impact what is going to be transitory? And when will that COVID impact in and what is perhaps permanent? And so I think there is some friction there between buyers and sellers in regards to expectations for economics and what set of numbers that people want to evaluate transactions on. But the marketplace continues to be active. But from our perspective, we're going to be continuing to be focused on the things that I touched on in the call and be disciplined about what types of sites that we're going to go after.

[Elvira Scotto:]

Great. Thank you.

[Operator:]

[Eric Javidi:]

All right.

[Operator:]

We are showing no more questions. Mr. Javidi, I'll will turn it back to you for closing remarks.

[Eric Javidi:]

Yes. Thank you everyone for joining. We appreciate it. And if obviously to the extent there are other questions you know where to find us. But thank you all for joining this morning.

[Operator:]

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.