CrossAmerica Partners LP

Good morning and welcome to the Cross America Partners first quarter 2021 earnings 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 a question and answer session. Please note this conference is being recorded. I will now turn the call over to John Benfield, Chief Accounting Officer. You may begin, sir.

Thank you, operator. Good morning and thank you for joining the Cross America Partners first quarter 2021 earnings call. With me today is Charles Nifong, CEO and President. Charles will provide some opening comments, a brief overview of Cross America's operational performance, and highlights from the quarter, and then I will 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 Cross America 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, beliefs, and projections will be achieved or that actual results will not differ from expectations. Please see Cross America's filings with the Securities and Exchange Commission, including annual reports on Form 10-K 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 Cross America'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 U.S. generally accepted accounting principles or GAAP. We have provided schedules that 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 Cross America website for a period of 60 days. With that, I will now turn the call over to Charles.

Thank you, John. 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 first quarter of 2021. I will also provide some color on the recently announced agreement with 7-11, the continuing impacts from COVID-19, along with a few other updates similar to what I provided during our quarterly calls this past year. John will then review in more detail the financial results. Now, if you turn to slide four, I will briefly review some of our results. For the first quarter of 2021, our wholesale fuel volume increased 32% when compared to the first quarter of 2020, largely due to the acquisitions and exchanges that were completed during 2020, offset by the impact of COVID-19. While we saw a strong increase in overall volume for the quarter relative to last year, we also saw a 19% decrease in our wholesale fuel margin per gallon year over year, primarily impacted by a decline in our dealer tank wagon margins. Despite the decline in fuel margin per gallon, our wholesale fuel gross profit increased 7% for the quarter. As I have done in prior quarters, I will provide some color on same-store volume performance to provide insight on business conditions. We've now been operating and dealing with COVID for over a year, and it was during March of last year that the initial society-wide shutdown due to COVID occurred. Basically, for the first quarter of 2020, January and February were normal, and then March was COVID, which was, as we all appreciate, decidedly not normal. As I go through my comments on our volume performance for the quarter, keep that thought in mind. The volume environment is obviously decidedly better than at this time last year. For example, our same site volume for the last week in March was up approximately 80% year over year. If you look at the quarter overall, our same site volume was down approximately 3% relative to 2020, which again was two relatively normal months, and then a severe COVID impact in March. For additional context, on a same-site volume basis, the first quarter of 2021 relative to 2019 was down 3.5%. For our year-to-date same-site volume performance through late April, we are up approximately 5% year-over-year as we overtake some of the severe volume declines from last year. Illustrating this effect, same-site volumes for the recent week in April are up 50% or more relative to the same weeks in 2020. Relative to 2019, our same-site volume performance for the year-to-date period was down approximately 3.2%, which shows a continued improving environment given the improved volume performance from the quarter-end number. A further reason for optimism is that if you look at the volume on a sequential week-over-week basis, we are seeing same-site volume building. which is both a normal pattern as we head into the summer months and a further sign that miles driven and people's mobility are approaching a return to pre-pandemic levels. In terms of margin, our wholesale fuel margin for the quarter was 7.3 cents per gallon, a decline of 1.7 cents per gallon, or 19% from the prior year. The year-over-year decrease was driven by our dealer tank wagon fuel margins, which, as a reminder, are variable fuel margin accounts with select third-party wholesale dealers, and also how we supply our company-operated and commissioned retail sites. The decrease in fuel margin was due to a decline in our DTW margins for the first quarter relative to the first quarter of 2020, which was primarily driven by the movement in crew prices during the two periods. WTI increased 28% during the first quarter of 2021, which in turn drove RBI prices higher by 31%. which negatively impacted our fuel margins per gallon. In contrast, during the first quarter of 2020, there was a 66% decline in WTI from a daily spot price of $61.14 per barrel on December 31, 2019 to $20.51 per barrel on March 31, 2020, which drove an almost equal 65% decline in RBOB prices for the same period. Although crude and fuel prices trended down during the first quarter of last year, in March there was a rapid and steep decline due to COVID, which these figures reflect. The dramatic decline in these cost inputs positively impacted our fuel margins for the prior year period. As we have discussed previously, during periods of rising prices, our variable price fuel margins tend to contract due to retail fuel prices not adjusting as quickly as wholesale costs do, which was the case this quarter. As with our fourth quarter, relative to other periods of increasing crude prices, the margin environment for the quarter was favorable. In terms of rent, as in the prior quarter, we did not experience any COVID-related rent collection issues, and our rent collection results were in line with historical pre-COVID performance. For our retail operations, we continue to see strong inside sales at our company operated sites. Overall, for the quarter, same store inside sales were up approximately 13% year over year. For additional context, relative to the first quarter of 2019, same store inside sales were up for the quarter over 14%, which indicates our stores are performing well even relative to pre-pandemic results. Year to date for the period through approximately the end of April, our same store inside sales are up approximately 15% year over year. As we have discussed before, The initial COVID impact on our retail inside-store sales was considerably less than the volume impact. Also, as we saw over the course of the last year, consumers gravitated to our stores to do their convenience and enhance product offerings. For the quarter, our retail stores also performed well on the volume side. On a same-store basis, for the quarter, our retail same-store volume was up approximately 3% year-over-year, Year-to-date, as of approximately the end of April, our retail store same-site volume was up 16% year-over-year. Both of these volume metrics are stronger than our overall wholesale portfolio metrics. The strong retail same-store performance, both for inside sales and volume, is proof of the success of the initiatives that we have underway for our retail operations and indicative of the operational focus we intend to bring to the retail operations in our recently announced acquisitions. As we noted in prior quarters in reviewing our retail segment financial performance, it is important to remember the wholesale segment supplies our retail segment on a DTW or variable margin basis. So the overall fuel profitability of these sites is split between our wholesale and retail segments, and the DTW fuel margin to our retail sites makes a meaningful contribution in our wholesale segment and our overall profitability. For the first quarter, we did see an increase in both our operating and G&A expenses compared to the prior year. The increase in operating expenses was primarily driven by the increase in our company-operated and commissioned site count, which increased 154 sites, or 76%, year over year. Contributing to the increase in G&A for the first quarter was a $900,000 increase in acquisition-related costs, primarily due to our announced acquisition and an additional $900,000 increase in management fees related to the increase in headcount associated with the acquisition and exchanges completed last year, particularly driven by the CST fuel supply exchange, where we exchanged a non-operational economic interest for operational wholesale assets. The operating and G&A expense line is an item that we do closely track, and we expect the incremental G&A burden for our new acquisition to be significantly less than what we experienced for our acquisitions this past year. If you'll turn to the next slide, slide five, I want to discuss our recently announced agreement with 7-Eleven to acquire 106 sites for $263 million. We are acquiring sites in the mid-Atlantic and northeast regions of the U.S. that fit very well within our existing asset base. Most of the sites currently operate under the Speedway brand, 90 of the sites are fee ownership, and 16 of the sites are leased. These are attractive locations, good square footage with solid metrics of gallons and merchandise sold. For the year ending December 31, 2020, the site sold 154 million gallons of fuel and generated $136 million of merchandise sales for an average of 1.45 million gallons per site and $1.28 million of merchandise sales per site. We plan to close on this acquisition on a rolling basis that will begin 60 to 90 days after the closing of 7-Eleven's transaction marathon. The closings will take place over several weeks, as at each individual site, we have to do a complete rebranding of the site and convert all the store systems, such as payment processing, over to our and our suppliers' networks. We currently plan to finance the transaction through either undrawn capacity under our revolving credit facility or additional debt financing from other sources. Please turn to slide six. As we noted in the press announcement and that I touched on a moment ago, we will be rebranding these sites. On the fuel side, we will partner with our existing branded fuel suppliers to bring nationally well-known fuel brands to the sites. On the store side, we intend to brand the sites as Joe's Quick Marts, which is one of our proprietary store brands. For Joe's Quick Marts, We have been working on redeveloping and re-imaging this brand for the past 18 months. The timing of the acquisition corresponds perfectly with this rebranding initiative and allows us to accelerate our rollout of the re-imaged and refreshed Joe's Quick Marts brand. As I stated earlier, we believe these are great assets in prime locations. In terms of locations, the sites fit well within our existing store network, and we will be able to manage these sites efficiently within our retail network. We anticipate this transaction to be immediately accretive to distributable cash flow to limited partners and expect it to provide value to our unit holders over the long term. We are eager to get into the execution phase of the transaction and welcome our new colleagues working at the sites to the Cross America team. We look forward to providing you more details on this transaction when it is closed. In conclusion, while our results for the first quarter were not as strong as we wanted, there's a lot of positive momentum for us. We see mobility moving back towards pre-pandemic levels and economic activity increasing. While in the short term, this may lead to a further or further increases in crude prices that impact our fuel margins, longer term, these are positive developments for our business that we are well positioned to capitalize on. We have signed up a great transaction, strong assets, and an attractive valuation that provides immediate value to our unit holders. The entire team here across America is excited about this transaction and the opportunities it provides us. The team understands that we have a lot of hard work in front of us, and we all are committed to doing whatever it takes to ensure a successful execution. With that, I will turn it over to John for a more detailed financial review.