CrossAmerica Partners LP

Welcome to the Cross America Partners third quarter 2021 earnings call. My name is Daryl and I'll be your operator for today's call. 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 Maura Topper, Chief Financial Officer. Maura, you may begin.

Thank you, Operator. Good morning and thank you for joining the cross America partners third quarter 2021 earnings call with me today is Charles knife on 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, Maura. I appreciate everyone joining us this morning. As always, we thank you for your interest in the partnership. A special welcome to Maura today on our first call as CFO since joining us in August. We are glad to have her on our team. During today's call, I will briefly go through some of the operating highlights for the third quarter 2021. I will also provide some color on trends in the market, along with an update on our acquisition of convenience stores from 7-Eleven and other updates similar to what I provided during our most recent quarterly calls. Mara 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 third quarter of 2021, Our wholesale fuel gross profit was $34.1 million, an increase of $3.4 million, or 11%, when compared to the third quarter of 2020. This was driven by both volume and fuel margin increases during the quarter. Wholesale segment gross profit was $48.2 million, an increase of 13%, or $5.4 million, when compared to the third quarter of 2020. Our wholesale fuel volume was 355 million gallons for the third quarter of 2021, an increase of 8% when compared to the same period in 2020, largely due to the acquisition of assets from 7-Eleven, as well as the continuing recovery from COVID-19. In terms of same-store volume performance in wholesale, for the quarter, we were up approximately 4% year-over-year. For the quarter on a same-site basis relative to 2019, we were down slightly more than 3%. We did see some relative weakness in volume from mid-August to early September as the Delta variant or fears of the Delta variant were at their peak. Year-to-date wholesale same-site volume is up approximately 8% relative to last year and down approximately 3% relative to 2019. In terms of our volume mix, with the addition of our newly acquired retail sites, for the third quarter of 2021, we received a fixed markup per gallon on approximately 67% of gallons sold to our customers, with the remaining gallons being primarily DTW or variably priced contracts with third-party customers or with our retail segment. We also saw an increase in our wholesale fuel margin per gallon for the quarter, reporting 9.6 cents per gallon compared to 9.4 cents per gallon for the third quarter of 2020, an increase of 2%. The year-over-year increase was primarily driven by three factors. First, we benefited from increased volume across America's company-operated retail sites, which, as I just noted, we supply on a variable margin basis. Second, we benefited from better sourcing costs due to the execution of certain strategic initiatives, such as our brand consolidation. Finally, our wholesale fuel margin per gallon also benefited from higher terms discounts, as crude oil prices increased 73% from $40.89 per barrel for the third quarter of 2020 to $70.58 per barrel for the third quarter of 2021. While we increased our wholesale fuel margin per gallon for the quarter, the macro fuel margin environment for the quarter was mixed to negative. We have now been in a generally rising crude oil price environment since late October of last year. Crude oil prices are up over 95% from the start of the fourth quarter of 2020 through the end of the third quarter. For the first half of the third quarter, crude oil prices declined, but then began to increase in the latter half of the quarter and have continued to rise since then, albeit with some respite over the last few weeks or so. As we noted on prior calls, typically crude oil price increases of the magnitude we have experienced would lead to materially lower fuel margins than what we achieved in the third quarter and earlier in the year. The fact that fuel margins have diverged from historical experience and have consistently done so this year provides support to the theory that COVID has altered the dynamics of the fuel market, perhaps permanently. In terms of rent, we've not experienced any COVID-related rent issues for several quarters now. Our rent from the quarter benefited from the favorable comparison to the prior year and the associated rent concessions made during the quarter in 2020. Our retail segment also performed well during the quarter, as gross profit rose $8.4 million or 43% when compared to the third quarter of 2020. Our motor fuel gross profit increased 122%, and our merchandise gross profit rose 26% when compared to the same period in 2020. For volume, on a same-site comparable week basis, our retail volume was up 14% for the quarter year-over-year. On a same-site comparable week basis relative to the quarter in 2019, retail volume was down approximately 1%. for inside sales on a same site comparable week basis, our inside sales were flat relative to last year and up approximately 9% relative to 2019. Our retail sites have continued to perform well on both volume and inside sales metrics. On the volume side, our retail locations have significantly outperformed relative to the overall wholesale portfolio and compare favorably to data we have relative to the industry overall. particularly when we look at our performance relative to 2019. While inside sales were flat for the quarter, they are still up 9% relative to 2019. On both volume and inside sales metrics, our retail sites are continuing to perform strongly, which reflects the ongoing success of our retail initiatives and the impact of capital we have spent on brand imaging and site upgrades in the past 12 to 18 months. Our retail segment results this quarter also include our newly acquired sites from 7-11. These sites were acquired on a rolling basis throughout the quarter, so the included results are not reflective of anywhere near a full quarter's financial results for these assets. Nonetheless, our results do reflect a meaningful contribution from these newly acquired locations. Although it is early, we have been pleased by the performance of the sites, and in particular, the fuel margin environment at the locations. We continue to put a lot of energy and effort into successfully integrating these locations into our operations and ensuring our new team members have the tools and knowledge they need to be successful. 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. As I mentioned a moment ago, the wholesale fuel margin to our retail sites contributed to our overall increase in wholesale fuel margin per gallon for the quarter relative to the prior year. Overall, the DTW fuel margin to our retail sites makes a meaningful contribution to our wholesale segment and our overall profitability that is not apparent in looking at the retail segment financial results in isolation. As we work through the integration of the 7-Eleven sites, we have seen 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 addition of the 711 sites, producing an increase in our average company operating site count, increasing 29% year-over-year. We have also experienced increases in labor costs at our retail sites, consistent with what has been experienced in the broader economy overall. The primary drivers for the increase in G&A for the third quarter were the acquisition costs associated with the 7-11 transaction and an increase in management fees related to the increase in headcount. In regards to the announced agreement with 7-11 to acquire 106 sites, as of the end of the quarter, we had closed on 98 sites for a total consideration of $262 million, including inventory and other working capital. As of November 4th, the partnership had closed on an additional five sites for total consideration of $10.4 million, including inventory and other work capital. We anticipate closing on the final three properties once we are in receipt of all the required operational licenses and permits. As I touched on briefly in my retail comments earlier, while we have had the sites only a relatively short amount of time, we are pleased with how the sites are performing and with how the overall integration process and the rebranding of these sites has gone so far. We are already seeing a positive impact from these sites, and we believe the acquired assets are positioned to perform well going forward. We also continue to evaluate our portfolio and look for opportunities to divest non-core properties. We had a busy quarter for property sales, divesting 14 sites for $4.9 million in proceeds. Through September 30, 2021, had divested 23 properties for $8.8 million in proceeds. We continue to have a strong pipeline of transactions and expect to have an active fourth quarter. Looking forward, we will continue the process of recycling capital to invest in growth opportunities within our portfolio. Overall, despite the challenges this quarter, we had a strong quarter and are beginning to demonstrate some of the financial results of our strategic initiatives. As I noted earlier, We have substantially completed our transaction with 7-Eleven, and our results this quarter provide a brief glimpse of the positive financial impact of these assets. We believe these sites will be great contributors to our overall financial performance in the coming months and years. The Cross America team has done a tremendous job at integrating these assets and in executing our overall strategic plan. Their efforts and dedication are appreciated. To all the Cross America team members listening in, thank you. In summary, We believe we are in a good position as we exit the third quarter to continue to execute on our plans and to provide growth and strong returns for our unit holders. With that, I will turn it over to Mara for more detailed financial review.