Randy Palmer - Investor Relations Jeremy Bergeron - President Steven Stellato - Chief Accounting Officer.

Ben Bienvenu - Stephens Ethan Bellamy - Robert W. Baird Mike Gyure - Janney.

Welcome to the CrossAmerica Partners' Third Quarter 2016 Earnings Call. My name is Christine and I will be the 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 that this conference is being recorded.

I will now turn the call over to Randy Palmer, Director of Investor Relations. Mr. Palmer, you may begin..

Thank you, operator and good morning, and thank you for joining the CrossAmerica Partners' third 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'll 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, beliefs and projections will be achieved or that actual results will not differ from expectations.

Please see CrossAmerica's filings in 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 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 U.S. 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'll now turn the call over to Jeremy Bergeron..

Thank you, Randy. Yesterday afternoon, we reported our third quarter earnings results, which Steve will go through in detail in a few minutes, but first, I wanted to discuss our continued strategic and operational initiatives and success we are experiencing. The map on Slide 4 identifies the over 1,250 locations the partnership has today.

Cash flow at CrossAmerica is generated from the over 1 billion gallons of fuel we distribute annually. The over 880 sites we own or control generating $85 million of rental income per year, and the 78 convenience stores we currently operate in the Upper Midwest market.

We continue to hold a 17.5% interest in CST Fuel Supply providing a $0.05 wholesale margin on the 1.7 billion gallons distributed within the CST network. As of the end of September, the partnership has grown to a market cap of approximately $850 million with enterprise value of $1.4 billion.

Turning to Slide 5, at the end of the third quarter, we closed on our previously announced acquisition of assets from State Oil in the Greater Chicago market acquiring 57 controlled sites, 25 independent dealer accounts, and certain other assets.

With already a strong Midwest presence, the immediate addition of 60 million wholesale gallons per year and 56 valuable fee sites is a great plug-in acquisition for CrossAmerica. If you would turn to the next slide, I would like to discuss our growth and optimization strategy.

As we have said before, our approach to stabilize cash flow by converting recently acquired company operated locations to Lessee Dealer accounts is a key part of our integration strategy.

We continued with that strategy in the third quarter by converting two more locations to wholesale accounts as well as by converting three State Oil company operated sites to dealer operated locations immediately upon closing.

Our retail team continues to do a great job operating 78 locations in the Upper Midwest today, as we evaluate our long-term strategy over the coming months with regards to these strong convenience store locations.

Regarding our operating results on Slide 7, the bar charts demonstrate the growth we continue to experience with our control site count, gross rental income, and motor fuel distribution volume.

While you can see in the chart on the right that we have almost doubled our volume since 2010, you will notice a reduction in the volume for 2016 compared to 2015. This reduction is a result of our divestment of the low-margin, high expense previously acquired PMI commercial business, which represented about 80 million gallons on an annual basis.

The results in the table on the left highlight a few other key points I would like to discuss. As you may recall, the third quarter of 2015 was a record retail fuel margin environment as WTI crude and wholesale gasoline prices declined over 25% during this period.

This benefited our dealer tank wagon contracts including our wholesale segment, as well as our entire retail segment, where we saw fuel margins double what we experienced in the third quarter of this year.

It is this volatility that underscores the importance of our dealerization strategy whereby we reduce our exposure to the swings in the underlying commodity market and secure our cash flow to more stable fixed contracts and lease terms, as well as lowering operating expenses.

Although our distributable cash flow was less than the same period a year ago, had we not dealerized 75 company-operated locations this year, our DCF would have been impacted that much more.

On Slide 8, I would like to quickly discuss the announcement made in August regarding the pending merger agreement between the owner of our general partner, CST Brands and Couche-Tard.

Upon closing, Couche-Tard will indirectly own 100% of CrossAmerica’s general partner and an incentive distribution rights and approximately 20% of CrossAmerica's common units, while CrossAmerica will continue to own 17.5% equity interest in CST fuel supply.

The CST Brand shareholder vote on the transaction is scheduled for November 16 and both parties continue to work with the US Federal Trade Commission and Canadian Competition Bureau on the review of the deal. Closing on the transaction is still expects to occur early 2017.

Turning to the next slide, and this is obviously a very exciting time for CrossAmerica as we believe this transaction presents a tremendous opportunity for us and our investors by offering several potential strategic benefits to the partnership in the years to come.

Through our transition discussions, it is already evident that the two organizations share many cultural and operational similarities such as our experience in acquisitions and integration and our focus on growing cash flow through prudent cost management.

In addition to what we share, we are just as excited with the scale, global reach, financial strength, and numerous programs that we could leverage with Couche-Tard controlling our general partner. Not only will it be part of America's largest convenience and fuel retailing networks, with the potential combination of Couche-Tard’s U.S.

dealer network of approximately 700 sites and of CrossAmerica's network of more than 1,200 locations, the combined organization will also be one of the largest wholesale fuel distributors in the U.S. Slide 10 demonstrates the complementary geographies of the two wholesale organizations.

And while I know many of our stakeholders have questions with respect to how the relationship with Couche-Tard and CrossAmerica will evolve over time, please appreciate that both organizations are committed to maximizing value for all investors. We look forward to sharing more about our long-term plans in the near future.

And with that, I will turn it over to Steve..

Thank you, Jeremy. If you would please turn to Slide 12, I would like to touch on our overall third quarter results at CrossAmerica. Today, we reported another strong quarter with adjusted EBITDA of slightly more than $27 million and distributable cash flow of over $21 million.

The total distributions paid in the third quarter of 2016 were $20 million, resulting in a coverage of 1.06 times. On the next slide, we compare our performance in the third quarter of this year against the comparable period in 2015.

As Jeremy mentioned, we experienced record retail fuel margins in the third quarter of 2015 as wholesale gasoline prices continue to decline over the period.

That was certainly not the case this year, as crude and wholesale gasoline experienced significantly less volatility lowering the margin earned and our wholesale dealer tank wagon contracts, and retail fuel CPG Margins.

In addition, with wholesale gasoline prices averaging 16% below last year, this also negatively impacted the prompt pay terms discount we received from our suppliers as a percentage of the total invoice on the fuel repurchase.

Finally, you can see the positive contributions associated with our holiday acquisition, and the expense reduction associated with the integration efforts on prior transactions. We expect these contributions will continue into the fourth quarter, thanks to the State Oil acquisition completed at the end of September.

Turning to Slide 14, we announced on October 24 that the Board of the Directors of the general partner declared the distribution of $0.6075 per unit attributable to our third quarter. This is a $0.005 per unit increase over the distribution attributable to the second quarter of 2016 and marks our tenth consecutive quarterly distribution increase.

As we have said, we expect the growth rate of CrossAmerica's distribution per unit attributable to 2016 will be between 5% to 7% over 2015 levels, and we continue to target a long-term distribution coverage ratio at or above 1.1 times.

We expect our distributable cash flow growth to continue to be driven by a combination of accretive acquisitions, strong business performance, and expense reduction associated with integration of our recently completed transactions. In addition to further improving our coverage ratio, we are continuing to take steps to strengthen our balance sheet.

We ended the third quarter 2016 with $57 million of available capacity on a revolver. Our leverage ratio was 4.5 times at September 30, 2016, following the State Oil acquisition. In closing, we are very pleased with our third quarter results, especially considering the challenging fuel margin environment we experienced.

We feel that the steps we're taking throughout the organization are demonstrating our ability to execute on our growth strategy in a very prudent manner. The velocity at which we grow will be depended upon the market environment and capital availability.

Our focus on strengthening of the balance sheet, improvement in our distribution coverage ratio, and execution on accretive transactions is the right strategy today for our unit holders and positions us well as the MLP equity markets had showed signs of returning. With that, we will now open it up for questions..

Thank you. [Operator Instructions] Our first question comes from Ben Bienvenu from Stephens. Please go ahead..

Yes thanks, good morning..

Good morning Ben..

I’m curious if you could comment a little bit about the current acquisition environment that you are seeing, what does the market look like, have you seen any change in price expectations with sellers and generally what range of multiples are you seeing out in the market?.

Well Ben, I think the range we see now is not all that different than we have seen over the past few periods.

I mean, there are a variety of ranges in terms of what sellers are looking to achieve, but what we are able to execute and what’s out there, I don't think it’s any different than what we have done over the past couple of years at CrossAmerica.

So, I mean our focus and our target we understand is to continue to target those transactions that we can get very accretive. And for us, we have said this publicly, we can get transactions done below an 8 times multiple, we think that’s a very good opportunity for the partnership, and we think there’s a lot of those opportunities still out there..

Okay great, and then you talked a little bit about distribution growth expectations for 2016, what should we expect for a forward outlook in terms of balancing deleveraged versus growth, and how shall we think about the leverage trend line over the next year or so as you look to be opportunistic with acquisitions out in the market?.

Right.

So as you know, we ended the third quarter at 4.5 times on a average ratio, and that was right after on the heels of closing on the transaction with State Oil, and so we continue to look at our balance sheet, manage it - there are initials we have in the works, internally that we continue to work on to further delever that balance sheet, we're very comfortable with 4.5 times.

If you look at our cash flow generation, we think it’s a very comfortable level for us and with our banks as well, but we’re going to continue to look for other opportunities to do transactions at a very accretive level with the capacity that we do have, and then we will see where things go long term.

Obviously, with the pending transaction with Couche-Tard, we will work with them in terms of how things look long term and then we will be able to come back to you all with little bit longer term projections from a growth perspective as well as managing our balance sheet, but where we are right now is very comfortable.

There are opportunities for us to continue to do deals, and there are some other things that we can do to further manage things internally as well..

Okay great and then last one from me, what are you guys seeing with the help of the C-store customer as we cycle lower fuel prices year over year, have you seen any slowdown in spending or any change in the habits of your customers?.

No, I mean for us Ben, it’s been pretty consistent about understanding our universe of C-stores that we are operating year-over-year is still relatively small, we are at 78 stores today, and some of those we just acquired earlier in the year. I mean, we certainly think the trends are still strong in the business. It’s a business we’re excited about.

We think it brings a lot of value. So inside the store, we think there is a lot of opportunity for us in this stores we run as well as the dealers we look to support..

Okay, perfect. Best of luck..

Thanks Ben..

Thank you. Our next question comes from Ethan Bellamy from Baird. Please go ahead..

Hi guys, could you talk about the colonial pipeline gasoline volatility this quarter and whether that’s good or bad for margins and if at all that can impact volumes?.

Sure. I mean for us Ethan where we are located as you know in the Upper Midwest in the Northeast we were relatively un-impacted in our markets. I mean, it does have an overall impact to the overall market in general. We do have some stores in the Tennessee markets - the Virginia markets as well.

That's all an impact from it, but for us, I wouldn't say it had any type of significant impact to our overall performance in the period, both in the third quarter, or here most recently with the most recent incident.

So from our perspective, the market had to react to the disruption and supply, but we didn't see a significant impact to our overall volume or margin over the period..

Okay, that's helpful.

On G&A this quarter, you had a nice step down, but you also probably picked up some more G&A from State Oil, what should we expect for G&A in the fourth quarter and beyond, and are there any incremental cost savings and was there anything noisy or one-time item in the third quarter numbers?.

I will turn this over to Steve in one second, but I think that’s one of the great things about the State Oil acquisition for us.

It was a great plug-in acquisition where there wasn't a lot of G&A for us and that’s why we are excited about it, especially where we are able to bring it in, but I’ll let Steve comment on going forward with the G&A numbers..

Hi Ethan. When you look at third quarter results, we did have some acquisition costs that were one-time items that we took a hit in the third quarter. We obviously don't expect that to continue into the fourth quarter..

How much was that, like 1% of the transaction price?.

When you look at that reconciliation we do from EBITDA to adjusted EBITDA, we have about $1.6 million..

Okay, that’s helpful.

And then last question, I'm sorry if I missed this, but how many stores did you dealerize in the quarter and what’s the expectation for dealerizations in the coming quarters?.

Yes, I think the number is that we dealerized two stores that we started the quarter with that we dealerize over the third quarter period to additional locations, as well as three locations that we acquired with State Oil.

And whenever we acquire the assets from the seller on State Oil, they were operating three stores as company operated locations, so we took that opportunity prior to the deal closing and our wholesale team did a great job finding dealers to come in there and run those locations. So, in total I would say, we dealerize five.

Now we’re at the point where we have a good concentration of 78 stores in the Upper Midwest market that we think are the better of the C-stores that we acquired in the two transactions with Ericsson and Holiday.

So, we will continue to evaluate obviously with Couche-Tard coming in, we will evaluate those operations as well with them, and then we will be able to put together a long term plan of how we’re going to operate those sites going forward..

Got it. Thanks much..

Thanks Ethan..

Thank you. [Operator Instructions] Our next question comes from Mike Gyure from Janney. Please go ahead..

Can you talk a little bit about your, sort of the rent conversion process and where you think you are with the assets you have and may be you're looking forward in the 2017 where you think that could possibly go to?.

So, when you ask about rent conversions, I mean what are you specifically referring about?.

Your strategy of moving to more rental?.

More dealer locations?.

More dealer locations and more rental income..

Right, I mean as we said earlier, when we operate the convenience stores, what we are getting with operating the stores is we're getting the merchandize margin inside the store, as well as the retail fuel income at the location as well, but when we can find dealers to operate the store, we think it is a better investment for our unit holder base and it secures our cash flow long-term to find to run those stores and increase our dealer rent, as well as lower operating expenses significantly.

I think you saw the big reduction in OpEx there in the third quarter versus even the prior periods.

So, we dealerized, if I could just explain to Ethan, two stores in the third quarter as well as the three from State Oil, so we have done five locations in the third quarter, and we are at a point right now where we have really good operations in the Upper Midwest.

And we will evaluate to see if there are more opportunities that dealerize any more of those 78 stores, but our strategy of continuing to do acquisitions that are in the marketplace and converting some of the company operated stores into dealers that will continue.

So it will depend upon our acquisition that we continue to conduct over the period and see what we do with the 78 stores. So, I would be happy [ph] to give any guidance of additional rent conversions, we will do.

It will be really depended upon what our long-term strategy is for the 78 locations in the Upper Midwest and any transactions we can do going forward..

Right, thanks..

Thanks..

Thank you. I will now turn the call back over to Mr. Randy Palmer for closing comments..

Okay operator that completes today's conference call. We appreciate each of you joining us today. If you have follow-up questions, please feel free to contact us. Thank you and have a good day..

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