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

Chris Mandeville - Jefferies Ben Bienvenu - Stephens, Inc. Robert Balsamo - FBR & Company Mike Gyure - Janney Montgomery Ben Brownlow - Raymond James Patrick Wang - Robert W. Baird.

Welcome to the CrossAmerica Partners Fourth Quarter Year End 2016 Earnings. My name is John and I'll be your operator. [Operator Instructions]. 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 and year-end 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, beliefs 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 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 will now turn the call over to Jeremy Bergeron..

Thank you, Randy. Yesterday afternoon we reported our fourth quarter and year-end 2016 earnings results 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.

If you turn to slide 4 you can see that at the end of 2016 we had over 1250 locations across the United States distributed 1.04 billion gallons of fuel and generated gross rental income of over $80 million.

We also currently operate 76 convenience stores in the upper midwest market and we continue to hold 70.5% interest in CST fuel supply, CST generates a wholesale fuel margin on the $1.8 billion distributed within the CST network.

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 stated before our results reflect an intentional focus of our team to grow our business with stable qualified income for our investors. Through our acquisition strategy we are increasing our fuel distributions sites and volume gallons distributed.

Our integration and dealerization strategy is focused on dealerizing company operated sites which has the effect of lowing our company operated site count and retail gallons distributed but significantly grows a more stable rental income stream as well as lowering our general administrative and operating expenses.

So while 2016 was a challenging year from a fuel margin perspective for us and many in our industry, these portfolio optimization efforts have stabilized our cash flow allowing us to achieve our growth targets 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 a slight decline in motor fuel gallons sold it was impacted by the determination of certain low margin commercial wholesale fuel supply contracts and disposing of other terminals assets acquired in the PMI acquisitions.

This reduced our wholesale fuel supply by 80 million gallons yet by eliminating the associated expenses this divesture was actually cash flow positive. During the year as I mentioned earlier we continued our dealerization strategy with the conversation of 77 company operated sites to Lessee dealer accounts.

So while we may miss out on the expanded retail margin opportunities in the future with fewer company operated sites across America we continue to believe that this is the right strategy for our investors who value stable, qualifying cash flow through increased rental income 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 see how our segment and category profit has shifted from 2015 to 2016. In 2015, 62% of our segment gross profit was generated by the wholesale business, this increased to 73% in 2016.

In regards to our category gross profit you can see the significant shift from the retail elements of our business to wholesale fuel and rent. Rent which is the most stable of all categories increased from 27% of gross profits in 2015 to 38% in 2016 and is now our largest category driver of free cash flow.

Once again this is a testament to our acquisition, integration and dealerization strategies which are a more stable 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 two acquisitions which were both in the upper Midwest, we began the year with the acquisition of 31 franchise holiday stations store located in Wisconsin and Minnesota from SSG Corporation for $52.4 million. The purchase included the land associated with 27 of the sites.

In September we closed on the purchase of certain assets of the state oil company in the Chicago market that consisted of 57 controlled sites being operated at 59 Lessee dealer accounts and two non-fuel tenant locations as well as 25 independent dealer accounts and certain other assets for $41.9 million.

This transaction expanded the partnerships wholesale supply in the Chicago 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 has initial term of 15 years with additional 15 years of renewal options. The proceeds were used to pay down borrowings under our credit facility further strengthening our balance sheet.

Throughout 2016 the team continued to have an intense focus to lower and control expenses with the 21% or $23 million reduction from 2015. Our leverage stood at 4.2 times at the end of the year and we successfully amended our credit facility late last year to provide us with additional borrowing flexibility and sale lease backed optionality.

At the beginning of the 2016 we set a target growth rate for our distribution of per unit attributable to 2016 of 5% to 7% over 2015 levels and we met that goal with 6.1% increase. With the fourth quarter distribution of $0.6125 per unit that was paid this month, we have now grown our distribution for 11 consecutive quarters.

A final highlight that I want to mention is in regards to pending merger between Couche-Tard and Circle K and the owner of our general partner CST brands.

While the merger have not been finalized yet as it requires regulatory approvals we remain excited about the potential strategic benefit this should have for the 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 at Couche-Tard has stayed in support of we remain committed to executing our growth strategy in today's market by completing accretive transactions and with an intense focus on controlling expenses, stabilizing our cash flow and 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 our overall fourth quarter and year end results at CrossAmerica. Yesterday we reported another strong quarter with adjusted EBITDA of slightly more than $27 million and distributable cash flow of nearly $22 million.

The total distributions paid in the fourth quarter of 2016 were $20 million resulting in a coverage ratio of 1.07 times. For the full year 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 in the fourth quarter of this year against the comparable period in 2015. The primarily driver of our year over year growth revolved 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 intermediate 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 tank wagon margins.

However, this was more than offset by positive impact from the prompt 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 2015.

The primary driver of our year over year growth once again revolved around our acquisitions and overall integration efforts. You can see the positive contribution associated with our 2015 and 2016 acquisitions and along with our integration activities associated with our prior transactions.

During 2016, we saw crude and wholesale gasoline prices begin to rise during 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 we received from our suppliers.

Our wholesale dealer tank wagon business also declined slightly for the year as the daily spot price of WTI crude oil decreased approximately 35% during the last 6 months of 2015 compared to increase of approximately 10% during the same period of 2016. This added further pressure to our margins 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 $0.6125 per unit attributable to our fourth quarter, this is a $0.05 per unit increase over the distribution attributable to the third quarter of 2016 and as Jeremy noted marks our 11th consecutive quarterly distribution increase.

As Jeremy mentioned earlier we set a target growth rate for our distribution per unit attributable to 2016 of 5% to 7% over 2015 levels and we 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 our distributable cash flow growth to continue to be driven by combination of key of acquisitions, 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 ratio as defined under our credit facility was 4.2 times at December 31st, 2016. In closing, we are very pleased with our fourth quarter and full year 2016 results 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 our growth strategy in a very prudent manner. The velocity at which we grow will be dependent upon the market environment and capital availability.

As we have stated before 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 continue to show signs of returning. With that we'll now open it up for questions..

[Operator Instructions]. Our first question is from Chris Mandeville from Jefferies..

Jeremy, so I guess fuel demands have been topical year-to-date and we noticed in Q4 your commission agent gallons on a per store per day basis are down 7%.

Can you just touch upon what are you seeing currently from your customers and as well as in your own stores as it relates to same store gallons and what your expectations are for 2017?.

Sure. For 2016 our 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 same store basis, a little bit better than what has been reported across the industry.

I think we like where we are or where our geographies are in the North East and the Midwest and further down in the east coast. So things have been good performance. We haven't provided a lot of detail in the past specifically with regards to same store but very pleased with kind of performance across the system in January and all of 2016..

And then, the other one I actually have is in terms of the news that came out last night around the [indiscernible] mandate potentially changing the point of obligation.

Is there any indirect or directed impact on your business and what you will be 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..

Our next question is from Ben Bienvenu from Stephens, Inc..

I'm curious so the [indiscernible] of sites has progressed well. It appears to be pretty nicely insulating from some of the other earnings volatility we have seen 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?.

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 dealer locations.

We really do believe that the sites we acquired in the upper midwest with the Erickson transaction and the holiday station stores, those really make good sea store sites to operate and as we work with our general partner sponsors we think those are good sites to be transitioned into that site mix for them.

So we have been working obviously with CST and looking to potentially move those locations and as we go forward what's happened with this pending transaction with [indiscernible] 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 us kind of stay at that level for the past couple of quarters.

We continue to evaluate, we continue to do a great job of operating locations and we're looking into what's the right mix with our General Partner sponsor into where those sites end up and what's the right mix for us in total? I think you are going to continue to see fluctuation.

As we go forward with further acquisitions, I think you may see additional growth in the retail site count and then being brought down as we further dealerize those sites.

The last transaction that we did with State Oil done at the end of the September, well that was predominantly an exclusive wholesale acquisition so there was no change or site count as a result of that.

So I think you'll continue to see fluctuation and I think you'll continue to see its work with our General Partner sponsor to see what's the right number of sites we moved over potentially there and really optimized the portfolio as we move forward..

And then secondly on acquisitions. Now that we cycled through the normalization of fuel margin to some degree, do you see seller price 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 we have seen in years prior?.

It's always something that’s kind of hesitant to kind comment too much on in terms of what we're seeing in the acquisition market and the buyers or sellers. I would say that it continues to be a very 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 for opportunity 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 dependent upon the multiples in which those cash flows can be acquired.

So, the opportunities that are there today I would say are 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 those locations and further optimize the assets..

Our next question is from Robert Balsamo from FBR & Company..

I was wondering in you could just go through some -- in the wholesale segment the operating expenses, it looks like 2Q and 4Q have been a little bit higher than 1Q and 3Q. Just kind of think about the operating expenses in that segment moving forward.

I think its like I wasn’t sure that was [indiscernible] those expenses the same trend moving forward..

I'll provide a general comment and will let Steve provide the specifics. I think a lot of that is dependent upon when acquisitions are closed as we mentioned when we close on the sale of transaction at the end of September.

We saw some introduction of some expenses associated with that transaction and then as we dealerize locations throughout the year you've seen some of those expenses pretty much being eliminated on the retail side and maybe a slight increase on the wholesale side but not much.

I think it's the lumpiness of kind of sites going in and out of those segments..

Yes the only other thing I may add to that Robert, is the fact that the type of expenses you see in that segment are relatively fixed in nature so that lumpiness is that Jeremy is talking is exactly that the in and outs that we see from those sites from retail to wholesale.

From a modeling standpoint that though I think you can relatively look at operating expenses on a site basis building it that way..

And then just you mentioned the eliminating the low margin contract.

Is there anything else you guys are targeting in way of efficiencies or contract improvements for 2017?.

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 do we maximize that. So if we need to sacrifice certain elements within the business, if it's better for our investors and generates more cash flow we are going to look to do it.

So 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 look to continue to execute on that. Like I said a lot of those we think will make good sites and potentially move over to the General Partner sponsor but there is still some improvement there.

So yes, 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..

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

Can you guys talk a little bit about your sales lease back strategy and maybe any opportunities that you see coming along that path?.

Yes. So as we mentioned earlier we did a modification to our credit facility and you know, I think our banks recognize and see the opportunity for us and how it is -- how its advantageous for us to utilize the strong real estate market to help with our growth strategy going forward.

So what we saw with the opportunity with State Oil is going in and acquiring those assets for approximately $42 million and then turning around and selling a small portion of those assets to the real estate market for 25 million at a very attractive cap rate.

So you can run the numbers and you can see it’s a very accretive 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 and 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 in the CST fuel supply. How ultimately do you see that equity investment panning out? Do you view that I assume changing with respect to the Couche-Tard transaction.

Do you see that expanding or declining or I guess how do you see that maybe next year or so?.

Sure. I mean, I'll be reluctant to comment specifically on how certain assets may or may not be moved out within respect to Couche-Tard acquiring the General Partner.

I will say that we're obviously working with them and through this due diligence integration process we're looking to as they say and we stated looking to ensure we are maximizing the value for both investment basis and so 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 just be hesitant giving you any detail with regards to how that could look going forward..

Our next question is from Ben Brownlow from Raymond James..

Most of my questions have been answered but I guess just on the financing for acquisitions going forward are you still targeting that 50 equity mix and how comfortable are you -- how much of that 84 million available on the revolver would you be comfortable utilizing towards M&A?.

You know what I can comment there to Ben obviously every acquisition is opportunistic, 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 sales lease backs will result in much more accretion to the unit holder.

Of the 84 million we -- I can't really comment to much 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 accretive 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..

Yes. 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, the strength of our ability to kind of move forward and continue to make those lease payments. And I think the rate is commensurate 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 commensurate 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 pretty good level low level for the past few quarters, is that 6 million to 6.2 million run rate a fair assumption going forward?.

You know, we do have some quarter-to-quarter acquisition costs that are embedded 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 relative on a go-forward basis I think its safe to say that it's probably going to be fairly consistent quarter-to-quarter unless an acquisition takes place..

[Operator Instructions]. Our next question is from Patrick Wang from Robert W. Baird..

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?.

Patrick, no, nothing specifically that is worth mentioning. I think you understand in this space there is all kinds of different weather patterns and things that are going to set volume from period to period, quarter to quarter and there are certain segments that do well and certain periods and others not.

As I said I think what we have seen on a same store for January across our 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, I think others have stated it but I think the softness we have seen has not been to the same level that has been reported but nothing specifically in any particular region.

We are pretty well spread out now as I mentioned with midwest, upper midwest and northeast and further around into the Virginia and all the way down to Florida.

So we did have a pretty good spread that kind of into lay [ph] us a bit from any one particular region but I wouldn't say that any specific weather pattern is causing an area of concern for us going further into the first quarter..

And just going really quick over to the commercial PMI volume divestitures, just to confirm was that process completely done by the end of the third quarter or was there still a bit of the divestitures that occurred 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..

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..