Randy Palmer – Executive Director of Investor Relations Jeremy Bergeron – President and Chief Executive Officer Evan Smith – Chief Financial Officer.

Daniel Imbro – Stephens, Inc. Chris Mandeville – Jefferies Ethan Bellamy – Baird Sharon Lui – Wells Fargo Ben Brownlow – Raymond James.

Welcome to the CrossAmerica Partners Second Quarter 2017 Earnings Call. My name is Jenette 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 that this conference is being recorded.

I will now 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 second quarter 2017 earnings call. With me today are Jeremy Bergeron, President and CEO; Evan Smith, Chief Financial 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 Evan 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. And 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 the 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-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 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 CrossAmerica website for a period of 60 days. And with that, I will now turn the call over to Jeremy Bergeron..

Thank you, Randy. We reported our second quarter 2017 earnings results yesterday afternoon and Evan will go through the detail in a few minutes. At first, I wanted to review some of the highlights from our second quarter. If you turn to Slide 4, I’ll provide a brief overview of the partnership at the end of the second quarter.

We continue to have over 1,250 locations across the United States that distribute over 1 billion gallons of fuel and generate gross rental income of over $80 million on an annual basis. Currently, we hold 17.5% interest in CST Fuel Supply.

CST Fuel Supply generates a $0.05 wholesale fuel margin on approximately 1.8 billion gallons distributed annually within the legacy CST network. We also currently operate 72 convenience stores in the Upper Midwest market and have 500 owned sites. On Slide 5, here’s a recap of some of our second quarter operating results.

As you look at the wholesale business for the quarter, our fuel volume of nearly 267 million gallons was up slightly over the second quarter of last year with our wholesale fuel margin per gallon increasing 4% from $0.054 per gallon to $0.056 per gallon.

This increase in wholesale fuel margin per gallon was positively impacted by the increase in crude oil and wholesale gas prices year-over-year helping boost our supplier terms discount earned. As well as the more recent decline in wholesale gas prices experienced during the quarter, which benefited our dealer-tank wagon margins.

During the second quarter, we also saw an increase in our rental income for our wholesale segment improving 13%. This was primarily due to our dealerization strategy where we converted 77 company-operated sites to lessee dealer accounts during 2016 as well as the State Oil acquisition we completed in September.

Finally, excluding the separation and benefit charges that we incurred at the end of the second quarter related to the closing of the CST and Couche-Tard merger. Our G&A and operating expenses remained relatively flat during that period.

As we will touch on further, we continue to exercise a heightened focus on managing costs and making reductions where we can. As we integrate operations with our new general partner.

On the next slide, as you look at the pie charts you can see how the successful execution of our acquisition, integration and dealerization strategy has impacted our segment and category gross profit from the second quarter of 2016 to 2017. In the second quarter of 2016, 72% of our segment gross profit was generated by the wholesale business.

This increased to 76% in the second quarter of 2017. In regards to our category gross profit, you can see the significant shift from the retail elements of our business, the wholesale, fuel and rent. Rent, which is the most stable of all categories, increased from 39% of gross profits in the second quarter of 2016 to 43% in 2017.

It is our largest category driver of gross profit and generating more stable qualifying cash flow for investors. If you would turn to the next slide, I would like to review some of the highlights from the second quarter 2017. During the period, our adjusted EBITDA increased 2% from 2016 to 2017 primarily driven by our wholesale segment.

We ended the quarter with leverage at 4.25x and the Board of our General Partner declared a distribution attributable to the second quarter of $0.6225 per unit that will be paid this month. We have now grown our distribution for 13 consecutive quarters.

As many of you know, the merger between Couche-Tard/Circle K and the former owner of our General Partner, CST Brands was completed on June 28. With this transaction, we now would sponsor that as the largest convenience store operator in North America, whose management culture is very much aligned with ours.

And most importantly presents us with a number of key strategic benefits in growth opportunities for years to come. Hopefully, many of you have seen the slide deck that we filed with the SEC posted on our website a few weeks ago. I want to touch on a few of the key points related to these benefits in our integration strategy with Circle K.

Turning to Slide 8, our strategy is to leverage the strength of each organization by simplifying the two businesses.

By placing the c-store retail operations within Circle K and fuel wholesale operations within CrossAmerica, we are leveraging each organization's operational strength, maximizing the respective capital structure and delivering value for the benefit of each set of investors.

The first step in implementing this strategy is to align the organizations by combining management of Circle K’s wholesale division, National Wholesale Fuels or NWF with CrossAmerica to create a leading wholesale distributorship with a strong, unparalleled national presence.

NWF is roughly the same size as CrossAmerica distributing approximately 900 million gallons annually.

In addition to the improvements, we will obtain by combining the human capital of both organizations, we expect to achieve over 10 million in annual cost synergies at CrossAmerica as part of this integration and alignment, with half of these synergies to be achieved in the first 12 months and the remainder in the following three years.

As you look at the next slide. The next step in this integration is to simplify the structure.

Our goal in the coming months is to unwind the cash flow entanglement within Circle K such as CrossAmerica’s equity interest and CST Fuel Supply and non-qualified rental income we are currently earning through prior dropdowns and joint acquisitions we conducted with CST.

In exchange, we’ll look to receive wholesale related assets within Circle K today. This is an important step, as we want to provide a clear understanding in line of sight with how EBITDA is earned in each organization and growth will occur while maximizing qualified income in CrossAmerica.

Basically establishing a framework to separate cash flows and setting a foundation for potential acquisitions and dropdowns going forward.

You should expect us to execute this in a measured way to ensure sustained levels of cash flow at CrossAmerica to support our ongoing distribution growth strategy and financial targets around our coverage and leverage ratios.

The third element of the integration is to continually execute on our growth strategy together with third-party M&A strategy and dropdowns. As Circle K, continually look to upgrade their portfolio and focus capital on retail sites core to their long-term strategy. We expect to see a wealth of opportunities to acquire good fuel sites for years to come.

Speaking to the M&A strategy on the next slide, yesterday's announced signing of our intent to acquire certain assets of Alabama based Jet-Pep demonstrates exactly the type of transaction that we can execute together. Strategically benefiting both organizations and following this new simplified approach.

The Jet-Pep assets that CrossAmerica will be acquiring consists of 102 commission operated retail sites, including 92 fee sites, 5 lease sites and 5 independent commission accounts. The locations sold nearly 91 million gallons of unbranded fuel in 2016.

This is a great acquisition for us and it expands our presence in the south by acquiring a respected well-run operation in Alabama with sites which are mostly fee-simple and unencumbered with any existing fuel brand relationships.

Circle K will be acquiring 18 commission operated sites as well as the fuel terminal and other associated assets that are being utilized to supply the entire chain today. We look forward to closing on this acquisition sometime in the fourth quarter. And with that, I will now turn it over to Evan..

Thank you, Jeremy. If you would please turn to Slide 12, I’d touch on our overall second quarter results at CrossAmerica. Today, we reported adjusted EBITDA of nearly $28 million and distributable cash flow of over $21 million.

The total distributions paid in the second quarter of 2017 were over $21 million resulting in a coverage ratio of 1.01x on both a paid and a declared basis. Our trailing 12 month coverage was 0.99x on both a paid and declared basis.

As Jeremy noted earlier, our performance centered around the growth in our wholesale business as we benefited from our past acquisitions, integration efforts and a positive impact from our supplier term discounts.

As we have noted in the past, we received prompt paid terms discounts from our suppliers as a percentage of the total invoice on the fuel repurchase. During the quarter, we saw a total benefit of over $600,000 from a combination of supplier terms discounts and the impact of improved dealer-tank wagon pricing.

During the second quarter of 2017, average crude oil prices increased 6% as compared to the same period for 2016 resulting in a positive impact on the terms discount that we received from our suppliers.

On top of this increase, we also saw volatility in crude oil and wholesale fuel prices during the three month period, which benefited both our dealer-tank wagon pricing and our retail fuel margins.

Turning to Slide 13, we announced on July 26 that the Board of Directors of our General Partner declared a distribution of $0.6225 per unit attributable to our second quarter. This is a $0.005 per unit increase of the distribution attributable to the first quarter of 2017 and now marks our 13th consecutive quarterly distribution increase.

As we look at the remainder of 2017, we expect our distributable cash flow growth to continue to be driven by a combination of accretive acquisitions, strong business performance and further expense reduction associated with the recognition of synergies through our integration with Circle K.

As of August 4, we had approximately $90 million of available capacity on our revolver. Our leverage ratio as defined under our credit facility was 4.25 times at June 30, 2017, which was essentially flat with the end of the first quarter. In closing, we continue to demonstrate financial flexibility execute our growth strategy in any market cycle.

As we look toward the remainder of 2017, we should expect that while we will continue to focus on our underlying business and growing distributable cash flow. We will also be working to the closing of the Jet-Pep acquisition as well the integration strategy with Circle K in the coming months.

We hope to be able to provide you with more details regarding our long-term growth strategy in early 2018. With that, we will now open it up for questions..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Ben Bienvenu of Stephens, Inc. Please go ahead..

Yes, good morning, thanks. This is Daniel Imbro on for Ben. Thanks for taking the questions..

Thanks Daniel..

Maybe starting, you discussed the prospect for a future dropdown if you start.

Maybe looking at funding those, do you guys have a preference or how do you expect to fund those between a mix of debt or equity?.

We’ve outlined in the slide deck that we posted it two, three weeks ago that we'll be looking for a mix of debt and equity going forward, a 50/50 mix..

Okay. Thanks, thanks.

And then maybe continuing on that what kind of cadence do you expect these dropdown to take, do you expect to complete them in kind of big chunks or there would be a numerous transactions kind of over time?.

Yes, Daniel. I’ll take that. This is Jeremy. I think the – I think what we’ve laid out is that this isn’t a static set of assets that we are looking to get done over certain timeframe. I think there is an opportunity here as we continue to grow and Circle K continues their growth as well that we could see this continue over time.

So we are going to kind of manage those dropdown opportunities to match our growth targets. You can expect us to do that going on for quite some time not over a certain set timeframe..

Okay, great. And maybe one last one for me, switching gears here a little bit. We've heard from a number of convenience store operators a bit of a softer environment out there. Maybe could you provide your views on the health of the convenience store consumer and what you're seeing in the stores? Thanks..

Sure. So I mean as you know we're operating inside the stores 72 sites today in the Upper Midwest and for the most part across United States, we're distributing fuel to our customers, our dealers operating the sites or our agents. So we're still seeing a good environment.

I think there is some weakness that have been seen across the industry from a consumption standpoint and from overall volume decline across the industry of around 2% on a same-store basis and I would say that we are seeing a similar type trend across our network.

But I think we're very comfortable and confident with the sites that we do have and kind of where we're operating to continue to see good volume going forward and nothing really different than what we've seen in prior periods..

All right. Well, thanks so much. Best of luck..

Thanks Daniel..

And our next question comes from Chris Mandeville of Jefferies..

Hey, good morning.

Jeremy just kind of quickly starting off on the CST Fuel Supply income contribution for the quarter, is there any reason as to why that was down 10% or can you provide any color there?.

Sure, I mean I think what you're seeing there is a divestment that occurred last year regarding CST’s sale of their assets in the California and Wyoming locations in which we attained our refund on that investment that we made back previously. So there was a reduction in those volumes and impacted the CST Fuel Supply investment there..

That's correct. There's about 10% of volumes and so that looks like it's about the right number..

Yes..

Okay. That makes sense. And then historically, you’ve helped us quantify the terms discounts either headwind or tailwind.

Could you provide that for the quarter as well?.

Sure, I mean from the terms discounts standpoint, we’ve outlined it. And I think we saw a little bit improvement period-over-period as we saw crude oil go up from where it was last year in the second quarter to this year in the second quarter, Randy, you have this..

Yes, yes. Chris, this is Randy. I think what Evan called out in his opening commentary that roughly about between terms discount and dealer-tank wagon was almost a combination of $600,000. I would tell you as far as the supplier terms discount, that was almost 400 of it..

Okay, that’s helpful. And then I guess just with how DCF has kind of trended thus far this year and considering some of the Q2 dynamics that may benefit motor fuel gross profit similarly in Q3 potentially.

How comfortable are you guys feeling at attaining a coverage ratio north of 1.05 for the full year and you have in mind any updated target coverage ratio that you'd be able to share with us?.

No, I mean as we said, we continue to target a long-term coverage ratio of 1.1x and what we've been able to do over the past two years and what has been considered a relatively soft market environment and the transactions that we've been able to accomplish over that period and still grow the business, we're very pleased with.

As we said, we are around 1.0 cover today on a trailing 12 month basis. I think this where we stand today and with the transaction closing with Circle K and our opportunity to continue on with this unwind and to look at managing our cash flows going forward and to manage exactly where we are with our capital structure.

I think we see an opportunity to improve that in the coming months but I wouldn't want to give any specific targets for this year, where we're going but just understand as a management team, we are targeting 1.1 cover and we look forward to getting to that level here in relatively short order..

All right, that’s it for me. Thanks guys..

Thanks..

And our next question comes from Ethan Bellamy of Baird. Please go ahead..

Hi, guys. Thanks for a drum [ph] free quarter. I appreciate that..

Thank you..

What is the – can you tell us what the EBITDA multiple is on the Jet-Pep deal or maybe give us a range?.

Yes, so I mean as we said before, Ethan. This transaction is certainly well within the range of our prior transaction..

We have previously stated in prior calls.

We target multiples of 6x to 8x cash flow and certainly within that ballpark?.

Okay and do you think that by next quarter we'll start to see the benefits of maybe some improved fuel procurement through margins what – I know that you guys had a – I believe you guys had a board meeting in the July and I'm curious if you could sort of if after that meeting you can sort of narrow things down for us and maybe type of synergy realizations we should be seeing and when those should show up potential for timing or maybe any clarity on the parameters you are looking out for the exchange transaction, I’m just looking for kind of any incremental detail there since we last heard from you..

Sure. So I mean as we've said in the presentation and we touched on earlier. I mean we're talking an annual synergy number of approximately or really $10 million plus, we think there is an even better than that. For the most part, the bulk of that over half of that, we think is able to be achieved in the first year.

And the most of that are things that you would expect, things that are within our control that we can manage, that by bring the two organizations together we streamline our processes, our systems. We get management team in place and we think we can recognize some of those synergies more immediately.

Longer term, I think that as existing contracts and relationships kind of roll off, I think there's an opportunity to improve on that.

I certainly would not like to get any specifics in regards to what exactly we expect to achieve, but we certainly look forward to being a part of the Circle K organization and really leveraging their scale and their relationships within the marketplace today.

But I think the things that are within management's control and what we're actively looking at today, I think you should start to see those flowing through in the third and fourth quarter as we start to recognize those synergies. But some of those other things I think you'll see over the over the following couple of years after that.

So I know that answers your question or if you have any follow ups, but that's kind of where we are. .

Well you have a future in diplomacy. I appreciate you at least taking a stab at it. .

Yeah. .

In terms of the M&A environment, how does that look from a competition standpoint? And Jet-Pep an auction or a bilateral deal? I'm kind of curious you've got a couple other potential fuel MOPs out there, IPOIs. Sun obviously is laying off some of its assets.

I'm just kind of curious how some of these potential corporate changes among your competitors are playing out at the M&A side. .

On Jet-Pep there was a process run on Jet-Pep that we participated in. And being able to successfully get to a finding on that year in relatively short order following the closing of the Circle K transaction, and we're very excited about and kind of we think it demonstrates what our opportunity is going forward.

Yes, there are other obviously other players in that market but I think as we mentioned in this comments earlier, I think our geographic spread across the United States and having a team really on the ground knowing and speaking with the dealer, speaking with a lot of the C-Store operators, I think we certainly like where we are and our ability to not just participate in process transactions but also do one-off negotiations as well.

I think that's the opportunity we have been part of such a large organization now and we're very excited about that that brings..

Thank you Jeremy, keep up the good work..

Thanks Ethan..

Thanks Ethan..

Thank you. And our next question comes from Sharon Lui from Wells Fargo. Please go ahead..

Hi, good morning. Just a couple of follow-up questions on Jet-Pep. Just trying to think about I guess the cash flows by category for these assets, how should we think about, I guess, the fuel margin per gallon on those 91 million gallons of sales..

Well Sharon, I don’t know, it’s – we obviously are not going to get specific comments on kind of what they're earning today. We're just taking this to signing and went to work through our due diligence and get the closing here in the back half.

I will say that they're being run as commission agent operators today and so what that means is they're earning a margin on the gallons being sold at the retail side as well as obtaining some rental income.

I think what we need to do is get past closing and see what's the optimal way to operate those assets from a cost-of-trade standpoint and we've said publicly our preferred cost-of-trade is lessee dealer because we think for our investors that value a steady stream of cash flow into the business, getting good solid rental income into the partnership as qualified certainly benefits them and we'll be looking to maximize that.

So I wouldn't want to comment on specific margins that they're earning today because that isn't necessarily how we're going to run the business post close. I will say once again it's a very exciting opportunity for the partnership and we look forward to getting to close here in the fourth quarter. .

Okay.

And then maybe if you can touch on the rationale behind I guess Couche-Tard acquiring the 18 sites versus you guys for the 102, like was there a difference between the sites that made it more reasonable for Couche-Tard to acquire them?.

Well I would just point back to kind of what we have said as our overall strategy is, besides that our good C-Store sites that fit the Circle K model of wanting to operate long term, I think that's how they looked at those assets and they saw opportunity there in those 18 locations that they have an interest in.

So, I think that is pretty obvious when you look at those sites in terms of where they were seeing things. And then from the fuel thermal standpoint, I mean they're obviously one of the largest, if not the largest, buyers of fuel for retail perspective in the world today.

And so this is a great way to compliment this particular business as well as the other businesses they have in that particular market. .

Okay and I guess the last question just in term of financing plans around the acquisition.

Is it based on the historical funding plans of 50/50?.

Sharon this is Evan. We will look to our typical sources of financing which we've used in the past, revolver sale leaseback, cash flow to fund this acquisition and other acquisitions..

So no equity issuances..

No there is no intention of issuing equity to fund this transaction, Sharon. I mean I think we're going to go through the due diligence in the process. As Evan stated early, we have about $90 million of available capacity on the revolver today. And we have other ways in which to pull capital in which to help with this funding.

We've demonstrated with the state-all acquisition how we could be successful in the sale leaseback market, so that is certainly an opportunity for us as well as other things that are at our disposal. I think the timing of this in doing this at the same time that we're going through this unwind strategy with Circle K also presents us with opportunity.

So I think we certainly look forward to closing on the transaction and using the available funds that we have today and tap whatever market opportunity is out there. .

Okay great thank you..

Thanks Sharon..

Thank you, and we have a question from question from Ben Brownlow of Raymond James. Please go ahead..

Hi, good morning, just two quick questions for me.

The $92 million gallons, can you comment kind of how that trend over the past 12 to 24 months?.

I am assuming you are referring to the Jet-Pep assets and the $92 million that they –.

Yes.

So, I don’t want to get into too much detail. But I think we're confident in the $92 million that they achieved last year. I mean once again it depends – it varies on how they were running the business. It is indicative of the volume there at the site being operated as a commission agent operator.

And so when we look at it, we're confident in our ability to maintain that level of volume and potentially grow it over time. So we're excited about it, but I wouldn't want to comment too much on their historical trends at this point in time..

Okay, great.

And can you remind us what the covenants are on the debt side?.

Which covenants specifically?.

The leverage covenants, restrictions..

So we’re at 4.25s, which is basically in line with the first quarter as well. So, we've been flat and we can carry up to 5x for several quarters after an acquisition..

Great. And just one more from me.

Can you just give some color around what you're seeing in leaseback market in terms of rates?.

We haven’t been very active recently. So, I couldn't give you a specific number, but the reap market has been very strong, but the appetite demand for real estate continues to be strong. And it's been since last fall since we did our last transaction.

I can't imagine that we would see something probably twice the un-improvement on that since the last transaction..

Okay, great. Thank you guys..

Thanks Ben..

Thanks Ben..

And we have no further questions at this time..

Okay. Thank you, operator. That does complete today's conference call. We appreciate each of you joining us today. And if you do have follow up questions, please feel free to reach out to us. Thank you very much. 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..