Hello and welcome to the CrossAmerica Partners Third Quarter 2019 Earnings Call. My name is Michelle and I will be your operator for today's conference. 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 Mike Federer, Senior Director and Corporate Secretary. Mr. Federer, you may begin..

Thank you, operator. Good morning and thank you for joining the CrossAmerica Partners third quarter 2019 earnings call.

With me today are Gerardo Valencia, CEO and President; Evan Smith, Chief Financial Officer; and other members of our executive leadership team.Gerardo will provide some opening comments and a brief overview of CrossAmerica’s operational performance and highlights from the quarter, and then will turn the call over to Evan to discuss the financial results.

At the end, we will open the call up 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-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 CrossAmerica website for a period of 60 days.With that, I’ll now turn the call over to Gerardo Valencia..

Thank you, Mike. We reported our third quarter 2019 earnings results yesterday afternoon, and I will briefly go through some of the highlights and then Evan will go through the financials in more detail in a few minutes.Overall, we had a very strong quarter operationally and financially.

We are delivering on our strategy, growing our distributable cash flow to its highest quarterly level in the history of the partnership, deleveraging our balance sheet, all supported by sound business fundamentals with our strategic customers and our portfolio management.I am very proud of our team.

If you turn to Slide 4, I will briefly review some of our operating results in the quarter. For the third quarter, all of our indicators are in line with our strategy. We continued with our field optimization agenda and delivered an increase in wholesale fuel growth profit of 13%.

We reduced our operating and SG&A expenses by double digits on a combined basis, which is through our focused disciplined approach to grow.Through these efforts we grew our adjusted EBITDA 8% for the quarter versus 2018 on a comparable basis when adjusting for the newly accounting guidelines.

Our Distributable Cash Flow increased by 32% versus 2018 on a comparable basis. We had a very solid third quarter and we’re able to generate such flows without having to reject any material capital.If you will turn to Slide 5, I want to once again discuss our wholesale fuel margin and our distribution coverage ratio.

Our wholesale fuel margin for the third quarter was $0.08 per gallon, which was an 18% increase over the third quarter of 2018.

This is the highest level in the partnership’s history and this growth in cents per gallon is supported by the fuel synergies that we have been discussing over the past few quarters.As we look at our performance in the trailing 12-month basis, this is not a one-off situation, but rather a result of our strategy as we have steadily increased our wholesale field margin to its highest level in the partnership’s history with a [$0.01] per gallon of $0.074 at the end of the third quarter of 2019.Looking at the charts on the right side of the page, we ended the quarter with a 1.42 times coverage ratio, our highest level in over five years.

On a trailing 12-month basis, we have seen steady improvement over the past few quarters and ended the period at 1.14 times, which is the highest in over four years, which is a testament of our continued growth and discipline.If you will turn to Slide 6, I want to provide you with an update on our strategic initiatives, which [indiscernible] our business.

As of September 5, we have now completed two asset exchanges with Couche Tard, Circle K for a total of 116 sites that are now dealerised and under our wholesale segment.We’re continuing to work with the remaining 76 sites that are part of the overall asset exchange and based on our current timeline we expect the remaining sites to be utilized and the final obvious change to be completed by the first quarter of 2020.

Of these 76, we have already signed 48 contracts and have just 13 without a letter of intent completed.On October 1, we announced the closing of our master fuel supply and lease agreements with Applegreen to run 46 sites that we have in the upper Midwest. They are very strong operators and this yield further expands our relationship with them.

With the completion of this agreement, they are now operating over 100 sites for us.We are now in the final stage of our excellent direct retail operation.

We anticipate that as we do this, we will see a 1.5 million to 2 million benefit to our adjusted EBITDA as we generate efficiencies in this process.In regards to our Fuel Supply Strategic Review and associated fuel synergies, we did realize contributions during the third quarter reflecting the wholesale fuel margin improvement, and we expect to continue to the fourth quarter.

We continue to work with our strategic suppliers to this process.Regarding Alabama, we have completed our re-branding and re-imaging program across the business.

The sites are now being hard branded and re-imaged with [indiscernible] brand and we have changed expenses across most of the network.As we have improved the network quality, we are seeing the benefits beyond our original plan optimizing volume and profitability of the network with an increasing EBITDA of 58% over the first nine months of 2018.

With a completion of these projects, we expect this will benefit our network in the coming quarters and years.To conclude, we continue to make progress in our initiatives in establishing a strong foundation for the partnership.

We were pleased with our third quarter performance as we saw growth in adjusted EBTIDA and distributable cash flow and an improvement in our financial metrics.With that, I will turn it over to Evan..

Thank you, Gerardo. If you would please turn to Slide 8, I would like to review our third quarter results for the partnership. For the third quarter of 2019, we reported adjusted EBITDA of $29 million, compared to $26.8 million in the same period of 2018, reflecting an increase of 8%.

Our distributable cash flow for the third quarter of 2019 was $25.7 million, versus $19.5 million in 2018, an increase of 32% year-over-year.Our distribution coverage on a paid basis for the third quarter of 2019 was 1.42 times and was 1.14 times for the trailing 12 months, which was an improvement over the 0.99 times that we generated in the trailing 12 months ending September 30, 2018.As Gerardo touched on earlier, we have adjusted the three-months period for 2018 for the new lease accounting guidance that went into effect on January 1, 2019.

We have provided reconciliations for the lease adjustments for both 2018 and 2019 depending on how you choose to look at it in the appendix of the presentation slides.If you would turn to the next slide, Slide 9, we ended the third quarter with a leverage ratio as defined under our credit facility at 4.47 times, a decrease from 4.81 times at the end of the first quarter through lower borrowings on the credit facility, no new debt and improved EBITDA and remain in compliance with our financial covenant ratios.We have sufficient liquidity to execute our plans and as of November 4, we had $123.5 million available on our credit facility with nominal capacity of $244 million and another $300 million of additional accordion capacity from our lender group under our credit facility.The partnership paid a distribution of $0.5250 per unit during the third quarter of 2019 attributable to the second quarter of 2019 for a total of over $18 million.

And as I noted on the previous slide, this resulted in a coverage ratio of 1.14 times on a paid basis for the trailing 12-months.Our required investment in the business remains relatively modest with total capital expenditures of $7.7 million for the third quarter, with $7.2 million of the total being growth CapEx.

This has been primarily associated with the re-branding and re-imaging program in the Alabama sites, which has had a positive impact on volumes and margins, as well as the re-building in Florida from Hurricane Michael that occurred in 2018.In conclusion, we feel good about our performance in the third quarter and believe that we are in a good position to finish 2019.

We expect to continue to improve our coverage ratio and manage our balance sheet and leverage as we see the benefits from the asset exchanges and our other strategic initiatives.With that, we will now open it up for questions..

Thank you. [Operator Instructions] I do have one question in the queue and that question comes from Ethan Bellamy with Baird. Your line is open. Please proceed..

Hi, good morning everybody. I have a couple of questions.

The first thing is, we seem some of your competitors turned to the IDRs, I don’t think that that would be of material problem for you guys to do, and clearly quarter by quarter you are more of an outlier best then every [indiscernible], what if anything is the impediment that would keep you guys from eliminating those IDRs?.

Hi, Ethan. This is Evan. Good morning. Thanks for joining. That’s a discussion that we continue to have with the general partner, but we continue to be focused on operating the business well and you can see that in our results this quarter, but those are ongoing discussions that we have with the general partner..

Okay. Separately, it looks like Speedway could be carved out.

I’m wondering what if anything that could mean in terms of the M&A market or if you guys could speak more broadly about what’s trading out there and just generally potential upside from further M&A once you get the asset exchange knocked out?.

So, thanks Ethan, and good morning. Good to hear from you. So, we continue to see opportunities out in the marketplace and I’m going to say there’s lot of activity that we’re monitoring, that we’re participating across the county, and I’m going to say there is a – there were some very healthy results from many organizations in the last few quarters.

So, we’re seeing a lot of activity, but I’m also going to say that what we’re seeing is also some very [operational multiples] being out there, and so while we continue to asses the environment we are causing very disciplined about what we do, and making sure that we can add value to whatever we are considering from an acquisition standpoint.I think from a standpoint of where we are focusing right now, we’re also – we’re about to conclude the execution of the initial exchange that we – and now with Circle K as we discussed before, but what we’re looking at Ethan, are there any other opportunities that we can do together with our general partner and that’s something that we are continuing to consider and look at because what we’re seeing in the marketplace seems to be, as I was saying, because very high multiples, some numbers that we wouldn’t be considering from a forward outlook and being very disciplined about how we spend our capital.

And then regarding Marathon and Speedway and whatever is happening there, you know it would be pure speculation from my side to say anything about that. So, I just can’t tell whatever they are going to be doing with, with their Speedway organization..

Okay, that’s fair. Appreciate that and we certainly appreciate the capital spending discipline.

One sort of housekeeping question, as we look over the next year or so, are there any lumpy items in CapEx, maintenance CapEx, anything else that we should be modeling?.

Go on, Evan..

Yes, Ethan, we’ve had some- we talked about some of the rebranding money that we have been spending in down in Alabama with re-branding the sites Marathon, it is around about almost $5 million this year and we’ve pretty much run through, it is winding down it’s run its course, so that would not be and that’s concerned a growth CapEx that we would not expect to see that next year with those specific assets..

Okay.

And then, final one, it doesn’t sound there are too many questions [indiscernible] monopolizing here, but, the big concern in the oil market is, what’s EV penetration going to look like and what does that do to long-term or find product demand in the U.S.? Historically, we thought about maybe 0.5% or 1% a years type declines long-term, if I don’t get your results, you’ve done some M&A and exchanges, so same store looks are pretty hard to come by, how have you seen refined products demand trending and how do you anticipate [indiscernible] what could be a kind of a long-term structural problem for demand?.

From a standpoint of long-term Ethan, I mean, we are aware of what’s happening from a EV standpoint of course and from – we’re working very closely with Circle K and Circle K has a very, very large presence in Norway and Norway is a market that has a highest EV penetration across the globe that’s because of the subsidies and what the government has done there and were Circle K is using that as a place where there is a lot of learning that we’re continuing to get.Europe has different dynamics then the U.S.

even from a behavioral standpoint and consumers behave differently and we know – so there is always going to be – there is always a consideration from that standpoint.

A lot of that has been driven by regulations, what we are seeing when we talk to oil companies and our own analysis fuel demand, what I have seen other companies planning for is a decline of about 1%.

So, that will continue to happen and that’s based on not that much in EV, but more from efficiency that are being driven by the car fleet and we do see EVs coming up in the future, not in the very near term.We’re continuing to monitor that and just making sure that we can leverage Circle K to help us to understand how do we make sure that we can support our customers to battle that if it were to happen in the U.S.

or as it happens in the U.S., not if, but as it happens in the U.S.

In terms of our demand, yes, you are right that there is some areas, but we are seeing further erosion of volumes and others, but what we are seeing in some areas where we have been investing and being able to drive some efficiencies like Alabama so our volumes there have been growing a positive high single digits and we re very proud of what we are doing there and we are continuing to implement our programs to support that.So, we will continue to see that as we invest in our different sites.

We said, we would change operators just like we are being with Applegreen right now where we brought a very strong operator to help us to support that, and what we believe is that there is going to be continued erosion, but that’s where other companies are going to plan there.

We’re supporting our base and we expect there or to be able to acquire some businesses as they have some struggle themselves..

Okay. Thank you. Gerardo. Keep up the good work..

Thanks, Ethan..

[Operator Instructions] Okay. We have no further questions..

Well, very good operator. So, just before we conclude, I thought we mentioned we are very pleased with our results, we’re delivering sustainable continuous growth, strong financial performance, and we have built a very strong foundation with our customers and portfolio. I want to acknowledge our team for all their contributions.

Our people are our greatest assets and they are the reason we have accomplished so much for the last few quarters. Just want to say thank you to everybody in the organization.

Are there any other questions, operator?.

No, sir. We have no questions in the queue at this time..

Okay. That completes today’s conference call. We appreciate each of your joining us today and if you have any follow-up questions feel free to contact us. Thank you..

Thank you, ladies and gentlemen. This will conclude today’s teleconference. Thank you for your participation. You may now disconnect..