Good morning and welcome to the CrossAmerica Partners Fourth Quarter 2020 Earnings Conference Call. My name is Brandon, and I'll be your operator for today. At this time, all participants are in a listen only mode. Later we will conduct the question-and-answer session [Operator instructions]. Please note that this conference is being recorded.

I will now turn the presentation over to our CFO, Eric Javidi. You may begin sir..

Thank you, operator. Good morning, and thank you for joining the CrossAmerica Partners fourth quarter and year-end 2020 earnings call. With me today are Charles Nifong, CEO and President; and other members of our executive leadership team.

Charles will provide some opening comments, a brief overview of CrossAmerica's operational performance and highlights from the full year and quarter, and then I will discuss the financial results. At the end, we will open up the call to questions.

I should point out that today's call will follow some presentation slides that we will utilize during this morning's event. These slides are available as part of the webcast and are posted on the CrossAmerica website.

Before I 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 have provided schedules that reconcile these non-GAAP measures with our reported results on a GAAP basis as part of our earnings press release. Today's call is being webcast and a recording of this conference call will be available on the CrossAmerica website for a period of 60 days. With that, I'll now turn the call over to Charles..

Thank you Eric. I appreciate everyone joining us this morning. As always, we thank you for your interest in the partnership and hope that you are well. During today's call, I will briefly go through some of the operating highlights for the fourth quarter and full year of 2020.

I will also provide some color on the continuing impacts from COVID-19 along with a few other updates similar to what I provided during our prior calls this past year. Eric will then review in more detail the financial results. If you turn to slide 4, I will briefly review some of our results.

For the fourth quarter of 2020, our wholesale fuel volume increased 22% when compared to the fourth quarter of 2019 largely due to the acquisitions and exchanges that were completed during 2020, offset by the impact of COVID-19.

Along with a strong increase in last year, we also saw a 15% increase in our wholesale fuel margin per gallon year-over-year driving our wholesale fuel gross profit up 39% for the quarter. As I have done in prior quarters, I will provide some color on same-store volume performance to provide insight on business conditions.

In terms of same-store comparable week year-over-year volume performance, weekly volumes at the start of the quarter were generally off in the high single digits relative to the prior year. Beginning in mid-November as COVID mitigation efforts across the country intensified, we saw a decline in same-store volumes from this trend level.

We experienced a sharp drop in volumes a week of Thanksgiving as same-store volumes were off 15% to 20% from the prior year. December volumes were off in the range of low double digits on a same-store year-over-year basis. For the quarter overall, same-store volume was off in low double digits relative to the prior year.

Going into the New Year, volumes begin to improve on a year-over-year basis and volume has generally been off in the upper to mid-single digits relative to the prior year since then. Recent weeks have seen some weather impacts given the significant winter storms that many parts of the country have experienced.

In terms of margin, our wholesale fuel margin for the quarter was $0.078 per gallon an increase of $0.01 per gallon or 15% over the prior year.

The year-over-year increase was driven by our dealer tank wagon fuel margins, which as a reminder are variable fee margin accounts with certain of our third-party wholesale dealers and also how we supply our company operated and commission retail sites.

The percentage of our wholesale fuel gallons has variable, our dealer tank wagon price increased with our recent retail and wholesale acquisition. It is now approximately 29% of our overall gallons compared to 18% for the fourth quarter of 2019.

Relative to the third quarter, our wholesale fuel margin decreased by $0.016 per gallon, the decrease was due to a decline in our DTW margins for the fourth quarter relative to the third quarter, primarily driven by the increase in crude prices and consequently an increase in the cost of fuel purchased during the quarter.

WTI increased 26% during the quarter which in turn drove variable-prices higher by approximately 18%. As we have discussed previously, during periods of rising prices, our variable price fuel margins tend to contract due to retail prices not adjusting as quickly as wholesale cost to.

Relative to the prior periods of increasing crude prices low, the margin environment for the quarter was good. If you look at our rental gross profit for the fourth quarter, we reported $14.2 million, down 14% year-over-year, due primarily to the termination of leases at sites in connection with the retail and wholesale acquisition.

We now retail operate these sites. In a place of rental income, we record retail fuel and merchandise revenue along with the associated operating expenses with these revenue streams. In terms of rent, we did not experience any COVID-related rent collection issues during the quarter and our performance was in line with historical pre-COVID performance.

On the retail side, in comparing the performance of the retail sites for the quarter for the comparable period before these sites were in the partnership, inside sales at our coming operated sites remained strong throughout the quarter.

As with our gallons, retail inside sales declined from trend from mid-November through December, due to the increased COVID mitigation efforts across the country. Despite the decline from trend on a comparable week and year-over-year basis, our inside store sales were up in the low-single digits during this period.

Overall for the quarter, same-store inside sales were up in the mid- to high single-digits relative to the prior year. Since the start of the year, same-store comparable week inside store sales have generally been up over 10% year-over-year, although the recent weeks have been somewhat lower due to the adverse weather.

Retail fuel volume has followed similar trends to what I mentioned earlier in my wholesale comments. The retail store sales and volume figures illustrate the strength of these assets and demonstrate the convenience channels durability and relevance with the consumer in the COVID environment.

In reviewing our retail segment financial performance, it is important to remember the wholesale segment supplies our retail segment on a DTW or a variable margin basis so the overall fuel profitability of these sites is split between our wholesale and retail segments.

And the DTW fuel margin to our retail sites makes a meaningful contribution to our wholesale segment and to our overall profitability. For the fourth quarter, we did see an increase in both our operating and G&A expenses compared to the prior year.

The increase in operating expenses was primarily driven by the increase in our average company-operated site count year-over-year from zero sites to 149 sites.

Contributing to the increase in G&A for the fourth quarter was an $800,000 increase in management fees related to the increase in headcount associated with the acquisition and exchanges completed this year.

A significant driver of the increase in headcount relative to the prior year was the transaction earlier in the year where we exchanged our ownership of CST fuel supply, a non-operational, non-controlling economic interest-only in fuel margin for controlled operational wholesale assets.

Our adjusted EBITDA was $24.4 million and distributable cash flow was $26.2 million for the fourth quarter of 2020. Moving on to a summary of our full year.

If you look at the right-hand side of the chart, for the full year 2020, we reported an increase of 43% on our wholesale fuel gross profit, led by an increase of 28% in the wholesale fuel margin per gallon, which was $0.092 per gallon for 2020 versus $0.072 in 2019.

Our rental gross profit declined 7%, due primarily to the termination of leases at sites in connection with the retail and wholesale acquisition that I noted earlier. Rent income continues to be an important and stable profit stream for us and represented 27% of total gross profit in 2020.

Both operating and general and administrative expenses were up for the year, driven by the increase in the number of company-operated sites and additional headcount associated with our acquisitions that I touched on a moment ago. Adjusted EBITDA was $107.4 million, an increase of 4% and distributable cash flow increased 28% to $102.5 million.

The primary drivers were the increase in distributable cash flow were the performance of the wholesale segment and a decrease in cash interest. Both periods benefited from a current tax benefit primarily related to taking bonus depreciation on assets acquired in the asset exchange and capital expenditures.

If you turn to slide five, I wanted to review some of the highlights from 2020. Our wholesale segment profit increased 19% in 2020 rising to $155.5 million compared to $131.1 million in 2019. Fuel margin for the full year of 2020 was $0.092 per gallon which was a 28% increase over the full year of 2019.

This is the highest level in the partnership's history for a full calendar year, driven in part by the acquisitions that we executed during the year. Despite COVID, fuel volume increased 11% in 2020 with over 1.1 billion gallons distributed during the year on the strength of our completed acquisitions.

Rent, as I mentioned earlier, continues to be an important part of the partnership's profitability and represented 32% of the wholesale segment in 2020. With our wholesale and retail acquisition that was completed in April, we now operate 150 convenience stores along with 208 commission sites.

With this transaction we reestablished a retail capability that enables us to pursue a broader range of acquisition opportunities and provides greater flexibility for optimizing the class of trade for each asset in our portfolio. If you turn to the next slide, slide six, I will continue with a few more highlights from 2020.

We had a busy year during 2020 executing several strategic transforming transactions in the depths of the COVID pandemic. On January 15th, the partnership entered into an equity restructuring agreement with the general partner and Dunne Manning to eliminate the incentive distribution rights of the partnership.

This transaction closed on February six and aligns our Founder and Chairman and largest unit-holder, Joe Topper with all of our other unit holders.

On March 25th, we completed an asset exchange with Circle K as we exchanged our 17.5% interest in CST fuel supply for 331 of Circle K's US wholesale fuel supply contracts, 33 owned and leased convenience store properties, and approximately $14 million of cash at closing.

With this transaction we exchanged a non-operational non-controlling economic interest-only fuel margin for controlled operational wholesale assets. If you turn to slide seven, I will continue with some final highlights from 2020. We completed our acquisition of wholesale and retail assets on April 14th.

This acquisition included retail operations of 169 sites, wholesale fuel supply to 110 sites, and leasehold interest at 62 sites.

With this transaction, we not only added wholesale fuel contracts to our portfolio, but added retail assets and our retail capability that enables the partnership to pursue a broader range of acquisition opportunities and provides greater flexibility for optimizing the class of trade of each asset in our portfolio.

We completed four asset exchanges with Couche-Tard and Circle K during 2020. These changes were completed on February 25th, April 7th, May 5th, and the final change was completed on September 15th. These sites are dealer-operated and reside within our wholesale segment.

With the six total asset exchanges, two in 2019 and four 2020, CrossAmerica received 191 properties from Circle K and Circle K received the real property of 56 US convenience and retail fuel stores while the 17 company-operated convenience sites in the upper Midwest. If you turn to slide eight, I want to provide a few thoughts on 2021.

We executed a number of our strategic transactions during 2020 and spent the latter half of the year working to integrate and optimize our new assets.

We will continue during 2021 to work to optimize the operations of acquired assets to the most appropriate format and class of trade in order to provide more stable cash flows and to maximize our investment returns.

Internally, we continue to work to provide better experiences and better service to all of our customer base and to be more efficient and effective in all that we do. Our relationships with major oil companies remain an important focus of ours and we will work with our supply partners to find mutually beneficial ways to grow our business together.

On the capital side, we want to continue the real estate rationalization plan that we initiated last year and had good success with. Through these efforts we are able to recycle capital and to invest in growth opportunities within our existing portfolio. In terms of acquisitions the partnership has a long history of growing through acquisitions.

The partnership has completed approximately $1.2 billion worth of acquisitions in the span of a little more than eight years with the bulk of those acquisitions being completed by members of the current management team. We are always evaluating opportunities. You can rely on us to be disciplined in our pursuit of acquisitions.

We look for strong sites with long-term prospects and good locations at reasonable prices. We would much rather not do a deal than do a deal that does not meet these criteria. As always, a big thank you is due to everyone here CrossAmerica.

The team executed a number of difficult complex transactions this year during the depths of the COVID pandemic which was a tremendous accomplishment. Throughout the year the team has not let obstacle stop them and have simply done what was needed without fail.

To the team members listening in on behalf of myself senior leaders and our unit-holders we owe you a debt of gratitude for all of your efforts this past year. Thank you. With that I'll turn it over to Eric for a more detailed financial review. .

Thanks Charles. If you please turn to Slide 10 I'd like to review our fourth quarter and full year results for the partnership. We reported adjusted EBITDA of $24.4 million for the fourth quarter of 2020 which was a decline of 4% when compared to the same period of 2019.

Our distributable cash flow for the fourth quarter of 2020 was $26.2 million versus $18.8 million for the fourth quarter of 2019 reflecting an increase of 40% year-over-year.

Our distributable cash flow for the fourth quarter benefited from the performance of our wholesale segment, lower cash interest and a current tax benefit from bonus depreciation on eligible capital expenditures.

Our distribution coverage on a paid basis for the fourth quarter of 2020 was 1.32x a 27% improvement versus 1.04x for the fourth quarter of 2019.

As Charles touched on earlier our operating expenses increased over $17 million for the fourth quarter of 2020 compared to the fourth quarter of 2019, driven by the increase in our company-operated site count as a result of the April 2020 acquisition of retail and wholesale assets.

Our average company-operated site count increased to 149 sites from 0 sites in the fourth quarter of 2019. Additionally, a fair number of our company-operated sites are leased and so the rent component of operating expenses at our company-operated sites increased $3.2 million.

For the full year, our adjusted EBITDA was $107.4 million representing an increase of 4% with distributable cash flow increasing 28% to $102.5 million. Our distribution coverage on a paid basis for the full year of 2020 was 1.31x which was an improvement over the 1.11x that we experienced for the 12 months ended December 31, 2019.

Slide 11, if you turn to the next slide we ended the quarter with a leverage ratio as defined under our credit facility of 4.06x and remain comfortably in compliance with our financial covenant ratios.

Despite the additional borrowings to fund the retail and wholesale acquisition during the second quarter along with the negative impacts of COVID-19 and higher capital expenditures we were able to improve our leverage from the 4.7x as of December 31, 2019.

We have sufficient liquidity to execute on our plans and as of February 22, we had $166 million available on our credit facility, an increase of $75 million compared to our availability at December 31, 2019.

The partnership made a distribution of $0.525 per unit during the fourth quarter of 2020 which was an aggregate distribution of almost $20 million to our unit-holders. This distribution was attributable to the third quarter of 2020. And as I noted on the previous slide this resulted in a coverage ratio of 1.31x on a paid basis for the 12 months.

In regards to our capital spending during the fourth quarter and the full year of 2020 we did see an increase in our growth-related capital expenditures as a result of dispenser upgrades, EMV upgrades and rebranding of certain sites due to our fuel initiatives.

Much of this spend during the year was effectively funded by our non-core property site sales. Also it is important to note for site brand conversions we generally are reimbursed by suppliers for a substantial portion and in some cases all of the upfront spend, either over a period of time post-conversion or after final completion.

While we expect to have some growth CapEx spend in the first quarter and during 2021 as we invest in our sites for the long term, we do anticipate a decline from the levels in 2020. In conclusion, we believe we are in a good position as we enter 2021.

We expect to continue to stay within both our coverage and leverage target ranges, as we see the benefits from the 2020 asset exchanges and acquisitions and our other strategic initiatives. With that, we'll open it up for questions..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And from Baraboo Growth we have Walter Morris. Please, go ahead..

Yes, gentlemen. Congratulations on navigating the cross currents of 2020..

Thank you. .

My question relates to the tax benefits realized in 2020. Could you go into greater detail on the background and tax laws that produced those tax benefits? And now that the Couche-Tard exchanges are completed, should we expect a little or no tax benefits going forward? Thank you..

Yes. So, as it relates to the tax benefits that we recorded during the year, there are a few sources for them, but the main benefit that we had was from the accelerated depreciation due to all the acquisitions that we did during the year.

And so, going forward to the extent that there is less acquisitions, you should see that impact being reduced in the future..

Without any additional acquisitions, would that number go to essentially zero going forward?.

Yes. I don't want to go into too much in, like, predicting or forecasting the future, but suffice it to say that, the tax -- being in a tax benefit position is in large part driven by the benefit of being able to take the 100% accelerated depreciation.

So to the extent they're not continuing current new acquisitions you shouldn't expect to see that same type of position going forward..

Right. And obviously, it's all subject to current tax loss in the future as well..

Thank you, gentlemen..

Thank you..

[Operator Instructions] And from RBC Capital Markets we have Elvira Scotto. Please go ahead..

Hey, good morning, everyone. A quick question around CapEx. It looks like -- can you just talk about the CapEx spend for the year? First quarter and second quarter were about $5 million, third quarter and fourth quarter were about $10 million to $12 million.

Just how do we think about that CapEx spend, the cadence of that? And what drove that?.

Yes. So, for last year there are a few factors going on. One of the significant ones that we touched on in the industry was the need to upgrade dispensers for EMV compliance. And so a fair amount of that was related to those types of activities. And then also in addition as part of our fuel initiative, we've done a fair amount of brand conversions.

So, you also see that number in there as well. And as we touched on in our comments, for the fuel conversion, that is a number that typically from the suppliers we are reimbursed for it over time or after completion. So, there'll be a lag between when you see that number spend and when it comes in.

And also given the way that we're reimbursed for it over time you're not necessarily going to see that reimbursement come in on the cash flow statement it sometimes will come in through other means. .

Okay, treat. That's helpful.

And then can you just talk a little bit about the environment for M&A and what you're seeing out there?.

Yes. So, it's continued to be an active environment. As we touched on in our comments we're always seeing opportunities.

I think the question for now that's out there in the marketplace is when you're evaluating opportunities what's the framework in which you're evaluating them because sellers certainly have expectations that you're going to look at things through a return to normal environment.

And obviously, as buyers, we have a different framework through which we view things.

And the question is in terms of the COVID impact what is going to be transitory? And when will that COVID impact in and what is perhaps permanent? And so I think there is some friction there between buyers and sellers in regards to expectations for economics and what set of numbers that people want to evaluate transactions on.

But the marketplace continues to be active. But from our perspective, we're going to be continuing to be focused on the things that I touched on in the call and be disciplined about what types of sites that we're going to go after..

Great. Thank you..

[Operator Instructions].

All right..

We are showing no more questions. Mr. Javidi, I'll will turn it back to you for closing remarks..

Yes. Thank you everyone for joining. We appreciate it. And if obviously to the extent there are other questions you know where to find us. But thank you all for joining this morning..

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect..