Good morning and welcome to the CrossAmerica Partners First Quarter 2021 Earnings 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. Please note that this conference is being recorded.

I will now turn the call over to Jonathan Benfield, Chief Accounting Officer. You may begin Sir..

Thank you, operator. Good morning and thank you for joining the CrossAmerica Partners first quarter 2021 earnings call. With me today are Charles Nifong, CEO and President.

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, John. I appreciate everyone joining us this morning as always. We thank you for your interest in the partnership and hope that you all we'll. During today's call, I will briefly go through some of the operating highlights for the first quarter of 2021.

I will also provide some color on the recently announced agreement with 7-Eleven; the continuing impacts from COVID-19, along with a few other updates, similar to what I provided during our quarterly calls this past year. John then review in more detail, the financial results. Now, if you turn to slide four, I will briefly review some of our results.

For the first quarter of 2001, our wholesale fuel volume increased 32% compared to the first quarter of 2020, largely due to the acquisitions and exchanges that were completed during 2020 offset by the impact of COVID-19.

While we saw a strong increase in overall volume for the quarter relative to last year, we also saw a 19% decrease in our wholesale fuel margin per gallon year-over-year, primarily impacted by decline and our dealer tank wagon margins. Despite the decline and fuel margin per gallon, our wholesale fuel gross profit increased 7% for the quarter.

As I have done in prior quarters, I'll provide some color on same-store volume performance to provide insight on business conditions. We've now been operating in dealing with COVID for over a year. And it was during March of last year that the initial society-wide shut due to COVID occurred.

Basically for the first quarter of 2020, January and February were normal. And then March was coded, which was as we all appreciate, decidedly not normal. As I go through my comments on our volume performance for the quarter, keep that thought in mind, the volume environment is obviously decidedly better than at this time last year.

For example, our same site volume for the last week in March was up approximately 80% year-over-year. If you look at the quarter, overall, our same site volume was down approximately 3% relative to 2020, which again was two relatively normal months and then a severe COVID impact in March.

For additional context on a same site volume basis, the first quarter of 2021 relative to 2019 was down 3.5%. For our year to date, same site volume performance through late April, we are up approximately 5% year-over-year as we overtake some of the severe volume declines last year.

Illustrating this effect, same site volumes for the recent weeks in April are up 50% or more relative to the same weeks in 2020. Relative to 2019, our same site volume performance for the year to date period was down approximately 3.2%, which shows a continued improving environment, given the improved performance from the quarter end number.

A further reason for optimism is that if you look at the volume on a sequential week-over-week basis, we are seeing same site volume building, which is both a normal pattern as we head into the summer months and a further sign that miles driven and people's mobility are approaching every return to pre-pandemic levels.

In terms of margin, our wholesale fuel margin for the quarter was $7.30 per gallon, a decline of $1.70 per gallon or 19% from the prior year.

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

The decrease in fuel margin was due to a decline in our DTW margins for their first quarter relative to the first quarter of 2020, which was primarily driven by the movement and crude prices during the two periods.

WTI increased 28% during the first quarter of 2021, which in turn drove our price prices higher by 31%, which negatively impacted our fuel margins per gallon.

In contrast kind of first quarter of 2020, there was a 66% decline in WTI, my daily spot price of $61 14 per barrel on December 31st, 2019 to $20 51 per barrel, on March 31st, 2020, which drove an almost equal 65% decline in our bog prices for the same period.

Although crude and fuel prices trended down during the first quarter of last year in March, there was a rapid and steep decline due to COVID, which these figures reflect the dramatic decline in these costs inputs positively impacted our fuel margins for the prior year period.

As we have discussed previously, during periods of rising prices are variable price fuel margins tend to contract, to retail fuel prices, not adjusting as quickly as wholesale costs to which was the case this quarter.

As with our fourth quarter, relative to other periods of increasing crude prices, the margin environment for the quarter was favorable. In terms of rent, as in the prior quarter, we did not experience any COVID related rent collection issues and our rent collection results were in line with historical pre COVID performance for our retail operations.

We continue to see strong inside sales at our company operated sites. Overall for the quarter, same store inside sales were up approximately 13% year-over-year or additional context relative to the first quarter of 2019.

Same store inside sales were up for the quarter over 14%, which indicates our stores are performing well even relative to pre-pandemic results. Year to date for the period through approximately the end of April, our same store inside sales are up approximately 15% year-over-year.

As we have discussed before the initial COVID impact on our retail inside store sales was considerably less than the volume in fact. Also, as we saw over the course of the last year, consumers gravitated to our stores to do their convenience and enhanced product offerings.

For the quarter, our retail stores also performed well on the volume side, on a same-store basis for the quarter, our retail same-store volume was up approximately 3%. Year-over-year to date, as of approximately the end of April, our retail store, same site volume was up 16% year-over-year.

Both of these volume metrics are stronger than our overall wholesale portfolio metrics.

The strong retail, same store performance, both for inside sales and volume is proof of the success of the initiatives that we have underway for our retail operations and indicative of the operational focus we intend to bring to the retail operations and our recently announced acquisition.

As we noted in prior quarters and reviewing our retail segment financial performance, it is important to remember the wholesale segment supplies, our retail segment on a DTW or 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 and our wholesale segment and our overall price stability. For the first 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 company operated and commission side county, which increased 154 sites or 76% year-over-year contributing to the increase in G&A for the first quarter was a $900,000 increase in acquisition related costs, primarily due to our announced acquisition and an additional $900,000 increase in management fees related to the increasing head count, associated with the acquisition and exchange is completed last year, particularly driven by the CST fuel supply change, where we exchanged the non-operational economic interest for operational wholesale assets.

The operating and G&A expense line item that we do closely track and we expect the incremental G&A burden for our new acquisition to be significantly less than what we experienced for our acquisitions this past year.

If you'll turn to the next slide, slide five, I want to discuss our recently announced agreement with 7-Eleven to acquire 106 sites for $263 million. We are acquiring sites in the Mid-Atlantic and Northeast regions of the U S that fit very well within our existing asset base. Most of the sites currently operate under the Speedway brand.

90 of the sites are fee ownership and 16 of the sites are leased. These are attractive locations, good square footage with solid metrics of gallons and merchandise sold.

For the year ending December 31st, 2020, the site sold 154 million gallons of fuel and generated $136 million of merchandise sales, for an average of 1.45 million gallons per site and $1.28 million of merchandise sales per site.

We plan to close on this acquisition on a rolling basis that will begin 60 to 90 days after the closing of seven transaction Marathon.

The closings will take place over several weeks, as at each individual site, we have to do a complete re-branding of a site and convert all the store systems such as payment processing over to our and our suppliers networks.

We currently plan to finance the transaction through either undrawn capacity under our revolving credit facility or additional debt financing from other sources. Please turn to slide six. Cause we noted in the press announcement and that I touched on a moment ago, we will be rebranding these sites.

On the fuel side you'll partner with our existing branded fuel suppliers to bring nationally well-known fuel brands to the sites. On the store side, we intend the brand of sites as Joe's Kwik Mart, which is one of our proprietary store brands. For Joe's Kwik Mart, we have been working on redeveloping and re-imaging this brand for the past 18 months.

The timing of the acquisition corresponds perfectly with this re-branding initiative and allows us to accelerate our rollout of the re-imaging and refreshed Joe's Kwik Mart.Brands.

As I stated earlier, we believe these are great assets in prime locations in terms of locations, the sites fit well within our existing store network and we will be able to manage these sites efficiently within our retail network.

We anticipate this transaction to be immediately creative, to distributable cash-flow to limited partners and expect it to provide value to our unit holders over the long-term. We are eager to get into the execution phase of the transaction and to welcome our new colleagues, working at the sites to the cross America team.

We look forward to providing you more details on this transaction when it is closed. In conclusion, our results for the first quarter were not as strong as we wanted. There's a lot of positive momentum for us. We assume mobility moving back towards pre-pandemic levels and economic activity increasing.

While on the short term, this may lead to a further or further increases in crude prices that impact our fuel margins longer term. These are positive developments for our business that we are well-positioned to capitalize on.

We have signed up a great transaction, strong assets at an attractive valuation that provides immediate value to our unit owners. The entire team here across America is excited about this transaction and the opportunities it provides us.

The team understands that we have a lot of hard work in front of us, and we all are committed to doing whatever it takes to ensure a successful execution. With that. I will turn it over to Jon for more detailed financial review..

Thank you, Charles. If you would please turn to slide 8, I would like to review our first quarter results for the partnership. We reported adjusted EBITDA $20.7 million for the first quarter of 2021, which was a decline of 18% when compared to the first quarter of 2020.

Our distributable cash-flow for the first quarter of 2021 with $15.8 million versus $20.4 million for the first quarter of 2020, reflecting a decrease of 23% year-over-year, both adjusted EBITDA and BCF are lower primarily due to the lower variable fuel margins and higher operating in G&A expenses, Charles discussed earlier.

Our distribution coverage on a pay basis for the trailing 12 months ended March 31st, 2021 was 1.2, three times a 3% improvement versus 1.19 times for the trailing 12 months ended March 31st, 2020. For the current quarter, our coverage on a paid basis was 0.7, nine times compared to 1.08 times for the first quarter of 2020.

While we prefer to stay above 1.0 times coverage, even for the quarterly period, we've historically seen our coverage, the weakest in the first quarter, and it was below 1.0 times for the first quarter periods of 2014 to 2019, bouncing back above 1.0 times in the second quarter.

As we do see some seasonality in our business, this is the primary reason we tend to focus on the trailing 12 month coverage ratio. We will continue to target a 1.2 to 1.3 times trailing 12 month coverage ratio.

If you would turn to the next slide, slide 9, we ended the quarter with the leverage ratio as defined under our credit facility of 4.54 times, and remain in compliance with our financial covenant ratios.

Leverage ratio is higher than our year-end ratio of 4.06 times because of the weaker results compounded by the fact that we didn't have any significant proceeds from our real estate optimization efforts in the first quarter of 2021.

We have sufficient liquidity to execute our plans and as of May 6th, we had $123 million available on our credit facility. The partnership paid a distribution of $0.5250 per unit during the first quarter of 2021 attributable to the fourth quarter of 2020 for a total of almost $20 million.

And as I noted on the previous slide, this resulted in the coverage ratio of 1.23 times on a paid basis for the 12 months in regards to our capital spending. During the first quarter, we did see an increase in our growth related capital expenditures as a result of DMV upgrades and rebranding of certain sites due to our fuel initiatives.

Ignoring capital spending related to our recently announced acquisition, we currently expect our overall capital expenditures to decline meaningfully from the left, from the levels in 2020.

With regard to incremental capital spending related to our pending acquisition, we anticipate receiving financial support from our fuel suppliers of approximately 70% of our estimated 2021 capital spending. In conclusion, as we enter the summer driving season, we believe we are in a good position.

We expect over the long-term to continue to stay within both our coverage and leverage ratio, target ranges, and manage our balance sheet. As we see the benefits from the 2020 transactions, our pending acquisition and our other strategic initiatives with that, we will open it up for question..

Thank you. And we will now begin the question and answer session. [Operator Instructions] and we are standing by for questions. It's from RBC, from RBC we have Elvira Scotto, please go ahead..

Hey, good morning, everyone.

Couple of questions for me, can you provide any more detail around when the acquisition closes? I know you said it's sort of on a rolling basis, but can you give a little bit of a more granular timeline?.

Yeah, this is Charles. So look on the closing of our acquisition is dependent upon the closing of the marathon 7-Eleven acquisition.

And so, you know, if you followed what they've been saying on that most recently on the marathon conference call, they indicated that the timing for that acquisition to close was, you know, a matter of weeks and that's consistent with our understanding. So once that acquisition closes, our transaction can begin to close 60 to 90 days after that.

And based on our role in close, you know, we're looking at our transaction closing over a matter of weeks from the start of that period..

Great and then in terms of how does that work in terms of number of stores? Is it, I mean, is it just you, you do one store at a time or do you do like a concept stores with the rebranding?.

Yeah. So the way that we're contemplating doing is we'll be doing it in, in groups.

You know, basically a week, we'll see a cluster of sites come over because as I touched on in the comments, you have to rebrand the store and then significantly with a lot of the back office equipment, we've got to take out that equipment and put in equipment so that we're hooked up with our networks and our suppliers networks.

So it's not as simple as what you might see in a standard transaction or in a transaction, or you have a period of time to convert the branding over.

We're doing all of this at closing, but the good thing for that is that we anticipate that in terms of the actual operations of the site, you know, we're looking at only for a few hours on the initial day of conversion where the sites will be not available to customers, but then immediately after that, that'll be back up and running..

Got it.

Great, and then so the question I have is you know, with the colonial pipeline shut down, does that have any impact to your operations?.

Yeah, so we obviously have assets within the footprint of the colonial, and you're basically talking about the Southeastern part of the United States.

And so, you know, from our suppliers right now, we're not getting a whole lot of additional information beyond what is publicly available and that the colonial expects to resume substantially normal operations by the end of the week, I'd say right now at the moment, we are seeing certain terminals that are having supply outages but nothing widespread.

And if it does resolve by the end of the week, I think that you will see things, you know, resuming back to normal and supply being back to normal within, you know, a few days after that. If it goes on longer than this weekend, then you'll start to see more disruptions.

And it's not that there's a lack of supply out there it's really that the ultimate supply wants, particularly for some of the markets will be much further away. And at the moment there is a shortage of drivers in the industry, which this will exacerbate further such that you could see, you know, more severe disruptions in what we've seen today.

But as of right now, it's been minimal for us. But again, we do have, we do have a pretty substantial footprint in the market, but for so far it's been manageable..

From Wells Fargo we have [indiscernible], please go ahead..

Hey, good morning. Thanks for taking the question.

Could you discuss if there's a floor to where your wholesale margin could go, continue to strengthen WTI prices?.

Well, so I think the way to think about our wholesale margins and, you know, we've given some information on this before, is that on the wholesale side, you know, roughly 70% of our wholesale contracts are our fixed pricing which means that really the only variability in those contracts is going to be what happens with the terms discount, which will vary with the price of crude.

In this case, higher crude prices will, will boost that discount that we get and then the other 30% or so that's variable price margin, which is really going to be reflective of what happens with the rack to retail pricing. It what's the spread between the wholesale costs at the terminal and the price that people are paying at the pump itself.

And so for that, you know, what we've seen here is, so since the period of, you know, basically the end of October, we've seen a, a very steady and consistent rise in prices and typically what that type of environment that really hurts our margins.

And as I touched on in my comments, you know, relative to other periods where we've seen that type of price increase, our margins have done very well relative to those prior periods.

So based on what other people have said for the environment and COVID, are we seeing a repricing and re expectation of where, you know, the other dealers are expecting there, you know, what their margins need to be? I don't know.

All I can say is that with volumes being down, obviously people's breakevens are higher and that does seem to reflect, be reflected in pricing networks we've seen on, on the street. And so whether or not that will continue that way as volumes get more back to normal remains to be seen.

But so far we've seen a relatively positive pricing environment, despite the increase in crew..

[Operator Instructions] It looks like no further questions at this time. I will now turn it to Jonathan Benfield for closing remarks..

All right. Thank you. You're listening in today and we appreciate you joining us and we look forward to talking with you again soon..

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