Good morning, and thank you for joining the CrossAmerica Partners Second Quarter 2021 Earnings Call. With me today is Charles Nifong, CEO and President. Charles will provide some opening comments, a brief overview of CrossAmerica’s operational performance and highlights from the 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 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 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 will now turn the call over to Charles..

thank you. In summary, we believe we are in a good position as we exit the second quarter to continue to execute on our plans and to provide growth and strong returns for our unitholders. With that, I’ll turn it over to Jon for a more detailed financial review..

Thank you, Charles. If you would please turn to Slide 6, I would like to review our second quarter results for the partnership. We reported adjusted EBITDA of $29.7 million for the second quarter of 2021, which was an increase of 7% when compared to the second quarter of 2020.

Our distributable cash flow for the second quarter of 2021 was $25 million versus $26 million for the second quarter of 2020, reflecting a decrease of 4% year-over-year.

Distributable cash flow in the second quarter of 2020 benefited from a current tax benefit related primarily to bonus depreciation on eligible capital expenditures primarily related to the asset exchanges with Circle K. The 7% increase in adjusted EBITDA was primarily driven by increases in operating income for both the wholesale and retail segments.

Our distribution coverage on a paid basis for the trailing 12 months ended June 30, 2021 was 1.22x, a slight improvement versus 1.21x for the trailing 12 months ended June 30, 2021. For the current quarter, our coverage on a paid basis was 1.26x compared to 1.31x for the second quarter of 2020.

If you would turn to the next slide, Slide 7, we ended the quarter with a leverage ratio as defined under our credit facility of 4.42x and remain in compliance with our financial covenant ratios. This compares to 4.54x at the end of the first quarter of 2021. We have sufficient liquidity to execute our plans.

And as of August 5, given the amendment, we entered into in July 2021 that increased our maximum leverage covenant we had $159 million available on our credit facility.

The partnership paid a distribution of $0.525 per unit during the second quarter of 2021, attributable to the first quarter of 2021, for a total of almost $20 million, and as I noted on the previous slide, this resulted in a coverage ratio of 1.22x on a paid basis for the 12 months.

In regards to our capital spending during the second quarter, we did see an increase in our growth-related capital expenditures as a result of EMV upgrades and rebranding of certain sites, including the sites being acquired from 7-Eleven.

During the second quarter, we spent over $6 million on rebranding, including $4 million in connection with our acquisition from 7-Eleven and another $2.5 million on EMV upgrades.

As Charles noted, the impact of certain of our spending in the current and prior quarters is evident in the strong gallons and sales performance at our sites, particularly in the retail segment.

As I’ve mentioned before, for site brand conversions, including those related to the sites acquired from 7-Eleven, we generally are reimbursed by suppliers for a substantial portion of the upfront spend, either over a period of time post conversion or after final project completion.

If you turn to Slide 8, I want to discuss our new credit facility and our recent amendment to the capital credit agreement. On July 16, 2021, CAPL JKM Partners LLC, an indirect wholly owned subsidiary of CrossAmerica entered into a credit agreement.

The Joe’s Kwik Marts or JKM credit facility provides for a $200 million senior secured credit facility, consisting of a $185 million delayed draw term loan facility and a $50 million revolving credit facility. The JKM credit facility will be used to fund the acquisition of the 106 convenience store properties from 7-Eleven.

We also amended our pre-existing capital credit agreement as of July 28, 2021.

This amendment, among other things, amended certain provisions relating to unrestricted subsidiaries, increased the maximum level for the consolidated leverage ratio financial covenant to 6x for the fiscal quarters ending September 30, 2021 and December 31, 2021, stepping down each quarter thereafter and ultimately reverting back for the quarter end December 31, 2022, to our previous covenant of 4.75x unless a specified acquisition period or a qualified note offering has occurred.

And finally, the amendment modified the applicable margin for outstanding borrowings. The capital credit facility amendment provides us with financial flexibility to better manage our ongoing acquisition and integration of assets from 7-Eleven.

In conclusion, as Charles noted earlier, we had a strong quarter, and we remain cautiously optimistic as we conclude the summer driving season. From a financial perspective, 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 acquisition of the 7-Eleven sites and our other strategic initiatives. With that, we will open it up for questions..

Thank you. [Operator Instructions] And our first question is from Elvira Scotto from RBC Capital Markets..

Good morning, everyone. Just a couple of quick ones for me.

Given the broader macro backdrop in the job market, in particular, are you guys seeing any challenges on the labor front, either labor shortages and/or wage inflation?.

Elvira, this is Charles. So yes, just like everybody else, we’re not immune to that. So at the store level and our company-operated sites, obviously, labor is very tight.

And so we’ve undertaken a number of different initiatives to counter that, both from new hiring incentives as well as retention bonuses, and that includes our existing sites as well as the sites that we’re acquiring.

And so far, they seem to be working, but again, it also varies by state as the impact of the various different federal programs is different across our geography..

Got it. Thanks.

And I mean, do you see that – I mean, is any – is that driving an increase in G&A expenses?.

Not G&A, but at the store-level operating expenses, obviously, there’s been an uptick at the store level labor costs..

Got it. Okay. And then – just the last question for me. I think you mentioned in your prepared remarks that on the divestiture front, you haven’t completed as much as you’d like.

Can you give of an update of what you’re seeing in the M&A market or divestiture market, that would be helpful?.

Yes. So far, divestitures, these are single-site properties that we’re divesting. And as I mentioned in our remarks, we do have a pipeline of transactions, and we’ve just had things pushed back for various different reasons. Nothing systematic, it’s just seems like there have been things that have popped up to delay our closings.

But as we talked about, we’ve got a solid transaction pipeline. And I don’t want to jinx our real estate department, but I think that the level that we did last year, that’s certainly a level that we could do this year if everything falls right with the transactions that we actually have in the Q..

Great. Thank you very much..

[Operator Instructions] And I have no further questions at this time..

Yes. Well, then if you do have further questions later, we’re always here available to reach us. You can reach out to Randy Palmer, and we’re happy to address those questions later. But then for now, thank you again for joining us on this call, and thank you for your interest in the partnership..

Thank you, ladies and gentlemen. That concludes today’s call. Thank you for participating, and you may now disconnect..