CAPL - Earnings call transcript Q2 2018 | CrossAmerica Partners LP

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Operator

Welcome to the CrossAmerica Partners Second Quarter 2018 Earnings Call. My name is Sofia and I'll be your operator for today's call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. call Randy the of Executive turn Relations. Investor now over Palmer, to Director I'll Mr. begin. may you Palmer,

Randy Palmer

from the Thank performance morning call. we’ll as opening this discuss provide some operator. to Evan of follow Partners overview are that then you, our event. Good morning's brief Valencia, of comments up we Smith, to the second out and financial call the are will during for and Gerardo CrossAmerica's the webcast the call turn over Team. will presentation and of quarter and on These CrossAmerica Chief slides Evan joining Executive Financial quarter, a slides results. are XXXX questions. the part end, point posted other and Leadership call and some to I earnings that should At CEO available With highlights Officer today website. and the we me operational President; thank the today's members utilize you will open Gerardo CrossAmerica will

and our filings XX-K achieved that could or Form factors Securities the with and a actual the and CrossAmerica's be reports from call, projections and I expectations, future differ reports discussion begin, results. Exchange today's XX-Q see everyone plans, that expected may the on operational for be will and including important Please statements that actual question-and-answer not to no session, future assurance metrics, remind on results that we would include affect of revenue, expectations. of Commission annual can like expectations forward-looking Before organization. beliefs including There Form will regarding opportunities management's quarterly

the judgment any today's date represent organization or forward-looking to statements. of of obligation as CrossAmerica's management the any update disclaims statements intent Forward-looking and

certain earnings will our With on press now GAAP with call or is over release. these part that the of website being conference Accounting a basis that, reported During call results schedules available call webcast performance the today's not We’ve be US to period Today's Accepted a CrossAmerica Gerardo. GAAP. and this our we reconcile non-GAAP days. also turn do measures a of Principles on Generally conform measures provided XX provide I'll may call, recording that as of to for

Gerardo Valencia

Thank briefly go earnings results We morning, through Randy. yesterday you, And everybody. and first, our a reported But review the quarter good our in of few details Evan some and operating quarter. wanted second highlights minutes. to will those I XXXX afternoon results from

$X.X quarter, and operating charge; driven a FTC second by of we $X.X a charges. related second, One the investment Evan two million outlined an and earnings which reported Both an million on our loss lease mandated chose impairment one-off For million an the base divestment to was $X in termination detail. in loss we our were improve cover will business. to to XX-Q and release more do related to

both $XX.X EBITDA adjusted Our for in was segments. second quarter Wholesale growth our and with the Retail million

XX.X cents for Board and be of that to of XXXX unit this a was per July on distributable million the XXth cash quarterly quarter our flow Our later attributable approved second month. quarter the distribution paid $XX will

of Slide some will quarter. If review I results for turn our operating the X, you briefly to

XX% the fuel This X%, strategy. to quarter. a grew number continue in the decline income our DMS it resulted for our to has from wholesale did about in in grow as some as as our of we to experience profit growth Wholesale X.X margin both regards reduced in the in a Retail volume grew operated gross second and areas. that XXXX. long-term quarter, are our with this We of Even fuel line in for transitioning us Florida in increasing distribute wholesale and cents gross to third increase profit other rental and representing line divestitures decline, second our slight an result of segment, our flows saw the by to quarter been grow. increase second we the quarter the driven fuel cents motor in it overall our of in also and expect primarily of XXXX result by In rental Jet-Pep a we sites and we profit growing a X% from a to we other X%, acquisition. quarter, X.X Applegreen we increased by that For volume, occurred our for XXXX, through gross profit many X% the the we XX%. of company sites Along with by which network by Despite quarters

the to for During operated in the Retail increase period our segment, in gallon cents same we the from in as company cents increased our XXXX. XX% XX.X an margin per XX it XXXX for second quarter fuel quarter, of X.X saw site, our in

next slide, would to a few second from the to turn I you If like highlights quarter. the review

space. in business is base address continued we and Our very this to healthy, efficiencies

Wholesale overall gross realized in volume increase we by per increased for both higher gallon. and the driven as gross segment X% profit Our profit margin fuel our motor

reductions. of cost and decline expenses $XXX,XXX also in lower of We environmental real saw X% maintenance as operating estate result or a taxes,

November X%, increased For by primarily also fuel profit gross led segment, of acquisition XX% gross that increased overall by Jet-Pep. our Retail XXXX our driven profit motor

previous and on managing past, noted to integrate the As you on partner. our continue may operations have focus have as we discipline our in slide, with we seen as further with costs rigor and we the general

through November total G&A about past. or wanted of is have recent of $X This briefly have expenses G&A a captured and reductions. fuel about $X During in closed the talk synergies million discussed past months. of year-to-date assets XX most to the we distribution that includes Jet-Pep’s capturing decline Alabama cost in of that XXXX. savings we And I the million the to The in our in a XX%. acquisitions almost over costs quarter, we $XXX,XXX related primarily the our other over declined

As integration sites. we first softness work we might that recall, you experienced these we through the of as in noted some quarter our

several we grew able were and have we efficiencies this contribution to XXX that near the fuel And capture of about quarter, through second network We offer strengthening operational already network pricing implemented. the through the in improvements are the For network process the in from we considerably the this sites. further in of future.

retail calls, our to Florida. we terms strengthen XX am you that operate If discussed and portfolio to developer to happy as to with previous Slide work I now class announce Applegreen, locations a have to turn continued I the agreed second X, for long-term. the quarter, in to in the in we operator world

are of the partially of XXXX. that our EBITDA compared and This increase discussed expenses locations offset was Omnibus quarter XXXX. driven We equity-funded $XX.X quarterly through second X% for Retail was transition last during working the segments these a in decline to through quarter by that an earnings in XXXX of growth to second of the our million Wholesale by both and balance we Adjusted call.

some and strategic our with have partner. In general of near future. terms evaluation to review progress, expect very progress I our we in the the news have continued portfolio opportunities of to alignment

supply suppliers base with business our fuel are quarter. site with have assessment portfolio. network We capture strong. The for of fuel our Overall, improvements the results the working to progressing pleased efficiencies is our over chain strategic been actively of in X,XXX we

deliver it working further and our acquisitions We With with turn that, and are in we’re general strengthening through to Evan. conjunction it to growth partner. synergies I’ll over

Evan Smith

Thank you, Gerardo.

of the to for our Partnership. We would would EBITDA I second compared quarter XXXX adjusted million please turn results second million $XX.X like you quarter If in review to of to $XX.X Slide the X, reported XXXX. for

cash flow for distributable second quarter was of million. Our $XX the XXXX

EBITDA cash segments benefited results touched but expenses in mentioned both good Wholesale Gerardo and Omnibus the decline from As were in and earlier, our our as on both earlier. Retail by impacted equity-funded flow intentional distributable adjusted

leverage Slide our to X, defined covenant under quarter times, which with the compliance ended turning we ratios. our with at X.XX financial facility was credit in Finally, as

August of paid XXXX the facility. a $XX Partnership on resulting Xnd, of XXXX ratio second unit million basis. to $XX.X our of on cents a for per during of we X.XX in borrow coverage to quarter had attributable of As total first over distribution quarter XX.X a available times credit the The paid million of

times Our basis, paid XX from prior the month quarter. in was times on a X.XX up trailing coverage X.XX

Finally, I wanted that quarter. occurred to review the during two transactions

we rent payment US. in with an fuel to contract quarters terminations our with to of fourth was deferred The the expected five this partner be who We continues to lease third the non-cash fuel and lease in as Florida. And stores investment DMS master this agreements supply we $X.X of and our these Applegreen, million multi-site payment Applegreen committee termination year view be and With conflicts agreements income. $X.X expand The operator master year over an relationship master their paid accrued to high-quality, the quarter from renewal into of by grow entered approved third-party term the charge in XX initial as during and Board. supply payment a them a we're a we for XX backward the have run independent consider with to excited the take footprint operations long-term. the write-off a They First, year. options. sites third four, million transaction, to will master

Upper of by involves The connection in Midwest during other order with K’s the of transaction the quarter that we nine acquisition our divestment entered Holiday. of in into the sites required Circle FTC

the Circle go Midwest to third-party K’s continue with As the that were during CrossAmerica the year performance currently open ratio the transaction buyers. to the the closing and FTC business partners’ In to well an Upper as and proposed between through through the has conclusion, our payment be FTC a sheet of that, has approval amount difference we contribution under the by to K will recorded the for earlier, half we mentioned proceeds anticipates sale value coverage hope continuing up a back sites divestitures as balance made for the control managing payment The the questions. entities payment Gerardo leverage. FTC Circle of of as to this be occur common for the trend it improve of compensate to as sale, We our be XXXX. and approved will while is and This as quarter. between will as our third-party we capital. thus pleased underlying in for now the Partnership accounted representing resulting With approved and Circle once agreed K buyers. for determined

Operator

you. Thank

from will We question [Operator Bienvenu Ben Stephens, now question-and-answer comes first from begin Instructions]. And session. the Inc. the

Daniel Imbro

are hearing our facing wanted business, We're the of more you your what Maybe that’s your to down operating helped Good structure would inflationary across Daniel network expenses for has hear some you the out taking actually questions. morning, the part think I SG&A, degree guys. Ben. cost cost year-over-year. in start Imbro pressured on side inflationary probably Thanks and pressures love the is of insulate This still both but business. dealerization is I the cost would of maybe industry. for are cost some on pressures there? or you seeing to to

Gerardo Valencia

Yes, good you. it’s to talk to Dan

we and we're seeing and the not areas where increasing Where operate, on wholesale. most. So majority minimum especially majority or area then are you minimum we don't labor it's is the us is pressure the in several counties know have as of we're -- a directly business, retail the side pressure. of on There of that's of have wages although seeing most operations, the business where the labor been the the the the where definitely the in retail business impacting

and counties the and asking issues not and are regulatory for In we areas must but there we wholesale as us is the revisions to just views sure business increases, terms need organization, and I'm compliance of changes the for the operate, seeing going all because the say which our and making they areas across us of industry, is other in to everybody in it some further environmental because that around we're compliance the of address. other that of are in and but because regulation, inflation, only do not is where -- of to it

And little a so, that bit has been pressure in of our putting costs.

Daniel Imbro

great. Okay,

the in wholesale And can so factor for negotiate contracts. margins your how if inflation you at all this cost fuel fixed

wrong would do the draw? the backdrop push tend think margins is So you to across that wholesale cost broadly up or to industry conclusion inflationary

Gerardo Valencia

any not operating own operations retailer because not have manage the exactly Yes would the mean have we -- of that the so in every generalize in cases, not way I is same -- to the of those costs that I'm independently. their case majority but to our structured they is contract contracts have. related a going the to margin do In

we support about that’s to offer independent that's completely I were synergies course related sure K, CrossAmerica General our have we control should and that we the G&A efficiencies times marketplace. do more Partner so with are little mainly strengthening but course buy that support dealer ourselves many -- those that right operators way who said, pressure at them themselves, year sure and network other now these strong about of a short you managed our that about to most that And sure billion can buys cases, your we so, we’ve term are themselves. But we’re pricing and the consumers of looking competitors seeing offers. that offer, X flowing choose fuel the how think making long-term, that good bit a but insulated make K and you that you the renewal of things are pressures come decisions mean I of will in with in we in the make by is it's through a offer for about make see their find and all to which Circle if XX we they we’re terms to been financials over in of the dealers working a our about how their right again manage sure to about the saying volume more can than have as And And that. how and Circle -- up want to gallons making the enough, in them and related from

in environmental, insurance, other So whether and similar or services it’s secondary providers of whether it other is logistics it’s terms transportation. whether it’s

looking capture synergy. areas to definitely at leverage and scale be to those So we’re their able able to be

Unidentified Analyst

the pick don’t want think work prior Would to believe maybe the need to acquisitive is sheet. an market target? one did balance your stated you attractive the last I from first in It ample range. target leverage the flexibility up in for M&A M&A there’s becoming it leverage I One sounds like Evan. to quarter. from more you or leverage move now above opportunities pursue before down actually here you’ve market to but do

Evan Smith

Sure.

sources at different of We’re always looking capital.

We’re not presently anticipating anything.

with full work really place right our have now. We internal

leverage so, we’re and ratio our current And with the -- revolver. access comfortable and our on to our availability

Operator

Our following question comes from Mike Gyure from Janney Montgomery.

Mike Gyure

you a Can a can I do maybe them guess talk about you Florida I more some Florida the with maybe transactions little you guys that? bit of sounds about talk as Applegreen relationship? to picked -- how it you to doing you little outside anticipate bit start like relationship, and me anticipating guess the location a are

Gerardo Valencia

for Yes, the you. Mike. to thanks to Yes, question. Good talk

operational customers execution in. Applegreen, think and offer succeed to industry consumer if retail to with need the to start So you site for the a about drive

real CrossAmerica efficiently, a in with offer to want. as services strategic site offer the the backward need the fuel manage it, the operators it we develop to especially we can that to ancillary the and estate and support execute of relates and consumers collaboration While

quite excellent Applegreen So, now Europe one have been to the end the to operators. other the into They they understand US appeal enables leaders Ireland to US. for of the and the some places consumers and develop in in site aspirations and years. is consumers. to several have get They in operations them in this are time They

and -- are competitive, at grow since understanding time our can I sites XX long us, to operations some they they’re course sure efficient. currently operating started operate we tell are that that were that we by Northeast of able these double-digits volumes that those by developing -- I they sure in making been sites have seen and them, they over customer for and the they’ve we relationship ago as -- saying the making and was sites the you with ago sites So them time

been background So Applegreen. that collaborating to where in been bit is further grow. Applegreen with why We’ve little a with of we’ve then and of terms them

to quarter, expecting -- in country Florida growing we're And for working we opportunities And collaboration. were do areas different our that there’s they that about, we able the with where locations. actively also grow. strategic to continue looking make talked of terms operate on for at we're the it’s sure other to how XX agree As are and second we to we And we in them growth. are

they’re So in and have in that it's because seeing competitors. convenience of consumer where people area competitors area an retail, been you if the ready key in retail growing. an a the is that developing, terms in going terms direction, market corporate for of several that many is of offer, is there's attractiveness, It's Florida, many the and it's specifically going Florida, see

opportunity And that so there. saw Applegreen also

have it in We be ability and we of assets, to was a have able good both play. match to us that so grow for the

Mike Gyure

certainly was on of the that a lot for as view an it distribution we maybe of How helpful. average guess certainly XXXX? of should focus? year, should an very side think continue was area end Thanks, how the then the area sounds we about, you we rest distribution locations? It the of And guess I guys I about seems growth sites? of think rates business, quarter, I wholesale do like the Great. to that the the -- like think on maybe the the work it's do

Gerardo Valencia

distribution following not am I locations.

Evan Smith

Yes.

better performance, for not can control sites. improving assets margins. -- grew grown going historically necessarily November, acquisition. completed see that on property We underlying in focused where and just contracts fuel acquisition Jet-Pep through after the historically are volumes to plans we've continue we've -- better And the we our we and So, integrate and

competitive are historically, has we grow We there. most of to our acquisitions. through growth there, look come But

Gerardo Valencia

And help we to there on Yes, I'm which should that -- the continue bit. there to working the I look is transaction to mean space, on are general continue looking our actively CrossAmerica. we partner, more a in that and to M&A into terms just expansion material monitor a and at growth. then course, of us that transaction but little going with is we're we of for in and that very bring And elaborate sites activity

I in a as transaction is it progress implement with done a we're mentioned structure we our when learning and space. And complex together the We call time of results, how discussed lot have that partner. last that our in general to

the to are We and blueprint future for this is we It one for want make it for is partnership to establishing material sure that this right. ones done come. and

have of many closely it, people K team working We structure in the teams has Circle team been the experienced to business different most our deployed and a units. with high-performing and implement across nation

is, structured days, and able In engaged the the has XX also operators locations. team of So of for are terms work K the dealers sure And each way our that some some it's sites. these team we together developers XXX for one been Circle to transition there them -- team of over can my and last business of make take multi-site team be to different specific across those the in of end our the nation. has visited locations. best over units state with to And and developed working plans has

that assets the and momentum about at future number I you help to We should have increase that own. we the expect looking transaction. the But a we fuel terms have, course eventually also -- be would and locations that distribute for very in would that deal, first the to share we we’re definitely of and expect news that to of what near of can the lot able

Operator

from following Baird. comes Our Patrick question from Wang

Patrick Wang

down If full you was a we of the of margin paying else we quarter here? looks some year-over-year. And wholesale penny the to point? us of you attention can to into benefits should be that half that higher anything delivered at fuel due are It perhaps but maybe crude drill this roughly strong increasing was which like this synergies we walk that seeing through

Gerardo Valencia

Yes.

that’s true. think So, I

that and about making our was gallon in I for -- approaching about partnership in at future. profit for we're of we’re maximizing to million in as synergies looking driving is that expect describing guys not gross not we just it’s some mind also we’re the have growing in already that that have captured is we volume, constantly bear -- every volume. near before, looking you business, and As we and it manage profitable see we for the constantly so $X know, dealers how should year-to-date terms space, so Then the sure you the our same it’s and

other looking for we if the we we’re And constantly with dealer contract right or to a not would at they’re which to renew them value areas partnership. agree in so, -- the would them not providing buy

So we’re be things to there there’s that to improve able some doing that.

pricing We’re capability. also on working

So been sure support has make that capability price that Circle and way here. making been to team helping make us we And with implement also -- we we the specific for and that organization the our here fully organization trick is the The is confidence portfolio. X,XXX my here for that of value. fuel -- the fuel. supply to CrossAmerica conditions fuel and we fuel that sure practice sure have able encompass the within we from the best K these that we’ve as been to both developing we have were synergies supply understand supply is in distribution capture terms of sites in Then discussing, being the can

X changes identified some agreements And all I XX in It’s and our As -- vast volume. to site so have. are brands CrossAmerica to K take of -- them time -- working gallons tell X we and was brand fuel the over we’ve saying to billion we the in billion XX represent be take procures network through the over a it’s I I million, can as that opportunity. of that so over of manage of that into able majority procures X,XXX near we you call to previous contractual the of in so Circle fuel the about approaching that because can we’re we’re going future mentioned our XXX on few we’ve sites, place. US, we our XXX looking have make going in future which we a

so and the we’re going further improving it to time. portfolio progress, to at able And is be working at be to that different coming tranches on a

in and in by to numbers some them the as how as capturing, our So some the on be of course should we we that’s strategic strength. properties XXX the properties. we chain our million fuel of these discussed near to have in identified future based supply I see as to make and fuel in we now synergies of progressing. share expect should their these the we’re with of that $XX -- we're to that which strength work also of have right in to their in suppliers numbers, of continue more process identified on that. expect over in call, optimization can capture term you which you're for we specifics we changes then both near And we form collaborations and about flowing definitely want synergies course and some brand the well value in able previous capturing And XXXX, But we seeing so to expect

Patrick Wang

that's on you or synergy there outlined helpful. well whether and just then relates of just to as question Okay, touch you not part and that's included can in the very renegotiation. transportation my progress Is figure? everything follow-up that million $XX And contract that

Gerardo Valencia

distribution to so yes, further The improvements about and answer areas think we’re as chain. of there is and chain, continuing in I both is, well supply address product fuel sourcing synergies. itself, in When supply the

-- portfolio, I'm our for addressed. to think I when most in mean already So we've of going distribution say I

are on be. there expect some to it business think that to Jet-Pep we I still getting where areas where working the like we're

So that did of it but was we're pretty able that that because distribution take that’s so on. the or be guys that. we capture -- is pretty as acquisition much now that, It’s we’ve us is to going an you to in -- it’s we that just working fuel closed XXXX sourcing more implemented to timing supplier more much November know around fuel

Operator

Balsamo comes question from next Robert Our B from Riley.

Robert Balsamo

the Hey, that any drop been the just maybe wondering pending is morning. change commitment opportunities of strategy for just it the to us was or the of like if Obviously in in et give something central two MLP sounds update have I you Thanks can joint more but between structure. your view answered. and some swaps, reiterating color Most on good Couche-Tard with my asset questions cetera? the the color. an and transaction, downs, there on acquisitions any strategy

Gerardo Valencia

Yes, so Thanks, -- yes. Robert.

is So to we that was that about first it in -- I and what’s clear bit the a come. sure to I the trying transaction yet first saying talked was transaction a make is I and for it blueprint

that has able to working has my that the to and we're efficiently what to and now right growth and the be sure capabilities absorb absorb making team the is -- structure be growth. So able

that because together than make is be more So other with blueprint are we done, sure we once opportunities many time expected for we're and perfectly implement But working it’s to that we us will taking that on the would a it so want have general working. partner. to for

should that growth deliver So growth, us fuel for et standpoint a cetera. of growth sites of rental from distribution new

one on. key that's working area we're So that

on then on week to to about global we before with these, working make sure continuing focusing were and now. Circle we cost all I've just in K mentioned And synergies, our look their meeting has that to fuels team is K fuel at their of several were those. other component collaboration right which capabilities. this in scale very us. the is with times we're We were able course discussing as involved we’re leveraging originally because We're we're of Circle that one capability to and of do be a that when The discussing

us to to We were be have we're coming in going value. leveraging cost be some addressed again short-term, Circle that are of to able going of K’s to that capture were where are that synergies scale help be most up play there the to but contracts that

hasn't in of terms the changed. strategy, it So

of making I growth I say that -- what see we’re can getting how closer the and changed is implement and I each blueprint. that we’re getting first up in value that get well we think in say sense if make the to and that both -- to we're running both work were of the and that provides completed. we're both you doing concessions how that am hasn't getting that it as learning it sure I for to developing as going that to But to and we can the closer other company the sure getting understanding companies sense

Operator

We’ve questions at time. no further this

Randy Palmer

Okay. concludes appreciate operator. today’s us We you call. joining you every today. much, one very Thank conference That of and each

follow-up to you much. questions, a day. feel Have very free Thank good please you’ve contact us. If

Operator

you participating. Thank concludes Thank you. and gentlemen, today's Ladies this conference. for

You may now disconnect.

CrossAmerica Partners (CAPL) 8 Aug 182018 Q2 Earnings call transcript