UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 7, 2015
CrossAmerica Partners LP
(Exact name of registrant as specified in its charter)
Delaware | 001-35711 | 45-4165414 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
645 West Hamilton Street, Suite 500 Allentown, PA | 18101 | |
(Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (610) 625-8000
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |
Item 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On August 7, 2015, CrossAmerica Partners LP (“CrossAmerica”) issued a press release announcing the financial results for CrossAmerica for the quarter ended June 30, 2015. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
Furnished herewith as Exhibit 99.2 are slides that senior management of CST Brands, Inc. (“CST”) and CrossAmerica utilized in CrossAmerica’s second quarter joint earnings call with CST. The slides are available on the Webcasts & Presentations page of CrossAmerica’s website at www.crossamericapartners.com.
The information in this Current Report (including Exhibit 99.1) is being “furnished” and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference into any filing of the Partnership under the Securities Act of 1933, as amended, or the Exchange Act.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits. The information set forth in the attached Exhibit 99.1, is being “furnished” to the Securities and Exchange Commission and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act.
99.1 | Press Release dated August 7, 2015. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
CrossAmerica Partners LP | |||
By: | CrossAmerica GP LLC | ||
its general partner | |||
By: | /s/ Clayton E. Killinger | ||
Name: | Clayton E. Killinger | ||
Title: | Executive Vice President and Chief Financial Officer | ||
Dated: August 7, 2015
EXHIBIT INDEX
Exhibit No. | Exhibit Description | |
99.1 | Press release dated August 7, 2015, regarding the Partnership’s earnings | |
99.2 | Investor Presentation Slides of CST Brands, Inc. | |
CrossAmerica Partners LP Reports Second Quarter 2015 Results |
- Generated record total gross profit of $38.3 million compared to the second quarter of 2014 total gross profit of $26.9 million, an increase of 42%. |
- The Partnership generated $1.2 million in income in the second quarter from its equity interest in CST Fuel Supply. |
- Generated Record Distributable Cash Flow of $14.3 million and Distribution Coverage Ratio of 1.04X in the Second Quarter. |
-Maintains Guidance of 7% to 9% Distributable Cash Flow Per Unit Growth Rate for 2015. |
Allentown, PA, August 7, 2015 – CrossAmerica Partners LP (NYSE: CAPL), headquartered in Allentown, PA, a leading wholesale distributor of motor fuels and owner and lessee of real estate used in the retail distribution of motor fuels, today reported financial results for the second quarter ended June 30, 2015.
"During the second quarter, we saw solid growth in our wholesale fuel supply sales and rental income, thanks to our acquisitions and strategic alliance with CST Brands. Our wholesale operating income saw an 11 percent increase with total wholesale volumes increasing 24 percent,” said Joe Topper, CEO of CrossAmerica Partnership. “The NTI and fuel drop transactions with CST Brands and the One Stop acquisition completed on July 1 provides us with additional cash flow to further increase our unit distribution over time.”
Wholesale Segment
During the second quarter 2015, we distributed, on a wholesale basis, 277.1 million gallons of motor fuel at an average wholesale gross margin of $0.053 per gallon, resulting in a wholesale motor fuel gross profit of $14.6 million. For the three month period ending June 30, 2014, we distributed, on a wholesale basis, 222.9 million gallons of fuel at an average wholesale gross margin of $0.067 per gallon, resulting in a wholesale motor fuel gross profit of $15.0 million. The decrease of 3% in gross profit from wholesale fuel sales for the second quarter of 2015 relative to 2014 was attributable to a decline in the average wholesale fuel margin partially offset by a 24% increase in volume driven by the acquisitions that have been completed since April 2014. Wholesale fuel margin per gallon for the quarter was approximately 22% lower relative to the second quarter 2014, primarily due to the decline in the margin we receive from purchase discounts provided to us by our suppliers. The Partnership receives certain discounts from suppliers based on a percentage of the purchase price of fuel and the dollar value of these discounts varies with the price of wholesale motor fuel.
Our gross profit from our Other revenues for the wholesale segment, which primarily consist of rental income, was $6.9 million for the second quarter of 2015 compared to $6.2 million for the same period in 2014. The increase in rental income was primarily associated with our previously announced acquisitions of Nice N Easy and Landmark stores, which we lease to CST.
Retail Segment
For the second quarter 2015, we sold 57.3 million gallons at an average retail motor fuel gross margin of $0.095 per gallon, net of commissions and credit card fees, resulting in a retail gross profit of $5.4 million. For the same period in 2014, we sold 32.3 million gallons at an average retail motor fuel gross margin of $0.052 per gallon, net of commissions and credit card fees, resulting in a retail gross profit of $1.7 million. The increase in retail gross profit from retail motor fuel sales for the second quarter of 2015 relative to 2014 was due primarily to the PMI and Erickson acquisitions. During the quarter, we also generated $9.9 million in gross margin from the sale of food and merchandise from our PMI and Erickson acquisitions. For the same period in 2014, we generated $3.2 million in gross margin from the sale of food and merchandise.
Non-GAAP Metrics
Distributable Cash Flow (See Supplemental Disclosure Regarding Non-GAAP Financial Information below) was $14.3 million for the three month period ended June 30, 2015 compared to $13.5 million for the same period in 2014. The increase in Distributable Cash Flow was due primarily to an increase in earnings driven primarily by the 2014 and 2015 acquisitions, including the fuel drop executed in January 2015, when compared to the same period in 2014. Distributable Cash Flow per diluted limited partner unit was $0.57 for the three months ended June 30, 2015 and we made limited partner distribution per unit of $0.5475 during the quarter, resulting in a Distribution Coverage Ratio of 1.04 times.
Sale (“Dropdown”) of CST Wholesale Fuel Supply Equity Interests and NTI Convenience Stores
On July 1, 2015, we closed on the purchase of an additional 12.5% limited partner equity interest in CST Fuel Supply in exchange for approximately 3.3 million common units and cash in the amount of $17.5 million, an aggregate consideration of $110.9 million. We also completed the purchase of the real property at 29 new-to-industry stores (NTIs) from CST in exchange for 0.3 million common units and cash in the amount of $124.4 million, an aggregate consideration of $134 million. These transactions were approved by the conflicts committee of the General Partner and the executive committee and full Board of Directors of CST.
As of August 5, 2015, CrossAmerica’s total equity interest in CST Fuel Supply is 17.5%.
Liquidity and Capital Resources
Our revolving credit facility is secured by substantially all of the assets of CrossAmerica and its subsidiaries. As of June 30, 2015, after taking into account letters of credit and debt covenant constraints to availability, approximately $139.5 million was available for future borrowings. Subsequent to the July 2015 acquisitions, the availability for future borrowings was approximately $98.9 million. In connection with future acquisitions, the revolving credit facility requires, among other things, that we have, after giving effect to such acquisition, at least $20 million of borrowing availability under the revolving credit facility and unrestricted cash on the balance sheet on the date of such acquisition.
Distributions
The Board of the Directors of our General Partner declared a quarterly distribution of $0.5475 per unit on June 5, 2015 with respect to the first quarter of 2015. The distribution was paid on June 19, 2015 to all unitholders of record as of June 15, 2015. We anticipate that the Board of Directors will consider the declaration of future distributions with respect to the second quarter of 2015 at its next scheduled Board meeting in September to align the distribution declaration and payment with CST’s dividend declaration and payment schedule. The amount and timing of any distribution is subject to the discretion of the Board of Directors of our General Partner.
Conference Call
The Company will host a conference call on August 7, 2015 at 9:00 a.m. Eastern Time (8:00 a.m. Central Time) to discuss second quarter earnings results. The conference call numbers are 800-774-6070 or 630-691-2753 and the passcode for both is 5854571#. A live audio webcast of the conference call and the related earnings materials, including reconciliations of any non-GAAP financial measures to GAAP financial measures and any other applicable disclosures, will be available on that same day on the investor section of the CrossAmerica website (www.crossamericapartners.com). A slide presentation for the conference call will also be available on the investor section of the Company's website. To listen to the audio webcast, go to http://www.crossamericapartners.com/en-us/investors/eventsandpresentations. After the live conference call, a replay will be available for a period of thirty days. The replay numbers are 888-843-7419 or 630-652-3042 and the passcode for both is 5854571#. An archive of the webcast will be available on the investor section of the CrossAmerica website at www.crossamericapartners.com/en-us/investors/eventsandpresentations within 24 hours after the call for a period of sixty days.
CROSSAMERICA PARTNERS LP
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars, Except per Share Amounts)
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Operating revenues(a) | $ | 647,448 | $ | 763,845 | $ | 1,125,217 | $ | 1,245,866 | ||||||||
Cost of sales(b) | 609,147 | 736,897 | 1,051,920 | 1,202,251 | ||||||||||||
Gross profit | 38,301 | 26,948 | 73,297 | 43,615 | ||||||||||||
Income from CST Fuel Supply | 1,177 | — | 2,275 | — | ||||||||||||
Operating expenses: | ||||||||||||||||
Operating expenses | 16,435 | 7,475 | 30,172 | 9,643 | ||||||||||||
General and administrative expenses | 8,380 | 10,682 | 19,698 | 15,209 | ||||||||||||
Depreciation, amortization and accretion expense | 11,411 | 7,270 | 22,913 | 13,236 | ||||||||||||
Total operating expenses | 36,226 | 25,427 | 72,783 | 38,088 | ||||||||||||
Gain on sales of assets, net | 422 | 53 | 452 | 1,533 | ||||||||||||
Operating income | 3,674 | 1,574 | 3,241 | 7,060 | ||||||||||||
Other income, net | 190 | 119 | 249 | 223 | ||||||||||||
Interest expense | (4,743 | ) | (3,712 | ) | (9,021 | ) | (7,739 | ) | ||||||||
Income (loss) before income taxes | (879 | ) | (2,019 | ) | (5,531 | ) | (456 | ) | ||||||||
Income tax expense (benefit) | (907 | ) | (3,911 | ) | (2,588 | ) | (3,776 | ) | ||||||||
Consolidated net income (loss) | 28 | 1,892 | (2,943 | ) | 3,320 | |||||||||||
Net loss attributable to noncontrolling interests | 2 | — | 7 | — | ||||||||||||
Net income (loss) attributable to CrossAmerica limited partners | 30 | 1,892 | (2,936 | ) | 3,320 | |||||||||||
Distributions to incentive distribution right holders | (195 | ) | (31 | ) | (365 | ) | (62 | ) | ||||||||
Net income (loss) available to CrossAmerica limited partners | $ | (165 | ) | $ | 1,861 | $ | (3,301 | ) | $ | 3,258 | ||||||
Net income (loss) per CrossAmerica limited partner unit: | ||||||||||||||||
Basic earnings per common unit | $ | (0.01 | ) | $ | 0.10 | $ | (0.13 | ) | $ | 0.17 | ||||||
Diluted earnings per common unit | $ | (0.01 | ) | $ | 0.10 | $ | (0.13 | ) | $ | 0.17 | ||||||
Basic and diluted earnings per subordinated unit | $ | (0.01 | ) | $ | 0.10 | $ | (0.13 | ) | $ | 0.17 | ||||||
Weighted-average CrossAmerica limited partner units: | ||||||||||||||||
Basic common units | 17,582,365 | 11,194,203 | 17,260,533 | 11,155,140 | ||||||||||||
Diluted common units(c) | 17,629,855 | 11,194,203 | 17,354,742 | 11,171,076 | ||||||||||||
Basic and diluted subordinated units | 7,525,000 | 7,525,000 | 7,525,000 | 7,525,000 | ||||||||||||
Total diluted common and subordinated units(c) | 25,154,855 | 18,719,203 | 24,879,742 | 18,696,076 | ||||||||||||
Distribution per common and subordinated units | $ | 0.5475 | $ | 0.5125 | $ | 1.0900 | $ | 1.0250 | ||||||||
Supplemental information: | ||||||||||||||||
(a) Includes excise taxes of: | $ | 26,714 | $ | 17,269 | $ | 47,224 | $ | 25,584 | ||||||||
(a) Includes revenues from fuel sales to related parties of: | $ | 139,216 | $ | 237,173 | $ | 238,140 | $ | 435,384 | ||||||||
(a) Includes income from rentals of: | $ | 11,920 | $ | 10,763 | $ | 23,652 | $ | 21,458 | ||||||||
(b) Includes expenses from fuel sales to related parties of: | $ | 135,431 | $ | 232,222 | $ | 231,471 | $ | 426,849 | ||||||||
(b) Includes expenses from rentals of: | $ | 4,408 | $ | 3,976 | $ | 7,930 | $ | 7,791 | ||||||||
(c) Diluted common units are not used in the calculation of diluted earnings per common unit because to do so would be antidilutive. | ||||||||||||||||
Segment Results
Wholesale
The following table highlights the results of operations and certain operating metrics of our Wholesale segment (thousands of dollars, except for the number of distribution sites and per gallon amounts):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Operating revenues: | ||||||||||||||||
Motor fuel–third party | $ | 306,360 | $ | 411,135 | $ | 537,971 | $ | 654,617 | ||||||||
Motor fuel–intersegment and related party | 248,411 | 292,450 | 414,674 | 511,540 | ||||||||||||
Motor fuel operating revenues | 554,771 | 703,585 | 952,645 | 1,166,157 | ||||||||||||
Other(a) | 10,920 | 9,990 | 22,129 | 19,768 | ||||||||||||
Total operating revenues | $ | 565,691 | $ | 713,575 | $ | 974,774 | $ | 1,185,925 | ||||||||
Gross profit: | ||||||||||||||||
Motor fuel–third party | $ | 6,521 | $ | 8,254 | $ | 13,669 | $ | 12,937 | ||||||||
Motor fuel–intersegment and related party | 8,076 | 6,776 | 14,060 | 11,453 | ||||||||||||
Motor fuel gross profit | 14,597 | 15,030 | 27,729 | 24,390 | ||||||||||||
Other(b) | 6,941 | 6,244 | 14,908 | 12,386 | ||||||||||||
Total gross profit | 21,538 | 21,274 | 42,637 | 36,776 | ||||||||||||
Income from CST Fuel Supply(c) | 1,177 | — | 2,275 | — | ||||||||||||
Operating expenses | 4,267 | 4,970 | 7,990 | 6,803 | ||||||||||||
Depreciation, amortization and accretion expense | 7,672 | 6,290 | 16,445 | 11,769 | ||||||||||||
Gain on sales of assets, net | 422 | 53 | 452 | 1,533 | ||||||||||||
Operating income | $ | 11,198 | $ | 10,067 | $ | 20,929 | $ | 19,737 | ||||||||
Adjusted EBITDA(j) | $ | 18,448 | $ | 16,304 | $ | 36,922 | $ | 29,973 | ||||||||
Motor fuel distribution sites (end of period):(d) | ||||||||||||||||
Motor fuel–third party | ||||||||||||||||
Independent dealers(e) | 379 | 430 | 379 | 430 | ||||||||||||
Lessee dealers | 235 | 202 | 235 | 202 | ||||||||||||
Total motor fuel sites–third party | 614 | 632 | 614 | 632 | ||||||||||||
Motor fuel–intersegment and related party | ||||||||||||||||
Affiliated dealers (related party) | 199 | 234 | 199 | 234 | ||||||||||||
CST (related party) | 43 | — | 43 | — | ||||||||||||
Commission agents (retail segment) | 70 | 67 | 70 | 67 | ||||||||||||
Retail convenience stores (retail segment) | 124 | 87 | 124 | 87 | ||||||||||||
Total motor fuel sites–intersegment and related party | 436 | 388 | 436 | 388 | ||||||||||||
Motor fuel distribution sites (average during the period): | ||||||||||||||||
Motor fuel-third party sites | 608 | 539 | 613 | 509 | ||||||||||||
Motor fuel-related party sites | 447 | 365 | 441 | 340 | ||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Total volume of gallons distributed (in thousands) | 277,126 | 222,850 | 510,938 | 382,431 | ||||||||||||
Motor fuel gallons distributed per site per day:(f) | ||||||||||||||||
Motor fuel–third party sites | ||||||||||||||||
Total weighted average motor fuel distributed–third party sites | 2,567 | 2,589 | 2,434 | 2,220 | ||||||||||||
Independent dealers | 2,966 | 2,989 | 2,781 | 2,483 | ||||||||||||
Lessee dealers | 1,885 | 1,908 | 1,801 | 1,804 | ||||||||||||
Motor fuel–intersegment and related party sites | ||||||||||||||||
Total weighted average motor fuel distributed–intersegment and related party sites(g) | 3,084 | 2,456 | 2,800 | 2,443 | ||||||||||||
Affiliated dealers (related party) | 2,609 | 2,765 | 2,457 | 2,528 | ||||||||||||
CST (related party) | 5,239 | — | 5,163 | — | ||||||||||||
Commission agents (retail segment) | 2,992 | 2,905 | 2,860 | 2,949 | ||||||||||||
Retail convenience stores (retail segment)(h) | 3,143 | 675 | 2,563 | 679 | ||||||||||||
Wholesale margin per gallon–total system | $ | 0.0527 | $ | 0.0674 | $ | 0.0543 | $ | 0.0638 | ||||||||
Wholesale margin per gallon–third party(i) | $ | 0.0430 | $ | 0.0584 | $ | 0.0475 | $ | 0.0557 | ||||||||
Wholesale margin per gallon–intersegment and related party | $ | 0.0644 | $ | 0.0832 | $ | 0.0629 | $ | 0.0763 | ||||||||
(a) | Primarily consists of rental income. |
(b) | Primarily consists of rental income, net of rent expense on subleased properties. |
(c) | Represents distributions from our ownership in CST Fuel Supply. |
(d) | In addition, we distribute motor fuel to 14 sub-wholesalers who distribute to additional sites. |
(e) The decline in the independent dealer site count was primarily attributable to 29 terminated motor fuel supply contracts that were not
renewed as well as the motor fuel supply contracts related to 13 sites for which we supplied the motor fuel sold to DMS.
(f) | Includes 56.8 million and 19.7 million gallons of intersegment volumes distributed from our wholesale segment to our retail segments three months ended June 30, 2015 and 2014, respectively. Includes 96.2 million and 34.9 million gallons of intersegment volumes distributed from our wholesale segment to our retail segments for the six months ended June 30, 2015 and 2014, respectively. |
(g) Does not include the motor fuel gallons distributed to 14 sub-wholesalers.
(h) Motor fuel gallons distributed per site per day increased at our retail convenience stores as a result of the 87 sites acquired in the May
2014 PMI acquisition and 64 sites acquired in the February 2015 Erickson acquisition. The remaining portion of the increase is due
to sites that were dealerized during the period.
(i) Includes the wholesale gross margin for motor fuel distributed to 14 sub-wholesalers.
(j) | Adjusted EBITDA represents operating income adjusted to exclude gains on sales of assets, net and depreciation, amortization and accretion expense. Please see the reconciliation of our segment’s Adjusted EBITDA to consolidated net income under the heading “Supplemental Disclosure Regarding Non-GAAP Financial Measures.” |
Retail
The following table highlights the results of operations and certain operating metrics of our Retail segment (thousands of dollars, except for the number of convenience stores and per gallon amounts):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Operating revenues: | ||||||||||||||||
Motor fuel | $ | 147,207 | $ | 117,229 | $ | 253,400 | $ | 170,531 | ||||||||
Merchandise | 41,864 | 13,903 | 69,849 | 13,903 | ||||||||||||
Other(a) | 1,881 | 1,096 | 3,728 | 2,150 | ||||||||||||
Total operating revenues | $ | 190,952 | $ | 132,228 | $ | 326,977 | $ | 186,584 | ||||||||
Gross profit: | ||||||||||||||||
Motor fuel | $ | 5,422 | $ | 1,670 | $ | 10,139 | $ | 1,991 | ||||||||
Merchandise | 9,889 | 3,174 | 17,664 | 3,174 | ||||||||||||
Other | 1,452 | 830 | 2,857 | 1,674 | ||||||||||||
Total gross profit | 16,763 | 5,674 | 30,660 | 6,839 | ||||||||||||
Operating expenses | 12,168 | 2,505 | 22,182 | 2,840 | ||||||||||||
Depreciation, amortization and accretion expense | 3,739 | 980 | 6,468 | 1,467 | ||||||||||||
Operating income | $ | 856 | $ | 2,189 | $ | 2,010 | $ | 2,532 | ||||||||
Adjusted EBITDA(f) | $ | 4,595 | $ | 4,652 | $ | 9,184 | $ | 5,482 | ||||||||
Retail sites (end of period): | ||||||||||||||||
Commission agents(b) | 70 | 67 | 70 | 67 | ||||||||||||
Company operated convenience stores(c), (d) | 124 | 87 | 124 | 87 | ||||||||||||
Total system sites at the end of the period | 194 | 154 | 194 | 154 | ||||||||||||
Total system operating statistics: | ||||||||||||||||
Average retail sites during the period(d) | 206 | 119 | 205 | 88 | ||||||||||||
Motor fuel sales (gallons per site per day) | 3,057 | 2,977 | 2,800 | 2,996 | ||||||||||||
Motor fuel gross profit per gallon, net of credit card fees and commissions | $ | 0.0946 | $ | 0.0520 | $ | 0.0978 | $ | 0.0420 | ||||||||
Commission agents statistics: | ||||||||||||||||
Average retail sites during the period | 71 | 61 | 72 | 59 | ||||||||||||
Motor fuel sales (gallons per site per day) | 3,005 | 3,133 | 2,867 | 3,071 | ||||||||||||
Motor fuel gross profit per gallon, net of credit card fees and commissions | $ | 0.0209 | $ | 0.0153 | $ | 0.0297 | $ | 0.0175 | ||||||||
Company operated convenience store retail site statistics:(d) | ||||||||||||||||
Average retail sites during the period | 135 | 58 | 132 | 29 | ||||||||||||
Motor fuel sales (gallons per site per day) | 3,085 | 2,814 | 2,763 | 2,814 | ||||||||||||
Motor fuel gross profit per gallon, net of credit card fees | $ | 0.1326 | $ | 0.0931 | $ | 0.1365 | $ | 0.0931 | ||||||||
Merchandise sales (per site per day)(e) | $ | 3,414 | $ | 2,620 | $ | 2,920 | $ | 2,620 | ||||||||
Merchandise gross profit percentage, net of credit card fees(e) | 23.6 | % | 22.8 | % | 25.3 | % | 22.8 | % | ||||||||
a) Primarily consists of rental income and car wash revenues.
b) | A commission agent site is a site where we own or lease the property and then lease or sublease the site to the commission agent, who pays rent to us and operates all of the non-fuel related operations at the sites for their own account. |
c) | Our company operated retail convenience stores are classified as non-core to the consolidated operations of CST. |
d) | The increase in retail sites relates to 87 sites acquired in the May 2014 PMI acquisition and 64 sites acquired in the February 2015 Erickson acquisition. |
(e) | During the second quarter of 2015, CrossAmerica began classifying the net margin from lottery tickets within merchandise revenues and reflected this change in presentation retrospectively. |
(f) | Adjusted EBITDA represents operating income adjusted to exclude depreciation, amortization and accretion expense and inventory fair value adjustments related to purchase accounting. Please see the reconciliation of our segment’s Adjusted EBITDA to consolidated net income under the heading “Supplemental Disclosure Regarding Non-GAAP Financial Measures.” |
Supplemental Disclosure Regarding Non-GAAP Financial Measures
We use the non-GAAP financial measures EBITDA, Adjusted EBITDA, and Distributable Cash Flow in this report. EBITDA represents net income before deducting interest expense, income taxes and depreciation, amortization and accretion. Adjusted EBITDA represents EBITDA as further adjusted to exclude equity funded expenses related to incentive compensation and the Amended Omnibus Agreement, gains or losses on sales of assets, certain discrete acquisition related costs, such as legal and other professional fees and severance expenses associated with recently acquired companies, and certain other discrete non-cash items, such as inventory fair value adjustments arising from purchase accounting. Distributable Cash Flow represents Adjusted EBITDA less cash interest expense, sustaining capital expenditures and current income tax expense.
EBITDA, Adjusted EBITDA, and Distributable Cash Flow are used as supplemental financial measures by management and by external users of our financial statements, such as investors and lenders. EBITDA and Adjusted EBITDA are used to assess our financial performance without regard to financing methods, capital structure or income taxes and our ability to incur and service debt and to fund capital expenditures. In addition, Adjusted EBITDA is used to assess the operating performance of our business on a consistent basis by excluding the impact of items which do not result directly from our wholesale distribution of motor fuel, the leasing of real property, or the day to day operations of our retail convenience store activities. EBITDA, Adjusted EBITDA, and Distributable Cash Flow are also used to assess our ability to generate cash sufficient to make distributions to our unit-holders.
We believe the presentation of EBITDA, Adjusted EBITDA, and Distributable Cash Flow provides useful information to investors in assessing our financial condition and results of operations. EBITDA, Adjusted EBITDA, and Distributable Cash Flow should not be considered alternatives to net income or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP. EBITDA, Adjusted EBITDA, and Distributable Cash Flow have important limitations as analytical tools because they exclude some but not all items that affect net income. Additionally, because EBITDA, Adjusted EBITDA, and Distributable Cash Flow may be defined differently by other companies in our industry, our definitions may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
The following table presents reconciliations of EBITDA, Adjusted EBITDA, and Distributable Cash Flow to net income, the most directly comparable U.S. GAAP financial measure, for each of the periods indicated (in thousands, except for per unit amounts):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Net income (loss) available to CrossAmerica limited partners | $ | (165 | ) | $ | 1,861 | $ | (3,301 | ) | $ | 3,258 | ||||||
Interest expense | 4,743 | 3,712 | 9,021 | 7,739 | ||||||||||||
Income tax expense (benefit) | (907 | ) | (3,911 | ) | (2,588 | ) | (3,776 | ) | ||||||||
Depreciation, amortization and accretion | 11,411 | 7,270 | 22,913 | 13,236 | ||||||||||||
EBITDA | $ | 15,082 | $ | 8,932 | $ | 26,045 | $ | 20,457 | ||||||||
Equity funded expenses related to incentive compensation and the Amended Omnibus Agreement(a) | 3,250 | 1,136 | 6,192 | 2,050 | ||||||||||||
Gain on sales of assets, net | (422 | ) | (53 | ) | (452 | ) | (1,533 | ) | ||||||||
Acquisition costs(b) | 1,150 | 5,638 | 2,152 | 5,951 | ||||||||||||
Inventory fair value adjustments | — | 1,483 | 706 | 1,483 | ||||||||||||
Adjusted EBITDA | $ | 19,060 | $ | 17,136 | $ | 34,643 | $ | 28,408 | ||||||||
Cash interest expense | (4,006 | ) | (3,321 | ) | (7,915 | ) | (6,365 | ) | ||||||||
Sustaining capital expenditures(c) | (307 | ) | (425 | ) | (827 | ) | (984 | ) | ||||||||
Current income tax expense | (428 | ) | 79 | (1,487 | ) | (65 | ) | |||||||||
Distributable Cash Flow Available to Limited Partners | $ | 14,319 | $ | 13,469 | $ | 24,414 | $ | 20,994 | ||||||||
Diluted common and subordinated units | 25,155 | 18,719 | 24,880 | 18,696 | ||||||||||||
Distributable Cash Flow per diluted limited partner unit | $ | 0.5692 | $ | 0.7195 | $ | 0.9813 | $ | 1.1229 | ||||||||
Distributions paid per limited partner unit | $ | 0.5475 | $ | 0.5125 | $ | 1.0900 | $ | 1.0250 | ||||||||
Distribution coverage | 1.04 | x | 1.40 | x | 0.90 | x | 1.10 | x | ||||||||
(a) As approved by the independent conflicts committee of the General Partner and the executive committee of and CST’s board of directors,
CrossAmerica and CST mutually agreed to settle the second quarter 2015 amounts due under the terms of the Amended Omnibus
Agreement in limited partnership units.
(b) | Relates to certain discrete acquisition related costs, such as legal and other professional fees and severance expenses associated with recently acquired businesses. |
(c) | Under our Partnership agreement, sustaining capital expenditures are capital expenditures made to maintain our long-term operating income or operating capacity. Examples of sustaining capital expenditures are those made to maintain existing contract volumes, including payments to renew existing distribution contracts, or to maintain our sites in leasable condition, such as parking lot or roof replacement/renovation, or to replace equipment required to operate our existing business. |
The following table reconciles segment Adjusted EBITDA to consolidated net income (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Wholesale Segment | ||||||||||||||||
Adjusted EBITDA | $ | 18,448 | $ | 16,304 | $ | 36,922 | $ | 29,973 | ||||||||
Retail Segment | ||||||||||||||||
Adjusted EBITDA | $ | 4,595 | $ | 4,652 | $ | 9,184 | $ | 5,482 | ||||||||
Total Segment | ||||||||||||||||
Adjusted EBITDA | $ | 23,043 | $ | 20,956 | $ | 46,106 | $ | 35,455 | ||||||||
Reconciling items: | ||||||||||||||||
General and administrative expenses | (8,380 | ) | (10,682 | ) | (19,698 | ) | (15,209 | ) | ||||||||
Gain on sales of assets, net | 422 | 53 | 452 | 1,533 | ||||||||||||
Other income, net | 190 | 119 | 249 | 223 | ||||||||||||
Interest expense | (4,743 | ) | (3,712 | ) | (9,021 | ) | (7,739 | ) | ||||||||
Income tax benefit | 907 | 3,911 | 2,588 | 3,776 | ||||||||||||
Depreciation, amortization and accretion expense | (11,411 | ) | (7,270 | ) | (22,913 | ) | (13,236 | ) | ||||||||
Inventory fair value adjustment | — | (1,483 | ) | (706 | ) | (1,483 | ) | |||||||||
Consolidated net income | $ | 28 | $ | 1,892 | $ | (2,943 | ) | $ | 3,320 | |||||||
About CrossAmerica Partners LP
CrossAmerica Partners, headquartered in Allentown, PA, is a leading wholesale distributor of motor fuels and owner and lessee of real estate used in the retail distribution of motor fuels. Its general partner, CrossAmerica GP LLC, is a wholly owned subsidiary of CST Brands, Inc., one of the largest independent retailers of motor fuels and convenience merchandise in North America. Formed in 2012, CrossAmerica Partners distributes fuel to over 1,100 locations and owns or leases nearly 750 sites in twenty-one states: Pennsylvania, New Jersey, Ohio, Florida, New York, Massachusetts, Kentucky, New Hampshire, Maine, Tennessee, Maryland, Delaware, Illinois, Indiana, West Virginia, Virginia, Texas, Minnesota, Michigan, Wisconsin, and South Dakota. The Partnership has long-term established relationships with several major oil brands, including ExxonMobil, BP, Shell, Chevron, Sunoco, Valero, Gulf and Citgo. CrossAmerica Partners ranks as one of ExxonMobil’s largest distributors by fuel volume in the United States and in the top 10 for additional brands. For additional information, please visit www.crossamericapartners.com.
Contacts
Investors: Karen Yeakel, Vice President – Investor Relations, 610-625-8005
Randy Palmer, Director – Investor Relations, 210-692-2160
Safe Harbor Statement
Statements contained in this release that state the Company’s or management’s expectations or predictions of the future are forward-looking statements. The words “believe,” “expect,” “should,” “intends,” “estimates,” "target" and other similar expressions identify forward-looking statements. It is important to note that actual results could differ materially from those projected in such forward-looking statements. For more information concerning factors that could cause actual results to differ from those expressed or forecasted, see CrossAmerica's Form 10-Q or Form 10-K filed with the Securities and Exchange Commission, and available on the CrossAmerica's website at www.crossamericapartners.com. The Partnership undertakes no obligation to publicly update or revise any statements in this release, whether as a result of new information, future events or otherwise.
Q2 2015 Earnings Call August 7, 2015
Safe Harbor Statements Forward-Looking Statements Statements contained in this presentation that state the Company’s or management’s expectations or predictions of the future are forward-looking statements and are intended to be covered by the safe harbor provisions of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. The words “believe,” “expect,” “should,” “intends,” “estimates,” and other similar expressions identify forward-looking statements. It is important to note that actual results could differ materially from those projected in such forward-looking statements. For more information concerning factors that could cause actual results to differ from those expressed or forecasted, see CST filings with the Securities and Exchange Commission (“SEC”), including the Risk Factors in our most recently filed Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q as filed with the SEC and available on CST Brand’s website at www.cstbrands.com and CrossAmerica’s website at www.crossamericapartners.com. If any of these risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary significantly from what we projected. Any forward-looking statement you see or hear during this presentation reflects our current views as of the date of this presentation with respect to future events. We assume no obligation to publicly update or revise these forward-looking statements for any reason, whether as a result of new information, future events, or otherwise. Non-GAAP Financial Measures To supplement our consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and to better reflect period-over-period comparisons, we use non-GAAP financial measures that either exclude or include amounts that are not normally excluded or included in the most directly comparable measure, calculated and presented in accordance with GAAP. Non-GAAP financial measures do not replace and are not superior to the presentation of GAAP financial results, but are provided to improve overall understanding of our current financial performance and our prospects for the future. We believe the non-GAAP financial results provide useful information to both management and investors regarding certain additional financial and business trends relating to financial condition and operating results. In addition, management uses these measures, along with GAAP information, for reviewing financial results and evaluating our historical operating performance. The non-GAAP adjustments for all periods presented are based upon information and assumptions available as of the date of this presentation. The non-GAAP information is not prepared in accordance with GAAP and may not be comparable to non-GAAP information used by other companies. Information regarding the non-GAAP financial measure referenced in this presentation, including the reconciliation to the nearest GAAP measure can be found in our financial results press releases, available on our web sites: www.cstbrands.com and www.crossamericapartners.com. 2
Overview & Store Initiatives Kim Lubel President, CEO and Chairman of the Board 3
2Q15 Results Summary (Amounts in millions except Earnings per Share, Distributable Cash Flow per LP Unit and Distribution Coverage) 4 Three Months Ended June 30, % Change Gross Profit $277 $280 (1%) EBITDA $80 $88 (9%) Earnings per Share $0.32 $0.43 (26%) Three Months Ended June 30, % Change Gross Profit $38 $27 41% Adjusted EBITDA $19 $17 12% Distributable Cash Flow per LP Unit $0.5692 $0.7195 (21%) Distribution Coverage 1.04x 1.40x (26%) CST Brands, Inc. 2015 2014 CrossAmerica Partners LP 2015 2014
Growing our Food Program • Implementing synergies from Nice N Easy to ensure great tasting food offerings across all day-parts – Program will be implemented in 5 NTI prototypes in the greater San Antonio area in 4Q15 – Modeled after Nice N Easy’s Made-to-Order and pizza programs (will continue to offer the Grab & Go and bakery program) 5
Food Offerings 6
Expanding Grocery Offerings • Enhances large store product mix • Provides a fill-in alternative to grocery and drug stores • Implementing in 50 stores across the Central Texas, San Antonio and Houston markets in 3Q15 7
CrossAmerica Partners Joe Topper, CEO Jeremy Bergeron, President 8
CrossAmerica Wholesale Segment Three Months Ended June 30, % Change Total Volume of Gallons Distributed (in thousands) 277,126 222,850 24% Margin – Total System1 $0.053 $0.067 (21%) Wholesale Rental Income2 (in thousands) $10,920 $9,990 9% Wholesale Segment Adjusted EBITDA $18,448 $16,304 13% 2015 2014 9 1 Cents per gallon, net of credit card fees 2 A small percentage of this amount is other income • CST Fuel Supply — 5 cents per gallon margin on approximately 1.9 billion gallons — CAPL equity ownership CAPL purchased 5% equity interest on Jan 1, 2015 $1.2 million income contribution in second quarter 2015 Ownership increased to 17.5% on July 1
CrossAmerica Retail Segment 10 Three Months Ended June 30, % Change Total Volume of Gallons Distributed (in thousands) 57,307 32,238 78% Fuel Margin – Total System* $0.095 $0.052 83% Retail Segment Adjusted EBITDA $4,595 $4,652 (1%) Site Count (Average sites - period ending 06/30/2015) 206 119 73% 2015 2014 * Cents per gallon, net of credit card fees
Continuous Growth 11 • One Stop Acquisition – 55 sites in West Virginia • 41 company operated retail sites • 4 commission agents • 9 wholesale dealer sites • 1 stand alone QSR – Rationale • Expand on existing presence in the West Virginia / Virginia market • Leverage existing relationship with Exxon, establish new fuel brand opportunity with Marathon • Significant amount of owned real estate • Positioned for further growth
Financial Overview Clay Killinger EVP and Chief Financial Officer 12
CST Key Metrics Gross Profit (mm) Three Months Ended June 30, % Change Motor Fuel $59 $65 (9%) Merchandise $112 $103 9% Other $15 $14 7% Key Metrics Three Months Ended June 30, % Change Core Stores (EOP) 993 1,044 (5%) Motor Fuel Gallons Sold (PSPD) 5,246 4,987 5% Motor Fuel CPG (net of CC) $0.1256 $0.1383 (9%) Merchandise Sales (PSPD) $3,917 $3,632 8% Merchandise Margin* (net of CC) 30.2% 29.8% 40 bps U.S. Retail (USD) * Merchandise margin excludes other revenue margin 13 2015 2014 2015 2014
Key Metrics Three Months Ended June 30, % Change in USD % Change in CAD Total Retail Stores (EOP) 859 850 1% 1% Motor Fuel Gallons Sold (PSPD) 3,201 3,256 (2%) (2%) Motor Fuel CPG (net of CC) $0.2340 $0.2460 (5%) 8% Company Operated Stores (EOP) 292 279 5% 5% Merchandise Sales (PSPD) $2,355 $2,589 (9%) 4% Merchandise Margin* (net of CC) 26.8% 28.1% (130) bps (130) bps Gross Profit (mm) Three Months Ended June 30, % Change in USD % Change in CAD Motor Fuel $59 $62 (5%) 7% Merchandise* $17 $18 (6%) 3% Other $15 $18 (17%) 0% Canadian Retail (USD) * Merchandise margin excludes other revenue margin 14 2015 2014 2015 2014 CST Key Metrics
15 Solid Financial Position to Support Growth CST Brands, Inc. June 30, 2015 Cash $343 Debt $1,013 Net Revolver Capacity $276 Note: Amounts in millions
CST Guidance (in USD) Retail Segment Gallons (PSPD) 5,250 to 5,350 4,921 3,250 to 3,350 3,370 Merchandise Sales (PSPD) $4,100 to $4,200 $3,686 $2,350 to $2,450 $2,767 Merchandise Gross Margin (%) 30.0% to 31.0% 30.2% 27.0% to 28.0% 26.6% U.S. Canada Category Ranges (mm) Operating Expenses $179 to $183 General & Administrative Expenses $27 to $31 Depreciation & Amortization $32 to $34 16 3rd Quarter 2015 3Q15 Guidance 3Q14 Actual 3Q15 Guidance 3Q14 Actual
Historical Fuel Margins • Monthly data provided on the Investor Relations website • Enhances transparency of a key gross profit driver for CST • Updates for the first two months of each quarter will be posted approximately two weeks after month-end • Data for the last month of a quarter will post following filing of 10-Q or 10-K 17
CrossAmerica Key Metrics 18 CrossAmerica has guided to a target of 7-9% distribution per unit growth rate for 2015 and a long-term coverage target ≥ 1.1x Three months ended June 30, % Change 1Q15 Adjusted EBITDA $19.1 $17.1 12% $15.6 Distributable Cash Flow, $mm $14.3 $13.5 6% $10.1 Wholesale Gross Profit $21.5 $21.3 1% $21.1 Retail Gross Profit $16.8 $5.7 195% $14.1 Distributable Cash Flow per LP Unit $0.5692 $0.7195 (21%) $0.4106 Distribution Paid per LP Unit $0.5475 $0.5125 7% $0.5425 2014 2015
19 Solid Financial Position to Support Growth CrossAmerica Partners LP Net Revolver Capacity, As of 6/30/15 $140 *Net Revolver Capacity, As of 07/01/15 $99 Coverage Ratio, Qtr. Ended 06/30/15 1.04x Note: Amounts in millions *Adjusted for close of Asset Drops and One Stop Acquisition
Completed Dropdown Transactions Transaction #1 January 2015 5% interest in CST Fuel Supply $50.4 M in CrossAmerica units* $142.0 M in Cash + $119.5 M in CrossAmerica units* $261.5 M in Total Value Transaction #2 July 2015 12.5% interest in CST Fuel Supply Real Property of 29 NTI Stores & 20 *Unit value was based on the 20 day VWAP unit price before the public announcement of the transaction
Benefits of Recent Dropdowns 21 Benefits to CST • Received $142 million of cash • This funds approximately 65% of our 2015 expected U.S. NTI CAPEX program • Realized “gain” of approximately $138 million (unrecognized for accounting purposes) • Ownership interest in CrossAmerica increases to 15.9% • Annualized cash flow distribution for LP and IDR ownership is $12.6 million Benefits to CrossAmerica • Incremental annual cash flow from rents and fuel supply equity of approximately $22 million • Very stable, high quality cash flow backed by CST • Accretive to distributable cash flow per unit of approximately 7% • Highly accretive at the current 25% IDR split level • Potential for similar size and cadence of asset drops for 5+ years
Q&A Session