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CrossAmerica Partners LP Reports Second Quarter 2019 Results

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Allentown, Aug. 05, 2019 (GLOBE NEWSWIRE) --

CrossAmerica Partners LP Reports Second Quarter 2019 Results

  • Reported Second Quarter 2019 Operating Income of $13.9 million and Net Income of $6.4 million
  • Generated Second Quarter 2019 Adjusted EBITDA of $27.7 million and Distributable Cash Flow of $22.3 million, respectively
  • Reported Second Quarter 2019 Gross Profit for the Wholesale Segment of $33.4 million
  • The Distribution Coverage Ratio for the current quarter was 1.24 times. The Distribution Coverage Ratio was 1.06 times for the trailing twelve months ended June 30, 2019, as compared to 0.97 times for the trailing twelve months ended June 30, 2018
  • The Board of Directors of CrossAmerica's General Partner declared a quarterly distribution of $0.5250 per limited partner unit attributable to the Second Quarter 2019 

             
Allentown, PA August 5, 2019 – CrossAmerica Partners LP (NYSE: CAPL) ("CrossAmerica" or the "Partnership"), a leading wholesale fuels distributor and owner and lessor of real estate used in the retail distribution of motor fuels, today reported financial results for the second quarter ended June 30, 2019.

Gerardo Valencia, CEO and President of CrossAmerica, said, "For the second quarter, our operating income increased by $15 million year-over-year supported by our margin optimization agenda, resulting in one of the historical high wholesale fuel margins per gallon for the partnership. We grew our distributable cash flow by 12% for the same period, leading to our highest quarterly coverage ratio in the last three years at 1.24 times." Valencia went on to say, "During the second quarter we announced the completion of our first tranche of the asset exchange with our General Partner and a definitive agreement with Applegreen to operate our remaining 46 company operated sites in the Upper Midwest. We expect to announce our second tranche of the asset exchange in the third quarter and are in a good position to continue to grow our business in the second half of 2019."     

Second Quarter Results

Consolidated Results

Operating income was $13.9 million for the second quarter 2019 compared to a loss of $1.6 million for the second quarter 2018, representing an increase of over $15 million, and Net income was $6.4 million for the second quarter 2019 compared to a Net loss of $6.9 million for the second quarter 2018. EBITDA was $26.4 million for the three-month period ended June 30, 2019 compared to $20.3 million for the same period in 2018, representing a 30% increase. Adjusted EBITDA was $27.7 million for the second quarter 2019 compared to $28.2 million for the same period in 2018, representing a decrease of 2%. The decline in Adjusted EBITDA was primarily as a result of the new lease accounting guidance (ASC 842). Lease payments on the Partnership's previous sale-leaseback transactions totaling $1.8 million per quarter were characterized as principal and interest expense in periods prior to 2019. However, beginning with the first quarter 2019 this is now characterized as rent expense, thus reducing these non-GAAP measures. Also contributing to the decline was a decrease in gross profit in the Retail segment. Non-GAAP measures, including EBITDA, as described are reconciled to the corresponding GAAP measures in the Supplemental Disclosure section of this release.

Wholesale Segment

During the second quarter 2019, CrossAmerica's Wholesale segment generated $33.4 million in gross profit compared to $33.5 million in gross profit for the second quarter 2018. The Partnership distributed, on a wholesale basis, 258.6 million gallons of motor fuel at an average wholesale gross profit of $0.074 per gallon, resulting in motor fuel gross profit of $19.0 million. For the three-month period ended June 30, 2018, CrossAmerica distributed, on a wholesale basis, 272.4 million gallons of fuel at an average wholesale gross profit of $0.066 per gallon, resulting in motor fuel gross profit of $17.9 million. The 6% increase in motor fuel gross profit was primarily due to a 12% increase in fuel margin per gallon. The main driver of the increase was a $0.4 million improvement in CrossAmerica's fuel margin from sites in its Alabama market driven by the rebranding of these sites beginning November 1, 2018 and the concurrent change in terms under a subjobber agreement with Circle K and a $1.0 million improvement in CrossAmerica's dealer tank wagon (DTW) margins as a result of movements in crude oil prices between the two periods. This was partially offset by a reduction of $0.7 million in Terms Discounts in 2019 as compared to 2018 due to the decrease in motor fuel prices. Volume declined 5% as a result of the 2018 divestitures mandated by FTC orders, the termination or non-renewal of fuel supply contracts (a significant number of which were low margin) and seasonal weather.

The prices paid by the Partnership to its motor fuel suppliers for wholesale motor fuel (which affects the cost of sales) are highly correlated to the price of crude oil. The average daily spot price of West Texas Intermediate crude oil decreased approximately 12% to $59.88 per barrel during the second quarter 2019 as compared to $68.07 per barrel during the same period in 2018. 

CrossAmerica's gross profit from Rent and Other for the Wholesale segment, which primarily consists of rental income, was $14.3 million for the second quarter 2019 compared to $15.5 million for the second quarter 2018, representing a decrease of 8%. The decline in Rent and Other was primarily as a result of the new lease accounting guidance. Lease payments on CrossAmerica's previous sale-leaseback transactions totaling $1.7 million per quarter were characterized as principal and interest expense in 2018, whereas such payments are characterized as rent expense in 2019. Partially offsetting this decline was the incremental rent margin from the first tranche of the asset exchange with Circle K and the impact of converting commission sites in the Retail segment to lessee dealer sites in the Wholesale segment.

Operating expenses increased $0.4 million or 5% primarily as a result of higher insurance costs.

Adjusted EBITDA for the Wholesale segment was $29.7 million for the second quarter 2019 compared to $30.2 million for the same period in 2018. As discussed above, the year-over-year decrease was primarily driven by the new lease accounting guidance (see Supplemental Disclosure Regarding Non-GAAP Financial Information below).

Retail Segment

For the second quarter 2019, the Partnership sold 45.8 million gallons of motor fuel at an average retail motor fuel gross profit of $0.041 per gallon, net of commissions and credit card fees, resulting in motor fuel gross profit of $1.9 million. For the same period in 2018, CrossAmerica sold 54.1 million gallons in its retail segment at an average gross profit of $0.047 per gallon, net of commissions and credit card fees, resulting in motor fuel gross profit of $2.5 million. The decrease in motor fuel gross profit is attributable to a 15% decrease in volume driven by the 2018 divestitures of seven company operated Upper Midwest and two commission agent sites mandated by FTC orders, the conversion of commission sites in the Retail segment to lessee dealer sites in CrossAmerica's Wholesale segment, the divestiture of 17 company operated Upper Midwest sites in May 2019 in connection with the asset exchange with Circle K and seasonal weather. Partially offsetting these decreases was that the Partnership realized a higher margin per gallon at its company operated sites in 2019 as compared to 2018, driven by the movement in crude oil prices throughout the two periods.

During the quarter, the Partnership generated $4.7 million in gross profit from merchandise and services versus $6.4 million for the same period in 2018. This decrease was driven by the 2018 divestitures of seven company operated Upper Midwest sites mandated by FTC orders and the May 2019 first tranche of the asset exchange with Circle K. Gross profit from Rent and Other for the Retail segment was $1.5 million for the second quarter 2019 compared to $1.6 million for the same period in 2018, reflecting a decrease of 3%. Rent and other gross profit decreased slightly primarily as a result of the new lease accounting guidance. Lease payments on the Partnership's previous sale-leaseback transactions totaling $0.1 million per quarter were characterized as principal and interest expense in 2018, whereas such payments are characterized as rent expense in 2019.

Operating expenses declined $1.9 million or 21% primarily as a result of the 2018 divestitures of seven company operated Upper Midwest and two commission agent sites mandated by FTC orders, the divestiture of 17 company operated Upper Midwest sites in May 2019 in connection with the asset exchange with Circle K and the conversion of commission sites in CrossAmerica's Retail segment to lessee dealer sites in the Wholesale segment.

Adjusted EBITDA for the Retail segment was $1.3 million for the second quarter 2019 compared to $1.9 million for the second quarter 2018. 

The decline in gross profit and Adjusted EBITDA were primarily due to the 2018 divestitures of seven company operated sites in the Upper Midwest and two commission sites mandated by FTC orders, the divestiture of 17 company operated Upper Midwest sites in May 2019 in connection with the asset exchange with Circle K and the conversion of commission sites in CrossAmerica's Retail segment to lessee dealer sites in the Wholesale segment. (see Supplemental Disclosure Regarding Non-GAAP Financial Information below).

Distributable Cash Flow and Distribution Coverage Ratio

Distributable Cash Flow was $22.3 million for the three-month period ended June 30, 2019, compared to $20.0 million for the same period in 2018. The increase in Distributable Cash Flow was primarily due to a current tax benefit generated by 100% bonus depreciation taken on the eligible assets acquired in the first tranche of the asset exchange as well as the dispenser upgrades at CrossAmerica's Alabama sites and the reduction in general and administrative expenses, partially offset by the impact of the FTC divestitures and the new lease accounting guidance. The Distribution Coverage Ratio for the current quarter was 1.24 times. The Distribution Coverage Ratio was 1.06 times for the trailing twelve months ended June 30, 2019, as compared to 0.97 times for the trailing twelve months ended June 30, 2018. Information regarding Distributable Cash Flow and other non-GAAP measures are further described to their most directly comparable GAAP measures in the Supplemental Disclosure Regarding Non-GAAP Financial Measures section of this release.

Liquidity and Capital Resources

The amount of availability under the New Credit Agreement at August 1, 2019, after taking into consideration debt covenant restrictions, was $84.5 million.

Distributions

On July 18, 2019, the Board of the Directors of CrossAmerica's General Partner ("Board") declared a quarterly distribution of $0.5250 per limited partner unit attributable to the second quarter of 2019. As previously announced, the distribution will be paid on August 6, 2019 to all unitholders of record as of July 30, 2019. The amount and timing of any future distributions is subject to the discretion of the Board (see Supplemental Disclosure Regarding Non-GAAP Financial Information below).

Impact of Adopting New FASB Lease Accounting Guidance

In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02–Leases (ASC 842). This standard modifies existing guidance for reporting organizations that enter into leases to increase transparency by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This guidance became effective for CrossAmerica on January 1, 2019.

As was noted in CrossAmerica's 2018 Form 10-K (Annual Report), certain previous sale-leaseback transactions that were accounted for similarly to capital leases were required to be reassessed under the new guidance as part of adopting ASC 842. These leases are accounted for as operating leases under the new guidance, and so the $42.0 million of net property and equipment and $76.1 million of sale-leaseback financing obligations recorded on the balance sheet as of December 31, 2018 were removed as part of the transition adjustment effective January 1, 2019.

Since CrossAmerica is not restating prior periods as part of adopting this guidance, the results in 2019 are not directly comparable to the results for periods before 2019. Specifically, payments on these sale-leaseback obligations were characterized as principal and interest expense in periods prior to 2019. Starting in 2019, these payments are characterized as rent expense and thus reduce gross profit particularly from the wholesale segment, operating income, income before income taxes, and net income relative to the results reported for periods prior to 2019.

The adoption of the new lease standard does not affect the Partnership's covenant calculations with regard to its Credit Agreement, nor has there been any change in the underlying cash flows related to these leases. The adoption of the new lease standard, if it had been adopted January 1, 2018, would have impacted CrossAmerica's full year 2018 financial results in the following manner: Adjusted EBITDA would have been lower by approximately $7.2 million, primarily affecting the Wholesale Segment, and Distributable Cash Flow would have been lower by approximately $1.7 million. CrossAmerica anticipates a similar effect on its 2019 financial results. Non-GAAP measures used in this release include Adjusted EBITDA and Distributable Cash Flow, which non-GAAP measures are further described to their most directly comparable GAAP measures in the Supplemental Disclosure Regarding Non-GAAP Financial Measures section of this release.

Conference Call

The Partnership will host a conference call on August 6, 2019 at 9:00 a.m. Eastern Time to discuss second quarter 2019 earnings results. The conference call numbers are 877-420-2982 or 847-619-6129 and the passcode for both is 7118414#. A live audio webcast of the conference call and the related earnings materials, including reconciliations of 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 Partnership's website. To listen to the audio webcast, go to https://caplp.gcs-web.com/webcasts-presentations.  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 7118414#. An archive of the webcast will be available on the investor section of the CrossAmerica website at https://caplp.gcs-web.com/webcasts-presentations within 24 hours after the call for a period of sixty days.

CROSSAMERICA PARTNERS LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Dollars, Except Unit and Per Unit Amounts)
(Unaudited)

    Three Months Ended June 30,     Six Months Ended June 30,  
    2019     2018     2019     2018  
Operating revenues(a)   $ 605,528     $ 673,295     $ 1,077,314     $ 1,227,865  
Costs of sales     564,158       629,323       998,867       1,143,942  
Gross profit     41,370       43,972       78,447       83,923  
                                 
Income from CST Fuel Supply equity interests     3,734       3,740       7,160       7,545  
Operating expenses:                                
Operating expenses     14,210       15,691       29,563       32,033  
General and administrative expenses     4,109       4,810       8,527       9,530  
Depreciation, amortization and accretion expense     12,496       21,932       25,557       37,432  
Total operating expenses     30,815       42,433       63,647       78,995  
Loss on dispositions and lease terminations, net     (369 )     (6,847 )     (428 )     (6,617 )
Operating income (loss)     13,920       (1,568 )     21,532      
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