CrossAmerica Partners experienced a decrease in distributable cash flow during the first quarter of 2016.
CrossAmerica Partners LP has released its first quarter financial results for the period ending March 31, 2016.
“In the first quarter, we continued to execute on our acquisition and integration strategy, resulting in a 71% increase to distributable cash flow for our unit holders, compared to the first quarter of 2015,” said Jeremy Bergeron, president of CrossAmerica Partners. “These efforts, and the strength of our base business, position us well to benefit from the seasonally stronger periods of the spring and summer driving season.”
Three Months – Consolidated Results
Operating income was $5.9 million for the first quarter 2016 compared to a loss of $0.4 million achieved in the first quarter 2015. EBITDA was $18.2 million for the three month period ended March 31, 2016, up 66% over the $11 million for the same period in 2015 (non-GAAP measures, including EBITDA, as described are reconciled to the corresponding GAAP measures in the Supplemental Disclosure section of this release). Adjusted EBITDA was $22.2 for the first quarter 2016 compared to $15.6 million for the same period in 2015, representing an increase of 43%. The increase in EBITDA and Adjusted EBITDA was due primarily to an increase in the gross profit at the CrossAmerica’s wholesale segment.
During the first quarter 2016, CrossAmerica distributed, on a wholesale basis, 236.2 million gallons of motor fuel at an average wholesale gross margin of $0.050 per gallon, resulting in gross profits of $11.7 million. For the three month period ended March 31, 2015 CrossAmerica distributed, on a wholesale basis, 233.8 million gallons of fuel at an average wholesale gross margin of $0.056 per gallon, resulting in gross profits of $13.1 million. The decrease was primarily due to the decline in the margin CrossAmerica receives from purchase discounts provided to CrossAmerica by its suppliers. The company 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, which was lower during the first quarter of 2016 than it was during the first quarter of 2015.
CrossAmerica’s gross profit from its other revenues for the wholesale segment, which primarily consist of rental income, was $14.1 million for the first quarter of 2016 compared to $10.5 million for the same period in 2015. The increase in rental income was primarily associated with acquisitions completed in 2015 and the continued dealerization of company-operated stores.
CrossAmerica recorded $4.1 million in income from its 17.5% equity investment in CST Fuel Supply LP in the first quarter of 2016, compared to $1.1 million for the same period in 2015. The increase is a result of the additional 12.5% interest acquired in July 2015.
Adjusted EBITDA for the wholesale segment was $24 million for the first quarter of 2016 compared to $17.6 million for the same period in 2015. The $6.4 million increase was primarily driven by an increase in rental income, income from the company’s equity interest in CST Fuel Supply and a reduction in overall operating expenses, partially offset by a decrease in fuel margin as discussed above.
For the first quarter 2016, CrossAmerica sold 40.2 million gallons of motor fuel at an average retail motor fuel gross margin of $0.063 per gallon, net of commissions and credit card fees, resulting in gross profits of $2.5 million. For the same period in 2015, CrossAmerica sold 46.3 million gallons at an average retail motor fuel gross margin of $0.102 per gallon, net of commissions and credit card fees, resulting in gross profits of $4.7 million. Motor fuel gross profit decreased $2.2 million attributable to a 13% decrease in volume driven by the conversion of certain higher volume sites acquired in prior acquisitions to the dealer customer group during 2015. Certain of these sites, located in different regions from CrossAmerica’s remaining company-operated sites, generally had a higher motor fuel gross profit mix compared to the remaining company-operated sites.
During the quarter, the company also generated $7.7 million in gross margin from the sale of food and merchandise versus $8.5 million for the same period in 2015. Once again, the decrease in merchandise gross profit is primarily due to the dealerization of company-operated stores.
Adjusted EBITDA for the retail segment was $1.8 million for the first quarter of 2016 compared to $4.8 million for the same period in 2015. The $3 million decrease was primarily caused by lower retail fuel margins and the continued dealerization of company-operated stores.
Distributable Cash Flow and Distribution Coverage Ratio
Distributable Cash Flow was $17.3 million for the three month period ended March 31, 2016 compared to $10.1 million for the same period in 2015. The increase in Distributable Cash Flow was due primarily to an increase in earnings driven by acquisitions in addition to lower operating and general and administrative expenses. Distributable Cash Flow per diluted limited partner unit was $0.5211 for the three months ended March 31, 2016 and CrossAmerica paid a limited partner distribution per unit of $0.5925 during the quarter, resulting in a Distribution Coverage Ratio of 0.88 times for the three months ended March 31, 2016.
Acquisition of Franchise Holiday Stationstores
On March 29, 2016, CrossAmerica closed on the acquisition of 31 franchise Holiday Stationstores and three company- operated liquor stores from S/S/G Corporation for approximately $52.3 million, including working capital. Of the 34 company- operated stores, 31 are located in Wisconsin and three are located in Minnesota. The acquisition was funded by borrowings under the CrossAmerica revolving credit facility.
Liquidity and Capital Resources
As of May 4, 2016, approximately $63.3 million was available for future borrowings under the CrossAmerica revolving credit facility. In connection with future acquisitions, the revolving credit facility requires, among other things, that the company has, 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.
On May 5, 2016, the Board of the Directors of CrossAmerica’s General Partner declared a quarterly distribution of $0.5975 per limited partner unit attributable to the first quarter of 2016. As previously announced, the distribution will be paid on May 31, 2016 to all unitholders of record as of May 19, 2016. The amount and timing of any future distributions is subject to the discretion of the Board of Directors of CrossAmerica’s General Partner. CrossAmerica expects to grow per unit distributions in 2016 by 5%-7% over 2015 levels while targeting the long-term goal of maintaining an annual coverage ratio of at least 1.1 times.
The Partnership hosted a conference call on May 6, 2016 at 9:30 a.m. Eastern Time (8:30 a.m. Central Time) to discuss 2016 first quarter earnings results. 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, was also 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 CrossAmerica’s website. 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 5854572#. An archive of the webcast will be available on the investor section of the CrossAmerica website at www.crossamericapartners.com/en-us/investors/eventsandpresentations for a period of sixty days.