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. I'll now turn the call over to Randy Palmer, Executive Director of Investor Relations. Mr. Palmer, you may begin.

Thank you, operator. Good morning and thank you for joining the CrossAmerica Partners second quarter 2018 earnings call. With me today are Gerardo Valencia, CEO and President; Evan Smith, Chief Financial Officer and other members of our Executive Leadership Team. Gerardo will provide some opening comments and a brief overview of CrossAmerica's operational performance and highlights from the quarter, and then we’ll turn the call over to Evan to discuss the financial results. At the end, we will open up the call to questions. I should point out that today's call will follow some presentation slides that we will utilize during this morning's event. These slides are available as part of the webcast and are posted on the CrossAmerica website. Before we begin, I would like to remind everyone that today's call, including the question-and-answer session, may include forward-looking statements regarding expected revenue, future plans, future operational metrics, and opportunities and expectations of the organization. There can be no assurance that management's expectations, beliefs and projections will be achieved or that actual results will not differ from expectations. Please see CrossAmerica's filings with the Securities and Exchange Commission including annual reports on Form 10-K and quarterly reports on Form 10-Q for a discussion of important factors that could affect our actual results. Forward-looking statements represent the judgment of CrossAmerica's management as of today's date and the organization disclaims any intent or obligation to update any forward-looking statements. During today's call, we may also provide certain performance measures that do not conform to US Generally Accepted Accounting Principles or GAAP. We’ve provided schedules that reconcile these non-GAAP measures with our reported results on a GAAP basis as part of our earnings press release. Today's call is being webcast and a recording of this conference call will be available on the CrossAmerica website for a period of 60 days. With that, I'll now turn the call over to Gerardo.

Thank you, Randy. And good morning, everybody. We reported our second quarter 2018 earnings results yesterday afternoon and Evan will go through those details in a few minutes. But first, I wanted to briefly review some of our operating results and highlights from the quarter. For the second quarter, we reported an operating loss of $1.6 million driven by two one-off charges. One related to an FTC mandated divestment which was a $7.6 million impairment charge; and the second, a $6 million loss on lease termination related to an investment we chose to do to improve our base business. Both were outlined in our earnings release and 10-Q and Evan will cover in more detail. Our adjusted EBITDA was $28.2 million for the second quarter with growth in both our Wholesale and Retail segments. Our distributable cash flow for the quarter was $20 million and on July 13th our Board approved a quarterly distribution of 52.5 cents per unit attributable to the second quarter of 2018 that will be paid later this month. If you turn to Slide 4, I will briefly review some of our operating results for the quarter. For the second quarter, we increased the number of sites to which we distribute fuel by 6%, and we reduced the company operated network by 1%, in line with our long-term strategy. We grew our volume by 2% primarily driven by our Jet-Pep acquisition. Along with increasing volume, we also saw our wholesale fuel margin grow from 5.6 cents in the second quarter of 2017 to 6.6 cents in 2018, representing an increase of 18%. This resulted in a 20% increase in our wholesale motor fuel gross profit for the second quarter. In regards to our rental and other gross profit that flows through both our Wholesale and Retail…

Thank you, Gerardo. If you would please turn to Slide 8, I would like to review our second quarter results for the Partnership. We reported adjusted EBITDA of $28.2 million for the second quarter of 2018 compared to $27.8 million in 2017. Our distributable cash flow for the second quarter of 2018 was $20 million. As Gerardo touched on earlier, both our adjusted EBITDA and distributable cash flow benefited from good results in both our Wholesale and Retail segments but were impacted by the intentional decline in equity-funded Omnibus expenses as mentioned earlier. Finally, turning to Slide 9, we ended the quarter with leverage as defined under our credit facility at 4.38 times, which was in compliance with our financial covenant ratios. As of August 2nd, we had $83.9 million available to borrow on our credit facility. The Partnership paid a distribution of 52.5 cents per unit during the second quarter of 2018 attributable to the first quarter of 2018 for a total of over $18 million resulting in coverage ratio of 1.11 times on a paid basis. Our trailing 12 month coverage was 0.97 times on a paid basis, up from 0.96 times in the prior quarter. Finally, I wanted to review two transactions that occurred during the quarter. First, we entered into master fuel supply and master lease agreements with Applegreen, a third-party multi-site operator to run 43 sites in Florida. They will take over the operations of these stores from DMS during the third and fourth quarters of this year. The master fuel supply and master lease agreements have an initial 10 year term with four, five year renewal options. With this transaction, we accrued a $3.8 million contract termination payment expected to be paid in the third quarter and a $2.2 million non-cash charge to write-off…

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

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

Yes, Dan it’s good to talk to you. So we don't have a retail business as you know and then the majority of the business is wholesale. Where we're seeing the majority of pressure is definitely on the labor side of the business, especially in the -- on the retail operations, although in the area of the counties where we operate, it's not impacting us directly the most. There are several areas where minimum labor or minimum wages have been increasing and that's where we're seeing the most pressure. In terms of our wholesale business and across the -- all of the organization, the other areas where we're seeing increases, is not as must because of inflation, but I'm going to say because of changes in regulation, and it is around the environmental compliance and it is because some of the counties and areas in which we operate, just not only for us but for everybody in the industry, they are asking us to do further revisions and views and making sure that there are other regulatory compliance issues that we need to address. And so, that has been putting a little bit of pressure in our costs.

Okay, great. And so how if at all this cost inflation factor in the fixed margins you can negotiate for your wholesale fuel contracts. So would broadly cost inflationary backdrop tend to push up wholesale margins across the industry do you think or is that the wrong conclusion to draw?

Yes so in the case of -- I mean I'm not going to generalize because not every contract is exactly structured the same way but in the majority of our contracts we do have a margin that is not related to the operating costs that the -- any retailer would have. In those cases, they have to manage their own operations independently. And so, these all independent operators have to make decisions about pricing and about how to make sure that they can manage those pressures themselves. And in many cases, it's about making sure that your offer, their offer is strong enough, that consumers choose them over other of the competitors in the marketplace. But that's mainly managed by the dealer themselves, so in a way as you were saying we’re a little bit insulated from that pressure ourselves in the short term but of course we’re looking at how things will come up for renewal and we want to make sure that of course our dealers are good to find the long-term, but that’s more about strengthening their offer and making sure we can support them with the right fuel offers. And I should have said, most of the synergies that we’ve been seeing right now and that you see flowing through our financials are related to G&A and efficiencies that we completely control which are related to how do we support the network and again working with Circle K, our General Partner who -- I mean if you think about CrossAmerica we -- in terms of volume we buy about a 1 billion gallons a year and Circle K buys more than 10 times that. So it’s similar in terms of other services and other providers whether it’s environmental, whether it’s insurance, whether it is logistics or secondary transportation. So we’re definitely looking at those areas to be able to leverage their scale and be able to capture synergy.

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

Sure. We’re always looking at different sources of capital. We’re not presently anticipating anything. We have our place really full with internal work right now. And so, we’re comfortable with our current leverage ratio and our access to -- and our availability on the revolver.

Our following question comes from Mike Gyure from Janney Montgomery.

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

Yes, Mike. Yes, thanks for the question. Good to talk to you. So to start with Applegreen, if you think about the industry for a retail site to succeed the consumer offer and operational execution need to drive customers in. While we in CrossAmerica can support the fuel offer and manage real estate efficiently, we need a strategic collaboration with the operators of the site to execute the offer and to develop it, especially as it relates to the backward and ancillary services that consumers want. So, Applegreen is one of the leaders in Ireland and in other places in Europe and they have operations aspirations to get into the US. They have been in the US for quite some time now several years. They are excellent operators. They understand consumers and this enables them to develop the site to appeal to the end consumers. So we started our relationship with them some time ago -- long time ago and we -- they currently operate over 20 sites in the Northeast for us, and they -- I can tell you that we have seen that they were able to grow volumes at those sites by double-digits since they’ve been operating the sites and they’re making sure that these sites are competitive, by developing them, understanding the customer and of course making sure as I was saying that operations are efficient. So that is a little bit of background in terms of where we’ve been with Applegreen and why Applegreen. We’ve been then collaborating with them to further grow. As we talked about, the second quarter, we were able to agree to terms in Florida for them to operate 43 of our locations. And we are actively working on other opportunities for growth. And there’s different areas in the country where we're expecting to grow. And we're -- they are also looking at growing and it’s how do we make sure that we continue with that strategic collaboration. So in terms of Florida, specifically for Florida, it's a market that is growing. It's an area that is developing, and it's an area where several competitors have been going in because they’re seeing the attractiveness, the consumer is ready in terms of retail, corporate and convenience offer, if you see there's many people going in that direction, many of the key retail competitors. And so Applegreen also saw that opportunity there. We have assets, we have the ability and so it was a good match for both of us to be able to grow in that play.

Great. Thanks, that was very helpful. And then maybe on the wholesale side of the business, how should we think about the distribution sites? I think end of the quarter, the average was 1250? How should we think about, I guess the growth rates maybe for the rest of the year, I guess do you view that as certainly an area of focus? It sounds like -- it seems like it's certainly an area we guys continue to do a lot of work on the distribution locations?

I am not following distribution locations.

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

Yes, and just we continue to look for expansion and growth. And in terms of the -- I mean there is M&A activity that we continue to monitor of course, but then there is that we are actively working on the transaction with our general partner, which should help us to bring more sites into CrossAmerica. And we're looking at a very material transaction in that space, and I'm going to elaborate on that a little bit. We have done a lot of progress in that space. And as I mentioned in our call last time when we discussed the results, it is a complex transaction that we're learning how to structure and implement together with our general partner. We are establishing the blueprint for this one and for future ones to come. It is material for this partnership and we want to make sure that it is done right. We have deployed a high-performing team of our most experienced people to structure and implement it, and the team has been working closely with many Circle K teams across the nation in different business units. So Circle K the way it's structured is, there are different business units across the nation. And our team -- my team has been working with each one of them to make sure that we can work together in terms of transition of some of these sites. In the last 60 days, the team has visited and developed specific plans for end state for over 200 locations. And the team has also engaged our best dealers and multi-site operators and developers to be able to take over some of those locations. We have a lot of momentum and I expect to be able to share news in the very near future about the deal, the terms and what you can expect for the first transaction. But that definitely should -- that would help to increase the number of locations that we have, that we distribute fuel and we’re also looking of course at assets that we would eventually own.

Our following question comes from Patrick Wang from Baird.

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

Yes. So, I think that’s true. As I was describing before, we have already captured some synergies in that space, and it is approaching $1 million for the -- for year-to-date and we expect to see that growing in the near future. Then in terms of how we manage our business, you should also bear in mind that we’re constantly looking at our dealers and we're constantly looking -- we’re maximizing gross profit for the partnership and so not every gallon is the same as you guys know, so it’s not about just driving volume, it’s about making sure that we have profitable volume. And so, we’re constantly looking at areas in which we would not renew a dealer or we would agree to them -- with them to buy other contract if they’re not providing the right value for the partnership. So there’s some things there that we’re doing to be able to improve that. We’re also working on pricing capability. So my team here has been -- we’ve been developing that confidence and capability within the organization here. And that is with support from the Circle K organization and we have been making sure that we implement best practice to make sure that the way we price is also helping us to make sure that we can capture value. Then in terms of fuel synergies as we were discussing, these encompass both distribution and supply of fuel. The fuel supply -- for the fuel supply the trick here is being able to fully understand the specific conditions for the 1,200 sites that we have in our CrossAmerica portfolio. As I mentioned on our previous call we’ve 10 brands and a few of them represent the vast majority of our fuel volume. And Circle K procures over 13 billion…

Okay, that's very helpful. And then my follow-up question relates to the transportation contract renegotiation. Is that part of everything you just outlined as well and can you just touch on progress there and whether or not that's included in that $15 million synergy figure?

The answer is, yes, supply chain. When I think about fuel supply chain, there is distribution as well and sourcing of the product itself, so in both areas and we’re continuing to address further improvements in synergies. So when I think for -- I mean in most of our portfolio, I'm going to say distribution we've already addressed. I think there are some areas like the Jet-Pep business where we're still working on getting that to where we expect it to be. So that’s more because it was an acquisition as you guys know that we did -- that we closed in November 2017 so it’s just timing that is going to take us to be able to capture that, but distribution is pretty much -- we’ve pretty much implemented that. It’s more around the fuel supplier or sourcing of fuel that we're now working on.

Our next question comes from Robert Balsamo from B Riley.

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

Yes, so -- yes. Thanks, Robert. So we -- I talked a bit about the first transaction and I was trying to make sure that I was clear in saying it is the first transaction and that it is a blueprint for what’s yet to come. So -- and what we're working right now is making sure that my team has the capabilities and has the structure to be able to absorb the growth and be able to efficiently absorb that growth. So we're working on that and we are taking more time than we would have expected because we want to make sure that it’s perfectly working. But so once that is done, it will be the blueprint for many other opportunities for us to implement together with a general partner. So that should deliver growth for us from a standpoint of new sites of fuel distribution growth, rental growth et cetera. So that's one key area that we're working on. The other one that I've mentioned on before and just when we were discussing is a fuel component because of the scale and capability that Circle K has which we’re focusing on right now. We're working in collaboration with Circle K to be able to do these, their global fuels team is very involved with us. We were in meeting this week several times to make sure that we're leveraging all of their capabilities. And then of course as we were originally discussing about our cost synergies, we're continuing to look at those. We have addressed most of the cost synergies that were short-term, but there are contracts that were in play that are going to be coming up where again we're going to be leveraging Circle K’s scale to help us to be able to capture some of that value. So in terms of the strategy, it hasn't changed. I think that the -- if I were to say what we're doing is making sure that we're both learning how to make sure that we can implement growth for both companies and that we can get it up and running and developing that blueprint. But I see that hasn't changed and we’re getting -- I am going to say we’re getting closer in both the sense of understanding how the company work and the value that you it provides to each other as well as closer in the sense of getting to that first concessions getting completed.

We’ve no further questions at this time.

Okay. Thank you very much, operator. That concludes today’s conference call. We appreciate each and every one of you joining us today. If you’ve follow-up questions, please feel free to contact us. Thank you very much. Have a good day.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.