Business context and reporting period
This is Lehigh Gas Partners LP’s unaudited Form 10-Q for the quarter ended March 31, 2014; the supplied filing is not titled Crossamerica Partners LP. The partnership distributes motor fuels, operates retail fuel sales at commission sites, and owns or leases fuel-related real estate. It reported 801 supplied sites and approximately 159.6 million gallons distributed in the quarter.
Key financial metrics
Amounts below are in millions of dollars except per-unit data and where noted.
| Metric | Q1 2014 | Q1 2013 / prior date |
|---|---|---|
| Total revenue | $482.0 | $471.9 |
| Fuel gross margin | $9.65; $0.060 per gallon | $9.93; $0.066 per gallon |
| Operating income | $5.49 | $7.50 |
| Net income | $1.43 | $3.76 |
| Net income per common and subordinated unit | $0.07 | $0.25 |
| Adjusted EBITDA | $10.96 | $12.61 |
| Distributable cash flow | $7.21 | $9.32 |
| Operating cash flow | $0.78 | $0.28 |
| Capital expenditures | $2.75 | $0.24 |
| Cash and cash equivalents | $1.35 | $4.12 at Dec. 31, 2013 |
| Total debt | $186.1 | $173.6 at Dec. 31, 2013 |
Current assets were $37.7 million and current liabilities $38.1 million at quarter-end. The revolving facility had $158.9 million drawn, $14.3 million of letters of credit outstanding, and reported nominal availability of $278.0 million. Its weighted-average borrowing rate was 2.7%. The partnership paid $9.6 million in distributions during the quarter; declared distributions were $0.5125 per unit for the quarter and again in May.
Material changes versus the prior comparable period
- Revenue rose 2.2%, while total fuel gross margin fell 2.8% and margin per gallon declined 9.1%. Volume increased 6.6%, mainly due to 2013 acquisitions, partly offset by competition, adverse northeastern weather, site closures, and terminated supply contracts.
- Net income fell 62.0%. Lower fuel margin and higher operating costs, depreciation, SG&A, and interest expense contributed; a $1.5 million gain on two site sales partly offset the decline.
- Operating cash flow increased by $0.5 million, but remained low at $0.8 million. The partnership used $2.7 million in investing cash and $0.8 million in financing cash; cash declined by $2.8 million during the quarter.
- Debt increased $12.5 million from year-end, principally reflecting revolving-credit borrowings. Distributable cash flow was below distributions paid in the quarter.
Outlook, commentary, risks and unusual items
- Management expected 2014 fuel volumes and rent income to increase, reflecting acquisitions, while noting that market conditions could reduce volume. It expected fuel gross margins to remain consistent with historical results based on then-current conditions; no specific earnings guidance was provided.
- In March, the partnership replaced its credit agreement with a $450 million secured revolving facility maturing in 2019. Covenants include maximum leverage and minimum interest-coverage requirements; distributions may be restricted in default or covenant noncompliance.
- After quarter-end, the partnership completed the PMI acquisition: it acquired Pinehurst for $4.0 million and thereby acquired PMI under a separate $75.0 million merger agreement, subject to a working-capital adjustment. PMI operated 85 convenience stores and nine co-located restaurants. PMI’s lubricants business was sold for $14.0 million; the partnership is entitled to any profit on a later resale. A trust controlled by the general partner’s chairman and CEO financed the buyer, following conflicts-committee approval.
- A separate Atlas transaction, valued at $50.4 million including short-term financing assets, was expected to close in Q2 2014 and be funded with credit-facility borrowings. The filing also describes a revised management fee effective May 1, 2014, including a $670,000 monthly base fee and variable per-gallon fees.
- Environmental liabilities recorded by the partnership were $1.5 million, with $1.5 million of related indemnification assets. Management cited uncertainty in remediation estimates. It did not expect pending legal matters to materially affect results, but noted insurance may not cover all future claims. Fuel-price volatility, retail inventory exposure, interest rates, acquisition execution, debt, weather, competition, and distribution capacity are material risks.
- Management reported disclosure controls were effective as of March 31, 2014, with no material change in internal control during the quarter.
Important facts for investors to verify
- Confirm the issuer: the supplied 10-Q is for Lehigh Gas Partners LP, despite the request metadata naming Crossamerica Partners LP.
- Review the underlying volume, gross-margin-per-gallon and acquisition contribution trends, especially as margins declined despite higher volume.
- Assess distribution sustainability against quarterly distributable cash flow, cash balances, capital spending, and the $0.5125-per-unit distribution.
- Verify post-quarter PMI acquisition accounting, financing, integration assumptions, related-party transaction terms, and the status and funding of the Atlas acquisition.
- Monitor leverage, covenant headroom, revolving-credit availability, and environmental remediation and indemnification recoveries.