Business context and reporting period
Susser Petroleum Partners LP (SUSP) filed this unaudited Form 10-Q for the quarter ended March 31, 2013. The filing describes a wholesale motor-fuel distributor operating in Texas, New Mexico, Oklahoma and Louisiana. SUSP was formed by Susser Holdings Corporation (SUSS) and began operating as a public partnership after its September 2012 IPO. The filing entity is Susser Petroleum Partners LP, not Sunoco LP as stated in the request metadata.
Comparisons with Q1 2012 require caution: that period reports the predecessor’s results, before the IPO, and did not include the approximately three-cent-per-gallon margin SUSP subsequently earned on fuel sold to affiliates. Management also presents a pro forma Q1 2012 comparison that adjusts for the post-IPO arrangements.
Financial and operating highlights
| Metric | Q1 2013 | Comparable period / balance |
|---|---|---|
| Total revenue | $1,081.2 million | $1,072.7 million in Q1 2012; up 0.8% |
| Gross profit | $15.6 million | $9.9 million in Q1 2012; up 57.4% |
| Gross margin | About 1.4% | About 0.9% in Q1 2012; comparison is affected by the predecessor-to-partnership change |
| Operating income | $9.0 million | $2.7 million in Q1 2012 |
| Net income | $8.2 million | $1.7 million in Q1 2012 |
| Net income per unit | $0.38 per common and subordinated unit | Partnership units were not outstanding in Q1 2012 |
| Adjusted EBITDA | $11.2 million | $4.9 million in Q1 2012; non-GAAP measure |
| Distributable cash flow | $10.4 million | Q1 2012 value not provided |
| Operating cash flow | $17.1 million | $1.0 million in Q1 2012 |
| Capital expenditures, including intangibles | $27.9 million, including $27.8 million of expansion capital and $0.1 million of maintenance capital | $1.2 million in Q1 2012 |
| Cash and cash equivalents | $9.3 million at March 31, 2013 | $6.8 million at December 31, 2012 |
| Total debt | $181.8 million at March 31, 2013 | $184.9 million at December 31, 2012 |
Q1 2013 motor-fuel volume was 366.9 million gallons: 251.1 million gallons sold to affiliates and 115.8 million to third parties. The volume-weighted fuel gross profit was 3.6 cents per gallon. Gross profit included $7.4 million on affiliate sales under the post-IPO distribution contract; the predecessor historically sold affiliate fuel at cost.
Material changes and liquidity
- On management’s pro forma basis, revenue increased 0.4% and gross profit rose from $13.5 million to $15.6 million year over year. Affiliate gallons increased 5.7%; third-party fuel gross profit per gallon improved from 4.2 to 5.0 cents. These adjusted comparisons are not GAAP results.
- Reported general and administrative expense rose 47.2% to $3.9 million, reflecting compensation and headcount increases and higher costs as a public company. Management cited a planned $2 million annual increase in public-company expenses.
- Cash from operations improved to $17.1 million, while working-capital movements included a $21.0 million increase in inventory, partly offset by higher accounts payable. Investing cash outflow was $1.9 million; financing cash outflow was $12.7 million.
- At quarter-end, the $250 million revolver had $58.6 million drawn, $12.8 million of standby letters of credit and $178.6 million of unused availability. SUSP reported compliance with all debt covenants. The $122.1 million term loan was substantially collateralized by investment-grade marketable securities; securities were intended to fund capital expenditures, with corresponding term-loan repayment and revolver borrowing arrangements.
- Current assets were $132.3 million and current liabilities $123.3 million. Marketable securities were $122.3 million, largely serving as term-loan collateral rather than unrestricted cash. Variable-rate debt exposure was material: management estimated a one-percentage-point rate change would alter annual interest expense by about $1.8 million.
Outlook, risks and unusual items
Management expected cash from operations, marketable-security liquidations, revolver borrowings and, if appropriate, additional unit issuance to meet liquidity needs, and stated these sources were expected to be adequate. No formal earnings or operating guidance was provided. SUSP intended to continue paying at least the $0.4375 quarterly minimum distribution per unit, approximately $9.6 million per quarter or $38.3 million annually at the then-current unit count, only if cash was available after reserves and expenses; the distribution is not a legal obligation. The May 2013 distribution was declared at $0.4375 per unit.
Q1 expansion spending included $26.1 million to acquire six convenience-store properties from SUSS and lease them back. Since the IPO, SUSP had acquired 14 such properties for $55.1 million. Related-party dependence and governance conflicts merit attention: SUSS owned 50.1% of SUSP and held its incentive distribution rights; SUSS was also a major customer and provider of transportation and management services. SUSP identified risks including reliance on two principal suppliers, fuel-price and demand changes, competition, seasonality, contract renewal, acquisition execution, environmental regulation, fuel-storage hazards and reliance on SUSS for transportation.
No legal proceedings, defaults on senior securities or material changes to internal controls were reported. Management stated its first assessment of internal control over financial reporting would be required as of December 31, 2013.
Investor verification points
- Confirm the filing’s issuer identity: the supplied filing is for Susser Petroleum Partners LP (ticker SUSP), not Sunoco LP.
- Assess the predecessor-versus-partnership comparability issue and use management’s pro forma figures with appropriate caution.
- Verify cash available for distributions after working-capital needs, capital spending, debt service and required reserves; distributable cash flow is non-GAAP.
- Review revolver availability, covenant headroom, floating-rate exposure and the restrictions or intended use of marketable securities pledged against the term loan.
- Evaluate related-party transaction terms, SUSS’s customer and service-provider role, and the economics and returns of the property sale-and-leaseback program.