Business context and reporting period
This is Susser Petroleum Partners LP’s unaudited Form 10-Q for the quarter and six months ended June 30, 2014, filed August 8, 2014. The filing describes a primarily fee-based motor-fuel distributor operating in Texas, New Mexico, Oklahoma and Louisiana, with substantial sales to its parent, Susser Holdings Corporation (SUSS). Note: the request identifies Sunoco LP, but the supplied filing is for Susser Petroleum Partners LP; confirm the intended issuer.
Financial results and liquidity
| Metric | Second quarter 2014 | Six months 2014 |
|---|---|---|
| Revenue | $1.376 billion, up 22.8% | $2.593 billion, up 17.2% |
| Gross profit | $22.2 million, up 30.9% | $44.3 million, up 36.3% |
| Operating income | $11.5 million, versus $10.5 million | $23.1 million, versus $19.5 million |
| Net income | $9.6 million, versus $9.7 million | $19.7 million, versus $17.9 million |
| Net income per unit | Common basic $0.43, versus $0.44 | Common basic $0.90, versus $0.82 |
| Adjusted EBITDA (non-GAAP) | $15.6 million, versus $12.8 million | $31.2 million, versus $24.1 million |
| Distributable cash flow (non-GAAP) | $13.7 million, versus $11.9 million | $27.7 million, versus $22.3 million |
Second-quarter total motor-fuel volume rose to 461.8 million gallons from 389.0 million; weighted-average fuel gross profit was 3.7 cents per gallon, compared with 3.6 cents. For the first half, operating cash flow was $11.8 million, down from $37.5 million, primarily reflecting working-capital movements, including higher inventory. Capital expenditures and intangible purchases totaled $67.6 million in the first half, including $58.6 million for store acquisitions and leasebacks.
At June 30, cash was $6.8 million and total debt was $236.3 million, including $232.2 million drawn on the $400 million revolver. Revolver availability was $156.9 million after $10.9 million of letters of credit. The partnership reported compliance with financial covenants. Current assets were $172.4 million and current liabilities $141.9 million. The declared second-quarter distribution was $0.5197 per unit, totaling approximately $11.4 million, including a $64,000 incentive distribution to SUSS.
Material changes versus the prior comparable period
- Revenue and gross profit increased on higher fuel volumes, growth in third-party locations, and additional rental income from acquired store properties. Fuel sales to affiliates remain the largest revenue component.
- Net income was nearly flat in the second quarter despite higher gross profit, as operating expenses increased 66.7% to $10.7 million and net interest expense more than doubled to $1.8 million.
- For the first half, operating expenses rose 63.0% to $21.2 million. The filing attributes part of the increase to the Gainesville Fuel acquisition, compensation and headcount, truck fuel and maintenance, and higher depreciation and amortization.
- Revolver borrowings increased $76.0 million from year-end; the $25.9 million term loan was repaid in the first quarter. First-half operating cash flow declined substantially from the prior year.
Outlook, commentary, risks and unusual items
- Management expected operating cash, revolver borrowings and, as appropriate, debt or unit issuance to meet liquidity needs, but noted financing availability and future performance are not assured. No specific earnings or revenue guidance was provided.
- On April 27, 2014, SUSS agreed to be acquired by Energy Transfer Partners, L.P. (ETP). The proposed transaction would transfer SUSS’s general partner interest, incentive distribution rights and approximately 50.2% ownership of the partnership to ETP. Closing remained subject to shareholder and regulatory approvals and other customary conditions.
- Key disclosed risks include dependence on SUSS and two principal suppliers, fuel demand and price changes, competition, seasonal and weather effects, acquisition execution, regulation and environmental exposure, supplier credit terms, and reliance on SUSS for transportation services.
- Variable-rate debt creates interest-rate exposure: a one-percentage-point rate change was estimated to affect annual interest expense by approximately $2.3 million. Fuel hedging positions were described as not significant.
- The filing states that a prior-period presentation revision grossed up consignment fuel taxes in sales and cost of sales; it did not affect gross profit, operating income, net income, balance sheets or cash flows. No legal proceedings were reported.
Important facts for investors to verify
- Confirm the intended issuer: the provided 10-Q is for Susser Petroleum Partners LP, not Sunoco LP.
- Check the status and eventual terms of the proposed ETP-SUSS merger and its potential effects on partnership ownership and governance.
- Review the trend in operating cash flow and working capital, especially inventory requirements and fuel supplier payment terms.
- Assess revolver utilization, covenant headroom, floating-rate exposure and the capacity to fund acquisitions, capital spending and distributions.
- Evaluate related-party concentration and terms, including affiliate fuel sales, transportation arrangements, management charges and store sale-leasebacks.
- Interpret revenue growth alongside per-gallon margins and non-GAAP measures; fuel-tax presentation affects reported sales and cost of sales but not gross profit.