Susser Petroleum Partners LP (SUSP) — Q2 2013 Form 10-Q
Issuer note: The request identifies Sunoco LP, but the supplied filing is for Susser Petroleum Partners LP. It reports the quarter and six months ended June 30, 2013; the filing was signed August 14, 2013.
Business context and reporting period
SUSP distributes motor fuel and other petroleum products in Texas, New Mexico, Oklahoma and Louisiana, and leases convenience-store properties. Susser Holdings Corporation (SUSS) is a major customer and owned 50.1% of SUSP at quarter-end. SUSP began operating as a public partnership after its September 2012 IPO. Accordingly, 2012 comparisons use the Predecessor’s results and are not fully comparable; the filing also supplies pro forma 2012 results that adjust for key post-IPO arrangements.
Financial performance and liquidity
| Metric | Q2 2013 | Six months 2013 |
|---|---|---|
| Revenue | $1,118.1 million; +2.9% year over year | $2,199.3 million; +1.9% |
| Gross profit | $17.0 million; +19.6% | $32.5 million; +35.1% |
| Operating income | $10.5 million | $19.5 million |
| Net income | $9.7 million, versus $3.7 million | $17.9 million, versus $5.4 million |
| Net income per unit | $0.44 | $0.82 |
| Adjusted EBITDA (non-GAAP) | $12.8 million | $24.1 million |
| Distributable cash flow (non-GAAP) | $11.9 million | $22.3 million |
Quarterly weighted-average fuel gross profit was 3.6 cents per gallon, compared with 3.1 cents in the Predecessor period; on the filing’s pro forma basis it was 3.6 cents versus 3.4 cents. Affiliated fuel sales earned about 3 cents per gallon under the post-IPO distribution agreement. SUSP distributed 389.0 million gallons in Q2, including 264.1 million affiliated gallons.
Six-month operating cash flow was $37.5 million, compared with $7.5 million in the prior-year period. Investing cash flow used $5.5 million net; capital expenditures, including intangible purchases, were $57.9 million, of which $57.6 million was expansion spending and $0.3 million maintenance. Financing activities used $22.2 million. Cash increased to $16.5 million at June 30.
Total debt was $181.8 million: $95.9 million on the term loan and $84.8 million on the revolver, plus $1.1 million of other debt. The $250 million revolver had $152.4 million unused availability after $12.8 million of letters of credit. SUSP reported covenant compliance. Current assets were $131.8 million and current liabilities $124.2 million. Marketable securities were $95.9 million and collateralized the term loan; the filing says these are intended to fund future capital expenditures.
Material changes versus the prior comparable period
- Reported revenue and fuel-sales mix shifted substantially because consignment sales previously classified as third-party sales became affiliated sales after the IPO. The reported comparisons therefore do not represent a like-for-like change in underlying activity.
- On the pro forma basis, Q2 revenue increased 2.8% and gross profit rose to $17.0 million from $14.0 million. For the first half, pro forma revenue increased 1.6% and gross profit rose to $32.5 million from $27.6 million.
- Fuel volumes increased on the pro forma comparison, while lower wholesale selling prices partly offset the volume growth. Third-party gross profit per gallon improved to 4.9 cents from 4.2 cents on the pro forma comparison.
- Q2 operating expenses fell 22.4% year over year, primarily because certain Predecessor activities and related costs were not contributed at the IPO. General and administrative expense rose, reflecting compensation, added headcount and public-company costs.
- The effective income-tax rate fell to approximately 0.9% for the first half from 36.4% in the Predecessor period, mainly because SUSP is generally a pass-through entity; the Predecessor had been taxable.
Outlook, commentary, risks and unusual items
Management said it expects cash from operations, marketable-security liquidations, revolver borrowings and, as appropriate, unit issuance to meet liquidity needs. It stated these sources were expected to be adequate, while cautioning that future performance and financing availability are uncertain. SUSP intends to pay at least the $0.4375 minimum quarterly distribution per unit when sufficient cash is available after reserves and expenses; there is no legal obligation to pay it. On August 5, 2013, it declared $0.4528 per unit for Q2 results, payable August 29.
- Related-party dependence: SUSS buys substantially all of its motor fuel from SUSP; the parties also have long-term distribution and transportation agreements. SUSS provides transportation and certain management services and held 50.1% of the partnership.
- Commercial and operating risks: The filing identifies reliance on two principal suppliers, fuel-price and demand changes, contract renewal or renegotiation, competition, seasonality, acquisition execution, environmental regulation, fuel-storage hazards and reliance on SUSS for transportation.
- Interest-rate exposure: A one-percentage-point change in floating rates would change annualized interest expense by approximately $1.8 million. No interest-rate swaps were in effect.
- Fuel hedging: At June 30, fuel futures represented 7.3 million gallons and had a fair value liability of approximately $0.25 million; the first-half 2013 related loss was $1.2 million and was substantially offset by inventory economics. Hedge accounting was not used.
- Capital commitments and distributions: The first-half expansion program included $52.5 million of purchases from SUSS, including 12 stores and cost true-ups. The filing reports $202.1 million of contractual obligations, including debt, estimated interest and operating leases.
Important facts for investors to verify
- Confirm the intended issuer: the supplied document is Susser Petroleum Partners LP, not Sunoco LP.
- Use the filing’s pro forma comparisons when assessing operating trends, and distinguish them from reported Predecessor comparisons.
- Review SUSS-related sales, receivables, transportation charges, store purchases and distribution arrangements, including the impact of the controlling owner relationship.
- Assess debt maturities, floating-rate exposure, revolver capacity and the terms governing collateralized securities and capital spending.
- Evaluate whether operating cash flow and distributable cash flow support the declared distribution and planned expansion spending; distributable cash flow is a non-GAAP measure, not cash available without qualification.