CrossAmerica Partners LP - Q3 2024 Filing Summary
Business Context and Reporting Period
CrossAmerica Partners LP (CAPL) is a Delaware limited partnership engaged in the wholesale distribution of motor fuels, the leasing of real estate for retail fuel sites, and the operation of retail fuel and convenience stores. This Form 10-Q covers the quarterly period ended September 30, 2024. The company operates two primary segments: Wholesale and Retail. As of November 1, 2024, there were 38,046,688 common units outstanding.
Key Financial Metrics
| Metric | Q3 2024 (3 Months) | Q3 2023 (3 Months) | YTD 2024 (9 Months) | YTD 2023 (9 Months) |
|---|---|---|---|---|
| Operating Revenues | $1,079.2 million | $1,210.0 million | $3,154.1 million | $3,371.6 million |
| Gross Profit | $111.2 million | $100.4 million | $297.3 million | $280.2 million |
| Operating Income | $27.1 million | $24.1 million | $42.2 million | $61.1 million |
| Net Income | $10.7 million | $12.3 million | $5.6 million | $25.8 million |
| Net Income Available to LPs | $10.1 million | $11.7 million | $3.7 million | $24.0 million |
| Diluted EPS | $0.27 | $0.31 | $0.10 | $0.63 |
| Adjusted EBITDA | $43.9 million | $44.2 million | $110.1 million | $118.1 million |
| Distributable Cash Flow | $27.1 million | $31.4 million | $64.9 million | $80.9 million |
| Debt (Total) | $781.2 million | $767.1 million (Dec 2023) | N/A | |
| Cash & Equivalents | $7.8 million | $5.8 million (Sep 2023) |
Material Changes vs. Prior Period
- Revenue Decline: Consolidated revenues decreased 11% in Q3 and 6% YTD compared to 2023. This was driven by a 14% decrease in wholesale volume and a 7% decrease in average wholesale fuel selling prices due to lower crude oil prices (WTI avg $76.43 in Q3 2024 vs. $82.25 in Q3 2023).
- Segment Shift: The company continued converting lessee dealer sites to company-operated and commission agent sites. This reduced wholesale segment revenue but increased retail segment revenue by 6% in Q3 and 6% YTD due to higher volumes.
- Applegreen Acquisition: In early 2024, the company acquired 59 sites from Applegreen for $16.9 million in consideration plus inventory. This resulted in a $16.0 million loss on lease termination recorded in the first half of 2024, impacting YTD operating income.
- Interest Expense: Interest expense increased 34% in Q3 and 17% YTD. This was primarily due to the maturity of three favorable interest rate swap contracts on April 1, 2024, and general interest rate increases. The effective interest rate on the credit facility rose to 6.5%.
- Asset Sales: The company sold 19 sites YTD 2024 for $19.0 million, generating an $11.8 million net gain, partially offsetting the lease termination losses.
Guidance, Outlook, and Risks
- Outlook: Management anticipates continued higher interest expense in 2024 relative to 2023 due to swap maturities. The company expects to continue converting sites to the highest and best use, which will likely increase retail gross profit while reducing wholesale gross profit.
- Capital Allocation: The company plans to continue divesting lower-performing assets and pursuing opportunistic acquisitions. Growth capital expenditures are discretionary and dependent on proceeds from asset sales.
- Liquidity: As of November 1, 2024, availability under the $925 million CAPL Credit Facility was $101 million. The company remains in compliance with all financial covenants.
- Risks: Key risks include volatility in crude oil and wholesale fuel prices, competition, environmental liabilities, and the ability to service debt. The company notes that forward-looking statements are subject to uncertainties regarding economic conditions and regulatory changes.
Investor Verification Checklist
- Debt Covenants: Verify continued compliance with the Consolidated Leverage Ratio (max 5.00:1.00 for Q3 2024) and Interest Coverage Ratio (min 2.50:1.00) given the increased interest expense.
- Applegreen Integration: Monitor the operational performance of the 59 newly converted company-operated sites to ensure they meet projected gross profit targets.
- Interest Rate Exposure: Assess the impact of the 6.5% effective interest rate on future cash flows and the potential need for new hedging strategies.
- Wholesale Volume Trends: Track the net loss of independent dealer contracts and lessee dealer conversions to understand the long-term trajectory of the wholesale segment.
- Distribution Coverage: Review the Distribution Coverage Ratio (1.08x YTD 2024 vs. 1.35x YTD 2023) to evaluate the sustainability of the $0.5250 per unit quarterly distribution.