CrossAmerica Partners LP (CAPL) - Q2 2024 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2024. CrossAmerica Partners LP operates in two primary segments: Wholesale (distribution of motor fuel to lessee and independent dealers) and Retail (operation of retail sites, including company-operated and commission agent sites, selling fuel and convenience merchandise). The company is an accelerated filer with 38,046,688 common units outstanding as of August 2, 2024.
Key Financial Metrics
| Metric | Q2 2024 (3 Months) | YTD 2024 (6 Months) | YTD 2023 (6 Months) |
|---|---|---|---|
| Operating Revenues | $1,133.4 million | $2,074.9 million | $2,161.6 million |
| Gross Profit | $104.8 million | $186.1 million | $179.8 million |
| Operating Income | $28.2 million | $15.1 million | $37.0 million |
| Net Income (Loss) | $12.4 million | $(5.1) million | $13.6 million |
| Net Income Available to LPs | $11.8 million | $(6.4) million | $12.3 million |
| EPS (Diluted) | $0.31 | $(0.17) | $0.32 |
| Adjusted EBITDA | $42.6 million | $66.1 million | $73.9 million |
| Distributable Cash Flow | $26.1 million | $37.8 million | $49.5 million |
| Distribution Coverage Ratio | 1.30x | 0.95x | 1.24x |
| Total Debt (Gross) | As of June 30, 2024: $799.1 million As of Dec 31, 2023: $767.1 million |
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| Cash & Equivalents |
Liquidity: Cash and cash equivalents were $5.5 million at June 30, 2024. Availability under the $925 million CAPL Credit Facility was approximately $111 million as of June 30, 2024.
Material Changes vs. Prior Period
- Revenue Shift: Consolidated revenues decreased 4% YTD 2024 vs. 2023. This reflects a strategic shift where Wholesale revenues dropped 13% (due to volume declines from converting lessee dealer sites to company-operated sites), while Retail revenues increased 6% (driven by higher volume from new company-operated sites and merchandise sales).
- Applegreen Acquisition Impact: The company acquired 59 sites from Applegreen via lease termination in Q1/Q2 2024. This resulted in a $16.0 million loss on lease termination (including a $1.5 million non-cash write-off of deferred rent) recorded in the first half of 2024, significantly impacting YTD operating income.
- Interest Expense: Interest expense increased 9% YTD 2024 ($24.7 million vs. $22.7 million) primarily due to the maturity of three favorable interest rate swap contracts on April 1, 2024, and general interest rate increases.
- Profitability: While Q2 2024 showed a slight increase in operating income ($28.2M vs. $27.9M), YTD operating income fell 59% to $15.1M, largely due to the Applegreen lease termination loss and higher interest costs.
Guidance, Outlook, and Risks
- Outlook: Management anticipates higher interest expense for the remainder of 2024 due to the swap maturities. The Applegreen acquisition is expected to increase retail segment gross profit and operating expenses while reducing wholesale segment gross profit.
- Capital Strategy: The company continues to pursue opportunistic acquisitions and real estate rationalization (selling lower-performing assets). Growth capital expenditures are discretionary and reviewed against asset sale proceeds.
- Risks:
- Interest Rate Risk: A 1% change in SOFR would impact annual interest expense by approximately $3.9 million.
- Commodity Volatility: Gross profit is highly correlated to crude oil prices and wholesale fuel spreads.
- Concentration Risk: 81% of motor fuel is purchased from four suppliers; 49% of merchandise is purchased from one supplier.
- Related Party Transactions: Significant revenue and expense relationships exist with the Topper Group (General Partner) and affiliates.
Investor Verification Checklist
- Applegreen Integration: Verify the timeline for converting the 59 acquired sites to company-operated status and the resulting impact on retail gross margins.
- Debt Covenants: Confirm continued compliance with the Consolidated Leverage Ratio (max 5.00:1.00 for Q2 2024) and Interest Coverage Ratio (min 2.50:1.00) given the recent lease termination losses.
- Interest Rate Hedging: Assess the duration and terms of remaining interest rate swap contracts to understand future interest expense exposure post-April 2024.
- Wholesale Volume Trends: Monitor the rate of decline in wholesale distribution volumes as the company continues to convert lessee dealer sites to retail operations.
- Distribution Coverage: Review the YTD Distribution Coverage Ratio of 0.95x to assess the sustainability of the $0.5250 per unit quarterly distribution.