CrossAmerica Partners LP — FY2023 Form 10-K
Reporting period: Year ended December 31, 2023; filed February 26, 2024. This is an annual report, not a standalone fourth-quarter results filing. CrossAmerica distributes motor fuel, leases fuel-site real estate, and operates retail fuel and convenience stores. At year-end, it owned or leased 1,116 sites, including 296 company-operated sites, and distributed fuel to approximately 1,700 locations in 34 states.
Financial and operating performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $4,386.3 million | $4,967.4 million | Down 12% |
| Gross profit | $382.3 million | $375.8 million | Up 2% |
| Operating income | $88.1 million | $96.0 million | Down 8% |
| Net income | $42.6 million | $63.7 million | Down 33% |
| Net income available to limited partners | $40.1 million | $62.0 million | Down 35% |
| Basic earnings per common unit | $1.06 | $1.63 | Down 35% |
| Net cash from operating activities | $117.1 million | $161.3 million | Down $44.2 million |
| Distributable cash flow (non-GAAP) | $116.7 million | $140.9 million | Down 17% |
| Distribution coverage ratio (non-GAAP) | 1.46x | 1.77x | Lower |
- Margins: Gross margin was approximately 8.7% of revenue, versus 7.6% in 2022. Operating margin was approximately 2.0%, versus 1.9%; net margin was approximately 1.0%, versus 1.3%.
- Segment trends: Wholesale operating income declined 3% to $90.8 million. Retail operating income declined 10% to $96.7 million: higher merchandise gross profit was more than offset by increased operating costs. Company-operated locations expanded as sites shifted from dealer and commission formats.
- Capital and cash: Capital expenditures totaled $34.6 million, including $7.7 million of sustaining capital. Cash distributions paid on common units were $79.7 million. Cash and cash equivalents were $5.0 million at year-end.
- Liquidity: Current assets of $108.5 million were below current liabilities of $161.1 million. Revolver availability, after covenant restrictions, was $164.5 million at December 31, 2023 and $125.4 million at February 22, 2024.
- Debt: Revolving credit-facility borrowings were $756.0 million; finance lease obligations were $11.1 million. The facility matures March 31, 2028. Including swaps, the reported effective borrowing rate was 4.9% at year-end. Management reported covenant compliance at December 31, 2023.
Material changes and unusual items
- Revenue fell mainly because lower crude and wholesale fuel prices reduced reported fuel sales: average WTI was $77.58 per barrel in 2023, down 18% from 2022. Wholesale fuel volume was broadly flat; retail volume increased 2%.
- Gross profit increased modestly despite lower fuel prices, supported by merchandise growth as more sites became company-operated. Retail fuel margin per gallon declined 7%, while merchandise gross profit rose 18%.
- Interest expense increased 36% to $43.7 million, primarily reflecting higher interest rates; 2023 also included a $1.1 million write-off of deferred financing costs related to refinancing.
- The amended and restated revolving facility increased commitments from $750 million to $925 million and extended maturity from April 2024 to March 2028. The former JKM credit facility was terminated and its outstanding term-loan balance repaid.
- Real-estate rationalization generated $6.5 million of net gains on site sales in 2023. Environmental liabilities recorded were $7.4 million, with $5.3 million of indemnification, state-fund or insurance assets reported separately.
- Preferred membership interests held by related-party investors carry a 9% annual preferred return that compounds quarterly. The return accumulates in the liquidation preference before October 16, 2026; cash payment is scheduled to begin thereafter, subject to the governing terms.
Outlook, risks and contingencies
- Management anticipates higher interest expense in 2024, citing 2023 SOFR increases and the timing and rates of swaps expiring during 2024. It continues to evaluate acquisitions opportunistically and may change site operating formats to optimize returns. No specific full-year 2024 financial guidance is provided.
- In January 2024, CrossAmerica agreed to acquire assets at 59 locations through termination of existing leases for $16.9 million, plus inventory. The planned conversion to company-operated sites is subject to customary closing conditions and was expected during the first half of 2024. A related credit-facility amendment becomes effective only after a transaction closes.
- Fuel-price volatility, competitive margins, seasonal demand, inflation and labor costs may affect results and cash available for distributions. Approximately 80% of 2023 wholesale fuel purchases came from four suppliers; approximately 49% of merchandise purchases came from one supplier. All fuel transportation relies on third-party carriers.
- Variable-rate debt and covenant limits may constrain distributions, acquisitions and financing flexibility. A 1-percentage-point change in SOFR was estimated to affect annual interest expense by approximately $1.6 million; interest-rate swaps hedge a portion of exposure.
- Environmental compliance, underground storage tanks, potential remediation, weather, changing fuel demand and cybersecurity are significant risks. Management said ordinary-course legal proceedings were not expected to have a material adverse effect; outcomes remain uncertain.
- The Topper Group controls the general partner, beneficially owns 38.6% of common units, and supplies management and operating services. Omnibus Agreement expenses, including store personnel and reimbursements, were $108.5 million in 2023. The filing identifies related-party conflicts and states that the distribution policy may be changed or revoked; distributions are not guaranteed.
- Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting; the auditor reported no critical audit matters. Management concluded disclosure controls and internal control over financial reporting were effective at year-end.
Important facts for investors to verify
- Whether operating cash flow and distributable cash flow can sustain the $0.525 quarterly distribution per unit ($2.10 annualized), given lower 2023 coverage and higher expected interest expense.
- Current revolver availability, leverage and interest-coverage covenant headroom, and the effect of the scheduled tightening of the leverage limit.
- Actual closing costs, timing, financing and operating performance of the Applegreen 59-site conversion, including the inventory purchase and facility-amendment conditions.
- Whether merchandise gains and retail-format conversions offset higher store labor and other operating costs without weakening wholesale volumes or margins.
- Fuel and merchandise supplier concentration, related-party service costs and terms, and the adequacy and collectability of environmental indemnifications and remediation reserves.