Business context and reporting period
CrossAmerica Partners LP’s filing is for the quarter ended March 31, 2013, and was filed under the name Lehigh Gas Partners LP. The partnership distributes wholesale gasoline and diesel and owns or leases fuel-station properties. It reported 2013 consolidated results against 2012 combined results of its predecessor; the comparison is affected by the 2012 IPO, later acquisitions, and changes in the business structure.
Key financial metrics
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Total revenue | $471.4 million | $416.1 million |
| Operating income (loss) | $7.1 million | $(0.5) million |
| Net income (loss) | $3.8 million | $(3.0) million |
| Operating cash flow | $0.3 million | $4.4 million |
| Investing cash flow | $(0.2) million | $1.6 million |
| Financing cash flow | $(4.8) million | $(6.4) million |
Fuel-sales gross profit was $10.3 million, up 41.2%; reported margin per gallon rose to $0.069 from $0.055. The filing reports 149.7 million gallons distributed, up 13%. Operating margin was approximately 1.5% of revenue and net margin approximately 0.8%.
At March 31, 2013, cash was $8,000, current assets were $28.9 million, and current liabilities were $34.2 million, a working-capital deficit of approximately $5.3 million. Long-term debt was $183.8 million; lease financing obligations totaled $75.6 million, including current obligations. Total liabilities were $305.6 million and partners’ capital $13.9 million. Affiliate receivables were $21.4 million. The partnership reported $50.7 million of borrowing availability under the then-existing facility, net of borrowings and letters of credit.
Management’s non-GAAP figures were Adjusted EBITDA of $12.6 million and distributable cash flow of $9.3 million. These measures are not GAAP substitutes. The quarter’s $0.3 million operating cash flow was substantially below distributable cash flow, in part reflecting working-capital movements.
Material changes versus the prior comparable period
- Revenue increased 13.3%, while the partnership moved from a $3.0 million net loss to $3.8 million net income. Fuel-sales volume and margin improved, and acquired and newly leased sites contributed to growth.
- Express Lane contributed $31.2 million of incremental revenue in the quarter; Dunmore contributed $0.5 million of incremental rent income. The acquisitions’ provisional purchase accounting and the different reporting entity limit direct year-over-year comparisons.
- Aggregate rent income rose to $10.3 million from $5.0 million, principally due to Getty lease sites, acquisitions, and sites contributed to the partnership. Selling, general and administrative expense fell to $3.9 million from $5.3 million, partly because the prior-year period included $2.4 million of IPO-related costs.
- Operating cash flow fell by $4.1 million year over year. Management cited increased receivables, including affiliate receivables, and payment timing as important factors.
Outlook, risks, contingencies, and unusual items
- No specific earnings or revenue guidance was provided. Management said it expected operating cash flow, credit availability, and potential capital-market access to support liquidity needs, while cautioning that operating performance and financing access could be affected by business and market risks.
- On May 13, 2013, after quarter-end, the credit facility was increased from $249 million to $324 million and leverage terms were relaxed. The amended leverage limit was 4.75-to-1 through December 31, 2014, then 4.60-to-1; the interest-coverage covenant remained at least 3.00-to-1. The facility matures in October 2015 and restricts distributions under specified circumstances.
- The partnership declared a quarterly distribution of $0.4525 per unit, payable June 3, 2013. The filing’s business overview separately states $0.4545 per unit for the January–March period; this conflicts with the distribution note and should be checked.
- Environmental liabilities recorded by the partnership were $1.1 million, substantially related to Express Lane sites, with corresponding indemnification assets. The predecessor separately reported $20.3 million of environmental liabilities, with significant related indemnification assets; certain contributed-site liabilities remain the responsibility of predecessor entities under indemnification arrangements.
- Management concluded disclosure controls were not effective because of material weaknesses in internal controls, including staffing, review, estimates, and account reconciliations. Remediation efforts were ongoing; management nevertheless stated the financial statements fairly presented the reported periods.
- Related-party exposure is notable: affiliates generated $242.9 million of fuel revenue and $6.9 million of rent income, and the partnership incurred $1.6 million in management fees payable under the Omnibus Agreement. The CEO’s controlling relationship with the general partner and the partnership’s dependence on LGC-provided services are relevant governance considerations.
- Fuel supplier concentration, changes in fuel demand and prices, interest-rate exposure, acquisition execution, environmental obligations, and distribution capacity are identified risks. A 1 percentage-point change in the average borrowing rate was estimated to affect annual interest expense by approximately $1.8 million. No material litigation impact was expected by management.
- Six held-for-sale locations were sold after quarter-end for a total of $2.3 million; the filing expected no material gain or loss. Acquisition fair values remained provisional and could change.
Important facts for investors to verify
- Reconcile the stated $0.4545 per-unit distribution in the overview with the $0.4525 declared distribution in the financial-statement note.
- Assess the sustainability of operating cash generation and the collection and settlement timing of the $21.4 million in affiliate receivables.
- Review the amended credit agreement, covenant headroom, remaining borrowing capacity, and restrictions on distributions.
- Track remediation of the disclosed material weaknesses and any subsequent assessment of disclosure controls and financial reporting controls.
- Check final purchase accounting, post-acquisition performance, and environmental exposures and indemnification recoveries for acquired and contributed sites.
- Interpret year-over-year growth in light of the predecessor-to-partnership reporting change and acquired or newly leased operations.