CrossAmerica Partners LP — Q1 2022 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless stated otherwise. CrossAmerica operates wholesale fuel distribution, fuel and convenience retail, and real estate leasing businesses.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $1,093.2 million | $657.3 million |
| Gross profit | $78.8 million | $54.9 million |
| Operating income (loss) | $9.7 million | $(0.9) million |
| Net income (loss) | $5.0 million | $(4.0) million |
| EPS per common unit, basic and diluted | $0.13 | $(0.10) |
| Operating cash flow | $28.4 million | $17.7 million |
| Capital expenditures and acquisitions | $10.8 million | $10.6 million |
- Revenue rose 66% and gross profit rose 44%. Gross margin as a share of reported revenue was approximately 7.2%, versus 8.3%; fuel prices materially affect reported revenue and cost of sales.
- Adjusted EBITDA was $32.0 million, versus $20.7 million; distributable cash flow was $24.2 million, versus $15.8 million. The reported distribution coverage ratio was 1.22x, versus 0.79x. These are non-GAAP measures.
- Cash and cash equivalents were $11.1 million at March 31, 2022, up from $7.6 million at year-end. Current assets were $123.0 million and current liabilities $168.7 million.
- Debt and finance lease obligations totaled $809.7 million, including $793.6 million of debt. The CAPL and JKM facilities had $116.0 million and $9.6 million of covenant-adjusted availability, respectively, at quarter-end. Management reported compliance with facility covenants.
- Interest expense increased 90% to $6.7 million. The effective rates reported at quarter-end were 2.9% on the CAPL facility, after swaps, and 2.8% on the JKM facility.
Changes and drivers
- Growth reflected the 7-Eleven acquisition: retail fuel gallons sold increased 48%, wholesale gallons distributed increased 10%, and company-operated retail sites rose to 255 from 151. The acquisition also lifted merchandise sales and gross profit.
- Higher crude and fuel prices increased sales dollars and costs. Management cited stronger DTW margins and higher supplier terms discounts as contributors to gross-profit growth. Average WTI was $95.18 per barrel, versus $58.09.
- Retail operating expenses increased with the acquired sites; general and administrative expense declined as acquisition-related costs fell. Interest expense rose due to facility borrowing, higher LIBOR and financing-cost amortization.
- Operating cash flow increased by $10.7 million year over year. Cash used in investing was $9.3 million; cash used in financing was $15.6 million, including $19.9 million of common-unit distributions and net proceeds from preferred interests.
Outlook, risks and unusual items
- Management expects the 7-Eleven assets to increase gross profit in 2022 and says it will evaluate acquisitions opportunistically. No quantified earnings or distribution guidance is provided.
- The quarterly distribution was $0.525 per common unit. Distributions are discretionary and may be changed or suspended; the partnership agreement does not require payment.
- On March 29, Holdings issued $25 million of Series A preferred interests to entities or investors affiliated with directors. The interests accrue a 9% annual preferred return, compounded quarterly; before October 16, 2026, it accumulates in the liquidation preference rather than being paid in cash. Exchange may be settled in common units or, at the holder’s election, cash. Proceeds were used to prepay JKM term-loan borrowings.
- The debt schedule shows $641.0 million of principal due in 2024, making refinancing and repayment capacity important to monitor. Interest-rate swaps covering $300 million of notional CAPL debt mature April 1, 2024.
- Risks include volatile fuel prices and margins, seasonality, inflation, COVID-19-related demand uncertainty, environmental remediation, and supplier concentration: four suppliers accounted for 81% of wholesale fuel purchases. Two multi-site operators provided 22% of rent income. Management said it did not believe pending legal matters would have a material adverse effect; recorded environmental liabilities were $7.5 million, partly offset by $5.6 million of indemnification assets.
- The acquisition purchase-price allocation remained subject to review, with completion anticipated in Q2 2022. Management reported effective disclosure controls and no material change in risk factors.
Investor verification priorities
- Confirm the sustainability of improved distributable cash flow and 1.22x coverage, including working-capital and acquisition effects.
- Assess the 2024 debt maturity, refinancing options, covenant headroom and exposure to rising variable rates.
- Review the preferred interests’ 9% compounding return, cash-election rights, exchange terms and potential dilution.
- Track fuel margins and volumes separately from price-driven revenue growth, and assess integration and performance of the acquired sites.
- Monitor distribution decisions, environmental reserves and supplier/customer concentration.