CrossAmerica Partners LP — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter earnings release. CrossAmerica distributes motor fuel wholesale, owns and leases fuel-site real estate, and operates retail fuel and convenience stores. It reported wholesale and retail segments.
Key financial results
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $3.579 billion | $1.932 billion |
| Gross profit | $277.0 million | $212.1 million |
| Operating income | $36.1 million | $115.6 million |
| Net income | $21.7 million | $107.5 million |
| Diluted earnings per common unit | $0.57 | $2.87 |
| Net cash from operating activities | $95.5 million | $104.5 million |
| Adjusted EBITDA (non-GAAP) | $123.3 million | $107.4 million |
| Distributable cash flow (non-GAAP) | $102.2 million | $102.5 million |
| Distribution coverage ratio (non-GAAP) | 1.28x | 1.31x |
Gross margin was approximately 7.7% of revenue in 2021. Operating and net margins were approximately 1.0% and 0.6%, respectively. These ratios reflect a high-volume fuel distribution business; revenue is strongly affected by fuel prices.
Wholesale segment revenue was $3.074 billion and operating income was $137.8 million. Retail segment revenue was $1.436 billion and operating income was $5.5 million; segment revenue includes intersegment sales, which are eliminated in consolidated results.
Material changes and business developments
- Revenue rose 85%, primarily reflecting higher wholesale fuel prices and increased volumes from prior acquisitions, the 7-Eleven transaction, and recovery in fuel demand. WTI averaged $68.14 per barrel in 2021 versus $39.16 in 2020.
- Gross profit increased 31%, but operating income fell 69% and net income fell 80%. The main comparison effect was 2020’s $67.6 million gain on the sale of the CST Fuel Supply investment, along with other disposition gains. 2021 also had higher operating expenses, including costs associated with the expanded retail footprint.
- Fuel distribution volume increased 20% to approximately 1.335 billion gallons. Retail gallons sold increased 56%, with the average number of retail fuel sites rising to 389 from 306.
- CrossAmerica acquired 103 of 106 planned sites from 7-Eleven by year-end for $273.0 million, including inventory and working capital. The final three sites closed in February 2022 for $3.6 million.
- Rental income was essentially unchanged at $83.2 million. The partnership sold 32 properties in 2021 for $14.0 million in proceeds, recording a net gain of $4.1 million.
Cash flow, debt and liquidity
- Operating cash flow was $95.5 million, down $9.0 million year over year. Investing cash use was $298.7 million, including the 7-Eleven acquisition and $41.9 million of capital expenditures. Financing cash provided was $210.4 million, principally reflecting new borrowings.
- At year-end, cash was $7.6 million. Current assets of $106.3 million were below current liabilities of $163.9 million. Management said the working-capital pattern is typical for the business, given timing differences in settlement of fuel-related receivables, payables and taxes.
- Total debt and finance lease obligations were $829.8 million, including $630.6 million under the CAPL Credit Facility, $182.5 million under the JKM Credit Facility and $16.8 million of finance leases. Debt and finance lease obligations were $533.2 million at year-end 2020.
- As of February 24, 2022, reported availability after covenant restrictions was $104.3 million under the CAPL facility and $14.2 million under the JKM facility. Both facilities have financial covenants; CrossAmerica reported compliance at December 31, 2021.
- The CAPL facility matures in April 2024; the JKM facility matures in July 2026. Borrowings have variable rates. Interest-rate swaps hedge $300 million of CAPL facility exposure through April 2024. Management estimated that a one-percentage-point LIBOR change would affect annual interest expense by about $3.3 million on the CAPL facility and $1.8 million on JKM borrowings.
Distributions, outlook and risks
Common-unit distributions remained $0.5250 per quarter, or $2.10 annualized, throughout 2021. The fourth-quarter distribution was paid in February 2022. The board may change or suspend distributions, and the partnership agreement does not require a distribution.
Management expected the 7-Eleven sites to contribute gross profit in both segments and anticipated lower fuel costs from new or amended purchase contracts. It provided no specific 2022 earnings or cash-flow guidance. Acquisition activity remains dependent on available targets, financing, market conditions and covenant capacity. Management stated it believed available operating cash flow, asset-sale proceeds, borrowing capacity and capital-market access would be sufficient for expected commitments, but noted that weaker cash flow could constrain borrowing, financing and distributions.
- Principal risks: volatile crude-oil and fuel prices, seasonality, intense competition, changes in fuel demand, COVID-19 impacts and labor shortages.
- Supply and operating exposures: ExxonMobil, BP, Motiva and Marathon accounted for approximately 80% of 2021 wholesale fuel purchases combined. The partnership also relies on third-party carriers, trade credit and periodically renewed fuel contracts.
- Leverage and distribution risk: substantial debt, variable-rate exposure and credit-facility covenants may restrict acquisitions, capital spending or distributions. Distribution amounts remain discretionary.
- Governance and related parties: the Topper Group controls the general partner and beneficially owned 38.5% of common units as of February 24, 2022. The partnership incurred $62.5 million under the Topper Group Omnibus Agreement in 2021; disclosed affiliate transactions are not necessarily arm’s-length.
- Environmental and legal matters: environmental liabilities were $5.4 million at year-end, alongside $45.7 million of asset-retirement obligations. Management did not expect ordinary-course litigation, individually or in aggregate, to materially affect financial position, results or cash flows.
- Other exposures: long-term site leases, fuel purchase commitments, potential remediation costs, cybersecurity, changing regulations and the possible effect of energy transition on petroleum-fuel demand.
The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; it reported no critical audit matters. Management and the auditor concluded internal control over financial reporting was effective as of year-end.
Important facts for investors to verify
- Whether the 7-Eleven sites meet operating and cash-flow expectations, and the final purchase accounting for the completed acquisition.
- Debt covenant headroom, refinancing plans ahead of the CAPL facility’s April 2024 maturity, and exposure to higher benchmark rates.
- Whether distributable cash flow can sustain the $2.10 annualized distribution, given 1.28x reported coverage and the board’s discretion.
- Fuel margins and volumes as prices change, including the impact of supplier discounts and the concentration of purchases among four suppliers.
- Costs and progress of environmental remediation, asset-retirement obligations, and the value and collectability of related indemnities or reimbursements.
- Related-party fees, leases, purchases and governance safeguards, given the Topper Group’s control and ownership.