CrossAmerica Partners LP — 2020 Form 10-K
Business context and reporting period. This annual filing covers the year ended December 31, 2020; it is not a stand-alone fourth-quarter filing. CrossAmerica distributes motor fuel wholesale, owns or leases fuel retail sites, and operates retail and commission-agent locations. At year-end it distributed fuel to about 1,700 sites across 34 states and owned or leased 1,098 sites, including 150 company-operated sites. The Topper Group controls the general partner and held approximately 48.9% of the partnership’s common units as of February 2021.
Financial results and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $1.932 billion | $2.149 billion |
| Gross profit | $212.1 million | $154.6 million |
| Operating income | $115.6 million | $43.3 million |
| Net income | $107.5 million | $18.1 million |
| Diluted earnings per common unit | $2.87 | $0.51 |
| Adjusted EBITDA (non-GAAP) | $107.4 million | $103.7 million |
| Distributable cash flow (non-GAAP) | $102.5 million | $80.1 million |
| Distribution coverage ratio (non-GAAP) | 1.31x | 1.11x |
| Cash from operating activities | $104.5 million | $72.3 million |
Revenue fell 10%, primarily reflecting a 31% decline in average WTI crude prices; lower fuel prices reduced reported sales dollars. Gross profit increased, reflecting stronger DTW fuel margins and the addition of acquired retail operations. The gross-profit-to-revenue ratio was approximately 11.0%, versus 7.2% in 2019, though the mix and acquisition changes affect comparability.
Net income and operating income include substantial unusual gains: a $67.6 million non-cash gain on the CST Fuel Supply exchange, $19.3 million of gains on Circle K property exchanges, and $6.4 million of gains on property sales. These were partly offset by a $10.9 million loss on lease terminations. Adjusted EBITDA, which excludes disposition and lease-termination gains or losses and other specified items, increased about 4%.
Operating cash flow was $104.5 million. Investing cash outflow was $19.5 million and financing cash outflow was $86.2 million. The partnership spent $37.1 million on capital expenditures and $28.2 million on acquisitions. Cash at year-end was $0.5 million; current assets of $74.8 million were below current liabilities of $146.9 million.
At December 31, 2020, borrowings under the revolving credit facility were $513.2 million, with $188.1 million of facility availability after covenant restrictions; availability was $166.6 million as of February 22, 2021. Total debt and finance lease obligations were $533.2 million. The facility matures in April 2024, and the partnership reported compliance with its financial covenants. Interest-rate swaps fixed approximately 60% of variable-rate borrowings; the effective rate including swaps was 2.10% at year-end. Reported total liabilities were $904.7 million and total equity was $109.7 million.
Material changes and fourth-quarter data
- In April 2020, the partnership acquired retail and wholesale assets for stated consideration of $36 million, including $21 million cash and $15 million in newly issued units. The transaction added 154 company-operated and 15 commission sites, and expanded wholesale distribution. It also involved related-party arrangements, including ten-year master leases with $8.1 million aggregate annual rent.
- In March 2020, CrossAmerica exchanged its 17.5% CST Fuel Supply interest for properties, fuel supply contracts and related assets, and received cash for certain removed properties. It ceased recognizing equity-method income from CST Fuel Supply after closing.
- The final Circle K asset-exchange tranche closed in September 2020. Across the 2020 tranches, the partnership recognized $19.3 million of gains on property disposals.
- The incentive distribution rights were eliminated in February 2020 and converted into 2,528,673 common units issued to a Topper Group affiliate.
- Unaudited fourth-quarter 2020 revenue was $551.2 million versus $512.4 million in fourth-quarter 2019; operating income was $8.1 million versus $9.4 million; net income attributable to limited partners was $9.0 million versus $4.3 million; and earnings per unit were $0.24 versus $0.12.
Outlook, commentary and risks
Management expected 2021 fuel volume and gross profit to benefit from the Circle K exchanges, CST Fuel Supply exchange, and the retail and wholesale acquisition. It also anticipated continued fuel-cost reductions from new or amended purchase contracts, while noting that COVID-19-related volume weakness continued to weigh on fuel gross profit. Management provided no quantified 2021 earnings or cash-flow guidance and said future acquisitions would depend on suitable targets, financing, market conditions and covenant capacity.
Fuel volumes fell sharply in mid-to-late March 2020 and recovered during the second half, but remained below historical levels. Lower crude prices supported DTW margins and partly offset the volume impact. The filing states that sustained volume declines or margin erosion could materially affect results, cash flow and distributions.
The board declared distributions of $0.525 per unit for each 2020 quarter, or $2.10 per unit for the year. The fourth-quarter distribution was paid in February 2021. Distributions remain discretionary, may be reduced or suspended, and are subject to credit-facility restrictions.
Principal risks include motor-fuel price and demand volatility, COVID-19 impacts, intense competition, reliance on four major fuel suppliers and third-party carriers, leverage and covenant constraints, environmental remediation exposure, and dependence on the Topper Group for management and operating services. The filing also highlights related-party conflicts, the Topper Group’s control, and limits on unitholder voting and fiduciary protections. CrossAmerica reported no litigation expected to have a material adverse effect. The financial statements and internal controls received unqualified audit opinions.
Investor verification priorities
- Separate recurring operating performance from the $67.6 million exchange gain and other disposition gains when assessing 2020 earnings.
- Review post-year-end fuel volumes, margins and dealer credit conditions, including the continuing effects of COVID-19.
- Confirm current revolver availability, covenant headroom, debt maturity and the effect of any benchmark-rate transition from LIBOR.
- Assess the sustainability of the $2.10 annual distribution against cash generation, capital needs, debt service and discretionary reserves.
- Examine the economics and approval process for Topper Group-related asset purchases, leases, management services and other transactions.
- Evaluate environmental obligations, including assumed unknown contamination at acquired sites, and the adequacy and collectability of indemnities and remediation reserves.