CrossAmerica Partners LP — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparative period is Q1 2023. CrossAmerica operates wholesale fuel distribution, fuel-site leasing, and retail fuel and convenience stores.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $941.5 million | $1,016.2 million |
| Gross profit | $81.3 million | $82.1 million |
| Operating income (loss) | $(13.0) million | $9.1 million |
| Net loss | $(17.5) million | $(1.0) million |
| Net loss available to limited partners; per common unit | $(18.2) million; $(0.48) | $(1.6) million; $(0.04) |
| Operating cash flow | $5.8 million | $11.5 million |
| Adjusted EBITDA (non-GAAP) | $23.6 million | $31.7 million |
| Distributable cash flow (non-GAAP) | $11.7 million | $19.1 million |
| Distribution coverage ratio (non-GAAP) | 0.59x | 0.96x |
Revenue fell 7%, while gross profit declined 1%; the gross-profit-to-revenue ratio was approximately 8.6%, versus 8.1%. The operating loss includes a $15.9 million Applegreen lease-termination loss and $0.9 million of other disposition and termination losses. Without those unusual losses, reported operating results would have been materially different; the filing does not provide a GAAP operating result adjusted to exclude them. Interest expense was $10.5 million, down 12%, and the income-tax benefit was $5.8 million.
Segments and material changes
- Wholesale: Revenue was $467.5 million versus $541.1 million. Segment operating income declined to $18.1 million from $21.7 million. Distributed volume fell 9% to 184.0 million gallons, and margin per gallon declined to $0.079 from $0.083. Site conversions and lost independent-dealer contracts contributed to the volume decline.
- Retail: Revenue was $474.1 million versus $475.0 million; segment operating income declined to $11.3 million from $14.8 million. Merchandise gross profit increased, but retail operating expenses rose 20%, primarily with a 22% increase in average company-operated sites.
- Revenue decline reflected lower wholesale volume and fuel prices. Merchandise revenue increased 17%, supported by a higher number of company-operated locations.
Liquidity, debt and capital
- Cash was $6.3 million at March 31. Current assets of $123.3 million were below current liabilities of $159.9 million.
- Revolving credit facility borrowings were $798.3 million; debt and finance lease obligations totaled $808.6 million. Facility availability after covenant restrictions was $91.2 million at quarter-end and $96 million at May 3.
- The Partnership reported compliance with financial covenants. The leverage limit is 5.00x for the first three quarters of 2024 and 4.75x thereafter, subject to specified acquisition and note-offering provisions; minimum interest coverage is 2.50x.
- Facility borrowings are secured by substantially all Partnership assets. The reported effective interest rate, including swaps, was 5.1% at March 31; management estimated 6.7% using only swaps effective beyond April 1. A 1 percentage-point SOFR change is estimated to affect annual interest expense by approximately $4.0 million.
- Investing cash outflow was $26.0 million, including $19.9 million paid for Applegreen lease terminations and inventory; capital expenditures were $6.1 million. Financing cash flow included $42.3 million of net revolving-facility borrowings and $19.9 million of common-unit distributions.
Acquisition, outlook, risks and contingencies
CrossAmerica agreed to terminate leases and acquire assets at 59 Applegreen locations for total stated consideration of $16.9 million, plus cash inventory purchases. The transaction closed by site through April 2024: 31 sites converted in Q1 and the remainder in April. Q1 cash paid was $19.9 million, with another $1.2 million accrued for payment in April. The conversions shift sites from wholesale lessee-dealer activity to company-operated retail activity. A February credit-facility amendment permits specified lease-termination expense addbacks in covenant EBITDA calculations.
Management expects the conversions to increase retail gross profit and operating expenses and reduce wholesale gross profit. It anticipates higher 2024 interest expense following the April 1 maturity of three favorable swaps. No numerical earnings or cash-flow guidance was provided. Management cited volatile crude-oil and fuel prices, seasonality, inflation, competition, interest rates, acquisition execution, debt and covenant exposure, and environmental and regulatory matters as risks. The business is typically seasonally weaker in Q1 and Q4. The Board may change or discontinue distributions; the $0.525 per-unit quarterly distribution is not contractually required.
Fuel-supply concentration is notable: about 80% of fuel purchases came from four suppliers. Environmental liabilities recorded were $6.9 million, with $4.7 million of related indemnification assets. Management said ordinary-course litigation is not expected to have a material adverse effect, while noting litigation outcomes remain uncertain. No material change to the Form 10-K risk factors was reported.
Important facts for investors to verify
- Whether operating cash generation and distributable cash flow recover enough to support distributions; Q1 coverage was 0.59x.
- Post-April interest costs after swap maturities, and the effect on covenant headroom and facility availability.
- Operating performance and cash returns from the 59 converted Applegreen locations, including the full-year impact of higher retail expenses.
- Debt covenant calculations and the precise availability under the revolver as business results and borrowings change.
- Fuel-price, supplier-concentration, environmental, and related-party exposure, including costs reimbursed under the Omnibus Agreement.