CrossAmerica Partners LP — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. CrossAmerica distributes motor fuel, leases fuel-site properties, and operates retail fuel and convenience stores. Amounts below are in millions of dollars unless stated otherwise.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $1,016.2 | $1,093.2 |
| Gross profit | $82.1 | $78.8 |
| Gross margin | 8.1% | 7.2% |
| Operating income | $9.1 | $9.7 |
| Net income (loss) | $(1.0) | $5.0 |
| Net income (loss) available to limited partners | $(1.6) | $5.0 |
| Basic and diluted earnings (loss) per unit | $(0.04) | $0.13 |
| Net cash from operating activities | $11.5 | $28.4 |
| Adjusted EBITDA | $31.7 | $32.0 |
| Distributable cash flow | $19.1 | $24.2 |
| Distribution coverage ratio | 0.96x | 1.22x |
Gross profit rose despite lower revenue, but higher operating expenses and substantially higher interest expense contributed to a net loss. Cash and cash equivalents were $7.5 million at March 31, down from $16.1 million at year-end 2022. Total assets were $1,223.7 million and total liabilities were $1,168.2 million.
Debt, liquidity and distributions
- Debt and finance lease obligations totaled $791.3 million, including $778.0 million outstanding on the revolving credit facility and $13.3 million of finance leases. The $778.0 million facility balance is due in 2028.
- On March 31, CrossAmerica amended and restated its senior secured revolving facility, increasing commitments from $750 million to $925 million and extending maturity from April 2024 to March 2028. The facility may be increased by up to another $350 million subject to conditions. It is secured by substantially all Partnership and guarantor assets.
- Availability after covenant restrictions was $142.5 million at March 31 and $154 million at May 4. The Partnership reported compliance with financial covenants at quarter-end; the filing does not provide its actual leverage or interest-coverage ratios.
- The facility requires a maximum consolidated leverage ratio of 5.25x for 2023, stepping down over time to 4.75x from Q4 2024, and minimum interest coverage of 2.50x. Cash distributions are restricted if an event of default exists or would result.
- Cash distributions were $0.525 per common unit for the quarter, or approximately $19.9 million. The filing states distributions are discretionary and not guaranteed.
Material changes and operating results
- Revenue declined $77.1 million (7%), largely reflecting lower wholesale fuel prices: average WTI was $75.93 per barrel versus $95.18 a year earlier. Wholesale volume fell 1%; retail fuel volume increased 3% and merchandise revenue increased 5%.
- Gross profit increased $3.2 million (4%), supported by higher fuel, merchandise and rent gross profit. Retail operating expenses rose 8%, partly due to labor, longer store hours, inflation and more company-operated sites.
- Interest expense increased $5.4 million (80%) to $12.0 million, principally from higher rates; the quarter also included a $1.1 million write-off of deferred financing costs tied to the refinancing. Management reported a 4.98% effective facility rate at March 31, including then-existing swaps.
- Operating cash flow fell $16.9 million, with management citing working-capital timing, including fuel-purchase settlements and accrued interest paid in connection with the facility amendment. Investing cash outflow was $5.4 million, including $6.0 million of capital expenditures. Financing cash outflow was $14.7 million, including distributions and refinancing-related costs.
- In April, the Partnership amended existing swaps for the LIBOR-to-SOFR transition and entered four additional swaps with $300 million total notional value. The new contracts are designated as cash-flow hedges; their effects are subsequent to quarter-end.
- The Partnership continued its real estate rationalization program, classifying six sites as held for sale at quarter-end and selling one property during the quarter.
Outlook, risks and contingencies
Management gave no numerical earnings or cash-flow guidance. It expects the CSS acquisition to contribute wholesale gross profit, anticipates further fuel-cost reductions from new or amended supply contracts, and expects higher 2023 interest expense than in 2022. Results remain sensitive to volatile crude oil and wholesale fuel prices, retail pricing competition, inflation, interest rates, seasonal volumes and the ability to pass through higher costs. Management said it believes available operating cash flow, borrowing capacity and other funding sources will be sufficient for anticipated obligations, but cautioned that weaker cash flow could affect borrowing capacity and distributions.
- Supplier and operating concentration: four suppliers provided approximately 80% of wholesale fuel purchases; one supplier accounted for approximately 47% of merchandise purchases. Two multi-site operators contributed approximately 20% of rent income.
- Environmental liabilities recorded were $7.6 million, with $5.2 million of related indemnification assets. Remediation estimates may change as facts, costs or regulatory requirements evolve.
- Management said ordinary-course litigation is not reasonably expected to have a material adverse effect, while acknowledging outcomes are uncertain. Minimum fuel-purchase commitments may result in termination or shortfall penalties; no significant penalties were incurred in the quarter.
- The filing reports no material changes to the risk factors in the 2022 Form 10-K. Disclosure controls were assessed as effective at March 31, 2023.
Important facts for investors to verify
- Whether distributable cash flow and coverage recover, given Q1 coverage below 1.0x while the quarterly distribution remained $0.525 per unit.
- Actual covenant headroom and the effect of the $778 million floating-rate facility balance, including how the April swaps affect future interest expense.
- Whether the expected CSS contribution and fuel-sourcing savings offset inflation, operating-cost growth and lower wholesale fuel prices.
- Progress on asset sales, environmental obligations and any changes in related-party transactions or concentration exposures.
- Future distribution decisions, which are discretionary and subject to credit-agreement restrictions.