CrossAmerica Partners LP — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; compared with the same periods in 2020. Amounts below are in millions of dollars unless stated otherwise. The partnership distributes motor fuel, owns or leases retail sites, and operates convenience stores and fuel stations.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $985.1 | $591.0 | $2,501.7 | $1,381.1 |
| Gross profit | $75.7 | $62.3 | $195.7 | $155.6 |
| Operating income | $12.6 | $23.7 | $19.9 | $107.5 |
| Net income | $8.9 | $21.2 | $9.7 | $98.5 |
| Basic and diluted earnings per unit | $0.23 | $0.56 | $0.26 | $2.64 |
| Adjusted EBITDA (non-GAAP) | $35.9 | $30.0 | $86.3 | $83.0 |
| Distributable cash flow (non-GAAP) | $30.4 | $29.7 | $71.2 | $76.2 |
| Distribution coverage ratio | 1.53x | 1.50x | 1.19x | 1.30x |
Revenue growth largely reflected higher fuel prices and acquired sites, rather than equivalent growth in profit: WTI averaged $70.58/barrel in Q3 2021 versus $40.89 a year earlier. Wholesale and retail volumes also benefited from acquisitions and recovery from COVID-19 disruption. The nine-month 2020 comparison included a $67.6 million gain on the sale of the CST Fuel Supply investment and other disposition gains; these substantially elevated prior-year operating income and net income.
- Cash flow: Nine-month operating cash flow was $76.3 million, down from $86.5 million. Investing cash outflow was $283.2 million, including $262.0 million for the 7-Eleven asset acquisition; financing cash inflow was $214.7 million. Cash ended the period at $8.2 million.
- Capital spending and distributions: Nine-month capital expenditures were $32.4 million, including $3.4 million sustaining and $29.0 million growth spending. Cash distributions were $59.8 million; the declared distribution remained $0.525 per unit quarterly ($1.575 for the first nine months).
- Debt and liquidity: Debt and finance lease obligations totaled $814.4 million, including $636.7 million under the CAPL facility, $160.0 million under the JKM facility and $17.7 million of finance leases. Cash and cash equivalents were $8.2 million; current assets of $110.0 million were below current liabilities of $187.4 million. CAPL facility availability, after covenant restrictions, was $70.5 million at September 30; the company reported $84.6 million at November 4. At November 4, JKM term-loan availability was $2.5 million and revolving availability was $14.2 million.
Material changes and business developments
- Through September 30, CrossAmerica had acquired 98 of 106 company-operated sites from 7-Eleven for $262.0 million, including inventory and working capital. Five more sites closed by November 4 for $10.4 million; three remained subject to operational licenses and permits. The acquired sites contributed $65.3 million of incremental revenue in the first nine months.
- The acquisition was financed primarily through the new JKM credit facility and CAPL facility capacity. Total assets increased to $1.28 billion from $1.01 billion at year-end 2020; debt and finance lease obligations increased from $533.2 million.
- Q3 gross profit increased $13.5 million, while operating income and net income declined, in part because Q3 2020 included $12.9 million of disposition and lease-termination gains. Nine-month gross profit rose $40.0 million, but net income fell sharply against the unusually high 2020 gains.
- Retail segment gross profit rose to $27.9 million in Q3 from $19.5 million, alongside expansion to 248 company-operated sites from 149 a year earlier. Retail merchandise gross margin was 26.7% for Q3.
Outlook, risks and unusual items
- Management expects acquired Circle K, CST Fuel Supply, Topper-related and 7-Eleven assets to contribute to fuel volumes and gross profit, and says it will continue evaluating acquisitions. No specific full-year financial guidance is provided.
- Fuel prices and margins are volatile. Higher wholesale prices can increase reported revenue and supplier discounts, but rapid price movements can pressure margins, particularly on variable-priced gallons. The business is seasonal, and COVID-19 effects remain uncertain.
- The July 2021 amendment raised the CAPL facility’s maximum leverage covenant temporarily to 6.00x for Q3 and Q4 2021, with scheduled step-downs thereafter and a general 4.75x level after September 2022. The partnership said it was in compliance at September 30. JKM covenant testing begins in Q4 2021; its facility has maximum leverage and minimum fixed-charge-coverage requirements.
- Debt maturity concentration is notable: the contractual schedule lists $646.3 million of debt principal due in 2024. Refinancing and covenant compliance warrant attention.
- Management cites labor shortages that could raise wages and supplier costs or impair store operations. Other risks include environmental remediation, motor-fuel demand and competition, interest-rate and financing exposure, and related-party conflicts. Recorded environmental liabilities were $5.6 million, with $3.5 million of related indemnification assets; management did not expect current litigation to materially affect results.
- The Board approved the $0.525-per-unit Q3 distribution, but distributions remain discretionary and are not required by the partnership agreement. Management stated it believes liquidity sources will be sufficient for commitments and distributions, while cautioning that lower cash flows could impair borrowing capacity and distributions.
Important facts for investors to verify
- Completion, licensing, integration, and operating performance of the remaining 7-Eleven sites, including final purchase-price allocation and expected contribution to cash flow.
- Debt maturity and refinancing plans for the 2024 principal concentration, facility availability, and covenant headroom as leverage covenants step down.
- Whether distributable cash flow and coverage can sustain the quarterly distribution, particularly given nine-month coverage of 1.19x and significant acquisition-related borrowing.
- Fuel-volume recovery, wholesale and retail margin trends, labor availability and costs, and the effects of fuel-price volatility.
- Environmental obligations, supplier and customer concentration, and related-party costs and transactions.