10-Q: CrossAmerica Partners LP Reports First Quarter 2024 Results, Impacted by Applegreen Acquisition and Market Volatility

CrossAmerica Partners LP's first quarter 2024 results show a net loss, influenced by the Applegreen acquisition and fluctuations in fuel prices.

Summary

• CrossAmerica Partners LP reported a net loss of $17.5 million for the first quarter of 2024, compared to a net loss of $1 million in the same period last year.
• Operating revenues decreased by 7% to $941.5 million, primarily due to a decrease in wholesale fuel sales.
• The company experienced a $15.9 million loss on lease terminations related to the Applegreen acquisition.
• Gross profit decreased slightly by 1% to $81.3 million.
• The company converted 31 sites from lessee dealer to company operated sites during the quarter as part of the Applegreen acquisition.
• The effective interest rate on the CAPL Credit Facility was 5.1% at the end of the quarter, but would have been 6.7% without certain interest rate swaps.
• The company's wholesale segment saw a decrease in both revenue and gross profit, while the retail segment experienced an increase in merchandise sales but a decrease in fuel gross profit.
• The company distributed $19.9 million to common unitholders during the quarter.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with a net loss and decreased revenues, offset by some positive developments in the retail segment. The significant loss on lease terminations and the maturity of favorable interest rate swaps are concerning, leading to a negative sentiment overall.

Positives

• Retail segment merchandise revenues increased by 17% due to an increase in company operated sites.
• The company successfully converted 31 sites from lessee dealer to company operated sites during the quarter.
• The company continues to focus on divesting lower performing assets.

Negatives

• The company reported a net loss of $17.5 million for the first quarter of 2024.
• Operating revenues decreased by 7% to $941.5 million.
• The company incurred a $15.9 million loss on lease terminations related to the Applegreen acquisition.
• Gross profit decreased slightly by 1% to $81.3 million.
• Wholesale segment revenues decreased by 14% due to lower volumes and prices.
• Operating expenses in the retail segment increased by 20% due to the increase in company operated sites.

Risks

• The company's financial performance is highly dependent on the volatile price of crude oil and wholesale motor fuel.
• The company faces concentration risk with a small number of fuel suppliers, carriers, and merchandise suppliers.
• The company's business is subject to seasonality, with sales volumes typically lower in the first and fourth quarters.
• The company's debt levels and interest rate exposure could impact future profitability.
• The company's ability to maintain or increase distributions to unitholders is not guaranteed.
• The company is subject to various legal and environmental risks.

Future Outlook

The company anticipates higher interest expense in 2024 due to the maturity of certain favorable interest rate swap contracts. They will continue to evaluate acquisitions on an opportunistic basis and pursue targets that fit into their strategy. The Applegreen Acquisition is expected to increase gross profit and operating expenses in the retail segment and reduce gross profit in the wholesale segment.

Management Comments

• Management believes that the disclosures made are adequate to keep the information presented from being misleading.
• Management reviews its estimates based on currently available information.
• Management believes that it is not reasonably possible that legal proceedings will have a material adverse effect on the company's financial position.
• Management has assessed environmental matters based on current information and made a judgment concerning its potential outcome.

Industry Context

The results reflect the ongoing challenges in the fuel distribution industry, including price volatility and the need to adapt to changing market conditions. The Applegreen acquisition and the shift towards company-operated sites indicate a strategic move to increase control over retail operations, which is a trend seen in the industry.

Comparison to Industry Standards

• The company's performance is impacted by the volatility of crude oil prices, which is a common factor affecting all fuel distribution companies.
• The shift from lessee dealer sites to company-operated sites is a strategy used by other fuel retailers to increase profitability and control.
• The company's distribution coverage ratio of 0.59x is below 1.0x, which may be a concern for investors looking for stable distributions.
• The company's debt levels are significant, which is typical for companies in this industry, but the company's ability to manage its debt and interest rate risk is critical.

Legal Proceedings

• The company is from time to time party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business.
• The company records an accrual when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.

Related Party Transactions

• The company has various related party transactions, including wholesale motor fuel sales and real estate rentals with TopStar, an entity affiliated with the Topper Group.
• The company incurs expenses under the Omnibus Agreement with DMI, an entity affiliated with the Topper Group.
• The company leases real estate from the Topper Group.
• The company purchases certain convenience store products from an affiliate of John B. Reilly, III and Joseph V. Topper, Jr.
• The company leases certain vehicles from an entity affiliated with the Topper Group.
• The company leases office space from an affiliate of John B. Reilly, III and Joseph V. Topper, Jr.
• The company has engaged a company affiliated with John B. Reilly, III for public relations and website consulting services.

Stakeholder Impact

• Shareholders will be impacted by the net loss and the decrease in operating revenues.
• Employees may be affected by the changes in operations due to the Applegreen acquisition and the shift to company-operated sites.
• Customers may experience changes in pricing and service as the company adjusts to market conditions.
• Suppliers may be impacted by the company's concentration risks and changes in purchasing patterns.
• Creditors will be monitoring the company's debt levels and ability to meet its obligations.

Next Steps

• The company will continue to evaluate acquisitions on an opportunistic basis.
• The company will pursue acquisition targets that fit into its strategy.
• The company will continue to consider the highest and best use class of trade for each of its properties.
• The company will continue to monitor and manage its debt and interest rate risk.

Key Dates

Keywords

motor fuel, wholesale, retail, convenience stores, Applegreen, lease termination, EBITDA, distribution, credit facility, interest rate swaps