10-K: CrossAmerica Partners LP Reports Fiscal Year 2023 Results in Annual Filing

CrossAmerica Partners LP's 2023 annual report details a decrease in revenue, but an increase in gross profit, and provides insights into the company's financial health and strategic direction.

Summary

• CrossAmerica Partners LP's 2023 annual report shows a decrease in operating revenues by $581 million, primarily due to lower crude oil prices impacting wholesale fuel revenues.
• Despite the revenue decrease, gross profit increased by $6.5 million, driven by higher merchandise sales and gross profit.
• The company's wholesale segment saw a slight decrease in gross profit, while the retail segment experienced a decrease in motor fuel gross profit but an increase in merchandise gross profit.
• Operating expenses increased by $18 million, mainly due to higher costs in the retail segment.
• Interest expense increased by $11.6 million due to higher interest rates.
• The company reported a net income of $42.6 million, a decrease from $63.7 million in the previous year.
• The report highlights the company's strategy to expand through acquisitions, enhance real estate cash flows, and optimize operations.
• As of December 31, 2023, CrossAmerica owns or leases approximately 1,100 sites and distributes motor fuel to approximately 1,700 sites across 34 states.
• The company's debt totaled $756 million with $164.5 million available under its revolving credit facility.

Sentiment

Score: 5

Explanation: The document presents a mixed picture with decreased revenue and net income, but increased gross profit. The company faces challenges but is also pursuing strategic growth opportunities. The sentiment is neutral to slightly negative.

Positives

• Gross profit increased by 2% year-over-year, driven by an increase in merchandise gross profit.
• Merchandise revenues increased by 13% year-over-year.
• The company has a strong focus on expanding through acquisitions and optimizing operations.
• The company has long-term relationships with major integrated oil companies and other key suppliers.
• The company has prime real estate locations in areas with high traffic and considerable motor fuel consumption.

Negatives

• Operating revenues decreased by 12% year-over-year, primarily due to a decrease in the average spot price of WTI crude oil.
• Interest expense increased by 36% year-over-year, primarily due to an increase in interest rates.
• Net income decreased from $63.7 million in 2022 to $42.6 million in 2023.
• The company is subject to seasonality, with sales volumes typically highest in the second and third quarters and lowest in the first and fourth quarters.
• The company is dependent on four principal suppliers for the majority of its motor fuel and one principal supplier for its merchandise.

Risks

• The company's business is affected by volatility in crude oil and wholesale motor fuel costs.
• The company faces intense competition in both the wholesale and retail motor fuel industries.
• Changes in credit or debit card expenses could reduce gross profit.
• The company is subject to extensive government laws and regulations concerning store merchandise items, operations, employees, environmental matters and product quality specifications of motor fuel.
• A significant decrease in demand for motor fuel, including increased consumer preference for alternative motor fuels or improvements in fuel efficiency, would reduce the company's ability to make distributions to its unitholders.
• The company is subject to risks associated with the storage and transport of motor fuel.
• The company relies on third-party transportation providers for the transportation of all of its motor fuel.
• The company's debt levels and debt covenants may limit its flexibility in obtaining additional financing and in pursuing other business opportunities.
• The Topper Group controls the company and may have conflicts of interest.
• The company relies on the employees of the Topper Group to provide key management services to its business pursuant to the Omnibus Agreement.
• The company's tax treatment depends in large part on its status as a partnership for U.S. federal income tax purposes.

Future Outlook

The company anticipates higher interest expenses in 2024 due to increases in SOFR and the timing of interest rate swap expirations. They will continue to evaluate acquisitions on an opportunistic basis.

Industry Context

The document reflects the challenges and opportunities faced by companies in the motor fuel distribution and retail industry, including price volatility, competition, and regulatory compliance. The company's focus on acquisitions and operational optimization aligns with industry trends.

Comparison to Industry Standards

• CrossAmerica Partners competes with other motor fuel distributors and convenience store chains, including major integrated oil companies and independent operators.
• The company's financial performance is influenced by crude oil prices, similar to other companies in the industry, such as Sunoco LP and Global Partners LP.
• The company's focus on acquisitions and real estate optimization is a common strategy in the industry, similar to companies like ARKO Corp.
• The company's debt levels and leverage ratios are comparable to other midstream energy companies, but the specific financial covenants are unique to their credit facility.
• The company's distribution coverage ratio of 1.46x is within the range of other publicly traded partnerships in the energy sector.

Related Party Transactions

• The company has various related party transactions with the Topper Group and its affiliates, including management services, fuel supply, real estate leases, and convenience store product purchases.
• The company has related party transactions with entities affiliated with John B. Reilly, III, a member of the Board, including real estate leases, convenience store product purchases, and public relations and website consulting services.

Stakeholder Impact

• Shareholders may be concerned about the decrease in revenue and net income, but may be encouraged by the increase in gross profit and the company's strategic initiatives.
• Employees of the Topper Group providing services to the Partnership may be affected by changes in the company's performance and strategic direction.
• Customers may be affected by changes in the company's operations and pricing strategies.
• Suppliers may be affected by changes in the company's purchasing patterns and relationships.

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.

Key Dates

Keywords

motor fuel, wholesale, retail, convenience stores, real estate, distribution, acquisitions, EBITDA, debt, partnership