10-Q: CrossAmerica Partners LP Reports Mixed Q1 2025 Results: Revenue Declines, but Profitability Improves

CrossAmerica Partners LP's Q1 2025 shows a decrease in operating revenues but an increase in operating income compared to Q1 2024.

Summary

• CrossAmerica Partners LP reported operating revenues of $862.475 million for the three months ended March 31, 2025, compared to $941.548 million for the same period in 2024.
• The company's gross profit increased to $89.814 million from $81.348 million year-over-year.
• Operating income improved to $2.001 million, a significant increase from the operating loss of $13.045 million in the prior year.
• Net loss available to limited partners was $(7.780) million, an improvement from $(18.197) million in the first quarter of 2024.
• The company sold seven properties for $8.6 million, resulting in a net gain of $5.6 million.
• The effective interest rate on the Credit Facility at March 31, 2025, was 6.1%.
• The amount of availability under the Credit Facility at March 31, 2025, after taking into consideration debt covenant restrictions, was $86.8 million.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While revenue decreased, profitability improved, and the company is actively managing its asset portfolio. However, the low distribution coverage ratio and increased interest expense are points of concern.

Positives

• Gross profit increased by $8 million (10%) year-over-year.
• Operating income improved significantly, moving from a loss to a profit.
• Net loss available to limited partners decreased, indicating improved profitability.
• The company realized a net gain of $5.6 million from property sales.
• Retail segment revenues increased, driven by merchandise sales.
• Motor fuel gross profit in the retail segment increased by $5.1 million (20%).
• Wholesale segment operating expenses decreased by $1.7 million (19%).

Negatives

• Operating revenues decreased by $79 million (8%) year-over-year.
• Wholesale segment revenues decreased by $87 million (19%).
• Interest expense increased by $2.3 million (22%).
• Depreciation, amortization, and accretion expense increased by $7.6 million (41%).
• Rent gross profit in the wholesale segment decreased by $1.7 million (15%).
• The wholesale segment saw an 11% decrease in volume due to site conversions and loss of independent dealer contracts.

Risks

• The company is subject to fluctuations in crude oil and wholesale motor fuel prices, which can significantly impact revenues and cost of sales.
• Seasonality affects sales volumes, with the first and fourth quarters typically being the lowest.
• The company faces concentration risk with a limited number of fuel suppliers, fuel carriers, and merchandise suppliers.
• The company's ability to meet debt service obligations depends on future operating performance, which is subject to various economic and market conditions.
• The amount of any distribution is subject to the discretion of the Board, which may modify or revoke our cash distribution policy at any time.
• There can be no assurance we will continue to pay distributions in the future.

Future Outlook

The company anticipates that its results for 2025 will be impacted by the conversion of sites between different classes of trade, the Applegreen Acquisition, and potential divestitures of lower-performing properties. The company will continue to evaluate acquisitions on an opportunistic basis.

Management Comments

• The company continues to consider the highest and best use class of trade for each of its properties, which may result in the conversion of sites from one class of trade to another.
• The Applegreen Acquisition as well as other conversions of lessee dealer sites to company operated and commission agent sites are anticipated to increase gross profit and operating expenses in the retail segment and reduce gross profit in the wholesale segment.
• As part of our evaluation of the highest and best use class of trade for each of our properties, we anticipate continuing to divest certain assets, often lower performing properties.
• We will continue to evaluate acquisitions on an opportunistic basis.

Industry Context

CrossAmerica Partners operates in the highly competitive motor fuel distribution and retail convenience store industry. The company's performance is influenced by factors such as crude oil prices, consumer demand for motor fuel, and competition from other retailers and distributors. The company's strategic focus on optimizing its asset portfolio and pursuing acquisitions aligns with industry trends aimed at improving efficiency and profitability.

Comparison to Industry Standards

• It is difficult to compare CrossAmerica Partners directly to other companies due to its unique business model as a limited partnership focused on motor fuel distribution and retail.
• However, companies like Sunoco LP and Global Partners LP also operate in the fuel distribution sector and can provide some context for comparison.
• Sunoco LP, for example, focuses on fuel distribution and retail, while Global Partners LP has a broader portfolio including refined petroleum products, renewable fuels, and natural gas.
• CrossAmerica's distribution coverage ratio of 0.46x indicates that its distributable cash flow is not currently sufficient to cover its distributions, which is a point of concern compared to industry peers that prioritize distribution coverage.
• The company's strategic shift towards company-operated sites and merchandise sales mirrors a broader industry trend of diversifying revenue streams to offset fluctuations in fuel margins.

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 believes that it is not reasonably possible that these proceedings, separately or in the aggregate, will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Related Party Transactions

• Revenues from TopStar, an entity affiliated with the Topper Group, were $8.8 million and $10.7 million for the three months ended March 31, 2025 and 2024, respectively.
• Rent expense under lease agreements with the Topper Group was $2.5 million for each of the three months ended March 31, 2025 and 2024.
• Expenses under the Omnibus Agreement totaled $31.8 million and $27.8 million for the three months ended March 31, 2025 and 2024, respectively.
• The company distributed $7.7 million to the Topper Group related to its ownership of common units for the three months ended March 31, 2025 and 2024.
• Merchandise costs from an affiliate of John B. Reilly, III and Joseph V. Topper, Jr. amounted to $4.3 million and $4.7 million for the three months ended March 31, 2025 and 2024, respectively.
• Rent expense for office space leased from an affiliate of John B. Reilly, III and Joseph V. Topper, Jr. amounted to $0.3 million for each of the three months ended March 31, 2025 and 2024.

Stakeholder Impact

• Shareholders will be impacted by the company's ability to maintain distributions, which is currently challenged by the low distribution coverage ratio.
• Employees may be affected by the company's ongoing real estate rationalization efforts and potential site conversions.
• Customers may experience changes in service and offerings as the company optimizes its retail sites.
• Suppliers and creditors will be impacted by the company's financial performance and ability to meet its obligations.

Next Steps

• The company will continue to evaluate the highest and best use class of trade for each of its properties.
• The company anticipates continuing to divest certain assets, often lower-performing properties.
• The company will continue to evaluate acquisitions on an opportunistic basis.

Key Dates

Keywords

motor fuel, wholesale, retail, distribution, convenience stores, CrossAmerica Partners, CAPL, EBITDA, real estate, fuel supply, distributions