Q3 2022 Crossamerica Partners LP Earnings Call
Welcome to the Cross America Partners third quarter earnings call. My name is Richard and I'll be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
Please note that this conference is being recorded.
Now I'll turn the call over Tomorrow copper you may begin.
Thank you operator.
And thank you for joining the cross American partners third quarter 2022 earnings call with me today, Charles Nifong, CEO and President.
Charles will provide some opening comments a brief overview of cross Americas operational performance and highlights from the quarter, then I will discuss the financial results.
At the end, we will open up the call to questions I should point out that today's call will follow some presentation slides that we will utilize during this morning's event.
These slides are available as part of the webcast and are posted on the Cross America website.
Before we begin I would like to remind everyone that todays call, including the question and answer session May include forward looking statements regarding expected revenue future plans future operational metrics and opportunities and expectations of the organization.
It can be no assurance that expectations beliefs, and projections will be achieved with.
But that actual results will not differ from expectations.
Please see <unk> filings with the Securities and Exchange Commission.
<unk> annual report on Form 10-K.
Quarterly report on Form 10-Q for a discussion of important factors that could affect our actual results.
Forward looking statements represent the judgment Cross Americas management as of today's date.
And the organization disclaims any intent or obligation to update any forward looking statements.
During today's call when that also provide certain performance measures that do not conform to U S generally accepted accounting principles or GAAP.
We have provided schedules that reconcile these non-GAAP measures with our reported results on a GAAP basis.
Part of our earnings press release.
Today's call is being webcast and a recording of this conference call will be available on the Crescent Napa website for a period of 60 days.
With that I will now turn the call over to Charles.
Thank you Maura Warren.
Warren I appreciate everyone joining us this morning on election day.
There's a lot going on today. So we thank you for making the time to reschedule to be with US This morning.
During today's call I will briefly go through some of the operating highlights for the third quarter.
So provide some color on the market and a few other updates similar to what I provided on previous calls.
Bob will then review in more detail the financial results.
Now if you turn to slide four I will briefly review some of our operating results.
For the third quarter of 2022, our wholesale fuel gross profit increased 24% to $42 2 million.
Compared to $34 1 million in the third quarter of 2021.
This growth was driven by an increase in fuel margin wholesale segment gross profit was $56 8 million, an increase of 18% or $8 $6 million when compared to the third quarter of 2021.
Our wholesale fuel volume was 338 million gallons for the third quarter of 2022, a decline of 5% when compared to the same period in 2021, largely due to lower volume in our base business, partially offset by the acquisition of assets from 711, which occurred primarily during the third quarter of 2021.
Nationally there was another challenging quarter for fuel volume.
On energy information administration data gasoline demand will stay out nationally approximately 6% for the quarter on.
On a same store basis, our wholesale volume declined approximately 8% for the quarter.
If we look at recent weeks over the last four weeks of data our same store volumes down approximately 4% to 5% relative to the prior year.
Nashville demand based on EIA data for approximately the same time period continued to remain down about 6% relative to the prior year.
So in our portfolio, we have seen some relative volume performance improvement during the course of the quarter and recent weeks the volume is still down relative to the prior year.
A big driver of the pure one decline for the quarter relative to the prior year was obviously fuel price related.
We began the quarter with National average weekly retail fuel prices approximately 55% above the price level of a prior year.
Average weekly retail fuel prices decline nationally for 12 consecutive weeks to start the quarter.
National Weekly average retail fuel prices and finished the quarter at approximately 15% to 20% above the prior year's weekly average retail fuel price.
While the high fuel price environment was detrimental to our volume for the quarter the declining fuel price environment for essentially the entire quarter strongly aided our fuel margins.
As we have discussed on prior calls margins tend to be stronger a declining fuel price environment.
One significant reason for this is in a declining fuel price environment lower volume sites are slower to adjust retail fuel street prices down due to having higher priced product and inventory.
To make overall retail fuel street pricing slower to adjust downwards to four competitors with higher volume sites that are turning their fuel inventory quickly it generates enhanced margins.
Our results this quarter reflect this dynamic and the overall favorable fuel margin environment for the quarter. We saw an increase in our wholesale fuel margin per gallon for the quarter reported $12 five per gallon compared to 966 per gallon for the third quarter of 2021, an increase of 30%.
As we just discussed this increase was driven by the favorable fuel price environment for the quarter.
I think it is also worthwhile to note that the declining fuel price environment for the quarter was the reversal of the rising fuel price environment experienced earlier in the year.
The decline in fuel prices wholesale our retail experience for the quarter returned coal prices back to the price levels of the January and February timeframe of this year.
With that perspective, the results for this quarter it can be viewed as the financial return on that challenging period earlier in the year.
Our fuel margin also benefited this quarter from having higher fuel volumes and the associated higher fuel margin to our company operated retail sites as a result of the increase in company operated retail sites.
Acquisitions completed during the third quarter of last year.
Additionally, our margin results continued to benefit from better sourcing costs due to our branch consolidations and other initiatives.
On a wholesale rep, our base rent for the quarter was $13 8 million.
Compared to the prior year of $13 $7 million.
<unk> increased due to the renewal of certain dealer contracts and the reopening of certain previously closed sites.
As we mentioned last quarter, our rental income is an incredibly steady durable income stream for us that continues to perform quarter after quarter.
Our retail segment also performed well during the quarter as gross profit increased 102% or $28 $5 million when compared to the third quarter of 2021.
Our motor fuel gross profit increased $22 5 million and our merchandise gross profit increased $5 $1 million.
When compared to the same periods in 2021.
Our volume on a same store basis, our retail volume declined approximately 7% for the quarter year over year.
As I touched on in my earlier comments, a higher fuel price environment for the quarter contributed to the year over year volume decline.
Retail segment same store volume, although down was better than our overall wholesale segment same store volume.
And our company operated retail stores weekly same store volume declines relative to the prior year moderated during the course of the quarter after being down over 10% in early July .
The retail segment increased motor fuel gross profit was a result of a favorable retail fuel pricing environment for the quarter as our retail sites tend to be higher volume sites that benefit the pricing dynamics that I reviewed earlier in my comments.
And recently since the quarter end.
<unk> operated retail same store volume has been approximately 3% to 4% lower than the same period in the prior year.
For the same period retail fuel margins have been more mixed as fuel cost of Chile risen in the period since the quarter end.
For inside sales on a same store basis, our inside sales were down approximately 2% relative to last year.
Inside sales, excluding cigarettes were up approximately 2% year over year on a same store basis.
On the margin front, our store margin was up approximately 40 basis points year over year.
Mainly attributable to changes in product mix and initiatives, we have undertaken to preserve margin and the current inflationary environment.
The period since the quarter end overall same store sales have been up approximately 3% to 5% over the prior year.
As we touched on last quarter on the supply chain front out of stocks are still at levels higher than we would like.
We continue to see some progress on this front. However, there is still work to be done to return to what we would consider normal levels.
We also continue to see broad based inflation in our product costs and while we've been successful in adjusting retail prices. It does weigh on consumer demand.
As we have reviewed in our prior calls it is important to remember the wholesale segment supplies fuel to our retail segment on a variable margin basis. So the overall profitability of our retail sites in our financial reporting split between our wholesale and retail segments.
We realized that this can be confusing it makes it difficult to evaluate the complete financial results of our retail segment.
We are looking at modifying our segment financial reporting to provide a more comprehensive and easier to understand view of the retail segment.
We will update you on this next quarter for this quarter, our retail sites contributed strong financial performance and their contribution to our overall profitability is even greater when one considers the wholesale fuel margin associated with these locations.
On the acquisition front, we announced in the third quarter that we entered into an asset purchase agreement with community service stations pursuant to which we have agreed to purchase certain assets from them for a purchase price of $27 5 billion plus.
Plus working capital.
The assets consist of wholesale fuel supply contracts to 39 dealer locations.
34 sub wholesaler accounts and to commission locations.
The assets are in the new England market the concentration in the Boston Metro area.
The assets are highly complementary to our existing asset base in the region from both a geographic and fuel brand perspective.
We are excited about this transaction as these are unique assets that have attractive long term cash flow profiles.
We stated in our press release, we expect the acquisition to be immediately accretive to our distributable cash flow.
Transaction is expected to close during the fourth quarter.
On our real estate rationalization front, we had a quiet quarter with only one property sold.
Since the quarter end, though we have sold by properties for $6 2 million in proceeds.
Our overall financial results for the quarter were exceedingly strong.
The past several quarters. The partnership has demonstrated an ability to produce solid financial results in challenging markets such as earlier this year and an ability to capitalize on favorable markets and produced outstanding results such as in this quarter.
Remarkable performance as a result of the strategic decisions made and executed by the leadership team and to create since the acquisition of the general partner or the top recruit part.
The partnership is well positioned for the future and we the leadership team are committed to producing long term value for our unit holders.
With that I'll turn it over to more of a more detailed financial review.
Thank you Charles thank.
If you please turn to slide six I'd like to review, our third quarter retail part of the partnership.
We reported net income of $27 $6 million for the third quarter of 2022 compared to net income of $8 $9 million in the third quarter of 2021.
The increase in net income was primarily driven at a year over year increases in operating income and that the wholesale and retail segments.
With each segment benefiting from the acquisition of assets from 711, along with the favorable fuel margin environment.
Adjusted EBITDA was $62 $2 million for the third quarter of 2022, which was an increase of 73% compared to adjusted EBITDA of $35 $9 million the third quarter of 2021.
Our distributable cash flow for the third quarter of 2022.
$15 $9 million versus $34 million for the third quarter 2021.
67% decrease in distributable cash flow is primarily due to an increase in operating income in both the wholesale and retail segment.
Partially offset by an increase in cash interest expense.
These strong earnings figures resulted in the generation of $53 million of cash flow and earnings.
Third quarter of 2022 compared to the generation of $27 million of cash flow from earnings in the third quarter of 2021.
Additionally, we benefited from the declining fuel price environment during the third quarter of 2022, which contributed traditional cash flow generated from working capital of $19 million.
For total operating cash flow generated during the quarter of $72 million.
Trees more than $36 million in tech in third quarter of 2021.
Charles noted earlier, the multiple factors impacting our topline and gross profit performance during the quarter.
Turning to our expense profile.
36% increase in our operating expenses compared to the prior year and an 11% increase compared to the second quarter of 2022.
Increase in operating expenses year over year was primarily driven by the addition of 711 sites, which drove a 30% increase in our average company operated site count from 194 locations to 253 locations.
Also contributing to the increase year over year and quarter over quarter, where higher real estate taxes.
Higher maintenance and environmental expenses.
Of which we are able to recoup from our third party site operators.
On a quarter over quarter basis.
Increase in operating expenses was driven by elevated store level labor costs, as well as maintenance and environmental costs.
Over the course of the third quarter, we implemented certain incentive programs for our store personnel to help us drive increased employee retention and customer service levels.
Whenever possible. He has implemented incentive programs that are intended to be temporary and targeted to manage our overall store labor expenses.
Compared to both the third quarter of 2021, and the second quarter of 2022, we were able to staff more labor hours at our retail locations this quarter.
A function of improved staffing condition.
And some of the investments we have made in hiring and retention over the past 15 to 18 months.
We have also experienced similar upward pressure on wages experienced organization across the economy.
Our G&A expense declined $2 3 million or 32% for the quarter year over year, primarily due to a decrease in acquisition related costs associated with the 711 sites that we acquired last year.
Offsetting the higher equity compensation expense and head count.
Our G&A expenses were higher in the third quarter of 2022 compared to the second quarter of 2022 due to higher equity compensation and legal expense.
The partnership paid a distribution of $52.05 per unit during the third quarter of 2022 attributable for the second quarter of 2022 for a total of almost $20 million.
Our distribution coverage for the current quarter was $2 five five times compared to 1.53 times at third quarter of 2021.
Our distribution coverage on a paid basis for the trailing 12 months was one.
One four times compared to one point to two times for the 12 months ended September 32021.
Moving to the next slide we spent a total of $10 4 million on capital expenditures during the fourth quarter with $8 $4 million of that total being growth related capital expenditures.
This was relatively flat with the third quarter of 2021 spend is $10 $5 million.
Growth related capital spending during the quarter, including continued investment in the center and car wash Efrain.
As well as the strategic acquisition of previously leased sites.
As I noted last quarter as a result of the targeted investments we have made in the portfolio over the past two years, you should continue to see quarterly growth capital expenditures moderate from the high levels incurred for mid 2020 to the end of 2021.
As I stated earlier this quarters strong operational results and release working capital resulted in the generation of cash and the Paydown of our capped out credit facility by $33 million.
Year to date, we have reduced our total debt and finance lease obligations by approximately $63 million.
Combination of strong operating results and deleveraging has resulted in a moderation of our leverage ratio over the course of the year and this past quarter.
As of September 30th 2022.
To calculate our leverage ratio for the organization overall.
And in our credit agreement taking into account our total debt levels are.
Our blended aggregate leverage ratio would be about 414 times compared.
Compared to fourth eight five times at the end of the second quarter of 2022 and.
511 times at the end of the fourth quarter of 2021.
Looking to the fourth quarter, we will utilize a portion of our credit facility availability to complete the acquisition of assets continually sanitation the trials earlier.
We will continue to focus on our operational performance.
She had a catchment generation to manage our leverage ratio at approximately four times.
Credit facility defined and blended aggregate basis.
In conclusion, we were quite pleased with our third quarter results will help strengthen our balance sheet.
This has placed us good financial position as we enter the last months of 2022 and look towards 2023.
With that we will open it up for questions.
Thank you we will now begin the question and answer session.
I have a question. Please press zero one on your Touchtone phone.
You wish to be removed from the queue. Please press zero two.
There will be a delay before the first question is announced if youre using a speakerphone you may need to pick up the handset first before pressing the numbers. Once again, if you have a question. Please press zero then one on your Touchtone phone.
And once again, it's zero and one for any questions.
Because it looks like we have any questions at the moment should you have questions later as always feel free to reach out to us who will be happy to address them.
You everyone for joining us today have a good day.
And thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
Okay.