Q4 2022 Crossamerica Partners LP Earnings Call
The conference will begin shortly to raise and lower your hand during Q&A you can dial star one one.
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Welcome to the Crossamerica partners fourth quarter and full year 20 twenty-two earnings call. My name is Hilda and I will 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.
I will now turn the call over Tomorrow topper, you might begin.
Thank you operator.
Good morning, and thank you for joining the Crossamerica partners fourth quarter and full year 2022 earnings call.
With me today is Charles Nice Huh C E O and president.
Charles will provide some opening comments.
Overview of cross America's operational performance and highlights from the corner and then I will discuss the financial results at.
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.
Besides are available as part of the webcast and it posted on the Crossamerica website.
Before we begin I would.
Would like to remind everyone that today's call, including the question and answer session May include forward looking statements regarding expected revenue.
Plan.
<unk> operational metrics and opportunities and expectations for the organization.
There can be no assurance that management's expectations beliefs, and projections will be achieved but actual results will not differ from expectations.
Please see cross American filings with the Securities and Exchange Commission, including annual reports on Form 10-K.
The reports on Form 10-Q.
For a discussion of important factors that could affect our actual results.
Forward looking statements Rep that represent the judgment of cross America's management as of today's date in New York.
Nation disclaims any intent or obligation to update any forward looking statements.
During today's call when they also provide certain performance measures that do not conform to U S generally accepted accounting principles or gap.
Have provided schedules that reconcile these non-GAAP measures with a reported results on a gap basis as part of our earnings press release.
Today's call is being webcast and a recording of this conference call will be available on the Crossamerica website for a period of 60 days.
With that I will now turn the call over to Charles.
Thank you Laura.
I appreciate everyone joining us today.
Thank you for taking the time to be with us on the call.
Dave call I'll briefly go through some of the operating holiday for the fourth quarter and full year.
I will also provide some color on the market.
A few other updates similar to what I typically review on our calls.
More will then review in more detail the financial results.
Before we get into the operating results I wanted to note that starting with these quarterly results. We have changed our segment reporting to simplify the assessment of the performance of our operating segments.
You'll see this new segment reporting in both our earnings press release, and our 2022 for Tuesday.
We'll provide more specifics during her section of this morning's presentation.
Now if you turn to slide for I will briefly review some of our operating results.
For the fourth quarter of 2022 or wholesale fuel gross profit increased 4% to $18.7 million compared to $80 million in the fourth quarter of 2021.
This growth was driven by an increase in fuel margin.
Wholesale stomach gross profit was $32.8 million.
Increase of 6% when compared to the gross profit of $31.1 million for the fourth quarter of 2021.
Our wholesale fuel margin increased 12% from 7.8 cents per gallon in the fourth quarter of 2021 to 8.7 cents per gallon in the fourth quarter of 2022.
The year over year increase was primarily driven by better sourcing cost to to our brand consolidation and other initiatives and by higher crude oil prices.
Which generate higher terms discounts for our fuel purchases.
With our five second reporting our wholesale segment now has less variable margin fuel supply Galveston. It previously did.
As a result are reported wholesale segment fuel margin on a cents per gallon basis.
Also have less variability going forward.
Our wholesale volume was 213.5 million gallons for the fourth quarter of 2022.
Compared to 236 million gallons for the fourth quarter of 2021.
Client volume when compared to the same period of 2021 was largely due to lower volume in our base business.
And to a lesser extent, our real estate optimization efforts and exploration of contracts, we did not renew.
On a national basis volume continued to be down.
Based on energy information administration data gasoline demand will stay at approximately 7% for the quarter.
The national year over year decline moderated somewhat towards the end of the <unk>.
In the period since the quarter and national gasoline demand has generally been down in the low single digits on a year over year basis for.
For the quarter or wholesale <unk>, while I was down approximately 8.5%.
In the period since the corner and our wholesale segment. The same sort of our performance has been in line with overall national gasoline demand.
I'll also note on an overall same-store basis, which is across our entire portfolio inclusive of retail same stores are same started calling for the quarter was down less than 5% driven.
Driven by outperformance at a retail sites, which I will touch on more later.
On our wholesale rats are base rent for the quarter was $13.7 million compared to the prior year of $13.5 million, a slight increase due to the renewal of certain dealer contracts and the reopening of certain previously closed sites.
As we mentioned last quarter, a rental income is an incredibly steady and durable income stream for us that continues to perform.
<unk> after quarter.
And our retail segment, a revised second reporting provides a fuller picture of the retail segment.
Now the entire fuel profitability associated with our retail sites is included in the financial results with a segment.
A retail segment performed well during the quarter as gross profit increased 20 per cent or $10.2 million.
Compared to the fourth quarter of 2021.
Motor fuel gross profit increased 29%.
And our merchandise gross profit increased 8% when compared to the same period of 2021.
For volume on the same store basis, or retail volume declined less than 1% for the quarter year over year.
Compared to the national demand data showing in approximately seven per cent bottom declared for the quarter the retail segment volume outperform.
Retail same sort ballroom was certainly better later in the quarter benefited from the year over year comparison to last year is COVID-19 on the crowd surged driven barn decline that occurred during the latter part of the fourth quarter.
The period since a quarter and same store volume has generally been approximately flat to the prior year <unk>.
Continuing to outperform the national demand data that I spoke to earlier in my comments.
<unk> R retail margin on a cents per gallon basis.
Approximately 24% year over year.
Retail street prices generally declined in the second half of the quarter, which helps generate a favorable margin environment that we were able to execute on.
Retail few margins since a quarter in have been weaker consistent with a typical startup of your experience.
Four inside sales are the same site basis are inside sales increased approximately 1% relative to last year.
Inside sales, excluding cigarettes were up approximately 6% you over a year on that same store basis.
On the margin front, our store margin was up approximately 210 basis points a year over year due to our strong performance in categories, such as package beverages snacks and certain tobacco products.
In the period since the court.
Overall same store sales had been up approximately 3% to 5% over the prior year.
The strength of our results in the retail segment is a testament to the hard work that our retail team members do Diane.
The volume outperformance inside sales growth and large an improvement don't just happen.
Reflect the successful execution of our business strategies.
<unk> focus on attention to detail at the operating level.
And most importantly, the daily efforts to the dedicated team members at our stores.
If you turn to the next slide I will briefly review or say my performance for the full year.
Our wholesale segment generated gross profit of $137 million for the full year 2022.
Five per cent increase over the $124.7 million reported in 2021.
The increase in gross profit driven by 16 per cent increase in fuel margin per gallon.
From 7.5 cents per gallon for 2021 to.
8.7 cents per gallon of 2022.
Partially offset by 9% decline in year over year fuel warm.
The full year of 2022 or retail segments gross profit increased 61% to $245 million compared to $152.3 million for the full year of 2021.
Motor fuel gross profit increased 85 per cent.
And our merchandise gross profit increased 38%.
On the same store basis or fuel volume for our retail convenience stores declined 1% for the full year 2022 relative to 2021.
A retail store sales excluding cigarettes are the same store basis increased two per cent for the full year 2022.
We continue to evaluate our portfolio and look for opportunities to divest lock or properties.
For the full year of 2022, we divested twenty-seven properties for $12.9 million in proceeds.
We have been successful with these types of divestitures over the last three years. Although this past year, we were slightly less packed up on a sales rep that we had hoped.
Whenever we have a good pipeline, we are constantly evaluating our portfolio to look for opportunities to enhance our returns by recycling capital investment growth opportunities within our portfolio.
An acquisition front during the fourth quarter, we close on the acquisition of assets from the community service stations for a purchase price of $27.5 million plus working capital.
Assets consisted of wholesale fuel supply contracts that 38 dealer all locations.
Thirty-five sub wholesaler accounts and two commission locations.
We find out this acquisition through borrowings on a capital credit facility.
Cash on hand.
Our wholesale segment results for the fourth quarter includes slightly less than two four months of results from this acquisition.
Based on these initial results acquisition is performing inline slightly better than our expectations.
Return to the next slide five six looking back on 2022.
He was a year of exceptional financial performance for the partnership.
Our EBITA.
D C F and distribution coverage for the year were at record levels.
And we finished the year with a strong balance sheet and significantly lower leverage than the prior year.
Our acquisition of a 711 sites in 2021 materially contributed to our record results in 2022.
And demonstrated at the strategic value of the acquisition.
As a result of it and.
Many strategic actions, we have taken fifth 2019.
Partnership is well positioned to perform now and in the future.
A demonstrated track record over the last several years of financial performance across multiple economic environment.
And in particular are 2022 results illustrate car ability to capitalize on a favorable macro environment to generate extraordinary performance.
The extraordinary performance of this past year would not have been possible without the efforts of across America team.
We have a solid strong team here across America that is committed to high performance.
The teams hard work is evident in our results and I. Thank them for all that they do.
In terms of 2023 are basic objectives are unchanged from a prior year.
We seek to continue to provide excellent service and value to our customers.
Be efficient in our operations and physician a portfolio to maximize value now and in the future.
For our unitholders no that our ultimate objectives are focused on being good stewards of your capital, which simply stated means providing you with a steady dependable cash flow and increasing the value of your units overtime.
With that I'll turn it over tomorrow for more detail financial review.
Thank you Charles if.
If you please turn to slide eight I would like to review, our fourth quarter and full year results quite a partnership.
Reported net income of $17.1 million for the fourth quarter of 2022.
Net income at $12 million in the fourth quarter of 2021.
Increase in net income is primarily driven by the year over year increases in operating income.
Both the wholesale and retail statements, but each segment benefiting from the favorable feel Martin environment.
I'll spell that.
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Adjusted EBITDA was $44.3 million for the fourth quarter at 2022.
Which was an increase of 20%.
When compared to <unk> $37 million for the fourth quarter of 2021.
Our distributable cash flow for the fourth quarter of 2022 was $33.3 million.
$31 million for the fourth quarter of 2021.
The eight per cent increase in distributable cash flow was primarily due to the increase in operating income in both the wholesale and retail segments.
Actually offset by an increase in cash interest expense.
Although our interest expense was impacted by the rising rate environment.
In 2022.
Prior periods.
Can you to benefit from the interest rate swaps, we have in place.
$300 million of a revolving credit facility.
And attracted swap rate practice, approximately 50 basis points.
Okay.
<unk> coverage for the current Carter with 1.67 times compared to 1.56 times for the fourth quarter of 2021.
Partnership pay the distribution of 52, and a half cents per unit.
The fourth quarter of 2022 attributable to the third quarter of 2022 for a total of almost $20 million.
For the full year of 2022.
Can increase over $40 million to $63.7 million.
I tested EBITDA was $179.8 million for the full year of 2022.
Compared to $123.3 million for the full year of 2021.
An increase of 46%.
For the full year of 2022.
Beautiful cash flow was $140.9 million.
An increase of 38%.
Okay $102.2 million distributable cash flow for the full year 2021.
Ah distribution coverage for the full year of 2022 with 1.77 times.
1.28 times.
All year of 2021.
The strong earnings figures resulted in the generation of $147 million cash flow from earnings for the full year of 2022.
Compared to the generation of $97 million cash flow from earnings for the full year of 2021.
It's Charles mentioned earlier during the fourth quarter of 2022, we updated our segment reporting to simplify the assessment of performance of our statements.
Prior to the fourth quarter.
The wholesale segment included the wholesale fuel gross profit on intersegment sales <unk>.
Segment, two R retail statement as.
As well as an allocation of operating expenses related to a retail site.
And our results reported yesterday and moving forward.
The wholesale segment includes only the pure gross profit on sales telepathy dealers and independent dealers.
Retail segment included the entire fuel gross profit on sales at our company operated and commission agent sites.
Certain operating expenses are also allocated to each segment based on estimated management time and level of effort.
And our 10-K, you can find the results for each of these segments under our updated segment reporting for the full years at 2020, 2021 and 2022.
And our earnings press release, we have also provided quarterly data for 2021 and 2022 for this update.
Updated segment reporting as well.
Turning to our extent profile.
Operating expenses for the fourth quarter increased four and a half million dollars or 11% compared to 2021 fourth quarter.
The increase was primarily due to increased stolen level and plan our costs for our company operated locations.
As well as increase maintenance spending compared to the prior year.
The fourth quarter of 2021 does the first quarter that we own substantially all of the assets acquired from 711 for nearly the fourth quarter and therefore certain spending items for continuing to come online over the course of that fourth quarter.
The fourth quarter of 2021 was also a quarter marked by the staffing in hiring challenge challenges experienced probably by the U S economy.
To the fourth quarter of 2021.
We're able to staff more labor hours at a retail company operated locations in the fourth quarter of 2022.
A function of improved staffing condition, which contributed partially to the increase in store level of employment costs for the quarter.
We also have experienced an increase an hourly wage rates in our store employee population.
Similar to those experienced across the broader economy tho those wage pressures are moderating in recent quarters.
R G and a expenses increased approximately five per cent to the quarter year over year. This is primarily due to higher equity compensation expense corporate head count.
Offset by a decrease in acquisition costs related to the 711 sites that we acquired last year.
On a full year basis, hygienic expenses declined from $30.9 million to $25.6 million, primarily due to a reduction and acquisition costs offset by higher equity compensation expenses.
Excluding acquisition costs and equity compensation TNA was at 8% in 2022 compared to 21 21, due to higher corporate head count and payroll expenses as well certain investments and upgrading information technology and systems to improve business performance.
Moving to the next slide.
We spend a total of $3.6 million on capital expenditures during the fourth quarter.
With $1.6 million of that total being gross related capital expenditures.
This was a significant decline from the fourth quarter of 2021, and a nine and a half million dollars.
Which is primarily due to a rebranding efforts related to the acquisition of assets from 711.
Gross related capital spending during this quarter included continued investment and Carwash upgrades certain targeted store upgrade and rebranding work.
For the full year of 2022.
Capital expenditures totaled $34 million.
The $23.2 million of that dangerous related.
This was also it declined from our 2021 levels of $41.9 million and 2020 level $37.1 million.
As we noted throughout 2022 as.
As a result of the targeted investments we have made in a portfolio for the last two years, we saw our quarterly growth capital expenditures in 2022 moderate from high levels incurred from May 2022, the end of 2021.
As I stated earlier this you're strong operational results generated significant cash on earnings.
Additionally, cash flows were benefited from the release 14, and a half million dollars of working capital in 2022.
Issuance of our preferred security in the first quarter of 2022 and.
And proceeds from asset sales Charles referenced earlier.
The strength of our 2022 cash flow generation allowed us to pay our distribution to our investors.
To invest capital in our existing business complete the acquisition of assets and community service stations in November .
And pay down $48 million on our credit facilities.
This combination of strong operating results and deleveraging has resulted in a continued moderation of our leverage ratio over the course of 2022.
As of December 31st 2022.
Aggregate leverage ratio would be around 3.9 times.
Compared to 4.1 times at the end of the third quarter and 5.1 times at the end of the fourth quarter of 2021.
We will continue to focus on our operational performance and associated cashflow generation to manage our leverage ratio at approximately four times, but the credit facility to find and blended aggregate basis.
In conclusion is Charles noted we are pleased to wrap up a very strong 2022.
Positive fourth quarter.
Over the course of the year, we were able to utilize our positive operational performance to continue to strengthen our balance sheet acquire attractive assets and position as well as we enter 2023.
With that I'll ask Hilda if you can please open the line for questions.
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