CrossAmerica Partners LP Q1 2023 Earnings Call

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Walking through the Cross America Partners' first quarter 23 earnings call. My name is Cheryl and I will be your operator for today's call at this time all participants are in.

It should 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 to more of a chopper you may begin.

Thank you operator.

Morning, and thank you for joining across America partners first quarter 2023 earnings call.

With me today is Charles my phone CEO and president.

Charles will provide some opening comments a brief overview of cross Americans operational performance and highlights from the quarter and 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.

There can be no assurance that management's expectations beliefs, and projections will be achieved or that actual results will not differ from expectations.

Please see cross America's filings with the Securities and Exchange Commission, including annual reports on Form 10-K.

And quarterly reports on Form 10-Q for a discussion of important factors that could affect our actual results.

Forward looking statements represent the judgment of cross American's management as of today's date.

And the organization disclaims any intent or obligation to update any forward looking statements.

During today's call. We may also provide certain performance measures that do not conform to U S generally accepted accounting principles or GAAP.

We've provided schedules that reconcile these non-GAAP measures with our reported results on a GAAP 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 Cross America website for a period of 60 days.

With that I will now turn the call over to Charles.

Okay.

Thank you Maura.

And I appreciate everyone joining us today.

We thank you for making the time and your schedule to be with US This morning.

During today's call I will briefly go through some of the operating highlights for the first quarter.

I will also provide some color on the market and a few other updates similar to what I provided on previous calls.

Laurent 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 first quarter of 2023, our wholesale fuel gross profit increased 3%.

To $16 7 million compared to $16 $2 million in the first quarter of 2022.

This growth was driven by an increase in fuel margin.

Wholesale segment gross profit was $31 $2 million.

Increase of 3% when compared to $33 million in the first quarter of 2022.

Our wholesale fuel margin increased 5% from $7.09 per gallon in the first quarter of 2022 to $8.03 per gallon in the first quarter of 2023.

The year over year increase was primarily driven by better sourcing costs as a result of brand consolidation and other fuel sourcing initiatives.

Seth I lower terms discounts for certain of our fuel sourcing cost.

Driven by lower crude prices for the quarter compared to the prior year.

Our wholesale volume was $201 9 million gallons for the first quarter of 2023 compared to $203 9 million gallons in the first quarter of 2022.

The decline in volume when compared to the same period of 2022 was largely due to lower volume in our base business, partially offset by the acquisition of assets of community service stations that was completed in the fourth quarter of 2022.

The first quarter wholesale results include the first full quarter of our community service stations acquisition and our financial results.

The acquisition is performing in line with our expectations and we are pleased to have these high quality assets in our portfolio.

For the quarter on a national basis based on energy information administration data gasoline volume was approximately flat compared to the prior year.

Volume was generally weaker early in the quarter compared to the prior year, while the latter weeks of the quarter were stronger than the prior year.

Since the quarter end NASA volume has been slightly higher than the prior year.

In our wholesale segment same store volume was down approximately 4% overall for the quarter.

In the period since the quarter and same store volume has been flat year over year in line with the National Bond data I just provided.

Our overall same store volume across our entire portfolio was down around 2% for the quarter driven by strong volume in our retail segment, which I will address later in my comments.

On our wholesale rent our base rent for the quarter was $13 $7 million compared to the prior year of $13 2 million a slight increase due to the renewal of certain dealer contracts and the reopening of certain previously closed sites.

As in prior quarters, our rental income continues to be a durable income stream in our business.

Our retail segment performed well during the quarter as gross profit increased 5% or $2 $3 million when compared to the first quarter of 2022.

Gross profit increased 2% and our merchandise gross profit increased 9% when compared to the same period in 2022.

For volume on a same store basis, our total retail volume decreased 2% for the quarter year over year outperforming the national volume data I touched on earlier in my comments.

In general our retail segment volume has performed well relative to national demand data as we keep a sharp focus on retail pricing in our operations to ensure we are priced appropriately at all our retail locations.

And the period since the quarter end retail same store volume has been up in the low single digits relative to the prior year, continuing the outperformance relative to national volume data that occurred during the quarter.

Yeah.

On the margin front, our retail margin on a cents per gallon basis was relatively flat year over year.

For this year and the prior year retail fuel margins for the first quarter were significantly stronger than what retail fuel margins typically work for first quarters prior to Covid.

And the period since quarter end retail fuel margins have generally been slightly higher than the results from the first quarter.

For inside sales on a same site basis, our inside sales increased approximately 4% relative to last year.

Net sales, excluding cigarettes were up approximately 10% year over year on a same store basis.

The strong sales performance was driven particularly by higher sales on the packaged beverage and snacks categories.

On the margin front, our store margin was up approximately 100 basis points year over year.

Partners strong sales performance in higher margin categories as well as certain initiatives, we have in place in regards to pricing product sourcing and promotions.

And the period since the quarter and same store inside sales are up between three 5% over the prior year.

As I noted in my earlier comments the retail segment was up in same store volume same store inside sales and store margin for the quarter relative to the prior year.

These strong results reflect the success of the various initiatives we have ongoing in the business. The strong performance of our J Cam portfolio and overall solid execution.

As we noted throughout 2022, we continue to evaluate our portfolio and look for opportunities to divest noncore properties.

First quarter of 2023 was relatively light divesting one property for $400000 subs.

Subsequent to the quarter end, we sold an additional two properties for a total of $6 $6 million.

Finally, I wanted to note that we refinanced our credit facilities at the end of the first quarter, we consolidated our credit facilities into a single facility and extended the duration out for five additional years.

The refinancing simplifies our capital structure, and our operations and provides us the necessary liquidity and capital we need for the business going forward.

We are particularly pleased at the level of support we've received in our refinancing as we had strong demand from our banking partners and the facility was well oversubscribed.

That we were able to achieve this result.

The refinancing in the midst of a banking crisis speaks to a strong financial performance of our business and the strength of our banking relationships.

With that I will turn it over tomorrow for a more detailed financial review.

Okay.

Thank you Charles.

If you would please turn to slide six I would like to review our first quarter results for the partnership.

We reported a net loss of just under $1 million for the first quarter of 2023 compared to net income of $5 million in the first quarter of 2022.

A decline in net income was primarily driven by the year over year increase in interest expense due to the elevated interest rate environment.

We did experience an increase in gross profit in the wholesale and retail segments with each segment benefiting from the favorable fuel margin environment. The Charles spoke about in his comments, which was offset by an increase in operating expenses.

Adjusted EBITDA was $31 $7 million for the first quarter of 2023.

Which was a slight decrease of 1% when compared to adjusted EBITDA of $32 million for the first quarter of 2022.

Our distributable cash flow for the first quarter of 2023 was $19 $1 million versus $24 $4 million for the first quarter of 2022.

The decrease in distributable cash flow was primarily due to the increase in cash interest expense that impacted our first quarter net income.

I'll speak further in a few moments about the interest rate environment and some steps. We've recently taken to continue to manage this line item and our credit facility overall.

Our distribution coverage for the current quarter with zero point 96 times compared to one to two times for the first quarter of 2020 to.

Reflecting the seasonality of our business that we have historically seen since the partnership went public.

On a trailing 12 month basis.

Our distribution coverage was one seven times for the 12 months ended March 31 2023.

Compared to $1 three nine times for the comparable period ended March 31 2022.

The business overall continues to benefit from the strategic initiatives and growth opportunities. We have acted upon over the past three years.

The opening and the strengthening of our distribution coverage ratio.

The partnership paid a distribution of $52.05 per unit during the first quarter of 2023 attributable to the fourth quarter of 2022 for a total of almost $20 million.

Turning to the expense portion of our operations.

Operating expenses for the first quarter increased $3 $5 million or 8% compared to the 2020 to first quarter.

This increase was primarily due to increased store level employment costs for our company operated locations.

Improved staffing conditions and expanded hours of operation at many of our company operated sites.

Led to an approximately 6% increase in labor hours during the quarter compared to the prior year.

Our level of employment costs were also impacted by higher wages.

Increases in costs for environmental and maintenance spending primarily due to inflation also impacted the quarter.

Our G&A expenses decreased over 11% for the quarter year over year. This.

This was primarily due to a decrease in acquisition costs.

With last year's first quarter, including legal fees and other acquisition related costs associated with the 711 sites that we acquired.

Moving to the next slide we spent a total of $6 million on capital expenditures during the first quarter.

With $4 million of that total being growth related capital expenditures.

This was a decline from the first quarter of 2022 spend of $8 9 million, which included spending for our rebranding efforts related to the acquisition of assets from 711.

During this past quarter growth related capital spending included targeted investments in dispensers as well as store upgrade and rebranding work.

As Charles mentioned earlier, we amended and restated the capital credit facility on March 31, 2023, with a syndicate of lenders led by citizens Bank.

The five year revolving credit facility provides borrowing capacity of up to $925 million in.

An increase from the previous revolving credit facility capacity of $750 million.

Additionally, we have an accordion feature and the facility that can be accessed subject to terms and conditions for up to an additional $350 million of borrowing capacity.

As part of the amendment and restatement.

<unk> from the amended facility were used to repay a $159 million term loan balance outstanding on the <unk> credit facility.

<unk> credit facility with been terminated which eliminated our current pay obligations.

As Charles noted consolidation of our borrowings into one revolving credit facility provides us with a simplified capital structure and.

The capital needed to continue to operate our business at a high level.

As of March 31, 2023, our credit facility defined leverage ratio was 4.05 times.

Impaired to four six times at the end of the first quarter of 2022.

This improved leverage profile, a function of our operational performance and cash flow generation over the past year.

Provides us with opportunity and flexibility as we move forward.

Yeah.

As I noted earlier, our quarterly results were impacted by the elevated interest rate environment, and it's impacting impacts on our interest expense.

As with prior periods, we continue to benefit from the interest rate swaps, we put into place in early 2020.

As part of the capital credit facility Amendment process, we amended those 2020 swap contracts from a LIBOR basis to a silver basis.

Resulting in an average fixed rate for those contracts of 35, and a half basis points.

Additionally in April 2023, we entered into three new sofa based spot start interest rate swap contracts with the total notional value of $200 million and a five year term.

These spot start interest rate swaps have a fixed rate of approximately three 3%.

We also entered into one forward starting interest rate swap contract beginning April one 2024 with.

With the total notional value of $100 million and a four year term.

The fixed rate on the forward starting interest rate swap contract is two 9%.

These additional interest rate swaps provide us with increased certainty around our interest expense moving forward.

<unk> hedge against the impact of a rising rate environment and.

An immediate interest savings based on where market interest rates are today.

In conclusion as Charles noted, we had a solid first quarter with positive performance in fuel and merchandise gross profit despite some economic headwinds.

We set our balance sheet up with flexibility and capacity for future opportunities with the simplification of our borrowing structure.

And we'll continue to focus on operating the business well.

Maximizing the value and cash flows from each site and our portfolio and preparing for the summer driving season ahead.

With that we will open it up for questions.

Thank you we will now begin the question and answer session. If you have a question. Please press star one one on your Touchtone phone if you wish to be removed from the queue. Please press star one again.

There will be a delay before the first question is announced if youre using a speakerphone you may need to pick up your handset first before pressing the numbers. Once again, if you have a question. Please press star one one on your Touchtone phone.

And once again as a reminder, please press star one one if you'd like to queue up for a question.

And presenters we have no questions in queue at this time.

Okay, everyone. This is Charles again, thank you for joining us today on the call should you have questions later feel free to reach out to us will be happy to take them again, thanks for joining us today have a great day.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for your participation at this time you may disconnect from the call.

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