Q1 2024 CrossAmerica Partners LP Earnings Call
Good morning, ladies and gentlemen, and welcome to the across America Partners first quarter 2024 earnings Conference call.
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Following the presentation.
The question and answer session.
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Speaker Change: <unk> zero four the operator.
This call is being recorded on Thursday may nine of 2024.
I would now like to turn the conference over Tomorrow Topper, Chief Financial Officer. Please go ahead.
Maura E. Topper: Thank you operator.
Maura E. Topper: Good morning, and thank you for joining the Crossamerica partners first quarter 2024 earnings call.
Maura E. Topper: With me today, it's Charles Nice Huh C E O and president.
Maura E. Topper: We'll start off the call today, what Charles providing some opening comments.
Maura E. Topper: <unk> across America is operational performance for the quarter, and then I will discuss the financial results.
Speaker Change: We will then open up the call to questions.
Speaker Change: Today's call will follow up presentation slides that are available as part of the webcast and are posted on across America website.
Charles: Before we begin I would like to remind everyone that today's call, including the question and answer session.
Charles: Forward looking statements regarding expected revenue future plans future operational metrics and opportunities and expectations of the organization.
Charles: There can be no assurance that management's expectations beliefs and projections will be achieved.
Charles: Actual results will not differ from expectations.
Charles: Please see Crossamerica filings with the Securities and Exchange Commission, including annual reports on Form 10-K, and quarterly reports on Form 10-Q free discussion are important factors that could affect our actual results.
Charles: So we're looking statements represent the judgment across America's management as of today's date.
Charles: Any organization disclaims any intent or obligation to update any forward looking statements.
Charles: During today's call. We may also provide certain performance measures.
Charles: Not conform to U S generally accepted accounting principles or gap.
Charles: We have provided scheduled that reconcile these non-GAAP measures with our reported results on a gap basis as part of our earnings press release.
Charles: 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.
Charles: With that I will now turn the call over to Charles.
Charles: Thank you Mara.
Charles: I appreciate all of you joining us this morning, as we review our first quarter results.
Charles: Today's call I will go through some of the operating highlights, but first quarter 2024.
Charles: I will also provide commentary on the market and other updates similar to what I've done.
Charles: <unk>.
Maura E. Topper: Tomorrow will then review in more detail our financial results.
Charles: Now if you turn to supply for I will briefly review some of our operating results.
Charles: For the first quarter of 2024, our wholesale stomach gross profit declined 14 per cent to $27 million compared to $31.2 million in the first quarter of 2023.
Charles: The decrease was driven by a decline in fuel margin fuel volume and rental income basic.
Charles: Significant factor in the overall decline was the conversion of certain Lassie dealer sites. The company operated and commission agent sites, which are now accounted for in the retail segment.
Charles: Our wholesale motor fuel gross profit decreased 13% to $14.6 million in the first quarter of 2024 from $68.7 million the first quarter of 2023.
Charles: Our fuel margin declined five per cent from 8.3 cents per gallon in the first quarter of 2023 to 7.9 cents per gallon in the first quarter of 2024.
Charles: The decrease in our wholesale feel more per gallon was primarily driven by the following factors.
Charles: First our average purchase price of motor fuel per gallon for the first quarter of 2024 was lower that our average purchase price.
Charles: Fuel per gallon for the first quarter of 2023.
Charles: Resulting in us receiving a lower dollar amount in terms discounts on certain gallons that we purchase during the quarter.
Charles: Second we experienced a gradual increase in crude oil prices throughout the first quarter of 2024.
Charles: Historically, such a steady gradual increase in prices during a period leads to lower wholesale fuel per gallon and a year over year comparison due to its impact on our fuel margin and our variable market price wholesale contracts.
Charles: Also contributing to the margin per gallon decline was a reduction in available price wholesale fuel volume due to our conversion of certain sites to a retail class of trade.
Charles: We did benefit this quarter from a reduction in our fuel source and cost. However, the benefit of these cost reductions was more than offset by the preceding factors that address details.
Charles: Our wholesale volume was 184 million gallons for the first quarter of 2024.
Charles: Compared to 201.9 million gallons, the first quarter of 2023, reflecting a decline up 9%.
Charles: The decline in volume.
Charles: The same period of 2023 was primarily due to the conversion of certain lessee theater sites to a retail class of trade and lower same site volume.
Charles: The conversion of sites from wholesale to retail resulted at approximately 8 million gallons of volume shifting segment for the quarter, which was approximately 47 per cent of the total volume decline for the wholesale segment.
Charles: [noise] gallons are now reflected in a retail segment results.
Charles: For the quarter, our same store volume in the wholesale segment.
Charles: Slightly less than 2% year over year.
Charles: The remaining declining volume is attributable to loss of independent dealer contracts, which in many cases, we chose not to renew.
Charles: Based on national demand data available to us our same store wholesale high performance for the first quarter was better than overall national demand.
Charles: Since a quarter and same store volume has been down around 3% year over year.
Charles: Overall, it was a soft start to the year for volume demand in the industry.
Charles: Quarterly wholesale same-store volume results, while better on a relative basis national data.
Charles: Pointing.
Charles: Regarding our wholesale rep, our base rent for the quarter was $12.4 million compared to the prior year of $13.7 million a decrease due to the conversion of certain lessee dealer sites to company operated and commission agent sites.
Charles: These red dollars no longer in the form of Red are now effectively in a retail segment results through higher margins at these locations.
Charles: They're not lost dollars for the business, but are simply reported now and another segment of our financial results.
Charles: For the retail segment, considering the industry environment. Our performance was good for the first quarter of 2024, primarily driven by our merchandise growth.
Charles: The retail segment generated $54.4 million in gross profit compared to $50.9 million for the same period in 2023% to 7% increase.
Charles: Our merchandise gross profit and create 18% merchandise gross profit margin percentage was up approximately 30 basis points when compared to the same period in 2023.
Charles: Our motor fuel gross profit declined three per cent.
Charles: On a film Artra Fry, a retail few margin of cents per gallon basis decreased 3% year over year as our fuel margin was 38 cents per gallon in the first quarter of 2024 compared to 31.8 cents per gallon in the first quarter of 2023.
Charles: Retail fuel margins were pressured this quarter by the generally steady rising price of crude oil during the quarter, which in turn pushed our fuel cause hires and adversely impacted retail street fuel pricing volatility.
Charles: Volume on the same store basis, a retail volume declined three per cent to the core ear over here.
Charles: On a relative basis to national demand data are same sort retail volume outperformed <unk>.
Charles: However, on an absolute basis. It is a disappointing result, and reflects the overall soft demand that we in the industry have experienced to start the year.
Charles: In the period since a quarter had retail same-store volume has remained down at approximately 3% year over year.
Charles: [noise] in retail fuel margins have continued to be roughly in line with our first quarter results.
Charles: Or inside sales on the same site basis. So.
Charles: Sales were up slightly relative to last year for the first quarter.
Charles: Inside sales, excluding cigarettes rep, approximately 2% year over year on that same store basis for the quarter.
Charles: The sales performance was primarily driven by the categories of package beverages in Delhi.
Charles: On the store merchandise margin fraud, or merchandise gross profit increased 18% to $21.4 million.
Charles: Driven by increased sales from the higher store count and improvement in our store merchandise gross margin percentage.
Charles: The store merchandise margin improvement was due to our continued efforts and focus on our margins.
Charles: In the period since a quarter in.
Charles: Same store sales have been flat to slightly down from the prior year.
Charles: Collecting the ongoing soft demand environment.
Charles: And a retail segment. If you look at our company operated site Count We're up 75 company operated retail sites from the prior year end up forty-seventh site relative to last for the fourth quarter of 2023.
Charles: The increase in company operated site count relative to the fourth quarter was primarily driven by our conversion of the Apple Green lease locations company operated retail sites.
Charles: As we previously announced that also noted in our press release, we sign an agreement in January terminate the lease company operate 59 sites that we previously at least two Apple Green.
Charles: Of these 59 locations.
Charles: 31 locations, where converted during the first quarter of 2024 and the remaining 28 locations converted in April 2024, so that adds up today all the locations across America company operated retail locations.
Charles: We are pleased to welcome all the team members at these locations across America team and thank everyone involved for the hard work and successfully executing this transaction we.
Charles: We expect this transaction to be immediately accretive to a retail segment and overall results.
Charles: Our commission agents site count increased by nine sites relative to the first quarter of 2023.
Charles: In total we have increased our overall retail site count by 85 sites as up to date date relative to the end of the fourth quarter.
Charles: Based on those numbers you can see that we were extremely active during the quarter was <unk> and executing on our strategy to increase our exposure to retail fuel margins and the retail business overall.
Charles: During the quarter, we did not divest any properties.
Charles: Went to the corner and we have divested two properties for $2.5 million in proceeds.
Charles: While the number of closed transactions as low your to date, we have been busy building our pipeline of divestitures and expect the pace and volume of transactions to increase materially for the remainder of the year.
Charles: Overall, it was a challenging start to the year as our first quarter results reflect.
Charles: The first quarter of the year is typically our weakest quarter of the year and this first quarter was a week first quarter compared to prior first quarters.
Charles: While our volume of numbers compare favorably to national volume data on an absolute basis volume was below what we expect to achieve.
Charles: A retail sites are store sales, while again better on a relative basis compared to nationally available data will also low our expectations.
Charles: Despite the soft financial results for the quarter, there were still positive developments in our business.
Charles: One of the most significant was our conversion of Apple Green sites the company operated retail locations.
Charles: We were also able to confirm 20 other locations this quarter to a retail class of trade.
Charles: Either his company operated sites or at commission retail locations.
Charles: These conversions should generate better fuel volume and increase profitability at these sites 0.4.
Charles: Mara will touch on in her comments on some successes with expense management that we had during the quarter as well.
Charles: So progress was made during the quarter, even if not evident in our financial results.
Charles: And the best thing about the first border that it leads into the spring and summer our peak months of the year.
Mara: With that I'll turn it over tomorrow for more detailed financial review.
Mara: Thank you Charles.
Tom: You would please <unk> I would like to review our first quarter results for the partnership.
Speaker Change: We reported a net loss at $17.5 million for the first quarter of 2024 compared to a net loss of $1 million in the first quarter of 2023.
Charles: This last was primarily driven by a 15.9 million dollar loss and the lease termination with Apple Green and a decline in our year over year adjusted EBITDA.
Charles: Regarding the lease termination charge for the Apple Green transaction.
Charles: Gap requires asked to record substantially all of the price paid to Apple Green for the transaction, excluding amounts for inventory and equipment.
Charles: As an income statement expense.
Charles: As opposed to a balance sheet purchase which drove the lease termination expense in the quarter.
Charles: Adjusted EBITDA was $23.6 million for the first quarter of 2024.
Charles: Klein at $8.2 million from adjusted EBITDA at $31.7 million for the first quarter of 2023.
Charles: Our distributable cash flow for the first quarter of 2024 was $11.7 million compared to $19.1 million for the first quarter of 2023.
Charles: He declined an adjusted EBITDA and distributable cash flow, what primarily due to operating income decreases in both our wholesale and retail segments.
Charles: Driven by the challenging feel margin environment during the quarter.
Charles: And the additional operating expenses incurred primarily as a result of our higher company operated store count.
Charles: Ah distribution coverage for the current quarter was 0.59 times compared to 0.96 times by the first quarter of 2023.
Charles: Our distribution coverage for the trailing 12 months ended March 31st 2024.
Charles: Was 1.37 times.
Speaker Change: Okay. The 1.7 times for the same period ended March 31st 2023.
Speaker Change: The first quarter historically is our most challenging of the year with nine out of the 12 first quarters and the partnerships history, having a distribution coverage ratio below one times.
Charles: That being said accurate coverage for the current quarter is lower than we would like.
Charles: Mailing 12 months coverage ratio remains well above one times at 1.37 times historically, we do see material improvement in our coverage ratio as we move into the summer driving season.
Charles: During the first quarter of 2024, the partnership pay the distribution of 52 and a half cents per unit.
Charles: Charles discuss some of the primary drivers of our top line and gross profit performance for the quarter earlier.
Charles: Turning to the extent portion of our operations.
Charles: Brightening expenses for the first quarter increased $6.4 million compared to the 2023 first quarter.
Charles: We had any approximately seven per cent decrease in operating expenses and our wholesale segment.
Charles: <unk> locations to company operated commission locations in the retail segment.
Charles: This was all set by a $7 million or 20 per cent increase in operating expenses in a retail segment.
Charles: This increase was primarily due to the increased site count and that retail segment compared to the prior year due to the site conversions Charles reference <unk> comments.
Charles: During the quarter, we had approximately 22 per cent more company operated locations in our retail segment and last year.
Charles: Company operated locations, our highest per site expense class of trade.
Charles: So that's eight count increase drove the majority of the year over year increase in operating expenses.
Charles: Additionally, we have selectively added overhead personnel costs and a retail segment to ensure that we can effectively operate and merchandise our newest company operated locations.
Charles: Given that following the completion at the Apple Green say transitions in April.
Charles: We now have added 100 company operated sites to the portfolio from other classes of trade over the past year.
Charles: On the same store basis operating expenses for our company operated locations, where approximately 1% year over year.
Charles: Our team drove a strong focus on ensuring our company operated locations where staffed efficiently.
Charles: Operating at the right hours, which resulted in in approximately four per cent decrease it same-store labor hours year over year for the corner.
Charles: This strong performance and controlling our store labor costs.
Charles: Ah largest expanse across the organization.
Charles: With improved performance and shrink and inventory management.
Charles: As to materially offset cost increases in repairs and maintenance, including environmental maintenance.
Charles: R G and a expenses increased $1.1 million for the quarter you every year.
Charles: Primarily due to higher legal fees and acquisition related costs incurred for the Apple Green transaction.
Charles: Moving to the next slide we spent a total of $6 $1 million capital expenditures during the first quarter with.
Charles: With $4.5 million in that total being gross related capital expenditures.
Charles: During this past quarter growth related capital spending included investments in the forecourt and backward or are newly converted company operated locations as.
Charles: As well as certain targeted dispenser investments, which are often accompanied within sanchez from our fuel suppliers.
Charles: As of March 31st 2024.
Charles: Total credit facility balance was $798.3 million, which was a 42 million dollar increase from our 2023 year end balance.
Charles: The most significant driver of that increase was the approximately $20 million paid to Apple green during the first quarter inclusive of payments for inventory at converted locations.
Charles: Additionally, the first quarter is typically a working capital usage quarter for the partnership and lifestyle again this year.
Charles: It's Charles noted it was also a lighter asset sale corner for us So our capital spending and adjusted <unk> results for the corner also contributed to the increase on a revolver balance.
Charles: Ah credit facility to find leverage ratio is 4.49 times as of March 31st 2024.
Charles: As we move into the summer months and continue to focus on execution at our site we will.
Charles: Will remain focused on our cash flow generation and managing a leverage ratio at approximately four times on a credit facility defined basis.
Charles: Ah cash interest expense was relatively flat over a year.
Charles: With our higher credit facility balance being offset by the positive rate savings we experienced from the interest rate swaps, we entered into during the second and fourth quarters of last year.
Charles: Are effective interest rate on a cat that credit facility during the first quarter was approximately 5.1%.
Charles: Which is very attractive given today's interest rate environment.
Charles: Although we did have a series of beneficial interest rate swaps, primarily 2020 that expired at the end of the first quarter.
Charles: He entered the remainder of 2024 with approximately 50 per cent of our current credit facility balance swap to a fixed rate of approximately 3.4 per cent blended.
Charles: We do anticipate our interest expense increasing during the remainder of the year given the rohloff of the swaps from 2020.
Charles: But our existing interest rate swap portfolio is meaningfully valuable and providing uncertainty and savings in today's rate environment.
Charles: In conclusion is Charles noted the partnership that are challenging first quarter of 2024.
Charles: We remain focused as a team on executing in our base business as.
Charles: As well as for the sites that transition between segments over the past year to optimize their performance moving forward.
Charles: We continue to focus on January terrible inconsistent cashless with a focus on maintaining a strong balance sheet driving value for our unitholders.
Speaker Change: With that we will open it up for questions.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: Should you have a question. Please press star one on your Touchtone phone.
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Charles: Would you wish to decline from the polling process. Please.
Charles: <unk>.
Charles: If you're using a speaker phone please lift the handset before pressing any Keith <unk>.
Speaker Change: One moment. Please for your first question.
Speaker Change: Ladies and gentlemen, as a reminder, if you have a question. Please press star one.
Speaker Change: It doesn't appear that we have any questions. This morning should you have any questions. Later, please reach out to us and we'll be happy to address them. We thank everyone for joining us. This morning have a good day.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and you may now disconnect.
Speaker Change: [noise].