UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 001-35711a
CROSSAMERICA PARTNERS LP
(Exact name of registrant as specified in its charter)
Delaware
45-4165414
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
645 Hamilton Street, Suite 400
Allentown, PA
18101
(Zip Code)
(610) 625-8000
(Address of Principal Executive Offices)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Units
CAPL
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of May 3, 2024, the registrant had outstanding 38,027,194 common units.
TABLE OF CONTENTS
PAGE
Commonly Used Defined Terms
i
PART I - FINANCIAL INFORMATION
1
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023
Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023
2
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023
3
Consolidated Statements of Equity and Comprehensive Income for the Three Months Ended March 31, 2024 and 2023
4
Condensed Notes to Consolidated Financial Statements
5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
16
Item 3. Quantitative and Qualitative Disclosures about Market Risk
27
Item 4. Controls and Procedures
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
28
SIGNATURE
29
COMMONLY USED DEFINED TERMS
The following is a list of certain acronyms and terms generally used in the industry and throughout this document:
CrossAmerica Partners LP and subsidiaries:
CrossAmerica
CrossAmerica Partners LP, the Partnership, CAPL, we, us, our
Holdings
CAPL JKM Holdings LLC, an indirect wholly-owned subsidiary of CrossAmerica and sole member of CAPL JKM Partners
CAPL JKM Partners
CAPL JKM Partners LLC, a wholly-owned subsidiary of Holdings
Joe’s Kwik Marts
Joe’s Kwik Marts LLC, a wholly-owned subsidiary of CAPL JKM Partners
LGWS
Lehigh Gas Wholesale Services, Inc., an indirect wholly-owned subsidiary of CrossAmerica
CrossAmerica Partners LP related parties:
DMI
Dunne Manning Inc. (formerly Lehigh Gas Corporation), an entity affiliated with the Topper Group
General Partner
CrossAmerica GP LLC, the General Partner of CrossAmerica, a Delaware limited liability company, indirectly owned by the Topper Group.
Topper Group
Joseph V. Topper, Jr., collectively with his affiliates and family trusts that have ownership interests in the Partnership. Joseph V. Topper, Jr. is the founder of the Partnership and a member of the Board. The Topper Group is a related party and large holder of our common units.
TopStar
TopStar Inc., an entity affiliated with a family member of Joseph V. Topper, Jr. TopStar is an operator of convenience stores that leases sites and purchases fuel from us.
Other Defined Terms:
AOCI
Accumulated other comprehensive income
ASU
Accounting Standards Update
Board
Board of Directors of our General Partner
Bonus Plan
The Performance-Based Bonus Compensation Policy is one of the key components of “at-risk” compensation. The Bonus Plan is utilized to reward short-term performance achievements and to motivate and reward employees for their contributions toward meeting financial and strategic goals.
CAPL Credit Facility
Credit Agreement, dated as of April 1, 2019, as amended by the First Amendment to Credit Agreement, dated as of November 19, 2019, and by the Second Amendment to Credit Agreement, dated as of July 28, 2021, and by the Third Amendment to Credit Agreement, dated as of November 9, 2022, and as amended and restated by the Amendment and Restatement Agreement, dated as of March 31, 2023, as amended by the First Amendment to Amendment and Restatement Agreement, dated as of February 20, 2024, among the Partnership and Lehigh Gas Wholesale Services, Inc., as borrowers, the guarantors from time to time party thereto, the lenders from time to time party thereto and Citizens Bank, N.A., as administrative agent.
DTW
Dealer tank wagon contracts, which are variable market-based cent per gallon priced wholesale motor fuel distribution or supply contracts; DTW also refers to the pricing methodology under such contracts
EBITDA
Earnings before interest, taxes, depreciation, amortization and accretion, a non-GAAP financial measure
Exchange Act
Securities Exchange Act of 1934, as amended
Form 10-K
CrossAmerica’s Annual Report on Form 10-K for the year ended December 31, 2023
Internal Revenue Code
Internal Revenue Code of 1986, as amended
IPO
Initial public offering of CrossAmerica Partners LP on October 30, 2012
JKM Credit Facility
Credit Agreement, dated as of July 16, 2021, as amended on July 29, 2021 among CAPL JKM Partners, Holdings and Manufacturers and Traders Trust Company, as administrative agent, swingline lender and issuing bank. The Term Loan Facility was paid off and the JKM Credit Facility was terminated on March 31, 2023.
MD&A
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Omnibus Agreement
The Omnibus Agreement, effective January 1, 2020, by and among the Partnership, the General Partner and DMI. The terms of the Omnibus Agreement were approved by the independent conflicts committee of the Board, which is composed of the independent directors of the Board. Pursuant to the Omnibus Agreement, DMI agrees, among other things, to provide, or cause to be provided, to the Partnership certain management services at cost without markup.
Partnership Agreement
Second Amended and Restated Agreement of Limited Partnership of CrossAmerica Partners LP, dated as of February 6, 2020
Predecessor Entity
Wholesale distribution contracts and real property and leasehold interests contributed to the Partnership in connection with the IPO
SOFR
Secured Overnight Financing Rate
Term Loan Facility
$185 million delayed draw term loan facility provided under the JKM Credit Facility, which was paid off and terminated March 31, 2023
U.S. GAAP
U.S. Generally Accepted Accounting Principles
WTI
West Texas Intermediate crude oil
ii
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars, except unit data)
(Unaudited)
March 31,
December 31,
2024
2023
ASSETS
Current assets:
Cash and cash equivalents
$
6,278
4,990
Accounts receivable, net of allowances of $674 and $709, respectively
35,087
31,185
Accounts receivable from related parties
1,021
437
Inventory
58,037
52,344
Assets held for sale
4,641
400
Current portion of interest rate swap contracts
7,169
9,321
Other current assets
11,068
9,845
Total current assets
123,301
108,522
Property and equipment, net
692,728
705,217
Right-of-use assets, net
146,170
148,317
Intangible assets, net
90,422
95,261
Goodwill
99,409
Deferred tax assets
1,425
759
Interest rate swap contracts, less current portion
4,439
687
Other assets
21,579
23,510
Total assets
1,179,473
1,181,682
LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt and finance lease obligations
3,133
3,083
Current portion of operating lease obligations
34,973
34,787
Accounts payable
71,490
68,986
Accounts payable to related parties
6,920
10,180
Accrued expenses and other current liabilities
24,570
23,674
Motor fuel and sales taxes payable
18,767
20,386
Total current liabilities
159,853
161,096
Debt and finance lease obligations, less current portion
795,755
753,880
Operating lease obligations, less current portion
116,351
118,723
Deferred tax liabilities, net
7,652
12,919
Asset retirement obligations
48,329
47,844
Interest rate swap contracts
1,139
3,535
Other long-term liabilities
52,212
52,934
Total liabilities
1,181,291
1,150,931
Commitments and contingencies (Note 11)
Preferred membership interests
28,401
27,744
Equity:
Common units— 38,027,194 and 37,983,154 units issued and outstanding at March 31, 2024 and December 31, 2023, respectively
(39,616
)
(2,392
9,397
5,399
Total (deficit) equity
(30,219
3,007
Total liabilities and equity
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Dollars, except unit and per unit amounts)
Three Months Ended March 31,
Operating revenues (a)
941,548
1,016,159
Costs of sales (b)
860,200
934,100
Gross profit
81,348
82,059
Operating expenses:
Operating expenses (c)
52,028
45,623
General and administrative expenses
6,838
5,739
Depreciation, amortization and accretion expense
18,721
19,820
Total operating expenses
77,587
71,182
Loss on dispositions and lease terminations, net
(16,806
(1,767
Operating (loss) income
(13,045
9,110
Other income, net
249
261
Interest expense
(10,541
(12,012
Loss before income taxes
(23,337
(2,641
Income tax benefit
(5,797
(1,662
Net loss
(17,540
(979
Accretion of preferred membership interests
657
601
Net loss available to limited partners
(18,197
(1,580
Net loss per common unit
Basic
(0.48
(0.04
Diluted
Weighted-average common units:
37,994,285
37,940,332
Supplemental information:
(a) includes excise taxes of:
70,713
69,884
(a) includes rent income of:
19,166
21,320
(b) excludes depreciation, amortization and accretion
(b) includes rent expense of:
5,419
5,554
(c) includes rent expense of:
3,942
3,798
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Cash flows from operating activities:
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization of deferred financing costs
483
1,848
Credit loss expense
—
37
Deferred income tax benefit
(5,932
(2,056
Equity-based employee and director compensation expense
205
561
16,806
1,767
Changes in operating assets and liabilities, net of acquisitions
(6,927
(9,460
Net cash provided by operating activities
5,816
11,538
Cash flows from investing activities:
Principal payments received on notes receivable
45
53
Proceeds from sale of assets
568
Capital expenditures
(6,105
(6,001
Lease termination payments to Applegreen, including inventory purchases
(19,904
Net cash used in investing activities
(25,964
(5,380
Cash flows from financing activities:
Borrowings under revolving credit facilities
49,000
187,400
Repayments on revolving credit facilities
(6,740
(15,537
Repayments on the Term Loan Facility
(158,980
Payments of finance lease obligations
(744
(698
Payments of deferred financing costs
(74
(6,906
Distributions paid on distribution equivalent rights
(65
(56
Distributions paid on common units
(19,941
(19,918
Net cash provided by (used in) financing activities
21,436
(14,695
Net increase (decrease) in cash and cash equivalents
1,288
(8,537
Cash and cash equivalents at beginning of period
16,054
Cash and cash equivalents at end of period
7,517
CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
(Thousands of Dollars, except unit amounts)
Limited Partners' InterestCommon Unitholders
Total Equity
Units
Dollars
Balance at December 31, 2023
37,983,154
Other comprehensive income
Unrealized gain on interest rate swap contracts
9,131
Realized gain on interest rate swap contracts reclassified from AOCI into interest expense
(5,133
Total other comprehensive income
3,998
Comprehensive (loss) income
(13,542
Issuance of units related to 2023 Bonus Plan
17,136
381
Vesting of equity awards, net of units withheld for tax
26,904
598
(657
Distributions paid
(20,006
Balance at March 31, 2024
38,027,194
Balance at December 31, 2022
37,937,604
36,508
16,469
52,977
137
(3,055
Total other comprehensive loss
(2,918
Comprehensive loss
(3,897
Issuance of units related to 2022 Bonus Plan
15,346
322
(601
(19,974
Balance at March 31, 2023
37,952,950
15,276
13,551
28,827
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. DESCRIPTION OF BUSINESS AND OTHER DISCLOSURES
Our business consists of:
Interim Financial Statements
These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and the Exchange Act. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature unless disclosed otherwise. Management believes that the disclosures made are adequate to keep the information presented from being misleading. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K. Financial information as of March 31, 2024 and for the three months ended March 31, 2024 and 2023 included in the consolidated financial statements has been derived from our unaudited financial statements. Financial information as of December 31, 2023 has been derived from our audited financial statements and notes thereto as of that date.
Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. Our business exhibits seasonality due to our wholesale and retail sites being located in certain geographic areas that are affected by seasonal weather and temperature trends and associated changes in retail customer activity during different seasons. Historically, sales volumes have been highest in the second and third quarters (during the summer activity months) and lowest during the winter months in the first and fourth quarters.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results and outcomes could differ from those estimates and assumptions. On an ongoing basis, management reviews its estimates based on currently available information. Changes in facts and circumstances could result in revised estimates and assumptions.
Recently Adopted Accounting Pronouncements
Segment Reporting
In November 2023, the FASB issued ASU 2023-07, "Improvements in Reportable Segment Disclosures." The amendments in this new guidance improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. These new disclosures will be required in our Annual Report on Form 10-K for the year ending December 31, 2024 and interim and annual reports thereafter. Although we do not anticipate the impact of adopting this guidance will be material, it will affect our disclosures related to our reportable segments starting in our Annual Report on Form 10-K for the year ending December 31, 2024.
Income Taxes
In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures.” The amendments in this new guidance require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. This new guidance also requires certain new disclosures such as income taxes paid disaggregated by federal, state and foreign taxes and further disaggregated by individual jurisdictions in which income taxes paid exceeds a quantitative threshold. This new guidance also eliminates certain previously required disclosures. We will adopt this new guidance effective January 1, 2025. Although we do not anticipate the impact of adopting this guidance will be material, it will affect our disclosures related to income taxes.
Certain other new accounting pronouncements have become effective for our financial statements during 2024, but the adoption of these pronouncements did not materially impact our financial position, results of operations or disclosures.
Concentration Risk
For each of the three months ended March 31, 2024 and 2023, we purchased approximately 80% of our motor fuel from four suppliers. Approximately 24% and 23% of our motor fuel gallons sold for the three months ended March 31, 2024 and 2023, respectively, were delivered by two carriers.
For the three months ended March 31, 2024 and 2023, respectively, approximately 11% and 20% of our rent income was from two multi-site operators.
For the three months ended March 31, 2024 and 2023, respectively, approximately 50% and 47% of our merchandise was purchased from one supplier.
Note 2. APPLEGREEN ACQUISITION AND LEASE TERMINATION
On January 26, 2024, we entered into an agreement (the “Applegreen Purchase Agreement”) to acquire certain assets from Applegreen Midwest, LLC and Applegreen Florida, LLC (collectively, the “Sellers”) (the “Applegreen Acquisition”). The assets were acquired via the termination of the Partnership’s existing lease agreements with the Sellers at 59 locations, for total consideration of $16.9 million. The transaction closed on a rolling basis by site beginning during the first quarter of 2024 and ending in April 2024. The Partnership also acquired for cash the inventory at the locations. The terms of the Partnership’s leases with Applegreen Midwest, LLC and Applegreen Florida, LLC could have been extended to 2049 and 2048, respectively, including all renewal options. The Applegreen Purchase Agreement contains customary representations and warranties of the parties as well as indemnification obligations by the Sellers and the Partnership, respectively, to each other.
Of the 59 locations, 31 locations converted during the first quarter of 2024 and the remaining locations converted in April 2024. This transaction resulted in the transition of these lessee dealer sites to company operated sites.
During the first quarter of 2024, we paid $19.9 million of cash and accrued an additional $1.2 million of cash paid in April 2024. In addition, we recorded a non-cash write-off of deferred rent income of $1.4 million during the first quarter of 2024. We recorded these transactions as follows during the first quarter of 2024 (in thousands):
Cash consideration
Lease termination payments
15,800
Inventory purchases
4,104
Total cash paid
19,904
Accrued lease termination payments paid in April 2024
1,183
Total consideration
21,087
Equipment
1,550
980
Loss on lease termination
14,453
Non-cash write-off of deferred rent income
1,445
Total loss on lease termination
15,898
6
Note 3. ASSETS HELD FOR SALE
We have classified nine sites and two sites as held for sale at March 31, 2024 and December 31, 2023, respectively, which are expected to be sold within one year of such classification. Assets held for sale were as follows (in thousands):
Land
3,056
240
Buildings and site improvements
3,512
380
2,579
418
Total
9,147
1,038
Less accumulated depreciation
(4,506
(638
The Partnership has continued to focus on divesting lower performing assets. During the three months ended March 31, 2023, we sold one property for $0.4 million in proceeds, resulting in a net gain of $0.1 million.
See Note 5 for information regarding impairment charges primarily recorded upon classifying sites within assets held for sale.
Note 4. INVENTORY
Inventory consisted of the following (in thousands):
Merchandise
29,808
26,081
Motor fuel
28,229
26,263
See Notes 2 and 15 for information regarding the Applegreen Acquisition and other conversions of lessee dealer sites to company operated sites, which caused a significant portion of the increase in inventory.
Note 5. PROPERTY AND EQUIPMENT
Property and equipment, net consisted of the following (in thousands):
323,494
326,571
362,651
365,528
Leasehold improvements
16,560
16,434
358,585
356,160
Construction in progress
5,240
4,462
Property and equipment, at cost
1,066,530
1,069,155
Accumulated depreciation and amortization
(373,802
(363,938
We recorded impairment charges of $0.3 million and $0.4 million during the three months ended March 31, 2024 and 2023, respectively, included within depreciation, amortization and accretion expenses on the statements of operations. These impairment charges were primarily related to sites initially classified within assets held for sale in connection with our ongoing real estate rationalization effort.
7
Note 6. INTANGIBLE ASSETS
Intangible assets consisted of the following (in thousands):
March 31, 2024
December 31, 2023
GrossAmount
AccumulatedAmortization
NetCarryingAmount
Wholesale fuel supply contracts/rights
234,501
145,557
88,944
140,714
93,787
Trademarks/licenses
2,118
787
1,331
2,078
761
1,317
Covenant not to compete
200
147
43
157
Total intangible assets
236,819
146,397
236,779
141,518
Note 7. DEBT
Our balances for long-term debt and finance lease obligations were as follows (in thousands):
798,260
756,000
Finance lease obligations
10,320
11,064
Total debt and finance lease obligations
808,580
767,064
Current portion
Noncurrent portion
805,447
763,981
Deferred financing costs, net
9,692
10,101
Noncurrent portion, net of deferred financing costs
The CAPL Credit Facility is secured by substantially all of the Partnership’s assets.
Letters of credit outstanding totaled $5.3 million and $4.5 million at March 31, 2024 and December 31, 2023, respectively.
Taking the interest rate swap contracts into account, the effective interest rate on our CAPL Credit Facility at March 31, 2024 was 5.1% (our applicable margin was 2.25% as of March 31, 2024). See Note 8 for additional information on our interest rate swap contracts.
The CAPL Credit Facility contains certain financial covenants. The Partnership is required to maintain a Consolidated Leverage Ratio (as defined in the CAPL Credit Facility) of (i) for each fiscal quarter ending March 31, 2024, June 30, 2024 and September 30, 2024, not greater than 5.00 to 1.00, and (ii) for each fiscal quarter ending December 31, 2024 and thereafter, not greater than 4.75 to 1.00. For the quarter during a Specified Acquisition Period (as defined in the CAPL Credit Facility), such threshold will be increased by increasing the numerator thereof by 0.5, but such numerator may not exceed 5.25 to 1.00. Upon the occurrence of a Qualified Note Offering (as defined in the CAPL Credit Facility), the Consolidated Leverage Ratio threshold when not in a Specified Acquisition Period is increased to 5.25 to 1.00, while the Specified Acquisition Period threshold is 5.50 to 1.00. Upon the occurrence of a Qualified Note Offering, the Partnership is also required to maintain a Consolidated Senior Secured Leverage Ratio (as defined in the CAPL Credit Facility) for the most recently completed four fiscal quarter period of not greater than 3.75 to 1.00. Such threshold is increased to 4.00 to 1.00 for the quarter during a Specified Acquisition Period. The Partnership is also required to maintain a Consolidated Interest Coverage Ratio (as defined in the CAPL Credit Facility) of at least 2.50 to 1.00.
On February 20, 2024, in connection with our Applegreen Acquisition, we entered into an amendment (the “Amendment”) to the CAPL Credit Facility. The Amendment, among other things, modified the definition of Consolidated EBITDA contained in the Credit Agreement to permit the full addback of certain lease termination expenses incurred in connection with the Applegreen Acquisition and the addback of other lease termination expenses incurred in connection with future transactions, subject to certain terms and conditions.
As of March 31, 2024, we were in compliance with our financial covenants under the CAPL Credit Facility. The amount of availability under the CAPL Credit Facility at March 31, 2024, after taking into consideration debt covenant restrictions, was $91.2 million.
8
In connection with amending the CAPL Credit Facility and terminating the JKM Credit Facility in March 2023, the Partnership wrote off $1.1 million of deferred financing costs in the first quarter of 2023.
Note 8. INTEREST RATE SWAP CONTRACTS
During 2024 and through the date of this report, we held the following interest rate swap contracts (in thousands):
Type
Notional Amount
Termination Date
Fixed Rate
Spot starting
150,000
April 1, 2024
0.413
%
75,000
0.298
50,000
March 30, 2028
3.287
100,000
March 31, 2028
April 8, 2028
3.282
Forward starting April 1, 2024
April 1, 2028
2.932
80,000
4.105
20,000
4.121
All of our interest rate swap contracts have been designated as cash flow hedges and are expected to be highly effective.
The fair value of each of these interest rate swap contracts was reported as a separate line item within current assets, noncurrent assets and noncurrent liabilities, as applicable. See Note 12 for additional information on the fair value of the interest rate swap contracts.
We report the unrealized gains and losses on our interest rate swap contracts designated as highly effective cash flow hedges as a component of other comprehensive income and reclassify such gains and losses into earnings (interest expense on our statement of operations) in the same period during which the hedged interest expense is recorded. We recognized a net realized gain from settlements of the interest rate swap contracts of $5.1 million and $3.1 million for the three months ended March 31, 2024 and 2023, respectively.
We currently estimate that a gain of $6.1 million will be reclassified from accumulated other comprehensive income into interest expense during the next 12 months; however, the actual amount that will be reclassified will vary based on changes in interest rates.
Note 9. OPERATING LEASES AS LESSOR
During the first quarter of 2024, we terminated a significant number of operating leases as lessor through our Applegreen Acquisition. See Note 2 for additional information regarding this transaction and the related write-off of deferred rent income.
Motor fuel stations are leased to tenants under operating leases with various expiration dates ranging through 2037. Most lease agreements include provisions for renewals. We generally do not include renewal options in our lease term. Future minimum rental payments under non-cancelable operating leases with third parties as of March 31, 2024 were as follows (in thousands):
29,826
2025
32,495
2026
22,640
2027
12,672
2028
7,899
Thereafter
21,489
Total future minimum lease payments
127,021
The future minimum rental payments presented above do not include contingent rent based on future inflation, future revenues or volumes of the lessee, or non-lease components for amounts that may be received as tenant reimbursements for certain operating costs.
9
Deferred rent income from straight-line rent relates to the cumulative amount by which straight-line rental income recorded to date exceeds cash rents billed to date under the lease agreement and totaled $3.3 million and $5.0 million at March 31, 2024 and December 31, 2023, respectively.
Note 10. RELATED-PARTY TRANSACTIONS
Wholesale Motor Fuel Sales and Real Estate Rentals
Revenues from TopStar, an entity affiliated with the Topper Group, were $10.7 million and $11.7 million for the three months ended March 31, 2024 and 2023, respectively. Accounts receivable from TopStar was $1.0 million and $0.4 million at March 31, 2024 and December 31, 2023, respectively.
We lease real estate from the Topper Group. Rent expense under these lease agreements was $2.5 million for each of the three months ended March 31, 2024 and 2023.
We incurred expenses under the Omnibus Agreement, including costs for store level personnel at our company operated sites as well as other cost reimbursements, totaling $27.8 million and $24.4 million for the three months ended March 31, 2024 and 2023, respectively. Such expenses are included in operating expenses and general and administrative expenses in the statements of operations. Amounts payable to the Topper Group related to expenses incurred by the Topper Group on our behalf in accordance with the Omnibus Agreement totaled $4.8 million and $8.4 million at March 31, 2024 and December 31, 2023, respectively.
Common Unit Distributions and Other Equity Transactions
We distributed $7.7 million to the Topper Group related to its ownership of our common units for the three months ended March 31, 2024 and 2023.
We distributed $2.6 million to affiliates of John B. Reilly, III related to their ownership of our common units for the three months ended March 31, 2024 and 2023.
We recorded accretion on the preferred membership interests issued in March 2022 to related parties of $0.7 million and $0.6 million for the three months ended March 31, 2024 and 2023, respectively.
Maintenance and Environmental Costs
Certain maintenance and environmental remediation activities are performed by an entity affiliated with the Topper Group, as approved by the independent conflicts committee of the Board. We incurred charges with this related party of $1.0 million and $0.7 million for the three months ended March 31, 2024 and 2023, respectively. Accounts payable to this related party amounted to $0.7 million and $0.3 million at March 31, 2024 and December 31, 2023, respectively.
Convenience Store Products
We purchase certain convenience store products from an affiliate of John B. Reilly, III and Joseph V. Topper, Jr., members of the Board, as approved by the independent conflicts committee of the Board. Merchandise costs amounted to $4.7 million and $4.9 million for the three months ended March 31, 2024 and 2023, respectively. Amounts payable to this related party amounted to $1.4 million at March 31, 2024 and December 31, 2023.
Vehicle Lease
In connection with the services rendered under the Omnibus Agreement, we lease certain vehicles from an entity affiliated with the Topper Group, as approved by the independent conflicts committee of the Board. Lease expense was an insignificant amount for each of the three months ended March 31, 2024 and 2023.
10
Principal Executive Offices
We lease office space from an affiliate of John B. Reilly, III and Joseph V. Topper, Jr., members of our Board, as approved by the independent conflicts committee of the Board. Rent expense amounted to $0.3 million for each of the three months ended March 31, 2024 and 2023.
Public Relations and Website Consulting Services
We have engaged a company affiliated with John B. Reilly, III, member of the Board, for public relations and website consulting services. The cost of these services was insignificant for the three months ended March 31, 2024 and 2023.
Note 11. COMMITMENTS AND CONTINGENCIES
Purchase Commitments
We have minimum volume purchase requirements under certain of our fuel supply agreements with a purchase price at prevailing market rates for wholesale distribution. In the event we fail to purchase the required minimum volume for a given contractual period, the underlying third party’s exclusive remedies (depending on the magnitude of the failure) are either termination of the supply agreement and/or a financial penalty per gallon based on the volume shortfall for the given period. We did not incur any significant penalties during the three months ended March 31, 2024 or 2023.
Litigation Matters
We are from time to time party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, property damages, environmental damages, employment-related claims and damages, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. With respect to all such lawsuits, claims and proceedings, we record an accrual when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. In addition, we disclose matters for which management believes a material loss is at least reasonably possible. We believe 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. In all instances, management has assessed the matter based on current information and made a judgment concerning its potential outcome, giving due consideration to the nature of the claim, the amount and nature of damages sought and the probability of success. Management’s judgment may prove materially inaccurate, and such judgment is made subject to the known uncertainties of litigation.
Environmental Matters
We currently own or lease sites where refined petroleum products are being or have been handled. These sites and the refined petroleum products handled thereon may be subject to federal and state environmental laws and regulations. Under such laws and regulations, we could be required to remove or remediate containerized hazardous liquids or associated generated wastes (including wastes disposed of or abandoned by prior owners or operators), to remediate contaminated property arising from the release of liquids or wastes into the environment, including contaminated groundwater, or to implement best management practices to prevent future contamination.
We maintain insurance of various types with varying levels of coverage that is considered adequate under the circumstances to cover operations and properties. The insurance policies are subject to deductibles that are considered reasonable and not excessive. In addition, we have entered into indemnification and escrow agreements with various sellers in conjunction with several of their respective acquisitions, as further described below. Financial responsibility for environmental remediation is negotiated in connection with each acquisition transaction. In each case, an assessment is made of potential environmental liability exposure based on available information. Based on that assessment and relevant economic and risk factors, a determination is made whether to, and the extent to which we will, assume liability for existing environmental conditions.
Environmental liabilities recorded on the balance sheet within accrued expenses and other current liabilities and other long-term liabilities totaled $6.9 million and $7.4 million at March 31, 2024 and December 31, 2023, respectively. Indemnification assets related to third-party escrow funds, state funds or insurance recorded on the balance sheet within other current assets and other noncurrent assets totaled $4.7 million and $5.3 million at March 31, 2024 and December 31, 2023, respectively. State funds represent probable state reimbursement amounts. Reimbursement will depend upon the continued maintenance and solvency of the state. Insurance coverage represents amounts deemed probable of reimbursement under insurance policies.
11
The estimates used in these reserves are based on all known facts at the time and an assessment of the ultimate remedial action outcomes. We will adjust loss accruals as further information becomes available or circumstances change. Among the many uncertainties that impact the estimates are the necessary regulatory approvals for, and potential modifications of, remediation plans, the amount of data available upon initial assessment of the impact of soil or water contamination, changes in costs associated with environmental remediation services and equipment and the possibility of existing legal claims giving rise to additional claims.
Environmental liabilities related to the sites contributed to the Partnership in connection with our IPO have not been assigned to us and are still the responsibility of the Predecessor Entity. The Predecessor Entity indemnified us for any costs or expenses that we incur for environmental liabilities and third-party claims, regardless of when a claim is made, that are based on environmental conditions in existence prior to the closing of the IPO for contributed sites. As such, these environmental liabilities and indemnification assets are not recorded on the consolidated balance sheet of the Partnership.
Similarly, we have generally been indemnified with respect to known contamination at sites acquired from third parties. As such, these environmental liabilities and indemnification assets are also not recorded on the consolidated balance sheet of the Partnership.
Note 12. FAIR VALUE MEASUREMENTS
We measure and report certain financial and non-financial assets and liabilities on a fair value basis. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). U.S. GAAP specifies a three-level hierarchy that is used when measuring and disclosing fair value. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation.
Transfers into or out of any hierarchy level are recognized at the end of the reporting period in which the transfers occurred. There were no transfers between any levels in 2024 or 2023.
As further discussed in Note 8, we remeasure the fair value of interest rate swap contracts on a recurring basis each balance sheet date. We used an income approach to measure the fair value of these contracts, utilizing a forward yield curve for the same period as the future interest rate swap settlements. These fair value measurements are classified as Level 2 measurements.
We have accrued for unvested phantom units and phantom performance units as a liability and adjust that liability on a recurring basis based on the market price of our common units each balance sheet date. These fair value measurements are deemed Level 1 measurements.
The fair value of our accounts receivable, notes receivable, and accounts payable approximated their carrying values as of March 31, 2024 and December 31, 2023 due to the short-term maturity of these instruments. The fair value of borrowings under the CAPL Credit Facility approximated its carrying value as of March 31, 2024 and December 31, 2023 due to the frequency with which interest rates are reset and the consistency of the market spread.
Note 13. INCOME TAXES
As a limited partnership, we are not subject to federal and state income taxes. However, our corporate subsidiaries are subject to income taxes. Income tax attributable to our taxable income (including any dividend income from our corporate subsidiaries), which may differ significantly from income for financial statement purposes, is assessed at the individual limited partner unitholder level. We are subject to a statutory requirement that non-qualifying income, as defined by the Internal Revenue Code, cannot exceed 10% of total gross income for the calendar year. If non-qualifying income exceeds this statutory limit, we would be taxed as a corporation. The non-qualifying income did not exceed the statutory limit in any annual period.
Certain activities that generate non-qualifying income are conducted through our wholly owned taxable corporate subsidiaries. Current and deferred income taxes are recognized on the earnings of these subsidiaries. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates.
12
We recorded an income tax benefit of $5.8 million and $1.7 million for the three months ended March 31, 2024 and 2023, respectively, as a result of the losses incurred by our corporate subsidiaries. The effective tax rate differs from the combined federal and state statutory rate primarily because only LGWS and Joe’s Kwik Marts are subject to income tax.
Note 14. NET INCOME PER COMMON UNIT
The following table provides a reconciliation of net income and weighted-average units used in computing basic and diluted net income per common unit for the following periods (in thousands, except unit and per unit amounts):
Numerator:
19,941
19,974
Allocation of distributions in excess of net income
(38,138
(21,554
Limited partners’ interest in net loss - basic and diluted
Denominator:
Weighted-average common units outstanding - basic
Adjustment for phantom and phantom performance units (a)
Weighted-average common units outstanding - diluted
Net loss per common unit - basic
Net loss per common unit - diluted
Distributions paid per common unit
0.5250
Distributions declared (with respect to each respective period) per common unit
For the three months ended March 31, 2023, 168,695 potentially dilutive units related to the phantom units and phantom performance units and 1,125,769 potentially dilutive units related to the preferred membership interests were excluded from the calculation of diluted earnings per unit because including them would have been antidilutive.
Distributions
Distribution activity for 2024 is as follows:
Quarter Ended
Record Date
Payment Date
CashDistribution(per unit)
CashDistribution(in thousands)
February 2, 2024
February 9, 2024
May 3, 2024
May 10, 2024
19,964
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. Our Partnership Agreement does not require us to pay any distributions. As such, there can be no assurance we will continue to pay distributions in the future.
Note 15. SEGMENT REPORTING
We conduct our business in two segments: 1) the wholesale segment and 2) the retail segment.
The wholesale segment includes the wholesale distribution of motor fuel to lessee dealers and independent dealers. We have exclusive motor fuel distribution contracts with lessee dealers who lease the property from us. We also have exclusive distribution contracts with independent dealers to distribute motor fuel but do not collect rent from the independent dealers.
13
The retail segment includes the retail sale of motor fuel at retail sites operated by commission agents and the sale of convenience merchandise items and the retail sale of motor fuel at company operated sites. A commission agent site is a retail site where we retain title to the motor fuel inventory and sell it directly to our end user customers. At commission agent retail sites, we manage motor fuel inventory pricing and retain the gross profit on motor fuel sales, less a commission to the agent who operates the retail site. Similar to our wholesale segment, we also generate revenues through leasing or subleasing real estate in our retail segment.
Unallocated items consist primarily of general and administrative expenses, depreciation, amortization and accretion expense, gains on dispositions and lease terminations, net, other income, interest expense and income tax expense. Total assets by segment are not presented as management does not currently assess performance or allocate resources based on that data.
During the three months ended March 31, 2024 and 2023, respectively, we converted 53 and eight sites from lessee dealer sites in the wholesale segment to company operated or commission sites in the retail segment. The sites converted during the first quarter of 2024 include 31 sites from the Applegreen Acquisition. See Note 2 for additional information.
The following table reflects activity related to our reportable segments (in thousands):
Wholesale
Retail
Unallocated
Consolidated
Three Months Ended March 31, 2024
Revenues from fuel sales to external customers
450,579
389,852
840,431
Revenues from food and merchandise sales
76,432
Rent income
15,979
3,187
Other revenue
920
4,599
5,519
Total revenues
467,478
474,070
Operating income (loss)
18,065
11,255
(42,365
Three Months Ended March 31, 2023
521,925
402,946
924,871
65,266
17,956
3,364
1,247
3,455
4,702
541,128
475,031
21,669
14,767
(27,326
Receivables relating to the revenue streams above are as follows (in thousands):
Receivables from fuel and merchandise sales
32,853
28,467
Receivables for rent and other lease-related charges
3,255
3,155
Total accounts receivable
36,108
31,622
Performance obligations are satisfied as fuel is delivered to the customer and as merchandise is sold to the consumer. Many of our fuel contracts with our customers include minimum purchase volumes measured on a monthly basis, although revenue from such shortfalls is not material. Receivables from fuel are recognized on a per-gallon rate and are generally collected within 10 days of delivery.
The balance of unamortized costs incurred to obtain certain contracts with customers was $9.4 million and $10.0 million at March 31, 2024 and December 31, 2023, respectively. Amortization of such costs is recorded against operating revenues and amounted to $0.5 million and $0.4 million for the three months ended March 31, 2024 and 2023, respectively.
Receivables from rent and other lease-related charges are generally collected at the beginning of the month.
14
Note 16. SUPPLEMENTAL CASH FLOW INFORMATION
In order to determine net cash provided by operating activities, net income is adjusted by, among other things, changes in operating assets and liabilities as follows (in thousands):
(Increase) decrease:
Accounts receivable
(3,902
2,220
(584
219
Inventories
(1,589
(604
(423
(2,775
(885
574
Increase (decrease):
2,434
(7,503
(3,131
(2,013
987
(297
Motor fuel and taxes payable
(1,619
(342
1,785
1,061
The above changes in operating assets and liabilities may differ from changes between amounts reflected in the applicable balance sheets for the respective periods due to acquisitions and other non-cash activity.
Supplemental disclosure of cash flow information (in thousands):
Cash paid for interest
9,925
11,875
Cash paid (refunded) for income taxes, net
(17
560
Supplemental schedule of non-cash investing and financing activities (in thousands):
Accrued capital expenditures
1,269
2,228
Lease liabilities arising from obtaining right-of-use assets
4,823
2,972
15
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, credit ratings, distribution growth, potential growth opportunities, potential operating performance improvements, potential improvements in return on capital employed, the effects of competition and the effects of future legislation or regulations. You can identify our forward-looking statements by the words “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “guidance,” “outlook,” “effort,” “target” and similar expressions. Such statements are based on our current plans and expectations and involve risks and uncertainties that could potentially affect actual results. These forward-looking statements include, among other things, statements regarding:
In general, we based the forward-looking statements included in this report on our current expectations, estimates and projections about our company and the industry in which we operate. We caution you that these statements are not guarantees of future performance and involve risks and uncertainties we cannot predict. We anticipate that subsequent events and market developments will cause our estimates to change. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecasted in the forward-looking statements. Any differences could result from a variety of factors, including the following:
You should consider the risks and uncertainties described above and elsewhere in this report as well as those set forth in the section entitled “Risk Factors” in our Form 10-K in connection with considering any forward-looking statements that may be made by us and our businesses generally. We cannot assure you that anticipated results or events reflected in the forward-looking statements will be achieved or will occur. The forward-looking statements included in this report are made as of the date of this report. We undertake no obligation to publicly release any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events after the date of this report, except as required by law.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following MD&A is intended to help the reader understand our results of operations and financial condition. This section is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to these financial statements contained elsewhere in this report, and the MD&A section and the consolidated financial statements and accompanying notes to those financial statements in our Form 10-K. Our Form 10-K contains a discussion of other matters not included herein, such as disclosures regarding critical accounting policies and estimates and contractual obligations.
MD&A is organized as follows:
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Recent Developments
Applegreen Acquisition and Lease Termination
On January 26, 2024, we entered into an agreement (the “Applegreen Purchase Agreement”) to acquire certain assets from Applegreen Midwest, LLC and Applegreen Florida, LLC (collectively, the “Sellers”) (the “Applegreen Acquisition”). The assets were acquired via the termination of the Partnership’s existing lease agreements with the Sellers at 59 locations, for total consideration of $16.9 million. The transaction closed on a rolling basis by site beginning in the first quarter of 2024 and ending in April 2024. The Partnership also acquired for cash the inventory at the locations. The terms of the Partnership’s leases with Applegreen Midwest, LLC and Applegreen Florida, LLC could have been extended to 2049 and 2048, respectively, including all renewal options. The Applegreen Purchase Agreement contains customary representations and warranties of the parties as well as indemnification obligations by the Sellers and the Partnership, respectively, to each other.
During the first quarter of 2024, we paid $19.9 million of cash and accrued an additional $1.2 million of cash paid in April 2024. In addition, we recorded a non-cash write-off of deferred rent income of $1.4 million during the first quarter of 2024. See Note 2 to the financial statements for additional information.
Amendment of CAPL Credit Facility
Significant Factors Affecting our Profitability
The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit
The prices paid to our motor fuel suppliers for wholesale motor fuel (which affects our cost of sales) are highly correlated to the price of crude oil. The crude oil commodity markets are highly volatile, and the market prices of crude oil, and, correspondingly, the market prices of wholesale motor fuel, experience significant and rapid fluctuations. For approximately 58% of gallons sold, we receive a per gallon rate equal to the posted rack price, less any applicable discounts, plus transportation costs, taxes and a fixed rate per gallon of motor fuel. The remaining gallons are either retail sales or wholesale DTW contracts that provide for variable, market-based pricing.
Regarding our supplier relationships, a material amount of our total gallons purchased are subject to prompt payment discounts. The dollar value of these discounts varies with changes in motor fuel prices. Therefore, in periods of lower wholesale motor fuel prices, our gross profit is negatively affected, and, in periods of higher wholesale motor fuel prices, our gross profit is positively affected (as it relates to these discounts).
In our retail business, we attempt to pass along wholesale motor fuel price changes to our retail customers through “at the pump” retail price changes; however, market conditions do not always allow us to do so immediately. The timing of any related increase or decrease in “at the pump” retail prices is affected by competitive conditions in each geographic market in which we operate. As such, the prices we charge our customers for motor fuel and the gross profit we receive on our motor fuel sales can increase or decrease significantly over short periods of time.
Changes in our average motor fuel selling price per gallon and gross margin are directly related to the changes in crude oil and wholesale motor fuel prices. Variations in our reported revenues and cost of sales are, therefore, primarily related to the price of crude oil and wholesale motor fuel prices and generally not as a result of changes in motor fuel sales volumes, unless otherwise indicated and discussed below.
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Seasonality Effects on Volumes
Our business is subject to seasonality due to our wholesale and retail sites being located in certain geographic areas that are affected by seasonal weather and temperature trends and associated changes in retail customer activity during different seasons. Historically, sales volumes have been highest in the second and third quarters (during the summer months) and lowest during the winter months in the first and fourth quarters.
Impact of Inflation
Inflation affects our financial performance by increasing certain components of cost of goods sold, such as fuel, merchandise, and credit card fees. Inflation also affects certain operating expenses, such as labor costs, certain leases, and general and administrative expenses. While our wholesale segment benefits from higher terms discounts as a result of higher fuel costs, inflation could and recently has negatively impacted our cost of goods sold and operating expenses. Although we have historically been able to pass on increased costs through price increases, there can be no assurance that we will be able to do so in the future.
Impact of Interest Rates
Given our interest rate swap contracts, our effective interest rate did not change significantly between the first quarter of 2023 and the first quarter of 2024. However, three of our most favorable interest rate swap contracts matured April 1, 2024. See Item 3 for additional information regarding the impact of the maturity of those interest rate swap contracts on our future interest expense.
Acquisition and Financing Activity
Our results of operations and financial condition are also impacted by our acquisition and financing activities as summarized below.
Results of Operations
Consolidated Income Statement Analysis
Below is an analysis of our consolidated statements of operations and provides the primary reasons for significant increases and decreases in the various income statement line items from period to period. Our consolidated statements of operations are as follows (in thousands):
Operating revenues
Costs of sales
Operating expenses
19
Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023
Operating revenues decreased $75 million (7%) and operating income decreased $22 million. Significant items impacting these results were:
Cost of sales
Cost of sales decreased $74 million (8%), due primarily to lower wholesale volume and lower cost per gallon, partially offset by the increase in merchandise cost of sales driven by the same drivers as discussed above.
Gross profit decreased $0.7 million (1%), which was primarily driven by a decrease in motor fuel and rent gross profit within our wholesale segment, partially offset by an increase in merchandise gross profit driven by the conversion of certain lessee dealer and commission agent sites to company operated sites. See “Results of Operations—Segment Results” for additional gross profit analyses.
See “Results of Operations—Segment Results” for analyses.
General and administrative expenses increased $1.1 million (19%) primarily driven by higher legal fees and acquisition-related costs.
Depreciation, amortization and accretion expense decreased $1.1 million (6%) primarily due to assets becoming fully depreciated.
During the three months ended March 31, 2024, we recorded a $15.9 million loss on lease termination with Applegreen, including a $1.4 million non-cash write-off of deferred rent income. See Note 2 to the financial statements for additional information. In addition, we recorded $0.9 million of other losses on lease terminations and asset disposals, including non-cash write-offs of deferred rent income.
During the three months ended March 31, 2023, we recorded a $2.0 million loss on lease terminations and asset disposals, partially offset by a $0.2 million gain in connection with our ongoing real estate rationalization effort.
Interest expense decreased $1.5 million (12%) due to the $1.1 million write-off of deferred financing costs in the first quarter of 2023 as a result of the amendment and restatement of the CAPL Credit Facility and termination of the JKM Credit Facility.
20
We recorded an income tax benefit of $5.8 million and $1.7 million for the three months ended March 31, 2024 and 2023, respectively, driven by income (losses) generated by our taxable subsidiaries.
Segment Results
We present the results of operations of our segments consistent with how our management views the business.
The following table highlights the results of operations and certain operating metrics of our wholesale segment. The narrative following these tables provides an analysis of the results of operations of that segment (in thousands of dollars, except for the number of distribution sites and per gallon amounts):
Gross profit:
Motor fuel gross profit
14,603
16,708
Rent gross profit
11,439
13,255
Other revenues
Total gross profit
26,962
31,210
(8,897
(9,541
Operating income
Motor fuel distribution sites (end of period): (a)
Independent dealers (b)
624
643
Lessee dealers (c)
511
612
Total motor fuel distribution sites
1,135
1,255
Average motor fuel distribution sites
1,172
1,271
Volume of gallons distributed
184,025
201,861
Margin per gallon
0.079
0.083
Gross profit decreased $4.2 million (14%) and operating income decreased $3.6 million (17%). These results were impacted by:
The $2.1 million decrease (13%) in motor fuel gross profit was primarily due to a 9% decrease in volume driven by the conversion of certain lessee dealer sites to company operated and commission agent sites and the net loss of independent dealer contracts. In addition, our average fuel margin per gallon decreased 4% as compared to the same period of 2023, driven by the movements of crude oil prices within the two periods.
The average spot price of WTI crude oil increased 2% from $75.93 per barrel for the first quarter of 2023 to $77.50 per barrel for the first quarter of 2024. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit.”
21
Rent gross profit decreased $1.8 million (14%) for the first quarter of 2024 compared to the same period of 2023, primarily due to the conversion of certain lessee dealer sites to company operated and commission agent sites.
Operating expenses decreased $0.6 million (7%), primarily due to the conversion of certain lessee dealer sites to company operated and commission agent sites.
The following table highlights the results of operations and certain operating metrics of our retail segment. The narrative following these tables provides an analysis of the results of operations of that segment (in thousands, except for the number of retail sites and per gallon amounts):
26,036
26,760
21,443
18,123
Rent
2,308
2,511
54,386
50,849
(43,131
(36,082
Retail sites (end of period):
Company operated retail sites (a)
343
268
Commission agents (b)
203
194
Total retail segment sites
546
462
Total retail segment statistics:
Volume of gallons sold
121,717
119,085
Average retail fuel sites
514
457
Margin per gallon, before deducting credit card fees and commissions
0.308
0.318
Company operated site statistics:
315
258
Margin per gallon, before deducting credit card fees
0.327
0.341
Merchandise gross profit percentage
28.1
27.8
Commission site statistics:
199
198
0.267
0.273
22
Gross profit increased $3.5 million (7%) and operating income decreased $3.5 million (24%). These results were impacted by:
Operating expenses increased $7.0 million (20%) driven by a 22% increase in the average company operated site count due to the conversion of certain lessee dealer and commission agent sites to company operated sites.
Non-GAAP Financial Measures
We use the non-GAAP financial measures EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio. EBITDA represents net income before deducting interest expense, income taxes and depreciation, amortization and accretion (which includes certain impairment charges). Adjusted EBITDA represents EBITDA as further adjusted to exclude equity-based compensation expense, gains or losses on dispositions and lease terminations, net and certain discrete acquisition related costs, such as legal and other professional fees, separation benefit costs and certain other discrete non-cash items arising from purchase accounting. Distributable Cash Flow represents Adjusted EBITDA less cash interest expense, sustaining capital expenditures and current income tax expense. The Distribution Coverage Ratio is computed by dividing Distributable Cash Flow by distributions paid on common units.
EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio are used as supplemental financial measures by management and by external users of our financial statements, such as investors and lenders. EBITDA and Adjusted EBITDA are used to assess our financial performance without regard to financing methods, capital structure or income taxes and the ability to incur and service debt and to fund capital expenditures. In addition, Adjusted EBITDA is used to assess the operating performance of our business on a consistent basis by excluding the impact of items which do not result directly from the wholesale distribution of motor fuel, the leasing of real property, or the day to day operations of our retail site activities. EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio are also used to assess the ability to generate cash sufficient to make distributions to our unitholders.
We believe the presentation of EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio provides useful information to investors in assessing the financial condition and results of operations. EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio should not be considered alternatives to net income or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP. EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio have important limitations as analytical tools because they exclude some but not all items that affect net income. Additionally, because EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio may be defined differently by other companies in our industry, our definitions may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
23
The following table presents reconciliations of EBITDA, Adjusted EBITDA, and Distributable Cash Flow to net income, the most directly comparable U.S. GAAP financial measure, for each of the periods indicated (in thousands, except for Distribution Coverage Ratio):
10,541
12,012
5,925
29,191
Loss on dispositions and lease terminations, net (a)
Acquisition-related costs (b)
632
Adjusted EBITDA
23,568
31,738
Cash interest expense
(10,058
(10,163
Sustaining capital expenditures (c)
(1,642
(2,049
Current income tax expense (d)
(137
(394
Distributable Cash Flow
11,731
19,132
19,918
Distribution Coverage Ratio (a)
0.59x
0.96x
Liquidity and Capital Resources
Liquidity
Our principal liquidity requirements are to finance our operations, fund acquisitions, service our debt and pay distributions to our unitholders. We expect our ongoing sources of liquidity to include cash generated by operations, proceeds from sales of sites in connection with our real estate rationalization efforts, borrowings under the CAPL Credit Facility, and if available to us on acceptable terms, issuances of equity and debt securities. We regularly evaluate alternate sources of capital to support our liquidity requirements.
Our ability to meet our debt service obligations and other capital requirements, including capital expenditures, acquisitions, and partnership distributions, will depend on our future operating performance, which, in turn, will be subject to general economic, financial, business, competitive, legislative, regulatory and other conditions, many of which are beyond our control. As a normal part of our business, depending on market conditions, we will, from time to time, consider opportunities to repay, redeem, repurchase or refinance our indebtedness. Changes in our operating plans, lower than anticipated sales, increased expenses, acquisitions or other events may cause us to seek additional debt or equity financing in future periods.
We believe that we will have sufficient cash flow from operations, borrowing capacity under the CAPL Credit Facility, access to capital markets and alternate sources of funding to meet our financial commitments, debt service obligations, contingencies, anticipated capital expenditures and partnership distributions. However, we are subject to business and operational risks that could adversely affect our cash flow. A material decrease in our cash flows would likely produce an adverse effect on our borrowing capacity as well as our ability to issue additional equity and/or debt securities and/or maintain or increase distributions to unitholders.
24
Cash Flows
The following table summarizes cash flow activity (in thousands):
Operating Activities
Net cash provided by operating activities decreased $5.7 million for the three months ended March 31, 2024 compared to the same period in 2023, primarily attributable to lower fuel margins, partially offset by a $3.3 million net generation of cash flow from changes in working capital stemming from timing of settlement of fuel purchases during the first quarter of 2023.
As is typical in our industry, our current liabilities exceed our current assets as a result of the longer settlement of real estate and motor fuel taxes as compared to the shorter settlement of receivables for fuel, rent and merchandise.
Investing Activities
We incurred capital expenditures of $6 million for each of the three months ended March 31, 2024 and 2023. We paid $19.9 million to Applegreen related to lease terminations and inventory purchases during the three months ended March 31, 2024. We received $0.6 million in proceeds primarily from the sale of sites in connection with our real estate rationalization effort for the three months ended March 31, 2023.
Financing Activities
We paid $20 million in distributions for each of the three months ended March 31, 2024 and 2023. For the three months ended March 31, 2024 and 2023, we made total net borrowings on our credit facilities of $42 million and $13 million, respectively. We paid $7 million of deferred financing costs in connection with amending and restating the CAPL Credit Facility and terminating the JKM Credit Facility in the first quarter of 2023.
Distribution activity for 2024 was as follows:
Debt
As of March 31, 2024, our debt and finance lease obligations consisted of the following (in thousands):
See Note 7 to the financial statements for information regarding the amendment of the CAPL Credit Facility.
25
Taking into account the interest rate swap contracts that were effective beyond April 1, 2024, the effective interest rate on our CAPL Credit Facility at March 31, 2024 was 6.7% (our applicable margin was 2.25% as of March 31, 2024). Letters of credit outstanding at March 31, 2024 totaled $5.3 million.
The amount of availability under our CAPL Credit Facility at May 3, 2024, after taking into consideration debt covenant restrictions, was $96 million.
Capital Expenditures
We make investments to expand, upgrade and enhance existing assets. We categorize our capital requirements as either sustaining capital expenditures, growth capital expenditures or acquisition capital expenditures. Sustaining capital expenditures are those capital expenditures required to maintain our long-term operating income or operating capacity. Growth capital expenditures, which include individual site purchases, and acquisition capital expenditures are those capital expenditures that we expect will increase our operating income or operating capacity over the long term. We have the ability to fund our capital expenditures by additional borrowings under our CAPL Credit Facility, or, if available to us on acceptable terms, accessing the capital markets and issuing additional equity, debt securities or other options, such as the sale of assets. Our ability to access the capital markets may have an impact on our ability to fund acquisitions. We may not be able to complete any offering of securities or other options on terms acceptable to us, if at all.
The following table outlines our capital expenditures (in thousands):
Sustaining capital
1,642
2,049
Growth
4,463
3,952
Total capital expenditures, including lease termination payments to Applegreen
26,009
6,001
A significant portion of our growth capital expenditures are discretionary and we regularly review our capital plans in light of anticipated proceeds from sales of sites.
Concentration Risks
See Note 1 for information on our concentration risks related to our customers, fuel suppliers, fuel carriers and merchandise suppliers.
Outlook
As noted previously, the prices paid to our motor fuel suppliers for wholesale motor fuel (which affects our cost of sales) are highly correlated to the price of crude oil. The crude oil commodity markets are highly volatile, and the market prices of crude oil, and, correspondingly, the market prices of wholesale motor fuel, experience significant and rapid fluctuations, which affect our motor fuel gross profit.
Our results for 2024 are anticipated to be impacted by the following:
We will continue to evaluate acquisitions on an opportunistic basis. Additionally, we will pursue acquisition targets that fit into our strategy. Whether we will be able to execute acquisitions will depend on market conditions, availability of suitable acquisition targets at attractive terms, acquisition-related compliance with customary regulatory requirements, and our ability to finance such acquisitions on favorable terms and in compliance with our debt covenant restrictions.
26
New Accounting Policies
There is no new accounting guidance effective or pending adoption that has had or is anticipated to have a material impact on our financial statements. See Note 1 to the financial statements for information on new accounting guidance that will impact segment reporting and income tax disclosures.
Critical Accounting Policies and Estimates
There have been no material changes to the critical accounting policies described in our Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Other than interest rate risk, no significant changes to our market risk have occurred since December 31, 2023. For a discussion of market risks affecting us, refer to Part II, Item 7A—"Quantitative and Qualitative Disclosures About Market Risk” included in our Form 10-K.
Interest Rate Risk
As of March 31, 2024, we had $798.3 million outstanding on our CAPL Credit Facility. Our outstanding borrowings bear interest at SOFR plus an applicable margin.
Taking the interest rate swap contracts into account, the effective interest rate on our CAPL Credit Facility at March 31, 2024 was 5.1%.
Taking into account the interest rate swap contracts that were effective beyond April 1, 2024, the effective interest rate on our CAPL Credit Facility at March 31, 2024 would have been 6.7%. A one percentage point change in SOFR would impact annual interest expense by approximately $4.0 million.
See Note 8 to the financial statements for information regarding our interest rate swap contracts.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Our management has evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2024.
(b) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as that term is defined in Rule 13a-15(f) under the Exchange Act) that occurred during the three months ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 1. LEGAL PROCEEDINGS
We hereby incorporate by reference into this Item our disclosures made in Part I, Item 1 of this report included in Note 11 of the financial statements.
ITEM 1A. RISK FACTORS
There were no material changes in the risk factors disclosed in the section entitled "Risk Factors" in our Form 10-K during the period covered by this report.
ITEM 6. EXHIBITS
Exhibit No.
Description
10.1
First Amendment to Amended and Restated Credit Agreement, dated as of February 20, 2024, by and among CrossAmerica Partners LP, Lehigh Gas Wholesale Services, Inc., certain entities listed on the signature pages thereto, as guarantors, the lenders and L/C issuers party thereto, and Citizens Bank, N.A., as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K for CrossAmerica Partners LP, filed with the Securities and Exchange Commission on February 23, 2024)
31.1 *
Certification of Principal Executive Officer of CrossAmerica GP LLC as required by Rule 13a-14(a) of the Securities Exchange Act of 1934
31.2 *
Certification of Principal Financial Officer of CrossAmerica GP LLC as required by Rule 13a-14(a) of the Securities Exchange Act of 1934
32.1*†
Certification of Principal Executive Officer of CrossAmerica GP LLC pursuant to 18 U.S.C. §1350
32.2*†
Certification of Principal Financial Officer of CrossAmerica GP LLC pursuant to 18 U.S.C. §1350
101.INS*
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document.
101.SCH*
Inline XBRL Taxonomy Extension Schema Document With Embedded Linkbase Documents
104*
Cover Page Interactive Data File, formatted in Inline XBRL and contained in Exhibit 101
* Filed herewith
† Not considered to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
By:
CROSSAMERICA GP LLC, its General Partner
/s/ Maura Topper
Maura Topper
Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
Date: May 8, 2024