CrossAmerica Partners LP [CAPL] Filings

10-Q 1 capl-20230331.htm 10-Q 10-Q

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, 2023

☐ 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. 001-35711

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 4, 2023, the registrant had outstanding 37,952,950 common units.

TABLE OF CONTENTS


		PAGE

Commonly Used Defined Terms		i

PART I - FINANCIAL INFORMATION		1
Item 1. Financial Statements		1
Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022		1
Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022		2
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022		3
Consolidated Statements of Equity and Comprehensive Income for the Three Months Ended March 31, 2023 and 2022		4
Condensed Notes to Consolidated Financial Statements		5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3. Quantitative and Qualitative Disclosures about Market Risk		30
Item 4. Controls and Procedures		30

PART II - OTHER INFORMATION		30
Item 1. Legal Proceedings		30
Item 1A. Risk Factors		30
Item 6. Exhibits		30

SIGNATURE		32

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 retail sites from us, and since April 14, 2020, also purchases fuel from us.

Other Defined Terms:

7-Eleven			7-Eleven, Inc.

ASC			Accounting Standards Codification

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 as amended and restated by the Amendment and Restatement Agreement, dated as of March 31, 2023, 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.

CSS			Community Service Stations, Inc.

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

EMV			Payment method based upon a technical standard for smart payment cards, also referred to as chip cards


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, 2022

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.

LIBOR		London Interbank Offered Rate

MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations

NYSE		New York Stock Exchange

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

SEC		U.S. Securities and Exchange Commission

SOFR		Secured Overnight Financing Rate

Term Loan Facility		$185 million delayed draw term loan facility provided under the JKM Credit Facility

U.S. GAAP		U.S. Generally Accepted Accounting Principles

WTI		West Texas Intermediate crude oil

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CROSSAMERICA PARTNERS LP

CONSOLIDATED BALANCE SHEETS

(Thousands of Dollars, except unit data)

(Unaudited)


	March 31,		December 31,
	2023		2022
ASSETS
Current assets:
Cash and cash equivalents	$	7,517	$	16,054
Accounts receivable, net of allowances of $723 and $686, respectively		28,568		30,825
Accounts receivable from related parties		524		743
Inventory		47,911		47,307
Assets held for sale		2,012		983
Current portion of interest rate swap contracts		13,448		13,827
Other current assets		11,512		8,667
Total current assets		111,492		118,406
Property and equipment, net		716,918		728,379
Right-of-use assets, net		161,161		164,942
Intangible assets, net		108,338		113,919
Goodwill		99,409		99,409
Interest rate swap contracts, less current portion		968		3,401
Other assets		25,453		26,142
Total assets	$	1,223,739	$	1,254,598

LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt and finance lease obligations	$	2,937	$	11,151
Current portion of operating lease obligations		35,288		35,345
Accounts payable		69,605		77,048
Accounts payable to related parties		5,641		7,798
Accrued expenses and other current liabilities		23,556		23,144
Motor fuel and sales taxes payable		20,471		20,813
Total current liabilities		157,498		175,299
Debt and finance lease obligations, less current portion		776,979		761,638
Operating lease obligations, less current portion		131,429		135,220
Deferred tax liabilities, net		8,532		10,588
Asset retirement obligations		46,794		46,431
Other long-term liabilities		46,923		46,289
Total liabilities		1,168,155		1,175,465

Commitments and contingencies

Preferred membership interests		26,757		26,156

Equity:
Common units— 37,952,950 and 37,937,604 units issued and outstanding at March 31, 2023 and December 31, 2022, respectively		15,276		36,508
Accumulated other comprehensive income		13,551		16,469
Total equity		28,827		52,977
Total liabilities and equity	$	1,223,739	$	1,254,598

The accompanying notes are an integral part of these consolidated financial statements.

CROSSAMERICA PARTNERS LP

CONSOLIDATED STATEMENTS OF OPERATIONS

(Thousands of Dollars, except unit and per unit amounts)

(Unaudited)


	Three Months Ended March 31,
	2023			2022
Operating revenues (a)	$	1,016,159		$	1,093,211
Costs of sales (b)		934,100			1,014,381
Gross profit		82,059			78,830

Operating expenses:
Operating expenses (c)		45,623			42,109
General and administrative expenses		5,739			6,483
Depreciation, amortization and accretion expense		19,820			20,275
Total operating expenses		71,182			68,867
Loss on dispositions and lease terminations, net		(1,767	)		(244	)
Operating income		9,110			9,719
Other income, net		261			130
Interest expense		(12,012	)		(6,661	)
(Loss) income before income taxes		(2,641	)		3,188
Income tax benefit		(1,662	)		(1,859	)
Net (loss) income		(979	)		5,047
Accretion of preferred membership interests		601			—
Net (loss) income available to limited partners	$	(1,580	)	$	5,047

Basic and diluted (loss) earnings per common unit	$	(0.04	)	$	0.13

Weighted-average limited partner units:
Basic common units		37,940,332			37,900,146
Diluted common units		37,940,332			37,959,441

Supplemental information:
(a) includes excise taxes of:	$	69,884		$	66,858
(a) includes rent income of:		21,320			20,627
(b) excludes depreciation, amortization and accretion
(b) includes rent expense of:		5,554			5,841
(c) includes rent expense of:		3,798			3,708

The accompanying notes are an integral part of these consolidated financial statements.

CROSSAMERICA PARTNERS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands of Dollars)

(Unaudited)


	Three Months Ended March 31,
	2023			2022
Cash flows from operating activities:
Net (loss) income	$	(979	)	$	5,047
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, amortization and accretion expense		19,820			20,275
Amortization of deferred financing costs		1,848			680
Credit loss expense		37			45
Deferred income tax benefit		(2,056	)		(2,045	)
Equity-based employee and director compensation expense		561			732
Loss on dispositions and lease terminations, net		1,767			244
Changes in operating assets and liabilities, net of acquisitions		(9,460	)		3,410
Net cash provided by operating activities		11,538			28,388

Cash flows from investing activities:
Principal payments received on notes receivable		53			33
Proceeds from sale of assets		568			1,460
Capital expenditures		(6,001	)		(8,934	)
Cash paid in connection with acquisitions, net of cash acquired		—			(1,885	)
Net cash used in investing activities		(5,380	)		(9,326	)

Cash flows from financing activities:
Borrowings under revolving credit facilities		187,400			30,600
Repayments on revolving credit facilities		(15,537	)		(26,575	)
Borrowings under the Term Loan Facility		—			1,120
Repayments on the Term Loan Facility		(158,980	)		(24,600	)
Net proceeds from issuance of preferred membership interests		—			24,500
Payments of finance lease obligations		(698	)		(658	)
Payments of deferred financing costs		(6,906	)		(6	)
Distributions paid on distribution equivalent rights		(56	)		(46	)
Distributions paid on common units		(19,918	)		(19,896	)
Net cash used in financing activities		(14,695	)		(15,561	)
Net (decrease) increase in cash and cash equivalents		(8,537	)		3,501

Cash and cash equivalents at beginning of period		16,054			7,648
Cash and cash equivalents at end of period	$	7,517		$	11,149

The accompanying notes are an integral part of these consolidated financial statements.

CROSSAMERICA PARTNERS LP

CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME

(Thousands of Dollars, except unit amounts)

(Unaudited)


	Limited Partners' Interest Common Unitholders					AOCI			Total Equity
	Units		Dollars			Dollars			Dollars
Balance at December 31, 2022		37,937,604	$	36,508		$	16,469		$	52,977
Net loss		—		(979	)		—			(979	)
Other comprehensive income
Unrealized gain on interest rate swap contracts		—		—			137			137
Realized gain on interest rate swap contracts reclassified from AOCI into interest expense		—		—			(3,055	)		(3,055	)
Total other comprehensive loss		—		—			(2,918	)		(2,918	)
Comprehensive loss		—		(979	)		(2,918	)		(3,897	)
Issuance of units related to 2022 Bonus Plan		15,346		322			—			322
Accretion of preferred membership interests		—		(601	)		—			(601	)
Distributions paid		—		(19,974	)		—			(19,974	)
Balance at March 31, 2023		37,952,950	$	15,276		$	13,551		$	28,827

Balance at December 31, 2021		37,896,556	$	53,528		$	3,030		$	56,558
Net income		—		5,047			—			5,047
Other comprehensive income
Unrealized gain on interest rate swap contracts		—		—			8,113			8,113
Realized loss on interest rate swap contracts reclassified from AOCI into interest expense		—		—			206			206
Total other comprehensive income		—		—			8,319			8,319
Comprehensive income		—		5,047			8,319			13,366
Issuance of units related to 2021 Bonus Plan		16,154		327			—			327
Distributions paid		—		(19,942	)		—			(19,942	)
Balance at March 31, 2022		37,912,710	$	38,960		$	11,349		$	50,309

The accompanying notes are an integral part of these consolidated financial statements.

CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. DESCRIPTION OF BUSINESS AND OTHER DISCLOSURES

Our business consists of:

•

the wholesale distribution of motor fuels;

•

the owning or leasing of sites used in the retail distribution of motor fuels and, in turn, generating rental income from the lease or sublease of the sites;

•

the retail sale of motor fuels to end customers at retail sites operated by commission agents and ourselves; and

•

the operation of retail sites, including the sale of convenience merchandise to end customers.

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, 2023 and for the three months ended March 31, 2023 and 2022 included in the consolidated financial statements has been derived from our unaudited financial statements. Financial information as of December 31, 2022 has been derived from our audited financial statements and notes thereto as of that date.

Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. 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 – Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met to ease an entity’s financial reporting burden as the market transitions from LIBOR and other interbank offered rates to alternative reference rates. Subsequently, the FASB issued ASU 2021-01 to clarify the scope of Topic 848 and ASU 2022-06 to defer the sunset date of Topic 848. The guidance was effective upon issuance and may be applied through December 31, 2024. This guidance applied to our hedge accounting and hedge documentation as further discussed in Note 8, but did not have a material effect on the Partnership's consolidated financial statements.

Certain other new accounting pronouncements have become effective for our financial statements during 2023, but the adoption of these pronouncements did not materially impact our financial position, results of operations or disclosures.

CROSSAMERICA PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Concentration Risk

For the three months ended March 31, 2023 and 2022, respectively, our wholesale business purchased approximately 80% and 81% of its motor fuel from four suppliers. Approximately 23% and 24% of our motor fuel gallons sold for the three months ended March 31, 2023 and 2022, respectively, were delivered by two carriers.

For the three months ended March 31, 2023 and 2022, respectively, approximately 20% and 22% of our rent income was from two multi-site operators.

For the three months ended March 31, 2023 and 2022, respectively, approximately 47% and 48% of our merchandise was purchased from one supplier.

Note 2. ACQUISITIONS

Acquisition of Assets from CSS

On November 9, 2022, we closed on the acquisition of assets from CSS for a purchase price of $27.5 million plus working capital. The assets consisted of wholesale fuel supply contracts to 38 dealer owned locations, 35 sub-wholesaler accounts and two commission locations (1 fee based and 1 lease). We funded this acquisition through borrowings on the CAPL Credit Facility and cash on hand.

Acquisition of Assets from 7-Eleven

In February 2022, we closed on the final three properties of our 106-site acquisition from 7-Eleven for a purchase price of $3.6 million, including inventory and other working capital, of which $1.8 million will be paid on or prior to February 8, 2027.

Note 3. ASSETS HELD FOR SALE

We have classified six sites and three sites as held for sale at March 31, 2023 and December 31, 2022, respectively, which are expected to be sold within one year of such classification. Assets held for sale were as follows (in thousands):


	March 31,			December 31,
	2023			2022
Land	$	1,292		$	758
Buildings and site improvements		1,536			457
Equipment		1,412			333
Total		4,240			1,548
Less accumulated depreciation		(2,228	)		(565	)
Assets held for sale	$	2,012		$	983

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. During the three months ended March 31, 2022, we sold four properties for $1.5 million in proceeds, resulting in a net gain of $0.3 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):


		March 31,				December 31,

CrossAmerica Partners LP [CAPL] Filings
10-Q	[2023-05-09]
10-K	[2023-02-28]
10-Q	[2022-11-08]
10-Q	[2022-08-09]
10-Q	[2022-05-10]
10-K	[2022-03-01]
10-Q	[2021-11-09]
10-Q	[2021-08-10]
10-Q	[2021-05-11]
10-K	[2021-03-02]
10-Q	[2020-11-05]
10-Q	[2020-08-07]
10-Q	[2020-05-07]
10-K	[2020-02-26]
10-Q	[2019-11-08]
10-Q	[2019-08-06]
10-Q	[2019-05-07]
10-K	[2019-02-26]
10-Q	[2018-11-07]
10-Q	[2018-08-07]
10-Q	[2018-05-08]
10-K	[2018-02-27]
10-Q	[2017-11-08]
10-Q	[2017-08-08]
10-Q	[2017-05-09]
10-K	[2017-02-28]
10-Q	[2016-11-08]
10-Q	[2016-08-05]
10-Q	[2016-05-06]
10-K	[2016-02-19]
10-Q	[2015-11-06]
10-Q	[2015-08-07]
10-Q	[2015-05-08]
10-K	[2015-02-27]
10-Q	[2014-11-07]
10-Q	[2014-08-11]
10-Q	[2014-05-08]
10-K	[2014-03-10]
10-Q	[2013-11-12]
10-Q	[2013-08-09]
10-Q	[2013-05-14]
10-K	[2013-03-28]
10-Q	[2012-12-10]
S-1	[2012-05-11]