Participants

Maura Topper; Chief Financial Officer, Director of CrossAmerica GP LLC; Crossamerica Partners LP

Charles Nifong; President, Chief Executive Officer, Director of CrossAmerica GP LLC; Crossamerica Partners LP

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the CrossAmerica Partners fourth-quarter and full-year 2024 earnings call. (Operator Instructions) This call is being recorded on Thursday, February 27, 2025.
I would now extend the conference over to Maura Topper, Chief Financial Officer. Please go ahead.

Maura Topper

Thank you, operator. Good morning and thank you for joining the Crosser Partners 4th quarter and full year 2024 earnings call.
With me today is Charles Nihong, CEO and President.
We'll start off the call today with Charles providing some opening comments and an overview of across America's operational performance for the quarter and full year, and then I will discuss the financial results. We will then open up the call to questions.
Today's call will follow presentation slides that are available as part of the webcast and are posted on the Crosser website.
Before we begin, I would like to remind everyone that today's call, including the question and answer session, may include forward-looking statements regarding expected revenue, future plans, future operational metrics, and opportunities and expectations of the organization.
There could be no assurance that management's expectations, beliefs, and projections will be achieved or that actual results will not differ from expectations.
Please see Cross America's filings with the Securities and Exchange Commission, including annual reports on Form 10K and quarterly reports on Form 10Q for a discussion of important factors that could affect our actual results.
Forward-looking statements represent the judgment of across America's management as of today's date, and the organization disclaims any intent or obligation to update any forward-looking statements.
During today's call, we may also provide certain performance measures that do not conform to US generally accepted accounting principles or GAAP.
We have provided schedules that reconcile these non-gap measures with our reported results on a GAAP basis as part of our earnings press release.
Today's call is being webcast and recording of this conference call will be available on the Cross America website for a period of 60 days.
With that, I will now turn the call over to Charles.

Charles Nifong

Thank you, Mara. Lauren and I appreciate everyone joining us this morning and thank you for making the time to be with us today.
During today's call, I will go through some of the operating highlights for the 4th quarter and full year 2024.
I will also provide commentary on the market and a few other updates as I have done on our prior calls.
Maurer will then review in more detail our financial results.
Now if you turn to slide 4, I will briefly review some of our operating results.
For the fourth quarter of 2024, our retail segment gross profit increased 9% to $75.1 million compared to $69 million in the fourth quarter of 2023.
The increase was driven by an increase in merchandise margin, partially offset by a slight decrease in motor fuel gross profit.
Our 4th quarter retail results were against the overall industry backdrop for the quarter of weak fuel demand and soft inside store sales.
In that context, our retail results, particularly our same store volume and same store inside store sales, both of which outperform the market, were solid.
On the fuel margin front, our retail fuel margin on a cents per gallon.
Declined 9% year by year as our fuel margin was 37.$0.06 per gallon in the fourth quarter of 2024 compared to a very strong 41.$0.05 per gallon in the fourth quarter of 2023, part of our record setting fourth quarter results last year.
In comparison to the prior year, which saw a sharp drop in crude oil prices during the quarter, crude oil prices were more range round during the 4th quarter of 2024, and as a result, our retail fuel margins, while good, were not as strong as the prior year due to this lack of favorable price volatility.
For volume on a same store basis, our overall retail volume increased 2% for the quarter, year by year.
Based on national demand data available to us, national gasoline demand was down approximately 4% for the quarter.
So, on a relative basis, our same store retail volume outperformed.
Our company operated storage volume performed very well during the quarter again, growing the same store volume by approximately 4% for the quarter, year by year.
Again, some of this was due to unique circumstances within our portfolio compared to the prior year, particularly at our New York thruway sites which benefited from reopened travel plazas at a number of locations compared to the prior year when the locations were open, but the main facilities were under construction.
In the period since the quarter end, retail same sort of volume, both company operated and commissioned, has been down around 4% year-to-date, consistent with overall national demand, which is also down approximately 4% based on the data available to us.
Our portfolio in particular has been impacted by some of the severe winter weather we have experienced so far this year in the eastern United States, particularly in our southern markets that don't typically see the extreme cold or wintry precipitation we have had this year.
In the same period, retail fuel margins have been at a slightly lower level than the overall results from the 4th quarter, as typically is the case in the early months of the year.
For inside sales on a same site basis, our inside sales were up 1% compared to the prior year for the 4th quarter.
Inside sales, excluding cigarettes, increased 2% year by year on a same sort of basis for the quarter.
As with fuel demand, based on national demand data available to us, national demand for inside store sales was weak for the 4th quarter.
Down approximately 1% on an overall sales basis year over year.
So again, on a relative basis, our retail inside sales outperformed the industry for the quarter.
Across America, our store sales performance was primarily led by the categories of packaged beverages and other tobacco, as in the prior quarters.
On the store merchandise margin front, our merchandise gross profit increased 27% to $28.1 million driven by our increased sales from the higher store count.
The store merchandise margin percentage increased slightly for the quarter compared to the prior year.
On the store merchandise margin front, we are conscious of the inflationary pressures our consumers have felt and continue to experience and have sought to expand our value offerings to consumers, and additionally, we have focused on realizing internal efficiencies to drive margins as opposed to simply raising prices on our customers.
In the period since the quarter end, same store inside sales have been slightly down compared to the prior year, with adverse winter weather and the continued soft demand environment impacting the results.
In our retail segment, if you look at our company operated site count, we have 69 company operated retail sites from the prior year.
The increase in company operated site count was primarily driven by completion of the conversion of the Apple Green lease locations to company operated retail sites in the spring of the prior year.
Our commission agent site count increased by 30 sites relative to the 4th quarter of 2023 and 4 sites relative to the 3rd quarter of 2024 as we continue to execute on our strategic class of trade conversions to the retail channel.
In total, we have increased our overall retail site count by 99 sites for the 4th quarter of 2024 compared to our retail site count at the end of the 4th quarter of 2023.
Based on these numbers, you can see that we were extremely active during the past 12 months with site conversions and executing on our strategy to increase our exposure to retail fuel margins and to the retail business in general.
Overall, it was another positive quarter for our retail segment as our same store inside sales, same store fuel volume, merchandise gross profit, and store merchandise margin percentage were all up relative to the prior year.
Moving on to the wholesale segment for the fourth quarter of 2024, our wholesale segment gross profit declined 22% to $25.9 million compared to $33 million in the fourth quarter of 2023.
The decrease was driven by a decline in both fuel volume and margin per gallon.
The primary factor in regards to the fuel line decline by a significant degree was the conversion of certain lessy dealer sites to company operated and commission agent sites which are now accounted for in the retail segment.
Our wholesale motor fuel gross profit decreased 23% to $14.8 million in the fourth quarter of 2024, from $19.3 million in the fourth quarter of 2023.
Our fuel margin declined 13% from 9.$0.04 per gallon in the fourth quarter of 2023 to 8.$0.02 per gallon in the fourth quarter of 2024.
The decline in our wholesale fuel margin per gallon was primarily driven by the relative level of crude oil prices within the two periods and its corresponding impact on the term discount we receive on certain gallons.
While we have been successful in our efforts to improve our overall cost of product, the impact of these efforts for this quarter was more than offset by the differences in the crude oil market between the two periods and its corresponding impact on our terms discounts and other factors that determine our wholesale fuel margins.
Our wholesale volume was 180.5 million gallons for the fourth quarter of 2024 compared to 205.3 million gallons in the fourth quarter of 2023, reflecting a decline of 12%.
The decline in volume when compared to the same period in 2023 was primarily due to the conversion of certain messy dealer sites to our retail class of trade.
The gowns from these converted sites are now reflected in our retail segment results.
For the quarter, our same sort of volume in the wholesale segment was down approximately 1% year by year.
So the additional approximately 11% drop in volume, the difference between the overall volume decline of 12% and our same volume decline of 1% for the segment was largely due to converting sites to the retail segment.
As mentioned in my retail segment comments, national demand data available to us indicated national fuel demand was down around 4% for the quarter, so our same store wholesale volume performance for the fourth quarter outperformed overall national demand.
In the period since the quarter end, wholesale Savo has outperformed the national average. With wholesale, same volume down 1 to 2% compared to the national volume data down around 4%.
Regarding our wholesale rent, our base rent for the quarter was $10.3 million compared to the prior year of $13 million a decrease due to the conversion of certain lessly dealer sites to company operated sites.
As we have stated in the past, these rent dollars, are no longer the form of rent, are now in our retail segment results through our fuel and store sales margins at these locations which help to drive our increase in retail segment operating income for the quarter.
If you turn to the next slide, I will briefly review our segment performance for the full year.
For the full year of 2024, our retail segment's gross profit increased 14% to $289.7 million compared to $253.5 million for the full year of 2023.
Merchandise gross profit rose $20.1 million or 22% while our motor fuel gross profit increased $12.2 million or 9%.
And other revenue increased $3.7 million or 23%.
On a same store basis, our fuel volume for the retail segment decreased 1% for the full year 2024 compared to 2023, which again relative to national demand data we have available to us demonstrates the outperformance of our volume relative to national data.
Our retail store sales, excluding cigarettes on a same store basis, declined 1% for the full year 2024, which also compares favorably to national data on industry same store sales.
Our wholesale segment generated a gross profit of $108.6 million for the full year 2024, a 16% decline when compared to the $128.8 million reported in 2023.
The decrease was driven by a 12% decline in fuel volume.
The decline in volume when compared to the same period in 2023 was primarily due to the conversion of certain mey dealer sites to our retail class of trade. We also experienced a slight decline in fuel margin, down 1% for the 12 month period.
Our fuel margin for the wholesale segment was 8.$0.05 per gallon for the full year of 2024, compared to 8.$0.06 per gallon for the full year of 2023.
Our wholesale volume was 743.5 million gallons for the 12 month period ending December 31, 2024 compared to 842.6 million gallons for the same period of 2023.
For the full year, our same site wholesale volume was down slightly more than 1%, which based on national data available to us, outperformed the overall national volume demand.
We also continue to evaluate our portfolio and look for opportunities to divest not core properties.
For the fourth quarter of 2024, we divested 11 sites for $17.3 million in proceeds.
For the full year of 2024, overall, we divested 30 properties for $36.3 million in proceeds. We were quite active with divestitures in 2024, especially in the back half of the year as we had indicated on prior calls would be the case.
We expect that momentum to continue into 2025 as this continues to be an area of focus and effort for us.
Our volume of transactions in this area is evidence of the execution of our overall business strategy as we seek to exit certain sites to generate capital to deploy elsewhere in our portfolio or into our balance sheet.
Overall, 2024 was a mixed year for us. We had a challenging start to the year and then throughout the year, the oil market did not provide the same fuel margin generating possibilities as in the prior year, which in large part drove the overall decline in our EBITDA 2024 compared to the prior year.
In addition, inflationary pressures on consumers and the interest rate environment will further headwinds on our financial results for the year.
Despite these challenges, we made significant progress on our long-term strategic goals. We converted 107 sites to our retail class or trade, either as company operated sites or commissioned locations.
These conversions position our portfolio to generate more profitability over the long term, although they do generate short term volatility and expense.
Despite the challenging market environment, our retail sites had strong volume performance, and our company operating sites also generated strong inside sales relative to the overall market, a sign of the successful execution of our retail strategy.
Also, we were successful in divesting locations with the greatest volume by dollar amount of divestigers in our history in 2024.
These divestitures allowed us to recycle capital and to strengthen our balance sheet.
You return to the next slide.
For 2025, we will continue to optimize our portfolio, strategically converting sites to retail when it makes sense to do so.
In our retail portfolio, we will focus on executing the basics well and providing our customers with a great experience and value to ensure we continue to be their preferred destination.
For our wholesale customers, we will continue to partner with them to ensure that together our businesses thrive and meet our customers' needs in 2025 and beyond.
During 2025, we also expect to continue our portfolio divestitures along the lines of what we achieved in 2024, recycling capital to invest in growth opportunities in our business and to strengthen our balance sheet.
Our business remains a steady and dependable operation that consistently generates cash flow as demonstrated by our results over the past several years.
We have shown resilience and demand through the pandemic and societal shifts such as remote work and telecommunity and the impact of electrification.
We successfully navigated record inflation and our balance sheet absorbed the impact of a more than 500 basis point rise in interest rates since early 2022.
Despite these challenges, we have continued to deliver solid financial performance.
As we move into 2025 and beyond, we remain committed to executing our strategy while adapting to market conditions to ensure we continue to generate strong results for our unit holders. With that, I'll turn it over to Maura for more detailed financial review.

Maura Topper

Thank you, Charles. If you would please turn to slide 8, I would like to review our 4th quarter results for the partnership.
We reported net income of $16.9 million for the fourth quarter of 2024 compared to net income of $16.7 million in the fourth quarter of 2023.
The slight increase in net income was primarily driven by a net gain of $11.5 million associated with our ongoing real estate rationalization effort and a tax benefit of approximately $1.8 million. This was offset by lower adjusted EIA during the quarter, which I'll touch on in a moment, as well as a $2.9 million dollar increase in interest expense year over year.
Adjusted EBITDA was $35.5 million for the fourth quarter of 2024, down 26% from adjusted EBITDA of $47.6 million for the fourth quarter of 2023.
Our distributable cash flow for the fourth quarter of 2024 was $21.1 million a decline from $35.8 million for the fourth quarter of 2023.
The decreases in adjusted EIDA and distributable cash flow were primarily due to the comparison to our record results in the 4th quarter of 2023, which were benefited by very strong fuel margins per gallon in both our retail and wholesale segments.
Our 2024 4th quarter results were also impacted by the increase in our operating expenses in the retail segment, partially offset by an increase in gross profit in our retail segment, both primarily due to our class of trade transitions.
Additionally, distributable cash flow was impacted by our higher cash interest expense during the quarter.
Our distribution coverage for the current quarter was 1.06 times compared to 1.8 times for the fourth quarter of 2023.
During the 4th quarter of 2024, the partnership paid a distribution of 52.$0.05 per unit.
Charles provided information on our volume and merchandise performance during the quarter in his comments, and I will now touch on the expense portion of our operations.
Operating expenses for the fourth quarter increased $10.7 million compared to the fourth quarter of 2023.
Comprised of a $12.6 million dollar increase in our retail segment, offset by a $1.9 million dollar decrease in our wholesale segment.
The increase in our retail segment was driven primarily by the increased site count in that segment compared to the prior year, specifically the increase in our company operated locations due to the class of trade conversions that Charles referenced in his comments.
Retail segment operating expenses for the 4th quarter of 2024 increased approximately 32% from the prior year.
While our average segment site count was up 22%.
Within that 22% increase in retail segment site count, our company operated average site count increased 25%.
Our company operated locations are our highest operating expense per site class of trade, so adding an even higher percentage of those locations results in an increase in total segment operating expenses.
With regards to our sites that we converted to the retail segment over the past year.
We typically experience a more elevated expense profile during the initial ramp up period.
After this initial period, the stores then look like from an expense profile, are other company operated sites.
Our teams will look to manage this transition to a more typical operating expense profile for these sites as we move into 2025.
On the same store basis, operating expenses in our retail segment were up approximately 8% for the fourth quarter of 2024 compared to the 4th quarter of 2023.
With the increases primarily in the area of store labor and repairs and maintenance.
Our labor expense increase during the quarter was higher on a percentage basis than prior quarters, but still a moderate percentage overall, and we feel good about our approach and management of labor. Our largest single retail segment expense category.
The bulk of same store operating expense increase year over year during the 4th quarter was due to increases in repairs and maintenance spending.
This was due to two primary factors.
Spending on certain items, such as food equipment items to expand our in-store offerings.
That due to their costs are not capitalized and instead are income statement expense items.
As well as an increase in actual maintenance spend during the quarter due to the timing of equipment breakdowns.
We remain focused on prudent and effective expense management at our locations as we move into 2025.
Ensuring that we are investing in areas of our sites that will drive their long-term health and sustainability.
Operating expenses in our wholesale segment declined by $1.9 million or 21% for the quarter year over year due to declines in site level operating expenses and management fees as our wholesale segment site count declined 13% year over year.
Our GNA expenses declined 3% for the quarter year over year, primarily due to lower equity compensation expense and legal fees.
Turning to the full year of 2024, net income declined to $22.5 million from $42.6 million in 2023.
The decline was primarily driven by a decline in adjusted EBITDA, as well as an increase in interest expense.
We recorded the required GAAP loss on lease termination in connection with the Apple green acquisition during the year.
Which was offset by gains recorded on our sales of assets during 2024.
Adjusted EIA was $145.5 million for the full year of 2024 compared to $165.8 million in 2023.
For the full year of 2024, distributable cash flow was $86 million compared to $116.7 million for the full year of 2023.
The decrease in distributable cash flow was due to lower adjusted EBITDA earned in 2024 compared to 2023, as well as as well as by our increase in cash interest expense that also impacted our full year 2024 net income.
Our distribution coverage for the full year of 2024 was 1.08 times compared to 1.46 times for the full year of 2023.
Operating expenses for the full year of 2024 increased $33.2 million or 17% compared to the full year of 2023.
As I noted earlier during my 4th quarter discussion, the increase was primarily driven by incremental operating expenses in our retail segment due to the conversion of lessee dealer and commission locations to company operated locations.
Retail segment operating expenses increased 25% in 2024 compared to 2023.
Slightly ahead of the 20% increase in average retail segment site count during the year compared to the prior year.
Same store retail segment operating expenses were up approximately 3% in 2024 compared to 2023.
During the year, we were able to manage our same store labor expenses to an approximately 2% increase compared to the prior year.
With our teams focused on effectively and efficiently staffing our company operated stores in particular.
Prepare the maintenance expense with the other primary contributor to our same store operating expense increase in the retail segment during the year.
Increased management fees also contributed to the increase in retail segment operating expenses during the year, as we selectively added above store headcount to manage our expanded retail footprint.
Wholesale segment operating expenses declined at $6.2 million in 2024 compared to 2023, primarily due to our reduced site count in the wholesale segment.
Which resulted in lower management fees as well as lower site level expenses, including repairs and maintenance.
On a full year basis, our GNA expenses increased from $27 million in 2023 to $28.8 million in 2024.
Primarily driven by higher management fees and systems and information technology costs, partially offset by lower equity compensation expense.
Moving to the next slide, we spent a total of $7.2 million on capital expenditures during the fourth quarter.
With $5.1 million of that total being growth-related capital expenditures.
During this past quarter, growth-related capital spending was focused on our company operated locations.
And included targeted material renovations, as well as projects to increase food offerings, both our own and QSRs.
For the full year of 2024, capital expenditures were $26.3 million with $18 million being growth-related CapEx.
As of December 31, 2024, our total credit facility balance was $767.5 million and our credit facility defined leverage ratio was 4.36 times.
As we move into 2025, we remain focused on our operational performance and associated cash flow to manage our leverage ratio at approximately 4 times on a credit facility defined basis.
Our cash interest expense increased from $10 million in the fourth quarter of 2023 to $12.9 million in the fourth quarter of 2024.
And from $40.5 million in calendar 2023 to $50.4 million in 2024.
We had positive rate savings from the interest rate swaps we entered into during 2023, but we did have three highly valuable interest rate swaps from the first quarter of 2020 that expired at the end of the first quarter of 2024.
Which increased our overall interest costs for the year and during the 4th quarter.
At this time, a little more than 50% of our current credit facility balance is swapped to a fixed rate of approximately 3.4% blended.
Which remains an advantage rate in the current rate environment.
Her credit facility balance during the 4th quarter of 2024 was also higher than the prior year, primarily due to the Applegreen transaction that we completed during the 2nd quarter.
The higher credit facility balance due to the acquisition also contributed to the increase in our interest expense year over year.
Our effective interest rate on the total capital credit facility at the end of the fourth quarter is 6.2%. In conclusion, as Charles noted, the partnership had a mixed year in 2024, facing the headwinds from a challenging first quarter and macroeconomic demand environment, so having completed significant strategic activities to continue to position the portfolio to generate durable and consistent cash flows into the future.
We remain focused as a team on continuing to execute in our base business, as well as the ongoing efforts to ramp operations of our converted stores to optimize their performance moving forward.
We are looking forward to the year ahead, maintaining a strong balance sheet and generating value for our unit holders.
With that, we will open it up for questions.

Question and Answer Session

Operator

(Operator Instructions)

Charles Nifong

It doesn't appear that we have any questions today. Should you have one later, please feel free to reach out to us. Again, thank you for joining us today and have a great rest of your day.

Operator

Thank you. This concludes today's conference. Thank you for participating. You may now disconnect.