CrossAmerica Partners LP

Welcome to the Cross America Partners third quarter earnings call. My name is Richard and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded. I'll now turn the call over to Maura Topper. You may begin.

Thank you, operator. Good morning, and thank you for joining the Cross America Partners third quarter 2022 earnings call. With me today is Charles Nifong, CEO and President. Charles will provide some opening comments, a brief overview of Cross America's operational performance and highlights from the quarter, and then I will discuss the financial results. At the end, we will open up the call to questions. I should point out that today's call will follow some presentation slides that we will utilize during this morning's event. These slides are available as part of the webcast and are posted on the Cross America website. Before we begin, I would like to remind everyone that 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 can be no assurance that an admin's expectations, beliefs, and projections will be achieved or that actual results will not differ from expectations. Please see Cross America's filings with the Securities and Exchange Commission including annual reports on Form 10-K and quarterly reports on Form 10-Q for a discussion of important factors that could affect our actual results. Forward-looking statements represent the judgment 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 U.S. generally accepted accounting principles, or GAAP. We have provided schedules that reconcile these non-GAAP measures with our reported results on a GAAP basis as part of our earnings press release. Today's call is being webcast, and a recording of this conference call will be available on the Cross America website for a period of 60 days. With that, I will now turn the call over to Charles.

Thank you, Maura. Warren, I appreciate everyone joining us this morning on Election Day. There's a lot going on today, so we thank you for making the time in your schedule to be with us this morning. During today's call, I will briefly go through some of the operating highlights for the third quarter. I'll also provide some color in the market and a few other updates similar to what I provided on previous calls. Warren will then review in more detail the financial results. Now, if you turn to slide four, I will briefly review some of our operating results. For the third quarter of 2022, our wholesale fuel gross profit increased 24% to $42.2 million compared to $34.1 million in the third quarter of 2021. This growth was driven by an increase in fuel margin. Wholesale segment gross profit was $56.8 million, an increase of 18% or $8.6 million when compared to the third quarter of 2021. Our wholesale fuel volume was 338 million gallons for the third quarter of 2022, a decline of 5% when compared to the same period in 2021, largely due to lower volume in our base business, partially offset by the acquisition of assets from 7-11, which occurred primarily during the third quarter of 2021. Nationally, it was another challenging quarter for fuel volume. Based on energy information administration data, Gasoline demand was down nationally approximately 6% for the quarter. On a same-store basis, our wholesale volume declined approximately 8% for the quarter. If we look at recent weeks, over the last four weeks of data, our same-store volume is down approximately 4% to 5% relative to the prior year. National demand based on EIA data for approximately the same time period continued to remain down about 6% relative to the prior year. So in our portfolio, we have seen some relative volume performance improvement during the course of the quarter in recent weeks. The volume is still down relative to the prior year. A big driver of the fuel volume decline for the quarter relative to the prior year was obviously fuel price related. We began the quarter with national average weekly retail fuel prices approximately 55% above the price level from the prior year. average weekly retail fuel prices declined nationally for 12 consecutive weeks to start the quarter. National weekly average retail fuel prices finished the quarter at approximately 15 to 20% above the prior year's weekly average retail fuel price. While the high fuel price environment was detrimental to our volume for the quarter, the declining fuel price environment for essentially the entire quarter strongly aided our fuel margins. As we have discussed on prior calls, margins tend to be stronger in declining fuel price environments. One significant reason for this is in a declining fuel price environment, lower volume sites are slower to adjust retail fuel street prices down due to having higher price product in inventory. This tends to make overall retail fuel street pricing slower to adjust downward, and for competitors with higher volume sites that are turning their fuel inventory quickly, it generates enhanced margins. Our results this quarter reflect this dynamic and the overall favorable fuel margin environment for the quarter. We saw an increase in our wholesale fuel margin per gallon for this quarter, reporting 12.5 cents per gallon compared to 9.6 cents per gallon for the third quarter of 2021, an increase of 30%. As we just discussed, this increase was driven by the favorable fuel price environment for the quarter. I think it is also worthwhile to note that the decline in fuel price environment for the quarter was the reversal of the rising fuel price environment experienced earlier in the year. The decline in fuel prices, wholesale and retail, experienced in the quarter returned fuel prices back to the price levels of the January and February timeframe of this year. With that perspective, the results from this quarter can be viewed as the financial return on that challenging period earlier in the year. Our fuel margin also benefited this quarter from having higher fuel volume and the associated higher fuel margin to our company-operated retail sites as a result of the increase in company-operated retail sites due to our acquisition completed during the third quarter last year. Additionally, our margin results continue to benefit from better sourcing costs due to our brand consolidation and other initiatives. On our wholesale rent, our base rent for the quarter was $13.8 million compared to the prior year of $13.7 million, a slight increase due to the renewal of certain dealer contracts and the reopening of certain previously closed sites. As we mentioned last quarter, our rental income is an incredibly steady and durable income stream for us that continues to perform quarter after quarter. Our retail segment also performed well during the quarter as gross profit increased 102% or $28.5 million when compared to the third quarter of 2021. Our motor fuel gross profit increased $22.5 million and our merchandise gross profit increased $5.1 million when compared to the same period in 2021. For volume, on a same-store basis, our retail volume declined approximately 7% for the quarter, year-over-year. As I touched on in my earlier comments, a higher fuel price environment for the quarter contributed to the year-over-year volume decline. Retail segment same-store volume, although down, was better than our overall wholesale segment same-store volume. In our company-operated retail stores, weekly same-store volume declines relative to the prior year moderated during the course of the quarter after being down over 10% in early July. The retail segment increased motor fuel growth profit as a result of the favorable retail fuel pricing environment for the quarter, as our retail sites tend to be higher volume sites that benefit from the pricing dynamics that I reviewed earlier in my comments. In recent weeks since the quarter end, our company-operated retail same-store volume has been approximately 3% to 4% lower in the same period in the prior year. For the same period, retail fuel margins have been more mixed, as fuel costs have generally risen in the period since the quarter end. For inside sales on a same-store basis, our inside sales were down approximately 2% relative to last year. Inside sales excluding cigarettes grew up approximately 2% year over year on a same-store basis. On the margin front, our store margin was up approximately 40 basis points year-over-year, mainly attributable to changes in product mix and initiatives we have undertaken to preserve margin in the current inflationary environment. In the period since the quarter end, overall same-store sales have been up approximately 3% to 5% over the prior year. As we touched on last quarter, on the supply chain front, out-of-stocks are still at levels higher than we would like. We continue to see some progress on this front. However, there is still work to be done to return to what we would consider normal levels. We also continue to see broad-based inflation in our product costs, and while we've been successful in adjusting retail prices, it does weigh on consumer demand. As we have reviewed in our prior calls, it is important to remember the wholesale segment supplies fuel to our retail segment on a variable margin basis, so the overall fuel profitability of our retail sites and our financial reporting split between our wholesale and retail segments. We realize that this can be confusing and makes it difficult to evaluate the complete financial results of our retail segment. We are looking at modifying our segment financial reporting to provide a more comprehensive and easier to understand view of the retail segment. We will update you on this next quarter. For this quarter, our retail sites contributed strong financial performance and their contribution to our overall profitability is even greater when one considers the wholesale fuel margin associated with these locations. On the acquisition front, we announced in the third quarter that we entered into an asset purchase agreement with community service stations, pursuant to which we have agreed to purchase certain assets from them for a purchase price of $27.5 million plus working capital. The assets consist of wholesale fuel supply contracts to 39 dealer-owned locations, 34 sub-wholesaler accounts, and two commission locations. The assets are in the New England market, the concentration in the Boston metro area. The assets are highly complementary to our existing asset base in the region from both a geographic and fuel brand perspective. We are excited about this transaction as these are unique assets that have attractive long-term cash flow profiles. As we stated in our press release, we expect the acquisition to be immediately accretive to our distributable cash flow. The transaction is expected to close during the fourth quarter. On the real estate rationalization front, we had a quiet quarter with only one property sold. In the period since the quarter end, though, we have sold five properties for $6.2 million in proceeds. Our overall financial results for the quarter were exceedingly strong. For the past several quarters, the partnership has demonstrated an ability to produce solid financial results in challenging markets, such as earlier this year, and an ability to capitalize on favorable markets and produce outstanding results, such as in this quarter. This remarkable performance is a result of the strategic decisions made and executed by the leadership team in the period since the acquisition of the general partner by the Topper Group. The partnership is well positioned for the future, and we, the leadership team, are committed to producing long-term value for our unit holders. With that, I'll turn it over to Maura for a more detailed financial review.