CrossAmerica Partners LP

Good morning, ladies and gentlemen, and welcome to the Cross America Partners first quarter 2024 earnings conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, May 9 of 2024. I would now like to turn the conference over to Maura Topper, Chief Financial Officer. Please go ahead.

Thank you, Operator. Good morning, and thank you for joining the Cross-America Partners First Quarter 2024 Earnings Call. With me today is Charles Nifong, CEO and President. We'll start off the call today with Charles providing some opening comments and an overview of Cross America's operational performance for the quarter, 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 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 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 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 of Cross 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. Maura and I appreciate all of you joining us this morning as we review our first quarter results. During today's call, I will go through some of the operating highlights for the first quarter of 2024. I will also provide commentary on the market and other updates similar to what I have done on our prior calls. Moira will then review in more detail our financial results. Now, if you turn to slide four, I will briefly review some of our operating results. For the first quarter of 2024, our wholesale segment gross profit declined 14% to $27 million compared to $31.2 million in the first quarter of 2023. The decrease was driven by a decline in fuel margin, fuel volume, and rental income. A significant factor in the overall decline was the conversion of certain lessee 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 13% to $14.6 million in the first quarter of 2024 from $16.7 million in the first quarter of 2023. Our fuel margin declined 5% from 8.3 cents per gallon in the first quarter of 2023 to 7.9 cents per gallon in the first quarter of 2024. The decrease in our wholesale fuel margin per gallon was primarily driven by the following factors. our average purchase price of motor fuel per gallon for the first quarter of 2024 was lower than our average purchase price of motor fuel per gallon for the first quarter of 2023, resulting in us receiving a lower dollar amount in terms discounts on certain gallons that we purchased during the quarter. Second, we experienced a gradual increase in crude oil prices throughout the first quarter of 2024. Historically, Such a steady, gradual increase in prices during a period leads to lower wholesale fuel margins per gallon in a year-over-year comparison due to its impact on our fuel margin in our variable margin-priced wholesale contracts. Also contributing to the margin per gallon decline was a reduction in variable price wholesale fuel volume due to our conversion of certain sites to our retail class of trade. We did benefit this quarter from a reduction in our fuel sourcing costs, however, The benefit of these cost reductions was more than offset by the preceding factors that I just detailed. Our wholesale volume was 184 million gallons for the first quarter of 2024, compared to 201.9 million gallons in the first quarter of 2023, reflecting a decline of 9%. The decline in volume, when compared to the same period of 2023, was primarily due to the conversion of certain lessee dealer sites to our retail class of trade and lower same-site volume. The conversion of sites from wholesale to retail resulted in approximately 8 million gallons of volume shifting segments for the quarter, which was approximately 47% of the total volume decline for the wholesale segment. These gallons are now reflected in our retail segment results. For the quarter, our same-store volume in the wholesale segment was down slightly less than 2% year-over-year. The remaining decline in volume is attributable to loss of independent dealer contracts, which in many cases we chose not to renew. Based on national demand data available to us, our same store wholesale volume performance for the first quarter was better than overall national demand. In the period since the quarter end, same store volume has been down around 3% year-over-year. Overall, it was a soft start to the year for volume demand in the industry. Our quarterly wholesale same-sort volume results, while better on a relative basis than national data, are disappointing. Regarding our wholesale rent, our base rent for the quarter was $12.4 million compared to the prior year of $13.7 million, a decrease due to the conversion of certain lessee dealer sites to company-operated and commission agent sites. These rent dollars, while no longer in the form of rent, are now effectively in our retail segment results through higher margins at these locations. They are not lost dollars to the business, but are simply reported now in another segment of our financial results. For the retail segment, considering the industry environment, our performance was good for the first quarter of 2024, primarily driven by our merchandise growth. The retail segment generated $54.4 million in gross profit compared to $50.9 million for the same period in 2023, a 7% increase. Our merchandise gross profit increased 18% and our merchandise gross profit margin percentage was up approximately 30 basis points when compared to the same period in 2023. Our motor fuel gross profit declined 3%. On a fuel margin front, our retail fuel margin on a cents per gallon basis decreased 3% year over year as our fuel margin was 30.8 cents per gallon in the first quarter of 2024 compared to 31.8 cents per gallon in the first quarter of 2023. Retail fuel margins were pressured this quarter by the generally steady rising price of crude oil during the quarter, which in turn pushed our fuel costs higher and adversely impacted retail street fuel pricing volatility. For volume on a same-store basis, our retail volume declined 3% for the quarter year over year. On a relative basis to national demand data, our same sort retail volume outperformed. However, on an absolute basis, it is a disappointing result and reflects the overall soft demand that we and the industry have experienced to start the year. In the period since the quarter end, retail same sort volume has remained down at approximately 3% year over year, and retail fuel margins have continued to be roughly in line with our first quarter results. For inside sales on a same site basis, our inside sales were up slightly relative to last year for the first quarter. Inside sales excluding cigarettes were up approximately 2% year over year on a same store basis for the quarter. The sales performance was primarily driven by the categories of packaged beverages and deli. On the store merchandise margin front, our merchandise gross profit increased 18% to $21.4 million, driven by our increased sales from the higher store count and improvement in our store merchandise gross margin percentage. The store merchandise margin improvement was due to our continued efforts and focus on our margins. In the period since the quarter end, same-store sales have been flat to slightly down from the prior year, reflecting the ongoing soft demand environment. In our retail segment, If you look at our company-operated site count, we are up 75 company-operated retail sites from the prior year and up 47 sites relative to last quarter, the fourth quarter of 2023. The increase in company-operated site count relative to the fourth quarter was primarily driven by our conversion of the Apple Green lease locations to company-operated retail sites. As we previously announced and also noted in our press release, we signed an agreement in January terminate the lease and company operate 59 sites that we previously leased to Apple Green. Of these 59 locations, 31 locations were converted during the first quarter of 2024 and the remaining 28 locations converted in April 2024. So that as of today, all the locations are Cross America company operated retail locations. We are pleased to welcome all the team members at these locations to the Cross America team and thank everyone involved for their hard work in successfully executing this transaction. We expect this transaction to be immediately accretive to our retail segment and overall results. Our commission agent site count increased by nine sites relative to the first quarter of 2023. In total, we have increased our overall retail site count by 85 sites as of today's date relative to the end of the fourth quarter. Based on those numbers, You can see that we were extremely active during the quarter with site conversions and executing on our strategy to increase our exposure to retail fuel margins and the retail business overall. During the quarter, we did not divest any properties. Subsequent to the quarter end, we have divested two properties for $2.5 million in proceeds. While the number of closed transactions is low year to date, we have been busy building our pipeline of divestitures and expect the pace and volume of transactions to increase materially for the remainder of the year. Overall, it was a challenging start to the year as our first quarter results reflect. The first quarter of the year is typically our weakest quarter of the year, and this first quarter was a weak first quarter compared to prior first quarters. While our volume numbers compare favorably to national volume data, on an absolute basis, volume was below what we expect to achieve. In our retail sites, Our store sales, while again better on a relative basis compared to nationally available data, were also below our expectations. Despite the soft financial results for the quarter, there were still positive developments in our business. One of the most significant was our conversion of the apple green sites to company-operated retail locations. We were also able to convert 20 other locations this quarter to our retail class of trade, either as company-operated sites or as commissioned retail locations. These conversions should generate better fuel volume and increase profitability at these sites going forward. Mara will touch on in her comments on some successes with expense management that we had during the quarter as well. So progress was made during the quarter, even if not evident in our financial results. And the best thing about the first quarter is that it leads into the spring and summer, our peak months of the year. With that, I will turn it over to Maura for a more detailed financial review.