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Operator: Welcome to the CrossAmerica Partners Fourth Quarter and Full Year 2022 Earnings Call. My name is Hilda, and I will be your operator for today’s call. Please note that this conference is being recorded. I will now turn the call over to Maura Topper. You may begin.

Maura Topper: Thank you, operator. Good morning and thank you for joining the CrossAmerica Partners fourth quarter and full year 2022 earnings call. With me today is Charles Nifong, CEO and President. Charles will provide some opening comments, a brief overview of CrossAmerica’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 CrossAmerica 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 for 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 CrossAmerica’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 CrossAmerica’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 CrossAmerica website for a period of 60 days. With that, I will now turn the call over to Charles.

Charles Nifong: Thank you, Maura. Maura and I appreciate everyone joining us today. We thank you for taking the time to be with us on the call. During today’s call, I will briefly go through some of the operating highlights for the fourth quarter and full year. I will also provide some color on the market and a few other updates similar to what I typically review on our calls. Maura will then review in more detail the financial results. Before we get into the operating results, I wanted to note that starting with these quarterly results, we have changed our segment reporting to simplify the assessment of the performance of our operating segments. You will see this new segment reporting in both our earnings press release and our 2022 Form 10-K.

Maura will provide more specifics during her section of this morning’s presentation. Now if you turn to Slide 4, I will briefly review some of our operating results. For the fourth quarter of 2022, our wholesale fuel gross profit increased 4% to $18.7 million compared to $18 million in the fourth quarter of 2021. This growth was driven by an increase in fuel margin. Wholesale segment gross profit was $32.8 million, an increase of 6% when compared to the gross profit of $31.1 million for the fourth quarter of 2021. Our wholesale fuel margin increased 12% from $0.078 per gallon in the fourth quarter of 2021 to $0.087 per gallon in the fourth quarter of 2022. The year-over-year increase was primarily driven by better sourcing costs due to our brand consolidation and other initiatives and by higher crude oil prices, which generate higher terms discounts for our fuel purchases.

With our revised segment reporting, our wholesale segment now has less variable margin fuel supply gallons than it previously did. As a result, our reported wholesale segment fuel margin on a cents per gallon basis will also have less variability going forward. Our wholesale volume was 213.5 million gallons for the fourth quarter of 2022 compared to 230.6 million gallons in the fourth quarter of 2021. The decline in volume when compared to the same period in 2021 was largely due to lower volume in our base business and, to a lesser extent, our real estate optimization efforts and the expiration of contracts we did not renew. On a national basis, volume continued to be down. Based on Energy Information Administration data, gasoline demand was down approximately 7% for the quarter.

The national year-over-year volume decline moderated somewhat towards the end of the quarter. In the period since the quarter end, national gasoline demand has generally been down in the low single digits on a year-over-year basis. For the quarter, our wholesale segment same-store volume was down approximately 8.5%. In the period since the quarter end, our wholesale segment same-store volume performance has been in line with overall national gasoline demand. I’ll also note on an overall same-store basis, which is across our entire portfolio, inclusive of retail same stores, our same-store volume for the quarter was down less than 5% driven by outperformance at our retail sites, which I will touch on more later. On our wholesale rent, our base rent for the quarter was $13.7 million compared to the prior year of $13.5 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. In our retail segment, our revised segment reporting provides a fuller picture of the retail segment as now the entire fuel profitability associated with our retail sites is included in the financial results for the segment. Our retail segment performed well during the quarter as gross profit increased 20% or $10.2 million when compared to the fourth quarter of 2021. Motor fuel gross profit increased 29% and our merchandise gross profit increased 8% when compared to the same period in 2021. For volume on a same-store basis, our retail volume declined less than 1% for the quarter year-over-year.

Compared to the national demand data showing an approximately 7% volume decline for the quarter, the retail segment volume outperformed. Retail same-store volume was generally better later in the quarter as we benefited from the year-over-year comparison to last year’s COVID Omicron surge-driven volume decline that occurred in the latter part of the fourth quarter. In the period since the quarter end, same-store volume has certainly been approximately flat to the prior year, continuing to outperform the national demand data that I spoke to earlier in my comments. On the margin front, our retail margin on a cents per gallon basis was up approximately 24% year-over-year. Retail street prices generally declined in the second half of the quarter, which helped generate a favorable margin environment that we were able to execute on.

Retail fuel margins since the quarter end have been weaker, consistent with the typical start of the year experience. For inside sales on a same-site basis, our inside sales increased approximately 1% relative to last year. Inside sales excluding cigarettes were up approximately 6% year-over-year on a same-store basis. On the margin front, our store margin was up approximately 210 basis points year-over-year due to our strong performance in categories such as packaged beverages, snacks and certain tobacco products. In the period since the quarter end, overall same-store sales have been up approximately 3% to 5% over the prior year. The strength of our results in the retail segment is a testament to the hard work that our retail team members do day in and day out.

The volume outperformance, inside sales growth and margin improvement don’t just happen. They reflect the successful execution of our business strategies, a strong focus on attention to detail at the operating level and most importantly, the daily efforts of the dedicated team members at our stores. If you turn to the next slide, I will briefly review our segment performance for the full year. Our wholesale segment generated gross profit of $130.7 million for the full year 2022, a 5% increase over the $124.7 million reported in 2021. The increase in gross profit was driven by a 16% increase in fuel margin per gallon from $0.075 per gallon for 2021 to $0.087 per gallon in 2022, partially offset by a 9% decline in year-over-year fuel volume. The full year of 2022, our retail segment’s gross profit increased 61% to $245 million compared to $152.3 million for the full year of 2021.

Motor fuel gross profit increased 85% and our merchandise gross profit increased 38%. On a same-store basis, our fuel volume for our retail convenience stores declined 1% for the full year 2022 relative to 2021. Our retail store sales excluding cigarettes on a same-store basis increased 2% for the full year 2022. We continue to evaluate our portfolio and look for opportunities to divest noncore properties. For the full year of 2022, we divested 27 properties or $12.9 million in proceeds. We have been successful with these types of divestitures over the last three years, although this past year, we were slightly less active on the sales front than we had hoped. However, we have a good pipeline. We are constantly evaluating our portfolio to look for opportunities to enhance our returns by recycling capital to invest in growth opportunities within our portfolio.

On the acquisition front, during the fourth quarter, we closed on the acquisition of assets from Community Service Stations 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. We funded this acquisition through borrowings on a capital credit facility and cash on hand. Our wholesale segment results for the fourth quarter include slightly less than two full months of results from this acquisition. Based on these initial results, the acquisition is performing in line to slightly better than our expectations. If you turn to the next slide, Slide 6, and looking back on 2022, it was a year of exceptional financial performance for the partnership.

Our EBITDA, DCF and distribution coverage for the year were at record levels, and we finished the year with a strong balance sheet and significantly lower leverage than the prior year. Our acquisition of the 7-Eleven sites in 2021 materially contributed to our record results in 2022 and demonstrated the strategic value of the acquisition. As a result of it and the many strategic actions we have taken since 2019, the partnership is well positioned to perform now and in the future. We have a demonstrated track record over the last several years of financial performance across multiple economic environments. And in particular, our 2022 results illustrate our ability to capitalize on a favorable macro environment to generate extraordinary performance.

The extraordinary performance of this past year would not have been possible without the efforts of the CrossAmerica team. We have a solid, strong team here at CrossAmerica that is committed to higher performance. The team’s hard work is evident in our results, and I thank them for all that they do. In terms of 2023, our basic objectives are unchanged from the prior year. We seek to continue to provide excellent service and value to our customers, be efficient in our operations and position the portfolio to maximize its value now and in the future. For our unitholders, know that our ultimate objectives are focused on being good stewards of your capital, which simply stated means providing you with a steady, dependable cash flow and increasing the value of your units over time.

With that, I will turn it over to Maura for a more detailed financial review.

Maura Topper: Thank you, Charles. If you would please turn to Slide 8, I would like to review our fourth quarter and full year results for the partnership. We reported net income of $17.1 million for the fourth quarter of 2022 compared to net income of $12 million in the fourth quarter of 2021. The increase in net income was primarily driven by the year-over-year increases in operating income in both the wholesale and retail segments with each segment benefiting from the favorable fuel margin environment that Charles spoke about in his comments. Adjusted EBITDA was $44.3 million for the fourth quarter of 2022, which was an increase of 20% when compared to adjusted EBITDA of $37 million for the fourth quarter of 2021. Our distributable cash flow for the fourth quarter of 2022 was $33.3 million versus $31 million for the fourth quarter of 2021.

The 8% increase in distributable cash flow was primarily due to the increase in operating income in both the wholesale and retail segments, partially offset by an increase in cash interest expense. Although our interest expense was impacted by the rising rate environment we experienced in 2022, as with prior periods, we continue to benefit from the interest rate swaps we have in place on $300 million of our revolving credit facility at an attractive swap rate of approximately 50 basis points. Our distribution coverage for the current quarter was 1.67x compared to 1.56x for the fourth quarter of 2021. The partnership paid a distribution of $0.525 per unit during the fourth quarter of 2022 attributable to the third quarter of 2022 for a total of almost $20 million.

For the full year of 2022, net income increased over $40 million to $63.7 million. Adjusted EBITDA was $179.8 million for the full year of 2022 compared to $123.3 million for the full year of 2021, an increase of 46%. For the full year of 2022, distributable cash flow was $140.9 million, an increase of 38% over the $102.2 million of distributable cash flow for the full year of 2021. Our distribution coverage for the full year of 2022 was 1.77x compared to 1.28x for the full year of 2021. These strong earnings figures resulted in the generation of $147 million of cash flow from earnings for the full year of 2022 compared to the generation of $97 million of cash flow from earnings for the full year of 2021. As Charles mentioned earlier, during the fourth quarter of 2022, we updated our segment reporting to simplify the assessment of performance of our segments.

Prior to the fourth quarter, the wholesale segment included the wholesale fuel gross profit on intersegment sales by our wholesale segment to our retail segment as well as an allocation of operating expenses related to our retail sites. In our results reported yesterday and moving forward, the wholesale segment includes only the fuel gross profit on sales to lessee dealers and independent dealers. The retail segment includes the entire fuel gross profit on sales at our company-operated and commission agent sites. Certain operating expenses are also allocated to each segment based on estimated management time and level of effort. In our 10-K, you can find the results for each of these segments under our updated segment reporting for the full year of 2020, 2021 and 2022.

In our earnings press release, we have also provided quarterly data for 2021 and 2022 for this updated segment reporting as well. Turning to our expense profile. Operating expenses for the fourth quarter increased $4.5 million or 11% compared to 2021 fourth quarter. The increase was primarily due to increased store-level employment costs for our company-operated locations, as well as increased maintenance spending compared to the prior year. The fourth quarter of 2021 was the first quarter that we own substantially all of the assets acquired from 7-Eleven for nearly the full quarter. And therefore, certain spending items were continuing to come online over the course of that fourth quarter. The fourth quarter of 2021 was also a quarter marked by the staffing and hiring challenges experienced broadly by the U.S. economy.

Compared to the fourth quarter of 2021, we were able to staff more labor hours at our retail company-operated locations in the fourth quarter of 2022, a function of improved staffing conditions, which contributed partially to the increase in store-level employment costs for the quarter. We also experienced an increase in hourly wage rates in our store employee population similar to those experienced across the broader economy, though those wage pressures are moderating in recent quarters. Our G&A expenses increased approximately 5% for the quarter year-over-year. This is primarily due to higher equity compensation expense and corporate head count offset by a decrease in acquisition costs related to the 7-Eleven sites that we acquired last year.

On a full year basis, our G&A expenses declined from $30.9 million to $25.6 million primarily due to a reduction in acquisition costs, offset by higher equity compensation expenses. Excluding acquisition costs and equity compensation, G&A was up 8% in 2022 compared to ’21 due to higher corporate head count and payroll expenses as well as certain investments in upgrading information technology and systems to improve business performance. Moving to the next slide. We spent a total of $3.6 million on capital expenditures during the fourth quarter with $1.6 million of that total being growth-related capital expenditures. This was a significant decline from the fourth quarter of 2021 spend of $9.5 million, which was primarily due to our rebranding efforts related to the acquisition of assets from 7-Eleven.

Growth-related capital spending during this quarter included continued investment in car wash upgrades and certain targeted store upgrade and rebranding work. For the full year of 2022, our capital expenditures totaled $30.4 million with $23.2 million of that being growth-related. This was also a decline from our 2021 levels of $41.9 million and 2020 level of $37.1 million. As we noted throughout 2022, as a result of the targeted investments we have made in the portfolio over the last two years, we saw our quarterly growth capital expenditures in 2022 moderate from the high levels incurred from mid-2020 through the end of 2021. As I stated earlier, this year’s strong operational results generated significant cash from earnings. Additionally, our cash flows were benefited from the release of $14.5 million of working capital in 2022, the issuance of our preferred security in the first quarter of 2022 and proceeds from asset sales that Charles referenced earlier.

The strength of our 2022 cash flow generation allowed us to pay our distribution to our investors, to invest capital in our existing business, complete the acquisition of assets from Community Service Stations in November, and pay down $48 million on our credit facilities. This combination of strong operating results and deleveraging has resulted in a continued moderation of our leverage ratio over the course of 2022. As of December 31, 2022, if we were to calculate a leverage ratio for the organization overall as defined in our credit agreements, taking into account our total debt levels, our blended aggregate leverage ratio would be around 3.9x compared to 4.1x at the end of the third quarter and 5.1x at the end of the fourth quarter of 2021.

We will continue to focus on our operational performance and associated cash flow generation to manage our leverage ratio at approximately 4x on both the credit facility-defined and blended aggregate basis. In conclusion, as Charles noted, we were pleased to wrap up a very strong 2022 with a positive fourth quarter. Over the course of the year, we were able to utilize our positive operational performance to continue to strengthen our balance sheet, acquire attractive assets and position us well as we enter 2023. With that, I’ll ask Hilda, if you can please open the line for questions.

Operator:

Charles Nifong: It appears we don’t have any questions today. Should you have some questions later, please reach out to us. We’ll be happy to address them. We thank everyone for joining us on the call today. Have a good day.

Operator: Thank you. This concludes today’s conference. Thank you for participating. You may now disconnect.