ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, credit ratings, distribution growth, potential growth opportunities, potential operating performance improvements, potential improvements in return on capital employed, the effects of competition and the effects of future legislation or regulations. You can identify our forward-looking statements by the words “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “guidance,” “outlook,” “effort,” “target” and similar expressions. Such statements are based on our current plans and expectations and involve risks and uncertainties that could potentially affect actual results. These forward-looking statements include, among other things, statements regarding:
•future retail and wholesale gross profits, including gasoline, diesel and convenience store merchandise gross profits;
•our anticipated level of capital investments, primarily through acquisitions, and the effect of these capital investments on our results of operations;
•anticipated trends in the demand for, and volumes sold of, gasoline and diesel in the regions where we operate;
•volatility in the equity and credit markets limiting access to capital markets;
•our ability to integrate acquired businesses;
•expectations regarding environmental, tax and other regulatory initiatives;
•the effect of general economic and other conditions on our business; and
•the anticipated results from the assets recently acquired from 7-Eleven.
In general, we based the forward-looking statements included in this report on our current expectations, estimates and projections about our company and the industry in which we operate. We caution you that these statements are not guarantees of future performance and involve risks and uncertainties we cannot predict. We anticipate that subsequent events and market developments will cause our estimates to change. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecasted in the forward-looking statements. Any differences could result from a variety of factors, including the following:
•the Topper Group’s business strategy and operations and the Topper Group’s conflicts of interest with us;
•availability of cash flow to pay the current quarterly distributions on our common units;
•the availability and cost of competing motor fuels;
•motor fuel price volatility, including as a result of the conflict in Ukraine, or a reduction in demand for motor fuels, including as a result of the COVID-19 Pandemic;
•competition in the industries and geographical areas in which we operate;
•the consummation of financing, acquisition or disposition transactions and the effect thereof on our business;
•environmental compliance and remediation costs;
•our existing or future indebtedness and the related interest expense and our ability to comply with debt covenants;
•our liquidity, results of operations and financial condition;
•failure to comply with applicable tax and other regulations or governmental policies;
•future legislation and changes in regulations, governmental policies, immigration laws and restrictions or changes in enforcement or interpretations thereof;
•future regulations and actions that could expand the non-exempt status of employees under the Fair Labor Standards Act;
•future income tax legislation;
18
•changes in energy policy;
•the impact of worldwide economic and political conditions;
•the impact of wars and acts of terrorism;
•weather conditions or catastrophic weather-related damage;
•earthquakes and other natural disasters;
•hazards and risks associated with transporting and storing motor fuel;
•unexpected environmental liabilities;
•the outcome of pending or future litigation; and
•our ability to comply with federal and state laws and regulations, including those related to environmental matters, the sale of alcohol, cigarettes and fresh foods, employment and health benefits, including the Affordable Care Act, immigration and international trade.
You should consider the risks and uncertainties described above and elsewhere in this report as well as those set forth in the section entitled “Risk Factors” in our Form 10-K in connection with considering any forward-looking statements that may be made by us and our businesses generally. We cannot assure you that anticipated results or events reflected in the forward-looking statements will be achieved or will occur. The forward-looking statements included in this report are made as of the date of this report. We undertake no obligation to publicly release any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events after the date of this report, except as required by law.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following MD&A is intended to help the reader understand our results of operations and financial condition. This section is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to these financial statements contained elsewhere in this report, and the MD&A section and the consolidated financial statements and accompanying notes to those financial statements in our Form 10-K. Our Form 10-K contains a discussion of other matters not included herein, such as disclosures regarding critical accounting policies and estimates and contractual obligations.
MD&A is organized as follows:
•Recent Developments—This section describes significant recent developments.
•Significant Factors Affecting Our Profitability—This section describes the significant impact on our results of operations caused by crude oil commodity price volatility, seasonality and acquisition and financing activities.
•Results of Operations—This section provides an analysis of our results of operations, including the results of operations of our business segments, for the three and six months ended June 30, 2022 and 2021 and non-GAAP financial measures.
•Liquidity and Capital Resources—This section provides a discussion of our financial condition and cash flows. It also includes a discussion of our debt, capital requirements, other matters impacting our liquidity and capital resources and an outlook for our business.
•New Accounting Policies—This section describes new accounting pronouncements that we have already adopted, those that we are required to adopt in the future and those that became applicable in the current year as a result of new circumstances.
•Critical Accounting Policies Involving Critical Accounting Estimates—This section describes the accounting policies and estimates that we consider most important for our business and that require significant judgment.
19
Recent Developments
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 working capital), of which $1.8 million will be paid on or prior to February 8, 2027.
We funded these transactions primarily through the JKM Credit Facility, undrawn capacity under our CAPL Credit Facility and cash on hand.
See Note 2 to the financial statements for additional information regarding this acquisition.
Issuance of Preferred Membership Interests
On March 29, 2022, Holdings issued and sold 12,500 newly created Series A Preferred Interests to each of (i) Dunne Manning JKM LLC (the “DM Investor”), an entity affiliated with Joseph V. Topper, Jr., and (ii) John B. Reilly, III and a trust affiliated with Mr. Reilly ("the JBR Trust" and together with Mr. Reilly, the “JBR Investor;” and the JBR Investor, together with the DM Investor, the "Investors" and, each, an “Investor”) at a price of $1,000 per Series A Preferred Interest, for an aggregate purchase price of $25 million in cash (the “Preferred Issuance”), in reliance upon an exemption from the registration requirements provided by Section 4(a)(2) of the Securities Act of 1933, as amended. The Preferred Issuance was consummated pursuant to an Investment Agreement, entered into as of March 29, 2022 (the “Investment Agreement”), by and among Holdings and each Investor. Following the Preferred Issuance, the Partnership indirectly retains 100% of the common interests of Holdings, and Holdings remains a consolidated subsidiary of the Partnership.
In light of the relationships between the Investors and the Partnership, the Preferred Issuance was reviewed by, and received the approval and recommendation of, the conflicts committee of the Board prior to execution of the Investment Agreement and consummation of the Preferred Issuance.
In connection with the Preferred Issuance, on March 29, 2022, LGP Operations LLC, a wholly owned subsidiary of the Partnership, each Investor and the Partnership entered into an amended and restated limited liability company agreement of Holdings to, among other things, set forth the rights, preferences, entitlements, restrictions and limitations of the Series A Preferred Interests. The Series A Preferred Interests have an initial liquidation preference of $1,000 per Series A Preferred Interest and are entitled to a preferred return at a rate of 9% per annum on the liquidation preference, compounded quarterly (the “preferred return”). Prior to October 16, 2026, the Series A Preferred Interests will not be entitled to receive distributions, but the preferred return instead will accumulate solely by way of an increase in the liquidation preference of the Series A Preferred Interests. From and after October 16, 2026, the preferred return will be payable in cash, on a quarterly basis. The Series A Preferred Interests are subject to exchange (i) upon a liquidation or deemed liquidation event of Holdings, (ii) upon a change of control of the Partnership, (iii) from and after March 1, 2024, at the option of the Partnership and Holdings, and (iv) on March 31, 2029, if any Series A Preferred Interests remain outstanding on such date (each of (i) through (iv), an “exchange”). Upon an exchange of any Series A Preferred Interests, the holders thereof will surrender each such Series A Preferred Interest in exchange for an amount equal to the then-current liquidation preference of such Series A Preferred Interest plus any preferred return accrued and unpaid with respect to the period from and after October 16, 2026 (the “Exchange Price”). The Exchange Price will be payable in common units of the Partnership or, if any holder of Series A Preferred Interests so elects, in cash. Any common units of the Partnership issued upon any exchange in payment of the Exchange Price will be valued at an amount equal to $23.74 per common unit, which is equal to 115% of the volume weighted average price of a Partnership common unit on the NYSE over the twenty trading-day period ending on March 28, 2022, the trading day immediately prior to the date of the Preferred Issuance.
The net proceeds received by Holdings in its sale of the Series A Preferred Interests were contributed to CAPL JKM Partners, which in turn used such proceeds to prepay a portion of the outstanding indebtedness under the Term Loan Facility. As a result of this prepayment, CAPL JKM Partners does not need to make a principal payment on the Term Loan Facility until April 1, 2023.
See Note 13 to the financial statements for additional information on the preferred membership interests.
20
COVID-19 Pandemic
During the first quarter of 2020, an outbreak of a novel strain of coronavirus spread worldwide, including to the U.S., posing public health risks that reached pandemic proportions. We experienced a sharp decrease in fuel volume in mid-to-late March 2020. Although fuel volumes largely recovered during the second half of 2020 and continued to recover in 2021 and 2022, we cannot predict the scope and severity with which COVID-19 will impact our business. Sustained decreases in fuel volume, erosion of margin and/or volatility in fuel prices could have a material adverse effect on our results of operations, cash flow, financial position and ultimately our ability to pay distributions.
Significant Factors Affecting our Profitability
The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit
Wholesale segment
The prices paid to our motor fuel suppliers for wholesale motor fuel (which affects our cost of sales) are highly correlated to the price of crude oil. The crude oil commodity markets are highly volatile, and the market prices of crude oil, and, correspondingly, the market prices of wholesale motor fuel, experience significant and rapid fluctuations. For approximately 61% of gallons sold to our customers, we receive a per gallon rate equal to the posted rack price, less any applicable discounts, plus transportation costs, taxes and a fixed rate per gallon of motor fuel. The remaining gallons are primarily DTW priced contracts, including intersegment sales to the retail segment. These contracts provide for variable, market-based pricing.
Regarding our supplier relationships, a majority of our total gallons purchased are subject to terms discounts. The dollar value of these discounts varies with changes in motor fuel prices. Therefore, in periods of lower wholesale motor fuel prices, our gross profit is negatively affected, and, in periods of higher wholesale motor fuel prices, our gross profit is positively affected (as it relates to these discounts).
Retail segment
We attempt to pass along wholesale motor fuel price changes to our retail customers through “at the pump” retail price changes; however, market conditions do not always allow us to do so immediately. The timing of any related increase or decrease in “at the pump” retail prices is affected by competitive conditions in each geographic market in which we operate. As such, the prices we charge our customers for motor fuel and the gross profit we receive on our motor fuel sales can increase or decrease significantly over short periods of time.
Changes in our average motor fuel selling price per gallon and gross margin are directly related to the changes in crude oil and wholesale motor fuel prices. Variations in our reported revenues and cost of sales are, therefore, primarily related to the price of crude oil and wholesale motor fuel prices and generally not as a result of changes in motor fuel sales volumes, unless otherwise indicated and discussed below.
Seasonality Effects on Volumes
Our business is subject to 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 months) and lowest during the winter months in the first and fourth quarters.
Impact of Inflation
Inflation affects our financial performance by increasing certain components of cost of goods sold, such as fuel, merchandise, and credit card fees. Inflation also affects certain operating expenses, such as labor costs, certain leases, and general and administrative expenses. While our wholesale segment benefits from higher terms discounts as a result of higher fuel costs, inflation could and recently has negatively impacted our cost of goods sold and operating expenses. Although we have historically been able to pass on increased costs through price increases, there can be no assurance that we will be able to do so in the future.
21
Acquisition and Financing Activity
Our results of operations and financial condition are also impacted by our acquisition and financing activities as summarized below.
•From late June 2021 through December 31, 2021, we closed on the purchase of 103 sites of our 106-site acquisition from 7-Eleven, and in July 2021, we entered into a new credit agreement and amended our existing credit facility as further described in Notes 3 and 12 to the financial statements. In February 2022, we closed on the final three properties.
•In March 2022, Holdings issued $25 million in preferred membership interests as further described in Note 13 to the financial statements.
Results of Operations
Consolidated Income Statement Analysis
Below is an analysis of our consolidated statements of operations and provides the primary reasons for significant increases and decreases in the various income statement line items from period to period. Our consolidated statements of operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Operating revenues |
|
$ |
1,475,033 |
|
|
$ |
859,334 |
|
|
$ |
2,568,244 |
|
|
$ |
1,516,618 |
|
Costs of sales |
|
|
1,386,088 |
|
|
|
794,240 |
|
|
|
2,400,469 |
|
|
|
1,396,656 |
|
Gross profit |
|
|
88,945 |
|
|
|
65,094 |
|
|
|
167,775 |
|
|
|
119,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
42,216 |
|
|
|
31,070 |
|
|
|
84,325 |
|
|
|
60,473 |
|
General and administrative expenses |
|
|
5,680 |
|
|
|
6,876 |
|
|
|
12,163 |
|
|
|
14,526 |
|
Depreciation, amortization and accretion expense |
|
|
19,919 |
|
|
|
19,583 |
|
|
|
40,194 |
|
|
|
37,614 |
|
Total operating expenses |
|
|
67,815 |
|
|
|
57,529 |
|
|
|
136,682 |
|
|
|
112,613 |
|
(Loss) gain on dispositions and lease terminations, net |
|
|
(58 |
) |
|
|
597 |
|
|
|
(302 |
) |
|
|
(51 |
) |
Operating income |
|
|
21,072 |
|
|
|
8,162 |
|
|
|
30,791 |
|
|
|
7,298 |
|
Other income, net |
|
|
102 |
|
|
|
204 |
|
|
|
232 |
|
|
|
292 |
|
Interest expense |
|
|
(7,321 |
) |
|
|
(3,870 |
) |
|
|
(13,982 |
) |
|
|
(7,367 |
) |
Income before income taxes |
|
|
13,853 |
|
|
|
4,496 |
|
|
|
17,041 |
|
|
|
223 |
|
Income tax benefit |
|
|
(113 |
) |
|
|
(293 |
) |
|
|
(1,972 |
) |
|
|
(599 |
) |
Net income |
|
|
13,966 |
|
|
|
4,789 |
|
|
|
19,013 |
|
|
|
822 |
|
Accretion of preferred membership interests |
|
|
563 |
|
|
|
— |
|
|
|
563 |
|
|
|
— |
|
Net income available to limited partners |
|
$ |
13,403 |
|
|
$ |
4,789 |
|
|
$ |
18,450 |
|
|
$ |
822 |
|
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
Consolidated Results
Operating revenues increased $616 million (72%) and gross profit increased $24 million (37%).
Operating revenues
Significant items impacting these results prior to the elimination of intercompany revenues were:
•A $561 million (75%) increase in our wholesale segment revenues primarily attributable to a 64% increase in the average daily spot price of WTI crude oil to $108.83 per barrel for the second quarter of 2022, compared to $66.19 per barrel for the second quarter of 2021. The wholesale price of motor fuel is highly correlated to the price of crude oil. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit.” In addition, volume increased 3% primarily as a result of volume generated by the acquisition of assets from 7-Eleven, partially offset by lower volume in our base business (i.e., results excluding the results from the assets acquired from 7-Eleven).
22
•A $349 million (113%) increase in our retail segment revenues primarily attributable to a 55% increase in the average retail fuel price from the second quarter of 2021 to the second quarter of 2022 primarily due to the increase in wholesale motor fuel prices as noted above. Volume also increased 43% for the second quarter of 2022 compared to the second quarter of 2021 as a result of the acquisition of assets from 7-Eleven. Lastly, merchandise revenues increased $29 million (64%) driven by the acquisition of assets from 7-Eleven.
Intersegment revenues
We present the results of operations of our segments on a consistent basis with how our management views the business. Therefore, our segments are presented before intersegment eliminations (which consist of motor fuel sold by our wholesale segment to our retail segment). As a result, in order to reconcile to our consolidated change in operating revenues, a discussion of the change in intersegment revenues is included in our consolidated MD&A discussion.
Our intersegment revenues increased $295 million (148%), primarily attributable to the increase in wholesale fuel prices and the incremental intersegment revenues generated by the company operated sites acquired in the acquisition of assets from 7-Eleven.
Cost of sales
Cost of sales increased $592 million (75%), which was a result of the increase in wholesale motor fuel prices and the acquisition of assets from 7-Eleven discussed above.
Gross profit
Gross profit increased $24 million (37%), which was primarily driven by increases in motor fuel, merchandise and other gross profit due to the acquisition of assets from 7-Eleven along with realizing a higher margin per gallon. See “Results of Operations—Segment Results” for additional gross profit analyses.
Operating expenses
See “Results of Operations—Segment Results” for analyses.
General and administrative expenses
General and administrative expenses decreased $1.2 million (17%) primarily due to a $2.0 million decrease in acquisition-related costs driven by a reduction in legal fees incurred in connection with the acquisition of assets from 7-Eleven as compared to the second quarter of 2021, partially offset by higher software and information technology consulting costs, recruiting costs and management fees.
Depreciation, amortization and accretion expense
Depreciation, amortization and accretion expense increased $0.3 million (2%) primarily from incremental depreciation, amortization and accretion expense from the property and equipment and intangible assets acquired in the acquisition of assets from 7-Eleven. This increase was partially offset by a $2.4 million decrease in impairment charges as compared to the same period of 2021 related to our ongoing real estate rationalization effort and the resulting reclassification of these sites to assets held for sale.
Gain on dispositions and lease terminations, net
During the three months ended June 30, 2022, we recorded net losses on lease terminations and asset disposals, partially offset by a $0.5 million net gain in connection with our ongoing real estate rationalization effort.
During the three months ended June 30, 2021, we recorded a $1.1 million net gain in connection with our ongoing real estate rationalization effort, partially offset by net losses on lease terminations and asset disposals.
23
Interest expense
Interest expense increased $3.5 million (89%), primarily driven by $1.4 million in interest expense incurred on the JKM Credit Facility along with a $0.4 million increase in amortization of deferred financing costs as a result of entering into the JKM Credit Facility and the amendment to the CAPL Credit Facility. In addition, we incurred $1.6 million more in interest expense on the CAPL Credit Facility (net of the impact of the interest rate swaps) due both to an increase in the LIBOR rate and the higher outstanding balance driven by the borrowings to fund a portion of the purchase price of the acquisition of assets from 7-Eleven.
Income tax benefit
We recorded income tax benefits of $0.1 million and $0.3 million for the three months ended June 30, 2022 and 2021, respectively, driven by losses incurred by our taxable subsidiaries.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Consolidated Results
Operating revenues increased $1.1 billion (69%) and gross profit increased $48 million (40%).
Operating revenues
Significant items impacting these results prior to the elimination of intercompany revenues were:
•A $946 million (72%) increase in our wholesale segment revenues primarily attributable to a 64% increase in the average daily spot price of WTI crude oil to $102.01 per barrel for the six months ended June 30, 2022 compared to $62.21 per barrel for the six months ended June 30, 2021. The wholesale price of motor fuel is highly correlated to the price of crude oil. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit.” In addition, volume increased 6% primarily as a result of volume generated by the acquisition of assets from 7-Eleven, partially offset by lower volume in our base business (i.e., results excluding the results from the assets acquired from 7-Eleven).
•A $600 million (109%) increase in our retail segment revenues primarily attributable to a 50% increase in the average retail fuel price for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily due to the increase in wholesale motor fuel prices as noted above. Volume also increased 46% for the six months ended June 30, 2022 compared to the same period of 2021 as a result of the acquisition of assets from 7-Eleven. Lastly, merchandise revenues increased $53 million (64%) driven by the acquisition of assets from 7-Eleven.
Intersegment revenues
We present the results of operations of our segments on a consistent basis with how our management views the business. Therefore, our segments are presented before intersegment eliminations (which consist of motor fuel sold by our wholesale segment to our retail segment). As a result, in order to reconcile to our consolidated change in operating revenues, a discussion of the change in intersegment revenues is included in our consolidated MD&A discussion.
Our intersegment revenues increased $494 million (144%), primarily attributable to the increase in wholesale fuel prices and the incremental intersegment revenues generated by the company operated sites acquired in the acquisition of assets from 7-Eleven.
Cost of sales
Cost of sales increased $1.0 billion (72%), which was a result of the increase in wholesale motor fuel prices and the acquisition of assets from 7-Eleven discussed above.
Gross profit
Gross profit increased $48 million (40%), which was primarily driven by increases in motor fuel, merchandise and other gross profit due to the acquisition of assets from 7-Eleven along with realizing a higher margin per gallon. See “Results of Operations—Segment Results” for additional gross profit analyses.
24
Operating expenses
See “Results of Operations—Segment Results” for analyses.
General and administrative expenses
General and administrative expenses decreased $2.4 million (16%) primarily due to a $3.5 million decrease in acquisition-related costs driven by a reduction in legal fees incurred in connection with the acquisition of assets from 7-Eleven as compared to the six months ended June 30, 2021, partially offset by higher software and information technology consulting costs, recruiting costs and management fees.
Depreciation, amortization and accretion expense
Depreciation, amortization and accretion expense increased $2.6 million (7%) primarily from incremental depreciation, amortization and accretion expense from the property and equipment and intangible assets acquired in the acquisition of assets from 7-Eleven. This increase was partially offset by a $4.0 million decrease in impairment charges as compared to the same period of 2021 related to our ongoing real estate rationalization effort and the resulting reclassification of these sites to assets held for sale.
Gain (loss) on dispositions and lease terminations, net
During the six months ended June 30, 2022, we recorded net losses on lease terminations and asset disposals, partially offset by a $0.9 million gain in connection with our ongoing real estate rationalization effort.
During the six months ended June 30, 2021, we recorded net losses on lease terminations and asset disposals, partially offset by a $1.1 million gain in connection with our ongoing real estate rationalization effort.
Interest expense
Interest expense increased $6.6 million (90%), primarily driven by $2.6 million in interest expense incurred on the JKM Credit Facility along with a $0.8 million increase in amortization of deferred financing costs as a result of entering into the JKM Credit Facility and the amendment to the CAPL Credit Facility. In addition, we incurred $3.2 million more in interest expense on the CAPL Credit Facility (net of the impact of the interest rate swaps) due both to an increase in the LIBOR rate and the higher outstanding balance driven by the borrowings to fund a portion of the purchase price of the acquisition of assets from 7-Eleven.
Income tax benefit
We recorded income tax benefits of $2.0 million and $0.6 million for the six months ended June 30, 2022 and 2021, respectively, driven by losses incurred by our taxable subsidiaries.
Segment Results
We present the results of operations of our segments consistent with how our management views the business. Therefore, our segments are presented before intersegment eliminations (which consist of motor fuel sold by our wholesale segment to our retail segment). These comparisons are not necessarily indicative of future results.
25
Wholesale
The following table highlights the results of operations and certain operating metrics of our wholesale segment. The narrative following these tables provides an analysis of the results of operations of that segment (thousands of dollars, except for the number of distribution sites and per gallon amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel–third party |
|
$ |
19,034 |
|
|
$ |
18,529 |
|
|
$ |
35,219 |
|
|
$ |
34,052 |
|
Motor fuel–intersegment and related party |
|
|
21,467 |
|
|
|
11,961 |
|
|
|
38,086 |
|
|
|
17,690 |
|
Motor fuel gross profit |
|
|
40,501 |
|
|
|
30,490 |
|
|
|
73,305 |
|
|
|
51,742 |
|
Rent gross profit |
|
|
12,646 |
|
|
|
12,973 |
|
|
|
24,985 |
|
|
|
25,466 |
|
Other revenues |
|
|
1,807 |
|
|
|
729 |
|
|
|
3,593 |
|
|
|
1,863 |
|
Total gross profit |
|
|
54,954 |
|
|
|
44,192 |
|
|
|
101,883 |
|
|
|
79,071 |
|
Operating expenses |
|
|
(10,690 |
) |
|
|
(10,948 |
) |
|
|
(20,762 |
) |
|
|
(20,922 |
) |
Operating income |
|
$ |
44,264 |
|
|
$ |
33,244 |
|
|
$ |
81,121 |
|
|
$ |
58,149 |
|
Motor fuel distribution sites (end of period): (a) |
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel–third party |
|
|
|
|
|
|
|
|
|
|
|
|
Independent dealers (b) |
|
|
637 |
|
|
|
675 |
|
|
|
637 |
|
|
|
675 |
|
Lessee dealers (c) |
|
|
645 |
|
|
|
651 |
|
|
|
645 |
|
|
|
651 |
|
Total motor fuel distribution–third party sites |
|
|
1,282 |
|
|
|
1,326 |
|
|
|
1,282 |
|
|
|
1,326 |
|
Motor fuel–intersegment and related party |
|
|
|
|
|
|
|
|
|
|
|
|
Commission agents (Retail segment) (c) |
|
|
199 |
|
|
|
202 |
|
|
|
199 |
|
|
|
202 |
|
Company operated retail sites (Retail segment) (d) |
|
|
253 |
|
|
|
152 |
|
|
|
253 |
|
|
|
152 |
|
Total motor fuel distribution–intersegment and related party sites |
|
|
452 |
|
|
|
354 |
|
|
|
452 |
|
|
|
354 |
|
Motor fuel distribution sites (average during the period): |
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel-third party distribution |
|
|
1,289 |
|
|
|
1,328 |
|
|
|
1,295 |
|
|
|
1,333 |
|
Motor fuel-intersegment and related party distribution |
|
|
454 |
|
|
|
353 |
|
|
|
454 |
|
|
|
355 |
|
Total motor fuel distribution sites |
|
|
1,743 |
|
|
|
1,681 |
|
|
|
1,749 |
|
|
|
1,688 |
|
Volume of gallons distributed (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Third party |
|
|
214,413 |
|
|
|
242,392 |
|
|
|
418,328 |
|
|
|
456,100 |
|
Intersegment and related party |
|
|
128,425 |
|
|
|
89,233 |
|
|
|
244,754 |
|
|
|
167,305 |
|
Total volume of gallons distributed |
|
|
342,838 |
|
|
|
331,625 |
|
|
|
663,082 |
|
|
|
623,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale margin per gallon |
|
$ |
0.118 |
|
|
$ |
0.092 |
|
|
$ |
0.111 |
|
|
$ |
0.083 |
|
(a)In addition, as of June 30, 2022 and 2021, respectively, we distributed motor fuel to 15 and 14 sub-wholesalers who distributed to additional sites.
(b)The decrease in the independent dealer site count was primarily attributable to loss of contracts, most of which were lower margin, partially offset by the increase in independent dealer sites as a result of the real estate rationalization effort and the resulting reclassification of the site from a lessee dealer or commission site to an independent dealer site when we continue to supply the site after divestiture.
(c)The decreases in the lessee dealer and commission agent site counts were primarily attributable to our real estate rationalization effort.
(d)The increase in the company operated site count was primarily attributable to the 106 company operated sites acquired from 7-Eleven.
26
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
Gross profit increased $10.8 million (24%) and operating income increased $11.0 million (33%). These results were impacted by:
Motor fuel gross profit
The $10.0 million (33%) increase in motor fuel gross profit was primarily driven by a 28% increase in our average margin per gallon compared to the second quarter of 2021. Our DTW margins were higher for the second quarter of 2022 as compared to the second quarter of 2021 due to greater volatility in the price of crude oil in the second quarter of 2022 as compared to the second quarter of 2021. In addition, we benefited from higher terms discounts as a result of higher crude prices. The average spot price of WTI crude oil increased 64% from $66.19 per barrel for the second quarter of 2021 to $108.83 per barrel for the second quarter of 2022. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit.” In addition, volume increased 3% primarily as a result of volume generated by the acquisition of assets from 7-Eleven, partially offset by lower volume in our base business (i.e., results excluding the results from the assets acquired from 7-Eleven).
Other revenues
Other revenues increased $1.1 million (148%) due primarily to higher take-or-pay income related to minimum purchase quantities on our dealer contracts.
Operating expenses
Operating expenses decreased $0.3 million (2%), primarily as a result of a decrease in maintenance and environmental costs, partially offset by an increase in management fees relating to an increase in headcount.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Gross profit increased $22.8 million (29%) and operating income increased $23.0 million (40%). The results were driven by:
Motor fuel gross profit
The $21.6 million (42%) increase in motor fuel gross profit was primarily driven by a 33% increase in our average margin per gallon compared to the six months ended June 30, 2021. Our DTW margins were higher for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 due to greater volatility in the price of crude oil in the first half of 2022 as compared to the first half of 2021. In addition, we benefited from higher terms discounts as a result of higher crude prices. The average spot price of WTI crude oil increased 64% from $62.21 per barrel for the six months ended June 30, 2021 to $102.01 per barrel for the six months ended June 30, 2022. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit.” In addition, volume increased 6% primarily as a result of volume generated by the acquisition of assets from 7-Eleven, partially offset by lower volume in our base business (i.e., results excluding the results from the assets acquired from 7-Eleven).
Other revenues
Other revenues increased $1.7 million (93%) due primarily to higher take-or-pay income related to minimum purchase quantities on our dealer contracts.
Operating expenses
Operating expenses decreased $0.2 million (1%), primarily as a result of a decrease in maintenance and environmental costs, partially offset by an increase in management fees relating to an increase in headcount.
27
Retail
The following table highlights the results of operations and certain operating metrics of our retail segment. The narrative following these tables provides an analysis of the results of operations of that segment (in thousands, except for the number of retail sites):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel |
|
$ |
9,329 |
|
|
$ |
4,937 |
|
|
$ |
19,825 |
|
|
$ |
10,370 |
|
Merchandise |
|
|
20,165 |
|
|
|
11,969 |
|
|
|
36,847 |
|
|
|
22,333 |
|
Rent |
|
|
2,258 |
|
|
|
1,858 |
|
|
|
4,705 |
|
|
|
3,924 |
|
Other revenue |
|
|
3,194 |
|
|
|
2,311 |
|
|
|
6,282 |
|
|
|
4,170 |
|
Total gross profit |
|
|
34,946 |
|
|
|
21,075 |
|
|
|
67,659 |
|
|
|
40,797 |
|
Operating expenses |
|
|
(31,526 |
) |
|
|
(20,122 |
) |
|
|
(63,563 |
) |
|
|
(39,551 |
) |
Operating income |
|
$ |
3,420 |
|
|
$ |
953 |
|
|
$ |
4,096 |
|
|
$ |
1,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail sites (end of period): |
|
|
|
|
|
|
|
|
|
|
|
|
Commission agents (a) |
|
|
199 |
|
|
|
202 |
|
|
|
199 |
|
|
|
202 |
|
Company operated retail sites(b) |
|
|
253 |
|
|
|
152 |
|
|
|
253 |
|
|
|
152 |
|
Total system sites at the end of the period |
|
|
452 |
|
|
|
354 |
|
|
|
452 |
|
|
|
354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total system operating statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
Average retail fuel sites during the period |
|
|
454 |
|
|
|
353 |
|
|
|
454 |
|
|
|
355 |
|
Volume of gallons sold |
|
|
128,815 |
|
|
|
89,806 |
|
|
|
244,855 |
|
|
|
168,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission agents statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
Average retail fuel sites during the period |
|
|
200 |
|
|
|
203 |
|
|
|
200 |
|
|
|
204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company operated retail site statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
Average retail fuel sites during the period |
|
|
254 |
|
|
|
150 |
|
|
|
254 |
|
|
|
151 |
|
Merchandise gross profit percentage |
|
|
27.3 |
% |
|
|
26.5 |
% |
|
|
27.0 |
% |
|
|
26.9 |
% |
(a)The decrease in the commission site count was primarily attributable to our real estate rationalization effort.
(b)The increase in the company operated site count was primarily attributable to the 106 company operated sites acquired from 7-Eleven.
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
Gross profit increased $13.9 million (66%) and operating income increased $2.5 million (259%). These results were impacted by:
Gross profit
•Our motor fuel gross profit increased $4.4 million (89%) attributable to a 43% increase in volume stemming from the sites acquired from 7-Eleven. In addition, we realized a higher margin per gallon for the three months ended June 30, 2022 as compared to the same period in 2021 as company operated sites comprised a greater percentage of the overall retail segment. Our company operated sites typically have a higher retail fuel margin than commission agent sites.
•Our merchandise gross profit and other revenues increased $8.2 million (68%) and $0.9 million (38%), respectively, driven by the sites acquired from 7-Eleven.
Operating expenses
Operating expenses increased $11.4 million (57%) primarily due to an $11.3 million increase driven by the sites acquired from 7-Eleven.
28
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Gross profit increased $26.9 million (66%) and operating income increased $2.9 million (229%). These results were driven by:
Gross profit
•Our motor fuel gross profit increased $9.5 million (91%) attributable to a 46% increase in volume stemming from the sites acquired from 7-Eleven. In addition, we realized a higher margin per gallon for the six months ended June 30, 2022 as compared to the same period in 2021 as company operated sites comprised a greater percentage of the overall retail segment. Our company operated sites typically have a higher retail fuel margin than commission agent sites.
•Our merchandise gross profit and other revenues increased $14.5 million (65%) and $2.1 million (51%), respectively, driven by the sites acquired from 7-Eleven.
Operating expenses
Operating expenses increased $24.0 million (61%) primarily due to a $23.3 million increase driven by the sites acquired from 7-Eleven.
Non-GAAP Financial Measures
We use the non-GAAP financial measures EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio. EBITDA represents net income before deducting interest expense, income taxes and depreciation, amortization and accretion (which includes certain impairment charges). Adjusted EBITDA represents EBITDA as further adjusted to exclude equity-based compensation expense, gains or losses on dispositions and lease terminations, net and certain discrete acquisition related costs, such as legal and other professional fees, separation benefit costs and certain other discrete non-cash items arising from purchase accounting. Distributable Cash Flow represents Adjusted EBITDA less cash interest expense, sustaining capital expenditures and current income tax expense. The Distribution Coverage Ratio is computed by dividing Distributable Cash Flow by distributions paid.
EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio are used as supplemental financial measures by management and by external users of our financial statements, such as investors and lenders. EBITDA and Adjusted EBITDA are used to assess our financial performance without regard to financing methods, capital structure or income taxes and the ability to incur and service debt and to fund capital expenditures. In addition, Adjusted EBITDA is used to assess the operating performance of our business on a consistent basis by excluding the impact of items which do not result directly from the wholesale distribution of motor fuel, the leasing of real property, or the day to day operations of our retail site activities. EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio are also used to assess the ability to generate cash sufficient to make distributions to our unitholders.
We believe the presentation of EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio provides useful information to investors in assessing the financial condition and results of operations. EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio should not be considered alternatives to net income or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP. EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio have important limitations as analytical tools because they exclude some but not all items that affect net income. Additionally, because EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio may be defined differently by other companies in our industry, our definitions may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
29
The following table presents reconciliations of EBITDA, Adjusted EBITDA, and Distributable Cash Flow to net income, the most directly comparable U.S. GAAP financial measure, for each of the periods indicated (in thousands, except for per unit amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Net income (a) |
|
$ |
13,966 |
|
|
$ |
4,789 |
|
|
$ |
19,013 |
|
|
$ |
822 |
|
Interest expense |
|
|
7,321 |
|
|
|
3,870 |
|
|
|
13,982 |
|
|
|
7,367 |
|
Income tax benefit |
|
|
(113 |
) |
|
|
(293 |
) |
|
|
(1,972 |
) |
|
|
(599 |
) |
Depreciation, amortization and accretion expense |
|
|
19,919 |
|
|
|
19,583 |
|
|
|
40,194 |
|
|
|
37,614 |
|
EBITDA |
|
|
41,093 |
|
|
|
27,949 |
|
|
|
71,217 |
|
|
|
45,204 |
|
Equity-based employee and director compensation expense |
|
|
222 |
|
|
|
386 |
|
|
|
954 |
|
|
|
754 |
|
(Gain) loss on dispositions and lease terminations, net |
|
|
58 |
|
|
|
(597 |
) |
|
|
302 |
|
|
|
51 |
|
Acquisition-related costs (b) |
|
|
10 |
|
|
|
1,967 |
|
|
|
878 |
|
|
|
4,361 |
|
Adjusted EBITDA |
|
|
41,383 |
|
|
|
29,705 |
|
|
|
73,351 |
|
|
|
50,370 |
|
Cash interest expense |
|
|
(6,631 |
) |
|
|
(3,610 |
) |
|
|
(12,612 |
) |
|
|
(6,846 |
) |
Sustaining capital expenditures (c) |
|
|
(1,663 |
) |
|
|
(1,040 |
) |
|
|
(3,217 |
) |
|
|
(2,432 |
) |
Current income tax expense |
|
|
(678 |
) |
|
|
(50 |
) |
|
|
(863 |
) |
|
|
(334 |
) |
Distributable Cash Flow |
|
$ |
32,411 |
|
|
$ |
25,005 |
|
|
$ |
56,659 |
|
|
$ |
40,758 |
|
Distributions paid |
|
|
19,904 |
|
|
|
19,884 |
|
|
|
39,800 |
|
|
|
39,765 |
|
Distribution Coverage Ratio (d) |
|
1.63x |
|
|
1.26x |
|
|
1.42x |
|
|
1.02x |
|
(a)Beginning in the second quarter of 2022, we reconcile Adjusted EBITDA to Net Income rather than to Net income available to limited partners. The difference between Net income and Net income available to limited partners is that, beginning in the second quarter of 2022, the accretion of preferred membership interests issued in late March 2022 is a deduction from Net income in computing Net income available to limited partners. Because Adjusted EBITDA is used to assess our financial performance, without regard to capital structure, we believe Adjusted EBITDA should be reconciled with Net Income, so that the calculation isn’t impacted by the accretion of preferred membership interests. This approach is comparable to our reconciliation of Adjusted EBIDTA to Net income available to limited partners in past periods, as we have not recorded accretion of preferred membership interests in past periods.
(b)Relates to certain discrete acquisition related costs, such as legal and other professional fees, separation benefit costs and certain purchase accounting adjustments associated with recently acquired businesses.
(c)Under the Partnership Agreement, sustaining capital expenditures are capital expenditures made to maintain our long-term operating income or operating capacity. Examples of sustaining capital expenditures are those made to maintain existing contract volumes, including payments to renew existing distribution contracts, or to maintain our sites in conditions suitable to lease, such as parking lot or roof replacement/renovation, or to replace equipment required to operate the existing business.
(d)In 2022, we updated our calculation of our Distribution Coverage Ratio to divide Distributable Cash Flow by distributions paid, whereas in prior periods, our Distribution Coverage Ratio was calculated as Distributable Cash Flow divided by the weighted-average diluted common units and then divided that result by distributions paid per limited partner unit.
Liquidity and Capital Resources
Liquidity
Our principal liquidity requirements are to finance our operations, fund acquisitions, service our debt and pay distributions to our unitholders. We expect our ongoing sources of liquidity to include cash generated by operations, proceeds from sales of sites in connection with our real estate rationalization efforts, borrowings under the CAPL Credit Facility and JKM Credit Facility, and if available to us on acceptable terms, issuances of equity and debt securities. We regularly evaluate alternate sources of capital to support our liquidity requirements.
Our ability to meet our debt service obligations and other capital requirements, including capital expenditures, acquisitions, and partnership distributions, will depend on our future operating performance, which, in turn, will be subject to general economic, financial, business, competitive, legislative, regulatory and other conditions, many of which are beyond our control. As a normal part of our business, depending on market conditions, we will, from time to time, consider opportunities to repay, redeem, repurchase or refinance our indebtedness. Changes in our operating plans, lower than anticipated sales, increased expenses, acquisitions or other events may cause us to seek additional debt or equity financing in future periods.
30
We believe that we will have sufficient cash flow from operations, borrowing capacity under the CAPL Credit Facility and JKM Credit Facility, access to capital markets and alternate sources of funding to meet our financial commitments, debt service obligations, contingencies, anticipated capital expenditures and partnership distributions. However, we are subject to business and operational risks that could adversely affect our cash flow. A material decrease in our cash flows would likely produce an adverse effect on our borrowing capacity as well as our ability to issue additional equity and/or debt securities and/or maintain or increase distributions to unitholders.
See “Recent Developments—COVID-19 Pandemic” for a discussion of the impacts and potential impacts on our liquidity from the COVID-19 Pandemic.
Cash Flows
The following table summarizes cash flow activity (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
Net cash provided by operating activities |
|
$ |
54,659 |
|
|
$ |
41,014 |
|
Net cash used in investing activities |
|
|
(14,429 |
) |
|
|
(20,392 |
) |
Net cash used in financing activities |
|
|
(44,306 |
) |
|
|
(20,514 |
) |
Operating Activities
Net cash provided by operating activities increased $13.6 million for the six months ended June 30, 2022 compared to the same period in 2021, primarily attributable to the incremental cash flow generated by the sites acquired from 7-Eleven and the strong DTW margins in the first half of 2022.
As is typical in our industry, our current liabilities exceed our current assets as a result of the longer settlement of real estate and motor fuel taxes as well as operating lease obligations as compared to the shorter settlement of receivables for fuel and rent.
Investing Activities
We incurred capital expenditures of $16.4 million and $21.9 million for the six months ended June 30, 2022 and 2021, respectively. The decrease was largely driven by reductions in EMV upgrades and rebranding of certain sites, including the sites acquired from 7-Eleven. We paid $1.9 million and $4.2 million during the six months ended June 30, 2022 and 2021, respectively, in connection with the closing of sites acquired from 7-Eleven. We received $3.8 million and $5.6 million in proceeds primarily from the sale of sites in connection with our real estate rationalization effort for the six months ended June 30, 2022 and 2021, respectively.
Financing Activities
We paid $39.9 million and $39.8 million in distributions for the six months ended June 30, 2022 and 2021, respectively. For the six months ended June 30, 2022 and 2021, respectively, we made total net repayments and net borrowings on our credit facilities of $27.5 million and $20.6 million. We received $24.4 million in net proceeds from the issuance of preferred membership interests during the six months ended June 30, 2022.
Distributions
Distribution activity for 2022 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Record Date |
|
Payment Date |
|
Cash Distribution (per unit) |
|
|
Cash Distribution (in thousands) |
|
December 31, 2021 |
|
February 3, 2022 |
|
February 10, 2022 |
|
|
0.5250 |
|
|
|
19,896 |
|
March 31, 2022 |
|
May 3, 2022 |
|
May 11, 2022 |
|
|
0.5250 |
|
|
|
19,904 |
|
June 30, 2022 |
|
August 3, 2022 |
|
August 10, 2022 |
|
|
0.5250 |
|
|
|
19,913 |
|
The amount of any distribution is subject to the discretion of the Board, which may modify or revoke our cash distribution policy at any time. Our Partnership Agreement does not require us to pay any distributions. As such, there can be no assurance we will continue to pay distributions in the future.
31
Debt
As of June 30, 2022, our debt and finance lease obligations consisted of the following (in thousands):
|
|
|
|
|
CAPL Credit Facility |
|
$ |
626,555 |
|
JKM Credit Facility |
|
|
158,980 |
|
Finance lease obligations |
|
|
15,471 |
|
Total debt and finance lease obligations |
|
|
801,006 |
|
Current portion |
|
|
5,575 |
|
Noncurrent portion |
|
|
795,431 |
|
Deferred financing costs, net |
|
|
7,232 |
|
Noncurrent portion, net of deferred financing costs |
|
$ |
788,199 |
|
Taking the interest rate swap contracts into account, our effective interest rate on our CAPL Credit Facility at June 30, 2022 was 3.2% (our applicable margin was 2.25% as of June 30, 2022). Letters of credit outstanding under our CAPL Credit Facility at June 30, 2022 totaled $4.0 million.
Our effective interest rate on our JKM Credit Facility at June 30, 2022 was 3.6% (our applicable margin was 2.5% as of June 30, 2022). Letters of credit outstanding under our JKM Credit Facility at June 30, 2022 totaled $0.8 million.
The amount of availability under our CAPL Credit Facility at August 4, 2022, after taking into consideration debt covenant restrictions, was $135.5 million.
The amount of availability under the JKM Credit Facility at August 4, 2022, after taking into consideration debt covenant restrictions, was $10.0 million.
Capital Expenditures
We make investments to expand, upgrade and enhance existing assets. We categorize our capital requirements as either sustaining capital expenditures, growth capital expenditures or acquisition capital expenditures. Sustaining capital expenditures are those capital expenditures required to maintain our long-term operating income or operating capacity. Acquisition and growth capital expenditures are those capital expenditures that we expect will increase our operating income or operating capacity over the long term. We have the ability to fund our capital expenditures by additional borrowings under our CAPL Credit Facility, JKM Credit Facility, or, if available to us on acceptable terms, accessing the capital markets and issuing additional equity, debt securities or other options, such as the sale of assets. Our ability to access the capital markets may have an impact on our ability to fund acquisitions. We may not be able to complete any offering of securities or other options on terms acceptable to us, if at all.
The following table outlines our capital expenditures (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2022 |
|
|
2021 |
|
Sustaining capital |
|
$ |
3,217 |
|
|
$ |
2,432 |
|
Growth |
|
|
13,186 |
|
|
|
19,479 |
|
Acquisitions |
|
|
1,885 |
|
|
|
4,166 |
|
Total capital expenditures and acquisitions |
|
$ |
18,288 |
|
|
$ |
26,077 |
|
Growth capital expenditures decreased during 2022 as compared with 2021, primarily due to decreases in EMV upgrades and rebranding of certain sites, including the sites acquired from 7-Eleven.
Concentration of Customers
For the six months ended June 30, 2022 and 2021, respectively, approximately 21% and 19% of our rent income was from two multi-site operators.
32
Outlook
As noted previously, the prices paid to our motor fuel suppliers for wholesale motor fuel (which affects our cost of sales) are highly correlated to the price of crude oil. The crude oil commodity markets are highly volatile, and the market prices of crude oil, and, correspondingly, the market prices of wholesale motor fuel, experience significant and rapid fluctuations, which affect our motor fuel gross profit. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit” for additional information.
Our results for 2022 relative to 2021 are anticipated to be impacted by the acquisition of assets from 7-Eleven, which is anticipated to increase gross profit both within the wholesale and retail segments and operating expenses within the retail segment. Given increases in LIBOR, we also anticipate higher interest expense in 2022 as compared to 2021.
We will continue to evaluate acquisitions on an opportunistic basis. Additionally, we will pursue acquisition targets that fit into our strategy. Whether we will be able to execute acquisitions will depend on market conditions, availability of suitable acquisition targets at attractive terms, acquisition related compliance with customary regulatory requirements, and our ability to finance such acquisitions on favorable terms and in compliance with our debt covenant restrictions.
New Accounting Policies
There is no new accounting guidance effective or pending adoption that has had or is anticipated to have a material impact on our financial statements.
Critical Accounting Policies Involving Critical Accounting Estimates
There have been no material changes to the critical accounting policies described in our Form 10-K.