c
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DCD.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20222023.
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file numberFile Number 001-39828
ARKO Corp.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 85-2784337 | |
(State or Other Jurisdiction of | (I.R.S. Employer |
8565 Magellan Parkway
Suite 400
Richmond, Virginia 23227-1150
(Address of Principal Executive Offices) (Zip Code)
(804) 730-1568
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading | Name of Each Exchange on Which Registered | ||
Common Stock, $0.0001 par value per share | ARKO | Nasdaq Capital Market | ||
Warrants to purchase common stock | ARKOW | Nasdaq Capital Market |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ NO
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act:Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): ☐ YES ☒ NO
As of August 5, 2022,4, 2023, the registrant had 120,074,542118,656,855 shares of its common stock, par value $0.0001 per share (“common stock”) outstanding.
TABLE OF CONTENTS
Page | |||
Item 1. | 5 | ||
Condensed Consolidated Balance Sheets as of June 30, | 5 | ||
6 | |||
7 | |||
| |||
Notes to Condensed Consolidated Financial Statements (unaudited) |
| ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| |
Item 3. |
| ||
Item 4. |
| ||
Item 1. |
| ||
Item 1A. |
| ||
Item 2. |
| ||
Item 3. |
| ||
Item 4. |
| ||
Item 5. |
| ||
Item 6. |
| ||
|
2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements,” as that term is defined under the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements about our expectations, beliefs or intentions regarding our product development efforts, business, financial condition, results of operations, strategies or prospects, including the potential impact of the COVID-19 pandemic on our businesses, operating results, cash flows and/or financial condition.prospects. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described below and in “Item 1A-Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 20212022 and this Quarterly Report on Form 10-Q, and described from time to time in our other filings with the Securities and Exchange Commission (the “SEC”). We do not undertake any obligation to update forward-looking statements, except to the extent required by applicable law. We intend that all forward-looking statements be subject to the safe-harbor provisions of the PSLRA. These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance.
Risks and uncertainties, the occurrence of which could adversely affect our business, include the following:
3
3
4
PART I. FINANCIAL INFORMATION
Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to the “Company,” “ARKO,” “we,” “our,” “ours,” and “us” refer to ARKO Corp., a Delaware corporation, including our consolidated subsidiaries.
Item 1. Financial Statements
ARKO Corp.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)
|
| June 30, 2022 |
|
| December 31, 2021 |
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 248,518 |
|
| $ | 252,141 |
|
| $ | 220,142 |
|
| $ | 298,529 |
|
Restricted cash |
|
| 14,083 |
|
|
| 20,402 |
|
|
| 15,136 |
|
|
| 18,240 |
|
Short-term investments |
|
| 33,927 |
|
|
| 58,807 |
|
|
| 3,319 |
|
|
| 2,400 |
|
Trade receivables, net |
|
| 93,482 |
|
|
| 62,342 |
|
|
| 135,663 |
|
|
| 118,140 |
|
Inventory |
|
| 233,612 |
|
|
| 197,836 |
|
|
| 256,116 |
|
|
| 221,951 |
|
Other current assets |
|
| 83,298 |
|
|
| 92,095 |
|
|
| 101,435 |
|
|
| 87,873 |
|
Total current assets |
|
| 706,920 |
|
|
| 683,623 |
|
|
| 731,811 |
|
|
| 747,133 |
|
Non-current assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Property and equipment, net |
|
| 561,982 |
|
|
| 548,969 |
|
|
| 748,697 |
|
|
| 645,809 |
|
Right-of-use assets under operating leases |
|
| 1,043,533 |
|
|
| 1,064,982 |
|
|
| 1,418,902 |
|
|
| 1,203,188 |
|
Right-of-use assets under financing leases, net |
|
| 188,558 |
|
|
| 192,378 |
|
|
| 174,221 |
|
|
| 182,113 |
|
Goodwill |
|
| 197,742 |
|
|
| 197,648 |
|
|
| 277,795 |
|
|
| 217,297 |
|
Intangible assets, net |
|
| 176,155 |
|
|
| 185,993 |
|
|
| 219,598 |
|
|
| 197,123 |
|
Equity investment |
|
| 3,035 |
|
|
| 2,998 |
|
|
| 2,861 |
|
|
| 2,924 |
|
Deferred tax asset |
|
| 40,094 |
|
|
| 41,047 |
|
|
| 57,007 |
|
|
| 22,728 |
|
Other non-current assets |
|
| 31,749 |
|
|
| 24,637 |
|
|
| 40,565 |
|
|
| 36,855 |
|
Total assets |
| $ | 2,949,768 |
|
| $ | 2,942,275 |
|
| $ | 3,671,457 |
|
| $ | 3,255,170 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Long-term debt, current portion |
| $ | 39,391 |
|
| $ | 40,384 |
|
| $ | 13,369 |
|
| $ | 11,944 |
|
Accounts payable |
|
| 221,048 |
|
|
| 172,918 |
|
|
| 233,459 |
|
|
| 217,370 |
|
Other current liabilities |
|
| 134,227 |
|
|
| 137,488 |
|
|
| 166,056 |
|
|
| 154,097 |
|
Operating leases, current portion |
|
| 54,004 |
|
|
| 51,261 |
|
|
| 63,811 |
|
|
| 57,563 |
|
Financing leases, current portion |
|
| 6,037 |
|
|
| 6,383 |
|
|
| 4,916 |
|
|
| 5,457 |
|
Total current liabilities |
|
| 454,707 |
|
|
| 408,434 |
|
|
| 481,611 |
|
|
| 446,431 |
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Long-term debt, net |
|
| 675,102 |
|
|
| 676,625 |
|
|
| 810,302 |
|
|
| 740,043 |
|
Asset retirement obligation |
|
| 58,614 |
|
|
| 58,021 |
|
|
| 79,837 |
|
|
| 64,909 |
|
Operating leases |
|
| 1,056,351 |
|
|
| 1,076,905 |
|
|
| 1,422,736 |
|
|
| 1,218,045 |
|
Financing leases |
|
| 228,800 |
|
|
| 229,215 |
|
|
| 223,871 |
|
|
| 225,907 |
|
Deferred tax liability |
|
| 4,264 |
|
|
| 2,546 |
| ||||||||
Other non-current liabilities |
|
| 126,147 |
|
|
| 136,853 |
|
|
| 275,584 |
|
|
| 178,945 |
|
Total liabilities |
|
| 2,603,985 |
|
|
| 2,588,599 |
|
|
| 3,293,941 |
|
|
| 2,874,280 |
|
Commitments and contingencies - see Note 10 |
|
|
|
|
|
| ||||||||||
Series A redeemable preferred stock (0 par value) - authorized: 1,000 shares; issued and |
|
| 100,000 |
|
|
| 100,000 |
| ||||||||
Commitments and contingencies - see Note 12 |
|
|
|
|
|
| ||||||||||
Series A redeemable preferred stock (no par value) - authorized: 1,000 shares; issued and |
|
| 100,000 |
|
|
| 100,000 |
| ||||||||
Shareholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Common stock (par value $0.0001) - Authorized: 400,000 shares; Issued: 124,727 and 124,428 shares, respectively; Outstanding: 120,075 and 124,428 shares, respectively |
|
| 12 |
|
|
| 12 |
| ||||||||
Treasury stock, at cost - 4,652 and 0 shares, respectively |
|
| (40,038 | ) |
|
| 0 |
| ||||||||
Common stock (par value $0.0001) - authorized: 400,000 shares; issued: 125,269 and 124,727 shares, respectively; outstanding: 118,843 and 120,074 shares, respectively |
|
| 12 |
|
|
| 12 |
| ||||||||
Treasury stock, at cost - 6,426 and 4,653 shares, respectively |
|
| (53,804 | ) |
|
| (40,042 | ) | ||||||||
Additional paid-in capital |
|
| 223,557 |
|
|
| 217,675 |
|
|
| 238,617 |
|
|
| 229,995 |
|
Accumulated other comprehensive income |
|
| 9,119 |
|
|
| 9,119 |
|
|
| 9,119 |
|
|
| 9,119 |
|
Retained earnings |
|
| 52,898 |
|
|
| 26,646 |
|
|
| 83,533 |
|
|
| 81,750 |
|
Total shareholders' equity |
|
| 245,548 |
|
|
| 253,452 |
|
|
| 277,477 |
|
|
| 280,834 |
|
Non-controlling interest |
|
| 235 |
|
|
| 224 |
|
|
| 39 |
|
|
| 56 |
|
Total equity |
|
| 245,783 |
|
|
| 253,676 |
|
|
| 277,516 |
|
|
| 280,890 |
|
Total liabilities, redeemable preferred stock and equity |
| $ | 2,949,768 |
|
| $ | 2,942,275 |
|
| $ | 3,671,457 |
|
| $ | 3,255,170 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
ARKO Corp.
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except per share data)
|
| For the Three Months |
|
| For the Six Months |
|
| For the Three Months |
|
| For the Six Months |
| ||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Fuel revenue |
| $ | 2,085,854 |
|
| $ | 1,460,763 |
|
| $ | 3,669,380 |
|
| $ | 2,563,710 |
|
| $ | 1,957,100 |
|
| $ | 2,085,854 |
|
| $ | 3,618,764 |
|
| $ | 3,669,380 |
|
Merchandise revenue |
|
| 431,751 |
|
|
| 426,365 |
|
|
| 798,736 |
|
|
| 785,646 |
|
|
| 484,561 |
|
|
| 431,751 |
|
|
| 884,849 |
|
|
| 798,736 |
|
Other revenues, net |
|
| 22,658 |
|
|
| 22,686 |
|
|
| 44,958 |
|
|
| 44,814 |
|
|
| 27,480 |
|
|
| 22,658 |
|
|
| 53,904 |
|
|
| 44,958 |
|
Total revenues |
|
| 2,540,263 |
|
|
| 1,909,814 |
|
|
| 4,513,074 |
|
|
| 3,394,170 |
|
|
| 2,469,141 |
|
|
| 2,540,263 |
|
|
| 4,557,517 |
|
|
| 4,513,074 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Fuel costs |
|
| 1,955,019 |
|
|
| 1,347,109 |
|
|
| 3,425,668 |
|
|
| 2,359,907 |
|
|
| 1,801,103 |
|
|
| 1,955,019 |
|
|
| 3,338,985 |
|
|
| 3,425,668 |
|
Merchandise costs |
|
| 300,387 |
|
|
| 303,952 |
|
|
| 559,180 |
|
|
| 564,706 |
|
|
| 329,903 |
|
|
| 300,387 |
|
|
| 607,226 |
|
|
| 559,180 |
|
Store operating expenses |
|
| 178,077 |
|
|
| 154,668 |
|
|
| 344,615 |
|
|
| 299,606 |
|
|
| 218,002 |
|
|
| 178,077 |
|
|
| 410,685 |
|
|
| 344,615 |
|
General and administrative expenses |
|
| 32,956 |
|
|
| 31,861 |
|
|
| 64,741 |
|
|
| 58,574 |
|
|
| 42,660 |
|
|
| 32,956 |
|
|
| 83,076 |
|
|
| 64,741 |
|
Depreciation and amortization |
|
| 24,353 |
|
|
| 25,273 |
|
|
| 48,989 |
|
|
| 49,515 |
|
|
| 32,837 |
|
|
| 24,353 |
|
|
| 61,236 |
|
|
| 48,989 |
|
Total operating expenses |
|
| 2,490,792 |
|
|
| 1,862,863 |
|
|
| 4,443,193 |
|
|
| 3,332,308 |
|
|
| 2,424,505 |
|
|
| 2,490,792 |
|
|
| 4,501,208 |
|
|
| 4,443,193 |
|
Other expenses, net |
|
| 1,197 |
|
|
| 1,195 |
|
|
| 2,318 |
|
|
| 2,867 |
|
|
| 4,956 |
|
|
| 1,197 |
|
|
| 7,676 |
|
|
| 2,318 |
|
Operating income |
|
| 48,274 |
|
|
| 45,756 |
|
|
| 67,563 |
|
|
| 58,995 |
|
|
| 39,680 |
|
|
| 48,274 |
|
|
| 48,633 |
|
|
| 67,563 |
|
Interest and other financial income |
|
| 8,997 |
|
|
| 2,601 |
|
|
| 6,710 |
|
|
| 1,695 |
|
|
| 2,428 |
|
|
| 8,997 |
|
|
| 9,630 |
|
|
| 6,710 |
|
Interest and other financial expenses |
|
| (16,336 | ) |
|
| (14,598 | ) |
|
| (30,024 | ) |
|
| (42,309 | ) |
|
| (22,588 | ) |
|
| (16,336 | ) |
|
| (43,392 | ) |
|
| (30,024 | ) |
Income before income taxes |
|
| 40,935 |
|
|
| 33,759 |
|
|
| 44,249 |
|
|
| 18,381 |
|
|
| 19,520 |
|
|
| 40,935 |
|
|
| 14,871 |
|
|
| 44,249 |
|
Income tax expense |
|
| (9,157 | ) |
|
| (8,212 | ) |
|
| (10,162 | ) |
|
| (7,490 | ) |
|
| (5,014 | ) |
|
| (9,157 | ) |
|
| (2,856 | ) |
|
| (10,162 | ) |
Income from equity investment |
|
| 28 |
|
|
| 26 |
|
|
| 37 |
|
|
| 20 |
| ||||||||||||||||
(Loss) income from equity investment |
|
| (27 | ) |
|
| 28 |
|
|
| (63 | ) |
|
| 37 |
| ||||||||||||||||
Net income |
| $ | 31,806 |
|
| $ | 25,573 |
|
| $ | 34,124 |
|
| $ | 10,911 |
|
| $ | 14,479 |
|
| $ | 31,806 |
|
| $ | 11,952 |
|
| $ | 34,124 |
|
Less: Net income attributable to non-controlling interests |
|
| 52 |
|
|
| 54 |
|
|
| 131 |
|
|
| 128 |
|
|
| 48 |
|
|
| 52 |
|
|
| 101 |
|
|
| 131 |
|
Net income attributable to ARKO Corp. |
| $ | 31,754 |
|
| $ | 25,519 |
|
| $ | 33,993 |
|
| $ | 10,783 |
|
| $ | 14,431 |
|
| $ | 31,754 |
|
| $ | 11,851 |
|
| $ | 33,993 |
|
Series A redeemable preferred stock dividends |
|
| (1,434 | ) |
|
| (1,434 | ) |
|
| (2,852 | ) |
|
| (2,836 | ) |
|
| (1,434 | ) |
|
| (1,434 | ) |
|
| (2,852 | ) |
|
| (2,852 | ) |
Net income attributable to common shareholders |
| $ | 30,320 |
|
| $ | 24,085 |
|
| $ | 31,141 |
|
| $ | 7,947 |
|
| $ | 12,997 |
|
| $ | 30,320 |
|
| $ | 8,999 |
|
| $ | 31,141 |
|
Net income per share attributable to common shareholders - basic |
| $ | 0.25 |
|
| $ | 0.19 |
|
| $ | 0.25 |
|
| $ | 0.06 |
|
| $ | 0.11 |
|
| $ | 0.25 |
|
| $ | 0.07 |
|
| $ | 0.25 |
|
Net income per share attributable to common shareholders - diluted |
| $ | 0.24 |
|
| $ | 0.19 |
|
| $ | 0.25 |
|
| $ | 0.06 |
|
| $ | 0.11 |
|
| $ | 0.24 |
|
| $ | 0.07 |
|
| $ | 0.25 |
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Basic |
|
| 121,529 |
|
|
| 124,428 |
|
|
| 122,909 |
|
|
| 124,395 |
|
|
| 119,893 |
|
|
| 121,529 |
|
|
| 120,073 |
|
|
| 122,909 |
|
Diluted |
|
| 130,558 |
|
|
| 133,032 |
|
|
| 123,245 |
|
|
| 124,543 |
|
|
| 121,280 |
|
|
| 130,558 |
|
|
| 120,767 |
|
|
| 123,245 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
ARKO Corp.
Condensed Consolidated Statements of Changes in Equity
(Unaudited, in thousands)
|
| Common Stock |
|
| Treasury |
| Additional |
| Accumulated |
| Retained Earnings |
| Total |
| Non- |
|
|
|
| Common Stock |
|
| Treasury |
| Additional |
| Accumulated |
| Retained |
| Total |
| Non- |
|
|
| ||||||||||||||||||||||||||||||||||||
|
| Shares |
|
| Par Value |
|
| Stock, at Cost |
|
| Paid-in Capital |
|
| Comprehensive Income |
|
| (Accumulated Deficit) |
|
| Shareholders' Equity |
|
| Controlling Interests |
|
| Total Equity |
| |||||||||||||||||||||||||||||||||||||||||||||
Balance at April 1, 2021 |
|
| 124,428 |
|
| $ | 12 |
|
| $ | 0 |
|
| $ | 214,727 |
|
| $ | 9,119 |
|
| $ | (44,389 | ) |
| $ | 179,469 |
|
| $ | (147 | ) |
| $ | 179,322 |
| ||||||||||||||||||||||||||||||||||||
Share-based compensation |
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,488 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,488 |
|
|
| 0 |
|
|
| 1,488 |
| ||||||||||||||||||||||||||||||||||||
Distributions to non-controlling interests |
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (60 | ) |
|
| (60 | ) | ||||||||||||||||||||||||||||||||||||
Dividends on redeemable preferred stock |
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| (1,434 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (1,434 | ) |
|
| 0 |
|
|
| (1,434 | ) | ||||||||||||||||||||||||||||||||||||
Net income |
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 25,519 |
|
|
| 25,519 |
|
|
| 54 |
|
|
| 25,573 |
| ||||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 |
|
| 124,428 |
|
| $ | 12 |
|
| $ | 0 |
|
| $ | 214,781 |
|
| $ | 9,119 |
|
| $ | (18,870 | ) |
| $ | 205,042 |
|
| $ | (153 | ) |
| $ | 204,889 |
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares |
|
| Par Value |
|
| Stock, at Cost |
|
| Paid-in Capital |
|
| Comprehensive Income |
|
| Earnings |
|
| Shareholders' Equity |
|
| Controlling Interests |
|
| Total Equity |
| ||||||||||||||||||
Balance at April 1, 2022 |
|
| 123,190 |
|
| $ | 12 |
|
| $ | (13,084 | ) |
| $ | 220,449 |
|
| $ | 9,119 |
|
| $ | 24,993 |
|
| $ | 241,489 |
|
| $ | 243 |
|
| $ | 241,732 |
|
|
| 123,190 |
|
| $ | 12 |
|
| $ | (13,084 | ) |
| $ | 220,449 |
|
| $ | 9,119 |
|
| $ | 24,993 |
|
| $ | 241,489 |
|
| $ | 243 |
|
| $ | 241,732 |
|
Share-based compensation |
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,108 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,108 |
|
|
| 0 |
|
|
| 3,108 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,108 |
|
|
| — |
|
|
| — |
|
|
| 3,108 |
|
|
| — |
|
|
| 3,108 |
|
Distributions to non-controlling interests |
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (60 | ) |
|
| (60 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (60 | ) |
|
| (60 | ) |
Dividends on redeemable preferred stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,434 | ) |
|
| (1,434 | ) |
|
| — |
|
|
| (1,434 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,434 | ) |
|
| (1,434 | ) |
|
| — |
|
|
| (1,434 | ) |
Dividends declared (2 cents per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,415 | ) |
|
| (2,415 | ) |
|
| — |
|
|
| (2,415 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,415 | ) |
|
| (2,415 | ) |
|
| — |
|
|
| (2,415 | ) |
Common stock repurchased |
|
| (3,115 | ) |
|
| — |
|
|
| (26,954 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (26,954 | ) |
|
| — |
|
|
| (26,954 | ) |
|
| (3,115 | ) |
|
| — |
|
|
| (26,954 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (26,954 | ) |
|
| — |
|
|
| (26,954 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 31,754 |
|
|
| 31,754 |
|
|
| 52 |
|
|
| 31,806 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 31,754 |
|
|
| 31,754 |
|
|
| 52 |
|
|
| 31,806 |
|
Balance at June 30, 2022 |
|
| 120,075 |
|
| $ | 12 |
|
| $ | (40,038 | ) |
| $ | 223,557 |
|
| $ | 9,119 |
|
| $ | 52,898 |
|
| $ | 245,548 |
|
| $ | 235 |
|
| $ | 245,783 |
|
|
| 120,075 |
|
| $ | 12 |
|
| $ | (40,038 | ) |
| $ | 223,557 |
|
| $ | 9,119 |
|
| $ | 52,898 |
|
| $ | 245,548 |
|
| $ | 235 |
|
| $ | 245,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||
Balance at April 1, 2023 |
|
| 120,305 |
|
| $ | 12 |
|
| $ | (42,352 | ) |
| $ | 234,158 |
|
| $ | 9,119 |
|
| $ | 74,143 |
|
| $ | 275,080 |
|
| $ | (45 | ) |
| $ | 275,035 |
| ||||||||||||||||||||||||||||||||||||
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,555 |
|
|
| — |
|
|
| — |
|
|
| 4,555 |
|
|
| — |
|
|
| 4,555 |
| ||||||||||||||||||||||||||||||||||||
Transactions with non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (96 | ) |
|
| — |
|
|
| — |
|
|
| (96 | ) |
|
| 96 |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||
Distributions to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (60 | ) |
|
| (60 | ) | ||||||||||||||||||||||||||||||||||||
Dividends on redeemable preferred stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,434 | ) |
|
| (1,434 | ) |
|
| — |
|
|
| (1,434 | ) | ||||||||||||||||||||||||||||||||||||
Dividends declared (3 cents per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,607 | ) |
|
| (3,607 | ) |
|
| — |
|
|
| (3,607 | ) | ||||||||||||||||||||||||||||||||||||
Common stock repurchased |
|
| (1,499 | ) |
|
| — |
|
|
| (11,452 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11,452 | ) |
|
| — |
|
|
| (11,452 | ) | ||||||||||||||||||||||||||||||||||||
Vesting and settlement of restricted share units |
|
| 37 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14,431 |
|
|
| 14,431 |
|
|
| 48 |
|
|
| 14,479 |
| ||||||||||||||||||||||||||||||||||||
Balance at June 30, 2023 |
|
| 118,843 |
|
| $ | 12 |
|
| $ | (53,804 | ) |
| $ | 238,617 |
|
| $ | 9,119 |
|
| $ | 83,533 |
|
| $ | 277,477 |
|
| $ | 39 |
|
| $ | 277,516 |
|
|
| Common Stock |
|
| Treasury |
|
| Additional |
|
| Accumulated |
|
| Retained |
|
| Total |
|
| Non- |
|
|
|
| ||||||||||||
|
| Shares |
|
| Par Value |
|
| Stock, at Cost |
|
| Paid-in Capital |
|
| Comprehensive Income |
|
| Earnings |
|
| Shareholders' Equity |
|
| Controlling Interests |
|
| Total Equity |
| |||||||||
Balance at January 1, 2022 |
|
| 124,428 |
|
| $ | 12 |
|
| $ | — |
|
| $ | 217,675 |
|
| $ | 9,119 |
|
| $ | 26,646 |
|
| $ | 253,452 |
|
| $ | 224 |
|
| $ | 253,676 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,882 |
|
|
| — |
|
|
| — |
|
|
| 5,882 |
|
|
| — |
|
|
| 5,882 |
|
Distributions to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (120 | ) |
|
| (120 | ) |
Dividends on redeemable preferred stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,852 | ) |
|
| (2,852 | ) |
|
| — |
|
|
| (2,852 | ) |
Dividends declared (4 cents per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,889 | ) |
|
| (4,889 | ) |
|
| — |
|
|
| (4,889 | ) |
Common stock repurchased |
|
| (4,652 | ) |
|
| — |
|
|
| (40,038 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (40,038 | ) |
|
| — |
|
|
| (40,038 | ) |
Vesting of restricted share units |
|
| 286 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Issuance of shares |
|
| 13 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 33,993 |
|
|
| 33,993 |
|
|
| 131 |
|
|
| 34,124 |
|
Balance at June 30, 2022 |
|
| 120,075 |
|
| $ | 12 |
|
| $ | (40,038 | ) |
| $ | 223,557 |
|
| $ | 9,119 |
|
| $ | 52,898 |
|
| $ | 245,548 |
|
| $ | 235 |
|
| $ | 245,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balance at January 1, 2023 |
|
| 120,074 |
|
| $ | 12 |
|
| $ | (40,042 | ) |
| $ | 229,995 |
|
| $ | 9,119 |
|
| $ | 81,750 |
|
| $ | 280,834 |
|
| $ | 56 |
|
| $ | 280,890 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,624 |
|
|
| — |
|
|
| — |
|
|
| 8,624 |
|
|
| — |
|
|
| 8,624 |
|
Transactions with non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| 2 |
|
|
| — |
|
Distributions to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (120 | ) |
|
| (120 | ) |
Dividends on redeemable preferred stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,852 | ) |
|
| (2,852 | ) |
|
| — |
|
|
| (2,852 | ) |
Dividends declared (6 cents per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,216 | ) |
|
| (7,216 | ) |
|
| — |
|
|
| (7,216 | ) |
Common stock repurchased |
|
| (1,773 | ) |
|
| — |
|
|
| (13,762 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13,762 | ) |
|
| — |
|
|
| (13,762 | ) |
Vesting and settlement of restricted share units |
|
| 542 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,851 |
|
|
| 11,851 |
|
|
| 101 |
|
|
| 11,952 |
|
Balance at June 30, 2023 |
|
| 118,843 |
|
| $ | 12 |
|
| $ | (53,804 | ) |
| $ | 238,617 |
|
| $ | 9,119 |
|
| $ | 83,533 |
|
| $ | 277,477 |
|
| $ | 39 |
|
| $ | 277,516 |
|
7
ARKO Corp.
Condensed Consolidated Statements of Changes in Equity (cont’d)
(Unaudited, in thousands)
|
| Common Stock |
|
| Treasury |
|
| Additional |
|
| Accumulated |
|
| Retained Earnings |
|
| Total |
|
| Non- |
|
|
|
| ||||||||||||
|
| Shares |
|
| Par Value |
|
| Stock, at Cost |
|
| Paid-in Capital |
|
| Comprehensive Income |
|
| (Accumulated Deficit) |
|
| Shareholders' Equity |
|
| Controlling Interests |
|
| Total Equity |
| |||||||||
Balance at January 1, 2021 |
|
| 124,132 |
|
| $ | 12 |
|
| $ | 0 |
|
| $ | 212,103 |
|
| $ | 9,119 |
|
| $ | (29,653 | ) |
| $ | 191,581 |
|
| $ | (161 | ) |
| $ | 191,420 |
|
Share-based compensation |
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,514 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,514 |
|
|
| 0 |
|
|
| 2,514 |
|
Distributions to non-controlling interests |
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (120 | ) |
|
| (120 | ) |
Dividends on redeemable preferred stock |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (2,836 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (2,836 | ) |
|
| 0 |
|
|
| (2,836 | ) |
Issuance of shares |
|
| 296 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,000 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,000 |
|
|
| 0 |
|
|
| 3,000 |
|
Net income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 10,783 |
|
|
| 10,783 |
|
|
| 128 |
|
|
| 10,911 |
|
Balance at June 30, 2021 |
|
| 124,428 |
|
| $ | 12 |
|
| $ | 0 |
|
| $ | 214,781 |
|
| $ | 9,119 |
|
| $ | (18,870 | ) |
| $ | 205,042 |
|
| $ | (153 | ) |
| $ | 204,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balance at January 1, 2022 |
|
| 124,428 |
|
| $ | 12 |
|
| $ | — |
|
| $ | 217,675 |
|
| $ | 9,119 |
|
| $ | 26,646 |
|
| $ | 253,452 |
|
| $ | 224 |
|
| $ | 253,676 |
|
Share-based compensation |
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| 5,882 |
|
|
| 0 |
|
|
| 0 |
|
|
| 5,882 |
|
|
| 0 |
|
|
| 5,882 |
|
Distributions to non-controlling interests |
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (120 | ) |
|
| (120 | ) |
Dividends on redeemable preferred stock |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (2,852 | ) |
|
| (2,852 | ) |
|
| 0 |
|
|
| (2,852 | ) |
Dividends declared (2 cents per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,889 | ) |
|
| (4,889 | ) |
|
| — |
|
|
| (4,889 | ) |
Common stock repurchased |
|
| (4,652 | ) |
|
| 0 |
|
|
| (40,038 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (40,038 | ) |
|
| 0 |
|
|
| (40,038 | ) |
Vesting of restricted share units |
|
| 286 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Issuance of shares |
|
| 13 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 33,993 |
|
|
| 33,993 |
|
|
| 131 |
|
|
| 34,124 |
|
Balance at June 30, 2022 |
|
| 120,075 |
|
| $ | 12 |
|
| $ | (40,038 | ) |
| $ | 223,557 |
|
| $ | 9,119 |
|
| $ | 52,898 |
|
| $ | 245,548 |
|
| $ | 235 |
|
| $ | 245,783 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
87
ARKO Corp.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
|
| For the Six Months |
|
| For the Six Months |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 34,124 |
|
| $ | 10,911 |
|
| $ | 11,952 |
|
| $ | 34,124 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation and amortization |
|
| 48,989 |
|
|
| 49,515 |
|
|
| 61,236 |
|
|
| 48,989 |
|
Deferred income taxes |
|
| 2,671 |
|
|
| 2,109 |
|
|
| (14,115 | ) |
|
| 2,671 |
|
Loss on disposal of assets and impairment charges |
|
| 1,971 |
|
|
| 975 |
|
|
| 3,278 |
|
|
| 1,971 |
|
Foreign currency loss (gain) |
|
| 228 |
|
|
| (1,143 | ) | ||||||||
Amortization of deferred financing costs, debt discount and premium |
|
| 1,262 |
|
|
| 621 |
| ||||||||
Foreign currency loss |
|
| 58 |
|
|
| 228 |
| ||||||||
Amortization of deferred financing costs and debt discount |
|
| 1,213 |
|
|
| 1,262 |
| ||||||||
Amortization of deferred income |
|
| (5,292 | ) |
|
| (4,411 | ) |
|
| (3,929 | ) |
|
| (5,292 | ) |
Accretion of asset retirement obligation |
|
| 829 |
|
|
| 834 |
|
|
| 1,118 |
|
|
| 829 |
|
Non-cash rent |
|
| 3,737 |
|
|
| 3,349 |
|
|
| 6,558 |
|
|
| 3,737 |
|
Charges to allowance for credit losses |
|
| 351 |
|
|
| 322 |
|
|
| 573 |
|
|
| 351 |
|
Income from equity investment |
|
| (37 | ) |
|
| (20 | ) | ||||||||
Loss (income) from equity investment |
|
| 63 |
|
|
| (37 | ) | ||||||||
Share-based compensation |
|
| 5,882 |
|
|
| 2,514 |
|
|
| 8,624 |
|
|
| 5,882 |
|
Fair value adjustment of financial assets and liabilities |
|
| (6,590 | ) |
|
| 9,833 |
|
|
| (5,248 | ) |
|
| (6,590 | ) |
Other operating activities, net |
|
| 707 |
|
|
| 532 |
|
|
| 976 |
|
|
| 707 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Increase in trade receivables |
|
| (31,491 | ) |
|
| (21,102 | ) |
|
| (18,173 | ) |
|
| (31,491 | ) |
Increase in inventory |
|
| (35,947 | ) |
|
| (11,732 | ) |
|
| (8,208 | ) |
|
| (35,947 | ) |
Decrease (increase) in other assets |
|
| 7,607 |
|
|
| (4,762 | ) | ||||||||
(Increase) decrease in other assets |
|
| (10,965 | ) |
|
| 7,607 |
| ||||||||
Increase in accounts payable |
|
| 46,407 |
|
|
| 26,960 |
|
|
| 14,580 |
|
|
| 46,407 |
|
Decrease in other current liabilities |
|
| (11,324 | ) |
|
| (6,933 | ) |
|
| (7,651 | ) |
|
| (11,324 | ) |
Decrease in asset retirement obligation |
|
| (34 | ) |
|
| (113 | ) | ||||||||
Increase (decrease) in asset retirement obligation |
|
| 46 |
|
|
| (34 | ) | ||||||||
Increase in non-current liabilities |
|
| 8,112 |
|
|
| 758 |
|
|
| 4,000 |
|
|
| 8,112 |
|
Net cash provided by operating activities |
| $ | 72,162 |
|
| $ | 59,017 |
|
| $ | 45,986 |
|
| $ | 72,162 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
98
ARKO Corp.
Condensed Consolidated Statements of Cash Flows (cont’d)
(Unaudited, in thousands)
|
| For the Six Months |
|
| For the Six Months |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Purchase of property and equipment |
| $ | (45,168 | ) |
| $ | (32,638 | ) |
| $ | (50,038 | ) |
| $ | (45,168 | ) |
Purchase of intangible assets |
|
| (125 | ) |
|
| (175 | ) |
|
| (35 | ) |
|
| (125 | ) |
Proceeds from sale of property and equipment |
|
| 7,261 |
|
|
| 36,059 |
|
|
| 296,485 |
|
|
| 7,261 |
|
Prepayment for Quarles Acquisition |
|
| (5,000 | ) |
|
| 0 |
| ||||||||
Prepayment for business acquisition |
|
| — |
|
|
| (5,000 | ) | ||||||||
Business acquisitions, net of cash |
|
| (6,853 | ) |
|
| (93,527 | ) |
|
| (481,636 | ) |
|
| (6,853 | ) |
Decrease in investments, net |
|
| 27,109 |
|
|
| 0 |
|
|
| — |
|
|
| 27,109 |
|
Repayment of loans to equity investment |
|
| 174 |
|
|
| 0 |
|
|
| — |
|
|
| 174 |
|
Net cash used in investing activities |
|
| (22,602 | ) |
|
| (90,281 | ) |
|
| (235,224 | ) |
|
| (22,602 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Receipt of long-term debt, net |
|
| 0 |
|
|
| 35,056 |
|
|
| 74,233 |
|
|
| — |
|
Repayment of debt |
|
| (6,093 | ) |
|
| (102,074 | ) |
|
| (10,511 | ) |
|
| (6,093 | ) |
Principal payments on financing leases |
|
| (3,304 | ) |
|
| (4,013 | ) |
|
| (2,912 | ) |
|
| (3,304 | ) |
Proceeds from failed sale-leaseback |
|
| 0 |
|
|
| 43,569 |
| ||||||||
Proceeds from sale-leaseback |
|
| 80,397 |
|
|
| — |
| ||||||||
Payment of Additional Consideration |
|
| (2,085 | ) |
|
| 0 |
|
|
| — |
|
|
| (2,085 | ) |
Payment of merger transaction issuance costs |
|
| 0 |
|
|
| (4,764 | ) | ||||||||
Payment of Ares Put Option |
|
| (9,808 | ) |
|
| — |
| ||||||||
Common stock repurchased |
|
| (40,038 | ) |
|
| 0 |
|
|
| (13,563 | ) |
|
| (40,038 | ) |
Dividends paid on common stock |
|
| (4,889 | ) |
|
| 0 |
|
|
| (7,216 | ) |
|
| (4,889 | ) |
Dividends paid on redeemable preferred stock |
|
| (2,852 | ) |
|
| (2,993 | ) |
|
| (2,852 | ) |
|
| (2,852 | ) |
Distributions to non-controlling interests |
|
| (120 | ) |
|
| (120 | ) |
|
| — |
|
|
| (120 | ) |
Net cash used in financing activities |
|
| (59,381 | ) |
|
| (35,339 | ) | ||||||||
Net cash provided by (used in) financing activities |
|
| 107,768 |
|
|
| (59,381 | ) | ||||||||
Net decrease in cash and cash equivalents and restricted cash |
|
| (9,821 | ) |
|
| (66,603 | ) |
|
| (81,470 | ) |
|
| (9,821 | ) |
Effect of exchange rate on cash and cash equivalents and restricted cash |
|
| (121 | ) |
|
| (1,438 | ) |
|
| (21 | ) |
|
| (121 | ) |
Cash and cash equivalents and restricted cash, beginning of period |
|
| 272,543 |
|
|
| 312,977 |
|
|
| 316,769 |
|
|
| 272,543 |
|
Cash and cash equivalents and restricted cash, end of period |
| $ | 262,601 |
|
| $ | 244,936 |
|
| $ | 235,278 |
|
| $ | 262,601 |
|
Reconciliation of cash and cash equivalents and restricted cash |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents, beginning of period |
| $ | 252,141 |
|
|
| 293,666 |
|
| $ | 298,529 |
|
|
| 252,141 |
|
Restricted cash, beginning of period |
|
| 20,402 |
|
|
| 16,529 |
|
|
| 18,240 |
|
|
| 20,402 |
|
Restricted cash with respect to bonds, beginning of period |
|
| 0 |
|
|
| 2,782 |
| ||||||||
Cash and cash equivalents and restricted cash, beginning of period |
| $ | 272,543 |
|
| $ | 312,977 |
|
| $ | 316,769 |
|
| $ | 272,543 |
|
Cash and cash equivalents, end of period |
| $ | 248,518 |
|
| $ | 229,399 |
|
| $ | 220,142 |
|
| $ | 248,518 |
|
Restricted cash, end of period |
|
| 14,083 |
|
|
| 15,537 |
|
|
| 15,136 |
|
|
| 14,083 |
|
Cash and cash equivalents and restricted cash, end of period |
| $ | 262,601 |
|
| $ | 244,936 |
|
| $ | 235,278 |
|
| $ | 262,601 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
109
ARKO Corp.
Condensed Consolidated Statements of Cash Flows (cont’d)
(Unaudited, in thousands)
|
| For the Six Months |
|
| For the Six Months |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Supplementary cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash received for interest |
| $ | 107 |
|
| $ | 99 |
|
| $ | 4,274 |
|
| $ | 107 |
|
Cash paid for interest |
|
| 27,740 |
|
|
| 30,148 |
|
|
| 38,402 |
|
|
| 27,740 |
|
Cash received for taxes |
|
| 78 |
|
|
| 176 |
|
|
| 512 |
|
|
| 78 |
|
Cash paid for taxes |
|
| 4,797 |
|
|
| 7,797 |
|
|
| 20,845 |
|
|
| 4,797 |
|
Supplementary noncash activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Prepaid insurance premiums financed through notes payable |
| $ | 2,279 |
|
| $ | 4,900 |
|
| $ | 5,619 |
|
| $ | 2,279 |
|
Purchases of equipment in accounts payable and accrued expenses |
|
| 10,857 |
|
|
| 4,239 |
|
|
| 9,367 |
|
|
| 10,857 |
|
Purchase of property and equipment under leases |
|
| 10,363 |
|
|
| 14,564 |
|
|
| 3,034 |
|
|
| 10,363 |
|
Disposals of leases of property and equipment |
|
| 404 |
|
|
| 3,207 |
|
|
| 2,669 |
|
|
| 404 |
|
Issuance of shares |
|
| 0 |
|
|
| 3,000 |
| ||||||||
Deferred consideration related to business acquisition |
|
| 45,845 |
|
|
| — |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
1110
ARKO Corp.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. General
ARKO Corp. (the “Company”) is a Delaware corporation whose common stock, par value $0.0001 per share (“common stock”), and publicly-traded warrants are listed on the Nasdaq Stock Market (“Nasdaq”). under the symbols “ARKO” and “ARKOW,” respectively.
The Company’s operations are primarily performed by its subsidiary, GPM Investments, LLC (“GPM”), a Delaware limited liability company. GPM is primarily engaged directly and through fully owned and controlled subsidiaries (directly or indirectly) in retail activity, which includes the operations of a chain of convenience stores, most of which include adjacent gas stations, andstations. The Company is also engaged in wholesale activity, which includes the supply of fuel to gas stations operated by third parties.parties, and in fleet fueling, which includes the operation of proprietary and third-party cardlock locations (unstaffed fueling locations) and issuance of proprietary fuel cards that provide customers access to a nationwide network of fueling sites. As of June 30, 2022,2023, GPM’s activity included the self-operationoperation of 1,3881,547 sites andretail convenience stores, the supply of fuel to 1,6201,824 gas stations operated by independent dealers and the operation of 293 cardlock locations, throughout more than 3330 states and the District of Columbia in the Mid-Atlantic, Midwestern, Northeastern, Southeastern and Southwestern United States (“U.S.”).
The Company has three reportingfour reportable segments: retail, wholesale, fleet fueling, and GPMP. Refer to Note 911 below for further information with respect to the segments.
2. Summary of Significant Accounting Policies
Basis of Presentation
All significant intercompany balances and transactions have been eliminated in the accompanying condensed consolidated financial statements, which are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Interim Financial Statements
The accompanying condensed consolidated financial statements (“interim financial statements”) as of June 30, 20222023 and for the three and six months ended June 30, 20222023 and 2021 (“interim financial statements”)2022 are unaudited and have been prepared in accordance with GAAP for interim financial information and Regulation S-X set forth by the Securities and Exchange Commission (the “SEC”) for interim reporting. In the opinion of management, all adjustments (consisting of normal and recurring adjustments except those otherwise described herein) considered necessary for a fair presentation have been included in the accompanying interim financial statements. However, they do not include all of the information and disclosures required by GAAP for complete financial statements. Therefore, the interim financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes of the Company included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20212022 (the “annual financial statements”).
The same significant accounting policies, presentation and methods of computation have been followed in these interim financial statements as were applied in the preparation of the annual financial statements.
Accounting Periods
The Company’s fiscal periods end on the last day of the month, and its fiscal year ends on December 31. This results in the Company experiencing fluctuations in current assets and current liabilities due to purchasing and payment patterns which change based upon the day of the week. As a result, working capital can change from period to period not only due to changing business operations, but also due to a change in the day of the week inon which each period ends. The Company earns a disproportionate amount of its annual operating income in the second and third quarters as a result of the climate and seasonal buying patterns of its customers. Inclement weather, especially in the Midwest and Northeast regions of the U.S. during the winter months, can negatively impact financial results.
Use of Estimates
In the preparation of interim condensed consolidated financial statements, management may make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
11
results could differ from those estimates. Significant estimates include right-of-use assets and lease liabilities; impairment of goodwill, intangible, right-of-use and fixed assets; environmental assets and liabilities; deferred tax assets; and asset retirement obligations.
Cash and Cash Equivalents
12The Company considers all unrestricted highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents are maintained at several financial institutions, and in order to have sufficient working capital on hand, the Company maintains concentrations of cash in several financial institutions in amounts that are above the FDIC standard deposit insurance limit of $250,000.
Revenue Recognition
Revenue is recognized when control of the promised goods or services is transferred to the customers. This requires the Company to identify contractual performance obligations and determine whether revenue should be recognized at a single point in time or over time, based on when control of goods and services transfers to a customer. Control is transferred to the customer over time if the customer simultaneously receives and consumes the benefits provided by the Company’s performance. If a performance obligation is not satisfied over time, the Company satisfies the performance obligation at a single point in time.
Revenue is recognized in an amount that reflects the consideration to which the Company expects to be entitled in exchange for goods or services.
When the Company satisfies a performance obligation by transferring control of goods or services to the customer, revenue is recognized against contract assets in the amount of consideration to which the Company is entitled. When the consideration amount received from the customer exceeds the amounts recognized as revenue, the Company recognizes a contract liability for the excess.
An asset is recognized related to the costs incurred to obtain a contract (i.e.(e.g. sales commissions) if the costs are specifically identifiable to a contract, the costs will result in enhancing resources that will be used in satisfying performance obligations in the future and the costs are expected to be recovered. These capitalized costs are recorded as a part of other current assets and other non-current assets and are amortized on a systematic basis consistent with the pattern of transfer of the goods or services to which such costs relate. The Company expenses the costs to obtain a contract, as and when they are incurred, in cases where the expected amortization period is one year or less.
The Company evaluates if it is a principal or an agent in a transaction to determine whether revenue should be recorded on a gross or a net basis. In performing this analysis, the Company considers first whether it controls the goods before they are transferred to the customers and if it has the ability to direct the use of the goods or obtain benefits from them. The Company also considers the following indicators: (1) the primary obligor, (2) the latitude in establishing prices and selecting suppliers, and (3) the inventory risk borne by the Company before and after the goods have been transferred to the customer. When the Company acts as principal, revenue is recorded on a gross basis. When the Company acts as agent, revenue is recorded on a net basis.
Fuel revenue and fuel cost of revenue included fuel taxes of $307.2 million, $243.7 million, $262.7 million, $475.5571.5 million and $485.2475.5 million for the three and six months ended June 30, 20222023 and 2021,2022, respectively.
Refer to Note 911 for disclosure of the revenue disaggregated by segment and product line, as well as a description of the reportable segment operations.
Reclassifications
Certain prior year equity amounts have been reclassified to conform to the current year presentation.
New Accounting Pronouncements3. Acquisitions
Reference Rate ReformTransit Energy Group, LLC
On March 1, 2023, the Company completed the acquisition of certain assets from Transit Energy Group, LLC and certain of its affiliated entities (collectively, “TEG”) pursuant to a purchase agreement entered on September 9, 2022, as amended (the “TEG Purchase Agreement”), including (i) 135 – In March 2020,Company-operated convenience stores and gas stations, (ii) fuel supply rights to 181 dealer locations, (iii) a commercial, government, and industrial business, including certain bulk plants, and (iv) certain distribution and transportation assets, all in the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitationsoutheastern United States (the “TEG Acquisition”).
The purchase price for the TEG Acquisition was approximately $370 million, as adjusted in accordance with the terms of the EffectsTEG Purchase Agreement, plus the value of Reference Rate Reforminventory at the closing, of which $50 million was deferred and payable in two annual payments of $25 million, which the Company may elect to pay in either cash or, subject to the satisfaction of certain conditions, shares of common stock (the “Installment Shares”), on Financial Reporting. This standard included optional guidancethe first and second anniversaries of the closing. Pursuant to the TEG Purchase Agreement, at closing, ARKO and TEG entered into a registration rights agreement, pursuant to which ARKO agreed to prepare and file a registration statement with the SEC, registering the Installment Shares, if any, for resale by TEG.
12
The Company paid approximately $81.7 million of the non-deferred purchase price including the value of inventory and other closing adjustments, of which $55.0 million was financed with the Capital One Line of Credit (as defined in Note 4 below). An affiliate of Oak Street Real Estate Capital Net Lease Property Fund, LP (including its affiliates, “Oak Street”), under the Company’s standby real estate purchase, designation and lease program agreement with Oak Street, dated as of May 3, 2021 (as amended, the “Program Agreement”), paid the balance of the non-deferred purchase price for fee simple ownership in 104 sites. At the closing, pursuant to the Program Agreement, the Company entered into a master lease with Oak Street for the sites Oak Street acquired in the transaction under customary lease terms. For accounting purposes, the transaction with Oak Street was treated as a sale-leaseback. Because the sale-leaseback was off-market, a financial liability of $51.6 million was recorded, resulting in interest expense recognized over the lease term. Additionally, right-of-use assets and operating lease liabilities of approximately $131.3 million were recorded in connection with the operating lease, after reducing for accounting purposes from the contractual lease payments the amount attributable to the repayment of the additional financing.
The details of the TEG Acquisition were as follows:
|
| Amount |
| |
|
| (in thousands) |
| |
Fair value of consideration transferred: |
|
|
| |
Cash |
| $ | 26,702 |
|
GPMP Capital One Line of Credit |
|
| 55,000 |
|
Liability resulting from deferred purchase price |
|
| 45,845 |
|
Receivable from TEG |
|
| (62 | ) |
Consideration provided by Oak Street |
|
| 258,019 |
|
Total consideration |
| $ | 385,504 |
|
Assets acquired and liabilities: |
|
|
| |
Cash and cash equivalents |
| $ | 379 |
|
Inventory |
|
| 20,259 |
|
Other assets |
|
| 1,304 |
|
Property and equipment, net |
|
| 268,879 |
|
Intangible assets |
|
| 20,000 |
|
Right-of-use assets under operating leases |
|
| 69,254 |
|
Environmental receivables |
|
| 2,664 |
|
Deferred tax asset |
|
| 19,135 |
|
Total assets |
|
| 401,874 |
|
Other liabilities |
|
| (2,087 | ) |
Environmental liabilities |
|
| (2,939 | ) |
Asset retirement obligations |
|
| (11,187 | ) |
Operating leases |
|
| (57,569 | ) |
Total liabilities |
|
| (73,782 | ) |
Total identifiable net assets |
|
| 328,092 |
|
Goodwill |
| $ | 57,412 |
|
|
|
|
| |
Consideration paid in cash |
| $ | 81,702 |
|
Consideration provided by Oak Street |
|
| 258,019 |
|
Less: cash and cash equivalent balances acquired |
|
| (379 | ) |
Net cash outflow |
| $ | 339,342 |
|
The initial accounting treatment of the TEG Acquisition reflected in these interim financial statements is provisional as the Company has not yet finalized the initial accounting treatment of the business combination, and, in this regard, has not finalized the valuation of some of the assets and liabilities acquired and the goodwill resulting from the TEG Acquisition, mainly due to the limited period of time between the TEG Acquisition closing date and the date of these interim financial statements. Therefore, some of the financial information presented with respect to help ease the burdenTEG Acquisition in these interim financial statements remains subject to change.
The Company included identifiable tangible assets and identifiable liabilities at their respective fair values based on the information available to the Company’s management on the TEG Acquisition closing date, including, among other things, a preliminary valuation performed by external consultants for this purpose. The useful life of both the wholesale fuel supply contracts and the trade name was estimated at five years.
As a result of the preliminary accounting treatment of the TEG Acquisition, the Company recorded goodwill of approximately $57.4 million, of which $55.0 million was allocated to the GPMP segment and the remainder to the retail segment, and attributable to
13
the opportunities to expand into new geographic locations and add a significant amount of volume to the GPMP segment. None of the goodwill recognized is tax deductible for U.S. income tax purposes.
Acquisition-related costs amounting to approximately $0.7 million and $2.9 million have been excluded from the consideration transferred and have been recognized as an expense within other expenses, net in the condensed consolidated statements of operations for the effectsthree and six months ended June 30, 2023, respectively. No acquisition-related costs were recognized for the three and six months ended June 30, 2022.
Results of reference rate reform. operations for the TEG Acquisition for the period subsequent to the acquisition closing date were included in the condensed consolidated statement of operations for the three and six months ended June 30, 2023. For the period from the TEG Acquisition closing date through June 30, 2023, the Company recognized $317.1 million in revenues and $2.7 million of net loss related to the TEG Acquisition. For the three months ended June 30, 2023, the Company recognized $240.2 million in revenues and $2.7 million of net loss related to the TEG Acquisition.
WTG Fuels Holdings, LLC
On June 6, 2023, certain of the Company’s subsidiaries completed the acquisition of certain assets from WTG Fuels Holdings, LLC and certain other sellers party thereto (collectively, “WTG”) pursuant to an asset purchase agreement entered on December 6, 2022, including (i) 24 company-operated Uncle’s convenience stores located across Western Texas, and (ii) 68 proprietary GASCARD-branded cardlock sites and 43 private cardlock sites for fleet fueling operations located in Western Texas and Southeastern New Mexico (the “WTG Acquisition”).
The new standardpurchase price for the WTG Acquisition was approximately $140.0 million, plus the value of inventory at the closing.The Company paid approximately $29.9 million of the purchase price including the value of inventory and other closing adjustments, of which $19.2 million was financed with the Capital One Line of Credit (as defined in Note 4 below). Oak Street, under the Program Agreement, paid the balance of the purchase price for fee simple ownership in 33 properties. At the closing, pursuant to the Program Agreement, the Company entered into master leases with Oak Street for the sites Oak Street acquired in the transaction under customary lease terms. For accounting purposes, the transaction with Oak Street was treated as a sale-leaseback. Because the sale-leaseback was off-market, a financial liability of $28.8 million was recorded, resulting in interest expense recognized over the lease term. Additionally, right-of-use assets and operating lease liabilities of approximately $49.0 million were recorded in connection with the operating lease, after reducing for accounting purposes from the contractual lease payments the amount attributable to the repayment of the additional financing.
The details of the WTG Acquisition were as follows:
14
|
| Amount |
| |
|
| (in thousands) |
| |
Fair value of consideration transferred: |
|
|
| |
Cash |
| $ | 10,653 |
|
GPMP Capital One Line of Credit |
|
| 19,200 |
|
Payable to WTG |
|
| 818 |
|
Consideration provided by Oak Street |
|
| 115,041 |
|
Total consideration |
| $ | 145,712 |
|
Assets acquired and liabilities: |
|
|
| |
Cash and cash equivalents |
| $ | 60 |
|
Inventory |
|
| 5,694 |
|
Other assets |
|
| 149 |
|
Property and equipment, net |
|
| 128,396 |
|
Intangible assets |
|
| 14,800 |
|
Right-of-use assets under operating leases |
|
| 1,812 |
|
Environmental receivables |
|
| 4 |
|
Total assets |
|
| 150,915 |
|
Other liabilities |
|
| (598 | ) |
Environmental liabilities |
|
| (136 | ) |
Asset retirement obligations |
|
| (2,730 | ) |
Operating leases |
|
| (1,739 | ) |
Total liabilities |
|
| (5,203 | ) |
Total identifiable net assets |
|
| 145,712 |
|
Goodwill |
| $ | — |
|
|
|
|
| |
Consideration paid in cash |
| $ | 29,853 |
|
Consideration provided by Oak Street |
|
| 115,041 |
|
Less: cash and cash equivalent balances acquired |
|
| (60 | ) |
Net cash outflow |
| $ | 144,834 |
|
The initial accounting treatment of the WTG Acquisition reflected in these interim financial statements is effective for all entities through December 31, 2022. Theprovisional as the Company has not neededyet finalized the initial accounting treatment of the business combination, and, in this regard, has not finalized the valuation of some of the assets and liabilities acquired and the goodwill resulting from the WTG Acquisition, mainly due to implement this optional guidance.the limited period of time between the WTG Acquisition closing date and the date of these interim financial statements. Therefore, some of the financial information presented with respect to the WTG Acquisition in these interim financial statements remains subject to change.
The Company included identifiable tangible assets and identifiable liabilities at their respective fair values based on the information available to the Company’s management on the WTG Acquisition closing date, including, among other things, a preliminary valuation performed by management. The useful life of the contracts related to the third-party cardlock sites, the customer relationships related to the proprietary cardlock sites and the proprietary fuel cards, the wholesale fuel supply contracts and the trade name was each estimated at five years.
The Company’s preliminary accounting treatment of the WTG Acquisition resulted in no goodwill being recorded.
Acquisition-related costs amounting to approximately $1.8 million and $2.1 million have been excluded from the consideration transferred and have been recognized as an expense within other expenses, net in the condensed consolidated statements of operations for the three and six months ended June 30, 2023, respectively. No acquisition-related costs were recognized for the three and six months ended June 30, 2022.
Results of operations for the WTG Acquisition for the period subsequent to the acquisition closing date were included in the condensed consolidated statement of operations for the three and six months ended June 30, 2023. For the period from the WTG Acquisition closing date through June 30, 2023, the Company recognized $14.9 million in revenues and $0.2 million of net income related to the WTG Acquisition.
Pride Convenience Holdings, LLC
On December 6, 2022, the Company acquired all of the issued and outstanding membership interests in Pride Convenience Holdings, LLC, which operated at closing 31 convenience stores and gas stations in Connecticut and Massachusetts (the “Pride
15
Acquisition”). In the second quarter of 2023, the Company updated the initial accounting treatment of the Pride Acquisition, including the valuation of some of the assets acquired, liabilities assumed and the goodwill resulting from the acquisition. As a result, the Company primarily reduced property and equipment by approximately $4.7 million, increased accounts payable and other liabilities by a net $1.0 million, and increased the deferred tax asset by approximately $1.0 million. The adjustments to the assets acquired and liabilities assumed resulted in an increase in goodwill of approximately $3.1 million, of which $0.4 million was allocated to the GPMP segment and the remainder was allocated to the retail segment attributable to the opportunities to expand into new geographic locations. These adjustments resulted in a reduction in depreciation and amortization expenses recorded, approximately $0.2 million that related to amounts recorded for the year ended December 31, 2022 and approximately $0.6 million that related to the three months ended March 31, 2023.
Impact of Acquisitions (unaudited)
The unaudited supplemental pro forma financial information presented below was prepared based on the historical information of the Company and the acquired operations and gives pro forma effect to the acquisitions using the assumption that the WTG Acquisition, the TEG Acquisition, the Pride Acquisition and the acquisition of 184 Quarles cardlock sites and 46 dealer locations on July 22, 2022 (the “Quarles Acquisition”) had occurred at the beginning of each period presented below. The unaudited supplemental pro forma financial information does not give effect to the potential impact of current financial conditions, any anticipated synergies, operating efficiencies or cost savings that may result from the acquisitions or any integration costs. The unaudited pro forma financial information is not necessarily indicative of what the actual results of operations would have been had the acquisitions occurred at the beginning of each period presented below nor is it indicative of future results.
3.
|
| For the Six Months |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
| (unaudited) |
| |||||
|
| (in thousands) |
| |||||
Total revenue |
| $ | 4,969,737 |
|
| $ | 5,938,441 |
|
Net income |
|
| 10,398 |
|
|
| 36,523 |
|
4. Debt
The components of debt were as follows:
|
| June 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
Senior Notes |
| $ | 443,268 |
|
| $ | 442,889 |
|
| $ | 444,033 |
|
| $ | 443,648 |
|
PNC term loan |
|
| 32,401 |
|
|
| 32,385 |
| ||||||||
M&T debt |
|
| 40,969 |
|
|
| 43,392 |
|
|
| 44,380 |
|
|
| 49,023 |
|
Capital One line of credit |
|
| 195,831 |
|
|
| 195,232 |
|
|
| 331,303 |
|
|
| 256,430 |
|
Insurance premium notes |
|
| 2,024 |
|
|
| 3,111 |
|
|
| 3,955 |
|
|
| 2,886 |
|
Total debt, net |
| $ | 714,493 |
|
| $ | 717,009 |
|
| $ | 823,671 |
|
| $ | 751,987 |
|
Less current portion |
|
| (39,391 | ) |
|
| (40,384 | ) |
|
| (13,369 | ) |
|
| (11,944 | ) |
Total long-term debt, net |
| $ | 675,102 |
|
| $ | 676,625 |
|
| $ | 810,302 |
|
| $ | 740,043 |
|
On May 5, 2023, GPM Petroleum LP (“GPMP”) renewed the credit agreement governing its revolving credit facility with a syndicate of banks led by Capital One, National Association, to increase the aggregate principal amount of availability thereunder from $
13500 million to $800 million (as amended, the “Capital One Line of Credit”) and extend the maturity date from July 15, 2024 to May 5, 2028. At GPMP’s request, availability under the Capital One Line of Credit can be increased up to $1.0 billion, subject to obtaining additional financing commitments from current lenders or from other banks, and subject to certain other terms as detailed in the Capital One Line of Credit.
4.5. Leases
As of June 30, 2022,2023, the Company leased 1,1291,278 of the convenience stores that it operates, 161209 independent dealer locations, 157 cardlock locations and certain office and storage spaces, including land and buildings in certain cases. Most of the lease agreements are for
16
long-term periods, ranging from 15 to 20 years, and generally include several renewal options for extension periods for five to 25 years each. Additionally, the Company leases certain store equipment, office equipment, automatic tank gauges and fuel dispensers.
The components of lease cost recorded on the condensed consolidated statements of operations were as follows:
|
| For the Three Months |
|
| For the Six Months |
|
| For the Three Months |
|
| For the Six Months |
| ||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Depreciation of right-of-use assets |
| $ | 3,037 |
|
| $ | 3,410 |
|
| $ | 6,084 |
|
| $ | 6,727 |
|
| $ | 2,785 |
|
| $ | 3,037 |
|
| $ | 5,638 |
|
| $ | 6,084 |
|
Interest on lease liabilities |
|
| 4,260 |
|
|
| 4,374 |
|
|
| 8,631 |
|
|
| 8,820 |
|
|
| 4,142 |
|
|
| 4,260 |
|
|
| 8,304 |
|
|
| 8,631 |
|
Operating lease costs included in store operating expenses |
|
| 34,358 |
|
|
| 32,491 |
|
|
| 68,653 |
|
|
| 64,825 |
|
|
| 45,752 |
|
|
| 34,358 |
|
|
| 87,336 |
|
|
| 68,653 |
|
Operating lease costs included in general and administrative |
|
| 351 |
|
|
| 458 |
|
|
| 738 |
|
|
| 854 |
|
|
| 587 |
|
|
| 351 |
|
|
| 1,121 |
|
|
| 738 |
|
Lease cost related to variable lease payments, short-term |
|
| 569 |
|
|
| 458 |
|
|
| 1,213 |
|
|
| 833 |
|
|
| 711 |
|
|
| 569 |
|
|
| 1,401 |
|
|
| 1,213 |
|
Right-of-use asset impairment charges |
|
| 0 |
|
|
| 412 |
|
|
| 0 |
|
|
| 523 |
| ||||||||||||||||
Right-of-use asset impairment charges and loss (gain) on |
|
| 1,994 |
|
|
| — |
|
|
| 1,454 |
|
|
| — |
| ||||||||||||||||
Total lease costs |
| $ | 42,575 |
|
| $ | 41,603 |
|
| $ | 85,319 |
|
| $ | 82,582 |
|
| $ | 55,971 |
|
| $ | 42,575 |
|
| $ | 105,254 |
|
| $ | 85,319 |
|
Supplemental balance sheet date related to leases was as follows:
|
| June 30, |
|
| December 31, |
| ||
|
| (in thousands) |
| |||||
Operating leases |
|
|
|
|
|
| ||
Weighted average remaining lease term (in years) |
|
| 14.4 |
|
|
| 14.1 |
|
Weighted average discount rate |
|
| 7.8 | % |
|
| 7.7 | % |
Financing leases |
|
|
|
|
|
| ||
Weighted average remaining lease term (in years) |
|
| 23.1 |
|
|
| 23.4 |
|
Weighted average discount rate |
|
| 7.2 | % |
|
| 7.2 | % |
As of June 30, 2023, maturities of lease liabilities for operating lease obligations and financing lease obligations having an initial or remaining non-cancellable lease terms in excess of one year were presented in the table below. The minimum lease payments presented below include periods where an option is reasonably certain to be exercised and do not take into consideration any future consumer price index adjustments for these agreements.
|
| Operating |
|
| Financing |
| ||
|
| (in thousands) |
| |||||
July 2023 through June 2024 |
| $ | 174,609 |
|
| $ | 21,279 |
|
July 2024 through June 2025 |
|
| 176,244 |
|
|
| 21,046 |
|
July 2025 through June 2026 |
|
| 176,841 |
|
|
| 20,914 |
|
July 2026 through June 2027 |
|
| 174,535 |
|
|
| 20,772 |
|
July 2027 through June 2028 |
|
| 171,421 |
|
|
| 20,860 |
|
Thereafter |
|
| 1,688,912 |
|
|
| 414,378 |
|
Gross lease payments |
| $ | 2,562,562 |
|
| $ | 519,249 |
|
Less: imputed interest |
|
| (1,076,015 | ) |
|
| (290,462 | ) |
Total lease liabilities |
| $ | 1,486,547 |
|
| $ | 228,787 |
|
5.6. Financial Derivative Instruments
The Company makes limited use of derivative instruments (futures contracts) to manage certain risks related to diesel fuel prices. The Company does not hold any derivatives for speculative purposes and it does not use derivatives with leveraged or complex features. The Company currently uses derivative instruments that are traded primarily over national exchanges such as the New York Mercantile Exchange (“NYMEX”). For accounting purposes, the Company has designated its derivative contracts as fair value hedges of firm commitments.
As of June 30, 2023, the Company had fuel futures contracts in place to hedge approximately 3.2 million gallons of diesel fuel for which the Company had a firm commitment to purchase. As of June 30, 2023 and December 31, 2022, the Company had asset derivatives with fair values of approximately $0.2 million and $0.5 million, respectively, recorded in other current assets and firm
17
commitments with fair values of approximately $0.2 million and $0.5 million, respectively, recorded in other current liabilities on the condensed consolidated balance sheets.
As of June 30, 2023 and December 31, 2022, there was $0.2 million and $0.5 million, respectively, of cash collateral provided to counterparties that was classified as restricted cash on the condensed consolidated balance sheet. All cash flows associated with purchasing and selling fuel derivative instruments are classified as other operating activities, net cash flows in the condensed consolidated statements of cash flows.
7. Equity
The Company’s board of directors (the “Board”) declared and the Company paid a quarterly dividend of $0.020.03 per share of common stock which was paid on March 29, 2022 to stockholders of record as of March 15, 2022,21, 2023 and on June 1, 2023, totaling approximately $2.53.6 million and declared a quarterly dividend of $0.02 per share of common stock, which was paid on June 15, 2022 to stockholders of record as of May 31, 2022, totaling approximately $2.4 million.each. The amount and timing of dividends payable on the common stock are within the sole discretion of the Board, which will evaluate dividend payments within the context of the Company’s overall capital allocation strategy on an ongoing basis, giving consideration to its current and forecast earnings, financial condition, cash requirements and other factors. As a result of the dividendaggregate amount of dividends paid on the common stock through June 30, 2023, the conversion price of the Company’s Series A convertible preferred stock has been adjusted from $12.00 to $11.9611.85 per share, as were the threshold share prices in the Deferred Shares agreement (as defined in Note 8)10). The Board declared a quarterly dividend of $0.020.03 per share of common stock, to be paid on September 12, 20221, 2023 to stockholders of record as of August 29, 2022.15, 2023.
In February 2022, the Board authorized a share repurchase program for up to an aggregate of $50 million of outstanding shares of common stock.stock and in May 2023, the Board increased the size of the share repurchase program to $100.0 million. The share repurchase program does not have a statedan expiration date. In the three and six months ended June 30, 2022,2023, the Company repurchased approximately 3.11.5 million and 4.51.6 million shares of common stock, respectively, under the repurchase program for approximately $27.011.2 million and $39.011.9 million, or an average share price of $8.657.55 and $8.607.57, respectively.
6.8. Share-Based Compensation
The Compensation Committee of the Board has approved the grant of non-qualified stock options, restricted stock units (“RSUs”), and shares to certain employees, non-employees and members of the Board under the ARKO Corp. 2020 Incentive Compensation Plan (the “Plan”). Stock options granted under the Plan expire no later than ten years from the date of grant and the exercise price may not be less than the fair market value of the shares on the date of grant. Vesting periods are assigned to stock options and restricted share units on a grant-by-grant basis at the discretion of the Board. The Company issues new shares of common stock upon exercise of stock options and vesting of RSUs.
Additionally, a non-employee director may receive RSUs in lieu of up to 100% of his or her cash fees, which RSUs will be settled in common stock upon the director’s departure from the Board or an earlier change in control of the Company. In the six months ended June 30, 2022, 87,990 RSUs were issued to non-employee directors with a weighted average grant date fair value of $8.81 per share, or $0.8 million. These awards are included in the table below under restricted stock units. As of June 30, 2022, 177,560 RSUs issued to non-employee directors were outstanding.
Stock Options
14
The following table summarizes share activity related to stock options and restricted stock units:options:
|
| Stock |
|
| Restricted |
| ||
|
| (in thousands) |
| |||||
Options Outstanding/Nonvested RSUs, December 31, 2021 |
|
| 126 |
|
|
| 1,606 |
|
Granted |
|
| 771 |
|
|
| 1,902 |
|
Options Exercised/RSUs released |
|
| 0 |
|
|
| (374 | ) |
Forfeited |
|
| 0 |
|
|
| (19 | ) |
Options Outstanding/Nonvested RSUs, June 30, 2022 |
|
| 897 |
|
|
| 3,115 |
|
|
| Stock Options |
|
| Weighted Average Exercise Price |
|
| Weighted Average Fair Value |
|
| Remaining Average Contractual Term (Years) |
|
| Aggregate Intrinsic Value |
| |||||
|
| (in thousands) |
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
| |||||
Options Outstanding, December 31, 2022 |
|
| 897 |
|
| $ | 9.24 |
|
|
|
|
|
| 9.0 |
|
| $ | 77 |
| |
Granted |
|
| 409 |
|
|
| 8.58 |
|
|
| 3.27 |
|
|
|
|
|
|
| ||
Options Outstanding, June 30, 2023 |
|
| 1,306 |
|
| $ | 9.03 |
|
|
|
|
|
| 8.9 |
|
| $ | — |
|
The following table summarizesaggregate intrinsic value is the difference between the exercise price and the closing price of the Company’s common stock on June 30, 2023 and December 31, 2022.
In the six months ended June 30, 2023, 352 thousand stock options granted in 2022:vested.
As of June 30, 2023, total unrecognized compensation cost related to unvested stock options was approximately $2.3 million, which is expected to be recognized over a weighted average period of approximately 2.0 years.
Weighted average fair value |
| $ | 2.70 |
|
Weighted average exercise price |
| $ | 9.11 |
|
Remaining average contractual term (years) |
|
| 9.7 |
|
The fair value of each stock option award is estimated by management on the date of the grant using the Black-Scholes option pricing model. The following table summarizes the assumptions utilized in the valuation of the stock option awards granted in the six months ended June 30, 2022:2023:
18
Expected dividend rate |
| % | ||
Expected stock price volatility |
| % | ||
Risk-free interest rate |
| % | ||
Expected term of options (years) | 10.0 |
The expected stock price volatility is based on the historical volatility of the Company’s stock price plus the Company’s peer group’s stock price.price for the period prior to the Company’s listing on Nasdaq. The volatilities are estimated for a period of time equal to the expected term of the related option. The risk-free interest rate is based on the implied yield of U.S. Treasury zero-coupon issues with an equivalent remaining term. The expected term of the options represents the estimated period of time until exercise and is determined by considering the contractual terms, vesting schedule and expectations of future employee behavior. All of
Restricted Stock Units
The following table summarizes share activity related to RSUs:
|
| Restricted Stock Units |
|
| Weighted Average Grant Date Fair Value |
| ||
|
| (in thousands) |
|
|
|
| ||
Nonvested RSUs, December 31, 2022 |
|
| 3,115 |
|
| $ | 8.90 |
|
Granted |
|
| 1,676 |
|
|
| 8.49 |
|
Released |
|
| (615 | ) |
|
| 9.00 |
|
Forfeited |
|
| (37 | ) |
|
| 9.22 |
|
Performance-based share adjustment |
|
| 144 |
|
|
| 8.13 |
|
Nonvested RSUs, June 30, 2023 |
|
| 4,283 |
|
| $ | 8.70 |
|
In the six months ended June 30, 2023, 110,390 RSUs were issued to non-employee directors. These awards are included in the table above under restricted stock units. There were 272,476 and 198,170 stock option awards were out of the moneyRSUs issued to non-employee directors outstanding as of June 30, 2022.2023 and December 31, 2022, respectively.
The fair value of RSUs released during the six months ended June 30, 2023 was $5.3 million.
In the six months ended June 30, 2022, the Company granted 693,590 time-vested RSUs with a weighted average grant date fair value of $8.47 per share, or $5.9 million, and vesting over a weighted average period of 2.9 years.
In the six months ended June 30, 2022,2023, the Company granted a target of 1,120,3541,097,740 performance-based RSUs with a weighted average grant date fair value of $8.35 per share, or $9.3 million.(“PSUs”). The 2022 performance-based RSUsPSUs were awarded to certain members of senior management in connection withand provide for cliff vesting, generally at the end of a three-year period, subject to the achievement of specific key financial metrics primarily measured over a three-year period and cliff vest at the end of such period. The number of 2022 performance-based RSUsPSUs that will ultimately vest is contingent upon the achievement of these key financial metrics byat the end of the relevant performance period. The Company assesses the probability of achieving these metrics on a quarterly basis exceptbasis.
Given the Company’s strong performance in 2022, in the first quarter of 2023, the Compensation Committee of the Board approved the adjustment of the performance criteria for performance-based RSUs2022 such that the percentage of PSUs that vest with respect to the target amount for 2022 would be 125% instead of 100% and would be applied to all PSUs granted as part of the 2021 and 2022 long-term incentives. As a result, the number of PSUs was adjusted for the probability of achieving these metrics, resulting in additional expense of $0.1 million being recorded in the first quarter of 2023, based on the fair value at the adjustment approval date. For PSUs with market conditions. For these awards,conditions, the Company recognizes the fair value expense ratably over the performance and vesting period. These awards are included in the table above in RSUs Granted.
During the six months endedAs of June 30, 2022, the Company granted 2023, total unrecognized compensation cost related to RSUs and PSUs was approximately $13,33223.1 shares of common stockmillion, which is expected to certain members of senior management, withbe recognized over a weighted average grant date fair valueperiod of $approximately 7.581.9 per share, or $years.
0.1 million, with no vesting period.Compensation Cost
Total compensation cost recorded collectively for employees, non-employees and members of the Board for the three and six months ended June 30, 2023 and 2022 and 2021 was $4.6 million, $3.1 million, $1.5 million, $5.98.6 million and $2.55.9 million, respectively, and included in general and administrative expenses on the condensed consolidated statements of operations. As of June 30, 2022 and December 31, 2021, total unrecognized compensation cost related to unvested shares, stock options and RSUs granted was approximately $23.7 million and $11.6 million, respectively.
7.9. Earnings per Share
The following table sets forth the computation of basic and diluted net income per share of common stock:
1519
|
| For the Three Months |
|
| For the Six Months |
|
| For the Three Months |
|
| For the Six Months |
| ||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||
Net income available to common stockholders |
| $ | 30,320 |
|
| $ | 24,085 |
|
| $ | 31,141 |
|
| $ | 7,947 |
|
| $ | 12,997 |
|
| $ | 30,320 |
|
| $ | 8,999 |
|
| $ | 31,141 |
|
Dividends on redeemable preferred stock |
|
| 1,434 |
|
|
| 1,434 |
|
|
| 0 |
|
|
| 0 |
|
|
| — |
|
|
| 1,434 |
|
|
| — |
|
|
| — |
|
Net income available to common stockholders after assumed |
| $ | 31,754 |
|
| $ | 25,519 |
|
| $ | 31,141 |
|
| $ | 7,947 |
|
| $ | 12,997 |
|
| $ | 31,754 |
|
| $ | 8,999 |
|
| $ | 31,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Weighted average common shares outstanding — Basic |
|
| 121,529 |
|
|
| 124,428 |
|
|
| 122,909 |
|
|
| 124,395 |
|
|
| 119,893 |
|
|
| 121,529 |
|
|
| 120,073 |
|
|
| 122,909 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Restricted share units |
|
| 668 |
|
|
| 252 |
|
|
| 336 |
|
|
| 138 |
|
|
| 1,387 |
|
|
| 668 |
|
|
| 694 |
|
|
| 336 |
|
Ares warrants |
|
| 0 |
|
|
| 19 |
|
|
| 0 |
|
|
| 10 |
| ||||||||||||||||
Redeemable preferred stock |
|
| 8,361 |
|
|
| 8,333 |
|
|
| 0 |
|
|
| 0 |
|
|
| — |
|
|
| 8,361 |
|
|
| — |
|
|
| — |
|
Weighted average common shares outstanding — Diluted |
|
| 130,558 |
|
|
| 133,032 |
|
|
| 123,245 |
|
|
| 124,543 |
|
|
| 121,280 |
|
|
| 130,558 |
|
|
| 120,767 |
|
|
| 123,245 |
|
Net income per share available to common stockholders |
| $ | 0.25 |
|
| $ | 0.19 |
|
| $ | 0.25 |
|
| $ | 0.06 |
|
| $ | 0.11 |
|
| $ | 0.25 |
|
| $ | 0.07 |
|
| $ | 0.25 |
|
Net income per share available to common stockholders |
| $ | 0.24 |
|
| $ | 0.19 |
|
| $ | 0.25 |
|
| $ | 0.06 |
|
| $ | 0.11 |
|
| $ | 0.24 |
|
| $ | 0.07 |
|
| $ | 0.25 |
|
The following potential shares of common stock have been excluded from the computation of diluted net income per share because their effect would have been antidilutive:
|
| As of June 30, |
|
| As of June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
Stock options |
|
| 897 |
|
|
| 126 |
|
|
| 1,306 |
|
|
| 897 |
|
Ares warrants |
|
| 1,100 |
|
|
| 0 |
|
|
| 1,100 |
|
|
| 1,100 |
|
Public and Private warrants |
|
| 17,333 |
|
|
| 17,333 |
|
|
| 17,333 |
|
|
| 17,333 |
|
Series A redeemable preferred stock |
|
| 8,439 |
|
|
| — |
| ||||||||
Ares Put Option |
| * |
|
| * |
|
| * |
|
| * |
|
* Refer to the description of this instrument in Note 8.10.
The effect of the potential shares of common stock issuable upon conversion of the redeemable preferred stock was antidilutive for the three months ended June 30, 2023 and the six months ended June 30, 20222023 and 2021,2022, and such shares were excluded from the computation of diluted net income per share.
8.10. Fair Value Measurements and Financial Instruments
The fair value of cash and cash equivalents, restricted cash, andshort-term investments, trade receivables, accounts payable and other current liabilities approximated their carrying values as of June 30, 20222023 and December 31, 20212022 primarily due to the short-term maturity of these instruments. On October 21, 2021, the Company completed a private offering of $450 million aggregate principal amount of 5.125% Senior Notes due 2029 (the “Senior Notes”). Based on market trades of the Senior Notes close to June 30, 20222023 and December 31, 20212022 (Level 1 fair value measurement), the fair value of the Senior Notes was estimated at approximately $345367.0 million and $436354.7 million, respectively, compared to a gross carrying value of $450 million at June 30, 20222023 and December 31, 2021.2022. The fair value of the other long-term debt approximated their carrying values as of June 30, 20222023 and December 31, 20212022 due to the frequency with which interest rates are reset based on changes in prevailing interest rates. The fair value of fuel futures contracts was determined using NYMEX quoted values.
The contingent consideration from the acquisition of the business of Empire businessPetroleum Partners, LLC is measured at fair value at the end of each reporting period and amounted to $5.32.2 million and $6.23.7 million as of June 30, 20222023 and December 31, 2021,2022, respectively. The fair value methodology for the contingent consideration liability is categorized as Level 3 because inputs to the valuation methodology are unobservable and significant to the fair value adjustment. Approximately $0.50.1 million, $(0.20.5) million, $0.40.2 million and $(0.4) million were recorded as acomponentcomponents of interest and other financial income (expenses)expenses (income) in the condensed consolidated statements of operations for the change in the fair value of the contingent consideration for the three and six months ended June 30, 20222023 and 2021,2022, respectively, and approximately $0.9 million, $0.5 million, $1.6 million and $0.5 million of income was
20
were recorded as a componentcomponents of other expenses, net in the condensed consolidated statements of operations for both the three and six months ended June 30, 2022.2023 and 2022, respectively.
The public warrants to purchase the Company’s common stock (the “Public Warrants”), of which approximately 14.714.8 million were outstanding as of June 30, 2022,2023, are measured at fair value at the end of each reporting period and amounted to $20.922.1 million and
16
$23.625.9 million as of June 30, 20222023 and December 31, 2021,2022, respectively. The fair value methodology for the Public Warrants is categorized as Level 1. Approximately $0, $7.1 million, $0.83.8 million and $5.2 million and $(8.4) million were recorded as a componentcomponents of interest and other financial income (expenses) in the condensed consolidated statements of operations for the change in the fair value of the Public Warrants for the three and six months ended June 30, 20222023 and 2021,2022, respectively.
The private warrants to purchase the Company’s common stock (the “Private Warrants”), of which approximately 2.62.5 million were outstanding as of June 30, 2022,2023, are measured at fair value at the end of each reporting period and amounted to $3.93.4 million and $7.24.5 million as of June 30, 20222023 and December 31, 2021,2022, respectively. The fair value methodology for the Private Warrants is categorized as Level 2 because certain inputs to the valuation methodology are unobservable and significant to the fair value adjustment. The Private Warrants have been recorded at fair value based on a Black-Scholes option pricing model with the following material assumptions based on observable and unobservable inputs:
|
| June 30, |
|
| June 30, |
| ||
Expected term (in years) |
| 3.5 |
|
|
| 2.5 |
| |
Expected dividend rate |
|
| 1.0 | % |
|
| 1.5 | % |
Volatility |
|
| 38.2 | % |
|
| 44.5 | % |
Risk-free interest rate |
|
| 3.0 | % |
|
| 4.7 | % |
Strike price |
| $ | 11.50 |
|
| $ | 11.50 |
|
For the change in the fair value of the Private Warrants, approximately $0.1 million, $1.2 million, $1.41.1 million and $0.9 million and $(1.4) million were recorded as a componentcomponents of interest and other financial income (expenses) in the condensed consolidated statements of operations for the three and six months ended June 30, 20222023 and 2021,2022, respectively.
The Haymaker Founders (as defined in Note 17 to the annual financial statements) will be entitled to up to 200 thousand shares of common stock to be issued subject to the number of incremental shares of common stock issued to the holders of the Series A redeemable preferred stock not being higher than certain thresholds (the “Deferred Shares”). The Deferred Shares are measured at fair value at the end of each reporting period and amounted to $1.41.3 million and $1.61.4 million as of June 30, 20222023 and December 31, 2021,2022, respectively. The fair value methodology for the Deferred Shares is categorized as Level 3 because inputs to the valuation methodology are unobservable and significant to the fair value adjustment. The Deferred Shares have been recorded at fair value based on a Monte Carlo pricing model with the following material assumptions based on observable and unobservable inputs:
|
| June 30, |
|
| June 30, |
| ||
Expected term (in years) |
| 4.9 |
|
|
| 3.9 |
| |
Volatility |
|
| 40.2 | % |
|
| 36.2 | % |
Risk-free interest rate |
|
| 3.0 | % |
|
| 4.3 | % |
Stock price |
| $ | 8.16 |
|
| $ | 7.95 |
|
Approximately $0.20.1 million, $0.2 million, $0.20.1 million and $00.2 million were recorded as a componentcomponents of interest and other financial income in the condensed consolidated statements of operations for the change in the fair value of the Deferred Shares for the three and six months ended June 30, 20222023 and 2021,2022, respectively.
The Company entered into an agreement with Ares Capital Corporation (“Ares”) and certain of its affiliates (the “Ares Put Option”), which generally guaranteesguaranteed Ares a value of approximately $27.3 million (including all dividend payments received by Ares) at the end of February 2023 for the shares of common stock that the Company issued in consideration for its acquisition in December 2020 of equity in GPM.GPM (the “Ares Shares”). The Company and Ares agreed that in lieu of the Company issuing to Ares additional shares of common stock in accordance with the Ares Put Option or purchasing the Ares Shares, Ares would retain the Ares Shares, and the Company would pay approximately $9.8 million in cash to Ares in full satisfaction of the Company’s obligations related to the Ares
21
Put Option. This payment was made on April 14, 2023 and the Ares Put Option agreement was terminated. The Ares Put Option iswas measured at fair value at the end of each reporting period and amounted to $9.48.6 million as of December 31, 2022.
Approximately $0, $1.6 million, $1.2 million and $8.9 million as of June 30, 2022 and December 31, 2021, respectively. The fair value methodology for the Ares Put Option is categorized as Level 3 because inputs to the valuation methodology are unobservable and significant to the fair value adjustment. The Ares Put Option has been recorded at its fair value based on a Monte Carlo pricing model with the following material assumptions based on observable and unobservable inputs:
|
| June 30, |
| |
Expected term (in years) |
| 0.7 |
| |
Volatility |
|
| 33.5 | % |
Risk-free interest rate |
|
| 2.6 | % |
Strike price |
| $ | 12.895 |
|
17
Approximately $(1.6) million, $(0.9) million, $(0.5) million and $0.3 million were recorded as a componentcomponents of interest and other financial income (expenses)expenses in the condensed consolidated statements of operations for the change in the fair value of the Ares Put Option for the three and six months ended June 30, 20222023 and 2021,2022, respectively.
9.11. Segment Reporting
The reportable segments were determined based on information reviewed by the chief operating decision maker for operational decision-making purposes and the segment information is prepared on the same basis that ourthe Company’s chief operating decision maker reviews such financial information. The Company’s reportingreportable segments are the retail, segment, the wholesale, segmentfleet fueling and the GPMP segment.GPMP. The Company defines segment earnings as operating income.
The retail segment includes the operation of a chain of retail stores, which includes convenience stores selling fuel products and other merchandise to retail customers. At its Company operated convenience stores, the Company owns the merchandise and fuel inventory and employs personnel to manage the store.
The wholesale segment supplies fuel to independent dealers, sub-wholesalers and bulk and spot purchasers, on either a cost plus or consignment basis. For consignment arrangements, the Company retains ownership of the fuel inventory at the site, is responsible for the pricing of the fuel to the end consumer, and shares the gross profit with the independent dealers.
The fleet fueling segment includes the operation of proprietary and third-party cardlock locations (unstaffed fueling locations), and commissions from the sales of fuel using proprietary fuel cards that provide customers access to a nationwide network of fueling sites.
The GPMP segment includes GPM Petroleum LP (“GPMP”)GPMP and primarily includes theits sale and supply of fuel to GPM and its subsidiaries related to substantially all of its sites that sell fuel (both in the retail and wholesale segments)segments, at GPMP’s cost of fuel (including taxes and transportation) plus a fixed margin (currently 5.0 cents per gallon), and charges a fixed fee to sites in the supply offleet fueling segment and certain Company sites which are not supplied by GPMP (currently 5.0 cents per gallon sold). GPMP also supplies fuel to a small number of independent dealers and bulk and spot purchasers.
The “All Other” segment includes the results of non-reportable segments which do not meet both quantitative and qualitive criteria as defined under ASC 280, Segment Reporting. The Company revised the composition of the “All Other” segment in the third quarter of 2022 in conjunction with the closing of the Quarles Acquisition.
The majority of general and administrative expenses, depreciation and amortization, net other expenses, net interest and other financial expenses, income taxes and minor other income items including intercompany operating leases are not allocated to the segments.
With the exception of goodwill, assets and liabilities relevant to the reportable segments are not assigned to any particular segment, but rather, managed at the consolidated level. All reportable segment revenues were generated from sites within the United StatesU.S. and substantially all of the Company’s assets were within the United States.U.S.
Inter-segment transactions primarily included the distribution of fuel by GPMP to GPM and substantially all of its subsidiariessites that sell fuel (both in the retail and wholesale segments). and charges by GPMP to sites that sell fuel in the fleet fueling segment. The effect of these inter-segment transactions was eliminated in the condensed consolidated financial statements.
18
22
|
| Retail |
|
| Wholesale |
|
| GPMP |
|
| All Other |
|
| Total |
|
| Retail |
|
| Wholesale |
|
| Fleet Fueling |
|
| GPMP |
|
| All Other |
|
| Total |
| |||||||||||
For the Three Months Ended June 30, 2022 |
| (in thousands) |
| |||||||||||||||||||||||||||||||||||||||||
For the Three Months Ended June 30, 2023 | For the Three Months Ended June 30, 2023 | (in thousands) |
| |||||||||||||||||||||||||||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Fuel revenue |
| $ | 1,117,849 |
|
| $ | 966,434 |
|
| $ | 1,571 |
|
| $ | 0 |
|
| $ | 2,085,854 |
|
| $ | 1,015,365 |
|
| $ | 811,139 |
|
| $ | 121,146 |
|
| $ | 1,057 |
|
| $ | 8,393 |
|
| $ | 1,957,100 |
|
Merchandise revenue |
|
| 431,751 |
|
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| 431,751 |
|
|
| 484,561 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 484,561 |
|
Other revenues, net |
|
| 16,667 |
|
|
| 5,733 |
|
|
| 258 |
|
|
| 0 |
|
|
| 22,658 |
|
|
| 18,997 |
|
|
| 6,110 |
|
|
| 1,676 |
|
|
| 277 |
|
|
| 420 |
|
|
| 27,480 |
|
Total revenues from external customers |
|
| 1,566,267 |
|
|
| 972,167 |
|
|
| 1,829 |
|
|
| 0 |
|
|
| 2,540,263 |
|
|
| 1,518,923 |
|
|
| 817,249 |
|
|
| 122,822 |
|
|
| 1,334 |
|
|
| 8,813 |
|
|
| 2,469,141 |
|
Inter-segment |
|
| 0 |
|
|
| 0 |
|
|
| 1,738,243 |
|
|
| 302 |
|
|
| 1,738,545 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,366,786 |
|
|
| 4,545 |
|
|
| 1,371,331 |
|
Total revenues from reportable segments |
|
| 1,566,267 |
|
|
| 972,167 |
|
|
| 1,740,072 |
|
|
| 302 |
|
|
| 4,278,808 |
|
|
| 1,518,923 |
|
|
| 817,249 |
|
|
| 122,822 |
|
|
| 1,368,120 |
|
|
| 13,358 |
|
|
| 3,840,472 |
|
Operating income |
|
| 71,847 |
|
|
| 9,786 |
|
|
| 21,799 |
|
|
| 302 |
|
|
| 103,734 |
|
|
| 77,857 |
|
|
| 6,767 |
|
|
| 9,344 |
|
|
| 27,008 |
|
|
| 138 |
|
|
| 121,114 |
|
Interest and financial expenses, net |
|
|
|
|
|
|
|
| (1,819 | ) |
|
| 0 |
|
|
| (1,819 | ) |
|
|
|
|
|
|
|
|
|
|
| (6,840 | ) |
|
| — |
|
|
| (6,840 | ) | |||||
Income from equity investment |
|
|
|
|
|
|
|
|
|
|
| 28 |
|
|
| 28 |
| |||||||||||||||||||||||||||
Loss from equity investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (27 | ) |
|
| (27 | ) | ||||||||||||||||||||||||
Net income from reportable segments |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 101,943 |
| Net income from reportable segments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 114,247 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
For the Three Months Ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Fuel revenue |
| $ | 768,716 |
|
| $ | 690,521 |
|
| $ | 1,526 |
|
| $ | 0 |
|
| $ | 1,460,763 |
| ||||||||||||||||||||||||
Merchandise revenue |
|
| 426,365 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 426,365 |
| ||||||||||||||||||||||||
Other revenues, net |
|
| 17,252 |
|
|
| 5,212 |
|
|
| 264 |
|
|
| 0 |
|
|
| 22,728 |
| ||||||||||||||||||||||||
Total revenues from external customers |
|
| 1,212,333 |
|
|
| 695,733 |
|
|
| 1,790 |
|
|
| 0 |
|
|
| 1,909,856 |
| ||||||||||||||||||||||||
Inter-segment |
|
| 0 |
|
|
| 0 |
|
|
| 1,092,926 |
|
|
| 317 |
|
|
| 1,093,243 |
| ||||||||||||||||||||||||
Total revenues from reportable segments |
|
| 1,212,333 |
|
|
| 695,733 |
|
|
| 1,094,716 |
|
|
| 317 |
|
|
| 3,003,099 |
| ||||||||||||||||||||||||
Operating income |
|
| 71,215 |
|
|
| 5,992 |
|
|
| 23,610 |
|
|
| 317 |
|
|
| 101,134 |
| ||||||||||||||||||||||||
Interest and financial expenses, net |
|
|
|
|
|
|
|
| (3,859 | ) |
|
| 0 |
|
|
| (3,859 | ) | ||||||||||||||||||||||||||
Income tax expense |
|
|
|
|
|
|
|
|
|
|
| (55 | ) |
|
| (55 | ) | |||||||||||||||||||||||||||
Income from equity investment |
|
|
|
|
|
|
|
|
|
|
| 26 |
|
|
| 26 |
| |||||||||||||||||||||||||||
Net income from reportable segments |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 97,246 |
|
|
| Retail |
|
| Wholesale |
|
| GPMP |
|
| All Other |
|
| Total |
| |||||
For the Six Months Ended June 30, 2022 |
| (in thousands) |
| |||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Fuel revenue |
| $ | 1,972,516 |
|
| $ | 1,694,131 |
|
| $ | 2,733 |
|
| $ | 0 |
|
| $ | 3,669,380 |
|
Merchandise revenue |
|
| 798,736 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 798,736 |
|
Other revenues, net |
|
| 32,991 |
|
|
| 11,455 |
|
|
| 512 |
|
|
| 0 |
|
|
| 44,958 |
|
Total revenues from external customers |
|
| 2,804,243 |
|
|
| 1,705,586 |
|
|
| 3,245 |
|
|
| 0 |
|
|
| 4,513,074 |
|
Inter-segment |
|
| 0 |
|
|
| 0 |
|
|
| 3,013,964 |
|
|
| 604 |
|
|
| 3,014,568 |
|
Total revenues from reportable segments |
|
| 2,804,243 |
|
|
| 1,705,586 |
|
|
| 3,017,209 |
|
|
| 604 |
|
|
| 7,527,642 |
|
Operating income |
|
| 117,526 |
|
|
| 17,199 |
|
|
| 42,406 |
|
|
| 604 |
|
|
| 177,735 |
|
Interest and financial expenses, net |
|
|
|
|
|
|
|
| (4,264 | ) |
|
| 0 |
|
|
| (4,264 | ) | ||
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
| 177 |
|
|
| 177 |
| |||
Income from equity investment |
|
|
|
|
|
|
|
|
|
|
| 37 |
|
|
| 37 |
| |||
Net income from reportable segments |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 173,685 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
For the Six Months Ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Fuel revenue |
| $ | 1,345,020 |
|
| $ | 1,216,009 |
|
| $ | 2,681 |
|
| $ | 0 |
|
| $ | 2,563,710 |
|
Merchandise revenue |
|
| 785,646 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 785,646 |
|
Other revenues, net |
|
| 34,229 |
|
|
| 10,151 |
|
|
| 519 |
|
|
| 0 |
|
|
| 44,899 |
|
Total revenues from external customers |
|
| 2,164,895 |
|
|
| 1,226,160 |
|
|
| 3,200 |
|
|
| 0 |
|
|
| 3,394,255 |
|
Inter-segment |
|
| 0 |
|
|
| 0 |
|
|
| 1,912,393 |
|
|
| 634 |
|
|
| 1,913,027 |
|
Total revenues from reportable segments |
|
| 2,164,895 |
|
|
| 1,226,160 |
|
|
| 1,915,593 |
|
|
| 634 |
|
|
| 5,307,282 |
|
Operating income |
|
| 111,562 |
|
|
| 8,300 |
|
|
| 43,733 |
|
|
| 634 |
|
|
| 164,229 |
|
Interest and financial expenses, net |
|
|
|
|
|
|
|
| (7,700 | ) |
|
| — |
|
|
| (7,700 | ) | ||
Income tax expense |
|
|
|
|
|
|
|
|
|
|
| (111 | ) |
|
| (111 | ) | |||
Income from equity investment |
|
|
|
|
|
|
|
|
|
|
| 20 |
|
|
| 20 |
| |||
Net income from reportable segments |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 156,438 |
|
|
| Retail |
|
| Wholesale |
|
| GPMP |
|
| All Other |
|
| Total |
| |||||
For the Three Months Ended June 30, 2022 | (in thousands) |
| ||||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Fuel revenue |
| $ | 1,117,849 |
|
| $ | 966,434 |
|
| $ | 1,571 |
|
| $ | — |
|
| $ | 2,085,854 |
|
Merchandise revenue |
|
| 431,751 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 431,751 |
|
Other revenues, net |
|
| 16,667 |
|
|
| 5,733 |
|
|
| 258 |
|
|
| — |
|
|
| 22,658 |
|
Total revenues from external customers |
|
| 1,566,267 |
|
|
| 972,167 |
|
|
| 1,829 |
|
|
| — |
|
|
| 2,540,263 |
|
Inter-segment |
|
| — |
|
|
| — |
|
|
| 1,738,243 |
|
|
| 302 |
|
|
| 1,738,545 |
|
Total revenues from reportable |
|
| 1,566,267 |
|
|
| 972,167 |
|
|
| 1,740,072 |
|
|
| 302 |
|
|
| 4,278,808 |
|
Operating income |
|
| 71,847 |
|
|
| 9,786 |
|
|
| 21,799 |
|
|
| 302 |
|
|
| 103,734 |
|
Interest and financial expenses, net |
|
|
|
|
|
|
|
| (1,819 | ) |
|
| — |
|
|
| (1,819 | ) | ||
Income from equity investment |
|
|
|
|
|
|
|
|
|
|
| 28 |
|
|
| 28 |
| |||
Net income from reportable segments |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 101,943 |
|
|
| Retail |
|
| Wholesale |
|
| Fleet Fueling |
|
| GPMP |
|
| All Other |
|
| Total |
| ||||||
For the Six Months Ended June 30, 2023 | (in thousands) |
| ||||||||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fuel revenue |
| $ | 1,858,838 |
|
| $ | 1,495,987 |
|
| $ | 248,640 |
|
| $ | 1,798 |
|
| $ | 13,501 |
|
| $ | 3,618,764 |
|
Merchandise revenue |
|
| 884,849 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 884,849 |
|
Other revenues, net |
|
| 37,552 |
|
|
| 12,601 |
|
|
| 2,627 |
|
|
| 447 |
|
|
| 677 |
|
|
| 53,904 |
|
Total revenues from external |
|
| 2,781,239 |
|
|
| 1,508,588 |
|
|
| 251,267 |
|
|
| 2,245 |
|
|
| 14,178 |
|
|
| 4,557,517 |
|
Inter-segment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,509,408 |
|
|
| 7,603 |
|
|
| 2,517,011 |
|
Total revenues from reportable |
|
| 2,781,239 |
|
|
| 1,508,588 |
|
|
| 251,267 |
|
|
| 2,511,653 |
|
|
| 21,781 |
|
|
| 7,074,528 |
|
Operating income |
|
| 119,488 |
|
|
| 14,317 |
|
|
| 17,768 |
|
|
| 49,630 |
|
|
| 462 |
|
|
| 201,665 |
|
Interest and financial expenses, net |
|
|
|
|
|
|
|
|
|
|
| (12,090 | ) |
|
| — |
|
|
| (12,090 | ) | |||
Loss from equity investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (63 | ) |
|
| (63 | ) | ||||
Net income from reportable segments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 189,512 |
|
1923
|
| Retail |
|
| Wholesale |
|
| GPMP |
|
| All Other |
|
| Total |
| |||||
For the Six Months Ended June 30, 2022 | (in thousands) |
| ||||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Fuel revenue |
| $ | 1,972,516 |
|
| $ | 1,694,131 |
|
| $ | 2,733 |
|
| $ | — |
|
| $ | 3,669,380 |
|
Merchandise revenue |
|
| 798,736 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 798,736 |
|
Other revenues, net |
|
| 32,991 |
|
|
| 11,455 |
|
|
| 512 |
|
|
| — |
|
|
| 44,958 |
|
Total revenues from external customers |
|
| 2,804,243 |
|
|
| 1,705,586 |
|
|
| 3,245 |
|
|
| — |
|
|
| 4,513,074 |
|
Inter-segment |
|
| — |
|
|
| — |
|
|
| 3,013,964 |
|
|
| 604 |
|
|
| 3,014,568 |
|
Total revenues from reportable |
|
| 2,804,243 |
|
|
| 1,705,586 |
|
|
| 3,017,209 |
|
|
| 604 |
|
|
| 7,527,642 |
|
Operating income |
|
| 117,526 |
|
|
| 17,199 |
|
|
| 42,406 |
|
|
| 604 |
|
|
| 177,735 |
|
Interest and financial expenses, net |
|
|
|
|
|
|
|
| (4,264 | ) |
|
| — |
|
|
| (4,264 | ) | ||
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
| 177 |
|
|
| 177 |
| |||
Income from equity investment |
|
|
|
|
|
|
|
|
|
|
| 37 |
|
|
| 37 |
| |||
Net income from reportable segments |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 173,685 |
|
A reconciliation of total revenues from reportable segments to total revenues on the condensed consolidated statements of operations was as follows:
|
| For the Three Months |
|
| For the Six Months |
|
| For the Three Months |
|
| For the Six Months |
| ||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||
Total revenues from reportable segments |
| $ | 4,278,808 |
|
| $ | 3,003,099 |
|
| $ | 7,527,642 |
|
| $ | 5,307,282 |
|
| $ | 3,840,472 |
|
| $ | 4,278,808 |
|
| $ | 7,074,528 |
|
| $ | 7,527,642 |
|
Other revenues, net |
|
| 0 |
|
|
| (42 | ) |
|
| 0 |
|
|
| (85 | ) | ||||||||||||||||
Elimination of inter-segment revenues |
|
| (1,738,545 | ) |
|
| (1,093,243 | ) |
|
| (3,014,568 | ) |
|
| (1,913,027 | ) |
|
| (1,371,331 | ) |
|
| (1,738,545 | ) |
|
| (2,517,011 | ) |
|
| (3,014,568 | ) |
Total revenues |
| $ | 2,540,263 |
|
| $ | 1,909,814 |
|
| $ | 4,513,074 |
|
| $ | 3,394,170 |
|
| $ | 2,469,141 |
|
| $ | 2,540,263 |
|
| $ | 4,557,517 |
|
| $ | 4,513,074 |
|
A reconciliation of net income from reportable segments to net income on the condensed consolidated statements of operations was as follows:
|
| For the Three Months |
|
| For the Six Months |
|
| For the Three Months |
|
| For the Six Months |
| ||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||
Net income from reportable segments |
| $ | 101,943 |
|
| $ | 97,246 |
|
| $ | 173,685 |
|
| $ | 156,438 |
|
| $ | 114,247 |
|
| $ | 101,943 |
|
| $ | 189,512 |
|
| $ | 173,685 |
|
Amounts not allocated to segments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Other revenues, net |
|
| 0 |
|
|
| (42 | ) |
|
| 0 |
|
|
| (85 | ) | ||||||||||||||||
Store operating expenses |
|
| 747 |
|
|
| 675 |
|
|
| 1,331 |
|
|
| 1,252 |
|
|
| (3,604 | ) |
|
| 747 |
|
|
| (6,281 | ) |
|
| 1,331 |
|
General and administrative expenses |
|
| (32,197 | ) |
|
| (31,068 | ) |
|
| (63,276 | ) |
|
| (57,070 | ) |
|
| (41,879 | ) |
|
| (32,197 | ) |
|
| (81,523 | ) |
|
| (63,276 | ) |
Depreciation and amortization |
|
| (22,511 | ) |
|
| (23,431 | ) |
|
| (45,305 | ) |
|
| (45,830 | ) |
|
| (30,995 | ) |
|
| (22,511 | ) |
|
| (57,552 | ) |
|
| (45,305 | ) |
Other expenses, net |
|
| (1,197 | ) |
|
| (1,195 | ) |
|
| (2,318 | ) |
|
| (2,867 | ) |
|
| (4,956 | ) |
|
| (1,197 | ) |
|
| (7,676 | ) |
|
| (2,318 | ) |
Interest and other financial expenses, net |
|
| (5,822 | ) |
|
| (8,455 | ) |
|
| (19,654 | ) |
|
| (33,548 | ) |
|
| (13,320 | ) |
|
| (5,822 | ) |
|
| (21,672 | ) |
|
| (19,654 | ) |
Income tax expense |
|
| (9,157 | ) |
|
| (8,157 | ) |
|
| (10,339 | ) |
|
| (7,379 | ) |
|
| (5,014 | ) |
|
| (9,157 | ) |
|
| (2,856 | ) |
|
| (10,339 | ) |
Net income |
| $ | 31,806 |
|
| $ | 25,573 |
|
| $ | 34,124 |
|
| $ | 10,911 |
|
| $ | 14,479 |
|
| $ | 31,806 |
|
| $ | 11,952 |
|
| $ | 34,124 |
|
10.12. Commitments and Contingencies
Environmental Liabilities and Contingencies
The Company is subject to certain federal and state environmental laws and regulations associated with sites at which it stores and sells fuel and other fuel products, as well as at owned and leased locations leased or subleased to independent dealers. As of June 30, 20222023 and December 31, 2021,2022, environmental obligations totaled $12.614.5 million and $12.912.1 million, respectively. These amounts were recorded as other current and non-current liabilities in the condensed consolidated balance sheets. Environmental reserves have been established on an undiscounted basis based upon internal and external estimates in regard to each site. It is reasonably possible that these amounts will be adjusted in the future due to changes in estimates of environmental remediation costs, the timing of the payments or changes in federal and/or state environmental regulations.
The Company maintains certain environmental insurance policies and participates in various state underground storage tank funds that entitle it to be reimbursed for environmental loss mitigation. Estimated amounts that will be recovered from its insurance
24
policies and various state funds for the exposures totaled $5.17.8 million and $4.9 million as of both June 30, 20222023 and December 31, 2021,2022, respectively, and were recorded as other current and non-current assets in the condensed consolidated balance sheets.
Purchase Commitments
In the ordinary course of business, the Company has entered into various purchase agreements related to its fuel supply, which include varying volume commitments. In light of the reduction in the number of gallons sold in the current environment, certain of the Company’s principal fuel suppliers have waived the requirements under their agreements with the Company to purchase minimum quantities of gallons, including such requirements under the incentive agreements from such suppliers. As of June 30, 2022, the reduction in gallons sold did not affect the Company’s compliance with its commitments under the agreements with its principal suppliers.
Asset Retirement ObligationsObligation
20
As part of the fuel operations at its operated convenience stores, at most of the other owned and leased locations leased to independent dealers, and certain other independent dealer locations and proprietary cardlock locations, there are aboveground and underground storage tanks for which the Company is responsible. The future cost to remove an undergrounda storage tank is recognized over the estimated remaining useful life of the underground storage tank or the termination of the applicable lease. A liability for the fair value of an asset retirement obligation with a corresponding increase to the carrying value of the related long-lived asset is recorded at the time an undergrounda storage tank is installed. The estimated liability is based upon historical experience in removing underground storage tanks, estimated tank useful lives, external estimates as to the cost to remove the tanks in the future and current and anticipated federal and state regulatory requirements governing the removal of tanks, and discounted. The Company has recorded an asset retirement obligation of $59.080.4 million and $58.465.3 million at June 30, 20222023 and December 31, 2021,2022, respectively. The current portion of the asset retirement obligation is included in other current liabilities in the condensed consolidated balance sheets.
Program Agreement
In April 2022,On May 2, 2023, GPM, together with an affiliate of Oak Street, Real Estate Capital Net Lease Property Fund, LP (“Oak Street”), entered into ana third amendment to the standby real estate purchase, designation and lease program agreement (the “Program Agreement”),Program Agreement, which, among other things, (i) extended the term of the Program Agreement from one to two years and the exclusivity period thereunder through September 30, 2024 and (ii) provides for up to $1.151.5 billion of capacity for the acquisition of convenience store and gas station real property by Oak Street, subject to the conditions contained inunder the Program Agreement duringfrom the second yeardate of the term, in addition tothird amendment through September 30, 2024, not including the approximately $130 million of funding utilized in July 2022 as described in Note 12, which is inclusive of purchase agreements thatfor the Company or an affiliate thereof may from time to time enter into to acquire convenience stores and gas station real property from third parties. The term of the Program Agreement, as amended, extends through May 2, 2023.WTG Acquisition.
Legal Matters
The Company is a party to various legal actions, as both plaintiff and defendant, in the ordinary course of business. The Company’s management believes, based on estimations with support from legal counsel for these matters, that these legal actions are routine in nature and incidental to the operation of the Company’s business and that it is not reasonably possible that the ultimate resolution of these matters will have a material adverse impact on the Company’s business, financial condition, results of operations and cash flows.
11.13. Related Party Transactions
There have been no material changes to the description of related party transactions as set forth in the annual financial statements.
12. Subsequent Events
Quarles Acquisition
On July 22, 2022, the Company consummated its acquisition (the “Quarles Acquisition”) from Quarles Petroleum, Incorporated (“Quarles”) of certain assets, including:
The total consideration for the Quarles Acquisition as set forth in the purchase agreement was approximately $170 million plus the value of inventory on the closing date. The Company financed approximately $40 million of the purchase price with the Capital One line of credit and Oak Street, under the Program Agreement, paid the remaining approximately $130 million of consideration for fee simple ownership in 39 sites. At the closing, pursuant to the Program Agreement, the Company amended one of its master leases with Oak Street to add the sites Oak Street acquired in the transaction under customary lease terms.
The Quarles Acquisition added fleet fueling to the Company’s business, which includes operation of propriety cardlock locations, management of third-party fueling sites, and marketing of fuel cards with access to a nationwide network of fueling sites. The foregoing will be included as the Company’s fourth reportable segment.
Internal Entity Realignment and Streamlining
2125
In the third quarter of 2022, the Company, in order to streamline business operations and provide long term synergies and other cost savings, approved an internal restructuring of certain direct and indirect subsidiaries. The internal restructuring involves a series of steps, the majority of which are expected to be completed by the end of the third quarter of 2022. As part of the internal restructuring plan, the tax status of certain subsidiaries will change from nontaxable to taxable. Accordingly, the recognition and derecognition of certain deferred taxes will be reflected in the continuing operations at the date the change in tax status occurs. The Company expects to record a one-time non-cash tax expense in the amount of approximately $8.5 million in connection with the internal restructuring. The recording of this deferred tax expense will align the Company’s deferred tax assets and liabilities to reflect the temporary differences between the financial statement and tax basis of the Company’s assets and liabilities at the time of the change in status.
22
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
You should read this discussion together with the unaudited Condensed Consolidated Financial Statements, related notes, and other financial information included elsewhere in this Quarterly Report on Form 10-Q together with our audited consolidated financial statements, related notes, and other information contained in our Annual Report on Form 10-K for the year ended December 31, 20212022 (the “Form 10-K”). The following discussion contains assumptions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors,” in Part I, Item 1A of the Form 10-K and in Part II, Item 1A of this Quarterly Report on Form 10-Q and as described from time to time in our other filings with the Securities and Exchange Commission. These risks could cause our actual results to differ materially from those anticipated in these forward-looking statements.
Overview
ARKO Corp. was incorporated under the laws of Delaware on August 26, 2020. Our shares of common stock, $0.0001 par value per share (“common stock”), and publicly-traded warrants are listed on the Nasdaq Stock Market (“Nasdaq”). and trade under the symbols “ARKO” and “ARKOW,” respectively. GPM Investments, LLC, a Delaware limited liability company, which we refer to as GPM, is our operating entity and our indirect wholly owned subsidiary.
Based in Richmond, VA, we are a leading independent convenience store operator and, as of June 30, 2022,2023, we were the sixth largest convenience store chain in the United States (“U.S.”) ranked by store count, operating 1,3881,547 retail convenience stores. As of June 30, 2022,2023, we operated the stores under 19more than 25 regional store brands including 1-Stop, Admiral, Apple Market®, BreadBox, Corner Mart, Dixie Mart, ExpressStop, E-Z Mart®, fas mart®, fastmarket®, Flash Market, Handy Mart, Jetz, Jiffi Stop®, Jiffy Stop, Li’l Cricket, Market Express, Next Door Store®, Pride, Roadrunner Markets, Rose Mart, Rstore, Scotchman®, shore stop®, Town Star, Uncle’s, Village Pantry® and Young’s. As of June 30, 2022,2023, we also supplied fuel to 1,620 independent dealers.1,824 dealers and operated 293 cardlock locations (unstaffed fueling locations). We are well diversified geographically and as of June 30, 2022,2023, operated across 33in more than 30 states and the District of Columbia in the Mid-Atlantic, Midwestern, Northeastern, Southeastern and Southwestern United States.U.S.
WeOur primary business is the operation of convenience stores. As such, we derive a significant portion of our revenue from the retail sale of fuel and the products offered in our stores, as well as the wholesale distributionresulting in our retail stores generating a large proportion of fuel.our profitability. Our retail stores offer a wide array of cold and hot foodservice, beverages, cigarettes and other tobacco products, candy, salty snacks, grocery, beer and general merchandise. We have foodservice offerings at over 400approximately 1,260 company-operated stores. The foodservice category includes hot and fresh grab-n-go foods, deli, fried chicken, bakery, pizza, roller grill items and other prepared foods. We are currently expanding our partnership with Sbarro, the Original New York Pizza, and anticipate adding 50 new locations in 2022. We offer a value food menu consisting of items such as hot dogs and chicken sandwiches. In addition, at our stores, we operate over 90approximately 150 branded quick service restaurants consisting of major national brands. We have 18 new Sbarro, the Original New York Pizza, locations and are currently working on additional new food offerings of this kind. Additionally, we provide a number of traditional convenience store services that generate additional income, including lottery, prepaid products, gift cards, money orders, ATMs, gaming, and other ancillary product and service offerings. We also generate revenues from car washes at approximately 90 of our locations. Our high value fas REWARDS® loyalty program with approximately 1.48 million currently enrolled members is available in the majority of our stores and offers exclusive savings on merchandise and gas to our customers. In the first quarter of 2023, we launched our new fas REWARDS app, which offers enrolled loyalty members a variety of new features, including exclusive in-app member only HOT deals not available in stores, order and delivery, age verified offers on tobacco and alcohol, and a store locator with current gas prices at GPM stores close to members. We believe that these features contributed significantly to the approximately 10.5% increase in our enrolled marketable membership since the end of the first quarter of 2023.
We also derive revenue from the wholesale distribution of fuel and the sale of fuel at cardlock locations, and we earn commissions from the sales of fuel using proprietary fuel cards that provide customers access to a nationwide network of fueling sites. We believe these revenues result in stable, ratable cash flows which can quickly be deployed to pursue accretive acquisitions and investments in our retail stores. Additionally, these locations contribute to our overall size, which leads to economies of scale with our fuel and merchandise vendors.
Our reportable segments as of June 30, 2022 are described below.
Retail Segment
The retail segment includes the operation of a chain of retail stores, which includes convenience stores selling fuel products and other merchandise to retail customers. At our convenience stores, we own the merchandise and fuel inventory and employ personnel to manage the store.
26
Wholesale Segment
The wholesale segment supplies fuel to independent dealers, on either a cost plus or consignment basis. For consignment arrangements, we retain ownership of the fuel inventory at the site, are responsible for the pricing of the fuel to the end consumer and share a portion of the gross profit earned from the sale of fuel by the consignment dealers. For cost plus arrangements, we sell fuel to independent dealers and bulk and spot purchasers on a fixed-fee basis. The sales price to the independent dealer is determined according to the terms of the relevant agreement with the independent dealer, which typically reflects our total fuel costs plus the cost of transportation and a margin, with us generally retaining the prompt pay discounts rebates and rebates.
Fleet Fueling Segment
The fleet fueling segment includes the operation of proprietary and third-party cardlock locations (unstaffed fueling locations), and issuance of proprietary fuel cards that provide customers access to a margin.nationwide network of fueling sites.
GPMP Segment
The GPMP segment includes the operations of GPM Petroleum LP, referred to as GPMP, which primarily sells and supplies fuel to GPM and substantially all of its fuel-selling subsidiaries (boththat sell fuel in the retail and wholesale segments)segments at GPMP’s cost of fuel (including taxes and transportation) plus a fixed margin.
23
The Quarles Acquisition (as defined below), which closed on July 22, 2022, addedmargin and a fixed fee charged to sites in the fleet fueling to our business,segment and certain Company sites which includes the operation of propriety cardlock locations, management of third-party fueling sites, and marketing of fuel cards with access to a nationwide network of fueling sites. Fleet fueling will be a fourth reportable segment from the date of closing of the Quarles Acquisition.are not supplied by GPMP.
Trends Impacting Our Business
We have achieved strong store growth over the last several years,decade, primarily by implementing a highly successful acquisition strategy. From 2013 through June 30, 2023, we completed 24 acquisitions. On June 6, 2023, we completed our acquisition from WTG Fuels Holdings, LLC of 24 company-operated Uncle’s convenience stores located across Western Texas, 68 proprietary GASCARD-branded cardlock sites and 43 private cardlock sites for fleet fueling operations located in Western Texas and Southeastern New Mexico (the “WTG Acquisition”). On March 1, 2023, we completed our acquisition from Transit Energy Group, LLC of 135 Company-operated convenience stores and gas stations, 181 dealer locations, a commercial, government, and industrial business, and certain distribution and transportation assets (the “TEG Acquisition” and, together with the WTG Acquisition, the “2023 Acquisitions”). For additional information regarding the 2023 Acquisitions, please see Note 3 to our condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q. In December 2022, we completed 20 acquisitions. As a result, our acquisition of Pride Convenience Holdings, LLC, which operated at closing, 31 Pride retail convenience stores and had one store under construction at closing which is now opened (the “Pride Acquisition”), and in July 2022, we completed our acquisition of certain assets from Quarles Petroleum, Incorporated (the “Quarles Acquisition”), which included 121 proprietary Quarles-branded cardlock sites and 63 third-party cardlock sites for fleet fueling operations, and 46 dealer locations (collectively, the “2022 Acquisitions”). Our store count has grown from 320 sites in 2011 to 3,0083,664 sites as of June 30, 2022,2023, of which 1,3881,547 were operated as retail convenience stores, and 1,6201,824 were locations at which we supplied fuel to independent dealers.dealers and 293 were cardlock locations. These strategic acquisitions have had, and we expect will continue to have, a significant impact on our reported results and can make period to period comparisons of results difficult. In November 2021, we completed our acquisition of 36 Handy Mart retail convenience stores, and in May 2021, we completed our acquisition of 60 ExpressStop retail convenience stores (collectively, the “2021 Acquisitions”). With our achievement of significant size and scale, we have enhanced our focus on organic growth, including implementing company-wide marketing and merchandising initiatives, which we believe will result in significant value accretion to all the assets we have acquired. In the third quarter of 2022, we completed our acquisition of 121 proprietary Quarles-branded cardlock sites and management of 63 third party cardlock sites for fleet fueling operations, 46 independent dealer locations and a small transportation fleet (the “Quarles Acquisition”), which comprises a complementary business from which we believe we can grow and expand the Company’s fleet fueling platform. (See Note 12 to our condensed consolidated financial statements contained in this Quarterly report on Form 10-Q.)acquired assets.
The following table provides a history of our acquisitions, site conversions and site closings for the periods noted, for the retail, wholesale and wholesalefleet fueling segments:
|
| For the Three Months |
|
| For the Six Months |
|
| For the Three Months |
|
| For the Six Months |
| ||||||||||||||||||||
Retail Segment |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Number of sites at beginning of period |
|
| 1,396 |
|
|
| 1,324 |
|
|
| 1,406 |
|
|
| 1,330 |
|
|
| 1,531 |
|
|
| 1,396 |
|
|
| 1,404 |
|
|
| 1,406 |
|
Acquired sites |
|
| — |
|
|
| 61 |
|
|
| — |
|
|
| 61 |
|
|
| 24 |
|
|
| — |
|
|
| 159 |
|
|
| — |
|
Newly opened or reopened sites |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| 2 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
Company-controlled sites converted to consignment |
|
| (1 | ) |
|
| (3 | ) |
|
| (7 | ) |
|
| (3 | ) | ||||||||||||||||
Company-controlled sites converted to consignment |
|
| (6 | ) |
|
| (1 | ) |
|
| (11 | ) |
|
| (7 | ) | ||||||||||||||||
Closed, relocated or divested sites |
|
| (7 | ) |
|
| (2 | ) |
|
| (11 | ) |
|
| (8 | ) |
|
| (4 | ) |
|
| (7 | ) |
|
| (8 | ) |
|
| (11 | ) |
Number of sites at end of period |
|
| 1,388 |
|
|
| 1,381 |
|
|
| 1,388 |
|
|
| 1,381 |
|
|
| 1,547 |
|
|
| 1,388 |
|
|
| 1,547 |
|
|
| 1,388 |
|
|
| For the Three Months |
|
| For the Six Months |
| ||||||||||
Wholesale Segment 1 |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Number of sites at beginning of period |
|
| 1,625 |
|
|
| 1,597 |
|
|
| 1,628 |
|
|
| 1,597 |
|
Newly opened or reopened sites 2 |
|
| 21 |
|
|
| 20 |
|
|
| 40 |
|
|
| 34 |
|
Consignment or fuel supply locations |
|
| 1 |
|
|
| 3 |
|
|
| 7 |
|
|
| 3 |
|
Closed, relocated or divested sites |
|
| (27 | ) |
|
| (10 | ) |
|
| (55 | ) |
|
| (24 | ) |
Number of sites at end of period |
|
| 1,620 |
|
|
| 1,610 |
|
|
| 1,620 |
|
|
| 1,610 |
|
27
|
| For the Three Months |
|
| For the Six Months |
| ||||||||||
Wholesale Segment 1 |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Number of sites at beginning of period 2 |
|
| 1,841 |
|
|
| 1,625 |
|
|
| 1,674 |
|
|
| 1,628 |
|
Acquired sites 2 |
|
| 9 |
|
|
| — |
|
|
| 190 |
|
|
| — |
|
Newly opened or reopened sites 3 |
|
| 17 |
|
|
| 21 |
|
|
| 24 |
|
|
| 40 |
|
Consignment or fuel supply locations |
|
| 6 |
|
|
| 1 |
|
|
| 11 |
|
|
| 7 |
|
Closed, relocated or divested sites |
|
| (49 | ) |
|
| (27 | ) |
|
| (75 | ) |
|
| (55 | ) |
Number of sites at end of period |
|
| 1,824 |
|
|
| 1,620 |
|
|
| 1,824 |
|
|
| 1,620 |
|
1 Excludes bulk and spot purchasers.
2 As part of our review of the initial accounting for the TEG Acquisition, we have adjusted the number of sites acquired in the first quarter of 2023 to exclude 11 spot purchasers acquired, consistent with our historical methodology. There was no impact on our previously reported gallons sold or financial results.
3 Includes all signed fuel supply agreements irrespective of fuel distribution commencement date.
There has been an ongoing trend in
For the Three and Six Months Ended June 30, | ||||
Fleet Fueling Segment | 2023 | |||
Number of sites at beginning of period | 183 | |||
Acquired sites | 111 | |||
Closed, relocated or divested sites | (1 | ) | ||
Number of sites at end of period | 293 |
In recent years, the convenience store industry has focused on increasing and improving in-store foodservice offerings, including fresh foods, quick service restaurants or proprietary food offerings. We believe consumers may be more likely to patronize convenience stores that include such new and improved food offerings, which may also lead to increased inside merchandise sales or fuel sales for such stores. Although our food and beverage sales have been negatively impacted during the COVID-19 pandemic, we believe this trend will reverse when the effects of the pandemic subside. Our current foodservice offering, which varies by store, primarily consists of hot and fresh grab-n-go foods, deli, fried chicken, bakery, pizza, roller grill items and other prepared foods. We have historically relied upon a limited number of franchised quick service restaurants and in-store delis to drive customer traffic rather than other types of foodservice offerings. As a result, we believe that our under-penetration of foodservice presents an opportunity to expand foodservice offerings and margin in response to changing consumer behavior. In addition, we believe that continued investment in new technology platforms and applications to adapt to evolving consumer eating preferences, including contactless checkout, order ahead service, and delivery, will further drive growth in profitability.
24
Our results of operation are significantly impacted by the retail fuel margins we receiveearn on gallons sold. While we expect our same store fuel sales volumes to remain stable over time, even though they have been negatively impacted by COVID-19, and the fuel margins we realize on those sales to remain stable, theseThese fuel margins can change rapidly as they are influenced by many factors including: the price of refined products; interruptions in supply caused by severe weather; supply chain disruptions; refinery mechanical failures; and competition in the local markets in which we operate.
The cost of our main products, gasoline and diesel fuel, is greatly impacted by the wholesale cost of fuel in the United States. We attempt to pass wholesale fuel cost changes through to our customers through retail price changes; however, we are not always able to do so. TheCompetitive conditions primarily affect the timing of any related increase or decrease in retail prices is affected primarily by competitive conditions.prices. As a result, we tend to experience lower fuel margins when the cost of fuel is increasing gradually over a longer period and higher fuel margins when the cost of fuel is declining or more volatile over a shorter period of time. For the six months ended June 30, 2022 and the year ended December 31, 2021,2022, we experienced historically high fuel margins as a result of the volatile price ofmarket for gasoline and diesel fuel. In particular, in the first quarter of 2022, the war in Ukraine significantly affected market conditions and resulted in substantially higher fuel margins. Depending on future market and geopolitical conditions, the supply of fuel, including diesel fuel in particular, may become constrained. As such, we maintain terminal storage of diesel fuel for short-term supply needs for our fleet fueling sites.
Additionally, throughout 2022 and continuing in the United Statesfirst half of 2023, the U.S. economy began experiencingcontinued to experience inflationary pressures, that have increased intowhich increase the second quartercost of 2022, thus loweringthe merchandise we purchase and reduce consumer purchasing power. We have mitigated a portion of these higher costs with retail price increases. If this trend continues or increases, it could negatively impact demand for our products and services, as well as seasonal travel patterns, which could reduce future merchandise sales volumes. Additionally, because of current labor market conditions and the prevailing wage rates in the markets in which we operate, we have voluntarily increased wages, which has increased our costs associated with recruiting and retaining qualified personnel, and may continue to do so in the future.
We also operate in a highly competitive retail convenience market that includes businesses with operations and services that are similar to those that we provide. We face significant competition from other large chain operators. In particular, large convenience store chains have increased their number of locations and remodeled their existing locations in recent years, enhancing their
28
competitive position. We believe that convenience stores managed by individual operators who offer branded or non-branded fuel are also significant competitors in the market. The convenience store industry is also experiencing competition from other retail sectors including grocery stores, large warehouse retail stores, dollar stores and pharmacies.
We believe that we have a significant opportunity to increase our sales and profitability by continuing to execute our operating strategy, growing our store base in existing and contiguous markets through acquisitions, and enhancing the performance of current stores.
Business Highlights
Increased merchandise contributionOur focus on our retail organic store growth strategy and fuel contribution at same stores combined with an increase in fuel contribution inthe continuation of our wholesale segmentaccretive acquisition strategy positively impacted our results of operations duringfor the second quarter of 2022. In addition,2023. Merchandise contribution at same stores, the 20212023 Acquisitions and the 2022 Acquisitions all contributed to the improvement in our results of operations for the second quarter of 2022,2023, as compared to the second quarter of 2021.2022 which was partially offset by less fuel contribution on a same store basis, primarily due to market conditions in the second quarter of 2022. Store operating expenses increased in the second quarter of 20222023 as compared to the second quarter of 2021,2022, primarily due to higher personnel costs and credit card fees.costs. General and administrative expenses also increased in the second quarter of 20222023 as compared to the second quarter of 2021,2022, primarily as a result of expenses associated with the 2023 Acquisitions and the 2022 Acquisitions, wage increases, and an increase in share-based compensation expense.
COVID-19
On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. Throughout the pandemic, our convenience stores and independent dealers have continued to operate and have remained open to the public because convenience store operations and gas stations have been deemed essential businesses by numerous federal and state authorities, including the U.S. Department of Homeland Security, and therefore were exempt from many of the closure orders that were imposed on other U.S. businesses.
The COVID-19 pandemic has reduced the frequency of customer visits and the number of gallons sold at our sites, however, we have seen increases in fuel margin and merchandise basket which more than offset this reduction. Since the beginning of 2021, we have seen an increase in fuel volume as businesses have continued to reopen and customer traffic has increased, apart from the decrease in gallons as a result of record high retail fuel prices. Additionally, our corporate offices transitioned primarily to remote work, and we believe this has allowed us to maintain or increase productivity since March 2020 while expanding the hiring universe for corporate roles nationwide. While we have seen shortages in labor and supply chain disruptions that have increased our operating costs, we have addressed these shortages and disruptions through several hiring initiatives and leveraging our strong partnerships with our suppliers. There continues to be a high level of uncertainty relating to how the pandemic will evolve, and how governments and consumers will react. The extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, a resumption of high levels of infection and hospitalization, new variants of the virus, the resulting impact on our employees, customers, suppliers, and vendors, supply chain disruptions and the remedial actions and any stimulus measures adopted by federal, state, and local governments, and to what extent normal economic and operating conditions are impacted. Therefore, we cannot reasonably estimate the future impact at this time.
Seasonality
Our business is seasonal, and our operating income in the second and third quarters has historically been significantly greater than in the first and fourth quarters as a result of the generally improved climate and seasonal buying patterns of our customers.
25
Inclement weather, especially in the Midwest and Northeast regions of the United StatesU.S. during the winter months, can negatively impact our financial results.
Results of Operations for the three and six months ended June 30, 20222023 and 20212022
The period-to-period comparisons of our results of operations contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operation have been prepared using our condensed consolidated interim financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. The following discussion should be read in conjunction with such condensed interim consolidated financial statements and related notes.
Consolidated Results
29
The table below shows our consolidated results for the three and six months ended June 30, 20222023 and 2021,2022, together with certain key metrics.
|
| For the Three Months |
|
| For the Six Months |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Revenues: |
| (in thousands) |
| |||||||||||||
Fuel revenue |
| $ | 1,957,100 |
|
| $ | 2,085,854 |
|
| $ | 3,618,764 |
|
| $ | 3,669,380 |
|
Merchandise revenue |
|
| 484,561 |
|
|
| 431,751 |
|
|
| 884,849 |
|
|
| 798,736 |
|
Other revenues, net |
|
| 27,480 |
|
|
| 22,658 |
|
|
| 53,904 |
|
|
| 44,958 |
|
Total revenues |
|
| 2,469,141 |
|
|
| 2,540,263 |
|
|
| 4,557,517 |
|
|
| 4,513,074 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Fuel costs |
|
| 1,801,103 |
|
|
| 1,955,019 |
|
|
| 3,338,985 |
|
|
| 3,425,668 |
|
Merchandise costs |
|
| 329,903 |
|
|
| 300,387 |
|
|
| 607,226 |
|
|
| 559,180 |
|
Store operating expenses |
|
| 218,002 |
|
|
| 178,077 |
|
|
| 410,685 |
|
|
| 344,615 |
|
General and administrative expenses |
|
| 42,660 |
|
|
| 32,956 |
|
|
| 83,076 |
|
|
| 64,741 |
|
Depreciation and amortization |
|
| 32,837 |
|
|
| 24,353 |
|
|
| 61,236 |
|
|
| 48,989 |
|
Total operating expenses |
|
| 2,424,505 |
|
|
| 2,490,792 |
|
|
| 4,501,208 |
|
|
| 4,443,193 |
|
Other expenses, net |
|
| 4,956 |
|
|
| 1,197 |
|
|
| 7,676 |
|
|
| 2,318 |
|
Operating income |
|
| 39,680 |
|
|
| 48,274 |
|
|
| 48,633 |
|
|
| 67,563 |
|
Interest and other financial expenses, net |
|
| (20,160 | ) |
|
| (7,339 | ) |
|
| (33,762 | ) |
|
| (23,314 | ) |
Income before income taxes |
|
| 19,520 |
|
|
| 40,935 |
|
|
| 14,871 |
|
|
| 44,249 |
|
Income tax expense |
|
| (5,014 | ) |
|
| (9,157 | ) |
|
| (2,856 | ) |
|
| (10,162 | ) |
(Loss) income from equity investment |
|
| (27 | ) |
|
| 28 |
|
|
| (63 | ) |
|
| 37 |
|
Net income |
| $ | 14,479 |
|
| $ | 31,806 |
|
| $ | 11,952 |
|
| $ | 34,124 |
|
Less: Net income attributable to non-controlling interests |
|
| 48 |
|
|
| 52 |
|
|
| 101 |
|
|
| 131 |
|
Net income attributable to ARKO Corp. |
| $ | 14,431 |
|
| $ | 31,754 |
|
| $ | 11,851 |
|
| $ | 33,993 |
|
Series A redeemable preferred stock dividends |
|
| (1,434 | ) |
|
| (1,434 | ) |
|
| (2,852 | ) |
|
| (2,852 | ) |
Net income attributable to common shareholders |
| $ | 12,997 |
|
| $ | 30,320 |
|
| $ | 8,999 |
|
| $ | 31,141 |
|
Fuel gallons sold |
|
| 588,174 |
|
|
| 484,834 |
|
|
| 1,091,434 |
|
|
| 941,726 |
|
Fuel margin, cents per gallon1 |
|
| 26.5 |
|
|
| 27.0 |
|
|
| 25.6 |
|
|
| 25.9 |
|
Merchandise contribution2 |
|
| 154,658 |
|
|
| 131,364 |
|
| $ | 277,623 |
|
| $ | 239,556 |
|
Merchandise margin3 |
|
| 31.9 | % |
|
| 30.4 | % |
|
| 31.4 | % |
|
| 30.0 | % |
Adjusted EBITDA4 |
|
| 86,242 |
|
|
| 79,045 |
|
|
| 133,726 |
|
| $ | 129,153 |
|
|
| For the Three Months |
|
| For the Six Months |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Revenues: |
| (in thousands) |
| |||||||||||||
Fuel revenue |
| $ | 2,085,854 |
|
| $ | 1,460,763 |
|
| $ | 3,669,380 |
|
| $ | 2,563,710 |
|
Merchandise revenue |
|
| 431,751 |
|
|
| 426,365 |
|
|
| 798,736 |
|
|
| 785,646 |
|
Other revenues, net |
|
| 22,658 |
|
|
| 22,686 |
|
|
| 44,958 |
|
|
| 44,814 |
|
Total revenues |
|
| 2,540,263 |
|
|
| 1,909,814 |
|
|
| 4,513,074 |
|
|
| 3,394,170 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Fuel costs |
|
| 1,955,019 |
|
|
| 1,347,109 |
|
|
| 3,425,668 |
|
|
| 2,359,907 |
|
Merchandise costs |
|
| 300,387 |
|
|
| 303,952 |
|
|
| 559,180 |
|
|
| 564,706 |
|
Store operating expenses |
|
| 178,077 |
|
|
| 154,668 |
|
|
| 344,615 |
|
|
| 299,606 |
|
General and administrative |
|
| 32,956 |
|
|
| 31,861 |
|
|
| 64,741 |
|
|
| 58,574 |
|
Depreciation and amortization |
|
| 24,353 |
|
|
| 25,273 |
|
|
| 48,989 |
|
|
| 49,515 |
|
Total operating expenses |
|
| 2,490,792 |
|
|
| 1,862,863 |
|
|
| 4,443,193 |
|
|
| 3,332,308 |
|
Other expenses, net |
|
| 1,197 |
|
|
| 1,195 |
|
|
| 2,318 |
|
|
| 2,867 |
|
Operating income |
|
| 48,274 |
|
|
| 45,756 |
|
|
| 67,563 |
|
|
| 58,995 |
|
Interest and other financial expenses, net |
|
| (7,339 | ) |
|
| (11,997 | ) |
|
| (23,314 | ) |
|
| (40,614 | ) |
Income before income taxes |
|
| 40,935 |
|
|
| 33,759 |
|
|
| 44,249 |
|
|
| 18,381 |
|
Income tax expense |
|
| (9,157 | ) |
|
| (8,212 | ) |
|
| (10,162 | ) |
|
| (7,490 | ) |
Income from equity investment |
|
| 28 |
|
|
| 26 |
|
|
| 37 |
|
|
| 20 |
|
Net income |
| $ | 31,806 |
|
| $ | 25,573 |
|
| $ | 34,124 |
|
| $ | 10,911 |
|
Less: Net income attributable to non-controlling interests |
|
| 52 |
|
|
| 54 |
|
|
| 131 |
|
|
| 128 |
|
Net income attributable to ARKO Corp. |
| $ | 31,754 |
|
| $ | 25,519 |
|
| $ | 33,993 |
|
| $ | 10,783 |
|
Series A redeemable preferred stock dividends |
|
| (1,434 | ) |
|
| (1,434 | ) |
|
| (2,852 | ) |
|
| (2,836 | ) |
Net income attributable to common shareholders |
| $ | 30,320 |
|
| $ | 24,085 |
|
| $ | 31,141 |
|
| $ | 7,947 |
|
Fuel gallons sold |
|
| 484,834 |
|
|
| 522,392 |
|
|
| 941,726 |
|
|
| 970,707 |
|
Fuel margin, cents per gallon1 |
|
| 27.0 |
|
|
| 21.8 |
|
|
| 25.9 |
|
|
| 21.0 |
|
Merchandise contribution2 |
|
| 131,364 |
|
|
| 122,413 |
|
| $ | 239,556 |
|
| $ | 220,940 |
|
Merchandise margin3 |
|
| 30.4 | % |
|
| 28.7 | % |
|
| 30.0 | % |
|
| 28.1 | % |
Adjusted EBITDA4 |
|
| 79,045 |
|
|
| 75,717 |
|
|
| 129,153 |
|
| $ | 118,020 |
|
1 Calculated as fuel revenue less fuel costs divided by fuel gallons sold.
2 Calculated as merchandise revenue less merchandise costs.
3 Calculated as merchandise contribution divided by merchandise revenue.
4 Refer to “Use of Non-GAAP Measures” below for discussion of this non-GAAP performance measure and related reconciliation to net income.
Three Months Ended June 30, 20222023 versus Three Months Ended June 30, 20212022
For the three months ended June 30, 2022,2023, fuel revenue increaseddecreased by $625.1$128.8 million, or 42.8%6.2%, compared to the second quarter of 2021.2022. The increasedecrease in fuel revenue was primarily attributable primarily to a significant increasedecrease in the average price of fuel compared to the second quarter of 2021, as well as incremental gallons sold related to the 2021 Acquisitions, which was partially offset by2022 and fewer gallons sold at same stores in the second quarter of 20222023 compared to the second quarter of 2021.
26
For the three months ended June 30, 2022, merchandise revenue increasedwhich was partially offset by $5.4 million, or 1.3%, comparedincremental gallons sold related to the second quarter of 2021 primarily due to2023 Acquisitions and the 20212022 Acquisitions. Offsetting these increases was a decrease in same store merchandise sales and in merchandise revenue from underperforming retail stores that we closed or converted to dealer-operated sites.
For the three months ended June 30, 2022, other2023, merchandise revenue was consistent with that inincreased by $52.8 million, or 12.2%, compared to the second quarter of 2021, as2022, primarily due to the 2023 Acquisitions and the Pride Acquisition and an increase in same store merchandise revenues. Offsetting these increases was a decrease in merchandise revenue from underperforming retail stores that were closed or converted to dealers.
For the three months ended June 30, 2023, other revenue increased by $4.8 million, or 21.3%, compared to the second quarter of 2022, primarily due to additional revenue from the 20212023 Acquisitions, was fully offset by lowerthe 2022 Acquisitions and greater lottery commissions.
For the three months ended June 30, 2022,2023, total operating expenses increaseddecreased by $627.9$66.3 million, or 33.7%2.7%, compared to the second quarter of 2021.2022. Fuel costs increased $607.9decreased $153.9 million, or 45.1%7.9%, compared to the second quarter of 20212022 due to both fewer gallons sold and a lower average cost of fuel sold at higher average costs,on a same store basis which were partially offset by lower volumes.incremental gallons related to the 2023 Acquisitions and the 2022 Acquisitions. Merchandise costs decreased $3.6increased $29.5 million, or 1.2%9.8%, compared to the second quarter of 2021,2022, primarily due to a corresponding decrease in same store merchandise sales, which was offset by increased costs related to the 2021 Acquisitions.2023 Acquisitions and the Pride Acquisition and a corresponding increase in same store merchandise sales. For the three months ended June 30, 2022,2023, store operating expenses increased $23.4$39.9 million, or 15.1%22.4%,
30
compared to the second quarter of 20212022 due to incremental expenses as a result of the 20212023 Acquisitions, the 2022 Acquisitions and an increase in expenses at same stores.
For the three months ended June 30, 2022,2023, general and administrative expenses increased $1.1$9.7 million, or 3.4%29.4%, compared to the second quarter of 2021,2022, primarily due to approximately $7.1 million of expenses associated with the 2023 Acquisitions and the 2022 Acquisitions, annual wage increases and an increase of $1.4 million in share-based compensation expense and higher transportation costs.primarily related to equity grants in the first quarter of 2023.
For the three months ended June 30, 2022,2023, depreciation and amortization expenses decreased $0.9increased $8.5 million, or 3.6%34.8%, compared to the second quarter of 2021.2022 primarily due to assets acquired in the previous twelve month period, largely in connection with the 2023 Acquisitions and the 2022 Acquisitions.
For the three months ended June 30, 2022,2023, other expenses, net were consistent with those inincreased by $3.8 million, compared to the second quarter of 20212022 primarily due to an increase in acquisition costs and greater losses on disposal of assets and impairment charges in the second quarter of 2022,2023, which werewas partially offset by a decrease in acquisition costs andhigher income recorded for the fair value adjustment of contingent consideration.consideration in the second quarter of 2023.
Operating income was $39.7 million for the second quarter of 2023 compared to $48.3 million for the second quarter of 2022 compared to $45.8 million for the second quarter of 2021.2022. The increasedecrease was primarily due to strong fuel and merchandise results along with incremental income from the 2021 Acquisitions, which was partially offset by an increase in store operatingdepreciation and amortization expenses, share-based compensation expenses and general and administrative expenses.other expenses, net.
For the three months ended June 30, 2022,2023, interest and other financial expenses, net decreasedincreased by $4.7$12.8 million compared to the second quarter of 2021,2022, primarily related to an increasea decrease of $6.1$6.6 million in income, net, recorded in the second quarter of 2023 compared to the prior year period, for fair value adjustments for the Ares Put Option, Public Warrants, Private Warrants and Deferred Shares (each as defined in Note 810 to the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q), and greater debt at higher rates outstanding in 2023, which werewas partially offset by lower rate debt outstandingadditional interest income generated in 2021.the second quarter of 2023.
For the three months ended June 30, 2022 and 2021,2023, income tax expense was $5.0 million compared to income tax expense of $9.2 million and $8.2 million, respectively.for the three months ended June 30, 2022.
For the three months ended June 30, 20222023 and 2021,2022, net income attributable to the Company was $14.4 million and $31.8 million, and $25.5 million, respectively.
For the three months ended June 30, 2022,2023, Adjusted EBITDA was $79.0$86.2 million compared to $75.7$79.0 million for the three months ended June 30, 2021. The 2021 Acquisitions contributed approximately $4.3 million of incremental2022. Incremental Adjusted EBITDA forfrom the second quarter of 2022. Increased2023 Acquisitions and the 2022 Acquisitions and increased merchandise contribution and fuel contribution at same stores also positively impacted Adjusted EBITDA for the second quarter of 2022,2023, as compared to the second quarter of 2021,2022, which was partially offset by approximately $13.3 million of lower fuel contribution from retail same stores and legacy wholesale sites. In addition, higher personnel costs higher credit card fees related to an increase in the retail price of fuelat same stores and an increase in general and administrative expenses primarily related to annual wage increases.reduced Adjusted EBITDA for the second quarter of 2023. Refer to “Use of Non-GAAP Measures” below for discussion of this non-GAAP performance measure and related reconciliation to net income.
Six Months Ended June 30, 20222023 versus Six Months Ended June 30, 20212022
For the six months ended June 30, 2022,2023, fuel revenue increaseddecreased by $1.1 billion,$50.6 million, or 43.1%1.4%, compared to the first half of 2021.2022. The increasedecrease in fuel revenue was primarily attributable primarily to a significant increasedecrease in the average price of fuel compared to the first half of 2021, as well as incremental gallons sold related to the 2021 Acquisitions, which was partially offset by2022 and fewer gallons sold at same stores in the first half of 20222023 compared to the first half of 2021.2022, which was partially offset by incremental gallons sold related to the 2023 Acquisitions and the 2022 Acquisitions.
For the six months ended June 30, 2022,2023, merchandise revenue increased by $13.1$86.1 million, or 1.7%10.8%, compared to the first half of 20212022, primarily due to the 2021 Acquisitions. Offsetting these increases were decreases2023 Acquisitions and the Pride Acquisition and an increase in same store merchandise sales andrevenues. Offsetting these increases was a decrease in merchandise revenue from underperforming retail stores that wewere closed or converted to dealer-operated sites.dealers.
For the six months ended June 30, 2022,2023, other revenue was consistent with that inincreased by $8.9 million, or 19.9%, compared to the first half of 2021 as2022, primarily due to additional revenue from the 20212023 Acquisitions, was fully offset by lowerthe 2022 Acquisitions and greater lottery commissions.
27
For the six months ended June 30, 2022,2023, total operating expenses increased by $1.1 billion,$58.0 million, or 33.3%1.3%, compared to the first half of 2021.2022. Fuel costs increased $1.1 billion,decreased $86.7 million, or 45.2%2.5%, compared to the first half of 20212022 due to fuelboth fewer gallons sold at higherand a lower average cost of fuel on a same store basis, which were partially offset by lower volumes.incremental gallons related to the 2023 Acquisitions and the 2022 Acquisitions. Merchandise costs decreased $5.5increased $48.0 million, or 1.0%8.6%, compared to the first half of 2021,2022, primarily due to increased
31
costs related to the 2023 Acquisitions and the Pride Acquisition and a corresponding decreaseincrease in same store merchandise sales, which was partially offset by increased costs related to the 2021 Acquisitions.sales. For the six months ended June 30, 2022,2023, store operating expenses increased $45.0$66.1 million, or 15.0%19.2%, compared to the first half of 20212022 due to incremental expenses as a result of the 20212023 Acquisitions, the 2022 Acquisitions and an increase in expenses at same stores.
For the six months ended June 30, 2022,2023, general and administrative expenses increased $6.2$18.3 million, or 10.5%28.3%, compared to the first half of 2021,2022, primarily due to approximately $11.5 million in expenses associated with the 2023 Acquisitions and the 2022 Acquisitions, annual wage increases and an increase of $2.7 million in share-based compensation expense primarily related to equity grants in the first quarters of 2023 and higher transportation costs.2022.
For the six months ended June 30, 2022,2023, depreciation and amortization expenses decreased $0.5increased $12.2 million, or 1.1%25.0%, compared to the first half of 2021.2022 primarily due to assets acquired in the previous twelve month period, largely in connection with the 2023 Acquisitions and the 2022 Acquisitions.
For the six months ended June 30, 2022,2023, other expenses, net decreasedincreased by $0.5$5.4 million, compared to the first half of 2021,2022 primarily due to loweran increase in acquisition costs and greater losses on disposal of assets and impairment charges in the first half of 2023 which was partially offset by higher income recorded for the fair value adjustment of contingent consideration in the first half of 2022, which2023.
Operating income was partially offset by greater on losses on disposal of assets and impairment charges in$48.6 million for the first half of 2022.
Operating income was2023 compared to $67.6 million for the first half of 2022 compared to $59.0 million for the first half of 2021.2022. The increasedecrease was primarily due to strong fuel and merchandise results along with incremental income from the 2021 Acquisitions which was partially offset by an increase in store operatingdepreciation and amortization expenses, share-based compensation expenses and general and administrative expenses.other expenses, net.
For the six months ended June 30, 2022,2023, interest and other financial expenses, net decreasedincreased by $17.3$10.4 million compared to the first half of 2021,2022, primarily related to a reductiondecrease of $16.0$1.9 million in expensesincome, net recorded for fair value adjustments for the Ares Put Option, Public Warrants, Private Warrants and Deferred Shares (each as defined in Note 10 to the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q) and greater debt at higher rates outstanding in 2023, which werewas partially offset by lower rate debt outstanding in 2021 and a net period-over-period decrease in foreign currency gains recorded of $1.4 million. In addition, $4.5 million of additional interest expense was recordedincome generated in the first quarterhalf of 2021 for the early redemption of the Bonds (Series C).2023.
For the six months ended June 30, 2022 and 2021,2023, income tax expense was $2.9 million compared to income tax expense of $10.2 million for the six months ended June 30, 2022.
For the six months ended June 30, 2023 and $7.52022, net income attributable to the Company was $11.9 million and $34.0 million, respectively.
For the six months ended June 30, 2022 and 2021, net income attributable to the Company was $34.0 million and $10.8 million, respectively.
For the six months ended June 30, 2022,2023, Adjusted EBITDA was $129.2$133.7 million compared to $118.0$129.2 million for the six months ended June 30, 2021. The 2021 Acquisitions contributed approximately $8.3 million of incremental2022. Incremental Adjusted EBITDA forfrom the first half of 2022. Increased2023 Acquisitions and the 2022 Acquisitions and increased merchandise contribution and fuel contribution at same stores also positively impacted Adjusted EBITDA for the first half of 2022,2023, as compared to the first half of 2021, which was2022. These benefits were partially offset by approximately $27.9 million of lower fuel contribution from retail same stores and legacy wholesale sites, of which approximately $12.8 million was incurred in March 2023. In addition, higher personnel costs higher credit card fees related to an increase in the retail price of fuelat same stores and an increase in general and administrative expenses primarily related to annual wage increases.reduced Adjusted EBITDA for the first half of 2023. Refer to “Use of Non-GAAP Measures” below for discussion of this non-GAAP performance measure and related reconciliation to net income.
2832
Segment Results
Retail Segment
The table below shows the results of the retail segment for the three and six months ended June 30, 20222023 and 2021,2022, together with certain key metrics for the segment.
|
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
|
| For the Three Months |
|
| For the Six Months |
| ||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Revenues: |
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||
Fuel revenue |
| $ | 1,117,849 |
|
| $ | 768,716 |
|
| $ | 1,972,516 |
|
| $ | 1,345,020 |
|
| $ | 1,015,365 |
|
| $ | 1,117,849 |
|
| $ | 1,858,838 |
|
| $ | 1,972,516 |
|
Merchandise revenue |
|
| 431,751 |
|
|
| 426,365 |
|
|
| 798,736 |
|
|
| 785,646 |
|
|
| 484,561 |
|
|
| 431,751 |
|
|
| 884,849 |
|
|
| 798,736 |
|
Other revenues, net |
|
| 16,667 |
|
|
| 17,252 |
|
|
| 32,991 |
|
|
| 34,229 |
|
|
| 18,997 |
|
|
| 16,667 |
|
|
| 37,552 |
|
|
| 32,991 |
|
Total revenues |
|
| 1,566,267 |
|
|
| 1,212,333 |
|
|
| 2,804,243 |
|
|
| 2,164,895 |
|
|
| 1,518,923 |
|
|
| 1,566,267 |
|
|
| 2,781,239 |
|
|
| 2,804,243 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Fuel costs |
|
| 1,025,811 |
|
|
| 690,952 |
|
|
| 1,802,696 |
|
|
| 1,206,088 |
|
|
| 913,437 |
|
|
| 1,025,811 |
|
|
| 1,681,245 |
|
|
| 1,802,696 |
|
Merchandise costs |
|
| 300,387 |
|
|
| 303,952 |
|
|
| 559,180 |
|
|
| 564,706 |
|
|
| 329,903 |
|
|
| 300,387 |
|
|
| 607,226 |
|
|
| 559,180 |
|
Store operating expenses |
|
| 168,222 |
|
|
| 146,214 |
|
|
| 324,841 |
|
|
| 282,539 |
|
|
| 197,726 |
|
|
| 168,222 |
|
|
| 373,280 |
|
|
| 324,841 |
|
Total operating expenses |
|
| 1,494,420 |
|
|
| 1,141,118 |
|
|
| 2,686,717 |
|
|
| 2,053,333 |
|
|
| 1,441,066 |
|
|
| 1,494,420 |
|
|
| 2,661,751 |
|
|
| 2,686,717 |
|
Operating income |
| $ | 71,847 |
|
| $ | 71,215 |
|
| $ | 117,526 |
|
| $ | 111,562 |
|
| $ | 77,857 |
|
| $ | 71,847 |
|
| $ | 119,488 |
|
| $ | 117,526 |
|
Fuel gallons sold |
|
| 253,243 |
|
|
| 264,967 |
|
|
| 492,801 |
|
|
| 491,079 |
|
|
| 293,584 |
|
|
| 253,243 |
|
|
| 542,490 |
|
|
| 492,801 |
|
Same store fuel gallons sold (decrease) increase (%)1 |
|
| (10.6 | %) |
|
| 11.9 | % |
|
| (7.1 | %) |
|
| (1.7 | %) | ||||||||||||||||
Same store fuel gallons sold decrease (%)1 |
|
| (2.6 | %) |
|
| (10.6 | %) |
|
| (4.2 | %) |
|
| (7.1 | %) | ||||||||||||||||
Fuel margin, cents per gallon2 |
|
| 41.3 |
|
|
| 34.3 |
|
|
| 39.4 |
|
|
| 33.3 |
|
|
| 39.7 |
|
|
| 41.3 |
|
|
| 37.7 |
|
|
| 39.4 |
|
Same store merchandise sales (decrease) increase (%)1 |
|
| (2.7 | %) |
|
| 2.4 | % |
|
| (3.1 | %) |
|
| 4.0 | % | ||||||||||||||||
Same store merchandise sales increase (decrease) (%)1 |
|
| 0.7 | % |
|
| (2.7 | %) |
|
| 2.1 | % |
|
| (3.1 | %) | ||||||||||||||||
Same store merchandise sales excluding cigarettes |
|
| 1.4 | % |
|
| 4.3 | % |
|
| 0.8 | % |
|
| 6.5 | % |
|
| 3.8 | % |
|
| 1.4 | % |
|
| 5.6 | % |
|
| 0.8 | % |
Merchandise contribution3 |
| $ | 131,364 |
|
| $ | 122,413 |
|
| $ | 239,556 |
|
| $ | 220,940 |
|
| $ | 154,658 |
|
| $ | 131,364 |
|
| $ | 277,623 |
|
| $ | 239,556 |
|
Merchandise margin4 |
|
| 30.4 | % |
|
| 28.7 | % |
|
| 30.0 | % |
|
| 28.1 | % |
|
| 31.9 | % |
|
| 30.4 | % |
|
| 31.4 | % |
|
| 30.0 | % |
1 Same store is a common metric used in the convenience store industry. We consider a store a same store beginning in the first quarter in which the store had a full quarter of activity in the prior year. Refer to “Use of Non-GAAP Measures” below for discussion of this measure.
2 Calculated as fuel revenue less fuel costs divided by fuel gallons sold; excludes the estimated fixed margin or fixed fee paid to GPMP for the cost of fuel.
3 Calculated as merchandise revenue less merchandise costs.
4 Calculated as merchandise contribution divided by merchandise revenue.
The table below shows financial information and certain key metrics of recent acquisitions in the retail segment that do not have comparable information for the prior periods.
33
| For the Three Months Ended June 30, 2023 |
|
| For the Six Months Ended June 30, 2023 |
| ||||||||||||||||||||||||||
| Pride 1 |
|
| TEG 2 |
|
| Uncle's (WTG) 3 |
|
| Total |
|
| Pride 1 |
|
| TEG 2 |
|
| Uncle's (WTG) 3 |
|
| Total |
| ||||||||
| (in thousands) |
|
|
|
| ||||||||||||||||||||||||||
Date of Acquisition: | Dec 6, 2022 |
|
| Mar 1, 2023 |
|
| Jun 6, 2023 |
|
|
|
|
| Dec 6, 2022 |
|
| Mar 1, 2023 |
|
| Jun 6, 2023 |
|
|
|
| ||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Fuel revenue | $ | 71,388 |
|
| $ | 99,128 |
|
| $ | 6,098 |
|
| $ | 176,614 |
|
| $ | 139,425 |
|
| $ | 131,202 |
|
| $ | 6,098 |
|
| $ | 276,725 |
|
Merchandise |
| 15,629 |
|
|
| 39,381 |
|
|
| 2,846 |
|
|
| 57,856 |
|
|
| 29,143 |
|
|
| 52,324 |
|
|
| 2,846 |
|
|
| 84,313 |
|
Other revenues, net |
| 1,397 |
|
|
| 1,322 |
|
|
| 54 |
|
|
| 2,773 |
|
|
| 2,784 |
|
|
| 1,731 |
|
|
| 54 |
|
|
| 4,569 |
|
Total revenues |
| 88,414 |
|
|
| 139,831 |
|
|
| 8,998 |
|
|
| 237,243 |
|
|
| 171,352 |
|
|
| 185,257 |
|
|
| 8,998 |
|
|
| 365,607 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Fuel costs |
| 64,335 |
|
|
| 90,832 |
|
|
| 5,020 |
|
|
| 160,187 |
|
|
| 125,299 |
|
|
| 120,617 |
|
|
| 5,020 |
|
|
| 250,936 |
|
Merchandise costs |
| 10,185 |
|
|
| 27,189 |
|
|
| 1,927 |
|
|
| 39,301 |
|
|
| 19,383 |
|
|
| 36,126 |
|
|
| 1,927 |
|
|
| 57,436 |
|
Store operating |
| 10,495 |
|
|
| 18,064 |
|
|
| 1,225 |
|
|
| 29,784 |
|
|
| 20,030 |
|
|
| 23,576 |
|
|
| 1,225 |
|
|
| 44,831 |
|
Total operating |
| 85,015 |
|
|
| 136,085 |
|
|
| 8,172 |
|
|
| 229,272 |
|
|
| 164,712 |
|
|
| 180,319 |
|
|
| 8,172 |
|
|
| 353,203 |
|
Operating income | $ | 3,399 |
|
| $ | 3,746 |
|
| $ | 826 |
|
| $ | 7,971 |
|
| $ | 6,640 |
|
| $ | 4,938 |
|
| $ | 826 |
|
| $ | 12,404 |
|
Fuel gallons sold |
| 19,387 |
|
|
| 30,165 |
|
|
| 1,714 |
|
|
| 51,266 |
|
|
| 37,278 |
|
|
| 40,057 |
|
|
| 1,714 |
|
|
| 79,049 |
|
Merchandise |
| 5,444 |
|
|
| 12,192 |
|
|
| 919 |
|
|
| 18,555 |
|
|
| 9,760 |
|
|
| 16,198 |
|
|
| 919 |
|
|
| 26,877 |
|
Merchandise margin 5 |
| 34.8 | % |
|
| 31.0 | % |
|
| 32.3 | % |
|
|
|
|
| 33.5 | % |
|
| 31.0 | % |
|
| 32.3 | % |
|
|
|
1 Pride Acquisition.
2 Includes only the retail stores acquired in the TEG Acquisition.
3 Includes only the retail stores acquired in the WTG Acquisition.
4 Calculated as merchandise revenue less merchandise costs.
5 Calculated as merchandise contribution divided by merchandise revenue.
Three Months Ended June 30, 20222023 versus Three Months Ended June 30, 20212022
Retail Revenues
For the three months ended June 30, 2022,2023, fuel revenue increaseddecreased by $349.1$102.5 million, or 45.4%9.2%, compared to the second quarter of 2021.2022. The increasedecrease in fuel revenue was attributable to a $1.51$0.95 per gallon increasedecrease in the average retail price of fuel in the second quarter of 20222023 as compared to the same period in 2021, which was offset bysecond quarter of 2022, primarily due to market factors, as well as a decrease in gallons sold at same stores. For the second quarter of 2023, gallons at same stores ofdecreased approximately 10.6%2.6%, or 26.76.4 million gallons, primarily due to managing both volumegallons. Partially offsetting these decreases, the 2023 Acquisitions and margin to optimize overall fuel margin dollars. Additionally, the 2021 AcquisitionsPride Acquisition contributed an incremental 18.451.3 million gallons sold, or $89.2$176.6 million in fuel revenue. Underperforming retail stores, which were closed or converted to independent dealers over the last 12 months in order to optimize profitability, also negatively impacted gallons sold during the second quarter of 2022.2023.
For the three months ended June 30, 2022,2023, merchandise revenue increased by $5.4$52.8 million, or 1.3%12.2%, compared to the second quarter of 2021.2022. The 20212023 Acquisitions and the Pride Acquisition contributed approximately $22$57.9 million of incremental merchandise revenue. Same store merchandise sales decreased $11.4increased $3.0 million, or 2.7%0.7%, for the second quarter of 20222023 compared to the second quarter of 2021.2022. Same store merchandise sales decreasedincreased primarily due to lowerhigher revenue from cigarettesthe Company’s six core destination categories (packaged beverages, candy, salty snacks, packaged sweet snacks, alternative snacks and reduced demand for essential products, which was partially offset by higher packaged beverages, center-store items, beer and wine,beer), other tobacco products and franchise revenuefranchises as a result of marketing initiatives, including expanded category assortments, new franchise locationsfood offerings and investments in coolers and freezers.freezers, which was partially offset by lower revenue from cigarettes. In addition, there was a decrease in merchandise revenue from underperforming retail stores that were closed or converted to independent dealers.
29
For the three months ended June 30, 2022,2023, other revenues, net decreasedincreased by $0.6$2.3 million, or 3.4%14.0%, compared to the second quarter of 2021,2022, primarily related to lower lottery commissions which were partially offset by additional revenueincome from the 2021 Acquisitions.2023 Acquisitions and the Pride Acquisition and greater lottery commissions.
Retail Operating Income
For the three months ended June 30, 2022,2023, fuel margin increased compared to the same period in 2021, primarily related to incremental2022. Incremental fuel profit from the 20212023 Acquisitions and the Pride Acquisition of approximately $6.1$19.0 million and an increase(excluding intercompany charges by GPMP) was partially offset by a decrease in same store fuel profit of $8.5$5.2 million (excluding intercompany charges by GPMP). Fuel margin
34
per gallon at same stores for the second quarter of 2022 was 42.52023 decreased to 40.3 cents per gallon as compared to 34.6from 41.4 cents per gallon for the second quarter of 2021.2022 primarily due historically high fuel margins in 2022 principally as a result of the volatile market for gasoline and diesel fuel. A decrease in fuel profit related to underperforming retail stores that were closed or converted to dealers decreased fuel profit compared to the second quarter of 2022.
For the three months ended June 30, 2022,2023, merchandise contribution increased $9.0$23.3 million, or 7.3%17.7%, compared to the same period in 2021,2022, and merchandise margin increased to 30.4%31.9% as compared to 28.7%30.4% in the prior period. The increase was due to $6.9$18.6 million in incremental merchandise contribution from the 20212023 Acquisitions and the Pride Acquisition and an increase in merchandise contribution at same stores of $3.5$6.5 million. Merchandise contribution at same stores increased in the second quarter of 20222023 primarily due to higher contribution from packaged beverages, center-store items, beerthe Company’s six core destination categories and wine, and other tobacco products.franchises. Merchandise margin at same stores was 30.2%31.9% in the second quarter of 20222023 compared to 28.6%30.6% in the second quarter of 2021.2022.
For the three months ended June 30, 2022,2023, store operating expenses increased $22.0$29.5 million, or 15.1%17.5%, compared to the three months ended June 30, 20212022 primarily due to approximately $10$29.8 million of incremental expenses related to the 20212023 Acquisitions and the Pride Acquisition and an increase of $3.2 million in expenses at same stores, including $8.4mainly driven by approximately $4.2 million, or 6.5%, of higher personnel costs, or 15.8%, and $4.1 million higher credit card fees, or 22.5%, due to higher retail prices.costs. The increase in store operating expenses was partially offset by underperforming retail stores that wewere closed or converted to independent dealers.
Six Months Ended June 30, 20222023 versus Six Months Ended June 30, 20212022
Retail Revenues
For the six months ended June 30, 2022,2023, fuel revenue increaseddecreased by $627.5$113.7 million, or 46.7%5.8%, compared to the first half of 2021.2022. The increasedecrease in fuel revenue was attributable to a $1.26$0.57 per gallon increasedecrease in the average retail price of fuel in the first half of 20222023 as compared to the same period in 2021, which was offset byfirst half of 2022, primarily due to market factors, as well as a decrease in gallons sold at same stores. For the first half of 2023, gallons at same stores ofdecreased approximately 7.1%4.2%, or 33.520.0 million gallons, primarily due to managing both volumegallons. Offsetting these decreases, the 2023 Acquisitions and margin to optimize overall fuel margin dollars. Additionally, the 2021 AcquisitionsPride Acquisition contributed an incremental 40.779.0 million gallons sold, or $168.4$276.7 million in fuel revenue. Underperforming retail stores, which were closed or converted to independent dealers over the last 12 months in order to optimize profitability, also negatively impacted gallons sold during the first half of 2022.2023.
For the six months ended June 30, 2022,2023, merchandise revenue increased by $13.1$86.1 million, or 1.7%10.8%, compared to the first half of 2021.2022. The 20212023 Acquisitions and the Pride Acquisition contributed approximately $46$84.3 million of incremental merchandise revenue. Same store merchandise sales decreased $23.9increased $16.7 million, or 3.1%2.1%, for the first half of 20222023 compared to the first half of 2021.2022. Same store merchandise sales decreasedincreased primarily due to lowerhigher revenue from cigarettes and reduced demand for essential products, which was partially offset by higher packaged beverages, center-store items, frozen food, beer and wine andthe Company’s six core destination categories, other tobacco products revenueand franchises as a result of marketing initiatives, including expanded category assortments, new franchise food offerings and investments in coolers and freezers.freezers, which was partially offset by lower revenue from cigarettes. In addition, there was a decrease in merchandise revenue from underperforming retail stores that were closed or converted to independent dealers.
For the six months ended June 30, 2022,2023, other revenues, net decreasedincreased by $1.2$4.6 million, or 3.6%13.8%, compared to the first half of 2021,2022, primarily related to lower lottery commissions which were partially offset by additional revenueincome from the 2021 Acquisitions.2023 Acquisitions, the Pride Acquisition and greater lottery commissions.
Retail Operating Income
For the six months ended June 30, 2022,2023, fuel margin increased compared to the same period in 2021, primarily related to incremental2022. Incremental fuel profit from the 20212023 Acquisitions and the Pride Acquisition of approximately $14.0$29.7 million and an increase(excluding intercompany charges by GPMP) was partially offset by a decrease in same store fuel profit of $18.2$15.9 million (excluding intercompany charges by GPMP). Fuel margin per gallon at same stores for the first half of 2022 was 40.22023 decreased to 37.8 cents per gallon as compared to 33.5from 39.5 cents per gallon for the first half of 2021.2022 primarily due to historically high fuel margins in 2022 principally as a result of the volatile market for gasoline and diesel fuel, with the first quarter of 2022 particularly impacted by the war in Ukraine, which significantly affected market conditions and resulted in substantially higher fuel margins. A decrease in fuel profit related to underperforming retail stores that were closed or converted to dealers also partially offset the increase in fuel profit compared to the first half of 2022.
For the six months ended June 30, 2022,2023, merchandise contribution increased $18.6$38.1 million, or 8.4%15.9%, compared to the same period in 2021,2022, and merchandise margin increased to 30.0%31.4% as compared to 28.1%30.0% in the prior period. The increase was due to $13.5$26.9 million in incremental merchandise contribution from the 20212023 Acquisitions and the Pride Acquisition and an increase in merchandise contribution at same stores of $7.3$14.6 million. Merchandise contribution at same stores increased in the first half of 20222023 primarily due to higher contribution from packaged beverages, center-store items, beerthe Company’s six core destination categories and wine and other tobacco products.franchises. Merchandise margin at same stores was 29.8%31.3% in the first half of 20222023 compared to 28.0%30.1% in the first half of 2021.2022.
30
For the six months ended June 30, 2022,2023, store operating expenses increased $42.3$48.4 million, or 15.0%14.9%, compared to the six months ended June 30, 20212022 primarily due to approximately $22$44.8 million of incremental expenses related to the 20212023 Acquisitions and the Pride Acquisition and
35
an increase of $9.2 million in expenses at same stores, including $14.7approximately $10.3 million or 8.0%, of higher personnel costs, or 14.0%, and $7.0 million of higher credit card fees, or 21.1%, due to higher retail prices.costs. The increase in store operating expenses werewas partially offset by underperforming retail stores that wewere closed or converted to independent dealers.
Wholesale Segment
The table below shows the results of the wholesale segment for the three and six months ended June 30, 20222023 and 2021,2022, together with certain key metrics for the segment.
|
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
|
| For the Three Months |
|
| For the Six Months |
| ||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Revenues: |
|
|
|
| (in thousands) |
|
| (in thousands) |
| |||||||||||||||||||||||
Fuel revenue |
| $ | 966,434 |
|
| $ | 690,521 |
|
| $ | 1,694,131 |
|
| $ | 1,216,009 |
|
| $ | 811,139 |
|
| $ | 966,434 |
|
| $ | 1,495,987 |
|
| $ | 1,694,131 |
|
Other revenues, net |
|
| 5,733 |
|
|
| 5,212 |
|
|
| 11,455 |
|
|
| 10,151 |
|
|
| 6,110 |
|
|
| 5,733 |
|
|
| 12,601 |
|
|
| 11,455 |
|
Total revenues |
|
| 972,167 |
|
|
| 695,733 |
|
|
| 1,705,586 |
|
|
| 1,226,160 |
|
|
| 817,249 |
|
|
| 972,167 |
|
|
| 1,508,588 |
|
|
| 1,705,586 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Fuel costs |
|
| 951,779 |
|
|
| 680,612 |
|
|
| 1,667,282 |
|
|
| 1,199,541 |
|
|
| 800,286 |
|
|
| 951,779 |
|
|
| 1,474,977 |
|
|
| 1,667,282 |
|
Store operating expenses |
|
| 10,602 |
|
|
| 9,129 |
|
|
| 21,105 |
|
|
| 18,319 |
|
|
| 10,196 |
|
|
| 10,602 |
|
|
| 19,294 |
|
|
| 21,105 |
|
Total operating expenses |
|
| 962,381 |
|
|
| 689,741 |
|
|
| 1,688,387 |
|
|
| 1,217,860 |
|
|
| 810,482 |
|
|
| 962,381 |
|
|
| 1,494,271 |
|
|
| 1,688,387 |
|
Operating income |
| $ | 9,786 |
|
| $ | 5,992 |
|
| $ | 17,199 |
|
| $ | 8,300 |
|
| $ | 6,767 |
|
| $ | 9,786 |
|
| $ | 14,317 |
|
| $ | 17,199 |
|
Fuel gallons sold – fuel supply locations |
|
| 193,164 |
|
|
| 214,761 |
|
|
| 374,105 |
|
|
| 398,406 |
|
|
| 213,136 |
|
|
| 193,164 |
|
|
| 395,563 |
|
|
| 374,105 |
|
Fuel gallons sold – consignment agent locations |
|
| 37,996 |
|
|
| 41,964 |
|
|
| 73,993 |
|
|
| 79,875 |
|
|
| 44,534 |
|
|
| 37,996 |
|
|
| 82,496 |
|
|
| 73,993 |
|
Fuel margin, cents per gallon1 – fuel supply locations |
|
| 7.2 |
|
|
| 5.6 |
|
|
| 7.1 |
|
|
| 5.4 |
|
|
| 5.9 |
|
|
| 7.2 |
|
|
| 6.0 |
|
|
| 7.1 |
|
Fuel margin, cents per gallon1 – consignment agent locations |
|
| 32.3 |
|
|
| 25.4 |
|
|
| 30.7 |
|
|
| 23.7 |
|
|
| 25.3 |
|
|
| 32.3 |
|
|
| 25.8 |
|
|
| 30.7 |
|
1 Calculated as fuel revenue less fuel costs divided by fuel gallons sold; excludes the estimated fixed margin or fixed fee paid to GPMP for the cost of fuel.
The table below shows financial information and certain key metrics of recent acquisitions in the wholesale segment that do not have comparable information for the prior periods.
| For the Three Months Ended June 30, 2023 |
|
| For the Six Months Ended June 30, 2023 |
| ||||||||||||||||||||||||||
| Quarles 1 |
|
| TEG 2 |
|
| WTG 3 |
|
| Total |
|
| Quarles 1 |
|
| TEG 2 |
|
| WTG 3 |
|
| Total |
| ||||||||
| (in thousands) |
|
|
|
| ||||||||||||||||||||||||||
Date of Acquisition: | Jul 22, 2022 |
|
| Mar 1, 2023 |
|
| Jun 6, 2023 |
|
|
|
|
| Jul 22, 2022 |
|
| Mar 1, 2023 |
|
| Jun 6, 2023 |
|
|
|
| ||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Fuel revenue | $ | 19,564 |
|
| $ | 93,660 |
|
| $ | 648 |
|
| $ | 113,872 |
|
| $ | 37,327 |
|
| $ | 122,054 |
|
| $ | 648 |
|
| $ | 160,029 |
|
Other revenues, net |
| 310 |
|
|
| 667 |
|
|
| 1 |
|
|
| 978 |
|
|
| 588 |
|
|
| 854 |
|
|
| 1 |
|
|
| 1,443 |
|
Total revenues |
| 19,874 |
|
|
| 94,327 |
|
|
| 649 |
|
|
| 114,850 |
|
|
| 37,915 |
|
|
| 122,908 |
|
|
| 649 |
|
|
| 161,472 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Fuel costs |
| 18,912 |
|
|
| 92,267 |
|
|
| 622 |
|
|
| 111,801 |
|
|
| 36,064 |
|
|
| 119,779 |
|
|
| 622 |
|
|
| 156,465 |
|
Store operating |
| 488 |
|
|
| 850 |
|
|
| 17 |
|
|
| 1,355 |
|
|
| 937 |
|
|
| 1,094 |
|
|
| 17 |
|
|
| 2,048 |
|
Total operating |
| 19,400 |
|
|
| 93,117 |
|
|
| 639 |
|
|
| 113,156 |
|
|
| 37,001 |
|
|
| 120,873 |
|
|
| 639 |
|
|
| 158,513 |
|
Operating income | $ | 474 |
|
| $ | 1,210 |
|
| $ | 10 |
|
| $ | 1,694 |
|
| $ | 914 |
|
| $ | 2,035 |
|
| $ | 10 |
|
| $ | 2,959 |
|
Fuel gallons sold |
| 5,936 |
|
|
| 35,508 |
|
|
| 218 |
|
|
| 41,662 |
|
|
| 11,443 |
|
|
| 45,987 |
|
|
| 218 |
|
|
| 57,648 |
|
1 Quarles Acquisition; includes only the wholesale business acquired in the Quarles Acquisition.
2 Includes only the wholesale business acquired in the TEG Acquisition.
3 Includes only the wholesale business acquired in the WTG Acquisition.
Three Months Ended June 30, 20222023 versus Three Months Ended June 30, 20212022
Wholesale Revenues
For the three months ended June 30, 2022,2023, fuel revenue increaseddecreased by $275.9$155.3 million, or 40.0%16.1%, compared to the second quarter of 2021.2022, of which the majority was attributable to fuel supply locations. Wholesale revenues benefited fromwere negatively impacted by a significant increasedecrease in the average price of fuel in the second quarter of 20222023 as compared to the second quarter of 2021,2022, which was partially offset by a 10.0% reductionan
36
11.5% increase in gallons sold. Of total gallons sold, the total increase in fuel revenue,2023 Acquisitions and the Quarles Acquisition contributed approximately $230.141.7 million, of the increase was attributable to fuel supply locations.which were offset by lower volumes at legacy wholesale sites.
Wholesale Operating Income
For the three months ended June 30, 2022,2023, fuel contribution increaseddecreased approximately $3.5$2.5 million (excluding intercompany charges by GPMP). Approximately $5.4 million of total fuel contribution was attributable to the 2023 Acquisitions and the Quarles Acquisition. At fuel supply locations, fuel contribution increaseddecreased by $1.9$1.5 million (excluding intercompany charges by GPMP), and fuel margin increased overdecreased for the second quarter of 20212023 as compared to the second quarter of 2022, primarily due to greaterdecreased prompt pay discounts related to higherlower fuel costs and greater fuel rebates.lower volumes at legacy wholesale sites, which was partially offset by the contribution from the 2023 Acquisitions and the Quarles Acquisition. At consignment agent locations, fuel contribution increased $1.6decreased $1.0 million (excluding intercompany charges by GPMP), and fuel margin also increased overdecreased for the second quarter of 20212023 as compared to the second quarter of 2022, primarily due to greaterlower rack-to-retail margins and decreased prompt pay discounts related to higherlower fuel costs, greater fuel rebateswhich was partially offset by the contribution from the 2023 Acquisitions and improved rack-to-retail margins.the Quarles Acquisition.
For the three months ended June 30, 2022,2023, store operating expenses increased $1.5decreased $0.4 million compared to the three months ended June 30, 2021.2022.
Six Months Ended June 30, 20222023 versus Six Months Ended June 30, 20212022
Wholesale Revenues
For the six months ended June 30, 2022,2023, fuel revenue increaseddecreased by $478.1$198.1 million, or 11.7%, compared to the first half of 2021.2022, of which the majority was attributable to fuel supply locations. Wholesale revenues benefited fromwere negatively impacted by a significant increasedecrease in the average price of fuel in the first half of 20222023 as compared to the first half of 2021,2022, which was partially offset by a 6.3% reduction6.7% increase in gallons sold. Of total gallons sold, the total increase in fuel revenue,2023 Acquisitions and the Quarles Acquisition contributed approximately $400.757.6 million, of the increase was attributable to fuel supply locations.which were offset by lower volumes at legacy wholesale sites.
31
Wholesale Operating Income
For the six months ended June 30, 2022,2023, fuel contribution increaseddecreased approximately $8.9$4.3 million (excluding intercompany charges by GPMP). Approximately $7.7 million of total fuel contribution was attributable to the 2023 Acquisitions and the Quarles Acquisition. At fuel supply locations, fuel contribution increaseddecreased by $5.2$2.9 million (excluding intercompany charges by GPMP), and fuel margin increased overdecreased for the first half of 20212023 as compared to the first half of 2022, primarily due to greaterdecreased prompt pay discounts related to higherlower fuel costs and greater fuel rebates.lower volumes at legacy wholesale sites, which was partially offset by the contribution from the 2023 Acquisitions and the Quarles Acquisition. At consignment agent locations, fuel contribution increased $3.7decreased $1.4 million (excluding intercompany charges by GPMP) and fuel margin also increased overdecreased for the first half of 20212023 as compared to the first half of 2022, primarily due to greaterlower rack-to-retail margins and decreased prompt pay discounts related to higherlower fuel costs, greater fuel rebateswhich was partially offset by the contribution from the 2023 Acquisitions and improved rack-to-retail margins.the Quarles Acquisition.
For the six months ended June 30, 2022,2023, store operating expenses increased $2.8decreased $1.8 million compared to the six months ended June 30, 2021.2022.
37
Fleet Fueling Segment
The table below shows the results of the fleet fueling segment for the three and six months ended June 30, 2023, together with certain key metrics for the segment. Because we added the fleet fueling segment only upon consummation of the Quarles Acquisition in July 2022, there are no comparable period results for three and six months ended June 30, 2022.
|
| For the Three Months |
|
| For the Six Months |
| ||
|
| 2023 |
|
| 2023 |
| ||
Revenues: |
| (in thousands) |
| |||||
Fuel revenue |
| $ | 121,146 |
|
| $ | 248,640 |
|
Other revenues, net |
|
| 1,676 |
|
|
| 2,627 |
|
Total revenues |
|
| 122,822 |
|
|
| 251,267 |
|
Operating expenses: |
|
|
|
|
|
| ||
Fuel costs |
|
| 108,435 |
|
|
| 223,666 |
|
Store operating expenses |
|
| 5,043 |
|
|
| 9,833 |
|
Total operating expenses |
|
| 113,478 |
|
|
| 233,499 |
|
Operating income |
| $ | 9,344 |
|
| $ | 17,768 |
|
Fuel gallons sold – proprietary cardlock locations |
|
| 32,417 |
|
|
| 63,433 |
|
Fuel gallons sold – third-party cardlock locations |
|
| 2,036 |
|
|
| 3,646 |
|
Fuel margin, cents per gallon1 – proprietary cardlock locations |
|
| 43.9 |
|
|
| 44.2 |
|
Fuel margin, cents per gallon1 – third-party cardlock locations |
|
| 7.7 |
|
|
| 4.9 |
|
1 Calculated as fuel revenue less fuel costs divided by fuel gallons sold; excludes the estimated fixed fee charged by GPMP to sites in the fleet fueling segment.
The table below shows financial information and certain key metrics of recent acquisitions in the fleet fueling segment that do not have comparable information for the prior periods.
| For the Three Months Ended June 30, 2023 |
|
| For the Six Months Ended June 30, 2023 |
| ||||||||||||||||||
| Quarles 1 |
|
| WTG 2 |
|
| Total |
|
| Quarles 1 |
|
| WTG 2 |
|
| Total |
| ||||||
| (in thousands) |
|
|
|
| ||||||||||||||||||
Date of Acquisition: | Jul 22, 2022 |
|
| Jun 6, 2023 |
|
|
|
|
| Jul 22, 2022 |
|
| Jun 6, 2023 |
|
|
|
| ||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fuel revenue | $ | 115,986 |
|
| $ | 5,160 |
|
| $ | 121,146 |
|
| $ | 243,480 |
|
| $ | 5,160 |
|
| $ | 248,640 |
|
Other revenues, net |
| 1,640 |
|
|
| 36 |
|
|
| 1,676 |
|
|
| 2,591 |
|
|
| 36 |
|
|
| 2,627 |
|
Total revenues |
| 117,626 |
|
|
| 5,196 |
|
|
| 122,822 |
|
|
| 246,071 |
|
|
| 5,196 |
|
|
| 251,267 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fuel costs |
| 104,063 |
|
|
| 4,372 |
|
|
| 108,435 |
|
|
| 219,294 |
|
|
| 4,372 |
|
|
| 223,666 |
|
Store operating expenses |
| 4,915 |
|
|
| 128 |
|
|
| 5,043 |
|
|
| 9,705 |
|
|
| 128 |
|
|
| 9,833 |
|
Total operating expenses |
| 108,978 |
|
|
| 4,500 |
|
|
| 113,478 |
|
|
| 228,999 |
|
|
| 4,500 |
|
|
| 233,499 |
|
Operating income | $ | 8,648 |
|
| $ | 696 |
|
| $ | 9,344 |
|
| $ | 17,072 |
|
| $ | 696 |
|
| $ | 17,768 |
|
Fuel gallons sold |
| 32,988 |
|
|
| 1,465 |
|
|
| 34,453 |
|
|
| 65,614 |
|
|
| 1,465 |
|
|
| 67,079 |
|
1 Includes only the fleet fueling business acquired in the Quarles Acquisition.
2 Includes only the fleet fueling business acquired in the WTG Acquisition.
Three Months Ended June 30, 2023
Fleet Fueling Revenues
For the three months ended June 30, 2023, fuel revenue was primarily driven by the average price of diesel fuel in the second quarter of 2023.
Fleet Fueling Operating Income
For the three months ended June 30, 2023, fuel contribution was approximately $14.4 million (excluding intercompany charges by GPMP).
38
Six Months Ended June 30, 2023
Fleet Fueling Revenues
For the six months ended June 30, 2023, fuel revenue was primarily driven by the average price of diesel fuel in the first half of 2023.
Fleet Fueling Operating Income
For the six months ended June 30, 2023, fuel contribution was approximately $28.2 million (excluding intercompany charges by GPMP).
GPMP Segment
The table below shows the results of the GPMP segment for the three and six months ended June 30, 20222023 and 2021,2022, together with certain key metrics for the segment.
|
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
|
| For the Three Months |
|
| For the Six Months |
| ||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Revenues: |
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||
Fuel revenue - inter-segment |
| $ | 1,738,243 |
|
| $ | 1,092,926 |
|
| $ | 3,013,964 |
|
| $ | 1,912,393 |
|
| $ | 1,364,041 |
|
| $ | 1,738,243 |
|
| $ | 2,504,106 |
|
| $ | 3,013,964 |
|
Fuel revenue - external customers |
|
| 1,571 |
|
|
| 1,526 |
|
|
| 2,733 |
|
|
| 2,681 |
|
|
| 1,057 |
|
|
| 1,571 |
|
|
| 1,798 |
|
|
| 2,733 |
|
Other revenues, net |
|
| 258 |
|
|
| 264 |
|
|
| 512 |
|
|
| 519 |
|
|
| 277 |
|
|
| 258 |
|
|
| 447 |
|
|
| 512 |
|
Other revenues, net - inter-segment |
|
| 2,745 |
|
|
| — |
|
|
| 5,302 |
|
|
| — |
| ||||||||||||||||
Total revenues |
|
| 1,740,072 |
|
|
| 1,094,716 |
|
|
| 3,017,209 |
|
|
| 1,915,593 |
|
|
| 1,368,120 |
|
|
| 1,740,072 |
|
|
| 2,511,653 |
|
|
| 3,017,209 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Fuel costs |
|
| 1,715,672 |
|
|
| 1,068,471 |
|
|
| 2,969,654 |
|
|
| 1,866,671 |
|
|
| 1,338,489 |
|
|
| 1,715,672 |
|
|
| 2,456,786 |
|
|
| 2,969,654 |
|
General and administrative expenses |
|
| 759 |
|
|
| 793 |
|
|
| 1,465 |
|
|
| 1,504 |
|
|
| 781 |
|
|
| 759 |
|
|
| 1,553 |
|
|
| 1,465 |
|
Depreciation and amortization |
|
| 1,842 |
|
|
| 1,842 |
|
|
| 3,684 |
|
|
| 3,685 |
|
|
| 1,842 |
|
|
| 1,842 |
|
|
| 3,684 |
|
|
| 3,684 |
|
Total operating expenses |
|
| 1,718,273 |
|
|
| 1,071,106 |
|
|
| 2,974,803 |
|
|
| 1,871,860 |
|
|
| 1,341,112 |
|
|
| 1,718,273 |
|
|
| 2,462,023 |
|
|
| 2,974,803 |
|
Operating income |
| $ | 21,799 |
|
| $ | 23,610 |
|
| $ | 42,406 |
|
| $ | 43,733 |
|
| $ | 27,008 |
|
| $ | 21,799 |
|
| $ | 49,630 |
|
| $ | 42,406 |
|
Fuel gallons sold - inter-segment |
|
| 481,794 |
|
|
| 519,362 |
|
|
| 939,467 |
|
|
| 967,389 |
|
|
| 532,050 |
|
|
| 481,794 |
|
|
| 982,269 |
|
|
| 939,467 |
|
Fuel gallons sold - external customers |
|
| 431 |
|
|
| 700 |
|
|
| 827 |
|
|
| 1,347 |
|
|
| 397 |
|
|
| 431 |
|
|
| 680 |
|
|
| 827 |
|
Fuel margin, cents per gallon1 |
|
| 5.0 |
|
|
| 5.0 |
|
|
| 5.0 |
|
|
| 5.0 |
|
|
| 5.0 |
|
|
| 5.0 |
|
|
| 5.0 |
|
|
| 5.0 |
|
1 Calculated as fuel revenue less fuel costs divided by fuel gallons sold.
Three Months Ended June 30, 20222023 versus Three Months Ended June 30, 20212022
GPMP Revenues
For the three months ended June 30, 2022,2023, fuel revenue increaseddecreased by $645.3$374.7 million compared to the second quarter of 2021.2022. The increasedecrease in fuel revenue was attributable to a significant increasedecrease in the average price of fuel, which was partially offset by a decreasean increase in gallons sold as compared to the second quarter of 2021.2022.
For both the three months ended June 30, 20222023 and 2021,2022, other revenues, net were each $0.3 million and primarily related to rental income from certain sites leased to independent dealers. Inter-segment other revenues, net related to the fixed fee primarily charged to sites in the fleet fueling segment (currently 5.0 cents per gallon sold), which began in July 2022.
GPMP Operating Income
Fuel margin decreasedincreased by $1.8$2.5 million for the second quarter of 2022,2023, as compared to the second quarter of 2021,2022, primarily due to fewergreater gallons sold to the retail and wholesale segments at a fixed margin.
For the three months ended June 30, 2022,2023, total general, administrative, depreciation and amortization expenses were similar with those in the comparable prior year period.
3239
Six Months Ended June 30, 20222023 versus Six Months Ended June 30, 20212022
GPMP Revenues
For the six months ended June 30, 2022,2023, fuel revenue increaseddecreased by $1.1 billion$510.8 million compared to the first half of 2021.2022. The increasedecrease in fuel revenue was attributable to a significant increasedecrease in the average price of fuel, which was partially offset by a decreasean increase in gallons sold as compared to the first half of 2021.2022.
For both the six months ended June 30, 20222023 and 2021,2022, other revenues, net were $0.4 million and $0.5 million, respectively, and primarily related to rental income from certain sites leased to independent dealers. Inter-segment other revenues, net related to the fixed fee primarily charged to sites in the fleet fueling segment (currently 5.0 cents per gallon sold), which began in July 2022.
GPMP Operating Income
Fuel margin decreasedincreased by $1.4$2.1 million for the first half of 2022,2023, as compared to the first half of 2021,2022, primarily due to fewergreater gallons sold to the retail and wholesale segments at a fixed margin.
For the six months ended June 30, 2022,2023, total general, administrative, depreciation and amortization expenses were similar with those in the comparable prior year period.
Use of Non-GAAP Measures
We disclose certain measures on a “same store basis,” which is a non-GAAP measure. Information disclosed on a “same store basis” excludes the results of any store that is not a “same store” for the applicable period. A store is considered a same store beginning in the first quarter in which the store had a full quarter of activity in the prior year. We believe that this information provides greater comparability regarding our ongoing operating performance. Neither this measure nor those described below should be considered an alternative to measurements presented in accordance with generally accepted accounting principles in the United States (“GAAP”) and are non-GAAP financial measures..
We define EBITDA as net income before net interest expense, income taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA by excluding the gain or loss on disposal of assets, impairment charges, acquisition costs, other non-cash items, and other unusual or non-recurring charges. Each of EBITDA and Adjusted EBITDA is a non-GAAP financial measure.
We use EBITDA and Adjusted EBITDA for operational and financial decision-making and believe these measures are useful in evaluating our performance because they eliminate certain items that we do not consider indicators of our operating performance. EBITDA and Adjusted EBITDA are also used by many of our investors, securities analysts, and other interested parties in evaluating our operational and financial performance across reporting periods. We believe that the presentation of EBITDA and Adjusted EBITDA provides useful information to investors by allowing an understanding of key measures that we use internally for operational decision-making, budgeting, evaluating acquisition targets, and assessing our operating performance.
EBITDA and Adjusted EBITDA are not recognized terms under GAAP and should not be considered as a substitute for net income or any other financial measure presented in accordance with GAAP. These measures have limitations as analytical tools, and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP. We strongly encourage investors to review our financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.
Because non-GAAP financial measures are not standardized, same store measures, EBITDA and Adjusted EBITDA, as defined by us, may not be comparable to similarly titled measures reported by other companies. It therefore may not be possible to compare our use of these non-GAAP financial measures with those used by other companies.
3340
The following table contains a reconciliation of net income to EBITDA and Adjusted EBITDA for the three and six months ended June 30, 20222023 and 2021.2022.
|
| For the Three Months |
|
| For the Six Months |
|
| For the Three Months |
|
| For the Six Months |
| ||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||||||||||
Net income |
| $ | 31,806 |
|
| $ | 25,573 |
|
| $ | 34,124 |
|
| $ | 10,911 |
|
| $ | 14,479 |
|
| $ | 31,806 |
|
| $ | 11,952 |
|
| $ | 34,124 |
|
Interest and other financing expenses, net |
|
| 7,339 |
|
|
| 11,997 |
|
|
| 23,314 |
|
|
| 40,614 |
|
|
| 20,160 |
|
|
| 7,339 |
|
|
| 33,762 |
|
|
| 23,314 |
|
Income tax expense |
|
| 9,157 |
|
|
| 8,212 |
|
|
| 10,162 |
|
|
| 7,490 |
|
|
| 5,014 |
|
|
| 9,157 |
|
|
| 2,856 |
|
|
| 10,162 |
|
Depreciation and amortization |
|
| 24,353 |
|
|
| 25,273 |
|
|
| 48,989 |
|
|
| 49,515 |
|
|
| 32,837 |
|
|
| 24,353 |
|
|
| 61,236 |
|
|
| 48,989 |
|
EBITDA |
|
| 72,655 |
|
|
| 71,055 |
|
|
| 116,589 |
|
|
| 108,530 |
|
|
| 72,490 |
|
|
| 72,655 |
|
|
| 109,806 |
|
|
| 116,589 |
|
Non-cash rent expense (a) |
|
| 1,791 |
|
|
| 1,578 |
|
|
| 3,737 |
|
|
| 3,349 |
|
|
| 3,760 |
|
|
| 1,791 |
|
|
| 6,558 |
|
|
| 3,737 |
|
Acquisition costs (b) |
|
| 823 |
|
|
| 1,988 |
|
|
| 1,504 |
|
|
| 2,599 |
|
|
| 3,277 |
|
|
| 823 |
|
|
| 6,853 |
|
|
| 1,504 |
|
Loss (gain) on disposal of assets and impairment charges (c) |
|
| 1,207 |
|
|
| (400 | ) |
|
| 1,971 |
|
|
| 975 |
| ||||||||||||||||
Loss on disposal of assets and impairment charges (c) |
|
| 2,991 |
|
|
| 1,207 |
|
|
| 3,278 |
|
|
| 1,971 |
| ||||||||||||||||
Share-based compensation expense (d) |
|
| 3,108 |
|
|
| 1,488 |
|
|
| 5,882 |
|
|
| 2,514 |
|
|
| 4,555 |
|
|
| 3,108 |
|
|
| 8,624 |
|
|
| 5,882 |
|
Income from equity investment (e) |
|
| (28 | ) |
|
| (26 | ) |
|
| (37 | ) |
|
| (20 | ) | ||||||||||||||||
Loss (income) from equity investment (e) |
|
| 27 |
|
|
| (28 | ) |
|
| 63 |
|
|
| (37 | ) | ||||||||||||||||
Adjustment to contingent consideration (f) |
|
| (526 | ) |
|
| — |
|
|
| (526 | ) |
|
| — |
|
|
| (922 | ) |
|
| (526 | ) |
|
| (1,624 | ) |
|
| (526 | ) |
Other (g) |
|
| 15 |
|
|
| 34 |
|
|
| 33 |
|
|
| 73 |
|
|
| 64 |
|
|
| 15 |
|
|
| 168 |
|
|
| 33 |
|
Adjusted EBITDA |
| $ | 79,045 |
|
| $ | 75,717 |
|
| $ | 129,153 |
|
| $ | 118,020 |
|
| $ | 86,242 |
|
| $ | 79,045 |
|
| $ | 133,726 |
|
| $ | 129,153 |
|
Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operations, availability under our credit facilities and our cash balances. Our principal liquidity requirements are the financing of current operations, funding capital expenditures, including acquisitions, and servicing debt. We finance our inventory purchases primarily from customary trade credit aided by relatively rapid inventory turnover, as well as cash generated from operations. ThisRapid inventory turnover allows us to conduct operations without the need for large amounts of cash and working capital. We largely rely on internally generated cash flows and borrowings, which we believe are sufficient to meet our liquidity needs for the foreseeable future.
Our ability to meet our debt service obligations and other capital requirements, including capital expenditures, as well as the cost of acquisitions, 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. Additional debt financing could impose increased cash payment obligations, as well as covenants that may restrict our operations. There can be no guarantee that financing will be available on acceptable terms or at all. Debt financing, if available, could impose additional cash payment obligations and additional covenants and operating restrictions.
3441
As of June 30, 2022,2023, we were in a strong liquidity position of approximately $727$822 million, consisting of approximately $220 million of cash and short-term investments of approximately $282 millioncash equivalents and approximately $445$602 million of availability under our lines of credit. This liquidity position currently provides us with adequate funding to satisfy our contractual and other obligations from our existing cash balances. As of June 30, 2022,2023, we had no outstanding borrowings under our $140.0$140 million PNC Line of Credit (as defined below), $12.3$7.7 million of unused availability under the M&T equipment line of credit, described below, and $301.0$461.2 million of unused availability under our $500.0$800 million Capital One Line of Credit (as defined below), which we can seekmay increase to increase up to $700.0 million,$1.0 billion, subject to obtaining additional financing commitments from current lenders or other banks, and subject to certain other terms. In July 2022, we financed the Quarles Acquisition utilizing approximately $40.0 million under the Capital One Line of Credit.
InThe Board declared, and the third quarterCompany paid, dividends of 2022, we plan to fully repay GPMP’s term loan with PNC, which is secured by U.S. Treasuries equal to$0.03 per share of common stock on both March 21, 2023 and June 1, 2023, totaling approximately 98% of$7.2 million. Additionally, the outstanding principal amount of such term loan, by utilizing proceeds from the sale of those securities and other cash on hand.
Our board of directors (the “Board”)Board declared a quarterly dividend of $0.02 per share of common stock, paid on March 29, 2022 to stockholders of record as of March 15, 2022, totaling approximately $2.5 million and declared a quarterly dividend of $0.02 per share of common stock, paid on June 15, 2022 to stockholders of record as of May 31, 2022, totaling approximately $2.4 million. Our Board also declared a quarterly dividend of $0.02$0.03 per share of common stock, to be paid on September 12, 20221, 2023 to stockholders of record as of August 29, 2022.15, 2023. The amount and timing of dividends payable on our common stock are within the sole discretion of our Board, which will evaluate dividend payments within the context of our overall capital allocation strategy on an ongoing basis, giving consideration to our current and forecast earnings, financial condition, cash requirements and other factors. There can be no assurance that we will continue to pay such dividends or the amounts of such dividends.
In February 2022,May 2023, we also announced that our Board had authorized aan increase to our share repurchase program forfrom $50.0 million to up to an aggregate of $50$100.0 million of our outstanding shares of common stock. During the six months ended June 30, 2022,2023, we repurchased approximately 4.51.6 million shares of common stock under the repurchase program for approximately $39.0$11.9 million, or an average share price of $8.60.$7.57. The share repurchase program does not have a stated expiration date. Whether and the extent to which we repurchase shares depends on a number of factors, including our financial condition, capital requirements, cash flows, results of operations, future business prospects and other factors management may deem relevant. The timing, volume, and nature of repurchases are subject to market conditions, applicable securities laws, and other factors, and the program may be amended, suspended or discontinued at any time. Repurchases may be effected from time to time through open market purchases, including pursuant to a pre-set trading plan meeting the requirements of Rule 10b5-1(c)of the Exchange Act, privately negotiated transactions, pursuant to accelerated share repurchase agreements entered into with one or more counterparties, or otherwise.
To date, we have funded capital expenditures primarily through funds generated from operations, funds received from vendors, sale-leaseback transactions, the issuance of debt, and existing cash. Future capital required to finance operations, acquisitions, and raze-and-rebuild, functionally and fully remodel and update stores is expected to come from cash on hand, cash generated by operations, availability under lines of credit, and additional long-term debt and equipment leases, as circumstances may dictate. In both the short-term and long-term, we currently expect that our capital spending program will be primarily focused on expanding our store base through acquisitions, razing-and-rebuilding, remodeling and updating stores, and maintaining our owned properties and equipment, including upgrading all fuel dispensers to be EMV-compliant. We expect to spend a total of approximately $16$8 million in the current year and in 2023 to upgrade substantially all our fuel dispensers to be EMV-compliant. We do not expect such capital needs to adversely affect liquidity.
Cash Flows for the Six Months Ended June 30, 20222023 and 20212022
Net cash provided by (used in) operating activities, investing activities and financing activities for the six months ended June 30, 20222023 and 20212022 were as follows:
|
| For the Six Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating activities |
| $ | 72,162 |
|
| $ | 59,017 |
|
| $ | 45,986 |
|
| $ | 72,162 |
|
Investing activities |
|
| (22,602 | ) |
|
| (90,281 | ) |
|
| (235,224 | ) |
|
| (22,602 | ) |
Financing activities |
|
| (59,381 | ) |
|
| (35,339 | ) |
|
| 107,768 |
|
|
| (59,381 | ) |
Effect of exchange rates |
|
| (121 | ) |
|
| (1,438 | ) |
|
| (21 | ) |
|
| (121 | ) |
Total |
| $ | (9,942 | ) |
| $ | (68,041 | ) |
| $ | (81,491 | ) |
| $ | (9,942 | ) |
35
Operating Activities
Cash flows provided by operations are our main source of liquidity. We have historically relied primarily on cash provided by operating activities, supplemented as necessary from time to time by borrowings on our credit facilities and other debt or equity transactions to finance our operations and to fund our capital expenditures. Cash flow provided by operating activities is primarily impacted by our net income and changes in working capital.
42
For the six months ended June 30, 2022,2023, cash flows provided by operating activities was $72.2were $46.0 million compared to $59.0$72.2 millionfor the six months ended June 30, 2021.2022. The increasedecrease was primarily the result of approximately $2.9$6.5 million of lowerhigher net interest payments, approximately $15.6 million of higher net tax payments approximately $2.4 million of lower net interest payments and an increasethe investment in Adjusted EBITDA primarily generated from an increase in merchandise and fuel contribution at same stores as well asworking capital associated with the 2021 Acquisitions,WTG Acquisition, which was partially offset by changesan increase in working capital primarily as a result of higher fuel costs.Adjusted EBITDA.
Investing Activities
Cash flows used in investing activities primarily reflect capital expenditures for acquisitions and replacing and maintaining existing facilities and equipment used in the business.
For the six months ended June 30, 2022,2023, cash used in investing activities decreasedincreased by $67.7$212.6 million compared to the six months ended June 30, 2021.2022. For the six months ended June 30, 2022,2023, we spent $45.2$50.0 million for capital expenditures, including the purchase of certain fee properties, bean-to-cup coffee equipment, upgrades to fuel dispensers and other investments in our stores, andstores. The net consideration paid a $5.0 million deposit for the Quarles Acquisition,recent acquisitions was $481.6 million, which was partially offset by a $27.1included $373.0 million decrease in short-term investments converted into cash on hand. For the six months ended June 30, 2021, we spent $32.6million for capital expenditures and a net amount of $59.2 million for the acquisition of ExpressStop (the “ExpressStop Acquisition”), net of the proceeds paid by one of the real estate funds involved in the transaction. The proceeds paid from a second real estate fund involved in the ExpressStop Acquisition of $43.6 million were included in financing activity,Oak Street, reflecting aour net cash outflow on the ExpressStop Acquisition of $15.6 million for the six months ended June 30, 2021.$108.6 million.
Financing Activities
Cash flows from financing activities primarily consist of increases and decreases in the principal amount of our lines of credit and debt, distributions to non-controlling interests and issuance of common and preferred stock, net of dividends paid and common stock repurchases.
For the six months ended June 30, 2022,2023, financing activities consisted primarily of net paymentsreceipts of $6.1$63.7 million for long-term debt, $80.4 million of consideration paid by Oak Street related to the 2023 Acquisitions, which transactions with Oak Street were accounted for as sale-leasebacks (see Note 3 to our condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q), payment of $9.8 million for the Ares Put Option, repayments of $3.3$2.9 million for financing leases, $2.1 million for additional consideration payments related to the 2020 Empire acquisition, $4.9$7.2 million for dividend payments on common stock, $2.9 million for dividend payments on the Series A redeemable preferred stock and $40.0$13.6 million for common stock repurchases. For the six months ended June 30, 2021, financing activities consisted primarily of net payments of $67.0 millionfor long-term debt, including the early redemption of the Bonds (Series C), repayments of $4.0 million for financing leases, $3.0 million for dividend payments on the Series A redeemable preferred stock and $4.8 million of issuance costs related to the 2020 merger transaction, which were offset by $43.6 million in consideration paid by a real estate fund for the ExpressStop Acquisition.
Credit Facilities and Senior Notes
Senior Notes
On October 21, 2021, theThe Company completed a private offering ofhas $450 million aggregate principal amount of 5.125% Senior Notes due 2029 (the “Senior Notes”). The Senior Notes are guaranteed, on an unsecured senior basis, by certain of the Company’s wholly owned domestic subsidiaries (the “Guarantors”). The indenture governing the Senior Notes contains customary restrictive covenants that, among other things, generally limit the ability of the Company and substantially all of its subsidiaries to (i) create liens, (ii) pay dividends, acquire shares of capital stock and make payments on subordinated debt, (iii) place limitations on distributions from certain subsidiaries, (iv) issue or sell the capital stock of certain subsidiaries, (v) sell assets, (vi) enter into transactions with affiliates, (vii) effect mergers and (viii) incur indebtedness. The Senior Notes and the guarantees rank equally in right of payment with all of the Company’s and the Guarantors’ respective existing and future senior unsubordinated indebtedness and are effectively subordinated to all of the Company’s and the Guarantors’ existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness; and are structurally subordinated to any existing and future obligations of subsidiaries of the Company that are not Guarantors.
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Financing agreementsAgreement with PNC
GPM and certain subsidiaries have a financing arrangement (the(as amended, the “PNC Credit Agreement”) with PNC Bank National Association (“PNC”) to provide term loans as well as a line of credit with an aggregate principal amount of up to $140 million for purposes of financing working capital (the “PNC Line of Credit”). The PNC Line of Credit has an aggregate principal amount of up to $140 million.
The PNC Line of Credit bears interest, as elected by GPM at: (a) LIBORSOFR Adjusted plus Term SOFR (as defined in the agreement) plus a margin of 1.25% to 1.75% or (b) a rate per annum equal to the alternate base rate (as defined in the agreement) plus a margin of 0.5%, which is equal0% to the greatest of (i) the PNC base rate, (ii) the overnight bank funding rate plus 0.5%, and (iii) LIBOR plus 1.0%, subject to the definitions set in the agreement.0.50%. Every quarter, the LIBORSOFR margin rate and the alternate base rate margin rate are updated based on the quarterly average undrawn availability of the line of credit.
The calculation of the availability under the PNC Line of Credit is determined monthly subject to terms and limitations as set forth in the PNC Credit Agreement, taking into account the balances of receivables, inventory and letters of credit, among other things. As of June 30, 2022, $6.42023, $7.3 million of letters of credit were outstanding under the PNC Credit Agreement.
GPMP also has a term loan with PNC in the total amount of $32.4 million (the “GPMP PNC Term Loan”). The GPMP PNC Term Loan is secured by U.S. Treasury or other investment grade securities equal to approximately 98% of the outstanding principal amount of the GPMP PNC Term Loan. The Company plans to fully repay this term loan in the third quarter of 2022 utilizing proceeds from the sale of these securities and other cash on hand.
Financing agreementsAgreements with M&T Bank
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GPM has a financing arrangement with M&T Bank to provide a three-year $20.0 million line of credit for purchases of equipment, which line may be borrowed in tranches, as described below, and an aggregate principal amount of $35.0 million of a real estate loan (the “M&T Term Loan”). As of June 30, 2022,2023, approximately $12.3$7.7 million remained available under the line of credit.
Each additional equipment loan tranche will have a three-year term, payable in equal monthly payments of principal plus interest, and will accrue a fixed rate of interest equal to M&T Bank’s three-year cost of funds as of the applicable date of such tranche, plus 3.00%. The M&T Term Loan bears interest at LIBORSOFR Adjusted (as defined in the agreement) plus 3.00%, maturematures in June 2026 and is payable in monthly installments based on a fifteen-year amortization schedule, with the balance of the loan payable at maturity.
Financing agreement with a syndicate of banks led by Capital One, National Association (“Capital One”)
GPMP has a revolving credit facility with a syndicate of banks led by Capital One, National Association, in an aggregate principal amount of up to $500$800 million (the “Capital One Line of Credit”). At GPMP’s request, the Capital One Line of Credit can be increased up to $700 million,$1.0 billion, subject to obtaining additional financing commitments from current lenders or from other banks, and subject to certain terms as detailed in the Capital One Line of Credit. The revolving credit facility matures on May 5, 2028. As of June 30, 2022,2023, approximately $198.3$338.3 million was drawn on the Capital One Line of Credit, and approximately $301.0$461.2 million was available thereunder. In July 2022, we financed the Quarles Acquisition utilizing approximately $40.0 million under the Capital One Line of Credit.
The Capital One Line of Credit bears interest, as elected by GPMP at: (a) LIBORAdjusted Term SOFR (as defined in the agreement) plus a margin of 2.25% to 3.25% or (b) a rate per annum equal to the alternate base rate (as defined in the agreement) plus a margin of 1.25% to 2.25%, which is equal to the greatest of (i) Capital One’s prime rate, (ii) the one-month LIBOR plus 1.0%, and (iii) the federal funds rate plus 0.5%, subject to the definitions set in the agreement.. The margin is determined according to a formula in the Capital One Line of Credit that depends on GPMP’s leverage. As of June 30, 2022, $0.72023, $0.5 million of letters of credit were outstanding under the Capital One Line of Credit.
Critical Accounting Policies and Estimates
For the six months ended June 30, 2022,2023, there were no material changes to our critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended December 31, 20212022 that have had a material impact on our condensed consolidated financial statements and related notes.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Commodity Price Risk
We have limited exposure to commodity price risk as a result of the payment and volume-related discounts in certain of our fuel supply contracts with our fuel suppliers, which are based on the market price of motor fuel. Significant increases in fuel prices could result in significant increases in the retail price of fuel and in lower sales to consumers and independent dealers. When fuel prices rise, some of our independent dealers may have insufficient credit to purchase fuel from us at their historical volumes. In addition,
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significant and persistent increases in the retail price of fuel could also diminish consumer demand, which could subsequently diminish the volume of fuel we distribute. A significant percentage of our sales are made with the use of credit cards. Because the interchange fees we pay when credit cards are used to make purchases are based on transaction amounts, higher fuel prices at the pump and higher gallon movements result in higher credit card expenses. These additional fees increase operating expenses. Prior to the Quarles Acquisition, we did not engage in any fuel price hedging. In connection with the Quarles Acquisition, we have madebegan to make use of derivative commodity instruments to manage risks associated with an immaterial number of existing or anticipated transactionsgallons designed to offset changes in the price of fuel that are directly tied to physical sales of the product.firm commitments to purchase diesel fuel.
Interest Rate Risk
We may be subject to market risk from exposure to changes in interest rates based on our financing, investing, and cash management activities. The Senior Notes bear a fixed interest rate, therefore, an increase or decrease in prevailing interest rates has no impact on our debt service for the Senior Notes. As of June 30, 2023, the interest rate on our Capital One Line of Credit was 7.7% and the interest rate on our M&T Term Loan was 8.3%. As of June 30, 2022, the interest rate on our Capital One Line of Credit was 3.6%, the interest rate on our GPMP PNC Term Loan was 1.7% and the interest rate on our M&T Term Loan was 4.8%. As of June 30, 2021, the interest rate on our Capital One Line of Credit was 3.34% and the interest rate on our GPMP PNC Term Loan was 0.6%. As of June 30, 2022,2023, approximately 36%44% of our debt bore interest at variable rates, therefore, our exposure was relativelymarginally low. If our applicable interest rates increase by 1%, then our debt service on an annual basis would increase by approximately $2.6$3.7 million. Interest rates on commercial bank borrowings and debt offerings could be higher than current levels, causing our financialfinancing costs to increase accordingly. Although this could limit our ability to raise funds in the debt capital markets, we expect to remain competitive with respect to acquisitions and capital projects, as our competitors would likely face similar circumstances.
In 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. However, in March 2021, the Ice Benchmark Administration announced that it will continue to publish the U.S. overnight, one-month, three-month, six-monthItem 4. Controls and 12-month LIBOR through at least June 30, 2023. In July 2021, the Alternative Reference Rates Committee formally recommended the use of the CME’s Group’s forward-looking Secured Overnight Financing Rate as a replacement to LIBOR. Most of our credit agreements were entered into in the past few years. Such credit agreements, as amended, include mechanisms pursuant to which the underlying interest rates will be determined according to an alternative index replacing LIBOR, as customary in the market at such time.Procedures
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Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on thismanagement’s evaluation, managementour Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2022.2023.
Changes to the Company’s Internal Control Over Financial Reporting
There have been no changes to the Company’s internal control over financial reporting that occurred during the calendar quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
During the reporting period covered by this Quarterly Report on Form 10-Q, there have been no material changes to the description of legal proceedings as set forth in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Item 1A. Risk Factors
During the reporting period covered by this Quarterly Report on Form 10-Q, there have been no material changes to our risk factors as set forth in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table presents our share repurchase activity for the quarter ended June 30, 20222023 (dollars in thousands, except per share amounts):
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) |
|
| Maximum Dollar Value that May Yet Be Purchased Under the Plans or Programs (1) |
| ||||
|
|
|
|
|
|
|
|
|
| |||||||
April 1, 2022 to April 30, 2022 |
|
| 853,313 |
|
| $ | 9.27 |
|
|
| 853,313 |
|
| $ | 30,049 |
|
May 1, 2022 to May 31, 2022 |
|
| 1,569,486 |
|
|
| 8.31 |
|
|
| 1,569,486 |
|
|
| 17,004 |
|
June 1, 2022 to June 30, 2022 |
|
| 692,732 |
|
|
| 8.66 |
|
|
| 692,732 |
|
|
| 11,007 |
|
Total |
|
| 3,115,531 |
|
| $ | 8.65 |
|
|
| 3,115,531 |
|
| $ | 11,007 |
|
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) |
|
| Maximum Dollar Value that May Yet Be Purchased Under the Plans or Programs (1) |
| ||||
|
|
|
|
|
|
|
|
|
| |||||||
April 1, 2023 to April 30, 2023 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 10,295 |
|
May 1, 2023 to May 31, 2023 |
|
| 642,461 |
|
|
| 7.36 |
|
|
| 642,461 |
|
|
| 55,566 |
|
June 1, 2023 to June 30, 2023 |
|
| 844,888 |
|
|
| 7.69 |
|
|
| 844,888 |
|
|
| 49,071 |
|
Total |
|
| 1,487,349 |
|
| $ | 7.55 |
|
|
| 1,487,349 |
|
| $ | 49,071 |
|
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.During the three months ended June 30, 2023, none of our officers or directors adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any “non-Rule 10b5-1 trading arrangement”, as defined in Item 408 of Regulation S-K.
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Item 6. Exhibits
Exhibit 3.1 | Composite Amended and Restated Certificate of Incorporation of ARKO Corp. | |
Exhibit | ||
Exhibit 10.2*+ | ||
Exhibit 31.1 | ||
Exhibit 31.2 | ||
Exhibit 32.1 | ||
Exhibit 32.2 | ||
101 | The following financial statements from the Company’s Form 10-Q for the quarter ended June 30, | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
*+ Pursuant to Item 601(a)(5) of Regulation S-K, certain schedules and similar attachments to this exhibit have been omitted because they do not contain information material to an investment or voting decision and such information is not otherwise discusseddisclosed in such exhibit. The Company will supplementally provide a copy of any omitted schedule or similar attachment to the U.S. Securities and Exchange Commission or its staff upon request.”
41* Pursuant to Item 601(b)(10)(iv) of Regulation S-K, portions of this exhibit have been omitted because the Company customarily and actually treats the omitted portions as private or confidential, and such portions are not material. The Company will supplementally provide a copy of an unredacted copy of this exhibit to the U.S. Securities and Exchange Commission or its staff upon request.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August | ARKO Corp. | |
By: | /s/ Arie Kotler | |
Name: | Arie Kotler | |
Title: |
| |
(on behalf of the Registrant and as Principal Executive Officer) |
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