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 March 31, 20212024.
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 001-33528001-39828
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 | ||
Warrants to purchase common stock | ARKOW | Nasdaq |
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 ☐☒ YES ☒ NO
As of May 13, 2021,6, 2024, the registrant had 124,427,805115,743,761 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 March 31, | 5 | ||
6 | |||
| |||
| |||
| |||
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. | 36 | ||
Item 1. | 37 | ||
Item 1A. | 37 | ||
Item 2. | Unregistered Sales of Equity Securities, and Use of Proceeds | 37 | |
Item 3. | 37 | ||
Item 4. | 37 | ||
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, (the “Securities Act”), 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, 20202023 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
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)thousands, except share data)
|
| March 31, 2021 |
|
| December 31, 2020 |
|
| March 31, 2024 |
|
| December 31, 2023 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 204,986 |
| $ | 293,666 |
|
| $ | 184,480 |
|
| $ | 218,120 |
| |
Restricted cash with respect to bonds |
| — |
| 1,230 |
| |||||||||||
Restricted cash |
| 18,017 |
| 16,529 |
|
|
| 21,234 |
|
|
| 23,301 |
| |||
Short-term investments |
|
| 4,588 |
|
|
| 3,892 |
| ||||||||
Trade receivables, net |
| 57,597 |
| 46,940 |
|
|
| 158,712 |
|
|
| 134,735 |
| |||
Inventory |
| 171,123 |
| 163,686 |
|
|
| 250,405 |
|
|
| 250,593 |
| |||
Other current assets |
|
| 80,425 |
|
|
| 87,355 |
|
|
| 116,144 |
|
|
| 118,472 |
|
Total current assets |
| 532,148 |
| 609,406 |
|
|
| 735,563 |
|
|
| 749,113 |
| |||
Non-current assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Property and equipment, net |
| 493,420 |
| 491,513 |
|
|
| 743,394 |
|
|
| 742,610 |
| |||
Right-of-use assets under operating leases |
| 947,568 |
| 961,561 |
|
|
| 1,365,200 |
|
|
| 1,384,693 |
| |||
Right-of-use assets under financing leases, net |
| 203,706 |
| 198,317 |
|
|
| 160,357 |
|
|
| 162,668 |
| |||
Goodwill |
| 173,937 |
| 173,937 |
|
|
| 292,173 |
|
|
| 292,173 |
| |||
Intangible assets, net |
| 212,144 |
| 218,132 |
|
|
| 207,416 |
|
|
| 214,552 |
| |||
Restricted investments |
| 31,825 |
| 31,825 |
| |||||||||||
Non-current restricted cash with respect to bonds |
| — |
| 1,552 |
| |||||||||||
Equity investment |
| 2,612 |
| 2,715 |
|
|
| 2,907 |
|
|
| 2,885 |
| |||
Deferred tax asset |
| 42,345 |
| 40,655 |
|
|
| 62,368 |
|
|
| 52,293 |
| |||
Other non-current assets |
|
| 10,849 |
|
|
| 10,196 |
|
|
| 51,505 |
|
|
| 49,377 |
|
Total assets |
| $ | 2,650,554 |
|
| $ | 2,739,809 |
|
| $ | 3,620,883 |
|
| $ | 3,650,364 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Long-term debt, current portion |
| $ | 29,495 |
| $ | 40,988 |
|
| $ | 17,297 |
|
| $ | 16,792 |
| |
Accounts payable |
| 172,910 |
| 155,714 |
|
|
| 233,960 |
|
|
| 213,657 |
| |||
Other current liabilities |
| 108,021 |
| 133,637 |
|
|
| 150,569 |
|
|
| 179,536 |
| |||
Operating leases, current portion |
| 49,590 |
| 48,878 |
|
|
| 68,403 |
|
|
| 67,053 |
| |||
Financing leases, current portion |
|
| 7,598 |
|
|
| 7,834 |
|
|
| 9,392 |
|
|
| 9,186 |
|
Total current liabilities |
| 367,614 |
| 387,051 |
|
|
| 479,621 |
|
|
| 486,224 |
| |||
Non-current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Long-term debt, net |
| 644,764 |
| 708,802 |
|
|
| 867,661 |
|
|
| 828,647 |
| |||
Asset retirement obligation |
| 53,351 |
| 52,964 |
|
|
| 85,063 |
|
|
| 84,710 |
| |||
Operating leases |
| 961,621 |
| 973,695 |
|
|
| 1,378,302 |
|
|
| 1,395,032 |
| |||
Financing leases |
| 233,575 |
| 226,440 |
|
|
| 212,174 |
|
|
| 213,032 |
| |||
Deferred tax liability |
| 2,663 |
| 2,816 |
| |||||||||||
Other non-current liabilities |
|
| 107,644 |
|
|
| 96,621 |
|
|
| 236,822 |
|
|
| 266,602 |
|
Total liabilities |
|
| 2,371,232 |
|
|
| 2,448,389 |
|
|
| 3,259,643 |
|
|
| 3,274,247 |
|
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 13 |
|
|
|
|
|
| ||||||||||
Series A redeemable preferred stock (no par value) - authorized: 1,000,000 shares; issued and |
|
| 100,000 |
|
|
| 100,000 |
| ||||||||
Shareholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Common stock (par value $0.0001) - authorized: 400,000 shares; issued and |
| 12 |
| 12 |
| |||||||||||
Common stock (par value $0.0001) - authorized: 400,000,000 shares; issued: 130,114,413 and 125,268,525 shares, respectively; outstanding: 115,743,761 and 116,171,208 shares, respectively |
|
| 12 |
|
|
| 12 |
| ||||||||
Treasury stock, at cost - 14,370,652 and 9,097,317 shares, respectively |
|
| (106,055 | ) |
|
| (74,134 | ) | ||||||||
Additional paid-in capital |
| 214,727 |
| 212,103 |
|
|
| 267,671 |
|
|
| 245,007 |
| |||
Accumulated other comprehensive income |
| 9,119 |
| 9,119 |
|
|
| 9,119 |
|
|
| 9,119 |
| |||
Accumulated deficit |
|
| (44,389 | ) |
|
| (29,653 | ) | ||||||||
Retained earnings |
|
| 90,493 |
|
|
| 96,097 |
| ||||||||
Total shareholders' equity |
| 179,469 |
| 191,581 |
|
|
| 261,240 |
|
|
| 276,101 |
| |||
Non-controlling interest |
|
| (147 | ) |
|
| (161 | ) |
|
| — |
|
|
| 16 |
|
Total equity |
|
| 179,322 |
|
|
| 191,420 |
|
|
| 261,240 |
|
|
| 276,117 |
|
Total liabilities, redeemable preferred stock and equity |
| $ | 2,650,554 |
|
| $ | 2,739,809 |
|
| $ | 3,620,883 |
|
| $ | 3,650,364 |
|
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 ended March 31, |
|
| For the Three Months |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2024 |
|
| 2023 |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Fuel revenue |
| $ | 1,102,947 |
| $ | 563,041 |
|
| $ | 1,631,332 |
|
| $ | 1,661,664 |
| |
Merchandise revenue |
| 359,281 |
| 323,679 |
|
|
| 414,655 |
|
|
| 400,408 |
| |||
Other revenues, net |
|
| 22,128 |
|
|
| 13,160 |
|
|
| 26,467 |
|
|
| 26,424 |
|
Total revenues |
| 1,484,356 |
| 899,880 |
|
|
| 2,072,454 |
|
|
| 2,088,496 |
| |||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Fuel costs |
| 1,012,798 |
| 499,803 |
|
|
| 1,502,302 |
|
|
| 1,537,882 |
| |||
Merchandise costs |
| 260,754 |
| 239,091 |
|
|
| 279,737 |
|
|
| 277,443 |
| |||
Store operating expenses |
| 144,938 |
| 128,830 |
| |||||||||||
Site operating expenses |
|
| 218,931 |
|
|
| 192,683 |
| ||||||||
General and administrative expenses |
| 26,713 |
| 18,893 |
|
|
| 42,158 |
|
|
| 40,416 |
| |||
Depreciation and amortization |
|
| 24,242 |
|
|
| 17,071 |
|
|
| 31,716 |
|
|
| 28,399 |
|
Total operating expenses |
|
| 1,469,445 |
|
|
| 903,688 |
|
|
| 2,074,844 |
|
|
| 2,076,823 |
|
Other expenses, net |
|
| 1,672 |
|
|
| 4,176 |
|
|
| 2,476 |
|
|
| 2,720 |
|
Operating income (loss) |
| 13,239 |
| (7,984 | ) | |||||||||||
Operating (loss) income |
|
| (4,866 | ) |
|
| 8,953 |
| ||||||||
Interest and other financial income |
| 2,407 |
| 3,245 |
|
|
| 22,014 |
|
|
| 7,210 |
| |||
Interest and other financial expenses |
|
| (31,024 | ) |
|
| (9,896 | ) |
|
| (24,471 | ) |
|
| (20,812 | ) |
Loss before income taxes |
| (15,378 | ) |
| (14,635 | ) |
|
| (7,323 | ) |
|
| (4,649 | ) | ||
Income tax benefit |
| 722 |
| 2,011 |
|
|
| 6,707 |
|
|
| 2,158 |
| |||
Loss from equity investment |
|
| (6 | ) |
|
| (233 | ) | ||||||||
Income (loss) from equity investment |
|
| 22 |
|
|
| (36 | ) | ||||||||
Net loss |
| $ | (14,662 | ) |
| $ | (12,857 | ) |
| $ | (594 | ) |
| $ | (2,527 | ) |
Less: Net income (loss) attributable to non-controlling interests |
|
| 74 |
|
|
| (2,401 | ) | ||||||||
Less: Net income attributable to non-controlling interests |
|
| — |
|
|
| 53 |
| ||||||||
Net loss attributable to ARKO Corp. |
| $ | (14,736 | ) |
| $ | (10,456 | ) |
| $ | (594 | ) |
| $ | (2,580 | ) |
Series A redeemable preferred stock dividends |
|
| (1,402 | ) |
|
|
|
|
| (1,414 | ) |
|
| (1,418 | ) | |
Net loss attributable to common shareholders |
| $ | (16,138 | ) |
|
|
|
| $ | (2,008 | ) |
| $ | (3,998 | ) | |
Net loss per share attributable to common shareholders - basic and diluted |
| $ | (0.13 | ) |
| $ | (0.16 | ) | ||||||||
Net loss per share attributable to common shareholders – basic and diluted |
| $ | (0.02 | ) |
| $ | (0.03 | ) | ||||||||
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic and Diluted |
| 124,361 |
| 66,731 |
| |||||||||||
Basic and diluted |
|
| 117,275 |
|
|
| 120,253 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
ARKO Corp.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited, in thousands)
|
| For the three months ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Net loss |
| $ | (14,662 | ) |
| $ | (12,857 | ) |
Other comprehensive loss: |
|
|
|
|
|
| ||
Foreign currency translation adjustments |
|
| 0 |
|
|
| (1,709 | ) |
Total other comprehensive loss |
|
| — |
|
|
| (1,709 | ) |
Comprehensive loss |
| $ | (14,662 | ) |
| $ | (14,566 | ) |
Less: Comprehensive income (loss) attributable to non-controlling interests |
|
| 74 |
|
|
| (2,401 | ) |
Comprehensive loss attributable to ARKO Corp. |
| $ | (14,736 | ) |
| $ | (12,165 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
ARKO Corp.
Condensed Consolidated Statements of Changes in Equity
(Unaudited, in thousands)thousands, except share data)
|
| 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, 2023 |
|
| 120,074,542 |
|
| $ | 12 |
|
| $ | (40,042 | ) |
| $ | 229,995 |
|
| $ | 9,119 |
|
| $ | 81,750 |
|
| $ | 280,834 |
|
| $ | 56 |
|
| $ | 280,890 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,069 |
|
|
| — |
|
|
| — |
|
|
| 4,069 |
|
|
| — |
|
|
| 4,069 |
|
Transactions with non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 94 |
|
|
| — |
|
|
| — |
|
|
| 94 |
|
|
| (94 | ) |
|
| — |
|
Distributions to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (60 | ) |
|
| (60 | ) |
Dividends on redeemable preferred stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,418 | ) |
|
| (1,418 | ) |
|
| — |
|
|
| (1,418 | ) |
Dividends declared (3 cents per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,609 | ) |
|
| (3,609 | ) |
|
| — |
|
|
| (3,609 | ) |
Common stock repurchased |
|
| (274,479 | ) |
|
| — |
|
|
| (2,310 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,310 | ) |
|
| — |
|
|
| (2,310 | ) |
Vesting of restricted share units |
|
| 504,945 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net (loss) income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,580 | ) |
|
| (2,580 | ) |
|
| 53 |
|
|
| (2,527 | ) |
Balance at March 31, 2023 |
|
| 120,305,008 |
|
| $ | 12 |
|
| $ | (42,352 | ) |
| $ | 234,158 |
|
| $ | 9,119 |
|
| $ | 74,143 |
|
| $ | 275,080 |
|
| $ | (45 | ) |
| $ | 275,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balance at January 1, 2024 |
|
| 116,171,208 |
|
| $ | 12 |
|
| $ | (74,134 | ) |
| $ | 245,007 |
|
| $ | 9,119 |
|
| $ | 96,097 |
|
| $ | 276,101 |
|
| $ | 16 |
|
| $ | 276,117 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,329 |
|
|
| — |
|
|
| — |
|
|
| 3,329 |
|
|
| — |
|
|
| 3,329 |
|
Transactions with non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,984 | ) |
|
| — |
|
|
| — |
|
|
| (2,984 | ) |
|
| (16 | ) |
|
| (3,000 | ) |
Dividends on redeemable preferred stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,414 | ) |
|
| (1,414 | ) |
|
| — |
|
|
| (1,414 | ) |
Dividends declared (3 cents per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,596 | ) |
|
| (3,596 | ) |
|
| — |
|
|
| (3,596 | ) |
Common stock repurchased |
|
| (5,273,335 | ) |
|
| — |
|
|
| (31,921 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (31,921 | ) |
|
| — |
|
|
| (31,921 | ) |
Vesting and settlement of restricted share units |
|
| 1,427,973 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Issuance of shares |
|
| 3,417,915 |
|
|
| — |
|
|
| — |
|
|
| 22,319 |
|
|
| — |
|
|
| — |
|
|
| 22,319 |
|
|
| — |
|
|
| 22,319 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (594 | ) |
|
| (594 | ) |
|
| — |
|
|
| (594 | ) |
Balance at March 31, 2024 |
|
| 115,743,761 |
|
| $ | 12 |
|
| $ | (106,055 | ) |
| $ | 267,671 |
|
| $ | 9,119 |
|
| $ | 90,493 |
|
| $ | 261,240 |
|
| $ | — |
|
| $ | 261,240 |
|
|
| Common Stock |
|
| Additional |
|
| Accumulated |
|
| Accumulated |
|
| Total |
|
| Non- |
|
| Total |
| |||||||||||
|
| Shares |
|
| Par Value |
|
| Capital |
|
| Income |
|
| Deficit |
|
| Equity |
|
| Interests |
|
| Equity |
| ||||||||
Balance at January 1, 2020 |
|
| 65,541 |
|
| $ | 6 |
|
| $ | 104,686 |
|
| $ | 4,444 |
|
| $ | (43,363 | ) |
| $ | 65,773 |
|
| $ | 129,117 |
|
| $ | 194,890 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 127 |
|
|
| — |
|
|
| — |
|
|
| 127 |
|
|
| — |
|
|
| 127 |
|
Conversion of convertible bonds |
|
| 6 |
|
|
| — |
|
|
| 26 |
|
|
| — |
|
|
| — |
|
|
| 26 |
|
|
| — |
|
|
| 26 |
|
Transactions with non-controlling |
|
| — |
|
|
| — |
|
|
| (777 | ) |
|
| — |
|
|
| — |
|
|
| (777 | ) |
|
| 20,194 |
|
|
| 19,417 |
|
Distributions to non-controlling |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,375 | ) |
|
| (2,375 | ) |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,709 | ) |
|
| — |
|
|
| (1,709 | ) |
|
| — |
|
|
| (1,709 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10,456 | ) |
|
| (10,456 | ) |
|
| (2,401 | ) |
|
| (12,857 | ) |
Balance at March 31, 2020 |
|
| 65,547 |
|
| $ | 6 |
|
| $ | 104,062 |
|
| $ | 2,735 |
|
| $ | (53,819 | ) |
| $ | 52,984 |
|
| $ | 144,535 |
|
| $ | 197,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance at January 1, 2021 |
|
| 124,132 |
|
| $ | 12 |
|
| $ | 212,103 |
|
| $ | 9,119 |
|
| $ | (29,653 | ) |
| $ | 191,581 |
|
| $ | (161 | ) |
| $ | 191,420 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 1,026 |
|
|
| — |
|
|
| — |
|
|
| 1,026 |
|
|
| — |
|
|
| 1,026 |
|
Distributions to non-controlling |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (60 | ) |
|
| (60 | ) |
Dividends on redeemable |
|
| — |
|
|
| — |
|
|
| (1,402 | ) |
|
| — |
|
|
| — |
|
|
| (1,402 | ) |
|
| — |
|
|
| (1,402 | ) |
Issuance of shares |
|
| 296 |
|
|
| — |
|
|
| 3,000 |
|
|
| — |
|
|
| — |
|
|
| 3,000 |
|
|
| — |
|
|
| 3,000 |
|
Net (loss) income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (14,736 | ) |
|
| (14,736 | ) |
|
| 74 |
|
|
| (14,662 | ) |
Balance at March 31, 2021 |
|
| 124,428 |
|
| $ | 12 |
|
| $ | 214,727 |
|
| $ | 9,119 |
|
| $ | (44,389 | ) |
| $ | 179,469 |
|
| $ | (147 | ) |
| $ | 179,322 |
|
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 three months ended March 31, |
|
| For the Three Months |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2024 |
|
| 2023 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss |
| $ | (14,662 | ) |
| $ | (12,857 | ) |
| $ | (594 | ) |
| $ | (2,527 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation and amortization |
| 24,242 |
| 17,071 |
|
|
| 31,716 |
|
|
| 28,399 |
| |||
Deferred income taxes |
| (1,843 | ) |
| 389 |
|
|
| (10,075 | ) |
|
| (10,230 | ) | ||
Loss on disposal of assets and impairment charges |
| 1,375 |
| 3,382 |
|
|
| 2,664 |
|
|
| 287 |
| |||
Foreign currency gain |
| (1,042 | ) |
| (2,874 | ) | ||||||||||
Amortization of deferred financing costs, debt discount and premium |
| (185 | ) |
| 1,780 |
| ||||||||||
Foreign currency loss |
|
| 27 |
|
|
| 34 |
| ||||||||
Gain from issuance of shares as payment of deferred consideration related to business |
|
| (2,681 | ) |
|
| — |
| ||||||||
Gain from settlement related to business acquisition (see Note 4) |
|
| (6,356 | ) |
|
| — |
| ||||||||
Amortization of deferred financing costs and debt discount |
|
| 664 |
|
|
| 592 |
| ||||||||
Amortization of deferred income |
| (2,484 | ) |
| (2,380 | ) |
|
| (1,946 | ) |
|
| (1,860 | ) | ||
Accretion of asset retirement obligation |
| 445 |
| 327 |
|
|
| 616 |
|
|
| 491 |
| |||
Non-cash rent |
| 1,771 |
| 1,801 |
|
|
| 3,484 |
|
|
| 2,798 |
| |||
Charges to allowance for credit losses |
| 141 |
| 49 |
|
|
| 327 |
|
|
| 283 |
| |||
Loss from equity investment |
| 6 |
| 233 |
| |||||||||||
(Income) loss from equity investment |
|
| (22 | ) |
|
| 36 |
| ||||||||
Share-based compensation |
| 1,026 |
| 127 |
|
|
| 3,329 |
|
|
| 4,069 |
| |||
Fair value adjustment of financial assets and liabilities |
| 11,049 |
| (418 | ) |
|
| (10,772 | ) |
|
| (4,228 | ) | |||
Other operating activities, net |
| 224 |
| — |
|
|
| 624 |
|
|
| 329 |
| |||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
(Increase) decrease in trade receivables |
| (10,798 | ) |
| 7,732 |
| ||||||||||
(Increase) decrease in inventory |
| (7,437 | ) |
| 17,402 |
| ||||||||||
Increase in trade receivables |
|
| (24,304 | ) |
|
| (11,182 | ) | ||||||||
Decrease (increase) in inventory |
|
| 188 |
|
|
| (2,845 | ) | ||||||||
Decrease in other assets |
| 7,688 |
| 4,737 |
|
|
| 5,095 |
|
|
| 3,545 |
| |||
Increase (decrease) in accounts payable |
| 17,309 |
| (10,996 | ) | |||||||||||
Increase in accounts payable |
|
| 21,347 |
|
|
| 5,940 |
| ||||||||
Decrease in other current liabilities |
| (15,829 | ) |
| (966 | ) |
|
| (4,152 | ) |
|
| (127 | ) | ||
Decrease in asset retirement obligation |
| (89 | ) |
| (36 | ) | ||||||||||
Increase (decrease) in non-current liabilities |
|
| 369 |
|
|
| (591 | ) | ||||||||
(Decrease) increase in asset retirement obligation |
|
| (55 | ) |
|
| 67 |
| ||||||||
Increase in non-current liabilities |
|
| 3,631 |
|
|
| 2,012 |
| ||||||||
Net cash provided by operating activities |
| $ | 11,276 |
|
| $ | 23,912 |
|
| $ | 12,755 |
|
| $ | 15,883 |
|
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 three months ended March 31, |
|
| For the Three Months |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2024 |
|
| 2023 |
| ||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Purchase of property and equipment |
| $ | (17,525 | ) |
| $ | (12,048 | ) |
| $ | (29,228 | ) |
| $ | (23,380 | ) |
Purchase of intangible assets |
| — |
| (30 | ) | |||||||||||
Proceeds from sale of property and equipment |
| 880 |
| — |
|
|
| 2,039 |
|
|
| 208,436 |
| |||
Business acquisitions, net of cash |
| — |
| (320 | ) |
|
| — |
|
|
| (338,342 | ) | |||
Loans to equity investment |
|
| — |
|
|
| (143 | ) | ||||||||
Prepayment for acquisition |
|
| (1,000 | ) |
|
| — |
| ||||||||
Loans to equity investment, net |
|
| 14 |
|
|
| — |
| ||||||||
Net cash used in investing activities |
|
| (16,645 | ) |
|
| (12,541 | ) |
|
| (28,175 | ) |
|
| (153,286 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Lines of credit, net |
| — |
| (39,364 | ) | |||||||||||
Repayment of related-party loans |
| — |
| (4,517 | ) | |||||||||||
Receipt of long-term debt, net |
| 1,115 |
| 156,694 |
|
|
| 41,588 |
|
|
| 55,000 |
| |||
Repayment of debt |
| (75,963 | ) |
| (41,722 | ) |
|
| (6,635 | ) |
|
| (5,592 | ) | ||
Principal payments on financing leases |
| (1,990 | ) |
| (2,124 | ) |
|
| (1,135 | ) |
|
| (1,418 | ) | ||
Investment of non-controlling interest in subsidiary |
| — |
| 19,325 |
| |||||||||||
Payment of Merger Transaction issuance costs |
| (4,686 | ) |
| — |
| ||||||||||
Early settlement of deferred consideration related to business acquisition |
|
| (17,155 | ) |
|
| — |
| ||||||||
Proceeds from sale-leaseback |
|
| — |
|
|
| 51,604 |
| ||||||||
Common stock repurchased |
|
| (31,921 | ) |
|
| (2,310 | ) | ||||||||
Dividends paid on common stock |
|
| (3,596 | ) |
|
| (3,609 | ) | ||||||||
Dividends paid on redeemable preferred stock |
| (1,559 | ) |
| — |
|
|
| (1,414 | ) |
|
| (1,418 | ) | ||
Distributions to non-controlling interests |
|
| (60 | ) |
|
| (2,375 | ) | ||||||||
Net cash (used in) provided by financing activities |
|
| (83,143 | ) |
|
| 85,917 |
|
|
| (20,268 | ) |
|
| 92,257 |
|
Net (decrease) increase in cash and cash equivalents and restricted cash |
| (88,512 | ) |
| 97,288 |
| ||||||||||
Net decrease in cash and cash equivalents and restricted cash |
|
| (35,688 | ) |
|
| (45,146 | ) | ||||||||
Effect of exchange rate on cash and cash equivalents and restricted cash |
| (1,462 | ) |
| (1,306 | ) |
|
| (19 | ) |
|
| (21 | ) | ||
Cash and cash equivalents and restricted cash, beginning of period |
|
| 312,977 |
|
|
| 52,763 |
|
|
| 241,421 |
|
|
| 316,769 |
|
Cash and cash equivalents and restricted cash, end of period |
| $ | 223,003 |
|
| $ | 148,745 |
|
| $ | 205,714 |
|
| $ | 271,602 |
|
Reconciliation of cash and cash equivalents and restricted cash |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents, beginning of period |
| $ | 293,666 |
| 32,117 |
|
| $ | 218,120 |
|
| $ | 298,529 |
| ||
Restricted cash, beginning of period |
| 16,529 |
| 14,423 |
|
|
| 23,301 |
|
|
| 18,240 |
| |||
Restricted cash with respect to bonds, beginning of period |
|
| 2,782 |
|
|
| 6,223 |
| ||||||||
Cash and cash equivalents and restricted cash, beginning of period |
| $ | 312,977 |
|
| $ | 52,763 |
|
| $ | 241,421 |
|
| $ | 316,769 |
|
Cash and cash equivalents, end of period |
| $ | 204,986 |
| 128,513 |
|
| $ | 184,480 |
|
| $ | 255,852 |
| ||
Restricted cash, end of period |
| 18,017 |
| 12,609 |
|
|
| 21,234 |
|
|
| 15,750 |
| |||
Restricted cash with respect to bonds, end of period |
|
| — |
|
|
| 7,623 |
| ||||||||
Cash and cash equivalents and restricted cash, end of period |
| $ | 223,003 |
|
| $ | 148,745 |
|
| $ | 205,714 |
|
| $ | 271,602 |
|
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 three months ended March 31, |
|
| For the Three Months |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2024 |
|
| 2023 |
| ||||
Supplementary cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash received for interest |
| $ | 55 |
| $ | 403 |
|
| $ | 1,650 |
|
| $ | 2,197 |
| |
Cash paid for interest |
| 18,057 |
| 8,083 |
|
|
| 16,724 |
|
|
| 12,174 |
| |||
Cash received for taxes |
| 9 |
| 67 |
|
|
| 268 |
|
|
| 212 |
| |||
Cash paid for taxes |
| 72 |
| 226 |
|
|
| 648 |
|
|
| 125 |
| |||
Supplementary noncash activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Prepaid insurance premiums financed through notes payable |
| 2,171 |
| 2,872 |
|
| $ | 3,073 |
|
| $ | 6,224 |
| |||
Purchases of equipment in accounts payable and accrued expenses |
| 3,715 |
| 3,310 |
|
|
| 11,775 |
|
|
| 11,577 |
| |||
Purchase of property and equipment under leases |
| 11,534 |
| 2,448 |
|
|
| 10,586 |
|
|
| 826 |
| |||
Disposals of leases of property and equipment |
| 2,254 |
| 1,447 |
|
|
| 9,100 |
|
|
| 2,476 |
| |||
Issuance of shares |
| 3,000 |
| — |
| |||||||||||
Receipt of related-party receivable payment offset by related-party loan payments |
| — |
| 7,133 |
| |||||||||||
Issuance of shares as payment of deferred consideration related to business acquisition |
|
| 22,319 |
|
|
| — |
| ||||||||
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$0.0001 per share (“common stock”), and publicly-traded warrants were registered to tradeare listed on the Nasdaq Stock Market on December 22, 2020(“Nasdaq”) under the symbols “ARKO” and commenced trading on December 23, 2020. “ARKOW,” respectively.
The Company’s common stock is also listed on the Tel Aviv Stock Exchange.
On September 8, 2020, the Company (a newly-formed company) entered into a business combination agreement, as amended on November 18, 2020 (the “Merger Agreement”), together with Arko Holdings Ltd. (“Arko Holdings”), Haymaker Acquisition Corp. II, a Delaware corporation and special purpose acquisition company (“Haymaker”), and additional newly-formedoperations are primarily performed by its wholly owned subsidiaries of Haymaker that were formed in order to enable the consummation of the merger transaction (the “Merger Transaction”). Arko Holdings is a corporation incorporated in Israel, whose securities were listed on the Tel Aviv Stock Exchange prior to the consummation of the Merger Transaction and which held a majority of the outstanding equity ofsubsidiary, GPM Investments, LLC, a Delaware limited liability company (“GPM”). On December 22, 2020, the Merger Transaction was consummated (the “Merger Closing Date”), following which Arko Holdings and Haymaker became wholly owned subsidiaries of the Company.
The Company’s operations are primarily performed by its subsidiary, GPM, which became a wholly owned subsidiary, indirectly, upon consummation of the Merger Transaction.Formed in 2002, 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. GPM is also engaged in wholesale activity, which includes the supply of fuel to gas stations operated by third parties.third-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 March 31, 2021,2024, GPM’s activity included the self-operationoperation of 1,324 sites and1,540 retail convenience stores, the supply of fuel to 1,6251,816 gas stations operated by external operators (dealers), throughout 33 statesdealers and the operation of 296 cardlock locations, in the District of Columbia and throughout more than 30 states in the Mid-Atlantic, Midwestern, Northeastern, Southeastern and Southwestern United States (“US”U.S.”).
The Company has three reportingfour reportable segments: retail, wholesale, fleet fueling, and GPMP. Refer to Note 912 below for further information with respect to the segments.
Accounting Treatment of the Merger Transaction
The Merger Transaction was accounted for as a reverse recapitalization. Under this method of accounting, Haymaker was treated as the “acquired” company and Arko Holdings was considered the accounting acquirer for accounting purposes. The Merger Transaction was treated as the equivalent of Arko Holdings’ issuing stock in exchange for the net assets of Haymaker, accompanied by a recapitalization. The net assets of Arko Holdings and Haymaker were stated at historical cost. NaN goodwill or intangible assets were recorded in connection with the Merger Transaction.
Because Arko Holdings was deemed the accounting acquirer, upon the consummation of the Merger Transaction, the historical financial statements of Arko Holdings became the historical financial statements of the combined company. As a result, the financial statements included in this Quarterly Report on Form 10-Q reflect the historical operating results of Arko Holdings prior to the Merger Closing Date and the combined results of the Company, including those of Haymaker, following the Merger Closing Date. Additionally, the Company’s equity structure has been reclassified in all comparative periods up to the Merger Closing Date to reflect the number of shares of the Company’s common stock issued to Arko Holdings’ stockholders in connection with the recapitalization transaction. As such, the share counts, corresponding common stock amounts and earnings per share related to Arko Holdings’ common stock prior to the Merger Transaction have been retroactively reclassified as shares reflecting the exchange ratio established in accordance with the Merger Agreement.
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 March 31, 20212024 and for the three months periods ended March 31, 20212024 and 2020 (“interim financial statements”)2023 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
12
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, 20202023 (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 eacha 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 USU.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; useful lives of fixed assets; environmental assets and liabilities; deferred tax assets; and asset retirement obligations.
Cash and Cash Equivalents
The 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 at 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 forto 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 costscost of revenue included fuel taxes of $222.5$272.2 million and $115.1$264.3 million for the three months ended March 31, 20212024 and 2020,2023, respectively.
13
Refer to Note 912 for disclosure of the revenue disaggregated by segment and product line, as well as a description of the reportable segment operations.
New Accounting Pronouncements Adopted During 20213. Limited Partnership
SimplifyingAs of December 31, 2023, GPM, directly and through certain of its wholly owned subsidiaries, held approximately 99.8% of the Accountinglimited partnership interests in the Company’s subsidiary, GPM Petroleum LP (“GPMP”) and all of the rights in the general partner of GPMP. A non-controlling interest had been recorded for Income Taxes – the interests owned in GPMP by the seller in the Company’s 2019 acquisition of 64 sites from a third-party (the “Riiser Seller”) and was classified in the consolidated statements of changes in equity as “Non-controlling interests.”
At December 31, 2023, the Riiser Seller owed GPM approximately $In December 2019,3.375 million with respect to a post-closing adjustment, in addition to other amounts, including interest and expenses. The Riiser Seller satisfied $3.0 million of such adjustment by tendering all of its limited partnership units in GPMP to GPM in January 2024. As a result, as of March 31, 2024, GPM, directly and through certain of its wholly owned subsidiaries, held 100% of the FASB issued ASU 2019-12, Simplifyinglimited partnership interests in GPMP.
4. Transit Energy Group, LLC Acquisition
12
On March 1, 2023, the AccountingCompany 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 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 southeastern United States (the “TEG Acquisition”). The purchase price for Income Taxes. The amendmentsthe TEG Acquisition was, as of closing, approximately $370 million, plus the value of inventory at the closing, of which $50 million was to be deferred and payable in this ASU simplifytwo annual payments of $25 million (the “Installment Payments”), which the accounting for income taxes by removing certain exceptionsCompany was entitled to elect to pay in either cash or, subject to the general principlessatisfaction of certain conditions, shares of common stock (the “Installment Shares”), on the 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.
Pursuant to the TEG Purchase Agreement, on March 1, 2024, the Company issued 3,417,915 Installment Shares to TEG in ASC 740. The amendments also improve consistent applicationrespect of and simplify GAAP for other areasthe first installment payment (the “First Installment Shares”) at a price per share of ASC 740 by clarifying and amending existing guidance, such as the accounting for a franchise tax (or similar tax) that is partially$7.31, which was based on income. This standard is effective January 1, 2021the 10-day volume weighted average price calculation contained in the TEG Purchase Agreement. As a result, the Company recorded a gain of approximately $2.7 million as a component of interest and other financial income in the condensed consolidated statement of operations for the Company.three months ended March 31, 2024.
On March 26, 2024, the Company and TEG entered into a second amendment to the TEG Purchase Agreement (the “Purchase Agreement Amendment”), pursuant to which, in full satisfaction of all Installment Payments, (i) the Company repurchased the First Installment Shares from TEG for an aggregate purchase price of approximately $19.3 million in cash, or $5.66 per share, and (ii) the Company paid to TEG an additional amount in cash equal to approximately $17.2 million in satisfaction of the second Installment Payment, which would have otherwise been due on March 1, 2025. The adoption$36.5 million was financed with the Capital One Line of Credit (refer to Note 5 below). The Purchase Agreement Amendment additionally terminated the registration rights agreement, terminated TEG’s indemnity obligations under the TEG Purchase Agreement and extended the transition services agreement entered into between the Company and TEG. As a result of this guidance had no material impact ontransaction, the Company’sCompany recorded a net gain of approximately $6.4 million, out of which approximately $6.5 million was recorded as a component of interest and other financial income in the condensed consolidated financial statements.
New Accounting Pronouncements Not Yet Adopted
Reference Rate Reform – In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitationstatement of the Effects of Reference Rate Reform on Financial Reporting. This standard included optional guidance for a limited period of time to help ease the burden in accountingoperations for the effects of reference rate reform. The new standard is effective for all entities through Decemberthree months ended March 31, 2022. The Company is examining the impact of this standard on its consolidated financial statements.2024.
3.5. Debt
The components of debt were as follows:
|
| March 31, 2021 |
| December 31, 2020 |
|
| March 31, |
|
| December 31, |
| ||||||||||
|
| (in thousands) |
|
| (in thousands) |
| |||||||||||||||
Bonds (Series C) |
| $ | 0 |
| �� | $ | 76,582 |
| |||||||||||||
PNC term loans |
| 32,362 |
| 32,354 |
| ||||||||||||||||
Senior Notes |
| $ | 444,634 |
|
| $ | 444,432 |
| |||||||||||||
M&T debt |
| 28,420 |
| 27,898 |
|
|
| 67,164 |
|
|
| 65,228 |
| ||||||||
Ares term loan |
| 215,208 |
| 215,433 |
| ||||||||||||||||
Capital One Line of Credit |
|
| 368,889 |
|
|
| 332,027 |
| |||||||||||||
Insurance premium notes |
| 3,935 |
| 3,488 |
|
|
| 4,271 |
|
|
| 3,752 |
| ||||||||
Capital One line of credit |
|
| 394,334 |
|
| 394,035 |
| ||||||||||||||
Total debt, net |
| $ | 674,259 |
| $ | 749,790 |
|
| $ | 884,958 |
|
| $ | 845,439 |
| ||||||
Less current portion |
|
| (29,495 | ) |
|
| (40,988 | ) |
|
| (17,297 | ) |
|
| (16,792 | ) | |||||
Total long-term debt, net |
| $ | 644,764 |
| $ | 708,802 |
|
| $ | 867,661 |
|
| $ | 828,647 |
|
Bonds (Series C)
Financing agreement with a syndicate of banks led by Capital One, National Association
GPMP has a revolving credit facility with a syndicate of banks led by Capital One, National Association with an aggregate principal amount of availability of $800 million (the “Capital One Line of Credit”). 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, subject to certain other terms as detailed in the Capital One Line of Credit. On March 30, 2021, Arko Holdings fully redeemed its Bonds (Series C) in accordance with26, 2024, GPMP, Capital One and the optional redemption provisionsguarantors and lenders party thereto entered into an amendment to the Capital One Line of Credit, which facilitated the borrowing and use of up to $36.5 million of the deedCapital One Line of trust governing the Bonds (Series C). Arko Holdings redeemed the Bonds (Series C) at a redemption price equal to approximately NIS 1.084 for every NIS 1 par value (approximately $0.325 as of March 30, 2021 per NIS 1 par value) of Bonds (Series C) outstanding (including additional interestCredit for the early redemption and accrued and unpaid interest thereon to the redemption date for the Bonds (Series C)). The total amount paid to holderssettlement of the Bonds (Series C) was approximately NIS 264 million (approximately $79 million).Installment Payments as provided for in the TEG Purchase Agreement Amendment as defined in Note 4. The other material terms of the Capital One Line of Credit remain unchanged.
Ares13
M&T Bank Credit Agreement
On March 30, 2021,January 31,2024, GPM entered into an amendment to its credit agreement (the “Ares Credit Agreement”) with Ares Capital Corporation (“Ares”) which amendedadditional term loan under the credit agreement to adjust the interest rate effective from and after March 1, 2021, by (A) reducing the applicable marginwith M&T Bank for the term loan facility by 0.125% and (B) reducing the LIBOR Rate (as definedpurchase of real estate for $5.1 million, resulting in an aggregate original principal amount of real estate loans of $49.5 million as of March 31, 2024 (the “M&T Term Loans”). The Company has granted a mortgage in the credit agreement)real estate of 50 sites and certain fixtures at these and other sites as collateral to be not less than 1.0%, such that following these changes, effective March 1, 2021,support the term loan facility bears interest, as elected by GPM, at (a) a rate per annum equal to the Ares alternative base rate (“ABR”) plus a margin of 3.50%, or (b) the LIBOR Rate as defined in the credit agreement (not less than 1.0%) plus a margin of 4.50%.M&T Term Loans.
4.6. Leases
As of March 31, 2021,2024, the Company leased 1,1251,266 of itsthe convenience stores that it operates, 158207 dealer locations, 155 cardlock locations and certain office and storage spaces, used as its headquarters in the US, including land and buildings in certain cases. Most of the lease agreements are for
14
long-term periods, ranging from 15 to 20 years years,, and generally include several renewal options for extension periods for five to 25 years years each. Additionally, the Company leases certain store equipment, office equipment, automatic tank gauges store lighting and fuel dispensers.
Under ASC 842, theThe components of lease cost recorded on the condensed consolidated statements of operations were as follows:
|
| For the three months ended |
|
| For the Three Months |
| |||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2024 |
|
| 2023 |
| |||||||||
|
| (in thousands) |
|
| (in thousands) |
| |||||||||||||||
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Depreciation of right-of-use assets |
| $ | 3,317 |
| $ | 3,192 |
|
| $ | 2,452 |
|
| $ | 2,853 |
| ||||||
Interest on lease liabilities |
| 4,446 |
| 4,326 |
|
|
| 4,300 |
|
|
| 4,162 |
| ||||||||
Operating lease costs included in store operating expenses |
| 32,334 |
| 27,244 |
| ||||||||||||||||
Operating lease costs included in site operating expenses |
|
| 46,675 |
|
|
| 41,584 |
| |||||||||||||
Operating lease costs included in general and administrative |
| 396 |
| 327 |
|
|
| 538 |
|
|
| 534 |
| ||||||||
Lease cost related to variable lease payments, short-term |
| 375 |
| 150 |
|
|
| 628 |
|
|
| 690 |
| ||||||||
Right-of-use asset impairment charges |
|
| 111 |
|
|
| 639 |
| |||||||||||||
Right-of-use asset impairment charges and loss (gain) on |
|
| 1,536 |
|
|
| (540 | ) | |||||||||||||
Total lease costs |
| $ | 40,979 |
|
| $ | 35,878 |
|
| $ | 56,129 |
|
| $ | 49,283 |
|
5.7. 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 March 31, 2024 and December 31, 2023, the Company had fuel futures contracts to hedge approximately 1.3 million gallons and 1.2 million gallons, respectively, of diesel fuel for which the Company had a firm commitment to purchase. As of March 31, 2024 and December 31, 2023, the Company had an asset derivative with a fair value of approximately $0.1 million and $0.1 million, respectively, recorded in other current assets and a firm commitment with a fair value of approximately $0.1 million and $0.1 million, respectively, recorded in other current liabilities on the condensed consolidated balance sheets.
As of March 31, 2024 and December 31, 2023, there was $3.0 thousand and $0, 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 in the condensed consolidated statements of cash flows.
8. Equity
On August 1, 2020, HaymakerThe Company’s board of directors (the “Board”) declared, and Nomura Securities International, Inc. (“Nomura”) entered into an engagement letter, pursuant tothe Company paid, dividends of $0.03 per share of common stock on March 21, 2024, totaling approximately $3.6 million. The amount and timing of dividends payable on the common stock are within the sole discretion of the Board, which Nomura agreed to act as a placement agent in connection withwill evaluate dividend payments within the context of the Company’s issuanceoverall capital allocation strategy on an ongoing basis, giving consideration to its current and forecasted earnings, financial condition, cash requirements and other factors. As a result of itsthe aggregate amount of dividends paid on the common stock through March 31, 2024, the conversion price of the Company’s Series A redeemableconvertible preferred stock and on September 8, 2020, Haymaker and Nomura entered into an engagement letter, pursuanthas been adjusted from $12.00 to which Nomura agreed$11.76 per share, as
14
were the threshold share prices in the Deferred Shares agreement (as defined in Note 17 to act asthe annual financial statements). The Board declared a financial and capital markets advisor in connection with the Merger Transaction. On January 19, 2021, the Company, Haymaker and Nomura entered into a letter agreement, amending the engagement lettersquarterly dividend of $0.03 per share of common stock, to provide that all of the placement fee and the transaction fee, in each case at Haymaker’s option, may be paid on May 31, 2024 to Nomurastockholders of record as of May 20, 2024.
In February 2022, the Board authorized a share repurchase program, which was later increased in the formMay 2023, for up to an aggregate of 296,150$100.0 million of outstanding shares of common stock. On January 21, 2021,In May 2024, the Board increased the size of the share repurchase program to $125.0 million. The share repurchase program does not have an expiration date. During the three months ended March 31, 2024, inclusive of the repurchase of the First Installment Shares from TEG, the Company issued 296,150repurchased approximately 4.8 million shares of common stock to Nomura in a private placement.under the share repurchase program for approximately $28.3 million, or an average share price of $5.89. As of March 31, 2024, there was $0.7 million remaining under the share repurchase program.
6.9. Share-Based Compensation
In March 2021, theThe Compensation Committee of the Company’s Board of Directors (the “Board”)has approved the grant of non-qualified stock options, and restricted stock units (“RSUs”), and shares of common stock 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 shallmay not be less than the fair market value of the underlying shares on the date of grant. Vesting periods are assigned to stock options and restricted share unitsRSUs 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 restricted share units.RSUs.
Additionally, a non-employee director may elect to deferreceive RSUs in lieu of up to 100%100% of his or her cash fees, which are vested immediately and instead receivewhich RSUs which mustwill be settled in common stock upon the director’s departure from the Board. There were 60,000 RSUs issued to non-employee directors outstanding atBoard or an earlier change in control of the Company.
Stock Options
During the three months ended March 31, 2021.2024, 447 thousand stock options vested. There was no other activity related to stock options during the three months ended March 31, 2024.
As of March 31, 2024, total unrecognized compensation cost related to unvested stock options was approximately $1.3 million, which is expected to be recognized over a weighted average period of approximately 1.6 years.
Restricted Stock Units
The following table summarizes share activity related to stock options and restricted stock units:RSUs:
|
| Stock |
|
| Restricted |
| ||
Options Outstanding/Nonvested RSUs, December 31, 2020 |
|
| 0 |
|
|
| 0 |
|
Granted |
|
| 126,000 |
|
|
| 1,570,600 |
|
Options Exercised/RSUs released |
|
| 0 |
|
|
| (60,000 | ) |
Forfeited |
|
| 0 |
|
|
| 0 |
|
Options Outstanding/Nonvested RSUs, March 31, 2021 |
|
| 126,000 |
|
|
| 1,510,600 |
|
|
| Restricted Stock Units |
|
| Weighted Average Grant Date Fair Value |
| ||
|
| (in thousands) |
|
|
|
| ||
Nonvested RSUs, December 31, 2023 |
|
| 3,869 |
|
| $ | 8.65 |
|
Granted |
|
| 2,621 |
|
|
| 6.48 |
|
Released |
|
| (1,426 | ) |
|
| 9.16 |
|
Forfeited |
|
| (79 | ) |
|
| 4.80 |
|
Nonvested RSUs, March 31, 2024 |
|
| 4,985 |
|
| $ | 7.42 |
|
The following table summarizes the stock options granted in 2021:During
Weighted average fair value |
| $ | 9.60 |
|
Weighted average exercise price |
| $ | 10.00 |
|
Remaining average contractual term (years) |
|
| 9.9 |
|
15
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 for the three months ended March 31, 2021:2024, 48,406
|
|
| ||
|
|
| ||
|
|
| ||
|
|
The expected stock price volatility is based on RSUs were issued to non-employee directors. These awards are included in the historical volatility of the Company’s peer group’s stock price. The volatilities are estimated for a period of time equaltable above under both Granted and Released units. In addition to the expected term ofNonvested RSUs shown in 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 exercisetable above, there were 301,956 and is determined by considering the contractual terms, vesting schedule and expectations of future employee behavior. All of the stock option awards were out of money303,850 RSUs issued to non-employee directors outstanding as of March 31, 2021.2024 and December 31, 2023, respectively.
The weighted average grant date fair value of time-vested RSUs granted in March 2021 was $9.60 with a grant date fair value of $8.3 millionreleased during the three months ended March 31, 2021 and vest over 2024 was approximately $2.811.0 years.million.
The Company granted a target of 644,867 performance-based RSUs with a grant date fair value of $6.2 million duringDuring the three months ended March 31, 2021.2024, the Company granted 1,505,244 performance-based RSUs (“PSUs”), which, subject to achieving certain performance criteria, could result in the issuance of up to 2,257,866 shares of common stock (i.e., 150% of the number of PSUs granted). The 2021 performance-based RSUsPSUs were awarded to certain members of senior management in connection withand cliff vest at the achievementend of specific key financial metrics measured over a three-year period, and also vestsubject to the achievement of specific performance criteria measured over a three-yearsuch period. The number of 2021 performance-based RSUs thatPSUs which will ultimately vest is contingent upon the achievementrecipient continuing to be in the continuous service of these key financial metrics by the endCompany and related entities through the last day of year three.the performance period and that the Compensation Committee of the Board determines the performance criteria has been met and certifies the extent to which they have been met. The Company assesses the probability of achieving these metricsthe performance criteria on a quarterly basis. For these awards,In the Company recognizesfirst quarter of 2024, the fair value expense ratably overCompensation Committee of the Board approved the performance and vesting period. These awards are included above in RSUs Granted.criteria
15
for the performance period ended December 31, 2023 such that the percentage of PSUs that vested with respect to the target amount for the 2021 PSU grants was 100%.
As of March 31, 2024, total unrecognized compensation cost related to RSUs and PSUs was approximately $27.4 million, which is expected to be recognized over a weighted average period of approximately 2.3 years.
Share-Based Compensation Cost
Total share-based compensation cost recorded for employees, non-employees and members of the Board for the three months ended March 31, 20212024 and 20202023 was $1.0$3.3 million and $0.1$4.1 million, respectively, and included in general and administrative expenses on the condensed consolidated statements of operations. As of March 31, 2021 and December 31, 2020, total unrecognized compensation cost related to unvested shares, stock options and RSUs granted was approximately $15.1 million and $0.6 million, respectively.
7.10. Earnings per Share
The following table sets forth the computation of basic and diluted net incomeloss per share of common stock:
|
| For the three months ended |
| ||||||||||
|
| 2021 |
|
| 2020 |
| |||||||
|
| (in thousands) |
| ||||||||||
Net loss available to common stockholders |
| $ | (16,138 | ) |
| $ | (10,456 | ) | |||||
Weighted average common shares outstanding — Basic |
|
| 124,361 |
|
|
| 66,731 |
| |||||
Effect of dilutive securities: |
|
|
|
|
|
| |||||||
Common stock equivalents |
|
| 0 |
|
|
| 0 |
| |||||
Weighted average common shares outstanding — Diluted |
|
| 124,361 |
|
|
| 66,731 |
| |||||
Net loss per share available to common stockholders |
| $ | (0.13 | ) |
| $ | (0.16 | ) |
|
| For the Three Months |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
| (in thousands) |
| |||||
Net loss available to common stockholders |
| $ | (2,008 | ) |
| $ | (3,998 | ) |
Weighted average common shares outstanding — Basic and Diluted |
|
| 117,275 |
|
|
| 120,253 |
|
Net loss per share available to common stockholders — Basic and Diluted |
| $ | (0.02 | ) |
| $ | (0.03 | ) |
16
The following potential shares of common stock have been excluded from the computation of diluted earningsnet loss per share because their effect would have been antidilutive:
|
| As of March 31, |
|
| As of March 31, |
| |||||||||||
|
| 2021 |
|
| 2020 |
|
| 2024 |
|
| 2023 |
| |||||
|
| (in thousands) |
|
| (in thousands) |
| |||||||||||
Stock options |
| 126 |
| 0 |
|
|
| 1,306 |
|
|
| 1,306 |
| ||||
Ares warrants |
| 1,100 |
| 0 |
|
|
| 1,100 |
|
|
| 1,100 |
| ||||
Public and Private warrants |
| 17,333 |
| 0 |
|
|
| 17,333 |
|
|
| 17,333 |
| ||||
Series A redeemable preferred stock |
| 8,333 |
| 0 |
|
|
| 8,503 |
|
|
| 8,418 |
| ||||
Restricted share units |
| 1,511 |
| 184 |
| ||||||||||||
Convertible bonds (par value) |
| 0 |
| 51 |
| ||||||||||||
RSUs and PSUs |
|
| 5,287 |
|
|
| 4,582 |
| |||||||||
Ares Put Option |
| * |
|
| — |
|
|
| — |
|
| * |
|
* ReferSee Note 10 to description of this instrument in Note 8 below.the annual financial statements.
8.11. Fair Value Measurements and Financial Instruments
The fair value of cash and cash equivalents, restricted cash, andshort-term investments, and restricted cash with respect to bonds, trade receivables, accounts payable and other current liabilities approximated their carrying values as of March 31, 20212024 and December 31, 20202023 primarily due to the short-term maturity of these instruments. TheOn 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 March 31, 2024 and December 31, 2023 (Level 1 fair value measurement), the fair value of the Senior Notes was estimated at approximately $373.9 million and $391.8 million, respectively, compared to a gross carrying value of $450 million at both March 31, 2024 and December 31, 2023. The fair values of the other long-term debt approximated their respective carrying values as of March 31, 20212024 and December 31, 20202023 due to the frequency with which interest rates are reset based on changes in prevailing interest rates.
The Bonds (Series C) were presented in the consolidated balance sheets at amortized cost. The fair value of the Bonds (Series C)fuel futures contracts was $80.6 million as of December 31, 2020. The fair value measurements were classified as Level 1.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 $7.6$3.5 million and $7.4$3.4 million as of March 31, 20212024 and December 31, 2020,2023, 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 $0.2$0.1 million was recorded as a componentcomponents of interest and other financial expenses in the condensed consolidated statements of operations for the change in the fair value of the Contingent Considerationcontingent consideration for each of the three months ended March 31, 2024 and 2023, and approximately $0.02 million
16
and $(0.7) million of expenses (income) were recorded as components of other expenses, net in the condensed consolidated statements of operations for the three months ended March 31, 2021.2024 and 2023, respectively.
The Public Warrants (as defined in Note 12)public warrants to purchase the Company’s common stock (the “Public Warrants”), of which approximately 14.8 million were outstanding as of March 31, 2024, are measured at fair value at the end of each reporting period and amounted to $27.3$7.4 million and $18.1$16.3 million as of March 31, 20212024 and December 31, 2020,2023, respectively. The fair value methodology for the Public Warrants is categorized as Level 1. Approximately $9.2$9.0 million wasand $3.8 million were recorded as a componentcomponents of interest and other financial expensesincome in the condensed consolidated statements of operations for the change in the fair value of the Public Warrants for the three months ended March 31, 2021.2024 and 2023, respectively.
The Private Warrants (as defined in Note 12)private warrants to purchase the Company’s common stock (the “Private Warrants”), of which approximately 2.5 million were outstanding as of March 31, 2024, are measured at fair value at the end of each reporting period and amounted to $9.5$0.9 million and $6.7$2.5 million as of March 31, 20212024 and December 31, 2020,2023, 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:
|
| As of March 31, |
|
| March 31, |
| ||
Expected term (in years) |
| 4.73 |
|
|
| 1.7 |
| |
Expected dividend rate |
|
| 2.1 | % | ||||
Volatility |
| 32.3 | % |
|
| 48.3 | % | |
Risk-free interest rate |
| 0.85 | % |
|
| 4.7 | % | |
Strike price |
| $ | 11.50 |
|
| $ | 11.50 |
|
Approximately $2.8 million was recorded as a component of interest and other financial expenses in the consolidated statements of operations forFor the change in the fair value of the Private Warrants, approximately $1.5 million and $1.0 million were recorded as components of interest and other financial income in the condensed consolidated statements of operations for the three months ended March 31, 2021.2024 and 2023, respectively.
The Deferred Sharesfounders of Haymaker (as defined in Note 12)11 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 “Additional Deferred Shares”). The Additional Deferred Shares are measured at fair value at the end of each reporting period and amounted to $1.8$0.9 million and $1.6$1.3 million as of March 31, 20212024 and December 31, 2020,2023, respectively. The fair value methodology for the Additional Deferred Shares is categorized as Level 3 because inputs to the valuation methodology are unobservable and significant to the fair value
17
adjustment. The Additional 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:
|
| As of March 31, |
|
| March 31, |
| ||
Expected term (in years) |
| 6.17 |
|
|
| 3.2 |
| |
Volatility |
| 36.1 | % |
|
| 34.6 | % | |
Risk-free interest rate |
| 1.21 | % |
|
| 4.4 | % | |
Stock price |
| $ | 9.94 |
|
| $ | 5.70 |
|
Approximately $0.2 million was recorded as a component of interest and other financial expenses in the consolidated statements of operations forFor the change in the fair value of the Additional Deferred Shares, for the three months ended March 31, 2021.a
The Ares Put Option, which generally guarantees Ares a value of approximately $27.3 million at the end of February 2023 for the shares of common stock that the Company issued on the Merger Closing Date in consideration for its acquisition of equity in GPM, is measured at fair value at the end of each reporting period and amounted to $8.6pproximately $0.4 million and $9.8$0.1 million as of March 31, 2021 and December 31, 2020, 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:
|
| As of March 31, |
| |
Expected term (in years) |
| 1.91 |
| |
Volatility |
|
| 37.6 | % |
Risk-free interest rate |
|
| 0.15 | % |
Strike price |
| $ | 12.935 |
|
Approximately $1.2 million waswere 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 Ares Put Option for the three months ended March 31, 2021.2024 and 2023, respectively.
9.12. 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 operatedretail convenience stores, the Company owns the merchandise and fuel inventory and employs personnel to manage the store.
17
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 outside operators.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 sellingsubstantially all of GPM’s sites that sell fuel (both in the Retailretail and Wholesale segments)wholesale segments, at GPMP’s cost of fuel (currently including(including taxes and certain transportation) plus a fixed margin (4.5(currently 5.0 cents per gallon), and charges a fixed fee primarily to sites in the fleet fueling segment which are not supplied by GPMP (currently 5.0 cents per gallon prior to October 1, 2020 and effective October 1, 2020 through September 30, 2021, 5.0 cents per gallon) and the supply ofsold). GPMP also supplies fuel to a smalllimited number of independent outside operatorsdealers and bulk purchasers.
The “All Other” segment includes the results of non-reportable segments which do not meet both quantitative and qualitivequalitative criteria as defined under ASC 280, Segment Reporting.
The majority of general and administrative expenses, depreciation and amortization, net other expenses, net interest and other financingfinancial expenses, and income taxes are not allocated to the segments, as well asand minor other income items including intercompany operating leases.leases are not allocated to the segments.
18
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 USU.S. and substantially all of the Company’s assets were within the US.U.S.
Inter-segment transactions primarily included the distribution of fuel by GPMP to GPM and its subsidiaries sellingsubstantially all of GPM’s sites that sell fuel (both in the Retailretail and Wholesalewholesale segments). and charges by GPMP primarily to sites that sell fuel in the fleet fueling segment which are not supplied by GPMP. The effect of these inter-segment transactions was eliminated in the condensed consolidated financial statements.
For the three months ended March 31, 2021 |
| Retail |
|
| Wholesale |
|
| GPMP |
|
| All Other |
|
| Total |
| |||||||||||||||||||||||||||||
|
| (in thousands) |
|
| Retail |
|
| Wholesale |
|
| Fleet Fueling |
|
| GPMP |
|
| All Other |
|
| Total |
| |||||||||||||||||||||||
For the Three Months Ended March 31, 2024 | For the Three Months Ended March 31, 2024 | (in thousands) |
| |||||||||||||||||||||||||||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Fuel revenue |
| $ | 576,304 |
| $ | 525,488 |
| $ | 1,155 |
| $ | 0 |
| $ | 1,102,947 |
|
| $ | 824,428 |
|
| $ | 664,514 |
|
| $ | 132,193 |
|
| $ | 1,205 |
|
| $ | 8,992 |
|
| $ | 1,631,332 |
| ||||
Merchandise revenue |
| 359,281 |
| 0 |
| 0 |
| 0 |
| 359,281 |
|
|
| 414,655 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 414,655 |
| |||||||||
Other revenues, net |
|
| 16,977 |
|
|
| 4,939 |
|
|
| 255 |
|
|
| 0 |
|
|
| 22,171 |
|
|
| 16,679 |
|
|
| 6,858 |
|
|
| 2,385 |
|
|
| 207 |
|
|
| 338 |
|
|
| 26,467 |
|
Total revenues from external customers |
|
| 952,562 |
|
|
| 530,427 |
|
|
| 1,410 |
|
|
| 0 |
|
|
| 1,484,399 |
|
|
| 1,255,762 |
|
|
| 671,372 |
|
|
| 134,578 |
|
|
| 1,412 |
|
|
| 9,330 |
|
|
| 2,072,454 |
|
Inter-segment |
|
| 0 |
|
|
| 0 |
|
|
| 819,467 |
|
|
| 317 |
|
|
| 819,784 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,102,541 |
|
|
| 5,253 |
|
|
| 1,107,794 |
|
Total revenues from reportable segments |
|
| 952,562 |
|
|
| 530,427 |
|
|
| 820,877 |
|
|
| 317 |
|
|
| 2,304,183 |
| ||||||||||||||||||||||||
Operating income |
| 40,347 |
| 2,308 |
| 20,123 |
| 317 |
| 63,095 |
| |||||||||||||||||||||||||||||||||
Total revenues from segments |
|
| 1,255,762 |
|
|
| 671,372 |
|
|
| 134,578 |
|
|
| 1,103,953 |
|
|
| 14,583 |
|
|
| 3,180,248 |
| ||||||||||||||||||||
Operating income (loss) |
|
| 33,767 |
|
|
| 6,960 |
|
|
| 7,977 |
|
|
| 23,327 |
|
|
| (2 | ) |
|
| 72,029 |
| ||||||||||||||||||||
Interest and financial expenses, net |
|
|
|
|
|
|
| (3,841 | ) |
| 0 |
| (3,841 | ) |
|
|
|
|
|
|
|
|
|
|
| (6,528 | ) |
|
| — |
|
|
| (6,528 | ) | |||||||||
Income tax expense |
|
|
|
|
|
|
|
|
|
| (56 | ) |
| (56 | ) | |||||||||||||||||||||||||||||
Loss from equity investment |
|
|
|
|
|
|
|
|
|
| (6 | ) |
|
| (6 | ) | ||||||||||||||||||||||||||||
Net income from reportable segments |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 59,192 |
| ||||||||||||||||||||||||||||
Income from equity investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 22 |
|
|
| 22 |
| ||||||||||||||||||||||||
Net income from segments | Net income from segments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 65,523 |
|
For the three months ended March 31, 2020 |
| Retail |
|
| Wholesale |
|
| GPMP |
|
| All Other |
|
| Total |
| |||||||||||||||||||||||||||||
|
| (in thousands) |
|
| Retail |
|
| Wholesale |
|
| Fleet Fueling |
|
| GPMP |
|
| All Other |
|
| Total |
| |||||||||||||||||||||||
For the Three Months Ended March 31, 2023 | For the Three Months Ended March 31, 2023 | (in thousands) |
| |||||||||||||||||||||||||||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Fuel revenue |
| $ | 532,886 |
| $ | 28,938 |
| $ | 1,217 |
| $ | 0 |
| $ | 563,041 |
|
| $ | 843,473 |
|
| $ | 684,848 |
|
| $ | 127,494 |
|
| $ | 741 |
|
| $ | 5,108 |
|
| $ | 1,661,664 |
| ||||
Merchandise revenue |
| 323,679 |
| 0 |
| 0 |
| 0 |
| 323,679 |
|
|
| 400,408 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 400,408 |
| |||||||||
Other revenues, net |
|
| 11,700 |
|
|
| 1,283 |
|
|
| 215 |
|
|
| 0 |
|
|
| 13,198 |
|
|
| 18,555 |
|
|
| 6,491 |
|
|
| 951 |
|
|
| 170 |
|
|
| 257 |
|
|
| 26,424 |
|
Total revenues from external customers |
|
| 868,265 |
|
|
| 30,221 |
|
|
| 1,432 |
|
|
| 0 |
|
|
| 899,918 |
|
|
| 1,262,436 |
|
|
| 691,339 |
|
|
| 128,445 |
|
|
| 911 |
|
|
| 5,365 |
|
|
| 2,088,496 |
|
Inter-segment |
|
| 0 |
|
|
| 0 |
|
|
| 379,125 |
|
|
| 2,378 |
|
|
| 381,503 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,142,622 |
|
|
| 3,058 |
|
|
| 1,145,680 |
|
Total revenues from reportable segments |
|
| 868,265 |
|
|
| 30,221 |
|
|
| 380,557 |
|
|
| 2,378 |
|
|
| 1,281,421 |
| ||||||||||||||||||||||||
Total revenues from segments |
|
| 1,262,436 |
|
|
| 691,339 |
|
|
| 128,445 |
|
|
| 1,143,533 |
|
|
| 8,423 |
|
|
| 3,234,176 |
| ||||||||||||||||||||
Operating income |
| 21,411 |
| 278 |
| 8,786 |
| 2,378 |
| 32,853 |
|
|
| 41,631 |
|
|
| 7,550 |
|
|
| 8,424 |
|
|
| 22,622 |
|
|
| 324 |
|
|
| 80,551 |
| |||||||||
Interest and financial expenses, net |
|
|
|
|
|
|
| (847 | ) |
| 23 |
| (824 | ) |
|
|
|
|
|
|
|
|
|
|
| (5,250 | ) |
|
| — |
|
|
| (5,250 | ) | |||||||||
Income tax benefit |
|
|
|
|
|
|
|
|
|
| (162 | ) |
| (162 | ) | |||||||||||||||||||||||||||||
Loss from equity investment |
|
|
|
|
|
|
|
|
|
| (233 | ) |
|
| (233 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (36 | ) |
|
| (36 | ) | ||||||||
Net income from reportable segments |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 31,634 |
| ||||||||||||||||||||||||||||
Net income from segments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 75,265 |
|
18
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 ended |
|
| For the Three Months |
| |||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2024 |
|
| 2023 |
| |||||||||
|
| (in thousands) |
|
| (in thousands) |
| |||||||||||||||
Total revenues from reportable segments |
| $ | 2,304,183 |
| $ | 1,281,421 |
| ||||||||||||||
Other revenues, net |
| (43 | ) |
| (38 | ) | |||||||||||||||
Total revenues from segments |
| $ | 3,180,248 |
|
| $ | 3,234,176 |
| |||||||||||||
Elimination of inter-segment revenues |
|
| (819,784 | ) |
|
| (381,503 | ) |
|
| (1,107,794 | ) |
|
| (1,145,680 | ) | |||||
Total revenues |
| $ | 1,484,356 |
|
| $ | 899,880 |
|
| $ | 2,072,454 |
|
| $ | 2,088,496 |
|
19
A reconciliation of net income from reportable segments to net lossincome on the condensed consolidated statements of operations was as follows:
|
| For the three months ended |
|
| For the Three Months |
| |||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2024 |
|
| 2023 |
| |||||||||
|
| (in thousands) |
|
| (in thousands) |
| |||||||||||||||
Net income from reportable segments |
| $ | 59,192 |
| $ | 31,634 |
| ||||||||||||||
Net income from segments |
| $ | 65,523 |
|
| $ | 75,265 |
| |||||||||||||
Amounts not allocated to segments: |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Other revenues, net |
| (43 | ) |
| (38 | ) | |||||||||||||||
Store operating expenses |
| 577 |
| (892 | ) | ||||||||||||||||
Site operating expenses |
|
| (3,350 | ) |
|
| (2,677 | ) | |||||||||||||
General and administrative expenses |
| (26,002 | ) |
| (18,125 | ) |
|
| (41,197 | ) |
|
| (39,644 | ) | |||||||
Depreciation and amortization |
| (22,399 | ) |
| (15,228 | ) |
|
| (29,872 | ) |
|
| (26,557 | ) | |||||||
Other expenses, net |
| (1,672 | ) |
| (4,176 | ) |
|
| (2,476 | ) |
|
| (2,720 | ) | |||||||
Interest and other financial expenses, net |
| (25,093 | ) |
| (8,205 | ) | |||||||||||||||
Interest and other financial income (expenses), net |
|
| 4,071 |
|
|
| (8,352 | ) | |||||||||||||
Income tax benefit |
|
| 778 |
|
|
| 2,173 |
|
|
| 6,707 |
|
|
| 2,158 |
| |||||
Net loss |
| $ | (14,662 | ) |
| $ | (12,857 | ) |
| $ | (594 | ) |
| $ | (2,527 | ) |
10.13. Commitments and Contingencies
Environmental Liabilities and Contingencies
The Company is subject to certain federal and state environmental laws and regulations associated with convenience store sites whereat which it stores and sells fuel and other fuel products.products, as well as at owned and leased locations leased or subleased to dealers. As of March 31, 20212024 and December 31, 2020,2023, environmental obligations totaled $13.3$12.7 million and $13.5$13.4 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 whether thechanges in federal and/or state regulations in which the Company operates, and which deal with the environment, will be amended.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 policies and various state funds for the exposures totaled $5.4$7.1 million and $5.6$7.5 million as of March 31, 20212024 and December 31, 2020,2023, respectively, and were recorded as other current and non-current assets in the condensed consolidated balance sheets.
Asset Retirement ObligationsObligation
As part of the fuel operations at its operatedretail convenience stores, at most of the consignment dealer locations and at most of the other owned and leased locations leased to dealers, certain other 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 $53.6$85.7 million and $53.2$85.4 million at March 31, 20212024 and December 31, 2020,2023, respectively. The current portion of the asset retirement obligation is included in other current liabilities 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 due to the COVID-19 pandemic, the Company’s principal fuel suppliers have temporarily suspended (for periods that vary among the different suppliers) 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 March 31, 2021, the reduction in gallons sold did not affect the Company’s compliance with its commitments under the agreements with its principal suppliers.19
Legal Matters
20
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.
11.14. 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. Revision of Previously Issued Financial Statements15. Subsequent Events
SpeedyQ Acquisition
As ofOn April 9, 2024, the Merger Closing Date, there were 17.3 million warrants to purchase Haymaker common stock outstanding, consisting of 13.3 million public warrants (the “Public Warrants”) and 4Company acquired certain assets from a third-party, including 21 million private warrants (the “Private Warrants”). Pursuant to the warrant agreement as amended on the Merger Closing Date, each whole warrant to purchase one share of Haymaker common stock became a warrant to purchase one share of the Company’s common stock. In addition, following the Merger Closing Date, Haymaker’s founders 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 Company has adjusted its consolidated balance sheet as of December 31, 2020 in order to reflect its Public Warrants, Private Warrants and Deferred Shares as liability instruments measured at fair value rather than as equity instruments. The Company has evaluated the materiality of this adjustment and concluded it was not material to any of the prior periods presented and has elected to revise the previously issued financial statements contained within these interim financial statements for the periods impacted to correct the effect of this immaterial adjustment. As a result, the consolidated balance sheet as of December 31, 2020 included as comparative figures within these interim financial statements was revised as follows:
|
| As of December 31, 2020 |
| ||||||||||||||||
|
| As Previously Reported |
|
| Adjustment |
|
| As Revised |
| ||||||||||
|
| (in thousands) |
| ||||||||||||||||
Other non-current liabilities |
| $ | 70,166 |
|
| $ | 26,455 |
|
| $ | 96,621 |
| |||||||
Total liabilities |
|
| 2,421,934 |
|
|
| 26,455 |
|
|
| 2,448,389 |
| |||||||
Additional paid-in capital |
|
| 239,081 |
|
|
| (26,978 | ) |
|
| 212,103 |
| |||||||
Accumulated deficit |
|
| (30,176 | ) |
|
| 523 |
|
|
| (29,653 | ) | |||||||
Total equity |
|
| 217,875 |
|
|
| (26,455 | ) |
|
| 191,420 |
|
13. Significant Events
COVID-19 – Coronavirus
An outbreak of coronavirus (“COVID-19”) began in China in December 2019 and subsequently spread throughout the world. On March 11, 2020, the World Health Organization declared COVID-19 as a pandemic. Throughout the pandemic, theSpeedyQ Markets convenience stores and independent outside operations have continuedeight additional landbank sites located in Michigan, pursuant to operate and have remained open to the public because convenience store operations and gas stations have been deemed an essential business by numerous federal and state authorities, including the US Department of Homeland Security, and therefore are exempt from manya purchase agreement entered into on November 21, 2023 (the “Purchase Agreement”). The consideration at closing was approximately $52.7 million as adjusted in accordance with terms of the closure orders that were, or are currently, imposed on US businesses.
21
Potential Acquisition
On March 8, 2021, the Company entered into an agreement with third parties for the acquisition of approximately 60 self-operated convenience stores and gas stations located in the Midwestern US for consideration of approximately $102 millionPurchase Agreement, plus the value of cash and inventory and cash in the stores on the closing date. The Company intends to finance a portiondate, of which $6.0 million was financed with the consideration from its own sourcesCapital One Line of Credit and two US real estate funds that are unrelated third parties (the “Real Estate Funds”) will pay the purchase agreementapproximately $45.0 million was paid for the seller’s real estate as described below.
At the closing of the transaction, (i) the Company will purchase and assume, among other things, certain vendor agreements, fee simple ownership in some19 of the sites, equipment in the sites, inventory and goodwill with regard to the acquired activity; and (ii) according to agreements between the Company and eachproperties by an affiliate of theOak Street Real Estate Funds, in consideration of approximately $92 million,Capital Net Lease Property Fund, LP (including its affiliates, “Oak Street”) under the Real Estate Funds will purchase the fee simple ownership in most of the sites. Such sites will be leased to the Company under customary lease terms. In addition, one of the Real Estate Funds will grant the Company an option to purchase the fee simple ownership in 26 of the sites following an initial four-year period for consideration as was agreed between the parties.
The purchase agreement includes the sellers’ undertaking with regard to indemnification subject to certain scope, time and amounts limitations as determined in the purchase agreement.
The closing of the transaction is subject to fulfillment of conditions precedent which includes, among other things, obtaining the approvals required by law, including permits and licenses relating to the acquired activity. Subject to the above, the closing is planned to occur during the second quarter of 2021. There is no certainty that the transaction will close.
14. Subsequent Events
Amendment to Credit Facilities
On April 30, 2021, GPM entered into a sixth amendment (the “Sixth Amendment”) to the Ares Credit Agreement. The Sixth Amendment amended the Ares Credit Agreement as follows: the definition of Consolidated EBITDA was amended to increase the amount of fees, expenses and other charges related to Permitted Acquisitions (as defined in the Ares Credit Agreement) that can be added back when calculating Consolidated EBITDA; the definition of Consolidated Total Debt was amended to increase the amount of GPM’s cash and cash equivalents on hand deducted from GPM’s indebtedness when calculating Consolidated Total Debt; various changes were made to facilitate potential new equipment and real estate financings from M&T Bank; certain permitted debt baskets were increased to allow GPM to have more flexibility in its operations and the financial statement and budget delivery requirements were updated primarily to reflect that GPM currently owns 99.71% of GPMP.
On April 30, 2021, GPM entered into a fourth amendment to its credit agreement, dated February 28, 2020, by and among GPM, and certain of its subsidiaries as borrowers and guarantors, the lenders from time to time party thereto and PNC Bank, National Association, as lender and as agent (the “PNC Credit Agreement”). This amendment effected substantially similar changes to the PNC Credit Agreement as those made by the Sixth Amendment to the Ares Credit Agreement described above.
Standby Real Estate Program
On May 3, 2021, GPM entered into a standby real estate purchase, designation and lease program agreement (the “Program Agreement”) with Oak Street Real Estate Capital Net Lease Property Fund, LP (“Oak Street”)(as further described in Note 8 to the annual financial statements). PursuantAt the closing, pursuant to the Program Agreement, Oak Street has agreed to purchase, subject to the conditions contained in the Program Agreement, up to $1.0 billion of convenience store and gas station real property, including in connection with purchase agreements that GPM or an affiliate thereof, may from time to time enter into to acquire convenience stores and gas stations from third parties (each, a “Property”). Pursuant to the Program Agreement, upon any acquisition of a Property by Oak Street, or an affiliate thereof, GPM, or an affiliate thereof, would enterCompany entered into a triple-netmaster lease agreement with Oak Street or such affiliate pursuant to which GPM or such affiliate would lease such Property fromfor the sites Oak Street or such affiliate based upon commercialacquired under customary lease terms. The Company leases one site from the seller, for which the seller received a put right to require the Company to purchase the site and the Company received a call right to require the seller to sell the site, both for a purchase price of $7.0 million, subject to terms containedset forth in the Program Agreement. The purchase price for any Property would similarly be subject to commercial terms agreed upon by GPM and Oak Street in the Program Agreement. The Program Agreement has a one-year term, during which GPM may not sell or designate any Property pursuant to a sale-leaseback or similar transaction without first offering such Property to Oak Street in accordance with the terms and conditions of the Program Agreement. Certain Properties specified by GPM are not subject to the foregoing right of first offer, and the Program Agreement does not obligate GPM to sell any Property, or acquire any property from a third party for purposes of its sale, to Oak Street, unless GPM elects, in its sole discretion, to enter into a sale leaseback (or similar transaction) governed by the ProgramPurchase Agreement.
2220
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, 20202023 (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 for the purpose of facilitating the business combination, which we refer to as the Merger Transaction, of Haymaker Acquisition Corp. II, a Delaware corporation (“Haymaker”), and Arko Holdings Ltd., a company organized under the laws of the State of Israel, which we refer to as Arko Holdings.2020. Our shares of common stock, $0.0001 par value per share (“common stock”), and publicly-traded warrants were registered to tradeare listed on the Nasdaq Stock Market on December 22, 2020(“Nasdaq”) and commenced trading on December 23, 2020,trade under the symbols “ARKO” and our common stock is dual-listed on the Tel Aviv Stock Exchange (“TASE”). The main activity of Arko Holdings prior to the foregoing business combination was its holding, through its subsidiaries, of controlling rights in“ARKOW,” respectively. Our wholly owned subsidiary, GPM Investments, LLC, a Delaware limited liability company that was formed on June 12, 2002, which we refer to as GPM, which is our primary operating entity and upon the consummation of the Merger Transaction became our indirect wholly owned subsidiary. Arko Holdings’ Bonds (Series C) had traded on the TASE since June 28, 2016 and were fully redeemed on March 30, 2021; consequently, Arko Holdings is no longer a reporting entity under Israeli securities laws.entity.
Based in Richmond, VA, we are a leading independent convenience store operator and, as of March 31, 2021,2024, we were the seventhsixth largest convenience store chain in the United States (“U.S.”) ranked by store count, operating 1,3241,540 retail convenience stores. As of March 31, 2021,2024, we operated the stores under 17more 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®, Speedy’s, Town Star, Uncle’s, Village Pantry® and Young’s. As of March 31, 2021,2024, we also supplied fuel to 1,625 dealer-operated gas stations.1,816 dealers and operated 296 cardlock locations (unstaffed fueling locations). We are well diversified geographically and as of March 31, 2021,2024, operated across 33 states andin the District of Columbia and more than 30 states in the Mid-Atlantic, Midwestern, Northeastern, Southeastern and Southwestern United States.U.S.
We deriveOur primary business is the operation of convenience stores, and we generate a significant portion of our revenue from the retail sale of products and fuel at our stores. Consequently, our retail stores generate a large proportion of our profitability. We focus our marketing and themerchandising initiatives at our retail stores on offering our customers an assortment of products offered in our stores, as well as the wholesale distribution of fuel.with an attractive value proposition. Our retail stores offeroffering includes 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 250 company-operated stores. The foodservice category includesapproximately 1,260 stores, which include hot and fresh grab-n-go foods, deli, fried chicken, bakery, pizza, roller grill items and other prepared foods. In the first quarter of 2024, we launched an extensive new pizza program that offers private label pizza, at an attractive value of $4.99 for enrolled loyalty members. We currently offer a value food menu consisting of items suchour private label pizza at approximately 1,085 stores as take-and-bake from the freezer, and as fresh and hot dogs and chicken sandwiches. In addition, we operate over 70 brandedpizza either whole or by the slice at approximately 225 stores. We supplement our foodservice offering with approximately 130 quick service restaurants consisting of major national brands.brand restaurants. Relevant and delicious food offerings are a key strategic priority for us, and we expect to maintain a high degree of focus on frozen grab-n-go and enhanced hot food capabilities. 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 10095 of our locations.
We had approximated 2.09 million enrolled members in our fas REWARDS® loyalty program at the end of the first quarter of 2024, representing an increase of 54.1% from the end of the first quarter of 2023. Our fas REWARDS® loyalty program is available in the majority of our stores and offers enrolled loyalty members in store exclusive promotional pricing, in-app member only HOT deals not available in stores, as well as the ability to earn points that can be redeemed for either fuel or merchandise savings. Other in-app features include order and delivery, age verified offers on tobacco and alcohol, and a store locator with current gas prices at GPM stores nearby to members.
We also generate revenue from our 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 provide stable, ratable cash flows that, together with free cash flow from our retail segment, can be deployed to pursue accretive acquisitions and investments in our retail stores. The wholesale segment adds significant fuel volumes to our robust retail fuel sales, which we believe enhances our purchasing power for our entire platform, including our retail segment, and improves our competitiveness as an acquirer of choice.
Our reportable segments are described below.
21
Retail Segment
TheOur 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.
Wholesale Segment
TheOur wholesale segment supplies fuel to independent dealers, sub-wholesalers and bulk purchasers, on either a consignment or 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 operators.dealers. For cost plus arrangements, we sell fuel to dealers and bulk and spot purchasers on a fixed-fee basis. The sales price to the dealer is determined according to the terms of the relevant agreement with the dealer, which typically reflects our total fuel costs plus the cost of transportation and a margin, with us generally retaining the prompt pay discounts and rebates.
Fleet Fueling Segment
Our 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 nationwide network of fueling sites.
GPMP Segment
TheOur GPMP segment includesengages in the operationswholesale distribution of fuel to substantially all of our sites that sell fuel in the retail and wholesale segments, as well as to a limited number of third-party dealers and bulk purchasers. GPM Petroleum LP (“GPMP”), which primarily sells and supplies fuel to GPM and its fuel-selling subsidiaries (both in the Retail and Wholesale segments) at GPMP’s cost of fuel (currently including(including taxes and certain transportation) plus a fixed margin.margin and charges a fixed fee primarily to sites in the fleet fueling segment which are not supplied by GPMP.
23
Trends Impacting Our Business
We have achieved strong store growth over the last several years,decade, driven primarily by implementing a highly successful acquisition strategy. Fromstrategy, inclusive of 25 completed acquisitions from 2013 through March 31, 2021,2024. Recently, on March 1, 2023, we completed 18 acquisitions. As a result, our store count has grown from 320 sites in 2011 to 2,949 sites as of March 31, 2021, of which 1,324 were operated as retailacquired 135 convenience stores and 1,625gas stations, 181 dealer locations, a commercial, government, and industrial business, and certain distribution and transportation assets from Transit Energy Group, LLC (the “TEG Acquisition”). On June 6, 2023, we completed our acquisition of 24 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 from WTG Fuels Holdings, LLC (the “WTG Acquisition”). On August 15, 2023, we acquired seven Speedy’s convenience stores located in Arkansas and Oklahoma, which were previously locations operated by a dealer to which we supplied fuel to independently operated fueling stations. These(the “Speedy’s Acquisition” and, together with the TEG Acquisition and the WTG Acquisition, the “2023 Acquisitions”). Our strategic acquisitions have had, and we expect willmay continue to have, a significant impact on our reported results and can make period to period comparisons of results difficult. We completedbelieve our acquisition of the business of Empire Petroleum Partners, LLC, which business we refer to as Empire, in October 2020, which was significant and added 84 retail sites and 1,453 wholesale sites to our business (the “Empire Acquisition”). The Empire Acquisition was our only business acquisition in 2020. With our achievement of significant size and scale we have added an additional focus ofaids our efforts to successfully deploy our organic growth including implementing company-wide marketing and merchandising initiatives,strategies in our acquired assets, which we believeanticipate will result in significant value accretion to all the assets we have acquired. We believe that this complementary strategy will help further our growth through both acquisitions and organically and improve our results of operations.accretion.
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 ended |
|
| For the Three Months |
| |||||||||||
Retail Segment |
| 2021 |
|
| 2020 |
|
| 2024 |
|
| 2023 |
| |||||
Number of sites at beginning of period |
| 1,330 |
| 1,272 |
|
|
| 1,543 |
|
|
| 1,404 |
| ||||
Company-controlled sites converted to consignment |
| — |
| (1 | ) | ||||||||||||
Acquired sites |
|
| — |
|
|
| 135 |
| |||||||||
Newly opened or reopened sites |
|
| 1 |
|
|
| 1 |
| |||||||||
Company-controlled sites converted to consignment |
|
| — |
|
|
| (5 | ) | |||||||||
Closed, relocated or divested sites |
|
| (6 | ) |
|
| — |
|
|
| (4 | ) |
|
| (4 | ) | |
Number of sites at end of period |
|
| 1,324 |
|
|
| 1,271 |
|
|
| 1,540 |
|
|
| 1,531 |
|
|
| For the three months ended |
| ||||||
Wholesale Segment |
| 2021 |
|
| 2020 |
| |||
Number of sites at beginning of period |
|
| 1,614 |
|
|
| 128 |
| |
Newly opened or reopened sites |
|
| 14 |
|
|
| — |
| |
Consignment locations or independent and lessee dealers |
|
| — |
|
|
| 1 |
| |
Closed, relocated or divested sites |
|
| (3 | ) |
|
| (1 | ) | |
Number of sites at end of period |
|
| 1,625 |
|
|
| 128 |
|
There has been an ongoing trend in22
|
| For the Three Months |
| |||||
Wholesale Segment 1 |
| 2024 |
|
| 2023 |
| ||
Number of sites at beginning of period |
|
| 1,825 |
|
|
| 1,674 |
|
Acquired sites |
|
| — |
|
|
| 192 |
|
Newly opened or reopened sites 2 |
|
| 9 |
|
|
| 7 |
|
Consignment or fuel supply locations converted |
|
| — |
|
|
| 5 |
|
Closed, relocated or divested sites |
|
| (18 | ) |
|
| (26 | ) |
Number of sites at end of period |
|
| 1,816 |
|
|
| 1,852 |
|
1 Excludes bulk and spot purchasers.
2 Includes all signed fuel supply agreements irrespective of fuel distribution commencement date.
|
| For the Three Months |
| |||||
Fleet Fueling Segment |
| 2024 |
|
| 2023 |
| ||
Number of sites at beginning of period |
|
| 298 |
|
|
| 183 |
|
Closed, relocated or divested sites |
|
| (2 | ) |
|
| — |
|
Number of sites at end of period |
|
| 296 |
|
|
| 183 |
|
In recent years, the convenience store industry has focused on increasing and improving in-store foodservice offerings, including fresh foods, quick service restaurants orand 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 foodservice sales have been negatively impacted during the COVID-19 pandemic, we believe this trend will reverse when the effects of the pandemic subside.sales. 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 offer a value food menu consisting of items such as hot dogs and chicken sandwiches. We have historically relied upon a limited number of franchised quick service restaurants and in-store delis to drive customer traffic rather than other foodservice offerings.traffic. 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,the first quarter of 2024, we believe that continued investment inlaunched an extensive 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.pizza program, as described above under “Overview.”
Our operationsresults 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 were recently impacted by COVID-19, and the fuel margins we realize on those sales to remain stable, theseThese fuel margins can change rapidly asbecause they are influenced by many factors including: the pricewholesale cost of refined products;fuel; interruptions in supply caused by severe weather; severesupply chain disruptions; refinery mechanical failures for an extended period of time;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 alongon wholesale fuel cost changes 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 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. Depending on future market and geopolitical conditions, the supply of fuel, including diesel fuel in particular, may become constrained. Accordingly, we maintain terminal storage of diesel fuel for short-term supply needs for our fleet fueling sites.
24
We also operate in a highly competitive retail convenience market that includes businesses with operations and services that are similar to those that are provided by us. 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 competitive position.we provide. We believe that convenience stores managed by individual operators who offer branded or non-branded fuel are also significant competitors in the local markets in which we operate. Often, operators of both chains and individual stores compete by selling unbranded fuel at lower retail prices relative to 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.
Business HighlightsWe believe that we have a significant opportunity to increase our sales and profitability by continuing to execute on our organic and inorganic strategies, which principally seek to improve the performance of current stores through enhanced offerings to meet our customers’ needs, and growing our store base in existing and contiguous markets through acquisitions.
The Empire Acquisition contributed to the increase in our results23
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 improvedfavorable climate and seasonal buying patterns of our customers. 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 months ended March 31, 20212024 and 20202023
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.
COVID-19
An outbreak of coronavirus (“COVID-19”) began in China in December 2019 All figures for fuel contribution and subsequently spread throughout the world. On March 11, 2020, the World Health Organization declared COVID-19 as a pandemic. Throughout the pandemic, our convenience stores and independent outside operations have continued to operate and have remained open to the public because convenience store operations and gas stations have been deemed an essential business by numerous federal and state authorities, including the U.S. Department of Homeland Security, and therefore are exempt from many of the closure orders that were, or are currently, imposed on U.S. businesses.
The COVID-19 pandemic has generally impacted our results of operations positively, principally due to the significant increase in fuel margin which more than offset a reduction inper gallon exclude the numberestimated fixed margin or fixed fee paid to GPMP for the cost of gallons sold at gas stations as a result of the pandemic. Since the beginning of the first quarter of 2021, we have seen an increase in fuel volume as vaccinations have become available and COVID-19 cases have decreased in many areas. Businesses have continued to re-open, and customer traffic has increased.(intercompany charges by GPMP).
Consolidated Results
The Merger Transaction was accounted for as a reverse recapitalization. Under this method of accounting, Haymaker was treated as the “acquired” company and Arko Holdings was considered the accounting acquirer for accounting purposes. Because Arko Holdings was deemed the accounting acquirer, upon the consummation of the Merger Transaction, the historical financial statements of Arko Holdings became the historical financial statements of the combined company. As a result, the financial statements included in this Quarterly Report on Form 10-Q and discussed herein reflect the historical operating results of Arko Holdings prior to December 22, 2020, which was the date on which the Merger Transaction closed (the “Merger Closing Date”) and our combined results, including those of Haymaker, following the Merger Closing Date.
25
The table below shows our consolidated results for the three months ended March 31, 20212024 and 2020,2023, together with certain key metrics.
|
| For the Three Months |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Revenues: |
| (in thousands) |
| |||||
Fuel revenue |
| $ | 1,631,332 |
|
| $ | 1,661,664 |
|
Merchandise revenue |
|
| 414,655 |
|
|
| 400,408 |
|
Other revenues, net |
|
| 26,467 |
|
|
| 26,424 |
|
Total revenues |
|
| 2,072,454 |
|
|
| 2,088,496 |
|
Operating expenses: |
|
|
|
|
|
| ||
Fuel costs |
|
| 1,502,302 |
|
|
| 1,537,882 |
|
Merchandise costs |
|
| 279,737 |
|
|
| 277,443 |
|
Site operating expenses |
|
| 218,931 |
|
|
| 192,683 |
|
General and administrative expenses |
|
| 42,158 |
|
|
| 40,416 |
|
Depreciation and amortization |
|
| 31,716 |
|
|
| 28,399 |
|
Total operating expenses |
|
| 2,074,844 |
|
|
| 2,076,823 |
|
Other expenses, net |
|
| 2,476 |
|
|
| 2,720 |
|
Operating (loss) income |
|
| (4,866 | ) |
|
| 8,953 |
|
Interest and other financial expenses, net |
|
| (2,457 | ) |
|
| (13,602 | ) |
Loss before income taxes |
|
| (7,323 | ) |
|
| (4,649 | ) |
Income tax benefit |
|
| 6,707 |
|
|
| 2,158 |
|
Income (loss) from equity investment |
|
| 22 |
|
|
| (36 | ) |
Net loss |
| $ | (594 | ) |
| $ | (2,527 | ) |
Less: Net income attributable to non-controlling interests |
|
| — |
|
|
| 53 |
|
Net loss attributable to ARKO Corp. |
| $ | (594 | ) |
| $ | (2,580 | ) |
Series A redeemable preferred stock dividends |
|
| (1,414 | ) |
|
| (1,418 | ) |
Net loss attributable to common shareholders |
| $ | (2,008 | ) |
| $ | (3,998 | ) |
Fuel gallons sold |
|
| 519,313 |
|
|
| 503,260 |
|
Fuel margin, cents per gallon 1 |
|
| 24.8 |
|
|
| 24.6 |
|
Merchandise contribution 2 |
| $ | 134,918 |
|
| $ | 122,965 |
|
Merchandise margin 3 |
|
| 32.5 | % |
|
| 30.7 | % |
Adjusted EBITDA 4 |
| $ | 36,649 |
|
| $ | 47,484 |
|
|
| For the three months ended |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Revenues: |
| (in thousands) |
| |||||
Fuel revenue |
| $ | 1,102,947 |
|
| $ | 563,041 |
|
Merchandise revenue |
|
| 359,281 |
|
|
| 323,679 |
|
Other revenues, net |
|
| 22,128 |
|
|
| 13,160 |
|
Total revenues |
|
| 1,484,356 |
|
|
| 899,880 |
|
Operating expenses: |
|
|
|
|
|
| ||
Fuel costs |
|
| 1,012,798 |
|
|
| 499,803 |
|
Merchandise costs |
|
| 260,754 |
|
|
| 239,091 |
|
Store operating expenses |
|
| 144,938 |
|
|
| 128,830 |
|
General and administrative |
|
| 26,713 |
|
|
| 18,893 |
|
Depreciation and amortization |
|
| 24,242 |
|
|
| 17,071 |
|
Total operating expenses |
|
| 1,469,445 |
|
|
| 903,688 |
|
Other expenses, net |
|
| 1,672 |
|
|
| 4,176 |
|
Operating income (loss) |
|
| 13,239 |
|
|
| (7,984 | ) |
Interest and other financial expenses, net |
|
| (28,617 | ) |
|
| (6,651 | ) |
Loss before income taxes |
|
| (15,378 | ) |
|
| (14,635 | ) |
Income tax benefit |
|
| 722 |
|
|
| 2,011 |
|
Loss from equity investment |
|
| (6 | ) |
|
| (233 | ) |
Net loss |
| $ | (14,662 | ) |
| $ | (12,857 | ) |
Less: Net income (loss) attributable to non-controlling |
|
| 74 |
|
|
| (2,401 | ) |
Net loss attributable to ARKO Corp. |
| $ | (14,736 | ) |
| $ | (10,456 | ) |
Series A redeemable preferred stock dividends |
|
| (1,402 | ) |
|
|
| |
Net loss attributable to common shareholders |
| $ | (16,138 | ) |
|
|
| |
Fuel gallons sold |
|
| 448,315 |
|
|
| 248,699 |
|
Fuel margin, cents per gallon1 |
|
| 20.1 |
|
|
| 25.4 |
|
Merchandise contribution2 |
|
| 98,527 |
|
|
| 84,588 |
|
Merchandise margin3 |
|
| 27.4 | % |
|
| 26.1 | % |
Adjusted EBITDA4 |
|
| 42,303 |
|
|
| 16,934 |
|
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.reconciliation to net income (loss).
24
Three Months Ended March 31, 20212024 versus Three Months Ended March 31, 20202023
For the three months ended March 31, 2021,2024, fuel revenue increaseddecreased by $539.9$30.3 million, or 95.9%1.8%, compared to the first quarter of 2020.2023. The increasedecrease in fuel revenue was attributable primarily to a decrease in the average price of fuel compared to the first quarter of 2023 and fewer gallons sold at same stores in the first quarter of 2024 compared to the first quarter of 2023, which was partially offset by incremental gallons sold related to the Empire Acquisition, which was partially offset by fewer gallons sold in the first quarter of 2021 primarily due to the COVID-19 pandemic, as the pandemic did not have a significant impact on our results until the second half of March 2020.2023 Acquisitions.
For the three months ended March 31, 2021,2024, merchandise revenue increased by $35.6$14.2 million, or 11.0%3.6%, compared to the first quarter of 20202023, primarily due to anthe 2023 Acquisitions. Offsetting this increase was a decrease in same store merchandise revenues and a decrease in merchandise revenue from underperforming retail stores that we closed or converted to dealers.
For the three months ended March 31, 2024, other revenue was consistent with the first quarter of 2023, primarily due to additional revenue from the 2023 Acquisitions, which was offset by the regulatory state-wide elimination of Virginia skill gaming machines income.
For the three months ended March 31, 2024, total operating expenses decreased by $2.0 million compared to the first quarter of 2023. Fuel costs decreased $35.6 million, or 2.3%, compared to the first quarter of 2023 due to both fewer gallons sold and a lower average cost of fuel on a same store basis, which were partially offset by incremental gallons related to the 2023 Acquisitions. Merchandise costs increased $2.3 million, or 0.8%, compared to the first quarter of 2023, primarily due to increased costs related to the 2023 Acquisitions, partially offset by a decrease in same store merchandise sales and a decrease in merchandise costs from underperforming retail stores that we closed or converted to dealers. For the Empire Acquisition.three months ended March 31, 2024, site operating expenses increased $26.2 million, or 13.6%, compared to the first quarter of 2023 due to incremental expenses as a result of the 2023 Acquisitions and an increase in expenses at same stores, including higher personnel costs offset by lower credit card fees.
For the three months ended March 31, 2021, other revenue2024, general and administrative expenses increased by $9.0$1.7 million, or 68.1%4.3%, compared to the first quarter of 20202023, primarily related to the Empire Acquisition and increased income from lottery commissions and temporary allowance for gaming machines in Virginia.
26
For the three months ended March 31, 2021, total operating expenses increased by $565.8 million, or 62.6%, compared to the first quarter of 2020. Fuel costs increased $513.0 million, or 102.6%, compared to the first quarter of 2020 due to fuel sold at a higher average cost and higher volumes. Merchandise costs increased $21.7 million, or 9.1%, compared to the first quarter of 2020, primarily due to the Empire Acquisition as well as a corresponding increase in same store merchandise sales. For the three months ended March 31, 2021, store operating expenses increased $16.1 million, or 12.5%, compared to the first quarter of 2020 due to incremental expenses coming fromassociated with the Empire Acquisition2023 Acquisitions, annual wage increases and consulting support for the development of our multi-year transformation plan, partially offset by a slight increasedecrease of $0.7 million in expenses at same stores.share-based compensation expense and lower incentive accruals.
For the three months ended March 31, 2021, general2024, depreciation and administrativeamortization expenses increased $7.8$3.3 million, or 41.4%11.7%, compared to the first quarter of 2020,2023 primarily due to those expenses associatedassets acquired in the previous twelve-month period, largely in connection with the acquired Empire business, annual wage increases2023 Acquisitions.
For the three months ended March 31, 2024, other expenses, net decreased by $0.2 million, compared to the first quarter of 2023 primarily due to lower acquisition costs which were partially offset by greater losses on disposal of assets and stock compensation expenses.impairment charges in the first quarter of 2024.
For the three months ended March 31, 2024, there was an operating loss of $4.9 million compared to operating income of $9.0 million for the three months ended March 31, 2023. The decrease in operating income was primarily due to reduced fuel contribution at same stores, wholesale sites not part of the 2023 Acquisitions (the “comparable wholesale sites”) and fleet fueling sites not part of the 2023 Acquisitions, and an increase in site operating expenses at same stores, which was partially offset by incremental income from the 2023 Acquisitions and an increase in merchandise contribution at same stores.
For the three months ended March 31, 2024, interest and other financial expenses, net decreased by $11.1 million compared to the first quarter of 2023, primarily related to an increase of $6.0 million in income recorded in the first quarter of 2024 compared to the prior year period for fair value adjustments related to the Public Warrants, Private Warrants and Additional Deferred Shares (each as defined in Note 11 to the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q) and approximately $9.2 million recorded as financial income related to the issuance of the First Installment Shares as payment of deferred consideration and the settlement of deferred consideration related to the TEG Acquisition, which was partially offset by higher average outstanding debt balances, a higher average interest rate for the first quarter of 2024 and higher interest expenses related to financial liabilities.
For the three months ended March 31, 2024, income tax benefit was $6.7 million compared to income tax benefit of $2.2 million for the three months ended March 31, 2023.
For the three months ended March 31, 2024 and 2023, net loss attributable to the Company was $0.6 million and $2.6 million, respectively.
For the three months ended March 31, 2021, depreciation and amortization expenses increased $7.2 million, or 42.0%, compared to the first quarter of 2020 primarily due to assets acquired in the previous twelve month period, largely related to the Empire Acquisition.
For the three months ended March 31, 2021, other expenses, net decreased by $2.52024, Adjusted EBITDA was $36.6 million compared to the first quarter of 2020 primarily due to a $0.9 million decrease in acquisition costs and a $2.0 million reduction in losses on disposal of assets and impairment charges in 2021.
Operating income was $13.2$47.5 million for the three months ended March 31, 2021, compared to an operating loss of $8.0 million for the first quarter of 2020.2023. The increase wasdecrease resulted primarily due to strong fuel and merchandise results along with incremental income from the Empire Acquisition, partially offset by an increase in general and administrative, depreciation and amortization expenses.
For the three months ended March 31, 2021, interest and other financing expenses, net increased by $22.0 million compared to the first quarter of 2020 primarily related to higher interest expense from greater debt outstanding in 2021, $4.5 million additional interest for the early redemption of the Bonds (Series C), $12.1 million for interest expense related to fair value adjustments for the Public Warrants, Private Warrants and Deferred Shares and a net period-over-period decrease in foreign currency gains recorded of $1.8 million.
For the three months ended March 31, 2021, the income tax benefit was $0.7 million compared to $2.0 million in the three months ended March 31, 2020.
Net income (loss) attributable to non-controlling interests primarily represented minority interests prior to the Merger Closing Date.
For the three months ended March 31, 2021, net loss attributable to the Company was $14.7 million compared to $10.5 million in the three months ended March 31, 2020.
For the three months ended March 31, 2021, Adjusted EBITDA was $42.3 million compared to $16.9 million for the three months ended March 31, 2020. The Empire Acquisition contributed approximately $13$6.0 million of incremental Adjusted EBITDA for the first quarterlower fuel contribution and regulatory state-wide elimination of 2021. Increased merchandise contribution at same stores also positively impacted 2021. Additionally, although the impact of the COVID-19 pandemic reduced gallons sold in the first quarter of 2021Virginia skill gaming machines income as compared to the first quarter of 2020, the significant increase in fuel margin compared to the same period in 2020 contributed to increased Adjusted EBITDA in the first quarter of 2021. These increases were partially offset by an increase inwell as higher general and administrative expenses to support the Empire Acquisition.and
2725
same store site operating expenses, partially offset by incremental Adjusted EBITDA from the 2023 Acquisitions and an increase in same store merchandise contribution. Refer to “Use of Non-GAAP Measures” below for discussion of this non-GAAP performance measure and related reconciliation to net loss.
Segment Results
Retail Segment
The table below shows the results of the Retailretail segment for the three months ended March 31, 20212024 and 2020,2023, together with certain key metrics for the segment.
|
| For the three months ended March 31, |
|
| For the Three Months |
| ||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2024 |
|
| 2023 |
| ||||||||
Revenues: |
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||
Fuel revenue |
| $ | 576,304 |
|
| $ | 532,886 |
|
| $ | 824,428 |
|
| $ | 843,473 |
| ||||
Merchandise revenue |
| 359,281 |
| 323,679 |
|
|
| 414,655 |
|
|
| 400,408 |
| |||||||
Other revenues, net |
|
| 16,977 |
|
|
| 11,700 |
|
|
| 16,679 |
|
|
| 18,555 |
| ||||
Total revenues |
| 952,562 |
| 868,265 |
|
|
| 1,255,762 |
|
|
| 1,262,436 |
| |||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Fuel costs |
| 515,136 |
| 481,751 |
|
|
| 744,241 |
|
|
| 767,808 |
| |||||||
Merchandise costs |
| 260,754 |
| 239,091 |
|
|
| 279,737 |
|
|
| 277,443 |
| |||||||
Store operating expenses |
|
| 136,325 |
|
|
| 126,012 |
| ||||||||||||
Site operating expenses |
|
| 198,017 |
|
|
| 175,554 |
| ||||||||||||
Total operating expenses |
|
| 912,215 |
|
|
| 846,854 |
|
|
| 1,221,995 |
|
|
| 1,220,805 |
| ||||
Operating income |
| $ | 40,347 |
|
| $ | 21,411 |
|
| $ | 33,767 |
|
| $ | 41,631 |
| ||||
Fuel gallons sold |
| 226,112 |
| 234,815 |
|
|
| 255,464 |
|
|
| 248,906 |
| |||||||
Same store fuel gallons sold decrease (%)1 |
| (13.8 | %) |
| (7.4 | %) |
|
| (6.7 | %) |
|
| (5.8 | %) | ||||||
Fuel margin, cents per gallon2 |
| 32.1 |
| 26.3 |
| |||||||||||||||
Same store merchandise sales increase (%)1 |
| 6.0 | % |
| 0.2 | % | ||||||||||||||
Same store merchandise sales excluding cigarettes increase (decrease) (%)1 |
| 9.2 | % |
| (0.5 | %) | ||||||||||||||
Merchandise contribution3 |
| 98,527 |
| 84,588 |
| |||||||||||||||
Merchandise margin4 |
|
| 27.4 | % |
|
| 26.1 | % | ||||||||||||
Fuel contribution 2 |
| $ | 92,933 |
|
| $ | 88,096 |
| ||||||||||||
Fuel margin, cents per gallon 3 |
|
| 36.4 |
|
|
| 35.4 |
| ||||||||||||
Same store fuel contribution 1, 2 |
| $ | 82,048 |
|
| $ | 84,832 |
| ||||||||||||
Same store merchandise sales (decrease) increase (%) 1 |
|
| (4.1 | %) |
|
| 3.8 | % | ||||||||||||
Same store merchandise sales excluding cigarettes (decrease) increase (%) 1 |
|
| (3.0 | %) |
|
| 7.6 | % | ||||||||||||
Merchandise contribution 4 |
| $ | 134,918 |
|
| $ | 122,965 |
| ||||||||||||
Merchandise margin 5 |
|
| 32.5 | % |
|
| 30.7 | % |
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 hashad 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 costscosts; excludes the estimated fixed margin or fixed fee paid to GPMP for the cost of fuel.
3 Calculated as fuel contribution divided by fuel gallons sold;sold.
4 Calculated as merchandise revenue less merchandise costs.
5 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 (or have only partial) comparable information for the prior period.
26
| For the Three Months Ended March 31, 2024 |
| |||||||||||||
| TEG 1 |
|
| Uncle's (WTG) 2 |
|
| Speedy's 3 |
|
| Total |
| ||||
| (in thousands) |
| |||||||||||||
Date of Acquisition: | Mar 1, 2023 |
|
| Jun 6, 2023 |
|
| Aug 15, 2023 |
|
|
|
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
| ||||
Fuel revenue | $ | 80,249 |
|
| $ | 19,769 |
|
| $ | 4,268 |
|
| $ | 104,286 |
|
Merchandise revenue |
| 34,127 |
|
|
| 9,147 |
|
|
| 2,265 |
|
|
| 45,539 |
|
Other revenues, net |
| 1,293 |
|
|
| 228 |
|
|
| 52 |
|
|
| 1,573 |
|
Total revenues |
| 115,669 |
|
|
| 29,144 |
|
|
| 6,585 |
|
|
| 151,398 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
| ||||
Fuel costs |
| 74,431 |
|
|
| 17,064 |
|
|
| 3,895 |
|
|
| 95,390 |
|
Merchandise costs |
| 22,896 |
|
|
| 5,873 |
|
|
| 1,442 |
|
|
| 30,211 |
|
Site operating expenses |
| 18,112 |
|
|
| 4,690 |
|
|
| 1,190 |
|
|
| 23,992 |
|
Total operating expenses |
| 115,439 |
|
|
| 27,627 |
|
|
| 6,527 |
|
|
| 149,593 |
|
Operating income | $ | 230 |
|
| $ | 1,517 |
|
| $ | 58 |
|
| $ | 1,805 |
|
Fuel gallons sold |
| 25,616 |
|
|
| 5,821 |
|
|
| 1,416 |
|
|
| 32,853 |
|
Fuel contribution 4 | $ | 7,099 |
|
| $ | 2,996 |
|
| $ | 444 |
|
| $ | 10,539 |
|
Merchandise contribution 5 | $ | 11,231 |
|
| $ | 3,274 |
|
| $ | 823 |
|
| $ | 15,328 |
|
Merchandise margin 6 |
| 32.9 | % |
|
| 35.8 | % |
|
| 36.3 | % |
|
|
|
1 Includes only the retail stores acquired in the TEG Acquisition.
2 Includes only the retail stores acquired in the WTG Acquisition.
3 Acquisition of seven Speedy’s retail stores.
4 Calculated as fuel revenue less fuel costs; excludes the estimated fixed margin paid to GPMP for the cost of fuel.
35 Calculated as merchandise revenue less merchandise costs.
46 Calculated as merchandise contribution divided by merchandise revenue.
Three Months Ended March 31, 20212024 versus Three Months Ended March 31, 20202023
Retail Revenues
For the three months ended March 31, 2021,2024, fuel revenue increaseddecreased by $43.4$19.0 million, or 8.1%2.3%, compared to the first quarter of 2020.2023. The Empire Acquisition contributed an additional 27.2 million gallons sold, or approximately $71.5 million in fuel revenue. The increasedecrease in fuel revenue was also attributable to a $0.28$0.16 per gallon increasedecrease in the average retail price of fuel in the first quarter of 2021 as2024 compared to the comparable periodfirst quarter of 2023, primarily due to market factors, as well as a decrease in 2020. However, gallons sold at same stores were down, primarily due to the COVID-19 pandemic,of approximately 13.8%6.7%, or 31.715.8 million gallons. Partially offsetting this decrease was an incremental 23.0 million gallons which was a decrease of 12.8% whensold, or $72.2 million in fuel revenue contributed by the first quarter of 2020 (to eliminate the effect of the 2020 leap year) was adjusted to be based on 90 days. Additionally,2023 Acquisitions. Underperforming retail stores, which we closed or converted to dealers over the last 12 months in order to optimize profitability, also negatively impacted gallons sold.sold during the first quarter of 2024.
For the three months ended March 31, 2021,2024, merchandise revenue increased by $35.6$14.2 million, or 11.0%3.6%, compared to the first quarter of 2020.2023. The Empire Acquisition2023 Acquisitions contributed an additional $23approximately $32.6 million of incremental merchandise revenue. Same store merchandise sales increased $19.0decreased $15.6 million, or 6.0%4.1%, for the first quarter of 20212024 compared to the first quarter of 2020, which was an increase of 7.2% when the first quarter of 2020 (which was a leap year) was adjusted to be based on 90 days.2023. Same store merchandise sales increased primarily due torevenue was impacted by lower revenue from cigarettes and the Company’s six core destination categories (packaged beverages, candy, salty snacks, packaged sweet snacks, alternative snacks and beer) which was partially offset by higher grocery, packaged beverages,revenue from other tobacco products cigarettes and beer and wine revenue from benefits of planogram initiatives and fact-based data to react to changing consumer needs.franchises. In addition, 2021 benefited from an overall increase in
28
the consumer market basket and consumer demand shifting from other retail channels to convenience stores. Offsetting these increasesthere was a decrease in merchandise revenue from underperforming retail stores that we closed or converted to dealer-owned sites.dealers.
For the three months ended March 31, 2021,2024, other revenues, net increaseddecreased by $5.3$1.9 million, or 45.1%10.1%, compared to the first quarter of 20202023, primarily related to the Empire Acquisition, higher lottery commissions and temporary allowances forregulatory state-wide elimination of Virginia skill gaming machines in Virginia.income, partially offset by additional income from the 2023 Acquisitions.
Retail Operating Income
For the three months ended March 31, 2021,2024, fuel margincontribution increased $4.8 million, or 5.5%, compared to the same period in 2020 primarily related to incremental2023. Incremental fuel profitcontribution from the Empire Acquisition2023 Acquisitions of approximately $10.5$7.8 million which was slightlypartially offset by a slight decrease in same store fuel profitcontribution of $0.1 million (excluding intercompany charges by GPMP).$2.8 million. Fuel margin per gallon at same stores for 2021 was significantly higher at 31.2the first quarter of 2024 increased to 37.0 cents per gallon as compared to 26.9from 35.7 cents per gallon for 2020, primarily due to less competitive pressure on fuel retail prices due to reductionsthe first quarter of 2023 and improved sequentially throughout the quarter. In addition, a
27
decrease in fuel volume, which allowed for margin expansion.contribution related to underperforming retail stores that we closed or converted to dealers decreased fuel contribution compared to the first quarter of 2023.
For the three months ended March 31, 2021,2024, merchandise contribution increased $13.9$12.0 million, or 16.5%9.7%, compared to the same period in 20202023, and merchandise margin increased to 27.4% as32.5% compared to 26.1%30.7% in the prior period. The increase was due to $6.8$11.3 million in incremental merchandise contribution from the Empire Acquisition2023 Acquisitions and an increase in merchandise contribution at same stores of $8.2approximately $0.9 million. Merchandise contribution at same stores increased in 2021the first quarter of 2024 primarily due to a shift in product mix with a lower reliance on cigarettes and higher contribution from packaged beveragesother tobacco products and other center-store items. The first quarter of 2020 was negatively impactedfranchises partially offset by a change in sales mix which began in March 2020 as consumers pantry loaded lower margin items due tocontribution from the COVID-19 pandemic.Company’s six core destination categories. Merchandise margin at same stores was 27.2%32.3% in the first quarter of 20212024 compared to 26.2%30.8% in the first quarter of 2020.2023.
For the three months ended March 31, 2021, store2024, site operating expenses increased $10.3$22.5 million, or 8.2%12.8%, compared to the three months ended March 31, 20202023 primarily due to $18.5 million of incremental expenses related to the Empire Acquisition2023 Acquisitions. Same store site operating expenses increased $5.5 million, or 3.3%, with the increase related to hourly wage rate growth, accelerated repairs and a slightmaintenance, and elevated workers’ compensation claims related to first quarter 2024 events. The increase in expenses at same stores. Storesite operating expenses were also reduced fromwas partially offset by underperforming retail stores that we closed or converted to dealer-owned sites.dealers.
Wholesale Segment
The table below shows the results of the Wholesalewholesale segment for the three months ended March 31, 20212024 and 2020,2023, together with certain key metrics for the segment.
|
| For the three months ended March 31, |
|
| For the Three Months |
| |||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2024 |
|
| 2023 |
| |||||||||
Revenues: |
| (in thousands) |
|
| (in thousands) |
| |||||||||||||||
Fuel revenue |
| $ | 525,488 |
|
| $ | 28,938 |
|
| $ | 664,514 |
|
| $ | 684,848 |
| |||||
Other revenues, net |
|
| 4,939 |
|
|
| 1,283 |
|
|
| 6,858 |
|
|
| 6,491 |
| |||||
Total revenues |
| 530,427 |
| 30,221 |
|
|
| 671,372 |
|
|
| 691,339 |
| ||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Fuel costs |
| 518,929 |
| 28,017 |
|
|
| 655,113 |
|
|
| 674,691 |
| ||||||||
Store operating expenses |
|
| 9,190 |
|
|
| 1,926 |
| |||||||||||||
Site operating expenses |
|
| 9,299 |
|
|
| 9,098 |
| |||||||||||||
Total operating expenses |
|
| 528,119 |
|
|
| 29,943 |
|
|
| 664,412 |
|
|
| 683,789 |
| |||||
Operating income |
| $ | 2,308 |
|
| $ | 278 |
|
| $ | 6,960 |
|
| $ | 7,550 |
| |||||
Fuel gallons sold – non-consignment agent locations |
| 183,645 |
| 7,527 |
| ||||||||||||||||
Fuel gallons sold – fuel supply locations |
|
| 186,731 |
|
|
| 182,427 |
| |||||||||||||
Fuel gallons sold – consignment agent locations |
| 37,911 |
| 5,589 |
|
|
| 37,504 |
|
|
| 37,962 |
| ||||||||
Fuel margin, cents per gallon1 – non-consignment agent locations |
| 5.1 |
| 6.0 |
| ||||||||||||||||
Fuel margin, cents per gallon 1 – fuel supply locations |
|
| 6.2 |
|
|
| 6.1 |
| |||||||||||||
Fuel margin, cents per gallon1 – consignment agent locations |
| 21.9 |
|
| 19.1 |
|
|
| 24.4 |
|
|
| 26.4 |
|
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 (or have only partial) comparable information for the prior period.
| For the Three Months Ended March 31, 2024 |
| |||||||||
| TEG 1 |
|
| WTG 2 |
|
| Total |
| |||
| (in thousands) |
| |||||||||
Date of Acquisition: | Mar 1, 2023 |
|
| Jun 6, 2023 |
|
|
|
| |||
Revenues: |
|
|
|
|
|
|
|
| |||
Fuel revenue | $ | 80,952 |
|
| $ | 3,084 |
|
| $ | 84,036 |
|
Other revenues, net |
| 758 |
|
|
| 15 |
|
|
| 773 |
|
Total revenues |
| 81,710 |
|
|
| 3,099 |
|
|
| 84,809 |
|
Operating expenses: |
|
|
|
|
|
|
|
| |||
Fuel costs |
| 80,424 |
|
|
| 2,959 |
|
|
| 83,383 |
|
Site operating expenses |
| 874 |
|
|
| 68 |
|
|
| 942 |
|
Total operating expenses |
| 81,298 |
|
|
| 3,027 |
|
|
| 84,325 |
|
Operating income | $ | 412 |
|
| $ | 72 |
|
| $ | 484 |
|
Fuel gallons sold |
| 27,448 |
|
|
| 871 |
|
|
| 28,319 |
|
28
1 Includes only the wholesale business acquired in the TEG Acquisition.
2 Includes only the wholesale business acquired in the WTG Acquisition.
Three Months Ended March 31, 20212024 versus Three Months Ended March 31, 20202023
Wholesale Revenues
For the three months ended March 31, 2021,2024, fuel revenue increaseddecreased by $496.6$20.3 million, or 3.0%, compared to the first quarter of 2020, of which approximately $413.2 million of the increase was attributable to non-consignment agent locations. Wholesale gallons sold increased by 208.4 million due to an incremental 207.2 million gallons from the Empire Acquisition which resulted in approximately
29
$488.4 million of incremental fuel revenues.2023. Wholesale revenues also benefited from an increasewere negatively impacted by a decrease in the average price of fuel in 2021 asthe first quarter of 2024 compared to 2020. the first quarter of 2023, partially offset by the benefit of an 1.7% increase in gallons sold. Of total gallons sold, the 2023 Acquisitions contributed approximately 17.8 million incremental gallons, which were offset by lower volumes at comparable wholesale sites.
Wholesale Operating Income
For the three months ended March 31, 2021,2024, wholesale operating income decreased $0.6 million, primarily caused by a decline in fuel contribution of approximately $0.5 million. At fuel supply locations, fuel contribution increased approximately $16.2by $0.4 million, (excluding intercompany charges by GPMP) with the Empire Acquisition accounting for approximately $16.0 million of the increase. Although fuel contribution at non-consignment agent locations increased by $8.9 million (excluding intercompany charges by GPMP),and fuel margin decreased overper gallon also increased for the first quarter of 20202024 compared to the first quarter of 2023, primarily due to incremental contribution from the mix of2023 Acquisitions which was partially offset by decreased prompt pay discounts related to lower fuel costs and lower volumes at comparable wholesale fuel supply contracts acquired in the Empire Acquisition which tend to be priced with lower margins as compared to our existing wholesale fuel supply contracts. Fuel contribution atsites. At consignment agent locations, increased $7.3fuel contribution decreased $0.9 million, (excluding intercompany charges by GPMP) and fuel margin increased over 2020per gallon also decreased for the first quarter of 2024 compared to the first quarter of 2023, primarily due to less competitive pressure onlower rack-to-retail margins and decreased prompt pay discounts related to lower fuel retail prices due to reductions incosts, which was partially offset by the incremental contribution from the 2023 Acquisitions. In total, the 2023 Acquisitions added approximately $1.2 million of incremental fuel volume which allowed for margin expansion.contribution.
For the three months ended March 31, 2021, store2024, site operating expenses increased $7.3$0.2 million compared to the three months ended March 31, 20202023.
Fleet Fueling Segment
The table below shows the results of the fleet fueling segment for the three months ended March 31, 2024 and 2023, together with certain key metrics for the segment.
|
| For the Three Months |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Revenues: |
| (in thousands) |
| |||||
Fuel revenue |
| $ | 132,193 |
|
| $ | 127,494 |
|
Other revenues, net |
|
| 2,385 |
|
|
| 951 |
|
Total revenues |
|
| 134,578 |
|
|
| 128,445 |
|
Operating expenses: |
|
|
|
|
|
| ||
Fuel costs |
|
| 120,058 |
|
|
| 115,231 |
|
Site operating expenses |
|
| 6,543 |
|
|
| 4,790 |
|
Total operating expenses |
|
| 126,601 |
|
|
| 120,021 |
|
Operating income |
| $ | 7,977 |
|
| $ | 8,424 |
|
Fuel gallons sold – proprietary cardlock locations |
|
| 33,449 |
|
|
| 31,016 |
|
Fuel gallons sold – third-party cardlock locations |
|
| 3,199 |
|
|
| 1,610 |
|
Fuel margin, cents per gallon 1 – proprietary cardlock locations |
|
| 40.9 |
|
|
| 44.5 |
|
Fuel margin, cents per gallon 1 – third-party cardlock locations |
|
| 7.7 |
|
|
| 1.3 |
|
1 Calculated as fuel revenue less fuel costs divided by fuel gallons sold; excludes the estimated 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 fleet fueling segment that do not have comparable information for the prior period.
29
| For the Three Months Ended March 31, 2024 |
| |
| WTG 1 |
| |
| (in thousands) |
| |
Date of Acquisition: | Jun 6, 2023 |
| |
Revenues: |
|
| |
Fuel revenue | $ | 16,235 |
|
Other revenues, net |
| 1,170 |
|
Total revenues |
| 17,405 |
|
Operating expenses: |
|
| |
Fuel costs |
| 14,738 |
|
Site operating expenses |
| 1,111 |
|
Total operating expenses |
| 15,849 |
|
Operating income | $ | 1,556 |
|
Fuel gallons sold |
| 4,556 |
|
1 Includes only the fleet fueling business acquired in the WTG Acquisition.
Three Months Ended March 31, 2024 versus Three Months Ended March 31, 2023
Fleet Fueling Revenues
For the three months ended March 31, 2024, fuel revenue increased by $4.7 million, or 3.7%, compared to first quarter of 2023. Fleet fueling revenues benefited from a 12.3% increase in gallons sold, including from the WTG Acquisition, which were partially offset by a decrease in the average price of fuel in the first quarter of 2024 compared to the first quarter of 2023.
Fleet Fueling Operating Income
For the three months ended March 31, 2024, fuel contribution increased by $0.1 million compared to first quarter of 2023. At proprietary cardlocks, fuel contribution decreased by $0.1 million, and fuel margin per gallon also decreased for the first quarter of 2024 compared to the first quarter of 2023, when diesel margins were at significantly elevated levels. At third-party cardlock locations, fuel contributionincreased $0.2 million, and fuel margin per gallon also increased for the first quarter of 2024 compared to the first quarter of 2023. These changes were primarily due to higher volumes and the cardlocks acquired in the WTG Acquisition.
For the three months ended March 31, 2024, site operating expenses increased $1.8 million compared to the three months ended March 31, 2023 primarily due to the EmpireWTG Acquisition.
GPMP Segment
The table below shows the results of the GPMP segment for the three months ended March 31, 20212024 and 2020,2023, together with certain key metrics for the segment.
|
| For the three months ended March 31, |
|
| For the Three Months |
| |||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2024 |
|
| 2023 |
| |||||||||
Revenues: |
| (in thousands) |
|
| (in thousands) |
| |||||||||||||||
Fuel revenue - inter-segment |
| $ | 819,467 |
| $ | 379,125 |
|
| $ | 1,099,851 |
|
| $ | 1,140,065 |
| ||||||
Fuel revenue - external customers |
| 1,155 |
| 1,217 |
|
|
| 1,205 |
|
|
| 741 |
| ||||||||
Other revenues, net |
|
| 255 |
|
|
| 215 |
|
|
| 207 |
|
|
| 170 |
| |||||
Other revenues, net - inter-segment |
|
| 2,690 |
|
|
| 2,557 |
| |||||||||||||
Total revenues |
| 820,877 |
| 380,557 |
|
|
| 1,103,953 |
|
|
| 1,143,533 |
| ||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Fuel costs |
| 798,200 |
| 369,160 |
|
|
| 1,077,821 |
|
|
| 1,118,297 |
| ||||||||
General and administrative expenses |
| 711 |
| 768 |
|
|
| 961 |
|
|
| 772 |
| ||||||||
Depreciation and amortization |
|
| 1,843 |
|
|
| 1,843 |
|
|
| 1,844 |
|
|
| 1,842 |
| |||||
Total operating expenses |
|
| 800,754 |
|
|
| 371,771 |
|
|
| 1,080,626 |
|
|
| 1,120,911 |
| |||||
Operating income |
| $ | 20,123 |
|
| $ | 8,786 |
|
| $ | 23,327 |
|
| $ | 22,622 |
| |||||
Fuel gallons sold - inter-segment |
| 448,027 |
| 248,238 |
|
|
| 462,508 |
|
|
| 450,219 |
| ||||||||
Fuel gallons sold - external customers |
| 647 |
| 768 |
|
|
| 357 |
|
|
| 283 |
| ||||||||
Fuel margin, cents per gallon1 |
| 5.0 |
| 4.5 |
|
|
| 5.0 |
|
|
| 5.0 |
|
30
1 Calculated as fuel revenue less fuel costs divided by fuel gallons sold.
Three Months Ended March 31, 20212024 versus Three Months Ended March 31, 20202023
GPMP Revenues
For the three months ended March 31, 2021,2024, fuel revenue increaseddecreased by $440.3$39.8 million compared to the first quarter of 2020.2023. The increasedecrease in fuel revenue was attributable to a decrease in the average price of fuel, which was partially offset by an increase in gallons sold and an increase in average priceas compared to the first quarter of 2020.2023.
For the three months ended March 31, 20212024 and 2020,2023, other revenues, net were $0.3 million and $0.2 million, respectively,similar 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).
GPMP Operating Income
Fuel margin increased by $11.2$0.7 million for the first quarter of 2021, as2024, compared to the first quarter of 2020,2023, primarily due to additionalgreater gallons sold to the retail and wholesale segments at a fixed margin, which increased from 4.5 cents per gallon to 5.0 cents per gallon in the fourth quarter of 2020.margin.
For the three months ended March 31, 2021,2024, total general, administrative, depreciation and amortization expenses were consistent with those inincreased $0.2 million, compared to the comparable prior period.first quarter of 2023.
30
Use of Non-GAAP Measures
We disclose non-GAAPcertain measures on a “same store basis,” which excludeis 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 hashad a full quarter of activity in the prior year. We believe that this information provides greater comparability regarding our ongoing operating performance. These measuresNeither this measure nor those described below should not 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 (loss) 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. None ofBoth EBITDA orand Adjusted EBITDA are presented in accordance with GAAP and are non-GAAP financial measures.
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 (loss), cash flows from operating activities, or any other income or cash flow statement data.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.
31
The following table contains a reconciliation of net loss to EBITDA and Adjusted EBITDA for the three months ended March 31, 20212024 and 2020.2023.
|
| For the three months ended |
|
| For the Three Months |
| |||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2024 |
|
| 2023 |
| |||||||||
|
| (in thousands) |
|
| (in thousands) |
| |||||||||||||||
Net loss |
| $ | (14,662 | ) |
| $ | (12,857 | ) |
| $ | (594 | ) |
| $ | (2,527 | ) | |||||
Interest and other financing expenses, net |
|
| 28,617 |
| 6,651 |
|
|
| 2,457 |
|
|
| 13,602 |
| |||||||
Income tax benefit |
| (722 | ) |
| (2,011 | ) |
|
| (6,707 | ) |
|
| (2,158 | ) | |||||||
Depreciation and amortization |
|
| 24,242 |
|
|
| 17,071 |
|
|
| 31,716 |
|
|
| 28,399 |
| |||||
EBITDA |
| 37,475 |
| 8,854 |
|
|
| 26,872 |
|
|
| 37,316 |
| ||||||||
Non-cash rent expense (a) |
| 1,771 |
| 1,801 |
|
|
| 3,484 |
|
|
| 2,798 |
| ||||||||
Acquisition costs (b) |
| 611 |
| 1,500 |
|
|
| 680 |
|
|
| 3,576 |
| ||||||||
Loss on disposal of assets and impairment charges (c) |
| 1,375 |
| 3,382 |
|
|
| 2,664 |
|
|
| 287 |
| ||||||||
Share-based compensation expense (d) |
|
| 1,026 |
| 127 |
|
|
| 3,329 |
|
|
| 4,069 |
| |||||||
Loss from equity investment (e) |
| 6 |
| 233 |
| ||||||||||||||||
Fuel taxes paid in arrears (f) |
| — |
| 1,050 |
| ||||||||||||||||
(Income) loss from equity investment (e) |
|
| (22 | ) |
|
| 36 |
| |||||||||||||
Fuel taxes received in arrears (f) |
|
| (565 | ) |
|
| — |
| |||||||||||||
Adjustment to contingent consideration (g) |
|
| 18 |
|
|
| (702 | ) | |||||||||||||
Other |
|
| 39 |
|
|
| (13 | ) |
|
| 189 |
|
|
| 104 |
| |||||
Adjusted EBITDA |
| $ | 42,303 |
|
| $ | 16,934 |
|
| $ | 36,649 |
|
| $ | 47,484 |
|
31
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 forthe financing of current operations, funding capital expenditures including acquisitions,(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 and equity contributions,for operations, 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.indebtedness, depending on market conditions. 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
32
acceptable terms or at all. Debt financing,As of March 31, 2024, approximately 48% of our debt bore interest at variable rates, an increase from approximately 46% as of December 31, 2023, which has increased our interest rate risk and may require that we use more of our cash flow for the payment of interest if available, could imposeprevailing interest rates continue to increase or we incur additional cash payment obligations and additional covenants and operating restrictions.
In 2020, we entered into a financing agreement with Ares Capital Management (“Ares”), which allowed us to repay our outstanding long-term debt with PNC Bank, National Association (“PNC”), and allowed us to obtain additional financing, which we used to finance acquisitions. Additionally, the Ares financing agreement has a 1% annual amortization, which aids liquidity by limiting the capital required annually to repay this debt.
In October 2020, in connection with the Empire Acquisition, we increased the availabilityindebtedness under our Capital One Line of Credit to $500 million from $300 million, which we can seek to increase, subject to certain conditions, up to $700 million,variable rate facilities or otherwise. See also “Quantitative and our line of credit with PNC Bank increased from $110 million to $140 million.Qualitative Disclosures about Market Risk—Interest Rate Risk.”
As of March 31, 2021,2024, we were in a strong liquidity position of approximately $457$764 million, with $205consisting of approximately $184 million of cash including proceeds from the Merger Transaction, the issuance of preferred stock and cash generated from our operations,equivalents and $31.8 million of restricted investments as well as approximately $220$579 million of availability under our lines of credit notwithstanding our full cash redemption of our Bonds (Series C) on March 30, 2021. Additionally, thisavailable for certain purposes. This liquidity position currently provides us with adequate funding to satisfy our other contractual and other obligations out offrom our outstandingexisting cash balances. As of March 31, 2021,2024, we had no outstanding borrowings under our line$140.0 million PNC Line of credit with PNC Bank and theCredit (as defined below), $21.9 million of unused availability under the M&T equipment line of credit, described below, and $424.7 million of unused availability under our $800 million Capital One Line of Credit was $101(as defined below), which we may elect to increase up to $1.0 billion, subject to obtaining additional financing commitments from current lenders or other banks, and subject to certain other terms.
The Board declared, and the Company paid, dividends of $0.03 per share of common stock on March 21, 2024, totaling approximately $3.6 million. Additionally, the Board declared a quarterly dividend of $0.03 per share of common stock, to be paid on May 31, 2024 to stockholders of record as of May 20, 2024. 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 May 2024, the Board increased the size of our share repurchase program for up to an aggregate of $125.0 million of our outstanding shares of common stock, from an aggregate of $100.0 million of our outstanding shares of common stock. During the three months ended March 31, 2024, inclusive of the repurchase of the First Installment Shares from TEG, we repurchased approximately 4.8 million shares of common stock under the share repurchase program for approximately $28.3 million, or an average share price of $5.89. 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 razeraze-and-rebuild, functionally remodel 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 the future,short- to medium-term, we currently expect that our capital spending program will be primarily focused on remodeling and updating stores, and maintaining our properties and equipment. In the medium- to long-term, we currently expect that our capital spending program will include more focus on expanding our store base through acquisitions, razing and remodeling stores, and maintaining our owned properties and equipment, including upgrading all fuel dispensers to be EMV-compliant. The estimated gross cost of these upgrades in 2021 is approximately $30 million, of which a portion will be offset by fuel supplier incentive programs, and the remainder is expected to be financed with leasing companies.new-to-industry store builds. We do not expect such capital needs to adversely affect liquidity. We are always opportunistic on expansion of our store base thorough acquisitions and will evaluate such opportunities in concert with our capital spending program.
Cash Flows for the Three Month PeriodsMonths Ended March 31, 20212024 and 20202023
Net cash provided by (used in) operating activities, investing activities and financing activities for the periods presented werethree months ended March 31, 2024 and 2023 was as follows:
|
| For the Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
| (in thousands) |
| |||||
Net cash provided by (used in): |
|
|
|
|
|
| ||
Operating activities |
| $ | 12,755 |
|
| $ | 15,883 |
|
Investing activities |
|
| (28,175 | ) |
|
| (153,286 | ) |
Financing activities |
|
| (20,268 | ) |
|
| 92,257 |
|
Effect of exchange rates |
|
| (19 | ) |
|
| (21 | ) |
Total |
| $ | (35,707 | ) |
| $ | (45,167 | ) |
3233
|
| For the three months ended March 31, |
| ||||||||||
|
| 2021 |
|
| 2020 |
| |||||||
|
| (in thousands) |
| ||||||||||
Net cash provided by (used in): |
|
|
|
|
|
| |||||||
Operating activities |
| $ | 11,276 |
|
| $ | 23,912 |
| |||||
Investing activities |
|
| (16,645 | ) |
|
| (12,541 | ) | |||||
Financing activities |
|
| (83,143 | ) |
|
| 85,917 |
| |||||
Effect of exchange rates |
|
| (1,462 | ) |
|
| (1,306 | ) | |||||
Total |
| $ | (89,974 | ) |
| $ | 95,982 |
|
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.
For the three months ended March 31, 2021,2024, cash flows provided by operating activities was $11.3were $12.8 million compared to $23.9$15.9 million for the first quarter of 2020.three months ended March 31, 2023. The 2021 decrease was primarily the result of $10.3approximately $5.1 million of higher net interest payments including approximately $5.2 million related to the early redemptionand a decrease in Adjusted EBITDA of the Bonds (Series C), and the payment of approximately $13.6 million of annual incentives which were partially offset by an increase in segment operating income of approximately $32.0$10.8 million primarily generated from an increaselower fuel contribution and regulatory state-wide elimination of Virginia skill gaming machines income coupled with increases in fuel marginsame store site operating expenses and merchandise contribution at same stores as well asgeneral and administrative expenses. Cash flows provided by operating activities for the Empirethree months ended March 31, 2023 were unfavorably impacted by the investment in working capital associated with the TEG Acquisition. The first quarter of 2020 benefited from a temporary change to extend payment terms with key merchandise suppliers which increased prior quarter operating cash flow by approximately $16.0 million.
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 three months ended March 31, 2021,2024, cash used in investing activities increaseddecreased by $4.1$125.1 million compared to the first quarter of 2020.three months ended March 31, 2023. For the three months ended March 31, 2021,2024, we spent $17.5utilized $29.2 million for capital expenditures, including purchasing athe purchase of certain fee property. For the three months ended March 31, 2020, we spent $12.1 million for capital expenditures.properties, upgrades to fuel dispensers and other investments in our stores.
Financing Activities
Cash flows from financing activities primarily consist of increases and decreases in the principal amount of our linelines of credit and debt, and distributions to non-controlling interests as well as issuance of common and preferred stock.stock, net of dividends paid and common stock repurchases.
For the three months ended March 31, 2021,2024, financing activities consisted primarily of net paymentsreceipts of $74.8$35.0 millionfor long-term debt, including the early redemption of the Bonds (Series C), repayments of $2.0$1.1 million for financing leases, $1.6$3.6 million for dividend payments on common stock, $1.4 million for dividend payments on the Series A redeemable preferred stock and $4.7 million of issuance costs related to the Merger Transaction. For the three months ended March 31, 2020, financing activities consisted primarily of net proceeds of $71.1$31.9 million for long-term debtcommon stock repurchases, including the repurchase of the First Installment Shares originally issued to pay deferred consideration in the TEG Acquisition. We also made an early payment of $17.2 million, as payment in full and lines of credit and investmentas a discount for the $25.0 million deferred consideration in non-controlling subsidiary of $19.3 millionthe TEG Acquisition which was offset by repayments of $2.1 million for financing leases and $2.4 millionwould have been due on March 1, 2025. See Note 4 to our consolidated unaudited interim financial statements included in distributions to non-controlling interests.this Quarterly Report on Form 10-Q.
Credit Facilities and Senior Notes
Ares Credit AgreementSenior Notes
GPM entered into a credit agreement with Ares to provide financing in a totalAs of March 31, 2024, the Company had outstanding $450 million aggregate principal amount of upits 5.125% Senior Notes due 2029 (the “Senior Notes”). Issued in October 2021, 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 $225 million (the “Ares Credit Agreement”): an Initial Term Loan(i) create liens, (ii) pay dividends, acquire shares of $162 million, which was drawncapital stock and make payments on February 28, 2020,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 Delayed Term Loan Aguarantees rank equally in right of $63 million, which was drawn on October 6, 2020 in orderpayment with all of the Company’s and the Guarantors’ respective existing and future senior unsubordinated indebtedness and are effectively subordinated to fundall of the Empire Acquisition (the “Ares Loan”).
The Ares Loan bears interest, as elected by us, at: (a) a rate per annum equalCompany’s and the Guarantors’ existing and future secured indebtedness to the Ares alternative base rate (as defined inextent of the Ares Credit Agreement) plus a marginvalue of 3.50%, or (b) LIBOR (subjectthe collateral securing such indebtedness; and are structurally subordinated to a floorany existing and future obligations of 1.0%) plus a marginsubsidiaries of 4.50%. the Company that are not Guarantors.
Financing AgreementsAgreement with PNC
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GPM and certain subsidiaries have a financing agreementarrangement (as amended, the “PNC Credit Agreement”) with PNC (the “GPM PNC Facility”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 Credit Line Agreement 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 PNC Credit 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 PNC
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Credit 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 Line Agreement, taking into account the balances of receivables, inventory and letters of credit, among other things. As of March 31, 2021, $6.62024, $7.1 million of letters of credit were outstanding under the GPM PNC Facility.Credit Agreement.
GPMPFinancing Agreements with M&T Bank
As of March 31, 2024, GPM has a term loanfinancing arrangement with PNCM&T Bank that provides a line of credit for up to $45.0 million to purchase equipment on or before September 2026, which may be borrowed 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 98% of the outstandingtranches, as well as an aggregate original principal amount of $49.5 million of real estate loans (the “M&T Term Loans”). As of March 31, 2024, approximately $21.9 million remained available under the GPMP PNCequipment line of credit.
Each additional equipment loan tranche under such financing agreement will have a term of up to five years from the date it is advanced, payable in equal monthly payments of principal plus interest of SOFR (as defined in the agreement) plus 2.75%. The M&T Term Loan. Loans bear interest at SOFR Adjusted (as defined in the agreement) plus 2.75% to 3.00% (depending on the loan), mature in June 2026 or November 2028 (depending on the loan) and are payable in monthly installments based on a fifteen-year amortization schedule, with the balance of each loan payable at maturity.
Financing agreementAgreement with a syndicateSyndicate of banks ledBanks Led by Capital One, National Association (“Capital One”)
GPMP has a credit agreement for a revolving credit facility with a syndicate of banks led by Capital One, National Association, (the “Capital One Credit Facility”), 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 Capital One Line of Credit is available for general GPMP purposes, including working capital, capital expenditures and permitted acquisitions.
On March 26, 2024, GPMP, Capital One and the guarantors and lenders party thereto entered into an amendment to the Capital One Line of Credit, to facilitate the borrowing and use of up to $36.5 million of the Capital One Line of Credit for the settlement of the Installment Payments as provided for in the TEG Purchase Agreement Amendment. The other material terms of the Capital One Line of Credit remain unchanged. The Capital One Line of Credit matures on May 5, 2028. As of March 31, 2024, approximately $374.8 million was drawn on the Capital One Line of Credit, $0.5 million of letters of credit were outstanding under the Capital One Line of Credit and approximately $424.7 million was available thereunder. In April 2024, we financed the SpeedyQ acquisition (as described in Note 15 to the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q) utilizing $6.0 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 March 31, 2021, $0.7 million of letters of credit were outstanding under the Capital One Credit Facility.
Critical Accounting Policies and Estimates
ThereFor the three months ended March 31, 2024, 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, 20202023 that have had a material impact on our Condensed Consolidated Financial Statementscondensed consolidated financial statements and related notes.
Item 3. Quantitative and Qualitative Disclosures Aboutabout 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. We do not engage in any fuel price hedging. Significant increases in fuel prices could result in significant increases in the retail price of fuel and in lower sales to consumers and dealers. When fuel prices rise, some of our dealers may have insufficient credit to purchase fuel from us at their historical volumes. In addition, 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. We make use of derivative commodity instruments
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to manage risks associated with an immaterial number of gallons designed to offset changes in the price of fuel that are directly tied to 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. For the majority ofThe Senior Notes bear a fixed interest rate, therefore, an increase or decrease in prevailing interest rates has no impact on our debt interest is calculated at a fixed margin over LIBOR.service for the Senior Notes. As of March 31, 2021, we had locked in2024, the interest rate on the full amount of our Capital One Line of Credit at 3.35%was 8.2%, fixedthe interest rate on our M&T Term Loan was 8.3% and the interest rate on the full amountvariable portion of our M&T equipment loan was 8.1% (approximately $15.6 million of the term loans under the Ares Credit Agreement at 5.5%, and fixedtotal loan). As of March 31, 2023, the interest rate on the full amountour Capital One Line of GPMP’s PNC term loan at 0.61%. The LIBORCredit was 7.1% and the interest rate on our M&T Term Loan was 7.6% (the entire M&T equipment loan had a fixed rate). As of March 31, 2024, approximately 48% of our debt bore interest at variable rates. Based on the outstanding balances as of March 31, 2021 was very low, therefore, our exposure is not significant. If2024, if our applicable interest rates increase by 1%, then our debt service on an annual basis would increase by approximately $4.7$4.3 million. Interest rates on
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commercial bank borrowings and debt offerings could be higher than current levels, causing our financing 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 US overnight, one-month, three-month, six-month and 12-month LIBOR through at least June 30, 2023. There is currently no definitive information regarding the future use of LIBOR or a replacement rate. As of March 31, 2021, approximately 95% of our debt bore interest at variable rates. Most of our credit agreements were entered into in 2019 and 2020. Such credit agreements 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. Since there is still great uncertainty in the market with respect to the elimination of LIBOR and the potential transition to a replacement rate, the impact of such changes on our future debt repayment obligations, results of operations and financial condition remains uncertain.
Exchange Rate Risk
As of March 31, 2021, and following the early redemption of the Bonds (Series C) which were denominated in New Israeli Shekels (“NIS”), our exposure to unfavorable exchange rate fluctuations between the NIS and the U.S. dollar was minimal.
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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 March 31, 2021.2024.
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, 2020.2023.
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, 2020.2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On August 1, 2020, Haymaker Acquisition Corp. II (“Haymaker”) and Nomura Securities International, Inc. (“Nomura”) entered intoThe following table presents our share repurchase activity for the quarter ended March 31, 2024 (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 (4) |
|
| Maximum Dollar Value that May Yet Be Purchased Under the Plans or Programs (4) |
| ||||
January 1, 2024 to January 31, 2024 (1) |
|
| 243,173 |
|
| $ | 8.10 |
|
|
| 125,457 |
|
| $ | 28,008 |
|
February 1, 2024 to February 29, 2024 (2) |
|
| 370,410 |
|
|
| 7.98 |
|
|
| 150,693 |
|
|
| 26,810 |
|
March 1, 2024 to March 31, 2024 (3) |
|
| 4,659,752 |
|
|
| 5.79 |
|
|
| 4,534,381 |
|
|
| 655 |
|
Total |
|
| 5,273,335 |
|
| $ | 6.05 |
|
|
| 4,810,531 |
|
| $ | 655 |
|
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
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Item 5. Other Information
None.During the three months ended March 31, 2024, 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 10.1+ | Master Supply Agreement, dated as of March 21, 2024, by and between GPM Investments, LLC and Core-Mark International, Inc.(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed on March 26, 2024). | |
Exhibit | ||
Exhibit 10.3++ | ||
| ||
| ||
Exhibit | ||
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Exhibit | ||
Exhibit | ||
Exhibit | ||
101 | The following financial statements from the Company’s Form 10-Q for the quarter ended March 31, | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
*Filed herewith.
**Furnished herewith.
+ 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 and would likely cause competitive harm to the Company if publicly disclosed. 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.
38++ Pursuant to Item 601(a)(5) of Regulation S-K, 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 disclosed 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.
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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: May | ARKO Corp. | ||
By: | /s/ | ||
| Robert Giammatteo | ||
| Executive Vice President and Chief | ||
(on behalf of the Registrant and as Principal Financial and Accounting Officer) |
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