UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.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 September 30,March 31, 20232024.
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 Number 001-39828
ARKO Corp.
(Exact Name of Registrant as Specified in Its Charter)
Delaware |
| 85-2784337 |
(State or Other Jurisdiction of |
| (I.R.S. Employer |
8565 Magellan Parkway
Suite 400
Richmond, Virginia 23227-1150
(Address of Principal Executive Offices) (Zip Code)
(804) 730-1568
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
| Trading Symbol(s) |
| Name of Each Exchange on Which Registered |
Common Stock, $0.0001 par value per share |
| ARKO |
| Nasdaq Capital Market |
Warrants to purchase common stock |
| ARKOW |
| Nasdaq Capital Market |
Indicate by check mark whether the 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.
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 November 3, 2023,May 6, 2024, the registrant had 116,809,202115,743,761 shares of its common stock, par value $0.0001 per share (“common stock”) outstanding.
TABLE OF CONTENTS
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Item 1. |
| 5 | |
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| 5 | |
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| 6 | |
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| 7 | |
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| 8 | |
| Notes to Condensed Consolidated Financial Statements (unaudited) |
| 11 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. | Unregistered Sales of Equity Securities, and Use of Proceeds |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements,” as that term is defined under the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements about our expectations, beliefs or intentions regarding our product development efforts, business, financial condition, results of operations, strategies or prospects. 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, 20222023 and this Quarterly Report on Form 10-Q, and described from time to time in our other filings with the Securities and Exchange Commission (the “SEC”). We do not undertake any obligation to update forward-looking statements, except to the extent required by applicable law. We intend that all forward-looking statements be subject to the safe-harbor provisions of the PSLRA. These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance.
Risks and uncertainties, the occurrence of which could adversely affect our business, include the following:
3
3
4
PART I. FINANCIAL INFORMATION
Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to the “Company,” “ARKO,” “we,” “our,” “ours,” and “us” refer to ARKO Corp., a Delaware corporation, including our consolidated subsidiaries.
Item 1. Financial Statements
ARKO Corp.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands, except share data)
|
| September 30, 2023 |
|
| December 31, 2022 |
|
| March 31, 2024 |
|
| December 31, 2023 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 204,237 |
|
| $ | 298,529 |
|
| $ | 184,480 |
|
| $ | 218,120 |
|
Restricted cash |
|
| 16,203 |
|
|
| 18,240 |
|
|
| 21,234 |
|
|
| 23,301 |
|
Short-term investments |
|
| 3,375 |
|
|
| 2,400 |
|
|
| 4,588 |
|
|
| 3,892 |
|
Trade receivables, net |
|
| 179,529 |
|
|
| 118,140 |
|
|
| 158,712 |
|
|
| 134,735 |
|
Inventory |
|
| 266,061 |
|
|
| 221,951 |
|
|
| 250,405 |
|
|
| 250,593 |
|
Other current assets |
|
| 116,835 |
|
|
| 87,873 |
|
|
| 116,144 |
|
|
| 118,472 |
|
Total current assets |
|
| 786,240 |
|
|
| 747,133 |
|
|
| 735,563 |
|
|
| 749,113 |
|
Non-current assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Property and equipment, net |
|
| 760,391 |
|
|
| 645,809 |
|
|
| 743,394 |
|
|
| 742,610 |
|
Right-of-use assets under operating leases |
|
| 1,408,208 |
|
|
| 1,203,188 |
|
|
| 1,365,200 |
|
|
| 1,384,693 |
|
Right-of-use assets under financing leases, net |
|
| 179,490 |
|
|
| 182,113 |
|
|
| 160,357 |
|
|
| 162,668 |
|
Goodwill |
|
| 278,261 |
|
|
| 217,297 |
|
|
| 292,173 |
|
|
| 292,173 |
|
Intangible assets, net |
|
| 212,807 |
|
|
| 197,123 |
|
|
| 207,416 |
|
|
| 214,552 |
|
Equity investment |
|
| 2,847 |
|
|
| 2,924 |
|
|
| 2,907 |
|
|
| 2,885 |
|
Deferred tax asset |
|
| 47,107 |
|
|
| 22,728 |
|
|
| 62,368 |
|
|
| 52,293 |
|
Other non-current assets |
|
| 44,433 |
|
|
| 36,855 |
|
|
| 51,505 |
|
|
| 49,377 |
|
Total assets |
| $ | 3,719,784 |
|
| $ | 3,255,170 |
|
| $ | 3,620,883 |
|
| $ | 3,650,364 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Long-term debt, current portion |
| $ | 15,947 |
|
| $ | 11,944 |
|
| $ | 17,297 |
|
| $ | 16,792 |
|
Accounts payable |
|
| 249,406 |
|
|
| 217,370 |
|
|
| 233,960 |
|
|
| 213,657 |
|
Other current liabilities |
|
| 187,943 |
|
|
| 154,097 |
|
|
| 150,569 |
|
|
| 179,536 |
|
Operating leases, current portion |
|
| 65,433 |
|
|
| 57,563 |
|
|
| 68,403 |
|
|
| 67,053 |
|
Financing leases, current portion |
|
| 9,213 |
|
|
| 5,457 |
|
|
| 9,392 |
|
|
| 9,186 |
|
Total current liabilities |
|
| 527,942 |
|
|
| 446,431 |
|
|
| 479,621 |
|
|
| 486,224 |
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Long-term debt, net |
|
| 812,166 |
|
|
| 740,043 |
|
|
| 867,661 |
|
|
| 828,647 |
|
Asset retirement obligation |
|
| 80,442 |
|
|
| 64,909 |
|
|
| 85,063 |
|
|
| 84,710 |
|
Operating leases |
|
| 1,414,609 |
|
|
| 1,218,045 |
|
|
| 1,378,302 |
|
|
| 1,395,032 |
|
Financing leases |
|
| 228,424 |
|
|
| 225,907 |
|
|
| 212,174 |
|
|
| 213,032 |
|
Other non-current liabilities |
|
| 269,401 |
|
|
| 178,945 |
|
|
| 236,822 |
|
|
| 266,602 |
|
Total liabilities |
|
| 3,332,984 |
|
|
| 2,874,280 |
|
|
| 3,259,643 |
|
|
| 3,274,247 |
|
Commitments and contingencies - see Note 12 |
|
|
|
|
|
| ||||||||||
Series A redeemable preferred stock (no par value) - authorized: 1,000,000 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: 400,000,000 shares; issued: 125,268,525 and 124,727,496 shares, respectively; outstanding: 117,301,820 and 120,074,542 shares, respectively |
|
| 12 |
|
|
| 12 |
| ||||||||
Treasury stock, at cost - 7,966,705 and 4,652,954 shares, respectively |
|
| (65,554 | ) |
|
| (40,042 | ) | ||||||||
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 |
|
| 243,271 |
|
|
| 229,995 |
|
|
| 267,671 |
|
|
| 245,007 |
|
Accumulated other comprehensive income |
|
| 9,119 |
|
|
| 9,119 |
|
|
| 9,119 |
|
|
| 9,119 |
|
Retained earnings |
|
| 99,965 |
|
|
| 81,750 |
|
|
| 90,493 |
|
|
| 96,097 |
|
Total shareholders' equity |
|
| 286,813 |
|
|
| 280,834 |
|
|
| 261,240 |
|
|
| 276,101 |
|
Non-controlling interest |
|
| (13 | ) |
|
| 56 |
|
|
| — |
|
|
| 16 |
|
Total equity |
|
| 286,800 |
|
|
| 280,890 |
|
|
| 261,240 |
|
|
| 276,117 |
|
Total liabilities, redeemable preferred stock and equity |
| $ | 3,719,784 |
|
| $ | 3,255,170 |
|
| $ | 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 |
|
| For the Nine Months |
|
| For the Three Months |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fuel revenue |
| $ | 2,086,392 |
|
| $ | 1,979,574 |
|
| $ | 5,705,156 |
|
| $ | 5,648,954 |
|
| $ | 1,631,332 |
|
| $ | 1,661,664 |
|
Merchandise revenue |
|
| 506,425 |
|
|
| 445,822 |
|
|
| 1,391,274 |
|
|
| 1,244,558 |
|
|
| 414,655 |
|
|
| 400,408 |
|
Other revenues, net |
|
| 29,237 |
|
|
| 24,251 |
|
|
| 83,141 |
|
|
| 69,209 |
|
|
| 26,467 |
|
|
| 26,424 |
|
Total revenues |
|
| 2,622,054 |
|
|
| 2,449,647 |
|
|
| 7,179,571 |
|
|
| 6,962,721 |
|
|
| 2,072,454 |
|
|
| 2,088,496 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fuel costs |
|
| 1,923,869 |
|
|
| 1,824,437 |
|
|
| 5,262,854 |
|
|
| 5,250,105 |
|
|
| 1,502,302 |
|
|
| 1,537,882 |
|
Merchandise costs |
|
| 345,699 |
|
|
| 306,930 |
|
|
| 952,925 |
|
|
| 866,110 |
|
|
| 279,737 |
|
|
| 277,443 |
|
Store operating expenses |
|
| 226,698 |
|
|
| 189,582 |
|
|
| 637,383 |
|
|
| 534,197 |
| ||||||||
Site operating expenses |
|
| 218,931 |
|
|
| 192,683 |
| ||||||||||||||||
General and administrative expenses |
|
| 44,116 |
|
|
| 35,954 |
|
|
| 127,192 |
|
|
| 100,695 |
|
|
| 42,158 |
|
|
| 40,416 |
|
Depreciation and amortization |
|
| 33,713 |
|
|
| 26,061 |
|
|
| 94,949 |
|
|
| 75,050 |
|
|
| 31,716 |
|
|
| 28,399 |
|
Total operating expenses |
|
| 2,574,095 |
|
|
| 2,382,964 |
|
|
| 7,075,303 |
|
|
| 6,826,157 |
|
|
| 2,074,844 |
|
|
| 2,076,823 |
|
Other expenses, net |
|
| 3,885 |
|
|
| 951 |
|
|
| 11,561 |
|
|
| 3,269 |
|
|
| 2,476 |
|
|
| 2,720 |
|
Operating income |
|
| 44,074 |
|
|
| 65,732 |
|
|
| 92,707 |
|
|
| 133,295 |
| ||||||||
Operating (loss) income |
|
| (4,866 | ) |
|
| 8,953 |
| ||||||||||||||||
Interest and other financial income |
|
| 9,371 |
|
|
| 2,676 |
|
|
| 18,897 |
|
|
| 2,509 |
|
|
| 22,014 |
|
|
| 7,210 |
|
Interest and other financial expenses |
|
| (23,950 | ) |
|
| (22,472 | ) |
|
| (67,238 | ) |
|
| (45,619 | ) |
|
| (24,471 | ) |
|
| (20,812 | ) |
Income before income taxes |
|
| 29,495 |
|
|
| 45,936 |
|
|
| 44,366 |
|
|
| 90,185 |
| ||||||||
Income tax expense |
|
| (7,993 | ) |
|
| (20,898 | ) |
|
| (10,849 | ) |
|
| (31,060 | ) | ||||||||
Loss from equity investment |
|
| (14 | ) |
|
| (44 | ) |
|
| (77 | ) |
|
| (7 | ) | ||||||||
Net income |
| $ | 21,488 |
|
| $ | 24,994 |
|
| $ | 33,440 |
|
| $ | 59,118 |
| ||||||||
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 |
|
| 48 |
|
|
| 51 |
|
|
| 149 |
|
|
| 182 |
|
|
| — |
|
|
| 53 |
|
Net income attributable to ARKO Corp. |
| $ | 21,440 |
|
| $ | 24,943 |
|
| $ | 33,291 |
|
| $ | 58,936 |
| ||||||||
Net loss attributable to ARKO Corp. |
| $ | (594 | ) |
| $ | (2,580 | ) | ||||||||||||||||
Series A redeemable preferred stock dividends |
|
| (1,449 | ) |
|
| (1,449 | ) |
|
| (4,301 | ) |
|
| (4,301 | ) |
|
| (1,414 | ) |
|
| (1,418 | ) |
Net income attributable to common shareholders |
| $ | 19,991 |
|
| $ | 23,494 |
|
| $ | 28,990 |
|
| $ | 54,635 |
| ||||||||
Net income per share attributable to common shareholders - basic |
| $ | 0.17 |
|
| $ | 0.20 |
|
| $ | 0.24 |
|
| $ | 0.45 |
| ||||||||
Net income per share attributable to common shareholders - diluted |
| $ | 0.17 |
|
| $ | 0.17 |
|
| $ | 0.24 |
|
| $ | 0.43 |
| ||||||||
Net loss attributable to common shareholders |
| $ | (2,008 | ) |
| $ | (3,998 | ) | ||||||||||||||||
Net loss per share attributable to common shareholders – basic and diluted |
| $ | (0.02 | ) |
| $ | (0.03 | ) | ||||||||||||||||
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic |
|
| 118,389 |
|
|
| 120,074 |
|
|
| 119,505 |
|
|
| 121,950 |
| ||||||||
Diluted |
|
| 120,292 |
|
|
| 130,388 |
|
|
| 120,602 |
|
|
| 123,527 |
| ||||||||
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 Changes in Equity
(Unaudited, in 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 July 1, 2022 |
|
| 120,074,961 |
|
| $ | 12 |
|
| $ | (40,038 | ) |
| $ | 223,557 |
|
| $ | 9,119 |
|
| $ | 52,898 |
|
| $ | 245,548 |
|
| $ | 235 |
|
| $ | 245,783 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,145 |
|
|
| — |
|
|
| — |
|
|
| 3,145 |
|
|
| — |
|
|
| 3,145 |
|
Transactions with non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 106 |
|
|
| — |
|
|
| — |
|
|
| 106 |
|
|
| (106 | ) |
|
| — |
|
Distributions to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (60 | ) |
|
| (60 | ) |
Dividends on redeemable preferred stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,449 | ) |
|
| (1,449 | ) |
|
| — |
|
|
| (1,449 | ) |
Dividends declared (2 cents per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,402 | ) |
|
| (2,402 | ) |
|
| — |
|
|
| (2,402 | ) |
Common stock repurchased |
|
| (419 | ) |
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| (4 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24,943 |
|
|
| 24,943 |
|
|
| 51 |
|
|
| 24,994 |
|
Balance at September 30, 2022 |
|
| 120,074,542 |
|
| $ | 12 |
|
| $ | (40,042 | ) |
| $ | 226,808 |
|
| $ | 9,119 |
|
| $ | 73,990 |
|
| $ | 269,887 |
|
| $ | 120 |
|
| $ | 270,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balance at July 1, 2023 |
|
| 118,842,462 |
|
| $ | 12 |
|
| $ | (53,804 | ) |
| $ | 238,617 |
|
| $ | 9,119 |
|
| $ | 83,533 |
|
| $ | 277,477 |
|
| $ | 39 |
|
| $ | 277,516 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,614 |
|
|
| — |
|
|
| — |
|
|
| 4,614 |
|
|
| — |
|
|
| 4,614 |
|
Transactions with non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 40 |
|
|
| — |
|
|
| — |
|
|
| 40 |
|
|
| (40 | ) |
|
| — |
|
Distributions to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (60 | ) |
|
| (60 | ) |
Dividends on redeemable preferred stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,449 | ) |
|
| (1,449 | ) |
|
| — |
|
|
| (1,449 | ) |
Dividends declared (3 cents per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,559 | ) |
|
| (3,559 | ) |
|
| — |
|
|
| (3,559 | ) |
Common stock repurchased |
|
| (1,540,642 | ) |
|
| — |
|
|
| (11,750 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11,750 | ) |
|
| — |
|
|
| (11,750 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 21,440 |
|
|
| 21,440 |
|
|
| 48 |
|
|
| 21,488 |
|
Balance at September 30, 2023 |
|
| 117,301,820 |
|
| $ | 12 |
|
| $ | (65,554 | ) |
| $ | 243,271 |
|
| $ | 9,119 |
|
| $ | 99,965 |
| �� | $ | 286,813 |
|
| $ | (13 | ) |
| $ | 286,800 |
|
|
| Common Stock |
|
| Treasury |
| Additional |
| Accumulated |
| Retained |
| Total |
| Non- |
|
|
|
| Common Stock |
|
| Treasury |
| Additional |
| Accumulated |
| Retained |
| Total |
| Non- |
|
|
| ||||||||||||||||||||||||||||||||||||
|
| Shares |
|
| Par Value |
|
| Stock, at Cost |
|
| Paid-in Capital |
|
| Comprehensive Income |
|
| Earnings |
|
| Shareholders' Equity |
|
| Controlling Interests |
|
| Total Equity |
| |||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2022 |
|
| 124,427,805 |
|
| $ | 12 |
|
| $ | — |
|
| $ | 217,675 |
|
| $ | 9,119 |
|
| $ | 26,646 |
|
| $ | 253,452 |
|
| $ | 224 |
|
| $ | 253,676 |
| ||||||||||||||||||||||||||||||||||||
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,027 |
|
|
| — |
|
|
| — |
|
|
| 9,027 |
|
|
| — |
|
|
| 9,027 |
| ||||||||||||||||||||||||||||||||||||
Transactions with non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 106 |
|
|
| — |
|
|
| — |
|
|
| 106 |
|
|
| (106 | ) |
|
| — |
| ||||||||||||||||||||||||||||||||||||
Distributions to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (180 | ) |
|
| (180 | ) | ||||||||||||||||||||||||||||||||||||
Dividends on redeemable preferred stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,301 | ) |
|
| (4,301 | ) |
|
| — |
|
|
| (4,301 | ) | ||||||||||||||||||||||||||||||||||||
Dividends declared (6 cents per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,291 | ) |
|
| (7,291 | ) |
|
| — |
|
|
| (7,291 | ) | ||||||||||||||||||||||||||||||||||||
Common stock repurchased |
|
| (4,652,954 | ) |
|
| — |
|
|
| (40,042 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (40,042 | ) |
|
| — |
|
|
| (40,042 | ) | ||||||||||||||||||||||||||||||||||||
Vesting of restricted share units |
|
| 286,359 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||
Issuance of shares |
|
| 13,332 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 58,936 |
|
|
| 58,936 |
|
|
| 182 |
|
|
| 59,118 |
| ||||||||||||||||||||||||||||||||||||
Balance at September 30, 2022 |
|
| 120,074,542 |
|
| $ | 12 |
|
| $ | (40,042 | ) |
| $ | 226,808 |
|
| $ | 9,119 |
|
| $ | 73,990 |
|
| $ | 269,887 |
|
| $ | 120 |
|
| $ | 270,007 |
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
|
|
| 120,074,542 |
|
| $ | 12 |
|
| $ | (40,042 | ) |
| $ | 229,995 |
|
| $ | 9,119 |
|
| $ | 81,750 |
|
| $ | 280,834 |
|
| $ | 56 |
|
| $ | 280,890 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13,238 |
|
|
| — |
|
|
| — |
|
|
| 13,238 |
|
|
| — |
|
|
| 13,238 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,069 |
|
|
| — |
|
|
| — |
|
|
| 4,069 |
|
|
| — |
|
|
| 4,069 |
|
Transactions with non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 38 |
|
|
| — |
|
|
| — |
|
|
| 38 |
|
|
| (38 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 94 |
|
|
| — |
|
|
| — |
|
|
| 94 |
|
|
| (94 | ) |
|
| — |
|
Distributions to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (180 | ) |
|
| (180 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (60 | ) |
|
| (60 | ) |
Dividends on redeemable preferred stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,301 | ) |
|
| (4,301 | ) |
|
| — |
|
|
| (4,301 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,418 | ) |
|
| (1,418 | ) |
|
| — |
|
|
| (1,418 | ) |
Dividends declared (9 cents per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10,775 | ) |
|
| (10,775 | ) |
|
| — |
|
|
| (10,775 | ) | ||||||||||||||||||||||||||||||||||||
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 |
|
| (3,313,751 | ) |
|
| — |
|
|
| (25,512 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (25,512 | ) |
|
| — |
|
|
| (25,512 | ) |
|
| (5,273,335 | ) |
|
| — |
|
|
| (31,921 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (31,921 | ) |
|
| — |
|
|
| (31,921 | ) |
Vesting and settlement of restricted share units |
|
| 541,029 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,427,973 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 33,291 |
|
|
| 33,291 |
|
|
| 149 |
|
|
| 33,440 |
| ||||||||||||||||||||||||||||||||||||
Balance at September 30, 2023 |
|
| 117,301,820 |
|
| $ | 12 |
|
| $ | (65,554 | ) |
| $ | 243,271 |
|
| $ | 9,119 |
|
| $ | 99,965 |
|
| $ | 286,813 |
|
| $ | (13 | ) |
| $ | 286,800 |
| ||||||||||||||||||||||||||||||||||||
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 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
ARKO Corp.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
|
| For the Nine Months |
|
| For the Three Months |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 33,440 |
|
| $ | 59,118 |
| ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
| ||||||||||
Net loss |
| $ | (594 | ) |
| $ | (2,527 | ) | ||||||||
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
| ||||||||||
Depreciation and amortization |
|
| 94,949 |
|
|
| 75,050 |
|
|
| 31,716 |
|
|
| 28,399 |
|
Deferred income taxes |
|
| (4,028 | ) |
|
| 20,728 |
|
|
| (10,075 | ) |
|
| (10,230 | ) |
Loss on disposal of assets and impairment charges |
|
| 5,543 |
|
|
| 3,389 |
|
|
| 2,664 |
|
|
| 287 |
|
Foreign currency loss |
|
| 130 |
|
|
| 241 |
|
|
| 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 |
|
| 1,857 |
|
|
| 1,894 |
|
|
| 664 |
|
|
| 592 |
|
Amortization of deferred income |
|
| (6,302 | ) |
|
| (7,269 | ) |
|
| (1,946 | ) |
|
| (1,860 | ) |
Accretion of asset retirement obligation |
|
| 1,690 |
|
|
| 1,259 |
|
|
| 616 |
|
|
| 491 |
|
Non-cash rent |
|
| 10,418 |
|
|
| 5,714 |
|
|
| 3,484 |
|
|
| 2,798 |
|
Charges to allowance for credit losses |
|
| 1,021 |
|
|
| 473 |
|
|
| 327 |
|
|
| 283 |
|
Loss from equity investment |
|
| 77 |
|
|
| 7 |
| ||||||||
(Income) loss from equity investment |
|
| (22 | ) |
|
| 36 |
| ||||||||
Share-based compensation |
|
| 13,238 |
|
|
| 9,027 |
|
|
| 3,329 |
|
|
| 4,069 |
|
Fair value adjustment of financial assets and liabilities |
|
| (11,627 | ) |
|
| (3,848 | ) |
|
| (10,772 | ) |
|
| (4,228 | ) |
Other operating activities, net |
|
| 2,279 |
|
|
| 855 |
|
|
| 624 |
|
|
| 329 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Increase in trade receivables |
|
| (62,487 | ) |
|
| (59,867 | ) |
|
| (24,304 | ) |
|
| (11,182 | ) |
Increase in inventory |
|
| (17,386 | ) |
|
| (14,570 | ) | ||||||||
Increase in other assets |
|
| (28,429 | ) |
|
| (7,367 | ) | ||||||||
Decrease (increase) in inventory |
|
| 188 |
|
|
| (2,845 | ) | ||||||||
Decrease in other assets |
|
| 5,095 |
|
|
| 3,545 |
| ||||||||
Increase in accounts payable |
|
| 29,667 |
|
|
| 37,493 |
|
|
| 21,347 |
|
|
| 5,940 |
|
Increase in other current liabilities |
|
| 8,992 |
|
|
| 7,631 |
| ||||||||
Increase (decrease) in asset retirement obligation |
|
| 46 |
|
|
| (94 | ) | ||||||||
Decrease in other current liabilities |
|
| (4,152 | ) |
|
| (127 | ) | ||||||||
(Decrease) increase in asset retirement obligation |
|
| (55 | ) |
|
| 67 |
| ||||||||
Increase in non-current liabilities |
|
| 5,719 |
|
|
| 9,899 |
|
|
| 3,631 |
|
|
| 2,012 |
|
Net cash provided by operating activities |
| $ | 78,807 |
|
| $ | 139,763 |
|
| $ | 12,755 |
|
| $ | 15,883 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
ARKO Corp.
Condensed Consolidated Statements of Cash Flows (cont’d)
(Unaudited, in thousands)
|
| For the Nine Months |
|
| For the Three Months |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Purchase of property and equipment |
| $ | (75,603 | ) |
| $ | (72,902 | ) |
| $ | (29,228 | ) |
| $ | (23,380 | ) |
Purchase of intangible assets |
|
| (45 | ) |
|
| (176 | ) | ||||||||
Proceeds from sale of property and equipment |
|
| 307,106 |
|
|
| 140,380 |
|
|
| 2,039 |
|
|
| 208,436 |
|
Business acquisitions, net of cash |
|
| (494,904 | ) |
|
| (191,203 | ) |
|
| — |
|
|
| (338,342 | ) |
Decrease in investments, net |
|
| — |
|
|
| 58,934 |
| ||||||||
Repayment of loans to equity investment |
|
| — |
|
|
| 174 |
| ||||||||
Prepayment for acquisition |
|
| (1,000 | ) |
|
| — |
| ||||||||
Loans to equity investment, net |
|
| 14 |
|
|
| — |
| ||||||||
Net cash used in investing activities |
|
| (263,446 | ) |
|
| (64,793 | ) |
|
| (28,175 | ) |
|
| (153,286 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Receipt of long-term debt, net |
|
| 78,833 |
|
|
| 51,450 |
|
|
| 41,588 |
|
|
| 55,000 |
|
Repayment of debt |
|
| (16,517 | ) |
|
| (42,372 | ) |
|
| (6,635 | ) |
|
| (5,592 | ) |
Principal payments on financing leases |
|
| (4,237 | ) |
|
| (5,014 | ) |
|
| (1,135 | ) |
|
| (1,418 | ) |
Early settlement of deferred consideration related to business acquisition |
|
| (17,155 | ) |
|
| — |
| ||||||||
Proceeds from sale-leaseback |
|
| 80,397 |
|
|
| — |
|
|
| — |
|
|
| 51,604 |
|
Payment of Additional Consideration |
|
| — |
|
|
| (2,085 | ) | ||||||||
Payment of Ares Put Option |
|
| (9,808 | ) |
|
| — |
| ||||||||
Common stock repurchased |
|
| (25,199 | ) |
|
| (40,042 | ) |
|
| (31,921 | ) |
|
| (2,310 | ) |
Dividends paid on common stock |
|
| (10,775 | ) |
|
| (7,291 | ) |
|
| (3,596 | ) |
|
| (3,609 | ) |
Dividends paid on redeemable preferred stock |
|
| (4,301 | ) |
|
| (4,301 | ) |
|
| (1,414 | ) |
|
| (1,418 | ) |
Distributions to non-controlling interests |
|
| — |
|
|
| (180 | ) | ||||||||
Net cash provided by (used in) financing activities |
|
| 88,393 |
|
|
| (49,835 | ) | ||||||||
Net (decrease) increase in cash and cash equivalents and restricted cash |
|
| (96,246 | ) |
|
| 25,135 |
| ||||||||
Net cash (used in) provided by financing activities |
|
| (20,268 | ) |
|
| 92,257 |
| ||||||||
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 |
|
| (83 | ) |
|
| (109 | ) |
|
| (19 | ) |
|
| (21 | ) |
Cash and cash equivalents and restricted cash, beginning of period |
|
| 316,769 |
|
|
| 272,543 |
|
|
| 241,421 |
|
|
| 316,769 |
|
Cash and cash equivalents and restricted cash, end of period |
| $ | 220,440 |
|
| $ | 297,569 |
|
| $ | 205,714 |
|
| $ | 271,602 |
|
Reconciliation of cash and cash equivalents and restricted cash |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents, beginning of period |
| $ | 298,529 |
|
|
| 252,141 |
|
| $ | 218,120 |
|
| $ | 298,529 |
|
Restricted cash, beginning of period |
|
| 18,240 |
|
|
| 20,402 |
|
|
| 23,301 |
|
|
| 18,240 |
|
Cash and cash equivalents and restricted cash, beginning of period |
| $ | 316,769 |
|
| $ | 272,543 |
|
| $ | 241,421 |
|
| $ | 316,769 |
|
Cash and cash equivalents, end of period |
| $ | 204,237 |
|
| $ | 283,375 |
|
| $ | 184,480 |
|
| $ | 255,852 |
|
Restricted cash, end of period |
|
| 16,203 |
|
|
| 14,194 |
|
|
| 21,234 |
|
|
| 15,750 |
|
Cash and cash equivalents and restricted cash, end of period |
| $ | 220,440 |
|
| $ | 297,569 |
|
| $ | 205,714 |
|
| $ | 271,602 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
ARKO Corp.
Condensed Consolidated Statements of Cash Flows (cont’d)
(Unaudited, in thousands)
|
| For the Nine Months |
|
| For the Three Months |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
Supplementary cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash received for interest |
| $ | 6,209 |
|
| $ | 344 |
|
| $ | 1,650 |
|
| $ | 2,197 |
|
Cash paid for interest |
|
| 54,354 |
|
|
| 36,109 |
|
|
| 16,724 |
|
|
| 12,174 |
|
Cash received for taxes |
|
| 831 |
|
|
| 211 |
|
|
| 268 |
|
|
| 212 |
|
Cash paid for taxes |
|
| 28,576 |
|
|
| 5,069 |
|
|
| 648 |
|
|
| 125 |
|
Supplementary noncash activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Prepaid insurance premiums financed through notes payable |
| $ | 10,040 |
|
| $ | 5,523 |
|
| $ | 3,073 |
|
| $ | 6,224 |
|
Purchases of equipment in accounts payable and accrued expenses |
|
| 17,718 |
|
|
| 7,615 |
|
|
| 11,775 |
|
|
| 11,577 |
|
Purchase of property and equipment under leases |
|
| 5,229 |
|
|
| 15,041 |
|
|
| 10,586 |
|
|
| 826 |
|
Disposals of leases of property and equipment |
|
| 4,149 |
|
|
| 18,605 |
|
|
| 9,100 |
|
|
| 2,476 |
|
Deferred consideration related to business acquisitions |
|
| 47,059 |
|
|
| — |
| ||||||||
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.
10
ARKO Corp.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. General
ARKO Corp. (the “Company”) is a Delaware corporation whose common stock, par value $0.0001 per share (“common stock”), and publicly-traded warrants are listed on the Nasdaq Stock Market (“Nasdaq”) under the symbols “ARKO” and “ARKOW,” respectively.
The Company’s operations are primarily performed by its wholly owned subsidiary, GPM Investments, LLC, (“GPM”), a Delaware limited liability company.company (“GPM”). 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. The CompanyGPM 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 September 30, 2023,March 31, 2024, GPM’s activity included the operation of 1,5521,540 retail convenience stores, the supply of fuel to 1,8251,816 gas stations operated by dealers and the operation of 295296 cardlock locations, in the District of Columbia and throughout more than 30 states and the District of Columbia in the Mid-Atlantic, Midwestern, Northeastern, Southeastern and Southwestern United States (“U.S.”).
The Company has four reportable segments: retail, wholesale, fleet fueling, and GPMP. Refer to Note 1112 below for further information with respect to the segments.
2. Summary of Significant Accounting Policies
Basis of Presentation
All significant intercompany balances and transactions have been eliminated in the accompanying condensed consolidated financial statements, which are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Interim Financial Statements
The accompanying condensed consolidated financial statements (“interim financial statements”) as of September 30, 2023March 31, 2024 and for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 are unaudited and have been prepared in accordance with GAAP for interim financial information and Regulation S-X set forth by the Securities and Exchange Commission (the “SEC”) for interim reporting. In the opinion of management, all adjustments (consisting of normal and recurring adjustments except those otherwise described herein) considered necessary for a fair presentation have been included in the accompanying interim financial statements. However, they do not include all of the information and disclosures required by GAAP for complete financial statements. Therefore, the interim financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes of the Company included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20222023 (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 on 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 U.S. during the winter months, can negatively impact financial results.
Use of Estimates
In the preparation of interim condensed consolidated financial statements, management may make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
11
results could differ from those estimates. Significant estimates include right-of-use assets and lease liabilities; impairment of goodwill, intangible, right-of-use and fixed assets; environmental assets and liabilities; deferred tax assets; and asset retirement obligations.
Cash and Cash Equivalents
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 inat several financial institutions in amounts that are above the FDIC standard deposit insurance limit of $250,000.
Revenue Recognition
Revenue is recognized when control of the promised goods or services is transferred to the customers. This requires the Company to identify contractual performance obligations and determine whether revenue should be recognized at a single point in time or over time, based on when control of goods and services transfers to a customer. Control is transferred to the customer over time if the customer simultaneously receives and consumes the benefits provided by the Company’s performance. If a performance obligation is not satisfied over time, the Company satisfies the performance obligation at a single point in time.
Revenue is recognized in an amount that reflects the consideration to which the Company expects to be entitled in exchange for goods or services.
When the Company satisfies a performance obligation by transferring control of goods or services to the customer, revenue is recognized against contract assets in the amount of consideration to which the Company is entitled. When the consideration amount received from the customer exceeds the amounts recognized as revenue, the Company recognizes a contract liability for the excess.
An asset is recognized related to the costs incurred to obtain a contract (e.g. sales commissions) if the costs are specifically identifiable to a contract, the costs will result in enhancing resources that will be used in satisfying performance obligations in the future and the costs are expected to be recovered. These capitalized costs are recorded as a part of other current assets and other non-current assets and are amortized on a systematic basis consistent with the pattern of transfer of the goods or services to which such costs relate. The Company expenses the costs to obtain a contract, as and when they are incurred, in cases where the expected amortization period is one year or less.
The Company evaluates if it is a principal or an agent in a transaction to determine whether revenue should be recorded on a gross or a net basis. In performing this analysis, the Company considers first whether it controls the goods before they are transferred to the customers and if it has the ability to direct the use of the goods or obtain benefits from them. The Company also considers the following indicators: (1) the primary obligor, (2) the latitude in establishing prices and selecting suppliers, and (3) the inventory risk borne by the Company before and after the goods have been transferred to the customer. When the Company acts as principal, revenue is recorded on a gross basis. When the Company acts as agent, revenue is recorded on a net basis.
Fuel revenue and fuel cost of revenue included fuel taxes of $311.9 million, $274.8 million, $883.4272.2 million and $750.3264.3 million for the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, respectively.
Refer to Note 1112 for disclosure of the revenue disaggregated by segment and product line, as well as a description of the reportable segment operations.
3. AcquisitionsLimited Partnership
As of December 31, 2023, GPM, directly and through certain of its wholly owned subsidiaries, held approximately 99.8% of the limited 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 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 $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 limited partnership interests in GPMP.
4. Transit Energy Group, LLC Acquisition
12
On March 1, 2023, the Company completed the acquisition of certain assets from Transit Energy Group, LLC and certain of its affiliated entities (collectively, “TEG”) pursuant to a purchase agreement entered on September 9, 2022, as amended (the “TEG Purchase Agreement”), including (i) 135 Company-operated convenience stores and gas stations, (ii) fuel supply rights to 181 dealer locations, (iii) a commercial, government, and industrial business, including certain bulk plants, and (iv) certain distribution and transportation assets, all in the southeastern United States (the “TEG Acquisition”).
The purchase price for the TEG Acquisition was, as of closing, approximately $370 million, as adjusted in accordance with the terms of the TEG Purchase Agreement, plus the value of inventory at the closing, of which $50 million was to be deferred and payable in two annual payments of $25 million (the “Installment Payments”), which the Company maywas entitled to elect to pay in either cash or, subject to the satisfaction 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
123,417,915
7.31
The, which was based on the 10-day volume weighted average price calculation contained in the TEG Purchase Agreement. As a result, the Company paidrecorded a gain of approximately $81.72.7 million as a component of interest and other financial income in the condensed consolidated statement of operations for the 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 non-deferred purchase price including the value of inventory and other closing adjustments, ofsecond Installment Payment, which would have otherwise been due on March 1, 2025. The $55.036.5 million was financed with the Capital One Line of Credit (as defined in(refer to Note 45 below). An affiliate of Oak Street Real Estate Capital Net Lease Property Fund, LP (including its affiliates, “Oak Street”),The Purchase Agreement Amendment additionally terminated the registration rights agreement, terminated TEG’s indemnity obligations under the Company’s standby real estate purchase, designationTEG Purchase Agreement and lease programextended the transition services agreement with Oak Street, dated as of May 3, 2021 (as amended, the “Program Agreement”), paid the balance of the non-deferred purchase price for fee simple ownership in 104 sites. At the closing, pursuant to the Program Agreement,entered into between the Company entered intoand TEG. As a master lease with Oak Street forresult of this transaction, the sites Oak Street acquired in the transaction under customary lease terms. For accounting purposes, the transaction with Oak Street was treated asCompany recorded a sale-leaseback. Because the sale-leaseback was off-market, a financial liabilitynet gain of approximately $51.66.4 million, out of which approximately $6.5 million was recorded resulting inas a component of interest expense recognized over the lease term. Additionally, right-of-use assets and operating lease liabilities of approximately $131.3 million were recorded in connection with the operating lease, after reducing for accounting purposes from the contractual lease payments the amount attributable to the repayment of the additional financing.
The details of the TEG Acquisition were as follows:
|
| Amount |
| |
|
| (in thousands) |
| |
Fair value of consideration transferred: |
|
|
| |
Cash |
| $ | 26,702 |
|
GPMP Capital One Line of Credit |
|
| 55,000 |
|
Liability resulting from deferred purchase price |
|
| 45,845 |
|
Receivable from TEG |
|
| (62 | ) |
Consideration provided by Oak Street |
|
| 258,019 |
|
Total consideration |
| $ | 385,504 |
|
Assets acquired and liabilities: |
|
|
| |
Cash and cash equivalents |
| $ | 379 |
|
Inventory |
|
| 20,259 |
|
Other assets |
|
| 1,304 |
|
Property and equipment, net |
|
| 268,660 |
|
Intangible assets |
|
| 20,000 |
|
Right-of-use assets under operating leases |
|
| 69,254 |
|
Environmental receivables |
|
| 2,664 |
|
Deferred tax asset |
|
| 19,135 |
|
Total assets |
|
| 401,655 |
|
Other liabilities |
|
| (2,087 | ) |
Environmental liabilities |
|
| (2,939 | ) |
Asset retirement obligations |
|
| (10,875 | ) |
Operating leases |
|
| (57,569 | ) |
Total liabilities |
|
| (73,470 | ) |
Total identifiable net assets |
|
| 328,185 |
|
Goodwill |
| $ | 57,319 |
|
|
|
|
| |
Consideration paid in cash |
| $ | 81,702 |
|
Consideration provided by Oak Street |
|
| 258,019 |
|
Less: cash and cash equivalent balances acquired |
|
| (379 | ) |
Net cash outflow |
| $ | 339,342 |
|
The initial accounting treatment of the TEG Acquisition reflected in these interimother financial statements is provisional as the Company has not yet finalized the initial accounting treatment of the business combination, and, in this regard, has not finalized the valuation of some of the assets and liabilities acquired and the goodwill resulting from the TEG Acquisition, mainly due to the limited period of time between the TEG Acquisition closing date and the date of these interim financial statements. Therefore, some of the financial information presented with respect to the TEG Acquisition in these interim financial statements remains subject to change.
The Company included identifiable tangible assets and identifiable liabilities at their respective fair values based on the information available to the Company’s management on the TEG Acquisition closing date, including, among other things, a preliminary valuation performed by external consultants for this purpose. The useful life of both the wholesale fuel supply contracts and the trade name was estimated at five years.
13
As a result of the preliminary accounting treatment of the TEG Acquisition, the Company recorded goodwill of approximately $57.3 million, all of which was allocated to the GPMP segment attributable to the opportunity to add a significant amount of volume to the GPMP segment. None of the goodwill recognized is tax deductible for U.S. income tax purposes.
Acquisition-related costs amounting to approximately $0.4 million and $3.3 million have been excluded from the consideration transferred and have been recognized as an expense within other expenses, net in the condensed consolidated statements of operations for the three and nine months ended September 30, 2023, respectively. Approximately $0.3 million of acquisition-related costs were recognized for the three and nine months ended September 30, 2022.
Results of operations for the TEG Acquisition for the period subsequent to the acquisition closing date were included in the condensed consolidated statement of operations for the three and nine months ended September 30, 2023. For the period from the TEG Acquisition closing date through September 30, 2023, the Company recognized $564.3 million in revenues and $2.3 million of net loss related to the TEG Acquisition. For the three months ended September 30, 2023, the Company recognized $247.2 million in revenues and $0.4 million of net income related to the TEG Acquisition.
WTG Fuels Holdings, LLC
On June 6, 2023, certain of the Company’s subsidiaries completed the acquisition of certain assets from WTG Fuels Holdings, LLC and certain other sellers party thereto (collectively, “WTG”) pursuant to an asset purchase agreement entered on December 6, 2022, including (i) 24 company-operated Uncle’s convenience stores located across Western Texas, and (ii) 68 proprietary GASCARD-branded cardlock sites and 43 private cardlock sites for fleet fueling operations located in Western Texas and Southeastern New Mexico (the “WTG Acquisition”).
The purchase price for the WTG Acquisition was approximately $140.0 million, plus the value of inventory at the closing.The Company paid approximately $29.9 million of the purchase price including the value of inventory and other closing adjustments, of which $19.2 million was financed with the Capital One Line of Credit (as defined in Note 4 below). Oak Street, under the Program Agreement, paid the balance of the purchase price for fee simple ownership in 33 properties. At the closing, pursuant to the Program Agreement, the Company entered into master leases with Oak Street for the sites Oak Street acquired in the transaction under customary lease terms. For accounting purposes, the transaction with Oak Street was treated as a sale-leaseback. Because the sale-leaseback was off-market, a financial liability of $28.8 million was recorded, resulting in interest expense recognized over the lease term. Additionally, right-of-use assets and operating lease liabilities of approximately $49.0 million were recorded in connection with the operating lease, after reducing for accounting purposes from the contractual lease payments the amount attributable to the repayment of the additional financing.
The details of the WTG Acquisition were as follows:
14
|
| Amount |
| |
|
| (in thousands) |
| |
Fair value of consideration transferred: |
|
|
| |
Cash |
| $ | 11,471 |
|
GPMP Capital One Line of Credit |
|
| 19,200 |
|
Consideration provided by Oak Street |
|
| 115,041 |
|
Total consideration |
| $ | 145,712 |
|
Assets acquired and liabilities: |
|
|
| |
Cash and cash equivalents |
| $ | 60 |
|
Inventory |
|
| 5,694 |
|
Other assets |
|
| 149 |
|
Property and equipment, net |
|
| 128,396 |
|
Intangible assets |
|
| 14,800 |
|
Right-of-use assets under operating leases |
|
| 1,812 |
|
Environmental receivables |
|
| 4 |
|
Total assets |
|
| 150,915 |
|
Other liabilities |
|
| (598 | ) |
Environmental liabilities |
|
| (136 | ) |
Asset retirement obligations |
|
| (2,730 | ) |
Operating leases |
|
| (1,739 | ) |
Total liabilities |
|
| (5,203 | ) |
Total identifiable net assets |
|
| 145,712 |
|
Goodwill |
| $ | — |
|
|
|
|
| |
Consideration paid in cash |
| $ | 30,671 |
|
Consideration provided by Oak Street |
|
| 115,041 |
|
Less: cash and cash equivalent balances acquired |
|
| (60 | ) |
Net cash outflow |
| $ | 145,652 |
|
The initial accounting treatment of the WTG Acquisition reflected in these interim financial statements is provisional as the Company has not yet finalized the initial accounting treatment of the business combination, and, in this regard, has not finalized the valuation of some of the assets and liabilities acquired and the goodwill resulting from the WTG Acquisition, mainly due to the limited period of time between the WTG Acquisition closing date and the date of these interim financial statements. Therefore, some of the financial information presented with respect to the WTG Acquisition in these interim financial statements remains subject to change.
The Company included identifiable tangible assets and identifiable liabilities at their respective fair values based on the information available to the Company’s management on the WTG Acquisition closing date, including, among other things, a preliminary valuation performed by management. The useful life of the contracts related to the third-party cardlock sites, the customer relationships related to the proprietary cardlock sites and the proprietary fuel cards, the wholesale fuel supply contracts and the trade name was each estimated at five years.
The Company’s preliminary accounting treatment of the WTG Acquisition resulted in no goodwill being recorded.
Acquisition-related costs amounting to approximately $0.1 million and $2.2 million have been excluded from the consideration transferred and have been recognized as an expense within other expenses, net in the condensed consolidated statements of operations for the three and nine months ended September 30, 2023, respectively. No material acquisition-related costs were recognized for the three and nine months ended September 30, 2022.
Results of operations for the WTG Acquisition for the period subsequent to the acquisition closing date were included in the condensed consolidated statement of operations for the three and nine months ended September 30, 2023. For the period from the WTG Acquisition closing date through September 30, 2023, the Company recognized $68.9 million in revenues and $0.6 million of net income related to the WTG Acquisition. For the three months ended September 30, 2023, the Company recognized $54.0 million in revenues and $0.4 million of net income related to the WTG Acquisition.
Speedy Acquisition
On August 15, 2023, the Company acquired from a third party seven company-operated convenience stores located in Arkansas and Oklahoma (the “Speedy Acquisition”). Prior to the acquisition, the Company had supplied fuel to these sites, which had been
15
operated by an independent dealer. The consideration at closing was approximately $13.7 million including cash and inventory in the stores on the closing date, of which approximately $10.4 million was paid by Oak Street under the Program Agreement for fee simple ownership in three of the properties. At the closing, pursuant to the Program Agreement, the Company entered into a master lease with Oak Street for the sites Oak Street acquired under customary lease terms. For accounting purposes, the transaction with Oak Street was treated as a sale-leaseback and the Company recorded right of use assets and operating lease liabilities of approximately $8.8 million in connection therewith. As of the closing, the Company leases the remaining four sites from the seller and Oak is expected to purchase the fee simple ownership in these sites from the seller, for approximately $10.3 million, within twenty months from the closing of the Speedy Acquisition, and then lease these sites to the Company.
Pride Convenience Holdings, LLC
On December 6, 2022, the Company acquired all of the issued and outstanding membership interests in Pride Convenience Holdings, LLC, which operated at closing 31 convenience stores and gas stations in Connecticut and Massachusetts (the “Pride Acquisition”). In the second quarter of 2023, the Company updated the initial accounting treatment of the Pride Acquisition, including the valuation of some of the assets acquired, liabilities assumed and the goodwill resulting from the acquisition. As a result, the Company primarily reduced property and equipment by approximately $4.7 million, increased accounts payable and other liabilities by a net $1.0 million, and increased the deferred tax asset by approximately $1.0 million. The adjustments to the assets acquired and liabilities assumed resulted in an increase in goodwill of approximately $3.1 million, of which $0.4 million was allocated to the GPMP segment and the remainder was allocated to the retail segment attributable to the opportunities to expand into new geographic locations. These adjustments resulted in a reduction in depreciation and amortization expenses recorded, approximately $0.2 million that related to amounts recorded for the year ended December 31, 2022 and approximately $0.6 million that related to the three months ended March 31, 2023.2024.
Impact of Acquisitions (unaudited)
The unaudited supplemental pro forma financial information presented below was prepared based on the historical information of the Company and the acquired operations and gives pro forma effect to the acquisitions using the assumption that the Speedy Acquisition, the WTG Acquisition, the TEG Acquisition, the Pride Acquisition and the acquisition of 184 Quarles cardlock sites and 46 dealer locations on July 22, 2022 (the “Quarles Acquisition”) had occurred at the beginning of each period presented below. The unaudited supplemental pro forma financial information does not give effect to the potential impact of current financial conditions, any anticipated synergies, operating efficiencies or cost savings that may result from the acquisitions or any integration costs. The unaudited pro forma financial information is not necessarily indicative of what the actual results of operations would have been had the acquisitions occurred at the beginning of each period presented below nor is it indicative of future results.
|
| For the Nine Months |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
| (unaudited) |
| |||||
|
| (in thousands) |
| |||||
Total revenue |
| $ | 7,603,426 |
|
| $ | 8,887,740 |
|
Net income |
|
| 27,417 |
|
|
| 55,843 |
|
4.5. Debt
The components of debt were as follows:
|
| September 30, |
|
| December 31, |
| ||
|
| (in thousands) |
| |||||
Senior Notes |
| $ | 444,230 |
|
| $ | 443,648 |
|
M&T debt |
|
| 46,782 |
|
|
| 49,023 |
|
Capital One line of credit |
|
| 331,665 |
|
|
| 256,430 |
|
Insurance premium notes |
|
| 5,436 |
|
|
| 2,886 |
|
Total debt, net |
| $ | 828,113 |
|
| $ | 751,987 |
|
Less current portion |
|
| (15,947 | ) |
|
| (11,944 | ) |
Total long-term debt, net |
| $ | 812,166 |
|
| $ | 740,043 |
|
16
|
| March 31, |
|
| December 31, |
| ||
|
| (in thousands) |
| |||||
Senior Notes |
| $ | 444,634 |
|
| $ | 444,432 |
|
M&T debt |
|
| 67,164 |
|
|
| 65,228 |
|
Capital One Line of Credit |
|
| 368,889 |
|
|
| 332,027 |
|
Insurance premium notes |
|
| 4,271 |
|
|
| 3,752 |
|
Total debt, net |
| $ | 884,958 |
|
| $ | 845,439 |
|
Less current portion |
|
| (17,297 | ) |
|
| (16,792 | ) |
Total long-term debt, net |
| $ | 867,661 |
|
| $ | 828,647 |
|
Financing agreement with a syndicate of banks led by Capital One, National Association
On May 5, 2023, GPM Petroleum LP (“GPMP”) renewed the credit agreement governing itsGPMP has a revolving credit facility with a syndicate of banks led by Capital One, National Association to increase thewith an aggregate principal amount of availability thereunder from $500 million toof $800 million (as amended, the(the “Capital One Line of Credit”) and extend the maturity date from July 15, 2024 to May 5, 2028.. At GPMP’sGPMP's request, availability under the Capital One Line of Credit can be increased up to $1.0 billion, subject to obtaining additional financing commitments from current lenders or from other banks, and subject to certain other terms as detailed in the Capital One Line of Credit. 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, which facilitated 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 as defined in Note 4. The other material terms of the Capital One Line of Credit remain unchanged.
13
M&T Bank Credit Agreement
On September 28, 2023,January 31,2024, GPM amended itsentered into an additional term loan under the credit agreement with M&T Bank for the purchase 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 Credit Agreement”Term Loans”) to increase the line of credit for purchases of equipment thereunder from $20.0 million to $45.0 million, which may be borrowed in tranches, advanced until September 28, 2026. Concurrent with entry into such amendment, GPM borrowed approximately $4.8 million under the line of credit primarily to purchase certain equipment.. The M&T Credit Agreement provides that each additional equipment loan tranche will haveCompany has granted a term of up to five years from the date it is advanced, payable in equal monthly payments of principal plus interest equal to SOFR (as definedmortgage in the M&T Credit Agreement) plus 2.75%. The equipment loans are secured by the equipment acquired with the proceeds of such loans along with real estate pledgedof 50 sites and certain fixtures at these and other sites as collateral to support the M&T for real estate loans.Term Loans.
5.6. Leases
As of September 30, 2023,March 31, 2024, the Company leased 1,2891,266 of the convenience stores that it operates, 209207 dealer locations, 156155 cardlock locations and certain office and storage spaces, including land and buildings in certain cases. Most of the lease agreements are for long-term periods, ranging from 15 to 20 years, and generally include several renewal options for extension periods for five to 25 years each. Additionally, the Company leases certain store equipment, office equipment, automatic tank gauges and fuel dispensers.
The components of lease cost recorded on the condensed consolidated statements of operations were as follows:
|
| For the Three Months |
|
| For the Nine Months |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
| (in thousands) |
| |||||||||||||
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation of right-of-use assets |
| $ | 2,695 |
|
| $ | 3,020 |
|
| $ | 8,333 |
|
| $ | 9,104 |
|
Interest on lease liabilities |
|
| 4,229 |
|
|
| 4,226 |
|
|
| 12,533 |
|
|
| 12,857 |
|
Operating lease costs included in store operating expenses |
|
| 46,939 |
|
|
| 36,758 |
|
|
| 134,275 |
|
|
| 105,411 |
|
Operating lease costs included in general and administrative |
|
| 553 |
|
|
| 473 |
|
|
| 1,674 |
|
|
| 1,211 |
|
Lease cost related to variable lease payments, short-term |
|
| 556 |
|
|
| 602 |
|
|
| 1,957 |
|
|
| 1,815 |
|
Right-of-use asset impairment charges and loss on |
|
| 2,019 |
|
|
| 911 |
|
|
| 3,473 |
|
|
| 911 |
|
Total lease costs |
| $ | 56,991 |
|
| $ | 45,990 |
|
| $ | 162,245 |
|
| $ | 131,309 |
|
Supplemental balance sheet data related to leases was as follows:
|
| September 30, |
|
| December 31, |
| ||
|
| (in thousands) |
| |||||
Operating leases |
|
|
|
|
|
| ||
Weighted average remaining lease term (in years) |
|
| 14.2 |
|
|
| 14.1 |
|
Weighted average discount rate |
|
| 7.8 | % |
|
| 7.7 | % |
Financing leases |
|
|
|
|
|
| ||
Weighted average remaining lease term (in years) |
|
| 22.1 |
|
|
| 23.4 |
|
Weighted average discount rate |
|
| 7.2 | % |
|
| 7.2 | % |
17
As of September 30, 2023, maturities of lease liabilities for operating lease obligations and financing lease obligations having an initial or remaining non-cancelable lease terms in excess of one year were presented in the table below. The minimum lease payments presented below include periods where an option is reasonably certain to be exercised and do not take into consideration any futureconsumer price index adjustments for these agreements.
|
| Operating |
|
| Financing |
| ||
|
| (in thousands) |
| |||||
October 2023 through September 2024 |
| $ | 175,877 |
|
| $ | 26,233 |
|
October 2024 through September 2025 |
|
| 177,272 |
|
|
| 27,100 |
|
October 2025 through September 2026 |
|
| 177,298 |
|
|
| 20,814 |
|
October 2026 through September 2027 |
|
| 174,992 |
|
|
| 20,777 |
|
October 2027 through September 2028 |
|
| 170,208 |
|
|
| 21,005 |
|
Thereafter |
|
| 1,662,918 |
|
|
| 409,024 |
|
Gross lease payments |
| $ | 2,538,565 |
|
| $ | 524,953 |
|
Less: imputed interest |
|
| (1,058,523 | ) |
|
| (287,316 | ) |
Total lease liabilities |
| $ | 1,480,042 |
|
| $ | 237,637 |
|
|
| For the Three Months |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
| (in thousands) |
| |||||
Finance lease cost: |
|
|
|
|
|
| ||
Depreciation of right-of-use assets |
| $ | 2,452 |
|
| $ | 2,853 |
|
Interest on lease liabilities |
|
| 4,300 |
|
|
| 4,162 |
|
Operating lease costs included in site operating expenses |
|
| 46,675 |
|
|
| 41,584 |
|
Operating lease costs included in general and administrative |
|
| 538 |
|
|
| 534 |
|
Lease cost related to variable lease payments, short-term |
|
| 628 |
|
|
| 690 |
|
Right-of-use asset impairment charges and loss (gain) on |
|
| 1,536 |
|
|
| (540 | ) |
Total lease costs |
| $ | 56,129 |
|
| $ | 49,283 |
|
6.7. 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 September 30,March 31, 2024 and December 31, 2023, the Company had fuel futures contracts in place to hedge approximately 1.81.3 million gallons and 1.2 million gallons, respectively, of diesel fuel for which the Company had a firm commitment to purchase. As of September 30, 2023March 31, 2024 and December 31, 2022,2023, the Company had an asset derivativesderivative with a fair valuesvalue of approximately $0.050.1 million and $0.50.1 million, respectively, recorded in other current assets and a firm commitmentscommitment with a fair valuesvalue of approximately $0.050.1 million and $0.50.1 million, respectively, recorded in other current liabilities on the condensed consolidated balance sheets.
As of September 30, 2023March 31, 2024 and December 31, 2022,2023, there was $0.053.0 millionthousand and $0.50 million,, respectively, of cash collateral provided to counterparties that was classified as restricted cash on the condensed consolidated balance sheet. All cash flows associated with purchasing and selling fuel derivative instruments are classified as other operating activities, net cash flows in the condensed consolidated statements of cash flows.
7.8. Equity
The Company’s board of directors (the “Board”) declared, and the Company paid, dividends of $0.03 per share of common stock on each of March 21, 2023, June 1, 2023 and September 1, 2023,2024, totaling approximately $10.83.6 million in the nine months ended September 30, 2023.million. The amount and timing of dividends payable on the common stock are within the sole discretion of the Board, which will evaluate dividend payments within the context of the Company’s overall capital allocation strategy on an ongoing basis, giving consideration to its current and forecastforecasted earnings, financial condition, cash requirements and other factors. As a result of the aggregate amount of dividends paid on the common stock through September 30, 2023,March 31, 2024, the conversion price of the Company’s Series A convertible preferred stock has been adjusted from $12.00 to $11.8211.76 per share, as
14
were the threshold share prices in the Deferred Shares agreement (as defined in Note 10)17 to the annual financial statements). The Board declared a quarterly dividend of $0.03 per share of common stock, to be paid on December 1, 2023May 31, 2024 to stockholders of record as of November 17, 2023.May 20, 2024.
In February 2022, the Board authorized a share repurchase program, which was later increased in May 2023, for up to an aggregate of $50100.0 million of outstanding shares of common stock and instock. In May 2023,2024, the Board increased the size of the share repurchase program to $100.0125.0 million. The share repurchase program does not have an expiration date. InDuring the three and nine months ended September 30, 2023,March 31, 2024, inclusive of the repurchase of the First Installment Shares from TEG, the Company repurchased approximately 1.5 million and 3.14.8 million shares of common stock respectively, under the share repurchase program for approximately $11.6 million and $23.528.3 million, or an average share price of $7.535.89. As of March 31, 2024, there was $0.7 and $7.55, respectively.million remaining under the share repurchase program.
8.9. Share-Based Compensation
The Compensation Committee of the Board has approved the grant of non-qualified stock options, 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
18
exercise price may 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 RSUs.
Additionally, a non-employee director may receive RSUs in lieu of up to 100% of his or her cash fees, which are vested immediately and which RSUs will be settled in common stock upon the director’s departure from the Board or an earlier change in control of the Company.
Stock Options
The following table summarizes share activity related to stock options:
|
| Stock Options |
|
| Weighted Average Exercise Price |
|
| Weighted Average Fair Value |
|
| Remaining Average Contractual Term (Years) |
|
| Aggregate Intrinsic Value |
| |||||
|
| (in thousands) |
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
| |||||
Options Outstanding, December 31, 2022 |
|
| 897 |
|
| $ | 9.24 |
|
|
|
|
|
| 9.0 |
|
| $ | 77 |
| |
Granted |
|
| 409 |
|
|
| 8.58 |
|
|
| 3.27 |
|
|
|
|
|
|
| ||
Options Outstanding, September 30, 2023 |
|
| 1,306 |
|
| $ | 9.03 |
|
|
|
|
|
| 8.6 |
|
| $ | — |
|
The aggregate intrinsic value isDuring the difference between the exercise price and the closing price of the Company’s common stock on September 30, 2023 and December 31, 2022.
In the ninethree months ended September 30, 2023,March 31, 2024, 352447 thousand stock options vested. There was no other activity related to stock options during the three months ended March 31, 2024.
As of September 30, 2023,March 31, 2024, total unrecognized compensation cost related to unvested stock options was approximately $1.91.3 million, which is expected to be recognized over a weighted average period of approximately 1.91.6 years.
The fair value of each stock option award is estimated by management on the date of the grant using the Black-Scholes option pricing model. The following table summarizes the assumptions utilized in the valuation of the stock option awards granted in the nine months ended September 30, 2023:
|
|
| ||
|
|
| ||
|
|
| ||
|
|
The expected stock price volatility is based on the historical volatility of the Company’s stock price plus the Company’s peer group’s stock price for the period prior to the Company’s listing on Nasdaq. The volatilities are estimated for a period of time equal to the expected term of the related option. The risk-free interest rate is based on the implied yield of U.S. Treasury zero-coupon issues with an equivalent remaining term. The expected term of the options represents the estimated period of time until exercise and is determined by considering the contractual terms, vesting schedule and expectations of future employee behavior.
Restricted Stock Units
The following table summarizes share activity related to RSUs:
|
| Restricted Stock Units |
|
| Weighted Average Grant Date Fair Value |
|
| Restricted Stock Units |
|
| Weighted Average Grant Date Fair Value |
| ||||
|
| (in thousands) |
|
|
|
|
| (in thousands) |
|
|
|
| ||||
Nonvested RSUs, December 31, 2022 |
|
| 3,115 |
|
| $ | 8.90 |
| ||||||||
Nonvested RSUs, December 31, 2023 |
|
| 3,869 |
|
| $ | 8.65 |
| ||||||||
Granted |
|
| 1,750 |
|
|
| 8.39 |
|
|
| 2,621 |
|
|
| 6.48 |
|
Released |
|
| (630 | ) |
|
| 8.97 |
|
|
| (1,426 | ) |
|
| 9.16 |
|
Forfeited |
|
| (37 | ) |
|
| 9.22 |
|
|
| (79 | ) |
|
| 4.80 |
|
Performance-based share adjustment |
|
| 144 |
|
|
| 8.13 |
| ||||||||
Nonvested RSUs, September 30, 2023 |
|
| 4,342 |
|
| $ | 8.66 |
| ||||||||
Nonvested RSUs, March 31, 2024 |
|
| 4,985 |
|
| $ | 7.42 |
|
InDuring the ninethree months ended September 30, 2023,March 31, 2024, 125,24648,406 RSUs were issued to non-employee directors. These awards are included in the table above under restricted stockboth Granted and Released units. ThereIn addition to the Nonvested RSUs shown in the table above, there were 287,332301,956 and 198,170303,850 RSUs issued to non-employee directors outstanding as of September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively.
19
The fair value of RSUs released during the ninethree months ended September 30, 2023March 31, 2024 was approximately $5.411.0 million.
InDuring the ninethree months ended September 30, 2023,March 31, 2024, the Company granted a target of 1,134,2801,505,244 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 PSUs were awarded to certain members of senior management and provide for cliff vesting, generallyvest at the end of a three-year period, subject to the achievement of specific key financial metricsperformance criteria measured over such period. The number of PSUs thatwhich will ultimately vest is contingent upon the achievement of these key financial metrics atrecipient continuing to be in the endcontinuous service of the relevantCompany and related entities through the last day of the performance period.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.
Given the Company’s strong performance in 2022, in In the first quarter of 2023,2024, the Compensation Committee of the Board approved the adjustmentperformance criteria
15
for the performance criteria for 2022period ended December 31, 2023 such that the percentage of PSUs that vestvested with respect to the target amount for 2022 would be 125% instead ofthe 2021 PSU grants was 100% and would be applied to all PSUs granted as part of the 2021 and 2022 long-term incentives. As a result, the number of PSUs was adjusted for the probability of achieving these metrics, resulting in additional expense of $0.1 million being recorded in the first quarter of 2023, based on the fair value at the adjustment approval date. For PSUs with market conditions, the Company recognizes the fair value expense ratably over the performance and vesting period..
As of September 30, 2023,March 31, 2024, total unrecognized compensation cost related to RSUs and PSUs was approximately $19.327.4 million, which is expected to be recognized over a weighted average period of approximately 1.82.3 years.
Share-Based Compensation Cost
Total share-based compensation cost recorded collectively for employees, non-employees and members of the Board for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 was $4.6 million, $3.1 million, $13.23.3 million and $9.04.1 million, respectively, and included in general and administrative expenses on the condensed consolidated statements of operations.
9.10. 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 |
|
| For the Nine Months |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
| (in thousands) |
| |||||||||||||
Net income available to common stockholders |
| $ | 19,991 |
|
| $ | 23,494 |
|
| $ | 28,990 |
|
| $ | 54,635 |
|
Dividends on redeemable preferred stock |
|
| — |
|
|
| 1,449 |
|
|
| — |
|
|
| — |
|
Changes in fair value of Ares Put Option (See Note 10) |
|
| — |
|
|
| (2,425 | ) |
|
| — |
|
|
| (1,894 | ) |
Net income available to common stockholders after assumed |
| $ | 19,991 |
|
| $ | 22,518 |
|
| $ | 28,990 |
|
| $ | 52,741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares outstanding — Basic |
|
| 118,389 |
|
|
| 120,074 |
|
|
| 119,505 |
|
|
| 121,950 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Restricted share units |
|
| 1,903 |
|
|
| 1,182 |
|
|
| 1,097 |
|
|
| 618 |
|
Ares Put Option |
|
| — |
|
|
| 757 |
|
|
| — |
|
|
| 959 |
|
Redeemable preferred stock |
|
| — |
|
|
| 8,375 |
|
|
| — |
|
|
| — |
|
Weighted average common shares outstanding — Diluted |
|
| 120,292 |
|
|
| 130,388 |
|
|
| 120,602 |
|
|
| 123,527 |
|
Net income per share available to common stockholders |
| $ | 0.17 |
|
| $ | 0.20 |
|
| $ | 0.24 |
|
| $ | 0.45 |
|
Net income per share available to common stockholders |
| $ | 0.17 |
|
| $ | 0.17 |
|
| $ | 0.24 |
|
| $ | 0.43 |
|
|
| 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 | ) |
The following potential shares of common stock have been excluded from the computation of diluted net incomeloss per share because their effect would have been antidilutive:
|
| As of September 30, |
|
| As of March 31, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
Stock options |
|
| 1,306 |
|
|
| 897 |
|
|
| 1,306 |
|
|
| 1,306 |
|
Ares warrants |
|
| 1,100 |
|
|
| 1,100 |
|
|
| 1,100 |
|
|
| 1,100 |
|
Public and Private warrants |
|
| 17,333 |
|
|
| 17,333 |
|
|
| 17,333 |
|
|
| 17,333 |
|
Series A redeemable preferred stock |
|
| 8,503 |
|
|
| 8,418 |
| ||||||||
RSUs and PSUs |
|
| 5,287 |
|
|
| 4,582 |
| ||||||||
Ares Put Option |
|
| — |
|
| * |
|
20
The effect of* See Note 10 to the potential shares of common stock issuable upon conversion of the redeemable preferred stock was antidilutive for the three months ended September 30, 2023 and the nine months ended September 30, 2023 and 2022, and such shares were excluded from the computation of diluted net income per share.annual financial statements.
10.11. Fair Value Measurements and Financial Instruments
The fair value of cash and cash equivalents, restricted cash, short-term investments, trade receivables, accounts payable and other current liabilities approximated their carrying values as of September 30, 2023March 31, 2024 and December 31, 20222023 primarily due to the short-term maturity of these instruments. On October 21, 2021, the Company completed a private offering of $450 million aggregate principal amount of 5.125% Senior Notes due 2029 (the “Senior Notes”). Based on market trades of the Senior Notes close to September 30, 2023March 31, 2024 and December 31, 20222023 (Level 1 fair value measurement), the fair value of the Senior Notes was estimated at approximately $365.1373.9 million and $354.7391.8 million, respectively, compared to a gross carrying value of $450 million at September 30, 2023both March 31, 2024 and December 31, 2022.2023. The fair valuevalues of the other long-term debt approximated their respective carrying values as of September 30, 2023March 31, 2024 and December 31, 20222023 due to the frequency with which interest rates are reset based on changes in prevailing interest rates. The fair value of fuel futures contracts was determined using NYMEX quoted values.
The contingent consideration from the acquisition of the business of Empire Petroleum Partners, LLC is measured at fair value at the end of each reporting period and amounted to $3.33.5 million and $3.73.4 million as of September 30, 2023March 31, 2024 and December 31, 2022,2023, 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 $0.1 million $0.1 million, $0.3 million and $(0.3) million werewas recorded as components of interest and other financial expenses (income) in the condensed consolidated statements of operations for the change in the fair value of the contingent consideration for each of the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, respectively, and approximately $1.00.02 million $(1.6
) million, $(
0.716
and $(2.10.7) million of expenses (income) were recorded as components of other expenses, net in the condensed consolidated statements of operations for the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, respectively.
The public warrants to purchase the Company’s common stock (the “Public Warrants”), of which approximately 14.8 million were outstanding as of September 30, 2023,March 31, 2024, are measured at fair value at the end of each reporting period and amounted to $15.87.4 million and $25.916.3 million as of September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. The fair value methodology for the Public Warrants is categorized as Level 1. Approximately $(6.2) million, $5.39.0 million, $(10.1) million and $0.13.8 million were recorded as components of interest and other financial (income) expensesincome in the condensed consolidated statements of operations for the change in the fair value of the Public Warrants for the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, respectively.
The private warrants to purchase the Company’s common stock (the “Private Warrants”), of which approximately 2.5 million were outstanding as of September 30, 2023,March 31, 2024, are measured at fair value at the end of each reporting period and amounted to $2.40.9 million and $4.52.5 million as of September 30, 2023March 31, 2024 and December 31, 2022,2023, 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:
|
| September 30, |
|
| March 31, |
| ||
Expected term (in years) |
|
| 2.2 |
|
|
| 1.7 |
|
Expected dividend rate |
|
| 1.7 | % |
|
| 2.1 | % |
Volatility |
|
| 45.3 | % |
|
| 48.3 | % |
Risk-free interest rate |
|
| 5.0 | % |
|
| 4.7 | % |
Strike price |
| $ | 11.50 |
|
| $ | 11.50 |
|
For the change in the fair value of the Private Warrants, approximately $(1.1) million, $1.11.5 million, $(2.1) million and $0.31.0 million were recorded as components of interest and other financial (income) expensesincome in the condensed consolidated statements of operations for the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, respectively.
The founders of Haymaker Founders (as defined in Note 1711 to the annual financial statements) will be entitled to up to 200 thousand shares of common stock to be issued subject to the number of incremental shares of common stock issued to the holders of the Series A redeemable preferred stock not being higher than certain thresholds (the “Deferred“Additional Deferred Shares”). The Additional Deferred Shares are measured at fair value at the end of each reporting period and amounted to $1.20.9 million and $1.41.3 million as of September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. The fair value methodology for the Additional Deferred Shares is categorized as Level 3 because inputs to the valuation
21
methodology are unobservable and significant to the fair value 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:
|
| September 30, |
|
| March 31, |
| ||
Expected term (in years) |
|
| 3.7 |
|
|
| 3.2 |
|
Volatility |
|
| 36.2 | % |
|
| 34.6 | % |
Risk-free interest rate |
|
| 4.7 | % |
|
| 4.4 | % |
Stock price |
| $ | 7.15 |
|
| $ | 5.70 |
|
Approximately $(0.1) million, $0.2 million, $(0.3) million and $0 were recorded as components of interest and other financial (income) expenses in the condensed consolidated statements of operations forFor the change in the fair value of the Additional Deferred Shares, for the three and nine months ended September 30, 2023 and 2022, respectively.a
The Company entered into an agreement with Ares Capital Corporation (“Ares”) and certain of its affiliates (the “Ares Put Option”), which guaranteed Ares a value of approximatelypproximately $27.3 million (including all dividend payments received by Ares) at the end of February 2023 for the shares of common stock that the Company issued in consideration for its acquisition in December 2020 of equity in GPM (the “Ares Shares”). The Company and Ares agreed that in lieu of the Company issuing to Ares additional shares of common stock in accordance with the Ares Put Option or purchasing the Ares Shares, Ares would retain the Ares Shares, and the Company would pay approximately $9.8 million in cash to Ares in full satisfaction of the Company’s obligations related to the Ares Put Option. The Company made this payment on April 14, 2023, and the Ares Put Option terminated. The Ares Put Option had been measured at fair value at the end of each reporting period and amounted to $8.6 million as of December 31, 2022.
Approximately $0, $(2.4) million, $1.20.4 million and $($1.90.1) million were recorded as components of interest and other financial (income) expensesincome in the condensed consolidated statements of operations for the change in the fair value of the Ares Put Option for the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, respectively.
11.12. 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 the Company’s chief operating decision maker reviews such financial information. The Company’s reportable segments are retail, wholesale, fleet fueling and 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 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 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 GPMP and primarily includes its sale and supply of fuel to GPM and its subsidiaries related to substantially all of itsGPM’s sites that sell fuel in the retail and wholesale segments, at GPMP’s cost of fuel (including taxes and transportation) plus a fixed margin (currently 5.0 cents per gallon), and charges a fixed fee primarily to sites in the fleet fueling segment and certain Company sites which are not supplied by GPMP (currently 5.0 cents per gallon sold). GPMP also supplies fuel to a smalllimited number of dealers and bulk and spot purchasers.
The “All Other” segment includes the results of non-reportable segments which do not meet both quantitative and qualitative criteria as defined under ASC 280, Segment Reporting. The Company revised the composition of the “All Other” segment in the third quarter of 2022 in conjunction with the closing of the Quarles Acquisition.
The majority of general and administrative expenses, depreciation and amortization, net other expenses, net interest and other financial expenses, income taxes and minor other income items including intercompany operating leases are not allocated to the segments.
22
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 U.S. and substantially all of the Company’s assets were within the U.S.
Inter-segment transactions primarily included the distribution of fuel by GPMP to GPM and substantially all of itsGPM’s sites that sell fuel (both in the retail and wholesale segments) and charges by GPMP primarily to sites that sell fuel in the fleet fueling segment and certain Company sites which are not supplied by GPMP. The effect of these inter-segment transactions was eliminated in the condensed consolidated financial statements.
|
| Retail |
|
| Wholesale |
|
| Fleet Fueling |
|
| GPMP |
|
| All Other |
|
| Total |
|
| Retail |
|
| Wholesale |
|
| Fleet Fueling |
|
| GPMP |
|
| All Other |
|
| Total |
| ||||||||||||
For the Three Months Ended September 30, 2023 | (in thousands) |
| ||||||||||||||||||||||||||||||||||||||||||||||
For the Three Months Ended March 31, 2024 | For the Three Months Ended March 31, 2024 | (in thousands) |
| |||||||||||||||||||||||||||||||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Fuel revenue |
| $ | 1,086,405 |
|
| $ | 843,891 |
|
| $ | 145,496 |
|
| $ | 1,044 |
|
| $ | 9,556 |
|
| $ | 2,086,392 |
|
| $ | 824,428 |
|
| $ | 664,514 |
|
| $ | 132,193 |
|
| $ | 1,205 |
|
| $ | 8,992 |
|
| $ | 1,631,332 |
|
Merchandise revenue |
|
| 506,425 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 506,425 |
|
|
| 414,655 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 414,655 |
|
Other revenues, net |
|
| 19,750 |
|
|
| 6,265 |
|
|
| 2,575 |
|
|
| 253 |
|
|
| 394 |
|
|
| 29,237 |
|
|
| 16,679 |
|
|
| 6,858 |
|
|
| 2,385 |
|
|
| 207 |
|
|
| 338 |
|
|
| 26,467 |
|
Total revenues from external |
|
| 1,612,580 |
|
|
| 850,156 |
|
|
| 148,071 |
|
|
| 1,297 |
|
|
| 9,950 |
|
|
| 2,622,054 |
|
|
| 1,255,762 |
|
|
| 671,372 |
|
|
| 134,578 |
|
|
| 1,412 |
|
|
| 9,330 |
|
|
| 2,072,454 |
|
Inter-segment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,472,316 |
|
|
| 6,241 |
|
|
| 1,478,557 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,102,541 |
|
|
| 5,253 |
|
|
| 1,107,794 |
|
Total revenues from reportable |
|
| 1,612,580 |
|
|
| 850,156 |
|
|
| 148,071 |
|
|
| 1,473,613 |
|
|
| 16,191 |
|
|
| 4,100,611 |
| ||||||||||||||||||||||||
Operating income |
|
| 81,504 |
|
|
| 10,026 |
|
|
| 8,828 |
|
|
| 27,016 |
|
|
| (521 | ) |
|
| 126,853 |
| ||||||||||||||||||||||||
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 |
|
|
|
|
|
|
|
|
|
|
| (8,836 | ) |
|
| — |
|
|
| (8,836 | ) |
|
|
|
|
|
|
|
|
|
|
| (6,528 | ) |
|
| — |
|
|
| (6,528 | ) | ||||||
Loss from equity investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (14 | ) |
|
| (14 | ) | ||||||||||||||||||||||||||||
Income from equity investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 22 |
|
|
| 22 |
| ||||||||||||||||||||||||||||
Net income from segments | Net income from segments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 118,003 |
| Net income from segments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 65,523 |
|
|
| Retail |
|
| Wholesale |
|
| Fleet Fueling |
|
| GPMP |
|
| All Other |
|
| Total |
|
| Retail |
|
| Wholesale |
|
| Fleet Fueling |
|
| GPMP |
|
| All Other |
|
| Total |
| ||||||||||||
For the Three Months Ended September 30, 2022 | (in thousands) |
| ||||||||||||||||||||||||||||||||||||||||||||||
For the Three Months Ended March 31, 2023 | For the Three Months Ended March 31, 2023 | (in thousands) |
| |||||||||||||||||||||||||||||||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Fuel revenue |
| $ | 1,028,323 |
|
| $ | 827,436 |
|
| $ | 120,813 |
|
| $ | 1,437 |
|
| $ | 1,565 |
|
| $ | 1,979,574 |
|
| $ | 843,473 |
|
| $ | 684,848 |
|
| $ | 127,494 |
|
| $ | 741 |
|
| $ | 5,108 |
|
| $ | 1,661,664 |
|
Merchandise revenue |
|
| 445,822 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 445,822 |
|
|
| 400,408 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 400,408 |
|
Other revenues, net |
|
| 16,651 |
|
|
| 5,693 |
|
|
| 923 |
|
|
| 261 |
|
|
| 723 |
|
|
| 24,251 |
|
|
| 18,555 |
|
|
| 6,491 |
|
|
| 951 |
|
|
| 170 |
|
|
| 257 |
|
|
| 26,424 |
|
Total revenues from external customers |
|
| 1,490,796 |
|
|
| 833,129 |
|
|
| 121,736 |
|
|
| 1,698 |
|
|
| 2,288 |
|
|
| 2,449,647 |
|
|
| 1,262,436 |
|
|
| 691,339 |
|
|
| 128,445 |
|
|
| 911 |
|
|
| 5,365 |
|
|
| 2,088,496 |
|
Inter-segment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,445,072 |
|
|
| 857 |
|
|
| 1,445,929 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,142,622 |
|
|
| 3,058 |
|
|
| 1,145,680 |
|
Total revenues from reportable |
|
| 1,490,796 |
|
|
| 833,129 |
|
|
| 121,736 |
|
|
| 1,446,770 |
|
|
| 3,145 |
|
|
| 3,895,576 |
| ||||||||||||||||||||||||
Total revenues from segments |
|
| 1,262,436 |
|
|
| 691,339 |
|
|
| 128,445 |
|
|
| 1,143,533 |
|
|
| 8,423 |
|
|
| 3,234,176 |
| ||||||||||||||||||||||||
Operating income |
|
| 84,849 |
|
|
| 10,459 |
|
|
| 6,629 |
|
|
| 23,388 |
|
|
| 245 |
|
|
| 125,570 |
|
|
| 41,631 |
|
|
| 7,550 |
|
|
| 8,424 |
|
|
| 22,622 |
|
|
| 324 |
|
|
| 80,551 |
|
Interest and financial expenses, net |
|
|
|
|
|
|
|
|
|
|
| (3,209 | ) |
|
| — |
|
|
| (3,209 | ) |
|
|
|
|
|
|
|
|
|
|
| (5,250 | ) |
|
| — |
|
|
| (5,250 | ) | ||||||
Loss from equity investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (44 | ) |
|
| (44 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (36 | ) |
|
| (36 | ) | ||||||||
Net income from segments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 122,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 75,265 |
|
|
| Retail |
|
| Wholesale |
|
| Fleet Fueling |
|
| GPMP |
|
| All Other |
|
| Total |
| ||||||
For the Nine Months Ended September 30, 2023 | (in thousands) |
| ||||||||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fuel revenue |
| $ | 2,945,243 |
|
| $ | 2,339,878 |
|
| $ | 394,136 |
|
| $ | 2,842 |
|
| $ | 23,057 |
|
| $ | 5,705,156 |
|
Merchandise revenue |
|
| 1,391,274 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,391,274 |
|
Other revenues, net |
|
| 57,302 |
|
|
| 18,866 |
|
|
| 5,202 |
|
|
| 700 |
|
|
| 1,071 |
|
|
| 83,141 |
|
Total revenues from external |
|
| 4,393,819 |
|
|
| 2,358,744 |
|
|
| 399,338 |
|
|
| 3,542 |
|
|
| 24,128 |
|
|
| 7,179,571 |
|
Inter-segment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,981,724 |
|
|
| 13,844 |
|
|
| 3,995,568 |
|
Total revenues from reportable |
|
| 4,393,819 |
|
|
| 2,358,744 |
|
|
| 399,338 |
|
|
| 3,985,266 |
|
|
| 37,972 |
|
|
| 11,175,139 |
|
Operating income |
|
| 200,992 |
|
|
| 24,343 |
|
|
| 26,596 |
|
|
| 76,646 |
|
|
| (59 | ) |
|
| 328,518 |
|
Interest and financial expenses, net |
|
|
|
|
|
|
|
|
|
|
| (20,926 | ) |
|
| — |
|
|
| (20,926 | ) | |||
Loss from equity investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (77 | ) |
|
| (77 | ) | ||||
Net income from segments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 307,515 |
|
18
23
|
| Retail |
|
| Wholesale |
|
| Fleet Fueling |
|
| GPMP |
|
| All Other |
|
| Total |
| ||||||
For the Nine Months Ended September 30, 2022 | (in thousands) |
| ||||||||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fuel revenue |
| $ | 3,000,839 |
|
| $ | 2,521,567 |
|
| $ | 120,813 |
|
| $ | 4,170 |
|
| $ | 1,565 |
|
| $ | 5,648,954 |
|
Merchandise revenue |
|
| 1,244,558 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,244,558 |
|
Other revenues, net |
|
| 49,642 |
|
|
| 17,148 |
|
|
| 923 |
|
|
| 773 |
|
|
| 723 |
|
|
| 69,209 |
|
Total revenues from external customers |
|
| 4,295,039 |
|
|
| 2,538,715 |
|
|
| 121,736 |
|
|
| 4,943 |
|
|
| 2,288 |
|
|
| 6,962,721 |
|
Inter-segment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,459,036 |
|
|
| 1,461 |
|
|
| 4,460,497 |
|
Total revenues from reportable |
|
| 4,295,039 |
|
|
| 2,538,715 |
|
|
| 121,736 |
|
|
| 4,463,979 |
|
|
| 3,749 |
|
|
| 11,423,218 |
|
Operating income |
|
| 202,375 |
|
|
| 27,658 |
|
|
| 6,629 |
|
|
| 65,794 |
|
|
| 849 |
|
|
| 303,305 |
|
Interest and financial expenses, net |
|
|
|
|
|
|
|
|
|
|
| (7,473 | ) |
|
| — |
|
|
| (7,473 | ) | |||
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 177 |
|
|
| 177 |
| ||||
Loss from equity investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (7 | ) |
|
| (7 | ) | ||||
Net income from segments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 296,002 |
|
A reconciliation of total revenues from reportable segments to total revenues on the condensed consolidated statements of operations was as follows:
|
| For the Three Months |
|
| For the Nine Months |
|
| For the Three Months |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||
Total revenues from segments |
| $ | 4,100,611 |
|
| $ | 3,895,576 |
|
| $ | 11,175,139 |
|
| $ | 11,423,218 |
|
| $ | 3,180,248 |
|
| $ | 3,234,176 |
|
Elimination of inter-segment revenues |
|
| (1,478,557 | ) |
|
| (1,445,929 | ) |
|
| (3,995,568 | ) |
|
| (4,460,497 | ) |
|
| (1,107,794 | ) |
|
| (1,145,680 | ) |
Total revenues |
| $ | 2,622,054 |
|
| $ | 2,449,647 |
|
| $ | 7,179,571 |
|
| $ | 6,962,721 |
|
| $ | 2,072,454 |
|
| $ | 2,088,496 |
|
A reconciliation of net income from reportable segments to net income on the condensed consolidated statements of operations was as follows:
|
| For the Three Months |
|
| For the Nine Months |
|
| For the Three Months |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||
Net income from segments |
| $ | 118,003 |
|
| $ | 122,317 |
|
| $ | 307,515 |
|
| $ | 296,002 |
|
| $ | 65,523 |
|
| $ | 75,265 |
|
Amounts not allocated to segments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Store operating expenses |
|
| (3,760 | ) |
|
| 576 |
|
|
| (10,041 | ) |
|
| 1,907 |
| ||||||||
Site operating expenses |
|
| (3,350 | ) |
|
| (2,677 | ) | ||||||||||||||||
General and administrative expenses |
|
| (43,262 | ) |
|
| (35,245 | ) |
|
| (124,785 | ) |
|
| (98,521 | ) |
|
| (41,197 | ) |
|
| (39,644 | ) |
Depreciation and amortization |
|
| (31,872 | ) |
|
| (24,218 | ) |
|
| (89,424 | ) |
|
| (69,523 | ) |
|
| (29,872 | ) |
|
| (26,557 | ) |
Other expenses, net |
|
| (3,885 | ) |
|
| (951 | ) |
|
| (11,561 | ) |
|
| (3,269 | ) |
|
| (2,476 | ) |
|
| (2,720 | ) |
Interest and other financial expenses, net |
|
| (5,743 | ) |
|
| (16,587 | ) |
|
| (27,415 | ) |
|
| (36,241 | ) | ||||||||
Income tax expense |
|
| (7,993 | ) |
|
| (20,898 | ) |
|
| (10,849 | ) |
|
| (31,237 | ) | ||||||||
Net income |
| $ | 21,488 |
|
| $ | 24,994 |
|
| $ | 33,440 |
|
| $ | 59,118 |
| ||||||||
Interest and other financial income (expenses), net |
|
| 4,071 |
|
|
| (8,352 | ) | ||||||||||||||||
Income tax benefit |
|
| 6,707 |
|
|
| 2,158 |
| ||||||||||||||||
Net loss |
| $ | (594 | ) |
| $ | (2,527 | ) |
12.13. Commitments and Contingencies
Environmental Liabilities and Contingencies
The Company is subject to certain federal and state environmental laws and regulations associated with sites at which it stores and sells fuel and other fuel products, as well as at owned and leased locations leased or subleased to dealers. As of September 30, 2023March 31, 2024 and December 31, 2022,2023, environmental obligations totaled $14.112.7 million and $12.113.4 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 changes in federal and/or state environmental regulations.
24
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 $7.67.1 million and $4.97.5 million as of September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively, and were recorded as other current and non-current assets in the condensed consolidated balance sheets.
Asset Retirement Obligation
As part of the fuel operations at its operatedretail convenience stores, 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 a storage tank is recognized over the estimated remaining useful life of the 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 a storage tank is installed. The estimated liability is based upon historical experience in removing 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 $81.085.7 million and $65.385.4 million at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. The current portion of the asset retirement obligation is included in other current liabilities in the condensed consolidated balance sheets.
Program Agreement
On May 2, 2023, GPM, together with Oak Street, entered into a third amendment to the Program Agreement, which, among other things, (i) extended the term19
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.
13.14. Related Party Transactions
There have been no material changes to the description of related party transactions as set forth in the annual financial statements.
15. Subsequent Events
SpeedyQ Acquisition
On April 9, 2024, the Company acquired certain assets from a third-party, including 21 SpeedyQ Markets convenience stores and eight additional landbank sites located in Michigan, pursuant to a 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 Purchase Agreement, plus the value of cash and inventory in the stores on the closing date, of which $6.0 million was financed with the Capital One Line of Credit and approximately $45.0 million was paid for fee simple ownership in 19 of the properties by an affiliate of Oak Street Real Estate Capital Net Lease Property Fund, LP (including its affiliates, “Oak Street”) under the standby real estate purchase, designation and lease program agreement (the “Program Agreement”) (as further described in Note 8 to the annual financial statements). At the closing, pursuant to the Program Agreement, the Company entered into a master lease with Oak Street for the sites Oak Street acquired 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 set forth in the Purchase Agreement.
2520
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, 20222023 (the “Form 10-K”). The following discussion contains assumptions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors,” in Part I, Item 1A of the Form 10-K and in Part II, Item 1A of this Quarterly Report on Form 10-Q and as described from time to time in our other filings with the Securities and Exchange Commission. These risks could cause our actual results to differ materially from those anticipated in these forward-looking statements.
Overview
ARKO Corp. was incorporated under the laws of Delaware on August 26, 2020. Our shares of common stock, $0.0001 par value per share (“common stock”), and publicly-traded warrants are listed on the Nasdaq Stock Market (“Nasdaq”) and trade under the symbols “ARKO” and “ARKOW,” respectively. 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, is our primary operating entity and our indirect wholly owned subsidiary.entity.
Based in Richmond, VA, we are a leading independent convenience store operator and, as of September 30, 2023,March 31, 2024, we were the sixth largest convenience store chain in the United States (“U.S.”) ranked by store count, operating 1,5521,540 retail convenience stores. As of September 30, 2023,March 31, 2024, we operated the stores under more 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 September 30, 2023,March 31, 2024, we also supplied fuel to 1,8251,816 dealers and operated 295296 cardlock locations (unstaffed fueling locations). We are well diversified geographically and as of September 30, 2023,March 31, 2024, operated in the District of Columbia and more than 30 states and the District of Columbia in the Mid-Atlantic, Midwestern, Northeastern, Southeastern and Southwestern U.S.
Our primary business is the operation of convenience stores. As such,stores, and we derivegenerate a significant portion of our revenue from the retail sale of products and fuel and the products offered inat our stores, resulting instores. Consequently, our retail stores generatinggenerate a large proportion of our profitability. We focus our marketing and merchandising initiatives at our retail stores on offering our customers an assortment of products 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 approximately 1,260 company-operated stores. The foodservice category includesstores, which include hot and fresh grab-n-go foods, deli, fried chicken, bakery, pizza, roller grill items and other prepared foods. In addition,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 our private label pizza at approximately 1,085 stores we operateas take-and-bake from the freezer, and as fresh and hot pizza either whole or by the slice at approximately 150 branded225 stores. We supplement our foodservice offering with approximately 130 quick service restaurants consisting of major national brands. We have 18 Sbarro, the Original New York Pizza, locationsbrand restaurants. Relevant and delicious food offerings are currently workinga key strategic priority for us, and we expect to maintain a high degree of focus on additionalfrozen grab-n-go and enhanced hot food offerings.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 9095 of our locations.
Our high valueWe had approximated 2.09 million enrolled members in our fas REWARDS® loyalty program has reached approximately 1.85 million enrolled members, an increaseat the end of more than 365,000 enrolled members in the third quarter of 2023, and an increase of approximately 50% in our enrolled membership compared to September 30, 2022, with a material enrollment uptick during the second and third quarters of 2023 after launching our new fas REWARDS app in the first quarter of 2023 and launching a special $10 enrollment promotion commencing in mid-May 2023 through September2024, 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 closenearby to members.
We also derivegenerate revenue from theour wholesale distribution of fuel and the sale of fuel at cardlock locations, and we earn commissions from the sales of fuel using proprietary fuel cards that provide customers access to a nationwide network of fueling sites. We believe these revenues result inprovide stable, ratable cash flows whichthat, together with free cash flow from our retail activitysegment, can quickly be deployed to pursue accretive acquisitions and investments in our retail stores. Additionally, these locations contributeThe wholesale segment adds significant fuel volumes to our overall size,robust retail fuel sales, which leads to economieswe believe enhances our purchasing power for our entire platform, including our retail segment, and improves our competitiveness as an acquirer of scale with our fuel and merchandise vendors.choice.
Our reportable segments are described below.
2621
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 dealers, 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 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
TheOur 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 GPM Petroleum LP, referred to as GPMP, which primarily sells and supplies fuel to GPM and substantially all of its subsidiariesour 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”) sells fuel at GPMP’s cost of fuel (including taxes and transportation) plus a fixed margin and charges a fixed fee chargedprimarily to sites in the fleet fueling segment and certain Company sites which are not supplied by GPMP.
Trends Impacting Our Business
We have achieved strong store growth over the last decade, driven primarily by implementing a highly successful acquisition strategy. Fromstrategy, inclusive of 25 completed acquisitions from 2013 through September 30, 2023, we completed 25 acquisitions. On August 15,March 31, 2024. Recently, on March 1, 2023, we acquired seven company-operated Speedy’s135 convenience stores located in Arkansas and Oklahoma, which were previouslygas stations, 181 dealer locations, operated by an independent dealer to which we supplied fuela commercial, government, and industrial business, and certain distribution and transportation assets from Transit Energy Group, LLC (the “Speedy“TEG Acquisition”). On June 6, 2023, we completed our acquisition from WTG Fuels Holdings, LLC of 24 company-operated Uncle’s convenience stores located across Western Texas, 68 proprietary GASCARD-branded cardlock sites and 43 private cardlock sites for fleet fueling operations located in Western Texas and Southeastern New Mexico from WTG Fuels Holdings, LLC (the “WTG Acquisition”). On March 1,August 15, 2023, we completed our acquisition from Transit Energy Group, LLC of 135 Company-operatedacquired seven Speedy’s convenience stores located in Arkansas and gas stations, 181Oklahoma, which were previously locations operated by a dealer locations, a commercial, government, and industrial business, and certain distribution and transportation assetsto which we supplied fuel (the “TEG“Speedy’s Acquisition” and, together with the WTGTEG Acquisition and the SpeedyWTG Acquisition, the “2023 Acquisitions”). For additional information regarding the 2023 Acquisitions, please see Note 3 to our condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q. In December 2022, we completed our acquisition of Pride Convenience Holdings, LLC, which operated at closing, 31 Pride retail convenience stores and had one store under construction at closing which is now opened (the “Pride Acquisition”), and in July 2022, we completed our acquisition of certain assets from Quarles Petroleum, Incorporated (the “Quarles Acquisition”), which included at closing 121 proprietary Quarles-branded cardlock sites and 63 third-party cardlock sites for fleet fueling operations, and 46 dealer locations (collectively, the “2022 Acquisitions”). Our store count has grown from 320 sites in 2011 to 3,672 sites as of September 30, 2023, of which 1,552 were operated as retail convenience stores, 1,825 were locations at which we supplied fuel to dealers and 295 were cardlock locations. These 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. With
27
We believe our achievement of significant size and scale we have enhancedaids our focus onefforts 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 our acquired assets.accretion.
The following table provides a history of our acquisitions, site conversions and site closings for the periods noted, for the retail, wholesale and fleet fueling segments:
|
| For the Three Months |
|
| For the Nine Months |
|
| For the Three Months |
| |||||||||||||||
Retail Segment |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||||
Number of sites at beginning of period |
|
| 1,547 |
|
|
| 1,388 |
|
|
| 1,404 |
|
|
| 1,406 |
|
|
| 1,543 |
|
|
| 1,404 |
|
Acquired sites |
|
| 7 |
|
|
| — |
|
|
| 166 |
|
|
| — |
|
|
| — |
|
|
| 135 |
|
Newly opened or reopened sites |
|
| 1 |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
|
Company-controlled sites converted to consignment |
|
| (2 | ) |
|
| (2 | ) |
|
| (13 | ) |
|
| (9 | ) |
|
| — |
|
|
| (5 | ) |
Closed, relocated or divested sites |
|
| (1 | ) |
|
| (3 | ) |
|
| (9 | ) |
|
| (14 | ) |
|
| (4 | ) |
|
| (4 | ) |
Number of sites at end of period |
|
| 1,552 |
|
|
| 1,383 |
|
|
| 1,552 |
|
|
| 1,383 |
|
|
| 1,540 |
|
|
| 1,531 |
|
|
| For the Three Months |
|
| For the Nine Months |
| ||||||||||
Wholesale Segment 1 |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Number of sites at beginning of period |
|
| 1,824 |
|
|
| 1,620 |
|
|
| 1,674 |
|
|
| 1,628 |
|
Acquired sites |
|
| — |
|
|
| 46 |
|
|
| 190 |
|
|
| 46 |
|
Newly opened or reopened sites 2 |
|
| 34 |
|
|
| 20 |
|
|
| 58 |
|
|
| 60 |
|
Consignment or fuel supply locations |
|
| 2 |
|
|
| 2 |
|
|
| 13 |
|
|
| 9 |
|
Closed, relocated or divested sites |
|
| (35 | ) |
|
| (18 | ) |
|
| (110 | ) |
|
| (73 | ) |
Number of sites at end of period |
|
| 1,825 |
|
|
| 1,670 |
|
|
| 1,825 |
|
|
| 1,670 |
|
22
|
| 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 |
|
| For the Nine Months |
|
| For the Three Months |
| |||||||||||||||
Fleet Fueling Segment |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||||
Number of sites at beginning of period |
|
| 293 |
|
|
| — |
|
|
| 183 |
|
|
| — |
|
|
| 298 |
|
|
| 183 |
|
Acquired sites |
|
| — |
|
|
| 184 |
|
|
| 111 |
|
|
| 184 |
| ||||||||
Newly opened or reopened sites |
|
| 4 |
|
|
| — |
|
|
| 4 |
|
|
| — |
| ||||||||
Closed, relocated or divested sites |
|
| (2 | ) |
|
| (1 | ) |
|
| (3 | ) |
|
| (1 | ) |
|
| (2 | ) |
|
| — |
|
Number of sites at end of period |
|
| 295 |
|
|
| 183 |
|
|
| 295 |
|
|
| 183 |
|
|
| 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.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 have historically relied upon a limited number of franchised quick service restaurants and in-store delis to drive customer traffic rather than other types of foodservice offerings.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 October 2023,the first quarter of 2024, we expanded our leadership team and named Richard Guidry in the newly created role of Senior Vice President of Food Service. This expansion tracks our commitment to growing our food service offering. In addition, 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 results of operation are significantly impacted by the retail fuel margins we earn on gallons sold. These 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; supply chain disruptions; refinery mechanical failures; and competition in the local markets in which we operate.
The cost of our main products, gasoline and diesel fuel, is greatly impacted by the wholesale cost of fuel in the United States. We attempt to pass on wholesale fuel cost changes through to our customers through retail price changes; however, we are not always able to do so. Competitive conditions primarily affect the timing of any related increase or decrease in retail 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
28
the cost of fuel is declining or more volatile over a shorter period of time. For the year ended December 31, 2022, we experienced historically high fuel margins as a result of the volatile market for gasoline and diesel fuel. In particular, in the first quarter of 2022, the war in Ukraine significantly affected market conditions and resulted in substantially higher fuel margins. Depending on future market and geopolitical conditions, the supply of fuel, including diesel fuel in particular, may become constrained. As such,Accordingly, we maintain terminal storage of diesel fuel for short-term supply needs for our fleet fueling sites.
Additionally, throughout 2022 and the first three quarters of 2023, the U.S. economy continuedcontinues to experience inflationary pressures,endure price inflation and the effect of higher prevailing interest rates, which began in 2022 and which has increased merchandise costcosts and reduced consumer purchasing power. We have mitigated a portion of these higher costs with retail price increases. If this trend continuesThe persistence of, or increases, itincrease in, inflation or high interest rates could negatively impact the demand for our products and services, as well as seasonalincluding due to consumers reducing travel, patterns, which could reduce future sales volumes. Additionally, because of current labor market conditions and the prevailing wage rates in the markets in which we operate, we have voluntarily increased wages, which has increased our costs associated with recruiting and retaining qualified personnel, and may continue to do so in the future.personnel.
We also operate in a highly competitive retail convenience market that includes businesses with operations and services that are similar to those that we provide. We face significant competition from other large chain operators. In particular, large convenience store chains have increased their number of locations and remodeled their existing locations in recent years, enhancing their competitive position. 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.
We believe that we have a significant opportunity to increase our sales and profitability by continuing to execute on our organic and inorganic strategies, improvingwhich principally seek to improve the performance of current stores through enhanced offerings to meet our customerscustomers’ needs, and growing our store base in existing and contiguous markets through acquisitions.
Business Highlights
The 2023 Acquisitions and the 2022 Acquisitions contributed to the improvement 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 U.S. during the winter months, can negatively impact our financial results.
Results of Operations for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022
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. All figures for fuel contribution and fuel margin per gallon exclude the estimated fixed margin or fixed fee paid to GPMP for the cost of fuel (intercompany charges by GPMP).
Consolidated Results
29
The table below shows our consolidated results for the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, together with certain key metrics.
|
| For the Three Months |
|
| For the Nine Months |
|
| For the Three Months |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||||
Revenues: |
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||
Fuel revenue |
| $ | 2,086,392 |
|
| $ | 1,979,574 |
|
| $ | 5,705,156 |
|
| $ | 5,648,954 |
|
| $ | 1,631,332 |
|
| $ | 1,661,664 |
|
Merchandise revenue |
|
| 506,425 |
|
|
| 445,822 |
|
|
| 1,391,274 |
|
|
| 1,244,558 |
|
|
| 414,655 |
|
|
| 400,408 |
|
Other revenues, net |
|
| 29,237 |
|
|
| 24,251 |
|
|
| 83,141 |
|
|
| 69,209 |
|
|
| 26,467 |
|
|
| 26,424 |
|
Total revenues |
|
| 2,622,054 |
|
|
| 2,449,647 |
|
|
| 7,179,571 |
|
|
| 6,962,721 |
|
|
| 2,072,454 |
|
|
| 2,088,496 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fuel costs |
|
| 1,923,869 |
|
|
| 1,824,437 |
|
|
| 5,262,854 |
|
|
| 5,250,105 |
|
|
| 1,502,302 |
|
|
| 1,537,882 |
|
Merchandise costs |
|
| 345,699 |
|
|
| 306,930 |
|
|
| 952,925 |
|
|
| 866,110 |
|
|
| 279,737 |
|
|
| 277,443 |
|
Store operating expenses |
|
| 226,698 |
|
|
| 189,582 |
|
|
| 637,383 |
|
|
| 534,197 |
| ||||||||
Site operating expenses |
|
| 218,931 |
|
|
| 192,683 |
| ||||||||||||||||
General and administrative expenses |
|
| 44,116 |
|
|
| 35,954 |
|
|
| 127,192 |
|
|
| 100,695 |
|
|
| 42,158 |
|
|
| 40,416 |
|
Depreciation and amortization |
|
| 33,713 |
|
|
| 26,061 |
|
|
| 94,949 |
|
|
| 75,050 |
|
|
| 31,716 |
|
|
| 28,399 |
|
Total operating expenses |
|
| 2,574,095 |
|
|
| 2,382,964 |
|
|
| 7,075,303 |
|
|
| 6,826,157 |
|
|
| 2,074,844 |
|
|
| 2,076,823 |
|
Other expenses, net |
|
| 3,885 |
|
|
| 951 |
|
|
| 11,561 |
|
|
| 3,269 |
|
|
| 2,476 |
|
|
| 2,720 |
|
Operating income |
|
| 44,074 |
|
|
| 65,732 |
|
|
| 92,707 |
|
|
| 133,295 |
| ||||||||
Operating (loss) income |
|
| (4,866 | ) |
|
| 8,953 |
| ||||||||||||||||
Interest and other financial expenses, net |
|
| (14,579 | ) |
|
| (19,796 | ) |
|
| (48,341 | ) |
|
| (43,110 | ) |
|
| (2,457 | ) |
|
| (13,602 | ) |
Income before income taxes |
|
| 29,495 |
|
|
| 45,936 |
|
|
| 44,366 |
|
|
| 90,185 |
| ||||||||
Income tax expense |
|
| (7,993 | ) |
|
| (20,898 | ) |
|
| (10,849 | ) |
|
| (31,060 | ) | ||||||||
Loss from equity investment |
|
| (14 | ) |
|
| (44 | ) |
|
| (77 | ) |
|
| (7 | ) | ||||||||
Net income |
| $ | 21,488 |
|
| $ | 24,994 |
|
| $ | 33,440 |
|
| $ | 59,118 |
| ||||||||
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 |
|
| 48 |
|
|
| 51 |
|
|
| 149 |
|
|
| 182 |
|
|
| — |
|
|
| 53 |
|
Net income attributable to ARKO Corp. |
| $ | 21,440 |
|
| $ | 24,943 |
|
| $ | 33,291 |
|
| $ | 58,936 |
| ||||||||
Net loss attributable to ARKO Corp. |
| $ | (594 | ) |
| $ | (2,580 | ) | ||||||||||||||||
Series A redeemable preferred stock dividends |
|
| (1,449 | ) |
|
| (1,449 | ) |
|
| (4,301 | ) |
|
| (4,301 | ) |
|
| (1,414 | ) |
|
| (1,418 | ) |
Net income attributable to common shareholders |
| $ | 19,991 |
|
| $ | 23,494 |
|
| $ | 28,990 |
|
| $ | 54,635 |
| ||||||||
Net loss attributable to common shareholders |
| $ | (2,008 | ) |
| $ | (3,998 | ) | ||||||||||||||||
Fuel gallons sold |
|
| 592,122 |
|
|
| 520,662 |
|
|
| 1,683,556 |
|
|
| 1,462,388 |
|
|
| 519,313 |
|
|
| 503,260 |
|
Fuel margin, cents per gallon1 |
|
| 27.4 |
|
|
| 29.8 |
|
|
| 26.3 |
|
|
| 27.3 |
|
|
| 24.8 |
|
|
| 24.6 |
|
Merchandise contribution2 |
|
| 160,726 |
|
|
| 138,892 |
|
| $ | 438,349 |
|
| $ | 378,448 |
|
| $ | 134,918 |
|
| $ | 122,965 |
|
Merchandise margin3 |
|
| 31.7 | % |
|
| 31.2 | % |
|
| 31.5 | % |
|
| 30.4 | % |
|
| 32.5 | % |
|
| 30.7 | % |
Adjusted EBITDA4 |
|
| 91,163 |
|
|
| 99,468 |
|
|
| 224,889 |
|
| $ | 228,621 |
|
| $ | 36,649 |
|
| $ | 47,484 |
|
1 Calculated as fuel revenue less fuel costs divided by fuel gallons sold.
2 Calculated as merchandise revenue less merchandise costs.
3 Calculated as merchandise contribution divided by merchandise revenue.
4 Refer to “Use of Non-GAAP Measures” below for discussion of this non-GAAP performance measure and related reconciliation to net income.income (loss).
24
Three Months Ended September 30, 2023March 31, 2024 versus Three Months Ended September 30, 2022March 31, 2023
For the three months ended September 30, 2023,March 31, 2024, fuel revenue increaseddecreased by $106.8$30.3 million, or 5.4%1.8%, compared to the thirdfirst quarter of 2022.2023. The increasedecrease in fuel revenue was attributable primarily attributable to incremental gallons sold related to the 2023 Acquisitions and the 2022 Acquisitions, which was partially offset by a decrease in the average price of fuel compared to the thirdfirst quarter of 20222023 and fewer gallons sold at same stores in the thirdfirst quarter of 2024 compared to the first quarter of 2023, comparedwhich was partially offset by incremental gallons sold related to the third quarter of 2022.2023 Acquisitions.
For the three months ended September 30, 2023,March 31, 2024, merchandise revenue increased by $60.6$14.2 million, or 13.6%3.6%, compared to the thirdfirst quarter of 2022,2023, primarily due to the 2023 Acquisitions and the Pride Acquisition.Acquisitions. Offsetting this increase was a decrease in same store merchandise revenues and a decrease in merchandise revenue from underperforming retail stores that werewe closed or converted to dealers.
For the three months ended September 30, 2023,March 31, 2024, other revenue increased by $5.0 million, or 20.6%, compared towas consistent with the thirdfirst quarter of 2022,2023, primarily due to additional revenue from the 2023 Acquisitions, which was offset by the 2022 Acquisitions and greater lottery commissions.regulatory state-wide elimination of Virginia skill gaming machines income.
For the three months ended September 30, 2023,March 31, 2024, total operating expenses increaseddecreased by $191.1$2.0 million compared to the first quarter of 2023. Fuel costs decreased $35.6 million, or 8.0%2.3%, compared to the thirdfirst quarter of 2022. Fuel costs increased $99.4 million, or 5.5%, compared to the third quarter of 20222023 due to incremental gallons related to the 2023 Acquisitions and the 2022 Acquisitions, which were partially offset by both fewer gallons sold and a lower average cost of fuel on a same store basis.basis, which were partially offset by incremental gallons related to the 2023 Acquisitions. Merchandise costs increased $38.8$2.3 million, or 12.6%0.8%, compared to the thirdfirst quarter of 2022,2023, primarily due to increased costs related to the 2023 Acquisitions, and the Pride Acquisition,partially offset by a decrease in same store merchandise sales and a decrease in merchandise costs from underperforming retail stores that werewe closed or converted to dealers. For the three months ended September 30, 2023, store
30
March 31, 2024, site operating expenses increased $37.1$26.2 million, or 19.6%13.6%, compared to the thirdfirst quarter of 20222023 due to incremental expenses as a result of the 2023 Acquisitions and the 2022 Acquisitions, which were partially offset by a decreasean increase in expenses at same stores.stores, including higher personnel costs offset by lower credit card fees.
For the three months ended September 30, 2023,March 31, 2024, general and administrative expenses increased $8.2$1.7 million, or 22.7%4.3%, compared to the thirdfirst quarter of 2022,2023, primarily due to approximately $7.2 million of incremental expenses associated with the 2023 Acquisitions, and the 2022 Acquisitions, annual wage increases and an increaseconsulting support for the development of $1.5our multi-year transformation plan, partially offset by a decrease of $0.7 million in share-based compensation expense primarily related to equity grants in the first quarter of 2023.and lower incentive accruals.
For the three months ended September 30, 2023,March 31, 2024, depreciation and amortization expenses increased $7.7$3.3 million, or 29.4%11.7%, compared to the thirdfirst quarter of 20222023 primarily due to assets acquired in the previous twelve-month period, largely in connection with the 2023 Acquisitions and the 2022 Acquisitions.
For the three months ended September 30, 2023,March 31, 2024, other expenses, net increaseddecreased by $2.9$0.2 million, compared to the thirdfirst quarter of 20222023 primarily due to lower acquisition costs which were partially offset by greater losses on disposal of assets and impairment charges in the thirdfirst quarter of 2023 and expenses recorded for2024.
For the fair value adjustmentthree months ended March 31, 2024, there was an operating loss of contingent consideration in the third quarter of 2023,$4.9 million compared to operating income recorded in the third quarter of 2022, which were partially offset by lower acquisition costs.
Operating income was $44.1$9.0 million for the third quarter of 2023 compared to $65.7 million for the third quarter of 2022.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 withby incremental income from the 2023 Acquisitions and the 2022 Acquisitions.an increase in merchandise contribution at same stores.
For the three months ended September 30, 2023,March 31, 2024, interest and other financial expenses, net decreased by $5.2$11.1 million compared to the thirdfirst quarter of 2022,2023, primarily related to an increase of $11.6$6.0 million in income net, recorded in the thirdfirst quarter of 20232024 compared to the prior year period for fair value adjustments related to the Ares Put Option, Public Warrants, Private Warrants and Additional Deferred Shares (each as defined in Note 1011 to the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q) and additional interestapproximately $9.2 million recorded as financial income generated inrelated to the third quarterissuance of 2023,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 greaterhigher average outstanding debt atbalances, a higher rates outstanding inaverage 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 September 30,March 31, 2024 and 2023, income tax expense was $8.0 million compared to income tax expense of $20.9 million for the three months ended September 30, 2022. The decrease was primarily due to a one-time non-cash tax expense in the amount of approximately $8.7 million for the three months ended September 30, 2022 the Company recorded in connection with its internal entity realignment and streamlining.
For the three months ended September 30, 2023 and 2022, net incomeloss attributable to the Company was $21.4$0.6 million and $24.9$2.6 million, respectively.
For the three months ended September 30, 2023,March 31, 2024, Adjusted EBITDA was $91.2$36.6 million compared to $99.5$47.5 million for the three months ended September 30, 2022. Approximately $22.9March 31, 2023. The decrease resulted primarily from approximately $6.0 million of lower fuel contribution from retail and regulatory state-wide elimination of Virginia skill gaming machines income as well as higher general and administrative expenses and
25
same stores and legacy wholesale sites negatively impacted Adjusted EBITDA for the third quarter of 2023, which wasstore site operating expenses, partially offset by incremental Adjusted EBITDA from the 2023 Acquisitions and the 2022 Acquisitions.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 income.
Nine Months Ended September 30, 2023 versus Nine Months Ended September 30, 2022
For the nine months ended September 30, 2023, fuel revenue increased by $56.2 million, or 1.0%, compared to the first three quarters of 2022. The increase in fuel revenue was primarily attributable to incremental gallons sold related to the 2023 Acquisitions and the 2022 Acquisitions, which was partially offset by a decrease in the average price of fuel compared to the first three quarters of 2022 and fewer gallons sold at same stores in the first three quarters of 2023 compared to the first three quarters of 2022.
For the nine months ended September 30, 2023, merchandise revenue increased by $146.7 million, or 11.8%, compared to the first three quarters of 2022, primarily due to the 2023 Acquisitions and the Pride Acquisition and an increase in same store merchandise revenues. Offsetting these increases was a decrease in merchandise revenue from underperforming retail stores that were closed or converted to dealers.
For the nine months ended September 30, 2023, other revenue increased by $13.9 million, or 20.1%, compared to the first three quarters of 2022, primarily due to additional revenue from the 2023 Acquisitions, the 2022 Acquisitions and greater lottery commissions.
For the nine months ended September 30, 2023, total operating expenses increased by $249.1 million, or 3.6%, compared to the first three quarters of 2022. Fuel costs increased $12.7 million, or 0.2%, compared to the first three quarters of 2022 due to incremental gallons related to the 2023 Acquisitions and the 2022 Acquisitions, which were partially offset by both fewer gallons sold
31
and a lower average cost of fuel on a same store basis. Merchandise costs increased $86.8 million, or 10.0%, compared to the first three quarters of 2022, primarily due to increased costs related to the 2023 Acquisitions and the Pride Acquisition and a corresponding increase in same store merchandise sales. For the nine months ended September 30, 2023, store operating expenses increased $103.2 million, or 19.3%, compared to the first three quarters of 2022 due to incremental expenses as a result of the 2023 Acquisitions, the 2022 Acquisitions and an increase in expenses at same stores.
For the nine months ended September 30, 2023, general and administrative expenses increased $26.5 million, or 26.3%, compared to the first three quarters of 2022, primarily due to approximately $18.7 million in expenses associated with the 2023 Acquisitions and the 2022 Acquisitions, annual wage increases and an increase of $4.2 million in share-based compensation expense primarily related to equity grants in the first quarters of 2023 and 2022.
For the nine months ended September 30, 2023, depreciation and amortization expenses increased $19.9 million, or 26.5%, compared to the first three quarters of 2022 primarily due to assets acquired in the previous twelve month period, largely in connection with the 2023 Acquisitions and the 2022 Acquisitions.
For the nine months ended September 30, 2023, other expenses, net increased by $8.3 million compared to the first three quarters of 2022 primarily due to an increase in acquisition costs, greater losses on disposal of assets and impairment charges in the first three quarters of 2023 and lower income recorded for the fair value adjustment of contingent consideration in the first three quarters of 2023.
Operating income was $92.7 million for the first three quarters of 2023 compared to $133.3 million for the first three quarters of 2022. The decrease was primarily due to reduced fuel contribution at same stores and an increase in general and administrative expenses, which was partially offset with incremental income from the 2023 Acquisitions and the 2022 Acquisitions.
For the nine months ended September 30, 2023, interest and other financial expenses, net increased by $5.2 million compared to the first three quarters of 2022, primarily due to greater debt at higher rates outstanding in 2023, which was partially offset by an increase of $9.7 million in income, net recorded for fair value adjustments related to the Ares Put Option, Public Warrants, Private Warrants and Deferred Shares and additional interest income generated in the first three quarters of 2023.
For the nine months ended September 30, 2023, income tax expense was $10.8 million compared to income tax expense of $31.1 million for the nine months ended September 30, 2022. The decrease was primarily due to a one-time non-cash tax expense in the amount of approximately $8.7 million for the nine months ended September 30, 2022.the Company recorded in connection with its internal entity realignment and streamlining.
For the nine months ended September 30, 2023 and 2022, net income attributable to the Company was $33.3 million and $58.9 million, respectively.
For the nine months ended September 30, 2023, Adjusted EBITDA was $224.9 million compared to $228.6 million for the nine months ended September 30, 2022. This decrease primarily resulted from approximately $49.6 million of lower fuel contribution from retail same stores and legacy wholesale sites, of which approximately $12.8 million was attributable to sales in March 2023, which was partially offset by incremental Adjusted EBITDA from the 2023 Acquisitions and the 2022 Acquisitions and increased merchandise contribution positively impacted Adjusted EBITDA for the first three quarters of 2023, as compared to the first three quarters of 2022. In addition, higher personnel costs at same stores and an increase in general and administrative expenses reduced Adjusted EBITDA for the first three quarters of 2023. Refer to “Use of Non-GAAP Measures” below for discussion of this non-GAAP performance measure and related reconciliation to net income.
32
loss.
Segment Results
Retail Segment
The table below shows the results of the retail segment for the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, together with certain key metrics for the segment.
|
| For the Three Months |
|
| For the Nine Months |
|
| For the Three Months |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||||
Revenues: |
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||
Fuel revenue |
| $ | 1,086,405 |
|
| $ | 1,028,323 |
|
| $ | 2,945,243 |
|
| $ | 3,000,839 |
|
| $ | 824,428 |
|
| $ | 843,473 |
|
Merchandise revenue |
|
| 506,425 |
|
|
| 445,822 |
|
|
| 1,391,274 |
|
|
| 1,244,558 |
|
|
| 414,655 |
|
|
| 400,408 |
|
Other revenues, net |
|
| 19,750 |
|
|
| 16,651 |
|
|
| 57,302 |
|
|
| 49,642 |
|
|
| 16,679 |
|
|
| 18,555 |
|
Total revenues |
|
| 1,612,580 |
|
|
| 1,490,796 |
|
|
| 4,393,819 |
|
|
| 4,295,039 |
|
|
| 1,255,762 |
|
|
| 1,262,436 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fuel costs |
|
| 980,161 |
|
|
| 923,966 |
|
|
| 2,661,406 |
|
|
| 2,726,662 |
|
|
| 744,241 |
|
|
| 767,808 |
|
Merchandise costs |
|
| 345,699 |
|
|
| 306,930 |
|
|
| 952,925 |
|
|
| 866,110 |
|
|
| 279,737 |
|
|
| 277,443 |
|
Store operating expenses |
|
| 205,216 |
|
|
| 175,051 |
|
|
| 578,496 |
|
|
| 499,892 |
| ||||||||
Site operating expenses |
|
| 198,017 |
|
|
| 175,554 |
| ||||||||||||||||
Total operating expenses |
|
| 1,531,076 |
|
|
| 1,405,947 |
|
|
| 4,192,827 |
|
|
| 4,092,664 |
|
|
| 1,221,995 |
|
|
| 1,220,805 |
|
Operating income |
| $ | 81,504 |
|
| $ | 84,849 |
|
| $ | 200,992 |
|
| $ | 202,375 |
|
| $ | 33,767 |
|
| $ | 41,631 |
|
Fuel gallons sold |
|
| 300,796 |
|
|
| 262,010 |
|
|
| 843,286 |
|
|
| 754,811 |
|
|
| 255,464 |
|
|
| 248,906 |
|
Same store fuel gallons sold decrease (%)1 |
|
| (5.3 | %) |
|
| (9.7 | %) |
|
| (4.5 | %) |
|
| (8.0 | %) |
|
| (6.7 | %) |
|
| (5.8 | %) |
Fuel margin, cents per gallon2 |
|
| 40.3 |
|
|
| 44.8 |
|
|
| 38.7 |
|
|
| 41.3 |
| ||||||||
Same store merchandise sales increase (decrease) (%)1 |
|
| 0.1 | % |
|
| 0.7 | % |
|
| 1.4 | % |
|
| (1.8 | %) | ||||||||
Same store merchandise sales excluding cigarettes |
|
| 1.0 | % |
|
| 4.3 | % |
|
| 3.9 | % |
|
| 2.0 | % | ||||||||
Merchandise contribution3 |
| $ | 160,726 |
|
| $ | 138,892 |
|
| $ | 438,349 |
|
| $ | 378,448 |
| ||||||||
Merchandise margin4 |
|
| 31.7 | % |
|
| 31.2 | % |
|
| 31.5 | % |
|
| 30.4 | % | ||||||||
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 had a full quarter of activity in the prior year. Refer to “Use of Non-GAAP Measures” below for discussion of this measure.
2 Calculated as fuel revenue less fuel costs divided by fuel gallons sold;costs; 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.
4 Calculated as merchandise revenue less merchandise costs.
45 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 periods.period.
| For the Three Months Ended September 30, 2023 |
| |||||||||||||||||
| Pride 1 |
|
| TEG 2 |
|
| Uncle's (WTG) 3 |
|
| Speedy 4 |
|
| Total |
| |||||
| (in thousands) |
| |||||||||||||||||
Date of Acquisition: | Dec 6, 2022 |
|
| Mar 1, 2023 |
|
| Jun 6, 2023 |
|
| Aug 15, 2023 |
|
|
|
| |||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Fuel revenue | $ | 73,019 |
|
| $ | 104,850 |
|
| $ | 21,927 |
|
| $ | 3,138 |
|
| $ | 202,934 |
|
Merchandise revenue |
| 16,078 |
|
|
| 39,776 |
|
|
| 9,625 |
|
|
| 1,400 |
|
|
| 66,879 |
|
Other revenues, net |
| 1,386 |
|
|
| 1,391 |
|
|
| 203 |
|
|
| 23 |
|
|
| 3,003 |
|
Total revenues |
| 90,483 |
|
|
| 146,017 |
|
|
| 31,755 |
|
|
| 4,561 |
|
|
| 272,816 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Fuel costs |
| 65,818 |
|
|
| 96,593 |
|
|
| 18,797 |
|
|
| 2,798 |
|
|
| 184,006 |
|
Merchandise costs |
| 10,523 |
|
|
| 27,218 |
|
|
| 6,258 |
|
|
| 949 |
|
|
| 44,948 |
|
Store operating expenses |
| 10,152 |
|
|
| 18,373 |
|
|
| 5,147 |
|
|
| 696 |
|
|
| 34,368 |
|
Total operating expenses |
| 86,493 |
|
|
| 142,184 |
|
|
| 30,202 |
|
|
| 4,443 |
|
|
| 263,322 |
|
Operating income | $ | 3,990 |
|
| $ | 3,833 |
|
| $ | 1,553 |
|
| $ | 118 |
|
| $ | 9,494 |
|
Fuel gallons sold |
| 18,486 |
|
|
| 30,126 |
|
|
| 5,809 |
|
|
| 830 |
|
|
| 55,251 |
|
Merchandise contribution 5 |
| 5,555 |
|
|
| 12,558 |
|
|
| 3,367 |
|
|
| 451 |
|
|
| 21,931 |
|
Merchandise margin 6 |
| 34.6 | % |
|
| 31.6 | % |
|
| 35.0 | % |
|
| 32.2 | % |
|
|
|
26
33
| For the Nine Months Ended September 30, 2023 |
| |||||||||||||||||
| Pride 1 |
|
| TEG 2 |
|
| Uncle's (WTG) 3 |
|
| Speedy 4 |
|
| Total |
| |||||
| (in thousands) |
| |||||||||||||||||
Date of Acquisition: | Dec 6, 2022 |
|
| Mar 1, 2023 |
|
| Jun 6, 2023 |
|
| Aug 15, 2023 |
|
|
|
| |||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Fuel revenue | $ | 212,444 |
|
| $ | 236,052 |
|
| $ | 28,025 |
|
| $ | 3,138 |
|
| $ | 479,659 |
|
Merchandise revenue |
| 45,221 |
|
|
| 92,100 |
|
|
| 12,471 |
|
|
| 1,400 |
|
|
| 151,192 |
|
Other revenues, net |
| 4,170 |
|
|
| 3,122 |
|
|
| 257 |
|
|
| 23 |
|
|
| 7,572 |
|
Total revenues |
| 261,835 |
|
|
| 331,274 |
|
|
| 40,753 |
|
|
| 4,561 |
|
|
| 638,423 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Fuel costs |
| 191,117 |
|
|
| 217,210 |
|
|
| 23,817 |
|
|
| 2,798 |
|
|
| 434,942 |
|
Merchandise costs |
| 29,906 |
|
|
| 63,344 |
|
|
| 8,185 |
|
|
| 949 |
|
|
| 102,384 |
|
Store operating expenses |
| 30,182 |
|
|
| 41,949 |
|
|
| 6,372 |
|
|
| 696 |
|
|
| 79,199 |
|
Total operating expenses |
| 251,205 |
|
|
| 322,503 |
|
|
| 38,374 |
|
|
| 4,443 |
|
|
| 616,525 |
|
Operating income | $ | 10,630 |
|
| $ | 8,771 |
|
| $ | 2,379 |
|
| $ | 118 |
|
| $ | 21,898 |
|
Fuel gallons sold |
| 55,764 |
|
|
| 70,183 |
|
|
| 7,523 |
|
|
| 830 |
|
|
| 134,300 |
|
Merchandise contribution 5 |
| 15,315 |
|
|
| 28,756 |
|
|
| 4,286 |
|
|
| 451 |
|
|
| 48,808 |
|
Merchandise margin 6 |
| 33.9 | % |
|
| 31.2 | % |
|
| 34.4 | % |
|
| 32.2 | % |
|
|
|
| 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 PrideIncludes only the retail stores acquired in the TEG Acquisition.
2 Includes only the retail stores acquired in the TEGWTG Acquisition.
3 Includes only the retail stores acquired in the WTG Acquisition.
4 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.
5 Calculated as merchandise revenue less merchandise costs.
6 Calculated as merchandise contribution divided by merchandise revenue.
Three Months Ended September 30, 2023March 31, 2024 versus Three Months Ended September 30, 2022March 31, 2023
Retail Revenues
For the three months ended September 30, 2023,March 31, 2024, fuel revenue increaseddecreased by $58.1$19.0 million, or 5.6%2.3%, compared to the thirdfirst quarter of 2022.2023. The increasedecrease in fuel revenue was attributable to the 2023 Acquisitions and the Pride Acquisition, together contributing 55.3 million gallons sold, or $202.9 million in fuel revenue. Partially offsetting this increase was a $0.31$0.16 per gallon decrease in the average retail price of fuel in the thirdfirst quarter of 2023 as2024 compared to the thirdfirst quarter of 2022,2023, primarily due to market factors, as well as a decrease in gallons sold at same stores. For the third quarterstores of 2023, gallons at same stores decreased approximately 5.3%6.7%, or 13.615.8 million gallons. Partially offsetting this decrease was an incremental 23.0 million gallons sold, or $72.2 million in fuel revenue contributed by the 2023 Acquisitions. Underperforming retail stores, which were closed or converted to dealers over the last 12 months in order to optimize profitability, also negatively impacted gallons sold during the third quarter of 2023.
For the three months ended September 30, 2023, merchandise revenue increased by $60.6 million, or 13.6%, compared to the third quarter of 2022. The 2023 Acquisitions and the Pride Acquisition contributed approximately $66.9 million of merchandise revenue. Same store merchandise sales increased 0.1% for the third quarter of 2023 compared to the third quarter of 2022, which were impacted by increased loyalty investments in customer acquisition related to expanding membership in our fas REWARDS® loyalty program, other loyalty promotions, and growth in the total loyalty membership base. Same store merchandise sales were positively impacted primarily due to higher revenue from the Company’s six core destination categories (packaged beverages, candy, salty snacks, packaged sweet snacks, alternative snacks and beer), other tobacco products and franchises as a result of marketing initiatives, including expanded category assortments, new franchise food offerings and investments in coolers and freezers, which was offset by lower revenue from cigarettes. In addition, there was a decrease in merchandise revenue from underperforming retail stores that were closed or converted to dealers.
For the three months ended September 30, 2023, other revenues, net increased by $3.1 million, or 18.6%, compared to the third quarter of 2022, primarily related to additional income from the 2023 Acquisitions and the Pride Acquisition.
Retail Operating Income
For the three months ended September 30, 2023, fuel contribution increased $3.8 million, or 3.2%, compared to the same period in 2022. Incremental fuel profit from the 2023 Acquisitions and the Pride Acquisition of approximately $21.7 million (excluding intercompany charges by GPMP) was partially offset by a decrease in same store fuel contribution of $16.6 million (excluding intercompany charges by GPMP). Fuel margin per gallon at same stores for the third quarter of 2023 decreased to 40.6 cents per gallon from 44.9 cents per gallon for the third quarter of 2022 primarily due to historically high fuel margins in 2022 principally as a
34
result of the volatile market for gasoline and diesel fuel. In addition, a decrease in fuel contribution related to underperforming retail stores that were closed or converted to dealers decreased fuel profit compared to the third quarter of 2022.
For the three months ended September 30, 2023, merchandise contribution increased $21.8 million, or 15.7%, compared to the same period in 2022. The increase was due to $21.9 million in merchandise contribution from the 2023 Acquisitions and the Pride Acquisition and an increase in merchandise contribution at same stores of approximately $1.2 million. Merchandise margin increased 50 basis points, to 31.7% as compared to 31.2% in the prior period, primarily due to the execution of key marketing and merchandising initiatives. Merchandise margin at same stores was 31.5% in the third quarter of 2023 compared to 31.3% in the third quarter of 2022.
For the three months ended September 30, 2023, store operating expenses increased $30.2 million, or 17.2%, compared to the three months ended September 30, 2022 primarily due to $34.4 million of expenses related to the 2023 Acquisitions and the Pride Acquisition, which were partially offset by a decrease of $1.7 million in expenses at same stores, mainly driven by lower credit card fees. Same store personnel expenses were similar to the prior period, increasing by only $0.1 million, or 0.1%, as the Company has continued to appropriately balance labor expenses and providing superior customer service. The total increase in store operating expenses was also partially offset by underperforming retail stores that were closed or converted to dealers.
Nine Months Ended September 30, 2023 versus Nine Months Ended September 30, 2022
Retail Revenues
For the nine months ended September 30, 2023, fuel revenue decreased by $55.6 million, or 1.9%, compared to the first three quarters of 2022. The decrease in fuel revenue was attributable to a $0.49 per gallon decrease in the average retail price of fuel in the first three quarters of 2023 as compared to the first three quarters of 2022, primarily due to market factors, as well as a decrease in gallons sold at same stores. For the first three quarters of 2023, gallons at same stores decreased approximately 4.5%, or 33.7 million gallons. Offsetting these decreases, the 2023 Acquisitions and the Pride Acquisition contributed 134.3 million gallons sold, or $479.7 million in fuel revenue. Underperforming retail stores, which werewe closed or converted to dealers over the last 12 months in order to optimize profitability, also negatively impacted gallons sold during the first three quartersquarter of 2023.2024.
For the ninethree months ended September 30, 2023,March 31, 2024, merchandise revenue increased by $146.7$14.2 million, or 11.8%3.6%, compared to the first three quartersquarter of 2022.2023. The 2023 Acquisitions and the Pride Acquisition contributed approximately $151.2$32.6 million of incremental merchandise revenue. Same store merchandise sales increased $16.9decreased $15.6 million, or 1.4%4.1%, for the first three quartersquarter of 20232024 compared to the first three quartersquarter of 2022.2023. Same store merchandise sales increased primarily due to higherrevenue was impacted by lower revenue from cigarettes and the Company’s six core destination categories other tobacco products(packaged beverages, candy, salty snacks, packaged sweet snacks, alternative snacks and franchises as a result of marketing initiatives, including expanded category assortments, new franchise food offerings and investments in coolers and freezers,beer) which was partially offset by lowerhigher revenue from cigarettes.other tobacco products and franchises. In addition, there was a decrease in merchandise revenue from underperforming retail stores that werewe closed or converted to dealers.
For the ninethree months ended September 30, 2023,March 31, 2024, other revenues, net increaseddecreased by $7.7$1.9 million, or 15.4%10.1%, compared to the first three quartersquarter of 2022,2023, primarily related to the regulatory state-wide elimination of Virginia skill gaming machines income, partially offset by additional income from the 2023 Acquisitions, the Pride Acquisition and greater lottery commissions.Acquisitions.
Retail Operating Income
For the ninethree months ended September 30, 2023,March 31, 2024, fuel contribution increased $4.8 million, or 5.5%, compared to the same period in 2022.2023. Incremental fuel profitcontribution from the 2023 Acquisitions and the Pride Acquisition of approximately $51.4$7.8 million (excluding intercompany charges by GPMP) was partially offset by a decrease in same store fuel contribution of $32.5 million (excluding intercompany charges by GPMP).$2.8 million. Fuel margin per gallon at same stores for the first three quartersquarter of 2023 decreased2024 increased to 38.737.0 cents per gallon from 41.435.7 cents per gallon for the first three quarters of 2022 primarily due to historically high fuel margins in 2022 principally as a result of the volatile market for gasoline and diesel fuel, with the first quarter of 2022 particularly impacted by2023 and improved sequentially throughout the war in Ukraine, which significantly affected market conditions and resulted in substantially higher fuel margins. A quarter. In addition, a
27
decrease in fuel profitcontribution related to underperforming retail stores that werewe closed or converted to dealers also partially offset the increase indecreased fuel profitcontribution compared to the first three quartersquarter of 2022.2023.
For the ninethree months ended September 30, 2023,March 31, 2024, merchandise contribution increased $59.9$12.0 million, or 15.8%9.7%, compared to the same period in 2022,2023, and merchandise margin increased to 31.5% as32.5% compared to 30.4%30.7% in the prior period. The increase was due to $48.8$11.3 million in incremental merchandise contribution from the 2023 Acquisitions and the Pride Acquisition and an increase in merchandise contribution at same stores of $15.9approximately $0.9 million. Merchandise contribution at same stores increased in the first three quartersquarter of 20232024 primarily due to higher contribution from other tobacco products and franchises partially offset by lower contribution from the Company’s six core destination categories and franchises.categories. Merchandise margin at same stores was 31.5%32.3% in the first three quartersquarter of 20232024 compared to 30.6%30.8% in the first three quartersquarter of 2022.2023.
35
For the ninethree months ended September 30, 2023, storeMarch 31, 2024, site operating expenses increased $78.6$22.5 million, or 15.7%12.8%, compared to the ninethree months ended September 30, 2022March 31, 2023 primarily due to $79.2$18.5 million of incremental expenses related to the 2023 Acquisitions and the Pride Acquisition and an increase of $7.5 million inAcquisitions. Same store site operating expenses at same stores, including approximately $10.3increased $5.5 million, or 5.2%3.3%, of higher personnel costs.with the increase related to hourly wage rate growth, accelerated repairs and maintenance, and elevated workers’ compensation claims related to first quarter 2024 events. The increase in storesite operating expenses was partially offset by underperforming retail stores that werewe closed or converted to dealers.
Wholesale Segment
The table below shows the results of the wholesale segment for the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, together with certain key metrics for the segment.
|
| For the Three Months |
|
| For the Nine Months |
|
| For the Three Months |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||||
Revenues: |
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||
Fuel revenue |
| $ | 843,891 |
|
| $ | 827,436 |
|
| $ | 2,339,878 |
|
| $ | 2,521,567 |
|
| $ | 664,514 |
|
| $ | 684,848 |
|
Other revenues, net |
|
| 6,265 |
|
|
| 5,693 |
|
|
| 18,866 |
|
|
| 17,148 |
|
|
| 6,858 |
|
|
| 6,491 |
|
Total revenues |
|
| 850,156 |
|
|
| 833,129 |
|
|
| 2,358,744 |
|
|
| 2,538,715 |
|
|
| 671,372 |
|
|
| 691,339 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fuel costs |
|
| 830,121 |
|
|
| 812,336 |
|
|
| 2,305,098 |
|
|
| 2,479,618 |
|
|
| 655,113 |
|
|
| 674,691 |
|
Store operating expenses |
|
| 10,009 |
|
|
| 10,334 |
|
|
| 29,303 |
|
|
| 31,439 |
| ||||||||
Site operating expenses |
|
| 9,299 |
|
|
| 9,098 |
| ||||||||||||||||
Total operating expenses |
|
| 840,130 |
|
|
| 822,670 |
|
|
| 2,334,401 |
|
|
| 2,511,057 |
|
|
| 664,412 |
|
|
| 683,789 |
|
Operating income |
| $ | 10,026 |
|
| $ | 10,459 |
|
| $ | 24,343 |
|
| $ | 27,658 |
|
| $ | 6,960 |
|
| $ | 7,550 |
|
Fuel gallons sold – fuel supply locations |
|
| 205,836 |
|
|
| 189,537 |
|
|
| 601,399 |
|
|
| 563,642 |
|
|
| 186,731 |
|
|
| 182,427 |
|
Fuel gallons sold – consignment agent locations |
|
| 45,365 |
|
|
| 41,145 |
|
|
| 127,861 |
|
|
| 115,138 |
|
|
| 37,504 |
|
|
| 37,962 |
|
Fuel margin, cents per gallon1 – fuel supply locations |
|
| 6.4 |
|
|
| 6.9 |
|
|
| 6.1 |
|
|
| 7.0 |
|
|
| 6.2 |
|
|
| 6.1 |
|
Fuel margin, cents per gallon1 – consignment agent locations |
|
| 28.9 |
|
|
| 32.7 |
|
|
| 26.9 |
|
|
| 31.4 |
|
|
| 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 periods.period.
| For the Three Months Ended September 30, 2023 |
|
| For the Nine Months Ended September 30, 2023 |
| For the Three Months Ended March 31, 2024 |
| |||||||||||||||||||||||||||||||||||
| Quarles 1 |
|
| TEG 2 |
|
| WTG 3 |
|
| Total |
|
| Quarles 1 |
|
| TEG 2 |
|
| WTG 3 |
|
| Total |
| TEG 1 |
|
| WTG 2 |
|
| Total |
| |||||||||||
| (in thousands) |
|
|
| (in thousands) |
| ||||||||||||||||||||||||||||||||||||
Date of Acquisition: | Jul 22, 2022 |
| Mar 1, 2023 |
| Jun 6, 2023 |
|
|
| Jul 22, 2022 |
| Mar 1, 2023 |
| Jun 6, 2023 |
|
|
|
| Mar 1, 2023 |
| Jun 6, 2023 |
|
|
| |||||||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Fuel revenue | $ | 20,381 |
|
| $ | 92,575 |
|
| $ | 2,796 |
|
| $ | 115,752 |
|
| $ | 57,708 |
|
| $ | 214,629 |
|
| $ | 3,444 |
|
| $ | 275,781 |
| $ | 80,952 |
|
| $ | 3,084 |
|
| $ | 84,036 |
|
Other revenues, net |
| 275 |
|
|
| 645 |
|
|
| 5 |
|
|
| 925 |
|
|
| 863 |
|
|
| 1,499 |
|
|
| 6 |
|
|
| 2,368 |
|
| 758 |
|
|
| 15 |
|
|
| 773 |
|
Total revenues |
| 20,656 |
|
|
| 93,220 |
|
|
| 2,801 |
|
|
| 116,677 |
|
|
| 58,571 |
|
|
| 216,128 |
|
|
| 3,450 |
|
|
| 278,149 |
|
| 81,710 |
|
|
| 3,099 |
|
|
| 84,809 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Fuel costs |
| 19,693 |
|
|
| 88,503 |
|
|
| 2,556 |
|
|
| 110,752 |
|
|
| 55,757 |
|
|
| 208,282 |
|
|
| 3,178 |
|
|
| 267,217 |
|
| 80,424 |
|
|
| 2,959 |
|
|
| 83,383 |
|
Store operating |
| 493 |
|
|
| 833 |
|
|
| 64 |
|
|
| 1,390 |
|
|
| 1,430 |
|
|
| 1,927 |
|
|
| 81 |
|
|
| 3,438 |
| |||||||||||
Site operating expenses |
| 874 |
|
|
| 68 |
|
|
| 942 |
| |||||||||||||||||||||||||||||||
Total operating |
| 20,186 |
|
|
| 89,336 |
|
|
| 2,620 |
|
|
| 112,142 |
|
|
| 57,187 |
|
|
| 210,209 |
|
|
| 3,259 |
|
|
| 270,655 |
|
| 81,298 |
|
|
| 3,027 |
|
|
| 84,325 |
|
Operating income | $ | 470 |
|
| $ | 3,884 |
|
| $ | 181 |
|
| $ | 4,535 |
|
| $ | 1,384 |
|
| $ | 5,919 |
|
| $ | 191 |
|
| $ | 7,494 |
| $ | 412 |
|
| $ | 72 |
|
| $ | 484 |
|
Fuel gallons sold |
| 5,861 |
|
|
| 31,666 |
|
|
| 789 |
|
|
| 38,316 |
|
|
| 17,304 |
|
|
| 77,653 |
|
|
| 1,007 |
|
|
| 95,964 |
|
| 27,448 |
|
|
| 871 |
|
|
| 28,319 |
|
28
1 Quarles Acquisition; includesIncludes only the wholesale business acquired in the QuarlesTEG Acquisition.
2 Includes only the wholesale business acquired in the TEG Acquisition.
3 Includes only the wholesale business acquired in the WTG Acquisition.
36
Three Months Ended September 30, 2023March 31, 2024 versus Three Months Ended September 30, 2022March 31, 2023
Wholesale Revenues
For the three months ended September 30, 2023,March 31, 2024, fuel revenue increaseddecreased by $16.5$20.3 million, or 2.0%3.0%, compared to the thirdfirst quarter of 2022.2023. Wholesale revenues benefited from an 8.9% increase in gallons sold, which were partially offsetnegatively impacted by a decrease in the average price of fuel in the thirdfirst quarter of 2024 compared to the first quarter of 2023, as compared topartially offset by the third quarterbenefit of 2022.an 1.7% increase in gallons sold. Of total gallons sold, the 2023 Acquisitions and the Quarles Acquisition contributed approximately 33.317.8 million incremental gallons, which were offset by lower volumes at legacycomparable wholesale sites.
Wholesale Operating Income
For the three months ended September 30, 2023,March 31, 2024, wholesale operating income decreased $0.6 million, primarily caused by a decline in fuel contribution (excluding intercompany charges by GPMP) was similar to the third quarter of 2022. Approximately $5.8 million of total fuel contribution increase was attributable to the 2023 Acquisitions and the Quarles Acquisition.approximately $0.5 million. At fuel supply locations, fuel contribution increased by $0.1$0.4 million, (excluding intercompany charges by GPMP), whileand fuel margin per gallon decreasedalso increased for the thirdfirst quarter of 2024 compared to the first quarter of 2023, as compared to the third quarter of 2022, primarily due to incremental contribution from the 2023 Acquisitions which was partially offset by decreased prompt pay discounts related to lower fuel costs and lower volumes at legacycomparable wholesale sites, which was partially offset by the incremental contribution from the 2023 Acquisitions and the Quarles Acquisition.sites. At consignment agent locations, fuel contribution decreased $0.3$0.9 million, (excluding intercompany charges by GPMP), and fuel margin per gallon also decreased for the thirdfirst quarter of 2023 as2024 compared to the thirdfirst quarter of 2022,2023, primarily due to lower rack-to-retail margins and decreased prompt pay discounts related to lower fuel costs, which was partially offset by the incremental contribution from the 2023 Acquisitions. In total, the 2023 Acquisitions and the Quarles Acquisition.added approximately $1.2 million of incremental fuel contribution.
For the three months ended September 30, 2023, storeMarch 31, 2024, site operating expenses decreased $0.3increased $0.2 million compared to the three months ended September 30, 2022.
Nine Months Ended September 30, 2023 versus Nine Months Ended September 30, 2022
Wholesale Revenues
For the nine months ended September 30, 2023, fuel revenue decreased by $181.7 million, or 7.2%, compared to the nine months ended September 30, 2022. Wholesale revenues were negatively impacted by a decrease in the average price of fuel in the first three quarters of 2023 as compared to the first three quarters of 2022, which was partially offset by a 7.4% increase in gallons sold. Of total gallons sold, the 2023 Acquisitions and the Quarles Acquisition contributed approximately 90.9 million incremental gallons, which were offset by lower volumes at legacy wholesale sites.
Wholesale Operating Income
For the nine months ended September 30, 2023, fuel contribution decreased approximately $4.5 million (excluding intercompany charges by GPMP). Approximately $12.3 million of total fuel contribution increase was attributable to the 2023 Acquisitions and the Quarles Acquisition. At fuel supply locations, fuel contribution decreased by $2.8 million (excluding intercompany charges by GPMP), and fuel margin per gallon decreased for the first three quarters of 2023 as compared to the first three quarters of 2022, primarily due to decreased prompt pay discounts related to lower fuel costs and lower volumes at legacy wholesale sites, which was partially offset by the incremental contribution from the 2023 Acquisitions and the Quarles Acquisition. At consignment agent locations, fuel contribution decreased $1.7 million (excluding intercompany charges by GPMP) and fuel margin per gallon also decreased for the first three quarters of 2023 as compared to the first three quarters of 2022, primarily due to lower rack-to-retail margins and decreased prompt pay discounts related to lower fuel costs, which was partially offset by the incremental contribution from the 2023 Acquisitions and the Quarles Acquisition.
For the nine months ended September 30, 2023, store operating expenses decreased $2.1 million compared to the nine months ended September 30, 2022.March 31, 2023.
Fleet Fueling Segment
The table below shows the results of the fleet fueling segment for the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, together with certain key metrics for the segment. We added the fleet fueling segment only upon consummation of the Quarles
37
Acquisition on July 22, 2022; therefore, neither the three or nine months ended September 30, 2022 reflects the operations of this segment for the entirety of such period, which affects period-over-period comparability.
|
| For the Three Months |
|
| For the Nine Months |
|
| For the Three Months |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||||
Revenues: |
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||
Fuel revenue |
| $ | 145,496 |
|
| $ | 120,813 |
|
| $ | 394,136 |
|
| $ | 120,813 |
|
| $ | 132,193 |
|
| $ | 127,494 |
|
Other revenues, net |
|
| 2,575 |
|
|
| 923 |
|
|
| 5,202 |
|
|
| 923 |
|
|
| 2,385 |
|
|
| 951 |
|
Total revenues |
|
| 148,071 |
|
|
| 121,736 |
|
|
| 399,338 |
|
|
| 121,736 |
|
|
| 134,578 |
|
|
| 128,445 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fuel costs |
|
| 133,037 |
|
|
| 111,162 |
|
|
| 356,703 |
|
|
| 111,162 |
|
|
| 120,058 |
|
|
| 115,231 |
|
Store operating expenses |
|
| 6,206 |
|
|
| 3,945 |
|
|
| 16,039 |
|
|
| 3,945 |
| ||||||||
Site operating expenses |
|
| 6,543 |
|
|
| 4,790 |
| ||||||||||||||||
Total operating expenses |
|
| 139,243 |
|
|
| 115,107 |
|
|
| 372,742 |
|
|
| 115,107 |
|
|
| 126,601 |
|
|
| 120,021 |
|
Operating income |
| $ | 8,828 |
|
| $ | 6,629 |
|
| $ | 26,596 |
|
| $ | 6,629 |
|
| $ | 7,977 |
|
| $ | 8,424 |
|
Fuel gallons sold – proprietary cardlock locations |
|
| 34,277 |
|
|
| 26,064 |
|
|
| 97,710 |
|
|
| 26,064 |
|
|
| 33,449 |
|
|
| 31,016 |
|
Fuel gallons sold – third-party cardlock locations |
|
| 2,985 |
|
|
| 1,297 |
|
|
| 6,631 |
|
|
| 1,297 |
|
|
| 3,199 |
|
|
| 1,610 |
|
Fuel margin, cents per gallon1 – proprietary cardlock locations |
|
| 39.4 |
|
|
| 41.8 |
|
|
| 42.5 |
|
|
| 41.8 |
|
|
| 40.9 |
|
|
| 44.5 |
|
Fuel margin, cents per gallon1 – third-party cardlock locations |
|
| 26.6 |
|
|
| 4.8 |
|
|
| 14.6 |
|
|
| 4.8 |
|
|
| 7.7 |
|
|
| 1.3 |
|
1 Calculated as fuel revenue less fuel costs divided by fuel gallons sold; excludes the estimated fixed fee charged bypaid to GPMP to sites infor the fleet fueling segment.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 (or have only partial) comparable information for the prior periods.period.
| For the Three Months Ended September 30, 2023 |
|
| For the Nine Months Ended September 30, 2023 |
| ||||||||||||||||||
| Quarles 1 |
|
| WTG 2 |
|
| Total |
|
| Quarles 1 |
|
| WTG 2 |
|
| Total |
| ||||||
| (in thousands) |
|
|
|
| ||||||||||||||||||
Date of Acquisition: | Jul 22, 2022 |
|
| Jun 6, 2023 |
|
|
|
|
| Jul 22, 2022 |
|
| Jun 6, 2023 |
|
|
|
| ||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fuel revenue | $ | 127,305 |
|
| $ | 18,191 |
|
| $ | 145,496 |
|
| $ | 370,785 |
|
| $ | 23,351 |
|
| $ | 394,136 |
|
Other revenues, net |
| 1,309 |
|
|
| 1,266 |
|
|
| 2,575 |
|
|
| 3,900 |
|
|
| 1,302 |
|
|
| 5,202 |
|
Total revenues |
| 128,614 |
|
|
| 19,457 |
|
|
| 148,071 |
|
|
| 374,685 |
|
|
| 24,653 |
|
|
| 399,338 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fuel costs |
| 117,228 |
|
|
| 15,809 |
|
|
| 133,037 |
|
|
| 336,522 |
|
|
| 20,181 |
|
|
| 356,703 |
|
Store operating expenses |
| 5,255 |
|
|
| 951 |
|
|
| 6,206 |
|
|
| 14,960 |
|
|
| 1,079 |
|
|
| 16,039 |
|
Total operating expenses |
| 122,483 |
|
|
| 16,760 |
|
|
| 139,243 |
|
|
| 351,482 |
|
|
| 21,260 |
|
|
| 372,742 |
|
Operating income | $ | 6,131 |
|
| $ | 2,697 |
|
| $ | 8,828 |
|
| $ | 23,203 |
|
| $ | 3,393 |
|
| $ | 26,596 |
|
Fuel gallons sold |
| 32,522 |
|
|
| 4,740 |
|
|
| 37,262 |
|
|
| 98,136 |
|
|
| 6,205 |
|
|
| 104,341 |
|
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 Quarles Acquisition.
2 Includes only the fleet fueling business acquired in the WTG Acquisition.
Three Months Ended September 30, 2023March 31, 2024 versus Three Months Ended September 30, 2022March 31, 2023
Fleet Fueling Revenues
For the three months ended September 30, 2023,March 31, 2024, fuel revenue increased by $24.7$4.7 million, or 20.4%3.7%, compared to thirdfirst quarter of 2022.2023. Fleet fueling revenues benefited from a 36.2%12.3% increase in gallons sold, including the effect of a full quarter of the operations acquired in the Quarles Acquisition andfrom the WTG Acquisition, which were partially offset by a decrease in the average price of fuel in the thirdfirst quarter of 2023 as2024 compared to the thirdfirst quarter of 2022.2023.
Fleet Fueling Operating Income
For the three months ended September 30, 2023,March 31, 2024, fuel contribution increased by $3.3$0.1 million compared to thirdfirst quarter of 2022 (excluding intercompany charges by GPMP).2023. At proprietary cardlocks, fuel contribution increaseddecreased by $2.6$0.1 million, (excluding intercompany charges by GPMP), whileand fuel margin per gallon also decreased for the thirdfirst quarter of 2024 compared to the first quarter of 2023, as compared to the third quarter
38
of 2022.when diesel margins were at significantly elevated levels. At third-party cardlock locations, fuel contribution increased $0.7$0.2 million, (excluding intercompany charges by GPMP), and fuel margin per gallon also increased for the thirdfirst quarter of 2023 as2024 compared to the thirdfirst quarter of 2022.2023. These changes were primarily due to higher volumes and the cardlocks acquired in the WTG Acquisition.
For the three months ended September 30, 2023, storeMarch 31, 2024, site operating expenses increased $2.3$1.8 million compared to the three months ended September 30, 2022 due to the effect of a full quarter of the operations acquired in the Quarles Acquisition and the recent WTG Acquisition.
Nine Months Ended September 30,March 31, 2023 versus Nine Months Ended September 30, 2022
Fleet Fueling Revenues
For the nine months ended September 30, 2023, fuel revenue increased by $273.3 million compared to the nine months ended September 30, 2022. Fleet fueling revenues benefited from an increase in gallons sold, including the effect of the operations acquired in the Quarles Acquisition and the WTG Acquisition, which were partially offset by a decrease in the average price of fuel in the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022.
Fleet Fueling Operating Income
For the nine months ended September 30, 2023, fuel contribution increased by $31.6 million compared to the nine months ended September 30, 2022 (excluding intercompany charges by GPMP). At proprietary cardlocks, fuel contribution increased by $30.7 million (excluding intercompany charges by GPMP), and fuel margin per gallon also increased for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. At third-party cardlock locations, fuel contribution increased $0.9 million (excluding intercompany charges by GPMP), and fuel margin per gallon also increased for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. These increases were primarily due to nine months of operation for the Quarles Acquisition and the cardlocks acquired in the recent WTG Acquisition.
For the nine months ended September 30, 2023, store operating expenses increased $12.1 million compared to the nine months ended September 30, 2022 due to the addition of the Quarles Acquisition and the WTG Acquisition.
GPMP Segment
The table below shows the results of the GPMP segment for the three and nine months ended September 30,March 31, 2024 and 2023, and 2022, together with certain key metrics for the segment.
|
| For the Three Months |
|
| For the Nine Months |
|
| For the Three Months |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||||
Revenues: |
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||
Fuel revenue - inter-segment |
| $ | 1,469,454 |
|
| $ | 1,443,638 |
|
| $ | 3,973,560 |
|
| $ | 4,457,602 |
|
| $ | 1,099,851 |
|
| $ | 1,140,065 |
|
Fuel revenue - external customers |
|
| 1,044 |
|
|
| 1,437 |
|
|
| 2,842 |
|
|
| 4,170 |
|
|
| 1,205 |
|
|
| 741 |
|
Other revenues, net |
|
| 253 |
|
|
| 261 |
|
|
| 700 |
|
|
| 773 |
|
|
| 207 |
|
|
| 170 |
|
Other revenues, net - inter-segment |
|
| 2,862 |
|
|
| 1,434 |
|
|
| 8,164 |
|
|
| 1,434 |
|
|
| 2,690 |
|
|
| 2,557 |
|
Total revenues |
|
| 1,473,613 |
|
|
| 1,446,770 |
|
|
| 3,985,266 |
|
|
| 4,463,979 |
|
|
| 1,103,953 |
|
|
| 1,143,533 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fuel costs |
|
| 1,443,902 |
|
|
| 1,420,830 |
|
|
| 3,900,688 |
|
|
| 4,390,484 |
|
|
| 1,077,821 |
|
|
| 1,118,297 |
|
General and administrative expenses |
|
| 854 |
|
|
| 709 |
|
|
| 2,407 |
|
|
| 2,174 |
|
|
| 961 |
|
|
| 772 |
|
Depreciation and amortization |
|
| 1,841 |
|
|
| 1,843 |
|
|
| 5,525 |
|
|
| 5,527 |
|
|
| 1,844 |
|
|
| 1,842 |
|
Total operating expenses |
|
| 1,446,597 |
|
|
| 1,423,382 |
|
|
| 3,908,620 |
|
|
| 4,398,185 |
|
|
| 1,080,626 |
|
|
| 1,120,911 |
|
Operating income |
| $ | 27,016 |
|
| $ | 23,388 |
|
| $ | 76,646 |
|
| $ | 65,794 |
|
| $ | 23,327 |
|
| $ | 22,622 |
|
Fuel gallons sold - inter-segment |
|
| 531,899 |
|
|
| 484,734 |
|
|
| 1,514,168 |
|
|
| 1,424,201 |
|
|
| 462,508 |
|
|
| 450,219 |
|
Fuel gallons sold - external customers |
|
| 361 |
|
|
| 443 |
|
|
| 1,041 |
|
|
| 1,270 |
|
|
| 357 |
|
|
| 283 |
|
Fuel margin, cents per gallon1 |
|
| 5.0 |
|
|
| 5.0 |
|
|
| 5.0 |
|
|
| 5.0 |
|
|
| 5.0 |
|
|
| 5.0 |
|
30
1 Calculated as fuel revenue less fuel costs divided by fuel gallons sold.
39
Three Months Ended September 30, 2023March 31, 2024 versus Three Months Ended September 30, 2022March 31, 2023
GPMP Revenues
For the three months ended September 30, 2023,March 31, 2024, fuel revenue increaseddecreased by $25.4$39.8 million compared to the thirdfirst quarter of 2022.2023. 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 as compared to the thirdfirst quarter of 2022, which was partially offset by a decrease in the average price of fuel.2023.
For the three months ended September 30,March 31, 2024 and 2023, and 2022, other revenues, net were each $0.3 millionsimilar and primarily related to rental income from certain sites leased to 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 $2.4$0.7 million for the thirdfirst quarter of 2023, as2024, compared to the thirdfirst quarter of 2022,2023, primarily due to greater gallons sold to the retail and wholesale segments at a fixed margin.
For the three months ended September 30, 2023, total general, administrative, depreciation and amortization expenses were similar with those in the comparable prior year period.
Nine Months Ended September 30, 2023 versus Nine Months Ended September 30, 2022
GPMP Revenues
For the nine months ended September 30, 2023, fuel revenue decreased by $485.4 million compared to the nine months ended September 30, 2022. The decrease in fuel revenue was attributable to a decrease in the average price of fuel, which was partially offset by an increase in gallons sold as compared to the first three quarters of 2022.
For the nine months ended September 30, 2023 and 2022, other revenues, net were $0.7 million and $0.8 million, respectively, and primarily related to rental income from certain sites leased to dealers. Inter-segment other revenues, net related to the fixed fee primarily charged to sites in the fleet fueling segment (currently 5.0 cents per gallon sold), which began in July 2022.
GPMP Operating Income
Fuel margin increased by $4.4 million for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, primarily due to greater gallons sold to the retail and wholesale segments at a fixed margin.
For the nine months ended September 30, 2023,March 31, 2024, total general, administrative, depreciation and amortization expenses increased slightly from those in$0.2 million, compared to the comparable prior year period.first quarter of 2023.
Use of Non-GAAP Measures
We disclose certain measures on a “same store basis,” which is a non-GAAP measure. Information disclosed on a “same store basis” excludes the results of any store that is not a “same store” for the applicable period. A store is considered a same store beginning in the first quarter in which the store had a full quarter of activity in the prior year. We believe that this information provides greater comparability regarding our ongoing operating performance. Neither this measure nor those described below should be considered an alternative to measurements presented in accordance with generally accepted accounting principles in the United States (“GAAP”).
We define EBITDA as net income before net interest expense, income taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA by excluding the gain or loss on disposal of assets, impairment charges, acquisition costs, other non-cash items, and other unusual or non-recurring charges. Each ofBoth EBITDA and Adjusted EBITDA is aare non-GAAP financial measure.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 or any other financial measure presented in accordance with GAAP. These measures have limitations as analytical tools, and
40
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 incomeloss to EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 2023March 31, 2024 and 2022.2023.
|
| For the Three Months |
|
| For the Nine Months |
|
| For the Three Months |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||
Net income |
| $ | 21,488 |
|
| $ | 24,994 |
|
| $ | 33,440 |
|
| $ | 59,118 |
| ||||||||
Net loss |
| $ | (594 | ) |
| $ | (2,527 | ) | ||||||||||||||||
Interest and other financing expenses, net |
|
| 14,579 |
|
|
| 19,796 |
|
|
| 48,341 |
|
|
| 43,110 |
|
|
| 2,457 |
|
|
| 13,602 |
|
Income tax expense |
|
| 7,993 |
|
|
| 20,898 |
|
|
| 10,849 |
|
|
| 31,060 |
| ||||||||
Income tax benefit |
|
| (6,707 | ) |
|
| (2,158 | ) | ||||||||||||||||
Depreciation and amortization |
|
| 33,713 |
|
|
| 26,061 |
|
|
| 94,949 |
|
|
| 75,050 |
|
|
| 31,716 |
|
|
| 28,399 |
|
EBITDA |
|
| 77,773 |
|
|
| 91,749 |
|
|
| 187,579 |
|
|
| 208,338 |
|
|
| 26,872 |
|
|
| 37,316 |
|
Non-cash rent expense (a) |
|
| 3,860 |
|
|
| 1,977 |
|
|
| 10,418 |
|
|
| 5,714 |
|
|
| 3,484 |
|
|
| 2,798 |
|
Acquisition costs (b) |
|
| 1,127 |
|
|
| 1,673 |
|
|
| 7,980 |
|
|
| 3,177 |
|
|
| 680 |
|
|
| 3,576 |
|
Loss on disposal of assets and impairment charges (c) |
|
| 2,265 |
|
|
| 1,418 |
|
|
| 5,543 |
|
|
| 3,389 |
|
|
| 2,664 |
|
|
| 287 |
|
Share-based compensation expense (d) |
|
| 4,614 |
|
|
| 3,145 |
|
|
| 13,238 |
|
|
| 9,027 |
|
|
| 3,329 |
|
|
| 4,069 |
|
Loss from equity investment (e) |
|
| 14 |
|
|
| 44 |
|
|
| 77 |
|
|
| 7 |
| ||||||||
(Income) loss from equity investment (e) |
|
| (22 | ) |
|
| 36 |
| ||||||||||||||||
Fuel taxes received in arrears (f) |
|
| (565 | ) |
|
| — |
| ||||||||||||||||
Adjustment to contingent consideration |
|
| 952 |
|
|
| (1,550 | ) |
|
| (672 | ) |
|
| (2,076 | ) |
|
| 18 |
|
|
| (702 | ) |
Internal entity realignment and streamlining (g) |
|
| — |
|
|
| 408 |
|
|
| — |
|
|
| 408 |
| ||||||||
Other (h) |
|
| 558 |
|
|
| 604 |
|
|
| 726 |
|
|
| 637 |
|
|
| 189 |
|
|
| 104 |
|
Adjusted EBITDA |
| $ | 91,163 |
|
| $ | 99,468 |
|
| $ | 224,889 |
|
| $ | 228,621 |
|
| $ | 36,649 |
|
| $ | 47,484 |
|
Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operations, availability under our credit facilities and our cash balances. Our principal liquidity requirements are the financing of current operations, funding capital expenditures including acquisitions,(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. Rapid 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 for operations, which we believe are sufficient to meet our liquidity needs for the foreseeable future.
41
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. 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 prevailing interest rates continue to increase or we incur additional indebtedness under our variable rate facilities or otherwise. See also “Quantitative and Qualitative Disclosures about Market Risk—Interest Rate Risk.”
As of September 30, 2023,March 31, 2024, we were in a strong liquidity position of approximately $827$764 million, consisting of approximately $204$184 million of cash and cash equivalents and approximately $623$579 million of availability under our lines of credit.credit available for certain purposes. This liquidity position currently provides us with adequate funding to satisfy our contractual and other obligations from our existing cash balances. As of September 30, 2023,March 31, 2024, we had no outstanding borrowings under our $140$140.0 million PNC Line of Credit (as defined below), $29.4$21.9 million of unused availability under the M&T equipment line of credit, described below, and $461.2$424.7 million of unused availability under our $800 million Capital One Line of Credit (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 each of March 21, 2023, June 1, 2023 and September 1, 2023,2024, totaling approximately $10.8$3.6 million. Additionally, the Board declared a quarterly dividend of $0.03 per share of common stock, to be paid on December 1, 2023May 31, 2024 to stockholders of record as of November 17, 2023.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 2023, we announced that our2024, the Board authorized an increase toincreased the size of our share repurchase program from $50.0for up to an aggregate of $125.0 million to up toof our outstanding shares of common stock, from an aggregate of $100.0 million of our outstanding shares of common stock. During the ninethree months ended September 30, 2023,March 31, 2024, inclusive of the repurchase of the First Installment Shares from TEG, we repurchased approximately 3.14.8 million shares of common stock under the share repurchase program for approximately $23.5$28.3 million, or an average share price of $7.55.$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 raze-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 both the short-term and long-term,short- to medium-term, we currently expect that our capital spending program will be primarily focused on expanding our store base through acquisitions, razing-and-rebuilding, remodeling and updating stores, and maintaining our owned properties and equipment, including upgrading all fuel dispensersequipment. In the medium- to be EMV-compliant. Welong-term, we currently expect to spend a total of approximately $4.5 million in the current year to upgrade substantially allthat our fuel dispensers to be EMV-compliant.capital spending program will include more focus on expanding our store base through 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 NineThree Months Ended September 30,March 31, 2024 and 2023 and 2022
Net cash provided by (used in) operating activities, investing activities and financing activities for the ninethree months ended September 30,March 31, 2024 and 2023 and 2022 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 | ) |
4233
|
| For the Nine Months Ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
| (in thousands) |
| |||||
Net cash provided by (used in): |
|
|
|
|
|
| ||
Operating activities |
| $ | 78,807 |
|
| $ | 139,763 |
|
Investing activities |
|
| (263,446 | ) |
|
| (64,793 | ) |
Financing activities |
|
| 88,393 |
|
|
| (49,835 | ) |
Effect of exchange rates |
|
| (83 | ) |
|
| (109 | ) |
Total |
| $ | (96,329 | ) |
| $ | 25,026 |
|
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 ninethree months ended September 30, 2023,March 31, 2024, cash flows provided by operating activities were $78.8$12.8 million compared to $139.8$15.9 million for the ninethree months ended September 30, 2022.March 31, 2023. The decrease was primarily the result of approximately $12.4$5.1 million of higher net interest payments approximately $22.9 million of higher net tax payments and a technical delay in receiving approximately $12.1 million from a routine credit card processor, as well as a decrease in Adjusted EBITDA of $3.7 million.$10.8 million primarily from lower fuel contribution and regulatory state-wide elimination of Virginia skill gaming machines income coupled with increases in same store site operating expenses and general and administrative expenses. Cash flows provided by operating activities for the three months ended March 31, 2023 were unfavorably impacted by the investment in working capital associated with the TEG Acquisition.
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 ninethree months ended September 30, 2023,March 31, 2024, cash used in investing activities increaseddecreased by $198.7$125.1 million compared to the ninethree months ended September 30, 2022.March 31, 2023. For the ninethree months ended September 30, 2023,March 31, 2024, we utilized $75.6$29.2 million for capital expenditures, including the purchase of certain fee properties, upgrades to fuel dispensers and other investments in our stores. The net consideration paid by us for our recent acquisitions $111.5 million, reflecting $494.9 million in aggregate purchase consideration, offset by $383.4 million paid by Oak Street.
Financing Activities
Cash flows from financing activities primarily consist of increases and decreases in the principal amount of our lines of credit and debt, distributions to non-controlling interests and issuance of common and preferred stock, net of dividends paid and common stock repurchases.
For the ninethree months ended September 30, 2023,March 31, 2024, financing activities consisted primarily of net receipts of $62.3$35.0 million for long-term debt, $80.4 million of consideration paid by Oak Street related to the 2023 Acquisitions, which transactions with Oak Street were accounted for as sale-leasebacks (see Note 3 to our condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q), payment of $9.8 million for the Ares Put Option, repayments of $4.2$1.1 million for financing leases, $10.8$3.6 million for dividend payments on common stock, $4.3$1.4 million for dividend payments on the Series A redeemable preferred stock and $25.2$31.9 million for common stock repurchases.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 as a discount for the $25.0 million deferred consideration in the TEG Acquisition which would have been due on March 1, 2025. See Note 4 to our consolidated unaudited interim financial statements included in this Quarterly Report on Form 10-Q.
Credit Facilities and Senior Notes
Senior Notes
TheAs of March 31, 2024, the Company hashad outstanding $450 million aggregate principal amount of its 5.125% Senior Notes due 2029 (the “Senior Notes”). TheIssued 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 (i) create liens, (ii) pay dividends, acquire shares of capital stock and make payments on subordinated debt, (iii) place limitations on distributions from certain subsidiaries, (iv) issue or sell the capital stock of certain subsidiaries, (v) sell assets, (vi) enter into transactions with affiliates, (vii) effect mergers and (viii) incur indebtedness. The Senior Notes and the guarantees rank equally in right of payment with all of the Company’s and the Guarantors’ respective existing and future senior unsubordinated indebtedness and are effectively subordinated to all of the Company’s and the
43
Guarantors’ existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness; and are structurally subordinated to any existing and future obligations of subsidiaries of the Company that are not Guarantors.
Financing Agreement with PNC
GPM and certain subsidiaries have a financing arrangement (as amended, the “PNC Credit Agreement”) with PNC Bank National Association (“PNC”) to provide a line of credit with an aggregate principal amount of up to $140 million for purposes of financing working capital (the “PNC Line of Credit”).
The PNC Line of Credit bears interest, as elected by GPM at: (a) SOFR 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
34
Credit Agreement) plus a margin of 0% to 0.50%. Every quarter, the SOFR margin rate and the alternate base rate margin rate are updated based on the quarterly average undrawn availability of the line of credit. The calculation of the availability under the PNC Line of Credit is determined monthly subject to terms and limitations as set forth in the PNC Credit Agreement, taking into account the balances of receivables, inventory and letters of credit, among other things. As of September 30, 2023, $7.3March 31, 2024, $7.1 million of letters of credit were outstanding under the PNC Credit Agreement.
Financing Agreements with M&T Bank
As of March 31, 2024, GPM has a financing arrangement with M&T Bank to providethat provides a line of credit for up to $45.0 million to purchase equipment on or before September 2026, and which line may be borrowed in tranches, as described below, andwell as an aggregate original principal amount of $35.0$49.5 million of a real estate loanloans (the “M&T Term Loan”Loans”). As of September 30, 2023,March 31, 2024, approximately $29.4$21.9 million remained available under the equipment 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 bearsLoans bear interest at SOFR Adjusted (as defined in the agreement) plus 2.75% to 3.00% (depending on the loan), maturesmature in June 2026 or November 2028 (depending on the loan) and isare payable in monthly installments based on a fifteen-year amortization schedule, with the balance of theeach loan payable at maturity.
Financing agreementAgreement with a syndicateSyndicate of banks ledBanks Led by Capital One, National Association (“Capital One”)
GPMP has a revolving credit facility with a syndicate of banks led by Capital One, National Association, in an aggregate principal amount of up to $800 million (the “Capital One Line of Credit”). At GPMP’s request, the Capital One Line of Credit can be increased up to $1.0 billion, subject to obtaining additional financing commitments from current lenders or from other banks, and subject to certain terms as detailed in the Capital One Line of Credit. The revolving credit facilityCapital 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 September 30, 2023,March 31, 2024, approximately $338.3$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 $461.2$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) Adjusted 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%. The margin is determined according to a formula in the Capital One Line of Credit that depends on GPMP’s leverage.
Critical Accounting Policies and Estimates
For the ninethree months ended September 30, 2023,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, 20222023 that have had a material impact on our condensed consolidated financial statements and related notes.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Commodity Price Risk
We have limited exposure to commodity price risk as a result of the payment and volume-related discounts in certain of our fuel supply contracts with our fuel suppliers, which are based on the market price of motor fuel. Significant increases in fuel prices could result in significant increases in the retail price of fuel and in lower sales to consumers and 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
44
in higher credit card expenses. These additional fees increase operating expenses. In connection with the Quarles Acquisition, we began toWe make use of derivative commodity instruments
35
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. The Senior Notes bear a fixed interest rate, therefore, an increase or decrease in prevailing interest rates has no impact on our debt service for the Senior Notes. As of September 30,March 31, 2024, the interest rate on our Capital One Line of Credit was 8.2%, the interest rate on our M&T Term Loan was 8.3% and the interest rate on the variable portion of our M&T equipment loan was 8.1% (approximately $15.6 million of the total loan). As of March 31, 2023, the interest rate on our Capital One Line of Credit was 7.9%, the interest rate on our M&T Term Loan was 8.4% and the interest rate on our variable M&T equipment loan was 8.1%. As of September 30, 2022, the interest rate on our Capital One Line of Credit was 5.1%7.1% and the interest rate on our M&T Term Loan was 6.2%7.6% (the entire M&T equipment loan had a fixed rate). As of September 30, 2023,March 31, 2024, approximately 44%48% of our debt bore interest at variable rates. IfBased on the outstanding balances as of March 31, 2024, if our applicable interest rates increase by 1%, then our debt service on an annual basis would increase by approximately $3.7$4.3 million. Interest rates on 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.
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. The disclosure controls and procedures related to the TEG Acquisition we closed on March 1, 2023 were excluded from the evaluation of effectiveness of the Company’s disclosure controls and procedures as of September 30, 2023, due to the timing of this acquisition. This acquisition’s total assets constituted approximately 11% of the Company’s total assets as of September 30, 2023, and represented approximately 8% of the Company’s revenue for the nine months ended September 30, 2023. Based on management’s evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2023.March 31, 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.
4536
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, 2022.2023.
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, 2022.2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table presents our share repurchase activity for the quarter ended September 30, 2023March 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 (1) |
|
| Maximum Dollar Value that May Yet Be Purchased Under the Plans or Programs (1) |
| ||||
|
|
|
|
|
|
|
|
|
| |||||||
July 1, 2023 to July 31, 2023 |
|
| 179,491 |
|
| $ | 7.96 |
|
|
| 179,491 |
|
| $ | 47,643 |
|
August 1, 2023 to August 31, 2023 |
|
| 292,640 |
|
|
| 7.66 |
|
|
| 292,640 |
|
|
| 45,402 |
|
September 1, 2023 to September 30, 2023 |
|
| 1,068,511 |
|
|
| 7.43 |
|
|
| 1,068,511 |
|
|
| 37,468 |
|
Total |
|
| 1,540,642 |
|
| $ | 7.53 |
|
|
| 1,540,642 |
|
| $ | 37,468 |
|
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.
37
Item 5. Other Information
During the three months ended September 30, 2023,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.
4638
Item 6. Exhibits
Exhibit |
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|
|
|
|
Exhibit | ||
Exhibit 10.3++ | ||
Exhibit 31.1* |
| |
|
|
|
Exhibit |
| |
|
|
|
Exhibit |
| |
|
|
|
Exhibit |
| |
|
|
|
101 |
| The following financial statements from the Company’s Form 10-Q for the quarter ended |
|
|
|
104 |
| Cover Page Interactive Data File (embedded within the Inline XBRL document) |
*Filed herewith.
**Furnished herewith.
47+ 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.
++ 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.
39
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: |
| ARKO Corp. |
|
|
|
| By: | /s/ |
| Name: |
|
| Title: | Executive Vice President and Chief |
|
| (on behalf of the Registrant and as Principal |
4840