10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021.


☐	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 001-33528

ARKO Corp.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		85-2784337
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

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	Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value per share	ARKO	Nasdaq Capital Market
Warrants to purchase common stock	ARKOW	Nasdaq Capital Market

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the registrant: (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 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, 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 ☒ NO

As of May 13, 2021, the registrant had 124,427,805 shares of its common stock, par value $0.0001 per share (“common stock”) outstanding.

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TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	5
	Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 (unaudited)	5
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020 (unaudited)	6
	Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2021 and 2020 (unaudited)	7
	Condensed Consolidated Statements of Changes in Equity for the three months ended March 31, 2021 and 2020 (unaudited)	8
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 (unaudited)	9
	Notes to Condensed Consolidated Financial Statements (unaudited)	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	36
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Mine Safety Disclosures	37
Item 5.	Other Information	37
Item 6.	Exhibits	38
Signatures		39

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements,” as that term is defined under the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements about our expectations, beliefs or intentions regarding our product development efforts, business, financial condition, results of operations, strategies or prospects, including the potential impact of the COVID-19 pandemic on our businesses, operating results, cash flows and/or financial condition. 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, 2020 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:



changes in economic conditions and consumer confidence in the U.S. could materially adversely affect our business;



if we do not make acquisitions on economically acceptable terms, our future growth may be limited;



we may be unable to successfully integrate Empire’s operations or otherwise realize the expected benefits from the Empire Acquisition (as defined below);



our future growth depends on our ability to successfully implement our organic growth strategy, a major part of which consists of remodeling our convenience stores;



significant changes in current consumption of and regulations related to tobacco and nicotine products;



changes in the wholesale prices of motor fuel;



significant changes in demand for fuel-based modes of transportation;



we operate in a highly competitive industry characterized by low entry barriers;



negative events or developments associated with branded motor fuel suppliers;



we depend on four principal suppliers for the majority of our gross fuel purchases and two principal suppliers for merchandise;



a portion of our revenue is generated under fuel supply agreements with independent dealers that must be renegotiated or replaced periodically;



the retail sale, distribution and storage of motor fuels is subject to environmental protection and operational safety laws and regulations that may expose us or our customers to significant costs and liabilities;



business disruption and related risks resulting from the outbreak of COVID-19;



failure to comply with applicable laws and regulations;



the failure to recruit or retain qualified personnel;



unfavorable weather conditions;



we may be held liable for fraudulent credit card transactions on our fuel dispensers;



significant disruptions of our information technology systems or breaches of our data security;



we depend on third-party transportation providers for the transportation of all of our motor fuel;



our operations present risks which may not be fully covered by insurance;



our variable rate debt;

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

our credit facilities have substantial restrictions and financial covenants;



the proposed phase out of the London Interbank Offered Rate (“LIBOR”);



we will incur significant increased expenses and administrative burdens as a public company;



we may not be able to timely and effectively implement controls and procedures required by Section 404(a) of the Sarbanes-Oxley Act;



our corporate structure includes Israeli subsidiaries that may have adverse tax consequences and expose us to additional tax liabilities;



the market price and trading volume of our common stock may be volatile and could decline significantly;



if securities or industry analysts do not publish research, publish inaccurate or unfavorable research or cease publishing research about us or the convenience store industry; and



sales of a substantial number of shares of our common stock in the public market.

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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)


	March 31, 2021			December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	204,986		$	293,666
Restricted cash with respect to bonds		—			1,230
Restricted cash		18,017			16,529
Trade receivables, net		57,597			46,940
Inventory		171,123			163,686
Other current assets		80,425			87,355
Total current assets		532,148			609,406
Non-current assets:
Property and equipment, net		493,420			491,513
Right-of-use assets under operating leases		947,568			961,561
Right-of-use assets under financing leases, net		203,706			198,317
Goodwill		173,937			173,937
Intangible assets, net		212,144			218,132
Restricted investments		31,825			31,825
Non-current restricted cash with respect to bonds		—			1,552
Equity investment		2,612			2,715
Deferred tax asset		42,345			40,655
Other non-current assets		10,849			10,196
Total assets	$	2,650,554		$	2,739,809
Liabilities
Current liabilities:
Long-term debt, current portion	$	29,495		$	40,988
Accounts payable		172,910			155,714
Other current liabilities		108,021			133,637
Operating leases, current portion		49,590			48,878
Financing leases, current portion		7,598			7,834
Total current liabilities		367,614			387,051
Non-current liabilities:
Long-term debt, net		644,764			708,802
Asset retirement obligation		53,351			52,964
Operating leases		961,621			973,695
Financing leases		233,575			226,440
Deferred tax liability		2,663			2,816
Other non-current liabilities		107,644			96,621
Total liabilities		2,371,232			2,448,389
Commitments and contingencies - see Note 10
Series A redeemable preferred stock (no par value) - authorized: 1,000 shares; issued and outstanding: 1,000 and 1,000 shares, respectively; redemption value: $100,000 and $100,000, respectively		100,000			100,000
Shareholders' equity:
Common stock (par value $0.0001) - authorized: 400,000 shares; issued and outstanding: 124,428 and 124,132 shares, respectively		12			12
Additional paid-in capital		214,727			212,103
Accumulated other comprehensive income		9,119			9,119
Accumulated deficit		(44,389	)		(29,653	)
Total shareholders' equity		179,469			191,581
Non-controlling interest		(147	)		(161	)
Total equity		179,322			191,420
Total liabilities, redeemable preferred stock and equity	$	2,650,554		$	2,739,809

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ARKO Corp.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except per share data)


	For the three months ended March 31,
	2021			2020
Revenues:
Fuel revenue	$	1,102,947		$	563,041
Merchandise revenue		359,281			323,679
Other revenues, net		22,128			13,160
Total revenues		1,484,356			899,880
Operating expenses:
Fuel costs		1,012,798			499,803
Merchandise costs		260,754			239,091
Store operating expenses		144,938			128,830
General and administrative expenses		26,713			18,893
Depreciation and amortization		24,242			17,071
Total operating expenses		1,469,445			903,688
Other expenses, net		1,672			4,176
Operating income (loss)		13,239			(7,984	)
Interest and other financial income		2,407			3,245
Interest and other financial expenses		(31,024	)		(9,896	)
Loss before income taxes		(15,378	)		(14,635	)
Income tax benefit		722			2,011
Loss from equity investment		(6	)		(233	)
Net loss	$	(14,662	)	$	(12,857	)
Less: Net income (loss) attributable to non-controlling interests		74			(2,401	)
Net loss attributable to ARKO Corp.	$	(14,736	)	$	(10,456	)
Series A redeemable preferred stock dividends		(1,402	)
Net loss attributable to common shareholders	$	(16,138	)
Net loss per share attributable to common shareholders - basic and diluted	$	(0.13	)	$	(0.16	)
Weighted average shares outstanding:
Basic and Diluted		124,361			66,731

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ARKO Corp.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited, in thousands)


	For the three months ended March 31,
	2021			2020
Net loss	$	(14,662	)	$	(12,857	)
Other comprehensive loss:
Foreign currency translation adjustments		—			(1,709	)
Total other comprehensive loss		—			(1,709	)
Comprehensive loss	$	(14,662	)	$	(14,566	)
Less: Comprehensive income (loss) attributable to non-controlling interests		74			(2,401	)
Comprehensive loss attributable to ARKO Corp.	$	(14,736	)	$	(12,165	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ARKO Corp.

Condensed Consolidated Statements of Changes in Equity

(Unaudited, in thousands)


	Common Stock				Additional Paid-in			Accumulated Other Comprehensive			Accumulated			Total Shareholders'			Non- Controlling			Total
	Shares		Par Value		Capital			Income			Deficit			Equity			Interests			Equity
Balance at January 1, 2020		65,541	$	6	$	104,686		$	4,444		$	(43,363	)	$	65,773		$	129,117		$	194,890
Share-based compensation		—		—		127			—			—			127			—			127
Conversion of convertible bonds		6		—		26			—			—			26			—			26
Transactions with non-controlling interests		—		—		(777	)		—			—			(777	)		20,194			19,417
Distributions to non-controlling interests		—		—		—			—			—			—			(2,375	)		(2,375	)
Other comprehensive loss		—		—		—			(1,709	)		—			(1,709	)		—			(1,709	)
Net loss		—		—		—			—			(10,456	)		(10,456	)		(2,401	)		(12,857	)
Balance at March 31, 2020		65,547	$	6	$	104,062		$	2,735		$	(53,819	)	$	52,984		$	144,535		$	197,519

Balance at January 1, 2021		124,132	$	12	$	212,103		$	9,119		$	(29,653	)	$	191,581		$	(161	)	$	191,420
Share-based compensation		—		—		1,026			—			—			1,026			—			1,026
Distributions to non-controlling interests		—		—		—			—			—			—			(60	)		(60	)
Dividends on redeemable preferred stock		—		—		(1,402	)		—			—			(1,402	)		—			(1,402	)
Issuance of shares		296		—		3,000			—			—			3,000			—			3,000
Net (loss) income		—		—		—			—			(14,736	)		(14,736	)		74			(14,662	)
Balance at March 31, 2021		124,428	$	12	$	214,727		$	9,119		$	(44,389	)	$	179,469		$	(147	)	$	179,322

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ARKO Corp.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)


	For the three months ended March 31,
	2021			2020
Cash flows from operating activities:
Net loss	$	(14,662	)	$	(12,857	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		24,242			17,071
Deferred income taxes		(1,843	)		389
Loss on disposal of assets and impairment charges		1,375			3,382
Foreign currency gain		(1,042	)		(2,874	)
Amortization of deferred financing costs, debt discount and premium		(185	)		1,780
Amortization of deferred income		(2,484	)		(2,380	)
Accretion of asset retirement obligation		445			327
Non-cash rent		1,771			1,801
Charges to allowance for credit losses		141			49
Loss from equity investment		6			233
Share-based compensation		1,026			127
Fair value adjustment of financial assets and liabilities		11,049			(418	)
Other operating activities, net		224			—
Changes in assets and liabilities:
(Increase) decrease in trade receivables		(10,798	)		7,732
(Increase) decrease in inventory		(7,437	)		17,402
Decrease in other assets		7,688			4,737
Increase (decrease) in accounts payable		17,309			(10,996	)
Decrease in other current liabilities		(15,829	)		(966	)
Decrease in asset retirement obligation		(89	)		(36	)
Increase (decrease) in non-current liabilities		369			(591	)
Net cash provided by operating activities	$	11,276		$	23,912

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ARKO Corp.

Condensed Consolidated Statements of Cash Flows (cont’d)

(Unaudited, in thousands)


	For the three months ended March 31,
	2021			2020
Cash flows from investing activities:
Purchase of property and equipment	$	(17,525	)	$	(12,048	)
Purchase of intangible assets		—			(30	)
Proceeds from sale of property and equipment		880			—
Business acquisitions, net of cash		—			(320	)
Loans to equity investment		—			(143	)
Net cash used in investing activities		(16,645	)		(12,541	)
Cash flows from financing activities:
Lines of credit, net		—			(39,364	)
Repayment of related-party loans		—			(4,517	)
Receipt of long-term debt, net		1,115			156,694
Repayment of debt		(75,963	)		(41,722	)
Principal payments on financing leases		(1,990	)		(2,124	)
Investment of non-controlling interest in subsidiary		—			19,325
Payment of Merger Transaction issuance costs		(4,686	)		—
Dividends paid on redeemable preferred stock		(1,559	)		—
Distributions to non-controlling interests		(60	)		(2,375	)
Net cash (used in) provided by financing activities		(83,143	)		85,917
Net (decrease) increase in cash and cash equivalents and restricted cash		(88,512	)		97,288
Effect of exchange rate on cash and cash equivalents and restricted cash		(1,462	)		(1,306	)
Cash and cash equivalents and restricted cash, beginning of period		312,977			52,763
Cash and cash equivalents and restricted cash, end of period	$	223,003		$	148,745
Reconciliation of cash and cash equivalents and restricted cash
Cash and cash equivalents, beginning of period	$	293,666			32,117
Restricted cash, beginning of period		16,529			14,423
Restricted cash with respect to bonds, beginning of period		2,782			6,223
Cash and cash equivalents and restricted cash, beginning of period	$	312,977		$	52,763
Cash and cash equivalents, end of period	$	204,986			128,513
Restricted cash, end of period		18,017			12,609
Restricted cash with respect to bonds, end of period		—			7,623
Cash and cash equivalents and restricted cash, end of period	$	223,003		$	148,745

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ARKO Corp.

Condensed Consolidated Statements of Cash Flows (cont’d)

(Unaudited, in thousands)


	For the three months ended March 31,
	2021		2020
Supplementary cash flow information:
Cash received for interest	$	55	$	403
Cash paid for interest		18,057		8,083
Cash received for taxes		9		67
Cash paid for taxes		72		226
Supplementary noncash activities:
Prepaid insurance premiums financed through notes payable		2,171		2,872
Purchases of equipment in accounts payable and accrued expenses		3,715		3,310
Purchase of property and equipment under leases		11,534		2,448
Disposals of leases of property and equipment		2,254		1,447
Issuance of shares		3,000		—
Receipt of related-party receivable payment offset by related-party loan payments		—		7,133

The accompanying notes are an integral part of these condensed consolidated financial statements.

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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 were registered to trade on the Nasdaq Stock Market on December 22, 2020 and commenced trading on December 23, 2020. The Company’s common stock is also listed on the Tel Aviv Stock Exchange.

On September 8, 2020, the Company (a newly-formed company) entered into a business combination agreement, as amended on November 18, 2020 (the “Merger Agreement”), together with Arko Holdings Ltd. (“Arko Holdings”), Haymaker Acquisition Corp. II, a Delaware corporation and special purpose acquisition company (“Haymaker”), and additional newly-formed wholly owned subsidiaries of Haymaker that were formed in order to enable the consummation of the merger transaction (the “Merger Transaction”). Arko Holdings is a corporation incorporated in Israel, whose securities were listed on the Tel Aviv Stock Exchange prior to the consummation of the Merger Transaction and which held a majority of the outstanding equity of GPM Investments, LLC, a Delaware limited liability company (“GPM”). On December 22, 2020, the Merger Transaction was consummated (the “Merger Closing Date”), following which Arko Holdings and Haymaker became wholly owned subsidiaries of the Company.

The Company’s operations are primarily performed by its subsidiary, GPM, which became a wholly owned subsidiary, indirectly, upon consummation of the Merger Transaction. GPM is 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, and in wholesale activity, which includes the supply of fuel to gas stations operated by third parties. As of March 31, 2021, GPM’s activity included the self-operation of 1,324 sites and the supply of fuel to 1,625 gas stations operated by external operators (dealers), throughout 33 states and the District of Columbia in the Mid-Atlantic, Midwestern, Northeastern, Southeastern and Southwestern United States (“US”).

The Company has three reporting segments: retail, wholesale and GPMP. Refer to Note 9 below for further information with respect to the segments.

Accounting Treatment of the Merger Transaction

The Merger Transaction was accounted for as a reverse recapitalization. Under this method of accounting, Haymaker was treated as the “acquired” company and Arko Holdings was considered the accounting acquirer for accounting purposes. The Merger Transaction was treated as the equivalent of Arko Holdings’ issuing stock in exchange for the net assets of Haymaker, accompanied by a recapitalization. The net assets of Arko Holdings and Haymaker were stated at historical cost. No goodwill or intangible assets were recorded in connection with the Merger Transaction.

Because Arko Holdings was deemed the accounting acquirer, upon the consummation of the Merger Transaction, the historical financial statements of Arko Holdings became the historical financial statements of the combined company. As a result, the financial statements included in this Quarterly Report on Form 10-Q reflect the historical operating results of Arko Holdings prior to the Merger Closing Date and the combined results of the Company, including those of Haymaker, following the Merger Closing Date. Additionally, the Company’s equity structure has been reclassified in all comparative periods up to the Merger Closing Date to reflect the number of shares of the Company’s common stock issued to Arko Holdings’ stockholders in connection with the recapitalization transaction. As such, the share counts, corresponding common stock amounts and earnings per share related to Arko Holdings’ common stock prior to the Merger Transaction have been retroactively reclassified as shares reflecting the exchange ratio established in accordance with the Merger Agreement.

2. Summary of Significant Accounting Policies

Basis of Presentation

All significant intercompany balances and transactions have been eliminated in the accompanying condensed consolidated financial statements, which are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

Interim Financial Statements

The accompanying condensed consolidated financial statements as of March 31, 2021 and for the three months periods ended March 31, 2021 and 2020 (“interim financial statements”) 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 for interim reporting. In the opinion of

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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 Annual Report on Form 10-K for the year ended December 31, 2020 (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 in which each period ends. The Company earns a disproportionate amount of its annual operating income in the second and third quarters as a result of the climate and seasonal buying patterns of its customers. Inclement weather, especially in the Midwest and Northeast regions of the US 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 results could differ from those estimates. Significant estimates include right-of-use assets and lease liabilities; impairment of goodwill, intangible, right-of-use and fixed assets; useful lives of fixed assets; environmental assets and liabilities; deferred tax assets; and asset retirement obligations.

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 for which the Company is entitled. When the consideration amount received from the customer exceeds the amounts recognized as revenue, the Company recognizes a contract liability for the excess.

An asset is recognized related to the costs incurred to obtain a contract (i.e. 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 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 costs included fuel taxes of $222.5 million and $115.1 million for the three months ended March 31, 2021 and 2020, respectively.

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Refer to Note 9 for disclosure of the revenue disaggregated by segment and product line, as well as a description of the reportable segment operations.

New Accounting Pronouncements Adopted During 2021

Simplifying the Accounting for Income Taxes – In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve consistent application of and simplify GAAP for other areas of ASC 740 by clarifying and amending existing guidance, such as the accounting for a franchise tax (or similar tax) that is partially based on income. This standard is effective January 1, 2021 for the Company. The adoption of this guidance had no material impact on the Company’s consolidated financial statements.

New Accounting Pronouncements Not Yet Adopted

Reference Rate Reform – In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard included optional guidance for a limited period of time to help ease the burden in accounting for the effects of reference rate reform. The new standard is effective for all entities through December 31, 2022. The Company is examining the impact of this standard on its consolidated financial statements.

3. Debt

The components of debt were as follows:


	March 31, 2021				December 31, 2020
	(in thousands)
Bonds (Series C)	$	—		$		76,582
PNC term loans		32,362				32,354
M&T debt		28,420				27,898
Ares term loan		215,208				215,433
Insurance premium notes		3,935				3,488
Capital One line of credit		394,334				394,035
Total debt, net	$	674,259		$		749,790
Less current portion		(29,495	)			(40,988	)
Total long-term debt, net	$	644,764		$		708,802

Bonds (Series C)

On March 30, 2021, Arko Holdings fully redeemed its Bonds (Series C) in accordance with the optional redemption provisions of the deed of trust governing the Bonds (Series C). Arko Holdings redeemed the Bonds (Series C) at a redemption price equal to approximately NIS 1.084 for every NIS 1 par value (approximately $0.325 as of March 30, 2021 per NIS 1 par value) of Bonds (Series C) outstanding (including additional interest for the early redemption and accrued and unpaid interest thereon to the redemption date for the Bonds (Series C)). The total amount paid to holders of the Bonds (Series C) was approximately NIS 264 million (approximately $79 million).

Ares Credit Agreement

On March 30, 2021, GPM entered into an amendment to its credit agreement (the “Ares Credit Agreement”) with Ares Capital Corporation (“Ares”) which amended the credit agreement to adjust the interest rate effective from and after March 1, 2021, by (A) reducing the applicable margin for the term loan facility by 0.125% and (B) reducing the LIBOR Rate (as defined in the credit agreement) to be not less than 1.0%, such that following these changes, effective March 1, 2021, the term loan facility bears interest, as elected by GPM, at (a) a rate per annum equal to the Ares alternative base rate (“ABR”) plus a margin of 3.50%, or (b) the LIBOR Rate as defined in the credit agreement (not less than 1.0%) plus a margin of 4.50%.

4. Leases

As of March 31, 2021, the Company leased 1,125 of its convenience stores that it operates, 158 dealer locations and certain office spaces used as its headquarters in the US, including land and buildings in certain cases. Most of the lease agreements are for

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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, store lighting and fuel dispensers.

Under ASC 842, the components of lease cost recorded on the condensed consolidated statements of operations were as follows:


	For the three months ended March 31,
	2021			2020
	(in thousands)
Finance lease cost:
Depreciation of right-of-use assets	$	3,317	$		3,192
Interest on lease liabilities		4,446			4,326
Operating lease costs included in store operating expenses		32,334			27,244
Operating lease costs included in general and administrative expenses		396			327
Lease cost related to variable lease payments, short-term leases and leases of low value assets		375			150
Right-of-use asset impairment charges		111			639
Total lease costs	$	40,979	$		35,878

5. Equity

On August 1, 2020, Haymaker and Nomura Securities International, Inc. (“Nomura”) entered into an engagement letter, pursuant to which Nomura agreed to act as a placement agent in connection with the Company’s issuance of its Series A redeemable preferred stock and on September 8, 2020, Haymaker and Nomura entered into an engagement letter, pursuant to which Nomura agreed to act as a financial and capital markets advisor in connection with the Merger Transaction. On January 19, 2021, the Company, Haymaker and Nomura entered into a letter agreement, amending the engagement letters to provide that all of the placement fee and the transaction fee, in each case at Haymaker’s option, may be paid to Nomura in the form of 296,150 shares of common stock. On January 21, 2021, the Company issued 296,150 shares of common stock to Nomura in a private placement.

6. Share-Based Compensation

In March 2021, the Compensation Committee of the Company’s Board of Directors (the “Board”) approved the grant of non-qualified stock options and restricted stock units (“RSUs”) to certain employees, non-employees and members of the Board under the ARKO Corp. 2020 Incentive Compensation Plan (the “Plan”). Stock options granted under the Plan expire no later than ten years from the date of grant and the exercise price shall not be less than the fair market value of the shares on the date of grant. Vesting periods are assigned to stock options and restricted share units on a grant-by-grant basis at the discretion of the Board. The Company issues new shares of common stock upon exercise of stock options and vesting of restricted share units.

Additionally, a non-employee director may elect to defer up to 100% of his or her cash fees and instead receive RSUs, which must be settled in common stock upon the director’s departure from the Board. There were 60,000 RSUs issued to non-employee directors outstanding at March 31, 2021.

The following table summarizes share activity related to stock options and restricted stock units:


	Stock Options		Restricted Stock Units
Options Outstanding/Nonvested RSUs, December 31, 2020		—		—
Granted		126,000		1,570,600
Options Exercised/RSUs released		—		(60,000	)
Forfeited		—		—
Options Outstanding/Nonvested RSUs, March 31, 2021		126,000		1,510,600