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 June 30, 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 001-39828

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 August 12, 2021, the registrant had 124,427,805 shares of its common stock, par value $0.0001 per share (“common stock”) outstanding.

Table of Contents

TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	5
	Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 (unaudited)	5
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020 (unaudited)	6
	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2021 and 2020 (unaudited)	7
	Condensed Consolidated Statements of Changes in Equity for the three and six months ended June 30, 2021 and 2020 (unaudited)	8
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020 (unaudited)	10
	Notes to Condensed Consolidated Financial Statements (unaudited)	13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	44
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Mine Safety Disclosures	45
Item 5.	Other Information	45
Item 6.	Exhibits	46
Signatures		47

Table of Contents

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 the operations or otherwise realize the expected benefits from our acquisitions;



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;



labor, raw materials and building supply shortages and price fluctuations in the construction industry could delay or increase the cost of our store remodel program and our maintenance capital expenditures, which could adversely affect our operating results;



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 or variants of the virus;



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 or a third party's information technology systems or breaches of our or a third party's data security;



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

Table of Contents



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



our variable rate debt;



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.

Table of Contents

PART I. FINANCIAL INFORMATION

Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to the “Company,” “ARKO,” “we,” “our,” “ours,” and “us” refer to ARKO Corp., a Delaware corporation, including our consolidated subsidiaries.

Item 1. Financial Statements

ARKO Corp.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)


	June 30, 2021			December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	229,399		$	293,666
Restricted cash with respect to bonds		—			1,230
Restricted cash		15,537			16,529
Trade receivables, net		67,720			46,940
Inventory		183,113			163,686
Other current assets		90,978			87,355
Total current assets		586,747			609,406
Non-current assets:
Property and equipment, net		545,321			491,513
Right-of-use assets under operating leases		963,503			961,561
Right-of-use assets under financing leases, net		200,587			198,317
Goodwill		174,053			173,937
Intangible assets, net		209,342			218,132
Restricted investments		31,825			31,825
Non-current restricted cash with respect to bonds		—			1,552
Equity investment		2,697			2,715
Deferred tax asset		39,506			40,655
Other non-current assets		15,804			10,196
Total assets	$	2,769,385		$	2,739,809
Liabilities
Current liabilities:
Long-term debt, current portion	$	10,119		$	40,988
Accounts payable		182,050			155,714
Other current liabilities		117,853			133,637
Operating leases, current portion		50,730			48,878
Financing leases, current portion		7,195			7,834
Total current liabilities		367,947			387,051
Non-current liabilities:
Long-term debt, net		675,588			708,802
Asset retirement obligation		56,035			52,964
Operating leases		980,273			973,695
Financing leases		232,236			226,440
Deferred tax liability		3,737			2,816
Other non-current liabilities		148,680			96,621
Total liabilities		2,464,496			2,448,389
Commitments and contingencies - see Note 11
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, in the aggregate 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		214,781			212,103
Accumulated other comprehensive income		9,119			9,119
Accumulated deficit		(18,870	)		(29,653	)
Total shareholders' equity		205,042			191,581
Non-controlling interest		(153	)		(161	)
Total equity		204,889			191,420
Total liabilities, redeemable preferred stock and equity	$	2,769,385		$	2,739,809

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

Table of Contents

ARKO Corp.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except per share data)


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2021			2020			2021			2020
Revenues:
Fuel revenue	$	1,460,763		$	407,512		$	2,563,710		$	970,553
Merchandise revenue		426,365			391,697			785,646			715,376
Other revenues, net		22,686			15,066			44,814			28,226
Total revenues		1,909,814			814,275			3,394,170			1,714,155
Operating expenses:
Fuel costs		1,347,109			316,891			2,359,907			816,694
Merchandise costs		303,952			284,577			564,706			523,668
Store operating expenses		154,668			126,023			299,606			254,853
General and administrative expenses		31,861			20,527			58,574			39,420
Depreciation and amortization		25,273			16,814			49,515			33,885
Total operating expenses		1,862,863			764,832			3,332,308			1,668,520
Other expenses, net		1,195			1,733			2,867			5,909
Operating income		45,756			47,710			58,995			39,726
Interest and other financial income		2,601			412			1,695			1,000
Interest and other financial expenses		(14,598	)		(12,925	)		(42,309	)		(20,164	)
Income before income taxes		33,759			35,197			18,381			20,562
Income tax expense		(8,212	)		(2,510	)		(7,490	)		(499	)
Income (loss) from equity investment		26			(178	)		20			(411	)
Net income	$	25,573		$	32,509		$	10,911		$	19,652
Less: Net income attributable to non-controlling interests		54			10,614			128			8,213
Net income attributable to ARKO Corp.	$	25,519		$	21,895		$	10,783		$	11,439
Series A redeemable preferred stock dividends		(1,434	)					(2,836	)
Net income attributable to common shareholders	$	24,085					$	7,947
Net income per share attributable to common shareholders - basic and diluted	$	0.19		$	0.32		$	0.06		0.17
Weighted average shares outstanding:
Basic		124,428			69,490			124,395			68,118
Diluted		133,032			69,490			124,543			68,118

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

Table of Contents

ARKO Corp.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited, in thousands)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020
Net income	$	25,573	$	32,509	$	10,911	$	19,652
Other comprehensive income (loss):
Foreign currency translation adjustments		—		1,704		—		(5	)
Total other comprehensive income (loss)		—		1,704		—		(5	)
Comprehensive income	$	25,573	$	34,213	$	10,911	$	19,647
Less: Comprehensive income attributable to non-controlling interests		54		10,614		128		8,213
Comprehensive income attributable to ARKO Corp.	$	25,519	$	23,599	$	10,783	$	11,434

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

Table of Contents

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 April 1, 2020		65,547	$	6	$	104,062		$	2,735	$	(53,819	)	$	52,984		$	144,535		$	197,519
Share-based compensation		—		—		128			—		—			128			—			128
Vesting and exercise of restricted share units		88		—		—			—		—			—			—			—
Issuance of rights		5,749		1		11,324			—		—			11,325			—			11,325
Distributions to non-controlling interests		—		—		—			—		—			—			(2,359	)		(2,359	)
Other comprehensive income		—		—		—			1,704		—			1,704			—			1,704
Net income		—		—		—			—		21,895			21,895			10,614			32,509
Balance at June 30, 2020		71,384	$	7	$	115,514		$	4,439	$	(31,924	)	$	88,036		$	152,790		$	240,826

Balance at April 1, 2021		124,428	$	12	$	214,727		$	9,119	$	(44,389	)	$	179,469		$	(147	)	$	179,322
Share-based compensation		—		—		1,488			—		—			1,488			—			1,488
Distributions to non-controlling interests		—		—		—			—		—			—			(60	)		(60	)
Dividends on redeemable preferred stock		—		—		(1,434	)		—		—			(1,434	)		—			(1,434	)
Net income		—		—		—			—		25,519			25,519			54			25,573
Balance at June 30, 2021		124,428	$	12	$	214,781		$	9,119	$	(18,870	)	$	205,042		$	(153	)	$	204,889

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

Table of Contents

ARKO Corp.

Condensed Consolidated Statements of Changes in Equity (cont'd)

(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		—		—		255			—		—			255			—		255
Vesting and exercise of restricted share units		88		—		—			—		—			—			—		—
Conversion of convertible bonds		6		—		26			—		—			26			—		26
Issuance of rights		5,749		1		11,324			—		—			11,325			—		11,325
Transactions with non-controlling interests		—		—		(777	)		—		—			(777	)		20,194		19,417
Distributions to non-controlling interests		—		—