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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, 2022.

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

 

img25607959_0.jpg 

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 3, 2022, the registrant had 122,251,579 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 March 31, 2022 and December 31, 2021 (unaudited)

 

5

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021 (unaudited)

 

6

 

Condensed Consolidated Statements of Changes in Equity for the three months ended March 31, 2022 and 2021 (unaudited)

 

7

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (unaudited)

 

8

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

11

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

32

Item 4.

Controls and Procedures

 

34

PART II. OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

35

Item 1A.

Risk Factors

 

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

35

Item 3.

Defaults Upon Senior Securities

 

35

Item 4.

Mine Safety Disclosures

 

35

Item 5.

Other Information

 

35

Item 6.

Exhibits

 

36

Signatures

 

37

 

 

 

2


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, 2021 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.;
if we do not make acquisitions on economically acceptable terms, our future growth may be limited;
we may be unable to successfully integrate acquired operations or otherwise realize the expected benefits from our acquisitions;
our future growth depends on our ability to successfully implement our organic growth strategies;
labor, raw materials and building supply shortages and price fluctuations in the construction industry could delay or increase the costs of our store upgrade and remodel program and our maintenance capital expenditures;
significant changes in the 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 several principal suppliers for 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 and variants of the virus, including associated regulatory changes;
failure to comply with applicable laws and regulations;
the loss of key senior management personnel or 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;
payment-related risks that may result in higher operating costs or the inability to process payments;
significant disruptions of information technology systems or breaches of data security;
laws, regulations, standards, and contractual obligations related to data privacy and security regulations, and our actual or perceived failure to comply with such obligations;

 

3


Table of Contents

 

our failure to adequately secure, maintain, and enforce our intellectual property rights;
third-party claims of infringement upon their intellectual property rights;
we depend on third-party transportation providers for the transportation of our motor fuel;
our operations present risks which may not be fully covered by insurance;
our variable rate debt;
the agreements governing our indebtedness have various restrictions and financial covenants;
the proposed phase out of the London Interbank Offered Rate (“LIBOR”);
our principal stockholders and management exert significant control over us, and their interests may conflict with yours;
our corporate structure includes Israeli subsidiaries that may have adverse tax consequences and expose us to additional tax liabilities;
we may not be able to effectively maintain controls and procedures required by Section 404 of the Sarbanes-Oxley Act;
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 could cause the price of our common stock to decline.

 

4


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)

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

241,220

 

 

$

252,141

 

Restricted cash

 

 

15,662

 

 

 

20,402

 

Short-term investments

 

 

59,110

 

 

 

58,807

 

Trade receivables, net

 

 

75,093

 

 

 

62,342

 

Inventory

 

 

219,154

 

 

 

197,836

 

Other current assets

 

 

76,091

 

 

 

92,095

 

Total current assets

 

 

686,330

 

 

 

683,623

 

Non-current assets:

 

 

 

 

 

 

Property and equipment, net

 

 

554,252

 

 

 

548,969

 

Right-of-use assets under operating leases

 

 

1,055,945

 

 

 

1,064,982

 

Right-of-use assets under financing leases, net

 

 

189,657

 

 

 

192,378

 

Goodwill

 

 

197,648

 

 

 

197,648

 

Intangible assets, net

 

 

180,951

 

 

 

185,993

 

Equity investment

 

 

3,007

 

 

 

2,998

 

Deferred tax asset

 

 

43,285

 

 

 

41,047

 

Other non-current assets

 

 

29,874

 

 

 

24,637

 

Total assets

 

$

2,940,949

 

 

$

2,942,275

 

Liabilities

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Long-term debt, current portion

 

$

40,908

 

 

$

40,384

 

Accounts payable

 

 

193,571

 

 

 

172,918

 

Other current liabilities

 

 

135,167

 

 

 

137,488

 

Operating leases, current portion

 

 

52,840

 

 

 

51,261

 

Financing leases, current portion

 

 

6,189

 

 

 

6,383

 

Total current liabilities

 

 

428,675

 

 

 

408,434

 

Non-current liabilities:

 

 

 

 

 

 

Long-term debt, net

 

 

675,868

 

 

 

676,625

 

Asset retirement obligation

 

 

58,389

 

 

 

58,021

 

Operating leases

 

 

1,068,101

 

 

 

1,076,905

 

Financing leases

 

 

228,367

 

 

 

229,215

 

Deferred tax liability

 

 

2,207

 

 

 

2,546

 

Other non-current liabilities

 

 

137,610

 

 

 

136,853

 

Total liabilities

 

 

2,599,217

 

 

 

2,588,599

 

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,
   in the aggregate respectively

 

 

100,000

 

 

 

100,000

 

Shareholders' equity:

 

 

 

 

 

 

Common stock (par value $0.0001) - Authorized: 400,000 shares; Issued: 124,727 and 124,428 shares, respectively; Outstanding: 123,190 and 124,428 shares, respectively

 

 

12

 

 

 

12

 

Treasury stock, at cost - 1,537 and 0 shares, respectively

 

 

(13,084

)

 

 

 

Additional paid-in capital

 

 

220,449

 

 

 

217,675

 

Accumulated other comprehensive income

 

 

9,119

 

 

 

9,119

 

Retained earnings

 

 

24,993

 

 

 

26,646

 

Total shareholders' equity

 

 

241,489

 

 

 

253,452

 

Non-controlling interest

 

 

243

 

 

 

224

 

Total equity

 

 

241,732

 

 

 

253,676

 

Total liabilities, redeemable preferred stock and equity

 

$

2,940,949

 

 

$

2,942,275

 

 

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

 

5


Table of Contents

 

ARKO Corp.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except per share data)

 

 

 

For the Three Months
Ended March 31,

 

 

 

2022

 

 

2021

 

Revenues:

 

 

 

 

 

 

Fuel revenue

 

$

1,583,526

 

 

$

1,102,947

 

Merchandise revenue

 

 

366,985

 

 

 

359,281

 

Other revenues, net

 

 

22,300

 

 

 

22,128

 

Total revenues

 

 

1,972,811

 

 

 

1,484,356

 

Operating expenses:

 

 

 

 

 

 

Fuel costs

 

 

1,470,649

 

 

 

1,012,798

 

Merchandise costs

 

 

258,793

 

 

 

260,754

 

Store operating expenses

 

 

166,538

 

 

 

144,938

 

General and administrative expenses

 

 

31,785

 

 

 

26,713

 

Depreciation and amortization

 

 

24,636

 

 

 

24,242

 

Total operating expenses

 

 

1,952,401

 

 

 

1,469,445

 

Other expenses, net

 

 

1,121

 

 

 

1,672

 

Operating income

 

 

19,289

 

 

 

13,239

 

Interest and other financial income

 

 

1,106

 

 

 

2,407

 

Interest and other financial expenses

 

 

(17,081

)

 

 

(31,024

)

Income (loss) before income taxes

 

 

3,314

 

 

 

(15,378

)

Income tax (expense) benefit

 

 

(1,005

)

 

 

722

 

Income (loss) from equity investment

 

 

9

 

 

 

(6

)

Net income (loss)

 

$

2,318

 

 

$

(14,662

)

Less: Net income attributable to non-controlling interests

 

 

79

 

 

 

74

 

Net income (loss) attributable to ARKO Corp.

 

$

2,239

 

 

$

(14,736

)

Series A redeemable preferred stock dividends

 

 

(1,418

)

 

 

(1,402

)

Net income (loss) attributable to common shareholders

 

$

821

 

 

$

(16,138

)

Net income (loss) per share attributable to common shareholders - basic

 

$

0.01

 

 

$

(0.13

)

Net loss per share attributable to common shareholders - diluted

 

$

(0.00

)

 

$

(0.13

)

Weighted average shares outstanding:

 

 

 

 

 

 

Basic

 

 

124,301

 

 

 

124,361

 

Diluted

 

 

125,433

 

 

 

124,361

 

 

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

 

6


Table of Contents

 

ARKO Corp.

Condensed Consolidated Statements of Changes in Equity

(Unaudited, in thousands)

 

 

 

 

Common Stock

 

 

Treasury

 

 

Additional

 

 

Accumulated
Other

 

 

Retained Earnings

 

 

Total

 

 

Non-

 

 

 

 

 

 

Shares

 

 

Par Value

 

 

Stock, at Cost

 

 

Paid-in Capital

 

 

Comprehensive Income

 

 

(Accumulated Deficit)

 

 

Shareholders' Equity

 

 

Controlling Interests

 

 

Total Equity

 

Balance at January 1, 2021

 

 

124,132

 

 

$

12

 

 

$

 

 

$

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2022

 

 

124,428

 

 

$

12

 

 

$

 

 

$

217,675

 

 

$

9,119

 

 

$

26,646

 

 

$

253,452

 

 

$

224

 

 

$

253,676

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

2,774

 

 

 

 

 

 

 

 

 

2,774

 

 

 

 

 

 

2,774

 

Distributions to non-controlling
  interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(60

)

 

 

(60

)

Dividends on redeemable preferred
  stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,418

)

 

 

(1,418

)

 

 

 

 

 

(1,418

)

Dividends declared (2 cents per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,474

)

 

 

(2,474

)

 

 

 

 

 

(2,474

)

Common stock repurchased

 

 

(1,537

)

 

 

 

 

 

(13,084

)

 

 

 

 

 

 

 

 

 

 

 

(13,084

)

 

 

 

 

 

(13,084

)

Vesting of restricted share units

 

 

286

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of shares

 

 

13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,239

 

 

 

2,239

 

 

 

79

 

 

 

2,318

 

Balance at March 31, 2022

 

 

123,190

 

 

$

12

 

 

$

(13,084

)

 

$

220,449

 

 

$

9,119

 

 

$

24,993

 

 

$

241,489

 

 

$

243

 

 

$

241,732

 

 

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

 

7


Table of Contents

 

ARKO Corp.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

 

 

For the Three Months
Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss)

 

$

2,318

 

 

$

(14,662

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

24,636

 

 

 

24,242

 

Deferred income taxes

 

 

(2,577

)

 

 

(1,843

)

Loss on disposal of assets and impairment charges

 

 

764

 

 

 

1,375

 

Foreign currency loss (gain)

 

 

37

 

 

 

(1,042

)

Amortization of deferred financing costs, debt discount and premium

 

 

634

 

 

 

(185

)

Amortization of deferred income

 

 

(3,078

)

 

 

(2,484

)

Accretion of asset retirement obligation

 

 

409

 

 

 

445

 

Non-cash rent

 

 

1,946

 

 

 

1,771

 

Charges to allowance for credit losses

 

 

135

 

 

 

141

 

(Income) loss from equity investment

 

 

(9

)

 

 

6

 

Share-based compensation

 

 

2,774

 

 

 

1,026

 

Fair value adjustment of financial assets and liabilities

 

 

1,209

 

 

 

11,049

 

Other operating activities, net

 

 

123

 

 

 

224

 

Changes in assets and liabilities:

 

 

 

 

 

 

Increase in trade receivables

 

 

(12,886

)

 

 

(10,798

)

Increase in inventory

 

 

(21,318

)

 

 

(7,437

)

Decrease in other assets

 

 

18,215

 

 

 

7,688

 

Increase in accounts payable

 

 

20,177

 

 

 

17,309

 

Decrease in other current liabilities

 

 

(4,561

)

 

 

(15,829

)

Decrease in asset retirement obligation

 

 

(34

)

 

 

(89

)

Increase in non-current liabilities

 

 

1,148

 

 

 

369

 

Net cash provided by operating activities

 

$

30,062

 

 

$

11,276

 

 

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

 

8


Table of Contents

 

ARKO Corp.

Condensed Consolidated Statements of Cash Flows (cont’d)

(Unaudited, in thousands)

 

 

 

For the Three Months
Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property and equipment

 

$

(20,667

)

 

$

(17,525

)

Proceeds from sale of property and equipment

 

 

6,933

 

 

 

880