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 September 30, 2022.


☐	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 November 4, 2022, the registrant had 120,074,542 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 September 30, 2022 and December 31, 2021 (unaudited)	5
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 (unaudited)	6
	Condensed Consolidated Statements of Changes in Equity for the three and nine months ended September 30, 2022 and 2021 (unaudited)	7
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited)	9
	Notes to Condensed Consolidated Financial Statements (unaudited)	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
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	46
Item 3.	Defaults Upon Senior Securities	47
Item 4.	Mine Safety Disclosures	47
Item 5.	Other Information	47
Item 6.	Exhibits	48
Signatures		49

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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, 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 United States;

•

our ability to make acquisitions on economically acceptable terms;

•

our ability 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;

•

changes in the wholesale prices of motor fuel;

•

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

•

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, transport 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;

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•

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 most 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 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.

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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)


	September 30, 2022			December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	283,375		$	252,141
Restricted cash		14,194			20,402
Short-term investments		2,122			58,807
Trade receivables, net		121,736			62,342
Inventory		224,545			197,836
Other current assets		98,842			92,095
Total current assets		744,814			683,623
Non-current assets:
Property and equipment, net		591,024			548,969
Right-of-use assets under operating leases		1,127,100			1,064,982
Right-of-use assets under financing leases, net		185,518			192,378
Goodwill		197,711			197,648
Intangible assets, net		192,651			185,993
Equity investment		2,991			2,998
Deferred tax asset		17,773			41,047
Other non-current assets		29,683			24,637
Total assets	$	3,089,265		$	2,942,275
Liabilities
Current liabilities:
Long-term debt, current portion	$	11,477		$	40,384
Accounts payable		211,125			172,918
Other current liabilities		148,199			137,488
Operating leases, current portion		55,952			51,261
Financing leases, current portion		5,741			6,383
Total current liabilities		432,494			408,434
Non-current liabilities:
Long-term debt, net		722,097			676,625
Asset retirement obligation		63,759			58,021
Operating leases		1,141,450			1,076,905
Financing leases		227,182			229,215
Deferred tax liability		—			2,546
Other non-current liabilities		132,276			136,853
Total liabilities		2,719,258			2,588,599
Commitments and contingencies - see Note 13
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: 120,074 and 124,428 shares, respectively		12			12
Treasury stock, at cost - 4,653 and 0 shares, respectively		(40,042	)		—
Additional paid-in capital		226,808			217,675
Accumulated other comprehensive income		9,119			9,119
Retained earnings		73,990			26,646
Total shareholders' equity		269,887			253,452
Non-controlling interest		120			224
Total equity		270,007			253,676
Total liabilities, redeemable preferred stock and equity	$	3,089,265		$	2,942,275

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 September 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021
Revenues:
Fuel revenue	$	1,979,574		$	1,580,359		$	5,648,954		$	4,144,069
Merchandise revenue		445,822			434,652			1,244,558			1,220,298
Other revenues, net		24,251			20,012			69,209			64,826
Total revenues		2,449,647			2,035,023			6,962,721			5,429,193
Operating expenses:
Fuel costs		1,824,437			1,459,664			5,250,105			3,819,571
Merchandise costs		306,930			301,533			866,110			866,239
Store operating expenses		189,582			164,432			534,197			464,038
General and administrative expenses		35,954			32,696			100,695			91,270
Depreciation and amortization		26,061			22,031			75,050			71,546
Total operating expenses		2,382,964			1,980,356			6,826,157			5,312,664
Other expenses (income), net		951			(56	)		3,269			2,811
Operating income		65,732			54,723			133,295			113,718
Interest and other financial income		2,676			2,937			2,509			4,613
Interest and other financial expenses		(22,472	)		(17,365	)		(45,619	)		(59,655	)
Income before income taxes		45,936			40,295			90,185			58,676
Income tax expense		(20,898	)		(4,795	)		(31,060	)		(12,285	)
(Loss) income from equity investment		(44	)		85			(7	)		105
Net income	$	24,994		$	35,585		$	59,118		$	46,496
Less: Net income attributable to non-controlling interests		51			51			182			179
Net income attributable to ARKO Corp.	$	24,943		$	35,534		$	58,936		$	46,317
Series A redeemable preferred stock dividends		(1,449	)		(1,449	)		(4,301	)		(4,285	)
Net income attributable to common shareholders	$	23,494		$	34,085		$	54,635		$	42,032
Net income per share attributable to common shareholders - basic	$	0.20		$	0.27		$	0.45		$	0.34
Net income per share attributable to common shareholders - diluted	$	0.17		$	0.25		$	0.43		$	0.31
Weighted average shares outstanding:
Basic		120,074			124,428			121,950			124,406
Diluted		130,388			133,925			123,527			125,354

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				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 July 1, 2021		124,428	$	12	$	—		$	214,781		$	9,119	$	(18,870	)	$	205,042		$	(153	)	$	204,889
Share-based compensation		—		—		—			1,613			—		—			1,613			—			1,613
Transactions with non-controlling interests		—		—		—			(50	)		—		—			(50	)		50			—
Distributions to non-controlling interests		—		—		—			—			—		—			—			(60	)		(60	)
Dividends on redeemable preferred stock		—		—		—			—			—		(1,449	)		(1,449	)		—			(1,449	)
Net income		—		—		—			—			—		35,534			35,534			51			35,585
Balance at September 30, 2021		124,428	$	12	$	—		$	216,344		$	9,119	$	15,215		$	240,690		$	(112	)	$	240,578

Balance at July 1, 2022		120,075	$	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		—		—