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, 2023.


☐	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 May 5, 2023, the registrant had 120,305,008 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, 2023 and December 31, 2022 (unaudited)	5
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 (unaudited)	6
	Condensed Consolidated Statements of Changes in Equity for the three months ended March 31, 2023 and 2022 (unaudited)	7
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (unaudited)	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	38
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults Upon Senior Securities	39
Item 4.	Mine Safety Disclosures	39
Item 5.	Other Information	39
Item 6.	Exhibits	40
Signatures		41

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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. 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, 2022 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 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 related regulations and litigation related to cigarettes and other tobacco products;

•

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

•

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

•

negative events or developments associated with branded motor fuel suppliers;

•

we depend on several principal suppliers for our fuel purchases and two principal suppliers for merchandise;

•

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

•

the retail sale, distribution, transportation 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;

•

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, breaches of data security or compromised data;

•

evolving laws, regulations, standards, and contractual obligations related to data privacy and security regulations, and our actual or perceived failure to comply with such obligations;

•

our failure to adequately secure, maintain, and enforce our intellectual property rights;

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•

third-party claims of infringement upon their intellectual property rights;

•

our dependence 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 contain various restrictions and financial covenants;

•

our principal stockholders and management control 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 maintain an effective system of internal control over financial reporting and we may not be able to accurately report our financial results or prevent fraud;

•

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 prices 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)


	March 31, 2023			December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	255,852		$	298,529
Restricted cash		15,750			18,240
Short-term investments		3,065			2,400
Trade receivables, net		129,039			118,140
Inventory		244,940			221,951
Other current assets		88,354			87,873
Total current assets		737,000			747,133
Non-current assets:
Property and equipment, net		780,950			645,809
Right-of-use assets under operating leases		1,373,727			1,203,188
Right-of-use assets under financing leases, net		179,166			182,113
Goodwill		217,297			217,297
Intangible assets, net		226,134			197,123
Equity investment		2,888			2,924
Deferred tax asset		32,958			22,728
Other non-current assets		40,677			36,855
Total assets	$	3,590,797		$	3,255,170
Liabilities
Current liabilities:
Long-term debt, current portion	$	15,034		$	11,944
Accounts payable		222,782			217,370
Other current liabilities		186,225			154,097
Operating leases, current portion		61,797			57,563
Financing leases, current portion		5,219			5,457
Total current liabilities		491,057			446,431
Non-current liabilities:
Long-term debt, net		793,596			740,043
Asset retirement obligation		72,350			64,909
Operating leases		1,386,604			1,218,045
Financing leases		224,997			225,907
Other non-current liabilities		247,158			178,945
Total liabilities		3,215,762			2,874,280
Commitments and contingencies - see Note 12
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: 125,232 and 124,727 shares, respectively; outstanding: 120,305 and 120,074 shares, respectively		12			12
Treasury stock, at cost - 4,927 and 4,653 shares, respectively		(42,352	)		(40,042	)
Additional paid-in capital		234,158			229,995
Accumulated other comprehensive income		9,119			9,119
Retained earnings		74,143			81,750
Total shareholders' equity		275,080			280,834
Non-controlling interest		(45	)		56
Total equity		275,035			280,890
Total liabilities, redeemable preferred stock and equity	$	3,590,797		$	3,255,170

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,
	2023			2022
Revenues:
Fuel revenue	$	1,661,664		$	1,583,526
Merchandise revenue		400,408			366,985
Other revenues, net		26,424			22,300
Total revenues		2,088,496			1,972,811
Operating expenses:
Fuel costs		1,537,882			1,470,649
Merchandise costs		277,443			258,793
Store operating expenses		192,683			166,538
General and administrative expenses		40,416			31,785
Depreciation and amortization		28,399			24,636
Total operating expenses		2,076,823			1,952,401
Other expenses, net		2,720			1,121
Operating income		8,953			19,289
Interest and other financial income		7,210			1,106
Interest and other financial expenses		(20,812	)		(17,081	)
(Loss) income before income taxes		(4,649	)		3,314
Income tax benefit (expense)		2,158			(1,005	)
(Loss) income from equity investment		(36	)		9
Net (loss) income	$	(2,527	)	$	2,318
Less: Net income attributable to non-controlling interests		53			79
Net (loss) income attributable to ARKO Corp.	$	(2,580	)	$	2,239
Series A redeemable preferred stock dividends		(1,418	)		(1,418	)
Net (loss) income attributable to common shareholders	$	(3,998	)	$	821
Net (loss) income per share attributable to common shareholders - basic	$	(0.03	)	$	0.01
Net loss per share attributable to common shareholders - diluted	$	(0.03	)	$	(0.00	)
Weighted average shares outstanding:
Basic		120,253			124,301
Diluted		120,253			125,433

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			Total			Non-
	Shares			Par Value		Stock, at Cost			Paid-in Capital		Comprehensive Income		Earnings			Shareholders' Equity			Controlling Interests			Total Equity
Balance at January 1, 2022		124,428		$	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

Balance at January 1, 2023		120,074		$	12	$	(40,042	)	$	229,995	$	9,119	$	81,750		$	280,834		$	56		$	280,890
Share-based compensation		—			—		—			4,069		—		—			4,069			—			4,069
Transactions with non-controlling interests		—			—		—			94		—		—			94			(94	)		—
Distributions to non-controlling interests		—			—		—			—		—		—			—			(60	)		(60	)
Dividends on redeemable preferred stock		—			—		—			—		—		(1,418	)		(1,418	)		—			(1,418	)
Dividends declared (3 cents per share)		—			—		—			—		—		(3,609	)		(3,609	)		—			(3,609	)
Common stock repurchased		(274	)		—		(2,310	)		—		—		—			(2,310	)		—			(2,310	)
Vesting of restricted share units		505			—		—			—		—		—			—			—			—
Net (loss) income		—			—		—			—		—		(2,580	)		(2,580	)		53			(2,527	)
Balance at March 31, 2023		120,305		$	12	$	(42,352	)	$	234,158	$	9,119	$	74,143		$	275,080		$	(45	)	$	275,035

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,
	2023			2022
Cash flows from operating activities:
Net (loss) income	$	(2,527	)	$	2,318
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		28,399			24,636
Deferred income taxes		(10,230	)		(2,577	)
Loss on disposal of assets and impairment charges		287			764
Foreign currency loss		34			37
Amortization of deferred financing costs and debt discount		592			634
Amortization of deferred income		(1,860	)		(3,078	)
Accretion of asset retirement obligation		491			409
Non-cash rent