UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
(Exact Name of Registrant as Specified in Its Charter)
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(State or Other Jurisdiction of |
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(I.R.S. Employer |
(Address of Principal Executive Offices) (Zip Code)
(
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
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Trading Symbol(s) |
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Name of Each Exchange on Which Registered |
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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. ☒
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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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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)
As of November 3, 2023, the registrant had
TABLE OF CONTENTS
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Item 1. |
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5 |
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Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 (unaudited) |
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6 |
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7 |
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8 |
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Notes to Condensed Consolidated Financial Statements (unaudited) |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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48 |
2
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:
3
4
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, except share data)
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September 30, 2023 |
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December 31, 2022 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Short-term investments |
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Trade receivables, net |
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Inventory |
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Other current assets |
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Total current assets |
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Non-current assets: |
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Property and equipment, net |
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Right-of-use assets under operating leases |
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Right-of-use assets under financing leases, net |
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Goodwill |
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Intangible assets, net |
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Equity investment |
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Deferred tax asset |
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Other non-current assets |
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Total assets |
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$ |
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$ |
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Liabilities |
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Current liabilities: |
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Long-term debt, current portion |
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$ |
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$ |
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Accounts payable |
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Other current liabilities |
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Operating leases, current portion |
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Financing leases, current portion |
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Total current liabilities |
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Non-current liabilities: |
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Long-term debt, net |
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Asset retirement obligation |
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Operating leases |
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Financing leases |
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Other non-current liabilities |
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Total liabilities |
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Series A redeemable preferred stock ( |
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Shareholders' equity: |
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Common stock (par value $ |
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Treasury stock, at cost - |
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Additional paid-in capital |
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Accumulated other comprehensive income |
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Retained earnings |
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Total shareholders' equity |
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Non-controlling interest |
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Total equity |
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Total liabilities, redeemable preferred stock and equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
ARKO Corp.
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except per share data)
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For the Three Months |
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For the Nine Months |
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2023 |
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2022 |
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2023 |
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2022 |
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Revenues: |
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Fuel revenue |
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$ |
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$ |
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$ |
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$ |
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Merchandise revenue |
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Other revenues, net |
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Total revenues |
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Operating expenses: |
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Fuel costs |
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Merchandise costs |
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Store operating expenses |
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General and administrative expenses |
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Depreciation and amortization |
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Total operating expenses |
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Other expenses, net |
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Operating income |
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Interest and other financial income |
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Interest and other financial expenses |
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( |
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Income before income taxes |
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Income tax expense |
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( |
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( |
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( |
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( |
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Loss from equity investment |
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( |
) |
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( |
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( |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Less: Net income attributable to non-controlling interests |
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Net income attributable to ARKO Corp. |
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$ |
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$ |
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$ |
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$ |
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Series A redeemable preferred stock dividends |
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( |
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( |
) |
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( |
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Net income attributable to common shareholders |
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$ |
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$ |
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$ |
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$ |
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Net income per share attributable to common shareholders - basic |
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$ |
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$ |
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$ |
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$ |
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Net income per share attributable to common shareholders - diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted average shares outstanding: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
ARKO Corp.
Condensed Consolidated Statements of Changes in Equity
(Unaudited, in thousands, except share data)
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Common Stock |
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Treasury |
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Additional |
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Accumulated |
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Retained |
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Total |
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Non- |
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Shares |
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Par Value |
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Stock, at Cost |
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Paid-in Capital |
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Comprehensive Income |
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Earnings |
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Shareholders' Equity |
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Controlling Interests |
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Total Equity |
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Balance at July 1, 2022 |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Share-based compensation |
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— |
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Transactions with non-controlling interests |
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— |
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( |
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Distributions to non-controlling interests |
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— |
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( |
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Dividends on redeemable preferred stock |
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— |
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( |
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( |
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( |
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Dividends declared (2 cents per share) |
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— |
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( |
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( |
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( |
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Common stock repurchased |
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( |
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( |
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( |
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( |
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Net income |
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— |
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Balance at September 30, 2022 |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Balance at July 1, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Share-based compensation |
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— |
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Transactions with non-controlling interests |
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— |
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( |
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Distributions to non-controlling interests |
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— |
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( |
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( |
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Dividends on redeemable preferred stock |
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— |
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( |
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( |
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Dividends declared (3 cents per share) |
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— |
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( |
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( |
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( |
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Common stock repurchased |
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( |
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( |
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( |
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Net income |
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— |
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Balance at September 30, 2023 |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Common Stock |
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Treasury |
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Additional |
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Accumulated |
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Retained |
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Total |
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Non- |
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Shares |
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Par Value |
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Stock, at Cost |
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Paid-in Capital |
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Comprehensive Income |
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Earnings |
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Shareholders' Equity |
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Controlling Interests |
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Total Equity |
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Balance at January 1, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Share-based compensation |
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— |
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Transactions with non-controlling interests |
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— |
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( |
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Distributions to non-controlling interests |
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— |
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( |
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( |
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Dividends on redeemable preferred stock |
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— |
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( |
) |
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( |
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( |
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Dividends declared (6 cents per share) |
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— |
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( |
) |
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( |
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( |
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Common stock repurchased |
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( |
) |
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( |
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( |
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( |
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Vesting of restricted share units |
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Issuance of shares |
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Net income |
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— |
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Balance at September 30, 2022 |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Balance at January 1, 2023 |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Share-based compensation |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Transactions with non-controlling interests |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||||
Distributions to non-controlling interests |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||||||
Dividends on redeemable preferred stock |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||
Dividends declared (9 cents per share) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||
Common stock repurchased |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||
Vesting and settlement of restricted share units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Net income |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance at September 30, 2023 |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
ARKO Corp.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
|
|
For the Nine Months |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
( |
) |
|
|
|
|
Loss on disposal of assets and impairment charges |
|
|
|
|
|
|
||
Foreign currency loss |
|
|
|
|
|
|
||
Amortization of deferred financing costs and debt discount |
|
|
|
|
|
|
||
Amortization of deferred income |
|
|
( |
) |
|
|
( |
) |
Accretion of asset retirement obligation |
|
|
|
|
|
|
||
Non-cash rent |
|
|
|
|
|
|
||
Charges to allowance for credit losses |
|
|
|
|
|
|
||
Loss from equity investment |
|
|
|
|
|
|
||
Share-based compensation |
|
|
|
|
|
|
||
Fair value adjustment of financial assets and liabilities |
|
|
( |
) |
|
|
( |
) |
Other operating activities, net |
|
|
|
|
|
|
||
Changes in assets and liabilities: |
|
|
|
|
|
|
||
Increase in trade receivables |
|
|
( |
) |
|
|
( |
) |
Increase in inventory |
|
|
( |
) |
|
|
( |
) |
Increase in other assets |
|
|
( |
) |
|
|
( |
) |
Increase in accounts payable |
|
|
|
|
|
|
||
Increase in other current liabilities |
|
|
|
|
|
|
||
Increase (decrease) in asset retirement obligation |
|
|
|
|
|
( |
) |
|
Increase in non-current liabilities |
|
|
|
|
|
|
||
Net cash provided by operating activities |
|
$ |
|
|
$ |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
ARKO Corp.
Condensed Consolidated Statements of Cash Flows (cont’d)
(Unaudited, in thousands)
|
|
For the Nine Months |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash flows from investing activities: |
|
|
|
|
|
|
||
Purchase of property and equipment |
|
$ |
( |
) |
|
$ |
( |
) |
Purchase of intangible assets |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of property and equipment |
|
|
|
|
|
|
||
Business acquisitions, net of cash |
|
|
( |
) |
|
|
( |
) |
Decrease in investments, net |
|
|
|
|
|
|
||
Repayment of loans to equity investment |
|
|
|
|
|
|
||
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Receipt of long-term debt, net |
|
|
|
|
|
|
||
Repayment of debt |
|
|
( |
) |
|
|
( |
) |
Principal payments on financing leases |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale-leaseback |
|
|
|
|
|
|
||
Payment of Additional Consideration |
|
|
|
|
|
( |
) |
|
Payment of Ares Put Option |
|
|
( |
) |
|
|
|
|
Common stock repurchased |
|
|
( |
) |
|
|
( |
) |
Dividends paid on common stock |
|
|
( |
) |
|
|
( |
) |
Dividends paid on redeemable preferred stock |
|
|
( |
) |
|
|
( |
) |
Distributions to non-controlling interests |
|
|
|
|
|
( |
) |
|
Net cash provided by (used in) financing activities |
|
|
|
|
|
( |
) |
|
Net (decrease) increase in cash and cash equivalents and restricted cash |
|
|
( |
) |
|
|
|
|
Effect of exchange rate on cash and cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
Cash and cash equivalents and restricted cash, beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents and restricted cash, end of period |
|
$ |
|
|
$ |
|
||
Reconciliation of cash and cash equivalents and restricted cash |
|
|
|
|
|
|
||
Cash and cash equivalents, beginning of period |
|
$ |
|
|
|
|
||
Restricted cash, beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents and restricted cash, beginning of period |
|
$ |
|
|
$ |
|
||
Cash and cash equivalents, end of period |
|
$ |
|
|
$ |
|
||
Restricted cash, end of period |
|
|
|
|
|
|
||
Cash and cash equivalents and restricted cash, end of period |
|
$ |
|
|
$ |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
ARKO Corp.
Condensed Consolidated Statements of Cash Flows (cont’d)
(Unaudited, in thousands)
|
|
For the Nine Months |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Supplementary cash flow information: |
|
|
|
|
|
|
||
Cash received for interest |
|
$ |
|
|
$ |
|
||
Cash paid for interest |
|
|
|
|
|
|
||
Cash received for taxes |
|
|
|
|
|
|
||
Cash paid for taxes |
|
|
|
|
|
|
||
Supplementary noncash activities: |
|
|
|
|
|
|
||
Prepaid insurance premiums financed through notes payable |
|
$ |
|
|
$ |
|
||
Purchases of equipment in accounts payable and accrued expenses |
|
|
|
|
|
|
||
Purchase of property and equipment under leases |
|
|
|
|
|
|
||
Disposals of leases of property and equipment |
|
|
|
|
|
|
||
Deferred consideration related to business acquisitions |
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
10
ARKO Corp.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. General
ARKO Corp. (the “Company”) is a Delaware corporation whose common stock, par value $
The Company’s operations are primarily performed by its subsidiary, GPM Investments, LLC (“GPM”), a Delaware limited liability company. GPM is primarily 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. The Company is also engaged in wholesale activity, which includes the supply of fuel to gas stations operated by third parties, and in fleet fueling, which includes the operation of proprietary and third-party cardlock locations (unstaffed fueling locations) and issuance of proprietary fuel cards that provide customers access to a nationwide network of fueling sites. As of September 30, 2023, GPM’s activity included the operation of
The Company has four reportable segments: retail, wholesale, fleet fueling, and GPMP. Refer to Note 11 below for further information with respect to the segments.
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 (“interim financial statements”) as of September 30, 2023 and for the three and nine months ended September 30, 2023 and 2022 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 (the “SEC”) for interim reporting. In the opinion of 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (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 on 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 U.S. 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
11
Cash and Cash Equivalents
The Company considers all unrestricted highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents are maintained at several financial institutions, and in order to have sufficient working capital on hand, the Company maintains concentrations of cash in several financial institutions in amounts that are above the FDIC standard deposit insurance limit of $
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 to 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 (e.g. 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 the 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
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 cost of revenue included fuel taxes of $
Refer to Note 11 for disclosure of the revenue disaggregated by segment and product line, as well as a description of the reportable segment operations.
3. Acquisitions
Transit Energy Group, LLC
On
The purchase price for the TEG Acquisition was approximately $
12
The Company paid approximately $
The details of the TEG Acquisition were as follows:
|
|
Amount |
|
|
|
|
(in thousands) |
|
|
Fair value of consideration transferred: |
|
|
|
|
Cash |
|
$ |
|
|
GPMP Capital One Line of Credit |
|
|
|
|
Liability resulting from deferred purchase price |
|
|
|
|
Receivable from TEG |
|
|
( |
) |
Consideration provided by Oak Street |
|
|
|
|
Total consideration |
|
$ |
|
|
Assets acquired and liabilities: |
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
Inventory |
|
|
|
|
Other assets |
|
|
|
|
Property and equipment, net |
|
|
|
|
Intangible assets |
|
|
|
|
Right-of-use assets under operating leases |
|
|
|
|
Environmental receivables |
|
|
|
|
Deferred tax asset |
|
|
|
|
Total assets |
|
|
|
|
Other liabilities |
|
|
( |
) |
Environmental liabilities |
|
|
( |
) |
Asset retirement obligations |
|
|
( |
) |
Operating leases |
|
|
( |
) |
Total liabilities |
|
|
( |
) |
Total identifiable net assets |
|
|
|
|
Goodwill |
|
$ |
|
|
|
|
|
|
|
Consideration paid in cash |
|
$ |
|
|
Consideration provided by Oak Street |
|
|
|
|
Less: cash and cash equivalent balances acquired |
|
|
( |
) |
Net cash outflow |
|
$ |
|
The initial accounting treatment of the TEG Acquisition reflected in these interim financial statements is provisional as the Company has not yet finalized the initial accounting treatment of the business combination, and, in this regard, has not finalized the valuation of some of the assets and liabilities acquired and the goodwill resulting from the TEG Acquisition, mainly due to the limited period of time between the TEG Acquisition closing date and the date of these interim financial statements. Therefore, some of the financial information presented with respect to the TEG Acquisition in these interim financial statements remains subject to change.
The Company included identifiable tangible assets and identifiable liabilities at their respective fair values based on the information available to the Company’s management on the TEG Acquisition closing date, including, among other things, a preliminary valuation performed by external consultants for this purpose. The useful life of both the wholesale fuel supply contracts and the trade name was estimated at
13
As a result of the preliminary accounting treatment of the TEG Acquisition, the Company recorded goodwill of approximately $
Acquisition-related costs amounting to approximately $
Results of operations for the TEG Acquisition for the period subsequent to the acquisition closing date were included in the condensed consolidated statement of operations for the three and nine months ended September 30, 2023. For the period from the TEG Acquisition closing date through September 30, 2023, the Company recognized $
WTG Fuels Holdings, LLC
On
The purchase price for the WTG Acquisition was approximately $
The details of the WTG Acquisition were as follows:
14
|
|
Amount |
|
|
|
|
(in thousands) |
|
|
Fair value of consideration transferred: |
|
|
|
|
Cash |
|
$ |
|
|
GPMP Capital One Line of Credit |
|
|
|
|
Consideration provided by Oak Street |
|
|
|
|
Total consideration |
|
$ |
|
|
Assets acquired and liabilities: |
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
Inventory |
|
|
|
|
Other assets |
|
|
|
|
Property and equipment, net |
|
|
|
|
Intangible assets |
|
|
|
|
Right-of-use assets under operating leases |
|
|
|
|
Environmental receivables |
|
|
|
|
Total assets |
|
|
|
|
Other liabilities |
|
|
( |
) |
Environmental liabilities |
|
|
( |
) |
Asset retirement obligations |
|
|
( |
) |
Operating leases |
|
|
( |
) |
Total liabilities |
|
|
( |
) |
Total identifiable net assets |
|
|
|
|
Goodwill |
|
$ |
|
|
|
|
|
|
|
Consideration paid in cash |
|
$ |
|
|
Consideration provided by Oak Street |
|
|
|
|
Less: cash and cash equivalent balances acquired |
|
|
( |
) |
Net cash outflow |
|
$ |
|
The initial accounting treatment of the WTG Acquisition reflected in these interim financial statements is provisional as the Company has not yet finalized the initial accounting treatment of the business combination, and, in this regard, has not finalized the valuation of some of the assets and liabilities acquired and the goodwill resulting from the WTG Acquisition, mainly due to the limited period of time between the WTG Acquisition closing date and the date of these interim financial statements. Therefore, some of the financial information presented with respect to the WTG Acquisition in these interim financial statements remains subject to change.
The Company included identifiable tangible assets and identifiable liabilities at their respective fair values based on the information available to the Company’s management on the WTG Acquisition closing date, including, among other things, a preliminary valuation performed by management. The useful life of the contracts related to the third-party cardlock sites, the customer relationships related to the proprietary cardlock sites and the proprietary fuel cards, the wholesale fuel supply contracts and the trade name was each estimated at
The Company’s preliminary accounting treatment of the WTG Acquisition resulted in no goodwill being recorded.
Acquisition-related costs amounting to approximately $
Results of operations for the WTG Acquisition for the period subsequent to the acquisition closing date were included in the condensed consolidated statement of operations for the three and nine months ended September 30, 2023. For the period from the WTG Acquisition closing date through September 30, 2023, the Company recognized $
Speedy Acquisition
On August 15, 2023, the Company acquired from a third party
15
operated by an independent dealer. The consideration at closing was approximately $
Pride Convenience Holdings, LLC
On December 6, 2022, the Company acquired all of the issued and outstanding membership interests in Pride Convenience Holdings, LLC, which operated at closing
Impact of Acquisitions (unaudited)
The unaudited supplemental pro forma financial information presented below was prepared based on the historical information of the Company and the acquired operations and gives pro forma effect to the acquisitions using the assumption that the Speedy Acquisition, the WTG Acquisition, the TEG Acquisition, the Pride Acquisition and the acquisition of
|
|
For the Nine Months |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(unaudited) |
|
|||||
|
|
(in thousands) |
|
|||||
Total revenue |
|
$ |
|
|
$ |
|
||
Net income |
|
|
|
|
|
|
4. Debt
The components of debt were as follows:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
(in thousands) |
|
|||||
Senior Notes |
|
$ |
|
|
$ |
|
||
M&T debt |
|
|
|
|
|
|
||
Capital One line of credit |
|
|
|
|
|
|
||
Insurance premium notes |
|
|
|
|
|
|
||
Total debt, net |
|
$ |
|
|
$ |
|
||
Less current portion |
|
|
( |
) |
|
|
( |
) |
Total long-term debt, net |
|
$ |
|
|
$ |
|
16
Financing agreement with a syndicate of banks led by Capital One, National Association
On May 5, 2023, GPM Petroleum LP (“GPMP”) renewed the credit agreement governing its revolving credit facility with a syndicate of banks led by Capital One, National Association, to increase the aggregate principal amount of availability thereunder from $
M&T Bank Credit Agreement
5. Leases
As of September 30, 2023,
The components of lease cost recorded on the condensed consolidated statements of operations were as follows:
|
|
For the Three Months |
|
|
For the Nine Months |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation of right-of-use assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest on lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating lease costs included in store operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating lease costs included in general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Lease cost related to variable lease payments, short-term |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Right-of-use asset impairment charges and loss on |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total lease costs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Supplemental balance sheet data related to leases was as follows:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
(in thousands) |
|
|||||
Operating leases |
|
|
|
|
|
|
||
Weighted average remaining lease term (in years) |
|
|
|
|
|
|
||
Weighted average discount rate |
|
|
% |
|
|
% |
||
Financing leases |
|
|
|
|
|
|
||
Weighted average remaining lease term (in years) |
|
|
|
|
|
|
||
Weighted average discount rate |
|
|
% |
|
|
% |
17
As of September 30, 2023, maturities of lease liabilities for operating lease obligations and financing lease obligations having an initial or remaining non-cancelable lease terms in excess of one year were presented in the table below.
|
|
Operating |
|
|
Financing |
|
||
|
|
(in thousands) |
|
|||||
October 2023 through September 2024 |
|
$ |
|
|
$ |
|
||
October 2024 through September 2025 |
|
|
|
|
|
|
||
October 2025 through September 2026 |
|
|
|
|
|
|
||
October 2026 through September 2027 |
|
|
|
|
|
|
||
October 2027 through September 2028 |
|
|
|
|
|
|
||
Thereafter |
|
|
|
|
|
|
||
Gross lease payments |
|
$ |
|
|
$ |
|
||
Less: imputed interest |
|
|
( |
) |
|
|
( |
) |
Total lease liabilities |
|
$ |
|
|
$ |
|
6. Financial Derivative Instruments
The Company makes limited use of derivative instruments (futures contracts) to manage certain risks related to diesel fuel prices. The Company does not hold any derivatives for speculative purposes, and it does not use derivatives with leveraged or complex features. The Company currently uses derivative instruments that are traded primarily over national exchanges such as the New York Mercantile Exchange (“NYMEX”). For accounting purposes, the Company has designated its derivative contracts as fair value hedges of firm commitments.
As of September 30, 2023, the Company had fuel futures contracts in place to hedge approximately
As of September 30, 2023 and December 31, 2022, there was $
7. Equity
The Company’s board of directors (the “Board”) declared and the Company paid dividends of $
In February 2022, the Board authorized a share repurchase program for up to an aggregate of $
8. Share-Based Compensation
The Compensation Committee of the Board has approved the grant of non-qualified stock options, restricted stock units (“RSUs”), and shares 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
18
exercise price may 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 RSUs.
Additionally, a non-employee director may receive RSUs in lieu of up to
Stock Options
The following table summarizes share activity related to stock options:
|
|
Stock Options |
|
|
Weighted Average Exercise Price |
|
|
Weighted Average Fair Value |
|
|
Remaining Average Contractual Term (Years) |
|
|
Aggregate Intrinsic Value |
|
|||||
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|||||
Options Outstanding, December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
|||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Options Outstanding, September 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
The aggregate intrinsic value is the difference between the exercise price and the closing price of the Company’s common stock on September 30, 2023 and December 31, 2022.
In the nine months ended September 30, 2023,
As of September 30, 2023, total unrecognized compensation cost related to unvested stock options was approximately $
The fair value of each stock option award is estimated by management on the date of the grant using the Black-Scholes option pricing model.
Expected dividend rate |
|
|
% |
|
Expected stock price volatility |
|
|
% |
|
Risk-free interest rate |
|
|
% |
|
Expected term of options (years) |
|
|
|
The expected stock price volatility is based on the historical volatility of the Company’s stock price plus the Company’s peer group’s stock price for the period prior to the Company’s listing on Nasdaq. The volatilities are estimated for a period of time equal to the expected term of the related option. The risk-free interest rate is based on the implied yield of U.S. Treasury zero-coupon issues with an equivalent remaining term. The expected term of the options represents the estimated period of time until exercise and is determined by considering the contractual terms, vesting schedule and expectations of future employee behavior.
Restricted Stock Units
The following table summarizes share activity related to RSUs:
|
|
Restricted Stock Units |
|
|
Weighted Average Grant Date Fair Value |
|
||
|
|
(in thousands) |
|
|
|
|
||
Nonvested RSUs, December 31, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Released |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Performance-based share adjustment |
|
|
|
|
|
|
||
Nonvested RSUs, September 30, 2023 |
|
|
|
|
$ |
|
In the nine months ended September 30, 2023,
19
The fair value of RSUs released during the nine months ended September 30, 2023 was $
In the nine months ended September 30, 2023, the Company granted a target of
Given the Company’s strong performance in 2022, in the first quarter of 2023, the Compensation Committee of the Board approved the adjustment of the performance criteria for 2022 such that the percentage of PSUs that vest with respect to the target amount for 2022 would be
As of September 30, 2023, total unrecognized compensation cost related to RSUs and PSUs was approximately $
Share-Based Compensation Cost
Total share-based compensation cost recorded collectively for employees, non-employees and members of the Board for the three and nine months ended September 30, 2023 and 2022 was $
9. Earnings per Share
The following table sets forth the computation of basic and diluted net income per share of common stock:
|
|
For the Three Months |
|
|
For the Nine Months |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Net income available to common stockholders |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Dividends on redeemable preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Changes in fair value of Ares Put Option (See Note 10) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Net income available to common stockholders after assumed |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding — Basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted share units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Ares Put Option |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Redeemable preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding — Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income per share available to common stockholders |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Net income per share available to common stockholders |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The following potential shares of common stock have been excluded from the computation of diluted net income per share because their effect would have been antidilutive:
|
|
As of September 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands) |
|
|||||
Stock options |
|
|
|
|
|
|
||
Ares warrants |
|
|
|
|
|
|
||
Public and Private warrants |
|
|
|
|
|
|
20
The effect of the potential shares of common stock issuable upon conversion of the redeemable preferred stock was antidilutive for the three months ended September 30, 2023 and the nine months ended September 30, 2023 and 2022, and such shares were excluded from the computation of diluted net income per share.
10. Fair Value Measurements and Financial Instruments
The fair value of cash and cash equivalents, restricted cash, short-term investments, trade receivables, accounts payable and other current liabilities approximated their carrying values as of September 30, 2023 and December 31, 2022 primarily due to the short-term maturity of these instruments. On October 21, 2021, the Company completed a private offering of $
The contingent consideration from the acquisition of the business of Empire Petroleum Partners, LLC is measured at fair value at the end of each reporting period and amounted to $
The public warrants to purchase the Company’s common stock (the “Public Warrants”), of which approximately
The private warrants to purchase the Company’s common stock (the “Private Warrants”), of which approximately
|
|
September 30, |
|
|
Expected term (in years) |
|
|
|
|
Expected dividend rate |
|
|
% |
|
Volatility |
|
|
% |
|
Risk-free interest rate |
|
|
% |
|
Strike price |
|
$ |
|
For the change in the fair value of the Private Warrants, approximately $(
The Haymaker Founders (as defined in Note 17 to the annual financial statements) will be entitled to up to
21
methodology are unobservable and significant to the fair value adjustment.
|
|
September 30, |
|
|
Expected term (in years) |
|
|
|
|
Volatility |
|
|
% |
|
Risk-free interest rate |
|
|
% |
|
Stock price |
|
$ |
|
Approximately $(
The Company entered into an agreement with Ares Capital Corporation (“Ares”) and certain of its affiliates (the “Ares Put Option”), which guaranteed Ares a value of approximately $
Approximately $
11. Segment Reporting
The reportable segments were determined based on information reviewed by the chief operating decision maker for operational decision-making purposes and the segment information is prepared on the same basis that the Company’s chief operating decision maker reviews such financial information. The Company’s reportable segments are retail, wholesale, fleet fueling and GPMP. The Company defines segment earnings as operating income.
The retail segment includes the operation of a chain of retail stores, which includes convenience stores selling fuel products and other merchandise to retail customers. At its Company operated convenience stores, the Company owns the merchandise and fuel inventory and employs personnel to manage the store.
The wholesale segment supplies fuel to dealers, sub-wholesalers and bulk and spot purchasers, on either a cost plus or consignment basis. For consignment arrangements, the Company retains ownership of the fuel inventory at the site, is responsible for the pricing of the fuel to the end consumer, and shares the gross profit with the dealers.
The fleet fueling segment includes the operation of proprietary and third-party cardlock locations (unstaffed fueling locations), and commissions from the sales of fuel using proprietary fuel cards that provide customers access to a nationwide network of fueling sites.
The GPMP segment includes GPMP and primarily includes its sale and supply of fuel to GPM and its subsidiaries related to substantially all of its sites that sell fuel in the retail and wholesale segments, at GPMP’s cost of fuel (including taxes and transportation) plus a fixed margin (currently
The “All Other” segment includes the results of non-reportable segments which do not meet both quantitative and qualitative criteria as defined under ASC 280, Segment Reporting. The Company revised the composition of the “All Other” segment in the third quarter of 2022 in conjunction with the closing of the Quarles Acquisition.
The majority of general and administrative expenses, depreciation and amortization, net other expenses, net interest and other financial expenses, income taxes and minor other income items including intercompany operating leases are not allocated to the segments.
22
With the exception of goodwill, assets and liabilities relevant to the reportable segments are not assigned to any particular segment, but rather, managed at the consolidated level. All reportable segment revenues were generated from sites within the U.S. and substantially all of the Company’s assets were within the U.S.
Inter-segment transactions primarily included the distribution of fuel by GPMP to GPM and substantially all of its sites that sell fuel (both in the retail and wholesale segments) and charges by GPMP to sites that sell fuel in the fleet fueling segment and certain Company sites which are not supplied by GPMP. The effect of these inter-segment transactions was eliminated in the condensed consolidated financial statements.
|
|
Retail |
|
|
Wholesale |
|
|
Fleet Fueling |
|
|
GPMP |
|
|
All Other |
|
|
Total |
|
||||||
For the Three Months Ended September 30, 2023 |
(in thousands) |
|
||||||||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Fuel revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Merchandise revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other revenues, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total revenues from external |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Inter-segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total revenues from reportable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Interest and financial expenses, net |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Loss from equity investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||||
Net income from segments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
Retail |
|
|
Wholesale |
|
|
Fleet Fueling |
|
|
GPMP |
|
|
All Other |
|
|
Total |
|
||||||
For the Three Months Ended September 30, 2022 |
(in thousands) |
|
||||||||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Fuel revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Merchandise revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other revenues, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total revenues from external customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Inter-segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total revenues from reportable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest and financial expenses, net |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Loss from equity investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||||
Net income from segments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
Retail |
|
|
Wholesale |
|
|
Fleet Fueling |
|
|
GPMP |
|
|
All Other |
|
|
Total |
|
||||||
For the Nine Months Ended September 30, 2023 |
(in thousands) |
|
||||||||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Fuel revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Merchandise revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other revenues, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total revenues from external |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Inter-segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total revenues from reportable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Interest and financial expenses, net |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Loss from equity investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||||
Net income from segments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
23
|
|
Retail |
|
|
Wholesale |
|
|
Fleet Fueling |
|
|
GPMP |
|
|
All Other |
|
|
Total |
|
||||||
For the Nine Months Ended September 30, 2022 |
(in thousands) |
|
||||||||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Fuel revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Merchandise revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other revenues, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total revenues from external customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Inter-segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total revenues from reportable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest and financial expenses, net |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Loss from equity investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||||
Net income from segments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
A reconciliation of total revenues from reportable segments to total revenues on the condensed consolidated statements of operations was as follows:
|
|
For the Three Months |
|
|
For the Nine Months |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Total revenues from segments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Elimination of inter-segment revenues |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
A reconciliation of net income from reportable segments to net income on the condensed consolidated statements of operations was as follows:
|
|
For the Three Months |
|
|
For the Nine Months |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Net income from segments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Amounts not allocated to segments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Store operating expenses |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
General and administrative expenses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other expenses, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Interest and other financial expenses, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income tax expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
12. Commitments and Contingencies
Environmental Liabilities and Contingencies
The Company is subject to certain federal and state environmental laws and regulations associated with sites at which it stores and sells fuel and other fuel products, as well as at owned and leased locations leased or subleased to dealers. As of September 30, 2023 and December 31, 2022, environmental obligations totaled $
24
The Company maintains certain environmental insurance policies and participates in various state underground storage tank funds that entitle it to be reimbursed for environmental loss mitigation. Estimated amounts that will be recovered from its insurance policies and various state funds for the exposures totaled $
Asset Retirement Obligation
As part of the fuel operations at its operated convenience stores, at most of the other owned and leased locations leased to dealers, certain other dealer locations and proprietary cardlock locations, there are aboveground and underground storage tanks for which the Company is responsible. The future cost to remove a storage tank is recognized over the estimated remaining useful life of the storage tank or the termination of the applicable lease. A liability for the fair value of an asset retirement obligation with a corresponding increase to the carrying value of the related long-lived asset is recorded at the time a storage tank is installed. The estimated liability is based upon historical experience in removing storage tanks, estimated tank useful lives, external estimates as to the cost to remove the tanks in the future and current and anticipated federal and state regulatory requirements governing the removal of tanks, and discounted. The Company has recorded an asset retirement obligation of $
Program Agreement
On May 2, 2023, GPM, together with Oak Street, entered into a third amendment to the Program Agreement, which, among other things, (i) extended the term of the Program Agreement and the exclusivity period thereunder through September 30, 2024 and (ii) provides for up to $
Legal Matters
The Company is a party to various legal actions, as both plaintiff and defendant, in the ordinary course of business. The Company’s management believes, based on estimations with support from legal counsel for these matters, that these legal actions are routine in nature and incidental to the operation of the Company’s business and that it is not reasonably possible that the ultimate resolution of these matters will have a material adverse impact on the Company’s business, financial condition, results of operations and cash flows.
13. Related Party Transactions
25
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
You should read this discussion together with the unaudited Condensed Consolidated Financial Statements, related notes, and other financial information included elsewhere in this Quarterly Report on Form 10-Q together with our audited consolidated financial statements, related notes, and other information contained in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Form 10-K”). The following discussion contains assumptions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors,” in Part I, Item 1A of the Form 10-K and in Part II, Item 1A of this Quarterly Report on Form 10-Q and as described from time to time in our other filings with the Securities and Exchange Commission. These risks could cause our actual results to differ materially from those anticipated in these forward-looking statements.
Overview
ARKO Corp. was incorporated under the laws of Delaware on August 26, 2020. Our shares of common stock, $0.0001 par value per share (“common stock”), and publicly-traded warrants are listed on the Nasdaq Stock Market (“Nasdaq”) and trade under the symbols “ARKO” and “ARKOW,” respectively. GPM Investments, LLC, a Delaware limited liability company, which we refer to as GPM, is our operating entity and our indirect wholly owned subsidiary.
Based in Richmond, VA, we are a leading independent convenience store operator and, as of September 30, 2023, we were the sixth largest convenience store chain in the United States (“U.S.”) ranked by store count, operating 1,552 retail convenience stores. As of September 30, 2023, we operated the stores under more than 25 regional store brands including 1-Stop, Admiral, Apple Market®, BreadBox, Corner Mart, Dixie Mart, ExpressStop, E-Z Mart®, fas mart®, fastmarket®, Flash Market, Handy Mart, Jetz, Jiffi Stop®, Jiffy Stop, Li’l Cricket, Market Express, Next Door Store®, Pride, Roadrunner Markets, Rose Mart, Rstore, Scotchman®, shore stop®, Town Star, Uncle’s, Village Pantry® and Young’s. As of September 30, 2023, we also supplied fuel to 1,825 dealers and operated 295 cardlock locations (unstaffed fueling locations). We are well diversified geographically and as of September 30, 2023, operated in more than 30 states and the District of Columbia in the Mid-Atlantic, Midwestern, Northeastern, Southeastern and Southwestern U.S.
Our primary business is the operation of convenience stores. As such, we derive a significant portion of our revenue from the retail sale of fuel and the products offered in our stores, resulting in our retail stores generating a large proportion of our profitability. Our retail stores offer a wide array of cold and hot foodservice, beverages, cigarettes and other tobacco products, candy, salty snacks, grocery, beer and general merchandise. We have foodservice offerings at approximately 1,260 company-operated stores. The foodservice category includes hot and fresh grab-n-go foods, deli, fried chicken, bakery, pizza, roller grill items and other prepared foods. In addition, at our stores, we operate approximately 150 branded quick service restaurants consisting of major national brands. We have 18 Sbarro, the Original New York Pizza, locations and are currently working on additional food offerings. Additionally, we provide a number of traditional convenience store services that generate additional income, including lottery, prepaid products, gift cards, money orders, ATMs, gaming, and other ancillary product and service offerings. We also generate revenues from car washes at approximately 90 of our locations.
Our high value fas REWARDS® loyalty program has reached approximately 1.85 million enrolled members, an increase of more than 365,000 enrolled members in the third quarter of 2023, and an increase of approximately 50% in our enrolled membership compared to September 30, 2022, with a material enrollment uptick during the second and third quarters of 2023 after launching our new fas REWARDS app in the first quarter of 2023 and launching a special $10 enrollment promotion commencing in mid-May 2023 through September 2023. Our fas REWARDS® loyalty program is available in the majority of our stores and offers enrolled loyalty members in store exclusive promotional pricing, in-app member only HOT deals not available in stores, order and delivery, age verified offers on tobacco and alcohol, and a store locator with current gas prices at GPM stores close to members.
We also derive revenue from the wholesale distribution of fuel and the sale of fuel at cardlock locations, and we earn commissions from the sales of fuel using proprietary fuel cards that provide customers access to a nationwide network of fueling sites. We believe these revenues result in stable, ratable cash flows which together with free cash flow from our retail activity can quickly be deployed to pursue accretive acquisitions and investments in our retail stores. Additionally, these locations contribute to our overall size, which leads to economies of scale with our fuel and merchandise vendors.
Our reportable segments are described below.
26
Retail Segment
The retail segment includes the operation of a chain of retail stores, which includes convenience stores selling fuel products and other merchandise to retail customers. At our convenience stores, we own the merchandise and fuel inventory and employ personnel to manage the store.
Wholesale Segment
The wholesale segment supplies fuel to dealers, on either a cost plus or consignment basis. For consignment arrangements, we retain ownership of the fuel inventory at the site, are responsible for the pricing of the fuel to the end consumer and share a portion of the gross profit earned from the sale of fuel by the consignment dealers. For cost plus arrangements, we sell fuel to dealers and bulk and spot purchasers on a fixed-fee basis. The sales price to the dealer is determined according to the terms of the relevant agreement with the dealer, which typically reflects our total fuel costs plus the cost of transportation and a margin, with us generally retaining the prompt pay discounts and rebates.
Fleet Fueling Segment
The fleet fueling segment includes the operation of proprietary and third-party cardlock locations (unstaffed fueling locations), and issuance of proprietary fuel cards that provide customers access to a nationwide network of fueling sites.
GPMP Segment
The GPMP segment includes the operations of GPM Petroleum LP, referred to as GPMP, which primarily sells and supplies fuel to GPM and substantially all of its subsidiaries that sell fuel in the retail and wholesale segments at GPMP’s cost of fuel (including taxes and transportation) plus a fixed margin and a fixed fee charged to sites in the fleet fueling segment and certain Company sites which are not supplied by GPMP.
Trends Impacting Our Business
We have achieved strong store growth over the last decade, primarily by implementing a highly successful acquisition strategy. From 2013 through September 30, 2023, we completed 25 acquisitions. On August 15, 2023, we acquired seven company-operated Speedy’s convenience stores located in Arkansas and Oklahoma, which were previously locations operated by an independent dealer to which we supplied fuel (the “Speedy Acquisition”). On June 6, 2023, we completed our acquisition from WTG Fuels Holdings, LLC of 24 company-operated Uncle’s convenience stores located across Western Texas, 68 proprietary GASCARD-branded cardlock sites and 43 private cardlock sites for fleet fueling operations located in Western Texas and Southeastern New Mexico (the “WTG Acquisition”). On March 1, 2023, we completed our acquisition from Transit Energy Group, LLC of 135 Company-operated convenience stores and gas stations, 181 dealer locations, a commercial, government, and industrial business, and certain distribution and transportation assets (the “TEG Acquisition” and, together with the WTG Acquisition and the Speedy Acquisition, the “2023 Acquisitions”). For additional information regarding the 2023 Acquisitions, please see Note 3 to our condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q. In December 2022, we completed our acquisition of Pride Convenience Holdings, LLC, which operated at closing, 31 Pride retail convenience stores and had one store under construction at closing which is now opened (the “Pride Acquisition”), and in July 2022, we completed our acquisition of certain assets from Quarles Petroleum, Incorporated (the “Quarles Acquisition”), which included at closing 121 proprietary Quarles-branded cardlock sites and 63 third-party cardlock sites for fleet fueling operations, and 46 dealer locations (collectively, the “2022 Acquisitions”). Our store count has grown from 320 sites in 2011 to 3,672 sites as of September 30, 2023, of which 1,552 were operated as retail convenience stores, 1,825 were locations at which we supplied fuel to dealers and 295 were cardlock locations. These strategic acquisitions have had, and we expect will continue to have, a significant impact on our reported results and can make period to period comparisons of results difficult. With
27
our achievement of significant size and scale, we have enhanced our focus on organic growth, including implementing company-wide marketing and merchandising initiatives, which we believe will result in significant value accretion to our acquired assets.
The following table provides a history of our acquisitions, site conversions and site closings for the periods noted, for the retail, wholesale and fleet fueling segments:
|
|
For the Three Months |
|
|
For the Nine Months |
|
||||||||||
Retail Segment |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Number of sites at beginning of period |
|
|
1,547 |
|
|
|
1,388 |
|
|
|
1,404 |
|
|
|
1,406 |
|
Acquired sites |
|
|
7 |
|
|
|
— |
|
|
|
166 |
|
|
|
— |
|
Newly opened or reopened sites |
|
|
1 |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
Company-controlled sites converted to consignment |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(13 |
) |
|
|
(9 |
) |
Closed, relocated or divested sites |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(9 |
) |
|
|
(14 |
) |
Number of sites at end of period |
|
|
1,552 |
|
|
|
1,383 |
|
|
|
1,552 |
|
|
|
1,383 |
|
|
|
For the Three Months |
|
|
For the Nine Months |
|
||||||||||
Wholesale Segment 1 |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Number of sites at beginning of period |
|
|
1,824 |
|
|
|
1,620 |
|
|
|
1,674 |
|
|
|
1,628 |
|
Acquired sites |
|
|
— |
|
|
|
46 |
|
|
|
190 |
|
|
|
46 |
|
Newly opened or reopened sites 2 |
|
|
34 |
|
|
|
20 |
|
|
|
58 |
|
|
|
60 |
|
Consignment or fuel supply locations |
|
|
2 |
|
|
|
2 |
|
|
|
13 |
|
|
|
9 |
|
Closed, relocated or divested sites |
|
|
(35 |
) |
|
|
(18 |
) |
|
|
(110 |
) |
|
|
(73 |
) |
Number of sites at end of period |
|
|
1,825 |
|
|
|
1,670 |
|
|
|
1,825 |
|
|
|
1,670 |
|
1 Excludes bulk and spot purchasers.
2 Includes all signed fuel supply agreements irrespective of fuel distribution commencement date.
|
|
For the Three Months |
|
|
For the Nine Months |
|
||||||||||
Fleet Fueling Segment |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Number of sites at beginning of period |
|
|
293 |
|
|
|
— |
|
|
|
183 |
|
|
|
— |
|
Acquired sites |
|
|
— |
|
|
|
184 |
|
|
|
111 |
|
|
|
184 |
|
Newly opened or reopened sites |
|
|
4 |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
Closed, relocated or divested sites |
|
|
(2 |
) |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(1 |
) |
Number of sites at end of period |
|
|
295 |
|
|
|
183 |
|
|
|
295 |
|
|
|
183 |
|
In recent years, the convenience store industry has focused on increasing and improving in-store foodservice offerings, including fresh foods, quick service restaurants or proprietary food offerings. We believe consumers may be more likely to patronize convenience stores that include such new and improved food offerings, which may also lead to increased inside merchandise sales or fuel sales for such stores. Our current foodservice offering, which varies by store, primarily consists of hot and fresh grab-n-go foods, deli, fried chicken, bakery, pizza, roller grill items and other prepared foods. We have historically relied upon a limited number of franchised quick service restaurants and in-store delis to drive customer traffic rather than other types of foodservice offerings. As a result, we believe that our under-penetration of foodservice presents an opportunity to expand foodservice offerings and margin in response to changing consumer behavior. In October 2023, we expanded our leadership team and named Richard Guidry in the newly created role of Senior Vice President of Food Service. This expansion tracks our commitment to growing our food service offering. In addition, we believe that continued investment in new technology platforms and applications to adapt to evolving consumer eating preferences, including contactless checkout, order ahead service, and delivery, will further drive growth in profitability.
Our results of operation are significantly impacted by the retail fuel margins we earn on gallons sold. These fuel margins can change rapidly as they are influenced by many factors including: the price of refined products; interruptions in supply caused by severe weather; supply chain disruptions; refinery mechanical failures; and competition in the local markets in which we operate.
The cost of our main products, gasoline and diesel fuel, is greatly impacted by the wholesale cost of fuel in the United States. We attempt to pass wholesale fuel cost changes through to our customers through retail price changes; however, we are not always able to do so. Competitive conditions primarily affect the timing of any related increase or decrease in retail prices. As a result, we tend to experience lower fuel margins when the cost of fuel is increasing gradually over a longer period and higher fuel margins when
28
the cost of fuel is declining or more volatile over a shorter period of time. For the year ended December 31, 2022, we experienced historically high fuel margins as a result of the volatile market for gasoline and diesel fuel. In particular, in the first quarter of 2022, the war in Ukraine significantly affected market conditions and resulted in substantially higher fuel margins. Depending on future market and geopolitical conditions, the supply of fuel, including diesel fuel in particular, may become constrained. As such, we maintain terminal storage of diesel fuel for short-term supply needs for our fleet fueling sites.
Additionally, throughout 2022 and the first three quarters of 2023, the U.S. economy continued to experience inflationary pressures, which has increased merchandise cost and reduced consumer purchasing power. We have mitigated a portion of these higher costs with retail price increases. If this trend continues or increases, it could negatively impact demand for our products and services, as well as seasonal travel patterns, which could reduce future sales volumes. Additionally, because of current labor market conditions and the prevailing wage rates in the markets in which we operate, we have voluntarily increased wages, which has increased our costs associated with recruiting and retaining qualified personnel, and may continue to do so in the future.
We also operate in a highly competitive retail convenience market that includes businesses with operations and services that are similar to those that we provide. We face significant competition from other large chain operators. In particular, large convenience store chains have increased their number of locations and remodeled their existing locations in recent years, enhancing their competitive position. We believe that convenience stores managed by individual operators who offer branded or non-branded fuel are also significant competitors in the market. The convenience store industry is also experiencing competition from other retail sectors including grocery stores, large warehouse retail stores, dollar stores and pharmacies.
We believe that we have a significant opportunity to increase our sales and profitability by continuing to execute on our organic and inorganic strategies, improving the performance of current stores through enhanced offerings to meet our customers needs, and growing our store base in existing and contiguous markets through acquisitions.
Business Highlights
The 2023 Acquisitions and the 2022 Acquisitions contributed to the improvement in our results of operations for the third quarter of 2023, as compared to the third quarter of 2022 which was partially offset by less fuel contribution on a same store basis, primarily due to market conditions in the third quarter of 2022. Store operating expenses increased in the third quarter of 2023 as compared to the third quarter of 2022, primarily as a result of expenses associated with the 2023 Acquisitions and the 2022 Acquisitions. General and administrative expenses also increased in the third quarter of 2023 as compared to the third quarter of 2022, primarily as a result of expenses associated with the 2023 Acquisitions and the 2022 Acquisitions, wage increases, and an increase in share-based compensation expense.
Seasonality
Our business is seasonal, and our operating income in the second and third quarters has historically been significantly greater than in the first and fourth quarters as a result of the generally improved climate and seasonal buying patterns of our customers. Inclement weather, especially in the Midwest and Northeast regions of the U.S. during the winter months, can negatively impact our financial results.
Results of Operations for the three and nine months ended September 30, 2023 and 2022
The period-to-period comparisons of our results of operations contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operation have been prepared using our condensed consolidated interim financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. The following discussion should be read in conjunction with such condensed interim consolidated financial statements and related notes.
Consolidated Results
29
The table below shows our consolidated results for the three and nine months ended September 30, 2023 and 2022, together with certain key metrics.
|
|
For the Three Months |
|
|
For the Nine Months |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Revenues: |
|
(in thousands) |
|
|||||||||||||
Fuel revenue |
|
$ |
2,086,392 |
|
|
$ |
1,979,574 |
|
|
$ |
5,705,156 |
|
|
$ |
5,648,954 |
|
Merchandise revenue |
|
|
506,425 |
|
|
|
445,822 |
|
|
|
1,391,274 |
|
|
|
1,244,558 |
|
Other revenues, net |
|
|
29,237 |
|
|
|
24,251 |
|
|
|
83,141 |
|
|
|
69,209 |
|
Total revenues |
|
|
2,622,054 |
|
|
|
2,449,647 |
|
|
|
7,179,571 |
|
|
|
6,962,721 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fuel costs |
|
|
1,923,869 |
|
|
|
1,824,437 |
|
|
|
5,262,854 |
|
|
|
5,250,105 |
|
Merchandise costs |
|
|
345,699 |
|
|
|
306,930 |
|
|
|
952,925 |
|
|
|
866,110 |
|
Store operating expenses |
|
|
226,698 |
|
|
|
189,582 |
|
|
|
637,383 |
|
|
|
534,197 |
|
General and administrative expenses |
|
|
44,116 |
|
|
|
35,954 |
|
|
|
127,192 |
|
|
|
100,695 |
|
Depreciation and amortization |
|
|
33,713 |
|
|
|
26,061 |
|
|
|
94,949 |
|
|
|
75,050 |
|
Total operating expenses |
|
|
2,574,095 |
|
|
|
2,382,964 |
|
|
|
7,075,303 |
|
|
|
6,826,157 |
|
Other expenses, net |
|
|
3,885 |
|
|
|
951 |
|
|
|
11,561 |
|
|
|
3,269 |
|
Operating income |
|
|
44,074 |
|
|
|
65,732 |
|
|
|
92,707 |
|
|
|
133,295 |
|
Interest and other financial expenses, net |
|
|
(14,579 |
) |
|
|
(19,796 |
) |
|
|
(48,341 |
) |
|
|
(43,110 |
) |
Income before income taxes |
|
|
29,495 |
|
|
|
45,936 |
|
|
|
44,366 |
|
|
|
90,185 |
|
Income tax expense |
|
|
(7,993 |
) |
|
|
(20,898 |
) |
|
|
(10,849 |
) |
|
|
(31,060 |
) |
Loss from equity investment |
|
|
(14 |
) |
|
|
(44 |
) |
|
|
(77 |
) |
|
|
(7 |
) |
Net income |
|
$ |
21,488 |
|
|
$ |
24,994 |
|
|
$ |
33,440 |
|
|
$ |
59,118 |
|
Less: Net income attributable to non-controlling interests |
|
|
48 |
|
|
|
51 |
|
|
|
149 |
|
|
|
182 |
|
Net income attributable to ARKO Corp. |
|
$ |
21,440 |
|
|
$ |
24,943 |
|
|
$ |
33,291 |
|
|
$ |
58,936 |
|
Series A redeemable preferred stock dividends |
|
|
(1,449 |
) |
|
|
(1,449 |
) |
|
|
(4,301 |
) |
|
|
(4,301 |
) |
Net income attributable to common shareholders |
|
$ |
19,991 |
|
|
$ |
23,494 |
|
|
$ |
28,990 |
|
|
$ |
54,635 |
|
Fuel gallons sold |
|
|
592,122 |
|
|
|
520,662 |
|
|
|
1,683,556 |
|
|
|
1,462,388 |
|
Fuel margin, cents per gallon1 |
|
|
27.4 |
|
|
|
29.8 |
|
|
|
26.3 |
|
|
|
27.3 |
|
Merchandise contribution2 |
|
|
160,726 |
|
|
|
138,892 |
|
|
$ |
438,349 |
|
|
$ |
378,448 |
|
Merchandise margin3 |
|
|
31.7 |
% |
|
|
31.2 |
% |
|
|
31.5 |
% |
|
|
30.4 |
% |
Adjusted EBITDA4 |
|
|
91,163 |
|
|
|
99,468 |
|
|
|
224,889 |
|
|
$ |
228,621 |
|
1 Calculated as fuel revenue less fuel costs divided by fuel gallons sold.
2 Calculated as merchandise revenue less merchandise costs.
3 Calculated as merchandise contribution divided by merchandise revenue.
4 Refer to “Use of Non-GAAP Measures” below for discussion of this non-GAAP performance measure and related reconciliation to net income.
Three Months Ended September 30, 2023 versus Three Months Ended September 30, 2022
For the three months ended September 30, 2023, fuel revenue increased by $106.8 million, or 5.4%, compared to the third quarter of 2022. The increase in fuel revenue was primarily attributable to incremental gallons sold related to the 2023 Acquisitions and the 2022 Acquisitions, which was partially offset by a decrease in the average price of fuel compared to the third quarter of 2022 and fewer gallons sold at same stores in the third quarter of 2023 compared to the third quarter of 2022.
For the three months ended September 30, 2023, merchandise revenue increased by $60.6 million, or 13.6%, compared to the third quarter of 2022, primarily due to the 2023 Acquisitions and the Pride Acquisition. Offsetting this increase was a decrease in merchandise revenue from underperforming retail stores that were closed or converted to dealers.
For the three months ended September 30, 2023, other revenue increased by $5.0 million, or 20.6%, compared to the third quarter of 2022, primarily due to additional revenue from the 2023 Acquisitions, the 2022 Acquisitions and greater lottery commissions.
For the three months ended September 30, 2023, total operating expenses increased by $191.1 million, or 8.0%, compared to the third quarter of 2022. Fuel costs increased $99.4 million, or 5.5%, compared to the third quarter of 2022 due to incremental gallons related to the 2023 Acquisitions and the 2022 Acquisitions, which were partially offset by both fewer gallons sold and a lower average cost of fuel on a same store basis. Merchandise costs increased $38.8 million, or 12.6%, compared to the third quarter of 2022, primarily due to increased costs related to the 2023 Acquisitions and the Pride Acquisition, offset by a decrease in merchandise costs from underperforming retail stores that were closed or converted to dealers. For the three months ended September 30, 2023, store
30
operating expenses increased $37.1 million, or 19.6%, compared to the third quarter of 2022 due to incremental expenses as a result of the 2023 Acquisitions and the 2022 Acquisitions, which were partially offset by a decrease in expenses at same stores.
For the three months ended September 30, 2023, general and administrative expenses increased $8.2 million, or 22.7%, compared to the third quarter of 2022, primarily due to approximately $7.2 million of incremental expenses associated with the 2023 Acquisitions and the 2022 Acquisitions, annual wage increases and an increase of $1.5 million in share-based compensation expense primarily related to equity grants in the first quarter of 2023.
For the three months ended September 30, 2023, depreciation and amortization expenses increased $7.7 million, or 29.4%, compared to the third quarter of 2022 primarily due to assets acquired in connection with the 2023 Acquisitions and the 2022 Acquisitions.
For the three months ended September 30, 2023, other expenses, net increased by $2.9 million, compared to the third quarter of 2022 primarily due to greater losses on disposal of assets and impairment charges in the third quarter of 2023 and expenses recorded for the fair value adjustment of contingent consideration in the third quarter of 2023, compared to income recorded in the third quarter of 2022, which were partially offset by lower acquisition costs.
Operating income was $44.1 million for the third quarter of 2023 compared to $65.7 million for the third quarter of 2022. The decrease was primarily due to reduced fuel contribution at same stores, which was partially offset with incremental income from the 2023 Acquisitions and the 2022 Acquisitions.
For the three months ended September 30, 2023, interest and other financial expenses, net decreased by $5.2 million compared to the third quarter of 2022, primarily related to an increase of $11.6 million in income, net, recorded in the third quarter of 2023 compared to the prior year period, for fair value adjustments related to the Ares Put Option, Public Warrants, Private Warrants and Deferred Shares (each as defined in Note 10 to the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q) and additional interest income generated in the third quarter of 2023, which was partially offset by greater debt at higher rates outstanding in 2023.
For the three months ended September 30, 2023, income tax expense was $8.0 million compared to income tax expense of $20.9 million for the three months ended September 30, 2022. The decrease was primarily due to a one-time non-cash tax expense in the amount of approximately $8.7 million for the three months ended September 30, 2022 the Company recorded in connection with its internal entity realignment and streamlining.
For the three months ended September 30, 2023 and 2022, net income attributable to the Company was $21.4 million and $24.9 million, respectively.
For the three months ended September 30, 2023, Adjusted EBITDA was $91.2 million compared to $99.5 million for the three months ended September 30, 2022. Approximately $22.9 million of lower fuel contribution from retail same stores and legacy wholesale sites negatively impacted Adjusted EBITDA for the third quarter of 2023, which was partially offset by incremental Adjusted EBITDA from the 2023 Acquisitions and the 2022 Acquisitions. Refer to “Use of Non-GAAP Measures” below for discussion of this non-GAAP performance measure and related reconciliation to net income.
Nine Months Ended September 30, 2023 versus Nine Months Ended September 30, 2022
For the nine months ended September 30, 2023, fuel revenue increased by $56.2 million, or 1.0%, compared to the first three quarters of 2022. The increase in fuel revenue was primarily attributable to incremental gallons sold related to the 2023 Acquisitions and the 2022 Acquisitions, which was partially offset by a decrease in the average price of fuel compared to the first three quarters of 2022 and fewer gallons sold at same stores in the first three quarters of 2023 compared to the first three quarters of 2022.
For the nine months ended September 30, 2023, merchandise revenue increased by $146.7 million, or 11.8%, compared to the first three quarters of 2022, primarily due to the 2023 Acquisitions and the Pride Acquisition and an increase in same store merchandise revenues. Offsetting these increases was a decrease in merchandise revenue from underperforming retail stores that were closed or converted to dealers.
For the nine months ended September 30, 2023, other revenue increased by $13.9 million, or 20.1%, compared to the first three quarters of 2022, primarily due to additional revenue from the 2023 Acquisitions, the 2022 Acquisitions and greater lottery commissions.
For the nine months ended September 30, 2023, total operating expenses increased by $249.1 million, or 3.6%, compared to the first three quarters of 2022. Fuel costs increased $12.7 million, or 0.2%, compared to the first three quarters of 2022 due to incremental gallons related to the 2023 Acquisitions and the 2022 Acquisitions, which were partially offset by both fewer gallons sold
31
and a lower average cost of fuel on a same store basis. Merchandise costs increased $86.8 million, or 10.0%, compared to the first three quarters of 2022, primarily due to increased costs related to the 2023 Acquisitions and the Pride Acquisition and a corresponding increase in same store merchandise sales. For the nine months ended September 30, 2023, store operating expenses increased $103.2 million, or 19.3%, compared to the first three quarters of 2022 due to incremental expenses as a result of the 2023 Acquisitions, the 2022 Acquisitions and an increase in expenses at same stores.
For the nine months ended September 30, 2023, general and administrative expenses increased $26.5 million, or 26.3%, compared to the first three quarters of 2022, primarily due to approximately $18.7 million in expenses associated with the 2023 Acquisitions and the 2022 Acquisitions, annual wage increases and an increase of $4.2 million in share-based compensation expense primarily related to equity grants in the first quarters of 2023 and 2022.
For the nine months ended September 30, 2023, depreciation and amortization expenses increased $19.9 million, or 26.5%, compared to the first three quarters of 2022 primarily due to assets acquired in the previous twelve month period, largely in connection with the 2023 Acquisitions and the 2022 Acquisitions.
For the nine months ended September 30, 2023, other expenses, net increased by $8.3 million compared to the first three quarters of 2022 primarily due to an increase in acquisition costs, greater losses on disposal of assets and impairment charges in the first three quarters of 2023 and lower income recorded for the fair value adjustment of contingent consideration in the first three quarters of 2023.
Operating income was $92.7 million for the first three quarters of 2023 compared to $133.3 million for the first three quarters of 2022. The decrease was primarily due to reduced fuel contribution at same stores and an increase in general and administrative expenses, which was partially offset with incremental income from the 2023 Acquisitions and the 2022 Acquisitions.
For the nine months ended September 30, 2023, interest and other financial expenses, net increased by $5.2 million compared to the first three quarters of 2022, primarily due to greater debt at higher rates outstanding in 2023, which was partially offset by an increase of $9.7 million in income, net recorded for fair value adjustments related to the Ares Put Option, Public Warrants, Private Warrants and Deferred Shares and additional interest income generated in the first three quarters of 2023.
For the nine months ended September 30, 2023, income tax expense was $10.8 million compared to income tax expense of $31.1 million for the nine months ended September 30, 2022. The decrease was primarily due to a one-time non-cash tax expense in the amount of approximately $8.7 million for the nine months ended September 30, 2022.the Company recorded in connection with its internal entity realignment and streamlining.
For the nine months ended September 30, 2023 and 2022, net income attributable to the Company was $33.3 million and $58.9 million, respectively.
For the nine months ended September 30, 2023, Adjusted EBITDA was $224.9 million compared to $228.6 million for the nine months ended September 30, 2022. This decrease primarily resulted from approximately $49.6 million of lower fuel contribution from retail same stores and legacy wholesale sites, of which approximately $12.8 million was attributable to sales in March 2023, which was partially offset by incremental Adjusted EBITDA from the 2023 Acquisitions and the 2022 Acquisitions and increased merchandise contribution positively impacted Adjusted EBITDA for the first three quarters of 2023, as compared to the first three quarters of 2022. In addition, higher personnel costs at same stores and an increase in general and administrative expenses reduced Adjusted EBITDA for the first three quarters of 2023. Refer to “Use of Non-GAAP Measures” below for discussion of this non-GAAP performance measure and related reconciliation to net income.
32
Segment Results
Retail Segment
The table below shows the results of the retail segment for the three and nine months ended September 30, 2023 and 2022, together with certain key metrics for the segment.
|
|
For the Three Months |
|
|
For the Nine Months |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Revenues: |
|
(in thousands) |
|
|||||||||||||
Fuel revenue |
|
$ |
1,086,405 |
|
|
$ |
1,028,323 |
|
|
$ |
2,945,243 |
|
|
$ |
3,000,839 |
|
Merchandise revenue |
|
|
506,425 |
|
|
|
445,822 |
|
|
|
1,391,274 |
|
|
|
1,244,558 |
|
Other revenues, net |
|
|
19,750 |
|
|
|
16,651 |
|
|
|
57,302 |
|
|
|
49,642 |
|
Total revenues |
|
|
1,612,580 |
|
|
|
1,490,796 |
|
|
|
4,393,819 |
|
|
|
4,295,039 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fuel costs |
|
|
980,161 |
|
|
|
923,966 |
|
|
|
2,661,406 |
|
|
|
2,726,662 |
|
Merchandise costs |
|
|
345,699 |
|
|
|
306,930 |
|
|
|
952,925 |
|
|
|
866,110 |
|
Store operating expenses |
|
|
205,216 |
|
|
|
175,051 |
|
|
|
578,496 |
|
|
|
499,892 |
|
Total operating expenses |
|
|
1,531,076 |
|
|
|
1,405,947 |
|
|
|
4,192,827 |
|
|
|
4,092,664 |
|
Operating income |
|
$ |
81,504 |
|
|
$ |
84,849 |
|
|
$ |
200,992 |
|
|
$ |
202,375 |
|
Fuel gallons sold |
|
|
300,796 |
|
|
|
262,010 |
|
|
|
843,286 |
|
|
|
754,811 |
|
Same store fuel gallons sold decrease (%)1 |
|
|
(5.3 |
%) |
|
|
(9.7 |
%) |
|
|
(4.5 |
%) |
|
|
(8.0 |
%) |
Fuel margin, cents per gallon2 |
|
|
40.3 |
|
|
|
44.8 |
|
|
|
38.7 |
|
|
|
41.3 |
|
Same store merchandise sales increase (decrease) (%)1 |
|
|
0.1 |
% |
|
|
0.7 |
% |
|
|
1.4 |
% |
|
|
(1.8 |
%) |
Same store merchandise sales excluding cigarettes |
|
|
1.0 |
% |
|
|
4.3 |
% |
|
|
3.9 |
% |
|
|
2.0 |
% |
Merchandise contribution3 |
|
$ |
160,726 |
|
|
$ |
138,892 |
|
|
$ |
438,349 |
|
|
$ |
378,448 |
|
Merchandise margin4 |
|
|
31.7 |
% |
|
|
31.2 |
% |
|
|
31.5 |
% |
|
|
30.4 |
% |
1 Same store is a common metric used in the convenience store industry. We consider a store a same store beginning in the first quarter in which the store had a full quarter of activity in the prior year. Refer to “Use of Non-GAAP Measures” below for discussion of this measure.
2 Calculated as fuel revenue less fuel costs divided by fuel gallons sold; excludes the estimated fixed margin or fixed fee paid to GPMP for the cost of fuel.
3 Calculated as merchandise revenue less merchandise costs.
4 Calculated as merchandise contribution divided by merchandise revenue.
The table below shows financial information and certain key metrics of recent acquisitions in the retail segment that do not have comparable information for the prior periods.
|
For the Three Months Ended September 30, 2023 |
|
|||||||||||||||||
|
Pride 1 |
|
|
TEG 2 |
|
|
Uncle's (WTG) 3 |
|
|
Speedy 4 |
|
|
Total |
|
|||||
|
(in thousands) |
|
|||||||||||||||||
Date of Acquisition: |
Dec 6, 2022 |
|
|
Mar 1, 2023 |
|
|
Jun 6, 2023 |
|
|
Aug 15, 2023 |
|
|
|
|
|||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Fuel revenue |
$ |
73,019 |
|
|
$ |
104,850 |
|
|
$ |
21,927 |
|
|
$ |
3,138 |
|
|
$ |
202,934 |
|
Merchandise revenue |
|
16,078 |
|
|
|
39,776 |
|
|
|
9,625 |
|
|
|
1,400 |
|
|
|
66,879 |
|
Other revenues, net |
|
1,386 |
|
|
|
1,391 |
|
|
|
203 |
|
|
|
23 |
|
|
|
3,003 |
|
Total revenues |
|
90,483 |
|
|
|
146,017 |
|
|
|
31,755 |
|
|
|
4,561 |
|
|
|
272,816 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Fuel costs |
|
65,818 |
|
|
|
96,593 |
|
|
|
18,797 |
|
|
|
2,798 |
|
|
|
184,006 |
|
Merchandise costs |
|
10,523 |
|
|
|
27,218 |
|
|
|
6,258 |
|
|
|
949 |
|
|
|
44,948 |
|
Store operating expenses |
|
10,152 |
|
|
|
18,373 |
|
|
|
5,147 |
|
|
|
696 |
|
|
|
34,368 |
|
Total operating expenses |
|
86,493 |
|
|
|
142,184 |
|
|
|
30,202 |
|
|
|
4,443 |
|
|
|
263,322 |
|
Operating income |
$ |
3,990 |
|
|
$ |
3,833 |
|
|
$ |
1,553 |
|
|
$ |
118 |
|
|
$ |
9,494 |
|
Fuel gallons sold |
|
18,486 |
|
|
|
30,126 |
|
|
|
5,809 |
|
|
|
830 |
|
|
|
55,251 |
|
Merchandise contribution 5 |
|
5,555 |
|
|
|
12,558 |
|
|
|
3,367 |
|
|
|
451 |
|
|
|
21,931 |
|
Merchandise margin 6 |
|
34.6 |
% |
|
|
31.6 |
% |
|
|
35.0 |
% |
|
|
32.2 |
% |
|
|
|
33
|
For the Nine Months Ended September 30, 2023 |
|
|||||||||||||||||
|
Pride 1 |
|
|
TEG 2 |
|
|
Uncle's (WTG) 3 |
|
|
Speedy 4 |
|
|
Total |
|
|||||
|
(in thousands) |
|
|||||||||||||||||
Date of Acquisition: |
Dec 6, 2022 |
|
|
Mar 1, 2023 |
|
|
Jun 6, 2023 |
|
|
Aug 15, 2023 |
|
|
|
|
|||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Fuel revenue |
$ |
212,444 |
|
|
$ |
236,052 |
|
|
$ |
28,025 |
|
|
$ |
3,138 |
|
|
$ |
479,659 |
|
Merchandise revenue |
|
45,221 |
|
|
|
92,100 |
|
|
|
12,471 |
|
|
|
1,400 |
|
|
|
151,192 |
|
Other revenues, net |
|
4,170 |
|
|
|
3,122 |
|
|
|
257 |
|
|
|
23 |
|
|
|
7,572 |
|
Total revenues |
|
261,835 |
|
|
|
331,274 |
|
|
|
40,753 |
|
|
|
4,561 |
|
|
|
638,423 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Fuel costs |
|
191,117 |
|
|
|
217,210 |
|
|
|
23,817 |
|
|
|
2,798 |
|
|
|
434,942 |
|
Merchandise costs |
|
29,906 |
|
|
|
63,344 |
|
|
|
8,185 |
|
|
|
949 |
|
|
|
102,384 |
|
Store operating expenses |
|
30,182 |
|
|
|
41,949 |
|
|
|
6,372 |
|
|
|
696 |
|
|
|
79,199 |
|
Total operating expenses |
|
251,205 |
|
|
|
322,503 |
|
|
|
38,374 |
|
|
|
4,443 |
|
|
|
616,525 |
|
Operating income |
$ |
10,630 |
|
|
$ |
8,771 |
|
|
$ |
2,379 |
|
|
$ |
118 |
|
|
$ |
21,898 |
|
Fuel gallons sold |
|
55,764 |
|
|
|
70,183 |
|
|
|
7,523 |
|
|
|
830 |
|
|
|
134,300 |
|
Merchandise contribution 5 |
|
15,315 |
|
|
|
28,756 |
|
|
|
4,286 |
|
|
|
451 |
|
|
|
48,808 |
|
Merchandise margin 6 |
|
33.9 |
% |
|
|
31.2 |
% |
|
|
34.4 |
% |
|
|
32.2 |
% |
|
|
|
1 Pride Acquisition.
2 Includes only the retail stores acquired in the TEG Acquisition.
3 Includes only the retail stores acquired in the WTG Acquisition.
4 Acquisition of seven Speedy’s retail stores.
5 Calculated as merchandise revenue less merchandise costs.
6 Calculated as merchandise contribution divided by merchandise revenue.
Three Months Ended September 30, 2023 versus Three Months Ended September 30, 2022
Retail Revenues
For the three months ended September 30, 2023, fuel revenue increased by $58.1 million, or 5.6%, compared to the third quarter of 2022. The increase in fuel revenue was attributable to the 2023 Acquisitions and the Pride Acquisition, together contributing 55.3 million gallons sold, or $202.9 million in fuel revenue. Partially offsetting this increase was a $0.31 per gallon decrease in the average retail price of fuel in the third quarter of 2023 as compared to the third quarter of 2022, primarily due to market factors, as well as a decrease in gallons sold at same stores. For the third quarter of 2023, gallons at same stores decreased approximately 5.3%, or 13.6 million gallons. Underperforming retail stores, which were closed or converted to dealers over the last 12 months in order to optimize profitability, also negatively impacted gallons sold during the third quarter of 2023.
For the three months ended September 30, 2023, merchandise revenue increased by $60.6 million, or 13.6%, compared to the third quarter of 2022. The 2023 Acquisitions and the Pride Acquisition contributed approximately $66.9 million of merchandise revenue. Same store merchandise sales increased 0.1% for the third quarter of 2023 compared to the third quarter of 2022, which were impacted by increased loyalty investments in customer acquisition related to expanding membership in our fas REWARDS® loyalty program, other loyalty promotions, and growth in the total loyalty membership base. Same store merchandise sales were positively impacted primarily due to higher revenue from the Company’s six core destination categories (packaged beverages, candy, salty snacks, packaged sweet snacks, alternative snacks and beer), other tobacco products and franchises as a result of marketing initiatives, including expanded category assortments, new franchise food offerings and investments in coolers and freezers, which was offset by lower revenue from cigarettes. In addition, there was a decrease in merchandise revenue from underperforming retail stores that were closed or converted to dealers.
For the three months ended September 30, 2023, other revenues, net increased by $3.1 million, or 18.6%, compared to the third quarter of 2022, primarily related to additional income from the 2023 Acquisitions and the Pride Acquisition.
Retail Operating Income
For the three months ended September 30, 2023, fuel contribution increased $3.8 million, or 3.2%, compared to the same period in 2022. Incremental fuel profit from the 2023 Acquisitions and the Pride Acquisition of approximately $21.7 million (excluding intercompany charges by GPMP) was partially offset by a decrease in same store fuel contribution of $16.6 million (excluding intercompany charges by GPMP). Fuel margin per gallon at same stores for the third quarter of 2023 decreased to 40.6 cents per gallon from 44.9 cents per gallon for the third quarter of 2022 primarily due to historically high fuel margins in 2022 principally as a
34
result of the volatile market for gasoline and diesel fuel. In addition, a decrease in fuel contribution related to underperforming retail stores that were closed or converted to dealers decreased fuel profit compared to the third quarter of 2022.
For the three months ended September 30, 2023, merchandise contribution increased $21.8 million, or 15.7%, compared to the same period in 2022. The increase was due to $21.9 million in merchandise contribution from the 2023 Acquisitions and the Pride Acquisition and an increase in merchandise contribution at same stores of approximately $1.2 million. Merchandise margin increased 50 basis points, to 31.7% as compared to 31.2% in the prior period, primarily due to the execution of key marketing and merchandising initiatives. Merchandise margin at same stores was 31.5% in the third quarter of 2023 compared to 31.3% in the third quarter of 2022.
For the three months ended September 30, 2023, store operating expenses increased $30.2 million, or 17.2%, compared to the three months ended September 30, 2022 primarily due to $34.4 million of expenses related to the 2023 Acquisitions and the Pride Acquisition, which were partially offset by a decrease of $1.7 million in expenses at same stores, mainly driven by lower credit card fees. Same store personnel expenses were similar to the prior period, increasing by only $0.1 million, or 0.1%, as the Company has continued to appropriately balance labor expenses and providing superior customer service. The total increase in store operating expenses was also partially offset by underperforming retail stores that were closed or converted to dealers.
Nine Months Ended September 30, 2023 versus Nine Months Ended September 30, 2022
Retail Revenues
For the nine months ended September 30, 2023, fuel revenue decreased by $55.6 million, or 1.9%, compared to the first three quarters of 2022. The decrease in fuel revenue was attributable to a $0.49 per gallon decrease in the average retail price of fuel in the first three quarters of 2023 as compared to the first three quarters of 2022, primarily due to market factors, as well as a decrease in gallons sold at same stores. For the first three quarters of 2023, gallons at same stores decreased approximately 4.5%, or 33.7 million gallons. Offsetting these decreases, the 2023 Acquisitions and the Pride Acquisition contributed 134.3 million gallons sold, or $479.7 million in fuel revenue. Underperforming retail stores, which were closed or converted to dealers over the last 12 months in order to optimize profitability, also negatively impacted gallons sold during the first three quarters of 2023.
For the nine months ended September 30, 2023, merchandise revenue increased by $146.7 million, or 11.8%, compared to the first three quarters of 2022. The 2023 Acquisitions and the Pride Acquisition contributed approximately $151.2 million of merchandise revenue. Same store merchandise sales increased $16.9 million, or 1.4%, for the first three quarters of 2023 compared to the first three quarters of 2022. Same store merchandise sales increased primarily due to higher revenue from the Company’s six core destination categories, other tobacco products and franchises as a result of marketing initiatives, including expanded category assortments, new franchise food offerings and investments in coolers and freezers, which was partially offset by lower revenue from cigarettes. In addition, there was a decrease in merchandise revenue from underperforming retail stores that were closed or converted to dealers.
For the nine months ended September 30, 2023, other revenues, net increased by $7.7 million, or 15.4%, compared to the first three quarters of 2022, primarily related to additional income from the 2023 Acquisitions, the Pride Acquisition and greater lottery commissions.
Retail Operating Income
For the nine months ended September 30, 2023, fuel contribution increased compared to the same period in 2022. Incremental fuel profit from the 2023 Acquisitions and the Pride Acquisition of approximately $51.4 million (excluding intercompany charges by GPMP) was partially offset by a decrease in same store fuel contribution of $32.5 million (excluding intercompany charges by GPMP). Fuel margin per gallon at same stores for the first three quarters of 2023 decreased to 38.7 cents per gallon from 41.4 cents per gallon for the first three quarters of 2022 primarily due to historically high fuel margins in 2022 principally as a result of the volatile market for gasoline and diesel fuel, with the first quarter of 2022 particularly impacted by the war in Ukraine, which significantly affected market conditions and resulted in substantially higher fuel margins. A decrease in fuel profit related to underperforming retail stores that were closed or converted to dealers also partially offset the increase in fuel profit compared to the first three quarters of 2022.
For the nine months ended September 30, 2023, merchandise contribution increased $59.9 million, or 15.8%, compared to the same period in 2022, and merchandise margin increased to 31.5% as compared to 30.4% in the prior period. The increase was due to $48.8 million in merchandise contribution from the 2023 Acquisitions and the Pride Acquisition and an increase in merchandise contribution at same stores of $15.9 million. Merchandise contribution at same stores increased in the first three quarters of 2023 primarily due to higher contribution from the Company’s six core destination categories and franchises. Merchandise margin at same stores was 31.5% in the first three quarters of 2023 compared to 30.6% in the first three quarters of 2022.
35
For the nine months ended September 30, 2023, store operating expenses increased $78.6 million, or 15.7%, compared to the nine months ended September 30, 2022 primarily due to $79.2 million of expenses related to the 2023 Acquisitions and the Pride Acquisition and an increase of $7.5 million in expenses at same stores, including approximately $10.3 million or 5.2%, of higher personnel costs. The increase in store operating expenses was partially offset by underperforming retail stores that were closed or converted to dealers.
Wholesale Segment
The table below shows the results of the wholesale segment for the three and nine months ended September 30, 2023 and 2022, together with certain key metrics for the segment.
|
|
For the Three Months |
|
|
For the Nine Months |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Revenues: |
|
(in thousands) |
|
|||||||||||||
Fuel revenue |
|
$ |
843,891 |
|
|
$ |
827,436 |
|
|
$ |
2,339,878 |
|
|
$ |
2,521,567 |
|
Other revenues, net |
|
|
6,265 |
|
|
|
5,693 |
|
|
|
18,866 |
|
|
|
17,148 |
|
Total revenues |
|
|
850,156 |
|
|
|
833,129 |
|
|
|
2,358,744 |
|
|
|
2,538,715 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fuel costs |
|
|
830,121 |
|
|
|
812,336 |
|
|
|
2,305,098 |
|
|
|
2,479,618 |
|
Store operating expenses |
|
|
10,009 |
|
|
|
10,334 |
|
|
|
29,303 |
|
|
|
31,439 |
|
Total operating expenses |
|
|
840,130 |
|
|
|
822,670 |
|
|
|
2,334,401 |
|
|
|
2,511,057 |
|
Operating income |
|
$ |
10,026 |
|
|
$ |
10,459 |
|
|
$ |
24,343 |
|
|
$ |
27,658 |
|
Fuel gallons sold – fuel supply locations |
|
|
205,836 |
|
|
|
189,537 |
|
|
|
601,399 |
|
|
|
563,642 |
|
Fuel gallons sold – consignment agent locations |
|
|
45,365 |
|
|
|
41,145 |
|
|
|
127,861 |
|
|
|
115,138 |
|
Fuel margin, cents per gallon1 – fuel supply locations |
|
|
6.4 |
|
|
|
6.9 |
|
|
|
6.1 |
|
|
|
7.0 |
|
Fuel margin, cents per gallon1 – consignment agent locations |
|
|
28.9 |
|
|
|
32.7 |
|
|
|
26.9 |
|
|
|
31.4 |
|
1 Calculated as fuel revenue less fuel costs divided by fuel gallons sold; excludes the estimated fixed margin or fixed fee paid to GPMP for the cost of fuel.
The table below shows financial information and certain key metrics of recent acquisitions in the wholesale segment that do not have (or have only partial) comparable information for the prior periods.
|
For the Three Months Ended September 30, 2023 |
|
|
For the Nine Months Ended September 30, 2023 |
|
||||||||||||||||||||||||||
|
Quarles 1 |
|
|
TEG 2 |
|
|
WTG 3 |
|
|
Total |
|
|
Quarles 1 |
|
|
TEG 2 |
|
|
WTG 3 |
|
|
Total |
|
||||||||
|
(in thousands) |
|
|
|
|
||||||||||||||||||||||||||
Date of Acquisition: |
Jul 22, 2022 |
|
|
Mar 1, 2023 |
|
|
Jun 6, 2023 |
|
|
|
|
|
Jul 22, 2022 |
|
|
Mar 1, 2023 |
|
|
Jun 6, 2023 |
|
|
|
|
||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Fuel revenue |
$ |
20,381 |
|
|
$ |
92,575 |
|
|
$ |
2,796 |
|
|
$ |
115,752 |
|
|
$ |
57,708 |
|
|
$ |
214,629 |
|
|
$ |
3,444 |
|
|
$ |
275,781 |
|
Other revenues, net |
|
275 |
|
|
|
645 |
|
|
|
5 |
|
|
|
925 |
|
|
|
863 |
|
|
|
1,499 |
|
|
|
6 |
|
|
|
2,368 |
|
Total revenues |
|
20,656 |
|
|
|
93,220 |
|
|
|
2,801 |
|
|
|
116,677 |
|
|
|
58,571 |
|
|
|
216,128 |
|
|
|
3,450 |
|
|
|
278,149 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Fuel costs |
|
19,693 |
|
|
|
88,503 |
|
|
|
2,556 |
|
|
|
110,752 |
|
|
|
55,757 |
|
|
|
208,282 |
|
|
|
3,178 |
|
|
|
267,217 |
|
Store operating |
|
493 |
|
|
|
833 |
|
|
|
64 |
|
|
|
1,390 |
|
|
|
1,430 |
|
|
|
1,927 |
|
|
|
81 |
|
|
|
3,438 |
|
Total operating |
|
20,186 |
|
|
|
89,336 |
|
|
|
2,620 |
|
|
|
112,142 |
|
|
|
57,187 |
|
|
|
210,209 |
|
|
|
3,259 |
|
|
|
270,655 |
|
Operating income |
$ |
470 |
|
|
$ |
3,884 |
|
|
$ |
181 |
|
|
$ |
4,535 |
|
|
$ |
1,384 |
|
|
$ |
5,919 |
|
|
$ |
191 |
|
|
$ |
7,494 |
|
Fuel gallons sold |
|
5,861 |
|
|
|
31,666 |
|
|
|
789 |
|
|
|
38,316 |
|
|
|
17,304 |
|
|
|
77,653 |
|
|
|
1,007 |
|
|
|
95,964 |
|
1 Quarles Acquisition; includes only the wholesale business acquired in the Quarles Acquisition.
2 Includes only the wholesale business acquired in the TEG Acquisition.
3 Includes only the wholesale business acquired in the WTG Acquisition.
36
Three Months Ended September 30, 2023 versus Three Months Ended September 30, 2022
Wholesale Revenues
For the three months ended September 30, 2023, fuel revenue increased by $16.5 million, or 2.0%, compared to the third quarter of 2022. Wholesale revenues benefited from an 8.9% increase in gallons sold, which were partially offset by a decrease in the average price of fuel in the third quarter of 2023 as compared to the third quarter of 2022. Of total gallons sold, the 2023 Acquisitions and the Quarles Acquisition contributed approximately 33.3 million incremental gallons, which were offset by lower volumes at legacy wholesale sites.
Wholesale Operating Income
For the three months ended September 30, 2023, fuel contribution (excluding intercompany charges by GPMP) was similar to the third quarter of 2022. Approximately $5.8 million of total fuel contribution increase was attributable to the 2023 Acquisitions and the Quarles Acquisition. At fuel supply locations, fuel contribution increased by $0.1 million (excluding intercompany charges by GPMP), while fuel margin per gallon decreased for the third quarter of 2023 as compared to the third quarter of 2022, primarily due to decreased prompt pay discounts related to lower fuel costs and lower volumes at legacy wholesale sites, which was partially offset by the incremental contribution from the 2023 Acquisitions and the Quarles Acquisition. At consignment agent locations, fuel contribution decreased $0.3 million (excluding intercompany charges by GPMP), and fuel margin per gallon also decreased for the third quarter of 2023 as compared to the third quarter of 2022, primarily due to lower rack-to-retail margins and decreased prompt pay discounts related to lower fuel costs, which was partially offset by the incremental contribution from the 2023 Acquisitions and the Quarles Acquisition.
For the three months ended September 30, 2023, store operating expenses decreased $0.3 million compared to the three months ended September 30, 2022.
Nine Months Ended September 30, 2023 versus Nine Months Ended September 30, 2022
Wholesale Revenues
For the nine months ended September 30, 2023, fuel revenue decreased by $181.7 million, or 7.2%, compared to the nine months ended September 30, 2022. Wholesale revenues were negatively impacted by a decrease in the average price of fuel in the first three quarters of 2023 as compared to the first three quarters of 2022, which was partially offset by a 7.4% increase in gallons sold. Of total gallons sold, the 2023 Acquisitions and the Quarles Acquisition contributed approximately 90.9 million incremental gallons, which were offset by lower volumes at legacy wholesale sites.
Wholesale Operating Income
For the nine months ended September 30, 2023, fuel contribution decreased approximately $4.5 million (excluding intercompany charges by GPMP). Approximately $12.3 million of total fuel contribution increase was attributable to the 2023 Acquisitions and the Quarles Acquisition. At fuel supply locations, fuel contribution decreased by $2.8 million (excluding intercompany charges by GPMP), and fuel margin per gallon decreased for the first three quarters of 2023 as compared to the first three quarters of 2022, primarily due to decreased prompt pay discounts related to lower fuel costs and lower volumes at legacy wholesale sites, which was partially offset by the incremental contribution from the 2023 Acquisitions and the Quarles Acquisition. At consignment agent locations, fuel contribution decreased $1.7 million (excluding intercompany charges by GPMP) and fuel margin per gallon also decreased for the first three quarters of 2023 as compared to the first three quarters of 2022, primarily due to lower rack-to-retail margins and decreased prompt pay discounts related to lower fuel costs, which was partially offset by the incremental contribution from the 2023 Acquisitions and the Quarles Acquisition.
For the nine months ended September 30, 2023, store operating expenses decreased $2.1 million compared to the nine months ended September 30, 2022.
Fleet Fueling Segment
The table below shows the results of the fleet fueling segment for the three and nine months ended September 30, 2023 and 2022, together with certain key metrics for the segment. We added the fleet fueling segment only upon consummation of the Quarles
37
Acquisition on July 22, 2022; therefore, neither the three or nine months ended September 30, 2022 reflects the operations of this segment for the entirety of such period, which affects period-over-period comparability.
|
|
For the Three Months |
|
|
For the Nine Months |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Revenues: |
|
(in thousands) |
|
|||||||||||||
Fuel revenue |
|
$ |
145,496 |
|
|
$ |
120,813 |
|
|
$ |
394,136 |
|
|
$ |
120,813 |
|
Other revenues, net |
|
|
2,575 |
|
|
|
923 |
|
|
|
5,202 |
|
|
|
923 |
|
Total revenues |
|
|
148,071 |
|
|
|
121,736 |
|
|
|
399,338 |
|
|
|
121,736 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fuel costs |
|
|
133,037 |
|
|
|
111,162 |
|
|
|
356,703 |
|
|
|
111,162 |
|
Store operating expenses |
|
|
6,206 |
|
|
|
3,945 |
|
|
|
16,039 |
|
|
|
3,945 |
|
Total operating expenses |
|
|
139,243 |
|
|
|
115,107 |
|
|
|
372,742 |
|
|
|
115,107 |
|
Operating income |
|
$ |
8,828 |
|
|
$ |
6,629 |
|
|
$ |
26,596 |
|
|
$ |
6,629 |
|
Fuel gallons sold – proprietary cardlock locations |
|
|
34,277 |
|
|
|
26,064 |
|
|
|
97,710 |
|
|
|
26,064 |
|
Fuel gallons sold – third-party cardlock locations |
|
|
2,985 |
|
|
|
1,297 |
|
|
|
6,631 |
|
|
|
1,297 |
|
Fuel margin, cents per gallon1 – proprietary cardlock locations |
|
|
39.4 |
|
|
|
41.8 |
|
|
|
42.5 |
|
|
|
41.8 |
|
Fuel margin, cents per gallon1 – third-party cardlock locations |
|
|
26.6 |
|
|
|
4.8 |
|
|
|
14.6 |
|
|
|
4.8 |
|
1 Calculated as fuel revenue less fuel costs divided by fuel gallons sold; excludes the estimated fixed fee charged by GPMP to sites in the fleet fueling segment.
The table below shows financial information and certain key metrics of recent acquisitions in the fleet fueling segment that do not have (or have only partial) comparable information for the prior periods.
|
For the Three Months Ended September 30, 2023 |
|
|
For the Nine Months Ended September 30, 2023 |
|
||||||||||||||||||
|
Quarles 1 |
|
|
WTG 2 |
|
|
Total |
|
|
Quarles 1 |
|
|
WTG 2 |
|
|
Total |
|
||||||
|
(in thousands) |
|
|
|
|
||||||||||||||||||
Date of Acquisition: |
Jul 22, 2022 |
|
|
Jun 6, 2023 |
|
|
|
|
|
Jul 22, 2022 |
|
|
Jun 6, 2023 |
|
|
|
|
||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Fuel revenue |
$ |
127,305 |
|
|
$ |
18,191 |
|
|
$ |
145,496 |
|
|
$ |
370,785 |
|
|
$ |
23,351 |
|
|
$ |
394,136 |
|
Other revenues, net |
|
1,309 |
|
|
|
1,266 |
|
|
|
2,575 |
|
|
|
3,900 |
|
|
|
1,302 |
|
|
|
5,202 |
|
Total revenues |
|
128,614 |
|
|
|
19,457 |
|
|
|
148,071 |
|
|
|
374,685 |
|
|
|
24,653 |
|
|
|
399,338 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Fuel costs |
|
117,228 |
|
|
|
15,809 |
|
|
|
133,037 |
|
|
|
336,522 |
|
|
|
20,181 |
|
|
|
356,703 |
|
Store operating expenses |
|
5,255 |
|
|
|
951 |
|
|
|
6,206 |
|
|
|
14,960 |
|
|
|
1,079 |
|
|
|
16,039 |
|
Total operating expenses |
|
122,483 |
|
|
|
16,760 |
|
|
|
139,243 |
|
|
|
351,482 |
|
|
|
21,260 |
|
|
|
372,742 |
|
Operating income |
$ |
6,131 |
|
|
$ |
2,697 |
|
|
$ |
8,828 |
|
|
$ |
23,203 |
|
|
$ |
3,393 |
|
|
$ |
26,596 |
|
Fuel gallons sold |
|
32,522 |
|
|
|
4,740 |
|
|
|
37,262 |
|
|
|
98,136 |
|
|
|
6,205 |
|
|
|
104,341 |
|
1 Includes only the fleet fueling business acquired in the Quarles Acquisition.
2 Includes only the fleet fueling business acquired in the WTG Acquisition.
Three Months Ended September 30, 2023 versus Three Months Ended September 30, 2022
Fleet Fueling Revenues
For the three months ended September 30, 2023, fuel revenue increased by $24.7 million, or 20.4%, compared to third quarter of 2022. Fleet fueling revenues benefited from a 36.2% increase in gallons sold, including the effect of a full quarter of the operations acquired in the Quarles Acquisition and the WTG Acquisition, which were partially offset by a decrease in the average price of fuel in the third quarter of 2023 as compared to the third quarter of 2022.
Fleet Fueling Operating Income
For the three months ended September 30, 2023, fuel contribution increased by $3.3 million compared to third quarter of 2022 (excluding intercompany charges by GPMP). At proprietary cardlocks, fuel contribution increased by $2.6 million (excluding intercompany charges by GPMP), while fuel margin per gallon decreased for the third quarter of 2023 as compared to the third quarter
38
of 2022. At third-party cardlock locations, fuel contribution increased $0.7 million (excluding intercompany charges by GPMP), and fuel margin per gallon also increased for the third quarter of 2023 as compared to the third quarter of 2022. These changes were primarily due to higher volumes and the cardlocks acquired in the WTG Acquisition.
For the three months ended September 30, 2023, store operating expenses increased $2.3 million compared to the three months ended September 30, 2022 due to the effect of a full quarter of the operations acquired in the Quarles Acquisition and the recent WTG Acquisition.
Nine Months Ended September 30, 2023 versus Nine Months Ended September 30, 2022
Fleet Fueling Revenues
For the nine months ended September 30, 2023, fuel revenue increased by $273.3 million compared to the nine months ended September 30, 2022. Fleet fueling revenues benefited from an increase in gallons sold, including the effect of the operations acquired in the Quarles Acquisition and the WTG Acquisition, which were partially offset by a decrease in the average price of fuel in the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022.
Fleet Fueling Operating Income
For the nine months ended September 30, 2023, fuel contribution increased by $31.6 million compared to the nine months ended September 30, 2022 (excluding intercompany charges by GPMP). At proprietary cardlocks, fuel contribution increased by $30.7 million (excluding intercompany charges by GPMP), and fuel margin per gallon also increased for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. At third-party cardlock locations, fuel contribution increased $0.9 million (excluding intercompany charges by GPMP), and fuel margin per gallon also increased for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. These increases were primarily due to nine months of operation for the Quarles Acquisition and the cardlocks acquired in the recent WTG Acquisition.
For the nine months ended September 30, 2023, store operating expenses increased $12.1 million compared to the nine months ended September 30, 2022 due to the addition of the Quarles Acquisition and the WTG Acquisition.
GPMP Segment
The table below shows the results of the GPMP segment for the three and nine months ended September 30, 2023 and 2022, together with certain key metrics for the segment.
|
|
For the Three Months |
|
|
For the Nine Months |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Revenues: |
|
(in thousands) |
|
|||||||||||||
Fuel revenue - inter-segment |
|
$ |
1,469,454 |
|
|
$ |
1,443,638 |
|
|
$ |
3,973,560 |
|
|
$ |
4,457,602 |
|
Fuel revenue - external customers |
|
|
1,044 |
|
|
|
1,437 |
|
|
|
2,842 |
|
|
|
4,170 |
|
Other revenues, net |
|
|
253 |
|
|
|
261 |
|
|
|
700 |
|
|
|
773 |
|
Other revenues, net - inter-segment |
|
|
2,862 |
|
|
|
1,434 |
|
|
|
8,164 |
|
|
|
1,434 |
|
Total revenues |
|
|
1,473,613 |
|
|
|
1,446,770 |
|
|
|
3,985,266 |
|
|
|
4,463,979 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fuel costs |
|
|
1,443,902 |
|
|
|
1,420,830 |
|
|
|
3,900,688 |
|
|
|
4,390,484 |
|
General and administrative expenses |
|
|
854 |
|
|
|
709 |
|
|
|
2,407 |
|
|
|
2,174 |
|
Depreciation and amortization |
|
|
1,841 |
|
|
|
1,843 |
|
|
|
5,525 |
|
|
|
5,527 |
|
Total operating expenses |
|
|
1,446,597 |
|
|
|
1,423,382 |
|
|
|
3,908,620 |
|
|
|
4,398,185 |
|
Operating income |
|
$ |
27,016 |
|
|
$ |
23,388 |
|
|
$ |
76,646 |
|
|
$ |
65,794 |
|
Fuel gallons sold - inter-segment |
|
|
531,899 |
|
|
|
484,734 |
|
|
|
1,514,168 |
|
|
|
1,424,201 |
|
Fuel gallons sold - external customers |
|
|
361 |
|
|
|
443 |
|
|
|
1,041 |
|
|
|
1,270 |
|
Fuel margin, cents per gallon1 |
|
|
5.0 |
|
|
|
5.0 |
|
|
|
5.0 |
|
|
|
5.0 |
|
1 Calculated as fuel revenue less fuel costs divided by fuel gallons sold.
39
Three Months Ended September 30, 2023 versus Three Months Ended September 30, 2022
GPMP Revenues
For the three months ended September 30, 2023, fuel revenue increased by $25.4 million compared to the third quarter of 2022. The increase in fuel revenue was attributable to an increase in gallons sold as compared to the third quarter of 2022, which was partially offset by a decrease in the average price of fuel.
For the three months ended September 30, 2023 and 2022, other revenues, net were each $0.3 million and primarily related to rental income from certain sites leased to dealers. Inter-segment other revenues, net related to the fixed fee primarily charged to sites in the fleet fueling segment (currently 5.0 cents per gallon sold).
GPMP Operating Income
Fuel margin increased by $2.4 million for the third quarter of 2023, as compared to the third quarter of 2022, primarily due to greater gallons sold to the retail and wholesale segments at a fixed margin.
For the three months ended September 30, 2023, total general, administrative, depreciation and amortization expenses were similar with those in the comparable prior year period.
Nine Months Ended September 30, 2023 versus Nine Months Ended September 30, 2022
GPMP Revenues
For the nine months ended September 30, 2023, fuel revenue decreased by $485.4 million compared to the nine months ended September 30, 2022. The decrease in fuel revenue was attributable to a decrease in the average price of fuel, which was partially offset by an increase in gallons sold as compared to the first three quarters of 2022.
For the nine months ended September 30, 2023 and 2022, other revenues, net were $0.7 million and $0.8 million, respectively, and primarily related to rental income from certain sites leased to dealers. Inter-segment other revenues, net related to the fixed fee primarily charged to sites in the fleet fueling segment (currently 5.0 cents per gallon sold), which began in July 2022.
GPMP Operating Income
Fuel margin increased by $4.4 million for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, primarily due to greater gallons sold to the retail and wholesale segments at a fixed margin.
For the nine months ended September 30, 2023, total general, administrative, depreciation and amortization expenses increased slightly from those in the comparable prior year period.
Use of Non-GAAP Measures
We disclose certain measures on a “same store basis,” which is a non-GAAP measure. Information disclosed on a “same store basis” excludes the results of any store that is not a “same store” for the applicable period. A store is considered a same store beginning in the first quarter in which the store had a full quarter of activity in the prior year. We believe that this information provides greater comparability regarding our ongoing operating performance. Neither this measure nor those described below should be considered an alternative to measurements presented in accordance with generally accepted accounting principles in the United States (“GAAP”).
We define EBITDA as net income before net interest expense, income taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA by excluding the gain or loss on disposal of assets, impairment charges, acquisition costs, other non-cash items, and other unusual or non-recurring charges. Each of EBITDA and Adjusted EBITDA is a non-GAAP financial measure.
We use EBITDA and Adjusted EBITDA for operational and financial decision-making and believe these measures are useful in evaluating our performance because they eliminate certain items that we do not consider indicators of our operating performance. EBITDA and Adjusted EBITDA are also used by many of our investors, securities analysts, and other interested parties in evaluating our operational and financial performance across reporting periods. We believe that the presentation of EBITDA and Adjusted EBITDA provides useful information to investors by allowing an understanding of key measures that we use internally for operational decision-making, budgeting, evaluating acquisition targets, and assessing our operating performance.
EBITDA and Adjusted EBITDA are not recognized terms under GAAP and should not be considered as a substitute for net income or any other financial measure presented in accordance with GAAP. These measures have limitations as analytical tools, and
40
should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP. We strongly encourage investors to review our financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.
Because non-GAAP financial measures are not standardized, same store measures, EBITDA and Adjusted EBITDA, as defined by us, may not be comparable to similarly titled measures reported by other companies. It therefore may not be possible to compare our use of these non-GAAP financial measures with those used by other companies.
The following table contains a reconciliation of net income to EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 2023 and 2022.
|
|
For the Three Months |
|
|
For the Nine Months |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Net income |
|
$ |
21,488 |
|
|
$ |
24,994 |
|
|
$ |
33,440 |
|
|
$ |
59,118 |
|
Interest and other financing expenses, net |
|
|
14,579 |
|
|
|
19,796 |
|
|
|
48,341 |
|
|
|
43,110 |
|
Income tax expense |
|
|
7,993 |
|
|
|
20,898 |
|
|
|
10,849 |
|
|
|
31,060 |
|
Depreciation and amortization |
|
|
33,713 |
|
|
|
26,061 |
|
|
|
94,949 |
|
|
|
75,050 |
|
EBITDA |
|
|
77,773 |
|
|
|
91,749 |
|
|
|
187,579 |
|
|
|
208,338 |
|
Non-cash rent expense (a) |
|
|
3,860 |
|
|
|
1,977 |
|
|
|
10,418 |
|
|
|
5,714 |
|
Acquisition costs (b) |
|
|
1,127 |
|
|
|
1,673 |
|
|
|
7,980 |
|
|
|
3,177 |
|
Loss on disposal of assets and impairment charges (c) |
|
|
2,265 |
|
|
|
1,418 |
|
|
|
5,543 |
|
|
|
3,389 |
|
Share-based compensation expense (d) |
|
|
4,614 |
|
|
|
3,145 |
|
|
|
13,238 |
|
|
|
9,027 |
|
Loss from equity investment (e) |
|
|
14 |
|
|
|
44 |
|
|
|
77 |
|
|
|
7 |
|
Adjustment to contingent consideration (f) |
|
|
952 |
|
|
|
(1,550 |
) |
|
|
(672 |
) |
|
|
(2,076 |
) |
Internal entity realignment and streamlining (g) |
|
|
— |
|
|
|
408 |
|
|
|
— |
|
|
|
408 |
|
Other (h) |
|
|
558 |
|
|
|
604 |
|
|
|
726 |
|
|
|
637 |
|
Adjusted EBITDA |
|
$ |
91,163 |
|
|
$ |
99,468 |
|
|
$ |
224,889 |
|
|
$ |
228,621 |
|
Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operations, availability under our credit facilities and our cash balances. Our principal liquidity requirements are the financing of current operations, funding capital expenditures, including acquisitions, and servicing debt. We finance our inventory purchases primarily from customary trade credit aided by relatively rapid inventory turnover, as well as cash generated from operations. Rapid inventory turnover allows us to conduct operations without the need for large amounts of cash and working capital. We largely rely on internally generated cash flows and borrowings, which we believe are sufficient to meet our liquidity needs for the foreseeable future.
41
Our ability to meet our debt service obligations and other capital requirements, including capital expenditures, as well as the cost of acquisitions, will depend on our future operating performance which, in turn, will be subject to general economic, financial, business, competitive, legislative, regulatory and other conditions, many of which are beyond our control. As a normal part of our business, depending on market conditions, we will from time to time consider opportunities to repay, redeem, repurchase or refinance our indebtedness. Changes in our operating plans, lower than anticipated sales, increased expenses, acquisitions, or other events may cause us to seek additional debt or equity financing in future periods. Additional debt financing could impose increased cash payment obligations, as well as covenants that may restrict our operations. There can be no guarantee that financing will be available on acceptable terms or at all.
As of September 30, 2023, we were in a strong liquidity position of approximately $827 million, consisting of approximately $204 million of cash and cash equivalents and approximately $623 million of availability under our lines of credit. This liquidity position currently provides us with adequate funding to satisfy our contractual and other obligations from our existing cash balances. As of September 30, 2023, we had no outstanding borrowings under our $140 million PNC Line of Credit (as defined below), $29.4 million of unused availability under the M&T equipment line of credit, described below, and $461.2 million of unused availability under our $800 million Capital One Line of Credit (as defined below), which we may elect to increase to $1.0 billion, subject to obtaining additional financing commitments from current lenders or other banks, and subject to certain other terms.
The Board declared, and the Company paid, dividends of $0.03 per share of common stock on each of March 21, 2023, June 1, 2023 and September 1, 2023, totaling approximately $10.8 million. Additionally, the Board declared a quarterly dividend of $0.03 per share of common stock, to be paid on December 1, 2023 to stockholders of record as of November 17, 2023. The amount and timing of dividends payable on our common stock are within the sole discretion of our Board, which will evaluate dividend payments within the context of our overall capital allocation strategy on an ongoing basis, giving consideration to our current and forecast earnings, financial condition, cash requirements and other factors. There can be no assurance that we will continue to pay such dividends or the amounts of such dividends.
In May 2023, we announced that our Board authorized an increase to our share repurchase program from $50.0 million to up to an aggregate of $100.0 million of our outstanding shares of common stock. During the nine months ended September 30, 2023, we repurchased approximately 3.1 million shares of common stock under the repurchase program for approximately $23.5 million, or an average share price of $7.55. The share repurchase program does not have a stated expiration date. Whether and the extent to which we repurchase shares depends on a number of factors, including our financial condition, capital requirements, cash flows, results of operations, future business prospects and other factors management may deem relevant. The timing, volume, and nature of repurchases are subject to market conditions, applicable securities laws, and other factors, and the program may be amended, suspended or discontinued at any time. Repurchases may be effected from time to time through open market purchases, including pursuant to a pre-set trading plan meeting the requirements of Rule 10b5-1(c)of the Exchange Act, privately negotiated transactions, pursuant to accelerated share repurchase agreements entered into with one or more counterparties, or otherwise.
To date, we have funded capital expenditures primarily through funds generated from operations, funds received from vendors, sale-leaseback transactions, the issuance of debt, and existing cash. Future capital required to finance operations, acquisitions, and raze-and-rebuild, functionally and fully remodel and update stores is expected to come from cash on hand, cash generated by operations, availability under lines of credit, and additional long-term debt and equipment leases, as circumstances may dictate. In both the short-term and long-term, we currently expect that our capital spending program will be primarily focused on expanding our store base through acquisitions, razing-and-rebuilding, remodeling and updating stores, and maintaining our owned properties and equipment, including upgrading all fuel dispensers to be EMV-compliant. We expect to spend a total of approximately $4.5 million in the current year to upgrade substantially all our fuel dispensers to be EMV-compliant. We do not expect such capital needs to adversely affect liquidity.
Cash Flows for the Nine Months Ended September 30, 2023 and 2022
Net cash provided by (used in) operating activities, investing activities and financing activities for the nine months ended September 30, 2023 and 2022 was as follows:
42
|
|
For the Nine Months Ended September 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands) |
|
|||||
Net cash provided by (used in): |
|
|
|
|
|
|
||
Operating activities |
|
$ |
78,807 |
|
|
$ |
139,763 |
|
Investing activities |
|
|
(263,446 |
) |
|
|
(64,793 |
) |
Financing activities |
|
|
88,393 |
|
|
|
(49,835 |
) |
Effect of exchange rates |
|
|
(83 |
) |
|
|
(109 |
) |
Total |
|
$ |
(96,329 |
) |
|
$ |
25,026 |
|
Operating Activities
Cash flows provided by operations are our main source of liquidity. We have historically relied primarily on cash provided by operating activities, supplemented as necessary from time to time by borrowings on our credit facilities and other debt or equity transactions to finance our operations and to fund our capital expenditures. Cash flow provided by operating activities is primarily impacted by our net income and changes in working capital.
For the nine months ended September 30, 2023, cash flows provided by operating activities were $78.8 million compared to $139.8 million for the nine months ended September 30, 2022. The decrease was primarily the result of approximately $12.4 million of higher net interest payments, approximately $22.9 million of higher net tax payments and a technical delay in receiving approximately $12.1 million from a routine credit card processor, as well as a decrease in Adjusted EBITDA of $3.7 million.
Investing Activities
Cash flows used in investing activities primarily reflect capital expenditures for acquisitions and replacing and maintaining existing facilities and equipment used in the business.
For the nine months ended September 30, 2023, cash used in investing activities increased by $198.7 million compared to the nine months ended September 30, 2022. For the nine months ended September 30, 2023, we utilized $75.6 million for capital expenditures, including the purchase of certain fee properties, upgrades to fuel dispensers and other investments in our stores. The net consideration paid by us for our recent acquisitions $111.5 million, reflecting $494.9 million in aggregate purchase consideration, offset by $383.4 million paid by Oak Street.
Financing Activities
Cash flows from financing activities primarily consist of increases and decreases in the principal amount of our lines of credit and debt, distributions to non-controlling interests and issuance of common and preferred stock, net of dividends paid and common stock repurchases.
For the nine months ended September 30, 2023, financing activities consisted primarily of net receipts of $62.3 million for long-term debt, $80.4 million of consideration paid by Oak Street related to the 2023 Acquisitions, which transactions with Oak Street were accounted for as sale-leasebacks (see Note 3 to our condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q), payment of $9.8 million for the Ares Put Option, repayments of $4.2 million for financing leases, $10.8 million for dividend payments on common stock, $4.3 million for dividend payments on the Series A redeemable preferred stock and $25.2 million for common stock repurchases.
Credit Facilities and Senior Notes
Senior Notes
The Company has $450 million aggregate principal amount of 5.125% Senior Notes due 2029 (the “Senior Notes”). The Senior Notes are guaranteed, on an unsecured senior basis, by certain of the Company’s wholly owned domestic subsidiaries (the “Guarantors”). The indenture governing the Senior Notes contains customary restrictive covenants that, among other things, generally limit the ability of the Company and substantially all of its subsidiaries to (i) create liens, (ii) pay dividends, acquire shares of capital stock and make payments on subordinated debt, (iii) place limitations on distributions from certain subsidiaries, (iv) issue or sell the capital stock of certain subsidiaries, (v) sell assets, (vi) enter into transactions with affiliates, (vii) effect mergers and (viii) incur indebtedness. The Senior Notes and the guarantees rank equally in right of payment with all of the Company’s and the Guarantors’ respective existing and future senior unsubordinated indebtedness and are effectively subordinated to all of the Company’s and the
43
Guarantors’ existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness; and are structurally subordinated to any existing and future obligations of subsidiaries of the Company that are not Guarantors.
Financing Agreement with PNC
GPM and certain subsidiaries have a financing arrangement (as amended, the “PNC Credit Agreement”) with PNC Bank National Association (“PNC”) to provide a line of credit with an aggregate principal amount of up to $140 million for purposes of financing working capital (the “PNC Line of Credit”).
The PNC Line of Credit bears interest, as elected by GPM at: (a) SOFR Adjusted plus Term SOFR (as defined in the PNC Credit Agreement) plus a margin of 1.25% to 1.75% or (b) a rate per annum equal to the alternate base rate (as defined in the PNC Credit Agreement) plus a margin of 0% to 0.50%. Every quarter, the SOFR margin rate and the alternate base rate margin rate are updated based on the quarterly average undrawn availability of the line of credit. The calculation of the availability under the PNC Line of Credit is determined monthly subject to terms and limitations as set forth in the PNC Credit Agreement, taking into account the balances of receivables, inventory and letters of credit, among other things. As of September 30, 2023, $7.3 million of letters of credit were outstanding under the PNC Credit Agreement.
Financing Agreements with M&T Bank
GPM has a financing arrangement with M&T Bank to provide a line of credit for up to $45.0 million to purchase equipment on or before September 2026, and which line may be borrowed in tranches as described below, and an aggregate principal amount of $35.0 million of a real estate loan (the “M&T Term Loan”). As of September 30, 2023, approximately $29.4 million remained available under the line of credit.
Each additional equipment loan tranche will have a term of up to five years from the date it is advanced, payable in equal monthly payments of principal plus interest of SOFR (as defined in the agreement) plus 2.75%. The M&T Term Loan bears interest at SOFR Adjusted (as defined in the agreement) plus 3.00%, matures in June 2026 and is payable in monthly installments based on a fifteen-year amortization schedule, with the balance of the loan payable at maturity.
Financing agreement with a syndicate of banks led by Capital One, National Association (“Capital One”)
GPMP has a revolving credit facility with a syndicate of banks led by Capital One, National Association, in an aggregate principal amount of up to $800 million (the “Capital One Line of Credit”). At GPMP’s request, the Capital One Line of Credit can be increased up to $1.0 billion, subject to obtaining additional financing commitments from current lenders or from other banks, and subject to certain terms as detailed in the Capital One Line of Credit. The revolving credit facility matures on May 5, 2028. As of September 30, 2023, approximately $338.3 million was drawn on the Capital One Line of Credit, $0.5 million of letters of credit were outstanding under the Capital One Line of Credit and approximately $461.2 million was available thereunder.
The Capital One Line of Credit bears interest, as elected by GPMP at: (a) Adjusted Term SOFR (as defined in the agreement) plus a margin of 2.25% to 3.25% or (b) a rate per annum equal to the alternate base rate (as defined in the agreement) plus a margin of 1.25% to 2.25%. The margin is determined according to a formula in the Capital One Line of Credit that depends on GPMP’s leverage.
Critical Accounting Policies and Estimates
For the nine months ended September 30, 2023, there were no material changes to our critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 that have had a material impact on our condensed consolidated financial statements and related notes.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Commodity Price Risk
We have limited exposure to commodity price risk as a result of the payment and volume-related discounts in certain of our fuel supply contracts with our fuel suppliers, which are based on the market price of motor fuel. Significant increases in fuel prices could result in significant increases in the retail price of fuel and in lower sales to consumers and dealers. When fuel prices rise, some of our dealers may have insufficient credit to purchase fuel from us at their historical volumes. In addition, significant and persistent increases in the retail price of fuel could also diminish consumer demand, which could subsequently diminish the volume of fuel we distribute. A significant percentage of our sales are made with the use of credit cards. Because the interchange fees we pay when credit cards are used to make purchases are based on transaction amounts, higher fuel prices at the pump and higher gallon movements result
44
in higher credit card expenses. These additional fees increase operating expenses. In connection with the Quarles Acquisition, we began to make use of derivative commodity instruments to manage risks associated with an immaterial number of gallons designed to offset changes in the price of fuel that are directly tied to firm commitments to purchase diesel fuel.
Interest Rate Risk
We may be subject to market risk from exposure to changes in interest rates based on our financing, investing, and cash management activities. The Senior Notes bear a fixed interest rate, therefore, an increase or decrease in prevailing interest rates has no impact on our debt service for the Senior Notes. As of September 30, 2023, the interest rate on our Capital One Line of Credit was 7.9%, the interest rate on our M&T Term Loan was 8.4% and the interest rate on our variable M&T equipment loan was 8.1%. As of September 30, 2022, the interest rate on our Capital One Line of Credit was 5.1% and the interest rate on our M&T Term Loan was 6.2%. As of September 30, 2023, approximately 44% of our debt bore interest at variable rates. If our applicable interest rates increase by 1%, then our debt service on an annual basis would increase by approximately $3.7 million. Interest rates on commercial bank borrowings and debt offerings could be higher than current levels, causing our financing costs to increase accordingly. Although this could limit our ability to raise funds in the debt capital markets, we expect to remain competitive with respect to acquisitions and capital projects, as our competitors would likely face similar circumstances.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. The disclosure controls and procedures related to the TEG Acquisition we closed on March 1, 2023 were excluded from the evaluation of effectiveness of the Company’s disclosure controls and procedures as of September 30, 2023, due to the timing of this acquisition. This acquisition’s total assets constituted approximately 11% of the Company’s total assets as of September 30, 2023, and represented approximately 8% of the Company’s revenue for the nine months ended September 30, 2023. Based on management’s evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2023.
Changes to the Company’s Internal Control Over Financial Reporting
There have been no changes to the Company’s internal control over financial reporting that occurred during the calendar quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
45
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
During the reporting period covered by this Quarterly Report on Form 10-Q, there have been no material changes to the description of legal proceedings as set forth in our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 1A. Risk Factors
During the reporting period covered by this Quarterly Report on Form 10-Q, there have been no material changes to our risk factors as set forth in our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table presents our share repurchase activity for the quarter ended September 30, 2023 (dollars in thousands, except per share amounts):
Period |
|
Total Number of Shares Purchased |
|
|
Average Price Paid per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) |
|
|
Maximum Dollar Value that May Yet Be Purchased Under the Plans or Programs (1) |
|
||||
|
|
|
|
|
|
|
|
|
|
|||||||
July 1, 2023 to July 31, 2023 |
|
|
179,491 |
|
|
$ |
7.96 |
|
|
|
179,491 |
|
|
$ |
47,643 |
|
August 1, 2023 to August 31, 2023 |
|
|
292,640 |
|
|
|
7.66 |
|
|
|
292,640 |
|
|
|
45,402 |
|
September 1, 2023 to September 30, 2023 |
|
|
1,068,511 |
|
|
|
7.43 |
|
|
|
1,068,511 |
|
|
|
37,468 |
|
Total |
|
|
1,540,642 |
|
|
$ |
7.53 |
|
|
|
1,540,642 |
|
|
$ |
37,468 |
|
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
During the three months ended September 30, 2023, none of our officers or directors
46
Item 6. Exhibits
Exhibit 10.1 |
|
|
|
|
|
Exhibit 31.1 |
|
|
|
|
|
Exhibit 31.2 |
|
|
|
|
|
Exhibit 32.1 |
|
|
|
|
|
Exhibit 32.2 |
|
|
|
|
|
101 |
|
The following financial statements from the Company’s Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Changes in Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements |
|
|
|
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 6, 2023 |
|
ARKO Corp. |
|
|
|
|
By: |
/s/ Arie Kotler |
|
Name: |
Arie Kotler |
|
Title: |
President, Chief Executive Officer and Chairman of the Board |
|
|
(on behalf of the Registrant and as Principal Executive Officer) |
48