10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023.


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number 001-39828

ARKO Corp.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		85-2784337
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

8565 Magellan Parkway

Suite 400

Richmond, Virginia 23227-1150

(Address of Principal Executive Offices) (Zip Code)

(804) 730-1568

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value per share	ARKO	Nasdaq Capital Market
Warrants to purchase common stock	ARKOW	Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ NO

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ☐ YES ☒ NO

As of November 3, 2023, the registrant had 116,809,202 shares of its common stock, par value $0.0001 per share (“common stock”) outstanding.

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TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	5
	Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 (unaudited)	5
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022 (unaudited)	6
	Condensed Consolidated Statements of Changes in Equity for the three and nine months ended September 30, 2023 and 2022 (unaudited)	7
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (unaudited)	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	45
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosures	46
Item 5.	Other Information	46
Item 6.	Exhibits	47
Signatures		48

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements,” as that term is defined under the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements about our expectations, beliefs or intentions regarding our product development efforts, business, financial condition, results of operations, strategies or prospects. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described below and in “Item 1A-Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022 and this Quarterly Report on Form 10-Q, and described from time to time in our other filings with the Securities and Exchange Commission (the “SEC”). We do not undertake any obligation to update forward-looking statements, except to the extent required by applicable law. We intend that all forward-looking statements be subject to the safe-harbor provisions of the PSLRA. These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance.

Risks and uncertainties, the occurrence of which could adversely affect our business, include the following:

•

changes in economic conditions and consumer confidence in the United States;

•

our ability to make acquisitions on economically acceptable terms;

•

our ability to successfully integrate acquired operations or otherwise realize the expected benefits from our acquisitions;

•

our ability to successfully implement our growth strategies;

•

labor, raw materials and building supply shortages and price fluctuations in the construction industry could delay or increase the costs of our store upgrade and remodel programs and our maintenance capital expenditures;

•

changes in the wholesale prices of motor fuel;

•

significant changes in the current consumption of, and related regulations and litigation related to, cigarettes and other tobacco products;

•

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

•

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

•

negative events or developments associated with branded motor fuel suppliers;

•

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

•

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

•

the retail sale, distribution, transportation and storage of motor fuels is subject to environmental protection and operational safety laws and regulations that may expose us or our customers to significant costs and liabilities;

•

business disruption and related risks resulting from global pandemics;

•

failure to comply with applicable laws and regulations;

•

the loss of key senior management personnel or the failure to recruit or retain qualified personnel;

•

unfavorable weather conditions;

•

we may be held liable for fraudulent credit card transactions;

•

payment-related risks that may result in higher operating costs or the inability to process payments;

•

significant disruptions of information technology systems, breaches of data security or compromised data;

•

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

•

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

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•

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

•

our dependence on third-party transportation providers for the transportation of most of our motor fuel;

•

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

•

our variable rate debt;

•

the agreements governing our indebtedness contain various restrictions and financial covenants;

•

our principal stockholders and management control us, and their interests may conflict with yours;

•

our corporate structure includes Israeli subsidiaries that may have adverse tax consequences and expose us to additional tax liabilities;

•

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

•

the market price and trading volume of our common stock may be volatile and could decline significantly;

•

if securities or industry analysts do not publish research, publish inaccurate or unfavorable research, or cease publishing research about us or the convenience store industry; and

•

sales of a substantial number of shares of our common stock in the public market could cause the prices of our common stock to decline.

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PART I. FINANCIAL INFORMATION

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

Item 1. Financial Statements

ARKO Corp.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands, except share data)


	September 30, 2023			December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	204,237		$	298,529
Restricted cash		16,203			18,240
Short-term investments		3,375			2,400
Trade receivables, net		179,529			118,140
Inventory		266,061			221,951
Other current assets		116,835			87,873
Total current assets		786,240			747,133
Non-current assets:
Property and equipment, net		760,391			645,809
Right-of-use assets under operating leases		1,408,208			1,203,188
Right-of-use assets under financing leases, net		179,490			182,113
Goodwill		278,261			217,297
Intangible assets, net		212,807			197,123
Equity investment		2,847			2,924
Deferred tax asset		47,107			22,728
Other non-current assets		44,433			36,855
Total assets	$	3,719,784		$	3,255,170
Liabilities
Current liabilities:
Long-term debt, current portion	$	15,947		$	11,944
Accounts payable		249,406			217,370
Other current liabilities		187,943			154,097
Operating leases, current portion		65,433			57,563
Financing leases, current portion		9,213			5,457
Total current liabilities		527,942			446,431
Non-current liabilities:
Long-term debt, net		812,166			740,043
Asset retirement obligation		80,442			64,909
Operating leases		1,414,609			1,218,045
Financing leases		228,424			225,907
Other non-current liabilities		269,401			178,945
Total liabilities		3,332,984			2,874,280
Commitments and contingencies - see Note 12
Series A redeemable preferred stock (no par value) - authorized: 1,000,000 shares; issued and outstanding: 1,000,000 and 1,000,000 shares, respectively; redemption value: $100,000 and $100,000, in the aggregate respectively		100,000			100,000
Shareholders' equity:
Common stock (par value $0.0001) - authorized: 400,000,000 shares; issued: 125,268,525 and 124,727,496 shares, respectively; outstanding: 117,301,820 and 120,074,542 shares, respectively		12			12
Treasury stock, at cost - 7,966,705 and 4,652,954 shares, respectively		(65,554	)		(40,042	)
Additional paid-in capital		243,271			229,995
Accumulated other comprehensive income		9,119			9,119
Retained earnings		99,965			81,750
Total shareholders' equity		286,813			280,834
Non-controlling interest		(13	)		56
Total equity		286,800			280,890
Total liabilities, redeemable preferred stock and equity	$	3,719,784		$	3,255,170

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

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ARKO Corp.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except per share data)


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2023			2022			2023			2022
Revenues:
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 income		9,371			2,676			18,897			2,509
Interest and other financial expenses		(23,950	)		(22,472	)		(67,238	)		(45,619	)
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
Net income per share attributable to common shareholders - basic	$	0.17		$	0.20		$	0.24		$	0.45
Net income per share attributable to common shareholders - diluted	$	0.17		$	0.17		$	0.24		$	0.43
Weighted average shares outstanding:
Basic		118,389			120,074			119,505			121,950
Diluted		120,292			130,388			120,602			123,527

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

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ARKO Corp.

Condensed Consolidated Statements of Changes in Equity

(Unaudited, in thousands, except share data)


	Common Stock					Treasury			Additional		Accumulated Other		Retained			Total			Non-
	Shares			Par Value		Stock, at Cost			Paid-in Capital		Comprehensive Income		Earnings			Shareholders' Equity			Controlling Interests			Total Equity
Balance at July 1, 2022		120,074,961		$	12	$	(40,038	)	$	223,557	$	9,119	$	52,898		$	245,548		$	235		$	245,783
Share-based compensation		—			—		—			3,145		—		—			3,145			—			3,145
Transactions with non-controlling interests		—			—		—			106		—		—			106			(106	)		—
Distributions to non-controlling interests		—			—		—			—		—		—			—			(60	)		(60	)
Dividends on redeemable preferred stock		—			—		—			—		—		(1,449	)		(1,449	)		—			(1,449	)
Dividends declared (2 cents per share)		—			—		—			—		—		(2,402	)		(2,402	)		—			(2,402	)
Common stock repurchased		(419	)		—		(4	)		—		—		—			(4	)		—			(4	)
Net income		—			—		—			—		—		24,943			24,943			51			24,994
Balance at September 30, 2022		120,074,542		$	12	$	(40,042	)	$	226,808	$	9,119	$	73,990		$	269,887		$	120		$	270,007

Balance at July 1, 2023		118,842,462		$	12	$	(53,804	)	$	238,617	$	9,119	$	83,533		$	277,477		$	39		$	277,516
Share-based compensation		—			—		—			4,614		—		—			4,614			—			4,614
Transactions with non-controlling interests		—			—		—			40		—		—			40			(40	)		—
Distributions to non-controlling interests		—			—		—			—		—		—			—			(60	)		(60	)
Dividends on redeemable preferred stock		—			—		—			—		—		(1,449	)		(1,449	)		—			(1,449	)
Dividends declared (3 cents per share)		—			—		—			—		—		(3,559	)		(3,559	)		—			(3,559	)
Common stock repurchased		(1,540,642	)		—		(11,750	)		—		—		—			(11,750	)		—			(11,750	)
Net income		—			—		—			—		—		21,440			21,440			48			21,488
Balance at September 30, 2023		117,301,820		$	12	$	(65,554	)	$	243,271	$	9,119	$	99,965		$	286,813		$	(13	)	$	286,800

Common Stock

Treasury

Additional

Accumulated
Other

Retained

Total

Non-

Shares

Par Value

Stock, at Cost

Paid-in Capital

Comprehensive Income

Earnings

Shareholders' Equity

Controlling Interests

Total Equity

Balance at January 1, 2022

124,427,805

12

—

217,675

9,119