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c

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2022.

OR

 

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

 

For the transition period from to .

Commission file number 001-39828

 

img25613724_0.jpg 

ARKO Corp.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

85-2784337

(State or Other Jurisdiction of
Incorporation or Organization)

 

(I.R.S. Employer
Identification No.)

 

8565 Magellan Parkway

Suite 400

Richmond, Virginia 23227-1150

(Address of Principal Executive Offices) (Zip Code)

(804) 730-1568

(Registrant’s Telephone Number, Including Area Code)

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

 

Title of Each Class

 

Trading Symbol

 

Name of Each Exchange on Which Registered

Common Stock, $0.0001 par value per share

 

ARKO

 

Nasdaq Capital Market

Warrants to purchase common stock

 

ARKOW

 

Nasdaq Capital Market

 

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

None

 

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”

in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

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

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

As of November 4, 2022, the registrant had 120,074,542 shares of its common stock, par value $0.0001 per share (“common stock”) outstanding.

 

 


Table of Contents

 

TABLE OF CONTENTS

 

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements

 

5

 

Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 (unaudited)

 

5

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 (unaudited)

 

6

 

Condensed Consolidated Statements of Changes in Equity for the three and nine months ended September 30, 2022 and 2021 (unaudited)

 

7

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited)

 

9

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

12

Item 2.

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

 

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

42

Item 4.

Controls and Procedures

 

44

PART II. OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

45

Item 1A.

Risk Factors

 

45

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

46

Item 3.

Defaults Upon Senior Securities

 

47

Item 4.

Mine Safety Disclosures

 

47

Item 5.

Other Information

 

47

Item 6.

Exhibits

 

48

Signatures

 

49

 

 

 

2


Table of Contents

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements,” as that term is defined under the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements about our expectations, beliefs or intentions regarding our product development efforts, business, financial condition, results of operations, strategies or prospects, including the potential impact of the COVID-19 pandemic on our businesses, operating results, cash flows and/or financial condition. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described below and in “Item 1A-Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021 and this Quarterly Report on Form 10-Q, and described from time to time in our other filings with the Securities and Exchange Commission (the “SEC”). We do not undertake any obligation to update forward-looking statements, except to the extent required by applicable law. We intend that all forward-looking statements be subject to the safe-harbor provisions of the PSLRA. These forward-looking statements are only predictions and reflect our views as of the date they are made with respect to future events and financial performance.

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

changes in economic conditions and consumer confidence in the United States;
our ability to make acquisitions on economically acceptable terms;
our ability to successfully integrate acquired operations or otherwise realize the expected benefits from our acquisitions;
our future growth depends on our ability to successfully implement our organic growth strategies;
labor, raw materials and building supply shortages and price fluctuations in the construction industry could delay or increase the costs of our store upgrade and remodel program and our maintenance capital expenditures;
changes in the wholesale prices of motor fuel;
significant changes in the current consumption of and regulations related to tobacco and nicotine products;
significant changes in demand for fuel-based modes of transportation;
we operate in a highly competitive industry characterized by low entry barriers;
negative events or developments associated with branded motor fuel suppliers;
we depend on several principal suppliers for our gross fuel purchases and two principal suppliers for merchandise;
a portion of our revenue is generated under fuel supply agreements with independent dealers that must be renegotiated or replaced periodically;
the retail sale, distribution, transport and storage of motor fuels is subject to environmental protection and operational safety laws and regulations that may expose us or our customers to significant costs and liabilities;
business disruption and related risks resulting from the outbreak of COVID-19 and variants of the virus, including associated regulatory changes;
failure to comply with applicable laws and regulations;
the loss of key senior management personnel or the failure to recruit or retain qualified personnel;
unfavorable weather conditions;
we may be held liable for fraudulent credit card transactions on our fuel dispensers;
payment-related risks that may result in higher operating costs or the inability to process payments;
significant disruptions of information technology systems or breaches of data security;
laws, regulations, standards, and contractual obligations related to data privacy and security regulations, and our actual or perceived failure to comply with such obligations;

 

3


Table of Contents

 

our failure to adequately secure, maintain, and enforce our intellectual property rights;
third-party claims of infringement upon their intellectual property rights;
we depend on third-party transportation providers for the transportation of most of our motor fuel;
our operations present risks which may not be fully covered by insurance;
our variable rate debt;
the agreements governing our indebtedness have various restrictions and financial covenants;
the phase out of the London Interbank Offered Rate (“LIBOR”);
our principal stockholders and management exert significant control over us, and their interests may conflict with yours;
our corporate structure includes Israeli subsidiaries that may have adverse tax consequences and expose us to additional tax liabilities;
we may not be able to effectively maintain controls and procedures required by Section 404 of the Sarbanes-Oxley Act;
the market price and trading volume of our common stock may be volatile and could decline significantly;
if securities or industry analysts do not publish research, publish inaccurate or unfavorable research or cease publishing research about us or the convenience store industry; and
sales of a substantial number of shares of our common stock in the public market could cause the price of our common stock to decline.

 

4


Table of Contents

 

PART I. FINANCIAL INFORMATION

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

Item 1. Financial Statements

ARKO Corp.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

 

 

 

September 30, 2022

 

 

December 31, 2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

283,375

 

 

$

252,141

 

Restricted cash

 

 

14,194

 

 

 

20,402

 

Short-term investments

 

 

2,122

 

 

 

58,807

 

Trade receivables, net

 

 

121,736

 

 

 

62,342

 

Inventory

 

 

224,545

 

 

 

197,836

 

Other current assets

 

 

98,842

 

 

 

92,095

 

Total current assets

 

 

744,814

 

 

 

683,623

 

Non-current assets:

 

 

 

 

 

 

Property and equipment, net

 

 

591,024

 

 

 

548,969

 

Right-of-use assets under operating leases

 

 

1,127,100

 

 

 

1,064,982

 

Right-of-use assets under financing leases, net

 

 

185,518

 

 

 

192,378

 

Goodwill

 

 

197,711

 

 

 

197,648

 

Intangible assets, net

 

 

192,651

 

 

 

185,993

 

Equity investment

 

 

2,991

 

 

 

2,998

 

Deferred tax asset

 

 

17,773

 

 

 

41,047

 

Other non-current assets

 

 

29,683

 

 

 

24,637

 

Total assets

 

$

3,089,265

 

 

$

2,942,275

 

Liabilities

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Long-term debt, current portion

 

$

11,477

 

 

$

40,384

 

Accounts payable

 

 

211,125

 

 

 

172,918

 

Other current liabilities

 

 

148,199

 

 

 

137,488

 

Operating leases, current portion

 

 

55,952

 

 

 

51,261

 

Financing leases, current portion

 

 

5,741

 

 

 

6,383

 

Total current liabilities

 

 

432,494

 

 

 

408,434

 

Non-current liabilities:

 

 

 

 

 

 

Long-term debt, net

 

 

722,097

 

 

 

676,625

 

Asset retirement obligation

 

 

63,759

 

 

 

58,021

 

Operating leases

 

 

1,141,450

 

 

 

1,076,905

 

Financing leases

 

 

227,182

 

 

 

229,215

 

Deferred tax liability

 

 

 

 

 

2,546

 

Other non-current liabilities

 

 

132,276

 

 

 

136,853

 

Total liabilities

 

 

2,719,258

 

 

 

2,588,599

 

Commitments and contingencies - see Note 13

 

 

 

 

 

 

Series A redeemable preferred stock (no par value) - authorized: 1,000 shares; issued and
   outstanding:
1,000 and 1,000 shares, respectively; redemption value: $100,000 and $100,000,
   in the aggregate respectively

 

 

100,000

 

 

 

100,000

 

Shareholders' equity:

 

 

 

 

 

 

Common stock (par value $0.0001) - Authorized: 400,000 shares; Issued: 124,727 and 124,428 shares, respectively; Outstanding: 120,074 and 124,428 shares, respectively

 

 

12

 

 

 

12

 

Treasury stock, at cost - 4,653 and 0 shares, respectively

 

 

(40,042

)

 

 

 

Additional paid-in capital

 

 

226,808

 

 

 

217,675

 

Accumulated other comprehensive income

 

 

9,119

 

 

 

9,119

 

Retained earnings

 

 

73,990

 

 

 

26,646

 

Total shareholders' equity

 

 

269,887

 

 

 

253,452

 

Non-controlling interest

 

 

120

 

 

 

224

 

Total equity

 

 

270,007

 

 

 

253,676

 

Total liabilities, redeemable preferred stock and equity

 

$

3,089,265

 

 

$

2,942,275

 

 

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

 

5


Table of Contents

 

ARKO Corp.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except per share data)

 

 

 

For the Three Months
Ended September 30,

 

 

For the Nine Months
Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Fuel revenue

 

$

1,979,574

 

 

$

1,580,359

 

 

$

5,648,954

 

 

$

4,144,069

 

Merchandise revenue

 

 

445,822

 

 

 

434,652

 

 

 

1,244,558

 

 

 

1,220,298

 

Other revenues, net

 

 

24,251

 

 

 

20,012

 

 

 

69,209

 

 

 

64,826

 

Total revenues

 

 

2,449,647

 

 

 

2,035,023

 

 

 

6,962,721

 

 

 

5,429,193

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Fuel costs

 

 

1,824,437

 

 

 

1,459,664

 

 

 

5,250,105

 

 

 

3,819,571

 

Merchandise costs

 

 

306,930

 

 

 

301,533

 

 

 

866,110

 

 

 

866,239

 

Store operating expenses

 

 

189,582

 

 

 

164,432

 

 

 

534,197

 

 

 

464,038

 

General and administrative expenses

 

 

35,954

 

 

 

32,696

 

 

 

100,695

 

 

 

91,270

 

Depreciation and amortization

 

 

26,061

 

 

 

22,031

 

 

 

75,050

 

 

 

71,546

 

Total operating expenses

 

 

2,382,964

 

 

 

1,980,356

 

 

 

6,826,157

 

 

 

5,312,664

 

Other expenses (income), net

 

 

951

 

 

 

(56

)

 

 

3,269

 

 

 

2,811

 

Operating income

 

 

65,732

 

 

 

54,723

 

 

 

133,295

 

 

 

113,718

 

Interest and other financial income

 

 

2,676

 

 

 

2,937

 

 

 

2,509

 

 

 

4,613

 

Interest and other financial expenses

 

 

(22,472

)

 

 

(17,365

)

 

 

(45,619

)

 

 

(59,655

)

Income before income taxes

 

 

45,936

 

 

 

40,295

 

 

 

90,185

 

 

 

58,676

 

Income tax expense

 

 

(20,898

)

 

 

(4,795

)

 

 

(31,060

)

 

 

(12,285

)

(Loss) income from equity investment

 

 

(44

)

 

 

85

 

 

 

(7

)

 

 

105

 

Net income

 

$

24,994

 

 

$

35,585

 

 

$

59,118

 

 

$

46,496

 

Less: Net income attributable to non-controlling interests

 

 

51

 

 

 

51

 

 

 

182

 

 

 

179

 

Net income attributable to ARKO Corp.

 

$

24,943

 

 

$

35,534

 

 

$

58,936

 

 

$

46,317

 

Series A redeemable preferred stock dividends

 

 

(1,449

)

 

 

(1,449

)

 

 

(4,301

)

 

 

(4,285

)

Net income attributable to common shareholders

 

$

23,494

 

 

$

34,085

 

 

$

54,635

 

 

$

42,032

 

Net income per share attributable to common shareholders - basic

 

$

0.20

 

 

$

0.27

 

 

$

0.45

 

 

$

0.34

 

Net income per share attributable to common shareholders - diluted

 

$

0.17

 

 

$

0.25

 

 

$

0.43

 

 

$

0.31

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

120,074

 

 

 

124,428

 

 

 

121,950

 

 

 

124,406

 

Diluted

 

 

130,388

 

 

 

133,925

 

 

 

123,527

 

 

 

125,354

 

 

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

 

6


Table of Contents

 

ARKO Corp.

Condensed Consolidated Statements of Changes in Equity

(Unaudited, in thousands)

 

 

Common Stock

 

 

Treasury

 

 

Additional

 

 

Accumulated
Other

 

 

Retained Earnings

 

 

Total

 

 

Non-

 

 

 

 

 

 

Shares

 

 

Par Value

 

 

Stock, at Cost

 

 

Paid-in Capital

 

 

Comprehensive Income

 

 

(Accumulated Deficit)

 

 

Shareholders' Equity

 

 

Controlling Interests

 

 

Total Equity

 

Balance at July 1, 2021

 

 

124,428

 

 

$

12

 

 

$

 

 

$

214,781

 

 

$

9,119

 

 

$

(18,870

)

 

$

205,042

 

 

$

(153

)

 

$

204,889

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

1,613

 

 

 

 

 

 

 

 

 

1,613

 

 

 

 

 

 

1,613

 

Transactions with non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

(50

)

 

 

 

 

 

 

 

 

(50

)

 

 

50

 

 

 

 

Distributions to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(60

)

 

 

(60

)

Dividends on redeemable preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,449

)

 

 

(1,449

)

 

 

 

 

 

(1,449

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35,534

 

 

 

35,534

 

 

 

51

 

 

 

35,585

 

Balance at September 30, 2021

 

 

124,428

 

 

$

12

 

 

$

 

 

$

216,344

 

 

$

9,119

 

 

$

15,215

 

 

$

240,690

 

 

$

(112

)

 

$

240,578

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 1, 2022

 

 

120,075

 

 

$

12

 

 

$

(40,038

)

 

$

223,557

 

 

$

9,119

 

 

$

52,898

 

 

$

245,548

 

 

$

235

 

 

$

245,783

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

3,145

 

 

 

 

 

 

 

 

 

3,145

 

 

 

 

 

 

3,145

 

Transactions with non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

106

 

 

 

 

 

 

 

 

 

106

 

 

 

(106

)

 

 

 

Distributions to non-controlling interests