ARKO (US:ARKO)2021-11-09 16:00PART I. FINANCIAL INFORMATION Financial Statements Presents the unaudited condensed consolidated financial statements for the three and nine-month periods ended September 30, 2021 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $275,185 | $293,666 | | Total current assets | $638,828 | $609,406 | | Goodwill | $188,636 | $173,937 | | Total assets | $2,808,430 | $2,739,809 | | Total current liabilities | $371,884 | $387,051 | | Long-term debt, net | $679,560 | $708,802 | | Total liabilities | $2,467,852 | $2,448,389 | | Total equity | $240,578 | $191,420 | Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $2,035,023 | $960,078 | $5,429,193 | $2,674,233 | | Operating income | $54,723 | $32,114 | $113,718 | $71,840 | | Net income | $35,585 | $17,157 | $46,496 | $36,809 | | Net income attributable to ARKO Corp. | $35,534 | $9,688 | $46,317 | $21,127 | | Diluted EPS | $0.25 | $0.14 | $0.31 | $0.31 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $119,547 | $126,498 | | Net cash used in investing activities | ($105,187) | ($28,854) | | Net cash (used in) provided by financing activities | ($35,792) | $31,192 | | Net (decrease) increase in cash | ($21,432) | $128,836 | Notes to Condensed Consolidated Financial Statements The notes detail key accounting policies and significant events including acquisitions, debt refinancing, and a balance sheet revision - The Merger Transaction was accounted for as a reverse recapitalization, with Arko Holdings as the accounting acquirer4243 - The Company acquired 60 ExpressStop convenience stores for approximately $86 million in May 20215556 - The company conducted significant debt refinancing, including redeeming $79 million in Series C Bonds and later issuing $450 million in Senior Notes677078 - GPM established a $1.0 billion standby real estate program with Oak Street to facilitate future acquisitions129 - The company acquired 36 Handy Mart convenience stores for approximately $112 million in November 2021134281 - The December 31, 2020 balance sheet was revised to reclassify warrants as liabilities, increasing total liabilities by $26.5 million128131 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses significant performance growth driven by acquisitions, industry trends, and the company's strong liquidity position Results of Operations Company results improved significantly due to acquisitions, with Q3 2021 revenue more than doubling to $2.04 billion Consolidated Results Summary (in thousands) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $2,035,023 | $960,078 | $5,429,193 | $2,674,233 | | Operating Income | $54,723 | $32,114 | $113,718 | $71,840 | | Net Income | $35,585 | $17,157 | $46,496 | $36,809 | | Adjusted EBITDA* | $80,183 | $57,327 | $198,203 | $142,810 | Retail Segment Performance - Q3 2021 vs Q3 2020 | Metric | Q3 2021 | Q3 2020 | Change | | :--- | :--- | :--- | :--- | | Same store fuel gallons sold | -1.4% | -15.1% | N/A | | Fuel margin (cents per gallon) | 34.5¢ | 31.0¢ | +3.5¢ | | Same store merchandise sales | -1.3% | +5.0% | N/A | | Merchandise margin | 30.6% | 27.9% | +270 bps | - The Wholesale segment's fuel revenue surged to $730.8 million in Q3 2021 from $32.5 million in Q3 2020, almost entirely due to the Empire Acquisition199 - The GPMP segment's operating income increased to $24.6 million in Q3 2021, driven by a higher fixed margin and increased fuel volume207210 Use of Non-GAAP Measures The company utilizes non-GAAP measures like Adjusted EBITDA to evaluate performance, reporting $80.2 million for Q3 2021 Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Line Item | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income | $35,585 | $17,157 | $46,496 | $36,809 | | Interest, taxes, D&A | $41,254 | $31,104 | $138,873 | $84,652 | | EBITDA | $76,839 | $48,261 | $185,369 | $121,461 | | Adjustments* | $3,344 | $3,280 | $12,834 | $15,563 | | Adjusted EBITDA | $80,183 | $51,541 | $198,203 | $137,024 | Liquidity and Capital Resources The company maintains a strong liquidity position of $551 million, enhanced by a new $450 million Senior Notes offering - As of September 30, 2021, the company had a liquidity position of approximately $551 million, including $275.2 million in cash225 - Cash flow from operations for the first nine months of 2021 was $119.5 million, a decrease from $126.5 million in the prior year period232 - In October 2021, the company issued $450 million of 5.125% Senior Notes to repay the Ares Credit Agreement and pay down other debt226246 - Capital expenditures are focused on acquisitions and store upgrades, including EMV compliance for fuel dispensers227 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from fuel price volatility and interest rates, though interest rate risk is now reduced - The company has limited exposure to commodity price risk but notes that significant fuel price increases can reduce consumer demand248 - Following the October 2021 Senior Notes issuance, variable-rate debt exposure was significantly reduced251 - The company is preparing for the phase-out of LIBOR and its credit agreements contain transition mechanisms252 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2021 - Management concluded that the Company's disclosure controls and procedures were effective as of September 30, 2021255 - No material changes occurred during the quarter that affected the Company's internal control over financial reporting256 PART II. OTHER INFORMATION Legal Proceedings No material changes to legal proceedings were reported for the period - The company reports no material changes to its legal proceedings during the reporting period258 Risk Factors The company faces risks from supplier dependence, cybersecurity threats, data privacy laws, and potential vaccine mandates - The company depends on a few principal suppliers for fuel and merchandise, creating supply disruption risk259260261 - The company is subject to payment-related risks, including PCI-DSS compliance and potential processing failures261262 - A significant risk exists from IT system disruptions or data security breaches like ransomware or hacking263264265 - The company faces risks from evolving data privacy laws, where non-compliance could lead to fines and litigation266267 - The federal COVID-19 vaccine mandate could negatively impact employee retention and increase labor costs278279 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported for the period Defaults Upon Senior Securities No defaults upon senior securities were reported for the period Mine Safety Disclosures This section is not applicable to the company's operations Other Information The company acquired 36 Handy Mart convenience stores in a subsequent event on November 9, 2021 - On November 9, 2021, the company completed the Handy Mart Acquisition, adding 36 convenience stores in North Carolina281 - The total consideration for the Handy Mart transaction is approximately $112 million, utilizing its real estate partner281282 Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and Inline XBRL data