ARKO Corp. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a quarterly filing. ARKO operates convenience stores, distributes fuel to independent dealers, and added fleet fueling in July 2022. At year-end it operated 1,404 retail stores and 183 cardlock locations, and supplied fuel to 1,674 independent dealer locations across 34 states and the District of Columbia.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Total revenue | $9.143 billion | $7.417 billion |
| Operating income | $167.0 million | $142.1 million |
| Net income | $72.0 million | $59.4 million |
| Net income attributable to ARKO | $71.7 million | $59.2 million |
| Net income attributable to common shareholders | $66.0 million; $0.54 basic EPS | $53.5 million; $0.43 basic EPS |
| Adjusted EBITDA, net of incremental bonuses | $301.1 million | $256.6 million |
| Cash from operating activities | $209.3 million | $159.2 million |
| Cash used in investing activities | $175.5 million | $171.8 million |
| Cash from (used in) financing activities | $10.6 million | $(26.4) million |
- Revenue rose 23.3%; operating income rose 17.5%, and net income rose 21.1%. Fuel revenue increased 29.5%, primarily because of higher average fuel prices and acquisition contributions. Fuel represented approximately 81% of revenue.
- Fuel gallons sold declined to 1.971 billion from 2.019 billion. Consolidated fuel margin increased to 27.6 cents per gallon from 21.7 cents. Retail same-store fuel gallons fell 8.1%, while retail fuel margin rose to 41.4 cents per gallon from 33.7 cents.
- Merchandise revenue increased 1.9% to $1.648 billion; merchandise contribution increased to $501.2 million from $472.9 million, and margin improved to 30.4% from 29.3%. Same-store merchandise sales declined 1.0%; excluding cigarettes, they increased 2.6%.
- Store operating expenses increased 14.4% to $721.2 million, including higher wages and credit-card fees. General and administrative expenses increased 12.3% to $140.0 million.
- Year-end cash and cash equivalents were $298.5 million. Management reported approximately $675 million of liquidity, including $376 million of availability under credit lines. Current assets were $747.1 million and current liabilities $446.4 million.
- Debt, net of financing costs, was $752.0 million, including $443.6 million of 5.125% senior notes due 2029 and $256.4 million drawn on the Capital One revolving facility. Approximately 38% of debt bore variable rates; management estimated a 1 percentage-point rate increase would add about $2.9 million of annual debt service. Operating and finance lease liabilities totaled approximately $1.507 billion.
- Capital expenditures were $98.6 million. The company repurchased approximately 4.5 million shares for $39.0 million and paid $0.09 per common share in dividends during 2022.
Material changes and significant developments
- ARKO acquired Quarles fleet-fueling assets in July 2022, adding cardlock operations and fuel-card commissions; the segment generated $272.8 million in revenue and $18.4 million in operating income during its partial year. The Pride acquisition, completed in December, added 31 stores and gas stations.
- Management attributed improved results to higher fuel and merchandise contribution and acquisition activity, partly offset by lower same-store fuel volumes and higher personnel, credit-card, and administrative costs. Comparisons are affected by acquisitions, including Quarles and Pride in 2022 and Handy Mart and ExpressStop in 2021.
- The effective tax rate rose to 33.1% from 16.3%. FY2022 included an approximately $8.9 million non-cash tax expense related to internal entity realignment; FY2021 benefited from a $5.5 million valuation-allowance release.
- At year-end, the company had agreed to acquire Transit Energy Group for approximately $370 million plus inventory and WTG Fuels assets for approximately $140.4 million plus inventory. Both were pending, subject to closing conditions; the filing anticipated closings in Q1 and Q2 2023, respectively, without assurance of completion.
Outlook, risks, and other notable items
- No formal earnings or revenue guidance is provided. Management expects to focus capital spending on acquisitions, remodels, raze-and-rebuild projects, store maintenance, and fuel-dispenser upgrades. It expected approximately $14 million of 2023 spending to make substantially all fuel dispensers EMV-compliant and approximately $5 million of 2023 environmental capital expenditures.
- Management described acquisition-led expansion, organic store improvements, foodservice, loyalty initiatives, delivery, fleet fueling, and selective EV charging as growth opportunities. It emphasized that acquisition integration, construction costs, and labor availability may affect execution.
- Key risks include fuel-price volatility and margin changes, inflation and reduced consumer purchasing power, lower fuel demand or changing transportation patterns, tobacco sales and regulation, competition, labor costs and high store-employee turnover, supplier concentration, and acquisition execution and financing.
- Environmental liabilities were approximately $12.1 million, with estimated recoveries of $4.9 million. Fuel supply contracts require minimum purchase volumes; management did not expect material penalties, subject to limited exceptions. The company reported no material legal proceedings beyond ordinary-course matters.
- The company reported effective disclosure controls and internal control over financial reporting, with an unqualified audit opinion and no critical audit matters. The internal-control assessment excluded the 2022 acquisitions, which represented approximately 13% of assets and 4% of revenue.
Investor verification priorities
- Assess how much of revenue, fuel contribution, and EBITDA growth reflects higher fuel prices and unusually strong margins versus sustainable volume, same-store performance, and acquisitions.
- Review acquisition financing, lease commitments, integration results, and whether the pending TEG and WTG transactions closed on the stated terms after the filing date.
- Track variable-rate borrowing costs, revolver availability, debt covenants, and the company’s capacity to meet debt and substantial lease obligations.
- Monitor retail fuel gallons, merchandise sales and margins, wage and credit-card costs, and the continuing impact of tobacco sales and pricing.
- Confirm final purchase-accounting valuations for Quarles and Pride, which the filing described as provisional, and the integration of those businesses into internal controls.
- Evaluate the sustainability of dividends and repurchases alongside acquisition and capital-spending needs; future dividends remain at the board’s discretion.