ARKO Corp. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; filed May 7, 2024. ARKO operates convenience stores, supplies fuel to dealers, and runs cardlock fueling locations across more than 30 states. At quarter-end it operated 1,540 retail stores, supplied 1,816 dealer sites, and operated 296 cardlock locations. Results are seasonal, with operating income historically higher in the second and third quarters.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change / context |
|---|---|---|---|
| Total revenue | $2,072.5 million | $2,088.5 million | Down 0.8% |
| Operating income (loss) | $(4.9) million | $9.0 million | Operating margin: approximately (0.2)% vs. 0.4% |
| Net loss | $(0.6) million | $(2.5) million | Common-stockholder loss: $(2.0) million, or $(0.02) per share, vs. $(4.0) million, or $(0.03) per share |
| Adjusted EBITDA | $36.6 million | $47.5 million | Down 22.8%; non-GAAP measure |
| Operating cash flow | $12.8 million | $15.9 million | Down $3.1 million |
| Capital expenditures | $29.2 million | $23.4 million | Cash flow less capex was approximately $(16.5) million |
Fuel revenue was $1,631.3 million, down 1.8%; merchandise revenue was $414.7 million, up 3.6%. Fuel gallons sold increased to 519.3 million from 503.3 million, while consolidated fuel margin rose slightly to 24.8 cents per gallon from 24.6 cents. Merchandise contribution increased to $134.9 million from $123.0 million, and merchandise margin improved to 32.5% from 30.7%.
At same stores, retail fuel gallons fell 6.7% and merchandise sales fell 4.1%. Retail fuel margin per gallon improved, but lower same-store fuel contribution and higher operating costs weighed on results. Site operating expenses increased 13.6% overall, including acquisition-related costs and higher same-store personnel, maintenance, and workers’ compensation expenses.
Balance sheet, debt, and liquidity
- Cash and cash equivalents were $184.5 million at March 31, down from $218.1 million at year-end; cash plus restricted cash was $205.7 million.
- Total debt, net of discounts and costs, was $885.0 million, up from $845.4 million at December 31. This excludes lease liabilities; operating and finance lease liabilities were substantial.
- About 48% of debt had variable interest rates. Management estimated a 1 percentage-point rate increase would add approximately $4.3 million to annual debt service, based on quarter-end balances.
- Management reported approximately $764 million of liquidity, comprising about $184 million of cash and $579 million of credit availability. Capital One facility availability was $424.7 million; the PNC line had no borrowings, and $21.9 million remained available on the M&T equipment line.
Material changes, outlook, and risks
- Drivers of weaker operating performance: Management attributed the operating-income decline and lower Adjusted EBITDA primarily to reduced fuel contribution at comparable locations, increased same-store site expenses, and the elimination of Virginia skill-gaming income. Contributions from 2023 acquisitions and improved merchandise margins partly offset these pressures.
- Unusual items: Q1 results included approximately $9.2 million of financial income associated with the TEG deferred-consideration share issuance and settlement, as well as favorable fair-value changes in warrants and deferred shares. The tax benefit was $6.7 million. These items helped reduce the reported net loss despite the operating loss; assess them separately from recurring operations.
- TEG settlement and repurchases: ARKO issued 3.4 million shares to satisfy the first deferred installment, then repurchased those shares for approximately $19.3 million and paid $17.2 million in cash to settle the remaining installment early. The transaction was financed using the Capital One facility. Q1 repurchases totaled approximately $28.3 million under the program; the board increased program authorization to $125 million in May.
- Subsequent acquisition: On April 9, 2024, ARKO acquired 21 SpeedyQ stores and eight landbank sites in Michigan for approximately $52.7 million, plus cash and inventory. The filing reports $6 million financed with the Capital One facility and approximately $45 million paid by Oak Street for properties leased back to ARKO.
- Management outlook: No numerical earnings or revenue guidance is provided. Management said near-term capital spending is expected to emphasize remodeling, store updates, and maintenance, with more new-store construction in the medium to long term. It believes existing cash, operating cash flow, and credit availability are adequate for foreseeable liquidity needs, while noting that acquisitions and capital plans may require additional financing.
- Key risks: Fuel-margin volatility, competition, inflation and consumer spending, labor costs, seasonality and weather, supplier concentration, acquisition execution, environmental obligations, and variable-rate debt. Environmental obligations were $12.7 million, with $7.1 million of estimated recoveries recorded as assets. Management said there were no material changes to previously disclosed risk factors or legal proceedings.
Management concluded disclosure controls were effective as of March 31, 2024, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether same-store fuel volumes and merchandise sales stabilize, and whether improved merchandise margins persist.
- How much of the net-loss improvement reflects recurring operations versus TEG-related and fair-value gains and the tax benefit.
- Debt and interest-cost trends, credit-facility availability, and the effect of continued high rates on cash flow.
- Cash deployment among acquisitions, capital spending, dividends, and repurchases, including post-quarter SpeedyQ funding and lease commitments.
- Acquisition integration and performance, alongside the seasonal pattern of stronger second- and third-quarter results.