ARKO Corp. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report; the filing text does not provide a complete Q4 income statement.
Business context
ARKO operates convenience stores, distributes fuel to dealers, and runs a fleet-fueling business. At year-end it operated 1,543 retail stores, supplied 1,825 dealer locations, and had 298 cardlock locations across more than 30 states and the District of Columbia. Its 2023 growth included the TEG, WTG and Speedy’s acquisitions; comparisons with 2022 are affected by acquisitions and the partial-year contribution of the Quarles and Pride businesses.
Key financial metrics
| Metric | FY2023 | FY2022 |
|---|---|---|
| Total revenue | $9.413 billion | $9.143 billion |
| Operating income | $118.0 million | $167.0 million |
| Net income attributable to ARKO | $34.4 million | $71.7 million |
| Net income attributable to common shareholders | $28.6 million; $0.24 per diluted share | $66.0 million; $0.53 per diluted share |
| Adjusted EBITDA | $290.4 million | $301.1 million |
| Cash from operating activities | $136.1 million | $209.3 million |
| Cash and cash equivalents at year-end | $218.1 million | $298.5 million |
Revenue rose 3.0%, while operating income fell 29% and net income attributable to ARKO fell 52%. Adjusted EBITDA, a non-GAAP measure, declined 3.5%. Fuel revenue was $7.464 billion and merchandise revenue was $1.838 billion. Fuel represented approximately 79% of revenue. Total fuel volume was 2.242 billion gallons.
Fuel margin was 26.2 cents per gallon, down from 27.6 cents. Merchandise contribution was $585.1 million and merchandise margin improved to 31.8% from 30.4%. Operating margin was approximately 1.3%, compared with 1.8% in 2022; net margin was approximately 0.4%, compared with 0.8%.
Debt, liquidity and capital allocation
Year-end debt, net of deferred financing costs, was $845.4 million, up from $752.0 million. This excludes lease liabilities. Approximately 46% of debt carried variable rates; management estimated a 1 percentage-point rate increase would add about $3.9 million to annual debt service. Outstanding debt included $450 million principal of 5.125% Senior Notes due 2029 and $338.3 million drawn on the Capital One revolving facility. The filing reported approximately $831 million of liquidity: $218 million of cash and $613 million of available credit.
Operating cash flow declined to $136.1 million. Investing activities used $296.8 million, including $111.2 million of capital expenditures and $111.5 million of net cash consideration for acquisitions after related Oak Street funding. Total lease liabilities were approximately $1.684 billion. The contractual-obligations table reports $4.519 billion in obligations, including leases and scheduled debt payments.
ARKO paid $14.3 million in common dividends in 2023, or $0.12 per share, and repurchased approximately 4.2 million shares for about $32 million. The board declared a $0.03-per-share dividend payable in March 2024; future dividends remain discretionary.
Changes, outlook and risks
- Growth in merchandise revenue and margin was offset by lower same-store fuel contribution and higher operating costs. Same-store retail fuel gallons declined 5.3%; same-store merchandise sales increased 0.4%.
- Management cited lower fuel contribution at comparable retail and wholesale locations, higher personnel expenses, and acquisition-related costs as factors weighing on results. Acquisition additions contributed revenue and earnings, but also increased store costs and depreciation.
- No quantified earnings or revenue guidance is provided in the supplied filing text. Management expects 2024 capital spending to focus on acquisitions, store remodels and rebuilds, maintenance, and fuel-dispenser upgrades. It estimated approximately $12 million for 2024 EMV upgrades and approximately $9.3 million for environmental capital expenditures, versus $4.8 million in 2023.
- Growth priorities include expanding foodservice, loyalty and merchandise initiatives, pursuing acquisitions, and selectively adding EV chargers. ARKO launched a pizza program in 2024; as of year-end 2023 it had 70 EV chargers at 19 stores.
- Principal risks include fuel-price and margin volatility, inflation and consumer spending, higher interest rates and variable-rate debt, acquisition integration and financing, labor costs, competition, supplier and dealer contract renewals, environmental obligations, and cybersecurity and payment-processing risks. The filing says no cybersecurity threat had materially affected, or was reasonably likely to materially affect, the business as of the filing date.
- Unusual items include a $8.9 million non-cash tax expense in 2022 from an internal entity realignment, which contributed to the lower 2023 tax expense. The Ares Put Option was settled for $9.8 million cash in 2023. Several acquisition properties were funded through sale-leasebacks, creating lease commitments and certain off-market financing liabilities. WTG acquisition accounting remained provisional at year-end.
The auditor issued unqualified opinions on the consolidated financial statements and internal control over financial reporting; it reported no critical audit matters. Management also concluded disclosure controls and internal control over financial reporting were effective as of year-end.
Investor verification priorities
- Reconcile reported revenue growth with acquisition contributions and evaluate underlying same-store fuel volumes and margins.
- Assess whether merchandise margin gains and foodservice initiatives can offset lower fuel contribution and rising labor and lease costs.
- Review debt maturities, covenant headroom, variable-rate exposure, available credit, and the substantial operating and financing lease commitments.
- Verify acquisition integration results, deferred purchase payments, sale-leaseback economics, and the final purchase-price allocation for WTG.
- Monitor environmental reserves and recoveries, fuel-supply and dealer-contract renewals, and progress on EMV upgrades.
- Consider the sustainability of dividends and repurchases against operating cash flow, acquisition spending and debt service.