ARKO

ARKO Corp. 10-Q Summary: Quarter Ended September 30, 2025

Business Context and Reporting Period

This filing covers the quarterly period ended September 30, 2025. ARKO Corp. operates as a leading independent convenience store operator and fuel distributor through its subsidiary, GPM Investments, LLC. As of the reporting date, the company operated 1,182 retail convenience stores, supplied fuel to 2,053 dealer locations, and managed 288 cardlock locations across the District of Columbia and more than 30 U.S. states. The company is executing a "Transformation Plan" focused on converting retail stores to dealer sites to improve profitability and cash flow stability.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 11.3% year-over-year for the quarter and 13.2% for the nine-month period. This was driven by lower average fuel prices, reduced fuel volumes due to a challenging macroeconomic environment, and the conversion of retail stores to dealer sites (which shifts revenue recognition).
• Profitability: Net income attributable to common shareholders increased 46.0% for the quarter ($12.0M vs. $8.2M) despite revenue declines, largely due to a significant reduction in income tax expense ($2.4M vs. $8.3M) and lower interest expenses. For the nine months, net income decreased slightly to $16.6M from $18.8M.
• Store Conversions: The company converted 65 retail stores to dealer sites in Q3 2025 (194 total for the nine months). These conversions generated approximately $6.5 million in incremental operating income for the nine-month period.
• Unusual Items: The nine-month results included a $20.8 million gain from the expiration of a real estate purchase option (accounted for as a sale-leaseback), which significantly impacted "Other expenses (income), net."

Guidance, Outlook, and Risks

• Transformation Plan: Management expects to convert a meaningful number of additional retail stores to dealer sites throughout the remainder of 2025 and 2026. They are also piloting a new store format ("fas craves") with plans to reopen a third location in Q4 2025.
• Legislative Impact: The "One Big Beautiful Bill Act" (OBBB) signed in July 2025 is expected to reduce cash paid for taxes by approximately $8.0 million for the full year 2025, though it is not expected to materially impact the effective tax rate.
• Liquidity: The company reported a strong liquidity position of approximately $891 million, comprising cash and available credit lines. They maintain a share repurchase program with $7.2 million remaining capacity and declared a quarterly dividend of $0.03 per share.
• Risks: Key risks include volatility in wholesale fuel prices, inflation reducing consumer purchasing power, labor cost increases, and the potential for severe weather to disrupt operations. Approximately 51% of the company's debt bears variable interest rates, exposing it to interest rate risk.

Investor Verification Checklist

• Store Conversion Impact: Verify the long-term profitability impact of converting 194 retail stores to dealer sites versus the immediate revenue reduction.
• One-Time Gains: Assess the sustainability of earnings by excluding the $20.8 million sale-leaseback gain recorded in the nine-month period.
• Same-Store Trends: Review same-store fuel gallons sold (down 4.7% in Q3) and merchandise sales (down 2.2% in Q3) to gauge underlying demand trends independent of store count changes.
• Debt Structure: Monitor the impact of variable interest rates on the ~51% of debt that is floating, given the current interest rate environment.
• Legal Contingencies: Track the resolution of the wage and hour collective action settlement, which could result in an additional loss of up to $1.2 million beyond the $2.0 million already accrued.