GlobeNewswire Inc | Nov 10, 2021 07:00AM EST

November 10, 2021

Merchandise Revenue of $434.7 million

Net Income of $35.6 million

Adjusted EBITDA, Net of Incremental Bonuses, Increases 39.9% to $80.2 million

Same Store Merchandise Sales Excluding Cigarettes Increase 1.8% for Third Quarter and 8.7% on a Two-Year Stack Basis*

Strategic In-store Initiatives Deliver Merchandise Margin Expansion of 270 Basis Points

RICHMOND, Va., Nov. 10, 2021 (GLOBE NEWSWIRE) -- ARKO Corp. (Nasdaq: ARKO) (ARKO or the Company), a growing leader in the U.S. convenience store industry, today announced financial results for the third quarter ended September 30, 2021.

Third Quarter 2021 Key Highlights*

-- Operating income was $54.7 million for the quarter, an increase of 70.4%, compared to $32.1 million for the third quarter of 2020 -- Net income for the quarter was $35.6 million, an increase of 107.4% and quarterly record for the Company, compared to $17.2 million for the third quarter of 2020 -- Adjusted EBITDA, net of incremental bonuses, increased 39.9% to $80.2 million for the quarter, the Companys strongest quarterly amount to date, as compared to the prior year period -- Same store merchandise sales excluding cigarettes, increased 1.8% compared to the prior year period, and 8.7% on a two-year stack basis -- Merchandise sales margin increased 270 basis points to 30.6% from 27.9% in the prior year period -- Retail fuel margin cents per gallon increased by 11.3% versus the prior year period to 34.5 cents per gallon -- Signed 70 dealer supply agreements including renewals in the third quarter

Recent Developments

-- Issued $450 million aggregate principal amount of 5.125% Senior Notes due 2029 (the Senior Notes) in October, with net proceeds used primarily to repay an outstanding term loan and line of credit, which increased our availability under our lines of credit by $200 million, created well-laddered corporate debt and delayed meaningful debt maturities until 2029 -- Acquired in November 36 company-operated Handy Mart convenience stores and gas stations, plus one under development site, all located in North Carolina, in conjunction with Oak Street Real Estate Capital, LLC (Oak Street) -- In October, Oak Street purchased and leased to us approximately $150 million of real estate previously leased to us by other landlords, resulting in a reduction of rent of approximately $2.3 million annually

Our third quarter results demonstrate our teams on-going focus and ability to execute operationally, said Arie Kotler, Chairman, President and Chief Executive Officer of ARKO. We are seeing the benefits of initiatives we began during the early days of the pandemic, and we look to build on this positive momentum as the changes in consumer behavior continues to normalize. Our robust merchandise margin and healthy two-year same store sales trends reflect continued sound execution of our merchandising strategy. Our approach has been thoughtful and purposeful, and we have a clear line of sight into further improvements of in-store profitability moving forward.

Kotler continued, We continue our strategic focus on executing our operating strategy, growing our store base in existing and contiguous markets through acquisitions, and enhancing the performance of our existing stores. We made notable progress on wholesale cost synergies realization in the quarter, and our post quarter-end acquisition of Handy Mart offers just the latest example in our ability to accelerate growth. With anticipated organic and inorganic opportunities that we believe remain ahead of us, we are excited and confident that we can continue to deliver strong growth and attractive shareholder value over the long-term.

* Same store merchandise sales increase on a two-year stack basis is the same store merchandise sales increase in the current year added to the same store merchandise sales increase in the prior year period. This measure may be helpful to improve the understanding of trends in periods that are affected by variations in prior year growth rates.

Third Quarter 2021 Segment Highlights

Retail

For the Three Months For the Nine Months Ended September30, Ended September30, 2021 2020 2021 2020 (in thousands) Fuel gallons 280,079 243,578 771,158 687,254 soldSame storefuel gallonssold (1.4%) (15.1%) (1.6%) (16.7%) decrease (%)^1Fuel margin,cents per 34.5 31.0 33.7 32.9 gallon ^2Merchandise $ 434,652 $ 403,665 $ 1,220,298 $ 1,119,041 revenueSame storemerchandisesales (1.3%) 5.0% 2.1% 3.5% (decrease)increase (%)^1Same storemerchandisesalesexcluding 1.8% 6.9% 4.8% 4.4% cigarettesincrease (%)^1Merchandisecontribution $ 133,119 $ 112,809 $ 354,059 $ 304,517 ^3Merchandise 30.6% 27.9% 29.0% 27.2% margin ^4 ^1 Same store is a common metric used in the convenience store industry. Weconsider a store a same store beginning in the first quarter in which the store had a full quarter of activity in the prior year. Refer to Use of Non-GAAPMeasures below for discussion of this measure. ^2 Calculated as fuel revenue less fuel costs divided by fuel gallons sold;excludes the estimated fixed margin paid to GPM Petroleum ("GPMP") for the cost of fuel. ^3Calculatedasmerchandise revenue lessmerchandisecosts. ^4Calculatedasmerchandise contributiondivided bymerchandiserevenue.

For the third quarter of 2021, retail fuel profitability (excluding intercompany charges by our wholesale fuel distribution subsidiary, GPM Petroleum LP (GPMP)) increased approximately $21.2 million compared to the prior year period, primarily due to an $18.5 million contribution from the ExpressStop and Empire acquisitions, as well as an increase in same store fuel profit of $3.7 million (excluding intercompany charges by GPMP). Retail fuel margin cents per gallon increased 11.3% to 34.5 cents per gallon.

Same store merchandise sales excluding cigarettes increased 1.8% as compared to the third quarter of 2020, and increased 8.7% on a two-year stack basis. Total merchandise contribution increased $20.3 million, or 18.0%, in the third quarter of 2021 compared to the prior year quarter due to an increase in merchandise contribution at same stores of $8.7 million from a 270-basis point increase in merchandise margin, as well as a $12.7 million merchandise contribution from the ExpressStop and Empire acquisitions.

Wholesale

For the Three For the Nine Months Months Ended Ended September30, September30, 2021 2020 2021 2020 (in thousands) Fuel gallons sold ? non-consignment agent 215,428 9,807 613,834 24,622 locationsFuel gallons sold ? consignment agent 42,970 6,008 122,845 16,609 locationsFuel margin, cents per gallon^1 ? 5.8 5.3 5.5 5.5 non-consignment agent locationsFuel margin, cents per gallon^1 ? 26.9 25.8 24.9 24.9 consignment agent locations ^1 Calculated as fuel revenue less fuel costs divided by fuel gallons sold; excludes the estimated fixed margin paid to GPMP for the cost of fuel.

For the third quarter of 2021, wholesale fuel profitability (excluding intercompany charges by GPMP) increased approximately $22.0 million compared to the prior year period, with the Empire acquisition accounting for substantially all of the growth. Fuel contribution from non-consignment agent locations grew by $12.0 million compared to the prior year due to an approximately 206 million gallon increase in fuel volume and fuel margin cents per gallon for these locations which increased 0.5 cents compared to the third quarter of 2020.

Fuel contribution from consignment agent locations increased $10.0 million compared to the prior year due to quarter over quarter increases both in volume of approximately 37 million gallons and fuel margin, cents per gallon of 1.1 cents. Although volume sold through consignment locations aggregated 17% of the combined total, fuel margin dollars realized from these locations accounted for approximately 48% of the wholesale fuel margin dollar contribution.

Liquidity and Capital Expenditures

As of September 30, 2021, the Companys total liquidity was approximately $551.0 million, consisting of cash and cash equivalents of $275.2 million, plus $31.8 million of restricted investments, and approximately $244.0 million of unused availability under lines of credit. Outstanding debt was $689.6 million, resulting in net debt of $382.6 million. Capital expenditures were $48.1 million for the nine months ended September 30, 2021, compared to $28.8 million for the prior year period.

Store Network Update

The following tables present certain information regarding changes in the store network for the periods presented:

For the Three For the Nine Months Months Ended Ended September30, September30,Retail Segment 2021 2020 2021 2020 Number of sites at beginning of period 1,381 1,266 1,330 1,272 Acquired sites ? ? 61 ? Newly opened or reopened sites ? ? 1 ? Company-controlled sites converted to consignment locations and independent and ? (13 ) (3 ) (14 )lessee dealers, netClosed, relocated or divested sites (2 ) (3 ) (10 ) (8 )Number of sites at end of period 1,379 1,250 1,379 1,250



For the Three For the Nine Months Months Ended Ended September30, September30,Wholesale Segment 2021 2020 2021 2020 Number of sites at beginning of period 1,647 127 1,614 128 Newly opened or reopened sites 27 ? 62 ? Consignment locations or independent and lesseedealers converted from Company-controlled ? 13 3 14 sites, netClosed, relocated or divested sites ? (1 ) (5 ) (3 )Number of sites at end of period 1,674 139 1,674 139



Senior Unsecured Notes Offering

On October 21, 2021, the Company issued $450 million aggregate principal amount of 5.125% Senior Notes due 2029. The Senior Notes are guaranteed, on an unsecured senior basis, by certain of the Companys wholly owned domestic subsidiaries.

The Company used a portion of the net proceeds from the issuance and sale of the Senior Notes to repay in full the approximately $223 million of outstanding secured indebtedness under its credit facility with Ares Capital Corporation, which the Company terminated, and to repay $200 million of outstanding obligations under its senior secured credit facility with Capital One line of credit. The Company intends to use the remaining proceeds for general corporate purposes.

Handy Mart Acquisition

On November 9, 2021, the Company acquired 36 self-operated convenience stores and gas stations and one development parcel, located in North Carolina. The total consideration for the transaction was approximately $112 million plus the value of inventory and cash in the stores on the closing date. The Company paid approximately $12 million for its share of the consideration. Oak Street has agreed to pay approximately $100 million of the total consideration for the real estate of certain of the sellers sites it has agreed to acquire. The Company will pay approximately $6.0 million annually to rent these sites from Oak Street.

Conference Call and Webcast Details

The Company will host a conference call to discuss these results today at 10:00 a.m. Eastern Time. Investors interested in participating in the live call can dial 877-605-1792 or 201-689-8728. A telephone replay will be available approximately two hours after the call concludes through November 24, 2021, by dialing 877-660-6853 or 201-612-7415 and entering confirmation code 13723034.

There will also be a simultaneous, live webcast available on the Investor Relations section of the Companys website at https://www.arkocorp.com/. The webcast will be archived for 30 days.

About ARKO Corp.

ARKO Corp. (Nasdaq: ARKO) owns 100% of GPM Investments, LLC (GPM). Based in Richmond, VA, GPM was founded in 2003 with 169 stores and has grown through acquisitions to become the 6th largest convenience store chain in the United States, operating or supplying fuel to approximately 3,100 locations in 33 states and the District of Columbia, comprised of approximately 1,400 company-operated stores and approximately 1,675 dealer sites to which we supply fuel. We operate in three reportable segments: retail, which consists of fuel and merchandise sales to retail consumers; wholesale, which supplies fuel to third-party dealers and consignment agents; and GPM Petroleum, which supplies fuel to our sites (both in the retail and wholesale segments). Our stores offer fas REWARDS high value loyalty program, a large selection of beverages, coffee, fountain drinks, candy, salty snacks, and many other products to meet the needs of the everyday customer. To learn more about GPM stores, visit: www.gpminvestments.com. To learn more about ARKO, visit: www.arkocorp.com.

Forward-Looking StatementsThis document includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may address, among other things, our expected financial and operational results and the related assumptions underlying our expected results. These forward-looking statements are distinguished by use of words such as anticipate, aim, believe, continue, could, estimate, expect, intends, may, might, plan, possible, potential, predict, project, should, will, would and the negative of these terms, and similar references to future periods. These statements are based on managements current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to, among other things, changes in economic, business and market conditions; our ability to maintain the listing of our common stock and warrants on the Nasdaq Stock Market; changes in our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects and plans; expansion plans and opportunities; changes in the markets in which we compete; changes in applicable laws or regulations, including those relating to environmental matters; market conditions and global and economic factors beyond our control, including the potential adverse effects of the ongoing global coronavirus (COVID-19) pandemic on capital markets (including with respect to new variants of the virus), general economic conditions, unemployment and our liquidity, operations and personnel; and the outcome of any known or unknown litigation and regulatory proceedings. Detailed information about these factors and additional important factors can be found in the documents that ARKO files with the Securities and Exchange Commission, such as Form 10-K, Form 10-Q and Form 8-K. Forward-looking statements speak only as of the date the statements were made. ARKO assumes no obligation to update forward-looking information, except as required by applicable law.

Media Contact

Andrew PetroMatter on behalf of ARKO(978) 518-4531apetro@matternow.com

Investor Contact

Chris MandevilleICR on behalf of ARKOARKO@icrinc.com

Consolidated statements of operations For the Three Months Ended For the Nine Months Ended September30, September30, 2021 2020 2021 2020 (in thousands) Revenues: Fuel revenue $ 1,580,359 $ 539,938 $ 4,144,069 $ 1,510,491 Merchandise 434,652 403,665 1,220,298 1,119,041 revenueOther revenues, 20,012 16,475 64,826 44,701 netTotal revenues 2,035,023 960,078 5,429,193 2,674,233 Operating expenses:Fuel costs 1,459,664 462,373 3,819,571 1,279,067 Merchandise 301,533 290,856 866,239 814,524 costsStore operating 164,432 131,780 464,038 386,633 expensesGeneral andadministrative 32,696 25,403 91,270 64,823 expensesDepreciationand 22,031 16,171 71,546 50,056 amortizationTotal operating 1,980,356 926,583 5,312,664 2,595,103 expensesOther (income) (56 ) 1,381 2,811 7,290 expenses, netOperating 54,723 32,114 113,718 71,840 incomeInterest andother financial 2,937 239 4,613 980 incomeInterest andother financial (17,365 ) (10,500 ) (59,655 ) (30,405 ) expensesIncome before 40,295 21,853 58,676 42,415 income taxesIncome tax (4,795 ) (4,672 ) (12,285 ) (5,171 ) expenseIncome (loss)from equity 85 (24 ) 105 (435 ) investmentNet income $ 35,585 $ 17,157 $ 46,496 $ 36,809 Less: Netincomeattributable to 51 7,469 179 15,682 non-controllinginterestsNet incomeattributable to $ 35,534 $ 9,688 $ 46,317 $ 21,127 ARKO Corp.Series Aredeemable (1,449 ) (4,285 ) preferred stockdividendsNet incomeattributable to $ 34,085 $ 42,032 commonshareholdersNet income pershareattributable to $ 0.27 $ 0.14 $ 0.34 $ 0.31 commonshareholders -basicNet income pershareattributable to $ 0.25 $ 0.14 $ 0.31 $ 0.31 commonshareholders -dilutedWeightedaverage shares outstanding:Basic 124,428 71,390 124,406 69,221 Diluted 133,925 71,390 125,354 69,221

Consolidated balance sheets September30, December31, 2021 2020 (in thousands)Assets Current assets: Cash and cash equivalents $ 275,185 $ 293,666 Restricted cash with respect to bonds ? 1,230 Restricted cash 14,920 16,529 Trade receivables, net 66,182 46,940 Inventory 189,026 163,686 Other current assets 93,515 87,355 Total current assets 638,828 609,406 Non-current assets: Property and equipment, net 531,864 491,513 Right-of-use assets under operating leases 959,675 961,561 Right-of-use assets under financing leases, 197,377 198,317 netGoodwill 188,636 173,937 Intangible assets, net 201,318 218,132 Restricted investments 31,825 31,825 Non-current restricted cash with respect to ? 1,552 bondsEquity investment 2,809 2,715 Deferred tax asset 37,382 40,655 Other non-current assets 18,716 10,196 Total assets $ 2,808,430 $ 2,739,809 Liabilities Current liabilities: Long-term debt, current portion $ 10,028 $ 40,988 Accounts payable 180,677 155,714 Other current liabilities 122,700 133,637 Operating leases, current portion 51,522 48,878 Financing leases, current portion 6,957 7,834 Total current liabilities 371,884 387,051 Non-current liabilities: Long-term debt, net 679,560 708,802 Asset retirement obligation 56,450 52,964 Operating leases 977,639 973,695 Financing leases 230,677 226,440 Deferred tax liability 356 2,816 Other non-current liabilities 151,286 96,621 Total liabilities 2,467,852 2,448,389 Series A redeemable preferred stock 100,000 100,000 Shareholders' equity: Common stock 12 12 Additional paid-in capital 214,895 212,103 Accumulated other comprehensive income 9,119 9,119 Retained earnings (deficit) 16,664 (29,653 )Total shareholders' equity 240,690 191,581 Non-controlling interest (112 ) (161 )Total equity 240,578 191,420 Total liabilities, redeemable preferred stock $ 2,808,430 $ 2,739,809 and equity

Consolidated statements of cash flows For the Nine Months Ended September30, 2021 2020 (in thousands)Cash flows from operating activities: Net income $ 46,496 $ 36,809 Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization 71,546 50,056 Deferred income taxes 3,910 2,986 Loss on disposal of assets and impairment charges 1,898 5,565 Foreign currency (gain) loss (1,176 ) 436 Amortization of deferred financing costs, debt 1,423 2,431 discount and premiumAmortization of deferred income (7,102 ) (5,998 )Accretion of asset retirement obligation 1,266 1,010 Non-cash rent 4,773 5,175 Charges to allowance for credit losses 450 74 (Income) loss from equity investment (105 ) 435 Share-based compensation 4,127 387 Fair value adjustment of financial assets and 9,237 ? liabilitiesOther operating activities, net 727 (496 )Changes in assets and liabilities: (Increase) decrease in trade receivables (19,692 ) 1,740 (Increase) decrease in inventory (17,733 ) 11,588 Increase in other assets (10,048 ) (6,647 )Increase (decrease) in accounts payable 25,161 (2,372 )Increase in other current liabilities 3,493 17,058 Decrease in asset retirement obligation (128 ) (159 )Increase in non-current liabilities 1,024 6,420 Net cash provided by operating activities 119,547 126,498 Cash flows from investing activities: Purchase of property and equipment (48,123 ) (28,753 )Purchase of intangible assets (222 ) (30 )Proceeds from sale of property and equipment 36,685 438 Business acquisitions, net of cash (93,527 ) (320 )Loans to equity investment ? (189 )Net cash used in investing activities (105,187 ) (28,854 )Cash flows from financing activities: Lines of credit, net ? (83,063 )Repayment of related-party loans ? (4,517 )Buyback of long-term debt ? (1,995 )Receipt of long-term debt, net 41,366 159,507 Repayment of debt (105,291 ) (56,161 )Principal payments on financing leases (6,050 ) (6,143 )Proceeds from failed sale-leaseback 43,569 ? Proceeds from issuance of rights, net ? 11,332 Investment of non-controlling interest in subsidiary ? 19,325 Payment of Merger Transaction issuance costs (4,764 ) ? Dividends paid on redeemable preferred stock (4,442 ) ? Distributions to non-controlling interests (180 ) (7,093 )Net cash (used in) provided by financing activities (35,792 ) 31,192 Net (decrease) increase in cash and cash equivalents (21,432 ) 128,836 and restricted cashEffect of exchange rate on cash and cash equivalents (1,440 ) 282 and restricted cashCash and cash equivalents and restricted cash, 312,977 52,763 beginning of periodCash and cash equivalents and restricted cash, end $ 290,105 $ 181,881 of period

Use of Non-GAAP Measures

We disclose non-GAAP measures on a same store basis, which exclude the results of any store that is not a same store for the applicable period. A store is considered a same store beginning in the second quarter in which the store had a full quarter of activity in the prior year. We believe that this information provides greater comparability regarding our ongoing operating performance. Neither this measure nor those described below should be considered an alternative to measurements presented in accordance with generally accepted accounting principles (GAAP) and are non-GAAP financial measures.

We define EBITDA as net income (loss) before net interest expense, income taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA by excluding the gain or loss on disposal of assets, impairment charges, acquisition costs, other non-cash items, and other unusual or non-recurring charges. Adjusted EBITDA, net of incremental expenses, further adjusts Adjusted EBITDA by excluding incremental bonuses based on 2020 performance. Each of EBITDA, Adjusted EBITDA and Adjusted EBITDA, net of incremental bonuses is a non-GAAP financial measure.

We use EBITDA, Adjusted EBITDA and Adjusted EBITDA, net of incremental bonuses for operational and financial decision-making and believe these measures are useful in evaluating our performance because they eliminate certain items that we do not consider indicators of our operating performance. EBITDA. Adjusted EBITDA and Adjusted EBITDA, net of incremental bonuses are also used by many of our investors, securities analysts, and other interested parties in evaluating our operational and financial performance across reporting periods. We believe that the presentation of EBITDA, Adjusted EBITDA and Adjusted EBITDA, net of incremental bonuses provides useful information to investors by allowing an understanding of key measures that we use internally for operational decision-making, budgeting, evaluating acquisition targets, and assessing our operating performance.

EBITDA, Adjusted EBITDA and Adjusted EBITDA, net of incremental bonuses are not recognized terms under GAAP and should not be considered as a substitute for net income (loss) or any other financial measure presented in accordance with GAAP. These measures have limitations as analytical tools, and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP. We strongly encourage investors to review our financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.

Because non-GAAP financial measures are not standardized, same stores measures, EBITDA, Adjusted EBITDA and Adjusted EBITDA, net of incremental bonuses, as defined by us, may not be comparable to similarly titled measures reported by other companies. It therefore may not be possible to compare our use of these non-GAAP financial measures with those used by other companies.

The following table contains a reconciliation of net income to EBITDA, Adjusted EBITDA and Adjusted EBITDA, net of incremental bonuses for the periods presented:

Reconciliation of Adjusted EBITDA and Adjusted EBITDA, net of incremental bonuses For the Three Months For the Nine Months Ended September30, Ended September30, 2021 2020 2021 2020 (in thousands) Net income $ 35,585 $ 17,157 $ 46,496 $ 36,809 Interest and other financing 14,428 10,261 55,042 29,425 expenses, netIncome tax expense 4,795 4,672 12,285 5,171 Depreciation and amortization 22,031 16,171 71,546 50,056 EBITDA 76,839 48,261 185,369 121,461 Non-cash rent expense (a) 1,424 1,627 4,773 5,175 Acquisition costs (b) 1,182 958 3,781 3,340 Loss on disposal of assets 923 1,183 1,898 5,565 and impairment charges (c)Share-based compensation 1,613 132 4,127 387 expense (d)(Income) loss from equity (85 ) 24 (105 ) 435 investment (e)Fuel taxes paid in arrears ? (231 ) ? 819 (f)Adjustment to contingent (1,740 ) ? (1,740 ) ? consideration (g)Other (h) 27 (413 ) 100 (158 ) Adjusted EBITDA $ 80,183 $ 51,541 $ 198,203 $ 137,024 Incremental bonuses (i) ? 5,786 ? 5,786 Adjusted EBITDA, net of $ 80,183 $ 57,327 $ 198,203 $ 142,810 incremental bonuses (a)Eliminates the non-cash portion of rent, which reflects the extent to whichour GAAP rent expense recognized exceeds (or is less than) our cash rentpayments. The GAAP rent expense adjustment can vary depending on the terms ofour lease portfolio, which has been impacted by our recent acquisitions. For newer leases, our rent expense recognized typically exceeds our cash rentpayments, while for more mature leases, rent expense recognized is typicallyless than our cash rent payments. (b)Eliminates costs incurred that are directly attributable to historicalbusiness acquisitions and salaries of employees whose primary job function is to execute our acquisition strategy and facilitate integration of acquiredoperations. (c)Eliminates the non-cash loss (gain) from the sale of property andequipment, the loss (gain) recognized upon the sale of related leased assets, and impairment charges on property and equipment and right-of-use assetsrelated to closed and non-performing stores. (d)Eliminates non-cash share-based compensation expense related to the equityincentive program in place to incentivize, retain, and motivate our employees, certain non-employees and members of our Board of Directors. (e)Eliminates our share of (income) loss attributable to our unconsolidated equity investment. (f) Eliminates the payment of historical fuel tax liabilities owed for multiple prior periods. (g)Eliminates fair value adjustments to the contingent consideration owed for the Empire Acquisition. (h)Eliminates other unusual or non-recurring items that we do not consider to be meaningful in assessing operating performance. (i)Eliminates incremental bonuses based on 2020 performance.