arko-ex991

Company Reporting Financial Results for the First Time Since Becoming a Nasdaq-Listed Public Company

RICHMOND, VA, March 25, 2021 – ARKO Corp. (Nasdaq: ARKO) (“ARKO” or the “Company”), a growing leader in the U.S. convenience store industry, today announced financial results for the fourth quarter and full year ended December 31, 2020.

Arie Kotler, Chief Executive Officer of ARKO Corp., commented, “This quarter marked an important milestone as we became a U.S.-listed public company, and we are pleased to have reported strong financial results in the midst of a challenging operating environment. Our industry is highly fragmented and ripe for consolidation, and we are proud that we have built a large platform with our strong track record of acquisitions. We recently announced the pending acquisition of 61 sites from ExpressStop and remain focused on driving the next chapter of growth through our multi-year remodel program and other compelling organic growth opportunities that we expect will deliver long-term value for all of our stakeholders.”

For the fourth quarter and full year, retail fuel profitability (excluding intercompany charges by our wholesale fuel distribution subsidiary, GPM Petroleum (“GPMP”)) increased approximately $21.8 million and approximately $84.0 million, respectively, compared to the prior year periods. This was due to a higher retail fuel margin that more than offset the decline in gallons sold, which decline in gallons was primarily a result of the COVID-19 pandemic. These increases were also enhanced by the Empire Acquisition and the full year impact of acquisitions made in 2019. Retail fuel gallons sold decreased 3.7% for the quarter and 10.0% for the full year, as compared to 2019, primarily driven by the impact of lower traffic levels due to COVID-19. Similarly, on a same store basis, fourth quarter and full year retail fuel gallons sold declined 15.8% and 16.5%, respectively, as compared to 2019.

Same stores merchandise sales increased 3.3% for the quarter and 3.5% for the year. Total merchandise contribution increased $12.0 million for the quarter and $33.8 million for the year compared to the prior year primarily due to increases in core merchandise categories. These increases were also enhanced by the Empire Acquisition and the full year impact of acquisitions made in 2019.

For the fourth quarter and full year, wholesale fuel profitability (excluding intercompany charges by GPMP) increased approximately $15.2 million for the quarter and approximately $16.1 million for the full year compared to the prior year, with the Empire Acquisition accounting for the majority of the growth. Wholesale fuel margin calculated as cents per gallon were down for the quarter and full year versus prior year due to the Empire Acquisition as a majority of the acquired gallons are sold on a fixed markup basis as opposed to a consignment agent relationship which involves a profit split with the dealer.

As of December 31, 2020, the Company’s cash and cash equivalents were $296.4 million, plus $31.8 million of restricted investments, and outstanding debt was $749.8 million, resulting in net debt of $421.6 million and a net debt to Adjusted EBITDA, net of incremental bonuses, leverage ratio of 2.3x. Capital expenditures were $44.6 million for the year ended December 31, 2020, compared to $58.3 million for the prior year. As of December 31, 2020, there were 124.1 million shares of common stock outstanding.

In October 2020, we consummated the Empire Acquisition, which at the time of the acquisition added to our business the direct operation of 84 convenience stores and supply of fuel to 1,453 independently operated fueling stations in 30 states and the District of Columbia. As a result of the closing of the Empire Acquisition, we now operate stores or supply fuel in 33 states and the District of Columbia.

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

	For the year ended December 31,						For the three months ended December 31,
Retail Segment	2020			2019			2020			2019
Number of sites at beginning of period		1,272			1,215			1,250			1,213
Acquired sites		84			87			84			69
Newly opened or reopened sites		3			1			3			—
Company-controlled sites converted to consignment locations and independent and lessee dealers, net		(14	)		(8	)		—			(1	)
Closed, relocated or divested sites		(15	)		(23	)		(7	)		(9	)
Number of sites at end of period		1,330			1,272			1,330			1,272

	For the year ended December 31,						For the three months ended December 31,
Wholesale Segment	2020			2019			2020			2019
Number of sites at beginning of period		128			126			139			133
Acquired sites		1,453			—			1,453			—
Newly opened or reopened sites		31			—			23			—
Consignment locations or independent and lessee dealers converted from Company-controlled sites, net		14			8			—			1
Closed, relocated or divested sites		(12	)		(6	)		(1	)		(6	)
Number of sites at end of period		1,614			128			1,614			128

On December 22, 2020, ARKO Holdings Ltd., an Israeli public company, and Haymaker Acquisition Corp. II, a special purpose acquisition company, completed their business combination to form ARKO Corp. The common stock and warrants of ARKO Corp. began trading on Nasdaq under the new ticker symbols “ARKO” and “ARKOW,” respectively, on December 23, 2020. Please see the press release dated December 22, 2020 on ARKO Corp.’s Investor Relations website for more details related to the business combination at https://www.arkocorp.com/news-events/press-releases.

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 April 8, 2021, by dialing 877-660-6853 or 201-612-7415 and entering confirmation code 13717487.

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

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 7^th largest convenience store chain in the United States, operating or supplying fuel to approximately 2,950 locations in 33 states and the District of Columbia, comprised of approximately 1,350 company-operated stores and approximately 1,600 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 GPMP, 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.

This 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,” “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 management’s 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, 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.

In the Business Combination, Arko Holdings was deemed the accounting acquirer. As such, the historical financial statements of Arko Holdings became the historical financial statements of the combined company. As a result, the financial information included herein reflect the historical operating results of Arko Holdings prior to the closing of the business combination and the combined results of the Company following the closing of the business combination. Additionally, the Company’s equity structure has been reclassified in all comparative periods up to the closing of the business combination to reflect the number of shares of the Company’s common stock issued to Arko Holdings’ stockholders in connection with the recapitalization transaction. As such, the share counts, corresponding common stock amounts and earnings per share related to Arko Holdings’ common stock prior to the business combination have been retroactively reclassified as shares reflecting the exchange ratio established in accordance with the Business Combination.

	Consolidated statements of operations

	For the year ended December 31,						For the three months ended December 31,
	2020			2019			2020			2019
	(in thousands)
Revenues:
Fuel revenue	$	2,352,884		$	2,703,440		$	842,393		$	662,273
Merchandise revenue		1,494,342			1,375,438			375,301			337,133
Other revenues, net		63,489			49,812			18,788			12,589
Total revenues		3,910,715			4,128,690			1,236,482			1,011,995
Operating expenses:
Fuel costs		2,031,899			2,482,472			752,832			609,723
Merchandise costs		1,088,032			1,002,922			273,508			247,382
Store operating expenses		532,422			506,524			145,789			128,906
General and administrative expenses		94,424			69,311			29,601			18,232
Depreciation and amortization		74,396			62,404			24,340			16,120
Total operating expenses		3,821,173			4,123,633			1,226,070			1,020,363
Other expenses, net		9,228			3,733			1,938			(1,033	)
Operating income (loss)		80,314			1,324			8,474			(7,335	)
Interest and other financial income		1,245			1,451			265			426
Interest and other financial expenses		(51,673	)		(43,263	)		(21,268	)		(9,623	)
Income (loss) before income taxes		29,886			(40,488	)		(12,529	)		(16,532	)
Income tax benefit (expense)		1,499			(6,167	)		6,670			(3,329	)
Loss from equity investee		(1,269	)		(507	)		(834	)		(109	)
Net income (loss)	$	30,116		$	(47,162	)	$	(6,693	)	$	(19,970	)
Less: Net income (loss) attributable to non-controlling interests		16,929			(3,623	)		1,247			(2,390	)
Net income (loss) attributable to ARKO Corp.	$	13,187		$	(43,539	)	$	(7,940	)	$	(17,580	)
Accretion of redeemable preferred stock		(3,120	)					(3,120	)
Series A redeemable preferred stock dividends		(157	)					(157	)
Net income (loss) attributable to common shareholders	$	9,910					$	(11,217	)
Net earnings (loss) per share attributable to common shareholders - basic and diluted	$	0.14		$	(0.65	)	$	(0.15	)	$	(0.26	)
Weighted average shares outstanding:
Basic and Diluted		71,074			66,701			76,628			66,727

	Consolidated balance sheets

	As of December 31,
	2020			2019
	(in thousands)
Assets
Current assets:
Cash and cash equivalents	$	293,666		$	32,117
Restricted cash with respect to bonds		1,230			4,260
Restricted cash		16,529			14,423
Trade receivables, net		46,940			23,190
Inventory		163,686			157,752
Other current assets		87,355			58,369
Total current assets		609,406			290,111
Non-current assets:
Property and equipment, net		491,513			367,151
Right-of-use assets under operating leases		961,561			793,086
Right-of-use assets under financing leases, net		198,317			180,557
Goodwill		173,937			133,952
Intangible assets, net		218,132			24,971
Restricted investments		31,825			31,825
Non-current restricted cash with respect to bonds		1,552			1,963
Equity investment		2,715			3,770
Deferred tax asset		40,655			—
Other non-current assets		10,196			19,979
Total assets	$	2,739,809		$	1,847,365
Liabilities
Current liabilities:
Lines of credit	$	—		$	82,824
Long-term debt, current portion		40,988			19,131
Accounts payable		155,714			128,828
Other current liabilities		133,637			67,519
Operating leases, current portion		48,878			34,303
Financing leases, current portion		7,834			7,876
Total current liabilities		387,051			340,481
Non-current liabilities:
Long-term debt, net		708,802			218,680
Asset retirement obligation		52,964			36,864
Operating leases		973,695			816,558
Financing leases		226,440			202,470
Deferred tax liability		2,816			1,041
Other non-current liabilities		70,166			36,381
Total liabilities		2,421,934			1,652,475

Commitments and contingencies
Series A redeemable preferred stock		100,000			—

Shareholders' equity:
Common stock		12			2,735
Additional paid-in capital		239,081			101,957
Accumulated other comprehensive income		9,119			4,444
Accumulated deficit		(30,176	)		(43,363	)
Total shareholders' equity		218,036			65,773
Non-controlling interest		(161	)		129,117
Total equity		217,875			194,890
Total liabilities, redeemable preferred stock and equity	$	2,739,809		$	1,847,365

	Consolidated statements of cash flows

	For the year ended December 31,						For the three months ended December 31,
	2020			2019			2020			2019
	(in thousands)
Cash flows from operating activities:
Net income (loss)	$	30,116		$	(47,162	)	$	(6,693	)	$	(19,970	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		74,396			62,404			24,340			16,120
Deferred income taxes		(4,747	)		4,299			(7,733	)		3,269
Gain on bargain purchase		—			(406	)		—			—
Loss (gain) on disposal of assets and impairment charges		6,060			(1,291	)		495			(3,721	)
Foreign currency loss		6,754			10,158			6,318			984
Amortization of deferred financing costs, debt discount and premium		2,236			522			(195	)		(818	)
Amortization of deferred income		(7,650	)		(8,848	)		(1,652	)		(2,153	)
Accretion of asset retirement obligation		1,359			1,549			349			389
Non-cash rent		7,051			7,582			1,876			1,889
Charges to allowance for doubtful accounts, net		260			91			186			17
Loss from equity investment		1,269			507			834			109
Share-based compensation		1,891			516			1,504			162
Fair value adjustment of financial assets and liabilities		(491	)		—			(491	)		—
Other operating activities, net		115			—			611			—
Changes in assets and liabilities:
(Increase) decrease in trade receivables		(24,010	)		(1,692	)		(25,750	)		4,633
Decrease (increase) in inventory		6,618			(7,302	)		(4,970	)		(5,983	)
(Increase) decrease in other assets		(7,864	)		7,212			(1,217	)		10,597
Increase in accounts payable		26,893			8,830			29,265			(8,242	)
Increase (decrease) in other current liabilities		46,303			5,064			29,245			(6,001	)
Decrease in asset retirement obligation		(393	)		(450	)		(234	)		(77	)
Increase in non-current liabilities		7,676			1,714			1,256			1,780
Net cash provided by (used in) operating activities		173,842			43,297			47,344			(7,016	)
Cash flows from investing activities:
Purchase of property and equipment		(44,646	)		(58,261	)		(15,893	)		(29,032	)
Purchase of intangible assets		(30	)		—			—			—
Proceeds from sale of property and equipment		1,302			18,982			864			15,923
Business acquisitions, net of cash		(363,988	)		(33,587	)		(363,668	)		(30,762	)
Loans to equity investment		(189	)		(174	)		—			—
Net cash used in investing activities		(407,551	)		(73,040	)		(378,697	)		(43,871	)
Cash flows from financing activities:
Lines of credit, net		(83,515	)		34,893			(452	)		41,708
Repayment of related-party loans		(4,517	)		(850	)		—			(850	)
Buyback of long-term debt		(1,995	)		—			—			—
Receipt of long-term debt, net		570,207			50,934			410,700			17,970
Repayment of debt		(58,792	)		(18,079	)		(2,631	)		(2,473	)
Payment of Provision - Pension Fund		—			(17,500	)		—			—
Principal payments on financing leases		(8,116	)		(9,051	)		(1,973	)		(2,417	)
Proceeds from issuance of rights, net		11,332			—			—			—
Purchase of non-controlling interest in GPMP		(99,048	)		—			(99,048	)		—
Investment of non-controlling interest in subsidiary		19,325			—			—			—
Issuance of shares in Merger Transaction		57,997			—			57,997			—
Issuance of redeemable preferred stock, net		96,880			—			96,880			—
Distributions to non-controlling interests		(8,710	)		(8,654	)		(1,617	)		(2,167	)
Net cash provided by financing activities		491,048			31,693			459,856			51,771
Effect of exchange rate on cash and cash equivalents and restricted cash		2,875			1,263			2,593			66
Net increase in cash and cash equivalents and restricted cash		257,339			1,950			128,503			884
Cash and cash equivalents and restricted cash, beginning of year		52,763			49,550			181,881			51,813
Cash and cash equivalents and restricted cash, end of year	$	312,977		$	52,763		$	312,977		$	52,763

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 first quarter in which the store has a full quarter of activity in the prior year. We believe that this information provides greater comparability regarding our ongoing operating performance. These measures should not 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 bonuses further adjusts Adjusted EBITDA by excluding incremental bonuses based on 2020 performance. None of EBITDA, Adjusted EBITDA or Adjusted EBITDA, net of incremental bonuses are presented in accordance with GAAP and are non-GAAP financial measures.

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), cash flows from operating activities, or other income or cash flow statement data. 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 (loss) to EBITDA, Adjusted EBITDA and Adjusted EBITDA, net of incremental bonuses for the time periods presented:

	Reconciliation of Adjusted EBITDA and Adjusted EBITDA, net of incremental bonuses

	For the year ended December 31,						For the three months ended December 31,
	2020			2019			2020			2019
	(in thousands)
Net income (loss)	$	30,116		$	(47,162	)	$	(6,693	)	$	(19,970	)
Interest and other financing expenses, net		50,428			41,812			21,003			9,197
Income tax (benefit) expense		(1,499	)		6,167			(6,670	)		3,329
Depreciation and amortization		74,396			62,404			24,340			16,120
EBITDA		153,441			63,221			31,980			8,676
Non-cash rent expense (a)		7,051			7,582			1,876			1,889
Acquisition costs (b)		6,031			6,395			2,691			3,048
Gain on bargain purchase (c)		—			(406	)		—			—
Loss (gain) on disposal of assets and impairment charges (d)		6,060			(1,291	)		495			(3,721	)
Share-based compensation expense (e)		1,891			516			1,504			162
Loss from equity investee (f)		1,269			507			834			109
Non-beneficial cost related to potential initial public offering of master limited partnership (g)		—			121			—			121
Settlement of pension fund claim (h)		—			226			—			—
Merchandising optimization costs (i)		—			1,000			—			1,000
Fuel taxes paid in arrears (j)		819			—			—			—
Other (k)		(985	)		288			(827	)		354
Adjusted EBITDA	$	175,577		$	78,159		$	38,553		$	11,638
Incremental bonuses (l)		7,815			—			2,029			—
Adjusted EBITDA, net of incremental bonuses	$	183,392		$	78,159		$	40,582		$	11,638

	For the year ended December 31,						For the three months ended December 31,
	2020			2019			2020			2019
	(in thousands)
Fuel gallons sold		937,095			1,039,993			249,842			259,474
Same stores fuel gallons sold decrease (%) ²		(16.5	%)		(1.8	%)		(15.8	%)		(0.3	%)
Fuel margin, cents per gallon ¹		31.9			20.7			29.3			19.8
Merchandise revenue	$	1,494,342		$	1,375,438		$	375,301		$	337,133
Same stores merchandise sales increase (%) ²		3.5	%		1.0	%		3.3	%		0.3	%
Merchandise contribution ³	$	406,310		$	372,516		$	101,793		$	89,751
Merchandise margin ⁴		27.2	%		27.1	%		27.1	%		26.6	%

	For the year ended December 31,				For the three months ended December 31,
	2020		2019		2020		2019
	(in thousands)
Fuel gallons sold		267,309		64,757		226,077		15,541
Fuel margin, cents per gallon¹		8.2		9.0		7.3		8.6