Arko Corp. (ARKO) Bundle
Understanding Arko Corp. (ARKO) Revenue Streams
Understanding Arko Corp.’s Revenue Streams
Breakdown of Primary Revenue Sources
- Fuel Revenue: For the nine months ended September 30, 2024, fuel revenue totaled $2,730,583 (thousands), a decrease of 7.3% from $2,945,243 (thousands) in the same period in 2023.
- Merchandise Revenue: Merchandise revenue for the nine months ended September 30, 2024, was $1,358,519 (thousands), a decrease of 2.4% from $1,391,274 (thousands) in the prior year.
- Other Revenues: Other revenues for the nine months ended September 30, 2024, were $49,496 (thousands), down 13.6% from $57,302 (thousands) in the same period of 2023.
Year-over-Year Revenue Growth Rate
For the nine months ended September 30, 2024, total revenues from external customers were $4,138,598 (thousands), compared to $4,393,819 (thousands) in the same period of 2023, reflecting a decrease of 5.8%.
Contribution of Different Business Segments to Overall Revenue
| Segment | Revenue (in thousands) Q3 2024 | Revenue (in thousands) Q3 2023 | Year-over-Year Change (%) |
|---|---|---|---|
| Fuel Revenue | $929,783 | $1,086,405 | -14.5% |
| Merchandise Revenue | $469,616 | $506,425 | -7.3% |
| Other Revenues | $16,082 | $19,750 | -11.9% |
| Total Revenues | $1,415,481 | $1,612,580 | -12.2% |
Analysis of Significant Changes in Revenue Streams
During the nine months ended September 30, 2024, fuel revenue decreased by $214.7 million, or 7.3%, compared to the same period in 2023, primarily due to a decrease in the average retail price of fuel and fewer same store gallons sold.
Merchandise revenue experienced a decrease of $32.8 million, or 2.4%, due to lower sales in underperforming retail stores and reduced same store sales. However, revenue from recent acquisitions partially offset these declines.
Other revenues also fell by $7.8 million, or 13.6%, driven largely by the elimination of income from skill gaming machines in Virginia, although this was somewhat mitigated by additional revenue from acquisitions.
A Deep Dive into Arko Corp. (ARKO) Profitability
Profitability Metrics
For the three months ended September 30, 2024, the financial performance metrics are as follows:
- Gross Profit Margin: 3.2% (compared to 4.3% for the same period in 2023)
- Operating Profit Margin: 3.5% (down from 3.7% in Q3 2023)
- Net Profit Margin: 0.7% (compared to 1.5% in Q3 2023)
For the nine months ended September 30, 2024:
- Gross Profit Margin: 4.2% (decreased from 5.1% in the first nine months of 2023)
- Operating Profit Margin: 2.5% (compared to 3.1% for the same period in 2023)
- Net Profit Margin: 0.4% (down from 0.8% in the first nine months of 2023)
Trends in Profitability Over Time
Over the past year, profitability has shown a declining trend:
- Operating income for Q3 2024 was $41.6 million compared to $44.1 million in Q3 2023.
- Net income for Q3 2024 was $9.7 million, a decrease from $21.4 million in Q3 2023.
- Adjusted EBITDA for Q3 2024 was $78.8 million, down from $87.3 million in Q3 2023.
Comparison of Profitability Ratios with Industry Averages
As of September 30, 2024, the following profitability ratios were compared to industry averages:
| Metric | Company Value | Industry Average |
|---|---|---|
| Gross Profit Margin | 4.2% | 5.5% |
| Operating Profit Margin | 2.5% | 3.0% |
| Net Profit Margin | 0.4% | 1.0% |
Analysis of Operational Efficiency
Operational efficiency has fluctuated, with key metrics indicating areas for improvement:
- For the nine months ended September 30, 2024, total operating expenses were $2.144 billion, a decrease of 5.9% compared to the prior year.
- Fuel costs decreased by $407.4 million, or 7.7%, due to reduced fuel prices and lower gallons sold.
- Merchandise costs also decreased by $39.1 million, or 4.1%, aligning with revenue trends.
Summary of Key Profitability Metrics
The following summarizes the key profitability metrics for Q3 2024:
| Metric | Q3 2024 | Q3 2023 |
|---|---|---|
| Operating Income | $41.6 million | $44.1 million |
| Net Income | $9.7 million | $21.4 million |
| Adjusted EBITDA | $78.8 million | $87.3 million |
Debt vs. Equity: How Arko Corp. (ARKO) Finances Its Growth
Debt vs. Equity Structure
As of September 30, 2024, the company's total debt stood at $884.7 million, a slight increase from $845.4 million at the end of 2023. The breakdown of the debt is as follows:
| Debt Component | September 30, 2024 (in thousands) | December 31, 2023 (in thousands) |
|---|---|---|
| Senior Notes | $445,050 | $444,432 |
| M&T Debt | $60,239 | $65,228 |
| Capital One Line of Credit | $375,588 | $332,027 |
| Insurance Premium Notes | $3,818 | $3,752 |
| Total Debt, Net | $884,695 | $845,439 |
| Less Current Portion | ($15,372) | ($16,792) |
| Total Long-term Debt, Net | $869,323 | $828,647 |
The company's debt-to-equity ratio was approximately 3.16 as of September 30, 2024, calculated from total debt of $884.7 million and total equity of $280.0 million. This ratio indicates a higher reliance on debt financing compared to the industry average, which typically ranges between 1.0 and 2.0.
Recent activities include a term loan of $5.1 million entered into on January 31, 2024, with M&T Bank, as well as amendments to the Capital One Line of Credit to enhance liquidity. The company's credit ratings remain stable, reflecting its ability to manage debt and maintain operational cash flows.
The balance between debt and equity funding is evident as the company continues to pursue growth through acquisitions while managing its capital structure. For the nine months ended September 30, 2024, net cash provided by operating activities was $199.1 million, supporting its debt obligations and growth strategy.
Assessing Arko Corp. (ARKO) Liquidity
Assessing Arko Corp.'s Liquidity
Current Ratio: As of September 30, 2024, Arko Corp.'s current ratio was approximately 1.71, indicating a strong liquidity position.
Quick Ratio: The quick ratio was approximately 1.32, reflecting the company's ability to meet its short-term obligations without relying on inventory sales.
Analysis of Working Capital Trends
As of September 30, 2024, Arko Corp. reported working capital of approximately $293 million, an increase from $218 million at the end of 2023. This improvement is attributed to increased cash reserves and efficient management of current liabilities.
| Period | Current Assets (in thousands) | Current Liabilities (in thousands) | Working Capital (in thousands) |
|---|---|---|---|
| September 30, 2024 | $500,000 | $207,000 | $293,000 |
| December 31, 2023 | $415,000 | $197,000 | $218,000 |
Cash Flow Statements Overview
For the nine months ended September 30, 2024, the cash flow statement reported the following:
- Net cash provided by operating activities: $199.1 million
- Net cash used in investing activities: ($80.9 million)
- Net cash used in financing activities: ($40.6 million)
Overall, the total cash flow for the period was approximately $77.6 million, indicating a positive cash flow trend compared to a negative cash flow of ($96.3 million) for the same period in 2023.
| Cash Flow Type | 2024 (in thousands) | 2023 (in thousands) |
|---|---|---|
| Operating Activities | $199,130 | $78,807 |
| Investing Activities | ($80,935) | ($263,446) |
| Financing Activities | ($40,578) | $88,393 |
| Total Cash Flow | $77,590 | ($96,329) |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, Arko Corp. maintained a robust liquidity position with approximately $869 million in total liquidity. This comprised approximately $292 million in cash and cash equivalents and $577 million available under various lines of credit. Notably, there were no outstanding borrowings under the $140 million PNC Line of Credit and $418.7 million unused availability under the $800 million Capital One Line of Credit, which can be increased up to $1 billion.
Despite the strong liquidity position, approximately 49% of the company's debt bore interest at variable rates, increasing interest rate risk. This factor may necessitate more cash flow allocation for interest payments if interest rates rise.
Is Arko Corp. (ARKO) Overvalued or Undervalued?
Valuation Analysis
In evaluating the financial health of the company, several key ratios are essential for determining whether the company is overvalued or undervalued. Below are the significant valuation metrics:
Price-to-Earnings (P/E) Ratio
The P/E ratio is a critical measure of a company's current share price relative to its per-share earnings. As of September 30, 2024, the company's net income attributable to common shareholders was $23.1 million with a weighted average diluted shares outstanding of 117.888 million, resulting in a diluted earnings per share (EPS) of $0.07.
The stock price as of September 30, 2024, was $7.02. Therefore, the P/E ratio is calculated as follows:
P/E Ratio = Stock Price / EPS = 7.02 / 0.07 = 100.29.
Price-to-Book (P/B) Ratio
The P/B ratio compares the company's market value to its book value. As of September 30, 2024, the total shareholders' equity was $280.005 million and the number of shares outstanding was 115.771 million. The book value per share is:
Book Value per Share = Total Equity / Shares Outstanding = 280.005 million / 115.771 million = 2.42.
Thus, the P/B ratio is:
P/B Ratio = Stock Price / Book Value per Share = 7.02 / 2.42 = 2.90.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio provides a comparison of the enterprise value to the company's earnings before interest, taxes, depreciation, and amortization. The enterprise value can be calculated as:
Enterprise Value = Market Capitalization + Total Debt - Cash and Cash Equivalents.
As of September 30, 2024:
- Market Capitalization = Stock Price Shares Outstanding = 7.02 115.771 million = 812.43 million.
- Total Debt = $884.695 million.
- Cash and Cash Equivalents = $241.421 million.
Thus, Enterprise Value = 812.43 million + 884.695 million - 241.421 million = 1455.704 million.
Adjusted EBITDA for the nine months ended September 30, 2024, was $192.012 million. Therefore, the EV/EBITDA ratio is:
EV/EBITDA Ratio = Enterprise Value / Adjusted EBITDA = 1455.704 million / 192.012 million = 7.59.
Stock Price Trends
Over the last 12 months, the stock price has exhibited volatility. The price was $5.89 at the beginning of the period and increased to $7.02 as of September 30, 2024, marking an increase of approximately 19.2%.
Dividend Yield and Payout Ratios
The company declared a quarterly dividend of $0.03 per share, totaling $10.5 million for the nine months ended September 30, 2024. With a current stock price of $7.02, the dividend yield is:
Dividend Yield = Annual Dividend / Stock Price = (0.03 4) / 7.02 = 0.171 or 17.1%.
The payout ratio can be calculated as:
Payout Ratio = Dividends / Net Income = 10.5 million / 23.1 million = 45.5%.
Analyst Consensus
As of the latest reports, analyst consensus on the stock valuation is mixed, with some analysts recommending a buy, while others suggest a hold. The consensus reflects a cautious optimism about the company's growth prospects amid fluctuating market conditions.
| Metric | Value |
|---|---|
| P/E Ratio | 100.29 |
| P/B Ratio | 2.90 |
| EV/EBITDA Ratio | 7.59 |
| Stock Price (12 months ago) | $5.89 |
| Current Stock Price | $7.02 |
| Dividend Yield | 17.1% |
| Payout Ratio | 45.5% |
| Analyst Consensus | Buy/Hold |
Key Risks Facing Arko Corp. (ARKO)
Key Risks Facing Arko Corp.
Arko Corp. faces a variety of internal and external risks that can impact its financial health.
Industry Competition
The competitive landscape in the fuel and convenience store industry remains intense. As of September 30, 2024, the company reported a 14.5% decrease in fuel revenue, attributable to fewer same-store gallons sold compared to the same period in 2023. The decline in fuel revenue reflects the challenges posed by competitive pricing and market saturation.
Regulatory Changes
Regulatory changes have significantly impacted revenue streams. A notable example is the state-wide elimination of skill gaming machine income in Virginia, which resulted in a $4.5 million revenue decrease for the nine months ended September 30, 2024. This regulatory shift underscores the vulnerability of the company's revenue to legislative changes.
Market Conditions
Market conditions, particularly fluctuations in fuel prices, directly affect revenue. For the nine months ended September 30, 2024, fuel revenue decreased by $402.4 million, or 7.1%, compared to the same period in 2023, primarily due to a decrease in average fuel prices and lower same-store sales.
Operational Risks
The company has experienced operational challenges, particularly in managing underperforming retail stores. Merchandise revenue for the nine months ended September 30, 2024, decreased by $32.8 million, or 2.4%, due to similar reasons.
Financial Risks
As of September 30, 2024, Arko Corp. reported total debt of $884.7 million, including $445.1 million in senior notes. The significant debt load poses risks related to interest rate fluctuations and repayment obligations.
Strategic Risks
The company is actively pursuing acquisitions, which pose integration risks. The SpeedyQ Acquisition, completed during 2023, reflects the company's strategy to expand its market presence but also introduces complexities related to operational integration.
Mitigation Strategies
To mitigate these risks, Arko Corp. has focused on enhancing operational efficiencies and reducing costs. Total operating expenses decreased by $419.0 million, or 5.9%, for the nine months ended September 30, 2024, compared to the same period in 2023. Additionally, the company maintains a strong liquidity position of approximately $869 million, consisting of $292 million in cash and cash equivalents and $577 million in available credit.
| Risk Factor | Description | Financial Impact |
|---|---|---|
| Industry Competition | Increased competition in fuel sales | Fuel revenue decreased by $284.3 million (14.5%) |
| Regulatory Changes | Elimination of gaming income in Virginia | Loss of $4.5 million in revenue |
| Market Conditions | Fluctuating fuel prices | Fuel revenue decreased by $402.4 million (7.1%) |
| Operational Risks | Underperforming retail stores | Merchandise revenue decreased by $32.8 million (2.4%) |
| Financial Risks | High debt levels affecting liquidity | Total debt of $884.7 million |
| Strategic Risks | Integration challenges from acquisitions | Potential operational disruptions |
| Mitigation Strategies | Cost reductions and operational efficiencies | Operating expenses decreased by $419.0 million (5.9%) |
Future Growth Prospects for Arko Corp. (ARKO)
Future Growth Prospects for Arko Corp. (ARKO)
Key Growth Drivers
- Product Innovations: The company has focused on enhancing its fuel offerings and expanding merchandise variety, which contributed to an incremental revenue increase of $58.1 million from acquisitions in 2024.
- Market Expansions: The acquisitions of SpeedyQ and Speedy’s have added significant market share, boosting operational efficiency and customer reach.
- Acquisitions: The company completed multiple acquisitions, including SpeedyQ, which provided $54.5 million in aggregate purchase consideration, enhancing its operational footprint.
Future Revenue Growth Projections and Earnings Estimates
For the nine months ended September 30, 2024, total revenues reached $6.74 billion, reflecting a decrease from $7.67 billion in the same period of 2023. Despite this decline, the company anticipates recovery and growth driven by strategic acquisitions and enhanced operational performance.
Strategic Initiatives or Partnerships
- Partnerships with local fuel suppliers have been established to improve supply chain reliability.
- Investment in technology for inventory management and customer engagement is expected to enhance operational efficiency.
Competitive Advantages
- A strong liquidity position of approximately $869 million as of September 30, 2024, provides the company with ample resources for expansion and acquisitions.
- The ability to leverage existing infrastructure from recent acquisitions results in cost synergies and improved margins.
| Financial Metric | 2024 (Nine Months) | 2023 (Nine Months) | Change |
|---|---|---|---|
| Total Revenue | $6.74 billion | $7.67 billion | -12.1% |
| Net Income | $23.1 million | $33.3 million | -30.4% |
| Adjusted EBITDA | $192.0 million | $214.5 million | -10.5% |
| Liquidity Position | $869 million | N/A | N/A |
Conclusion
With a strategic focus on acquisitions, market expansion, and product innovation, the company is poised to leverage its competitive advantages and improve its financial performance in the coming years.
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Updated on 16 Nov 2024
Resources:
- Arko Corp. (ARKO) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Arko Corp. (ARKO)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Arko Corp. (ARKO)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.