ARKO Corp. (ARKO) FY 2021 MD&A

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), about our expectations, beliefs, plans and intentions regarding our product development efforts, business, financial condition, results of operations, strategies and prospects. You can identify forward-looking statements by the fact that these statements do not relate to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those contained in “Item 1A — Risk Factors” of this Annual Report on Form 10-K. Forward-looking statements reflect our views only as of the date they are made. We do not undertake any obligation to update forward-looking statements except as required by applicable law. We intend that all forward-looking statements be subject to the safe harbor provisions of PSLRA.

For purposes of this Management’s Discussion and Analysis, references to the “Company,” “we,” “us” and “our” refer to ARKO Corp. and its consolidated subsidiaries.

Overview

ARKO Corp. was incorporated under the laws of Delaware on August 26, 2020 for the purpose of facilitating the business combination, which we refer to as the Merger Transaction, of Haymaker Acquisition Corp. II, a Delaware corporation (“Haymaker”), and Arko Holdings Ltd., a company organized under the laws of the State of Israel, which we refer to as Arko Holdings. Our shares of common stock, $0.0001 par value per share (“common stock”), and publicly-traded warrants are listed on the Nasdaq Stock Market (“Nasdaq”). Our common stock has also been listed on the Tel Aviv Stock Exchange, however, we terminated such listing, and our common stock ceased trading on such exchange on February 13, 2022. The main activity of Arko Holdings prior to the Merger Transaction was its holding, through its subsidiaries, of controlling rights in GPM Investments, LLC, a Delaware limited liability company, which we refer to as GPM. GPM is our operating entity and, upon consummation of the Merger Transaction, became our indirect wholly owned subsidiary. For further information on the Merger Transaction, please refer to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Based in Richmond, VA, we are a leading independent convenience store operator and, as of December 31, 2021, we were the sixth largest convenience store chain in the United States (“U.S.”) ranked by store count, operating 1,406 retail convenience stores. As of December 31, 2021, we operated the stores under 19 regional store brands, including 1-Stop, Admiral, Apple Market®, BreadBox, ExpressStop, E-Z Mart®, fas mart®, fastmarket®, Handy Mart, Jiffi Stop®, Li’l Cricket, Next Door Store®, Roadrunner Markets, Rstore, Scotchman®, shore stop®, Town Star, Village Pantry® and Young’s. As of December 31, 2021, we also supplied fuel to 1,628 independent dealers. We are well diversified geographically and, as of December 31, 2021, operated across 33 states and the District of Columbia in the Mid-Atlantic, Midwestern, Northeastern, Southeastern and Southwestern United States.

We derive our revenue from the retail sale of fuel and the products offered in our stores, as well as the wholesale distribution of fuel. Our retail stores offer a wide array of cold and hot foodservice, beverages, cigarettes and other tobacco products, candy, salty snacks, grocery, beer and general merchandise. We have foodservice offerings at over 400 company-operated stores. The foodservice category includes hot and fresh foods, deli, fried chicken, bakery, pizza, roller grill items and other prepared foods. We offer a value food menu consisting of items such as hot dogs and chicken sandwiches. In addition, we operate over 90 branded quick service restaurants, consisting of major national brands. Additionally, we provide a number of traditional convenience store services that generate additional income, including lottery, prepaid products, gift cards, money orders, ATMs, gaming, and other ancillary product and service offerings. We also generate revenues from car washes at approximately 90 of our locations.

Description of Segments

Our reportable segments are described below.

Retail Segment

The retail segment includes the operation of a chain of retail stores, which includes convenience stores selling fuel products and other merchandise to retail customers. At our convenience stores, we own the merchandise and fuel inventory and employ personnel to manage the store.

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Wholesale Segment

The wholesale segment supplies fuel to independent dealers, on either a cost plus or consignment basis. For consignment arrangements, we retain ownership of the fuel inventory at the site, are responsible for the pricing of the fuel to the end consumer and share a portion of the gross profit earned from the sale of fuel by the consignment dealers. For cost plus arrangements, we sell fuel to independent dealers and bulk purchasers on a fixed-fee basis. The sales price to the independent dealer is determined according to the terms of the relevant agreement with the independent dealer, which typically reflects our total fuel costs plus the cost of transportation, prompt pay discounts, rebates and a margin.

GPMP Segment

The GPMP segment includes the operations of GPM Petroleum LP, referred to as GPMP, which primarily sells and supplies fuel to GPM and its fuel-selling subsidiaries (both in the retail and wholesale segments) at GPMP’s cost of fuel (including taxes and transportation) plus a fixed margin.

Trends Impacting Our Business

We have achieved strong store growth over the last several years, primarily by implementing a highly successful acquisition strategy. From 2013 through 2021, we completed 20 acquisitions. As a result, our store count has grown from 320 sites in 2011 to 3,034 sites as of December 31, 2021, of which 1,406 were operated as retail convenience stores and 1,628 were locations at which we supplied fuel to independent dealers. These strategic acquisitions have had, and we expect will continue to have, a significant impact on our reported results and can make period to period comparisons of results difficult. In November 2021, we completed our acquisition of 36 Handy Mart retail convenience stores, and in May 2021, we completed our acquisition of 60 ExpressStop retail convenience stores (collectively, the “2021 Acquisitions”). In October 2020, we completed our acquisition of the business of Empire Petroleum Partners, LLC, which business we refer to as Empire, which was significant and added 84 retail sites and 1,453 wholesale sites to our business (the “Empire Acquisition”). The Empire Acquisition was our only business acquisition in 2020. We completed three acquisitions in 2019 for a total of 87 sites, including 64 sites acquired in December 2019 (collectively, the “2019 Acquisitions”). With our achievement of significant size and scale, we have enhanced our focus on organic growth, including implementing company-wide marketing and merchandising initiatives, which we believe will result in significant value accretion to all the assets we have acquired.

The following table provides a history of our acquisitions, conversions and closings for each of the last three years, for the retail and wholesale segments:

1 Excludes bulk and spot purchasers.

2 Includes all signed fuel supply agreements irrespective of fuel distribution commencement date.

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3 We regularly review our processes for measuring our key metrics, including number of sites, for accuracy and consistency. In the course of such review, we recently discovered an error that caused our reported number of wholesale sites to be overstated for the fourth quarter of 2020 through the third quarter of 2021. We have adjusted the number of wholesale sites as of December 31, 2021 and 2020 to account for the error and have corrected the error going forward. To provide greater accuracy and transparency, the adjusted numbers of wholesale sites as of December 31, 2020, March 31, 2021, June 30, 2021 and September 30, 2021 were 1,597 (previously reported 1,614), 1,597 (previously reported 1,625), 1,610 (previously reported 1,647) and 1,633 (previously reported 1,674), respectively. There was no impact on our previously reported gallons sold or financial results. For additional information, please see the risk factor included under Part II, Item 1A under the heading: “If we do not make acquisitions on economically acceptable terms, our future growth may be limited. Furthermore, any acquisitions we complete are subject to substantial risks that could result in losses.”

There has been an ongoing trend in the convenience store industry focused on increasing and improving in-store foodservice offerings, including fresh foods, quick service restaurants or proprietary food offerings. We believe consumers may be more likely to patronize convenience stores that include such new and improved food offerings, which may also lead to increased inside merchandise sales or fuel sales for such stores. Although our food and beverage sales have been negatively impacted during the COVID-19 pandemic, we believe this trend will reverse when the effects of the pandemic subside. Our current foodservice offering, which varies by store, primarily consists of hot and fresh foods, deli, fried chicken, bakery, pizza, roller grill items and other prepared foods. In select stores, we offer value priced food items such as hot dogs and chicken sandwiches. We have historically relied upon a limited number of franchised quick service restaurants and in-store delis to drive customer traffic rather than other types of foodservice offerings. As a result, we believe that our under-penetration of foodservice presents an opportunity to expand foodservice offerings and margin in response to changing consumer behavior. In addition, we believe that continued investment in new technology platforms and applications to adapt to evolving consumer eating preferences, including contactless checkout, order ahead service, and delivery, will further drive growth in profitability.

Our results of operation are significantly impacted by the retail fuel margins we receive on gallons sold. While we expect our same store fuel sales volumes to remain stable over time, even though they have been negatively impacted by COVID-19, and the fuel margins we realize on those sales to remain stable, these fuel margins can change rapidly as they are influenced by many factors including: the price of refined products; interruptions in supply caused by severe weather; refinery mechanical failures; and competition in the local markets in which we operate.

The cost of our main products, gasoline and diesel fuel, is greatly impacted by the wholesale cost of fuel in the United States. We attempt to pass wholesale fuel cost changes to our customers through retail price changes; however, we are not always able to do so. The timing of any related increase or decrease in retail prices is affected by competitive conditions. As a result, we tend to experience lower fuel margins when the cost of fuel is increasing gradually over a longer period and higher fuel margins when the cost of fuel is declining or more volatile over a shorter period of time. For the years ended December 31, 2021 and 2020, we experienced historically high fuel margins as a result of the volatile price of gasoline and diesel fuel.

We also operate in a highly competitive retail convenience market that includes businesses with operations and services that are similar to those that we provide. We face significant competition from other large chain operators. In particular, large convenience store chains have increased their number of locations and remodeled their existing locations in recent years, enhancing their competitive position. We believe that convenience stores managed by individual operators who offer branded or non-branded fuel are also significant competitors in the market. The convenience store industry is also experiencing competition from other retail sectors including grocery stores, large warehouse retail stores, dollar stores and pharmacies.

We believe that the following competitive strengths differentiate us from our competitors and contribute to our continued success:

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Leading industry consolidator with a proven track record of integrating acquisitions and generating strong returns on capital.

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Leading Market Position in Highly Attractive, Diversified and Contiguous Markets.

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Entrenched Local Brands with a Large Store Portfolio.

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Dual Retail and Wholesale Business Model Generating Stable and Diversified Cash Flow.

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Flexibility to Address Consumers Changing Needs.

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Experienced Management with Significant Ownership.

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Strong Balance Sheet with Capacity to Execute Growth Strategy.

In addition to these competitive strengths, we believe that we have a significant opportunity to increase our sales and profitability by continuing to execute our operating strategy, growing our store base in existing and contiguous markets through acquisitions, and enhancing the performance of current stores.

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Business Highlights

Both the 2021 Acquisitions and the Empire Acquisition contributed to the improvement in our results of operations for 2021, primarily in the wholesale segment, as compared to 2020. Increased merchandise contribution at same stores combined with an increase in other revenues positively impacted our results of operations in 2021. General and administrative expenses increased in 2021, as compared to 2020, primarily as a result of the Empire Acquisition.

COVID-19

On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. Throughout the pandemic, our convenience stores and independent dealers have continued to operate and have remained open to the public because convenience store operations and gas stations have been deemed essential businesses by numerous federal and state authorities, including the U.S. Department of Homeland Security, and therefore were exempt from many of the closure orders that were imposed on other U.S. businesses.

The COVID-19 pandemic has reduced the frequency of customer visits and the number of gallons sold at our sites, however, we have seen increases in fuel margin and merchandise basket which more than offset this reduction. Since the beginning of 2021, we have seen an increase in fuel volume as businesses have continued to reopen and customer traffic has increased. Additionally, our corporate offices transitioned to remote work, but we believe we have maintained or increased productivity while expanding the hiring universe for corporate roles nationwide. However, we have seen shortages in labor and supply chain disruptions which have increased our operating costs, however, we have addressed through several hiring initiatives and leveraging our strong partnerships with our suppliers. Notwithstanding the recent resurgence of economic activity, in light of variant strains of the virus that have emerged, the COVID-19 pandemic could continue to impact our operations and the operations of our customers and suppliers as a result of quarantines, location closures, illnesses, and travel restrictions. The extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the resumption of high levels of infection and hospitalization, new variants of the virus, the resulting impact on our employees, customers, suppliers, and vendors, supply chain disruptions and the remedial actions and any stimulus measures adopted by federal, state, and local governments, and to what extent normal economic and operating conditions are impacted. Therefore, we cannot reasonably estimate the future impact at this time.

Seasonality

Our business is seasonal, and our operating income in the second and third quarters has historically been significantly greater than in the first and fourth quarters as a result of the generally improved climate and seasonal buying patterns of our customers. Inclement weather, especially in the Midwest and Northeast regions of the U.S. during the winter months, can negatively impact our financial results.

Results of Operations for the years ended December 31, 2021, 2020 and 2019

The period-to-period comparisons of our results of operations contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operation have been prepared using our audited consolidated annual financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The following discussion should be read in conjunction with such audited annual consolidated financial statements and related notes.

Consolidated Results

The Merger Transaction was accounted for as a reverse recapitalization for accounting purposes: Haymaker was treated as the acquired company and Arko Holdings was considered the accounting acquirer. Because Arko Holdings was deemed the accounting acquirer, upon the consummation of the Merger Transaction, the historical financial statements of Arko Holdings became the historical financial statements of the combined company. As a result, the financial statements included in this Annual Report on Form 10-K and discussed herein reflect the historical operating results of Arko Holdings prior to December 22, 2020, which was the date on which the Merger Transaction closed (the “Merger Closing Date”) and our combined results, including those of Haymaker, following the Merger Closing Date.

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The table below shows our consolidated results for the years ended December 31, 2021, 2020 and 2019, together with certain key metrics.

1 Calculated as fuel revenue less fuel costs divided by fuel gallons sold.

2 Calculated as merchandise revenue less merchandise costs.

3 Calculated as merchandise contribution divided by merchandise revenue.

4 Refer to “Use of Non-GAAP Measures” below for discussion of this non-GAAP performance measure and related reconciliation.

For the year ended December 31, 2021 compared to the year ended December 31, 2020

For the year ended December 31, 2021, fuel revenue increased by $3,261.9 million, or 133%, compared to the year ended December 31, 2020. The increase in fuel revenue was primarily attributable to incremental gallons sold related to the 2021 Acquisitions and the Empire Acquisition, as well as an increase in the average price of fuel in 2021 as compared to 2020, which was partially offset by fewer gallons sold at same stores in 2021 compared to 2020, primarily due to the COVID-19 pandemic, as the pandemic did not have a significant impact on our results until the second half of March 2020.

For the year ended December 31, 2021, merchandise revenue increased by $122.1 million, or 8.2%, compared to the year ended December 31, 2020, primarily due to an increase in same store merchandise sales and the 2021 Acquisitions and the Empire Acquisition.

For the year ended December 31, 2021, other revenues, net increased by $23.2 million, or 36.5%, compared to the year ended December 31, 2020, primarily related to the 2021 Acquisitions and the Empire Acquisition and increased income from lottery commissions and a temporary allowance for skill gaming machines in Virginia.

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For the year ended December 31, 2021, total operating expenses increased by $3,351.1 million, or 85.5%, as compared to the year ended December 31, 2020. Fuel costs increased $3,144.5 million as compared to 2020 due to fuel sold at a higher average cost and higher volumes. Merchandise costs increased $55.5 million, or 5.1%, as compared to 2020, primarily due to the 2021 Acquisitions and the Empire Acquisition, as well as a corresponding increase in same store merchandise sales. For the year ended December 31, 2021, store operating expenses increased $98.1 million, or 18.4%, as compared to 2020 primarily due to incremental expenses related to the 2021 Acquisitions and the Empire Acquisition and an increase in expenses at same stores.

For the year ended December 31, 2021, general and administrative expenses increased $30.2 million, or 32.0%, as compared to the year ended December 31, 2020, primarily due to expenses associated with the Empire Acquisition, annual wage increases, incentive accruals and stock compensation expenses.

For the year ended December 31, 2021, depreciation and amortization expenses increased $22.8 million, or 30.6%, as compared to the year ended December 31, 2020 primarily due to assets acquired during 2021 and 2020, particularly those acquired in the 2021 Acquisitions and the Empire Acquisition.

For the year ended December 31, 2021, other expenses, net decreased by $5.7 million, as compared to the year ended December 31, 2020 primarily due to $0.5 million of additional income recorded for the fair value adjustments of contingent consideration, a $4.7 million reduction in losses on disposal of assets and impairment charges in 2021 and a $0.6 million decrease in acquisition costs.

Operating income was $142.1 million for the year ended December 31, 2021, as compared to $80.3 million for the year ended December 31, 2020. The increase was primarily due to strong fuel and merchandise results, along with incremental income from the 2021 Acquisitions and the Empire Acquisition, partially offset by an increase in general, administrative, depreciation and amortization expenses, as described above.

For the year ended December 31, 2021, interest and other financing expenses, net increased by $21.3 million compared to the year ended December 31, 2020 primarily related to higher interest expense for outstanding debt, $6.3 million of deferred financing costs written off due to the early repayment of debt, $4.5 million additional interest for the early redemption of the Bonds (Series C) and $6.0 million for interest expense related to fair value adjustments for the Company’s public warrants and private warrants assumed from Haymaker in the Merger Transaction, partially offset by $1.0 million of income related to fair value adjustments for a put option granted to Ares (as defined below) on the Merger Closing date and Deferred Shares (as defined in the business combination agreement governing the Merger Transaction) and a net period-over-period increase in foreign currency gains recorded of $8.1 million.

For the year ended December 31, 2021, we incurred income tax expense of $11.6 million compared to a benefit of $1.5 million for the year ended December 31, 2020. The Company’s effective tax rates for the years ended December 31, 2021 and 2020 were 16.3% and (5.1%), respectively. The increase in the effective tax rate by 21.4% was primarily the result of the tax impact of the non-controlling interest in partnership recorded for the year ended December 31, 2020, and the release of valuation allowances from various jurisdictions in both 2021 and 2020. Additionally, the Company directed certain subsidiaries to make entity classification elections for tax purposes effective March 2021. These elections resulted in taxes on the income, gains, losses and deductions of certain foreign subsidiaries in both in the U.S. and the foreign jurisdiction.

Net income attributable to non-controlling interests primarily represented minority interests prior to the Merger Closing Date.

For the year ended December 31, 2021, net income attributable to common shareholders was $53.5 million compared to $10.4 million for the year ended December 31, 2020.

For the year ended December 31, 2021, Adjusted EBITDA, net of incremental bonuses was $256.6 million, as compared to $183.4 million for the year ended December 31, 2020. The 2021 Acquisitions and the Empire Acquisition contributed approximately $78 million of incremental Adjusted EBITDA, net of incremental bonuses. Increased merchandise contribution at same stores also positively impacted 2021, which was partially offset by a slight decrease in gallons sold and fuel profit at same stores, as well as higher credit card fees related to an increase in the retail price of fuel. An increase in general and administrative expenses primarily related to annual wage increases and incentive accruals, also reduced Adjusted EBITDA, net of incremental bonuses, for the year ended December 31, 2021. Refer to “Use of Non-GAAP Measures” below for discussion of this non-GAAP performance measure and related reconciliation to our financial results reported in accordance with GAAP.

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For the year ended December 31, 2020 compared to the year ended December 31, 2019

For the year ended December 31, 2020, fuel revenue decreased by $251.0 million, or 9.3%, compared to the year ended December 31, 2019. The decrease in fuel revenue was attributable to the decrease in the average retail price of fuel in 2020 as compared to 2019, as well as a reduction in the number of gallons sold, primarily as a result of the COVID-19 pandemic, which was offset by incremental gallons sold related to the Empire Acquisition and the 2019 Acquisitions.

For the year ended December 31, 2020, merchandise revenue increased by $118.9 million, or 8.6%, compared to the year ended December 31, 2019, primarily due to the Empire Acquisition and the 2019 Acquisitions, as well as due to an increase in same store merchandise sales.

For the year ended December 31, 2020, other revenues, net increased by $13.7 million, or 27.5%, compared to the year ended December 31, 2019, primarily related to the Empire Acquisition and the 2019 Acquisitions and increased income from lottery commissions and a temporary allowance for skill gaming machines in Virginia.

For the year ended December 31, 2020, total operating expenses decreased by $202.9 million, or 4.9%, as compared to the year ended December 31, 2019. Fuel costs decreased $351.1 million, or 14.1%, as compared to 2019 due to fuel sold at a lower average cost. Merchandise costs increased $85.1 million, or 8.5%, as compared to 2019, primarily due to the Empire Acquisition and the 2019 Acquisitions, as well as a corresponding increase in same store merchandise sales. Store operating expenses increased $25.9 million, or 5.1%, as compared to 2019 primarily due to incremental expenses related to the Empire Acquisition and the 2019 Acquisitions, which were partially offset by a decrease in expenses at same stores.

For the year ended December 31, 2020, general and administrative expenses increased $25.1 million, or 36.2%, as compared to the year ended December 31, 2019, primarily due to annual wage increases, expenses to support the Empire Acquisition and the 2019 Acquisitions, and certain costs related to the Merger Transaction that could not be capitalized. General and administrative expenses for 2020 also included $7.8 million in incremental bonuses earned in 2020 due to our performance.

For the year ended December 31, 2020, depreciation and amortization expenses increased $12.0 million, or 19.2%, as compared to the year ended December 31, 2019 primarily due to assets acquired during 2020 and 2019 related largely to the Empire Acquisition and the 2019 Acquisitions.

For the year ended December 31, 2020, other expenses, net increased by $5.5 million, as compared to the year ended December 31, 2019 primarily due to a gain on sale-leaseback and bargain gain of $6.5 million recognized in 2019 and an additional $1.2 million in losses on disposal of assets and impairment charges in 2020, partially offset by a decrease in acquisition costs of $0.4 million and an adjustment to contingent consideration of $1.3 million.

Operating income was $80.3 million for the year ended December 31, 2020, as compared to $1.3 million for the year ended December 31, 2019. The increase in 2020 was primarily due to strong fuel and merchandise results, which also benefited from the Empire Acquisition and the 2019 Acquisitions, partially offset by increased general, administrative, depreciation and amortization expenses in 2020, as described above.

For the year ended December 31, 2020, interest and other financing expenses, net increased by $8.1 million compared to the year ended December 31, 2019 primarily related to higher interest expense from greater debt outstanding in 2020 and $0.5 million in deferred financing costs written off, which was partially offset by a net period-over-period decrease in foreign currency losses recorded of $3.4 million primarily as all NIS denominated loans previously provided by Arko Holdings to GPM were paid off in February 2020.

For the year ended December 31, 2020, income tax was a benefit of $1.5 million compared to expense of $6.2 million in the year ended December 31, 2019. In 2019, a valuation allowance was recorded on the deferred tax assets of the US subsidiaries based on cumulative three-year loss. In 2020, this valuation allowance was released due to forecasted taxable income and actual 2020 results.

Net income (loss) attributable to non-controlling interests represented minority interests prior to the Merger Closing Date.

For the year ended December 31, 2020, net income attributable to common shareholders was $10.4 million, compared to a loss of $43.5 million for the year ended December 31, 2019.

For the year ended December 31, 2020, Adjusted EBITDA, net of incremental bonuses was $183.4 million, as compared to $78.2 million for the year ended December 31, 2019. The Empire Acquisition and the 2019 Acquisitions contributed approximately

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$16 million of incremental Adjusted EBITDA, net of incremental bonuses in 2020. Although the impact of COVID-19 reduced gallons sold in 2020, the significant increase in fuel profit compared to the same period in 2019 contributed to increased Adjusted EBITDA, net of incremental bonuses in 2020. Increased merchandise contribution at same stores combined with a reduction in expenses also positively impacted 2020. These increases were partially offset by an increase in general and administrative expenses to support the recent acquisitions and increased incentive accruals for bonuses due to our performance in 2020 and certain costs related to the Merger Transaction that could not be capitalized. Refer to “Use of Non-GAAP Measures” below for discussion of this non-GAAP performance measure and related reconciliation to our financial results reported in accordance with GAAP.

For the year ended December 31, 2020, our redeemable preferred stock was accreted to its full redemption value, which reduced net income attributable to common shareholders by $3.1 million.

Segment Results

Retail Segment

The table below shows the results of the retail segment for the years ended December 31, 2021, 2020 and 2019, together with certain key metrics for the segment.

1 Same store is a common metric used in the convenience store industry. We consider 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-GAAP Measures” 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 GPMP for the cost of fuel.

3 Calculated as merchandise revenue less merchandise costs.

4 Calculated as merchandise contribution divided by merchandise revenue.

For the year ended December 31, 2021 compared to the year ended December 31, 2020

Retail Revenues

For the year ended December 31, 2021, fuel revenue increased by $1,108.6 million, or 57.1%, as compared to the year ended December 31, 2020. The 2021 Acquisitions and the Empire Acquisition contributed an incremental aggregate of 125.2 million additional gallons sold, or approximately $408.5 million in fuel revenue for the year ended December 31, 2021. The increase in fuel revenue was also attributable to a $0.87 per gallon increase in the average retail price of fuel in the year ended December 31, 2021 over the year ended December 31, 2020. However, gallons sold at same stores decreased approximately 1.3%, or 11.3 million gallons, primarily due to the COVID-19 pandemic combined with managing both volume and margin to optimize fuel margin. Additionally, underperforming retail stores, which were closed or converted to independent dealers in order to optimize profitability, negatively impacted gallons sold.

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For the year ended December 31, 2021, merchandise revenue increased by $122.1 million, or 8.2%, as compared to the year ended December 31, 2020. The 2021 Acquisitions and the Empire Acquisition contributed an additional $123.0 million of merchandise revenue. Same store merchandise sales increased $23.8 million, or 1.6%, for the year ended December 31, 2021 as compared to the year ended December 31, 2020. Same store merchandise sales increased primarily due to higher grocery, packaged beverages, center-store items, grab-n-go and other tobacco products revenue from benefits of planogram, assortment and marketing initiatives and fact-based data to react to changing consumer needs. Offsetting these increases was a lower reliance on cigarette, foodservice and essential product sales and a decrease in merchandise revenue from underperforming retail stores closed or converted to independent dealers.

For the year ended December 31, 2021, other revenues, net increased by $9.8 million, or 18.4%, from the year ended December 31, 2020, primarily related to the 2021 Acquisitions and the Empire Acquisition, higher lottery commissions and a temporary allowance for skill gaming machines in Virginia.

Retail Operating Income

For the year ended December 31, 2021, fuel margin increased as compared to the year ended December 31, 2020, primarily related to incremental fuel profit from the 2021 Acquisitions and the Empire Acquisition of approximately $53.9 million, which was offset by a decrease in same store fuel profit of $0.8 million (excluding intercompany charges by GPMP). Fuel margin per gallon at same stores for 2021 was higher at 32.2 cents per gallon, as compared to 31.9 cents per gallon for 2020.

For the year ended December 31, 2021, merchandise contribution increased $66.6 million, or 16.4%, as compared to the year ended December 31, 2020, and merchandise margin increased to 29.3% in 2021 as compared to 27.2% in 2020. The increase was due to $36.8 million in incremental merchandise contribution from the 2021 Acquisitions and the Empire Acquisition and an increase in merchandise contribution at same stores of $33.8 million. Merchandise contribution at same stores increased in 2021 primarily due to a shift in product mix away from cigarettes and with greater contributions from grocery, packaged beverages, grab-n-go, other tobacco products and other center-store items, as well as improved purchasing economics. The year ended December 31, 2020 was negatively impacted by a change in sales mix that began in March 2020, as consumers pantry loaded lower margin items due to the onset of the COVID-19 pandemic. Merchandise margin at same stores was 29.0% in 2021 compared to 27.2% in 2020.

For the year ended December 31, 2021, store operating expenses increased $78.5 million, or 15.2%, as compared to the year ended December 31, 2020, primarily due to approximately $60.2 million of incremental expenses related to the 2021 Acquisitions and the Empire Acquisition and an increase in expenses at same stores, including higher credit card fees due to higher retail prices. Store operating expenses were reduced from underperforming stores closed or converted to independent dealers.

For the year ended December 31, 2020 compared to the year ended December 31, 2019

Retail Revenues

For the year ended December 31, 2020, fuel revenue decreased by $597.2 million, or 23.5%, as compared to the year ended December 31, 2019. The Empire Acquisition and the 2019 Acquisitions contributed an aggregate of 78.3 million additional gallons sold. However, gallons sold at same stores decreased by approximately 16.5%, or 167.7 million, primarily due to the COVID-19 pandemic and managing both volume and margin to optimize fuel margin. Additionally, retail stores closed during the year negatively impacted gallons sold. The decrease in fuel revenue was also attributable to a $0.37 per gallon decrease in the average retail price of fuel in 2020 as compared to 2019.

For the year ended December 31, 2020, merchandise revenue increased by $118.9 million, or 8.6%, as compared to the year ended December 31, 2019. The Empire Acquisition and the 2019 Acquisitions contributed an additional $92.4 million in merchandise revenue. Same store merchandise sales increased $47.1 million, or 3.5%, for 2020 as compared to 2019, with an increase of 4.5% in the period from April through December 2020, as compared to the same period in 2019. Same store merchandise sales increased primarily due to higher grocery, packaged beverages, other tobacco products, cigarettes and beer and wine revenue from benefits of planogram initiatives and fact-based data to react to changing consumer needs along with the introduction of high demand essential products such as face masks and hand sanitizer. In addition, there was an overall increase in the consumer market basket as stay at home orders related to COVID-19 began to be eased in May 2020 and consumer demand shifted from other retail channels to convenience stores. Offsetting these increases was a decrease in merchandise revenue from underperforming stores closed or converted to independent dealers.

For the year ended December 31, 2020, other revenues, net increased by $9.5 million, or 21.7%, from the year ended December 31, 2019 primarily related to the Empire Acquisition and the 2019 Acquisitions and higher lottery commissions and a temporary allowance for skill gaming machines in Virginia.

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Retail Operating Income

For the year ended December 31, 2020, fuel margin increased over the year ended December 31, 2019 due to an increase in same store fuel profit of $59.9 million (excluding intercompany charges by GPMP) combined with incremental fuel profit from the Empire Acquisition and the 2019 Acquisitions. Fuel margin per gallon at same stores for 2020 was significantly higher at 31.8 cents per gallon, as compared to 20.7 cents per gallon for 2019, partly due to the impact of lower fuel costs, which dropped significantly at the beginning of March 2020 and continued through the end of April 2020, and remained lower throughout the year, as compared to 2019, together with less competitive pressure on fuel retail prices due to reductions in fuel volume, which allowed for margin expansion.

For the year ended December 31, 2020, merchandise contribution increased $33.8 million, or 9.1%, as compared to the year ended December 31, 2019, and merchandise margin was 27.2% in 2020, as compared to 27.1% in 2019. The increase was due to incremental merchandise contribution from the Empire Acquisition and the 2019 Acquisitions and an increase in merchandise contribution at same stores of $14.2 million. Merchandise contribution at same stores increased over the course of the second, third and fourth quarters of 2020 due to merchandising and marketing initiatives implemented. These increases were partially offset by lower merchandise revenues and a change in sales mix in March 2020 through mid-May 2020 as consumers pantry loaded lower margin items due to the COVID-19 pandemic. Merchandise margin at same stores was 27.1% in 2020 compared to 27.0% in 2019.

For the year ended December 31, 2020, store operating expenses increased $21.2 million, or 4.3%, as compared to the year ended December 31, 2019 due to incremental expenses related to the Empire Acquisition and the 2019 Acquisitions, which were partially offset by a decrease in expenses at same stores, particularly from lower credit card expenses and maintenance costs. Store operating expenses were also reduced from underperforming stores closed or converted to independent dealers.

Wholesale Segment

The table below shows the results of the wholesale segment for the years ended December 31, 2021, 2020 and 2019, together with certain key metrics for the segment.

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 year ended December 31, 2021 compared to the year ended December 31, 2020

Wholesale Revenues

For the year ended December 31, 2021, fuel revenue increased by $2.2 billion compared to the year ended December 31, 2020, primarily due to approximately $2.1 billion of incremental fuel revenues from the Empire Acquisition, which contributed incremental sales of 699.7 million gallons. Wholesale revenues also benefited from an increase in the average price of fuel in 2021 as compared to 2020. Of the total increase in fuel revenue, approximately $1.8 billion of the increase was attributable to fuel supply locations.

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Wholesale Operating Income

For the year ended December 31, 2021, fuel contribution increased by $66.5 million (excluding intercompany charges by GPMP) with the Empire Acquisition accounting for approximately $65.9 million of the increase. At fuel supply locations, fuel contribution increased by $37.4 million (excluding intercompany charges by GPMP), and fuel margin increased over the year ended December 31, 2020 primarily due to greater prompt pay discounts received by the Company and higher fuel rebates. At consignment agent locations, fuel contribution increased $29.1 million (excluding intercompany charges by GPMP) and fuel margin also increased during the year ended December 31, 2021 primarily due to greater prompt pay discounts received by the Company, higher fuel rebates and improved rack-to-retail margins.

For the year ended December 31, 2021, store operating expenses increased $25.3 million compared to the year ended December 31, 2020 primarily due to the Empire Acquisition.

For the year ended December 31, 2020 compared to the year ended December 31, 2019

Wholesale Revenues

For the year ended December 31, 2020, fuel revenue increased by $348.6 million, or 218.4%, compared to 2019. Wholesale gallons sold increased by 202.6 million due to an incremental 210.6 million gallons from the Empire Acquisition. This increase was offset by a reduction in gallons sold due to the impacts of the COVID-19 pandemic and a decrease in the average price of fuel in 2020 as compared to 2019. For the year ended December 31, 2020, approximately $389.1 million of fuel revenue was attributable to fuel supply locations.

Wholesale Operating Income

For the year ended December 31, 2020, although fuel contribution increased by $16.1 million (excluding intercompany charges by GPMP), fuel margin decreased over 2019 primarily due to the mix of wholesale fuel supply contracts acquired in the Empire Acquisition, which was partially offset by the impact of fuel costs which dropped significantly at the beginning of March 2020 and continued through the end of April 2020 and less competitive pressure on fuel retail prices due to reductions in fuel volume which allowed for margin expansion.

For the year ended December 31, 2020, store operating expenses increased $6.5 million, or 79.4%, compared to the year ended December 31, 2019 primarily due to the Empire Acquisition.

GPMP Segment

The table below shows the results of the GPMP segment for the years ended December 31, 2021, 2020 and 2019, together with certain key metrics for the segment.

1 Calculated as fuel revenue less fuel costs divided by fuel gallons sold.

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For the year ended December 31, 2021 compared to the year ended December 31, 2020

GPMP Revenues

For the year ended December 31, 2021, fuel revenue increased by $2,679.8 million, or 156.7%, as compared to the year ended December 31, 2020. The increase in fuel revenue was attributable to an increase in gallons sold and an increase in the average price of fuel in 2021, as compared to 2020.

For the years ended December 31, 2021 and 2020, other revenues, net were $1.1 million and $0.9 million, respectively and primarily related to rental income from certain sites leased to independent dealers.

GPMP Operating Income

Fuel margin increased by $44.4 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020, primarily due to additional gallons sold to the retail and wholesale segments at a fixed margin, which increased from 4.5 cents per gallon to 5.0 cents per gallon in the fourth quarter of 2020.

For the year ended December 31, 2021, total general, administrative, depreciation and amortization expenses were similar with those in the prior year.

For the year ended December 31, 2020 compared to the year ended December 31, 2019

GPMP Revenues

For the year ended December 31, 2020, fuel revenue decreased by $338.9 million, or 16.5%, as compared to the year ended December 31, 2019. The decrease in fuel revenue was attributable to a decrease in the average price of fuel in 2020, as compared to 2019 which was partially offset by a slight increase in gallons sold.

For the years ended December 31, 2020 and 2019, other revenues, net were $0.9 million and $0.8 million, respectively and primarily related to rental income from certain sites leased to independent dealers.

GPMP Operating Income

Fuel margin increased by $6.8 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019, primarily due to additional gallons sold to the retail and wholesale segments at a fixed margin, which increased from 4.5 cents per gallon to 5.0 cents per gallon in the fourth quarter of 2020.

For the year ended December 31, 2020, total general, administrative, depreciation and amortization expenses increased by $3.4 million, as compared to the year ended December 31, 2019, primarily due to amortization expenses for intangible assets from the Empire Acquisition.

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 first 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 in the United States (“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 incurred for 2020 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

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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 store 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 years ended December 31, 2021, 2020 and 2019.

(a)
Eliminates the non-cash portion of rent, which reflects the extent to which our GAAP rent expense recognized exceeds (or is less than) our cash rent payments. The GAAP rent expense adjustment can vary depending on the terms of our lease portfolio, which has been impacted by our recent acquisitions. For newer leases, our rent expense recognized typically exceeds our cash rent payments, while for more mature leases, rent expense recognized is typically less than our cash rent payments.

(b)
Eliminates costs incurred that are directly attributable to historical business acquisitions and salaries of employees whose primary job function is to execute our acquisition strategy and facilitate integration of acquired operations.

(c)
Eliminates the gain on bargain purchase recognized as a result of the Town Star acquisition in 2019.

(d)
Eliminates the non-cash loss (gain) from the sale of property and equipment, the loss (gain) recognized upon the sale of related leased assets, including $6.0 million related to the sale of eight stores in 2019, and impairment charges on property and equipment and right-of-use assets related to closed and non-performing stores.

(e)
Eliminates non-cash share-based compensation expense related to the equity incentive program in place to incentivize, retain, and motivate our employees, certain non-employees, and members of our Board.

(f)
Eliminates our share of (income) loss attributable to our unconsolidated equity investment.

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(g)
Eliminates non-beneficial cost related to potential initial public offering of a master limited partnership.

(h)
Eliminates the impact of mainly timing differences related to amounts paid in settlement of a pension fund claim filed against GPM.

(i)
Eliminates the one-time expense associated with our global merchandising optimization efforts in 2019.

(j)
Eliminates the payment of historical fuel tax liabilities owed for multiple prior periods.

(k)
Eliminates fair value adjustments to the contingent consideration owed for the 2020 Empire Acquisition and owed by the seller in the 2019 Riiser Acquisition.

(l)
Eliminates other unusual or non-recurring items that we do not consider to be meaningful in assessing operating performance.

(m)
Eliminates incremental bonuses based on 2020 performance.

Liquidity and Capital Resources

Our primary sources of liquidity are cash flows from operations, availability under our credit facilities and our cash balances. Our principal liquidity requirements are the financing of current operations, funding capital expenditures, including acquisitions, and servicing debt. We finance our inventory purchases primarily from customary trade credit aided by relatively rapid inventory turnover, as well as cash generated from operations. This turnover allows us to conduct operations without the need for large amounts of cash and working capital. We largely rely on internally generated cash flows and borrowings, which we believe are sufficient to meet our liquidity needs for the foreseeable future.

Our ability to meet our debt service obligations and other capital requirements, including capital expenditures, as well as the cost of acquisitions, will depend on our future operating performance, which, in turn, will be subject to general economic, financial, business, competitive, legislative, regulatory and other conditions, many of which are beyond our control. As a normal part of our business, depending on market conditions, we will from time to time consider opportunities to repay, redeem, repurchase or refinance our indebtedness. Changes in our operating plans, lower than anticipated sales, increased expenses, acquisitions, or other events may cause us to seek additional debt or equity financing in future periods. There can be no guarantee that financing will be available on acceptable terms or at all. Debt financing, if available, could impose additional cash payment obligations and additional covenants and operating restrictions.

In June 2021, we refinanced our credit agreement with M&T Bank to increase the aggregate principal amount of real estate loans to $35.0 million (from $23.2 million, the majority of which was due in December 2021), and added a three-year $20.0 million line of credit for purchases of equipment, of which $12.3 million remained available as of December 31, 2021.

In October 2021, we issued and sold $450.0 million aggregate principal amount of 5.125% Senior Notes due 2029. We used a portion of the net proceeds from the offering of the Senior Notes to repay in full the outstanding balance under our Ares Credit Agreement (as defined below) and partially repay our Capital One Line of Credit, which increased our availability under this line by $200 million.

As of December 31, 2021, we were in a strong liquidity position of approximately $754 million, consisting of cash and short-term investments of approximately $310 million and approximately $444 million of availability under our lines of credit. This liquidity position currently provides us with adequate funding to satisfy our contractual and other obligations, from our existing cash balances. As of December 31, 2021, we had no outstanding borrowings under our $140.0 million PNC Line of Credit (as defined below), $12.3 million of unused availability under the M&T equipment line of credit and $301.0 million of unused availability under our $500.0 million Capital One Line of Credit, which we can seek to increase up to $700.0 million, subject to obtaining additional financing commitments from current lenders or other banks, and subject to certain other terms.

On February 23, 2022, we announced that our board of directors declared a quarterly dividend of $0.02 per share of common stock, to be paid on March 29, 2022 to stockholders of record as of March 15, 2022, totaling approximately $2.5 million, and that our board of directors has authorized a share repurchase program for up to an aggregate amount of $50 million of our outstanding shares of common stock. The amount and timing of dividends payable on our common stock are within the sole discretion of our board of directors, which will evaluate dividend payments within the context of our overall capital allocation strategy on an ongoing basis, giving consideration to our current and forecast earnings, financial condition, cash requirements and other factors. There can be no assurance that we will continue to pay such dividends or the amount of such dividends. The share repurchase program does not have a stated expiration date. Whether and the extent to which we repurchase shares depends on a number of factors, including our financial condition, capital requirements, cash flows, results of operations, future business prospects and other factors management may deem relevant. The timing, volume, and nature of repurchases are subject to market conditions, applicable securities laws and other factors and may be amended, suspended or discontinued at any time. Repurchases may be effected from time to time through open market

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purchases, including pursuant to a pre-set trading plan meeting the requirements of Rule 10b5-1(c) of the Exchange Act, privately negotiated transactions, pursuant to accelerated share repurchase agreements entered into with one or more counterparties, or otherwise.

To date, we have funded capital expenditures primarily through funds generated from operations, funds received from vendors, sale-leaseback transactions, the issuance of debt, and existing cash. Future capital required to finance operations, acquisitions, and raze-and-rebuild, remodel and update stores is expected to come from cash on hand, cash generated by operations, availability under lines of credit, and additional long-term debt and equipment leases, as circumstances may dictate. In both the short-term and long-term, we currently expect that our capital spending program will be primarily focused on expanding our store base through acquisitions, remodeling and updating stores, and maintaining our owned properties and equipment, including upgrading all fuel dispensers to be EMV-compliant. We expect to spend a total of approximately $15 million in subsequent years to upgrade all our fuel dispensers to be EMV-compliant. We do not expect such capital needs to adversely affect liquidity.

Cash Flows for the Years Ended December 31, 2021, 2020 and 2019

Net cash provided by (used in) operating activities, investing activities and financing activities for the periods presented were as follows:

Operating Activities

Cash flows provided by operations are our main source of liquidity. We have historically relied primarily on cash provided by operating activities, supplemented as necessary from time to time by borrowings on our credit facilities and other debt or equity transactions to finance our operations and to fund our capital expenditures. Cash flow provided by operating activities is primarily impacted by our net income and changes in working capital.

For the year ended December 31, 2021, cash flows provided by operating activities were $159.2 million compared to $173.8 million for the year ended December 31, 2020. The 2021 decrease was primarily the result of approximately $15.4 million of higher net tax payments, approximately $12.4 million of higher net interest payments, including approximately $5.2 million related to the early redemption of the Bonds (Series C), changes in working capital balances primarily due to greater fuel volumes at a higher average cost, and the payment of approximately $13.6 million of annual incentives. These decreases were partially offset by an increase in Adjusted EBITDA primarily generated from an increase in merchandise contribution at same stores and as a result of the 2021 Acquisitions and the Empire Acquisition.

For the year ended December 31, 2020, cash flows provided by operating activities was $173.8 million compared to $43.3 million for the year ended December 31, 2019. The 2020 increase was primarily the result of the operating cash flow generated from an increase in segment operating income of approximately $120 million primarily generated from the increase in fuel margin and merchandise contribution at same stores combined with a reduction in expenses, as well as from the Empire Acquisition and the 2019 Acquisitions. These benefits were partially offset by $9.9 million of higher net interest payments.

Investing Activities

Cash flows used in investing activities primarily reflect capital expenditures for acquisitions and replacing and maintaining existing facilities and equipment used in the business.

For the year ended December 31, 2021, cash used for investing activities decreased by $235.8 million to $171.8 million from $407.6 million for the year ended December 31, 2020. For the year ended December 31, 2021, capital expenditures were approximately $73 million, representing $226.2 million for capital expenditures, net of approximately $152.9 million of proceeds paid by Oak Street Real Estate Capital Net Lease Property Fund, LP (“Oak Street”) for two transactions accounted for as sale-leasebacks, and the purchase of certain fee properties. The net consideration paid for the Handy Mart Acquisition was $110.7 million, of which

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Oak Street paid $93.2 million, reflecting a net cash outflow from the Company of $17.5 million, which amount included approximately $5.0 million of cash and inventory in stores on the closing date. The net consideration paid by the Company for the ExpressStop Acquisition was $60.1 million, which included the amounts paid by an U.S. real estate fund, of which two funds were involved in the ExpressStop Acquisition (the “Real Estate Funds”). $44.2 million paid from the second Real Estate Fund in connection with the ExpressStop Acquisition was included in financing activity, reflecting a net cash outflow of $15.9 million by the Company, which included approximately $7.8 million of cash and inventory in stores on the closing date. In addition, we converted cash on hand into approximately $27.1 million of investments.

For the year ended December 31, 2020, cash used for investing activities increased by $334.6 million to $407.6 million from $73.0 million for the year ended December 31, 2019. For the year ended December 31, 2020, we spent $44.6 million for capital expenditures, including purchasing certain fee properties and building a new Dunkin’ location and $363.7 million for the Empire Acquisition.

Financing Activities

Cash flows from financing activities primarily consist of increases and decreases in the principal amount of our lines of credit and debt, and distributions to non-controlling interests as well as issuance of common and preferred stock.

For the year ended December 31, 2021, financing activities consisted primarily of net payments of $47.7 million for long-term debt, including the issuance of the Senior Notes, offset by the full repayment of the Ares Credit Agreement, the partial repayment of the Capital One Line of Credit, and the early redemption of the Bonds (Series C). In addition, financing activities consisted of repayments of $8.1 million for financing leases, $5.9 million for dividend payments on the Series A redeemable preferred stock, $4.8 million of issuance costs related to the Merger Transaction and the payment of additional consideration in connection with the Empire Acquisition of approximately $3.8 million, which were offset by $44.2 million in consideration paid by a Real Estate Fund for the ExpressStop Acquisition.

For the year ended December 31, 2020, financing activities consisted primarily of net proceeds of $423.4 million for long-term debt and lines of credit (primarily to fund the Empire Acquisition), net proceeds from the issuance of rights of $11.3 million, investment of non-controlling interest in subsidiary of $19.3 million, repayments of $8.1 million for financing leases and $8.7 million in distributions to non-controlling interests. In addition, as part of the Merger Transaction and the transactions with the GPM Minority, we received net proceeds from the issuance of our common stock of $58.0 million and net proceeds from the issuance of redeemable preferred stock of $96.9 million which were offset by the $99.0 million purchase of the non-controlling in interest in GPMP.

Contractual Obligations and Indebtedness

Contractual Obligations

The table below presents our significant contractual obligations as of December 31, 2021:

(1)
Excludes asset retirement obligations due to the uncertain nature of the timing of these liabilities.

(2)
Includes principal and interest payments. Assumes an interest rate of 3.4% on the $198.3 million of the GPMP Capital One Line of Credit utilized as of December 31, 2021 and a zero balance on the PNC Line of Credit.

(3)
Includes financial liability related to the ExpressStop Acquisition, assuming purchase option is not exercised.

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(4)
Our fuel vendor agreements with suppliers require minimum volume purchase commitments of branded and unbranded gasoline and distillates annually. The future minimum volume purchase requirements under the existing supply agreements are based on gallons, with a purchase price at prevailing market rates for wholesale distribution.

Credit Facilities and Senior Notes

Senior Notes Offering

On October 21, 2021, the Company completed a private offering of $450 million aggregate principal amount of 5.125% Senior Notes due 2029 (the “Senior Notes”). The Senior Notes are guaranteed, on an unsecured senior basis, by certain of the Company's wholly owned domestic subsidiaries (the “Guarantors”). The indenture governing the Senior Notes contains customary restrictive covenants that, among other things, generally limit the ability of the Company and substantially all of its subsidiaries to (i) create liens, (ii) pay dividends, acquire shares of capital stock and make payments on subordinated debt, (iii) place limitations on distributions from certain subsidiaries, (iv) issue or sell the capital stock of certain subsidiaries, (v) sell assets, (vi) enter into transactions with affiliates, (vii) effect mergers and (viii) incur indebtedness. The Senior Notes and the guarantees rank equally in right of payment with all of the Company’s and the Guarantors’ respective existing and future senior unsubordinated indebtedness and are effectively subordinated to all of the Company’s and the Guarantors’ existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness; and are structurally subordinated to any existing and future obligations of subsidiaries of the Company that are not Guarantors.

Ares Credit Agreement

GPM entered into a credit agreement with Ares Capital Corporation (including any of its affiliates, any investment fund solely managed or controlled by any of them, or any affiliate of such investment fund, “Ares”) to provide financing in a total amount of up to $225 million (the “Ares Credit Agreement”): an Initial Term Loan of $162 million, which was drawn on February 28, 2020, and the Delayed Term Loan A of $63 million, which was drawn on October 6, 2020 in order to fund the Empire Acquisition. We repaid in full our outstanding obligations under, and terminated, the Ares Credit Agreement in October 2021 with a portion of the proceeds from the issuance of the Senior Notes.

Financing Agreements with PNC

GPM and certain subsidiaries have a financing arrangement with PNC Bank National Association (“PNC”), pursuant to that certain credit agreement, dated February 28, 2020, by and among GPM, and certain of its subsidiaries as borrowers and guarantors, the lenders from time to time party thereto and PNC, as lender and as agent (as amended, the “PNC Credit Agreement”), to provide term loans as well as a line of credit for purposes of financing working capital (the “PNC Line of Credit”). The PNC Line of Credit has an aggregate principal amount of up to $140 million.

The PNC Line of Credit bears interest, as elected by GPM at: (a) LIBOR plus a margin of 1.75% or (b) a rate per annum equal to the alternate base rate plus a margin of 0.5%, which is equal to the greatest of (i) the PNC base rate, (ii) the overnight bank funding rate plus 0.5%, and (iii) LIBOR plus 1.0%, subject to the definitions set in the agreement. Every quarter, the LIBOR margin rate and the alternate base rate margin rate are updated based on the quarterly average undrawn availability of the line of credit.

The calculation of the availability under the PNC Line of Credit is determined monthly subject to terms and limitations as set forth in the PNC Credit Agreement, taking into account the balances of receivables, inventory and letters of credit, among other things. As of December 31, 2021, $8.0 million of letters of credit were outstanding under the PNC Credit Agreement.

On October 14, 2021, GPM entered into a fifth amendment to the PNC Credit Agreement, which became effective on the closing of the Senior Notes offering. This fifth amendment (i) permitted the Company to issue the Senior Notes and GPM and certain of the other guarantors to guarantee the Senior Notes, (ii) modified certain of the covenants, including the indebtedness covenant, investment covenant, restricted payments covenant and payment of junior indebtedness covenant, in connection with permitting the Senior Notes and the transactions related to the offering, issuance and sale of the Senior Notes, (iii) removed references to the Ares Credit Agreement, which was repaid using a portion of the proceeds from the issuance of the Senior Notes, and (iv) limited the collateral granted as security under the PNC Credit Agreement to a first priority lien on only receivables, inventory and deposit accounts. The Company did not incur additional debt or receive any proceeds in connection with this fifth amendment.

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GPMP also has a term loan with PNC in the total amount of $32.4 million (the “GPMP PNC Term Loan”). The GPMP PNC Term Loan is secured by U.S. Treasury or other investment grade securities equal to approximately 98% of the outstanding principal amount of the GPMP PNC Term Loan.

Financing agreements with M&T Bank

On June 24, 2021 (the “M&T Closing Date”), the Company entered into (i) a Second Amended, Restated and Consolidated Credit Agreement, by and among GPM, certain of its subsidiaries as co-borrowers and M&T Bank (the “A&R M&T Credit Agreement”) and (ii) a Second Amended and Restated Master Covenant Agreement, by and between GPM and M&T Bank (the “A&R M&T Master Covenant Agreement”).

The A&R M&T Credit Agreement amended and restated in its entirety that certain Amended and Restated Consolidated Credit Agreement, dated December 21, 2016, as amended, by and among GPM, M&T Bank and the other parties thereto and (i) added a three-year $20.0 million line of credit for purchases of equipment, which line may be borrowed in tranches, as described below, and (ii) increased the aggregate principal amount of real estate loans thereunder to $35.0 million (the “New Term Loan”) from approximately $23.2 million outstanding as of the M&T Closing Date. On the M&T Closing Date, GPM refinanced the entirety of the existing $23.2 million of real estate loans, of which $20.0 million was due to mature in December 2021, using the proceeds from the New Term Loan, which GPM drew in its entirety, resulting in approximately $10.7 million in net proceeds to GPM after paying costs and expenses. On the M&T Closing Date, approximately $2.5 million of outstanding equipment loans from M&T Bank were converted to become a part of the $20.0 million line of credit, of which approximately $12.3 million was available as of December 31, 2021.

Additionally, the real estate loans, which were originally at fixed interest rates ranging from 3.06% to 5.06% were converted to floating rate loans at LIBOR plus 3.00%. The real estate loans mature in June 2026 and are payable in monthly installments based on a fifteen-year amortization schedule, with the balance of the loans payable at maturity. The A&R M&T Credit Agreement provides that each additional equipment loan tranche will have a three-year term, payable in level monthly payments of principal plus interest, and will accrue a fixed rate of interest equal to M&T Bank’s three-year cost of funds as of the applicable date of such tranche, plus 3.00%.

On October 14, 2021, GPM entered into an amendment to each of the A&R M&T Credit Agreement and the A&R M&T Master Covenant Agreement (the “M&T Credit Amendments”). The M&T Credit Amendments (i) permitted the Company to issue the Senior Notes and GPM and certain of the other guarantors to guarantee the Senior Notes, (ii) modified and introduced certain definitions in connection with permitting the Senior Notes and the transactions related to the offering, issuance and sale of the Senior Notes and (iii) removed references to the Ares Credit Agreement, which was repaid using a portion of the proceeds from the issuance of the Senior Notes.

Financing agreement with a syndicate of banks led by Capital One, National Association (“Capital One”)

In July 2019, GPMP entered into a credit agreement for a revolving credit facility with a syndicate of banks led by Capital One, National Association (the “Capital One Credit Facility”), in an aggregate principal amount, as amended in 2020, of up to $500 million (the “Capital One Line of Credit”). At GPMP’s request, the Capital One Line of Credit can be increased up to $700 million, subject to obtaining additional financing commitments from current lenders or from other banks, and subject to certain terms as detailed in the Capital One Line of Credit. $200 million of outstanding obligations under the Capital One Line of Credit was repaid in October 2021 with a portion of the proceeds from the issuance of the Senior Notes. At December 31, 2021, approximately $198.3 million was drawn on the Capital One Line of Credit, and approximately $301.0 million was available thereunder.

The Capital One Line of Credit bears interest, as elected by GPMP at: (a) LIBOR plus a margin of 2.25% to 3.25% or (b) a rate per annum equal to base rate plus a margin of 1.25% to 2.25%, which is equal to the greatest of (i) Capital One’s prime rate, (ii) the one-month LIBOR plus 1.0%, and (iii) the federal funds rate plus 0.5%, subject to the definitions set in the agreement. The margin is determined according to a formula in the Capital One Line of Credit that depends on GPMP’s leverage. As of December 31, 2021, $0.7 million of letters of credit were outstanding under the Capital One Credit Facility.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with GAAP and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making

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judgments about the carrying values of assets and liabilities. We believe the following critical accounting estimates affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Application of ASC 842, Leases (“ASC 842”)

The lease liabilities and right-of-use assets are significantly impacted by the following:

•
Our determination of whether it is reasonably certain that an extension option will be exercised.

•
Our determination of whether it is reasonably certain a purchase option will be exercised.

•
Some of the lease agreements include an increase in the consumer price index coupled with a multiplier and a percentage increase cap effectively assures the cap will be reached each year. We determine, based on past experience and consumer price index increase expectations, if these types of variable payments are in-substance fixed payments, in which case such payments are included in the lease payments and measurement of the lease liabilities.

•
The discount rates used in the calculations of the right-of-use assets and lease liabilities are based on our incremental borrowing rates and are primarily affected by economic environment, differences in the duration of each lease and the nature of the leased asset.

Environmental provision and reimbursement assets

We estimate the anticipated environmental costs with respect to contamination arising from the operation of gasoline marketing operations and the use of underground storage tanks as well as the costs of other exposures and recognize a liability when these losses are anticipated and can be reasonably estimated. Reimbursement for these expenses from various state underground storage tank trust funds or from insurance companies is recognized as an asset and included in other current assets or non-current assets, as appropriate. The scope of the reimbursement asset and liability is estimated by a third party at least twice a year and adjustments are made according to past experience, changing conditions and changes in governmental policies.

Liability for dismantling and removing underground storage tanks and restoring the site on which the underground storage tanks are located

The liability is based on our estimates with respect to the external costs which will be necessary to remove the underground storage tanks in the future, regulatory requirements, discount rate and an estimate of the length of the useful life of the underground storage tanks.

Property and equipment and amortizable intangible assets

We evaluate property and equipment and amortizable intangible assets for impairment when facts and circumstances indicate that the carrying values of such assets may not be recoverable. When evaluating for impairment, we first compare the carrying value of the asset to the asset’s estimated future undiscounted cash flows. If the estimated undiscounted future cash flows are less than the carrying value of the asset, we determine if we have an impairment loss by comparing the carrying value of the asset to the asset's estimated fair value and recognize an impairment charge when the asset’s carrying value exceeds its estimated fair value. The adjusted carrying amount of the asset becomes its new cost basis and is depreciated over the asset’s remaining useful life.

Impairment of goodwill

We evaluate the need for impairment with regard to goodwill once a year or with greater frequency if there are indicators of impairment exist. Goodwill is tested for impairment by first comparing the fair value of a reporting unit with its carrying amount, including goodwill. The fair value of a reporting unit is determined according to assumptions and computations we set.

We perform an annual assessment to evaluate whether an impairment of goodwill exists. We performed the evaluation with the assistance of independent assessor which, for purposes of determining the fair value of the retail and GPMP reporting units to which the goodwill was attributed, utilized the income approach, namely, the present value of the future cash flows forecasted to be derived from the reporting units, as well as the market approach.

For the 2021 annual impairment test, the data used for the income approach was directly linked to our internal projections for 2022 through 2026. The long-term growth rate used in the terminal year was (1.0%) for the GPMP reporting unit, and was 2.4% for the retail reporting unit, in accordance with the relevant weighted average long-term nominal growth rate. The cash flows used assumed an unlevered, debt-free basis with no deduction for interest of debt principal to present the cash flows available for debt and equity holders. The discount rate for each reporting unit was determined based on the risk profile of each of the reporting units, and

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was derived from its weighted average cost of capital (“WACC”) as assessed by management with the assistance of an independent assessor. The WACC took into account both debt and equity. The discount rate applied to the cash flow projections for the GPMP and the retail reporting units was approximately 6.5% and 8.3%, respectively.

The impairment review was sensitive to changes in the key assumptions used. Our key assumptions included revenue and profit growth, capital expenditures, external industry data and past experiences. The major assumptions that could result in significant sensitivities were the discount rate, the long-term growth rate and capital expenditures. Sensitivity analyses were performed by applying various reasonable scenarios whereby the long-term growth rate and discount rate were adjusted within a reasonable range. None of the sensitivity scenarios indicated a potential impairment in any of the reporting units.

Deferred tax assets

We account for income taxes and the related accounts in accordance with FASB ASC Topic 740, Income Taxes (“ASC 740”). Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted rates expected to be in effect during the year in which the differences reverse. Deferred tax assets are recognized for future tax benefits and credit carryforwards to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. We periodically assess the likelihood that we will be able to recover our deferred tax assets and reflect any changes in estimates in the valuation allowance. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.

We are required to make judgments, estimates and assumptions to establish the amount of deferred tax assets to be recognized based on timing differences, the expected taxable income and its sources and the tax planning strategy.