ARKO Petroleum Corp. Class A Common Stock 2026 Q2 Earnings Call

Good afternoon. Welcome to ARKO Petroleum Corp's second quarter 2026 earnings conference call and webcast. On today's call are Arie Kotler, Chairman, President, and Chief Executive Officer, and Jordan Mann, Chief Financial Officer. Our earnings press release and quarterly report on Form 10-Q for the second quarter of 2026, as filed with the SEC, are available on our website at www.arkopetroleum.com. During our call today, unless otherwise stated, management will compare results to the same period in 2025. Before we begin, please note that all second quarter 2026 financial information is unaudited. During this call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Please review the Forward-Looking and Cautionary Statement section at the end of the second quarter 2026 earnings press release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today. All forward-looking statements made during this call reflect our current views with respect to the future events, and ARKO Petroleum Corp is under no obligation to update or revise forward-looking statements made on this call, whether as a result of new information, future events, or otherwise, except as required by law. On this call, management will share operating results on both a GAAP and non-GAAP basis.

Description of those non-GAAP financial measures that we use, such as adjusted EBITDA, Discretionary Cash Flow, Net Debt, and the ratio of Net Debt to adjusted EBITDA and reconciliations of these measures to our results as reported in accordance with GAAP are detailed in our earnings press release in our quarterly report on Form 10-Q for the quarter ended June 30, 2026. Additionally, management will share profit measures for individual business segments along with fuel contribution, which is calculated as fuel revenue less fuel cost and excludes intercompany charges by our GPMP segment. Now I would like to turn the call over to Arie.

Thank you, Priya, and thank you all for joining us today. Before we begin, I want to welcome Priya Trivedi, who recently joined APC as our new Head of Investor Relations. Many of you will have the opportunity to work with Priya directly, and we are very pleased to have her as part of our team as we continue to broaden our engagement with the investment community. We are excited to report another quarter of strong execution and growing momentum across our platform. The second quarter once again demonstrated the strength, stability, and cash-generating power of APC's business model. At the same time, we announced the signing of the purchase agreement to acquire the business of U.S. Petroleum Partners, or USPP, a highly strategic transaction that we believe represents a major step forward in the growth story we laid out to the investors at the time of our IPO.

This is exactly why we took APC public. We accessed the public markets to solidify our balance sheet, increase our liquidity, and give the company the flexibility to pursue high-quality, accretive growth opportunities. Today's announcement showed that we are executing on that strategy. The U.S. Petroleum Partner business is complementary to APC's existing platform, and upon closing, will expand our scale, add new infrastructure capabilities, and bolster the long-term earnings and cash flow profile of the company. This transaction reinforces every major pillar of APC's investment thesis. It would deepen our supplier relationship, expand our stable fee-based and fixed-margin business model, put our post-IPO financial flexibility to work, build on our proven acquisition track record, and accelerate our long-term growth outlook. Let me provide some details on the acquisition and the related compelling economics. U.S. Petroleum Partners is a sizable, vertically integrated fuel distribution platform.

The acquisition will add approximately 280 million gallons of annual wholesale fuel volume, increasing APC's fuel volumes by about 14% for the 12 months ended June 30th, 2026. We believe this additional scale will deepen our relationship with major fuel suppliers, increase throughput, and enhance the overall value of our wholesale platform. These gallons are distributed to more than 400 wholesale locations, which would expand our network to more than 2,500 locations and further support APC's position as one of the largest fuel distribution platforms in the country. The acquisition will also include two fuel storage terminals along the Buckeye Pipeline system located in Novi, Michigan, and Toledo, Ohio. These are long-lived infrastructure assets that provide meaningful storage capacity across the refined product spectrum, including gasoline, diesel, ethanol, and jet fuel.

Importantly, this transaction will bring APC into the terminal business, adding a new infrastructure-based fee generating income stream through third-party storage and throughput activities. It will also give us greater flexibility over fuel logistics and supply, while creating multiple additional avenues for future earnings growth. We believe these terminals will enhance the profitability potential of our core fuel distribution business and increase our margin capture through greater vertical integration across the refined product infrastructure value chain. Additionally, the acquisition will include a fleet of trucks and trailers that support the last mile of our fuel logistic infrastructure. This will enhance our current distribution capabilities, provide another source of earning, and further increase the vertical integration of the APC platform. We expect to close the transaction later this year.

Following closing, we expect the acquisition to be accretive and to add approximately $30 million of annual adjusted EBITDA, while enhancing Discretionary Cash Flow. We also expect synergies to begin in 2027 and see meaningful opportunities for additional operational efficiencies and value creation over time as we integrate the business into APC's platform. As we continue to build the APC platform, we plan to work with the USPP team to evaluate opportunities within their existing acquisition pipeline. The consideration at closing will consist of $205 million in cash, plus the cost of inventory. At closing, APC will issue $30 million in Class A common stock to be held in escrow and to be released to the USPP, subject to the acquired business achieving certain EBITDA-based financial targets in the first four full quarters after we close the transaction.

This earn-out payment is subject to adjustments if the acquired business does not achieve $31.7 million of EBITDA and $2.2 million of EBITDA generated by certain fuel-related components. EBITDA is defined in the purchase agreement. The earn-out may increase if the acquired business achieves results that are greater than these financial targets. From a capital allocation perspective, this is the type of disciplined strategic acquisition we believe can create meaningful shareholder value. At quarter end, our leverage was 2.2x Net Debt to adjusted EBITDA, well below our post-IPO target of 2.5x, and we maintain significant liquidity. We intentionally position APC with the financial flexibility to pursue attractive growth opportunities like this one.

Upon closing, on an annualized basis, pro forma Net Debt to adjusted EBITDA is expected to be in the range of 3x-3.5x, which remains within our previously communicated leverage range of 3x-4x and reflects our continued discipline around capital allocation. This potential acquisition directly supports the investment thesis we presented to the market at the time of our IPO. We believe that it will expand our predominantly fee-based and fixed-margin earnings profile, enhance our cash flow generation capabilities, support our dividend philosophy, and solidify APC's long-term growth platform. With a strong balance sheet, a proven management team, and deep pipeline of opportunities, we believe APC is very well positioned to continue scaling the business and creating long-term value for shareholders through disciplined, accretive growth. Let's turn to the second quarter results.

APC delivered another strong quarter with a year-over-year adjusted EBITDA growth of approximately 4% and Discretionary Cash Flow growth of approximately 12%. These results demonstrate the durability of our platform, the strength of our cash flow generation, and our team's ability to execute effectively through a volatile fuel price environment. In our wholesale segment, blended cents per gallon margin increased year-over-year, primarily benefiting from higher prompt pay discount on the higher cost of fuel. Our fleet fueling segment operating income was relatively flat this quarter compared to prior year. As planned, we continue to invest in this segment to add on what is one of the largest CardLock platform in the country. We have identified 20 new CardLock locations for opening in 2026, of which we have opened three new locations thus far, and the remaining 17 are in various stages of development.

We expect to continue adding to this segment as we like the low capital investment and mid-to-high teens expected returns per location. As announced this morning, we have declared a quarterly dividend of $0.50 per share, consistent with our annual target dividend rate of $2 per share. We continue to believe APC combination of stable cash flow generation, disciplined capital allocation, and attractive dividend profile differentiate us within the sector. With that, I will turn it over to Jordan to walk through our financial results and outlook.

Thank you, Arie. I also would like to thank you all for joining. As Arie mentioned, we delivered strong second quarter results while also announcing the signing of the USPP acquisition agreement this morning, as that transaction will enable us to continue to scale this platform. Together, these milestones highlight the strength of the platform we have built and the opportunity we see to continue scaling APC in a disciplined, accretive, and shareholder-focused way. Turning to our second quarter results. Net income was $12.2 million for the quarter, up from $10 million in the prior year period, reflecting continued operating discipline and earnings power of our platform. Adjusted EBITDA was $39.8 million for the quarter compared to $38.3 million for the prior year, an increase of approximately 4%. Just as importantly, Discretionary Cash Flow grew approximately 12%, underscoring the strength of our cash conversion and quality of APC's earnings.