ARKO CORP. You should read this discussion together with the unaudited Condensed Consolidated Financial Statements, related notes, and other financial information included elsewhere in this Quarterly Report on Form 10-Q together with our audited consolidated financial statements, related notes, and other information contained in our Annual Report on Form 10-K for the year endedDecember 31, 2020 (the "Form 10-K"). The following discussion contains assumptions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under "Risk Factors," in Part I, Item 1A of the Form 10-K and in Part II, Item 1A of this Quarterly Report on Form 10-Q and as described from time to time in our other filings with theSecurities and Exchange Commission . These risks could cause our actual results to differ materially from those anticipated in these forward-looking statements.
Overview
ARKO Corp. was incorporated under the laws ofDelaware onAugust 26, 2020 for the purpose of facilitating the business combination, which we refer to as the Merger Transaction, ofHaymaker Acquisition Corp. II , aDelaware corporation ("Haymaker"), andArko Holdings Ltd. , a company organized under the laws of theState of Israel , which we refer to asArko Holdings . Our shares of common stock,$0.0001 par value per share ("common stock"), and publicly-traded warrants were registered to trade on theNasdaq Stock Market onDecember 22, 2020 and commenced trading onDecember 23, 2020 , and our common stock is dual-listed on the Tel Aviv Stock Exchange ("TASE"). The main activity ofArko Holdings prior to the foregoing business combination was its holding, through its subsidiaries, of controlling rights inGPM Investments, LLC , aDelaware limited liability company, which we refer to as GPM, which is our operating entity and upon the consummation of the Merger Transaction became our indirect wholly owned subsidiary. Based inRichmond, VA , we are a leading independent convenience store operator and, as ofJune 30, 2021 , we were the sixth largest convenience store chain inthe United States ("U.S.") ranked by store count, operating 1,381 retail convenience stores. As ofJune 30, 2021 , we operated the stores under 18 regional store brands including 1-Stop, Admiral, Apple Market®, BreadBox, ExpressStop, E-Z Mart®, fas mart®, fastmarket®, Jiffi Stop®, Li'l Cricket, Next Door Store®, Roadrunner Markets, Rstore, Scotchman®, shore stop®,Town Star , Village Pantry® and Young's. As ofJune 30, 2021 , we also supplied fuel to 1,647 dealer-operated gas stations. We are well diversified geographically and as ofJune 30, 2021 , operated across 33 states and theDistrict of Columbia in the Mid-Atlantic, Midwestern, Northeastern, Southeastern andSouthwestern 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 250 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 80 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 100 of our locations.
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.
Wholesale Segment
The wholesale segment supplies fuel to independent dealers, sub-wholesalers and bulk purchasers, 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 operators.
GPMP Segment
The GPMP segment includes the operations of GPM Petroleum LP ("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 (currently
including taxes and certain transportation costs) plus a fixed margin.
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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 throughJune 30, 2021 , we completed 19 acquisitions. As a result, our store count has grown from 320 sites in 2011 to 3,028 sites as ofJune 30, 2021 , of which 1,381 were operated as retail convenience stores and 1,647 were locations at which we supplied fuel to independently operated fueling stations. 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. InMay 2021 , we completed our acquisition of 60 ExpressStop retail convenience stores (the "ExpressStop Acquisition"). InOctober 2020 , we completed our acquisition of the business ofEmpire 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. 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. We believe that this complementary strategy will help further our growth through both acquisitions and organically and improve our results of operations.
The following table provides a history of our acquisitions, conversions and closings for the periods noted, for the retail and wholesale segments:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
Retail Segment 2021 2020 2021 2020
Number of sites at beginning of period 1,324 1,271 1,330 1,272
Acquired sites 61 - 61 -
Newly opened or reopened sites 1 - 1 -
Company-controlled sites converted to
consignment
locations and independent and lessee
dealers, net (3 ) - (3 ) (1 )
Closed, relocated or divested sites (2 ) (5 ) (8 ) (5 )
Number of sites at end of period 1,381 1,266 1,381 1,266
For the Three Months For the Six Months
Ended June 30, Ended June 30,
Wholesale Segment 2021 2020 2021 2020
Number of sites at beginning of period 1,625 128 1,614 128
Newly opened or reopened sites 21 - 35 -
Consignment locations or independent and
lessee dealers
converted from Company-controlled
sites, net 3 - 3 1
Closed, relocated or divested sites (2 ) (1 ) (5 ) (2 )
Number of sites at end of period 1,647 127 1,647 127
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 foodservice 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 primarily consists of 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. We have
historically relied upon a limited number of franchised quick service
restaurants and in-store delis to drive customer traffic rather than other
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 operations 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;
severe refinery mechanical failures for an extended period of time; 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
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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. We also operate in a highly competitive retail convenience market that includes businesses with operations and services that are similar to those that are provided by us. 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 operatorswho 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.
Business Highlights
Both the ExpressStop and Empire Acquisitions (the "ExpressStop and Empire Acquisitions") contributed to the improvement in our results of operations for the second quarter of 2021, primarily in the wholesale segment, as compared to the second quarter of 2020. Increased merchandise contribution at same stores combined with an increase in other revenues positively impacted 2021. As the impact of the COVID-19 pandemic lessened in 2021, as compared to the prior year, total gallons sold increased in 2021 as compared to 2020, while retail fuel margins declined from record-setting fuel margins generated in 2020. General and administrative expenses increased in 2021, as compared to 2020, primarily to support the Empire Acquisition.
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
Results of Operations for the three and six months ended
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 condensed consolidated interim financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. The following discussion should be read in conjunction with such condensed interim consolidated financial statements and related notes.
COVID-19
An outbreak of COVID-19 began inChina inDecember 2019 and subsequently spread throughout the world. OnMarch 11, 2020 , theWorld Health Organization declared COVID-19 as a pandemic. Throughout the pandemic, our convenience stores and independent outside operations have continued to operate and have remained open to the public because convenience store operations and gas stations have been deemed an essential business by numerous federal and state authorities, including theU.S. Department of Homeland Security , and therefore are exempt from many of the closure orders that were, or are currently, imposed onU.S. businesses. The COVID-19 pandemic has generally impacted our results of operations positively, principally due to the significant increase in fuel margin, which more than offset a reduction in the number of gallons sold at gas stations as a result of the pandemic. Since the beginning of 2021, we have seen an increase in fuel volume as vaccinations have become available, businesses have continued to re-open, and customer traffic has increased. As noted elsewhere, however, we have seen a reduction in fuel margin as volume has increased and prices have risen. Additionally, we have seen shortages in labor and supply chain disruptions which we have responded to through several hiring initiatives and leveraging our strong partnerships with our fuel and transportation suppliers. Notwithstanding the recent resurgence of economic activity, in light of variant strains of the virus that have emerged, the COVID-19 pandemic could once again 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, 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. Consolidated Results
The Merger Transaction was accounted for as a reverse recapitalization. For
accounting purposes, Haymaker was treated as the acquired company, and
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acquirer, upon the consummation of the Merger Transaction, the historical financial statements ofArko Holdings became the historical financial statements of the combined company. As a result, the financial statements included in this Quarterly Report on Form 10-Q and discussed herein reflect the historical operating results ofArko Holdings prior toDecember 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.
The table below shows our consolidated results for the three and six months
ended
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2021 2020 2021 2020
Revenues: (in thousands)
Fuel revenue $ 1,460,763 $ 407,512 $ 2,563,710 $ 970,553
Merchandise revenue 426,365 391,697 785,646 715,376
Other revenues, net 22,686 15,066 44,814 28,226
Total revenues 1,909,814 814,275 3,394,170 1,714,155
Operating expenses:
Fuel costs 1,347,109 316,891 2,359,907 816,694
Merchandise costs 303,952 284,577 564,706 523,668
Store operating expenses 154,668 126,023 299,606 254,853
General and administrative 31,861 20,527 58,574 39,420
Depreciation and amortization 25,273 16,814 49,515 33,885
Total operating expenses 1,862,863 764,832 3,332,308 1,668,520
Other expenses, net 1,195 1,733 2,867 5,909
Operating income 45,756 47,710 58,995 39,726
Interest and other financial expenses,
net (11,997 ) (12,513 ) (40,614 ) (19,164 )
Income before income taxes 33,759 35,197 18,381 20,562
Income tax expense (8,212 ) (2,510 ) (7,490 ) (499 )
Income (loss) from equity investment 26 (178 ) 20 (411 )
Net income $ 25,573 $ 32,509 $ 10,911 $ 19,652
Less: Net income attributable to
non-controlling interests 54 10,614 128 8,213
Net income attributable to ARKO Corp. $ 25,519 $ 21,895 $ 10,783 $ 11,439
Series A redeemable preferred stock
dividends (1,434 ) (2,836 )
Net income attributable to common
shareholders $ 24,085 $ 7,947
Fuel gallons sold 522,392 221,810 970,707 470,509 Fuel margin, cents per gallon1 21.8 40.9 21.0 32.7 Merchandise contribution2 122,413 107,120 220,940 191,708 Merchandise margin3 28.7 % 27.3 % 28.1 % 26.8 % Adjusted EBITDA4 75,717 68,549 118,020 85,483
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.
Three Months Ended
For the three months endedJune 30, 2021 , fuel revenue increased by$1.1 billion , or over 250%, compared to the second quarter of 2020. The increase in fuel revenue was attributable primarily to incremental gallons sold related to the ExpressStop and Empire Acquisitions, an increase in gallons sold at same stores in the second quarter of 2021, primarily due to the impact of the COVID-19 pandemic in the second quarter of 2020, which resulted in a reduction in gallons sold, and a significant increase in the average price of fuel compared to the second quarter of 2020. For the three months endedJune 30, 2021 , merchandise revenue increased by$34.7 million , or 8.9%, compared to the second quarter of 2020 primarily due to the ExpressStop and Empire Acquisitions. The increase in same store merchandise sales was 31
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partially offset by a decrease in merchandise revenue from underperforming retail stores that were closed or converted to dealer-operated sites.
For the three months endedJune 30, 2021 , other revenue increased by$7.6 million , or 50.6%, compared to the second quarter of 2020 primarily related to the ExpressStop and Empire Acquisitions and increased income from lottery commissions and temporary allowance for gaming machines inVirginia . For the three months endedJune 30, 2021 , total operating expenses increased by$1.1 billion , or 143.6%, compared to the second quarter of 2020. Fuel costs increased$1.0 billion , or over 325%, compared to the second quarter of 2020 due to fuel sold at a higher average cost and higher volumes. Merchandise costs increased$19.4 million , or 6.8%, compared to the second quarter of 2020, primarily due to the ExpressStop and Empire Acquisitions as well as a corresponding increase in same store merchandise sales. For the three months endedJune 30, 2021 , store operating expenses increased$28.6 million , or 22.7%, compared to the second quarter of 2020 due to incremental expenses as a result of the ExpressStop and Empire Acquisitions and an increase in expenses at same stores. For the three months endedJune 30, 2021 , general and administrative expenses increased$11.3 million , or 55.2%, compared to the second quarter of 2020, primarily due to those expenses associated with the acquired Empire business, annual wage increases, incentive accruals and stock compensation expenses. For the three months endedJune 30, 2021 , depreciation and amortization expenses increased$8.5 million , or 50.3%, compared to the second quarter of 2020 primarily due to assets acquired in the previous twelve month period, largely related to the Empire Acquisition. For the three months endedJune 30, 2021 , other expenses, net decreased by$0.5 million compared to the second quarter of 2020 primarily due to a$1.4 million reduction in losses on disposal of assets and impairment charges in 2021 which was offset by an increase of$1.1 million in acquisition costs. Operating income was$45.8 million for the second quarter of 2021, compared to$47.7 million for the second quarter of 2020. The decrease was primarily due to an increase in general and administrative expenses, depreciation and amortization expenses, which was partially offset by strong fuel and merchandise results along with incremental income from the Empire Acquisition. For the three months endedJune 30, 2021 , interest and other financing expenses, net decreased by$0.5 million compared to the second quarter of 2020 primarily related to$2.3 million for interest income related to fair value adjustments for the Public Warrants, Private Warrants and Deferred Shares (each as defined in Note 13 to the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q) and a net period-over-period decrease in foreign currency losses recorded of$2.7 million which was partially offset by higher interest expense from a greater amount of debt outstanding in 2021. For the three months endedJune 30, 2021 , income tax expense was$8.2 million compared to$2.5 million in the three months endedJune 30, 2020 , which increase was primarily due to a combination of an increased effective tax rate and a reduction in the non-controlling interest in partnership.
Net income attributable to non-controlling interests primarily represented minority interests prior to the Merger Closing Date.
For the three months endedJune 30, 2021 , net income attributable to the Company was$25.5 million compared to$21.9 million for the three months endedJune 30, 2020 . For the three months endedJune 30, 2021 , Adjusted EBITDA was$75.7 million compared to$68.5 million for the three months endedJune 30, 2020 . The Empire Acquisition contributed approximately$22 million of incremental Adjusted EBITDA for the second quarter of 2021. Increased merchandise contribution at same stores also positively impacted 2021. These increases were partially offset by several factors in the current quarter. As the impact of the COVID-19 pandemic lessened in the second quarter of 2021, gallons sold increased as compared to the second quarter of 2020; however, fuel margin declined compared to the record-setting fuel margin generated in the same period in 2020. Additionally, credit card fees rose 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 for the second quarter.
Six Months Ended
For the six months endedJune 30, 2021 , fuel revenue increased by$1.6 billion , or 164.1%, compared to the first half of 2020. The increase in fuel revenue was attributable primarily to incremental gallons sold related to the ExpressStop and Empire Acquisitions and an increase in the average price of fuel, which was partially offset by fewer gallons sold in the first half of 2021 primarily due to the COVID-19 pandemic, as the pandemic did not have a significant impact on our results until the second half ofMarch 2020 . 32
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For the six months ended
For the six months endedJune 30, 2021 , other revenue increased by$16.6 million , or 58.8%, compared to the first half of 2020, primarily related to the ExpressStop and Empire Acquisitions and increased income from lottery commissions and temporary allowance for gaming machines inVirginia . For the six months endedJune 30, 2021 , total operating expenses increased by$1.7 billion , or 99.7%, compared to the first half of 2020. Fuel costs increased$1.5 billion , or 189.0%, compared to the first half of 2020 due to fuel sold at a higher average cost and higher volumes. Merchandise costs increased$41.0 million , or 7.8%, compared to the first half of 2020, primarily due to the ExpressStop and Empire Acquisitions as well as a corresponding increase in same store merchandise sales. For the six months endedJune 30, 2021 , store operating expenses increased$44.8 million , or 17.6%, compared to the first half of 2020 due to incremental expenses from the ExpressStop and Empire Acquisitions and an increase in expenses at same stores. For the six months endedJune 30, 2021 , general and administrative expenses increased$19.2 million , or 48.6%, compared to the first half of 2020, primarily due to expenses associated with the Empire Acquisition, annual wage increases, incentive accruals and stock compensation expenses. For the six months endedJune 30, 2021 , depreciation and amortization expenses increased$15.6 million , or 46.1%, compared to the first half of 2020, primarily due to assets acquired in the previous twelve month period, largely related to the Empire Acquisition. For the six months endedJune 30, 2021 , other expenses, net decreased by$3.0 million compared to the first half of 2020, primarily due to a$3.4 million reduction in losses on disposal of assets and impairment charges in 2021, which was partially offset by a$0.2 million increase in acquisition costs. Operating income was$59.0 million for the six months endedJune 30, 2021 , compared to$39.7 million for the first half of 2020. The increase was primarily due to strong fuel and merchandise results along with incremental income from the ExpressStop and Empire Acquisitions, partially offset by an increase in general and administrative, depreciation and amortization expenses. For the six months endedJune 30, 2021 , interest and other financing expenses, net increased by$21.5 million compared to the first half of 2020, primarily related to higher interest expense from greater debt outstanding in 2021,$4.5 million additional interest for the early redemption of the Bonds (Series C),$9.8 million for interest expense related to fair value adjustments for the Public Warrants, Private Warrants and Deferred Shares, partially offset by a net period-over-period increase in foreign currency gains recorded of$0.9 million .
For the six months ended
Net income attributable to non-controlling interests primarily represented minority interests prior to the Merger Closing Date.
For the six months endedJune 30, 2021 , net income attributable to the Company was$10.8 million compared to$11.4 million for the six months endedJune 30, 2020 . For the six months endedJune 30, 2021 , Adjusted EBITDA was$118.0 million compared to$85.5 million for the six months endedJune 30, 2020 . The Empire Acquisition contributed approximately$35 million of incremental Adjusted EBITDA for the first half of 2021. Increased merchandise contribution at same stores also positively impacted 2021, which was partially offset by a slight decrease in gallons sold and fuel margin at same stores, as well as higher credit card fees related to an increase in the retail price of fuel. An increase in general and administrative expenses primarily related to annual wage increases and incentive accruals also reduced Adjusted EBITDA for the first half of 2021. 33
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Table of Contents Segment Results Retail Segment The table below shows the results of the Retail segment for the three and six months endedJune 30, 2021 and 2020, together with certain key metrics for the segment. For the Three Months Ended June 30, For the Six Months Ended June 30, 2021 2020 2021 2020 Revenues: (in thousands) Fuel revenue$ 768,716 $ 385,519 $ 1,345,020 $ 918,405 Merchandise revenue 426,365 391,697 785,646 715,376 Other revenues, net 17,252 13,615 34,229 25,315 Total revenues 1,212,333 790,831 2,164,895 1,659,096 Operating expenses: Fuel costs 690,952 306,131 1,206,088 787,882 Merchandise costs 303,952 284,577 564,706 523,668 Store operating expenses 146,214 123,356 282,539 249,368 Total operating expenses 1,141,118 714,064 2,053,333 1,560,918 Operating income$ 71,215 $ 76,767 $ 111,562 $ 98,178 Fuel gallons sold 264,967 208,861 491,079 443,676 Same store fuel gallons sold increase (decrease) (%)1 11.9 % (26.4 %) (1.7 %) (17.5 %) Fuel margin, cents per gallon2 34.3 42.5 33.3 33.9 Same store merchandise sales increase (%)1 2.4 % 5.0 % 4.0 % 2.7 % Same store merchandise sales excluding cigarettes increase (%)1 4.3 % 5.9 % 6.5 % 3.0 % Merchandise contribution3$ 122,413 $ 107,120 220,940 191,708 Merchandise margin4 28.7 % 27.3 % 28.1 % 26.8 %
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 has 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.
Three Months Ended
Retail Revenues
For the three months endedJune 30, 2021 , fuel revenue increased by$383.2 million , or 99.4%, compared to the second quarter of 2020. The ExpressStop and Empire Acquisitions contributed an additional 35.5 million gallons sold, or approximately$106.7 million in fuel revenue. The increase in fuel revenue was also attributable to a$1.05 per gallon increase in the average retail price of fuel in the second quarter of 2021 as compared to the same period in 2020, and an increase in gallons sold at same stores of approximately 11.9%, or 24.3 million gallons, as gallons sold in the second quarter of 2020 were negatively impacted by the COVID-19 pandemic. Underperforming retail stores which were closed or converted to dealer-operated sites over the last 12 months in order to optimize profitability negatively impacted gallons sold during the second quarter of 2021. For the three months endedJune 30, 2021 , merchandise revenue increased by$34.7 million , or 8.9%, compared to the second quarter of 2020. The ExpressStop and Empire Acquisitions contributed an additional$35 million of merchandise revenue. Same store merchandise sales increased$9.1 million , or 2.4%, for the second quarter of 2021 compared to the second quarter of 2020. Same store merchandise sales increased primarily due to higher packaged beverage, frozen food, grab-n-go and other tobacco products revenue as a result of marketing initiatives and fact-based data to react to changing consumer needs. In addition, 2021 benefited from a shift in 34
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consumer demand from other retail channels to convenience stores. Offsetting these increases was a decrease in merchandise revenue from underperforming retail stores that were closed or converted to dealer-operated sites.
For the three months ended
Retail Operating Income
For the three months endedJune 30, 2021 , fuel margin increased compared to the same period in 2020, primarily related to incremental fuel profit from the ExpressStop and Empire Acquisitions of approximately$15.6 million which was offset by a decrease in same store fuel profit of$11.9 million (excluding intercompany charges by GPMP). Fuel margin per gallon at same stores for 2021 was significantly lower at32.9 cents per gallon, as compared to a record-setting42.6 cents per gallon for the second quarter of 2020. For the three months endedJune 30, 2021 , merchandise contribution increased$15.3 million , or 14.3%, compared to the same period in 2020, and merchandise margin increased to 28.7% as compared to 27.3% in the prior period. The increase was due to$10.1 million in incremental merchandise contribution from the ExpressStop and Empire Acquisitions and an increase in merchandise contribution at same stores of$6.9 million . Merchandise contribution at same stores increased in the second quarter of 2021 primarily due to a shift in product mix with a lower reliance on cigarettes and higher contribution from packaged beverages, other tobacco products and other center-store items. Merchandise margin at same stores was 28.5% in the second quarter of 2021 compared to 27.4% in the second quarter of 2020. For the three months endedJune 30, 2021 , store operating expenses increased$22.9 million , or 18.5%, compared to the three months endedJune 30, 2020 due to approximately$17 million of incremental expenses related to the ExpressStop and Empire Acquisitions 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 retail stores closed or converted to dealer-operated sites.
Six Months Ended
Retail Revenues
For the six months endedJune 30, 2021 , fuel revenue increased by$426.6 million , or 46.5%, compared to the first half of 2020. The ExpressStop and Empire Acquisitions contributed an additional 62.7 million gallons sold, or approximately$178.2 million in fuel revenue. The increase in fuel revenue was also attributable to a$0.67 per gallon increase in the average retail price of fuel in the first half of 2021 as compared to the comparable period in 2020. However, gallons sold at same stores were down, primarily due to the COVID-19 pandemic, approximately 1.7%, or 7.4 million gallons, which was a decrease of 1.1% when the first half of 2020 (to eliminate the effect of the 2020leap year ) was adjusted to be based on 180 days. Additionally, underperforming retail stores that were closed or converted to dealer-operated sites over the last 12 months in order to optimize profitability negatively impacted gallons sold. For the six months endedJune 30, 2021 , merchandise revenue increased by$70.3 million , or 9.8%, compared to the first half of 2020. The ExpressStop and Empire Acquisitions contributed an additional$58 million of merchandise revenue. Same store merchandise sales increased$28.1 million , or 4.0%, for the first half of 2021 compared to the first half of 2020, which was an increase of 4.5% when the first half of 2020 was adjusted to be based on 180 days. Same store merchandise sales increased primarily due to higher grocery, packaged beverage, frozen food, grab-n-go, other tobacco products, cigarettes and beer and wine revenue from benefits of planogram and marketing initiatives and fact-based data to react to changing consumer needs. In addition, 2021 benefited from an overall increase in the consumer market basket and consumer demand shifting from other retail channels to convenience stores. Offsetting these increases was a decrease in merchandise revenue from underperforming retail stores closed or converted to dealer-operated sites.
For the six months ended
Retail Operating Income
For the six months endedJune 30, 2021 , fuel margin increased compared to the same period in 2020, primarily related to incremental fuel profit from the ExpressStop and Empire Acquisitions of approximately$26.1 million which was offset by a decrease 35
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in same store fuel profit of$12.0 million (excluding intercompany charges by GPMP). Fuel margin per gallon at same stores for 2021 was lower at32.1 cents per gallon, as compared to34.3 cents per gallon for 2020. For the six months endedJune 30, 2021 , merchandise contribution increased$29.2 million , or 15.2%, compared to the same period in 2020, and merchandise margin increased to 28.1% as compared to 26.8% in the prior period. The increase was due to$17 million in incremental merchandise contribution from the ExpressStop and Empire Acquisitions and an increase in merchandise contribution at same stores of$15.1 million . Merchandise contribution at same stores increased in 2021 primarily due to a shift in product mix with a lower reliance on cigarettes and higher contribution from packaged beverage, other tobacco products and other center-store items. The first half of 2020 was negatively impacted by a change in sales mix that began inMarch 2020 as consumers pantry loaded lower margin items due to the COVID-19 pandemic. Merchandise margin at same stores was 27.9% in the first half of 2021 compared to 26.8% in the first half of 2020. For the six months endedJune 30, 2021 , store operating expenses increased$33.2 million , or 13.3%, compared to the six months endedJune 30, 2020 , primarily due to approximately$30 million of incremental expenses related to the ExpressStop and Empire Acquisitions and an increase in expenses at same stores, including higher credit card fees due to higher retail prices. Store operating expenses were reduced from underperforming retail stores closed or converted to dealer-operated sites.
Wholesale Segment
The table below shows the results of the Wholesale segment for the three and six months endedJune 30, 2021 and 2020, together with certain key metrics for the segment. For the Three Months Ended June 30, For the Six Months Ended June 30, 2021 2020 2021 2020
Revenues: (in thousands) Fuel revenue$ 690,521 $ 21,281 $ 1,216,009 $ 50,219 Other revenues, net 5,212 1,307 10,151 2,590 Total revenues 695,733 22,588 1,226,160 52,809 Operating expenses: Fuel costs 680,612 19,942 1,199,541 47,959 Store operating expenses 9,129 1,866 18,319 3,792 Total operating expenses 689,741 21,808 1,217,860 51,751 Operating income$ 5,992 $ 780 $ 8,300 $ 1,058 Fuel gallons sold - non-consignment agent locations 214,761 7,288 398,406 14,815 Fuel gallons sold - consignment agent locations 41,964 5,012 79,875 10,601 Fuel margin, cents per gallon1 - non-consignment agent locations 5.6 5.4 5.4 5.7 Fuel margin, cents per gallon1 - consignment agent locations 25.4 30.1 23.7 24.3
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.
Three Months Ended
Wholesale Revenues
For the three months endedJune 30, 2021 , fuel revenue increased by$669.2 million compared to the second quarter of 2020, primarily due to approximately$641.5 million of incremental fuel revenue from the Empire Acquisition, which contributed sales of 238.7 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$599.7 million of the increase was attributable to non-consignment agent locations.
Wholesale Operating Income
For the three months endedJune 30, 2021 , fuel contribution increased approximately$20.9 million (excluding intercompany charges by GPMP) with the Empire Acquisition accounting for approximately$20.6 million of the increase. Fuel contribution at non-consignment agent locations increased by$11.7 million (excluding intercompany charges by GPMP) and fuel margin increased over the second quarter of 2020. Although fuel contribution at consignment agent locations increased$9.2 million (excluding intercompany charges by GPMP), fuel margin decreased over 2020 primarily due to record-setting fuel margin generated in the prior year. 36
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For the three months endedJune 30, 2021 , store operating expenses increased$7.3 million compared to the three months endedJune 30, 2020 primarily due to the Empire Acquisition.
Six Months Ended
Wholesale Revenues
For the six months endedJune 30, 2021 , fuel revenue increased by$1.2 billion compared to the first half of 2020, primarily due to approximately$1.1 billion of incremental fuel revenues from the Empire Acquisition, which contributed sales of 445.9 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$1.0 billion of the increase was attributable to non-consignment agent locations.
Wholesale Operating Income
For the six months endedJune 30, 2021 , fuel contribution increased approximately$37.0 million (excluding intercompany charges by GPMP) with the Empire Acquisition accounting for approximately$36.6 million of the increase. Although fuel contribution at non-consignment agent locations increased by$20.6 million (excluding intercompany charges by GPMP) and fuel contribution at consignment agent locations increased$16.4 million (excluding intercompany charges by GPMP), fuel margin decreased over the first half of 2020 primarily due to the mix of non-consignment fuel supply contracts acquired in the Empire Acquisition which tend to be priced with lower margins as compared to our existing non-consignment fuel supply contracts and record-setting fuel margins in the prior year.
For the six months ended
GPMP Segment
The table below shows the results of the GPMP segment for the three and six
months ended
For the Three Months Ended
June 30 ,
For the Six Months Ended
2021 2020 2021 2020
Revenues: (in thousands)
Fuel revenue - inter-segment$ 1,092,926 $ 230,178 $ 1,912,393 $ 609,303 Fuel revenue - external customers 1,526 712 2,681 1,929 Other revenues, net 264 179 519 394 Total revenues 1,094,716 231,069 1,915,593 611,626 Operating expenses: Fuel costs 1,068,471 220,996 1,866,671 590,156 General and administrative expenses 793 945 1,504 1,713 Depreciation and amortization 1,842 1,844 3,685 3,687 Total operating expenses 1,071,106 223,785 1,871,860 595,556 Operating income$ 23,610 $ 7,284 $ 43,733 $ 16,070 Fuel gallons sold - inter-segment 519,362 218,980 967,389 467,218 Fuel gallons sold - external customers 700 649 1,347 1,417 Fuel margin, cents per gallon1 5.0 4.5 5.0 4.5
1 Calculated as fuel revenue less fuel costs divided by fuel gallons sold.
Three Months Ended
GPMP Revenues
For the three months endedJune 30, 2021 , fuel revenue increased by$863.6 million compared to the second quarter of 2020. The increase in fuel revenue was attributable to an increase in gallons sold and an increase in average price compared to the second quarter of 2020. For the three months endedJune 30, 2021 and 2020, other revenues, net were$0.3 million and$0.2 million , respectively, and primarily related to rental income from certain sites leased to independent dealers. 37
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Table of Contents GPMP Operating Income Fuel margin increased by$16.1 million for the second quarter of 2021, as compared to the second quarter of 2020, primarily due to additional gallons sold to the retail and wholesale segments at a fixed margin, which increased from4.5 cents per gallon to5.0 cents per gallon in the fourth quarter of 2020.
For the three months ended
Six Months Ended
GPMP Revenues
For the six months endedJune 30, 2021 , fuel revenue increased by$1.3 billion compared to the first half of 2020. The increase in fuel revenue was attributable to an increase in gallons sold and an increase in average price compared to the first half of 2020. For the six months endedJune 30, 2021 and 2020, other revenues, net were$0.5 million and$0.4 million , respectively, and primarily related to rental income from certain sites leased to independent dealers.
GPMP Operating Income
Fuel margin increased by$27.3 million for the first half of 2021, as compared to the first half of 2020, primarily due to additional gallons sold to the retail and wholesale segments at a fixed margin, which increased from4.5 cents per gallon to5.0 cents per gallon in the fourth quarter of 2020.
For the six months ended
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 has a full quarter of activity in the prior year. We believe that this information provides greater comparability regarding our ongoing operating performance. These measures should not be considered an alternative to measurements presented in accordance with generally accepted accounting principles inthe 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. None of EBITDA or Adjusted EBITDA are presented in accordance with GAAP and are non-GAAP financial measures. We use EBITDA and Adjusted EBITDA 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 and Adjusted EBITDA 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 and Adjusted EBITDA 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 and Adjusted EBITDA are not recognized terms under GAAP and should not be considered as a substitute for net income (loss), cash flows from operating activities, or other income or cash flow statement data. These measures have limitations as analytical tools, and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP. We strongly encourage investors to review our financial statements and publicly filed reports in their entirety and not to rely on any single financial measure. Because non-GAAP financial measures are not standardized, same store measures, EBITDA and Adjusted EBITDA, 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. 38
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The following table contains a reconciliation of net income to EBITDA and
Adjusted EBITDA for the three and six months ended
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2021 2020 2021 2020
(in thousands)
Net income $ 25,573 $ 32,509 $ 10,911 $ 19,652
Interest and other financing expenses,
net 11,997 12,513 40,614 19,164
Income tax expense 8,212 2,510 7,490 499
Depreciation and amortization 25,273 16,814 49,515 33,885
EBITDA 71,055 64,346 108,530 73,200
Non-cash rent expense (a) 1,578 1,746 3,349 3,548
Acquisition costs (b) 1,988 882 2,599 2,382
(Gain) loss on disposal of assets and
impairment charges (c) (400 ) 1,000 975 4,382
Share-based compensation expense (d) 1,488 128 2,514 255
(Income) loss from equity investment (e) (26 ) 178 (20 ) 411
Fuel taxes paid in arrears (f) - - - 1,050
Other (g) 34 269 73 255
Adjusted EBITDA $ 75,717 $ 68,549 $ 118,020 $ 85,483
(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 non-cash loss (gain) from the sale of property and equipment, the
gain recognized upon the sale of related leased assets and impairment charges on
property and equipment and right-of-use assets related to closed and
non-performing stores.
(d)
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.
(e)
Eliminates our share of (income) loss attributable to our unconsolidated equity
investment.
(f)
Eliminates the payment of historical fuel tax liabilities owed for multiple
prior periods.
(g)
Eliminates other unusual or non-recurring items that we do not consider to be
meaningful in assessing operating 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 for financing 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, borrowings and
equity contributions, 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.
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InJune 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 inDecember 2021 ), and added a three-year$20.0 million line of credit for purchases of equipment, of which$17.5 million remained available as ofJune 30, 2021 . In 2020, we entered into a financing agreement withAres Capital Management (the "Ares Credit Agreement"), which allowed us to repay our outstanding long-term debt withPNC Bank, National Association ("PNC") except for the GPMP PNC Term Loan (as defined below), and allowed us to obtain additional financing, which we used to finance acquisitions. Additionally, the Ares financing agreement has a 1% annual amortization, which aids liquidity by limiting the capital required annually to repay this debt. InOctober 2020 , in connection with the Empire Acquisition, we increased the availability under our Capital One Line of Credit to$500 million from$300 million , which we can seek to increase, subject to obtaining additional financing commitments from lenders or other banks, and subject to certain other terms, up to$700 million , and our line of credit with PNC Bank increased from$110 million to$140 million . As ofJune 30, 2021 , we were in a strong liquidity position of approximately$509 million , with$229.4 million of cash and$31.8 million of restricted investments as well as approximately$248 million of availability under our lines of credit. Additionally, this liquidity position currently provides us with adequate funding to satisfy our other contractual and other obligations out of our outstanding cash balances. As ofJune 30, 2021 , we had no outstanding borrowings under our line of credit with PNC Bank,$17.5 million of unused availability under the M&T equipment line of credit and$101 million of unused availability under the Capital One Line of Credit. 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 remodel stores is expected to come from cash generated by operations, availability under lines of credit, and additional long-term debt as circumstances may dictate. In the future, we currently expect that our capital spending program will be primarily focused on expanding our store base through acquisitions, razing and rebuilding, and remodeling stores, and maintaining our owned properties and equipment, including upgrading all fuel dispensers to be EMV-compliant. The estimated gross cost of these upgrades in 2021 is expected to be approximately$10 million , of which a portion will be offset by fuel supplier incentive programs, and the remainder is expected to be financed with leasing companies. We expect to spend a total of approximately$10 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 Six Month Periods Ended
Net cash provided by (used in) operating activities, investing activities and financing activities for the six months endedJune 30, 2021 and 2020 were as follows: For the Six Months Ended June 30, 2021 2020 (in thousands) Net cash provided by (used in): Operating activities $ 59,017$ 101,908 Investing activities (90,281 ) (20,664 ) Financing activities (35,339 ) 34,514 Effect of exchange rates (1,438 ) (15 ) Total$ (68,041 ) $ 115,743 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 six months endedJune 30, 2021 , cash flows provided by operating activities was$59.0 million compared to$101.9 million for the first half of 2020. The 2021 decrease was primarily the result of approximately$7.9 million of higher net tax payments, approximately$11.9 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 in the current year, and the payment of approximately$13.6 million of annual incentives. These increases were partially offset by an increase in Adjusted EBITDA primarily generated from an increase in merchandise contribution at same stores as well as the Empire Acquisition. 40
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In addition, the first half of 2020 benefited from a temporary change to extend
payment terms with key merchandise suppliers which increased prior year
operating cash flow by approximately
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 six months endedJune 30, 2021 , cash used in investing activities increased by$69.6 million compared to the first half of 2020. For the six months endedJune 30, 2021 , we spent$32.6 million for capital expenditures and a net amount of$59.2 million for the ExpressStop Acquisition, after considering the proceeds paid by one of the Real Estate Funds. The proceeds paid from the secondReal Estate Fund for the ExpressStop Acquisition of $43.6 million were included in financing activity, reflecting a net cash outflow on the ExpressStop Acquisition of$15.6 million . For the six months endedJune 30, 2020 , we spent$20.5 million for capital expenditures.
Financing Activities
Cash flows from financing activities primarily consist of increases and decreases in our line of credit and debt, proceeds from failed sale-leaseback transactions and distributions to non-controlling interests as well as issuance of common and preferred stock. For the six months endedJune 30, 2021 , financing activities consisted primarily of net payments of$67.0 million for long-term debt, including the early redemption of the Bonds (Series C), repayments of$4.0 million for financing leases,$3.0 million for dividend payments on the Series A redeemable preferred stock and$4.8 million of issuance costs related to the Merger Transaction, which were offset by$43.6 million in consideration paid by aReal Estate Fund for the ExpressStop Acquisition . For the six months endedJune 30, 2020 , financing activities consisted primarily of net proceeds of$14.7 million for long-term debt and lines of credit, repayments of$4.2 million for financing leases, net proceeds from the issuance of rights of$11.3 million , investment of non-controlling interest in subsidiary of$19.3 million , buyback of long-term debt of$2.0 million and$4.7 million in distributions to non-controlling interests.
Credit Facilities
Ares Credit Agreement
GPM entered into a credit agreement with 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 onFebruary 28, 2020 , and the Delayed Term Loan A of$63 million , which was drawn onOctober 6, 2020 in order to fund the Empire Acquisition (the "Ares Loan"). The Ares Loan bears interest, as elected by us, at: (a) a rate per annum equal to the Ares alternative base rate (as defined in the Ares Credit Agreement) plus a margin of 3.50%, or (b) LIBOR (subject to a floor of 1.0%) plus a margin of 4.50%. Financing agreements with PNC GPM and certain subsidiaries have a financing agreement with PNC (the "GPM PNC Facility") 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 GPM PNC Facility, taking into account the balances of receivables, inventory and letters of credit, among other things. As ofJune 30, 2021 ,$8.0 million of letters of credit were outstanding under the GPM PNC Facility. GPMP 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 byU.S. Treasury or other investment grade securities equal to approximately 98% of the outstanding principal amount of the GPMP PNC Term Loan. 41
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Financing agreements with M&T Bank
OnJune 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 "M&T Credit Agreement Amendment") and (ii) a Second Amended and Restated Master Covenant Agreement, by and betweenGPM and M&T Bank (the "M&T Master Covenant Agreement Amendment"). The M&T Credit Agreement Amendment amended and restated in its entirety that certain Amended and Restated Consolidated Credit Agreement, datedDecember 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 inDecember 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$17.5 million remained available as of the M&T Closing Date andJune 30, 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 inJune 2026 and are payable in monthly installments based on a fifteen-year amortization schedule, with the balance of the loans payable at maturity. The M&T Credit Agreement Amendment 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%.
Financing agreement with a syndicate of banks led by
GPMP has a credit agreement for a revolving credit facility with a syndicate of banks led byCapital One, National Association (the "Capital One Credit Facility"), in an aggregate principal amount 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 lenders or from other banks, and subject to certain terms as detailed in the Capital One Line of Credit. 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 ofJune 30, 2021 ,$0.7 million of letters of credit were outstanding under the Capital One Credit Facility.
Critical Accounting Policies and Estimates
There were no material changes to our critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 that have had a material impact on our Condensed Consolidated Financial Statements and related notes.
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