ARKO Petroleum Corp. Class A Common Stock Q2 FY2026 earnings call

Strategic Acquisition of U.S. Petroleum Partners (USPP)

• The acquisition is a highly strategic, accretive transaction that fulfills ARCO Petroleum Corp. (APC)'s post-IPO growth strategy, which aimed to use public market access to strengthen the balance sheet and pursue high-quality growth opportunities.
• The acquisition adds 280 million gallons of annual fuel volume, increasing APC's total fuel volumes by ~14% (for the 12 months ended June 30, 2026), and expands APC's dealer network by 400 locations to a total of 2,500 dealers.
• Includes two long-lived fuel storage terminals on the Buckeye Pipeline system (Novi, Michigan and Toledo, Ohio), entering APC into the fee-generating terminal business and creating greater vertical integration across the refined product value chain.
• Includes a truck and trailer fleet that expands last-mile logistics capabilities, supporting 80% of the acquired dealer locations and adding another earnings stream.
• Transaction terms: $205 million cash at closing (plus inventory cost), plus $30 million in Class A common stock held in escrow for an earn-out tied to achieving EBITDA targets of $31.7 million total EBITDA and $2.2 million from specific fuel components in the 12 months post-closing.
• Expected to close in late 2026, and adds ~$30 million in annual adjusted EBITDA with synergies expected to begin in 2027; the acquisition is expected to be accretive to earnings and discretionary cash flow.

Overall Q2 2026 Financial Performance

• GAAP net income was $12.2 million, up from $10 million YoY. Adjusted EBITDA was $39.8 million, a 4% YoY increase, while discretionary cash flow grew 12% YoY to $27.1 million, demonstrating strong cash conversion.
• Net working capital increased due to higher fuel costs, leading to operating cash flow of $10.4 million for the quarter, down from $23.2 million YoY.

Balance Sheet and Capital Allocation

• End-of-quarter net debt was $324.2 million, for a leverage ratio of 2.2x net debt to adjusted EBITDA, well below APC's post-IPO target of 2.5x, with $710 million in available credit line capacity providing significant flexibility.
• Pro forma leverage after the USPP acquisition is expected to be 3.0x-3.5x, which remains comfortably within APC's 3.0x-4.0x target range, maintaining a disciplined approach to capital allocation.
• APC declared a quarterly dividend of $0.50 per share, consistent with the annual target of $2 per share, aligning with the company's dividend philosophy.

Fleet Fueling Segment Investment

• APC continues to invest in expanding its card lock platform, with 20 new locations planned for 2026; 3 have opened to date, and the remaining 17 are in development. The segment offers low capital investment per location with mid-to-high teens expected returns.

1. Wholesale Segment: Fuel contribution increased 3.7% year-over-year (YoY) to $26.3 million in Q2 2026, from $25.4 million in Q2 2025. Wholesale fuel volumes declined 4.6% YoY to 240.8 million gallons, driven by the ongoing dealerization program that shifts ARCO retail locations to wholesale dealer ownership. Blended margin per gallon rose 0.8 cents YoY to 10.9 cents per gallon, primarily from higher prompt pay discounts on higher-cost fuel amid higher retail market prices.
2. Fleet Fueling Segment: Fuel contribution decreased slightly YoY to $17.1 million in Q2 2026, from $17.8 million in Q2 2025. Fuel volumes were slightly up YoY at 36.4 million gallons, compared to 36.3 million gallons in Q2 2025. Blended margin per gallon fell approximately 2 cents YoY to 46.9 cents per gallon, due to margin normalization and temporary margin compression when indexed customer prices declined faster than the cost of average inventory. Operating income was relatively flat YoY.
3. GPMP Segment: Fuel contribution from related party (ARCO retail) locations rose slightly YoY to $11.5 million in Q2 2026, from $11.3 million in Q2 2025. Related party fuel volumes fell to 191.4 million gallons from 225.3 million gallons YoY, primarily due to the ongoing conversion of ARCO retail sites to wholesale dealer locations shifting volume away from the segment.

• Management maintains its full-year 2026 guidance originally issued prior to the USPP acquisition, with an expected full-year adjusted EBITDA of approximately $156 million and full-year discretionary cash flow of approximately $110 million.
• The USPP acquisition is expected to close in late 2026, and its 2026 contribution to full-year results is projected to align with the assumptions embedded in the maintained guidance.
• Management remains confident in APC's long-term outlook for consistent earnings growth, stable cash generation, and attractive shareholder returns supported by the company's business model.

No specific risks or operational failures were explicitly discussed during this earning call. Management only included standard cautionary language noting that forward-looking statements are subject to factors that could cause actual results to differ materially from projected outcomes, as required by the Private Securities Litigation Reform Act of 1995.

Q: What synergies does the USPP acquisition deliver to APC's existing footprint, especially from the new transport and terminal infrastructure? / A: USPP's entire business is fully complementary to APC's existing operations. It adds 400 complementary dealer locations that expand APC's scale and deepen existing relationships with major fuel suppliers. USPP's truck fleet delivers fuel to 80% of its acquired dealers, adding to APC's existing transportation capabilities, especially in the Great Lakes market where APC already has a large presence. Owning the two new terminals lets APC source its own dealer fuel from terminals it controls, while also earning stable third-party storage fees, expanding APC's participation across the fuel value chain. The acquisition has very low required capital expenditures, particularly for the terminal business which requires minimal ongoing investment.

Q: How do the disclosed $30 million annual expected adjusted EBITDA for USPP align with the earn-out EBITDA targets? Is the target a stretch goal? / A: The $30 million figure is the expected base annual adjusted EBITDA for the acquired current USPP business. The $31.7 million earn-out target accounts for potential incremental EBITDA above the base $30 million level. The $30 million in escrowed Class A common stock is released to sellers only if they exceed the base EBITDA level, so any upside above base expectations benefits both parties through the earn-out structure. Management is confident that the seller team will work to meet and exceed the target.

Q: Is adding terminals and in-house logistics a new strategic direction for APC, or should future acquisitions continue to focus on the existing core asset base? / A: The USPP terminals and truck fleet are not a major shift in strategy, as they are fully complementary to APC's existing operations. APC already has a large existing presence in the Great Lakes market where USPP's assets are located, and APC already operates an in-house truck fleet of 80 vehicles primarily in the Carolinas. The terminals operate as simple, stable fee-based storage businesses, where APC collects fees for storing third-party (major oil company) product, aligning with APC's existing focus on stable fee-based and fixed-margin earnings.