Arko Petroleum's 2026 Q2 Earnings Call: Asset Strategy Shift and CapEx Discrepancies Clash

Date of Call: Aug 6, 2026

Guidance:

• Full-year adjusted EBITDA expected to be approximately $156 million.
• Full-year Discretionary Cash Flow expected to be approximately $110 million.
• U.S. Petroleum Partners acquisition expected to close later in 2026 and contribute in a manner consistent with guidance assumptions.

Business Commentary:

Strong Execution and Strategic Growth:

• ARKO Petroleum Corp reported a year-over-year adjusted EBITDA growth of approximately 4% and Discretionary Cash Flow growth of approximately 12% for the second quarter of 2026.
• The company announced the signing of a purchase agreement to acquire the business of U.S. Petroleum Partners, adding approximately 280 million gallons of annual wholesale fuel volume, which is expected to increase APC’s fuel volumes by about 14%.
• This strategic acquisition is expected to be accretive, adding approximately $30 million of annual adjusted EBITDA, enhancing Discretionary Cash Flow, and supporting the long-term growth platform of the company.

Wholesale Fuel Contribution and Margins:

• Wholesale fuel contribution increased by 3.7% to $26.3 million in Q2 2026 compared to $25.4 million in Q2 2025.
• The blended fuel margin was approximately $0.109 per gallon in Q2 2026 compared to $0.101 per gallon in the prior year, primarily benefiting from higher prompt pay discounts on the higher cost of fuel.
• This increase in margin was driven by market dynamics tied to higher retail fuel prices and the company's ongoing dealerization program, which resulted in incremental dealer locations.

Fleet Fueling Segment Performance:

• Fleet fueling fuel contribution was $17.1 million, a slight decrease from $17.8 million last year, despite a slight increase in gallons to 36.4 million.
• The blended margin was $0.469 per gallon, down approximately $0.02 from the prior year period, reflecting a more normalized margin rate and some fuel margin compression.
• The company continues to invest in new CardLock locations, attracted by the low capital investment and mid-to-high teens expected returns per location.

Financial Flexibility and Leverage:

• At quarter end, ARKO's leverage was 2.2x Net Debt to adjusted EBITDA, well below their post-IPO target of 2.5x, with significant liquidity of approximately $710 million available under credit lines.
• The acquisition of U.S. Petroleum Partners is expected to result in pro forma Net Debt to adjusted EBITDA in the range of 3x-3.5x, which remains within the company's targeted leverage range of 3x-4x.
• This financial flexibility allows the company to pursue attractive growth opportunities while maintaining a disciplined capital allocation approach.

Sentiment Analysis:

Overall Tone: Positive

• Management reported 'another quarter of strong execution and growing momentum' and 'delivered another strong quarter with a year-over-year adjusted EBITDA growth of approximately 4%'. The acquisition of USPP was called 'a major step forward in the growth story' and 'exactly why we took APC public'.

Q&A:

• Question from Josh Silverstein (UBS): Great to see the acquisition come through and good use of the balance sheet here. I was hoping you could talk a little bit more about the synergies that USPP brings to the ARKO footprint and how you guys might be able to benefit and integrate the transport and terminal infrastructure offerings that they have.
  Response: The USPP business is complementary, adding 400 dealers to scale the platform and enhancing relationships with major oil companies. The included fleet of trucks and terminals provide vertical integration benefits, storage capacity, and fee-based income streams.

• Question from Josh Silverstein (UBS): Got it. How should we think about the CapEx needs versus the $30 million of EBITDA that you forecast? I’m trying to get a sense of the free cash flow generation from this, and then how you plan- ... to allocate those funds. Yeah, does it go to the balance sheet and delever, or is this the support for more dividends?
  Response: The business is low CapEx. The company will use its balance sheet flexibly but discipline, focusing on maintaining leverage within targets while pursuing growth opportunities.

• Question from Gabriel Moreen (Mizuho Securities): ...I wanted to ask just in terms of contract lengths here, also sort of the margin determination cost-plus. Is it a mix here and how it may compare to APC’s base lines?
  Response: The acquired business has a similar business model, with about 85% of accounts on a fixed fee or cost-plus structure, aligning with APC's existing base.

• Question from Gabriel Moreen (Mizuho Securities): ...Can you just talk about, Arie, maybe what’s your baseline EBITDA here? Is that earn-out provision a stretch goal? What could get you there? I’m just curious kind of how to reconcile those two numbers in the release.
  Response: The $30 million is the expected annualized EBITDA for the acquired business. The earn-out (up to $30M in stock) is for performance above that baseline, but the base expectation is $30 million.

• Question from Selman Akyol (Stifel): ...would you be wanting to add more assets into sort of the business model, or is this something we should expect to just be sort of unique to this acquisition, and going forward, future acquisitions will probably be more along the asset-light line?
  Response: The added assets (terminals, trucks) are complementary and specific to the Great Lakes region. The acquisition expands vertical integration and value capture but does not signal a shift to a primarily asset-heavy strategy.

Contradiction Point 1

Financial Strategy and Growth Model

Shift from an asset-light, high-growth fleet expansion model to an asset-heavy, fee-based terminal model.

What were Selman Akyol's key takeaways from Stifel on the earnings call? - Selman Akyol (Stifel)

2026Q2: The terminal business is a simple, fee-based storage model. Owning a terminal allows ARKO to pool its own product and collect fees, expanding its vertical integration. - Arie Kotler(CEO)

Will future growth focus on acquiring more physical assets like terminals and trucks or shift toward asset-light strategies? - Selman Akyol (Stifel)

2026Q1: The long-term target is 40 locations per year [for fleet fueling], which is a 2026 commitment of 20 new locations... - Arie Kotler(CEO)

Contradiction Point 2

Capital Expenditure per New Fleet Fueling Location

Contradiction on the amount of capital required to open a new fleet fueling location.

Josh Silverstein (UBS) - Josh Silverstein (UBS)

2026Q2: The business is low CapEx, especially for the terminal infrastructure. - Arie Kotler(CEO)

How should we think about the CapEx needs, free cash flow generation, and fund allocation (debt reduction vs. dividends) given the $30M EBITDA acquisition forecast? - Josh Silverstein (UBS)

2025Q4: For fleet fueling, the capital investment per new location is $1M-$2M. - Ari Kotler(CEO)

Contradiction Point 3

Status of M&A Deal Discussions

Contradiction on the current state of announced M&A opportunities.

Josh Silverstein (UBS) - Josh Silverstein (UBS)

2026Q2: ARKO will continue to use its balance sheet strategically... The company will balance growth investments with capital allocation to support shareholder returns. - Arie Kotler(CEO)

How should we think about the CapEx needs, free cash flow generation, and fund allocation (debt reduction vs. dividends) in relation to the $30M EBITDA acquisition forecast? - Wade Suki (Capital One)

2025Q4: The company has two accretive deals in progress (a small 38M gallon deal and a larger 350M gallon deal) and continues to identify new opportunities... - Ari Kotler(CEO)