Earnings Call Transcript - ARKO Q4 2021

Operator, Operator

Greetings, and welcome to the Arko Corporation Fourth Quarter and Full Year 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to Ross Parman, Vice President of Investor Relations and Government Affairs. Thank you. You may begin.

Ross Parman, Vice President of Investor Relations and Government Affairs

Thank you. Good morning and welcome to Arko's Fourth Quarter and Fiscal Year 2021 Earnings Conference Call and Webcast. On today's call are Arie Kotler, Chairman, President, and Chief Executive Officer, and Don Bassell, Chief Financial Officer. By now, everyone should have access to the company's earnings press release that was furnished to the SEC this morning and is also available on the Investor Relations section of Arko's website. Unless otherwise stated, during our call today, we are comparing results to the same periods in 2020. All fourth quarter and fiscal year 2021 financial information is unaudited, and during this call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of words such as will, may, expect, plan, intend, could, estimate, project, and similar references to future periods. These statements speak only as of today, are based on management's current expectations and beliefs, and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Today's press release and the company's filings with the SEC include detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today the company expects to file its annual report on Form 10-K for the year ended December 31, 2021 on February 25th, 2022. Except as required by federal securities laws, Arko does not undertake to publicly update or revise any forward-looking statements subsequent to the date made as a result of new information, future events, changing circumstances, or for any other reason. Please note that on today's call, management will refer to non-GAAP financial measures, including same-store measures, EBITDA, adjusted EBITDA, and adjusted EBITDA net of incremental bonuses. While the company believes that these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release for reconciliations of our non-GAAP measures to the most directly comparable GAAP measures. I would also like to note that we are conducting our call today from our respective remote locations. As such, there may be brief delays, cross-talk, or other minor technical issues during this call. We thank you in advance for your patience and understanding. On today's call, Arie will review the quarter and year ended December 31, 2021. Don will then review our financial results in more detail before they take your questions. And now, I would like to turn the call over to Arie.

Arie Kotler, Chairman, President, and CEO

Good morning, everyone. We are pleased to report strong results for the fourth quarter in fiscal year 2021. For the full year, adjusted EBITDA net of incremental bonuses was a record $256.6 million. Fourth quarter 2021 adjusted EBITDA net of incremental bonuses was $58.4 million, a 44% increase versus the fourth quarter of 2020. We have undertaken long-term strategic initiatives in our convenience stores and in our ORSL division that we believe position us well for considerable long-term profitable growth. Inside the store, merchandise margin expanded 290 basis points in the fourth quarter to 30%. We continue to drive margin expansion broadly and in key categories. We also saw considerable margin growth in grab-and-go and frozen foods, a strategic pivot that has been a hit with our customers and currently seeing substantial growth. In fuel, we were able to grow our retail margin to $33.5 per gallon for the fourth quarter, despite rising fuel prices. In May, we acquired 60 ExpressStop stores and gas stations in Michigan and Ohio, and in November, we acquired 36 company-operated Handy Mart convenience stores and gas stations, lots of development sites all located in North Carolina. During 2021, we rapidly integrated and realized significant synergies with Empire. For the year, these acquisitions added $36.8 million of merchandise contribution and $53.9 million in retail fuel profitability. We recently announced that we have agreed to buy the cardlock business and certain other assets of Quarles Petroleum. Quarles' footprint is in prime locations along the northeast and southeast seaboard, which is our territory. We see easy acceptance commercially for fleet fueling of light industrial trucks and commercial vehicles. This is an exciting and unique deal that we believe will drive strategic growth with 185 cardlock sites. Quarles is the largest fleet fueling cardlock operator on the U.S. East Coast. This is a business that we believe cannot be replicated today. The acquisition of these assets complements and expands our cohorts of strategy, as the mature fleet fueling platform and boosts our supply and distribution capabilities within our 33 states and Washington DC fuel supply footprint. At the time of signing the asset purchase agreement using estimated forward-looking non-GAAP measures, the company expects that this acquisition will add approximately $17.3 million of adjusted EBITDA on an annualized basis after incremental rent of approximately $7.7 million to be paid to Oak Street, the private equity real estate firm that will fund approximately $130 million of the purchase price. The company intends to finance from its own sources the value of inventory acquired at the closing, and the remaining approximately $40 million of this purchase price. Most importantly, we believe we can rapidly synergize and strategically grow this business. Moving to some of our strategic, longer-term initiatives, on our remodel and organic growth opportunities, we believe that we have an extensive embedded opportunity to enhance our existing store base through multiple organic growth initiatives. We constantly monitor macroeconomic factors such as rising material costs, shortages, construction industry price fluctuations, and labor shortages, and we closely analyze key performance indicators in our remodel program. Two stores were remodeled in 2021, and we completed the raze and rebuild in Rock Hill, South Carolina in November 2021. We have seen encouraging results so far from these locations. We opened one new Dunkin' location in 2021; six stores are undergoing remodels to be completed in the first half of 2022. We plan to break ground on a new-to-industry store in Atlanta, Texas in the fourth quarter of 2022. And we are planning to open additional Dunkin' locations in 2022. We also continue to remodel our Dunkin' locations. While we plan our pace moving forward, including a review of food and raze and rebuild possibilities, there are several organic growth strategies that we intend to deploy in 2022. I will detail our key areas of focus now. One area of focus is quick-serve restaurant partnerships. Last December, we launched a pilot program with two in-store Sbarro's pizzas. Pizza is one of the top food service items in convenience stores. We think this is an excellent program that aligns with key elements of our remodel program and enhances the in-store experience. Customer feedback has been extremely positive. Based on preliminary results, including very promising early sales and margin growth, we are planning to build out approximately 50 more in-stores Sbarro's in 2022. Importantly, because of our partnership with Sbarro's, we intend to move forward quickly with this initiative. A second area that drives growth and enhances the overall customer experience has been coffee. Consumption habits are changing. We believe that being in the always fresh, hot, and iced coffee business 24 hours a day, seven days a week, is very important. We're rapidly expanding this program with an initial target of 525 stores. This program eliminates waste and allows the store associate to spend less time making coffee and more time on customer service. We are also working to expand our successful grab-and-go reserve strategy to even more stores. Another long-term strategic initiative that we're excited about is our fast reward customer relationship marketing program. We're investing heavily in this program. We know our most loyal customers shop more often and have larger baskets. One area of investment is the operator for our mobile app. This will be a significant redesign with a better user experience. The new app will also enhance analytic capability to make us even more competitive across our footprint. This is important work that we believe will enable even deeper engagement and connection with our customers to drive trips, sales, and overall enrollment in the rewards program. There are exciting new features on the app. Customers will have the ability to order through the app for in-store pickup or delivery. There will be in-app messaging and advertising, customer-specific offers and deals. We will also enable geofencing for local fuel pricing and brand customization so users are sent to their local brands such as FastMart, Easy Mart, and Village Pantry, just to name a few of our community brands. On our ESG and EV initiative, we have two important areas where we continue to make progress. We take our responsibility to society very seriously. We believe that we manage this company in a highly responsible manner because of the expectations of our stakeholders, including the communities where we operate. We have engaged with a global services firm to help us establish an ESG framework aligned with global standards. We will keep you updated on our progress. We also take the EV opportunity very seriously. Arko successfully won grants for EV chargers to be installed in two stores in Colorado that we expect will come online in the first quarter of 2022. We are applying the learnings from this process for future activities and building our capabilities. While we believe near-term adoption will center around our locations on high-traffic corridors, we are pursuing grants across our footprint. It is important to remember that our stores are primarily located in smaller towns and rural areas. As demand builds, we believe we are well-positioned to make EV charging a serious part of our business and make EV drivers loyal customers of our stores. We also continue to pursue acquisitions. As you know, we look at many potential transactions. After more than 20 deals since 2013, we believe we have a winning strategy and can continue to acquire and successfully integrate at any scale. We have many levers for growth and we are very opportunistic and deliberate about pursuing them. We always consider the best way to strategically deploy capital in a highly disciplined manner. From enhanced marketing initiatives to food service opportunities, we are highly focused on growth. We will continue to pursue the acquisition of convenience stores as well as bolt-on acquisitions like the asset purchases. And we also continue to pursue the renewal and new independent dealer businesses. Today, we announced that our Board of Directors declared our first-ever quarterly dividend of $0.02 per share of common stock and authorized a share repurchase program for up to an aggregate amount of $50 million. Our ability to return cash to our stockholders is consistent with our capital allocation frameworks and reflects our confidence in the strength of our cash-generating ability and strong financial position. We ended fiscal 2021 in a very strong position. We were able to successfully grow our business while navigating a challenging environment. We look forward to building on these successes in 2022 and beyond. I would like now to turn the call over to Don, who will walk you through our financial results in detail.

Donald Bassell, Chief Financial Officer

Thanks, Arie. It's great to be speaking with you all today about both our strong fourth-quarter and full-year 2021 results. Beginning with the quarter. Total revenue excluding fuel was $418 million, a 6% increase from the prior-year period. Merchandise margin dollars increased by $17.1 million versus the prior year, while merchandise margin increased to 30% from 27.1%, largely due to our continued strategic efforts and high-growth categories such as frozen food and grab-and-go. Retail fuel profitability excluding intercompany charges for the quarter increased $16.6 million compared to the prior-year period, with Empire, ExpressStop, and Handy Mart accounting for $9.3 million of the increase, coupled with same-store fuel profits increasing by $7.5 million. Retail fuel margin in the quarter was $0.335 per gallon, versus $0.293 per gallon for the prior year. For the fourth quarter of 2021, wholesale fuel profitability excluding intercompany charges increased $7.6 million compared to the prior year, with most of the growth a result of the Empire acquisition. Fuel contribution from fuel supply locations grew by $5 million for the quarter compared to the prior year, driven by an approximate 15 million gallon increase in fuel volume, and a 2.1% increase in fuel margin per gallon for these locations versus the fourth quarter of 2020. Fuel contribution from consignment agent locations grew $2.6 million for the quarter, compared to the prior year, due to an increase in fuel margin cents per gallon of $0.65. Volume was flat compared to the prior-year period. Fourth quarter store operating expenses were up $20.7 million or 14% versus prior year due to incremental expenses related to the ExpressStop, Handy Mart, and Empire acquisitions, in addition to higher credit card expenses and an increase in expenses at same-stores. General and administrative expenses increased $3.8 million or 13% for the fourth quarter, as compared to the prior year, primarily reflecting support for our recent acquisitions, as well as annual wage increases, incentive accruals, and stock compensation expenses. Net interest and other financial expenses decreased $4.3 million to $16.2 million in the quarter, primarily due to fair value adjustments for warrants and a net period-over-period increase in foreign currency gains. Net income for the quarter was $12.9 million versus a loss of $6.2 million for the prior year. Adjusted EBITDA net of incremental bonuses for the quarter was $58.4 million, an increase of 44% compared to the fourth quarter of 2020. Turning to our full-year results, total revenue excluding fuel was $1.7 billion, a 9% increase from the prior year. Merchandise margin dollars increased by $66.6 million versus the prior year. The increase in merchandise margin dollars was primarily due to the acquisition of the Empire, ExpressStop, and Handy Mart businesses, coupled with a 1.6% same-store merchandise sales increase. Merchandise margin increased 210 basis points to 29.3% as a result of changes in the sales mix and improved purchasing economics. Retail fuel profitability, excluding inter-company charges for the year, increased $50.8 million as our strong fuel margin capture of $0.337 per gallon, versus $0.319 per gallon in the prior year, enabled us to more than offset same-store volume losses of 1.3%. For the full year, wholesale fuel profitability, excluding inter-company charges, increased $66.5 million compared to the prior year. With most of the growth resulting from the Empire acquisition. Fuel contribution from fuel supply locations grew by $37.4 million compared to the prior year, driven by an approximate 605 million gallon increase in fuel volume, and a $0.013 increase in fuel margin per gallon for fuel supply locations versus 2020. Fuel contribution from consignment agent locations grew $29.1 million compared to the prior year, due to increases in both volume of approximately 106 million gallons and fuel margin cents per gallon of $0.035. Store operating expenses for the year were up 18.4% versus prior year due to incremental expenses related to the Empire acquisition, and our 2021 acquisitions, and an increase in expenses at same-stores. General and administrative expenses increased 32% for the year compared to the prior year, primarily due to expenses associated with the Empire acquisition, annual wage increases, incentive accruals, and stock compensation expenses. Net interest and other financial expenses increased by $21.3 million to $71.2 million for the year, primarily due to higher interest expense for outstanding debt, $4.5 million additional interest for the early redemption of the Israeli bonds, $6.3 million write-off of deferred financing costs, and $6 million in fair value adjustments of our warrants. Net of the period-over-period increase in foreign currency gains recorded of $8.1 million. Full-year net income was $59.4 million compared to $30.6 million for the prior year. Incremental earnings in 2021 were related to strong contributions from the Empire acquisition coupled with strong same-store merchandise gross margin with partial offsets coming from higher expenses, including credit card fees and depreciation related to the acquisitions. Adjusted EBITDA net of incremental bonuses for the year was $256.6 million, an increase of $73.2 million or 40% compared to 2020. Increased merchandise contributions same-stores and approximately $78 million of incremental adjusted EBITDA from the 2021 acquisitions and the Empire acquisition were partially offset by higher credit card fees, a slight decrease in gallons sold, and fuel profit at same-stores. Our balance sheet remains very strong. On December 31st, 2021 our total liquidity was approximately $754 million, consisting of cash and cash equivalents, and short-term investments of approximately $310 million, and approximately $444 million available under our lines of credit. With net debt excluding capital leases, was approximately $408 million, putting our net leverage at 1.6 times. For the full year, net cash provided by operating activities was $159.2 million. Capital expenditures were approximately $73 million for the year, representing capital expenditures of $226.2 million net of $152.9 million of proceeds paid by Oak Street for two transactions accounted for as sale leasebacks, and the purchase of certain fee properties, compared to $44.6 million in the prior year. Today, we announced that our Board of Directors declared our first-ever quarterly dividend of $0.02 per share of common stock to be paid on March 29th, 2022, to the stockholders of record as of March 15th, 2022. The company's Board of Directors also authorized a share repurchase program for up to an aggregate amount of $50 million of our outstanding shares of common stock. As of December 31st, 2021, there were 124.4 million shares of our common stock outstanding. We ended the year with 1,406 retail sites and 1,628 wholesale sites. I'm pleased that we have demonstrated our strength and capability through our strong financial results for the year. We continued to execute as we navigated through a constantly changing consumer environment, and we believe we are positioned to take our business to the next level. And with that, I'll turn it back over to Arie.

Arie Kotler, Chairman, President, and CEO

Thanks, Don. I'd like to thank all over 11,000 team members for their exceptional efforts to exceed our customers' expectations. That's why we achieved these excellent results. We are excited to continue to execute growth and increase stockholder value. We believe that we are a unique business and differentiated market leader. I'm pleased with the progress we have made so far. Thank you for joining the call today and your interest in Arko. I will now turn it over to the Operator for questions.

Operator, Operator

Thank you. We will now be conducting a question-and-answer session. One moment please while we poll for your questions. Our first question is coming from the line of Kelly Bania with BMO Capital Markets, please proceed with your questions.

Benjamin Wood, Analyst

Hi, this is Ben Wood on for Kelly. Thank you for taking our questions. First off, in light of guidance, could you explain some of the puts and takes in the model for 2021, maybe what came in better than expected or lighter than expected? Seems like Empire and fuel margins were a little better, but gallons, particularly same-store gallons, might have been lighter. Hoping you can help us think about how the model changed over the course of the year and then maybe where you see the most opportunity for upside going forward in FY '22?

Arie Kotler, Chairman, President, and CEO

Sure. I will let Don take over the question about the model.

Donald Bassell, Chief Financial Officer

Yes. Sure. And again, without looking at the specific numbers from BMO, just looking at consensus, I think the beats were in wholesale fuel margin and retail. I think the takes were in SG&A overall. I saw those two as the biggest differences in the model.

Benjamin Wood, Analyst

Okay, thank you. And then the fuel margin outlook for 2022, hoping maybe you could speak a little bit about that. We are thinking with the political environment and crude prices, they are pressuring margins recently. But is it reasonable to think that CPG margins could be flattish or north of 30 in 2022? And then if margins do rise with these higher oil prices, what impact of higher gas prices would we see on the consumer, whether it's trips or basket size? Thank you.

Arie Kotler, Chairman, President, and CEO

Thank you for your question. Looking at 2021 for a moment, same-store gallons were slightly down for the quarter. However, the retail margin expanded to $0.335 per gallon compared to $0.293 last year at the same time. I can't comment on the situation in Ukraine right now; it's too early to discuss any impact from it, but I want to remind everyone that we do not have a commodity position. This situation is reminiscent of what happened in 2008 when oil prices jumped from $60 to $140 in a short period. We saw very high prices, but ultimately those prices tend to settle down. While a rise in oil prices may lead people to drive less, which affects fuel consumption, we’ve also observed that, especially due to COVID-19, people are spending less time on the road and visiting the store less frequently, but when they do shop, their basket size is significantly larger than before. I have no reason to believe anything will change. I believe there won't be any significant shifts from 2021 to 2022 for the time being.

Benjamin Wood, Analyst

Okay, thank you. That's helpful.

Operator, Operator

Thank you. Our next question comes from the line of Bobby Griffin with Raymond James. Please proceed with your questions.

Robert Griffin, Analyst

Good morning, everybody, thank you for taking my questions. I guess, first, there's a lot of moving parts with gallons moving around with variance breaking out on different things and then margins. But when you look at the year-to-date period of January and February of 2022 and then compare it to the past 4Q, are you starting to finally see some leveling out of the gallons from a retail perspective? And maybe we're getting back to closer to normal, not back to '19 levels, of course, but we're starting to see less variability on a weekly basis or a monthly basis. Is that fair?

Arie Kotler, Chairman, President, and CEO

Bobby, I can't really talk about Q1, but what I can tell you is that you see the trend in Q4. And obviously, in Q4 you saw that our gallons are almost flat compared to the same Q of last year. So yes, I think people are driving more often, and I think as COVID continues to ease, there is no question that we see gallons coming back. The one thing I will refer to is that, yes, gallons are coming back, but as you can see, the margin continues to be very, very strong in light of those gallons coming back. So I think that's the only difference possibly from what we saw in 2021 the first quarter to 2022.

Robert Griffin, Analyst

That's very helpful. We are seeing significant progress in the merchandise margin, which improved by almost 300 basis points, specifically 290 basis points. What is the current status of this journey? What initiatives are underway? As we look ahead to 2022, should we expect more modest improvements, or is there still potential for substantial enhancements in the merchandising margins?

Arie Kotler, Chairman, President, and CEO

It's a great question because, as you mentioned and as I detailed earlier, looking at our performance, this is not a one-time event; this is a long-term initiative. For instance, throughout 2021, I spoke about our efforts in grab-and-go and frozen food. In Q4, we saw a 16% increase in frozen food compared to Q4 2020, which is a 1,600 basis points rise. Grab-and-go also experienced a 580 basis points increase in Q4 of 2021. We initiated these efforts at the start of 2021, and now we have essentially completed them, adding 690 reserves and 525 grab-and-go cases. These factors significantly contribute to driving our margins. The margin for frozen food in Q4 was 39.1%, while grab-and-go approached 39%. We observed similar trends in other categories; for instance, packaged beverages had a 130 basis points margin increase and a sales uptick of 6.3%. This is due to people spending more time going out and increasing their purchases. I believe these categories are here to stay. Additionally, nicotine remains a focused area for us. While cigarette consumption is declining consistently, our Other Tobacco Products (OTP) category grew by 900 basis points in Q4, with an 8.4% sales increase. These categories, especially those in the center of the store, are what drove our margin. Looking ahead, we have six remodels and the NTI coming on board. I mentioned our coffee initiative, which is significant for 2022. We aim to provide coffee around the clock since consumer habits have changed dramatically, with many people still working from home and not commuting to convenience stores in the morning. We are installing 525 bean-to-cup coffee machines for fresh coffee availability 24/7. Additionally, we are adding 50 Sbarro pizza locations, as pizza is the number one food service in convenience stores. Our partnership with Sbarro, which began last year, is strong, and we are expanding this in 2022. All these initiatives will help drive margins and maintain higher margins moving forward, reflecting the trend we see.

Robert Griffin, Analyst

Okay, I appreciate that detail and best of luck here in 2022.

Arie Kotler, Chairman, President, and CEO

Thank you.

Operator, Operator

Thank you. Our next question is coming from the line of Mark Astrachan with Stifel. Please proceed with your questions.

Chris Armes, Analyst

Hey, guys, good morning. This is actually Chris Armes on for Mark. Just wanted to start off here on the cost side. Obviously, in an inflationary environment here. So if you could just talk a little bit to success in passing through inflation in the store. And then maybe also comment on what you're seeing in terms of wage inflation?

Arie Kotler, Chairman, President, and CEO

Sure. I'll begin with inflation. It's clear that with 7% inflation, much of it is tied to increased costs from suppliers, which ultimately means we need to pass those costs on to consumers. This situation also encompasses pricing and supply chain challenges that are anticipated by everyone, including us. We have successfully remained competitive while passing on prices to consumers. Additionally, we ensure our pricing remains competitive while still maintaining our margins. As a reminder, our strategy has consistently focused on maintaining margin rates and penny profit. Unfortunately, we have no choice in this matter. Regarding labor, our model differs slightly from some competitors. Our average store sizes range from 2,500 to 3,000 square feet, and we can operate some with just one to two employees, especially in this tight labor market. To address this, we have programs in place to stay competitive, such as sign-on and retention bonuses, along with various initiatives to ensure our stores have the necessary workforce to operate effectively.

Chris Armes, Analyst

Got it. Thank you. If I could just follow up on M&A, congrats on the acquisition. It does seem like the pace of the acquisitions is increasing or is that evidence that maybe market multiples are becoming more reasonable? And then also on the specific acquisition, primarily a fuel play, how do you guys think about this acquisition versus those with more of an in-store footprint?

Arie Kotler, Chairman, President, and CEO

Sure. That's a good question. First, as you noticed in 2021, we finalized the Empire acquisition at the end of 2020. We dedicated considerable time to ensure that we integrated the two companies effectively and captured the synergies following such a significant acquisition. In addition, we made two acquisitions, acquiring 60 stores in May with the Express Stop acquisition in the Midwest, and in November, we completed another acquisition of 36 well-established stores that have been around for over a century. Concurrently, we began working on the Quarles acquisition, which we believe is a distinctive deal that will drive our strategic growth. The team excelled this past year, and what’s noteworthy about this deal is that it represents the largest cardlock operator on the East Coast, particularly in Virginia and North Carolina, which is our core territory. This business offers a highly attractive diesel and gasoline mix, with around 80% of the locations supplying diesel fuel to large trucks. It's the largest fleet business on the East Coast, making it challenging to replicate. This acquisition can significantly enhance our operations in relation to Empire. From a valuation perspective, as I have mentioned in previous calls, the focus isn't on the number of acquisitions but rather their quality. We're adding $17.3 million in adjusted EBITDA and will be paying $40 million after rent and utilizing financing from Oak Street. When examining the EBITDA multiple pre-synergies, it’s just over 2.3 to 2.4 times. This is a key differentiator for us, as we often engage in equity deals to enhance our profitability. I believe there hasn’t been any change in the details; as is typical at the start of the year, there is usually a slowdown in acquisitions. After the first quarter, typically at the beginning of the second quarter, sellers start considering opportunities, leading to more acquisitions coming in the second and third quarters, as we have observed in the past.

Donald Bassell, Chief Financial Officer

Chris, if I could add one more thing to what Arie said, and it is the unique acquisition, and you've probably passed a lot of these cardlock operations all throughout Richmond when you've been driving around. But again, as Arie said, 80% diesel. While we are making efforts on EV as you heard Arie talk about, we're doing two in Colorado, and we believe we're going to jump on EV wherever there is. We believe that the trucking side of this is going to be a later adopter of EV, so we think of this strategically as a good move for us because obviously, there's more trucks on the road with things being ordered online, big fleet business. So we think there's less risk here, although we're not ignoring it. So we think it's a good strategic move for us.

Arie Kotler, Chairman, President, and CEO

Just to finish on this line, Chris, remember this is a 24/7 business and all of those locations are unmanned operations. So going back to what we discussed earlier about labor and inflation, I mean, that's one of the things we like about that. Those locations are actually unmanned facilities, and they are built specifically for commercial fleets and light industrial vehicles that actually visit those places.

Chris Armes, Analyst

That's helpful. Thanks, guys.

Operator, Operator

Our next question is coming from the line of William Reuter with Bank of America, please proceed with your questions.

William Reuter, Analyst

Good morning. I just have two. The first is I don't think I saw a capex expectation for fiscal year '22. Do you have an estimate of what you expect to spend this year?

Arie Kotler, Chairman, President, and CEO

We don't put projections for 2022, but we can refer if you want. Don can refer to 2021, what we spent in 2021 if that's going to be helpful for you.

Donald Bassell, Chief Financial Officer

I think the best way again, because we don't put up projections, and you've heard our initiatives and what we're doing. So I would just look at our trend and just go from there. There's nothing specific we're going to put out in terms of projections of capex, but you've heard the efforts we're making, as outlined with Sbarro's, what we're doing on the remodels we have scheduled, the new-to-industry initiatives, and the raze and rebuilds. One thing I want to point out to you is that we did have a significant, not a lot, but roughly about $10 million of our capex last year spent on EMV, which we project we'll probably spend again this year, but that's not something that's going to be ongoing. We have different things going back and forth; we'll also spend about $9 million on just the purchase of land. And we're opportunistic where we have rights of first refusal, we'll take them. So I think we're looking at capital allocation going forward. I will tell you roughly about 1/3 of our capex of the $73 million was for maintenance. The rest were from investment.

Arie Kotler, Chairman, President, and CEO

I think it's very important to point out that if you're looking at the net-net capex dollars we spent of $73 million, only $26 million was really for maintenance capex and the rest of it was investment capex including purchasing some pieces of real estate, the remodels we mentioned, the coolers, and freezers. So I think those are the things to think about. In terms of capex, we follow the initiative we have laid down for 2022. I'm talking about 525 bean-to-cup coffee machines and those additional 50 Sbarro locations—those are not the big investments when you actually do a raze and rebuild.

William Reuter, Analyst

On the topic of raze and rebuild, during your high-yield offering, you expressed significant enthusiasm for it. Currently, you have six plans for the first half of FY '22. Will you assess their performance before making decisions about the pace for the second half of the year?

Arie Kotler, Chairman, President, and CEO

The answer is yes. What we have to do is recall. I don't need to tell you, across the board, there's been a lot of shortages of materials, construction increases, and we want to make sure that we continue to execute what we said we were going to do, which is actually looking at return on capital. We finished the first two stores; those were really the, I'll call it, the blueprint for the stores moving forward. We had the one store that we opened. If you guys have access to our presentation that we published today, the first page of the presentation, the picture depicts a raze and rebuild that we actually just completed in 2021. The results so far are very, very promising. The store looks terrific, and the results are great. To answer your question, what we're doing because of that, we are completing the six stores, and we're going to learn from those six stores, but at the same time, we're not waiting until we finish the six stores. That's the reason we decided to move forward with the 50 Sbarro locations. An investment—it's basically part of the remodeling as you know is QSR. We felt that this is a great opportunity for us to continue to expand our remodel. We have 50 Sbarro's that we are going to build in, and of course, some other initiatives as well as increased profitability and increased margin.

William Reuter, Analyst

Okay. And then just lastly for me—I’m sorry, I said I only have two, but the share repurchase authorization was a little surprising to me. I view this as a growth story with lots of organic opportunities to invest as well as potential M&A that you've consistently pursued. I guess—what is the thought process on repurchasing shares versus some of these other initiatives that probably have or may have higher IRRs?

Arie Kotler, Chairman, President, and CEO

Sure. Basically, just for your benefit. Over the past two years, we've generated over $300 million in cash from operations. This is something to make sure that you are aware of and everybody is aware of that, and in lieu of that, our liquidity is well over $700 million right now. So nothing is really going to change from our growth strategy; this is not something that will change. With all of the remarks that I made earlier, and of course, you saw the results for 2021, we are performing very, very well. We show great results and with our cash flow right now at this current price, we believe that we have a good opportunity, as simple as that. That's not going to take away any of the other initiatives or any of the team that we actually said last year and this year we were going to continue to do that, but we have plenty of liquidity available between over $700 million in liquidity and over $750 million on the commitment with Oak Street. We felt that the price is just a great price for us, and we would like to utilize this opportunity.

William Reuter, Analyst

Understood. Alright, thank you.

Arie Kotler, Chairman, President, and CEO

Of course. Thank you.

Operator, Operator

Thank you. There are no further questions at this time. I would like to turn the call back over to Arie Kotler for any closing comments.

Arie Kotler, Chairman, President, and CEO

Thank you very much, everybody, for participating. I'm very excited. This is just the beginning of the year, and as you can see, we are just in February, the end of February. We just announced today in the morning the Quarles opportunity—a great opportunity for us. I'm very, very proud of the progress that we made here so far, and I'm looking towards the future, of course. In my opinion, this is a very exciting time for Arko moving forward. We have a lot of initiatives that I mentioned here, the remodel of the six stores, the NTI that we are planning to break ground on in Atlanta, Texas in Q4, the 50 Sbarro stores that we are planning on opening this year, along with the rest of the initiatives regarding the coffee and, of course, continue with the grab-and-go and frozen foods. The only thing I can tell you is that this is going to be a great year for us. The Quarles deal is a very unique opportunity that we just got into and we'll continue to pursue strategic acquisitions in convenience stores, as we did over the past eight years. So thank you, everybody, for your time today, and I wish you all the best.

Operator, Operator

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.