ARKO Corp.

Greetings and welcome to the ARCO second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Mandeville, Managing Director of Investor Relations at ICR. Thank you. You may begin.

Thank you. Good morning and welcome to ARCO's second quarter fiscal year 2021 earnings conference call and webcast. On today's call are Ari Kotler, Chairman, President, and Chief Executive Officer, and Don Bissell, Chief Financial Officer. By now, everyone should have access to the company's earnings press release that was filed with the SEC this morning and is also available on the investor relations section of ARCO's website at www.arcocorp.com. Before we begin, Please note that all second quarter 2021 financial information is unaudited, and during the course of this call, management may make forward-looking statements within the means 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, 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. Please refer to today's press release, the company's annual report on Form 10-K for the fiscal year ended December 31, 2020, and other filings with the SEC for a 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. Except as required by federal security laws, ARCO 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 on today's call, management will refer to non-GAAP financial measures including same-store measures, EBITDA, and adjusted EBITDA. While the company believes these non-GAAP financial measures provide useful information for investors, 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, crosstalk, or other minor technical issues during this call. We thank you in advance for your patience and understanding. And now I would like to turn the call over to Ari.

Thank you, Chris, and good morning, everyone. On today's call, I will briefly review our financial highlights for the quarter ended June 30, 2021, and provide an update on our business. Dan will then review our financial results in more detail before we take your questions. I would like to start by thanking our over 10,000 associates company-wide for rising to occasion and once again continuing to execute in a challenging environment brought on by COVID-19 and several other dynamics. Let's review a few of these challenges and how we successfully navigate them. To start, much like the rest of the economy, we are experiencing a very tight labor market. To address this, we have implemented several hiring initiatives, including $500 sign-on bonuses, fast rewards points to existing associates, overtime hours, and job fairs, along with hiring an additional team of 10 full-time recruiters. Next was the Colonial Pipeline cyber attack, which disrupted fuel supply in the Southeast for several days and continued shortage of transportation drivers. Our fuel logistics team leveraged our strong fuel supplier and transportation partnerships to minimize disruption, successfully secure supply, and continue to manage supply efficiently on an ongoing basis. Supply chain disruption in store merchandise was also persistent, related to continued driver and labor shortages, as well as lack of availability in certain raw materials. However, the marketing department also leveraged our strong supplier partnership and conducted regular supply chain calls with our top suppliers. Solutions included extended delivery times, product substitutions, and inventory buildup to ensure we met our customers' needs. Lastly, there's COVID-19. When it comes to the pandemic, the top priority is the safety of our associates and customers. To that end, we continue to encourage and educate our associates on the importance of getting vaccinated. As a new variant of the virus continues to spread, we are ready and prepared with PPE supplies such as masks, sanitizers, and wipes to meet the needs of customers and our employees. In spite of these challenges, once again, our business model proved resilient, and we are very pleased to report strong results for the second quarter of 2021. Our adjusted EBITDA was $75.7 million for the quarter versus $68.5 million, up over 10% versus the prior year period, supported by strong results in overall profitability of our Empire acquisition, which is currently exceeding our expectation along with continued in-store sales and margin growth. We experienced another quarter of merchandise margin expansion of 140 basis points, and a solid 2.4% increase in same-store merchandise sales. Importantly, we realized further sequential acceleration in our two-year stock to 7.4% from 6.2% for same-store merchandise sales. Excluding cigarettes, our results are even more impressive, with same-store sales of 4.3% and 10.2% on a one- and two-year basis. Additionally, we have an increase in same-store sales of IO margin other tobacco products of 6.3% from the prior year, with a category margin increase of 170 basis points, which is in line with market trend of cigarette consumer converting to other tobacco products. Let me now add some color to the three key drivers of our inside sales and margin. The first one is process improvement. We have implemented new processes to include annual category reviews, annual top-to-top suppliers meetings, annual planogram resets to ensure new items execution and additional marketing resources to ensure all categories are receiving the appropriate amount of attention. The second one was consumer-facing initiatives. Having grown through acquisition, each grant has select opportunities for growth, and we are in the process of executing them. They include adding approximately 525 grab-and-go coolers and 650 freezers for frozen foods, revised fountain assortment in over 250 stores, expanding our partnership with DoorDash, which is now available at 684 sites, including 84 sites in Virginia that now deliver beer, an expanded OTP offering, an enhanced value food offering, and enhanced assortment driven by process improvements. And the third one, of course, is supplier partnerships. In May, we extended and restructured our Coolmark All-Sale Supply Agreement. This is particularly impactful as the agreement aligned our sales growth and profitability incentives. In addition, we awarded Coolmark 190 additional stores, allowing us to consolidate down to two all-sellers. Retail gallon stores dropped 27% compared to a year ago, reflected continued increase in consumer mobility, as we are now in the summer driving season and the economy as a whole has received an increase in vaccinations. On the same store basis, gallons were up 11.9%, and despite a fairly considerable run-up in fuel prices throughout the quarter, our fuel margin was quite resilient, having come in at 34.3 cents per gallon for retail. Reaching gear to our longer-term strategic growth initiative, beginning with M&A. We have an aggressive yet disciplined M&A strategy as our priority is deploying capital at a very attractive return. We have many M&A opportunities in the pipeline that we are actively exploring, and I look forward to talking about this in the future. The Empire acquisition we closed in October 2020 is outperforming our expectations. We have been very pleased with the acquisition from both synergies and growth perspectives as we've managed to renegotiate three major fuel contracts and add 52 net new dealers since we closed, with 19 of those coming just in the second quarter alone. A recent acquisition of 60 convenience stores under the highly regarded brand Express Stop in Michigan and Ohio closed during the quarter and added over $26 million in revenues and $800,000 in net income for the quarter. This is a high-quality operation and a brand well-regarded within the communities to which it services. On our remodel and new store prototype initiative, as stated previously, we believe that we have significant embedded opportunity to optimize our store base and invest capital prudently for remodeling stores. We opened our second remodel site at the end of the second quarter, and while very early, we are pleased with the preliminary results. Among other upgrades, the new site includes the following features, new interior and exterior design, newly incorporated store deli featuring fried chicken, pizza, and hot grab-and-go, inclusive of breakfast and snacking items, bean-to-cup coffee machine with a selection of always-fresh coffee, a walk-in beer cave featuring easy access to a large variety of cold beer, craft beer, and seltzer offerings, and of course, we expanded the fountain assortment featuring 16 flavors and chewy ice. Our third site, which is the Raisin Rebuild, is expected to open within the next two months. will be a 5,600 square foot travel center, nearly two times larger than our average store, with 26 fueling positions, located on six acres of land in Rock Hill, South Carolina, just off Interstate I-77. Two additional sites are completing the design phase and are in the permitting process. Construction on those sites is planned to begin by the end of the third quarter. Three additional sites are in the design phase and will be moving to permitting shortly. Planning for 2022 has already begun, including the addition of resources to increase the scale and pace of remodels. Lastly, we have our Fast Rewards Loyalty Program. As a reminder, we relaunched our loyalty program last November with the focus being develop lasting customer relationships and positively influence consumer behavior by driving incremental trips and increase in basket size. We are currently enrolling approximately 5,000 new Fast Rewards members each week, and now have in excess of 480,000 enrolled members with whom we communicate on a regular basis, and I'm excited to share with you some of our early results. Since relaunch, our enrolled customers are visiting our stores over four times more often than non-loyal customers, and their average spend per trip is two times larger. In conclusion, I'm very pleased that we are continuing to demonstrate our strength and capabilities as we navigate through a constantly changing consumer environment. I hope you are as excited as I am about our multiple growth opportunities, which we believe position us well for the future. I would like now to turn the call over to Don, who will walk you through our financial results.