ARKO Corp.

Greetings. Welcome to ARCO's third quarter fiscal year 2021 earnings conference column webcast. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note, this conference is being recorded. At this time, I'll now turn the conference over to Chris Mandeville, Managing Director of Investor Relations. Chris, you may now begin.

Thank you. Good morning and welcome to ARCO's third quarter fiscal year 2021 earnings conference call and webcast. On today's call are Ari Kotler, Chairman, President and Chief Executive Officer, and Don Vassell, 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 ARCO's website at www.arcocorp.com. Before we begin, Please note that all third 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 Security 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 beliefs and expectations 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 31st, 2020, and the company's 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 securities 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 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 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, crosstalk, or other minor technical issues during this call. We thank you in advance for your patience and understanding, and now I'd 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 September 30th, 2021, and provide an update on our business. Don will then review our financial results in more detail before we take your questions. To start, we report record merchandise revenue and net income for the third quarter. Our adjusted EBITDA net of incremental bonuses increased nearly 40% to $80.2 million for the quarter, driven by both profitable growth in-store and at the pump for our retail segment, as well as continued outperformance by Empire in our wholesale segment. In-store, we experienced another quarter of meaningful merchandise margin expansion, where we generated merchandise margin in excess of 30%, The 270 basis points in merchandise margin expansion to 30.6% not only reflect our continued emphasis on leveraging analytics to purposely and strategically drive greater sales of higher margin categories, such as packaged beverages, candy, other tobacco products, and grab-and-go, but also our efforts to optimize margin within key categories as well. Looking at our top 10 categories by Insight Sales, which account for nearly 90% of our total merchandise sales, we managed to deliver notable margin expansion to our strategic merchandising decision, pricing, and improved purchasing economics. In light of certain COVID-related demand aberrations in the prior year period, I'd like to focus on our two-year stock same-store merchandise sales excluding cigarette trend as a more accurate indicator for the underlying health of our business, and a better barometer to evaluate our performance given the company's strategic focus on driving higher margin sales. On a two-year stock basis, same-store merchandise sales, excluding cigarettes, increased 8.7%, with dollar growth most notably driven by training in other tobacco products, packaged beverages, and candy. From a growth rate perspective, we have continued to see considerable gains in frozen food, grab-and-go products, and alternative snacks as our various process improvement and announced merchandising efforts, inclusive of our continued expansion of grab-and-go coolers and freezers, continue to pay dividends. In our retail fuel operations, gallons sold were up 15% versus the prior year period, reflecting the addition of our Express Stop and Empire acquisition. Fuel margin, excluding intercompany charges, was strong for the quarter, up 3.5 cents versus the prior year period to 34.5 cents per gallon. The net result was that we delivered strong gross profit growth of over $21 million, or 28% in retail fuel profitability for the quarter. Moving to some of our longer-term strategic growth initiatives. On a remodel and new store prototype initiative, we continue to make steady progress on what we believe is a significant embedded opportunity to optimize our store base. We have completed two remodels, and we expect to have our first 10 completed by early 2022. While our pace has been modest, it has been intentional. We are being very methodical to ensure that we have the right prototype to optimize profitability and provide our customers with an enhanced shopping experience. However, as we have already begun engineering and redesigned phases for 45 additional stores, we believe we can move quickly, accelerating growth and unlocking additional value for our stockholders over the next several years. Regarding our Fast Rewards loyalty program, we remain pleased with the considerable progress we've made in so little time. Recently, we have grown over a half a million enrolled members, doubling our members base since the beginning of 2020. We have continued to see very positive responses from our engaged members with our loyal customers showing a considerably higher rate of visiting our stores and with a larger basket. As we begin to plan for the coming year, we have identified series of upgrades for our loyalty program, which we believe will only further strengthen both our analytical insights and the value we provide to our most loyal consumers. Turning to our inorganic growth opportunity, we remain focused on pursuing discipline IROI M&A. In fact, just yesterday, we acquired 36 company-operated Andymart convenience stores and gas stations, plus one under development, all of which are located in North Carolina. Of the total $112 million purchase price plus the inventory and cash in the stores, Oak Street is paying $100 million for the real estate of 29 of the sites, and we are paying Oak Street $6 million per year to rent these sites from them. We pay the remaining $12 million purchase price using cash on hand. We also believe that there remains a robust pipeline of assets that are available for potential acquisition. As is always the case, we are actively exploring several opportunities and our priority is deploying capital at a very attractive return. As such, we will remain highly disciplined in how we pursue any deal. Touching briefly on our two other deals we closed in the past 13 months, Empire and Express Stop, Empire has continued to outperform our expectations, both from a synergies and growth perspective, and we believe there remains considerable opportunity to extract additional values. In the last several months, we've pre-negotiated three major fuel contracts representing approximately 30% of our gallons, while we've also added 79 net new dealers since we acquired the Empire business, with 27 of those additions coming in the third quarter of 2021 alone, and additional 13 contracts signed that we have yet to benefit our P&L. On Express Stop, 41 of 53 stores have gone through merchandise reset to standard planograms that we believe will increase sales and margin at these sites. Taken together, I'm very pleased by what we have accomplished year to date. I'm excited by the organic and inorganic opportunities that lie ahead to fuel our growth, and I'm committed to remaining a steward of capital, allocating funds based primarily with focus on return on capital. I would like now to turn the call over to Don, who will walk you through our financial results.