ARKO Corp.

Greetings and welcome to the ARCO third quarter 2022 financial results 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. I would now like to turn the conference over to your host, Ross Parman, Vice President, Investor Relations and Government Affairs for ARCO. Thank you. You may begin.

Thank you. Good morning, and welcome to ARCO's third quarter 2022 earnings conference call and webcast. On today's call are Ari Kotler, Chairman, President, and Chief Executive Officer, and Don Basile, Chief Financial Officer. Our earnings press release quarterly report is filed with the SEC, and our earnings presentation are available on ARCO's website at arcocor.com. Before we begin, please note that all third quarter 2022 financial information is unaudited. And during the course of 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 and 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 our press release, our quarterly report on Form 10-Q for the quarter ended September 30, 2022, and our other filings with the SEC, including our annual report on Form 10-K, 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. Please note that 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, the presentation of this information is not intended to be considered in isolation or as a substitute for our financial information presented in accordance with GAAP. Please refer to our earnings press release for reconciliations of our non-GAAP measures to the most directly comparable GAAP measures. I would also like to note that we're 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, Ross, and good morning, everyone, and thank you for joining us. ARCO has strong results for third quarter, highlighting the strength of our business model. We have continued to build long-term value for our stockholders. The company has excellent performance and execution across the business. ARCO increased operating income by 20.1% to $65.7 million versus the prior year third quarter. Adjusted EBITDA was an all-time third quarter high for the company, increasing 24.1% compared to Q3 2021 to $99.5 million. We have had seven straight quarters of comparable quarter-adjusted EBITDA growth. We announced two very important strategic and accretive acquisitions since the end of the second quarter, including the Qualls acquisition, which closed in Q3, Our portion of the purchase price for acquisitions announced in 2022, including two that have not yet closed, was approximately $178 million. In return, we expect to generate, using estimated forward-looking non-GAAP measures, approximately $57 million of adjusted EBITDA on an annual run rate, including synergies. This amounts to approximately 25% of adjusted EBITDA for the nine months ending September 30th, 2022. We continue to add value to our business by pursuing very active growth strategy. Upon closing the Transit Energy Group acquisition, we'll add approximately 150 convenience stores and expand our start and retail territory into Alabama and Mississippi. Upon closing our acquisition of Price Convenience Holdings, we'll add 31 convenience stores plus a new two-industry store that broke ground in July. It expands our New England territory into Massachusetts. Both Transit Energy Group and Pride have a long-term presence in their communities. We believe that these businesses will benefit significantly from our core capabilities. We're very excited about introducing more consumers to our assortments, promotions, services, and of course, fast rewards. I'm very excited by the pace of our deal-making and with the performance of all areas of our business. In our stores, the company increased its market share, excluding cigarettes, underscoring our many initiatives, favorable assortments, loyalty, and marketing programs are resonating with customers. Merchandise margins increased 60 basis points to a company-high 31.2%. We have grown this important metric by 330 basis points since Q3 2020. Third quarter, same-store merchandise sales, excluding cigarettes, increased 4.3% compared to Q3 2021, and 6.1% on a two-year stock basis. We also had a very strong quarter in fuels. Our strategy has been consistent. Last quarter, I noted that we believe that our fuel strategy also enables strong results as prices decline. This quarter underscores that belief. Total fuel profitability grew to $155.1 million, a 28.5% increase compared to the third quarter of 2021. From July through September, As fuel prices declined approximately 80 cents per gallon, same-store sales, excluding cigarettes, accelerated. Notably, same-store sales, including cigarettes, also grew. We are very strategic with our cigarette pricing. We believe that we have shown how our strategy is capable of great results in a variety of price environments. Our balance sheet is very strong. we generated $67.6 million in net cash from operating activities this quarter. For the nine months ended September 30th, 2022, ARCA generated $139.8 million in net cash from operating activities. As a result of this and a record strong result, confidence in the business and desire to announce returns for stockholders Our board of directors increased our dividend by 50% this quarter to 3 cents per share. This is the company's four consecutive quarterly dividends. Our top priority is executing our strategy in stores, in fuel, and in M&A. Discipline, consistent growth is central to our strategy. Most of you know that we started with approximately 200 company-operated convenience stores in early 2013. Since then, we have acquired approximately 1,300 company-operated stores in total. The company's scale and resources allow us to pursue multiple opportunities at once. This is an advantage that we believe enables us to deliver great results for our stockholders. Investments in well-established chains with grand equity and long-standing ties to their communities are key to our models and performance. We use our financial strength and financing ability and agreement with Oak Street to our strategic advantage. Our industry continues to be highly fragmented. The overall deal pipeline today has many potential acquisitions. We expect to continue executing our acquisition strategy. When we pursue a deal, my team and I walk through the stores as part of due diligence. We look for opportunities to announce the value proposition of this local chain with our scale and expertise. For example, we have consistently gotten better merchandise and fuel costs than the chain we acquire. Our sophisticated assortments, promotion, and pricing strategies are well advanced compared to our regional acquisition. We usually retain the majority of employees in chain we acquire. And I'm proud that our company creates jobs as we continue to grow. And of course, we have highly seasoned management who excel in their roles. This allows us to successfully close and efficiently integrate the businesses we acquire, which we believe creates significant value for our cost stockholders. I'd like to walk through the three key pillars of our marketing and store initiative that has driven our strong in-store performance. The first key pillar is careful management of core destination categories, such as packaged beverages, candy, snacks, and nicotine products, just to name a few. We invest in the assortment, square footage allocated for merchandising, and loyalty promotions for these categories. The goal is to be the go-to convenience store in our geographic and increase our market share of these in-demand categories. Looking at performance in this pillar, this quarter we maintained total market share, including cigarettes, and grew market share by 10 basis points, excluding cigarettes. Coffee is an important initiative, and we have seen excellent results. The number of enrolled loyalty customers who made their first recorded coffee purchase in our stores increased 55.6% this quarter compared to Q3 2021. And this quarter, unique customer coffee purchases by enrolled loyalty customers increased 57.1%, while their net total coffee spend increased approximately 51%, both compared to Q3 2021. We also had a great performance in key center store categories like candy, packaged sweet snacks, salty snacks, beer, wine, and packaged beverages. Frozen foods same-store sales increased 60% versus Q3 2021. Our second key pillar is the fast rewards loyalty program, replaced by the continued growth and consumer response. A newly updated loyalty app is currently being tested prior to rolling it out chain-wide. The new app is designed to further enhance our personal relationship with our customers. Our goal is to drive increased frequency and total spend through order and delivery and relevant in-store and in-app personalized deals. One key point of differentiation is the ability for members to stock rewards and save even more. We believe that this is a great feature for the over 1.2 million members. The new app will launch with a strong enrollment offer to encourage new customers to sign up for these great savings. We know that when a customer enrolls, we have an opportunity to increase their trip frequency and total spend. Here is an example using data we have been tracking. When customers enroll in our loyalty program, we see incremental month-over-month growth in basket size. The third key pillar is food service. We are relatively new in this evolving higher-margin segment in the convenience channels. We have a long runway for developing high-margin food programs across our stores. We are continuing to work on expanding our pizza offerings. We are also exploring many opportunities that we hope to introduce soon. Year-to-date, we've opened 13 Sabaro pizza restaurants. We plan to open five more this quarter. We also have 377 stores with roller grills for hot dogs and tornadoes, 199 stores with pizza by the slice, and 146 stores with fried chicken and hot breakfast sandwiches. I believe that our store can become more of a food destination. We believe a strong food offering and value proposition can position us to compete even more in food service. Our investment in these three key pillars are leading to great in-store performance. We believe our core convenience store segment is well positioned to continue to deliver great results. We also believe that there is a unique opportunity to continue to scale and grow our footprint with accretive acquisition. This is our historic source of growth. We plan and act for the long term. And we believe our strategies will continue to create value for our long-term stockholders. With that, I will turn it over to Don.

Good morning. Ari detailed our most recently announced agreements to acquire the PEG business and PRIDE. Our first deal of the year, Quarrels, closed on July 22nd. As Ari mentioned, we are known for consistent, disciplined investments in our growth and value-enhancing initiatives. but our strength in integrating new stores, sites, and employees should not be overlooked. Quarles is a great example. Systems, personnel, and operations have been rapidly integrated. The team doing that work has done a great job. We are very pleased with this acquisition and business. It's important to understand how we view the reportable segments outside of our core convenience store business. Wholesale and fleet are accretive to our bottom line. the bulk of our profit is derived from our retail segment or our self-operating convenience stores the other segments are important for our capital allocation strategy we believe they give us stable rateable cash flows so we can move quickly to pursue opportunities and invest in our stores these segments also give us more leverage with fuel and merchandise suppliers and superior rebates our balance sheet continues to be strong We currently have a good liquidity position. As of September 30th, 2022, we had cash and cash equivalents of approximately $283 million. Our outstanding debt, excluding capital leases, was approximately $734 million, resulting in net debt of $451 million. Our $450 million bond issuance in October of last year, which locked in a 5.125% coupon, looks increasingly beneficial as interest rates have increased significantly since then. We continue to realize excellent free cash flow. For the quarter, net cash provided by operating activities was $67.6 million versus $60.5 million for the third quarter of 2021. After the expected closings of the TEG and Pride acquisitions, there will be approximately $683 million remaining under our Oak Street Agreement. We are well positioned to continue our long-term growth strategy and navigate an uncertain economic outlook. Getting into results for our convenience stores, merchandise revenue for the third quarter of 2022 increased to $446 million versus $435 million in the prior year quarter, while margin percentage increased 60 basis points to 31.2%, our highest ever. In fuel, we believe that slightly higher margins may be sticky given credit card fees and costs of labor. We believe our strategy of managing margin and volume for remaining competitive is key to optimizing profitability as a growing company. Retail fuel profitability, excluding intercompany charges, for the third quarter of 2022 grew 21.5% this quarter, totaling $117.5 million, or a $20.8 million increase versus Q3 2021. The company increased retail fuel margin to 44.8 cents per gallon compared to 34.5 cents per gallon in the prior year quarter. Third quarter convenience store operating expenses increased $20.1 million or 12.9% versus prior year due to incremental expenses related to the HandiMart acquisition we closed in November of 2021. And an increase in expenses at same stores, including an increase of 17.4% or $10.3 million in personnel costs and $2.8 million for a 13.9% increase in credit card fees. The increase in store operating expenses was partially offset by underperforming retail stores that we closed or converted to independent dealers. Moving to wholesale for the third quarter of 2022, wholesale fuel profitability, excluding intercompany charges, increased approximately $2.6 million compared to the prior year period of which approximately $1 million was attributable to the Quarles acquisition. Fuel contribution from fuel supply locations increased by $0.9 million excluding intercompany charges compared to the prior year, primarily due to the Quarles acquisition, greater prompt pay discounts related to higher fuel costs, and greater fuel rebates. Fuel margin cents per gallon for these locations increased to 6.9 cents per gallon versus 5.8 cents per gallon the third quarter of 2021 an increase of 19 percent our new fleet fueling reportable segment generated in the third quarter 2022 fuel revenues of approximately 121 million dollars and the fuel contribution from the fleet fueling sites was approximately 11 million dollars excluding intercompany charges fuel margin cents per gallon for the proprietary card lock locations was 41.8 cents per gallon excluding intercompany charges and 4.8 cents per gallon excluding intercompany charges for third-party card-lock locations. Fuel revenue was positively impacted by a high average price of fuel, and fuel margin benefited from historically high rack-to-retail margins in the third quarter of 2022. Net interest and other financial expenses increased by $5.4 million versus the prior year quarter to $19.8 million for the quarter. Adjusted EBITDA was $99.5 million an increase of $19.3 million, or 24.1%, compared to the third quarter of 2021. As we noted in the second quarter, the company executed an internal realignment of certain direct and indirect subsidiaries. This work was primarily conducted during the third quarter and was intended to streamline business operations and provide long-term cost savings. As a result, the company recorded a one-time non-cash tax expense in the amount of approximately $8.7 million, in the third quarter of 2022. This contributed to a 30% decrease in net income. Net income was $25 million compared to $35.6 million in the third quarter of 2021, which included a tax benefit the company recorded of approximately $5.5 million. Capital expenditures were $27.7 million for the quarter compared to $15.5 million in the prior year quarter. In the third quarter, the company repurchased a minimal amount of stock. There were approximately $11 million remaining under our previously announced $50 million stock repurchase program. As of November 4th, there were approximately 120.1 million shares of common stock outstanding. This has been another great quarter. As a result of our strong results and desire to enhance returns for stockholders, ARCO's board of directors declared a quarterly dividend of 3 cents per share of common stock to be paid on December 6, 2022 to stockholders of record as of November 22, 2022. We believe the company is in a strong position for continued long-term growth. I'll turn the call back over to Ari.

Thanks, Don. I will close by saying that we believe we have the right long-term strategy in place, as well as execution capabilities that make me confident about delivering growth for the long term. We believe that our business has performed exceptionally well in a challenging environment. Our model is very resilient, and I believe we're well positioned to deliver future value for our stockholders. We're very excited about the rest of this year. We will now take your questions.

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Bobby Griffin with Raymond James. Please proceed with your question.

Good morning, everybody. Thanks for taking my questions, and congrats on a nice EBITDA performance. I guess, Ari, first question for me is just, The M&A environment for you guys is picked up here in 2022 with a lot of announced acquisitions. So I'm just curious on the capacity of the business to further integrate acquisitions as we head into 2023. Do you still see opportunities that you could take on additional acquisitions if they're available? Or do we need to take a pause to kind of integrate the ones that have been announced? And as a second part of that, can you maybe talk about some of the investments or capabilities that you guys have done on the integration process? to be able to handle multiple acquisitions at one time. Sure.

Good morning, Bobby, and thank you for the questions over here. I'll start, first of all, with the three acquisitions that we already report in Q, basically Q2, Q3. We already closed the first one, which is Quoz. We closed the Quoz acquisition back in July, and I can tell you right now that this company is fully integrated within our company. I mean, this was a very, very successful acquisition for us, and you can probably see the results already. Regarding the other two acquisitions that we just announced, yeah, we have the capacity. We have an M&A team. I can tell you, as a matter of fact, we are putting another integration team in place right now, given the amount of opportunities that we see in the marketplace. And the idea over here is really to create another team on the top of the M&A team, and the operating team with professionals that's going to be able to help us to integrate all of those companies that we actually put together. Regarding your question in terms of opportunities and capacity, if you notice in our presentation that we published yesterday, we still have around over $1.3 billion in dry powder between our cash line of credit and the Oak Street basically agreement that we signed And this is after taking into account, you know, those two large acquisitions that we already announced. So there is no question, you know, remember, this is our key growth for the past eight years. I mean, we've been growing through acquisition. You know, we closed on 21 acquisition already. And, you know, this is really something that I would say that probably has one of the best A-team over here in the marketplace when it comes to acquisition and integration of those companies.

Thank you. My second question is just around the fuel volume trends for retail. As we saw prices come back down a little bit at the pump, did you see any type of behavior change on volume, or was the volume fairly consistent throughout the quarter?

No. So if you guys remember, Bobby, in Q2, I specifically mentioned the minute price hit $5. That was back in June. We saw a double-digit decline in fuel volumes. we continue to see that during the month of July. The month of July, I can tell you that our gallons were down around 12.6% in the month of July. And then all of a sudden, when price decreased towards the four and below the four, towards the three, we all of a sudden saw a shift in gallon, and the gallons were down around 8%. You're really looking on August and September, there is an improvement of almost 50% in the decline of gallons. The gallons were down around 8%, but I think the very, very interesting story over here is that during the month of July, when gallons were down 12.6%, the same store sales, not including cigarettes, were down 2.4%, excluding cigarettes were down 1.3%. However, the minute price decreased Below the $5, in August, our same-store sales were basically 1.2%, and excluding cigarettes were 4.4%. And in the month of September, when price continued to decline, that was a big story for us. I mean, same-store sales were 3.6%, while same-store sales, excluding cigarettes, which is the most important thing over here because that would drive the margin, were up over 7.4%. And I can tell you right now that we see the same trend in the month of October going into the month, you know, basically of November. So as price continues to decline at the pump, our, you know, basically our gallons getting better and improvement. And at the same time, as I said, the most important categories, which is same store sales, including cigarettes, are just continue to sky high over here.

Thank you, Ari. I appreciate the details. Best of luck here in the fourth quarter. Thank you very much, Bobby.

Thank you. Once again, as a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. Our next question comes from the line of Anthony Bonadio with Wells Fargo. Please proceed with your question.

Hey, good morning, guys. So I just wanted to talk about merchandise margins a little bit more. I'm taking a step back and they kind of commented this in your, uh, quarter marks, but we're running about 400 bits ahead of where we were in 2019. Uh, you've obviously made some changes to the business in that timeframe, uh, along with the number of acquisitions, but, uh, it's a 30% plus rate that we're running at now, the right way to think about the business going forward. And then where do you think that can go over time as you continue to chip away at strategic efforts inside the store?

Sure.

So I think the increase in margin, Anthony, and good morning, by the way, I think the increase in margin, Anthony, it's really the diversity of products that we are selling right now. I think most of it is because of the initiative that we started since the beginning of 2020. This is where we see the increase in margin. We see a decline in cigarette sales year over year. We see an increase in all of the key categories that, you know, at least for us, those key categories are very, very important. You know, if you're really looking on candy, for example, you know, we were up 8.5%. If you're looking on frozen foods, you know, this is a big initiative that we started at the beginning of the pandemic or a little bit into the pandemic. We invested a lot of money, if you remember, in frozen foods. And, you know, this category is up 60%. I mean, the same thing goes to packaged beverages. The same thing goes to salty snacks, alcohols. other tobacco products. And those are really the categories that drive the margin. I think driving the margin is really because we have an excellent merchandising team that's really putting the right products on the shelf, concentrating on the Fast Rewards loyalty program to make sure that loyal customers continue to come in and increase their baskets. And I think even as we continue to see increase in margin, based on this trend, I don't have any reason to believe why we shouldn't see basically an extension of the margin as we continue to add more and more food offerings into basically into the stores.

Yeah, that's a very helpful color. And then I also wanted to touch on interest rates. So I know you guys have a largely fixed rate debt exposure with the senior notes that Don commented on, but you've also got almost 300 million floating rate debt. plus some exposure to cap rates via the leases on your stores. So can you just talk about how you're thinking about the impact to the P&L as rates continue to rise? And then does that have any impact on how you're thinking about the prioritization of capital from here?

Yeah, before I let Don jump in and maybe explore more, just to be clear, you mentioned cap rates. Our cap rates are fixed. We don't have any variable rates when it comes to rent. Just want to be clear over here. I mean, our rates on the notes are basically fixed. They're at 5.1%, and I think you will agree with me at 1.25% for the next seven years. I think we are in a very good position on those unsecured notes, and the same thing goes basically to our listeners. It's actually just true to everybody right now. that sometimes, you know, especially in this environment, when you have interest rates rising dramatically, you know, our rent is basically fixed. I mean, the only increase in rent is, you know, it's basically, you know, anywhere between 1.5% to 2% a year, which is, you know, much below the CPI. So I actually think that we're in a very good position, but I'll let Don jump in and maybe explore more.

Yeah. All right. Thanks. So, Anthony, great question, and I know it's a concern. Two things. Number one, A lot of our leases are structured where it's CPI up to a certain amount, and it's usually like 1.5% to 2%. So if CPI goes up 8%, we're capped at where it can go. So those interest rates really don't affect us that much. And again, a lot of our debt, the majority of it is fixed at 5.125. But the market has also given us a great opportunity now to take our cash and invest it, where before when you could only get 20 basis points, for income, you know, we're now able to invest our excess cash and offset some of that. So we don't see that as a real big, you know, issue to us, especially with the majority of it being fixed and the ability to invest the free cash flow and get a nice return to offset that interest expense.

Great. Thanks so much, guys. Good luck.

Thank you.

Thank you. Our next question comes from the line of Mark Asherton with CFO. Please proceed with your question.

yeah thanks and good morning everyone i wanted to ask about uh contribution to the in-store merchandise comp from pricing that the suppliers are are taking and that you're passing through maybe you could just talk directionally about that and and then you know more broadly on the same subject you know there's obviously a lot of talk about elasticities being lower than historical levels on pricing going up. Obviously, you know, your business is slightly different in terms of being more impulse in store with fill up driven. But if you could kind of talk directionally about which categories are more or less elastic and kind of how you think about pricing as you move through 23 and the potential benefit from higher promotional activity and or just reduce pricing, that'd be helpful. Thank you.

Sure. So I'll start with the pricing quiz. There is no question that almost every vendor has to push a pricing quiz this year. We try to be very, very careful. Given our size and given our promotion activity, we try to just move very, very carefully over here, try to create value to our customers. And as prices continue to increase, I mean, we really try to push forward our Fast Rewards loyalty program with our loyal members. You know, we have over 1.2 million members that we're talking with, and we have millions of customers that actually handle the loyalty card. And I think what we were able to do is really to provide them those, you know, valuable promotions so they did not feel, you know, those, you know, price increases maybe like some of the others. I think in terms of moving forward, there's no question with interest rate rising, moving towards recession, there is no question that our industry, Mark, is probably much more resilient than some others. And I think the proof for that is what we see right now. I mean, as I mentioned earlier, as we continue to see interest rates basically continue to hike, for whatever it's worth, the sales inside the stores of all of those essential categories continue to increase. It's amazing. We saw 75 basis points increase in September. We saw 75 basis points increase just recently in November. However, the sales inside the stores can actually continue to increase much higher as interest rates continue to rise over here. Going into 2023, As I mentioned earlier, we are testing right now the upgraded app, the Fast Rewards app. We're actually testing it right now and getting ready to launch it company-wide. And our goal is going to be, you know, continue to grab more and more customers, making sure that they have basically the cards in their hands and make sure that they're able to, you know, to basically enjoy all of those valuable promotions. Because, you know, there's no question in my mind. We need to be very, very sensitive, especially with, you know, price increases and especially with interest rate rising over here.

Good. That's helpful. And then just lastly, I know it's probably a bit granular in terms of size, but curious if you could provide some update on the benefits you're getting from strategic partnerships with third parties like the Sparrow relationship or even, you know, the store that you've added, you know, electronic charging capabilities, any sort of commentary around the bump that you're getting on visitation as well as what's going on in the stores would be helpful.

Sure. So let me start with food service. You mentioned Sbarro. So Sbarro is only one item out of many others. As I said, since value proposition is very, very important over here, You know, we have 199 stores that actually sell pizza by the slice. And our goal is really to continue to extend it. We have a lot of stores that, you know, we have 377 stores that sell, you know, hot dogs on the roller grill and tornadoes. And I think especially in this environment, we must stick and must find ways to offer food to our customers that one of the key elements over here is to try to be below $3 a slice, even though the price of cheese and the price of food, basically all of the food elements are increasing. I mean, we are trying to actually figure out a way how to format ourselves based on basically on what happened in this change of environment. Coffee, for example, I spoke about coffee You know, we are actually heading right now into the coffee season. And I can tell you that, you know, just on coffee, our loyal customers are able to buy coffee, a cup of coffee for 99 cents. I mean, if you're really looking at the marketplace, I mean, the cost of a cup of coffee is probably 50% higher, you know, versus the price that we offer to our loyal customers. So, again, we're trying to make sure that we become a destination to all of those loyal customers. and to provide very, very valuable prices to those guys in order to continue to extend. And that's what's going to drive, by the way, the margin. Going back to the margin question, that's what is going to drive the margin over here. You know, the food service margin, everybody knows, is much higher than basically the margin of cigarettes, for example. And this is where our focus is in right now.

Great.

Thank you. Thank you.

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Cutler for any final comments.

Thank you very much, Melissa. And thank you, everyone over here, for joining us. You know, as we are heading towards the holiday season, I would like to take this opportunity and, you know, wish each and every one of you and your families, of course, happy holidays.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.