ARKO Corp.

Please stand by. Your program is about to begin. If you need assistance during your conference today, please press star zero. Good day, everyone, and welcome to today's ARCO Corporation Second Quarter 2024 Earnings. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and one on your telephone keypad. You may withdraw yourself from the queue by pressing star and two. Please note this call is being recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Senior Vice President, Capital Markets, Corporate Strategy, Investor Relations, Jordan Mann. Please go ahead.

Thank you. Good afternoon and welcome to ARCO's second quarter 2024 earnings conference call and webcast. On today's call are Ari Kotler, Chairman, President, and Chief Executive Officer, and Rob Giammatteo, Executive Vice President and Chief Financial Officer. Our earnings press release and quarterly report on Form 10-Q for the second quarter 2024 as filed with the SEC are available on ARCO's website at www.arcocorp.com. During our call today, unless otherwise stated, management will compare results to the same period in 2023. Before we begin, please note that all second quarter 2024 financial information is unaudited. During this call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please review the forward-looking and cautionary statement section at the end of our second quarter 2024 earnings release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today. Any forward-looking statements made during this call reflect our current views with respect to future events, and ARCA was under no obligation to update or revise forward-looking statements made on this call, whether as a result of new information, future events, or otherwise. On this call, management will share operating results on both a GAAP basis and on a non-GAAP basis. Descriptions of those non-GAAP financial measures that we use, such as operating income as adjusted and adjusted EBITDA, and reconciliations of these measures to our results as reported in accordance with GAAP are detailed in our earnings release or in our quarterly report on Form 10-Q for the quarter ended June 30, 2024. Additionally, management will share profit measures for our individual business segments along with fuel contribution. which is calculated as fuel revenue less fuel costs and exclude intercompany charges by GPMP. And now, I would like to turn the call over to Ari.

Thank you, Jordan, and thank you all for joining. We reported earlier today that we deliver adjusted EBITDA that exceeded our second quarter guidance. These results reflect our ongoing efforts to manage key levers, such as fuel pricing and our vendor-partner relationship, as we navigate challenging microeconomic environment alongside our customers. We continue to see pressure on consumer as they struggle with inflation and elevated prices for everyday goods, especially in markets with a large percentage of lower income consumers. Consumers have been hesitant in their spending and their purchases have remained suppressed despite multiple summer promotions. As a result, during the quarter, we saw lower same-store merchandise sales and retail volumes at the pump. However, our team worked hard and achieved the merchandise margin rate growth while providing much needed value to our customers. As we discussed on our last call, we believe we are prepared to navigate this near-term headwind as we continue to believe in the long-term opportunities for the company. Turning to our retail segment performance for the quarter, merchandise same-store sales Decrease compared to strong prior year period, relatively flat on a two-year stock excluding cigarettes, reflecting a challenging consumer backdrop. Despite this quarter decrease, we saw significant merchandise margin expansion, which helped partially offset the sales decline as we continue to make progress with our key merchandising initiative and deliver value for our customers. For example, We have seen great results in the value-oriented pizza offering that we launched in Q1 of this year. Relative to our old pizza program, same-store pizza sales this quarter increased approximately 19% and unit sold increased 36%. In addition to the pizza program, we have expanded food service offering with Nathan's Famous Hot Dogs. which are available hot and ready in more than 460 of our retail stores across the country. While this program only started in the middle of the quarter, we've seen strong customer response, with same-store hot dog sales up approximately 16% over the prior year quarter. All-in same-store food and dispensed beverage contribution dollars were up over 9% and over 400 basis points, in margin rate as compared to the prior year period. We plan to continue leaning into food service through offering value and bundles to further help our customers in this challenging microenvironment. As I mentioned previously, food and dispensed beverages are key components of our strategic plan, and I'm pleased with the progress that the team has made. Given the ongoing consumer pressure, we announced the return of our $10 sign-on incentive for newly enrolled members in our Fast Rewards loyalty program. For contacts, we added more than 365,000 enrolled loyalty program members during the third quarter of 2023 when we ran our promotion last year, and we expect the return of these promotions to continue to improve loyalty enrollment and accelerate traffic and spending across our stores, as reflected by same-store loyalty sales, which were roughly flat year-over-year, but also deliver incremental merchandise contribution dollars. Turning to retail fuel, we deliver modest increase in fuel contribution dollars, driven by gallons growth from our recent acquisitions and a fuel margin increase of roughly $0.02 per gallon, which more than offset continued decline in gallon demand. While we are working to improve same-store retail gallons going forward, our retail fuel trends are consistent with the industry and reflect broader economic pressure. As we have shared before, our fuel team prices to optimize fuel contribution dollars, factoring into competitive dynamics at the site level. And we believe rising cost pressure that continue to impact smaller operators will continue to support the strong retail fuel margin that we experienced in the second quarter. On our last call, I emphasized the importance of developing the right plans and platforms for organic growth within a retail store footprint in the context of a multi-year transformation plan. We are developing the details of this organic growth plan, which is expected to include significant capital allocation towards our retail stores, the conversion of meaningful number of retail stores currently in our retail segment to dealer sites within our wholesale segment, and increased focus on pricing and procurement strategies across our retail stores. As part of this, we are advancing our new store design pilot. We have completed consumer research to guide development of our prepared food assortment and store layout, and have selected seven stores within one of our regions to execute the pilot. After validating the results, we have a goal of a region-wide rollout before expanding across our retail footprint. This initiative aims to enhance our customer value proposition and improve store operations with a significant focus on food service. We expect to begin implementing the new design in our pilot stores in the fourth quarter of this year. I would also like to update you on another element of the transformation plan, the conversion of retail stores to dealer sites within our all-sales segment. Last quarter, we shared that our portfolio review identified a meaningful number of retail locations that we believe will deliver more profitability as dealer sites within our all-sales channel, rather than continuing to operate them as retail stores. Conversion of identified stores benefits both our dealers and our customers. Dealers are able to leverage their own scale by taking additional sites, while we can realize higher profit from ongoing fuel supply agreements and rental income than from continuing to operate these stores in our retail segment. This conversion also will allow us to focus and better prioritize future investments in our remaining retail stores. Our team has been working with multiple potential dealers over the last several months to advance this part of the transformation plan. To give you a sense of this in action, we already have approximately 40 retail stores that we expect to have completed by the end of the third quarter. Several of these have already been converted. We are still working through our multi-year transformation plan, and the details shared today are only intended to reflect high-level teams and preliminary efforts ahead of our upcoming investor day we plan to hold in the fourth quarter. Additional details for the date and location will be shared in the weeks ahead. Lastly, as we continue to see opportunity for expansion, we have three new-to-industry stores that are in different stages of construction with one scheduled to open in the third quarter. I will now turn the call over to Rob to review financial results for the second quarter and touch upon our expectation for the third quarter and full year 2024.