ARKO Corp.

Good day, everyone, and welcome to today, our GoCorp third quarter 2024 earnings. At this time, all participants are in a listen-only mode. Later, you will have an 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 1 on your telephone keypad. Please note this call is being recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn today's program over to Jordan Mann, Senior Vice President of Corporate Strategy, Capital Markets, and Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to ARCO's third 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 third quarter of 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 third 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 third 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 ARCO is 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, except as required by law. On this call, management will share operating results on both a GAAP basis and on a non-GAAP basis. Descriptions of these 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 10Q for the quarter ended September 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 cost and exclude intercompany charges by our subsidiary, GPMP. And now, I would like to turn the call over to Ari.

Thank you, Jordan, and thank you all for joining. In the third quarter, we deliver adjusted EBITDA at the midpoint of our guidance by remaining highly focused on managing our operating expenses, both within retail operations at store level and through advancing our dealerization initiative, which I will cover shortly. We, along with other operators in our industry, are seeing persistent pressure on consumers as they grapple with inflation and increased prices for daily necessities, with the cost of goods in fundamental categories like fuel and groceries up more than 20% in 2020. During the quarter, consumer spending remained restrained, and strong summer promotions were unable to accelerate soft merchandising trends from earlier in the year. That said, we continue to believe we are equipped to navigate this environment and, as always, continue to offer everyday value to our customers to help them during these challenging times and believe in the resilience of our industry as we look consumer spending in 2025. Looking at our merchandise efforts, we are seeing a shift in purchasing behavior with a growing number of consumers prioritizing discounts and exploring multiple channels to find the best value. Traffic trends remain challenging throughout the quarter, and we continue to focus on ways to deliver value to our customers through promotional bundles and loyalty offers coming online as we move into the fourth quarter. As we look ahead to the balance of the year, we have value oriented promotions coming online. Just to name a couple, we are offering our Tyson Chicken Sandwich Value Meal with a large fountain drink and chips for only $4.99, enabling our customers to have a full meal at a reasonable price. Additionally, we are offering customers the ability to grab a free Nathan hot dog with the purchase of any large fountain drink for only $1.99. These are just a couple of examples of the many promotions we are launching to provide much-needed value to our customers. These promotions support our strategies around both announcing our food service offerings and our loyalty programs. On food service, in the second quarter, we expanded the food service offering with Nathan's Famous Hot Dog, which are now available hot and ready in more than 500 of our retail stores across the country. We've seen strong customer response with same-store hot dog sales for the third quarter up more than 30%. We also continue to see positive results in the value-oriented pizza offerings that we launched in the first quarter. Same-store non-franchise pizza sales in Q3 increased approximately 11.5%, and unit sold increased 23.1%. With respect to loyalty, we continue to grow the base of enrolled members in our loyalty program because of the value associated with being a member. Enrolled loyalty members spend an average of $110 per month, or 80% more than non-enrolled customers, and visit almost eight times per month, or almost twice as often as non-enrolled customers. In focusing our efforts to continue enrollment and provide additional value to our customers just before the holidays, we kicked off yesterday the FAS Million Swipstick, For the remainder of the year, Fast Rewards members who purchase any of over 700 qualifying items will receive a scratch card at checkout that has prizes or coupons for items that can be redeemed at any of our retail stores. In addition to the instant price portion of the sweepstakes, enrolled Fast Rewards members will also be entered into a drawing for a grand prize scratch card with the chance to win $1 million. Pulling back from near-term operations, I want to spend some time talking about more structural changes to our business that are part of the foundation we are building for the future. These such elements of our merchandising assortment are channel strategy and NTIs. First, on a merchandising assortment, it has been some time since we discussed with you all our cigarettes and tobacco offerings. We are seeing the strength of our OTP assortment, which has been growing longer term, and has a contribution margin rate that is approximately 20 percentage points higher than our cigarettes category. Recognizing the demand-driven mix shift across tobacco products we have started to install new back bar fixtures, allocating space to our OTP assortment. We expect to roll this new back bar installation to 1,000 stores by the end of the first quarter 2025 to support this growing category and expect OTP growth story to be positive. Given that approximately one out of two of our enrolled loyalty members are cigarettes or OTP consumers, we will be increasing our focus in 2025 on these customers and plan to provide them with additional value. Next, I'd like to share an update on our channel optimization efforts. As part of our transformation plan, we are converting retail stores to dealer sites where we believe that we can realize higher profit from ongoing fuel supply agreements and rental income than from continuing to operate these stores in a retail segment. On our last call, we shared that we expected to convert 40 retail stores to dealer sites by the end of the third quarter, and we exceeded this target, converting 51 retail stores to dealer sites. By the end of the fourth quarter, we expect to convert another approximately 100 retail stores taken together. We expect these approximately 150 stores will represent an annualized benefit to combine all sales segments and retail segment operating income of approximately $8.5 million. To provide more detail on the magnitude of the channel optimization we are undergoing at scale, taking into account future expected conversion of retail stores, we expect this initiative to cumulatively benefit combined wholesale segment and retail segment operating income by approximately 15 to 20 million dollars. We expect this conversion will lead to an economic uplift while allowing us to increase our focus on the jewels of the retail portfolio and to prioritize our future investments in this location. We believe that this will enable us to maximize the potential of all of our segments. We see tremendous opportunity with the work we are doing, which we expect to compounded with reduction of supporting G&A costs as we refine our retail footprint. Moving on, I wanted to touch on another leg of our organic growth for ARCO, our NTIs. We markedly expanded our NTI pipeline with eight new-to-industry stores. In the third quarter, we opened one of these, an Andymart store in Newport, North Carolina, delivering value and high-quality shopping experience to the Newport community. We are pleased with the performance of this store and have seen food service sales penetration over 20% at that location for the month it has been open in Q3. This success further supports the efforts we are putting into developing our food service offerings. Of the remaining new-to-industry stores in the pipeline, we expect to open three more by the end of the year with the balance over the course of 2025. You will note that this pipeline represents a marked increase to our prior cadence of NTIs, which reflects our efforts to support the long-term organic growth of our business. Further, we expect that our NTI program will play an essential role in our transformation plan, and we look forward to discussing all of this in greater detail at our upcoming Investor Day. Concurrent with this effort to support organic growth, I wanted to give you an update on our new design pilot for our remodel program as part of our transformation plan. To date, we have finalized store layout and merchandise assortment, including development of system-wide branding for our announced food service offerings. We anticipate beginning permitting to implement the new design in our seven pilot stores in the fourth quarter and to begin remodeling activity in early 2025. I will now turn the call over to Rob to review financial results for the third quarter and touch upon our guidance for the fourth quarter and full year. Thank you, Ari.