ARKO Corp.

session. If at any time during this call you require immediate assistance, please press star zero for the operator. These calls may be recorded on Thursday, May 8, 2025. I would now like to turn the conference over to Jordan Mann, Senior Vice President, Corporate Strategy and Capital Markets, Investor Relations. Please go ahead.

Thank you. Good afternoon and welcome to ARCO's first quarter 2025 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 first quarter of 2025 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 2024. Before we begin, please note that all first quarter 2025 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 first quarter 2025 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 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 those non-GAAP financial measures that we use, such as 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 March 31st, 2025. Additionally, management will share profit measures for our individual business segments along with fuel contribution, which is calculated as fuel revenue plus fuel costs 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. This quarter, the company and our industry face headwinds from lower traffic and consumer spending to severe weather. Even though we manage the business effectively and deliver results above the midpoint of our guidance, I have higher expectation for the business. We continue to demonstrate that even in a tough environment, we are executing with discipline and remaining focused on what we can control. This quarter, persistently high inflation and high consumer debt put increased financial pressure on lower and middle income households, especially in the communities where many of our stores are located. Further, the currently unpredictable tariff environment has created uncertainty around spending as customers try to manage their expenses. However, we believe we are well positioned to deliver on the value that our customer is seeking through our promotional and merchandising efforts. Like many in our industry, we're seeing consumers stretch their dollars further, increasingly shifting their purchases towards value-oriented options and exhibiting more price sensitivity. This quarter also brought a unique set of external challenges that compounded these microeconomic pressures. The combination of persistent cold weather and widespread winter storms across several key geographies reduced customers' mobility and constrained store visits. In addition to pressure on gallons and merchandise sales trends, the unfavorable weather drove an incremental $1.7 million in operating costs related to snow and ice removal. While inclement weather is expected in the first quarter, the range and intensity of adverse events this year, especially in February, were notably greater than typical seasonal norms. Looking behind external factors, our team is committed to the company transformation strategy, including the ongoing dealerization program, the expansion of high-margin categories like other tobacco products and food service, and targeted promotional initiative, both in the stores and at the pump, which we have designed to deepen customer engagement. These actions are helping us navigate the current environment, and we believe they position the business for long-term growth. Our strategies are driven by experienced leadership and executed daily by a committed operation team that prioritize the customer experience. These strategies are... optimizing our retail footprint by dealerizing stores that don't fit within our go-forward operating model, driving value and relevance to our consumers through innovative promotional activities. One example is our Fueling America Future campaign, which provides discounts on fuel up to $2 off per gallon for up to 20 gallons. Another example is our investments in the tobacco back bar to support shifting consumer demand to OTP products, which we are supporting with elevated value promotion. OTP and cigarettes together represent approximately 39% of sales. Implementing a new consumer-centric remodel centered around a delicious menu of up and cold grab-and-go food and dispensed beverages. We will be introducing a new brand for this strategy called Fast Craves, Our first store will be in a fast smart in Richmond, Virginia, advancing our store remodel program with our first pilot store starting construction this week. Filling the pipeline for the new to industry stores in our existing markets and increasing customer trips and spend through our fast rewards loyalty program by offering the best deals to our best customers. Now, let me provide eye-level update for each of these core strategies. On our transformation plan, we continue to execute our strategy to convert company-operated stores into dealer sites where we believe the long-term economics are more favorable for those stores under our dealer segments. Here to date, as of the end of April, we converted 77 stores to our wholesale network, and we have more than 130 stores under contract for conversion, with a meaningful number still on our list to convert. As we previously disclosed, at full scale, we continue to expect this initiative to deliver a cumulative annualized operating income benefit in excess of $20 million. Our iValue Fueling America's Future campaign kicked off in stores on March 12th. This campaign is centered around providing customers with both value promotions inside the store and significant discounts at the pump. In partnership with many of our supplier partners, we are offering our loyalty members up to $2 off per gallon, up to 20 gallons when they purchase select products in store. While the campaign just started, we have seen an increase in our average enrollment per day by 35% and an increase in gallons for previously enrolled loyalty members taking advantage of this great offer from approximately 6.8 gallons to 9.8 gallons per transaction, with an average basket increase of approximately $2.38, or 16%. Turning to our cigarette and OTP back bar refresh, to date we have completed this project in more than 900 stores, which is driving improvement in merchandising and assortment for Total Nicotine. When combined with our expanded promotional efforts, we're capturing market share across select OTP categories, creating momentum for in-store performance as we broaden our assortment and fine-tune our promotional strategy to drive growth. Of the approximately 675 stores where we believe we have enough new results to draw conclusions, we are seeing that these resets are starting to improve our total nicotine performance. We have implemented very strong monthly OTP promotions supplemented by a store manager and district manager sales contest to assist in driving OTP sales. Our OTP mix continues to evolve to meet customer demand and we view it as a lever to drive basket growth amid challenging micro backdrops. Turning to our remodel program, we started construction on the first of our seven pilot remodels this week and expect to start work on the second remodel in the middle of May. As a reminder, the pilot store are expected to include an expanded and refined merchandise assortment with an enhanced in-store experience and focus on food centered on hot and fresh grab-and-go foods, bakery, pizza, roller grill, and other prepared foods, including our new branded food offering, Fast Graves. The intent is to take learning from these pilot stores and implement the right remodels across a larger portion of our retail location through targeted capital deployment. These initiatives are fundamental to our long-term retail transformation strategy and represent our commitment to organic growth and store-level reinvestment. In addition to our remodel program, in the first quarter, we opened a new Dunkin' store and a fast market location. Additionally, we currently have four NTIs in development, three have started construction, and one store is awaiting a final permit. These NTIs are expected to open in the second half of the year. These four stores will the pilot remodel concept I discussed moments ago. We are pleased with the results of our fast rewards loyalty program. Our loyal customers continue to make more trips and spend more per month than our non-enrolled members. In the first quarter of 2025, enrolled Fast Rewards members spent approximately 47% more and visited two and a half times more per month than non-enrolled members. Enrolled loyalty OTP sales now account for 18.5% of OTP sales versus 18.1% in Q4 2024. Enrolled members are purchasing 23% more gallons per transaction than non-enrolled members. Overall, we added approximately 27,000 enrolled members in Q1, reaching over 2.3 million enrolled members in total, which was up 11% from the end of Q1 2024. We continue to learn and evaluate the rich customer data and adjust our tactics to ensure we provide meaningful value to our most loyal customers. As adoption grows, we believe loyalty will continue to be an increasingly powerful lever to improve same-store performance over time. The team is executing many initiatives in our retail segment to drive results despite the current microeconomic headwinds. Outside of retail, our wholesale and fleet segments have delivered stable and reliable cash flows, providing meaningful support as we navigate ongoing micro and consumer pressures. Over the past four quarters, these segments have generated approximately $130 million in operating income. Combining all of the positives and the negatives this quarter, we again deliver results above the midpoint of our quarterly guidance. Much of this performance was driven by controlling the things we can control, especially on the expense side as we mitigate higher costs related to snow removal through discipline management and execution. Turning to capital allocation, we remain committed to a strategic and thoughtful approach. Based on our stock price in the first quarter, we repurchased approximately 1.3 million shares during the quarter, at an average price of $4.01 per share, with almost all of those repurchases executed in March. Additionally, we repurchased approximately 1.3 million additional shares in April. We believe our current market valuation reflects discounts for a scale convenience stores retailer with a diversified revenue across merchandise, retail fuel, and also in fleet fueling. Our approach to capital allocation will continue to focus on long-term value creation and disciplined capital deployment. We believe in the strength of our plan, the capabilities of our team, and the transformation path ahead and remain committed to executing step-by-step to unlock value for our shareholders. With that, I will hand it over to Rob.