ARKO Corp.

Greetings, welcome to ARCO Corp's second quarter 2025 earnings call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone's require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Jordan Mann, Senior Vice President, Corporate Strategy, Capital Markets and Investor Relations. Thank you, sir, you may begin.

Thank you, good afternoon and welcome to ARCO's second 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 10Q for the second quarter of 2025 as filed for the SEC are available on ARCO's website at .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 second 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 second 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 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 those non-GAAP financial measures that we use, such as adjusted EBITDA, and reconciliations of those 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 June 30, 2025. 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 inter-company 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. Like many in our industry, in the second quarter, we continue to navigate challenging microenvironment marked by geopolitical events, persistent inflation, mixed consumer sentiment, and restrained personal consumption. Through it all, our team remains focused and executed with discipline as reflected by our financial performance this quarter with adjusted EBITDA above the midpoint of our guidance. In this environment, we have seen more price sensitivity, greater reliance on loyalty-driven offers, and continued movement towards value-based purchasing. We stayed grounded by focusing on execution, merchandising discipline, loyalty-led engagement, and controlling expenses, including smarter labor scheduling and tighter cost management at the store level. We expanded merchandise margin by 80 basis points year over year, driven by category mix, effective promotions through the work our team is doing with our suppliers, and our continued optimization of assortment through back bar resets and loyalty target offers, all while being responsive to evolving consumer needs. We were pleased with improved performance in most of our core categories, and we believe performance reflects the effectiveness of our promotion and our focus on driving growth in key categories. While the second quarter reflected many ongoing pressures, we saw consecutive improvements from May to June, and we are seeing further improvement as we enter the third quarter. Relay July, early third quarter trends in both same-store gallons and inside sales have been more favorable than what we experienced in Q2, with same-store sales grow for July, excluding cigarettes up slightly year over year. Total merchandise same-store sales trend in July was three percentage points better than total merchandise same-store sales for the second quarter, which was the best comp performance we've seen in the last 18 months. It's still early, but we are encouraged by what we're seeing so far. Our team remained focused on executing our co-transformation strategy, which include advancing our dealerization program, investing in our retail stores by bringing our new format store, and our food service fast-grade brand to life. In addition, we are applying targeted promotions both in stores and at the pump to deepen customer engagement. These efforts are enabling us to navigate today's operating environment while positioning the business for sustainable long-term growth. Dealerization remain a central component of our long-term transformation plan. We continue to focus on converting select company-operated stores to dealer locations, where we believe the long-term economics are more favorable for those stores under our wholesale segment. Since launching this initiative last year, to date, we have converted more than 300 stores, and we currently have approximately 200 additional sites that we expect to convert under letter of intent or contract for conversion, with a further meaningful pipeline for conversion ahead. As previously disclosed, once fully scaled, we continue to expect this program to deliver a cumulative annualized operating income benefit of more than $20 million before GNA. As our dealerization efforts continue, we have identified more than $10 million in expected annual structural GNA savings as we fully scale this program. We continue to believe that by transitioning select stores to dealer locations, we are unlocking long-term value. We previously noted that our dealerization program will facilitate targeted capital investment into our retail stores. As part of this, we are very excited to introduce a new form of stores, which include a bold and innovative remodeled design to elevate the customer experience and better reflect our commitment to food service, convenience, efficiency, and community connection. We developed this new format over many months with our internal team and outside consultants, including learning from customer focus groups. This new format includes a complete remodel inside and outside the store, a modernized layout, and we have introduced a new food and beverage concept Fast Craves, which elevates our food and beverage offering to grow food service as a differentiator across our network. We opened our first new format store on June 25th in Ashland, Virginia, and while it has only been open a short time, we are pleased with its initial performance. Early results show outperformance in food service and dispensed beverages, as well as key categories like candy, packaged beverages, and alternative snacks relative to the rest of our stores. Our second new format store opened this morning in Mechanicsville, Virginia. Importantly, we have identified the next tranche of stores to be remodeled in the new format, focusing on improved customer experience and with food service as a focus, which we believe is a critical area of opportunity for ALCO. We are in various stages of engineering designs and layout on this next tranche of stores. Turning to our new to industry stores, last week we opened our second new location this year. This NTI in Kingston, North Carolina, incorporates almost all elements of our new store format. We continue to advance the other NTIs in our pipeline and have begun working on three more of these NTI stores. Of which two are expected to open in the second half of 2025. In addition to executing our dealerization program and remodeling investments, we're beginning to see the positive momentum across other core initiatives for this year. This includes focusing on high margin categories like OTP and food and enhancing our loyalty ecosystem to better engage customers. Our Fueling America Future campaign continues to engage customer and drive improved loyalty enrollment growth, trip and basket size. This program provides up to $2 per gallon and fuel discounts up to 20 gallons to enroll loyalty members who purchase qualifying in-store items. Average daily enrollment in our Fast Rewards program increased more than 50% from the period prior to the campaign. When utilizing the Fueling America Future promotions, our enrolled loyalty members made an extra trip per month and spend on average more than 15% more than our typical enrolled loyalty member during the second quarter. Importantly, we are seeing improved sales on our qualifying items that are tied to our Fueling America Future promotions. Turning to our loyalty program as a whole, during the quarter, enrolled Fast Rewards members spend on average approximately 50% more in the second quarter of 2025 and visited an average approximately three more trips per month compared to non-members. Overall, we added more than 38,000 new members in the quarter, bringing total enrollment to approximately 2.35 million members up 10% from the end of Q2 last year. These results underscore the effectiveness of our loyalty platform in an environment where consumers are looking to stretch every dollar and this is why we continue to focus on enrollment initiatives like Fueling America. Our team is continuing to optimize promotional offers and sharpen messaging to drive even deeper engagement. Diving deeper into OTP, our stores are benefiting from expand assortments, revised space allocation, high value promotions and a more effective visual merchandising strategy which has been significantly improved by our Backbar Refresh and Incentive Program for Discrete and Store Managers. OTP remains a key growth lever for install margin and customer engagement. Over the quarter, OTP was one of our top performing categories for same store sales growth and same store contribution growth. Taking all our strategies as a whole, they are guided by experienced leadership and brought to life every day by a dedicated operation team focused on announcing the customer experience. Turning to fuel, industry-wide demand remained soft in the second quarter with national retail fuel volumes down approximately 4% and our volume reflected that trend. While gallons declined, our CPG margin increased compared to the prior year period reflecting the benefit of our scale and our strategic pricing. This margin performance helped offset some of the impact of lower volume on retail fuel contribution. As I mentioned before, we saw consecutive improvement in same store gallon growth from May to June and this improvement continued into July. Our wholesale and fleet segments continue to perform through a combination of our dealerization program and robust fuel margin as compared to the prior year. These two segments continue to provide stable and reliable cash flow for our business. We continue to believe our stock is an attractive investment. In the second quarter, we repurchased 2.2 million shares. We believe that our disciplined capital allocation strategy aligned with strength of our transformation plan and consistent operational execution position us well to deliver long-term shareholder value. I will now turn the call over to Rob to review financial results for the second quarter and review our thoughts for the third quarter and full year 2025.