ARKO Corp - Ordinary Shares - Class A Aktie

Greetings, and welcome to the Arko Corp. First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Jordan Mann, Senior Vice President, Corporate Strategy and Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to Arko's First Quarter 2026 Earnings Conference Call and Webcast. On today's call are Arie Kotler, Chairman, President and Chief Executive Officer; and Gallagher Jeff, Chief Financial Officer. Our earnings press release and quarterly report on Form 10-Q for the first quarter of 2026 as filed with the SEC are available on Arko's website at www.arkocorp.com.

During our call today, unless otherwise stated, management will compare results to the same period in 2025. Before we begin, please note that all first quarter 2026 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 statements section at the end of our first quarter 2026 earnings press release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today.

All forward-looking statements made during this call reflect our current views with respect to future events, and Arko 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 and on a non-GAAP basis. Descriptions of the non-GAAP financial measures that we use, such as adjusted EBITDA and reconciliations of those numbers to our results as reported in accordance with GAAP are detailed in our earnings press release or in our quarterly report on Form 10-Q for the quarter ended March 31, 2026.

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 our GP&P segment.

And now I'd like to turn the call over to Arie.

Thank you, Jordan, and good morning, everyone. Q1 marked a clear inflection point for Arko. The momentum we built late last year accelerated into 2026, and the results this quarter show meaningful progress across the business.

Adjusted EBITDA increased approximately 65% year-over-year to $51 million, driven by strong execution across retail, wholesale and fleet fueling, coupled with disciplined cost control and strong fuel contribution. Importantly, this performance was broad-based and structural, not driven by any single lever.

In retail, same-store merchandise sales, excluding cigarettes, returned to growth for the first time in 2 years, reflecting improved execution, sharper promotions, our Fueling Americas campaign and stronger customer engagement. Same-store fuel gallons had the strongest year-over-year trends we've seen in 2 years and outperformed the OPIS U.S. average by roughly a full point.

In fuel, we have navigated a volatile pricing environment effectively, delivering strong cents per gallon that more than offset lower volumes early in the quarter. Notably, fuel transactions and gallon trends strength materially in March, even as retail prices increased. We believe that this is evidence that our value messaging and promotional strategy are resonating with customers. Across the organization, we stayed sharply focused on costs. G&A declined 4% year-over-year, reflecting a leaner structure and continued operating discipline.

Despite weather disruption from the significant number and intensity of storms in January and early February, the takeaway from the quarter is straightforward. The operational and strategic work we've been executing dealerization, loyalty, fuel pricing discipline, merchandising focus and capital allocation is showing up in our financial results. The initial public offering of minority interest in our subsidiary, Arko Petroleum Corp in February 2026 was an important milestone in our story and we believe that it gives investors a clear view of the strength and value of our wholesale, fleet fueling and GP&P businesses, their attractive margins and its cash flow attributes.

We believe that Arko is currently positioned with strong growth opportunities across both operating channels, the retail on the one hand and the wholesale and fleet fueling on the other end. As of March 31, 2026, Arko owns 35 million shares of APC, representing an implied value today of roughly $650 million based on APC's market capitalization of approximately $900 million. We'll keep the APC discussion short, but it's important investors recognize both the transparency and the embedded value that APC structure provides.

Turning to the operating environment. The consumer remains value focused and deliberate, especially in this elevated fuel cost environment. We continue to see customers taking advantage of promotions and actively using our app for savings on both fuel and merchandise. That reinforces the importance of sharp pricing, clear value communication and compelling in-store offers. Importantly, underlying trends improved as we moved through the quarter. After weather-related disruptions early on, traffic, transactions and gallons all improved in March, reinforcing our confidence in the trajectory of the business. Dealerizations continue to be one of the most powerful levers reshaping Arko. We converted 41 retail stores to dealer locations in the first quarter, bringing total converted locations to 450 since we adopted our transformation plan in 2024, with approximately 75 additional stores committed either under letter of intent, under contract or already converted since quarter end.

We expect to complete those plus additional conversions by the end of 2026. The benefits are increasingly evident, lower operating costs, reduced maintenance CapEx, stronger cash flow generation and a more focused retail portfolio that is positioned for growth. As we progress through 2026, we believe our reported KPIs will increasingly reflect the quality of the remaining portfolio, something that is already apparent in our Q1 performance.

Retail performance clearly improved this quarter. Same-store merchandise sales, excluding cigarettes, returned to growth, marking our strongest results in 2 years. This was driven by better execution across promotions, pricing and customer engagement. Merchandise margin grew 70 basis points year-over-year and finished Q1 at 33.9%. This 70 basis points margin improvement is on top of the 70 basis points we grew margin in Q1 of last year. Cigarette sales performed better than expected due to promotional pricing and manufacturer support, while other tobacco products continue to grow strongly, supporting traffic and transactions without undermining margin integrity.

Overall, our retail performance reflects a healthier business with improving trends and a more productive store base. We are not trading margin for volume. Fuel was a significant earnings contributor in the quarter. We operated through a highly volatile fuel environment and executed effectively, delivering retail cents per gallon of $47.9 and driving same-store fuel contribution up approximately 20%, while gallons were pressured early in the quarter by the weather, they improved throughout the quarter, even in a higher price environment and fuel transaction increased approximately 7% in March.

While fuel volatility was supportive this quarter for CPG, it was not the only driver of improved results. Higher fuel prices can lead smaller fill-ups, but it can also drive more frequent visits. This reinforced our strategy, being competitive to drive traffic and offering promotions like the Fueling America's Future discount fuel campaign to give dollars back to the consumer. In honor of America's 250th birthday, Fueling America's Future is now offering $2.50 off per gallon up to 20 gallons. We remain focused on delivering value as we head into the summer driving season. That brings me to loyalty.

Our Fueling America's Future campaign and Fast Rewards platform remains central to our growth strategy in trip frequency, customer engagement and basket size. Enrollment increased 98% in the first quarter compared to the same period last year with approximately 53,000 new members. Notably, almost half of new enrollees joined since the launch of the new app and $10 enrollment program in early March.

We believe that these programs are importantly in any environment, but especially in one where customers are actively looking for value. Our relaunched loyalty app on new technology platform position us to better personalize offers, improve communication and more deliberately use loyalty as traffic and retention engine, especially as we add into our 100 days of summer promotional season.

Remodels and new-to-industry locations also remain key components of our long-term growth strategy. In the first quarter, we opened 2 NTIs retail stores and 1 NTI cardlock location, and we remain on track for 3 new Dunkin' stores and 1 NTI retail store, 20 NTI cardlocks and 25 remodels in 2026.

Early performance from recent remodels has been encouraging, reinforcing our conviction that modern put forward formats can drive higher sales, stronger fuel performance and improved store level economics. On the fleet fueling side, building new cargos continue to represent one of our most attractive uses of capital given the low investment, modest labor model and compelling returns.

Before I turn it over to Gallagher, let me leave you with this. The first quarter was not driven by onetime margin event or a single metric. It reflected structural progress across fuel pricing, dealerization, cost discipline, portfolio quality and retail execution. We are not going to overstate 1 quarter, but we are encouraged by what we are seeing.

Our transformation plan has been gaining traction and promotions are driving sales and loyalty program enrollment, which is visible in our financial performance.

With that, I will turn the call over to Gallagher.

Thank you, Arie. We continue to be encouraged by the broad-based performance we are seeing across the business. In Q1, we saw improvement in retail trends, strong fuel margin execution, continued benefit from dealerization and meaningful cost discipline at both the store and corporate levels.

We remain focused on investing growth capital to drive strong returns in remodels, NTI retail stores and cardlocks. Turning to our first quarter results. Net loss of $5.6 million compared with $12.7 million for the prior year period, and adjusted EBITDA was approximately $51 million, up roughly 65% from the prior year period, as Arie mentioned.

In our Retail segment, same-store merchandising sales were down 0.5% for the quarter, while same-store merchandising sales, excluding cigarettes, increased 0.4%, representing the strongest ex-cigarette performance we have seen in 2 years, and we achieved these results even with disruptions caused by winter storms in our footprint. Merchandising margin was 33.9%, up 70 basis points from the prior year, driven by product mix and targeted customer promotions. This 70 basis points improvement in margin is on top of the 70 basis points improvement we had last year in Q1, as Arie mentioned.

On retail fuel, same-store gallons were down 3.2% year-over-year, but improved sequentially through the quarter with fuel transactions increasing approximately 7% in March year-over-year. Same-store fuel contribution increased 20% and retail cents per gallon increased by approximately $0.10 to $0.479 per gallon. That result reflects efficient pricing and strong execution in a volatile market.

As mentioned, our merchandising and fuel trends were affected by the winter storms in Q1 across our core footprint. While difficult to quantify, we estimate same-store merchandising sales volumes would have been approximately 80 basis points stronger absent weather disruptions, reflecting the underlying strength of our base business.

Similarly, we estimate the storm-related impact to total company fuel gallons was approximately 160 basis points. While we can't control the weather, we do feel the normalized performance of the business is even stronger than shown, and we expect to build on this momentum.

Turning to expenses. We remain focused on disciplined cost management across the business. Total retail site level operating expenses were down 12% at $155.9 million compared with $177.2 million for the prior year period, primarily driven by our dealerization strategy. Same-store operating expenses increased 3.3% versus Q1 2025, driven by slightly higher labor rates, utilities and higher credit card fees as retail fuel prices increased in March.

On a consolidated basis, G&A expenses were down 4% from the prior year. This is consistent with our transformation plan and reflects a leaner cost structure and tighter operating discipline that we expect to continue. In our Wholesale segment, operating income was approximately $23 million. Performance continued to benefit from dealerization and the related expansion of wholesale volume and profit contribution.

Gallons were approximately 234 million gallons. Fuel margin was $0.098 per gallon, and we continue to expect dealerization to support both earnings quality and cash flow generation over time. In our Fleet Fueling segment, operating income was approximately $12 million, an increase of 9% year-over-year from the strong margin environment. Fleet fuel margin was $0.493 per gallon, while gallons declined 3.2% and were also impacted by weather events in the quarter.

Fleet fuel remains a durable cash flow business and with around 20 cardlocks targeted in 2026, we believe that cardlock expansion continues to represent an attractive capital deployment opportunity given the return profile and modest labor model. On the balance sheet, we ended the quarter with cash of $272 million and total liquidity of approximately $1.1 billion. In Q1, we paid down $206.7 million in debt using the net proceeds from the APC IPO, with long-term debt now at $704 million, excluding lease-related financing liabilities.

On capital allocation, our priorities remain clear. We will continue to execute on dealerization, invest in retail initiatives and remodels, support NTI and high-return cardlock growth, all while we maintain balance sheet discipline and a focus on returns. Capital expenditures were approximately $31 million in the first quarter, primarily focused on growth capital as we have 17 cardlocks and 25 remodels underway. The APC IPO has improved our financial flexibility, but our framework has not changed. We are focused on the highest return opportunities across the business and on improving cash flow over time.

As we progress through 2026, we are encouraged by the momentum in the business. First quarter results reflected strong execution and improving underlying trends, particularly as the quarter progressed. While we are happy with our Q1 performance and strong start to 2026, we believe there is too much uncertainty in the market now to update our full year guidance at this point.

Looking ahead, we remain focused on continuing to execute, capturing the structural benefits of dealerization and allocating capital to deliver strong returns.

With that, I'll hand the call back to Arie.

Thank you, Gallagher. We are encouraged by the first quarter results, and our mindset remain the same. April has continued the year-to-date trends across the business. We plan to stay disciplined, keep executing and continue building on the progress we made through the end of last year and into 2026.

Operator, please open the line for questions.

[Operator Instructions] And the first question comes from the line of Bobby Griffin with Raymond James.

Congrats on some of the progress showing up in the business. Good to see. I guess, first, I wanted to maybe just touch on the dealerization aspect and now that we really are starting to see the inflection point in the operations on a consolidated basis. Does the end kind of pie of savings still look the same from a G&A standpoint that we've talked about in the past and from the SG&A standpoint? Or are you actually now kind of getting in the weeds and seeing that there might be more low-hanging fruit or more upside to some of those original estimates?

Thank you for this question. Thank you for participating. So as we mentioned before, Bobby, the transformation plan that we put together in 2024, we kept talking about a $20 million upside over there when actually -- when this transaction is actually going to take place.

So far, as you can see over here, and as we disclosed, approximately $30 million benefit already is in place given the trailing 12 months. As I mentioned, we have 75 additional locations that we are about to basically to execute. Some of them are under LOI. Some of them are under basically contracts already.

So I think the goal is really to complete that with maybe some additional others between now and the end of the year. And I think that's really the plan at the moment. If things will actually come later on and we see additional opportunities, of course, we will execute on them. That's something that we always take into account. But I think we're going to stick to our plan at the moment.

Okay. And then Arie, that puts you -- round numbers, put you call it, 1,000 stores at retail. When you get to that level, then kind of what's the go-forward, call it -- I don't know if I want to call it a plan, but the go-forward kind of initiatives. You got the remodels that are starting to accelerate. You got some of the merchandising work, you've got loyalty. So maybe help us think about once we kind of get to this 1,000 store base at retail with those additional 75 stores to go, what is the moving parts or the initiatives that will be the focus point going forward there for us to grade the business on?

Sure, sure. So first of all, what we did, like I said, going back to the transformation in 2024, when we actually put the plan together, the goal was to basically to move approximately 500-plus stores from -- basically from the retail business to the wholesale business, concentrate on areas that we are -- we have economy of scale, concentrate on areas that we can win, concentrate in areas that it's, I'll call it, more competitive for us in terms of scale, in terms of basically where we operate, concentrate on promotions. And as you can see right now, you mentioned the 1,000 stores, as you can see right now, the portfolio that we actually kept are the jewel of the jewel of the jewel when it comes to those stores.

The goal will be moving forward to continue to grow and to continue to invest in those stores. As you can see, we are basically remodeling an additional 25 stores this year. The goal will be to build MTI around those stores. And the goal will be to continue to actually to execute around those stores. I can tell you that if you think about that, the majority of the portfolio or a large portion of the portfolio is basically East Coast, Mid Atlantic states, Southeast and Southwest. And that's basically the concentration, and that's where we would like probably to continue moving forward and just build around that. There is no question about that. We are very well capitalized when it's come to it, as Gallagher mentioned, over $270 million, basically just cash on hand and we have plenty of liquidity up to $1.1 billion to continue to actually grow the business.

Go ahead, Gallagher. Sorry about that.

Very quickly. No, it's okay. And already covered it well. There's 3 big benefits we're starting to see in the business. One is operating expenses. As those stores get dealerized, it lowers operating expenses. Second is G&A. As you mentioned, we are more focused, lean organization in G&A. But the third, which I think you hit on with Arie is it focuses our investments on retail stores that are positioned to win. So whether it's remodels, merchandising initiatives, the loyalty program, the approximately 1,000 stores that are left can focus the capital on those and hopefully return very quickly to growth. We're almost there this quarter, but it really allows us to focus the investments to drive growth in those retail stores.

That's helpful. And then that's actually a dovetail into my final 2 questions. I mean on the remodels, I think we took that number up a little of what we're targeting to now do. What's -- can you share any of the early stats you're seeing as the lift from these remodels? We've talked in the past about the capital for kind of a soft remodel versus a hard remodel. So I'd imagine that's roughly about the same. But what about just the lifts now that you got maybe a little bit more data on what you're seeing?

Sure, sure. So I can just talk about the early performance from the recent remodel. Like we mentioned, we are very, very encouraged with -- it's -- of course, it's proved that the minute you actually invest in foodservice and you put food service formats forward, that drive higher sales, stronger basically fuel performance. As a matter of fact, when people come into the stores, they're actually leaving the stores and going to the pump. And it just helps us with better store level economics.

There is no question. Now the plan for 2026, which we mentioned approximately 25 stores remodeled, the whole idea is that to continue concentrating on adding food service into those stores because the minute you invest in food service and you add food service into those stores, you're bringing more traffic -- you have better customer engagement. And there is other items that are actually being attached to basically to the food service when people are actually coming to the store.

So that's really going to be the goal moving forward to make sure that in all of those stores that we are touching right now and we are remodeling right now, we're going to be adding food service. In addition to all of those promotions that we mentioned earlier, I mean, all of those promotions are very, very, very beneficial for us, especially in this environment when fuel prices are actually going up. All of those promotions attached to [indiscernible], for example, when you purchase food, we talked about filling America. Think about it, Bobby. When you buy 2 Gatorade right now and get $0.50 per gallon, in this environment, you're talking about $10 off when you purchase 20 gallons over here. This is really, really important. So again, all of those things will be very beneficial for us into 2026.

And I'm going to try to pin you down a little more. But on -- so basically, when you remodel a store, you put in the fast grades and that stuff you're working on, you see a lift in merchandise same-store merchandise sales as well as same-store merchandise gallons?

I'll jump in on that one. Yes. The first ones we did last year, we saw about 12% increase in merchandising sales overall and 14% in gallons versus the pre period. Some categories were up 20%, 30%.

So we continue to see really good results, which is why we're accelerating the program. Every store is different. The level of remodels are different, but we're very happy with what we're seeing, which is why we're trying to do even more.

And one more thing, Bobby, one more thing since you got me excited about that. When we talk about food service, it's not just the word food service. It's also to make sure that we have delicious value meal. I mean we launched in Q1, we launched meals at $3, $4, $5, $6. I mean think about it. You come to our stores in the afternoon to buy a chicken sandwich and a drink for $5.

I mean you can actually come to our stores and buy a drink like coffee or cold drink and a sandwich, breakfast sandwich for $4. So those are very, very important components. It's not just to add food service, it's also to make sure that you actually bring value to the consumers.

The next question comes from the line of Daniel Gugliomo with Capital One Securities.

Broader consumer trends have been mixed in this kind of complex macro environment. Can you just dig in a little more into your retail customer trends? Are you seeing strength in certain regions? And do you have any additional insights on April trends?

Sure, sure. So let me start with the first one about consumer, basically trend. So I'm putting the weather aside for a second, I can tell you that before the volatility in price and gas prices, January started very, very strong. Sales excluding cigarettes, were basically above 5% and then, of course, we got impacted by the weather. And then going into March, with the volatility of fuel pricing, we actually see customers' trips actually increasing because of that, just because the price of fuel is up. And customer trips are up. We see basically increasing penetration inside the stores because customers are coming more often because of that. And that brings me to basically the consumer and Fueling America promotions and all of the promotional activities that we are doing over here when it comes to cigarettes and OTP and everything.

I mean I mentioned earlier today that cigarettes trends are actually up. I believe this is the first time for a long period of time that cigarettes actually trends are up. Cigarette trends are actually down. So I believe the promotional activity, Daniel, that we are actually having over here in our stores, along with all of the other promotions that we are doing actually bring traffic. And for me, traffic means that we are grabbing market share from somewhere else.

The same thing goes to fuel. We mentioned that, that fuel for -- this is like first time for a long period of time, we've been trending even a little bit better than basically the OPIS average. So again, I just think that, that's a mix of all of the other things and all of the initiatives that we are doing in the stores to bring those customers in while everybody feels the pressure.

Dan, let me just jump in a little bit. And the customers are under pressure. And I think we are having to take action to keep that traffic up, if I mentioned, provide promotions to provide discounts that they can get in the store and using fuel. But you do see, especially as gas retail price elevates, we need to differentiate, and we're continuing to put our promotions out there that will continue to drive the traffic.

Hopefully, in-store and with fuel through Fueling America. And we had some really strong pockets of geography. We did have that weather noise, but some Indiana, Kentucky, parts of Ohio were very strong. Our Southeast continues to be very strong. And some of what we call our [ Texarkana ] regions, which is Arkansas, Louisiana, are also continuing to be performing. So we had a lot of very positive parts of the country and some that are a little more sluggish. But like I said, we're taking action now and not waiting on the customer. We're trying to drive value for them. They continue to bring their trips, both gallon and merchandise to [indiscernible]

That's great. I really appreciate all that color. That's really helpful. And just as, I guess, a follow-up to that, can you talk about how the dealers have been able to navigate this complex environment? I know they're kind of smaller entrepreneurs with less resources. So I'm curious if they've seen more headwinds in their businesses this year.

There is no question that those dealers are having the same challenge like everybody else. But remember, the environment that we are living with that almost 65%, 70% of the stores in America are operated by -- basically by those dealers. So I think all of those guys are just basically in the same boat. And when price goes up and we see volatility, there is no question that they're probably going to have a little of a decline in gallons, but that's going to be offset by an increase in CPG.

So that's the way they're managing the business, and this is the way they've been managing the business for the last probably 50 years. But there is no question, Daniel, that prices of fuel have to come down at some point. We saw that for the past -- we are here for a public company for the past 5 years. I've been around the block for over 20 years. It's a cycle. It's a cycle and we -- at some point, the price will come down and consumers and basically and those dealers are going to continue to drive gallon and drive sales as they have before.

This concludes the question-and-answer session. I'd like to turn the call back over to Arie Kotler for closing remarks.

Thank you, everyone, for participating this morning. It was a great talking to you guys, and hope to see you in our stores. Have a great morning.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Greetings, and welcome to the ARKO Corp. Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jordan Mann, Senior Vice President of Investor Relations. Thank you. You may begin.

Thank you. Good afternoon, and welcome to ARKO's Fourth Quarter and Full Year 2025 Earnings Conference Call and Webcast. On today's call are Arie Kotler, Chairman, President and Chief Executive Officer; and Galagher Jeff, Chief Financial Officer.

Our earnings press release and annual report on Form 10-K for the year ended December 31, 2025, as filed with the SEC are available on ARKO's website at www.arkocorp.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 fourth 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 statements section at the end of our fourth quarter and full year 2025 earnings press 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 ARKO 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 and 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 press release or in our annual report on Form 10-K for the year ended December 31, 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 intercompany charges by our GPMP segment.

And now I would like to turn the call over to Arie.

Thank you, and good afternoon, everyone. 2025 was a pivotal year for ARKO. We continued to execute on our transformation plan, fortified our foundation and sharpened our focus. We continue to optimize our retail footprint. We improved our cost structure and we positioned the company for continued accretive growth across our 4 segments in 2026.

Our strong fourth quarter results reflected that progress. Adjusted EBITDA grew 16% year-over-year to $66 million. Same-store merchandise sales trends improved and margin expanded 140 basis points to 34.4%. Retail sites operating expenses were down 16% compared to the prior year period, and retail fuel same-store gallon trends improved as we exited the year with higher CPG. Let me be clear, these improvements are not to be viewed as driven by the macro environment. The consumer is still cautious. They're still value focused. What you're seeing is execution across dealerization, remodels, NTI retail stores, food service and loyalty. We are running a better business, and the results reflect that.

Earlier this month, we closed the IPO of our subsidiary, ARKO Petroleum Corp., or APC. We issued approximately 11.1 million Class A shares at a price to the public of $18 per share, and we own 35 million Class B shares, currently representing 75.9% of the economic interest in APC. This was a major milestone. This listing shine a spotlight on what has become a large, growing and highly profitable wholesale fuel distribution and fleet fuel business. We've consolidated our wholesale, Fleet Fueling and GPMP segments under the separately listed subsidiary. The result is greater transparency, clearer economics and what we believe is meaningfully unlocked value for shareholders.

Until 2020, we were a pure-play retail operator. Over the years, through acquisition, we built a large wholesale and Fleet Fueling platform. These assets have been strong. However, they complicated understanding our overall story. Our creation of APC allows both the retail business and the wholesale and Fleet Fueling businesses to stand on their own. We issued $200 million of new equity in the IPO to quality investors. Those proceeds were applied to reduce debt. Our balance sheet is stronger, our flexibility is greater. We're positioned to execute.

So what does post-transaction ARKO 2.0 look like? A core stronger retail business concentrated in markets where we believe we are positioned to win, a stand-alone publicly traded wholesale and Fleet Fueling business with an anticipated high conversion from adjusted EBITDA to discretionary cash flow. A conservative balance sheet, strong cash position, ample liquidity at a very attractive cost of capital and continued access to the capital markets, and a structure that offers investors greater visibility into each business and allows the market to value each business on its own merits. This is not just a structural change. It's a strategic inflection point. We now have 2 public companies, clear capital allocation and a better ability to focus on what we can control in retail while working to drive consistent returns across both ARKO and APC.

Here is the opportunity in APC. APC is one of the largest fuel distributor in North America, over 2 billion gallons distributed in the last 12 months. And yet, we have roughly only 1% market share, 1% in a highly fragmented industry. The runway for growth is substantial. We see strategic accretive opportunities to expand this platform, and we believe APC will be a key growth engine for ARKO going forward.

Now let's talk about dealerization. This remains one of the most important levers in our transformation plan. As of year-end, we had completed 409 conversions. We have approximately 120 additional sites committed either under letter of intent, under contract or already converted since year-end, and we expect to complete those plus additional conversion by the end of 2026. This realization strategy is delivering exactly what we said it would, reducing fixed costs, reducing maintenance CapEx, improving cash flow, and creating a more focused and regionally concentrated retail base.

The Q4 results validate the strategy. The operating leverage is real. The cost improvements are showing up. We are now seeing tangible benefits from stores converted in the last 12 months as reflected by a more than $5 million benefit to operating income in the fourth quarter before G&A savings. Bottom line, dealerization has sharpened our focus, improved execution, and it's now flowing through to financial performance.

Turning to loyalty. Our fas REWARDS platform and Fueling America's Future campaign continue to central to how we drive enrollment, engagement, trip frequency and basket size. In Q4, loyalty members outperformed across the board with enrolled members spend more than 48% higher than non-enrolled members. Loyalty customers also made 51% more trips to our stores than non-enrolled customers. Through 2025, since Fueling America went live, average daily enrollment is up 38%. This is consistent with what we said all along, loyalty is not just a promotional tool. It's a margin driver, a traffic driver and a retention engine.

In 2026, we're working on accelerating enrollment and launching a new version of the app with enhanced personalization and vendor-supported benefits. Loyalty remains underpenetrated across our network. We see significant runway ahead.

Now to remodels. We're very encouraged by the early results from our food-forward remodel program. In Ashland, Virginia, our first remodel reopened in June 2025. In the first 6 months, on an average daily basis, sales grew 14%, gallons grew 12%, average daily sales more than doubled in 4 different categories, and the stores outperformed its pre-remodel period across 20 different categories.

In Mechanicsville, our newly remodeled store opened later in 2025 and through year-end, sales improved over 10%, gallons have grown over 20%. And post remodel, the store has grown in 15 categories and doubled in 2 categories. We're targeting double-digit returns on remodels and early performance is tracking at or above those targets. Additionally, we are in the planning stages for approximately 25 remodels, which will feature the fas craves food and beverage elements. We're also expanding food and beverage in non-remodel stores where space allows. Food penetration across our network of stores is growing. Every project is measured on ROI and food is the differentiator.

Now to NTI retail stores, our new-to-industry stores. These are purpose-built newly designed stores, the blueprint for our future. We opened 2 NTI retail stores in 2025 and a Dunkin' store, one more NTI retail store earlier this quarter and another one earlier this week. One more NTI retail store and 3 Dunkin' stores are to be added later this year. We're targeting double-digit returns and the 2 we opened in 2025 are already ahead of plan. These are high visibility locations with simplified operations and food forward layouts.

On capital allocation, our priorities for 2026 are clear. We plan to further scale high-return remodels, expand NTI retail stores selectively and invest in NTI cardlock location in our Fleet Fueling business. This NTI cardlock location typically generate attractive mid- to high-teens returns with minimal labor, while the cost to build is only $1 million to $2 million. We are targeting 20 NTI cardlock locations this year in our investment CapEx plans and have already identified and are working on 10 of these NTI cardlock locations.

On the macro environment and Q1 2026 trends, the consumer is still value focused. People are making deliberate choices. Baskets are being won through relevance, promotions and convenience. We picked up market share in every nicotine category in 2025. OTP for the year was up 4% and energy drinks were up 8%. Trends improved through the back half of 2025. We built momentum in Q4, and that momentum has carried into 2026.

In January and so far in February 2026, we saw mid-single-digit growth in same-store merchandise sales and positive same-store gallons growth before winter storms at the end of January and the beginning of February created some disruption. We're not going to overextrapolate from early data, but directionally, trends are improving versus where we were in early 2025.

Bottom line, we believe that we have a lot of growth ahead of us with a strong balance sheet and ample liquidity to execute our strategy.

Before ending the call off, I want to address an important leadership update. In December, we welcomed Galagher Jeff as our new CFO. Galagher brings deep retail experience and importantly, deep expertise in convenience and fuel sector. He held senior roles at Walmart and Dollar Tree, and Galagher was most recently CFO at Murphy USA.

I also want to thank Jordan Mann for stepping in as interim CFO and supporting the transition. With Galagher now leading the finance team at ARKO, Jordan served as CFO of APC while continuing as ARKO's Senior VP of Corporate Strategy, Capital Markets and Investor Relations. We're excited about the leadership team we assembled and what Galagher brings to ARKO at this pivotal time.

With that, I will turn it over to Galagher to walk through our financial results and outlook.

Thank you, Arie, and good afternoon, everyone. I am grateful to be here at ARKO and excited to work alongside Arie and this entire leadership team. In my short time here, it's become quickly evident to me what an immense opportunity we have to scale the ARKO platform and dramatically enhance the growth and financial performance of this company.

First, I want to thank and recognize the team. I've been impressed by the dedication, the talent and the operational discipline in the field and at the support center. There's a strong foundation here that will take us forward. Second, I'm encouraged by what I'm seeing in the stores. We are improving our stores, and it is showing. Our trends improved as we exited 2025, and we continue to see momentum into early 2026, even with some weather disruption. Third, and this stands out to me. It's a level of analytics and rigor in decision-making, particularly around capital deployment and evaluating returns on every dollar we spend. That discipline is critical as we focus on the highest return levers in the business. Overall, I believe ARKO is entering an important phase. The work to simplify, reposition and strengthen the company through transformation is largely behind us. Now it's about translating that into consistent growth and improved financial performance.

With that, let me walk through our fourth quarter and full year results and then discuss the outlook. Turning to our fourth quarter and full year 2025 results. Net income was $1.9 million for the quarter, reversing a net loss of $2.3 million for the prior year. Adjusted EBITDA was $55.7 million for the quarter compared to $56.8 million for the prior year, an increase of 16%, reflecting the results of our transformation efforts that we are improving merchandising margins, generating strong fuel performance, streamlining our business through dealerization and building significant expense discipline across the organization.

For our Retail segment, we delivered merchandising margin of 34.4%, an increase of 140 basis points versus the prior year. Same-store merchandise sales were down 3% for the quarter and down 4.1% for fiscal year 2025. And same-store merchandising sales, excluding cigarettes, were down 1.8% for the quarter and 2.7% for the full year. As Arie mentioned, our merchandising sales trends strengthened over the course of Q4, and that momentum has carried us into early 2026.

Retail fuel same-store gallons also improved in Q4 and were down 4.1% for the quarter and down 5.4% in fiscal year 2025 versus the prior year period. Retail fuel margin cents per gallon improved in Q4 to approximately $0.445, reflecting disciplined pricing in a relatively volatile environment. We remain focused on operating expenses. For the fourth quarter of 2025, site operating expenses decreased by $29.5 million or 15.7% compared to the prior year period, primarily due to $31.1 million of reduced expenses related to retail stores that were closed or converted to dealer locations. Same-store operating expenses were nearly flat, up 0.6% as tight labor management and cost discipline in stores mostly offset increases in rent and wage rates.

Turning to our Wholesale segment. Wholesale fuel contribution increased 8% to $24 million in the quarter compared to $22.3 million in Q4 of 2024. Wholesale gallons also increased by 4% to 249 million gallons and fuel margin was approximately $0.097 per gallon for Q4. For the full year 2025, wholesale generated $94.5 million of contribution, a 5% increase from $90.4 million last year, with total gallons increasing 4% to $989 million and fuel margin cents per gallon of approximately $0.096.

Moving to Fleet Fueling segment. Fleet Fueling fuel contribution was $15.9 million for the quarter compared to $16.3 million last year. Fleet fueling gallons totaled 34.9 million gallons compared to 36.1 million gallons and margin was $0.456 per gallon. For the full year, Fleet Fueling generated $65.7 million of fuel contribution on 142.8 million gallons with a margin of $0.46 per gallon. This compares to $64.3 million of fuel contribution on 149 million gallons last year. Fleet Fueling margins remain strong and continue to reflect the durable cash flow profile of this business.

Adjusted EBITDA for the year was $248.7 million, flat to the $248.9 million in 2024. While top line performance remained pressured, structural improvements in margin and strong cost control helped offset volume headwinds. Net income was $22.7 million for 2025 as compared to $20.8 million for 2024. We are seeing results from the execution of our strategy and our performance in nearly every area strengthened as we finished the year.

Merchandising margin was 33.7%, up 90 basis points year-over-year. Same-store retail operating expenses remained flat for 2025 versus 2024 with our productivity initiatives and lower credit card fees overcoming headwinds with wage increases, expanded food programs, higher maintenance costs and higher snow removal expenses. Merchandise same-store sales were down 4.1% for the year, and retail fuel same-store gallons were down 5.4% for fiscal year 2025, but both improved as we entered and exited Q4.

Looking to the balance sheet. We finished 2025 with $305 million in cash, and our balance sheet remains strong. Following the successful IPO of ARKO Petroleum Corp., we received approximately $184 million in net proceeds, which we used to reduce debt and enhance liquidity. The transaction positions us with a stronger capital structure and greater financial flexibility to execute our strategy as we enter 2026.

Regarding capital allocation, we remain disciplined and focused on high-return investments, including dealerization execution, retail remodel expansion, retail NTI development, technology and analytics, and cardlock growth in our fleet platform. We remain comfortable with our leverage ratio and have more than enough cash and liquidity to deliver our strategy and continue to build momentum with our capital initiatives mentioned above.

Turning to 2026 guidance. We currently expect 2026 adjusted EBITDA to range between $245 million and $265 million, with an assumed range of average retail fuel margin from $0.415 to $0.435 per gallon. For sensitivity purposes, every $0.01 change in retail same-store CPG is estimated to result in $8 million to $9 million of adjusted EBITDA. We believe 2026 same-store retail sales will be relatively flat and will improve several hundred basis points versus our 2025 results. We are planning same-store margin between 35.5% and 36.5%, also an increase versus 2025.

As stated in ARKO Petroleum Corp. prospectus, we expect our APC business to deliver approximately $156 million in adjusted EBITDA in 2026. As a reminder, APC includes the results from our wholesale, Fleet Fueling and GPMP segments, including a $0.06 fuel margin on fuel distributed by our GPMP segment to our retail stores. Our estimated gallons for the forecast period include an assumption that we will add an additional 50 million gallons in volume for the year ending December 31, 2026, as a result of our acquisitions from third parties of businesses or assets in our Wholesale segment, offsetting an estimated decline in gallons from comparable wholesale sites consistent with historical trends.

Finally, we will continue to manage all of our controllable costs in both stores and in our office. ARKO will be a low-cost operator.

To summarize, we are executing our transformation strategy, and it is working. So we fully expect to continue to show momentum and improve our performance in nearly every key metric in 2026.

With that, I'll hand the call back to the operator to begin Q&A.

[Operator Instructions] Our first question comes from the line of Bobby Griffin with Raymond James.

Arie and team, I guess the first one for me is maybe on the merchandise sales for retail. Your guidance includes some notable improvement here further in '26. We're getting towards the later innings of the dealerization program. So can you maybe unpack some of the drivers of the further improvement? Is there more contribution coming from remodels? Just anything there to help us kind of get visibility into the confidence of that versus some of the trends we see here in 4Q?

Good to have you with us over here. So I think that the first thing is, of course, execution and our marketing initiative. As I mentioned, we started with a Fueling America campaign back in the end of Q1 2025. And given that customers are looking for value, as we continue to move forward with this campaign, we saw an increase in loyalty transaction. We saw an increase in loyalty enrollment. And those draws, of course, customers to the core categories. That's the reason if you think about that, you saw a huge improvement.

We actually gained market share in almost every nicotine item in the category. OTP was up 4%. Energy drink was up 8%. And if you think about it, those categories are high-margin categories. So we believe that all of the marketing initiatives that we had during the year, as we continue to basically to improve our initiative and improve those categories, I think that's what actually drove the margin increase in customer engagement within the stores.

There's no question that food service help us as well. There is no question that every time when we remodel a store or build additional NTI that are actually progressing above our expectation, there is no question that those things drive directly to the bottom line. But it's not just one item. It's every little thing that we did this year. And as I said, most of it is really engagement through our loyalty program. And I think customers keep coming because of those -- basically those promotions that we are actually putting out there.

We just upped our promotions from $2 per gallon to $2.50 per gallon, given the 250 years American birthday this year. So now customers can actually save up to $50 for every 20 gallons that they are being -- they're actually buying. So again, we believe those initiatives are the ones that drove basically sales or at least drove margins inside the store. And as you mentioned, I believe that given that the cost of fuel dropped during Q4 and was actually at the $2.50, I actually feel that because of that customers coming more often to the store.

Okay. Very good. Maybe switching gears and talking about the remodels some. I don't want to extrapolate out early results from only a few stores, but it does seem like the trends are promising. Can you explain a little bit on what's the cost of capital for that remodel? And then it seems from the release, maybe there's an opportunity for kind of a partial redesign where you talk about taking some of the fas craves food, formatting change and taking a few of those and putting them into other stores, but maybe not a full remodel. So can you talk a little bit about the capital of that type of remodel and what ultimately the opportunity could be?

Sure, sure. So as you can assume, the first couple of remodels that we did, it was a major remodel. It wasn't only the food, it was the entire store from the outside to the inside, curb appeal, adding some space to the stores. So those are the first remodels that we did. And the cost of a typical remodel like this is approximately $1 million, around $1 million -- between $900,000 to $1.1 million, but let's call it $1 million. There is no question that many of the other stores can go through a soft remodel, just adding the fas craves. And as a matter of fact, if those 25 locations that we are working on, we're really price engineering everything right now how to reduce costs. There is a big difference between working on a couple of stores versus working on 25 stores at the same time. But I believe at the end of the day, we can go to a soft remodel that will cost us around $0.5 million or so, something between, as I said, $400,000 to $700,000 is probably a good number to speak.

Okay. That's helpful. And I guess, Arie or whoever on the team, when you kind of look at your retail base that you're going to own post the dealerization, I understand that you've given us some targets, but there's also some more. What size or what percentage of the stores post all this dealerization that you're going to own, do you think need a remodel of some sort?

I don't have the percentage, Bobby. I think that most of the stores that we are actually keeping have less capital intense in terms of what they need. I think those remodels, it's really not about just a [ curb appeal ]. It's really how do we add food service like fas craves into those stores. And if it's not food service, what are the other categories that we can actually improve or actually we can add to the stores. So I think the business itself, the stores that we are keeping are -- many of them are stores that money was invested over the years. So I don't think it's really a question of capital. It's really a question of what do we want to drive from these stores. And as I said, foodservice is being one of the biggest initiatives over here. So we are concentrating on stores right now that may not need a remodel, but we're probably going to just invest money in foodservice. Any place that we will be able to add fas craves regardless of the remodel, we will add actually fas craves into those stores. And there are plenty of them.

Just to build on that a little bit, Bobby, to your question before, from the remodels, we're also trying to understand which elements of those remodels are working and driving results. So like Arie said, there's a lot of stores with some space, and we can take a low-cost approach to add the right assortment, add the right elements in those stores that don't require full remodel and so we get a lot of the benefits. So it's not a high capital expense. It's really trying to find the right elements that customers are responding to, mostly around the fas craves and the food and getting those into more stores.

Understood. I'll jump back in the queue. Best of luck here on the first quarter and congrats on the announcement about your APC business.

Our next question comes from the line of Daniel Guglielmo with Capital One Securities.

In your opening remarks, you mentioned a still cautious consumer. And then in the prior quarter call, you highlighted the Midwest and other select markets as under pressure with other regions being healthier. Are you still seeing that pressure in the Midwest? Or is it more kind of broad-based now? Any additional color would be helpful.

I think the pressure in the Midwest continue to be probably the main pressure. I think I see some ease in the rest of the country. And that's going back, Daniel, by the way, to the point I made earlier, which is the minute the price of fuel broke $2.50 or went below the $2.50, we saw all of a sudden, customers coming more often to the store. We see an increase in basically in gallons. We see an increase in transaction, in baskets. So I really think that -- I'm not an economist, but I think that given the price of fuel dropped below $2.50, I think that, that is some of the spending with our customers. So I don't think anything changed from, I'll call it, from a region standpoint or from what I discussed earlier in the year. I just think that the initiatives and the promotions that we have out there are just screaming to the customers. And I think that the customers are coming in and taking advantage of those promotions.

Okay. I appreciate that, and that makes sense. And then on the initiatives and the promotions I saw, you all put out the $3, $4, $5, $6 value meal deals. Do those meals at those prices drive merchandise margin expansion on their own? Or is it more of a way to kind of get customers in the door to increase basket size, do other things?

Yes. That's a good question, Daniel. So just to be clear, those promotions are being 100% supported by our vendors. So this is not promotions in order just to drive customers and actually lower margins. Our margins stay the same. Those promotions are being supported by our vendor partners. But there is no question that when you have those promotions that involve foodservice, those promotions not only bringing customers in, they're actually driving the rest of the categories, which is OTP, for example, candy, energy drinks. So I think those promotions just continue to gain momentum with the other categories.

And like I said, those promotions bring customers, those customers turning to buy higher-margin core category items. And the more they come in and concentrate on the core categories, cigarettes becoming a much smaller piece of the business. So it's much more a small piece of the pie of what the customers are purchasing within our stores. But Daniel, I just want to be clear. This is all hard work by the team. The merchandising and marketing team thinking every day how we can actually be different than the competition across the street and how we can bring customers in. So that's a lot of work. I want to be just clear. That's a lot of work being put into this with loyalty, with food service. And that's what drove the results in Q4, as you can see. And that's, I believe, what drove basically sales in Q1 so far.

Our next question comes from the line of Hale Holden with Barclays.

So I had 2 quick questions. The first one is on the APC side of the business. If you could sort of talk about what the M&A opportunity is there now that you have a separate currency and balance sheet to expand into fuel distribution?

Sure, sure, sure. So I don't know how much -- I'm sure that some of you knows how big is the industry. We're talking right now about a wholesale business, a fleet business within an industry of over 195 billion gallons. And I mentioned it on the call, we only sell 2 billion gallons. It's a lot. We are one of the largest ones in the country, but it's only 1% of the industry. We believe with APC, with our -- basically with our capital that is available at a very low cost. We have over $635 million available for acquisition. Our leverage is very, very low. And I think we have the track record of doing acquisition. We did 26 acquisitions involved retail over the past 11 years. And I think in this fragmented industry, which is much more fragmented industry than the industry that we saw in retail, I believe that we're going to be able to gain a lot of momentum over here.

In addition to that, we are one of the largest cardlock operator in the country, that's the fleet business. And this is an industry that is also fragmented. We have -- we're targeting 20 new cardlocks in 2026. We already identified 10 of them. To build the cardlock, it's not expensive. It's around $1 million to $2 million, and we're targeting mid- to high teens returns. So again, we believe that the opportunity is now when we have APC on its own, we believe that -- that's going to be a big, big opportunity for us to continue to do accretive acquisitions moving forward.

Great. And then just kind of a dumb accounting question, but you gave us the EBITDA guidance for the company and then the EBITDA guidance for APC that was in the S-1. Am I right in just implying that the retail business EBITDA is about $100 million for 2026?

Hale, this is Galagher. There is some elimination there for the intercompany sales. So you can't just 1 plus 1 equals 2. So part of the wholesale business sells into our retail stores, we do eliminate that as a transfer. So it's not exactly that simple. We do break down the segments in the release, so you can compare the segments and build the model. So we're also going to be a lot more transparent as you would expect with APC going forward. So shortly, we'll be providing separate information and releases for those.

I figured it was not as simple as it was in my head, so I appreciate that.

We're happy to help if you need help.

We have reached the end of the question-and-answer session. And therefore, I'd like to hand it back over to -- the floor to Arie Kotler for closing remarks.

Thank you, operator. Before we disconnect here, I want to speak directly to our employees. The great results we discussed today are a testament to your hard work and resilience. Your dedication and commitment drive our progress every day, and we are deeply grateful for everything you do to support our mission and serve our customers. Thank you for your efforts and for being the foundation of our continued success.

To our shareholders, thank you for your trust and partnership. Your continued support enables us to pursue our strategic goals and deliver value across our businesses. We are committed to maintaining transparency and working diligently to meet your expectations as we move forward together. As we head into 2026, our financial position remains robust, and our commitment to expanding through value-enhancing acquisition is stronger than ever. We appreciate your time. Have a great evening, everybody.

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation. Have a great day.

Greetings, and welcome to the Arko Corp. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce Ashleigh McDermott, Vice President, Financial Reporting. Please go ahead.

Thank you. Good afternoon, and welcome to Arko's Third Quarter 2025 Earnings Conference Call and Webcast. On today's call are Arie Kotler, Chairman, President and Chief Executive Officer; and Jordan Mann, Interim Chief Financial Officer and Senior Vice President of Corporate Strategy, Capital Markets and Investor Relations.

Our earnings press release and quarterly report on Form 10-Q for the third quarter of 2025 as filed with the SEC are available on Arko's website at www.arkocorp.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 third 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 statements section at the end of our third 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 Arko 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 and 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 September 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 intercompany charges by our subsidiary, GPMP.

And now I would like to turn the call over to Arie.

Thank you, Ashleigh, and thank you all for joining. Our team delivered a strong quarter of execution, staying disciplined and focusing on what we can control. Stepping back, we're operating in an environment where consumers are still feeling stress as reflected in consumer sentiment data throughout this year. This has resulted in more deliberate shopping behavior, greater price sensitivity and increased reliance on loyalty-driven offers. These dynamics are consistent with what we're hearing across the industry, and they're shaping how we approach promotions and value across our business.

It's important to recognize that consumer behavior is not uniform across our footprint. We're seeing healthier trends in the Northeast, Southeast and Mid-Atlantic, while in the Midwest and other select markets remain under pressure, reflecting broader regional differences in household budgets and fuel demand. Industry feedback suggests these patterns are consistent across the channel, particularly in rural markets where store traffic remains under pressure.

Despite these headwinds, we are executing on our controllable to ensure our long-term opportunities remain intact. Our same-store sales, excluding cigarettes for the quarter, was nearly flat, representing the best comp performance we've seen in the last 18 months. We continue to believe Arko's transformation plan will make our business stronger, more efficient and better aligned with consumer trends.

Now, I will provide an update on the core elements of our transformation plan, beginning with dealerization. Dealerization continued to be one of the most meaningful drivers of our plan. Since the middle of 2024, we've converted approximately 350 stores as of September 30, 2025, with an aggregate of approximately 185 additional sites committed for future conversion, which are currently under a letter of intent or contract or have been converted since the end of the quarter.

The early performance from locations that transitioned 6 or more months ago continues to meet our expectations and validates the benefits of this approach, both in reduced overhead and improved operating efficiency. Beyond these initial stores dealerized or under letter of intent or contract, we see an additional opportunity to round out our dealerization strategy in 2026 with a meaningful number of conversions to come.

As we have stated before, once fully scaled, we expect this program to deliver a cumulative annualized operating income benefit of more than $20 million before G&A. As our dealerization efforts continue, we have identified more than $10 million in expected annual structural G&A savings with the opportunity for additional upside. As we continue to execute the dealerization program, we expect the benefits will increase and be fully reflected in our financial performance and free cash flow generation moving forward, particularly given the savings from maintenance CapEx. Dealerization remain central to how we plan to drive more consistent returns and long-term value creation for shareholders.

Our Fueling America's Future campaign and fas REWARDS loyalty platform continue to play a central role in deepening customer relationships and driving engagement in our retail stores. These programs not only help us stay relevant with consumers who are seeking more value in every trip they drive incrementally and provide a valuable lever, which we believe can improve same-store sales performance over time.

Average daily loyalty enrollment for our fas REWARDS program grew 37% in the quarter and 43% from the beginning of the promotion compared to the average daily loyalty enrollment prior to the campaign. During the quarter, we saw continued fas REWARDS members growth, adding nearly 35,000 new enrollees to reach approximately 2.4 million total enrolled members at quarter end. Our enrolled customers spend approximately $110 per month or 53% more compared to nonmembers and pump-to-store conversion is at 55% of visit year-to-date for enrolled members. This engagement metrics reinforce the value of the program and highlight the behavior differences that make fas REWARDS a key contributor to in-store performance.

As consumers remain increasingly value conscious, our loyalty program meets their demand for everyday savings and convenience while reinforcing Arko's relevance at the pump and in-store.

Fueling America's Future remain an ongoing part of our value strategy into 2026. While we've seen continued growth in loyalty engagement, we also recognize that total program penetration is still developing, creating a runway for future growth. To build on this momentum, we plan to launch a new version of our app by the end of first quarter of 2026. This platform will introduce enhanced technology and new benefits, including improved reporting, personalization, gamification and geofencing capabilities, just to name a few, that we expect will deepen customer engagement and drive incremental traffic.

Our investments in other tobacco products and refreshed back bar layout also continue to drive positive results. Our OTP basket grew by approximately 16% compared to the same quarter last year. OTP same-store sales were up 6.6% as compared to the same quarter of last year, along with a margin rate increase of more than 300 basis points.

Our redesigned back bars deliver better product visibility and more modern presentation and stronger promotions. This initiative is a key highlight in our merchandising strategy. It's driving incremental traffic, higher margins and improved category mix while allowing us to compete more effectively in a value-conscious environment.

During the quarter, we made steady progress on our store remodel program. Our first remodel location reopened earlier this year. One additional location opened in early August 2025 and a third location is planned for the fourth quarter of 2025 with several more that are moving through permitting and construction phases and are planned to open in the first half of 2026. While only 2 of our new format stores are complete and operating, we are pleased with the results thus far.

The growth we are experiencing by category in these stores has been as planned and has continued to improve. These new format stores are built around a food-forward model that emphasize old, grab-and-go breakfast, lunch and snacking, bakery, pizza and an expanded dispensed hot, cold and frozen beverages assortment, all supported by improved layout and a better overall customer experience.

Turning to our new-to-industry stores. We continue to expand our presence through select and targeted opportunities. We opened a Dunkin' store and 2 new-to-industry stores so far this year and have begun working on 3 more NTI stores, of which 2 are targeted to open in the fourth quarter of 2025. Our latest NTI location in Kingston, North Carolina exceeded our plan for the quarter with food and beverage contributing 23% of merchandise sales, which is multiples higher than the food and beverage contribution of our same-store network. These investments are focused on high-traffic, high-visibility sites where we can introduce the full Arko offering from fresh food to fuel and loyalty-driven promotions supported by a modern, scalable design.

Turning to fuel performance. Our results reflected broader industry demand trends this quarter. Our disciplined pricing strategy and network optimization drove strong per gallon margin performance, allowing us to deliver solid fuel contribution even as gallons modestly declined. The quarter ended with same-store gallons trend better than Q2, with September performance improving from August. Our approach remains consistent, prioritize profitability over volume and leverage our scale to capture opportunity when market conditions allow.

As the dealerization rollout continues, we're also seeing the benefits of our more diversified and stable fuel contribution base across our retail, wholesale and fleet fueling channels. Our wholesale and fleet fueling businesses remain strong contributors and key growth engines for Arko. Dealerization-driven site conversion has expanded our wholesale footprint, driving mid- to high single-digit growth in wholesale fuel contribution.

The fuel distribution industry is highly fragmented, providing ample opportunity for acquisition given our size and scale. In fleet fueling, disciplined customer management and pricing supported stable margins and consistent volumes even amid softer industry fuel demand. Looking ahead, we're advancing a number of new cardlock locations for 2026, reflecting the attractive recurring cash flow profile of this business and its growing role in Arko's long-term strategy.

We continue to see compelling value in our common stock and repurchased approximately 935,000 shares in the third quarter. We have the flexibility to continue investing in our highest return opportunities, dealerization, remodels and strategic growth in wholesale and fleet fueling while maintaining a balanced approach to shareholder returns.

Our priorities are clear; strengthening the balance sheet, execute on our transformation plan and drive sustainable long-term value creation.

I will now turn the call over to Jordan to review financial results for the third quarter and discuss our outlook for the fourth quarter and full year 2025.

Thank you, Arie. Good afternoon, everyone. Before I begin, I'd like to note that this is my first earnings call as Interim CFO. I'm grateful for the opportunity to step into this role and continue working closely with Arie and our leadership team.

Now turning to third quarter 2025 results. Adjusted EBITDA was $75.2 million for the quarter, slightly above the midpoint of our guidance. This compares to $78.8 million in the year ago period, with the decrease caused primarily by softer retail performance. At the segment level, our retail segment contributed operating income of approximately $77.5 million compared to $85.1 million in the year ago period.

Same-store merchandise sales, excluding cigarettes, were down 0.9% versus the year ago period, while total same-store merchandise sales were down 2.2%. Both showed sequential improvement from the second quarter. Same-store merchandise margin rate was up approximately 60 basis points versus the prior year. Same-store fuel contribution was down approximately $1.3 million for the quarter with a 4.7% decline in gallons, partially offset by an increase of $0.015 per gallon of fuel margin. Same-store fuel margin was $0.438 per gallon for the quarter. Same-store operating expenses were up approximately 1.8% for the quarter.

Turning to our wholesale segment. Operating income was $24.1 million for the quarter versus $20.3 million in the year ago period. Fuel margin was $0.096 per gallon, in line with the year ago period. Gallons were up approximately 7.5% to the year ago period, driven by approximately 24.5 million incremental gallons from retail sites converted to dealers since the middle of 2024. Excluding channel optimization, gallons were down approximately 2.7% at comparable wholesale sites.

We continue to be pleased with the impact of our channel optimization program, which has driven approximately $6.5 million in incremental operating income before G&A for the first 9 months of 2025.

For our fleet fueling segment, operating income was $12.2 million for the quarter versus $12.6 million for the year ago period, with total gallons down 1.6% as compared to the prior year period. Fuel margin for the quarter was $0.458 per gallon, up from $0.435 per gallon in the prior year period.

Total company general and administrative expenses for the quarter was $40 million versus $38.6 million for the year ago period. The year-over-year increase in G&A was driven by a $1.7 million increase in share-based compensation expense. As we continue the dealerization of our company-operated stores, we expect to see the favorable impact on our G&A moving forward.

Net interest and other financial expenses for the quarter were $20.1 million compared to $23.6 million in the year ago period, with the decrease primarily related to lower average interest rates in the third quarter of 2025 and a decrease in fair value adjustments primarily related to our warrants. Net income for the quarter was $13.5 million compared to net income of $9.7 million for the year ago period. Please reference our press release for a detailed reconciliation of net income to adjusted EBITDA.

Turning to the balance sheet. Excluding lease-related financing liabilities, we ended the third quarter with $911.6 million in long-term debt. We maintained substantial liquidity of approximately $890 million, including approximately $307 million in cash on hand at quarter end, along with remaining availability on our lines of credit. Total capital expenditures for the quarter were $24.9 million.

Looking at our guidance. For our fourth quarter, we expect adjusted EBITDA to be in the range of $50 million to $60 million. This guidance is based on the following key segment assumptions. First, for our retail segment. We expect our Q4 2025 average retail store count to be approximately 1,150 sites. On a per store average basis, we expect merchandise sales to be up low to mid-single digits, reflecting the higher productivity of our retained stores versus the year ago period, partially offset by same-store merchandise sales performance, which is positioned down low to mid-single digits.

Again, on a per store average basis, we expect gallons to be up mid-single digits, reflecting the higher productivity of retained stores versus the year ago period, partially offset by same-store gallon performance, which is positioned down mid-single digits. We are modeling total retail fuel margin in the range of $0.425 to $0.445 per gallon. For our wholesale segment, we expect mid-teens operating income growth driven by our ongoing channel optimization work. For our fleet fueling segment, we expect operating income growth to be down mid- to high single digits, driven by gallons roughly in line with the prior year on a lower cents per gallon compared to the elevated environment last year.

Turning to the full year. We are updating our adjusted EBITDA guidance to a range of $233 million to $243 million. This updated range reflects our performance year-to-date.

With that, I'll hand it back to Arie for closing remarks. Arie?

Thanks, Jordan. I'm proud of the way our team continues to execute through a challenging environment. We've maintained discipline, manage our controllable and stay focused on the long-term transformation of our business. As we look ahead, our priorities are clear; complete our dealerization program, continue driving loyalty-led engagement and execute the next phase of our growth strategy. We're entering the final quarter of the year with focus, momentum and confidence in the action we're taking to position Arko for 2026 and beyond. Operator, please open the line for questions.

[Operator Instructions] Our first question is from Bobby Griffin with Raymond James.

Jordan, congrats on the appointment. I guess, first, I wanted to talk a little bit about the store remodels. You gave out an interesting stat there about, I believe, the merchandise side of things and the foodservice popping up as a percentage of sales. What is the opportunity or what's the pathway to kind of accelerate this? When you look at 7 stores in your store base, it's pretty tiny. So how can we accelerate this? And kind of what's the time frame along that given that you're seeing some good results from the early pilots?

Sure. Well, we started with 7 stores. And as I mentioned earlier, we are already working at the moment increasing the amount of stores in the region that we're working on the 7 stores at the moment. We are seeing encouraging results, no question about it. We mentioned the foodservice. So the NTI that we opened in Kingston out of the gate just exceeded the 20% food and beverage mix target. That was our target as long as those stores perform for the first 12 months, but for some reason, this store really, really exceeded the performance.

Because of that, we are working on additional stores that will come along immediately as we complete the first 7 stores. We're already working on [ benefinding ] those stores. And I'm assuming that, that's going to be probably another 20, 25 stores that will come on board immediately after the 7. But the name of the game, of course, is going to be food service, food service, food service and core categories. This is really what we are going to concentrate going into 2026.

Okay. And I want to maybe switch gears and hit on the dealerization aspect a little bit. I believe you disclosed 185 more under letters of intent and then you think there's an opportunity to continue some of this work in '26. I mean without putting a number out there of how many potential stores, I'm just curious, when you look at the book of retail stores that are not up for dealerization that you will keep when you're ultimately done with this work, what is the difference in those stores performance on a comp basis? Because investors do have concerns here about the same-store sales of the retail network. And I know there's a lot of things moving around. So if you could share anything on gallons or merchandise or even CPG of what the potential portfolio looks like versus kind of what the results we're seeing now, that would be helpful.

Yes, I cannot comment, Bobby, in particular on the stores. But what I can say is that we are targeting on stores that we actually can have economy of scale. In the script, I mentioned earlier that there are some differences between region in the country. There are like the -- if you're looking at a different region in the country, we feel that the Northeast, Southeast and Mid-Atlantic states, those are the areas that we have a lot of economy of scale.

The market is being -- from the economy standpoint, from the volatility in the market, we feel that there is a lot of opportunity for us. I mean, that's the reason we started the 7 stores pilot in the Mid-Atlantic states in Virginia. And we believe that those are the stores that we're going to continue to grow in this part of the country. We're just seeing better results from a same-store sales, from gallons, from margin, core categories. I mean, we just see great results in those part of the countries, and those are the areas that we would like to invest more and get more out of them.

I think the most important thing about dealerization is there's a few things that I would like to maybe reiterate on this call. We took a meaningful amount of stores. We're converting them to basically to dealer. We are increasing this segment. We have the wholesale segment and the fleet segment, but we're increasing the wholesale segment. And not only that we see also increase in EBITDA in those basically moving from retail to wholesale, the conversion to cash flow is also much higher. I just want to remind you that we spend on a store about $20,000, $25,000 for -- basically for maintenance CapEx. That's what we usually spend in roughly per year.

So if you think about it, we're talking about 550 stores that we are converting from -- basically from retail to dealer, not only that we're talking about a $20 million or so in EBITDA uplift, we're also talking about spending less money on maintenance CapEx. The number I just quoted right now is probably between $15 million to $20 million just on CapEx that all of a sudden, we're not going to spend over here. And like I said, the conversion -- when you move those stores from retail to wholesale, the conversion to free cash flow is much, much higher. And I think that's something that we need to point on this call because cash flow is very important for us as we move along.

Yes. That makes sense. And I guess just lastly for me, Arie, in your prepared remarks, you called out the fleet card segment as an area for some new location growth in '26. Just curious if you can unpack that opportunity a little bit more. Where do you see -- like how big of white space do you see there? Is that all organic? Or is there opportunities for tuck-in M&A there again? Just curious kind of what that opportunity could look like over the next couple of years.

I'm talking about building additional sites. As you know, this -- the fleet segment, it's very, very fragmented. There is not a lot of companies like us that are operating in this arena. I think we are one of the largest one in the country. We have today 280 sites. We see a lot of opportunities in the market that we operate and outside the markets we operate.

Just for your benefit, to build a cardlock, it's anywhere between $1 million to $2 million. That's the cost to build a cardlock, versus when you build a new-to-industry store, you're talking about $6 million to $8 million. The cardlock it's much, I'll call it, less expensive on one end. On the other end, it's also from an operating standpoint, I mean, it's unmanned. It's unmanned. And as you can see, we operate those -- we operate the 280 cardlocks. We enter into this in 2022. We generate a lot of cash, a lot of free cash flow from those assets.

And we just see that this is another great opportunity for us to increase the amount of cardlocks that we operate. We already identified 5 going into 2026, we identified 5 and the idea is to build more into 2026. I mean, as I said, currently, we found 5 that we are actually tackling at the moment. And the same thing goes, by the way, to the wholesale segment. As you can see right now, we're spending a lot of time moving stores and figuring the best way to position our company. And wholesale continue to be also a great opportunity for us.

Our next question is from Benjamin Wood with BMO Capital Markets.

This is Ben on behalf of Kelly Bania and BMO, and congrats, Jordan, as well. I wanted to start with the improvement on some of the organic metrics you saw sequentially. Wondering if you can help frame how much of that improvement was better store trends versus benefiting from having maybe a better performing or more efficient store base as a result of the dealerization.

Sure. I will start with some remarks, and then I will let maybe Jordan jump in if you have anything else to add. So I think the performance that you see not only that I mentioned that this quarter was probably one of our best quarter for the past 18 months from a trend standpoint. But it's not only that the sales ex cigarettes were almost flat compared to prior year. I think it's really all about the things that we did in 2025.

We started with OTP. You saw what happened to OTP. OTP was basically up 6.6%, margin improvement of 300 basis points. In addition to that, we basically outperformed in many categories like candy, pack bev, for example. And those categories are the categories that are really driving the margin up. So it's not only that the performance is better, it's also that the mix that we are having over there, it's a better mix. The mix drives the margin up.

And like I said, I think we started with OTP at the beginning with the back bar, then we went to Fueling America. I think the loyalty platform that we have with the Fueling America campaign that we have, we are selling right now items that actually have a high margin. And on the top of it, of course, I mentioned OTP, but OTP also drives traffic.

So I think between the back bar investment and the Fueling America investment, along with loyalty, that's what really would drive the result. And I think right now, you see -- you start to see more and more and more quarter after quarter, you start to see that the results are just improving. And like I said, you see it in margin. I mean we increased margin again this quarter. And quarter after quarter, we continue to increase margin. And I think this is -- that's all because of those promotions that we are having out there.

Yes. Ben, the only thing I would add is if you look at the prepared remarks and the guide from last quarter, we talked about same-store -- underlying same-store sales and same-store gallon trends. And on an average per store basis, we were roughly in line with what we guided, which means to me, the productivity of those stores was in line with what we expected, if not a little bit better. So you are seeing the benefit from higher productive stores in that base of stores that we've retained.

Great. That's helpful. And just as a quick follow-up on that, are you able to give any details on kind of the monthly cadence and how things are looking quarter-to-date? I know we started July off pretty strong, I believe we talked about, but how did the rest of the quarter end up as far as cadence?

Well, I think July was very, very strong. I think August declined a little bit, and I think September start to come up. So it's really -- like I said, I think overall, the quarter was a good quarter. Unfortunately, August was a little bit lighter than July. But as I said, September started to come back a little bit better. And that's how we end up the -- like I said, that's how we end up the quarter with very, very close to flat on sales, excluding cigarettes. At the same time, you probably saw we also were able to get a higher CPG over here during this quarter. I mean our CPG is $0.023 better than prior year.

That's great. And then, Arie, you gave a lot of color on the work you're doing to drive the gross margin expansion, and it continues to come in above at least our expectations. I just want to -- how should we think about where the upper limit is of your gross margins? And it sounds like it's all benefiting from promotions, but are you still as competitive on your pricing across the store? Just the sustainability of margins, please?

Yes. We continue to be competitive. I think the margin increase is really from the heavy promotions that we're doing with our vendors. And I can tell you that we started Fueling America with X amount of vendors. And as we start to show results and as we start to show those vendors how they can actually grab market share, more and more and more and more suppliers have decided to basically to join the program.

I can tell you that going into 2026, Fueling America is going to actually to continue to be one of our top promotions. And I think that's what you see over here. It's really all of those promotions are supported 100% by our vendors. I mean they see the results, and that's why they are participating. So I think the -- we believe that this is sustainable, the improvement that you see over here.

There is a lot of work put into it. I want to be very clear. This is something that our category managers and our team is working really, really hard to put those programs together. And like I said, we expanded merchandise margin in multiple consecutive quarters, and I believe this is sustainable, and we're going to just continue to improve it as we move along with those promotions.

Our next question is from Daniel Guglielmo with Capital One Securities.

Just following up on the various capital spend projects, so remodeling stores, new NTI retail and new NTI cardlock. Is there one of those project types that you think offers the best returns right now? And how do you think about CapEx allocations for each into '26 and '27?

Daniel, we started with those 7 stores. And we spend -- we said on average, we spend around $1 million, $1 million, $1.1 million on those stores. We throw a lot of things into those stores to make sure that we concentrate on food service. As we move along into 2026 and as we add more stores, the idea is really to scale it moving forward so to adjust cost and scale the price, scale the cost moving forward.

In addition to that, of course, our focus remains on maintaining flexibility to deploy capital towards high-return opportunities. So the 7 stores, it's not significant. But as we move along over here, we're measuring return on investment on each and every capital project. And the ones that we feel will actually provide us the best return, those are the ones that we are going to utilize. That's one of the reasons I mentioned earlier, converting over 500 stores eliminate approximately $15 million, $18 million, $20 million in maintenance CapEx. And when you have this free cash available, that can help us to invest in some of the other projects to increase our return.

Great. I appreciate that. And it actually segues into my next question. So I know that the majority of the dealers that take over the converted retail stores are mom-and-pops. In this difficult consumer environment, has their appetite for taking on conversions changed at all? And then maybe you can just remind us why these dealers can take on the lower-margin properties and still make the economics work for their businesses.

I don't think it's the lower margin, by the way, Daniel. It's not in particular the lower margin. We have decided to take stores that do not meet our return on investment criteria. We have decided to take stores that are in area that we don't have maybe a large concentration. And at the end of the day, if you're looking on this industry, like I said, I'm here from 2003, 22 years, the amount of mom-and-pop stores in terms of percentage didn't really change. I mean, 20 years ago, it was, I don't know, 65%, 70% of the stores in the U.S. were mom-and-pop.

And if you're looking today, it's exactly 65%, 70% stores are still mom-and-pop. Those guys are very entrepreneurial. They concentrate on 1 or 2 stores. They spend all of their time in the store. They're coming up with many ideas that they can add to the stores, which we can't. As a large company, I can't tell my guys just to sell different type of foods in different stores and different -- basically in different regions. I mean, we have to be very, very consistent. Those guys are, like I said, are very entrepreneurial, and they know how to make things better in some areas. And that's why they're very, very successful. And that's why there's still 65%, 70% of them are mom-and-pop.

There are no further questions at this time. I'd like to hand the floor back over to Arie Kotler for any closing comments.

Thank you very much, everybody, for participating this evening in our earnings call. I wish you guys all the best and happy holidays ahead of us.

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

Greetings. Welcome to Arko Corp.'s Second Quarter 2025 Earnings Call. [Operator Instructions] 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 Arko's Second Quarter 2025 Earnings Conference Call and Webcast. On today's call are Arie 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 of 2025, as filed with the SEC, are available on Arko's website at www.arkocorp.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 statements 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 Arko 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 10-Q 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 intercompany charges by our subsidiary, GPMP.

And now I would like to turn the call over to Arie.

Thank you, Jordan, and thank you all for joining. Like many in our industry, in the second quarter, we continued to navigate a challenging macro environment marked by geopolitical events, persistent inflation, mixed consumer sentiment, and restrained personal consumption. Through it all, our team remained 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 promotions and our focus on driving growth in key categories. While the second quarter reflected many ongoing pressures, we saw consecutive improvement from May to June, and we are seeing further improvement as we enter the third quarter. Through late 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 growth for July, excluding cigarettes, up slightly year-over-year.

Total merchandise same-store sales trend in July was 3 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 transformation strategy, which include advancing our dealerization program, investing in our retail stores by bringing our new format store and our foodservice Fas Craves 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 G&A. As our dealerization efforts continue, we have identified more than $10 million in expected annual structural G&A 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 format stores, which include a bold and innovative remodel designed 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 our new food and beverage concept, Fas 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 25 in Ashland, Virginia. And while it has only been opened a short time, we are pleased with its initial performance. Early results show outperformance in foodservice 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 Arko. 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 Kinston, 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 3 more of these NTI stores, of which 2 are expected to open in the second half of 2025. In addition to executing our dealerization program and remodel 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's Future campaign continues to engage customers and drive improved loyalty enrollment growth, trip, and basket size. This program provides up to $2 per gallon in fuel discounts up to 20 gallons to enroll loyalty members who purchase qualifying in-store items. Average daily enrollment in our FAT Rewards program increased more than 50% from the period prior to the campaign. When utilizing the Fueling America's 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's Future promotions.

Turning to our loyalty program as a whole. During the quarter, enrolled Fas Rewards members spend on average approximately 50% more in the second quarter of 2025 and visited an average approximately 3 more trips per month compared to nonmembers. 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 back bar refresh and incentive program for district and store managers. OTP remains a key growth lever for in-store 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 enhancing 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 volumes 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 2 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.

Thank you, Arie. Good afternoon, everyone. Turning to the second quarter 2025 results. Adjusted EBITDA was $76.9 million for the quarter compared to $80.1 million in the year-ago period, with the decrease caused primarily by lower retail merchandise contribution. At the segment level, our Retail segment contributed operating income of approximately $80.4 million compared to $87.9 million in the year-ago period. Same-store merchandise sales, excluding cigarettes, were down 3% versus the year-ago period, while total same-store merchandise sales were down 4.2%.

Same-store margin rate was up approximately 50 basis points versus the prior year. Same-store fuel contribution was down approximately $0.8 million with a 6.5% decline in gallons, mostly offset by an increase of $0.026 per gallon. Same-store fuel margin was $0.45 per gallon for the quarter. Same-store operating expenses were down approximately 0.8%.

Turning to our wholesale segment. Operating income was $23.2 million for the quarter versus $21.3 million in the year-ago period. Fuel margin was $0.101 per gallon versus $0.09 in the year-ago period. Gallons were up 3.9% for the quarter, driven by our channel optimization program, which contributed more than 19 million gallons for the quarter or almost 8% of total wholesale gallons. Excluding channel optimization, gallons were down approximately 4.1% at comparable wholesale sites. We continue to be pleased with the impact of our channel optimization program, which has driven approximately $4.5 million in incremental profit contribution for the first half of 2025.

As Arie mentioned, we continue to expect that at full maturity, this program will deliver in excess of $20 million in incremental operating income across our combined retail and wholesale segments. This outlook excludes additional G&A efficiencies we expect over time as we transition to a smaller retail segment footprint.

Moving on to our Fleet segment. Operating income was $13.1 million for the quarter versus $13.7 million in the year-ago period, with total gallons down 6.8% to the prior year. Fuel margin was very strong for the quarter at $0.49 per gallon, up from $459 in the year-ago period. Total company general and administrative expense for the quarter was $40.7 million versus $42.4 million in the year-ago period. Net interest and other financial expenses for the quarter were $19.5 million compared to $21.4 million in the year-ago period, with the decrease primarily related to lower average interest rates in the second quarter of 2025 and higher interest income generated. Net income for the quarter was $20.1 million compared to $14.1 million for the year-ago period, with the increase driven primarily by a noncash gain related to the expiration of a purchase option received in 2021. Please reference our press release for a detailed reconciliation from total company net income to adjusted EBITDA.

Turning to the balance sheet. Excluding lease-related financing liabilities, we ended the second quarter with $916.4 million in long-term debt. We maintained substantial liquidity of approximately $875 million, including $294 million in cash on hand at quarter end, along with remaining availability on our lines of credit. Total capital expenditures for the quarter were $45.3 million, which included the purchase of 22 fee properties at favorable terms.

Turning to third quarter guidance. We expect total company adjusted EBITDA to be in the range of $70 million to $80 million based on the following key segment assumptions.

First, for our retail segment. We expect our third quarter average retail store count to be approximately 1,220 sites. On a per-average-store basis, we expect merchandise sales to be up mid-single digits, reflecting the higher productivity of retained stores versus the year-ago period, partially offset by same-store merchandise sales performance, which is positioned down modestly. Again, on a per-average-store basis, we also expect gallons to be up mid-single digits, reflecting the higher productivity of retained stores versus the year-ago period, partially offset by same-store gallon performance, which is positioned down low to mid-single digits. We are modeling total retail fuel margin in a range of $0.425 to $0.445 per gallon.

For our Wholesale segment, we expect mid- to high-teen percentage operating income growth in the third quarter, driven by our ongoing channel optimization work. And finally, for our Fleet segment, we expect third quarter operating income growth to be up low single digits with gallons roughly in line with the prior year on higher expected cents per gallon.

We are maintaining our full-year total company adjusted EBITDA guidance in a range of $233 million to $253 million.

And with that, I'll hand it back to Arie for closing remarks.

Thanks, Rob. I'm proud of the way our team continues to deliver in the face of ongoing challenges. We are deepening customer engagement. Our promotional efforts are yielding results, and we're making progress on our transformation road map. We are entering the second half of the year with clear priorities and a focus on creating lasting value.

We will now open it up to questions.

[Operator Instructions] Our first question is from Bobby Griffin with Raymond James.

I guess, Arie, first for me, I wanted to maybe dive into your comments on July. Pretty notable change there, at least through the 1 month of the new quarter. Curious if you can unpack it further on what's maybe driving that industry trends versus the channel optimization, some of the new programs coming on? Because to your point, I don't think we've seen ex-cigarette merchandise sales close to flat in a very long time, and even gallons seem to be getting a little bit better. Bob.

Yes, you are absolutely correct. I mean we saw improvement from -- basically from May to June, June to July, but this is probably the best improvement we've been seeing over the past 18 months. We don't know if this is just because all of a sudden, something turned around. But what I can tell you is probably that I think the value and the messages that we're sending out there with Fueling America, I believe our offering, our assortments, our promotions are very, very, very strong. And we see them driving trip frequency. I mentioned, for example, the loyalty trip frequency. So just to put dollars in sense, we are talking about going from $73.83 to $110, which is almost 50%. We're talking about trips up almost 3 trips basically per month between loyal members and non-loyal members. We see an increase in customers purchasing the qualified product of Fueling America's.

And as you can imagine, all of those products are products that have a higher margin. I mean, I'll give you an example, just something that we're actually promoting this month. If you buy 2 candies for $6, you get $0.50 per gallon. I mean this is skittles and M&M, for example. I mean this is huge. Another one, if you buy Marlboro, 2 packs of Marlboro, $0.25 per gallon. So I hope that this is a result of what we've been doing over the past few months, but this is absolutely was very positive. And of course, we're going to take it.

And then, Rob, maybe just switching gears to the channel optimization, kind of a 2-part question. I don't think you guys want to give a full number of how many stores you think you can move the dealer. But maybe to help us think about it, are you identifying more stores today than you maybe identified 6 months ago? And if the program does run through '26, do you have to wait until '26, or do we have to wait until '26 to see some of the G&A savings start to flow out? Or can that start to flow out earlier, and you could view the program at scale sooner?

Yes. Thanks, Bobby. So no, I think the program store list, as we said, we're not putting out the full number yet, but it's been defined for a good period of time now, and it's now about execution. And Arie had in his prepared remarks what is under contract, and then there's a substantial amount still after. So I think we know what that number is. We've known what that number is, and we're executing on it.

In terms of G&A savings, no, we already are seeing savings in G&A in the second quarter, you can see the total G&A number was down. That number is inclusive of a certain amount of the restructuring expense that is in. So we are seeing it already. So things that are directly related to stores, field leadership, things that are directly one-to-one related, we're going to see real time. Things that are like prepaid annual software licenses, we will see when we get into 2026. So again, that pace of G&A will accelerate as we continue, but we are seeing some of it already. I would estimate we're probably 25% to -- maybe 1/3 of the way through the first tranche of savings. And I do believe that there's going to be more. So again, this is just the first tranche that we see. And as we get deeper into the smaller footprint, we will continue to look for opportunities on that front.

And then lastly, for me, just CapEx, the 22 fee properties, I mean, we saw the absolute dollar number step up year-over-year meaningfully in and up sequentially. So any color just on how big of the 22 fee properties were and driving that? And just thoughts on exactly kind of what that is for the business, and help me understand that better.

You're referring to the 22 properties that we purchased?

Yes. Yes, just -- yes, on the CapEx. I'm just trying to understand -- I'm trying to kind of get at a run rate for core CapEx, and you had this quarter, it stepped up sequentially, but you also called out you purchased 22 properties. So just trying to better understand what's normal and what was part of that property purchase.

Bobby, that number for the property is about $22 million. So when we talked about at the beginning of the year, we kind of talked about the prior 2 years, full year CapEx was about $110 million to $115 million. And while we don't provide guidance for CapEx, if you back out that $20-ish, $22 million from where you are, you're kind of on that similar pace from the past 2 years. So again, that was -- those are opportunistic at good cap rates for us to buy, and we look for those opportunities as they develop. But that is kind of a one-time. We financed it with M&T. So again, it doesn't impact our cash position. We offset that with financing.

Our next question is from Daniel Guglielmo with Capital One Securities.

The first one, you all mentioned macro headwinds and shifting consumer spending in the press release, but the July commentary was positive. For the guidance next quarter and the full year, what type of macro and consumer spending environment are you all assuming? Just trying to get a sense of what's kind of built in there for your assumption.

Yes. So as we talked about in prepared remarks, we have the merchandise sales for the third quarter position -- same-store sales position down modestly. So again, this is on higher productivity stores. Again, the stores we're keeping higher productivity. But we do see, again, a macro, we are cautious, and we're at a negative modest same-store sales performance. We're not talking about the fourth quarter yet, Daniel. There's -- as we look sequentially on -- as Arie mentioned, we've seen since February, with the exception of a little blip in May, we've seen month-on-month sequential improvement in the comp sales trend on the merch side. And so that is a question in terms of does that continue going deeper into the back half of the year? Or does it stay where it is? That's something, again, we have a little more confidence near term in Q3 because we've seen July, we see where we are right now. Fourth quarter, we're going to see as we get deeper into the third quarter, what that looks like, and we don't really guide the forward quarter at this point.

And then the second one is on the transformational plan. We've seen it kind of drive down the site operating expenses line. And I know labor is a big piece of that line, especially kind of with demand increases in the summer. How have wages trended this summer versus last summer kind of when thinking about the business?

Yes. We've seen consistent wage performance up in that 3% range, and that's been consistent quarter-on-quarter for some time now, since we got clear of the pandemic. So that's kind of a baseline inflationary pressure that we're seeing about 3%. So as you think about the operating expense itself being down, the decreased hours as our field organization deals with lower top-line demand, we do reduce hours, and that is partially offset by the increased rate that we're seeing.

And then just as a follow-up to that, what you said, as you continue through the transformation plan, you kind of -- you're going at kind of low-hanging fruit, it feels like do you expect kind of less of a benefit as the kind of the later stores are taken out? Or how are you thinking about that?

I don't think we're expecting a lower benefit. I mean, Arie, I don't know if you have a point of view on that.

I think each deal is different, depends on -- go ahead.

Yes. Let me jump in, if you don't mind. Listen, there is a direct expense associated with the stores that we are dealerizing. I mean I'll give you an example. When we dealerize 10 stores, by definition, you are eliminating discrete managers. And this is just one example, okay? We have people in the back office that do accounting work, let's call it, 2 per 10 stores, for example. We have -- when you get to 80 stores, you're eliminating all of a sudden a regional manager. So again, there is a lot of position tied directly with the operation. So as you remove stores, by definition, you're going to reduce G&A. That's part of the outcome.

And Arie, I think he's looking to tease out as we get deeper into the optimization program, do we see the deals getting less favorable? So again, I think we -- there's no reason to expect that.

No, no, no. No. We are sharpening our pencil all the time. I mean at the end of the day, if you think about it, the plan that we put together over here, we're talking about 500 stores in around a year to 18 months. I mean this is a big project. This is a big project for us. And I think the reason we are moving forward very successfully is because we have the second segment, which is the wholesale segment, which help us tremendously over here. But so far, like I said, so far, we are very, very pleased with the traction.

And like Rob said, I mean, we expect to continue to see benefits just ramping up further over here.

Our next question is from Anthony Bonadio with Wells Fargo.

So I wanted to start out with fuel margins. I know you guys had another strong quarter on that front. But I think industry data has maybe been a little softer than one might think, just given breakeven dynamics and how soft gallons have been. So can you guys just talk a little bit more about what you're seeing out there competitively on the fuel side and whether you've seen any change there as the year has progressed?

I'll start, and then I'll let Rob maybe finish with some remarks. So if you're looking on the industry in Q2, the national demand was down 4%. That's the national demand. I understand we were a little bit down than the national demand. We are very, very competitive, very, very competitive. I think the softwares and the systems that we have in place helping us to -- just to optimize and maximize gross profit dollars over here, making sure that we continue to be competitive. And as you can see, this particular quarter, we were basically trending close to basically $0.45. So I think we see an improvement in fuel margin.

We see so far, July, the same thing goes to July. We saw improvement month after month, but July, we basically saw a decline that is basically half of what we saw in Q2. So not only that we were able to expand margin, we also see an improvement in -- basically in fuel gallons decrease in July. And we hope that's going to be sustainable. That's what we hope.

Anthony, the CPG can pop significantly when there's volatility. And I think we saw 1 month, specifically April in the second quarter, where we had a $0.07 increase year-on-year, and that drove significant profitability into April. And those things -- I mean, we're in an uncertain macro environment right now, geopolitically everywhere, and those sorts of things, those trends, even though there could be some pressure on gallons, that uncertainty certainly can be supportive of higher CPG.

So it sounds like people are sort of behaving rationally still.

Well, I think people have the same issues with trends. If you are 4% or 6%, you still have a trend down. And I think when you have trend down, people need to pay. The smaller guys are probably like everybody else, need to pay their bills. And in order to pay the bills, the only way to make it happen, you need to increase margin. And that's what we've been seeing. I mean, listen, the margin is up almost $0.035 in Q2. And we continue to see strong margin going into July, very similar margin going into July. So we expect or we hope that margin will stay strong for the remaining quarters.

And then I just wanted to touch on OTP or alt nicotine. I think there was some rhetoric out of the FDA recently on an increased focus on the illicit market. So can you just talk a little bit more about what you're seeing in that category? And just any thoughts on a potential crackdown there and how you guys might be positioned to benefit from that?

Yes. So if you remember, Anthony, at the beginning of the year, I made the big remarks regarding to our back bar refresh in basically in many of our stores in almost 1,000 stores. Since that, I can just tell you that OTP was a very, very strong, basically category for us in Q2. OTP was up basically 2.6% in sales. And at the same time, our margin was up 170 basis points. So this is a category that, at least for us, we are paying a lot of attention to this category. And I think the -- those crackdowns can only help us against competition. Some of the competitors, I can tell you, I've been seeing that for a long period of time that some of the competitors are selling some illegal OTP product. We're, of course, selling only illegal products. And I think it's about time that we start to see some enforcement over there.

But regardless, like I said, OTP for us was a very successful story since we refreshed the back bar offer more variety. And like I said, I mean, it's a big success, and it's a big contributor to the gross profit dollars over here in Q2.

Just the OTP penetration is 10% of the total assortment versus cigarettes, and more in the 26%, 27% range. But the contribution margin from OTP was essentially equal to cigarettes. So as we continue to comp positive there, it's going to contribute more and more as we go forward to really mitigate some of the downside with cigarettes, the structural decline in cigarettes.

Our next question is from Benjamin Wood with BMO Capital Markets.

This is Ben on behalf of BMO and Kelly Bania. Just wanted to circle back on the dealerization and just try to understand, is the pace of dealerizations going in line with the original plan? I think you're targeting now more than 500 stores, but you mentioned dealerizations are expected into 2026. So is the message that the total number is consistent with the long-term or with the prior communications, but is this maybe a slower pace? Also just trying to understand is this total number, is that all part of the $20 million savings target? Or should we expect you to update that savings as you guys get deeper into this?

I'll let Rob discuss the $20 million, and then I basically give you my two cents regarding to the pace. We are very pleased with the pace, but I'll let Rob jump in.

Yes. Ben, the number that we shared in excess of $20 million is the fully executed program. So while we haven't shared the total store count, that is inclusive of all the stores. So again, in excess of $20 million, but you should not expect us to be updating that number. That's consistent with what we're seeing so far in terms of run rate, and that's where we expect to end up.

Yes. And Ben, regarding to the pace, as I mentioned earlier, just think about it 500 stores in 18 months, this is unheard of. I mean, it's going in accordance to our plan. Like I said, we are very, very pleased with that. What sometimes take a little bit longer is just getting licenses and putting everything in place. I mean we want to make sure that all of the dealers that are taking over some of those stores, they are fully equipped and fully licensed. We don't want to be in a position that God forbid, they're losing a license and they're losing sales. For us, this is a long-term play, and we want to make sure that those guys continue to make money, and we want to make sure that they get all of their licenses in order to continue to operate from the minute that we stop operating.

And then could you just provide some details on this new store format for the NTIs and remodels? How does the square footage compare to the average store in your portfolio? And then what about the labor needed? How many employees will run it versus your store average? Trying to understand the complexity of it versus -- with this new food service versus kind of the other store-based you're running.

Sure. So most of -- we opened the first one last week -- sorry, last month, last month on June 25. And this particular store, we did not change any of the square footage that was a large enough store, over 3,000 square feet. So we basically just added beer cave and some other freezers. -- of course, in addition to that, all of the food service equipment. Over there, we added deli before. So we just converted the deli to our new concept. We remodeled the store from the inside and the outside. So in this particular case, we did not add any square footage. In the stores that we opened this morning, we were able to add additional square footage to the -- basically to the original store. So this is something that we did.

In terms of labor, and we'll share some picture later on. But in terms of labor, we have a shared labor model, which means we need one person literally to operate the food service concept that we put in place over here.

So then is it kind of correct to assume that -- or maybe I'll ask you this is what percentage of the remaining store base after you've gone through this dealerization do you think would qualify for this kind of full remodel?

Well, the -- we are in a phase of structuring and engineering and -- but the stores that we are planning on keeping, we believe that the majority of them basically can fit. Remember, when we actually put this plan together, we put the plan together based on the fact that we have different types of stores, different types of square footage, and we want to make sure that we can customize in most of those stores the food service concept that we put together. So this is something. But right now, at the moment, we are -- we already identified another tranche of basically of stores. It's approximately 25 stores that were already identified in the same geography that we started. We started over here in the Virginia market, in the Richmond market. And the plan is basically to finish this tranche and continue.

But again, we believe that the stores that we are planning on keeping as part of our retail segment, we will be able to customize in the majority of those stores, the food service concept and everything that we did in the last 2 stores, the last prototype that we just -- the new format that we just opened last month and this morning. Which, by the way, that was one of the decision of dealerizing some of the stores that we didn't feel will fit with this concept or with this new format that we brought to market.

Our next question is from Hale Holden with Barclays.

I just had 2 on other tobacco products. I was wondering, I did hear those comments at the beginning of the year, and I was wondering where you are in the bar rollout and/or how much more work you had to do to get the allocation space allocation to the product, or if you were fully built out at this point?

We are fully on the stores that we are keeping, and like I said, it's over -- it's around 1,000 stores that we have out there. We already invested and finished our work on the back bar. We completed this project. This project was completed by the end of Q1, beginning of Q2. So we are we're done. It's just a matter of adding additional assortment to the mix of the year.

And then on the store conversions that Ben was just asking about, any thoughts, Arie, on what would constitute a success in terms of either merchandise sales lift or same-store lift versus maybe where the control group is?

Sure. First of all, traffic. One of the reasons behind it, of course, is making sure that we increase traffic. Success will turn to be an increase inside margin because adding food service over here, by definition, the gross margin on food service is much higher than basically what we saw before. So the success for us will be increase foot traffic, increase the basket size associated with that, expand our food service. So far, we get very nice results. I can tell you that the store that we opened just last month on June 25, just in the month of July, sales excluding cigarettes in that particular store are up 6% compared to prior year. So that's for us. So far, we are very, very pleased on what we're seeing over here.

Great. I'd love to see some pictures in the next quarter deck. It's hard for me to see them from the satellite photos outside.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Arie for closing remarks.

Thank you for joining, everyone. We are focused. We are on track, and we are excited on what's ahead of us. Have a great evening.

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.