Q3 2023 Arko Corp Earnings Call

Speaker 1: Greetings. Welcome to our co-corp, third quarter, 2023 results. At this time, all participants are in a listen only mode. A question and answer session will follow the forum.

Greetings welcome to Arco Corp's third quarter 2023 results at this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Speaker 1: If anyone should require operator assistance during the conference, please press star zero on your telep.

Please note this conference is being recorded.

Speaker 1: Please note this conference is being recorded. I will now turn the conference over to your host, Jordan Mann, Senior Vice President of Corporate Strategy, Capital Market, and Investor Relations.

Now turn the conference over to your host Jordan Mann Senior Vice President of corporate strategy capital markets and Investor Relations. Thank you you may begin.

Speaker 2: Thank you. Good morning and welcome to Arcos third quarter 2023 earnings conference call and web.

Good morning, and welcome to Arco's third quarter 'twenty, two 'twenty three earnings conference call and webcast.

Speaker 2: On today's call are Ari Kotler, Chairman, President, and Chief Executive Officer, and Don Bacell Chief Financial Officer.

On today's call are already Kotler, Chairman, President and Chief Executive Officer, and Don Purcell, Chief Financial Officer.

Speaker 2: Our earnings press release quarterly report on 410Q for the third quarter of 2023, as filed for the SEC. And our earnings presentation are available on our COS website at www.archocorp.com.

Our earnings press release quarterly report on Form 10-Q for the third quarter of 2023 as filed with the SEC and our earnings presentation are available on <unk> website at Www Dot Parco Corp Dotcom.

Speaker 2: During our call today, unless otherwise faded, management will compare results to the same period in 2012.

During our call today, unless otherwise stated management will compare our results to the same period in 2022.

Speaker 2: Management may make forward working statements within the meaning of the private securities litigation perform at of 1995.

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 2023 earnings release for various factors that could cause actual results to differ materially from forward looking.

Speaker 2: Please review the Forward-booking and cautionary statements section at the end of our third quarter 2023 earnings release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today.

And it's made during our call today.

Speaker 2: Any forward looking statements made during this call reflect our current views as it's pay which respect the future events and our goal will not update or revise forward looking statements made on this call. Whether as a result of management of new information feature events or otherwise.

Any forward looking statements made during this call reflect our current views as of today with respect to future events and Arco well not update or revise forward looking statements made on this call whether as a result of management of new information future events or otherwise on this call management will share operating results.

Speaker 2: On this call, management will share operating results on both a gap basis and an on gap.

Both a GAAP basis, and a non-GAAP basis description 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 and in our quarterly report on Form 10-Q for the third quarter 2012.

Speaker 2: Description of those non- GAAP financial measures that we use, such as adjusted EBITDA and reconciliation of these measures to our results as reported in accordance with GAP, are detailed in our earnings release, and in our quarterly report on 410Q for the third quarter 2023, or in our 2023 third quarter earnings presentation posted on our website. And now, I would like to turn the call over to our...

Heat treat or in our 2023 third quarter earnings presentation posted on our website and now I would like to turn the call over to Ari.

Speaker 3: Thank you Jordan. Good morning everyone. We appreciate you joining the call.

Thank you Jordan.

Good morning, everyone. We appreciate you joining the call.

Speaker 3: As always, I would like to start off by thanking our dedicated team members for their continuous focus on improving the experience for our customers, their dedication to driving long-term value to our stockholders through execution, upon marketing and merchandising strategies.

As always I would like to start off by thanking our dedicated team members for their continuous focus on improving the experience for our customers.

Their dedication to driving long term value to our stockholders through execution of our marketing and merchandising strategy.

Speaker 3: and continued integration for brand newly acquired businesses. I'm very pleased.

And continued integration of our newly acquired businesses.

I'm very pleased with our third quarter performance.

Speaker 3: This quarter, we navigated very macro and economic environment.

This quarter, we navigated very macro economic environment.

Speaker 3: And we believe that our results compare favorably to what was a strong problem.

And we believe that our results compare favorably.

What was a strong prior year quarter.

Speaker 3: You'll remember Q3 and Q4 of last year, with strong quarters, brought and the industry.

You'll remember Q3, and Q4 of last year right.

Very strong quarters.

Ross and the industry.

Speaker 3: I remain confident in our strategy and our team and believe we are well positioned to improve and unlock.

I remain confident in our strategy and our theme.

And believe we are well positioned.

To improve and unlock.

Speaker 3: ever more value from our platform for stakeholders.

Ever more value from our platform for our stockholders.

He pointed this quarter include.

Speaker 3: our execution and integration of our acquired businesses. The significant growth

Our execution and integration of our acquired businesses.

The significant growth in our loyalty program.

Speaker 3: and our continually expanding mercenaries contribution margin.

And our continually expanding merchandise contribution margin.

Our airports and these three areas.

Speaker 3: Elves who have set lower organic fuel contribution, driven

To offset lower organic fuel contribution.

Ben.

Speaker 3: by the prior year quarters elevated cents per gallon and this quarter's industry-wide lower fuel demand.

The prior year quarter and elevated.

And this quarter's industry wide lower fuel demand.

Speaker 3: We have had a busy, last 12 months, closing on five acquisition.

We have had at BZ <unk>.

12 month closing on five acquisition.

Speaker 3: since the beginning of Q3 last year and adding approximately 720 locations across a retail, all sales, and fleet segment.

At the beginning of Q3 last year.

Adding approximately 720 location.

Cros are retail.

Wholesale and fleet segments.

Speaker 3: As was the case last quarter, our press release and public filing provides financial information and key metrics of our recently acquired business.

As was the case last quarter, our press release and public filings provide financial information and key metrics of our recently acquired businesses.

Speaker 3: We have delivered consistent and impressive growth in adjusted EBITDA. We can...

We have delivered consistent and impressive growth in adjusted EBITDA.

We can very proud though.

Speaker 3: As I said, we are very pleased with our performance this quarter with the adjusted EBDA of $91.2 million compared to a record adjusted EBDA of $99.5 million. In the

As I said, we are very pleased with our performance this quarter.

We've got adjusted EBITDA of $91.2 million compared to our record adjusted EBITDA of 99.5 million.

In the prior year quarter.

Speaker 3: The year over year decline was primarily due to lower fuel contribution at same stores, which I will explain shortly.

The year over year decline was primarily due to lower fuel contribution at same stores, which I will explain shortly.

Speaker 3: As you know, although we have multiple segments, our primary business is the operation of convenience stores. We derive a significant portion of our revenues.

As you know, although we have marked it for the segment our primary business is the operation of convenient stores.

We derived a significant portion of our revenues.

From the retail sale of fuel.

Speaker 3: with the products offered in our stores generating a large proportion of our profitability.

We have the projects to offer in our stores generating a large proportion of our profitability.

Speaker 3: I know the last quarter that we believe the same store merchandise sells excluding cigarettes, best reflects the strength of our organic merchandise performance.

I noted last quarter that we believe same store merchandise.

Cigarette best reflects the strength of our organic merchandise performance.

Speaker 3: This quarter, same-store merchandise sells excluding cigarettes, grew approximately 1% compared to putries of 2022. That is 5.3% on a two-year stock.

This quarter same store merchandise sales excluding.

Bigger at drew.

<unk> grew approximately 1% compared to Q3 of 'twenty to 'twenty two.

These 5.3% on a two year stock.

Speaker 3: Total same store merchandise sales increased 0.1% compared to Q3, 2022, which were impacted by approximately $2 million in increased loyalty investments associated with customer acquisition related to expanding membership in the Fast Rewards loyalty program, other loyalty promotion, and growth in the total loyalty membership base. And long-term goal.

Total same store merchandise sales increased 0.1% compared to Q3 'twenty to 'twenty two.

Which were impacted by approximately $2 million in increased loyalty investment associated with customer acquisition related to expanding membership in the fast rewards loyalty program.

Other loyalty promotion and grow in the total loyalty membership base.

And long term goal of the company.

Speaker 3: This caused a reduction in the same store merchandise sales of approximately 0.4%.

This caused a reduction.

At the same store merchandise sales of approximately 0.4%.

Speaker 3: With that backdrop, we were still able to grow merchandise margin again this quarter, improving 50 basis points to 31.7%.

With that backdrop, we were still able to grow merchandise margin against the quarter, improving 50 basis points to 31, 7%.

Speaker 3: This improvement is on the top of the 60 basic points expansion we experienced in Q3 2022 over Q3 2021.

This improvement is on the top of the 60 basis point expansion, we experienced in Q3 2022.

Over Q3, 2021.

Speaker 3: We work to have the right assortment of high-margin core destination merchandise that our customers expect and want while providing them with excellent service.

We worked to have the right assortment of high margin core destination Merchandised.

Our customers expect and want while providing them with excellent service.

Speaker 3: This quarter, our merchandise contribution increased $21.8 million, or 15.7% over the prior year period, primarily as a result of the recent acquisition and stable organic performance in our same store.

This quarter, our merchandise contribution increased 21 $8 million.

Or 15.7% over the prior year period.

Primarily as a result of the recent acquisition.

And stable organic performance in our same store.

Speaker 3: In our stores, we continue to focus on our three merchandising and marketing key strategic pillars. A fast reward loyalty program, growing sales in core destination categories,

In our stores.

We continue to focus on.

Our three merchandising and marketing key strategic pillars.

Our fast rewards loyalty program grew.

Growing sales in core destination category.

And expanding our food and beverage therapists.

Speaker 3: I would like to detail the results of our merchandise initiative.

I would like to detail the results of our merchandise initiatives.

Speaker 3: As we have previously mentioned, we have been making significant investments in our Fast Rewards loyalty program, including the major upgrade to our loyalty app, which went live on March 28th of this year.

As we have previously mentioned.

We have been making significant investment.

And now fast rewards loyalty program, including the major upgrades to our loyalty App, which went live on March 28 of this year.

Speaker 3: and our special $10 enrollment promotion that commenced on May 17 and concluded on September 19. We believe that

And our special 10 dollar enrollment promotion that commenced on May 17, and concluded on September 19.

We believe that our loyalty program.

Speaker 3: develop and announce our relationship with our customers.

Develop and our relationship with our customers.

Speaker 3: drive more trips and spend with our existing customers and attract.

Drive more trips and spend with our existing customers.

And Ive trucks.

Loyal customers.

Speaker 3: This was a very active quarter for loyalty enrollment.

These towards a very active quarter for loyalty enrollment.

Speaker 3: We added more than 365,000 enrolled members during the quarter.

We added more than 365000 enrolled members during the quarter.

Speaker 3: ending Q3 with 1.85 million total enrolled as reward members.

And in Q3.

One point $85 million total enrolled past reward members.

Speaker 3: This is a 50% increase in enrolled members since the end of Q3 2020.

This is a 50% increase in enrolled members in the end of Q3 2022.

We attribute the increase to our strong 10 dollar loyalty enrollment promotion.

Speaker 3: We attribute the increase to our strong $10 loyalty enrollment promotion.

Speaker 3: In addition, I'm very pleased that our loyalty members are taking greater advantage of the value we offer and participated in more of our member-only promotional activity this quarter.

In addition, I'm very pleased at that.

Members are taking greater advantage of the value we offer and participated in more of a member only promotional activity this quarter.

Yeah.

Speaker 3: I said before that we invested in loyalty, which impacted our same store merchandise sales metrics, and we plan to continue our efforts to expand our loyalty membership base, targeting 3 million enrolled members by the end of 2024.

I said before that we invested in loyalty, which impacted our same store merchandise sales metrics and we plan to continue our efforts to expand our loyalty membership base.

Targeting 3 million enrolled members by the end of 'twenty 'twenty four.

We have strong conviction.

Speaker 3: behind this investment as active enrolled members make more trips and spend more than non-enrolled members.

Behind this investment as active enrolled members make more trips and spend more than not enrolled members.

Speaker 3: This quarter, active enrolled members made an average of more than four more trips per month compared to our non-enrolled members.

This quarter actually have enrolled members made an average of more than four ball thrips, Vermont comparator on non enrolled members.

Speaker 3: For the same period, they also spend on average $41 per month more than non-enrolled members.

The same period. They also spend on average $41 per long more than non enrolled members.

Speaker 3: You'll note that the frequency and average spend are lower than the numbers we referenced last quarter.

You'll note that the frequency and average spend are lower than the numbers, we referenced last quarter.

However.

Speaker 3: Given the large addition of new members, and particularly later in the quarter, our average were negatively impacted by new members who have not yet had the opportunity to mature to normalize spending habits.

Given the large addition, no members and particularly later in the quarter. Our average were negatively impacted by new members, we have not yet had the opportunity to mature so normalized spending habits.

Speaker 3: We believe we will see upside from these new members.

We believe.

We will see upside from these new members.

Speaker 3: and we welcome them to the family.

And we welcome them to defend them.

To give some context around our loyalty initiative, excluding sell for any time period prior to implementation of our loyalty program at recently acquired location or acquisition, where we have not yet implemented our loyalty program.

Speaker 3: To give some context around our loyalty initiatives, excluding sales for any time period prior to implementation of our loyalty program at recently acquired locations or acquisitions where we have not yet implemented our loyalty program, 19.3% of our merchandise sales this quarter were from enrolled loyalty managers.

19.3% up on merchandize fell this quarter red from enrolling loyalty members.

Speaker 3: We believe that Mix can grow and hope to achieve 30 plus percent merchandise sales penetration over time.

We believe that mix can grow and hope to achieve 30 plus percent merchandise penetration overtime.

Speaker 3: Our active enrolled members generate greater sales and contribution compared to our non-enrolled members.

Our octave enrolled members generate greater scale and contribution.

Parents, who are not enrolled customers.

Let's move to the core destination category, which are packaged beverages candy salty snack package sweet snack alternatives snacks and beer.

Speaker 3: Let's move to the core destination categories, which are packaged beverages, candy, salty snacks, packaged sweet snacks, alternative snacks, and beer.

Speaker 3: These six categories accounted for 53% of our merchandise contribution this quarter.

This category accounted for 53% of our merchandise contribution each quarter.

Speaker 3: These concentrations allow us to focus our initiative on categories that we believe will move the needle.

This concentration allow us to focus our initiative on the categories that we believe will move the needle.

We have a deliberate approach to these categories using data driven decision in our execution and we leveraged our strong supplier partnership.

Speaker 3: We have a deliberate approach to these categories using data-driven decisions in our execution, and we leverage our strong supplier partnership.

And I was going to speak for themselves.

Year over year, we have continued to grow contribution dollars from these categories.

Speaker 3: Year over year, we have continued to grow contribution dollars from this category.

Speaker 3: Over the last three years, our concentration of merchandise contribution from these categories has expanded approximately.

Over the last three years, our concentration of merchandise contribution from these categories as expended approximately 570 basis points and merchandise contribution for this category is growing at approximately 17% compounded annual growth rate.

Speaker 3: 570 basis points and merchandise contributions from these categories has grown at approximately 17% compounded annual growth rate.

Speaker 3: Same-store sales in these categories for this quarter increased by 2.4% as compared to the prior year period.

Same store sales in these categories for this quarter increased by two 4% as compared to the prior year theory.

Speaker 3: We are extremely pleased with these results, and we are seeing the positive results of our efforts and initiatives as we continue to drive merchandise sales growth and margin improvement inside our stores.

We are extremely pleased with these results and we are seeing the positive results of our efforts and initiatives as we continue to drive merchandise sales growth and margin improvement inside our stores.

Speaker 3: Our third pillar is expanding our food and beverage service where we see tremendous

Our third pillar is expanding our food and beverage surrogate.

Well, we see tremendous opportunity.

Speaker 3: October , we announced the addition of Richard Guidry to the

In October we announced the addition of recharge.

Great.

<unk> leadership team.

We fill the newly created role as.

Speaker 3: Richard filled a newly created role as GPN Senior Vice President of Food.

And your wife's president of food.

Speaker 3: we believe is distinguished track record and long experience underscore how serious we are about nailing the strategy, growth and execution of our food business.

We believe his distinguished track record and long experience underscore how serious we are about nailing the strategy growth and execution of our fluids business.

Speaker 3: Since joining GPM, he has been getting up to speed, meeting with partners in the organization, meeting with our suppliers' partners, visiting stores, and even working shifts to better understand how our stores operate.

Since joining G P M.

It's been getting up to speed meeting with partners in the organization meeting with our suppliers partner visiting stores and even working shifts to better understand how our stores operate.

Speaker 3: We see the development of our strategy around food as a multi-year opportunity with wings.

We see the development of our strategy around food.

As the multi year opportunity.

We've wins along the way.

Speaker 3: We are extremely excited to welcome Richard to the team and look forward to sharing more as we work with Richard to further develop our full service strategy.

We are extremely excited to welcome Richard to the team.

And look forward to sharing more as we work with very short order and develop our foodservice strategy.

Speaker 3: As I hope it's clear, we strive to position our core convenience store business for further growth, delivering great results while exceeding our customers' expectations.

As I hope is clear, we strive to position our core convenience store business for further growth delivering great results, while exceeding our customers expectation.

Speaker 3: Turning to fuel, I will note that according to OPIT data, fuel gallon demand decreased nationally over the quarter compared to the prior year quarter, contributing to the trend that we saw at ARCO with a decrease of 5.3% in same store gallon.

Turning to fuel.

You'll note that according to <unk> data.

Demand decreased nationally over the quarter compared to the prior year quarter contributing to the trends that we saw like Oracle with a decrease of five 3% same store gala.

Speaker 3: However, total retail gallon decreased 14.8% because of a

However, total retail gallons decreased 14, 8%.

Because of our recent acquisition.

Speaker 3: Retail fuel contribution increased to $121.3 million, a 3.2% increase.

Retail fuel contribution increased to $121 $3 million.

Three 2% increase.

Speaker 3: As always, our team remains focused on striking the right balance between volume and pricing to optimize.

As always our team remains focused on striking the right balance between volume and pricing.

To optimize fuel contribution dollars.

Speaker 3: Our retail fuel margin remains strong at 40.3 cents per gallon, only four and a half cents lower compared to the prior year quarter.

Retail fuel margins remained strong at 43 cents per gallon only foreign often lower compared to the prior year quarter.

Speaker 3: We believe this demonstrates the sustainability of our fuel market.

We believe this demonstrates the sustainability of higher fuel margin.

Speaker 3: We know that fuel margin varies from quarter to quarter. However, as we look to deliver longer term, stock order's value, we believe that this structurally higher margin will remain for the foreseeable future.

No the fuel margin borrowing from quarter to quarter.

However, as we look to deliver longer term stockholders' value, we believe that this structurally higher margin.

We remain for the foreseeable future.

Speaker 3: Marginal operators with their co-structure and operating pressures have faced increasing break-even fuel margins, creating support for this level.

Or is it other operators with their cost structure, and operating pressures and face increasing breakeven fuel margin, creating support for these levels.

Yeah.

Speaker 3: Moving to M&A, we have continued to integrate the calls, prize, TEG and WTG acquisition.

Moving to M&A, we are continuing to integrate the coal price D G and W. E G acquisition.

Speaker 3: which have served to increase our earning base while expanding our footprint into new and adjacent territories.

Sure.

We increased our earning base, while expanding our footprint into new and adjacent it.

Territories.

Speaker 3: I'd like to briefly discuss calls the first of our most recent acquisition as an example.

I'd like to briefly discuss the first of our most recent acquisition as an example.

Speaker 3: As we show in our investor presentation for this quarter, the calls acquisition generated approximately $24 million in the justice EBDA in the last three quarters alone.

As we show in our Investor presentation for this quarter, the colt acquisition generated approximately $24 million and adjusted EBITDA in the last three quarters alone.

Since closing on the acquisition in July 2022, we have already earned back our entire portion of the cash consideration paid for that transaction.

Speaker 3: Since closing on the acquisition in July 2022, we have already earned back our entire portion of the cash consideration paid for that transaction.

Speaker 3: We also continue to invest in the businesses we acquire the opportunities to write. For example, we have put capital to work at WCG, deploying investment cat-backs to upgrade its fleet capabilities and infrastructure to be more like walls and to provide even more upside to that business.

We also continue to invest in the business that we acquired with the opportunities arise. For example, we have put capital to work at W. P. G deploying investment capex to upgrade the capabilities and infrastructure.

More like walls and to provide even more upside to that business.

We believe our successful track record of making disciplined and accretive acquisition will continue to enhance value for our stockholders, especially as we continue to see tremendous opportunity ahead of us in our acquisition strategy.

Speaker 3: We believe our successful track record of making disciplined and accretive acquisition will continue to enhance value for our stockholders, especially as we continue to see tremendous opportunity ahead of us in our acquisition strategy with a deep pipeline of potential opportunities.

With a deep pipeline of potential opportunities.

And importantly.

Speaker 3: We remain well-capitalized to execute an opportunity as they arise. As of September ,

We remain well capitalized to execute on opportunity as.

Right.

As of September 30th 2023.

Speaker 3: We have $204 million in cash on hand and $623 million of availability under our lines of credit.

We had $204 million in cash on hand, and $623 million of availability under our lines of credits.

Speaker 3: in all together with the available capacity of almost $1.5 billion. Under our program agreement with Office 3, our co-currently has access to more than $2 billion in available liquidity for continued M&A activities.

And all together with the available capacity of almost $1 5 billion dollar under our program agreement off Street.

Article correctly.

The more than $2 billion in available liquidity for continued M&A activity.

Speaker 3: I want to focus on the DCP point for just 10 more.

To focus on the disciplined point for just a moment.

Speaker 3: and proud of the senior for executing 25 acquisition out of hundreds of potential deals we've reviewed over the last 10 years, including the five we have closed over the last year. One last point.

I'm proud of the team here for executing 25 acquisition.

Hundreds of potential to deal with.

We've reviewed over the last 10 years, including the five we have closed over the last year.

One last point before I turn the call over to Don.

Speaker 3: In line with our capital allocation strategy, we continue to have planned in place for new to industry store. We four in particular that have been identified and are in different stages of development.

In line with our capital allocation strategy, we continue to have plans in place for new to industry store. We four in particular that they've been identified and are in different stages of development.

Speaker 3: I remain excited about the many achievable opportunities in front of me.

I remain excited about the many achievable opportunity in front of us.

Speaker 3: Thank you for your time today, and we've got our now turned the course over to Don.

Thank you for your time today, and we thought I will now turn the call over to Don.

Thank you Ari.

Speaker 4: As our many initiatives continue to gain traction, the company has continued to record strong results.

As there are many initiatives continue to gain traction. The company has continued to record strong results are.

Speaker 4: Our balance sheet continues to be strong, and we currently have a very good liquidity position.

Our balance sheet continues to be strong and we currently have a very good liquidity position.

Speaker 4: As of September 30th, 2023, we had cash and cash equivalents of approximately $204 million.

At September 30th 2023, we had cash and cash equivalents of approximately $204 million.

Speaker 4: Our outstanding debt, excluding capital ESA's, was approximately $828 million, resulting in net debt of $624 million.

Our outstanding debt, excluding capital leases was approximately $828 million.

<unk> and net debt of $624 million.

Speaker 4: For the quarter, Nick Cash provided by operating activities was $32.8 million versus $67.6 million for the third quarter of 2022.

For the quarter net cash provided by operating activities was $32 $8 million versus $67 $6 million for the third quarter of 2022.

Speaker 4: This included higher net interest and tax payments in the quarter of a prior year period and a technical delay in receiving approximately 12.1 million dollars from a routine credit card processor as well as the decrease in adjusted even.

This included higher net interest and tax payments in the quarter over the prior year period, and a technical delay receiving approximately 12 point women $12 million from a routine credit card processor as well as the decrease in adjusted EBITDA.

Speaker 4: Get into results for our community and stores. Merchandise revenue for the third quarter of 2023 increased to $506.4 million.

Getting into the results for our convenience stores merchandise revenue for the third quarter of 2023 increased to $506 $4 million.

Speaker 4: versus $445.8 million in the prior quarter.

Versus $445 $8 million in the prior year quarter.

Merchandise margin increased by 50 basis points compared to the prior year quarter to 31, 7%.

Speaker 4: Merchandise margin increased by 50 basis points compared to the prior year quarter to 31.7%.

Total capital expenditures were approximately $25 $6 million for the quarter.

Speaker 4: Total capital expenditures for approximately $25.6 million for the court.

Speaker 4: This is compared to capital expenditures of $27.7 million in Q3 2022.

This is compared to capital expenditures of $27 $7 million in Q3 2022.

Speaker 4: Retail fuel profitability, excluding inter-company charges for the third quarter of 2023, increased 3.2% this quarter to $121.3 million.

Retail fuel profitability, excluding intercompany charges for the third quarter of 2023 increased three 2% this quarter to $121 $3 million.

Speaker 4: This includes a decrease of $16.6 million in same sort of fuel contribution excluding intercom company charges.

This includes a decrease of $16 $6 million and same store fuel contribution.

Splitting intercompany charges.

Speaker 4: More than offset by $21.7 million in fuel contributions from recent acquisitions.

More than offset by $21 $7 million in fuel contributions from recent acquisitions.

Speaker 4: The company maintains a relatively strong retail fuel margin of 40.6 cents per gallon for the third quarter of 2023.

The company maintained a relatively strong retail fuel margin of 46 cents per gallon for the third quarter of 2023.

Speaker 4: compared to 44.9 cents for gallon on the same store basis in Q3 2022.

Compared to 44.9 cents per gallon on a same store basis in Q3 2022.

Speaker 4: Third quarter to mean stir operating expenses increased by $30.2 million or 17.2% versus the prior year quarter. Primarily due to $34.4 million of expenses related to recent acquisition.

Third quarter convenience store operating expenses increased by $32 million or 17, 2% versus the prior year quarter.

Primarily due to $34 $4 million of expenses related to recent acquisitions.

Speaker 4: Offset by a decrease of approximately $1.7 million at same stores.

Offset by a decrease of approximately $1.7 million at same stores.

Speaker 4: mainly driven by lower credit card fees and by underperforming retail sites that we closed or converted dealers.

Mainly driven by lower credit card fees.

And by underperforming retail sites that we closed or converted to dealers.

Speaker 4: As always, we seek to improve our operational efficiencies and stories.

As always we seek to improve our operational efficiencies at stores.

Speaker 4: On the same surabasis, these expenses decrease by 1% over the prior year period.

On a same store basis these expenses decreased by 1% over the prior year period.

Speaker 4: Importantly, same-store personnel expense remain flat, increasing only 0.1% over the prior year period as we continue to appropriately balance labor expenses and providing superior customer service.

Importantly, same store personnel expense remained flat, increasing increasing only 1% over the prior year period, as we continue to appropriately balance labor expenses and providing superior customer service.

Speaker 4: We continue to fill up the positions to ensure excellent service for our costs.

We continue to fill open positions to ensure excellent service for our customers.

Speaker 4: We continue to review, evaluate, and refine hours to write size labor and order our associate's task to reduce inefficient

We continue to review evaluate and refine hours to rightsize labor and all of our associates task to reduce inefficiencies.

Speaker 4: For the most part, any increase in same store hours from mostly offset by reduction in overtime.

For the most part any increase in same store hours were mostly offset by a reduction in overtime hours.

Speaker 4: Moving to wholesale and fleet, this quarter we benefited from a full quarter of quarrels which we acquired on July 22nd, 2022.

Moving to wholesale on fleet this quarter, we benefited from a full quarter of corals, which we acquired on July 22022.

Speaker 4: In wholesale fuel contribution, excluding inter-company charges, with similar compares of the prior year period, as incremental contribution from our recent acquisitions, offset margin.

And wholesale fuel contribution excluding intercompany charges with similar compared to the prior year period as incremental contribution from our recent acquisitions offset margin decrease.

Speaker 4: fuel contribution, excluding intercoming charges from the fleet fueling sites, was approximately $14.3 million to the quarter and increased to $3.3 million compared to the prior year quarter.

<unk> contribution excluding intercompany charges from the fleet fueling sites was approximately $14 $3 million for the quarter, an increase of $3 $3 million compared to the prior year quarter.

Speaker 4: View of margin sends for gallon, excluding intercoming charges for the proprietary car like locations, with 39.4 cents for gallon.

Fuel margin cents per gallon, excluding intercompany charges for proprietary food court proprietary car like locations.

With 39.4 cents per gallon.

Speaker 4: This segment benefited from an 8.2 million gallon increase that offset a 2.4 cent contraction in margin at our proprietary car lock locations over the prior year quarter.

This segment benefited from an $8 2 million gallon increase that offset a two 4% contraction in margin a proprietary car like locations over the prior year quarter.

Speaker 4: Looking ahead to Q4, we do not expect our fleet fueling margin to be as remarkable as a prior period. In Q4 last year, the fleet business had a CPG of 51.7 cents.

Looking ahead to Q4, we do not expect our fleet fueling margin to be as remarkable as the prior year period.

In Q4 of last year, the fleet business had a C. P G of $51.07.

Speaker 4: which was due to price volatility in the second half of 2022. And we do not believe that high margin is reflective of the normal quarter.

Which was due to price volatility in the second half.

2022 and.

And we do not believe that high margin is reflective of a normal quarter.

Net interest and other financial expenses for the third quarter of 2023 decreased by $5 $2 million versus the prior year quarter.

Speaker 4: That interest in other financial expenses from the third quarter of 2023 decreased by $5.2 million versus the prior year quarter.

To $14 $6 million.

Speaker 4: The majority of this is due to an increase of approximately $11.6 million in income related to favorable fair value adjustments compared to the prior year court.

The majority of this is due to an increase of approximately $11 $6 million in income related to favorable fair value adjustments compared to the prior year quarter.

Speaker 4: Net income for the quarter was $21.5 million, compared to net income of $25 million in the prior year quarter. Adjusted EBITDA for the quarter was $91.2 million, compared to $99.5 million in Q3 2022, primarily due to reduced fuel contribution.

Net income for the quarter was $21 5 million.

Compared to net income of $25 million in.

In the prior year quarter adjust.

Adjusted EBITDA for the quarter was $91.2 million compared to $99 $5 million in Q3, 2022 primarily due to reduced.

Fuel contribution at same stores.

Speaker 4: In the third quarter of 2023, the Cumbiree purchased approximately 1.5 million shares of our common stock. For a total of approximately $11.6 million, at an average price of $7.53.

The third quarter of 2023, the company repurchased approximately one 5 million shares of our common stock.

For a total of approximately $11 $6 million at an average price of $7 53.

Speaker 4: As a September 30th, 2023, there was approximately $37.5 million remaining under our previously announced up size, $100 million stock repurchase.

As of September 30th 2023, there was approximately $37 $5 million remaining under our previously announced Upsized $100 million stock repurchase program.

Speaker 4: Because of our continued strong results and desire to enhance returns for our stockholders, we announced on Monday that Arco's board directors declared a quarterly dividend of three cents per share of common stock to be paid on December 1, 2023 to stockholders of record as of November 17, 2023. And now I'll turn the call back to Albert Ari.

Because of our continued strong results and desire to enhance returns for our stockholders, we announced on Monday that Arcos Board of directors declared a quarterly dividend of <unk> <unk> per share of common stock to be paid on December one 2023 to stockholders of record as of November 17th 2023.

And now I'll turn the call back over to Ari.

Thank you dawn.

Speaker 3: We believe that we have a significant opportunity.

We believe that we have a significant opportunity.

Speaker 3: to increase our sales and profitability by continuing to execute on our organic and inorganic strategies, improving the performance of our current store through announced offering to meet our customers needs and growing our store base in existing and continuous market through acquisitions. Now,

Increased our sales and profitability by continuing to execute on our organic and inorganic strategies improving the performance of our current store true and honest offering.

To meet our customers' needs and growing our store base in existing and continuous market through.

Through acquisitions now.

Now we will take your questions.

Speaker 1: Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate you.

Thank you if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.

Speaker 1: may press start to if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker 1: equipment and maybe necessary to pick up your handset before pressing the start keys. Our first question is from Bobby Griffin with

Our first question is from Bobby Griffin with Raymond James. Please proceed.

Good morning, everybody. Thanks for taking my questions.

Speaker 2: I guess my first question is on the gallon side of the business, particularly in retail. Are you seeing a divergence or a separation between some of the legacy stores and some of the new E acquire stores and?

Alright, I guess my first question is on the gallon side of the business, particularly in retail are you seeing a divergence or a separation between some of the legacy stores and some of the newly acquired stores and the Genesis of the question is when I when I look at total gallons versus our estimates the comp gallons underperformed or missed.

Speaker 5: The genesis of the question is when I look at total gallons or its R estimates, the comp gallons underperformed or missed us by a little bit. The total gallons were actually pretty close to our model. So are you just seeing the newer acquired stores maybe perform at a little bit higher per store gallon bases than the legacy stores that are in your business?

US by a little bit the total gallons were actually pretty close to our model. So are you just seeing the newer acquired stores, maybe performed a little bit higher per store gallon basis than our legacy stores that are in your business.

Speaker 3: Good morning, Bobby. No, I don't think so. I really think that our approach is not a macro approach. We actually, if you think about our business, we price your location, by location, market by market.

Good morning, Bobby.

No I don't think so I really think that our you know our approach is a not a macro approach we actually you know what you're thinking about our business.

Price fuel location by location and market by market.

Speaker 3: And, you know, our approach is really more relevant to how we compete, you know, our strategy is consistent with the legacy stores and with the stores that we just acquired, you know, we are, you know, working really hard to optimize gross profit dollars.

And you know our approach is really more relevant to how we compete and our strategy is consistent.

The legacy stores and we have the stores that we just acquired.

We are working really hard to optimize gross profit dollars.

Speaker 3: But you know if you're really looking you know every market is

But if you really look at every market is different.

Speaker 3: But I don't think anything is different between the acquisition we just acquired.

But I don't think anything is different between the acquisition, we just acquired.

Speaker 3: And I think it's really all about footprint. I mean, different footprints have different gallons.

And I think it's really all about footprint I mean different footprints that different that you know gallons.

There are some others.

Speaker 5: Yeah, I guess, okay, so maybe the fall is, are the newly acquired stores in just different footprints where they generate more gallons per store than maybe some of the older footprints or not older the legacy footprints that are in the comparable sales.

Yeah, I guess, okay. So maybe the follow up is are the newly acquired stores and just different footprints, where they generate more gallons per store than maybe some of the older footprints or that are not older. The legacy footprints that are in the comparable sales base.

Speaker 3: It's a mix, it's a mix of that because you know we we purchase stores You know, I think about it, you know, the pride stores are in the Northeast and yes in the Northeast I think the gallon's per store are higher than the gallon's per store that we see probably in the southeast I actually think that this is a good question and a good thing to point And if you were looking on that you know on TG for example TG it in the southeast

Yes that makes it makes them back because you know we purchase stores.

And if you think about it you know the price stores are in the North East.

And yes in the northeast I think the gallons per store.

Our higher than the gallons per store that we see probably the southeast. So I actually think that this is a good question and a good thing to point.

And if you're looking on that on T. G. For example.

<unk> in the South East and some of it is in the southwest which is lower than the north sea.

Speaker 3: and some of it is in the southwest, which is lower gallon than the northeast. I think the other place is really the core of the acquisition. You know, the core of the acquisition, it's all about the majority of the architecturally decent.

I think the other piece is really the core of the acquisition. The <unk> acquisition. It's all about you know the majority of doctors actually do though.

Speaker 3: business. So I think that's probably the different mix between the other

Business. So I think that's probably a different mix between the others.

Speaker 5: Okay, that's helpful. And I guess the second part of that is, you know, the industry has continued to face some gallon pressure here. You referenced the opus data was down during the quarter. How do you think that is translating into just pure traffic to your business? Is that a challenge on the traffic side when we kind of want to think about that as it relates to merchandise sales? Or are you seeing, you know, different traffic counts inside the stores and what maybe the gallon, the same sort of gallon.

Okay. That's helpful and I guess the second part of that is you know the industry has continued to face some gallon pressure here you referenced the opus data was down during the quarter. How do you think that is translating into just pure traffic to your business is that a challenge on the traffic side. When we kind of wanted to think about that as it relates to merchandise sales or are you seeing.

You know different traffic counts inside the stores and what maybe the gallon the same store gallon Sean.

Speaker 3: Yeah, so another great question. So, you know, back in the day, you know, before COVID, I used to, you know, I used to assume that, you know, the traffic inside the stores is really based on basically the price at the pump.

Yes. So another great question, so back in the day before Covid I used to.

So I'm not at.

The traffic inside the stores is really based on that.

Basically the price.

Speaker 3: I actually think what happened, actually, after COVID, I think things changed. Now I think it's the other way around. I really believe that the more offering you have inside the stores, and you see it, by the way, with the core destination categories that increased tremendously over here. As we continue to offer, you know, great, basically, value inside our stores, as we continue to add, basically, food inside the stores, and as we continue to increase our loyalty members,

Pompe Ah I actually think what happened actually after Covid I think change is now I think it's the other way around I really believe that the more offering you have inside the stores and you see it by the way of the decor destination categories increased tremendously over here as.

As we continue to offer you know, Greg basically body inside our stores as we continue to add.

Basically food inside the stores and as we continue to increase our loyalty members I actually believe that's really impact our galanz moving forward. So I don't think you know, losing Golan is actually.

Speaker 3: I actually believe that's what impact our gallons moving forward. So I don't think losing gallons actually...

Speaker 3: you know, actually, or actually impact or insightful.

Actually Oh, we're actually impacts our inside sales.

Because the other way around.

Speaker 4: Okay, and one last one for me, Don, on that $12 million away from the credit card process, is that just a pure timing aspect where you'll get that $12 million back in the fourth quarter? Yeah, we already received it the first week of October . It was a nice, ladies and gentlemen, at a certain set of stores and they were just changing their back end, and we already received it the first...

Okay, and one last one from me Don on that $12 million delay from the credit card processor or is that just a pure timing aspect, where you'll get that 12 million back in the fourth quarter, yes.

We we already received the first week of October. It was it was an isolated event at a certain set of stores and it was just changing their backend and we already received the first week.

Speaker 5: Perfect. Alright, I appreciate it. Well, best of luck going forward and I'll jump back into you. Thank you

Perfect Alright, I appreciate it well best of luck going forward and I'll jump back in the queue. Thank you.

Thank you Bobby.

Speaker 1: Our next question is from Kelly Bainia with the MO Capital Markets. Please proceed.

Our next question is from Kelly Bania with BMO capital markets. Please proceed.

Hi, good morning, Thanks for taking our question.

Speaker 6: Also, wondering if we could just talk a little bit more about the gallons. I think part of you mentioned the opus data, but

I'm also wondering if we could just talk a little bit more about about the gallon I think art you mentioned the opus data, but I'm just wondering if you've done any more analysis on kind of market share in your regions for both for your kind of retail segment and the same.

Speaker 6: wondering if you've done any more analysis on kind of market share in your region. So both for your kind of retail segment and the same store gallon decline there, but also as you think about how your dealer customers are doing, I think we're estimating gallons down maybe around high single digit range on an organic basis. And just how you think about that going forward is that.

Same store gallon decline there, but also as you think about how your dealer customers are doing I think we're estimating a gallon down maybe around high single digit range on an organic basis.

And just how you think about that going forward is that kind of a.

Speaker 6: a good run rate we should continue to use in terms of a gallon decline for for those.

Good run rate, we should continue to use in terms of the gallon decline or for those segments.

Yeah.

Speaker 3: You know, I don't have a good morning, Kelly. I don't have a crystal ball. What's going to happen in the future? The one thing I do know is that, you know, the gallons decrease.

You know I don't have a great by the way good morning, Kelly I don't have a crystal ball, what's going to happen in the future. The one thing I do know is that are you know.

The gallon decrease.

Speaker 3: are very close to basically the office data that was reported. However, as you can see, we continue to concentrate on increased growth profit dollars in lieu of losing some of those dollars.

Very close to so basically the op is data that's what.

Reported.

However, as you can see we continue to concentrate on increasing gross profit dollars.

Blue of losing some of those dollars.

Speaker 3: The one thing I don't believe, I don't believe that, for example, that demand will likely come back to the 2019 numbers. I think demand will continue to be a little bit soft.

The one thing I don't believe I don't believe that.

<unk> dot.

<unk>.

We'll be <unk>.

Likely come back to the 2019 numbers I think demand will continue to be a little bit soft.

Speaker 3: But I think this is something that we see across our competitors as well. It's not something that just related to our competitors. And as I mentioned earlier, when you're dealing with a lot of mum and pop stores in the market, I believe that those guys are facing the same issue as we face over here.

But I think this is something that we see across you know basically across our competitors as well it's not something that's just related to article I think it is really related to our competitors and as I mentioned earlier, you know when you're dealing with a lot of mom and pop stores in the market.

I believe that those guys actually are facing the same issue as we face over here so.

Speaker 3: Again, I think we're going to see a little bit of the softness on gallons, but I think in exchange for that, we will actually see a more increase of basically CPG because of that.

Again, I think we're going to see a little bit softness on God honest, but I think in exchange for that we will actually see it more increased off basically CPG because of that.

Okay and can you also just talk about the faster awards and investments that you've made in the corner.

Speaker 6: Okay, and can you also just talk about the staff to reward investment that you made in the quarter? How we should think about the kind of annualized cost of that and what is the expected ROI of that total investment for the reward loyalty program?

We should think about the kind of annualized cost of that and what is the expected or a lie.

That total investment for the reward loyalty program.

Speaker 3: Sure. As I mentioned, this year, it's all about fast rewards, making sure we have the right assortment. It's all about providing value to our customers.

Sure sure sure.

As I mentioned we.

We started you know.

We did this year, it's all about fast rewards, making sure we have the right assortment you know, it's all about the value of providing value to our customers. So in on May 17.

Speaker 3: So, on May 17th, we basically launch a $10 enrollment, which means that any customer that has valid email address, desktop, contain data, will open or run tendasion for details after a few people have

Basically lounge at $10.

Enrollment, which means that any customers that had been valid email address.

And the telephone number and would like to enroll with US we will actually give you $10 and fast cashback.

Speaker 3: and a telephone number and would like to enroll with us, we will actually give him $10 in fast cash back. We saw a huge increase in Q2, especially in Q3. As you can see, I mean, the increase in loyal customers in Q3 was more than 50% in Q3, 2022.

We saw a huge increase in.

In Q2, especially in Q3 as you can see I mean, the increase in loyal customers in Q3 was over.

Over more than 50% in Q3 2022.

Speaker 3: And the goal over here is to continue basically to increase that. If you're looking on basically on the loyal customers, the loyal customers basically purchased 19.3% of our basically, of our Intel cells over there. So this $10 is very, very impactful. No question about that. Our goal, as I mentioned, is to increase loyal members.

And you know the goal over here is to continue basically to increase that if you're looking on basically on the loyal customers and loyal customers.

Basically purchased 19, 3%.

Basically for our insight sales over there. So this $10 is very very impactful no question about that our goal as I mentioned is to increase loyal members and up to 3 million members by the end of 'twenty 'twenty four.

Speaker 3: up to 3 million members by the end of 2024.

Speaker 3: And yeah, there is no question that when you give $10, that's going to impact yourselves. That's the reason the same store sales were 0.1, but if you really naturalize the impact of approximately $2 million, same store sales will probably edit another 0.4%.

And yeah. There is no question that when you'll give $10 that's going to impact our yourselves. That's the reason the same store sales versus 0.1, but if you really you know not realize the impact of approximately $2 million same store sales will probably added another 0.4% and on a same store sales excluding cigarettes retracting desk.

Speaker 3: And on the same store sells excluding cigarettes, which I think that's the best metrics to measure our business, which we probably had another zero point.

The best metrics to measure our business it would probably add another 0.6%.

Speaker 3: So again, it's an investment, it's a long-term investment, but if you're looking Q after Q, the concentration of loyal members in Q3 2021 from inside sales was around 13.6% we'd work to 16.7% in Q3 2022, and now we are at 19.3%.

So again, it's an investment it's a long term investment.

But you know if you're looking Q after Q.

The concentration of loyal members in Q3 2021 from inside sales was around 13, 6% regret to 16, 7% in Q3 2022 and now we are at 19, 3% in.

Speaker 3: in Q3 2020-23. And one thing to notice is that we keep increasing margin. Even though we are basically giving tremendous value to those loyal members that coming more often, we actually were able to increase margin again by a 50 basis points compared to Q3 2020.

In Q3, 'twenty 23 and <unk>.

One thing to notice is that we keep increasing margin even though.

We are basically giving tremendous value to those loyal members that's coming more often we actually were able to increase margin again by 50 basis points compared to Q3 2022.

Speaker 6: Just a couple of follow-up questions there. If you get to 3 million members by 24, what percent of your...

Just a couple of follow up questions. There if you get two 3 million members by 'twenty four.

What percent of your.

Speaker 6: sales or customer base will that represent and maybe just in terms of the $10 enrollment.

Sales of our customer base will that represent and and maybe just in terms of the 10 dollar enrollment.

Speaker 6: program. I mean, is that going to continue at that level or how do you think about cycling that next year?

Program I mean is that going to continue at that level or how do you think about cycling that next year.

Should we expect that that could impact traffic or you know just trying to think about how we cycle. This this promotion as we get to.

Speaker 6: Should we expect that that could impact traffic or just trying to think about how we cycle this promotion as we get to Q2.

Q2, Q3 next year.

Speaker 3: Sure. So I can tell you that as of November 1st, we paused that in September 19 for a little bit, and as of November 1st, we started it all over again because we saw a huge impact based on that. Again, it's not a big dollar amount, but I think the impact is tremendous.

Sure. So I can tell you that.

November 1st.

We have had we closed that in September 19.

Very little of that and as of November 1st restarted it all over again.

Because we saw a huge impact.

Based on that again, it's not a big dollar amount, but I think the impact is tremendous over here.

Speaker 3: You know, those customers are coming more often, we see more trips, you know, we see more trips over here.

Those customers are coming more often we see more trips that we see more trips they're over here.

Bob.

Speaker 3: And, you know, the longer the member is with us, the more they expand inside the...

And you know the longer they remember we thought the more they expand inside the store.

Speaker 3: And I just want to be just maybe very clear about that. I mentioned four trips and $41 a pair of mom. There isn't for that is that a lot of those members have actually enrolled just close to the end of the quarter. And it takes some time for basically those members to start to get offering from us. I mean, we are providing offering to those members on a regular basis, almost on a daily basis. They get great offering. And this is what...

And you know that just wondering if it'd be just maybe be very clear about that you know I mentioned, four 3% and $41 per month.

The reason for that is that a lot of those members are actually enrolled just close to the end of the quarter and it takes some time for basically those members to start to get the offering from US I mean, we are providing offering to a member.

Members on a regular basis almost on a daily basis, they get great offering.

And this is what we are counting on.

And this is by the way a long term investment, but I still don't starve investment means that we are investing in the short term because we believe that as we continue to grow our loyalty member base.

Speaker 3: And this is, by the way, a long-term investment. When I say long-term investment means that we are investing in the short term because we believe that as we continue to grow our low-sb member base.

Speaker 3: I believe that we're going to increase inside cells because of that. And that's going to drive, by the way, customers to the pump as well, because we have, we have actually offering inside the stores that we'll send customers with nice, sent for gallon off, basically, when they come to actually to purchase fuel as a pump. So I think that's basically going to impact that as well.

I believe that we're going to increase inside sales because of that and that's going to drive by the way customers do that bump as well because we have at <unk>.

We have actually offering inside the stores that will serve customers the way up.

<unk>.

Cent per gallon off basically when they come to do actually to purchase fuel at the pump.

I think that's basically going to impact that as well in the future.

Speaker 6: Okay, thanks. Just one more for me, Ari, on operating expenses. The same store, personal expenses, nearly flat. I think you called out.

Okay. Thanks.

One more for me are you on.

Operating expenses.

Same store personnel expenses nearly flat I think you called out.

Speaker 6: reduction in over time hours, maybe can you just give us order of magnitude how that is impacting the overall op-X when that starts to cycle and what you're seeing just in terms of wages and wage rates?

A reduction in overtime hours, maybe can you just give us order of magnitude on how that is impacting the overall off that when that starts to cycle and what you're seeing just in terms of wages and wage rate.

I'm in the market today.

Speaker 3: For all the dawn answer this question if that's okay if you care, Kelly.

Well I'll, let Dan answer this question if that's okay with you Okay Kelly.

Speaker 4: Yeah, hi Kelly. So, we're looking at it as...

Yes.

Hi, Kelly.

So we're looking at it is.

Speaker 4: is we're switching hours from overtime to regular hours so it's not necessarily

If we're switching hours from overtime to regular hours, so it's not necessarily.

Speaker 4: the difference in hours being worked, it's more of those

The difference in hours being worked is that more of those hours are baked worked at a regular rate versus.

Speaker 4: hours are being worked at a regular rate versus a overtime rate and the other thing I think we mentioned is last summer we did a promotion for all employees sort of like incentive for the hundred days of summer and you know this year we have obviously rates have gone up and we we have now

Overtime right and the other thing I think we mentioned is last summer we did a promotion for all employees sort of like a <unk>.

Incentive for the 100 days of summer and this year, we have obviously rates have gone up.

We have now.

Speaker 4: not had to do that kind of incentive. So yes, you do have rising labor wages, but what you're seeing in reduction in is the incentives that have been out there and that we've offered in the past. So net net, you get sort of this flat increase. And so rates are increasing, but they're not increasing at the rate that we saw earlier. And that's why we're happy to see almost a flat person. That's really how you're spending your money. We're putting more into the wage rate rather than

Not had to do that kind of incentive. So yes, you do have a rising labor wages, but what youre seeing a reduction in is the incentives that have been out there and then we have offered in the past. So net net you get sort of this flat increases so rates are increasing but they're not they're not increasing at the rate that we saw earlier.

And that's why we're happy to see almost a flat personnel, it's really how you're spending your money and we're putting more into the wage rate rather than just incentives.

Speaker 6: Perfect, and can you remind us when you kind of get back to normal in terms of the overtop cycling the overtime?

Perfect and can you remind us when you kind of get back to normal in terms of the overtime cycling of the overtime.

Speaker 4: Could you please clarify your question? I'm not sure what you're asking.

Could you. Please clarify a question I'm not sure what you're asking.

Well I'm just trying to understand from a comparison standpoint, when the overtime hours start kit.

Speaker 6: Well, I'm just trying to understand from a comparison standpoint, when the overtime hours start to.

Speaker 6: Get back to normal. Are you still sampling some of your increases for the next couple quarters? Right, right, right, and a lot of it to

Get back to normal or are you still sure sure increases for the next couple of quarters right right right and a lot of it to chip breakout. Okay. A lot of it was was wage increases that we're doing I think this is Ben.

Speaker 4: to break out, okay, a lot of it was wage increases that we're doing. I think this has been, it has really gonna be cycles more turns we get toward the end of the year. It's been an effort that we have done all year.

It is really going to be cycled more towards we get towards the end of the year. It's been an effort that we have done all year.

Speaker 4: um, by, you know, bringing in, you know, temporary resources to do that. So this has been an ongoing effort. Um, so, so we've, we've really, you know,

By bringing in temporary resources to do that so this has been an ongoing effort.

So we've really.

Speaker 4: in terms of cycling it would really be done by the end of this year. Because this has been a major focus.

In terms of cycling it would really be done by the end of this year. Because this has been a major focus.

Speaker 4: from operations is to really cut down those overtime hours, give people a better quality of life, and then also raise the toothache, raise the hourly wage, and also use some temporary services to fill in for things that we can give people relief.

Operations is to really cut down those overtime hours give people a better quality of life and then also raised Tuesday raise the hourly wage and also use some temporary services fulfilling for things that we can give people really fun.

Got it and just maybe last one for me any thoughts on just how you're planning Capex for 2024 that we can start to think about incorporating into our model.

Speaker 6: Got it and just maybe last one for me. Any thoughts on just how you're planning CapEx for 2024 that we can start to think about incorporating into our model?

Speaker 4: Don, would you like to answer that? Sure, sure. I mean, you know, our maintenance cap-X will, you know, will say I think this is the last big year that we have of our EMV conversions, which I think we talked about with somewhere between 10 to 12 million a year that we have, but we will have some, you know, again, without giving out to specific guidance, we have a lot of projects that will require cap-X going forward, but in looking at total, if you look at our total cap-X,

Dan would you like to answer that sure sure I mean I mean.

Our maintenance Capex will will stay I think this is the last big year that we have of our E&P conversions, which I think we talked about with somewhere between $10 million to $12 million a year that we have but we will have some you know again without giving out specific guidance.

Have a lot of projects that will require capex going forward, but.

Looking at total if you look at our total capex of roughly about two thirds is maintenance one third is investment.

Speaker 4: Roughly about two-thirds is maintenance, one-third is investment. So that may be a guideline for you, but there will be projects that will be coming up that will require CapEx, but a lot of those will be CapEx with a significant ROI to them.

So that maybe a guideline for you, but there will be projects that will be coming up that will require capex, but a lot of those will be capex with a significant ROI to them.

Thank you.

Thanks Kelly.

Speaker 1: Our next question is from Alok Patel with Spiegel.

Our next question is from I Love Patel with Stifel. Please proceed.

Hi, This is Luke on for Mark My first question is on quarter to date trends any notable changes in foot traffic given the macro conditions and resumption of student loan payments and then if you can kind of frame the answer around whether you're offering more we're seeing higher demand.

Speaker 7: All right, this is a look on for Mark. My first question is on quarter-day trends. Any notable changes in foot traffic given the macro conditions and resumption of student loan payments. And then if you can kind of frame the answer around whether you're offering more or seeing higher demand for private label and if so, which categories.

For private label, and if so which categories.

Speaker 3: Yeah, so I I'll start maybe with the second question related to, you know, basically where where we focus and what we see. So, as I mentioned earlier, you know, the majority or large portion of ourselves actually happened in the core categories.

Yeah. So I'll start maybe with the second question related to you know basically where where we focus than what we see so as I mentioned earlier.

The majority or a large portion of ourselves actually happened in the core categories.

Speaker 3: In those core categories, for example, we see an increase. In specific categories, for example, candy this quarter was almost 4.8% more than basically prior year quarter.

So in those core categories. For example, we see an increase.

Specific category you know for example, candy Candy this quarter.

It was almost a full 0.8% more than basically prior year quarter. A beer for example, it's another strong categories two points, 8% salty snacks four 1%.

Speaker 3: Beer, for example, is another strong category, 2.8%, salty snacks 4.1% above prior year quarter. I think what we see over here is that this is coming back to the loyal members that I mentioned earlier, those loyal members taking advantage of the offering and the value that we have inside the stores. And because of that, I think we see an increase in those categories.

Ah bowls.

Prior year quarter, So I think what we see over here is that this is.

As you know coming back to the members that I mentioned earlier.

Those members taking advantage.

Basically of the offering and the value that we have inside the stores and because of that I think we see any increase in those categories.

In particular.

Speaker 3: Regarding your question, you know, regarding to traffic and trends, so, you know, I think, you know, I think the inflation impact now is actually hitting all customers. I mean, there is no question about that.

Regarding your question regarding to traffic can trend so you know.

I think.

Thank God the inflation impact now, it's actually eating all customers I mean, there is no question about that and I think this is the reason why we need to be very very competitive and make sure that we have the rights offering inside stores, including <unk>.

Speaker 3: And I think this is the reason why we need to be very, very competitive and make sure that we have the right offering inside stores, including

Speaker 3: not only the core categories, including, you know, the right offering when it comes to food service. You know, people have less dollars to spend. And because of that, they're going to, I believe, visit more the convenience store.

Not only the core categories, including you know.

The rights offering when it comes to food service, you know Peter I have less dollars to spend and because of that they're going to I believe it's more the convenience store.

Speaker 3: And I think they're going to look for things that are very, very valuable for them.

And I think they're going to look for things that are very very valuable for them and this is where we need to spend our time and money and I think our team is doing a terrific job we saw that in Q3.

Speaker 3: And this is where we need to spend our time and money. And I think our team is doing a terrific job. We sold it in Q3.

Speaker 3: But again, I can't touch something in particular when it's come to basically to trend. The only thing I see is that the core category trend is up almost quarter after quarter. And we see that quarter after quarter for the past basically three years.

But again I can touch something in particular when it comes to basically to trend. The only thing I'd say is that the core categories trend is up almost quarter after quarter, and we see that quarter after quarter for the past basically three years.

Speaker 7: Got it. So, as a quick follow-up, within the core destination categories, which categories

Got it so as a quick follow up was in the core destination categories, which which category.

Speaker 7: drivers for sales growth for the balance of the year and into 2024. And then if you can kind of discuss the driver supporting the great strength that you've realized in those categories, that would be great. And it would be awesome if you can also provide the year-over-year numbers for package beverages.

Drivers.

Sales growth for the balance of the year and into 2024.

And then if you can kind of discuss the drivers supporting the great strength that you've realized in those categories that would be great and it would be awesome. If you can also provide the year over year numbers for packaged beverages.

Yeah. So.

Speaker 3: I'll start with the six categories. The six categories are alternative snacks,

I'll start with the six categories. Okay to six you broke up a little bit so, but I'm going to try to I hope I hear the right questions. So I'll start and distinct category. Just six categories are really alternative snacks was up one 6% this quarter.

Speaker 3: was up 1.6% this quarter. Candy was up 4.8%. Beer was up 2.8%. Hack Bev was up 1.5% this quarter. Packaged sweet snacks was up 2.2%. And we end with salty snacks at around 4.1%. And if you remember, we are cycling a very, very strong Q3 2022.

Candy was up four 8% beer was up two 8% Pac Bev was up one 5%.

This quarter.

Pak package Sweet snacks was up two 2% and reentry salty snacks at around four 1% and if you remember we are cycling a very very strong Q3.

2022 but those are really the core categories that if you really talk looking on those core categories not only that they continued to perform very well for us and aligned with our strategy you know over the last three years.

Speaker 3: But those are really the core categories. And if you're really looking on those core categories, not only that they continue to perform very well for us and align with our strategy, you know, over the last three years.

Speaker 3: You know, if you're really looking on, you know, the contribution from these categories expended approximately 570 basis points.

If you're really looking on the contribution from these categories expanded approximately 570 basis points.

Speaker 3: you know, total merchandise contribution from these categories, which is at approximately 17% compounded annual growth rate.

Total merchandise contribution from these categories.

Which is at approximately 17% compounded annual growth rate.

Speaker 3: So I think that's basically what we see from those six categories for the past three years.

So I think that's that's basically what we see from those that six categories that are.

For the past few years.

Got it thanks I'll pass it on.

I appreciate that thank you.

Our next question is from <unk> Martinson with Jefferies. Please proceed.

Speaker 1: Our next question is from Carew Martinson with Jeff.

Speaker 8: Good morning, just kind of a big picture question, why is the fuel demand down when we look at the overall industry, I mean, ultimately more people are going to work more days in the office, you know, what's what's driving the broader category?

Good morning, I'm, just kind of a big picture question why is the fuel demand down when we look at the overall industry I mean, ultimately more people are going to work more days in the office you know, what's what's driving the broader category.

Speaker 3: If I had the right answer, I would probably give you the answer. But, again, we are relying on OPIT data. We are relying on OPIT data. And as you can see, OPIT data shows a decline in volume nationwide of approximately 3.49%.

If I had if I had the answer.

I would probably give you the answer but you know again, we are relying on OPEC data, we are relying on it'll be data and as you can see all these data.

It shows a decline in the body of nationwide of approximately 349%.

Speaker 3: That's one thing. The second thing is I want to remind everybody, our footprint is rural footprint. You know, we have a lot of stores. I think 40%, I think I mentioned that a couple quarters ago, 40% of our stores are in town that have, you know, basically less than 20,000.

That's one thing the second thing is I want to remind everybody our footprint. It's rural footprint. We have a lot of stores I think 40% I think I mentioned that a couple of quarters ago, 40% of our stores are in town that they have.

So basically less than 20000 people and when you operate in some of those rural town people are not driving probably like in some other areas. You know we don't pay our stores are not.

Speaker 3: And when you operate in some of those role-town, people are not driving probably like in some other areas. We don't, our stores are not located on major highways, for example. So I think that's one of the reasons that you basically see that.

Located in one major highways for example.

So I think that that's one of the reasons Doctor you basically see that.

Speaker 3: And that's consistent, by the way, with other competitors in the market, basically the market that we basically do business.

And that's consistent by the way with other competitors in the market in that basically the market that we basically their business. So it's a I think it's worth noting that other public companies.

Speaker 3: So, you know, I think it's worth noting that, you know, other public companies have reported similar metrics, by the way, in those markets.

We bought it similar metrics by the way in those markets. So.

Speaker 8: Okay, when you talk about seeing sustainable strong margins on fuel, are we still looking at in this stable environment being able to maintain kind of over 40 cents for gallons?

Okay.

When you talk about scene.

Seeing sustainable strong margins on fuel.

Still looking at you know in this stable environment being able to maintain kind of over 40 cents per gallon.

Okay.

Speaker 3: You know, it's a good question. Again, I don't have a crystal ball what's going to happen with, you know, if we can keep the $0.40. I think the one thing I can say.

It's a good question again, I don't have a crystal ball, what's going to happen with Bob.

If we can keep the 40 I think the one thing I can't say.

Speaker 3: You know, we are today the sixth largest operator in the country and we are competing with some of the large chain and we are competing with a lot of basically the small chain and the mom and pop. As you can, as you can basically appreciate, you know, 70% of the industry, almost 100,000, 98,000 convenient gas stations are chained with 50 stores or less.

We are today the sixth largest.

Operator in the country and we are competing with some of the large chain and we are competing with a lot of basically the small chain and the mom and pop as you can and you cannot basically I. Appreciate you know 70% of the industry almost 100090 8000.

Convenient stores gas stations are changed with 50 stores or less 60% of it is mom and pop and I think every one of those guys are facing.

Speaker 3: 60% of it, it's mom and pop. And I think every one of those guys are facing, basically facing higher expenses, insurance, electricity, higher fixed expenses that they have pair box. And I think because of that, we believe that structurally higher margin will remain in place.

The iron.

Basically facing higher expenses insurance electricity.

You know our fixed expenses that they have fair box, you know and I think because of that.

We believe as a structurally higher margin will remain in place over here, but again, that's just my assumption based on being in the business for so many years.

Speaker 3: But again, that's just my assumption based on being in the business for so many years.

Speaker 8: And then what are we seeing on the inflationary front when it comes to inside the stores on merchandising? Are you still seeing pressure there? And where are you on your price?

And then I'll.

What are we seeing on the inflationary front when it comes to inside the stores run on merchandising or are you still seeing pressure, there and kind of where are you on your pricing.

Yeah.

Speaker 3: Well, I think the results speak for themselves, that's the reason I mentioned, if you're looking on sales excluding cigarettes, I think that, you know, we see the results of

Well I think the results speak for themselves, but that's the reason I mentioned that and if youre looking ourselves excluding cigarettes.

I think that the we see the results over here.

Speaker 3: I think at the end of the day, it's very, very important for us to provide value to our customers. This is very, very important for us. I think as long as we continue to provide value to our customers, I think they're going to continue to come. That's the reason loyalty is a very, very important component when it comes to it.

And I think at the end of the day, it's very very important for us to provide value to our customers.

This is very very important for us.

And I think as long as we continue to provide value to our customers I think they were going to continue to come and that's the reason loyalty.

Very very important component.

When it come to it.

Thank you very much I appreciate it.

Thank you.

Speaker 1: As a reminder, it is star one on your telephone keypad if you would like to ask a question. Our next question is from William Reuter with Bank of America.

As a reminder, the star one on your telephone keypad, if he would like to ask a question. Our next question is from William Reuter with Bank of America. Please proceed.

Speaker 2: Hi. My first is on the merchandise margin expansion. You mentioned marketing, and then you mentioned merchandising. Is this largely based upon mix and having more food and consumables in those six major categories of growth, or what are some of the bigger contributors to that expansion?

Hi, My first is on the merchandise margin expansion you mentioned marketing and then you mentioned merchandising.

Is this largely based upon mix and having more food and consumables and those six major categories of growth are or what are some of the bigger contributor to that expansion.

Yeah, I think that makes sense.

Speaker 3: Yeah, I think the mix is absolutely very important, you know, going back to, you know, to the three key pillars that I mentioned on the call.

<unk> is absolutely very important going back too.

The three key pillars that I.

I mentioned on the call and.

Speaker 3: The core categories are very, very important. They're driving margin, of course, tremendously. The other piece, of course, is food service. You know, food service is something that, you know, will help us to continue to grow margins. And this is an area that we continue.

The core categories are very very important theyre driving margin of course tremendously. The other piece of course is foodservice foodservice.

<unk> dot.

Help us to continue to grow margin.

And this is an area that we continue to invest I mentioned those fixed categories. If you want I can.

Speaker 3: I mentioned those six categories, if you want, I can go through them again, but those six core categories, led by Candy, are the categories that drive the majority of our sales over here.

I'll go through them again.

Those basically see core categories led by Kandy or this category basically drive you know the majority.

Basically off ourselves over here, if you're looking on those are basically.

Speaker 3: you know, core categories, they're up 2.4% on the same sort of sales growth rate.

Core categories. They are up two 4% on a same store sales growth basis, Q3 versus Q3 2023 versus Q3 2022.

Speaker 3: Q3 2023 versus Q3 2022.

Speaker 3: And again, it's all driven by those basically by those three key pillars that I mentioned.

And again, its all driven by those basically by dose.

Key pillars that I mentioned.

Speaker 9: Got it. And then I think when you were talking about M&A, I think you mentioned that there are four that are in the pipeline, I guess, that are in some sort of active discussions. Number one, did I hear that correctly? And number two, I guess, is there any way you can dimensionalize how large these are?

Got it and then I think when you were talking about M&A I think you mentioned that there are four that are in the pipeline I guess that are in some sort of active discussions number one did I hear that correctly and number two I guess is there any way you can dimensionalize.

How large these are.

And you didn't hear that correctly. Unfortunately that said we did four we closed on five acquisitions.

Speaker 3: And you didn't hear that correctly, unfortunately, that we did for we closed on five acquisitions since July 2022 until basically the end of this quarter we closed on five acquisitions.

Since July 2022.

Until basically at the end of this quarter, we closed on five acquisition.

Speaker 3: Uh, and it's, uh, basically we closed on course.

And it's.

Basically we closed on course.

Speaker 3: which was the fleet business that was in July 2022. Great opportunity that we execute. Now we are over 14 months, 15 months after closing. After that, we closed on Pride. Pride was 31 locations in the Northeast, great location.

It was de fleet business that was in July 2022, great opportunistic means that you're gonna. We execute now we are over 14 months 15 months after closing.

After that we closed on Friday Friday was 31 locations.

In the northeast great location.

Speaker 3: Since then, we opened another store within Pride, and then we had TEG.

Then we opened another store we can pride.

And then we had to EG.

Speaker 3: TEG and WTG. And just recently, during Q3, we closed another acquisition, acquiring seven stores from one of our competitors.

P G and W. T G I.

Just recently during Q3, we closed another acquisition acquiring seven stores from one of our dealers.

Okay. Just lastly for me a question on the 10 dollar program I guess would it be possible for customers to create new email addresses each time and is there any way to address this are you able to track to make sure that they're not doing this just each time, creating a new one.

Speaker 9: Okay. Just lastly, for me a question on the $10 program, I guess would it be possible for customers to create new email addresses each time and is there any way to address this? Are you able to track to make sure that they're not doing this? Just each time creating a new one?

The answer is yes, there is.

Speaker 3: The answer is yes, there is an opportunity for people. We have some measurement and we have some, I'll call it some, you know, we have compliance and you know, can someone take advantage? Absolutely, but I don't think it's, you know, it's something that actually go to the.

Fortunately for people, we have some measurement that we have some I'll call. It some and we are compliant and can someone take advantage absolutely, but I don't think it's.

It's something that actually go to the extreme and we have yes, we have.

Speaker 3: And yes, we have compliance in place. In some cases, if someone tries to be cute, we try to figure out a way to catch them. But again, this is not the concentration. The concentration needs to be on how do you increase the base because we see what is happening with those loyal customers. I mean, we more concentrate on basically targeting them and making sure that we execute versus just watching our customers and making sure that no one is taking advantage. Understood. Okay.

Basically compliance in place and in some cases someone try to do.

<unk> tried to figure out the way out to catch them, but again. This is not the concentration of the concentration need to be on how do you increase the base because we see.

What is happening with those customers I mean, we won't concentrate on basically on targeting them and making sure that we execute the rest are just watching our customers and making sure that no one is taking advantage.

Understood. Okay, Alright, that's all for me. Thank you.

Speaker 10: Thank you.

Thank you.

Speaker 1: We have reached the end of our question and answer session. I would like to turn the conference back over to Ari for closing.

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

Speaker 3: Thank you once again for joining the call this morning and for your great questions. It was really a lot of great questions this morning. I'm very pleased with our results this quarter as we navigate from comparison to the back half of last year. I remain very excited about the many achievable opportunities in front of us. And I thank you again for your questions and for the time you spent this morning.

Thank you once again for joining the call. This morning and for your Great question. It wasn't really a lot of great questions. This morning, I'm very pleased with our results this quarter as we navigate strong comparison to the back half of last year.

I remain very excited about the many achievable opportunities be front of us and I. Thank you again for your questions and for the time you spent this morning.

Speaker 1: Thank you. This will conclude to this conference. You may disconnect your lines at this time and thank you for your purchase.

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

Speaker 11: ?

Okay.

[music].

Okay.

[music].

Okay.

[music].

Okay.

[music].

Speaker 11: ?? ?? ?? ?? ??

Speaker 11: We.

Speaker 11: [? playing joyous music playing.... playing joyous music playing.... playing joyous music playing....

Okay.

[music].

Okay.

Yes.

[music].

Yeah.

[music].

Yeah.

Yes.

Yeah.

Okay.

[music].