Good day, everyone, and welcome to today's ARKO Corp. Third Quarter 2024 Earnings. At this time, all participants are in a listen-only mode. Please note this call is being recorded. I will be standing by, should you need any assistance. It is now my pleasure to turn today's program over to Jordan Mann, Senior Vice President of Corporate Strategy, Capital Markets and Investor Relations. Please go ahead.

Thank you. Good afternoon and welcome to ARKO's third quarter 2024 earnings conference call and webcast. On today's call are Arie Kotler, Chairman, President and Chief Executive Officer; and Rob Giammatteo, Executive Vice President and Chief Financial Officer. Our earnings press release and quarterly report on Form 10-Q for the third quarter of 2024 as filed with the SEC are available on ARKO's website at www.arkocorp.com. During our call today, unless otherwise stated, management will compare results to the same period in 2023. Before we begin please note that all third quarter 2024 financial information is unaudited. During this call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please review the forward-looking and cautionary statements section at the end of our third quarter 2024 earnings release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today. Any forward-looking statements made during this call reflect our current views with respect to future events and ARKO is under no obligation to update or revise forward-looking statements made on this call, whether as a result of new information, future events or otherwise, except as required by law. On this call, management will share operating results on both a GAAP basis and on a non-GAAP basis. Descriptions of these non-GAAP financial measures that we use, such as operating income as adjusted, and adjusted EBITDA, and reconciliations of these measures to our results as reported in accordance with GAAP, are detailed in our earnings release, or in our quarterly report on Form 10-Q for the quarter ended September 30, 2024. Additionally management will share profit measures for our individual business segments along with fuel contribution, which is calculated as fuel revenue, less fuel costs and excludes intercompany charges by our subsidiary GPMP. And now, I would like to turn the call over to Arie.

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

Thank you, Arie. Good afternoon, everyone. Before turning to third quarter 2024 results, I want to reiterate that our reported results for adjusted EBITDA include the non-cash portion of rent expense, consistent with the change in methodology we articulated last quarter. On this basis, adjusted EBITDA was $78.8 million for the quarter, compared to $87.3 million from the year-ago period, with the decrease caused primarily by lower retail fuel and merchandise contribution. At the segment level, our Retail segment contributed approximately $71 million in operating income, compared to $81.5 million in the year-ago period. Adjusted operating income for the quarter was $85.1 million, compared to $96.5 million in the year-ago period. Total retail merchandise sales were down approximately 7.3% for the quarter, with merchandise contribution down 4.2%, on margin rate expansion of 110 basis points. Total retail fuel contribution was down 3.4% with a 5.9% gallon decline, partially offset by a margin increase of $0.01 per gallon. Same store merchandise sales excluding cigarettes were down 5.7% versus the year-ago period, while total same store merchandise sales were down 7.7%. Same store transactions were down high-single digits for the quarter, reflecting continued external headwinds. The decline in transactions was partially offset by a low single-digit increase in average dollar sale. The impact of the sales decline was partially offset by continued same store margin rate expansion which was up 100 basis points, as compared to the year-ago period. Same store fuel contribution was down approximately 4.3% for the quarter with the decline in gallons partially offset by stronger year-on-year fuel margin per gallon. Same store fuel gallon demand was down 6.6% for the quarter, while fuel margin of $0.414 per gallon was up $0.01 per gallon from the year-ago period. Same store operating expenses were down approximately 1.4% for the quarter. Moving on to our Wholesale segment; operating income was $8.2 million for the quarter compared to $10 million in the year-ago period. Adjusted operating income was $20.3 million for the quarter versus $22.6 million in the year-ago period, caused by a decline in gallons and lower fuel margin per gallon, which resulted primarily from reduced prompt pay discounts. Fuel margin was $0.096 per gallon versus $0.105 per gallon in the year-ago period. For our Fleet segment, operating income was $10.8 million for the quarter compared to $8.8 million in the year-ago period. Adjusted operating income was $12.6 million for the quarter, versus $10.7 million in the year-ago period, with total gallons roughly flat to the prior year. Increased segment operating income was driven by strong fuel margin performance, which was $0.435 per gallon for the quarter, versus $0.384 per gallon in the year-ago period. Total company general and administrative expense for the quarter was $38.6 million versus $44.1 million in the year-ago period, with favorability driven by lower stock-based compensation expense and changes in year-on-year timing of incentive compensation accruals. Net interest and other financial expenses for the quarter were $23.6 million, compared to $14.6 million in the year-ago period, with the change caused primarily by fair value adjustments related to our warrants. Net income for the quarter was $9.7 million, compared to $21.5 million for the year-ago period. Please reference our press release for a detailed reconciliation from total company net income to adjusted EBITDA. Turning to the balance sheet; excluding lease-related financing liabilities, we ended the third quarter with $885 million in long-term debt comprised of our 2029 senior notes, the outstanding balance on our Capital One line and the remainder primarily related to real estate and equipment financing. Our $140 million asset-based lending facility remains completely undrawn as we continue to manage working capital needs from operating cash flow. We maintained substantial liquidity of approximately $869 million, including $292 million in cash on hand at quarter end, along with remaining availability on our lines of credit. Total capital expenditures for the quarter were $29.3 million. Turning to our fourth quarter and full year guidance; we expect our fourth quarter adjusted EBITDA to be in a range of $53 million to $63 million. Supporting assumptions include a low to mid-single-digit decline in same-store sales, a mid-single-digit decline in retail gallon demand, and a retail fuel margin of $0.38 per gallon on the lower end and $0.42 per gallon on the higher end of our guidance. Our overall guide reflects expectations for EBITDA growth in our Wholesale and Fleet segments, driven by the accumulating benefit of our retail wholesale channel optimization work and continued strength in fuel margin in our Fleet channel. Our fourth quarter guide translates to a full year 2024 adjusted EBITDA range of $245 million to $255 million. The midpoint of our revised EBITDA outlook is $5 million below our beginning of year guide, reflecting our reduced expectation for fourth quarter same-store merchandise sales. And with that, I'll hand it back to Arie for closing remarks.

Thanks, Rob. As we wrap-up, I want to reiterate our concentration on adapting to the dynamic market landscape. We remain focused on Foodservice, strategic store transformation, and value-driven initiatives. I want to thank the company's employees for their continued hard work over the quarter and the quarters to come. Thank you for joining today's call. We appreciate your ongoing support and look forward to announcing shareholder value. With that, we will open it up to questions.

Our first question is from Bobby Griffin with Raymond James. Your line is now open.

Good afternoon, everybody. Thanks for taking my questions. So Arie, I guess first thing I want to talk about, you talked a little bit about the seven-store pilot that you guys are building out. Can you maybe provide a little bit more detail on the go-to-market strategy there? Like what brands is it going to be under? What are some of the other things that this pilot might include? And if it's successful, what's some of the timeline to roll out some of the big initiatives to a larger base of stores?

Sure. Yeah, it's not a problem. So just to be clear, this pilot is crucial for us. In order to make everything right, we actually hired a third-party consultant to ensure that not only we get it right but also engaged a large group of people to test our food to make sure that this is what the customer is looking for. We got their feedback, and after finishing that process, we are currently finalizing the store layout and ensuring we have the right merchandise assortment, including the development of system-wide branding for the announced foodservice. We are currently coming up with a brand name that will be attached to the foodservice, but we are not prepared to disclose it at this time. We’re working on that and will disclose it immediately after we finalize the layout. The idea is to start permitting in the next couple of days, basically during Q4, and to start implementing and beginning construction at the beginning of Q1 2025. Assuming those seven stores pilot is successful, which we believe it will be, we plan to add more and more stores in the region we are focusing on, which is essentially around the Richmond market.

Okay. And then on the details you gave about the other tobacco products and adding more back bar space, have you guys done that in a subset of stores? I'm just trying to get a sense of the expected contribution of that updated back bar. Is there anything you can share there or is it still too early to be able to tell that?

So yes, we started a test in many stores. The test was very successful, and we are seeing the results. We see that the minute we're actually investing in the back bar, we're seeing uplift. Consumers are moving from cigarettes to other tobacco products, which is the reason we are rolling out new features to 1,000 stores. We plan to finish the installation by the end of Q1 2025. However, it’s still too early to provide conclusive results. There is no question that cigarette consumers are shifting towards other tobacco products. Our goal is to make sure that we have everything they’re looking for to convert them from cigarettes to other tobacco products. The margin is much higher in that segment, and this is where the industry is going. To give you some context, one out of two of our enrolled members are tobacco consumers, meaning more than 50% of our customers are either cigarette smokers or using other tobacco products. We see this as a significant opportunity, given that together, they represent almost 40% of our sales.

And other tobacco products, Bobby, represent about 10% total merchandise penetration. So it is significant.

Okay. That's helpful. I guess, I’m focusing just kind of these questions on the merchandise side of things, just given some of the trends we're seeing. If you unpack it by region, I know you guys operate a handful of different brands and are present in different regions. You've got some rural and some urban exposure. Are you seeing any regional differences or brand differences that can maybe point to some of the weakness, or is it pretty unanimous across the chain in terms of the negative 7.7% comp we look at? Is there a significant difference across different areas of the country where you operate?

I’ll let Rob answer that. But I just want to clarify the brands have nothing to do with this trend. It’s different regions, but not about the brand. Rob, I'll let you take this.

Bobby, nothing that we've seen specifically at the regional level. I mean, there are puts and takes here and there, but it is pretty broad-based, and that’s why we think it's more of a macro issue. We don't see any significant pockets by region.

Okay. I’ll join back in the queue for now…

I want to add one more thing, Bobby, just for your benefit. I just want to finish with something. As I mentioned earlier, the pressure that we see on the consumer is essentially countrywide. It’s a nationwide pressure that we see on the consumer. We see this sentiment across many industries, including quick-service restaurants. That's the reason we focused on sales excluding cigarettes. Sales excluding cigarettes were down 5.7%. But at the end of the day, our concentration in this environment is to add more and more Foodservice offerings. The margins are higher. Even though our sales excluding cigarettes were 5.7% down, our margin was up 110 basis points. This remains our focus — how to increase margin and drive profitability while trends were down during Q3. I can tell you the current trend is a bit more favorable than what we saw during Q3. I’m very bullish from Q4 all the way to 2025.

Okay. Thank you, Arie. Thank you, everyone. I’ll jump back in the queue. Best of luck here in the fourth quarter.

Thank you, Bobby.

Thanks, Bobby.

Thank you. We'll take our next question from Kelly Bania with BMO Capital Markets. Your line is now open.

Good evening. Thanks for taking our question. Arie, you kind of just touched on it a little bit, but I was curious about your outlook for same-store sales into the fourth quarter improving to that low to mid-single-digit area. Is that just due to comparisons? It sounds like October maybe was a little better. And then maybe, you could just loop in how kind of the hurricane activity affected the business across the board in the quarter?

Yeah, Kelly, I'll take that. So you're spot on; October was markedly better than September. Still in the negative, which is why our fourth quarter guide is in that down low to mid-single, but it was markedly better than September, and we're cautiously optimistic that Q3 was a bottom. In terms of the hurricane, it kind of hit us right at the end of the third quarter. So we only had about a couple of days in the third quarter, with no material impact on the third quarter. Obviously, there was significant human impact, but from a financial standpoint, no material impact for Q3. Most of the stores were back up within a week after that. So we don't see that being hugely material for Q4.

Got it. And another question just on the promotional activity. How would you characterize promotional activity across the board in the third quarter? And how do you feel about what you're getting from the vendors in terms of supporting that? And what are you doing on your own from an ARKO funding of promotions standpoint?

Sure. As I mentioned at the beginning of the quarter, most of our promotional activity is being funded by the vendors at 100%. We had many promotional activities in the third quarter. I mentioned this on our last call. We have many promotional activities. Everybody is suffering, including our vendors. Our vendors want to ensure they are selling more. They had the same issues during Q3, and they're all working with us towards Q4. As I mentioned earlier, the Fas Million was very successful for us a few years ago. Given that we are in the fourth quarter, just before the holidays, we felt the need to push really hard with promotional activity to finish the year. That's why we launched yesterday the Fas Million, providing a chance to win $1 million. We have 700 items, and all of those promotions are being supported by our vendors at 100%. For your information, given I mentioned other tobacco products and that at least one out of two of our customers are either cigarette customers or users of other tobacco products, we are launching a significant other tobacco product promotion in December to deliver substantial savings to our customers. We're talking about a promotion that is entirely funded by the supplier, priced at $1.99, which represents savings of over $10. This is something very significant. We are doing it just before year-end because we believe this is an opportunity to boost sales as we conclude the fourth quarter.

I wanted to ask about the store optimization. Should we understand that it will largely be complete by the end of the fourth quarter, or is this going to be an ongoing initiative in the coming years? Can you also explain how you selected the stores and what criteria made them the right candidates for this strategy?

Sure. The answer is we're going to be completed with approximately 150 stores by the end of the fourth quarter. When we finish with those 150 stores, we are talking about a benefit of approximately $8.5 million between the segments. As I mentioned earlier, we're looking at a total benefit of somewhere between $15 million to $20 million prior to G&A savings. We will continue with that into the first quarter all the way to the second quarter, and I believe we will finish the majority of them then. The larger portion of the 150 stores will be done by the end of the fourth quarter. How we select those stores is really based on those retail stores that we don’t believe have much upside for further investment. We don’t see the return on capital on those stores. We are converting them to a wholesale segment, which means we will have a supply agreement with those operators. We will collect rent from them, and ultimately, this will increase profitability in the wholesale segment, allowing us to make more money than those stores were generating when they were part of the retail segment. That’s the thought process behind it. It’s all about return on investment and capital allocation at the end of the day.

Got it. And just one last one for me. I think you mentioned same-store operating expenses down 1.4%. Can you just talk about how you achieved that? And if that’s something we can expect to see as sustainable declines in operating expenses or were there any factors impacting that for this quarter?

Yes, I think, Kelly, some of the same trends that are in place as we have softer sales. Certainly, we're rightsizing the labor in the stores so that we're not overinvesting there. So, again, it’s a savings, but we’d rather have the sales to go with that. But that's just conscious management of labor hours in the stores to flex down. You’d also have some benefits from the credit card fees on the lower sales and the lower gallons that’s also helping that. So again, it’s diligent labor management in the stores and a combination of the credit card that’s primarily driving that down. And for the fourth quarter guide, you should expect that type of trend to continue.

Thank you.

You're welcome.

Thank you. And we'll take our next question from Anthony Bonadio with Wells Fargo. Your line is open.

Yes, hey guys. Thanks for taking my questions. So, I wanted to ask about the new-to-industry stores. I know you guys are expanding that pipeline a bit with the eight new boxes. It seems like you're hitting the gas a bit on growth, but I would think it takes some time to build that muscle internally. I guess how quickly do you think that sort of organic unit growth could ramp? How high could that growth go over time?

Yes, Anthony, you're right. We're actually starting with no new-to-industry stores or very few previously. We're going to eight new-to-industry stores in a very short order. Of these eight stores, we opened one already, and we have another three opening between now and the end of the year, with another four completing during 2025. While we are working on these eight new stores, we are already starting to work on the pipeline for the future. So, if we went from zero to eight in a very short order, the idea is that we will ramp this up going forward. I can't provide a specific quantity at the moment, but I can tell you this area is an opportunity for us given our liquidity, our marketplace footprint, and economy of scale, we believe we can ramp it up, completing our current pipeline by the end of 2025 and ramping further in 2026.

Got it. That's helpful. And then, I guess, just thinking back historically you guys have been pretty acquisitive. How do you think about the return on capital doing it that way and opening organic boxes versus sort of going out and acquiring more like you used to?

I think it's another opportunity, just another way to allocate capital. Given our cash on hand and our current balance sheet, we will continue both. We are not stopping acquisitions at the moment. We're just looking at what's the best way to allocate our capital and what’s the best return on investment for us in the short term and in the long term. New-to-industry stores, of course, require more capital than what we typically spend in acquisitions, but at the end of the day, we are investing in areas where we see opportunity for additional growth based on population and the economy.

Got it. And just to squeeze one more in. I know you guys aren't giving guidance yet on 2025, but just any early thoughts there, high-level puts and takes how you're thinking about the backdrop and sort of idiosyncratic drivers in the business as we're starting to model that?

Look I think – yeah, look Anthony, we're not going to share anything exclusively here today. But as you think about when we talk to you in Investor Day, we'll have more context over a multiyear period. Some of the larger themes are already in place. We've talked to you about the food penetration and initiatives on that front. That's an accretive area. We've had a track record of multiple years of margin rate accretion on the merchandising side. I think that's likely a trend that could continue over time. Fuel gallons is probably a bit more of a macro, and again we're hopeful, as we mentioned, that Q3 was a bottom. Hopefully next year, the industry starts to pick up, and we can get into that secular growth pattern again. There’s a pattern there. Some macro factors will be a driver on that front. We will continue to price on the fuel side to optimize for fuel contribution, which is important to us, a trend we need to continue. So hopefully, a little color there. We'll share more during our multiyear view when we're together at Investor Day.

Understood.

Just to conclude, you can take into account the projected $8.5 million benefit from the 150 store projects we’re discussing. We feel very comfortable with that. As I mentioned earlier, moving into 2025, we expect all this transformation from switching stores from retail to wholesale. As stated, we can anticipate $15 million to $20 million going into 2025. I think those are two strategies we feel very comfortable with, as they focus on transforming segments. The volatility is much lower than concentrating on same-store sales.

Thank you.

Thank you.

Thank you. We'll take our next question from Connor Introna with Stifel. Your line is open.

Hi, guys. Good afternoon. Thank you for taking my questions. First, I want to better understand trends in current customer traffic with the declining gas prices. Are you seeing any noticeable pickup in foot traffic into stores? Just trying to get a better understanding of the current conversion rate and if there are any particular categories like energy drinks. I know you mentioned tobacco, pizza, and hotdogs that are driving outperformance.

I'll start with the transaction standpoint. As we mentioned in the prepared remarks, transactions were down high single digits for the third quarter. October was a couple points better than that. That's why we talked about our same-store sales positioned to improve from what we saw in Q3, but this is based on just one month. We've got two months to go, but we have seen a little bit of a pickup on that front. From an assortment standpoint, I don't think there's any significant call outs other than that other tobacco products were a very strong performer for the quarter. On a high single-digit decline in transactions, other tobacco products were almost flat in sales. The rest of the assortment was sort of in a relative range with mid single-digit declines.

Got you. Okay. That's helpful. Just a quick follow-up to that. I noticed that, sort of, dealerization the expectations I guess the total amount of stores expected is higher. Can you kind of outline the longer-term strategic rationale and highlight how this figures into the vision for the business? I mean, you are targeting 150 dealerized locations by the end of the year. You're throwing out figures in terms of benefits to the business. But can you just kind of highlight a little bit more of the motivation and how this figures into the long-term vision for ARKO?

Sure. First and foremost, our motivation is to concentrate on the jewel assets. We are currently in approximately 30 different states between our wholesale and retail segments. There are areas where we feel there's not a lot of opportunities for us to grow or to invest. We don’t see a return on investment, so we're converting those locations to wholesale sites. Remember, we’re not selling the location; we’re leasing it to a third-party operator who may own stores in the area. They will pay us rent and purchase fuel from us moving forward. This transition between retail and wholesale will benefit us by generating more revenue moving those stores to a different segment. So, it's purely profit-driven and focuses on ROI. For the rest of our business, which consists of over 1,000 stores, we see potential growth by maximizing investments in foodservice. The foodservice area presents a huge opportunity for us in the future. We’ll focus on the best stores in our portfolio as a strategy to maximize profits.

Got you. That's helpful. I mean just one final question. It sounds like that if you change your expectations for return on investment, you would be leaning further into dealerization. If you consider the performance of some of these better-performing stores, if they're going to be underperforming in the future, would you anticipate that dealerization could be ramped up in future periods?

I think we started this process at the beginning of the year and we’ve been assessing those three segments for many months now. We used an external consulting firm to help evaluate those segments. Eventually, we established suitable criteria for the future. The benefit of having different segments allows us to convert stores where we don’t see revenue potential to the wholesale segment. I don’t anticipate further conversions immediately after we finish our current transformation plan. We will focus on how to generate more profit from the retail stores we’ve decided to keep. These decisions have been made after a thorough evaluation over several months.

Got it. Thank you so much. That's very helpful color.

Thank you.

Thank you. We’ll take our next question from Hale Holden with Barclays. Your line is open.

Hi. Good afternoon. I just had two clarifications, I guess. Arie, the $8.5 million is the 4Q run rate benefit by the end of the quarter from the dealerizations but there probably isn't a lot of that baked into the 4Q EBITDA number or am I not thinking about this correctly?

You are correct. The $8.5 million is a full year run rate. We converted 51 locations as of Q3 and early October. We just completed an additional 48 stores. We still have a couple of months to go with another 50 stores. I don't think this will be materially meaningful for Q4. But think of it as a full year run rate for $8.5 million.

Right. So then I had — I got lost in one of the ways you answered an earlier question. So that's $8.5 million as the full year run rate or was it annualized at $15 million to $20 million for 2025?

$8.5 million is solely from the conversion of 150 stores. Starting January 1, 2025, you can expect a full year benefit from these stores. Additionally, we have further stores planned for conversion in Q1 and Q2 2025. Overall, we expect cumulative benefits between $15 million to $20 million as we fully transition these conversions.

Great. Thank you very much. That was very clear. And the second question I had was, you guys kind of implied that we were at or very close to the trough in fuel volume declines. I was wondering what was giving you confidence in that?

I don't think we were suggesting that. We were pleased with what we saw in October and were hoping that Q3 was the trough. I don’t think there was a strong statement about the fuel gallon demand. We guided down mid-single for the fourth quarter, which aligns with trends. I’ll throw that to Arie for larger thinking on that longer term.

I just think that the economy was struggling in Q3, struggling more than we experienced in Q3 2023. As I said, we see relief in Q4, and generally speaking, the country is optimistic about 2025. We’re just working towards what everyone expects to occur in 2025. As I said, Q3 was a rough quarter across every industry. Given that, we observe some relief. This industry is very resilient. I'm confident we are near the bottom. There may be a slight way to go, but I truly believe we are at a low point right now. From here, we are hopeful for a better economy with the possibility of fuel prices staying within the $2 range rather than approaching $3. I believe that once fuel prices stabilize in this range, people are likely to drive more. Of course, this is conditional on avoiding any major negative events, like a spike in oil prices.

Great. Thank you so much. I appreciate it.

Thank you so much.

This does conclude today's program. Thank you for your participation. You may disconnect at any time and have a wonderful day.