Greetings and welcome to the ARKO Corp. Fourth Quarter and Full Year 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I'd now like to introduce our host, Jordan Mann, Senior Vice President of Corporate Strategy and Investor Relations. Thank you. You may begin.

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 annual report on Form 10-K 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 fourth quarter financial information is unaudited. During this call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please review the forward-looking and cautionary statements section at the end of our fourth quarter and full-year 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 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 annual report on Form 10-K for the year ended December 31, 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 exclude intercompany charges by our subsidiary GPMP. And now, I would like to turn the call over to Arie.

Good afternoon. And thank you for joining us. 2024 was a challenging year for the industry and both a challenging and pivotal year for us as a company. Despite the challenging microenvironment characterized by persistent inflation and constrained consumer spending, we remain focused on executing the strategic initiative that we believe will position ARKO for long-term growth. We continue to work on our transformation plan, including the dealerization program, while continuing to provide our customers with value through food service expansion, our other tobacco product category, and targeted promotional strategies to enhance customer engagement and loyalty. Overall, against the backdrop of external pressures and in a dynamic environment, we managed the business effectively and delivered results near the midpoint of our annual guidance, reflecting our ability to adapt to market conditions and drive operational efficiencies while maintaining a strong focus on customer value and long-term profitability. Over the course of 2024, we consistently observed a consumer who continued to struggle, as well as evolving customers' preferences, including increasing demand for OTP and higher expectations for food service. In response to what we are seeing, we have made and continue to make investments to meet our customers' needs. I will first touch upon the immediate value we seek to deliver to our customers. We continue to reward our loyal customers through promotions and have kicked off 2025 with incredible in-store promotions that provide value on merchandise, notably leading to sizable discounts on fuel. We recently launched our Fueling America's Future Campaign, which allows customers to earn up to $2 off per gallon for up to 20 gallons when purchasing value promotions inside the stores. This not only provides relief to our customers but importantly rewards our enrolled loyalty members, which we believe will help grow our loyalty program. During the quarter, enrolled members spent an average of $104 per month, which is nearly 60% more than non-enrolled customers. Additionally, enrolled members visited our stores about three more times per month on average compared to non-enrolled customers, reinforcing the effectiveness of our loyalty strategy. Turning to evolving customer preferences, I stated on our last call that one out of two enrolled loyalty members are cigarette or OTP consumers. Over the quarter, we enhanced our OTP category by optimizing merchandising, expanding promotional activity, and leveraging strategic supply partnerships to drive market share gains. Our backbar refresh initiative has allowed us to improve space allocation and expand product assortment to align with shifting consumer demand. As of the end of the fourth quarter, we completed more than 800 tobacco backbar refreshes and expect to refresh 100 more in the coming weeks. Our strategy around OTP during the fourth quarter led to a 200 basis points improvement in gross margin for the OTP category, further widening the gap between higher-margin OTP and traditional cigarettes. Notably, OTP represented nearly half of our total tobacco category contribution in the fourth quarter. Continuing with this momentum in the category, since the start of 2025, we have ramped up promotional activity in OTP and cigarettes, offering significant deals to customers to further drive sales momentum. Additionally, while we are working towards receiving permits for our seven pilot stores that will include an enhanced food service offering, we have seen strong customer response to the upgrades we have already made to our food service offerings, reinforcing our focus on delivering value-driven options. Our promotional efforts, including frozen and hot pizza, bakery, Nathan's Famous hot dogs, and Roller Grill deals, continue to gain traction. In fact, we have sold more than 600,000 pizzas since launching our $4.99 pizza special in Q1 2024. We are refining our food service strategy to enhance convenience, quality, and profitability, driving trial and repeat purchases through targeted promotions and bundling strategies. Turning to fuel, although retail fuel volume declined for both the quarter and year, our pricing strategy helped preserve margin despite lower demand, lower fuel costs, and reduced price volatility, a backdrop which normally puts pressure on the ability to expand margin. Same store retail fuel gallons were down mid-single digits for the fourth quarter and year, while same store retail fuel margin was only down $0.011 per gallon in the fourth quarter compared to the prior year period and up $0.7 per gallon for the full year. Lastly, over the quarter, we made meaningful progress on our dealerization program. As part of our broader transformation plan, we are strategically converting select retail stores to dealer sites where we believe we can generate higher contribution dollars through ongoing fuel supply agreements and rental income, rather than continue to operate these locations within our retail segment. Our approach is centered on optimizing our portfolio, allowing us to focus our resources on high-performing retail stores while leveraging our dealer network to enhance profitability across our entire platform. We have set our initial targets for dealerization, having converted more than 150 retail stores to dealer sites in 2024. We expect to convert a meaningful number of additional stores over the course of 2025, with approximately 100 more stores to be converted by the end of the first quarter. Surpassing our conversion goal in 2024 is a testament to our team's focus and execution. Rob will provide more substance to the numbers later. However, we now expect our total dealerization program to generate an annualized benefit in excess of $20 million to combined wholesale and retail segment operating income with additional opportunity from G&A expense reduction. As we move into 2025, our focus remains on our strategic priorities while delivering value to both our customers and stakeholders. We believe our disciplined approach to growth, operational efficiencies, and customer engagement initiatives will position ARKO for long-term success. With that, I will turn over to Rob to discuss our financial results and our 2025 guidance.

Thank you, Arie. Good afternoon, everyone. Turning to the fourth quarter, total company adjusted EBITDA was $56.8 million compared to $61.8 million for 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 $62.9 million in operating income compared to $72.3 million for the year-ago period. Same store merchandise sales were down 2.1% versus the year-ago period, while total same store merchandise sales were down 4.3%. Same store margin rate was relatively in line with the prior year. Same store fuel contribution was down 7.1% for the quarter, caused by a decline in gallons and lower year-on-year fuel margin per gallon. Same store fuel gallon demand was down 4.4% for the quarter, while fuel margin of $0.387 per gallon was down $0.011 cents per gallon from the year-ago period, resulting from lower fuel costs and reduced price volatility this year. Same store operating expenses were down approximately 1.2% for the quarter. Moving on to our wholesale segment, operating income was $20 million for the quarter compared to $18.1 million in the year-ago period, with the increase primarily due to our channel optimization work. Inclusive of channel optimization, gallons were relatively in line with the year-ago period. Fuel margin was $0.093 per gallon for the quarter, up $0.3 per gallon to the year-ago period. For our fleet segment, operating income was $12.4 million for the quarter compared to $9.7 million in the year-ago period, with total gallons down 1% to the prior year. Increased segment operating income was driven by resilient fuel margin performance, which was $0.452 per gallon for the quarter versus $0.367 per gallon in the year-ago period. Total company general and administrative expense for the quarter was $39.7 million compared to $38.1 million in the year-ago period, with the increase primarily due to lower stock-based compensation expense in the prior year period. Excluding the year-on-year change in stock-based compensation, general and administrative expense was down 2% to the year-ago period. Net interest and other financial expenses for the quarter were $19.7 million compared to $22.9 million in the year-ago period, with change caused primarily by fair value adjustments related to our warrants. Net loss for the quarter was $2.3 million compared to a net income of $1.1 million for the year-ago period. Please reference our press release for a detailed reconciliation from net income and loss to adjusted EBITDA. Full year 2024 total company adjusted EBITDA was $248.9 million versus $276.3 million in the year-ago period. And full year 2024 net income was $20.8 million versus $34.6 million in the year-ago period. Turning to the balance sheet, we have substantial liquidity of approximately $841 million, including $262 million in cash on hand at quarter end, along with remaining availability on our lines of credit. Our $140 million ABL remains completely undrawn as we continue to manage working capital needs from operating cash flow. Excluding lease-related financing liabilities, we ended the fourth quarter with $881 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. Total capital expenditures for the quarter were $36.1 million, with full year 2024 capital expenditures of $113.9 million. Turning to full year 2025, we expect total company adjusted EBITDA to be in the range of $233 million to $253 million, assuming a retail fuel margin of $0.395 to $0.415 per gallon and mid-teen percent operating profit growth in our wholesale segment driven by our ongoing channel optimization work. For the first quarter of 2025, we expect total company adjusted EBITDA to be in the range of $27 million to $33 million. We expect our same store base will change materially as we move through 2025 due to our channel optimization work and that our retained retail stores will be more productive for both merchandise sales and gallons as compared to average performance per store in the year-ago period. As a result, we have set up our retail guidance framework to walk you from Q1 2024 average per store performance to estimated Q1 2025 total retail segment merchandise sales and gallons. Our retail segment guidance is supported by the following key assumptions. We are estimating our Q1 2025 average retail store count to be 1,339 stores, reflecting the impact of our ongoing channel optimization. Using Q1 2024 average per store performance as a base for Q1 2025, we expect an increase in productivity will partially offset a decline in same store sales, resulting in a low single-digit decline in merchandise sales per average store compared to the year-ago period. We expect merchandise margin rates to be generally in line with the year-ago period. For fuel, we expect an increase in productivity will more than offset a decline in same store fuel gallons, resulting in a low-single-digit increase in gallons per average store compared to the year-ago period. And we are assuming a retail fuel margin in the range of $0.37 to $0.39 per gallon. Moving on to our wholesale segment, we expect mid-single-digit operating income growth driven by our ongoing channel optimization work. And finally, for our fleet segment, we are expecting high-single to low-double-digit operating income growth, driven by expected resilient fuel margins per gallon. And with that, I'll hand it back to Arie for closing remarks.

Thanks, Rob. I will close with some additional comments on our first quarter guidance. Headwinds from adverse weather conditions unfavorably impacted customer mobility and sales across key regions. Despite these challenges, our disciplined execution and ability to adapt helped minimize the impact. Seasonal softness in the first quarter is not unusual, and we would rather navigate these weather-related challenges now than during the peak summer month. With the weather, we plan to continue to operate the business and control what we can control, optimizing operations, maintaining pricing discipline, and delivering value to our customers. On a positive note, fuel margins were up $0.025 per gallon in January compared to the prior year, demonstrating both the strength of our pricing strategy and the resilience of our business. As we wrap up, I want to reiterate our focus on adopting the dynamic market landscape. We remain committed to our dealerization program, food service, strategic store transformations, and value-driven initiatives. I'm optimistic about our strategies, including our Fueling America's Future campaign, which reflect our commitment to making fuel more affordable while helping families and small businesses manage rising costs. We look forward to continuing to provide value-driven discounts on key essentials to support the communities we serve. Finally, I want to thank our employees for their hard work and dedication this quarter and in the quarters ahead, and for taking care of our customers every day.

Our first question is from Bobby Griffin from Raymond James.

I want to first start on the 2025 guidance, and the midpoint implies it's down a little bit year-over-year with about a penny or so more in fuel margins. So, can you just maybe help connect those dots because I know you've got some of the dealerization savings starting to flow through, but I imagine there's some other cost pressures that you're dealing with in the business as well, so just trying to connect kind of going on there those building blocks.

Bobby, as you think about the full year, again, we're staying pretty high with the guidance right now, and as I mentioned in my prepared remarks, we're going to have a shifting same store base as we go through. So the same store metrics we would normally give you at this time are going to be a little less relevant as the base changes, which is why we're steering people to the average. So as I mentioned in the Q1 guide, we are seeing a negative same store trend right now in gallons and in merch sales. And again, I want to steer away from same store because the base is going to change, but you do know we are facing that. And underlying that is going to put some pressure. We are expecting things to improve as we go through the year, but we do see a negative trend right now. And I think as you've probably heard from others, January, February has had some significant weather impact, and there's a bit of a drag starting the year off. So that's really what we're looking at. Again, those average store metrics, we do expect those to improve as we go through the year both on the merch side and the gallon side.

Is there a building effect as we move through the year from the dealerization savings, or is that kind of prorated each quarter? And is there a step function change to that savings as we enter 2026?

You should expect, in the guidance, we gave you the wholesale segment being up mid-single for the first quarter and up mid-teens for the year. So that is going to accrue as we go through as we get more and more stores. The cumulative impact is going to become greater and greater. And as Arie mentioned in his prepared remarks, we will start to see more G&A savings as we start to streamline the business for the new retail footprint. So that will continue to accrue as we go through 2025, and there will be a wraparound into 2026.

I want to maybe pivot. Appreciate all the details on the dealerization side of things. Can we maybe switch and talk about the stores that are left in the base? You've still got a lot of stores there. Where are we in the remodel initiatives? I know you guys have done some stuff with the backbar, but what else are some of the initiatives for 2025 to help kind of the existing or the remaining, let's call it remainco of stores that are in the retail network during 2025?

As I mentioned, Bobby, earlier, we started a campaign called Fueling America's Future. This campaign is supposed to take care of our customers, given that everybody is feeling the pressure right now, the microeconomic pressure. The thought process is really to concentrate on those stores. We are leveraging our strategic supplier partnership and we are going to target promotions that will encourage our customers to buy fuel. The way we look at our business in the past, usually you count on people that are coming to the pump and from the pump going inside the store. We are actually shifting gears over here and we are actually encouraging customers that are coming inside the store now to buy fuel. With Fueling America's Future, we are going to provide up to $2 off per gallon, which is up to 20 gallons. The average gallon per consumer is around anywhere between 9 to 11. And this is going to be equal to $40 saving on a gas fill-up. And we're talking about every transaction, you're going to be able to stack basically your savings, which means that, at the end of the day, you can visit our stores three, four times a week, and all of a sudden end up with $40 savings on your next fill-up. And this is where we're actually shifting most of our energy right now. In addition to that, you just mentioned the backbar in 800 stores. We have another 100 stores that we are just getting ready to complete in the next few weeks. But the idea is really to concentrate on OTP, tobacco, and fuel. If you think about that, at least one out of two customers is a tobacco consumer. And this is where we see people concentrating right now. And this is really going to be the promotional activity for 2025. Tobacco and provide great promotional deals on tobacco and at the same time concentrate on fuel. To answer your question regarding remodeling, we have the seven pilot stores that we actually talked about. We are at the end of the process of permits; permits take a little bit longer, but we are actually finalizing the permits, and we believe we're going to start construction in late March of at least two of those stores. So those are the things that we're doing in addition to, of course, food service and all of the other things that we spoke of in the past, and I am more than happy to elaborate.

If it's easier, we can go through it offline. Just the $2 off aspect of fuel, maybe that's obviously a very big discount, so how does that translate into maintaining profitability or actually driving further profits and EBITDA of this business? Is it the requirement of some type of inside the store purchase? Just help us connect that because when we hear $2 off on a $4 or $5 gallon, it sounds very significant and there's a question of maintaining the profitability level as well.

That's not going to touch profitability. It's not going to actually apply to margin. It's really all about partnership and combination with our partners, which is basically our vendors. It's not going to touch profitability. It's not going to decrease margin inside the store and it's not going to increase margin outside the store. As a matter of fact, with this promotion, we believe we're going to be able to drive gallons. That's really what we're trying to do over here. We're trying to drive gallons in combination between people that are coming to our stores today to buy everyday essential products, but they are not purchasing fuel. Remember, we are operating in a lot of rural locations, a lot of small towns. So many times customers that come to our stores are not necessarily buying fuel and vice versa. There are customers that are just driving to the pump and they're not getting inside the store. We believe with those promotions, we believe we're going to see some big correlation between the two. But to be clear, in our guidance, we are not planning on reducing margin, fuel margin or reducing margin inside the stores.

Next question is from Kelly Bania from BMO Capital Markets.

I was wondering if you can just help us a little bit more understand the remaining retail stores here, given this shift with the dealerization and just give us some insight into how those same store sales and gallons are trending for the remaining stores. If you take out the 250 cumulative stores that will be dealerized by the end of Q1, just what's happening? We have some of the disclosures from the release, but what is happening on a same store sales and same store gallon trend for the remaining stores?

Kelly, those stores outperformed. As you might expect, they outperformed the balance of the company for Q4, and are outperforming Q1 quarter-to-date. Again, we're going to give it a little bit more run rate before we're calling out those trends but they are higher, still negative but they are higher than the balance of the chain. And again, we're watching that and we would expect that to continue. And as I mentioned in my prepared remarks, these are more productive stores. So, again, we're going to benefit from stores that are more competitive, able to drive business versus perhaps some of the macro trends that have been weighing on some of the less competitive stores.

From the get-go, that was part of the transformation plan. Part of the transformation plan is to make sure that we concentrate on the best stores. We are concentrating on stores that we believe, at the end of the day, actually, we have some organic growth potential. And the stores that we just believe that mature or we don't see the increase in organic growth, those are the stores that we're basically shifting to the wholesale segment.

It sounds like they are more productive. They are performing better, but they are still negative. So I'm just trying to understand the magnitude of the sequential improvement, if I'm hearing that right. On the merchandise comp front, as we move through 2025, what you're expecting, what you're seeing at a category level, just trying to understand since we don't really have the comparison.

That's one of the challenges again as we're talking about comp for same store sales. We will still be providing same store detail, we'll be reporting it, but in terms of guiding it, because we're not giving you the same store base, it's going to be impractical for you to model it that way. And again, so if you think about what we're talking about right now, these more productive stores are offsetting that negative same store trend, both for both for merch sales and for gallons where again, the average store, if you're modeling, the average store is going to be down low single digits in merchandise sales per the average store last year, and they're going to be up low single digits in gallons per average store versus last year. And again, we will certainly be talking about same store sales, but for modeling purposes, it's going to be easier for you to get to our numbers modeling it that way.

You talked about the Fueling America's Future promotion, I guess this is really kind of intended to help your customers, but also to grow gallons. What is in the plan for 2025 with respect to gallons, I guess both at the retail side and the wholesale side, because I think you talked about mid-teens EBIT growth in wholesale. So what kind of gallon assumptions are underlying the whole plan here?

We have not typically guided gallons on the wholesale side. And again, as you know, you have the metrics for the CPG for the various sites and the gallon growth. If you think about the fourth quarter, just as a proxy, I can give you one data point on that. We had roughly 9 million gallons in the fourth quarter that were related to channel optimization, shifting to the wholesale channel. So that can give you an indication that, at the level we're at right now, ending the fourth quarter with 150 stores, we're at 9 million gallons shifting to that channel. So again, as we add the extra 100 in Q1 and the modeling that you guys will do for what you're assuming for Q2, Q3, you can see that's going to get significant.

Just to add one comment because I hear what you just said. I just want to make it clear. It's not only growing gallons. It's growing traffic. That's the reason we are putting all of our energy on Fueling America campaign with fuel. And at the same time, we are actually increasing the promotional activity very heavily on the tobacco and OTP inside the store. We started in Q4. We already saw the results in Q4. In Q4, we were able to increase the OTP margin by 200 basis points. We see that this is working. And this is where we actually concentrate right now. Tobacco and fuel, which we believe are going to drive traffic outside the store and inside the store.

Next question is from Anthony Bonadio from Wells Fargo.

I wanted to start out on fuel margins. The guidance range seems to suggest you're pretty constructive on the outlook for fuel margins in 2025. So can you just talk about the different assumptions underlying that and how we should think about idiosyncratic contributions versus broader industry trends, just trying to better understand how you came up with that range.

As Arie mentioned, January was nicely up to last year. And again, January was a softer month last year, but it was up nicely. As we look at the general dynamics of the industry, we do continue to see wage increases and things on the operating expense side of the business. As we continue to have same store traffic challenges that are not specific to us, but other players as well as the mom and pops in the space, this is one of the areas where we continue to see structural increases. Again, we have it up modestly for the full year, but we do continue to see some of the trends that we've seen from 2023 and 2024 moving into 2025. So again, we're constructive on it based on our pricing strategies, based on what we expect to happen with the competitive set. And again, we look at that as the lever that players are going to go to offset some of the traffic challenges at least coming out of the first quarter.

Just to add to it, Anthony, as always, our strategy is to maximize fuel contribution dollars. I know we're very robust on CPG from basically from a margin standpoint. One thing I want to remind you and everybody, of course, is that we finished 2024 with basically a 5% decline. That was based on, of course, published information from Opus. We were 5% in 2024. We are hopeful that the price of fuel will start with a two and not with a three. In some areas of the country, it starts with a two. I believe that the price of fuel will start with a $2 versus $3. I believe that we're going to see some gallons increase, countrywide, that's my belief. And this is one of the reasons that we launched the Fueling America's Future campaign to go after gallons, to grab gallons, and of course, to make sure that we increase traffic inside the store, given at least what we see from a microeconomic standpoint. We believe that this is going to be very important for our business, for our stores, in order to actually increase traffic.

On same store OpEx, it looks like that decreased 1.2% in the quarter, which is actually the third straight quarter of declines there. Can you just talk about the key drivers of that and just how you're thinking about the opportunity for further improvement there as we move into 2025?

Obviously, some of the expense reductions are a result of the top line reduction, right? So as we have lower top line, we're going to have less demand in the store for laborers, for stores that are not on minimum coverage. We have lower credit card fees. Some of those lower traffic would be repair and maintenance, less wear and tear. Some of those reductions are, you would take an increase to see stronger sales. So again, we're managing what we can control effectively. But again, as you go forward, you would love to see the same store sales turning positive and you'd like to see a little bit of growth in the OpEx that would be driving more margin to the bottom line. Again, we're managing what we can control well. I think, again, as we are looking at the first quarter and we're suggesting to you that our same store trends and gallons are down, you expect we're going to be managing OpEx as best we can on that front as well, as well as G&A expenses and that's the trend we're looking at right now. Obviously, we are expecting and we're modeling that things pick up as we move through the year or so. So again, we're just where we are right now with these negative trends.

The negative trend, my belief is that the majority of that is weather-related, just this benefit. You see what is happening in most of the country. And I think with the promotions activity that we have and with the concentration on those two top categories, I'm very, very optimistic going into 2025, especially as we move towards the spring, towards the summer, 100 days of summer starting in May. I'm very, very bullish on that.

Our next question is from Mark Astrachan from Stifel.

I guess maybe just to start on the commentary about weather, any sense of just what kind of impact it had on your business around the industry in the first couple of months of the year? I guess maybe more broadly, the c-store channel, if you look at a bunch of categories sold in the store, seems to have started weakening kind of back at the fourth quarter of 2023. So you're now four to five quarters into just a generally weaker trend. We can see that there is a bit of a shift in consumption of things into mass and grocery channels away from c-stores. I guess I'm curious, one, as I said is what the weather impact might be. Two, on the other piece of it, just whether do you think there's any impact on that shift from a consumer perspective in terms of just being spread thinner and trying to purchase things more in bulk, take home instead of an immediate consumption? And then does that reverse as or if the consumer environment improves?

I'll jump directly into it. I think that the consumer is basically feeling the pressure, the microeconomic pressure, especially in the areas that we do business. So I really believe it's related to the pressure, to the inflation, to the pressure on the consumer. And this is the reason, as I said earlier, we are concentrating, Mark, on fuel and tobacco. If you think about it, between fuel and tobacco, those two categories represent probably 70% of our revenue. And this is the area that's going to bring traffic inside the store. We have very, very big promotions related just to those two categories because I don't think those two categories are declining. Yes, cigarette is declining, but you know what OTP is picking up in exchange for cigarette decline. Fuel is declining; we saw what happened in 2024. So instead of just sitting on the sidelines, what we are doing, we're basically very, very active on those two fronts. And that's the reason when I brought the Fueling America's Future, up to $2 off per gallon, we believe that’s going to drive traffic, that's going to drive gallons, which were heard over the past few years. Related to the weather, you see what happened in weather. The weather in the middle of January, we had snowstorms in so many areas in the country that we usually don't see. And we had another one in February. But as I said, that's, I think, as part of our guidance, this is something that we take into account. And to be honest with you, I prefer to have those weather issues during January and February rather than having them during the summer. So it's not something unexpected sometimes during this time of the year.

Mark, we have been looking really aggressively to try and baseline what that trend impact is. And it has been so noisy, even by region, that it's difficult to establish a baseline. There have been so many weather events, and they've been so broad and sustained. Whether it's precipitation or temperature, it's very difficult for us to read the trend. That's why we do believe there's an impact, but quantifying it at this point has been challenging. And we're seven weeks in, and it's been tough to read. There's been that much volatility with the daily performance.

Maybe just a clarification. I guess I could be wrong thinking strategically, but I feel like historically when we talked about focus on fuel margins versus fuel gallons, you've been focused more on margin. And now it sounds like with the promotion, you're implying that you're focusing more on gallons. Is there some shift within the company to do that?

No, no, no. So to be clear, Fueling America's Future is really to drive traffic. We are concentrating on traffic. We are not going to change. As I said, our strategy is to maximize fuel contribution dollars. Nothing is going to change over here. The idea with those promotions is we believe, by definition, the minute you give up to $2 off per gallon, we believe that you're going to be able to increase gallons just by doing that. But the real reason for that is really to get the traffic inside the store. Because in order for you to get those promotions or to get those discounts, those big discounts, you need to get inside the store to get them. And we believe that's going to drive traffic inside the store.

Next question is from Karru Martinson from Jefferies.

When you look at the conversion of the retail stores, what do you think the core of these kind of higher performing stores is within that channel?

What do you mean the core?

I think this is one that, as we've talked about before, if you look at our Q4 dealerized sites, it was over 100, and we're guiding for 100 in Q1. We're not sharing forward plans. In many parts, we've got a number of counterparties, and we've got internal targets that we have to make sure we are comfortable with before we release externally. We obviously are modeling our full year to have a certain count transition, but we are only sharing Q1. Again, you can make your own determinations, but I'm looking what Q4 is and Q1 is. Arie had mentioned that he expected to be a meaningful impact. So again, I'm going to leave that to your discretion to model yourself, but again, we do expect it to be meaningful. The organization is postured and pivoted to aggressively pursue that. And again, we'll be updating this on the quarter and giving you much more detail as we have it.

I just want to be clear. It's not about the quantity; it's about the quality. Just to be clear, we care less about the quantity; we care more about the quality. As part of our transformation plan, the thought process is really, we want to make sure that we keep stores that we have huge economies of scale. We see the opportunities to invest in those stores. We see huge opportunities to increase profitability in these stores. We're going to optimize our footprints and allocate resources for more efficiency; those are the things that we are doing over here. At the end of the day, the stores that we would like to end up with are the stores that we see a huge upside for ourselves. By the way, the other stores are great stores. We are moving them to the wholesale segment just because we believe that some of those dealers are just great entrepreneurs, but they can actually run those stores terrific. We just feel that we need to spend our time and resources in areas that we see that we have huge organic growth opportunities over there. And that's what we're doing over here, at the end of the day, to increase profitability. The bottom line is we're going to increase profitability by actually shifting. And I think, by the way, this is, I think, the unique thing about ARKO that we are a little bit different than some others, when we bought Empire four years ago that was not exactly the plan, but I think that's the luxury right now that when we have over around 2,000 dealers today, we basically have 2,000 customers that are going to be customers for some of those stores, are going to be dealers for some of those stores that we control at the end of the day. And I think that that's the unique place that we are sitting right now.

When you think about optimizing that footprint, is it exiting certain regions or is it more just kind of going by in a store by store basis?

We are going store by store basis. At the end of the day, if we have one store that we feel is like an unbelievable store that got huge potential for growth, but next to it, there are three stores that do not have the potential growth that we see over there, obviously, we're going to have to exit this region. So yes, we are concentrating on regions; we are concentrating on states; we are concentrating on areas that we see opportunity for growth. I can go on and on and on. We're looking at demographics; we're looking at population; we're looking at what happened in the market, but it's really store by store basis. The analysis that we started last year as part of our transformation plan, it's literally by store.

Next question is from Hale Holden from Barclays.

I have two questions. The first one is just, holistically, if I think about your guidance, the EBITDA guidance for the year, the midpoint's 243-ish. You guys did 248 in 2024. So I'm trying to figure out how to bridge to the $20 million in dealerization savings that you expect to get over time. And why perhaps we're not seeing that flow through into the annual EBITDA guide.

As you think about the $20 million again, that's at an annualized run rate. As you know, we will start to annualize the activity in Q3 of 2024 from the start of this program, right? So we are not likely to be at steady state until later in 2025, possibly 2026, but that is when the run rate would be achieved. As I mentioned in prepared remarks, our wholesale profitability was up to $2 million in the fourth quarter due to the channel optimization work. So if you translate that out, at the current level of run rate, you'd get that $8 million to $8.5 million that we talked about last quarter for the stores that were done at the end of the fourth quarter. The stores that are being done right now, we've got another hundred, as I mentioned, there's more to come. So you will not be at the annualized run rate until you're far deeper into 2025. And that's the reason you're not seeing the full $20 million accrue in 2025.

Maybe another way to think about it is, how do I think about an apples to apples number? Because you guys have a lot of moving parts. Obviously, absolute EBITDA is lower, but it does feel like where the dealerization is, it's maybe resulting in lower EBITDA, or is it just that we think the trends are going to be lower?

No, it's certainly accretive. It's an accretive program. I think if you can look at 2024 versus 2023 and look at the same store performance metrics for merchandising in gallons, you can pretty quickly get yourself to a place that says, pick a number, negative low single digit, same store sales or same store gallons, and again, I'm not guiding you on same stores, I'm just saying if you're negative, you should be able to do the math that says, what does my same store business do and what is the organic decrease there? What we're doing here is a bridge to optimize the channels, right, to provide some buoyancy to the P&L that's going to offset some of those trends that have been in place for a while. As we transition to more of that, Arie talked about activating the core customer and then transitioning into that longer-term food and the store remodel program. That's the strategy. So you should be thinking about this as purely an accretive program for channel optimization, offsetting some of the same store trends. And again, if you do the math from 2023 to 2024, you should be able to get to a place that says, what is the underlying same store business doing? Understanding that same store base is going to be moving significantly quarter by quarter.

Just to add one more thing. As I mentioned earlier, I mentioned a meaningful number of stores are going to be converted. So at the end of the day, it's also about timing, just to be clear. It's all about timing. If we're going to be able to move quickly, things may change. But we're trying to be careful over here.

The way we're kind of penciling out is you should be free cash flow positive, although I don't really have a CapEx number with the new stores that you're planning to build. So I just wanted to make sure that, as you go through this transition, you kind of expect to be free cash flow positive for the year in 2025.

We don't give guidance on CapEx, but if you look at Q4 2024 versus Q4 2023 and full year 2024 versus full year 2023, you'll find those numbers were relatively consistent. And I think it's reasonable for you to assume that some of the spend in 2024 related to EMV compliance, things related to accretive electric vehicle programs that were available prior administration, some of those spending dollars will be reallocated towards some of those more strategic, the store remodel program, things of that nature. And again, just looking at history, 2023 and 2024 CapEx very much in line with itself, and I think it's reasonable for you to assume positive cash build based on if you model that deal.

Next question is from William Reuter from Bank of America.

Given the new dealerization program, is this pretty much a strategy which you are moving forward with without regard to the external environment, meaning are you still evaluating other alternatives, whether they be acquisitions or divestitures? Of large numbers of stores or of all the retail stores, would more transformative transactions potentially still be on the table?

Absolutely. Nothing changes. I mentioned this transformation plan is something that we started in the middle of last year. And what we're doing right now, we're basically executing. We're starting the dealerization program around the third quarter of last year. And we just basically continue in accordance to our plan right now. But yes, nothing is off the table. We are going to evaluate everything based on return on investment, of course. And if it's a great opportunity that becomes available, absolutely. We have the team available. We have the liquidity. And M&A is also part of our plan over here.

I guess that would imply that both directions that I described, which is either a larger acquisition or alternatively a sale of a huge majority or a bunch of stores at a time, both of those would still be on the table. Is that right?

On the table right now, we don't have the second piece. The pieces we have on the table right now are dealerization, making sure that we continue with our transformation plan. And if there is a large acquisition, we will be more than happy to look into it. Absolutely.

This concludes the question-and-answer session. I'd like to turn the floor back to management for any closing comments.

Okay, thank you very much, operator. Thank you very much, everybody, for participating. I had a lot of questions from you regarding Fueling America's Future. And I really hope that you guys are going to visit our stores and explore the opportunities. We are providing up to $2 off a gallon up to 20 gallons, $40 off per fill up and it's a great opportunity for you guys to visit our stores. In the meantime, have a good evening. Thank you.

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