Murphy USA Inc.

Ladies and gentlemen, thank you for standing by and welcome to the MurphyUSA fourth quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After this previous presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Mr. Christian Pikul. Thank you. Please go ahead, sir.

Yeah, thank you, Daphne. Good morning and thank you everyone for joining us. With me as usual are Andrew Clyde, President and Chief Executive Officer, Malynda West, Executive Vice President and Chief Financial Officer, and Donnie Smith, Vice President and Controller. After some opening comments from Andrew, Mindy will provide an overview of the financial results. We will review our 2021 guidance and then open up the call to Q&A. Please keep in mind that some of the comments made during this call, including the Q&A portion, will be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. As such, no assurances can be given that these events will occur or that the projections will be attained. A variety of factors exist that may cause actual results to differ. For further discussion of risk factors, please see the latest MurphyUSA Forms 10-K, 10-Q, 8-K, and other recent SEC filings. MurphyUSA takes no duty to publicly update or revise any forward-looking statements. During today's call, we may also provide certain performance measures that do not conform to generally accepted accounting principles or GAAP. We have provided schedules to reconcile these non-GAAP measures with the reported results on a GAAP basis. as part of our earnings press release, which can be found on the investor section of our website. With that, I'll turn the call over to Andrew.

Thank you, Christian. Good morning and welcome to everyone joining us today. As we close out the fourth quarter and the full year of 2020 on today's call, we're certainly reminded of the many challenges faced by our customers, employees, and communities in this unforgettable year. And in turn, what it took for retailers like MurphyUSA to serve them and navigate throughout this period. At this time last year, we foretold in our annual report that MurphyUSA's efforts to build a resilient and agile organization since its 2013 spinoff would propel us through whatever obstacles might be presented such that we could emerge even stronger on the other side. And with that confidence in the strength of our people and business model, We could afford to be bold in the face of great uncertainty. Certainly our foresight was evidenced on many fronts, but ultimately was our insights around our customers' behaviors, the competitive dynamics in our sector, and our own capabilities, including our own limitations that drove the major decisions and investments that led to our 2020 results and success. We continue to play our distinctive game and win and in the process through the QuickCheck acquisition secured the winning capabilities to play a different game in the future. I could not be prouder of what our team accomplished last year and was excited to welcome the newest members of our team on Friday as we completed the QuickCheck acquisition. Like most publicly traded companies, 2020 will be a statistical blip that will have to be adjusted for when performing any historical analysis. Given that we have released or pre-released results virtually every month, I want to focus the bulk of today's call on the future and why we are so excited about our potential in 2021 and beyond. Starting with QuickCheck, we have added 157 stores, which brings the combined network to approximately 1,660 stores. As stated before, QuickCheck operates a best-in-class food and beverage program with a strong brand in attractive markets, which nicely complement the MRF USA business model and geographic footprint. QuickCheck is a successful standalone enterprise with its own meaningful organic growth opportunities in the pipeline. Our integration is not about the rapid extraction of cost synergies. Rather, we are being thoughtful on both what we can learn from QuickCheck and what we can do to help improve their business. This will be a mutually inclusive process where the best practices of each firm are shared and implemented in an appropriate timeframe. For example, we have much to learn and benefit from their best-in-class food and beverage offer and how it is delivered. Likewise, we intend to leverage our gasoline supply and retail pricing expertise to optimize their operations. Food and beverage was already an internal priority for Merck USA as we began to focus management attention on a part of the business where we felt there was both near-term low-hanging fruit and long-term opportunity. As we examined our options, we found that QuickCheck would allow us to obtain the capabilities we needed immediately and Accelerate are turning up the learning curve while leveraging a unique and distinctive brand in a new geography with a similar culture and aligned aspirations for future growth. We are excited to begin that journey after a very quick and efficient closing process that was very well received by the debt markets. Quick check size also enables us to maintain the capital discipline and shareholder friendly practices Murphy USA has been noted for in the past. We paid our first dividend in December and set a record for share repurchases in 2020. Maintaining our conservative and flexible balance sheet ensures we will continue to allocate capital efficiently going forward. Transitioning to a discussion of the business, Merck USA's fourth quarter results highlight a continuation of the key trends we witnessed in the most recent quarters. As we enter 2021, Those same trends remain largely intact, subject to the normal seasonal and cyclical variations that we were used to pre-COVID. Fourth quarter fuel volume showed sequential improvement from the third quarter and represented only a 6% decrease from the prior year. January volumes remained strong, showing slight pressure at about 8% below prior year, which we believe is mostly attributable to the rising price environment as this is historically a difficult time to profitably create price separation and take share. We continue to see evidence that industry margins are higher than we might expect otherwise in a rising price environment, helping to maintain break-even equilibrium for some less advantaged players. As noted and demonstrated throughout 2020, Merck USA is well-positioned to benefit from this dynamic. All-in margins in the fourth quarter were nearly 20 cents per gallon, which resulted in total fuel contribution that was nearly 10% above the fourth quarter of 2019 at 5.5% lower total volume. We expect higher than normal retail margins to persist in 2021 and beyond. And while we are not agnostic to lower volumes, we believe market forces will support higher retail margins, which will reward our advantage business model at any volume level. Lower customer traffic did not impact merchandise fourth quarter sales as market share gains were sustained, new promotional activities were successful, and categories more linked to traffic improved sequentially. Same store sales were up nearly 10% and same store merchandise contribution was up nearly 11% with meaningful contributions from both the tobacco and non-tobacco categories. I would also point you to the same store sales and APSM metrics table in the earnings release. The average per store month metrics, which include all new stores open since January of 2019, are outperforming the same store sales metrics in fuel volume, non-tobacco sales, and non-tobacco margin, which further supports our confidence in the larger format 2,800 square foot stores we've been adding to the network. With up to 50 new to industry 2,800 square foot stores planned for 2021, we expect this new store outperformance trend to continue and the absolute even thought impact should become more apparent, all else being equal, in 2022 and beyond as the impact of the larger build classes ramp up. While these new Murphy Express stores continue to improve overall network performance, We expect the existing QuickCheck stores will add over $200 million per year of merchandise contribution dollars, over half of which will come from food and beverage categories, substantially improving both our margin structure and merchandise mix. Yet despite this next shift, we will continue to be innovative with promotional capabilities in the tobacco category, where we expect to both maintain and grow the market share gains achieved in 2020. Operating expenses continue to be impacted by COVID-related factors, with fourth quarter per store costs up about 7%. For the full year, we have identified about $4 million of additional expenses in incremental commission programs, emergency sick pay, and personal protective equipment and supplies, without which we would have incurred per store increases of about 1.5% in line with our plan. While lower customer traffic understates true OpEx, all else being equal, the business is likely facing about a 2% increase going forward, reflecting both the larger store formats resulting from our new to industry and raise and rebuild activity and the inflationary pressures and employee cost. Despite slightly higher cost in 2020, we saw another year of improvement in our fuel break-even metric, improving to 24 basis points from 67 basis points the year before. This translates into 738 stores below zero breakeven at year-end 2020, up from only 560 stores at year-end 2019. The fuel breakeven metric has shown remarkable improvements in spend as we have now added more than three pennies of fuel margin equivalent to the business. As we move closer to a network-wide zero breakeven, AddQuickCheck stores without fuel and invest in food and beverage platforms appropriately. We will be tweaking our nomenclature slightly towards our coverage ratio as we talk about store profitability and growing merchandise margin economically above and beyond incremental cost to serve. With that, let me turn it over to Mindy to detail our financial results and our recent financing activity, and then I will return with some additional comments around our 2021 guidance. Mindy.