Murphy USA Inc.

Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the MurphyUSA first quarter 2022 earnings conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one once again. Thank you. And now I would like to turn the conference over to Christian Paykel, Vice President of Investor Relations. Please go ahead.

Hey, thanks, Audra. Good morning, everyone. Thanks for joining us today. With me, as usual, are Andrew Clyde, President and Chief Executive Officer, Mindy West, Executive Vice President and Chief Financial Officer, and Donnie Smith, Vice President and Controller. After some opening comments from Andrew, Mindy will give us a brief overview of the financial results, and then we'll 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 in 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. This is one of the busiest weeks of the year here at MurphyUSA as we report earnings, hold our annual general meeting of shareholders, and meet with our board of directors. And looking back over the most recent quarter and last year, we certainly have a lot to be proud of in terms of our results and share price performance. But just as importantly, how we went about achieving those results. And we have just as much to be excited about in terms of our future potential, given the enduring advantage of our low-cost business model, the loyal engagement of our growing customer base, and the incredible spirit of our store associates and the field and home office staff who support them. As I was reflecting over the weekend on my letter to shareholders from this year's annual report, it struck me that of all the commitments to our stakeholders, our commitment to provide affordable transportation, fuel, and convenience products to our customers is becoming more and more relevant with each passing week and month. We continue to learn more and more about our customers and their needs, and by analyzing the behavior of around 100,000 Murphy Drive Rewards customers who have shopped with us each month since 2019, we are learning a lot about how they are navigating the current environment. First, their spend with us is rising significantly as fuel prices are up over $1 a gallon, but their consumption remains relatively stable as fewer gallons per trip are made up by increased trip frequency. As such, we represent an increasing percentage of their household income, which tells us that their purchases from Merck USA are not discretionary. They must get to work, drive their kids to school, and get to the store, as most of them do not have the luxury to work remotely and shop online. Second, the extra trip is generating incremental merchandise sales, particularly in the tobacco category, where we are providing significant value relative to the competition. Third, as we reinvest margin into relatively lower prices at the pump and with our tailored promotions for our consumer packaged goods, We're also gaining new customers who are seeking greater value as they make the choice to switch brands before choosing to drive fewer miles or consume less of the products we sell. As a result of increased fuel volume and traffic, merchandise sales and margins from attached categories continue to grow. The benefit of being more affordable and increasingly relevant to consumers is that we are gaining share profitably for both established and emerging categories. This holds true not just for our Murphy-branded stores, but also for the QuickCheck brand, given their compelling price-to-value offers in food and beverage, convenience items, and low-price motor fuel. In short, our affordable customer value proposition is resonating in the current inflationary and high-fuel price environment. Supporting our value proposition is our low-cost business model, which not only continues to demonstrate its relative advantage in the face of macro challenges all retailers are facing – but continues to further evolve through the leadership and initiative of our staff. While we continue to see a smaller-than-historical store applicant pool, we are keeping up with the turnover inherent to a business like ours while taking additional steps to retain staff and fill vacancies through special incentives and recruiting marketing. The team is doing a great job managing merchandise challenges by resetting planograms and introducing new products and substitutes to keep the shelves stocked. In addition, Cormark did a great job navigating supply chain challenges and helping to keep our stores well stocked, especially around featured products for impactful promotions we successfully executed during the quarter. In addition, the acceleration of the CB4 implementation at Murphy, a reverse synergy where QuickCheck has a more advanced capability, is on track to generate over $2 million in additional contribution this year by faster identification and resolution of out-of-stock or mispriced products. Early wins from our food and beverage strategy are improving sales and contribution while streamlining labor and cost to serve for both brands. Necessity is the mother of invention, and one of the ways our asset development team is keeping our raise and rebuild guidance intact is by finding ways to repurpose more and more equipment and components from existing stores before they are torn down as we navigate supply chain issues. The list goes on, but I think you get the point. We remain intent not only in preserving our competitive advantage, but growing it. As a senior leadership team, we are in the early stages of outlining the next wave of top and bottom line growth initiatives Similar to the campaigns we launched back in 2018 that transformed some of our critical capabilities, like the Retail Fuels Pricing Excellence Initiative, and enhanced the foundation of our business model, like our Zero Breakeven and Employee Value Proposition Initiatives. As we like to say at Merck USA, we will never be complacent, and we have a great opportunity to build on our current momentum. As this virtuous cycle of winning with the customer with our EDLP offers delivered through our Advantage business model by engaged employees and business partners continues, we're also able to invest in our other stakeholders. We recently kicked off the third year of our Roundup campaign benefiting the Boys and Girls Club of America, which thanks to our engaged customers continues to make a positive impact in the communities we serve. During the quarter, we also repurchased more than $150 million of our shares while continuing to grow our dividend, continuing our industry-leading track record of total shareholder returns. The notion that when we win with our customers, all our stakeholders win is not new by any means, but the ongoing work over the past two to three years as part of our ESG reporting has placed an even greater focus on what really matters in the end to have a sustainable business, like being more affordable and relevant to your customers. Taken together, the team's hard work and efforts generated strong first quarter results for Merck USA. Importantly, a key element underpinning our earnings strength, namely a high structural fuel break-even requirement for the industry, remains in place as cost pressures continue and fuel price volatility is increasing. This means smaller fuel retailers face an increasingly uncertain future, and that risk is being partially offset through higher industry margins. In this environment, we are able to extend our discount to peers, generating greater loyalty amongst our existing customers and attracting more price-sensitive customers. As a result, we not only delivered strong year-over-year gallon growth for the quarter, but our per-store fuel volumes in April 2022 were higher than the same period in 2019, providing further proof that we are not only taking share, but taking share profitably as we shift from COVID recovery to yet another new and different macro setting. While our volumes are higher, we note that the recovery in macro demand remains fragile and will be subject to natural and artificial fluctuations as total fuel demand remains exposed to inflationary pressures coupled with emerging geopolitical risk and concerns about future recessionary pressure. Despite these risks, it is evident to us that our value proposition will continue to resonate with more and more value-seeking customers, further increasing our advantage in the marketplace and sustaining our ability to grow this advantage into the future, regardless of the macro environment we face. One particular element of the first quarter results that is more temporal and subject to movement of commodity prices is the outsized contributions from our product supply plus RINs performance, which added 10.7 cents per gallon to our all-in margins. As we've said consistently and repeatedly in the past, we expect PS&W plus REN margins to average 2 to 3 cents over time. We've also noted that during periods of extreme price volatility, PS&W results will be skewed to the directional move in prices. Thus, Q1 results were consistent with a price environment that saw RBOC prices move up over 90 cents during the quarter. In fact, if we back out the uncontrollable impact of this price change, for example, all the timing and inventory adjustments, we see about 2.7 cents per gallon of net contribution resulting from RIN sales, partially offset by a loss we incur that is embedded in our internal spot to rack transfer price. To provide a little further context for these results, I would direct you to Q1 2020 results. where RBOB prices fell a little over $1 per gallon and resulted in total PS&W contribution of negative 4.4 cents per gallon, or about 7.8 cents below our stated long-term average. This should serve as yet another reminder that the product supply and rinse part of the business remains relatively stable over time, absent price movements, as each of these volatile quarters delivered the underlying 2 to 3 cents per gallon we've told investors to expect. I suppose the big unknown question at the moment is when, not if, we see a significant fall off in commodity prices where we typically see outsized retail margins and typically achieve our greatest gallon growth. I'm now going to hand the call over to Mindy to briefly review the financial results, and then we will wrap up and open the call to Q&A.