Murphy USA Inc.

Good morning, my name is Chantal and I will be your conference operator today. At this time, I would like to welcome everyone to the Murphy USA second quarter 2022 earnings conference call. As a reminder, today's conference call 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 star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star 1 again. Thank you. Mitchell Freer, Senior Analyst, Investor Relations. You may begin your conference.

Thanks, Chantel, and good morning, everyone. With me are Andrew Clyde, President and Chief Executive Officer, Mindy West, Executive Vice President and Chief Financial Officer, Donnie Smith, Vice President and Controller, and Christian Peichel, Vice President of Investor Relations. After some opening comments from Andrew, Mindy will provide an overview of the financial results and then we will 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 Murphy USA Forms 10-K 10Q, 8K, and other recent SEC filings. MRPA USA 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, Mitchell.

Good morning and welcome to everyone joining us today. Once again, we are certainly pleased with our results this quarter as they clearly demonstrate the earnings power of our advantage business model, which has outperformed in a variety of different market conditions since our spin and is uniquely built to win in the current environment. There are three key elements of second quarter performance we want to highlight that are most emblematic of our advantage. The first is our high-volume, everyday low-price fuel model, which becomes more effective in a higher-margin environment. The second is the resilience of our consumer. Despite known pressures impacting take-home pay, we are clearly seeing our low-price offer resonate to more and more value-seeking customers. And finally, the investments we have made to engage our staff have delivered targeted results of increased engagement, reduced turnover, and higher applicant flow without permanently impacting our cost structure. Looking at our fuel business, we have gained market share over the past six months despite a rising price environment, a feat that would have been difficult to accomplish in an economically viable manner in previous lower margin environments. Due to the structural change in industry break-even costs that is driving marginal retailers to preserve margins, rising wholesale prices more rapidly translated to higher prices at the pump. In this environment, our retail tactics and pricing precision are far more impactful with greater ability to create separation with lower prices, and that is leading to share market gains. Our low price strategy is effective across a wide range of different price and margin environments, but it's most economically impactful when industry margins are more robust, all else being equal. Investing two to three pennies when margins are 30 cents and prices are high where consumers go out of their way to find lower prices is a different proposition than when margins are 15 cents and prices are low where customers may not be as price sensitive and you can't get the volume uplift to economically support the volume margin trade-off. These tactics and strategies have allowed us to capture new customers and grow volumes, the benefit which is further amplified when prices are falling, as they have been since mid-June. In this environment, as lower trending prices temporarily prop up retail margins, our contribution margin grows dramatically as a function of a combination of both higher gallons and higher margins, which allows us to further invest in our low price position, perpetuating the cycle of share gains. And this phenomenon isn't unique to Murphy branded stores. QuickCheck's high volume business model also benefits in this environment. We understand high fuel prices may be just one of many problems lower income consumers face in an inflationary environment. It is important to understand that our customers consider the products we sell, especially fuel and tobacco, as non-discretionary purchases. They are likely cutting back on other areas of their monthly spend versus their spend at Murphy USA, which is increasing. A large panel of almost 100,000 Murphy Drive reward members shows us they are buying a gallon or two less per month, yet the fact that we are growing overall volume means we are adding new customers and taking share. These customers not only purchase lower-priced fuel from us, but we're also seeing improvements in categories attached to fuel inside the store. Coupled with our innovative ground-up resets in our large-format stores executed in the second half of 2021, we are seeing strong growth in packaged beverages, specifically, as well as better performance from other center-of-store categories. Product-level innovation is also driving results, as evidenced by the proprietary made-to-order iced and frozen energy drinks offered at QuickCheck. Importantly, new tobacco customers seeking greater value are shifting retail brands and coming to MRF USA while existing customers really don't have a better value option to trade down to as targeted promotional activity helps to insulate the category. As a result, we are not seeing a negative impact in the broader down trading phenomenon making headlines. At an individual customer level, our MDR panel data shows behavior consistent with our overall trends. There's a very modest 1% mix shift from premium to discount cigarette brands, while individuals are purchasing about 5% fewer units versus the prior year. So while individuals may participate in minimal down trading across units and categories, we are seeing more than enough retailer down trading or Murphy benefits to offset it. And as we've said in the past, these new customers tend to be sticky once we convert them to the Murphy brand and communicate with them through MDR to increase and reinforce their loyal behaviors. Across other categories, promotional activity and energy drinks and candy has insulated them from trading down as well, while we do see small shifts downward in enhanced and flavored water to base water products. Of course, everyday low prices get customers in the store, but our model works exceptionally well because of our engaged staff who are fantastic at upselling and providing the high level of friendly service customers want in order to become more loyal. To increase engagement, we have invested in an appreciation bonus for our staff, which is payable over the 100 days of summer. The intended outcome of this program was clear. help engage our employees to maintain sales momentum, increase retention and employee well-being, attract new applicants, and increase store hours of operation and reduce overtime hours. We are clearly seeing the benefits of this investment in our results and in our staff surveys, which when coupled with our very strong employee value proposition, has resulted in applicant flow returning to near pre-COVID levels. But most importantly, Similar to the enhanced commission program we offered in 2021, this investment supports the business without permanently eroding the low-cost operating model that underpins our low-price position and ensures the long-term sustainability of the business. As a result of the one-time cost of this program, which approximates $500 per store month on full-year results, coupled with other inflationary pressures on wages, store supplies, and maintenance costs, we expect store-level operating costs to exceed our originally guided range of $29,500 to $31,000 per store month. Our revised guided range is $31,500 to $32,500 per store month, which, although above our original forecast, has been more than offset by our participation in the higher industry-wide fuel margins and our strong merchandise performance. Given the operational and financial results we have delivered, It's also clear to us that this is an attractive business to invest in. Given our high volume model, larger formats, and improved merchandise offer, it's a great time to be opening new stores and growing our network. We're building great-looking, high-performing new stores and are on track to deliver nearly twice the stores as we did in 2021. In addition, we are on track to complete 35 raise and rebuilds this year, which are helping to diversify our merchandise mix and grow contribution margin. In addition to investing in new store growth, share repurchase continues to be our preferred use of free cash flow. To that end, we bought back over $200 million worth of our stock in the second quarter. We have a clear view of the dramatically improved earnings power of our business, coupled with a management team that remains committed to maximizing shareholder value, and we confidently took advantage of the opportunity to invest in ourselves. When compared to M&A opportunities that occasionally cross our desk, the stark difference in the quality, consistency, and profitability of our network stands out. Given the relative attractiveness of buying someone else's stores and paying a premium price to do so, we are far more motivated to buy a larger interest in our own advantage stores at a discount, a practice that has generated significant value for long-term shareholders since our spin. I will now hand it over to Mindy for a quick review of some key financial metrics. Mindy?