Murphy USA Inc.

good morning ladies and gentlemen welcome to the murphy usa first quarter 2023 earnings conference call at this time all participants are in a listen-only mode and please be advised that this call is being recorded after the speaker's prepared remarks there will be a question and answer session if you would like to ask a question during this time simply press star 1 on your telephone keypad and if you would like to withdraw your question press star 1 again And now at this time, I'll turn things over to Christian Peichel, Vice President of Investor Relations. Christian, please go ahead.

Yeah, thank you, Beau. 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 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 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. I will go ahead and turn it over to Andrew.

Thank you, Christian. Good morning, and welcome to everyone joining us today. MRF USA performed extremely well during the first quarter of 2023, delivering results in line with our high expectations and results that support the future value creation potential we see in the business. All-in fuel margins of around 29 cents per gallon reaffirm our view of the structurally higher industry margins. As witnessed in recent quarters, higher margins are even more impactful to the bottom line when coupled with higher volumes. Robust customer traffic continues to translate into strong merchandise performance, which, along with the contribution from an increasing number of new builds and raise and rebuilds, is driving positive year-over-year growth inside the store. With ongoing investments in new stores and new capabilities, we believe we will continue to drive sustainable earnings growth and free cash flow generation over the next decade and are excited to announce a new share repurchase authorization of up to $1.5 billion through 2028. This level and commitment of share repurchase is aligned and consistent with the investor expectations we set earlier this year when we once again raised the bar for future shareholder returns. In thinking about the environment in which we generated such strong first quarter results, the most notable element was perhaps the market lack of commodity price volatility as compared to the prior year period when the Russia-Ukraine conflict first erupted. As a result, retail fuel margins were relatively stable throughout the quarter, generally ranging from about $0.15 to $0.30 per gallon and mostly residing in a tighter $0.20 to $0.25 per gallon range. When coupled with the PS&W business, which added nearly $0.06 per gallon to quarterly results, all-in fuel margins of nearly $0.29 per gallon we're at the high end of our suggested range for full year 2023. Investors should be encouraged to see such strong fundamentals during what is historically considered a shoulder quarter, where seasonal demand patterns and lower margins are the norm. In fact, going back several years ago, Q1 results were typically not materially impactful on full year financial performance. This year, We delivered the second highest first quarter net income in EBITDA in company history, second only to last year, where Q1 results alone generated about 95% of full year 2012 EBITDA. Our everyday low price strategy continues to resonate with customers, helping drive average per store month volumes up 2.4% as we continue to take share. Importantly, we continue to see robust fuel traffic despite lower street prices, suggesting sticky behavior from customers who may have initially come to us seeking lower prices in a high-price environment, but have become loyal shoppers due to the convenience, service, and the attractive value in our in-store offer. With quarterly same-store gallons increasing 1.4% for the current year and 5.2% on a two-year stack basis, We are not only retaining prior market share gains, but continuing to build upon that base. Our ability to attract customers and grow share is not only important and impactful for fuel contribution dollars, but is also translating to strong merchandise performance in the store. Our same store sales and margins were up 6% and 5% respectively, led by 7.2% and 5.6% growth in non-tobacco categories. In-store performance from the Murphy Network was even more impressive, with higher unit growth and sales growth in almost every category, despite passing through some manufacturer-driven price increases. When coupled with an active and effective promotional calendar, per-store sales and margin comps of 7.1% and 6.6% respectively were especially powerful given they are lapping a very strong quarter in 2022, which featured a highly impactful tobacco promotion in particular. However, even these aggregated results understate the strength of our customers and how well the business is actually performing. We are seeing center of store and packaged beverage categories delivering near roughly 20% sales and margin growth, benefiting from strong new stores and raise and rebuild performance, store resets, and promotional focus on growing categories like energy drinks. On the QuickCheck side, performance is also strong, but facing a different set of challenges unique to its geography and expanded offer. Mobility trends in the QuickCheck geographies are affected by lower commuter traffic, which has not recovered as fast as other areas of the country, impacting both the fuel and merch business. Fuel gallons were down 0.4% on an APSM basis, and merch sales and contribution margin were up 2.4% and 0.9% respectively. We continue to see pressure on the nicotine category. However, we have put in place initiatives, particularly in the smokeless category, to help shore up performance and have begun to see sequential improvement in March and expect to see incrementally better results from those efforts in the second quarter. Center of store and grocery categories also face volume headwinds at QuickCheck. The product innovation and price increases resulted in mid-single-digit growth in sales and margin contribution. And for prepared food, sales were up modestly as we continued to create price separation versus broader peer and QSR price points. For rising commodity costs, more than offset measured price increases we took early in the first quarter. Although food and beverage margins are down 2.2% year over year, we will not compromise our value position in the market at the expense of short-term results. We've intentionally lagged broader QSR price increases by about 10% over the past two years, establishing our low price position with our current customers and ultimately with new customers. In fact, stepping back and looking more holistically at the retail landscape in which we compete, we are seeing retailers willing to accept volume losses because they are making it up with higher pricing. Given this dynamic, we are well positioned to improve sales and gain customers from stepped-up advertising, building brand awareness, and communicating value through improvements to the QuickCheck loyalty platform, along with enhanced promotional activity centered around our core prepared food offer. In the short term, we expect cost impacting the food and beverage category, which were up 6% in the first quarter, to moderate. When coupled with another round of measured and targeted price increases that maintain our relative value proposition, we expect to see an improvement in the near-term performance. We believe there is significant value to be created in the QuickCheck business over the short, medium, and long term. The team has also done an excellent job on the cost side, where Q1 store OpEx was up less than 5% for the quarter. Given the strong financial performance of the business and the resulting free cash flow we generate, We continue to invest for the long term. First and foremost, our capital is dedicated to growing the business, which includes both new stores and raise and rebuilds. New stores are delivering strong returns in the current environment and outperforming the network averages and key metrics. In the first quarter, the last four Murphy build classes from 2019 to 22, which included 87 stores, averaged a little over 275,000 gallons per store month. We're about 20% higher than the network average of about 230,000 gallons per month. Further, these same stores generated 9% higher merchandise sales, driven by 80% higher non-tobacco sales. While new store openings remain challenged in the current environment, we are on track to deliver 35 to 40 new stores in 2023, including six new QuickCheck stores, along with 30 raise and rebuilds. Given the strong returns and repeatability of success in our new store formats, we are investing in our real estate pipeline, growing our inventory of future locations for both the Murph USA and QuickCheck brands, ultimately preparing the business to deliver more than 50 new stores per year when conditions allow in the future. In addition to unit growth, we are investing in future capabilities to widen the competitive moat versus the rest of the industry, which is referenced in our investor presentation in March. will result in a virtuous cycle of customer acquisition, enhanced performance, higher cash flows, and a growing opportunity to extend our low-price position in the market. Considering the impact of rateable, high-return new store growth, coupled with business improvement initiatives on the long-term performance of the business, the case for a sequentially larger and potentially more impactful share repurchase authorization becomes even more compelling in our opinion. Importantly, share repurchase is an and, not an or, for our investors. While Q1 results are strong, our repurchase decisions are based upon our long-term expectations for the business where we can deliver incremental value from the ongoing slate of investments and initiatives, driving even better returns in the future. For these reasons, we're excited to announce a new up to $1.5 billion authorization through 2028 commencing upon completion of the $200 million remaining under the prior $1 billion authorization. I'll now hand the call over to Mindy to briefly review the financial results, and then we will wrap up and open up the call to Q&A.