Thank you for standing by. My name is Kayla Baker, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Murphy USA Third Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operation's Instructions] I would now like to turn the call over to Vice President of Investor Relations, Christian Pikul. You may begin.

Thank you, Kayla, and good morning, everybody. 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 our opening comments, Mindy will provide an overview of the financial results, and then Andrew will provide a quick overview of our guidance, 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 Murphy USA Forms 10-K, 10-Q, 8-K and other recent SEC filings. Murphy 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 Investors section of our website. With that, I will turn the call over to Andrew.

Thank you, Christian. Thank you, everyone, on the call for joining us today. Over the course of any quarter, we are constantly reflecting on our performance and our outlook as we shape the narrative for the quarterly earnings call and the key messages to convey to investors as well as our employees, partners and others that tune in for an update. While this is just a point in time in our ongoing path to sustainable long-term value creation, we truly look forward to the opportunity to provide updates on our path and more importantly, reinforce the messages we believe are most instructive for investors. By now, the various scraping services and bots will have automatically generated their quarter-over-quarter headlines about lower revenues and profits without any insight into the price of gasoline, the structure and direction of the commodity market, the evolution of industry structure or the relative advantage amongst competitors. And we too could spend a lot of time this morning discussing this year's third quarter results compared to last year's record results, but we don't think that's especially helpful. What is helpful and important for investors to understand is that third quarter performance has evolved from an extraordinary set of conditions in the prior year, what we previously described as a once in every 6- to 8-year price drop to sustainable and durable financial performance in 2023. And to be sure, we do not expect full year results in 2023 will exceed those of 2022, but that really shouldn't be news to anyone except the bots. Instead, we believe investors should be focused on 2 fundamental questions: What is the sustainable trajectory given the advantaged competitive positioning of the Murphy USA business model in the years ahead? And how does the current momentum and initiatives underpin and support…

Thank you, Andrew, and good morning, everyone. Revenue for the third quarter of 2023 was $5.8 billion versus $6.2 billion in the year ago period. Adjusted EBITDA was $306 million versus $367 million, and net income was $167.7 million or $7.69 per share versus $219.5 million or $9.28 per share. Average retail gasoline prices were $3.41 per gallon versus $3.67 per gallon in the year ago period. Total debt on the balance sheet as of September 30 was approximately $1.8 billion, of which approximately $15 million is captured in current liabilities, representing the 1% per annum amortization of the term loan and the remainder of reduction in long-term lease obligations as they are paid through operating expense. Our $350 million revolving credit facility had a once again 0 outstanding balance at quarter end and is currently undrawn. These figures result in gross adjusted leverage that we report to our lenders of approximately 1.8x. Cash and cash equivalents totaled $125 million, up from $93 million as of June 30 after CapEx of $79 million and share repurchases of $65 million, clearly demonstrating the accretive benefits of our positive free cash flow business. Now I also want to add some color around the store count table in the earnings release. You will notice 4 Quick Tech stores were closed during the quarter totaling 6 year-to-date. These closures represent nonfuel stores that reach the end of their useful life, and we are allowing the lease to expire. In strong markets where we want to maintain and grow the Quick Check brand, we will build brand new stores with a fuel offer in a better location with better economics. Andrew is going to address the remaining elements of our guidance, but I will kick off the conversation and go ahead and discuss our 2023 capital spend, which for the full year '23 is likely to come in between $325 million and $375 million or $50 million below our guided range. We expect most of the spend to carry over into 2024 as our new-to-industry stores are experiencing longer cycle times than anticipated and some maintenance initiatives and corporate project spend has now been deferred into 2024. And with that, I will turn the call back over to Andrew.

Thanks, Mindy. That's a great segue into a quick review of how we're tracking against 2023 guidance. So let's start with our organic growth. The 2023 plan included up to 45 new-to-industry stores. As cycle times for new construction projects has lengthened over the past 2 years, we have not been able to put new stores into service as quickly as we would like. Permitting continues to be an issue for both our project developers as well as when we're building and opening individual stores. Contractors continue to face a variety of challenges, including labor shortages and supply chain constraints. Looking at utilities has also been an issue in getting new stores across the finish line. So taken together, we are estimating 9 to 11 new stores will be put into service in the fourth quarter, resulting in a total of 27 to 30 new stores for the year, and that includes 6 new Quick Check stores. We will end the year with 4 new stores under construction with another 10 beginning in Q1 of next year. So hopefully, that gives you some sense of the lag effect we are experiencing. We expect these conditions to largely continue into 2024, impeding our ability to grow as fast as we would like next year. Nevertheless, we maintain a robust land pipeline and an ambitious build schedule and expect at least 30 to 35 new stores to open in 2024 with activity expected to accelerate in 2025. While we think about capital allocation on an up-to basis, knowing that the longer-term trend will catch up in reverse over time, we think it will be more helpful to provide annual guidance on an at least basis. Slight challenges around new store growth as our network matures and our formats continue to evolve we…

[Operator Instructions] Our first question comes from the line of Anthony Bonadio with Wells Fargo.

I just wanted to drill in a little bit on the PS&W margin contribution. Can you just talk us through the underlying components there? I know you've talked about a modest benefit from supply tightness, I think to the tune of around $0.01 per gallon in recent quarters. Is that still the right way to think about it? And then it looks like RBOB was net down in Q3. So just maybe more on what drove the upside there this quarter.

Sure. Most of the results, Anthony, are reflective of mostly the direction of prices as we looked at last year, where we saw the big price fall, we would expect, given the direction of prices and the way we account for inventories to have a negative impact for product supply and wholesale. Conversely, this year was kind of the opposite of that, low volatility in the business, which resulted in us being able to capture some gains in those inventory variances. So really, the fluctuation in product plant hostile results quarter-to-quarter, mostly in any quarter as just based on the direction of our overall product price movement.

Okay. And then just on breakeven I wanted to dig in a little there and more specifically around the recent narrative around support from weaker trends in tobacco. If we look at industry data, it seems like sales have softened, but we've also got this ongoing shift out of cigarettes into higher-margin alternative products that seems to be at least partly offsetting as I think about gross profit dollars earned by the marginal player. Is there anything you can do to help us sort of quantify or frame what's going on there? And then is it fair to say that the marginal players just doing worse and capturing that transition?

Yes. So in terms of traditional combustible cigarettes, noncombustible smokeless, the -- I guess, the more premium paper products, et cetera. I would expect to see brands like Murphy USA and the larger chains continuing to grow and take share in those categories relative to the marginal players. One of the things that I know has been localized by some of the tobacco manufacturers is the frustration with a lot of the illicit paper products that are being sold out there. And if you did a survey of many of our rural markets, you'll find that many of those smaller operators are selling products that were not approved by the FDA that not get to stay in court, and we may even be the only retailer responsible in that market, not selling those products. And I know that is having an effect on combustible products as well as some of the other vapor products. So unfortunately, you'll see some of the marginal players reverting to tactics like that, unfortunately, as part of their means to sustain profitability. Beyond that, though, I don't have as much insight into the details of their tobacco mix. I don't know that's the particular issue you were getting at or not, Anthony.

And your next question comes from the line of Ben Bienvenu.

So I want to start, if we could, just on the fuel gallons, which despite lapping a huge growth number last year, up 11% on a same-store basis, it was only down 4%. The 4% the 2-year stack accelerated sequentially despite having kind of a similar follow-up in pricing that led to a favorable consumer response last year. Can you talk about the things you're seeing from your consumers that kind of in concert with the moves you're making around price are leading to the stickier share gains? And how you think that informs kind of what the new baseline fuel productivity of your stores looks like going forward?

Yes. Thanks, Ben. And look, I think the last quarter, we kind of said, look, if volumes were down 4% to 5%, we would consider that a win considering the significant gains that we got last year in a really high price environment. And we know, look, on the margin, some customers aren't going to be as price-sensitive in lower price environments like we're experiencing right now. But I do believe when customers come to us in those high price environments, they sign up and become a member of Murphy Drive Rewards and get those benefits. They get into our stores and they see the incredible value and great service that they can expect there. It just creates a stickiness I believe this consumer segment continues to fill the brunt of the inflationary pressures that remain persistent. So even at the lower prices, they're still feeling that pain. And I believe that bodes well for everyday low-price retailers, especially in categories like ours where they don't view our products as discretionary. They need our product to get to work and for their simple pleasures in life. So I think a lot of it speaks to who our customer is and the pressures that they continue to face. And we just continue to see more customers trading down to Murphy USA. And we can see it been not just in the fuel category, but other categories as well, where we can look at a panel of same customers over a period of time, how their mix shifts and how we get new customers in both premium and discount categories of tobacco, for example. So I think as we continue to see volatility as we continue to see inflation as we continue to see high interest rates, these pressures are going to build up, and I think it just bodes well for a business like ours.

My second question is kind of following up on a comment, Andrew, that you made around the new midpoint or equilibrium for margins as we look forward kind of reassessing that in 2024. And I think if we look at the third quarter, really, there was kind of every reason for margins not to be very good, yet the margins you delivered sort of piece through the headwinds of rising RBOB prices during the quarter sequentially. And so I'm wondering, are you willing to put more specificity around the new range? Or is that something you'd like to do more formally next year?

Well, I think we'll put more specificity around the suggested range, but I don't think we're going to go back to guiding fuel margins because it just led to so many short-term conversations as opposed to maintaining the dialogue on a much longer-term sustainable basis. So by providing a range this year that, we kind of did a walk down from the $0.34 from the prior year to get to the upper end of the range. We developed a Slide 5 that highlighted why we thought in the investor presentation, why the $0.26 was sustainable, and that was the basis for the range. We'll continue to do that type of analysis to provide the range, but there are so many factors that ultimately influence it, right? As Mindy highlighted the structure of prices rising and falling. When prices get high, the impact that has, especially with volatility on the marginal player wanting to move prices up more quickly because of the challenges they're facing. The broader competitive dynamic is rational, but it varies regionally as new competitors move into a market. Certainly, when we build new stores, we may be more aggressive in those markets to establish top-of-mind awareness with consumers, and we've seen that in some of our markets. And then all of a sudden, those markets become a little bit more irrational. So there's so many variables in there. So I'd like to think we were thoughtful in the $0.26 to $0.30 range. I'll admit we got it wrong, but fortunately, on the high end. And I hope to be as thoughtful on the range we provide next year. But it's going to be more of a, again, a suggested range. So we avoid the short-term margin focus of the discussions with investors.

And your next question comes from the line of Bobby Griffin with Raymond James.

Congrats on another great quarter. I guess, Andrew, first, I want to touch on just the non-cigarette same-store sales growth, modestly negative. Understanding went up against a very big comparison in the prior year. Is it really just a comparison that's driving that? Or was there some breakdown behavior from consumers or some opportunities in certain categories that you might look at and say, hey, that's a good opportunity for us to do a little better in 2024?

Bobby, that's a great question. And certainly, if you've got a 2-year stack, you could just kind of rest on that and make that your answer. As you know, we're not that complacent when we look at our business. I mean, I'll give you an example on a sales basis, center store was down. And on a 2-year stack, only up 2%. Food and beverage was up 7% on a 2-year stack, but only up 1.1% on a margin basis. And so as I think about the big initiatives that we are in the midst of, and as I noted, we are ahead of schedule in terms of both execution and delivery, they're all focused on nontobacco merchandise, including food and beverage. Some examples. Our price and SKU optimization for the center of the store, we've got really good at fuel pricing and tobacco pricing. We're now applying that to the center of the store. The demand forecasting work we've done at Quick Check is going to improve production planning and labor planning, we're already seeing it flow to the bottom line from both a margin and a cost standpoint, along with the pricing improvements that we made that will flow through and full year results next year. MDR is great. We're now personalizing offers in a much more sophisticated way than we've ever done before. Everyone knows Murphy USA is great for upselling. Now we're doing a better job of doing that at Quick Check, especially on the food and beverage side with the digital customer order screens. Our in-store experience campaign, we've got 17% more selling space in the center of the store. We've adopted 2 lines from Quick Check. The food and beverage layout has been redesigned for an expanded grab-and-go and dispensed beverage area. So I think your point is spot on, and that's where a significant amount of our focus has been this year on improving that part of the business, and I expect to see really good results on that in 2024.

Your next question comes from the line of Bonnie Herzog.

This is Ethan Huntley on for Bonnie Herzog. I guess first, maybe a topic of discussion lately has been GLP-1 drugs. So I'm curious to hear your thoughts on the potential impact on your business from the growing use of these drugs. I guess, sort of have you seen any impact on your inside sales or any changes in consumer behavior either from a basket traffic or maybe a category perspective? And then maybe if you could touch on your initiatives you could implement sort of to mitigate these potential impacts over the next, say, 5 to 10 years?

Yes. I think it's way too early to tell.

Okay. All right. Got it. And then maybe let's talk about fuel margins again. We've come quite a bit, but curious if you can maybe help outline the impact of a tight diesel fuel supply market had on your margins and volumes during the quarter. And I guess, sort of any color you can provide on that dynamic more recently.

I mean, as you know, we are more or focused, more gasoline focused versus diesel. So while that had an impact, that was really just on the margin for the most part, the margins that we were able to drive home in the quarter were really more a function of our execution against our strategy, also the persistent market structure equilibrium, which continues to pressure retailers, as Andrew said, to raise margin to cover cost. Margins coming into July were a little soft, and we had 3 separate price moves on a Friday, which challenged us, but we were able to recover from that in the months of August and September posting really strong results. And so really, it's just our executing against our strategy in that market equilibrium, which is allowing us to continue to generate that strong cash flow and earnings even at a relatively stable market environment. And of course, we would be able to have significant upside if we ever get a return to volatility, which we certainly will. So as Andrew said, as we look out into October in the fourth quarter, we continue to be encouraged by the traffic in our store with volumes right near last year's and at much higher margins, at least so far in the fourth quarter. So diesel not really having a material impact on the bottom line for our results at least.

Yes. I think the other thing you have to think about is I drive a diesel truck. Most of our customers who are driving a diesel truck on a farm or a ranch or an oil field or something like that, they're not switching out because of the mission of that vehicle, to a gasoline vehicle because of the requirements they have. So it's really a nondiscretionary purchase for them. Fortunately, we're not having supply outages or anything else because of the tightness as well in the ag season has kicked off to a good start, and that's certainly helping volumes out of our proprietary terminals. So something you keep an eye on, but it's not impacting the business in any negative or major way.

And your next question comes from the line of Corey Tarlowe with Jefferies.

Firstly, Andrew, I believe you had mentioned that you're piloting, I believe, 9 stores with the redesigned interior and improved food and beverage with the potential to scale that or renovate up to 50 stores next year. Could you talk a little bit about the early performance that you're seeing from these stores and what's different in these stores versus your more traditional stores?

Yes. So it's too early to give you detailed performance data. We're kind of a month or so into that. But so far, customer feedback is extremely encouraging as well as feedback from the staff. In fact, we have teams out there of our leadership teams visiting the 3 markets those are in. So part of the feedback we got is our food and beverage strategy was around how the store is organized, where the food and beverage offer is presented in the store. And so if you walk in now, you'll see grab and go at the back of the store versus where it was closer to the front. One of the things that we had to do because it was in the front was put more shading on the windows to keep the refrigeration stable. Customers didn't like all the shading on the windows because the store wasn't as open, transparent and lift from a perceived hey, I look in the store if it looks dark, that's not as good a sense. By moving it to the back, you've got a grab-and -- kind of prepare reheat counter area that's significantly larger. I think before you had one small microwave that was down low. Now you've got 2 larger ones up on a counter. And so more people are using that feature than ever before. We set up queuing lanes like we had trialed at QuickChek that were highly successful. And it took about a couple of weeks for customers to get used to it. I was in one of the stores on Monday and there are 6 customers in the Queuing lane. They all lined up exactly like they were supposed to, and that's an opportunity to sell more impulse items that way. So it's largely centered…

That's great. Very helpful. And then I just wanted to follow up. I think early on in your prepared remarks, you had mentioned that you've seen an improvement in the Northeast. I was wondering if you could provide any additional context or color as to what drove that improvement.

Yes. Look, I think as we look across our various markets, we see volume margin traffic, et cetera, vary to a variety of factors. It's no surprise anyone that the Northeast demand has not picked up as much as other parts of the business. We see that not only in some of our data, but other industry data and then services that provide insights on broader consumer spending. I believe that our promotional activity or New York Giants launch with those subs, which have had a meaningful impact on the food sales and Quick Check, some of our innovative frozen energy drink concepts, et cetera, have really helped from a traffic standpoint for QuickChek in particular. And then the margin environment has just improved there where it was a little bit weaker over the summer. It's now improved, more consistent with what we've seen in some prior quarters.

And there are no further questions at this time. Andrew Clyde. I'll turn the call back over to you.

Great. Well, thanks, everyone, for tuning in. As I said, we truly look forward to these opportunities to provide updates on our journey towards long-term value creation. We're excited about all the opportunities that we have in front of us and look forward to our next update. Thank you.

And this concludes today's conference call. You may now disconnect.