Q4 2023 Murphy USA Inc Earnings Call

Thank you for standing by my name is Christina and I'll be your conference operator today.

Operator: Thank you for standing by. My name is Christina, and I will be your conference operator. At this time, I would like to welcome everyone to the Murphy USA 4th Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

Christina: At this time I would like to welcome everyone to the Murphy USA fourth quarter 2023 earnings Conference call.

Christina: All lines have been placed on mute to prevent any background noise.

Operator: 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 1 on your telephone keyboard. If you would like to withdraw your question, again, please press star 1. Thank you. I will now turn the floor over to Christian Feichel. Thank you, Christine. Good morning, everyone.

The Speakers' remarks, there'll be a question and answer session.

Christina: If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

Christina: If you would like to withdraw your question again, Please press star one.

Thank you.

Christina: I will now turn the floor over to Christian Pikul you may begin your conference.

Chris Mandeville: Thank you Christine good morning, everyone. I appreciate you joining us today with me 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 kick off our guidance conversation after some fee.

Chris Mandeville: I appreciate you joining us today. With me 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 kick off our guidance conversation. After some follow-up comments from Andrew, 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.

Chris Mandeville: Follow up comments from Andrew 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.

Chris Mandeville: 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 undertakes no duty to publicly update or revise any forward-looking statements.

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 it.

Andrew Clyde: During today's call, we may also provide certain performance measures that do not conform to generally accepted accounting principles or gaps. 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 will turn it over to Andrew. Thank you, Christian. Good morning, everyone.

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Andrew Clyde: 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 it over to Andrew Thank.

Andrew: Thank you Christian and good morning, everyone. We are excited to discuss our fourth quarter 2023 performance with reaffirms the strength of our strategy and business model as well as our enduring commitment to driving sustainable value for all our stakeholders well.

Andrew Clyde: We are excited to discuss our fourth quarter 2023 performance, which reaffirms the strength of our strategy and business model, as well as our enduring commitment to driving sustainable values for all our stakeholders. When looking at our fourth quarter and full year 2023 results, it's clear to us that Murphy USA is delivering results, and it all revolves around the concept of more. Let me tell you what I mean by more. I often share that I believe the Murphy USA and QuickCheck brands are serving the largest and fastest growing customer segment in the U.S.—customers who are struggling to make ends meet, living paycheck to paycheck, and who value affordability above all else. But when we look at our most loyal customers through the lens of our loyalty data, what do we see?

Andrew Thank: When looking at our fourth quarter and full year 2023 results, it's clear to us that Murphy USA is delivering results and and all are all all revolves around the concept of more let me tell you what I mean by more.

Chris Mandeville: Often share that I believe the Murphy USA and quick check brands are serving the largest and fastest growing customer segment in the U S customers, who are struggling to make ends meet living paycheck to paycheck and who value affordability above all else.

Christina: When we look at our most loyal customers through the lens of our loyalty data what do we see.

Andrew Clyde: First, we continue to get more from the same customers. When we look at a large panel of customers who've been shopping with us every month since 2019, we see that they are spending 50% more at Murphy USA in 2023 than they were in 2019, about $177 per month.

Christina: First we continue to get more from the same customers. When we look at a large panel of customers who've been shopping with US every month since 2019, we see that they are spending 50% more at Murphy USA in 2023 than they were in 2019, it's about $177 per.

Christina: <unk>.

Andrew Clyde: Second, we are getting the same for more customers. New loyalty members that visited us for the first time in 2023 are making the same frequency of trips as the 2019 Most Loyal cohort, about five transactions per month. But they are spending at higher levels, and they are shopping more at the store, with 28% of them having bought fuel, tobacco, and non-tobacco each month. In addition, we're getting more from our existing stores. As we continue to build on our history of lowering our fuel break-even margin requirement and improving our coverage ratio, new initiatives are helping us maintain that project. For example, one element of our digital transformation initiative focuses on upsell suggestions at the quick check touch screen. Early pilots show uptake of suggested cell items at more than double.

Christina: Second we are getting the same for more customers new loyalty members that visited us for the first time in 2023 are making the same frequency of trips as the 2019, most loyal cohort about five transactions per month, but they were spending at higher levels and they are shopping.

Christina: More of the store with 28% of them, having bought fueled tobacco and non tobacco each month.

Christina: In addition, we're getting more from our existing stores as we continued to build on our history of lowering our fuel breakeven margin requirement and improving our coverage ratio.

Christina: New initiatives are helping us maintain that trajectory for example, one element of our digital transformation initiative focuses on upsell suggestions at the quick check touch screens.

Christina: Early pilots show uptake of suggested sell items and more than doubled.

Andrew Clyde: At Murphy, creating personalized offers through machine learning initiatives is resulting in more share of wallet captured from the same customer. Similar initiatives and investments; they allow us to achieve more with less. Last year, we piloted a more sophisticated demand forecast and production planning tool at QuickCheck Stores. This initiative has resulted in driving a larger basket with better availability of items while also improving labor scheduling accuracy, in other words, doing more with fewer staff hours. The pilot stores have demonstrated a 20% uplift in off-grab-and-go products, leading to an increase in contribution of 6% net of spoilage due to stronger in-stock positions during periods of peak demand, increasing our speed of service, and giving customers more of what they want. The Plain Demand forecast is now fine-tuning our labor pitch.

Christina: At Murphy, creating personalized offers through machine learning initiatives is resulting in more share of wallet captured from the same customers.

Christina: Same initiatives and investments that allow us to achieve more with less.

Christina: Last year, we piloted a more sophisticated demand forecast and production planning tool a quick check stores.

Christina: This initiative has resulted in driving a larger basket with better availability of items, while also improving labor scheduling accuracy in other words doing more with less staff hours.

Christina: The pilot stores have demonstrated a 20% uplift in grab and go products, leading to an increase in contribution of 6% net of spoilage due to stronger in stock positions during periods of peak demand, increasing our speed of service and giving customers more of what they want.

Christina: The same demand forecast is now fine tuning our labor scheduling.

Andrew Clyde: We're also getting more from our new stores. We added 22 new stores to the Murphy-Brandon Network in 2023. And while supply chain and permitting issues have deferred some of the financial impact of our new store programs, most importantly, performance of these new stores has not been compromised.

Christina: We're also getting more from our new stores, we added 22, new stores to the Murphy brand and network in 2023.

Christina: And while supply chain and permitting issues have deferred some of the financial impact of our new store program.

Christina: Most importantly performance of these new stores has not been compromised.

Andrew Clyde: The 74 new Murphy Banner stores added over the last three years averaged about 290,000 gallons per store month in 2023, nearly 20% higher than the network average in 2023, delivering more gallons to more customers. From a merchandise perspective, we are seeing total merchandise sales per store month of about $205,000, about 15% higher than the Murphy Network average, which is impressive given these stores are still ramping up to their full potential. We've also put 13 new QuickCheck stores into service over the same three-year period, helping QuickCheck generate record results in food and beverage sales and margins in the fourth quarter. Additionally, we're excited to share that QuickCheck has received recognition for the number one spot in the CFP survey of the 20 best C-store coffee programs for 2023 and the number two best gas station for food in the USA today. This recognition confirms what we already know, that QuickCheck is a world-class food and beverage platform known for its high-quality fresh offer and innovative programs that keep customers coming back for more.

Christina: The 74, New Murphy banner stores added over the last three years averaged about 290000 gallons per store month in 2023 nearly.

Christina: Nearly 20% higher than the network average in 2023, delivering more gallons to more customers.

Christina: From a merchandise perspective, we're seeing total merchandise sales per store month of about $205000 about 15% higher than the Murphy network average, which is impressive given these stores are still ramping to their full potential.

Christina: We've also put 13, new quick check stores into service over the same three year period, helping quick check generate record results in food and beverage sales and margins in the fourth quarter.

Christina: Additionally, we are excited to share that quick check has received recognition for the number one spot in the CSP survey of the 20 Best C store coffee programs in 2023, and the number two best gas station for food in the USA today.

Christina: This recognition confirms what we already know that quick check is a world class food and beverage platform.

Christina: Known for its high quality fresh offer an innovative programs that keep customers coming back for more.

Andrew Clyde: In addition to new stores, we are getting more from our legacy network of kiosks when our Raise and Rebuild program converts them into 1,400 square foot stores with an expanded center of store offer and higher merchandise contribution. In short, these stores are selling more gallons and more merchandise. The Raise and Rebuild stores from calendar years 2020 through 2022 averaged 307,000 gallons per store month in 2023, about 27% higher than the network average. They also averaged $230,000 per month in merchandise sales, or about 27% higher than the Murphy Network average also.

Christina: In addition to new stores, we are getting more from our legacy network of kiosks, and our raze and rebuild program converts them into 2500 square foot stores with an expanded center of store offer and higher merchandise contribution and short these stores are selling more gallons and more merchandise.

Christina: The raze and rebuild stores from calendar years 2020 through 2022 averaged 307000 gallons per store month in 2023 about 27% higher than the network average they averaged 230000 per month and merchandise sales or about 27% higher than the Murphy network average also.

Andrew Clyde: Given our performance against this backdrop and the environment in which we compete that is characterized by class and negative macro demand, especially for fuel and cigarettes, this begs the question... If we're getting more in the marketplace, what does that mean for everyone else? We believe it means others, especially those who don't have their own unique value proposition, are getting less.

Christina: Given our performance against this backdrop.

Christina: And the environment, which we compete that is characterized by flat to negative macro demand, especially in fuel and cigarettes. This begs. The question. If we are getting more in the marketplace. What does that mean for everyone else.

Christina: We believe that means others, especially those who don't have their own unique value proposition are getting less we're taking share based on what we've all observed over the past few years when certain segments of the competition competition loses sale and sees their cost increase their relegated to make it up in the form of higher.

Andrew Clyde: We're taking share. Based on what we have all observed over the past few years, when certain segments of the competition lose a sale and fees or costs increase, they are relegated to make it up in the form of higher fuel margins. So, what does this mean for Murphy USA? It means we also take home more cents per gallon at each store, which in turn funds more organic growth, more investments in distinctive capabilities that will generate even more in the future, allowing us to buy back more shares. This is the virtuous cycle and flywheel that defines Murphy USA. But I know the million dollar question remains.

Christina: Fuel margins.

Christina: So what does this mean for Murphy USA.

Christina: It means we also take home more cents per gallon at each store, which in turn funds more organic growth more investments in distinctive capabilities that will generate even more in the future, allowing us to buy back more shares. This is the virtuous cycle and flywheel that defines Murphy USA.

Speaker Change: So I know the million dollar question remains.

Malynda K. West: If you're getting more from other parts of the business in the future, do you still expect to capture more fuel margin? And the short answer is yes. And I will cover that in a little bit more detail after Mindy reviews quarterly results and kickstarts the guidance conversations with some details around our 2024 capital plan.

Speaker Change: If you are getting more from other parts of the business in the future do you still expect to capture more fuel margin and the short answer is yes, and I'll cover that in a little bit more detail. After many reviews quarterly results and kickstart the guidance conversations with some details around our 2024 capital plan Mindy.

Malynda K. West: Thank you, Andrew. And continuing in the spirit of the MORE theme, I would like to say good morning to everyone. Sorry, I know that was bad.

Malynda K. West: Andrew and continuing in the spirit of the more theme I would like to say good morning to everyone.

Malynda K. West: Sorry, I know does that I'm going to hit a few operational highlights and then I'm going to move on to financial results and then I will discuss our 2024 capital plan. So starting with feel in 2023 total volumes were up one 1% versus 2022 with per store volumes of 242000.

Malynda K. West: I'm gonna hit a few operational highlights, and then I'm gonna move on to financial results, and then I will discuss our 2024 capital plan. So starting with fuel, in 2023, total volumes were up 1.1% versus 2022, with per store volumes of 242,000 gallons per month, finishing within our guided range of 240 to 245,000 gallons. Given the volatility experienced in 2022, I think it's important to think about fuel volume performance on a two-year stack, which shows Murphy USA per store month volumes are up 5.6% versus about a 7% decline in the OPUS data in our markets. That translates to roughly 12% of share that we have taken from others. Turning to merchandise, total contribution dollars came in at $803 million, or up 4.7% versus 2022 and in line with our guidance of $795 to $815 million.

Speaker Change: Gallons per month, finishing within our guided range of 240 to 245000 gallons.

Speaker Change: Given the volatility experienced in 2022, I think it's important to think about fuel volume performance on a two year stack, which is Murphy USA per store month volumes are up five 6% versus about a 7% decline in the opus data in our markets that translates to roughly 12% of share that we have taken from others.

Speaker Change: Turning to merchandise total contribution dollars came in at $803 million are up four 7% versus 2022 and in line with our guidance of $7 95 to 815 million exceptional execution and promotional activity in the tobacco category led to strong share gains driving a four six.

Malynda K. West: Exceptional execution and promotional activity in the tobacco category led to strong share gains, driving a 4.6% increase in total tobacco contribution. Remarkably, we recorded over $2 billion in cigarette sales in 2023, growing our cigarette market share to 20% and growing smokeless to 15% of the market. Non-tobacco growth accelerated in the fourth quarter, with food and beverage sales and margin of 5.4% and 5.7%, respectively, on a per-storm-up

Speaker Change: <unk> increase in total tobacco contribution.

Speaker Change: Remarkably we recorded over $2 billion in cigarette sales in 2023 growing our cigarette market share to 20% and growing smokeless to 15% share of market knowledge.

Speaker Change: Non tobacco growth accelerated in the fourth quarter with food and beverage sales and margin of five 4% and five 7% respectively on a per store month basis.

Speaker Change: Looking at Opex per store operating expenses, excluding payment fees and rent averaged $33 $2000 per month in 2023 right at the midpoint of our guidance range of 32, 5030 4000 per store month.

Malynda K. West: Looking at off-ex per store operating expenses, excluding payment fees and rent, averaged $33,200 per month in 2023, right at the midpoint of our guidance range of $32,500 and $34,000 per store month. About one-third of this increase was attributable to employee-related expenses, with two-thirds coming from other areas, particularly pressure and maintenance, and loss prevention. However, keep in mind, some of this increase is attributable to our evolving format mix. If we exclude larger format new stores and raise and rebuild activity, we estimate that average per store month operating expense would have been up about 4% versus the 4.9% we reported. Now for some of the standard financial items. Revenue for the fourth quarter and full year 2023 was $5.1 billion and $21.5 billion, respectively, compared to $5.4 billion and $23.4 billion in the year-ago period.

Speaker Change: About one third of this increase was attributable to employee related expenses with two thirds coming from other areas, particularly pressure and maintenance and loss prevention.

Speaker Change: However, keep in mind. Some of this increase is attributable to our evolving format next if we exclude larger format, new stores and raze and rebuild activity. We estimate that average per storm at the operating expense would have been up about 4% versus the four 9% we reported.

Speaker Change: Now for some of the standard financial items.

Speaker Change: Revenue for the fourth quarter and full year 2023 was $5 1 billion and 21 5 billion, respectively compared to $5 4 billion and $23 4 billion in the year ago periods.

Speaker Change: EBITDA for the fourth quarter and full year, 2023 was $275 million and 1.06 billion, respectively compared to $230 million and $1 2 billion in the year ago periods.

Speaker Change: Net income for the quarter was $150 million versus $118 million in 2022, resulting in reported earnings per share of $7 versus $5 21 in the year ago period.

Speaker Change: Net income and earnings per share for the full year was $557 million and $25.49, respectively versus $673 million and $28.10 per share in the year ago period.

Malynda K. West: EBITDA for the fourth quarter and full year 2023 was $275 million and $1.06 billion, respectively, compared to $230 million and $1.2 billion in the year-ago period. Net income for the quarter was $150,000,000 versus $118,000,000 in 2022, resulting in reported earnings per share of $7 versus $5.21 in the year-ago period. Net income and earnings per share for the full year were $557,000,000 and $25.49, respectively, versus $673,000,000 and $28.10 per share in the year-ago period. Average retail gasoline prices in the fourth quarter were $2.97 per gallon versus $3.19 per gallon in the fourth quarter of 2022. Retail gasoline prices for the full year averaged $3.19 in 2023 and $3.63 in 2022. The effective tax rate in the fourth quarter was 23.6% and 24.2% for the full year.

Speaker Change: Average retail gasoline prices in the fourth quarter were $2.97 per gallon versus $3 19 per gallon in the fourth quarter of 2022.

Speaker Change: Retail gasoline prices for the full year averaged $3 19, and 2023 $3 63 and 2022.

Speaker Change: The effective tax rate in the fourth quarter was 23, 6% and 24, 2% for the full year and for forecasting purposes, Our 2024 guidance remains within a range of 24% to 26%.

Speaker Change: Total debt on the balance sheet as of December 31, 2023 remained at approximately $1 $8 billion of which approximately $15 million is captured in current liabilities, representing 1% per annum amortization of the term loan.

Speaker Change: And the remainder a reduction in long term lease obligations as they are paid through operating expense.

Speaker Change: Our $350 million revolving credit facility remained undrawn at year end and these figures result in gross adjusted leverage that we report to our lenders of approximately one seven times.

Speaker Change: Capex for the fourth quarter, and full year was $108 million and $344 million, respectively, and within our adjusted guidance range of $325 million to $375 million.

Malynda K. West: And for forecasting purposes, our 2024 guidance remains within a range of 24 to 26%. Total debt on the balance sheet as of December 31st, 2023, remained at approximately $1.8 billion, of which approximately $15 million is captured in current liabilities, representing 1% per annum amortization of the term loan and the remainder a reduction in long-term lease obligations as they are paid through operating expense. Our $350 million revolving credit facility remained underwrong at year-end, and these figures result in gross adjusted leverage that we report to our lenders of approximately 1.7 times.

Speaker Change: Looking ahead into 2024, we expect to accelerate new store growth and raze and rebuild activities compared to last year.

Speaker Change: Coupled with the new EBITDA generated of capital projects that are not tied to new stores, including up to 50 of our 2800 square foot store renovations, we are effectively utilizing operating cash flow to grow the network and grow EBITDA.

Speaker Change: Our commitment to higher returns in new stores and across the network means we will continue our digital transformation investments to drive in store sales and margin.

Speaker Change: As a result, we expect total spending to increase to a range of 400 to 450 million.

Speaker Change: Keep in mind. This capital program comprises not just spend on new stores for 2024, but also pre construction and other spending on future. Your bill classes as we ramp up to higher level of sustainable store growth in 2025 and beyond as conditions allow.

Malynda K. West: CapEx for the fourth quarter and full year was $108,344,000, respectively, and within our adjusted guidance range of $325,000 to $375,000. Looking ahead into 2024, we expect to accelerate new store growth and raise and rebuild activities compared to last year. Coupled with new EBITDA generative capital projects that are not tied to new stores, including up to 50 of our 2,800 square foot store renovations, we are effectively utilizing operating cash flow to grow the network and grow EBITDA. Our commitment to higher returns in new stores and across the network means we will continue our digital transformation investment to drive in-store sales and margins. As a result, we expect total spending to increase to a range of $400 to $450 million.

Speaker Change: As is historically the case the majority of this capital is earmarked for growth projects, which translates to well over $300 million in 2024 and includes between 30 and 35, new stores that have a high probability of opening this year, including up to four new quick check stores.

Speaker Change: It is important to remember that in order to add 30 to 35, new stores. This calendar year that means the capital plan must reflect a higher level of projects to achieve that guided range after risk adjusting our build program for potential delays.

Speaker Change: This means we can potentially put more stores into service in 2024 or get a head start on 2025, new stores I understood underscoring our ongoing commitment to organic growth as our highest priority and growing the business over the next five years.

Malynda K. West: Keep in mind this capital program comprises not just spending on new stores for 2024 but also pre-construction and other spending on future year build classes as we ramp up to higher levels of sustainable store growth in 2025 and beyond as conditions allow. As is historically the case, the majority of this capital is earmarked for growth projects, which translates to well over $300 million in 2024 and includes between 30 and 35 new stores that have a high probability of opening this year, including up to four new QuickTax stores. It is important to remember that in order to add 30 to 35 new stores this calendar year, that means the capital plan must reflect a higher level of projects to achieve that guided range after risk-adjusting our build program for potential delays.

Speaker Change: Additionally, in light of the success of our raze and rebuild program results to date, we are looking to increase raze and rebuild activity when conditions allow and 'twenty 'twenty. Four. This means we are initially targeting between 30, and 40 raze and rebuild opportunities with a potential to do more depending on scheduling and other factors.

Speaker Change: And then beyond growth, we are earmarking, roughly $80 million for maintenance capital, which includes $15 million of maintenance capital at category. We have previously identified as corporate and project spend in prior years, so that leaves approximately $50 million for corporate capital needs ongoing technology projects and.

Speaker Change: Other strategic initiatives underway.

Speaker Change: Now before I turn it back over to Andrew and as mentioned in the earnings release, we repurchased 442000 shares during the quarter and just over a million shares for the full year, resulting in a cash and cash equivalents balance of 118 million at year end, which is up $61 million from 2022.

Andrew Clyde: This means we can potentially put more stores into service in 2024 or get a head start on 2025 new stores, underscoring our ongoing commitment to organic growth as our highest priority in growing the business over the next five years. Additionally, in light of the success of our Raise and Rebuild program results to date, we are looking to increase Raise and Rebuild activity when conditions allow. In 2024, this means we are initially targeting between 30 and 40 Raise and Rebuild opportunities with the potential to do more, depending on scheduling and other factors. And then beyond growth, we are earmarking roughly $80 million for maintenance capital, which includes $15 million of IT maintenance capital, a category we have previously identified as corporate and project spending in prior years.

Speaker Change: Net of our balanced capital allocation of 300.

Speaker Change: $344 million of investment and 333 million of share repurchase once again, clearly demonstrating the accretive benefits of our positive free cash flow business and with that I'd like to turn the call back over to Andrew Thanks Mindy.

Andrew: Let me now quickly take you through some additional elements of our 2024 guidance I'll start with a few more details around organic growth. We completed a total of 28 new stores in 2023, including six quick check stores, and we executed 31, raze and rebuilds as discussed in our third quarter call. While we are disappointed in.

Andrew: Our ability to put new stores into service and ongoing issue for many retailers across the country as Mindy mentioned in 2024, we're able to compliment new store growth by redirecting capital into other revenue generating areas of the business.

Andrew Clyde: So that leaves approximately $50 million for corporate capital needs, ongoing technology projects, and other strategic initiatives. Now before I turn it back over to Andrew, as mentioned in the earnings release, we repurchased 442,000 shares during the quarter and just over a million shares for the full year, resulting in a cash and cash equivalence balance of $118 million at year end, which is $61 million from 2022 net of our balance capital allocation of $344 million of investment and $333 million of share repurchase. Once again, clearly demonstrating the accretive benefits of our positive free cash flow business. And with that, I'd like to turn the call back over to Andrew.

Andrew: In addition to adding between 30 to 35 new stores. This year, we are accelerating our raze and rebuild activity targeting between 35 and 40 locations. Further we are planning on remodeling approximately 52800 square foot store to install queuing lanes, improving and consolidating our food and beverage offer in the store for easier customer access.

Andrew Clyde: Adding additional cooler facings, and creating a better customer experience through better lining and cleaner lay out all of which will help to drive in store sales, particularly in the food and beverage categories.

Andrew: As a reminder to our investors raze and rebuilds and remodel projects are not store count additive, but they are EBITA additive at rates of return equal to or better than our new store program, which runs between 12 and 15% after tax.

Andrew Clyde: Thanks, Mindy. Let me now quickly take you through some additional elements of our 2024 guidance. I'll start with a few more details around organic growth.

Moving onto fuel volume for the past two years per store volumes have remained within the 242 to 245000 gallons per month range and in a normal environment, we expect new stores and raze and rebuild activity to offset flat to slightly declining legacy stores, resulting in flat to slightly higher per <unk>.

Andrew Clyde: We completed a total of 28 new stores in 2023, including six QuickCheck stores, and we executed 31 raises and rebuilds. As discussed in our third quarter call, while we are disappointed in our ability to put new stores into service, an ongoing issue for many retailers across the country, as many mentioned in 2024, we're able to complement new store growth by redirecting capital into other revenue-generating areas of the business. In addition to adding between 30 to 35 new stores this year, we are accelerating our Raise and Rebuild activity, targeting between 35 and 40 locations. Further, we are planning on remodeling approximately 50 2,800 square foot stores installed with queueing lanes, improving and consolidating our food and beverage offer in the store for easier customer access, adding additional cooler facings, and creating a better customer experience through better lining and cleaner layouts, all of which will help to drive in-store sales, particularly in the food and beverage category.

Andrew: Store volumes in 2024 and.

Andrew: This translates to guidance up or down about 1% versus 2023 or a range of 240 to 245000 gallons per month.

Looking inside the store in 2024, we expect to increase our trajectory of merchandise contribution growth.

Andrew: 2014 to 2019 total annualized contribution growth for merchandise averaged about 6%.

Christian Feichel: It improved to 7% since 2020.

Andrew Clyde: In 2024 through a variety of investments in store performance format expansion enhanced central store promotional activity continued innovation and new menu offers a quick check we expect total contribution dollars to range between 860 and $880 million or about 8% growth.

Andrew: At that midpoint.

Andrew Clyde: As a reminder to our investors, raise and rebuild and remodel projects are not store count additives, but they are EBITDA additives at rates of return equal to or better than our new store program, which runs between 12 and 15 percent after tax. Moving on to fuel volume, for the past two years, per-store volumes have remained within the 242 to 245,000 gallons per month range, and in a normal environment, we expect new stores and raise and rebuild activity to offset flat to slightly declining legacy stores, resulting in flats of slightly higher per-store volumes in 2024, and this translates to guidance up or down about 1% versus 2023, or a range of 240 to 245,000 gallons per month.

Andrew Clyde: Turning to Opex, while the inflationary factors that drove 2022 operating expense have moderated in 2023 labor and service cost inflation have proven sticky and remain in our structural base.

Andrew Clyde: Additionally, as we increase our average format size through 'twenty 800 square foot store.

Andrew Clyde: Stores, coupled with raze and rebuild activity, we would expect not only higher fuel and merchandise contribution, but higher operating expenses as well in fact, just from that growth activity alone cost would increase about 1% a year. So as a result, we expect about 5% to 7% increases in per store.

Andrew Clyde: Our operating expenses and this excludes credit card fees and rents and translates to 35000 to $35 $5000 on a per store month basis.

Andrew Clyde: Looking inside the store in 2024, we expect to increase our trajectory of merchandise contribution growth. From 2014 to 2019, total annualized contribution growth for merchandise averaged about 6% and improved to 7% in 2020. In 2024, through a variety of investments in store performance, format expansion, enhanced center of store promotional activity, continued innovation, and new menu offers at QuickCheck, we expect total contribution dollars to rank between $860 and $880 million, or about 8% growth at that midpoint. Turning to OpEx, while the inflationary factors that drove 2022 operating expenses have moderated in 2023, labor and service cost inflation have proven sticky and remain in our structural base. Additionally, if we increase our average format size through 2,800 square foot stores coupled with raise and rebuild activity, we would expect not only higher fuel and merchandise contribution but higher operating expenses as well.

Andrew Clyde: Corporate costs G&A expense was 241 million within our guided range of $235 billion to $245 billion.

Andrew Clyde: Reflecting our investments in people and technology. These capability building activities come with significant upfront investments, which will continue into 2024, but they are critical to making the company more competitive in the marketplace and leveraging our advantaged model over the next decade.

Andrew Clyde: These investments are as important to us is new store investments and come with much higher returns. Once these benefits scale across the network, which using Murphy drive rewards as an example can take a few years to reach maximum impact, but result in extremely strong uplift across the network.

Andrew Clyde: With this in mind, we are funding this future growth with investment dollars today, and expect G&A expense to increase about 8% at the midpoint to fall within a range of $255 million to $265 million, which is roughly half the growth rate in 2023 adjusted for $25 million charitable donation made in 2022.

Andrew Clyde: In closing as is our custom we will provide a range of fuel margins representative of our view of the industry around which investors can forecast the earnings power of the business subject to their own beliefs and expectations.

Andrew Clyde: For reference the 26% to 30 range, we guided to last year proved to be conservative given all in actual margins of 31 four cents.

Andrew Clyde: In fact, just from that growth activity alone, costs would increase about 1% a year. So as a result, we expect about 5% to 7% increases in per store operating expenses, and this excludes credit card fees and rents and translates to $35,000 to $35.5,000 on a per store month basis. For corporate costs, G&A spends $241 million within our guided range of $235 to $245 million, reflecting our investments in people and technology

Andrew Clyde: Nevertheless, maintaining our view that a two penny swing around a midpoint is representative of the historical annual margin volatility of the business prior to 2020.

Andrew Clyde: We believe 2023 performance lays the groundwork for a sustainable range of 30 to 34 cents per gallon in 2024 and subject to upward bias beyond 2024.

Andrew Clyde: Given that the first half of 2023, all in margins approximated 29 cents per gallon with little to no volatility in prices, where competitive behavior and second half Olin margins approximated 33, five cents per gallon with relatively low volatility. We believe using these two periods to characterize the lower end of the range.

Andrew Clyde: These capability building activities come with significant upfront investments, which will continue into 2024, but they are critical to making the company more competitive in the marketplace and leveraging our advantage model over the next decade. These investments are as important to us as new store investments and come with much higher returns once these benefits scale across the network, which, using MurphyGarve Rewards as an example, can take a few years to reach maximum impact but result in extremely strong uplift across the network. With this in mind, we are funding future growth with investment dollars today and expect G&A expense to increase about 8% at the midpoint to fall within a range of $255 to $265 million, which is roughly half the growth rate in 2023, adjusted for a $25 million charitable donation made in 2022. In cleansing, as is our custom, we will provide a range of fuel margins representative of our view of the industry around which investors can forecast the earnings power of the business subject to their own beliefs and expectations. For reference, the $0.26 to $0.30 range we guided to last year proved to be conservative, giving all-in actual margins of $0.31.4.

Andrew Clyde: <unk> is an appropriate benchmark for future expectations.

Andrew Clyde: If you recall in 2022.

Andrew Clyde: We calculated the dramatic price decline in the third quarter. Once in every five to six year event is about a three to four per gallon impact on fuel full year margins, which helps define the high end of the range. Therefore to achieve for high end of the range of 34 cents per gallon, one would have to assume a higher level of price.

Andrew Clyde: And last year <unk> the potential for an extended fall in prices that would create opportunity for the industry and Murphy USA to experience elevated margins.

Andrew Clyde: Using the midpoint of the official guidance metrics discussed bracketed by 30% to 34 since all in fuel margins. We would expect these outcomes to generate approximately 1 billion to $1 2 billion of adjusted EBITDA.

Andrew Clyde: As we like to say, we don't have a crystal ball, but we do believe we have accurately characterized for the past four years, how the market would respond to the shocks we've seen over that period.

Andrew Clyde: But just as important as our perspective around how consumers behave during the shocks and how they respond to the Murphy USA value proposition.

Andrew Clyde: While past performance does not necessarily thoroughly indicative of future results.

Andrew Clyde: Last year's performance in a relatively unremarkable setting gives us confidence that higher margins are not only structural and sustainable but also the same market and competitive forces, resulting in persistently higher than expected margins will continue to influence the economics of the marginal player and result in upward pressure over time.

Andrew Clyde: Nevertheless, maintaining our view that a two penny swing around the midpoint is representative of the historical annual margin volatility of the business prior to 2020, we believe 2020 pre-performance lays the groundwork for a sustainable range of 30 to 34 cents per gallon in 2024, subject to upward bias beyond 2024. Given that the first half of 2023 all-in margins approximated $0.29 per gallon with little to no volatility in prices or competitive behavior, and second half all-in margins approximated $0.335 per gallon with relatively low volatility, we believe using these two periods to characterize the lower end of the range is an appropriate benchmark for future expectations. If you recall, in 2022, we calculated the dramatic price decline in the third quarter, a once in every five to six year event, as about a three to four cents per gallon impact on full year margins, which helps define the high end of the range.

Andrew Clyde: Let me close with a few comments on preliminary January performance per store fuel volumes approximated, 99% of prior year levels impacted by severe winter weather across the southern states and in the Atlantic States, which impacted quick check traffic.

Andrew Clyde: However, retail only margins are quite a bit higher than last January averaging around 22 cents per gallon versus <unk> 19 per gallon in January of 2023, and we're seeing them trend a bit higher in early February.

Andrew Clyde: We are seeing continued momentum in the tobacco category growing market share across all segments and driving a 6% increase in tobacco contribution dollars in January while non tobacco categories not attached to fuel were impacted by lower customer traffic attributable to weather food and beverage contribution dollars are showing signs of.

Andrew Clyde: <unk> as price increases taken periodically throughout 2023 are showing up in the 2020 for margins of course January is only one month, but we are certainly off to a great start with a lot of internal excitement around improvements we are making as we continue to drive the earnings potential of the business higher.

Andrew Clyde: Therefore, to achieve the high end of the range of $0.34 per gallon, one would have to assume a higher level of price volatility than last year and or the potential for an extended fall in prices that would create opportunity for the industry and Murphy USA to experience elevated margins. Using the midpoint of the official guidance metrics discussed, bracketed by $0.30 to $0.34 all-in fuel margins, we would expect these outcomes to generate approximately $1 billion to $1.2 billion of adjusted EBITDA. As we like to say, we don't have a crystal ball, but we do believe we have accurately characterized for the past four years how the market would respond to the shocks we've seen over that period. But just as important is our perspective on how consumers behave during these shocks and how they respond to the Murphy USA value proposition.

Andrew Clyde: Looking ahead into 2024 and beyond investors should learn to expect more of the same for Murphy USA and the future ill now turn the call back to the operator to open this up for some questions operator.

Speaker Change: Thank you and at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad again, if you do have a question. Please press star one at this time and we'll pause for just a moment to compile the Q&A roster.

Andrew Clyde: Thank you. Your first question comes from the line of Bobby Griffin from Raymond James Your line is open.

Speaker Change: Good morning, everybody. Thanks for taking my questions.

Speaker Change: Good morning, Bobby.

Speaker Change: First off just more of a high level question on your guys' position as the low cost operator.

Andrew Clyde: And mix with kind of how we're growing the business towards the larger format stores. So.

Andrew Clyde: While past performance is not necessarily indicative of future results, last year's performance in a relatively unremarkable setting gives us confidence that higher margins are not only structural and sustainable but also that the same market and competitive forces resulting in persistently higher than expected margins will continue to influence the economics of the marginal player and result in upward pressure over time. Let me close with a few comments on preliminary January performance. Per store, fuel volumes approximated 99% of prior year levels, impacted by severe winter weather across the southern states and in the Atlantic states, which impacted QuickCheck traffic.

Andrew Clyde: As these larger format stores become a bigger portion of call. It the overall mix of your stores.

Andrew Clyde: Understanding they obviously are going to have more opex than your original formats, but is there still ways to maintain kind of a low cost discipline from a growth perspective of operating expenses as well as on the SG&A side too to keep that competitive positioning within the industry.

Speaker Change: Absolutely Bob one of the things that we always look closely at is whats the fuel margin requirement from those stores, what's the coverage ratio et cetera.

Andrew Clyde: And then look the reality is if you see deals that cross our desk et cetera from time to time and you look at formats that have.

Andrew Clyde: <unk>.

Andrew Clyde: Experimented maybe with food and beverage in a different way, where they've got some maybe higher revenue and margins, but they drove up our cost significantly and frankly, even some of the bigger box.

Andrew Clyde: However, retail-only margins are quite a bit higher than last January, averaging around 22 cents per gallon versus 19 cents per gallon in January of 2023, and we're seeing them trend a bit higher in early February. We are seeing continued momentum in the tobacco category, growing market share across all segments and driving a 6% increase in tobacco contribution dollars in January. While non-tobacco categories not attached to fuel were impacted by lower customer traffic attributable to weather, food and beverage contribution dollars are showing signs of strength as price increases taken periodically throughout 2023 are showing up in the 2024 margins. Of course, January is only one month, but we are currently off to a great start with a lot of internal excitement around improvements we are making as we continue to drive the only potential of the business fire.

Andrew Clyde: Chains that have come.

Andrew Clyde: Come out onto the market that didn't have the distinctive food and beverage capabilities of quick check or the density of the consumer base that translates into the velocity.

Andrew Clyde: What we found we actually found that those other formats, including the other bigger ones actually require more fuel to cover the breakeven requirement than less and.

Andrew Clyde: And what that means is that 2800 square foot store is really at the sweet spot right. We haven't tried to jump the CASM or two CASM as all the way to where a distinctive quick check offer would be but we're able to innovate within that box and it just makes us more and more competitive because we are adding.

Andrew Clyde: More revenue and margin and contribution from the things, we're adding with less labor and.

Andrew Clyde: So our breakeven just gets lower and.

Andrew Clyde: So from a <unk>.

Andrew Clyde: Slightly higher opex at the store the thing we really look at is how much is that net.

Speaker Change: Expanding and we continue to expand that especially relative to a lot of other players in the industry I Hope I hope that addressed your question.

Speaker Change: Yes, that's very helpful and I guess secondly for me and I'll turn it over.

Speaker Change: You talked a little bit about this in your prepared remarks, but it is.

Operator: Looking ahead into 2024 and beyond, investors should learn to expect more of the same from Murphy USA in the future. I'll now turn the call back to the operator to open us up for some questions. Thank you. And at this time, I would like to remind everyone that in order to ask a question, press the star and the number 1 on your telephone keypad.

Speaker Change: <unk> step up in.

Operator: The contribution to gross profit from the merchandise side of the business versus some.

Speaker Change: First I guess 2023 trends and kind of seeing these larger stores.

Speaker Change: Slow and excuse me. So can you maybe just unpack the visibility into that and is there. Some concrete examples are just kind of anything to help us understand kind of okay. Here's how the building blocks work in the visibility is solid or is it a little bit more of we're still going to have to kind of see how things flow and just to kind of get our hands wrapped around.

Operator: Again, if you do have a question, please press star 1 at this time, and we'll pause for just a moment to compile the Q&A room. Thank you. Your first question comes from the line of Bobby Griffin from Raymond James. Your line is open.

Operator: <unk>.

Bobby Griffin: I think at the mid points of $67 million year over year contribution from merchandize.

Bobby Griffin: Good morning everybody, thanks for taking my questions, and we're sorry. First off, just more of a high-level question on kind of your guy's position as a low cost operator and, you know, in the mix with kind of how we're growing the business towards the larger format stores. So as these larger format stores become a bigger portion of the overall mix of your stores, I understand obviously you're going to have more op-ecs than your original formats, but are there still ways to maintain kind of a low-cost discipline from a growth perspective of operating expenses as well as, you know, on the XG&A side too to keep that competitive positioning within the industry? Absolutely not.

Bobby Griffin: Yes, so look as Mindy highlighted I mean tobacco sales continued to lead we continue to take share there the price the value we offer that we're providing just becomes more and more relevant as you know.

Bobby Griffin: Customers seek out of affordability.

Bobby Griffin: We're growing premium tobacco products, but the discounted ones have a higher penny profit and we're growing those as well.

Bobby Griffin: The new Noncombustible products have a higher margin than we are.

Bobby Griffin: Best positioned to.

Bobby Griffin: <unk> lead in that trend towards the lower risk products. So.

Bobby Griffin: On a two year stack basis.

Bobby Griffin: Tobacco sales are.

Bobby Griffin: Incredible for us relative to the industry.

Bobby Griffin: Cooler bolts is a great one we're on a two year stack, we're up 12%.

Andrew Clyde: You know, Bobby, one of the things that we always look closely at is, you know, what's the fuel margin requirement from those stores, what's the coverage ratio, etc. And then, look, the reality is, you see deals that cost our desk, etc., from time to time, and you look at formats that have, you know..., experimented maybe with food and beverage in a different way where they got maybe higher revenue and margins, but they drove up their cost significantly. And frankly, even some of the bigger box chains that have come out onto the market that didn't have the distinctive food and beverage capabilities of QuickCheck or the density of the consumer base that translates into velocity. Do you know what we found?

Andrew Clyde: And sales.

Andrew Clyde: Food and beverage is up six 4%.

Andrew Clyde: Unpacking that a little bit further if we're generating $113 million of contribution from food and beverage in 2023.

Andrew Clyde: Murphy is generating now $10 million of that and it's up almost 90%, meaning we turned around a category that was not adding anything to the business and so from a total enterprise standpoint, we generated about $10 million of contribution in food and beverage for Murphy, leveraging the insights of capabilities et cetera.

Andrew Clyde: The spin so across the categories, we just continue to see it.

Andrew Clyde: Innovation growth.

Andrew Clyde: I can talk more about the digital transformation efforts and what we're seeing.

Andrew Clyde: We actually found that those other formats, including the other bigger ones, actually require more fuel to cover the break-even requirement than the last. And what that means is that 2,800 square foot store is really at the sweet spot, right? We haven't tried to jump the chasm or two chasms all the way to where a distinctive quick check offer would be, but we're able to innovate within that box, and it just makes us more and more competitive because we are adding more revenue and margin and contribution from the things we're adding with less labor. And so our break even just gets lower. And, you know, so from a slightly higher off-exit the store, the thing we really look at is how much that net is expanding, and we continue to expand that, especially relative to a lot of other players in the industry.

Andrew Clyde: There as well, but thats, probably our highest returning investment that we're making across the business right. Now is can be highly impactful on the merchandise side.

Speaker Change: Thank you I appreciate the details and best of luck here in the first quarter.

Andrew Clyde: Thanks.

Andrew Clyde: Okay.

Andrew Clyde: Your next question comes from the line of Bonnie Herzog from Goldman Sachs. Your line is open.

Speaker Change: Thank you good morning, everyone.

Speaker Change: Good morning.

Speaker Change: At a high level question on your business Andrew based on.

Andrew Clyde: For modeling purposes, only your expectation for steel margins EBITDA I guess it implies to me that you.

Andrew Clyde: We're increasingly more reliant or may be dependent on strong fuel margins at the midpoint of those so I guess I was just hoping to get a little bit more color on that and the navy in the context of that what are your expectations for I guess total inside.

Andrew Clyde: I hope that addressed your question. Yes, that's very helpful. And I guess secondly for me, and I'll turn it over to you, just, you talked a little bit about this in your prepared remarks, but it is, it's a meaningful step up in the contribution of the gross profit from the merchandise side of the business versus, I guess, 2023 trends and kind of being the largest source of flow in, excuse me. So can you maybe just unpack the visibility into that?

Andrew Clyde: Sure EBITA growth.

Speaker Change: Yes, so sorry, just for clarity when you say we are more reliant on the fuel margin what do you exactly mean by that so I can.

Speaker Change: Answer your question specifically.

Andrew Clyde: I look at your total fuel contribution what youre guiding the cents per gallon and then the range, but for modeling purposes at the midpoint of the EBITDA and I compare that with last year.

Bobby Griffin: And are there some concrete examples or just kind of anything to help us understand kind of, okay, here's how the building blocks work in the visibility is solid, or is a little bit more? We're still going to have to kind of see how things flow in just to kind of get our hands wrapped around, you know, that, I think, at the midpoint, the $67 million year over year contribution for merchandise. Yeah, so look, as Mindy highlighted, I mean, tobacco sales continue to lead. We continue to take share there, you know, the price, the value, the offer that we're providing just becomes more and more relevant as, you know, customers seek out affordability. We're growing premium tobacco products, but the discounted ones have a higher penny profit, and we're growing those as well. The new non-combustible products have higher margins, and we're best positioned to lead in that trend toward lower-risk products. On a two-year stack basis, tobacco sales are incredible for us relative to the industry.

Bobby Griffin: Increasingly more of the EBIT dollar seems to be coming from.

Speaker Change: Q1, total fuel contribution versus inside it starts so I'm just trying to understand.

Bobby Griffin: The sustainability of that or is there something going on with the inside.

Speaker Change: <unk> contribution to some extent, yes, okay I got it so.

Bobby Griffin: Well it would be really interesting is if we just held the business constant and we projected what the EBITDA would be at 16 set margins back in 2019 half of that.

Bobby Griffin: We didn't drive the industry margins to be 32, <unk> the marginal retailer did right and we took that advantage we put a lot of it on the street.

Bobby Griffin: To grow share and sustained volumes, which is why our volumes are up as Mindy you talked about versus the industry. So what I would encourage you and investors to do is say, hey, inputs 16 cents per gallon in their back to 2019.

Andrew Clyde: Sugar Vaults is a great one, we're on a two-year stack, we're up 12% in sales, and food and beverage is up 6.4%. I'm taking that a little bit further, we're generating $113 million of contribution from food and beverage in 2023.

Andrew Clyde: And then look at the Incredibles.

Andrew Clyde: Growth on the merchandise side of the business since then.

Andrew Clyde: Murphy is generating now $10 million of that, and it's up almost 90%, meaning we turned around a category that was not adding anything to the business. And so from a total enterprise standpoint, we generated about $10 million of contribution in food and beverage for Murphy, leveraging the insight, the capabilities, et cetera, since the spin. So across the categories, we just continue to see innovation and growth. I can talk more about the digital transformation efforts and what we're seeing there as well, but that's probably our highest-returning investment that we're making across the business right now. It's going to be highly impactful on the merchandise side. Thank you. I appreciate the details, and best of luck here in the first quarter. Thanks. Your next question comes from the line of Bonnie Herzog from Goldsman Sachs. Your line is open. Thank you. Good morning, everyone.

Bonnie Herzog: Its contributions towards EBITDA, I think thats, the best way to look at it as the EBITA growth more relying on fuel.

Bonnie Herzog: I guess right because the margins just keep going up we don't want them to go down, but thats certainly not slowing down the.

Bonnie Herzog: The increase that we're seeing on total merchandise contribution.

Bonnie Herzog: In our remarks, we noted a total contributions grown from a 6% CAGR to a 7% CAGR now an 8% CAGR and a big chunk of that is because of the higher fuel margins and us taking a portion of that and investing it to drive traffic that comes into the store and then frankly using some of that contribution to make.

Bonnie Herzog: The other investments like our digital investments that are all about.

Bonnie Herzog: In the early stages driving merchandise so.

Bonnie Herzog: We're not relying on in the sense that we need it like the others with a zero breakeven but.

Bonnie Herzog: But versus.

Bonnie Herzog: 2019, if you model the business at <unk>. So I think you would say wow the merchandise side of the business has done incredibly well.

Bonnie Herzog: I had a high-level question on your visit. Drew, you know, based on your, you know, for modeling purposes, only your expectations for fuel margins in EBITDA, I guess it implies to me that, you know, you're increasingly more reliant or maybe dependent on strong fuel margins at the midpoint of those. So I guess I was just hoping to get a little bit more color on that. And then maybe in the context of that, you know, what are your expectations for, I guess, total inside. Dr. Eva Johnson.

Eva Johnson: Okay. That's super helpful and then just.

Eva Johnson: My second question would be on your steel volume guidance you touched on this a bit but.

Bonnie Herzog: Your guidance implies volumes will decline at the midpoint this year versus last and just trying to understand that.

Bonnie Herzog: Yeah, so just for clarity, when you say we're more reliant on the fuel margin, what do you exactly mean by that so I can answer your question specifically? I look at your total fuel contribution, what you're guiding. For more information, visit www.

Speaker Change: Actually in the context of you being the low cost provider and you know typically Andrew I think.

Bonnie Herzog: Share gain or is it sort of just your expectations for the industry or is there anything <unk>.

Bonnie Herzog: Jamie in terms of your strategy of balancing volumes with what you were just mentioning profitability.

Bonnie Herzog: FEMA.gov, More and more of the EBITDA seems to be coming from fuel, total fuel contribution versus inside the store. So I'm just trying to understand, you know, the sustainability of that, or is there something going on with the inside, you know, merchandise contribution to some extent? Yeah. Okay. I got it.

Bonnie Herzog: Our expectation is our fuel volumes will be up slightly.

Bonnie Herzog: Raise and rebuilds and the new store activity will more than offset the flat to slightly declining.

Bonnie Herzog: Our legacy stores, so our expectations as they will be up slightly and we will continue the same.

Andrew Clyde: So, you know, what would be really interesting is if we just held the business constant and projected what the EBITDA would be at 16 cents a gallon back in 2019, half of that. We didn't drive the industry margins to be 32 cents. The marginal retailer did, right? And we took that advantage.

Andrew Clyde: Pricing strategies that.

Andrew Clyde: Position us as the bottom of market everyday low price.

Andrew Clyde: Retailer.

Speaker Change: Alright, thank you so much.

Speaker Change: Thank you.

Andrew Clyde: Your next question comes from the line of John Royall from Jpmorgan. Your line is open.

Speaker Change: Hi, good morning, Thanks for taking my question.

Andrew Clyde: So my first question is on the capital allocation side, how should we think about share buybacks and 24 given you.

Andrew Clyde: We put a lot of it on the street to grow share and sustain volumes, which is why our volumes are up, as many have talked about, versus the industry. So what I would encourage you and investors to do is say, hey, input 16 cents per gallon in there back to 2019, and then look at the incredible growth on the merchandise side of the business since then and its contributions towards EBITDA. I think that's the best way to look at it.

Andrew Clyde: <unk> got some growth in earnings at the midpoint of the illustrative range.

Andrew Clyde: But capex is growing a fair amount in.

Andrew Clyde: And maybe relatedly, you've reduced your absolute net debt and 23 builds a little bit of cash how do you feel about the balance sheet today and do you want to live within cash flows in terms of your capital allocation priorities or could you lever up a little bit in and returns of more capital this year.

Andrew Clyde: Is the EBITDA growth more reliant on fuel? Yes, right because the margins just keep going up. We don't want them to go down, but that's certainly not slowing down the increase that we're seeing in total merchandise contribution. In our remarks, we noted the total contributions from a 6% CAGR to a 7% CAGR, now an 8% CAGR, and a big chunk of that is because of the higher fuel margins and us taking a portion of that and investing it to drive traffic that comes into the store, and then frankly You know, we're not relying on it in the sense that we need it, like the others, with a zero break-even. But versus, you know, 2019, if you modeled the business at 16 cents, I think you'd say, "Wow, the merchandise side of the business has done incredibly." Okay, that's super helpful.

Andrew Clyde: Okay.

Speaker Change: Yes, so look when we present, our kind of three to five year outlook and our raise the bar chart. We always show look here is where we expect EBITDA to grow through growth initiatives.

Andrew Clyde: Slight changes in <unk>.

Andrew Clyde: Fuel margin and then we kind of set a expectation of buying back about 1 million shares a year. It's exactly what we did last year without really impacting the balance sheet and so.

Andrew Clyde: We're going to take advantage of the free cash flow, if we have additional free cash flow.

Andrew Clyde: In years like 2022, we will use that to buyback.

Andrew Clyde: More and if we fall short because of the margin environment or.

Andrew Clyde: Capital growth opportunities.

Andrew Clyde: Our present themselves, we won't hesitate to tap the balance sheet to meet that commitment Mindy. If you want to add any other thoughts around the balance sheet now I mean, I think we're fine with the leverage levels that we have that we have plenty of access to liquidity and additional capital if we need it. So we plan to make good on our.

Bonnie Herzog: And then just my second question would be on your fuel volume guidance. You touched on this a bit, but, you know, your guidance implies volumes will decline at the midpoint this year versus last. So just trying to understand that, you know, especially in the context of you being the low cost provider and, you know, typically, Andrew, I think, you know, share gain or, you know, is it sort of just your expectation for the industry? Or is there something else?

Bonnie Herzog: Commitment to buy 1 million shares a year, but we think that our existing operating cash flows can more than fund our even ambitious capex budget and still leave an increment leftovers largely depends on what is the share price as to what we need to borrow anything in order to meet our commitment.

Bonnie Herzog: But certainly comfortable that we have the capacity to do that.

Bonnie Herzog: Alright.

Speaker Change: Alright Thats helpful. Thank you and then.

Bonnie Herzog: How are you changing in terms of your strategy of balancing volumes with what you were just mentioning? Do you have profitability? No.

Bonnie Herzog: Maybe if you could talk a little bit about the tick down in unit merchandize margins from <unk> to <unk> is that just mix from the tobacco business being strong in the non tobacco business being down.

Andrew Clyde: Our expectation is our fuel volumes will be up slightly, duration rebuilds, and the new store activity will more than offset the flat to slightly declining legacy stores. So our expectation is they will be up slightly, and we will continue the same pricing strategy that positions us as the bottom of the market, everyday low price retailer. All right, thank you so much.

Speaker Change: And if so what are your expectations that you have baked into the 24 guide with that 8% growth.

Speaker Change: Does any of that come from margin growth.

John M. Royall: Thank you. Your next question comes from the line of John Royall from J.P. Morgan. Your line is open. Hi, good morning.

John M. Royall: Yes, so I don't have those.

John M. Royall: The specifics around the individual components here theres always going to be this challenge when you're growing tobacco faster than your competitors.

John M. Royall: Thanks for taking my question. So, my first question is on the capital allocation side. How should we think about share buybacks in 24, given you've got some growth in earnings at the midpoint of the illustrative range, but, you know, CapEx is growing a fair amount, and maybe relatedly, you reduced your absolute net debt in 23, built a little bit of cash. How do you feel about the balance sheets today, and do you want to live within cash flows in terms of your capital allocation priorities, or could you lever up Yeah, so look, when we present our kind of three to five year outlook in our Raise the Bar chart, we always, you know, show, look, here's where we expect Edithaw to grow through growth initiatives, you know, flight changes, and fuel margin. And then we kind of set an expectation of buying back about a million shares a year, exactly what we did last year without really impacting the balance sheet.

John M. Royall: <unk> got a unit margin reduction as we said before we don't take huge unit margin to the bank, we pay contribution margin dollars.

John M. Royall: To the bank.

John M. Royall: And so that's usually the biggest driver there there could be some.

John M. Royall: Mix within some of the other center of the store.

John M. Royall: Categories promotional activity et cetera.

John M. Royall: Think about 2024.

John M. Royall: We expect to see really a lot more of the same but we're going to get the full year benefit of the price increases a quick check on food and beverage, where we were a very intentional.

John M. Royall: Last year in terms of holding price to demonstrate value.

John M. Royall: To our customers and if any of you also look at the.

John M. Royall: Earnings reports from.

John M. Royall: The major <unk> chains.

Mindy: They are now recognizing that they probably may have taken a little bit too much price and theyre talking about value and for us value never goes out of style and we need to deliver that every day. So I do think we'll see some improvement this year on that front one of the things that.

Andrew Clyde: And so, you know, we're going to take advantage of the free cash flow. If we have additional free cash flow in years like 2022, we'll use that to buy back more. And if we fall, you know, short because of the margin environment or, you know, capital growth opportunities present themselves, you know, we won't hesitate to pass the balance sheet to make that commitment. I don't know, Mindy, if you want to add any other thoughts around the balance sheet. No.

Mindy: I haven't talked about is the investment in G&A in terms of the impact from the digital transformation efforts.

Mindy: The G&A spend.

Mindy: From that is in the neighborhood of.

Mindy: <unk> $40 million across the initiative and some of it's being capitalized but just in terms of the pilots that we've already run.

Mindy: We're seeing a 20 plus percent return on that investment on an annualized basis and those pilots have all exceeded what we estimated on paper when you take the initiatives that we've completed and analyzed that are now going into pilot, we expect a return on that to be north of 40%.

Andrew Clyde: I mean, I think we're fine with the leverage levels that we have, that we have plenty of access to liquidity and additional capital if we need it, so we plan to make good on our, you know, commitment to buy a million shares a year. But we think that our existing operating cash flows can more than fund our even ambitious CapEx budget and still leave an increment left over, so it largely depends on what the share price is as to whether we need Great, that's helpful. Thank you. And then, maybe if you could talk a little bit about the tick down in unit merchandise margins from 3Q to 4Q, is that just mixed from the tobacco business being strong and the non-tobacco business being down? And if so, what are your expectations that you have baked into the 24 guide with that 8% growth? Does any of that come from margin growth? Yeah, so I don't have the specifics on the individual components here.

Andrew Clyde: And a significant amount of that is going into the merchandise con.

Andrew Clyde: Contribution right, so it might be getting that additional upsell.

Andrew Clyde: Check thats more than doubled is that incremental contribution.

Andrew Clyde: From the production planning is that share of wallet from the.

Andrew Clyde: Personalization, the Murphy side, we've segmented our stores and identified where we can take price and where we want to be a little bit or aggressive.

Andrew Clyde: Across the entire center of the store, that's generating benefits beyond expectation. So there's just a whole host of things within those initiatives.

Andrew Clyde: You know, there's always going to be this challenge when you're growing tobacco faster than your competitors. You've got a unit margin reduction. As we've said before, we don't take unit margin to the bank; we take contribution margin dollars to the bank. And so, you know, that's usually the biggest driver there. There could be some mix within some of the other areas of the store, you know, categories, promotional activity, et cetera. But, as we think about 2024, we expect to see really a lot more of the same. We're going to get the full year benefit of the price increases at QuickCheck on food and beverage, where we were very intentional last year in terms of holding prices to demonstrate value to our customers.

Andrew Clyde: That we're going to see are going to not only start to pay early dividends in 2024, but provide the foundation to sustain that type of growth.

Andrew Clyde: Into the future and there is elements of the program like.

Andrew Clyde: The updated quick check rewards et cetera that'll be.

Andrew Clyde: Coming in the near future as well.

Speaker Change: Thank you.

Andrew Clyde: Your next question comes from the line of Ben <unk> from Stephens. Your line is open.

Speaker Change: Hey, good morning, everybody.

Andrew Clyde: Perfect.

Speaker Change: So my first question is on the fuel side of the equation I think Andrew Mindy Theres been this notion historically that in order to get margin you have to give up gallons and so this combination in the guidance.

Andrew Clyde: Gallons.

Andrew Clyde: On a.

Andrew Clyde: And if any of you also look at the earnings reports from the major QSR chains, they're now recognizing that they probably may have taken a little bit too much price and they're talking about value, and for us, value never goes out of style, and we need to deliver that every day. So I do think we'll see some improvement this year on that front. You know, one of the things that, you know, I haven't talked about is, you know, the investment in G&A in terms of the impact of the digital transformation efforts. You know, the G&A spend from that is, you know, in the neighborhood of $40 million across the initiative, and some of it's being capitalized. But just in terms of the pilots that we've already run, you know, we're seeing a 20-plus percent return on that investment on an annualized basis, and those pilots have all exceeded what we estimated on paper.

Andrew Clyde: <unk> basis.

Andrew Clyde: Minus one to plus lines are flat to slightly up at the midpoint.

Andrew Clyde: Ill also having very strong margins potentially kind of.

Andrew Clyde: <unk>.

Andrew Clyde: In conjunction with one another but I wonder.

Andrew Clyde: As breakeven requirements for the industry have gone higher than yours have gone lower what are you seeing with your retail fuel price differential that potentially allows you to be more competitive and take market share as you have.

Andrew Clyde: Is that something that you see continuing as you move forward.

Andrew Clyde: Yeah.

Speaker Change: So Ben look.

Andrew Clyde:

Speaker Change: What I would say is.

Andrew Clyde: When you think about our volume and our margin you really got to break those two apart and then break each of those volume and margin components into pieces. So if we have.

Andrew Clyde: Flat macro demand plus or minus 1% right that's kind of the first indication of how our stores.

Andrew Clyde: When you take the initiatives that we've completed and analyzed that are now going into pilot, we expect the return on that to be north of 40 percent. And a significant amount of that is going into the merchandise contribution, right? So it might be getting that additional upsell in QuickCheck that's more than doubled. It's that incremental contribution from production planning. It's that share of wallet from the personalization on the Murphy side.

Andrew Clyde: Oregon to do we're going to have a massive recession or we're going to have something like COVID-19 or are we going to have economic growth or prosperity or something that drives that up that's going to be the first indication of what we're able to do.

Andrew Clyde: And then secondly, where do we price and we're going to price everyday low price and so I think youre right as our differential to the competition is going to be the biggest determinant of that and with the higher structural margins that we've seen we've been able to put an extra penny or so on the street, we kept it on the street.

Andrew Clyde: We've segmented our stores and identified where we can take price and where we want to be a little bit more aggressive across the entire center of the store that's generating benefits beyond expectation. So there's just a whole host of things within those initiatives that we're going to see are going to not only start to pay early dividends in 2024 but provide the foundation to sustain that type of growth into the future. And there are elements of the program, like the updated QuickCheck rewards, et cetera, that'll be coming in the near future as well. Thank you. Your next question comes from the line of Ben Bienvenu from Stevens. Your line is open. Hey, good morning, everybody.

Ben Bienvenu: In 2003.

Ben Bienvenu: And that allows us to certainly offset any.

Ben Bienvenu: Competitive pressures from new builds because other good competitors are building new stores.

Ben Bienvenu: Like we are in.

Ben Bienvenu: And in that environment.

Ben Bienvenu: You would think okay, well flat volumes flat margins, but margins are going up largely because of the structural regions. We've been talking about right. The marginal player doesn't have the scale to invest in the things that we're doing doesn't have the extra penny to put on the street there trade off at the top of the market take opinion profit.

Ben Bienvenu: At least 4% volume, they're almost kind of neutral to that and by the way go ahead and put up put it up <unk>. If you have two.

Ben Bienvenu: Morning. So my first question is on the fuel part of the equation. I think, Andrew and Mindy, there's been this notion historically that in order to get margin, you have to give up gallons. And so this combination and the guidance for gallons on an APFM basis, minus 1 to plus 1, so it's flat, slightly up at the midpoint, while also having very strong margins, is potentially kind of, and Brad H Ellie and Perry C. Friedlander John Corley Is that something that So Ben, look, um... What I would say is, when you think about our volume and our margin, you really have to break those two apart and then break each of those volume and margin components into pieces. So if we have flat macro demand, plus or minus 1%, right? That's kind of the first indication of how our stores are going to do. Are we going to have a massive recession? Are we going to have something like COVID?

Ben Bienvenu: To offset some of the other traffic losses. So it's really that factor that allows us to get both volume and margin and then after that it would just be structurally.

Ben Bienvenu: What is going on in the price environment 2022 was a much more volatile environment and we benefited both volume and margin in that scenario 2023 was a fairly benign environment.

Ben Bienvenu: It didn't hurt us volumetric Lee.

Ben Bienvenu: And we actually still did even better than we expected on the margin side, but I would attribute that largely to the marginal player and that structural dynamic and so there is nothing to read into strategy like one of the earlier questions about us changing our price volume equation.

Ben Bienvenu: We will be everyday low price, we will take our advantage and put it on the street for the benefit of our consumers who need us now more than ever.

Ben Bienvenu: And that helps.

Andrew Clyde: Are we going to have economic growth or prosperity or something that drives that up? That's going to be the first indication of what we're able to do. And then, secondly, where do we price?

Andrew Clyde: Again, this virtuous cycle, our flywheel that flows through to traffic inside the store the benefits we have there the free cash flow to invest in growth and new capabilities and then of course get back to our shareholders. So hope that answers your question, but we're not doing anything.

Andrew Clyde: And we're going to price every day at a low price. And so I think you're right that our differential to the competition is going to be the biggest determinant of that. And with the higher structural margins that we've seen, we've been able to put an extra penny or so on the street. We kept it on the street for 23, and that allows us to certainly offset any competitive pressures from new builds because other good competitors are building new stores like we are.

Andrew Clyde: That would signal hey, we're doing anything different from a price volume equation strategy.

Speaker Change: Yes that makes a lot of sense and very helpful.

Andrew Clyde: Shifting gears to the tobacco side of the business.

Andrew Clyde: Now I guess is what's happening there.

Andrew Clyde: Is it to what's happening in the fuel business, because I look at that business.

Andrew Clyde: And in that environment, you would think, okay, well, flat volumes, flat margins. But margins are going up largely because of the structural reasons we've been talking about, right? The marginal player doesn't have the scale to invest in the things that we're doing, doesn't have the extra penny to put on the street.

Andrew Clyde: Industry volumes have declined materially.

Andrew Clyde: You've seen a PSN.

Andrew Clyde: Sales and contribution to expand meaningfully merchandize margins on tobacco up almost 150 basis points over the last three years, while taking market share.

Andrew Clyde: Is that a similar.

Andrew Clyde: They trade off at the top of the market. They take a penny in profit, and lose 4% volume. They're almost kind of neutral to that.

Andrew Clyde: Market structure is such that the breakeven within the tobacco business are being driven higher or that's a component that is correct. It's all of a circular reference is that something that you see persisting and share gains.

Andrew Clyde: And by the way, go ahead and put it up two cents if you have to, to offset some of the other traffic losses. So it's really that factor that allows us to get both volume and margin. And then after that, it would just be structurally what is going on in the price environment, right? 2022 was a much more volatile environment, and we benefited both volume and margin in that scenario. 2023 was a fairly benign environment.

Andrew Clyde: Continuing in that side of the business.

Speaker Change: It is and you know Ben for kicks I've thought about doing sort of the fuel breakeven calculation, but putting fuel in the.

Andrew Clyde: The numerator in tobacco and the denominator to kind of get the same type of equation and it's exactly the same it's a commodity that has the same type of lasting city and so.

Andrew Clyde: We've been hurt volumetrically, and we actually did even better than we expected on the margin side, but I would attribute that largely to the marginal player in that structural dynamic. And so there's nothing to read into strategy, like one of the earlier questions about us changing our price volume equation. We will be the every day low price.

Andrew Clyde: If you go back to Q1 of 2019.

Andrew Clyde: Our bulk cigarettes carton was 45%.

Andrew Clyde: Peaked almost at 60%, but it's still up 10 percentage points right. So people are buying more in bulk from us at our stores. We've applied the same strategy to smokeless.

Andrew Clyde: We will take our advantage and put it on the street for the benefit of our consumers, who need us now more than ever. And that helped begin this virtuous cycle or flywheel that flows through to traffic inside the store, the benefits we have there, the free cash flow to invest and grow, the new capabilities, and then, of course, back to our shareholders. I hope that answers your question, but we're not doing anything that would signal, hey, we're doing anything different from a price-volume equation strategy. Yep, that makes a lot of sense and is very helpful.

Andrew Clyde: So the way, we think about say cigars in terms of how we.

Andrew Clyde: Promote and price those and if you look at the discount.

Andrew Clyde: On a per pack per row per stick basis.

Andrew Clyde: Those have increased also as we've been able to.

Andrew Clyde: Take promotional funds as well as profit from other part of the business to invest in that to grow that share and so you know while cigarette share has grown smokeless share in cigar share has grown even more significantly as a result of applying those same types of.

Ben Bienvenu: Shifting gears to the tobacco side of the business, how analogous is what's happening there to what's happening in the fuel business? Because I look at that business, you know, industry volumes have declined materially using APS-M, while sales and contribution have expanded meaningfully. Merchandise margins on tobacco are up almost 150 basis points over the last three years while taking market share. Is that a similar market structure such that the break-evens within the tobacco business are being driven higher, or is that a component that's correct? Is it all just a circular reference?

Ben Bienvenu: Sure.

Ben Bienvenu: Price volume.

Ben Bienvenu: Trade offs in that category and similarly.

Ben Bienvenu: We see a lot of the marginal.

Ben Bienvenu: <unk> behaving the same way in that category as they do in the fuel category very analogous categories.

Ben Bienvenu: Thank you and once again, if you would like to ask a question. Please press Star then the number one on your telephone keypad again, if you do have a question. Please press star one on your telephone keypad at this time.

Andrew Clyde: Is that something that you see persisting, and share gains continuing in that sense? It is, and Ben, for kicks, thought about doing sort of the fuel break-even calculation but putting fuel in the numerator and tobacco in the denominator to kind of get the same type equation. It's exactly the same, it's a commodity that has the same type of elasticity, and so if you go back to Q1 of 2019, our bulk cigarettes and cartons were 45%, it peaked almost at 60%, but it's still up 10 percentage points, right?

Andrew Clyde: Your next question comes from Anthony Bonadio from Wells Fargo. Your line is open.

Ben Bienvenu: Yeah, Hey, good morning, guys. So I just wanted to dig in a little bit on unit growth or NPI growth.

Andrew Clyde: You ultimately came in near the low end of negatively revised guidance in 'twenty. Three so can you just walk us through.

Andrew Clyde: So people are buying more in bulk from us at our stores; we've applied the same strategy to smokeless tobacco and also the way we think about safe cigars in terms of how we promote and price those. And if you look at the discount on a per pack, per roll, per stick basis, those have also increased as we've been able to take promotional funds, as well as profits from other parts of the business, to invest in that to grow that share. And so while cigarette share has grown, smokeless share, and cigar share has grown even more significantly as a result of applying those same types of price/volume trade-offs in that category, and similarly, we see a lot of the marginal... Competitors behave the same way in that category as they do in the fuel category. A very analogous category.

Andrew Clyde: Just at a high level some of the hurdles there as.

Andrew Clyde: As the year progressed versus your original expectations and then just I guess, what's giving you confidence in 2020, Florida accelerate that unit growth.

Speaker Change: Yeah, So look on the unit growth.

Andrew Clyde: Express our disappointment there I mean, it's just been a variety of issues some of its permitting some of it is labor issues with general contractors.

Andrew Clyde: We've had stores, where we've expected utilities to hook up and you wait a month or longer.

Ben Bienvenu: Thank you. And once again, if you would like to ask a question, please press star, then the number 1 on your telephone keypad. Again, if you do have a question, please press star 1 on your telephone keypad. Your next question comes from Anthony Bonadio from Wells Fargo. Your line is open. Yeah, hey, good morning, guys.

Anthony Bonadio: For the utilities to show up I mean, it's very frustrating.

Anthony Bonadio: To say, the least and when I talk to industry peers, and as well as other retail small box retail peers.

Anthony Bonadio: They are experiencing the same thing.

Anthony Bonadio: So I just wanted to dig in a little bit on, uh, unit growth or entry height growth. You ultimately came in near the low end of the negatively, uh, revised data. Walker, stand out at a high level, some of the hurdles there as the year progresses versus the original expectations.

Anthony Bonadio: Our confidence lies in the fact that we're just building up the pipeline faster and so youre going to have to start more projects, where on a risk adjusted basis to be able to finish more projects.

Anthony Bonadio: Within the calendar year. So it's just a simple exercise of loading up more into the queue. Knowing the average quick check store has gone from taken four years to five years Murphy store from contract completion two years to three years.

Andrew Clyde: And then just, I guess, what's given you confidence Yeah, so look, on the unit growth. We've expressed our disappointment there. I mean, it's just been a variety of issues, some of it's permitting, some of it is labor issues with general contractors, you know. We've had stores where we expected utilities to hook up and waited a month or longer for the utilities to show up. I mean, it's very frustrating, to say the least, and when I talk to industry peers and as well as other retail, and small box retail peers, they're experiencing the same thing.

Andrew Clyde: And one of the things, we talked about as well as we've improved our.

Andrew Clyde: Time by about six months with our general count contractors by providing a set of.

Andrew Clyde: Incentives zinc carrots and sticks.

Andrew Clyde: The challenge now is we've lost all of that six months plus some because.

Andrew Clyde: There's not an incentive for them to invest in overtime, expediting et cetera, because there will be something else outside of their control that would impact their ability to deliver on time or ahead of time, and therefore earn an incentive bonus that would more than make up for the overtime or the expediting cost and so I'd like to think.

Andrew Clyde: Our confidence lies in the fact that we're just building up the pipeline faster, and so you're going to have to start more projects, or, on a risk-adjusted basis, to be able to finish more projects within the calendar year. So it's just a simple exercise of loading up more into the queue, knowing the average QuickTex store has gone from taking four years to five years, and Murphy's store from contract completion takes two years to three years. One of the things we talk about as well is how we've improved our time by about six months with our general contractors by providing a set of incentives, exempt carrots and sticks. The challenge now is we've lost all of that six months plus them because there's not an incentive for them to invest in overtime, expediting, et cetera, because there'll be something else outside of their control that would impact their ability to deliver on time or ahead of time and, therefore, earn an incentive bonus that would more than make up for the overtime or the expediting costs. So I'd like to think some of that will return to normal, but we're not counting on it, so we're just loading up the queue and staffing up for that more than we have in the past. I got it. And then just on TSNW wins.

Andrew Clyde: Some of that will return to normal, but we're not counting on it. So we're just loading up the queue.

Andrew Clyde: And staffing up for that more than we had in the past.

Speaker Change: Okay got it and then just on <unk>.

Andrew Clyde: I know you guys have kind of talked about that like two and a half to three cent per gallon range.

Andrew Clyde: Range over the long term as we model that.

Andrew Clyde: But this is now the third straight year I guess that you guys have come in ahead of that.

Speaker Change: Should we be thinking about that any differently differently now is in the model.

Speaker Change: I don't think so.

Andrew Clyde: The direction and magnitude of the price swings, primarily dictate what the fluctuation as from quarter to quarter and if you remember second quarter, where we commented that it was completely unremarkable from a macro basis, we turned in right in the center of that range of two and a half cents.

Andrew Clyde: So I would say going forward, while we're still going to have quarterly fluctuations I would model something two to three maybe three and a little higher given the capability investments that we've made in that part of the business in a way that we leverage our scale, but I would not predict that we're going to earn outsized product supply and wholesale margins unless you see.

Anthony Bonadio: I know you guys have kind of talked about that, like two and a half cents per gallon and others. You know, I don't think so, Anthony. The direction and magnitude of the price swings primarily dictate what the fluctuation is from quarter to quarter. And if you remember the second quarter, where we commented that it was completely unremarkable from a macro basis, we turned in right in the center of that range of two and a half cents.

Anthony Bonadio: And environment.

Anthony Bonadio: Rising prices consistently which would then dictate that we're going to make some money and the way that we account from our inventory barrels, but at the same time.

Anthony Bonadio: Retail margins from the other side would likely be squeezed in that environment too as a partial offset but but no change to how we are telling you to model. Its just really a function of.

Malynda K. West: So I would say going forward, while we're still going to have quarterly fluctuations, I would model something two to three cents, maybe three cents and a little higher given the capability investments that we've made in that part of the business and the way that we leverage our scale. But I would not predict that we're going to earn outsized product supply and HOCO margins unless you see an environment of rising prices consistently, which would then dictate that we're going to make some money in the way that we account for from our inventory barrels, but at the same time. Retail margins from the other side would likely be squeezed in that environment, too, as a partial offset. But no change to how we're telling you to model. It's just really a function of the direction and magnitude of price increases or decreases.

Malynda K. West: The direction and magnitude of the price increases or decreases.

Malynda K. West: Thank you there are no further questions at this time, Andrew Clyde I turn the call back to you.

Speaker Change: Great well. Thank you everyone for listening in as I said, we're really excited about the 2023 results. The team delivered but we've got even more excitement about what lies ahead and we hope more of the same is good for all our Murphy USA investors. Thank you.

Speaker Change: Thank you. This does conclude today's conference call you may now disconnect.

Malynda K. West: Please wait the conference will begin shortly.

Malynda K. West: Thank you. There are no further questions at this time. Andrew Clyde, I turn the call back to you.

Andrew Clyde: Great. Well, thank you everyone for listening in. As I said, we're really excited about the 2023 results the team delivered, but we've got even more excitement about what lies ahead, and we hope more of the same is good for all our Murphy USA investors. Thank you. Thank you. This does conclude today's conference call. You may now disconnect.

Andrew Clyde: Okay.

Andrew Clyde: Yes.

Andrew Clyde: Okay.

Andrew Clyde: Sure.

Andrew Clyde: Okay.

Andrew Clyde: <unk>.

Andrew Clyde: Yes.

Andrew Clyde: Okay.

Andrew Clyde: Yes.

Andrew Clyde: Yes.

Andrew Clyde: Yes.

Andrew Clyde: [music].

Andrew Clyde: Okay.

Andrew Clyde: Yeah.

Andrew Clyde: Yes.

Andrew Clyde: Yes.

Andrew Clyde: [music].

Operator: Please wait. The conference will begin shortly. Please wait. The conference will begin shortly. Please wait. The conference will begin shortly. [inaudible]

Operator: Yeah.

Operator: Yes.

Operator: Yes.

Operator: [music].