Murphy USA Inc. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis of Financial Condition and Results of Operations (“Management’s Discussion and Analysis” or "MD&A") is the Company’s analysis of its financial performance and of significant trends that may affect future performance. It should be read in conjunction with the consolidated financial statements and notes included in this Quarterly Report on Form 10-Q. The MD&A contains forward-looking statements and the Company does not undertake to update, revise or correct any of the forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with the Company’s disclosures under “Forward-Looking Statements” and “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q. For purposes of this Management’s Discussion and Analysis, references to “Murphy USA”, the “Company”, “we”, “us” and “our” refer to Murphy USA Inc. and its subsidiaries on a consolidated basis. Management’s Discussion and Analysis is organized as follows: • Executive Overview — This section provides an overview of our business and the results of operations and financial condition for the periods presented. It includes information on the basis of presentation with respect to the amounts presented in the Management’s Discussion and Analysis and a discussion of the trends affecting our business. • Results of Operations — This section provides an analysis of our results of operations, including the results of our operating segment for the three and nine months ended September 30, 2024 and 2023. • Capital Resources and Liquidity — This section provides a discussion of our financial condition and cash flows as of and for the three and nine months ended September 30, 2024 and 2023. It also includes a discussion of our capital structure and available sources of liquidity. • Critical Accounting Policies — This section describes the accounting policies and estimates that we consider most important for our business and that require significant judgment. Executive Overview The following MD&A is intended to help the reader understand our results of operations and financial condition. This section is provided to supplement, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to these financial statements contained elsewhere in this Quarterly Report on Form 10-Q, this MD&A section and the consolidated financial statements in our Annual Report on Form 10-K. Our Form 10-K contains a discussion of matters not included within this document, such as disclosures regarding critical accounting policies and estimates, and contractual obligations. Our Business The Company owns and operates a chain of retail stores that market gasoline and other merchandise under the brand names of Murphy USA ® and Murphy Express, most of which are located in close proximity to Walmart stores, principally in the Southeast, Midwest and Southwest areas of the United States. We also have a mix of convenience stores and retail gasoline stores located in New Jersey and New York that operate under the brand name of QuickChek ® and comprises our Northeast region. At September 30, 2024, we had a total of 1,740 Company stores in 27 states, of which 1,586 were Murphy branded and 154 were under the QuickChek brand. We also market petroleum products to unbranded wholesale customers through a mixture of Company-owned and third-party terminals. Basis of Presentation Murphy USA was incorporated in March 2013, and until the separation from Murphy Oil Corporation was completed on August 30, 2013, it had not commenced operations and had no material assets, liabilities or commitments. The financial information presented in this Management’s Discussion and Analysis is derived from the consolidated financial statements of Murphy USA Inc. and its subsidiaries for all periods presented. Our QuickChek subsidiaries use a weekly retail calendar where each quarter typically has 13 weeks. For Q3 2024, the QuickChek results cover the period June 29, 2024 to September 27, 2024, and the 2024 year-to-date period began December 30, 2023. For Q3 2023, the QuickChek results cover the period July 1, 2023 to September 29, 2023, and the 2023 year-to-date period began December 31, 2022. The difference in the timing of the period ends is immaterial to the overall consolidated results. Trends Affecting Our Business Our operations are significantly impacted by the gross margins we receive on our fuel and merchandise sales. The fuel gross margins are commodity-based, change daily, and are volatile. While we generally expect our volume and gross margins to remain stable in a normalized environment, they can change rapidly due to many factors. These factors include, but are not limited to, the price of refined products, geopolitical events that disrupt the global supply, overall demand and prices of crude oil, interruptions in our fuel and merchandise supply chain caused by severe weather or pandemics, the effects from pandemics such as travel restrictions and stay-at-home orders imposed during a pandemic, new or changing legislation around nicotine products and e-cigarettes as well as fuel economy and vehicle emission standards, severe refinery mechanical failures for an extended period of time, cyber-attacks against the Company or our vendors, changing economic conditions that lower consumer purchasing power such as inflation, and competition in the local markets in which we operate. The cost of our main fuel products, gasoline and diesel, is greatly impacted by the cost of crude oil in the United States. Historically, a rising price environment for crude oil increases the Company’s cost for wholesale fuel products purchased, which in turn increases retail fuel prices. Rising prices can cause consumers to reduce discretionary fuel consumption, however our low-price model can also serve as a hedge to draw new customers which can offset the potential loss of discretionary volumes. In Q3 2024, crude oil prices were more volatile than Q2 2024 with prices ranging from $67 per barrel to $85 per barrel with an average price of $76 per barrel in Q3 2024, compared to a average price of $82 per barrel in Q3 2023. Total fuel contribution (retail fuel margin plus product supply and wholesale ("PS&W") results which include Renewable Identification Numbers ("RINs")) was 32.6 cents per gallon ("cpg") in Q3 2024, compared to 34.5 cpg in Q3 2023. Retail fuel margin dollars increased 13.5% in the current quarter and retail fuel volumes increased 2.0% when compared to Q3 2023. Our revenues are impacted by the ability to leverage our diverse supply infrastructure in pursuit of obtaining the lowest cost of fuel supply available; for example, activities such as blending bulk fuel with renewable fuels (ethanol and bio-diesel) to capture and subsequently sell RINs. Under the Energy Policy Act of 2005, the Environmental Protection Agency (“EPA”) is authorized to set annual quotas establishing the percentage of motor fuels consumed in the United States that must be attributable to renewable fuels. Obligated parties are required to demonstrate that they have met any applicable quotas by submitting a certain amount of RINs to the EPA. RINs in excess of the set quota can be sold in a market for RINs at then-prevailing prices. The market price for RINs fluctuates based on a variety of factors, including but not limited to governmental and regulatory action. There are other market related factors that can impact the revenue received for RINs on a company-wide basis either favorably or unfavorably. The Renewable Fuel Standard ("RFS") program continues to be unpredictable and prices received by us for ethanol RINs averaged $0.60 per RIN in Q3 2024 compared to $1.41 per RIN in Q3 2023. Our business model does not depend on our ability to generate revenues from RINs, and we have historically observed that changes in revenue are typically coupled with offsetting changes in cost of goods that minimizes the majority of any revenue movement. Revenue from the sales of RINs is included in “Other operating revenues” in the Consolidated Statements of Income. As of September 30, 2024, we had $1.3 billion of Senior Notes and a $387 million term loan outstanding. We believe that we will generate sufficient cash from operations to fund our ongoing operating requirements and service our debt obligations. We had additional available capacity under the committed $350 million cash flow revolving credit facility, which had $41.0 million of outstanding borrowings as of September 30, 2024. We expect to use the credit facilities to provide us with available financing to meet any short-term ongoing cash needs in excess of internally generated cash flows. To the extent necessary, we will borrow under these facilities to fund our ongoing operating requirements and other corporate initiatives. There can be no assurances, however, that we will generate sufficient cash from operations or be able to draw on the credit facilities, obtain commitments for our incremental facility, or obtain and draw upon other credit facilities. For additional information, see Significant Sources of Capital in the Capital Resources and Liquidity section. The Company currently anticipates total capital expenditures (including land for future developments) for the full year 2024 to range from approximately $500 million to $525 million depending on how many new stores are completed. We intend to fund the remainder of our capital program in 2024 primarily using operating cash flow but will supplement funding where necessary through borrowings under our revolving credit facilities. We believe that our business will continue to grow in the future as we maintain a pipeline of desirable future store locations for development. The pace of this growth is continually monitored by our management, and these plans can be altered based on operating cash flows generated and the availability of debt facilities. In addition, the Company looks to expand additional capabilities such as food and beverage within our network. We currently estimate our ongoing effective tax rate to be between 24% and 26% for the remainder of the year. Seasonality Our business has inherent seasonality due to the concentration of our retail stores in certain geographic areas, as well as customer behaviors during different seasons. In general, sales volumes and operating incomes are typically highest in the second and third quarters during the summer-activity months and lowest during the winter months. As a result, operating results for the three and nine months ended September 30, 2024, may not necessarily be indicative of the results that may be expected for the remainder of the year ending December 31, 2024. Business Segment The Company has one operating segment which is Marketing. The Marketing segment includes our retail marketing stores and product supply and wholesale assets. For additional operating segment information, see Note 22 “Business Segments” in the audited combined financial statements for the year ended December 31, 2023 included with our Annual Report on Form 10-K and Note 16 “Business Segments” in the accompanying unaudited consolidated financial statements for the three and nine months ended September 30, 2024. Results of Operations Consolidated Results For the three months ended September 30, 2024, the Company reported net income of $149.2 million, or $7.20 per diluted share, on revenue of $5.2 billion. Net income was $167.7 million for the same period in 2023, or $7.69 per diluted share, on $5.8 billion of revenue. The decrease in net income was primarily due to lower total fuel contribution with increases in store operating expenses and depreciation and amortization expense, which were partially offset by higher retail fuel sales volumes, higher overall merchandise contributions and lower income tax expense. For the nine months ended September 30, 2024, the Company reported net income of $360.0 million, or $17.17 per diluted share, on revenue of $15.5 billion. Net income for the same period in 2023 was $406.8 million, or $18.47 per diluted share, on $16.5 billion of revenue. The decrease in net income is primarily due to lower total fuel contribution combined with increases in store operating expenses, depreciation and amortization expenses, and general and administrative expenses, which were partially offset by higher overall merchandise contributions, higher fuel sales volumes and lower income tax expense. Three Months Ended September 30, 2024 versus Three Months Ended September 30, 2023 Revenues for Q3 2024 decreased $0.6 billion, or 9.6%, compared to the same quarter in 2023. The decrease in revenues was due to 10.9% lower retail fuel sales prices and lower PS&W revenues, which were partially offset by an increase of 2.0% in fuel sales volumes and a 2.5% increase in merchandise sales revenue. Cost of sales in Q3 2024 decreased $0.5 billion, or 10.6%, when compared to Q3 2023. In the current-year quarter, the decrease was primarily due to lower fuel cost and was partially offset by higher fuel volumes sold and higher merchandise costs. Store and other operating expenses increased $10.5 million, or 4.0%, in Q3 2024 from Q3 2023, primarily due to higher employee related expenses and maintenance costs at existing stores combined with increases from net new store operating expenses, partially offset by a reduction in payment fees. 28 Selling, general and administrative ("SG&A") expenses for Q3 2024 were relatively flat when compared to Q3 2023. Increases in the current-year quarter in wages, employee related costs and professional and technology services for business improvement initiatives were offset by a reduction in incentive costs in the current quarter. Depreciation and amortization expense increased $5.3 million in Q3, or 9.2%, when compared to the same period of 2023, primarily due to the increased number of Murphy branded stores with larger formats and raze-and-rebuild activity in the quarter. The effective income tax rate was approximately 24.9% for both Q3 2024 and Q3 2023. Nine Months Ended September 30, 2024 versus Nine Months Ended September 30, 2023 Year-to-date revenues decreased $0.9 billion, or 5.6%, compared to the same period in 2023. The decrease in revenues was due to 5.8% lower retail fuel sales prices and lower PS&W revenues, which was partially offset by a 3.0% increase in merchandise sales revenue and a 0.8% increase in retail fuel sales volumes. Year-to-date cost of sales decreased $0.9 billion, or 6.2%, compared to the same period in 2023. In the current-year period, the lower costs were primarily due to lower fuel cost, partially offset by higher fuel volumes sold and higher merchandise costs. Year-to-date store and other operating expenses increased $37.5 million, or 4.9%, compared to the same period in 2023, primarily due to higher employee related expenses and maintenance costs at existing stores combined with increases in net new store operating expenses, partially offset by slightly lower payment fees. SG&A expenses for the first nine months of 2024 increased $2.8 million, or 1.6%, compared to the first nine months of 2023. The increase in SG&A costs is primarily due to higher wages, employee related costs, and professional and technology services for business improvement initiatives, which were partially offset by a reduction in incentive cost, versus the same period of 2023. Depreciation and amortization expense increased $9.1 million, or 5.3%, year-to-date from the same period of 2023 primarily due to the increased number of Murphy branded stores with larger formats and raze-and-rebuild activity during the period. The effective income tax rate was approximately 24.0% for the nine months ended September 30, 2024 versus approximately 24.4% for the same period of 2023. Segment Results A summary of the Company’s net income by business segment follows: Three Months Ended September 30, Nine Months Ended September 30, (Millions of dollars) 2024 2023 2024 2023 Marketing $ 168.0 $ 187.2 $ 417.3 $ 464.8 Corporate and other assets (18.8) (19.5) (57.3) (58.0) Net Income $ 149.2 $ 167.7 $ 360.0 $ 406.8 Marketing Three Months Ended September 30, 2024 versus Three Months Ended September 30, 2023 Marketing segment net income for the three months ended September 30, 2024 was lower compared to the same period in 2023 primarily due to: • Lower total fuel contribution • Higher store and other operating expenses • Higher depreciation and amortization expenses 29 The items below partially offset the decrease in net income in the current period: • Higher fuel sales volumes • Higher merchandise contribution • Lower income tax expense Nine Months Ended September 30, 2024 versus Nine Months Ended September 30, 2023 Marketing segment net income for the nine months ended September 30, 2024 was lower compared to the same nine-month period in 2023 primarily due to: • Lower total fuel contribution • Higher store and other operating expenses • Higher depreciation and amortization expenses • Higher SG&A expenses The items below partially offset the decrease in net income in the nine-month period: • Higher merchandise contribution • Higher fuel sales volumes • Lower income tax expense (Millions of dollars, except revenue per same store sales (in thousands) and store counts) Three Months Ended September 30, Nine Months Ended September 30, Marketing Segment 2024 2023 2024 2023 Operating Revenues Petroleum product sales $ 4,121.4 $ 4,658.8 $ 12,273.6 $ 13,103.6 Merchandise sales 1,082.4 1,055.6 3,163.5 3,070.8 Other operating revenues 34.6 83.4 96.6 285.9 Total operating revenues 5,238.4 5,797.8 15,533.7 16,460.3 Operating expenses Petroleum products cost of goods sold 3,751.2 4,322.5 11,287.5 12,273.1 Merchandise cost of goods sold 865.6 843.8 2,538.6 2,465.1 Store and other operating expenses 276.1 265.5 798.0 760.5 Depreciation and amortization 58.5 53.3 169.1 158.9 Selling, general and administrative 60.0 60.0 181.2 178.4 Accretion of asset retirement obligations 0.8 0.7 2.4 2.2 Total operating expenses 5,012.2 5,545.8 14,976.8 15,838.2 Gain (loss) on sale of assets (0.3) (0.4) (1.4) (0.5) Income (loss) from operations 225.9 251.6 555.5 621.6 Other income (expense) Interest expense (2.0) (2.2) (6.2) (6.7) Other nonoperating income (expense) — 0.1 — 0.1 Total other income (expense) (2.0) (2.1) (6.2) (6.6) Income (loss) before income taxes 223.9 249.5 549.3 615.0 Income tax expense (benefit) 55.9 62.3 132.0 150.2 Net income (loss) from operations $ 168.0 $ 187.2 $ 417.3 $ 464.8 30 (Millions of dollars, except revenue per same store sales (in thousands) and store counts) Three Months Ended September 30, Nine Months Ended September 30, Marketing Segment 2024 2023 2024 2023 Total nicotine sales revenue same store sales 1,2 $ 135.8 $ 132.1 $ 132.3 $ 126.6 Total non-nicotine sales revenue same store sales 1,2 75.6 74.7 73.8 73.5 Total merchandise sales revenue same store sales 1,2 $ 211.4 $ 206.8 $ 206.1 $ 200.1 1 2023 amounts not revised for 2024 raze-and-rebuild activity 2 Includes store-level discounts for MDR redemptions and excludes change in value of unredeemed MDR points Store count at end of period 1,740 1,724 1,740 1,724 Total store months during the period 5,138 5,110 15,435 15,400 Average Per Store Month ("APSM") metric includes all stores open through the date of the calculation, including stores acquired during the period. Same store sales ("SSS") metric includes aggregated individual store results for all stores open throughout both periods presented. For all periods presented, the store must have been open for the entire calendar year to be included in the comparison. Remodeled stores that remained open or were closed for just a very brief time (less than a month) during the period being compared remain in the same store sales calculation. If a store is replaced either at the same location (raze-and-rebuild) or relocated to a new location, it will be excluded from the calculation during the period it is out of service. Newly constructed stores do not enter the calculation until they are open for each full calendar year for the periods being compared (open by January 1, 2023 for the stores being compared in the 2024 versus 2023 comparison). Acquired stores are not included in the calculation of same stores for the first 12 months after the acquisition. When prior period same store sales volumes or sales are presented, they have not been revised for current year activity for raze-and-rebuilds, asset acquisitions and asset dispositions. Fuel Three Months Ended September 30, Nine Months Ended September 30, Key Operating Metrics 2024 2023 2024 2023 Total retail fuel contribution ($ Millions) $ 395.7 $ 348.6 $ 1,010.9 $ 948.0 Total PS&W contribution ($ Millions) (24.2) (11.4) (21.3) (114.5) RINs (included in Other operating revenues on Consolidated Statements of Income) ($ Millions) 32.7 81.8 91.0 281.2 Total fuel contribution ($ Millions) $ 404.2 $ 419.0 $ 1,080.6 $ 1,114.7 Retail fuel volume - chain (Million gal) 1,239.3 1,214.9 3,624.0 3,595.4 Retail fuel volume - per store (K gal APSM) 1 248.4 245.8 241.9 241.8 Retail fuel volume - per store (K gal SSS) 2 245.2 241.7 238.7 237.7 Total fuel contribution (cpg) 32.6 34.5 29.8 31.0 Retail fuel margin (cpg) 31.9 28.7 27.9 26.4 PS&W including RINs contribution (cpg) 0.7 5.8 1.9 4.6 1 APSM metric includes all stores open through the date of calculation 2 2023 amounts not revised for 2024 raze-and-rebuild activity 31 The reconciliation of the total fuel contribution to the Consolidated Statements of Income is as follows: Three Months Ended September 30, Nine Months Ended September 30, (Millions of dollars) 2024 2023 2024 2023 Petroleum product sales $ 4,121.4 $ 4,658.8 $ 12,273.6 $ 13,103.6 Less Petroleum product cost of goods sold (3,751.2) (4,322.5) (11,287.5) (12,273.1) Plus RINs and other (included in Other Operating Revenues line) 34.0 82.7 94.5 284.2 Total fuel contribution $ 404.2 $ 419.0 $ 1,080.6 $ 1,114.7 Merchandise Three Months Ended September 30, Nine Months Ended September 30, Key Operating Metrics 2024 2023 2024 2023 Total merchandise contribution ($ Millions) $ 216.8 $ 211.8 $ 624.9 $ 605.7 Total merchandise sales ($ Millions) $ 1,082.4 $ 1,055.6 $ 3,163.5 $ 3,070.8 Total merchandise sales ($K SSS) 1,2 $ 211.4 $ 206.8 $ 206.1 $ 200.1 Merchandise unit margin (%) 20.0 % 20.1 % 19.8 % 19.7 % Nicotine contribution ($K SSS) 1,2 $ 19.8 $ 19.0 $ 19.4 $ 18.2 Non-nicotine contribution ($K SSS) 1,2 $ 22.9 $ 22.9 $ 21.8 $ 21.6 Total merchandise contribution ($K SSS) 1,2 $ 42.7 $ 41.9 $ 41.2 $ 39.8 1 2023 amounts not revised for 2024 raze-and-rebuild activity 2 Includes store-level discounts for MDR redemptions and excludes change in value of unredeemed MDR points Same store sales information compared to APSM metrics Variance from prior year Variance from prior year Three months ended Nine months ended September 30, 2024 September 30, 2024 SSS 1 APSM 2 SSS 1 APSM 2 Fuel gallons per month 0.5 % 1.1 % (0.6) % — % Merchandise sales 1.6 % 2.0 % 2.6 % 2.8 % Nicotine sales 3.3 % 3.1 % 5.2 % 4.6 % Non-nicotine sales (1.4 %) 0.1 % (1.7 %) (0.3 %) Merchandise margin 1.2 % 1.8 % 2.8 % 2.9 % Nicotine margin 6.1 % 4.8 % 8.2 % 6.5 % Non-nicotine margin (2.7 %) (0.6 %) (1.5 %) 0.1 % 1 Includes store-level discounts for MDR redemptions and excludes change in value of unredeemed MDR points 2 Includes all MDR activity Three Months Ended September 30, 2024 versus Three Months Ended September 30, 2023 Net income in the Marketing segment for Q3 2024 decreased $19.2 million, to $168.0 million when compared to the Q3 2023 period. The decrease was primarily due to lower total fuel contribution combined with increases in store operating expenses and depreciation and amortization expenses, which were partially offset by higher fuel sales volumes, higher merchandise contributions and lower income tax expense. Total fuel contribution for Q3 2024, was $404.2 million, a decrease of $14.8 million, or 3.5%, compared to Q3 2023. This decrease was due to lower contribution from PS&W margins, which were partially offset by higher 32 retail fuel contribution and higher fuel volumes sold in the period when compared to Q3 of 2023. Retail fuel margins on a cpg basis increased 11.2% in Q3 2024 to 31.9 cpg, compared to 28.7 cpg in the prior year period. Total retail fuel volumes increased 2.0%, and fuel sales volumes on an SSS basis increased 0.5% in Q3 2024 when compared to Q3 2023. Total product supply and wholesale contribution dollars, including RINs, decreased $61.9 million in Q3 2024 when compared to Q3 2023, primarily due to negative impacts of timing and inventory pricing adjustments in a falling market. Total merchandise sales were $26.8 million higher in Q3 2024 vs Q3 2023, coming in at $1.1 billion in both quarters. Total merchandise contribution in Q3 2024 improved 2.4% compared to Q3 2023 primarily due to higher retail prices, up 7.8%, and net increased number of larger format stores. Total SSS merchandise contribution dollars grew 1.2%, which included an increase of 6.1% in nicotine products, partially offset by a 2.7% decrease in non-nicotine products. Store and other operating expenses increased $10.6 million in Q3 2024 compared to Q3 2023, primarily due to higher employee related expenses and maintenance costs at existing stores combined with net new store operating expenses, partially offset by a reduction in payment fees. On an APSM basis, expenses applicable to store OPEX excluding payment fees and rent were 4.0% higher, primarily attributable to increased employee related expenses and maintenance costs. SG&A expenses in Q3 2024 were relatively flat when compared to Q3 2023, due primarily to reductions in employee incentive cost offsetting the increases in wages, employee related costs and professional and technology services for business improvement initiatives in the quarter. Depreciation and amortization expense increased $5.2 million, or 9.8%, in Q3 2024 compared to Q3 2023 due to the increased number of larger format Murphy branded stores and raze-and-rebuild activity in the quarter. Nine Months Ended September 30, 2024 versus Nine Months Ended September 30, 2023 Net income in the Marketing segment for the nine months ended September 30, 2024 decreased $47.5 million compared to the nine months ended September 30, 2023. The decrease was primarily due to lower total fuel contributions, combined with increased store operating expenses, depreciation and amortization expenses, and SG&A expenses, which were partially offset by higher fuel sales volumes, higher overall merchandise contributions and lower income tax expense. Total fuel contribution for the nine-month period ended September 30, 2024 was $1.1 billion, a decrease of $34.1 million, or 3.1%, compared to the first nine months of 2023. This decrease was primarily due to lower contribution from PS&W margins, and was partially offset by higher retail fuel contribution and fuel volumes sold in the period when compared to the first nine months of 2023. Retail fuel margins on a cpg basis increased 5.7%, to 27.9 cpg, for the nine-month period ended September 30, 2024, compared to 26.4 cpg in the same period of 2023. Total retail fuel sales volumes increased 0.8%, while volumes on an SSS basis decreased 0.6% in the nine-month period ended September 30, 2024 when compared to the same nine-month period of 2023. Total product supply and wholesale contribution dollars, including RINs, decreased $97.0 million compared to the first nine months of 2023, primarily due to negative impacts of timing of transactions and regional supply imbalances. Total merchandise sales increased 3.0% to $3.2 billion in the nine months ended September 30, 2024 compared to $3.1 billion in the first nine months of 2023 due to higher retail prices across the chain in most categories and increased number of stores with larger formats. Year-to-date total merchandise contribution in 2024 increased 3.2% compared to the same period of 2023. Total SSS merchandise contribution dollars improved 2.8% with an increase of 8.2% in nicotine products and was partially offset by a 1.5% decrease in non-nicotine products. Store and other operating expenses increased $37.5 million in the current year compared to the same nine-month period of 2023, primarily due to employee related expenses and maintenance expenses at existing stores combined with net new store operating expenses. On an APSM basis, expenses applicable to store OPEX excluding payment fees and rent increased 5.7%, primarily due to employee related expenses and maintenance costs. 33 SG&A expenses increased $2.8 million in 2024 compared to the same nine-month period of 2023 due primarily to higher employee salaries and benefits costs incurred and professional and technology services for business improvement initiatives, partially offset by a reduction in employee incentive cost. Depreciation and amortization expense increased $10.2 million, or 6.4%, in the first nine months of 2024 due to new larger store formats for Murphy branded stores combined with raze-and-rebuild activities. Corporate and Other Assets Three Months Ended September 30, 2024 versus Three Months Ended September 30, 2023 Loss from continuing operations for Corporate and other assets for Q3 2024 was $18.8 million, compared to a loss of $19.5 million in Q3 2023. The decrease in loss was primarily due to an increase in other nonoperating income which was partially offset by a reduction in investment income. Nine Months Ended September 30, 2024 versus Nine Months Ended September 30, 2023 Loss from continuing operations for Corporate and other assets was $57.3 million for the nine months ended September 30, 2024, compared to a loss of $58.0 million in the same period of 2023. The year-to-date loss for 2024, compared to the same period of 2023, had a reduction in depreciation expense combined with an increase in other nonoperating income but was partially offset by a reduction in investment income and an increase in interest expense. Non-GAAP Measures The following table sets forth the Company’s EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 2024 and 2023. EBITDA means net income (loss) plus net interest expense, plus income tax expense, depreciation and amortization, and Adjusted EBITDA adds back (i) other non-cash items (e.g., impairment of properties and accretion of asset retirement obligations) and (ii) other items that management does not consider to be meaningful in assessing our operating performance (e.g., (income) from discontinued operations, net settlement proceeds, (gain) loss on sale of assets, loss on early debt extinguishment, transaction and integration costs related to acquisition, and other non-operating (income) expense). EBITDA and Adjusted EBITDA are not measures that are prepared in accordance with U.S. generally accepted accounting principles (GAAP). We use Adjusted EBITDA in our operational and financial decision-making, believing that the measure is useful to eliminate certain items in order to focus on what we deem to be a more reliable indicator of ongoing operating performance and our ability to generate cash flow from operations. Adjusted EBITDA is also used by many of our investors, research analysts, investment bankers, and lenders to assess our operating performance. We believe that the presentation of Adjusted EBITDA provides useful information to investors because it allows understanding of a key measure that we evaluate internally when making operating and strategic decisions, preparing our annual plan, and evaluating our overall performance. However, non-GAAP measures are not a substitute for GAAP disclosures, and EBITDA and Adjusted EBITDA may be prepared differently by us than by other companies using similarly titled non-GAAP measures. 34 The reconciliation of net income (loss) to EBITDA and Adjusted EBITDA is as follows: Three Months Ended September 30, Nine Months Ended September 30, (Millions of dollars) 2024 2023 2024 2023 Net income $ 149.2 $ 167.7 $ 360.0 $ 406.8 Income tax expense (benefit) 49.5 55.7 113.8 131.3 Interest expense, net of investment income 23.4 22.5 71.1 69.8 Depreciation and amortization 62.8 57.5 180.8 171.7 EBITDA 284.9 303.4 725.7 779.6 Accretion of asset retirement obligations 0.8 0.7 2.4 2.2 (Gain) loss on sale of assets 0.4 0.5 1.4 0.6 Other nonoperating (income) expense (0.5) 1.4 (1.0) 0.9 Adjusted EBITDA $ 285.6 $ 306.0 $ 728.5 $ 783.3 Capital Resources and Liquidity Significant Sources of Capital As of September 30, 2024, we had $52.5 million of cash and cash equivalents and total marketable securities of $1.5 million. Our cash management policy provides that cash balances in excess of a certain threshold may be reinvested in certain types of low-risk investments. We have a committed cash flow revolving credit facility (the "Revolving Facility”) of $350 million, which can be utilized for working capital and other general corporate purposes, including supporting our operating model as described herein. Additional borrowing capacity under the Revolving Facility may be extended at our request and with the consent of the participating lenders. As of September 30, 2024, there was $41.0 million of outstanding borrowings under our Revolving Facility reported in Long-term debt in the Consolidated Balance Sheet. The Revolving Facility was undrawn at December 31, 2023. We believe our existing cash on hand and future borrowing capacity of our existing facilities is adequate to fund not only our operations, but also our anticipated near-term and long-term funding requirements, including capital spending programs, execution of announced share repurchase programs, potential dividend payments, repayment of debt maturities and other amounts that may ultimately be paid in connection with contingencies. Operating Activities Net cash provided by operating activities was $598.9 million for the nine months ended September 30, 2024 compared to $510.9 million for the same period of 2023, an increase of $88.0 million, or 17.2%. The increase for the nine months ended September 30, 2024 is mainly due to an increase in the amount of cash provided from changes in noncash working capital of $129.2 million and increased depreciation of $9.1 million, partially offset by a decrease in net income of $46.8 million and lower deferred and noncurrent tax changes of $4.1 million when compared to the same period in 2023. For the nine months ended September 30, 2024, operating cash provided by changes in non-cash operating working capital of $32.0 million was due to a decrease in accounts receivable of $71.4 million due to the timing of receipts, an increase of $39.7 million in income taxes payable due in part to phase-out of federal bonus depreciation resulting in higher current tax expense and the timing of estimated tax payments, a decrease in inventory of $0.1 million, and was partially offset by a decrease in accounts payable and accrued liabilities of $75.3 million which was related to the timing of payments and an increase in prepaid expenses of $3.9 million. Investing Activities For the nine months ended September 30, 2024, cash required by investing activities was $320.9 million compared to $217.0 million in 2023. The $103.9 million increase in cash required by investing activities in the 35 current year period was primarily due to an increase of $106.5 million in capital expenditures due to the timing of projects partially offset by net cash received of $3.3 million from the amount of maturities of marketable securities. Financing Activities Financing activities in the nine months ended September 30, 2024 required cash of $343.3 million compared to cash of $229.6 million in the nine months ended September 30, 2023, an increase of $113.7 million. The first nine months of 2024 included payments of $317.7 million for the repurchase of common shares, which was an increase of $145.0 million compared to repurchases of $172.7 million in the 2023 period. Amounts related to share-based compensation required $7.2 million more in cash during 2024 than in 2023. Dividend payments increased $2.4 million in 2024 compared to amounts paid in the first nine months of 2023. Net borrowings of debt provided $29.3 million in 2024 compared to net repayments of debt requiring $11.6 million in 2023. Dividends During the nine months ended September 30, 2024, the Company paid cash dividend payments of $1.31 per common share, for a total of $27.1 million, compared to the period ended September 30, 2023, in which dividends of $1.14 per common share were paid for total cash dividend payments of $24.7 million. As a part of our capital allocation strategy, the Company's intention is to deliver targeted double-digit growth in the per share dividend over time. On October 24, 2024, the Board of Directors declared a quarterly cash dividend of $0.48 per common share, or $1.92 per share on an annualized basis. The dividend is payable on December 2, 2024, to shareholders of record as of November 4, 2024. Share Repurchase Program On May 2, 2023, our Board of Directors approved a share repurchase authorization of up to $1.5 billion. The authorization value excludes any excise tax that may be incurred. During the nine months ended September 30, 2024, a total of 698,855 shares were repurchased for $320.4 million, including excise tax under the 2023 program. As of September 30, 2024, we had approximately $1.1 billion remaining under the 2023 authorization. Debt Our long-term debt at September 30, 2024 and December 31, 2023 was as set forth below: (Millions of dollars) September 30, 2024 December 31, 2023 5.625% senior notes due 2027 (net of unamortized discount of $1.0 at September 30, 2024 and $1.3 at December 31, 2023) $ 299.0 $ 298.7 4.75% senior notes due 2029 (net of unamortized discount of $3.1 at September 30, 2024 and $3.6 at December 31, 2023) 496.9 496.4 3.75% senior notes due 2031 (net of unamortized discount of $4.0 at September 30, 2024 and $4.4 at December 31, 2023) 496.0 495.6 Term loan due 2028 (effective interest rate of 7.09% at September 30, 2024 and 7.23% at December 31, 2023) net of unamortized discount of $0.5 at September 30, 2024 and $0.6 at December 31, 2023 386.5 389.4 Revolving credit facility, due 2026 (weighted average interest rate of 8.75% at September 30, 2024) 41.0 — Capitalized lease obligations, autos and equipment, due through 2026 3.4 3.1 Capitalized lease obligations, buildings, due through 2059 118.6 123.6 Less unamortized debt issuance costs (5.7) (7.1) Total notes payable, net 1,835.7 1,799.7 Less current maturities 15.7 15.0 Total long-term debt, net of current $ 1,820.0 $ 1,784.7 36 Senior Notes On April 25, 2017, Murphy Oil USA, Inc. ("MOUSA"), our primary operating subsidiary, issued $300 million of 5.625% Senior Notes due 2027 (the "2027 Senior Notes") under its existing shelf registration statement. The 2027 Senior Notes are fully and unconditionally guaranteed by the Company and by the Company's subsidiaries that guarantee our Credit Facilities (as defined below). The indenture governing the 2027 Senior Notes contains restrictive covenants that limit, among other things, the ability of the Company, MOUSA, and the restricted subsidiaries to incur additional indebtedness or liens, dispose of assets, make certain restricted payments or investments, enter into transactions with affiliates or merge with or into other entities. On September 13, 2019, MOUSA, issued $500 million of 4.75% Senior Notes due 2029 (the “2029 Senior Notes”). The net proceeds from the issuance of the 2029 Senior Notes were used to fund, in part, the tender offer and redemption of a prior note issuance. The 2029 Senior Notes are fully and unconditionally guaranteed by the Company and by the Company's subsidiaries that guarantee our Credit Facilities. The indenture governing the 2029 Senior Notes contains restrictive covenants that are essentially identical to the covenants for the 2027 Senior Notes. On January 29, 2021, MOUSA, issued $500 million of 3.75% Senior Notes due 2031 (the "2031 Senior Notes" and, together with the 2027 Senior Notes and the 2029 Senior Notes, the "Senior Notes"). The net proceeds from the issuance of the 2031 Senior Notes were used, in part, to fund the acquisition of QuickChek and other obligations related to that transaction. The 2031 Senior Notes are fully and unconditionally guaranteed by the Company and by the Company's subsidiaries that guarantee our Credit Facilities. The indenture governing the 2031 Senior Notes contains restrictive covenants that are essentially identical to the covenants for the 2027 and 2029 Senior Notes. The Senior Notes and related guarantees rank equally with all of our and the guarantors’ existing and future senior unsecured indebtedness and effectively junior to our and the guarantors’ existing and future secured indebtedness (including indebtedness with respect to the Credit Facilities) to the extent of the value of the assets securing such indebtedness. The Senior Notes are structurally subordinated to all of the existing and future third-party liabilities, including trade payables, of our existing and future subsidiaries that do not guarantee the notes. Revolving Credit Facility and Term Loan Our credit agreement consists of both a cash flow revolving credit facility and a senior secured term loan. The credit agreement provides for a senior secured term loan in an aggregate principal amount of $400 million (the “Term Facility”) (which was borrowed in full on January 29, 2021) and revolving credit commitments in an aggregate amount equal to $350 million (the “Revolving Facility”, and together with the Term Facility, the “Credit Facilities”). The outstanding balance of the term loan was $387 million at September 30, 2024 and $390 million at December 31, 2023. The term loan is due January 2028, and we are required to make quarterly principal payments of $1 million, which began on July 1, 2021. As of September 30, 2024, we had $41.0 million of outstanding borrowings under the Revolving Facility and $6.2 million of outstanding letters of credit (which reduces the amount available to borrow under the Revolving Facility). Interest payable on the Term Facility is based on either: • the term secured overnight financing rate, plus the applicable Alternative Reference Rate Committee ("ARRC") recommended credit spread adjustment (the “Adjusted Term SOFR Rate”); or • the Alternate Base Rate, which is defined as the highest of (a) the rate of interest last quoted by The Wall Street Journal as the "Prime Rate", (b) the greater of the federal funds effective rate and the overnight bank funding rate determined by the Federal Reserve Bank of New York from time to time plus 0.50% per annum and (c) the one-month Adjusted Term SOFR Rate plus 1.00% per annum, plus, (A) in the case of Adjusted Term SOFR Rate borrowings, a spread of 1.75% per annum and (B) in the case of Alternate Base Rate borrowings, a spread of 0.75% per annum. 37 Interest payable on the Revolving Facility is based on either: • the term secured overnight financing rate, plus a 0.10% credit spread adjustment for all interest periods (the "Adjusted SOFR Rate"), which is subject to a 0.0% floor; or • the Alternate Base Rate, which is defined as the highest of (a) the rate of interest last quoted by The Wall Street Journal as the "Prime Rate", (b) the greater of the federal funds effective rate and the overnight bank funding rate determined by the Federal Reserve Bank of New York from time to time plus 0.50% per annum and (c) the one-month Adjusted SOFR Rate plus 1.00% per annum, plus, (A) in the case of Adjusted SOFR Rate borrowings, a spread of 1.75% to 2.25% per annum depending on a total debt to EBITDA ratio and (B) in the case of Alternate Base Rate borrowings, spreads ranging from 0.75% to 1.25% per annum depending on a total debt to EBITDA ratio. The Term Facility amortizes in quarterly installments, which commenced on July 1, 2021, at a rate of 1.00% per annum. Murphy USA is also required to prepay the Term Facility with a portion of its excess cash flow, a portion of the net cash proceeds of certain asset sales and casualty events (subject to certain reinvestment rights) and the net cash proceeds of issuances of indebtedness not permitted under the Credit Agreement. The Credit Agreement allows Murphy USA to prepay, in whole or in part, the Term Facility outstanding thereunder, together with any accrued and unpaid interest, with prior notice but without premium or penalty other than breakage and redeployment costs. The credit agreement contains certain covenants that limit, among other things, the ability of the Company and certain of its subsidiaries to incur additional indebtedness or liens, to make certain investments, to enter into sale-leaseback transactions, to make certain restricted payments, to enter into consolidations, mergers or sales of material assets and other fundamental changes, to transact with affiliates, to enter into agreements restricting the ability of subsidiaries to incur liens or pay dividends, or to make certain accounting changes. The Revolving Facility credit agreement also imposes total leverage ratio and secured net leverage ratio financial maintenance covenants which are tested quarterly. Pursuant to the total leverage ratio financial maintenance covenant, the Company must maintain a total leverage ratio of not more than 5.0 to 1.0 with an ability in certain circumstances to temporarily increase that limit to 5.5 to 1.0 and a maximum secured net leverage ratio of not more than 3.75 to 1.0 with an ability in certain circumstances to temporarily increase that limit to 4.25 to 1.0. The Credit Agreement also contains customary events of default. Pursuant to the credit agreement's covenant limiting certain restricted payments, certain payments in respect of our equity interests, including dividends, when the total leverage ratio, calculated on a pro forma basis, is greater than 3.0 to 1.0, could be limited. At September 30, 2024, our total leverage ratio was 1.79 to 1.0 which meant our ability at that date to make restricted payments was not limited. If our total leverage ratio, on a pro forma basis, exceeds 3.0 to 1.0, any restricted payments made following that time until the ratio is once again, on a pro forma basis, below 3.0 to 1.0 would be limited by the covenant, which contains certain exceptions, including an ability to make restricted payments in cash in an aggregate amount not to exceed the greater of $117.6 million or 4.5% of consolidated net tangible assets over the life of the credit agreement. All obligations under the credit agreement are guaranteed by Murphy USA and the subsidiary guarantors party thereto, and all obligations under the credit agreement, including the guarantees of those obligations, are secured by certain assets of Murphy USA, Murphy Oil USA, Inc. and the guarantors party to the guarantee and collateral agreement in respect thereof. Supplemental Guarantor Financial Information The following is a description of the guarantees with respect to the Senior Notes and the Credit Facilities, for which MOUSA is primary obligor, and for which the Company and certain subsidiaries provide full and unconditional guarantees on a joint and several basis. See "—Debt" above for additional information concerning the Company's outstanding indebtedness, all of which is guaranteed as described below. See also Note 6 "Long Term Debt" in the accompanying consolidated financial statements. 38 The Senior Notes and related guarantees rank equally with all of our and the guarantors’ existing and future senior unsecured indebtedness and effectively junior to our and the guarantors’ existing and future secured indebtedness (including indebtedness with respect to the Credit Facilities) to the extent of the value of the assets securing such indebtedness. The Senior Notes and related guarantees are structurally subordinated to all of the existing and future third-party liabilities, including trade payables, of our existing and future subsidiaries that do not guarantee the notes. All obligations under the Credit Facilities are guaranteed by the Company and the same subsidiary guarantors that guarantee the Senior Notes. All obligations under the Credit Facilities, including the guarantees of those obligations, are secured by certain assets of the Company, MOUSA, and the other guarantors. The combined assets, liabilities and results of operations of MOUSA and the guarantors are not materially different from corresponding amounts presented in the consolidated financial statements included herein. MOUSA is our primary operating subsidiary and generated the vast majority of our revenues for the three and nine months ended September 30, 2024, and accounted for the vast majority of our total assets as of September 30, 2024. In the event MOUSA itself were unable to service the Company's consolidated debt obligations, our business and financial condition would be materially adversely impacted. Capital Spending Capital spending and investments in our Marketing segment relate primarily to the acquisition of land and the construction of new Company stores. Our Marketing capital is also deployed to improve our existing stores, which we refer to as maintenance capital. We use maintenance capital in this business as needed to ensure reliability and continued performance of our stores. We also invest in our Corporate and other assets segment which is primarily technology related. The following table outlines our capital spending and investments by segment for the three and nine month periods ended September 30, 2024 and 2023: Three Months Ended September 30, Nine Months Ended September 30, (Millions of dollars) 2024 2023 2024 2023 Marketing: Company stores $ 111.4 $ 53.8 $ 267.9 $ 160.5 Terminals 0.5 1.0 2.0 3.9 Maintenance capital 18.8 12.6 51.2 34.5 Corporate and other assets 16.2 10.4 31.0 37.3 Total $ 146.9 $ 77.8 $ 352.1 $ 236.2 We currently expect capital expenditures for the full year 2024 to range from approximately $500 million to $525 million, including $400 million to $415 million for retail growth, approximately $65 million to $70 million for maintenance capital, with the remaining funds earmarked for other corporate investments and other strategic initiatives. See Note 18 “Commitments” in the audited consolidated financial statements for the year ended December 31, 2023 included in our Annual Report on Form 10-K for more information. Critical Accounting Policies There has been no material update to our critical accounting policies since our Annual Report on Form 10-K for the year ended December 31, 2023. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies” in the Form 10-K. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains certain statements or may suggest “forward-looking” information (as defined in the Private Securities Litigation Reform Act of 1995) that involve risk and uncertainties, including, but not limited to our M&A activity, anticipated store openings and associated capital expenditures, fuel margins, merchandise margins, sales of RINs, trends in our operations, dividends, and share repurchases. Such 39 statements are based upon the current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual future results may differ materially from historical results or current expectations depending upon factors including, but not limited to: our ability to continue to maintain a good business relationship with Walmart; successful execution of our growth strategy, including our ability to realize the anticipated benefits from such growth initiatives, and the timely completion of construction associated with our newly planned stores which may be impacted by the financial health of third parties; our ability to effectively manage our inventory, manage disruptions in our supply chain and our ability to control costs; geopolitical events, such as Russia's invasion of Ukraine and the conflicts in the Middle East, that impact the supply and demand and price of crude oil; the impact of severe weather events, such as hurricanes, floods and earthquakes; the impact of a global health pandemic and any governmental response thereto; the impact of any systems failures, cybersecurity and/or security breaches of the company or its vendor partners, including any security breach that results in theft, transfer or unauthorized disclosure of customer, employee or company information or our compliance with information security and privacy laws and regulations in the event of such an incident; successful execution of our information technology strategy; reduced demand for our products due to the implementation of more stringent fuel economy and greenhouse gas reduction requirements, or increasingly widespread adoption of electric vehicle technology; future nicotine or e-cigarette legislation and any other efforts that make purchasing nicotine products more costly or difficult could hurt our revenues and impact gross margins; our ability to successfully expand our food and beverage offerings; efficient and proper allocation of our capital resources, including the timing, declaration, amount and payment of any future dividends or levels of the Company's share repurchases, or management of operating cash; the market price of the Company's stock prevailing from time to time, the nature of other investment opportunities presented to the Company from time to time, the Company's cash flows from operations, and general economic conditions; compliance with debt covenants; availability and cost of credit; and changes in interest rates. Our SEC reports, including our most recent annual Report on Form 10-K and quarterly report on Form 10-Q, contain other information on these and other factors that could affect our financial results and cause actual results to differ materially from any forward-looking information we may provide. The Company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events, new information or future circumstances.