Good day, ladies, and gentlemen, and welcome to the Casey's General Stores Second Quarter Fiscal Year 2022 Earnings Conference Call. At this time, all participant lines are on a listen only mode. Later, we will conduct a question- and- answer session and instructions will be given at that time. To ask a question, you will need to press star and then one on your telephone. As a reminder, this call is being recorded. If anyone should require operator assistance, please press star and then zero. I would now like to turn the call over to Brian Johnson, Senior Vice President, Investor Relations and Business Development. Please go ahead. Good morning, and thank you for joining us to discuss the results from our second quarter ended October 31st, 2021. I am Brian Johnson, Senior Vice President, Investor Relations and Business Development. With me today is Darren Rebelez, President and Chief Executive Officer, and Steve Bramlage, Chief Financial Officer. Before we begin, I'll remind you that certain statements made by us during this investor call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include any statements relating to expectations for future periods, possible or assumed future results of operations, financial conditions, liquidity and related sources or needs, the company's supply chain, business and integration strategies, plans and synergies, growth opportunities, performance at our stores, and the potential effects of COVID-19. There are a number of known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from any future results expressed or implied by those forward-looking statements, including, but not limited to the integration of the recent and pending acquisitions, our ability to execute on our strategic plan or realize benefits from the strategic plan, the impact and duration of COVID-19 and related governmental actions, as well as other risks, uncertainties and factors which are described in our most recent annual report on Form 10-K and quarterly reports on Form 10-Q as filed with the SEC and available on our website. Any forward-looking statements made during this call reflect our current views as of today with respect to future events and Casey's disclaims any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise. A reconciliation of non-GAAP to GAAP financial measures referenced in this call, as well as a detailed breakdown of the operating expense increase for the second quarter, can be found on our website at www.caseys.com under the Investor Relations link following this call. With that said, I'd now like to turn the call over to Darren to discuss our second quarter results. Darren. Thanks, Brian, and good morning, everyone. We're looking forward to sharing our results in a moment, but I'd like to start by thanking our 43,000 Casey's team members for their tireless efforts as we look to overcome the ongoing challenges with COVID-19 and the resulting supply chain issues. Our team members have done an outstanding job navigating this new and difficult situation, and the team's ability to perform under the circumstances is something I'm especially proud of and grateful for. At Casey's, our purpose is to make life better for our communities and guests every day. I'm proud to report that we continue to make excellent progress in this regard during the second quarter. This quarter, Casey's Cash for Classrooms giving campaign raised nearly $1 million to support local schools in our communities through grants, thanks to our generous guests and passionate team members. These grants will provide much-needed funds to local schools in the communities where we operate. In November, Casey's held a veterans-focused giving campaign in partnership with PepsiCo to raise funds for organizations providing assistance to veterans and their families. As a veteran myself, I know the great sacrifices these families have made and the challenges they face. This year's campaign raised nearly $1 million that will help two outstanding organizations, Children of Fallen Patriots and Hope For The Warriors. These funds will allow the charities to have an even greater impact on the lives of veterans and their loved ones. Thank you to our vendor partners, each Casey's team member that made a donation ask in our stores, and especially to our guests who truly do good when they shop at Casey's. Now let's discuss the quarter's results. As you've seen in the press release, we delivered yet another strong quarter. Diluted earnings per share were $2.59 per share. While down from the prior year, we're still impressive in the wake of the extremely challenging retail operating environment that we're currently facing. Total gross profit dollars of $718 million was an all-time high for the second quarter. Net income was $96.8 million. EBITDA was $217 million, down 2% from the prior year, primarily due to higher operating expenses. Inside the store, sales volumes were positive and grew stronger throughout the quarter, partially aided by our new breakfast menu launch in October, which is proving to be a big hit with our guests and exceeding our early expectations. We experienced increased guest counts and positive same-store fuel volumes. We maintained our gross margins inside the store while dealing with a myriad of product and inflationary challenges. In fuel, we nearly matched the prior year's margin of $0.35 /gal, despite the retail price of fuel increasing nearly $1 /gal. The second quarter was also the first full quarter operating the Bucky's and Circle K acquisitions, which are on track to realize expected synergies. We announced our third strategic acquisition this year with an agreement to acquire 40 stores from Pilot Corporation in the Knoxville, Tennessee area that is expected to close in the third quarter. Overall, we remain very confident in our ability to deliver on our strategic commitments and manage through the near-term challenges presented by the current environment. I would now like to go over our results and share some of the details in each of the categories. Inside same-store sales were up 6% for the second quarter, with an average margin of 40.7%. Same-store grocery and general merchandise sales were up 6.8%, and the average margin was 33.3%, in line with the same period a year ago. We believe we are taking share in this category in our geography based on industry data and peer performance. Packaged beverages and salty snacks continue to perform well due largely to the successful store resets and assortment optimization efforts completed last fiscal year. Nonalcoholic beverages were up over 24% on a two-year stack basis. Alcohol same-store sales were up low single digits despite challenging comparisons and remain up over 22% on a two-year stack basis. The merchandising team did an excellent job maintaining margin while overcoming inflationary headwinds. Our private label program and procurement initiatives contributed favorably to gross profit margin this quarter. Same-store Prepared Food and Dispensed Beverages were up 4.1%. The average margin for the quarter was 60.6%, up 50 basis points from a year ago. Pizza slices continue to perform exceptionally well, up 21% in the quarter. While our self-distribution model helped mitigate some supply chain challenges, we most acutely felt product availability challenges in the Prepared F oods category during the quarter. At various times during the quarter, and sometimes for nearly the entire quarter, we were out of stock with key items such as donuts, fountain beverage cups, and chicken. During the second quarter, same-store fuel gallons sold were up 2.5%, with a fuel margin of $0.347 /gal, down slightly but still largely comparable to the same period last year. The fuel team continues to do a tremendous job balancing fuel margin and volume to optimize the profitability of the category. The higher fuel profitability levels are clearly being impacted by the rising operating costs the entire industry is incurring, both in terms of labor as well as higher credit card and EMV compliance fees. I'd now like to turn the call over to Steve to go into some detail on the financial statements. Steve. Thank you, Darren, and good morning. Total revenue for the quarter was approximately $3.3 billion, an increase of $1 billion or 47% from the prior year. This was primarily due to an increase of retail sales of fuel of $855 million, which is driven by a 15.8% increase of total gallons sold to 669 million gallons, as well as a 48% increase in the average retail price per gallon. The average price of fuel during the period was $3.06 /gal, compared to $2.07 a year ago. Reported fuel revenue results do not include the recently acquired Buchanan Energy wholesale fuel business, which is included in the other revenue category and is responsible for the vast majority of the $60 million increase that we saw in this quarter on that line item. Total inside sales rose 13.1% to $1.1 billion. Grocery and General Merchandise sales increased by $111 million to $829 million, an increase of 15.5%. Prepared Food and Dispensed Beverage sales rose by $21 million to $309.5 million, an increase of 7.2%. Please note that the reported figures are favorably impacted by 7.3% more stores that were operated on a year-over-year basis, though the Prepared Food and Dispensed Beverage was less favorably impacted due to the timing of kitchen installations and construction at our recent acquisitions. As a reminder, we define gross profit as revenue less cost of goods sold, but excluding depreciation and amortization. Casey's had gross profit of $718 million in the second quarter, which is an increase of $86 million from the prior year. This is driven by higher inside gross profit of $50.8 million or 12%, as well as an increase of $27.7 million or 13.6% in fuel gross profit. Fuel gross profit benefited by over $6 million from the sale of RINs. All RINs generated were sold in the quarter, and there was no carryover from previous quarters. Our grocery and general merchandise gross profit increased $36.9 million, while Prepared Food and Dispensed Beverage gross profit increased $13.8 million. We also saw a $7.3 million lift in other gross profit, and this is benefiting from the dealer network activities and car washes that we acquired from the Buchanan Energy acquisition that we record in the other category. While inside margin remained relatively flat compared to the prior year, our merchandising and logistics teams are performing exceptionally well in the face of the challenging inflationary and supply chain environment. Inside gross profit margin was 40.7%. While this is a decrease of 30 basis points from the prior year quarter, it's completely driven by the mix change between our two categories. The grocery and general merchandise margin was flat at 33.3%. Prepared food and Dispensed Beverage margin was 60.6%, up 50 basis points from prior year. Higher volumes, mix enhancement, procurement actions, and selective price increases all combined to partially offset the inflationary pressures that we're facing. Specific to Prepared Food and Dispensed Beverage, the company also benefited from a $0.22 / lb favorable cheese cost comparison. Cheese costs were $1.96 / lb this quarter, compared to $2.18 for the same quarter a year ago, and that's an approximately 75 basis point benefit. However, this cheese cost benefit was largely offset by commodity cost increases in our other Prepared Food ingredients. Total operating expenses were up 22% or $90 million in the second quarter, which is consistent with our expectations and a reduction from the first quarter growth rate by a couple hundred basis points. Approximately 9% of the operating expense increase is due to unit growth as we operated 161 more stores than the prior year, as well as approximately $3 million in one-time integration expenses associated with the Buchanan and Circle K acquisitions. Approximately 7% of the increase is due to same-store employee and store operating expenses increasing. This is primarily due to a 14% increase in store-level wage rates. While the number of hours worked were not significantly different in the quarter versus prior year, on a two-year stack basis, same-store labor hours remained down approximately 3.5%. Thus, we were able to grow inside sales 9.7% on a two-year stack basis while reducing store labor hours, which is a tremendous accomplishment by our store operations team. Finally, due to the higher retail fuel prices mentioned earlier, same store credit card fees also rose and thus accounted for another 2% of the operating expense increase in the quarter. Depreciation in the quarter was up 15.5%, driven primarily by the store growth, along with the placing of our third distribution center into service earlier this year. Net interest expense was $13.5 million in the quarter, and that compares to $10.6 million in the prior year. The increase is primarily related to the additional debt that we took on to fund the Buchanan acquisition. The effective tax rate for the quarter was 25%, and that compares to 23.6% in the prior year, driven by earnings mix differences and timing. Net income was down versus the prior year to $96.8 million. EBITDA for the quarter was $216.9 million compared to $221.4 million a year ago, a decrease of 2%. Notably, both the Buchanan and Circle K acquisitions were accretive to EBITDA in the second quarter as we had expected. Our balance sheet remains really strong. At October 31st, cash and cash equivalents were $312 million, and we have the full capacity undrawn of our $475 million in lines of credit, giving us ample available liquidity of $787 million. Our leverage ratio remained at 2.4 x post the closing of the acquisitions, which is consistent with the first quarter. Fourth quarter net cash provided by operating activities of $213 million, less purchases of property and equipment of $78 million, resulted in the company generating $135 million in free cash flow. This compares to $86 million generated in the prior year. The primary difference versus prior year was due to a reduction in capital expenditures as well as higher cash provided by operating activities. At the December meeting, the Board of Directors voted to maintain the dividend at $0.35 per share, unchanged from the first quarter. We will continue to remain balanced in our capital allocation going forward, leaning into the many growth-related investment opportunities that we have, but continuing to repay debt gradually and tending to the dividend as well. Our share repurchase authorization is untapped at $300 million, and we will remain opportunistic in this regard. So far this year, the company has opened seven new stores and has acquired 144 stores, including the 89 Bucky's and 48 Circle K stores. The pending Pilot acquisition consists of 40 stores in the Knoxville, Tennessee metro area. 38 of these stores are traditional convenience stores and two are truck stops. The purchase price is $220 million, and that represents a multiple of 9.3x the pre-synergy trailing 12-month EBITDA. Fuel gallons sold per store is approximately 1.5 million gal, and the average merchandise sales per store is approximately $2.2 million, and they have quite low existing Prepared Food penetration in those stores. The acquisition is expected to close December 16th, and it will be financed with a combination of cash on hand and a $150 million term loan, and it's expected to be accretive to EBITDA in the current fiscal year. Now, the pending Pilot acquisition provides the opportunity for us to update our 2022 outlook. Casey's now expects to add approximately 225 units by the end of the fiscal year, and that's up from the 200 units we previously disclosed. Total operating expenses are now expected to increase in the high-teen percentages versus the mid-teen percentages previously disclosed, due in part to the aforementioned Pilot acquisition. Additionally, credit card fees continue to remain elevated along with the retail price of fuel. Now, despite these changes, we have cycled past the worst of the year-over-year increases in operating expenses for this fiscal year. To assist with modeling, we expect that the third quarter operating expenses will be up 18%-20% versus the prior year, and the fourth quarter will be up 11%-13% versus the prior year. The fourth quarter notably has a more favorable OpEx comparison, given some prior year one-time items, such as asset impairment charges and EMV retrofit compliance costs, as well as elevated incentive compensation costs. Interest expense is now expected to finish the year at approximately $55 million, with depreciation and amortization planned for approximately $310 million at the end of the year. Both are driven by the increase in new units and the associated financing costs. The purchase of property, plant, and equipment should be approximately $400 million versus the $500 million previously disclosed, as the company will reduce new store construction due to the increase in acquisition activity, and this will positively impact our free cash flow. The company still expects the tax rate to be approximately 24%-26%. The company is maintaining the same-store sales outlook for fuel and inside sales to increase mid-single-digit percentages. Casey's expects the third quarter same-store sales to be mid-single digits for both fuel and inside sales. Fuel margins continue to trend in the low- to mid-$0.30 /gal range. We expect net earnings in both the third and fourth quarters to be modestly higher than the prior year. I'd now like to turn the call back over to Darren. Thanks, Steve. First, I'd like to congratulate the entire Casey's team for delivering impressive results in the second quarter. We couldn't have done it without their hard work and dedication. Given the challenges concerning COVID-19, labor shortages, and supply chain issues, we'll continue to need their perseverance to perform at a high level. If you recall, the pillars of our strategic plan to deliver top-quintile EBITDA growth are reinvent the guest experience, create capacities through efficiencies, and be where the guest is via disciplined unit growth. All of this is going to be driven by an investment in talent to strengthen the team and add capabilities to the business. With the recent large acquisitions completed and another deal pending, let's start with being where the guest is. We made a commitment to add 345 units over a three-year period by the end of fiscal 2023, which is a 5% CAGR versus the starting point. We are now 18 months into the initiative and have added 195 units thus far, including 150 in fiscal 2022. On the horizon is a pending Pilot acquisition. We see the Knoxville, Tennessee market as a strategic fit within our existing distribution network, and it is an attractive midsize market that we expect our Prepared Foods to do well in. It also gives us an immediate scale in Knoxville and expands our footprint in Tennessee. Overall, we are extremely excited about the potential for these stores. We are also highly confident we will achieve the 345 unit expansion we committed to. Our team has also done a great job integrating the Bucky's acquisition. We've now completed 28 remodels, with 10 remodels in progress. We plan to have all of the stores moved to our supply chain network by the end of the calendar year, which is ahead of schedule. With respect to efficiency, our fuel team continues to drive profitability through retail price optimization and procurement efforts. In the current quarter, we stood up a new fuel technology solution to continue to optimize fuel procurement efforts. Our merchandising team has proven they are capable of navigating through this inflationary environment inside the store by effectively managing cost of goods negotiations and making retail price point adjustments as needed. They have also successfully driven sales to more profitable categories from the store resets completed last fiscal year. Finally, private label products continue to grow market share inside our stores, and we remain on track to reach our 5% goal by the end of the fiscal year. Not only is this a better value option for our guests, but it also improves gross profit margin for the category. Our initiative to reinvent the guest experience at Casey's has performed better than expected. During the quarter, we had a successful launch of our new breakfast lineup, highlighted by Casey's Signature Handheld and the rollout of the fresh-brewed bean-to-cup coffee program. Our digital guest engagement remains a high priority as digital sales were up 10% in the second quarter on top of a 120% increase in the same quarter last year. Our partnerships with third-party aggregators such as DoorDash and Uber Eats are now at 1,081 stores. We also utilize DoorDash white label delivery, a third-party service that takes orders through our systems at 826 stores. This enables our Casey's Rewards members to fully participate with their member benefits on our own app and receive delivery services. We still utilize our own delivery drivers at 435 stores and still offer in-store pickup and curbside pickup at over 2,200 stores. Our Casey's Rewards enrollment continues to grow and eclipsed 4.2 million members in October. Our app now generates more order revenue than any other media, including phone-in orders. We're continuing to grow segmented marketing campaigns where we offer personalized promotions to our members. We've also begun to segment our content by daypart on both the web and app to improve our relevance. We believe these shifts will result in a more engaged guest. With respect to investing in our talent, despite the difficult labor environment, the company has been able to make progress staffing the stores as the special federal unemployment benefits expire. We will remain competitive in the market with respect to pay to adequately staff our stores, so we can deliver the exceptional experience our guests have come to expect from Casey's. We're continuing to incentivize our team members with a vaccination bonus as the health and safety of our team members and guests is our top priority. We will now take your questions. Thank you. To ask a question, you will need to press star, then one on your telephone. To withdraw your question, please press the pound key. We ask that you please limit yourself to one question and one follow-up. Our first question comes from the line of Karen Short with Barclays. Your line is now open. Hi. Thank you very much. I just wanted to go to the question that I've asked in the past. When you look at your OpEx growth versus your gross profit dollar growth, and I'm actually doing this on relative to 2019, not relative to last year, I mean, you're definitely continuing to see a deterioration in or a widening of that gap, meaning OpEx growing much faster than gross profit dollars in the store. Can you just talk a little bit about how you think that trajectory will look in the second half, and then I had one quick follow-up. Yeah, Karen, thanks. This is Darren, and I'll go ahead and start and let Steve kind of fill in some details here. Yeah, we still believe that we'll be able to generate gross profit dollar growth in excess of our OpEx growth. I think the reality of it is we've got some timing issues as we continue to accelerate our store growth and add acquisitions. Those acquisitions come with OpEx to them, and so that growth starts to look outsized relative to the GP generation in the short term. Part of that is because when we acquire stores, one of the main synergies that we expect to achieve is layering in our Prepared Foods business, which is the most significant driver of our gross profit. In the short term, as we bring those stores on, we don't have the Prepared Foods momentum yet as we have to remodel those stores, bring the kitchens in, train the people, and then we start to generate that gross profit. Ultimately, you start to normalize the OpEx effect of those acquisitions, but you accelerate the gross profit generation of those vis-a-vis the Prepared Foods business. That, that's really how that equation will work. It's just in the short term, when you first bring those on, you have a little bit of a mismatch there. I'll let Steve talk about what our outlook is for balance here. Yeah, I would just add, Karen, that certainly in the very near term, in the second half, I do expect gross profit dollar growth is gonna outpace operating expense dollar growth, right? It did not in the second quarter for the reasons that we talked about. Some of that is just the comps around OpEx growth are gonna get a little easier for us here in the second year. We're lapping, you know, hard closures of operating hours in the prior year and then reopenings, and we had special COVID pay coming on and off in the prior year, which makes it very lumpy in terms of what's happening with OpEx. In the second half of the year, as we sit here now, I think we've got a pretty good line of sight that gross profit dollars will consistently outperform from a growth standpoint, the operating expense growth. Okay, that's helpful. Just on Pilot, wondering if you could give a little color on what you actually think the synergies will be. Obviously, as you just commented on some of the synergies will be coming from Prepared Food, but if any more granularity on that would be great. Yeah, you know, I think that is the true synergy. We do believe that making some investment in those remodels of those stores will help our merchandising team. We'll remerchandise those stores, and that always helps. We have that experience from the other acquisitions. Clearly, the largest synergy we expect to capture with the Pilot acquisition, as well as virtually any acquisition we bring is our Prepared Foods. As Steve mentioned in the opening remarks, you know, they have very low penetration of Prepared Foods in there. Based on our experience, we know we can go in and significantly elevate that Prepared Foods experience. I may add, I think we'll find that, you know, our ability to merchandise on the grocery side within those stores is gonna accrue to our benefit, certainly over time. Then from a distribution standpoint, we will definitely get some further absorption of fixed cost within our system, right? We'll continue to load the warehouse that's closest to that part of the country, and that will make the rest of our distribution network that much more efficient as well. Thank you. Our next question comes from the line of Bonnie Herzog with Goldman Sachs. Your line is now open. All right. Thank you. Good morning, everyone. Morning. I also had, you know, a question on your OpEx, maybe, you know, a little bit of a different question. I'm just, you know, thinking about it, and, you know, the OpEx per store was, you know, quite high in the quarter, you know, again, up more than 20%, with the bulk of it driven, you know, by new stores and then the higher credit card fees. You know, I guess I'm trying to understand the component coming from new stores and really, you know, what changed, especially since you didn't open any new stores in the quarter? I guess, you know, Darren, based on what you said, I mean, is this just a function of you learning, you know, now that the new stores you opened earlier this year are now costing more to operate? If so, you know, how should we think about the new Pilot stores that you're gonna be opening, you know, in Q3? Are those also going to have elevated OpEx? Thanks. Well, you know, Bonnie, nothing's really changed. I mean, what we said in the first quarter, I mean, we had a 24% increase in OpEx versus the prior year. What we said in that call was that we would see a slight improvement in that OpEx in the second quarter, and then it would continue to get better, more substantially better in the third and fourth quarter. That is, in fact, exactly what has happened. We were up 22% this quarter, which is slightly better than the 24% last quarter. Nothing's really changed. Now, in the current environment, certainly with labor shortages, wages have gone up, and we said our average wage was up 14%, roughly. When we look at industry data in the hospitality and leisure and restaurant industries, retail industries, that average wage in the industry has gone up about 13.7%. We're right in line with where wages have gone. That has certainly put a damper on our OpEx. Again, with respect to the acquisitions, I think it's played out exactly like we thought. Now when we bring on Pilot, that's another 40 stores that will come with 40 stores worth of operating expense with them. That's going to go up. We'll have more fuel volume there, so credit card fees will continue to go up, and that's going to be a function of the retail price of fuel as well. Because of some of what we're cycling over from the prior year, we still are confident that those numbers are going to come down on a percentage increase basis versus the prior year. Steve, you wanna- Yeah. I just to drill down on the kind of the cost of running the new and the acquired stores. In the first quarter, when we did that bridge, and we have it on our website, you know, growth and M&A units contributed about 8% of year-over-year increase in total. You may remember, we didn't close on the actual acquisition of these stores on the very first day of the quarter. It was a couple weeks after the quarter had started. Now in the second quarter, we have obviously those units for the entire quarter, which is a couple of extra weeks. We've got a 9% contribution to the operating expense increase. From my perspective, other than there's a couple weeks of extra new unit cost, the second quarter, you know, the cost of running them was largely the same. The other piece I would just call out is, you know, we still in the case of Buchanan, we still have some synergies to pull out of the system that are in operating expense, right? That headquarters location, while it's, you know, a lower staffing level than it was before, that's not completely closed down. The warehouse that we've acquired from them will not close until the end of the calendar year. You've got some redundant costs that will be coming out of the system here quite soon. Okay, that was helpful. Just maybe to clarify, so on the first half, the OpEx was sort of in line with your expectations, but then, you know, you're taking up your guidance for the full year just primarily because of, you know, the maybe the Pilot acquisitions, the new store openings, and just the more expensive or inflationary environment. Is that how we should think about it for the full year? Largely, yes. From my perspective, two things are changing. You know, Pilot, if we close next week as we're hoping to close, is probably gonna bring somewhere in the neighborhood of $15 million of incremental operating expense into the last five and a half months or so, five months of the year. That's an incremental change. Then the other one is for sure, credit card fees are higher than we thought they were when we, you know, set this guidance out at the beginning, and that's a function of higher retail. You know, we continue to believe, and I think it's worth stating that, you know, part of the reason CPG for the industry is hanging around the level it is because operating expenses are higher. There is a correlation between those two things. They just aren't on the same line item. For us, there's definitely more credit card fees that we're gonna see while retail hangs out at a $3 level than we had guided previously. Thank you. Our next question comes from the line of Kelly Bania with BMO Capital Markets. Your line is now open. Hi, good morning. Thanks for taking our questions. Gonna try to ask a similar question kind of in a different way here. I guess in terms of the operating expense outlook, so higher credit card fees, the Pilot stores rolling in, I guess just wanna understand underlying kind of core operating expense and that wage rate increase of around 14%. How is that tracking to your plan for the year, and your underlying expectations? 'Cause to your point, I guess, on the OpEx and the impact this is having on CPGs, trying to just kind of understand how you feel about your total outlook for earnings or EBITDA this year and how that has changed, given these developments. Yeah. Kelly, hey, good morning. This is Steve. I'll start with that. Relative to kinda how the cadence is gonna work going forward with what I would call kinda same store wage rate is how I'll answer that. Our expectation of that has not changed. I think we had a pretty good view, certainly three months ago of what the wage pressure was in the market. I think we were seeing similar wage pressures to what we are today. The biggest driver of the headline number for us is just the comp from last year. If you think of what was happening in the prior year, you know, at various points in time, we had special COVID pay that was happening in the first quarter. We took that COVID pay off in the second quarter. When we have a wage rate that we're paying today, it actually was a smaller delta in the first quarter because the prior year number was inflated because of that special pay. Even though the headline number we're paying this year has not changed, the lower number from prior year is giving us a higher percentage. We started to implement extra COVID-related pay in the second half of last year. Again, we're not gonna pay a higher wage rate necessarily in the second half of this year, but the comp will get easier and so that the 14% wage rate that we referenced earlier, the dollars won't change, but that percentage will go down because we had a higher base in the second half of the prior year. As a result, the second part of your question, really, you know, we haven't guided for EBITDA for the year and we're not gonna do that, but our expectations haven't changed. I'll go back to the end of the question that Bonnie posed, is to the extent operating expenses are higher as an industry because of either wages or credit card fees, we believe that's contributing to more sustained higher fuel profitability for the industry. To a large extent, thus far, those two have kinda washed out by the time you get to the bottom line. I don't have any evidence right now that that relationship's gonna change in the near term. Okay. That makes a lot of sense. Very helpful. Then can you just also maybe elaborate on the price increases that you took? When were those? Which categories are you seeing competitors also move in that direction? And do you have any plans for more? Yeah. Kelly, this is Darren. Primarily on the grocery side of the business, the price changes have been taken in tobacco as we've had cost increases there. We've had some modest cost increases passed on in some other categories where we've done some fine-tuning from a pricing standpoint. That's in large part because we had already negotiated cost of goods through the balance of this calendar year. We're in the process now of finalizing cost of goods negotiations for the next calendar year. That's on the grocery and general merch side. As you've seen with our same-store sales results relative to peers and others in the industry, we believe we are taking share, and we've kind of confirmed that through some independent industry data that we've been able to look at. We like our pricing position now, and we certainly have the ability to take more price as needed. On the Prepared Food side, we did take some pricing in the second quarter. It was late in the second quarter, and that was across a number of categories because we were facing some more inflationary pressures there, primarily on ingredient cost. As Steve highlighted with cheese costs, we had a little bit of favorability on the cheese cost side, which offset the margin impact in the second quarter, but we went ahead and took the pricing anyway because we had the opportunity to do it from a competitive standpoint, and we've not seen any erosion in volume as a result of that. Thank you. Our next question comes from the line of Ben Bienvenu with Stephens. Your line is now open. Hey, thanks. Good morning. Good morning. Good morning, Ben. I wanna ask about Prepared Food per store volumes across the entire business, kinda having moved lower as a result of these newly acquired stores. That was one piece of variance from our model. Darren, I think you were talking about kind of the remodel pipeline on the Buchanan stores. I assume you'll pursue remodels and put the Casey's Prepared Food offer in the Pilot stores as well. Can you give us a sense of the timeline over which you expect to make those investments and those remodels, and how long before you think you can get that per store sales and margin from the Prepared Food category back to parity with kind of the core legacy chain? Yeah, sure, Ben. You know, with respect to the Buchanan Energy transaction, we've got 28 stores already remodeled at this point, and we have 10 more being remodeled as we speak. Really, our goal is to get those things remodeled as fast as we can and get our kitchens put in there and teams trained up and get that synergy. It's largely dependent on a permitting timeline and how quickly we're able to move from that standpoint. Our construction team has really developed a nice cadence around that. By the end of this calendar year, remember, we just closed on Buchanan in May, and we'll have 40 stores roughly remodeled by the end of the calendar year, so pretty quick work. Now, so far what we've seen, and Buchanan had a little bit of a Prepared F oods offering developed, but much more so than the Pilot stores. I'll tell you What we've seen early on is anywhere from a 70%-80% lift in Prepared Food sales in those stores in the first month to two months post remodel. We're well on our way. I don't have any concerns about the ramp there in getting to a more, you know, system-wide average. Now with respect to Pilot, that's in Knoxville, Tennessee, and that's a much newer territory for us. We tend to find that in new geographies where our brand is not as well known, that Prepared F oods ramp takes a little bit longer than in our core markets where once we hang the sign, people know who we are, and they come. Now, that being said, one of the things we found attractive about this deal was it was 40 stores all concentrated in the Knoxville area, which allows us to get immediate scale. We can do some advertising there. We can really accelerate the ramp period in that market because of the scale. It's something that we can't normally do when we do one store in a small town at a time. It takes a little bit longer to do. We feel really good about our prospects on the Pilot acquisition as well. Okay, great. I'm gonna ask another question about OpEx. It's a two-parter. One is more housekeeping, and then the other is kinda longer term trajectory. On the housekeeping, Steve, I think we've got year- to- date about $11 million of deal related to kinda non-recurring, non-GAAP costs in the OpEx lines, so call it 1.5% incremental OpEx year- to- date from deal costs. So first part of the question is, will there be residual deal costs from Buchanan going into the back half of the year? Will there be incremental kinda non-GAAP deal costs from Pilot in the back half of the year that's incorporated in the guidance? That's part one. Question two is, as you look out to fiscal 2023, I think you guys have historically talked about the belief that you can settle into a high single digit operating expense growth range. Do you still believe that to be true as you start to think out beyond some of the noise that's in the numbers right now? Yeah. Hey, Ben, thanks for the question. I'll do the first one. We don't have any more deal related costs in terms of like, you know, legal fees or banking fees per se. We'll still have several million- dollars of integration related costs, right, where we're extra training, you know, et cetera, which was all part of, you know, when we gave the expectation earlier this year that I think it's about $45 million of EBITDA contribution from Buchanan. That would have been inclusive of all of those costs. I do think we'll spend several million-dollars more for, frankly, all three acquisitions, Circle K, Buchanan, and Pilot, in the second half of the year, and they will be integration and consistent with kinda the overall accretion expectation of EBITDA. Transitioning to the second question. As we enter into next year, it's a little early for us to be specific on it, but nothing has changed in our expectation that, you know, in the medium term, our algorithm is that we need to manage operating expense growth at a slower clip than what we're getting, EBITDA related growth. I don't see any reason that we can't do that. The lumpiness of the prior year will be much better next year because this year will be much flatter. I think we're not gonna be out of the woods, nor is anybody in retail right now. Just, there's definitely more wage pressure as a general matter in the system. I don't see any reason to think that's gonna change in the near term. Our ability to manage same-store OpEx to a lower rate in the medium term than what we're growing EBITDA, we feel very good about our ability to do that. Ben, the only thing I'd add to that is the largest element of our operating expense is stores and the labor and team members in those stores. What we highlighted a little bit earlier today was that in spite of growing our two-year same store comps roughly 10%, we had a 3.5% reduction in hours. I think our operations team is acutely aware of the need to operate our stores efficiently, and we've been able to take labor hours out of the stores while still accelerating the store growth on a more comparable basis. You know, to Steve's point, I think as we go into next year, you know, the lumpiness of cycling shutdowns and restarts and everything else kinda goes away. Will be a little more normalized. We're not prepared to give that guidance now, but as we get towards the end of the fiscal year, we'll have a much clearer line of sight on how that should play out for the next fiscal year. Thank you. Our next question comes from the line of Irene Nattel with RBC Capital Markets. Your line is now open. Thanks, good morning, everyone. Just to change topics a little bit, how would you describe your traffic and your Prepared Food sales during the morning daypart, relative to pre-COVID levels? Yeah. Thanks, Irene. Traffic has started to improve in the morning daypart. I think it was hampered a little bit by the fact that a lot of business reopenings that were scheduled to take place after Labor Day kinda got pushed back to after the first of the year, given the Delta variant resurgence. In spite of that, we definitely saw our best traffic growth during the quarter in the morning daypart. Then with respect to the breakfast launch, we've really been pleased with how that's gone so far. You know, most of the new products that we introduced were in the breakfast sandwich category, and that category is up somewhere between 40% and 50% on any given day that our guests have really responded well to the new breakfast program. We feel good about how that category has rebounded versus where we were just a couple of months ago. That's great. Thank you. What are you seeing in terms of the balance of the day, and where do you think you are relative to pre-COVID levels? You know, with respect to the rest of the day, you know, we still see some momentum in the lunch day part, and that's still growing. The evening day part has pulled back a little bit. If you recall last year, when people were more locked down, our whole pie business really took off, and we were up 25%-30% in whole pies. We've certainly given a little bit of that back, but on a two-year stack basis, we're up double digits in whole pies. We feel really good that, while we've certainly pulled back from a lockdown type scenario, we're certainly growing that business on a two-year stack basis very favorably. Overall, we feel pretty good about the Prepared Foods. I think the other thing that I would comment while we're talking about P repared F oods is, you know, we posted a 4.1% increase in comps over the quarter, but I think as I alluded to in my narrative that, you know, we were impacted by some supply chain issues. To get a little more specific, when we look at our Prepared Foods, we have three categories, subcategories. It's hot and cold food, which is what I think you would normally associate with our business. That's where all the pizza goes in our hot food, our sandwiches, wraps, salads, all of the main core of the menu. Then there's the bakery category, and then there's the beverage category. In the hot and cold food, which is three-quarters of the business, we're up 8.3% in the quarter. Really strong results over the quarter in that category. That was offset by bakery and Dispensed Beverages, and that was strictly due to supply chain issues. We had some suppliers with donuts in particular, that weren't able to meet our needs. We were out of stock on some key top sellers, and that certainly impacted that category. Then in Dispensed Beverages, we had challenges getting cups. We have since mostly resolved that through some alternate sources of supply, but those categories were impacted. Now, I'll just make one more point on those two specifically. With Dispensed Beverages and fountain cups, when the cup is not there, we don't believe that we're losing the guests. We believe that the guests will take a look at that, see they don't have a cup, and then they'll walk two or three steps over to the cooler and pull out the beverage that they would have bought on the fountain out of the vault. When we look at our non-carb business and the fact that it increased 14% during the quarter, I would probably attribute some of that increase to some shifting among categories from dispensed over into the cold vault. Likewise with bakery, when we lost some of those bakery sales in this category, if we look at our private label packaged bakery category, our packaged bakery is up 35%-40% versus prior year, and our private brand inside of that has taken 41% share within that category. We definitely believe that there are some bakery guests who come in, maybe not found exactly what they were looking for in the P repared Foods case and moved over to the center of the store and made another purchase. I think that's why our overall comps are very strong, even though we had some challenges in some subcategories due to supply chain. Thank you. Our next question comes from the line of Bobby Griffin with Raymond James. Your line is now open. Good morning, everybody. Thanks for taking my question. Good morning, Bobby. First, I want to just switch back to M&A. You guys are off to a great start on trying to hit your multi-year store targets. Given the number of stores you've, you know, kind of acquired or announced to acquire with Pilot here recently, are we more in a digestion type phase going forward, or is there still a good appetite for incremental M&A if it was to come available in the next couple of quarters? Yeah, Bobby. We certainly are going to be opportunistic with respect to the M&A. You know, as you can probably appreciate, you know, M&A isn't just a ratable thing where you just decide you're gonna do it or you decide you're not gonna do it. A lot of that depends on the sellers in the world and who's for sale and where they're for sale and what looks attractive. We have to be opportunistic. You know, from a balance sheet perspective, we're in great shape. You know, only 2.4 x leverage. We have plenty of liquidity, and so plenty of capability to add more. The way I would characterize it is we're certainly digesting everything we have now, and we're focused on that. We also have our M&A team actively talking to other prospective sellers. When we find the right deal and we still have the capacity to do it, we'll take advantage of those opportunities. Yeah. I think I'd just follow up on that, Bobby, right? The beauty of our model is our ability to kind of go back and forth between building n ew units and buying units. You know, to the extent there's digestion, I guess, you saw it a little bit in the decisions we've made. You know, we've reduced our capital spending expectation this year because we're gonna build you know some fewer number of units than we had thought at the start of the year. That's some of that's supply chain related, but primarily it's a function of we're able to buy more than we would have expected at the beginning of the year. We will kind of titrate both of those numbers and balance them to make sure, you know, the operations can absorb all of the new units that are coming in, and those new units happen to be acquired units at the moment, more than historically they would've been units that we were standing up de novo. Okay. That's helpful. I appreciate it. I guess, lastly, it's kind of a two-part question on OpEx. If you go back two years, it seems like wages, of course, are the biggest driver of the growth versus two years, the quote-unquote, normal period. I guess part one is that true? Is there something else in the OpEx that we're not aware of that we should be aware of that's causing inflation? The second part is, do you see opportunities elsewhere in the P&L, whether it's grocery or Prepared Food to pass through price? Or is fuel margins really gonna be the sole, you know, area that you can try to offset this OpEx growth that the industry is facing? I'll take the first one of those, Bobby. I mean, listen, wages clearly is driving if you're looking back on a two-year basis, right? I mean, we referenced before hours are down, so we've- Mm-hmm. On a same-store basis, it's not ours 'cause we're more efficient, to the credit of the operations than we were before. You know, if you're looking including or excluding credit card fees, credit card fees are higher for sure, but I'll exclude that for a second. Same-store OpEx excluding the credit card, it is primarily a wage story, right? There is no doubt that last year there were quite a bit of minimum wage increases across our footprint. As COVID, right, continued to be more of a significant issue, we obviously then started to deal with broad-based industry wage pressure. Yeah, it's much more of a wage pressure dynamic in terms of what's driving the two-year same-store OpEx number for us. Yeah. Bobby, I'll take your second one on pricing. To answer your question, no, we don't think Prepared Foods is the only category that we have the opportunity to take price in. Our merchandising team is certainly evaluating all those opportunities as we speak. Like I said before, because we had costs of goods largely locked in across categories through the balance of the calendar year, we saw it as an opportunity to maintain margins and take some share. Like I said before, we have done that. Now as we move into the new calendar year, we think there's going to be a lot of folks under increasing cost pressure, and that's going to drive retail up, and we'll be able to take retail price along with them, and at the same time, maintain a competitive delta and still be able to grow share. Thank you. Our next question comes from the line of Chuck Cerankosky with Northcoast Research. Your line is now open. Good morning, everyone. Going back to the out of stocks. You talked about how customers were ready to substitute and purchase other products. How did that impact the in-store margins? Well, Chuck, yeah, I think it certainly impacted it a little bit. You know, those categories that I referenced, the bakery and Dispensed Beverages run at 10%-20% higher margin than the comparable categories in the grocery. It would've impacted that margin some. Now the balance there in terms of mix is that that creates a higher mix of that hot food category, which is the highest margin subcategory within Prepared F ood. I think that it ultimately netted out that the Prepared Foods margin ultimately moved up a little bit, but we're able to maintain the margin on the grocery side. Overall, you know, we had some margin benefit through the quarter. How did those out-of-stock situations look to you as we start the second half of the year? You know, as we sit here today, we still from a supply chain standpoint, the cups are still an issue from our primary supplier. Like I said, we've been able to get creative and come up with some alternatives. I think on the cup side, I think we're in decent shape. The bakery side is a little bit hit and miss. It's more difficult on the alternate supplier side with spec products that we get from a supplier. That part is not as easily replicable. I would expect that we would still see some of that challenge and that's been on and off again. A lot of that's dependent on our supplier and their labor situation at the time. You know, we have had periods where we've been back in stock and they've been able to satisfy our orders, and then they run into a labor challenge again, and then they can't fulfill them. It's a little bit variable in that category. Like I said, I think on the beverage side we've got it largely contained. It'll be more in the bakery category as we move forward. Thank you. Our next question comes from the line of Krisztina Katai with Deutsche Bank. Your line is now open. Hey, guys. Good morning. I just wanted to touch base. You said that the breakfast daypart has improved the most, in part driven by good performance, obviously, in the new breakfast handheld. You know, just how should we think about some of the next catalysts when it comes to your menu innovation journey? You know, how is the supply chain impacting that potentially? And then overall, just thinking about the timeline, I believe you guys have said it's roughly 18 months from idea generation to launching in stores. Just how can the process be shortened given, you know, how dynamic the landscape is, you know, changing consumer tastes and behaviors? Yeah, Krisztina, I think let me just talk about some of the innovation in other parts of the menu. I will say the supply chain is having an impact on some of that, and I don't wanna get into a lot of detail, but I would say we had spent some time developing a new product platform that we were prepared to launch, and then our primary supplier for that product was unable to meet our needs because of their own labor challenges in their manufacturing facilities. We've had to postpone that launch. Now, I guess if there's any good news inside of that, is that we have that sitting on the shelf in the pantry ready to go whenever we can resolve the supply chain issue. You know, so we have that in terms of innovation, and we continue to innovate, and our culinary team has started to focus more on the areas where we are not experiencing supply chain challenges, so we're working towards that as well. In terms of shortening the timeline, you know, we're always looking at ways of being more efficient and effective with any of our processes. You know, with the product development, I think it is very important to stay disciplined in that and be very guest centric and very guest focused. When I think about how our breakfast products are performing with a 40%-50% increase in units, and that was on top of a 10% increase already in that trend, it goes to show you that when you follow the process and do it right, that you get the results that you hope to expect. While again, I think we look at being efficient and effective in it, I'm reticent to deviate too far from that process because that process works, and it helps us ultimately to avoid big and expensive mistakes as we launch new products and platforms. Got it. That's helpful. Just my follow-up will be on the private label. I don't know if you said where you ended the quarter in terms of penetration, but you said that you're on track for 5%. I'm just curious how it's performing, you know, relative to your internal expectations. Are you finding more success with the private label program in the current environment? As you know, inflation is hitting consumers in a lot of ways. So if you could just talk about how you can capitalize on that and just remind us of the margin implications. Yeah. The private label program is still trending right on track. We ended the quarter at about 4.2% penetration. We have a little over 200 items. We rolled out 28 during the quarter. We have another 35 items that we'll be rolling out in the third quarter, and so we have clear line of sight to that 5%. Now, the thing I would tell you about it is 5% is 5% of the sales penetration. Today, we're already at about 7.5% of gross profit dollar penetration. So the items are running at a much higher margin rate. Our average margin rate for private labels in the high- 50s% versus what you see in the rest of the business in, you know, the low- 30s%. It's certainly accretive from a margin standpoint. That's why we're so focused on growing that part of the business. Thank you. Our last question comes from the line of Brian McNamara with Berenberg Capital Markets. Your line is now open. Hey, good morning. Thanks for taking the question. Krisztina got my question on private label, but just on OpEx, I know we're beating a dead horse here, but I remember when you gave the mid-teens guidance preliminarily or the initial guidance, you kinda mentioned it was a 50/50 split in terms of same store and kinda you know acquired OpEx. Can you kinda give us an idea where that sits given your revised expectations? This is Steve. It's not gonna be significantly different because, you know, the credit card, the two things that are driving it, there's more units for sure coming in with Pilot. Credit card fees are higher both at the acquired stores, frankly, but there's a lot more stores in the mothership. So I think by the time we get to the end of the year, it's not gonna be significantly different than a 50/50 split. Probably a little more weighted to same store, just as you think about, you know, just the overall number of units and the fact that, again, most of our integration related spending has already been completed. So that is gonna drop out of the reconciliation to a large extent for new units. Modestly overweighted to same stores by the time we get to the end of the year. Just a follow-up on M&A. Just curious how the current environment is relative to when we spoke last three months ago in terms of, you know, these smaller operators' willingness to sell in the current environment, just given where fuel margins continue to kinda be pretty high. Yeah. Brian, we still see a really strong environment out there right now. Remember, like Steve was saying, that there's definitely a correlation between the fuel margin resilience and the rising OpEx environment. I think with the smaller operators, it's getting more and more challenging just to keep stores staffed and keep people on and to operate in this environment. We see more deal flow coming through, and because of that, we have the ability to be selective and pick our spots. We like the environment right now. Like I mentioned before, we'll continue to stay opportunistic with respect to that. Thank you. There are no further questions. I will now turn the call back to Darren Rebelez, CEO, for closing remarks. Okay. Thank you, and thanks for taking the time today to join us on the call. I'd also like to thank our team members once again for their efforts this quarter. We've had a great first half of fiscal 2022, despite the challenges related to COVID-19, labor shortages, and the supply chain. You know, fortunately, we've demonstrated our ability to deliver results on our long-term strategic plan and fiscal year outlook in both normal times and during a global pandemic, and I'm confident we'll continue to drive shareholder value. Our second quarter was our most challenging comparison for the fiscal year, and we're looking forward to delivering great results for the back half of the year. Our team here at Casey's wishes everybody a happy holiday season. Ladies, and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.