Good day ladies and gentlemen and welcome to the Casey’s General Store second quarter fiscal year 2022 earnings conference call. At this time, all participant lines are in 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 31, 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 would 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 continued 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 and the communities where we operate. Then 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 the 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 and while down from the prior year, were 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 brewer 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 per gallon despite the retail price of fuel increasing nearly $1 per gallon. 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% from 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 geographies based on industry data and peer performance. Packaged beverages and salty snacks continued to perform well due largely to the successful store resets and assortment optimization efforts completed last fiscal year. Non-alcoholic beverages were up over 24% on a two-year stacked basis. Alcohol same store sales were up low single digits despite challenging comparisons and remained up over 22% on a two-year stacked 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 in 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 foods 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 per gallon, 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 was 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 per gallon 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 was driven by higher inside gross profit of $50.8 million or 12%, as well as 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 activity 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 a challenging inflationary and supply chain environment. Inside gross profit margin was 40.7%, and 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 per pound favorable cheese cost comparison. Cheese costs were $1.96 per pound 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, and 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 stacked basis same store labor hours remained down approximately 3.5%, thus we were able to grow inside sales 9.7% on a two-year stacked 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 31, cash and cash equivalents were $312 million, and we have the full capacity undrawn of $475 million in lines of credit, giving us ample available liquidity of $787 million. Our leverage ratio remained at 2.4 times post the closing of the acquisitions, which is consistent with the first quarter. For the 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. Thirty-eight of these stores are traditional convenience stores and two are truck stops. The purchase price is $220 million and that represents a multiple of 9.3 times the pre-synergy trailing 12 month EBITDA. Fuel gallons sold per store is approximately 1.5 million gallons 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 16 and it will be financed with a combination of cash on hand and a $115 million term loan, and it’s expected to be accretive to EBITDA in the current fiscal year. 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% to 20% versus the prior year, and the fourth quarter will be up 11% to 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% to 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 per gallon range, and 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, and 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. As you recall, the pillars of our strategic plan to deliver top quintile EBITDA growth are to reinvent the guest experience, create capacities through efficiencies, and to 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 the pending Pilot acquisition. We see the Knoxville, Tennessee market as a strategic fit within our existing distribution network, and it is an attractive midsized market that we expect our prepared foods to do well in. It also gives us 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 have 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 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 line-up 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 Door Dash and Uber Eats are now at 1,081 stores. We also utilize Door Dash 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 pick-up and curbside pick-up 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 segment and marketing campaigns where we offer personalized promotions to our members. We’ve also begun to segment our content by department 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 employment benefits expired. 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.

Our first question comes from Karen Short with Barclays. Your line is now open.

Hi, thanks 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 ’19, not relative to last year, you’re definitely continuing to see a deterioration 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 have one quick follow-up.

Yes, thank you, Karen. This is Darren. I'll begin and let Steve provide additional details. We still believe that we can achieve gross profit dollar growth that exceeds our operating expense growth. The reality is that we are facing some timing challenges as we accelerate our store growth and integrate acquisitions. These acquisitions come with associated operating expenses, leading to the perception that growth appears disproportionately high compared to gross profit generation in the short term. This is largely due to the fact that when we acquire stores, one of our main synergies is incorporating our prepared foods business, which is a significant contributor to our gross profit. Initially, as we bring these stores online, we do not have the prepared foods momentum since we need to remodel, install kitchens, and train staff before we start generating that gross profit. Over time, the impact of operating expenses from these acquisitions will normalize, while the gross profit generation from the prepared foods business will accelerate, which is how this dynamic will play out. It's just that in the short term, when we first acquire these stores, there's a bit of a mismatch. I'll let Steve discuss our outlook for the remainder of the year.

Yes, I would just add, Karen, that certainly in the very near term in the second half, I do expect gross profit dollar growth is going to outpace operating expense dollar growth. It did not in the second quarter for the reasons that we talked about, and some of that is just the comps around opex growth are going to get a little easier for us here in the second year, so we’re lapping hard closures of operating hours in the prior year and then re-openings, and we have special COVID pay coming on and off in the prior year, which makes it very lumpy in terms of what’s happening with opex, but 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. Then 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 foods, but if there’s any more granularity on that, that’d be great.

Yes, 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 will re-merchandise those stores, and that always helps, and we have that experience from the other acquisitions. But clearly the largest synergy we expect to capture with the Pilot acquisition as well as virtually any acquisition we bring, is our prepared foods, and so as Steve mentioned in the opening remarks, they have very low penetration in prepared foods in there; and 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 our ability to merchandise on the grocery side within those stores is going to accrue to our benefit certainly over time, and then from a distribution standpoint, we will definitely get some further absorption of fixed costs within our system. We’ll continue to load the warehouse that’s closest to that part of the country, and then that will make the rest of our distribution network 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. I also had a question on your opex, maybe a little bit of a different question. I’m just thinking about it and the opex per store was quite high in the quarter, again up more than 20%, with the bulk of it driven by new stores and then the higher credit card fees. But I guess I’m trying to understand the component coming from new stores and really what changed, especially since you did not open any new stores in the quarter. I guess Darren, based on what you said, is this just a function of you learning now that the new stores you opened earlier this year are now costing more to operate, and then if so, how should we think about the new Pilot stores that you’re going to be opening in Q3? Are those also going to have elevated opex? Thanks.

Well Bonnie, nothing has really changed. In our first quarter, we noted a 24% increase in operating expenses compared to the previous year, and during that call, we anticipated a slight improvement in the second quarter, followed by a more significant reduction in the third and fourth quarters. That prediction has indeed come true, as we experienced a 22% increase this quarter, which is slightly better than the 24% from the previous quarter. In the current environment, we are facing labor shortages, leading to increased wages, and our average wage has risen by about 14%. Industry data shows that average wages in the hospitality, leisure, restaurant, and retail sectors have increased by around 13.7%, indicating that we are in line with industry trends, although this has impacted our operating expenses. Regarding acquisitions, everything has unfolded as we expected. When we bring on Pilot, we will be adding 40 stores, which will increase our operating expenses correspondingly. While we anticipate higher fuel volume leading to increased credit card fees, this will also depend on retail fuel prices. However, due to some factors from the previous year, we remain confident that these numbers will reflect a lower percentage increase compared to last year. Steve, would you like to add anything?

To provide more clarity about the costs associated with operating the new and acquired stores, in the first quarter, our analysis indicated that growth from mergers and acquisitions contributed approximately 8% to the year-over-year total increase. It’s important to note that we didn't finalize the acquisition of these stores right at the beginning of the quarter; that occurred a few weeks later. Now, in the second quarter, we have had these units for the full quarter, giving us a few additional weeks of operational costs, which has led to a 9% rise in operating expenses. From my standpoint, aside from the extra costs associated with a couple of weeks of new unit operations, the operational cost for the second quarter has remained largely consistent. Additionally, in relation to Buchanan, we still have some synergies we can realize within operating expenses. Although the headquarters has reduced staffing, it is not entirely shut down. The warehouse we acquired will remain operational until the end of the calendar year, which means we still have some redundant costs that will soon be eliminated from our system.

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’re taking up your guidance for the full year just primarily because of 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. Pilot, if we close next week as we’re hoping to close, is probably going to bring somewhere in the neighborhood of $15 million of incremental operating expense in the last five and a half months or so, five months of the year, so that’s an incremental change. Then the other one is for sure credit card fees are higher than we thought they were when we set this guidance out at the beginning, and that’s a function of higher retail, and so we continue to believe, and I think it’s worth stating that part of the reason CPG for the industry is hanging around the level it is, is because operating expenses are higher. There is a correlation between those two things; they just aren’t on the same line item, so for us there’s definitely more credit card fees that we’re going to see while retails hang 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. Your line is now open.

Hi, good morning. Thanks for taking our questions. I’m going to 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 want to understand the 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; because to your point, I guess on the opex and the impact this is having on CPGs, trying to just understand how you feel about your total outlook for earnings or EBITDA this year and how that has changed, given these developments.

Yes, good morning, Kelly. This is Steve. I’ll address the situation regarding the ongoing wage rate for our same-store operations. Our expectations remain unchanged. About three months ago, we had a solid understanding of the wage pressures in the market, and we noted that they were similar to what we see today. The primary factor impacting our headline number is the comparison to last year. In the previous year, we implemented special COVID pay in the first quarter, which was removed in the second quarter. As a result, the wage rate we’re paying now reflects a smaller difference in the first quarter due to that inflated previous year number. Although our current wage number remains stable, the lower figure from last year gives us a higher percentage. In the second half of last year, we also introduced additional COVID-related pay, so while we don't anticipate an increase in wage rates for the latter half of this year, the comparison will become easier. Thus, while we mentioned a 14% wage rate earlier, the actual dollar amount will not change even though this percentage will decrease due to a higher base from the previous year. Regarding your second question, we haven’t provided guidance for EBITDA this year, and we won’t do so now, but our expectations remain steadfast. To address the final part of your question, we acknowledge that if operating expenses are rising across the industry due to wages or credit card fees, it is likely contributing to a more sustainable level of fuel profitability in the industry. So far, these factors have been balanced out by the time we reach the bottom line, and I currently see no evidence that this trend will change in the near future.

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?

Yes Kelly, this is Darren. On the grocery side, we have implemented price changes due to cost increases, particularly in tobacco. We also applied some modest cost adjustments in other categories after fine-tuning our pricing. This is largely because we had already negotiated costs for goods through the end of this calendar year, and we are currently finalizing negotiations for the next year. Despite this, our same-store sales results suggest we are gaining market share, which is supported by independent industry data. We are confident in our current pricing position and have the capacity to implement further price increases if necessary. Regarding prepared foods, we raised prices in the late second quarter across several categories due to rising ingredient costs. As Steve mentioned, we experienced some favorable trends in cheese costs that helped to balance out margins, but we proceeded with the price increase since it was a competitive opportunity, and we haven't observed any decline in volume because of it.

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, Ben.

I want to ask about prepared food per store volumes across the entire business kind of 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. But can you give us a sense of the timeline over which you expect to make those investments in 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 the core legacy chain?

Yes, sure Ben. 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, so 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, but our construction team has really developed a nice cadence around that, so 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 foods offering developed, much more so than the Pilot stores, and I’ll tell you what we’ve seen early on is anywhere from a 70% to 80% lift in prepared food sales in those stores in the first month to two months post-remodel, so we’re well on our way. I don’t have any concerns about the ramp there and getting to a more system-wide average. Now with respect to Pilot, that’s in Knoxville, Tennessee, and that’s much newer territory for us, so we tend to find that in new geographies where our brand is not as well known, that that prepared foods 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 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. That’s something we can’t normally do when we do one store in a small town at a time that takes a little bit longer to do, so we feel really good about our prospects on the Pilot acquisition as well.

Okay, great. I’m going to ask another question about opex. It’s a two-parter, one is more housekeeping and then the other one is kind of longer term trajectory. On the housekeeping, Steve, I think we’ve got year-to-date about $11 million of deal-related, kind of non-recurring, non-GAAP costs in the opex line, so call it 1.5% incremental opex year-to-date from deal costs. The 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, kind of non-GAAP deal costs from Pilot in the back half of the year that’s incorporated in the guidance? That’s part one. Then question two is as you look out to fiscal ’23, I think you guys had 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?

Thank you for the question, Ben. I'll address the first part. We do not anticipate any additional deal-related costs such as legal or banking fees. However, we expect to incur several million dollars in integration-related expenses, including additional training, which aligns with our earlier projection of approximately $45 million in EBITDA contribution from Buchanan. This projection accounts for those integration costs. We also foresee spending several million more in the second half of the year for all three acquisitions: Circle K, Buchanan, and Pilot, with these costs being part of our overall EBITDA accretion expectations. Regarding your second question, it's still early to provide specifics for next year, but our medium-term outlook remains unchanged. We need to manage operating expense growth at a slower pace than our EBITDA growth, and I believe we can achieve that. The fluctuations from the previous year will improve next year, as this year has been more stable. While we are not completely out of challenges, particularly with ongoing wage pressures in the retail sector, we are confident in our ability to lower same-store operating expenses in the medium term compared to our EBITDA growth.

Yes, and Ben, the only thing I’d add to that is the largest element of our operating expenses is stores and the labor and team members in those stores, and 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, so 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. To Steve’s point, I think as we go into next year, the lumpiness of cycling shutdowns and restarts and everything else kind of goes away, will be a little more normalized, and so 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. Your line is now open.

Thanks and good morning everyone. Just to change topics a little bit, how would you describe your traffic and your prepared food sales during the morning depart relative to pre-COVID levels?

Yes, thanks Irene. Traffic has started to improve in the morning depart. I think it was hampered a little bit by the fact that a lot of business re-openings that were scheduled to take place after Labor Day kind of got pushed back to after the first of the year, given the delta variant resurgence, but in spite of that, we definitely saw our best traffic growth during the quarter in the morning depart. Then with respect to the breakfast launch, we’ve really been pleased with how that’s gone so far. Most of the new products we introduced were in the breakfast sandwich category, and that category is up somewhere between 40% and 50% on any given day. Our guests have really responded well to the new breakfast program, and so 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?

With respect to the rest of the day, we still see some momentum in the lunch depart - that’s still growing. The evening depart has pulled back a little bit, and 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 stacked basis we’re up double digits in whole pies, so 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 stacked 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 prepared foods is we posted a 4.1% increase in comps over the quarter, but I think as I alluded to in my narrative, that 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, sub-categories. 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, so 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, and so 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, and 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 guest, we believe that the guest 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, and so when we look at our non-carb business and the fact that that 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% to 40% versus prior year, and our private brand inside of that has taken 41% share within that category, so we definitely believe that there is some bakery guests who come in, maybe not found exactly what they were looking for in the prepared 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 sub-categories 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 wanted to 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 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 become available in the next couple quarters?

Yes Bobby, we certainly are going to be opportunistic with respect to the M&A, and as you can probably appreciate, M&A isn’t just a ratable thing where you just decide you’re going to do it or you decide you’re not going to do it. A lot of that depends on the sellers in the world, who’s for sale and where they’re for sale, and what looks attractive, so we have to be opportunistic. From a balance sheet perspective, we’re in great shape. We’re only 2.4 times leverage, we have plenty of liquidity, and plenty of capability to add more, so the way I would characterize it is we’re certainly digesting everything we have now and we’re focused on that, but we also have our M&A team actively talking to other prospective sellers and when we find the right deal and we still have the capacity to do it, we’ll take advantage of those opportunities.

Yes, and I think I’d just follow up on that, Bobby, the beauty of our model is our ability to go back and forth between building new units and buying units, and so to the extent there is digestion, I guess you saw it a little bit in the decisions we’ve made, so we’ve reduced our capital spending expectation this year because we’re going to build fewer number of units than we had thought at the start of the year, and some of that is 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 the operation 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 have 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, and I guess part one is, is that true or is there something else in the opex that we’re not aware of, that we should be aware of that’s caused the inflation? Then the second part is do you see opportunities elsewhere in the P&L, whether it’s grocery or prepared foods, to pass through price, or is fuel margins really going to be the sole area that you can try to offset this opex growth that the industry is facing?

I’ll take the first one of those, Bobby. 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 on a same store basis, it’s not hours because we’re more efficient, to the credit of the operations, than we were before. 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, so same store opex excluding the credit card, it is primarily a wage story, right, and so there is no doubt that last year, there were quite a bit of minimum wage increases across our footprint, and then as COVID continued to be more of a significant issue, we obviously then started to deal with broad-based industry wage pressure, and so yes, it’s much more of a wage pressure dynamic in terms of what’s driving the two-year same store opex number for us.

Yes, and 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 cost 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, and like I said before, we have done that, and 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 retails 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, I think it certainly impacted it a little bit. Those categories that I referenced, the bakery and dispensed beverages, run at 10% to 20% higher margin than the comparable categories in the grocery, so it would have impacted that margin some. Now, the balance there in terms of mix is that that created a higher mix of that hot food category, which is the highest margin sub-category within prepared foods, so I think it ultimately netted out that the prepared foods margin ultimately moved up a little bit, but we were able to maintain the margin on the grocery side, so overall we had some margin benefit through the quarter.

How do those out-of-stock situations look to you as we start the second half of the year?

As we speak today, we are still facing challenges with our primary supplier regarding cups. However, we have managed to find creative alternatives, so the situation with cups is looking decent overall. On the bakery side, it's more inconsistent. The issues stem from acquiring spec products from alternate suppliers, which are not as easily replaceable. Therefore, I anticipate ongoing challenges in that area, which have been sporadic. The situation largely depends on our supplier's labor conditions. There have been times when we were back in stock and able to fulfill orders, but then labor issues arose again, making fulfillment difficult, leading to variability in that sector. Overall, I believe we have largely contained the beverage side, but moving forward, the bakery category will still pose some challenges.

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 depart has improved the most, in part driven by good performance obviously in the new breakfast handheld, so how should we think about some of the next catalysts when it comes to your menu innovation journey? 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. How can the process be shortened, given how dynamic the landscape is - you know, changing consumer tastes and behaviors?

Yes, Krisztina. Let me discuss some of the innovations happening in other areas of the menu. The supply chain is affecting some of these innovations, and while I won't go into too much detail, we have developed a new product platform that we were ready to launch. Unfortunately, our main supplier for that product was unable to meet our requirements due to their own labor issues, which means we have had to delay the launch. On the positive side, we have the product ready to go as soon as we can resolve the supply chain challenges. We are also focusing on innovation in other areas that are not affected by those supply chain issues. Additionally, we are constantly seeking ways to be more efficient and effective in our processes. It is crucial to remain disciplined in product development and maintain a guest-centric focus. For example, our breakfast products have seen a significant increase in units, showing that when we follow the right process, we achieve the desired results. We aim to be efficient and effective, and I prefer not to stray too far from our established process because it has proven successful in helping us avoid costly mistakes when launching new products.

Got it, that’s helpful. 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 relative to your internal expectations, and are you finding more success with the private label program in the current environment as 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.

Yes, 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’ve 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 are 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 label is in the high 50s versus what you see in the rest of the business in the low 30s, so 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. 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 kind of mentioned it was a 50/50 split in terms of same store and acquired opex. Can you kind of give us an idea where that sits given your revised expectations?

Yes, this is Steve. It’s not going to be significantly different because there are definitely more units coming in with Pilot, and credit card fees are higher at the acquired stores. However, there are many more stores in the main operation, so by the end of the year, I expect it will be roughly a 50/50 split, possibly leaning slightly more towards same store because of the overall number of units. Most of our integration-related spending has already been completed, which will significantly reduce expenses for new units. Therefore, by the end of the year, it will be modestly weighted towards same stores.

And then 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 these smaller operators’ willingness to sell in the current environment, just given where fuel margins continue to be pretty high.

Yes Brian, we still see a really strong environment out there right now, and remember like Steve was saying, there’s definitely a correlation between the fuel margin resilience and the rising opex environment, and so I think with the smaller operators, it’s getting more and more challenging just to keep store staff 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, but we like the environment right now and, 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 ’22 despite the challenges related to COVID-19, labor shortages and the supply chain. 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.