Good day and thank you for standing by. Welcome to the Q3 Fiscal Year 2025 Casey's General Stores Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brian Johnson, Senior Vice President of Investor Relations and Business Development. Please go ahead.

Good morning and thank you for joining us to discuss the results from our third quarter ended January 31, 2025. I am Brian Johnson, Senior Vice President, Investor Relations and Business Development. With me today are Darren Rebelez, Chairman, President and Chief Executive Officer; as well as Steve Bramlage, Chief Financial Officer. Before we begin, I will 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 the potential impact of the Fikes transaction, 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 and performance at our stores. 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 acquisitions, our ability to execute on our strategic plan or to realize benefits from the strategic plan, the impact and duration of the conflict in Ukraine 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 detailed breakdown of the operating expense increase for the third quarter can be found at our website at www.caseys.com under the Investor Relations link. With that said, I would now like to turn the call over to Darren to discuss our third quarter results. Darren?

Thanks, Brian, and good morning, everyone. We're excited to discuss the excellent third quarter results in a moment. Before I do, I want to thank the entire Casey's team for delivering another outstanding quarter. I'd also like to highlight our Feeding America campaign that kicked off in late February in partnership with Celsius. Through April 1st, we're excited to be able to help communities in need, including rural areas in Casey's Country, combat hunger and food insecurity. Now let's get into the results from the quarter. Diluted EPS finished at $2.33 per share and net income was $87 million, both flat with the prior year. EBITDA was $242 million, up 11% from the prior year. Inside sales were up over 15% and fuel gallons sold were up over 20% while our store count growth was up 10% versus the prior year, an encouraging sign that the economic impact of the stores we are building and buying is greater than the company average. Inside the store, prepared food innovation was also a key driver of strong performance. With regards to fuel, the team managed to outperform the geographic market and grow same-store gallons with fuel margins over $0.36 per gallon. The business continues to execute on our three-year strategic plan as we are growing the food business, accelerating unit growth, all while operating the stores more efficiently. 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 3.7% for the quarter or 8% on a two-year stack basis with an average margin of 40.9%. Same-store prepared food and dispensed beverage led the way as sales were up 4.7% or 12.6% on a two-year stack basis, with an average margin of 57.8%. Hot sandwiches continued their strong performance, up over 50%, and bakery also performed well, up nearly 10%. Margin was down approximately 180 basis points from the prior year due primarily to the addition of the CEFCO stores that have a lower-margin profile as well as the coffee promotion that featured our new flavor profiles. Same-store grocery and general merchandise sales were up 3.3% or 6.2% on a two-year stack basis with an average margin of 34.2%. Non-alcoholic beverages performed well in the quarter, with energy drinks continuing its strong momentum, up approximately 18%. Margin increased approximately 40 basis points from the prior year, primarily due to a favorable product mix shift. For fuel, same-store gallons sold were up 1.8% with a fuel margin of $0.364 per gallon. Opus fuel gallons sold data shows the Mid-Continent region down approximately 4% in the quarter, indicating that we're taking market share. We believe our high-quality in-store experience drives traffic to our sites and is a significant competitive advantage. Operating expense management remains top of mind and the third quarter saw an increase of just 3.2% on a same-store excluding credit card fee basis. Our continuous improvement team has identified processes that can be simplified while still serving the guests at a high level. The results are there as same-store labor hours were down 2%. I would now like to turn the call back over to Steve to discuss the financial results for the third quarter. Steve?

Thank you, Darren, and good morning. I'm very proud of the hard work of our team during the quarter as we integrated the largest transaction in the company's history while also producing outstanding results. Total revenue for the quarter was $3.9 billion, an increase of $574 million or 17.3% from the prior year due to outstanding results in both inside sales and fuel gallons sold, partially offset by a 4.2% decline in the retail fuel price. Results were also favorably impacted by operating approximately 10% more stores on a year-over-year basis. Total inside sales for the quarter were $1.4 billion, an increase of $185 million or 15.3% from the prior year. For the quarter, over $100 million of the increase was attributable to the CEFCO stores. Prepared food and dispensed beverage sales rose by $48 million to $397 million or an increase of 13.7%, and grocery and general merchandise sales increased by $138 million to $1 billion, an increase of 15.9%. Retail fuel sales were up $315 million in the quarter, driven primarily by a 20.4% increase in fuel gallons sold. The CEFCO stores contributed just over 100 million gallons a quarter. This was partially offset by a $0.12 decline in the retail price of fuel from $2.98 per gallon in the prior year to $2.85 per gallon in the third quarter. We define gross profit as revenue less cost of goods sold, excluding depreciation and amortization. Casey's had gross profit of $913 million in the quarter, an increase of $126 million or 16% from the prior year. This is driven by both higher inside gross profit of $71.6 million or 14.3% and higher fuel gross profit of $44.8 million or 17.4%. Inside gross profit margin was 40.9%. That's down 40 basis points from a year ago. Prepared food and dispensed beverage margin was 57.8%. That's down 180 basis points from the prior year. 150 basis points of the decrease was due to the consolidation of lower margin CEFCO stores. The coffee promotion Darren previously mentioned had an impact of approximately 20 basis points. Finally, we also had a very modest headwind on cheese which was $2.12 per pound for the quarter and that compares to $2.06 per pound last year, an increase of 3%. The grocery and general merchandise margin was 34.2%. That's an increase of 40 basis points from the prior year. The increase in margin is due to a favorable product mix shift of approximately 50 basis points, and that was partially offset due to the addition of the CEFCO stores. Fuel margin for the quarter was 36.4 cents per gallon, that's down 0.9 cents per gallon from the prior year, and that's primarily due to the impact of the CEFCO stores, which was nearly a $0 loss per gallon. Fuel gross profit includes $2.6 million from the sale of RINs, down $0.8 million from the same quarter in the prior year. Total operating expenses were up 17.8% or $101.3 million in the quarter. Approximately 14% of the total operating expense increase is due to unit growth as we operated 254 more stores than in the prior year. Included in this increase was approximately $13 million in one-time deal and integration costs associated with the Fikes transaction. Same-store employee expense accounted for approximately 1% of the increase as modest increases in wage rates were partially offset by the reduction in same-store hours. Depreciation in the quarter was $105.2 million, that's up $16.3 million versus the prior year, and that's primarily due to operating more stores. Net interest expense in the quarter was $29.4 million, that's up $15.3 million from the prior year, and this is more reflective of our new quarterly run-rate for interest expense in light of the financing associated with the Fikes transaction. The effective tax rate for the quarter was 19.2%, and that compares to 24.1% in the prior year. The decrease was driven by a one-time benefit to state deferred tax liabilities following the Fikes transaction. Net income was flat versus the prior year at $87 million. EBITDA for the quarter was $242.4 million compared to $217.6 million a year ago, an increase of 11.4%. Our balance sheet is in excellent condition and on January 31st, we had total available liquidity of $1.3 billion. The quarter-end leverage ratio of debt-to-EBITDA was approximately 2.1 times per the covenants in the company's recently amended credit facilities, and we now expect to achieve our target leverage ratio of approximately 2 times by the end of the fiscal year, and that's a bit earlier than we had originally anticipated. For the quarter, net cash generated by operating activities of $205 million, less purchases of property and equipment of $114 million resulted in the company generating $91 million of free cash flow. This compares to using $27 million in the prior year. At the March meeting, the Board of Directors voted to maintain the quarterly dividend at $0.50 per share. We are updating our previously communicated fiscal year 2025 guidance as follows: Casey's now expects EBITDA to increase approximately 11%, and we now expect the purchase of property and equipment to be approximately $500 million. We're not updating any other metrics, but we have some further clarification. While we know there's some modeling noise related to the Fikes acquisition in the quarter, the outstanding financial results that we posted demonstrate the team's ability to integrate a large acquisition while still running the business at a very high level. Also, as a reminder, the fourth quarter will obviously be impacted by the Fikes transaction on our total results, notably on our inside and fuel margins, as well as total operating expenses. They will not impact same-store sales. Additionally, February 2024 included a leap day, which is not repeating this year. The impact of the leap day to the fiscal 2024 fourth quarter was a positive approximately 100 basis points. We believe that February has not been reflected of the expected same-store fourth-quarter results due to unfavorable weather conditions and the lapping of leap day, but the company does expect to finish the year at the bottom of the inside same-store sales range. This does imply that the fourth quarter will be below the annual range. Same-store gallons are still expected to be near the middle of the range for the fiscal year. Fuel margin in February was in the mid-30s on a cents per gallon basis, and that includes Fikes and cheese costs are very modestly favorable versus the prior year. Our total fourth quarter operating expense expectation is an increase primarily due to the Fikes acquisition. In total, as expected, Fikes will be dilutive to our earnings per share in the fourth quarter, primarily due to incremental interest expense, higher depreciation and amortization, and several million additional dollars than anticipated integration costs. I'll now turn the call back over to Darren.

All right. Thanks, Steve. I'd like to again thank the entire Casey's team, including our new team members from Fikes, for another excellent quarter. I'm also very proud of the team's ability to integrate the largest transaction in the company's history while also producing outstanding financial results. The first pillar of our three-year strategic plan is to accelerate the food business. Our Prepared Food and Dispensed Beverage team continues to do an excellent job innovating and finding the right quality products to serve to our guests. The hot sandwiches launched last year have continued to perform very well. We also had a limited release of new chicken wings and fries in our Des Moines market with encouraging results so far. On the grocery and general merchandise side, we continue to see strength in the energy drink category, as we mentioned earlier, with 18% growth in the quarter. Our store growth pillar was on full display this quarter, integrating the Fikes transaction. Our dedicated integration team has done an excellent job getting our newest team members comfortable operating in the Casey system. We're able to do this while maintaining a strong balance sheet. As of January 31st, we set a 2.1 times leverage ratio and are quickly on our way to the targeted 2 times leverage ratio. Given our track record of executing and integrating meaningful acquisitions, we are well-positioned to continue this strategy and enhance shareholder value. Enhancing operational efficiency is the third pillar of the strategic plan. With strong work from our continuous improvement in operations teams, the organization achieved its 11th consecutive quarter of reduced same-store labor hours. This work has been done without compromising the Casey's experience, and we continue to see guests and team member satisfaction scores rise. Overall, this quarter was another great example of how our differentiated business model, coupled with a great team, leads to outstanding results. With a high level of execution on our strategic plan, we are able to guide to EBITDA growth of approximately 11%, outpacing our standard growth algorithm. We'll now take your questions.

Our first question will be from Jacob Aiken-Phillips of Melius Research. Your line is open, Jacob.

Hi, everyone. First, I want to ask something, I guess, more broad, strategic. Both of you joined in like 2019, 2020, and you've overseen the company through like some volatile times, pandemic, inflation. But now we're up against kind of a volatile policy backdrop, tariffs, maybe some accelerating inflation. So just wondering if you could talk about like how Casey has set up things that have changed over the past four years or five years and why you're confident that Casey can operate in this potentially volatile environment?

Hey Jacob, this is Darren. You're right, I started in the middle of 2019 and Steve came on board a year later. We've experienced quite a bit over the last few years. The company we launched five or six years ago is very different from what we have today. We've developed many capabilities in areas like procurement, data and analytics, guest insights, our culinary team, and continuous improvement. We have a comprehensive set of capabilities that we simply didn't possess several years ago. Looking at the current environment, which has some uncertainty and volatility, I feel much more confident now than ever in our ability to navigate these challenges. Our team is more experienced, we have enhanced capabilities, and we possess better technology. I believe we're better prepared to handle whatever comes our way. So far, while we’re seeing a lot of uncertainty, we haven’t observed significant impacts on the business despite the external noise. We're in a much stronger position to address whatever lies ahead.

I would probably add to that, Jacob, you put all of that on top of just the resiliency of our core business model, right? Casey's was successful for a long time before any of the current members of the leadership team got here, through all kinds of external environments. And the beauty of our business model is we're not dependent on a particular set of exogenous factors going our way, whether it's in petroleum or the health of consumer. We've got a differentiated value proposition inside the store when times are tough for a consumer. We've got outstanding fuel capabilities, much more sophisticated than most of the people that we compete against on a day-to-day basis. And the merchandising offering that we have inside the store we feel is second to none. And so almost irrespective of what's happening outside of our four walls, we feel like we have something that differentiates us from anybody else in the space.

And then I guess just as a follow up on Fikes. It was known that it was going to be dilutive to margins. So I guess mainly from prepared food, what are the, like, easy things to fix? Is it just a factor of different product mix? And what are the timelines to like kind of helping those stores improve on their margins?

Yeah, well, nothing's easy to fix. I guess what I would say is, you know what, if you look at the prepared food side of their business, that's probably where the most glaring difference in the margin profile between where they are today and where we are. Some of that is due simply to product mix and what they sell. What they sell in their food business is a little more protein heavy, which tends to come with a little bit lower margin profile, where we sell a lot of pizza, which has a much higher margin profile. So some of the fix, so to speak, will be when we ultimately get kitchens in those stores and we can get our assortment of products in to complement theirs. So we'll add pizza to their assortment. And what's really encouraging right now is we've converted three stores pretty quickly that already had kitchens in them. And we've kind of taken a best of both approach to the assortment, where we've kept some of the things that really made them successful, we added some of the things that make us who we are, primarily pizza. And we have the best of both. And then we both eliminated some of the things that weren't as profitable for them. And so what we're seeing is really good results so far. Granted, it's only three stores, it's early days, but we really think that as we get further into it and we're able to optimize that menu between what they did really well and what we do really well, we'll see not only increased margins, but we'll see increased velocities as well. And then of course, over time, as their existing supplier contracts come to an end, we'll be able to migrate them over onto our contracts with far more scale. And so we'll be able to blend that margin up as well.

One moment for our next question. Our next question will be coming from Anthony Bonadio of Wells Fargo. Your line is open, Anthony.

Yeah. Hey, good morning, guys. Thanks for taking our questions.

Good morning.

So, just digging in on Fikes a little bit more. Can you just maybe talk a little bit more about early performance from that asset? How the integration is going? And then any change to how you're thinking about the cadence and magnitude of synergies.

Yeah, I'll talk a little bit about performance thus far. I'll let Steve talk about cadence of synergies, but performance overall, I mean we're pretty happy. We're only one quarter into it, right? And, unfortunately, that first quarter was in the winter time and they got a lot of snow in Texas and in the panhandle of Florida, which doesn't happen a whole heck of a lot. So probably not as representative of what the normal business performs like. But aside from that, I think it's exactly what we thought we bought. We've got some really high quality, high volume stores in attractive geographies. And like I mentioned before, early indications are that when we combine our assortment and doing the things that we each do well, we get some pretty good results. So we feel really good about the deal so far. The team seems to be integrating very nicely and we got a lot of work to do still, but feel good about that so far. And again, the real synergies for us start to happen as we converge sources. Steve, I'll let you.

Yeah, just to reiterate, our expectations on synergy capture have not changed. So over three to four years, we think we can achieve $45 million of synergies. 40% of that or so would be the food synergy capture that Darren referenced. And so that'll be on the back end of that three to four-year time period just because that's associated with some construction and remodeling or lead times to get that to work. And so certainly in the first 12 months, you would expect us to capture some fuel pricing synergy where we've taken over the pricing of fuel already and starting to convert that more to how Casey's mothership would do that. And then there'll be some overhead synergies, obviously as we work through the rationalization of some of the processes that Fikes had been doing previously. In the middle of that, we'll get some merchandise synergies for our center of store mix. But again, most of what will happen in the next 12 months would be on the fuel and the overhead side.

Got it. That's really helpful. And then just on the gallon side, you guys put up a really strong fuel gallon quarter while we've generally seen pretty choppy industry data and results from others. So, can you just talk a little bit more about what you think is driving that outperformance? And then just maybe your latest thinking on the right balance between gallon growth and margin as you look to optimize gross profit dollars.

Yeah, Anthony, I would say that there are two factors that really drove the gallon performance in this quarter. Some of it is some of the acquisition stores that we did in prior years, they're starting to ramp. And so as we cycle over some softer numbers when we bought those stores, now we're starting to see our fuel capabilities come to bear on those stores and we're seeing some strong gallon growth in those areas. The other area that we started to see some traction in is on diesel, and that's been a subcategory that's been under some pressure for the last several quarters, but started to gain some traction in the most recent quarter, both on the commercial side and through some of the programs that we have to offer incremental value to that over-the-road diesel consumer. So we saw strength in both of those areas and that really contributed to the overall gallon performance.

And one moment for our next question. Our next question comes from Bonnie Herzog of Goldman Sachs. Your line is open, Bonnie.

All right. Thank you. Good morning.

Good morning.

I wanted to ask about just the fears of recession right now seem to be gaining some momentum recently. So just hoping you could touch on how your business model and value proposition might position you hopefully well in the case of a recessionary environment. And along those lines, have you become more aggressive on your food and beverage promotions recently, given the increased promotional intensity we're seeing at some of the QSRs? Any broader commentary on the consumer, your recessionary playbook and promotional levels would be helpful. Thanks.

Okay, sure. Bonnie, I think that was five questions, but I'll try to tackle them. Going into recessions, if we end up in one, Casey's, for a long time, has performed very well during recessionary times. And I think that's for a couple of reasons. One is that we sell basic daily needs that people need. They're low dollar denominations. So in the grand scheme of things, when people have to pull back on discretionary spending, a lot of what we sell would be considered by our guests to be non-discretionary. And because there tends to be a lower price point, it isn't the first thing to cut on the list because these are daily needs. That being point number one. Point number two is on our food proposition. We are generally speaking lower price than an equivalent QSR alternative. And so as consumers start to look for value, we're a great trade-down opportunity from a price perspective, but not a trade-down in quality. So I think consumers feel really good about being able to stretch their dollars with us on the food side. With respect to being more promotional, we have not increased our promotional activity. We have been more targeted with that. We've got some new capabilities now, where we're able to more efficiently look at different consumers and what their purchasing habits have been, and where we see that they may be lapsed, we can target them with more specific offers. So we're not spending more from a promotional standpoint, but we're being far more targeted in how we do that.

All right. Thank you.

And one moment for our next question. Our next question will be coming from Mike Montani of Evercore ISI. Your line is open, Mike.

Hey, good morning, guys. Thanks for taking the question. Congrats on the quarter.

Good morning. Thanks.

So, just had a two-parter here. The first one was just in terms of a high-level. Maybe if you could talk a little bit about the state of the consumer through your eyes. And secondly, like the value gap positioning that you see versus peers, given some of the promotional activity from some of the other dining options that may exist out there.

From a consumer perspective, we have noticed some pressure on lower-income consumers, which we define as those earning less than $50,000 a year. However, only about 25% of our customer base falls into that category, so we are not heavily impacted overall. These consumers continue to make purchases, but their growth is slower compared to other income groups, typically by about 1% to 3%. We see more softness in discretionary items like tobacco and alcohol. Regarding our value proposition, we believe we are in a strong position. In our pizza business, around half of our locations do not face competition from national brands, which means we don't have to compete directly with promotional offers in those areas. In locations where we do have national brand competitors, our typical menu prices are $1 or more lower. We start with a competitive advantage and complement that with our promotional efforts, while also effectively targeting our rewards members to optimize our marketing spend.

And one moment for our next question. Our next question will be coming from Bobby Griffin of Raymond James. Your line is open, Bobby.

Hey, guys, good morning. Thanks for taking my questions, and congrats on a good quarter. So I guess, Darren, I want to circle back on February and just kind of ask in the sense of obviously, there's a lot of anxiety on consumer spending from investors and different things like that. But when you kind of ex out the weather or look into regions of your business that might not have been impacted quite as much on a year-over-year basis, is there anything you can share to kind of give comfort that this really was a weather impact around February? Any data or anything like that?

Yeah, Bobby, I don’t have specific numbers to share, but February was a challenging month due to the weather. I can tell you that when the temperature difference is 50 or 60 degrees colder than the previous year, it definitely shows in the numbers. What gives me confidence is that when the weather starts to return to normal, even if it’s just comparable to previous years, we see the business respond positively and experience growth again. If I wasn’t seeing this pattern, I would have more concerns, but it seems clearly tied to those unusual weather events, like the heavy snowfall that forced us to close some stores, or the extreme temperature changes. I have no worries about a fundamental issue with consumer behavior because they tend to rebounce quickly once the weather improves.

Can you provide any additional details about the coffee promotion and the wing test? Specifically, I'm curious about their outcomes and success. I recall that coffee has been a category you mentioned can improve, so was this initiative successful and likely to continue?

On the coffee front, it's still a bit early, but we have seen positive results. We experienced unit growth in that category for the first time in years, primarily due to our new supplier and the enhanced quality of the product. We conducted extensive development and testing, and we believe we've got the right assortment. Changing coffee habits can be challenging, so we became more aggressive with promotions than usual, giving away about 2 million cups in January, which affected margins a little on prepared foods. However, we are focused on the long-term potential of coffee and are pleased with the current results, though it will take time to gain significant traction. As for wings, we just launched a soft trial in Des Moines in January and began advertising in February. The initial results have been encouraging, with high satisfaction scores from customers. We're still addressing some operational challenges typical of testing new offerings, but we're optimistic. It appears that this new offering isn't cannibalizing pizza sales; instead, it's leading to an additional visit from customers each week, which aligns with our objectives. Overall, we're feeling positive about these early developments, though there's still more work ahead.

Thank you. And one moment for our next question. Our next question comes from Krisztina Katai of Deutsche Bank. Krisztina, your line is open.

Hi, good morning. Congrats on a nice quarter.

Good morning.

Yeah, good morning. So a question on prepared foods. Darren, you noted that innovation is driving the results there. So I was wondering if you can help contextualize for us how innovation is indeed driving that market share as it relates to bakery, hot sandwiches, et cetera. Where do you see the greatest untapped opportunity, whether that is a broader wings rollout? And we understand February has unique noise, but it sounds like March has bounced back. Is that a fair take? Thank you.

Yeah. As you know, Krisztina, the innovation really has been the bigger driver of our growth versus the promotional activity, and we do both. But whenever we get that innovation right, that's when we really see the outsized growth. And you mentioned it in the hot sandwiches, we launched that platform a year ago, and we're cycling over it with still double-digit increases in it. And so it really goes to show when you get the level of the quality right and with some unique twist to it, we start to see some growth. In our specialty pizza business this last quarter, we had the Italian Deli Pizza, and we saw really strong growth in that specialty pizza subcategory overall. So that's always been the case for us. When we innovate, we win. On the bakery side, we've had real strength in the dessert subcategory, primarily cookies. And the bakery team has done a great job in terms of innovating and coming up with limited time, unique cookie SKUs that really resonate with our guests. And so that innovation has really taken hold. I'm sorry, you had asked another part of that question.

It seems that as the weather improved, there was a notable bounce back. Would it be accurate to say that March is experiencing a return to more normal levels of comparable growth?

I'd say March is seeing that level of growth when the weather cooperates. The probably the first week of March didn't look a heck of a lot different than the last couple weeks or two of February, but we're starting to see that weather turn around. And again, like I mentioned, when the weather turns, the sales turnaround with it. So we still have a little bit of room to go in the fourth quarter, but if we get back to normal weather comps, I'm confident that the sales performance will follow.

And one moment for our next question. Our next question will be coming from Kelly Bania of BMO Capital Markets. Kelly, your line is open.

Good morning. Thanks for taking our questions. Wanted to just circle back on Fikes. You gave several of the figures, but just curious how much EBITDA the acquisition of Fikes added to the quarter and how much it's contributing to the 11% EBITDA growth forecast for the year. And if anything has changed on that front, whether it's the performance of the business or just timing of integration activities, just an update on that.

Good morning, Kelly. This is Steve. In the quarter, Fikes had a negative impact on our EBITDA, largely due to $13 million in integration-related expenses. Before these costs, we had a positive EBITDA, but when we included all integration and one-time costs, it resulted in a net negative. We anticipate a modestly positive EBITDA in the fourth quarter, although this will still be affected by a few million dollars in integration-related expenses, some of which will carry over from the third quarter, while other costs are just part of our regular spending. We expect Fikes to become EBITDA positive as we anticipated in the fourth quarter, but the amount will be relatively small. Therefore, Fikes will not significantly contribute to our overall EBITDA growth expectations for the second half of the year; that's more influenced by our larger operations.

Okay, that's very helpful. And on fuel, you talked a little bit about the factors driving the strong same-store gallons, but I was just wondering if you can talk about how Casey markets, kind of legacy markets performed from a fuel margin standpoint because we were expecting maybe a little bit of dilution from the Fikes' CPG margins just given their regions and where they operate. But just kind of curious what more of a same-store Casey fuel margin looks like? And just what your take on just the performance of fuel margins is today, and when we could maybe start to see those up year-over-year.

Sure, I'll begin by clarifying the margin perspective. The company generated approximately $0.36 per gallon, which is the consolidated figure. The Casey's numbers would have been nearly $0.02 higher, so it’s a bit over $0.38. However, the Fikes' region brings that average down by almost $0.02. Now, I'll let Darren discuss some of the volume aspects.

Yeah, on the volume side, the number that we gave, the 1.8%, that's the same-store number. So that would exclude Fikes because they're obviously not in our same-store panel yet. So that really is the performance of the base business. And again, the factors driving that were cycling over some acquisition activity from the prior year in addition to seeing some recovery in the diesel business.

And one moment for our next question. Our next question comes from Chuck Cerankosky of Northcoast Research. Your line is open, Chuck.

Good morning, all. Great quarter. Looking at the wings business, is that at the stage you talked about launching it in Des Moines? I think that was where you said, is it at the decision point where it will become an offering throughout the Casey's footprint?

Yeah, Chuck, we're still early stages there. The team is assessing it. We're still making some tweaks and adjustments. We feel good about what we see so far, but we haven't made that final decision just yet on that platform.

Well, do you have any additional cities where it will be tested?

We don't have any more at this time. The test in the Des Moines area is the broader DMA, so it's about 225 stores. So it's a pretty fulsome test both in the metro area and in some of the surrounding smaller towns. We're getting a good look at how this performs both in the urban environment and in a very much a rural environment. But more to come on that one, Chuck.

Thank you. Our next question will be coming from John Royall of JPMorgan. John, your line is open.

Hi, good morning. Thanks for taking my question. So my first question is a strategic question, and appreciating that you're very early days in the Fikes acquisition and the integration will take some time. But as you think through your next legs of growth longer term, you do have this white space in Texas where you're essentially a new entrant. Is it safe to assume that that's your best opportunity to grow from here? And if so, how should we think about NTIs versus acquisitions as it pertains to that opportunity?

Certainly, we have significant growth potential in Texas, where we currently operate 170 stores—150 from Fikes and 22 we acquired from Lone Star last year. There's ample opportunity for expansion. However, if I look at our 2,900 stores overall, about 2,000 are located in just six states. There remains substantial potential for growth on the eastern side of our operations, particularly in Michigan, where we have three stores, as well as in Ohio, Kentucky, and Tennessee, where our presence is still minimal. While Texas is definitely a valuable opportunity for growth, similar prospects exist across several states where we operate. Regarding our growth strategy, we typically enter each fiscal year aiming for half of our growth to come from new store initiatives and half from small acquisitions. In recent years, we've leaned more towards acquisitions as deal flow has increased. Nevertheless, we are actively seeking real estate opportunities to build a pipeline for future growth, ensuring that if M&A activity slows, we can still sustain our growth through new stores. Our approach is balanced, and as the situation changes, we adjust our strategies to ensure steady growth that meets expectations.

Very helpful. Thank you. And then just a quick follow up on labor hours. Can you talk about how much runway you think there is to continue to take out same store labor hours? And just what inning you think you're in in terms of getting those hours down to where you'd like to operate them?

When we initiated our current three-year plan a couple of years ago, we committed to reducing same-store labor by 1% each year over this period. Currently, we are about two-thirds of the way through this process and, in fact, we're a bit ahead of schedule, having achieved more than that reduction. There is still some potential for the next fiscal year, although we haven't provided specific guidance on that yet; we plan to do so in the next quarter. We believe there are still opportunities remaining for the remainder of our current three-year strategic plan.

Thank you. And our next question will be coming from Chuck Grom of Gordon Haskett. Your line is open, Chuck.

Good morning. Thank you. Regarding the $0.02 impact on cents per gallon from Fikes, should we expect that to continue over the next three quarters, or was there a seasonal factor this quarter that affected it? Similarly, for the 150 basis points drag in prepared foods, how should we consider that in the upcoming quarters? At what point do you think it can be reduced to a minimal level?

Good morning, Chuck. This is Steve. I'll begin by addressing your question. For the CPG, I would estimate around $0.02 as a reasonable assumption based on the traditional Casey's geography where Fikes operates, which generally shows a $0.02 decline. We've owned Fikes for only one quarter, so I want to be cautious about seasonality. Overall, the Fikes locations have a higher volume compared to average Casey's stores, as they sell more gallons. However, I believe $0.02 is a good prospective number. Some of the synergies we anticipate capturing in the $45 million target will be related to fuel. So, can we gradually reduce that gap over time? Yes, I think it's possible, but we won't achieve enough synergies to adjust those areas back to our average levels, which isn't our goal. Regarding prepared food, we expect that most of the Fikes stores, about 85%, will be converted to Casey's and reach a prepared food margin profile similar to Casey's, depending on when we can set up new kitchens. As mentioned earlier, this won't happen in the next 12 months due to the permitting process, but we expect it to take place in years three and four. Ultimately, we have no reason to believe that the Fikes stores won't align with the prepared food margins of our existing Casey's business.

Okay, great. Thanks, Steve. And then my follow-up just on the macro question everybody seems to be focused on. I guess, a different angle would be when you dissect your basket, are you seeing trade down more people buying fountain drinks? Is there anything to unpack over the past four weeks to six weeks given the environment? Thanks.

We have noticed some strength in fountain drinks, and it appears to be consistent across various income levels. It's not just lower-income consumers driving this trend; in fact, higher-income consumers are the ones experiencing the most significant growth in our dispensed beverages. This doesn't necessarily lead me to any specific conclusions, other than that they seem to be enjoying our fountain offerings. We're also observing a shift in consumer behavior in the store, with high candy prices prompting some customers to transition from candy to our bakery items, which are perceived as more affordable while still satisfying their craving for something sweet. We see this shift as beneficial for our margins. Overall, there are various changes in consumer purchasing patterns, which don’t seem to be primarily related to economic pressures. You can see this reflected in the growth of our grocery and general merchandise margins. Meanwhile, the cigarette category, particularly combustible cigarettes, is facing significant challenges and is seeing a decline. Contrarily, nicotine alternatives are experiencing substantial growth, with a 74% increase in the last quarter, while combustible cigarette sales decreased by about 4%. This margin shift is advantageous for us. Additionally, the overall category of tobacco has reduced its share in our grocery and general merchandise mix, with more focus shifting toward non-alcoholic beverages and grocery, which brings in approximately double the margin compared to the tobacco category. These trends are contributing to an overall increase in our margin rates in grocery and general merchandise.

And we do have a follow-up question from Mike Montani of Evercore ISI. Mike, your line is open.

Hey, thanks for letting me squeeze this in. Just wanted to ask on the private label front if you could talk about any of the tiering initiatives, how that's going? And then secondly, there's got to be a lot of pressure out there on the independents. So, is there additional opportunities for acquisitions, especially in light of the ability to deleverage you've shown so far?

We are beginning to make strides with our tiering efforts as we are currently introducing some new products into the stores. We expect these to gradually integrate into our product assortment over the next nine to twelve months as we reduce inventory on existing products and increase production of the new items. While we are pleased with our initial results, it’s still just a small number of SKUs, and we have many more products on the way in the coming quarters. Regarding the M&A environment, it's clear that smaller independent operators are facing significant challenges, and those discussions are ongoing. This situation is also affecting some of the larger players. We remain hopeful that the market will stay favorable for buyers like us, and we are seeing a strong flow of deals, particularly in smaller transactions. Larger opportunities tend to be less consistent, but we are actively pursuing anything that comes onto the market. Overall, we are confident in our current position, our balance sheet is strong, and our team has extensive experience in integrating acquisitions. Our focus now is on identifying the right opportunities at favorable prices.

I would now like to turn the call back to Darren Rebelez for closing remarks.

All right. Thank you for taking the time to join us on the call today, and hope everyone has a great day.

And this concludes today's conference call. Thank you for participating. You may now disconnect.