Sunoco LP

Greetings and welcome to the Sunoco LP's 2020 fourth quarter earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Scott Grischow, Vice President of Investor Relations. Thank you, sir. You may begin.

Thank you, and good morning, everyone. On the call with me this morning are Joe Kim, Sunoco LP's President and Chief Executive Officer, Karl Fails, Chief Operations Officer, Dylan Bramhall, Chief Financial Officer, and other members of the management team. A reminder that today's call will contain forward-looking statements that are subject to various risks and uncertainties. These statements include expectations and assumptions regarding the partnership's future operations and financial performance, including expectations and assumptions related to the impact of the COVID-19 pandemic. Actual results could differ materially and the partnership undertakes no obligation to update these statements based on subsequent events. Please refer to our earnings release as well as our filings with the SEC for a list of these factors. During today's call, we will also discuss certain non-GAAP financial measures, including adjusted EBITDA and distributable cash flow as adjusted. Please refer to the Sunoco LP website for reconciliation of each financial measure. For the fourth quarter of 2020, the partnership recorded net income of $83 million, adjusted EBITDA, was $159 million compared to $168 million in the fourth quarter of 2019. Volumes of 1.8 billion gallons were relatively unchanged from the third quarter but remained down about 12% from levels seen a year ago. Fuel margin was 9.2 cents per gallon and included approximately $8 million of one-time write-offs associated with prior period fuel tax and inventory-related items. Fourth quarter margin also included approximately $9 million of unfavorability related to inventory valuation and associated hedges. For the full year 2020, the impact of this inventory valuation and hedging activity resulted in approximately $2 million of margin favorability. Karl will elaborate further on our fuel margin in his remarks. Fourth quarter distributable cash flows adjusted was $97 million, yielding a coverage ratio of 1.1 times. We ended the full year 2020 with a coverage ratio of 1.5 times. On January 28th, we declared an 82.55 cents per unit distribution, the same as last quarter. The proven resiliency of our business and history of delivering results has allowed us to maintain a stable and secure distribution for our unit holders. I will now turn the call over to Dylan to discuss the full year results. Thanks, Scott.

We continue to deliver strong results in 2020 despite the challenges of the COVID pandemic and fully expect to continue building on this strong performance in 2021 and beyond. First off, I'd like to highlight some of our accomplishments for 2020 before walking through the 2021 guidance that we unveiled in December. Our full year 2020 accomplishments include the following. Adjusted EBITDA of $739 million, a record for Sun and up 11% from 2019 levels. Distributable cash flow is adjusted with $517 million, also a record for Sun, and up 14% from 2019. We improved our already strong coverage ratio to 1.5 times, up from 1.3 times in both 2018 and 2019. Our cost reduction initiatives resulted in total operating expenses of $448 million which was a reduction of 11% from 2019 levels. Our fuel margin increased 1.8 cents per gallon from 2019 to 11.9 cents per gallon. We successfully refinanced our four and seven eighths senior notes due 2023 with new four and a half percent senior notes due 2029, thereby lowering interest expense while significantly extending the weighted average maturity of our debt. For reference, our nearest senior note debt maturity is now the 2026 senior notes. And finally, we improved our leverage to 4.18 times or 4.1 times when adjusted for total cash on hand from 4.6 times at the end of 2019. Our liquidity remains strong with an undrawn $1.5 billion revolving credit facility and $97 million in cash at year end. With all these accomplishments as the backdrop, we enter 2021 poised to continue to deliver strong results. In December, we provided guidance for 2021 for adjusted EBITDA of between $725 and $765 million. Underpinning this guidance are the following. Fuel volumes in a range of 7.25 to 7.75 billion gallons, annual fuel margin between 11 and 12 cents per gallon, total operating expenses of between $440 and $450 million, maintenance capital of $45 million, and growth capital of at least $120 million. The free cash flow generating capability of this business allows us to focus on the pillars of our capital allocation strategy. First, to maintain a stable and secure distribution for our unit holders. Second, to protect our balance sheet through debt pay down when prudent. And third, to pursue disciplined investment in our growth opportunities. We will be financially disciplined with a target coverage ratio of 1.4 times, which is up from our prior target of 1.2 times, and a target leverage ratio of 4 times, which is down from our prior target of 4.5 to 4.75 times. I'd like to conclude my remarks by saying that Sunoco established a strong financial footing early on in 2020, and this continues to carry through as we enter 2021. With that, I will now turn the call over to Karl to walk you through some additional thoughts on fuel gross profit and expenses. Karl?