Sunoco LP

Greetings, and welcome to Sunoco LP's Q1 2021 earnings call. At this time, all participants are in a listen-only mode. A 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. Please note, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Scott Grishaw, Vice President of Investor Relations and Treasury. Thank you. 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, Carl Fales, 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 Spanoco LP website for a reconciliation of each financial measure. I will now turn the call over to Dylan to discuss the first quarter results.

Thanks, Scott. We delivered solid first quarter results in a challenging commodity environment. For the first quarter of 2021, the partnership recorded net income of $154 million. Adjusted EBITDA was $157 million compared to $209 million in the first quarter of 2020. Volumes of approximately 1.8 billion gallons exhibited a normal seasonal pattern with a sequential decline of approximately 4% from the fourth quarter. Year-over-year volume declines were approximately 8%. Fuel margin was 10.3 cents per gallon. The 7-11 makeup payment totaled $18.5 million this year. and contributed roughly a penny of the total 10.3 CPG this quarter. Carl will elaborate further on our fuel margin in his remarks. Moving on to expenses, our total operating expenses were $100 million in the first quarter, up slightly from the $96 million in Q4 2020, or an increase of approximately 4%. These expenses are down approximately 30% from the $143 million in the first quarter of 2020, and are largely a reflection of our cost reduction initiatives. As the year progresses and volumes improve, we expect some incremental expense related to this additional business. First quarter distributable cash flow, as adjusted, was $108 million, yielding a current quarter coverage ratio of 1.25 times and a trailing 12-month coverage ratio of 1.35 times. On April 22nd, we declared an 82.55 cents per unit distribution, the same as last quarter, as we continue to maintain a stable and secure distribution for our unit holders. Leverage at the end of the quarter was 4.4 times, which we expect to decline toward our 4.0 target as the year progresses. Our 2021 full-year EBITDA guidance is unchanged from what we originally provided in December 2020. For the full year 2021, we continue to expect adjusted EBITDA of between $725 and $765 million. We expect annual fuel margins between 11 and 12 cents per gallon. We also reiterate our annual guidance for fuel volumes in a range of 7.25 to 7.75 billion gallons, total operating expenses between $440 and $450 million, and maintenance capital of $45 million. Next, I want to spend a few minutes on growth capital. Our original full-year 2021 guidance was for at least $120 million of growth capital, and today we are providing a more precise full-year guidance number of $150 million, with approximately $40 million to be spent on the announced Brownsville terminal. So let me take a step back here and go into a little more detail on the Brownsville project. Earlier today, we announced an exciting milestone for Sunoco with the construction of our first standalone organic terminal project in Brownsville, Texas. We have historically framed our capital allocation process from a build versus buy perspective. In this case, we're able to develop an organic project that meets all our criteria for capital investment in a very strategic area for our partnerships. Carl will give you all some additional insight into the strategic importance of this project, but first let me wrap up with how we see this project fitting within our three pillar capital allocation framework. First, upon completion, this project is expected to be immediately accretive to distributable cash flow, supporting pillar one of maintaining a stable and secure distribution in our target coverage ratio of 1.4 times. Second, the capital for this project is coming from retained cash flow, and we expect to end the year right around our target leverage ratio of 4.0 debt to EBITDA. At this leverage level, we have no need to direct additional capital to debt pay down, which when prudent is pillar number two. And so third, with the strong returns around this project, this fits the final pillar, which is to pursue disciplined investment in our growth opportunities. Sunoco remains on solid financial footing with a strong base business and exciting growth opportunities. With that, I will now turn the call over to Carl to walk through some additional thoughts on the Brownsville terminal, fuel growth, profit, and expenses.