Sunoco LP

Greetings and welcome to the SNOCO LP's fourth quarter and full year 2022 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. 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 Grishow, Senior Vice President of Investor Relations and Treasury. 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, Carl Fales, Chief Operations Officer, Dylan Bramhall, Chief Financial Officer, and other members of the management team. 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. 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 findings 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. I'd like to start the call by looking at some of our fourth quarter and full year 2022 highlights. Adjusted EBITDA for the fourth quarter was $238 million, compared to $198 million a year ago, an increase of 20%. The partnership sold 2 billion gallons in the fourth quarter, up 5% from the fourth quarter last year. Fuel margin for all gallons sold was 12.8 cents per gallon, compared to 12 cents per gallon a year ago. Total fourth quarter operating expenses were $138 million, an increase of $15 million from the same period last year. Fourth quarter distributable cash flows adjusted was $153 million. compared to $143 million in the fourth quarter of 2021, yielding a coverage ratio of 1.8 times. Our coverage ratio for the full year 2022 was 1.9 times. On January 25th, we declared an 82.55 cent per unit distribution, consistent with last quarter. The stability of our business and history of delivering results continues to support a stable and secure distribution for our unit holders. Finally, on November 30th, we completed the acquisition of Peerless Oil and Chemicals Inc., an established terminal operator and fuel distributor within Puerto Rico and throughout the Caribbean. Now shifting over to our full year 2022 results and accomplishments. We delivered adjusted EBITDA of $919 million, up 22% from last year. Distributable cash flows adjusted was $650 million, up 20% versus the prior year. We improved our coverage ratio to 1.9 times, up from 1.6 times in 2021 and 1.5 times in 2020. Our liquidity position and balance sheet remain strong, with availability on our credit facility of approximately $600 million and leverage at the end of the year of 3.8 times, below our target of 4.0 times. Finally, our strong financial position allowed us to take advantage of a diversified set of growth opportunities in 2022, including the acquisition of Gladio Energy and Peerless Oil and Chemical. With all these accomplishments as a backdrop, we enter 2023 poised to continue to deliver strong results, and I would like to take a moment to reaffirm our 2023 adjusted EBITDA guidance of between $850 and $900 million. Underpinning this guidance are the following assumptions. Fuel volumes of approximately 7.8 billion gallons and fuel margin of approximately 12 cents per gallon, total operating expenses of between $525 and $535 million, maintenance capital of approximately $60 million, and growth capital of at least $150 million. Our strong distribution coverage and balance sheet continue to allow Sunoco to invest in growth opportunities which will contribute additional value to our stakeholders for years to come. Stable-based business combined with the contributions from acquisitions and organic growth, will continue to generate free cash flow and allow us to focus on the three pillars of our capital allocation strategy. First, to maintain a secure distribution for our unit holders. Second, to protect our balance sheet. And third, to continue to pursue disciplined investment and growth opportunities. Sunoco's consistent financial results throughout various macroeconomic environments have become the hallmark of our partnerships. and we expect 2023 will bring more of the same. With that, I will now turn the call over to Carl.

Thanks, Scott. Good morning, everyone. Our team delivered yet another great quarter supported by continued margin strength, consistent expense discipline, and solid operations from both our core business and our recent investments. Starting with volumes, we were up about 5% in the fourth quarter versus the fourth quarter of last year and flat with the third quarter of this year. We have continued to see improved volume performance relative to prior years, as we have realized volume contributions from our capital deployed, both organic and through acquisitions. With respect to margins, the margin performance of the last few years continued in the fourth quarter. There are a few consistent themes that contributed to these margins. First, the fourth quarter began with a strong margin tailwind from dramatic price declines during the third quarter. If we look at overall price movement during the fourth quarter, both gasoline and diesel futures ended the quarter about where they started, but there was significant price volatility during the quarter which supported margins. In addition, we continue to see the benefit of higher break-even margins, and finally, the investments that we've made over the past few years are contributing to the bottom line. Specifically, we had one month of our peerless acquisition as well as a full quarter of our New York Harbor blending operations. If we look at the entire year, our financial performance was a tale of two halves that clearly supports the asymmetric risk profile of our business that we have discussed before. In the first half of the year, we were able to demonstrate solid results during the headwinds of rising commodity prices, while the second half continued to show our ability to capitalize and deliver upside during favorable market conditions, all the while maintaining expense and capital discipline in any market environment. In regards to expenses, we did see an uptick in the fourth quarter from the third quarter. This is primarily due to the closing of our peerless acquisition on December 1st and other employee expenses. Expense management remains one of our core strengths. And as we always have been, we remain committed to achieving our 2023 expense guidance. As we look forward into all aspects of our 2023 business, we expect another strong year. As we sit here today, we don't know exactly what the overall economic conditions will be or where product prices will go. We do have much more confidence that breakeven margins will remain elevated and that commodity markets will remain volatile. As our business has shown over the past few years, regardless of the market condition, we expect solid results. Our portfolio of organic investments and acquisitions continues to deliver on expectations. We are especially excited about the 2023 opportunities provided with our most recent acquisition of Peerless. While we have only operated the business for a little over two months, our synergy capture is ahead of schedule, and we expect the business to outpace our original deal assumptions. More broadly, we are confident that we will continue to be successful in deploying capital, whether through organic growth or additional transactions. Before turning the time over to Joe, I will wrap up by stating that we are off to a very good start to 2023. And as expected, we'll continue to focus on delivering results for our stakeholders through our proven strategy of gross profit optimization, delivering on expenses, solid and efficient operations, and growing our core business. Joe?