Sunoco LP

Greetings and welcome to Sunoco LP's third quarter 2023 earnings conference call. At this time, all participants are on 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Scott Grijal, Senior Vice President of Finance and Investor Relations. 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. Today's call will contain forward-looking statements that 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 filings with the SEC for a list of these factors. During today's call, we will also discuss their non-GAAP financial measures, including adjusted EBITDA and distributable cash flow as adjusted. Please refer to the SNOCO LP website for reconciliation of each financial measure. The third quarter brought a continuation of Sunoco's strong financial performance throughout 2023. The partnership generated adjusted EBITDA of $257 million compared to $276 million a year ago. Fuel volumes for the quarter were 2.1 billion gallons, up 7% from the third quarter of last year. Fuel margin on all gallons sold was 13 cents per gallon compared to 13.9 cents per gallon a year ago. Total third quarter operating expenses were $141 million, an increase of $10 million from the same period last year. This year-over-year increase was attributable to the Peerless and Zenith acquisitions. During the third quarter, we spent $31 million of growth capital and $14 million in maintenance capital. Third quarter distributable cash flow as adjusted was $181 million compared to $196 million in the third quarter of 2022. yielding a current quarter coverage ratio of two times and a trailing 12-month coverage ratio of 1.9 times. On October 20th, we declared an 84.2 cent per unit distribution, consistent with last quarter. As you may recall, we increased our distribution by 2% in the first quarter of 2023, and we will determine our next distribution increase next year in the first quarter. Turning to the balance sheet, at the end of the third quarter, we had $647 million outstanding on our revolving credit facility, leaving approximately $847 million of liquidity. Leverage at the end of the quarter was 3.9 times. In September, we completed an offering of $500 million of 7% senior notes due 2028. We used the net proceeds from the offering to repay a portion of the outstanding borrowings on a revolving credit facility. This notes offering not only improved our liquidity position, but it also allowed us to achieve a savings and interest expense given the difference between the current cost of borrowing on the revolving credit facility and the fixed rate on the new notes. Finally, as a result of our strong performance year to date and our outlook for the remainder of the year, we are increasing our EBITDA guidance for the full year 2023 to be above $935 million. This represents a $20 million increase to the top end of the revised guidance range we issued in May, further demonstrating our ability to continue to grow cash flow year after year in any environment. The reliability and free cash flow generation of our operations allows us to remain consistent in our capital allocation strategy and focus on our three pillars. First, to maintain a secure distribution with annual growth. Second, to protect our balance sheet. and third, to pursue discipline investment and growth opportunities. We are confident that this framework will continue to deliver strong returns to our unit holders. With that, I will now turn the call over to Carl to walk through some additional thoughts on our third quarter performance.

Thanks, Scott. Good morning, everyone. We delivered another strong quarter, supported by continued strength in margins, volume growth, expense discipline, efficient operations, and accretive acquisitions. When you step back and look at our business, it continues to perform quarter after quarter. The fundamentals are sound. We have put ourselves in a solid financial position, and we have the strategies to take advantage of market opportunities. Our volumes this quarter were up about 7% versus the third quarter of last year. The continued growth in volume relative to prior years comes from the contribution from our capital deployed, both organic and through acquisitions, as well as demand growth in some geographies. This quarter marks the highest volume quarter in our history and the second consecutive quarter where our volumes were above the 2 billion gallon mark. When you compare this to various reports on U.S. demand, it is clear that we are outpacing the sector and picking up market share, another sign that our growth is delivering tangible results. This is all occurring as we grow in our existing geographies and enter new markets. As we look to the end of the year, We expect that volume in the fourth quarter would see a normal seasonal decline sequentially, but our relative position in the market will remain strong. With respect to margins, the strong margin performance of the last few years continued in the third quarter as we delivered margins of 13 cents per gallon. There's no extraordinary story to share for this quarter. The continued combination of increased market volatility, higher break-even margins, and our gross profit optimization strategies delivered strong margins even with some rising prices the first half of the quarter. Looking forward to the fourth quarter, we expect the same fundamental factors to remain in place. However, just like with volume, our margins are often seasonally lower when compared to the third quarter. Even with some variability quarter to quarter, as we have said many times, when you look at our business over a full year period, we continue to deliver strong and growing results. I want to briefly touch on the devastating wildfires experienced on the island of Maui in August. We have three sites that were impacted by the fires and clearly there has been some additional business impact as a result of reduced travel to the island, though overall it is not material to our results. More importantly, we are very grateful that all our employees are safe, though many of them experienced dramatic impacts to their homes and families. We are extremely proud of our team in Hawaii and how they have been able to pivot from worrying about the impacts on their own lives and livelihoods and find ways to help their neighbors and contribute to the community response. Thank you to all of them. Turning to expenses. Consistent discipline in managing our expenses remains one of our core strengths and our third quarter results firmly demonstrate that as they were basically flat to the second quarter. Even with the increase in our EBITDA guidance for the full year, we expect our expenses to be in the range that we shared in May. Moving on to maintenance and growth capital, both of these also remain in line with our revised 2023 guidance we provided in May. If we look at our overall growth profile, we have deployed approximately $1.3 billion of growth, acquisition, and working capital since the beginning of 2021. Our growth strategy has been focused on adding fuel distribution and midstream assets. On the acquisition side, we've been able to identify businesses that fit into our strategy and execute on those results. We find businesses where we can add value to the fuel supply chain, grow volume, reduce supply costs, or expand margin. We optimize expenses and utilize our balance sheet and capital discipline who invest in the acquired businesses in ways that unlock value. We look at integrating our fuel distribution business with midstream assets, even where that might appear to be a step out like our TransMix or Puerto Rico acquisitions. At the core, the strategy is the same. I already talked about how we are growing our fuel volume. We are also now one of the largest refined product terminal operators in the United States and the largest TransMix operator. These represent high-quality infrastructure assets that will continue to have value for decades to come in any energy transition scenario, while also supporting our growing fuel distribution portfolio. Simply put, our acquisitions and subsequent operational results speak for themselves. Before turning the time over to Joe, I will end on this. Sunoco remains a growth company. I talk a lot about the stability of our base business, the strong market foundation, our expense discipline, and gross profit optimization. Ultimately, those are all tools that both deliver results in our current business and enable us to continue to grow. We will do that through investing in high return organic projects and focusing on making accretive acquisitions at attractive transaction multiples, which will deliver immediate results for our stakeholders and ultimately drive continued appreciation in our unit price. Joe?