Sunoco LP

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 Kruscheff, Senior Vice President, Finance and Treasurer. 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, Austin Harkness, Chief Commercial 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 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. It has been a busy and exciting start to 2024 for the Sunoco team, and I'd like to begin my comments by reviewing some of that activity. First, on March 13th, we completed the acquisition of two liquid fuels terminals located in Amsterdam, Netherlands, and Bantry Bay, Ireland from Zenith Energy for 170 million euros. Then, on April 16th, we completed the divestiture of 204 convenience stores across West Texas, New Mexico and Oklahoma to 7-Eleven for approximately $1 billion. And just last week, we closed on the acquisition of New Star Energy in a transaction valued at approximately $7.2 billion. The completion of these strategic transactions will not only increase the partnership's stability, but will also strengthen our financial foundation and position us for future growth. Now turning to our first quarter results for 2024. Sunoco delivered a record first quarter with a adjusted EBITDA of $242 million compared to $221 million a year ago, an increase of 9%. As Carl will discuss later, this quarter's results demonstrate that our continued focus on gross profit optimization in our fuel distribution business has helped grow our fuel gross profit dollars over time. In the first quarter, the partnership sold over 2.1 billion gallons, a record volume for a first quarter, and a 9% increase from last year. Gil margin for all gallons sold was 11.7 cents per gallon, compared to 12.9 cents per gallon a year ago. Gil margin results include the benefit of a $25 million 7-11 makeup payment. Total first quarter operating expenses were $142 million, an increase of $15 million from the first quarter of last year. The vast majority of this year-over-year increase can be attributed to additional operating expenses from growth, including the Zenith North America terminal acquisition and transaction costs related to acquisition and divestiture activity in the first quarter of this year. In the first quarter, we spent $27 million on growth capital and $14 million on maintenance capital. First quarter distributable cash flows adjusted was $176 million. compared to $160 million in the first quarter of 2023. On May 3rd, we declared an 87.56 cent per unit distribution, a 4% increase over last quarter. This increase demonstrates continued confidence in our business and our ability to deliver value to our unit holders through distribution increases. Turning to the balance sheet, at the end of the first quarter, we had approximately $870 million of liquidity remaining on our revolving credit facility. Leverage at the end of the quarter was 3.7 times, unchanged from last quarter and below our long-term target of four times. In anticipation of and in conjunction with the closing of the New Star acquisition, the partnership recently completed several financing transactions. First, on April 30th, we issued $1.5 billion in senior notes in a private offering. The proceeds from this offering will be used to fund the repayment of New Star's credit and receivable facilities and redeem New Star's preferred equity and subordinated notes. The reduction in interest expense from this refinancing activity will generate at least $50 million in additional cash flow annually. Second, on May 3rd, we entered into a new $1.5 billion revolving credit facility, which matures in 2029. This new credit facility is fully unsecured and will simplify Sunoco's capital structure and enhance our credit profile moving forward. To that end, both Moody's and S&P upgraded Sunoco's long-term credit ratings over the past week, further demonstrating Sunoco's enhanced scale and stability and improved financial profile. Now that we have closed the Neustar acquisition, I want to share an update on our 2024 guidance. We plan to issue a more detailed outlook on or before our second quarter earnings call, but as a starting point, we wanted to provide the following perspective on consolidated 2024 guidance. We now expect 2024 adjusted EBITDA to be in a range of $1.46 billion to $1.52 billion. This increase reflects the combination of our reaffirmed adjusted EBITDA guidance of $975 million to $1 billion for the legacy Sunoco business. Additionally, the increase includes the contribution of approximately $480 million to $520 million of adjusted EBITDA from the NuSTAR acquisition. The expected contribution from NuSTAR reflects a prorated portion of the 2024 adjusted EBITDA guidance the NuSTAR management team provided in February. This revised 2024 adjusted EBITDA guidance excludes both transaction costs and synergies, which we will also provide more detail on on or before our second quarter earnings call. With that, I will now turn the call over to Carl to walk through some additional thoughts on our first quarter performance and recent transaction activity.

Thanks, Scott. Good morning, everyone. This quarter continued the strong performance in our base business and highlighted the continued progress of our growth strategies. As we have stated many times, the key to our gross profit optimization strategy in our fuel distribution business is to look at the combined fuel gross profit rather than evaluating volume or margin separately. This is important as we look at our Q1 performance. First, our volumes continue to substantially grow. In the first quarter, there was a 9% increase compared to the same quarter last year. This period marks the fourth consecutive quarter where we surpassed 2 billion gallons. In terms of total U.S. gasoline and diesel demand, our growth continues to exceed industry averages, showcasing that our investments are yielding tangible results while always keeping our gross profit optimization strategy front and center. Second, margins continue to be strong. From a market standpoint, we faced some fairly consistent upward movement in gasoline prices throughout the quarter. which provided the typical compression that happens during similar market conditions. Another factor impacting our overall margin is that some of our year-over-year volume growth has come in channels that have added incremental fuel gross profit and EBITDA, but at margins below our overall average. This is really an impact on our portfolio mix, not an indication of market conditions. Overall, higher break-even margins and overall volatility continue to provide support to and we expect that to continue for the foreseeable future. When you put it all together, we had record first quarter EBITDA, our fuel gross profit continues to trend upwards, and our outlook remains strong. Earlier, Scott mentioned the three transactions that we've closed in the last few months. Let me give you some insight into the West Texas and Europe transactions and the impact to our overall business outlook before I discuss the exciting NuSTAR acquisition that we closed last week. The divestiture of the West Texas business to 7-Eleven was completed at an EBITDA multiple in the high teens. We are a growth company, and we are not in the business of selling off parts of our business, so let me give you some insight into how this fit into our strategy. By selling the West Texas business, we lost some volume in gross profit dollars, and our reported margin will drop as the margin of the West Texas business was well above our average. If you do the math, The change in mix reduces our reported fuel margin by a bit less than half a cent per gallon on a go-forward basis. What we gained from the transaction, however, was a significant amount of capital that we could redeploy at lower multiples in building our business and increasing stability. Bottom line, after this transaction, we are less exposed to West Texas retail margins, our base fuel distribution business remains strong, and we expect fuel gross profit to continue to grow. The acquisition of the Zenith terminals in Europe was completed at a synergized EBITDA multiple in the mid-single digits. They are strong assets based in strategic locations. Much of the integration is already completed, and we are looking forward to the benefits of having these assets in our portfolio, as well as our new team members that have joined us in Europe. Adding the European terminals provides us with additional opportunities to optimize our supply costs, particularly on the East Coast. and deliver increased value to our customers. Further, these terminals can serve as a platform for future growth. Turning to NuSTAR, we're very excited about the increased stability and diversification that these assets will bring to our portfolio and the many growth opportunities that they will provide. The integration process is well underway, and we are looking forward to working together with our new team members to grow the combined business. Our plans are on track to deliver above our synergy floor of $150 million per year. We have made great progress on identifying the expense savings that will come from the combination and expect to achieve north of $100 million in expense synergies annually. We are still digging into the commercial opportunities and working to quantify what those will yield. In particular, we have begun an evaluation of our crude business. to determine how we can unlock additional value to improve the performance and profitability of the assets. This evaluation is in the preliminary stages, but the initial work is promising, and we look forward to sharing more detail on our overall synergy outlook on or before our next earnings call. Before turning the time over to Joe, I will wrap up by emphasizing that we are off to a strong start to the year and will continue to focus on delivering results for our stakeholders through our proven strategy of gross profit optimization, tight expense control, solid and efficient operations, and growing our business. Joe?