Sunoco LP

Greetings and welcome to Sunoco LP's fourth quarter 2024 earnings call. At this time, all participants are in listen-only mode. Question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero from your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Scott Grishow, Senior Vice President of Finance. Scott, 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 Operating Officer, Austin Harkness, Chief Commercial Officer, Brian Hand, Chief Sales Officer, and Dylan Bramhall, Chief Financial Officer. 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. The fourth quarter capped off a record year for Sunoco. The integration of our fuel distribution business with a strong and stable pipeline and terminal network increased our stability, strengthened our financial foundation, and enhanced our opportunities for growth. In the fourth quarter, the partnership delivered adjusted EBITDA of $446 million, excluding approximately $7 million of one-time transaction expenses. We spent $74 million on growth capital and $58 million on maintenance capital. Fourth quarter distributable cash flows adjusted was $261 million. Our trailing 12-month coverage ratio at the end of the quarter was 1.9 times. Turning to some key highlights from our full year 2024 performance, our adjusted EBITDA excluding transaction-related expenses was $1.56 billion. representing a 62% increase compared to 2023. I'd like to now take a moment to review how we achieved these record annual results. First, we began 2024 with an adjusted EBITDA guidance range of $975 million to $1 billion. Even after the strategic divestiture of our West Texas assets in April, the strength of our core business allowed us to maintain this guidance for the legacy Sunoco operations. Next, The New Star acquisition closed in early May, and we revised our 2024 adjusted EBITDA guidance upwards to be in a range of $1.51 billion to $1.57 billion, including approximately $50 million of synergies. I'm pleased to report that we delivered results at the high end of that adjusted range as a result of an efficient integration process coupled with our ongoing focus on strong operational execution and expense disciplines. Our liquidity position and balance sheet remain strong. At the end of 2024, we had approximately $1.3 billion of liquidity remaining on our revolving credit facility. Leverage at the end of the year was 4.1 times, flat to last quarter. As a reminder, when we announced the new star acquisition, we targeted being back at our four times leverage target within 12 to 18 months following closing. We accomplished this goal within five months post-close, which has put us in a position to focus on other elements of our capital allocation policy. To that end, on January 27th, we declared an 88.65 cent per unit distribution, a 1.25% increase over last quarter. Sun's strong financial performance put the partnership in a position to implement this increase one quarter ahead of the typical timing for distribution increases. As we announced in late January, we are targeting a distribution growth of at least 5% this year. we expect to announce future increases on a quarterly basis. Our strong long-term financial outlook and track record of delivering accretive growth provide a clear path for continued distribution increases. I would like to conclude by stating that we are confident in our ability to meet our 2025 adjusted EBITDA guidance range of $1.9 to $1.95 billion. Our financial position remains strong, enabling us to build on our track record of accretive growth while maintaining a healthy balance sheet and targeting a secure and growing distribution for our unit holders. With that, I will now turn it over to Carl to walk through some additional thoughts on our fourth quarter performance.

Thanks, Scott. Good morning, everyone. Our results this quarter finish out a record year for Sunoco as we strengthened our portfolio and significantly grew our cash flows. With the addition of the NuStar assets, we now have a balanced mix between our fuel distribution business and our midstream asset portfolio. Each of our three segments demonstrated strong performance in 2024 and are set up to materially contribute to delivering on our 2025 guidance. Let me share some more perspective on our fourth quarter and full year results by segment. Starting with our fuel distribution segment, adjusted EBITDA was $192 million compared to $253 million last quarter and $209 million in the fourth quarter of 2023. We distributed 2.2 billion gallons up 1% versus last quarter and down 2% versus the fourth quarter of last year. Reported margin for the quarter was 10.6 cents per gallon compared to 12.8 cents per gallon last quarter and 11.8 cents per gallon for the fourth quarter of 2023. Let me put the fourth quarter results in perspective. As I have shared in the past, the basis of our gross profit optimization strategy is to maximize what the market provides. This results in some quarters being higher volume and lower margin and others presenting higher margin opportunities. When you look at our fourth quarter performance and adjust for the sale of our West Texas retail business in the second quarter, our results were consistent with the fourth quarter of last year, reinforcing that the segment results were very good this quarter. When we step back and look at the full year, the strength of our fuel distribution segment is even more apparent. We reported over $900 million of adjusted EBITDA, and we set a new fuel volume record even with the sale of West Texas and the movement of TransMix processing margin to the terminal segment. While fourth quarter was in line with last year, our second and third quarter results were much stronger than last year. The best thing is that as we enter 2025, the same market dynamics and internal capabilities are in place for us to deliver another record year. We continue to believe in the resiliency of global refined product demand. Many companies in the sector have understood this for a while, and we think the market is starting to understand that the products that we sell and distribute are going to be around for decades. In our pipeline systems segment, adjusted EBITDA for the fourth quarter was $193 million, excluding $5 million of transaction expenses compared to $147 million in the third quarter. On the volume side, we reported 1.4 million barrels per day of throughput. This strong performance represents increased volumes across nearly all our major pipeline systems as a result of more consistent refinery operations as well as increases in seasonal demand growth in the MidCon region. In addition, our financial performance was supported by some contractual true-ups. Our Permian joint venture with Energy Transfer continues to make progress on integrating the combined systems, with increases seen this quarter, and we expect that performance will continue to strengthen as we move into 2025. For the segment as a whole, We are looking forward to having a full year of contributions in 2025 and are confident our assets will continue to perform well. Moving on to our terminal segment, adjusted EBITDA for the fourth quarter was $61 million, excluding $2 million of transaction expenses compared to $70 million in the third quarter. We reported around 600,000 barrels per day of throughput with some seasonal decreases relative to last quarter. Taking a step back and looking at the entire year, this segment delivered consistent and stable income and reliable operations, and we are well positioned for 2025. Before I wrap up, let me talk a little bit more about 2025. In December, we shared our guidance for the year. The growth in adjusted EBITDA to a range of $1.9 to $1.95 billion represents our confidence in our business and in the returns we will deliver from the investments that we have made. That confidence is supported by a strong portfolio of assets that will perform well in a variety of market conditions and proven capabilities of our organization to optimize and grow our asset base. We feel just as good about this guidance today as we did two months ago when we shared it with you. Even with a larger portfolio of business, our focus remains the same, strong operational execution expense discipline, commercial creativity, and profit optimization, and ensuring we deliver strong returns on capital that we deploy. I will now turn it over to Joe to share his final thoughts.