Sunoco LP

Greetings and welcome to the Sunoco LT's first quarter 2025 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 Krischel, Senior Vice President, Finance and Treasures. 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 Operating Officer, Austin Harkness, Chief Commercial 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 our 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. Before I begin my remarks on the first quarter results, I want to start with the announcement we made yesterday that Sunoco will be acquiring Parkland Corporation in a cash and equity transaction valued at approximately $9.1 billion. We expect to close in the second half of 2025, subject to customary closing conditions and other regulatory clearance. On today's call, we would like to focus on our first quarter results in our European acquisition. we would refer you to what was disclosed in the news release, subsequent AK filings, investor presentation, and joint conference call we held on May 5th for details on the Parkland acquisition. So please keep that in mind as we enter the Q&A portion in a few minutes. 2025 is off to a good start following our first quarter performance. We remain on track to achieve our full year financial guidance. Our balance sheet and liquidity are strong. and we are well positioned to continue our growth objectives. I'd like to start with a brief review of our consolidated results. The partnership delivered a solid first quarter with adjusted EBITDA of $458 million and distributable cash flow as adjusted of $310 million. In the first quarter, we spent $75 million on growth capital and $26 million on maintenance capital. This includes the partnership's proportionate share of capital expenditures related to our two joint ventures with energy transfer of $18 million for growth capital and $2 million for maintenance capital. Now turning to the balance sheet. On March 20th, we completed an offering of $1 billion of 6.25% senior notes due 2033. Net proceeds from the offering were used to repay $600 million of senior notes that matured this October and all outstanding borrowings on our revolving credit facility. This transaction extended our debt maturity profile, improved our financial flexibility, and de-risked our balance sheet for the remainder of the year. Combined with our strong liquidity, this financing put us in an advantage position to execute on future growth and deliver on our other capital allocation priorities. As of March 31st, our $1.5 billion revolving credit facility had no borrowings outstanding. Leverage at the end of the quarter was 4.1 times in line with our long-term target. In March, we signed a definitive agreement to acquire Tankwood, Germany's largest independent storage operator, for approximately 500 million euros, including approximately 300 million euros of assumed debt. This acquisition consists of a portfolio of 16 terminals, including 15 terminals across Germany and one terminal in Poland. Transaction is expected to close in the second half of 2025, subject to customary closing conditions, and will be accretive to unit holders in the first year of ownership. Carl will provide some additional thoughts on this acquisition and his comments. Finally, on April 23rd, we declared a distribution for the first quarter of 89.76 cents per common unit, or $3.59 on an annualized basis. This represents an increase of just over 1.25% compared with the previous quarter and resulted in a trailing 12-month coverage ratio of 1.9 times. This marks the second consecutive quarterly increase in Sunoco's distribution and is consistent with our capital allocation strategy and 2025 business outlook, which includes an annual distribution growth rate of at least 5%. Since 2022, Sun has increased distributions by approximately 9%, underscoring the partnership's ongoing commitment to returning capital to its unit holders. To close, Sunoco entered 2025 in a position of strength. Strong results in cash flow generation over the past several years, have allowed us to execute on our capital allocation strategy. With leverage at our long-term target and healthy distribution coverage, we have been able to reinvest capital back into our business through organic growth and acquisitions. The result is a record of increasing distributable cash flow per common unit that has in turn positioned us for ongoing distribution increases to our unit holders and additional growth. Sunoco's financial stability distribution yield, and growth prospects make our equity a compelling value proposition in any environment. With that, I will now turn the call over to Carl to walk through some additional thoughts on our first quarter performance and recent growth initiatives.

Thanks, Scott. Good morning, everyone. We have had a solid start to 2025 with good performance across all three segments. Let me walk through segment results and then add some perspective on our exciting growth announcements this week. Starting with fuel distribution, adjusted EBITDA was $220 million compared to $192 million in the fourth quarter and $218 million for the first quarter of 2024. Volumes came in at 2.1 billion gallons, down 3% from last quarter and flat to the first quarter of last year. Finally, reported margin was 11.5 cents per gallon compared to 10.6 cents per gallon in the fourth quarter and 10.9 cents per gallon in the first quarter of 2024. Our results in the first quarter included the benefit of $32 million from the 7-11 makeup payment. As we've said before, our strategy is to capture what the market provides. The efficient use of capital continues to support our volumes. which can be seen by our volumes being flat compared to the first quarter of last year, even with the sale of our West Texas marketing assets. And this volume growth continues to beat industry benchmarks. On the margin side, elevated break-evens and commodity market volatility continue to provide support to our fuel profit as our teams deliver on profit optimization strategies in various market environments. Moving to the pipeline system segment, We reported $172 million of adjusted EBITDA compared to $188 million for the fourth quarter. Fruit put on the system was approximately 1.3 million barrels per day compared to 1.4 million barrels per day in the fourth quarter. Overall, the system performed well even in light of some headwinds as a result of a few reliability challenges at refineries that feed our system. When we step back and look at full year performance We remain very happy with how the system is performing, as well as some of the optimization opportunities we have going forward. Turning to terminals, we delivered adjusted EBITDA of $66 million compared to $59 million in the fourth quarter and $24 million in the first quarter of last year. Throughput was 620,000 barrels per day, up from around 600,000 barrels per day in the fourth quarter, and a little over 400,000 barrels per day in the first quarter of last year. Performance was consistent across our network, and we're excited about the addition of our second European acquisition to this segment that Scott mentioned earlier. Yesterday, we discussed in detail our announced acquisition of Parkland. That deal will expand our geographic reach in North America and the Caribbean and builds on the same strategy we have employed over the past seven years in our fuel distribution business of growing scale, focusing on fuel profit optimization, and integration with midstream assets. Our purchase of Tankwid also builds on the same strategy we discussed last year when we first entered Europe. Tankwid is the largest independent operator of terminals in Germany. The strong network of 16 terminals across Germany and Poland has delivered consistent cash flow stability and growth over the last decade. These terminals serve an important role in the fuel distribution supply chains in Germany and Poland. The cash flow is supported by a long-term and high-credit quality customer base. We are also looking forward to adding the Tankwood team members to our organization and finding ways to optimize with our existing European assets in Amsterdam and Ireland. There are many aspects to like about growing our business into new geographies. Our core business is distributing refined products that fuel the transportation of people and goods around the world. Globally, over 90% of transportation energy consumption comes from refined products, with another 5% coming from renewables, which we also distribute. As we look forward, our view is that the importance of refined products to fuel our economy will remain, whether here in the United States or across the world, a fact that is often overlooked and undervalued. As we turn to Europe more specifically, while they are ahead of the United States in reducing the carbon content of their energy mix, many of these lower carbon solutions are also liquid fuels that need to be stored and distributed to customers. Existing infrastructure will always have an advantage over building new supply chains, and as the energy portfolio continues to develop, we are confident that these assets will only become more valuable. One can only look to California as an example where even with a focus on lower carbon fuels, terminal assets in California have been trading at a premium to other regions of the United States. Looking at the growth of our portfolio over the last few years, each of our acquisitions have hit our target criteria. Stable cash flows, synergies with our existing business, good valuation, and opportunities to grow. These most recent deals hit all four of these. As we continue to grow our asset base and face new and evolving challenges, 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'll now turn it over to Joe to share his final thoughts. Joe?