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Greetings, and welcome to the Sunoco LP's Q2 2023 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Scott Grischow, Senior Vice President of Finance. Thank you, 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; Karl Fails, 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 certain non-GAAP financial measures, including adjusted EBITDA and distributable cash flow as adjusted. Please refer to the Sunoco LP website for a reconciliation of each financial measure. Sunoco LP delivered record results for a second quarter that demonstrates the earnings power of our business. The partnership generated adjusted EBITDA of $250 million compared to $214 million a year ago, an increase of 17%. Fuel volumes for the quarter were 2.1 billion gallons, up 5% from the second quarter last year. Fuel margin for all gallons sold was $0.127 per gallon compared to $0.123 per gallon a year ago. Total second quarter operating expenses were $137 million, an increase of $9 million from the same period last year. This year-over-year increase was attributable to the Peerless and

Thanks, Scott. Good morning, everyone. We delivered another strong quarter, demonstrating that our formula of profitably investing capital, gross profit optimization, consistent expense discipline and solid operations across our business continues to deliver results. Volumes were up about 5% in the second quarter versus the second quarter of last year. If you take a step back and think about our volumes, there are a few points worth making. This quarter was the first quarter since the fourth quarter of 2019, where our volumes were above the 2 billion-gallon mark for a quarter. One of the big contributors to that growth was our capital investments that we have made, both organic and through acquisitions. In addition, we have also seen some data points in the second quarter that are encouraging on gasoline demand. For the country as a whole and inside our network as well. It definitely helps that retail gasoline prices were more than $1 per gallon cheaper this quarter versus last year. We have capitalized on these factors and grown market share while maintaining strong fuel margins. With respect to margins, the margin performance over the last few years continued in the second quarter as we delivered margins of $0.127 per gallon. While the price of fuel fell slightly during the quarter, we continue to benefit from higher industry breakeven margins as well as continued volatility in the fuel markets. Once you layer in our margin optimization strategies, and growing volumes, our gross profit performance continues to be strong. And the final point to remember is that our business is resilient enough to perform in various volume and margin environments. Turning to expenses. Controlling expenses remains one of our core strengths, and we continue to demonstrate this in the second quarter as our year-over-year expense increases were almost entirely attributable to our business growth and recent acquisitions. I also want to provide an update on our

Thanks, Karl. Good morning, everyone. We delivered a record second quarter. Scott and Karl have discussed the key details. However, there are a few items that deserve some additional commentary. First, our strong year-to-date results have been driven by a holistic combination of the following key drivers: volume growth, strong margins, disciplined expense management and a growth program that is delivering expected returns. Second, given our performance in the first half of this year and the continued strength of our business model, we're well positioned for another strong year. Thus, we expect to be on the high end of our EBITDA guidance with the potential to surpass it. And finally, we remain in a position of strength to further build on our 3 capital allocation priorities, providing and growth of our distribution maintaining a strong balance sheet and capitalizing on growth opportunities. Bottom line, our business model continues to demonstrate resiliency and deliver on growth, and we expect this to continue. Operator, that concludes our prepared remarks. You may open the line for questions.

[Operator Instructions]. Our first question comes from Robert Mosca with Mizuho Securities. Please proceed with your question.

So in your '23 outlook, you outlined $0.12 per gallon is kind of your base case for '23 on margins. And I know that might be more of a floor in the current year, but would you characterize your outperformance this year as a function of just lower volumes? Or do you think this might be -- you might be reaching some new sort of equilibrium margin just based on your performance year-to-date.

Yes. This is Karl. If you look at our margins, and we talked about our guidance at the end of last year, in the past, we've given a guidance range on both volume and margin. And in December, we really gave 7.8 billion gallons and $0.12. We thought that represented the fat part of the curve in terms of what was possible. Clearly, in the first half of the year, we've trended above both those numbers on both volume and on margin. If you look at the margin piece, I mentioned in my prepared remarks, the big contributors to that. And if you break that down, you have higher breakeven margins due to the overall inflationary environment, you look at the volatility in the fuel markets and then the other factor that can impact margin is the overall movement of prices. And those first 2 factors, we don't see changing. And as we look into the near future, again, my crystal ball is not perfect, but I don't see anything that would change the path of those factors. Clearly, you look at the movement of markets, we had a little bit of a tailwind in the second quarter with prices falling at the beginning of the third quarter, you've had kind of the opposite effect with prices rising. So that can impact margins as we've seen in the past, but the other 2 factors we think will carry forward into the end of this year and even into next year.

Great. That's helpful color. And then for my follow-up, wondering if you could provide an update. And I know you touched on it in your prepared remarks, but just how the

Yes, I'd be happy to talk about

Robert, this is Joe. I probably sound like a broken record, but the M&A environment for us in the field distribution and the refined product market it looks the same as like 2 years ago, last year and looks same right now is definitely, I would say, a buyer's market. And especially with companies like Sunoco that brings a history of delivering on synergies. So when the right opportunities come up, I think we're in a great position to capitalize on it.

Our next question comes from Selman Akyol with Stifel.

Just kind of going back to the margin performance, and you talked about a couple of the drivers that you expect to see going forward. So my question directly is, should we be expecting that to continue higher and eventually get into the $0.13 plus range, $0.14 plus range as you look out over the next several years?

Yes. Selman, again, I don't know that we're as confident in terms of what the absolute numbers are going to be. I think it's fair to say that of those factors they'll probably stay steady or increase over time and then you'll have some quarter-to-quarter variability that relates to the movement of prices. So that's probably a fair assumption.

Our next question comes from Ned Baramov with Wells Fargo. Please proceed with your question.

Good to see quarterly volumes above the 2 billion-gallon mark again. Can you maybe just talk about volume trends in the first month of the third quarter?

Yes, Ned, we agree. We think we're very happy with our volume performance and kind of crossing that 2 billion threshold was a big deal to us. I think really, if you think about our volumes, there are 3 factors that contributed in the second quarter and I think continue to contribute in the third quarter. First is acquisitions. On a year-over-year basis, you have really the peerless volumes coming in that were included in the second quarter this year and weren't included in the second quarter last year. There's also growth capital that we've spent signing up new customers or renewing new customers or investing in our assets that we -- the real estate that we own or control. But then the third factor, probably the smallest, but I also don't want to underweight it in that there have been promising signs of consumer demand. If you look at kind of the industry benchmarks even the EIA data on a weekly basis might not be quite as reliable. But when you go back and look at the monthlies or there's Opus reports or other sources of data, back in the first quarter, if you did a year-over-year comparison, volumes this year were still under volumes last year in the first quarter. That crossed over sometime in April, at least on the gasoline side. And so since April, we've seen volumes this year beat volumes last year, both from a countrywide industry-wide standpoint and also in our network. And then there are some even promising signs where maybe some of the maintenance capital or other investments that we've made in our assets where we might -- our volumes are actually performing a little better than some of the industry benchmarks. So I think we're happy with the volume performance in all those areas.

That's great. And maybe any update on additional growth opportunities around the Puerto Rico acquisition?

Yes. I think I'd build off some of my comments, I think, last quarter, Ned. Again, in the overall portfolio of our company, that's a relatively small piece of our income, but it does represent that the -- kind of the strategy and the business model that we've put together in mainly the domestic U.S. works in other geographies, where this combination of midstream assets and fuel distribution, an intense focus on expenses and spending capital intelligently and efficiently provides growth. So we've -- the team there had already been doing a good job for many years. I think we've brought more capital to bear and a little more process and scale. And so again, nothing there is going to be material from the overall company performance. But from that asset, it's performing as we expected, and there are additional growth opportunities in neighboring islands and other parts of the Caribbean.

[Operator Instructions]. Our next question comes from John Royall with JPMorgan.

So we've seen volumes looking like they're recovering nicely, but we don't have all the visibility on the ex acquisition side, let alone on the side. So to the extent you're willing to disclose, my question is, are we out of the period of makeup payments for 7-Eleven, should we expect next March that there won't be a makeup payment? Or is maybe that's a better expectation to just think about a smaller one year-over-year?

Yes, as it directly relates to 7-Eleven, I won't give too much detail on their volumes. I'll leave it to them. I think just given the pattern of where we are and where we've been in the last few years, I think probably the idea of a slightly smaller makeup payment is where I'd probably put my money right now versus going the opposite way. As far as our overall volume performance, I think the only additional comment I'd make that I think applies maybe to all of our customers is it's really about the overall gross profit performance. So we're in a good environment now where we've been able to deliver on both volume and margin, but I think my comments earlier, at least from our business model, regardless of what 7-Eleven volumes have with the take-or-pay regardless of the path of volumes or margins going forward, our business model will deliver.

Great. And then my next one is on the guidance, and I don't want to read too much into anything and maybe I am. But clearly, as you mentioned, you're tracking well ahead of both fuel metrics and it would take a pretty bad environment to get either down to that point estimate. So understanding you moved it up to the high end for EBITDA, but why not move the whole range up? Is there a realistic risk of hitting the low end or even hitting the midpoint for the full year?

John, it's Joe. We give guidance on an annual basis because there's always going to be some level of quarterly variance. With that said, last December, we gave guidance for the whole year. And the bottom line of that was we expect to be a very good year when we gave our guidance. And then you fast forward today, and I'm reiterating that word Sunoco is going to have a very good year. The -- our practice has been, whenever a material event happens. For example, last quarter, we acquired

There are no further questions at this time. I would like to turn the floor back over to Scott for closing comments.

Well, thanks, everyone, for joining us on the call this morning. As always, feel free to reach out with any follow-up questions. We look forward to talking to you soon.