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Energy - Oil & Gas Refining & Marketing - NYSE - US
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$ 7.3 B
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EARNINGS CALL TRANSCRIPT
EARNINGS CALL TRANSCRIPT 2025 - Q1
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Operator

Greetings, and welcome to the Sunoco LP'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. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Scott Grischow, Senior Vice President, Finance and Treasurer. Thank you, sir. You may begin..

Scott Grischow Senior Vice President of Finance, Investor Relations, M&A and Treasurer of Sunoco GP LLC

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 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 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.

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 and our European acquisition.

We would refer you to what was disclosed in the news release, subsequent 8-K 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 advantaged 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 4.1x, in line with our long-term target.

In March, we signed a definitive agreement to acquire TanQuid, Germany's largest independent storage operator for approximately €500 million, including approximately €300 million of assumed debt. This acquisition consists of a portfolio of 16 terminals, including 15 terminals across Germany and one terminal in Poland.

The transaction is expected to close in the second half of 2025, subject to customary closing conditions and will be accretive to unitholders in the first year of ownership. Karl will provide some additional thoughts on this acquisition in his comments.

Finally, on April 23rd, we declared a distribution for the first quarter of $0.8976 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 1.9x.

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 unitholders. To close, Sunoco entered 2025 in a position of strength. Strong results and cash flow generation over the past several years have allowed us to execute on our cash flow 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 unitholders 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 Karl to walk through some additional thoughts on our first quarter performance and recent growth initiatives..

Karl Fails Executive Vice President & Chief Operating Officer of Sunoco GP LLC

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?.

Joseph Kim President, Chief Executive Officer & Director of Sunoco GP LLC

first, our business model performs well in volatile environments. Why? We're anchored by our pipeline and terminal assets, critical infrastructure that provide long-term stable income. As for our Fuel Distribution business, it's anchored by our 7-Eleven take-or-pay contract and our real estate income.

Furthermore, volatility creates margin capture opportunities. We are positioned to gain market share and optimize fuel profit in these environments, given our scale, our supply expertise and our strong balance sheet. Second, we continue to effectively manage expenses.

Even within the current environment where inflation persists, we're proactively managing our expenses to be below the operating expense guidance that we provided in December. And finally, our investments both organic and acquisitions continue to meet or exceed our expectations.

This will drive our EBITDA growth, our DCF per common unit growth, and our distribution growth while maintaining a strong balance sheet. Bottom line, we're uniquely positioned to be both an offensive and defensive play. We fully expect to deliver another record year and continued distribution growth for our unitholders.

Operator, that concludes our prepared remarks. You may open the line for questions..

Operator

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from Spiro Dounis with Citi. Please proceed with your question..

Unidentified Analyst

Hi, this is Chad on for Spiro.

Starting off, how do you think about future capital allocation among your regions post-Parkland close? Are some regions delivering more attractive returns than others?.

Karl Fails Executive Vice President & Chief Operating Officer of Sunoco GP LLC

Chad, this is Karl. I think if you think about our overall growth capital program and how we look at it and that might include even some of the roll-up M&A that we've done, we don't have a particular target per region. We do look at it in totality across all the segments and across all the geographies. And it really is kind of best projects win.

And the kind of projects that we have in our growth capital plan, generally, we try to focus on items that have a shorter time frame between when we spend the cash and when they deliver.

And then clearly, we look for opportunities that might benefit multiple segments, right? We might have a Fuel Distribution project that increases utilization in our -- some of our midstream assets, or we might spend money in the midstream assets that enables additional fuel distribution opportunities.

So we don't start the year with particular targets. We also have flexibility as the year shapes up or as we have opportunities in M&A or other growth opportunities to either flex that down or up depending on the circumstances..

Unidentified Analyst

Okay, that makes sense. And just a second question. In '24, you added more conventional midstream assets to the portfolio, and Parkland is a heavy shift back to fuel distributions.

What do you see as the right mix between the two assets for your business longer term? And how should we think about adding more conventional midstream assets from here, following the large investment in Fuel Distribution?.

Joseph Kim President, Chief Executive Officer & Director of Sunoco GP LLC

Chad, this is Joe. We're going to continue to execute our capital allocation strategy and ensuring that our portfolio becomes stronger and stronger over the long run. At different points in time, the portfolio may not be perfectly balanced at 50-50, but directionally, we want to diversify the portfolio. And Parkland gave us an opportunity.

You don't get too many opportunities where you have this powerful industrial logic and excellent financial benefits. And so we took advantage of that, and we're going to take opportunities to get more accretion, keep our balance sheet strong.

And this happens to be on the Fuel Distribution side, but over the long run, we want to have a very balanced portfolio..

Unidentified Analyst

Got it. Makes sense. Thanks for the time..

Joseph Kim President, Chief Executive Officer & Director of Sunoco GP LLC

Thank you..

Operator

[Operator Instructions]. There are no further questions at this time. I would now like to turn the floor back over to Scott Grischow for closing comments..

Scott Grischow Senior Vice President of Finance, Investor Relations, M&A and Treasurer of Sunoco GP LLC

Well, thanks everyone for joining us on the call this morning. As always, if you have any follow-ups, feel free to reach out. Thanks and have a great day..

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation..

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