Clare McGrory - SVP, Finance and IR Bob Owens - Chief Executive Officer Mary Sullivan - Chief Financial Officer.

Andrew Burd - JP Morgan Theresa Chen - Barclays Capital Gabe Moreen - Bank of America John Lawrence - Stephens Mike Beall - Davenport & Company.

Greetings and welcome to the Sunoco LP Fourth Quarter 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 Clare McGrory, Senior Vice President, Finance and Investor Relations. Thank you. You may begin..

Thank you. Before we begin our prepared remarks, I have a few of the usual items to cover. A reminder that today’s call will contain forward-looking statements. These statements are based on management’s beliefs, expectations and assumptions.

They may include comments regarding the company’s objectives, targets, plans, strategies, costs and anticipated capital expenditures. They are subject to risks and uncertainties that could cause the actual results to differ materially as described more fully in the company’s filings with the SEC.

During today’s call, we will also discuss certain non-GAAP financial measures including adjusted EBITDA and distributable cash flow. Please refer to yesterday’s news release for a reconciliation of each financial measure.

Also a reminder, the information reported on this call speaks only to the Company’s view as of today, so time-sensitive information may no longer be accurate at the time of any replay. You’ll find information on accessing the replay in yesterday’s news release.

Now, on the call this morning are Bob Owens, Sunoco LP’s CEO; Mary Sullivan, our CFO; and other members of our senior leadership team. I would now like to turn the call over to Bob..

Thanks very much, Clare. Good morning everyone. And we’re pleased to be here with you this morning to review and share some of our recent accomplishments and developments, and provide an update on our growth initiatives as well as discuss the fourth quarter results. And I think that’s probably a good place to start.

Our team delivered outstanding results in the fourth quarter from both the base business and through our growth initiatives. So, fourth quarter’s contribution from MACS/Tigermarket which was the first drop-down; that was the one of the main drivers of the substantial increase in those important numbers.

But in addition to that, we also benefited from organic growth activity and from the Aloha Petroleum acquisition that closed in mid-December. Now with just two weeks of Aloha acquisition included in the fourth quarter results, you’ll see the impact of that business as a larger driver in 2015 and going forward.

These two acquisitions basically tripled our run-rate EBITDA at SUN. In addition, near record fuel margins also drove our earnings, our adjusted EBITDA and distributable cash flow. When we look at the fourth quarter and really the full year of 2014, really pleased with the performance across the Company.

And to highlight some of those standout metrics, fuel volumes increased during the quarter by 46% over prior year, driven largely by acquisitions. But excluding the acquisitions, SUN LP’s existing still delivered a strong 13% growth in gallons for the quarter. Adjusted EBITDA of $65.5 million compared to $14.1 million in the fourth quarter of 2013.

Distributable cash flow was $51.1 with approximately 70% of this contributed by the MACS/Tigermarket and Aloha acquisitions. We also announced a fourth quarter distribution of $0.60 to our unit-holders. That represented an increase of 24% year-over-year and 10% for the third quarter.

A note I’d make here is our fourth quarter results also benefited a very strong fuel margin environment. Falling oil prices led to near record fuel margins in the retail businesses across the country, ours as well as others. And Sunoco LP certainly benefited from that largely via the MACS drop-down.

Now that price levels have -- are relatively more stable, stable being kind of a relative term, we expect margins to return to more historical normalized levels.

While the significantly reduced oil and natural gas prices in Q4 presented challenges to many MLPs in the energy space, our business continued to demonstrate the resilience that is typical of our channels of trade, regardless of economic challenges in commodity prices.

On a comparative basis, our asset mix makes us a much more stable, defensive investment in periods of extreme volatility as we’re seeing today. Sunoco LP’s significant composition is stable. Long-term contracted, cost plus arrangements drive margins on wholesale gallons.

That combined with merchandise sales from SUN operated convenience stores located in some of the fastest growing markets in the United States are stabilizer for the Partnership now and going forward.

Fundamentally, we don’t see that stability changing as we continue to go through drop-downs from our parent or through acquisitions like Aloha Petroleum and through organic growth in our existing footprint.

Oil price movements will be more evident in our sequential margin comparison with increased retail and wholesale assets in the Sunoco LP business. But the assets really we feel are strong and the business has consistently demonstrated year-over-year stability in margins.

On top of that, we think that over time, our growth strategy will deliver stable, long-term value growth for our unit-holders. And that should enable us to provide steady growth in distributions as well.

The 10% quarter-over-quarter distribution increase we announced late last month, reflects the significant step change in the business with the first drop-down from ETP and the Aloha acquisition. And it supports our confidence in the business’s ability to remain resilient in volatile commodity price environments.

I would however caution you not to assume a 10% rate; I wouldn’t plug that in your model for every quarter. However, we do expect very attractive distribution growth rate increases in 2015 as we grow the business further, the additional drop-downs and organic growth.

We will be closely evaluating our distribution each quarter in relation to drop-down, progress and other growth activity. With regards to other activities, they are keeping us busy.

Our team has done a terrific job we think of integrating the growing portfolio of assets that we’re combining under the Sunoco LP, either through drop-downs or from third-party acquisitions. Our management of the combined business and integration activities is progressing independently of the drop-down plan.

We remain on track to achieve the $70 million we announced previously of synergies, at the time of the ETP, Susser transaction. We’re also well underway in executing our strategy to drop-down high quality retail and fuel distribution assets from ETP into Sunoco LP. We completed the first drop-down from ETP on October 1st of last year.

And we expect the next drop to consist of a portion of the legacy Sunoco wholesale fuel distribution business which has the benefit of being almost entirely comprised of qualified income. We expect it to be generally similar in size to the first drop and we’re working towards a plan to complete it over the next 30 days to 60 days.

While these drop-down transactions do require significant activity and attention from our stock, finance and legal teams, all of the operational day to day people in the retail business and fuel distribution businesses between ETP and Sunoco LP, we run that as a single business today, and there is no distraction there.

We think that that results in significant reduction in execution risk versus other growth activities, for example M&A. I’d now like to turn the call over Mary Sullivan who will cover highlights of the Partnership’s fourth quarter performance.

Mary?.

Thanks Bob. Good morning everyone. Looking first to a few key highlights of the fourth quarter.

As Bob mentioned, we were very pleased to be able to deliver a 10% increase in the distribution versus the prior quarter, which is our seventh consecutive increase since the Partnership went public in September 2012; and it represents a 24% increase over the fourth quarter of 2013 distribution level.

Distributable cash flow coverage was 2.3 times for the quarter and 1.5 times for full year 2014. Adjusted EBITDA for the fourth quarter increased substantially from $14.1 million a year ago to $65.5 million in the current quarter. The distributable cash flow increased by $38.5 million to $51.1 million.

As expected, the MACS and Aloha transactions roughly tripled our run-rate adjusted EBITDA in the fourth quarter. The MACS/Tigermarket and Aloha assets that we added to the Sunoco LP portfolio last year are outstanding assets and they led a great foundation for our future expansion of the C store business.

When you look at population growth in the markets where they compete, Virginia; Maryland; Tennessee and Hawaii are all the top cap states in terms of population growth in the U.S. Our growth in gallons also includes affiliated sales to 30 new Stripes stores and the 47 Sac-N-Pac stores acquired last year that are supplied by Sunoco LP.

The Strip chain which is part of Energy Transfer’s retail marketing segment currently consists of more than 660 convenience stores and is our largest wholesale fuel customer. We expect to realize further gallon growth in 2015 as Stripes plans to build an additional 35 to 40 stores. Stripes’ Texas markets are among the fastest growing in the U.S.

in terms of population, job creation and economic activity. Although falling oil prices are affecting the rig count and the economic activity in the Eagle Ford Shale and Permian Basin areas, there is enough diversification through the system that we were able to take advantage of lower fuel prices for consumers in our other regions.

Average fuel margin for all gallons sold for the quarter on weighted average basis increased by about $0.09 to an average $0.13 per gallon, reflecting partly the new mix of gallons as well as the record fuel margins we saw in the quarter, as Bob mentioned.

You’ll notice the addition of merchandise sales and gross profit to our financial statements this quarter which comes from the MACS and Aloha acquisitions. Along with retail convenient stores does come more labor and operating cost as well as higher maintenance CapEx requirements in the fuel distribution business.

So, the majority of the increases in these lines are related to the retail stores. I’ll also call out we incurred acquisition related cost of $5.7 million for the quarter and $6.5 million for the year that are included in our reported G&A expense. So, looking next at our capital structure and recent financings.

As we previously noted, during the fourth quarter, we utilized our recently extended revolving credit facility to fund the $240 million Aloha acquisition and also to fund $556 million of the MACS acquisition on October 1st.

We used $406 million of net proceeds from the sale of an additional 9.1 million coming units issued to the public to pay down the revolver during the quarter. This was our first follow on offering since our September 2012 IPO.

As of December 31st, we had $683 million drawn on our $1.25 billion revolver plus $11.8 million of standby letters of credit, leaving unused availability of $555million. Since year-end, we’ve been able to pay down part of the revolver and currently have over $600 million of availability.

We remain well within our leverage covenants with net debt to EBITDA pro forma for full year impact of the acquisitions at 4.1 times. During the fourth quarter, we completed purchase and leaseback transactions for 12 new build Stripes convenience stores for a total of approximately $58 million.

That brings us to a total of 33 stores purchased for the full year for $152 million. The sale leaseback transactions accounted for the majority of our 2014 CapEx spending of $173 million of which $4.9 million was maintenance CapEx.

As we noted in yesterday’s new release, we currently expect to spend between $165 million and $215 million on growth capital in 2015, of which the largest component is the purchase of an additional 30 to 35 retail stores from Stripes.

Maintenance capital is expected to increase to range of $15 million to $25 million, reflecting the MACS and Aloha retail stores. There are no additional acquisitions or drop-downs included in these estimates.

We believe we’re well positioned in our capital structure to execute on our drop-down plans to continue the organic growth within our existing footprints and to continue to look for good strategic acquisitions that will drive long-term shareholder value. That concludes our prepared remarks this morning. Operator, we’re ready to take any questions..

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from the line of Andrew Burd with JP Morgan. Please go ahead with your question..

Hi, good morning. So, the ETP wholesale business that’s slated for drop-down, just to be clear, that’s a portion of 6,650 sites in the ETP.

Is there any indication of roughly the breakdown between third-party and affiliated volumes among the plain drop-down assets?.

Hi, Andy; how are you?.

Good..

Good. There is about 80% that would be third-party in those volumes. And that’s right; we’re looking to drop-down basically an interest in the entity that has the wholesale distribution business for the legacy Sunoco..

Okay.

So, would this be structured kind of as an OPCO type structure rather than just dropping down individual isolated assets?.

That’s correct..

Okay.

And then regarding the margin per barrel with affiliates for these acquired assets, the legacy Sunoco wholesale distribution, is there an existing fixed margin in place similar to the $0.03 for Stripes stores or do you have to kind of create those contracts and potentially could that be higher? I guess net-net on a fully consolidated basis, it’s a wash but I guess it matters for tax purposes..

That’s correct. It is a wash. There is a structure in place today; it is higher than the $0.03 per gallon. And we’re looking at that for the entire structure to see what makes sense going forward..

Okay. And then, as you discussed, wholesale distribution broadly had a really good quarter across the country, largely driven by margins capture. One could argue that we kind of saw wholesale peak margins in the question and that was alluded to earlier on the call.

How are you looking at a baseline or a normalized level of EBITDA for drop-down valuations and how that might translate into a deal multiple? And then kind of second part to the question is how do you view valuations of wholesale distribution versus retail businesses and if there is a difference?.

This is Bob. I guess I would start, as we think about drop-downs, keep in mind, we have two companies involved here; they both have boards of directors. We have conflict committees within both boards that will analyze it and we will come up with a fair deal for both sides.

As we think about what we have experienced generally speaking a falling crude environment as constructive for margins at retail. Increased prices have the opposite effect year-over-year. And while we see volatility within a month and we see volatility quarter-over-quarter; year-to-year, we see very kind of stable margins.

As we think about how that translates to our approach, whether it’s M&A activity or whether it’s capital investment, we look at historical rates that we’ve experienced. If you look at the combined business, I think that it’s reasonable to think about something in the neighborhood of a dime, plus or minus.

And you will see reversion to the mean within tenths of a cent year in, year out..

Okay, great. That’s very helpful. And kind of switching gears to the geographic diversification that was mentioned, obviously the decision to drop-down legacy Sunoco assets as opposed to the Stripes retail sites indicated the continued diversification away from Texas.

But with the fear of Texas slowdown, can you comment on how the business that’s currently at Sunoco could be impacted? And maybe more broadly, how wholesale business might be more or less insulated than a retail business should, kind of broader economic conditions, consumer strength and things start to weaken?.

Okay. Well, I guess I would first say that I would not read the -- our choice of asset drop-downs. I would not read the driver of that to be any kind of move away from Texas.

Right? The second point I’d make is there are other factors that made the way we were structured within ETP; the way that legacy Sunoco assets were structured makes this a very attractive and convenient drop vehicle. Second, Texas is pretty big state, right? So, we’re seeing slowdowns in parts of Texas but not in other areas of Texas.

Relative to whether it’s retail or wholesale, I think you see some differences in terms of exposure for us. But overall, we feel very good about it, specifically we’re looking at some capital spending in certain regions; we will take appropriate action where it makes sense.

But we feel long-term, really good about the acquisition that we did; we feel really good about the geography. And overall, we think that our business and our unit-holders are well-served by the diversification we have both in types of operations and in geography. And it’s a time period we’re in right now we think illustrates that pretty clearly..

Great. Well that’s all for me. Congratulations on a strong quarter..

Thanks very much..

Thanks Andy..

Thank you. Our next question comes from the line of Theresa Chen with Barclays Capital. Please go ahead with your question..

Good morning. My first question is actually somewhat of a follow-up to the previous one about I guess historically high margins and increased EBITDA for the past quarter in relation to transaction values.

So, on the third-party front, as you continue to scout and compete for them in the marketplace, do you think that some of these transaction values might be inflated currently, given the very strong fourth quarter? Do you think the market kind of looks through to a longer term, more sustainable rate or do you think people are trying to sell at the very highest that they can and buyers will respond to that?.

This is Bob again. I would say that sellers would certainly take the position and they should get a price consistent with recent margins and with the caveat that you can always run into an irrational competitor. I would think that everybody looks at an investment over a long time period.

And our experience has been that looking at historical margins is a reasonable way to predict where prices will go. And that’s certainly the way we look at businesses. I think we’ll have plenty of this..

I see.

And secondly, so on the NTI front, can you just give us an update on how that’s going and are there any specific geographies that you find more attractive now, given how the landscape has changed?.

Well, we’re -- our current plans are -- and now, I’m going to speak about our business as a total retail business, recognizing that for Sunoco LP, until we complete the drop-down process, new to industry sites won’t all -- the retail operation won’t windup Sunoco LP until we complete it. But in the interest of -- Clare answered your question.

We are continuing with our new to industry development. We have put on hold very few sites that we’re specifically close to some E&P activity that has slowed down. But this year, we will build and open in excess of 30 new ground-up sites that will be a combination of Texas sites as well as some other East Coast geography..

Thank you very much..

Thank you. Our next question comes from the line of Gabe Moreen with Bank of America. Please go ahead with your question..

Hey. Good morning, everyone.

Thinking about I guess again really high margins for the quarter, just is there any guidance you can give us in terms of kind of what thought you view as sort of the historical norm on sort of the margins for third-party customers? And I guess as you’re thinking about your distribution policy and targeting coverage of 1.1, 1.2 or whatever it’s going to be, sort of what you’re using I guess as normalized margin and I think can you sort of set that distribution policy?.

Hi, Gabe, this is Clare. To answer your second question first, we generally look at historical averages, three to five year averages when we’re thinking about the future and expectation. We certainly don’t float in what we’ve seen in 4Q.

For the business as in SUN LP now, on a weighted average basis, across the whole business, we’d be looking at more normalized margins in the high single digits, just under a dime..

Makes sense. Thanks, Clare. And then, follow-up question for me I guess is and it’s kind of hard obviously to figure out what same-store sales are given the acquisition activity.

But can you comment on the fact whether $2 gas in Texas are seeing any improvement in same-store sale and whether that’s something to look forward to?.

Hi Gabe, this is Mary. We are seeing still strong results in Texas. Merchandise sales remain pretty strong in general, without getting into any specifics..

Okay.

And is it true also areas outside of Texas or…?.

Yes. If you look at the business in total, we had a good fourth quarter across the geography. I think as we all look at this, what essentially is a pretty significant tax cut for the retail consumer put more dollars in their pocket, we’re hoping to see more of a response.

In terms of fuel demand, we’re not seeing that today, although there are some leading indicators around new car purchases and things that gives us some optimism.

We are seeing continued strong results in our convenience stores; we are hopeful as people say pick a number $20 on a fill up on a tank of gas, they would walk in and spend that $20 in the store. We’re not seeing a one to one ratio there but we continue to be pleased with the performance of our convenience stores across the geography..

Thanks Bob. One last one for me, a quick one.

Is there around 4x type EBITDA while we’re targeting balance sheet wise going forward?.

Yes, we’d like to keep that in kind of a 4 to 4.5 times range. We make take that higher right after an acquisition but with a view of working that down pretty quickly..

Thanks Mary, thanks everyone..

Thank you. [Operator Instructions]. Our next question comes from the line of John Lawrence with Stephens. Please go ahead with your question..

Thank you. Good morning, everybody..

Hi, John..

Hi, John..

Mary, would you comment a little bit in the Susser days, we gave -- there was a stat this West Texas 25% to 30% of the business at exposure.

Obviously that number to make the point on the diversity is much lower than that; is there a number you’re calling out now of what that would be?.

So John, we used to talk about in terms of the Stripes business, the stores that would be directly impacted by the oil and gas drilling. And that was probably 20% to 30% for Susser; with the combined Sunoco Susser platform, it’s probably about half of that. So, 10% to 15% range is probably ballpark. I don’t have an exact number but that’d be close.

We’re seeing some of our regions will be impacted by the drilling rig counts, take a look at them. But there is a substantial part of our area that’s directly impacted by those rig counts. So, Texas is a more diversified state than it used to be. We’re seeing some really strong economic performance continuing in the market..

Yes.

And not to get too granular on the question about where you’re going to put the new stores, but would the mix of new markets versus clustering continuing out Houston et cetera or is it all over the state?.

It’s within the Texas market; it’s a little bit of a continuation of what we’ve been doing. We’re trying to target where we’re seeing growth areas or some areas where we have less concentration and we’d like to have more concentration. We’re also looking at areas outside of Texas and some of our new footprints to expand on.

We talked about Tennessee, I believe in prior calls as an area we’re looking at..

And I would like to have a store close by here..

I’ll count on you to be a great customer, John..

Exactly, you know that.

Can you tell me, just recent, weather Northeast, any comments there of weather’s impacted last few weeks?.

Yes. First off, it hasn’t impacted SUN LP at all. But for the combined business, we have had some challenges; states of emergency declared where we pulled transport trucks off. I think people have seen Boston recently surpassed 7 feet of snow. We just mentioned Tennessee, Nashville, the ice storm there caused some drama.

But really, from a P&L standpoint, it will be negligible..

And last question for me.

Mary, is there a shelf in place in case for quick offerings or I guess just the question, is there a shelf registration in place?.

John, we had a shelf registration in place; it is still out there. We used a good portion of it with our equity offering. And we’ve not yet updated it..

Okay. Thanks for your help. Good luck..

Thanks..

Thank you. Our next question comes from the line of Mike Beall with Davenport & Company. Please go ahead with your question..

Good morning. I think if I read this right, your debt is all bank debt.

Can you comment on your ability to access, longer term debt and why you would or would not do that?.

You’re correct. Today, we pulled on our revolver and we have not yet accessed the bond markets. That certainly is a very feasible option for us and one that we’ll continue to look at as we complete future drop-downs and other acquisitions as a method of financing for us..

Do you have any early indications as to what kind of rate and terms you might get in that market?.

I think it’s too early to say at this point but I would generally say we’re favorably inclined in terms of what our options may be..

Thank you..

You bet..

Thank you. Ladies and gentlemen, there are no further questions at this time. I would now like to turn the floor back over to Mr. Owens for closing remarks..

All right. Well, thanks. To wrap up, I just would like to thank everybody for joining us here on the call here this morning. I think our entire team is extremely excited about the growth prospects for Sunoco LP through 2015 and beyond.

We also reported yesterday, excellent results for the ETP retail marketing segment which included Sunoco LP as well as the remaining assets that we plan to drop-down into Sunoco LP, reflecting execution and operation, strong results from sensible acquisitions and certainly strong market conditions as we talked about this morning.

And with we’ll continue to be in a good position to capitalize on all of the same. In 2014, we set the stage for building Sunoco LP into one of the leading wholesale and retail marketing platforms in the country.

The team has demonstrated terrific results in the execution of our business operations across all the different segments and the tremendous scale and diversity. As I mentioned earlier, both geographically and across business lines combined with the iconic Sunoco brand, we feel positions us very well for both the near-term and for the future.

And I guess speaking of the iconic brand, I should mention, we’re excited about our continued roll out within Texas. As we said here this morning, we’re right at about 50 Sunoco branded units in Texas and that continues.

I’d like to thank all the members of the Sunoco team for their energy in driving results as we map out our plans to grow and go forward and the focus across all the business lines. As we look forward, we’re excited about the prospects of value creation and earnings growth.

We’ll see that driven by drop-downs, by same-store performance, by organic growth prospects including new to industry sites we talked this morning, and acquisitions as we come across things that are attractive for unit-holders. Speaking about unit-holders, I’d like to thank them for their confidence.

And we firmly believe that they’ll see strong value growth going forward. This concludes our call..

Ladies and gentlemen, this does conclude the teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day..