Sunoco LP (SUN) Q4 2017 Earnings Report, Transcript and Summary

Greetings and welcome to Sunoco LP fourth quarter 2017 earnings call. At this time, all participants are in a listen-only mode. A 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 Director of Investor Relations and Treasury. Thank you. Mr. Grischow, 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 that may include comments regarding the company's objectives, targets, plans, strategies, costs, anticipated capital expenditures, and retail divestment transactions. They are subject to the 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 as adjusted. Please refer to this quarter's news release for a reconciliation of each financial measure. Please note that SUN has moved the operating results, assets and liabilities of our operations that are part of the retail divestitures into discontinued operations. As such the results presented on today's call are based on continuing operations unless otherwise noted. Also a reminder that information reported on this call speaks only to the company's view as of today February 22, 2018 so time-sensitive information may no longer be accurate at the time of any replay. You'll find information on the replay in this quarter's earnings release. On the call with me this morning are Joe Kim, Sunoco LP's President and Chief Operating Officer; Tom Miller, Chief Financial Officer and other members of the management team. Before I turn the call over to Tom, I would like to take a few minutes to walk through the changes in the 7-Eleven transaction that resulted from the FTC approval process. As a reminder we closed on the transaction on January 23rd with gross proceeds totaling approximately $3.2 billion. As you know the transaction includes a 15 year take or pay fuel supply agreement under which we will supply approximately 2 billion gallons of fuel annually with an additional 500 million gallons of committed growth over the first four years starting in 2018. In order to address competition concerns and markets that the FTC identified we will require to retaining 33 fuel outlets, besides the primarily located in Texas, Florida and Pennsylvania. 19 of these locations have already been converted to our commission agent channel and we expect to convert the remaining locations to this channel by the beginning of March. As a reminder, the commission agent structure allows us to have full control over fuel pricing and supply at all these locations and receive a stable rental income stream. Additionally as required by the FTC we will acquire 26 retail fuel outlets that 7-Eleven currently owns for a total purchase price of approximately $50 million. The majority of these sites are in South Texas and about one-thirds of their locations are these simple properties. These sites will be converted into our commission agent model, we anticipate closing on this acquisition and completing the conversion to the commission agent platform by the second quarter of 2018. Finally, we retained 23 sites there along the New Jersey Turnpike and New York Thruway. These sites operate under long-term agreements with the respective authorities and we will continue to assess and implement the highest value option at these locations. In total, roughly 300 million gallons have shifted from the original 7-Eleven fuel supply agreement to alternate higher margin channels within our portfolio. To recap we were able to leverage our channel management strategy with these sites to ensure that we retain all previously reported fuel volumes. The retained volume and EBITDA will allow us to achieve our target leverage and coverage goals. With that, I will turn the call over to Tom.

Thanks, Scott. Good morning, everyone. Before we cover our financial results let's begin by discussing our recent financing activities. On January 23, we issued $2.2 billion of new senior unsecured notes. We use the proceeds from this offering and the $3.2 billion from the 7-Eleven transaction to restructure our balance sheet. On the debt side, we called or made hold on our then outstanding senior unsecured notes with the face value of $2.2 billion. Next we repaid $1.2 billion that was remaining on our term loan, and finally we paid down all borrowings on our credit facility. Importantly this debt restructuring lowered our weighted average cost of debt by roughly 100 basis points and at the same time have extended our average maturity profile by approximately four years. On January 25th, we announced two equity related transactions. First, we called the $3 million Series A Preferred units; and then second, we repurchased approximately $17.3 million units from Energy Transfer partners at the 10 day weighted average of $31.24 per unit. Total payment was $540 million. We believe these options position us to achieve our target leverage ratio of 4.5 to 4.75 times, while delivering a go-forward distribution coverage ratio of 1.1 times. Quickly turn turning to the fourth quarter results, we've recorded net income of $232 million during the fourth quarter. This compares to a net loss of $585 million a year ago, which included a $673 million goodwill and intangible asset impairment charge. Total adjusted EBITDA was $158 million, an increase of $4 million from last year. Fourth quarter 2017 EBITDA includes approximately $25 million of onetime cost related to the 7-Eleven transaction. Wholesale adjusted EBITDA was $12 million higher than last year, while retail adjusted EBITDA declined $8 million. TCS as adjusted was $106 million, an increase of $43 million compare to a year ago. Our quarterly distribution of 82.55 cents per unit has remained constant since July 2016. Distribution coverage was 1.03 times for the quarter and 1.15 times for the trailing 12-months. Now looking at operational performance, total fuel volumes where $2 billion gallons, that's roughly flat with last year. We saw mid-single digit volume growth in West Taxes. The commission agent model allows us to continue to participate in the turnaround in growth in this area. Q4 wholesale volumes was 1.3 billion gallons, 1% lower than 2016. Retail volume was 626 million gallons that was flat with a year ago. The total weighted average per gallon margin was 15.3 cents, an increase of a penny from a year ago. This is due to higher wholesale margin of 11.1 cents per gallon compared to 9 cents per gallon a year ago. Moving on to liquidity, we ended the quarter with total debt to adjusted EBITDA calculated in accordance with our credit agreement of 5.6 times. This was down nearly a full turn from where we ended 2016. Total debt on December 31st was $4.3 billion including $765 million drawn under the credit facility. Unused capacity stood at $726 million, subsequent to our January refinancing activities, our credit facility remains undrawn as of today. In the fourth quarter, we reclassified our retained retail sites including the West Taxes commission agent site as continuing operations. As Scott mentioned earlier, we have classified operating results assets and liabilities associated with the sold retail sites as discontinued operation. Gross profit from continuing operations was $277 million a decline of 6.4%. Additionally income from continuing operations for the fourth quarter was $221 million compared to a loss last year of $122 million. The 2016 loss included a $227 million goodwill impairment charge. Income from discontinued operations net of income taxes was $11 million compared to a loss of $463 million a year ago. That 2016 loss included $446 million impairment charge. In the fourth quarter, Sunoco invested $38 million in capital expenditures consisting of $25 million of growth and $13 million of maintenance capital. In 2018 we expect to spend $40 million of maintenance capital and $90 million of growth capital. In December, we provided guidance on many of these parameters. Please note that we view them as annual run rate. Given the timing of the 7-Eleven close and the commission agent conversion process, we anticipate we will achieve these run rates begging in the third quarter. For full year 2017, G&A expense included on our continuing operation results was $140 million, that's down $15 million from a year ago. This is in line with our projected annual run rate for the new business. For full year 2017, other operating expenses including rent totaled $456 million flat with 2016. Upon conversion to the commission agent model, we project other operating expenses to total approximately $325 million annually and rent expense to run an additional $75 million. As we transition to our new business model, we are confident that any lag in reaching the operating expense and G&A target will be offset by higher fuel margins and overall will be neutral to positive on leverage and coverage. Joe will now discuss the steps we have taken to position the partnership and what it means going forward. Joe?

Thanks, Tom. Good morning, everyone, and thank you for joining us today. As Tom just mentioned, the business performed well in the fourth quarter, with strong wholesale margins and continued cost reductions paving the way for a sequential reduction in leverage and our third straight quarter of cash coverage over one. On a trailing 12 month basis, coverage is now approaching 1.2 times, but more importantly, we have positioned SUN for future stability and growth. We have completed three important steps to get to this position. Step one, was completing the 7-Eleven transaction. This transaction was obviously vital to our transformation. One of the key to this deal was converting one of our more volatile income streams, company operated fuel margins to a 15-year take or pay contract, which is now one of the most stable income streams. Step two was fixing our capital structure. With the recent repayment in full of our term loan and the pay down of all outstanding borrowings on our credit facility we have positioned ourselves to operate within a leverage ratio of 4.5 to 4.75 times for 2018 and beyond. And step three, we have become an overhead and capital light model. Going forward, both our maintenance capital and G&A expense guidance will be 50% less than the average over the last two years. We still have one important step to complete, which is the conversion of our company operated sites in West Texas to the commission agent model. We expect to complete the conversion by the end of the first quarter. And as Tom mentioned earlier, the commission agent model provides us stability to capture the outside of the Permian Basin. With our transformation almost complete, now the focus shift to execution. Going forward, we have a strategy in place that would create value for our stakeholders. The foundation of our strategy is rooted in financial discipline. The first criteria to our growth decisions is ensuring that we maintain our targeted leverage and coverage goals. As far as the delivering on growth, we have an executable growth plan. We have developed a robust M&A pipelines that includes multiple acquisition opportunities. Based on our assessment of various negotiations, we believe that we are well positioned to close on attractive opportunities in the near future. To provide further clarity around defining an attractive acquisition, the following four variables are key. First, our primarily focus is on the highly attractive fuel distribution and logistics sector. The overall sector remains strong. 2016 was the highest gasoline demand on record, and we expect the final 2017 numbers to be just strong. Also the sector remains fragmented and trade at reasonable multiples. Numerous opportunities of reasonable size exists for acquisitions and single-digit multiples. Second we will utilize our scale, brand and buying power to create material synergies. Scale is vital in this business. The synergies we bring to acquisitions allow us to reduce purchase multiples by 1 to 2 turns. Third, we'll utilize a portfolio management approach to balance and stabilize our income streams. As we illustrated in our December management presentation, our wholesale fuel margins have been highly stable year-after-year. As we add future growth we'll properly weight the additional income streams to ensure continued stability. This includes various fuel distribution channels, real estate income and adjacent sectors such as refined product terminals. Fourth, future growth must fit within our capital and overhead light model. Simply put this provides us with higher G&A synergies and higher distributable cash flow. Obviously, there is a show me element. As I've stated earlier, based on our M&A pipeline we are well positioned to close on attractive opportunities in the near future. Upon closing on an acquisition, we will provide further insight that reinforces the key points just mentioned. Let me wrap up. Our transformation to the fuel distribution and logistics business is nearly complete. Going forward, we have a strategy that will create value for our stakeholders. Our focus now is executing and delivering on this strategy. Operator, that concludes our prepared remarks, you may open the line for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Andrew Burd with JPMorgan. Please proceed with your question.

Hi, good morning. Congratulation on a lot of hard working in getting that through the [ph] window. Regarding the M&A opportunity, I appreciate that there is a lot of financial flexibility in 2018 to funds bolt-on M&A with no incremental equity, well thinking about 2019 and beyond can you just describe how you are thinking about financing the big role up opportunity that's out there and what the plan is?

Sure Andrew, its Tom Miller here. One thing we talk to people about is we're going to start all our analysis with a target leverage of 4.5 to 4.75. We're also going to look at things on a 50-50 debt to equity ratio. And to the extent we make acquisitions the numbers have to live within those targets and if they are small, we could open up our ATM, and that's just going to be our strategy moving forward.

And thinking about the cost of equity at current levels, and I recognize that in the past, you have talked 4 to 6 times post synergy types of acquisition. As you do your future planning, given the current cost of capital and your presumed funding mix you have a pretty good level of comfort and visibility that that should the deals materialize at 4 to 6 times that solid accretion could be achieved through their old strategy over long-term?

Yes, if you have those kind of multiples you can easily make them work. There is - it would be nice to have a lower cost of equity, but we don't at this point and we'll continue to deal with reality and move forward with it.

Andy, this is Joe. Just to add a little bit more color to what Tom said, is that we talked about there is bolt-on - using your term bolt-on acquisitions out there, that that trade at very reasonable multiples will bring a material synergies into play. And then obviously at kind of mid-single digit number that can be very accretive for a short-term and long-term. As we execute on this strategy and we have more and more accretion out there, I think we can justify a lower yield on a going forward basis. And then I think as we justify better yield had a better currency I think that positions us well for beyond 2018, with a run way for us to grow.

Yes, and I would agree. And maybe Joe my follow-up is on the 4 to 6 times. I think sometimes investors just had trouble conceptualizing what that type of acquisition might look like. So I don't know if there is any examples over the last couple of years of SUN acquisitions or if you willing to just kind of go hypothetical for us, but how exactly might the 4 to 6 times multiple be achieved, is this something that you buy at 8 and bring it down the synergies and where we see that 4 to 6 times multiple in the run rate, pretty shortly after a deal closes, just trying to maybe give an example and walk us through of potential type of acquisition and how it would work?

Sure Andy, let me - in my prepared remarks, I talked about this is the show me story, and also I mentioned that we believe we had some attractive opportunities in near future. And as we actually complete these I think we can provide a lot more depth into how this works. Some of the data points I think that are public that you can use is first of all, if you look at over the last three years and look at publicly disclosed M&A activities, quite frankly there is not many out there, but whatever - what is out there you will see that depending on what kind of sources you use, they are averaging somewhere around the 6, 6.5 type of multiple on public information. So that might be a good starting point. And looking back at our past history and some visibility into what we are looking at right now, I think it's very supportive of what I said to you before that these the fuel distribution sectors trade sometimes somewhere around that mid-single digit type of numbers. As far as a couple of other statements that we have made is that we think that the industry is fragmented and there's numerous opportunities, and we have an executable run way, just to kind of some prospect upon that. The number of distributors in the U.S., we're talking thousands of distributors. The bulk of these are very, very small. Then you talk about who are some of the bigger distributors out there. Sigma is a fuel distribution trade organization. They've roughly about 250 members. The average volume of these guides are above 140 million gallons and some of these guys own a terminal or two, along with that. So, whenever, I mentioned the word numerous and fragmented, you take all of these thousands of smaller ones and say some of the bigger of the distributors out there. We think that these are the type of targets out there that we can roll up at very reasonable multiples. And as far as on the synergy side, they come kind of in two ways, one is from a commercial synergy standpoint, we're one of the biggest out there and scale is vital in this business and we will bring our buying power and our brand to get a margin uplift. And secondly, when did this transformation from a retail centric to a fuel distribution and logistics company, we gave a guidance of 140 million in G&A on a going forward basis. Obviously that's significantly less than what we are running before, at the same time, we didn't do this change in order to stop there. We did this change within our mind. We want to grow going forward. So our $140 million of overhead has room in there for us to grow on a going forward basis, and to obtain the more the SG&A synergies.

Great, that's exactly the insight I was looking for. Thanks very much and nice quarter.

Sure. Thanks, Andy.

Our next question comes from the line of Theresa Chen with Barclays. Please proceed with your question.

Hi, there. Just wanted to first follow-up on end and ask some clarity around the multiple range you gave. So for acquisitions are these specifically fuel distribution businesses without physical store assets possibly maybe a fine product terminal or two, but without like a sea store operations, without land and potential rental income?

Hey, Theresa. I think, whenever one of the points that we talk about is that we manage fuel distribution is a very general term and then within fuel distribution there's all different types of channels. In Scott's remarks he talked about using our channel management strategy there we will go after assets that could be purely a contract to an asset that has all embedded real estate. We would even go after a target that actually the company operate despite that could or could not own their real estate. The way that we go about doing this is first of all we're not going to run company operated stores over the long run. We may acquire a company operated store, but we'll use our vast channels and our vast customer network and relationship to channel manage of that to the highest realization for us. Keep in mind that we want to keep a balanced portfolio that drives stability. So, we'll go through a weighting process where we're interested in all different channels, but we want to make sure that is properly weighted and we're not over weight in one area, so that we can drive stability going forward.

Got it. And turning to the quarter, Steve strength in the wholesale margin in Q4, are there any put and takes to this number if there was any temporary contributing factors that we should be aware of?

Hi, Theresa, this is Karl. I think the way to think about it is margin fluctuate months to months in this business. There's no line items that we've broken out. Joe talked about our scale and our ability to add margin on the purchasing side. I think the best way to think about that is, we are comfortable with our guidance of the 8 to 9.5 cents, we came in a little above that, but there is no specific puts and takes, and we feel comfortable with that guidance going forward.

And Theresa, let me add one other thing to Karl's comments, we gave guidance kind of on a back half basis, after you incorporate the 7-Eleven deal and you incorporate the West Texas commission agent deal. And I just want to kind of clarify that the guidance that we gave from 8 to 8.5 was a quarterly guidance. I'm sorry, from 8 to 9.5 cents that was a quarterly guidance, meaning that - mean that there's going to be some quarter-to-quarter fluctuations. However, if you look back at the December presentation, and we'll update that in the near future. You'll see that our annual margins have been somewhere between you look back three years somewhere between 9.2 to 9.5 cents it's a pretty tight span out there. So when you look at our quarterly guidance that is to look at quarter-to-quarter. But on annual basis if you use the last three years as a history it's pretty tight it's definitely on the high end of that. And also as we - the one factor that wasn't in the December presentation was we didn't put in the FTC impact. Remember we kept a few sites, we bought a few sites out there collectively these are going to be higher margin sites. So that might give a little bit of a slight boost on top of the annual guidance and the quarterly guidance that we provided.

Got it. And when I look at the step up in the merchandise sales and gross profit from third quarter to fourth quarter, was this as a result of the FTC issues and you were going to sell those sites, but now you're converting them into commission agent sites or was there just underlying strength and we should expect this going forward?

Theresa, what happened between Q3 and Q4 was the migration of those 200 sites in West Texas to continuing operations. So Q3 had contemplated those being sold and were included in discontinued operations, whereas in Q4 those have now been brought back into continuing operations, which would have boosted not only merchandise sale, but retail fuel sales.

Okay. But as we go into 2018 - the rest of 2018 after you convert those to commission agent sites by the end of first quarter that merchandise gross profit will go away?

That's correct.

Thank you.

Our next question comes from the line of Ethan Bellamy with Robert W. Baird. Please proceed with your question.

Hey, guys. I just want to see if we can get into this margin question a little bit more, I mean, is there any - can you tell us what the margin environment like today looks like? And just help us out on bracketing the modeling maybe through the balance of the year?

Sure, this is Karl again. Just building on my comment earlier month-to-month margins in our business can be impacted by commodity price movements. So if you look at commodity prices in December and January they obviously were rising, which can compress wholesale retail margins, but then in February we've downward movement that has opened them back up. So that month-to-month or even seasonal variation is typical, but even with that we remained comfortable, very comfortable with our overall margin guidance. And as Joe mentioned, that our annual margins are going to average at the top of that guidance. Again one point I'd make as you look at our wholesale segment as reported in the Q is slightly different it's a different portfolio of income streams than the pro-forma that we put together for you on an ongoing basis. So I'd guide you more towards the pro-forma numbers that we put together we've done some work in back casting what our portfolio stream is going to look like on that basis.

Yes, I just want to add a little bit to Karl's point. The Q4 numbers that you're seeing in continuing operations that does not include the impact of what the wholesale distribution will be from 7-Eleven. The guidance or run rate that we've talked about of 8 to 9.5 cents has made that pro-forma adjustment as well as the commission agents that we've talked about.

Okay. And then with respect to your M&A financing going forward you mentioned using the ATM, I would imagine that you would be assuming that your real long run cost of equity would improve overtime. So can you tell us when you're doing M&A, I know you probably don't want to say specifically, but maybe bracket what you think your actual cost of equity and maybe your total weighted average cost of capital is for purposes of figuring out whether an M&A deal is going to be accretive or not.

Well, right now we use the yield and add a little bit for IDRs on our cost of equity, I think, we've benchmarked our cost of debt pretty well and we look at it on a 50:50 basis. The mistake we made in the past was as we didn't issue the equity when we were spending the money and that pushed our leverage up. And we're not going to do this again it's that simple.

Good to hear, thank you very much. Appreciate it guys.

[Operator Instructions]. Our next question comes from the line of Mike Gyure with Janney. Please proceed with your questions.

Yes, good morning. Can you just talk a little bit about the $90 million of growth capital that you have budgeted for 2018. Maybe I guess what's you're looking out there as far as maybe geographies, footprint assets, just to give us some kind of flavor of what you're looking out there.

Mike, this is Joe. The $90 million of growth capital, the majority of that is in the wholesale channel. So this is growing our dealer network, growing our distributor network, growing our commission agent network. So the vast majority of that is on new accounts. The way the business works is that it takes most [ph] of capital to sign people up. And we believe that these have been - really this has historically been a very solid return for us. So we have in our budget right now $90 million. I will say this is that based on the opportunities that are out there, if we have highly accretive projects, and then it's going exceed the $90 million budget, I think, it would be very prudent for us to look at that. And we would love to be in a situation where we budgeted $90 million as guidance, but we have more clients and the customers that we could sign up at that point if it's accretive. That would be an opportunity for us to actually go up on that. As far as other areas, as far as on the growth capital and these are definitely small areas. One other important income stream for us is rental income. And so there is opportunities for us to enlarge size or use land in order to generate better income for our customers out there. So we have a small portion of that that goes through that. And then various other areas is a little bit on the technology side. We're developing continue to refine an app for our customers. And so there is some growth capital in that that we believe as we develop apps that are more consumer friendly that we can drive additional volume for our customers. And as a result of that there will be more volume for us.

Okay. And then maybe I guess as an off skew to that. Can you maybe give us a round number of kind of where you're at from a distributional location here maybe at the end of January? And then I guess concerning that growth capital, what kind of volume growth you expect or think about I guess in conjunction with that $90 million if you look at it by volumes or locations or how you look at that?

I'd say look, you're talking as far as the specific breakout between each of the channels like dealer distribution. Is that what you're talking about?

Or just in general. Just size wise.

Okay, size wise. Okay, let's kind of get back to you on that one as far as getting some more detail as to exactly by size wise.

Okay, thank you.

Thanks, Mike.

Our next question comes from the line of Chris Sighinolfi with Jefferies. Please proceed with your questions.

Hey, guys. This is Corey [ph] filling in for Chris. Just first quick one from us, the maintenance CapEx budget that you guys had assumed was going to take place for full year 2017 as of 3Q is about $70 million came in obviously a lot lighter than that and so I think that $22 million in savings in 4Q alone. Anything there that you guys can comment on? Is that retail related, is that something that you guys can implement on out years to lower that $40 million on a go-forward.

We spent a lot of time developing the $40 million. And we think that that is representative of what we're going to spend and we're sticking with it. In terms of fourth quarter, I would just say it came from a lot of different places. And there is nothing one that I would want to point at, at this time.

Okay. The second question maybe just to ask about the M&A stuff a little bit differently. Given that 2017 was the first full year of the Emerge acquisition. Can you guys tell us if it's not too difficult to how much EBITDA Emerge generated in 2017?

This is Karl. Yes, we don't typically break that out on a segment basis. But, I guess, I can comment on the acquisition we've made. We've had - we've been happy overall with the synergies and folding that into our operation, it's been an creative acquisition for us. We've had, I think, we've talk about our diesel hydro-treaters that we were putting in, in Birmingham, obviously in 2017 we had some delays on that project that delayed some of the synergies, but not up and running and like I said overall it's been creative to us.

Got you, okay. And then Joe, maybe just last one for you, might be too early in the year and I apologize if this was discussed and I missed it. But any commentary on wholesale margin trends year-to-date just through the first two months of the year anything that you are seeing out of the ordinary just given the quick horizon, crude prices albeit off from highs, anything that you can comment on?

As Karl said earlier, December and January crude prices going up and that's typically compresses wholesale and retail margins, but we see February turn the other way. So the thing that I would just - on our vast number of experience of being in this industry out there, the important thing to keep in mind is month-to-month there is going to be some ups and downs out there, but if you just look back at our history, and I said this a couple times today, if you kind of back cast the impact of the 7-Eleven deal and the West Taxes deal, our margins on annual basis have really hovered for the last three years between 9.2 and 9.5 cents. And that's the ability is I think a one of our keys to transforming the company was you take 2 billion gallons for 7-Eleven you lock that in for 15 year add a set margin on top of that you have another 500 million gallons that we're going add over the next four years at a set margin. It has a very powerful impact on stabilizing margins and that's what we're doing with our current portfolio and as we look forward as we grow, that's what we'll continue to do. Make sure that we have a diverse portfolio that delivers consistency on a more of an annual basis. But it's kind of go on a - I understand your question Corey, but it can't go on a month-to-month basis, I think which is you say one thing this month and next month, it can turn around the other way. But the sector has shown that is it - the fuel distribution sector that wholesale margins have been stable and for Sunoco we're - we would - I would argue one of the more stabilize out of the wholesale sector because of our take or pay contract, our significant real estate and other channels that we're able to utilize.

No, totally I understand that, I didn't mean to ask that from month-to-month volatility, just to know if anything to start the year with out of the ordinary or something that was inline. But I appreciate that commentary. And just one very quick one and I'm sorry if this was said earlier, the same-store sales the number I see that you guys gave it for the merchandise in the press release, did you guys provide commentary for what same-store volumes looks like on the wholesale for 4Q?

It was mid-single digit around 5%.

Awesome, great. Thanks guys.

That's West Taxes, so I just to be clear.

Our next question comes from the line of Sharon Lui with Wells Fargo. Please proceed with your question.

Hi, good morning. Just wondering if you give, I guess, a status or an update on your cost reduction efforts, how should we think about I guess your expense guidance and how that should trend on a quarterly basis and what quarter should that normalize?

Well, first of all I think we did on the continuing operations, I think when you look at our G&A, we cut cost quite a bit. The numbers are a little bit hard to fab and through, for the year we had $47 million transaction related costs. Some of that shows up there. Going forward Sharon, we feel really good about the 325 and for other OpEx and the $140 million for G&A.

Okay. And I guess from a quarterly standpoint, as you transition your commission model, how should those expenses trend, should we expect that number to decrease on a quarterly basis to get to that annualized guidance or…

I would think you should see the run rate in the third quarter. Obviously first quarter to use a bunch of your words was noisy - fourth quarter was first quarter is also going to be noisy with the transaction and the move to co-ag. Second, we'll have a hangover and then in the third quarter we should be at a run rate.

So Sharon, one thing to keep in mind is that third quarter is I think conservatively will be at a very clean number, but second quarter will be significantly cleaner than the first quarter. But as for the G&A side or OpEx that's a little bit higher than whenever we're completely done. Also keep in mind that we're also generating additional revenues by having our company operators' tours for the first 23 days of the year and then having the commission agent, having our West Texas assets for the full first quarter. So net-net, I think, Tom mentioned in the prepared remarks after you - until we get to a clean run rate we think that if you balance off additional cash versus additional cash going out on G&A and OpEx we're going to be neutral or better.

Okay, that's helpful. And just wondering any impact on the volumes today given the extreme weather patterns, Q1 volumes?

This is Karl, nothing material worth talking about.

Okay, great. Thank you.

There are no further questions in queue. I'd like to hand the call back over to Scott Grischow for closing comments.

Thanks everyone for joining us on the call this morning. We'll talk to everyone soon. Thanks.