Greetings, and welcome to Sunoco LP's fourth quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Anyone needing operator assistance, please press star zero from your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Scott Grischow, Senior Vice President of Finance. 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 Operating Officer, Austin Harkness, Chief Commercial Officer, Brian Hand, Chief Sales 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 reconciliation of each financial measure. The fourth quarter capped off a record year for Sunoco. The integration of our fuel distribution business, with the strong and stable pipeline and terminal network, increased our stability, strengthened our financial foundation, and enhanced our opportunities for growth. In the fourth quarter, the partnership delivered adjusted EBITDA of $446 million, excluding approximately $7 million of one-time transaction expenses. We spent $74 million on growth capital and $58 million on maintenance capital. Fourth quarter distributable cash flows adjusted was $261 million. Trailing twelve-month coverage ratio at the end of the quarter was 1.9 times. Turning to some key highlights from our full-year 2024 performance, our adjusted EBITDA excluding transaction-related expenses was $1.56 billion, representing a 62% increase compared to 2023. I'd like to now take a moment to review how we achieved these record annual results. First, we began 2024 with an adjusted EBITDA guidance range of $975 million to $1 billion. Even after the strategic divestiture of our West Texas assets in April, the…

Thanks, Scott. Good morning, everyone. Our results this quarter finished out a record year for Sunoco as we strengthened our portfolio and significantly grew our cash flows. With the addition of the NuStar assets, we now have a balanced mix between our fuel distribution business and our midstream asset portfolio. Each of our three segments demonstrated strong performance in 2024 and are set up to materially contribute to delivering on our 2025 guidance. Let me share some more perspective on our fourth quarter and full-year results by segment. Starting with our fuel distribution segment, adjusted EBITDA was $192 million compared to $253 million last quarter and $209 million in the fourth quarter of 2023. We distributed 2.2 billion gallons, up 1% versus last quarter and down 2% versus the fourth quarter of last year. Reported margin for the quarter was 10.6 cents per gallon compared to 12.8 cents per gallon last quarter, and 11.8 cents per gallon for the fourth quarter of 2023. Let me put the fourth quarter results in perspective. As I have shared in the past, the basis of our gross profit optimization strategy is to maximize what the market provides. This results in some quarters being higher volume and lower margin, and others presenting higher margin opportunities. When you look at our fourth quarter performance and adjust for the sale of our West Texas retail business in the second quarter, our results were consistent with the fourth quarter of last year, reinforcing that the segment results were very good this quarter. When we step back and look at the full year, the strength of our fuel distribution segment is even more apparent. We reported over $900 million of adjusted EBITDA, and we set a new fuel volume record even with the sale of West Texas and…

Thanks, Karl. Good morning, everyone. We delivered a very strong 2024. We came into the year financially healthy, and we finished the year bigger and stronger than where we started. Within a very eventful year, there are a few highlights that I want to point out. The NuStar acquisition was obviously the headliner. This was a home run acquisition. The integration is done. Our balance sheet goals were achieved in less than six months. Synergies are flowing to the bottom line, and thus for our equity holders, we've already delivered double-digit accretion within the first year of ownership. This acquisition was obviously our biggest to date. But we have also shown our ability to deliver disciplined value-creating growth year after year. Here are a couple of insightful metrics that support this. First, our credit profile continues to improve. We've had multiple credit rating upgrades since 2022. Second, our DCF per common unit continues to grow. In fact, Sun is the only AMZI constituent to grow DCF per common unit for the last eight consecutive years. And most importantly, we expect both of these metrics to continue on an upward trajectory. Strategically, the addition of the NuStar assets provides income diversification. We now have three strong stable business segments. Looking forward, we expect the fundamentals for all three segments to remain very attractive in 2025 and beyond. We're off to a strong start, and we expect 2025 to be another record year. Let me finish with one final thought. We've gained a solid reputation as a thoughtful defensive play within the midstream sector. Given our ability to deliver strong results in volatile commodity environments as well as challenging macro environments such as inflation and even pandemics, I think it's well deserved, and we fully expect to positively differentiate ourselves within future challenges. But let's also recognize that we are also a growth play. The products that we move and distribute will continue to fuel the US and other economies across the world for decades to come. We have positioned ourselves to be a consolidator. We have a strong track record of identifying and delivering on value-creating growth. And finally, our strong performance coupled with an equally strong financial outlook has resulted in distribution growth for our unitholders. This is the third year in a row that we have stepped up the percentage increase. We started with 2%, then 4%, and now we have targeted at least a 5% annual increase for this year. Our ability to accretively grow positions us to increase distributions on a quarterly basis not only for 2025, but over a multi-year period. 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. You may press star two to remove yourself from the queue. Since using speaker equipment, it may be necessary to pick up the handset. Thank you. And the first question today is from the line of Justin Jenkins with Raymond James. Please proceed with your questions.

Great. Thanks. Good morning, everyone. Karl, you hit on a lot of but I wanted to ask on fuel distribution in your opening remarks. But I'd maybe like to unpack some of the fourth quarter here and your early outlook for 2025. It does seem like that lack of volatility that we had in both gasoline and diesel prices impacted fourth quarter fuel distribution results. But anything else that you maybe call out for 4Q and share early thoughts on 2025 business trends. And then if I could just sneak in maybe your thoughts on tariff and if or how that would impact business and maybe generate opportunities for you guys.

Yeah, Justin. This is Austin. Just a couple of quick housekeeping notes, I want to make in reference to the CPG reference in your question. But then I get into the results and performance trends and kind of outlook going forward. As a reminder, as we've shared and as Karl alluded to in his prepared remarks, the divestiture of the West Texas business and the move to segment reporting where we moved Transmix out of fuel distribution into terminals was worth about a penny of reported CPG margins. That's just something to keep in mind going forward. And separately, as we've shared in the past, I think the way that we think about the business and certainly the way that we manage the business and maybe helpful lens to kind of interpret the results is really fuel profit versus volume or margin, which, you know, we really don't target a specific number or, you know, we're optimized around either one of those variables independently. Now that said, looking at results, the fourth quarter was a strong quarter. If we take a step back and look at 2024 overall, it tracks very closely with how we the and Karl mentioned in his prepared remarks, and we've shared in the past, there's going to be quarter-to-quarter variability in the business. Over a twelve-month period, it's going to consistently grow. Right? And when you look at 2024, that's exactly what happened. Right? So we had quarter-to-quarter variability. In fact, I think the harshest criticism maybe you could levy against our fourth quarter results is just the fact that they followed two consecutive record quarters in Q2 and Q3. Right? And so when you take the year as a whole, adjusted EBITDA for 2024 was up 5% year over year for the segment. And that's without the benefit of our West Texas business for close to eight months. So the underlying fundamentals are as strong as ever for our fuel distribution business. Regarding our outlook for 2025 and beyond, there's a couple of things I'd share. First, the macro environment continues to be constructive. Breakevens remain elevated, and we're seeing some signs of stabilization in demand for refined products based on the last couple of EIA prints. Looking at Sunoco specifically, we entered 2024 from a position of strength and momentum. And now with the NuStar acquisition under our belts, the business has never had a stronger foundation in terms of our asset base and scale. And so when you take that combined with our commercial teams and track record of execution, I mean, the business is really well-positioned for growth not just in 2025, but beyond.

It's Justin, this is Joe. Let me fix the back half of your question about tariffs. As everybody knows, it's early. It's still exactly how everything's going to play out still undetermined, but there are a couple of things that we do know. First is that all variables equal, we know that higher tariffs mean higher prices. And within a higher inflation scenario, I think, Sun, we have a very demonstrated good track record of delivering strong results in inflationary periods. Our scale, our commercial capabilities, and our ability to manage expenses really pay off in this situation. The second thing that we know is that uncertainty leads to volatility. I think last week early last week was a good example that whenever the news came out about the Mexico and Canada tariffs, we saw commodity prices skyrocket, pop really fast. I mean, as continuous news came out, it dropped right back down. Again, we do very well in volatile commodity environments, and we expect volatility to remain high on a going-forward basis. The bottom line is we see this as an opportunity to distinguish ourselves, and we feel very confident about our guidance that we put out for 2025. We feel very confident ongoing for 2026 and beyond.

Awesome. Super helpful. Thanks, Joe. Awesome. Hey. I guess the second question, if I could, is on growth CapEx of at least $400 million. Maybe help us understand the cadence of how you expect growth CapEx to be spent and maybe how long you think that growth CapEx run, whether it's on here.

Yeah. Justin, this is Karl. There's a couple of pieces to that related to growth CapEx. Really, the first point I'll make is our growth CapEx is not made up of a lot of big projects. It's really what I call optimization capital, either signing up new customers in our fuel distribution business or some optimization of our assets, particularly on the NuStar side, maybe to extract some of the commercial synergies we've talked about. So we have flexibility in those numbers. I mean, some of you saw that our 2024 capital spend was a little lighter than our original guidance. We had some slippage of projects into 2024. We've already accounted for that in our 2024 guidance. We have additional flexibility to flex that up and down as there are other opportunities. For example, roll-up M&A opportunities if we think that there's more of those we can adjust that growth capital. And then I think the final point is because of that flexibility, the time between when we spend the capital and when we're collecting the EBITDA or the cash flow from those is on the shorter side compared to maybe some other midstream companies. So I would expect you to see continued growth. I mean, we've talked about our DCF per common unit growth. I think it's the combination of that M&A, extracting synergies, and us putting growth capital to bed that have delivered that.

Thank you, Rob.

Thank you.

The next question is from the line of Theresa Chen with Barclays. Please proceed with your question.

Morning. I wanted to touch on your previous comments on the macro outlook. On, you know, recent refining earnings calls, there have been comments by management teams indicating their bullishness for refined product demand. Or at least stability on a go-forward basis and into the next decade. Can you share your outlook on refined product demand across your own assets?

Hey, Theresa. It's Joe. Theresa, as you know, we've been very consistent about our bullish view on the long-term attractiveness of the refined product sector. However, lately, I believe the sector has been somewhat overlooked and undervalued. And one of the reasons could be the investor focus on AI and the impact on the natural gas market. I get it. It makes a whole lot of sense. But strong fundamentals and a strong future outlook matter too. You know, currently across the world, over 90% of transportation energy comes from refined products. Another 5% comes from renewable, and you know that we also distribute renewable. However, over the last five-plus years, energy transition news has dominated the headline, making it sound like consumers will be driving EVs all over the place within a decade. And we all know that any attempt to do any major foundational change takes decades and decades. And also, the pension on the policy direction can change dramatically. You know, even recent examples really highlight this. There are policy discussions right now around the elimination of EV subsidies and also around rolling back CAFE standards. With all that said, I strongly believe that refined products will continue to fuel the US and world economies for decades and decades to come. And for Sun specifically, we're positioned as well as anybody to capitalize on it.

Thank you. And then just on the pipeline segment, would you be able to provide us some more details on the volume cadence, the uplift that we saw recently was that primarily trip-related and then just the related EBITDA step-up? And how should we think about forecasting this segment on a go-forward basis? Thank you.

Yeah. You bet, Theresa. It's Karl again. Yeah. Our fourth-quarter performance in the pipeline system segment was strong. And really, I think highlighted what that segment can do when volumes are higher. We added some additional help from MVCs in the quarter. On the EBITDA basis, I think there are a couple of contributions to that. Our Permian JV, you already saw some sequential growth from the third quarter to the fourth quarter. And then on the overall volumes, which you referenced, I think the absence of any kind of major downtime of refineries that feed our pipeline systems really contributed to the step-up in Q4 versus Q3. Then in addition, a few of our pipeline systems are really tied to agricultural markets, and so you had some seasonal strength in the fourth quarter. The only other comment on forecasting that, I think similar to Austin's comments earlier on fuel distribution, we don't take any of our segments and say, hey, we're going to take a quarterly result, multiply it by four, and that's what our annual result will be. I think we look at all of them over a twelve-month rolling basis because there are going to be puts and takes, different contracts with MVCs or different seasonal demand, or there's always going to be some downtime on refineries, especially on these inland systems that feed our pipeline systems. But, you know, we now have eight months under our belt of operating that segment, and we like the asset base, we think it's going to be a strong contributor going forward.

Thank you.

Your next questions are from the line of Spiro Dounis with Citi. Please proceed with your questions.

Thanks, operator. Good morning, team. Wanted to go back to the distribution quickly and Joe pick up on some of your comments around at least 5% growth. That at least component is a slight change from some of the language in December. And so just curious, you know, kind of what's changed since then, and what's the mechanism to accelerate that growth above 5%?

Hey, Spiro. It's Joe. Hey. You know, I'll repeat what I say constantly. You know, one of our top capital allocation priorities is maintaining a stable and growing distribution. And you know, in my prepared remarks, I talked, you know, more about the DCF per common unit. That's really one of the foundations of why we have so much confidence. You know, we just delivered, like I said, our eighth consecutive years of growing DCF per common unit. And more importantly, we expect that trend to continue. So really us stating, you know, stepping up from two, four to five and putting at least on there is really just a reinforcement of the confidence we have in our business that our fundamentals are looking good, our ability to accretively grow while still managing the balance sheet. We feel confident. We gave guidance in December for 2025. Fast forward to February right now, even with all the questions around tariffs and other things, we feel just as confident or more confident that we're going to deliver in 2025. So I think the way you should probably take the total at least is 5% to floor for 2025, and the takeaway should be not just for 2025 at least. I think you should take away that this is a multi-year distribution increase that we would start administering on a quarterly basis.

Got it. Got it. Helpful color on that. One, maybe just going to a bit of a cleanup item here. I think the first quarter is typically when we see the 7-Eleven makeup payment's been a feature over the last few years. I know you don't explicitly guide to it. Maybe just help us understand what degree that could impact one Q?

Yeah. This is Austin. It's trending a little higher than last year, so it's going to be approaching approximately $30 million.

Alright. Perfect. Easy enough. I'll leave it there. Thanks, gentlemen.

Thanks, Spiro. Thank you.

Your next question is from the line of Jeremy Tonet with JPMorgan. Please proceed with your question.

Hey. This is Noah Katz on for Jeremy. Thanks for the question. First, I wanted to touch on any future accretive M&A going forward. I know most recently, you guys completed the acquisition of the refined products terminal in Portland, Maine, but you've spoken about opportunities in both Europe and the Caribbean. What does this opportunity set look like, and what is the potential size of these opportunities? Thanks.

Yeah. Noah, this is Karl. As you mentioned, a couple of our recent deals were in Europe earlier this year than in the Caribbean a little over a year ago. And I think both of those areas geographies are interesting to us. Here's how we think about them. We use similar criteria that we use or we have used here in the United States. You know, whether a target has stable cash flows, whether it has synergy opportunities, whether it has potential for growth, and ultimately, the valuation that we pay to acquire the assets. And both the Peerless deal in Puerto Rico and then the Zena's deal that we did in Europe last year met those criteria. Now whenever you take a step into a new geography like that, the synergy potential is a little smaller, just because you don't have density in those markets. As we look for future growth, you know, that only increases our possibility for synergies. And so those are both areas that we're interested in. And just to give you a flavor of what we've done, you know, the Peerless deal that we did wasn't very big. In the scheme of things of our whole company. But already in about a year and a half, we've been able to double or I guess a little over two years. We've been able to double the EBITDA that we acquired. And so we think there's opportunities both in Europe and in the Caribbean. One more comment on Europe. You know, there might even be a parallel with California. Where, you know, at least in the United States, it's one of the most stringent low carbon fuel environments. But that also comes with difficulties in building and expanding. And as you look in California right now, our assets that we bought with NuStar, those are some of the most highly profitable and highly valuable assets that we have in our network. And so we think that same possibility exists as we build our terminal network in Europe.

Thanks for that. And as a follow-up, can you provide any update on or incremental details on the crude and produced water JV with ET? Do you guys have any updated thoughts on EBITDA contribution or impact to results? Thanks.

Yeah. I think I mentioned a couple of comments in my prepared remarks, but I mean, the bottom line is we're super happy with it. I mean, you've already seen some sequential growth from the fourth quarter to the third quarter. And the exciting thing is, you know, all the integration activities between the two systems aren't even complete. You know, they're in progress. But I'd expect as we go into 2025, the value that's unlocked by combining those two systems will become more apparent. And then it just provides a bigger platform for growth. So we're excited as we look forward to 2025 and beyond.

Thank you.

Thank you. There are no further questions at this time. I would like to turn the floor back to Scott Grischow for closing remarks.

Thanks for joining us on the call today. As we said, there are a lot of great things to look forward to in 2025 for Sunoco. So please feel free to reach out if you have any questions. Thanks for tuning in, and always appreciate your support.

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