Hello, and welcome to the Sunoco Third Quarter 2022 Earnings Conference Call. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Scott Grischow. Please go ahead.

Thank you, and good morning, everyone. On the call with me this morning are Joe Kim, Sunoco LP's President and Chief Executive Officer; Karl Fails, Chief Operations Officer; Dylan Bramhall, Chief Financial Officer; and other members of the management team. Today's call will contain forward-looking statements that are subject to various risks and uncertainties. These statements 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. I will now turn the call over to Dylan to discuss the third quarter results and our outlook for the remainder of 2022 and our recently announced Peerless Oil & Chemicals acquisition.

Thanks, Scott. We reported very strong third quarter results. The steep and persistent decline in commodity prices and continued volatility enabled strong margin capture. The meaningful capital that has been deployed over the past year is delivering strong returns, and we continue to find new attractive opportunities to invest capital, both organically and through acquisitions. Our balance sheet is strong with leverage below our 4x target, and we continue to generate meaningful cash flow for redeployment. Sunoco's consistent financial results through our commodity cycles in various macro environments are a hallmark of our partnership, and we expect a solid finish to 2022. Moving on to Q3 results, the partnership recorded net income of $83 million and adjusted EBITDA of $276 million, compared to $104 million and $198 million, respectively in the third quarter of 2021. Volumes were approximately 2 billion gallons, up about 1% year-over-year. Fuel margin was $0.139 per gallon versus $0.113 per gallon in the third quarter of 2021. The fuel margin benefited from some timing impacts that added approximately $0.013 per gallon. Total operating expenses in the third quarter were $131 million, up from $113 million in the third quarter of last year. This increase was primarily driven by our deployment of growth capital, namely the NuStar and Gladieux Energy acquisitions and bringing the Brownsville terminal into operation. Third quarter distributable cash flow as adjusted was $196 million, yielding a current quarter coverage ratio of 2.2x and a trailing 12 months coverage ratio of 1.8x. On October 25, we declared an $0.8255 per unit distribution, consistent with last quarter. Leverage at the end of the quarter was 3.7x, a decrease from the second quarter reflecting higher EBITDA and lower revolver borrowings. We expect to maintain leverage near our long-term target of 4.0x as the year concludes. In Q3, we began gasoline blending operations in New York harbor at our Linden terminal, which contributed to some of the strength in the quarter. Earlier I mentioned some timing impacts to fuel margin which are primarily related to this activity. Due to commodity market structure and inventory balances, approximately $25 million of margin was accelerated from the fourth quarter, benefiting the third quarter. Therefore, from a margin perspective, it will make sense to look at the second half of 2022 in its entirety. As a result of the strong performance year-to-date, and our expectations for the remainder of the year, we are again increasing our full year 2022 adjusted EBITDA guidance to $845 million to $865 million, excluding the recently announced Peerless Oil & Chemicals acquisition. This $70 million acquisition expands our operations into the Caribbean and will be immediately accretive to unitholder value. An expected 5x to 6x times EBITDA multiple including synergies, this transaction demonstrates our continued ability to deploy capital at attractive valuations, while expanding and diversifying our core operations. 2022 is closing on a strong note and further demonstrates the continued effectiveness of our capital allocation strategy to enhance unitholder value. The three foundational pillars are: one, maintaining a stable and secure distribution for our unitholders. Second, protecting our balance sheet through debt pay down when prudent; and third, disciplined investment and growth opportunities. With that, I will now turn the call over to Karl, to walk through some operational details underpinning our third quarter results, the remainder of 2022 and the attractive opportunity that we see in Puerto Rico.

Thanks, Dylan. Good morning, everyone. Our team delivered another very strong quarter supported by exceptional margin strength, consistent expense discipline, and solid operations from both our core business and our recent investments. Starting with volumes, we were up about 1% in the third quarter versus the third quarter of last year and flat with the second quarter of this year. As prices have fallen from mid-year highs, we've seen improved volume performance relative to prior years, which is an improvement from our second quarter commentary. While there are various factors that can impact volumes, particularly on the gasoline side, we believe that the steep decline in prices during the third quarter contributed to this performance. As we look forward, the direction from here will depend largely on the trajectory of fuel prices and that of the broader economy. The good news is that regardless of the path that volumes take, we're confident that margins will support consistent cash flows, as breakevens continue to provide a reliable volume offset, and our margin optimization strategies deliver protection on the downside and benefits in favorable conditions, as we experienced this past quarter. On to margins, which were very strong in the third quarter. There are a few points worth highlighting. First, prices fell significantly during the quarter with RBOB decreasing over $1 per gallon and diesel falling over $0.50 per gallon. As we have highlighted in the past, these conditions typically result in margin strength, and this quarter was no exception. In addition to the fallen prices from the beginning of the quarter to the end of the quarter, there was significant price volatility during the quarter, which also provided positive support for margins. The final point that I will make is that the investments that we've made over the past few years are contributing to the bottom line. To that, I will highlight the startup of the gasoline blending business in New York harbor that Dylan mentioned, as well as better-than-expected performance of the assets we acquired from Gladieux. In the past, we've talked about the asymmetric performance risks of our business during market movements, and 2022 is confirming this dynamic. In the first half of the year, we demonstrated solid performance during the headwinds of a rising commodity environment, and our third quarter results provide evidence of our ability to capitalize and deliver upside during favorable market environments, all while maintaining expense and capital discipline. Dylan shared our updated guidance for the full year, highlighting the outperformance of our overall business. If we step back and think about the third quarter, even considering the acceleration of margin from the fourth quarter, we delivered over $250 million of EBITDA. We have revised our guidance twice this year, both times moving up. The first revision came because of the Gladieux acquisition. Today's revision comes as a result of outperformance in the second half of the year as we capitalize on what the market provides. Our portfolio of organic investments and acquisitions are delivering on expectations. We expect nothing less from the recently announced expansion of our midstream and fuel distribution businesses in Puerto Rico, with the purchase of Peerless Oil & Chemicals. Peerless is an integrated business similar to Sunoco's existing business and consists of fuel distribution through nearly 100 contracted service stations, almost all of which carry that proprietary EcoMax brand, as well as the terminal with 1.6 million barrels of refined product storage. The business has a deep-water port for import and export, as well as a roll-on/roll-off barge dock that supports an export business to neighboring islands. Our growth strategy has been focused on adding fuel distribution and midstream income at attractive returns, particularly where there are synergies between the two. The Peerless acquisition is a strategic fit with this approach for a few key reasons. First, the business has been a well-run and growing part of the Puerto Rican economy for decades. We expect consistent demand for traditional motor fuels in Puerto Rico over the long term. Second, the Peerless platform is well-positioned for expansion both in Puerto Rico and in the neighboring Caribbean islands. Third, and finally, as Dylan mentioned earlier, at an expected 5x to 6x EBITDA multiple after synergies, the transaction is another example of our ability to deploy capital with attractive returns to our unitholders. We're very excited about this business and look forward to welcoming the Peerless employees to the Sunoco team. Before turning the time over to Joe, I want to reinforce the same foundation of our success that I've mentioned many times over the past few years. Solid business model, enhanced with robust gross profit optimization, an intense focus on expenses, consistent and reliable operations, and a growth program that delivers results to the bottom line. We expect the Peerless acquisition to be another example of where this recipe will produce strong results.

Thanks, Karl. Good morning, everyone. We delivered a very strong third quarter. Although 2022 is not quite over, I want to provide some perspective on our performance this year. From a macro perspective, 2022 has been highly volatile. We experienced early year COVID spikes to record high fuel prices this summer, to a gradual demand recovery this fall. Within these different market conditions, our portfolio of income streams and our ability to execute on our strategy has allowed us to deliver good results quarter after quarter. As for the fourth quarter, we expect to have another good quarter. When you look at 2022 in totality, we expect to grow adjusted EBITDA by 13% year-over-year using the midpoint of our revised guidance. We have also successfully integrated recent acquisitions and deployed organic growth capital that has delivered solid returns while maintaining expense discipline. We will continue to source and execute on attractive opportunities to deploy our increasing free cash flow, all of this while growing our coverage ratio and maintaining a solid balance sheet. We expect more of the same in 2023. This December we will provide a new Investor Presentation, which will include our formal 2023 guidance. I would like to preview a few key themes. We expect to have another strong year in 2023. Our proven track record of improving performance through periods of material turbulence and volatility are compelling investment attributes. Regardless of one's view on demand outlook, inflation and recession risk, and geopolitical uncertainty, we expect our stable portfolio of income streams to continue to deliver strong results in various scenarios. Operator, that concludes our prepared remarks. You may open the line for questions.

Our first question today is coming from Elvira Scotto from RBC Capital Markets. Your line is now live.

Hey, good morning, everyone. Can you provide maybe a little bit more detail on the guidance increase for the year? You did mention that $25 million of margin moved into the third quarter from the fourth quarter. You raised your guidance by about, I think, about $50 million. So can you just provide maybe a little bit more detail on what's driving that increase?

Yes, Elvira, good question. So on the increase, a lot of this is a result of what we are seeing with fuel margins here in the second half of the year. I think in the prepared remarks, we made a comment about needing to look at Q3 and Q4 in totality because of a little bit of the shift in earnings between the quarters there. But when you look at that as a whole, what we really see is the strong fuel margins that we saw building through the first part of the year has really been strong in the second half of the year. And so when we look at primarily the results of Q3 and what we see for Q4 around those, it made sense for us to bump the range up to the new $845 million to $865 million.

Okay. That's helpful. And then can you provide a little bit of color on what you're seeing in terms of volumes, maybe what you saw in October volumes year-over-year and how that's trended versus maybe like September as well?

Sure, Elvira. This is Karl. I mentioned in my prepared remarks that we were seeing trends as you compare to last year or even back to 2020 or '21 on better performance in the third quarter than what we talked about in the second quarter, and that's continued into the fourth quarter. I mean, there's a lot of factors going into that volume performance. We mentioned we felt there was some contribution from the lower prices on gasoline in the third quarter, but it's hard to parse out exactly all the different factors. It depends on seasonality, overall economic picture, driving patterns. But, yes, that better performance in second quarter has continued.

Great. Thanks. And then just the last one for me. With respect to the Peerless Oil & Chemicals acquisition, I think you mentioned that it's a 5x to 6x EBITDA multiple after synergies. Could you maybe provide a little more detail on the types of synergies that you're expecting and any other quantification of synergies?

Sure. This is Karl again. As we assess the situation, we see commercial synergies as we work on integrating with the rest of our business in the Southeast U.S. and the Gulf of Mexico. There are also some expense synergies, mainly derived from using our scale and overall services or contracts. We are pleased with the team we're acquiring in Puerto Rico, and we aim to expand that team, as I mentioned, to grow both in Puerto Rico and neighboring islands. The expense synergies we anticipate there will primarily be achieved by leveraging our overall scale.

Great. Thank you very much.

You bet.

Our next question is coming from Robert Mosca from Mizuho. Your line is now live.

Hi. Good morning, everyone. Thanks for taking my question. I kind of want to start off at Linden. Can you just talk about the blending activities there? Is this just a natural extension of managing volumes for that terminal? And was this a capability you guys acquired in the NuStar acquisition? And where that blending margins are strong right now, but how do you envision this being a part of the income stream going forward maybe on a more run rate basis?

Yes, sure. If you look at our Linden operation, when we purchased this back about a year ago, the terminal was full. We had a customer base that we were happy with, and the assets continue to perform over the last year. There was a changeover in some of the contracts there. And really, there was plenty of demand for utilization of that terminal. We looked at it as an opportunity for getting into this gasoline blending operation. It's something I've looked at for a number of years. The gasoline blending that we are talking about is a little more than just butane blending that I think people often talk about; it's really buying different components and blending that into finished gasoline. And much of the gasoline that we buy to sell in New York Harbor, we bought from other people that were doing that blending operation. So this was really an opportunity for us to lower our cost of goods sold and do that activity ourselves. We have the capability on our supply and trading team. And so really, that's a little more detail on what we are looking at, and we think it should decrease our cost of goods sold on an annualized basis over the coming years.

Got it. No, it's interesting stuff. And maybe going back to Peerless. In your transaction math, are you kind of assuming margins similar to the rest of your wholesale portfolio? Just curious what margins look like in Puerto Rico, which presumably has a different consumption profile compared to Lower 48. And then you mentioned expansion not only in Puerto Rico, but in the Caribbean. So I guess what's driving the interest there? Is it just prospects for higher margins and maybe not as much lower hanging fruit in the U.S.?

Yes, as we've analyzed the Peerless portfolio, we've discussed how even within our existing business, we manage a range of income streams. Some volumes generate higher margins while others yield lower margins based on the customer base. This dynamic is also present in the Peerless acquisition. They sell their proprietary EcoMax stations on the island, which provide a stable and growing volume over the years. Additionally, they serve commercial and industrial customers and operate an export business where they load products onto roll-on/roll-off barges to send to nearby islands. They've already started this process. My main point is that we believe there is potential to grow this aspect beyond their current activities.

Got it. That’s great color. Thanks for the time everyone.

Thank you. We have reached the end of our question-and-answer session. I'd like to turn the floor back over to Scott for any further or closing comments.

Thanks, everyone for joining us on the call this morning. I recognize it was a busy morning for most of you. So please feel free to reach out to me with any follow-up questions. Otherwise, we look forward to seeing some of our investors in a couple of weeks at the RBC Conference here in Dallas. Have a good day, everyone.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.