Greetings and welcome to Sunoco LP's Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Scott Grischow. Thank you. 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 Operations Officer; Dylan Bramhall, Chief Financial Officer; Austin Harkness, Chief Commercial Officer; and other members of the management team. Today's call will contain forward-looking statements that include expectations and assumptions regarding the partnership's future operations and financial performance. Actual results could differ materially and the partnership undertakes no obligation to update these statements based on subsequent events. Please refer to our earnings release as well as our filings with the SEC for a list of these factors. During today's call, we will also discuss certain non-GAAP financial measures, including adjusted EBITDA and distributable cash flow as adjusted. Please refer to the Sunoco LP website for a reconciliation of each financial measure. 2023 was a record year for the partnership. The combination of a strong and stable base business, coupled with a proven history of financial discipline has allowed us to yet again deliver on the expectations we lay out each year. I would like to start by looking at some of our fourth quarter and full year 2023 highlights. Adjusted EBITDA for the fourth quarter was $236 million compared to $238 million a year ago. The partnership sold over 2.2 billion gallons in the fourth quarter, up 11% from the fourth quarter last year. Fuel margin for all gallons sold was $0.123 per gallon compared to $0.128 per gallon a year ago. Total fourth quarter operating expenses were $145 million, an increase of $7 million from the same period last year. During the fourth quarter, we spent $50 million of growth capital and $33 million in maintenance capital. Fourth quarter distributable cash flow as adjusted was $148 million compared to $153 million in the fourth quarter of 2022, yielding a current quarter coverage ratio of 1.6 times. On January 25, we declared an $0.842 per unit distribution, consistent with last quarter. The stability of our business and history of delivering results continues to support a secure and growing distribution for our unitholders. Turning to the balance sheet. At the end of the fourth quarter, we had approximately $400 million outstanding on our revolving credit facility leaving approximately $1.1 billion of liquidity. Leverage at the end of the quarter was 3.7 times, below our long-term target of 4 times. As I mentioned earlier, 2023 was a record year for the partnership. We met or exceeded expectations in our guidance metrics, further reinforcing our record of delivering on expectations. Full year 2023 adjusted EBITDA was $964 million, a 5% increase versus the prior year. Deal volume was over 8.3 billion gallons, up 8% versus 2022's volume and the largest reported in the partnership's history. Fuel margins continued to remain strong at $0.127 per gallon, flat to 2022 levels. Total operating expenses were $550 million, in line with our revised guidance range. Finally, our full year coverage ratio of 1.8 times and leverage ratio of 3.7 times, support key elements of our capital allocation strategy to maintain a secure distribution and protect our balance sheet. I'd like to wrap up my comments by briefly reviewing the series of strategic transactions we announced in January. First, the acquisition of two European product terminals from Zenith Energy for €170 million, including working capital. We plan to close this transaction by the end of the first quarter and fund it with availability on our revolving credit facility. We expect the acquisition to be accretive to our unitholders in the first year. Next, the divestiture of our West Texas marketing assets to 7-Eleven for approximately $1 billion. This transaction is expected to close in the second quarter of 2024, and will allow Sunoco to materially reduce leverage, positioning us favorably for future growth. And finally, the acquisition of NuStar Energy, an all-equity transaction valued at $7.3 billion. We expect this acquisition will close in mid-2024. With that, I will turn the call over to Karl to walk through some additional thoughts on our fourth quarter performance and commentary on our recent announcements.

Thanks, Scott. Good morning, everyone. We delivered another strong quarter, capping off another record year. When you look at both the quarter and the full year, our results were supported by continued margin strength, volume growth, consistent expense discipline and efficient operations. Starting with margins. This quarter continued many of the same themes of the past few years, mainly higher breakeven margins, continued volatility in fuel prices and efficient execution of our gross profit optimization strategies. These have all contributed to expanded margins in the past few years, and we don't see any of those factors changing as we look forward. With respect to volumes, we were up 11% in the fourth quarter versus the fourth quarter of last year and up about 4% from the third quarter of this year. The continued growth in volume relative to prior years comes primarily from good execution on capital deployed. This quarter marks the highest volume quarter in our history and the third consecutive quarter above 2 billion gallons. As I pointed out on our last call, when compared to overall U.S. gasoline and diesel demand, it is clear we continue to outpace the sector, another sign that our growth is delivering tangible results. Turning to expenses. Consistent discipline in managing our expenses remains one of our core strengths, and our fourth quarter results firmly demonstrate that as they were only slightly up from the third quarter and remain within our guidance for the full year even as we continue to grow. For 2024, we're off to a good start. Our base business remains strong. 2023 was evidence of this, and we expect 2024 to be a continuation of the same as we expect the same factors that contributed to our overall performance last year to remain in place for this year and beyond. Let me give you some added perspective on a couple of our recent announcements, starting with the acquisition of the Zenith terminals in Europe. These are great assets. They have high-quality, long-term customers and their strategic position in Europe guarantees a long useful life. Additionally, they provide us with increased supply optionality when it comes to our East Coast and Caribbean operations. When you think about our vast network of East Coast locations, roughly 50% of these are supplied by water. Adding the European terminals gives us additional opportunities to optimize our supply cost and deliver increased value to our customers. Our overall thoughts around this deal were similar to the deal we announced over a year ago in Puerto Rico. The opportunity to create value with the combination of a fuel distribution business with strong midstream assets that also provide a platform for growth. Next, the acquisition of NuStar. NuStar has a high-quality asset portfolio that strengthens and diversifies our company. We laid out our strategic rationale for this acquisition in our investor presentation weeks ago. Sitting here a month later, we cannot be more excited about the opportunity to bring these two companies together. We have a very detailed integration planning process and have begun working with NuStar on getting that in motion. As we laid out a few weeks ago, this acquisition will open up new opportunities for the company in terms of geography, business lines and operations. And we are looking forward to our expected closing in the second quarter. While these transactions provide a boost to our growth, they are really a continuation of our strategy over the past few years. This is who we are. We complete and integrate acquisitions that deliver attractive returns. We successfully deployed capital in projects that deliver EBITDA growth, and we remain focused on optimizing our gross profit and remain disciplined on expenses.

Thanks, Karl. Good morning, everyone. We're a month and a half into 2024, and it's already been a very busy year for SUN. Given our recent announcements, let me take the opportunity to bring it all together and put it into perspective. First and foremost, our current business is strong. We had an outstanding fourth quarter, and overall 2023 was another record year for both EBITDA and DCF. Looking forward, we expect this year to be another record year. The 2024 EBITDA guidance that we provided in December remains very appropriate, even after factoring in the announced sale of our West Texas marketing assets and the Zenith Europe acquisition. Bottom line, we're confident in our base business and our financial foundation remains solid. Thus, we're positioned to announce another distribution increase in April. Moving on to our recent announcements. SUN's strategic focus remains the same: improving stability, enhancing growth, and maintaining a strong balance sheet, resulting in a larger and, more importantly, a more compelling investment going forward. Our actions speak for themselves. The upcoming addition of the two terminals in Europe is a good example of a tuck-in acquisition at a mid-single-digit synergized multiple. It will provide supply optimization, increased stable income, and future growth opportunities. The announced sale of our West Texas marketing assets demonstrates our ability to optimize our portfolio of income streams, position the balance sheet for material growth, and provide an accretive transaction for unitholders on a standalone basis. And finally, the NuStar acquisition will be another big step forward. It diversifies our cash flows, boosts our credit profile, improves our trading liquidity, and enhances our growth opportunities. Financially, it is highly attractive. We expect greater than 10% accretion in year three, and our balance sheet is expected to be back to our target leverage of 4 times within 12 to 18 months. With all these strategic moves set in motion, it's now time for us to execute. We have a proven history of creating value for our stakeholders and we have positioned ourselves to build on our record of delivering results. Operator that concludes our prepared remarks. You may open the line for questions.

Thank you. At this time, we’ll be conducting a question-and-answer session. Our first question comes from Spiro Dounis with Citi. Please proceed with your question.

Hi, this is Chad on for Spiro. Just starting off, I just wanted to touch on the synergies with the NuStar deal. Just kind of curious, could you give us a sense of what opportunities could push you above that $150 million target currently? Are those opportunities more about a timeline or a feasibility question there?

Yeah, Chad, this is Karl. As we mentioned three weeks ago, we are targeting at least $150 million in synergies, which is a solid figure that will require effort. We have a timeline in place for this, but our aim is to exceed that amount. At this point, it's likely too soon to determine if the challenges are more related to timing or feasibility. We anticipate a combination of cost optimization and new commercial ideas will contribute to this. Additionally, we believe there is potential for growth by identifying areas where we can allocate capital effectively, including possibly advancing projects that NuStar already has in development but hasn’t pursued yet. Once we progress further, we expect to uncover some exciting opportunities.

Okay. Understood. That makes sense. And I guess just kind of looking at post the transaction, this will obviously be a larger company, and it sounds like M&A remains a part of the growth strategy. So just kind of curious on how that plays into the appetite for larger M&A going forward? Or do you expect that kind of M&A component of growth resemble the tuck-in transactions that we've seen in the past?

Chad, this is Joe. I believe the response encompasses all aspects. The acquisition in Europe is considerably smaller than NuStar, but we are genuinely enthusiastic about the potential it brings. We foresee opportunities in both midstream and fuel distribution across various regions. Historically, we've executed tuck-in acquisitions at a mid-single-digit synergized multiple, which have proven to be very successful for us, and we plan to keep that strategy. Regarding our organic growth, it's important for investors to know that our top priority is maximizing the synergies from NuStar. We may have some short-term resources that need careful allocation, but the organic capital is distinct from those. We are progressing with the organic plans we presented in December. In terms of larger mergers and acquisitions, the consideration hinges on resource availability in the short term, and we are confident we can address this quickly, allowing us to maintain our M&A activities. For sizable acquisitions, if opportunities arise that offer double-digit accretion and enhance our credit profile, we will certainly pursue them.

Okay. Yeah, will make sense. That’s helpful. Thanks for the time, today.

Our next question comes from Robert Mosca with Mizuho Securities. Please proceed with your question.

Looking at NuStar's Midwest footprint. I think you've alluded to its potential to springboard for greater involvement on the fuel distribution side in that geography. I'm wondering whether there are specific opportunities or areas you could be interested in from a growth perspective. And then whether you view organic or any kind of investment as the most appropriate method by which to establish a presence?

Yeah, Rob, this is Karl. It's probably a little too early for us to outline specific parts of that system. And the other interesting thing about that system, right, it's an open stock system. So that provides a little more flexibility even than some transit time pipeline systems. So I think there's probably going to be opportunities in multiple fashions, whether it's on the branded business where we're investing capital and either distributing our own brand or other brands that we're partnering with or even just deploying working capital to build an unbranded business in those areas. I think kind of similar to Joe's question on the M&A front, I think it's all of the above. That's really the key to our strategy that we've done for the last five or six years. And we're looking at with NuStar is we have these things that we do well, as we grow, we just have a bigger platform that we can continue to do those. So I think we're going to look at all those different kinds of pieces of our portfolio as potential growth options.

Appreciate that, Karl. And could you remind us of the contract profile on the European terminal assets? And when you could use that capacity with greater scale for supply optimization on the East Coast?

The East Coast contract profile?

Sorry, the European terminal contract profile.

Yeah. Really, those terminals are pretty well contracted now. So there is going to be some time component, our general strategy with terminals that we've acquired is, we don't necessarily favor ourselves. We want all third parties to come in, in those assets. And so we really have the option to fill any empty space. So I think there are some contracts that will roll off in the near future that we're going to look at probably a filling in, but both assets are pretty well contracted today.

All right, thanks. Appreciate the time, everyone.

You bet.

Our next question is from Selman Akyol with Stifel. Please proceed with your question.

This is Tyler on for Selman. I was wondering if in light of the NuStar acquisition news, if there was any color on how you are viewing the IDRs now?

Hey, Tyler, this is Joe. The simple answer is nothing's changed. Our goal is to create value for all our stakeholders, and ET is definitely one of them. I think our history shows that we've created value for all our stakeholders, and this NuStar transaction, I think, is a prime example where this is good for our general partners, good for SUN unitholders, is good for NuStar unitholders. It's good for the people that hold our credits. So our path is exactly the same.

Appreciate that, Joe. Also wanted to know was there anything driving the recent volume strength or if it would be good to look at sort of that $2 billion is a good run-rate going forward?

I believe that over the past few years, we have successfully increased our volume, as I mentioned earlier. We've also effectively deployed capital. When we revised our guidance for the Europe and West Texas asset announcements in January, we confirmed our EBITDA guidance. With this earnings release, we reaffirmed the EBITDA guidance of $975 million to $1 billion, excluding NuStar impacts. I think we need to make some updates to the components, such as volume, margin, and capital. However, we'll wait until we get closer to the NuStar closing to update all those guidance components simultaneously. Regarding volume, our goal remains to continue increasing it. The team has effectively identified opportunities and deployed capital in both branded and unbranded areas, and I believe this trend will persist. In fact, we should be able to accelerate this growth after NuStar closes, and we will incorporate that into our guidance later in the year when we finalize the NuStar transaction. We will also provide guidance for 2025 at the end of the year.

All right. Great color. Thanks for the time.

We have reached the end of the question-and-answer session. I would now like to turn the call back over to Scott Grischow for closing comments.

Well, thanks, everyone, for joining us on the call today. As always, we're available for follow up questions. So please feel free to reach out at any time. Thanks, everyone. Have a good day.

This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.