Greetings, and welcome to the Sunoco LP's First Quarter 2024 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Scott Grischow, Senior Vice President, Finance and Treasurer. Thank you, sir. 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. It has been a busy and exciting start to 2024 for the Sunoco team, and I'd like to begin my comments by reviewing some of that activity. First, on March 13, we completed the acquisition of two liquid fuels terminals located in Amsterdam, Netherlands, and Bantry Bay, Ireland, from Zenith Energy for EUR 170 million. Then on April 16, we completed the divestiture of 204 convenience stores across West Texas, New Mexico, and Oklahoma to 7-Eleven for approximately $1 billion. And just last week, we closed on the acquisition of NuStar Energy in a transaction valued at approximately $7.2 billion. The completion of these strategic transactions will not only increase the partnership's stability but will also strengthen our financial foundation and position us for future growth. Now turning to our first quarter results for 2024. Sunoco delivered a record first quarter with adjusted EBITDA of $242 million compared to $221 million a year ago, an increase of 9%. As Karl will discuss later, this quarter's results demonstrate that our continued focus on gross profit optimization in our fuel distribution business has helped grow our fuel gross profit dollars over time. In the first quarter, the partnership sold over 2.1 billion gallons, a record volume for the first quarter and a 9% increase from last year. Fuel margin for all gallons sold was $0.117 per gallon, compared to $0.129 per gallon a year ago. Fuel margin results include the benefit of a $25 million 7-Eleven makeup payment. Total first quarter operating expenses were $142 million, an increase of $15 million from the first quarter of last year. The vast majority of this year-over-year increase can be attributed to additional operating expenses from growth including the Zenith North America terminal acquisition and transaction costs related to acquisition and divestiture activity in the first quarter of this year. In the first quarter, we spent $27 million on growth capital and $14 million on maintenance capital. First quarter distributable cash flow as adjusted was $176 million, compared to $160 million in the first quarter of 2023. On May 3, we declared an $0.8756 per unit distribution, a 4% increase over last quarter. This increase demonstrates continued confidence in our business and our ability to deliver value to our unitholders through distribution increases. Turning to the balance sheet. At the end of the first quarter, we had approximately $870 million of liquidity remaining on our revolving credit facility. Leverage at the end of the quarter was 3.7x, unchanged from last quarter, and below our long-term target of 4x. In anticipation of and in conjunction with the closing of the NuStar acquisition, the partnership recently completed several financing transactions. First, on April 30, we issued $1.5 billion in senior notes in a private offering. The proceeds from this offering will be used to fund the repayment of NuStar's credit and receivables facilities and redeem NuStar's preferred equity and subordinated notes. The reduction in interest expense from this refinancing activity will generate at least $50 million in additional cash flow annually. Second, on May 3, we entered into a new $1.5 billion revolving credit facility, which matures in 2029. This new credit facility is fully unsecured and will simplify Sunoco's capital structure, and enhance our credit profile moving forward. To that end, both Moody's and S&P upgraded Sunoco's long-term credit ratings over the past week, further demonstrating Sunoco's enhanced scale and stability and improved financial profile. Now that we have closed the NuStar acquisition, I want to share an update on our 2024 guidance. We plan to issue a more detailed outlook on or before our second quarter earnings call. But as a starting point, we wanted to provide the following perspective on consolidated 2024 guidance. We now expect 2024 adjusted EBITDA to be in the range of $1.46 billion to $1.52 billion. This increase reflects the combination of our reaffirmed adjusted EBITDA guidance of $975 million to $1 billion for the legacy Sunoco business. Additionally, the increase includes the contribution of approximately $480 million to $520 million of adjusted EBITDA from the NuStar acquisition. The expected contribution from NuStar reflects a prorated portion of the 2024 adjusted EBITDA guidance the NuStar management team provided in February. This revised 2024 adjusted EBITDA guidance excludes both transaction costs and synergies, which we will also provide more detail on, on or before our second quarter earnings call. With that, I will now turn the call over to Karl to walk through some additional thoughts on our first quarter performance and recent transaction activity.

Thanks, Scott. Good morning, everyone. This quarter continued the strong performance in our base business and highlighted the continued progress of our growth strategies. As we have stated many times, the key to our gross profit optimization strategy in our fuel distribution business is to look at the combined fuel gross profit rather than evaluating volume or margin separately. This is important as we look at our Q1 performance. First, our volume is continuing to substantially grow. In the first quarter, there was a 9% increase compared to the same quarter last year. This period marks the fourth consecutive quarter where we surpassed 2 billion gallons. In terms of total U.S. gasoline and diesel demand, our growth continues to exceed industry averages, showcasing that our investments are yielding tangible results, while always keeping our gross profit optimization strategy front and center. Second, margins continue to be strong. From a market standpoint, we faced some fairly consistent upward movement in gasoline prices throughout the quarter, which provided the typical compression that happens during similar market conditions. Another factor impacting our overall margin is that some of our year-over-year volume growth has come in channels that have added incremental fuel gross profit and EBITDA, but at margins below our overall average. This is really an impact on our portfolio mix, not an indication of market conditions. Overall, higher breakeven margins and overall volatility continue to provide support to margins and we expect that to continue for the foreseeable future. When you put it all together, we had record first quarter EBITDA. Our fuel gross profit continues to trend upwards, and our outlook remains strong. Earlier, Scott mentioned the three transactions that we've closed in the last few months. Let me give you some insight into the West Texas and Europe transactions and the impact to our overall business outlook before I discuss the exciting NuStar acquisition that we closed last week. The divestiture of the West Texas business to 7-Eleven was completed at an EBITDA multiple in the high teens. We are a growth company, and we are not in the business of selling off parts of our business. So let me give you some insight into how this fits into our strategy. By selling the West Texas business, we lost some volume and gross profit dollars and our reported margin will drop as the margin in the West Texas business was well above our average. If you do the math, the change in mix reduces our reported fuel margin by a bit less than $0.005 per gallon on a go-forward basis. What we gained from the transaction, however, was a significant amount of capital that we could redeploy at lower multiples in building our business and increasing stability. Bottom line, after this transaction, we are less exposed to West Texas retail margins, our base fuel distribution business remains strong, and we expect fuel gross profit to continue to grow. The acquisition of the Zenith terminals in Europe was completed at a synergized EBITDA multiple in the mid-single digits. They are strong assets based in strategic locations. Much of the integration is already completed, and we are looking forward to the benefits of having these assets in our portfolio as well as our new team members that have joined us in Europe. Adding the European terminals provides us with additional opportunities to optimize our supply cost, particularly on the East Coast and deliver increased value to our customers. Further, these terminals can serve as a platform for future growth. Turning to NuStar. We're very excited about the increased stability and diversification that these assets will bring to our portfolio and the many growth opportunities that they will provide. The integration process is well underway, and we are looking forward to working together with our new team members to grow the combined business. Our plans are on track to deliver above our synergy floor of $150 million per year. We have made great progress on identifying the expense savings that will come from the combination and expect to achieve north of $100 million in expense synergies annually. We are still digging into the commercial opportunities and working to quantify what those will yield. In particular, we have begun an evaluation of our crude business to determine how we can unlock additional value to improve the performance and profitability of the assets. This evaluation is in the preliminary stages, but the initial work is promising, and we look forward to sharing more detail on our overall synergy outlook on or before our next earnings call. Before turning the time over to Joe, I will wrap up by emphasizing that we are off to a strong start to the year and we'll continue to focus on delivering results for our stakeholders through our proven strategy of gross profit optimization, tight expense control, solid and efficient operations, and growing our business. Joe?

Thanks, Karl, and good morning, everyone. Over the last four months, we completed a series of strategic transactions to strengthen SUN for the future. Let me provide some perspective on these actions and also talk about our business as a whole. Starting with our legacy business. We had a record first quarter, reporting the highest first quarter EBITDA and DCF results in the history of the partnership. Our legacy business is strong, and we're confident that it will remain strong for the foreseeable future. Obviously, the closing of the NuStar acquisition resulted in us revising our full year guidance. But I think it is important to note, if you back out the NuStar acquisition for this year, we fully expect it to deliver on the guidance that we've provided back in December of last year, even after the EBITDA loss resulting from the West Texas divestiture and the European terminal acquisition. Regarding the West Texas divestiture, we got a highly attractive sales multiple and added to our take-or-pay contract. The net proceeds after tax and other expenses is roughly $800 million. This is more than the $750 million that we noted in January. As for the NuStar acquisition, let me start off by publicly welcoming the NuStar employees to the SUN team. We're excited to work with all the talented people and also to add some great assets to our overall portfolio. When we announced the transaction in January, we detailed the strategic rationale and the highly attractive economics. Four months later, we're even more confident that we have better positioned the company for the future. This acquisition makes us larger and more diverse while also providing more growth opportunities. Financially, it's highly attractive with a greater than 10% accretion in the third year following close. Regarding our balance sheet, we stated back in January that we expect to be at our long-term target leverage of 4x within 12 to 18 months. We're well positioned to deliver on this target. As for the recently announced 4% distribution increase, we're confident in the resiliency and growth potential of our business. A secured distribution is one of our capital allocation pillars and the decision to increase had to meet the following criteria: stay above our target coverage ratio, protect our balance sheet, and remain a growth company. And finally, a clear path to additional distribution increases over a multi-year time frame. We're confident that the answer is yes on all of these factors. Let me wrap up. We entered 2024 from a position of strength and after a series of strategic moves, we're a stronger company going forward. We'll continue to execute on our strategic focus of improving stability, enhancing growth, and maintaining a strong balance sheet, resulting in a more compelling investment going forward. Operator, that concludes our prepared remarks. You may open the line for questions.

I realize we're going to get a much more detailed look at the financial outlook later on. But I was hoping you could talk about how you see the crude oil assets in particular, fitting within your organization pro forma? And how you're planning to further commercialize them? And if there are any complementary or synergistic opportunities with ET's crude oil assets and how all that comes together?

Yes. Thanks, Theresa. Appreciate the question. I mentioned in my prepared remarks that we've started to dive into those, and I can add a little bit more color to that, kind of on our initial thinking. So first is we like the stability and diversification that the crude business provides, specifically the Permian system that we just acquired is located on excellent acreage and it's fortunate to have a set of high-quality customers. And as we look at those cash flows going forward, we expect them to deliver a stable cash and returns going forward. As far as my comments on looking for how to unlock additional value, really, as we sit here today, all options are on the table, including, but not limited to, the possibilities of joint ventures or other commercial arrangements. I think maybe the only option not on the table is contemplation of a sale. Like I said, we like the assets and the stability they provide. You asked about ET, clearly working with ET on creating additional value is an option. This work is still pretty preliminary and we don't have any additional details to share right now. But I think as Joe and I have talked and we've had questions on crude even from the first announcement, any changes or arrangements we make different than just us operating them as is will be because it adds additional value beyond what we've already assumed.

I want to go back to the synergies quickly, if we could. When the deal was announced, I think it all talked about $150 million of run rate by the third year. Karl, you just mentioned, I think, hitting $100 million or so of cost savings annually. So I was just hoping you guys could sort of reconcile those comments and whether or not that $100 million is kind of still on that sort of three-year time frame?

Yes, Spiro. I believe so. If you recall what we initially stated, we mentioned that $150 million would come from a combination of expenses and commercial efforts, but we didn't detail what that breakdown would be. We indicated that we would reach that target by the third year. Our comments today offer greater clarity, particularly regarding expenses. As for the total numbers and commercial aspects and any updates to our original timeline, we're currently assessing that and expect to provide more information in the next few months. Ultimately, the key takeaway is that our analysis suggests we should meet or exceed our original expectations.

Great. Second question, maybe going to M&A. Scott, as you had pointed out, very busy start to the year and certainly a lot of initiatives ahead of you from here. So curious maybe what your appetite is on future M&A from here either bolt-on or larger scale or maybe your focus at this point entirely just on extracting synergies and absorbing these deals?

Spiro, it's Joe. Obviously, a high priority is integrating and realizing the synergies and getting back to our leverage target for the NuStar acquisition, but equally, a high priority for us is optimizing and delivering on our legacy fuel distribution business. And the third high priority is continued growth, which includes M&A. Is it easy to do all three? No. But that's how we're solving for growing unitholder value, and we think we can do all three.

I know we will get more information on NuStar later, so I will hold off on questions about that. However, regarding the Zenith acquisition, you mentioned potential future growth opportunities. Can you share any additional details? Will these growth opportunities be outside the U.S. or how are you approaching this?

Yes, Elvira, this is Karl. When considering the terminals in Europe and our acquisition in Puerto Rico over a year ago, we focus on criteria such as having stable cash flows, being a strategic fit, and the potential synergies with our existing business, along with growth potential. Puerto Rico met these criteria, and we are confident that the two assets we recently acquired in Europe align as well. We are open to further international expansion if it fulfills these requirements. With the potential for growth, we will maintain the same level of discipline in our decisions, whether it pertains to mergers and acquisitions or organic growth investments.

This is Tim on for Selman. I appreciate the color on the West Texas divestiture to 7-Eleven. So just curious, as you look out at the rest of your footprint, do you see any more similar opportunities to make these sort of transactions?

Tim, this is Joe. I think Karl did a really good job on his prepared remarks talking about how the divestiture fit into the bigger picture of us moving forward. But I'll reiterate what he said. We're a growth company. This was a unique opportunity for us to do a highly attractive acquisition with NuStar and have a very defined path to get our leverage down to the right level. So I don't see any other divestitures in our future. Yes, let me address that in two parts. First and foremost, we are confident in the resilience and growth potential of our business moving forward. This is demonstrated by the 2% increase we achieved last year and the 4% increase this year. Regarding projections for future years, I believe it is too early to set specific numbers. We have the flexibility to evaluate market opportunities and will allocate our capital accordingly based on our current strategy. Additionally, in response to your last question about NuStar and our 4% distribution, the answer is yes. That will be a part of our business going forward. We appreciate the accretion, and anytime we talk about double-digit accretion, it's significant, and we are confident in our ability to deliver on that.

Could you discuss the factors affecting your margin expectations? It seems there may be some challenges due to increased low-margin volumes from the West Texas sale. Is the guidance of $0.125 still valid, or should we consider it in a broader context of volume and margin?

Yes. This is Karl. I talked in my prepared remarks that really we look at it from an overall fuel gross profit. So I'm going to hand it over to Austin Harkness, our Chief Commercial Officer. He can dig a little deeper there.

Robert, in terms of macro view, as Karl shared in his prepared remarks, we haven't seen any fundamental shift in the volume or margin picture, right? So our view going forward is, from a macro standpoint, volumes for 2024 are going to continue on the trend that they've been on recently, which is roughly flat for refined products. And the margin picture remains elevated, right? So breakevens remain high. We continue to see volatility and flat price, all of which paints a fairly constructive picture for the margin environment. If you take a step back and look at our first quarter results, as a reminder, we manage a portfolio of income streams across different sales channels. And the way to think about our first quarter results is the market gave us an opportunity to sell more fuel above our historical run rate volume at a pool margin that was below our historical run rate margin, all resulting in a fuel gross profit number that ultimately allowed us to deliver a record first quarter EBITDA. And as Karl mentioned, we really do optimize around fuel gross profit versus solving for any volume or CPG margin number independently. So as you think about the future and going forward, there's a couple of things I would share. One is, we manage the business on a long-term basis, right? So we take a 12-month view recognizing there's going to be volatility on a quarter-to-quarter basis, whether it's impacting to volume or margins independently. Separately, as Karl mentioned in his prepared remarks, the West Texas divestiture accounts for about 50 points of enterprise margin, right? So you have to account for that along with the fuel gross profit associated with it. I would reiterate Joe's comments that it's a deal that we're very happy with, given the multiple that we were able to transact at and our ability to quickly redeploy that capital to highly accretive M&A. All that said, fundamentally, we're a growth company. And I think our track record and our forward view is very much that we will continue to grow fuel gross profit in the long run multiple years in the future.

There are no further questions at this time. I would now like to turn the floor back over to Scott Grischow for closing comments.

Thanks, everyone, for joining us on the call this morning. As I said before, it's been a busy, exciting and strong start to the year for the partnership. Please feel free to reach out if you have any questions or want to discuss anything. Thanks, and have a great day.

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