Greetings, and welcome to Sunoco LP's Second Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. 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 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. Please refer to our earnings release and SEC filings for risk factors and reconciliations of non-GAAP financial measures, including adjusted EBITDA and distributable cash flow as adjusted. Our second quarter financial and operating results continued the good start to the year that we reported last quarter. The partnership delivered a record second quarter with adjusted EBITDA of $464 million excluding approximately $10 million of one-time transaction-related expenses and distributable cash flow as adjusted of $300 million. In the second quarter, we spent approximately $120 million on growth capital and $40 million on maintenance capital. This includes the partnership's proportionate share of capital expenditures related to our two joint ventures with Energy Transfer of $15 million for growth capital and $2 million for maintenance capital. We remain on track to meet our 2025 projected capital spend which includes at least $400 million of growth capital and approximately $150 million for maintenance capital. Turning to the balance sheet. As of the end of the second quarter, our $1.5 billion revolving credit facility had approximately $200 million in outstanding borrowings. Leverage at the end of the quarter was just under 4.2x. On July 24, we declared a distribution for the second quarter of $0.9088 per common unit or approximately $3.63 on an annualized basis. This represents an increase of 1.25% compared with the previous quarter and resulted in a trailing 12-month coverage ratio of 1.9x. This marks the third consecutive quarterly increase in Sunoco's distribution and is consistent with our capital allocation strategy and 2025 business outlook which includes an annual distribution growth rate of at least 5%. I would like to conclude my remarks by stating that our financial position remains strong and we are on track to achieve our full year EBITDA guidance. Looking at the business over the long term, we expect to continue our record of generating increasing distributable cash flow per unit, which will position us for ongoing distribution increases and additional growth. With that, I will turn the call over to Karl to discuss our operational results.

Thanks, Scott, and good morning, everyone. The second quarter of 2025 marked another good quarter across all three segments supported by solid fundamentals and continued returns on invested capital our business is positioned to grow in the second half of the year. Starting with our Fuel Distribution segment, adjusted EBITDA came in at $214 million, excluding $8 million of one-time transaction-related expenses. Volumes came in at 2.2 billion gallons during the quarter, up 5% from last quarter and flat compared to the second quarter of last year. Reported margin for the second quarter was $0.105 per gallon compared to $0.115 per gallon in the first quarter and $0.118 per gallon in the second quarter of 2024. Remember that our first quarter results included the annual makeup payment from 7-Eleven which contributed about $0.015 per gallon to our reported margin. When you take a step back and look at our fuel distribution business, it continues to perform very well. Over the last 12 to 18 months, there have been changes to our portfolio, which reduced our reported CPG margin including the sale of our West Texas assets last spring and the reclassification of transmix processing margin under our new segment reporting structure we introduced last year. In addition, there are always quarter-to-quarter fluctuations and overall flat volumes in the market. But year after year we have consistently grown our volume and fuel profit dollars by delivering on gross profit optimization strategies and deploying capital effectively. This year is no exception as we expect our accretive investments in this segment to yield increased volume and EBITDA in the back half of the year and to support another record year in this segment. In our Pipeline Systems segment, adjusted EBITDA for the quarter was $177 million compared to $172 million for the first quarter and $111 million for the second quarter of last year, all excluding transaction-related expenses. Segment throughput was 1.2 million barrels per day compared to 1.3 million barrels per day in the first quarter. Overall, we continued to see solid demand across our system despite macro volatility with some minor impacts from planned turnaround activity on our crude system. Gross profit was up with positive support from longer haul tariffs in a few areas, strong blending margins, and overall strong agricultural demand in the Midwest. Turning to our Terminal segment. We delivered adjusted EBITDA of $73 million excluding $2 million of one-time transaction-related expenses compared to $66 million in the first quarter and $43 million in the second quarter of last year all excluding transaction-related expenses. Segment throughput was 692,000 barrels per day, up from 620,000 barrels per day in the first quarter, and 638,000 barrels per day in the second quarter of last year. The second quarter results benefited from strong throughput growth and good performance in our transmix business. As we look forward to the back half of the year, we anticipate continued strong performance in both of our midstream segments. As we continue to grow our asset base, our focus remains the same: strong operational execution, expense discipline, commercial creativity, and profit optimization and ensuring we deliver strong results on capital that we deploy. I will now turn it over to Joe to share his final thoughts.

Thanks, Karl. Good morning, everyone. We're halfway through 2025. And as expected, our business continues to perform well. Scott and Karl discussed the key details related to the second quarter results. Let me provide some additional comments about our business as a whole and an update on the Parkland acquisition. As I stated in our previous earnings call, we continue to raise the standard for Sunoco year after year. We provided strong guidance for 2025. Given our results to date and our expectations for the remainder of the year, we're on track to deliver on our full-year guidance. All three business segments are performing well, our field distribution business continues to demonstrate resiliency and growth. We expect the back half of this year to outperform a good first half, and we expect continued strong performance for years to come. Our Pipeline and Terminals segments also continued to perform at a high level. The NuStar acquisition greatly enhanced the scale and efficiency of both segments. Overall, the NuStar addition has been outstanding. This acquisition will deliver double-digit accretion. As a result, we recently announced another distribution increase. And just as importantly, we expect further distribution growth over a multiyear period. Continuing on the subject of growth, we expect to close on TanQuid, our acquisition of terminal assets in Germany and Poland sometime early in the fourth quarter. As for the Parkland acquisition, their shareholders strongly endorse the transaction with more than 93% of the votes. On the regulatory side, we're working diligently with the various regulatory agencies to get final approvals. We continue to estimate the close date to be sometime in the fourth quarter. Since we announced the Parkland acquisition 3 months ago, we're even more confident that we will deliver on the acquisition economics. Parkland's base business is solid and improving. In fact, Parkland announced yesterday a record second quarter showing that they have improved materially from their 2024 results. Combining the two companies will be a win for equity holders, debt holders, employees, as well as the countries we operate in. As the process plays out, we'll provide more specific details. But for now, we can tell you that we're highly confident that we will deliver double-digit accretion while maintaining a strong balance sheet. Let me wrap up with some brief thoughts on recent macro developments. The announcement that the federal EV tax credit will expire later this year further adds to the evolving market consensus that refined product demand will remain robust for decades to come. This has always been our long-held belief. We've executed our strategy based on this conviction, as a result, we have grown materially over the last five-plus years. Our industry-leading refined product supply chain short in key markets throughout the Western Hemisphere positions us to capitalize on continued resilient refined product demand. Operator, that concludes our prepared remarks. You may open the line for questions.

Our first question comes from Spiro Dounis with Citi.

First question, maybe a two-part question on Parkland, if we could. Part one, Joe, as you mentioned, have been a few months since you've announced the deal. It sounds like you've had some time to get in and take a look under the hood a little bit further. So curious, maybe more specifically how you're thinking about your initial synergy target at this point? And then there's also been some favorable movement on the tax side with the One Big Beautiful Bill. Curious, what does that do to your initial sort of two-year tax-free window for that C corp and the ability to pay that parity dividend?

Spiro, it's Joe. I'll let Karl take the synergy question. Karl, why don't you follow up with the tax side?

Yes, this is Karl. Regarding synergies, as Joe mentioned earlier, we are a few months into the planning process for integration and things are progressing very well. We feel just as confident, if not more so, about the acquisition overall compared to when we first announced it. However, as Joe pointed out, we are still undergoing various regulatory reviews, so it's a bit early for us to provide detailed updates on synergies. Nonetheless, I want to reaffirm our confidence in achieving the $250 million in synergies by year three, and importantly, in returning to our long-term leverage target of 4x within 12 to 18 months. The double-digit accretion from this deal should assist us in reaching that goal. When merging two large companies, as we are doing, we will undoubtedly uncover expense-saving opportunities due to our discipline and history in managing costs. Additionally, as Joe mentioned, we will hold one of the largest refined product shortages in the Western Hemisphere, which will open up substantial commercial opportunities. As we approach the closing and move into next year, we will share more updates on the timing and details of the synergies. But at this moment, we feel very positive about all aspects of the deal.

And Spiro, on your second question regarding the cash taxes and the profile there for SUNCorp, I think, first off, it's helpful to provide some context for how that two-year equivalency period was established. This was a feature of the transaction that was included at Parkland's request. It was an easy ask and one we were very comfortable granting. Setting all that aside, based on the long-term forecasting and tax planning work we did during diligence, we're confident that the SUNCorp dividends will remain at parity with Sunoco LP distributions well past the two-year period. Additionally, as you mentioned, the elements of the recent budget bill, like the permanent extension of bonus depreciation and the restoration of higher business interest expense limits will also help minimize cash tax leakage at SUNCorp while also lowering cash taxes at Sun LP moving forward. And I think the fact that we will continue our focus on growth, both organically and through acquisitions, which with that brings additional opportunities to further manage future cash tax drag.

Great. That's all helpful color. Second one, maybe just switching gears a bit back to fuel margins within that fuels distribution segment. To your point, when you sort of exclude the make-whole payments, you did have a sequential increase in 2Q versus 1Q. And I guess as you look forward, it sounds like you guys are pretty confident in the back half of the year. So curious if you could just give us your expectations around fuel margin into the back half and as we head into 2026?

Spiro, this is Austin. I'm glad to provide commentary on our reported numbers and the overall margin environment. Firstly, it's important to note that we focus on fuel profit and EBITDA in our business management rather than trying to hit specific volume or CPG targets. In terms of our reported numbers, as Karl mentioned earlier, two higher-margin businesses are no longer part of our reported segments. The transmix business was moved into the Terminal segment following the NuStar transaction, and we sold our West Texas retail business in the second quarter of last year. While our reported CPG number has decreased, the underlying macro environment for margins is still positive, primarily due to sustained elevated breakeven prices. For newcomers to our story, it's helpful to understand that our industry is highly fragmented, with most sites operated by single-unit owner-operators. This fragmentation, combined with external shocks like demand drops during COVID, inflation, or price volatility, raises breakeven levels for all operators. However, companies with scale or cost advantages, like Sunoco, can benefit from a favorable margin environment. Looking at the current margin conditions and future expectations, two of three key elements are still present. First, price volatility has increased since COVID, and we believe this trend will continue. Second, inflation raises crucial line items in operators' financials, and even when inflation decreases, the impacts are often long-lasting and costs, especially labor, tend to decrease slowly. Regardless of how our portfolio changes, we will leverage our scale, supply chain options, and cost advantages to maximize opportunities in volatility while minimizing risks. In conclusion, the fundamentals for our fuel distribution business remain strong, and we anticipate a robust second half of the year thanks to our organic growth and M&A investments from the first half, which should lead to noticeable volume growth at healthy margins and year-over-year EBITDA growth for our segment, even without the previously mentioned businesses included in our 2025 reports.

Our next question comes from Justin Jenkins with Raymond James.

Great. If I could, just wanted to start maybe by following up on Spiro's first question is, is there a point in time estimate or maybe a range of years you have now for dividend equivalents at SUNCorp? And then I guess as we get closer to the deal, how are you thinking about terming out the financing for the cash part of the Parkland deal?

Yes, Justin, this is Scott. Look, I think I already mentioned on how the two-year equivalency period was established. And past that, I just stick to the remarks I made earlier, we're confident that, that equivalency period can continue past the two-year mark just based on our tax planning, some of the favorable legislation that hit the market this year as well as the fact that we're going to continue to use SUNC and Sunoco LP's growth vehicles. With respect to the transaction financing process, the plan still is to fund the $2.7 billion of cash consideration through a combination of senior notes and preferred equity. I think we've shown a proven ability to be opportunistic with our capital markets activity in the past, whether for refinancing efforts or to fund new capital for acquisitions. The current backdrop in the credit markets is positive right now. And so I think given that and where we are in the process with respect to the line of sight on closing sometime in the fourth quarter, we're actively monitoring the markets and we'll be pragmatic on how and when the appropriate time is to access them.

Great. That's helpful, Scott. And I guess second question, maybe for Karl or Austin. Just on the underlying demand backdrop within the U.S. and outside any impact in the second quarter from headline volatility that we've seen? And what have the recent trends been in terms of the underlying demand backdrop here?

Yes, this is Austin. The trends we observed toward the end of last year have continued into the early part of this year and carried into the second quarter. We’re noticing a lot of the same factors that you might be seeing. While we don't have a clear forecast for volume or CPG margin, demand for gasoline appears to be flat or slightly down year-over-year from an EIA perspective. Diesel started strong at the beginning of the year but has declined along with various economic activity indicators. However, we expect to continue to outperform these trends due to our growth capital and capital deployment strategy, whether through organic growth or acquisitions. Overall, we feel very optimistic about the fundamental health of the business. Additionally, as I mentioned earlier, any factors that lead to demand destruction are ultimately seen as positive for our margin outlook.

Our next question comes from Jeremy Tonet with JPMorgan Chase.

This is Eli on for Jeremy. Maybe just wanted to touch on capital allocation post Parkland and TanQuid. Obviously, a meaningful free cash flow inflection coming and I think with NuStar, we saw you guys kind of delivered ahead of schedule and delevered very quickly thereafter. So how should we think about sort of the approach to M&A and types of organic or inorganic opportunities, whether there's more bolt-ons or larger size deals out there? Again, I recognize you're still digesting here, but just the longer-term approach as you see it now?

This is Joe. After we closed on Parkland, our top two priorities are very clear: integrating the acquired asset and getting the synergies and secondly, get our balance sheet back to our 4x target. We feel very confident we'll deliver on both. And after that, we'll assess the market and see what the market opportunities are. And to give you a little bit more insight into it, is really kind of going back to what I think I've said quarter after quarter. When it comes to growth and when it comes to evaluating opportunities, we use the same lens that we've used over and over. We're looking for, first, a stable cash flow profile; second, growth opportunities on an acquired asset; third, material SUN synergies; and finally, and obviously, attractive valuations. So I guess, regardless of geography, size, or business segments that we look at, those are the criteria we're going to use to create value for our stakeholders. If you look back at our history, we've done small roll-up domestic fuel distribution acquisitions. We did a big midstream acquisition last year with NuStar and now we're going to do a big international opportunity. Our history shows that we've consistently delivered and we're in a very good position to continue to be an accretive growth company. And having all these multiple options via various business segments, geographies, size is a good position for us to be in.

Awesome. Appreciate the color there. And then just a quick one, interested in shifting back to Parkland. Can you guys remind us exactly when the ICA was filed? Was that in June? Just thinking about that 4Q '25 timeline. And obviously, that's kind of a key item to keep an eye on.

Yes. Eli, this is Scott. I think what I couch for all of the regulatory items is that we're working through the approval processes for each. They're all proceeding as expected, and we're tracking to close in the fourth quarter.

Based on Karl and Austin's comments, it seems that the typical seasonal slowdown in fuel distribution volumes in Q4 is not expected to occur this year. So can you maybe provide more details on some of the initiatives you have in place and the investments you're making that will drive the stronger second half results?

Yes, sure. This is Austin. Happy to provide additional context. I mean just to confirm, we are poised for a very strong second half of the year in the fuel distribution segment, and we expect that outperformance even when you include the $32 million payment from 7-Eleven in the first quarter. You've heard Joe and others talk about the build versus buy decision that we make from a capital allocation standpoint. And this year, the market has presented opportunities for us to execute against both. So we've made organic investments that allow us to grow and expand our footprint, particularly in and around waterborne markets where we can leverage our scale and supply chain optionality. And we've also executed multiple roll-up acquisitions that we're going to be able to quickly integrate and synergize that will be accretive to the business in the second half of this year. So when you add all that together, I think that's what is driving the confidence in the back half of the year for EBITDA growth that's ultimately going to result in year-over-year growth for the segment, driven on the heels of volume at noticeable volume growth and healthy margins.

Understood. And on those roll-up acquisitions, can you maybe talk about size or if there's additional inorganic opportunities for the second half of the year?

Ned, it's Joe. I want to expand on what Austin mentioned. This is an important concept for both those familiar with our story and new listeners. A key aspect of our field distribution strategy is our whole build buy approach. We have a solid pipeline of organic projects, and over the past five-plus years, we have also taken advantage of small field distribution roll-ups. There are plenty of opportunities available, and we can adapt to these market chances as needed. This is why we carefully offer a minimum annual growth capital guidance. For 2025, we indicated in December that our guidance would be over $400 million. This recognizes that we have sufficient organic growth opportunities as a foundation and the potential to increase our efforts when attractive roll-up prospects arise. At the beginning of our planning for 2025, we identified a significant number of roll-up opportunities, and we started strong. Austin refers to this with terms like noticeable volume increase and continued healthy margins. The roll-ups and organic opportunities we pursued in the first half of the year will begin to yield results in the third and fourth quarters. Regarding long-term opportunities, we have a stable pipeline of organic prospects at a consistently high level. For roll-up opportunities, particularly those priced under $100 million, we believe there are many such opportunities available. Austin mentioned that this is a fragmented market, with over 60% of it comprising single-store operators, making it a promising space for us. So far this year, we had a strong start, which we expected. We did take a brief pause when working on the Parkland transaction to ensure we allocated enough time for due diligence and integration. Overall, we are in a good position, and hopefully, this clarifies why we believe the second half of the year will be strong for us.

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

Well, 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, and we look forward to updating you across the year. Please feel free to reach out if you have any questions. Thanks for tuning in, and I always appreciate your support.

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