Sunoco LP Q3 FY2024 earnings call

Key Points

• Third quarter brought record adjusted EBITDA of $470 million (excluding ~$14 million one-time transaction expenses). Spent $67 million on growth capital and $26 million on maintenance capital in the third quarter. Closed acquisition of a liquid fuels terminal in Portland, Maine on August 30.
• Third quarter distributable cash flows adjusted was $349 million, with a current quarter coverage ratio of 2.3x and a trailing 12-month ratio of 1.9x. Declared an $0.8756 per unit distribution on October 28. Liquidity remained strong with approximately $1.4 billion of liquidity on the revolving credit facility and leverage at 4x, in line with long-term target.
• Fuel Distribution segment was strong with adjusted EBITDA growth, volume distribution, and margin improvement. Pipeline System segment had adjusted EBITDA increase despite refinery maintenance impacts. Terminal segment saw adjusted EBITDA growth with full quarter contribution from legacy NuStar assets and progress on NuStar integration synergies.
• Confident in meeting 2024 EBITDA guidance, strong financial position to pursue growth opportunities and maintain a healthy balance sheet while targeting a growing distribution for unit holders

Fuel Distribution Segment

• Adjusted EBITDA for the segment was $253 million, up 3% from the second quarter and 8% over the third quarter of last year. They distributed 2.1 billion gallons, down 2% versus the second quarter but up 1% versus the third quarter of last year. Reported margin for the quarter was $0.128 per gallon.

Pipeline System Segment

• Adjusted EBITDA for the third quarter was $147 million, excluding $11 million of transaction expenses, compared to $111 million for the second quarter. They reported nearly 1.2 million barrels per day of throughput, with volumes and revenue impacted by extended maintenance activity at two refineries, but expect a stronger fourth quarter.

Terminal Segment

• Adjusted EBITDA for the third quarter was $70 million, excluding $3 million of transaction expenses compared to $43 million in the second quarter. They reported nearly 700,000 barrels per day of throughput, up from the second quarter due to a full quarter of contribution from legacy NuStar assets. They are on track to deliver $125 million of synergies in 2025 and $200 million in 2026, on top of $60 million in annual financial synergies already realized

Forward-Looking Statements

• Confident in meeting 2024 EBITDA guidance range. The outlook for all three business segments remains very strong for 2025, expecting industry fundamentals to be supportive and to deliver on NuStar acquisition synergies. Expect to continue as a growth company with more than seven consecutive years of DCF per LP unit growth and plan to increase distribution early next year while maintaining strong coverage and leverage ratios. Details on 2025 guidance and business outlook to be provided in December investor presentation

Risks

• Uncertainty from FERC rulings regarding retroactively recouping earnings on previous years' tariffs, which could materially impact financial results

Q: Theresa Chen from Barclays asked about fuel margins going forward.

A: Austin Harkness stated the fuel distribution business is healthy, margins were strengthened by elevated breakevens, flat price volatility, and commercial opportunities, with a bullish view on future margins despite wildcards Q: Jeremy Tonet's team asked about capital allocation and 2025 fuel distribution trends.

A: Scott Grischow said primary focus was on reducing leverage to 4x, now refocusing on returning capital to unit holders via distribution increases and growth, with Austin Harkness noting fuel demand expected to mirror last 6-12 months but the company is well-prepared to execute Q: Gabe Moreen from Mizuho asked about legacy NuStar assets in California and competition.

A: Karl Fails said California assets have upside as energy demand continues to grow, and assets are well-positioned; on competition, the asset base is good and the commercial team can utilize assets effectively; Joe Kim added 2025 guidance to be detailed in December showing bullishness on all segments Q: Ned Baramov from Wells Fargo asked about FERC ruling implications and 2025 guidance details.

A: Karl Fails said support FERC decision but uncertainty remains, impact to Sun is manageable; Joe Kim said 2025 guidance details to be provided in December with a clear bullish view on the business