Sunoco LP (NYSE:SUN) This autumn 2023 Earnings Convention Name February 14, 2024 10:00 AM ET
Firm Contributors
Scott Grischow – SVP, Finance and Treasurer
Karl Fails – EVP and COO
Joe Kim – President and CEO
Convention Name Contributors
Robert Mosca – Mizuho Securities
Operator
Greetings and welcome to Sunoco LP’s Fourth Quarter and Full Yr 2023 Earnings Convention Name. Right now, all members are in a listen-only mode. A matter-and-answer session will comply with the formal presentation. [Operator Instructions] As a reminder, this convention is being recorded.
I’d now like to show the convention over to your host, Scott Grischow. Thanks. You could start.
Scott Grischow
Thanks, and good morning, everybody. On the decision with me this morning are Joe Kim, Sunoco LP’s President and Chief Govt Officer; Karl Fails, Chief Operations Officer; Dylan Bramhall, Chief Monetary Officer; Austin Harkness, Chief Business Officer; and different members of the administration staff.
Right now’s name will comprise forward-looking statements that embody expectations and assumptions relating to the partnership’s future operations and monetary efficiency. Precise outcomes might differ materially and the partnership undertakes no obligation to replace these statements primarily based on subsequent occasions. Please seek advice from our earnings launch in addition to our filings with the SEC for an inventory of those components.
Throughout at the moment’s name, we will even talk about sure non-GAAP monetary measures, together with adjusted EBITDA and distributable money movement as adjusted. Please seek advice from the Sunoco LP web site for a reconciliation of every monetary measure.
2023 was a report 12 months for the partnership. The mixture of a robust and steady base enterprise, coupled with a confirmed historical past of economic self-discipline has allowed us to but once more ship on the expectations we lay out every year. I wish to begin by a few of our fourth quarter and full 12 months 2023 highlights.
Adjusted EBITDA for the fourth quarter was $236 million in comparison with $238 million a 12 months in the past. The partnership offered over 2.2 billion gallons within the fourth quarter, up 11% from the fourth quarter final 12 months. Gas margin for all gallons offered was $0.123 per gallon in comparison with $0.128 per gallon a 12 months in the past. Complete fourth quarter working bills have been $145 million, a rise of $7 million from the identical interval final 12 months. Through the fourth quarter, we spent $50 million of development capital and $33 million in upkeep capital.
Fourth quarter distributable money movement as adjusted was $148 million in comparison with $153 million within the fourth quarter of 2022, yielding a present quarter protection ratio of 1.6 instances. On January 25, we declared an $0.842 per unit distribution, in keeping with final quarter. The steadiness of our enterprise and historical past of delivering outcomes continues to assist a safe and rising distribution for our unitholders.
Turning to the steadiness sheet. On the finish of the fourth quarter, we had roughly $400 million excellent on our revolving credit score facility leaving roughly $1.1 billion of liquidity. Leverage on the finish of the quarter was 3.7 instances, under our long-term goal of 4 instances.
As I discussed earlier, 2023 was a report 12 months for the partnership. We met or exceeded expectations in our steerage metrics, additional reinforcing our report of delivering on expectations. Full 12 months 2023 adjusted EBITDA was $964 million, a 5% improve versus the prior 12 months. Deal quantity was over 8.3 billion gallons, up 8% versus 2022’s quantity and the most important reported within the partnership’s historical past. Gas margins continued to stay sturdy at $0.127 per gallon, flat to 2022 ranges. Complete working bills have been $550 million, consistent with our revised steerage vary.
Lastly, our full 12 months protection ratio of 1.8 instances and leverage ratio of three.7 instances, assist key components of our capital allocation technique to keep up a safe distribution and defend our steadiness sheet.
I might wish to wrap up my feedback by briefly reviewing the sequence of strategic transactions we introduced in January. First, the acquisition of two European product terminals from Zenith Power for €170 million, together with working capital. We plan to shut this transaction by the top of the primary quarter and fund it with availability on our revolving credit score facility. We count on the acquisition to be accretive to our unitholders within the first 12 months.
Subsequent, the divestiture of our West Texas advertising belongings to 7-Eleven for about $1 billion. This transaction is anticipated to shut within the second quarter of 2024, and can permit Sunoco to materially scale back leverage, positioning us favorably for future development. And eventually, the acquisition of NuStar Power, an all-equity transaction valued at $7.3 billion. We count on this acquisition will shut in mid-2024.
With that, I’ll flip the decision over to Karl to stroll via some further ideas on our fourth quarter efficiency and commentary on our latest bulletins.
Karl Fails
Thanks, Scott. Good morning, everybody. We delivered one other sturdy quarter, capping off one other report 12 months. While you take a look at each the quarter and the complete 12 months, our outcomes have been supported by continued margin energy, quantity development, constant expense self-discipline and environment friendly operations.
Beginning with margins. This quarter continued lots of the similar themes of the previous few years, primarily increased breakeven margins, continued volatility in gasoline costs and environment friendly execution of our gross revenue optimization methods. These have all contributed to expanded margins prior to now few years, and we do not see any of these components altering as we glance ahead.
With respect to volumes, we have been up 11% within the fourth quarter versus the fourth quarter of final 12 months and up about 4% from the third quarter of this 12 months. The continued development in quantity relative to prior years comes primarily from good execution on capital deployed. This quarter marks the very best quantity quarter in our historical past and the third consecutive quarter above 2 billion gallons. As I identified on our final name, when in comparison with general U.S. gasoline and diesel demand, it’s clear we proceed to outpace the sector, one other signal that our development is delivering tangible outcomes.
Turning to bills. Constant self-discipline in managing our bills stays considered one of our core strengths, and our fourth quarter outcomes firmly show that as they have been solely barely up from the third quarter and stay inside our steerage for the complete 12 months whilst we proceed to develop. For 2024, we’re off to an excellent begin. Our base enterprise stays sturdy. 2023 was proof of this, and we count on 2024 to be a continuation of the identical as we count on the identical components that contributed to our general efficiency final 12 months to stay in place for this 12 months and past.
Let me provide you with some added perspective on a few our latest bulletins, beginning with the acquisition of the Zenith terminals in Europe. These are nice belongings. They’ve high-quality, long-term prospects and their strategic place in Europe ensures an extended helpful life. Moreover, they supply us with elevated provide optionality in terms of our East Coast and Caribbean operations. When you consider our huge community of East Coast places, roughly 50% of those are equipped by water.
Including the European terminals provides us further alternatives to optimize our provide value and ship elevated worth to our prospects. Our general ideas round this deal have been just like the deal we introduced over a 12 months in the past in Puerto Rico. The chance to create worth with the mixture of a gasoline distribution enterprise with sturdy midstream belongings that additionally present a platform for development.
Subsequent, the acquisition of NuStar. NuStar has a high-quality asset portfolio that strengthens and diversifies our firm. We laid out our strategic rationale for this acquisition in our investor presentation weeks in the past. Sitting right here a month later, we can’t be extra excited in regards to the alternative to carry these two corporations collectively. Now we have a really detailed integration planning course of and have begun working with NuStar on getting that in movement.
As we laid out a number of weeks in the past, this acquisition will open up new alternatives for the corporate by way of geography, enterprise strains and operations. And we’re wanting ahead to our anticipated closing within the second quarter.
Whereas these transactions present a lift to our development, they’re actually a continuation of our technique over the previous few years. That is who we’re. We full and combine acquisitions that ship enticing returns. We efficiently deployed capital in tasks that ship EBITDA development, and we stay centered on optimizing our gross revenue and stay disciplined on bills.
With that, I’ll flip it over to Joe for closing ideas.
Joe Kim
Thanks, Karl. Good morning, everybody. We’re month and half into 2024, and it is already been a really busy 12 months for SUN. Given our latest bulletins, let me take the chance to carry all of it collectively and put it into perspective.
At the start, our present enterprise is robust. We had an impressive fourth quarter and general 2023 was one other report 12 months for each EBITDA and DCF. Wanting ahead, we count on this 12 months to be one other report 12 months. The 2024 EBITDA steerage that we offered in December stays very applicable, even after factoring within the introduced sale of our West Texas advertising belongings and the Zenith Europe acquisition. Backside line, we’re assured in our base enterprise and our monetary basis stays strong. Thus, we’re positioned to announce one other distribution improve in April.
Shifting on to our latest announcement. SUN’s strategic focus stays the identical, enhancing stability, enhancing development and sustaining a robust steadiness sheet, leading to a bigger and extra importantly, a extra compelling funding going ahead. Our actions converse for themselves. The upcoming addition of the 2 terminals in Europe is an effective instance of a tuck-in acquisition at a mid-single-digit synergized a number of. It’s going to present provide optimization, elevated steady earnings and future development alternatives.
The introduced sale of our West Texas advertising belongings demonstrates our means to optimize our portfolio of earnings streams, place the steadiness sheet for materials development and supply an accretive transaction for unitholders on a standalone foundation.
And eventually, the NuStar acquisition will likely be one other huge step ahead. It diversifies our money flows, enhance our credit score profile, improves our buying and selling liquidity and enhances our development alternatives. Financially, it’s extremely enticing. We count on a better than 10% accretion in 12 months three and our steadiness sheet is anticipated to be again to our goal leverage of 4 instances inside 12 to 18 months. With all these strategic strikes set in movement, it is now time for us to execute. Now we have a confirmed historical past of making worth for our stakeholders. And now we have positioned ourselves to construct on our report of delivering outcomes.
Operator that concludes our ready remarks. You could open the road for questions.
Query-and-Reply Session
Operator
Thanks. Right now, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first query comes from Spiro Dounis with Citi. Please proceed along with your query.
Unidentified Analyst
Hello, that is Chad on for Spiro. Simply beginning off, I simply wished to the touch on the synergies with the NuStar deal. Simply type of curious, might you give us a way of what alternatives might push you above that $150 million goal at the moment? Are these alternatives extra about like a time line or a feasibility query there?
Karl Fails
Yeah, Chad, that is Karl. And I feel you caught in our — once we talked about this three weeks in the past that actually we mentioned no less than $150 million of synergies. So $150 million is a strong quantity and will certainly take some work, and we laid out a time line on that. However our aim will likely be to determine methods to surpass that. And actually, I feel it is in all probability too early to have the ability to categorize whether or not it is extra a timeline problem. I feel there’s going to be a mix of expense optimization that we will discover in addition to business concepts.
After which I feel the world that we in all probability have to do extra work on and doubtless can have upside is on the expansion facet of us having the ability to perceive the place we will put some capital to mattress at a extremely good return. Possibly tasks NuStar already has within the pipe that they’ve simply not transfer ahead on. And I feel that is the world the place as soon as we get later within the course of and we’re in a position to dig in that there is in all probability some upside that we’re enthusiastic about.
Unidentified Analyst
Okay. Understood. That is sensible. And I suppose simply type of , submit the transaction, this may clearly be a bigger firm, and it seems like M&A stays part of the expansion technique. So simply type of curious on how that performs into the urge for food for bigger M&A going ahead? Or do you count on that type of M&A element of development resemble the tuck-in transactions that we have seen prior to now
Joe Kim
Chad, that is Joe. I feel the reply is all the above. The Europe acquisition, it is rather a lot smaller than NuStar, however we’re actually enthusiastic about all the probabilities. And there is going to be alternatives for us, each on the midstream facet and the sphere distribution facet at numerous completely different geographies. To do tuck-in acquisitions, I feel traditionally, we have completed in a mid-single digit synergized a number of. These have been extremely profitable for us, so we’ll proceed to do this.
Extra on the natural facet, the one factor I need to ensure that The Road understands is that Precedence one is getting NuStar and getting all of the synergies out of it. So now we have some — perhaps some quick time period useful resource assets that now we have to correctly deploy. However on the similar time, on the natural capital, these are separate assets. And the plan that we outlined in December, we’re persevering with to maneuver ahead with our natural plans.
So far as different M&A, it is a useful resource — it is a quick time period useful resource query. And we predict we will get this completed quickly, and we’ll be able to proceed to do this. So far as massive acquisitions. If there are double digit accretion alternatives for us the place we enhance our credit score profile, we’ll leap throughout that.
Unidentified Analyst
Okay. Yeah, it would make sense. That’s useful. Thanks for the time, at the moment.
Operator
[Operator Instructions] Our subsequent query comes from Robert Mosca with Mizuho Securities. Please proceed along with your query.
Robert Mosca
Taking a look at NuStar’s Midwest footprint. I feel you’ve got alluded to its potential to springboard for better involvement on the gasoline distribution facet in that geography. I am questioning whether or not there are particular alternatives or areas you might be involved in from a development perspective. After which whether or not you view natural or any type of funding as essentially the most applicable methodology by which to determine a presence?
Karl Fails
Yeah, Rob, that is Karl. It is in all probability somewhat too early for us to stipulate particular elements of that system. And the opposite attention-grabbing factor about that system, proper, it is an open inventory system. So that gives somewhat extra flexibility even than some transit time pipeline techniques.
So I feel there’s in all probability going to be alternatives in a number of fashions, whether or not it is on the branded enterprise the place we’re investing capital and both distributing our personal model or different manufacturers that we’re partnering with and even simply deploying working capital to construct an unbranded enterprise in these areas.
I feel type of just like Joe’s query on the M&A entrance, I feel it is all the above. That is actually the important thing to our technique that we have completed for the final 5 – 6 years. And we’re with NuStar is now we have this stuff that we do effectively, as we develop, we simply have a much bigger platform that we will proceed to do these. So I feel we’ll take a look at all these completely different type of items of our portfolio as potential development choices.
Robert Mosca
Admire that, Karl. And will you remind us of the contract profile on the European terminal belongings? And when you might use that capability with better scale for provide optimization on the East Coast?
Karl Fails
The East Coast contract profile?
Robert Mosca
Sorry, the European terminal contract profile.
Karl Fails
Yeah. Actually, these terminals are fairly effectively contracted now. So there may be going to be a while element, our normal technique with terminals that we have acquired is, we do not essentially favor ourselves. We would like all third events to return in, in these belongings. And so we actually have the choice to fill any empty area. So I feel there are some contracts that may roll off within the close to future that we’ll take a look at in all probability a filling in, however each belongings are fairly effectively contracted at the moment.
Robert Mosca
All proper, thanks. Admire the time, everybody.
Karl Fails
You guess.
Operator
Our subsequent query is from Selman Akyol with Stifel. Please proceed along with your query.
Unidentified Analyst
That is Tyler on for Selman. I used to be questioning if in gentle of the NuStar acquisition information, if there was any shade on how you’re viewing the IDRs now?
Joe Kim
Hey, Tyler, that is Joe. The easy reply is nothing’s modified. Our aim is to create worth for all our stakeholders, and ET is unquestionably considered one of them. I feel our historical past exhibits that we have created worth for all our stakeholders, and this NuStar transaction, I feel, is a first-rate instance the place that is good for our normal companions, good for SUN unitholders, is sweet for NuStar unitholders. It is good for the those that maintain our credit. So our path is strictly the identical.
Unidentified Analyst
Admire that, Joe. Additionally wished to know was there something driving the latest quantity energy or if it might be good to have a look at form of that $2 billion is an effective run-rate going ahead?
Karl Fails
Yeah. I feel as you’ve got seen over the past couple of years, we have been profitable at rising our quantity. I talked about that somewhat bit in my ready remarks. And that is actually — like I identified, we have been profitable at deploying capital.
So once we up to date our steerage for the Europe and the West Texas asset bulletins in January, we reaffirmed our EBITDA steerage. After which I feel with this earnings launch, we additionally reaffirmed that EBITDA steerage of $975 million to $1 billion, clearly, pre NuStar impacts. And I do assume the elements of that, whether or not it is the quantity or the margin or the capital additionally should be up to date somewhat. And I feel we’ll wait till we get nearer to the NuStar shut, and we’ll replace all these elements of steerage on the similar time.
Particularly, on quantity, I feel our aim is to proceed to develop our quantity. I feel the staff has completed an excellent job at discovering alternatives, in deploying capital, once more, each in these areas of branded and unbranded. And I feel that ought to proceed. And if something, we should always have the ability to speed up a few of that submit NuStar. And we’ll fold that into our steerage that we give later within the 12 months once we shut on NuStar and clearly, we’ll pull that in on the finish of the 12 months, proper? We’ll give steerage for 2025.
Unidentified Analyst
All proper. Nice shade. Thanks for the time.
Operator
Now we have reached the top of the question-and-answer session. I’d now like to show the decision again over to Scott Grischow for closing feedback.
Scott Grischow
Properly, thanks, everybody, for becoming a member of us on the decision at the moment. As all the time, we’re out there for comply with up questions. So please be happy to achieve out at any time. Thanks, everybody. Have an excellent day.
Operator
This concludes at the moment’s convention. You could disconnect your strains at the moment. And we thanks on your participation.
