Q1 2020 Earnings Call
Greetings and welcome to Sunoco Lps, 2021st quarter 2020, <unk> earnings call. At this time all participants are any in listen only mode. A question answer session will follow a formal presentation.
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Thank you had good morning, everyone on the call with me. This morning are Joe Camel Nobel Peace, President and Chief Executive Officer, Tom Miller, Chief Financial Officer, Karl sales, Chief Operations Officer, and other members of the management team.
A reminder, that today's call will contain forward looking statements that are subject to various risks and uncertainty.
These statements include expectations and assumptions regarding the partnership's future operations and financial performance.
Including expectations and assumptions related to the impact of the code in 19 pandemic.
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 that filings with the FCC for 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 snow Gopi website for a reconciliation of each financial measure.
Before I turn the call over to Tom I will review financial and operating results for the first quarter 2020.
The partnership recorded a net loss of $120 million. This net loss included a $227 million noncash inventory adjustment, resulting from the sharp decline in the prices are Bob during the quarter.
Adjusted EBITDA was $209 million compared to $153 million in the first quarter 2019.
Fuel volumes totaled 1.9 billion gallons down 2% from year ago.
First quarter volumes do not reflect a full quarters impact of shelter in place orders as these were not put into effect until the last two weeks March for most of the states in which we operate.
Fuel margin was 13.1 cents per gallon up from 9.9 cents per gallon the same period last year.
The year over year increase was supported by favorable commodity price environment.
<unk> 13 million dollar makeup payment under the fuel supply agreement with 711.
This team that reflects the short fall over the last 12 months of the contract as a reminder, we recognize any makeup payment under the fuel supply agreement at the end of the contract here, which ends on March 31st.
Total operating expenses for the quarter increased to $143 million, which includes an expected $16 million credit loss expense.
The increase was primarily due to the financial impact of come in 19, and lower oil prices on our energy services business.
This was more than offset by an $18 million favorable legal settlement and non motor fuel income.
First quarter distributable cash flow as adjusted was $159 million, yielding a coverage ratio of 1.84 time.
In a trailing 12 months coverage ratio of 1.49 times.
And on April 2nd we declared an 82.55 cents per unit distribution.
The same as last quarter.
I will now turn the call over to Tom.
Thanks, Scott and good morning, everyone.
We delivered strong results in the quarter, providing solid financial footing as we entered the second quarter.
Ive stayed home orders were enacted in March.
Fuel sales fell off rapidly in the last half of them up and into early April.
But volumes have increased over the last few weeks.
We'll provide more context around second quarter volumes later.
As Scott mentioned fuel margins were supportive in the first quarter and remained strong in April and into May.
Given the uncertainty underlying the cope at 19 pandemic.
Particularly around how quickly the economy recovers.
We are withdrawing our previous guidance on 2020 fuel volume margin and adjusted EBITDA.
We have also revised cost guidance.
We've taken a number of significant actions to reduce capital and operating costs. These are items we control.
In March we began adjusting our cost structure to weather the negative impact of cobot 19, we challenged ourselves to be more efficient than ever to offset lower fuel volume by evaluating the timing in need of every expense item in capital project as we announced last month, our projected 2020 growth.
Capital was reduced to $75 million, that's down over 40% from our initial guidance of $130 million.
The majority of these savings come from reduced spend on organic growth.
We also reduced our projected 2020 maintenance capital to approximately $30 million.
Around a third from our initial guidance of 45 million.
A majority of these I these savings come from the deferral of projects as appropriate.
We have also taken aggressive steps to reduce operating expense by $55 million to $70 million between April and year end.
The majority of the cost savings have been identified we are already executing on this plan.
A portion of the savings is based on fuel volumes, we provide arrange for our operating expense reduction to reflect the possible variability and how demand rebound.
These actions will lower 2020 total operating expenses to between 460 and $475 million down from our December guidance of $515 million. This range includes 16 million dollar reserve for expected cry.
Net losses reported in the quarter.
In total these actions should say between 125, and a $140 million the cash the swift and proactive steps strengthen our financial position.
As the economy recovers, we will continue to tightly manage operating cost and capital expenditures as we see sustained higher volumes as we start the second quarter, we have ample liquidity $1.2 billion in availability on our credit facility.
And our next debt maturities in 2023.
In addition to our history of financial discipline, the combination of strong financial results over the past 12 months, taking early and decisive action to reduce cost and our stable income sources, such as our long term take or pay fuel supply agreement with 711.
And lease income from our real estate portfolio puts us in a sound position Joe will now provide his closing thoughts Joe.
Thanks, Tom Good morning, everyone first and foremost our best wishes go out to those affected by the current a virus or would also like to thank our employees and our fuel distribution partners for their dedication during these unprecedented times.
As Tom mentioned, we felt the impact of stay at home orders starting in mid March the peak of our volume decline occurred about a month later in mid April for the total month of April volume was down roughly 40% on a year over year basis. The good news is that our volume is recovering.
So far and they are volumes continue to rebound shown a decrease of roughly 30% year over year.
Hi, its economic activity continues to increase steel demand will be on the leading edge.
Although the exact rate a demand recovery is still on determine I want to reinforce key factors that position Sun to meet the current challenge.
First we started the year on very solid footing, both operationally and financially our strong first quarter results further added to our foundation.
Exiting the first quarter, we have ample liquidity and our leverage and coverage ratios are outperforming our stated targets.
Second we took swift proactive measures in March we reduced our capital plan by 70 million and we expect to cut expenses in the range of $55 million to $70 million.
We've established a history of capital discipline and expense control and we expect to deliver on discarded.
And finally, it's important to keep in mind that volume in March and must be viewed together as I stated earlier volume is down but improving.
However on a gross profit based as the current strengthen our fuel margins has significantly offset volume declines.
Our current margins are materially above our normal margin range as evidenced by our first quarter results and we expect this to continue.
We believe margins will eventually revert to the mean, but the current high volatility if crude prices has been supportive of higher margins.
Our fuel profit optimization efforts have paid off in the past and we believe it will further enhance our financial stability going forward.
Let me close by saying that over the last few years, we've built a resilient business model that can weather various headwinds.
We have already taken and we'll continue to take appropriate action is to manage through this challenge to ensure a stable long term future for Sunoco.
Operator that concludes our prepared remarks, you may open the line for questions.
Yes.
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One moment, please while we call for questions.
Our first question is from snare or food from UBI, yes.
Please proceed with your question.
Hi, Good morning, guys. So I'm thinking you today for for the update I'm just wondering if I can start off with with a few questions around your your outlets and expectations I appreciate that it's extremely challenging to provide guidance in this environment, especially when you're kind of focused on retail demand and so.
So for its that being said I was wondering if you can talk about your margin a little bit or cents per gallon, if they're going to be some sort of parachute impact around margins, Ken can it actually benefit from the lower volume environment. I'm did you see this with other retail oriented commodity sales for the margin actually span.
In these types of environment shop. So I'm wondering if you can talk about your expectations and how you think this is going to play out.
Sure Good morning, Shneur this Carl.
So as a as Joe mentioned in his prepared remarks, so far in the second quarter margins have remained above the normal margin range.
Probably at levels more consistent with those you you saw in the first quarter going forward a lot of where the margin ends up will depend on the movement of gasoline and diesel prices in the pace of recovery in volumes, Joe mentioned, our fuel gross profit optimization efforts it'll help us.
As you look at the the margins eventually they will revert to the mean, but there are two factors that we think will provide some support a tomorrow engines that first is.
Consistent with what you mentioned the entire industry is dealing with reduced volumes and one way to balance that is with a higher margin even while the prices are relatively low to the consumer and then the second point that we think provide support is the volatility.
So that allows.
The margin to be supported as well.
Okay. So just to clarify basically because because prices are very low from a consumer perspective, the savings don't get passed on as quickly if that's the right way to clarify it.
I I think of it more as if you think about the single station operator, and he's she's trying to manage his gross profit while his volumes are down one way to help balance is gross profit is for him to take little bit more margin.
Okay that does that make sense and then I appreciate the color, but I'm talking about seeing some sort of a rebound and so forth or.
I don't ever be bounds of right word, but certainly a move off the bottom in terms of volumes.
I was wondering if you could parse it a little bit and give us a color around like states, where or service territories that you have to were.
Locked down orders have been lifted has there been a surge and then a plateau and that comes back down any any kind of color you can give us around the shape all of the demand of this bounce off the bottom basically.
Yeah. This is Carl again, what I would say is as you can imagine.
The states that.
Put in place has stayed home quarters first so maybe some of the northeast states or at least for our geography I'm saw the earliest impacts on volumes as various states have eased restrictions we have seen.
Those local and state government state homeowners being lifted have an impact on volumes.
So you can follow what's happening with those governments and you'd have the effect that you would expect I will say this however, even states that have not lifted and their stay at home restrictions, we have seen a positive trend in volumes since.
Mid April where the probably the largest impact was felt.
So.
Finally, the final point I'd make is that we've created in our network a portfolio of of wholesale distribution income streams that has diversity, both geographically and by channel and so from our standpoint that that portfolio approach has really helped.
So during these times so even if some states may have been hit earlier other states, we're holding up and asked are coming back the same the opposite is happening.
Okay, and just started to clarify so what you're saying if some of the states. It's still have shelter in place orders in place are still actually seeing increased volumes and then obviously the states that have started to remove restrictions if I have seen an uptick as well also but you know you with the ones that have actually remove the shelter.
In place orders and the MD and then there's been a subsequent uptick is there a plot telling there or is that actually continuing to trend like our people running out getting stuff that they couldn't do before and then sort of going back to the pattern of sheltering in place. When you look at it from Volumetrically or is it actually continuing to rise there, but at a slower pace.
That's the nearest Joe good morning, so from our what we're seeing is I think you hit it or even for the states that are better regardless to have shelter in place or they don't have shelter in place we're seeing within our overall network every week, we're seeing positive signs within our whole network. So that's very encouraging for us I think as far.
Our is whenever obviously whenever a local state government takes it off we're probably going to see a more exponential growth in our in our volume, but overall, we're seeing it everywhere.
Alright, perfect I appreciate the color today and Ah stay safe.
Thank you thanks.
And our next question is from Spiro Dounis from Credit Suisse. Please proceed with your question.
Hi, good morning, everyone.
I'd like to maybe start up on M&A and the growth strategy here realized some things are probably an old right now understandably, but just curious maybe what your latest thinking is around moving into more traditional midstream have any of your parameters change there just given what we've seen play out and is there an opportunity here that maybe pick it back to the roll ups drag.
You guys are talking before or other returns in sort of the contracting strategy the organic strategist still really more compelling here.
Hi, Good morning, ferrous, Joe Hey, I think any time theres a shock to the economy that we saw with the current of our it's I think some companies will probably not make it while other ones that do come out I think some will come out relatively stronger than others.
For Sunoco, we believe we'll definitely weathered the storm and we'll come out relatively stronger than most and.
So we started this healthy we had a really good first quarter, we added to our foundation and and we'll whether this there will come out strong again, I think thats going to create optionality for us in the future. So when that happens you know our strategy has not changed.
We're going to where we have a really strong fuel distribution.
Business, we're going to continue to grow that probably more on the organic side versus the M&A side, but we're not excluding that and we are definitely our goal is to become a larger more diversified MLP and that means that we're going to we're going to target both from a organic M&A standpoint of traditional.
Midstream asset, but for today I think you mentioned in your question. The focus obviously is making sound prudent decisions and executing and delivering the best we're focused on right now.
Got it makes a makes sense second wanted just to follow up on the 711 contract.
And maybe how to catch up payments work, if I guess, if I'm understanding it correctly it sounds like you're in the second quarter, probably going to see the trough in terms of a demand impact.
It sounds like for the 711 contract specifically, we will see a negative volume impact there won't be entirely shielded entity extent 711, I get doesn't make up those volumes in third quarter fourth quarter, you would once again receive and just get probably an even larger payment and the first quarter 21 is that the right way to think about I guess, how have we seen about second quarter.
And the impact there.
Yeah. That's it that's a good summary, it's a it's a but take or pays a an annual gross profit take or pay.
With the contract year, ending each first quarter.
Okay. So if we see things trough little more than expected during the second quarter. It not all his last week, we should expect that to basically I guess could they recuperating third quarter fourth quarter do we actually have to wait so first quarter 21 see that one big catch up.
It depends on their volumes, but if we do sell the more volume we absolutely can recoup some of that in third and fourth quarter and whatever is not met then will be paid into make a payment in first quarter.
Okay perfect. Thanks for the time do you guys do well.
Thanks.
And our next question is from Gabe Moreen from Mizuho. Please proceed with your question.
Hi, Good morning, everyone. I just had a question on a expenses in general just curious of the 50 to 75 million.
Most of that may be sustainable or is it really all just a variable in terms of lower volumes and then I think I caught you, saying something about credit a credit charge off this quarter can you just talked about what that was and whether that maybe or not be an ongoing issue and the current environment.
Yeah. This is Carl I'll start with the the cost question and then I'll let.
Scott answer the credit question.
The way to think about our cost is if you I'll put it in the context little bit. If you think about the last few years since we did to 711 deal.
We have demonstrated a strong track record of expense management Rightsizing. After the 711 deal too limiting expense growth as we layered on acquisitions.
So with that foundation, we put together a a pretty detailed plan that as was mentioned in the prepared remarks has already been implemented and so you pointed out that you can think of that in two buckets. The first bucket is variable expenses related to volumes. Our commitment is that as volumes come back that the.
Expenses relating to those volumes are going to lag any topline growth, we're going to control those expenses to make sure that line comes back before before the variable expense, but there are significant fixed expenses that are also part of that plan.
We basically evaluated every project and program that we were doing for timing.
And necessity, we stopped deferred some initiatives and challenged ourselves to be even more efficient so.
Really the way to think about that range is under any volume scenario. This year, we will at least deliver the 55 million and if if volumes are on on the lower side of our scenarios that will be.
Pushing nor even surpassing that 70 million, Dave Let me add one thing the the 55, a 70 million. The vast majority of it is fixed I think thats. The key point takeaway and secondly, I I look at the 50 570 slightly different I really think us more 71 to 86 because of the 60 million dollar of.
Of bad debt reserve that we took and the first quarter. So that that's why it came down to 55 to 70, but the vast majority is fixed expenses that we are we are taken out of the business.
Got it Okay. If you could sorry go ahead.
Yes, I gave this is Scott and just on the 16 million and expected credit losses expense that we took that was really related to the impact is covered 19 on our business and our expectations around credit losses.
Okay. So we reserve report you expect all good basis.
Then I wanted to follow up just in terms of it Wasnt a lot in terms of these of gasoline demand hit on already on this call, but can you talk a little bit about diesel demand or the exposure in west, Texas, just kinda diesel demand in general how it fits in your portfolio and what you're seeing an expectation there.
Yes. This is Carl I'll hit on overall diesel demand first then I'll make a comment about west Texas.
The best way to think about diesel demand relative to the numbers that Joe talked about is that we saw the declines come a little later, where the declines in gasoline started pretty immediately when stay at home orders I started in mid March.
So didnt really started decline until probably the April timeframe and the numbers in terms of year over year were about 20%.
15% to 20% better than the gasoline numbers that Joe talked about.
As far as West Texas goes.
We've clearly seen some impacts on our diesel business in West, Texas is as drillers have pulled back production with the lower oil prices.
Our coag business that you remember we have a strong quite business out. There has also had some impact but has been very resilient.
Here's how I'd.
Couple of thoughts of color around that West, Texas business first.
We've operated those sites for a number of years and so we know what bad looks like if you think back to when crude fell dramatically in 2014 2015, we have not seen impacts to the degree that we saw in 2014 2015.
And the second point, which is most important is.
I mentioned earlier, we've intentionally taken a portfolio approach to our fuel distribution business and and in that portfolio. We have ensured that no single channel or geography has an overweight portion of that portfolio. So that's true of our west Texas business. So well on in this in this period of lower oil.
Prices and lower demand.
That that part of the portfolio is performing a little lower it won't materialize weaken our overall.
Thanks, Carl and then last one for me and maybe it's a little bit sensitive question, but Theres. No portion is your provisions on your contracts and I sort of.
None of that as being claims at the moment, it's really all just on the variable basis here.
Yeah, I hear here's what I'd say is we have relationships with all our contracting partners and we we don't typically a talk about individual.
Customers their suppliers, but we've continued to work with which all of them in and.
I guess I'd leave it at that.
Okay, that's what kind of [noise].
And our next question is from Chris.
[music].
Signals see from Jefferies. Please proceed with your question.
Hey, good morning, everybody. Thanks for the time.
I just had a couple of follow up here, Tom I was hoping if you give me a little bit more color on the legal settlement that you fly had been in last nights release I looked at a care, but I couldn't find I just wanted to know.
What that stemmed from and if there's anything else out there that's sort of pending that.
Could influence future results.
Chris We don't talk about the exact details behind the settlement.
My advice is that you view this.
As a as a onetime or in conjunction with the $16 million that Scott talked about a couple of minutes go on credit.
And right now at this point in time, we don't have anything on the horizon.
In terms of Legals large legal settlement, okay, and when you meet in terms of in conjunction with the credit provisions could you just mean.
You, both as a onetime item not that there related to one another is that right right, yes, you're absolutely right. Okay.
Okay. That's that's helpful. And then I wanted to go back the spirit asked about the 711 contract and obviously you guys five last night that to make a provision from 2019 that occurred in the first quarter is there anywhere where we can track, let's say as we come into year end.
Where they stand in regards to you know the volume agreement for that calendar period.
Just to get a better sense of maybe what might.
Becoming in the first quarter, let's say 2020.
One just given how disruptive fuel volumes might be in 2020.
Sure Chris.
Generally we have will not disclose.
Specific counterparty volumes, obviously as year unfolds, and we get more information I think during each each quarterly call, we'll be able to provide a little more insight.
Into where we are in the quarter and how it might impact our business.
Okay.
Okay I'll just wait for those then and then I guess, Joe appreciate your comments about the improvement in.
Demand characteristics cross the franchise, both states that have relaxed.
Yeah, there's there theres stay at home provisions and those that haven't I guess as you look at it.
Yeah, I think share asked a question if it's if it's finding a new plateau and you were saying it continues to improve can you just give a sense and if you offered this in prepared remarks, I I apologize, where we are sort of right now versus maybe the year ago period at this point for your system and the same would be of interest.
If you're able to get a sense it for.
For margin, obviously that margin strength that you guys posted in the first quarter I'm imagining was anchored.
Significantly by March and I'm just curious.
We sort of come back down to reality as things stabilize where where we are sort of at this moment in time and Asia churn out would be helpful.
Sure Chris.
The impact started for us about and bid or mid March and the demand decline started peaked out at about middle of April and we view our business more on a week by week type of type of numbers because every any one day.
Theres too much variability on a single day. So when it peaked out for us in mid April were roughly at about 46% year over year decline that was our peak access point and the comment I met this man made for Spiro, we've seen pretty much every week, a decrease and the amount.
The decline to the point, where April ended up at 40% roughly year over year decline for the Sunoco network.
Then we looked at the first 11 days or so a may and we're seeing right now is about a 30% year over year decline. So that kind of supports my statement that we're seeing week over week, we expect that the second half of this quarter the back half this quarter to cut to continue to improve.
And as far as your second question about margins.
Our first quarter margins ended up north of 13 cents per gallon and traditionally we've guided somewhere between nine and have to tenant asset so that's materially above.
Obviously crude prices in our Bob came down very rapidly in March but as Carl mentioned, it's not thoughts are very good commentary about about how individual operators are maintaining gross profit with less less margin, they're getting more website with more more margin there offsetting the less volume.
We see that continuing and on top of that we believe that crude volatility even on a rising rising crude price. We think is going to remain volatile and people that have followed us understand that that volatility has been a a.
A friend of ours when it comes to margins. So we think it's going to remain volatile and crude prices and that's why we believe that that margins are going to remain robust for us for the foreseeable future.
Okay, great Okay.
Okay. That's one one final question you do you still have a small retail business retained.
In Hawaii I'm, just curious you know I read a lot about what.
That state is doing just sort of limit travel to the islands and I'm just curious any update.
Just given that it's a little bit different than the rest of your wholesale network any update on that franchise and.
Hi, just thinking about it.
Sure. This is Carl I guess the color I give is.
That the fuel volumes have fallen off.
But are in pretty in line with with the numbers that Joe shared with you for overall volumes and then consistent with some of the other convenient stores or on the mainland the convenience store business inside store has held up a very well I.
I think.
In every sense of the word both from a government viewpoint and from a consumer viewpoint those convenience stores have been essential businesses for the communities in which they operate.
Okay.
Got it thanks, a lot for that sort of time and all the extra color just wondering I do very much appreciate it.
You bet.
And as a reminder, you make Chris Star one on your telephone keypad, if you'd like to place yourself into question Q to ask a question.
Our next question is from Sharon Lui from Wells Fargo. Please proceed with your question.
Hi, Good morning, most of my questions have been asked and answered.
I just had one on rental income and whether you guys had to make any concessions or perhaps deferrals and based right because it's kind of hit 19.
Good morning, Sharon.
Oh.
I'll take that one as Carl.
I think the way to think about how we've dealt with our customers your specific questions on rent or maybe make it a little more general which.
With how weve interacting in supported our customers. So there's there's really been.
Three things it's supported them. One is we've we've been pretty active in helping our customers access of various government programs.
Such as the Paycheck protection program and many of our customers have already received funds from those programs, which has definitely supported their businesses.
We have direct to answer your question, we have worked with some customers on a on a case by case basis to help them manage their cash flows.
And that's in our numbers and in our forecasts.
And my final thought is I already mentioned about Hawaii I'll make more general is that.
The essential nature of these businesses I think is also helped many of these operators and.
You know is I take a step back I I've really been proud of how both our employees in our retail stores and particularly the employees of of our fuel distribution partners. How they've really stayed in business and served the communities that they've been and they've done a great job. During these last couple of months.
Thank you.
Thanks Sharon.
Our next question is from the recent Chen from Barclays. Please proceed with your question.
Good morning.
Appreciate all the comment.
Related to volume and I just wanted to follow up on that maybe get a more concrete framework and I think we'd look at second quarter. So you had on one of your competitor it pretty much guiding to 40% decline and I had one another and putting out guidance about roughly twice.
5%.
Mid con and granted those are more midstream infrastructure related, but I imagine that volume going through.
Pretty one to one based on the wholesale side.
When you talk about April as a month being down 40% year over year at the trough being down 46% in the brick 11 data may 30% down.
Is that second derivative at this point in a very beneficial to you. That's what you would expect.
June to be much better than they are we can land in that mid 20.
Framework for you know that month or just generally how do you.
Our second quarter shaping up given that we're halfway into it at this point.
Good morning Theresa.
I think the way that you're looking at it from from this point in time time is reasonable we have no.
Reason to believe that the trend line, one continued to improve for us as far as an exact number of what we think June it's going to be it takes a little too early for that but the trend lines definitely going in that direction as if it was 40% in April 30%. So far in May we see we see this recovery happening but.
What we're not prepared to do at this particular point in time to give give or by an exact number of what may is going to end up which is going to end up but the trends are definitely positive and I think a couple of points I want like to reemphasize from some of the previous questions is some of the volume that we lost from 711, it's just a timing issue from a gross profit standpoint that still.
Back on the first quarter of next year and also.
Going back to Sharon's question about real estate income.
Carl mentioned that we have worked for their customers, but the results whenever on our on whenever we we report our numbers, it's going to be immaterial in 2020, it's going to be immaterial in 2021. So if you add up our AR.
Rent to income business and you add up to 711 minus any timing differentials. Those are solid that's just the timing play for us. So so I think we got a really good base of income that we start off with and as the economy recovers our volumes going to recover.
Got it and then second question just on the distribution so we've seen.
And wide range of both midstream entity and also companies up and down the energy balancing pare back their dividends either by force or less by force and no just.
Thinking about this and.
Unprecedented.
Kind of uncertainty if they don't get better how do you view your distribution amid all of this uncertainty.
How many if things don't get better how many quarters the pool and we'll be able to I believe willing to still make the point you've been considered that.
Yes, so up.
No.
I guess back in March we we put out that we're maintaining distributions and the way we looked at it was less from two perspectives, where we are today and we think the future holds for US. So you know I think I've talked a lot about on prepared and everything else. We started off healthy in the first quarter. Just made is healthier. So we're starting at a really good place where our coverage is.
1.84 for the quarter and on an LTM basis, we're basically one point fivex. So we're starting at a very good place.
Looking forward you know I think a few things that you should keep in mind, we took swift actions on a proactive basis when it comes to capital one expensed and there's about $140 million worth of cash preservation that we'll see in 2020 versus the original guidance that.
We provided.
We looked at multiple scenarios to know people talk about the different shape of recovery. The B.W. dispersed whatever popular terms that are out there on the rate of recovery and as a management team. We picked a more of a conservative approach because we didn't want to undershoot, our proactive measures. So we looked at.
Various scenarios.
We we believe that as far as having a very reasonable in line to site to actually getting back to our pre cobot levels and while still keeping our distributions.
Thanks.
Thank you.
And our next question is from John royalties from JP Morgan. Please proceed with your question.
Hey, good morning, guys. Thanks for taking my question.
So on on Capex I know you don't guide out beyond the current year, but.
Would it be safe to say that due to some of the cuts that you're all other things equal we could do some catch up next year on both the growth and the maintenance side.
Yeah. This is Carl.
As you pointed out we're not providing 2021 guidance right now, but but here's how I would think about it.
You know as Tom mentioned on the prepared remarks, most of our savings on the maintenance capital side was was deferral or timing related.
So.
You know, we're gonna have to do those projects eventually we prioritize them and our and are focused on the most important projects. This year on the growth that's really going to be depending on the business and as Joe mentioned earlier in terms of our strategy our strategy remains the same.
So, it's really where we see the opportunity and to what levels. So so at the at the end of the year, we'll provide more concrete guidance on what our growth looks like for next year.
Great. Thank you and then I'm a fuel distribution side I.
I think spiro touched on this a little bit, but the miss environment present, an opportunity to get aggressive on M&A, where.
Maybe youre seeing some targets come under distress.
Yes. This is Joe.
As I said earlier first thing first for US we're going to.
Match. This this challenge and make sure that we return at or better than our previously stated targets when it comes to coverage and leverage and by doing that I think thats going to put us in a very good place at that point, we're going to have relative strength and I think deals that are available today I think they might.
Even be better and the you know short run or mid run and then at that time, we'll take a look at it and we'll take advantage of it.
Great. Thank you.
Thank you thanks.
And we have reached the end of the question and answer session and I will now turn the call over to Scott Grisham for closing remarks.
Thanks, everyone for joining us on todays call should you have any additional questions are like clarification on any the topics. We discussed our team will be available to take your calls we'll talk to everyone's didn't have a great week.
This concludes today's conference and you may disconnect. Your line at this time. Thank you for your participation.