Q4 2021 Sunoco LP Earnings Call
Speaker 1: Greetings and welcome to Sunoco LP's fourth quarter 2021 earnings conference call. At this time, all participants are on a listen-only mode. A question and answer session.
Greetings and welcome to Sunoco L. P fourth quarter 2021 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Should require operator assistance during the conference.
Zero on your telephone keypad.
Please note this conference is being recorded.
Now I'll turn the conference over to your host Scott <unk>.
Michelle you may.
They begin.
Speaker 2: Thank you and good morning everyone. On the call with me this morning are Joe Kim, Sunoco LP's President and Chief Executive Officer, Carl Fales, Chief Operations Officer, Dylan Bramhall, Chief Financial Officer, and other members of the management team.
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, Hillenbrand Hall, Chief Financial Officer, and other members of the management team.
Speaker 2: Today's call will contain forward-looking statements that are subject to various risks and uncertainties.
Today's call will contain forward looking statements that are subject to various risks and uncertainties.
Speaker 2: These statements include expectations and assumptions regarding the partnership future operations. financial
These statements include expectations and assumptions regarding the partnership future operations and financial performance.
Speaker 2: including expectations and assumptions related to the impact of the COVID-19 pandemic.
<unk> expectations and assumptions related to the impact of the COVID-19 pandemic.
Speaker 2: 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 facts.
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.
Speaker 2: 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 SNOQLP website for reconciliation of each financial measure.
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 reconciliation of each financial measure.
Speaker 2: Before I turn the call over to Dylan, I want to briefly cover the results for the fourth quarter of 2021. The partnership recorded net income of 100 million dollars compared to 83 million dollars in the fourth quarter of 2020. Adjusted EBITDA was 198 million dollars compared to 159 million dollars in the fourth quarter of 2000.
Before I turn the call over to Dylan I want to briefly cover the results for the fourth quarter of 2021.
<unk> recorded net income of $100 million compared to $83 million in the fourth quarter of 2020 adjust.
Adjusted EBITDA was $198 million.
Compared to $159 million in the fourth quarter of 2020.
Speaker 2: The partnerships build 1.9 billion gallons in the fourth quarter, up 3% from the fourth quarter of last year.
The partnerships $1 9 billion gallons in the fourth quarter up 3% from the fourth quarter of last year.
Speaker 2: Fuel margin for all gallons sold was 12 cents per gallon compared to 9.2 cents per gallon a year ago.
Fuel margin for all gallons sold was 12 per gallon compared to $9 <unk> per gallon a year ago.
Speaker 2: Total fourth quarter operating expenses of $123 million were higher on a year-by-year basis.
Total fourth quarter operating expenses of $123 million were higher on a year over year basis.
Speaker 2: Fourth quarter distributable cash flow as adjusted was $143 million compared to $97 million in the fourth quarter of 2020, yielding a coverage ratio of 1.7 times.
Fourth quarter distributable cash flow as adjusted was $143 million <unk>.
Compared to $97 million in the fourth quarter of 2020, yielding a coverage ratio of one seven times.
Speaker 2: The coverage ratio for the full year 2021 was 1.6.
The coverage ratio for the full year 2021 was one six times.
Speaker 2: Finally, on January 26, we declared an 82.55 cent per unit distribution, consistent with last quarter. The durability of our business and history of delivering results continues to support a stable and secure distribution for our unit holders.
Finally on January 26, we declared an $82 55 per unit distribution consistent with last quarter the.
The durability of our business and history of delivering results continues to support a stable and secure distributions for our unit holders.
Speaker 2: I will now turn the call over to Dylan to discuss the full year results and our outlook for 2022.
I will now turn the call over to Dylan to discuss the full year results and our outlook for 2022.
Speaker 3: Thanks, Scott. Before I walk you through our 2021 full year results and accomplishments, I'd like to make a few comments on a recently announced acquisition of a 23,000 barrel a day transmits facility in Huntington, Indiana.
Thanks Scott.
Before I walk you through our 2021 full year results and accomplishments I'd like to make a few comments on our recently announced acquisition of the 23000 barrel a day transmitter facility in Huntington, Indiana.
Speaker 3: This acquisition represents another really exciting opportunity to continue to build out our midstream asset base with a low risk, solid return deployment of capital.
This acquisition represents another really exciting opportunity to continue to build out our midstream asset base with a low risk solid return deployment of capital.
Speaker 3: Our strong distribution coverage and balance sheet continue to allow Sun to invest in these types of opportunities, which will contribute additional value to our stakeholders for years to come.
Our strong distribution coverage and balance sheet continue to allow us to invest in these types of opportunities, which will contribute additional value to our stakeholders for years to come.
Speaker 3: Now shifting over to our full year 2021 results and accomplishments, we recorded adjusted EBITDA of $754 million, above the midpoint of our 2021 guidance range and up 2% from 2020.
Now shifting over to our full year 2021 results and accomplishments, we recorded adjusted EBITDA of $754 million above the midpoint of our 2021 guidance range and up 2% from 2020.
Speaker 3: Distributed while cash flow is adjusted was $542 million, Up 5% versus the prior year.
Distributable cash flow as adjusted was $542 million up 5% versus the prior year.
Speaker 3: We improved our already strong distribution coverage ratio to 1.6 times, up from 1.5 times in 2020 and 1.3 times in 2019.
We improved our already strong distribution coverage ratio to one six times up from one five times in 2020, and one three times in 2019.
Speaker 3: Our balance sheet and liquidity position remains strong with leverage at the end of the year of 4.17 times. And availability on our credit facility of approximately 930M dollars.
Our balance sheet and liquidity position remains strong with leverage at the end of the year of $4, one seven times and availability on our credit facility of approximately $930 million.
Speaker 3: Finally, our strong financial position allowed us to take advantage of a diversified set of growth opportunities in 2021, including the acquisition of 9 refined products terminals. And the construction of a Greenfield terminal and brands will.
Finally, our strong financial position allowed us to take advantage of a diversified set of growth opportunities in 2021, including the acquisition of nine refined products terminals and the construction of our Greenfield terminal in Brownsville, Texas.
Speaker 3: With all of these accomplishments as the backdrop, we entered 2022 poised to continue to deliver strong results. In December , we provided guidance for 2022 adjusted EBITDA of between 770 and $810 million. Underpinning this guidance-
With all of these accomplishments as the backdrop, we entered 2022 poised to continue to deliver strong results in December we provided guidance for 2022, adjusted EBITDA of between 770 and $810 million.
Underpinning this guidance are the following assumptions.
Speaker 3: Fuel volumes in a range of 7.7 to 8.1 billion gallons. Annual fuel margin between 10.5 and 11.5 cents per gallon. Total operating expenses are between 490 and 500 million dollars. Maintenance capital of 50 million dollars. And growth capital of approximately 150 million dollars.
Fuel volumes in a range of seven 7% to $8 1 billion gallons annual fuel margin between 10, five and $11 five per gallon.
Total operating expenses of between 490 and $500 million.
Maintenance capital of $50 million and growth capital of approximately $150 million.
Speaker 3: The free cash flow generating capability of our operations allows us to focus on the pillars of our capital allocation strategy.
The free cash flow generating capability of our operations allows us to focus on the pillars of our capital allocation strategy first.
Speaker 3: First, to maintain stable and secure distribution for our unit holders. Second, to protect our balance sheet through debt pay down when prudent. And third, to pursue disciplined investment in our growth opportunities like the acquisition which we announced today.
First to maintain a stable and secure distributions for our unit holders.
To protect our balance sheet through debt paydown, when prudent and third to pursue disciplined investment in our growth opportunities like the acquisition, which we announced today.
We will be financially disciplined with a target coverage ratio of at least one four times and a target leverage ratio of four point out arms.
Speaker 3: We will be financially disciplined with a target coverage ratio of at least 1.4 times and a target leverage ratio of 4.0.
Speaker 3: So NOCO's consistent financial results throughout commodity cycles have become a hallmark of our partnership and we expect 2022 will bring more of the same.
<unk> consistent financial results throughout commodity cycles have become a hallmark of our partnership and we expect 2022 will bring more of the same.
Speaker 3: With that, I'll now turn the call over to Carl to walk through some additional thoughts on volumes, expenses and our outlook for 2022. Carl? Thanks.
With that I'll now turn the call over to Karl to walk through some additional thoughts on volumes expenses and our outlook for 2022.
Sure.
Thanks, Dawn and good morning, everyone.
Speaker 3: We delivered another strong quarter supported by continued strength in margins and expense discipline.
We delivered another strong quarter supported by continued strength in margins and expense discipline and.
Speaker 3: In addition, the contribution from our recently completed acquisitions have been in line with our expectations. Volumes for the quarter were up three.
In addition, the contribution from our recently completed acquisitions have been in line with our expectations.
Volumes for the quarter were up 3% from last year.
Speaker 3: We did see some weakness creep into the end of the quarter as a result of the Omicron variant spreading in the United States.
We did see some weakness creep into the end of the quarter as a result of the omicron variance spreading in the United States.
Speaker 3: This carried over into the beginning of January , but in the last couple of weeks we have seen volumes returning.
This carried over into the beginning of January but in the last couple of weeks, we have seen volumes returning.
Turning to margins.
Speaker 3: In the fourth quarter, we delivered strong margins of 12 cents per gallon, our strongest margin quarter in 2021.
In the fourth quarter, we delivered strong margins of 12 per gallon or.
Our strongest margin quarter in 2021.
Speaker 3: increased volatility contributed. While RBOB prices were flat from the beginning to the end of the quarter,
Increased volatility contributed.
While our bond prices were flat from the beginning to the end of the quarter.
Speaker 3: There was over a 50 cent per gallon spread from low to high during the quarter.
There was over a 50 cent per gallon spread from low to high during the quarter.
In addition, we continued to see the benefit of higher breakeven margins.
Speaker 3: In addition, we continued to see the benefit of higher breakeven margins, including when volumes soften near the end of the quarter.
Including wind volumes soften near the end of the quarter.
Speaker 3: That same market dynamic has carried into the beginning of this year.
That same market dynamic has carried into the beginning of this year.
Speaker 3: Turning to 2022, we expect another year of solid growth, and we are confident in achieving our EBITDA guidance despite potential impacts to volumes from the Omicron variant, high crude prices, supply chain and labor issues, and general inflation, all of which we considered when we issued guidance.
Turning to 2022, we expect another year of solid growth and we are confident in achieving our EBITDA guidance despite potential impacts to volumes from the omicron variant.
Hi crude prices.
Supply chain and labor issues and general inflation.
All of which we considered when we issued guidance.
With respect to volumes.
Speaker 3: First quarter volumes are typically the lowest of the year, primarily due to the lower number of days in the quarter. I mentioned earlier some...
First quarter volumes are typically the lowest of the year.
Primarily due to the lower number of days in the quarter.
I mentioned earlier some impact from Amazon.
Speaker 3: Again, I would remind everyone that if volume weakness were to sustain for a period of time, that we would expect it to be offset to some extent by higher break-even margins as we have experienced for the last two years.
Again, I would remind everyone that if volume weakness or to sustained for a period of time.
We would expect it to be offset to some extent by higher breakeven margins as we've experienced for the last two years.
Speaker 3: As mentioned on last quarter's call, we have implemented strategies to deal with longer supply chains.
As mentioned on last quarters call, we have implemented strategies to deal with longer supply chain.
Speaker 3: Even with those adjustments, supply chain challenges did contribute to lower than guided capital spend in 2021.
Even with those adjustments supply chain challenges did contribute to lower than guided capital spend in 2021.
Speaker 3: But the lower 2021 capital spend does not impact our 2022 guidance.
But the lower 2021 capital spend does not impact our 2022 guidance.
Speaker 3: Continuing with the subject of capital, the 150 million dollar growth CapEx guidance provided in December will be primarily focused on expanding the fuel distribution business with some capital spent on our midstream operations.
Continuing with the subject of capital the $150 million growth Capex guidance provided in December will be primarily focused on expanding the fuel distribution business.
With some capital spent on our midstream operations.
Speaker 3: This includes the completion of our Brownsville terminal, which remains on track for commissioning by the end of the first quarter.
This includes the completion of our Brownsville terminal, which remains on track for commissioning by the end of the first quarter.
Speaker 3: We're excited to bring this organically developed asset in service with our strong domestic demand as well as the export opportunities from this strategic location.
We're excited to bring this organically developed asset in service with our strong domestic demand as well as the export opportunities from this strategic location.
Speaker 3: In addition, we're thrilled to announce another meaningful expansion to our midstream portfolio. With the deal to acquire a 23,000 barrel per day, transmits processing and terminal facility. In Huntington, Indiana for 190 million dollars.
In addition, we're thrilled to announce another meaningful expansion to our midstream portfolio.
With the deal to acquire a 23000 barrel per day, <unk> processing and terminal facility in Huntington, Indiana for $190 million.
Speaker 3: The facility is the largest transmix plant in North America and has onsite product storage of approximately 750,000 barrels.
The facility is the largest transmission plant in North America and has onsite products storage of approximately 750000 barrels.
Speaker 3: The transaction is consistent with our strategy to grow and diversify our operations. Through the expansion of our midstream business and will be immediately accreted.
The transaction is consistent with our strategy to grow and diversify our operations through the expansion of our midstream business and will be immediately accretive.
Speaker 3: By the second year of operation, our acquisition multiple, including synergies, will be below seven times.
By the second year of operation, our acquisition multiple including synergies will be below seven times.
Speaker 3: We expect to close the acquisition late in the first quarter or early second quarter subject to customary regulatory approvals.
We expect to close the acquisition late in the first quarter or early second quarter subject to customary regulatory approvals.
Speaker 3: Let me spend a minute and explain why we are so excited by this deal.
Let me spend a minute and explain why we're so excited by this deal.
Speaker 3: First, many of you will remember that we entered the transmix processing business over five years ago with the purchase of operations in Euless, Texas and Birmingham, Alabama.
First many of you will remember that we entered the trans mixed processing business over five years ago with.
With the purchase of operations in Euless, Texas in Birmingham, Alabama.
Speaker 3: Those assets have been a solid contributor for us over the last five years and integrate well with our fuel distribution business.
Those assets have been a solid contributor for us over the last five years and integrate well with our fuel distribution business.
Speaker 3: Margins are solid and transmix volumes have been even more stable than the related gasoline and diesel volumes.
Margins are solid and trans mix volumes have been even more stable than the related gasoline and diesel volumes.
Speaker 3: The Glagio plant in Indiana is strategically located. At the crossroads of several Midwest pipelines and trucking routes. And will build on our existing trends.
The <unk> plant in Indiana is strategically located at the crossroads of several Midwest pipelines in trucking routes.
And we will build on our existing trans mix operations.
Speaker 3: When you match up the strong underlying business with our proven operations track record, the synergy with our fuel distribution business, and the attractive purchase price, this deal is a great follow-up to our new star acquisition we did last year.
When you match up the strong underlying business with our proven operations track record the.
The synergy with our fuel distribution business and the attractive purchase price. This deal is a great follow up to our new Star acquisition, we did last year.
Speaker 3: I will wrap up by stating that we were off to an exciting start to 2022, and as expected, will continue to focus on delivering results for our stakeholders through our proven recipe of gross profit optimization, delivering on expenses, solid and efficient operations, and growing our core business. Joe?
I will wrap up by stating that we were off to an exciting start to 2022 and as expected. We will continue to focus on delivering results for our stakeholders through our proven recipe of gross profit optimization delivering on expenses solid and efficient operations and growing our core business Joe.
Thanks, Carl and good morning, everyone. We delivered very strong results in 2021, we came into the year financially healthy and we finished the year stronger than where we started a.
Speaker 1: Thanks, Carl. Good morning, everyone. We delivered very strong results in 2021. We came into the year financially healthy, and we finished the year stronger than where we started. A few financial highlights from last year. We delivered record EBITDA and DCF. Our business remains highly resilient and our capital expenditures continue to provide incremental EBITDA and DCF growth.
A few financial highlights from last year, we delivered record EBITDA and DCF are.
Our business remains highly resilient and our capital expenditures continue to provide incremental EBITDA and DCF growth.
Speaker 1: Our LTM coverage ratio is now around 1.6 times, while our leverage ratio continues to decrease towards our four times target.
Our LTM coverage ratio is now around one six times.
While our leverage ratio continues to decrease towards our four times target.
Year after year, we continue to deliver on our guidance and demonstrate the resilience of our business model.
Speaker 1: Year after year, we continue to deliver on our guidance and demonstrate the resilience of our business model.
Speaker 1: Looking forward, we expect to have another good year. We're about a month and a half into the new year. Carl provided some insights into volume and margin environment we're currently experiencing, factoring and the impact of the Omnicron variant.
Looking forward, we expect to have another good year.
We're about a month and a half into the new year Carl provided some insights into volume and margin environment. We are currently experiencing factoring in the impact of the Omnicom variant.
Speaker 1: We're learning to live with the virus and we expect our volume to continue to grow as the year progresses.
We're learning to live with the virus and we expect our volume to continue to grow as the year progresses.
Speaker 1: As you think about our business for 2022, keep in mind the following.
As you think about our business for 2022 keep in mind the following.
Speaker 1: The first quarter is performing in the profitability range that we expected when we provided guidance back in December .
The first quarter is performing in the profitability range that we expected when we provided guidance back in December .
Speaker 1: Underlying the first quarter as well as the rest of the year, industry break evens continue to be high. We're seeing this play out as the market is passing on price increases to the rack and street.
Underlying the first quarter as well as the rest of the year industry breakeven continued to be high we're seeing this play out as the market is passing on price increases to the rack in St.
Speaker 1: There will be times when short-term margin pressure exists. However, we believe the floor on overall margin is higher than historical average.
There will be times, when short term margin pressure exists.
Never we believe the floor on overall margin is higher than historical averages.
Speaker 1: And finally, we have a proven track record of optimizing gross profit in both headwind and tailwind environments. We also have a proven track record of managing overall expenses. Bottom line, we've
And finally, we have a proven track record of optimizing gross profit in both headwind and tailwind environment.
We also have a proven track record of managing overall expenses.
Bottom line, we expect to have another good year.
Speaker 1: Moving on to growth, we continue to strengthen our business by growing our mystery masters.
Moving on to growth, we continue to strengthen our business by growing our midstream assets.
Speaker 1: With the future edition of the Gladio acquisition and the startup of the Brownsville Terminal, we continue to vertically integrate our business.
With the future edition of the <unk> acquisition and the startup of the brownfield terminal, we continue to vertically integrate our business.
Speaker 1: Terminals are a critical part of the field distribution value chain, and owning these assets helps us vertically integrate and capture a larger portion of the overall field distribution margin.
Terminals are a critical part of the field distribution value chain and owning these assets helped us to vertically integrate and capture a larger portion of the overall fuel distribution margin.
Speaker 1: If you look at our midstream acquisitions and projects, they've all been part of an integrated play.
If you look at our midstream acquisitions of projects they've all been part of an integrated play.
Speaker 1: The field distribution business helps keep the terminals at a higher utilization rate, and the terminals provide our field distribution business further ability to grow.
The field distribution business helps keep the terminals at a higher utilization rate and a terminals provide our field distribution business further ability to grow.
Speaker 1: Financially, we executed these transactions at very attractive valuations, especially after adding synergy.
Financially we executed these transactions at very attractive valuations, especially after adding synergies.
Speaker 1: On the field distribution side, we'll continue to grow organically, as well as capitalize on acquisition opportunities.
On the fuel distribution side, we will continue to grow organically as well as capitalize on acquisition opportunities.
Let me close by stating that our current and future growth plans will build on our history of maintaining financial discipline, which means protecting the security of our distributions while also protecting our balance sheet.
Speaker 1: Let me close by stating that our current and future growth plans will build on our history of maintaining financial discipline, which means protecting the security of our distributions, while also protecting our balance sheet.
Speaker 1: Operator, that concludes our prepared remarks. You may open the line for questions.
Operator that concludes our prepared remarks, you may open the line for questions.
Speaker 4: Thank you. At this time we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad.
Thank you at this time, we'll be conducting a question and answer session, maybe you'd like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is and the questions you.
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One moment please.
Question.
Our first question comes from Theresa Chen with Barclays. Please proceed with your question.
Good morning, Thank you for taking my questions.
Speaker 5: Good morning, thank you for taking my questions. I'd love to ask a couple more questions of clarification on the economics related to the Gladio acquisition.
I'd love to ask a couple more.
Questions of clarification on that the economics for latest Gladhill.
<unk>.
Speaker 5: So maybe first going back to that seven times multiple width synergies.
So maybe first going back to that.
<unk>.
Multiple with synergies can you share with us what the LTM local port and from there to get getting two seven times are you primarily looking at cost synergies and if you are paying a third party terminal right now you can take those volumes and.
Speaker 5: Can you share with us what the LTM multiple was, and from there, to getting to seven times, are you primarily looking at cost synergies, as in if you're paying a third-party terminal right now, you can take those volumes and put them through your captive system? Or are they, you know, in part, revenue-related? Will you be able to sell additional product as a result of this acquisition?
Put them to be like Europe pocket system or are they.
Revenue related to will you be able to sell additional products as a result of this acquisition.
Speaker 3: Yeah, true. Thanks for the question. Let me start off a little bit about the economics and then I'll let Carl walk through a little bit more detail on the synergies here. Yeah, that 7 or sub 7 is really a sub 7 once we get full synergies up and running here. There's only a very modest amount of synergies really getting us there. We're not too much higher than that on a multiple basis right out of the gate, but the synergies really are it is a mix of kind of the various activities that we undertake on these. And so.
Yes, Thanks, David.
Question.
Let me start off a little bit about the economics and I'll, let Carl I'll walk through a little bit more detail on the synergies here.
Yes that 7% or sub seven is really a sub seven once we get the full synergy is up and running here.
There is only a very modest amount of synergies really getting us there, we're not too much higher than that on a multiple basis right out of the gate, but the synergies really are it is a bit of a mix of.
The various.
Activities that we undertake on these and so Paul you want to give one.
Speaker 6: Give a little more detail on on that.
More detail on this yes.
Speaker 3: Yeah, sure thanks, Dylan. If you look at it.
Yes sure. Thanks John .
If you look at it.
<unk> was operating as a separate company. So there clearly are some expense synergies will get just by folding that into our operation.
Speaker 3: Gladio was operating as a separate company, so there clearly are some expense synergies we'll get just by folding that into our operation. The TransMix business is really a regional business where you have TransMix that is the
The <unk> business is really a regional business, where you have trans mix that is.
Speaker 3: kind of aggregated through the supply chain, a mix of gasoline and diesel, and then the transmix plants separated back out. So this really serves the Midwest part of the country and is a good fit.
Kind of aggregated through the supply chain, a mix of gasoline and diesel.
And then the transmitter plants separated back out. So this really serves the mid west part of the country and it's a good fit for us there.
Speaker 3: For us, there are some commercial opportunities where, as Joe mentioned in his prepared remarks, having physical assets.
There are some commercial opportunities where as.
As Joe mentioned in his prepared remarks, having physical assets.
Speaker 3: Um, is a good fit with our fuel distribution business and, and, you know, provide the platform for us to grow. We already have some Midwest business, but not as much as in in Indiana. So, this should be a good opportunity for us.
<unk> is a good fit with our fuel distribution business and provides a platform for us to grow we already have some midwest business not as much as in Indiana.
So this should be a good opportunity for us to grow that.
Speaker 5: Thank you. And I'd also like to follow up on some of Joe's comments about the first quarter outlook. Understand that demand has bounced back and remains resilient, although we are in what seems like a relentless upward tape on wholesale gasoline prices, which typically is inversely correlated with your margins. But also understand that break-even margins, the floor is higher as a result of the dynamics that you've discussed.
Thank you.
And I'd also like to follow up on that.
<unk> comments about the first quarter outlook and.
I understand that.
Man has bounced back and remains resilient, although we are in what seems like a good point.
Lists and take on wholesale gasoline prices, which typically is inversely correlated with your margins, but also understand that breakeven margins. The floor is higher as a result of the dynamics that you've discussed.
Speaker 5: I was wondering, in the first quarter, you typically get that annual 7-11 makeup payment. And since it reflects 2020 and I'm sorry 2021 and that's over now, can you share with us how much you expect from that and what kind of boost to the CPG that could be?
Wondering.
In the first quarter, you typically get that annual 711 makeup payments and since it reflects 2020, I'm, sorry, 2021, and Thats over now can you share with us how much you expect from that and what kind of boost to the CPG that could be.
Speaker 3: Yeah, sure, Teresa on the 711, as you pointed out, we get that makeup payment at the end of the 1st quarter. And if it's really related to overall volumes. So, I would say it will be closer to the payment we received in 2020. Then the 1, we received last year.
Yes sure Teresa.
On the 711 as you pointed out we get that makeup payment at the end of the first quarter and it's really related to overall volumes. So I would say it will be closer to the payment we received in 2020.
The one we received last year.
Speaker 3: As far as your comment on overall first quarter outlook, the only thing I'd add to what Joe and I said in the prepared remarks is
As far as your comment on overall first quarter outlook, the only thing I'd add to what Joe and I said in.
In the prepared remarks is.
Speaker 3: Clearly, the market provides some headwinds as it rises, but there has been a decent amount of volatility along the way, which I mentioned, you know, contributed positively in the fourth quarter. So that helped us with some of our gross profit optimization strategies, you know, deliver more solid results even in the face of some of those, you know, upward movements.
Clearly the market.
Provide some headwinds as it rises but there has been a decent amount of volatility along the way, which which I mentioned contributed positively in the fourth quarter. So so that helps us with some of our gross profit optimization strategies.
Deliver more solid results even in the face of some of those.
Upward movement.
Thank you.
Our next question comes from Gabe Moreen with Mizuho. Please proceed with your question.
Speaker 1: Morning everyone. If I can just follow up on the transmits acquisition. Can you just talk about contractually how that's structured in terms of fee based versus commodity, any commodity sensitivity I'm appreciating that you may be hedged naturally further downstream. And then also for my guess the transmits supply standpoint, kind of how long do the contracts run with I think some of these pipelines and is there any competition in the area?
Yeah.
Good morning, everyone. If I can just follow up on the transmit acquisition can you just talk about contractually how thats structured in terms of.
Based versus commodity any commodity sensitivity appreciating that you may be hedged naturally further downstream and then also from I guess, the transmit supply standpoint kind of how long do the contracts run with I think some of these pipeline that's already competition Mario.
Speaker 3: Yeah, Gabe. Thanks for the questions. The transmix processing business is, I'd say you take a margin on the processing. It's not really a fee-based. But it is really stable because most of the transmix that we purchase, we purchase at a discount to gasoline and diesel. So when you're actually purchasing the product on a pricing structure tied to what you're going to make, you can imagine how that provides more.
Yes, Gabe thanks.
Thanks for the questions.
The transfer makes processing business is.
I would say you take a margin on the processing, it's not really a fee base, but it is really stable because most of the trans mix that we purchased we purchased at a discount to gasoline and diesel.
So when you are actually purchasing the product.
On a on a pricing structure tied to what youre going to make you can imagine how that that provides more stability.
Speaker 3: As far as competition, really, there are, call it, about a dozen transmix processing plants across the country. And sometimes, transmix is processed in refineries with other feedstocks.
As far as competition really there are call it about a dozen trans mixed processing plants.
Across the country and sometimes.
Trans mixes.
Processed in and refineries.
With other feedstocks.
Speaker 3: And so I think naturally the business has built up to where you have these plants spread out and situated where transmits aggregate. So. In theory, yes, there can be competition, but really this is the premier Midwest.
And so I think naturally the business has built up.
So where you have these plants spread out.
<unk> <unk>.
Situated where transmit aggregates so.
In theory, yes, there can be competition, but really this is this is the premier Midwest.
Transmission operations.
Speaker 1: Great understood and then maybe if I can just follow up in terms of ask I think the non-fuel margin for 4Q ticked up pretty nicely relative to prior quarters. Is there anything kind of going on there in the numbers?
Great understood and then maybe if I can just follow up in terms of ask Todd fuel margin for <unk> ticked up pretty pretty nicely relative to prior quarters is there anything kind of going on there in the numbers.
Speaker 2: Yeah, Gabe, this is Scott. Yeah, what's going on there is really the contribution from the new star acquisition. So, all of the, the terminal links, et cetera, according to that, which we're not there in the 3rd quarter. Got it. Okay. Thanks guys.
Yes, Gabe this is Scott yeah, what's going on there is really the contribution from the new store acquisition.
So all of that the terminalling throughput fees et cetera flowing into that which were not there in the third quarter.
Got it okay. Thanks, guys.
Okay.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment. Please.
Okay.
Our next question comes from the line of John Royall with Jpmorgan Chase. Please proceed with your question.
Speaker 1: Hey, good morning guys. Thanks for taking my question.
Hey, good morning, guys. Thanks for taking my question.
Speaker 1: Most of mine have been asked, so just one follow up on the 7-11 make-up payment. You guys are pretty clear on the expectation for this quarter. I'm just thinking into next year, so the 1Q23 payment. Given that
Most of mine have been asked.
Just one follow up on the 711 makeup payment.
You guys were pretty clear on the expectation for this quarter I am just thinking into next year.
The <unk> III.
Payment given that.
Speaker 1: your volume guidance remains below pre-pandemic levels and you've got some acquisitions in there. It's fair to assume from the guidance that we should be seeing a payment next year as well. Is that a fair thing to be modeling? Yeah, John , I think that's a reasonable expectation.
Your volume guidance remains below pre pandemic levels and you've got some acquisitions in there.
It's fair to assume.
The guidance that we should be seeing a payment next year as well.
Does that have.
Can be modeling.
Yes, John I think that's a reasonable expectation.
Okay that was all.
Thank you.
Okay.
Okay.
Our next question comes from Selman <unk> with Stifel. Please proceed with your question. Thank.
Speaker 7: Thank you. Good morning. I just wanted to follow up on the acquisition. As I sit there and I look at it, you know, your tankage there, it's like 30 times plus your throughput. Is all of that, does it have a high utilization as you look back over the last 12 months or are you thinking you might be able to increase utilization on the tankage for your distribution?
Thank you good morning, just wanted to follow up on the acquisition.
As I sit there and I look at it.
Your tankage there.
It's like 30 times plus year throughput as always all of that does it have a high utilization as you look back over the last 12 months or are you thinking you might be able to increase utilization on the tankage for your distribution.
Speaker 3: Yes, Selman. I think you look at tankage associated with transmix processing and the terminal associated with it. There's some of that where you're going to aggregate and maybe even segregate some different flavors of transmix, maybe segregated by sulfur content.
Yes Selman.
I think you look at tankage associated with.
Transmission processing and the terminal associated with it there is some there is some of that where youre going to aggregate and maybe even segregate. Some some different flavors of trans mix, maybe segregated by by sulfur content. So.
Speaker 3: So that uses some of the tankage. And the rest of the tankage, yeah, as you point out, is really on us commercially to be able to optimize. And I'd say, you know, I won't necessarily comment as much on the previous operation, but clearly we feel that that's a strong suit of ours is being able to take advantage of commercial opportunities. And like I said earlier, hopefully grow our fuel distribution business to all things being equal. Yeah, I think we're gonna find value in that.
That uses some of the tankage and the rest of the tankage, Yes. As you point out is really on us commercially to be able to optimize and I'd stay I won't necessarily comment as much on the previous operation, but but clearly we feel that that's a strong suit of ours is being able to take advantage of <unk>.
Opportunities and like I said earlier, hopefully grow our fuel distribution business. So all things being equal, yes, I think we're going to find value in that.
Alright, and then just.
Speaker 7: One little thing there that is, is there also room there for expansion then if you want to?
One little thing there that is there also room. Therefore expansion then if you wanted to.
Increase your tankage there.
Speaker 3: There's some room if that makes sense. Good alright, thank you kindly.
There is some room if that makes sense.
Okay, Alright, thank you kindly.
Thanks, Tom.
Speaker 4: Our next question comes from Elvira Gatto with RBC Capitano.
Our next question comes from Elvira Scotto with RBC capital markets. Please proceed with your question.
Speaker 8: Hey, good morning. Just one question from me. Just would love your thoughts on, you know, with gasoline prices high, overall inflation, you know, kind of pinching the consumer. Would love your thoughts on, you know, how you think about, you know, potential demand destruction. And I know, I know, you know, the break even margins are higher. So if volumes go down for sun, but just broader macro thoughts around that.
Okay.
Hey, Good morning, just one question from me.
I'd Love your thoughts on.
With gasoline prices high overall inflation.
And a pension the consumer would love your thoughts on how you think about potential demand destruction and I know I know breakeven margins are higher so if volumes go down for Sun, just broader macro thoughts around that.
Speaker 3: Yeah, this is this is Carl. I'll share a few thoughts.
Yes <unk>. This is this is Carl I'll share a few thoughts.
Speaker 3: On gasping prices and maybe inflation in general, I mean, the first one you already commented on is that in many ways the inflationary pressures are passed through in that they increase the break even margins and for our business, our business model.
On gasoline prices and maybe inflation in general I mean, the first one you already commented on is that in many ways. The inflationary pressures are pass through in that day.
Increase the breakeven margins and for our business our business model.
Speaker 3: It really provides stability. The other component from our standpoint is it really is looking at it on a relative level. And so we think about the size and scale that we...
It really provides stability the other component from our standpoint is it really is looking at it on a relative level and so we think about the size and scale that we bring.
Speaker 3: to the table really enables us in the face of those to maybe even capture a little bit more margin than some of the competitors. As far as the macro push, I'd say in the macro look, in the short term,
To the table really enables us in the face of those two and maybe even capture a little bit more margin.
And then some of the competitors.
As far as the macro push I'd stay in or the macro look in the short term.
Speaker 3: We don't see a big impact on demand, but clearly higher prices that, you know, history has shown that higher prices can, you know, change discretionary travel or choices like that. We haven't seen a lot of that. In fact, we think there's some pent up demand as we go into the spring and summer, just like we saw last year. That's what we're expecting.
We don't see a big impact on demand.
Nearly a higher prices history has shown that higher prices can change discretionary travel or choices like that we haven't seen a lot of that in fact, we think there is some pent up demand as we go into the spring and summer.
Just like we saw last year.
What we're expecting but the real answer there is.
Speaker 3: But the real answer there is, you know, how long and how high the sustained prices are. So, you know, my crystal ball is not perfect in that area, but we haven't seen anything in the short term.
How long.
How high the sustained prices are so my crystal ball is not perfect.
In that area, but we haven't seen anything in the short term.
Great. Thank you very much.
You bet.
Speaker 4: Our next question comes from Ned Baramont with Wells Fargo.
Our next question comes from Ned <unk> with Wells Fargo. Please proceed with your question.
Speaker 1: Hey, good morning. Thanks for taking the question. Now that you've operated the New Star and Cato assets for a few months, could you maybe talk about potential investment opportunities in and around these assets?
Hey, good morning, Thanks for taking the question.
Now that you've operated the new star in cable access for a few months could you may be talk about potential investment opportunities in and around these assets.
Speaker 3: Sure, Ned, this Carl again, you heard me mention on last quarter's call that if anything, we had identified maybe a few more opportunities since we gained ownership than we initially, you know, had planned on that's still true. I'll say there's, there's no.
Sure Ed This is Karl again.
You heard me mentioned on last quarter's call that if anything we had identified maybe a few more opportunities since we gained ownership.
Then we initially.
Had planned on that's still true I will say Theres no.
Speaker 3: sizable or material investment or opportunities. They're all incremental on the margin, but generally positive relative to what we originally assumed.
Sizable or material.
Investment or opportunities, they're all incremental on the margin, but but generally positive relative to what we originally assumed.
Got it and then just one one clarification on the trends that make deal is the transaction immediately accretive or accretive in the first year of operation.
Speaker 1: Got it. And then just one clarification on the TransMIC deal. Is the transaction immediately accretive or accretive in the first year of operation?
Speaker 3: Yeah, it's immediately a creative coming right out of the gate. We're kind of sub 8 times multiple before synergies. And so we're gonna, we're gonna start picking up accretion day 1 on this acquisition.
Yes, it's immediately accretive I decided to come in right out of the gate.
We're kind of sub sub eight times multiple before synergies and so we're going to start picking up accretion day one on this acquisition.
Great. Thank you that's all I had.
We have reached the end of the question and answer session I will now turn the call back over to Scott ratio for closing.
Speaker 4: We have reached the end of the question and answer session. I will now turn the call back.
Speaker 2: Thanks for joining us on the call today. As always, please feel free to reach out with any questions. Have a great day.
Well, thanks for joining us on the call today as always please feel free to reach out with any questions have a great day.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
Speaker 4: This concludes today's conference. You may disconnect your lines at this time, and we thank you.