Operator: Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to Sunoco and SunocoCorp Q3 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to add a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again, press the star 1. I would now like to turn the call over to Scott Grischow, Senior Vice President of Finance. Please go ahead.
Scott Grischow: Thank you, and good morning, everyone. On the call with me this morning are Joe Kim, President and Chief Executive Officer; Karl Fails, Chief Operating Officer; Austin Harkness, Chief Commercial Officer; Brian Hand, Chief Sales Officer; and Dylan Bramhall, Chief Financial Officer. Today's call will contain forward-looking statements that include expectations and assumptions regarding Sunoco LP's future operations and financial performance. Actual results could differ materially, and we undertake 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. 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.
Scott Grischow: The partnership continued its strong performance in 2026 with a record Q3 adjusted EBITDA of $1.06 billion, excluding approximately $11 million of one-time transaction expenses. Q3 distributable cash flow as adjusted was $588 million. On 22 October, we announced a distribution of approximately $1 and 1 and 1/2 cents for both Sunoco LP common units and SunocoCorp shares. This represents a quarterly increase of 1.25% from the prior quarter and over 10% versus Q3 of 2025. Our business continues to generate strong cash flow, resulting in a trailing 12-month coverage ratio of 2.1 times. Our balance sheet liquidity position remains strong. We had $2.3 billion in availability under our revolving credit facility at the end of the quarter, and leverage was approximately 3.5 times, well below our long-term target.
Scott Grischow: Finally, we spent $121 million on growth capital and $116 million on maintenance capital. I want to wrap up my comments by stating that our execution in 2026 has put us in an outstanding financial position. In less than one year since closing on the Parkland acquisition, we have already delivered double-digit growth to DCF per common unit while also getting our balance sheet below our long-term leverage target of 4 times. Investors have benefited from this execution through year-over-year distribution growth of over 10%. Finally, we have continued to execute on growth opportunities, including the acquisition of Offen Petroleum for $600 million, which we closed last week. In summary, we expect our financial position will continue to strengthen, which will provide us with continued flexibility to pursue high-return growth opportunities while maintaining a healthy balance sheet and a secure and growing distribution for our unit holders. With that, I will turn it over to Karl to walk through some additional thoughts on our Q3 performance.
Karl Fails: Thanks, Scott. Good morning, everyone. As Scott outlined, we delivered record financial results in the Q3. Our teams continued to optimize gross profit across fuel distribution, operate our midstream assets reliably, and capture a favorable market environment at the Burnaby Refinery. Let me walk through the performance of each segment. Starting with our fuel distribution segment, adjusted EBITDA was $532 million, excluding $9 million of transaction expenses. This compares with $516 million last quarter and $238 million in the Q3 of 2025, both excluding transaction expenses. We distributed approximately 4.2 billion gallons during the quarter, and fuel margin was $0.168 per gallon. Volume was up slightly, and margin was down slightly from last quarter.
Karl Fails: While industry demand indicators were mixed and varied by geography, the volatility in the market continued to provide opportunities for gross profit optimization, especially for a system with our scale. Volatility remained elevated, particularly in diesel, reflecting tight distillate inventories, global supply disruptions, refinery outages, and fall maintenance activity. Our scale, supply optionality, and commercial capabilities allowed us to respond to those market conditions. When you step back, our model continues to deliver on what it is designed to do. We do not manage the business for an individual quarterly volume or margin outcome. Instead, we manage for total fuel profit, EBITDA, and returns on deployed capital. The Q3 result demonstrates the value of applying that approach across a much larger geography, and more importantly, that geography continues to expand. As Scott shared earlier, we closed on the acquisition of Offen Petroleum last week.
Karl Fails: Offen adds approximately 2.5 billion gallons of annual fuel distribution volume and strengthens our presence in the Midwest and Mountain West regions. The Offen business is a great fit with our existing portfolio. Its geographic footprint complements our network, while its logistics capabilities and market density create opportunities to improve supply, transportation, and growth in both our branded and unbranded businesses. We look forward to the integration process and welcome the new team members to Sunoco. In our pipeline system segment, adjusted EBITDA was $166 million, compared with $190 million last quarter and $182 million in the Q3 of 2025. Throughput was approximately 1.3 million barrels per day, essentially flat with last quarter and the Q3 of 2025.
Karl Fails: Sequential reductions were related to lower contributions from our joint ventures and some FERC clawbacks we received in the H1 of the year that did not repeat in the H2. However, the underlying characteristics of the segment remain consistent. The segment consists of critical infrastructure assets generating stable income, with targeted opportunities to grow volumes, improve utilization, and generate attractive returns from relatively modest capital investments. Moving on to our terminal segment. Adjusted EBITDA was $124 million, excluding $2 million of transaction expenses, compared with $115 million last quarter and $76 million in the Q3 of 2025, both excluding transaction expenses. Throughput was approximately 1 million barrels per day, in line with last quarter. Overall results were supported by a strong quarter in our transmix processing business, as well as the continued contribution of our larger European network.
Karl Fails: This is another segment where the operating story is straightforward. The assets continue to generate stable results, and the expanded system gives us additional opportunities to increase utilization, support fuel distribution, and deploy growth capital where we have attractive customer-backed returns. Turning to our refinery segment, adjusted EBITDA was $238 million, compared with $175 million last quarter. The Burnaby Refinery throughput averaged 57,000 barrels per day during the quarter, slightly up from the Q2. Refining margin topped $54 per barrel, and expenses were below $10 per barrel for the second quarter in a row. The market environment clearly remained favorable, but the financial result also reflects strong execution by the team. Our priorities at Burnaby remain safe and reliable operations, disciplined expense management, and positioning the facility to capture available market opportunities. We understand that refining margins will move over time.
Karl Fails: Our job is to manage what we can control and operate the facility with a long-term mindset. Before I wrap up, I want to share a few final thoughts. This was an outstanding quarter, but it is really a continuation of the same operating focus that we deliver quarter after quarter, year after year. We grow and integrate, we operate our assets reliably and efficiently, we fully capture market opportunities, all through disciplined execution of our strategy. I will now turn it over to Joe to share his final thoughts. Joe?
Joe Kim: Thanks, Karl. Good morning, everyone. We had an outstanding Q3. Although 2026 is not quite over, I want to share some perspectives on this year as a whole. 2026 will be another record year for Sunoco. With three quarters completed and visibility into the Q4, we are highly confident that we will surpass the top end of our guidance. This will be our eighth consecutive year of EBITDA growth. Obviously, the Parkland acquisition is a big part of our recent success. We have already delivered approximately a 25% growth in DCF per common unit in less than one year of ownership. In addition, our pre-Parkland businesses are performing at a high level. Our portfolio has become more diversified with greater scale and geographic reach. Combining this enhanced portfolio with our proven business model, we are able to succeed in various commodity environments.
Joe Kim: 2026 is a good example of our ability to deliver outstanding results in a higher-priced volatile market. Looking further into the future, we believe volatility will persist. Agnostic of the direction of prices, we are confident that we will deliver strong results in various scenarios. Let me wrap up with some final thoughts. We have had material accretive growth over the last five years, and we expect this to continue. Earlier this year, we provided a multi-year guidance of at least $500 million a year of bolt-on acquisitions. We exceeded this amount in 2026, and we expect this to be a modest bar in 2027 and beyond. In addition, we will continue to deploy attractive organic growth capital. Bottom line, when you combine our portfolio of stable income streams with acquisitions and investments that are delivering on expected economics, our cash flow will continue to grow.
Joe Kim: We are in a strong position to continue to increase distributions while executing on accretive growth and maintaining a strong balance sheet. Operator, that concludes our prepared remarks. You may open the line for questions.
Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to add a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via speakerphone in your device, please pick up your handset to ensure that your phone is not on mute when asking your question. We do request for today's session that you please limit to one question and one follow-up question only. Thank you. Our first question comes from the line of Spiro Dounis with Citi. Your line is open.
[Analyst] (Citi): Hi, this is Chad on for Spiro. Just starting off on guidance, you are now trending over the 2026 guidance range. Could you just provide your latest thoughts on how the Q4 is shaping up versus your record Q3 results, and maybe any outlook into 2027?
Joe Kim: Hey, Chad. This is Joe. I think the first takeaway is that 2026 is going to be another outstanding year for Sunoco. Obviously, the refinery has performed very well this year, but even if we had more cracks that were closer to the mid-cycle levels for this year, we would have still surpassed the guidance that we gave back in January. I think the key point is that all four business segments are performing very well, and we have delivered on our very high expectations on the Parkland acquisition as well as other smaller acquisitions. I think the most important takeaway is that 2026 is not an outlier, instead, we are going to continue to grow our business. We are very well positioned for 2027 to be another record year, even if refining cracks are closer to the mid-cycle levels.
[Analyst] (Citi): Perfect. Thank you. Just following up on fuel demand, I guess kind of in this elevated crude price volatile environment, what are you seeing with respect to the impact on fuel demand and margins as a result kind of going forward?
Austin Harkness: Yeah. Hey, Chad. This is Austin. Happy to walk you through kind of some of the themes that we are seeing across the portfolio. If you start domestically, demand in the US has been remarkably resilient despite all the fuel price volatility that we have seen recently. If you look at EIA data, the monthly data shows that diesel is roughly flat on a year-over-year basis, with gasoline demand being off low single digits year over year. All this is against a backdrop of healthy margins, despite the fact that we have had all this flat price volatility and have not yet hit the part of the volatility curve where prices durably come off and margins widen. So, we feel really good about kind of where the US business is for the segment and kind of the outlook there.
Austin Harkness: If you move to Canada, just as a reminder and point of reference, flat price volatility has actually been amplified in Canada relative to what we have seen in the US. As an example, diesel recently touched $7 a gallon USD equivalent there. Some of the themes that we had touched on last quarter around demand starting to soften continue into Q3. So, diesel and gasoline demand is off low to mid-single digits, but as a reminder, it is a very strong margin environment. We have seen strong margins and durable margins, likely in large part owed to the flat price volatility that we are seeing there. Lastly, in the Caribbean, that continues to be its own kind of animal. We have got 20-plus markets that we operate in, each with their own demand and margin profiles.
Austin Harkness: What I would just say there is, in general, the theme is, the Caribbean has been a growth engine for us. It will continue to be a growth engine for us, and we expect that to be both on healthy volume growth and margin expansion. All that said, if you followed our story, you all know that if demand softens from here, that paints a pretty bullish picture for what the margin environment looks like. As Joe mentioned in his opening remarks, we have built this portfolio and this segment to perform in a range of economic scenarios. We feel really well-positioned to grow the segment from an EBITDA and fuel profit standpoint durably into the future.
[Analyst] (Citi): Perfect. Thanks. Very helpful. Thanks for the time today.
Operator: Our next question comes from the line of Gabe Moreen with Mizuho. Your line is open.
Gabe Moreen: Hey. Good morning, everyone. $500 million, I guess, is a pretty easy bogey to clear at this point, but Offen, nonetheless, was a pretty big transaction for you. Can you just talk about that asset as a fuel distributor versus others and what it may give you? Is there any chance of another acquisition announcement two days after earnings like you did with Offen?
Karl Fails: Thanks, Gabe. This is Karl. Clearly, we are excited about Offen, and in many ways, Offen is just a continuation of our roll-up strategy, but clearly, it is on a much larger scale. One of the pillars of our overall fuel distribution strategy is that scale matters, and that is not just from an aggregate basis, but also on a more regional view. Offen gives us scale in areas of the US that we have not necessarily had scale before. That really leads into the next benefit, which is supply optionality. That larger scale in the Midwest, Mountain West region really integrates well into our footprint in Canada, in the South, Southwest, and a little bit further east. It provides a lot of options for us to supply and integrate those markets into our much broader network. Then I think the last thing I would mention is people.
Karl Fails: With Offen, we picked up a couple of really good leaders that are going to help us on our much larger portfolio, and we are excited to have them join the team.
Gabe Moreen: Great. Thanks, Karl. Then maybe if I could just ask in terms of going back to the guidance for the year and the bump, and I guess not giving a specific range for where you might wind up for 2026, but just within the larger context of thinking about giving guidance going forward, particularly with Burnaby and the volatility in the backdrop here, can you talk about how you are thinking about that in terms of laying out specific parameters for the market and what you want your You obviously want to show a reliable growth rate, I think, with the underlying business, and how you would kind of go about communicating that?
Joe Kim: Yeah. Hey, Dave, this is Joe. As far as guidance, we will follow the same kind of rhythm that we have done in the past. We will provide guidance in early January of next year. But here is, I will kind of reiterate what I said earlier. I want to reemphasize that 2026 is not an outlier for us. Yeah, cracks were really great this year. At the same time, the point is that even if we assume a mid-cycle type level, we are going to see, yes, SUN grow in 2027, and you should expect SUN to grow in 2028. That is why we gave that guidance earlier this year that we think that we can do bolt-on acquisitions of at least $500 million. This year, we should end up roughly about $1.5 billion in bolt-on acquisition. If you add in our organic growth capital, we are well over $2 billion.
Joe Kim: I said it in the prepared remarks, I think $500 million a year of bolt-on acquisitions is a modest bar. As we kind of look at all the different geographies we are in, we look at the different sectors we are in, and we see what is kind of coming to the market, what is not on the market, what those opportunities are, we feel really good about our growth. That is all with the foundation that all of our businesses are performing very well.
Gabe Moreen: Thanks, Joe.
Operator: Next question comes from the line of Theresa Chen with Barclays. Your line is open.
Theresa Chen: Morning. Given the recent M&A activity across refining and the strength in margins, how are you thinking about the strategic value and long-term fit of Burnaby within your portfolio? Is there a valuation at which you would consider monetizing the asset?
Joe Kim: Hey, Theresa. This is Joe. Here's the way that we look at the Burnaby refinery. I've talked to a lot of you all many times. Our strategic intent was never to say that we're going to go buy a refinery and put it into the portfolio. The Parkland acquisition, as I said, we're already 25% DCF growth within a year. That worked out tremendously for us. The way that I think you should look at our business is that if you look at our other three sectors, fuel distribution, our pipeline, and our terminals segment, they're stable and growing. The way that I would look at the Burnaby refinery is it's kind of an asymmetrical upside for us, where whenever cracks blow out, we're going to take that to the bottom line.
Joe Kim: Even if it goes back to a mid-cycle or slightly below mid-cycle level, we're going to continue to grow our overall business. That's the way we're looking at it. As far as opportunistically, are we trying to grow the refining sector? The answer is no. The one scenario that I would say that we would look at is if there was an identical type of match to Parkland that came with a fantastic business that also happens to have a refinery, yeah, we'll take a look at that. As far as on a standalone segment basis, we like the position we're in where we have three segments that are stable and growing, and we have the smaller segment that gives us asymmetrical upside in various environments.
Theresa Chen: Thank you. I want to go back to Austin's comment about demand elasticity, taking into account your comment about not hitting the part of the volatility curve that would impact demand and margins at this point. It does feel that the market has been testing that threshold for some time. Where do you see that inflection point today?
Austin Harkness: Yeah. Hey, Theresa. It's a good question. I think it's one that's on a lot of our minds, but frankly, it's not one that we spend a lot of time thinking about because our guess is likely going to be wrong. I think what we have seen is there's a couple of different themes that we can talk to. One is, when there's flat price volatility, the degree and direction which it's going to impact demand is really a question of how high does price go and for how long, right? To your point, I think we've seen extended periods of pretty significant volatility, but demand has been holding up. As to when demand gets impacted, I think is anyone's guess.
Austin Harkness: What I would say is, we've built the portfolio, just going back to my earlier comments and Joe's opening remarks, we've built the portfolio to perform in a range of economic conditions. I think given our scale, the supply chain optionality, the logistics capabilities that Karl referenced earlier, we feel really well-positioned regardless of what the macroeconomic future holds, that we're going to be well-positioned to grow the segment's EBITDA well into the future.
Theresa Chen: Thank you.
Operator: Next question comes from the line of Vrathan Reddy with JP Morgan. Your line is open.
Vrathan Reddy: Hey, good morning. Thanks for taking my question. Wanted to start on the fuel distribution segment, and maybe if you guys could just speak to the strength in margins there, your outlook, and the synergies you still have left to capture in that segment.
Austin Harkness: Yeah. This is Austin. Just going back to some of the earlier comments that have been shared, I think we feel really good about where margins are right now. I think for those that are maybe newer to the story, we don't really solve for margin or volume independently. It's more a story around fuel profit and optimizing for EBITDA growth on a year-over-year basis. There's always going to be some quarter-to-quarter volatility, but as mentioned earlier, and then I think implied relative to Theresa Chen's question a moment ago, we feel really good about where margins are right now, given where flat price volatility has been, and the fact that we haven't yet come. Prices haven't durably come off, which is where we tend to see the most margin expansion.
Vrathan Reddy: Thanks for that. In pipelines, is there anything that we should note this quarter, a little softer versus expectations beyond seasonality?
Karl Fails: Yeah. I mentioned a couple things in my prepared remarks. I don't know that there's a lot more color to add other than, just like in most of our segments, we look at it on a rolling 12-month sort of basis. So, there's always quarter-to-quarter fluctuations, whether it's certain contracts or certain pricing or certain timing variations. But overall, we're really happy with our pipeline business. As Joe Kim mentioned earlier, I think both of our midstream segments, terminals and pipelines, provide a lot of stability in our portfolio.
Vrathan Reddy: Got it. Thank you.
Operator: If you would like to add a question, please press star, then the number 1 on your telephone keypad. Our final question comes from the line of Ned Baramov with Wells Fargo. Your line is open.
Ned Baramov: Hi. Good morning. Thanks for taking the question. Could the planned pipeline, which is linking the Midwest, MidCon, and Gulf Coast refinery supply to Arizona, Nevada, and California, together with the recently completed refined products pipeline expansion into Denver and the Denver airport, could this tighten product balances in the MidCon and potentially increase demand for northbound shipments from the Gulf Coast? If yes, is there a role for Sunoco to play in this rerouting of flows?
Karl Fails: Yeah, Ned. The short answer is yes. There are obviously a lot of hypotheticals in what you've laid out. I know there are other pipeline companies that have announced projects that could impact the product flows in the middle part of the US. I'd say here's our view is, if those projects are built and product flows change, we've experienced that a lot in our history, and we are well-positioned, particularly in the MidContinent. We have our pipeline system that kind of flows north in the MidContinent. I'd extend that to the broader kind of point that Joe made earlier.
Karl Fails: Given our portfolio, we've intentionally put together the portfolio we have to be able to withstand and take advantage of lots of different product shifts or supply chain shifts, whether they're a tailwind, like the hypothetical that you gave us could be, or even if they're a headwind, we can find some other way in other parts of our business to continue to grow year after year.
Ned Baramov: Understood. Then a quick housekeeping item on operating expenses in the Fuel distribution segment, it seems OPEX was well below our forecast. Can you maybe just talk about drivers behind the lower number and how sustainable this is going forward?
Scott Grischow: Hey, Ned. This is Scott. I would offer a couple comments there. I think, one, being a low-cost operator has always been a focus for us, and the decline you saw in Q3 is another example of that. Second, the Parkland integration efforts continue, and that also contributed to the sequential decline. I think moving forward, there may be some ups and downs sequentially, but looking forward to 2027, we would expect an overall decline relative to 2026.
Ned Baramov: Perfect. Thank you.
Operator: That concludes the question-and-answer session. I would now like to turn the call back over to Scott Grischow for closing remarks.
Scott Grischow: Well, thank you for joining us on the call today, and we appreciate the continued interest in Sunoco. Please feel free to reach out if you have any follow-up questions. This concludes today's call.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
