Edited Transcript of SUN earnings conference call or presentation 9-May-19 2:30pm GMT

As a reminder, because of its lower seasonal fuel demand and fewer calendar days, Q1 tends to be our weakest quarter. On April 25th, we declared a distribution of $0.8255 per unit, the same as last quarter. On March 14th, we closed on a $600 million of 6% 8-year senior unsecured notes. We used the proceeds to repay a portion of the outstanding borrowings under our revolving credit facility, leaving us with $1.3 billion in capacity.

Looking at our operational performance. Fuel in the first quarter totaled nearly 2 billion gallons. That's up 4.6% from a year ago, driven by the contribution from 2018 acquisitions and organic growth. Even with rising gasoline prices, we remain within our annual guidance range with a Q1 margin of $0.099 per gallon. As we've discussed the last several quarters, we managed gallons and margin together to produce the highest possible long-term gross profit and encourage you to not think of them as independent variables. We continue to focus on controlling G&A and other operating expenses.

Meeting our cost guidance helps provide quality results quarter-after-quarter. Operating expenses totaled $125 million in the quarter, comprised of G&A expense of $27 million and other operating expense of $84 million and lease expense of $14 million. These results include operating costs for all 5 of our 2018 acquisitions. On a run rate basis, our Q1 number suggests full year operating expense below our $540 million guidance. While we expect quarter-to-quarter variances, we will deliver on our operating cost guidance on an annual basis.

Moving to capital. We invested $26 million in the first quarter, $22 million in growth capital and $4 million in maintenance capital. We gave 2019 capital guidance of $45 million for maintenance and $90 million for growth capital.

As mentioned in our earnings release today, we assigned a nonbinding letter of intent with Energy Transfer for an equity interest in a joint venture for the J.C. Nolan diesel pipeline that runs from Hebert, which is in the Beaumont-Port Arthur area, to Midland. We expect our cash spend on this project would be in the range of $50 million. As we finalize the terms, we will provide more details on the impact to the 2019 growth capital guidance.

We confirm our 2019 adjusted EBITDA guidance of $610 million to $650 million as well as our guidance for the other components that led to the adjusted EBITDA. Since our divestment of retail assets a year ago, our financial and operating results demonstrate our ability over the long term to remain within our target leverage of 4.5 to 4.75x and maintain a coverage ratio at or above 1.2. In short, we continue to deliver on financial -- on our financially disciplined strategy.

I will now turn the call over to Joe for closing thoughts. Joe?

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Joseph Kim, Sunoco LP - President, CEO & Director of Sunoco GP LLC [4]

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Thanks, Tom. Good morning, everyone. Our current first quarter performance, along with the fourth quarter of last year, demonstrates the resilience of our earnings power in different commodity environment. In the fourth quarter of last year, commodity prices dropped materially, providing fuel margin tailwinds. In the first quarter of this year, we saw the opposite. WTI futures rose 32% from the beginning of the quarter to the end of the quarter while RBOB futures went up 43%, which is the highest percentage increase in any quarter in over a decade. Even with this material increase in costs, our results were solid. Quarter-after-quarter, we continue to demonstrate the strength of our underlying business. Looking forward, we believe the rest of 2019 will remain strong.

As for growth, we will continue to prudently pursue opportunities. Last year, we demonstrated our ability to accretively grow in the fuel distribution sector. Our pipeline continues to remain strong, however, we will be very selective. In addition, we have shifted a portion of our growth resources towards more fee-based midstream asset. The J.C. Nolan Pipeline is a prime example. This attractive opportunity capitalizes on the long-term demand for diesel in West Texas. The joint venture was a natural fit combining our fuel distribution ability with Energy Transfer's pipeline capabilities. Overall, we'll continue to pursue opportunities in both the traditional midstream sector as well as the fuel distribution sector.

Let me close by stating that we have established a track record of delivering on our targets. We remain confident that we'll continue to deliver in 2019 and beyond.

Operator, that concludes our prepared remarks. You may open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Theresa Chen from Barclays.

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Theresa Chen, Barclays Bank PLC, Research Division - Research Analyst [2]

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Just a couple questions related to your announced diesel pipeline JV with your parent. For your cash spend of $50 million, what kind of EBITDA multiple are you expecting to generate?

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Karl R. Fails, Sunoco LP - Senior VP & COO of Sunoco GP LLC [3]

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Theresa, this is Karl. I think we're still finalizing the details with Energy Transfer. I'd say the return that we anticipate is a good one. It's a different earnings profile than some of our fuel distribution acquisitions that we've made. So I'd say probably the multiples can be a little higher than our fuel distribution acquisitions.

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Theresa Chen, Barclays Bank PLC, Research Division - Research Analyst [4]

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Got it. And Karl, can you provide some more color about how this synergistically can create value with other parts of your business? I'm referring back to Joe's comments about your West Texas distribution footprint and how you can utilize this infrastructure to either save money or create more business opportunities versus the current option you have.

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Karl R. Fails, Sunoco LP - Senior VP & COO of Sunoco GP LLC [5]

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Sure. As Joe mentioned earlier, I mean our goal is to become a more diversified, ratable MLP, and this is definitely an opportunity to go in that direction. We have the ratable earnings from the pipeline and terminal.

But also as part of this JV, something that we bring, is we've committed to be an anchor shipper on the pipeline. And we already have a large customer base in West Texas and expertise in marketing diesel. We bring knowledge to the market, understanding of refined products and how they flow. Obviously, the Permian is an area where there's lot of demand growth. There's drilling and preproduction increases. Diesel demand will increase. And so our ability to sell and market that diesel and expand into higher sales volumes and more customers is something that we bring to the table.

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Theresa Chen, Barclays Bank PLC, Research Division - Research Analyst [6]

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Got it. And given that this will tie up some capital and other resources, how does this balance against your historical, I guess, M&A post the growth?

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Joseph Kim, Sunoco LP - President, CEO & Director of Sunoco GP LLC [7]

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