Greetings and welcome to the Sunoco LP First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Scott Grischow, Director of Investor Relations and Treasury. Thank you. You may begin.

Thank you. Before we begin our prepared remarks, I have a few of the usual items to cover. A reminder that today’s call will contain forward-looking statements. These statements are based on management’s beliefs, expectations and assumptions and may include comments regarding the company’s objectives, targets, plans, strategies, costs and anticipated capital expenditures. They are subject to the risks and uncertainties that could cause the actual results to differ materially as described more fully in the company’s filings with the SEC. During today’s call, we will also discuss certain non-GAAP financial measures, including adjusted EBITDA and distributable cash flow. Please refer to this quarter’s news release for a reconciliation of each financial measure. Also, a reminder that the information reported on this call speaks only to the company’s view as of today, May 5, 2016. So, time-sensitive information may no longer be accurate at the time of any replay. You will find information on the replay in this quarter’s news release. On the call with me this morning is Bob Owens, Sunoco LP’s President and Chief Executive Officer and other members of the management team. I would now like to turn the call over to Bob.

Thanks, Scott. Good morning, everyone and thanks very much for joining us. This morning, we will review the financial and operating results in the first quarter along with other recent accomplishments and cover our growth plans going forward. Before reviewing the first quarter results, so let me briefly recap the dropdown transaction closed on March 31 of this year. Sun acquired the remaining 68.42% interest in Sunoco LLC and a 100% interest in the legacy Sunoco retail business from Energy Transfer Partners for approximately $2.2 billion. This transaction was funded with a mix of debt and equity and importantly it completes the transformative dropdown strategy that was first announced in April of 2014 with the Energy Transfer acquisition of the Susser Holdings Corporation. The structuring of the transaction makes the dropdown immediately accretive to unitholders and it provides future value from additional scale, asset diversity, increased EBITDA and cash flow generation that it will bring to the partnership. As a reminder, the Sunoco LLC business distributes wholesale motor fuel not only to Sunoco LP company owned and operated sites, but also to over 850 Sunoco branded third-party dealer locations and 3,700 third-party distributor locations as well as nearly 300 commercial customers. The Sunoco retail business includes approximately 440 locations spanning 14 states on the East Coast and it runs from Maine to Florida and has significant presence on turnpike and toll roads throughout that region. Equally important, this transaction will simplify our financial statements and operating results, which will reflect the distribution of the entire retail marketing asset base under Sunoco LP for the full year of 2016 starting January 1 of this year. Please note that the year-over-year comparisons we will discuss today will reflect the fully dropped business for both the first quarter of ‘16 and for comparative…

Thanks Bob. Before I get into details for the quarter, I would like to provide a brief summary of the final dropdown we closed on just over 30 days ago. Energy Transfer Partners sold Sun its remaining interest in the legacy Sunoco wholesale business and 100% of the legacy Sunoco retail business for approximately $2.2 billion plus working capital. Cash consideration for the transaction was funded through a draw of just over $2 billion on a senior secured term loan facility and $175 million draw on our revolving credit facility. And additional $194 million worth of Sun units were issued to Energy Transfer Partners at close which brought the overall mix of the transaction to approximately 90% debt and 10% equity. Our April 4, we have promptly termed out a portion of the senior secured term loan facility with a private offering of senior notes which mature in 2021. This offering was announced at $500 million and was subsequently upsized to $800 million and priced at 6.25%. We were extremely happy with the outcome of this offering and our ability to secure a source of permanent financing for the final dropdown. With the completion of this final dropdown, Energy Transfer remains Sun’s largest unit holder with approximately 48% of Sun’s public LP units outstanding. We are confident that the Energy Transfer family will continue to be supportive of our business, not only as a general partner, but also as a limited partner. As Bob stated earlier on the call the final dropdown was effective January 1, 2016 and we now completed over $5.7 billion worth of transactions since the fourth quarter of 2014 increasing Sun’s presence in the 6,800 sites across 30 states from Hawaii to Maine. Now looking at some key metrics and trends for the first quarter, adjusted…

Thank you. Ladies and gentlemen, we will now be conducting our question-and-answer session. [Operator Instructions] Our first question comes from the line of Andrew Burd from JPMorgan. Please go ahead.

Hi, good morning and congratulations for wrapping up the entire dropdown strategy?

Great. Thank you.

On fuel margins, how are they trending so far in the second quarter versus the first quarter. And then also am I remembering correctly that the second quarter of 2015 you saw fuel margins well below normal?

Yes. Thanks Andrew. This is Bob. With respect to the second quarter of 2015 you saw fuel margins well below normal?

Yes. Thanks, Andrew. This is Bob. With respect to the second quarter, I think if you – what I would direct you to is just publicly available information around crude prices and wholesale prices. And if you look at that, you would rightly conclude that we are kind of at the normalized margins as we sit here very early into the second quarter. The first quarter was kind of a tail of two cities. We had sort of normalized margins and then actually some probably favorable market conditions early in the quarter, followed up by a quite steep slope as crude oil prices increased right at the end of the first quarter. That comes through impacting us first on retail margins, where we have the longest lag time getting those pass-through to consumers during times of sharp increases and a bit less on our wholesale side where it’s quicker to pass through to the market. But that’s a long way around the block for your question to say yes, we are at normalized margins now.

Okay. And then the question on last year in the second quarter?

Yes, I think last year in the second quarter looking back if the results that we printed last year and reflect a different business than we have this year, Andy. We had – did not have the Sunoco, excuse me, the strength retail business in. So, at that point in time, it was a low high and the max business different margin profile there for the retail side of things with Aloha driving the overall retail margin. I think the wholesale margin that we printed was right in the ballpark of the $0.06 to $0.08 guidance for wholesale gallons that we have provided to you. I think as Bob said we encourage folks to kind of look at publicly available pricing data on [indiscernible] and WTI. So, it’s a benchmark against prior years. But as we stand here today 40 or so days into the quarter, I think we are right in the normalized level.

Okay. And then a follow-up on the volume side in terms of the volume declines that you clearly talked about in the oil and gas region, has the situation changed meaningfully from the fourth quarter conference call or are we just seeing lapping year-over-year results manifest themselves in the financials in that incrementally from the fourth quarter to the first quarter, it wasn’t such a drastic incremental decline as the year-over-year number would imply?

Yes, I would say it’s more the latter. We are still a quarter away from cycling the impact. The one thing I will and on talking backwards back, but at – and it’s – I don’t want to get too enthusiastic here, but just having come from the Energy Transfer call for anybody that was on that Mackie talked about the conversations that we have had with our suppliers, he and Matt Ramsey both mentioned the fact that producers in these areas, while not ecstatic are starting to get a lot more enthusiastic with the uptick in crude oil prices. And certainly, there is a big difference in attitude in the mid 40s versus the high 20s to low 30s. So I think its way early to declare victory, but we are starting to feel like there could be some increased activity in the oil patch. We will wait and see.

Great, thank you.

Thank you.

Thank you. Our next question comes from the line of Ben Bienvenu from Stephens, Inc. Please go ahead.

Yes, thanks. Good morning, guys. I spoke to some of your oil patch performance, but could you speak to the stripes stores as a whole, how the same-store sales looked in the quarter and maybe how they trended through the quarter?

Yes, stripes for the quarter on gallons, Ben, were down. And again, we do have the Leap Year discussion and we have kind of said across the board that’s about 110 basis points for both merchand sales or excuse me merch and fuel, but for the stripes stores in Texas, gallons were down just over 2% and that’s again pretty much driven – excuse me, gallons overall were down about 2.6%. If we take those gallons out, we were just slightly up quarter-over-quarter when we compare Q1 of ‘16 versus Q1 of ‘15. If I take a look at retail, again it’s kind of the same story. We are heavily impacted by those oil producing regions, but if you take those – if you take those oil producing sites out of the – out of the equation, we were up about 5% quarter-over-quarter.

Okay, great. And then just looking at the acquisition landscape, what is your appetite if you found the large acquisition that was attractive, what’s your appetite to issue equity or are you more focused on limiting M&A activity to something you could finance with just debt capital markets?

Ben, I think that it would depend on the deal where it’s not escaped our notice, our current cost of capital with our unit price where it is today. We are not going to do something that isn’t accretive to our unitholders. So, it’s got to make sense long-term and I think we would look at any deal that came up, where we are trying to balance growing income, increasing distributions to our unitholders with improving our leverage statistics. We are trying to balance all those goals right now.

Okay, great. Best of luck. Thanks.

Thanks.

Thank you. [Operator Instructions] Our next question comes from the line of Ben Brownlow from Raymond James. Please go ahead.

Hi, good morning.

Good morning. Good morning.

Just following up on the earlier question with fuel margin, it doesn’t sound like you have any change in your outlook on the wholesale third-party wholesale of being kind of a $0.06 to $0.08 target longer term. But is there any more color you can provide on what drove that 11.4, I guess is it accurate in that inventory adjustment for value adjustment about a $0.01?

Well, I think that Scott can provide you more detail probably offline, but we had a very positive contribution from our supply and trading group. And while that’s not all of it, that’s the bulk of the delta that moved us up from the average ranges that we have indicated to the investors.

Okay. But you are still so comfortable with that $0.06 to $0.08 as appropriate kind of long-term target?

Yes. That’s a group of very talented people. Our expectation is that they will continue to provide very good value. This was a significant win and not all repeatable.

Okay. And then on the retail – and on the retail margin, am I accurate and at some point I cannot recall exactly what time, but I remember you guys I think you were targeting kind of a mid $0.20, $0.25 fuel margin, is that accurate and has that changed at all if so with the accounting of moving the affiliate down into the retail?

No. So, the numbers we have indicated to people in that range has always been for the entire business and we don’t see that changing.

Okay, great. Thank you.

Thank you.

Thank you. Our next question comes from the line of Anthony Kit from Deutsche Bank. Please go ahead.

Hey, guys. Thanks for taking my question. Tom, I just had a quick one on some monetization rumors that we heard earlier in March. There has been some reports that Energy Transfer might monetize their interest in Sun. And obviously, we heard some announcements after the fact that, that’s not going to happen and they are committed to staying with Sun. With the final drop-down complete, can you just remind me of some of the strategic benefits that’s available to you guys for staying a part of the broader Energy Transfer family please?

Okay. Well, I guess I would start with this in terms of the rumors. I think that from the time that Energy Transfer acquired Sunoco the marketplace understood the attraction of the GP of Sunoco Logistics, bit little less clear around the retail business. And I guess from my standpoint, if there was a time it might have made sense to monetize that for Energy Transfer, it would have been early on. Instead, what they did was support us completely with significant activity around acquisitions. And now from their perspective, we have migrated to the point where we are separately traded with all the assets and its MLP, they enjoy the benefit and the dividends for all that activity in the form of IDRs and IDR growth within ETE. And from our perspective, what we find is a family of partnerships owned by – the GPs of which are owned by ETE. ETE has been well-funded, well-financed with a strong balance sheet and has historically and even as early as this morning publicly stated their willingness to work with each of the partnerships below them to be really supportive of their efforts in growing earnings. So, from our perspective, while there are not significant synergistic benefits, there are some in the area of shared services where we get some benefits. I think the overarching appeal from my perspective is having the GP owned by a really big fan of the Sunoco Company and the Sunoco brand and owned by an entity that has shown support in the past and I anticipate that will continue in the future.

Fantastic. Thank you so much.

Thank you.

Thank you. [Operator Instructions] Ladies and gentlemen, we have no further questions in queue at this time. I would like to turn the floor back over to management for closing comments.

Thanks. And I would like to thank everyone for taking the time to join us this morning. I would like to conclude today’s call by stating that some very exciting things are happening at Sun LP and then we will continue to build strong value for our unitholders. We are extremely proud of the partnership’s performance since our transformation began just over six quarters ago. While distribution growth at many MLPs has been sluggish, flat, or even decreasing, we have been able to increase our distribution quarter-over-quarter. The benefits of our diversified business model and scale are clearly shining through. We have demonstrated that we can continue to grow and thrive in the current volatile commodity price environment when other MLPs are struggling. Despite the challenging situation, we are realizing opportunities and we are capitalizing on them. We appreciate the continued support of our customers and our investors and we sincerely appreciate the hard work of our employees to make all these successes happen. Again, thanks very much for being with us. This concludes this morning’s call.

Thank you, ladies and gentlemen, and thank you for your participation. This does conclude today’s conference. You may now disconnect your lines at this time. Thank you for participation and have a wonderful day.