Greetings, and welcome to Sunoco LP's Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Scott Grischow. Thank you. You may begin.

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 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. Please refer to our earnings release and SEC filings for risk factors and reconciliations of non-GAAP financial measures, including adjusted EBITDA and distributable cash flow as adjusted. Our second quarter financial and operating results continued the good start to the year that we reported last quarter. The partnership delivered a record second quarter with adjusted EBITDA of $464 million excluding approximately $10 million of onetime transaction- related expenses and distributable cash flow as adjusted of $300 million. In the second quarter, we spent approximately $120 million on growth capital and $40 million on maintenance capital. This includes the partnership's proportionate share of capital expenditures related to our 2 joint ventures with Energy Transfer of $15 million for growth capital and $2 million for maintenance capital. We remain on track to meet our 2025 projected capital spend which includes at least $400 million of growth capital and approximately $150 million for maintenance capital. Turning to the balance sheet. As of the end of the second quarter, our $1.5 billion revolving credit facility had approximately $200 million in outstanding borrowings. Leverage at the end of the quarter was just under 4.2x. On July 24, we declared a distribution for the second quarter of $0.9088 per common unit or approximately $3.63 on an annualized basis. This represents an increase of 1.25% compared with the previous quarter and resulted in a trailing 12-month coverage ratio of 1.9x. This marks the third consecutive quarterly increase in Sunoco's distribution and is consistent with our capital allocation strategy and 2025 business outlook which includes an annual distribution growth rate of at least 5%. I would like to conclude my remarks by stating that our financial position remains strong and we are on track to achieve our full year EBITDA guidance. Looking at the business over the long term, we expect to continue our record of generating increasing distributable cash flow per unit, which will position us for ongoing distribution increases and additional growth. With that, I will turn the call over to Karl to discuss our operational results.

Thanks, Scott, and good morning, everyone. The second quarter of 2025 marked another good quarter across all 3 segments supported by solid fundamentals and continued returns on invested capital our business is positioned to grow in the second half of the year. Starting with our Fuel Distribution segment, adjusted EBITDA came in at $214 million, excluding $8 million of onetime transaction- related expenses. Volumes came in at 2.2 billion gallons during the quarter, up 5% from last quarter and flat compared to the second quarter of last year. Reported margin for the second quarter was $0.105 per gallon compared to $0.115 per gallon in the first quarter and $0.118 per gallon in the second quarter of 2024. Remember that our first quarter results included the annual makeup payment from 7-Eleven which contributed about $0.015 per gallon to our reported margin. When you take a step back and look at our fuel distribution business, it continues to perform very well. Over the last 12 to 18 months, there have been changes to our portfolio, which reduced our reported CPG margin including the sale of our West Texas assets last spring and the reclassification of transmix processing margin under our new segment reporting structure we introduced last year. In addition, there are always quarter-to-quarter fluctuations and overall flat volumes in the market. But year after year we have consistently grown our volume and fuel profit dollars by delivering on gross profit optimization strategies and deploying capital effectively. This year is no exception as we expect our accretive investments in this segment to yield increased volume and EBITDA in the back half of the year and to support another record year in this segment. In our Pipeline Systems segment, adjusted EBITDA for the quarter was $177 million compared to $172 million for the…

Thanks, Karl. Good morning, everyone. We're halfway through 2025. And as expected, our business continues to perform well. Scott and Karl discussed the key details related to the second quarter results. Let me provide some additional comments about our business as a whole and an update on the Parkland acquisition. As I stated in our previous earnings call, we continue to raise the standard for Sunoco year after year. We provided strong guidance for 2025. Given our results to date and our expectations for the remainder of the year, we're on track to deliver on our full year guidance. All 3 business segments are performing well, our field distribution business continues to demonstrate resiliency and growth. We expect the back half of this year to outperform a good first half, and we expect continued strong performance for years to come. Our Pipeline and Terminals segments also continued to perform at a high level. The NuStar acquisition greatly enhanced the scale and efficiency of both segments. Overall, the NuStar addition has been outstanding. This acquisition will deliver double-digit accretion. As a result, we recently announced another distribution increase. And just as importantly, we expect further distribution growth over a multiyear period. Continuing on the subject of growth, we expect to close on TanQuid, our acquisition of terminal assets in Germany and Poland sometime early in the fourth quarter. As for the Parkland acquisition, their shareholders strongly endorse the transaction with more than 93% of the votes. On the regulatory side, we're working diligently with the various regulatory agencies to get final approvals. We continue to estimate the close date to be sometime in the fourth quarter. Since we announced the Parkland acquisition 3 months ago, we're even more confident that we will deliver on the acquisition economics. Parkland's base business is solid and improving. In fact, Parkland announced yesterday a record second quarter showing that they have improved materially from their 2024 results. Combining the 2 companies will be a win for equity holders, debt holders, employees as well as the countries we operate in. As the process plays out, we'll provide more specific details. But for now, we can tell you that we're highly confident that we will deliver double-digit accretion while maintaining a strong balance sheet. Let me wrap up with some brief thoughts on recent macro developments. The announcement that the federal EV tax credit will expire later this year further adds to the evolving market consensus that refined product demand will remain robust for decades to come. This has always been our long-held belief. We've executed our strategy based on this conviction, as a result, we have grown materially over the last 5-plus years. Our industry-leading refined product [indiscernible] short in key markets throughout the Western Hemisphere positions us to capitalize on continued resilient refined product demand. Operator, that concludes our prepared remarks. You may open the line for questions.

[Operator Instructions] Our first question comes from Spiro Dounis with Citi.

First question, maybe a 2-part question on Parkland, if we could. Part one, Joe, as you mentioned, have been a few months since you've announced the deal. It sounds like you've had some time to get in and take a look under the hood a little bit further. So curious, maybe more specifically how you're thinking about your initial synergy target at this point? And then there's also been some favorable movement on the tax side with the One Big Beautiful Bill. Curious, what does that do to your initial sort of 2-year tax-free window for that [indiscernible] C corp and the ability to pay that parity dividend?

Spiro, it's Joe. I'll let Karl take the synergy question. Karl, why don't you follow up with the tax side?

Yes. This is Karl. As far as synergies, as Joe mentioned on -- in his prepared remarks, we're a few months in the planning process on integration and kind of digging under the hood a little bit, is going really well. And I'd say we feel as good or better about the acquisition in totality than we did when we announced it. With that being said, as Joe also mentioned, we're still in process on various regulatory reviews. And I think it's a little early for us to give more granularity or updates on synergies, but I will reiterate what we've said about the synergies in the past. First of all, we feel very confident in achieving the $250 million in synergies by year 3 and probably even more importantly, getting back to our long-term leverage target of 4x within 12 to 18 months. And really, the double-digit accretion of the deal should help us deliver that. As far as the components of the synergy whenever you put 2 big companies together like this and then you overlay our discipline and track record on controlling expenses, there's clearly going to be expense opportunities that we find and deliver on. But then also, as Joe mentioned in his remarks, we're going to have one of the largest refined product shorts in the Western Hemisphere. So that's going to provide a lot of opportunity on the commercial side. So here's what I'd say as we get closer to close and getting into next year, we will provide more updates on the timing of the synergies as well as maybe a little more granularity on what will make those up. But as we sit here today, we feel very good on all aspects of the deal.

And Spiro, on your second question regarding the cash taxes and the profile there for SUNCorp, I think, first off, it's helpful to provide some context for how that 2-year equivalency period was established. This was a feature of the transaction that was included at Parkland's request. It was an easy ask and one we were very comfortable granting. Setting all that aside, based on the long-term forecasting and tax planning work we did during diligence, we're confident that the SUNCorp dividends will remain at parity with Sunoco LP distributions well past the 2-year period. Additionally, as you mentioned, the elements of the recent budget bill, like the permanent extension of bonus depreciation and the restoration of higher business interest expense limits will also help minimize cash tax leakage at SUNCorp while also lowering cash taxes at Sun LP moving forward. And I think the fact that we will continue our focus on growth, both organically and through acquisitions, which with that brings additional opportunities to further manage future cash tax drag.

Great. That's all helpful color. Second one, maybe just switching gears a bit back to fuel margins within that fuels distribution segment. To your point, when you sort of exclude the make whole payments, you did have a sequential increase in 2Q versus 1Q. And I guess as you look forward, it sounds like you guys are pretty confident in the back half of the year. So curious if you could just give us your expectations around fuel margin into the back half and as we head into 2026?

Spiro, this is Austin. Happy to share some commentary on both our reported numbers and kind of the overall broader margin environment as we see it. I'll start by just reminding folks, we manage for fuel profit and EBITDA when we manage the business versus solving for a particular number with volume or CPG independently. . That said, as it relates to our reported numbers, I would just go back to some of Karl's prepared remarks and some of the commentary that we've shared in the past. There's 2 higher-margin businesses that I think it's important to remember, are no longer included in our segments reported numbers. The first, obviously, following the NuStar transaction, we moved the transmix business into the Terminal segment. And then the second was the sale of our West Texas retail business in the second quarter of last year. And so that said, while our reported CPG number has been reduced, the fundamentals in the macro environment remain bullish for margins overall, and that's really due to elevated breakevens remaining in place. And Spiro, I know you're familiar with this and know this, but I think for folks who might be newer to the story, it may be worth providing a little bit of context on what we're talking about when we mentioned elevated breakevens. Just quickly, the first thing to know is our industry is hyper-fragmented. The majority of sites are managed by single-unit owner operators in our space. And so when you couple that with any exogenous shocks to the business, whether it's demand destruction like we saw in COVID, inflation or flat price volatility, that has the impact of raising fuel margin breakeven levels for all operators in the space. Now that said, for those operators that have significant scale or fundamental cost…

Our next question comes from Justin Jenkins with Raymond James.

Great. If I could, just wanted to start maybe by following up on Spiro's first question is, is there a point in time estimate or maybe a range of years you have now for dividend equivalents at SUNCorp? And then I guess as we get closer to the deal, how are you thinking about terming out the financing for the cash part of the Parkland deal?

Yes, Justin, this is Scott. Look, I think I already mentioned on how the 2-year equivalency period was established. And past that, I just stick to the remarks I made earlier, we're confident that, that equivalency period can continue past the 2-year mark just based on our tax planning, some of the favorable legislation that hits the market this year as well as the fact that we're going to continue to use SUNC and Sunoco LP's growth vehicles. With respect to the transaction financing process, the plan still is to fund the $2.7 billion of cash consideration through a combination of senior notes and preferred equity. I think we've shown a proven ability to be opportunistic with our capital markets activity in the past, whether for refinancing efforts or to fund new capital for acquisitions. The current backdrop in the credit markets is positive right now. And so I think given that and where we are in the process with respect to the line of sight on closing sometime in the fourth quarter, we're actively monitoring the markets and we'll be pragmatic on how and when the appropriate time is to access them.

Great. That's helpful, Scott. And I guess second question, maybe for Karl or Austin. Just on the underlying demand backdrop within the U.S. and outside any impact in the second quarter from headline volatility that we've seen? And what have the recent trends been in terms of the underlying demand backdrop here?

Yes. This is Austin. I think the trends that we saw kind of heading into the end of last year continued into the beginning part of this year and then continued in the second quarter. We haven't seen -- we're seeing a lot of the same things, I think, that you're probably seeing. We've mentioned we don't have a crystal ball when it comes to volume or CPG margin. But we're seeing some of the same things with year-over-year demand from an EIA standpoint for gasoline being flat to maybe slightly off. Diesel came out of the gates at the beginning of the year strong, but has waned along with some other economic activity indicators. That said, we expect to continue to outperform these trends, I think, as a result of our growth capital and capital deployment strategy, whether it's organic or role of M&A and overall, we feel really good about the fundamental health of the business. And like I mentioned previously, anything that results in demand destruction, ultimately, we see as bullish for the margin case.

Our next question comes from Jeremy Tonet with JPMorgan Chase.

This is Eli on for Jeremy. Maybe just wanted to touch on capital allocation post Parkland and TanQuid. Obviously, a meaningful free cash flow inflection coming and I think with NuStar, we saw you guys kind of delivered ahead of schedule and delevered very quickly thereafter. So how should we think about sort of the approach to M&A and types of organic or inorganic opportunities, whether there's more bolt-ons or larger size deals out there? Again, I recognize you're still digesting here, but just the longer-term approach as you see it now?

This is Joe. After we closed on Parkland, our top 2 priorities are very clear: integrating the acquired asset and getting the synergies and secondly, get our balance sheet back to our 4x target. We feel very confident we'll deliver on both. And after that, we'll assess the market and see what the market opportunities are. And to give you a little bit more insight into it, is really kind of going back to what I think I've said quarter after quarter. When it comes to growth and when it comes to evaluating opportunities, we use the same lens that we've used over and over. We're looking for, first, a stable cash flow profile; second, growth opportunities on an acquired asset; third, material SUN synergies; and finally, and obviously, attractive valuations. So I guess, regardless of geography, size or business segments that we look at, those are the criteria we're going to use to create value for our stakeholders. If you look back at our history, we've done small roll- up domestic fuel distribution acquisitions. We did a big midstream acquisition last year with NuStar and now we're going to do a big international opportunity. Our history shows that we've consistently delivered and we're in a good -- a very good position to continue to be an accretive growth company. And having all these multiple options via various business segments, geographies, size is a good position for us to be in.

Awesome. Appreciate the color there. And then just a quick one, interested in shifting back to Parkland. Can you guys remind us exactly when the ICA was filed? Was that in June? Just thinking about that 4Q '25 time line. And obviously, that's kind of a key item to keep an eye on.

Yes. Eli, this is Scott. I think what I couch for all of the regulatory items is that we're working through the approval processes for each. They're all proceeding as expected, and we're tracking to close in the fourth quarter.

[Operator Instructions] Our next question comes from Ned Baramov with Wells Fargo.

Based on Carl and Austin's comments, it seems that the typical seasonal slowdown in fuel distribution volumes in Q4 is not expected to occur this year. So can you maybe provide more details on some of the initiatives you have in place and the investments you're making that will drive the stronger second half results?

Yes, sure. This is Austin. Happy to provide additional context. I mean just to confirm, we are poised for a very strong second half of the year in the fuel distribution segment, and we expect that outperformance even when you include the $32 million payment from 7- Eleven in the first quarter. You've heard Joe and others talk about the build versus buy decision that we make from a capital allocation standpoint. And this year, the market has presented opportunities for us to execute against both. So we've made organic investments that allow us to grow and expand our footprint, particularly in and around waterborne markets where we can leverage our scale and supply chain optionality. And we've also executed multiple roll-up acquisitions that we're going to be able to quickly integrate and synergize that will be accretive to the business in the second half of this year. So when you add all that together, I think that's what is driving the confidence in the back half of the year for EBITDA growth that's ultimately going to result in year-over-year growth for the segment, driven on the heels of volume at -- noticeable volume growth and healthy margins.

Understood. And on those roll-up acquisitions, can you maybe talk about size or if there's additional inorganic opportunities for the second half of the year?

Ned, it's Joe. Let me build on what Austin said. And I think it's a key concept that I think for people that know our story, I know you're familiar with it for people that are new to the story, I think this will be helpful. One of the key concepts that we have that we use in our field distribution is, this is whole build buy. We have a good pipeline, obviously, of organic projects, but we've also throughout the last 5-plus years, we've capitalized on small field distribution roll-ups. The opportunity set is ample, and we have the ability to either flex up or flex down on these market opportunities. That's the reason why we purposely provide a minimum when providing annual growth capital guidance. For 2025 back in December, we stated our guidance was going to be $400 million plus. What this does is this acknowledges that we know that we have enough organic growth opportunities as a baseline, and we have the ability to flex up on highly attractive roll-up opportunities present themselves. This year, whenever we started planning out 2025, we thought there was a material number of roll-up opportunities for us to do. And we got off to a very strong start on that time. That's what Austin is referring to where the back half of the year, he used a couple of, I think keywords, noticeable volume increase and continuation of attractive margins. These roll-ups and organic opportunities that we performed in the first half of the year, we'll start seeing the payoff starting the third and fourth quarter. As far as the continuation of these opportunities on a long-term basis, organic we have a multiyear good pipeline of that remaining at a very consistent high level. And as far as roll up opportunities, small -- I guess the way I would classify small is under $100 million total purchase price, we think there's a lot of those opportunities out there. Austin mentioned, this is a highly fragmented market where 60% plus of the market a single-store operators. So we think that opportunity is robust. This year, what we did is, like I said, we got off to a fast start. We anticipated a fast start. We pulled back a little bit whenever we were working on the Parkland transaction. We knew we're going to get that signed, so we pulled back a little bit, so we can allocate the appropriate amount of time to due diligence and integration. But we're in a good position. Hopefully, that provides you the insight why we're so confident that second half of the year is going to be strong for us.

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Scott Grischow for closing comments.

Well, thanks for joining us on the call today. As we said, there are a lot of great things to look forward to in 2025 for Sunoco, and we look forward to updating you across the year. Please feel free to reach out if you have any questions. Thanks for tuning in, and I always appreciate your support.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.