Greetings, and welcome to Sunoco's Third 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, 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. It has been another busy quarter for Sunoco, and I'd like to begin my remarks by providing a brief recap. Last week, we successfully completed the acquisition of Parkland Corporation. In a transaction valued at approximately $9 billion. This transaction has created the largest independent fuel distributor in the Americas and a leading operator of energy infrastructure. We are confident it will provide compelling financial benefits for our unitholders. As our asset portfolio has evolved over the past several years, we have significantly improved the stability of our income while also strengthening our financial position and scale. Over the past 12 months, Sunoco and Parkland on a combined basis, generated over $3 billion in pro forma adjusted EBITDA, across our field distribution business and our midstream operations. The Parkland acquisition will be immediately accretive to distributable cash flow per common unit, and we expect over $250 million in synergies by 2028, which will result in greater than 10% accretion. Additionally, our highly successful financing transactions executed in September outperformed our expectations and will deliver approximately $40 million of additional annual cash savings. This transaction, combined with our proven track record of disciplined capital allocation will create greater financial flexibility for ongoing distribution growth solid free cash flow and strengthened credit profile. Finally, I'm pleased to remind investors that tomorrow, Thursday, November 6, SUNCorp…

Thanks, Scott. Good morning, everyone. As Scott walked through, our teams have been very busy this quarter and the operational and financial results highlight the strength of our business and the benefits that come from accretive growth. We delivered strong results across all 3 segments. So let me walk through some of those details. Starting with our fuel distribution segment. Adjusted EBITDA came in at $238 million excluding $6 million of transaction-related expenses compared to $214 million in the second quarter and $253 million in the third quarter of last year. Volumes came in at 2.3 billion gallons during the quarter, up 5% from last quarter and up 7% compared to the third quarter of last year. This volume growth far outpaces total U.S. volume growth for both gasoline and diesel, showcasing that our investments are yielding tangible results in both our growth capital program and fuel distribution bolt-on transactions. Reported margin for the second quarter was $0.107 per gallon compared to $0.105 per gallon in the second quarter and $0.128 per gallon in the third quarter of 2024. When we look at margins across our system, there are a few perspectives worth pointing out. First, we believe that breakeven margins continue to be supported by many of the same factors that we have discussed over the past few years, including inflation resulting in higher costs, limited overall volume growth across the industry and higher interest rates. Second, we have seen some tempering of market volatility, which has not produced an outsized fuel profit quarter like we saw during the second and third quarters of last year. Even with that headwind, however, this has been a great year in our fuel distribution business. Once you normalize for the sale of our West Texas retail business in 2024 at a very…

Thanks, Karl. Good morning, everyone. We delivered a very strong third quarter. Although 2025 is not quite over, I want to share some perspectives on this year as a whole. On the last earnings call, we stated that the back half of this year will outperform a good first half, with the third quarter results in the books is playing out as we stated and will deliver another record year. All 3 business segments are performing well. Our field distribution business continues to grow and provide stable earnings. Our Pipeline and Terminals segments also continued to perform at a high level. Last year's NuStar acquisition is proving to be outstanding. We have reduced expenses by 25% while improving gross profit and maintaining reliability. As for the Parkland acquisition, let me start off by publicly welcoming the Parkland employees to the Sunoco team. With the closing complete, we posted a new investor presentation earlier this week, I want to highlight some key insights. Both legacy Sunoco and legacy Parkland are performing as expected. As I said earlier, Sunoco will have another record year. As for Parkland, the 2025 year-to-date results have materially outperformed 2024. When you combine the 2 businesses together, our diversified portfolio spans across the U.S. Canada, the Greater Caribbean and Europe. We will deliver over 15 billion gallons of refined products. Scale is vital in our business, and we are now the largest fuel distributor in the Americas. Specifically within our midstream and fuel distribution portfolio, the Parkland addition greatly enhanced our position in the Atlantic Basin. We have over 7 billion gallons of contracted fuel demand from Eastern Canada to the U.S. East Coast to the Caribbean to South America. Throughout this footprint, we also have a leading position of terminals and the expertise to manage waterborne…

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

First question, Joe, maybe just to pick up on some of those closing comments around synergies. Looking like the floor now is sort of firmly around over $250 million here. I know you're a few days into this merger, but I also know you've been busy in the background, getting ready for this integration. So curious if you have a sense for just maybe how much above that $250 million we should have in mind? Are these more commercial or cost in nature, maybe how are you thinking about the cadence of realizing those over the next 3 years?

Spiro, this is Karl. Yes, really, to build on Joe's comments in his prepared remarks, there were really 2 updates that we provided in the release and in the investor deck earlier. One was the floor on the synergy number and then the second was tightening our time frame on getting back to the 4x leverage to within 12 months. And really, that comes because of the confidence we have based on the work we've done in the last 6 months. There are material synergies on both the expense and commercial side. I think the best way to think about the expense side of things, whenever you put 2 large companies together, you get to leverage the scale to find efficiencies and we've spent the integration planning period planning that. And I'd say, already a lot of those plans were started to be executed this weekend after we closed. Then you layer on that, that we have a very strong track record of good expense discipline. And so we feel there's a lot of opportunity there. But on the commercial side, our scale helps us as well. The teams have begun putting together plans. Most of those are on the supply side, but there are also going to be some opportunities on how we go to market that should yield results, as far as your question on the cadence, you should expect that when we issue guidance early next year that we'll give more details on what that ramp looks like through year 3 where the $250-plus million should be able to be delivered. And as far as your question on the ultimate upside looks like, here's how we think about it. The 2 primary measures on this acquisition that we're going to be focused on and both of them are very visible to The Street, are first, that we meet our commitment on getting leverage back to 4x within 12 months. And second, that we're going to show a double-digit accretion on a DCF per LP unit basis. So synergies clearly are the strongest lever we have to hit those metrics. But at some point in the future, those are going to merge with just improvements in growth in the base business that we've acquired. So -- so bottom line is we feel very confident and we're going to hit on those metrics as we've laid out.

Great. Second one, maybe just going to Sunoco Corp's dividend equivalency looks like the latest update points to minimal taxes for at least 5 years. Just curious, can you put a finer point on what that means for SUNC dividend equivalency over that period. And what's within your control to maybe push that out even further?

Yes, Spiro, this is Scott. Look, there was no change to our 2-year dividend equivalency that we announced with the transaction in May. This was a feature that we granted as part of the Parkland transaction. Our intention is to keep the SUNC distribution very similar to Sunoco LP's past this time period and having minimal corporate income taxes is the foundation for achieving that. And as we laid out in our investor materials, we expect this to be the case for at least 5 years. I will continue to pursue opportunities and strategies that allow us to minimize corporate taxes at SUNC on an ongoing basis. Namely by deploying capital on organic CapEx and acquisitions, things of that nature, and we'll update investors when appropriate on the outlook past the 5-year period.

Our next question comes from Justin Jenkins with Raymond James.

I guess I'd like to start on the distribution side of things. So obviously, growing at a nice 5% clip, but obviously a much bigger business and a more stable business with a lot of free cash flow with Parkland. Does that give you the potential to eventually maybe push that growth target up over time beyond the at least 5% window that you've looked at here recently?

Justin, it's Joe. Obviously, I think I've said it like a broken record quarter after quarter, the foundation of our capital allocation is having a stable, reliable and growing distribution. And I think the foundation of that is we continue to grow cash flow. I think we've stated a few times that for the eighth consecutive year, we've grown DCF per common unit, and we expect that to continue for the future. Our coverage is hovering around 1.8. Our balance sheet is in a good position. So when we said, I think, last year that we expect a multiyear distribution increase, we said that pre-Parkland. You add in Parkland with double-digit accretion. So we we're in a good place before Parkland, we're in a better place after Parkland. As far as an exact amount for 2026 and above, we'll provide that as part of our kind of overall guidance early next year. But I think what you can take away that -- is that we're in a better position than we were even last year for meaningful distribution growth on a multiyear path.

Great. I appreciate that, Joe. Second question is on Hurricane Melissa impact. Certainly, you've got some presence in the Caribbean over time and Parkland is a bigger business in the Caribbean. Anything that you want to highlight here in terms of impact from the hurricane itself on the broader Caribbean portfolio for the fourth quarter and into 2026?

Justin, this is Austin. First, I'd just start with -- on the human side of things. Our thoughts are with the people in the region and the loss of life and property associated with the storm. This is a powerful storm. From a business standpoint, specifically, the impact to our portfolio was largely limited to the Jamaica business. And fortunately, all employees in the region have been accounted for. I think this is a credit to the team. We've got a fantastic team down there. From the work they did, including their meticulous preparation in advance of the store, making sure that the area was as prepared as possible to the swift recovery or swift response, I should say, bringing necessary people, supplies, resources into the island to assist with recovery efforts. Just to put the business impact into a little bit more perspective, Jamaica is 1 of 25 jurisdictions and markets that we serve in the Caribbean region. And so overall, we don't expect there to be any material impact to our fourth quarter results for the segment or 2026 and beyond, but that's in no way intended to minimize, obviously, the human impact and devastation to some of the folks that were impacted in the region.

Our next question comes from Theresa Chen with Barclays Bank.

Looking at your comprehensive asset base at this point, could you share your perspective on potential opportunities for your West Coast terminaling assets as well as any incremental profitability upside for the Burnaby Refinery in light of ongoing California refinery closures?

Yes, Theresa, this is Karl. I think here's what I'd say. I'll start with the refinery. One is -- we're thankful and you see the results that the refinery team has delivered this year on improved reliability that's really been our focus and will be our focus going forward on the refinery operation. Clearly, California, there have been plenty of refinery shutdowns and different things in the news. Our strong asset base on the West Coast, while it's not as big as on the East Coast is growing and I think there's going to be opportunities. So while, I don't know exactly how the markets are going to shape out over the next 2 or 3 or 4 years. I think our track record shows that when product flows shift that we have the scale and expertise to be able to take advantage of them. So the refinery really is the platform for our fuel distribution business in Western Canada. And we have key assets down through the Pacific Northwest and into California. So if refinery shutdowns continue in the West Coast of the U.S. and Canada become import markets, we should have opportunity to supply from our refinery in Canada or we should have facilities that should enable imports coming in from outside the U.S. So I think we're well positioned to be able to take advantage of whatever wherever the markets shake out.

Got it. And what are your expectations regarding how the recently announced refined product pipeline projects could impact or create opportunities for your own Gold Coast to Mid-Continent refined product pipeline infrastructure as well as your fuel distribution assets in pads 2 and 5?

Yes, Theresa. I think my answer is pretty similar to the California question. I think the -- what we don't comment specifically on certain competitors' projects, I think those, pipeline open seasons and projects that you mentioned really are an indication of some of the changes in U.S. refined product flows as a result of refinery shutdown in California. So I think the same principles are in play. We have a fuel distribution business that we have a track record taking advantage of changes in product flows. We now have an asset portfolio, terminals on the West Coast. Some pipeline systems in the Mid-Con and in Texas that we can use to invest in to provide services for either our own business or our customers. Obviously, when things change, sometimes there are assets that are impacted negatively, but we'll have assets that are impacted positively. So as we look at that all together and our ability to work with our customers, see where we can help, meet their strategic objectives, we feel really good about our ability to benefit from these changes.

[Operator Instructions] Our next question comes from Jeremy Tonet with JPMorgan.

This is Eli on for Jeremy. I just wanted to start on the outlook. I guess what went into the decision not to update the 2025 guide today to include Parkland contributions? Would that be part of the TanQuid assent closing and just thoughts there. And then maybe on to '26 and kind of early thoughts there. I think you said you'd release guidance earlier next year versus maybe December this year. Just what are the kind of key puts and takes, base business and synergies to expect as components to the '26 guide?

This is Joe. Let me start with '25. I think the obvious reason is we just closed on Parkland and one of the statements we made earlier is that we expect to close on TanQuid in the fourth quarter. So trying to get put too much precision on when tank what's going to happen. It gave us a good reason to be sure about what we're going to provide for guidance for next year instead of just giving an update in '25. The other thing is that -- for the reason why we typically have given guidance in December of every year, we push it to early next year. We just got all the budgets that Parkland put together for their business. Going through that with a fine-tooth comb, we [indiscernible] base business is going to perform like and that will be a significant part of our guidance for next year. As far as early thoughts on '26, I can give you a few things, I think, that might be helpful. First of all, the Parkland business is performing year-to-date, better than 2024. So we're starting with a really good baseline with Parkland. Secondly, for Sunoco, legacy business, we continue to grow. We've grown year after year and 2026 on a stand-alone basis won't be any different. And I think Karl talked in depth about the synergies. We increased -- we put the at least $250 million in synergies. We think this is going to be an outstanding acquisition for us. We're in the process of going through more precision and exact timing and all that will come together when we give guidance. But I think the takeaway is that we feel even better about this acquisition than when we announced it in May, and we're well positioned to have another outstanding year in 2026.

Awesome. And then maybe just back to the base business. I think you talked about kind of just steady improvement there. Maybe on the fuel distribution side, just thinking about the CPG margins following the integration of PKI assets, how should we think about those margins trending as we move forward? I know you guys are the largest fuel distributor in North America, and you have a lot of economies of scale. So should we see any kind of upward pressure on those margins going forward?

Yes. Eli, let me give you a couple of thoughts about more on a segment basis. And I'll give you the pieces and then when we give guidance, all that -- all this will kind of tie out together. First of all, we'll start with the PKI Parkland U.S. business, their legacy business. I think it's been well documented that they've passed some struggles over the last few years. The exact reason, the detailed insider view. We don't have the exact details yet, but we will. And then -- but here's what I think to give you clarity on the U.S. business. We view Parkland's U.S. distribution business, just like a bolt-on acquisition, we've done time over and over again. So we're going to manage it for income stability. We're going to do gross profit optimization. We're going to cut expenses. So in due time, pretty darn quickly, we expect the Parkland U.S. business that struggled to perform in line with what Sunoco has done year after year. So we feel very positive about that. As far as the Canadian business, the way that I would probably look at it is they had strong third quarter results. I'm not surprised these assets in Canada on fuel distribution has performed well year after year. The Canadian assets has some key elements that I really like. First of all, they got scale. We got scale. 1 in 5 fuel station is fueled by Parkland. So incredible scale in Parkland in Canada. Secondly, the Canadian relative to the U.S., they've had a long history of sustained higher margins than U.S. We don't think this is going to change. And finally, we have channel management opportunities. We've done that with every acquisition we've done. We've taken the assets and we'll put it into the right channel where we think we can have the most income stability. So from a Canadian field distribution side, we think this is going to be additive to our overall fuel distribution portfolio. In the Caribbean, we see -- these are a bunch of niche markets with high margins, and we think this is going to continue. We have history in niche markets like Hawaii and Puerto Rico. And then some of these markets also have -- have material GDP growth in some of these areas that we think we'll share in the upside. So if you put it all together, I feel better about our field distribution portfolio, and that's the reason why we thought Parkland was a great fit for us.

Our next question comes from Ned Baramov with Wells Fargo.

I want to stay on the legacy Sunoco U.S. fuel distribution business here. A few factors in play on the one hand, the ongoing government shutdown and some signs of weaker fuel demand don't seem constructive for volumes. But on the other hand, as Karl pointed out, your CapEx program and roll-up transactions year-to-date add gallons to your system. Either way, you've already demonstrated an ability to protect the overall contribution from this segment across different environments. Just wanted to check if there is a change in how you think about the prospects of the fuel distribution business in the next 6 to 12 months?

Yes. This is Austin. I think you hit it. Overall, I think what we're seeing from a fuel volume standpoint is in the U.S. more broadly, demand for refined products is roughly flat year-over-year. There has been maybe some softening in recent months. But our legacy business has outperformed the broader segment, right? We're up-mid to high single digits for Q3 on volumes. And a lot of that, as you pointed out, is owed to our capital allocation strategy and growth capital deployment, including growth CapEx and some of the bolt-on accretive M&A that we did in the first half of this year that's yielding benefits in Q3 and beyond. In terms of changes to expectations, we actually see the fundamentals as strong for the segment as they've ever been. The business is healthy and with our combined now asset base with the Parkland acquisition, we're well positioned to continue our historical trend of growing EBITDA for the segment accretively year-over-year going forward.

Great. And I guess a quick question on growth capital. Could you talk about the key areas of investment for Sunoco in the third quarter other than the $16 million contribution to the gathering JV. Are you still primarily spending in support of the fuel distribution business? Or are there organic opportunities in your pipeline and Terminals segments?

Yes, Ned, this is Karl. Our growth capital is spread across all of our segments. But really, it is in a best project wins type of mentality. And I -- obviously, we haven't done any large projects in our pipeline systems or terminal segments, but there's plenty of what we call smaller to medium-sized optimization-type projects. Some of them unlock more opportunities with our fuel distribution business. Some of them unlock more ratable income from third-party customers. So really, it's fuel distribution pipelines and terminals all have growth capital in addition to our parts of the JVs.

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.

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

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