Sunoco LP(SUN) - 2023 Q2 - Quarterly Report

FORM 10-Q Filing Details This section outlines the essential filing information for Sunoco LP's Quarterly Report on Form 10-Q, including registrant details and report specifics Registrant Information This section provides key identification details for Sunoco LP's Quarterly Report on Form 10-Q for the period ended June 30, 2023, including its legal name, jurisdiction, address, and stock exchange listing - The report is a Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the period ended June 30, 2023[2] - Sunoco LP is a Delaware entity with its principal executive offices in Dallas, Texas[3][4] Securities Registered Pursuant to Section 12(b) of the Act | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :-------------------------------- | :------------------ | :---------------------------------------- | | Common Units Representing Limited Partner Interests | SUN | New York Stock Exchange | - The registrant is an Accelerated Filer and is not a shell company[5][6] - As of July 28, 2023, there were 84,065,099 common units and 16,410,780 Class C units representing limited partner interests outstanding[6] PART I – FINANCIAL INFORMATION This part presents Sunoco LP's unaudited consolidated financial statements and management's discussion and analysis Item 1. Financial Statements This section presents Sunoco LP's unaudited consolidated financial statements, including the balance sheets, statements of operations and comprehensive income, statements of equity, and statements of cash flows, along with accompanying notes for the periods ended June 30, 2023 and December 31, 2022 Consolidated Balance Sheets This section provides a snapshot of Sunoco LP's financial position, detailing assets, liabilities, and equity as of June 30, 2023, and December 31, 2022 Consolidated Balance Sheet Highlights (Dollars in millions) | Metric | June 30, 2023 | December 31, 2022 | Change | | :-------------------------------- | :-------------- | :------------------ | :----- | | Cash and cash equivalents | $239 | $82 | +$157 | | Accounts receivable, net | $543 | $890 | -$347 | | Inventories, net | $931 | $821 | +$110 | | Total current assets | $1,868 | $1,983 | -$115 | | Property and equipment, net | $1,822 | $1,760 | +$62 | | Goodwill | $1,599 | $1,601 | -$2 | | Total assets | $6,782 | $6,830 | -$48 | | Accounts payable | $783 | $966 | -$183 | | Total current liabilities | $1,217 | $1,406 | -$189 | | Credit Facility | $990 | $900 | +$90 | | Long-term debt, net | $2,673 | $2,671 | +$2 | | Total liabilities | $5,783 | $5,888 | -$105 | | Total equity | $999 | $942 | +$57 | Consolidated Statements of Operations and Comprehensive Income This section outlines Sunoco LP's financial performance, presenting revenues, expenses, and net income for the three and six months ended June 30, 2023 and 2022 Consolidated Statements of Operations Highlights (Dollars in millions, except per unit data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $5,745 | $7,815 | $11,107 | $13,217 | | Total cost of sales and operating expenses | $5,604 | $7,642 | $10,767 | $12,785 | | Operating income | $141 | $173 | $340 | $432 | | Net income and comprehensive income | $87 | $121 | $228 | $337 | | Basic Net Income Per Common Unit | $0.79 | $1.22 | $2.21 | $3.56 | | Diluted Net Income Per Common Unit | $0.78 | $1.20 | $2.19 | $3.52 | | Cash Distributions Per Unit | $0.842 | $0.8255 | $1.684 | $1.6510 | Consolidated Statements of Equity This section details changes in Sunoco LP's equity, including net income, distributions, and unit-based compensation for the six months ended June 30, 2023 Consolidated Statements of Equity Highlights (Dollars in millions) | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------- | :-------------- | :------------------ | | Balance, December 31, 2022 | $942 | $942 | | Cash distributions to unitholders (6 months) | $(180) | N/A | | Unit-based compensation (6 months) | $9 | N/A | | Net income (6 months) | $228 | N/A | | Balance, June 30, 2023 | $999 | N/A | Consolidated Statements of Cash Flows This section summarizes Sunoco LP's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, Dollars in millions) | Metric | 2023 | 2022 | | :-------------------------------------- | :----- | :----- | | Net cash provided by operating activities | $417 | $337 | | Net cash used in investing activities | $(170) | $(305) | | Net cash provided by (used in) financing activities | $(90) | $111 | | Net increase in cash and cash equivalents | $157 | $143 | | Cash and cash equivalents, end of period | $239 | $168 | Notes to Consolidated Financial Statements This section provides detailed explanations and additional information supporting the consolidated financial statements, including accounting policies and significant transactions - Sunoco LP is a Delaware master limited partnership managed by its general partner, Sunoco GP LLC, which is owned by Energy Transfer LP. Energy Transfer LP holds a 28.3% limited partner interest and all incentive distribution rights (IDRs)[22] - The Partnership completed the acquisition of 16 refined product terminals from Zenith Energy for $111 million on May 1, 2023, primarily allocated to property and equipment[29] Accounts Receivable, net (Dollars in millions) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------- | :-------------- | :------------------ | | Accounts receivable, trade | $431 | $755 | | Credit card receivables | $46 | $81 | | Other receivables | $67 | $56 | | Allowance for expected credit losses | $(1) | $(2) | | Accounts receivable, net | $543 | $890 | Inventories, net (Dollars in millions) | Category | June 30, 2023 | December 31, 2022 | | :--------- | :-------------- | :------------------ | | Fuel | $919 | $809 | | Other | $12 | $12 | | Inventories, net | $931 | $821 | Long-Term Debt (Dollars in millions) | Debt Type | June 30, 2023 | December 31, 2022 | | :-------------------------- | :-------------- | :------------------ | | Credit Facility | $990 | $900 | | 6.000% Senior Notes due 2027 | $600 | $600 | | 5.875% Senior Notes due 2028 | $400 | $400 | | 4.500% Senior Notes due 2029 | $800 | $800 | | 4.500% Senior Notes due 2030 | $800 | $800 | | Lease-related financing obligations | $94 | $94 | | Total debt | $3,684 | $3,594 | | Less: debt issuance costs | $21 | $23 | | Long-term debt, net | $3,663 | $3,571 | - The fair value of debt as of June 30, 2023, was approximately $3.5 billion, valued using Level 2 inputs (current interest rates for similar securities)[36] Related Party Transactions (Dollars in millions) | Transaction Type | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Motor fuel sales to affiliates | $15 | $23 | $28 | $28 | | Bulk fuel purchases from affiliates | $471 | $703 | $882 | $1,243 | Revenue Disaggregation by Segment and Channel (Three Months Ended June 30, Dollars in millions) | Segment/Channel | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Fuel Distribution and Marketing Segment | | | | Distributor | $2,464 | $3,346 | | Dealer | $1,038 | $1,427 | | Unbranded wholesale | $1,587 | $2,193 | | Commission agent | $362 | $515 | | Non-motor fuel sales | $35 | $41 | | Lease income | $35 | $32 | | Total Fuel Distribution and Marketing | $5,521 | $7,554 | | All Other Segment | | | | Motor fuel | $156 | $197 | | Non-motor fuel sales | $65 | $61 | | Lease income | $3 | $3 | | Total All Other Segment | $224 | $261 | | Total revenue | $5,745 | $7,815 | Revenue Disaggregation by Segment and Channel (Six Months Ended June 30, Dollars in millions) | Segment/Channel | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Fuel Distribution and Marketing Segment | | | | Distributor | $4,767 | $5,753 | | Dealer | $1,957 | $2,481 | | Unbranded wholesale | $3,127 | $3,456 | | Commission agent | $703 | $918 | | Non-motor fuel sales | $64 | $82 | | Lease income | $69 | $64 | | Total Fuel Distribution and Marketing | $10,687 | $12,754 | | All Other Segment | | | | Motor fuel | $292 | $347 | | Non-motor fuel sales | $122 | $110 | | Lease income | $6 | $6 | | Total All Other Segment | $420 | $463 | | Total revenue | $11,107 | $13,217 | - The Partnership is generally not subject to federal income tax, but its corporate subsidiaries are. The effective tax rate differs from the statutory rate primarily due to partnership earnings not subject to tax at the partnership level[46][47] - As of June 30, 2023, Energy Transfer and its subsidiaries owned 28,463,967 common units (28.3% limited partner interest), and the public owned 55,597,041 common units. Wholly-owned consolidated subsidiaries owned all 16,410,780 Class C units[22][48] Cash Distributions Paid or Declared (2023) | Payment Date | Per Unit Distribution | Total Cash Distribution (millions) | Distribution to IDR Holders (millions) | | :------------- | :-------------------- | :------------------------------- | :----------------------------------- | | August 21, 2023 | $0.8420 | $71 | $19 | | May 22, 2023 | $0.8420 | $71 | $19 | | February 21, 2023 | $0.8255 | $70 | $18 | Adjusted EBITDA by Segment (Three Months Ended June 30, Dollars in millions) | Segment | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Fuel Distribution and Marketing | $222 | $200 | | All Other | $28 | $14 | | Total Adjusted EBITDA | $250 | $214 | Adjusted EBITDA by Segment (Six Months Ended June 30, Dollars in millions) | Segment | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Fuel Distribution and Marketing | $417 | $374 | | All Other | $54 | $31 | | Total Adjusted EBITDA | $471 | $405 | Net Income Per Common Unit Reconciliation (Three Months Ended June 30) | Metric | 2023 | 2022 | | :------------------------------------ | :----------- | :----------- | | Net income and comprehensive income | $87 | $121 | | Less: Incentive distribution rights | $20 | $18 | | Less: Distributions on non-vested phantom unit awards | $1 | $1 | | Common unitholders' interest in net income | $66 | $102 | | Weighted average common units outstanding (Basic) | 84,060,866 | 83,737,613 | | Weighted average common units outstanding (Diluted) | 85,034,268 | 84,767,972 | | Basic Net income per common unit | $0.79 | $1.22 | | Diluted Net income per common unit | $0.78 | $1.20 | Net Income Per Common Unit Reconciliation (Six Months Ended June 30) | Metric | 2023 | 2022 | | :------------------------------------ | :----------- | :----------- | | Net income and comprehensive income | $228 | $337 | | Less: Incentive distribution rights | $39 | $36 | | Less: Distributions on non-vested phantom unit awards | $3 | $3 | | Common unitholders' interest in net income | $186 | $298 | | Weighted average common units outstanding (Basic) | 84,059,797 | 83,710,409 | | Weighted average common units outstanding (Diluted) | 84,998,777 | 84,749,895 | | Basic Net income per common unit | $2.21 | $3.56 | | Diluted Net income per common unit | $2.19 | $3.52 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Sunoco LP's financial condition and results of operations, highlighting key performance drivers, recent developments, and a detailed comparison of financial results for the three and six months ended June 30, 2023, against the prior year Cautionary Statement Regarding Forward-Looking Statements This section advises that the report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially, including those related to acquisitions, fuel price volatility, competition, and economic conditions[57][58] Overview This section provides a general description of Sunoco LP's business, including its primary activities and recent strategic acquisitions - Sunoco LP is a Delaware master limited partnership primarily engaged in motor fuel distribution to independent dealers, distributors, and commission agents, operating across over 40 states and territories[64][65][66] - On May 1, 2023, the Partnership acquired 16 refined product terminals from Zenith Energy for $111 million, including working capital[65] Key Measures Used to Evaluate and Assess Our Business This section identifies the primary financial and operational metrics management uses to assess Sunoco LP's business performance - Management uses motor fuel gallons sold, profit per gallon, and Adjusted EBITDA to evaluate business performance[66][69] - Adjusted EBITDA is a non-GAAP measure defined as earnings before net interest expense, income taxes, depreciation, amortization, non-cash unit-based compensation, unrealized gains/losses on commodity derivatives, inventory adjustments, and certain other operating expenses[69] Results of Operations This section analyzes Sunoco LP's financial performance, comparing revenues, expenses, and profitability for the current and prior year periods Key Operating Performance Measures (Three Months Ended June 30, Dollars in millions, except cents per gallon) | Metric | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Total revenues | $5,745 | $7,815 | | Total cost of sales | $5,431 | $7,470 | | Net income and comprehensive income | $87 | $121 | | Adjusted EBITDA | $250 | $214 | | Motor fuel gallons sold (millions) | 2,086 | 1,985 | | Motor fuel profit cents per gallon | 12.7¢ | 12.3¢ | - For the three months ended June 30, 2023, net income decreased primarily due to unfavorable inventory adjustments, while Adjusted EBITDA increased by $36 million due to higher motor fuel profit and non-motor fuel sales/lease profit, partially offset by increased operating costs[75][79] - Interest expense increased due to higher interest rates on floating rate debt[75] - Inventory adjustments resulted in an unfavorable impact of $57 million in Q2 2023 due to decreasing fuel prices, compared to a favorable impact of $1 million in Q2 2022[78] Key Operating Performance Measures (Six Months Ended June 30, Dollars in millions, except cents per gallon) | Metric | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Total revenues | $11,107 | $13,217 | | Total cost of sales | $10,418 | $12,442 | | Net income and comprehensive income | $228 | $337 | | Adjusted EBITDA | $471 | $405 | | Total motor fuel gallons sold (millions) | 4,016 | 3,755 | | Motor fuel gross profit cents per gallon | 12.8¢ | 12.3¢ | - For the six months ended June 30, 2023, Adjusted EBITDA increased by $66 million, driven by a $64 million increase in motor fuel sales gross profit (4% increase in profit per gallon, 7% increase in gallons sold) and a $12 million increase in non-motor fuel sales and lease gross profit, partially offset by a $12 million increase in operating costs due to acquisitions[84][87] - Inventory adjustments had an unfavorable impact of $28 million in H1 2023 due to decreasing fuel prices, compared to a favorable impact of $121 million in H1 2022[87] Liquidity and Capital Resources This section discusses Sunoco LP's financial flexibility, including cash position, credit facilities, and capital expenditure plans - The Partnership's primary liquidity requirements are for current operations, capital expenditures (including acquisitions), debt service, and distributions[88] Liquidity Position (Dollars in millions) | Metric | June 30, 2023 | | :-------------------------- | :-------------- | | Cash and cash equivalents | $239 | | Unused availability on Credit Facility | $503 | - Net cash provided by operating activities increased to $417 million for the six months ended June 30, 2023, from $337 million in the prior year, primarily due to an $81 million increase in net cash flow from operating assets and liabilities[93] - Net cash used in investing activities decreased to $170 million for the six months ended June 30, 2023, from $305 million in the prior year, mainly due to a lower cash outlay for acquisitions ($111 million in 2023 vs. $264 million in 2022)[95] - Net cash used in financing activities was $90 million for the six months ended June 30, 2023, compared to net cash provided of $111 million in the prior year, reflecting Credit Facility borrowings of $1.56 billion and repayments of $1.47 billion, and $180 million in distributions to unitholders[97] Capital Expenditures (Six Months Ended June 30, 2023, Dollars in millions) | Category | Amount | | :----------------- | :----- | | Growth capital | $64 | | Maintenance capital | $23 | | Total | $87 | - For the full year 2023, the Partnership expects to spend approximately $65 million in maintenance capital and at least $150 million in growth capital[98] - As of June 30, 2023, the Credit Facility balance was $990 million with a weighted average interest rate of 7.00%. The Partnership was in compliance with all financial covenants[100] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section details Sunoco LP's exposure to market risks, specifically interest rate risk on its variable-rate debt and commodity price risk related to its refined petroleum product inventories, and the strategies used to manage these risks - The Partnership is exposed to interest rate risk on its $990 million outstanding Credit Facility borrowings as of June 30, 2023. A one percentage point change in floating interest rates would result in a $9.9 million change to interest expense[103] - The Partnership holds approximately $852 million of refined petroleum product inventories as of June 30, 2023, exposing it to commodity price risk. Derivative instruments (futures, forwards, swaps) are used to hedge price risks, though not designated as accounting hedges[104] - As of June 30, 2023, the Partnership had a commodity derivative position of 2.5 million barrels with an aggregate unrealized loss of $2.8 million[105] Item 4. Controls and Procedures This section confirms the effectiveness of Sunoco LP's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter ended June 30, 2023 - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2023[108] - There have been no material changes in internal control over financial reporting during the three months ended June 30, 2023[109] PART II – OTHER INFORMATION This part covers additional information not included in the financial statements, such as legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings Sunoco LP reports that it is not currently party to any legal proceedings that are expected to have a material adverse impact on its financial condition, results of operations, or cash flows - The Partnership does not believe it is involved in any litigation that will have a material adverse impact on its financial condition or operations[112] Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes have occurred from the risk factors described in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2022[114] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including organizational documents, certifications, and financial information formatted in Inline XBRL - The exhibits include various amendments to the Certificate of Limited Partnership and Limited Liability Company Agreement, certifications by the CEO and CFO, and financial information in Inline XBRL format[117][119] SIGNATURE This section formally concludes the Form 10-Q filing, providing the authorized signature and date of submission Report Signature This section formally concludes the Form 10-Q filing, indicating that the report has been duly authorized and signed on behalf of Sunoco LP by its Principal Accounting Officer - The report is signed by Rick Raymer, Vice President, Controller, and Principal Accounting Officer of Sunoco GP LLC, the general partner of Sunoco LP, on August 3, 2023[121][122]