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Text: These statements include expectations and assumptions regarding the Partnership's future operations and financial performance, including expectations and assumptions related to the impact of the COVID-19 pandemic.
Actual results could differ materially and the Partnership undertakes no obligation to update these statements based on subsequent events.
During today's call, we will also discuss certain non-GAAP financial measures, including adjusted EBITDA and distributable cash flow as adjusted.
For the fourth quarter of 2020, the Partnership recorded net income of $83 million, adjusted EBITDA was $159 million compared to $168 million in the fourth quarter of 2019.
Volumes of 1.8 billion gallons were relatively unchanged from the third quarter, but remain down about 12% from levels seen a year ago.
Fuel margin was $0.092 per gallon and included approximately $8 million of one-time write-offs associated with prior period fuel tax and inventory-related items.
Fourth quarter margin also included approximately $9 million of unfavorability related to inventory valuation and associated hedges.
For the full-year 2020, the impact of this inventory valuation and hedging activity resulted in approximately $2 million of margin favorability.
Karl will elaborate further on our fuel margin in his remarks.
Fourth quarter distributable cash flow, as adjusted, was $97 million, yielding a coverage ratio of 1.1 times.
We ended the full-year 2020 with the coverage ratio of 1.5 times.
On January 28, we declared an $0.8255 per unit distribution, the same as last quarter.
The proven resiliency of our business and history of delivering results has allowed us to maintain a stable and secure distribution for our unitholders.
We continued to deliver strong results in 2020, despite the challenges of the COVID pandemic and fully expect to continue building on the strong performance in 2021 and beyond.
First off, I'd like to highlight some of our accomplishments for 2020 before walking through the 2021 guidance that we unveiled in December.
Our full-year 2020 accomplishments include the following: adjusted EBITDA of $739 million, a record for SUN and up 11% from 2019 levels; distributable cash flow, as adjusted, was $517 million, also a record for SUN and up 14% from 2019.
We improved our already strong coverage ratio to 1.5 times, up from 1.3 times in both 2018 and 2019.
Our cost reduction initiatives resulted in total operating expenses of $448 million, which was a reduction of 11% from 2019 levels.
Our fuel margin increased $0.018 per gallon from 2019 to $0.119 per gallon.
We successfully refinanced our 4.875% Senior Notes due 2023, with new 4.5% Senior Notes due 2029, thereby lowering interest expense, while significantly expanding the weighted average maturity of our debt.
For reference, our nearest Senior Note debt maturity is now the 2026 Senior Notes.
And finally, we improved our leverage to 4.18 times, or 4.1 times when adjusted for total cash on hand from 4.6 times at the end of 2019.
Our liquidity remains strong, with an undrawn $1.5 billion revolving credit facility and $97 million in cash at year-end.
With all these accomplishments as a backdrop, we enter 2021 poised to continue to deliver strong results.
In December, we provided guidance for 2021 for adjusted EBITDA of between $725 million and $765 million.
Underpinning this guidance are the following: fuel volumes in a range of 7.25 billion to 7.75 billion gallons; annual fuel margin between $0.11 per gallon and $0.12 per gallon; total operating expenses of between $440 million and $450 million; maintenance capital of $45 million; and growth capital of at least $120 million.
Free cash flow generating capability of this business allows us to focus on the pillars of our capital allocation strategy.
First, to maintain a stable and secure distribution for our unitholders.
Second, to protect our balance sheet through debt paydown when prudent.
And third, to pursue disciplined investment in our growth opportunities.
We will be financially disciplined with the target coverage ratio of 1.4 times, which is up from our prior target of 1.2 times and a target leverage ratio of 4 times, which is down from our prior target of 4.5 times to 4.75 times.
I'd like to conclude my remarks by stating that Sunoco established a strong financial footing early on in 2020 and this continues to carry through as we enter 2021.
Scott and Dylan walk you through the numbers for the quarter and the full year.
I want to take a few minutes and give you a sense of how we view these results and what kind of insight they give us into 2021.
Let's start by talking about volume.
On the surface, our fourth quarter results were very similar to the third quarter.
There are a few additional factors though that we view as promising.
First, during our last conference call, I shared the volumes were off around 12% for October.
When we moved into November and December, we all experienced some additional restrictions on travel and business activity, with the increase in COVID cases across the country.
Even with those additional restrictions, our volumes held and we finished the quarter at about the same level relative to the prior year.
The second factor is around J.C. Nolan volumes.
Last quarter, I explained that our J.C. Nolan diesel volumes were off much more than the rest of our business.
We were also lapping the start-up of the pipeline in the third quarter of 2019.
In the fourth quarter, this was an even bigger impact, since we were comparing against a full period of pipeline operation.
Year-over-year, J.C. Nolan volume reductions accounted for 3% of total volume for the fourth quarter.
So that would put our volumes down only 9%, if you remove the impact of J.C. Nolan.
My final thought on volumes provides some insight into one of the reasons for the solid performance, which is our ability to add new customers.
Starting last summer, we started ramping backup our growth focus on signing up new customers, and we're starting to see that in our Q4 numbers, and that will carry forward into 2021.
The bottom line is that we see our volumes continue to grow through the rest of this year, both from overall economic recovery and our own growth efforts.
Moving over to margins, the market continues to support stronger margins.
Let me give you some perspective on our reported margins for the fourth quarter.
First, we saw a challenging market environment with a fairly steady and relentless claim in RBOB prices for most of the quarter.
If you look back at our history, that would have likely resulted in margins close to $0.09 a gallon, maybe even dipping a little lower.
Fast forward to the post-COVID environment and the floor is higher, which is what our fourth quarter results look like after you account for the one-time adjustments and inventory timing impacts as Scott mentioned.
As we have stated before, the higher breakeven environment for many industry participants, both in the wholesale and retail channels, helps support the higher margin floor.
As we look to the first quarter, we've continued to see a steady rise in RBOB prices, putting pressure on margins.
And we still feel like a floor in the $0.095 to $0.10 range is reasonable for these tough market environments, excluding one-time issues in the quarter.
We already discussed some one-time items for the fourth quarter, and we expect the 7-Eleven catch-up payment in the first quarter that will provide a boost to our base margins.
Finally, I want to provide some more color around our expense performance.
For the last few years, we've been extremely focused on looking hard at what it takes to efficiently run our business.
When COVID hit, we took an even deeper look and made some tough choices.
Our expense performance in the third and fourth quarters show that we are able to operate at these levels.
There will always be some fluctuations in timing, and there were a few favorable one-time impacts in the fourth quarter that brought the expenses down even a little further than our run rate.
But the takeaway is that we have continued to deliver on our expense commitments, and are very comfortable with our guidance for this year.
We continue to add volume to our network.
Margins are solid, and our expense focus falls directly to the bottom line.
We delivered very strong results in 2020.
We came into 2020 financially healthy, and we finished the year stronger than where we started.
While countless companies had significant financial difficulties, our 2020 results demonstrate the resiliency of our business model.
Last year, we delivered record EBITDA and DCF.
Over the last three years, we have steadily improved our coverage, while at the same time, decreasing our leverage ratio.
Looking forward, we expect to have another good year.
We're about a month and a half into the New Year and both fuel volume and RBOB costs continue to rise.
Since early November, both gasoline and diesel prices has steadily increased.
Over that time period, New York Harbor RBOB has gone up around $0.75 per gallon.
As you know, this is not the most conducive margin environment.
With that said, there are other important factors to consider.
Industry break-evens are higher.
We're seeing this play out, as the market continues to pass on price increases to the rack and to the street.
However, the steady constant rise in costs does create a time lag, resulting in short-term margin pressure.
Taking a step back, there will always be some quarters where the commodity environment provides noticeable headwind.
But there will also be quarters where the commodity environment will be highly supportive of wide margins.
History has shown that run-ups in prices are followed by periods of more volatile or falling prices that provide margin tailwinds.
When you look at our business beyond a quarter-by-quarter basis, we expect to have quality long-term results.
On the volume side, we're seeing positive increases in volume, excluding material regional weather events.
We expect this to continue over the course of this year.
Finally, you can expect us to deliver on expenses.
Moving on to growth, we'll continue to grow our field distribution business.
The opportunity set remains strong, and we expect these organic and M&A opportunities to remain for the foreseeable future.
On the midstream side, we remain patient looking for the right opportunity at the right price.
We'll continue to look for highly synergistic opportunities, while remaining financially disciplined.

user
partnership sold 1.8 billion gallons in q4 of 2020, down 12% from q4 of 2019.
partnership expects full year 2021 adjusted ebitda to be between $725 and $765 million.
expects 2021 growth capital expenditures of at least $120 million.
expects 2021 fuel volumes to be between 7.25 and 7.75 billion gallons.

assistant