Greetings, and welcome to Sunoco LP's fourth quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Scott Grischow. You may begin.
Thank you, and good morning, everyone. On the call with me this morning are Joseph Kim, Sunoco LP's President and Chief Executive Officer, Karl Fails, Chief Operations Officer, Dylan Bramhall, Chief Financial Officer, and other members of the management team. Today's call will contain forward-looking statements that are subject to various risks and uncertainties. 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. Please refer to our earnings release as well as our filings with the SEC for a list of these factors. During today's call, we will also discuss certain non-GAAP financial measures, including adjusted EBITDA and distributable cash flow as adjusted.
Please refer to the Sunoco LP website for reconciliation of each financial measure. Before I turn the call over to Dylan, I want to briefly cover the results for the fourth quarter of 2021. The partnership recorded net income of $100 million compared to $83 million in the fourth quarter of 2020. Adjusted EBITDA was $198 million compared to $159 million in the fourth quarter of 2020. The partnership sold 1.9 billion gallons in the fourth quarter, up 3% from the fourth quarter of last year. Fuel margin for all gallons sold was $0.12 per gallon compared to $0.092 per gallon a year ago. Total fourth quarter operating expenses of $123 million were higher on a year-over-year basis.
Fourth quarter distributable cash flow as adjusted was $143 million compared to $97 million in the fourth quarter of 2020, yielding a coverage ratio of 1.7x . The coverage ratio for the full year of 2021 was 1.6x . Finally, on January 26, we declared an $0.8255 per unit distribution, consistent with last quarter. The durability of our business and history of delivering results continues to support a stable and secure distribution for our unitholders. I will now turn the call over to Dylan to discuss the full year results and our outlook for 2022.
Thanks, Scott. Before I walk you through our 2021 full year results and accomplishments, I'd like to make a few comments on our recently announced acquisition of a 23,000 barrel a day transmix facility in Huntington, Indiana. This acquisition represents another really exciting opportunity to continue to build out our midstream asset base with a low risk, solid return deployment of capital. Our strong distribution coverage and balance sheet continue to allow Sun to invest in these types of opportunities, which will contribute additional value to our stakeholders for years to come. Now, shifting over to our full year 2021 results and accomplishments, we recorded adjusted EBITDA of $754 million, above the midpoint of our 2021 guidance range and up 2% from 2020. Distributable cash flow as adjusted was $542 million, up 5% versus the prior year.
We improved our already strong distribution coverage ratio to 1.6x , up from 1.5x in 2020 and 1.3x in 2019. Our balance sheet and liquidity position remains strong, with leverage at the end of the year of 4.17x and availability on our credit facility of approximately $930 million. Finally, our strong financial position allowed us to take advantage of a diversified set of growth opportunities in 2021, including the acquisition of nine refined products terminals and the construction of a greenfield terminal in Brownsville, Texas. With all of these accomplishments as the backdrop, we enter 2022 poised to continue to deliver strong results. In December, we provided guidance for 2022 adjusted EBITDA of between $770 million- $810 million.
Underpinning this guidance are the following assumptions: fuel volumes in a range of 7.7 billion-8.1 billion gallons, annual fuel margin between 10.5-11.5 cents per gallon, total operating expenses of between $490 million-$500 million, maintenance capital of $50 million, and growth capital of approximately $150 million. The free cash flow generating capability of our operations 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. Third, to pursue disciplined investment in our growth opportunities, like the acquisition which we announced today.
We will be financially disciplined with a target coverage ratio of at least 1.4x and a target leverage ratio of 4.0x . Sunoco's consistent financial results throughout commodity cycles have become a hallmark of our partnership, and we expect 2022 will bring more of the same. With that, I'll now turn the call over to Karl to walk through some additional thoughts on volumes, expenses, and our outlook for 2022. Karl?
Thanks, Dylan. Good morning, everyone. We delivered another strong quarter supported by continued strength in margins and expense discipline. In addition, the contribution from our recently completed acquisitions have been in line with our expectations. Volumes for the quarter were up 3% from last year. We did see some weakness creep into the end of the quarter as a result of the Omicron variant spreading in the United States.
This carried over into the beginning of January, but in the last couple of weeks, we have seen volumes returning. Turning to margins. In the fourth quarter, we delivered strong margins of $0.12 per gallon, our strongest margin quarter in 2021. Increased volatility contributed. While RBOB prices were flat from the beginning to the end of the quarter, there was over a $0.50 per gallon spread from low to high during the quarter.
In addition, we continued to see the benefit of higher breakeven margins, including when volumes softened near the end of the quarter. That same market dynamic has carried into the beginning of this year. Turning to 2022. We expect another year of solid growth, and we are confident in achieving our EBITDA guidance despite potential impacts to volumes from the Omicron variant, high crude prices, supply chain and labor issues, and general inflation, all of which we considered when we issued guidance. With respect to volumes. First quarter volumes are typically the lowest of the year, primarily due to the lower number of days in the quarter. I mentioned earlier some impact from Omicron.
Again, I would remind everyone that if volume weakness were to sustain for a period of time, that we would expect it to be offset to some extent by higher breakeven margins as we've experienced for the last two years. As mentioned on last quarter's call, we have implemented strategies to deal with longer supply chains. Even with those adjustments, supply chain challenges did contribute to lower than guided capital spend in 2021. The lower 2021 capital spend does not impact our 2022 guidance. Continuing with the subject of capital, the $150 million growth CapEx guidance provided in December will be primarily focused on expanding the fuel distribution business with some capital spent on our midstream operations.
This includes the completion of our Brownsville terminal, which remains on track for commissioning by the end of the first quarter. We're excited to bring this organically developed asset in service with our strong domestic demand as well as the export opportunities from this strategic location. In addition, we're thrilled to announce another meaningful expansion to our midstream portfolio with the deal to acquire a 23,000 barrel per day transmix processing and terminal facility in Huntington, Indiana, for $190 million. The facility is the largest transmix plant in North America and has on-site product storage of approximately 750,000 barrels. The transaction is consistent with our strategy to grow and diversify our operations through the expansion of our midstream business and will be immediately accretive. By the second year of operation, our acquisition multiple, including synergies, will be below 7x.
We expect to close the acquisition late in the first quarter or early second quarter, subject to customary regulatory approvals. Let me spend a minute and explain why we are so excited by this deal. First, many of you will remember that we entered the transmix processing business over five years ago with the purchase of operations in Euless, Texas, and Birmingham, Alabama. Those assets have been a solid contributor for us over the last five years and integrate well with our fuel distribution business. Margins are solid and transmix volumes have been even more stable than the related gasoline and diesel volumes. The Gladieux plant in Indiana is strategically located at the crossroads of several Midwest pipelines and trucking routes and will build on our existing transmix operations.
When you match up the strong underlying business with our proven operations track record, the synergy with our fuel distribution business and the attractive purchase price, this deal is a great follow-up to our NuStar acquisition we did last year. I will wrap up by stating that we are off to an exciting start to 2022. As expected, we'll continue to focus on delivering results for our stakeholders through our proven recipe of gross profit optimization, delivering on expenses, solid and efficient operations, and growing our core business. Joe?
Thanks, Karl. Good morning, everyone. We delivered very strong results in 2021. We came into the year financially healthy, and we finished the year stronger than where we started. A few financial highlights from last year. We delivered record EBITDA and DCF. Our business remains highly resilient and our capital expenditures continue to provide incremental EBITDA and DCF growth. Our LTM coverage ratio is now around 1.6x, while our leverage ratio continues to decrease towards our 4x target. Year- after- year, we continue to deliver on our guidance and demonstrate the resilience of our business model. Looking forward, we expect to have another good year. We're about 1.5 Month into the new year. Karl provided some insights into volume and margin environment we're currently experiencing, factoring in the impact of the Omicron variant.
We're learning to live with the virus, and we expect our volume to continue to grow as the year progresses. As you think about our business for 2022, keep in mind the following. The first quarter is performing in the profitability range that we expected when we provided guidance back in December. Underlying the first quarter as well as the rest of the year, industry breakevens continue to be high. We're seeing this play out as the market is passing on price increases to the rack and street.
There will be times when short-term margin pressure exists. However, we believe the floor on overall margin is higher than historical averages. Finally, we have a proven track record of optimizing gross profit in both headwind and tailwind environments. We also have a proven track record of managing overall expenses. Bottom line, we expect to have another good year.
Moving on to growth, we continue to strengthen our business by growing our midstream assets. With the future addition of the Gladieux acquisition and the startup of the Brownsville terminal, we continue to vertically integrate our business. Terminals are a critical part of the fuel distribution value chain, and owning these assets helps us vertically integrate and capture a larger portion of the overall fuel distribution margin. If you look at our midstream acquisitions and projects, they've all been part of an integrated play. The fuel distribution business helps keep the terminals at a higher utilization rate, and the terminals provide our fuel distribution business further ability to grow. Financially, we executed these transactions at very attractive valuations, especially after adding synergy. On the fuel distribution side, we'll continue to grow organically as well as capitalize on acquisition opportunities.
Let me close by stating that our current and future growth plans will build on our history of maintaining financial discipline, which means protecting the security of our distributions while also protecting our balance sheet. Operator, that concludes our prepared remarks. You may open the line for questions.
Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star two. One moment please while we pull up the questions. Our first question comes from Theresa Chen with Barclays. Please proceed with your question.
Good morning, and thank you for taking my questions. I'd love to ask a couple more questions of clarification on the economics related to the Gladieux acquisition. Maybe first going back to that 7x multiple with synergies, can you share with us what the LTM multiple was? From there, getting to 7x, are you primarily looking at cost synergies, as in if you're paying a third-party terminal right now, you can take those volumes and put them through your captive system? Or are they, you know, in part revenue related? Will you be able to sell additional product as a result of this acquisition?
Yeah, Theresa, thanks. Thanks for the question. Let me start off a little bit about the economics, and then I'll let Karl walk through a little bit more detail on the synergies here. Yeah, that seven or sub-7 is really a sub-7 once we get full synergies up and running here. There's only a very modest amount of synergies really getting us there. We're not too much higher than that on a multiple basis right out of the gate. But the synergies really are a mix of kind of the various activities that we undertake on these. Karl, you wanna give a little more detail on those?
Yeah, sure. Thanks, Dylan. If you look at it, Gladieux was operating as a separate company, so there clearly are some expense synergies we'll get just by folding that into our operation. The transmix business is really a regional business where you have transmix that is kind of aggregated through the supply chain, a mix of gasoline and diesel, and then the transmix plants separate it back out. This really serves the Midwest part of the country and it's a good fit for us. There are some commercial opportunities where, as Joe mentioned in his prepared remarks, having physical assets is a good fit with our fuel distribution business and, you know, provides a platform for us to grow. We already have some Midwest business, not as much as in Indiana.
This should be a good opportunity for us to grow that.
Thank you. I'd also like to follow up on some of Joe's comments about the first quarter outlook. I understand that, you know, demand has bounced back and remains resilient, although we are in what seems like a relentless upward tape on wholesale gasoline prices, which typically is inversely correlated with your margins. I also understand that breakeven margins, the floor is higher as a result of the dynamic that you've discussed. I was wondering, in the first quarter, you typically get that annual 7-Eleven makeup payment. Since it reflects 2021 and that's over now, can you share with us how much you expect from that and what kind of boost to the CPG that could be?
Yeah, sure, Theresa. On the 7-Eleven, as you pointed out, we get that makeup payment at the end of the first quarter. If it's really related to overall volumes, I would say it will be closer to the payment we received in 2020 than the one we received last year. As far as your comment on overall first quarter outlook, the only thing I'd add to what Joe and I said in the prepared remarks is clearly the market provides some headwinds as it rises, but there has been a decent amount of volatility along the way, which, as I mentioned, you know, contributed positively in the fourth quarter. That helps us with some of our gross profit optimization strategies, you know, deliver more solid results even in the face of some of those you know upward movement.
Thank you.
Our next question comes from Gabriel Moreen with Mizuho. Please proceed with your question.
Morning, everyone. If I can just follow up on the transmix acquisition. Can you just talk about contractually how that's structured in terms of fee-based versus commodity, any commodity sensitivity? I really appreciate that you may be hedged naturally further downstream. Also from, I guess, the transmix supply standpoint, kind of how long do the contracts run with, I think, some of these pipelines, and is there any competition in the area?
Yeah, Gabriel, thanks for the questions. The transmix processing business is. I'd say you take a margin on the processing. It's not really a fee-based, but it is really stable because most of the transmix that we purchase we purchase at a discount to gasoline and diesel. When you're actually purchasing the product, you know, on a pricing structure tied to what you're gonna make, you can imagine how that provides more stability. As far as competition, really there are, call it about a dozen transmix processing plants across the country. Sometimes transmix is processed in refineries with other feedstocks. I think naturally the business has built up to where you have these plants spread out and situated where transmix aggregates. In theory, yes, there can be competition, but really this is the premier Midwest transmix operation.
Great. Understood. Maybe if I can just follow up in terms of ask. I think the non-fuel margin for 4Q ticked up pretty nicely relative to prior quarters. Is there anything kind of going on there in the numbers?
Yeah, Gabe, I think that's a reasonable expectation.
Okay. That was all I had. Thank you.
You bet.
Our next question comes from Selman Akyol with Stifel. Please proceed with your question.
Thank you. Good morning. Just wanted to follow up on the acquisition. As I sit there and I look at it, you know, your tankage there, it's like 30x plus your throughput. Was all of that did it have a high utilization as you look back over the last 12 months or are you thinking you might be able to increase utilization on the tankage for your distribution?
Yeah, Selman. I think you look at tankage associated with transmix processing and the terminal associated with it. There's some of that where you're gonna aggregate and maybe even segregate some different flavors of transmix, maybe segregated by sulfur content. That uses some of the tankage. The rest of the tankage, yeah, as you point out, is really on us commercially to be able to optimize. I'd say, you know, I won't necessarily comment as much on the previous operation, but clearly we feel that that's a strong suit of ours is being able to take advantage of commercial opportunities. Like I said earlier, hopefully grow our fuel distribution business to all things being equal. Yeah, I think we're gonna find value in that.
All right. Just one little thing there then. Is there also room there for expansion then if you wanted to increase your tankage there?
There's some room, if that makes sense.
Okay. All right. Thank you kindly.
Thanks, Selman.
Our next question comes from Elvira Scotto with RBC Capital Markets. Please proceed with your question.
Hey, good morning. Just one question from me. Just would love your thoughts on, you know, with gasoline prices high, overall inflation, you know, kind of pinching the consumer. Would love your thoughts on, you know, how you think about, you know, potential demand destruction. I know, you know, the breakeven margins are higher, so if volumes go down for Sun, but just broader macro thoughts around that.
Yeah, Elvira, this is Karl. I'll share a few thoughts on gasoline prices and maybe inflation in general. I mean, the first one you already commented on is that in many ways the inflationary pressures are passed through in that they increase the breakeven margins. For our business, our business model, it really provides stability. The other component from our standpoint is it really is looking at it on a relative level. We think about the size and scale that we bring to the table really enables us in the face of those to maybe even capture a little bit more margin than some of the competitors.
As far as the macro outlook in the short term, we don't see a big impact on demand. Clearly, higher prices, you know, history's shown that higher prices can, you know, change discretionary travel or choices like that. We haven't seen a lot of that. In fact, we think there's some pent-up demand as we go into the spring and summer, just like we saw last year. That's what we're expecting. The real answer there is, you know, how long and how high the sustained prices are. You know, my crystal ball is not perfect in that area, but we haven't seen anything in the short term.
Great. Thank you very much.
You bet.
Our next question comes from Ned Baramov with Wells Fargo. Please proceed with your question.
Hey, good morning. Thanks for taking the question. Now that you've operated the NuStar and Cato assets for a few months, could you maybe talk about potential investment opportunities in and around these assets?
Sure, Ned. This is Karl again. You heard me mention on last quarter's call that if anything, we had identified maybe a few more opportunities since we gained ownership than we initially, you know, had planned on. That's still true. I'll say there's no sizable or material investment or opportunities. They're all incremental on the margin, but generally positive relative to what we originally assumed.
Got it. Just one clarification on the transmix deal. Is the transaction immediately accretive or accretive in the first year of operation?
Yeah, it's immediately accretive. Like I said, coming right out of the gate, you know, we're kind of sub 8x multiple before synergies. We're gonna start picking up accretion day one on this acquisition.
Great. Thank you. That's all I had.
We have reached the end of the question and answer session. I will now turn the call back over to Scott Grischow for closing comments.
Well, thanks for joining us on the call today. As always, please feel free to reach out with any questions. Have a great day.
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.