Greetings. Welcome to Sunoco LP's First Quarter 2020 Earnings 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. Good morning, everyone. On the call with me this morning are Joe Kim, Sunoco LP's President and Chief Executive Officer, Tom Miller, Chief Financial Officer, Karl Fails, Chief Operations Officer, and other members of the management team. A reminder that 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. 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 a reconciliation of each financial measure. Before I turn the call over to Tom, I will review financial and operating results for the first quarter of 2020. The partnership recorded a net loss of $128 million. This net loss included a $227 million non-cash inventory adjustment resulting from the sharp decline in the price of RBOB during the quarter. Adjusted EBITDA was $209 million, compared to $153 million in the first quarter of 2019. Fuel volumes totaled 1.9 billion gallons, down 2% from a year ago. First quarter volumes do not reflect a full quarter's impact of shelter in place orders, as these were not put into effect until the last two weeks of March for most of the states in which we operate.
Fuel margin was $0.131 per gallon, up from $0.099 per gallon for the same period last year. The year-over-year increase was supported by a favorable commodity price environment and a $13 million makeup payment under the fuel supply agreement with 7-Eleven. This payment reflects the shortfall over the last 12 months of the contract. As a reminder, we recognize any makeup payment under the fuel supply agreement at the end of the contract year, which ends on March 31st. Total operating expenses for the quarter increased to $143 million, which includes an expected $16 million credit loss expense. The increase was primarily due to the financial impact of COVID-19 and lower oil prices on our energy services business. This was more than offset by an $18 million favorable legal settlement in non-motor fuel income.
First quarter distributable cash flow as adjusted was $159 million, yielding a coverage ratio of 1.84x and a trailing 12 months coverage ratio of 1.49x . On April 2, we declared a $0.8255 per unit distribution, the same as last quarter. I will now turn the call over to Tom.
Thanks, Scott. Good morning, everyone. We delivered strong results in the quarter, providing solid financial footing as we enter the second quarter. As stay-at-home orders were enacted in March, fuel sales fell off rapidly in the last half of the month and into early April. Volumes have increased over the last few weeks. Joe will provide more context around second quarter volumes later. As Scott mentioned, fuel margins were supportive in the first quarter and remain strong in April and into May. Given the uncertainty underlying the COVID-19 pandemic, particularly around how quickly the economy recovers, we are withdrawing our previous guidance on 2020 fuel volume, margin and adjusted EBITDA. We have also revised cost guidance. We've taken a number of significant actions to reduce capital and operating costs. These are items we control.
In March, we began adjusting our cost structure to weather the negative impact of COVID-19. We challenged ourselves to be more efficient than ever to offset lower fuel volume by evaluating the timing and need of every expense item and capital project. As we announced last month, our projected 2020 growth capital was reduced to $75 million. That's down over 40% from our initial guidance of $130 million. The majority of these savings come from reduced spend on organic growth. We also reduced our projected 2020 maintenance capital to approximately $30 million, down a third from our initial guidance of $45 million. A majority of these savings come from the deferral of projects as appropriate. We have also taken aggressive steps to reduce operating expense by $55 million-$70 million between April and year-end. The majority of the cost savings have been identified. We are already executing on this plan.
A portion of the savings is based on fuel volume. We provide a range for our operating expense reduction to reflect the possible variability in how demand rebounds. These actions will lower 2020 total operating expenses to
between $460 million and $475 million, down from our December guidance of $515 million. This range includes a $16 million reserve for expected credit losses reported in the quarter. In total, these actions should save between $125 million and $140 million of cash. These swift and proactive steps strengthen our financial position. As the economy recovers, we will continue to tightly manage operating costs and capital expenditures as we see sustained higher volume. As we start the second quarter, we have ample liquidity, $1.2 billion in availability on our credit facility, and our next debt maturity is in 2023.
In addition to our history of financial discipline, the combination of strong financial results over the past 12 months, taking early and decisive action to reduce costs, and our stable income sources, such as our long-term take-or-pay fuel supply agreement with 7-Eleven, and lease income from our real estate portfolio, puts us in a sound position. Joe will now provide his closing thoughts. Joe?
Thanks, Tom. Good morning, everyone. First and foremost, our best wishes go out to those affected by the coronavirus. I would also like to thank our employees and our field distribution partners for their dedication during these unprecedented times. As Tom mentioned, we saw the impact of stay-at-home orders starting in mid-March. The peak of our volume decline occurred about a month later in mid-April. For the total month of April, volume was down roughly 40% on a year-over-year basis. The good news is that our volume is recovering. Far in May, our volumes continue to rebound, showing a decrease of roughly 30% year-over-year. As economic activity continues to increase, fuel demand will be on the leading edge. Although the exact rate of demand recovery is still undetermined, I want to reinforce key factors that position Suno to meet the current challenge.
First, we started the year on very solid footing, both operationally and financially. Our strong first quarter results further added to our foundation. Exiting the first quarter, we have ample liquidity, and our leverage and coverage ratios are outperforming our stated targets. Second, we took swift, proactive measures in March. We reduced our capital plan by $70 million, and we expect to cut expenses in the range of $55 million-$70 million. We have established a history of capital discipline and expense control, and we expect to deliver on this guidance. Finally, it's important to keep in mind that volume and margin must be viewed together. As I stated earlier, volume is down, but improving. However, on a gross profit basis, the current strength in our fuel margins has significantly offset volume decline.
Our current margins are materially above our normal margin range, as evident by our first quarter results, and we expect this to continue. We believe margins will eventually revert to the mean, but the current high volatility of crude prices has been supportive of higher margins. Our fuel profit optimization efforts have paid off in the past, and we believe it will further enhance our financial stability going forward. Let me close by saying that over the last few years, we have built a resilient business model that can weather various headwinds. We have already taken, and will continue to take, appropriate actions to manage through this challenge to ensure a stable, long-term future for Sunoco. Operator, that concludes our prepared remarks. You may open the line for questions.
At this time, we will be conducting a question and answer session. If you would 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 would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment please while we poll for questions. Our first question is from Shneur Gershuni from UBS. Please proceed with your question.
Hi, good morning, guys. Thank you today for the update. I was just wondering if I can start off with a few questions around your outlook and expectations. I appreciate that it's extremely challenging to provide guidance in this environment, especially when you're kind of focused on retail demand and so forth. That being said, I was wondering if you can talk about your margin a little bit, or cents per gallon. Is there going to be some sort of parachute impact around margins? Can it actually benefit from the lower volume environment? We do see this with other retail-oriented commodity sales, where the margin actually expands in these types of environments. I'm wondering if you can talk about your expectations on how you think this is going to play out.
Sure. Good morning, Shneur. This is Karl. As Joseph mentioned in his prepared remarks, so far in the second quarter, margins have remained above the normal margin range, probably at levels more consistent with those you saw in the first quarter. Going forward, a lot of where the margin ends up will depend on the movement of gasoline and diesel prices and the pace of recovery in volumes. Joe mentioned our fuel gross profit optimization efforts that'll help us. As you look at the margins, eventually they will revert to the mean, there are two factors that we think will provide some support to margins. First is consistent with what you mentioned. The entire industry is dealing with reduced volumes. And one way to balance that is with a higher margin, even while the prices are relatively low to the consumer.
The second point that we think provides support is the volatility. That allows the margin to be supported as well.
Okay. Just to clarify, basically because prices are very low from a consumer perspective, the savings don't get passed on as quickly. Is that the right way to clarify it?
I think of it more as if you think about the single station operator, and he's trying to manage his gross profit while his volumes are down. One way to help balance his gross profit is for him to take a little bit more margin.
Okay. That makes sense. I appreciate the color about talking about seeing some sort of a rebound and so forth, or I don't know if a rebound's the right word, but certainly a move off the bottom in terms of volumes. I was wondering if you could parse it a little bit and give us a color around states where, or service territories that you have where, lockdown orders have been lifted. Has there been a surge and then a plateau and it comes back down? Any kind of color you can give us around the shape of the demand of this bounce off the bottom, basically?
Yeah, this is Karl again. What I would say is, as you can imagine, the states that put in place the stay-at-home orders first, so maybe some of the Northeast states, at least for our geography, saw the earliest impacts on volumes. As various states have these restrictions, we have seen those local and state home orders being lifted have an impact on volumes. You can follow what's happening with those governments, and you'd have the effect that you would expect. I will say this, however, even states that have not lifted their stay-at-home restrictions, we have seen a positive trend in volumes since mid-April, where probably the largest impact was felt. The final point I'd make is that we've created in our network a portfolio of wholesale distribution income streams that has diversity both geographically and by channel.
From our standpoint, that portfolio approach has really helped us during these times. Even as some states may have been hit earlier, other states were holding up, and as they're coming back, the opposite is happening.
Okay. Just to clarify, so what you're saying is some of the states that still have shelter-in-place orders in place are still actually seeing increased volumes, and then obviously the states that have started to remove restrictions have seen an uptick as well also. With the ones that have actually removed the shelter-in-place orders and then there's been a subsequent uptick, is there a plateauing there, or is that actually continuing to trend? Are people running out, getting stuff that they couldn't do before, and then sort of going back to the pattern of sheltering in place when you look at it volumetrically, or is it actually continuing to rise there but at a slower pace?
This is Joe. Good morning. What we're seeing is, I think you hit it. Even for the states that are regardless they have shelter in place or they don't have shelter in place, we're seeing within our overall network, every week we're seeing positive signs within our whole network. That's very encouraging for us. I think as far as obviously whenever a local or state government takes it off, we're probably going to see a more exponential growth in our volume. Overall, we're seeing it everywhere.
All right, perfect. I appreciate the color today, and stay safe.
You too. Thanks.
Our next question is from Spiro Dounis from Credit Suisse. Please proceed with your question.
Hey, morning, everyone. I'd like to maybe start off on M&A and the growth strategy here. Realize some things are probably on hold right now, understandably, but just curious maybe what your latest thinking is around moving into more traditional midstream. Have any of your parameters changed there, just given what we've seen play out? Is there an opportunity here to maybe pivot back to the roll-up strategy that you guys were toying before, or are the returns in sort of the contracting strategy, the organic strategy, still really more compelling here?
Hey, good morning, Spiro. It's Joe. Hey, I think anytime there's a shock to the economy that we saw with the coronavirus, I think some companies will probably not make it, while other ones that do come out, I think some will come out relatively stronger than others. For Sunoco, we believe we'll definitely weather the storm, and we'll come out relatively stronger than most. We started this healthy. We had a really good first quarter. We added to our foundation, and we'll weather this, and we'll come out strong again. I think that's going to create optionality for us, in the future. When that happens, our strategy has not changed. We have a really strong fuel distribution business. We're going to continue to grow that, probably more on the organic side versus the M&A side, but we're not excluding that.
our goal is to become a larger, more diversified MLP, and that means that we're going to target both from a organic M&A standpoint of traditional midstream assets. for today, and I think you mentioned in your question, the focus obviously is making sound prudent decisions and executing and delivering, and that's what we're focused on right now.
Got it. Makes sense. Second one, just to follow up on the 7-Eleven contract. Maybe how the catch-up payments work. Again, I guess if I'm understanding it correctly, it sounds like here in the second quarter, probably going to see the trough in terms of the demand impact. It sounds like for the 7-Eleven contract specifically, we will see a negative volume impact there. It won't be entirely shielded. To the extent 7-Eleven, I guess, doesn't make up those volumes in third quarter and fourth quarter, you would once again receive, in this case, probably an even larger payment in the first quarter of 2021. Is that the right way to think about, I guess, how we think about second quarter and the impact there?
Yeah, that's a good summary. The take or pay is an annual gross profit take or pay with the contract year ending each first quarter.
Okay. If we see things trough a little more than expected there in the second quarter, not all is lost. We should expect that. Basically, I guess, could they recoup it in third quarter and fourth quarter, or do we actually have to wait till first quarter of 2021 to see that one big catch-up?
It depends on their volumes, but if we do sell them more volume, we absolutely can recoup some of that in third and fourth quarter, and whatever is not met then will be paid in a make-up payment in first quarter.
Okay, perfect. Thanks for the time today, guys. Do well.
Thanks.
our next question is from Gabriel Moreen from Mizuho. Please proceed with your question.
Hi, good morning, everyone. Just a question on expenses in general. Just curious of the $50 million-$75 million, how much of that may be sustainable, or is it really all just variable in terms of lower volume? I think I caught you saying something about credit, the credit charge-off this quarter. Can you just talk about what that was and whether that may be or not be an ongoing issue in the current environment?
Yeah, this is Karl. I'll start with the cost question, and then I'll let Scott answer the credit question. The way to think about our cost is, I'll put it in the context a little bit. If you think about the last few years since we did the 7-Eleven deal, we've demonstrated a strong track record of expense management, right-sizing after the 7-Eleven deal to limiting expense growth as we layered on acquisitions. With that foundation, we've put together a pretty detailed plan that, as was mentioned in the prepared remarks, has already been implemented. You pointed out that you can think of that in two buckets. The first bucket is variable expenses related to volumes. Our commitment is that as volumes come back, that the expenses relating to those volumes are going to lag any top-line growth.
We're going to control those expenses to make sure that top line comes back before the variable expense. There are significant fixed expenses that are also part of that plan. We basically evaluated every project and program that we were doing for timing and necessity. We stopped, deferred some initiatives, and challenged ourselves to be even more efficient. Really the way to think about that range is under any volume scenario this year, we will at least deliver the $55 million, and if volumes are on the lower side of our scenarios, then we'll be pushing or even surpassing that $70 million.
Hey, Gabe, let me add one thing. The $55 million- $70 million, the vast majority of it is fixed. I think that's the key point to take away. secondly, I look at the $55 million, $70 million slightly different. I really think it's more $71 million-$ 86 million because of the $16 million of bad debt reserve that we took in the first quarter. that's why it came down to $55 million-$ 70 million. The vast majority is fixed expenses that we are taking out of the business.
Got it. Oh, sorry, go ahead.
Yeah, Gabe, this is Scott. Just on the $16 million in expected credit losses expense that we took, that was really related to the impact of COVID-19 on our business and our expectations around credit losses.
Okay, you reserve for what you expect on an ongoing basis. I wanted to follow up just in terms of, I know there's been a lot in terms of gasoline demand hit on already on this call, but can you talk a little bit about diesel demand, the exposure in West Texas, just diesel demand in general and how it fits in your portfolio and what you're seeing in expectations there?
Yeah, this is Karl. I'll hit on overall diesel demand first, then I'll make a comment about West Texas. Best way to think about diesel demand relative to the numbers that Joe talked about is that we saw the declines come a little later. Where the declines in gasoline started pretty immediately when stay-at-home orders started in mid-March . Diesel didn't really start decline until the April time frame. The numbers in terms of year-over-year were about 15%-20% better than the gasoline numbers that Joe talked about. As far as West Texas goes, we've clearly seen some impacts on our diesel business in West Texas as drillers have pulled back production with the lower oil prices. Our COAM business, that you remember, we have a strong COAM business out there, has also had some impact, but has been very resilient.
A couple thoughts of color around that West Texas business. First we've operated those sites for a number of years, and so we know what bad looks like. If you think back to when crude fell dramatically in 2014, 2015, we have not seen impacts to the degree that we saw in 2014, 2015. The second point, which is most important, is I mentioned earlier, we've intentionally taken a portfolio approach to our fuel distribution business. In that portfolio, we've ensured that no single channel or geography has an overweight portion of that portfolio. That's true of our West Texas business as well, in this period of lower oil prices and lower demand, that part of the portfolio is performing a little lower. It won't materially weaken our overall.
Thanks, Karl. then last one from me, and maybe it's a little bit of a sensitive question, but there's no force majeure provisions in your contracts of any sort, and none of that is being claimed at the moment. It's really all just on a variable basis here.
Yeah. Here's what I'd say is we have good relationships with all our contracting partners, and we don't typically talk about individual customers or suppliers, but we've continued to work with all of them, and I guess I'd leave it at that.
Great. Thanks for your time, everyone.
our next question is from Chris Sighinolfi from Jefferies. Please proceed with your question.
Hey, good morning, everybody. Thanks for the time. I just had a couple of follow-ups here. Thomas, I was hoping you could give me a little bit more color on the legal settlement that you flagged in last night's release. I looked through the Q, but I couldn't find anything. I just want to know sort of what that stemmed from and if there's anything else out there that's sort of pending that could influence future results.
Chris, we don't talk about the exact details behind a settlement. My advice is that you view this as a one-timer in conjunction with the $16 million that Scott talked about a couple of minutes ago on credit. Right now, at this point in time, we don't have anything on the horizon in terms of large legal settlements.
Okay. When you mean in conjunction with the credit provisions, you just mean view both as a one-time item, not that they're related to one another. Is that right?
Correct.
Okay.
Yes, you're absolutely right. Thank you.
Okay. That's helpful. I want to go back. Spiro had asked about the 7-Eleven contract, and obviously you guys flagged last night the makeup provision from 2019 that occurred in the first quarter. Is there anywhere where we can track, let's say, as we come into year-end, where they stand in regards to the volume agreement for that calendar period? Just so we have a better sense of maybe what might be coming in the first quarter of, let's say, 2021, just given how disruptive fuel volumes might be in 2020.
Sure, Chris. Generally, we will not disclose specific counterparty volumes. Obviously, as the year unfolds and we get more information, I think during each quarterly call, we'll be able to provide a little more insight into where we are in the quarter and how it might impact our business.
Okay. I'll just wait for those then. I guess, Joe, I appreciate your comments about the improvement in demand characteristics across the franchise, both states that have relaxed their stay-at-home provisions and those that haven't. I guess, as you look at it, I think Shneur asked the question, if it's finding a new plateau and you were saying it continues to improve. Can you just give a sense, and if you offered this in prepared remarks, I apologize, where we are sort of right now versus maybe the year ago period at this point for your system? The same would be of interest if you're able to give us a sense of it for margin.
Obviously, the margin strength that you guys posted in the first quarter, I'm imagining, was anchored significantly by March, and I'm just curious, as we sort of come back down to reality as things stabilize, where we are sort of at this moment in time. Anything you can share on that would be helpful?
Sure, Chris. The impact started for us about mid-March, and the demand decline started, peaked out at about middle of April. We view our business more on a week-by-week type of numbers, because any one day, there's too much variability on a single day. When it peaked out for us in mid-April, we were roughly at about 46% year-over-year decline. That was our peak. Since that point and the comment I made to Spiro, we've seen pretty much every week a decrease in the amount of decline to the point where April ended up at 40% roughly year-over-year decline for the Sunoco network. We looked at the first 11 days or so of May, and what we're seeing right now is about a 30% year-over-year decline. That kind of supports my statement that we're seeing week over week.
We expect the second half of this quarter, the back half of this quarter, to continue to improve. As far as your second question about margins, our first quarter margins ended up north of $0.13 per gallon. Traditionally we've guided somewhere between $0.095 and $0.105. That's materially above. Obviously, crude prices and RBOB came down very rapidly in March. As Karl mentioned, he gave some, I thought, some very good commentary about how individual operators are maintaining gross profit with less margin. They're getting with more margin, they're offsetting the less volume. We see that continuing, and on top of that, we believe that crude volatility, even on a rising crude price, we think it's going to remain volatile.
People that have followed us understand that volatility has been a friend of ours when it comes to margins. We think it's going to remain volatile on crude prices, and that's why we believe that margins are going to remain robust for us for the foreseeable future.
Okay, great. If I could ask one final question. You do still have a small retail business retained in Hawaii. I'm just curious, I read a lot about what that state is doing to sort of limit travel to the islands. I'm just curious, any update, just given that it's a little bit different than the rest of your wholesale network, any update on that franchise and how you're thinking about it?
Sure. This is Karl. I guess the color I'd give is that the fuel volumes have fallen off, but are pretty in line with the numbers that Joe shared with you for overall volumes. consistent with some of the other convenience stores on the mainland, the convenience store business inside store has held up very well. I think, in every sense of the word, both from a government viewpoint and from a consumer viewpoint, those convenience stores have been essential businesses for the communities in which they operate.
Okay. Guys, thanks a lot for the time and all the extra color this morning. I do very much appreciate it.
You bet.
as a reminder, you may press star one on your telephone keypad if you would like to place yourself in the question queue to ask a question. Our next question is from Sharon Lui from Wells Fargo. Please proceed with your question.
Hi, good morning. Most of my questions have been asked and answered, but I just had one on rental income and whether you guys had to make any concessions or perhaps deferrals in base rent because of COVID-19.
Morning, Sharon. I'll take that one. It's Karl. I think, the way to think about how we've dealt with our customers, your specific questions on rent, I'll maybe make it a little more general with how we've interacted and supported our customers. There's really been three things that supported them. One is we've been pretty active in helping our customers access various government programs, such as the Paycheck Protection Program, and many of our customers have already received funds from those programs, which has definitely supported their businesses. Direct answer to your question, we have worked with some customers on a case-by-case basis to help them manage their cash flows. That's in our numbers and in our forecast.
My final thought is, I already mentioned about Hawaii, I'll make more general, is that the essential nature of these businesses, I think, has also helped many of these operators. as I take a step back, I've really been proud of how both our employees in our retail stores and particularly the employees of our fuel distribution partners, how they've really stayed in business and served the communities that they've been in, they've done a great job during these last couple months.
Thank you.
Thanks, Sharon.
Our next question is from Theresa Chen from Barclays. Please proceed with your question.
Morning. Appreciate all the comments related to volumes. I just wanted to follow up on that and maybe get a more concrete framework as we look at second quarter. You had one of your competitors pretty much guiding to 40% decline in PADD 1, and another putting out guidance about roughly 25% in mid-con. Granted, those are more midstream infrastructure related, but I imagine the volume read-through is pretty one-to-one basis on the wholesale side. When you talk about April as a month being down 40% year-over-year, the trough being down 46% in the first 11 days of May, 30% down. Is that second derivative at this point very beneficial to you such that you would expect June to be much better than May? Are we going to land in that mid-20s framework for that month?
just generally, how do you see all of second quarter shaping up, given that we're halfway into it at this point?
Good morning, Theresa. I think the way that you're looking at it from this point in time is reasonable. We have no reason to believe that the trend line won't continue to improve for us. As far as an exact number of what we think June's going to be, I think it's a little too early for that, but the trend line's definitely going in that direction. If it was 40% in April and it's 30% so far in May, we see this recovery happening. What we're not prepared to do at this particular point in time, is to give everybody an exact number of what May's going to end up, what June's going to end up. The trends are definitely positive.
I think a couple of points I want like to reemphasize from some of the previous questions. Is some of the volume that we lost from 7-Eleven, it's just a timing issue from a gross profit standpoint. That'll show up back on the first quarter of next year. also, going back to Sharon's question about real estate income. Karl mentioned that we have worked with our customers, but the results, whenever we report our numbers, it's going to be immaterial in 2020, it's going to be immaterial in 2021. if you add up our rental income business and you add up the 7-Eleven minus any timing differentials, those are solid. That's just a timing play for us. I think we got a really good base of income that we start off with, and as the economy recovers, our volume's going to recover.
Got it. Second question, just on the distribution. We've seen a wide range of both midstream entities and also companies up and down the energy value chain pare back their dividends, either by force or less by force. Just thinking about this unprecedented time of uncertainty, if things don't get better, how do you view your distribution amid all of this uncertainty and, if things don't get better, how many quarters of pain would you be able to, or be willing to stomach before you really consider that?
Yeah. I guess back in March, we put out that we're maintaining distributions. The way we looked at it was from two perspectives, where we are today and what we think the future holds for us. I think I've talked a lot about on prepared and everything else. We started off healthy, and the first quarter just made us healthier. We're starting at a really good place, where our coverage is 1.84 for the quarter, and on an LTM basis, we're basically 1.5x. We're starting at a very good place. Looking forward, I think a few things that you should keep in mind. We took swift action on a proactive basis when it comes to capital and expense.
There's about $140 million worth of cash preservation that you will see in 2020 versus the original guidance that we provided. We looked at multiple scenarios. People talk about the different shape of recovery, the V, the W, the swoosh, whatever popular terms that are out there on the rate of recovery. As a management team, we took a more of a conservative approach because we didn't want to undershoot our proactive measures. As we looked at various scenarios, we believe that as far as having a very reasonable line of sight to actually getting back to our pre-COVID levels, and while still keeping our distributions the same.
Thank you.
Our next question is from John Royall from JP Morgan. Please proceed with your question.
Hey, good morning, guys. Thanks for taking my question. On CapEx, I know you don't guide out beyond the current year, but would it be safe to say that due to some of the cuts this year, all other things equal, we could see some catch-up next year on both the growth and the maintenance side?
Yeah. This is Karl. As you pointed out, we're not providing 2021 guidance right now, but here's how I would think about it. As Tom mentioned on the prepared remarks, most of our savings on the maintenance capital side was deferral or timing related. We're going to have to do those projects eventually. We prioritize them and are focused on the most important projects this year. On the growth, that's really going to be dependent on the business and, as Joe mentioned earlier, in terms of our strategy, our strategy remains the same. It's really where we see the opportunity and to what levels. At the end of the year, we'll provide more concrete guidance on what our growth looks like for next year.
Great. Thank you. On the fuel distribution side, I think Spiro touched on this a little bit, but does this environment present an opportunity to get aggressive on M&A where maybe you're seeing some targets come under distress?
Yes. This is Joe. As I said earlier, first things first for us. We're going to manage this challenge and make sure that we return at or better than our previously stated targets when it comes to coverage and leverage. By doing that, I think that's going to put us in a very good place. At that point, we're going to have relative strength, and I think deals that are available today, I think they might even be better in the short run or mid-run. At that time, we'll take a look at it, and we'll take advantage of it.
Great. Thank you.
Thank you.
Thanks.
We have reached the end of the question and answer session. I will now turn the call over to Scott Grischow for closing remarks.
Well, thanks everyone for joining us on today's call. Should you have any additional questions or would like clarification on any of the topics we discussed, our team will be available to take your calls. We'll talk to everyone soon. Have a great week.
This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.