Sunoco LP (SUN) Q4 2020 Earnings Call Transcript

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Sunoco LP (SUN -0.46%)
Q4 2020 Earnings Call
Feb 18, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Sunoco LP's 2020 Fourth Quarter Earnings Conference Call. [Operator Instructions] A brief question-and-answer session will follow the formal presentation. [Operator Instructions]

It is now my pleasure to introduce your host, Scott Grischow, Vice President of Investor Relations. Thank you, sir. You may begin.

Scott Grischow -- Vice President of Investor Relations and Treasury

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 Operations Officer; Dylan Bramhall, Chief Financial 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 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 a reconciliation of each financial measure.

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.

I will now turn the call over to Dylan to discuss the full year results.

Dylan Bramhall -- Chief Financial Officer

Thanks, Scott. 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.

With that, I will now turn the call over to Karl to walk you through some additional thoughts on fuel gross profit and expenses. Karl?

Karl Fails -- Chief Operations Officer

Thanks, Dylan. Good morning, everyone. 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. Before I turn it over to Joe to share some closing thoughts, I just want to reemphasize that the fundamentals of our business remain strong. We continue to add volume to our network. Margins are solid, and our expense focus falls directly to the bottom line.

Joe?

Joseph Kim -- President and Chief Executive Officer

Thanks, Karl. Good morning, everyone. 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.

Let me close by thanking our employees and our field distribution partners for their continued dedication and keeping Sunoco strong and ensuring a stable long-term future.

Operator, you may open the line for questions.

Questions and Answers:

Operator

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Shneur Gershuni with UBS. Please proceed with your question.

Shneur Gershuni -- UBS -- Analyst

Hi. Good morning, everyone. Glad to hear you guys are all safe and sound. Just wanted to first start off with this CPG margin, I guess results for the quarter. If I just -- first to clarify, I just want to understand correctly, basically, the normalized margin is higher than what was reported because of the lumpy type unevenness that you had during the quarter. Is that kind of the message that you were trying to get across in your prepared remarks?

Karl Fails -- Chief Operations Officer

Yes, Shneur. Good morning. This is Karl. I think that's a fair way to look at it, which is why we shared those one-time items.

Shneur Gershuni -- UBS -- Analyst

Okay, perfect. And so, now when I think about the fact that like, when I adjust that back out, you're talking over $0.10 here for the quarter. Obviously, that's been a strong margin and that -- that's kind of been a story all year. How should we be thinking about it kind of on a go-forward basis? I know that you've sort of said you expected to be higher and so forth, but is it more a scenario that it stays at that level until volumes returned to a more normalized level? And then, we run the risk of market share type issues or competitors trying to compete on market share and those margins start to compress. Or do you feel that the behavior has changed for the industry in general?

Karl Fails -- Chief Operations Officer

Yes. I think both of those scenarios that you layout are possibilities. As we look forward and we think about that, in my prepared remarks, I talked a little bit about, and Joe talked about, we have these impacts of the current market conditions. So obviously in the fourth quarter and so far in the first quarter, you have these moving commodity prices and tighter margins. I talked about a floor somewhere in that $0.095 to $0.10 range. I think that is applicable and sales volumes returned to 2019 levels and then after that, we'll see. One of the things we think about though is that there continue to be inflationary pressures that will continue to push on this breakeven. So even once we returned to 2019 volumes, the breakeven might stay higher.

Shneur Gershuni -- UBS -- Analyst

Okay. That makes sense. And do you get a sense that there could be a behavior change? Everybody is sort of seeing the stronger margins, or that's total speculation at this point?

Karl Fails -- Chief Operations Officer

I think it's probably too early to tell, but I think it's a fair thought and we'll see how the market shapes out.

Shneur Gershuni -- UBS -- Analyst

Okay. And then a follow-up question, toward the end of your prepared remarks, you sort of -- you had some very good cost performance in 4Q and you did say that you applied that some of it was temporary in nature, but you had strong cost performance all year and you've made some difficult decisions. As we sort of think about, on a go-forward basis, a return to some new normal level, whatever that maybe, I would expect that there would be some variable costs that would come up as well too. But are you able to handicap how much of the cost savings that you achieve during 2020 that you'll be able to permanently capture on a go-forward basis? Is it 50%, 80%, just some sort of handicap, if you may?

Dylan Bramhall -- Chief Financial Officer

Yes, Shneur. Hi. This is Dylan. Instead of giving you an exact number here, one thing I kind of want to point out is when we look at expenses, we always put our guidance for annual level quarters. There's timing differences, so individual quarters can be a little bit lumpy. So obviously, in the fourth quarter, we had really strong performance. We had some timing issues that made that quarter a little bit lower than what our real run rate would be.

As to point out, we cut significant costs in 2020, and we expect most of that to carry over into 2021 even with our expectations for higher volumes. So if you look at the guidance rate of $440 million to $450 million, that's a little over $110 million a quarter. And I think that will be fairly consistent through the year, with a little bit of upslope as the variable costs increase. But really if you look back at what we achieved in 2020, we expect to the vast majority of that to carry over.

Shneur Gershuni -- UBS -- Analyst

Okay. And then my question is more thinking about return to normal, so let's say thinking about '22, and I'm not asking for specific guidance, but are you able to capture most of those costs even into '22 type of environment? Outside, it's like a little bit of inflation related to variable costs.

Karl Fails -- Chief Operations Officer

Yes. This is Karl. The only thing I'd add to what Dylan said about '22 is once we return to 2019 volumes, we're clearly going to be below our 2019 expense level. So yes, the vast majority of it, we're going to be able to carry forward.

Shneur Gershuni -- UBS -- Analyst

Okay, perfect. That's what I was looking for. Thank you very much, guys. Appreciate it. And stay warm and hope you maintain power.

Karl Fails -- Chief Operations Officer

Thanks, Shneur, you too.

Operator

Our next question comes from the line of Theresa Chen with Barclays. Please proceed with your question.

Theresa Chen -- Barclays Capital -- Analyst

Good morning. Thank you for taking my questions. I guess first, just going back on the cent [Phonetic] per gallon discussion, I understand Karl, but you mentioned the 7-Eleven make-up payment, which I believe makes up for any of the deficiencies related to your gross profit agreement with the volumes having ramped up since the initial start-up time and 2020 being a pretty down year as a result of the demand destruction. Do you have any idea of what this boost will be on come first quarter 2021?

Karl Fails -- Chief Operations Officer

Yes. Hi, Theresa. On 7-Eleven, we're not going to disclose details about their volumes, but it is fair given all the factors you highlighted for 2020, we're anticipating that makeup payment to be higher than what it was last year.

Theresa Chen -- Barclays Capital -- Analyst

Okay. And to your comments about the $0.095 to $0.10 floor that does not -- that would not include the makeup payment, correct, which would have no associated volumes with it?

Karl Fails -- Chief Operations Officer

That's right.

Theresa Chen -- Barclays Capital -- Analyst

Okay. And given that this quarter was relatively noisy on the CPG front, just with the timing differences and one-time noise. Is there any of that expected in first quarter 2021 that we should watch out for?

Karl Fails -- Chief Operations Officer

I think 7-Eleven is the one item that we would anticipate in Q1, which is why we've called that out.

Theresa Chen -- Barclays Capital -- Analyst

Okay. And then turning to volumes, so I just wanted to clarify some of your -- Joe's comments. It seems like things have the underlying trend that has improved since October, but still not quite back to pre-pandemic levels. And clearly, we've seen the extreme weather conditions likely impacting volumes across your footprint. Any way to triangulate where that kind of shakes out as a baseline run rate from the 1.829 billion [Phonetic] in the fourth quarter of '20 to first quarter of 2021?

Karl Fails -- Chief Operations Officer

Sure. If you think about our guidance for 2021, that 7.25 billion to 7.75 billion, that is pretty wide range, right? And that represents, somewhere between 5% and 12% off of our 2019 levels. So, we obviously reported 12% down in -- for the fourth quarter. And I provided some more context on that in my prepared remarks. As we've moved into the first quarter, just to give you a flavor, our volumes were off around somewhere between 9% and 10% in January. So, that's a little better performance.

As it directly relates to this weather event, clearly, that's had some impact in the areas where we operate, particularly because this winter weather's been so extensive across the south and other parts of the country. But it really is a temporary demand event. So, I wouldn't expect that that would change the run rate, might have a little bit of an impact particularly in Texas here this week, but we should still firmly be within our volume guidance ranges.

Theresa Chen -- Barclays Capital -- Analyst

Thank you very much.

Karl Fails -- Chief Operations Officer

Thanks, Theresa.

Operator

[Operator Instructions] Our next question comes from the line of Gabe Moreen with Mizuho. Please proceed with your question.

Gabriel Moreen -- Mizuho -- Analyst

Good morning, everyone. Maybe if I could just stick on the near-term weather impacts here. Just wondering if you can maybe help us frame with so much refining capacity offline here sort of what the impacts here, or [Phonetic] sort of on your supplies and what impact they may be having on the business? Is that temporary? And how you look the refining capacity being down is really matched by demand being down on the other side? So it's not a concern. So if you can just talk us about kind of some of the supply interruptions that are out there in the market right now.

Karl Fails -- Chief Operations Officer

Sure. I mean, I'll start off Gabe with -- as members of the community ourselves, we've been living through some of these challenges. So first, our primary focus is to try to get fuel wherever we can to support those who need it. Obviously, there've been challenges with terminals shutdown, as you mentioned, refinery shutdown, and some roads challenged to move trucks on. But here's what I'd say, there are a couple of impacts in the short-term. Obviously, it's providing upward pressure on prices and margins. I mentioned in -- with Theresa's question, it has had some demand impact. That's a temporary event. The refinery shutdowns have clearly taken some supply off the table. But if you look at our network, we're the largest independent distributor of fuel in the United States.

And so, we have a lot of different supply chains, a lot of different suppliers. We have our own fleet of trucks. We use third-party partners to move trucks around. So in some ways, this is different than say a hurricane, but in some ways, there's some similarities where we work through it and we have flexibility in our supply chains. Clearly, there's been some impacts. We'll work through them over the next few days.

And from an overall market impact, it really depends on how quickly these refineries come back up and whether the supplies offline for longer than we have the demand impact and that'll be reflected in the markets.

Gabriel Moreen -- Mizuho -- Analyst

Got it. Thank you. And then maybe if I can shift gears a little bit to talking about sort of the -- where the growth capex is going this year, if there's anything in particular you would kind of call out within the different buckets of growth capex you're going to be spending in '21?

Karl Fails -- Chief Operations Officer

Yes. The number that we put out on growth capex in our guidance, the vast majority of that is really on our fuel -- on organic growth in our fuel distribution business. There's a little bit in our midstream business, but it's primarily on the field distribution side signing up new customers and generally those are seven to 10-year contracts and we put a little bit of capital in upfront to help them rebrand their stations. That's the majority of it.

Gabriel Moreen -- Mizuho -- Analyst

Got it. Okay. And then Joe, you mentioned M&A being patient. Just curious as always for your thoughts in terms of how you kind of characterize the M&A landscape at the moment?

Joseph Kim -- President and Chief Executive Officer

Hi, Gabe. I think first thing is, our strategy hasn't changed. First, I think we're in a good position to capitalize on any opportunities that come about. Secondly, we're focused on both fuel distribution and a product terminal, and we're going to approach it both from an organic and M&A standpoint. The question really for us right now is evaluating valuations and seeing where we have the most realizable synergies. That's going to really guide us on which ones that we pursue.

As far as overall landscape, for obvious reasons, the chatter as well as real processes are significantly higher in 2021 than 2020. And again, from our standpoint, we're in a good position. We're going to be patient. I think Dylan highlighted in our financial discipline, and whenever these opportunities come up, we have significant synergies and we think the valuation is correct reflected in what valuations are overall. And then we'll be in a good position to capitalize on it.

Gabriel Moreen -- Mizuho -- Analyst

Got it. Thanks, Joe.

Joseph Kim -- President and Chief Executive Officer

Thank you, Gabe.

Operator

And our next question comes from the line of Spiro Dounis with Credit Suisse. Please proceed with your question.

Spiro Dounis -- Credit Suisse -- Analyst

Hi. Good morning, guys. Just a few quick follow-ups and maybe starting off with Joe that last question there and thinking about the financial discipline and funding that growth. I think as I look at some of the math on what you guys have guided, you get to the end of the year, you've got a little bit of wiggle room on free cash after the distribution. But as you go sort of beyond the $120 million, you've more or less guided to, it would seem like you're going to have to lean on that balance sheet a little bit more to fund growth beyond that or M&A beyond that. So just curious, as you define financial discipline or being disciplined, how are you thinking about leaning on that balance sheet potentially levering up a little bit this year, even if temporarily in order to achieve that?

Dylan Bramhall -- Chief Financial Officer

Yes. Hi. This is Dylan here. I think when we look at that leverage target, we are still committed to the 4 times level. That said, there is a little bit of flexibility around that number, not significantly, but in periods, where there aren't the opportunities there for growth, we'll trend a little bit below that and opportunities where there are significant times -- times when there's significant growth opportunities at good attractive multiples that are very accretive to unitholder value. We may trend slightly above there. So depending on what we're able to capitalize on this year, I still think that we plan on targeting being right around that 4 times.

Spiro Dounis -- Credit Suisse -- Analyst

Okay, got it, and I appreciate that, Dylan. And then sticking along this theme if we could, just thinking about the opportunity set out there that the December deal that terminal was fairly small in size. Sounds like it's pretty accretive, I think within the first year. But in terms of scaling up and doing something larger, are those opportunities out there at all? And then just curious as you go to bid on these assets, what kind of competition are you running into? Is private equity showing up? Is it others like yourselves? Just curious what that landscape looks like.

Joseph Kim -- President and Chief Executive Officer

Hi, Spiro, this is Joe. I'll take the first part of your question about size. Again, I think we lay out our -- kind of our financial parameters and I go back to valuation and realizable synergy, if it's a small one, like the one that we did earlier this -- closed down earlier this year. That's great too. If there's a bunch of those out there, we'll go out there and roll those up. But if there's something bigger, if it fits into our financial parameters, we'll pursue those too.

As far as your question about competition, too early to tell because there hasn't been a large, significant transaction in the more midstream space when it comes to product terminals. With the landscape, my prediction would be that valuations are going to be more attractive to buyers than to sellers. As far as the number of infrastructure funds and other participants, I would believe that, that universe is probably smaller. As far as strategics, I think we're positioned as well as anybody because we have a natural short [Phonetic] with our field distribution footprint. And we talked about this in the past.

We really do view fuel distribution and product terminals as really interlinked sectors. So the reason why we're looking at product terminals is because we got a huge fuel distribution short and that's what the real synergies come from. And I think we've shown over the last few years when it comes to being very disciplined on the expense side, we feel very confident that when it comes to SG&A synergies, we can deliver on that.

Spiro Dounis -- Credit Suisse -- Analyst

Got it. Okay. Thanks, Joe. Last one, if I could quickly sneak it in. Your general partner recently launched an alternative energy group, obviously, embracing energy transition and the ESG theme. Do you anticipate doing something similar or finding ways to work with them in that group on projects to maybe do more on renewable diesel or even purchase renewable power at some of your facilities?

Karl Fails -- Chief Operations Officer

Yes. Spiro, this is Karl. I think we're not necessarily part of what Energy Transfer's announced, but obviously, just like in the past where we've done commercial deals with them, even like the J.C. Nolan joint venture or with other partners, we absolutely are looking at the landscape of different opportunities in the renewable space. But it will have to make sense for our business and be complementary to what we do. So I think, like renewable diesel would probably make more sense in us going into the power sector, for example. I'm not announcing anything here. I'm just talking about things and how we're thinking about it. So yes, it's always on our radar, and we'll look for opportunities in the future.

Spiro Dounis -- Credit Suisse -- Analyst

Got it. I appreciate all the color. Thanks guys. Be well.

Karl Fails -- Chief Operations Officer

Thanks.

Operator

Our next question comes from the line of John Royall with JPMorgan. Please proceed with your question.

John Royall -- JPMorgan -- Analyst

Hey. Good morning, guys. Thanks for taking my question. Most of mine were asked, but I just had one on the growth capex. You talked about it kind of in nature, but in terms of the absolute level, it leads to $120 million. It looks like it's a bit high relative to pre-2020, but if I average it with 2020, it's kind of roughly at 2019 levels. So my question is, should we think about the 2021 guide as having a lot of catch-up in it from projects deferred in 2020? Or is it more of a structural pickup in activity?

Joseph Kim -- President and Chief Executive Officer

Hey, John, it's Joe. I think the way you should think about it is that, we view M&A and organic kind of one in the same. They kind of compete against one another. And if you kind of go back to let's say, pre-2019, 2018, we did a lot of fuel distribution acquisition roll-up opportunities. So that took a portion -- a larger portion of our capital. As we fast forward to 2019, 2020 and 2021, I've mentioned previous calls that we have the organic growth capability that we didn't have two or three years ago. So they're competing against one another.

So if we find M&A deals and fuel distribution, that is just as attractive or more attractive than our organic growth. We have the flexibility to dial down our organic growth and flip over to an M&A strategy. But if we don't have attractive M&A opportunities in the fuel distribution, we'll just dial up our organic growth opportunities. So, I think it's flexible. So going forward, I think -- probably the way to view us is that we have based on our free cash flow within our financial parameters, we'll come up with a growth capital budget. But at the same time, we have the flexibility to scale it up or scale it down appropriately based on opportunities.

John Royall -- JPMorgan -- Analyst

Great. Makes a lot of sense. Thank you.

Joseph Kim -- President and Chief Executive Officer

Thank you.

Operator

We have reached the end of the question-and-answer session. Mr. Grischow, I'd now like to turn the floor back over to you for closing comments.

Scott Grischow -- Vice President of Investor Relations and Treasury

Yes. Thanks everyone for joining us today. As usual, if you have any follow-up questions, please feel free to reach out to me. Thanks and have a great day.

Operator

[Operator Closing Remarks]

Duration: 36 minutes

Call participants:

Scott Grischow -- Vice President of Investor Relations and Treasury

Dylan Bramhall -- Chief Financial Officer

Karl Fails -- Chief Operations Officer

Joseph Kim -- President and Chief Executive Officer

Shneur Gershuni -- UBS -- Analyst

Theresa Chen -- Barclays Capital -- Analyst

Gabriel Moreen -- Mizuho -- Analyst

Spiro Dounis -- Credit Suisse -- Analyst

John Royall -- JPMorgan -- Analyst

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