Q4 2019 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to suburban propane full year in fourth quarter fiscal 2019 financial results at this point all the participant lines Arnold listen only mode. There will be an opportunity for your questions and instructions will be given at that time, if you need any assist.

Since during the call. Please press star Zero, and operator will assist you offline as a reminder, today's call is being recorded.

And ladies and gentlemen, this conference call contains forward looking statements within the meaning of section 21 E of the Securities Exchange Act of 1934 as amended relating to the partnership's future business expectations, and predictions and financial condition and results of operations.

These forward looking statements involve certain risks and uncertainties. The partnership has listed some of the important factors that could cause actual results to differ materially from those discussed and such forward looking statements, which I referred to as cautionary statements in its earnings press release, which can be viewed on the company's website also.

Subsequent written and oral forward looking statements attributable attributable to the partnership or persons acting on his behalf are expressly qualified in their entirety by such cautionary statements that was that being said I'll turn the call now over to Mr. Davin Dambrosio, Vice President and Treasurer. Please go ahead Sir.

Thank you John good morning, everyone.

Thank you for joining us this morning for fourth quarter and fiscal 2019 full year earnings conference call.

Joining me this morning, our Mike Stivala, our President and Chief Executive Officer.

Mike Kuglin, Chief Financial Officer at Chief Accounting Officer.

And Steve Boyd, our Chief operating officer.

This morning, we will review our fourth quarter fiscal 2019 full year financial results along with our current outlook for the business.

As usual once we've concluded our prepared remarks, we will open the session question.

Our annual report on Form 10-K for the fiscal year ended September 28 2019.

Which contains additional disclosure regarding forward looking statements and risk factors will be filed on or about November 27.

Once filed copies may be obtained on the Investor overview page of the partnership's web site at suburban propane Dot com.

By visiting the partnership's filings with the FCC.

Certain non-GAAP measures will be discussed on this call. We have provided a description of this measures as well as discussion of why we believe this information to be useful in our form 8-K, which was furnished to the FCC. This morning.

Form 8-K will be available on the Investor Relations section of our website.

At this point I'd like to turn the call over to Mike Stivala for some opening remarks, Mike.

Thanks, seven and thank you all for joining us this morning.

We ended fiscal 2019 with another solid quarter reporting an improvement in adjusted EBITDA of $1.4 million.

In fact, we're pleased to say that for three out of the four quarters in fiscal 2019, we reported earnings that were higher than the prior year.

For the full year, adjusted EBITDA of $275 million was $8 million or two and 2.8% lower than the prior year, primarily from a very erratic weather pattern during fiscal 2019.

In which we experienced unseasonably warm temperatures during the most critical heating months of December and January .

As well as from challenges with Hurricanes in the southeast.

And wildfires in California.

Once again, our operations personnel did an outstanding job managing margins than expenses, providing exceptional service to the customers and communities, we serve and in executing our growth and retention initiatives.

Like I do every year at this time, let me reflect a moment on some of our key accomplishments for this past fiscal year.

We delivered nearly 50 million of excess cash flows and report a strong distribution coverage ratio of 1.27 times.

We utilize the excess cash flows and a balanced way.

Investing more than $20 million in three high quality propane businesses and attractive markets. While also focusing on our debt reduction initiatives by paying down $30 million of total debt.

We improved our overall leverage ratio to 4.34 times at the end of fiscal 2019.

We also continued to foster several new market expansions and attractive growth markets that were previously just outside our delivery radius and identified a number of additional markets that can benefit from our expansion efforts.

We made further investments in new technologies that will improve efficiencies enhance the overall customer experience and provide enhanced revenue opportunities.

We also have asked a number of initiatives around recruiting and career development to attract and retain high quality people as true ambassadors of our great brands.

And with our increased focused on our time honored suburban propane brand, we launched the brand refresh called the three pillars of the suburban propane experience.

The first pillar.

And propane commitment.

Focuses our value proposition for our customers in the communities, we serve and in particular, the reliability dependability of flexibility in our commitment to excellence in customer safety of service.

The second pillar the suburban cares pillar highlights our devotion to the safety and career development of our people as well as our philanthropic activities at the local level and nationally with relationships like our partnership with the American Red Cross.

And the third pillar the go green with suburban propane filler underscores our commitment to promote the inherent clean burning qualities of propane as reversal energy solution and our focus as a partnership towards supporting and building a sustainable future.

So all in all this was another great year for suburban propane as we continue to make significant strides towards our stated goals of strengthening our balance sheet.

That said our strategic growth initiatives.

Vesting in our people and positioning the partnership for long term sustainability and an ever changing energy environment.

A little later I'll provide some closing remarks. However at this point I'll turn the call over to Mike Kuglin, who will discuss our full year fourth quarter results in a little more detail Mike.

Thanks, Mike and good morning, everyone.

I'll start by focusing on a full year results give a little color in the fourth quarter toward the end of my remarks.

To be consistent with previous reporting I am excluding the impact.

Unrealized noncash mark to market adjustments on derivative instruments used in risk management activities.

Which resulted in an unrealized loss of $8 million in fiscal 2019.

Compared to an unrealized gain of $300000 in the prior year.

Additionally, fiscal 2018 include a loss of $4.8 million from the sale certain assets and operations and a non strategic market or the propane segment.

Excluding these items net income for fiscal 2019 amounted to $76.6 million or $1.24 per common unit.

Fair to $81 million or $1.32 per common unit in the prior year.

Adjusted EBITDA for fiscal 2019 amounted to $275 million.

Fair to $283 million in the prior year.

Retail propane gallons sold the fiscal 2019 were 426.7 million gallons.

Which is 3% lower than the prior year.

While average temperatures across our service territories were 1% cooler than the prior year.

8% warmer than normal.

Fiscal 2019 heating season present, it very erratic weather pattern.

Cooler temperatures were concentrated in the early and latter part to the heating season, which generally have less of an impact and customer demand.

Heating degree days in the critical months of December and January .

Average temperatures during the peak demand months of December and January or 4% and 10% warmer than the same months in the prior year.

Additionally, the weather pattern for April 2019 was considerably different from the unusually cold weather that we experienced in April 2018.

As average temperatures for the month or 33% warmer year over year.

This warmer weather pattern in fiscal 2019 negatively impacting customer demand for heating purposes.

For commodity perspective, wholesale propane prices trended lower throughout the year, reflecting higher you with inventory levels due to continued growth production that outpaced demand.

Overall average propane prices basis, Mont belvieu decreased 32.8% compared to the prior year.

Total gross margins of $753.7 million for fiscal 2019 increased $2.2 million compared to prior year.

Primarily due to solid margin management and declining product cost environment.

Partially offset by lower propane volumes.

With respect to expenses.

Combined operating Andina expenses increased $10.2 million or 2.2% compared to prior year.

Primarily due to higher payroll and benefit related costs and higher vehicle repairs and maintenance costs, partially offset by lower bad debt expense.

Net interest expense of $76.7 million for fiscal 2019 decreased $700000 or 1% compared to prior year, primarily due to lower average outstanding borrowings under our revolving credit facility during the year, partially offset by higher short term benchmark interest rates.

As Mike mentioned, we use excess cash flows to reduce total debt.

$30.1 million in fiscal 2019.

Total capital spending for the year was $35 million, representing an increase of $2.1 million compared to prior year.

The increase reflects the purchase of properties to support our customer base growth initiatives.

Purchases of tanks in cylinders in support of new customer installations, as well as investments in new technologies equipment utilized by our field personnel.

The capital spending in the three acquisitions that Mike mentioned in his opening remarks were funded with internally generated cash.

Turning to our fourth quarter results.

Consist with the seasonality of our business, we typically reported net loss in the fourth quarter.

With that being said, we reported a net loss of $51.1 million or 82 cents per common unit.

Which was essentially flat compared to fourth quarter fiscal 2018.

Excluding the impact of unrealized noncash mark to market adjustments on our commodity hedges, which resulted in an 800000 dollar unrealized loss in the fourth quarter fiscal 2019.

Compared to a $1.7 million unrealized gain in the prior year.

Adjusted EBITDA for the fourth quarter fiscal 2019 was a loss of $1.4 million.

Letting an improvement of $1.4 million compared to the fourth quarter of the prior year.

Total gross margins increased $7.7 million or 7.3% due to strong unit margins.

Combined operating and DNA expenses increased $6.2 million or 5.8%.

Primarily due to higher level of general insurance expense.

Turning to our balance sheet.

From a leverage perspective, the debt reduction during the fiscal year resulted in our consolidated leverage ratio improving to 4.34 times as ended the fiscal year.

We were we remain well within our debt covenant requirements and continue to be focused on utilizing excess cash flows in the balance fashion to strengthen the balance sheet and invest in strategic growth.

We continue to make good progress on our stated goal to achieve a target leverage profile below four times.

From a liquidity position, we have ample borrowing capacity under our revolver to fund anticipate at working capital needs for the upcoming heating season and to support our strategic growth initiatives.

With that I'll turn it back to Mike.

Thanks, Mike.

As announced in our October 24th Press release, our board of Supervisors declared our quarterly distribution of 60 cents per common unit in respect to the fourth quarter fiscal 2019 that equates to an annualized rate of $2.40 per common unit.

The quarterly distribution was paid this past Tuesday November 12, two our unitholders of record as of November 5th.

So in closing as I've stated fiscal 2019 was another year in which we continue to advance our strategic growth activities.

And set ourselves apart within our industry.

Our business is very well positioned both operationally and financially to continue to build on the successes for the next phase of growth for suburban propane and our valued unit holders.

We're very excited to start a new fiscal year and for the start of a new heating season.

We have a number of exciting new technologies and initiatives to advance in fiscal 2020.

And as always we're keenly focused on delivering the most in total value to our customers and local communities.

Finally, im extremely proud of the more than 3300 employees of suburban propane.

Carrying out our commitment to outstanding service to the customers and communities we serve.

Executing on our customer base growth and retention initiatives and keeping safety.

As our highest priority at all times.

As always we appreciate your support and attention this morning.

Now I'd like to open the call up for questions and John If you wouldn't mind, helping us.

Certainly and ladies and gentlemen, if you would like to ask your question. Please press one zero on your telephone keypad you can withdraw your question anytime simply by repeating the ones here command, we ask for using the speakerphone. Please pick up your handset before press in the numbers. Once again VM question. Please press one zero.

The moment.

Take our first question just as a reminder, if your question. Please press one zero at this time.

And first one line of and Jeremy Tonet with JP Morgan. Please go ahead.

Hey, good morning, this is a timeline for Jeremy.

As we kind of moving in November I was wondering if you could talk maybe a little bit about.

Some of the activity you're seeing across your footprint as we kind of move closer towards the.

Hard to heating season.

Well certainly.

The first couple of weeks here in November .

We've seen some significant weather come into good parts of the country I think I saw the if you looked at the the map yesterday it seemed as though there was.

More purple throughout the United States than anything else, which is always a good.

Good sign a very cold temperatures.

But similar to last year you just you don't know this is a little early the start.

Building expectations for what that means for the whole heating season.

Certainly, it's creating a lot of good demand early on here.

But we still have a lot of heating season to go and from our perspective.

We are extremely well prepared to to meet the demand and.

As well as to be there for our customers in the most extreme circumstances that may or may not arise as the heating season progresses.

Okay and then in your prepared remarks, you noted a couple of new opportunities that were outside of your rate. If you talk a little bit more about that.

Yes, we have we've done we've talked about this for a couple of years now we've had an initiative.

New Greenfield expansion activities, where we we look outside of our.

Our story, we typically say that.

One of our locations can have a delivery radius of upwards of 50 to 75 miles.

From their location, but we have parts of the math in areas in the West coast in the southeast the mid Atlantic on virtually every territory that we have.

In the country is working on some form of market expansion activity and really what it means if we're not if we don't have a significant presence because we're not physically located in them in a market that we believe.

As a good propane market that has demonstrated.

But potential growth opportunities.

Just for propane and generally in general and we're not strong or were not physically present in that market.

We go in and penetrate with some marketing.

We build up a bit of following in terms of customer base and as we get to a certain critical mass we start looking for property.

Two how's a location and depending on how fast we can ramp up the customer base that location.

And can become a standalone location with of full staff or could be a satellite of one of our other locations that are relatively close by and.

So those are a lot a lot cleaner and cheaper ways of.

Expanding our our reach without.

Outpacing the multiples of an acquisition not to say that acquisitions are additional way to grow we did three good quality acquisitions, we're happy to say, we just closed another one last week.

And we have a couple more of that we're we've been working on so theres a good pipeline of good quality businesses that we can fold into our mix and and welcome to the suburban propane family.

I just along those lines as you look to a target other opportunities as we think about next year with leverage at four three what are you. What are you looking too is that a good leverage target.

And how do I guess, how do you balance that with with growth opportunities.

Yes, certainly it's a great leverage target, particularly when you compare to our peers in the propane industry.

So we have we have.

Full comfort in running our business at that level as as you know we've been here for a long time running this business.

And.

We generally have always had a balance sheet first.

Mentality, meaning we run the business with a strong balance sheet.

We're conservative in our nature. So we do have a stated target of getting below four times on a leverage profile perspective.

We can achieve that through a balance of growing EBITDA and.

Investing in reducing the balance sheet with excess cash.

I think this year was a great example of that we had $50 million than we bought three businesses and spent 20 million of that excess cash flow.

Funding those acquisitions, and we had $30 million a debt reduction so.

I think thats, a great balance and.

But as far as living at 4.3.

We're fully comfortable at that level were well within our covenant requirements and as I said.

As as has been the case for many many years that puts suburban propane as the strongest balance sheet profile among our peers.

Great that's it for me.

Great. Thanks, a lot.

And ladies and gentlemen, just quick reminder, if you do have a question. Please press one zero.

Well the line of a Sharon Lui with Wells Fargo. Please go ahead.

Hi, Good morning America.

Hi, Sharon.

Thanks historically.

The expansion.

Dan penalties in the grid had to rally.

Demand out there.

Hi, Andrew has outlook changed at all.

All.

Regulatory hurdles pipeline based I guess, especially in the northeast having seen that impact demand for pentane at all.

Yes, I think yes, but first of all natural gas expansion has occurred for for decades and is propane has always found a way to continue to maintain a good as good solid market share for the heating market.

Because.

Generally expansion also represents population growth and.

Expansion of to have.

Communities outside of the main lines, where natural gas will run anyway. So.

While natural gas expansion has always been challenged or risk of potential risk for the industry.

The industry has always done a good job.

Maintaining a good share as far as now I think you're absolutely right.

I think weve.

You are starting to see a lot more pressure from.

Environmentalist, particularly in the northeast.

Which is helping the.

Yes, helping our situation.

By putting some pressure on natural gas expansion and also I think what I mentioned in our opening remarks, and we've talked about in our last call. I think you. Even asked this question in the last call Bauer go Green initiative, one of the things that were that is his absence.

True is propane is one of the cleaner burning fossil fuels.

Out there so I think theres, a tremendous opportunity for us than the industry to make sure that propane.

Is better understood.

By educating legislators and consumers about the positive attributes that propane provides for those that are seeking.

Reduction of greenhouse gas emissions.

And.

No thats going to be one of our one of our common themes going forward is to make sure that we're doing our part to promote.

And educate those that.

Want a lot out decarbonize.

The the energy footprint.

Because we believe that propane is an excellent.

Source of energy that can contribute to a sustainable future and if nothing else is an excellent transition to.

A future that.

Has more renewable energy sources, perhaps in the mix.

Okay. Thank you.

Thank you.

And with no further questions in queue I'll turn it back to the company for any closing comments.

Well, great John I appreciate your help I appreciate everybody's attention today I wish everybody a happy holiday season.

Stay warm be safe and.

We will look forward to speak into in the new year.

Sometime in the early February as we.

We finished up our first quarter results. So thank you all.

Ladies and gentlemen, this conference is available for replay it starts today at 12, P.M. Eastern and will last until Tomorrow November 15th at Midnight you may access the replay at anytime by dialing 8662 zero 710 for one or four zero to 970.

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