Q3 2020 Suburban Propane Partners LP Earnings Call

[music].

Good morning.

Welcome to the Safe Harbor fiscal 2023rd quarter results Conference call.

All participants will be in listen only not shutting the assistance. Please send all come from especially suppressants Tortue followed by zero.

After today's presentation, there will be an opportunity to ask questions to ask a question I Press Star then one on your touched on fan.

Withdraw your question. Please press Star then too.

Please note this conference call contain forward looking statements within the meaning of section 21 any of the Securities Securities Exchange Act of 1934 as amended relating to the partnership future business expectations and predictions in financial condition results of operations.

These forward looking statements involve certain risks and uncertainties. The partnership is less than some of that important factors that could cause actual results to differ materially from this discussed in such forward looking statements, which referred to as cautionary statements and its earnings press release, which can be viewed on the company's website, all subsequent written and oral.

Oh oral forward looking statements attribute to the partnership or persons acting on his behalf are expressly qualified in their entirety my such cautionary statements.

Please note. This event is being recorded Oh, now I turn the conference over to.

Davin Dambrosio.

Vice President Treasurer. Please go ahead.

Thanks, Ian Good morning, everyone. Thank you for joining us this morning for our fiscal 2023rd quarter earnings Conference call.

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

Mike Kuglin, Chief Financial Officer, and Chief Accounting Officer, It's Steve Boy, Chief operating Officer.

This morning, we will review our third quarter financial results, along with our current outlook for the business.

Once we concluded our prepared remarks, we will open the session to question.

Our annual report on form 10-K for the fiscal year ended September 28 2018.

And 10-Q for the period just ended June 27, 2020, which will be filed by the end of business today contain additional disclosure regarding forward looking statements and risk factors.

Copies may be obtained by contacting the partnership for the FCC.

Certain non-GAAP measures will be discussed on this call. We've provided a description of those measures as well as a discussion of why we believe this information to be useful.

Our form 8-K, which was furnished to the FCC. This morning.

Form 8-K will be available through a link in the Investor Relations section of our web site at suburban propane dotcom.

At this point I will turn the call over to Mike's devolved for some opening remarks.

Thanks, Devin and welcome. Thank you all for joining us this morning.

I hope to your family's remain safe and healthy and once again, our hearts go out to those that have lost loved ones <unk>, who may be suffering from the consequences of the covert 19 virus that is played to our entire nation over the last five months.

That's suburban propane our business has been essential service throughout this crisis and our personnel have done an outstanding job supported the needs of our customers and local communities.

I'll also adapting to the new business protocols developed to help protect our employees our customers and the workplace.

As I indicated back in May during our fiscal second quarter earnings call. We expected the experienced some challenges in our business as a result of job losses, and the dramatic slowdown of the economy, particularly in our commercial and industrial customer sectors.

We developed operational and manpower plans to adapt our business model to the shifting customer demand patterns and the potential for an extended period of demand softness.

As the fiscal third quarter progressed, we did experience lower demand from our commercial and industrial customers with volumes that were 9% below the prior year third quarter.

However that decline in volumes was more than offset by strong demand from our residential customers as a result, with a combination of cooler average temperatures in the April may timeframe and higher usage, resulting from the stay at home measures instituted by government leaders throughout our operating footprint in order to.

Helped mitigate the spread of the virus.

In fact in our residential sector.

Volumes increased more than 21% over the prior year.

As a result, the fiscal 2023rd quarter was an exceptionally strong quarter for suburban propane.

Adjusted EBITDA of $32.2 million was 12.1 million or 61% higher than the prior year third quarter and in fact represented the highest level.

Adjusted EBITDA for any third quarter in our history.

During the quarter, we also repaid more than 35 million under our revolving credit facility from excess cash flows which resulted in a significant improvement in our leverage metrics compared to second quarter.

So.

While we have certainly face some tremendous challenges managing through this unprecedented crisis and adapting to the ever changing circumstances. We're proud of the way our people have responded to those challenges.

How they remain focused on safely meeting the needs of our customers and how we have positioned the business to be nimble as the country continues to wrestle with the virus for the foreseeable future.

In a moment I'll come back for some closing remarks. However at this point I'll turn it over to Mike Kuglin to discuss the third quarter results in more detail Mike.

Thanks, Mike and good morning, everyone.

To be consistent with previous reporting discuss our third quarter results, excluding the impact of unrealized noncash mark to market adjustments on derivative instruments used in risk management activities, which resulted in an 861000 dollar unrealized gain third quarter 2020.

Apparently 138000 dollar unrealized gain in the prior year.

Excluding these items as well as a 900000 dollar pension settlement charge in the third quarter. This year, our net loss for the third quarter improved by $13.6 million.22 per common unit compared to prior year.

Adjusted EBITDA for the third quarter was $32.2 million, an increase of $12.1 million or 60.5% compared to the prior year.

The improvement in earnings was driven by a combination of higher volume sold resulting from strong residential customer demand higher unit margins and savings various cost containment efforts.

While the unprecedented health prices had a varying impact on customer demand and volume sold during the third quarter. It did not materially impact bottom line earnings.

Theres still a fair amount of uncertainty about the future impact from the economic slowdown, resulting from cobot 19, but we will continue to adapt our business. It take steps to help mitigate the potential negative consequences of lower demand to extent, we experienced prolong sluggishness in the economy.

Retail propane gallon sold in the third quarter or 75.4 million gallons, which was 2.2% higher than the prior year.

Although weather during the third quarter typically has less of an impact on volume sold than it does during heating season.

<unk> third quarter benefited cooler temperatures during April and May that resulted in strong residential heat related demand.

Average temperatures for the month of April and May or 17% cooler and the same period last year.

And 5% cooler than normal.

Overall average temperatures across our service territories for the third quarter for comparable to normal at 12% colder than the prior year.

The combination of the colder weather and temporary stay at home governmental measures helped drive residential propane usage that more than offset the decline in commercial and industrial volumes.

For a customer mix perspective residential volumes increased 21% compared to prior year, whereas commercial and industrial volumes decreased 9%.

In the commodity markets wholesale propane prices remained relatively low compared to historical levels, but increased steadily during the quarter with the price of propane basis Mont Belvieu.

Rising from 27 cents per gallon at the started the quarter.

To 46 cents per gallon at the end of June.

Overall average wholesale prices for the third quarter were 26% lower than in prior third quarter and 11% higher than the second quarter fiscal 2020.

In early part of the fourth fiscal quarter.

Propane prices continued to remain relatively low and range bound resulting from us inventory levels that remain considerably above average levels for this time of year.

Total gross margins of $146.4 million for third quarter increased $10.9 million or 8% compared to the prior year.

Generally due to higher propane volumes and higher average unit margins.

Overall propane unit margins increased nine cents per gallon or 5.2% compared to prior year due to favorable volume mix and from the year over year decrease in commodity prices.

With respect to expenses, despite the 2% increase in volume sold combined operating at Genie expenses decreased $1.1 million or 1% compared to prior year.

The savings reflected the operational plans that we developed and implemented to address different customer demand scenarios, resulting from cobot 19.

Including a temporary reduction to our manpower.

The savings from these actions were partially offset by higher variable operating costs to support higher volume related demand.

And an increase in accruals for self insurance liabilities and reserved for potential doubtful accounts.

Net interest expense of $18.5 billion at third quarter decreased $400000 compared to prior year.

Primarily due to decrease benchmark interest rates on borrowings under our revolver.

Total capital spending for the third quarter of $5.6 billion was $2.1 million lower than the prior year.

Due to a lower level spending on vehicles and tanks.

Turning to our balance sheet.

During the third quarter, we repaid one and $35 million under our revolver with cash flows from operating activities.

Despite a modest delaying collection activities, resulting from the impact the economic slowdown on our customers.

I had some government imposed restrictions in certain states that limited some of our traditional means of helping ensure customer payments.

The collection of accounts receivable was a significant source of cash during the third quarter.

In early part of the fourth quarter, our collection activities continue to improve and are nearing the historical levels that we were generally experience for this time of the year.

While we are encouraged by the improvement this is something that we continue to closely monitor.

From a leverage perspective, the increase adjusted EBITDA, coupled with the debt repayment during the third quarter resulted in our consolidated leverage ratio improving to 4.83 times at the end of June compared to 5.22 times at the end of the second quarter.

Our borrowings under the revolver at the end of Q3 or $109.7 million, which was $17.5 million lower than June 2019.

And $3.8 million lower than a level at the beginning of the fiscal year.

We remain well within our debt covenant requirements will continue to utilizing excess cash flows in a balanced fashion to strengthen the balance sheet and to invest in strategic growth.

Thank you Mike.

Thanks, Mike.

On the topic of strengthening the balance sheet and our overall leverage let me first address to our recent announcement on July 23rd regarding our decision to reduce the quarterly distribution from 60 cents per common in the previous quarter to 30 cents per common unit and respective the third quarter fiscal 2020.

After a thorough assessment of the potential for shifting demand patterns as a result of the economic uncertainties associated with the ongoing efforts to mitigate the spread over 19, we decided to take this proactive steps to reduce our annual cash requirements.

This reduction will provide an incremental $75 million of excess cash flow.

It will significantly enhance our distribution coverage.

We will provide excess liquidity to accelerate our debt reduction efforts and importantly, they will provide enhanced financial flexibility to support our growth initiatives.

And the efficiencies and cost savings implementing additional protocols to protect the health and safety of our employees.

Executing on our customer base growth and retention initiatives.

And positioning the business for long term growth.

While we may experience continued softness in demand from our commercial industrial customers in the near term.

Our efficient and flexible business model leaves us well positioned to support our customers and local communities as they recover.

Interestingly, what we're also seeing is a recognition that propane as a part of the solution in the recovery as a result of its clean burning attributes and the portability and dependability of propane to support new applications as businesses and local communities adapt to the new social distancing guidelines.

With more outdoor activities.

As we've stated before we take a long term view on managing this business and having the financial strength flexibility and access to adequate capital to support our growth plans are all key to our long term success.

Finally.

Im extremely proud of the more than 3200 employees of suburban propane for their continued resiliency and commitment to safety and outstanding service to the customers and communities they serve.

While adapting to the ever changing circumstances, and new operating protocols to help protect their health and safety.

Thank you for all that you do every day.

And as always we appreciate your support attention this morning.

Now, we'll take questions units, you could help us out with that.

We will now begin the question answer session to ask a question I Press Star then one on their touched Hanson.

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At this time will momentarily pause with similar roster.

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Okay, great. Thank you very much.

Thank you all for your attention today appreciate all the support we look forward to talking to you again in November as.

We get to close out the fiscal year and prepare ourselves for a new fiscal year and a new heating season in 2021 stay healthy stay safe.

Thank you all.

And just a final analysis.

To access the replay for this call. Please dial 87734475, Tainan or for one to three 170 is there any answer the code 1014573. The conference has concluded. Thank you for attending today's presentation. You may now disconnect.

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