Q4 2020 Suburban Propane Partners LP Earnings Call

Thank you and welcome to the suburban propane fiscal 2020 full year and fourth quarter results conference call all parties.

Since we'll be in a listen only mode should you.

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Today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded this conference call contains.

Forward looking statements within the meaning of section 21 E of the Security Exchange Act of 934 as amended relating to the partnerships future business expectations, and predictions and financial conditions and results of operations.

These forward looking statements involve certain risks and uncertainties.

The partnership has listed some of the these important factors that could cause actual results to differ materially from those discussed in such forward looking statements statements, which are referred to as cautionary statements and its earnings press release, which can be viewed on the company's website. All subsequent written and oral forward looking.

Statements attributable to the partnership's persons acting on its behalf are expressly qualified in their entirety by such cautionary statements I would like now to turn the conference over to Davin Dambrosio Vice President Treasurer. Please go ahead.

Thanks, Matt Good morning, everyone. Thank you for joining us this morning.

For our fourth quarter and fiscal 2020 full year earnings conference call joining.

Joining me. This morning are like first of all our president and Chief Executive Officer.

Mike Kuglin, Chief Financial Officer, and Chief Accounting Officer, and Steve Boyd, Our Chief operating officer.

This morning, we will review our fourth quarter.

In fiscal 2020 full year financial results along with the current outlook for the business.

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

Our annual report on form 10-K for the fiscal year ended September 26, 2020, which contains additional disclosures.

Sure Ricky regarding forward looking statements and risk factors will be filed on or about November 20 Fiveth.

Once filed copies may be obtained on the Investor overview page of the partnership's web site at suburban propane dotcom or by visiting the partnership's filings with the SEC.

Certain non.

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

The form 8-K will be available in the Investor Relations section of our website.

At this point I will turn the call over.

Mike Stivala for some opening remarks, Mike Gray.

Great. Thanks, Evan and thank you all for joining US this morning works.

We are extremely proud to report another strong quarter to close out fiscal 2020.

Adjusted EBITDA was $5.5 million, that's an improvement of 6.8 million compared to a loss of $1.3 million.

Numbers than the prior year fourth quarter.

When combined with the strong third quarter performance, our adjusted EBITDA of $37.7 million for the second half of fiscal 2020 exceeded the prior year second half performance by nearly $20 million and represents the strongest second half results in.

In our history.

For the full year, adjusted EBITDA of $253.7 million was $21.4 million or 7.8% lower than the prior year as a result of unseasonably warm temperatures during the fiscal 2020 heating season to season.

In fact during the peak winter heating months from today.

Number through February average temperatures were 14% warmer than normal and on par with the warmer temperatures on record for those months.

Aside from the weather as we all know there has been no shortage of challenges facing our business and the nation as a whole this past year.

From the unprecedented health and.

Saumen crisis that started in March from COVID-19 to the wildfires in our West coast operations and Hurricanes in the southeast. This was one heck of a year.

In the face of all these unbelievable challenges I'm, so proud of the resiliency and dedication of the 3200 employees at.

Team suburban propane for following the guidance and new business protocols to help protect their health and safety. While also staying focused on delivering the essential services that our customers and local communities count on.

As an organization, we continue to stay focused on executing our long term strategic.

The growth initiatives and.

And in particular advancing our three pillars of the suburban propane experience corporate initiatives.

In our commitment to excellence pillar, we invested in new technology for our drivers and service technicians to drive incremental operating efficiencies and enhance the overall customer.

Periods.

We adapted our business model and operating protocols to ensure safe seamless and outstanding service to our customers when they need us most.

In our suburban cares pillar, we expanded our efforts to support the American Red Cross through our National partnership and especially during this price crisis.

With a shortage of blood and limited opportunities to host blood drives we worked closely with the Red Cross for a call to action.

In addition in the early stages of the pandemic, we had countless proud moments when we were called upon to support frontline activities by providing vital temporary heat and power generation.

For makeshift test intense hospital sites shelters and food distribution centers.

And we also partnered with a number of major regional foodservice brands to provide meals to frontline healthcare workers and first responders in multiple locations throughout our operating territory.

I'm proud to say that our EFT.

They have been recognized by S&P platts as a finalist in their 2020 corporate social responsibility category, which will be decided in December.

Finally in our go Green pillar, we continue to advocate for the versatile portable cost effective and clean burning attributes.

Propane as a contributor to the goals of reducing the nation's carbon footprint and greenhouse gas emissions.

We've also invested in innovative new solutions for bringing even cleaner versions of propane to the market.

We are leading the way in the propane industry towards solutions that can help put us on a pathway to carbon.

Its tragedy.

We advanced these efforts in two ways in fiscal 2020.

First we arranged for the supply of approximately 1 million gallons of renewable propane produced from waste fats and oils to meet customer demand for renewable energy and in turn to help advance their low carbon initiatives.

Second we acquired.

Quite a 39% equity stake and over on fuels, a development stage producer of a low carbon transportation fuel, which when blended with propane can significantly reduce the carbon intensity of propane.

With this investment suburban propane will have the exclusive rights to market and sell Oberon produced fuel known as.

Dimethyl ether or DMV for short in North America.

Finally, we invested our excess cash flow in a balanced way by reducing total debt by nearly $19 million and investing $23.4 million into midsize propane acquisitions in strategic markets in California.

Before net and Georgia.

So despite the many challenges fiscal 2020 was a very successful year for suburban propane.

And we continue to manage this business for long term sustainability and growth.

A little later I will provide some closing remarks. However at this point I will turn the call over to Mike Kuglin.

Who will discuss our full year and fourth quarter results in more detail Mike. Thanks.

Thanks, Mike and good morning, everyone.

I will start by focusing on our full year results and give a little color on the fourth quarter towards the end of my remarks.

To be consistent with previous reporting and excluding the impact of unrealized non cash mark to market.

And adjustments on our commodity hedges, which resulted in an unrealized loss of $400000 fiscal 2020.

Compared to an unrealized loss of $8 million in the prior year.

Additionally, fiscal 2020 included a $1.1 million pension settlement charge and the $100000 loss on debt extinguishment.

Excluding these items net income for fiscal 2020.

I wanted to $62.3 million or one dollar per common unit.

Compared to $76.6 million or $1.24 per common unit in the prior year.

Adjusted EBITDA for fiscal 2020 amounted to $253.7 million compared to.

$275 million in the prior year.

As Mike indicated a decrease in earnings was essentially driven by the negative impact extremely warm weather during the most critical months for heat related at customer demand.

Despite the headwind from coded to follow the warm heating season, we reported a $19 million increase in adjusted EBITDA.

And the second half of the fiscal year more than doubling last years second half results.

While the health and economic crisis from Covance had a bearing impact on customer demand and volume sold during the fiscal year. It did not materially impact bottom line earnings.

This was achieved in large part by the Swift and comp.

Comprehensive actions, we took to realign our workforce to the evolving customer demand.

As we mentioned last quarter, there are still a fair amount of uncertainty about the future impact from the economic slowdown resulted in coated.

While we will continue to adapt our business and take steps to help mitigate the potential negative content.

Consequences of lower demand.

Extent, we experience prolonged softness in the economy.

Retail propane gallons sold in fiscal 2020, or 402.9 million gallons, which is 5.6% lower than the prior year.

Primarily due to warmer than normal temperatures during the most critical months.

For heat related demand.

While average temperatures across our service territories for fiscal 2020, or 10% warmer than normal and 4% warmer than the prior year average temperatures during the peak demand months of December to February or 14% warmer than normal on par with the warmest temperatures on record.

Okay, and 7% warmer than the prior year.

In the commodity markets wholesale propane prices trended lower throughout much of the year, reflecting higher us inventory levels as production outpaced domestic demand and exports over.

Overall average wholesale prices for the year.

44 cents per gallon basis, Mont Belvieu, which was 28% lower than the prior year.

Notwithstanding the year over year decline prices have been range bound in a 45 to 55 cents per gallon range since about mid may.

Total gross margins of $725.3 million.

For fiscal 2020 decreased $28.4 million or 3.8% compared to the prior year permit.

Primarily due to lower propane volumes, partially offset by our average unit margins.

Overall propane unit margins increased three and a half cents per gallon for 2.2%.

Compared to the prior year due to solid margin management, and a declining product cost environment.

With respect to expenses combined operating and DNA expenses decreased $7.2 million or 1.5% compared to the prior year, primarily due to lower volume related variable op.

Bring costs and lower variable compensation.

The savings also reflected the operational plans that we developed and implemented in the third quarter to address a different customer demand scenarios results from co at 19.

Including a temporary reduction to our manpower.

The savings from these actions apart.

Partially offset by an increase in accruals for self insurance liabilities and reserves for potential doubtful accounts.

Net interest expense of $74.7 million for fiscal 2020 decreased $1.9 million or 21% compared to the prior year.

Primarily due to lower.

Average outstanding borrowings under our revolver, coupled with the decrease in benchmark interest rates on revolver borrowings.

Total capital spending for the year was 32, and a half million dollars, representing a decrease of $2.5 million compared to the prior year.

Due to a lower level of spending on tanks.

Particles dwells investments in new technologies utilized by our field personnel in the prior year.

Total capital spending long with the two acquisitions and invest in Oberon fuels that Mike mentioned in his opening remarks are funded with cash flows from operating activities.

And turning to our fourth quarter results.

Consistent with the seasonality of our business, we typically report a net loss for the fourth quarter.

With that being said, we reported a net loss of $41.2 million or 66 cents per common unit and improvement of 20% compared to the prior year.

Excluding the impact of unrealized non cash mark.

Mark to market adjustment on our commodity hedges.

Which resulted in a $700000 unrealized gain in the fourth quarter of fiscal 2020.

Compared to an $800000 unrealized loss in the prior year.

Adjusted EBITDA for the fourth quarter of fiscal 2020 amounted to $5.5 million, reflecting in an appeal.

Mid of $6.8 million compared to a loss of $1.3 million in the prior year.

The improvement in earnings was primarily driven by solid residential volumes.

And expense savings, resulting from the operational plans they will be implemented to address lower demand, resulting from COVID-19 that I mentioned earlier.

Yeah.

Total gross margins decreased $2.7 million or 2.3%, mainly due to lower commercial and industrial volume sold as result of the economic slowdown.

Combined operating and DNA expenses decreased $9.3 million or 8.2% due to lower payroll and benefit related.

The costs lower vehicle repairs and maintenance costs and a decrease in travel.

Turning to our balance sheet.

As Mike mentioned, we repaid $19 million and revolver borrowings during the fiscal year with cash flows from operating activities.

As a result outstanding borrowings under the revolver were reduced.

But to $94.6 million at the end of fiscal 2020.

And the consolidated leverage ratio improved from 4.83 times at the end of the third quarter to 4.64 times at the end of fiscal 2020.

Despite the elevated level of the leverage metric, which was primarily due to the impact.

Active whether on earnings.

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

From a liquidity position, we have ample borrowing capacity under our revolver to fund anticipated working capital needs.

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 22nd Press release, our board of Supervisors declared our quarterly distribution of 30 cents per common unit in respect to the fourth quarter fiscal 2020, which equates to.

To an annualized rate of $1.20 per common unit. The quarterly distribution was paid on November 10th to our unit holders of record as of November Threerd.

As discussed at the end of our fiscal third quarter. The decision to reduce the distribution rate was the result of a thorough assessment of the potential for shifting demand patterns as a result of the economic and.

Our news associated with COVID-19, as well as to provide an incremental $75 million of excess cash flow to accelerate our debt reduction efforts in order to get to our target leverage between three and a half and four times, while also providing enhanced financial flexibility to support our strategic growth initiatives.

With the successful end to fiscal 2020, we are very well positioned to carry that momentum into fiscal 2021.

We will continue to focus on strengthening our balance sheet.

Our distribution coverage at the current rate is well above two times, providing excess cash flow to continue to reduce debt and invest in our strategic.

Growth and diversification initiatives.

Which we have already begun with our investments in a renewable energy platform.

Our field operations are doing an excellent job with our customer base growth and retention initiatives and we are continuing to see a shift in customer demand patterns with more and more residential demand from remote working.

In arrangements as well as improving customer commercial demand trends, resulting from the gradual reopening of the economy and efforts to adjust to more outdoor activities.

We expect to continue to continue to see some softness in commercial and industrial demand until we see a real turnaround in the economy, but much.

At softness is expected to be matched with higher residential demand, particularly if we get whether five.

Finally, I want to thank the more than 3200 employees of suburban propane for their efforts in helping make fiscal 2020, a successful year in spite of the significant headwinds.

Of course, I hope you.

You and your families remain safe and healthy during these unprecedented times and wish everyone, a very happy holiday season.

We appreciate your support and attention and would now like to open the call up for questions and Matt would you mind, helping us with that.

We will now begin the question and answer session to ask a question you May Press Star then.

Then one on your Touchtone side if.

If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and we'd like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

As there are no questions. This concludes our question and answer session I would like to turn the conference back over to Mike Stivala, President and CEO for any closing remarks.

Great. Thanks, Matt and thank you everybody.

Certainly proud of where we are where we are we're very focused.

Stan start in 2020 is strong we have a lot of momentum in our back and we look forward to talking to you again after our first quarter performance in February of 2021 in the meantime stay healthy stay safe and have a happy holiday season. Thank you.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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