Q1 2021 Suburban Propane Partners LP Earnings Call

Good morning, and welcome to the suburban propane partners L. P. First quarter result, all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star Keith followed by zero.

After todays presentation, there will be and opportunity to ask questions.

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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 partnerships future business expectations and predictions and financial condition and the results of operations. These forward looking statements involve certain risks and uncertainties. The partnership has listed.

Important factors that could cause actual results to differ materially from those discussed and such forward looking statements, which are referred to as cautionary statements in 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 or persons acting on its behalf are expressly qualified and.

Their entirety by such cautionary statement. Please note. This event is being recorded I would now like to turn the conference over to Davin, Dambrosio, Vice President and Treasurer. Please go ahead.

Thank you Ali good morning, everyone.

Thank you for joining us this morning for our fiscal 2021 first quarter earnings Conference call.

Joining me this morning are Mike <unk>, our president and Chief Executive Officer.

Cooper, and our Chief Financial Officer, and Chief Accounting Officer and Steve.

Steve Boyd, our Chief operating officer.

This morning, we will review our first quarter financial results along with our current outlook for the business. Once we've concluded our prepared remarks, we will open the session for questions.

Our annual report on form 10-K for the fiscal year ended September 26 2020.

And form 10-Q for the period ended December 26, 2020, which will be filed by the end of business today.

And additional disclosure regarding forward looking statements and risk factors copies may be obtained by contacting the partnership or the SEC.

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

Our form 8-K, which was furnished to the SEC. This morning form 8-K will be available through a week and the Investor Relations section of our website at suburban propane dot com.

At this time I will turn the call over to Mike Sabella for some opening remarks, Mike.

Thanks, Devin and good morning, Thank you all for joining us today.

First I hope you and your families all remain safe and healthy as our nation continues to contend with COVID-19.

And suburban propane, we are continuing to take necessary precautions to protect the health and safety of our employees and customers.

While ensuring that we can seamlessly provide the outstanding and essential services to our valued customers rely on.

A brief update on the impact of COVID-19, and on our business.

As the first quarter progressed, we continued to see demand softness and the commercial sector.

Albeit not to the extent of the declines that we experienced and the early part of the pandemic. These.

These declines were offset somewhat by increased usage and the residential sector due to widespread stay at home initiatives.

Well as and certain other customer segments, such as resellers restaurants, and others that benefited from the demand for temporary portable energy solutions.

Well that said customer demand and the fiscal 'twenty and 'twenty. One first quarter was most affected by unseasonably warm weather that dominated the quarter throughout the majority of our service territories and.

In fact November registered as one of the warmest on record.

And the overall heating degree day index for the quarter was 13% warmer than normal and 9% warmer than the prior year first quarter.

Cooler temperatures kicked in towards the end of December and created some momentum heading into the second quarter.

Throughout the first quarter, our operations personnel did an outstanding job staying focused on adhering to our safety and operating protocols and managing margins and expenses and executing on our customer base growth and retention initiatives.

Overall, adjusted EBITDA was $80 million for the first quarter, which was $5 4 million below the prior year and <unk>.

Cougar and we'll give some details on that and a moment.

On the strategic front, we continued to advance our growth initiatives with the acquisition of a well run propane business and North Carolina as well as further investments and overall and fuels to support our collective efforts to commercialize renewable dimethyl ether as a blend with propane to reduce its carbon intensity.

We're also committed to advancing our advocacy and innovation initiatives for the clean attributes of propane as a solution for a sustainable energy future.

And we achieved another important milestone for our go green and corporate initiatives with the recent official registration of our go green with suburban propane and logo with the United States patent and trademark office.

So despite the challenges from the ongoing effects of COVID-19 pandemic, we remain focused on our strategic growth objectives, which includes a combination of organic customer base growth.

New market expansion through Greenfield development and attractive markets investments.

The investments and propane acquisitions and strategic diversification with a focus on building and renewable energy platform.

All while continuing to also work toward our debt reduction targets to further strengthen our balance sheet.

And in a moment I'll come back for some closing remarks, However, let me turn it over to Mike <unk> to discuss the first quarter and some more detail Mike.

Thanks, Mike and good morning, everyone.

To be consistent with previous reporting as I discuss our first quarter results I'm, excluding the impact of unrealized mark to market adjustments on our commodity hedges, which resulted in an unrealized gain of $4 $9 million from the first quarter.

Compared to an unrealized gain of $2 8 million and the prior year.

Excluding these items as well as a non cash equity and earnings and unconsolidated affiliate, which silver on fuels.

Net income for the first quarter was $33 $4 million or <unk> 53 cents per common unit.

Compared to net income of $37 $4 million or <unk> 60 per common unit and the prior year.

Adjusted EBITDA for the first quarter was $80 million, which was $5 $4 million lower than the prior year.

As Mike indicated first quarter earnings were most significantly impacted by lower demand, resulting from widespread and seasonally warm temperatures and continued softness in certain segments of our commercial and industrial customer base as a result of the economic slowdown due to COVID-19.

While weather and economic conditions were a headwind for the quarter, we reported organic customer base growth and saw incremental demand and our residential and certain other customer segments.

Retail propane gallons sold and the first quarter were $111 7 million gallons, which was seven 8% lower than the prior year as a significantly warmer weather pattern more than offset the incremental usage from stay at home initiatives and from new temporary outdoor heating demand.

Overall average temperatures across our service territories were 13% warmer than normal and 9% warmer than the prior year.

The decrease and heating degree days compared to the prior year were concentrated in the months of October and November as average temperatures for the two month period were 20% warmer than the prior year and 18% warmer than normal which.

Which contributed to lower demand for heating purposes.

For the month of December average temperatures were 9% and warmer than normal and <unk>.

Terrible to December 2019.

And seasonally warm temperatures for widespread, but particularly concentrated in our east coast and Midwest markets.

From a commodity perspective wholesale propane prices increased rather steadily during the quarter per.

I'm really due to a decline and U S propane inventory levels, resulting from higher propane exports.

Overall average wholesale prices for the first quarter were 57 cents per gallon basis, Mont Belvieu, which.

Which was 15% higher and the prior year first quarter and the prior sequential quarter.

And according to the most recent report from the EIA U S. Propane inventory levels were 58 million barrels, which is 25% lower than a year ago and 9% lower than the five year average for this time of the year.

Given the continued decline and the nation's propane inventory along with other factors propane prices have continued to rise.

This weak wholesale propane has and the 85 to 90 cents per gallon range, which represents an increase of about 28% from the end of the first quarter and 115% from the comparable period last year.

Total gross margins of $197 million from the first quarter decreased $15 $5 million or seven 3% compared to the prior year, primarily due to lower propane volume sold.

Excluding the impact of the mark to market adjustments that I mentioned earlier.

And unit margins were slightly higher than the prior year. Despite the challenges from the rising commodity price environment and competitive landscape.

With respect to expenses combined operating and G&A expenses of $116 $1 million for the first quarter decreased $10 million or eight per cent compared to the prior year, primarily due to lower variable volume related operating cost.

Savings from various cost containment efforts, including lower payroll and benefit related costs and.

Lower variable compensation expenses.

In addition, the prior year included a charge of $5 million for the settlement of certain product liability and other legal matters.

Net interest expense of $18 $1 million from first quarter was $1 million were 5% lower than the prior year, primarily due to a lower level of average outstanding borrowings under our revolving credit facility, coupled with a reduction and benchmark interest rates.

Total capital spending for the quarter of $548 million was $7 $2 million lower than the prior year.

Due to a higher level of investments made in the prior year for new technologies and equipment utilized by our field personnel to enhance the customer experience and drive incremental operating efficiencies.

The timing of tank and cylinder purchases to support customer growth.

Turning to our balance sheet.

Given the seasonal nature of our business, we typically borrow under our revolving credit facility. During the first quarter to help fund a portion of our seasonal working capital needs.

And as well as for investments and our strategic growth initiatives within the quarter, including acquisition funding.

With that said despite borrowings to fund our normal working capital requirements and the acquisition that Mike mentioned in his opening remarks.

Our total debt at December 2020 was approximately $50 million lower than December of last year.

At the end of the first quarter, our consolidated leverage ratio for the trailing 12 month period was $4 eight six times, which is slightly higher than where we ended the prior year first quarter due to the impact of warmer weather on our earnings well within our debt covenant requirement of 575 times.

Our working capital needs typically peak towards the end of the heating season late February or early March timeframe, after which we expect to continue reducing outstanding borrowings on our revolver with cash flows from operating activities.

With our continued focus on investing excess cash flows and a balanced way with strategic investments and debt reduction.

And with improving earnings profile will begin to see our overall leverage metrics improve toward our target thresholds of below four times.

We have more than ample borrowing capacity under our revolver to fund our remaining working capital needs for the heating season, as well as to support our strategic growth initiatives.

Back to your line.

Thanks, Mike.

Announced on January 21, our board of Supervisors declared our quarterly distribution of <unk> 30 per common unit and respect of our first quarter of fiscal 2021, which equates to an annualized rate of $1 20 per common unit.

Our quarterly distribution was paid on February 9th to our unit holders of record as of February 2nd.

And our distribution coverage continues to remain strong at 148 times based on our trailing 12 month distributable cash flow despite the slightly lower earnings for the quarter.

However, considering the annualized cash requirements at our current annualized distribution rate of $1 20 per common unit and our pro forma distribution coverage is more like two two times.

Looking ahead.

Now that we're six weeks into the fiscal second quarter the cooler.

<unk> that started at the end of December have persisted into the early part of the second quarter.

Average temperatures have been colder than the comparable period and the prior year, yet remain below normal levels for this time of year.

Heat related customer demand has responded to this period of sustained cooler temperatures, which has impacted significant portions of our operating footprint.

And Theres still plenty of heating season ahead.

Operationally, we are very well positioned to meet increased heat related demand and to adapt to changing demand patterns, including in the event, we experience a shift back to unseasonably warm weather.

Or are faced with further demand softness from COVID-19 restrictions.

Financially, we have more than adequate resources to continue to advance our strategic growth initiatives.

As our nation recovers from the economic and health effects of COVID-19, we expect to see additional opportunities for the clean burning cost effective and versatile qualities of propane as a solution to support that recovery and to help achieve long term sustainability goals.

And finally I'd like to once again, thank all of the more than 3200 employees at suburban propane.

And for their unwavering focus on the safety and comfort of our customers and the communities we serve especially during these ongoing challenging environments.

As always we appreciate your support and attention.

Now I'd like to open the call up for questions and ideally would you mind, helping us with that.

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And then one at this time.

Okay.

Okay.

Okay.

And.

At this time I'm not showing any questions. So I would like to turn the conference back to Mike's day Valla.

Great. Thank you Lee and thank you all for your attention.

Day warm and cold weather is here.

We're excited to see the demand pick up and.

And we look forward to talking to you in early May two.

Talk about our second quarter results. So thank you again.

Okay.

The conference is now concluded a replay of the call can be accessed by dialing 187 and 734475 per node.

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