Suburban Propane Partners L.P. Q2 2023 Earnings Call

As a result of the increase in inventories and other factors average wholesale prices for the second quarter of 82 cents per gallon spaces mop Bellevue.

Good morning, guys.

Hey, welcome back.

Question cut multipart question on the Orangey opportunities.

Just wondering now if Arizona facility up and running what the approach I guess, there's gonna be to hedging or not hedging.

Some of the different revenue streams kind of coming out of that facility and then also wanted to know about the reference to capex paying higher going for just kind of wondering if you could give us a good chance for kind of the trajectory around Ohio facility. How much would you spend my previous year, how much might be next and I'm kind of relative amounts.

Sure so as as as your first question on hedging at this point, we're not we have we have a long term offtake agreement with with one large customer that is is taking all the gas that were pumped that we're injecting into the pipeline.

And we get the value of L. CFS and ran credits through that account through that contract as I said on our last call.

When when we when we were evaluating this acquisition opportunity we had the benefit of seeing a decline in the L. C F S markets and ruin values, as well, which which which helped us to really evaluate the the potential for for the earnings of this business and and what we consider to be.

Sort of a more normal environmental attribute market with some potential downside risk certainly, but also with the potential for upside as as more <unk> more states contemplate L. C. F S programs around the country. So at this point, we're not we're not evaluating the need.

To hedge we're actually on a trajectory to deliver the kind of results that that we had expected, particularly from the the stanfield facility and in fact, one of the things that we're starting to see is is now that we've gotten the capital fully deployed.

And we're starting to see daily pipeline injection, we're actually as I said in my opening remarks, starting to see daily injections exceed some of our our expectations. So that's that's a good sign to for us to see and we're also exploring additional opportunities to to to sell additional fertilizer that's <unk>.

Coming off of the off the production process. So you know I think we're we're already finding ways to be more efficient as well as identify new opportunities for sales and and the current credit environment, where we're sort of happy where where values are today and and we do believe there's a.

Side as to the capital a question the the Columbus facility is gonna take about $12 million of capital to put in the upgrade equipment. Most of that is likely going to happen in fiscal 2024, there might be a little bit of capital this year.

Sure, but I think most of it at this point is gonna go into 2024.

And then we we still have the construction of the Orangey assets up in upstate New York, There's probably another.

$12 million to $15 million, a capital and 2024.

And and maybe maybe another $15 million or so this year and 2023. So so that's kind of the trajectory we're on relative to gross capex for those two major projects and that hopefully that helps you with with with understanding where we're at.

Thanks, Mike Yeah, I know that was very helpful. And then I wanted to I guess.

Kind of comfort with the balance sheet currently now everything's closed.

Winters behind you I think last quarters call you made some comment about potentially accelerating deleveraging maybe this quarter it sounds like you're comfortable.

Flooding in occur naturally so I'm just kind of her over time I'm just wondering.

If there's been a change in the past there and what shall we just making you sir.

Yeah, I think I think we're comfortable where we are you know when when these when these assets reach full run rate capacity in 2024.

That'll naturally bring down the leverage.

The other interesting thing.

We obviously have a fair amount of excess free cash flow that has given us the opportunity over the last few years to delever as well as invest in one of the things. If you. If you look at our actual total debt at the end of March relative to the end of September , let's say, which was.

Which was a bit of a low point you know we were only up about $170 million of that and that's after investing about $200 million and and and the Orangey assets alone. So you know so I think the the strength of our balance sheet. The the the.

Excess cash flow generating capacity of the propane of the propane business cause really afforded us an opportunity to deploy capital in you know <unk> higher growth.

<unk> investments such as the Orangey platform and and you know the other investments we've made in hydrogen and N B M. A.

Gotcha. Thanks, a lot I appreciate the time.

Great. Thanks good.

And again, if you have a question please press star one.

Next question will be some <unk> some wells Fargo, let's go home.

Hey, good morning, Thanks for taking the question Mike.

You indicated hi, so I mean in your remarks, you indicated a number of other orangy opportunities under evaluation could you provide more details on on your final are you looking at new builds are operating facilities. The approximate size of these investments.

Maybe she can also give us a sense of how competitive is the orange space today, and who do you typically running too.

Yeah. It's it's it's all over the board net I think first of all just framing the potential I think if you look at what we've talked about with the joint venture.

With equilibrium, which says that.

Combined we're looking to deploy about $155 million a capital over the next three years or so of which suburbans piece.

Piece of that is 120 million you know that that sort of frames. The the potential you know we have a handful right now of opportunities that range from mostly active facilities that maybe need a little bit more capital to get to a certain capacity or.

Maybe upgrade to Orangy like we're doing in the Columbus facility, two small investments in a bigger platforms that that that need a little bit of extra capital that maybe we don't want to take 100 per cent ownership of too.

Straight up building opportunities similar to what we're doing at Adirondack farms in upstate New York and you know the the the good thing is that we with all the activity that we have with with equilibrium in the team that we we have a relationship with their plus the.

The firms that we were working with up in New York, We have a really good network of engineering construction maintenance and procurement firms that were that were very close to now that are providing excellent support on our projects, but also helping us identify.

Hi, additional opportunity. So you know there's there's nothing.

That that I would say is is imminent, but the funnel is is pretty robust and we're gonna take a very patient and disciplined approach on identifying the best opportunities that a warrant us deploying capital.

Got it thanks for that and then how do you think about propane acquisitions, while the Orange you acids are ramping up business on hold or would you still look at kind of smaller tucking transactions, if they make sense for ya.

We we we're we're going to continue to feed the propane business. The propane businesses are is is still our bread and butter. It is it is the source of of cash flow that allows us to invest in and higher growth opportunities such as renewable energy and so we're gonna continue to look for.

Four ways to to enhance that platform. We we do have also a funnel of opportunities that are that are that are inactive.

Analysis right now there's there's a couple that are very promising you know relatively small talk in but you know it's fitting into our strategic.

Our strategic view of highly.

Uhm attractive markets, where we either have a very strong presence or we have identified population grow where where the the the market can benefit from a suburban presence that is not big enough. Today. So those those are the kinds of of opportunities that were saying and this is.

As you know the time of year, where more and more of the smaller companies contemplate putting their their business up for sale. Once the heating season is behind us. So you know the funnel in the propane M&A market is also starting to build nicely.

As as the as the earnings of the the newly acquired Orangey platform get to run right I would expect some time probably at the tail end of 2024 is when I would expect to see us do that Ned.

Thanks, Mike.

Great. Thank you.

And again, if you have a question. Please press star one one.

Gentlemen, this concludes our question and answer session I would like to turn accomplished.

Most of all for any calls in two months.

Great. Thanks, Chad. Thank you all again for your attention today and your support we we hope that you enjoy the coming summer season, and we look forward to talking to you again after the end of our fiscal third quarter. Thank you.

Thank you Sir.

Now concluded thank you for telling me to this presentation <unk>.

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