Q1 2024 Suburban Propane Partners LP Earnings Call
And welcome to suburban propane partners first quarter earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded.
Operator: Should you need assistance, please signal the conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Davin D'Ambrosio, Vice President and Treasurer. Please do so.
I would now like to turn the conference over to Davin, Dambrosio, Vice President and Treasurer. Please go ahead.
Davin D'Ambrosio: Thanks, Jason. Good morning, everyone. Thank you for joining us this morning for our Fiscal 2024 First Quarter Earnings Conference Call. Joining me this morning is Mike Stivala, our President and Chief Executive Officer. Mike Kuglin, our Chief Financial Officer, and 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 to questions.
Thanks, Jason Good morning, everyone. Thank you for joining us this morning for our fiscal 2024 first quarter earnings conference call joining.
Joining me this morning are Mike <unk>, our president and Chief Executive Officer.
Mike <unk>, our Chief Financial Officer, and 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 conclude our prepared remarks, we will open the session to questions.
Davin D'Ambrosio: Our conference call contains forward-looking statements within the meaning of Section 21e 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. We have listed some of the important factors that could cause actual results to differ materially from those discussed in such forward-looking statements, which are referred to as cautionary statements in our earnings press release, which can be viewed on our website at suburbanpropane.com. All subsequent written and oral forward-looking statements attributable to a partnership or persons acting on its behalf are expressly qualified in their entirety by such cautionary statements. Our annual report on Form 10-K for the fiscal year ended September 30, 2023, and Form 10-Q for the period ended December 30, 2023, which will be filed by the end of business today, contain additional disclosures regarding forward-looking statements and risk factors. Copies may be obtained by contacting the Partnership or the SEC.
Our conference call contains forward looking statements within the meaning of section 21 E.
Of the Securities Exchange Act of $19 34.
And at <unk>.
Relating to the partnerships future business expectations, and predictions and financial condition and results of operations.
These forward looking statements involve certain risks and uncertainties. We have listed some of the important factors that could cause actual results to differ materially from those discussed in such forward looking statements, which are referred to as cautionary statements in our earnings press release, which can be viewed on our website at suburban propane dot com.
All subsequent written and oral forward looking statements attributable to the partnership or persons acting on its behalf are expressly qualified in their entirety by such cautionary statements.
Our annual report on Form 10-K for the fiscal year ended September 30th 2023, and Form 10-Q for the period ended December 30 of 2023 which will be filed by the end of business today contain additional disclosures regarding forward looking statements and risk factors copies.
Copies may be obtained by contacting the partnership or the SEC.
Davin D'Ambrosio: 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 8K, which was filed with the SEC this morning. Form 8K will be available through a link in the Investor Relations section of our website. At this point, I will turn the call over to Mike Stivala for some opening remarks. Mike.
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.
For 8-K, which was furnished to the SEC. This morning, four make K will be available through a link in the Investor Relations section of our website.
At this point I will turn the call over to Mike <unk> for some opening remarks, Mike.
Michael A. Stivala: Thanks, Davin, and good morning, and thank you all for joining us today. The first quarter of fiscal 2024 was dominated by widespread, unseasonably warm weather, particularly during the month of December, which represents the most critical month of the quarter for heat-related demand. However, continued improvements in our customer-based growth and retention initiatives, combined with active crop drying demand in the agricultural sector, help to mitigate the adverse impact of the warmer weather on volume. Propane volumes for the first quarter of fiscal 2024 were down just 2% compared to the prior year first quarter, despite average heating degree days that were 9% warmer than normal and 6% warmer than the prior year, and with December reflecting 10% warmer weather. Our field operations continue to do an excellent job managing selling prices in a lower but at times volatile commodity price environment and are leveraging our efficient operating model to help manage expenses.
Thanks, Devin and good morning, Thank you all for joining us today.
The first quarter of fiscal 2024 was dominated by widespread unseasonably warm weather, particularly during the month of December which represents the most critical month of the quarter for heat related demand.
However continued improvements in our customer base growth and retention initiatives combined with active crop drying demand in the agricultural sector helped to mitigate the adverse impact of the warmer weather on volumes.
Propane volumes for the first quarter of fiscal 2024 were down just 2% compared to the prior year first quarter.
Bright despite average heating degree days that were 9% warmer than normal and 6% warmer than the prior year.
And with December reflecting 10% warmer weather.
Our field operations continue to do an excellent job managing selling prices and a lower but at times volatile commodity price environment.
And are leveraging our efficient operating model to help manage its expenses.
Michael A. Stivala: For the quarter, adjusted EBITDA was $75.2 million, a decrease of $14.8 million from the prior year. In our renewable natural gas operations we acquired at the beginning of the second quarter of last year, we have taken a number of steps to integrate the business and install the kind of operating disciplines, efficiencies, safety practices, and leadership that we have developed over the decades of operating our propane business to be recognized as best-in-class operators. To highlight some of our achievements since taking ownership of these assets, We terminated the third-party operating contracts at both the Stanfield, Arizona, and Columbus, Ohio facilities.
For the quarter adjusted EBITDA was $75 2 million a decrease of $14 8 million from the prior year.
And our renewable natural gas operations, we acquired at the beginning of the second quarter of last year.
We have taken a number of steps to integrate the business and install the kind of operating disciplines efficiencies safety practices and leadership that we have developed over the decades of operating our propane business to be recognized as best in class operators.
To highlight some of our achievements since taking ownership of these assets.
We terminated the third party operating contracts at both the Stanfield, Arizona in Columbus, Ohio facilities.
Michael A. Stivala: These locations are now staffed with employees of our Suburban Renewable Energy subsidiary, including the Facilities Manager for the Stanfield location, who is now overseeing all of our R&G facilities. We exited the management services agreement that was supported by the seller, Equilibrium Capital Group, two years ahead of schedule. We've increased the intake of local food and municipal waste to enhance the opportunity for improved tipping fee revenues and increased production of D5 RNG. We are now selling nutrient-rich digestate from our Stanfield facility, which is a byproduct of R&G production, the material remaining after the anaerobic digestion of the biodegradable feedstock, and we are selling that to local feedstock fertilizer producers to provide added revenue. We have made capital improvements to the production equipment to increase efficiency and enhance production output of both D3 and D5 RNG.
These locations are now staffed with employees of our suburban renewable energy subsidiary, including the facilities manager for the Stanfield location, who is now overseeing all of our R&D facilities.
We exited the management services agreement that was supported by the seller equilibrium capital group two years ahead of schedule.
We've increased the intake of local food and municipal waste to enhance the opportunity for improved tipping fee revenues and increased production of D. Five R&D.
We are now selling nutrient rich digest eight from our Stanfield facility, which is a byproduct of RMG production the material remaining after the anaerobic digestion of the biodegradable feedstock.
And we and we are selling that to local feedstock for fertilizer producers to provide added revenue streams.
We have made capital improvements to the production equipment to increase efficiencies and enhance production output of both D. Three N D five RMG.
Michael A. Stivala: And we are beginning to develop relationships with additional dairy farms in the Stanfield area to potentially increase the manure intake and, in turn, increase the amount of RNG output. And finally, we are continuing to execute on our capital improvement plans for the installation of R&G upgrade equipment at our Columbus, Ohio facility and are advancing the engineering and construction of our anaerobic digester facility at Adirondack Farms in upstate New York. We expect construction of the Columbus facility to be completed in the early part of fiscal 2025, while we have experienced some delays in construction at Adirondack Farms due to permitting delays.
And we are beginning to develop relationships with additional dairy farms and the stanfield area to potentially increase the manure intake.
And in turn increase the amount of Orange R&D output.
And finally, we are continuing to execute on our capital improvement plans for the installation of RMG upgrade equipment at our Columbus, Ohio facility.
And are advancing the engineering and construction of our anaerobic digester facility at Adirondack farms in upstate New York.
We expect construction for the Columbus facility to be completed in the early part of fiscal 2025, while we have experienced some delays in construction at Adirondack farms due to permitting delays.
Michael A. Stivala: So while warm weather weighed on customer demand, we continue to manage the things we can control, and we remain steadfast in our commitment to our strategic growth objective. There is still a lot of heating season ahead.
So while warm weather weighed on customer demand, we continue to manage the things we can control and we remain steadfast in our commitment to our strategic growth objectives.
There is still a lot of heating season ahead, our operating personnel are very well prepared to handle any surge in demand from colder weather.
Michael A. Stivala: Our operating personnel are very well prepared to handle any surge in demand from colder weather, such as some of the extreme cold conditions experienced in January 2024, as well as to adapt in the event of further softness in weather-related demand as the season progresses. In a moment, I'll come back for some closing remarks and provide added color on our strategic initiatives. However, at this point, I'll turn the call over to Mike Kuglin to discuss our first quarter results in more detail.
Such such as some of the extreme cold conditions experienced in January 2024, as well as to adapt in the event of further softness in weather related demand as the season progresses in.
In a moment I'll come back for some closing remarks and provide added color on our strategic initiatives. However, at this point I'll turn the call over to Mike <unk> to discuss our first quarter results in more detail, Mike. Thanks, Mike and good morning, everyone to be consistent with previous reporting as I discuss our first quarter results I am excluding the impact.
Michael A. Kuglin: Thanks, Mike, and good morning, everyone. To be consistent with previous reporting, as I discuss our first quarter results, I am excluding the impact of the unrealized mark-to-market adjustment on our commodity hedges, which resulted in an unrealized loss of $10.8 million for the first quarter, compared to an unrealized loss of $13.7 million in the prior year's first quarter. Excluding these non-cash items, as well as the non-cash equity and earnings of unconsolidated subsidiaries accounted for under the equity method and acquisition-related costs in the prior year, net income for the first quarter was $40.4 million, or $0.63 per common unit, compared to net income of $60.3 million, or $0.95 per common unit, in the prior year. I guess EBITDA for the first quarter was $75.2 million compared to $90 million in the prior year.
Of unrealized mark to market adjustments on our commodity hedges.
Which resulted in an unrealized loss of $10 $8 million for the first quarter.
Fair to an unrealized loss of $13 $7 million in the prior year first quarter.
Excluding these noncash items as well as the noncash equity and earnings of unconsolidated subsidiaries accounted for under the equity method.
And acquisition related costs and a prior year net income for the first quarter was $44 million or <unk> 63 per common unit.
To net income of $63 million or <unk> 95 cents per common unit in the prior year.
Adjusted EBITDA for the first quarter was $75 $2 million compared to $90 million in the prior year.
As Mike mentioned, our earnings for the quarter were impacted by lower heat related demand, resulting from a warmer weather pattern and continued inflationary pressures on our expenses, but benefited from favorable customer base activity, resulting from organic growth and some of our greenfield expansion efforts and contributions from the R&D production facilities.
That we acquired at the beginning of the prior year second quarter.
Retail propane gallons sold $106 5 million gallons were 2% lower than the prior year first quarter, primarily due to the impact of inconsistent and widespread unseasonably warm temperatures on heat related demand.
Michael A. Kuglin: As Mike mentioned, our earnings for the quarter were impacted by lower heat-related demand resulting from a warmer weather pattern and continued inflationary pressures on our expenses, but we benefited from favorable customer-based activity resulting from organic growth and some of our greenfield expansion efforts and contributions from the R&G production facilities that we acquired at the beginning of the prior year's second quarter. Retail propane gallons sold, 106.5 million gallons, were 2% lower than a prior first quarter, primarily due to the impact of inconsistent and widespread and seasonably warm temperatures on heat-related demand. Forests fell set by higher agricultural volumes resulting from strong crop drying demand in the early part of the quarter.
You're all set by higher agricultural volumes, resulting from strong crop drying demand in early part of the quarter.
Solid customer base management.
Yeah.
With respect to the weather average temperatures during the first quarter were 9% warmer than normal and 6% warmer than the prior year first quarter.
Average temperatures for the month of December which is the most critical months for heat related demand in the first quarter was 10% warmer than both normal and December 2022.
From a commodity perspective propane inventory levels in the U S experienced a seasonal decline during the quarter.
It remained elevated relative to historical levels for this time of the year.
At the end of the first quarter U S propane inventories were at $82 6 million barrels.
Michael A. Kuglin: Solid Customer Base Management. With respect to the weather, average temperatures during the first quarter were 9% warmer than normal and 6% warmer than the prior year first quarter. Average temperatures for the month of December, which is the most critical month for heat-related demand in the first quarter, were 10% warmer than both normal and December 2022.
Which was 2% higher than December 2022 levels in.
7% higher than the five year average for December.
As a result of the increase in inventories and other factors wholesale propane prices for the first quarter of <unk> 67 cents per gallon basis, Mont Belvieu decreased 17% compared to the prior year first quarter and 3% for the fourth quarter of fiscal 2023.
Since the end of the first quarter and with a burst of cold weather in January.
Michael A. Kuglin: From a commodity perspective, propane inventory levels in the U.S. experienced a seasonal decline during the quarter but remain elevated relative to historical levels for this time of the year. At the end of the first quarter, U.S. propane inventories were at 82.6 million barrels, which was 2% higher than December 2022 levels and 7% higher than the five-year average for December. As a result of the increase in inventories and other factors, wholesale propane prices for the first quarter of 67 cents per gallon on a Mont Belvieu basis decreased 17% compared to the prior first quarter.
<unk> prices have increased significantly from the average prices for the first quarter with posted prices now in excess of 90 cents per gallon.
Excluding the impact of the mark to market adjustments on our commodity hedges that I mentioned earlier.
Total gross margin of $223 $6 million for the first quarter decreased $4 $9 million or two 2% compared to the prior year.
Primarily due to lower volume sold and lower propane unit margins offset to an extent by margin contribution from the LNG assets acquired at the end of December 2022.
Excluding the impact of the unrealized mark to market adjustments propane unit margins for the first quarter decreased five cents per gallon or two 8%.
<unk> to the prior year, primarily due to the mix of volume with a higher concentration of commercial and industrial volumes they tend to be less weather sensitive and residential volumes as well as from a less favorable benefit from commodity hedges that matured during the period compared to last year.
Michael A. Kuglin: 3% for the fourth quarter of fiscal 2023. It's the end of the first quarter, and with a burst of cold weather in January, propane prices have increased significantly from the average prices for the first quarter, with posts of prices now in excess of 90 cents per gallon, excluding the impact of the mark to market adjustments on our commodity hedges that I mentioned earlier. Total gross margin of $223.6 million for the first quarter decreased $4.9 million, or 2.2% compared to the prior year, primarily due to lower volume sold and lower propane unit margins, offset to an extent by margin contribution from the R&G assets acquired at the end of December 2022. Excluding the impact of the unrealized market-to-market adjustments, propane unit margins for the first quarter decreased $0.05 per gallon, or 2.8%, compared to the prior year, primarily due to the mix of volume, with a higher concentration of commercial and industrial volumes that tend to be less weather-sensitive than residential volumes, as well as from a less favorable benefit from commodity hedges that matured during the period compared to last year.
Although total propane unit margins decrease due to volume mix, we reported an increase in unit margins in each of our customer segments compared to the prior year first quarter due to effective selling price management during a period of declining commodity prices.
With respect to expenses combined operating and G&A expenses of $147 $6 million increased $9 $8 million or seven 2% compared to the prior year, primarily due to higher payroll and benefit related costs higher costs in other areas due to persistent inflation as well as the operating costs.
Associated with our R&D and production facilities.
Net interest expense of $18 $2 million for the first quarter increased $2 $2 million or 13, 7% due to a higher level of average outstanding borrowings under our revolving credit facility to fund.
The prior year Orange acquisition, coupled with higher benchmark interest rate for borrowings under the revolver.
What was the impact of the $86 million in green bonds assumed in the <unk> acquisition.
Total capital spending for the quarter of $11 $2 million was marginally higher than the prior year first quarter, primarily due to higher growth capex associated with the construction of the gas upgrading equipment at our Columbus, Ohio facility and ongoing construction of the R&D facility at Adirondack farms.
Michael A. Kuglin: Although total propane unit margins decreased due to volume mix, we reported an increase in unit margins in each of our customer segments compared to the prior year first quarter due to the effect of selling price management during a period of declining commodity prices. With respect to expenses, combined operating and G&A expenses of $147.6 million increased by $9.8 million, or 7.2% compared to the prior year, primarily due to higher payroll and benefit-related costs. Higher costs in other areas due to persistent inflation as well as the operating costs associated with our R&G production facilities. Net interest expense of $18.2 million for the first quarter increased $2.2 million, or 13.7%, due to a higher level of average outstanding borrowings under our revolving credit facility to fund the prior year R&G acquisition, coupled with higher benchmark interest rates for borrowings under the revolver, as well as the impact of the $80.6 million in green bonds assumed in the R&G acquisition.
Partially offset by a lower level of spending on propane tanks and cylinders as we leverage our inventory on hand.
Turning to our balance sheet.
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 that totaled $54 $8 million during the quarter.
Our consolidated leverage ratio for the trailing 12 month period ended December 2023 was $4 seven two times.
Although the leverage metric has been elevated relative to historical levels. Following the Orange acquisition, we remain well within our debt covenant requirement of 575 times.
As we previously mentioned <unk> in the projected run rate EBITDA contributions from the R&D facilities and a more normalized weather pattern.
From a consolidated leverage ratio approaches four times.
Well working capital needs to believe peak towards the end of the heating season late February early March time frame after which we expect to generate excess cash flows.
We will continue to remain focused on utilizing excess cash flows to strengthen the balance sheet and as opportunities arise to fund strategic growth, including growth capital for R&D projects.
We have more than ample borrowing capacity under our revolver to fund our remaining working capital needs for the heating season.
And as and as well as to support our capital expansion plans and ongoing strategic growth initiatives.
Michael A. Kuglin: Total capital spending for the quarter of $11.2 million was marginally higher than the prior first quarter, primarily due to higher growth capex associated with the construction of the gas upgrading equipment at our Columbus, Ohio facility and ongoing construction of the RNG facility at Adirondack Farms, partially offset by a lower level of spending on propane tanks and cylinders as we leverage our inventory on hand. Burning or Balanchine?
Back to you Mike Thanks, Mike.
As announced on January 25th our board of Supervisors declared our quarterly distribution of <unk> 32, and a half cents per common unit in respect of our first quarter of fiscal 2024 that equates to an annualized rate of $1 30 per common unit, our quarterly distribution will be paid on February 13th to our unit holders of record as of February six.
<unk>.
Our distribution coverage continues to remain healthy at two point or three times for the trailing 12 month period ended December 2023.
Michael A. Kuglin: 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 that's a total of $54.8 million during the quarter. Our consolidated leverage ratio for the trillion 12-month period ended December 2023 was 4.72 times.
Looking ahead to the rest of the rest of fiscal 2024 as I stated earlier, there is still a significant amount of the heating season ahead, and we are well positioned both operationally and financially to adapt as demand dictates in fact, we experienced a blast of cold weather across our operating footprint during the last two weeks.
Michael A. Stivala: Although the leverage metric has been elevated relative to our historical levels following the Orangey Acquisition, we remain well within our deck covenant requirement of 5.75 times. As we previously mentioned, factoring in the projected run rate EBITDA contributions from the R&G facilities in a more normalized weather pattern, the Proforma Consolidated Leverage Ratio approaches four times. Furthermore, working capital needs typically peak towards the end of the heating season, late February and early March timeframe, after which we expect to generate excess cash flows. We will continue to remain focused on utilizing excess cash flows to strengthen the balance sheet and, as opportunities arise, to fund strategic growth, including growth capital for our R&G project. We have more than ample borrowing capacity under our revolver to fund our remaining working capital needs for the heating season and as well as to support our capital expansion plans and ongoing strategic growth initiatives. Back to you, Mike. Thanks, Mike. As announced on January 25th, our Board of Supervisors declared a quarterly distribution of $0.325 per common unit in respect of our first quarter of fiscal 2024. That equates to an annualized rate of $1.30 per common unit.
As of January <unk>.
Driving heat related demand and solid volume performance for the month.
And our R&D operations with the investments we have made in stanfield to improve efficiencies within the manure handling and processing activities. We are starting to see increasing production levels. While overall revenues have been influenced by lower benchmark natural gas prices and recent declines in California L CFS values.
In addition, we are ramping up our internal resources to support the growth of our R&D platform and focusing on developing long term offtake contracts in the voluntary RMG market, particularly for when Columbus, and Adirondack farm's facilities begin producing LNG.
As we have stated in previous quarters, our long term strategic growth plan is to continue to foster the growth of our core propane business, while making strategic investments and lower carbon renewable energy alternatives. We are committed to positioning suburban propane for long term growth and sustainability enhancing the career develop.
<unk> opportunities for our valued employees and creating long term value for all of our key stakeholders.
The foundation of our ongoing success continues to be rooted in our more than 3200 dedicated employees at suburban propane.
And their hard work and unwavering focus on the safety and comfort of our customers and the communities we serve.
Want to take a moment to thank them all for their efforts, especially in some of the challenging conditions. They have faced in the latter part of January.
Michael A. Stivala: Our quarterly distribution will be paid on February 13th to our unit holders of record as of February 6th. Our distribution coverage continues to remain healthy at 2.03 times for the trailing 12-month period ended December 2023. Looking ahead to the rest of fiscal 2024, as I stated earlier, there's still a significant amount of the heating season ahead, and we are well positioned both operationally and financially to adapt as demand dictates. In fact, we experienced a blast of cold weather across our operating footprint during the last two weeks of January, driving heat-related demand and solid volume performance for the month.
And as always we appreciate your support and attention today and would now like to open the call up for questions and Jason If you could help us with that.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at.
At this time, we'll pause momentarily to assemble our roster.
Our first question comes from Gabe Moreen from Mizuho. Please go ahead.
Good morning, everyone.
Hey.
Your question around Sps units have got them included.
Some MLP indices crude seems to have had a benefit I'm just wanted to be curious about how you're thinking about whether that matters to your cost of capital going forward specifically as it comes due.
Michael A. Stivala: In our R&G operations, with the investments we have made in Stanfield to improve efficiencies within the manure handling and processing activities, we are starting to see increasing production levels, while overall revenues have been influenced by lower benchmark natural gas prices and recent declines in California LCFS values. In addition, we are ramping up our internal resources to support the growth of our R&G platform and focusing on developing long-term off-take contracts in the voluntary R&G market, particularly when the Columbus and Adirondack Farms facilities begin producing R&G. As we have stated in previous quarters, our long-term strategic growth plan is to continue to foster the growth of our core propane business while making strategic investments in lower carbon renewable energy alternatives. We are committed to positioning suburban propane for long-term growth and sustainability, enhancing the career development opportunities for our valued employees, and creating long-term value for all of our key and stakeholders.
Evaluating acquisitions doing organic investments or even delevering the balance sheet from here. So I'm just curious if that changes your thinking at all.
That's a great question gave them and obviously, we're happy about the performance of our units where we're happy to be included in the index that that happened in mid December and certainly had an immediate impact.
On the trading activity of our units.
And we also have seen some some additional run up as of late.
And so we're certainly pleased with that I think it's also a good recognition of the the strategic.
Initiatives in the pivoting of our business that we're doing with this great propane operation.
We run really well and now positioning the company for long term success and a.
And in the renewable energy space. So as we think about funding future growth, we always keep in mind, a fair out we try to be fairly balanced in the way we.
We attempt to fund growth and certainly with our common units at a.
Michael A. Stivala: The foundation of our ongoing success continues to be rooted in our more than 3,200 dedicated employees at Suburban Propane and their hard work and unwavering focus on the safety and comfort of our customers and the communities we serve. I want to take a moment to thank them all for their efforts, especially in some of the challenging conditions they have faced in the latter part of January.
A much better cost of capital than they were say a few months ago. It certainly provides added flexibility or opportunities are that.
That we that that perhaps weren't as obvious before.
But you know at this point I don't see the need for us to access additional capital.
Unless something more significant comes our way with respect to an acquisition that we think adds to our long term growth strategy.
Michael A. Stivala: And as always, we appreciate your support and attention today and would now like to open the call up for questions. Jason, could you please help us with that? Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the key.
We can we can continue to.
Bring the leverage down naturally as as we generate excess cash flow in the business and as the earnings of the RMG platform continue to to to ramp up to a more run rate capacity over time so.
So nothing nothing just I would say nothing to just try to repair the balance sheet, because we could do that.
Operator: To withdraw your question, please press star, then... At this time, we'll pause momentarily to assemble a ride. Our first question comes from Gabe Maureen from. Please go ahead. Good morning, everyone.
You know on our own.
Thanks, Mike I appreciate that it certainly seems like you have a lot of your on your fleet from an <unk> standpoint at the moment and it sounds like Youre evaluating.
Michael A. Stivala: Hey, I just have a question around, you know, SPH units have gotten included in some MLP indices, and it seems to have had a benefit. I'm just curious about how you're thinking about whether that matters to your cost of capital going forward, specifically as it comes to evaluating acquisitions, doing organic investments, or even delevering the balance sheet from here. So I'm just curious about whether you're changing your
Additional dairy farms and things like that but I'm. Just curious are you still also.
Actually interested in her reevaluating propane deals at this point I was really your focus at this point.
<unk> standpoint, pivoting entirely at RMG and hydrogen in your transition platforms.
Yeah.
No we are fully committed to propane Gabe and we have actually we have for this time of year, we have a decent pipeline of propane opportunities that we're pretty excited about so so no. We are not we're not totally pivoting. We're balanced we have a great propane business that we believe given the clean.
Michael A. Stivala: That's a great question, Gabe. I mean, obviously, we're happy about the performance of our units. We're happy to be included in the index that happened in mid-December and certainly had an immediate impact on the trading activity of our units. And we also have seen some additional run-up as of late. And so we're certainly pleased with that. But I think it's also good recognition of the strategic initiatives and the pivoting of our business that we're doing with this great propane operation that we run really well and now positioning the company for long-term success in the renewable energy space. So as we think about funding future growth, we always keep in mind that we try to be fairly balanced in the way we attempt to fund growth.
Qualities of propane and it's going to have a permanent position in <unk>.
In energy to serve the needs of communities long term and we intend to be the.
The relied upon.
Energy provider to our customers and communities for the long term.
So no we are very very much focused on our core propane business and also being strategic to add to the.
Renewables platform.
And then if I could just ask one last one around you mentioned, Mike the bilateral contracts that you hope to sign for.
Michael A. Stivala: And certainly, with our common units at a much lower cost of capital than they were, say, a few months ago, it certainly provides added flexibility or opportunities that perhaps weren't as obvious before. But at this point, I don't see the need for us to access additional capital unless something more significant comes our way with respect to an acquisition that we think adds to our long-term growth strategy. We can continue to bring the leverage down naturally as we generate excess cash flow in the business and as the earnings of the R&G platform continue to ramp up to more run rate capacity over time. So nothing just – I would say nothing to just try to repair the balance sheet because we could do that on our own.
For some of your R&D assets can you maybe give us more color on how those conversations are going potential timing, particularly in light of I think.
Maybe some of the permitting issues.
I'm just curious about how.
That stands at the moment.
Yes, we're in the early stages of that Gabe.
And I actually think the voluntary market for RMG is also really in the early stages and so.
So it's going to take time, we have we have time given the construction that.
<unk> needs to happen at both Columbus and Adirondack.
The stanfield assets already have a long term.
Contract.
That is really based on natural gas and <unk>.
Michael A. Stivala: Thanks, Mike. I appreciate that. It certainly seems like you have a lot on your plate from an RNG standpoint at the moment, and it sounds like you're evaluating additional Diary Farms, and things like that.
Environmental attribute prices.
As the voluntary market develops we will also take a look at whether it makes more sense to transfer that into a more fixed price environment, but for now we have an outlet for all the R&D that we produce.
Michael A. Stivala: But I'm just curious, are you still potentially interested in or evaluating propane deals at this point, or is your focus at this point from a growth standpoint really pivoted entirely to RNG and hydrogen in your transition platforms, I guess? No, we are fully committed to propane, Gabe, and we actually have for this time of year a decent pipeline of propane opportunities that we're pretty excited about. So, so, no, we are not totally pivoting. We are we're balanced.
We will have an outlet for the R&D, we start producing in Columbus, and Adirondack the but we we believe that the voluntary market needs to develop and will develop.
We intend to be part of.
Part of that process to drive that.
Great. Thanks, Mike.
Sure. Thanks.
If you have a question. Please press Star then one and our next question comes from Ned <unk> from Wells Fargo. Please go ahead.
Hey, good morning, Thanks for taking the questions.
And as you may be talk about hey.
Could you talk about the cadence of Capex spending this year.
And whether the previously communicated 25% to $35 million.
Michael A. Stivala: We have a great propane business that, given the clean qualities of propane, is going to have a permanent position in energy to serve the needs of communities for the long term, and we intend to be a, you know, the, relied upon energy provider to our customers and communities for the long term. So, so, no, we are very, very much focused on our core propane business and also being strategic to add to the renewables platform. And then, if I could just ask one last question around, you mentioned the bilateral contracts that you hope to sign for some of your R&G assets. Can you maybe give us more color on how those conversations are going, potential timing, particularly in light of, I think, maybe some of the permitting issues? I'm just curious about how that stands at the moment.
Capex range for R&D is still reasonable given some of the delays you noted for the Adirondack facility.
Yes. Good morning, net at this time I would say, yes. The 25 to 35 is still a fair estimate although it's looking like we will probably come in towards the lower end of that range, but we're still progressing as planned and as as things develop and in future quarterly reports, we will give an additional update but at this point.
Still holding firm on the 25% to 35.
Estimate.
Got it thanks for that and then a question on the equilibrium assets and more specifically.
The likelihood of paying an earn out payment in fiscal 2026, I believe the purchase agreement had a clause with respect to the achievement of certain EBITDA thresholds, which trigger the potential additional payment to the sellers. So I guess based on how the assets have performed to date and given the ongoing work on the Columbus facility.
Michael A. Stivala: Yeah, we're in the early stages of that, Gabe. And actually, I think the voluntary market for R&G is also really in the early stages. And so it's going to take time. But we have time, given the construction that needs to happen at both Columbus and Adirondack. The Stanfield assets already have a long-term contract that is really based on natural gas and environmental attribute prices. As the voluntary market develops, we will also take a look at whether it makes more sense to transfer that into a more fixed price environment.
<unk>.
Do you anticipate that suburban we'll be paying an earn out in fiscal 2026.
<unk>.
We have accrued for the potential estimated payout for that.
And we continue to monitor that quarterly and at this point in time, we have not made any adjustments to the reserves that we have established but it is something that we monitor quarterly and at any point in time, when we do true up that reserve, we will report on it and communicate it.
Understood and then one last one if I may can you maybe elaborate on your comment that you have a full pipeline of propane M&A opportunity more specifically are these mom and pop opportunities across your footprint or are these larger packages.
Michael A. Stivala: But for now, we have an outlet for all the R&G that we produce. We will have an outlet for the R&G we start producing in Columbus and Adirondack. But we believe that the voluntary market needs to develop and will develop.
No. It's still it's still mom and pop type opportunities in that and very strategic markets for us.
Michael A. Stivala: And we intend to be part of that process to drive that. Great. Thanks, Mike. Sure, Gabe.
And I think.
My comment was really about the.
The timing, we don't typically see a lot of activity in this quarter because we're in the middle of the heating season, but but we've had a couple of these that we've we've had in our pipeline for for a bit of time in.
Operator: Again, if you have a question, please press star, then 1. And our next question comes from Ned Baramoff from Wells Fargo. Please go ahead.
We're feeling good about.
Michael A. Kuglin: Hey, good morning; thanks for taking the questions. Could you maybe talk about the cadence of capex spending this year and whether the previously communicated 25 to 35 million capex range for RNG is still reasonable given some of the delays you noted for the Adirondack facility? Yes, good morning, Ned.
How those are developing so so it's really more bolt on small.
Strategic acquisitions.
Understood. That's all I had thanks for the time.
Great. Thanks Ned.
Again, if you have a question. Please press Star then one.
Okay.
There are no more questions in the queue.
This concludes our question and answer session I would like to turn the conference back over to Michael <unk> for any closing remarks.
Michael A. Kuglin: At this time, I would say yes, the 25 to 35 is still a fair estimate, although it's looking like we will probably come in towards the lower end of that range, but we're still progressing as planned and as things develop, and in future quarterly reports, we'll give an additional update, but at this point, we're still holding firm on the 25 to 35. Got it. Thanks for that. And then a question on the equilibrium assets and, more specifically, the likelihood of paying an earn-out payment in fiscal 2026. I believe the purchase agreement had a clause with respect to the achievement of certain EBITDA thresholds which trigger the potential additional payment to the seller.
Great. Thanks, Jason and thank you all again for joining us today.
Look forward to speaking with you at the end of our second quarter results and please stay safe and warm as the heating season progresses.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Yes.
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Michael A. Kuglin: So, based on how the assets have performed to date and given the ongoing work on the Columbus facility, do you anticipate that Suburban will be paying an earn-out in fiscal 2026? We have accrued for the potential estimated payout for that, and we continue to monitor that quarterly, and at this point in time, we have not made any adjustments to the reserves that we have established, but it is something that we monitor quarterly, and at any point in time, when we do true up that reserve, we will report on it and communicate. understood. And then, one last one, if I may, could you maybe elaborate on your comment that you have a full pipeline of propane M&A opportunities? More specifically, are these mom-and-pop opportunities across your footprint, or are these larger packages?
Michael A. Stivala: No, it's still mom and pop type opportunities, Ned, in very strategic markets for us. And I think, you know, my comment was really about the timing. We don't typically see a lot of activity in this quarter because we're in the middle of the heating season, but we've had a couple of these that we've had in our pipeline for a bit of time. And I think we're feeling good about how those are developing. So it's really more of a bolt-on, small, strategic acquisition.
Michael A. Stivala: I'm just good. That's all I had. Thanks for the time. Great. Thanks, Ned. Again, if you have a question, please press star, then 1. There are no more questions in the queue. That concludes our question and answer session. I'd like to turn the conference back over to Michael Stivala for any closed questions.
Michael A. Stivala: Thanks, Jason. And thank you all again for joining us today. We look forward to speaking with you at the end of our second quarter results. And please stay safe and warm as the heating season progresses. The conference is now concluded. Thank you for attending today's presentation. Suburban Propane Partners LP Suburban Propane Partners LP, BF-WATCH TV 2021