Q4 2024 Suburban Propane Partners LP Earnings Call
Good morning, ladies and gentlemen, and welcome to the suburban propane partners fourth quarter and fiscal year end earnings conference call. At this time all lines are in listen only mode. Following the presentation. We will conduct a question and answer session. If at any time. During this call you require immediate assistance. Please press star zero for the opera.
This call is being recorded on Thursday November 14th 2024, I would now like to turn the conference over to Davin, Dambrosio, Vice President and Treasurer. Please go ahead.
Davin Dambrosio: Thank you Emily good morning, everyone. Thank you for joining us this morning for our fiscal 2020 for fourth quarter and full year earnings Conference call.
Davin Dambrosio: Joining me. This morning are Mike stuff, all of our President and Chief Executive Officer, Mike <unk>, Chief Financial Officer.
Steve Boyd, Chief operating officer, and Alex Centeno, our senior Vice President of operations.
Davin Dambrosio: Morning, We will review our fourth quarter 2020 for fourth quarter and full year financial results along with our current outlook for the business.
Davin Dambrosio: Once we've concluded our prepared remarks, we will open the session to question.
Davin Dambrosio: Our 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 results of operations.
Davin Dambrosio: These forward looking statements involve certain risks and uncertainties.
Davin Dambrosio: We've 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.
Davin Dambrosio: Which can be viewed.
Davin Dambrosio: Viewed on our website at suburban propane dot com.
Davin Dambrosio: 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.
Davin Dambrosio: Our annual report on Form 10-K for the fiscal year ended September 28, 2024, which contains additional disclosure regarding forward looking statements and risk factors will be filed on or about November 27th.
Once filed copies may be obtained by contacting the partnership or the SEC.
Davin Dambrosio: 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 SEC. This morning.
Davin Dambrosio: Form 8-K will be available through a link in the Investor Relations section of our website.
Speaker Change: At this time I will turn the call over to Mike <unk> for some opening remarks, Mike.
Mike Stuff: Thanks, Davin and thank you all for joining us this morning.
Mike Stuff: Before I discuss our performance and accomplishments for fiscal 2024, I'd like to take a moment to comment on the two hurricanes that hit the southeast territory in late September and early October within two weeks of each other.
Mike Stuff: Hurricane Saline and Milton delivered historic devastation and sadly significant losses of life and homes, especially in Western North Carolina, where we have a very strong market presence.
Mike Stuff: In the face of some horrific operating conditions and in many instances personal challenges at home the.
Mike Stuff: The dedication of our safety personnel, our drivers service technicians customer service reps and local management teams was nothing short of remarkable.
Mike Stuff: I am so proud of how our employees executed our emergency preparedness and response plan to assess the situation.
Mike Stuff: Secure assets and quickly deploy to serve our customers and local communities in the immediate aftermath of the storms.
Mike Stuff: I'm also proud of the area leadership team for their thoughtful preparation in advance of the storms to relocate all of our vehicles to higher ground, which help protect our fleet and.
Mike Stuff: And prepares to serve our customers when it was safe to do so.
Mike Stuff: We also had numerous drivers and technicians from around the country volunteer to travel into the affected areas to help our local teams meet the increased demand for propane deliveries and related service work.
The dedication of our people is reflective of our culture and is a true testament to the resiliency of our operating model.
Mike Stuff: Our commitment to excellence and our unwavering focus on serving our customers when they need us most.
Mike Stuff: We also work closely with our long term partner of the American Red Cross to support their disaster relief efforts in Florida, and North Carolina.
Mike Stuff: While the devastation from these hurricanes was unthinkable and our Hearts certainly go out to those that lost loved ones or experienced major damage.
Mike Stuff: Efforts of our teams have truly been inspiring.
Mike Stuff: I want to thank everyone for their incredible work.
And on one final note.
Mike Stuff: The increased demand for propane in the aftermath of these storms as recognition of the resilient power of propane as a versatile portable clean and truly on demand energy source that is relied upon to help communities recover across critical applications, including backup power generation heating local shelters power in vehicles in the.
Mike Stuff: Equipment, and supporting local food food distribution to communities in need.
Now looking at our performance for fiscal 'twenty 'twenty, four which ended at the end of September the <unk>.
Mike Stuff: Last year was categorized by unseasonably warm temperatures during the peak heating months that continued into the third quarter with periods of extreme heat in certain parts of the country.
Mike Stuff: While the wet warm weather negatively impacted customer demand for heating purposes, we were once again able to leverage our experience in managing our business through a challenging heating season, and our operating personnel did an outstanding job of managing the things they can control.
Mike Stuff: Namely keeping safety as our highest priority.
Mike Stuff: Providing exceptional service to our customers managing selling prices and controlling expenses.
Mike Stuff: In addition benefits of our customer base growth and retention initiatives, particularly in our counter seasonal customer segments over the past several years combined.
Mike Stuff: Combined with recent high quality propane acquisitions contributed to net customer base growth that help offset some of the shortfall in heat related demand.
Mike Stuff: As a result volumes for the fiscal 2024 were down just 3% compared to the prior year. When you exclude the impact of the additional week of operations in fiscal 2023.
Mike Stuff: Adjusted EBITDA for fiscal 2024 was $250 million compared to $275 million in the prior year.
Mike Stuff: Notwithstanding the unfavorable weather and the lower earnings compared to the prior year, we had a number of key accomplishments in fiscal 2024 in support of our long term strategic growth initiatives to.
Mike Stuff: To highlight a few.
Mike Stuff: We deployed capital to enhance the efficiency and operating performance of our R&D production facility in Stanfield, Arizona, driving a culture of operational excellence and safety and the R&D platform that we are known for within our propane business.
Mike Stuff: Our efforts have resulted in increased R&D production levels, reaching a peak daily injection of 535 F&B to use.
Mike Stuff: <unk> injection for fiscal 'twenty to 'twenty four overall average 1049 M. A btu per day, representing an increase of 20% compared to the prior year.
Mike Stuff: We also advanced our capital projects to install orange upgrade equipment at our Columbus, Ohio facility and.
Mike Stuff: In engineering and construction activities for anaerobic digester in upstate New York.
Mike Stuff: Although we experienced some minor delays with air permitting and zoning, we continue to expect both facilities to be fully operational in the second half of 2025.
Mike Stuff: Once all three R&D facilities operating at run rate capacity, we expect to be generating revenues from tipping fees.
Mike Stuff: <unk> sales on approximately 850000 MMP to use per year, environmental attribute credits and fertilizer sales.
Mike Stuff: In addition, assuming the provisions of the inflation reduction act remain in place under the New administration in Washington.
Mike Stuff: Our R&D sales will be eligible for production tax credits starting in January 2025.
Mike Stuff: And the construction cost for the upstate New York facility will be partially offset by investment tax credits.
We also continue to support our unconsolidated subsidiaries over on fuels and independents hydrogen as they make progress towards scaling their platforms.
Mike Stuff: We are the only retailer in the United States that are delivering low carbon propane plus <unk>, which we are currently delivering at a 4% blend level to our forklift customers in southern California, and we continue to test forklift and is at a higher blend level to further lower the carbon footprint.
Mike Stuff: And our core propane business, we acquired and successfully integrated three well run propane businesses in strategic markets in Florida, Nevada, and Texas for total consideration of approximately $14 million.
Mike Stuff: Just last week, we closed on a larger propane acquisition to expand our service territories in new Mexico and Arizona.
Mike Stuff: <unk> $53 million.
Mike Stuff: Closer to the future noncompete payments to acquire more than 14000, new customers and welcoming 55 employees into the suburban propane family.
Mike Stuff: We also continued to foster the growth of our Greenfield market expansion efforts and increased the number of active expansions in different parts of the country from line in fiscal 2023 to 18 in fiscal 2024.
Mike Stuff: We continue to focus on a renewable energy platform.
Mike Stuff: Part of which is to offer a lower carbon renewable propane alternative for customers to maintain their existing propane infrastructure.
Mike Stuff: While lowering their overall carbon footprint.
Mike Stuff: We secured additional contracts for incremental renewable propane gallons as they come online in 2025.
And we also have a number of exciting technology initiatives in our propane business to drive additional operating efficiencies and further enhance the overall customer experience.
Mike Stuff: With the excess cash flow generating capacity that our core propane business provides.
Mike Stuff: We're able to fund our capital projects and the investments in strategic propane acquisitions with a modest increase in debt of $19 million.
Mike Stuff: Finally, our efforts on a number of fronts received tremendous recognition in 2024.
Mike Stuff: We were recognized as a top company for women to work in transportation by the women in trucking Association for a culture that fosters gender diversity and career development opportunities.
Mike Stuff: For the second year in a row, we were named one of the best employers for veterans.
Mike Stuff: For 2024 by military times in recognition of our commitment to supporting service members veterans and their families.
For the third year in a row.
Mike Stuff: We were one of 10 finalists in the energy transition liquid gases category of the S&P Global Energy Awards for our strategic investments in renewable energy.
Mike Stuff: And our suburban cares platform received several prestigious awards, including as a finalist in the corporate impact category of the S&P Global Energy Awards for the fourth time in five years.
Mike Stuff: So despite the challenges presented by unseasonably warm weather, we had a very successful fiscal 2024.
Mike Stuff: We are executing on our long term strategic growth plan to foster the growth of our core propane business, while making strategic investments in the energy transition to lower carbon renewable energy alternatives and we remain patient and disciplined in order to maintain a strong balance sheet.
Speaker Change: A little later I will provide some closing remarks. However at this point, let me turn it over to Mike <unk>, who will discuss our full year and fourth quarter results in more detail Mike.
Speaker Change: Thanks, Mike and good morning, everyone I'll start by focusing on our full year results, which included 52 weeks of operations in fiscal 2024 compared to 53 weeks in the prior year.
Speaker Change: Give some color on our fourth quarter toward the end of my remarks.
Speaker Change: Consistent with previous reporting I'm, excluding the impact of unrealized noncash mark to market adjustments on our commodity hedges, which resulted in an unrealized loss of $14 $6 million in fiscal 2024.
Speaker Change: Compared to an unrealized loss of $3 $7 million in the prior year.
Speaker Change: Along with certain other noncash items and acquisition related transaction costs in the prior year.
Speaker Change: Excluding these items net income for fiscal 2024, with $107 $7 million or $1 68 per common unit.
Speaker Change: Impaired to $138 $4 million or $2.17 per common unit in the prior year.
Adjusted EBITDA for fiscal 2024 was $250 million compared to $275 million in the prior year.
Speaker Change: As Mike mentioned, our earnings for fiscal 2024 were impacted by lower heat related demand, resulting from warm weather during most of the heating season, but benefited from growth in our customer base unit margin expansion controlling our operating expenses and greater contributions from our Orangey operations.
Speaker Change: Retail propane gallons sold in fiscal 2024 were 378 million gallons, which was four 6% lower than the prior year, primarily due to the impact of widespread warmer weather throughout much of the heating season.
Speaker Change: In addition, the year over year comparison of our volumes was impacted by the additional week of operations in the fourth quarter of fiscal 2023, which contributed approximately $5 5 million gallons to the prior year.
With respect to the weather average temperatures for fiscal 2024 were 10% warmer than normal and 2% warmer than the prior year.
Speaker Change: The weather pattern during the critical months, leading season reflected average temperatures for the month of December there were 10% warmer than normal and the prior year.
Followed by January which was 4% warmer than normal, albeit cooler than the prior year to a brief burst of extremely cold temperatures in the middle of the month followed.
Followed by February, which was 12% warmer than normal and 1% warmer than the prior year.
Speaker Change: Alright commodity perspective wholesale propane prices during much of the first half of fiscal 2024 were generally lower than the same period last year.
Speaker Change: Trended higher than the prior year in the second half and result in average wholesale prices for the full year of <unk> 75 cents per gallon basis, Mont belvieu being essentially flat compared to the prior year.
Speaker Change: According to the most recent report from the energy Information Administration U S. Propane inventories at the end of last week were at 101 million barrels, which is 2% higher than the prior year and 8% higher than historical averages for this time of the year.
Speaker Change: Excluding the impact of the mark to market adjustments on our commodity hedges that I mentioned earlier total gross margin of $819 6 million for fiscal 2024 decreased $23 $2 million or two 7% compared to the prior year, primarily due to lower propane volumes sold.
Speaker Change: Offset to an extent by slightly higher propane unit margins and higher margin contribution from our Orangey operations.
Speaker Change: Excluding the impact of the unrealized mark to market adjustments.
Speaker Change: Unit margins for fiscal 2024 increased <unk> <unk> per gallon or one 3% due to effective selling price management, partially offset by volume mix, resulting from a higher concentration of commercial and industrial volumes they tend to be less weather sensitive than residential volumes.
Speaker Change: With respect to expenses, excluding a noncash pension settlement charge reported in operating expenses of $600000 during fiscal 2024 and acquisition related costs of $4 $7 million reported in general and administrative expenses during fiscal 2023.
Speaker Change: Mine operating and G&A expenses increased $1 $2 million or 0.2% compared to the prior year.
Speaker Change: The nominal increase in expenses was primarily due to higher payroll and benefit political us and higher self insurance costs substantially offset by lower volume related variable operating costs lower variable compensation and the impact of one less week of operations in fiscal 2024.
Interest expense of $74 $6 million for fiscal 2024 increased $1 $2 million compared to the prior year due to a higher level of average outstanding borrowings under our revolving credit facility.
Speaker Change: Total capital spending for fiscal 2020 for a $59 $4 million was $14 $5 million higher than the prior year.
Mainly due to growth capital associated with improving operating performance and R&D production at our facility in Stanfield, Arizona and from advancing construction efforts at our facilities in Columbus, Ohio, and Upstate New York.
For fiscal 2025 capital spending for our propane operations.
Speaker Change: To be consistent with historical levels, which is between $40 and $45 million in capex for the R&D projects is expected to range between 35% to $45 million, excluding the potential benefit of investment tax credits.
Speaker Change: We expect the capital spending at our R&D facility in upstate New York to qualify for the investment tax credit at a rate of 30%, which equates to a range of $6 million to $9 million in tax credits that will be earned when the asset is placed in service.
Speaker Change: We anticipate monetizing investment tax credits and production tax credits in the tax credit transfer market.
Speaker Change: Turning to our fourth quarter fiscal 2024 results.
Speaker Change: As I mentioned earlier, given the nature of our fiscal calendar fourth quarter of fiscal 2024 included 13 weeks of operations compared to 14 weeks in the prior year.
Speaker Change: Consistent with the seasonality of our business, we typically report a net loss for the fourth quarter.
Speaker Change: With that said and excluding the effects of certain items in both years, we reported a net loss of $35 million for the fourth quarter were 54 cents per common unit.
Speaker Change: Appeared to a net loss of $33 2 million or <unk> 52 cents per common unit in the prior year.
Speaker Change: Adjusted EBITDA for the fourth quarter was $800000 compared to $3 million in the prior year.
Speaker Change: Retail propane gallons sold during the fourth quarter decreased eight 1% compared to the prior year.
Speaker Change: Excluding the impact of the additional week of operations in the fourth quarter of fiscal 2023 floating volumes were flat compared to the prior year.
Speaker Change: Total gross margins decreased $13 1 million or nine 1%, primarily due to lower volume sold.
Speaker Change: Combined operating and G&A expenses decreased $11 million or seven 8%, primarily due to lower volume related variable operating costs.
Speaker Change: Lower variable compensation and the impact of one less week of operations.
Speaker Change: Turning to our balance sheet during.
Speaker Change: During the fiscal year, we utilized a combination of cash flows from operating activities and borrowings under our revolving credit facility to fund three strategic propane acquisitions for total consideration of $14 3 million as well as our growth capital expenditures to advance the construction activities at our Orange production facilities.
Speaker Change: To make additional investments in our unconsolidated subsidiaries.
Speaker Change: Total debt outstanding at the end of fiscal 2024 increased $19 million compared to September 2023, and our consolidated leverage ratio at the end of the fiscal year was 476 times.
Speaker Change: Although the leverage metric remains elevated relative to historical levels following the <unk> acquisition.
Speaker Change: And from the impact of warm weather on earnings we remain well within our debt covenant requirement of 575 times and continue to remain focused on strengthening the balance sheet.
Speaker Change: Our business generates a substantial amount of free cash flow, even under warm weather scenarios. It will continue to remain focused on utilizing excess cash flows to fund the planned growth capital within our R&D platform as well as to strengthen the balance sheet and as opportunities arise to fund strategic growth of our core print propane business and our renewable energy.
Speaker Change: Portfolio.
Speaker Change: We have more than ample borrowing capacity under our revolver to support our capital expansion plans and ongoing strategic growth initiatives.
Speaker Change: As we continue to focus on the execution of our long term strategic goals. We also stay focused on maintaining a strong balance sheet.
Mike Stuff: With that I'll turn it back to Mike.
Speaker Change: Thanks, Mike.
As announced in our October 24th Press release, our board of Supervisors declared our quarterly distribution of $32.05 per common unit in respect of the fourth quarter of fiscal 2024, which equates to an annualized rate of $1 30 per common unit.
Speaker Change: The quarterly distribution was paid on November 12 to our unitholders of record as of November five.
So just a few closing remarks regarding our long term strategy.
Speaker Change: As I've stated many times before we are uniquely positioned to support our customers and local communities on the journey to a lower carbon energy future.
Speaker Change: Given our core competencies and safety customer service and logistics expertise as a critical link and local distribution of energy.
Speaker Change: There is much discussion and debate about the energy transition and what is the right solution to lower greenhouse gas emissions.
Speaker Change: Many believe the future arrives by completely disrupting the status quo.
Speaker Change: And establishing a new paradigm.
Speaker Change: By pushing electrification as the sole solution to reducing greenhouse gas emissions.
Speaker Change: We have long contended that the world needs in all of the above approach that leverages. The best available technology for the applications to meet the growing energy needs of society, and a resilient affordable and sustainable way.
Speaker Change: Suburban propane provide solutions today in the form of traditional renewable and <unk> blended propane that has immediate benefits to lowering the carbon footprint across many applications.
Speaker Change: And we are continuing to invest in new even lower carbon energy solutions that will shape the future.
Speaker Change: Our legacy is built on reliability.
Speaker Change: Our future is being shaped by innovation.
Our sustainability efforts are not just about environmental responsibility.
Speaker Change: There are about investing in communities, creating opportunities for our people at.
Speaker Change: And enhancing the long term value for you our valued unitholders.
Speaker Change: Finally, I want to thank the more than 3200 employees for helping make fiscal 2020 for another very successful year for suburban propane. Despite the many challenges presented from this past heating season.
Speaker Change: As always I hope you and your families remain safe and healthy.
Speaker Change: Everyone, a very happy holiday season, we appreciate your support and attention and would now like to open the call up for questions. So Emily you want to help us with that.
Speaker Change: Absolutely. Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchstone phone you will hear a pump that your hand has been raised should you wish to decline from the polling process. Please press the star followed by the two if you are using a speaker phone please lift the handset before.
Speaker Change: Any Keith one moment. Please for your first question and your first question comes from Gabe Moreen from Mizuho. Please go ahead.
Gabe Moreen: Hey, good morning, everyone.
Gabe Moreen: Mike maybe I can start out I'm asking about the recent acquisition that you made in Arizona, New Mexico, just wondering the Genesis of that transaction. So it just seems a little bit larger than some of your recent tuck ins or anything in particular about those markets that youre seeing attractive and then also.
How things are looking on the third party M&A front from a propane standpoint, whether you expect to maybe engage further.
Mike Stuff: Sure. Thanks Gabe.
Speaker Change: New Mexico has been a market that we've actually been expanding in a bit some of which was from it started from market expansion efforts. We did do a smaller acquisition a couple of years ago to begin to establish a bigger footprint.
And then this acquisition came came to us what's really fills in a good part of new Mexico, and what we're seeing in new Mexico is just population growth.
Speaker Change: And generally a market that has that is expanding embracing.
Speaker Change: Propane and so.
Speaker Change: So it was a really attractive business very very well run as you can see a good size of <unk>.
Speaker Change: <unk> thousand 14000 customers, it's our largest acquisition since the energy.
Speaker Change: Our largest single acquisition since the energy deal in 2012.
Speaker Change: This demonstrates the confidence we have in the quality of this business.
And it really establishes a significant footprint down in a market that's been demonstrating real good growth.
Speaker Change: Thanks, Laura as other as far as other M&A.
Speaker Change: Part of our long term strategy.
Speaker Change: We are not deviating from our core propane business.
Speaker Change: Our strategy is two pronged.
Speaker Change: To invest in growth in propane.
Speaker Change: While we also invest in the future with our investments in renewable energy and I think we're doing it in a pretty balanced and patient way. So we're definitely active.
And we're continuing to look at opportunities that make good sense.
Speaker Change: Thanks, Mike appreciate that maybe if I can also ask about expectations for cost inflation at the underlying propane business.
Speaker Change: Things are trending it seems like you've really got a handle on costs. This past year I'm just wondering if theres more to go and how the outlook is there.
Speaker Change: Yes.
Speaker Change: Yes, I think we've seen.
Speaker Change: A pretty good stabilization of the cost infrastructure I think this year fiscal 2024 was a remarkable effort on the part of our field to think about the kind of the.
Kind of performance that we had tough weather scenario.
Speaker Change: And to only have a.
Speaker Change: 2% increase in overall.
Speaker Change: Operating and G&A expenses as really a tremendous testament to our operating model to be able to flex when when weather doesn't cooperate.
Speaker Change: And the flex up.
Speaker Change: As we get opportunities with weather so.
Speaker Change: It's a lot of what you've probably been accustomed to seeing in suburban propane to be able to manage the business and whatever comes our way.
Speaker Change: Got it and then if I could just follow up with maybe a bigger picture question with maybe administration.
Speaker Change: Registration changing here in D C. Shortly.
Wondering how you are viewing the outlook for tax credits and the like impacting the LNG business, whether you see any opportunity to use or see any risks out there just curious your thoughts.
Speaker Change: Yes, I think it's still it's still a little early to predict obviously.
Speaker Change: Do think one of the one of the benefits that I see is perhaps a little bit less focus on mandating things like Evs.
Despite the fact that that doesn't mean, we won't have continued to investment in EV activity as a country, but but I think.
Speaker Change: Maybe opening up the conversation to a more all of the above approach, which I think benefits us as propane really is and should continue to be viewed as a genuine solution to lowering carbon today.
Speaker Change: And as we innovate for even lower carbon solutions.
In the coming three to five years.
Speaker Change: There. It allows it allows society to maintain their current infrastructure without making dramatic investments just to get to a lower carbon footprint. So so I think on that front I think there is seems to be a benefit.
Speaker Change: On the production tax credits in the IRI.
That remains to be seen.
Speaker Change: Im a firm believer that there is a lot a lot of projects that are already out there that are embraced by both.
Speaker Change: Red and Blue States.
And frankly, it's going to be hard to unwind.
That law altogether, and I would expect to see that certain aspects, including the production tax credits I would expect to see that continue but we will see what happens.
Speaker Change: I think that's our.
Speaker Change: That's our prognostication at this point.
Speaker Change: Got it thanks, Mike I appreciate the color.
Gabe Moreen: Thank you Gabe.
Speaker Change: Once again, if you have any questions press star followed by the one.
Gabe Moreen: Okay.
Speaker Change: At this time, we have no other questions I will turn the call back to Max Dybala for any closing remarks.
Max Dybala: Great. Thank you Emily again, I hope everybody has a safe and happy holiday season, and we look forward to talking with you again in February after our first quarter.
Results. So thank you.
Max Dybala: Ladies.
Speaker Change: Ladies and gentlemen. This concludes the conference you may now disconnect your lines.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Sure.
Okay.
Okay.
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].