Q1 2025 Suburban Propane Partners LP Earnings Call
Good morning, ladies and gentlemen on the backend.
Great.
This quarter.
Earnings Conference call.
Tony: At this time, all my answer in English and only now it's Tony.
Tony: Halloween presentation, we will conduct a question and answer session.
Tony: If at any time during this call the car you get assistance.
Chris: Chris stores, you go where do you all Peter.
Chris: This call is being recorded on Thursday August six 2025.
Speaker Change: I would now like to turn the conference over to Katherine Jimbo's, Yes.
Nice precedent and Treasurer. Please go ahead.
Speaker Change: Thank you Jenny good morning, everyone.
Speaker Change: Thank you for joining us this morning for our fiscal 'twenty 25 first quarter earnings Conference call.
Mike: Joining me this morning are Mike <unk>, our president and Chief Executive Officer.
Speaker Change: Kirkland, our Chief Financial Officer, and Alex Centeno, Senior Vice President of operations.
Speaker Change: This morning, we will review our first quarter financial results, along with our current outlook for business.
Speaker Change: Once we concluded our prepared remarks, we will open the session to questions.
Speaker Change: Our conference call contains forward looking statements within the meaning of section 21 E.
Speaker Change: Of the Securities Exchange Act of <unk> 34, as amended relating to the partnerships future business expectations, and predictions and financial condition and results of operations.
Speaker Change: 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.
Speaker Change: Which can be viewed on our website at suburban propane dot com.
Speaker Change: Subsequent written and oral forward looking statements attributable to the partnership or persons acting on its behalf.
Speaker Change: Presley qualified in their entirety by such cautionary statements.
Our annual report on Form 10-K for the fiscal year ended September 28 2024.
Speaker Change: And Form 10-Q for the period ended December 28, 2024, which will be filed by the end of business today.
Speaker Change: Contains additional disclosure regarding forward looking statements and risk factors.
Speaker Change: Copies may be obtained by contacting the partnership or the SEC certain.
Speaker Change: 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. The form 8-K will be available through a link in the Investor Relations section of our website.
Mike: At this time I'll turn the call over to Mike <unk> for some opening remarks, Mike.
Mike: Thanks, Devin and good morning, Thank you all for joining us today.
Mike: We're pleased to report another solid quarter, despite several challenging conditions.
Mike: Adjusted EBITDA for first quarter of fiscal 2025 was $75 $3 million essentially flat to the prior year first quarter.
Mike: Propane revenues for the quarter were marginally lower than the prior year first quarter as strong demand in our southeast operations in the aftermath of Hurricanes Helene and Milton combined with the benefit of incremental volumes from our acquisition of a well run propane business in the southwest territory, which we closed in November 20.
Mike: 24 were able to substantially offset the impacts of widespread unseasonably warm weather, especially in the month of November and a less active dry crop drying season.
Mike: Our field operations have done an excellent job managing selling prices and a higher commodity price environment and are leveraging our efficient operating model to help manage costs.
Mike: As I will comment further in my closing remarks colder temperatures arrive towards the end of December and carried into January 'twenty, four 'twenty five creating strong momentum into the heart of the heating season.
Mike: Our operations personnel are very well prepared to serve the increased demand from our customers. During a period of sustained colder temperatures that have gripped much of the country and the early part of our fiscal second quarter.
Mike: And our renewable natural gas operations, we completed an extended and planned shutdown of our anaerobic digester facility in Stanfield, Arizona.
Mike: For routine maintenance and regulatory compliance upgrades and as a result, <unk> injection for the quarter was lower than the prior year first quarter the.
Mike: Upgrades and enhancements completed during the planned shutdown will improve the operating performance and resiliency of the facility enhance the quality of feedstock coming into the facility and is expected to result in increased R&D production moving forward.
Mike: Since the restart of the facility in mid November we have continued to experience enhanced conversion of feedstock intake to RMG injection as we continue to instill the best in class operating model that we are known for within our core propane business.
Mike: We also continued to advance our capital projects to construct our anaerobic digester facility in upstate New York and the gas upgrades equipment at our anaerobic digester facility in Columbus, Ohio, which are both expected to be completed towards the end of this calendar year.
And we have taken the necessary steps to earn report and prepare to monetize production tax credits from our Stanfield facility, which became effective January one 2025, and we expect to be able to monetize ptc's at both the New York and Ohio facilities. Once we start R&D production and sales.
Mike: <unk>.
Mike: So while warm weather weighed on customer demand and our propane operations. During the first quarter. We continue to manage the things we can control and remain steadfast in our commitment to our strategic growth objectives.
Mike: There's still a lot of heating season ahead, and we're very well prepared to handle increased demand from colder weather.
Mike: In a moment I will come back for some closing remarks and provide added color on our strategic initiatives. However at this point, let me turn it over to Mike <unk> to discuss our first quarter results in more detail Mike.
Speaker Change: Thanks, Mike and good morning, everyone.
Speaker Change: 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 $3 $6 million for the first quarter of fiscal 2025.
Speaker Change: Fair to an unrealized loss of $10 $8 million in the prior year first quarter.
Speaker Change: Excluding these noncash items.
Speaker Change: Noncash equity in losses, and impairment charges related to our unconsolidated subsidiaries accounted for under the equity method that income for the first quarter was $38 million or <unk> 59 cents per common unit.
Speaker Change: Compared to net income of $44 million or <unk> 63 cents per common unit in the prior year.
Speaker Change: Adjusted EBITDA for the first quarter was $75 $3 million essentially flat to the prior year.
Speaker Change: Retail propane gallons sold a $105 7 million gallons, whereas 0.8% lower than the prior year, primarily due to lower heat related demand from widespread unseasonably warm temperatures, especially during the month of November and lower agricultural demand for crop drying, which was almost entirely offset.
Speaker Change: By an increase in demand in our southeast region, falling Hurricanes, Helene and Milton and the positive contributions from our customer base growth and retention initiatives.
Speaker Change: Including the strategic propane acquisition in the southwest that was completed in November 2024.
Speaker Change: With respect to the weather average temperatures during the first quarter of fiscal 2025 were 7% warmer than normal and flat to the prior year first quarter.
Speaker Change: In the month of November 2024 average temperatures were 15% warmer than normal and 17% warmer than November 2023, making one of the top five warmest novembers on record.
Speaker Change: For a commodity perspective average wholesale propane prices for fiscal 2025 first quarter.
Speaker Change: 77 cents per gallon basis, Mont Belvieu increased 15% compared to the prior year first quarter.
Speaker Change: Since the end of December and with a burst of cold weather in January.
Speaker Change: <unk> prices have increased from the average prices during the first quarter.
Speaker Change: With posted prices rising towards 95 cents per gallon and are now trending in the range of 85 to 90 cents per gallon.
Speaker Change: Excluding the impact of the mark to market adjustments on our commodity hedges that I mentioned earlier total gross margin of $222 $5 million for the first quarter decreased 1 million players or 0.5% compared to the prior year first quarter.
Speaker Change: Primarily due to slightly lower protein volume sold and lower margin contribution from the <unk> operations, partially offset by an increase in propane unit margins of two cents per gallon or one 3%.
Speaker Change: With respect to expenses combined operating and G&A expenses of $150 million increased $2 $4 million, but one 6% compared to the prior year first quarter, primarily due to higher payroll and benefit related cost accruals.
Speaker Change: Accruals for settling certain legal matters offset to an extent by lower vehicle fuel costs.
Speaker Change: Net interest expense of $19 6 million for the first quarter increased $1 $4 million or seven 8%.
Speaker Change: Fair to the prior year first quarter due to a higher level of average outstanding borrowings under our revolving credit facility.
Speaker Change: During the quarter, we recognized $3 million of income representing the fair value of contingent consideration due from equilibrium capital group, which is reported within other net on the statement of operations.
Speaker Change: In accordance with the purchase agreement that we entered into with equilibrium in December 2022 for the acquisition of the anaerobic digestion facilities, and Stanford, Arizona and Columbus, Ohio.
Speaker Change: Expenditures for the gas upgrade equipment project at the Columbus facility that exceeded a certain threshold will be funded by equilibrium up to a total of $3 million at the partnership incurred those costs prior to December 31 2024.
Speaker Change: Based on the status of the capital project at Columbus, We have triggered that cost reimbursement from equilibrium.
Speaker Change: Excluded from adjusted EBITDA for the first quarter of fiscal 2025, our impairment charges for our investments and independence hydrogen and old bronchials of $9 6 million and $10 $2 million respectively.
Speaker Change: Motor write down the carrying values of these investments to their estimated fair values. These.
Speaker Change: These noncash charges were reported with another net on our statement of operations.
Speaker Change: Mike will provide some additional commentary on these investments in a few moments.
Speaker Change: Total capital spending for the quarter of $23 $8 million was $12 $7 million higher than the prior year first quarter.
Speaker Change: Primarily due to higher growth capex associated to construction of the gas upgraded equipment at our Columbus, Ohio facility and ongoing construction of the anaerobic digestion facility in New York.
Speaker Change: As I mentioned on our last call capital spending for fiscal 2025 is expected to range between $40 and $45 million for our propane operations and between 35% to $45 million for R&D projects.
Speaker Change: During the quarter. We also closed on the acquisition of a propane business with operations in New Mexico and Arizona.
Speaker Change: Total consideration of $53 million inclusive future noncompete payments.
Speaker Change: Turning to our balance sheet.
Speaker Change: 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.
Speaker Change: During the first quarter, we borrowed $91 $7 million under our revolver to fund the propane acquisition as well as to fund seasonal working capital and growth capital expenditures.
Speaker Change: Our consolidated leverage ratio for a trailing 12 month period ended December 2024 was $4 99 times.
Speaker Change: Although the leverage metric is elevated relative to historical levels, we remain well within our debt covenant requirement of 575 times.
We expect our leverage metric to benefit from increased earnings as we complete our growth projects as the R&D platform reaches run rate capacity with the monetization of production tax credits under the IRA.
Speaker Change: Given the seasonality of our business working capital needs typically peak towards the end of the heating season late February early March time frame after which we expect to generate excess cash flows.
Speaker Change: We will continue to remain focused on utilizing excess cash flows to strengthen the balance sheet as opportunities arise to fund strategic growth we.
Speaker Change: We have more than ample borrowing capacity under our revolver to fund our remaining working capital needs for the heating season as well.
Speaker Change: To support our capital expansion plans and ongoing strategic growth initiatives.
Mike: Back to you Mike.
Mike: Thanks, Mike.
Mike: As announced on January 23rd our board of Supervisors declared our quarterly distribution of $32.05 per common unit in respect of our first quarter of fiscal 2025 and that equates to an annualized rate of $1 30 per common unit.
Mike: The quarterly distribution will be paid on February 11th to unitholders of record as of February the fourth our distribution coverage continues to remain strong at 187 times for the trailing 12 month period ended December 2024.
Mike: I'd like to comment next on our long term strategic growth plans.
Mike: Our long term strategic growth initiatives continue to focus on fostering the growth of our core propane business and growing our renewable energy platform through strategic investments in renewable energy businesses and assets that will help position our business for the long term as the country continues to evolve to a low carbon economy.
Mike: All while maintaining balance sheet flexibility.
Mike: Over the past five years.
Mike: The strong free cash flow that our business generates supplemented by borrowings as needed.
Mike: Has allowed us to fund strategic acquisitions in support of our core propane business, which resulted in the successful acquisition and integration of nine propane businesses in strategic markets.
Mike: Investing more than $125 million in those efforts.
Mike: As well as our continued execution of our organic growth plans by providing exceptional customer service.
Mike: Driving our growth and retention initiatives and fostering new market expansions in propane.
Mike: We've made investments in renewable fuels hydrogen and renewable natural gas, helping to pave the way for us to have a scaled presence and the evolving low carbon renewable energy landscape with diversified revenue streams.
Mike: Investing approximately $320 million in support of those efforts over the past five years.
Mike: And over that same span of years.
Mike: We returned a total of $475 million to unit holders in the form of strong and steady cash distributions.
Mike: Therefore, striking a good balance of returning capital to unitholders.
Mike: While investing in long term growth.
Mike: Now let me just comment on the accounting charges reflected in our first quarter results.
Mike: As Mike mentioned during the first quarter, we took an accounting charge in the amount of $19 $8 million to write down the value of our investments in Oberon fuels and independents hydrogen.
Mike: As part of our long term strategic growth initiatives, we have been committed to investing in innovative renewable energy businesses and technologies in.
Mike: In line with that strategy, we made our initial investments in these early stage companies in September 2020 for overall and in March 2022 for independents hydrogen.
Mike: We maintain a minority stake of 38% and over on fuels and 25% and independents hydrogen.
Mike: And since our initial investments we have worked closely with the entrepreneurial leaders of both companies to support and advance their respective business models and technological development.
Mike: Inclusive of regulatory support engineer.
Mike: Engineering, and logistics commercial development, PR and marketing back office assistance and readiness for scale.
Mike: Both over on fuels and independents hydrogen have made great progress over the past few years.
Mike: Advancing their respective business models and products, which in the case of Oberon is the production of renewable DMA and for independents hydrogen is small scale distributed clean hydrogen.
Mike: They are each operating pilot plants that are producing <unk> and clean hydrogen respectively, and generating real revenues from the sale of their products to customers.
Mike: Each have identified locations for their first commercial scale production facilities, including securing feedstock agreements.
Mike: Advancing engineering work and developing commercial demand.
Mike: And both are engaging with several potential new investors strategic and financial to raise the necessary capital to scale their platforms, which will require significantly more capital beyond the commitment of capital from suburban propane to further fund their early stage innovations.
Mike: We continue to believe strongly in the business models and the impact that both companies and their respective low carbon fuels can have as contributors to a low carbon renewable energy future, especially as localized distributed energy sources.
Mike: Through our ownership and engagement with these innovative early stage companies.
Mike: Suburban propane has gained significant knowledge and exposure to the development of new disruptive technologies.
Mike: Insights into market sentiment.
Mike: And built relationships throughout the supply chain for renewable fuels and hydrogen.
Mike: The accounting write down is more a function of the challenges that have impacted the broader clean energy startup landscape over the past several years, including challenges related to raising new capital and uncertainty over government policy support.
Mike: And then it is a reflection on the actual performance of either company.
Mike: Or the potential impact that they can have on the future of clean energy.
Mike: We continue to believe in and supportive of both companies as they advance their respective renewable energy technologies.
Mike: And through the execution of our long term strategic growth plans.
Mike: Suburban propane remains committed to leveraging our core competencies as trusted local distributors of energy to grow the markets for renewable fuels and clean hydrogen well into the future.
Mike: Our vision for the future Hasnt changed we are committed to continuing to advanced solutions in the form of reliable versatile cost effective and clean propane that support the carbonation decarbonization efforts.
Mike: Our pioneering new energy sources to power local communities for generations to come.
Mike: Finally, looking ahead to the rest of the fiscal 2025 as I stated earlier there is.
Mike: Still a significant amount of the heating season ahead, and we are very well positioned both operationally and financially to adapt to as demand dictates in fact.
Mike: We experienced a widespread cold weather pattern across much of our operating footprint. During the month of January with sustained cold temperatures the likes of which we haven't seen since 2014.
Mike: The foundation of our ongoing success continues to be rooted in our more than 3200 dedicated employees at suburban propane.
Mike: And their hard work and unwavering focus on the safety and comfort of our customers and the communities we serve.
Mike: I want to take a moment to thank them for all of their efforts and supporting our customers during some of the more challenging weather conditions.
Mike: That we have seen over the past few years and during a time when our customers needed us most to help them manage.
Mike: A sustained period of cold weather that most of the country experienced throughout much of January.
Mike: And as always we appreciate your support and attention. This morning, and now I would like to open it up for questions and Jenny could you help us out with that please.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.
A question.
Speaker Change: Press Star followed by the one you touched on.
Speaker Change: Questions will be taken in the order received.
Speaker Change: Should you wish to cancel.
Tom: Please ask your question Tom.
Speaker Change: Tim.
Speaker Change: If you are using a speaker phone please.
Speaker Change: Yes Seth.
Seth: Thank you.
Speaker Change: Once again that is star one should you wish to ask a question.
Speaker Change: Your question is from Christopher Jeffrey Thompson as Johan Securities. Your line is now open.
Speaker Change: Hi, Good morning, Thanks for taking my question maybe.
Speaker Change: Maybe Mike just to start off on that colder weather, we've been seeing that you talked about at the end.
Speaker Change: Just kind of curious how the system is handling it operationally, reaching all the inbounds and then maybe you also talked about the.
Speaker Change: Kind of.
Speaker Change: Quicker appreciation in propane prices, we've seen over the last month, so just how.
Speaker Change: How the pricing aspect of that is in the unit margins.
Chris: Sure Great. Thanks, Chris Thanks for the interest.
Look our platform is built for this kind of weather.
Ben: Ben So ready for this we haven't had.
Ben: Sustained periods of cold weather, where you have weeks upon weeks upon weeks.
Ben: Good solid what I would call.
Ben: Normal if not slightly colder than normal in certain parts of the country, whether we've always had for the past decade, frankly, we've had lots of fits and starts.
Ben: And.
Ben: This kind of weather is certainly what what suburban propane is built for and I'm really proud of the people at suburban propane for how they're stepping up and some challenging conditions. We got this morning is a perfect example is a lot of sleep nice on the road in.
Ben: We are out there taking care of our customers and all I can all I can ask of our people is to continue to be safe, which is something we we stressed at all times. So this is the kind of weather that we've been built for our customers can rely on us.
Ben: And we're doing a heck of a job with the increased demand.
Ben: As far as pricing goes.
Ben: With weather comes higher prices right youre going to see that you see it in the natural gas market you also see it in the propane market.
Ben: And so that's something that that we have to continue to stay ahead of us to make sure that as pricing moves us as dramatically as a tenant times our field has to do a good job of making sure that we're managing our selling prices accordingly, and I am very pleased to say that we are.
Ben: A heck of a job with that.
Ben: <unk>.
Ben: We've had some volatility over the past couple of weeks sort of range bound in the $85 90 basis Bellevue range right now but.
Ben: No.
Ben: We certainly expect to see.
Ben: Prices move one way or the other depending on both weather and.
Ben: Sort of what happens in broader commodity markets.
Ben: Okay.
Thank you.
Ben: And then maybe just coming back to the conversation around leverage.
Ben: As you kind of mentioned a little bit elevated for this quarter in the last few.
Ben: And I think Mike spoke about some of the drivers on the growth and so maybe just if you could expand on those in terms of like timing when you see the credits kind of coming through and then also just if there is any.
Ben: Any additional thoughts on maybe the <unk>.
Ben: That side of it as far as addressing that or doing something more with the rest of the capital stack.
Ben: Yeah, So first of all.
Ben: We have plenty of liquidity.
Ben: That's not at all an issue second of all.
Ben: We.
Ben: When you look at our.
Ben: Our leverage metric at the end of December its a rolling 12.
Ben: Metrics. So it's got some of last year's challenging heating season.
Ben: And the lower earnings that we experienced in the second quarter of last year built.
Ben: Built into that into that metric.
Ben: And obviously, we've been deploying capital on growing the renewable natural gas business.
Ben: Particularly the assets in upstate New York, and Columbus, which are not yet <unk>.
Ben: <unk> generated real real earnings so as those as those come online towards the tail end of this year.
Ben: Those will start to naturally bring leverage down.
Ben: <unk>.
Ben: As far as the production tax credits were already earning them in our stanfield locations effective January one.
Ben: The guidance came out very very late.
Ben: In the calendar.
Ben: Calendar 2024 and enter into early part of January.
Ben: But we have been studying and paying very close attention to that that loss since it came since it was put out there the.
Ben: The facility in Stanfield, Arizona produces R&D at a very deep.
Ben: Negative Ci score and as a result, it will generate.
Ben: The sort of the high the high end of production tax credits and there'll be earned their already earning them from January one forward.
Ben: So that'll be a good contributor both in the second quarter as well as throughout the rest of the year. We're also working towards.
Ben: The efforts to monetize those to bring in real.
Ben: Real cash to.
Ben: As we monetize those PTC. So so that will bring help us bring in incremental cash flow to the company as well so.
Ben: So a lot of it's a lot of it is.
Ben: A lot of noise.
Chris: Chris to be honest, but it's.
Ben: We have with <unk>.
Speaker Change: Done a lot to invest in the growth of the business.
Speaker Change: And we are moving forward.
Speaker Change: And we will start to see the benefit of that growth capital come to fruition.
Speaker Change: And the other thing is as you know.
Speaker Change: We're very much balance sheet focused so.
Speaker Change: As opportunities arise we will continue to look to strengthen the balance sheet, we view that as the backbone that helps us to be strategic to be growth oriented so.
Speaker Change: To the extent that the balance sheet.
Speaker Change: We need to needs repair will continue to look for opportunities to do that whether that be in free cash flow or otherwise and so.
Speaker Change: I think we've gotten pretty good reputation of being good balance sheet Hawks in and I think we'll continue to do that because again. It is it has given us the opportunity to be very very strategic.
Speaker Change: Over the course of the past several years and I made comments in our in my opening remarks about the balanced approach towards capital deployment.
Speaker Change: That's real and a lot of that's been done on our free cash flow generation and a little bit of leverage. So we're very proud of the investments we're making in.
Speaker Change: They are going to pay off in the long run.
Unnamed: Great. Thank you Mike I appreciate the time today.
Mike: Alright, Chris Thanks.
Mike: Once again, ladies and gentlemen.
Mike: Hormones.
Mike: Star one.
Mike: Ask your question.
Speaker Change: Well, great journey looks like we're all set I appreciate your help.
Speaker Change: Today again appreciate everybody's attention and support we look forward to talking to you at the end of our second quarter.
Speaker Change: Earnings in May.
Speaker Change: May timeframe and as always as I say that the employees of suburban propane as well.
Speaker Change: One of them please be safe out there.
Speaker Change: Okay.
Speaker Change: Thanks, Laura.
Speaker Change: Ladies and gentlemen, the conference has now.
Speaker Change: And thank you all for joining you may all disconnect your lines.