Q2 2025 Suburban Propane Partners L.P. Earnings Call
[inaudible] thank you very much, thank you very much, thank you very much,
Michael Kuglin, Michael Stivala
Speaker Change: Good morning, ladies and gentlemen, and welcome to the Suburban Propane Partners 2nd quarter earnings conference column
Speaker Change: At this time, all lines are in listen only mode. Following the presentation, we will conduct the question and answer session.
Speaker Change: If at any time during this call, you're requiring immediate assistance. Please press star zero for the operator. This call is being recorded on Thursday, May 8th, 2025. I would now like to turn the conference over to Dave in the Ambrosio, vice president and treasurer. Please go ahead.
Michael Kuglin, Michael Stivala
Speaker Change: Thank you, John . Good morning, everyone. Thank you for joining us this morning for our Fiscal 2025 Second Quarter Earnings Conference call.
Speaker Change: Joining me this morning are Mike Stivala, President and Chief Executive Officer, Mike Kuglin, Chief Financial Officer, and Alex Centano, Senior Vice President Operations.
Speaker Change: This morning, we will review our second quarter financial results along with a current outlook for the business. Once we have concluded our prepared remarks, we will open the session to questions.
Speaker Change: Our conference call contains four looking statements within the meeting of Section 21 E of the Securities Exchange Act of 1934.
Speaker Change: As amended relating to the partnership's future business expectations and predictions and financial condition and results of operations.
These four-looking statements involve certain risk and uncertainties.
Speaker Change: We have listed some of the import 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 SuburbanPropane.com All subsequent, written, and oral looking for looking statements attributable to the partnership, or persons acting on its behalf are expressed we qualified, and they're entirely by such cautionary statements.
Speaker Change: Our annual report on Form 10K for the fiscal year ended September 28, 2024.
Speaker Change: and our Form 10Q for the period ended March 29, 2025, which will be filed by the end of the business today, contained that additional disclosure regarding forward-looking statements and risk factors, copies may be obtained by contacting the partnership or SEC.
Speaker Change: Sir, 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 A.K., which was furnished to the SEC this morning.
Speaker Change: The Form A K will be available through a link in the Investor Relations section of our website. At this point, I will turn on the call to Rhythm Mike Stivala for some opening remarks. Mike?
Mike Stivala: Thanks, David. Good morning. Thank you all for joining us today.
Speaker Change: The fiscal 2025 second quarter was an outstanding quarter for Suburban Propane. Our business experienced some of the most sustained winter weather in the heart of our footprint throughout January and February , the most critical months for heat-related demand.
Speaker Change: The kind of consistent weather conditions we haven't seen in nearly a decade.
Speaker Change: I'm extremely proud of how our field personnel at every level worked tirelessly to meet the surge and demand when our customers needed us most, while also opportunistically taking on new business when our others were unable to keep up.
Speaker Change: This was a real testament to the preparation by our operations teams and the flexibility of our operating model to ramp up when demand dictates.
Speaker Change: And with safety as our highest priority, I'm extremely proud of the way our people maintain their focus on the highest operating standards for safety during a prolonged step stretch of high activity levels and some tough operating conditions.
Speaker Change: As a result of the surge in demand, Propane volumes for the quarter increased 15.5% compared to the prior year's second quarter. In fact, during the month of January 2025, we delivered the highest propane volumes since 2018.
Speaker Change: The strong volume performance combined with effective margin management during a rising commodity price environment and good expense discipline contributed to a $28 million or 19.1% increase in adjusted EBITDA compared to the prior year's second quarter.
Michael Kuglin, Michael Stivala
Speaker Change: In our Renewable Natural Gas Operations, Average Daily R&G Injection, for the second quarter, improved from the first quarter and was down slightly compared to the prior year's second quarter, due to extremely cold ambient air temperatures in the Arizona area that impacted anaerobic digestion and R&G production at our standfield facility.
Speaker Change: Coupled with a short period of planned down time to install enhancements to heating capacity.
Speaker Change: While revenues at the Stanfield facility have faced headwinds from lower prices for California LCFS credits and more recently D3-Rin prices, we continue to implement enhancements to R&G production and injection.
Speaker Change: Safety Protocols, Beastock intake practices, and overall plant efficiency in order to improve the long-term performance and returns from the facility.
Speaker Change: We are also progressing well with the capital projects at our Columbus, Ohio and upstate New York facilities which will increase our overall RNG sales once those facilities are fully operational.
Speaker Change: Additionally, during the quarter we made great progress integrating the propane business that we acquired in the first quarter of fiscal 2025 for approximately $53 million with operations in New Mexico and Arizona, our largest single propane acquisition since 2012.
Speaker Change: The performance of the acquired business has exceeded our expectations in the early part of our ownership.
Speaker Change: And finally in late February we launched our and at the market for ATM equity sales program to sell up to a hundred million dollars of newly issued common units.
Speaker Change: Under the program, we may sell common units from time to time at prevailing market prices through registered placement agents acting on behalf of Suburban Propane in a controlled and disciplined manner.
Speaker Change: As we have consistently messaged, our long-term strategic growth plan is to foster the growth of our core propane business, make strategic investments in lower carbon renewable energy alternatives while maintaining balance sheet flexibility.
Speaker Change: Over the course of the past five years we have utilized the combination of strong free cash flows and borrowings under our revolving credit facility to fund the execution of our long term growth strategy.
Speaker Change: The purpose of the ATM program is to provide additional capital to support our ongoing pursuit of opportunistic growth while reinforcing the strength of our balance sheet.
Speaker Change: During the second quarter we raised net proceeds of 8.8 million under the program, which we use to repay outstanding debt under our revolver.
Speaker Change: Therefore, we continue to advance our long-term strategic growth plans while maintaining our focus on strengthening our balance sheet and financial metrics to drive long-term value for all of our key stakeholders.
Speaker Change: In a moment, I'll come back for some closing remarks, but at this point, I'll turn it over to Mike Kuglin to discuss our second quarter results in more detail. Mike?
Thanks Mike, and good morning everyone.
Speaker Change: To be consistent with previous reporting, as I discussed, our second quarter results from excluding the impact of unrealized, marked market adjustments on our commodity hedges, which resulted in an unrealized gain of $700,000 for the second quarter, compared to an unrealized gain of $5.9 million in the prior year's second quarter.
Speaker Change: excluding these and certain other non-care shutems net income for the second quarter was $136.9 million dollars or $2.11 per common unit compared to net income of $110.3 million dollars or $1.71 per common unit in the prior year
Speaker Change: The adjusted EBITF for the quarter was $175 million, an increase of $28 million, where 19.1% compared to the prior year second quarter.
Speaker Change: Retail Propane gallons sold in the quarter were 162 million gallons, which was 15.5% higher than a prior second quarter, primarily due to the impact of sustained widespread cooler temperatures on heat-related demand during January and February , and the contributions from our recent propane acquisitions.
Speaker Change: Averse temperatures across our service territories during the second quarter were 5% warmer than normal and 9% cooler in the prior year's second quarter.
Speaker Change: During January and February , which are the most critical months for heat-related demand during the second quarter, average temperatures were comparable to normal and 13% colder than the same period last year.
Speaker Change: From a commodity perspective, propane inventory levels in the U.S. experience a strong seasonal decline during a second quarter through the surge in domestic demand and continued strength
Speaker Change: At the end of the second quarter, U.S. propane inventories were at 44.1 million barrels, which were 15% lower than March 2024 levels, and 6% lower than the 5-year average from March.
Speaker Change: excluding the impact of the non-cash Mark-to-Market adjustments on the commodity hedges that I mentioned earlier.
Speaker Change: Tolo Gross Margin of $344.6 million for the second quarter increased $42.5 million for 14.1% compared to the prior second quarter, primarily due to higher propane volume sold.
Speaker Change: Propane Unit Marges for the Quarter were flat compared to the prior second quarter. It will be effectively managed selling prices to offset the impact of higher product costs.
Michael Kuglin, Michael Stivala
Speaker Change: With respect to expenses, combined operating and DNA expenses of $169.3 million for the quarter, increased $14.9 million, where 9.7% compared to the prior year's second quarter.
Speaker Change: primarily due to higher payroll and benefit-related expenses, including overtime, and other variable operating costs to support the increase in customer demand, as well as higher variable compensation expense associated with the increase in earnings.
Michael Kuglin, Michael Stivala
Speaker Change: Met interest expense of $20.6 million for the quarter, increased 3.3% compared to the prior second quarter, resulting from a higher level of average outstanding borrowings under a revolving credit facility, partially all set by lower benchmark interest rates for borrowings under the revolver.
Speaker Change: Total capital spending for the quarter of $19.3 million was $4.28 million higher than a prior year's second quarter, primarily due to advancing construction efforts at our Columbus and Adirondack facilities.
and turning to our balance sheet.
Speaker Change: During the second quarter, we utilized cash loads from operating activities and net proceeds of $8.8 million from the issuance of common units under our ATM program to repay $10.1 million of borrowings under the revolver.
Speaker Change: As a result of the debt repayment and increase in earnings, our Consolidate Leverage Ratio for the Trilliant 12 month period ended March 2025, improved to 4.54 times compared to 4.99 times at the end of the first quarter.
Speaker Change: We've now moved through our historically high period of seasonal working capital needs and into the fiscal quarters where expected generate excess cash lows.
Speaker Change: We will continue to remain focused on utilizing excess cash flows and any proceeds received from the ATM program to strengthen the balance sheet and its opportunities arise to fund strategic growth, including the growth capital for our R&G platform.
Speaker Change: We have more than ample borrowing capacity under our revolver to support our capital expansion plans and ongoing strategic growth initiatives.
I have one other topic to discuss before turning the call back to Mike.
Speaker Change: In January 2025, the U.S. Treasury Department issued a notice of proposed regulations for production tax credits eligible to be earned under the Inflation Reduction Act for the production and sale of low emission transportation fuels, including R&G.
Speaker Change: Under the proposed regulations, there is ambiguity as to whether R&G production and sales of our stand-fill facility will qualify for PTCs, and as a result we did not recognize any income from PTCs during the second quarter.
Michael Kuglin, Michael Stivala
Speaker Change: Since the proposed regulation seemed inconsistent with the original intent of the IRA, we, along with numerous others, are seeking clarification from the IRS in the final rules.
Speaker Change: particularly as it relates to qualifying sales and a measurement of carbon intensity for orange you produced from dairy calminor and food waste feedstocks.
Speaker Change: Once final regulations are issued by the IRS, we will revisit the matter.
With that, I'll turn a call back to Mike [inaudible]
Thanks, Mike.
Speaker Change: As announced on April 24th, our Board of Supervisors declared our quarterly distribution of 32.5 cents per common unit in respect of our second quarter of fiscal 2025. This equates to an annualized rate of $1.30 per common unit. Our quarterly distribution will be paid on May 13th to our unit holders of record as of May 6th.
Speaker Change: Our distribution coverage continues to remain strong at 2.17 times for the Trailing 12 month period ended March 2025.
with just a few closing remarks.
Speaker Change: During the second quarter, we officially launched our multi-year sponsorship of NASCAR and Speedway Motorsports at the Daytona 500 Race in February . We are now the official propane partner of NASCAR.
Speaker Change: Under this partnership, Suburban Propane will provide propane for new propane-powered track dryers that NASCAR has added to its fleet to replace caracene-fired dryers as part of NASCAR's sustainability initiatives.
Speaker Change: Suburban Propane is also providing propane to the concessions and on-site services for campers during NASCAR event weekends at 19 tracks during 28 races throughout the NASCAR season to enhance the fan experience.
Speaker Change: We are extremely proud to partner with such an iconic American spectator sport.
Speaker Change: Their trust in Suburban Propane is a testament to our commitment to safety, our national reach, our reliability, our commitment to local communities, and our shared commitment to sustainability.
Speaker Change: We look forward to a long and rewarding relationship and the opportunity to engage with fans at every race.
Speaker Change: Now, just a quick comment on something that has dominated the news and markets over the course of the last several weeks, and that's Tarris.
Speaker Change: As a domestic energy distributor, we source the vast majority of the products and equipment whether for resale or operational use in the United States.
Speaker Change: and only a small portion of propane from Canada. Therefore, we believe that for the time being, we are substantially insulated from the impact of tariffs.
Speaker Change: Recently, we've seen propane price volatility, given potential uncertainty with Chinese demand for propane from the US, which could result in incremental domestic propane supplies remaining in the US, and in turn, propane prices have come down.
Speaker Change: Lower cost of domestic energy would be a positive development for consumers here in the United States.
Speaker Change: And with some of the regulatory relief and energy markets. The conversation about the future of energy is taking on a more balanced focus on energy resiliency security affordability and sustainability.
Speaker Change: As opposed to an outsized focused on sustainability that was beginning to drown out the first three critical factors.
Speaker Change: Previously.
Speaker Change: As a result propane can benefit from the recognition of its already low carbon attributes and its ability to provide energy on demand.
Speaker Change: It will continue to be relied upon by millions of Americans across many sectors of the economy because of its availability versatility and affordability.
Speaker Change: Suburban propane is very well positioned to meet the energy needs of local communities to drive increased propane use in certain applications that can benefit.
Speaker Change: Immediately from its lower carbon footprint.
Speaker Change: And to innovate with the introduction of even lower carbon renewable energy alternatives.
Speaker Change: Through the execution of our long term strategic growth plans.
Speaker Change: Bourbon propane remains committed to advancing propane as a long term low carbon solution.
Speaker Change: While leveraging our core competencies and safety.
Speaker Change: Customer service and logistics expertise to grow the markets for renewable fuels, such as renewable propane and.
Speaker Change: And renewable natural gas and clean hydrogen well into the future.
Speaker Change: In closing I want to take a moment to thank the more than 3300 dedicated employees at suburban propane.
Speaker Change: Their unwavering commitment to safety and outstanding customer service during a very challenging winter heating season, and during a time when our customers needed us the most thank you.
Speaker Change: And as always we appreciate your support and attention. This morning, and now like to open the call for questions and John If you wouldn't mind, helping us with that I appreciate it.
Speaker Change: Thank you ladies.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the number one on your Touchtone phone, you'll hear a prompt that your hand has been race <unk>.
Speaker Change: Should you wish to decline from the polling process. Please press star and to play a follow up at a number to it.
Speaker Change: If you are using a speaker phone. Please make sure you lift your handset before pressing any case.
Leah: One moment, while Leah.
Speaker Change: <unk> the Q&A roster.
Speaker Change: Your first question comes from the line of Christopher Jeffrey from Mizuho Securities. Please ask your question.
Christopher Jeffrey: Hi, good morning, everyone. Thanks for the update and congratulations on the strong quarter.
Mike Stivala: Mike maybe just to pick up yes, sure maybe to pick up where you kind of ended as far as volatility in the propane price market.
Mike Stivala: Could you just kind of maybe talk about how suburban is positioning yourselves ahead.
Mike Stivala: During this non heating season, hitting any kind of changes to the plan for the next heating season.
Mike Stivala: No honestly, Chris we've been we've been through different commodity cycles over the last several decades.
Mike Stivala: We know how to manage the.
Mike Stivala: The supply of propane very very well our product supply team.
Mike Stivala: An amazing job, we have great relationships with our suppliers in fact.
Mike Stivala: I think with with the expectation that there's going to be more propane trapped here in the United States and all of that can change overnight, but but currently I think there is a view that there may be a higher inventory of propane here and prices are going to reflect that.
Mike Stivala: The average price of propane in Bellevue was about 90 in the second quarter, it's down closer to 70.
Mike Stivala: As of yesterday so.
Mike Stivala: You're starting to see the impact of that but.
Mike Stivala: But that doesn't really change the way, we're thinking about how to source.
Mike Stivala: And set ourselves up for for next years heating season.
Mike Stivala: Got it thanks.
Mike Stivala: And then just wondering if you could kind of give us a high level view.
Mike Stivala: Suburbans view of the propane M&A landscape kind of coming out of this heating season, I know that tends to be where the activity picks up.
Christopher Jeffrey: Yes, it's a great question, Chris the interesting thing I think is.
Mike Stivala: The propane M&A landscape.
Mike Stivala: Has changed dramatically in.
Mike Stivala: In the sense that the number of buyers has significantly diminished.
Mike Stivala: I think part of that is there is just less majors than there were say 10 15 years ago that we're aggressively.
Mike Stivala: Going after trying to consolidate the industry and the other the other aspect is some of our some of our peers have different challenges that.
Mike Stivala: They may force them to stay on the sidelines for a bit while they sort of focus internally.
Mike Stivala: We're viewing this as a great opportunity for suburban propane.
Mike Stivala: There is there is a very promising future I think with respect to propane different than it was.
Mike Stivala: I would say even two three years ago I think some of the challenges that the propane or that frankly, the energy landscape has experienced over the last several years, whether it was COVID-19, whether it's been some of the natural disasters.
Mike Stivala: Has really started to highlight what we've been saying all along is that propane is such a powerful on demand energy source.
Mike Stivala: So we see a very bright future for propane, which is why our.
Mike Stivala: Our strategic growth initiatives as balanced we're continuing to invest in our core propane business and we're focusing on the long term future.
Mike Stivala: To position ourselves well in the renewable energy landscape.
Mike Stivala: But as far as propane goes we're really excited about some of the new uses that we're finding for propane some of the new respect we're finding for propane and frankly when it comes to M&A. We're in the best position of anybody to.
Mike Stivala: Take on good quality businesses in attractive markets and our pipeline of opportunities is building quite nicely as we come out of the heating season, now and I think with some more discipline in the market multiples are are probably getting back to where they should have been off.
Mike Stivala: All along.
Mike Stivala: Much more reasonable and practical.
Mike Stivala: With a limited number of undisciplined buyers left in the marketplace.
Mike Stivala: Got it. Thank you and then maybe just one on the renewable side of things.
Mike Stivala: Maybe any kind of expanding on the comments of as far as whether it's federal regulation state level regulations any kind of timelines, we should be looking out for.
Mike Stivala: And then maybe longer term.
Mike Stivala: Duties.
Mike Stivala: Different outcomes changed the way you might be operating or thinking about Adirondack Columbus or any kind of future investment in this space.
Mike Stivala: Yes.
Mike Stivala: On the R&D side, I think one of the things that that.
Mike Stivala: That is going to develop over over time, and that's more of a state related.
Mike Stivala: Regulatory framework, California, and their <unk> program. They are very much focused on.
Mike Stivala: Creating a better balance in the credit markets.
Mike Stivala: The environmental attribute markets and some of the amendments that have been proposed by carb.
Mike Stivala: Two to create that better balance to.
Mike Stivala: To drive higher values for credit prices are certainly.
Mike Stivala: Opportunities that we see are going to take shape as those amendments get finalized hopefully in the coming weeks or months.
Mike Stivala: Because what you see in the environmental attribute markets as soon as as soon as there is an adoption or a change to the <unk> program, even that gets announced.
Mike Stivala: You'll see movement and then.
Mike Stivala: When when those amendments had to get pulled back for technical reasons.
Mike Stivala: You see you see movement back downward and sort of values getting stuck where they are right now, but I think what we see as the regulators are <unk>.
Mike Stivala: Interested in ensuring that the incentives that are there.
Mike Stivala: That were envisioned from the beginning to drive lower carbon fuels are continuing to drive the behavior and the investment into that space and they are very much focused on getting credit values up. So I think when we see our CFS amendments actually get implemented in California.
Mike Stivala: We're going to see a rebound in L. CFS credit values, which is going to be a welcome.
Mike Stivala: <unk> four for anybody in the renewable fuels market and certainly for our R&D platform in the meantime, we're very much focused on just operational excellence, that's who we are that's what we've been known for and propane.
Mike Stivala: We're driving that mindset in the R&D platform and so as as the Columbus and Adirondack.
Mike Stivala: Opportunities come online and at the at the tail end of this calendar year maybe.
Mike Stivala: Maybe into the early part of next year.
Mike Stivala: We we expect that that will be at a time when.
Mike Stivala: We will see better pricing in the environmental attribute markets and will sort of stay the course with with with our plan because renewable natural gas as a direct drop and replacement for traditional natural gas and it's a great opportunity to decarbonize.
Mike Stivala: Large sectors of the economy. So we think in the long term, it's a good place to be invested.
Mike Stivala: At the same time, the rest of our renewable platform is really developing.
Mike Stivala: In terms of really driving and finding where we see the economy for lower carbon fuels heading that will benefit most from what I said earlier is our three core competencies and that safety customer service and logistics there are going to be.
Mike Stivala: Newer cleaner fuels that develop whether that's hydrogen whether it's renewable propane.
Mike Stivala: But the reality is those fuels will need to be distributed locally.
Mike Stivala: And who better to do that than suburban propane. That's the way we're looking at the transition of energy in the long term and whether Thats 235, 10 years from now we're going to be positioned.
Mike Stivala: To be able to to move other products.
Mike Stivala: Got it very helpful. Thanks for the time today.
Speaker Change: Great. Thank you Chris.
Speaker Change: Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star followed by the number one on your Touchtone phone.
Speaker Change: If you are using a speaker phone. Please make further to lift your handset before pressing any keith.
Speaker Change: And then if you'd like to ask a question. Please press star followed by the number one.
Speaker Change: There are no further questions at this time I would like to turn the call over to Mike <unk> for closing comments Sir. Please go ahead.
Mike: Great. Thanks for your help today, John and thank you all for your interest and your attention today again, it was a fantastic quarter for suburban propane. It's what we're built for us is to be able to meet the demand when it when it comes and I think this quarter demonstrated that we look forward to talking with you again at the end of.
Speaker Change: For our third quarter in.
Speaker Change: In the summer and in the meantime, please remember it always at all times please be safe. Thank you.
Speaker Change: This concludes today's conference call. Thank you very much for your participation you may now disconnect.