Q4 2025 Suburban Propane Partners LP Earnings Call
Speaker #1: Thank you for standing by, and welcome to the Suburban Propane Partners fourth quarter and fiscal year-end earnings conference call. All lines have been placed on mute to prevent any background noise.
Speaker #1: After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad.
Speaker #1: If you would like to withdraw your question again, press star one. Thank you. I'd now like to turn the call over to Devon D'Ambrosio, Vice President and Treasurer.
Speaker #1: You may
Speaker #1: begin.
Speaker #2: Thank you,
Speaker #2: Rob. Good morning, everyone. Thank you for joining us this morning for our fiscal 2025 fourth quarter and full year earnings conference call. I'm here with Mike Stivala, our President and Chief Executive Officer.
Speaker #2: Mike Kuglin, Chief Financial Officer. And Alex Centeno, our Senior Vice President of Operations. This morning, we will review our fiscal 2025 fourth quarter and full year financial results, along with our current outlook for the business.
Speaker #2: Once we've concluded our prepared remarks, we will open the session to questions. Our conference call contains forward-looking statements within the meeting of Section 21E of the Securities Exchange Act 1934, as amended, relating to the partnership's future business expectations and predictions, and financial condition and results of operations.
Speaker #2: These forward-looking statements involve certain risk and uncertainties. We have a list of 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.
Speaker #2: 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 the partnership are those of persons acting on its behalf or are expressly qualified in their entirety by such cautionary statements.
Speaker #2: Our annual report on Form 10-K for the fiscal year ended September 27, 2025, which contains additional disclosure regarding forward-looking statements and risk factors, will be filed on or about November 26.
Speaker #2: Once filed, copies will be obtained by contacting the partnership or the SEC. Certain non-gap 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.
Speaker #2: Form 8-K will be available through a link in the investor relations section of our website. At this time, I will turn the call over to Mike Stivala for some opening
Speaker #3: Thanks,
Speaker #3: Devon. And thank you all for joining us remarks.
Speaker #3: today. Fiscal Mike. 2025 was another outstanding year for Suburban Propane. In our core propane business, propane demand was strong as a result of sustained periods of more normal winter weather in the heart of our footprint from mid-December through February.
Speaker #3: The most critical months for heat-related demand. As well as strong demand in our southeast operations in the aftermath of Hurricanes Helene and Milton in the first fiscal quarter.
Speaker #3: And incremental volumes from our acquisition of a well-run propane business in our southwest territory which we closed in November 2024. I'm extremely proud of how our field personnel at every level worked tirelessly to meet the surge in demand when our customers needed us most.
Speaker #3: While also opportunistically taking on new business when some of our competitors were unable to keep up. 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 #3: And with safety as our highest priority, what's even more impressive is how our employees performed during a prolonged stretch of very high activity levels and some harsh operating conditions while not compromising on our highest standards for safety.
Speaker #3: As a result, propane volumes for the fiscal 2025 increased nearly 6% compared to the prior year. The strong volumes, combined with effective margin management during a rising commodity price environment, and good expense discipline contributed to a 28 million dollar or 11.2% increase in adjusted EBITDA compared to the prior year.
Speaker #3: In addition to the higher earnings, we had a number of key accomplishments in fiscal 2025 in support of our long-term strategic growth initiatives. Just to highlight a few, we acquired and integrated a markets in New Mexico and well-run propane business in strategic Arizona, for a total consideration of approximately 53 million dollars.
Speaker #3: Subsequent to the end of fiscal '25, just in October of 2025, we further invested in the growth of our core propane business with the acquisition of two high-quality businesses in attractive markets in California for a total consideration of 24 million dollars.
Speaker #3: We created a dedicated sales and business development team focused on specific propane verticals that are less weather sensitive, and present opportunities for growth at the advantage of propane becoming a bigger part of the conversation.
Speaker #3: opportunities in material These verticals include handling, agriculture, power generation, and over-the-road vehicles. We continue to identify and foster new market expansion opportunities through established and extend our presence in certain attractive markets.
Speaker #3: We secured incremental supply of renewable propane and exceeded 2 million gallons of renewable propane sales focused primarily in the California market, coupled with expansion into the Florida and Virginia markets to meet customer demand for renewable alternatives.
Speaker #3: We entered into a multi-year partnership with NASCAR and Speedway Motorsports, making Suburban Propane the official propane partner of NASCAR and Speedway Motorsports. Reflecting the reliability of our national presence, and demonstrating the power and versatility of propane at one of America's top spectator sports.
Speaker #3: In our RNG operations, we continue to implement several operational improvements at our Stanfield, Arizona facility to stabilize and grow RNG production, enhance safety protocols, modify speedstock intake practices, and improve our overall plant efficiency to strengthen the long-term performance and returns of the facility.
Speaker #3: While also advancing the capital projects at our Columbus, Ohio, and upstate New York facilities, both of which are expected to come online in the first half of fiscal 2026.
Speaker #3: We also expanded our RNG management team with dedicated safety, construction, and compliance personnel to bring more expertise in-house. And focusing on our balance sheet, we launched an at-the-market equity program to sell up to 100 million dollars of newly issued common units raising 23 and a half million in net proceeds from the sale of 1.3 million common units at attractive prices during fiscal 2025.
Speaker #3: Proceeds from the ATM program are being used to support our ongoing pursuit of opportunities to grow and to accelerate debt reduction. During the year using excess cash flows, and proceeds from the ATM program, we deployed nearly 53 million for propane acquisitions, over 25 million for our growth projects in the RNG business, and reduced our overall debt by nearly 2 million dollars.
Speaker #3: With the increased earnings and slightly lower outstanding debt, we ended fiscal '25 2025 with a leverage ratio of 4.29 times, a significant improvement from 4.76 times at the end of the prior year.
Speaker #3: In addition to the strong operating and financial performance, during fiscal 2025, we embarked on a multi-year technology modernization initiative that will simplify the way we operate, consolidate our systems platform, and improve the tools we use to serve our customers.
Speaker #3: Delivering a better experience for both our employees and our customers. This initiative will not change our personalized hyperlocal business model that sets Suburban Propane apart as best in class operators within the propane industry.
Speaker #3: So, fiscal 2025 was a very successful year for Suburban Propane. Both in terms of our financial performance and from executing on our long-term strategic growth plans, while remaining patient and disciplined to maintain financial flexibility through a strong balance sheet.
Speaker #3: A little later, I'll provide some closing remarks. However, at this point, I'll turn the call over to Mike Kuglin, who will discuss our full-year and fourth-quarter results in more detail.
Speaker #3: Mike?
Speaker #2: Thanks, Mike. And good morning, everyone. I'll start by focusing on our full year results. I think it's in color in the fourth quarter, toward the end of my remarks.
Speaker #2: To be consistent with previous reporting, I'm excluding the impact of unrealized non-cash mark-to-market adjustments on our commodity hedges, with resulting in an unrealized gain of 2.4 million dollars in fiscal 2025, compared to an unrealized loss of 14.6 million dollars in the prior year.
Speaker #2: Along with certain other non-cash items, we've identified in the reconciliation of net income to adjust EBITDA in the press release. Including these items, net income for fiscal 2025 was 128.4 million dollars, or $1.97 per common unit, compared to 107.7 million dollars, or $1.68 per common unit, in the prior year.
Speaker #2: Adjusted EBITDA for fiscal 2025 was 278 million dollars, an increase of 28 million dollars, or 11.2 percent, compared to the prior year. Retail propane gallons sold in fiscal 2025 were 400.5 million gallons, an increase of 5.9 percent, compared to the prior year.
Speaker #2: The volume increase was driven by sustained widespread cold temperatures during the most critical months for heat-related demand, increased demand for backup power generation, and other applications in the aftermath of Hurricane Helene and Milton, continued growth in our counter-seasonal national accounts business, and incremental volumes from our recent propane acquisitions.
Speaker #2: With respect to the weather, average temperatures for fiscal 2025 were 9 percent warmer than normal and 4 percent cooler than the prior year. During January and February, average temperatures were comparable to normal and 13 percent colder than the same period last year.
Speaker #2: From a commodity perspective, average wholesale propane prices for fiscal 2025 were 79 cents per gallon, basis month value, which was 5.8 percent higher than the prior year.
Speaker #2: According to the most recent report from the Energy Information Administration, the U.S. Propane Inventories at the end of last week were at 106 million barrels, which was 6 percent higher than a year ago and 13 percent higher than historical averages for this time of year.
Speaker #2: Given the strength in inventories, wholesale propane prices have trended down from the end of the fiscal year and are currently in the 60 cent range, compared to the 80 cent range the same time last year.
Speaker #2: Excluding the impact of the mark-to-market adjustments on our commodity hedges that I mentioned earlier, total gross margin of 866.4 million dollars for fiscal 2025 increased 46.8 million dollars, or 5.7 percent, compared to the prior year.
Speaker #2: Primarily due to higher propane volume sold and higher propane unit margins. Excluding the impact of the unrealized mark-to-market adjustments, propane unit margins for fiscal 2025 increased 2 cents per gallon, or 1 percent, with margin expansion experienced across all customer categories.
Speaker #2: In our RNG operations, average daily RNG injection for the fiscal year was approximately 13 percent lower compared to the prior year, primarily due to downtime experience several operational improvement projects designed to enhance future RNG production as well as from multiple power outages and extremely cold ambient air temperatures in the Arizona area during the winter that impacted anaerobic digestion.
Speaker #2: While it remains focused on executing controllable operational improvements, revenues at the Stanford facility continue to face headwinds from lower prices, both California and LCFS credits, federal D3 RIMs.
Speaker #2: California LCFS credit prices remain depressed relative to historical levels, though average prices for fiscal 2025 increased 2.5 percent compared to the prior year. We are encouraged to see the finalization of amendments to the LCFS program implemented by CARB, made effective as of July 1, 2025, which accelerated carbon reduction targets and aimed to create a better balance in the LCFS credit bank.
Speaker #2: Since the amendment were finalized in June 2025, LCFS credit prices have increased over 30 percent. Conversely, average federal D3 RIM prices for fiscal 2025 decreased 25 percent compared to the prior year.
Speaker #2: With respect to expenses, combined operating and energy and expenses increased 23.7 million dollars, or 4.2 percent, compared to the prior year. The increase was primarily due to higher payroll, benefit-related expenses, overtime, and other variable operating costs supporting increased activities associated with incremental customer demand as well as higher variable compensation expense associated with the increase in earnings, and costs related to the technology initiative that Mike mentioned earlier.
Speaker #2: In that interest expense of 76.3 million dollars for fiscal 2025 increased 1.7 million dollars compared to the prior year, due to higher average outstanding borrowings under our revolving credit facility partially offset by lower benchmark interest rates.
Speaker #2: Total capital spending for fiscal 2025 of 72 million dollars was 12.5 million dollars higher than the prior year, primarily due to advancing construction efforts at our RNG facilities in Columbus, Ohio, and upstate New York.
Speaker #2: For fiscal 2026, capital spending for our propane operations is expected to be consistent with historical levels, which is between 40 and 45 million dollars, and CapEx for the RNG projects is expected to range between 30 to 50 million dollars, excuse me, 30 to 35 million dollars, with the spending concentrated in the first half of the fiscal year.
Speaker #2: We expect the capital spending at our RNG facility in upstate New York to qualify for investment tax credit under Inflation Reduction Act, at a rate of 30 percent, which equates to a range of 7 to 9 million dollars in tax credits which could be earned and monetized when the assets placed into service.
Speaker #2: Turning our results for the fourth quarter of fiscal 2025, consistent with the seasonality of our business, we typically report a net loss for the fourth quarter.
Speaker #2: With that said, and excluding the effects of certain non-cash items in both years, we reported a net loss of 35.7 million dollars for the fourth quarter for 54 cents per common unit, which was flat compared to the prior year.
Speaker #2: Adjusted EBITDA for the fourth quarter was $700,000, which was also essentially flat compared to the prior year. Retail propane gallons sold during the fourth quarter increased 1.8 percent compared to the prior year. Total gross margin increased $5.3 million, or 4 percent, compared to the prior year, primarily due to higher volume sold and higher unit margins.
Speaker #2: Combined operating energy and expenses increased 5.8 million dollars or 4.5 percent, primarily due to higher volume-related variable operating costs, higher variable compensation, and costs related to our technology initiative.
Speaker #2: Excluded from adjusted EBITDA for the fourth quarter of fiscal 2025 is an impairment charge of approximately 6 million dollars to fully write down the carrying value of our investment in an early stage energy technology company, as well as income from the reversal of an earnout reserve associated with the RNG acquisition.
Speaker #2: The earnout was contingent upon the acquired assets achieving a certain EBITDA threshold over a certain period. During the fourth quarter, we determined that the contingent consideration would not be earned.
Speaker #2: These non-cash items were reported within other net and estatement of operations. Turning to our balance sheet, during the fiscal year, we utilized a combination of cash flows from operating activities and net proceeds of 23.5 million dollars from the issuance of common units, under the ATM program, to fund a propane acquisition for a total consideration of 53 million dollars, gross capital expenditures of 25.5 million dollars to advance the construction activities, at our RNG production facilities, and repayment of outstanding borrowings under our revolving credit facility of 1.8 million dollars.
Speaker #2: With the improvement in earnings and debt reduction, our consolidated leverage ratio for fiscal 2025 improved to 4.29 times. We have more than ample borrowing capacity under our revolver to support the completion of our planned capital expansion projects, as well as our ongoing strategic growth initiatives.
Speaker #2: As we continue to focus on the execution of our long-term strategic goals, we also see focus on maintaining a strong balance sheet. With that, we'll turn it back to Mike.
Speaker #2: Thanks, Mike. As announced in our October 23rd press release, our board of supervisors declared our quarterly distribution of 32.5 cents per common unit in respect of the first fourth quarter of fiscal 2025.
Speaker #2: That equates to an annualized rate of $1.30 per common unit. The quarterly distribution was paid yesterday, November 12th, due to the Federal Reserve closing on the 11th for Veterans Day, to our unitholders of record as of November 4th.
Speaker #2: Our distribution coverage continues to remain healthy, at 2.13 times for the trailing 12 months ended September 2025. I also want to take a moment to thank and honor our great American veterans for their service including so many that are part of the suburban propane family, now that we just passed Veterans Day.
Speaker #2: So just a few closing remarks regarding our long-term strategy. Our long-term strategic growth plan remains to foster the growth of our core propane business while making strategic investments in lower carbon renewable energy alternatives through our suburban renewable energy subsidiary.
Speaker #2: Leveraging our core competencies in safety, customer service, and logistics, especially in the localized energy distribution markets. The energy evolution is a long journey. One that requires a pragmatic and balanced approach to identifying and fostering energy solutions that can lower greenhouse gas emissions and our country's overall carbon footprint.
Speaker #2: It requires solutions that can deliver energy that is reliable, affordable, and sustainable. We have definitely seen a shift in the conversation that has benefited the propane industry, by recognizing propane's versatile, affordable, on-demand nature and its clean qualities as an immediate and long-term solution to helping lower the carbon footprint.
Speaker #2: We are very well positioned to take advantage of this growing respect for propane, given our operational and financial strength and stability. We are also maintaining our focus on innovation to ensure that Suburban Propane continues to be regarded as a trusted, local distributor of energy for decades to come.
Speaker #2: That innovation includes our advancements in delivering renewable propane, and renewable natural gas as direct drop-in replacements for their traditional energy equivalents. The energy evolution is in the early innings.
Speaker #2: The investments we have made have been very measured and focused on long-term growth and sustainability. It is great to see a more pragmatic approach toward the energy evolution, and also great to see a supportive regulatory and policy framework that contemplates a more deliberate and inclusive environment to drive down emissions over time.
Speaker #2: And within all of the above philosophy for energy solutions. We're very excited to be starting a new heating season. And our people and platform are very well prepared to handle whatever this year's weather dictates.
Speaker #2: With that, I want to thank our more than 3,300 employees, for helping make fiscal 2025 another outstanding year for suburban propane. And for their unwavering commitment to safety, for our customers, our employees, and the communities we serve.
Speaker #2: And as always, I hope you and your families remain safe and healthy, and I wish everyone a very happy holiday season. We appreciate your support.
Speaker #2: questions, and Rob, if you could help us with that.
Speaker #3: answer session. If you would like to ask a question, please press star one on your
Speaker #3: telephone keypad to raise your hand and join We'd now like to open the call up for Thank you. We will now begin the question and the queue.
Speaker #3: If you would like to withdraw your question, simply press star one again. We'll pause for just a moment to compile the questions. And again, if you would like to ask a question, please press star one on your telephone keypad.
Speaker #3: And we have no questions. I will now turn the call back over to Mike Stivala for some final closing comments.
Speaker #2: Great. Thank you, Rob. I think we said enough. We're excited about the new year, and we look forward to talking to everybody after our first quarter.
Speaker #2: In February, and please have a safe and happy holiday season. Thank
Speaker #2: you. This concludes