Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by.
Welcome to the suburban propane partners LP fiscal 2019 third quarter results conference call.
At this time, all participants are in listen only mode.
Later, we will conduct a question and answer answer session and instructions will be given at that time.
Should you require assistance during the call. Please press Star then zero.
As a reminder, this conference is being recorded.
This 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. These forward looking statements involve certain risks and uncertainties.
The partnership has 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 its earnings press release.
Which can be viewed on the company's website. All subsequent written and oral forward looking statements attributable to the partnership or persons acting on his behalf are expressly qualified in their entirety by such cautionary statements.
I would now like to turn the conference over to our host Davin Dambrosio, Vice President and Treasurer. Please go ahead Sir.
Thank you Tiffany good morning, everyone.
Thank you for joining us this morning for our fiscal 2019 third quarter earnings Conference.
Joining me this morning are Mike Stivala, President and Chief Executive Officer.
Mike Kuglin, Chief Financial Officer, and Chief Accounting Officer.
It's Steve Boyd, our Chief operating officer.
This morning, we will review our third quarter financial results, along with our current outlook for the business.
Once we've concluded our prepared remarks, we will open the session to questions.
Our annual report on Form 10-K for the fiscal year ended September 29 2018.
And 10-Q for the period ended June 29, 2019, which will be filed by the end of business today.
Contains additional disclosure regarding forward looking statements and risk factors.
Copies may be obtained by contacting the partnership or the FCC.
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 FCC. This morning.
Form 8-K will be available through away in the Investor Relations section of our website.
At suburban propane dotcom.
At this time I will turn the call over to Mike Stivala for some opening remarks, Mike.
Thanks, Davin and thank you everyone for joining us this morning.
The third quarter of fiscal 2019 was another solid quarter for suburban with earnings pretty much in line with our expectations for this counter seasonal quarter.
By contrast, the third quarter of last year.
Benefitted from an extended winter season.
That resulted in unusually high heat related customer demand for the time of year.
In fact, the average temperatures in the month of April 2018 were 16% cooler than normal.
Versus April of 2019, which experienced 17% warmer than normal average temperatures.
Our operations personnel continue to do an outstanding job delivering exceptional service to our customers effectively managing retail pricing in a declining commodity price environment.
And focusing on our customer base growth and retention initiatives.
Additionally, during the quarter, we continued to make good strides on our stated strategic goals.
Utilizing excess cash flows in a balanced way.
To strengthen the balance sheet.
And invest in growth.
Specifically, we reduced debt by more than $16 million.
And invested $11 million into high quality propane acquisitions in strategic markets.
We also launched a brand refresh during the quarter with new brand elements that emphasize our commitment to excellence for the comfort and safety of our customers our devotion to safety and career development for our dedicated employees.
Our philanthropic efforts to give back to the communities we serve through our suburban cares initiative.
And the inherent environmental benefits of using propane and multiple applications as a clean energy source for sustainable future.
In a moment I'll come back for some closing remarks. However at this point I will turn the call call over to Mike Kuglin to discuss the third quarter results in more detail Mike.
Thanks, Mike and good morning, everyone.
To be consistent with previous reporting.
Discuss our third quarter results, excluding the impact of unrealized noncash mark to market adjustments.
On derivative instruments used in risk management activities, which resulted in a $138000 unrealized gain in the third quarter of 2019.
Compared with $3.8 million unrealized gain in the prior year.
Given the seasonal nature of our business, we typically experience a net loss for the third quarter of our fiscal year.
With that said net loss for the third quarter was $29.2 million.
47 cents per common unit.
Compared to $20.4 million or 33 cents per common unit in the prior year.
Adjusted EBITDA for the third quarter amounted to $20.1 million compared to $30.5 million in the prior year.
Retail propane gallons sold in the third quarter were 73.8 million gallons, which was 8.3% lower than the prior year and consistent with year over year decrease in heating degree days for the quarter.
Although weather during the third quarter typically has less of an impact on volume sold than it does during the heating season.
The third quarter of last year benefited from unusually strong heat related customer demand, resulting from an extended and sustain period of significantly cooler than normal temperatures.
Conversely volumes for the third quarter fiscal 2019 were negatively impacted by an early into the heating season does followed by considerably warmer temperatures during the month of April .
As Mike mentioned average temperatures for the month of April 2019, or 17% warmer than normal.
And 33% warmer than April 2018.
Overall average temperatures across our service territories.
For the third quarter, with 12% warmer than normal and 8% warmer than the prior year.
In the commodity markets wholesale propane prices declined steadily during the quarter with the price of propane basis, Mont Belvieu going from 64 cents per gallon at the start of the third quarter.
To 48 cents per gallon at the end of June .
Overall average propane prices for the third quarter decreased 17% sequentially.
36.4% compared to the prior year third quarter.
Total gross margin of $135.5 million for the third quarter decreased to $7.3 million or 5.1% compared to the prior year.
Primarily due to lower propane volumes, partially offset by solid margin management, the declining product cost environment.
Overall.
Propane unit margins increased approximately seven cents per gallon, 4.5%.
Compared to the prior year third quarter with most customer segments experiencing margin improvement.
With respect to expenses.
Combined operating and marketing expenses increased $3.2 million or 2.9% compared to the prior year.
Primarily due to an increase in accruals for self insured product liabilities.
As well as higher vehicle maintenance and repair costs and higher payroll and benefit related costs.
Net interest expense of $18.9 million for the third quarter decreased $600000 or 3.1%.
Compared to the prior year.
Primarily due to lower average borrowings on the revolving credit facility.
Our total capital spending for the third quarter amounted to $7.7 million, which is consistent with the prior year.
Capital spending includes the repair replacement of property plant equipment.
Along with purchases of new propane tanks and other equipment.
Facilitate the expansion of our customer base and operating capacity.
As Mike mentioned earlier during the third quarter, we closed on two acquisitions, a well run propane operations.
Located in strategic markets for a total purchase price of $10.9 million.
The acquisitions were funded with internally generated cash as well as $1.6 million of common units issued to the seller and one of the transactions.
Through the first nine months of fiscal 2019, we've now completed three acquisitions investing nearly $23 million in support of our strategic growth initiatives, all funded primarily with internally generated cash.
Turning to our balance sheet.
During the third quarter, we continue to use excess cash flows to reduce revolver borrowings.
Our total debt reduction during the first nine months of fiscal 2019 was was it $16 million and as at June 2019, our consolidated leverage ratio measured 4.41 times.
We remain well within our debt covenant requirements and continue to be focused on utilizing excess cash flows in a balanced fashion to strengthen the balance sheet and invest in strategic growth.
We continue to make good progress on our stated goal to achieve a target leverage profile below four times.
Thank you Mike.
Thanks, Mike as announced in our July 25th Press release, our board of Supervisors declared our quarterly distribution of 60 cents per common unit in respect to the third quarter of fiscal 2019, the quarterly distribution will be paid on August 13th to our unit holders of record as of August six.
And at the current annualized rate of $2.40 per common unit. Our distribution coverage continues to remain healthy at 1.25 times based on our trailing 12 month distributable cash flow.
Just a few closing remarks.
We continue to position our operations and our balance sheet.
For long term sustainability, while seeking opportunities to grow the business in line with our stated strategic criteria.
Through the first nine months of fiscal 2019.
We generated strong excess cash flow.
Reporting distribution coverage of 1.25 times.
The investments we made in three quality propane businesses during the year will be immediately accretive and on a pro forma basis will improve our overall leverage metrics compared to the reported ratio at the end of June 2019.
We have a solid pipeline of additional propane acquisition opportunities currently being evaluated and also remained focused on bringing down our total debt.
Finally, I am extremely proud of the more than 3200 employees of suburban propane maintaining their focus on carrying out their commitment to safety and outstanding service to the customers and communities they serve.
And executing on our customer base growth and retention initiatives.
Thank you for all that you do every day.
And as always we appreciate your support and attention this morning.
And we'll now open the call up for questions and Tiffany if you could give us a hand with that.
Absolutely. Thank you.
Ladies and gentlemen, if youd like to ask a question. Please press star one on your Touchtone phone, you'll hear a tone, indicating even placed in Q and may remove yourself from Q at any time by pressing the pound.
If you're using a speakerphone please pick up the handset before pressing the numbers, let's begin if you have a question press star one at this time.
Okay.
And our first question comes from Sharon Lee. Please go ahead.
Hi, good morning, everyone I want to share.
Just a question on your leverage you guys have made pretty good progress in bringing that down.
When do you anticipate getting to your target of below four times.
Do you think it could happen within the next heating season.
Yes, I think you know the combination of a growing the EBITDA through acquisitions.
And as I said earlier.
The way we're funding these acquisitions were not really adding to our debt. So.
It is it is.
And excess cash flow that we're using to grow but I think with the multiples were paying we're growing EBITDA, if we continue to generate excess cash flow.
To the tune of.
$30 million to $40 million.
That will give us more opportunity to to accelerate bringing down debt.
And it's feasible that.
We could be below that target at the end of next years heating season, obviously, depending on what next year's weather pattern.
Brings our way and gives us the opportunity to to generate the kind of EBITDA that you've seen from us.
Or better for the past couple of years.
So yes, it's certainly feasible that.
Thats it thats in our sites.
And I guess with the acquisitions that we've completed and also the ones in the pipeline.
Our the return essentially in line with historical multiple more in the seven to nine times range, how should we think about that.
Yes every deal is different.
As I've said in the past and also some deals will garner a slightly higher multiple if we think there's a much more competitive situation.
And it's a strategic market that we really want to make sure that we give ourselves the best opportunity to win that up that.
That acquisition and others.
You know may may.
Have slightly different characteristics and are going to garner a slightly lower multiple but.
Everything we look at post synergies and we try to it we try to bring bring our multiples down in the in the seven.
Or below range post synergies no matter, what we want to paint for the business.
Okay, great and the last one just if you could touch on your brand refresh effort.
Perhaps the cost and timing of when you should.
Maybe see some tangible.
Impacts or benefits from this program.
Yes, the cost is very minimal.
Frankly, it's mostly going to be through communication.
It started.
Back at the end of June with the public announcement of our three pillars.
Which is our commitment to excellence in customer service, our suburban cares initiative, which focuses on the the commitment that we have to our employees for career development health and wellbeing.
Career advancement some of our military hiring initiatives and giving back to the military veterans community.
With some of our training and assistance programs for both veterans and spouses.
As well as our suburban cares initiatives and giving back to the communities we serve.
And our relationship with the American Red Cross and many many other local.
Charitable.
Charitable organizations in each of our territories.
And then third is the go green with suburban propane.
There's there's obviously a significant push for.
Green energy.
Investments in.
Renewable energy and what our.
Focus on on communicating the green benefits of propane is.
For for to educate.
The communities.
Legislators.
Regulators government agencies on just how clean.
An energy source propane already is.
And that's not just for.
In terms of the contribution to greenhouse gas emissions, but also lower emissions as propane is used as an auto gas and so we believe that the industry at large really hasn't done a good enough job.
Communicating the green Green attributes of propane as it stands today as a very clean energy source.
And so we're going to continue to to get our message out there that.
We deal in a product that is already significantly cleaner than then.
The vast majority of the other energy sources and is abundant.
And plentiful as a resource that we have right here in the us.
So our our efforts are going to be focused on just getting those three different messages out mostly through.
Communication through our social media channels enhancements on our web site through our blog on our website fuel for thought.
And.
And some.
Enhance brand marketing, which will cost a little bit of money, but really not not much in the grand scheme of things.
Okay, Great and I guess.
You know would you guys consider perhaps no longer term exploring maybe she reporting given the nature of your business and the other social efforts that you guys are making.
Well. This this would this is our this was our start of that okay and that was really.
Part, partially our attempt that getting ahead of that.
Yes to your reporting is we.
When we started seeing that.
The focus of.
Different investors and institutional investors and.
We said look we have tremendous.
He SG already very clearly involved in all aspects of our business.
We just need to do a better job getting the message out so we develop the three pillars.
Two.
Sort of to get ahead of that because we believe and I think the three pillars demonstrate that we're already.
A very very good corporate citizen in all aspects of our business not only customer service, but our community involvement.
And the environment so.
I guess you could say we're already there.
Thank you.
Thank you.
And ladies and gentlemen, if you wish to ask a question. Please press star one on your phone at this time.
There are no other questions at this time.
All right great. Thank you Tiffany for your help today Sharon. Thank you for those questions. Appreciate that thank you all for joining US today I hope you enjoy the rest of your summer next time, we talk to you will be at the end of our fiscal year and.
In early November and we look forward to that so thank you.
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