Suburban Propane Partners, L.P.

Thank you for standing by. My name is Eric and I will be your conference operator today. At this time, I would like to welcome everyone to the Suburban Propane Partners Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. 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. If you would like to withdraw your question, press star one again. I would now like to turn the call over to Davin D'Ambrosio, Vice President and Treasurer. Please go ahead.

Thanks, Eric. Good morning and thank you for joining us for our Fiscal 2025 Third Quarter Earnings Conference Call. I'm here with Mike Stavalla, our President and Chief Executive Officer, Mike Kuglin, our Chief Financial Officer, and Alex Centeno, Senior Vice President of the United States. This morning we will review our Third Quarter financial results along with our outlook for the business. Once we have concluded our prepared remarks, we will open the session to questions. Our conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act 1934 as amended relating to the partnership's future business expectations and predictions, financial condition, and results of operations. These forward-looking statements involve certain risk 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, which can be viewed on our website at suburbanpropane.com. All subsequent written and oral forward-looking statements attributed to the partnership or persons acting on its behalf are expressly qualified in there entirely by such cautionary statements. Our Form 10Q for the quarterly period ended June 28, 2025, which will be filed by the end of business today, contains additional disclosure regarding forward-looking statements and risk factors. Copies may be attained by contacting the partnership or the SEC. 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 8K, which was furnished to the SEC this morning. The Form 8K 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 Stavala for some opening remarks. Mike?

Thanks, Davin. Good morning. Thank you all for joining us today. Following a strong fiscal second quarter performance, we were very pleased to deliver another solid counter-seasonal quarter, despite unseasonably warm temperatures and volatility in the commodity price environment. Additionally, coming into the third fiscal quarter, customer tank inventories were generally on the higher end as a result of the strong weather-driven volume performance in the second quarter. Nonetheless, propane volumes for the third quarter were up slightly to the prior year. As always, our operations personnel continue to do an outstanding job, safely meeting the needs of our customers while effectively managing selling prices and expenses, as well as executing on our customer-based growth and retention initiatives. We are also seeing the benefits from the strategic propane acquisition in New Mexico that we closed during the first fiscal quarter of this year. In our renewable natural gas operations, average daily R&G injection for the third quarter declined slightly compared to the several operational improvement projects that are designed to enhance future R&G production, as well as multiple power outages in the Stanfield, Arizona area. We are continuing to implement several operational improvements at our Stanfield facility to stabilize and grow R&G production and injection, enhance safety protocols, improve feedstock intake practices, and improve overall plant efficiency to strengthen the long-term performance and returns of the facility, while also advancing the capital projects at our Columbus, Ohio and Upstate New York R&G facilities, which are expected to increase our overall R&G sales once those facilities are fully operational. While we remain focused on executing controllable operational improvements, revenues at the Stanfield facility continue to face headwinds from lower prices for environmental attributes, namely both California LCFS credits and federal D3 RINs. California LCFS credit prices remain depressed relative to historical levels, though average prices for the third quarter were flat compared to the prior year third quarter. We were encouraged, however, to see the finalization of amendments to the LCFS program implemented by CARB and made effective as of July 1, 2025, which accelerated carbon reduction targets and aims to create a better balance in the LCFS credit bank. Since the amendments were finalized in late June 2025, LCFS credit prices have increased 30%. Conversely, average federal D3 RIN prices for the third quarter were down 21% year over year. With the strong second quarter performance, cash flow generation in the fiscal third quarter was very strong as we collected on our receivables. And during the quarter, we used excess cash flows and to a lesser extent, proceeds from the issuance of common units under our ATM equity sales program to reduce outstanding debt by $69 million, helping to make incremental improvements in our overall leverage profile. In a moment, I'll come back for some closing remarks. However, at this point, let me turn it 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, as I discuss our third quarter results, I'm excluding the impact of unrealized -to-mark adjustments on our commodity hedges, which resulted in an increase in the net loss for the third quarter of both fiscal 2025 and fiscal 2024, along with certain other non-cash items. Given the seasonal nature of our business, we typically experience a net loss in the third quarter of our fiscal year. With that said, the net loss for the third quarter was $10.8 million for 17 cents per common unit compared to a net loss of $8 million or 12 cents per common unit in the prior year. Just to EBITDA for the third quarter was $27 million. Consistent with the prior year third quarter. Retail propane gallons sold in the third quarter of $71.9 million gallons were in line with the prior year. Average temperatures as measured in degree days were 14% warmer than normal and 5% cooler than the prior year third quarter. Denominally cooler temperatures compared to the prior year were brief and limited to certain parts of the northeast, resulting in only a minimal impact on heat-related demand during the quarter. Despite the warm spring temperatures, volumes benefited from customer-based growth in our residential and national account segments, but were also impacted by softness in resale activities and our agricultural segment due to unusually wet conditions. From a commodity perspective, wholesale propane prices were somewhat volatile for the quarter and generally trended higher compared to the prior year third quarter. Overall, average wholesale prices for the quarter increased .7% compared to the prior year third quarter based at Montbellevue. At the end of the third quarter, the nation's propane inventories were at 75.7 million barrels, which was flat compared to June 2024 and roughly 10% higher than historical averages for this time of the year. Excluding the impact of the -to-market adjustments on our commodity I mentioned earlier, total gross margin for the third quarter was $163.5 million, unchanged from the prior year, as propane volumes sold and unit margins remained steady. With respect to expenses, combined operating and G&A expenses of $135.8 million for the third quarter were also roughly flat to the prior year, as higher payroll and benefit-related costs were largely offset by a gain from insurance recovery. Net interest expense of $18.9 million for the third quarter was marginally higher than the prior year due to higher average outstanding borrowings under our revolving credit facility, partially offset by lower benchmark interest rates on those borrowings. Total capital spending for the quarter was consistent with the prior year's third quarter as we advanced our growth capital projects and our R&G platform at our Columbus and upstate New York facilities, which were offset by lower capital spending and our propane operations due to timing. Turning to our balance sheet, during the third quarter we utilized cash flows from operating activities and net proceeds of $8.1 million from the issuance of common units under our ATM program to repay $69 million in borrowings under the revolver. As a result of the debt repayment, our consolidated leverage ratio for the -12-month period ended in June 2025, improved to 4.33 times compared to 4.54 times at the end of the second quarter. We will continue to remain focused on utilizing excess cash flows and proceeds received from the ATM program to further strengthen the balance sheet and as opportunities arise to fund strategic growth. We have more than ample borrowing capacity under our revolver to support our capital expansion activities and ongoing strategic growth initiatives. With that, I'll turn it back to Mike.

Thanks Mike. As announced on July 24th, our board of supervisors declared our quarterly distribution of 32.5 cents per common unit in respect of our third quarter fiscal 2025. That equates to an annualized rate of $1.30 per common unit. The quarterly distribution would be paid on August 12th to our unit holders of record as of August 5th. Our distribution coverage continues to remain very healthy at 2.16 times for the -12-months ended June 2025. Just to reflect a moment on our results through the first nine months of fiscal 2025, as well as the state of the business. Fiscal 2025 heating season got off to a warm start, but sustained widespread cold winter temperatures arrived toward the end of December and continued throughout January and February, the most critical months for heat-related demand. The cooler weather pattern during the heart of the heating season combined with incremental volumes from the mid-size propane acquisition completed in the first quarter this year in New Mexico and strong demand in our southeast operations in the aftermath of hurricanes Helene and Milton all helped contribute to a 6.6 percent increase in volumes compared to the comparable nine-month period last year. Volume performance was a real testament to the preparation by our operations teams and the flexibility of our operating model to ramp up when demand dictates. The combination of strong volumes, effective margin management amid rising commodity prices, and disciplined expense controls resulted in a -to-date increase in adjusted EBITDA of 28.1 million or 11.3 percent compared to the same period last year. Our operations teams did an outstanding job navigating the roller coaster of demand patterns this year while maintaining outstanding customer satisfaction and operational excellence. On the strategic front, 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, leveraging our core competencies in safety, customer service, and logistics, especially in the localized energy distribution markets. One important development to note, during the quarter, Independence Hydrogen, of whom we have a 25 percent equity stake since our original investment in March 2022, closed on their next round of financing, welcoming Sumitomo Corporation of Americas as another strategic investor. We look forward to collaborating with Sumitomo to accelerate the commercial development and growth of Independence Hydrogen's localized hydrogen production and distribution model. Finally, I want to take this opportunity to thank the more than 3,200 employees at Sperm and Propane for their hard work and unwavering focus on the safety and comfort of our customers and the communities we serve. Thank you for all you do every single day. And as always, we appreciate your support and attention this morning and would like to open the call up for questions. And Eric, if you could help us with that.

At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad.

We'll

pause for just a

moment to compile the Q&A roster. Your first question comes from the line of

Christopher Jeffery with Mizuho Securities. Please go ahead.

Hi, good morning, everyone, and thanks for the update. Maybe just asking more on the, for an update on the R&G rulemaking as far as the tax credits go that you kind of alluded to last quarter. And then maybe also if there's anything that Suburban is looking at in the, you know, OBBA bill that was also recently implemented.

Yeah, good morning, Chris. It's Mike Hoogland. So similar to last quarter, we did not recognize any credits for PTC under 45Z. And we will continue not to recognize any credits until regulations and hopefully final regulations come out from the Treasury. The expectation is credit regulations will be released by the end of this calendar year. Although we can't give any assurance to that, but that's the expectation. At that point in time, we'll revisit what sales qualify for sales and then recognize credits to extent eligible. As far as OBBA, we're still working through it. There are some benefits insofar as it extends 45Z PTC for another two years from, through 2027 for another two years through 2029. So that's certainly beneficial. But outside of that, the OBBA does not address the ambiguities that are contained in the current regulations. So we're still waiting in a waiting pattern until those regulations come out.

And the only other thing Chris, relative to the OBBA bill is, you know, one of the interesting things that doesn't get a lot of attention was that they expanded some of the definition of qualifying income sources for purposes of MLPs. And as you know, you know, the MLP universe has shrunk quite a bit. So there's some potential that as additional sources of energy, including hydrogen transportation and storage, which is obviously getting a lot of attention, is, could expand the use of MLPs, which, you know, suburban propane being one of the oldest, we were pleased to see that recognition.

Great.

Thank you.

I appreciate that. And then maybe just any updates on the timing of the New York and Columbus projects and maybe how you're thinking about balancing those with the Arizona enhancement projects, and maybe just a timeline on that Arizona when you think that kind of that work would be expected to be done.

Yeah, most of the Arizona work is sort of smaller operational improvements. It's not a significant amount of capital. You know, as you've gotten to know suburban, we're constantly looking at operational improvements in our propane business, and we're continuing to challenge ourselves to get even better in our operations in Arizona. So there's not a major timeline there. It's just ongoing activities as we see them. As far as the Columbus upgrade facility and the Digester in upstate New York, we're still on track for sort of tail end of this county year into the early part of next calendar year is the expectation at this point.

Great. And then maybe just one last one on the O&M. Just if you could size up maybe that benefit from the insurance payout and kind of where you're seeing O&M, SG&A trend generally going forward.

So

the

benefit was reported on the operations line. It was a little less than $2 million. It's not terribly material, but significant enough to offset the impact of inflation on payroll and benefits. And on a go-forward basis, inflation as we've talked about has moderated over the years, but it's not certainly gone away. And we would expect inflation to the 2 and roughly around 3% on a go-forward basis.

Great.

Maybe actually just last one, anything that you guys are seeing kind of on the M&A front, seeing kind of some recent transactions transpire in the last six, eight months or so.

Yeah, this is obviously the time of year that you start to see the pipeline develop a little bit more significantly as we've come out of the heating season. And our pipeline is about the same as what it typically is. There's a handful of things that we have our eye on in different stages of development, frankly. So it's been a pretty active process for us over the past several months. And as we've said, part of our strategy is to continue to foster the growth of propane, which is our bread and butter and helps to finance our initiatives to diversify the platform and continuing to grow the business through M&A strategically is part of that strategy. So we will continue to evaluate those opportunities.

Great. Thank you. Appreciate the time. Thanks for the interest, Chris.

As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. There are no further questions at this time. I would like

to turn the call over to Mike Stavala for closing remarks. Please go ahead.

Great. Thanks, Chris. Thanks for your help today. Thank you all for your attention. Appreciate it. Enjoy the rest of the summer. And we look forward to talking to you in November as we close out our fiscal year. Thank you.

Ladies and gentlemen, this concludes today's call. Thank you all for joining and you may now disconnect.