Suburban Propane Partners, L.P.

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Gallup Capital BDC earnings call. All lines.

Tina, it's the Suburban.

I apologize. Suburban Propane LP Partners financial call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question, simply press star 1 on your telephone keypad. To withdraw your question, press star 1. It is now my pleasure to turn the call over to David Demarioso, Vice President and Treasurer. You may begin.

Great. Thank you, Tina. This is Davin D'Ambrosio, Vice President and Treasurer, and good morning, everyone. And thank you for joining us this morning for our fiscal 2026 first quarter earnings conference call. I'm here with Mike Stavala, our President and Chief Executive Officer, Mike Coogland, Chief Financial Officer, and Alex Centeno, Senior Vice President of Operations. This morning, we will review our first 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 conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, relating to the partnership's future business expectations and predictions and financial condition and results of operations. 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, which can be viewed on our website at suburbanpropane.com. While subsequent written or forward-looking statements attributed to the partnership or persons acting on behalf of or expressed and qualified in their retirement by such cautionary statements. Our annual report on Form 10-K for the fiscal year ended September 27, 2025, and Form 10-Q for the period ended December 27, 2025, which will be filed by the end of business today, contain additional disclosure regarding forward-looking statements and risk factors. Copies may be obtained by contacting the partnership with RFCC. So our 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 FCC this morning. The Form 8K will be available through a link in the Investor Relations section of our website. At this point, I will turn the call over to Mike Zavala for some opening remarks.

Mike? Thank you. Thanks, Gavin. And good morning. Apologize for the confusion from the operator. You are listening to the Suburban Propane first quarter earnings conference call. So, thanks for joining us today. The fiscal 2026 heating season is off to a great start. With a surge of colder weather in our Northeast, Mid-Atlantic, and Midwest operating territories during November, and more importantly, December 2025, that drove heat-related demand which more than offset warmer average temperatures in the west and incremental volumes in the prior year first quarter, resulting from hurricanes Delene and Milton. Our operating personnel have already endured some significant challenges with harsh weather conditions that have persisted into the fiscal second quarter. And I'm extremely proud of the hard work and dedication of our local teams for the preparation and commitment to the safety and comfort of our customers and local communities. The boost in heat-related demand, along with continued positive trends from our customer-based growth and retention initiatives, enabled us to deliver an increase of more than 4% in volume sold compared to the prior year first quarter, and an increase of $8.1 million, or nearly 11%, in adjusted EBITDA for the quarter. In our renewable natural gas operations, average daily RNG injection in the first quarter increased both sequentially and year over year, driven by the operational enhancements implemented at our Stanfield, Arizona facility, which are resulting in both improved uptime at the facility and increased conversion of feedstock to RNG injection. We also started the commissioning process for our newly constructed anaerobic digester facility in upstate New York during December 2025 and made substantial progress on the construction of the gas upgrade equipment at our existing anaerobic digester facility in Columbus, Ohio. The R&G capital projects are on track for completion toward the end of the second fiscal quarter, with R&G injections scheduled to begin in the second half of the fiscal year. With the great start to the fiscal year, we remain focused on delivering outstanding performance while also advancing our long-term strategic growth plans. With the previously announced acquisition of two well-run propane businesses in California, investing $24 million, progressing our capital projects to grow R&G production, investing nearly $7 billion in growth capex in the quarter, and strategically refinancing our 2027 senior notes at an attractive rate and a 10-year maturity. Therefore, we continue to focus on disciplined investment and growth while maintaining balance sheet strength and flexibility. In a moment, I'll come back for some closing remarks. However, At this point, I'll turn the call over to Mike Kugel to discuss the first quarter results in more detail. Mike?

Thank you, Mike, and good morning, everyone. To be consistent with previous reporting that I discussed our first quarter results, I'm excluding the impact of unrealized mark-to-market adjustments on our commodity hedges, which resulted in unrealized gains of $930,000 in the first quarter, compared to an unrealized gain of $3.6 million in the prior year first quarter. Excluding these and certain other non-cash items, we've identified a reconciliation of net income to adjust EBITDA in the press release. Net income for the first quarter was $46.6 million for 70 cents per common unit compared to net income of $38 million for 59 cents per common unit in the prior year. Adjusted EBITDA for the first quarter was $83.4 million, an increase of $8.1 million for 10.8% compared to the prior year. Retail propane gallons sold totaled 110.2 million gallons for the first quarter, an increase of 4.2% compared to the prior year. The increase was driven by colder temperatures across much of the eastern half of the U.S., which boosted heat-related demand, as well as positive contributions from organic customer base growth and outreach of propane acquisitions. These factors more than all set the impact of considerably warmer temperatures in the western half of the country, and incremental volumes in the prior year first quarter in the aftermath of Hurricane Celine and Mildew in the southeast. With respect to the weather, average temperatures during the first quarter were 6% warmer than normal and 6% colder than the prior year first quarter. In the eastern half of the U.S., average temperatures were in line with normal and 12% cooler than the prior year first quarter, whereas average temperatures in the west were 24% warmer than normal and 11% warmer than the prior year first quarter. From a commodity perspective, average wholesale propane prices the first quarter were $0.66 per gallon, based on my value, representing a 14% decrease compared to the prior year first quarter. According to the most recent report from the Energy Information Administration, U.S. propane inventories totaled 89 million barrels at the end of last week, which was 34% higher than a year ago, and 28% above historical averages for this time of year. While domestic demand from the recent blast of cold weather in the east could impact inventories, wholesale propane prices remain in the $0.60 per gallon range compared to $0.90 per gallon range a year ago. Excluding the impact of the marked market adjustments on our commodity hedges, our gross margin for the first quarter was $238.6 million. an increase of $16.1 million for 7.2% compared to the prior year. Improvement was driven by higher propane volume sold, coupled with an increase in propane unit margins of $0.08 per gallon, or 4%, and to a lesser extent, higher contribution for RNG operations due to increased RNG injection. With respect to expenses, combined operating and GMA expenses increased $5 million, or 3.4%, compared to the prior year first quarter. The increase was primarily due to higher payroll benefit-related costs, overtime, and other variable operating costs to support the increased activities associated with the incremental customer demand, plus higher variable compensation expenses associated with the increase in earnings. That interest expense of $19.8 million per quarter was flat compared to the prior year, and the impact of higher average offending borrowings under our revolving credit facility was offset by lower benchmark interest rates on those borrowings. Total capital spending for the quarter was $19.8 million, of which $13 million was in support of our propane operations and $6.8 million for our RNG growth projects. Our full-year capital spending estimate for the RNG project remains unchanged at $30 to $35 million, with spending concentrated in the first and second quarters. And turning our balance sheet, given the seasonal nature of our business, we typically borrow under our revolving credit facility during the first quarter to fund a portion of our seasonal working capital needs. With that said, during the first quarter, we borrowed $115.4 million under our revolver and used net proceeds of $3.1 million from the issuance of common units under our ATM equity program to fund our seasonal working capital needs. growth capital expenditures for the current two projects, along with the cost-associated refinancing of our senior notes, and the two proclinicizations that Mike mentioned earlier. Our consolidated leverage ratio for the trillion-12-month period ended December 2025, improved to 4.57 times, compared to 4.99 times for the trillion-12-month period ended December 2024. Our working capital needs typically peak towards the end of the heating season, late February or early March timeframe, after which we expect to generate excess cash flows. We will continue to remain focused on utilizing excess cash flows to strengthen the balance sheet as opportunities arise to fund strategic growth. We have more than ample borrowing capacity under our revolver to fund our remaining working capital needs for the heating season, as well as to support our growth capital and ongoing strategic growth initiatives. With that, I'll turn it back to Mike.

Thanks, Mike. As announced on January 22nd, our Board of Supervisors declared our quarterly distribution of 32.5 cents per common unit in respect of our first quarter of fiscal 2026. That equates to an annualized rate of $1.30 per common unit. Our quarterly distribution will be paid on February 10th to our unit holders of record as of February the 3rd. Our distribution coverage continues to remain strong at 2.19 times for the trailing 12-month period ended December 2025. So just a few final thoughts. As colder weather and extreme storms have swept across much of the eastern half of the country in recent weeks, our operations personnel are well prepared and working tirelessly to safely meet customer demand. The foundation of our ongoing success continues to be rooted in our more than 3,200 dedicated employees at Suburban Propane. Their unwavering focus on the safety and comfort of our customers and the communities we serve and the commitment to delivering outstanding customer service truly sets us apart. I want to take a moment to thank them for their exceptional efforts during these sustained cold and extreme weather conditions. In closing, our business is very well positioned, both operationally and financially, to meet increased demand from a more normalized winter heating season, while continuing to drive operational enhancements, and executing on our long-term strategic growth plans. We remain committed to growing our core propane business while leveraging our core competencies as trusted local distributors of energy to grow the markets for alternative lower-carbon renewable fuels well into the future. And we continue to be patient and disciplined in executing our growth plans to ensure we maintain a strong balance sheet to support both sustainability and provide flexibility to be opportunistic. As always, we appreciate your support and attention this morning. And now, we'll open it up for questions. And Tina, would you mind helping us with that?

At this time, I would like to remind everyone to ask a question. Simply press star 1 on your telephone keypad. Again, that is star 1 to ask a question. And we'll pause for just a moment to compile the Q&A roster. And with no questions in queue, I will hand the call back over to David for closing remarks.

Great. Thank you, Tina. Appreciate everybody's attention. We look forward to talking to you again in May following the end of our second quarter. And as I always say to our employees here, please be safe out there.

Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.