Suburban Propane Partners, L.P.

Hello, and thank you for standing by.

My name is Lacey, 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 speaker's 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. Thank you. I would now like to turn the call over to Steve Ambrosio, Vice President and Treasurer. Please go ahead, sir.

Thank you, Lacey. Good morning, and thank you for joining us for our fiscal 2026 third quarter earnings conference call. I'm here with Mike Stivala, our President and Chief Executive Officer, Mike Kuglin, Chief Financial Officer, and Alex Centeno, Senior Vice President of Operations. This morning, we will review our third quarter results. along with our current outlets for 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 related to the partnership's future business expectations and predictions, 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 and oral forward-looking statements trivial to the partnership or persons acting on its behalf are expressly qualified in their entirety by such cautionary statements. Our Form 10-Q for the quarter period ended June 27, 2026, which will be filed by the end of business today, contains additional disclosures regarding forward-looking statements and risk factors. Copies may be obtained by contacting the partnership or the SEC. Our non-GAAP measures will be discussed in 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. The Form 8K will be available through a link in the Investor Relations section of our website. At this time, I will turn it all over to Mike Stivala for some opening remarks. Mike.

Thanks, Gavin. Good morning. Thank you all for joining us today. Following a solid first half, we experienced sustained cold weather in the eastern half of the United States and extremely warm weather in the west. The third quarter started out slow. Year-record warm temperatures across our footprint during the shoulder month of April reduced heat-related demand, while residential customer tank levels entering the third quarter were elevated through the timing of deliveries in the second quarter, when demand was particularly strong. Despite the slow start, volumes for the quarter benefited from continued growth in our counter-seasonal customer base, which substantially offset the impact of warmer weather as volumes in both May and June exceeded prior year levels. As always, our operating personnel did an outstanding job delivering exceptional customer service to our customers, managing selling prices in a rising and volatile commodity price environment, and maintaining discipline over operating costs. In our removal of natural gas operations, average daily RNG injection for the third quarter was essentially flat compared to the prior year as increases in manure-based D3 injections were offset by lower food waste D5 injections. However, revenues from RNG injection benefited from higher prices for environmental attributes, including a 31% year-over-year increase in California LCFS credit prices and an 8% year-over-year increase in D3 RIN prices. Subsequent to the end of the third quarter, We placed our new anaerobic digester facility in upstate New York into service, which is expected to add approximately 100,000 MMVTUs of annual D3 RNG injection. And following the completion of our RNG upgrade project at our Columbus, Ohio biogas facility, we expect to be injecting pipeline quality RNG from that facility during the fourth quarter, which is expected to add another nearly 200,000 MMVTUs of annual D5 RNG injection. As a result, we will enter fiscal year 2027 with all three of our RNG facilities operational and an anticipated level of annual injection in the range of 750,000 to 800,000 MMVTUs. We are also focused on opportunities for organic growth and production through continued capacity optimization and increased feedstock intake. During the quarter, we also recognized the benefit of $1.1 million from production tax credits earned under Section 45Z of the Inflation Reduction Act for D3 injections at our Sanfield, Arizona facility. The facility's significant negative carbon intensity score of approximately negative 380, together with compliance with the prevailing wage and apprenticeship requirements, allows us to maximize the available credit value under the regulations. With the facility upstate New York now online, we expect to earn additional PPCs from RNG injection at that facility, in addition to investment tax credits on the capital deployed for construction of the facility. With the New York facility now online and our Ohio facility soon to be online, we will have completed the major capital investments for our existing RNG facilities. As we have stated on a number of occasions, since owning this portfolio of assets, We have been focused on stabilizing production at our Arizona facility where we had some operational challenges in the early years of ownership, driving operational excellence across the platform, improving plant design to increase the conversion of feedstock to RNG, deploying capital for the new facility in New York and the upgraded equipment in Ohio, and building the team to support the long-term growth of the platform. These initiatives were undertaken During a period when environmental credit prices were significantly depressed, with California LCFS credits declining into the low $40 range due to the buildup of excess credits in the market. As we get ready to enter fiscal 2027 with all three facilities online, we are encouraged to see credit prices continuing to improve following regulatory actions taken in California that are driving more aggressive emissions targets and helping to rebalance the market. We believe this improved price environment presents a good tailwind for revenue enhancement in our R&G platform. With all of these efforts over the past three-plus years, we have also maintained our focus on strengthening the balance sheet and allocating capital in a disciplined manner. Following the strong first half performance, cash flow generation in the fiscal third quarter benefited from the seasonal collection of receivables. During the quarter, we used excess cash flows supplemented by proceeds from the issuance of common units under our ATM equity sales program to reduce debt by more than $36 million. In a moment, I'll come back with some closing remarks. However, at this point, I'll turn the 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, I discussed our third quarter results and excluded the impacts Those unrealized market adjustments are commodity hedges, which resulted in unrealized gain of $700,000 in the third quarter of fiscal 2026, compared with unrealized loss of $2.9 million in the prior year third quarter, along with certain other non-cash items. Given the seasonal nature of our business, we typically experience the net loss in the third quarter of our fiscal year. With that said, adjusted net loss for the third quarter was $17.7 million for 27 cents per common unit compared to adjusted net loss of $10.8 million for 17 cents per common unit in the prior year. Adjusted EBITDA for the third quarter was $18 million compared to $27 million in the prior year. Retail propane gallons sold in the third quarter were 70.6 million gallons, a decrease of 1.8% compared to the prior year. With respect to the weather, average temperatures across our service territories during the third quarter were 17% warmer than normal and 3% warmer than the prior year third quarter. For the month of April, average temperatures were 24% warmer than normal and 11% warmer than April of 2055, and ranked as the second warmest April on record. From a commodity perspective, U.S. propane inventory remained strong during the quarter, with June 2026 inventory levels of approximately 21% above both June 2025 and historical averages for this time of year. Despite elevated inventory levels, posted propane prices were volatile and traded between $0.70 and $0.90 per gallon, based on my value, due to geopolitical tensions in the Middle East and strong export demand. Overall, average wholesale prices for the quarter increased 3.6% compared to the prior year third quarter. In the early part of the fourth quarter, wholesale prices have generally been in the $0.70 to $0.75 per gallon range, which is flat compared to the same time last year. Excluding the impact of the mark-to-market adjustments on our commodity hedges that I mentioned earlier, our gross margins for the third quarter were $159.6 million, a decrease of 2.4% compared to the prior year, permanently due to the lower volume sold, as propane unit margins remain steady. With respect to expenses, combined operating and G&A expenses of $141.4 million for the third quarter were $5.2 million, or 3.8% higher than the prior year. The increase was primarily attributable to higher payroll and benefit-related expenses and higher fuel and vehicle maintenance costs, partially offset by lower variable compensation costs and a benefit of $1.1 million are protection tax credits earned for the current year quarter from R&D and Justice. Operating expenses for the third quarter of fiscal year 2025 include a $2 million gain from insurance recovery with Hurricane Lien, reduced prior year operating expenses, and a pension settlement charge of $500,000, which was excluded from adjusted EBITDA. Nance's expense of $18.8 million for the third quarter was flat for the prior year, as well as benchmark interest rates on borrowings under a revolving credit facility were all set by a higher interest rate for a tranche of senior notes that were refinanced in the first quarter of fiscal 2026. Total capital spending for the quarter was $21.4 million, which included $15.1 million of growth capital. Capital spending increased $6.8 million compared to the prior year, Thank you for joining us. Training our balance sheet during the third quarter to utilize cash flows from operating activities and net proceeds of $6.6 million from the issuance of common units under our 8M program to repay $36.2 million of borrowings under the revolver. Our consolidated leverage ratio for the trailing 12-month period into June 2026 was 4.35 times, which is flat compared to June 2025. With a significant portion of capital spending on the R&D platform launch complete, we expect to generate increasing financial flexibility. We will 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. With that, I'll turn it over back to Mike.

Thanks, Mike. As announced on July 23rd, our Board of Supervisors declared our quarterly distribution of $0.325 per common unit In respect of our third quarter of fiscal 2026, that equates to an annualized rate of $1.30 per common unit. Our quarterly distribution will be paid on August 11th to our unit holders of record as of August 4th. Our distribution coverage continues to remain very strong at 2.07 times for the trail in 12 months ended June 2026.

So just to close it out,

Through the first nine months, fiscal 2026 has been another great year for suburban propane. As our personnel in the eastern half of our propane operations did an amazing job responding to a surge in demand from some of the most sustained cold weather and harsh storms that we've seen during the heart of the heating season in over a decade, while our teams in the west continue to focus on the areas they can control, growing our customer base and managing expenses. And with all three of our RNG production facilities approaching full operations, the platform has benefited from our efforts to drive operational and safety discipline, production stability, and capacity optimization plans. All the time in which we see tailwinds for the RNG platform in the form of improving environmental credit pricing, continued regulatory support for clean energy production pathways, and exponential growth in power demand. Taken together, the strength and stability of our core propane business, combined with the investments we have made to build a renewable energy platform, position suburban propane for long-term growth as we continue to support the evolution of energy to a lower carbon future and approach our 100-year anniversary in 2028. Finally, I want to take a moment to thank the more than 3,200 employees at Skirban Propane for their hard work and unwavering focus on the safety and comfort of our customers and communities we serve. Thank you all for everything you do all day. As always, we appreciate your support and attention this morning and would now like to open the call up for questions. And Lacey, could you help us with that?

At this time, I would like to remind everyone, if you would like to ask a question, please press star 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. There are no questions at this time.

Okay. Thank you, Lacey. Again, thank you all for joining us, and I hope you enjoy the rest of your summer. and as always, please be safe. We'll talk to you in November.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.