Title

Presentation

Suburban Propane Partners, L.P. misses on earnings expectations. Reported EPS is $2.1 EPS, expectations were $2.18.

Operator: Good morning, ladies and gentlemen, and welcome to the Suburban Propane Partners Second Quarter Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call, you require immediate assistance, please press 0 for the operator. This call is being recorded on Thursday, May 25, 2025. I would now like to turn the conference over to Davin D’Ambrosio, Vice President and Treasurer. Please go ahead.

Davin D’Ambrosio: Thank you, Operator. Good morning, everyone. Thank you for joining us this morning for our fiscal 2025 second quarter earnings conference call. Joining me this morning are Michael A. 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 second quarter financial results along with the current 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 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. All subsequent written and oral forward-looking statements attributable to the partnership or persons acting on its behalf are expressly qualified in their entirety by such cautionary statements. Our annual report on Form 10-Ks for the fiscal year ended September 28, 2024, and our Form 10-Q for the period ended March 29, 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 or SEC. Certain non-GAAP measures will be discussed on this call. We have provided a description of those measures as well as why we believe this information to be useful in our Form 8-Ks, which was furnished to the SEC this morning. The Form 8-Ks will be available through a link in the Investor Relations section of our website. At this point, I will turn the call over to Michael A. Stivala for some opening remarks. Michael?

Michael A. Stivala: Thanks, Davin. Good morning. Thank you all for joining us today. The fiscal 2025 second quarter was an outstanding quarter for Suburban Propane. Our business experienced some of the most sustained winter weather in the heart of our footprint throughout January and February, the most critical months for heat-related demand. The kind of consistent weather conditions we have not seen in nearly a decade. I am extremely proud of how our field personnel at every level worked to meet the surge in demand when our customers needed us most, while also opportunistically taking on new business when others 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.

And with safety as our highest priority, I am extremely proud of the way our people maintained their focus on the highest operating standards for safety during a prolonged stretch of high activity levels and some tough operating conditions. As a result of the surge in demand, propane volumes for the quarter increased 15.5% compared to the prior year second quarter. In fact, during the month of January 2025, we delivered the highest propane volume since 2018. The strong volume performance combined with effective margin management during a rising commodity price environment and good expense discipline contributed to a $28 million or 19.1% increase in adjusted EBITDA compared to the prior year second quarter. In our renewable natural gas, average daily RNG injection for the second quarter improved from the first quarter and was down slightly compared to the prior year second quarter due to extremely cold ambient air temperatures in the Arizona area that impacted anaerobic digestion and RNG production at our Stanfield facility, coupled with a short period of planned downtime to install enhancements to heating capacity.

While revenues at the Stanfield facility have faced headwinds from lower prices for California LCFS credits, and more recently D3 RIN prices, we continue to implement enhancements to our RNG production and injection, safety protocols, feedstock intake practices, and overall plant efficiency in order to improve the long-term performance and returns from the facility. We are also progressing well with the capital projects at our Columbus, Ohio, and Upstate New York facilities, which will increase our overall RNG sales once those facilities are fully operational. Additionally, during the quarter, we made great progress integrating the propane business that we acquired in the first quarter of fiscal 2025 for approximately $53 million with operations in New Mexico and Arizona, our largest single propane acquisition since 2012.

The performance of the acquired business has exceeded our expectations in the early part of our ownership. And finally, in late February, we launched our an at-the-market or ATM equity sales program to sell up to $100 million of newly issued common units. Under the program, we may sell common units from time to time at prevailing market prices through registered placement agents acting on behalf of Suburban Propane in a controlled and disciplined manner. As we have consistently messaged, our long-term strategic growth plan is to foster the growth of our core propane business, make strategic investments in lower carbon renewable energy alternatives, while maintaining balance sheet flexibility. Over the course of the past five years, we have utilized a combination of strong free cash flows and borrowings under our revolving credit facility to fund the execution of our long-term growth strategy.

The purpose of the ATM program is to provide additional capital to support our ongoing pursuit of opportunistic growth while reinforcing the strength of our balance sheet. During the second quarter, we raised net proceeds of $8.8 million under the program, which were used to repay outstanding debt under our revolver. Therefore, we continue to advance our long-term strategic growth plans while maintaining our focus on strengthening our balance sheet and financial metrics to drive long-term value for all of our key stakeholders. In a moment, I will come back for some closing remarks, but at this point, I will turn it over to Mike Kuglin to discuss our second quarter results in more detail. Mike?

Mike Kuglin: Thanks, Michael, and good morning, everyone. To be consistent with previous reporting, as I discuss our second quarter results, I am excluding the impact of unrealized mark-to-market adjustments on our commodity hedges, which resulted in an unrealized gain of $700,000 for the second quarter compared to an unrealized gain of $5.9 million in the prior year second quarter. Excluding these and certain other non-cash items, net income for the second quarter was $136.9 million or $2.11 per common unit compared to net income of $110.3 million or $1.71 per common unit in the prior year second quarter. Adjusted EBITDA for the quarter was $175 million, an increase of $28 million or 19.1% compared to the prior year second quarter.

Retail propane gallons sold in the quarter were 162 million gallons, which was 15.5% higher than the prior year second quarter, primarily due to the impact of sustained widespread cooler temperatures on heat-related demand during January and February and the contributions from our recent propane acquisitions. Average temperatures across our service territories during the second quarter were 5% warmer than normal and 9% cooler than the prior year’s second quarter. During January and February, which are the most critical months for heat-related demand during the second quarter, average temperatures were comparable to normal and 13% colder than the same period last year. From a commodity perspective, propane inventory levels in the US experienced a strong seasonal decline during the second quarter due to a surge in domestic demand and continued strength in exports.

At the end of the second quarter, US propane inventories were up 44.1 million barrels, which were 15% lower than March 2024 levels and 6% lower than the five-year average for March. Given the decline in inventories and other factors, average wholesale propane prices for the quarter of $0.90 per gallon, its base is Mont Belvieu, increased 7.2% compared to the prior year second quarter. Excluding the impact of the non-cash mark-to-market adjustments on our commodity hedges that I mentioned earlier, total gross margin of $344.6 million for the second quarter increased $42.5 million or 14.1% compared to the prior year second quarter, primarily due to higher propane volumes sold. Propane unit margins for the quarter were flat compared to the prior year second quarter as we effectively managed selling prices to offset the impact of higher product costs.

With respect to expenses, combined operating and G&A expenses of $169.3 million for the quarter increased $14.9 million or 9.7% compared to the prior year’s second quarter, primarily due to higher payroll and benefit-related expenses, including overtime, and other variable operating costs to support the increase in customer demand, as well as higher variable compensation expense associated with the increase in earnings. Net interest expense of $20.6 million for the quarter increased 3.3% compared to the prior year second quarter, resulting from a higher level of average outstanding borrowings under our revolving credit facility, partially offset by lower benchmark interest rates for borrowings under the revolver. Total capital spending for the quarter of $19.3 million was $4.8 million higher than the prior year’s second quarter, primarily due to advancing construction efforts at our Columbus and Adirondack facilities.

And turning to our balance sheet, during the second quarter, we utilized cash flows from operating activities and net proceeds of $8.8 million from the issuance of common units under our ATM program to repay $10.1 million in borrowings under the revolver. As a result of the debt repayment and increase in earnings, our consolidated leverage ratio for the trailing twelve-month period ended March 2025 improved to 4.54 times compared to 4.99 times at the end of the first quarter. We have now moved through our historically high period of seasonal working capital needs and into the fiscal quarters, we expect to generate excess cash flows. We will continue to remain focused on utilizing excess cash flows and any proceeds received from the ATM program to strengthen the balance sheet and, as opportunities arise, to fund strategic growth, including the growth capital for our RNG platform.

We have more than ample borrowing capacity under our revolver to support our capital expansion plans and ongoing strategic growth initiatives. I have one other topic to discuss before turning the call back to Michael. In January 2025, the US Treasury Department issued a notice of proposed regulations for production tax credits eligible to be earned under the Inflation Reduction Act for the production and sale of low-emission transportation fuels, including RNG. Under the proposed regulations, there is ambiguity as to whether RNG production and sales of our Stanfield facility will qualify for PTCs, and as a result, we did not recognize any income from PTCs during the second quarter. Since the proposed regulations seem inconsistent with the original intent of the IRA, we, along with numerous others, are seeking clarification from the IRS in the final rules, particularly as it relates to qualifying sales and the measurement of carbon intensity for RNG produced from dairy cow manure and food waste feedstocks.

Once final regulations are issued by the IRS, we will revisit the matter. With that, I will turn the call back to Michael.

Michael A. Stivala: Thanks, Mike. As announced on April 24, our board of supervisors declared our quarterly distribution of 32.5 cents per common unit in respect of our second quarter of fiscal 2025. This equates to an annualized rate of $1.30 per common unit. Our quarterly distribution will be paid on May 13 to our unitholders of record as of May 6. Our distribution coverage continues to remain strong at 2.17 times for the trailing twelve-month period ended March 2025. Just a few closing remarks. During the second quarter, we officially launched our multiyear sponsorship of NASCAR and Speedway Motorsports at the Daytona 500 race in February. We are now the official propane partner of NASCAR. Under this partnership, Suburban Propane will provide propane for new propane-powered track dryers that NASCAR has added to its fleet to replace kerosene-fired dryers as part of NASCAR’s sustainability initiatives.

Suburban Propane is also providing propane to the concessions and on-site services for campers during NASCAR event weekends at 19 tracks during 28 races throughout the NASCAR season to enhance the fan experience. We are extremely proud to partner with such an iconic American spectator sport. Their trust in Suburban Propane is a testament to our commitment to safety, our national reach, our reliability, our commitment to local communities, and our shared commitment to sustainability. We look forward to a long and rewarding relationship and the opportunity to engage with fans at every race. Now just a quick comment on something that has dominated the news and market over the course of the last several weeks, and that’s tariffs. As a domestic energy distributor, we source the vast majority of the products and equipment, whether for resale or operational use, in the United States and only a small portion of propane from Canada.

Therefore, we believe that for the time being, we are substantially insulated from the impact of tariffs. Recently, we have seen propane price volatility, given potential uncertainty with Chinese demand for propane from the US, which could result in incremental domestic propane supplies remaining in the US and, in turn, propane prices have come down. Lower cost of domestic energy would be a positive for consumers here in the United States. Ultimately, we believe that markets will find a balance. And with some of the regulatory relief in energy markets, the conversation about the future of energy is taking on a more balanced focus on energy resiliency, security, affordability, and sustainability, as opposed to an outsized focus on sustainability that was beginning to drown out the first three critical factors previously.

As a result, propane can benefit from the recognition of its already low carbon attributes and its ability to provide energy on demand. It will continue to be relied upon by millions of Americans across many sectors of the economy because of its availability, versatility, and affordability. Suburban Propane is very well positioned to meet the energy needs of local communities, to drive increased propane use in certain applications that can benefit immediately from its lower carbon footprint, and to innovate with the introduction of even lower carbon renewable energy alternatives. Through the execution of our long-term strategic growth plans, Suburban Propane remains committed to advancing propane as a long-term low carbon solution while leveraging our core competencies in safety, customer service, and logistics expertise to grow the markets for renewable fuels such as renewable propane, renewable natural gas, and clean hydrogen well into the future.

In closing, I want to take a moment to thank the more than 3,300 dedicated employees at Suburban Propane for their unwavering commitment to safety and outstanding customer service during a very challenging winter heating season and during a time when our customers needed us the most. Thank you. And as always, we appreciate your support and attention this morning. And now I would like to open the call for questions. Operator, if you would not mind helping us with that, I would appreciate it.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star to follow up with the number two. If you are using a speakerphone, please make sure you lift your handset before pressing any keys. One moment while we prepare the Q&A roster. Your first question comes from the line of Christopher Jeffrey from Mizuho Securities. Please ask your question.

Christopher Jeffrey: Hi. Good morning, everyone. Thanks for the update, and congratulations on the strong quarter. Mike, maybe just to pick up where you kind of ended as far as volatility in the propane price market. Could you just kind of maybe talk about how Suburban is positioning yourselves ahead of, you know, kind of during this non-heating season, any kind of changes to the plan for the next heating season?

Michael A. Stivala: No. Honestly, Christopher, you know, we have been through different commodity cycles over the last several decades. You know, we know how to manage the supply of propane very, very well. Our product supply team does an amazing job. We have great relationships with our suppliers. In fact, I think with the expectation that there is going to be more propane trapped here in the United States, and all that can change overnight, but, you know, currently, I think there is a view that there may be a higher inventory of propane here, and prices are going to reflect that. You know, the average price of propane in Bellevue was about $0.90 in the second quarter. It is down closer to $0.70 as of yesterday. So you know, you are starting to see the impact of that, but that does not really change the way we are thinking about how to source and set ourselves up for next year’s heating season.

Christopher Jeffrey: Got it. Thanks. And then just wondering if you could kind of give us a high-level view of Suburban’s view of the propane M&A landscape coming out of this heating season? I know that tends to be where the activity picks up.

Michael A. Stivala: Yeah, it is a great question, Christopher. The interesting thing, I think, is the propane M&A landscape has changed dramatically. In the sense that the number of buyers has significantly diminished. You know, I think part of that is there are just fewer majors than there were, say, ten, fifteen years ago that were aggressively going after trying to consolidate the industry. And the other aspect is, you know, some of our peers have different challenges that may force them to stay on the sidelines for a bit while they sort of focus internally. You know, we are viewing this as a great opportunity for Suburban Propane. There is a very promising future, I think, with respect to propane, different than it was, I would say, even two, three years ago.

I think some of the challenges that the propane or that, frankly, the energy landscape has experienced over the last several years, whether it was COVID, whether it has been some of the natural disasters, has really started to highlight what we have been saying all along is that propane is such a powerful on-demand energy source. So we see a very bright future for propane. Which is why our strategic growth initiatives are balanced. We are continuing to invest in our core propane business. And we are focusing on the long-term future to position ourselves well in the renewable energy landscape. But as far as propane goes, we are really excited about some of the new uses that we are finding for propane, some of the new respect we are finding for propane.

And, frankly, when it comes to M&A, we are in the best position of anybody to take on good quality businesses in attractive markets, and our pipeline of opportunities is building quite nicely as we come out of the heating season now. And I think with some more discipline in the market, multiples are probably getting back to where they should have been all along to be much more reasonable and practical, with a limited number of undisciplined buyers left in the marketplace.

Christopher Jeffrey: Got it. Thank you. And then maybe just one on the renewable side of things. Maybe any kind of expanding on the comments as far as whether it is federal regulations, state-level regulations, any kind of timelines we should be looking out for, then, maybe longer term, do these different outcomes change the way you might be operating or thinking about Adirondack, Columbus, or any kind of future investment in the space?

Michael A. Stivala: Yeah. You know, on the RNG side, I think one of the things that is going to develop over time, and that is more of a state-related regulatory framework. You know, California and their LCFS program, they are very much focused on creating a better balance in the credit markets, you know, the environmental attribute markets. And some of the amendments that have been proposed by CARB to create that better balance to drive higher values for credit prices are certainly opportunities that we see are going to take shape as those amendments get finalized hopefully, in the coming weeks or months. Because what you see in the environmental attribute markets is as soon as there is an adoption or a change to the LCFS program, even that gets announced, you see movement.

And then when those amendments had to get pulled back for technical reasons, you see movement back downward and sort of values getting stuck where they are right now. But I think what we see is the regulators are interested in ensuring that the incentives that are there for fuels that were envisioned from the beginning to drive lower carbon are continuing to drive the behavior and the investment into that space, and they are very much focused on getting credit values up. So I think when we see LCFS amendments actually get implemented in California, I think we are going to see a rebound in LCFS credit values, which is going to be a welcome sign for anybody in the renewable fuels markets and certainly for our RNG platform. You know, in the meantime, we are very much focused on just operational excellence.

That is who we are. That is what we have been known for in propane, and we are driving that mindset in the RNG platform. And so as the Columbus and Adirondack opportunities come online at the tail end of this calendar year, maybe into the early part of next year, we expect that that will be at a time when we will see better pricing in the environmental attribute markets, and we will sort of stay the course with our plan because renewable natural gas is a direct drop-in replacement for traditional natural gas, and it is a great opportunity to decarbonize large sectors of the economy. So we think in the long term, it is a good place to be invested. At the same time, the rest of our renewable platform is really developing in terms of really driving and finding where we see the economy for lower carbon fuels heading that will benefit most from what I said earlier is our three core competencies.

And that is safety, customer service, and logistics. There are going to be newer, cleaner fuels that develop, whether that is hydrogen, whether it is renewable propane, but the reality is those fuels will need to be distributed locally. And who better to do that than Suburban Propane? That is the way we are looking at the transition of energy in the long term. And whether that is two, three, five, ten years from now, we are going to be positioned to be able to move other products.

Christopher Jeffrey: Got it. Very helpful. Thanks for the time today.

Michael A. Stivala: Great. Thank you, Christopher.

Operator: Ladies and gentlemen, if you are using a speakerphone, please make sure that you lift your handset before pressing any keys. Again, if you would like to ask a question, please press star followed by the number one. There are no further questions at this time. I would like to turn the call over to Michael A. Stivala for closing comments. Sir, please go ahead.

Michael A. Stivala: Great. Thanks for your help today, Operator, and thank you all for your interest and your attention today. Again, it was a fantastic quarter for Suburban Propane. It is what we are built for, to be able to meet the demand when it comes, and I think this quarter demonstrated that. We look forward to talking with you again at the end of our third quarter in the summer. And, in the meantime, please remember at all times, please be safe. Thank you.

Operator: This concludes today’s conference call. Thank you very much for your participation. You may now disconnect.