Suburban Propane Partners - Q1 2026

Transcript

Operator (participant)

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 [Golub Capital BBC] Earnings Call. All lines-

Mike Stivala (President)

Tina, it's Suburban.

Operator (participant)

I apologize. I apologize. Suburban Propane Partners, L.P. 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 one on your telephone keypad. To withdraw your question. It is now my pleasure to turn the call over to Davin D'Ambrosio, Vice President to begin.

Davin D'Ambrosio (VP and Treasurer)

Great. Thank you, Tina. This is Davin D'Ambrosio, Vice President and Treasurer, and good morning joining us this morning for our fiscal 2026 first quarter earnings conference call. I'm here with Mike Stivala, our President, Mike Kuglin, Chief Financial Officer, and Alex Centeno, Senior Vice President of Operations. Our first quarter financial results, along with our current outlook, included our prepared remarks. We will open the session to questions. Our 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, oral forward-looking statements attributable to the partnership or persons acting on behalf are expressly qualified in their entirety by such cautionary statements. Okay, for the fiscal year ended September 27, 2025, for the period ended December 27, 2025, which will be filed by the end of business today, contain additional disclosures 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 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 8-K will be available through a link in the event. At this point, I will turn the call over to Mike Stivala for some opening remarks.

Mike Stivala (President)

Davin, and good morning. I apologize for the confusion, Suburban Propane first quarter earnings conference call. So thanks for joining us today. Is off to a great start with a surge of colder weather in our north operating territories during November of 2025, that drove heat-related demand, which more in the West and incremental volumes in the prior year first quarter, resulting from Hurricane Helene and Milton. Now have already endured some significant challenges with harsh weather into the fiscal second quarter. I'm extremely proud of the hard work, 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 base 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 and made substantial progress on the construction of the gas upgrade equipment at the facility in Columbus, Ohio.

The RNG capital project toward the end of the second fiscal quarter, with RNG injection scheduled to begin in the second half of the fiscal year. Great start to the fiscal year, we remain focused on delivering outstanding in our long-term strategic growth plans, acquisition of two well-run propane businesses in California, progressing our capital projects to grow RNG production, investing nearly $7 million, and strategically refinancing our 2027 senior notes at 10-year maturity. Therefore, we continue to focus 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 Kuglin to discuss the first quarter results in more detail. Mike?

Mike Kuglin (CFO)

Thank you, Mike, and good morning, everyone. To be consistent with previous reporting, as I discuss our first quarter results, I'm excluding the impact of unrealized mark-to-market adjustments on our commodity hedges, which resulted in unrealized gain 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 in our reconciliation of net income to adjusted EBITDA income for the first quarter was $46.6 million, versus net income of $38 million or $0.59 per common unit. Adjusted EBITDA for the first quarter was $83.4 million, an increase of $8.1 million. Retail propane gallons sold totaled 100 million, an increase of 4.2% compared to the prior year.

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 our recent propane acquisitions. These factors more than offset 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 Helene and Milton 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 per gallon base month value representing a [audio distortion] first quarter. According to the most recent report from the EIA, propane inventories totaled 89 MMbbl at the end of last week, which is 34% above historical averages for this time of year. If cold weather in the east could impact inventories. Wholesale propane prices remained in the $0.60 per gallon range, compared to $0.90 per gallon range a year ago. Excluding the impact of the mark-to-market, total gross margin for the first quarter was $238.6 million, $16.1 million, or 7.2%, compared to the improvement was driven by higher propane volume sold, coupled with an increase in propane unit margins of $0.08, and to a lesser extent, higher contribution from our RNG operations.

Operating and G&A expenses increased $5 million, or 3.4%, compared to the prior year first quarter. The increase was primarily due to higher payroll and benefit-related costs, overtime, and other variable operating costs to support the increased activities associated with the incremental customer demand, as well as higher variable compensation expenses associated with the increase in earnings. Dollars for the quarter was flat compared to the prior year, as the impact under our revolving credit facility was offset by lower benchmark interest. Total capital spending for the quarter was $19.8 million, of which $13 million operations and $6.8 million was for our RNG growth. Full year capital spending estimate for the RNG project remains unchanged, with spending concentrated in the first and second quarters. Turning to 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, RNG projects, along with the costs associated with refinancing of acquisitions that Mike mentioned earlier. Our consolidated leverage rate ended December of 2025 improved to 4.57x, compared to [4.3x] for the period ended December 2024. While working in the heating season, late February, which we expect to generate excess cash flows, we will continue to flows to strengthen the balance sheet as opportunities arise to fund strategic growth.

The under our revolver to fund our remaining working capital needs for the support of growing capital and ongoing strategic growth initiatives.

Mike Stivala (President)

Thanks, Mike. As announced on January 22, our Board of Supervisors declared our quarterly distribution of $0.325 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 to our unitholders of record as of February 3rd, are strong at 2.19x for December 2025. So just a few final thoughts. 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 financially to meet increased demand from a more normalized, continuing to drive operational enhancements and executing on our long ... We remain committed to growing our core propane business while leveraging our core competency to grow the markets for alternative, lower carbon, renewable fuels well into the future. We continue to be patient in 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?

Operator (participant)

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

Davin D'Ambrosio (VP and Treasurer)

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.

Operator (participant)

Conclude today's conference call. You may now disconnect.