Davin D'Ambrosio - VP, Treasurer Mike Stivala - President & CEO Mike Kuglin - CFO & CAO.

Gabe Moreen - Bank of America Merrill Lynch Brian Brungardt - Stifel.

Welcome to the Second Quarter 2015 Financial Results Conference Call. At this time all lines are in a listen-only mode. Later there will be an opportunity for your questions and instructions will be given at this time. As a reminder this conference is being recorded.

This conference call contains forward-looking statements within the meaning of section 21-E of the Securities Exchange Act of 1934 as amended relating to the partnerships future business expectations and predictions and financial condition and results of operations.

These forward-looking statements involve certain risks and uncertainties that differ materially from those discussed in such forward-looking statements which are referred to as cautionary statements in its earnings press release which can be viewed on the company's website.

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. At this time I would like to turn the conference call over to our host Mr. Davin D'Ambrosio. Please go ahead, sir..

Thank you, Tom. And good morning everyone. Welcome to Suburban's fiscal 2015 second quarter earning conference call. I'm Davin D'Ambrosio, Vice President and Treasurer at Suburban.

With me this morning is Mike Stivala, President and Chief Executive Officer, Mark Weinberg, our Chief Operating Officer and Mike Kuglin, Chief Financial Officer and Chief Accounting Officer. The purpose of today's call is to review our second quarter financial results along with our current outlook for the business.

As usual once we've concluded our prepared remarks we will open the session to questions. However, before getting started, I would like to reemphasize what the operator has just explained about forward-looking statements.

Additional information about factors that could cause actual results to differ materially from those discussed in forward-looking statements is contained in the partnership's SEC filings including it's Form 10-K for fiscal year ended September 27, 2014.

And its Form 10-Q for the period ended March 28, 2015 which will be filed by the end of business today. Copies of these filings may be obtained 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 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 can be accessed through a link on our website at www.SuburbanPropane.com. At this point I will turn the call over to Mike Stivala for some opening remarks.

Mike..

Thanks, Davin and thank you everyone for joining us this morning. After a slow start to the second quarter given the carry over effect of warm weather in the month of December colder than normal temperatures arrived in early February and lasted throughout the end of March in many parts of our service territories.

When colder temperatures arrived, our volumes responded as expected. Overall the quarter was characterized by sustained colder than normal temperatures in the east and Midwest regions of the country with harsh winter storms in several areas, offset somewhat by the continued warmer than normal weather patterns on the west coast.

From a pricing perspective, the sustained lower commodity price environment that began during the summer of 2014 has been a favorable development for the consumer and for propane distributors alike. Our continued focus on operating efficiencies and managing our cost structural also benefited our performance in the second quarter of fiscal 2015.

As a result we're very pleased to report adjusted EBITDA of $214.3 million for the second quarter of fiscal 2015 and that's an increase of $8 million or 4%, compared to the prior year and it's our highest level of reported quarterly earnings.

During the quarter we also continued to strengthen our balance sheet with the successful refinancing of our seven and 3/8% senior notes which were due 2020 with new five and three quarter percent senior notes due 2025.

With this refinancing we have extended maturities on this portion of our debt by five years and reduced our annual cash interest requirement by more than $4 million. In a moment I'll provide closing remarks, including comments on our outlook for the business.

At this point I would like to get the call turned over to Mike Kuglin to discuss our second quarter results in more detail. Mike..

Thanks Mike and good morning everyone.

As I discuss our second quarter results I'm excluding the impact of unrealized non cash mark to market adjustments on derivative instruments used in risk management activities which resulted in unrealized loss of $7.4 million and second quarter fiscal 2015, compared to an unrealized gain of $300,000 in prior year second quarter.

Additionally, net income and EBITDA for the second quarter fiscal 2015 included a loss and debt extinguishment of $15.1 million, associate the refinancing of our 2020 senior notes and $2.1 million in expenses related to our ongoing integration of Inergy Propane.

Net income and EBITDA for the second quarter of fiscal 2014 included $2.2 million in expenses related to our integration efforts. Therefore, adjusted EBITDA for the second quarter of fiscal 2015 amounted to $214.3 million an increase of $8 million or approximately 4%, compared to the prior year second quarter of $206.3 million.

Adjusted net income totaled $161.2 million or $2.66 per common unit for the second quarter of fiscal 2015, compared to adjusted net income of $151.5 million or $2.51 per common unit in the prior year second quarter.

Retail propane gallons sold in the second quarter of fiscal 2015 decreased 14 million gallons or 6.6%, to 199.7 million gallons from 213.7 million gallons in the prior year second quarter. Sales of fuel oil and other refined fuels decreased 2.7 million gallons to 19.9 million gallons compared to 22.6 million gallons in the prior year second quarter.

For the quarter, average temperatures across all of our service territories were 7% colder than normal and 2% warmer than the prior year second quarter.

The weather pattern during the second quarter was characterized by inconsistent temperatures during January, followed by considerably colder than normal temperatures in our eastern and Midwestern service territories and sustained warmer than normal temperatures in our western service territories.

In fact, average temperatures in our western territories were 21% warmer than normal and 5% warmer than prior year second quarter.

In the commodity markets propane prices were somewhat volatile during the second quarter of fiscal 2015 with both the prices, Mont Belvieu reaching a high of $0.62 per gallon and low of $0.45 per gallon representing an inter-quarter swing of 37%.

While posted prices at the end of March 2015 were relatively flat, compared to posted prices at the end of December 2014, average propane prices for the second quarter of fiscal 2015 were 30.7% lower than the first quarter of fiscal 2015.

The movement in propane prices during the second quarter of fiscal 2015 was in contrast to the prior year second quarter where prices were rising rapidly due to industry wide supply and logistic challenges.

Overall average posted prices for propane in the second quarter of fiscal 2015 were $0.53 per gallon or 59.4% lower than the prior year second quarter. Average fuel oil prices of $1.80 per gallon for the second quarter fiscal 2015, were 40.2% lower than the prior year second quarter.

Total gross margins of $353.2 million for the second quarter of fiscal 2015 were $3.1 million or .9% lower than the prior year second quarter of $356.3 million, primarily from lower volumes offset to an extent by slightly higher unit margins.

Combined operating and G&A expenses of $138.8 million were $11.2 million or 7.4% lower than the prior year second quarter primarily due to operating efficiencies and synergy's realized during the period associated with integration of Inergy Propane including lower head count and lower vehicle count, as well as lower bad debt and general insurance expenses.

Interest expense of $19.7 million for the second quarter of fiscal 2015 was $1.5 million lower than the prior year second quarter primarily due to refinancing of our previously outstanding seven and one half percent senior notes due 2018, with five and one half percent senior notes due 2024 that we completed in the third quarter of fiscal 2014 and to a lesser extent the refinancing of our previously outstanding seven and three eighths percent senior notes due 2020, with five and three quarters percent senior notes due 2025 that will be completed in the second quarter of fiscal 2015.

Total capital spending for the second quarter of fiscal 2015 amounted to $12 million, compared to $5 million in the prior year second quarter. The increase in capital expenditures was primarily attributable to upgrades of our information systems, tank purchases for new customers and our rebranding efforts associated with the integration.

Capital spending during the quarter included $5.2 million of maintenance capital. Turning to our balance sheet we have now moved to our historically high period of seasonal working capital and needs.

And during the second quarter we funded all of our working capital and capital expenditures as well as the premium, fees and expenses associated with the refinancing of our 2020 senior notes from internally generated cash.

Our liquidity position remains strong with more than $245 million of capacity under our revolver and $110 million of cash on hand at the end of the second quarter. We have ample liquidity to fund our working capital requirements and any incremental capital expenditures associated with our integration efforts for the remainder of the fiscal year.

As mentioned earlier during the quarter we took steps to further strengthen other balance sheet with the opportunistic refinancing of $250 million in aggregate principal amount of seven and three eights percent senior notes due 2020, with net proceeds from the issuance of $250 million in aggregate principle amount of five and three quarters percent senior notes due 2025 and $15.3 million of cash on hand.

With the completion of this refinancing we will realize annual cash interest savings of approximately $4.1 million and together with refinancing completed in May of 2014 our annual cash industry requirement has been reduced by approximately $12.5 million. We continue to remain focused on strengthening our balance sheet and credit profile.

Back to you, Mike..

Thanks, Mike. Nice job. As announced in our April 23 press release our board of supervisors declared an increase in our quarterly distribution to $88.75 per common unit which equates to annualized rate of $3.55 per common unit.

This increase of $0.05 per common unit over the previous annualized rate represents growth rate of 1.4% and our 30th increase since our 1999 recapitalization.

Since the closing of the Inergy Propane acquisition on August 1, 2012 we have focused on the execution of our detailed integration plans and remain on track to achieve the targeted synergy's from the combined business and also continue to strengthen our balance sheet metrics in line with our goals.

This distribution increase reflects our confidence in the combined platform and the strength of our balance sheet. The quarterly distribution will be paid March 12, to our unit holders of record as of May 5. We remain firmly committed to delivering sustainable profitable growth to our value unit holders.

We're now almost complete with the third year of our integration activities. We have made significant process as planned, in implementing our operating model across the entire footprint, bringing together systems, brands and cultures.

Looking ahead, we will continue to focus on fine tuning our operating model and cost structure in order to maximize efficiencies, deliver excellence in customer satisfaction and enhance the overall profitability of the combined enterprise.

Furthermore, with the strength of our balance sheet we're well positioned to pursue additional growth opportunities, both within the propane industry and through our efforts to diversify our cash flow profile.

We will continue to exercise patience and discipline in our approach to identifying growth opportunities, with the overall goal of increasing unit holder value over the long term. As a reminder we're holding our tri-annual meeting of holders on Wednesday, May 13, at 9AM.

We encourage all of our unit holders as of the close of business on the record date of March 16, 2015, to participate by voting and/or attending the meeting which will be held at our corporate headquarters in Whippany, New Jersey.

We're asking unit holders to elect the partnership supervisors for a three-year term, ratify the appointment of the partnership's independent registered public accounting firm for its 2015 fiscal year, approve an amendment to the partnership's 2009 restricted unit plan and have a say on pay.

More information about our tri-annual meeting can be found on our website. In closing, I would like to again acknowledge the tireless efforts of all of our dedicated employees in continuing to remain focused on providing exceptional customer service. This winter presented some significant challenges for our employees.

Working through harsh winter conditions in several parts of the country. I'm extremely proud of their devotion to serving our customers and the continued focus on safety. And as always, we appreciate your support and attention this morning and now we would like to open the call for questions.

Tom do you think you could help us with that?.

[Operator Instructions]. Our first question today comes from the line of Gabe Moreen with Bank of America. Please go ahead..

Couple quick questions. I know you don't necessarily give distribution guidance, but I'm encouraged to see the distribution bump. I guess I'm wondering if you can comment maybe on the approach to the distribution bumps? Historically you did do it there for a while quarter on quarter.

I was wondering if you're thinking about potentially going back to that approach? And then also, as far as you realizing on the interest cost savings as well as the G&A savings as the Inergy integration wraps up, how much of that you feel you can kind of pay out to unit holders versus looking to reinvest in the business?.

Well, I think as we said the increase that we just announced is reflective of the efforts that we've done to improve our distributable cash flow since acquiring Inergy. Over the past couple years we've shown improvement in EBITDA as normalization of CapEX as we get through the meat of the integration.

We've done some good opportunistic refinancing to bring our interest levels down. All steps that obviously have a positive effect on distributable cash flow and ultimately improvement in the overall coverage ratio.

So I think this increase really is reflective of the steps we took leading up to this and frankly the strength of the balance sheet as we continue to get our credit profile back in line with our goals.

As for going forward, we always look at the distribution in relation to ultimate sustainability and adequate coverage in relation to the obvious effect that you want to ensure that you have adequate coverage to be able to sustain a period of potentially warmer than normal temperatures, like we experienced in 2012.

So you know, you're right, Gabe, we don't sit here and give guidance and I'm certainly not going to get ahead of my Board in terms of future distribution increases, other than to say we'll look at it as we always do and remain disciplined with respect to our approach to ensure that we continue to maintain an adequate level of coverage that gives us the comfort to be able to have sustainability in any kind of weather pattern..

Thanks, Mike. And I guess following up on your comments around M&A both within propane and elsewhere, including the Inergy backdrop is pretty unsettled at the moment.

Can you talk about kind of what you're seeing and sort of your risk appetite? And then also, the propane M&A market have you been doing any smaller deals and do you think you might get some in the fold here pretty soon?.

We have not done any smaller deals yet this year, although typically through the heating season you don't get too many businesses that are looking to sell. So you know, now would be the time that we'll continue to look out for businesses that are looking to divest themselves. We do have a few that are on our target list.

We'll see how that progresses from here. I still think there's a bit of a divergence of bid and ask in that realm. But we'll see. We're certainly active in that regard. And as for, you know, beyond propane, you're right, with the low commodity backdrop, there's a significant amount of uncertainty out there with both buyers and sellers.

I think sellers are somewhat reluctant to put too much on the market right now because valuations obviously have to correct themselves in relation to the current environment. And buyers need to be extremely patient to see what the real effects of the press commodity cycle may have.

So we're not really seeing a heck of a lot right now, seems a bit of a lull has come upon the M&A market in the Inergy space other than some sizeable deals and perhaps some drop downs..

And then last one for me, the little bit of the elevated CapEx, are you through kind of that growth CapEx you had talked about? Do you think more that's going to continue through the rest of the year? If any comments on that?.

I think we'll have a little bit more trickle through the rest of the year.

This is the period now, now that we've gotten the systems deployed across the entire platform now we're really focused on branding, so that's painting our storage tanks, getting the bobtails branded with the Suburban logo, putting signage around all of the locations and so obviously there's a cost to that.

And that activity is going to really occur through the summer of this year and probably trickle in to next year. Then you'll start to see a bit more of a normalization of our CapEx..

And we will go to the line of Ben [indiscernible] representing Raymond James. Please go ahead..

Just a follow up on the last question, you touched on this, but on the M&A what do you think is leading to that widening in the [indiscernible] spread?.

In the propane space I think, look, there are less buyers in the market now because you no longer have Inergy, you no longer have Heritage. And so I think people that are looked to sell are still somewhat unrealistic as to what the market correction is as a result of less sellers in the market or less buyers in the market, sorry.

So I think it's just a function of they need to adjust to the fact that there are less opportunities for them out there to sell their businesses than there was before. So there's less competition..

Understood.

And with propane prices as low as they are and partially helping support demand, whether aside, is it fair to assume that helps ease the competitive environment or would that be part of the reason for margin improvement going forward?.

I don't think it as much helps the competitive environment as much as it helps the consumer's behavior. As I always say, low prices are good for everybody. The consumer, the retailers and I think it really just takes the attention as much away from price and allows a customer to appreciate value more.

And obviously, you know, our model is a value oriented model for our consumers.

And I think what we find is that in an environment like this, you see more stability of your customers that aren't looking to shop around just because of, you know, price elevation that frankly is in a lot of cases not Suburban's doing, it's a function of the wholesale commodity price. So, low environment, it just brings a little bit more stability..

Just one last one from me.

Do you have any rough estimate or thoughts on how much is remaining in integration charges for the second half of this year?.

I would say the run rate that you we reported for the first two quarters is a fair indication of what you can expect for the remainder of the year..

Unidentified Analyst:.

[Operator Instructions]. We'll go to the line of Brian Brungardt, representing Stifel. Please go ahead..

I guess just to kind of curtail on one of the last questions, I would just be curious on your thoughts as far as what you have seen from customers switching, including both to propane and customers from propane to natural gas?.

We haven't yet seen a dramatic shift in the typical encroachment of natural gas. On average, you see natural gas conversions in the low single digit percentage each year, 2% to 4% a year.

And on the other side, you are seeing, in the northeast you're seeing an opportunity for fuel oil conversions and I think what we're seeing is propane continues to get its respective share of that conversion, some of that conversion goes to natural gas, as well, but you know, there is still a good percentage of fuel oil conversion that converts over to propane and one of our initiatives is to capture that..

And gentlemen I'll turn the call back over to you for closing remarks..

Great. Thanks Tom. Appreciate your help today. And appreciate everybody's attention. And we look forward to talking to you again after the third quarter..

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