Davin D'Ambrosio - Vice President and Treasurer Mike Stivala - President and Chief Executive Officer Mike Kuglin - Chief Financial Officer and Chief Accounting Officer Steve Boyd - Senior Vice President Operations.

Gabe Moreen - Bank of America Sharon Lui - Wells Fargo Securities.

Welcome to the Third Quarter 2016 Financial Results Conference Call.

[Operator Instructions] This 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.

The Partnership has 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 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. I'd now like to turn the conference over to Vice President and Treasurer, Davin D'Ambrosio. Please go ahead..

Thank you, Dave and good morning everyone. Welcome to Suburban's Fiscal 2016 Third Quarter Earnings Conference Call. Joining me this morning are Mike Stivala, President and Chief Executive Officer; Mike Kuglin, Chief Financial Officer and Chief Accounting Officer; and Steve Boyd, Senior Vice President of Operations.

Purpose of today's call is to review our third 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 briefly 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 its Form 10-K for the fiscal year ended September 26, 2015 and our Form 10-Q for the period ended June 25, 2016 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 a discussion of why we believe this information to be useful in our Form 8-K furnished to the SEC this morning.

Form 8-K can be accessed through a link on our website at suburbanpropane.com. At this point, I'd like to turn the call over to Mike Stivala for some opening remarks.

Mike?.

Thanks, Davin and thanks everyone for joining us this morning. Coming out of this year’s record warm heating season, we’re very pleased to report 52% increase in adjusted EBITDA for our third fiscal quarter compared to the prior year.

As we stated on our last earnings call despite the dramatic effect of the warm winter on customer, the fundamentals of our business remained being strong. These solid results certainly support that commentary. The improvement in earnings for the quarter was driven by a combination of higher volumes sold and continued to expand savings.

Additionally, our balance sheet and liquidity continue to be strengths of ours, allowing us to extend these short-term weather-driven events and to provide support for our long-term strategic initiatives. In a moment, I’ll provide some closing remarks including comments on our outlook for the reminder of the fiscal year.

However, at this point, I'd like to turn the call over to Mike Kuglin to discuss our third quarter results in more detail.

Mike?.

Thanks, Mike and good morning, everyone. Our results for the quarter benefited from a combination of solid customer base performance, cooler average temperatures and our ongoing focus on achieving operating efficiencies and cost savings. Consistent with the seasonality of our business, we typically reported net loss in the third quarter.

With that being said, our net loss was $29.6 million or $0.41 per common unit, compared to a net loss of $41 million or $0.67 per common unit in the prior year.

To be consistent with previous reporting, as I discuss our third 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 an unrelated loss in the third quarter of both fiscal years.

Additionally, net loss and EBITDA for the third quarter of fiscal 2016, included $9.8 million gain on the sale of certain non-strategic assets and operations within the propane segment, which is partially offset by $6.6 million charge related to our voluntary withdrawal by multi-employer pension plan covering certain employees acquired in the 2012 Inergy Propane acquisition.

Net loss and EBITDA for the third quarter of fiscal 2015, included $1.1 million of expenses related to integration of Inergy Propane. Excluding these items, net loss for the third quarter of fiscal 2016 would have amounted to $32.7 million or $0.54 per common unit, compared to a net loss of $39.8 million or $0.66 per common unit in the prior year.

Adjusted EBITDA for the third quarter of fiscal 2016 amounted to $18.4 million, an increase of $6.3 million or 52% compared to the prior year. Retail propane gallons sold in the third quarter of fiscal 2016 of 80.2 million gallons increased 2.6 million gallons or 3.4% compared to the prior year.

Sales of fuel oil and other refined fuels of 5.8 million gallons decreased 400,000 gallons compared to the prior year.

Although weather during the third quarter typically has less of an impact on volumes sold than it does during the heating season, volumes for the quarter benefitted from cooler average temperatures compared to the prior year third quarter especially in the Northeast service territories in the month of May, where average temperatures were 17% cooler than normal.

Overall, average temperatures across our service territories for the third quarter of fiscal 2016 were 9% warmer than normal and 7% cooler than the prior year.

In the commodity markets, the rally in wholesale propane prices had started in mid-February, continuing through much of the third quarter with prices reaching a high of $0.57 per gallon in May, which is based Mont Belvieu and settling at $0.52 per gallon at the end of June.

As a result of the rally, average propane prices for the third quarter were 5% higher than the prior year. With respect to fuel oil, average prices for the third quarter declined 27% compared to the prior year. On a sequential basis, average propane prices and fuel oil prices were both more than 25% higher than the second quarter of fiscal 2016.

Total gross margins of $129.6 million for the third quarter of fiscal 2016 were $3.5 million higher than the prior year, primarily due to the higher volume sold.

Combined operating and G&A expenses of $117.9 million for the third quarter of fiscal 2016 were $2.7 million or 2.3% higher than the prior year, primarily due to the multi-employer pension plan withdrawal charge that I previously mentioned, along with a charge for employee severance resulted from headcount reductions during the quarter.

The impact of these charges was partially offset by continued savings in payroll and benefit related expenses attributable to lower headcounts and lower vehicle expenses stemming from a reduction in the quantity of vehicles in use and lower fuel cost to operator our fleet.

As I mentioned earlier, the multi-employer pension plan withdrawal charge in fiscal 2016 and integration expenses in 2015 were excluded from our calculation of adjusted EBITDA. Excluding the impact of these items from both periods, combined operating and G&A expenses decreased $2.8 million or 2.5% compared to the prior year.

Net interest expense of $18.6 million for the third quarter of fiscal 2016 was $300,000 lower than the prior year, due to savings and the refinancing of our revolving credit facility in the second quarter. Total capital spending for the quarter was $7.4 million, compared to $11.1 million in the prior year.

The savings was primarily due lower maintenance CapEx as the prior year included energy integration activities that have since been completed. Turning to our balance sheet, during the third quarter we once again funded all working capital needs from internally generated cash without the need to borrow under our revolver.

And from a leverage perspective, the increase in adjusted EBITDA for the third quarter contributed to an improvement in our leverage compared to the second quarter.

While our leverage remains elevated compared to historical levels, as a result of the impact of the 2016 record warm heating season and trailing 12 months earnings, we’re well within our debt cover filing a 5.5 times debt to EBITDA.

Going forward, a return to a more normal weather pattern would bring our leverage profile more in line with our target of mid to upper 3 times. Our liquidity position remains strong, with $167 million cash on hand and more than ample borrowing capacity under our revolver to fund working capital needs. Back to you Mike..

Thanks, Mike. As announced in our July, 21 press release, we were pleased to declare our quarterly distribution of $0.8875 per common unit which equates to an annualized rate of $3.55 per common unit. This quarterly distribution will be paid on August 9, to our unit holders of record as of August 2.

Despite the very challenging winter season our unit holder should take comfort in the sustainability of our distribution as a result of our conservative approach towards balance sheet management and strong liquidity position. As for the remainder of physical 2016, we will continue to focus on the things within our control.

Customer base management, prudent margin management, further operating efficiencies to drive cost savings and preparing our operations for the upcoming heating season regardless of what the weather brings.

We continue to be well positioned to focus on our growth initiatives both internally through refinements of our business model and externally through strategic acquisitions.

In closing, I’d like to take the opportunity to thank all of the employees at Suburban Propane for maintaining their focus on delivering the highest quality safety standards while delivering an exceptional level service to our customers in an otherwise challenging environment brought on by the weather.

And as always we appreciate your support and attention this morning. And now would like to open the call up for questions.

Dave, could you help us with that?.

[Operator Instructions]. And first we will go to the line of Gabe Moreen with Bank of America. Please go ahead..

Good morning everyone.

Quick questions from me just on the buyout of the pension plan, can you just talk about what that may save you kind of on an ongoing basis if anything?.

In terms of savings, we would save from the lack of the need to make contribution requirement to the pension plan and on an annual basis that numbers are really all that significant so I wouldn’t expect a significant improvement to the earnings profile..

Okay and then is a follow up in terms of the asset sales, seems like there is a little bit of disposition obviously not a huge numbers that can you just talk about what that sort of stem from, whether that is an ongoing process or, yeah..

Gabe, this is Mike that was one location that we acquired from energy that was really in a market that just didn’t fit our business model and so we went ahead and took the opportunity to salvage the business and utilize the cash to offset some of the cash to fund the Propane USA acquisition that we did earlier in the year.

So I think it was just good trade if you will..

Fair enough thanks Mike and then last question from me is broader question kind of third party M&A has been couple deals out there but just wondering what you are seeing out there and if anything of interest..

On propane space, Gabe this is obviously the time of year that smaller amount of businesses would put their businesses for sale.

So you are seeing the similar number of business on the market but we talked about this in the past, our process with respect to propane M&A is little different than some of the others where, we have more of a target list that of good quality business and good quality markets of ours that we have our eye on and that we have built relationships with the owners of those business.

Such that when they are ready to sell, we are in a better position to help make that happen. We have a handful of those on our list of watch and I would say we have couple in the backlog right now that we would continue to look at..

Great and anything on the non-core non-propane side?.

We continue to see that the backdrop for midstream M&A, I think continues to look to be favorable for us, whether it would be midstream players that are continuing to focus on balance sheet repair whether it is commodity markets seeming out balance out a little bit. The economy is sputtering which is placing some concern on the short term outlook.

We have regional infrastructure constraints that need to clear themselves to help balance the market. I think these are all things that bode well in the midstream acquisition space but as you know as we have stated all along our strategic thinking has been very consistent.

Our criteria is pretty simple, we are looking for opportunities that can help mitigate some of the weather dependency of the propane business.

So obviously businesses that have a relative stable cash flow profile, business that have a visible growth trajectory that the cash flow generating the capacity of the propane business can help foster and particularly with our first step we would look to find good quality management teams to help run the business.

So that’s been our criteria all along, that hasn’t changed and as you followed us for long enough you know we are extremely disciplined and patience in our approach and I think we are going to continue with that philosophy..

Appreciate that thanks Mike..

Thanks Gabe..

The next question comes from the line of Sharon Lui with Wells Fargo Securities. Please go ahead..

Hi, good morning..

Good morning, Sharon.

Just the question on the cost savings I mean your OpEx and G&A cost decreased pretty meaningfully year-over-year.

Just wondering if that phase of decrease is sustainable and other measures that you guys are looking to take?.

Good morning, Sharon. It’s Mike.

I wouldn’t give any guidance’s to what you can expect going forward but what I would say is the savings that we realized during the year was certainly attributable to headcount reduction and variable reductions and blending locations, that certainly give rise to permanent savings joined to giving seasonally also benefited from flexing our cost structure and flexing our cost down.

So many of those costs will flex with volumes as we are going to next receiving season. But the actions that we took during the current year to generate permanent savings certainly will carry forward into next year..

Thank you that’s helpful and you talked a little bit about the step up in propane prices, just wondering if you are starting to see any change in demand from that?.

I think the third quarter we saw some good demand, our volumes were up as we said and I think that was a function of a little bit of weather benefit because it was cooler as we entered the third quarter. The third quarter you don’t really get that much out of weather.

So I think it is function of just demand picking up in an environment where you are coming out of the year, where there hasn’t been any demand. So as prices have now retreated in the past six weeks or so. I think that bodes well for the consumer in relation to how they view getting themselves prepared for next year’s heating season.

So yes we are seeing good behavior in the customer base both from the stability of the customer base and also from the reaction to price movement..

Great, thank you.

Thank you Sharon..

[Operator Instructions]. And our next question does come from the line of Michael Geary with Ginnie [ph]. Please go ahead..

Yeah, good morning guys, on working capital side of the business, your trends there, you essentially had no borrowings incrementally here in third quarter, do you expect that to continue in the four quarter or how we looking here as we move into the fourth quarter?.

So our cash position remains strong, and it looks for the remainder of physical year I think we are also going to be in a good position.

We typically don’t give guidance but to the extend commodity prices rise we have a nice a start to heating reason, we certainly have ample borrowing capacity under revolver to meet our working capital needs, but I certainly would refrain from giving guidance as to whether or not we would need to draw down from it, but if we did it’s certainly there and available..

Okay and then maybe a little bit on your growth spending plans for the remainder of the year?.

From a capital perspective nothing out of the ordinary Mike, really from what you have seen in the past.

I think if you look at our rolling 12 months, total CapEx between maintenance and growth, I think that’s actually a bit of an elevated level just given some of the steps that we are taking towards the tail end of last year and continued integration of energy on some of the incremental spending that we had for that.

So probably if you look at the rolling 12, I would say, it’s probably a little bit lower than that, so nothing specific..

Okay, great, thank you..

Thank you..

And at this time there’s no further questions in queue..

Okay, great Dave. I appreciate your help today and thank you all for joining this morning and we look forward to talking to you at the end of our fiscal year-end in November. Thanks..

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