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

Gabe Moreen - Bank of America Mirek Zak - Citigroup Mike Gyure - Janney.

Ladies and gentlemen, thank you for standing by and welcome to Suburban Propane's First Quarter 2017 Financial Results Call. [Operator Instructions] As a reminder, this conference is being recorded.

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 operation. 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’ll now turn the conference over to your host, Vice President and Treasurer, Davin D'Ambrosio. Please go ahead, sir..

Thank you, Kathy, and good morning, everyone. Welcome to Suburban's fiscal 2017 first quarter results conference call. Joining me this morning is Mike Stivala, President and Chief Executive Officer; Mike Kuglin, our Chief Financial Officer and Chief Accounting Officer; and Steve Boyd, Senior Vice President Operations.

On today's call, we will review our first-quarter financial results along with our current outlook for the business. As usual, once we have concluded our prepared remarks, we will open the session to questions. However, before getting started, I would like to quickly 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 24, 2016, and its Form 10-Q for the period ended December 24, 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.

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

Mike?.

Thanks, Davin, and thank you, everyone, for joining us this morning. Following last year's record warm temperatures, as well as record warm temperatures in the first two months of fiscal 2017, customer demand was unleashed by a blast of cold weather throughout most of our service territories in the month of December.

Our operations personnel were poised to respond to the return of more normal activity levels, and our volumes reacted strongly. With that said, our adjusted EBITDA for the fiscal 2017 first quarter of $84.3 million increased $17.1 million, or 25%, over the prior-year first quarter. Importantly, the improvement was not just volume related.

Rather it reflected a combination of 8% higher propane volumes, prudent margin management, which resulted in an increase in unit margins, and expense savings sustained from the steps we took last year to streamline our operations.

As we stated throughout the prior year, while our fiscal 2016 results were disappointing as a direct result of the record warm temperatures throughout the heating season, the fundamentals of our business are unchanged.

And as we said then, with a return to a more normal weather pattern, our earnings would improve, our leverage would trend back toward our more historical range, and our coverage would improve. In fact with the steps we took last year, we are in an even better position to take advantage of a return to more seasonable weather.

Our operations teams have done an excellent job executing on our customer base, growth, and retention initiatives. Our expense base has benefited from our never-ending focus on operating efficiencies, and our conservative approach toward managing our balance sheet continues to be a differentiator for us.

In a moment I will provide some additional comments on our outlook for the remainder of the fiscal year. However, at this point I would like to turn the call over to Mike Kuglin to discuss the first-quarter results in a little more detail.

Mike?.

Thanks, 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 non-cash, mark-to-market adjustments on derivative instruments used in risk management activities, which resulted in an unrealized gain of $459,000 in the first quarter of fiscal 2017 and an unrealized loss of $1.2 million in the prior-year first quarter.

Additionally, net income and EBITDA for the prior-year first quarter, included a $3 million charge related to the settlement of a product liability matter.

Excluding this item, as well as the unrealized mark-to-market adjustments on derivative instruments in both years, net income for the first quarter of fiscal 2017 amounted to $34 million, or $0.56 per common unit, compared to net income of $16.5 million, or $0.27 per common unit, in the prior-year first quarter.

Adjusted EBITDA for the first quarter of fiscal 2017 amounted to $84.3 million, an increase of $17.1 million, or 25%, compared to the prior year. Retail propane gallons sold in the first quarter of fiscal 2017 of 118.6 million gallons increased 8.8 million gallons, or 8.1%, compared to the prior year.

Sales of fuel oil and other refined fuels of 9 million gallons increased 450,000 gallons, or 5.2%, compared to the prior year. As Mike indicated, our volumes benefited from the arrival of cold temperatures across a substantial portion of our operating footprint in mid-December.

As a result of the late burst of cold weather, average temperatures across all of our service territories for the first quarter of fiscal 2017 were 11% cooler than the prior-year first quarter, yet 14% warmer than normal.

The heating season got off to a slow start, as average temperatures during the first two months of the quarter were 31% warmer than normal and 9% warmer than a comparable prior-year period, which had an adverse impact on customer demand during that two-month period.

For a commodity perspective, propane prices hovered in the $0.50 to $0.60 per gallon range early in the quarter before rallying during the last six weeks, with prices reaching $0.72 per gallon at the end of December.

Overall, average propane prices of $0.59 per gallon for the first quarter of fiscal 2017 were 39% higher than the prior-year first quarter and 24% higher than the fourth quarter of fiscal 2016. Average fuel oil prices a $1.57 per gallon were 14% higher than the prior-year first quarter.

Total gross margins of $198.7 million for the first quarter of fiscal 2017 increased $14.1 million, or 7.7%, compared to the prior year, primarily due to higher propane volumes sold and slightly higher propane unit margins.

Combined operating and G&A expenses of $114.4 million for the first quarter of fiscal 2017 were $6 million, or 5%, lower than the prior year. The savings reflect the steps we took last year to streamline our operational activities and reduce our cost structure.

These refinements to our operating model further enhanced our service capabilities and resulted in a reduction in headcount and vehicle count. In addition, as I previously mentioned, operating expenses in the prior year include a $3 million charge for a product liability claim, which was excluded from adjusted EBITDA for that period.

Savings from these activities were partially offset by higher variable compensation associated with higher earnings and other volume-related variable costs. Net interest expense of $18.8 million in the first quarter of fiscal 2017 was essentially flat compared to the prior year.

Depreciation and amortization expenses of $31.3 million in the first quarter decreased $400,000 as a result of accelerated depreciation reported in the prior-year first quarter for assets taken out of service. Total capital spending for the quarter was $6.8 million, compared to $13 million in the prior-year first quarter.

The reduction in capital spending was primarily due to lower tank refurbishment costs and the timing of some of our capital spending in the prior year, which was concentrated in the first quarter.

Turning to our balance sheet, working capital for the first quarter increased approximately $5 million, compared to the prior-year first quarter, as a result of the impact of higher volumes sold and higher wholesale prices on receivables.

As a result, we had net borrowings of $3.4 million under our revolver to fund a portion of the increase of working capital. Despite the modest borrowings, the increase in earnings during the first quarter strengthened our overall liquidity position and enhanced our leverage profile.

Leverage at the end of the first quarter was 4.9 times debt to EBITDA, which is well within our debt covenant requirement of 5.5 times. As we previously stated, a return to a more normal weather pattern for the heating season would bring our leverage profile more in line with our target range of mid to upper 3 times.

We have plenty of heating season ahead and have ample borrowing capacity under our revolver to fund our working capital needs. Historically, our working capital requirements peak toward the end of February, at which time we expect to begin building our cash position once again.

Before I turn it back to Mike for some closing remarks, I would like to briefly comment on the final regulations that were recently issued by the US Treasury Department and the IRS pertaining to qualifying income for publicly traded partnerships.

The final regulations provide clear guidance that income generated from the retail sale of propane is qualifying income within the meaning of Section 7704 of the Internal Revenue Code. This clear guidance addresses and cleans up what was overlooked in the proposed regulations that were issued in 2015.

Although the retail sale of propane has always been qualifying income as specified in the legislative history of Section 7704 and as previously recognized and confirmed by the IRS, we are pleased that the final regulations address the oversight in the proposed regs. Back to you, Mike..

Thanks Mike. As announced on January 19, our Board of Supervisors declared our quarterly distribution of $0.8875 per common unit in respect to our first quarter of fiscal 2017, and that equates to an annualized rate of $3.55 per common unit. Our quarterly distribution will be paid on February 7 to our unitholders of record as of January 31.

Looking ahead to the remainder of fiscal 2017, and with the heart of the heating season still ahead, we look forward to building on the momentum established at the end of the first quarter.

As we experienced in December, when the more seasonable weather set in, there is a lot of pent-up customer demand from such a long period of sustained warmer-than-normal temperatures throughout last year and into the early part of this year.

It is safe to say that our people and our platform are very well positioned to meet that demand and to deliver the highest level of service in each of the markets we serve.

Finally, I would like to thank all of our dedicated employees for their unwavering focus on the safety and comfort of our customers, and in continuing the focus on our customer base growth and retention initiatives. And as always we appreciate your support and attention this morning, and would now like to open the call up for questions.

Kathy, would you mind helping us with that?.

[Operator Instructions] Our first question will come from Gabe Moreen with Bank of America. Go ahead, please..

Good morning, guys. .

Good morning Gabe..

Nice quarter. Just wanted to ask about the uptake we've had here in propane pricing to the extent - you didn't mention that in terms of comments around and having an impact on the quarter or prospectively, propane has picked up nicely here.

Do you guys see that having an impact on margins, at least in the near term?.

I think, Gabe, obviously now propane prices at Belvieu are starting to trend closer to $0.85 per gallon, so we ended the first quarter around $0.72, and it seems like every day you get a couple of penny uptick in the price at Belvieu, as you've obviously been paying attention.

For us, the way we manage our pricing at the field level, the commodity price doesn't typically have a dramatic impact on our margin profile. We are able to pass on the movement in the commodity, and we’ve been successful at that for years.

So, it obviously is a bit more challenging of an environment when prices rise dramatically, but I think the steady uptick that you're seeing every day in the price is something that we're continuing to just stay ahead of..

in terms of comfort with sustainability with the distribution where it's at right now, can you just frame for us, so long as the balance sheet is trending in the right direction, the level of comfort you have with the current distribution?.

I addressed that at the end of the last quarter, too, and I have the same position on that, Gabe. Sustainability of the distribution is what we are here for.

I think we have proven for decades our ability to manage this business for the long term, in whatever challenging scenarios come our way, whether it's record warm weather, rising commodity prices. We have proven our ability to be nimble in periods of softness in weather-driven demand.

We have proven our ability to manage our balance sheet and our cash flow in a conservative fashion in order to provide our unitholders with that strong sense of safety and stability of our distributions.

And, frankly, we have shown patience and discipline with our growth, which has really come in chunks over that span of time through some very well-timed and strategic acquisitions. So, none of that has changed.

We said it at the end of last year, I even said it in my opening remarks today that our business has not -- our business fundamentals are unchanged by short-term weather-driven events.

And so I have a high degree of confidence that, that philosophy in managing our business for the long term and the sustainability of our distribution is what we are here for. What I would also add is, with improvement in weather, which we obviously saw in the first quarter, our earnings improve.

And that in itself brings all of our metrics back towards - it will start to creep back towards our more historical levels that you're accustomed to seeing for us. And in fact, some of the steps that we took last year, we've become even more streamlined, and so our operating expenses are in an even better position to react from the weather.

So I think what you're seeing is we put last year in the rear-view mirror. We've had some fits and starts already this year, the first two months of the quarter were very, very soft because of the weather. But as I said in my opening remarks, pent-up demand - that's exactly what we saw in December.

As soon as we saw weather turn around, the customer demand came in strongly. And, with some of the steps that we've taken over the past couple of years, following all the integration efforts with Inergy, putting all that behind us, our customer base initiatives have kicked in. We're in a better position today from a customer base perspective.

We are in a better position today from an expense perspective, and we've always been in a good position from a balance sheet perspective in terms of how we manage it. So all those things bode well for our ability to take advantage of just a slight improvement in weather, frankly..

I appreciate the thorough answer. Thanks Mike..

Thank you. Our next question will come from Mirek Zak from Citigroup. Go ahead, please..

Good morning, everyone. .

Good morning..

Could you just tell us what your leverage was at the end of the quarter as it relates to your debt covenant, and what you're borrowings were under your credit facility?.

The leverage was 4.9 times at the end of December, and our borrowings were $103.4 million under the revolver..

Okay, great. Thanks. That's all for me..

Thank you..

Thank you. [Operator Instructions] Our next question will come from Mike Gyure with Janney. Go ahead, please..

Good morning guys.

Can you talk a little bit about the natural gas and electricity side of the business, maybe what trends you are seeing there? And maybe your opportunities for growth in the markets you are in, or what you're looking at as you move through this year?.

Yes. Sure. That business is up in New York and Pennsylvania right now, and those are very friendly, de-regulated markets. We've been in that business, we acquired it with Agway back in 2003, and we've continued to open up new territories in terms of new utility geographies that we serve. We've gotten a little bit bigger this year into Pennsylvania.

We have a few more utility areas that we will be looking into in terms of opening up those areas for new customer activity.

And as far as how the business is trending, the natural gas season is somewhat weather driven, and then the off season is where the electricity side kicks in a little bit more to provide a little bit more stability of earnings profile because you have counter-seasonal activity with the electricity side.

So, I would say that it's still a small piece of our business, but we manage it well. We've continued to look at new territories to open, and I think we've seen some good results there..

Thanks.

And then, maybe on the propane side of the business, can you talk a little bit about the supply side, if you are seeing any constraints here during heating season shortages, logistics problems, anything like that?.

No, none whatsoever. Even if there were, I think we have proven over the years that our relationships with our suppliers, we've never really had a problem with interruptions of supply. That's one of the benefits of our buying program is we have great relationships, and even when there's tightness, we don't have any issues.

We haven't seen tightness at all this year..

Great. Thank you very much..

Thank you..

Thank you. And, gentlemen, that will conclude our Q&A session. Please go ahead with any closing remarks..

Well great. Thank you, Kathy, for your help today. Thank you, everybody, again, for joining us, and we look forward to talking to you in May in connection with our second-quarter results. Thanks again..

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect..