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

Ben Brownlow - Raymond James Sharon Lui - Wells Fargo Mirek Zak - Citigroup Mike Gyure - Janney Montgomery Scott.

Ladies and gentlemen, thank you for standing-by. Welcome to Suburban Propane's Fourth Quarter 2017 Financial Results Conference Call. At this time, all participant lines are in a listen-only mode. Later, there will be an opportunity for your questions, instructions will be given at that time.

[Operator Instructions] As a reminder, today's conference call 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 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 the entirety by such cautionary statements. At this time, I would now like to turn the conference over to Davin D'Ambrosio, Vice President and Treasurer. Please go ahead..

Thank you, Lia and good morning, everyone. Thank you for joining us this morning for our fourth quarter and fiscal 2017 full-year earnings conference call. Joining me this morning are Mike Stivala, our President and Chief Executive Officer; Mike Kuglin, Chief Financial Officer and Chief Accounting Officer; and Steve Boyd, our Chief Operating Officer.

The morning, we will review our fourth quarter and fiscal 2017 full-year 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 quickly reemphasize what the operator has explained about forward-looking statements.

Additional information of our 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 our Form 10-K for the fiscal year ended September 30, 2017, which will be filed on November 22, 2017.

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, which was furnished to the SEC this morning.

Form 8-K will be available through a link in the investor relations section 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 thank you all for joining us this morning. I like to start by taking a moment to reflect on this fiscal year that just ended and then provide some thoughts on the new fiscal year.

Fiscal 2017 had no shortage of challenges, starting with the unprecedented second consecutive record warm winter heating season, a heating season that was a bit more challenging than fiscal 2016 as a result of the very limited burst of cold weather.

In addition, toward the end of the year, so many of our service territories and customers were impacted by the devastating effects of the 2 Category 4 hurricanes in Harvey and Irma. Nonetheless, coming out of fiscal 2016, we had adapted our business model and were prepared to meet the challenges of a repeat record warm winter scenario.

And our exemplary customer service was evident in the preparation for an aftermath of the storms. Throughout fiscal 2017, we continued our focus on driving efficiencies, implementing cost containment measures and executing on our customer base growth and retention initiatives.

Through it all, I am very proud of the resiliency of our people and managing through another challenging year, and in particular in keeping their focus on the things they can control.

As a result, we were able to deliver a meaningful improvement in our operating performance compared to fiscal 2016 with adjusted EBITDA of $243 million, which was $20 million or 9% ahead of last year.

We reported a $10 million increase through the first half of the year and in a more counter seasonal second half, we reported another $10 million improvement in earnings. Along with the improvement in earnings, we had some notable achievements that will provide further support for our long-term strategic growth initiatives.

Specifically, during the second quarter, we took advantage of the continued low interest rate environment to refinance our previous 7.375% senior notes, due 2021, with a new issuance of 5.875% senior notes due 2027, extending maturities and providing a reduction in our annual interest requirement by approximately $5 million.

We have now effectively refinanced and extended all of our long dated senior debt over the past three years. We proactively worked with our bank group to amend our revolving credit facility to provide ourselves with added financial flexibility through September 2018 in managing our leverage and liquidity.

Although this amendment was not necessary for us to remain in compliance with our covenants based on our outlook for the business, we felt it was a prudent proactive measure in-light of the sustained warm weather pattern in fiscal 2017.

We expanded our geographic reach into three new territories not previously served by suburban without the need to acquire other businesses. And we continued our positive customer base growth and retention trends.

Now as we look ahead to a new fiscal year, we have performed a thorough assessment of customer demand trends and expectations under varying weather scenarios and have set our volume expectation based on customer demand estimates, assuming a weather pattern that is more in-line with a 10-year average heating degree days.

We have developed our manpower plan and cost infrastructure to meet those volume levels, while maintaining flexibility to ramp up or down as weather driven demand warrants.

We believe this is a good level to plan and manage our cash flow needs as it provides a good balance of downside protection to the extent of continued warm weather trends, but with upside opportunity to the extent weather normalizes or is colder than normal.

As we have stated for the past several quarters, one of our goals for fiscal 2018 is to focus on restoring our balance sheet strength in order to best position the business for long-term profitable growth.

The reduction in the annualized distribution by 32% announced on October 26 will reduce our annual cash requirements, enhance our distribution coverage, provide excess liquidity to reduce debt, and more importantly provide enhanced financial flexibility to support our growth initiatives. A little later, I’ll provide some closing remarks.

However, at this point, I’ll turn it over to Mike Kuglin, to discuss the full-year and fourth quarter results in more detail.

Mike?.

Thanks Mike, and good morning everyone. I’ll start by focusing on our full-year results and give a little color on the fourth quarter towards the end of my remarks. First, I’ll point out that fiscal 2017 included 53-weeks of operations, compared to 52-weeks in the prior year.

While the extra week of operations of fiscal 2017 had a positive impact on volumes and margins, the bottom line effect was not material to the fiscal year once you factor in incremental expenses.

To be consistent with previous reporting, I am 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 $6.3 million in fiscal 2017, compared to an unrealized loss of $1.2 million in the prior year.

Additionally, net income and EBITDA for fiscal 2017 include a $6.1 million pension settlement charge, and a loss in debt extinguishment of $1.6 million.

Net income and EBITDA for fiscal 2016 include a $9.8 million gain from the sale of certain assets and operations in a non-strategic market of the propane segment, a $6.6 million charge related to our voluntary withdrawal, our multi-employer pension plan, covering certain employees acquired in 2012 acquisition of energy propane, a $3 million charge related to the settlement of product liability matter, pension settlement charge of $2 million, and a loss on debt extinguishment of $300,000.

Excluding these items, as well as the unrealized mark-to-market adjustments on derivative instruments in both years, net income for fiscal 2017 would have amounted to $39.4 million or $0.64 per common unit, compared to $17.8 million or $0.29 per common unit in the prior year.

Adjusted EBITDA for fiscal 2017 amounted to $243 million, an increase of $20 million or 9%, compared to the prior year. Our results for the year benefited from higher volume sold, solid margin management, and our ongoing focus on achieving operating efficiencies, and cost savings.

Retail propane gallons sold in fiscal 2017 were 420.8 million gallons, an increase of 6 million gallons, a 1.4%, compared to the prior year. Sales of fuel oil and other refined fuels of 30.9 million gallons were essentially flat to the prior year.

Average temperatures across all of the Partnership service territories for fiscal 2017 were 15% warmer than normal, and 2% cooler than the prior year.

During the heating season, we experienced unseasonably warm weather throughout much of the period in nearly all of its service territories, with colder weather arriving during the final three weeks of each of the first and second quarters.

Our volumes during the winter heating season were negatively impacted by the challenging weather pattern resulting lack of customer demand for heating purposes, but our volume performance during the less weather dependent second half was solid compared to prior year.

For a commodity perspective, wholesale propane prices increased significantly during the year as domestic inventory levels began to decline on the strength of the growing export market. Overall, average propane prices for fiscal 2017 were 52% higher than the prior year and average fuel oil prices were 21% higher than the prior year.

Total gross margins of $704.9 million for fiscal 2017 increased nearly $20 million or 3%, compared to the prior year, primarily due to higher volumes sold and higher average unit margins.

With respect to expenses, excluding the impact of the items that I mentioned earlier, from both periods, combined operating and G&A expenses were flat compared to the prior year.

Continued savings and payroll and benefit related expenses attributable to a reduced headcount were offset by an increase in provisions for potential uncollectable accounts as a result of the impact of higher commodity prices on accounts receivable, higher fuel cost to operate our fleet, and higher variable compensation associated with higher earnings.

Net interest expense of $75.3 million for fiscal 2017 was marginally higher, compared to the prior year as savings from the senior note refinancing was offset by interest on incremental borrowings under our revolver.

Total capital spending for the year was $28.2 million, representing a decrease of $10.2 million, compared to the prior year, primarily due to savings from our tank refurbishment activities and a lower level of vehicles acquired. Turning to our fourth quarter results.

The fourth quarter of fiscal 2017 included 14-weeks of operations, compared to 13-weeks in the prior year fourth quarter. Consistent with the seasonality of our business, we typically reported net loss in the fourth quarter.

With that being said, we reported net loss of $50.6 million, or $0.83 per common unit for the fourth quarter of fiscal 2017, compared to a net loss of $60.2 million, or $0.99 per common unit in the prior year.

As I discussed the quarterly results, I am excluding the impact of unrealized non-cash mark-to-market adjustments under derivative instruments used in risk management activities would result in a $9 million unrealized gain in the fourth quarter of fiscal 2017, compared to an $815,000 unrealized gain in the prior year fourth quarter.

Additionally, net loss and EBITDA for the fourth quarter of fiscal 2017 and 2016 included a non-cash pension settlement charges, they referenced in relation to the full-year results.

Excluding these items, net loss for the fourth quarter of fiscal 2017 was $53.5 million or $0.87 per common unit, compared to $59 million or $0.97 per common unit in the prior year. Adjusted EBITDA for the fourth quarter of fiscal 2017 was a loss of $700,000, representing an improvement of nearly $7 million, compared to the prior year fourth quarter.

Retail propane gallons sold in the fourth quarter of 2017 amounted to 70.6 million gallons, an increase of 11.6%, compared to the prior year. Volumes in the fourth quarter of Fiscal 2017 benefited from the additional week of operations and the timing of customer deliveries, due to the impact of the weather pattern on customer inventory levels.

In other words, the warm spring temperatures of 2017 result in lower deliveries during our fiscal third quarter, which created lower customer inventory levels heading into our fiscal fourth quarter.

Total gross margins of $114.2 million for the fourth quarter of fiscal 2017 increased $10.9 million or 10.6%, compared to the prior year, primarily due to higher volumes sold and higher average unit margins.

Unit margins benefitted from a higher mix of residential volumes and prudent margin management during a period of rapidly rising commodity prices.

With respect to expenses, excluding the impact of the pension settlement charges that I mentioned earlier from both quarters, combined operating and G&A expenses increased $4 million or 3.6%, compared to the prior year, primarily due to the additional week of operations, higher variable compensation associated with higher earnings, and higher general insurance expenses.

Turning to our balance sheet, at the end of fiscal 2017, we have total borrowings under the revolver of $162.6 million, which includes the $100 million that we have historically held outstanding, $62.6 million of additional borrowings during fiscal 2017.

From a leverage perspective, the increase in adjusted EBITDA during the fourth quarter and full fiscal year contributed to an improvement in our overall leverage metrics, compared to June 2017 and September 2016. While our leverage remains elevated, compared to historical levels with the leverage ratio of 5.14 times.

At the end of fiscal 2017, we are well within our debt covenant requirements under the amended threshold of 5.95 times and the 5.5 times threshold in effect prior to the amendment.

As a reminder, the current maximum consolidated leverage threshold of 5.95 times will remain through to fiscal quarter ending June 2018, and stepped down to 5.75 times for the quarter ending September 2018 and returned to 5.5 times commencing with the quarter ending December 2018.

As we have stated in the past, we continue target leverage in the mid-to-upper three times debt-to-EBITDA. Going forward, the reduction to the annualized distribution will reduce our cash requirements and contribute to our efforts to reduce leverage.

For the liquidity position, we have ample borrowing capacity under our revolver to fund anticipated working capital needs for the upcoming heating seasons. Back to you Mike..

Thanks, Mike. As announced in our October 26 press release, our Board of Supervisors declared our quarterly distribution of $0.60 per common unit in respect of the fourth quarter of fiscal 2017, which equates to an annualized rate of 2.40 per common unit.

That quarterly distribution was paid on November 14 to our unit holders of record as of November 7.

In closing, while the past two fiscal years have certainly been challenging for the propane industry as a whole, we are proud the way our operations personnel have adapted our business model to the customer demand trends that we experienced in the repeat and warm weather scenario.

This contributed to our ability to deliver a meaningful improvement in earnings and it’s a testament to our continued focus on operational excellence. While this two-year period of weather driven demand softness, has caused us to stretch to our balance sheet to fund our cash needs. We have taken steps to restore our balance sheet strength.

Adjusting our annual cash requirements through the reduction in the distribution rate, refinancing the last tranche of our long-dated debt, and effectively managing costs, and capital spending.

These steps will help insulate the business from the possibility of sustained weather driven demand softness, and to the extent weather improves for as closer to normal, these steps will help provide excess cash flow to reduce debt and or make investments in-line with our strategic initiatives.

As we have stated before, we take a long-term view on managing this business, and these steps will also best position us for the next phase of growth for Suburban Propane and our valued unit holders.

Finally, I’d like to once again thank all of the dedicated employees of Suburban Propane for their efforts and managing through another challenging year and delivering meaningful improvements in all facets of our business. And as always, we appreciate your support and attention this morning, and now would like to open the call up for questions.

And Lia, would you mind helping us with that..

[Operator Instructions] Our first question is from the line of Ben Brownlow with Raymond James. Please go ahead..

Hi good morning. Thanks for taking the question.

On the expense side, if you back out that pension settlement, OpEx up pretty modestly year-over-year, can you just help me frame the potential leverage in the model, if you see a significant jump in demand, and I know that would be a good problem to have, but I’m just trying to get my arms around, you know if you have a 5% or 10% year-over-year growth in volume, would you need to bring in additional seasonal employees or just kind of what would that OpEx growth look like?.

Next year, we model the budget off of the 10-year historical average. So, looking at the current year's expense rate you would expect expenses to go up year-over-year.

So, the pension settlement charge that we took this year and the other items that I mentioned during the prepared remarks would indicate that our combined operating G&A expenses were flat, but in a weather scenario that we are budgeting off of you would expect an increase in expenses.

With respect to our headcount manpower, certainly you would expect an increase in the headcount numbers to support those anticipated volumes, but….

Yes, I think the other thing Ben is, we talked a couple of times in our prepared remarks about how we have adapted the business model and so yes, we will flex up as needed, but the ramp up necessary to meet incremental demand is certainly manageable, and I think as you noticed in managing your, paying attention to us for over the years, we will continue to manage the expenses for efficiencies and cost savings.

So, I would expect that as we get higher volumes because of higher demand, we will certainly see a little bit of an increase in expenses, but I wouldn't be surprised to see us find other opportunities to bring expenses down as the year progresses..

Okay.

So, you still feel like there is actually opportunity to churn expenses from here even though you are assuming an expense growth?.

We’re always looking for efficiencies. I mean, that’s what we do every day, and if you look at our long-term track record, we’ve been pretty successful with extracting the efficiencies year-in year-out and I will continue to expect that in the next year..

Okay great.

And then how much do you - can you give us, quantify what that extra week of contribution was to the propane volume?.

Approximately 5 million gallons..

Okay, that’s helpful.

And then one more from me, on the non-cash fair value derivative adjustment that 9 million, how much has that flowed through the propane cogs and just can you give us that cost of goods on a propane side as well?.

It’s really nearly essentially in the propane segment, very modest amount is in the fuel oil segment..

Okay. Great.

And do you have the cost of propane in the fourth quarter and probably for the year?.

You will see that when we file the - well actually you won’t see that in the 10-K [indiscernible] reporting the full year, but I do have it Ben, I don’t have it with me. If you want it call me offline, I am happy to provide the number..

Okay, great, thank you..

Next, we go to the line of Sharon Lui with Wells Fargo. Please go ahead..

Hi, good morning..

Good morning, Sharon..

So, you guys completed a pretty expensive strategic review of your business, just wondering if you can maybe share some of maybe your key findings or maybe specific initiatives that you plan to undertake as a result?.

Well, I think the main thing Sharon is really just looking at the volume expectations, so starting there. So, what we’ve experienced the past couple of years is record warm temperatures, and so our volume is indicative of that dramatic warming effect that we’ve experienced.

So, we don't believe that our volume that we’ve reported for the past couple of years is reflective of what we can achieve in a more normal scenario.

So, what starts with what kind of demand do you expect, now the one challenging thing with that is we’re being somewhat cautious on what kind of customer demand destruction has the past two years of warm weather created.

And so that’s why we’ve talked about planning our business around a volume scenario that is more in line with the 10-year average of heating degree days, and keep in mind that 10-year average has three of the record warm winters in it with 2012, 2016, and 2017.

So, when we look at the 10-year average heating degree days that would imply that the normal for that 10-year period is somewhere around 93% of the 30-year average normal heating degree days.

So, we felt as though planning our volume expectations around that level of weather expectations was the best way to then go down the rest of the P&L in terms of expenses and manpower that’s necessary to deliver that kind of volume, but also being able to maintain the flexible nature of our cost structure that you well know that we have.

So, some of the other things that we have adapted is, we are relying a little bit more, we always have, but we are continuing to challenge ourselves to rely a little bit more on seasonal and part-time help to ramp-up for demand as that demand rolls in and if the demand doesn't show up then we either don't bring as many of those folks on, or if we have brought them on without them being permanent employees it’s a little easier to roll them back off to be able to manage our expense profile.

So, I think the main difference Sharon for 2018 planning, we are just - what our volume plan was around then figuring out what our expense profile should be for that volume.

Now, if the weather pattern comes in closer to the 30-year average well then that presumably would be more customer demand, and we will have to ramp-up our expenses, and our manpower to be able to meet that demand and that’s something that we feel very comfortable that we can manage, and obviously we would all welcome being back in a normal weather scenario.

It’s a lot different to see how this business performs when you get even close to normal, let alone normal.

Keep in mind, the past two years you’ve averaged around 83% to 85% of normal heating degree days, and so we’re planning around a 93%, and we’re ready to deliver anything above that and we’re also prepared if there is a repeat or three-peat if you will, we’re prepared that we have the blueprint to insulate the business from that as a result of that lower demand again..

That’s definitely very helpful and it sounds like you’re taking an even more conservative approach then one of your peers in terms of looking at the 10-year average versus the 15.

I guess the other questions for me would be, in terms of the capital spending outlook for next year, do you anticipate it to be similar in terms of maintenance and growth CapEx?.

I would expect it to increase next year in anticipation of the additional volumes. So, maybe a $35 million CapEx number would probably be more along the lines of what the expected volumes would be like..

Okay. Great.

Any way to I guess isolate the impact of the hurricanes in the fourth quarter?.

Not material. We did incur some costs associated with our facilities, some additional manpower to support the demand needs, but nothing material..

I guess, I would say it’s probably a loss, Sharon. I mean you had a higher level of demand before and after the storm, you had an obvious effect of the storm, but - and then you did have some higher expenses. So, I would say it’s a bit of a wash if not actually a little bit more demand than we would have otherwise experienced in that time period..

Okay, thank you..

Thank you..

Next, we go to the line of Mirek Zak with Citigroup. Please go ahead..

Hi good morning guys..

Hi Mirek..

How are you seeing the margins play out so far, this winter season, relative to last year? Have you seen the increase in propane prices almost $2 a gallon most recently impacting that at all, are you seeing any customer conservation at these levels?.

No not that Mirek. I mean, we are - as you know, we’re always pretty successful in managing margins in any commodity environment.

Certainly, last year at this time you were - a commodity price of around $0.50 or so going into the beginning of the heating season, now you're going in closer to $1, that’s still not an area where you see a tremendous amount of conservation kick in frankly.

I think we need to see prices go up quite a bit from here before you see a dramatic effect from the customer behavior, and then, as far as our ability to manage margins, we haven't seen any negative effect of a higher price environment..

Okay.

And what are your expectations around M&A at this point, do you plan to continue smaller acquisitions at relatively similar levels historically or are you seeing any more or less opportunities out there?.

The opportunities are relatively the same. We have a handful of small propane acquisitions that we are currently evaluating.

Some are further along than others, but - and then we are going to continue to be active in looking at other opportunities outside of propane, particularly with getting the past couple of years behind us, restoring the balance sheet strength, gives us the financial flexibility to continue to pursue our strategic initiatives.

So, we will continue to be active in looking for growth opportunities on the M&A front, but currently we just have a few small propane deals that are on our radar screen..

Okay, and you mentioned opportunities outside of propane, how broad are you talking there?.

Same has been in our historical strategy in that space Mirek. We are very patient and disciplined at what we're looking at.

We’re looking for businesses that can sort of compliment and supplemental this business, a business that has relatively stable cash flows that’s little less weather dependent that can perhaps use the cash generating capability of the propane business to help fund some of the capital needs of that business, but with less weather dependent earnings volatility..

Okay. Great, thanks. That is all from me..

Thank you..

And we have a question from the line of Mike Gyure from Janney Montgomery Scott. Please go ahead..

Yes, thanks, good morning guys.

Can you talk a little bit about, you mentioned in the press release, customer base growth and retention initiatives maybe what you’re targeting for 2018 versus 2017, as far as customer current going up and maybe what you’re doing, as far as potential initiatives or maybe what your goals are there?.

Well, I think our goals are continuing to positive trend, you know our trend trends have been continuing to improve.

So, I'm not going to sit here and throughout the target number, it is a continuous improvement initiative that we have both on the growth side, which is new accounts coming in the front door, and the retention side, which is making sure that we continue to provide the highest level of service and total value to all of our customers such that they wanted to continue to do business with us.

And so, it’s both sides of that equation and we are now going on six years removed from the energy acquisition.

It’s taken us some time to bring those energy locations into our way of handling customer service, and as we now have all of that integration activity behind us, we are all working under one brand, one messaging, one philosophy, and we’re making our typical investments in our people to put them in the best position to deliver that highest level of quality and that starts with just how we answer the phone.

And so, all of those efforts to invest in our people in terms of better handling the customer pays off in our retention efforts and it’s taken a little bit of time just to get the energy, the old energy folks to speed on the suburban way, and now we’re fully aligned in that regard and we’re continuing to make positive steps towards better retention and better growth.

So, as both sides of that equation stay positive in terms of trends, we will continue to make good progress towards growth..

And, maybe I missed it, did you give your expectation, I guess for capital spending for 2018 or maybe directionally, if you thought it would be more than this year?.

Yes, I mentioned earlier at 35 million is the expectation for next year..

Okay, great. Thanks very much..

Sure. Thanks, Mike..

And we have no other questions, you may continue..

Okay. Well great, well thank you everybody. I hope you all have a great holiday season and we look forward to speaking with you after our first quarter in early February of 2018. Thank you..

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