Ladies and gentlemen, thank you for standing by. And welcome to Suburban Propane's First Quarter Fiscal 2019 Financial Results Conference Call. At this time, all the participant lines are in a listen-only mode. There will be an opportunity for your questions and instructions will be given at that time.

[Operator Instructions] As a reminder, today's call is being recorded.

And ladies and gentlemen, 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. With that being said, I'll turn the conference over to Mr. Davin D'Ambrosio, Vice President and Treasurer. Please go ahead sir.

And one moment ladies and gentlemen, we have lost our host line. We will reconnect with them in one moment. [Technical Difficulty] Yes. The Safe Harbor has been given. Ladies and gentlemen, your host is reconnected. Please go ahead..

John, thank you, and good morning everyone. Thank you for joining us this morning for our fiscal 2019 first quarter earnings conference call. Joining me this morning are Mike Stivala, our President and Chief Executive Officer; Mike Kuglin, our Chief Financial Officer and Chief Accounting Officer; and Steve Boyd, our Chief Operating Officer.

This morning we will review our first quarter financial results along with the current outlook for the business. As usual, once we've concluded our prepared remarks, we will open the session to questions.

Our annual report on Form 10-K for the fiscal year ended September 29, 2018 and our 10-Q for the period ended December 29, 2018, which will be filed by the end of business today, contains additional disclosure regarding forward-looking statements and risk factors. Copies 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 of 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. Good morning. Thank you all for joining us today. And thank you for your patience while we had a brief power outage that knocked us out for a few minutes. So thank you for bearing with us here.

So the positive momentum from fiscal 2018 has carried into the first quarter of fiscal 2019 and we were pleased to report another solid quarterly performance with adjusted EBITDA essentially in line with the prior year first quarter. The consistent level of earnings was inspired by varied different weather pattern this year compared to last.

The fiscal 2019 first quarter was categorized by a burst of colder than normal temperatures early in the quarter with significantly warmer temperatures during the month of December, which is typically the month that has the greatest impact on weather-driven customer demand.

Contrast this to the prior year when the majority of the colder temperatures in the first quarter were concentrated in the month of December.

While the warmer ends of the fiscal 2019 first quarter was a slight headwind on volume sold our operations personnel continue to do an excellent job delivering outstanding service to our customers and the communities we serve, managing margins and expenses and executing on our customer base growth and retention initiatives.

As such despite slightly lower volumes adjusted EBITDA of $93.3 million was essentially flat to the prior year. In a moment I will come back for some closing remarks. However at this point I'd like to turn the call over to Mike Kuglin to discuss our first quarter results in more detail.

Mike?.

Thanks, Mike and good morning everyone. As Mike indicated in his opening remarks we reported another solid quarter despite an erratic weather pattern and warm temperatures in the month of December.

To be consistent with previous reporting, as I discuss our first quarter results, and excluding the impact of unrealized mark to market adjustments on derivative instruments used in risk management activities which resulted in an unrealized loss of $15.9 million for the first quarter of fiscal 2019, the unrealized loss was $1.5 million in the prior year.

Additionally net income for the first quarter of fiscal 2018 included a $4.8 million loss on the sale of certain non-strategic assets and operations within the propane segment.

Excluding the non-cash adjustments on derivative instruments and the loss on sale of assets, net income for the first quarter of fiscal 2019 was $43.6 million or $0.71 per common unit which is flat compared to the prior year. Adjusted EBITDA at $93.3 million was also essentially flat to the prior year.

Retail propane gallons sold in the first quarter of fiscal 2019 of 124.1 million gallons decreased 0.7% compared to the prior year. As Mike mentioned, propane volumes were somewhat negatively impacted by the considerably warmer than normal temperatures in the month of December.

While the overall heating degree day index for the first quarter was reported as 5% cooler than the prior year, the month of December was 4% warmer than the prior year and 8% warmer than normal. Generally speaking, colder weather during the early part of the first quarter has less of an impact on customer demand than colder weather in December.

From a commodity perspective, wholesale propane price experienced a sudden and dramatic decline during the quarter. Wholesale propane prices basis Mont Belvieu decreased from a $1.7 per gallon at the beginning of the quarter to $0.64 per gallon at the end of the quarter.

That equates to a rather significant 40% decline in prices during the period with most of the sell-off taking place in the first two months of the quarter. Overall average wholesale prices for the first quarter were $0.80 per gallon which was 17% lower than the prior year first quarter and 20% lower than fourth quarter fiscal 2018.

Total gross margins of $210.4 million for the first quarter of fiscal 2019 increased $800,000 compared to the prior year, primarily due to slightly higher propane unit margins. Excluding the impact of the non-cash mark-to-market adjustments, that I mentioned earlier, propane unit margins increased $0.015 per gallon or 1% compared to their prior year.

Combined operating G&A expenses increased a modest $700,000 compared to the prior year, primarily due to higher vehicle maintenance and fuel costs. Net interest expense of $19.5 million for the first quarter of fiscal 2019 was essentially flat compared to the prior year.

The impact of higher benchmark interest rates was offset by a lower level of outstanding borrowings under our revolving credit facility. Total capital spending for the quarter of $7.7 million, which included $4.7 million in growth capital was approximately $1 million lower than the prior year primarily due to a decrease in maintenance CapEx.

Turning to our balance sheet, during the first quarter we funded a portion of our working capital needs with $39.2 million of incremental net borrowings under our revolver.

Our working capital needs and return on incremental borrowings during the first quarter were $8 million lower than the prior year as a result of the impact of lower wholesale prices on receivables and inventory.

At the end of the first quarter our leverage ratio was 4.48 times slightly higher than where we ended fiscal 2018, as a result of incremental working capital borrowings, yet well within our debt covenant requirement of 5.5 times. Our working capital needs typically peak towards the end of the heating season late February or early March timeframe.

After which, we expect to begin reducing outstanding borrowings on our revolver. We have more than ample borrowing capacity under our revolve to fund our expected working capital requirements and strategic growth initiatives. Back to you Mike..

Great thanks, Mike. As announced on January 24, our Board of supervisors declared our quarterly distribution of $0.60 per common unit in respect of our first quarter of fiscal 2019. That equates to an annualized rate of $2.40 per common unit. Our quarterly distribution will be paid on February 12, to our unitholders of record as of February 5.

Our distribution coverage continues to remain strong at 1.34 times based on trailing 12 month distributable cash flow.

And as we have stated before we remain focused on our goal of reducing debt and bringing the overall leverage metrics to a level below four times, which we feel is a level that provides plenty of cushion in the event of a future warm weather event and also supports our long term growth initiatives.

Looking ahead, there is still a fair amount of the heating season in front of us and while January started off with some unsimilar [ph] unseasonally warm weather that we experienced in December, significant portions of the country have experienced some well-publicized extreme cold spells over the past couple of weeks.

Additionally, commodity prices have stabilized at a level that is approximately 16% below the average prices experienced in the first quarter which is generally favorable for both the consumer and our business.

As always we are extremely well positioned to meet the needs of our customers as well as to adapt in the event that the recent cold snap does not remain for an extended period. On the strategic front, we continue to pursue growth through new market expansion and strategic acquisitions.

In fact earlier this week, we completed the acquisition of a very well-run family owned propane business on the west coast, a business that complements some of our market expansion efforts in an area that we had previously identified as a good growth opportunity for Suburban.

This acquisition will help accelerate our growth efforts in that new market. We are also continuing to make great progress on our customer based growth and retention initiatives which helps grow volumes, and in many instances provides opportunities to smooth out some of the seasonality in our volumes.

Finally, I'd like to take the time to thank all of the more than 3,200 employees of Suburban Propane for their unwavering focus on the safety and comfort of our customers and the communities we serve. And as always we appreciate your support and attention this morning. And we'd now like to open the call up for questions.

And John, if you wouldn't mind helping us with that please?.

Certainly. [Operator Instructions] And first from the line of Jeremy Tonet with JPMorgan. Please go ahead..

Hey, good morning, guys. It's Charles [ph] in for Jeremy. Sounds like some pretty favorable trends that kind of kick start 2019 here.

Kind of curious if any more color you could share there, but also if you get talk kind of about how these cold snaps impact you in terms of having sufficient inventory and kind of managing the cost side of things?.

Yeah, great, Charlie. Obviously we've proven many times in the past when we get these extreme weather scenarios that we have no problem making sure that we're adequately supplied with our vendors, making sure we have product where we need to have it. And with plenty of capacity to meet the needs of our customers in any region.

So we have not experienced any trouble whatsoever. From a pricing perspective, I mentioned it in my opening remarks, the lower price environment is good for the consumer. Their builds are generally lower on a percentage basis than they were last year in the heating season. So that's a good thing for them. And it's also a good thing for us.

You see it in our working capital needs, are lower this year over last year. So all that is positive for the business and for the consumer.

As far as this year, certainly the past two weeks, we've gotten some tremendous weather events particularly in the Midwest that flowed from the Midwest right through the East Coast and that provided some excellent support for volume. Customer demand spiked significantly with the weather, but it did have a slow start.

January didn't get started with that kind of weather until the last week or so in January. And before that in three [ph] days were significantly below normal in significant portions of the country.

So some of the lack of momentum that we had coming out of December carried into the first week or two in January, but as soon as we've gotten this cold spell, we've seen the volume and the customer demand pick up significantly.

So second quarter has been a bit of a roller coaster in weather, just the way we described the first quarter, but the outlook right now continues to be pretty favorable for the foreseeable future in terms of weather outlook.

And as I said to your first -- my first answer to your question we're very well prepared from a supply perspective to meet the needs of our customers..

That's great. Lastly, I wanted to ask about the recent acquisition. Curious to how you go about evaluating potential entities to go after and kind of looking at 2019, what does the those kind of look like and how do you think about -- I guess, leverage is obviously a concern.

So curious how you balance that priorities there between leveraging and future growth opportunities to grow the business?.

Yeah, first of all, I wouldn't categorize leverage as a concern. I would categorize our leverage targets as a goal. I think we feel very good about where we are given, the steps that we've taken in our business.

We're in around 4.4 times levered and that's got -- that's with working capital borrowings, which is at its peak sort of in this time of the year. So -- but if you look at where we are at the end of December versus last December, we're about $30 million less in debt than we were then. So I wouldn't categorize leverage as a concerned.

I just think given our conservative nature and the way we like to run the balance sheet, we like to be at a point below four times, because we understand that you could face another record warm winter in the next couple of years and you want to be able to sustain that -- be able to defend against that record warm types weather scenario with a strong balance sheet.

So that's really what our goals are. So when we look at acquisitions, certainly you're right. We still want to have a good balance of debt and equity financing. We have -- we do try to introduce common equity as consideration to the sellers. That hasn't been something that we've done yet.

So we have financed the deals that we've done with cash, but that may change going forward.

And as far as how do we look at the types of businesses that we're interested in buying, we've said that numerous times we have a list of good quality businesses that we have our eye on, our operations personnel build relationships at the local level, and those tend to be the opportunities that are most meaningful to us, because we know the business well.

They prefer to sell to us because we're really solid company and they understand the quality that we bring to the market and they want their business that they worked hard in building to be in the hands of a good quality acquirer. And that's what we represent. So I think it's a good.

It's a very proactive approach in terms of finding the right businesses that we respect and that respect us as acquirers. And we'll -- currently we have a handful of potential targets on the list. It is the heart of the heating season. So it's not typically the time of the year, where most businesses are for sale.

But I would expect as we come out of this year's heating season that that list will expand..

Great thank you..

Thank you..

[Operator Instructions] And allowing few moments, no further questions coming in I'll turn it back to the presenters..

Okay, great, thanks John. Once again, thank you all for joining us today. We look forward to speaking to you again in early May when we have the full heating season behind us. Thank you..

Ladies and gentlemen, this conference is available for replay, that starts today at 11 AM Eastern and till tomorrow at midnight. You may access the replay at any time by dialing 800-475-6701. The access code is 462185. That number again, 800-475-6701, the access code 462185. That does conclude your conference for today, thank you for your participation.

You may now disconnect..