Ladies and gentlemen, thank you for standing by. Welcome to Suburban Propane Partners LP fiscal 2019 third quarter results conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. [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 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 would now like to turn the conference over to our host, Davin D'Ambrosio, Vice President and Treasurer. Please go ahead, sir..

Thank you Tiffany. Good morning everyone. Thank you for joining us this morning for our fiscal 2019 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, our Chief Operating Officer.

This morning, we will review our third quarter financial results, along with our current outlook for the business.

Once we have 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 10-Q for the period ended June 29, 2019, 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 turn the call over to Mike Stivala for some opening remarks.

Mike?.

Thanks Davin and thank you all for joining us this morning. The third quarter of fiscal 2019 was another solid quarter for Suburban with earnings pretty much in line with our expectations for this counter-seasonal quarter.

By contrast, the third quarter of last year benefited from an extended winter season that resulted in usually high heat-related customer demand for the time of year.

In fact, average temperatures in the month of April 2018 were 16% cooler than normal versus April 2019 which experienced 17% warmer than normal average temperatures.Our operations personnel continue to do an outstanding job delivering exceptional service to our customers, effectively managing retail pricing in a declining commodity price environment and focusing on our customer base growth and retention initiatives.

Additionally, during the quarter, we continued to make good strides on our stated strategic goals, utilizing excess cash flows in a balanced way to strengthen the balance sheet and invest in growth.

Specifically, we reduced debt by more than $16 million and invested $11 million in two high quality propane acquisitions in strategic markets.We also launched a brand refresh during the quarter with new brand elements that emphasize our commitment to excellence for the comfort and safety of our customers, our devotion to safety and career development for our dedicated employees, our philanthropic efforts to give back to the communities we serve through our SuburbanCares initiative and the inherent environmental benefits of using propane in multiple applications as a clean energy source for a sustainable future.In a moment I will come back for some closing remarks, however at this point, I will turn the call over to Mike Kuglin to discuss the third quarter results in more detail.

Mike?.

Thanks Mike and good morning everyone.

To be consistent with previous reporting, as I discuss our third quarter results, I am excluding the impact of unrealized noncash mark-to-market adjustments on derivative instruments used in risk management activities, which result in a $138,000 unrealized gain in the third quarter of 2019 compared to a $3.8 million unrealized gain in the prior year.Given the seasonal nature of our business, we typically experience a net loss in the third quarter of our fiscal year.

With that said, net loss in the third quarter was $29.2 million, $0.47 per common unit, compared to $20.4 million or 0.33 per common unit in the prior year.

Adjusted EBITDA in the third quarter amounted to $20.1 million, compared to $30.5 million in the prior year.Retail propane gallons sold in the quarter were 73.8 million gallons which was 8.3% lower than the prior year and consistent with the year-over-year decrease in heating degree days for the quarter.

Although weather during the third quarter typically has less of an impact on volumes sold than it does during heating season, the third quarter of last year benefited from unusually strong heat related customer demand, resulting from an extended and sustained period of significantly cooler than normal temperatures.Conversely, volumes for the third quarter of fiscal 2019 were negatively impacted by an early end to the heating season which was followed by considerably warmer temperatures during the month of April.

As Mike mentioned, average temperatures for the month of April 2019 were 17% warmer than normal and 33% warmer than April 2018.

Overall, average temperatures across our service territories for the third quarter were 12% warmer than normal and 8% warmer than the prior year.In the commodity markets, wholesale propane prices declined steadily during the quarter with the price of propane basis Mont Belvieu going from $0.64 per gallon at the start of the third quarter to $0.48 per gallon at the end of June.

Overall, average propane prices for the third quarter decreased 70% sequentially and 36.4% compared to the prior year third quarter.Total gross margin of $135.5 million for the third quarter decreased $7.3 million or 5.1% compared to the prior year, primarily due to lower propane volumes, partially offset by solid margin management in a declining product cost environment.

Overall, our propane unit margins increased approximately $0.07 per gallon or 4.5% compared to the prior year third quarter with most customer segments experiencing margin improvement.With respect to expenses, combined operating and G&A expenses increased $3.2 million or 2.9% compared to the prior year, primarily due to an increase in accruals for self-insured product liability as well as higher vehicle maintenance and repair cost and higher payroll and benefit related costs.

Net interest expense of $18.9 million for the third quarter decreased $600,000 or 3.1% compared to the prior year, primarily due to lower average borrowings on the revolving credit facility.Our total capital spending for the third quarter amounted to $7.7 million which was consistent with the prior year.

Capital spending includes the repair and replacement of property, plant and equipment along with purchases of new propane tanks and other equipment to facilitate the expansion of our customer base and operating capacity.As Mike mentioned earlier, during the third quarter, we closed on two acquisitions of well-run propane operations located in strategic markets for a total purchase price $10.9 million.

The acquisitions were funded with internally generated cash as well as $1.6 million of common units issued to the seller in one of the transactions.

For first nine months of fiscal 2019, we have now completed three acquisitions investing nearly $23 million in support our strategic growth initiatives, all funded primarily with internally generated cash.Turning to our balance sheet. During the third quarter, we continued to use the excess cash flows to reduce revolver borrowings.

Our total debt reduction during the first nine months of fiscal $2019 was more than $16 million and as of June 2019 our consolidate leverage ratio measured 4.41 times.

We remain well within our debt covenant requirements and continue to be focused on utilizing excess cash flows in a balanced fashion to strengthen the balance sheet and invest in strategic growth. We continue to make good progress on our stated goal to achieve a target leverage profile below four times.Back to you Mike..

Thanks Mike. As announced in our July 25 press release, our Board of Supervisors declared our quarterly distribution of $0.60 per common unit in respect of the third quarter of fiscal 2019. The quarterly distribution will be paid on August 13 to our unitholders of record as of August 6.

And at the current annualized rate of $2.40 per common unit, our distribution coverage continues to remain healthy at 1.25 times based on our trailing 12-month distributable cash flow.Just a few closing remarks.

We continue to position our operations and our balance sheet for long term sustainability while seeking opportunities to grow the business in line with our stated strategic criteria.

Through the first nine months of fiscal 2019, we generated strong excess cash flow, reporting distribution coverage of 1.25 times and the investments we have made in three quality propane businesses during the year will be immediately accretive and on a pro forma basis will improve our overall leverage metrics compared to the report ratio at the end of June 2019.

We have a solid pipeline of additional propane acquisition opportunities currently being evaluated and also remain focused on bringing down our total debt.Finally, I am extremely proud of the more than 3,200 employees of Suburban Propane, maintaining their focus on carrying out their commitment to safety and outstanding service to the customers and communities they serve and executing on our customer base growth and retention initiatives.

Thank you for all that you do every day.

And as always, we appreciate your support and attention this morning and would now open the call for questions.And Tiffany, if you could give us a hand with that?.

[Operator Instructions]. And our first question comes from Sharon Lui. Please go ahead..

Hi. Good morning everyone..

Good morning Sharon..

Just a question on your leverage. You guys have made pretty good progress in bringing that down.

When do you anticipate getting to your target of below four times? Do you think it could happen with the next heating season?.

Yes. I think a combination of growing the EBITDA through acquisitions. And as I said earlier, the way we are funding these acquisitions were not really adding to our debt. So it is an excess cash flow that we are using to grow. But I think with multiples we are paying, we are growing EBITDA.

If we continue to generate excess cash flow to the tune of $30 million to $40 million that will give us more opportunities to accelerate bringing down debt.

And it's feasible that we could be below that target at the end of next year's heating season, obviously depending on what next year's weather pattern brings our way and gives us the opportunity to generate the kind of EBITDA that you have seen from us or better for the past couple of years.

So yes, it's certainly feasible that that's in our sights, Sharon..

And I guess with the acquisitions that you have completed and also the ones in the pipeline, are the returns essentially in line with historical multiples, more in the seven to nine times range? How should we think that?.

Yes. Every deal is different. As I have said in the past, some deals will go on a slightly higher multiple if we think there is a much more competitive situation and it's a strategic market that we really want to make sure that we give ourselves the best opportunity to win out that acquisition.

And others may have slightly different characteristics and are going to garner a slightly lower multiple. But everything we look at post-synergies and we try to bring our multiples down in the seven or below range, post-synergies, no matter what we wind up paying for the business..

Okay. Great.

And the last one, just if you could touch on your brand refresh effort? Perhaps the cost and timing of when you should maybe see some tangible impacts or benefits from this program?.

The cost is very minimal, frankly. It's mostly going to be through communication.

It started back at the end of June with a public announcement of our three pillars which is our commitment to excellence in customer service, our SuburbanCares initiative which focuses on the commitment that we have to our employees for career development, health and well-being, career advancement, some of our military hiring initiatives and giving back to the military veterans community with some of our training and assistance programs for both veterans and spouses, as well as our SuburbanCares initiatives in giving back to the communities we serve and our relationship with the American Red Cross and many, many other local charitable organizations in each of our territories.And then third is the Go Green with Suburban Propane.

There is obviously a significant push for green energy investments in renewable energy and what our focus on communicating the green benefits of propane is to educate the communities, legislators, regulators, government agencies on just how clean an energy source propane already is.

And that's not just for in terms of the contribution to greenhouse gas emissions but also lower emissions as propane is used as an auto gas.

And so we believe that the industry at large really hasn't done a good enough job communicating the green attributes of propane as it stands today as a very clean energy source.And so we are going to continue to get our message out there that we deal on a product that is already significantly cleaner than the vast majority of the other energy sources and is abundant and plentiful as a resource that we have right here in the U.S.

So our efforts are going to be focused on just getting those three different messages out, mostly through communication through our social media channels, enhancements on our website, through our blog on our website, Fuel for Thought and some enhanced brand marketing which will cost a little bit of money but really not much in the grand scheme of things..

Okay. Great.

And I guess, would you guys consider perhaps longer term exploring maybe ESG reporting, given the nature of your business and the other social efforts that you guys are making?.

Well, this is our start of that, okay. And that was really partially our attempt at getting ahead of that, the ESG reporting. When we start seeing the focus of different investors and institutional investors and we said, look, we have tremendous ESG already very clearly involved in all aspects of our business.

We just need to do a better job getting the message out. And so we developed the three pillars to sort of get ahead of that because we believe and I think the three pillars demonstrate that we are already a very, very good corporate citizen in all aspects of our business, not only customer service but our community involvement and the environment.

So I guess you could say, we are already there..

Great. Thank you..

Thank you..

There are no other questions at this time..

All right, great. Thank you, Tiffany, for your help today. Sharon, thank you for those questions. I appreciate that. Thank you all for joining us today. I hope you enjoy the rest of your summer. Next time we talk to you will be at the end of our fiscal year in early November and we look forward to that. So thank you..

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