Good morning and welcome to the Safe Harbor Fiscal 2020 Third Quarter Results Conference Call. All the participants will be in a listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions.

[Operator Instructions] Please note 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. Please note this even is being recorded. I’d now like to turn the conference over to Davin D’Ambrosio, Vice President and Treasurer. Please go ahead..

Thanks, Steve. Good morning, everyone. Thank you for joining us this morning for our fiscal 2020 third quarter 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, Chief Operating Officer.

This morning we will review our third quarter financial results along with our current outlook for the business. 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 28, 2019 and 10-Q for the period just ended June 27, 2020, which will be filed by the end of business today, contain additional disclosures 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.

The Form 8-K will be available through a link in the Investor Relations section of our website at suburbanpropane.com. At this point, I will turn the call over to Mike Stivala for some opening remarks.

Mike?.

Thanks, Davin and welcome. Thank you all for joining us this morning. I hope that you and your families remain safe and healthy. And once again our hearts go out to those that have lost loved ones who may be suffering from the consequences of the COVID-19 virus has plagued our entire nation over the last five months.

At Suburban Propane, our business has been essential service throughout this crisis and our personnel have done an outstanding job supporting the needs of our customers and local communities, while also adapting to the new business protocols developed to help protect our employees, our customers and the workplace.

As I indicated back in May during our fiscal second quarter earnings call, we expected to experience some challenges in our business as a result of job losses and the dramatic slowdown of the economy, particularly in our commercial and industrial customer sectors.

We developed operational and manpower plans to adapt our business model to the shifting customer demand patterns and the potential for an extended period of demand softness. As the fiscal third quarter progress, we did experience lower demand from our commercial and industrial customers with volumes that were 9% below the prior year third quarter.

However, that decline in volumes was more than offset by strong demand from our residential customers as a result of a combination of cooler average temperatures in the April-May timeframe, and higher usage resulting from the stay at home measures instituted by government leaders throughout our operating footprint in order to help mitigate the spread of the virus.

In fact, in our residential sector, volumes increased more than 21% over the prior year. As a result, the fiscal 2020 third quarter was an exceptionally strong quarter for Suburban Propane.

Adjusted EBITDA of $32.2 million was $12.1 million or 61% higher than the prior year third quarter, and in fact, represented the highest level of adjusted EBITDA for any third quarter in our history.

During the quarter, we also repaid more than 35 million under our revolving credit facility from excess cash flows, which resulted in a significant improvement in our leverage metrics compared to the second quarter.

So, while we certainly faced some tremendous challenges managing through this unprecedented crisis, and adapting to the ever changing circumstances, we are proud of the way our people have responded to those challenges, how they remained focused on safely meeting the needs of our customers, and how we have positioned the business to be nimble as the country continues to wrestle with the virus for the foreseeable future.

In a moment, I'll come back for some closing remarks. However, at this point, I'll turn it 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’m excluding the impact of unrealized noncash mark-to-market adjustments on derivative instruments used in risk management activities, which resulted in an $861,000 unrealized gain in the third quarter of 2020, apparently $138,000 unrealized gain in the prior year.

Excluding these items, as well as a $900,000 pension settlement charge in the third quarter of this year, our net loss of the third quarter improved by $13.6 million, or $0.22 for common unit compared to the prior year. Adjusted EBITDA for the third quarter was $32.2 million, an increase of $12.1 million or 60.5% compared to the prior year.

The improvement in the earnings was driven by a combination of higher volume sales, resulting from strong residential customer demand, higher margins, savings from various cost containment efforts.

While the unprecedented health crisis had a varying impact on customer demand and volume sold during the third quarter, it did not materially impact bottom line earnings.

There's still a fair amount of uncertainty about the future impact from the economic slowdown resulting from COVID-19, but we will continue to adapt our business and take steps to help mitigate the potential negative consequences and lower demand to the extent we experienced prolonged sluggishness in the economy.

Retail propane gallon sold in the third quarter were 75.4 million gallons, which was 2.2% higher than the prior year.

Although weather during the third quarter typically is less of an impact on volume sold than it does during heating seasons, volumes in the third quarter benefited cooler temperatures during the April and May that resulted a strong residential heat related demand.

Average temperatures for the month of April and May were 17% cooler than the same period last year, and 5% cooler than normal. Overall, average temperatures across our service territories for the third quarter were comparable to normal and 12% colder than the prior year.

The combination of the cooler weather and temporary stay at home governmental measures helped drive residents of propane usage that more than offset the decline in commercial and industrial volumes. From a customer mix perspective, residential volumes increased 21% compared to the prior year, whereas commercial and industrial volume decreased 9%.

In the commodity market, wholesale propane prices remain relatively low compared to historical levels, but increased steadily during the quarter with the price of propane faces more value, rising from $0.27 per gallon at the start of the quarter to $0.46 per gallon at the end of June.

Overall, average wholesale prices for the third quarter were 26% lower than the prior third quarter and 11% higher than the second quarter of fiscal 2020.

And nearly part of the fourth fiscal quarter, propane prices continued to remain relatively low and remain relatively low and range bound, resulting from US inventory levels that remain considerably above average levels for this time of the year.

Total gross margins of $146.4 million for the third quarter increased $10.9 million, or 8% compared to the prior year, primarily due to higher propane volumes and higher average in the margins.

Overall, propane unit margins increased $0.09 per gallon, or 5.2% compared to the prior year due to favorable volume mix from the year-over-year decrease in commodity prices. With respect to expenses, despite the 2% increase in volume sold, combined operating and G&A expenses decreased $1.1 million or 1% compared to the prior year.

The savings reflected the operational plans that we developed and implemented to address different customer demand scenarios resulting from COVID-19 including a temporary reduction to our manpower.

Savings from these actions were partially offset by higher variable operating costs to support higher volume related demand and an increase in accruals for self insurance liabilities and reserved for potential doubtful accounts.

Net interest expense of $18.5 million in third quarter decreased $400,000 compared to the prior year, primarily a decrease in benchmark interest rates on borrowings under our revolver. Total capital spending for the third quarter of $5.6 million was $2.1 million lower than the prior year due to a lower level of spending on vehicles and tanks.

Turning to our balance sheet, during the third quarter, we repaid $135 million under our revolver with cash flow from operating activities.

Despite a modest delay in collection activities resulting from the impact the economic slowdown on our customers and from government approved restrictions in certain states that limited some of our traditional means of helping ensure customer payments. The collection of accounts receivable was a significant source of cash during the third quarter.

In the early part of the fourth quarter, our collection activities continue to improve and are nearing historical levels that we've generally experienced for this time of the year. While we are encouraged by the improvement, this is something that we continue to closely monitor.

From a leverage perspective, the increase in adjusted EBITDA coupled with a debt repayment during the third quarter, resulting our consolidated leverage ratio improving to 4.83 times at the end of June, compared to 5.22 times at the end of the second quarter.

Our borrowings under revolver at the end of Q3 are $109.7 million, which was $17.5 million lower than June 2019 and $3.8 million lower than the level of the beginning of the fiscal year. We remain well within our debt coverage requirement.

We'll continue utilizing excess cash flows in a balanced fashion to strengthen the balance sheet and to invest in strategic growth. Back to you, Mike..

Thanks, Mike. On the topic of strengthening the balance sheet and our overall leverage, let me first address our recent announcement on July 23rd regarding our decision to reduce the quarterly distribution from $0.60 per common unit in the previous quarter, to $0.30 per common unit with respect to the third quarter of fiscal 2020.

After a thorough assessment of the potential for shifting demand patterns, as a result of the economic uncertainties associated with the ongoing efforts to mitigate the spread of COVID-19, we decided to take this proactive step to reduce our annual cash requirements.

This reduction will provide an incremental 75 million of excess cash flow, it will significantly enhance our distribution coverage, it will provide excess liquidity to accelerate our debt reduction efforts.

And importantly, it will provide enhanced financial flexibility to support our growth initiatives [audio gap] to protect the health and safety of our employees, executing on our customer base growth and retention initiatives, and positioning the business for long term growth.

While we may experience continued softness in demand from our commercial industrial customers in the near-term, our efficient and flexible business model leaves us well positioned to support our customers and local communities as they recover.

Interestingly, what we're also seeing is a recognition that propane is a part of the solution in the recovery as a result of its clean burning attributes and the portability and dependability of propane to support new applications, as businesses and local communities adapt to the new social distancing guidelines with more outdoor activities.

As we have stated before, we take a long term view on managing this business and having the financial strength, flexibility and access to adequate capital to support our growth plans are all key to our long-term success.

Finally, I'm extremely proud of the more than 3200 employees of Suburban Propane for their continued resiliency and commitment to safety, and outstanding service to the customers and communities they serve. While adapting to the ever changing circumstances, and new operating protocols to help protect their health and safety.

Thank you for all that you do every day. And as always, we appreciate your support and attention this morning. And now we'll take questions and you can help us out with that..

Okay, great. And thank you very much. Thank you all for your attention today. Appreciate all the support. We look forward to talking to you again in November as we get to close out the fiscal year and prepare ourselves for a new fiscal year and a new heating season in 2021. Stay healthy, stay safe. Thank you all..

And just a final announcement. To access the replay for this call please dial 877-344-7529 or 412-317-0088 and enter the code 10145783. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect..