Good day, and welcome to the Suburban Propane Partners, L.P.  Third Quarter Conference Call. [Operator Instructions].

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. .

[Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Davin D'Ambrosio, Vice President and Treasurer. Please go ahead, sir. .

Thank you, Rocco. Good morning, everyone. Thank you for joining us this morning for our fiscal 2021 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'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 26, 2020, and Form 10-Q for the period ended June 26, 2021, 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.

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. Welcome. Thank you all for joining us this morning..

The third quarter of fiscal 2021 was another solid quarter for Suburban Propane as we continue to see demand in the commercial and industrial sectors normalize back toward pre-pandemic levels. And we're also seeing the benefits of continued favorable trends from our customer base growth and retention efforts.

As a result, propane volumes were nearly 2% ahead of the prior year third quarter, despite the unusually high residential demand last year. .

To put some perspective on the shifting demand patterns between residential and nonresidential customers resulting from the pandemic, residential volumes typically account for approximately 35% of total third quarter volumes.

Yet last year, with the combination of cooler spring temperatures at a time when stay-at-home measures were most prevalent and the dramatic reduction in commercial industrial demand due to COVID-related restrictions, residential volumes accounted for nearly 45% of total volumes sold.

This mix shift contributed to unusually high blended unit margins for this counter seasonal quarter and record overall adjusted EBITDA in the prior year third quarter.

However, with normalizing demand patterns in the fiscal 2021 third quarter, total propane volumes exceeded pre-pandemic levels from the fiscal 2019 third quarter by 4%, higher than pre-pandemic levels. .

Adjusted EBITDA for the fiscal 2021 third quarter of $23.3 million was $8.9 million lower than last year, yet exceeded our expectations for the quarter and was $3.2 million or 16% higher than the third quarter of fiscal 2019.

In addition to our strong operating performance, we continue to stay focused on our long-term strategic goals of reducing debt, strengthening the balance sheet and fostering the build-out of our renewable energy platform in line with our Go Green with Suburban Propane corporate pillar. .

Let me give you a few highlights from the quarter. We used excess cash flow to reduce debt by approximately $30 million, bringing our year-to-date debt reduction total to $68 million and $83 million in the last 12 months. Therefore, our leverage metrics remains below 4x ending June 2021 at 3.96.

In May 2021, we executed an opportunistic refinancing of an aggregate of $775 million of senior notes that have maturities in 2024 and 2025, taking advantage of the current low interest rate environment.

We generated significant demand for the new issuance of $650 million and 5% senior notes due 2031, thus extending maturities by 3.5 years and lowering our annual interest requirement by about $7 million. With this refinancing, we further strengthened the balance sheet and generated incremental distributable cash flow. .

On the renewable energy front, we continue to work closely with the management team of our 39% minority-owned subsidiary, Oberon Fuels, to make great strides toward our collective efforts, to commercialize Oberon's exciting new low-carbon transportation fuel, renewable dimethyl ether, as they blend with propane to dramatically lower the carbon intensity of already clean burning propane.

As a result of the achievement of certain milestones set forth in our agreement with Oberon, we made additional investments to support the business during the quarter. .

And Oberon itself had a number of terrific achievements just in the last few months. In June, Oberon announced the successful production of the first ever renewable dimethyl ether in the United States from their flagship facility in Brawley, California, which makes them the only producer of this molecule in the world today.

And just a couple of weeks ago, Oberon through a public-private partnership with the Los Alamos National Lab's secured funding from the U.S.

Department of Energy to develop and scale up steam reforming technology to produce green hydrogen from renewable DME under the Department of Energy's Energy Earthshot initiative, thus investing in new technologies to unleash the power of renewable DME as a strong hydrogen carrier.

We continue to view this investment as a real game changer for the propane industry and our first step toward our commitment to invest in innovative renewable energy technologies as we build out our renewable energy platform. .

With the continued momentum we have in executing on our strategic goals and the confidence in the strength of our cash flow generating capacity, we were pleased to deliver a $0.10 per common unit or 8.3% increase in our annualized distribution rate from $1.20 to $1.30 per common unit, effective with the quarterly distribution in respect of the third quarter of fiscal 2021, which will be paid on August 10 to our unitholders of record as of August 3.

Even at the increased distribution level, based on trailing 12-month adjusted EBITDA of $281 million, our distribution coverage was 2.5x..

And finally, on May 18, we held our 2021 Tri-Annual Meeting of Unitholders. We were very pleased by the overall response from our unitholders as all items on the agenda received overwhelming support and approval. .

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 our commodity hedges, which resulted in an $11.1 million unrealized gain in the third quarter of 2021, compared to a $900,000 unrealized gain in the prior year, along with certain other noncash adjustments in both years and a loss on debt extinguishment resulting from the refinancing of our 2024 and 2025 senior notes in the third quarter of fiscal 2021..

Given the seasonal nature of our business, we typically experience a net loss in the third quarter of our fiscal year. With that said, the net loss for the third quarter was $20.9 million or $0.33 per common unit, compared to $15.5 million or $0.25 per common unit in the prior year.

Adjusted EBITDA for the third quarter was $23.3 million, compared to $32.2 million in the prior year.

As Mike indicated, our earnings in the prior year third quarter represented a record level of earnings and benefited from several factors, including cool spring temperatures that contributed to strong residential demand, strong blended unit margins due to volume mix skewed toward residential, and savings from various cost containment efforts that we implemented to insulate the business from potential downside risks resulting from COVID-19 effects.

Compared to pre-pandemic results, adjusted EBITDA for the third quarter was $3.2 million or 16% higher than the third quarter of 2019 due to solid volume and unit margin performance..

Retail propane gallons sold in the third quarter were 76.7 million gallons, which was 1.7% higher than the prior year, primarily due to an increase in commercial and industrial demand, resulting from the easing of COVID-related business restrictions and an improving economy that more than offset a more normalized level of residential demand.

Residential volumes in the prior year third quarter benefited from cooler average temperatures in April and May of 2020, combined with stay-at-home measures instituted in the early stages of the pandemic.

The mix of volumes between residential and nonresidential customers return to more traditional pre-pandemic level, during the third quarter of fiscal 2021, with commercial and industrial volumes increasing 14% compared to the prior year and residential volumes decreasing 14%..

Overall, average temperatures across our service territories for the third quarter were 9% warmer than normal and the prior year third quarter, and for the months of April and May, average temperatures were 13% warmer than the same period last year. In the commodity markets, wholesale propane prices remain elevated compared to the prior year as U.S.

inventory levels remain considerably below average levels for this time of the year. Although U.S. propane production has increased, production gains have been largely offset by domestic demand and continued strength in the export market.

Overall, average wholesale prices for the third quarter were $0.87 per gallon, basis Mont Belvieu, which was 112% higher than the prior year third quarter and 4% lower than the second quarter of fiscal 2021. In early part of the fourth fiscal quarter, propane prices have moved higher and are currently in the range of $1.05 to $1.10 per gallon. .

Excluding the impact of the mark-to-market adjustments that I mentioned earlier, total gross margins of $143.9 million for the third quarter decreased $2.5 million or 1.7% compared to the prior year, primarily due to the mix of volumes, which include a lower concentration of higher-margin residential volumes compared to the prior year.

Propane unit margins for the quarter were $0.04 per gallon lower than the prior year, but reflected an improvement of $0.04 per gallon compared to the third quarter of fiscal 2019, which had a more comparable and typical volume mix..

With respect to expenses, excluding noncash pension settlement charges in both periods, combined operating and G&A expenses increased $7.3 million or 6.5% compared to the prior year, primarily due to higher volume-related variable operating costs as well as an increase in self-insured medical costs and higher vehicle lease costs, partially offset by lower provisions for doubtful accounts.

As we reported earlier in the fiscal year, our accounts receivable aging profile has returned to pre-pandemic levels, which historically has been very strong and resulted in a more normalized bad debt provision compared to the higher amount reported in the prior year due to the estimated impact of COVID on collections at that time..

I'd also point out than our prior year expenses reflected savings associated with the operational plans that we developed and implemented to address the potential different customer demand scenarios resulting from COVID, including a temporary reduction to our manpower.

Our manpower levels during the current year third quarter were reflective of more normalized levels for this time of the year.

Net interest expense of $16.7 million for the third quarter decreased $1.7 million compared to the prior year, primarily due to lower average debt outstanding as well as a decrease in short-term benchmark interest rates on borrowings under our revolver and the impact of the refinancing of the 2 tranches of senior notes at lower rates that Mike mentioned earlier.

This refinancing will result in a net interest expense and cash savings of approximately $7 million annually, extend our average debt maturity profile by more than 3.5 years and pushes the overall weighted average debt maturity to nearly 8 years.

In addition, with this opportunistic refinancing, we shifted $125 million of debt within our capital structure from bonds to the revolver, which not only decreased our interest requirement and extended debt maturities, but will also allow for efficient debt repayments in the future to facilitate our debt reduction strategy..

Total capital spending for the third quarter of $7.5 million was $1.9 million higher than the prior year due to a higher but more normalized level of spending on vehicles and tanks to support organic customer base growth..

Then turning to our balance sheet. During the third quarter, we used excess cash flows to repay $29.8 million of debt. With the debt repayment, our total debt outstanding as of June 2021 was $83 million lower than June of last year, and our consolidated leverage ratio at the end of the third quarter was 3.96x.

We remain focused on utilizing excess cash flows to further strengthen the balance sheet as we trend towards our target leverage profile of 3.5x debt to EBITDA, and as opportunities arise to fund strategic growth. .

Back to you, Mike. .

Thanks, Mike.

Over the course of the past 12 months, we've remained focused on managing the business through the COVID-19 pandemic, executing on our customer base growth and retention initiatives, accelerating our debt reduction efforts, investing in renewable energy solutions and opportunistically refinancing our debt to reduce interest and extend maturities.

As we continue to strengthen the balance sheet and execute on our strategic growth plans, we remain committed to delivering sustainable profitable growth for our valued unitholders..

Our business is extremely well positioned for the ongoing energy transition. As I have stated before, propane offers immediate benefits for decarbonizing the energy sector in so many applications.

Through our Go Green corporate pillar, we continue to advance our advocacy efforts to ensure legislators, regulators and consumers alike, understand the clean burning versatile and cost-effective qualities of propane.

We are also committed to investing in innovative solutions to further reduce the carbon intensity of propane or other energy solutions on the pathway to net-zero emissions. This can be achieved through the procurement and distribution of renewable propane, which we continue to lead our industry in bringing this product to market.

It can also be achieved through investments in new technologies like the overall fuel renewable DME product, which when blended with propane, can deliver zero carbon or even negative carbon intensity depending on the feedstock.

This technology has received great recognition globally as a promising opportunity for the propane industry to leverage its expertise and infrastructure to handle store, transport and deliver near zero emission renewable energy for the transportation sector and beyond. .

At Suburban Propane, we see similar opportunities to leverage our logistics expertise, our vast network of assets throughout the country and our long legacy of delivering outstanding service and energy solutions for our customers and local communities as the logical and next phase of growth for Suburban Propane and the energy transition.

Through our corporate development efforts, we are focused on the build-out of a renewable energy platform with similar Oberon-like investment opportunities. And there are a lot of exciting, promising new technologies in the early stages of this ongoing energy transition..

Finally, I once again want to thank the more than 3,200 employees of Suburban Propane for their continued commitment to safety and outstanding service to the customers and communities they serve, and I'm extremely proud of the way we've remained resilient and nimble throughout the past challenging 15 months, while keeping our focus on moving the business forward..

And as always, we appreciate your support and attention this morning. And now I'd like to open the call up for questions. And Rocco, if you can give us a hand with that. .

[Operator Instructions] I'm showing no questions at this time. So I'd like to turn the conference back over to the management team for any final remarks. .

Great. Thank you, Rocco. And again, thank you all for joining us. We look forward to closing out fiscal 2020 very -- 2021 very strong and look forward to regrouping with you back in November for our full year results. Stay safe and be well. Thank you. .

Thank you. Ladies and gentlemen, this concludes today's conference call. And as a reminder, today's conference will be available for replay starting approximately 1 hour from now by dialing either 1(877) 344-7529 or (412) 317-0088 and entering the code 10157939. Please leave your name and company when asked to on the recording. .

Today's conference has now concluded, and we thank you for attending the presentation. You may now disconnect your lines, and have a wonderful day..