Suburban Propane Partners L P (SPH) Q2 2021 Earnings Call Transcript

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Suburban Propane Partners L P (SPH 1.13%)
Q2 2021 Earnings Call
May 6, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Suburban Propane Partners L.P. Second Quarter Results 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 these 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 event is being recorded.

I'd like now to turn the conference over to Davin D'Ambrosio, Vice President and Treasurer. Please go ahead, sir.

A. Davin D Ambrosio -- Vice President And Treasurer

Thank you, Chuck, and good morning, everyone. Thank you for joining us this morning for our fiscal 2021 second 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 second quarter financial results along with our current outlook for our 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 26, 2020 and Form 10-Q for the period ended March 27, 2021, which will be filed by end of business today, both contain 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 the 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, suburbanpropane.com.

At this time, I will turn the call over to Mike Stivala for some opening remarks. Mike?

Michael Kuglin -- Chief Financial Officer And Chief Accounting Officer

Thanks, Davin, and good morning, thank you, all for joining us today. We are extremely pleased to report strong results for our fiscal 2021 second quarter with adjusted EBITDA of $172 million coming in more than $41 million or 32% ahead of the prior year. In fact, this was our strongest second quarter performance since 2015. And importantly, there were several factors that contributed to the significant improvement in earnings. First, weather was a real positive contributor. Our service territories were hit with some of the most sustained and widespread cold weather throughout much of the second quarter than we've experienced since 2015, which provided a surge in heat related demand. Second, demand in our commercial industrial customer segments has started to normalize back toward pre pandemic levels as COVID-19 related business restrictions started to ease and economic activity has picked up.

Third, operating personnel have continued to execute on our customer base growth and retention initiatives, which resulted in organic customer base growth and therefore incremental new customer activity. As a result, propane volumes increase more than 16% compared to the prior year second quarter. Our operating personnel were well prepared to meet the challenges of the spike in demand, while continuing to adhere to COVID-19 related safety protocols, maintaining the highest level of safety standards and delivering outstanding service to our customers when they needed us most. In addition to the increased demand, earnings for the quarter were favorably impacted by excellent margin management, despite a dramatic rise in the wholesale price of propane during the quarter.

And with our recent investments in new technologies driving incremental operating efficiencies, coupled with lower insurance claims activity and excellent management of potential bad debts, we reported lower operating expenses in spite of the significant increase in business activities. So the improvements were across the board to deliver these outstanding results for the quarter. And with the strong earnings we utilized excess cash flows to reduce total debt by nearly $70 million during the quarter, bringing our total leverage metric below four times and in March 2021 at 3.95. Our distribution coverage based on trailing 12 months adjusted EBITDA of $290 million and pro forma for the current annualized distribution rate of $1.20 per common unit was around 2.75 times. In a moment, I'll come back for some closing remarks, including our current outlook for the remainder of fiscal 2021.

But at this point, I'll turn it over to Mike Kuglin take you through the details of our performance for the quarter. Mike?

Michael Stivala -- President And Chief Executive Officer

Thanks Mike. As announced in our April 22nd press release, our Board of supervisors declares our quarterly distribution of $0.30 per common unit in respect of our second quarter of fiscal 2021, that equates to an annualized rate of $1.20 per common unit. Quarterly distribution will be paid on May 11th to our unitholders record as of May the 4th. So just a few closing remarks. The past 12 months have certainly presented a number of challenges for our nation, for our people and for our business. However, our ability to adapt coupled with the preparedness and flexibility of our operating model as a result of all of our efforts over the last decade to streamline, invest and create efficiencies and of course, the commitment of our great people, allowed us to stay focused on meeting the needs of our customers. Along the way, we continue to execute on our customer base growth and retention initiatives, which have resulted in organic growth through the first half of fiscal 2021.

With the improved earnings and cash flows and disciplined approach to acquisitions, we've been able to accelerate our debt reduction efforts on our pathway to bringing leverage down to our target range. As we continue to strengthen the balance sheet it enhances our financial flexibility to aggressively pursue our long term strategic growth objectives. And our strong distribution coverage should provide our unitholders with a level of comfort over the long term sustainability of our distribution at the current level with visibility to distribution growth as we get closer to our leverage targets and execute our strategic growth plans. Looking ahead to the back half of fiscal 2021, we have great momentum heading into our fiscal third quarter from the strong performance in the second quarter.

As we enter our more counter seasonal period, we expect to experience a shift back to a more traditional mix of business between residential and commercial industrial activities as the economy is picking up and restrictions are lifted. In fact, with a favorable customer base trends combined with the economic uplift, our commercial and industrial activities are showing growth beyond pre pandemic levels. From an adjusted EBITDA perspective, the $37.7 million we reported in the second half of last year was our highest second half performance in our history, which was driven by a dramatic shift in customer demand skewed toward residential volumes at a time when we had significantly cooler spring weather and so many people staying home do the lock downs.

As we sit back to a more traditional mix for lower margin commercial industrial volumes lower margin commercial industrial volumes, we do expect to revert back to a more normalized level of adjusted EBITDA for the back half of the year. Finally, just a reminder to our unitholders of record as of the close of business on March 22, 2021 that our Tri-Annual Meeting of Unitholders will be held on Tuesday, May 18th at 10 am Eastern Time. Due to public health impact of the COVID-19 pandemic, we will be conducting the meeting solely via live webcast over the Internet. Proxy materials have been distributed and we encourage all unitholders of record to please vote. We look forward to greeting those of you who will be able to attend virtually during our online meeting. And lastly, I would like to express my sincere gratitude and appreciation for the more than 3,200 employees of Suburban Propane. I'm truly proud of their efforts in maintaining their focus and driving performance for the quarter. And as always, we appreciate your support and attention.

And now I'd like to open the call up for questions. Chuck, if you wouldn't mind helping us with that. All right. Well, great, Chuck. It looks like we're all set. I appreciate your help. Again, I appreciate everybody's time. I encourage everybody to continue to be safe. We look forward to speaking with you again after our third quarter results and also, welcome those of you that want to participate in our Virtual Tri-Annual Meeting on May the 18th. Thank you all.

Operator

The conference has now concluded. Please remember that this call will have a one week replay. Please call (877) 344-7529 and the replay access code is 1015387. Again that is 10153867. The playback is scheduled to end May 13th. Thank you for attending today's presentation. [Operator Closing Remarks]

Questions and Answers:

Duration: 17 minutes

Call participants:

A. Davin D Ambrosio -- Vice President And Treasurer

Michael Kuglin -- Chief Financial Officer And Chief Accounting Officer

Michael Stivala -- President And Chief Executive Officer

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