Suburban Propane Partners LP (SPH) 2009 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Suburban Propane third quarter 2009 financial results 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. I'd now like to read the following statement.

This conference call contains forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, relating to the Partnership's future business expectations and predictions, and financial conditions and the results of operations. These forward-looking statements involved certain risks and uncertainties. The Partnership has listed some of the important factors that could cause 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'll now turn the conference over to Mr. Davin D'Ambrosio. Please go ahead.

Thank you, Paul and good morning everyone. Welcome to Suburban's fiscal 2009 third quarter conference call. I'm Davin D'Ambrosio, Vice President and Treasurer of Suburban. With me this morning is Mike Dunn, our President and incoming Chief Executive Officer and Michael Stivala, Chief Financial Officer and Chief Accounting Officer.

Purpose of today's call is to review our third quarter financial results along with a current outlook for our business. As usual, once we've concluded our prepared remarks, we will open the session to questions.

Before getting started though, I would like to reemphasize what the operator has just explained about forward-looking statements. Additional information about factors that could cause actual results to differ materially from those discussed in forward-looking statements is contained in the Partnership's SEC filings, including its Form 10K for the fiscal year ended September 27, 2008 and its Form 10-Q for the period ended June 27, 2009, which will be filed by the end of business today. Copies of these filings 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 can be accessed through a link on our website at SuburbanPropane.com.

At this point, I'd like to get started by turning the call over to Mike Dunn. Mike?

Thanks, Davin, and thanks everyone for joining us today.

As reported this morning, we are extremely pleased with the accomplishments during the quarter, which included reported growth in our adjusted EBITDA of nearly $20 million compared to the prior year third quarter. The successful refinancing of our Revolving Credit Facility in a challenging credit market, a further reduction of total debt by $8 million--in fact, with this latest debt repayment, we have reduced our debt profile by $25 million since the end of the third quarter of last year and yet, we ended the quarter with more than $256 million of cash on the balance sheet.

These accomplishments point out the importance of our efficient operating platform, proven flexible cost structure and strong balance sheet. Mike Stivala will give a little more color on our recently completed debt refinancing and our overall debt maturity profile in a minute. From an operating perspective, the ongoing challenges of the economy continue to adversely affect our sales volumes, particularly in our commercial and industrial business, which accounts for a greater concentration of sales volume now that the heating season has ended.

However, our earnings benefitted from higher unit margins, continued expense savings gained through operating efficiencies and as you will recall, we reported a realized loss of $14.5 million in the prior year third quarter at the height of last year's commodity price movement. As announced on July 23, our Board of Supervisors increased our annual distribution rate by $0.04 per Common Unit to $3.30 annually. This increase represented our 13th consecutive quarterly distribution increase and more than 3% growth rate over the prior year third quarter.

A little later I will provide a few closing comments but at this point, I'll turn the call over to Mike Stivala to discuss our third quarter results in more detail. Mike, over to you.

Thanks Mike and good morning, everyone. As Mike stated, we are very proud of our accomplishments this quarter, despite the challenges presented by the recession and continued commodity price volatility. The investments we've made over the past several years in our technology platform and the efforts to streamline our operations have allowed us to continue to focus on driving efficiencies.

The strength of our balance sheet and cash flow has also provided financial flexibility as access to capital has tightened. As we discuss our third quarter results, to be consistent with previous reporting, I am excluding the impact of a $6.1 million unrealized, non-cash loss applicable to FAS-133 accounting compared to an unrealized gain of $4.7 million in the prior year quarter.

EBITDA for our third quarter of fiscal 2009 increased $19.6 million to $17.7 million, compared to a loss of $1.2 million for the third quarter of fiscal 2008. Our seasonal net loss totaled $1.3 million or $0.04 per Common Unit for the quarter compared to a net loss of $18.4 million, or $0.56 per Common Unit in the prior year third quarter.

Combining these results with the first two quarters, our year-to-date EBITDA amounted to $241.9 million, an increase of $68.5 million compared to the comparable prior year period after adjusting for the prior year gain from the sale of our Tirzah facility.

Retail propane gallons sold in the third quarter fiscal 2009 decreased 10.2 million gallons, or 14.3% to 61.2 million gallons from 71.4 million gallons in the prior year quarter. Sales of fuel oil and other refined fuels decreased 2.9 million gallons or 23.3% to 9.7 million gallons compared to 12.6 million gallons in the prior year third quarter.

In terms of weather, average heating degree days in our areas of operations were 93% of normal levels for the third quarter fiscal 2009 and 4% warmer than the prior year quarter, which marginally contributed to the volume reduction.

As discussed on our last quarterly conference call, our mix of business shifts this time of year to a greater concentration of non-residential volumes. Therefore, as expected, the rate of our overall volume decline has increased as the recession continues to have a greater adverse effect on our non-residential customer base. To put that into perspective, within our propane segment, our non-residential customer base accounted for more than 67% of the volume decline compared to the prior year quarter.

In the commodity markets, average posted prices for propane and fuel oil were 57% and 56% lower respectively, than the prior year third quarter. The commodity price environment remains volatile and on a sequential basis, propane and fuel oil prices rose as the price of crude oil surged during the fiscal 2009 third quarter. Not withstanding the recent increase, commodity prices are down considerably from last year's all time highs.

Today's spot propane is trading at about $0.865, basis Mt. Bellevue and spot heating oil is trading at around $1.95.

Total gross margins of $103.1 million for the third quarter of fiscal 2009 were $15.3 million, or 17.4% higher than the prior year third quarter of $87.8 million. The increase was almost entirely attributable to the absence of $14.5 million of realized losses, reported in the prior year third quarter from our decision to unwind our hedge positions, given the unprecedented rise in commodity prices.

Aside from the impact on gross margins from the prior year realized losses, lowered operating and G&A expenses was a significant contributor to the improved year-over-year earnings. Combined operating and G&A expenses of $85.4 million for the third quarter of fiscal 2009 were $4.3 million, or 4.8% lower as a result of lower fuel costs, lower employee costs and generally lower costs to operate our customer service centers, partially offset by higher variable compensation associated with the higher earnings.

Our bad-debt expense continues to be well controlled and our aging profile remains relatively consistent as we maintain a diligent focus on managing receivables in these obviously tough economic times.

Total capital spending for the quarter was $5.5 million, which includes $2.7 million of maintenance capital.

Turning to our balance sheet, cash on hand at the end of the quarter totaled $256.1 million, representing an increase of $20.6 million since the end of the fiscal 2009 second quarter, and an increase of $118.4 million since the beginning of this fiscal year.

Our continued strong operating results and corresponding cash flow have again allowed us to fund all working capital requirements with internally generated cash. As Mike indicated, a significant milestone for Suburban during the quarter and a testament to the strength of our balance sheet, we successfully completed the refinancing of our previous Revolving Credit Facility, which was set to mature in March of 2010.

The new four-year Revolving Credit Facility provides for $250 million of revolving lines of credit to replace our previous revolving credit agreement, which consisted of $175 million working capital facility and a separate $108 million term loan. At closing, we borrowed $100 million under the new facility and along with cash on hand, repaid the $108 million previously outstanding on the term loan.

The bank's indication supporting this new facility is comprised of a diverse group of 13 banks and the appetite was such that we were 30% oversubscribed. In an obviously tumultuous credit environment, we decided to take proactive steps to deal with our Revolving Credit Facility well in advance of its maturity and in doing so, we've extended the maturities on all outstanding debt until 2013. We are very pleased with the outcome and appreciate the continued support provided by our bank group. Mike?

Thanks, Mike. Our quarterly distribution at the most recently increased level of $0.825 per Common Unit will be paid on August the 11 to our Unitholders of record as of August the 4. We are extremely pleased to pass along this latest quarterly distribution increase to our valued Unitholders, which represents 3.1% year-over-year growth with our increased earnings. Our distribution coverage at the end of this quarter is 1.86 times.

On July 22, we held our Tri-Annual Unitholder's meeting at which we received a strong response from our Unitholders in terms of re-electing our six supervisors and approving a 2009 restricted-unit plan. I would like to take this opportunity to thank our Unitholders for their continued support.

Lastly, I would be remiss in not acknowledging the on-going efforts of our field personnel and their continued focus on driving operating efficiencies while providing quality customer service. Through their efforts and the overall strength of our financial position, we expect to build upon these strengths and diligently pursue our long-term strategies for growth. As always, we appreciate your support and attention this morning and would now like to open the call up for questions. Paul?

(Operator Instructions). Our first question is from Darren Horowitz. Please go ahead.

Morning, guys. Congratulations on another good quarter.

Thanks, Darren.

My first question for you, when you look at customer conservation and the economy's impact on your commercial and industrial business, as we talked about every quarter, are you still targeting to end the year with aggregated volumes down about 12% and then more importantly, as you're progressing through the September quarter, and looking ahead to fiscal 2010, can you give us a rough approximation for how you think volumes are going to trend?

I think you're accurate, Darren, with the forecasted 12% for the rest of, at least, this year. I would think that next year, it's unclear. I think the economy, obviously, will play a big part in that, not only on the commercial-industrial side, but also on the residential side. One of the reasons for the decline in some of our residential volumes is self-imposed as a result of our diligent collection efforts. Again, the economy is going to play a big part in determining where that really shakes out.

Sure, sure. Moving over to your liquidity position, again, congratulations on getting that new facility in place. When you look at the flexibility that that facility affords you coupled with your cash on hand, has anything changed, in your view, of how you're looking at possibly growing the business inorganically, whether it be within the core competency propane side of the business or even outside?

We continue to focus on internal measures, the efficiencies obviously, but more importantly, we're addressing our customer service reps and trying to give them a more educated stance so that they can face off with customers in a more reputable fashion. You have to sit down--and the economy is affecting every one of us, not only as a business person but as consumers.

Those same CSRs are experiencing perhaps some drawbacks in their own personal lives. We want to make sure that they stay upbeat and be able to separate their personal life from their business responsibilities and be able to handle customers that could possibly be going through the same sort of stress and strain. We think it's important.

We think it's important that we help our customers through these financial difficult times. We offer budget pay plans and we're willing, in some cases, to divert and drop loads that are perhaps smaller than would normally be because their pocketbook can't afford the full load, etc., etc. So from an organic perspective, we still have those things going on.

I think from an outside perspective, I think over the course of the next 12 to 18 months, you will see more opportunities than we've seen in the past that could conceivably be deemed realistic and we're hopeful that we'll be able to expand in some of the markets where we have a pretty strong presence.

Sure. Just one final question if I could. If you had to add an incremental volume today, where would it be?

I don't understand the question.

If you were targeting your best bang for the buck on a dollar employed, where would you want to add more volumes today?

Oh, I think our footprint, the East and the West coast is still where we desire to be.

Okay, thanks guys. Appreciate it.

Thanks, Darren.

We have a question from Ron Londe, please go ahead.

Thanks. Now that you have your new credit facility in place, do you feel that it might be time to get a little bit more liberal with the payout of your distribution, given that each 1% of increase in the distribution at this level equates to about $1.1 million a year and you've got on the order of $256 million on a balance sheet?

Ron, that's a good point. I mean, I think at this stage, with all that's going on with people's investment portfolios and so forth and so on, at this point in time, we would like to be able to demonstrate the sustainability of distribution as opposed to getting ahead of the curve.

I guess that means no.

If that's the way you want to interpret that. I think we'll play it by ear.

Okay, I mean, do you have any goals set for where you want to see distributions grow over the next few years?

Not really.

Okay, thank you.

You're welcome.

At this time, there are no further questions in queue. Thank you.

Okay, again, everyone, thank you. We'll see you next quarter. Thank you, Paul.

Ladies and gentleman that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.