Suburban Propane Partners LP (SPH) 2013 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the second-quarter 2013 results conference call.

At this time, all participants are in a 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 conditions 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 an 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, Mr. Davin D'Ambrosio. Please go ahead.

Thank you and good morning, everyone. Welcome to Suburban's fiscal 2013 second-quarter earnings call. I am Davin D'Ambrosio, Vice President and Treasurer at Suburban.

Joining me this morning is Mike Dunn, President and Chief Executive Officer, and Mike Stivala, our Chief Financial Officer. Today's call is to review our second-quarter financial results along with our current outlook for the business, including an update on the status of our integration efforts with regards to the Inergy Propane acquisition that was completed on August 1, 2012.

As usual, once we concluded our prepared remarks, we will open up the session to questions. However, before getting started, I would like to re-emphasize 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 10-K for the fiscal year ended September 29, 2012, and its Form 10-Q for the period ended March 30, 2013, 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 furnished to the SEC this morning. The Form 8-K can be accessed through a link on our website at www.SuburbanPropane.com.

At this point I would like to get started by turning the call over to Mike Dunn for some opening remarks.

Thanks, Davin, and thanks, everyone, for joining us this morning. We are very pleased by our overall results for our second fiscal quarter, despite an ongoing abnormal weather pattern whereby unseasonably warm temperatures experienced in the first quarter carried over into much of January and the first part of February. To be followed, however, by sustained colder-than-normal average temperatures from late February through March.

This late burst of cold weather brought average temperatures more in line with normal averages for the quarter as a whole and reaffirmed our expectations as to what our now combined companies are capable of achieving in a more normal weather scenario.

From an adjusted EBITDA perspective, the $190.7 million reported for the second quarter of fiscal 2013 was an improvement of more than 45% over the pro forma combined adjusted EBITDA of Suburban Propane and Inergy Propane in the prior year's second quarter, before the combination. Our employees and operating platform are well-equipped to handle the late surge of business activity and to continue to provide superior service to our combined customer base.

We continue to make significant progress on our integration efforts including the initial process of blending geographic territories and systems, an effort that we started in earnest as we exited the heating season. In a moment I will comment on our outlook for the remainder of the fiscal year, along with providing some more color on our integration efforts.

However, at this point I would like to turn the call over to Mike Stivala to discuss our second-quarter results in more detail. Mike?

Thanks, Mike. Good morning, everyone. As we are still in our first full year following the Inergy Propane acquisition, which occurred on August 1, 2012, the majority of the year-over-year variances for the second quarter were attributable to the addition of Inergy Propane, as well as to a lesser extent improvements in the suburban legacy operations resulting from colder average temperatures, lower wholesale propane costs, and continued expense savings through efficiencies.

In order to provide a more meaningful comparison of year-over-year operating performance, for certain key metrics I will, as I did last quarter, provide a comparison of the actual fiscal 2013 second-quarter results versus the prior-year second quarter on a pro forma combined basis as if the Inergy Propane acquisition had occurred at the beginning of fiscal 2012.

Furthermore, to be consistent with previous reporting, I am excluding the impact of unrealized non-cash mark-to-market adjustments for derivative instruments used in risk management activities under FAS 133 accounting. This resulted in unrealized loss of $2.6 million in the second quarter of fiscal 2013 compared to a de minimus amount in the prior-year second quarter.

Additionally, net income and EBITDA for the fiscal 2013 second quarter included $2.7 million in expenses relating to the ongoing integration of Inergy Propane operations. This compares with a $2.1 million non-cash charge in the prior-year second quarter for the write-off of capitalized costs associated with an abandoned software project in our natural gas and electricity segment, as well as a $500,000 loss on debt extinguishment associated with the amendment of our revolving credit facility completed in January 2012.

Therefore, as Mike just indicated, adjusted EBITDA for the fiscal 2013 second quarter amounted to $190.7 million, an increase of $124.8 million compared to the actual prior-year second quarter of $65.9 million and an improvement of approximately $59 million, or 45%, compared to the prior-year second quarter on a pro forma combined basis.

Net income totaled $133.8 million, or $2.34 per common unit, for the second quarter of fiscal 2013. This compares to net income of $49.6 million, or $1.39 per common unit, reported in the prior-year second quarter.

Retail propane gallons sold in the second quarter of fiscal 2013 increased 120.4 million gallons, or 134%, to 210.3 million gallons from 89.9 million gallons in the prior-year second quarter. Again, for comparative purposes, propane volumes sold in the second quarter of fiscal 2013 were 26.6 million gallons, or 14.5%, higher than the prior-year second quarter on a pro forma combined basis.

Sales of fuel oil and other refined fuels increased 12.6 million gallons or 119% to 23.2 million gallons compared to 10.6 million gallons reported in the prior-year second quarter. Compared to the pro forma combined refined fuels gallons in the prior-year second quarter, the 23.2 million gallons sold in the second quarter of this year were 801,000 gallons, or 3.6%, higher.

For the quarter, average temperatures across our service territories were 1% warmer than normal compared to 21% warmer than normal in the prior-year second quarter. The favorable weather conditions were primarily due to a burst of cold weather from late February throughout the month of March. Average temperatures for the month of March across our service territories were 10% colder than normal compared to 31% warmer than normal in March of the prior year.

In the commodity markets, average posted prices for propane for the second quarter of fiscal 2013 decreased 31.3% compared to the prior-year second quarter, while average fuel oil posted prices decreased 3.5% compared to the prior-year second quarter. On a sequential basis, propane prices decreased 2.5% compared to the average prices in the first quarter of fiscal 2013.

Total gross margins of $334.1 million for the second quarter of fiscal 2013 were $184.9 million, or 124%, higher than the actual prior-year second quarter of $149.2 million, primarily from the addition of Inergy Propane as well as higher volumes in our legacy Suburban operation and slightly higher unit margins.

Combined operating and G&A expenses of $146.1 million were $60.6 million, or 71%, higher than the prior-year second quarter, primarily due to the addition of Inergy Propane operations while set to an extent by savings in our legacy Suburban operations, as well as cost savings achieved through our initial integration efforts. For comparative purposes, combined operating and G&A expenses were approximately 6% lower than the pro forma combined operating and G&A expenses for the prior year second quarter.

As for bad debts, we remain diligent about managing our receivables, especially considering the current economic environment. Our overall bad debt expense, as a percentage of revenues, and our ongoing -- our aging profile has remained relatively consistent with historical levels.

Net interest expense of $24.3 million for the second quarter of fiscal 2013 was $17.9 million higher than the prior-year second quarter. That is a direct result of the additional debt issued to finance the Inergy Propane acquisition. Total capital spending for the quarter was $6.1 million, which included $2.4 million of maintenance capital.

Turning to our balance sheet despite the increased size of the business, we continue to fund all working capital requirements with cash on hand. We have now moved through our historically high period of seasonal working capital needs and again we did not access our bank revolver. In fact, we ended the quarter with over $166.5 million of cash on hand. In addition, we have availability of approximately $250 million under our revolving credit facility, thus providing more than ample liquidity to fund our ongoing operations and ongoing integration efforts.

Finally, with the significant improvement in adjusted EBITDA, which through the first six months of fiscal 2013 was reported at $307.1 million, an improvement of more than $90 million, or 42%, over the comparable prior-year period on a pro forma combined basis, our key financial metrics have improved dramatically compared to where we ended fiscal 2012. Our balance sheet and access to liquidity remains very strong, and we will continue to maintain our focus on improving the overall leverage profile and further strengthening our balance sheet.

Mike, back to you.

As announced in our April 24 press release, we were pleased to declare our quarterly distribution of $0.875 per common unit, which equates to an annualized rate of $3.50 per common unit. This quarterly distribution will be paid on May 14 to our unitholders of record as of May 7.

Looking ahead toward the remainder of fiscal 2013, as we have exited the heating season our attention has turned to ramping up the execution of our detailed integration plans. In March, 2013, we started an aggressive plan to blend locations and overlapping geographies and convert key operating systems in preparation for next year's heating season. Leading up to these blending and conversion efforts, we took significant steps in relation to defining our operating footprint at the local level, identifying the management team across the entire platform, and streamlining our regional operating structure.

As we stated on our last earnings call, we fully expect to have made significant progress on our integration plans by the beginning of the next heating season. Additionally, we are on a pace to be fully integrated in the targeted three-year timeframe that we have previously outlined. And let me remind you that our definition of being fully integrated is characterized as functioning as one company under one common operating platform and one common operating system.

Since the time of the acquisition, we have indicated that synergies of approximately $50 million are achievable. We remain comfortable with that target. For the first six months of this fiscal year, we estimate that we've achieved net synergies of approximately $5 million to $7 million and we anticipate achieving between $10 million and $15 million in net synergies during our first full fiscal year ending September 2013.

A significant amount of effort lies before us in blending operations and cultures in preparation for the next heating season. However, based on the detailed integration plan that we have put in place and the early successes we have achieved, I am confident that we will, as an organization, accomplish our goals.

In closing, I would like to acknowledge the ongoing efforts of all of our dedicated employees in executing our integration plans while stepping up when the weather did finally arrive and not losing sight of managing the business and continuing to provide exceptional customer service. As always, we appreciate your support and attention this morning and would now like to open the call up for questions.

Marla, can you help us?

(Operator Instructions) At this time, there are no questions in queue. Please continue.

With that said, I again want to thank everyone for joining us this morning. We look forward to our next earnings call.

Again, enjoy the first half of the summer. Thank you, Marla.

Thank you. Ladies and gentlemen, this conference will be available for replay after 11 AM Eastern Time today through May 10, 2013. You may access the AT&T executive replay system at any time by dialing 1-800-475-6701 and entering the access code 290809. That number again is 1-800-475-6701 and entering the access code 290809.

That does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference service. You may now disconnect.