Suburban Propane Partners LP (SPH) 2014 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by welcome to Suburban Propane's fourth quarter and full year fiscal results conference call.

(Operator Instructions)

As a reminder this conference call 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, and 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 orals forward looking statements attributable to the Partnership and 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 your host, Davin D'Ambrosio. Please go ahead

Thank you and good morning, everyone. Welcome to Suburban's fourth order and FY14 full year conference call. I'm David D'Ambrosio, Vice President and Treasurer at Suburban. Joining me this morning is Mike Stivala, our President and Chief Executive Officer; Mark Wienberg, our Chief Operating Officer; and Mike Kuglin, our Chief Financial Officer and Chief Accounting Officer.

On today's call we will review our fourth quarter and FY14 full year results along with our current outlook for the business including an update on the status of our integration efforts with regards to Energy Propane acquisition that was completed on August 1, 2012. As usual once we've concluded our prepared remarks we will open the session to questions.

However, before getting started I would like to just 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 our Form 10-K for fiscal ending September 27, 2014 which will be filed on or about November 26, 2014. 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 as our form 8K which was furnished to the SEC this morning. The form 8K will be available through a link of the investor relations section of our website at www.suburbanpropane.com. At this point I will turn the call over to Mike Stivala for some opening remarks. Mike?

Thanks, Devin, and thank you, everybody, for joining us this morning. While FY14 presented no shortage of challenges as a result of industry-wide supply logistics issues, harsh winter storms, a sudden and prolonged spike in wholesale propane prices and unseasonably warm prices temperatures impacting our West Coast operations, through our efforts to drive synergies from the combined platform and the extraordinary efforts by our employees to provide the level of service that our customers have come to expect, we achieved nearly 3% growth in adjusted EBITDA.

Additionally we made significant progress not only in our integration efforts but also in executing our strategic financing initiatives. To highlight a few key accomplishments during FY14, we completed our system conversions and much of the physical blending activities associated with the integration of Energy Propane.

We've installed our operating model across the entire platform and have migrated to one common brand. We achieved our targeted two -- year two synergies of $15 million, and we successfully refinanced our previous 7.5% senior notes due 2018 with new 5.5% senior notes due 2024.

This effectively extended maturities on this portion of our debt by six years and reduced our cash interest requirement by more than $8 million annually. And we have successfully transitioned the leadership of the Partnership in accordance with the Board approved succession plans, just to mention a few.

As we begin a new fiscal year, the third full fiscal year following the Energy Propane acquisition, we are well positioned both operationally and financially to continue to focus on our customer growth initiatives, continue to refine our operating platform to maximize the efficiencies from the combined business and continue to pursue further growth opportunities.

A little later I will provide some closing remarks, however, at this point I'll turn it over to Mike Kuglin to discuss our full year and fourth-quarter results in a little more details. Mike?

Thanks, Mike, here good morning, everyone. I'll start by focusing on our full results and give a little color on the fourth-quarter toward the end of my remarks. For FY14 we reported net income of $94.5 million or $1.56 per common unit compared to $78.8 million or $1.35 per common unit in FY13. To be consistent with previous reporting, I am excluding the impact of unrealized non-cash mark-to-market adjustments on derivative instruments used in risk management activities which resulted in an unrealized gain of $300,000 in FY14 compared to an unrealized loss of $4.3 million in FY13.

Additionally, net income and EBITDA for FY14 include a loss from debt extinguishment of $11.6 million associated with the refinancing of our 2018 senior notes and $12.3 million in expenses related to our ongoing integration of Energy Propane, net income and EBITDA for FY13 to a loss on debt extinguishment of $2.1 million associated with the redemption of $157 million in debt, a $7 million charge for the voluntary withdrawal from multi-employer pension plans covering certain employees acquired in the Energy Propane acquisition and integration related costs of $10.6 million.

Therefore, excluding these items as well as unrealized mark-to-market adjustments on derivative instruments in both years, net income for FY14 improved to $118.1 million or $1.95 per common unit compared to $102.8 million or $1.76 per common unit in the prior year. Adjusted EBITDA for FY14 was $338.5 million, an increase of $9.2 million compared to $329.3 million for FY13.

Retail propane gallons sold in FY14 of 530.7 million gallons decreased by 3.9 million gallons compared to 534.6 million gallons in the prior year. Sales for our fuel oil and other refined fuels decreased 4.6 million gallons to 49.1 million gallons compared to 53.7 million gallons in the prior year.

According to NOAA, average temperatures across all of our service territories for FY14 were 3% colder than normal and 7% colder than the prior year. However, the weather pattern during the peak winter heating season was characterized by considerably colder than normal temperatures in our Eastern and Midwestern service territories and sustained warmer than normal temperatures in our Western territories.

Average temperatures in our Western territories during this past winter heating season were 11% warmer than normal and 6% warmer than the comparable period in the prior year which negatively impacted volumes sold in those territories. In the region where weather was colder than normal, our sales volumes responded. However, even in those areas, volumes sold during FY14 were adversely affected by a combination of factors including supply constraints resulting from industry wide supply shortages and logistics issues, customer conservation attributable to the significant rise in wholesale propane prices and our efforts to manage higher then normal customer receivable balances.

In the commodities markets propane prices were extremely volatile during FY14 as a result of the supply and logistics issues that started late in the first quarter and continued throughout most of the second quarter. For the year average posted prices for propane were 24.8% higher than the prior year, commodity prices rose sharply during much of the season and declined steadily thereafter to settle around a $1.04 per gallon at the end of September, 2014 basis Mont Belvieu compared to $1.05 per gallon a year earlier.

Today spot propane is trading around $0.85 a gallon. With respect to fuel oil, average prices for the fiscal year were 2.1% lower than the prior year.

Total gross margins of $857.2 million for FY14 were $11.2 million higher than the prior year of $846 million primarily due to slightly higher unit margins. Combined operating and G&A expenses of $531 million were $3.3 million lower -- excuse me $3.3 million lower than the prior year primarily due to operating efficiencies in synergies realized as a result of the continuing integration of Energy Propane, including lower payroll and benefit related expenses attributable to reduced headcount and lower vehicle expenses attributable to the reduction of vehicles in our fleet.

Savings in payroll and vehicle expenses were substantially offset by higher overtime and vehicle maintenance expenses attributable to increased activity in harsh winter weather conditions in our East and Midwest service territories as well as a $7.6 million increase in bad debt expense primarily due to higher average customer balances stemming from higher selling prices and greater consumption during the heating season.

Overall, bad debt expense as a percentage of revenues for FY14 was relatively consistent with our historical experience. Capital spending for the year totaled $30 million which included $18.2 million in maintenance capital.

Turning to our fourth quarter results. Due to the seasonality of our business, we typically report a net loss in the fourth quarter. With that being said, we reported a net loss of $54.7 million or $0.90 per common unit for the fourth quarter of FY14 compared to a net loss of $63.1 million or $1.05 per common unit in the prior year fourth quarter.

As I discussed the quarterly results, I am excluding the impact of unrealized, non-cash mark-to-market adjustments on derivative instruments used in risk management activities which resulted in a $400,000 unrealized loss in the fourth quarter of FY14 compared to a $2 million unrealized gain in the prior year fourth quarter.

Additionally, net income and EBITDA for the fourth quarter of FY14 included $3.2 million in expenses related to the ongoing integration of Energy Propane. Net income and EBITDA for the fourth quarter of FY13 included $4.6 million in expenses related to the integration of Energy Propane, a $1 million charge related to the voluntary withdrawal from multi-employer pension plans and a loss in debt extinguishment of $2.1 million.

Therefore, excluding these items and the effects of unrealized, non-cash mark-to-market adjustments on derivative instruments in both quarters net loss for the fourth quarter of FY14 improved to $51.1 million or $0.84 per common unit compared to $57.4 million or $0.95 per common unit in the prior year fourth quarter.

Adjusted EBITDA for the fourth quarter of FY14 improved to $4.5 million compared to $1.9 million from the fourth quarter of FY13. Retail propane gallons sold in the fourth quarter of FY14 amounted to 76 million gallons, a decrease of 2.3 million gallons compared to 78.3 million gallons of the prior year fourth quarter.

Sales of fuel oil and other refined fuels decreased 0.8 million gallons to 5.5 million gallons in the fourth quarter of -- in the FY14 fourth quarter. The decline in volumes is primarily driven by lower activity in our nonresidential segment offset to an extent by an increase in residential volumes sold. Total gross margin of $120.2 million for the FY14 fourth-quarter were essentially flat compared to the prior year fourth quarter.

Combined operating and G&A expenses decreased $4.8 million to $118.8 million primarily due to synergies realized from our integration efforts partially offset by higher bad debt expense. Our Accounts Receivable balance at the end of FY14 fourth quarter was marginally higher than September 2013 levels which reflects significant progress during the fourth quarter as a result of strong cash collections during the period.

Turning to our balance sheet, at the end of the fiscal year with $92.6 of cash on hand. This balance reflects the use of $12.5 million to fund a portion of our debt refinancing that was completed in the third quarter and a slightly higher investment in working capital given the higher receivable balances and higher levels of inventory heading into the upcoming heating season.

Our overall liquidity position remains strong with cash on hand and the availability of approximately $255 million under our revolving credit facility. Back to you, Mike

Thanks, Mike. Just a brief comment on our quarterly distribution. As announced in our October 23 press release, our Board of Supervisors declared our quarterly distribution of $0.875 per common unit in respect of fourth quarter of FY14. This equates to an annualized rate of $3.50 per common unit. The quarterly distribution was paid on November 10 to our common unit holders of record as of November 3.

As for the status of our ongoing integration of Energy Propane, as I outlined earlier, we successfully completed our year two integration plans, and we remain on schedule for achieving our stated goal of $50 million in synergies over the first three years. As we head into FY15, we are very well positioned to leverage the strength of this combined platform. As I highlighted in my opening remarks, we are now operating under one common model, one common system and one culture.

We still have work to do as we continue to fine-tune our operating model and cost structure in order to maximize the operating efficiencies and earnings potential of the combined enterprise as well as continuing to invest in our people so that they remain in the best position to deliver the highest quality customer service. In the meantime, we continue to look for acquisition opportunities to further enhance unit holder values.

Lastly I would be remiss in not acknowledging the efforts of all of our employees at all levels of the organization who have worked tirelessly throughout this unique and challenging year to successfully execute our aggressive integration goals while maintaining their focus on providing quality customer service. These accomplishments were a true testament to the level of commitment and talent of our employee base.

And as always we appreciate your support and attention this morning and would now like to open the call up for questions. Greg, could you give us a hand with that?

(Operator Instructions)

And at this time there are no questions.

Okay. Well, thank you, Greg, for your assistance today, and thank you all, and we will see you in February. Thank you.

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