8-K
Suburban Propane Partners LP (SPH)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
August 4, 2022
Commission File Number: 1-14222
SUBURBAN PROPANE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
| Delaware | 22-3410353 |
|---|---|
| (State or Other Jurisdiction | (IRS Employer |
| of Incorporation) | Identification No.) |
240 Route 10 West
Whippany, New Jersey 07981
(973)
887-5300
(Registrant’s telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of exchange on which registered |
|---|---|---|
| Common Units | SPH | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following information, including Exhibit 99.1 attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
On August 4, 2022, the Partnership issued a press release (the “Press Release”) describing its Fiscal 2022 Third Quarter Financial Results. A copy of the Press Release has been furnished as Exhibit 99.1 to this Current Report.
Within the Press Release, we reference net income before deducting interest expense, income taxes, depreciation and amortization (“EBITDA”) which is considered a non-GAAP financial measure. Additionally, we discuss EBITDA excluding the unrealized net gain or loss from mark-to-market activity for derivative instruments and certain other items (“Adjusted EBITDA”). Our calculations of EBITDA and Adjusted EBITDA are presented in the Press Release furnished as Exhibit 99.1 to this Current Report.
We provide these non-GAAP financial measures because we believe that they provide the investment community with supplemental measures of operating performance. In addition, we believe that these non-GAAP financial measures provide useful information to investors and industry analysts to evaluate our operating results.
We also reference gross margins, computed as revenues less cost of products sold as those amounts are reported on the consolidated financial statements. Since cost of products sold does not include depreciation and amortization expense, the gross margin we reference is considered a non-GAAP financial measure. Given the nature of our business, the level of profitability in the retail propane, fuel oil, and natural gas and electricity businesses is largely dependent on the difference between retail sales price and product cost. Therefore, we discuss gross margins in order to provide investors and industry analysts with useful information to facilitate their understanding of the impact of the commodity prices on profitability.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits.
| 99.1 | Press Release of Suburban Propane Partners, L.P. dated August 4, 2022, describing the Fiscal 2022 Third Quarter Financial Results. |
|---|---|
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| August 4, 2022 | SUBURBAN PROPANE PARTNERS, L.P. | |
|---|---|---|
| By: | /s/ MICHAEL A. KUGLIN | |
| Name: | Michael A. Kuglin | |
| Title: | Chief Financial Officer & Chief Accounting Officer |
EX-99.1
Exhibit 99.1
| News Release<br><br>Contact: Michael A. Kuglin<br><br>Chief Financial Officer<br><br>& Chief Accounting Officer<br><br>P.O. Box 206, Whippany, NJ 07981-0206<br><br>Phone: 973-503-9252 |
|---|
FOR IMMEDIATE RELEASE
Suburban Propane Partners, L.P.
Announces Third Quarter Results
Whippany, New Jersey, August 4, 2022 -- Suburban Propane Partners, L.P. (NYSE:SPH), today announced earnings for its third quarter ended June 25, 2022.
Consistent with the seasonal nature of its businesses, the Partnership typically experiences a net loss in the third quarter of its fiscal year. Net loss for the third quarter of fiscal 2022 improved to $2.5 million, or $0.04 per Common Unit, compared to a net loss of $26.0 million, or $0.41 per Common Unit, in the fiscal 2021 third quarter. Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA, as defined and reconciled below) increased $5.9 million, or 25.3%, to $29.2 million for the third quarter of fiscal 2022, compared to $23.3 million in the prior year third quarter.
In announcing these results, President and Chief Executive Officer Michael A. Stivala said, “We are very pleased to report another quarter with strong year-over-year operating performance, combined with the announcement of a number of strategic initiatives and further debt reduction. In the face of a very volatile commodity price environment and inflationary conditions impacting many of our operating costs, our operations personnel continued to do an outstanding job safely meeting the needs of our customers, while effectively managing selling prices and expenses to deliver an improvement of nearly $6.0 million in Adjusted EBITDA compared to the prior year third quarter. During the quarter, we used excess cash flows to reduce debt by more than $43.0 million, bringing our total leverage metric down to 3.64x from 3.96x at the end of the prior year third quarter.”
Mr. Stivala continued, “On the strategic front, we continued to advance the buildout of our renewable energy platform in support of the country’s energy transition towards a lower carbon future, while also fostering the growth of our core propane business. Specifically, during the quarter we launched the first commercial sales of Propane+rDME which combines clean, versatile and abundantly available propane with the renewable, low carbon benefits of renewable dimethyl ether (rDME), produced by Oberon Fuels. We also announced further investment in our interconnected portfolio of renewable energy assets through an agreement with Adirondack Farms, in upstate New York, to produce renewable natural gas from dairy cow manure.”
Concluding his remarks, Mr. Stivala stated, “In order to help accelerate the adoption of Propane+rDME, and to explore opportunities to further advance investments in the hydrogen infrastructure in the United States, we announced a collaboration agreement with Iwatani Corporation of America, a wholly owned subsidiary of Iwatani Corporation, Japan’s largest distributor of propane and only fully integrated supplier of hydrogen. Finally, subsequent to the end of the quarter, we completed an acquisition of a well-run propane business in northern New Mexico, which will expand our presence in this growing market, provide synergy opportunities and support our best-in-class propane operations. Consistent with our stated strategy, we continue to utilize excess cash flow in a balanced way to make investments in our long-term strategic growth initiatives, and to further strengthen the balance sheet.”
Retail propane gallons sold in the third quarter of fiscal 2022 of 75.5 million gallons decreased 1.6% compared to the prior year, primarily due to the adverse impact of historically high commodity prices on customer buying habits and demand, partially offset by cooler spring temperatures that contributed to higher heat-related demand in certain markets. In addition, volumes in the prior year third quarter benefitted from incremental outdoor heating and cooking demand associated with continued COVID-19 related government restrictions. Average temperatures (as measured by heating degree days) across
all of the Partnership’s service territories during the third quarter were 4% warmer than normal and 5% colder than the prior year third quarter.
Average propane prices (basis Mont Belvieu, Texas) for the third quarter of fiscal 2022 increased 43.8% compared to the prior year third quarter. Total gross margin for the third quarter of fiscal 2022 was $159.4 million, compared to $155.0 million in the prior year third quarter. Gross margin for the third quarter of fiscal 2022 included a $0.9 million unrealized loss attributable to the mark-to-market adjustment for derivative instruments used in risk management activities, compared to an $11.1 million unrealized gain in the prior year third quarter. These non-cash adjustments, which were reported in cost of products sold, were excluded from Adjusted EBITDA for both periods. Excluding the impact of the non-cash mark-to-market adjustments, total gross margin increased $16.4 million, or 11.4%, compared to the prior year third quarter, primarily due to prudent margin management during a volatile commodity price environment, as well as from the favorable impact of commodity hedges that matured during the period. The Partnership’s hedging and risk management activities are intended to reduce the effect of price volatility associated with forecasted purchases of propane, and propane sold on a fixed price basis. The commodity hedges that matured during the third quarter of fiscal 2022 were principally comprised of net long positions that were favorably impacted from the significant rise in commodity prices.
Combined operating and general and administrative expenses of $130.6 million for the third quarter of fiscal 2022 increased 9.1% compared to the prior year, primarily due to higher payroll and benefit-related expenses, including higher variable compensation expense, higher vehicle lease and fuel costs, higher provisions for doubtful accounts, as well as other inflationary effects on the Partnership’s operating costs.
During the third quarter of fiscal 2022, the Partnership utilized cash flows from operating activities to repay $43.1 million in debt, and make additional investments in Oberon Fuels, Inc. As a result of the debt repayment and the increase in Adjusted EBITDA during the third quarter of fiscal 2022, the Consolidated Leverage Ratio, as defined in the Partnership’s credit agreement, for the trailing twelve-month period ending June 25, 2022 improved to 3.64x.
As previously announced on July 21, 2022, the Partnership’s Board of Supervisors declared a quarterly distribution of $0.325 per Common Unit for the three months ended June 25, 2022. On an annualized basis, this distribution rate equates to $1.30 per Common Unit. The distribution is payable on August 9, 2022 to Common Unitholders of record as of August 2, 2022.
About Suburban Propane Partners, L.P.
Suburban Propane Partners, L.P. (“Suburban Propane”) is a publicly traded master limited partnership listed on the New York Stock Exchange. Headquartered in Whippany, New Jersey, Suburban Propane has been in the customer service business since 1928 and is a nationwide distributor of propane, renewable propane, fuel oil and related products and services, as well as a marketer of natural gas and electricity and an investor in low carbon fuel alternatives, servicing the energy needs of approximately 1 million residential, commercial, governmental, industrial and agricultural customers through approximately 700 locations across 42 states. Suburban Propane is supported by three core pillars: (1) Suburban Commitment – showcasing Suburban Propane’s 90+ year legacy, and ongoing commitment to the highest standards for dependability, flexibility, and reliability that underscores Suburban Propane’s commitment to excellence in customer service; (2) SuburbanCares – highlighting continued dedication to giving back to local communities across Suburban Propane’s national footprint; and (3) Go Green with Suburban Propane – promoting the clean burning and versatile nature of propane and renewable propane as a bridge to a green energy future and developing the next generation of renewable energy. For additional information on Suburban Propane, please visit www.suburbanpropane.com.
Forward-Looking Statements
This press release contains certain forward-looking statements relating to future business expectations and financial condition and results of operations of the Partnership, based on management’s current good faith expectations and beliefs concerning future developments. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those discussed or implied in such forward-looking statements, including the following:
• The impact of weather conditions on the demand for propane, fuel oil and other refined fuels, natural gas and electricity;
• Volatility in the unit cost of propane, fuel oil and other refined fuels, natural gas and electricity, the impact of the Partnership’s hedging and risk management activities, and the adverse impact of price increases on volumes sold as a result of customer conservation;
• The impact of the COVID-19 pandemic and the corresponding government response, including the impact across the Partnership’s businesses on demand and operations, as well as on the operations of the Partnership’s suppliers, customers and other business partners, and the effectiveness of the Partnership’s actions taken in response to these risks;
• The ability of the Partnership to compete with other suppliers of propane, fuel oil and other energy sources;
• The impact on the price and supply of propane, fuel oil and other refined fuels from the political, military or economic instability of the oil producing nations, including the Russia/Ukraine conflict, global terrorism and other general economic conditions, including the economic instability resulting from natural disasters such as pandemics, including the COVID-19 pandemic;
• The ability of the Partnership to acquire sufficient volumes of, and the costs to the Partnership of acquiring, transporting and storing, propane, fuel oil and other refined fuels;
• The ability of the Partnership to acquire and maintain reliable transportation for its propane, fuel oil and other refined fuels;
• The ability of the Partnership to attract and retain employees and key personnel to support the growth of our business;
• The ability of the Partnership to retain customers or acquire new customers;
• The impact of customer conservation, energy efficiency and technology advances on the demand for propane, fuel oil and other refined fuels, natural gas and electricity;
• The ability of management to continue to control expenses and manage inflationary increases in fuel, labor and other operating costs;
• The impact of changes in applicable statutes and government regulations, or their interpretations, including those relating to the environment and climate change, derivative instruments and other regulatory developments on the Partnership’s business;
• The impact of changes in tax laws that could adversely affect the tax treatment of the Partnership for income tax purposes;
• The impact of legal proceedings on the Partnership’s business;
• The impact of operating hazards that could adversely affect the Partnership’s operating results to the extent not covered by insurance;
• The Partnership’s ability to make strategic acquisitions and successfully integrate them;
• The ability of the Partnership and any third-party service providers on which it may rely for support or services to continue to combat cybersecurity threats to its networks and information technology;
• The impact of current conditions in the global capital and credit markets, and general economic pressures;
• The operating, legal and regulatory risks the Partnership may face; and
• Other risks referenced from time to time in filings with the Securities and Exchange Commission (“SEC”) and those factors listed or incorporated by reference into the Partnership’s Annual Report under “Risk Factors.”
Some of these risks and uncertainties are discussed in more detail in the Partnership’s Annual Report on Form 10-K for its fiscal year ended September 25, 2021 and other periodic reports filed with the SEC. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management’s view only as of the date made. The Partnership undertakes no obligation to update any forward-looking statement, except as otherwise required by law.
#
(more)
Suburban Propane Partners, L.P. and Subsidiaries
Consolidated Statements of Operations
For the Three and Nine Months Ended June 25, 2022 and June 26, 2021
(in thousands, except per unit amounts)
(unaudited)
| Three Months Ended | Nine Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| June 25, 2022 | June 26, 2021 | June 25, 2022 | June 26, 2021 | |||||||
| Revenues | ||||||||||
| Propane | $ | 260,634 | $ | 208,689 | $ | 1,108,572 | $ | 958,641 | ||
| Fuel oil and refined fuels | 19,274 | 11,314 | 83,741 | 59,075 | ||||||
| Natural gas and electricity | 7,547 | 5,835 | 31,165 | 23,461 | ||||||
| All other | 12,877 | 12,247 | 40,356 | 39,337 | ||||||
| 300,332 | 238,085 | 1,263,834 | 1,080,514 | |||||||
| Costs and expenses | ||||||||||
| Cost of products sold | 140,930 | 83,056 | 576,299 | 418,002 | ||||||
| Operating | 109,081 | 102,016 | 334,229 | 309,183 | ||||||
| General and administrative | 21,541 | 17,756 | 64,962 | 57,866 | ||||||
| Depreciation and amortization | 14,009 | 27,254 | 44,356 | 82,617 | ||||||
| 285,561 | 230,082 | 1,019,846 | 867,668 | |||||||
| Operating income | 14,771 | 8,003 | 243,988 | 212,846 | ||||||
| Loss on debt extinguishment | — | 16,029 | — | 16,029 | ||||||
| Interest expense, net | 15,004 | 16,737 | 45,557 | 52,964 | ||||||
| Other, net | 2,031 | 1,085 | 4,395 | 3,745 | ||||||
| (Loss) income before provision for income taxes | (2,264 | ) | (25,848 | ) | 194,036 | 140,108 | ||||
| Provision for income taxes | 271 | 173 | 171 | 936 | ||||||
| Net (loss) income | $ | (2,535 | ) | $ | (26,021 | ) | $ | 193,865 | $ | 139,172 |
| Net (loss) income per Common Unit - basic | $ | (0.04 | ) | $ | (0.41 | ) | $ | 3.07 | $ | 2.22 |
| Weighted average number of Common Units<br>outstanding - basic | 63,284 | 62,755 | 63,200 | 62,685 | ||||||
| Net (loss) income per Common Unit - diluted | $ | (0.04 | ) | $ | (0.41 | ) | $ | 3.04 | $ | 2.20 |
| Weighted average number of Common Units<br>outstanding - diluted | 63,284 | 62,755 | 63,833 | 63,150 | ||||||
| Supplemental Information: | ||||||||||
| EBITDA (a) | $ | 26,749 | $ | 18,143 | $ | 283,949 | $ | 275,689 | ||
| Adjusted EBITDA (a) | $ | 29,181 | $ | 23,291 | $ | 288,227 | $ | 275,350 | ||
| Retail gallons sold: | ||||||||||
| Propane | 75,510 | 76,702 | 339,954 | 357,443 | ||||||
| Refined fuels | 3,629 | 3,854 | 20,478 | 21,301 | ||||||
| Capital expenditures: | ||||||||||
| Maintenance | $ | 5,701 | $ | 3,858 | $ | 15,459 | $ | 10,463 | ||
| Growth | $ | 5,284 | $ | 3,630 | $ | 17,845 | $ | 11,296 |
(more)
(a) EBITDA represents net income before deducting interest expense, income taxes, depreciation and amortization. Adjusted EBITDA represents EBITDA excluding the unrealized net gain or loss on mark-to-market activity for derivative instruments and other items, as applicable, as provided in the table below. Our management uses EBITDA and Adjusted EBITDA as supplemental measures of operating performance and we are including them because we believe that they provide our investors and industry analysts with additional information that we determined is useful to evaluate our operating results.
EBITDA and Adjusted EBITDA are not recognized terms under accounting principles generally accepted in the United States of America (“US GAAP”) and should not be considered as an alternative to net income or net cash provided by operating activities determined in accordance with US GAAP. Because EBITDA and Adjusted EBITDA as determined by us excludes some, but not all, items that affect net income, they may not be comparable to EBITDA and Adjusted EBITDA or similarly titled measures used by other companies.
The following table sets forth our calculations of EBITDA and Adjusted EBITDA:
| Three Months Ended | Nine Months Ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| June 25, 2022 | June 26, 2021 | June 25, 2022 | June 26, 2021 | ||||||||
| Net (loss) income | $ | (2,535 | ) | $ | (26,021 | ) | $ | 193,865 | $ | 139,172 | |
| Add: | |||||||||||
| Provision for income taxes | 271 | 173 | 171 | 936 | |||||||
| Interest expense, net | 15,004 | 16,737 | 45,557 | 52,964 | |||||||
| Depreciation and amortization | 14,009 | 27,254 | 44,356 | 82,617 | |||||||
| EBITDA | 26,749 | 18,143 | 283,949 | 275,689 | |||||||
| Unrealized non-cash losses (gains) on changes in fair value of derivatives | 921 | (11,139 | ) | 1,442 | (17,632 | ) | |||||
| Pension settlement charge | 634 | 142 | 634 | 712 | |||||||
| Equity in earnings of unconsolidated affiliates | 877 | 116 | 2,202 | 552 | |||||||
| Loss on debt extinguishment | — | 16,029 | — | 16,029 | |||||||
| Adjusted EBITDA | $ | 29,181 | $ | 23,291 | $ | 288,227 | $ | 275,350 |
We also reference gross margins, computed as revenues less cost of products sold as those amounts are reported on the condensed consolidated financial statements. Our management uses gross margin as a supplemental measure of operating performance and we are including it as we believe that it provides our investors and industry analysts with additional information that we determined is useful to evaluate our operating results. As cost of products sold does not include depreciation and amortization expense, the gross margin we reference is considered a non-GAAP financial measure.
The unaudited financial information included in this document is intended only as a summary provided for your convenience, and should be read in conjunction with the complete consolidated financial statements of the Partnership (including the Notes thereto, which set forth important information) contained in its Quarterly Report on Form 10-Q to be filed by the Partnership with the SEC. Such report, once filed, will be available on the public EDGAR electronic filing system maintained by the SEC.