Suburban Propane Partners L P 2026 Q3 Earnings Call

Good morning. Thank you for joining us for our fiscal 2026 third quarter earnings conference call. I'm here with Mike Stivala, our President and Chief Executive Officer; Mike Kuglin, Chief Financial Officer; and Alex Centeno, Senior Vice President of Operations. This morning, we will review our third quarter results, along with our current outlook for the business. Once we've concluded our prepared remarks, we will open the session to questions. Our conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, related to the partnership's future business expectations and predictions, financial condition, and results of operations. These forward-looking statements involve certain risks and uncertainties.

We have 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 our earnings press release, which can be viewed on our website at suburbanpropane.com. 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. Our Form 10-Q for the quarter period ending June 27th, 2026, which will be filed by the end of business today, contains additional disclosures 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 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 will be available through a link in the investor relations section of our website. At this time, I will turn the call over to Mike Stivala for some opening remarks.

Mike? Thanks, Davin. Good morning.

Thank you all for joining us today. Following a solid first half, we experienced sustained cold weather in the eastern half of the U.S. and extremely warm weather in the west. The third quarter started out slow. Near record warm temperatures across our footprint during the shoulder month of April reduced heat-related demand, while residential customer tank levels entering the third quarter were elevated through the timing of deliveries in the second quarter, when demand was particularly strong. Despite the slow start, volumes for the quarter benefited from continued growth in our counter-seasonal customer base, which substantially offset the impact of warmer weather as volumes in both May and June exceeded prior year levels.

As always, our operating personnel did an outstanding job delivering exceptional customer service to our customers, managing selling prices in a rising and volatile commodity price environment, maintaining discipline over operating costs. In our renewable natural gas operations, average daily RNG injection for the third quarter was essentially flat compared to the prior year, as increases in manure-based D3 injections were offset by lower food waste D5 injections. Revenues from RNG injection benefited from higher prices for environmental attributes, including a 31% year-over-year increase in California LCFS credit prices and an 8% year-over-year increase in D3 RIN prices. Subsequent to the end of the third quarter, we placed our new anaerobic digester facility in Upstate New York into service, which is expected to add approximately 100,000 MMBtus of annual D3 RNG injection.

Following the completion of our RNG upgrade project at our Columbus, Ohio, biogas facility, we expect to be injecting pipeline quality RNG from that facility during the fourth quarter, which is expected to add another nearly 200,000 MMBtus of annual D5 RNG injection. As a result, we will enter fiscal year 2027 with all three of our RNG facilities operational and an anticipated level of annual injection in the range of 750,000 to 800,000 MMBtus. We are also focused on opportunities for organic growth and production through continued capacity optimization and increased feedstock intake. During the quarter, we also recognized a benefit of $1.1 million from production tax credits earned under Section 45Z of the Inflation Reduction Act for D3 injections at our Stanfield, Arizona, facility.

The facility's significant negative carbon intensity score of approximately negative 380, together with compliance with the prevailing wage and apprenticeship requirements, allows us to maximize the available credit value under the regulations. With the facility in Upstate New York now online, we expect to earn additional PTCs from RNG injection at that facility in addition to investment tax credits on the capital deployed for construction of the facility. With the New York facility now online and our Ohio facility soon to be online, we will have completed the major capital investments for our existing RNG facilities. As we have stated on a number of occasions, since owning this portfolio of assets, we have been focused on stabilizing production at our Arizona facility, where we had some operational challenges in the early years of ownership.

Driving operational excellence across the platform, improving plant design to increase the conversion of feedstock to RNG, deploying capital for the new facility in New York and the upgrade equipment in Ohio, and building the team to support the long-term growth of the platform. These initiatives were undertaken during a period when our environmental credit prices were significantly depressed. With California LCFS credits declining into the low $40 range due to the buildup of excess credits in the market. As we get ready to enter fiscal 2027 with all three facilities online, we are encouraged to see credit prices continuing to improve following regulatory actions taken in California that are driving more aggressive emissions targets and helping to rebalance the market. We believe this improving price environment presents a good tailwind for revenue enhancement in our RNG platform.

With all of these set efforts over the past three-plus years, we have also maintained our focus on strengthening the balance sheet and allocating capital in a disciplined manner. Following the strong first-half performance, cash flow generation in the fiscal third quarter benefited from the seasonal collection of receivables. During the quarter, we used excess cash flows, supplemented by proceeds from the issuance of common units under our ATM equity sales program to reduce debt by more than $36 million. However, at this point, I'll turn the call over to Mike Kuglin to discuss the third quarter results in more detail.

Mike? Thanks, Mike, and good morning, everyone.

To be consistent with previous reporting, I discuss our third quarter results and excluding the impact, both unrealized mark-to-market adjustments on our commodity hedges, which resulted in unrealized gain of $700,000 in the third quarter for fiscal 2026, compared with unrealized loss, $2.9 million in the prior year third quarter, along with certain other non-cash items. Given the seasonal nature of our business, we typically experience the net loss in the third quarter of our fiscal year. With that said, adjusted net loss for the third quarter was $17.7 million, or $0.27 per common unit, compared to adjusted net loss of $10.8 million or $0.17 per common unit in the prior year. Adjusted EBITDA for the third quarter was $18 million, compared to $27 million in the prior year.

Retail propane gallons sold in the third quarter were 70.6 million gallons, a decrease of 1.8% compared to the prior year, primarily due to the impact of seasonally warm weather in April on heat-related demand, which was substantially offset with customer base growth in our agricultural, industrial, and national accounts customer segments. With respect to the weather, average temperatures across our service territories during the third quarter were 17% warmer than normal and 3% warmer than the prior year third quarter. For the month of April, average temperatures were 24% warmer than normal and 11% warmer than April 2025, and ranked as the second warmest April on record. From a commodity perspective, U.S. propane inventories remained strong during the quarter, with June 2026 inventory levels approximately 21% above both June 2025 and historical averages for this time of year.