Suburban Propane(SPH) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Suburban Propane Partners, L.P., including balance sheets, statements of operations, cash flows, and partners' capital, along with detailed accounting notes Condensed Consolidated Balance Sheets Total assets increased to $2.40 billion as of March 29, 2025, driven by accounts receivable and property, plant, and equipment, while total liabilities remained stable and partners' capital grew to $671.8 million Condensed Consolidated Balance Sheets (in thousands) | | March 29, 2025 | September 28, 2024 | | :--- | :--- | :--- | | Total current assets | $250,093 | $157,544 | | Total assets | $2,399,899 | $2,272,761 | | Total current liabilities | $235,661 | $306,122 | | Long-term borrowings | $1,293,529 | $1,210,326 | | Total liabilities | $1,728,090 | $1,725,701 | | Total partners' capital | $671,809 | $547,060 | Condensed Consolidated Statements of Operations Net income for the three months ended March 29, 2025, increased to $137.1 million, and for the six-month period, it rose to $156.5 million, primarily due to higher revenues in the propane segment Three Months Ended Financial Highlights (in thousands, except per unit) | Metric | March 29, 2025 | March 30, 2024 | | :--- | :--- | :--- | | Total Revenues | $587,663 | $498,087 | | Operating Income | $158,413 | $136,860 | | Net Income | $137,121 | $111,500 | | Net Income per Common Unit - basic | $2.11 | $1.73 | Six Months Ended Financial Highlights (in thousands, except per unit) | Metric | March 29, 2025 | March 30, 2024 | | :--- | :--- | :--- | | Total Revenues | $960,992 | $863,921 | | Operating Income | $217,475 | $185,608 | | Net Income | $156,541 | $135,954 | | Net Income per Common Unit - basic | $2.42 | $2.12 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities decreased to $48.9 million for the six months ended March 29, 2025, while net cash used in investing activities significantly increased to $97.1 million, and financing activities provided $45.1 million Six Months Ended Cash Flow Summary (in thousands) | Cash Flow Activity | March 29, 2025 | March 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $48,884 | $62,374 | | Net cash (used in) investing activities | ($97,126) | ($30,734) | | Net cash provided by (used in) financing activities | $45,122 | ($26,538) | | Net (decrease) increase in cash | ($3,120) | $5,102 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, including business organization, revenue recognition, and debt structure, highlighting impairment charges on investments, an at-the-market equity offering, and the resolution of a Green Bonds covenant issue - The Partnership's primary business involves the retail marketing and distribution of propane, renewable propane, fuel oil, and other fuels, alongside growing renewable energy investments[36][38] - During the first quarter of fiscal 2025, the Partnership recorded other-than-temporary impairment charges of $10.2 million on its investment in Oberon and $9.6 million on its investment in Independence Hydrogen (IH)[65][67] - On February 20, 2025, the Partnership initiated an at-the-market (ATM) public offering to sell up to $100 million of Common Units, issuing 442,425 units for net proceeds of $8.8 million during the quarter[131][133] - Subsequent to the quarter end, on May 2, 2025, the Operating Partnership guaranteed the Green Bonds, and the indenture was amended to eliminate the debt service coverage ratio covenant, resolving a prior non-compliance issue[143] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses key performance drivers, including product costs, seasonality, and inflation, reporting a 19.1% increase in Adjusted EBITDA to $175.0 million for Q2 FY2025, driven by higher propane volumes, and an improved leverage ratio of 4.54x - Key business drivers include product cost volatility, seasonality (with two-thirds of propane volume sold from October to March), weather conditions, and inflationary pressures on operating costs[146][150][154] Q2 FY2025 Performance Highlights | Metric | Q2 FY2025 | Change vs. Q2 FY2024 | | :--- | :--- | :--- | | Net Income | $137.1 million | +$25.6 million | | Adjusted EBITDA | $175.0 million | +19.1% | | Retail Propane Gallons Sold | 162.0 million | +15.5% | | Average Temperatures | 9% cooler | vs. prior year | - The Consolidated Leverage Ratio improved to 4.54x as of March 29, 2025, down from 4.76x at the end of fiscal 2024[162][219] Results of Operations - Three Months Ended March 29, 2025 vs. March 30, 2024 Total revenues for Q2 FY2025 increased 18.0% to $587.7 million, primarily due to a 20.0% rise in propane revenue driven by a 15.5% increase in volumes and higher selling prices, while operating and G&A expenses also rose Q2 Revenue and Volume Changes by Segment | Segment | Revenue Change | Volume Change | | :--- | :--- | :--- | | Propane | +20.0% | +15.5% | | Fuel oil and refined fuels | +5.6% | +11.0% | | Natural gas and electricity | +3.6% | N/A | | All other | -1.0% | N/A | - The increase in propane revenue was driven by a 21.8 million gallon (15.5%) increase in retail volumes sold and a 2.7% increase in average selling prices[168] - Cost of products sold increased 27.5%, faster than revenue, partly due to a smaller unrealized gain from derivative mark-to-market adjustments ($0.7 million in Q2'25 vs. $5.9 million in Q2'24)[160][172] Results of Operations - Six Months Ended March 29, 2025 vs. March 30, 2024 Total revenues for the first six months of fiscal 2025 grew 11.2% to $961.0 million, with propane revenue up 13.9% due to higher volumes and prices, though partially offset by a 7.0% decline in 'All other' revenue and a significant increase in 'Other, net' expense due to impairment charges H1 Revenue and Volume Changes by Segment | Segment | Revenue Change | Volume Change | | :--- | :--- | :--- | | Propane | +13.9% | +8.5% | | Fuel oil and refined fuels | -8.1% | -1.0% | | Natural gas and electricity | -0.8% | N/A | | All other | -7.0% | N/A | - The net change in fair value of derivatives resulted in a $4.4 million unrealized gain in H1 FY2025, compared to a $4.9 million unrealized loss in H1 FY2024, a positive swing of $9.3 million for cost of products sold[197] - 'Other, net' expense increased by $9.1 million, primarily due to $19.8 million in combined impairment charges for investments in Oberon and IH recorded in the first quarter[207] Liquidity and Capital Resources Net cash from operations for H1 FY2025 was $48.9 million, while investing activities used $97.1 million for capital expenditures and acquisitions, and financing activities provided $45.1 million from net borrowings and an ATM equity offering, with total debt at $1.31 billion - Cash from operations decreased to $48.9 million from $62.4 million in the prior year, mainly due to a larger increase in working capital[210] - Investing activities included $50.0 million for propane business acquisitions and $30.5 million for growth-related capital expenditures[211] - The Partnership announced a quarterly distribution of $0.325 per Common Unit, or $1.30 annualized[227] Item 3. Quantitative and Qualitative Disclosures About Market Risk The Partnership is exposed to market risks from commodity price fluctuations, interest rate changes, and counterparty credit, managing commodity risk through hedging with derivatives, and a sensitivity analysis indicates a hypothetical 10% adverse change in commodity prices would result in a potential $1.0 million net loss on open derivative positions - The primary market risk is commodity price volatility for propane and fuel oil, managed through hedging with derivative instruments[231][233] - Interest rate risk applies to borrowings under the revolving credit facility, which are based on SOFR plus a margin[236] - A sensitivity analysis showed that a hypothetical 10% adverse change in market prices would lead to a potential $1.0 million net loss on open derivative positions[238] Item 4. Controls and Procedures Management concluded that the Partnership's disclosure controls and procedures were effective as of March 29, 2025, with no material changes in internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of the end of the period[240] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[241] PART II. OTHER INFORMATION Item 1. Legal Proceedings The Partnership reported no material legal proceedings during the period - None[244] Item 1A. Risk Factors This section updates risk factors, highlighting those associated with significant debt obligations and renewable fuel investments, including a resolved Green Bonds covenant issue and impairment charges on Oberon and IH investments - The company faces risks from its significant debt load ($1.3 billion), which could limit financial flexibility and distributions, with covenants in debt agreements restricting certain activities[245] - A previous event of default under the Green Bonds due to non-compliance with the debt service coverage ratio was cured through waivers and a subsequent amendment to the indenture that eliminated the covenant[246][247] - Investments in renewable fuels (like rDME and hydrogen) are subject to significant risks, including market adoption, partner financial stability, and regulatory changes, underscored by the Q1 FY2025 impairment charges of $10.2 million for Oberon and $9.6 million for IH[250] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Partnership reported no unregistered sales of equity securities during the period - None[255] Item 5. Other Information No supervisors or executive officers adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the fiscal quarter ended March 29, 2025 - No new or terminated Rule 10b5-1 trading arrangements or other trading arrangements were reported for supervisors and executive officers during the quarter[258] Item 6. Exhibits This section lists the exhibits filed with the quarterly report, including the Equity Distribution Agreement and certifications from the CEO and CFO as required by the Sarbanes-Oxley Act - Filed exhibits include the Equity Distribution Agreement (10.1), CEO and CFO certifications (31.1, 31.2, 32.1, 32.2), and XBRL data files[262]