Suburban Propane(SPH) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) This section presents the unaudited condensed consolidated financial statements for the quarter ended December 25, 2021, showing a decrease in net income to $21.3 million from $38.0 million year-over-year despite a 23% revenue increase Condensed Consolidated Financial Statements The financial statements indicate total assets increased to $2.10 billion, with revenues rising to $375.4 million, while net income decreased to $21.3 million, and operating cash flow shifted to a $13.3 million outflow Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 25, 2021 | Sep 25, 2021 | | :--- | :--- | :--- | | Total current assets | $223,378 | $180,108 | | Goodwill | $1,107,026 | $1,107,026 | | Total assets | $2,096,926 | $2,051,730 | | Total current liabilities | $279,128 | $287,146 | | Long-term borrowings | $1,162,842 | $1,118,014 | | Total liabilities | $1,669,578 | $1,626,309 | | Total partners' capital | $427,348 | $425,421 | Condensed Consolidated Statement of Operations (in thousands) | | Three Months Ended | | | :--- | :--- | :--- | | | Dec 25, 2021 | Dec 26, 2020 | | Revenues | $375,407 | $305,191 | | Cost of products sold | $196,338 | $103,379 | | Operating income | $37,256 | $57,686 | | Net income | $21,298 | $37,977 | | Net income per Common Unit - basic | $0.34 | $0.61 | Condensed Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended Dec 25, 2021 | Three Months Ended Dec 26, 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(13,335) | $4,234 | | Net cash used in investing activities | $(10,371) | $(11,214) | | Net cash provided by financing activities | $21,426 | $9,153 | | Net (decrease) increase in cash | $(2,280) | $2,173 | Notes to Condensed Consolidated Financial Statements These notes detail accounting policies, revenue disaggregation showing residential customers as the largest source, a 39% equity stake in Oberon Fuels, Inc., and $1.16 billion in long-term debt, with the Propane segment generating 88% of revenue - The Partnership primarily engages in retail marketing and distribution of propane, fuel oil, and other fuels, with the Propane segment generating approximately 88% of total revenue[23][39] Revenue by Customer Type (in thousands) | Customer Type | Three Months Ended Dec 25, 2021 | Three Months Ended Dec 26, 2020 | | :--- | :--- | :--- | | Residential | $198,005 | $174,711 | | Commercial | $110,952 | $79,440 | | Industrial | $34,194 | $25,795 | | Agricultural | $13,803 | $11,138 | | Total Revenues | $375,407 | $305,191 | - The Partnership holds a 39% equity stake in Oberon Fuels, Inc., a renewable dimethyl ether (rDME) producer, supporting its 'Go Green' initiative[41] Long-Term Borrowings (in thousands) | Debt Instrument | Dec 25, 2021 | Sep 25, 2021 | | :--- | :--- | :--- | | 5.875% senior notes due 2027 | $350,000 | $350,000 | | 5.0% senior notes due 2031 | $650,000 | $650,000 | | Revolving Credit Facility | $176,400 | $132,000 | | Total (before issuance costs) | $1,176,400 | $1,132,000 | - A quarterly distribution of $0.325 per Common Unit for Q1 FY2022 was announced on January 20, 2022[77] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses performance drivers including COVID-19, volatile product costs, seasonality, and weather, noting a 43.9% decrease in net income to $21.3 million despite a 23% revenue increase, while Adjusted EBITDA grew 8.1% to $86.5 million Executive Overview and Key Factors Key factors influencing the business include the ongoing COVID-19 pandemic, volatile product costs, high seasonality with most sales in winter, and significant impact from weather conditions, particularly warmer temperatures - The COVID-19 pandemic caused lower commercial revenues, partially offset by increased residential usage, requiring operational adaptation to shifting demand[103] - Profitability relies heavily on the spread between retail prices and volatile product acquisition costs, with average propane prices 118.5% higher in Q1 2022 year-over-year[104][108] - The business is highly seasonal, with approximately two-thirds of retail propane volume sold during the peak heating season from October to March[109] - Weather significantly impacts demand, with Q1 2022 average temperatures 16% warmer than normal and 3% warmer than the prior year, negatively affecting sales volumes[110][116] Results of Operations Total revenues increased 23.0% to $375.4 million in Q1 2022 due to higher selling prices, despite a 5.7% decrease in retail propane volumes, while cost of products sold surged 89.9% and operating income fell to $37.3 million Key Performance Indicators | Metric | Q1 FY2022 | Q1 FY2021 | Change | | :--- | :--- | :--- | :--- | | Net Income | $21.3M | $38.0M | (43.9)% | | Adjusted EBITDA | $86.5M | $80.0M | +8.1% | | Retail Propane Gallons Sold | 105.3M | 111.7M | (5.7)% | Revenues by Segment (in thousands) | Segment | Q1 FY2022 | Q1 FY2021 | % Change | | :--- | :--- | :--- | :--- | | Propane | $331,117 | $268,624 | +23.3% | | Fuel oil and refined fuels | $20,966 | $15,750 | +33.1% | | Natural gas and electricity | $9,223 | $6,876 | +34.1% | | Total revenues | $375,407 | $305,191 | +23.0% | - Cost of products sold increased 89.9% year-over-year, primarily due to higher wholesale commodity prices and a $33.5 million unrealized non-cash loss from derivative mark-to-market adjustments[130][132] - Operating expenses rose 7.9% to $105.7 million and G&A expenses increased 9.2% to $19.8 million, driven by higher payroll, vehicle costs, and general inflation[137][139] - Depreciation and amortization expense decreased 41.9% to $16.3 million, primarily due to the conclusion of amortization for certain intangible assets from prior acquisitions[140] Liquidity and Capital Resources Net cash used in operating activities was $13.3 million, a shift from prior-year cash provided, while investing activities used $10.4 million, and financing activities provided $21.4 million, leaving $274.7 million in revolving facility borrowing capacity - Net cash used in operating activities totaled $13.3 million, a decrease from $4.2 million provided in the prior-year period, due to higher variable compensation and increased working capital[144] - Capital expenditures for the quarter amounted to $10.7 million, comprising $6.3 million for growth and $4.4 million for maintenance[145] - As of December 25, 2021, long-term debt included $1.0 billion in senior notes and $176.4 million outstanding on the revolving credit facility[149] - A quarterly distribution of $0.325 per Common Unit was announced, payable on February 8, 2022[153] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Partnership faces market risks from commodity price fluctuations, credit risk, and interest rate changes, managing commodity risk with derivatives, where a 10% adverse price change would decrease potential future net gains by $7.8 million - The company utilizes derivative instruments, including futures, options, and swaps, to manage price risk for propane and fuel oil physical inventory and fixed-price sales contracts[159] - The Partnership is exposed to interest rate risk on variable-rate borrowings under its Revolving Credit Facility, which are tied to LIBOR plus an applicable margin[162] - A sensitivity analysis indicates a hypothetical 10% adverse change in commodity prices would decrease potential future net gains on open derivative positions by $7.8 million as of December 25, 2021[165] ITEM 4. CONTROLS AND PROCEDURES Management concluded that the Partnership's disclosure controls and procedures were effective as of December 25, 2021, with no material changes to internal control over financial reporting during the quarter - The Partnership's principal executive and financial officers concluded that disclosure controls and procedures were effective as of the period end[168] - No material changes in internal control over financial reporting occurred during the quarter[169] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The company reported no new material legal proceedings for the period - No material legal proceedings were reported[171] ITEM 1A. RISK FACTORS No new risk factors are disclosed in this report, with reference made to those discussed in the Annual Report on Form 10-K for the fiscal year ended September 25, 2021 - The report refers to the Risk Factors section in the Partnership's Annual Report on Form 10-K for the fiscal year ended September 25, 2021[172] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS During the quarter, 133,836 Common Units were withheld at an average price of $15.31 per unit from executive officers to satisfy income tax withholding obligations upon restricted unit vesting Common Units Withheld for Tax Purposes | Period | Units Purchased (Withheld) | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 24 - Nov 20, 2021 | 133,836 | $15.31 | | Total | 133,836 | $15.31 | ITEM 5. OTHER INFORMATION On February 2, 2022, the Partnership amended its 2021 Long-Term Incentive Plan to adjust the vesting percentage of unvested phantom units based on performance measures - The Partnership adopted an amendment to the 2021 Long-Term Incentive Plan on February 2, 2022, adjusting performance-based vesting criteria[176] ITEM 6. EXHIBITS This section lists exhibits filed with the quarterly report, including the amended 2021 Long-Term Incentive Plan and Sarbanes-Oxley Act certifications by the CEO and CFO - Key exhibits filed include the Amended 2021 Long-Term Incentive Plan (Exhibit 10.1) and Sarbanes-Oxley Act Section 302 and 906 Certifications (Exhibits 31.1, 31.2, 32.1, 32.2)[180]