Suburban Propane Partners Fiscal 2026 Q4 Earnings Call - RNG Platform Scales as 45Z Credits and LCFS Recovery Lift Earnings, Distribution Raised 7.7%

Audra, Conference Call Moderator, Suburban Propane Partners: Good morning, and welcome everyone to the Suburban Propane Partners Fourth Quarter and Fiscal Year-End Earnings Conference Call. Today’s conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press the star key followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I would like to turn the conference over to Davin D’Ambrosio, Vice President and Treasurer. Please go ahead.

Davin D’Ambrosio, Vice President and Treasurer, Suburban Propane Partners: Thank you, Audra. Good morning, everyone. Thank you for joining us this morning for our fiscal 2026 fourth quarter and full-year earnings conference call. I’m here with Mike Stivala, our President and Chief Executive Officer, Mike Kuglin, Chief Financial Officer, Alex Centeno, our Senior Vice President of our Propane Operations, and Doug Dagan, our Senior Vice President of our Renewable Energy Business. This morning, we will review our fiscal 2026 fourth quarter and full-year financial results, along with the current outlook for our 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, relating to the partnership’s future business expectations and predictions, and financial condition and results of operations. These forward-looking statements involve certain risks and uncertainties.

We’ve 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 reviewed 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 annual report on Form 10-K for the fiscal year ended September 26, 2026, which contains additional disclosure regarding forward-looking statements and risk factors, will be filed on or about November 25. Once filed, copies may be obtained by contacting the partnership or the SEC.

Certain non-GAAP measures we discuss 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’ll turn the call over to Mike Stivala for some opening remarks. Mike.

Mike Stivala, President and Chief Executive Officer, Suburban Propane Partners: Thanks, Davin, and thank you all for joining us this morning. Let me start by acknowledging that yesterday was Veterans Day, and I want to thank all of our amazing veterans for their sacrifices and protection of our freedoms, including the many Suburban Propane veterans and their families. Fiscal 2026 was another outstanding year for Suburban Propane, with solid results in our propane operations, meaningful progress in scaling our renewable natural gas, or RNG platform, including favorable regulatory developments that have enhanced and are expected to continue to enhance the earnings profile of that business, as well as continued progress in further strengthening the balance sheet.

In our propane operations, the fiscal 2026 heating season presented some of the most sustained cold temperatures and several winter storms across the eastern half of the U.S., resulting in strong heat-related demand, which was partially offset by record warm temperatures in the West and near-record warm temperatures in April. In addition, continued growth in our counter-seasonal customer base helped mitigate the impact of warmer weather during the shoulder months. Our operating personnel were well-prepared to safely and efficiently respond to the surge in demand when and where it came, as well as effectively managing selling prices and expenses amid volatility in commodity and cost environments. I’m extremely proud of how our teams performed throughout the year while maintaining their focus on our customer base growth and retention initiatives. In our RNG business, we made solid progress across the platform during fiscal 2026.

At our Stanfield, Arizona facility, the capital investments and operational enhancements we have made over the past several years are resulting in more stable and reliable production, increased facility uptime, and opportunities to organically increase RNG production from our existing feedstock sources. We also completed our capital investment projects for the new anaerobic digester facility in Upstate New York, which was placed into service in July 2026, and the installation of gas upgrading equipment at our existing anaerobic digester facility in Columbus, Ohio, which is just awaiting final commissioning of the injection site by the local utility. For fiscal 2026, total RNG injection increased 13% compared to the prior year. In addition, pricing in the California LCFS market continued to rise as the year progressed, from the mid-$50 range at the beginning to closer to $90 at the end of fiscal 2026.

In September 2026, the Department of Energy issued updated guidance on the calculation of carbon intensity for manure-based RNG, as well as a pathway for food waste feedstocks, which favorably impact the amount of eligible production tax credits, or PTCs, to be earned at each of our facilities under Section 45Z of the Inflation Reduction Act. As a result, we recognized $12.4 million of benefits from PTCs related to our RNG injections and generated $11.3 million of investment tax credits associated with qualifying expenditures from the construction of our Upstate New York facility. Approximately $3 million of these tax credits, which related to calendar year 2025, were monetized during fiscal 2026, and we expect to monetize the remainder during fiscal 2027.

With these projects substantially complete, we are well-positioned to continue growing our RNG platform through higher production, capacity optimization, and increased feedstock intake, as well as a favorable regulatory framework. As a result of the solid performance in both segments of the business, Adjusted EBITDA for fiscal 2026 increased $6 million, or 2.2%, compared to the prior year. In addition to the improved earnings, we continued to advance our long-term strategic growth initiatives and had a number of notable achievements to highlight. We acquired and integrated two well-run propane businesses in strategic markets in California for a total consideration of $24 million. Subsequent to the end of fiscal 2026, we acquired another high-quality business in Florida for a total consideration of approximately $6 million. We continued to identify and foster new market expansions throughout our footprint to establish or extend our presence and grow market share.

We have also expanded our business development team to drive growth in specific counter-seasonal customer verticals, such as auto gas, agriculture, power generation, and materials handling. The team has done an excellent job identifying new business opportunities and driving growth in these market segments. We expanded the sales of renewable propane in the transportation and forklift markets to meet customer demand for an even lower carbon intensity alternative to traditional propane, with 2.7 million gallons sold in fiscal 2026. We made significant progress in the second year of our multi-year partnership with NASCAR and Speedway Motorsports, where Suburban Propane is the official propane of NASCAR and Speedway Motorsports.

By expanding B2B connections for new business development opportunities, increasing brand awareness with fan engagement, and a partnership with Ross Chastain, one of the most popular NASCAR drivers on the circuit and eighth-generation watermelon farmer, to serve as a brand ambassador to expand our agricultural base. Our two new RNG facilities, once they reach full run rate capacity, are expected to add approximately 300,000 MMBtus of annual RNG production, reflecting the capital investments we have made in building out our platform. We made good progress advancing our multi-year technology modernization initiative that will simplify the way we operate, consolidate our systems platform, and improve the tools we use to serve our customers, delivering a better experience for both our employees and our customers while maintaining our personalized local service model.

Focusing on our balance sheet, we successfully completed the refinancing of our $350 million of 5 and 7/8 senior notes due in March 2027, with the issuance of $350 million of 6.5% senior notes due in December 2035, effectively extending the maturity of this tranche of debt by nearly nine years. We raised $23.5 million in net proceeds from the sale of 1.3 million common units under our ATM equity program to support our strategic growth initiatives, and we reduced total debt by more than $25 million, which, combined with the increased earnings, improved our net debt to Adjusted EBITDA metric to 4.13 times at the end of fiscal 2026.

With the capital spending on growth projects in our RNG business substantially behind us, continued progress in strengthening our financial position, and our confidence in the long-term outlook for the business, we were pleased to increase our annualized distribution rate to $1.40 per common unit, representing a 7.7% increase over the previous annualized rate. Fiscal 2026 was another very successful year for Suburban Propane, both in terms of our financial performance and from executing on our long-term strategic growth plans. At the same time, we continue to remain patient and disciplined to maintain financial flexibility through a strong balance sheet. We are very well-positioned for long-term sustainability in the evolving energy landscape and to leverage our strengths to drive growth in both segments of our business. A little later, I’ll provide some closing remarks.

However, at this time, I’ll turn the call over to Mike Kuglin, who will discuss our fourth quarter and full-year results in more detail. Mike?

Mike Kuglin, Chief Financial Officer, Suburban Propane Partners: Thanks, Mike, and good morning, everyone. Before discussing our financial results, I’ll begin with an overview of changes to our segment reporting that became effective at the end of fiscal 2026. As we’ve discussed on prior calls, our long-term strategy is focused on creating value for our unitholders by fostering the continued growth of our propane business and development of a scalable renewable energy platform. Our new segment reporting structure is designed to provide investors and analysts with greater visibility to the performance of these two businesses and better align our external reporting with how we manage the business and allocate capital. As a result, we now have two reportable segments, propane and renewable natural gas.

The propane segment includes activities associated with our propane and renewable propane operations, as well as other fuels and related services, while the renewable natural gas segment includes activities associated with the production and injection of RNG. This change does not affect our consolidated financial position, results of operations, or cash flows. All prior period segment information presented in our fiscal 2026 earnings release has been recast to conform to the new presentation, and our Form 10-K will present segment information on the same basis.

As for our financial results, to be consistent with previous reporting, I am excluding the impact of unrealized non-cash mark-to-market adjustments on our commodity hedges, which resulted in an unrealized gain of $4.5 million in fiscal 2026, compared to an unrealized gain of $2.4 million in the prior year, along with certain other non-cash items which we have identified in the reconciliation of net income to Adjusted EBITDA in the press release. Excluding these items, adjusted net income for fiscal 2026 was $138.1 million, or $2.07 per common unit, compared to $128.4 million, or $1.97 per common unit in the prior year. Adjusted EBITDA for fiscal 2026 was $284 million, an increase of $6 million, or 2.2%, compared to the prior year. Retail propane gallons sold in fiscal 2026 were 402.9 million gallons, an increase of 1% compared to the prior year.

The increase was driven by colder temperatures during the heating season across much of the eastern half of the U.S., which resulted in higher heat-related demand, plus continued growth in our counter-seasonal national account customer base and incremental volumes from recent propane acquisitions. These benefits were partially offset by considerably warmer temperatures in the western half of the country during the heating season, near record warm temperatures across our operating footprint during the spring, and the absence of the incremental volumes we experienced in the prior year in the aftermath of Hurricanes Helene and Milton in the Southeast. With respect to the weather, average temperatures for fiscal 2026 were 8% warmer than normal and 1% cooler than the prior year.

In the eastern half of the U.S., average temperatures were 4% warmer than normal and 6% cooler than the prior year, whereas average temperatures in the West were 23% warmer than normal and 14% warmer than the prior year. From a commodity perspective, average wholesale propane prices for fiscal 2026 were $0.73 per gallon, basis Mont Belvieu, which was 7% lower than the prior year. According to the most recent report from the U.S. Energy Information Administration, U.S. propane inventories at the end of last week were 104 million barrels, 2% below the prior year, but 4% above historical averages for this time of year, with much of the surplus concentrated on the Gulf Coast.

Despite the continued strength in overall inventories, wholesale propane prices since the end of fiscal 2026 have been volatile and have moved sharply higher, driven by strong export demand and global supply constraints resulting from geopolitical events in the Middle East. Over the past eight weeks, prices moved from the $0.70 per gallon range in September to more than $1.30 per gallon in early November, before retreating to approximately $1.05 per gallon this week. By comparison, propane prices at this time last year were in the mid-$0.60 per gallon range, an increase of roughly 70%. While wholesale prices are higher heading into the fiscal 2027 heating season compared to the past couple of years, our operating personnel have a long track record of effectively managing selling prices through various commodity cycles.

Excluding the impact of the mark-to-market adjustments on our commodity hedges that I mentioned earlier, total gross margin for fiscal 2026 was $888.9 million, an increase of $32.7 million, or 3.8%, compared to the prior year. The increase was primarily driven by propane unit margin expansion of $0.05 per gallon, or 2.5%, and higher propane volumes sold. Gross margin also benefited from a 13% increase in RNG injection and $12.4 million of PTCs recognized during fiscal 2026, which were reported as a reduction to cost of products sold on the income statement. As Mike mentioned, the PTC benefit was calculated using the updated 45Z Clean Fuels Credit model published by the Department of Energy in September 2026, and is net of estimated monetization discounts and fees.

The updated model provides a specific pathway for dairy manure RNG and gives significantly greater credit for the methane emissions avoided by capturing the manure and converting it to RNG, rather than allowing that methane to be released under the farm’s prior manure management practices. That change significantly improved the carbon intensity score for our RNG compared to the prior model. Based on the updated model, credit for present-day value of approximately $46 per MMBtu for D3 RNG before estimated sales discounts. With respect to expenses, combined operating and G&A expenses increased $22.8 million, or 3.9%, compared to the prior year. The increase was primarily due to higher payroll and benefit-related expenses, increased overtime and other variable operating costs associated with supporting higher customer demand during the heating season, higher fuel and vehicle maintenance costs, and higher accruals for self-insurance claims.

These increases were partially offset by an insurance recovery of $4.9 million related to the partial settlement of certain claims associated with our acquisition of the RNG production assets in December 2022. Net interest expense of $76.2 million for fiscal 2026 was flat compared to the prior year. As lower borrowings under our revolving credit facility were offset by the higher interest rate for the tranche of senior notes that we refinanced in the first quarter of fiscal 2026. Total capital spending for fiscal 2026 was $85.7 million and included $59.5 million of growth capital. Capital spending increased $13.7 million compared to the prior year, primarily due to construction activities at our Columbus, Ohio, and Upstate New York RNG facilities, which totaled approximately $32 million in fiscal 2026.

With the major growth projects at Columbus and Upstate New York substantially complete, we expect capital spending to decline in fiscal 2027 to between $60 million and $70 million, which includes $50 million to $55 million for propane operations and $10 million-$15 million for our RNG operations. We expect fiscal 2027 capital spending to be split approximately equally between maintenance and growth initiatives. Turning to our results for the fourth quarter. Consistent with the seasonality of our business, we typically report a net loss for the fourth quarter. With that said, excluding the effect of certain non-cash items in both years, we reported an adjusted net loss of $30.1 million for the fourth quarter, $0.45 per common unit, compared to a loss of $35.7 million, or $0.54 per common unit in the prior year.

Adjusted EBITDA for the fourth quarter was $7.3 million, an increase of $6.6 million compared to the prior year. Retail propane gallons sold were essentially flat compared to the prior year, and RNG injection increased nearly 37% compared to the prior year. Total gross margin increased $15.3 million, or 11.5%, compared to the prior year, primarily due to higher propane unit margins, higher RNG injection volumes, and a $7.8 million benefit from PTCs. The PTC benefit recognized during the fourth quarter included a $4.4 million true-up related to credits earned on RNG injections during the first half of calendar 2026, reflecting the impact of the updated 45Z Clean Fuel Credit model released in September.

Combined operating and G&A expenses increased $7.7 million, or 5.8%, primarily due to higher fuel and maintenance costs, higher accruals for self-insurance claims, and professional services fees related to our multi-year initiative to modernize our information technology platform. These increases were partially offset by an insurance recovery of $2 million related to a partial settlement of certain claims associated with our acquisition of the RNG production assets in December 2022. Excluded from Adjusted EBITDA for both the full year and fourth quarter of fiscal 2026 was a $23.1 million impairment charge to fully write down the remaining carrying value of our investment in an early-stage energy technology company, which was reported within other net on statement of operations.

Also excluded was a $7.9 million goodwill impairment charge representing the full carrying value of goodwill associated with our natural gas and electricity marketing business that has been negatively impacted over the past several years by regulatory actions in New York State that have significantly limited the ability of Vestgas to operate. Turning to our balance sheet. During the fiscal year, we utilized a combination of cash flows from operating activities and net proceeds of $23.5 million from the issuance of common units under the ATM program to fund our strategic growth initiatives, including the acquisition of two propane businesses for a total consideration of $24 million, growth capital expenditures of $34.6 million to advance construction activities and operational enhancements at our RNG production facilities, and repayment of outstanding borrowings under our revolving credit facility of $25.4 million.

With the improvement in earnings and debt reduction, our consolidated leverage ratio for fiscal 2026 improved to 4.13 times compared to 4.29 times at the end of fiscal 2025. With a significant portion of capital spending on the RNG platform largely complete, we expect to generate increasing financial flexibility. We will remain focused on utilizing excess cash flows to further strengthen the balance sheet as opportunities arise to fund strategic growth. With that, I’ll turn it back to Mike.

Mike Stivala, President and Chief Executive Officer, Suburban Propane Partners: Thanks, Mike. As I mentioned in my opening remarks, on October 22nd, we announced that our Board of Supervisors declared an increase in our quarterly distribution to $0.35 per common unit in respect of the fourth quarter of fiscal 2026. That equates to an annualized rate of $1.40 per common unit, 7.7% higher than the previous annualized rate. The quarterly distribution was paid on Tuesday, November 10th, to our unitholders of record as of November 3rd. Our distribution coverage continues to remain healthy at 2.13 times for the trailing 12 months ended September 2026 on a maintenance CapEx basis. Just a few closing remarks regarding our long-term strategy.

Over the course of the past three fiscal years, we have taken a balanced approach to allocating capital in the execution of our long-term strategic growth plan, which is to foster the growth of our core propane business while making strategic investments in lower-carbon renewable energy alternatives through our Suburban Renewable Energy subsidiary. During the three-year period, we generated excess free cash flow of nearly $390 million and raised approximately $50 million under our ATM equity program. We invested $90 million on propane acquisitions in strategic markets. We invested $85 million to increase the scale of our RNG platform. We reduced debt by nearly $10 million, and we returned $253.5 million to our unitholders in the form of our quarterly distributions. We will soon enter our 99th year serving local communities across this great nation.

Through our long-term strategic growth plan, we are leveraging our core competencies in safety, customer service, and logistics, especially in the localized energy distribution markets. The investments that we have made have been very measured and focused on long-term growth and sustainability. We have made great progress in diversifying the business and setting Suburban Propane up to support the energy needs of local communities as the energy system continues to evolve. The energy evolution is a long journey, one that requires a pragmatic and balanced approach to identifying and fostering energy solutions that can lower greenhouse gas emissions and the overall carbon footprint. However, it also requires solutions that can deliver energy that is reliable, affordable, and sustainable.

As the interconnected global energy system has shown us, society is faced with the realities that geopolitical events, natural disasters, and the surging energy demand from AI and data centers are all factors contributing to not only higher costs to the consumer, but reliability issues with an energy system that cannot evolve overnight. We are seeing increased recognition that propane can provide the flexibility, redundancy, and responsiveness that strengthens resilience while also being relied upon as a prime energy source as infrastructure development catches up with demand. A resilient energy future will require solutions that can be deployed now while supporting the transition ahead, and propane will be relied upon to provide resilient and clean energy for decades to come.

With that, I want to thank our more than 3,200 employees for helping make fiscal 2026 another outstanding year for Suburban Propane, and for their unwavering commitment to safety for our customers, our people, and the communities we serve. As always, I hope you and your families remain safe and healthy, and I wish everyone a very happy holiday season. We appreciate your support and attention, and would now like to open the call up to questions. Audra, could you help us with that?

Audra, Conference Call Moderator, Suburban Propane Partners: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. We will take our first question from Gabe Moreen at Mizuho.

Gabe Moreen, Analyst, Mizuho: Hey, morning, guys.

Mike Stivala, President and Chief Executive Officer, Suburban Propane Partners: Morning, Gabe.

Gabe Moreen, Analyst, Mizuho: Morning. Wanted to ask Mike about just the distribution bump here and your view on kind of the potential cadence going forward. Certainly nice to have it bumped here after a couple years. You mentioned capital allocation and the like. I’m just wondering kind of how you’re viewing that distribution increase going forward as a one-off or something you’re targeting more sustainably?

Mike Stivala, President and Chief Executive Officer, Suburban Propane Partners: Well, I think, a couple of things there, Gabe. We obviously have done a lot of capital deployment over the last several years, and it’s great to get a lot of that behind us now. We have an RNG platform that has scaled quite a bit. Frankly, the work that we’ve done to, what I continue to say is Suburbanize those assets, which to us means making them best-in-class assets that we’re proud of. We’re going to continue to run those assets for the foreseeable future without likely adding to that platform. So, when you look at our distribution coverage, we still have very, very healthy coverage. I’m not going to get ahead of our Board of Supervisors. It’s something we talk about every quarter. I think what our unitholders can take comfort in is that we’ve set the business up for the long term.

We’ve successfully diversified, and we have significant strength in distribution coverage that provides some safety and security of the distribution as it stands, with the potential for upside.

Gabe Moreen, Analyst, Mizuho: Got it. Thanks, Mike. Appreciate those comments. Congrats, I think, on some of the positive developments in RNG. Maybe can you also, you spoke to the LCFS credits kind of having a nice bit of an uptick here. Is there any way you can hedge those going forward? Is that something you all have considered?

Mike Stivala, President and Chief Executive Officer, Suburban Propane Partners: I mean, we look at it, but frankly, it’s not a very well-developed market at this point. I think what you’ve seen in those markets is the regulatory developments in California. California recognized that the program wasn’t achieving the goals that it was set out to do, so they adjusted the curve for carbon intensity reduction. It took a little bit of time for that to work through the excessive credit bank that was built up over the years. Now that we’ve actually turned through some of that excess credit, it’s good to see that LCFS values have recovered to where they were right around the time when we made our first big investment in the RNG platform in 2022.

I think given where the regulatory environment is right now, I think our outlook is actually that we have expectations that we’re pretty stable at these levels for the foreseeable future.

Gabe Moreen, Analyst, Mizuho: Got it. Last one, can’t let you go without a question on propane M&A. It seems like you’ve done a deal or two. Just wondering what the landscape looks like at the moment, if any special factors that are making things more active or less active than usual.

Mike Stivala, President and Chief Executive Officer, Suburban Propane Partners: We’re heading into the heating season now, so a lot of the smaller acquisition activity is probably going to wait until after the heating season. We’re constantly evaluating good markets for adding to the platform, and we have a good pipeline of good quality businesses that we have our eye on. At this stage, I think the businesses will probably run through the heating season, and we’ll see what happens with this year’s heating season. Usually, a lot more of that acquisition activity happens in the spring, summer timeframe. Right now, we’re prepared to go into the heating season very strong, and we’re looking forward to serving our customers with the best quality service that our field operations is accustomed to delivering.

Gabe Moreen, Analyst, Mizuho: Thanks, Mike. Appreciate the time.

Mike Stivala, President and Chief Executive Officer, Suburban Propane Partners: Thanks, Gabe.

Audra, Conference Call Moderator, Suburban Propane Partners: And that concludes our Q&A session. I will now turn the conference back over to Mike Stivala for closing remarks.

Mike Stivala, President and Chief Executive Officer, Suburban Propane Partners: Great. Thanks, Audra. Thank you all again for your time today, and we look forward to catching up with you again in February after our first quarter results. As I said, I hope you have a wonderful holiday season. Thank you.

Audra, Conference Call Moderator, Suburban Propane Partners: This concludes today’s conference call. Thank you for your participation. You may now disconnect.