Suburban Propane Partners, L.P. — Fiscal 2020 Form 10-K Summary
Business context and reporting period
The filing covers the 52-week fiscal year ended September 26, 2020, including fourth-quarter results. Suburban Propane is a nationwide marketer and distributor of propane, fuel oil and refined fuels, natural gas and electricity, and home-comfort services. It served approximately 1.0 million customers through approximately 700 locations in 41 states. Propane represented approximately 86% of total revenue.
Key financial metrics
| Metric | Fiscal 2020 | Fiscal 2019 | Change |
|---|---|---|---|
| Revenue | $1,107.9 million | $1,267.7 million | Down 12.6% |
| Operating income | $140.3 million | $150.9 million | Down 7.0% |
| Net income | $60.8 million | $68.6 million | Down 11.5% |
| Basic earnings per unit | $0.98 | $1.11 | Down 11.7% |
| EBITDA | $252.1 million | $267.0 million | Down 5.6% |
| Adjusted EBITDA | $253.7 million | $275.0 million | Down 7.8% |
| Cash flow from operations | $209.4 million | $226.8 million | Down 7.7% |
| Capital expenditures | $32.5 million | $35.0 million | Down 7.1% |
| Cash distributions declared per unit | $1.80 | $2.40 | Down 25.0% |
Operating margin was approximately 12.7%, compared with 11.9% in fiscal 2019. Net margin was approximately 5.5%, compared with 5.4%. Adjusted EBITDA margin was approximately 22.9%, compared with 21.7%.
- Propane gallons sold declined 5.6% to 402.9 million; fuel oil and refined fuels gallons declined 12.7% to 26.0 million.
- Average temperatures across service territories were 10% warmer than normal and 4% warmer than the prior year; December through February temperatures were 14% warmer than normal.
- Cost of products sold declined 26.6% to $383.0 million, and declined to 34.6% of revenue from 41.2%, primarily because wholesale prices fell faster than retail selling prices.
- Fiscal year-end cash was $3.1 million. Current assets were $116.0 million and current liabilities were $244.5 million.
- Total debt was $1.210 billion, consisting of $1.125 billion of senior notes and $94.6 million drawn under the revolving facility.
- The $500.0 million revolving credit facility had approximately $405.4 million of gross undrawn capacity before considering outstanding standby letters of credit of $63.1 million.
- The Partnership was in compliance with all debt covenants at year-end, including minimum interest coverage of 2.5x and maximum total consolidated leverage of 5.75x.
Material changes versus the prior comparable period
- Revenue, net income, Adjusted EBITDA and operating cash flow declined, driven primarily by unusually warm weather, lower product volumes, lower selling prices and COVID-19-related economic disruption.
- Natural gas and electricity revenue declined 31.0%, reflecting customer losses associated with New York regulatory actions, lower usage and the suspension of New York telemarketing during the pandemic.
- Operating and general and administrative expenses were reduced, but operating expenses as a percentage of revenue increased because revenue declined faster than expenses.
- The Partnership refinanced its revolving credit facility in March 2020, extending the maturity, reducing borrowing costs and increasing the permitted total leverage ratio from 5.50x to 5.75x.
- Quarterly distributions were reduced from $0.60 to $0.30 per unit beginning with the third-quarter fiscal 2020 distribution. Management stated that the reduction would lower annual cash requirements by approximately $75 million.
- Investing activities included $25.6 million for acquisitions and the purchase of a 39% interest in Oberon Fuels, a development-stage producer of renewable dimethyl ether fuel.
- Fiscal fourth-quarter revenue was $166.1 million and net loss was $41.2 million, compared with fiscal fourth-quarter revenue of $172.0 million and net loss of $51.1 million in the prior year.
Guidance, outlook, commentary, risks and unusual items
Management did not provide formal revenue or earnings guidance. For fiscal 2021, it anticipated approximately $35.0 million of maintenance and growth capital expenditures, $68.0 million of interest and income-tax payments, and approximately $75.0 million of distributions based on the annualized $1.20 per-unit distribution rate. Management expected available liquidity and operating cash flow to be sufficient to meet current obligations.
- COVID-19 affected commercial and industrial demand, collections, bad-debt expense, customer payment enforcement and operating protocols. Management could not estimate the pandemic’s full financial impact.
- Weather remains a major earnings driver because approximately two-thirds of propane volume and three-fourths of fuel oil volume are sold during the October-to-March heating season.
- Commodity-price volatility, supply interruptions, transportation constraints, customer conservation and competition from natural gas and electricity could reduce margins or volumes.
- New York regulatory developments and litigation affecting the natural gas and electricity business remain material uncertainties. A related class action remained pending, with no reserve recorded and no reasonably estimable loss range.
- Environmental liabilities were accrued at $1.7 million. Accrued self-insurance liabilities were approximately $72.9 million, partially offset by approximately $17.6 million of expected insurance recoveries.
- The Partnership recorded a $1.1 million non-cash pension settlement charge, a $0.1 million non-cash debt-extinguishment loss and a $5.0 million product-liability and other legal settlement charge during fiscal 2020.
- Debt maturities include approximately $619.6 million in fiscal 2024, $250.0 million in fiscal 2025 and $350.0 million thereafter. The Partnership also had operating lease obligations and a maximum potential residual-value guarantee of approximately $25.2 million.
- The filing states that goodwill was not impaired in the fiscal 2020 annual review.
Most important facts for an investor to verify
- Whether warmer-than-normal weather and COVID-19 effects persist into the fiscal 2021 heating season and affect volumes, collections and bad debt.
- The sustainability of the reduced $0.30 quarterly distribution and the Partnership’s ability to fund distributions while reducing debt.
- Refinancing plans and liquidity availability before the large fiscal 2024 debt maturity.
- Compliance with leverage and interest-coverage covenants under weaker operating conditions.
- The outcome of New York regulatory proceedings and the pending AES consumer litigation.
- The commercial progress and additional funding requirements associated with the 39% Oberon Fuels investment and renewable propane strategy.
- The assumptions supporting self-insurance, pension, environmental and legal reserves, including the potential for additional liabilities.