Ladies and gentlemen, thank you for standing by. Welcome to Suburban Propane's Second Quarter 2018 Financial Results Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I would like to start the conference with the forward-looking statements. This conference 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 conditions and results of operations. These forward-looking statements involve certain risks and uncertainties. The partnership has 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 its earnings release -- earnings press release which can be viewed on the company's website. 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. And at this time, I would now like to turn the conference over to the Vice President and Treasurer, Davin D'Ambrosio. Please go ahead.

Thank you, Leah. And good morning, everyone. Thank you for joining us this morning for our Fiscal 2018 Second Quarter Earnings Conference Call. Joining me this morning are Mike Stivala, our President and Chief Executive Officer; Mike Kuglin, Chief Financial Officer and Chief Accounting Officer; and Steve Boyd, our Chief Operating Officer. This morning, we will review our second quarter financial results, along with our current outlook for the business. As usual, once we've concluded our prepared remarks, we will open the session to questions. However, before getting started, I'd like to briefly reemphasize what the operator has just explained about forward-looking statements. Additional information about factors that could cause actual results to differ materially from those discussed in the forward-looking statements is contained in the partnership's SEC filings, including its Form 10-K for the fiscal year ended September 30, 2017; and its Form 10-Q for the period ended March 31, 2018, which will be filed by the end of business today. Copies of these filings 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 furnished to the SEC this morning. Form 8-K can be accessed through a link on our website at suburbanpropane.com. At this point, I would like to turn the call over to Mike Stivala for some opening remarks. Mike?

Thanks, Davin. And thank you all for joining us this morning. Building off of the momentum from our strong first quarter performance, colder average temperatures provided support for increased customer demand in the second quarter. As a result, we are very pleased to report an improvement of $24.1 million or 17.5% in our adjusted EBITDA for the second quarter of fiscal 2018 compared to the prior year. Our operations personnel did an outstanding job meeting the increased demand with an intense focus on all aspects of our business, delivering exceptional service, solid margin management; and effectively managing costs and operating efficiencies. While the quarter presented some extreme weather variability, heating degree days were reported as 9% cooler than last year's second quarter yet 6% warmer than normal. And our propane volumes increased by more than 10%. As we indicated at the start of this fiscal year, coming off back-to-back record warm temperatures in fiscal 2016 and '17's heating season, we were taking a very different approach to estimating customer demand and for developing our manpower plan and our cost infrastructure. In fact, we developed our business plans for fiscal 2018 based on customer demand expectations assuming a weather pattern that would be more reflective of the 10-year average heating degree days or 7% warmer than the 30-year average which has traditionally been considered to be normal. Now that we are through the first half of fiscal 2018, the hotter heating season, weather was effectively in line with that 10-year average and 7% cooler than the comparable prior year period. Our propane volumes responded accordingly with an increase of more than 8% versus the first 6 months of last year. Therefore, through the first half of fiscal 2018, our adjusted EBITDA increased $33 million or nearly 15% compared to the prior year. With the improvement in earnings and cash flows, we are also making significant strides in our stated goal to restore our financial strength following the past 2 consecutive years of record warm temperatures. We used excess cash flow to reduce indebtedness during the second quarter, and combined with the higher earnings, our leverage ratio improved to 4.58x at the end of March 2018. Our distribution coverage on a maintenance CapEx basis has also meaningfully improved to nearly 1.3x based on trailing 12-month distributable cash flow compared to our pro forma cash distributions at the current annualized distribution rate of $2.40 per common unit. And with the extended cold temperatures across the majority of our service territories from mid-March through the end of April, we have also seen higher customer demand continue in the early part of our fiscal third quarter, which has set up a great start to our second half performance. In a moment, I'll come back for some closing remarks. However, at this point, I'd like to turn the call over to Mike Kuglin to discuss our second quarter results in more detail. And Mike?

Thanks, Mike. And good morning, everyone. As Mike indicated in his opening remarks, we reported another solid improvement in earnings compared to the prior year. Earnings benefited from a combination of higher volumes sold, higher unit margins and continued savings from operating efficiencies that helped partially offset higher variable operating costs resulting from higher customer demand. To be consistent with previous reporting, as I discuss our second quarter results, I'm excluding the impact of unrealized noncash mark-to-market adjustments on derivative instruments used in risk management activities which result in an unrealized loss of $3.7 million in the second quarter of fiscal 2018 compared to unrealized loss of $2.5 million in the prior year. Additionally, net income and EBITDA for the prior year included a loss on debt extinguishment of $1.6 million associated refinancing of our 2021 secured notes. Excluding these items, net income for the second quarter of fiscal 2018 increased to $110.5 million or $1.80 per common unit compared to net income of $87.9 million or $1.44 per common unit in the prior year. Adjusted EBITDA for the second quarter of fiscal 2018 amounted to $162.1 million, an increase of $24.1 million or 17.5% compared to the prior year. Retail propane gallons sold in the second quarter of fiscal 2018 of 169.7 million gallons increased 15.8 million gallons or 10.3% compared to the prior year. Sales of fuel oil and other refined fuels of 13.6 million gallons increased 5% compared to the prior year. Our volumes benefited from cooler temperatures experienced throughout the majority of our service territories, which contributed to an increase in customer demand for heating needs. The year-over-year increase in volumes sold slightly outpaced the increase in heating degree days, which were 9% cooler than the prior year in our service territories. The heating degree days…

Great. Thanks, Mike. As announced in our April 26 press release, our board of supervisors declared our quarterly distribution of $0.60 per common unit in respect of our second quarter of fiscal 2018. And that equates to an annualized rate of $2.40 per common unit. The quarterly distribution will be paid on May 15 to our unitholders of record as of May 8. So just a few final remarks. Heading into fiscal 2018, our people and our operating platform were well prepared to respond to a return of a closer-to-normal weather pattern. During some very harsh weather conditions this winter, our people worked tirelessly to serve our customers in local communities, maintaining their focus on the safety and comfort of our customers. At the same time, we continue to deliver on our customer base growth and retention initiatives. So we developed a good operational plan for fiscal 2018. Our volumes responded to the improvement in weather. We continue to manage costs with just a modest increase despite the higher operational activities. Our earnings and cash flows are in line with our expectations through the first half, and our financial metrics continue to get stronger. In fact, our leverage is trending toward our target range of below 4x. The excess cash flow generated is helping accelerate our debt-reduction efforts. And we have dramatically improved our distribution coverage. We are very well positioned operationally and financially to continue to pursue our strategic growth initiatives. One additional comment. 2018 marks a significant milestone for Suburban Propane. We are celebrating our 90th year as a leader and innovator in the propane industry. We are very proud that our roots date back to the very beginning, when our founder in 1928 set out to solve a problem to bring propane gas deliveries to the home. From a garage in a small town of West Orange, New Jersey, Suburban Propane has grown to be a nationwide retail distributor in 41 states. And our more than 3,200 employees have maintained their commitment to supporting and meeting the energy needs of our customers in every local community we serve. I just want to once again take this opportunity to thank all of the employees of Suburban Propane for their efforts and continuing to remain focused on providing exceptional service to our customer base during a very challenging winter. As always, we appreciate your support and attention this morning. And now we'll be happy to open the call up for questions, and Leah, would you mind helping us with that?

[Operator Instructions] And our first question is from the line of Mirek Zak with Citigroup.

So can you comment on attrition rates this year and if you've seen any uptick in churn relative to prior years maybe due to increased competition or be it from either other operators or alternative fuels?

I think, as I mentioned in my opening remarks, we have a very intense focus on customer base growth and retention. And our people are doing an outstanding job delivering on those initiatives. And in fact, every quarter, every year, we're continuing to see that trend improve. So yes, there is always competition in this industry. It's a very fragmented industry, but Suburban offers a great value proposition. And we've been executing on delivering the highest-quality service to our customer base. And in times like we just experienced this past winter, where you do experience some stress in the system, that's when Suburban Propane shines the most. And I think we did an outstanding job meeting the demand this year and delivering in some very harsh conditions. Whether it be bad snowstorms, ice conditions, we're there to meet the needs of our customers. And even when supply gets a little tight, our relationships and our logistics personnel do an outstanding job getting product where it needs to be, so I'm extremely proud of what we've accomplished with our customer base. And so we haven't seen attrition deteriorate. In fact, we've done an even better job with our customer base year in and year out.

Okay, great. And just one more. On the M&A front, have you seen an increase in the number or size of operators or assets coming to market versus prior years? And on those lines, are you open to acquisitions of either players larger than mom-and-pops or customer or asset packages at this time?

As far as your first question, I think the amount of businesses is pretty much the same as history. There's always going to be a list of potential businesses for sale. We did close -- as Mike mentioned in his opening remarks, we closed on a nice business that we had our eye on in Florida. We did that in April, and it fits perfectly into our footprint down there. It's the second decent-sized acquisition in that Florida market that we've been able to do in the past 3 years, so I think we're proving that we're open to doing acquisitions. And to your point about size, absolutely. I think -- if there was a good regional-sized player that became for sale, I think we would be a very logical acquirer and we'll take a hard look at it. The reality is those businesses don't come to market all that often and -- but we'll see. We'll see what happens.

We have a question from the line of Ben Brownlow with Raymond James.

On the OpEx and G&A. And that was, it was good leverage combined, up 7%. And you mentioned the $2 million within G&A last year, but if you adjust for that, it was up around -- I guess, around 30% year-over-year. First off, did I hear -- or is that correct? And then how should we think about kind of separating the 2, just the divergence in that growth between those 2 metrics of OpEx and G&A? How should we think of that run rate on G&A?

Yes. So the driver for the G&A was essentially variable compensation. And given the seasonal nature of the business, the expenses for our annual compensation are heavily weighted towards the first half of the year, so if you look at G&A for the first half, it's up a little less than $8 million, which is probably a fair expectation for G&A on a full year basis. And of course, operating expenses are going to follow that of customer demand, but operating expenses for the first -- for the second quarter were only up about 2% on volumes that were 10% higher. On a year-to-date basis, our operating expenses were only up a little more than 1% on volumes that were 8% higher.

Yes. And Ben, remember we've always talked about the flexible nature of our cost structure. And these couple of extreme years is a perfect example of that, where we have a highly pay-for-performance structure here which does allow us to ratchet back our expenses dramatically when the earnings aren't there because of weather. And so this year, obviously the earnings are significantly improved, and as a result, we'll have more variable compensation for all the employees that are earning it in the company, throughout the company. So it's -- and yet even with funding that incremental variable compensation, the earnings were up dramatically. So it's something that we've talked about for years. It's a significant component of our cost structure that allows us to flex up and down with -- when weather cooperates or doesn't cooperate.

Okay. So that's -- okay, so just thinking around the second half, that would be $8 million growth in the second half or 50%, 30%. That's not sort of the norm...

The 8% increase in the first half, I would not say would be replicated in the second half. I would say, this 8% is roughly equivalent to the full year increase...

Okay, that makes -- kind of make sense. And you mentioned the April volume kind of weather-driven volume. Can you quantify what -- the volume growth? And is it fair to think about April historically -- obviously that's going to be quite variable depending on weather but historically April being around 2/3 of the fiscal third quarter volume?

Yes, I think, as far as April goes, historically being 2/3 of the third quarter volume is probably close. This year, April has really provided a strong tailwind for the quarter. So we don't give guidance, so I won't give you exactly what that is, other than to say you could see -- you saw the weather pattern. It was April itself was about 15% colder than normal throughout most of the country. And actually when you look at the weather pattern this year, yes, as Mike pointed out, February was a little -- was close to record warm, but the momentum that came out of January helped support February volumes. And then the March weather and then carrying that into April has really made this year look exactly like what we expected it to be, which was close to that 10-year average. And yet that's not necessarily true in all of our service territories either. So the West Coast actually didn't really get weather at all until the March time frame. So when you look at this year and the volume performance given the way the weather played out, it didn't play out the same in every location, and yet when you bring it all together as an average, it's going to be right in line with our expectations. So we're really pleased with this year. And it wasn't a perfect weather pattern, but it was right in line with what we expected.

Next we go to the line of Mike Gyure with Janney Montgomery Scott.

Yes. Can you guys talk a little bit about the fuel oil and refined fuels business and natural gas and electricity businesses and maybe how those are performing; and then, I guess, how you see those fitting in the portfolio longer term; if you guys are pursuing acquisitions in those areas; or if you just sort of view those as some diversified businesses in the short term; or I guess, how you're looking at them in general?

Yes, there's 2 different answers there, Mike. One is, fuel oil business, it's part of our platform. It was something that we acquired when we bought Agway back in 2003. And we -- what we have, it's a more competitive market than propane. What we have today is pretty sustainable. We've stabilized that customer base. It's -- the customer base is highly complementary of our propane customer base. We, frankly, don't have any desire to seek acquisitions, I would say. I mean I guess, if there was a business that had a good-sized propane business and it came with fuel oil, then we wouldn't snub our nose at it, if you will, but we're not looking to grow that business. And we make a decent operating income off of that business. The natural gas and electric business is a nice little niche business for us in New York and Pennsylvania. It's a good contributor to EBITDA. And it's really a marketing business where we don't take any commodity risk. We back-to-back the product to the customer. We're a -- it's a -- these are deregulated markets where we provide an alternative to the customer base versus doing business with the utility. And we have a unique, value-added product that our customers really appreciate that we offer; and so we're -- we've been very successful just organically growing that business. And so there is not a lot of acquisition opportunities in that space, but what there is, is opportunities to expand in other parts of the country that deregulation in the energy, in the natural gas and electricity markets is embraced. So for instance Maryland is the next territory that we have actually recently applied to do business in, and we'll be starting to market in Maryland shortly. New Jersey is another state that is -- embraces deregulation. We're not actively marketing in New Jersey yet, but I will say that that's probably a target market for us. So I think we have some real good opportunities organically, and it's a nice little business for us.

Great. And then maybe you can touch on just in general your growth capital projection spending for maybe the rest of the year. You mentioned the acquisitions. I guess you view more spending coming or just kind of smaller just growth projects.

I will say, consistent to what we talked about coming into the year, we were targeting our total CapEx to be around $35 million split between maintenance growth, $15 million; and $20 million. That excludes acquisitions. So the acquisition that we disclosed on the beginning of the third quarter is roughly $12 million, so that would certainly be incremental to that -- those CapEx numbers.

[Operator Instructions] And there are no other questions. You may continue.

Okay, great. Thanks, Leah, for your help today. And thank you all for your time and attention this morning. We look forward to speaking with you again, following our third quarter results, in early August. Thank you.

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