Good morning, and welcome to the Suburban Propane Partners Second Quarter Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Davin D'Ambrosio, VP and Treasurer. Please go ahead.

Thanks Chad. [Technical Difficulty] this morning for our fiscal 2023 Second Quarter Earnings Conference Call. With 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. 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 viewed on our website at suburbanpropane.com. While 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 24, 2022 and Form 10-Q for the period ended March 25, 2023, which will be filed by the end of business today, contain additional disclosure regarding forward-looking statements and risk factors. Copies 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, 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 point, I will turn the call over to Mike Stivala for some opening comments. Mike?

Thanks, Davin. Good morning. Thank you all for joining us today. The fiscal 2023 second quarter was dominated by near record warm temperatures throughout much of the quarter, particularly in the eastern half of the United States, which limited customer demand for heating purposes. In fact, during January and February, the most critical months for heat-related demand, average temperatures were 16% warmer than normal. And that 2-month stretch was reported as one of the warmest on record. Our West Coast operations experienced colder-than-normal temperatures, coupled with historic levels of snowfall and precipitation in certain areas. Customer demand in those territories responded well, which helped to offset some of the volume shortfall in our Eastern operating territories. The second quarter ended with a late burst of cooler temperatures at the end of March, which has created some momentum for customer demand into the early part of the fiscal third quarter. Therefore, when you look at the 2022, 2023 heating season in its entirety, aside from colder-than-normal temperatures in the latter half of December 2022 and cooler temperatures at the end of March, the majority of the heating season was unseasonably warm, and in many areas of our footprint near-record warm. However, our operating personnel have managed through these warmer weather scenarios before and do an excellent job managing the things they can control, providing outstanding service, managing selling prices and controlling expenses. And with the success of our customer base growth and retention initiatives, over the past several years, we have stabilized our customer base, which helps support our overall volume performance. As a result of overall softness in demand, volumes in the quarter were 9.4% below the prior year second quarter, and adjusted EBITDA was down 13.6%. Despite the challenging second quarter as a result of the weather, the strength…

Thanks, Mike, and good morning, everyone. To be consistent with previous reporting, as I discuss our second quarter results, I'm excluding the impact of unrealized mark-to-market adjustments on our commodity hedges, which resulted in an unrealized loss of $4.5 million for the second quarter compared to an unrealized gain of $33 million in the prior year. Excluding these items as well as the noncash equity and earnings of our unconsolidated subsidiaries accounted for under the equity method and acquisition-related transaction costs, net income for the second quarter was $112.8 million or $1.76 per common unit compared to net income of $142.8 million or $2.26 per common unit in the prior year. Adjusted EBITDA for the second quarter was $149 million compared to $172.5 million in the prior year. As Mike mentioned, our earnings for the quarter were impacted by lower heat-related demand, resulting from extremely warm weather during the most critical months of the quarter as well as the continued impact of inflationary pressures on our expenses. Although those headwinds presented operating challenges, our earnings for the quarter benefited from organic growth in our customer base, continued solid margin management and contribution from the RNG facilities acquired at the beginning of the quarter. Retail propane gallons sold in the second quarter were 144.1 million gallons, which was 9.4% lower than the prior year, primarily due to warmer weather, partially offset by favorable customer base trends. With respect to the weather, average temperatures as measured in heating degree days, were 12% warmer than normal and 5% warmer than the prior year second quarter. Although we experienced an overall decrease in heating degree days compared to the prior year, our operations were most negatively impacted by extremely warm temperatures during the critical months of January and February and were most pronounced in…

Thanks, Mike. As announced on April 20, our Board of Supervisors declared our quarterly distribution of $0.325 per common unit in respect of our second quarter of fiscal 2023. That equates to an annualized rate of $1.30 per common unit. Our quarterly distribution will be paid on May 9 to our unitholders of record as of May 2. Our distribution coverage continues to remain healthy at 2.26x for the trailing 12-month period despite lower earnings in the quarter and higher capital expenditures and interest associated with our R&D platform. So just a few more thoughts on our strategic initiatives and the build-out of our renewable energy platform under Suburban Renewable Energy. In addition to the expansion of our RNG platform during the quarter, we continued to advance our efforts to commercialize the new low-carbon alternative called Propane + rDME. Through our 38% ownership stake in Oberon Fuels, the producer of renewable DME, Suburban Propane is the only distributor in the United States to offer this new blended product that combines the low carbon benefits of traditional propane with renewable DME to further reduce the carbon intensity of propane in order to meet aggressive carbon reduction standards in California and beyond. We began our pilot program in April of 2022. And given the favorable results to date, we have begun to offer the blended product to all of our forklift customers in certain markets in Southern California, with expansion plans for other parts of California and ultimately, other parts of the country. We have also started third-party testing of the blended product at higher blend levels in order to evaluate engine performance and emissions profiles. Once testing results have been analyzed, we expect to be able to increase the blend level from current ratios, which will have an even greater impact…

[Operator Instructions]. First question will be from Gabe Moreen from Mizuho.

A multipart question on the RNG opportunity set. Just wondering now with the Arizona facility up and running, what the approach, I guess, is going to be to hedging or not hedging, some of the different revenue streams kind of coming out of that facility. And then I also wanted to know about the reference to CapEx being higher going forward. Just kind of wondered if you could give us a good sense for kind of the trajectory around the Ohio facility, how much of the spend might be this year? How much might be next, and kind of relative amounts?

Sure. So as -- your first question on hedging, at this point, we're not -- we have a long-term offtake agreement with 1 large customer that is taking all of the gas that we're injecting into the pipeline, and we get the value of our LCFS and RIN credits through that contract. As I said on our last call, when we were evaluating this acquisition opportunity, we had the benefit of seeing a decline in the LCFS markets and RIN values as well, which helped us to really evaluate the potential for the earnings of this business in what we consider to be sort of a more normal environmental attribute market with some potential downside risk, certainly, but also with the potential for upside as more states contemplate LCFS programs around the country. So at this point, we're not evaluating the need to hedge. We're actually on a trajectory to deliver the kind of results that we had expected, particularly from the Stanfield facility. And in fact, one of the things that we're starting to see is now that we've gotten the capital fully deployed, and we're starting to see daily pipeline injection, we're actually, as I said in my opening remarks, starting to see daily injections exceed some of our expectations. So that's a good sign for us to see. And we're also exploring additional opportunities to sell additional fertilizer that's coming off, off the production process. So I think we're already finding ways to be more efficient as well as identify new opportunities for sales. And in the current credit environment, we're sort of happy where values are today, and we do believe there's upside. As to the capital question, the Columbus facility is going to take about $12 million of capital to put in the upgrade equipment. Most of that is likely going to happen in fiscal 2024. There might be a little bit of capital this year, but I think most of it at this point is going to go into 2024. And then we still have the construction of the RNG assets up in upstate New York. There's probably another $12 million to $15 million of capital in 2024 and maybe another $15 million-or-so this year in 2023. So that's kind of the trajectory we're on relative to growth CapEx for those 2 major projects. And that -- hopefully, that helps you with understanding where we're at.

Mike, that was very helpful. And then I wanted to, I guess, gave kind of comfort with the balance sheet currently now that everything is closed. The winter's behind you. I think last quarter's call, you made some comment about potentially accelerating deleveraging. Maybe this quarter, it sounds like you're comfortable letting it occur naturally. So I'm just kind of -- or over time. I'm just wondering kind of if there's been a change in stance there. What your latest thinking is there?

Yes. I think we're comfortable where we are, Gabe. When these assets reach full run rate capacity in 2024, that will naturally bring down the leverage. The other interesting thing -- we obviously have a fair amount of excess free cash flow that has given us the opportunity over the last few years to delever as well as invest. And one of the things, if you look at our actual total debt at the end of March relative to the end of September, let's say, which was a bit of a low point, we're only up about $170 million of debt, and that's after investing about $200 million in the RNG assets alone. So I think the strength of our balance sheet, the excess cash flow generating capacity of the propane business has really afforded us an opportunity to deploy capital in higher growth opportunity investments such as the RNG platform and the other investments we've made in Hydrogen and DME.

[Operator Instructions]. And the next question will be from Ned Baramov from Wells Fargo.

Mike, in your remarks, you indicated -- so in your remarks, you indicated a number of other RNG opportunities under evaluation. Could you maybe provide more details on your funnel? Are you looking at new builds or operating facilities, the approximate size of these investments, and maybe if you can also give us a sense of how competitive is the RNG space today? And who do you typically run into?

Yes. It's all over the board, Ned. I think first of all, just framing the potential. I think if you look at what we talked about with the joint venture with Equilibrium, which says that, if combined, we're looking to deploy about $155 million of capital over the next 3 years or so, of which Suburban's -- a piece of that is $120 million. That sort of frames the potential. We have a handful right now of opportunities that range from mostly active facilities that maybe need a little bit more capital to get to a certain capacity or maybe upgrade to RNG like we're doing in the Columbus facility, 2 small investments in bigger platforms that need a little bit of extra capital that maybe we don't want to take 100% ownership of, 2 straight up building opportunities similar to what we're doing at our Adirondack Farms in Upstate New York. And the good thing is that we -- with all the activity that we have, with equilibrium and the team that we have a relationship with there, plus the firms that we're working with in New York -- we have a really good network of engineering, construction, maintenance and procurement firms that we're very close to now that are providing excellent support on our projects, but also helping us identify additional opportunities. So there's nothing that I would say is imminent, but the funnel is pretty robust, and we're going to take a very patient and disciplined approach on identifying the best opportunities that warrant us deploying capital.

Got it. And then how do you think about propane acquisitions while the RNG assets are ramping up? Is this on hold? Or would you still look at kind of smaller tuck-in transactions if they make sense for you?

We're going to continue to feed the propane business. The propane business is still our bread and butter, it is the source of cash flow that allows us to invest in higher growth opportunities, such as renewable energy. And so we're going to continue to look for ways to enhance that platform. We do have also a funnel of opportunities that are in active analysis right now. There's a couple that are very promising, relatively small tuck-in, but fitting into our strategic view of highly attractive markets where we either have a very strong presence or we have identified population growth where the market can benefit from a Suburban presence that is not big enough today. So those are the kind of opportunities that we're seeing. And this is, as you know, the time of the year where more and more of the smaller companies contemplate putting their business up for sale once the heating season is behind us. So the funnel and the propane M&A market is also starting to build nicely.

Great. One housekeeping item, if I may. Going forward, will you break out the contributions from your Suburban Renewable Energy subsidiary as a separate segment?

As the earnings of the newly acquired RNG platform get to run rate, I would expect sometime probably at the tail end of 2024 is when I would expect to see us do that, Ned.

[Operator Instructions]. Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Mike Stivala for any closing remarks.

Great, Chad. Thank you all again for your attention today, and your support. We hope that you enjoy the coming summer season, and we look forward to talking to you again after the end of our fiscal third quarter. Thank you.

And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.