AGM 2021

May 18, 2021

Good morning, ladies and gentlemen. I'm Matthew Shannon, Chairman of the Board of Supervisors of Suburban Propane. It's my pleasure to welcome you to our tri annual meeting of limited partners. Our meeting will be divided into 3 parts. Brian Koepke, Vice President, General Counsel and Secretary, will act as secretary of this meeting and will conduct the formal legally required part of the meeting. Mike Stivala, our President and Chief Executive Officer will then give his report on the partnership's state of the business. And finally, Mr. Stivala will respond to questions that you may ask. Before we begin the official part of our business, I would like to introduce the members of our Board of Supervisors. All of our supervisors are in attendance for today's meeting. Because we are utilizing a virtual platform for this year's meeting, a photo of each supervisor will appear on the screen when I announce their name. Hal Logan, Jane Swift, Larry Caldwell, Terry Connors, Bill Landyck and Mike Stavala, who is the supervisor and our President and Chief Executive Officer. All of the people I've introduced as well as myself have been nominated to serve as supervisors of Suburban Propane for another 3 year term. Finally, I would ask Michael Kuglin, the company's Chief Financial Officer and Chief Accounting The proxies appointed by the Board of Supervisors for today's meeting are Brian Cappe and Michael Koglin. We also have present representatives from PricewaterhouseCoopers, Suburban's outside auditing firm. They're available to answer questions that may be asked of them during today's meeting. I now call on Mr. Kepte for the first part of our meeting. Thank you, Mr. Shannon. Good morning, ladies and gentlemen. Before I begin, I would like to quickly address a couple of housekeeping items. First, I would like to remind our unitholders who are logged into the live webcast today that they can submit questions at any time by clicking on the messages icon at the top of the screen, typing in your question and then clicking the arrow icon to the right of the question box to submit your question. I would also like to advise unitholders that the agenda for today's meeting is available by clicking on the information icon at the top left of the screen, which also contains a brief summary of the rules of order that apply to this meeting. This meeting has been called pursuant to Suburban Propane's 3rd amended and restated agreement of limited partnership and in accordance with Delaware law. The purpose of the meeting is, first, to elect 7 supervisors to 3 year terms. Number 2, to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for our 2021 fiscal year 3, to approve our amended and restated 2018 restricted unit plan 4, to provide our limited partners with the opportunity to cast an advisory vote on the compensation of our named executive officers, which is commonly referred to as say on pay and last, to consider any other matters that may properly come before the meeting. I hereby certify and present an affidavit that was mailed that the mailing of a notice of the meeting and proxy statement and that the mailing of a notice of availability of proxy materials were commenced on April 7, 2021 to all unitholders as of the record date of March 22, 2021. Accordingly, this meeting has been duly convened pursuant to Suburban Propane Partners Limited Partnership Agreement and applicable law. The list of the unitholders has been available for inspection for the last 10 days and is available for examination by contacting me via email atbkoepke suburbanpropane.com. I present for the record a copy of the notice of meeting, the proxy statement and the form of proxy, all of which were mailed to or otherwise made available to the unitholders commencing on April 7, 2021. I also present for the record a copy of our annual report for the fiscal year ended September 26, 2020. Laura Harrison of Computershare Trust Company has been appointed as our Inspector of Elections. The Inspector has the list of holders of the partnership's common units and all proxies received to date. It is not necessary for unitholders to vote their ballot if they have already submitted in their proxy card, voted using the Internet or by telephone prior to this meeting, unless you would like your vote recorded differently from the vote that you previously cast. To cast your ballot, click on the 'CASH YOUR VOTE' link on the information page of this meeting portal. The total number of common limited partnership units entitled to vote at this meeting is 62,529,235, with each unit having one vote. This meeting is validly convened if a majority of the common units are represented in person or by proxy. Will the inspector now report on the common units present? The number of common units present today in person or by 552,562, approximately 72% out of a total of 62,529,235 units outstanding and entitled to vote as of the record date. The inspector's report regarding common units indicates that a quorum is present. Therefore, this meeting is lawfully convened. I will now entertain questions related to the matters to be voted on at this meeting. Before each question, please type your name, whether you are a unitholder and the number of units that you own. As a reminder, only unitholders are permitted to submit questions. There being no questions at this time, the first item of business is the election of 7 supervisors for a term to expire at the partnership's next triennial meeting in 2024. The election of each supervisor requires a plurality of the common units represented in person or by proxy at this meeting. Floor is now open for nominations. The chair recognizes Mr. Stivala. On behalf of the Board of Supervisors, I nominate for election Matthew J. Shannon, Harold R. Logan, Jr, Jane Swift, Lawrence C. Caldwell, Terence J. Connors, William M. Landyte and myself, Michael A. Stivala. Is there a second to this motion? I second the motion. I declare the nominations closed. If there's anyone who has not had an opportunity to vote, please feel free to do so now by clicking on the Cast Your Vote link on the information page of this meeting portal. Mr. Koepke, what is the next matter to be voted on? The second order of business is the ratification of PricewaterhouseCoopers LLP as a partnership's independent registered public accounting firm for our 2021 fiscal year. The affirmative vote of a majority of common units entitled to vote at this meeting and present today, whether in person or by is required to ratify this appointment. The floor is now open for a motion. The Chair recognizes Mr. Connors. On behalf of the Board of Supervisors, I recommend that the common unitholders ratify PricewaterhouseCoopers LLP as the partnership's independent registered public accounting firm for our 2021 fiscal year. Is there a second to this motion? I second the motion. Thank you. If there's anyone who has not had an opportunity to vote, please feel free to do so now by clicking on the Cast Your Vote link on the information page of this meeting portal. Mr. Koepke, what is the next matter to be voted on? The 3rd order of business is the approval of our amended and restated 2018 restricted unit plan, which as detailed in the proxy statement seeks to, among other things, authorize an increase to the current aggregate common unit reserve by an additional 1,725 1,000,000 common units for a total of 3,525,000 common units reserved for issuance pursuant to awards granted under that plan. The affirmative vote of the holders of a majority of the common units voting on this proposal is required to approve these amendments. Okay. The floor is now open for a motion. The chair recognizes Ms. Swift. On behalf of the Board of Supervisors, I recommend that the common unitholders approve the amended and restated 2018 restricted unit plan, which as detailed in proposal number 3 in the proxy statement, seeks unitholder authorization to increase the current aggregate common unit reserve under the plan by an additional 1,725,000 common units for a total of 3,000,000 525,000 common units reserved for issuance pursuant to awards granted under that plan. Thank you. Is there a second to the motion? I second the motion. Okay. If there's anyone who has not had an opportunity to vote, please feel free to do so now by clicking on the cast your vote link on the information page for this meeting portal. Mr. Koepke, what is the next matter to be voted on? The 4th order of business is the approval of an advisory resolution proving executive compensation, which is commonly referred to as say on pay. The affirmative vote of a majority of common units entitled to vote at this meeting and present today, whether in person or by proxy, is required to approve this resolution. All right. The floor is now open for a motion. The Chair recognizes Mr. Logan. On behalf of the Board of Supervisors, I recommend that the common unitholders approve the say and pay resolution. Thank you. Is there a second to this motion? I second the motion. If there's anyone who has not had an opportunity to vote, please feel free to do so now by clicking on the cast your vote link on the information page of this meeting portal. Are there any other matters to be voted on? No, there are no other matters, Mr. Chairman. Thank you. With no other matters to discuss, I now declare the voting closed. While the final votes are being tabulated, we'll continue with the meeting. And at this point, I would like to ask Mike Stavala to provide his report to unitholders. Thank you, Mr. Shannon. Morning, ladies and gentlemen, and thank you for joining us today for our virtual 2021 Triennial Meeting of Unitholders. At Sverdrup Propane, we hope you and your family and friends remain safe and healthy as our nation and the global society continue to contend with the COVID-nineteen pandemic. Our hearts go out to those of you who have suffered during this pandemic or who may have lost loved ones at the hands of this devastating virus. I also want to take a moment to honor and remember our original Chairman, Mr. John Hoyt Stuckey, who served as Chairman of Suburban Propane from our IPO in 1996 until turning the leadership role over to Mr. Logan in 2007. Mr. Stuckey passed away in January 2021 at the age of 91, at a time in which he was continuing his outstanding service to this Board and our unitholders. To honor his memory and his unwavering focus on our safety initiatives for the benefit of our employees and our customers, we are honored to announce the adoption of an internal safety award called the John Hoyt Stuckey Outstanding Safety Service Award, which will be awarded annually to one of our deserving customer service center locations. John will be sorely missed. I also want to thank our most recent Chairman, Mr. Hal Logan, for his outstanding leadership of our Board from 2,007 until the recently announced transition to Mr. Shannon effective January 1 this year. Thank you, Hal. Today, I'll reflect on the state of our business, the propane industry and our performance since our last unitholder meeting back in May 2018. I will close with some highlights of our long term strategic growth plans. But first, from a macro perspective, the U. S. Has continued to produce record levels of propane as a byproduct of natural gas processing and expanded crude oil refining. Today, on average, domestic propane production has reached nearly 2,400,000 barrels per day. That's a nearly 20% increase compared to average production in 2018. With increased production, we have also seen the completion of several infrastructure projects over the course of the last 3 years, including expansion of U. S. Export activity for propane. U. S. Propane exports have increased to meet increasing global demand, particularly in parts of Asia, and have now averaged approximately 1,100,000 barrels per day, that's an increase of 25% compared to 2018. As a result of these changing global supply demand dynamics, commodity markets for propane have experienced a fair amount of volatility over the last 3 years. This past year alone, we saw propane prices drop as low as $0.25 per gallon basis in Mount Bellevue, Texas, and that was back in April 2020 at the beginning of the pandemic, until increasing to nearly $1 per gallon in February 2021 as supplies began to tighten with increased weather related demand along with rising export activity. Changing supply demand dynamics will continue to influence the price of propane, particularly with some of the recent efforts to shut down certain critical infrastructure to move propane around the country like as in Michigan, as well as due to the direction of energy policy under the new administration in Washington. Nonetheless, through our go green with suburban propane corporate pillar, which I'll expand on in a moment, we are very active in promoting propane as a real solution in the energy transition to a sustainable energy future given its ease of handling, its versatility and its clean burning qualities. Now just a few comments on the COVID-nineteen pandemic and its impact on our business and our performance. To start, our business has been considered essential from the outset of the COVID-nineteen restrictions. To allow us to continue serving the needs of our customers throughout times, we immediately adapted our business practices and safety protocols in order to protect the health and safety of our employees, our customers and the local communities that we serve. We also implemented a thorough communications protocol and contact tracing practice to isolate positive cases within our employee base and to help avoid employee to employee spread. We're extremely proud of how our more than 3,200 employees adhere to our new safety measures, while staying focused on meeting the needs of our customers and delivering outstanding service. From a demand perspective, throughout the pandemic, we have experienced shifting demand patterns with higher residential usage resulting from the remote work and school activities as well as incremental gallons sold for outdoor uses, all of which more than offset sluggishness in the commercial and industrial sectors due to restrictions on businesses. From the very beginning, we began to adapt our operating model and manpower plans to these shifting usage patterns. Additionally, in July 2020, after a thorough assessment of the potential for prolonged demand softness due to the economic uncertainties associated with COVID-nineteen, our Board of Supervisors took a proactive step to reduce our annual cash requirements by lowering our annualized cash distribution rate from $2.40 per common unit to $1.20 per common unit. This reduction provides an additional $75,000,000 of excess cash flow, which will help accelerate our debt reduction efforts to get to our target leverage level of mid-three times and importantly, enhances our financial flexibility to support our long term growth plans, which I will address in a moment. Despite the tremendous challenges managing the business through this unprecedented health and economic crisis, your management team remain nimble in adapting to the changing circumstances, while also staying focused on our long term strategic growth initiatives and as we announced on May 6, continuing to deliver outstanding performance. Looking at our performance. Over the course of the last 3 years, our business has faced some very different weather patterns that have had varying effects on customer demand, particularly in the peak heating months from November through March. The most recently completed heating season presented continued variability in weather with warmer average temperatures during our fiscal Q1 followed by some of the most sustained and in many cases extreme cold weather than we've experienced since 2015, which impacted a significant portion of our operating territory from late January through the early part of March 2021. As a result, customer demand surged in our fiscal 2021 Q2 with propane volumes increasing 24,000,000 gallons or 16.5 percent and we reported a significant improvement in earnings compared to prior year. The higher earnings were not just volume related. Despite a rapidly rising commodity price environment, we were able to effectively manage margins to be slightly ahead of prior year levels and with our best in class operating model, we were able to meet the surge in demand with lower operating expenses. Therefore, for the Q2 of fiscal 2021, we reported adjusted EBITDA of $172,000,000 that's an increase of over $41,000,000 or 32% compared to the prior year Q2. Therefore, on a trailing 12 month basis, adjusted EBITDA for the period ended March 27 was $290,000,000 our highest 12 month performance since fiscal 2015. In addition to our strong financial performance over the past 12 months, our operating personnel have continued to make great progress with regard to our customer base growth and retention initiatives, which have also contributed to incremental volumes. With these improvements, our distribution coverage ratio has improved to more than 2.75 times pro form a for the current annualized distribution rate. We've utilized excess cash flow to reduce debt and to fund 1 small propane acquisition thus far 2021. As of March 27, total debt was nearly $90,000,000 lower than this time last year, $40,000,000 lower than at the end of September 2020 and with the combination of increased earnings and lower debt, our total debt to adjusted EBITDA was 3.95 times at the end of March 2021. That's the lowest level of our leverage ratio since 20 15. So as you can see, we continue to execute on our stated goal of bringing leverage down, strengthening our balance sheet and enhancing our financial flexibility to aggressively pursue our long term strategic growth objectives. And just last week, we executed a successful and opportunistic debt refinancing to lower our overall cost of borrowings, saving us $7,000,000 in interest expense, extending our weighted average maturities by about 3.5 years to almost 8 years and shifting more borrowings through our revolver in order to allow for a more efficient debt reduction strategy. We had excellent demand for the new 10 year $650,000,000 senior unsecured note, which was issued at par with a coupon of 5%. The proceeds along with approximately $145,000,000 of borrowings under our revolver were used to repay $775,000,000 under 2 tranches of senior notes that were set to mature in 2024 2025, plus the necessary premiums and expenses for the offering. Now, let me touch on some of our strategic growth initiatives. We have a 4 pronged approach toward achieving our next phase of growth for Suburban Propane and for you, our valued unitholders. 1st, organic customer base growth. We are continually focused on increasing our overall market share with a combination of growth and new customers through enhanced marketing and brand awareness, combined with greenfield market expansion into attractive new markets that are just outside of our existing service territory without the need for an acquisition. Our customer our new customer growth efforts are supplemented by delivering outstanding service, implementing new technologies to enhance the overall customer experience and exceeding our customers' expectations, all activities that are proven to enhance customer retention. 2nd, small to midsize propane acquisitions. We are continuing to evaluate bolt on acquisitions of well run propane businesses in attractive markets that supplement and in some cases expand our existing service territory. Over the past 3 years, we have acquired 8 businesses investing over $70,000,000 to support this area of growth for our business. 3rd, industry consolidation. We have a history of growing through large scale acquisitions over the last 2 decades, and we will continue to position the business and our financial resources to be able to react in the event of a meaningful large scale propane opportunity. And 4th, strategic diversification through the build out of a renewable energy platform. We continue to seek opportunities outside of our core propane business that can benefit from the cash flow generating capacity of the propane business to support enhanced growth. Over the course of the last year, we have shifted the focus of our diversification strategy toward the development and build out of a renewable energy platform. This shift is in line with our go green with suburban propane corporate pillar, which we launched in the spring of 2019 as part of our brand refresh called the 3 pillars of the suburban propane experience. Let me highlight the 3 pillars. The 1st pillar, the suburban propane commitment, focuses on our unwavering commitment to the highest standards for safety and ethical values in meeting the needs of our customers and the communities we serve and the reliability, dependability and flexibility we offer and make it easier to do business with us. Our suburban cares pillar highlights our devotion to the safety and career development of our great people as well as our philanthropic activities at the local level and nationally with partnerships like our relationship with the American Red Cross. And 3rd, our go green pillar. Through our go green pillar, we are committed to advocating for the versatile, portable, cost effective and clean burning attributes of traditional propane as a contributor to the nation's overall goals of reducing its carbon footprint and greenhouse gas emissions. That advocacy work is enhanced by our commitment to invest in innovative solutions to accelerate the pathway to a sustainable energy future. We are proud to be true leaders in the propane industry in identifying and promoting solutions that can help reduce the nation's carbon emissions. We have advanced these efforts in a number of ways over the past 12 months. First, we arranged for the supply of approximately 1,000,000 gallons of renewable propane produced from waste fats and oils to meet the demand by one of our customers, which was U Haul, for a renewable energy solution to help advance their lower carbon initiatives. 2nd, we acquired a 39 percent equity stake in Oberon Fuels, which is a development stage producer of a low carbon transportation fuel called dimethyl ether or DME for short, which has multiple pathways to lowering the carbon footprint in the transportation sector, either as a diesel replacement, as a great carrier of hydrogen or when blended with propane, it can significantly reduce the carbon intensity of propane. With the Oberon investment, Suburban Propane has the exclusive rights to market and sell DME produced by Oberon in North America, which is a really exciting opportunity and certainly a great investment for Suburban Propane. This investment is our first step into the renewable energy space and we continue to look for similar investment opportunities. And most recently, we created a new executive level position of Vice President of Strategic Initiatives for Renewable Energy, which reports directly to me. This new position is responsible for supporting Suburban's long term strategic growth and diversification through the identification, analysis and execution of transformative acquisitions, strategic partnerships or other investments in renewable energy opportunities similar to the Oberon Fuels investment. As always, we will continue to be very patient and disciplined as we seek opportunities outside of our core expertise. So in closing, while the last 3 years have each presented very different challenges, your Suburban Propane leadership team has remained focused on delivering exceptional results, strengthening the balance sheet, executing on our strategic growth initiatives and transitioning our platform to support a pathway to carbon neutrality or net zero emissions. As I've always said, we manage this business for the long term and for delivering sustainable, profitable growth for you, our valued unitholders. And of course, I want to take a moment to thank the more than 3,200 employees of Suburban Propane for their tremendous efforts and staying focused on delivering the outstanding and essential services that our customers and local communities rely on, especially in the face of the anxieties and added safety measures associated with COVID-nineteen and for rising to the challenge of meeting the surge in demand during this past year's winter heating season. I'm truly proud of Team Suburban Propane. Thank you for your attention and attendance this morning. Now we're ready to open the meeting to additional questions that you may have for management or for the representatives from PricewaterhouseCoopers who are also attending virtually. May I please remind you first to type your name and the number of units held and please remember that only unitholders are permitted to submit questions. Thank you for your cooperation. We'll now gather whatever questions there may be. Folks at Lumi, are there any questions to respond to? There's no questions at this time. Okay. Give it another couple of seconds. Okay. There being no questions, I would like to thank you all once again. And at this point, I'll ask Matt Shannon to proceed with the meeting. Okay. Thank you, Mike. I would now like to ask the Inspector of Election to please provide Mr. Koepke the final vote tabulation report. The inspector received and counted the votes cast for the election of supervisors, each nominee for supervisor being Matthew J. Shannon, Harold R. Logan, Jr, Jane Swift, Lawrence C. Culvo, Terrence J. Connors, William M. Landyke and Michael A. Stivalas has received the plurality of the votes present at the meeting. The inspector received and counted the votes cast on the proposal to ratify PricewaterhouseCoopers LLP as our independent registered public accounting firm for our 2021 fiscal year. The affirmative vote of the holders of majority of the common units present at this meeting was received. The inspector received and counted the votes cast on the proposal to approve the amended and restated 2018 restricted unit plan. The affirmative vote of holders of the majority of the common units voting on this proposal was received. The inspector received and counted the votes cast on the say on pay resolution. The affirmative vote of the holders of the majority of the common units present at this meeting was received. Thank you, Mr. Keppi. The nominees have been duly elected as supervisors to hold office until the next Triangual Unitholders Meeting in 2024 and the ratification of our independent registered public accounting firm for our 2021 fiscal year, the adoption of our amended and restated 2018 restricted unit plan and say on pay resolution have all been approved. Thanks to all the unitholders for joining us this morning and for your support. This concludes our meeting, and I will entertain a motion to adjourn. I move that this meeting be adjourned. Thank you. Do I have a second? I second the motion. Okay. We are adjourned. Thank you very much.