Good day, and welcome to the Suburban Propane Partners Fiscal 2023 full year and fourth quarter results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, today's event is being recorded. I'd now like to turn the conference over to Davin D'Ambrosio, Vice President and Treasurer. Please go ahead, sir.
Great. Thank you. Good morning, everyone. Thank you for joining us this morning for our fiscal 2023 Q4 and full year earnings conference call. Joining me this morning are Mike Stivala, our President and Chief Executive Officer, Mike Kuglin, Chief Financial Officer, and Steve Boyd, our Chief Operating Officer. This morning, we will review our fiscal 2023 Q4 and full year financial results, along with our current outlook for the business. Once we 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 have 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. 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 30th, 2023, which contains additional disclosure regarding forward-looking statements and risk factors, will be filed on or about November 22nd. Once filed, 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. Form 8-K will be available through a link in the investor relations sections of our website. At this time, I'll turn the call over to Mike Stivala for some opening remarks. Mike?
Great. Thanks, Davin, and thank you all for joining us this morning. Fiscal year 2023 was another great year for Suburban Propane. In addition to overcoming a challenging weather pattern with some of the warmest temperatures on record during the most critical months for heat-related demand, that's namely January and February, as well as a persistent inflationary cost environment to deliver strong earnings, we succeeded in accomplishing a number of significant goals in fiscal 2023 that provide further support for our long-term strategic growth initiatives. Let me highlight a few noteworthy accomplishments for fiscal 2023. Through our wholly owned subsidiary, Suburban Renewable Energy, LLC, we acquired a platform of RNG production assets from Equilibrium Capital Group, a leading sustainability-driven asset management firm.
These assets included a large-scale RNG production facility in Stanfield, Arizona, that is currently operating and includes seven anaerobic digesters, manure rights from approximately 55,000 dairy cattle, and an interconnect with an interstate pipeline on premise. An operating facility in Columbus, Ohio, that is currently receiving tipping fees from several large food and beverage providers for processing food waste into fertilizer and biogas, and we have an active development project to upgrade the biogas into pipeline-quality RNG for sale. We formed a partnership with Equilibrium to serve as a long-term platform for the identification, development, and operation of additional RNG product projects, and currently have a pipeline of potential RNG projects to invest in that are in various stages of evaluation.
We have advanced the engineering and construction activities for our anaerobic digester pursuant to an agreement with Adirondack Farms, which is a family-owned dairy farm in upstate New York, to produce RNG from dairy cow manure, which we expect to be up and running in fiscal 2025. Once all three of these renewable natural gas facilities are operating at run rate capacity, we will be generating revenues from tipping fees, RNG sales for approximately 850,000 MMBtus per year, environmental attribute credits, and fertilizer sales. We also continued to support our unconsolidated subsidiaries, Oberon Fuels and Independence Hydrogen, as they begin to scale their platforms for the production and sale of ultra-low carbon, renewable dimethyl ether, and clean hydrogen, respectively.
During fiscal 2023, we invested additional capital into Oberon Fuels to support the commercialization of rDME as a blend with propane or as a precursor to hydrogen production. We were the first in the world to begin delivering propane plus rDME at a 4% blend level to our forklift customers in Southern California. We've also invested in a proprietary blend facility in our Anaheim location and are actively testing different blend levels in forklift engines to expand the potential commercial applications for propane plus rDME.... In our core propane business, our operating personnel did an excellent job safely delivering outstanding service to our customers and executing on our customer base growth and retention initiatives. In fact, during fiscal 2023, we were able to deliver organic growth in our customer base, even after excluding the impact of new customers that we acquired in an acquisition.
This is a testament to the stability of our platform and the quality of service that our field personnel work so hard to deliver to our customers and local communities every day. We also acquired and successfully integrated a well-run propane business in a strategic market in our upper northwest operating territory, which provides excellent synergy potential, and we continued to foster the growth of our greenfield market expansion efforts in seven markets around the country. From a balance sheet perspective, despite deploying nearly $230 million on investments to support our strategic growth initiatives and capital expansion in our RNG business in 2023, our total debt increased by just $123 million compared to where we ended fiscal 2022, as we were able to utilize excess cash flows to manage our overall leverage profile.
Our long-term strategic growth plan is to continue to foster the growth of our core propane business while making strategic investments in the energy transition to lower carbon renewable energy alternatives. Our core propane business is the engine that helps provide the cash flow to support these strategic investments. As society transitions to these lower carbon solutions, Suburban Propane is leveraging our 95-year legacy of an unwavering commitment to safety and excellence in customer service and our reputation as a trusted distributor of energy to local communities in order to position the business for long-term growth and sustainability in a lower carbon economy. A little later, I'll provide some closing remarks. However, let me turn it over to Mike Kuglin to discuss the full year and Q4 results in a little more detail. Mike, over to you.
Thanks, Mike, and good morning, everyone. I'll start by focusing on our full-year results, which included 53 weeks of operations in fiscal 2023 compared to 52 weeks in the prior year, and give some color on the Q4 toward the end of my remarks. To be consistent with previous reporting, I'm excluding the impact of unrealized non-cash mark-to-market adjustments on our commodity hedges, which resulted in an unrealized loss of $3.7 million in fiscal 2023, compared to an unrealized loss of $27.9 million in the prior year, along with certain other non-cash items and acquisition-related transaction costs.
Excluding these items, net income for fiscal 2023 was $138.4 million, or $2.17 per common unit, compared to $171.1 million, or $2.72 and $2.71 per common unit in the prior year. Adjusted EBITDA for fiscal 2023 was $275 million, compared to $291 million in the prior year. As Mike mentioned, our earnings for the fiscal year were impacted by lower heat-related demand, resulting from extremely warm weather during the most critical months of the heating season and from the continued impact of inflationary pressures on our expenses. Although those headwinds presented operating challenges, our earnings for the year benefited from organic growth in our customer base, propane unit margin expansion, and contribution from the RNG facilities acquired in December.
Retail propane gallons sold in fiscal 2023 were 396 million gallons, which is 1.2% lower than the prior year, primarily due to the impact of warm and inconsistent temperatures throughout the heating season, partially offset by favorable customer-based trends. With respect to the weather, average temperatures for fiscal 2023 were 8% warmer than normal and 2% colder than the prior year. Although we experienced an overall increase in heating degree days compared to the prior year, the weather pattern was characterized by extremely warm temperatures during the critical heating months of January and February and were most pronounced in our East Coast and Midwest operating territories, while our operations in the West generally experienced normal to cooler-than-normal temperatures.
For the month of January and February, average temperatures were 16% warmer than normal and 11% warmer than the same period last year and were on par for the warmest on record for that two-month period. From a commodity perspective, propane inventory levels in the U.S. were elevated throughout the year and were much improved compared to 2022. According to the Energy Information Administration, U.S. propane inventories at the end of September 2023 were at 101 million barrels, which is 20% higher than September 2022 levels and 11% higher than historical averages for that time of the year. As a result of the increased inventories and other factors, average wholesale prices, basis Mont Belvieu, for fiscal 2023 were $0.75 per gallon, which were 39% lower than the prior year.
Excluding the impact of the mark-to-market adjustments on our commodity hedges that I mentioned earlier, total gross margin of $842.7 million for fiscal 2023 increased $25.5 million, or 3.1%, compared to the prior year, primarily due to higher propane unit margins and margin contribution from the RNG assets acquired in December from RNG sales and related environmental attributes, as well as tipping fees. Excluding the impact of the unrealized mark-to-market adjustments, propane unit margin for fiscal 2023 increased $0.04 per gallon or 2% compared to the prior year.... primarily due to effective selling price management during a period of declining commodity prices that helped offset the impact of inflationary pressures on our delivery costs and other expenses.
With respect to our expenses, combined operating and G&A expenses increased $45.5 million, or 8.7% compared to the prior year, primarily due to the impact of inflationary pressures across many areas of the business, and most significantly within payroll and benefit-related expenses and vehicle lease and repair costs. The comparison of our expenses to the prior year were also impacted by the costs associated with the acquisition and operations of the new RNG assets. Included within general and administrative expenses for fiscal 2023 were acquisition-related costs of $4.7 million, which were excluded from adjusted EBITDA.
Net interest expense of $73.4 million for fiscal 2023 increased $12.7 million compared to the prior year, due to a higher level of average outstanding borrowings under our revolving credit facility to fund the RNG acquisition in the Q2 , coupled with higher benchmark interest rates for borrowings under the revolver, as well as the impact of the $80.6 million in green bonds assumed in the RNG acquisition, which carry an interest rate of 5.5%. Total capital spending for the year was $45 million and reflected $20 million of maintenance CapEx and $25 million of growth. Our growth capital included $3 million associated with the expansion and upgrade of the RNG production facility in Stanfield, Arizona, and the ongoing construction of the RNG facility at the Adirondack Farms.
For fiscal 2024, capital spending for our propane operations is expected to be consistent with historical levels, which is between $40 million-$45 million, and CapEx for the RNG projects is expected to range between $25 million-$35 million, excluding the benefit of potential investment tax credits. Turning to our Q4 results. Given the nature of our fiscal calendar, the Q4 of fiscal 2023 included 14 weeks of operations, compared to 13 weeks in the prior year. Consistent with the seasonality of our business, we typically report a net loss for the Q4 . With that said, excluding the effects of non-cash adjustments in both years, we reported a net loss of $33.2 million, or $0.52 per Common Unit, compared to a net loss of $27.1 million, or $0.43 per Common Unit in the prior year.
Adjusted EBITDA for the Q4 of fiscal 2023 increased slightly to $3 million. Total gross margin increased $15.4 million, or 12%, primarily due to an increase in volume sold, higher unit margins, and an increase in service-related revenues. Combined operating and G&A expenses increased $15.2 million, or 12.2%, due to higher variable operating costs in support of the increase in volume sold, the impact of the additional week of operations, costs associated with the operations of the new RNG assets, and the continued impact of inflation. Turning to our balance sheet. As Mike mentioned, we invested more than $230 million to fund our strategic growth initiatives during fiscal 2023.
Although the investments were initially funded with debt, including borrowings under the revolver and the assumption of the green bonds, our total debt outstanding at the end of the fiscal year reflected an increase of $123 million, as we utilized excess cash flow from operating activities to repay revolver borrowings. As a result of the increase in debt, our consolidated leverage ratio at the end of fiscal 2023 was 4.28 times. Although the leverage metric has been elevated relative to our historical levels following the RNG acquisition, it has improved in each of the last two quarters as we utilized excess cash flows to repay revolver borrowings, including a repayment of $28 million during the Q4 .
We remain well within our debt covenant requirement of 5.75x , and as I mentioned last quarter, factoring the projected run rate EBITDA contributions from the RNG assets, the pro forma consolidated leverage ratio approaches 4 times. With that, I'll turn it back to Mike.
Great. Thanks, Mike. As mentioned in our October 26th press release, our Board of Supervisors declared our quarterly distribution of $0.325 per Common Unit in respect of the Q4 of fiscal 2023, which equates to an annualized rate of $1.30 per Common Unit. The quarterly distribution is payable on November 14th, to our unit holders of record as of November 7th. So just a few closing remarks regarding our long-term strategy. Our success and longevity as an organization is due to the hard work and dedication of our people. They are guided by our three corporate pillars: the Suburban commitment to excellence in safety and customer service, our devotion to giving back to the local communities through our Suburban Cares platform, and our innovation for the future through the Go Green with Suburban Propane pillar.
Throughout our 95-year history, we have expanded our role as a trusted local provider of energy with our commitment to the highest standards for safety, exceptional customer satisfaction, and reliability. Suburban Propane is continuing its legacy as the true pioneer in the U.S. propane industry through our comprehensive growth strategy that builds on the low-carbon attributes of propane and our investments in innovative renewable energy products and technologies through our Suburban Renewable Energy subsidiary. All across the energy sector, we are seeing a shift toward cleaner energy alternatives....
While propane will continue to be relied upon as a versatile, affordable, and available clean energy source that is produced domestically, Suburban Propane will continue to build off of our well-established legacy and core strengths to solidify our place in the localized energy distribution network by making strategic investments in both the propane sector and into renewable energy alternatives for businesses and local communities across the country. We are committed to delivering solutions to help mitigate the long-term effects of climate change, positioning Suburban Propane for long-term growth and sustainability, enhancing the career development opportunities for our valued employees, and creating long-term value for all of our key stakeholders. Finally, I want to thank the more than 3,300 employees for helping make fiscal 2023 another very successful year for Suburban Propane.
Of course, I hope you and your families remain safe and healthy, and wish everyone a very happy holiday season. We appreciate your support and attention this morning, and we'll now open the call for questions. So, Rocco, would you mind helping us with that?
Yes, sir. Absolutely. If you'd like to ask a question, please press star then one. If your question's already been addressed and you'd like to remove yourself from queue, please press star then two. Once again, ladies and gentlemen, that's star then one if you have a question. Today's first question comes from Gabe Moreen with Mizuho. Please go ahead.
Morning, guys.
Morning, Gabe.
Quick question. A couple questions for you, if I can. One is just in your expectations for O&M growth, appreciating that last year's, you know, 9% ± growth was partially inorganic. Just wondering what you're seeing out there and expectations for FY 2024 on the O&M and G&A side.
So with inflation continuing to be an ongoing factor across the country, I do expect—we do expect expenses to continue to trend upwards. However, if you look at the decline, and we talked about this a bit on the last call, the percentage increase certainly is starting to moderate a bit, but it's certainly not going away. So it's volumes, of course, are going to have a big impact on what our operating expenses are ultimately going to be. But I do expect the net increase to be less than what we'd experienced over the last couple of years. But ultimately, expenses are going to be driven by what volumes are going to be.
Great. Thanks, Mike. And then I think there was a pretty decent step up in your equity earnings this quarter. Can you just speak to that a little bit about whether that was Oberon, Independence Hydrogen, maybe where that was coming from?
Yeah, it was related to Oberon. And nothing unusual, just us picking up our equity and the earnings of the sub.
Thanks, Mike. And maybe if I can just ask a bigger question. I think you talked about investing in both propane and RNG. Clearly, there's one of your competitors out there that's undergoing a strategic review of its propane operations. Can you just talk about interest in scaling in propane versus making more of those RNG investments, and how you think about kind of allocating capital on both sides, particularly with some of the stuff out there that might be out there in the market at the moment?
Sure, Gabe. You know, look, our long-term strategy is clear, that we are totally committed to our core propane business. And we've done a couple of small acquisitions each of the last couple of years. That is done in very strategic markets and at very good valuations. But we're also very much focused on the energy transition as I think has been evidenced by the past couple of years of investments, not only in the RNG platform, but the stakes that we've taken in Independence Hydrogen to get involved in clean hydrogen production and distribution with Oberon, and some other opportunities that we see.
And we do believe that for the long term of this company, we're focused on building a growth platform, okay? Propane is a great business. It's a great business. It is the engine that provides the excess cash flow to be able to make the investments that we're doing. And it's been a great business. We run it, as you know, really well. And we've all been here for decades, and we really do have great things ahead of us for the propane industry. But the propane industry has always struggled with headwinds around weather volatility and a highly mature, competitive market that doesn't have tremendous growth opportunities.
And so our strategic growth is to transition to create a growth platform and set this business up for the next 95 years, with propane being a significant piece of that, because I really don't honestly see propane losing out in the transition to cleaner energy because it is a clean energy source. But I do see alternatives clearly gonna develop, like the renewable natural gas, like hydrogen. You know, obviously, the government just committed billions of dollars to hydrogen hubs around the country. So I think you know, our focus is a combination of continuing to foster the growth of propane while setting the business up and creating a growth platform. And that growth platform, as we execute, is gonna generate growth that we expect to be able to deliver-...
Increased returns through for our unit holders in the form of distribution growth, as well as, perhaps as we create a more different growth profile, perhaps a rerating of the risk profile that you know the market perhaps perceives in the propane industry. And that can be a two-way approach to creating long-term value for our shareholders. So that is our strategy. I'm not really gonna comment on your other question about the strategic direction that one of our competitors is gonna take.
You know, I think they've been pretty clear about their intentions, and you know, I think they've also been pretty clear about some of the challenges that they've faced in their business over the past several years. So I'll just leave it at that.
Appreciate it. Thanks, Mike.
Thanks, Gabe.
Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star then one at this time. We will pause for just a moment while we assemble our roster. Everyone, that concludes our question and answer session. I'd like to turn the conference back over to the management team for any closing remarks.
Great. Thanks, Rocco. Appreciate your help today, and again, appreciate everybody's support and attention. I really do wish you all a happy holiday season. We look forward to talking with you again in early February after our Q1 results. Thank you.
Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.