10-K: Suburban Propane Reports Strong FY25 Earnings, Boosted by Propane Sales and Strategic Acquisitions

Suburban Propane Partners, L.P. announced a significant increase in net income and Adjusted EBITDA for fiscal year 2025, driven by higher propane volumes and strategic investments in renewable energy, despite impairment charges on certain ventures.

Summary

• Net income for fiscal year 2025 increased to $106.6 million, or $1.64 per Common Unit, up from $74.2 million, or $1.15 per Common Unit, in fiscal year 2024.
• Adjusted EBITDA rose by 11.2% to $278.0 million in fiscal year 2025, compared to $250.0 million in the prior year.
• Retail propane gallons sold increased by 5.9% to 400.5 million gallons in fiscal year 2025, attributed to cold temperatures, increased demand for backup power, and recent acquisitions.
• Total gross margins for fiscal year 2025 grew by 7.9% to $868.8 million, including a $2.4 million unrealized gain from derivative instruments.
• Operating and general and administrative expenses increased by 4.2% to $590.5 million, primarily due to higher payroll, benefits, and IT modernization costs.
• The company utilized $23.5 million in net proceeds from its at-the-market (ATM) equity program to support growth and reduce debt.
• Total debt outstanding as of September 2025 decreased by $1.8 million compared to September 2024, with a Consolidated Leverage Ratio of 4.29x.
• Quarterly distribution of $0.325 per Common Unit was declared for the three months ended September 27, 2025, equating to an annualized rate of $1.30 per Common Unit.
• The company recorded other-than-temporary impairment charges totaling $25.9 million for investments in Oberon Fuels, Independence Hydrogen, Inc. (IH), and another development-stage entity.
• The fair value of contingent consideration from the RNG Acquisition was adjusted to $0, resulting in a $6.194 million income recognition, while a $3.0 million increase in fair value for another contingent consideration was recognized as income.

Sentiment

Score: 7

Explanation: The company demonstrated strong financial performance in fiscal 2025 with significant increases in net income and Adjusted EBITDA, driven by core propane sales and strategic acquisitions. The improvement in the leverage ratio and the initiation of an ATM equity program for growth and debt reduction are positive. However, notable impairment charges on renewable energy investments and ongoing regulatory uncertainties in the renewable sector temper the overall sentiment, indicating a mixed but generally positive outlook with strategic challenges.

Positives

• Net income increased significantly to $106.6 million in fiscal 2025 from $74.2 million in fiscal 2024.
• Adjusted EBITDA grew by 11.2% to $278.0 million, indicating strong operational performance.
• Retail propane gallons sold increased by 5.9% to 400.5 million gallons, driven by favorable weather and strategic growth.
• Total gross margins increased by 7.9% to $868.8 million, with propane unit margins up approximately $0.02 per gallon.
• Successful acquisition and integration of a propane business in New Mexico and Arizona for $53.0 million.
• Acquired two high-quality propane businesses in California for $24.0 million shortly after fiscal year-end.
• Expanded renewable natural gas (RNG) operations team and advanced capital projects for new and existing anaerobic digester facilities.
• Consolidated Leverage Ratio improved to 4.29x from 4.76x in the prior year, reflecting better financial health.
• The company launched an ATM equity program, raising $23.5 million in net proceeds to support growth and debt reduction.
• Board of Supervisors honored with the Small Company Board of the Year award by the New Jersey Chapter of the National Association of Corporate Directors.

Negatives

• Fuel oil and refined fuels revenue decreased by 8.7% due to lower average selling prices and volumes sold.
• Natural gas and electricity segment revenue decreased by 5.0% due to a lower customer base.
• All other segment revenue decreased by 3.1% due to planned shutdowns for equipment upgrades and maintenance at the Stanfield, Arizona RNG facility, and adverse impact of cold temperatures on anaerobic digestion and RNG production.
• Recorded other-than-temporary impairment charges of $10.2 million for Oberon Fuels, $9.6 million for Independence Hydrogen, Inc. (IH), and $6.1 million for another development-stage entity, reflecting challenges in renewable fuel investments.
• Average temperatures in service territories were 9% warmer than normal for fiscal 2025, which generally negatively impacts heating fuel demand, though specific cold periods offset this.

Risks

• Weather conditions, including warm winters and natural disasters, can significantly impact demand for propane, fuel oil, and natural gas.
• Potential effects of climate change, such as increased frequency and severity of storms, floods, and other climatic events, could disrupt operations and supply chain.
• Adoption of climate change legislation or regulations could increase operating costs and reduce demand for fossil fuels, while also impacting the availability or value of environmental attributes and tax credits for renewable fuels.
• Deterioration of general economic conditions, including inflation, interest rates, and consumer spending, could harm business and results of operations.
• Disruption of the supply chain due to various factors (weather, natural disasters, geopolitical conflict, etc.) could impair the ability to acquire sufficient product supplies.
• Sudden increases in product acquisition and transportation costs, or inflationary conditions, may adversely affect operating results if not fully passed on to customers.
• High prices for products can lead to customer conservation and reduced demand.
• The highly competitive nature of the retail propane and fuel oil businesses may hinder customer retention and acquisition.
• Energy efficiency, technological advances, and legislative bans on gas use in buildings could reduce demand for propane, fuel oil, and natural gas.
• Difficulty in attracting and retaining qualified employees, particularly drivers and technicians, could impact operations and profitability.
• Dependence on senior management and other key personnel, with loss of service potentially having a significant adverse impact.
• Geopolitical conflicts (e.g., Ukraine, Middle East) could intensify volatility in price and supply of energy products.
• Governmental regulation and associated environmental, health, and safety costs may adversely affect financial condition.
• The ability of Agway Energy Services (AES) to acquire and retain natural gas and electricity customers is highly competitive, price-sensitive, and impacted by state regulations (e.g., New York Public Service Commission orders, GBL amendments).
• Costs associated with lawsuits, investigations, or increases in legal reserves could adversely affect operating results if not covered by insurance.
• Inability to make acquisitions on economically acceptable terms or effectively integrate them could adversely affect financial performance.
• Current conditions in global capital and credit markets, and general economic pressures, may adversely affect financial position and results of operations.
• Use of derivative contracts involves credit and regulatory risk and may expose the company to financial loss.
• Renewable fuel investments are subject to risks including customer adoption, financing, construction delays, ability to generate sufficient return, dependence on third-party partners, and changing regulations/government incentives.
• A prolonged environment of low prices or reduced demand for Renewable Natural Gas (RNG) could adversely affect long-term business prospects.
• Reliance on gas pipelines not owned or controlled by the company, subject to quality standards and regulations, may restrict or negatively impact RNG delivery.
• Growth and diversification plans may not be successful or could expose the business to new risks.
• Reliance on particular management information systems and communication networks, with potential for failure or disruption.
• Cybersecurity breaches of systems and information technology or those of third-party vendors could result in significant harm.
• Compliance with evolving data privacy and security laws, rules, and regulations could result in claims, penalties, or increased costs.
• Current and future debt obligations may limit financial flexibility and ability to make distributions to Unitholders.
• Operating results and cash flow generation depend on the ability to control expenses.
• Disruptions in capital and credit markets may adversely affect access to financing.
• Cash distributions are not guaranteed and may fluctuate.
• Unitholders have limited voting rights.
• Provisions in the Partnership Agreement may make it difficult for a third party to acquire the company.
• Unitholders may not have limited liability in some circumstances and may have liability to repay distributions.
• Future dilution and additional taxable income may be allocated to each Unitholder.
• Tax treatment as a partnership for U.S. federal income tax purposes could be challenged by the IRS, substantially reducing cash available for distribution.
• Tax treatment of publicly traded partnerships could be subject to legislative, judicial, or administrative changes, possibly retroactively.
• IRS audit adjustments could result in taxes collected directly from the Partnership, reducing cash available for distributions.
• A Unitholder's tax liability could exceed cash distributions.
• Ownership of Common Units may have adverse tax consequences for tax-exempt organizations and non-U.S. investors.
• Limitations on the ability of a Unitholder to deduct its share of losses.
• Tax gain or loss on the disposition of Common Units could be different than expected.
• Inaccuracy or lack of timeliness in reporting partnership tax information.
• IRS challenging the treatment of each purchaser of Common Units as having the same tax benefits or the proration method for income, gain, loss, and deduction.
• Negative tax consequences if the company defaults on debt or sells assets.
• State, local, and other tax considerations for Unitholders.
• A Unitholder whose Common Units are loaned to a short seller may be considered as having disposed of those Common Units for tax purposes.

Future Outlook

The company anticipates sufficient funds to meet current and future obligations, leveraging its liquidity position, revolving credit facility, and expected cash flow from operating activities and the ATM equity program. The long-term strategic growth plan focuses on fostering the core propane business while making strategic investments in lower-carbon renewable energy alternatives, aiming for sustainable, long-term growth by identifying and investing in solutions for a lower-carbon energy economy. This includes advancements in delivering renewable propane and renewable natural gas as direct drop-in replacements. Construction of RNG assets at Adirondack Farms and gas upgrade equipment at the Columbus facility are expected to come online in the first half of fiscal 2026. The company expects to increase RIN and LCFS Credits income, as well as financial benefits from investment tax credits and production tax credits, as its renewable energy platform expands.

Management Comments

• Our goal is to lead the propane industry in the transition to a renewable energy future that provides value to our customers, Unitholders, employees, and the communities we serve in a way that ensures that we can thrive in a carbon constrained world for many more years to come.
• We are leveraging the strength and stability of our core propane business to position Suburban Propane for sustainable, long-term growth by helping to identify and invest in solutions to support the ongoing energy evolution to a lower-carbon energy economy.

Industry Context

The energy industry is undergoing a significant transition towards low-carbon solutions, driven by climate change legislation and increasing interest in renewable energy. The company is actively participating in this transition by investing in renewable propane, rDME, hydrogen, and RNG production, positioning itself as an industry leader in clean energy alternatives. While the traditional propane and fuel oil markets are mature with flat to moderately declining demand, the renewable energy market is rapidly growing and becoming increasingly competitive. The company's strategy to diversify into renewable fuels aligns with broader industry trends to reduce GHG emissions and promote electrification, although it also faces risks from potential legislative bans on fossil fuels and market volatility in environmental attributes.

Comparison to Industry Standards

• The company is the third-largest retail marketer of propane in the United States, measured by retail gallons sold in calendar year 2024, according to LP/Gas Magazine.
• The company's total unitholder return (TSR) is compared against the Alerian MLP Index, which serves as a peer group benchmark for publicly traded partnerships.
• The company's executive compensation practices are benchmarked against market data from Mercer Human Resource Consulting, Inc. and Willis Towers Watson, which include similarly sized companies across several industries, including other energy companies, rather than solely other propane marketers.

Management Changes

Corporate Governance

Legal Proceedings

• The company is a defendant in various legal proceedings and litigation due to operating hazards and risks associated with handling, storing, and delivering combustible liquids like propane.
• Inquiries or requests for additional information from Attorneys General or other government officials related to unfair or deceptive practices in residential sales are received from time to time.
• The State of New York amended Section 349-d of the New York General Business Law (GBL) effective March 18, 2024, requiring written customer consent for commodity price changes by energy service companies like AES.
• The New York Public Service Commission (NY PSC) amended its Uniform Business Practices (UBP) for energy supply companies, requiring AES to provide customers with historical rate comparisons and obtain affirmative consent for price changes.

Related Party Transactions

• The General Partner, whose sole member is the CEO, holds 784 Common Units but has no other economic interest in the Partnership or Operating Partnership.
• Michael A. Stivala (CEO) serves on the Board of Directors of Independence Hydrogen Inc. (19% equity stake) and Oberon Fuels, Inc. (38% equity stake), both of which are unconsolidated affiliates of the Partnership.
• M. Douglas Dagan (VP, Strategic Initiatives – Renewable Energy) serves on the Board of Directors of Independence Hydrogen Inc. and Nu:ionic Technologies Inc., in which the Partnership holds equity stakes.

Stakeholder Impact

• **Shareholders/Unitholders**: Increased net income and Adjusted EBITDA, along with an improved leverage ratio, are positive for Unitholders. The consistent quarterly distribution of $0.325 per Common Unit provides stable returns. The ATM equity program could lead to dilution but supports growth and debt reduction. Impairment charges on renewable investments represent a loss of capital.
• **Customers**: Increased propane volumes indicate strong customer demand. Investments in renewable energy aim to provide cleaner energy solutions. However, regulatory changes in New York for natural gas and electricity marketing could impact customer retention for AES.
• **Employees**: Higher payroll and benefit-related expenses, along with increased variable compensation, suggest positive employee remuneration. The company's 'SuburbanCares' pillar and programs like 'Heroes Hired Here' and 'Steer Your Career' focus on employee well-being and development. The LTIP amendment aligns incentives with RNG business growth.
• **Suppliers**: The company relies on a broad group of suppliers for propane, fuel oil, and natural gas, with Energy Transfer LP and Targa Liquids Marketing being significant. Supply chain disruptions and commodity price volatility could impact supplier relationships and costs.
• **Creditors**: Improved Consolidated Leverage Ratio and a decrease in total debt are favorable for creditors. The Operating Partnership's guarantee of Green Bonds payments enhances security for those bondholders.

Next Steps

• Continue to use net proceeds from the ATM equity program to support opportunistic growth and accelerate debt reduction.
• Advance capital projects to construct an anaerobic digester system in upstate New York and install gas upgrade equipment at the existing anaerobic digestion facility in Columbus, Ohio, with expected online dates in the first half of fiscal 2026.
• Continue to identify and foster new market expansion efforts to establish or extend presence and grow market share.
• Enhance communication of the value-added component of AES's bundled product offering (EnergyGuard) to reduce potential negative effects of new NY PSC notice requirements on customer retention.
• Monitor IH's financial condition and other available information to determine if future adjustments to the investment carrying value are necessary.
• Assess the future impact of the amended New York General Business Law on the natural gas and electricity business.
• Comply with California's SB 261 by disclosing climate-related financial risks by January 1, 2026.
• Comply with California's SB 253 by reporting Scope 1 and Scope 2 GHG emissions by June 30, 2026, and Scope 3 GHG emissions beginning in 2027.

Key Dates

Recommendation

Suburban Propane Partners, L.P. demonstrated strong financial performance in fiscal year 2025, with significant increases in net income and Adjusted EBITDA, driven by robust propane sales and strategic acquisitions. The improved leverage ratio and consistent distributions are positive indicators of financial health. However, the substantial impairment charges on renewable energy investments, coupled with ongoing regulatory and market uncertainties in the emerging clean energy sector, introduce a degree of risk. While the core business is performing well and strategic diversification is underway, the long-term profitability of these new ventures remains uncertain. Therefore, a 'hold' recommendation is appropriate, acknowledging the solid core performance and strategic initiatives while remaining cautious about the execution risks and capital losses in the renewable energy segment.

Keywords

Propane, Renewable Propane, RNG, Renewable Natural Gas, Fuel Oil, Natural Gas, Electricity, Energy Distribution, SEC Filing, 10-K, Financial Results, Adjusted EBITDA, Acquisitions, Energy Transition, Climate Change, Sustainability, Cybersecurity, Debt Management, Distributions, Partnership