Ferrellgas Partners, L.P.

Good day, and thank you for standing by. Welcome to the Ferro Gas Partners second quarter fiscal 2024 earnings conference call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tamria Zertucci, Chief Executive Officer and President of Ferro Gas. Please go ahead.

Thank you, Lateef. Welcome to our second quarter fiscal 2024 earnings call. My name is Tamria Zertucci, Chief Executive Officer and President of Ferrell Gas. In the second quarter, we took advantage of our diverse customer base, meaning those non-weather dependent segments of our retail business. Also, new opportunities in the propane market and the counter seasonal Blue Rhino tank exchange business. We used our diverse core business to our advantage to offset the headwinds created by a warmer than normal Q2. I am very proud of our team and all they accomplished in the second quarter. Before I hand the call over to Mike, I want to share a few observations from the past several weeks. First, in February, I attended and spoke at the World Liquid Gas Association Innovation Summit. Over 125 attendees from across many countries gathered in Washington, D.C., we discussed the great opportunities in the propane industry. I was inspired by the innovation shared in that forum and Innovations that deliver on the strengths of propane, which, as you know, is a clean, portable, and affordable fuel. I also want to call attention to the true opportunity in the propane industry, and that is our people. The people that make up this amazing distribution network. I will always take the opportunity to point out that the U.S. has plenty of propane. And our industry has the best distribution system there is. The drivers that brave the elements, the landscape, the traffic, and more. They have built opportunities for propane that stand strong against other energy distribution networks. Remember, there are very few energy sources with a distribution network like ours. We have redundancies and a lack of single points of failure. Our energy is there when others might fail. We are a proud technology-enabled logistics company, and we deliver a great energy source. I will now turn the floor over to our Chief Financial Officer, Mike Cole, to go over the financial results for the quarter. Mike?

Thank you, Tamaria, and thank you for joining us on today's call. I'd like to remind everyone that some statements made during this call may be considered forward-looking and that various risk, uncertainties, and other factors could cause actual performance to differ materially from anticipated performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. These factors are discussed in our Form 10-K, filed on September 29, 2023, and other documents filed from time to time with the Securities and Exchange Commission. We undertake no obligation to publicly update any forward-looking statements. whether as a result of new information, future events, or otherwise, except as required by law. This call also includes various non-generally accepted accounting principles, financial measures. The disclosures related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures, are included in our filings with the Securities and Exchange Commission. Additionally, we note that the purpose of this call is to discuss the results of operations for the second fiscal quarter ended January 31st, 2024. Wholesale propane prices during the second fiscal quarter 2024 continue to be lower relative to prices in the prior year period. And this led to a decrease in our revenues and cost of sales. Revenues were $74.1 million lower, which was partially offset by a decrease of $70.2 million in cost of product as compared to the prior year period. As a result, gross profit decreased $3.9 million, or 1%, for the second fiscal quarter 2024 compared to the prior year period. Our wholesale sales price per gallon partially correlates to the change in the wholesale market price of propane. The wholesale market price at our two major supply points averaged 10.1% and 15.0% less in the second fiscal quarter of 2024 compared to the prior year period. As previously noted, these decreases impacted both the revenue and cost of product changes for the period. Margin per gallon for the second fiscal quarter 2024 increased 5 cents or 4% compared to the prior year period. A record warm December impacted our quarterly results as nearly every weather reporting site in the nation experienced above average monthly temperatures. Colder January weather partially offset the impact of warmer temperatures in November and December. Propane sales volumes during the second fiscal quarter 2024 decreased 5% or 13.6 million gallons compared to the prior year period. We recognize net earnings attributable to Ferro Gas Partners LP of $95.8 million and $98.1 million in the second fiscal quarters of 2024 and 2023, respectively. Operating expense as a percent of total revenue increased 13% for the second fiscal quarter. The $2.3 million or 1% increase in operating expense was primarily due to an increase of $2.6 million in vehicle costs related to vehicle repairs, maintenance, and other costs, including the refurbishment of trucks to support new customer growth in Blue Rhino and an increase of $0.6 million for tank installation costs, which was partially offset by a decrease of $1 million in fuel costs. Adjusted EBITDA, a non-GAAP financial measure, decreased by $9 million or 6% to $146.9 million in the second fiscal quarter compared to $155.9 million in the prior year quarter. The change was primarily due to the $3.9 million decrease in gross profit noted above And after adjusting for the $9 million decrease in legal fees and settlements related to non-core businesses, a $5.4 million increase in operating, general, and administrative expense. Of this $5.4 million increase, $2.3 million of the increase relates to operating expense, as noted above. with a remaining $3.1 million increase in general and administrative expense primarily attributable to our ongoing ERP system implementation and benefits expense. I'll now turn the call over to Tamria.

Thank you, Mike. In the second fiscal quarter, FerroGas employee owners provided millions of gallons of new business, and I feel Really remarking on the relationship that has been built between our general managers and our account managers, they grew EBITDA all while navigating really one of the warmest winters on record. Technology remains a strategic priority as we advance various business initiatives, such as the design and implementation of our new ERP system. We have digital welcome packets and, of course, the ongoing use of tank monitoring to really enhance our customer service and efficiencies. As a nationwide logistics company, we really benefit from having better data for miles and minutes management, which in turn allow us to deliver product to our customers in a timely and efficient manner. In conjunction with our focus on growth, we acquired Eastern Sierra Propane at the end of our second fiscal quarter with seller advising support from Matrix Capital Markets Group. This additional 150-mile service area in the Eastern Sierra Mountains was cultivated by owner Tom Sigler over 30 years and complements our existing California service units. The strategic propane gas storage acquired through the sale will also benefit our great distribution network. We want to recognize Blue Rhino's celebration of its 30th birthday this year. A special edition tank sleeve is rolling out nationally to commemorate this occasion. Blue Rhino fans have the opportunity to enter a nationwide sweepstakes to become an honorary chief grilling officer and receive a barbecue master class for up to 30 friends. Grilling enthusiasts can also view favorite grilling recipes on our 30th anniversary e-cookbook in addition to participating in other events. We have received some questions in our investor relations mailbox and they have a couple basic themes and I'm going to hand it over to Mike for the first question.

Thank you, Tamria. One of the themes that Tamria is referencing relates to our capital structure, and more specifically, people are inquiring about our plans related to the capital structure. The company continues to perform and improve upon its financial condition relative to 2021. These financial improvements have delivered and de-risked the company. This stronger credit profile, combined with favorable capital market conditions, may create opportunities to address some or all of the company's complex and restrictive capital structure components. Secondary trading levels have created yields on FerroGas's senior notes that are currently in the 6% to 7% range versus 10% or higher about six to nine months ago. FerroGas is assessing what restructuring opportunities, if any, are created by the current market conditions. Tamrae, I'll turn it back to you for the other topic that's brought up in the investor inbox.

Sure. There were some questions around gallons and expenses, and I think Mike did a good job of really addressing both of those. So I'll answer a more specific question around Q2 fleet expenses because they highlight one of the implementations we did last quarter. As a logistics company, we know our people need dependable vehicles to execute against our customer demand. We have implemented a best-in-class telematic solution. It's now across our entire fleet as of the end of Q2 to assist with preventative maintenance, fleet optimization goals, and logistics efficiencies. We see this investment in fleet expense as a mitigation to the industry-wide higher fleet expenses. With that, I will now turn the call back to our moderator, but before I do that, As mentioned in the announcement for this call, any additional questions may be submitted via our Investor Relations email box at InvestorRelations at FerrellGoss.com. Thank you, and thank you, Lateef. Back to you.

This concludes today's conference call. Thank you for participating. You may now disconnect.