Ferrellgas Partners, L.P.

Good day, and thank you for standing by. Welcome to the Feral Gas Fourth Quarter 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 host today, Tamria Sertucci, President and CEO. Please go ahead.

Welcome to our Fourth Quarter Fiscal 2024 Earnings Call. The fourth fiscal quarter showcased our employee owners and their ability to manage and execute against our overall strategic initiatives. It is our people that are responsible for the wins we had this quarter and this year. Like last quarter, you will hear about our tank exchange business and the growth we have experienced due to the increase in overall locations. Our retail operations team was focused on fourth quarter seasonal prep for the next heating season, all while growing the commercial side of our business, especially in the auto gas segment. We grew in this fourth fiscal quarter as compared to prior year, so you will hear how we were able to do that through our focus on counter seasonal business opportunities. You will also hear about our emergency response support. Before, during, and after recent storms, our commitment to the communities we serve is clear, not only during normal business operations, but also during those times when weather events disrupt other energy sources. Propane has proven time and again to be available when other energy sources are not. Ferralgas is committed to propane and all the advantages it provides our customers. I am proud of our company, its people, and their focus on safety, our customers, and results. I will now turn the floor over to our Chief Financial Officer, Mike Cole, to go over the financial results for this quarter.

Thank you, Tamaria, and thank you all for joining us today. I would like to remind everyone that some statements made during this call may be considered forward-looking and that various risks, uncertainties, and other factors could cause actual performance to differ materially from anticipated performance. These factors are discussed in our Form 10-K, filed on September 27, 2024. and other documents filed from time to time with the Securities and Exchange Commission. Additionally, we note that the purpose of this call is to discuss the results of operations for the fourth fiscal quarter and full year ended July 31st, 2024. Unseasonably warm weather and higher medical insurance claims were the two biggest drivers impacting our fiscal 2024 EBITDA decrease. weather in fiscal 2024 was 10% warmer than normal and 4% warmer than fiscal 2023, which correlates with a 44.3 million or 5% decrease in gallons sold compared to the prior year. Additionally, we paid 11.3 million more in medical insurance claims compared to fiscal 2023. Although our business will always be impacted to an extent by weather, we are making progress in our efforts to become more weather agnostic. As the cost of medical claims continues to escalate, we strive to make health a priority for our employee owners through a wellness program which encourages preventative care. We also continually evaluate our medical plan, and we recently selected a top broker to help ensure plan performance. We continue to strategically focus on efforts to become more weather agnostic. These initiatives include investments in our Blue Rhino Tank Exchange brand on the wholesale side and targeting specific locations and customer types on the retail side. Strategic investments in our Blue Rhino Tank Exchange business reflect increases in EBITDA of 42% and 26% for the fourth fiscal quarter and fiscal 2024, respectively. We added over 6,000 tank exchange locations for a 10% increase compared to the prior year period. As with last quarter, we continued to see more business closings from the effects of inflation, which contributed to a decrease in retail customers in some areas of our national footprint, and these decreases were not fully offset by customer gains during the fiscal year. However, in our retail business, we did benefit from the opening of six locations in growing coastal regions and augmentation of our autogas customers, both of which are weather agnostic opportunities. Gross profit was flat with an increase of $0.4 million for the fourth fiscal quarter and a decrease of $24.1 million, or 2%, for fiscal 2024 compared to the respective prior year periods. Margin per gallon was favorable for both the fourth fiscal quarter and fiscal 2024 due to segment mix and pricing acumen. Cost of products sold decreased by $1.9 million, or 1%, which was partially offset by a decrease of $1.4 million, or 0.4%, in revenues for the fourth fiscal quarter. Gallons sold during the quarter decreased 6.1 million gallons, or 4%, as we continue to see some additional business closings and the effects of inflation, which contributed to a decrease in retail customers. For fiscal 2024, revenues decreased $189.3 million, or 9%, which was partially offset by a decrease of $165.3 million, or 16%, in cost of products sold. This was primarily due to warmer-than-normal weather, a decrease in retail customers, as previously discussed, and lower wholesale propane prices at our two major supply points. We recognize the net loss attributable to Ferro Gas Partners LP of $20.8 million and $29.1 million in the fourth fiscal quarter of 2024 and 2023, respectively. In fiscal 2024 and 2023, we had net earnings attributable to Ferro Gas Partners LP of $110.2 million and $136.9 million, respectively. For the quarter, adjusted EBITDA, a non-GAAP financial measure, increased by $4.6 million, or 16 percent, to $33.6 million, compared to $29 million in the prior year quarter. The change was primarily due to a $7.7 million decrease in general and administrative expense after adjusting for a $1.8 million decrease in EBITDA adjustments and a $3.7 million increase in operating expense. The decrease in general and administrative expense was primarily due to approximately $6 million reduction in incentive accruals compared to the prior year period. The increase in operating expense consisted of increases of $5.3 million in plant and other costs and $1 million in personnel expense, partially offset by a decrease of $2.6 million in vehicle costs. For fiscal 2024, adjusted EBITDA decreased by 42.8 million or 12% to $317.4 million compared to $360.2 million in fiscal year 2023. In addition to the $24.1 million decrease in gross profit previously noted, a $24.1 million increase in operating expense and a $3.7 million decrease in general and administrative expense after adjusting for a $16.7 million decrease in EBITDA adjustments contributed to the decrease. The increase in operating expense was driven by increases of $13.1 million in personnel expense, $5.6 million in vehicle expense, and $5.4 million in plant and other costs. Increases of $11.3 million in medical insurance claims paid under our self-insured benefits plan and $6.6 million in payroll costs, partially offset by a decrease for incentive accruals, comprised the change in personnel expense. The increase in vehicle expense was primarily due to increases of $5.7 million for repairs and maintenance and $0.6 million in telematics technology, partially offset by a decrease in fuel costs. The increase in plant and other costs was primarily due to increases of $4.5 million in miscellaneous expense, $1.5 million for property repairs and network costs, and $1.2 million related to legal and general liability costs. These increases were partially offset by a decrease in credit card fees related to a new payment platform, which charges less in processing fees. The decrease in general and administrative expense was primarily due to a reduction in incentive accruals. I will now turn the call back over to Tamria.

I want to start by highlighting the improvements Blue Rhino has made in creating efficiencies in their supply chain. That team really excelled in the areas of supply chain management and removed multiple days of supply across its nationwide network. This improved our free cash flow and decreased capital expenditures. As we see power outages from storms and other events, the company, with its national distribution network, readily steps up to provide easily accessible portable fuel. Both Blue Rhino and Feral Gas were on hand to help storm victims and support Operation Barbecue Relief by providing propane and tanks to fuel meals for those impacted by the storm and first responders in response to Hurricane Beryl, a Category 1 storm which made landfall in Texas in July of 2024, in addition to providing an energy source for those without power. Another great example of our progress to become more weather agnostic is the growth in our autogas business. In July of 2024, we completed the installation of an 18,000 gallon tank and auto gas pumps, which will be used to help transport nearly 200,000 students to school this year. We continue to expand our business in other areas of the country outside of the Midwest, such as our fiscal 24 acquisition of Eastern Sierra Propane in California. This is the largest acquisition we have made in the last 10 years. Strategic acquisitions throughout the country help to mitigate the impact of weather conditions in specific regions. I'm proud of our company and its employee owners for the many ways we work to invest in technology and initiatives to deliver propane to our customers in a timely and safe and efficient manner. Our tank monitors, to telematics, to our strategic vendor partnerships, we do our very best to serve our customers and continually improve. I will now turn the call back over to our moderator as we move to the live Q&A section of our call.

Good morning. We've received questions into our inbox, and this is Mike Cole. and we will go through some of the questions that we have received in our inbox. The first question, can you provide an update on the Eddy Stone case? In July, we appealed the District Court's judgment to the Third Circuit Court of Appeals. We have no further updates to provide at this time and would direct you to the disclosures in our 10-K. With the current revolving credit facility expiring in March, of 2025, can you provide an update as to when it will be renewed?" We do not have a specific date targeted for the extension. We've been working with our existing bank group, and they remain supportive. We will continue to work with them to amend and extend the existing revolving credit facility. We certainly appreciate and recognize that it does have the March 2025 maturity, and that is one of the top priorities for the company over the coming weeks. Another question related to that that came in relates to our 26 senior notes. And the question is, how is a company planning to handle the refinancing of the 2026 senior notes, the B units, the preferred units, and the capital structure? As we've talked about in the past, those capital securities are complex securities and they have a lot of provisions that are intertwined with one another. We have engaged an outside investment bank to help us review and for them to make recommendations regarding our capital structure. We'll be taking their recommendations into account as we continue discussions with our bank group and holders of those capital securities. We received a question about the Fourth Amendment. and the restriction on moving funds between the units, between the MLP and the OLP. The question is, in the fourth amendment to the credit facility, Ferro Gas was restricted from moving funds to MLP, which means the company can no longer make distributions to the Class A or Class B units. Will the amended facility address this issue or remove this restriction? Our response to that is, you know, we'll work with the bank group, and that will be determined as we work through the amendment and extension process with the bank group. You know, the third-party investment bank that I mentioned just a moment ago, they will assist in that process, and again, we'll take the recommendations into consideration as we work through the process. I will note our bank group has been supportive of the company, and we expect them to continue to be supportive as we work through that amendment process. But it's too early to know or to take a view on whether or not those restrictions on cash distributions from the OLP to the MLP will be revised or eliminated. In light, there was a question that came in regarding the Eddystone ruling and whether or not it has an impact on our thinking around the Class B units. The question is, in light of the Eddystone ruling, how has your thinking or timing of Class B redemption changed, if at all? The Class B units can be converted anytime pursuant to our financing documents up until March of 2026. I'm sorry, they can be redeemed at any time provided we meet the conversion redemption threshold up to March of 2026. After March of 2026, they can be converted into Class A units. Our position has not changed regarding the Class B units and the redemption and conversion dynamics. The Eddystone ruling certainly adds another variable to that process, but as we noted on our 10-K, we have been advised that we have strong grounds for the appeal. And as I noted earlier, our policy is not to comment on pending litigation, and I'll defer you to the 10-Q disclosures.

So maybe we'll take a little break and answer some of the questions around the business. A good question about Blue Rhino and the generator supply business preparing for Hurricane Helene. Both retail and Blue Rhino had been preparing for the storm really since the beginning of the weekend based on Landfall assessments, we prioritize our routes, we restock displays, getting them ready for the communities that we're also preparing for the storm. I'm very proud of our employees that do all they can to not only prepare the communities, but also our yards and all of our work environment. As of yesterday morning, all of our routes were running. Obviously, as the storm made landfall, we prioritized the safety of our drivers, first and foremost. And then as the landfall impacted areas open up later today, we'll assess damage and road conditions and get back out there to really address our community needs. We also had a question around the domestic propane supply markets and how they might be impacted based on the increase in exports over the next 12 to 18 months that are forecasted. We do not expect any impact on the domestic markets. The U.S. has plenty of propane.

On September 3rd, Moody's downgraded Ferragas and we received a question regarding the downgrade. How is the company planning to address the recent downgrade from Moody's? What actions are being taken? When you go to the Moody's credit opinion. They cite things like our complex capital structure, liquidity concerns, potential costs associated with Eddystone as contributing factors for the downgrade. We do expect those concerns to be addressed as we continue to work with our outside investment banker and as we work through the amendment and extension process with the banks. The Eddystone, as we noted, you know, with the appeal and the posting of the appeal bond, you know, that will take some time for the appeal process to work through and that there won't be any, you know, we don't expect any immediate decisions on that from the courts. In terms of the other issues cited by Moody's, the complex capital structure, again, we're addressing that with our investment banker. And liquidity concerns is primarily tied to, I believe, tied to the revolving credit facility in the March 2026 maturity. That ties into a question we received regarding the company's going concern and whether or not that downgrade or that revolver maturity has an impact on the company's financial viability. Again, as I noted and as we talked about in the 10-K, we are in discussions with the banks. We feel good about the support they've provided to the company. And as a result, well, let me back up. Let me first say the going concern is based on accounting guidance that when the revolver gets within a 12 month maturity, that the auditors need to assess whether or not that creates a financial risk to a company and jeopardizes the going concern. We had discussions with our auditors and we worked through our process and we feel comfortable and confident in our ability to continue to support liquidity through cash, access to capital markets, and access to the bank markets.

I think that also, there was a question around acquisitions and our impact on acquisitions. So obviously, we're still engaged in the acquisition market, and as opportunities arise, Aerogas is always looking for that fit. Our acquisitions, we are very good at onboarding them and finding synergies. We, again, as we announced, Today, this past year, we made our largest acquisition in the last 10 years. We're very proud of that. There's been a few questions around how do we think about 2025 capital expenditures in comparison to 2024. And I want to call out again the supply chain acumen demonstrated by Blue Rhino this year. And we expect this performance that was really kind of seeded in this year to continue and create future positive opportunities. I want to talk about 24 just to kind of summarize it up because there's several questions around how we think about 25 as compared to 24. In summary, 24 is basically three main headwinds, weather anomaly, medical claim issues, which we also believe were anomalies, and then inflationary pressures, which kind of impacted a few regional accounts who closed their doors. And as we've discussed in this earnings call and previous, we are repositioning those assets in our auto gas and our large construction or temp heat segments. I want to call out that we graduated over 40 service techs from our training program. They're instrumental in our growth strategy. And we are managing operating expense. For instance, we saved diesel expense due to reduction in skipped stops. Finally, we had major growth in our southeast region, or sorry, southwest region, and we opened eight offices there. Michael, I think that answers that. Why don't you go back to the financial side?

Yeah, there has been some questions regarding expectations around fiscal year 25 EBITDA. You know, as we've done previously, we don't provide EBITDA forecasts to the market, but I would direct you to our 10-K and 10-Q filings. where we identify and discuss key performance drivers. You know, you can use those and look at the historical performance and come up with your estimates on, you know, what you think a normalized EBITDA number is for the company. I do think the disclosures, you know, they identify the key variables to the performance in those prior periods. So that, you know, should help you, you know, get your mind around what the outlook for fiscal year 25 should look like. And I think we're looking through, I think we've addressed all of the comments. What we have done, there are some additional comments that have come in, but they're related to what we previously talked about. So we are not going to go back and repeat those. I think we're done.

I think we're done. Thank you so much for joining in. We appreciate your support. Thank you to all the employees of Ferrell Gas. We're very proud of you. And I'll turn it back over to the moderator.

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