Ferrellgas Partners, L.P.

Good day and thank you for standing by. Welcome to the Thero Gas Partners First Quarter Fiscal 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to please type your question in the Ask a Question box at the bottom of your screen. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tamaria Zertucci. Please go ahead.

Welcome to our first quarter fiscal 2025 earnings call. The first fiscal quarter again showcased our employee owners and their ability to manage and execute against our overall strategic initiatives. Safety, strategic growth, operational excellence, and consolidation the bedrock of our strategy. In the first quarter, our retail operations team was focused on the onboarding of our latest acquisition, seasonal prep, and storm response. All while our sales and national accounts managers looked for ways to grow market share today and for the future. On the Blue Rhino side, the density that is the result of year over year location growth continues to drive down expenses and increase profit. I want to take a moment to highlight our commitment to the communities we serve, which has been highlighted in many ways this first quarter, but maybe best showcased in the remarks that we have received from our customers in these storm impacted areas. Their words confirm how fortunate we are to have plentiful amounts of propane in the U.S. This resilient and dependable propane network showcases an infrastructure able to quickly and efficiently move clean burning propane where it is needed most. As the second largest marketer of propane, we are able to assist customers nationwide when other energy grid systems fail. We are looking forward to the future. Energy choice is a key consideration for consumers across the entire nation and Ferrel gas provides a safe and affordable answer. We look to take advantage of these opportunities for propane to support existing and new energy needs. I will now turn the floor over to our chief financial officer, Mike Cole, to go over the financial results for the quarter. Mike?

Good morning and thank you, Tamria, and thank you all for joining us today. Before we get started, 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 27th, 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 first fiscal quarter ended October 31st, 2024. Gross profit increased $0.9 million or .5% in the first fiscal quarter. Margin per gallon increased 3% due to increased volume on our fixed cost price program for residential customers. The addition of several key new national accounts and West Coast business gains. The increase in gross profit was driven by a decrease of $7.8 million or 4% in cost of products sold, which was primarily offset by a decrease of $6.9 million or 2% in revenues for the first fiscal quarter. Gallons sold during the quarter decreased by 4.2 million or 3% as retail gallons sold decreased 7.7 million or 7%, partially offset by an increase of 3.5 million or 7% in wholesale gallons sold. The impact of inflation and severe weather events resulting in small business closings in addition to weather that was 16% warmer than the prior year quarter contributed to the decrease in retail gallons sold and 3% decrease in retail customers. The favorable increase related to wholesale was driven by an $8.8 million increase in tank exchange sales due to organic growth, primarily driven by new customer wins. Storm preparations and response during the first fiscal quarter also contributed to this growth. Tank exchange selling locations increased 9% compared to the prior quarter as new major accounts drove an increase of nearly 5,500 tank exchange selling locations compared to the prior year quarter. We recognized a net loss attributable to Feral Gas Partners LP of $146.6 million and $17.5 million in the first fiscal quarters of 2025 and 2024 respectively. The $129.1 million change was primarily due to increases of $125.1 million in general and administrative expense, $3.5 million in operating expense, and $1.9 million in interest expense. The change in general and administrative expense was driven by a $125 million accrual related to the ongoing Eddystone litigation. After adjusting for $4 million in legal fees and settlements related to core businesses, we had a $0.5 million decrease in operating expense for the quarter. Lower fuel costs in tandem with the benefits of our telematics technology drove a $2.2 million decrease in vehicle cost. Personnel expense consisted of decreases of $2.5 million in workers' compensation expense and $0.7 million in benefits expense, partially offset by a $1.9 million increase in payroll and related costs. The decrease in benefits expense was primarily due to a pharmacy rebate and vacation accrual adjustments. The increase in payroll cost was due to planned personnel growth as well as an increase of $0.7 million in overtime to prepare and supply propane to customers impacted by Hurricane Selena and Milton. The favorable variances for vehicle cost and personnel expense were partially offset by a $3 million increase in plant and other. The $3.0 million change consists of increases of $1.5 million in legal and general liability expenses, $1 million in software expense, and $0.7 million in facility rent and repairs, partially offset by a $0.3 million decrease in telephone and related costs. The $1.9 million increase in interest expense consists of a $1.2 million increase for letters of credit fees and a $0.7 million increase for amortization of debt issuance costs for our revolving credit facility related to the Fourth Amendment that was effective in July 2024. On December 5, 2024, we entered into the Fifth Amendment to the company's revolving credit facility, which among other changes extended the maturity date of the credit facility to December 31, 2025, from March 30, 2025. On March 31, 2025, in conjunction with the commencement of the Fifth Amendment, the commitment level for the credit facility will be reduced from $350 million to $308.8 million. The amended revolving credit facility is expected, along with cash and cash generation from operations, to provide adequate liquidity for the company. Adjusted EBITDA, a non-GAAP financial measure, increased by $2.9 million or 9% to $35.8 million compared to $32.9 million in the prior year quarter. The increase was primarily due to a $1.6 million decrease in general and administrative expense after adjusting for a $126.7 million increase in EBITDA adjustments and a $0.9 million increase in gross profit. We intentionally manage our operations to counterbalance economic and weather-related factors with investments in safety, people, and technology, which Tamria will go over next. I will now turn the call back to Tamria.

Thank you, Mike. We do historically experience weather events during the first quarter that we have to navigate, and this quarter was no exception. As Hurricane Talene and Milton impacted the southeast, our employee owners worked on behalf of impacted communities to provide extended support, both in preparation for the upcoming storms and afterwards. Over 1,140 service units were impacted across the southeast. That's within our network, driving double-digit growth in these areas. Additionally, we supplied propane through our partnership with Operation Barbecue Relief. This charitable organization cooks and serves almost 1.4 million hot meals to people and first responders that were touched by these storms. It's all part of our 85-year history and our commitment to be there for our customers. Our operational excellence and strategic initiative delivered solid results. As I stated before and Mike highlighted, and we will continue to highlight, it is the investments in safety and technology that really bolster our logistics infrastructure, allowing us to perform across the nation. We leverage our telematics technology platform to manage our fleet, improve safety outcomes, and ensure regulatory compliance. This technology enhances the already strong and professional driving skills that we are fortunate to have in our -in-class workforce. Telematics turns real-time data into actionable insights, which has reduced fuel costs and boosted route efficiencies, such as the reduction in idling time. This allows us to focus our assets where they're needed most. We continue to expand our nationwide footprint outside of our Midwest core, realizing organic growth in our customer base in the West and Southeast. Our business development team, however, continues to deliver strategic opportunities, such as the acquisition of Kilhoffer Propane, located in Oklahoma, in October of 2024. Our retail business also benefits from the strength of its national accounts team. Standing out from their wins this quarter are three key national account wins, providing more than 700,000 gallons annually. Our Blue Rhino Tank Exchange business realized organic sales growth during the first quarter compared to prior year, primarily driven by new customer wins. Yes, storm prep and response also added growth, but the favorable impacts of improved logistics, optimized fleet maintenance, idling reductions, they are delivering positive returns in this business as well. Again, our investments made in the Telematics technology, as noted above, help Blue Rhino's extensive improvements in cylinder inventory management as well. We highlighted these last quarter and have been persistent and consistent this quarter. These initiatives favorably factored into the company's positive first fiscal quarter adjusted EBITDA results. In closing, I'd like to call attention to the employees of Feral Gas. Our employees create one of the most dependable energy networks in the country. For 85 years, we have built an infrastructure of people that put our customers first, regardless of storms, snow, or ice. Thank you to our more than 4,000 employees for making Feral Gas the dependable logistics company we are. We will again be taking Q&A this call. We will take a pause to read your questions and organize a bit. I'll now turn the call back over to our moderator as we move to the Q&A section of our call.

Thank you. As a reminder, if you have a question at this time, please type your question in the Ask a Question box. One moment for our questions.

Thank you, Michelle. We're just kind of organizing and reading these as they come in. I think where I'll start, though, is with just a quick note on Eddystone. So we really want to remind everyone that pursuant to our company policy, we do not comment on pending litigation. Therefore, in this Q&A section, we will not be discussing questions pertaining to Eddystone litigation, including the related accrual. With respect to Eddystone, we direct you really to the disclosure in our 10Q and other public filings. So we have a few questions around acquisitions, which is actually my absolute favorite topic to speak about. So Mike, I'm going to go first. We have a couple of questions here on acquisitions. Each year, the acquisition pipeline, it looks a little different. As always for Ferragast, we're really focused on the fit, and that acquisition really needs to align to our strategic goals. This past year, we actually made our largest acquisition in 10 years. So you can see that the larger acquisitions haven't necessarily been our focus. It's really been more about where the acquisition is located. The strong performance in the West that happened this past quarter, it really was about the quick and successful onboarding of Eastern Sierra Propane. So our operations team really knows how to assess and quickly onboard all new acquisitions. The acquisition that we closed this past quarter, Kilhoffer, it's really no different. And it starts with employees and customers, and we really take care of those two areas well. And it was a great fit for us, 95% residential customers, and a perfect tuck-in for us in that area. We are still engaged in the acquisition market, and as opportunities arrive, we continue to assess. Mike, I'm going to hand it back to you. There's a couple of questions on the Fifth Amendment.

Thank you, Tamria. A few questions have come in regarding the Fifth Amendment to our revolving credit agreement. The Fifth Amendment was closed on December 5th of this year, and it extended the maturity date of the revolver from March 30th of next year to December 31st of next year. The March 30th maturity date of the credit facility created substantial doubt about the companies ability to continue as a going concern for at least one year from the September 27th, 2024 date of issuance of the company's 2024 10K. Importantly, this revolver extension alleviated the substantial doubt about the company's ability to continue as a going concern for at least one year from the date of issuance of this 10Q. The Fifth Amendment also continues to restrict cash movements from Feral Gas LP to Feral Gas Partners LP, and it also revises certain commercial terms and conditions, such as pricing, among other changes. The Fifth Amendment also allows for us to fund potential resolutions to Eddystone. Please refer to our 8K filing on December 10th of 2024 for additional information related to this extension. Tamria, it looks like there are some questions coming in on the operations. Would you like to handle those?

Yes. We have so much information in our press, really, so you did a good job with that, Mike, but maybe what I'll do is I'll start with Blue Rhino, since this is really quarter one is really the core season still for Blue Rhino, and they have their best quarter on record when it comes to free cash flow. Their expense management just was phenomenal, all while hitting high volume numbers, and it's exactly what we've been working on for the past four years as we've transitioned the company to really focus on strategic initiatives of supply chain and just the acumen around our fleet. So they are supposed to provide counter seasonal EBITDA performance, and they did exactly that. I'm very proud of that team. Our wholesale business also saw some volatility in supply and price due to some events in September related to propane exports, and so the season team there, they're able to take sort of full advantage of the opportunities that the market presents, and you see the performance of our entire wholesale group really based on that. Finally, on retail, we've discussed much in this call on retail, but I'll highlight just a couple areas. First, retail showed really great operational excellence in the areas of storm response, seasonal prep, and expense management, and I say expense management because October was warmer than normal, and our teams really executed well managing expenses to demand. Adding to this is our telematics implementation. That investment, it's really allowing us to just get down to another level of expense management on our most, well, one of our most cost intensive areas, which is fleet. Regarding the storms, we achieved growth in those areas where the storm response was greatest. If you can imagine, Florida and North Carolina had some of our service units in there had double digit EBITDA growth over prior year, and we noted some business closing, but if you think about the way storms work, they cause destruction, and that can put a business on pause as they sort of rebuild and recover, and then some businesses may elect to not open their doors, but those that do, by Q2 here, we obviously have, we understand the demand that will be persistent. Finally, our sales approach, we continue to focus on expanding our footprint outside the Midwest core, and we have one of the best autogas sales and installation teams in the industry, and they simply never disappoint, and new business is definitely growing in this segment. I said a lot there, Mike. Why don't we pass it back to you because I see some finance questions coming in again. Yep,

thank you, Tamria. We are not disappointed. Some of the listeners have posted questions related to our financing plans. As I previously discussed, we engaged an investment bank to help us evaluate our capital structure and analyze various refinancing alternatives. We are working closely with the investment bank and are making good progress evaluating our capital structure and refinancing opportunities. As we have previously stated, we do have the option to either redeem the Class B units or to convert the Class B units into Class A units until March of 2026. After March of 2026, converting the Class B units into Class A units is the only remaining option permitted or documented under those financing agreements. In terms of the 2026 senior notes, they do go current at the end of March of 2025, and then they become callable at par. We are monitoring the current high-yield market, and we receive periodic updates from a bank group on indicative pricing for new debt issuances. We will continue to monitor the market conditions and the opportunities to refinance the 26 senior notes. Tamria, there's been some questions around capital spending. Would you like to

answer them? Yes. It's really kind of general, so I'll just kind of speak generally about it. Blue Rhino has been putting on really just this supply chain performance that's been unmatched in the 20 years since they've been a part of Feral Gas. This team of professionals has achieved a days of supply and inventory turns number, and those are the two things that are really favorably impacting not only cap expense but also cash flow. Blue Rhino is really one of the largest components of our cap expense, so they're favorably impacting that. Retail's use of capex in Q1 is really balanced between new growth and maintaining the over 800 properties that we do business from. We're always investing in our assets so that they can be leveraged for future growth and market share expansion. Mike, I think as I'm looking at these questions, there's some additional questions on storm response, which I kind of hit before, but maybe I'll just say that it really matters during a storm event to have seasoned professionals, those that really understand safety and execution, and we have exactly that. They knew how to navigate the storm from prep to post response, and we are a nationwide company, so just to kind of provide an example, we bring in drivers and techs from outside the area so that our local teams can focus on their families, and being a nationwide provider really affords us this opportunity. And then those outside the area employees that come in, this is their fifth or sixth storm that they're helping on, so experience remains pre-post storms. And that really is what led to the double digit growth, as I alluded to before, in those North Carolina and Florida areas. As I'm looking through the rest of these questions, Mike, I don't see anything else in any other category, so what I will say, though, is before we conclude today's call, we will be, we're planning to attend the JPMorgan Global Leverage Conference this spring, and I'm excited to do that. Thank you to everyone for joining today. We truly appreciate your continued support. We wish you a really safe and happy holiday season. So moderator, I'll pass it back to you.

Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.