Ferrellgas Partners - Earnings Call - Q2 2025

Executive Summary

• Q2 FY2025 delivered solid topline and profitability: Revenue rose 9.8% year over year to $669.8M, Operating Income increased 6.0% to $127.6M, and Net Earnings attributable to FGPR grew to $98.8M; Adjusted EBITDA increased 7% to $157.0M.
• Blue Rhino had a record January, with cylinders delivered exceeding any summer month in the past three years; wholesale gallons increased 11.5M (+20%) and retail gallons +2.9M (+1%), supporting revenue growth despite higher product costs and mixed weather trends.
• Cost headwinds included $11.1M higher operating expenses (overtime and one-time workers’ comp), and $3.5M higher interest expense; weather was warm in Nov/Dec but January was 12.2% cooler than normal, aiding demand; agriculture was weak due to drought, reducing crop drying by 2.4M gallons.
• Strategic catalysts: resolution of the Eddystone litigation via a $125M structured settlement (first $50M paid; two $37.5M payments due June 16, 2025 and Jan 15, 2026), senior notes callable at par after March 2025, and ongoing capital-structure work with Moelis & Company; distribution policy to Class A holders remains paused.

What Went Well and What Went Wrong

• What Went Well

  • Revenue +$59.9M (+10%) year over year; Operating Income +$7.2M (+6%); Adjusted EBITDA +$10.1M (+7%) to $157.0M, driven by gross profit +$19.1M and lower G&A after adjustments.
  • Blue Rhino demand surged with record January; 2.2M more gallons (+9%) and expanded selling locations (6,000 added last year) lifting organic sales by 14%.
  • Operational execution: “days to set a tank” improved 25% and idling time reduced ~15%, favorably impacting fuel usage and service speed; new autogas win expected to add ~100,000 gallons annually.

• What Went Wrong

  • Operating expenses rose $11.1M (personnel +$11.0M on overtime and one-time workers’ comp), partially offset by vehicle cost -$0.8M via reduced fuel costs; interest expense +$3.5M.
  • Weather mixed: warmer Nov (+9.9%) and Dec (+2.5%) constrained early-quarter retail demand; January was colder (-12.2% vs normal), but agriculture remained soft due to drought (-2.4M crop-drying gallons) and a 2% customer decrease.
  • No distributions to Class A Unitholders in fiscal 2025 or 2024; elevated legal-related adjustments and ongoing capital-structure complexity remain investor focal points.

Transcript

Michelle Bimson Maggi (VP of Corporate Affairs)

Welcome to the Ferrellgas Partners Second Quarter Fiscal 2025 Earnings Call. All participants are on listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. If you would like to ask a question at that time, please type your question in the Ask a Question box on the lower left-hand side of your screen. Please note we will pause for a few moments to allow time for the speakers to read them and respond accordingly. Please be advised that this call is being recorded. I would now like to turn the call over to Tamria Zertuche. Please go ahead.

Tamria Zertuche (CEO and President)

Welcome to our Second Quarter Fiscal 2025 Earnings Call. In the second fiscal quarter, Ferrellgas continued to showcase its expense management capabilities and expertly planned for a strong start to the heating season. Of course, it starts with our people. We have the very best in the industry. Our retail employees navigated a warm November and then expertly delivered a strong December and January. Our experienced drivers across all business lines safely navigated wintry conditions, including ice and snow, to meet the needs of our customers. Our wholesale business, which includes the Blue Rhino propane exchange brand, had a record January. Blue Rhino's larger customer base this year drove more units delivered in January than any other January. A truly great performance by all business lines. I think it's important to call attention to propane's strong role in the energy choice discussion.

Propane is there when other energy grid systems fail. Propane is a key part of our everyday life, but also a key part of disaster relief efforts. When ice storms create energy gaps, propane's strong distribution network is there. Ferrellgas supported the relief efforts in response to wildfires in Los Angeles, and we continue to provide support to those communities in Western North Carolina that are still rebuilding due to the destruction caused by Hurricane Helene. Our people live and work in your community, powering our everyday life and supporting critical energy grid failure events. Our employee owners truly are the power behind our promise. I will now turn the floor over to our Chief Financial Officer, Mike Cole, to go over the financial results of the quarter. Mike.

Mike Cole (CFO and Treasurer)

Thank you, Tamria, and thank you all for joining us today. I'd 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 our operations for the second fiscal quarter ended January 31, 2025. Gross profit increased $19.1 million, or 6%, in the second fiscal quarter. The increase in gross profit was driven by an increase of $59.9 million, or 10%, in revenues, which was partially offset by an increase of $40.8 million, or 14%, in cost of products sold.

Gallons sold during the quarter increased by 14.4 million gallons, or 6%, as wholesale gallons sold increased by 11.5 million gallons, or 20%, and retail gallons sold increased by 2.9 million gallons, or 1%. In addition to the increase in gallons sold, the revenue and cost of product changes were driven by wholesale propane prices that were 16.9% higher from Mont Belvieu, Texas, and 16.2% higher from Conway, Kansas, compared to the prior year period. We recognize net earnings attributable to Ferrellgas Partners of $98.8 million and $95.8 million in the second fiscal quarter of fiscal years 2025 and 2024, respectively. The $3.1 million increase was primarily due to the $19.1 million increase in gross profit described above, which was partially offset by an $11.1 million increase in operating expenses and a $3.5 million increase in interest expense.

The $11.1 million increase in operating expenses consists of an increase of $11 million in personnel cost driven by increased overtime cost and one-time expenses related to workers' compensation cost, and an increase of $0.9 million for plant and other costs. These increases were partially offset by a decrease of $0.8 million in vehicle cost due to a $1 million decrease in fuel cost driven by our investment in telematics technology. For the second fiscal quarter, adjusted EBITDA, a non-GAAP financial measure, increased by $10.1 million, or 7%, to $157 million compared to $146.9 million in the prior year quarter.

The $19.1 million increase in gross profit and a $2.1 million decrease in general and administrative expenses, after adjusting for a $1.6 million increase in EBITDA adjustments primarily related to the Eddystone legal cost, drove the increase in adjusted EBITDA for the second fiscal quarter as compared to the prior year period. This increase was partially offset by a $10.6 million increase in operating expenses after adjusting for a $0.5 million increase in EBITDA adjustments for a settlement related to a core business. As previously disclosed, on January 15, 2025, the company entered into a settlement agreement related to the Eddystone litigation. Of the $125 million accrual in the first fiscal quarter, $50 million was paid on January 15, 2025, and two additional payments of $37.5 million will occur on or before June 16, 2025, and January 15, 2026, respectively.

As part of the settlement, the $190 million appeal bond and the related letters of credit have been released. I'll now turn the call over to Tamria to discuss operational and company highlights during the quarter.

Tamria Zertuche (CEO and President)

Thank you, Mike. Our logistics experts are continually looking for ways to serve our customers better. Our days to set a tank, we did it 25% faster. Our turnaround time to respond to orders was also favorable. We were able to get to our customers faster. These improved metrics, in addition to the gains Mike noted from our telematics initiative, such as reductions in idling time of 15%, favorably impacted fuel usage. This enabled us to serve our customers better and work to control operating expenses. January was actually our coldest month of our fiscal 2025 year, with temperatures that were 12.2% cooler than normal. Gallons sold by our retail business in the second fiscal quarter 2025 exceeded the prior year period for all customer segments except agriculture. Our sales to residential customers increased by over 4.5 million gallons as compared to the prior period.

While our retail business benefits from colder weather, we also continue to gain weather-agnostic customers. For example, we gained a new autogas customer during the quarter expected to provide 100,000 gallons annually. These gallons power bus services to a number of school districts and other organizations in Minnesota. With 6,000 selling locations that Blue Rhino, our tank exchange business, added in the prior year, organic sales have grown 14%. Blue Rhino also achieved sales increases driven by demand during the second fiscal quarter as consumers diversify the uses of product for applications such as propane patio heaters, outdoor fireplaces, emergency power generation, temporary heat, and additional emergency preparedness and response needs. Through its real-time cylinder inventory management, capital expenditures decreased $4.7 million, or 40%, while gallons sold increased 2.2 million, or 9%. Cylinders delivered in the month of January were higher than any summer months in the last three years.

We also sold an additional 9.3 million wholesale gallons during the second fiscal quarter. I will now turn the call back over to our moderator as we move to the live Q&A section of our call.

Michelle Bimson Maggi (VP of Corporate Affairs)

Thank you. If you would like to ask a question at this time, please type your question in the Ask a Question box on the lower left-hand side of your screen. Please note we will pause for a few moments to allow time for the speakers to read them and respond accordingly.

Tamria Zertuche (CEO and President)

All right. Thank you. We're getting the questions sort of organized here. Mike, there's a question here around the JPMorgan High Yield Conference. Why don't you go ahead and take that while we organize some of these others?

Mike Cole (CFO and Treasurer)

Thank you, Tamria. Good morning, everyone. The company JPMorgan has a high yield conference that they hold annually each year down in Miami, and this year it was February 24th through the 26th. The company has attended that conference in the last couple of years and met with investors. This year we met with over 20 different companies, and we also made a presentation to a group of investors at that conference. That presentation was attached to an 8-K filing that we did on February 25th, and that's posted to our website. You know, a couple—as we had discussions with investors—a couple of the key topics that came up. One was around Eddystone, looking for kind of an update on where that was at or a better understanding of how that settlement worked from a cash and liquidity perspective.

We do have an 8-K filing out there on that settlement. In short, what we did with Eddystone is we made a $50 million cash payment as part of that settlement in January of this year. We have two subsequent payments that are due, $37.5 million each, one on June 16th of this year and the final payment January 15th of 2026. Those two outstanding payments are supported by letters of credit in a like amount. You know, a $37.5 million letter of credit supports the June payment. That letter of credit will be canceled once that June payment is made, and the same thing for the January payment. From a liquidity perspective, prior to the settlement, we had a $125 million letter of credit issued to support the appeal bond.

That was canceled and replaced with that $50 million payment to Eddystone and then the issuance of two LCs totaling $75 million. From a liquidity and cash perspective, it was a net neutral transaction for the company. Another topic that continues to come up is around our capital structure. You know, we previously disclosed we have retained Moelis & Company to help us assess alternatives around the capital structure, including our upcoming debt maturities. We are continuing to evaluate alternatives and are not in a position at this time to make any announcements related to the capital structure or any refinancing activities. We will certainly make the appropriate announcements when we get to that point. That is an update on the JPMorgan Conference, Tamria.

Tamria Zertuche (CEO and President)

Yeah. Thank you, Mike. I appreciate that. There's a couple of questions around our acquisition activity and, in particular, Kilhoffer, which was our most recent. I'd like to just say that in general, you know, Kilhoffer really met our typical approach to M&A, which is that their customer base complements our customer base in terms of leased tank customers versus customer-owned tank and also complements our route density and other strategic requirements for a tuck-in acquisition such as Kilhoffer. We're quite pleased with it and excited to see how that area continues to grow. We had another question around what drove the significant increase in wholesale gallons and a wholesale gallon increase to the tank exchange branded Blue Rhino. That, as we kind of stated in the call today, grew by over 14%.

I mean, we are really seeing uses for that Blue Rhino branded tank exchange in areas just outside of the backyard. Again, you know, temporary heat, emergency power generation, the grid failures were real in Q2, and we took advantage of that. However, the 6,000 additional locations that Blue Rhino added, that's really the consistent and persistent volume that you'll see going forward. I think, Mike, that's the question for you about the bees, of course.

Mike Cole (CFO and Treasurer)

Yeah. A question came in. I think they're asking about the amount that's needed to refinance the Bs and the 2026 senior notes. I'll start with the 2026 senior notes. We have $650 million outstanding that mature in March of 2026. They're currently priced at 5.38% at the end of this month as they become callable at par. The question about what would it, you know, what is the amount to refinance them? Obviously, it would be the face amount and no call premium if we were to call them after March of this year. In terms of the Class B shares, you know, with the public documents, there's information out there that there's a 15.85% IRR requirement. You could calculate that math at different time periods based on distributions we've already made to the Class B unit holders, which is about $250 million.

Approximately, if you did the math through the end of March, it would be approximately $305 million would be the payoff amount for the Class Bs. Again, encourage you to go to the documents, do your own math, and own calculations of the IRR requirement. That IRR requirement does result in an increasing redemption value for the Class B units if there's no further distributions sent to those Class B unit holders. Tamria?

Tamria Zertuche (CEO and President)

Thanks, Mike. There's a question around customers, and I want to talk a little bit about timing as it relates to our customer counts. As you know, there was a very warm start to the quarter. Cold weather hit in January. Obviously, we're not going to get to all customers in the month of January, and some of the demand for January spilled into February. I think you'll see some of our customer side of things even out as we move through the winter, which is spread over two of our quarters.

Mike Cole (CFO and Treasurer)

Tamria, there's a question related to the capital structure and Moelis' engagement around us getting listed back on the New York Stock Exchange. You know, that's part of the analysis that Moelis' engaged to conduct is a broad review of our capital structure and strategies around that, which does include reinflating the Class A units. They're continuing to do the work. We don't have a final pass yet that we're prepared to announce to the public. We don't have a timeframe on when we would seek to be relisted on the New York Stock Exchange. Tamria?

Tamria Zertuche (CEO and President)

I'm seeing a question around wholesale margins and, you know, their strength this quarter. There's really no one thing to point to there. I'll sort of come in with a macro level answer of the margins are a product of a great supply team that does an excellent job of planning and preparing for the heating season. Their ability to navigate, and we take propane on all four pipelines. I think that what you're seeing there is their ability to navigate different external factors and taking opportunity on those. We are very proud of our supply team. They do an excellent job, and that was showcased this quarter.

Mike Cole (CFO and Treasurer)

Tamria, we received a question about what kind of interest rate would we be fine with as part of a refinancing. Presumably, that's a refinancing of the 2026 senior notes. I think, as most people know, the high yield market is extremely active right now. There's a supply-demand imbalance, and credit spreads are at low levels. We don't have a specific kind of break-even point on the refinancing. What we do is we monitor the market conditions. We're in constant contact with our banks. We look at the secondary trading levels, but we don't have a targeted interest rate in terms of triggering the refinancing.

Tamria Zertuche (CEO and President)

If you give us one second, we're just trying to look at these questions. Some of them are redundant, so we are removing those. Oh, here's one for you, Mike.

Mike Cole (CFO and Treasurer)

Thank you, Tamria. It relates to the Class Bs. Again, you know, it would encourage folks who have questions on the Class B units to go back to the documents and read and understand the documents. They are complicated, and, you know, you need to make sure you understand the workings of the documents. The documents allow two potential resolutions to the Class B units. There is the ability to redeem the Class B units, and that option continues to exist until the end of March 2026. The documents also allow us to convert the Class B units into Class A units. That conversion ratio changes each March between now and 2031. When I talked earlier about the IRR cash payment and the approximately $350 million payoff, that relates to the redemption, and it is not a—it does not relate to the conversion to Class A units.

Redemption and conversion are mutually—they're different resolutions of the Class B units. Again, the 305 would be an estimate for the redemption of the Class B units. That redemption value changes daily based on distributions made and the passage of time. Then on the conversion, that conversion mechanics are laid out in the document and are subject to a conversion ratio that changes each March. Hopefully that answers your question, Christopher.

Tamria Zertuche (CEO and President)

As we've made our way through the rest of the questions, we don't see anything that is a new question coming in. We will just pause here for 30 more seconds and see if there's any final questions before we close the call. All right, Mike and I are—thank you for your support. I appreciate you coming to the call today, and I'm going to hand it back over to the moderator. Michelle?

Michelle Bimson Maggi (VP of Corporate Affairs)

Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone, have a great day.