Q2 2025 Ferrellgas Partners LP Earnings Call
Okay.
Speaker Change: Welcome to the Ferrell gas Partners' second quarter fiscal 2025 earnings call. All participants are in listen only mode.
Speaker Change: After the Speakers' presentation, there'll be a question and answer session.
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Speaker Change: Please note we will pause for a few moments to allow time for the speakers to read them.
Speaker Change: Bond accordingly.
Speaker Change: Please be advised that this call is being recorded I would now.
Tim: I'd like to turn the call over to Tim three years or to Chee. Please go ahead.
Speaker Change: Welcome to our second quarter fiscal 2025 earnings call.
Speaker Change: In the second fiscal quarter Federal gas continued to showcase its expense management capabilities and expertly planned for a strong start to the heating season.
Speaker Change: Of course, it starts with our people we have the very best in the industry.
Speaker Change: Our retail employees navigated a warm November and then expertly delivered a strong December and January.
Speaker Change: 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 tank exchange brand had a record January.
Speaker Change: Blue Rhino is larger customer base. This year drove more units delivered in January than any other January a truly great performance by all business lines.
Speaker Change: I think it's important to call attention to propane strong role in the energy choice discussion.
Speaker Change: 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 strong distribution network is there.
Speaker Change: <unk> 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.
Speaker Change: Our people live and work in your community.
Speaker Change: Borrowings are everyday life and supporting critical energy grid failure events.
Speaker Change: Our employee owners truly are the power behind our promise.
Speaker Change: I will now turn the floor over to our Chief Financial Officer, Michael to go over the financial results of the quarter Mike.
Michael: Thank you Tamara.
Speaker Change: Thank you all for joining us today I'd like to remind everyone that some statements made during this call maybe considered forward looking.
Speaker Change: And that various risks uncertainties and other factors could cause actual performance to differ materially from anticipated performance.
Speaker Change: These factors are discussed in our Form 10-K filed on September 27.
Speaker Change: 2024, and other documents filed from time to time with the Securities and Exchange Commission.
Speaker Change: 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.
Speaker Change: Gross profit increased $19 1 million or 6% in the second fiscal quarter.
Speaker Change: The increase in gross profit was driven by an increase of $59 9 million or 10% in revenues.
Speaker Change: This was partially offset by an increase of $48 million or 14% and cost of products sold.
Speaker Change: 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 gallon sold increased by $2 9 million gallons or 1%.
Speaker Change: 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 Mount Belvieu, Texas, and 16, 2% higher from Conway, Kansas compared to the prior year period.
Speaker Change: We recognized net earnings attributable to Ferro gas partners LP of $98 $8 million and $95 8 million in the second fiscal quarter of fiscal years, 2025, and 2024, respectively.
Speaker Change: The $3 1 million dollar increase was primarily due to the $19 1 million dollar increase in gross profit described above.
Speaker Change: Was partially offset by an $11 $1 million increase in operating expenses and a $3 $5 million increase in interest expense.
Speaker Change: The $11 $1 million increase in operating expenses consist of an increase of $11 million in personnel costs.
Speaker Change: Driven by increased overtime costs, and onetime expenses related to workers compensation costs, and an increase of zero point $9 million for plant and other costs.
Speaker Change: These increases were partially offset by a decrease of zero point $8 million in vehicle cost due to a $1 million decrease in fuel costs driven by our investment in telematics technology.
Speaker Change: 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.
Speaker Change: The $19 $1 million increase in gross profit and a $2 $1 million decrease in general and administrative expenses.
Speaker Change: After adjusting for a $1 $6 million increase in EBITDA adjustments.
Speaker Change: Primarily related to the early still and legal costs drove the increase in adjusted EBITDA for the second fiscal quarter as compared to the prior year period.
Speaker Change: This increase was partially offset by a $10 $6 million increase in operating expenses.
Speaker Change: After adjusting for a <unk>.
Speaker Change: Zero point $5 million increase in EBITDA adjustments for a settlement related to our core business.
Speaker Change: As previously disclosed on January 15th 2025, the company entered into a settlement agreement related to the Edie Stone litigation.
Speaker Change: 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 16th 2025.
Speaker Change: In January 15th of 2026, respectively.
Speaker Change: As part of this settlement does the $190 million appeal bond and the related letters of credit have been released.
Speaker Change: I'll now turn the call over to <unk> to discuss operational and company highlights during the quarter.
Speaker Change: Thank you Mike our logistics experts are continually looking for ways to serve our customers better our days to set a tank we did at 25% faster 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.
Speaker Change: Noted from our telematics initiatives, such as reductions in idling time of 15% favorably impacted fuel usage.
Speaker Change: 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.
Speaker Change: Gallons sold by our retail business in the second fiscal quarter 2025 exceeded the prior year period for all customer segments, except agriculture.
Speaker Change: Our sales to residential customers increased by over $4 5 million gallons as compared to prior period.
Speaker Change: While our retail business benefits from colder weather. We also continue to gain weather agnostic customers. For example, we gained a new auto gas customer during the quarter.
Speaker Change: <unk> to provide 100000 gallons annually. These gallons powered bus services to a number of school days of school districts and other organizations in Minnesota.
Speaker Change: With 6000, selling locations that Blue Rhino tank exchange business added in the prior year organic sales have grown 14%.
Speaker Change: Blue Rhino also achieved sales increases driven by demand during the second fiscal quarter as consumers diversified they use as a product for applications such as propane patio heaters outdoor fire places emergency power generation temporary heat and additional emergency preparedness.
Speaker Change: In response needs.
Speaker Change: So it's real time cylinder inventory management capital expenditures decreased $4 7 million or 40% low gallon.
Speaker Change: Gallons sold increased $2 2 million or 9%.
Speaker Change: 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.
Speaker Change: I will now turn the call back over to our moderator as we move to the live Q&A section of our call.
Speaker Change: 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 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.
Speaker Change: Alright, Thank you are getting.
Speaker Change: The question sort of organized here.
Speaker Change: Mike There's a question here around the Jpmorgan high yield conference might you go ahead and take that while we organize some of these others.
Tim Murray: Thank you Tim Murray.
Speaker Change: Morning, everyone.
Tim Murray: Yes.
Tim Murray: The the.
Tim Murray: The company J P. Morgan has a high yield conference that they hold annually each each year down in Miami.
Tim Murray: And this year. It was February 24th through the 26. The company has attended that conference in the last couple of years and met with investors. The share we met with over 20 different companies and we also made a presentation to a group of investors that that conference.
Tim Murray: That presentation was attached to an 8-K filing that we did on February 25th and Thats posted to our website.
Tim Murray: A couple of as we had discussions with investors a couple of the key topics that came up one was around Eddie stone looking for kind of an update on where that was at or a better understanding of how that settlement work from a cash and liquidity perspective.
Tim Murray: And again, we do have an 8-K filing out there on that on that settlement.
Tim Murray: But in short what we did with Daddy Stone is we made a $50 million cash payment.
Tim Murray: As part of that settlement in January of this year and then we have two subsequent payments that are due $37 5 million each one in June.
Tim Murray: <unk> of this year and the final payment January 15th of 2026.
Tim Murray: Those two outstanding payments are supported by letters of credit.
Tim Murray: In a like amount so $37 $5 million letter of credit support for the June payment that letter of credit will be cancelled months had June payment is made and the same thing for the January payment. So from a liquidity perspective prior to the settlement, we had $125 million letter.
Tim Murray: Credit issued to support the appeal bond that was canceled and replace with that $50 million payment that Eastone and then the issuance of two LLC totaling $75 million. So from a liquidity and cash perspective. It was it was a net neutral transaction for the company.
Tim Murray: Another topic that continues to come up is around our capital structure.
Tim Murray: We previously disclosed we have retained Moelis <unk> company to help us.
Tim Murray: <unk> 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, but we will certainly.
Tim Murray: Make the appropriate announcements on when we get to that point.
Tim Murray: So that's an update on the J P Morgan conference turmoil.
Speaker Change: Thank you Mike I appreciate that.
Tim Murray: There's a couple of questions around our acquisition activity and in particular kill half hour, which was our most recent.
Speaker Change: I'd like to just say that in general.
Speaker Change: Kill half are really met our typical approach to M&A, which is that their customer base complement our customer base in terms of leased tank customers versus customer owned tank.
And also complements our route density and other strategic requirements for tuck in acquisitions, such as kill Hoffer, We're quite pleased with it and excited to see how that area continues to grow.
Speaker Change: We had another question around what drove the significant increase in wholesale gallons and on us.
Speaker Change: The tank exchange branded.
Speaker Change: Branded Blue Rhino.
Speaker Change: And that as we kind of stated in the call today and that grew by over 14% and we haven't really seen uses for that Blue Rhino branded tank exchange in areas just outside of the backyard.
Speaker Change: Then.
Speaker Change: Temporary heat emergency power generation the grid failures were real in Q2, and we took advantage of that however, the 6000 additional locations that blue Rhino and added that's really the consistent and persistent volume that you'll see going forward.
Speaker Change: Okay.
Mike: I think Mike that's a question for you about the <unk> of course.
Speaker Change: Okay.
Speaker Change: Yes, a question came in I think there are asking about.
Speaker Change: The amount that's needed to refinance the BS and the 2006 senior notes.
Speaker Change: I'll start with the 2006 senior notes, so we have $650 million outstanding that mature.
Speaker Change: In March of 2026.
Speaker Change: Currently priced at $5 38 at the end of this month they become callable at par so.
Speaker Change: So the question about what would it what is the amount to refinance them.
Speaker Change: Obviously, it would be the face amount of no call premium if we were to call them. After March of this year.
Speaker Change: In terms of the class B shares.
Speaker Change: With the public documents there is information out there that there's a 15, 8% IRR requirement.
Speaker Change: 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.
Speaker Change: So approximately when if you did the math.
Speaker Change: Through the end of March it would be approximately $305 million would be the payoff amount for the class B, but again encourage you to go to the documents do your own math, then Don calculation of the IRR requirement.
Speaker Change: That IRR requirement does.
Speaker Change: Resulting in increasing redemption value for the class B units, if theres no further distributions sent to those class B unit holders.
Tim Murray: Tim Murray.
Mike: Thanks, Mike I, there's a question around customers and I wanted to talk a little bit about timing as it relates to our customer counts.
Mike: There was a very warm start to the quarter cold weather hit in January, but 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 and so I think you'll see some of our the customer side of things even out as we move through the winter.
Mike: <unk>, which is spread over two of our quarters.
Mike: Okay.
Mike: Temporary or there is a question unrelated to the capital structure and Moelis is engagement around.
Mike: Getting the listed back on the New York Stock Exchange.
Mike: So that.
Mike: We don't have that as part of the analysis that Moelis is engaged to conduct as a broad review of our capital structure and strategies around that which does include.
Mike: Re inflating the class a units.
Mike: So again, they're continuing to do the work.
Mike: We don't have.
Mike: Our final pass yet that we're prepared to announce to the public.
Mike: So we don't have a timeframe on when we would seek to be re listed on the New York stock exchange.
Omar: Hey, Omar.
Mike: Okay.
Mike: So I'm seeing a question around wholesale margins and their strength this quarter there's there.
Mike: There's really no one thing to point to there so I'll sort of come in with a macro level answer of.
Mike: The margins are a product of <unk>.
Right supply team that does an excellent job of planning and preparing for the heating season.
Mike: Their ability to navigate and we take propane in all four pipelines and I think that what youre seeing there is their ability to navigate different external factors and taking opportunity on those.
Mike: So we are very proud of our supply team. They do an excellent job and that will showcase for this quarter.
Mike: Okay.
Mike: Tim or are we received a question about what kind of interest rate would we be fine with as part of a refinancing.
Mike: Presumably that's a refinancing of the 2026 senior notes.
Mike: I think as most people know the high yield market is extremely active right now there is a supply demand imbalance and credit spreads are at low levels.
Speaker Change: We don't have a specific.
Speaker Change: At a breakeven point on the refinancing what we do is we monitor the market conditions, we're in constant contact with our banks.
Speaker Change: We look at the secondary trading levels, but we don't have a targeted interest rate in terms of the triggering of the refinancing.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: If you give us one second we're just trying to look.
Speaker Change: Look at these questions some of them are redundant. So we are removing those.
Mike: Here's one for you Mike.
Speaker Change: Thank you tamera it relate.
Mike: It relates to the class BS.
Mike: Again with.
Mike: I 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.
Mike: And as you know.
Mike: You need to make sure you understand the workings of the documents.
The the documents allow too.
Mike: <unk> resolutions for the class B units.
Mike: There is the ability to redeem the class b units and that option continues to exist until the end of March 2026.
Mike: The documents also allow us to convert the class b units into class a units.
Mike: That conversion ratio changes each march between now and 2031.
Mike: I talked earlier about the IRR cash payment and the approximately $350 million payoff that relates to the redemption and it is not it does not relate to the conversion of the class a units redemption and conversion are mutually.
Mike: They are different resolutions of the class B units.
Mike: So again, the 305 would be is an estimate.
Mike: For the redemption of the class B units that redemption value changes daily based on distributions made and the passage of time.
Mike: And then on the conversion that conversion mechanics are laid out in the document and are subject to a conversion ratio that changes each march.
Mike: So hopefully that answers your question Christopher.
Mike: Okay.
Mike: As we've made our way through the rest of the question. We don't see anything that is a new question coming in.
Mike: And we will just pause here for 30 more seconds and see if there's any final questions before we close the call.
Mike: Yeah.
Mike: Yes.
Mike: Alright, Mike and I. Thank you for your support and I appreciate you coming to the call today, and I'm going to hand, it back over to the moderator Michelle.
Mike: Thanks.
Speaker Change: For your participation. This does conclude the program and you may now disconnect everyone have a great day.
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