Ferrellgas Companions (FGP) reported combined leads to their Third Quarter Fiscal ’24 Earnings Convention Name, with CEO Tamria Zertuche highlighting the corporate’s strategic initiatives and the resilience of its staff within the face of difficult climate situations.

Whereas revenues dipped, the corporate noticed a gross revenue enhance and a major rise in EBITDA for its Blue Rhino section. Investments in know-how and a powerful deal with value administration had been key elements in navigating the quarter, whilst the corporate continues to discover restructuring choices and refinancing efforts for its debt.

Key Takeaways

• Ferrellgas Companions reported a lower in revenues by $71.6 million resulting from unseasonal climate affecting gallon gross sales.
• Gross revenue per gallon elevated by 4%, regardless of the income drop.
• Adjusted EBITDA fell by $21.6 million, a 17% lower from the earlier yr.
• Blue Rhino’s EBITDA rose by 19%, pushed by increased client demand and strategic initiatives.
• Working bills as a proportion of complete income went up by 2%.
• The corporate is actively evaluating refinancing choices for its debt and has filed its 10-Q.
• Ferrellgas’s liquidity is roughly $250 million, with a money steadiness of $75 million and $180 million obtainable below a $350 million revolver.
• CapEx for Blue Rhino was lowered by $8 million this fiscal yr, and 6,600 new accounts had been added.

Firm Outlook

• Ferrellgas is concentrated on working effectively and decreasing prices whereas nonetheless contemplating restructuring the capital construction.
• The corporate is investing in security, coaching, and customer support applied sciences to enhance efficiency.
• Acquisitions on the coasts purpose to diversify the corporate’s geographical footprint and mitigate weather-related impacts.

Bearish Highlights

• The corporate skilled a major drop in income resulting from a lower in gallons offered, attributed to hotter climate.
• Adjusted EBITDA noticed a notable decline in comparison with the identical quarter within the earlier yr.

Bullish Highlights

• Gross revenue per gallon improved, indicating higher margin efficiency.
• Blue Rhino’s section efficiency was robust, with a 19% enhance in EBITDA.
• The corporate has efficiently expanded into weather-agnostic areas, which might scale back the affect of hostile climate situations sooner or later.

Misses

• Regardless of total strategic successes, the corporate did miss income targets because of the lower in gallons offered.

Q&A Highlights

• Ferrellgas mentioned the constructive results of climate occasions on propane demand, emphasizing the corporate’s efforts to change into extra climate agnostic.
• The corporate spoke on its refinancing evaluations for senior notes, aiming to de-risk financially.
• The redemption of Class B shares was addressed, with specifics contingent on timing and distributions.

All through the decision, Ferrellgas Companions emphasised its dedication to sustaining enough liquidity to fulfill enterprise wants and to proceed its pursuit of strategic initiatives to bolster the corporate’s place out there. With a deal with margin efficiency and a proactive strategy to managing the capital construction, Ferrellgas goals to navigate the complexities of the market and weather-related challenges.

Full transcript – Ferrellgas Companions (FGPR) Q3 2024:

Operator: Good day and thanks for standing by. Welcome to the Ferrellgas Companions, Third Quarter Fiscal ‘24 Earnings Convention Name. After the audio system presentation there can be a question-and-answer session. [Operator Instructions] Please be suggested that in the present day’s convention is being recorded. I’d now like at hand the convention over to your speaker in the present day, Tamria Zertuche. Please go forward.

Tamria Zertuche: Good morning. My identify is Tamria Zertuche, Chief Government Officer and President of Ferrellgas. I needed to start out by saying how proud I’m of our greater than 4,000 Ferrellgas staff. Our skilled operations professionals, they deliberate effectively, they usually executed even higher towards the climate anomaly we skilled this quarter. They managed bills in key areas of operations, together with driving fleet bills down by over 8% when in comparison with prior yr. Relating to climate affect, we’ve taken constructive steps over the past 4 years to create steadiness in our demand throughout the completely different buyer segments of our enterprise. Our focus has been on rising our climate agnostic buyer base by each buyer kind and geographic location. Now we have made nice progress within the areas of Tank Alternate, Autogas, and in our industrial business section. Nonetheless, the prolonged and unseasonally heat heating season negatively impacted the heating segments of our enterprise. We skilled about 10% hotter temperatures throughout the dense centrally geographic areas of our enterprise. Moreover, we regretted seeing some long-standing companies downsize their footprints and even shut their doorways. The consequences of inflation, did make a mark this quarter, however our hard-working account managers, they had been capable of redeploy a few of the belongings associated to these closed companies and different areas, permitting for a lower in total capital expenditure. Lastly, I want to once more name out the exhausting work of all the workers of Ferrellgas and the robust contributions that they make to this nice trade. I’ll now flip the ground over to our Chief Monetary Officer, Mike Cole, to go over our monetary outcomes for the quarter.

Mike Cole: Thanks, Tamria, and thanks all for becoming a member of us on in the present day’s name. I might wish to remind everybody that some statements made throughout this name could also be thought-about forward-looking, and that varied dangers, uncertainties, and different elements might trigger precise efficiency to vary materially from anticipated. These elements are mentioned in our Type 10-Ok, filed on September 29, 2023, and different paperwork filed from time-to-time with the Securities and Alternate Fee. Moreover, we notice that the aim of this name is to debate the outcomes of operations for the third fiscal quarter ended April 30, 2024. As Tamria commented, heat climate negatively impacted our monetary outcomes as heating-degree days throughout the third fiscal quarter had been 15.7% hotter than regular and 9.8% hotter than the prior yr quarter. Document excessive temperatures throughout a lot of america drove an 11% lower in gallons offered. Revenues had been $71.6 million decrease, which was partially offset by a lower of $52 million in value of merchandise as in comparison with the prior yr interval. Consequently, gross revenue decreased 7% for the third fiscal quarter 2024 in comparison with the prior yr interval. Margin per gallon for the third fiscal quarter 2024 elevated 4% in comparison with the prior yr interval. The favorable enhance was resulting from section combine, our Platinum Plus fixed-cost program for residential clients, nationwide account pricing enhancements, and different value dynamics. Working revenue per gallon for the third fiscal quarter of 2024 decreased 10% in comparison with the prior yr interval, primarily because of the lower in gross revenue beforehand famous. We acknowledge web earnings attributable to Ferrellgas Companions, L.P. of $52.8 million and $72.4 million within the third fiscal quarter of 2024 and 2023 respectively. Working expense as a p.c of complete income elevated 16% for the third fiscal quarter. The $3.2 million or 2% enhance in working expense was primarily resulting from a $2.6 million enhance in personnel expense, which was comprised of a $5.2 million enhance in medical claims paid, partially offset by a $2.6 million lower in incentive accruals. Adjusted EBITDA, a non-GAAP monetary measure, decreased by $21.6 million or 17% to $104 million within the third fiscal quarter in comparison with $125.6 million within the prior yr quarter. The change was primarily because of the enhance in gross revenue famous above and hotter than regular climate. We additionally made a $99.9 million money distribution on April 9, 2024 to Class B unit holders of document as of March 25, 2024. This brings our complete Class B distributions paid to-date to roughly $250 million. It is very important notice that these distributions are discretionary and are made doable by the corporate’s continued robust efficiency. Even after given impact to those distributions, the corporate’s money steadiness on the finish of the third quarter was $73.6 million. I’ll now flip the decision again to Tamria.

Tamria Zertuche: Thanks, Mike. Focusing once more on our counter seasonal Blue Rhino enterprise, the hotter than regular temperatures and strategic initiatives resulted in a rise of 19% throughout the third fiscal quarter in Blue Rhino’s EBITDA in comparison with prior yr interval. Client demand surged as the hotter climate prompted an early kick-off to the grilling season. Moreover, Blue Rhino tank alternate elevated in areas the place the electrical grid failed because of the warmth. We leveraged our nationwide footprint, provide contracts, and our skilled labor power, executing effectively towards increased than regular demand in our tank alternate enterprise. To-date, Blue Rhino operations professionals have put in over 500 self-service kiosks, which permit shoppers to buy a propane cylinder 24 hours a day, 7 days every week, shortly and conveniently. Residence supply service can be obtainable in 19 markets, with plans to broaden. Moreover, Blue Rhino decreased capital expense by practically $8 million this fiscal yr resulting from provide chain enhancements and stock turns enhancements. Now to show to the know-how entrance, the corporate continues to put money into alternatives to enhance customer support and scale back total prices by means of automation and different instruments. We have made nice progress on our logistics initiatives, which have lowered prices over $1.2 million in fiscal 2024. Tank monitoring and telematics know-how ensures our clients have a prepared provide of propane along with enhancing the effectivity of our supply efforts. Additionally, our new credit score processing platform went reside a number of months in the past. This platform provides a seamless fee course of for our clients and it’s on monitor for an estimated $1.2 million in annual value reductions. Now earlier than we transfer to the reside Q&A bit of our name, I need to flip the decision again to our moderator. However earlier than I do this, as talked about within the announcement for this name, any extra questions may be submitted through our investor relations electronic mail field at investorrelations@ferrellgas.com.

Operator: Thanks. [Operator Instructions]

Tamria Zertuche: All proper, good morning. As we’re wanting by means of the questions, we see that there are a number of associated to the June seventh submitting of the Eddystone. We’re nonetheless evaluating that pending case and we is not going to be addressing questions on that matter in the present day. I feel we will begin with a query relating to our OpEx and motion up in OpEx as in comparison with prior yr and what are issues that we’re doing to mitigate the general OpEx expense. So to begin with, I feel you have seen in a few of our releases that we’re engaged on, an enterprise-wide ERP system. So, clearly there’s consultants, widespread coaching throughout the corporate which are associated to that. Moreover, we’ve seen increased medical bills this yr which we consider to be one-time in prevalence as in comparison with prior yr. After which when you concentrate on our enterprise, its individuals and it is our fleet, and the fleet aspect of issues we applied telematics know-how initially of this yr. Truly fast-tracked it as we noticed diesel costs form of staying regular compared to prior yr and the price of auto elements. The telematics will drastically scale back these two areas. So these are the expense administration mitigating objects that we’re at present engaged on.

Mike Cole: Good morning. That is Mike. So, we’ve obtained some questions round our non-maintenance CapEx in a selected – the, you realize the funding returns for non-maintenance CapEx. And so after we take a look at capital spending, there’s primarily three buckets. We’ll take a look at upkeep CapEx, development CapEx, after which M&A CapEx, and so after I confer with non-maintenance CapEx, it is actually development and M&A CapEx and that’s extra a operate of alternatives and enterprise wants. By way of the funding returns, I feel as everybody is aware of on the decision, there’s a hurdle price that firms will look to when it comes to making these kind of discretionary investments or we do not disclose what our hurdle price is. We predict that is delicate data, particularly because it pertains to M&A actions. However these discretionary investments are made once they meet or exceed our inside hurdle price. The price of our capital is on the market out there when it comes to what our senior notes are buying and selling at and what the category price models and the preferreds are at. So individuals, you would calculate what you suppose our value of capital is, however what we’ll do on discretionary capital spending is ensure it exceeds our hurdle price, after which that is what drives the monetary portion of that call. There’s a query that got here up about when can we count on to file our 10-Q? When is the deadline for the submitting? The ten-Q was filed final night with the federal vacation. It is going to be obtainable tomorrow morning. We obtained an extension, an automated extension from the SEC with the submitting that we made with both final Thursday or final Friday. So the 10-Q has been filed and can be obtainable tomorrow morning. There’s been some questions and we’re wanting on the questions, so we’re attempting to prioritize them, so apologies for the pause. The extending the revolver and the ‘26 senior notes, two separate points. As many know, the revolver matures in March of 25. It went present by means of this previous March. Now we have been in discussions with the banks about extending and amending the revolver. We have had usually supportive conversations with the banks. That course of or that extension is in course of. By way of the ‘26 senior notes and an early refinancing of the ‘26 senior notes, they’re callable at present at 1.344%. March of subsequent yr, they will be callable at par. Now we have been evaluating whether or not or not it makes financial sense to do an early refinancing of the ‘26 senior notes. The indicative pricing that we have seen popping out of the high-yield market now’s rather more engaging in comparison with the place it was six to 9 months in the past and it is one thing that has caught our consideration. Once we’ve had discussions with a few of the fixed-income traders, they have been very supportive of our entry to the debt capital market. So, we proceed to judge whether or not or not that is smart. Clearly, the ruling this previous Friday provides one other facet to that dialogue and we’ll proceed to judge whether or not or not it is smart for us to come back by means of the capital markets now for the early refinancing of the ‘26 notes. Some questions on liquidity. Now we have a few completely different questions on liquidity. So after we discuss liquidity, there’s a number of – there’s a pair parts. One is the money steadiness and on the finish of the quarter the money steadiness was $73 million, $74 million thereabouts. I’ll spherical as much as $75 million for straightforward math. Now we have a $350 million revolver. We do want to keep up per the financing paperwork $100 million of liquidity. In order that places revolver availability at $250 million, after which we’ve about $70 million of LC’s excellent. All of that is clearly public data. And that places us all the way down to about $180 million of availability below the revolver. Mixed with the $75 million of money, that places us at roughly $250 million-ish of liquidity.

Tamria Zertuche: Let’s take a query right here on form of the CPG margin efficiency over prior years and our outlook on that. I feel margin efficiency is instantly associated to our capacity to securely ship our product to our clients with an expertise they like and need to interact with once more. So we consider our investments in security and coaching, customer support and know-how are largely supportive of this continued margin efficiency. Margin pressures are the identical in the present day as they’ve all the time been. The financial well-being of our clients, demand elements, some associated to climate, additionally fluctuations within the commodity pricing. Now we have proven nice acumen when it comes to having the ability to benefit from these fluctuations, disruptions and the availability. These issues are alternatives that may all the time stay on this trade, and for those who’ve checked out it over the previous ten years, you may see that Ferrellgas has all the time taken benefit of these and we see these alternatives sooner or later as effectively.

Mike Cole: Associated to the refinancing of the senior notes, there are a few questions coming in across the capital stack and plans that we might have relating to restructuring our capital construction. This appears to be a query we get typically after we go to the trade conferences. We’re persevering with to judge whether or not or not there’s choices across the capital construction. I talked earlier in regards to the ‘26 senior notes. There’s nothing, clearly, that we might announce in the present day when it comes to the restructuring. Proper now, we’re specializing in working the enterprise and decreasing prices, together with decreasing our capital prices. We’ll proceed to judge restructuring choices, and when it is smart for us to take actions, we’ll do this. However proper now, there’s nothing to announce relating to the restructuring of the capital construction.

Tamria Zertuche: We’re leaping round between capital construction and firm efficiency objects, however I feel that hopefully helps with retaining the questions shifting. There are a number of questions round Blue Rhino. So I need to name out once more the truth that we had been capable of lower CapEx expense with reference to Blue Rhino by $8 million this fiscal yr, actually resulting from provide chain enhancements and the stock turns. We targeted the primary three years of this transformation of our firm on our retail division. We have not been shy about sharing that, and our sights turned to Blue Rhino actually over this previous yr. We have added 6,600 accounts. We have been capable of enhance our stock turns and do these provide chain tweaks at our manufacturing services to actually proceed to drive CapEx expense, which then clearly will increase our money move. That has been a spotlight. We have additionally put in over 500 self-service kiosks that may create demand. We’re assembly demand then 24 hours a day. So we’re enthusiastic about all that is taking place on the Blue Rhino entrance, excited in regards to the individuals and what they’re doing in that space of the enterprise.

Mike Cole: One other query got here in on the refinancing of our bonds and the way we take into consideration the refinancing of the bonds. From a conceptual perspective, there’s the financial analysis the place you quantify what the decision premium is, you quantify what the rise in curiosity expense could be from going from 5 and three-eighths or regardless of the price is, seven and three quarters, 8%, no matter price individuals need to assume. And you’ll quantify what that affect is on the greenback quantity of curiosity expense. You possibly can then do type of a breakeven evaluation to determine, okay, what do the treasuries or credit score spreads want to maneuver to be able to mitigate that profit? And we definitely take a look at it from an financial perspective, however then there’s extra of a qualitative facet to that analysis, and that is one in all de-risking the corporate when it comes to taking refinancing dangers off the desk in ’26. And you realize, if we had been to exit now or someday within the subsequent few months and do an early refinancing of the ‘26, that will de-risk that 2026 refinancing occasion. So, we take a look at it each, from a quantitative and qualitative perspective, and as I discussed earlier, we proceed to judge whether or not or not an early refinancing of the senior notes is smart. We additionally obtained a query on the quantity required to retire the Class B shares. That is a operate of extra distributions. It is a operate of the timing of the redemption of the Class B’s. Simply to stage set with everybody, the Class B’s will be retired. You speak in regards to the retirement of the Class B shares, that basically – I am decoding that to imply the redemption of the Class B shares. So there’s a IRR requirement within the Class B paperwork. These can be found publicly, I consider, by means of prior filings again in 2021. You possibly can go in there. You possibly can calculate primarily based on the distributions we made to-date, and you would choose a redemption date and you would calculate what the redemption quantity could be. So I can not provide you with a selected reply, as a result of it is depending on the time interval through which these are redeemed. However the distributions that we have made definitely lowered that redemption worth versus not having made any distributions.

Tamria Zertuche: We’re pausing. We’re rereading a few of these inquiries to guarantee that we have hit the classes that reply most of what’s right here.

Mike Cole: A query has are available relating to methods to extend liquidity, to cope with issues just like the Class B shares in addition to any litigation bills. As Tamria stated on the onset of the Q&A, we’re not going to enter detailed feedback across the litigation, our response to litigation, or potential responses to the litigation, and the affect that these varied responses might need on the corporate. As I discussed earlier, our liquidity proper now’s in step with prior durations when it comes to revolver availability and money balances. We predict we’ve enough liquidity to proceed to function the enterprise, and we’ll proceed to judge what our liquidity wants are, given the occasions which are in entrance of the corporate, together with the Eddystone judgments.

Tamria Zertuche: There is a couple questions round form of whether or not and the way it impacts the corporate. I all the time take that chance to speak in regards to the constructive sides of the way it impacts earlier than I will type of dive into the opposite. So on the constructive aspect, if you concentrate on, we’ve spent a lot time attempting to maneuver the corporate into climate agnostic areas. I spoke a bit bit about Tank Alternate or Blue Rhino model already. There’s additionally Autogas. We’re persevering with to have wins on this space, clearly Autogas being climate agnostic. Moreover enterprise, help of small companies, forklift cylinder, and our industrial business, we have completed a very good job of managing our volumes throughout all of these areas. Climate occasions like ice storms, hurricanes, something that results in energy outages creates an enormous demand for propane. It is moveable. It has among the best distribution networks there’s, particularly at occasions of nice want. So when there’s unpredictable climate comparable to that I simply talked about, it actually creates nice demand. Slightly little bit of an image into the Tank Alternate aspect, the January, the month of January had energy outages resulting from warmth and chilly and the Tank Alternate enterprise really had volumes that had been near summer time months within the off season month. On the flip aspect, it is no secret that the Ferrellgas footprint finds itself most dense within the middle of the nation and the higher Midwest specifically. And we’ve completed our acquisitions on the coast as a selected geographic variety tactic to maneuver ourselves out of simply that center of the nation. It was hotter there, hotter than it has been in our 10 yr examine. So we consider that the climate agnostic ways we’re taking will assist mitigate that as we go ahead. And we’ll by no means be utterly climate unbiased, however we’re persevering with to take steps to create much less dependency, specifically in that middle a part of the nation.

Mike Cole: There’s yet one more query that simply got here in that we are going to handle earlier than Tamria gives her closing feedback. And the query is, to what extent do your revolver lenders take into consideration the ‘26 maturity when contemplating extending the revolver maturity? I can not converse for the revolver banks and you would need to speak to them instantly or speak to banks usually about how they view these issues. I’d say, from a conceptual perspective, the banks usually would need to sit in entrance of any kind of refinancing occasion. Whether or not or not that is the case for our financial institution group, I can not opine on that, however usually banks do like to sit down in entrance of fabric refinancing occasions. However I feel that’s the finish of our questions, Tamria. I will simply give it again to you.

Tamria Zertuche: Thanks. Nicely, thanks on your curiosity in Ferrellgas. Pay attention, we actually respect you calling in in the present day and asking questions and permitting us to discuss the corporate. It is one thing that we’re very pleased with. We predict we’ve a fantastic story. We all know we’ve a fantastic future. We’re actually pleased with the work that we have been doing to proceed to rework the corporate. These of us on this room right here answering these questions, we all know that the success of the corporate is totally because of the efforts of our worker onus throughout the nation. It is their consideration to security, their consideration to our clients, expense administration. They gasoline the success. So thanks for tuning in in the present day, and I will flip it again over to the moderator.

Operator: Thanks. Women and gents, that concludes in the present day’s convention name. Thanks on your participation. It’s possible you’ll now disconnect.

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