Ferrellgas Partners, L.P.

Ryan VanWinkle - CFO, Treasurer Stephen Wambold - CEO, President and Director Tod Brown - Executive VP and President of Blue Rhino Boyd McGathey - COO and Executive VP

Teresa Chen - Barclays Gary Stromberg - Barclays

All right. Thank you, Jamie, and good morning everyone.

Welcome to the Ferrellgas Partners, L.P. Fiscal 2014 Second Quarter Earnings Conference Call.

I am Ryan VanWinkle, Executive Vice President and Chief Financial Officer. And joining me today is Steve Wambold, President and Chief Executive Officer; Boyd McGathey, Executive Vice President and Chief Operating Officer, and Tod Brown, Executive Vice President and President of our Blue Rhino Operations.

Before we get started, I'd like to remind all of you that some of the statements made during this call be considered forward-looking, and that various risks, uncertainties and other factors could cause actual performance to differ materially from anticipated results. These factors are discussed in our Form 10-K and other documents filed from time to time with the SEC.

So with that, I will turn the call over to Steve Wambold, President and Chief Executive Officer for opening remarks.

Okay. Thank you, Ryan and good morning.

Ryan, we will return in a bit to provide details and commentary on the quarterly financial results. Before Ryan's presentation, Tod will talk about Blue Rhino's performance and discuss plans to build upon its marketing-leading position.

And then of course, after Ryan's presentation we will be happy to answer any questions that you may have. First, I will spend a few minutes providing some perspective on fiscal 2014 second quarter results, as well as comments on the outlook for the second half, and I will share some information on the current M&A environment.

We do continue to be laser-focused on expanding our propane footprint as well as diversifying strategically into non-propane fields. As usual, the paramount criterion is basic and always will be.

Acquisitions must be immediately accretive to earnings. Not to belabor the obvious, but this winter truly has been newsworthy.

One takeaways at the Farmer's Almanac should have silenced any critics since it forecasted some combination of piercing cold, biting cold or bitterly cold throughout the entire United States. You may recall that during the first quarter call, we did indicate that if any of these forecasts were close to being on target, we could have a banner year and we most certainly are.

Ryan, again will review this specific operating results driven by temperatures that were 18% colder than last year and 6% colder than normal. Our partnership posted record second quarter adjusted EBITDA and gross profit as well as impressive improvement in DCF coverage, now up to 1.2 times.

I definitely want to say that I'm particularly proud of our folks out there in the field who performed heroically in the phase of unprecedented volatility. Gallons sold and gross profit were both up 15%, and margins matched the prior year quarter at $0.79 per gallon, despite the incredible cost spikes we did experienced.

Our procurement and supply areas performed exceptionally well, and from an efficiency standpoint every single operating metric improved. The third quarter is off to a good start with encouraging results in February.

Therefore, we are comfortable increasing our fiscal '14 adjusted EBITDA guidance to a range of 275 million to 285 million. And just a reminder, our record adjusted EBITDA was 272 million posted last year in fiscal '13.

During the second quarter, propane demand also benefited from a strong agricultural market for crop drying, which was relatively weak a year ago, and an increase in exports. The cold weather also boosted Blue Rhino, which posted double-digit volume gains across practically all classes of trade in a quarter that is typically slow.

Their performance in February was also strong, and with increased distribution, Rhino is very well positioned for the grilling season, which is maybe closer than the current weather we even indicate. And again, Tod will amplify these and other points here in just a minute.

Looking ahead, we're indeed optimistic about the outlook for acquisitions both in propane and non-propane fields, and we are currently enjoying a target-rich environment. We took a meaningful step into the non-propane field this year by [naming] (ph) Todd Soiefer to the newly created position of Senior Vice President of Strategic Development.

Todd brings with him an impressive resume from RBC Capital Markets, where he played key roles in MLP coverage and advising clients in investment banking activities. Todd has hit the ground running.

He has been narrowing down non-propane opportunities, and while we obviously can't discuss specifics now, be assured we are concentrating on companies that fit our MLP criteria and our acquisition strategy. Okay.

Now, I'm going to turn the call over to Tod for further insight into Blue Rhino and propane acquisitions.

Thank you, Steve. As was mentioned previously, the Blue Rhino organization continues to drive industry-leading results as we progress towards the kick-off of our summer selling season.

The second quarter is considered the off-season for Blue Rhino, but I'm very pleased to say that during the second quarter we experienced overall sales increases of 13.5% versus 2Q 2013. The increases versus prior year was a result of the combination of items.

First of all, the increases in selling locations, which drove an increase in our overall sales transactions. Secondly, our top ten retail partners experienced across the board positive comp store sales, results of over 6% growth versus prior year.

And thirdly, the cold weather combined with ice storms resulting in power outages actually increases the tank exchange sales, which is used as a cooking source. So, we had a combination of multiple factors that help drive our performance during 2Q.

As we approach the selling season, our sales team continues its focus on increasing selling locations which will benefit us as we progress into the summer selling season. In addition to the Blue Rhino tank exchange business, we also have the Blue Rhino global product segments, which sells grills, outdoor fire pits, patio heaters, barbeque and fireplace accessories to retailers across the United States and around the world.

The global sourcing unit is well positioned to have a strong start to the season as well.

In addition to the Blue Rhino business, I'm also accountable for the Ferrellgas propane acquisition team. We are encouraged by the robust activities that Steve had referenced earlier, year-to-date.

We've closed two transactions during the first half, and we are in due diligence with additional opportunities as we speak. The early part of calendar year '14 has provided a lot of discussion and a lot of activity with potential sellers coming out of the strong winter season, which we anticipate will result in good seller activity as we progress into the spring.

I look forward to providing you information regarding new acquisitions in our next quarterly update. That concludes my comments for the second quarter performance.

And with that, I'll pass the call back over to our CFO, Ryan VanWinkle.

All right. Thank you, Tod.

Strong operating performance and favorable winter weather conditions resulted in record gross profit, adjusted EBITDA and distributable cash flow for the quarter. Our field operations team overcame extreme winter temperatures, unprecedented levels of snow and ice, historically low wholesale propane levels and record high wholesale propane costs keeping our customers and products while delivering financial results which should resolve in fiscal 2014 being the best in company history.

We exited the second quarter with distributable cash flow coverage of 1.2 times, the highest it has been since fiscal 2013, and a leverage ratio of approximately 3.5 times, which is in line with our historic average. Our borrowing capacity or line of credit currently exceeds more than 250 million is improving daily as inventories lessen as we move into the spring, and the accounts receivable from the winter sales are collected from consumers.

Also, this has been a solid year resulting from simply executing the strategy in a year that for the most part is hovering around normal from a weather perspective. Before moving into the specific numbers for the quarter, I do want to reiterate that based on our results and what we know what February performance we are comfortable raising our adjusted EBITDA guidance to a range of 275 million to 285 million, noting that our trailing 12-months performance as of January 31 stays at 287 million.

These results would reflect adjusted EBITDA record for 2014. Based on where our third quarter wraps up, we will once again adjust our guidance on our third quarter earnings call.

Also in the quarter, we did refinance our 9 and 1/8 senior notes due 2017 with $325 million six and three quarter percent note due 2022. In conjunction with this refinancing, we terminated a related interest rate swap.

This refinancing resulted in a $21 million one-time non-recurring loss on the extinguishment of debt. And all of these transactions will significantly reduce our interest expense for years to come for reducing interest rate and refinancing risk.

As of today, we have no public debt maturities due until the year of 2020. Now, some impressive stuffs on the quarter; sales volumes grew 15% to 343 million gallons on temperatures that were 18% colder than the unusually mild second quarter of last year.

Impressively, we experienced increased sales volumes from each of our major customer segment that we served; residential, industrial, commercial, agricultural, and tank exchange. To further this perspective, temperatures for the quarter were just 6% colder than normal, and thus sales volumes in this year's quarter were more representative what a normal year should produce in sales for us.

Thus sales were in line. They are slightly better than planned for the quarter.

This strong sales performance didn't come without challenge, however, as the national supply of wholesale propane was tight especially in the month of January. While this led to significant logistical issues ensuring that we met our customer obligations, we're proud to say we've managed through this period successfully.

And today we are operating more efficiently as we bring to a close the winter of 2014. Sales volumes grew second quarter gross profit to a record 270 million, up 15% from prior year second quarter.

Despite the significant movement in wholesale propane cost, we were successful in maintaining our prior year margin performance to $0.79 per gallon, thanks in part to our year around buying programs and pricing arrangements with our consumers. The volatility of the wholesale propane prices this quarter certainly provided challenge.

For example, a wholesale gallon at Conway averaged $2.13 this January, compared to $0.78 in January of last year. This included a price spike of more than $5 per gallon in just one week time.

Since January, we are seeing prices settle and wholesale propane is currently trading just over $1 per gallon. Operating expense for the quarter was 117 million, up from the prior year expense of 106 million on higher sales volumes.

While logistics of propane distribution this quarter were challenging making us less efficient than we would have otherwise been, on a cent per gallon basis, our operating expense still decreased to $034, down from $0.35 cents per gallon in the prior year. Also for the quarter, our general and administrative expense was 12 million; however, excluding the timing of performance based incentive accruals were nearly unchanged the prior year quarter at just over 8 million.

Equipment lease expense was 4.3 million compared to 3.8 in the second quarter of fiscal 2013, and was in line with plan for the quarter as we continue to address our truck fleet to best manage our overall cost of transportation. And finally, interest expense for the quarter was 22.1 million, down slightly from 22.6 million in the prior year fiscal quarter.

As I mentioned earlier, all this resulted in record adjusted EBITDA for the quarter of 136 million compared to 116 million in the prior year quarter. And on a trailing 12-months basis, adjusted EBITDA was a record 287 million compared to 237 million during the same 12-month period ending January of '13.

Distributable cash flow for the quarter increased 20% to a record 112 million compared to 93 million in the second quarter of last year. This resulted in distributable cash flow coverage for the trailing 12-months period ended January of 1.2 times, the highest level we have seen since fiscal 2013.

We're very proud of these results and more importantly how we have steadily improved our business over the years as we project this to be our fourth record year of the last six. We look forward to continued improvement in the years to come for our investors, customers and employees alike.

This concludes my comments on the quarter. At this time, we would like to turn the call back over to the moderator to open it up for questions from the analyst group.

Good morning.

Good morning.

A question on your process of managing for your account receivables at this point, clearly, they have increased a lot. And as I understand it, a large percentage of your customers pay a fixed monthly fee and have some sort of annual true-up to reconcile the actual cost of the product versus what they were charged.

Can you give us a little color on how you plan to manage through this, and do you see more -- greater than normal challenges given the price spikes over this quarter?

Yes. Teresa, this is Ryan.

Actually what you referenced is not quite correct. That's a very small percentage of our population.

The vast majority of our consumers pay on 30-day terms. Our systems are set-up to keep a delivery from happening if the consumer goes over their credit limit or our past terms.

That's kind of have been the model for us for the last decade. And each year since that time, our accounts receivable aging have steadily improved.

Now, our bad debt runs around three to four tenths of 1%; not 3% or 4%, but three or four tenths of 1%. And we've continued to see that improve and delinquency improve over the years.

To this year, there is no different. While accounts receivable is higher, our delinquency percentage is better this year than it was the same time last year.

Obviously, we will continue to keep an eye on at the accounts receivables elevated from the higher wholesale prices, and therefore retail price to the consumer, but at this point in time, no change in our credit policies, no change in our write-off percentages, and actually slightly improved delinquency swaps.

Okay. That's very helpful.

Thank you. And then touching on the guidance, the revised guidance with the release, so it seems that at the midpoint of 280, this would imply that the second half of this year might be a little lighter than fiscal 2013.

Can you just give us some color on how to think about that?

Well, I guess what I would say is February is a very good month for us, March continues to be very strong. We want to continue to provide the market guidance.

I would tell you that we probably feel like those guidance might be a little bit conservative, given what we know today, but there is still a couple of months of [late] (ph) winter left, and so we want to be a little bit conservative. But right now, things continue to perform at prior year levels, and we don't have a reason to necessarily believe at this time that that's going to change, but again if weather were to change for the warmer in the short-term, and not finished it strong, then I still think we can hit this guidance.

Understood. And then finally, given all the developments over the past quarter and supply logistical issues, shortages, and price volatility certainly, did you see much in the way of players in the market taking or losing market share or in a way of customer churn?

This is Boyd McGathey. Yeah, we've seen a number of competitors in certain pockets around the country that were struggling to keep up with supply and allowing other competitors to fill their tanks; mostly, smaller independents, but even a couple of regional care marketers, but none of the majors.

Okay, great. Thank you very much.

Hi, good morning.

Good morning.

Just a follow-up on the accounts receivable. On the collateralized note payable it looks like you drew 219 million as of January 31, we assume that that gets completely paid down as you collect ARs or some permanent amount of collateralized note payable that we should model in?

Yeah. We use that accounts receivable line.

This is Ryan, again. We use that line throughout the year.

Obviously we have strong sales of national account industrial/commercial during the summer on the retail side. The Blue Rhino side obviously kicks up.

So, we use that line of credit throughout the year, borrowings on that line do go down significantly as you go into summer. I'm going to get our accounts receivable line as borrowed to maybe 60 million, 70 million in the summer, something in that neighborhood versus where is that today, closer to 225 million.

Okay, that's helpful. And then on M&A opportunities, can you just give us some sense of what you're looking at, I know you probably don't want to get too specific, but what are the types of midstream or other opportunities out there?

Yeah, I mean, we are by our nature a trucking company, we're a shipping company. We handle storage and logistics.

And there's many in the midstream space that kind of fit that mold, from rail, the terminal, to storage, transportation of fluids, whether hazardous or not that fit in the MLP structure. Many of those are things that the bigger MLPs may not be as interested in, and therefore become actionable for a company of our capital to participate.

And I think they provide us risk diversification. They probably provide us a lower risk basis in diversifying into some other things.

So, many of these have larger EBITDA contributions than the mom-and-pop propane, and that's appealing to us and may also have organic growth opportunities as well. So, we are very active in that.

It's something we've been working towards over the last couple of years, and as Steve mentioned, made a commitment to it with the hiring of Todd back in January, and his background is very strong in this space and these types of companies. So, hopefully we'll have something to talk about here in the (indiscernible).

So, gathering and processing not necessarily on -- or is part of that?

It is not, no.

Okay. And then just finally on leverage, how do you think about leverage when looking forward in terms of acquisitions.

Are there any targets you look at?

Today we're roughly 3.5 times leverage at our operating partnership level. That's the only level that has a leverage covenant.

The covenant is 5.5, so obviously we're far from that. We'll try to manage through acquisition to be that or slightly better than that.

It's obviously a mix of de-leveraging and maximizing accretion. So, I would not anticipate material movement downwards, but I would not anticipate it going up.

Okay, very helpful. Thank you.

Thank you.

Okay. Thank you, Jamie.

And as always, we appreciate your participation on the call and your interest in Ferrellgas. Hopefully you could tell we do remain focused on executing our growth strategies building on a solid base which will be further strengthened by a disciplined acquisition program and as you could tell a very improved balance sheet.

We look forward to reporting third quarter results in June, as we continue to aim for a banner fiscal '14. Thank you very much.