Ferrellgas Partners, L.P.

William Ruisinger - Interim CFO James Ferrell - Chairman, Interim CEO, and President

Thank you, Julie and welcome to our first quarter 2019 earnings call. Thank you for joining us.

Before we get started, I'd like to remind all of you 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-Q and other documents filed from time-to-time with the Securities and Exchange Commission.

As detailed in our earnings release and Form 10-Q that were filed this morning, first quarter consolidated adjusted EBITDA was $17.8 million compared to last year's $26.2 million. Exclusive of results from the non-strategic asset sales completed during fiscal 2018, last year's adjusted EBITDA was $19.0 million, a decrease of $1.2 million.

Trailing 12 months adjusted EBITDA for the go-forward business stands at $226.5 million, nearly flat compared to the $227.7 million reported last quarter. Adjusted EBITDA for our propane segment was $28.7 million and was positively impacted by 3% growth in volumes with sales of 179 million gallons compared to 173 million gallons a year ago.

Volumes benefited from our strategy to grow our customer base and market share, which resulted in nearly 24,500 more customers than in the prior year period, an increase of 4%, as well as over 5,800 additional tank exchange selling locations or 12% growth. Tank exchange gallons were relatively flat compared to prior year as the prior year period was positively affected by hurricanes in Florida and Texas.

We estimate that approximately 25% of our gallon sales growth is due to weather with 20% attributed to approximately 10,000 new customers added just this quarter with the balance due to previous growth in our retail customer base and in our tank exchange business. Propane margins were higher than prior year by $0.018 per gallon, despite competitive pressures negatively affecting tank exchange margins.

Margin expansion was also slightly hampered by the wholesale cost of propane, which averaged 15% higher at Mt. Belvieu, Texas, compared to 5% lower at Conway, Kansas, when compared to the prior year.

Total gross margin for first quarter 2019 was $145.1 million compared to $137.3 million in the prior year, exclusive of the effects of gross profit related to asset sold in fiscal 2018. Operating expenses for the first quarter were $110.3 million compared to $101.2 million in the prior year exclusive of the effects of operating expenses related to asset sold in fiscal 2018.

This increase was primarily due to additional expenses associated with the increase in trucks, drivers, and customer service resources to deliver the 9% higher retail gallons sold in the first quarter and also grow market share. We've previously talked about our strategy to grow our footprint by opening up new locations.

We noted in our last call that we would see elevated operating expenses leading into this quarter, noting August and September are historically months in which volumes are relatively flat -- relatively low. As we entered into the shoulder month of October, we saw this strategy pay big dividends as the investment in the business that yielded over 24,500 new customers over prior year allowed us to sell 18% more gallons, recovering a significant portion of the operating expense investment in the first two months of the quarter.

We continue to believe that as we grow our customer base and fill out the capacity at our new locations, we will realize bottom-line growth. For first quarter 2019, general and administrative expense was $14.2 million compared to $11.1 million in the prior year, again, exclusive of the effects of general and administrative expenses related to asset sold in fiscal 2018.

This increase is primarily associated with incurred legal fees. Interest expense for the quarter was $43.9 million compared to $40.8 million in the prior year.

The increase is due primarily to higher rates associated with our new working capital facility. This includes the effects of the recent upward trend in LIBOR rates.

As we move towards the peak season for our working capital needs, we have $63.2 million of cash and $186.9 million of available borrowing capacity under our revolving credit facility for total liquidity at October 31, 2018 of $250.1 million, more than sufficient to cover these peak needs. Our maintenance capital expenditures were $5.2 million for the first quarter compared to $8.6 million in the prior year.

Growth capital expenditures were $16.4 million for the quarter compared to $10.4 million in the prior year. Construction of new Blue Rhino plants and the growth in the tank exchange selling locations primarily accounted for the increase.

As we look at November, we continue the momentum built in October. Moving into second quarter, we saw the first month of that quarter generate sales of over 77 million retail and tank exchange gallons, that's 8.7 million gallons or nearly 13% more than last year's November, exclusive of wholesale gallons, noting that November of last year was one of our strongest months.

Additionally, margins per gallon were $0.035 higher than last year's November, generating gross margin dollars nearly 18% higher than the prior year. We also started December this week with a significant backlog, setting the stage for what could be continued growth into the second quarter.

At this time, I'll turn the call over to Jim for his comments.

Thanks Bill and good morning everyone. We've obviously been busy at Ferrellgas lately, and that's a good thing.

In completing our two new credit facilities and the sale of our noncore assets, we are now able to focus solely on the needs of the propane business. Customer growth continues to be strong.

We are adding customers and improving rep density, so we don't have to travel as far between stocks. We are opening new locations in certain markets to expand our capacity and these locations require trucks and drivers, and customer service reps.

There's a balance to this cost and we're mindful of that, but we can't grow the market share we're after if we don't invest in the business. And we continue to see nice growth in our tank exchange business.

We grew the number of selling locations yet again this quarter and are forecasting continued growth into 2019 and beyond. New plants in California and Alabama are now online and put us closer to our customers.

We have an additional two plants planned for FY 2019 that will help us become more efficient in the Northeast and Midwest. This business is strategic and it's being positioned for long-term market share growth.

We want to continue being a consolidator in what is still a very fragmented industry. We focused our efforts this past quarter on consolidating Blue Rhino independent distributors, which allows us to capture more profit per transaction.

Over time, we have brought nearly 300 companies into the Ferrellgas family. The opportunity for future growth through acquisitions is significant.

We are the second largest propane distributor in the country with only an estimated 8% market share. Now, I'd like to give you an update on refinancing activities of our credit facilities and our bonds as well as considerations on our distribution.

First, we continue to be happy with our new working facilities -- working capital facilities that give us enough -- sufficient liquidity and flexibility to manage our business. We have great partners who believe in the Ferrellgas story.

We are exploring all of available options to address our global leverage position. To this end, we're in the process of engaging a financial adviser that will assist us in evaluating and ultimately executing the best available option in order to restore the leverage situation and achieve a satisfactory result with our various stakeholders.

I would add that we are not interested in doing a deal for the sake of doing a deal, if it does not position the company for the long-term. We have liquidity, we generate cash flow and we're growing the business.

So, it's worth it to us to make sure that we do what is right for our almost 5,000 employee owners and for all of our investors. We have been transparent with the market regarding the basket and our MLP bond indenture, which has allowed us to pay distributions, but that's now exhausted.

The distribution payment we made to unitholders on September 14th will be our last for a while, not because of a lack of cash, but because of a restrictive MLP bond covenant. Expect us to be methodical in evaluating the refinancing options available to us.

Our MLP bonds do not mature until June of 2020. Beginning with this fiscal year, we are back, as I said to begin with, to being a pure propane distribution company.

This is what we do best, and we're not going to stray again. Operationally, we are getting better by the day.

Bryan Wright has more than filled the COO role and Bill Ruisinger, our CFO position. Both are top-performing company veterans.

I couldn't be more pleased. Now, I'm going to turn the call back to Julie, so that we may address any questions you might have, and that's the end of my comments.

Hi, thanks. This is actually John in for Tarek.

You guys touched upon it earlier. I just want to make sure I got this number right on the retail propane volume growth year-over-year.

It sounds like about 25% of that was due to weather and the remaining market driven. Is that correct?

Yes, that's right.

So, on the back of that, are you starting to see your market share gains translating into pricing? I just noticed year-over-year retail margins looked like they were up about $0.04 a gallon.

Yes, some of that's probably benefited a little bit by the drop in wholesale price recently, but we've also been able to maintain margin through this growth, with first sale pricing, with some of the customer growth last year, those customers recurring now going forward.

Okay, that makes sense. And then just I noticed that in your 10-Q, you guys mentioned the OpCo consolidated fixed charge coverage ratio is at 1.77 times, just above the minimum 1.75.

Just how are your conversation going with your advisers right now surrounding liability management? Is there anything out there that you might be favoring the type of solution?

The answer to that we are not really having those conversations yet. We haven't engaged -- we're in the process of engaging.

We're not particularly worried about it. There are a lot of money out there.

Yet there'd be something that we're going to be happy with and I think the market will be happy with.

And John I would point out that with the LLP fixed charge coverage ratio at 1.77, if that were to drop below 1.75, we believe there’s sufficient capacity within those indentures to allow us to continue to fund the interest payments at the MLP through maturity.

Okay, great. Thank you.

That’s all.

Yes, there's another basket down there, so it's not worrisome here.

Julie, you've been great. Thank you.

Thank you, Julie. Thank you, everybody.