Ferrellgas Partners, L.P. ($FGPR)

Good morning, ladies and gentlemen, and welcome to the Ferrellgas Partners LP Q3 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Michelle Maggi, Vice President of Corporate Affairs. Please go ahead, Michelle.

Thank you, Kevin. Good morning, everyone. We released this morning premarket our earnings, and if you haven't seen it yet, please go to our website, and you will find it under the Investor Relations tab at farrellgas.com. With me today is Tamria Zertuche, our President and Chief Executive Officer; and Nick Heimer, Ferrellgas Vice President and Controller. Today's call includes prepared remarks where we will go over our third quarter results for fiscal '26, concluding with responses to previously submitted questions. Please note that this call may contain forward-looking statements as determined by federal securities laws. For this purpose, any statements made during this call that are not statements of historical facts may be deemed forward-looking statements. These statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, except to the extent required by law. In addition, please refer to the 8-K earnings release to find disclosures and reconciliations of non-GAAP financial measures that may be referenced on today's call. This morning's conference call is being webcast and is also available for replay via our website. With that, I will turn the call over to Tamria.

Thank you, Michelle. I want to begin where I always do with our people. Our employee owners showed up this quarter the way they always do, prepared, adaptable, focused on what matters most for our customers and each other. The margin growth, the safety improvement, the retention progress, none of that happens by accident. It happens because we have people who hold themselves to a high standard and keep raising the bar. This quarter also called for some intentional choices, ones that traded near-term cost for lasting structural strength. We completed the Class B unit conversion, which simplifies our corporate structure for existing and prospective investors. It eliminates the Class B distribution obligation and allows for a redirect of future cash flows towards debt reduction, reinvestment in the company, and long-term value creation for our Class A holders. What I want to highlight is how we got here because I think it [indiscernible] The capital that made the conversion possible didn't come from financial engine. It didn't come from selling assets or taking on new debt [indiscernible] coming from the work our people going up every day and running the business the right way, delivering propane safely and efficiently, helping the line on costs, retaining and growing the customer base and protecting margins quarter after quarter. That kind of operational discipline is what builds financial flexibility. When you run a tight operation, you generate cash. We are a company that earned its way to a cleaner, stronger capital structure. With the future in mind, we made 2 board changes this quarter that reflect where the company is headed. Pamela Brockman was appointed [indiscernible] share. PAM has been a steady, [indiscernible] presence in our governance and succession planning work time and this appointment reflects both the top of her contributions and the kind of leadership we want shaping our future. She understands this business, where it's been, where it's going and that continuity matters as we move into the next chapter. We also welcomed Andrew Safran to the board. Andy has been advising us for almost a and formalizing his role as a director is a next step. He brings more than 3 decades of investing private equities including direct M&A in the [indiscernible] a sector he knows well. He knows the competitive dynamics, the consolidation landscape and the value that the right transactions could create. That depth of expertise is exactly what we wanted at the [indiscernible] as we think about how to grow this business and strengthen position in the market. These appointments reflect a Board that is intentionally posed for what's ahead. We have the governance expertise, the financial sophistication and the strategic perspective to support the ambitions we have for this business. The performance of the company is directly tied to the support we have received and continue to receive from our Board of Directors. Now I will address what we saw operationally this quarter. This quarter, our employee owners had to assess the weather they were experiencing and make operational decisions with what they were given. Flex up, flex down or share resources to assist a busier region country. And this quarter, they did exactly that. In the regions on normal winter conditions, our preparation [indiscernible] where we didn't have normal conditions, our teams pivoted and leaned into second [indiscernible] to pension positions us well at kind of factor B comes from people who understand this business and take ownership of the outcome. Now on the retail side, customer retention continued to improve regained accounts were meaningfully up versus the prior year, and our will call service levels got better. Those aren't weather-driven results. That's disciplined execution by teams that stay focused on the customer, regardless of what is happening outside. On the wholesale side, Q3 is on Blue Rhino, our tank exchange business prepares for the summer grilling season and potential weather events. This quarter, they were also busy installing more than 8,000 new displays at customer locations across the country and planning the extension of hundreds more [indiscernible] sites. While we never want to see any community affected by a damaging storm, getting propane to our facilities and customer locations quickly and reliably during a storm event, that's the commitment our wholesale team is ready to deliver on. Growth like safety is a relentless focus for our employee owners. It looks like new customer relations that generate volume for future years. It's auto gas locations that didn't exist last quarter, its Blue Rhino exchange locations added to retail stores across the country and its national accounts. These are large multisite customers who choose Ferrellgas because of our reliability, our service consistency and our ability to perform at scale. What I want to underscore is that this growth is happening in everything else, the operational improvements, the safety [indiscernible] follows plan. That's not easy to do. It requires a team that can hold multiple priorities at once and execute on all of them. Ours does exactly that. I will now turn the call over to Nick to walk through the financials.

Thanks, Tamria. And like Tamria, I'm very proud of our employee owners efforts during the third quarter. Their continued focus on margin expansion and operational efficiency is what keeps us moving forward. Let me break it down. Overall gross profit was up $2.2 million, about 1% compared to last year. Propane prices at Mont Belvieu were down roughly 16% versus the prior year, which led to about a $36 million decline in revenue. But because our product costs came down even more by about $38 million, we more than offset that revenue pressure. Gaylon volumes were down $2.8 million or 1% for the quarter. Retail was the main driver there following 4.4 million gallons or 3%. So that was partially offset by wholesale growing 1.6 million gallons or 3%. Margin per gallon increased approximately 2% as we continue to benefit from the operational efficiencies we've been building, better route productivity, improved delivery execution and the ongoing contribution of our telematics platform. On diesel, elevated costs pressured our delivery expense this quarter. and I want to be direct about how we're managing it. We're working through route optimization, better load planning and efficiency initiatives designed to reduce fuel consumption per gallon delivered. This is not a quarter-to-quarter reaction. It's a structural effort to reduce our exposure to diesel volatility over time. Our technology investments are core to that strategy and results are already showing up in our numbers. At the bottom line, net earnings decreased $31.1 million to $28 million. The primary driver was a $29 million increase in operating expense largely related to resolution of legacy casualty claims. These are legacy items we chose to resolve, and management does not expect these costs to occur at this level in future periods. Adjusted EBITDA decreased $12.7 million or about 11% to $102.1 million. Operating expenses increased by $16.7 million after adjusting for approximately $12 million related to some of the settlements mentioned previously and was partially offset by the gross profit improvement. Overall, it was a quarter where the business performed well at its core. Aside from the headwind of some onetime claims liability, gross profits grew, margins expanded, our cost structure remains competitive. Now I will turn the call over to Michelle.

Thanks, Nick. I'd like to take a moment to highlight a few things from the corporate affairs side that occurred this quarter. We continued our long-standing partnership with Operation Barbecue Relief deploying employee owners to serve hot meals to families impacted by flooding in Milwaukee and tornado damage in Miami County, Kansas. Our teams also volunteered at local food pantries supported veterans and [indiscernible] responder fundraisers and marked Earth Day by visiting schools and cleaning up community spaces using those moments to share the story of propane as a clean, efficient fuel. With regards to safety, the work we've been putting in is translating into real results. Our recordable incident rate continues to trend in the right direction, and our CSA performance improved year-over-year across several key categories. I'm particularly proud of what we're seeing through our telematics platform, meaningful quarter-over-quarter improvement in driver safety indicators, including distracted driving, mobile usage and CPP compliance. We also remain deeply engaged with the National Propane Gas Association, the industry's leading trade organization. As a former chair of the MPGA, it gives me great pride to announce that Ray Golan, our Vice President and Head of Retail Operations will be sworn in next week as incoming Treasurer at the ceremony in Washington, DC. With a career spanning more than 20 years, Ray has been a tireless advocate for both the propane industry and Ferrellgas. There is no one more deserving of this recognition at the national level. Congratulations, Ray. I will now hand the call back to Tamria for closing remarks.

Thanks, Michelle. We ended the last quarter with more clarity than we've had before. The Class B conversion is complete. The legacy liabilities are largely behind us, and the investments we've made in telematics, route optimization and [indiscernible] are compounding to provide future expense savings. Our focus into the Q4 is straightforward, take, set, growth, customer base expansion, wholesale location installments, continued safety performance and a capital structure improvement. Looking further out, we are not just managing for the next quarter. We are building a company with a simpler capital structure, a leaner cost base and technology that compounds and value the longer it's deployed. The telematics data we capture today will make our routing smarter tomorrow. The customer relates to go today, including national accounts, generate volume for years to come and the extent structural advantages that become harder to replicate over time. I'm proud of what this team has built, and I'm confident in what they'll do with it. Thank you for joining our call today for your continued interest in Ferrellgas. We will now move to some previously submitted questions. First question, margin per gallon was up despite volume pressure and elevated diesel costs. What's driving that? And is it sustainable? Nick?

I think the clearest way to see it is at a regional level, we thought it was important to provide a regional breakdown in our earnings release to showcase how we capitalize on opportunity where weather cooperated and we had cold days, our team has delivered the volume and protected margins. Where it didn't, we pulled back on delivery activity and redirected that energy toward new customer acquisition and retention. That ability to flex up when conditions favor it and flex down when they don't and stay disciplined either way is exactly what cap margins intact. So it's not a 1-quarter story. It's how we're running the business.

Thanks, Nick. The next question is around operating expense. Specifically, can you walk us through the drivers behind the operating expense? And Nick, I'll let you take that one as well.

4 Yes, absolutely. As we spoke about in the call, we made a deliberate decision to resolve several legacy casualty places that had been pending for a number of years. This was a focused onetime effort to clean up our case portfolio not something we expect to recur in future quarters. The remainder of the increase was tied to higher diesel costs, which were considerably smaller contributor. Given the timing of those fuel cost fluctuations, we aren't always positioned to fully pass them through in the near term.

The next question is what's driving the growth momentum you're seeing and what does a 3-year outlook look like? So on the call today, you heard me speak about the work that the company has undertaken as we build for the future. From Board composition to cleaning up any drag on future EBITDA performance through our continued investment in building the right customer base, all supported by best-in-class technology. Our outlook is based on a really solid foundation. So specifically, there are several areas I want to highlight. I know they're in our earnings release and they're in this call, but I want to make sure that we can double click on them. On the retail side, auto gas and power [indiscernible] are meaningful contributors, and we're seeing a growing number of fleet operators to switch from diesel to propane. This is driven by lower fuel and maintenance costs and ultimately a cleaner emissions profile. At Blue Rhino, we've really been focused on making the cylinder exchange experience much more convenient through home delivery and vending, and that's to [indiscernible] customers and expanded locations with existing retail partners. A recent win for [indiscernible] was a large regional convenience store chain in the Eastern U.S. And with location expansions from our existing national retail spaces, we'll add new gallons and strengthens that counterseasonal going forward. Finally, our supply acumen has allowed us to grow on our wholesale supply opportunities. That's the foundation and a little bit into our growth areas. The next question we received many times, and that's just what's next in terms of the capital structure with the [indiscernible] and now complete. What's the plan for the preferred units -- as we've said before, we have a strong and constructive relationship with our stakeholders, Ares and Prudential. They've been very supportive of Ferrellgas and we maintain regular dialogue with them. about potential options, much as we did throughout the Class B process. We'll continue to evaluate scenarios related to the preferred as part of our broader view of the overall capital structure. Nick, I'm going to let you take this one. We received this one many times as well. Given the movement with your capital structure, is it your plan to relist?

The simple answer is yes. Relisting on a national security exchange is absolutely part of the plan, and we hope to be in a position to make that happen in the near future.

All right. First over, the types of questions that were submitted today, we truly thank you for your support and the questions. With that, I will now hand the call back to our moderator, Kevin.

Thank you. Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.