OVERLAND PARK Sep 29, 2015 (Thomson StreetEvents) -- Edited Transcript of Ferrellgas Partners LP earnings conference call or presentation Tuesday, September 29, 2015 at 1:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Al Heitmann Ferrellgas Partners LP - CFO * Steve Wambold Ferrellgas Partners LP - President and CEO * Julio Rios Ferrellgas Partners LP - President and CEO of Bridger Logistics * Todd Soiefer Ferrellgas Partners LP - SVP of Strategic Development * Boyd McGathey Ferrellgas Partners LP - COO ================================================================================ Conference Call Participants ================================================================================ * Ben Brownlow Raymond James - Analyst * Robert Balsamo UBS - Analyst * Gary Stromberg Barclays Capital - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning. My name is Steve, and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth-quarter FY15 earnings conference call. (Operator Instructions) Thank you. Chief Financial Officer Al Heitmann, you may begin your conference. -------------------------------------------------------------------------------- Al Heitmann, Ferrellgas Partners LP - CFO [2] -------------------------------------------------------------------------------- Thank you, Steve, and good morning, everyone. Welcome to the Ferrellgas Partners FY15 fourth-quarter earnings conference call. I'm Al Heitmann, Chief Financial Officer, and joining me today is Steve Wambold, President and CEO; Boyd McGathey, our Chief Operating Officer; Julio Rios, President and CEO of Bridger Logistics; and Todd Soiefer, who heads up our Business Development shop. Tod Brown, President of Blue Rhino, was unable to join us for this call this morning. Before we get started, I'd like to remind all of you that some of the 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 10-K, and other documents filed from time to time with the SEC. So, with that out of the way, I will turn the call over to Steve Wambold, President and Chief Executive Officer, for his opening remarks. -------------------------------------------------------------------------------- Steve Wambold, Ferrellgas Partners LP - President and CEO [3] -------------------------------------------------------------------------------- Okay, thank you, Al. Good morning, everyone. I will kick it off from here; I will give a little bit of color on the FY15 performance, a quick preview into FY16's expectations, and then I will turn the call over to Julio Rios, who will give you a midstream Bridger Logistics update and talk about the transition. And then after that, Al will take it back for the numbers, and then we will do some Q&A. So, as you're aware, when we last spoke we were just coming off of the announcement on Bridger Logistics, and we were very bullish about what that addition meant for us. And I'm pleased to report that our optimism was well warranted. As you have no doubt seen from this morning's release, we're proud to be announcing record adjusted EBITDA of $300.2 million, making this the third year in a row we've been able to declare record adjusted EBITDA. It should be noted that we have posted these results in a year in which temperatures were 8% warmer than prior year, and we were able to offset Mother Nature's impact with the help of wholesale commodity prices that were 43% lower than prior year, which enhanced our ability to maximize our margins. In addition, we were successful in flexing our expenses in line with demand. Probably the biggest news of the fourth quarter was the closing of our acquisition of Bridger Logistics. This transaction was a big step towards our goal of significantly diversifying beyond our traditional propane space. Frankly, it's been everything we hoped for from a financial and operational standpoint, and a cultural one as well. The success reinforces our dedication to aggressively pursuing accretive, complementary acquisitions in the midstream and propane marketplace. The most tangible result of this is that, for the first time in our history, we announced a distribution increase as owners of FGP are now receiving $2.05 per unit, which is a 2.5% increase over prior [quarters]. As such, at this point, I'm happy to share our FY16 adjusted EBITDA guidance will be $400 million to $420 million. I'm confident that the addition of Bridger, as well as our continued excellence in our traditional retail and Blue Rhino business units, puts this number well within our reach. And with that, I will turn it over to Julio Rios, President and CEO of Bridger Logistics. -------------------------------------------------------------------------------- Julio Rios, Ferrellgas Partners LP - President and CEO of Bridger Logistics [4] -------------------------------------------------------------------------------- Thank you, Steve. First I'd like to say it's an honor to be included here and be a part of the FGP team. From our first meetings with Ferrellgas, it's been an incredible experience. Bridger Logistics' team is off to a strong start. Steve and his executive team, as well as everyone down the line at Ferrellgas, have helped make the integration smooth and seamless, which has allowed us to continue to focus on growth and execution. We have every expectation that we will continue to operate as Ferrellgas's midstream platform and grow within the Organization, which will enable us to expand our business in the marketplace. Earlier, Steve mentioned Ferrellgas's ability to hold strong on margins due to lower commodity costs. I want to take the opportunity to point out that, while a number of organizations in the midstream sector might have exposure to the variations in the market, Bridger's contract coverage and the strategic location of our operations result in a business that performs well throughout the commodity price cycles. As for growth, we are in active and positive discussions with existing and potential new customers for additional business opportunities and organic development projects, and we are excited about what those could bring to the table. Further, we are evaluating some exciting tuck-in acquisitions, as well as larger opportunities that fit our operational and financial models. Bridger is meant to be the midstream growth platform for Ferrellgas, and we intend to be exactly that. With that update, I will turn it over to Al Heitmann, who will provide a more in-depth financial performance of the total Company. -------------------------------------------------------------------------------- Al Heitmann, Ferrellgas Partners LP - CFO [5] -------------------------------------------------------------------------------- Thanks, Julio. As Steve mentioned earlier, FY15 was another record-breaking year for Ferrellgas. Our 10-K that was filed this morning details the $300.2 million of adjusted EBITDA, and indicates that it included $8.6 million from our crude oil logistics segment, which represented only 38 days of results from Bridger Logistics -- that acquisition which closed on June 23. Adjusted EBITDA for our propane segment, as detailed in our 10-K, was $325.8 million, and was positively impacted by strong expense controls and lower propane wholesale costs, which helped to partially offset the effects of weather, which was 8% warmer than that of the prior year. So now for a deeper dive into our FY15 full-year numbers, propane sales volumes for FY15 were 879 million gallons, down 7% from the 947 million gallons a year ago. This decrease is primarily due to the warmer weather that we mentioned previously. Although negatively impacted by the recent drop in crude oil prices, we are pleased that our midstream operations processed 17 million barrels of water for the year, only slightly below our expectations. And our newly acquired Bridger Logistics acquisition hauled over 10.4 million barrels of crude oil for the 38 days of operations. Total gross profit for the year was $800 million, reflecting higher propane margins, which benefited from an approximate 43% decline in wholesale propane prices when compared to the same period a year ago. This also is reflective of the lower propane sales volumes due to the warmer temperatures. The gross profit generated from our midstream operations was $3 million. And while this is below our expectations, the unfavorable variance is primarily tied to the price of crude oil, which declined 52% during the year. Operating expense for the year was $432 million, down from the prior-year expense of $446 million. As they've done all year long, our propane operations team flexed variable expenses down, reflecting the impact that warmer temperatures had on gallon sales. This, together with the lower cost of diesel and gasoline, allowed us to keep our operating expenses below prior year in spite of the additional costs associated with the midstream and propane operations we acquired. General and administrative expense was $56 million for FY15, but included a one-time charge of $16 million for the acquisition and transaction expenses related to the Bridger transaction. Excluding this charge, our G&A expenses would have been favorable to the prior-year expense of $46 million. And finally, interest expense was $100 million, up from the $87 million a year ago, primarily due to the issuance of new debt to fund acquisitions. All of this results in an FY15 adjusted EBITDA of $300.2 million, up from the record set at the end of FY14 of $288 million. Distributable cash flow for FY15 was $189.6 million or 1.12 times our distributions, providing over $20 million of free cash flow to fund growth and acquisitions. And our liquidity position is strong. We currently have no debt maturities until 2020, and we have over $264 million of borrowing capacity in our secured credit facility, which provides us with sufficient capacity to fund our working capital and short-term growth capital needs. This concludes my comments on the financial performance of the Partnership. And with that, I will turn it back over to Steve for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Thank you. Our first question comes from the line of Ben Brownlow with Raymond James. -------------------------------------------------------------------------------- Ben Brownlow, Raymond James - Analyst [2] -------------------------------------------------------------------------------- Hi, good morning guys. -------------------------------------------------------------------------------- Al Heitmann, Ferrellgas Partners LP - CFO [3] -------------------------------------------------------------------------------- Hi, Ben. -------------------------------------------------------------------------------- Steve Wambold, Ferrellgas Partners LP - President and CEO [4] -------------------------------------------------------------------------------- Good morning. -------------------------------------------------------------------------------- Ben Brownlow, Raymond James - Analyst [5] -------------------------------------------------------------------------------- Thanks for taking the question. I apologize, I missed the first part of the call. I just wanted to touch on the Bridger EBITDA, which was in line with what I'd modeled but I just wanted to clarify a few line items. The revenue contribution, that was only for six weeks, that's correct? -------------------------------------------------------------------------------- Al Heitmann, Ferrellgas Partners LP - CFO [6] -------------------------------------------------------------------------------- Yes, for 38 days, that's right. -------------------------------------------------------------------------------- Ben Brownlow, Raymond James - Analyst [7] -------------------------------------------------------------------------------- And that was a pretty big acceleration from the March quarter. Was that just the commodity driven, or can you just talk about some of the drivers and the run rate? -------------------------------------------------------------------------------- Al Heitmann, Ferrellgas Partners LP - CFO [8] -------------------------------------------------------------------------------- Well, the increase in the revenue, we're seeing a full year worth of our water solutions revenues this year compared to a partial year last year with the C&E acquisition. It's not just all Bridger. There were saltwater well disposals that we acquired that make the comparison to prior year [non-comparable] as well. -------------------------------------------------------------------------------- Ben Brownlow, Raymond James - Analyst [9] -------------------------------------------------------------------------------- Okay, but I was thinking along the midstream revenue sequentially from the March quarter. Was that just -- that was the salt wells? -------------------------------------------------------------------------------- Steve Wambold, Ferrellgas Partners LP - President and CEO [10] -------------------------------------------------------------------------------- Yes, because we didn't acquire the Bridger assets until July. Well June, late June. -------------------------------------------------------------------------------- Al Heitmann, Ferrellgas Partners LP - CFO [11] -------------------------------------------------------------------------------- June 3. -------------------------------------------------------------------------------- Ben Brownlow, Raymond James - Analyst [12] -------------------------------------------------------------------------------- Yes, I was thinking about the pro forma. We can talk about it offline, but I was looking at the pro forma financials that were filed earlier for the March quarter on Bridger. -------------------------------------------------------------------------------- Al Heitmann, Ferrellgas Partners LP - CFO [13] -------------------------------------------------------------------------------- March quarter. -------------------------------------------------------------------------------- Julio Rios, Ferrellgas Partners LP - President and CEO of Bridger Logistics [14] -------------------------------------------------------------------------------- Ben, this is Julio Rios. The only thing I can say on that is it may be related to -- March quarter did not have what we call internally our Pony Express contract with Whiting, and that may be the increase in revenue that you're seeing. -------------------------------------------------------------------------------- Ben Brownlow, Raymond James - Analyst [15] -------------------------------------------------------------------------------- Okay, that's helpful. And on the M&A pipeline, which you commented was favorable, are you seeing more tuck-in acquisitions or are there more larger deal opportunities that you're seeing? -------------------------------------------------------------------------------- Steve Wambold, Ferrellgas Partners LP - President and CEO [16] -------------------------------------------------------------------------------- Todd, do you want to take that? -------------------------------------------------------------------------------- Todd Soiefer, Ferrellgas Partners LP - SVP of Strategic Development [17] -------------------------------------------------------------------------------- Sure. So we're seeing an influx of opportunities on the tuck-in side within Bridger as well as larger scale acquisitions that we're currently evaluating. So if anything, our pipeline has continued to increase after this acquisition, so we're keeping very busy. -------------------------------------------------------------------------------- Steve Wambold, Ferrellgas Partners LP - President and CEO [18] -------------------------------------------------------------------------------- Same on the propane side, a lot of tuck-in opportunities we're currently evaluating. -------------------------------------------------------------------------------- Ben Brownlow, Raymond James - Analyst [19] -------------------------------------------------------------------------------- Okay, great, and just one last one for me. On the target EBITDA mix for the midstream that I think a few quarters back you were going back to the Board to discuss longer term where you saw that mix on the midstream side from -- I guess the longer-term goal was initially a third [mix]. Any update there on that target midstream versus propane? -------------------------------------------------------------------------------- Steve Wambold, Ferrellgas Partners LP - President and CEO [20] -------------------------------------------------------------------------------- Yes, we were tending to target a 70/30 mix by the end of FY17, that was our initial goal. Obviously, the Bridger acquisition helped us achieve that goal, so we are now going to start focusing on 50/50 split between now and the end of FY18. That's a new target. -------------------------------------------------------------------------------- Ben Brownlow, Raymond James - Analyst [21] -------------------------------------------------------------------------------- Great, thanks and congrats on the quarter. -------------------------------------------------------------------------------- Steve Wambold, Ferrellgas Partners LP - President and CEO [22] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [23] -------------------------------------------------------------------------------- Thank you. Our next question comes from the line of Robert Balsamo with UBS. -------------------------------------------------------------------------------- Robert Balsamo, UBS - Analyst [24] -------------------------------------------------------------------------------- How you doing, guys? Congrats on a nice quarter. -------------------------------------------------------------------------------- Steve Wambold, Ferrellgas Partners LP - President and CEO [25] -------------------------------------------------------------------------------- Thanks, Robert. -------------------------------------------------------------------------------- Al Heitmann, Ferrellgas Partners LP - CFO [26] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Robert Balsamo, UBS - Analyst [27] -------------------------------------------------------------------------------- Just if you can do a quick clarification. You mentioned the variable expenses, flexing down variable expenses. Could you elaborate on that? Is that something that could come back, or are the cost of savings going to continue? -------------------------------------------------------------------------------- Boyd McGathey, Ferrellgas Partners LP - COO [28] -------------------------------------------------------------------------------- Well, this is Boyd. Obviously we're trying to match our expense profile to the demand, so as the demand contracts, we try to marry that up. So conversely, if and when volume come back and we have a real winter and the ag season kicks in, we will ramp up so that we meet the service expectations of our customers. -------------------------------------------------------------------------------- Steve Wambold, Ferrellgas Partners LP - President and CEO [29] -------------------------------------------------------------------------------- But it will certainly be offset by more cash flow as a result as well. -------------------------------------------------------------------------------- Robert Balsamo, UBS - Analyst [30] -------------------------------------------------------------------------------- Okay, great. And then as far as volumes go in the propane business, it looked like the volumes were roughly in line with the weather and the heating degree days, but is that all there is or was there an impact from low propane prices increasing demand and then maybe more decline from other base business customers? Could you elaborate maybe more on what you're seeing in the marketplace? -------------------------------------------------------------------------------- Boyd McGathey, Ferrellgas Partners LP - COO [31] -------------------------------------------------------------------------------- Well, this is Boyd again. The customers that have weather-sensitive usage clearly they're burning less gas just because the wholesale product costs or in this case the retail sales price is lower than perhaps their last delivery or even last year. That has really little impact on the influence on their usage or demand for more propane, so where we see that really give us an uplift is in attracting new customers. We think our service offering coupled with a very competitive sales price is obviously we're seeing good customer organic growth on that front, so I'm not sure if that answers your question or not. -------------------------------------------------------------------------------- Robert Balsamo, UBS - Analyst [32] -------------------------------------------------------------------------------- Yes, I guess I'm wondering if propane prices were to recover a little bit, we might see more of base level decline because you don't have the benefit from the attractive prices, but either way, it was two or three positive quarters. And then just one clarification. On your expectations for 2016, do you have a price deck that you're looking at or expectation for crude? Are you guys expecting much recovery in the crude price in those estimates? -------------------------------------------------------------------------------- Steve Wambold, Ferrellgas Partners LP - President and CEO [33] -------------------------------------------------------------------------------- Julio, do you want to take that? -------------------------------------------------------------------------------- Julio Rios, Ferrellgas Partners LP - President and CEO of Bridger Logistics [34] -------------------------------------------------------------------------------- Yes, so look, we see crude as something that will recover over the next 18 to 24 months. Our business here at Bridger is relatively insulated from commodity prices. We're just a transportation business and we -- just in the midstream space and it moves the barrel that needs to be moved from where it's produced to where it's needed. So commodity prices really don't impact our business, and as previously stated, our contract coverage in operating areas insulates us from that commodity price risk. But you know, certainly I will let Boyd speak on the propane side, but certainly a low crude price environment has an effect on downward pressure on propane prices which would certainly be good for Boyd's business. -------------------------------------------------------------------------------- Robert Balsamo, UBS - Analyst [35] -------------------------------------------------------------------------------- And I wasn't really as concerned with the direct commodity exposure as much as producer expectations, capital going back to work and basins you might be exposed to, volumes maintaining or growing in those basins. -------------------------------------------------------------------------------- Boyd McGathey, Ferrellgas Partners LP - COO [36] -------------------------------------------------------------------------------- Yes, look, our largest contract is with a refinery, so low price environment is good for that refinery customer, and they are out there buying as many barrels as they possibly can to push through our system. -------------------------------------------------------------------------------- Robert Balsamo, UBS - Analyst [37] -------------------------------------------------------------------------------- Awesome. I appreciate the color guys, thank you very much. -------------------------------------------------------------------------------- Steve Wambold, Ferrellgas Partners LP - President and CEO [38] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [39] -------------------------------------------------------------------------------- (Operator Instructions) Our next question comes from the line of Gary Stromberg with Barclays. -------------------------------------------------------------------------------- Gary Stromberg, Barclays Capital - Analyst [40] -------------------------------------------------------------------------------- Hi, good morning. -------------------------------------------------------------------------------- Steve Wambold, Ferrellgas Partners LP - President and CEO [41] -------------------------------------------------------------------------------- Hi, Gary. -------------------------------------------------------------------------------- Gary Stromberg, Barclays Capital - Analyst [42] -------------------------------------------------------------------------------- Just with regard to guidance, first what are your assumptions around organic retail propane volumes? Do you expect flattish organic growth? I know a lot depends on weather. And then can you just talk about your expectations around gross margin per gallon as well? -------------------------------------------------------------------------------- Boyd McGathey, Ferrellgas Partners LP - COO [43] -------------------------------------------------------------------------------- Well, this is Boyd. I think our expectations and what we're planning for internally is return to normal weather, and we plan volumes around that. But we will continue to realize our own organic growth strategies around the current retail sales price environment. We see some expansion in margin opportunities where we can smartly remain priced and pass along some of the savings in wholesale product costs. And we will continue to do that where we can without creating any trauma or customer loss. -------------------------------------------------------------------------------- Gary Stromberg, Barclays Capital - Analyst [44] -------------------------------------------------------------------------------- Okay, and in a normal weather year, would organic growth just be flat or do you actually expect a modest pick up? -------------------------------------------------------------------------------- Boyd McGathey, Ferrellgas Partners LP - COO [45] -------------------------------------------------------------------------------- It varies around various geographies around the country where there's real growth and organic growth in population, but we tend to realize more significant organic growth in certain parts of the country. Some of it is market share growth, and other growth is just a function of what's taking place in that geography. -------------------------------------------------------------------------------- Gary Stromberg, Barclays Capital - Analyst [46] -------------------------------------------------------------------------------- Okay, and then just back to the guidance for Bridger and Sable. Do you think in 2016 that $100 million run rate you referenced on the last call is a good assumption for Bridger, and do you expect any pick up in Sable going forward or do you think that's pretty flat? -------------------------------------------------------------------------------- Steve Wambold, Ferrellgas Partners LP - President and CEO [47] -------------------------------------------------------------------------------- I think the number that I gave in guidance contains the answers to both of those questions. -------------------------------------------------------------------------------- Gary Stromberg, Barclays Capital - Analyst [48] -------------------------------------------------------------------------------- Okay, great. Thank you. -------------------------------------------------------------------------------- Operator [49] -------------------------------------------------------------------------------- Thank you. There are no further questions at this time. Presenters I will turn the call back to you. -------------------------------------------------------------------------------- Steve Wambold, Ferrellgas Partners LP - President and CEO [50] -------------------------------------------------------------------------------- Okay, thank everyone. Appreciate the participation and the interest in Ferrellgas. Clearly, a very exciting time for us as we continue to pursue growth and further diversification in our operating divisions, and we look forward to what we hope will be a very cold winter season here very soon. Thank you very much for your time. -------------------------------------------------------------------------------- Operator [51] -------------------------------------------------------------------------------- This concludes today's conference call. You may now disconnect.
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