Overview

Ferrellgas Partners is a holding company that conducts no operations and has two direct subsidiaries - the operating partnership and Partners Finance Corp. The operating partnership is responsible for the majority of the company’s activities and financial performance.

Recent Developments

In response to a legal judgment, the operating partnership guaranteed the issuance of $124.5 million in letters of credit under its Credit Facility to secure an appeal bond on behalf of Ferrellgas Partners.

How We Evaluate Our Operations

Ferrellgas primarily evaluates its performance based on “Adjusted EBITDA”, a non-GAAP metric that excludes the impact of depreciation, depletion and amortization. The company’s operations are heavily influenced by weather conditions, as propane demand for heating purposes is directly affected by the severity of winter weather. Ferrellgas also uses risk management activities to mitigate price risks related to the purchase, storage, transport and sale of propane.

Summary Discussion of Results of Operations

For fiscal 2024, Ferrellgas reported net earnings of $110.2 million, down from $136.9 million in fiscal 2023. The decrease was primarily driven by:

• A $24.1 million decrease in gross margin, due to a 5% decline in gallons sold amid warmer weather and lower wholesale prices
• A $24.1 million increase in operating expenses, including higher personnel, vehicle and plant costs
• A $5.1 million increase in depreciation and amortization expense

These were partially offset by a $20.4 million decrease in general and administrative expenses.

Distributable cash flow attributable to equity investors decreased to $212.3 million in fiscal 2024 from $254.4 million in fiscal 2023, primarily due to the $42.8 million decline in Adjusted EBITDA. Distributable cash flow excess decreased to $43.2 million from $135.0 million, driven by the higher distributions paid to Class B unitholders.

Consolidated Results of Operations

The table below summarizes Ferrellgas’ consolidated financial results for fiscal 2024 and 2023:

(amounts in thousands)	2024	2023
Total revenues	$1,837,116	$2,026,465
Total cost of sales	$853,971	$1,019,270
Operating expense - personnel, vehicle, plant and other	$601,602	$577,520
Depreciation and amortization expense	$98,471	$93,370
General and administrative expense	$50,339	$70,738
Operating income	$205,095	$233,689
Net earnings attributable to Ferrellgas Partners, L.P.	$110,216	$136,881

Non-GAAP Financial Measures

Ferrellgas presents several non-GAAP financial measures, including Adjusted EBITDA, Distributable cash flow attributable to equity investors, Distributable cash flow attributable to Class A and B Unitholders, and Distributable cash flow excess. These measures are intended to provide investors with additional information to evaluate the partnership’s performance in a manner similar to how management evaluates performance.

The table reconciling these non-GAAP measures to the most directly comparable GAAP measure, net earnings attributable to Ferrellgas Partners, L.P., is provided in the report.

Operating Results

Propane sales volumes decreased 5% in fiscal 2024 compared to fiscal 2023, primarily due to 4% warmer weather and a 5% decline in retail customers. Wholesale prices also averaged lower in fiscal 2024. These factors led to a $24.1 million decrease in gross margin.

Operating expenses increased $24.1 million, driven by higher personnel, vehicle and plant costs. However, general and administrative expenses decreased $20.4 million, mainly due to lower legal costs.

Overall, operating income declined $28.6 million, and Adjusted EBITDA decreased $42.8 million compared to the prior year.

Liquidity and Capital Resources

As of July 31, 2024, Ferrellgas had total liquidity of $231.0 million, consisting of $113.5 million in unrestricted cash and $117.5 million of availability under its Credit Facility. The company’s working capital requirements can be affected by factors such as weather, propane prices, and customer demand.

Distributable cash flow attributable to equity investors decreased to $212.3 million in fiscal 2024 from $254.4 million in fiscal 2023, primarily due to the decline in Adjusted EBITDA. Distributable cash flow excess decreased to $43.2 million from $135.0 million, driven by higher distributions to Class B unitholders.

The company has material cash requirements for long-term debt, interest, leases, and product purchase commitments. Management is evaluating options to refinance or extend the maturity of the Credit Facility, as there is substantial doubt about the company’s ability to continue as a going concern for at least one year from the report date due to the timing of the facility’s maturity.

Critical Accounting Estimates

Ferrellgas’ critical accounting estimates include:

• Depreciation of property, plant and equipment
• Residual value of customer and storage tanks
• Valuation and amortization of intangible assets
• Accounting for risk management and derivative financial instruments
• Litigation accruals and environmental liabilities
• Goodwill impairment

These estimates involve significant judgment and assumptions that can materially impact the company’s financial statements.