Q4 2020 Star Group LP Earnings Call

Good morning, and welcome to Star Wars fiscal 2024th quarter earnings call on.

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Not what the total the conference over to Mr., Chris witty Investor Relations Moderator. Please go ahead.

Thank you and good morning with me on the call today are Jeff <unk>, Chief Executive Officer, Rich Ambury, Chief Financial Officer, I would now like to provide a brief safe Harbor statement. This.

This conference call May include forward looking statements represent the company's expectations and beliefs concerning future events that involve risks and uncertainties that may cause the company's actual for forward is to be materially different from the performance indicated or implied by such statements.

All statements other than those types of historical facts included in this conference call are forward looking statements, including those related to the impact of COVID-19 on the company.

Although the company believes the expectations reflected in such forward looking statements are reasonable it can give no assurance that such expectations will prove to have been correct.

Important factors that could cause actual results to differ materially from the company's expectations are disclosed in this conference call. The company's annual report on form 10-K with the fiscal year ended September Thirtyth 2020, other companies other filings with the FCC on.

All subsequent written and oral for looking statements attributable to the company or persons acting on its behalf are expressly qualified in their entirety other cautionary statement.

Unless otherwise required by law the company undertakes no obligation to publicly update or revise any forward looking statement, whether as a result from new information future events or otherwise after the date of this conference call on.

I like to turn the call over to Jeff Jeff.

Thanks, Chris and good morning, everyone. Thank you for joining our year on conference call. It's amazing how time as flow even in the midst of a global pandemic and here, we are concluding our fiscal year and at the start of another heating season I'm pleased to say that in the face of many economic uncertainties Star Group finished fiscal 2020 with strong for.

For months and is well positioned for the future for.

For the full year, adjusted EBITDA rose, 37% to $130.3 million, reflecting $46.3 million on lower operating expenses in our base business higher heating oil and propane margins and increased service and equipment installation profitability.

We believe these results in the middle other healthcare crisis and nationwide recession, clearly demonstrate the value of our products and services as well of course as the dedication of our high caliber team of employees.

I appreciate everything that's going to stars performance. This year, which includes a significant reduction in net customer attrition as compared to fiscal 2000 nineteens higher levels.

Although the first two months for fiscal 2021 have proven to be challenging, particularly as it relates to new customer additions, we remain confident in our strategy of reducing overhead costs, focusing on increase operating efficiencies and reinvesting in areas that directly improve the customer experience.

And we will continue to lead to improved long term results.

We've also taken some strategic actions to better position the company for future growth.

Most notably as part of our ongoing efforts to evaluate our initiatives and direct resources on capital.

We have recently sold our propane operations in the Carolinas, Tennessee and Georgia.

As you may be aware beginning around 2011, we think began expanding our propane business in the southeast through several small acquisitions, and then attempted to accelerate our growth by opening a number of small startup locations in adjacent markets.

Unfortunately, we were not successful on building the critical customer mass and related volume required in order to get these operations to a desired level of profitability.

We felt it was best to divest ourselves of the associate associated assets and redirect our capital time and attention to areas that produce greater profitability and better more consistent returns.

Our long term goal of expanding our he didn't on propane business, both organically and through acquisitions remains unchanged.

With everything we've done to improve service levels and streamline the business I feel confident the company is prepared and for react appropriately to any true new challenges as we begin fiscal 2021.

With that I'll turn the call for the rest to provide additional comments on the quarter on your end results rich.

Thanks, Jeff and good morning, everyone for the fiscal 2024th quarter, our home heating oil and propane volume decreased by 3 million gallons or 13% for 19 billion gallons due to start on staffing levels the timing of certain non once your deliveries net customer attrition and other factors.

The volume of our other petroleum products.

Oh, the decreased by 5 million gallons for 10% to 40 million gallons due to cold mid ninetys impact on economic activity.

Our product gross profit declined by $3 million or 8% to $34 million as a decrease in volume sold was slightly offset by higher home heating oil and propane per gallon margins.

Delivery and branch expenses decreased by $5 million or 6% to $68 million largely due to lower insurance and bad debt expenses.

Our net loss declined by $4 million on the fourth quarter to $30 million due to a decrease in the company's adjusted EBITDA losses of 1.6 million and a 5 million dollar favorable change in the fair value of derivative instruments.

The positive impact from these factors was largely offset by a non cash charge of $6 million relating to the sale of non core assets.

For the quarter, our adjusted EBITDA losses decreased by $1.6 million or 5% to $27 million due to an increase in home heating oil and propane margins and improvement in net service installation profitability and lower operating expenses, partially offset.

By the impact of the lower volume sold.

For the Twentytwenty fiscal year, our home heating oil and propane volume decreased by 32 million gallons or 9% to 314 million gallons.

As the additional volume sold for from acquisitions was more than offset by warmer temperatures net customer attrition and other factors.

Temperatures for fiscal Twentytwenty were 6% warmer than last year, and 10% warmer than normal.

The volume of other petroleum products sold also decreased by 630 million gallons or 9% to 152 million gallons as the additional volume provided by acquisitions of 9 million gallons per well more than offset by a decline in motor fuel sales due to again to COVID-19, our product gross profit.

Decreased by $20 million or 4% to $447 million as the decline in volume sold more than offset an increase in per gallon margins.

Delivery and branch expenses declined by $46 million as the additional costs from acquisitions of $10 million were more than offset by a 55 million or 15 per se decreasing expenses with in the base business declined in the base business was attributable to an 11 million or 10%.

Net reduction direct delivery costs due to lower volume.

Lower insurance expense of approximately $10 million.

$6 million of lower bad debt and credit card processing fees.

A $4 million decrease in expenses related to the discontinued concierge program.

Lower medical costs of $4 million.

And other reductions in up writing expenses totaling $9 million or 2.5 per cent.

Going forward investors should expect that's certain costs will increase if volumes and our product cost rise expenses, such as delivery expense insurance.

Bad debt expenses credit.

Card processing fees will most likely increase with an increase in volume in or cost of product.

Operating expenses were also reduced by $12 million due to the impact of our weather hedging program in fiscal 2019, we recorded a 2 million dollar charge versus a benefit of $10 million in fiscal 2020.

Warmer temperatures during the winter hedge period from November through March right.

Resulted in a 10 million dollar payment in fiscal 2020, however, we experienced colder temperatures in our third fiscal quarter, which positively impacted volumes. If the additional degree days in the third fiscal quarter had occurred during the winter hedge period our.

Our hedge we would have received only 10 or excuse me will we see the only $2 million under the weather hedge.

In addition, our general and administrative expenses for fiscal 2020 decreased by $3 million year over year, primarily to the lower legal and professional expenses.

Our net income increased $38 million to $56 million due primarily to a $35 million increase in adjusted EBITDA and a favorable change on the fair value of derivative instruments of $22 million, partially offset by a 13 million dollar increase in income tax expense.

Full year adjusted EBITDA increased by 35 million to $130 million acquisitions provided 9 million of adjusted EBITDA, while adjusted EBITDA on the base business increased by $26 million.

In the base business the negative impact of COVID-19 on motor fuels and lower home heating oil volume sold due to warmer temperatures were more than offset by higher home heating oil and propane margins lower operating expenses in the base business up $46 million a favorable change in the email.

Collected under the weather hedge program of $12 million and improvement in net service and installation profitability of $5 million and with that I'd like to turn the call back over to Jeff.

Thanks Rich at this time, we're pleased to address any questions. You may have operator, please open the phone lines for questions.

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First question comes from Michael probably not for Penn Capital. Please go ahead.

Hey, good morning, guys and congratulations on some fantastic execution.

Thanks, Mike.

Hey, I I was trying to give other people a chance to ask questions on I'll try not to monopolize. The cool few questions. Firstly on the customer churn it looks like you're making terrific progress. There are just to what extent do you think that is sustainable.

Yeah, I think you know Michael we've done you know a number of things in the last 18 months, it's really tried to put ourselves in a better competitive position and then the same time reinvest in areas that improve the customer experience and you've heard me talk about that on this call.

Yeah for for some time now and that is certainly resulted in less customer churn.

You know we're hopeful that we'll continue we'll have to see a as I mentioned in my opening remarks, we have observed some sluggish a new customer gains in the first quarter. The first quarter is typically on a quarter on which we expect to we target.

Net growth on a joint on a quarter on which we we we do so or are planned for.

So our gains have been a bit sluggish as a result of a number of things and you know primarily well likely whether it was off in October and November on a combined over 20%. So that will have an impact on that but I'm also pleased to see on those first two months of the year that our losses.

Or reduced compared to historical levels. So.

No.

For the answer is you know we're optimistic.

But we're going to have to see how everything.

It plays out in the future.

Okay Fair enough. So then net net would you still expect to be in a customer again situation on the first quarter.

It's difficult to answer because we don't have you know, we obviously we saw them on <unk> so right.

A difficult thing to say right now.

Okay fair enough, but it sounds like it's going to be close enough that at least you're not expecting material losses for the December quarter.

We will have to see.

Okay, if I can.

Okay Fair enough and then so given the warmer weather you're seeing would you expect to be occurring on the weather hedge in the December quarter, if things continue as they seem to be.

Well you know with regard to the weather hedge it does cover for the period of November through March. So there's a lot a lot other heating season, a lot of the heating season, yet to go you know as of today, we're probably in the money on a little bit on one of the weather hedges, we do have to but you know what well have to see really.

To know where we settle up at the end of March to see whether we're actually collect.

Okay Fair enough and then the last question I had was in terms of other priorities as far as cash flow is concerned so obviously oh.

Cisco 20 was just a fantastic year for cash flow and to some extent, obviously you benefited from lower working capital requirements.

So its interesting just by the way to see the divestiture early this quarter.

And I think that's very very impressive to see the focus on profitability and return on capital invested.

So kind of putting all that together I'm noticing that the pace of acquisitions has slowed down quite a bit. So in terms of capital priorities I'm just from a sort of big picture perspective, I'm wondering how you're looking at debt like.

Are you expecting in increasing pace of acquisitions on the current fiscal year.

And then on this true buyback.

Obviously, you are successful on picking up some shares from one of your institutions in the current quarter, but I'm just wondering given the amount of shares you bought back we seem to be seeing a decline in share volume and so I'm wondering to what extent it but might be necessary to go back to your broker and adjust the formula.

As far as the stock buyback is concerned and I'll wrap it up with those questions.

Well with regard to the share buyback and I said this a few times.

Oh.

You know, it's a program and you know we don't we don't call a broker and say Hey, you got to do this you have to do that and we're we're limited to the number of shares that we can buy based on you know the average I guess I think it's the last 60 trading days and we put in certain hurdles during the during the course of the year as to where.

Where we will buy shares back and you know we're in this a six month quiet period that we can only a justice when we're on.

In an open window and we're in a six month quiet period, So I can't change very much on the program that we're buying the units back.

Oh from.

And Michael in terms of acquisitions, you know clearly we saw a reduction in activity.

Typically in the second and third quarter of this year and I think that's some to some degree understandable given the circumstances with the pandemic you know.

We are and continue to evaluate opportunities that are in front of us and you know we're we're hopeful that we can move those things along but time will tell.

Okay, Great and rich just a quick follow up question on the formula for the buyback.

What is it that creates the six months.

Oh quite period around the buyback I wasn't aware that.

Sure we can really only.

Change the number of shares that we can buy back and the price that we can buyback during a during the quiet period, and which is usually its.

Basically the three days after we file till the.

For the beginning of the the next month and then in the next fiscal quarter, what the where the way that we filed our 10-K. Our 10-K, we're filing in December and we're already in the next fiscal quarter. If you will the first quarter fiscal 2020. So we can't we can't make any changes for six months.

Now when we file for the the next 10-Q, which would probably be somewhere in the first week of December I'm, sorry, first week of February 2021, and get my day straight you know then we can then we can make changes.

Okay fair enough that makes sense. Thanks for taking my question, Yeah, you bet.

I guess, if we have a question. Please press star then one.

Our next question comes from Tim Nollen Walton management. Please go ahead.

Thanks. My question is actually a addressed by Michael So thanks, guys and good luck.

Thank you Nick.

This concludes our question answer session.

No on like the turn the conference back over to you.

Mr., Jeff <unk> <unk>, President and CEO. Please go ahead.

Well. Thank you for taking the time to join US today and your ongoing interest in Star Group, we look forward to sharing.

Our fiscal two to 2021 first quarter results with you on February have a great holiday season everybody.

[noise] Conference is now concluded. Thank you for attending today's presentation you may now disconnect [noise].

Yeah.

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