Q4 2021 Star Group LP Earnings Call
Good morning, and welcome to the Star Group fiscal 'twenty, 'twenty, one and fourth quarter results Conference call.
All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the Starkey followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.
To withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Chris witty Investor Relations adviser. Please go ahead.
Thank you and good morning with me on the call today are Jeff Wisdom, President and Chief Executive Officer, and Rich and Barry Chief Financial Officer.
I'd now like to provide a brief safe Harbor statement.
This conference call May include forward looking statements that represent the company's expectations and beliefs concerning future events that involve risks and uncertainties and may cause the company's actual performance to be materially different from the performance indicated or implied by such statements.
All statements other than statements of historical facts included in this conference call are forward looking statements. Although the company believes that 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 for the fiscal year ended September 30th 2021, and the company's other filings with the SEC.
All subsequent written and oral forward looking statements are favorable to the company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements.
Unless otherwise required by law.
<unk> no obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise after the date of this conference call.
I'd now like to turn the call over to Jeff Jeff.
Thanks, Chris and good morning, everyone. Thank you for joining us for our year end conference call. It's amazing how time has passed so quickly and here we are concluding our second full fiscal year under the leadership of the new management team.
I'm pleased to report that even with slightly lower volumes and the lingering impact of COVID-19 on certain parts of our business Star had another strong year in terms of overall performance as we push forward with our strategy of continuous improvement and remain keenly focused on the fundamentals of our core business.
Despite weather that was 10, 7% warmer than normal and 1.1% warmer than the prior year, we reported adjusted EBITDA of $127 $5 million, just two 1% lower than fiscal 2020.
It's notable that this was accomplished despite collecting $6 $7 million less in proceeds from our weather hedge program due to the seasonal timing of degree days.
Given these factors and those related to the pandemic I think that in many respects fiscal 2021 represents our best operating performance in recent years.
None of this would be possible without the dedication of our loyal team of employees, who continue to work tirelessly to provide our customers with exceptional service at every point of contact and do so with a level of enthusiasm there I believe sets us apart from our competitors.
Reducing net customer attrition remains an area of great focus for us in 2021 results were in line with the prior year.
We are encouraged to see an improvement in customer losses in overall churn, which would appear to validate and support the investments we've made in improving the overall customer experience.
We completed one small tuck in acquisition in the fourth quarter and closed two additional deals after the end of the fiscal year during November.
In total we completed five separate acquisitions in fiscal 2021 that included approximately 17500 customers and are expected to add nearly 13 million gallons of annual product sales to the company.
We remain very committed to our acquisition program and are currently reviewing several additional opportunities.
While none of these are transformational inside the overall activity level of small to mid sized prospects has steadily increased over the last several months.
As we enter the new heating season in fiscal year, we like many in our industry are dealing with the effects of higher product costs. Some remaining pandemic related constraints in a tight labor market. However, we continue to proactively adjust our operations to ensure we can effectively deal with these headwinds as well as any other challenge.
Or opportunities that may present themselves in the coming year.
With that I'll turn the call over to rich to provide additional comments on the quarter and year end results rich Thanks, Jeff and good morning, everyone for the fiscal 2021 and fourth quarter, our home heating oil and propane volume increased by $1 8 million gallons or about 10% to approximately 21 million gallons as the additional volume provided by acquisition.
<unk> was only partially offset by net customer attrition our product gross profit did rise by $2 million or 7% to $37 million largely due to the increase in volumes sold and slightly higher home heating oil and per gallon margins.
Our delivery and branch expenses increased by $3 million of four 5% to $71 4 million, reflecting somewhat higher insurance expense and the additional costs associated with the 10% increase in volume.
Our net loss declined by $7 million in the quarter to $23 million due to a favorable change in the fair value of derivative instruments, which is noncash of $6.6 million and the absence of another noncash charge of $5 7 million recorded in the fourth quarter of fiscal 2020 relay.
Adding to the sale of certain non strategic assets.
The positive impact from these factors was partially offset by a decline in the company's income tax benefit of $4 6 million, our adjusted EBITDA loss increased slightly by approximately $300000 to $27 $6 million as the increase in operating expenses were reduced for.
The most part by higher home heating oil and propane volumes and higher home heating oil per gallon margins.
And looking at fiscal 2021, our home heating oil and propane volumes sold decreased by 8 million gallons of two 5% to 306 million gallons at slightly warmer temperatures of net customer attrition more than offset the benefits provided from acquisitions and other factors are.
Our product did our product gross profit did increase by $2 million the $450 million as the decline in home heating oil and propane volumes was more than offset by an increase in per gallon margins.
Delivery and branch expenses increased by $4 million as the additional costs associated from acquisitions of three and a half million dollars and a $6 7 million decline in the benefit recorded under our weather hedges was more than offset by a $6 million decline in the base business delivery and branch expense.
Net income did rise by $32 million to $88 million as a favorable change in the fair value of derivative instruments of $39 million and the absence of the noncash charge of $5 $7 million was reduced by higher income tax expense and a decrease in adjusted EBITDA of $3 million.
Adjusted EBITDA declined by $3 million to $127 5 million as lower operating expenses in the base business higher home heating oil and propane per gallon margins and the adjusted EBITDA from acquisitions were more than offset by a decline in the benefit recorded under our weather hedges.
As we look forward into 2022 and beyond we will continue to repurchase our units at an attractive price and at the same time acquire companies in a disciplined manner that meet our return criteria. We believe that this strategy along with our distributions provides the greatest return to our unit.
<unk>.
And now I'd like to turn the conversation back to Jeff.
Thanks Rich at this time, we are pleased to address any questions. You may have Anthony please open the phone lines for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad if.
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To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Again, if you have a question. Please press Star then one.
Our first question comes from Tim Mellon with <unk>.
Longton management you May go ahead.
Thanks very much.
On the M&A front could you just give a little more color in terms of kind of prices being paid valuations for the businesses that you're acquiring is there been any change on that front.
Yes, I don't necessarily want to get into specifics in terms of multiples of EBITDA, we have seen a bit of an increase in valuations over the last year, but for US we really look at each opportunity on its own.
Its own individual merits and the fit.
That it has for store.
Okay. Thank you.
Sure.
Again, if you have a question. Please press Star then one.
Our next question comes from Michael Prouty with 10-K capital.
You May go ahead.
Hey, good morning, guys, some great to hear somebody else asking questions on the call.
Rich I had a quick question for you.
So adjusted EBITA was actually up pretty nicely looking at the fiscal year as a whole.
On the other hand free cash flow.
I'd, rather cash flow from operations was down a fair bit and.
It looks like a very small part of that like maybe 20 million or so with changes in working capital.
It's just not completely clear to me I to be honest, Tim had time to work through it.
I'm wondering are there are there other factors.
Of course.
The decline in free cash or cash flow from operations for fiscal 'twenty, one versus fiscal 'twenty I mean, obviously fiscal target Youre looking youre looking at kind of two different <unk>.
Product cost environments.
Fiscal two fiscal 'twenty.
<unk> 'twenty to get my years, right, which was which was two years ago I guess now.
Youre looking at it the comp decline and prices and in April of 2020, we were buying heating oil for 65, a gallon. So youre collecting receivables at a much higher price. If you will and your inventory cost goes down so that the free cash flow.
It might look a little bit better in in that year.
You got the same play with with customer credit balances.
And this year, we added probably to a certain extent the opposite where we had a slight increase in.
In cost of product, which is going to impact your receivables and is going to impact.
<unk> your inventory valuations and then also going to pack. Your your accounts payable excuse me and other and other accounts like that now if you look at our.
Days sales outstanding on inventory on accounts receivable I think were actually down this year.
Last year by four by four or five days. If you if you look at the.
Days sales outstanding on accounts receivable and that that's sort of my kind of bellwether as to see how well or not.
So good we're doing with our receivables and our.
Our cash.
Alright.
You know it looks like I've been looking across the board receivables management is very strong.
And.
Yes, it's just it just wasn't I'll I'll take some more time to work through it just to clarify though the derivatives are are the jurors. Some songs has no impact on cash flow from operations right there.
A complete wash through.
That's correct.
The increase.
Increase it.
The increase or decrease in the fair value, it's a noncash it's a noncash items now.
Certainly.
Do do do work and when we close them out they ended up it ends up in cost of goods sold.
Yeah, no exactly yeah, I mean to be fair.
<unk> 20 was sort of a crazy year in terms of how high cash flow from operations was due to the effect as you mentioned and it looks like fiscal 'twenty. One is just a return to more normalized levels, but.
Yeah, I just wanted to try to better understand that.
A couple of other questions. So I'll try to be concise.
On the customer churn.
Jeff just wondering what your outlook might be for customer churn like what trends Youre seeing now.
How you feel about fiscal 'twenty two.
On customer churn going forward. Thanks.
Yes so.
And we've talked on this call and in the past about our strategy of really trying to streamline the business, but reinvest into areas that.
Improve the customer experience.
Those items include.
Enhanced customer employee training.
The development of our CRM platform.
And really just trying to.
Put ourselves in a position where our customers can determine how they want to do business with us and we track that very closely we use net promoter scores.
To evaluate our progress there we've continued to see improvement in those scores overall and as a result of that we've seen a reduction in churn we saw a significant reduction in overall.
Customer attrition from from 2019 to 2000 22021.
Essentially in line with 2020 when you remove.
The impact of the sale of our southern propane at.
Assets right.
In that year.
And that was really a strategic move on our part, but we're optimistic that we can continue to make improvements that will positively impact customer customer attrition and churn overall clearly the pandemic and in some of the constraints in terms of a fully or.
Hybrid remote working environment have have impacted some of that progress we've made that I shouldn't even say impacted but made it more challenging we've had to find more creative ways to implement some of the things that we wanted to do but.
I am optimistic and you know so far.
A limited sample size, but so far in October and November of <unk>.
Fiscal 2012.
Two we're off to an improved start we'd be able to cut.
Customer losses in check and customer new customer additions have increased so we'll have to see how the rest okay quarter plays out but.
I hope that answers your question.
Additionally, I mean that sounds very encouraging and again to not to sound like a broken record, but even relatively small and sustained changes in our improvements in customer churn can actually have dramatic impacts on the value of the company over the long term and I know that you very much understand.
So that sounds very encouraging.
And then just to switch gears quickly.
On capital allocation priorities.
And then I think rich covered this to some extent and.
In his remarks, but.
It looks like you're getting starting to get pretty low on the.
Share repurchase authorization so.
Should we look forward to an increase in the <unk>.
Repurchase authorization and.
Is it reasonable do you think given the company's strong cash position to see the customary dividend increase.
In calendar 'twenty, two and I guess I'll, let my questions up there. Thanks.
Sure.
Yes at the rate that we're going with repurchasing units, which is again, we're covered by the SEC plan.
That will carry us through the next open window for us, which will be the end of which would be I guess at the beginning of February once we file the.
The next 10.
Q.
So we will evaluate it then as well as we normally do but.
Historically, we've had a unit repurchase plan for crown in almost 10 years or so and you don't have to evaluate.
The distribution, whether distribution increase as well and I believe thats in the.
That's after the April Board meeting that we have to see how the results for the year.
Other 455 months of winter yet.
Right, Okay fair enough actually I'll I'll I'll cheat and ask just one final question just wondering if there's any updates in terms of your thinking around.
Climate initiatives and how the company's position in terms of.
Non.
Uh huh.
Oil based.
Heating fuels going forward.
Michael we as an industry feel like we've got a very viable pathway to reducing carbon emissions.
We noted some of that in the 10-K through the use of <unk>, which is essentially a blend of ultra low sulfur heating oil.
In renewable biodiesel and.
As an industry, we've made a United pledge.
To use bio heat.
Means to reduce emissions and kind of a step approach.
In the coming years.
And.
As a company we've tried to take a leadership role in that so we have been increasing our.
<unk> delivered rate of <unk>.
<unk> 20, which is essentially an 80 20 mix of ultra low sulfur heating oil and renewable bio.
Biodiesel and we'll continue to do that so we feel like that's a very viable and realistic approach.
And cost effective approach to addressing climate change as an industry.
Okay, Great I appreciate the update and thanks again for taking my questions.
You bet.
Yes.
Our next question comes from Gene Reilly, our retail you May go ahead.
Thank you very much for taking my question.
Looking at the balance sheet captive insurance collateral it looks like it's.
This steady state is that a true statement.
Yeah. It does it does look like it.
To a certain extent.
Reached reached a steady state.
Which sort of means that the claims that were adding versus the.
What we're paying out in claims on a current basis is pretty much in a N a.
Steady state as well as the credits that were given from.
AIG as well to support the open claims that we have was there.
We do provide reinsurance in our captive is pretty much in a steady state.
Yes, we're kind of happy that we haven't had to increase.
Any any deposits into that.
This year it might have gone up in value just due to.
Some investment income, but we haven't had to contribute to the to the capital in 2020.
For our upcoming.
Insurance here, which is 2022.
Well. Thank you very much and I just don't think you guys did a great job.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Jeff Wisdom for any closing remarks.
Well. Thank you for taking the time to join US today and your ongoing interest in Star Group, We look forward to sharing our 2020 fiscal 2020 to first quarter results in February in the meantime have a wonderful and happy holiday.
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.