Q3 2022 Star Group LP Earnings Call

[music].

Good morning, and welcome.

Fund group fiscal third quarter results conference call.

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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 CEO , and rich and Barry <unk> CFO I would 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.

May cause the company's actual performance to be materially different from the performance indicated or implied by such statements.

Forward looking statements other than statements of historical facts are forward looking statements.

Although the company believes that the expectations reflected in such forward looking statements are reasonable. It can go 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 32021.

And the company's other filings with the SEC.

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

Unless otherwise required by law the company undertakes 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 who has them Jeff.

Good morning, everyone and thank you for joining us to discuss our fiscal third quarter results.

As was the case last quarter star continued to be challenged by higher petroleum costs and related expenses. This period exemplified by product costs that were nearly double those of 2021.

The wholesale cost of home heating oil in the near mercantile exchange varied from $3 27 per gallon.

Historic high of $5 14 per gallon during the quarter. This.

This increase led to higher operating expenses in areas, such as bad debt reserves bank charges and vehicle fuels.

Such elevated product costs as well as volatility also impacted net customer attrition, which was higher than the prior year period due to an increase in lost accounts related to price credit and fuel conversions on a fiscal year to date basis. However, our net attrition remains in line with 2021, and we continue to be vigilant in our efforts to improve the.

Customer experience and demonstrate our value proposition at every point of contact.

As a reminder, we've experienced high energy price environments in the past and I'm confident of the steps being taken to mitigate such conditions and build a stronger company in tandem with.

We're focused on operating efficiency controlling SG&A expenses and actively managing pricing and margins, while remaining dedicated to providing the utmost and customer service.

In addition, after the quarter, we extended our credit facilities through 2027, expanding our ability to borrow up to $550 million for seasonal working capital requirements and increased the company's term loan to $165 million as.

As such we believe STAAR is well prepared and positioned for the upcoming heating season and beyond.

Im also pleased to report that we acquired one or the other.

And the periods located within our existing operating footprint, which added approximately $3 8 million gallons annually to our portfolio.

With that I'll turn the call over to rich to provide additional comments in the quarter great. Thanks, Jeff and good morning, everyone for the fiscal 2022 third quarter, our home heating oil and propane volume increased by 3 million gallons or 7% to 41 million gallons as the additional volume provided from acquisitions and other factors were more than offset by.

Hi.

More than offset the impact of net customer attrition temperatures weather for the quarter were similar to last year, but still about 8% warmer than normal.

Gross profit increased by $8 million or 14% to $67 million.

Due largely due to higher home heating oil and propane volume as well as higher per gallon margins across all liquid products sold delivery.

Delivery branch and G&A expense increased by $9 million or 11% to $90 million, reflecting additional costs from acquisitions of $1 million an increase in credit card fees vehicle fuels and reserves for doubtful accounts totaling an aggregate $5 million and 3 million.

Dollars or 4% increase in other areas in the base business higher petroleum product cost did drive the $5 million increase in the AR reserve credit card fees and vehicle fuels.

Our net loss decreased by $1 $5 to $10 6 million as a favorable noncash change in the fair value of derivative instruments of $3 million was more than <unk>.

Offset by an increase in adjusted EBITDA loss of $1 2 million.

The adjusted EBITDA loss rose by $1 2 million to a loss of $11 million as an increase in operating expenses more than offset the impact from higher home heating oil and propane volume and the increase in per gallon margins.

For the first nine months of fiscal 2022, our home heating oil and propane volume decreased by 8 million gallons or 3% to 277 million gallons as slightly warmer temperatures net customer attrition and other factors more than offset the impact from acquisitions temperatures were about.

5% warmer than last fiscal year, again, but still 9% warmer than normal our product gross profit increased by $11 million or 3% as an increase in per gallon margins again more than offset the decline in home heating oil and propane volume.

Operating expenses did rise by $24 million.

<unk>, a $2 million lower benefit from our weather hedge program additional costs from acquisitions of $4 million and an $18 million or 7% increase in expenses within the base business.

Higher petroleum costs drove an increase again in credit card fees, the reserve for doubtful accounts and higher vehicle fuels totaling $9 million medical and other insurance related expenses accounted for an increase of $5 million and other areas in the base business increased by just $3 million or.

1%.

Net net income did decrease by $26 million to $85 million as an unfavorable noncash change in the fair value of derivative instruments of $18 million and a decrease in adjusted EBITDA of 14 was reduced by lower income tax expense of $8 million.

Year to date, adjusted EBITDA decreased by $14 million to $141 million as the decline in home heating oil and propane volume and an increase in operating expenses did more than offset the impact from higher per gallon margins and with that I'll turn the conversation over to Jeff.

Yes, we will now begin our question and answer session.

Yes.

Our first question comes from Michael <unk> with 10-K capital.

Please go ahead.

Good morning, Mike.

Just wondering if you can update us on the acquisition pipeline and then the other question is on.

Right.

I guess two parts.

One is it looks like I'm going to get pretty low on the authorization.

And just wondering what your plans are for increasing that and then secondly, I also noticed that you repurchased fewer units in the quarter. Despite the lower unit price and just wanted to better understand that dynamic. Thanks.

Sure.

I'll tackle the acquisition question I would just generally say Michael that the activity level.

Was somewhat soft in the second quarter first and second quarter as we would kind of assume in season.

As we've as we progressed through the third quarter.

We certainly saw an increase in activity, particularly over the last 30 to 60 days and.

Theres nothing really transformational in size.

We are evaluating but we've got a number of.

Potentially attractive tuck in prospects that are in various stages of evaluations on generally encourage.

And with regard to the unit repurchase plan.

We will.

Evaluate that between now and the end of the end of the month or first week in September because thats. The open window, when we can actually make changes to the plan.

So we'll be taking a look at that and I can't tell you, which way that's going to go as of yet but.

In past, we have always increase the.

The number of units available to repurchase one when we start to dwindle down.

With regard to the number of units that were buying again, we don't really control that.

It's not price dictated to.

To a certain extent I mean, we have a maximum price it.

Our agreement but.

Based on the number of shares that are available and the calculation that we can buyback, we're not really controlling that hey, we're.

We're down $3 sell today, we want a load off we have no control on that.

It's kind of automatic pilot and let's not forget as well is that we have taken off half to half. The shares we had about 76 million units outstanding and now we've got roughly 36 million units outstanding.

The pie pie available to be sold is much less.

Yes totally understood.

So just on that last point I'm wondering.

Kevin.

The repurchases have slowed down.

And I assume that probably at least.

Trading volume.

Does that indicate a need to make adjustments to that formula.

We're learning to in your earlier comments.

No because it is.

It's the FCC derive formula.

We can't we can't.

Whatever the Formula is we can't say.

It's 200 times or 300 times that formula. It is what it is and we have no we can't control. It. The only thing we can control is the maximum price.

Okay understood. Thanks.

Youre welcome.

Again, if you have a question. Please press Star then one.

The next question is from Bruce <unk> with Stern investment management.

Hi, good morning good.

Good morning, Good morning, I have a question about the credit card fees are you charging Oh, I got two or 3% credit card fee or giving people an incentive to go direct.

Correct charge that type of thing to help mitigate the expense.

Yes, when we do try to lean people too to the direct debit if it's possible.

To the extent that we can discourage.

Credit card fees, we do.

We have not.

Kind of charge customers, if you will whatever whatever the interchange rate that we are we are pain, we are looking at it but.

Ed.

We don't want to turn customers off as much as we possibly can.

Right, but most businesses have switched to that model.

It's quite reasonable given the sensitivity of your results to this essentially inflated.

Cost of your product I don't think people with them.

Is that kind of caused people to go to switch over to natural gas or the solar.

3% credit card fees.

No it might not have them switch over to international gas or credit or our solar but they might go to another heating oil dealer.

Let's see.

Okay.

Maybe it can be tested in one region and see what the results are.

Right.

We're discussing.

Okay. So again.

Again, if you have a question.

Please press Star then one.

At this time there appears to be no further questions in the queue.

I will turn it back to Mr. Lewis for any closing comments.

Well. Thank you for taking the time to join US today and your ongoing interest in Star Group, We look forward to sharing our 2022 fiscal fourth quarter results in December thanks, everyone.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.