Star Group L.P. Q2 2023 Earnings Call

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Okay.

Good morning, everyone and welcome to the Star Group fiscal 2023 second quarter results Conference call.

All participants will be in a listen only mode should you need assistance. Please signal our conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May press Star and then one to withdraw your question you May Press Star two.

Please also note today's event is being recorded and at this time I'd like to turn the floor over to Chris witty Investor Relations adviser Sir. Please go ahead.

Yes.

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 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 that 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.

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 32022.

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.

Yes, 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 Jeff.

Thanks, Chris and good morning, everyone. Thank you for joining us to discuss our second quarter and fiscal year to date results.

As the largest provider of home heating oil and nation, our business remains highly dependent on weather in the second quarter was particularly challenging due to the mild temperatures experienced throughout our footprint.

Put this in perspective, not only where temperature is 22% warmer than normal but the period was also the warmest in New York City and 123 years.

The data was the fourth warmest period on record in this key market.

While there is nothing we can do to influence mother nature. We are adept at mitigating to every extent possible unusual weather swings like this managing costs and working capital and adjusting short term investment decisions.

At the same time, our weather hedge program worked as intended and provides us an important buffer under such conditions as did our disciplined approach to controlling operating expenses, even in the face of certain inflationary pressures.

The warmer temperatures also negatively impacted our net customer attrition during the period due to our size and scale. We are often in a position to add new customers. As a result of various service related disruptions brought on peak seasonal demand usually in January and February .

The warmer than normal temperatures that we experienced in these months, however, significantly muted this activity, thus, reducing the opportunity to win over new accounts.

While we did not complete any acquisitions in the quarter. Our team has remained very busy evaluating various energy organization that align with our goal of strengthening and broadening our portfolio of brands.

Our acquisition program remains an important part of our growth strategy.

Given the various headwinds encountered through the first half of fiscal 2023, I am pleased with our overall performance, including adjusted EBIT of $151 million, which is generally in line with the same period last year as well as slightly improved net customer attrition.

We achieved this despite weather that was 7% warmer than fiscal 2022, and 16% warmer than normal.

While April temperatures were also quite warm I remain confident in our ability to provide the best possible customer experience and continue to proactively adjust our operations to ensure that we effectively deal with any changes or opportunities that may present themselves as we navigate through the summer months.

With that I'll turn the call over to rich to provide additional comments on the quarter.

Thanks, Jeff and good morning, everyone for the second fiscal quarter, our home heating oil and propane volume decreased by 28 million gallons or 19% to 121 million gallons as the additional volume provided from acquisitions was more than offset by extremely warm weather net customer attrition and other factors.

Temperatures for the fiscal 2023 second quarter were 19% warmer than last year, and 22% warmer than normal our product gross profit decreased by $17 million or 8% to 203 million gallons as the 19% decline in home heating oil and propane volumes sold.

Was partially offset by an increase in per gallon margins deliver.

Delivery branch and G&A expenses decreased by $11 million year over year, primarily due to $14 million attributable to our weather hedging program in the second quarter of fiscal 2023, we recorded a benefit of $13 million under our way.

Weather hedge compared to a charge of $1 million recorded in the comparable period last year. This positive variance was offset by the impact of recent acquisitions, which accounted for an increase of $1 million in operating cost while expenses in the base business rose by just $2 million.

We posted a net income of $62 million in the second fiscal quarter of fiscal 2023 or $19 million less than the prior year, reflecting the after tax impact of a noncash unfavorable change in the fair value of derivative instruments of $21 million and a $5 million decrease in <unk>.

Adjusted EBITDA adjusted EBITDA declined by $5 million to $102 million as the impact of lower home heating oil and propane volume of 28 million gallons and a modest increase in operating expenses was partially offset by a $14 million weather hedge benefit and <unk>.

The increase in home heating oil and propane per gallon margins.

Turning to the results for the first half of fiscal 2023, our home heating oil and propane volume again declined by 26 million gallons or 11% to 210 million gallons as the additional volume provided from acquisitions was reduced by the warmer temperatures net customer attrition and certain other factors.

Temperatures for the first half of fiscal 2023 were 7% warmer than last year, but still 16% warmer than normal our product gross profit decreased by $3 million or 1% to $354 million as higher home heating oil and propane margins along with an increase in motor.

Fuel gross profit, partially offset the 11% decline in home heating oil and propane volume.

Branch.

Delivery and G&A expenses were lower by one $5 million year over year, which included $11 4 million attributable to our weather hedge program in fiscal 2023 year to date, we recorded a benefit of $12 $5 million under the weather hedge compared to a benefit of $1 1 million.

<unk> recorded in the first half of fiscal 2023 recent acquisitions accounted for an increase of $2 million in operating expenses, while base business expenses rose by $8 million. In addition, as sales were higher year over year, reflecting increased product costs bad debt and credit card fees rose by four.

Yes.

And vehicle fuels were also higher due to the higher energy cost by $3 million. The remaining expense in the base business was approximately $1 $3 million or less than 1%.

We posted net income of $76 million for the first half of fiscal 2023 or $20 million lower than the prior period due to the after tax impact of a noncash unfavorable change in the fair value of derivative instruments of $25 million an increase.

Kris and net interest expense of $4 5 million and a decrease in our adjusted EBITDA of just $900000 adjusted EBITDA declined by $900000 to $151 million as the impact of lower home heating oil and propane volume up 26 million gallons and slightly Javier.

Operating expenses.

Almost totally offset by an increase in heating oil and propane margins and the weather hedge benefit of $11 4 million and with that I'll turn the call back over to Jack.

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

Ladies and gentlemen, now we will begin the question and answer session. Once again to ask a question you May Press Star then one on a touchtone telephone.

We are using a speaker phone, we do ask that you. Please pick up the handset prior to pressing the keys.

To withdraw your question you May press Star two.

Once again that is star and then wanted to join the question queue.

Pause momentarily to assemble the roster.

And our first question today comes from Steve <unk> from Lucas with capital. Please go ahead with your question.

Good morning, guys. How are you congratulations on a good quarter in a tough environment for you really keeping our costs under control.

My question is can you explain to me what was the you announced intra quarter.

We've it's some type of rights program or some.

Dividend per share.

That's going to go on it it's somewhat ownership breaks to certain threshold could you guys explain that to me and also let me know what youre thinking was behind that.

In response to certain trading activity of our common units that was reported publicly the board decided that it was in the best interests of our public unit holders to adopt the rights plan.

Similar to something that we had previously had in place that.

Expired a few years ago as we did state in the press release, the adoption of the REIT plan.

It wasn't a response to any proposal to acquire control of the company nor is it intended to defer any such offers.

We adopted the rights plan to give the GP sufficient time to negotiate to negotiate in behalf of the public unit holders, especially.

If there was an unsolicited takeover proposal.

We had that rights plan in place years ago.

We saw some activity in the stock and thought it would be a good idea to put the rights plan in place.

Got it but I think you just mentioned I just wanted to confirm that I heard it it wasn't in reaction to any proposal you've received.

Just based on.

Trading patterns that <unk> seen in the stock.

That is absolutely correct.

Okay and.

John .

Go ahead go ahead.

Go ahead.

What have you guys done with your buyback program I didn't get a chance to read the Q, yet rich I apologize, but what are you buying shares in the quarter and do you still have the buyback program active.

Yes, we still have the buyback.

Planned active we bought a smidge of shares.

In the quarter, we are in the middle of the year, that's turning out to be the warmest that the in the past century.

We experienced record product cost.

So we thought it best not to change any parameters of the <unk>.

The plan until we emerge from the winter.

But we can do.

I think when you get it.

Yes, yes.

So what.

And now that you're past as part of your cash balances are what what can you remind me how many.

Sure as you have left on your authorization.

Yes, I think there is roughly about 830000 share something to that effect still outstanding on the public plan so to speak.

Got it and then my last one just because I don't have it in front of me. The K was kind of hard for me I haven't read one in a while but.

What is the threshold that the rights kicked into is it a 10% buyer of 15% buyer could you just remind me of that.

It's 15%.

So I wanted to cars, 16% then all of a sudden it's just the GP that gets the extra units.

The extra voting shares are being ordered and that would force.

Our conversation yes.

Yes, it's not it's not just the GP.

The comment is involved in this as well.

There is without going through the details of the rights Blenders Theres two mechanisms and the right plan rights planned for.

Giving folks the opportunity to put in additional capital into the company.

Got it.

Well, great guys again, congratulations on getting through the tough weather season, and thanks for clarifying that for me I appreciate it great.

Great good to talk to you it's been a while thank you.

We're still here okay. Okay. Okay.

Our next question comes from Tim Mullen from.

What Ulta management. Please go ahead with your question.

Thanks, guys. Thanks for taking the call them questions. One I just want to follow up on the buyback question just asked.

When.

Or would you expect to hear any changes to the program.

First question and then the second question just in regards to your lending relationships.

<unk> seen any changes or do you anticipate any changes on the lending front, just given kind of all the turmoil that we're seeing in the market turmoil.

Sure.

With regard to the right, but not the rights plan, but the unit repurchase plan will.

We're coming out of a quiet period in a couple of days.

So it's only during that.

Open window, where we can actually make changes. So if there is a change that we put in place Youll see an 8-K that we would file.

And Thats basically how we've done this over the years is when there is an open window.

We will issue.

K 8-K, which either.

Changing the threshold or changing the number of units.

Yes.

No.

The potential.

Potential banking crisis.

We haven't seen any any significant change or any change frankly in our relationships with with our member banks.

We've been we've been funded throughout the quarter.

As we increased our working capital borrowings and the decreased our working capital borrowings, but we never had any instance, where somebody said that they couldnt fund or somebody had to put up for another bank had that kind of put up for another bank.

Got it and then just going back to the buyback question I was under the impression that there isn't much discretion on your part that is placed in place today.

Is that not the case.

Ask that in the context of your comment about it.

Thats how you.

Yes that is that is the that yes. There is really no discussion there really is no discretion for us.

I suppose we could have increased the number of units in the prior open period, which would have been.

I think February as we came out of the first quarter.

We could have probably made a change there but again.

We were in the middle of.

The warmest quarter in May and probably turn it out to be the warmest year.

And price the product was still pretty high.

Got it.

Thanks, guys.

Youre welcome.

Once again, if you would like to ask a question. Please press star and one to withdraw your question you May press Star and two.

And gentlemen at this time Im showing no additional questions I'd like to turn the floor back over to Mr. Wisdom for any closing remarks.

Okay, well. Thank you for taking the time to join US today and your ongoing interest in Star Group, We look forward to sharing our 2023 fiscal third quarter results in August .

Everyone.

And with that ladies and gentlemen, we will conclude today's conference call. We thank you for attending you may now disconnect your lines.