Q2 2024 Star Group LP Earnings Call

Operator: Good morning, and welcome to the Star Group fiscal 2024 second quarter results conference call. All participants will be in listen-only mode.

Good morning, and welcome to the Star Group fiscal 2024 second quarter results Conference call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star can you followed by zero.

Operator: Should you need assistance, please signal the conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, press star, then 1 on your telephone keypad. To withdraw from the question queue, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Chris Witty, Investor Relations Advisor. Please go ahead.

Chris Witty: After todays presentation, there will be an opportunity to ask questions.

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Chris Witty: Please note this event is being recorded.

Operator: I would now like to turn the conference Chris Witty Investor Relations adviser. Please go ahead.

Chris Witty: Thank you, and good morning. With me on the call today are Jeff Woosnam, President and Chief Executive Officer, and Rich Ambury, 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 and may cause the company's actual performance to be materially different from the performance indicated or implied by such statements.

Chris Witty: 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.

Chris Witty: 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 30, 2023, and the company's other filings with the SEC.

Chris Witty: 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.

Chris Witty: All statements other than statements of historical facts included in this conference call are forward looking statements.

Chris Witty: 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.

Chris Witty: 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 2023, and the company's other filings with the SEC.

Chris Witty: 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 this 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 of new information, future events, or otherwise, after the date of this conversation. I'd now like to turn the call over to Jeffrey Woosnam.

Chris Witty: 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 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.

Jeffrey M. Woosnam: I'd now like to turn the call it Jeff Wisdom, Jeff.

Jeffrey M. Woosnam: Thanks Chris, and good morning everyone. Thank you for joining us to discuss our second quarter and fiscal year-to-date results. Temperatures in the second quarter were 15.2% warmer than normal throughout STAR's footprint. However, while slightly colder than the same period last year, it was unfortunately not enough to drive higher delivery volumes. However, we were able to smooth the impact on adjusted EBITDA even with a lower weather hedge benefit and some ongoing inflationary pressures by improving per-gallon margins and employing solid expense controls. We also kept net customer attrition at modest levels during the quarter and, as previously noted, closed on two strategic acquisitions in February on Long Island, giving us a total of four transactions thus far in the current fiscal year.

Jeffrey M. Woosnam: Thanks, Chris and good morning, everyone. Thank you for joining us to discuss our second quarter and fiscal year to date results temperatures in the second quarter were 15, 2% warmer than normal throughout stars footprint, while slightly colder than the same period last year. It was unfortunately not enough to drive higher delivery volumes. However, we where we're able to move teeth.

Jeffrey M. Woosnam: Impact on adjusted EBITDA, even with a lower weather hedge benefit and some ongoing inflationary pressures by improving per gallon margins and employing solid expense control.

Jeffrey M. Woosnam: We also kept net customer attrition at modest levels during the quarter and as previously noted closed on two strategic acquisitions in February on long Island, giving us a total of four transactions thus far in the current fiscal year.

Jeffrey M. Woosnam: Our team has remained very busy evaluating various heating oil and propane opportunities that align with our goal of strengthening and broadening our portfolio brand. Through the first six months of fiscal 2024, temperatures were 0.2% warmer than the same period last year and 14.7% warmer than normal. While there is nothing we can do to control the weather, we believe our team is quite adept at adjusting to it and making the most of the conditions.

Jeffrey M. Woosnam: Our team has remained very busy evaluating various heating oil and propane opportunities that align with our goal of strengthening and broadening our portfolio of brands.

Jeffrey M. Woosnam: Through the first six months of fiscal 2024 temperatures temperatures were 2% warmer than the same period last year and 14, 7% warmer than normal.

Jeffrey M. Woosnam: While there is nothing we can do to control the weather. We believe our team is quite adept at adjusting to it and making the most of the conditions.

Jeffrey M. Woosnam: An area of note is the year over year improvement we've made in service and equipment installation profitability, which has been an area of focus for us. I'm quite pleased with our progress, which I believe is evidence of the quality of service that we provide and certainly a direct result of the hard work and dedication of our employees. With the heating season now behind us, we believe we are well positioned for the remainder of fiscal 2024, as well as the opportunities that summer brings to further invest in our people and business development activities. With that, I'll turn the call over to Rich to provide additional comments on the quarter's results. Rich? Thanks, Jeff, and good morning, everyone.

Jeffrey M. Woosnam: An area of note is the year over year improvement, we've made in service and equipment installation profitability, which has been an area of focus for us I'm quite pleased with our progress, which I believe is evidence of the quality of service that we provide and certainly a direct result of the hard work and dedication of our employees with.

Rich: With the heating season now behind US we believe we are well positioned for the remainder of fiscal 2024 as well as the opportunities that summer brings to further invest in our people and business development activities.

Jeffrey M. Woosnam: With that I'll turn the call over to rich to provide additional comments on the quarter's results rich thanks, Jeff and good morning, everyone.

Richard F. Ambury: For the second quarter of fiscal 2024, our home heating oil and propane volume decreased by 4 million gallons, or roughly 3%, to 117 million gallons, as the additional volume provided from acquisitions and colder weather was more than offset by net customer attrition and other factors. Temperatures for the fiscal 2024 second quarter were 7% colder than last year, but still 15% warmer than normal. Our product gross profit increased by $3 million or 1.5% to $206 million as an increase in per gallon margins was reduced by the 3% decline in home heating oil and propane volumes. Delivery and branch expenses increased by $8 million year over year, of which $6.4 million was attributable to our weather hedging program.

Richard F. Ambury: For the second quarter, our home heating oil and propane volume decreased by 4 million gallons of roughly 3% to 117 million gallons as the additional volume provided from acquisitions and colder weather was more than offset by net customer attrition and other factors temperatures for the fiscal 2024 second quarter were 7%.

Richard F. Ambury: Colder than last year, but still 15% warmer than normal our product gross profit increased by <unk>.

Richard F. Ambury: $3 million or one 5% to $206 million as an increase in per gallon margins was reduced by the 3% decline in home heating oil and propane volumes sold.

Richard F. Ambury: Delivery and branch expenses increased by $8 million year over year of which $6 4 million was attributable to a weather hedging program in the second quarter of fiscal 2024, we recorded a benefit of six and a half million dollars under our weather hedge compared to a benefit of 12 and a half million dollars recorded in the <unk>.

Richard F. Ambury: In the second quarter of fiscal 2024, we recorded a benefit of $6.5 million under our weather hedge compared to a benefit of $12.5 million recorded in the comparable period last year. Although recent acquisitions accounted for an increase of $1.8 million in operating expenses, we posted a net income of $68 million in the second quarter of fiscal 2024, or $6 million more than the prior year period, reflecting the after-tax impact of a non-cash, favorable change in the fair value of derivative instruments of $15 million in a $6 million decrease in adjusted EBITDA.

Richard F. Ambury: Parable period last year recent acquisitions accounted for an increase of $1.8 million in operating expenses, we posted net income of $68 million in the second quarter of fiscal 'twenty, 'twenty, four or $6 billion more than the prior year period, reflecting the after tax impact of.

Richard F. Ambury: A noncash favorable change in the fair value of derivative instruments of $15 million and a $6 million decrease in adjusted EBITDA adjusted EBITDA declined by $6 million to $96 million as an increase in home heating oil and propane per gallon margins was more than offset by the $4 million.

Richard F. Ambury: Adjusted EBITDA declined by $6 million to $96 million as an increase in home heating oil and propane per gallon margins was more than offset by the $4 million decrease, excuse me, $4 million gallon decrease in home heating oil and propane volumes sold and a $6.4 million decline in our weather hedge benefit. Turning to the results for the first half of fiscal 2024, our home heating oil and propane volume declined by 13 million gallons, or 6%, to 197 million gallons.

Richard F. Ambury: Decrease excuse me 4 million gallon decrease in home heating oil and propane volumes sold and a $6 4 million decline in our weather hedge benefit.

Richard F. Ambury: Turning to the results for the first half of fiscal 2020 for our home heating oil and propane volume declined by 13 million gallons or 6% to 197 million gallons again as the additional volume provided from acquisitions was reduced by slightly warmer temperatures net customer attrition and other factors.

Richard F. Ambury: Again, as the additional volume provided from acquisitions was reduced by slightly warmer temperatures, net customer attrition, and other factors. Temperatures for the first half of fiscal 2024 were just two-tenths of a percent warmer than last year and 15% warmer than normal.

Richard F. Ambury: Temperatures for the first half of fiscal 2024, we're just two tenths of a percent warmer than last year and 15% warmer than normal our product gross profit decreased by $3 million or 1% to 315, <unk> $351 million as the impact of higher home heating oil and propane per GAAP.

Richard F. Ambury: Our product gross profit decreased by $3 million, or 1%, to $351 million, as the impact of higher home heating oil and propane per gallon margins was largely offset by lower motor fuel gross profit and a 6% decline in home heating oil and propane volume. Delivery, branch, and G&A expenses rose by $4.8 million year-over-year, of which $5 million was attributable to our weather hedging program. In fiscal 2024, we recorded a benefit of $7.5 million under our weather hedge, compared to a $12.5 million benefit recorded in the first half of fiscal 2023.

Richard F. Ambury: Alan margins was largely offset by lower motor fuel gross profit and a 6% decline in home heating oil and propane volume delivery branch and G&A expenses rose by $4 8 million year over year of which 5 million was attributable to our weather hedging program in fiscal 2024.

Richard F. Ambury: We recorded a benefit of seven and a half million dollars under our weather hedge compared to a 12 and a half million dollars benefit recorded in the first half of fiscal 2023.

Richard F. Ambury: We had net income of $81 million for the first six months of fiscal 2024, or $6 million higher than the prior year period, largely due to the after-tax impact of a non-cash favorable change in the fair value of derivative instruments of $13 million, partially offset by a decrease in adjusted EBITDA of $6 million. Adjusted EBITDA declined by $6 million to $145 million as an increase in home heating oil and propane per gallon margins was more than offset by a $13 million, 13 million gallon decrease in home heating oil and propane volume sold and a $5 million decline in the weather hedge benefit year over year.

Richard F. Ambury: We had net income of $81 million for the first six months of fiscal 2024 or $6 million higher than the prior year period, largely due to the after tax impact of a noncash favorable change in the fair value of derivative instruments of $13 million, partially offset by a decrease in adjusted EBITDA of six.

Richard F. Ambury: <unk> million <unk>.

Richard F. Ambury: Adjusted EBITDA declined by 6 million to $145 million as an increase in home heating oil and propane per gallon margins was more than offset by a $13 million 13 million gallon decrease in home heating oil and propane volumes sold and a $5 million decline in the weather hedge benefit year over year.

Richard F. Ambury: The decrease in adjusted EBITDA of $6 million was muted by a $2 million favorable change in net interest expense. As a result, our after-tax cash flow declined by approximately $2.7 million. And we'd like everyone to note that for fiscal 2025, we have put in $15 million of Weatherhead. If we had the same amount of coverage in place during 2024 and the same temperatures, we would have been paid an additional $7.5 million more in fiscal 2024 for a total of $15 million under the Weather Head.

Richard F. Ambury: The decrease in adjusted EBITDA of $6 million was muted by a $2 million favorable change in net interest expense as a result, our after tax cash flow declined by approximately $2 $7 million.

Richard F. Ambury: And we like everyone to note that for fiscal 'twenty 25, we have put in $15 million of weather hedges.

Richard F. Ambury: If we had the same amount of coverage in place during 2024 and the same temperatures we would've been paid an additional seven and a half million dollars more in fiscal 2024 for a total of $15 million under the weather hedges with.

Jeffrey M. Woosnam: And with that, I'll turn the call back to Jeff. Thanks, Rich. At this time, we're pleased to address any questions you may have. Anthony, please open the phone lines for questions. We will now begin the question...

Richard F. Ambury: I'll turn the call back to Jeff.

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

Operator: We will now begin the question and answer session. To ask a question, you must press star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star, then 2. At this time, we'll pause momentarily to assemble our roster. Our first question will come from Tim Mullen with Laurelton Management.

Anthony: We will now begin the question and answer session.

Timothy Mullen: To us to ask a question with Star then one your telephone keypad.

Operator: If you're using a speakerphone please pick up your handset before pressing the keys to withdraw from the question queue. Please press Star then two.

Operator: At this time, we will pause momentarily to assemble our roster.

Operator: Our first question will come from Tim Mullen with Laurent Loyalton management.

Timothy Mullen: You May now go ahead.

Timothy Mullen: Hey, guys, thanks for taking my questions. First, just given the larger size of the acquisitions that you've completed more recently, I was just wondering if you could provide any color on those businesses in terms of their strategic objectives. I mean, obviously, from a geographical standpoint, they seem like natural fits for you all, but just wanted to see if you could provide any color, types of customers, product fit, or any financial information regarding the acquisition.

Timothy Mullen: Hey, guys. Thanks for taking my questions.

Timothy Mullen: First just given the larger size of the acquisitions that you completed more recently I was wondering if you can provide any color on those businesses.

Timothy Mullen: Are there strategic objective I mean, obviously from a geographical standpoint, it's basically like natural fits for you all but just wanted to see if you can provide any color or types of customers product fit.

Timothy Mullen: Any financial information.

Timothy Mullen: Regarding the acquisitions.

Jeffrey M. Woosnam: Sure, so we closed on two acquisitions in November. Both of those were heating oil acquisitions, smaller opportunities that are tuck-ins to our existing New Jersey operations. And then we closed on two businesses in February, in early February. One was a propane business, and the other one, a heating oil business, as I mentioned, both located on Long Island.

Timothy Mullen: Sure.

Timothy Mullen: So we closed on two acquisitions in November on both of those were heating oil acquisitions.

Jeffrey M. Woosnam: Smaller opportunities that were that are tuck ins to our existing and new Jersey operations.

Jeffrey M. Woosnam: And then we closed on two businesses in.

Jeffrey M. Woosnam: In February in early February one was a propane business and the other one a heating oil business as I mentioned, both located in long Island.

Jeffrey M. Woosnam: I know we typically don't like to give any of the financial information, but is there any color you can provide on multiples or kind of..., hanging along those lines.

Speaker Change: And I know you don't like to give any of the financial information but.

Jeffrey M. Woosnam: Is there any color you can provide on multiples or.

Jeffrey M. Woosnam: Anything along those lines.

Jeffrey M. Woosnam: No, not at this time.

Speaker Change: Not at this time.

Jeffrey M. Woosnam: Okay.

Jeffrey M. Woosnam: And then just when you think about the business more kind of on a medium and longer term basis, how do you think about the possibility of homes transitioning away from using home heating oil as their energy source? And does that impact M&A strategy or how you think about organic growth?

Jeffrey M. Woosnam: And then just when you think about the business more kind of on a medium and longer term basis. How do you think about the possibility of homes transitioning away from using home home heating oil.

Jeffrey M. Woosnam: As their energy source and does that impact M&A strategy or how you think about organic growth.

Jeffrey M. Woosnam: Yeah, I guess what I'd say is, you know, I don't necessarily want to comment on specific state or federal legislation and how that might impact our business long term. We, as a business and as an industry, feel like we've made a very strong commitment to BioHeat, which is a blend of renewable biodiesel and ultra-low sulfur heating oil, and we have increased our sales of that product and have committed to continue to do so. We all have, I guess, our views on the whole energy transition and how quickly it's going to occur, but we feel like we're properly positioned to deal with those changes.

Speaker Change: Yeah, I guess, so what I'd say is you know I don't want to necessarily comment on specific state or federal legislation and how that might impact our business long term.

Operator: Okay, great. Thanks for taking my questions.

Jeffrey M. Woosnam: As a business and as an industry feel like.

Operator: We've made a very strong commitment to the bio <unk>, which is a blend of renewable biodiesel and ultra low sulfur heating oil.

Operator: And.

Operator: We have increased our sales of that product and have committed to continue to do that.

Operator: We can we all have I guess, our views on the whole energy transition and how quickly it's going to occur.

Operator: But we feel like we're properly positioned to deal with those changes.

Speaker Change: Okay, great. Thanks for taking my questions.

Operator: Again, if you have a question, please press star then 1. Our next question will come from Michael Prouting with 10K Capital.

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

Michael Prouting: Our next question will come from Michael Crowding with 10-K capital.

Michael Prouting: You May now go ahead.

Michael Prouting: Yeah, morning guys. I had a question actually related to the prior questions on the acquisitions. It seems like the pace of acquisitions has picked up recently. Jeff, I'm just wondering if that's a reflection of sellers being, or rather owners being, more willing to sell. And then, related to that, even though you might not want to comment on the valuations of the acquisitions he's closed, I'm just wondering what you're seeing in the market as far as multiples are concerned. Also related to the prior question, I wonder if multiples are reflecting both the warmer weather environment as well as transition risks. Thanks.

Michael Prouting: Yeah, Good morning, guys.

Michael Prouting: I had a question related actually to the prior question some acquisitions.

Michael Prouting: It seems like the pace of acquisitions has picked up recently, Jeff I'm just wondering.

Michael Prouting: If that's a reflection of sellers being.

Michael Prouting: Or rather earnings being more willing to sell.

Michael Prouting: Then I guess related to that.

Michael Prouting: Even though you might not want to comment on that.

Michael Prouting: The valuations of the acquisitions, you've closed I'm, just wondering what youre seeing in the market as far as multiples are concerned.

Michael Prouting: And.

Michael Prouting: I guess also related to the prior question.

Michael Prouting: If multiples are reflecting.

Speaker Change: Uh huh.

Michael Prouting: Warmer weather environment.

Michael Prouting: As well as.

Michael Prouting: No transition risks thanks.

Jeffrey M. Woosnam: Sure, Michael. Yeah. So our team has been very busy. As I mentioned, we've closed on four transactions already this year that we feel are high quality. What I'd say is that it kind of goes ebbs and flows, the activity level and the businesses that are on the market. What I would note is that what we've been evaluating more recently over the last six months have been what we would consider some very high-quality businesses that seem to be a very good fit for us.

Jeff: Sure Michael Yeah. So our team has been very busy as I mentioned, we've closed on four transactions already this year that we feel are high quality, what I'd say is.

Jeffrey M. Woosnam: It kind of it kind of goes ebbs and flows the activity level.

Jeffrey M. Woosnam: And the businesses that are on the market what I would note is that there is what we.

Jeffrey M. Woosnam: We've been evaluating more recently over the last six months have been.

Jeffrey M. Woosnam: Some what we would consider some some very high quality businesses that seem to be very good very good fit for us.

Jeffrey M. Woosnam: And it's hard to predict what is actually going to come to fruition from that. We have to go through our process. We're going to remain very disciplined in that regard. And, you know, we'll just have to see how that plays out. I have not seen multiples depressed in any way as a result of weather. And typically, when we're evaluating a business, we'll kind of normalize the results when we value them. Okay, all right.

Jeffrey M. Woosnam: And.

Jeffrey M. Woosnam: It's hard to predict what is actually going to come to fruition from that we have to go through our process, we're going to remain very.

Jeffrey M. Woosnam: Very disciplined in that regard.

Jeffrey M. Woosnam: And we'll just have to see how that plays out I have not seen multiples.

Jeffrey M. Woosnam: Depressed in any way as a result of weather and we typically when we're evaluating a business will kind of normalize the results when.

Jeffrey M. Woosnam: When we value of that business.

Jeffrey M. Woosnam: Okay, all right. Thanks.

Speaker Change: Okay, all right. Thanks.

Jeffrey M. Woosnam: Right.

Operator: Again, if you have a question, please press star then 1. At this point, there appears to be no further questions in the queue, so I'll turn it back to Mr. Woosnam for any closing remarks. Well, thank you for taking the time to join us.

Speaker Change: Okay and if you have a question. Please press Star then one.

Operator: Yeah.

Operator: Okay.

Operator: Yeah.

Jeffrey M. Woosnam: At this point there appears to be no further questions in the queue. So I'll turn it back to Mr. Losing them for any closing remarks.

Jeffrey M. Woosnam: Well, thank you for taking the time to join us today. And for your ongoing interest in Star Group, we look forward to sharing our 2024 fiscal third quarter results in August.

Woosnam: Well. Thank you for taking the time to join US today and for your ongoing interest in Star Group, We look forward to sharing our 2020 for fiscal third quarter results in August.

Jeffrey M. Woosnam: Hi, everyone.

Jeffrey M. Woosnam: Okay.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: Conference has now concluded. Thank you for attending today's presentation you may now disconnect.