Star Group L.P.

Good day and welcome to the Star Group Fiscal 2021 First Quarter Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a 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, you may press star then one. Please note that this event is being recorded. I would now like to turn the conference over to Chris Witty, Ambassador Relations Moderator. Please go ahead.

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. These comments can include full-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. are forward-looking statements, including those related to the impact of COVID-19 on the company. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, we 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, 2020, and the company's other filings with the SEC. and all 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. I now turn the call over to Jeff Woosnam. Jeff?

Thanks, Chris, and good morning, everyone. We began our new fiscal year well-positioned even in the face of a pandemic. While the impact of COVID-19 on the heating season has somewhat normalized, our results reflect 13.5% warmer weather within our footprint, dampening demand for home heating oil and propane. However, we maintained our focus on cost discipline, improving operating efficiency, and providing a high level of customer service. I'm pleased with our overall performance despite mild temperatures, including an increase in adjusted EBITDA of roughly $300,000 to $45 million. Our weather hedge also worked as designed during the period. I continue to be encouraged that the strategy we've been executing over the past two years is making Star a stronger and more resilient business, better prepared and able to adjust to varying weather conditions and other challenges, even including a global pandemic. As I've mentioned many times before, our ongoing success continues to be a direct reflection of the dedication and professionalism of our employees, who have remained 100% committed to serving our customers in the face of some very unusual circumstances. I could not be more proud of the efforts of this team. I'm happy to report that we acquired two propane companies in late December that added in aggregate approximately 7 million gallons of product annually. Both are well-established, growing businesses located within our current operating footprint, that complement our existing propane offering. We continue to evaluate additional acquisition opportunities that support our strategic growth plan. During the quarter, we also repurchased 2.6 million common units as a part of our ongoing unit repurchase plan, which we believe further enhances long-term shareholder value. As we navigate through the remainder of fiscal 2021, I'm confident in our ability to continue providing the best possible customer experience and improving bottom line results. 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. For the quarter, our home heating oil and propane volume decreased by 18 million gallons, or 16% to 90 million gallons, as the additional volume provided from acquisitions was more than offset by the impact of warmer temperatures, net customer attrition, and other factors. Temperatures were approximately 14% warmer than last year as well as 16% warmer than normal. Our product gross profit decreased by $17 million or 12% to $128 million as a sixth set increase in home heating oil and propane per gallon margins was more than offset by the decline in home heating oil and propane volume. However, our delivery and branch expense decreased by $16 million per or 17% to $81 million. The decline was due to a $3 million or 10% reduction in direct delivery costs due to the lower volume. Lower insurance expense was $1.6 million. Bad debt declined by $1.5 million and there were other reductions in operating expenses totaling $4 million. Please note that our operating costs were also reduced by $7 million due to the impact of our weather hedging program. As of December 31, 2020, we recorded a benefit or a credit of $4 million under our weather hedge versus a charge or an expense in the prior year. The final credit, if any, for fiscal 2021 will be lower or higher depending on the accumulation of actual heating degree days from January 1st through March 31st, 2021. Net income decreased by $10 million to $38 million largely due to the after-tax impact of an $11 million favorable change in the fair value of derivative instruments. Adjusted EBITDA increased by $300,000 to $45 million. The impact of higher home heating oil and propane per gallon margins, lower operating expenses, The favorable change in the impact from the company's weather hedges and an improvement in net service and installation profitability more than offset the impact of a decrease in home heating oil and propane volume sold. And with that, I'd like to turn the conversation back over to Jeff.

Thanks, Rich. At this time, we're pleased to address any questions you may have. Cole, could you please open the phone lines for questions?

Certainly. And we will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. And at this time, we will pause momentarily to assemble the rosters. And our first question today will come from Michael Prouting with 10K Capital. Please go ahead.

Yeah, hey, good morning, guys. Congrats on a good quarter and a challenging weather environment.

Thanks.

Thanks, Michael. Just a couple of questions. Firstly, on the acquisition side, the two purchases you made in the quarter were were reasonably sizable. So it's just interesting to see acquisition activity picking up particularly or unusually during the winter season. So I'm just wondering, do you think this indicates overall a resumption of deal activity in the industry? And then the other question I had was on capital allocation. I noticed that you purchased a lot fewer shares in January and I was just wondering was that driven by price or trading volume or Rich if you can just give a little insight into that and what your expectations are in terms of additional share repurchases going forward. Thanks.

Sure. I guess on the acquisition side I think it might have been driven by folks thoughts on where income taxes and capital gain rates might go, frankly. And with regard to the share repurchase, we did have some private unit repurchases during the quarter, and we're buying back the same number of units that we can under our unit repurchase program that were allowed that is on the conformity with the SEC program, so we're not intervening in that at all. And with that, maybe, Jeff, you might have a comment on the acquisition?

Yeah, I think the acquisition pipeline is staying relatively steady. We're obviously very excited about the two acquisitions we are able to complete by the end of the calendar year that we feel are two very high-quality businesses. Those are transactions we've been working on for some time. and we continue to evaluate other opportunities that are in front of us now. So hopefully it's a sign of good things to come.

Okay, thanks and congrats again on a good quarter.

Thanks Michael. And again, if you have a question, please press star then one. and our next question will come from Tim Mullen with Laurelton Management. Please go ahead.

Hey, could you just remind, can you just remind me when you'll next update the share repurchase program in terms of units outstanding and any changes to it?

Yes, we can only make the changes in a quiet period and we still do have availability under the plan. It's in the 10Q, but we have roughly 4.1 million units to continue to buy. So that should last us, I don't want to make a projection, that should last us for a while or until the next open window, which would be after we file the next 10Q.

So the next quiet period then is following the next 10Q?

We actually could increase it if we wanted to now. We could. But we got 4.1 billion units outstanding to buy. We could increase it.

Great. Okay. Thanks so much.

And again, if you'd like to ask your question, please press star then 1. Again, that is star then 1 to ask a question. And this will conclude our question and answer session. I'd like to turn the conference back over to Mr. Woosnam for any closing remarks.

Okay.

Thank you for taking the time to join us today and your ongoing interest in Star Group. We look forward to sharing our 2021 fiscal second quarter results in April. Thanks, everybody.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.