Star Group L.P.

Good day, and welcome to the STAR Group Fiscal 2023 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 on your touchtone phone. And 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 Mr. Chris Witte, Investor Relations Advisor. Please go ahead, sir.

Thank you, and good morning. With me on the call today are Jeff Woosnam, President and Chief Executive Officer, and Rich Amberry, 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. 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, 2022, 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 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 Woosnam. Jeff?

Thanks, Chris, and good morning, everyone. The first quarter of fiscal 2023 was somewhat unusual in that during one month, October, temperatures were 130% colder than the prior year period. However, October is typically a transitional month for our customers with a lower overall impact on volume sold. And it also falls outside of our weather hedge contract. The rest of the quarter's weather was only slightly colder than fiscal 2022, resulting in a $0.4 million charge against our weather hedge program. As a reminder, our weather hedge runs through March 31st, so this charge could be reversed depending on second quarter results. We were currently experiencing warmer than normal temperatures throughout our operating footprint. We were well prepared for the start of the heating season, and I'm pleased with our overall performance, which included delivering adjusted EBITDA that was $4.6 million higher than the same period a year ago, as well as an encouraging net gain in accounts. Specifically, we achieved net account growth of 1.7%, or a total of 7,000 customers, representing our best such results in years. The ongoing volatility in product costs, some isolated concerns over supply availability, and the cool temperatures in October created a great deal of new account activity during the quarter. While largely temporary in nature, we were pleased to be in a position to take advantage of this increased market activity. And we believe that our ongoing efforts in improving the customer experience, combined with the reputation of our brands, as being among the most reliable and trusted within the markets we serve also contributed to the strong net gain performance. A recap of our results would not be complete without mentioning how grateful I am to our talented staff, who have not only supported but taken true ownership in effectively executing our strategy of differentiating Star from the competition through outstanding customer service. This team has remained completely committed to providing the absolute best service possible to our customers, and I could not be more proud of them. During the period, we also acquired two heating oil dealers that added roughly 1.5 million gallons of oil and other petroleum products annually to our company. We continue to evaluate a number of opportunities that support our strategic growth plan. While it's too early to say how fiscal 2023 will play out, We are managing through the milder temperatures encountered in the month of January with a focus on expense control, operational efficiency, and solid margin management. And we believe we're well positioned to address whatever challenges or opportunities might present themselves over the remainder of the heating season. With that, I'll turn the call 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 increased by 2 million gallons, or 2%, to 89 million gallons, as the additional volume provided from acquisitions and the impact of colder temperatures more than offset net customer attrition and other factors. Temperatures for the fiscal 2023 first quarter were 15% colder than last year, but still 6.6% warmer than normal. Our product growth profit did rise by $14 million, or 10%, to $151 million, reflecting an increase in per-gallon margins and the higher home heating oil and propane volume. Delivery, branch, and G&A expenses increased by $9 million, or 10%, to $105 million compared to $96 million last year. Higher product and delivery costs drove an increase in bad debt expense, credit card processing fees, and vehicle fuels totaling $3.4 million. As of December 31, 2022, we also recorded an expense of $400,000 under our weather hedge, reflecting the colder weather, versus a benefit of $2.2 million recorded during the prior year period, representing an increase in operating costs of $2.6 million. All other costs rose by $3 million, or approximately 3%. During the first quarter of fiscal 2023, we recorded a $17.6 million non-cash charge for the change in the fair value of our derivative instruments. By comparison, in the first quarter of fiscal 2022, we recorded a $13.4 million charge. Net income decreased by $1 million to $13.5 million, largely due to the after-tax impact of the unfavorable non-cash change in the fair value of derivative instruments of $4 million, and an increase in net interest expense of $2 million, partially offset by higher adjusted EBITDA of $4.6 million. Adjusted EBITDA rose by $4.6 million to $49 million, reflecting the higher home heating oil and propane volume and an increase in per-gallon margins, more than offsetting higher operating costs. And now I'd like to turn the call back over to Jeff.

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

Yes, sir. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then two. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Tim Mullen with Lorington Management. Please go ahead.

Hey, thanks for taking my questions. I wanted to ask about both the unit repurchases and the customer gains. First, on the unit repurchase, it was clear you guys slowed down the pace of repurchases in December as the stock price appreciated, given the addition to the Larian Index. How, if at all, has that inclusion impacted your thinking about future repurchases? And then second, on the customer gains, it sounds like given they're a function of kind of this market conditions and physical supply, and then your comment earlier in the call about them being temporary, can you comment on either any reversal to that trend that you've seen since, I guess, really as October, and any sense for kind of how durable and long-lasting those gains might be? Thank you.

I'll take the first question on the unit repurchase. We still have our unit repurchase program. Again, it's an automatic program with J.P. Morgan runs that for us, so we're not involved in that on a day-to-day basis, and we've got a certain target price that J.P. Morgan has to buy in units. We'll have to evaluate whether to change that price or go up or go down, depending on the acquisition opportunities that we have versus buying in units.

Okay.

And on the new account side, clearly our strongest month was October, although we had solid results throughout the quarter. We've seen less market activity in January. There's no question about that. You know, some of that is the fact that at this time of year, typically many prospects, potential customers have already selected a supplier. But I think there's also, you know, a combination at play, you know, with the weather, the temperatures and, across our footprint are down approximately 30% in January, so we definitely saw less activity in the marketplace. Very difficult to see what that means for the rest of the year, but that's January.

Okay. And in terms of the gains, are most of those folks that sign up for contracts that last, say, a year, or are those really just temporary, they need the physical supply, you have it, and they ask you to come deliver?

It's a combination of both. So there's some customers that sign up on a variable price, and then we've got customers that sign up on a protected price that that agreement is typically a year in length, if no longer.

Okay, great. Thanks very much, guys.

You're welcome.

Again, if you have a question, please press star, then 1.

Again, that is star, then 1.

This concludes our question and answer session. I would like to turn the conference back over to Mr. Jeff Woosnam for any closing remarks. Please go ahead.

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 second quarter results in April. Take care, everybody.

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