Star Group L.P.

Good day and welcome to STAR Group's fiscal third quarter 2024 earnings call. All participants will be in a listen-only mode and should you need any assistance during the call, 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 telephone keypad. And to withdraw a question, please press star, then two. Also, please be aware that today's call is being recorded. I would now like to turn the call over to Chris Woody, Investor Relations Advisor. Please go ahead.

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 State of 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. It 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, 2023, 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 expressively 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 Wusnum. Jeff?

Thanks, Chris. Good morning, everyone. Thank you for joining us to discuss our third quarter in fiscal year today of results. As the summer progresses, we continue to deliver solid results benefiting from both higher volumes and improved per-gallon gross margin versus the third quarter of fiscal 2023. This, coupled with strong expense control and higher service and equipment installation profitability, has allowed us to reduce our adjusted EBITDA loss by nearly $19 million for the third quarter of fiscal 2024. Through the first nine months of fiscal 2024, temperatures were virtually identical to last year, but 15% warmer than normal. Despite the mild heating season, we were able to increase adjusted EBITDA by $13 million, which I believe is a testament to our team's ability to rapidly adjust and make the most of whatever weather conditions we face during the year. In addition, I am pleased to announce that we have entered into a definitive agreement to purchase a very high-quality fuel dealer for approximately $35 million before working capital. The business, which is expected to add some 19 million gallons of heating oil annually, is located within our existing operating footprint, and we anticipate closing on the transaction in the fourth quarter. This purchase will represent our fifth acquisition in the current fiscal year, and we continue to have an active pipeline of opportunities being evaluated for the future. Of course, we are also working to improve the overall efficiency and performance across our existing businesses, which is always a priority for us. Our net attrition for the quarter remained stable and was down slightly year over year, reflecting our ongoing focus on excellent customer service and strategies to elevate retention rates going forward. Given our investment in our operations and our people, we look forward to the return of winter in the coming months. With that, I'd like to turn the call over to Rich to provide additional comments on the quarter's results.

Rich? Rich Thanks, Jeff, and good morning, everyone. For the third quarter, our home heating oil and propane volume increased by 7.6 million gallons, or 25% to 38 million gallons, as the additional volume provided from acquisitions and other factors was reduced by net customer attrition. Temperatures for the fiscal 2024 third quarter were equal to last year and 18% warmer than normal. Our product gross profit increased by $20 million, or 37%, to $75 million due to an increase in home heating oil and propane volume sold and higher per-gallon margins. We realized a combined gross profit from service and installation of $13.5 million, or $3.5 million higher than the prior year's comparable quarter, as we continue to focus on improving both revenue and controlling expenses. Delivery, branch, and G&A expenses increased by $4.7 million year over year, due in part to the additional operating costs attributable to acquisitions of $1.6 million. In addition, insurance expense rose by $1.6 million due to increasing premiums and expected higher claim costs. The balance of the expenses rose by just $1.5 million, or 1.7%, as we were successful in managing such costs and mitigating the impact from inflationary pressures. We posted a net loss of $11 million in the third quarter of fiscal 2024, or $13 million less than the prior year period, reflecting the after-tax impact of a non-cash unfavorable change in the fair value of derivative instruments of $2 million and an $18.9 million decrease in the adjusted EBITDA loss. The adjusted EBITDA loss decreased by $18.9 million to $4 million as the impact of higher home heating oil and propane volume, an expansion of per-gallon margins, an improvement in service and installation profitability, and the additional EBITDA from acquisitions more than offset an increase in operating expenses. Turning to the results for the first nine months of fiscal 2024, our home heating oil and propane volume declined by 5.5 million gallons, or 2%, to $235 million as the additional volume provided from acquisitions was more than offset by net customer attrition and other factors. Temperatures for the period were unchanged from last year, but still approximately 15% warmer than normal. Our product gross profit increased by $18 million of 4% to $426 million as higher home heating oil and propane margins was reduced by the 2% decline in home heating oil and propane sold and to a certain extent lower gross profit from the sale of motor fuels. We realized the combined gross profit from service and installation of $18 million or $6.3 million higher than the prior year's comparable quarter, again, as we continue to focus on improving both revenue and controlling these operating costs. Delivery, branch, and G&A were higher by 9.7 million year over year, which included $5 million attributable to our weather hedging program. In fiscal 2024, we recorded a benefit of $7.5 million under our weather hedge compared to $12.5 million recorded in fiscal 2023. Recent acquisitions accounted for an increase of approximately $4 million in operating expenses and the base business rose by just $400,000. We posted net income of $70 million in the first nine months of fiscal 2024 or $19 million higher than the prior year period as the after-tax impact of a non-cash favorable change in the fair value of derivative instruments of $11 million and an increase in adjusted EBITDA of $13 million. Adjusted EBITDA increased by $13 million to $141 million as the expansion of per gallon margins and improvement in service and installation profitability and the additional EBITDA provided from acquisitions more than offset a reduction in home heating oil and propane volume in the base business and the $5 million decline in the weather hedge benefit year over year. With regard to our weather hedge for fiscal 2025, the maximum that the company can receive is $15 million and we are obligated to make an annual payment capped at $5 million if the degree days exceed the payment threshold. If we had the same coverage in place in fiscal 2024, we would have received an additional $7.5 million more in fiscal 2024. And with that, I'd like to turn the call back over to Jeff. Thanks, Rich. At this time, we'd

be pleased to address any questions you may have. Joe, please open the phone lines for questions.

We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. And if you would like to withdraw a question, please press star, then two. At this time, we will pause momentarily to assemble our roster. And again, you may press star, then one to join the queue. And with that, that will conclude the question and answer session. I'd like to turn the conference back over to Jeff for any closing remarks.

Well, thank you for taking the time to join us today and your ongoing interest in Star Group. We look forward to sharing our 2024 Fiscal Fourth Quarter results in December. Thanks, everyone.

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