Star Group L.P.

Good day, and welcome to the STAR Group fiscal 2024 fourth 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 a touchtone phone. 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 Chris Witte, 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 Anbury, 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 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 enclosed in this conference call, the company's annual report on Form 10-K for the fiscal year ended September 30, 2024, 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 an 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 would now like to turn the call over to Jeff Woosnam.

Jeff? Thanks, Chris, and good morning, everyone. Thank you for joining our fourth quarter conference call. It's amazing how time passes so quickly, and here we are concluding another fiscal year and starting a new heating season. It's a great opportunity to reflect on STAR's performance over the past 12 months. Notably, temperatures in fiscal 2024 were 15% warmer than normal, but roughly flat year over year. Total revenue fell modestly due to slightly lower volumes and selling prices. However, full-year adjusted EBIT arose by $14.7 million versus fiscal 2023, reflecting an increase in home heating oil and propane per gallon margins and higher service and installation profitability. We continue to be laser-focused on cost containment and operating efficiency, and I believe the benefits of those efforts are evident in our improved EBITDA results this year. At the same time, we remained vigilant in working to address net customer attrition, which is 4.2% in fiscal 2024, was up slightly year over year. While our internal customer satisfaction indicators and loss rates continue to improve, we observed a lower level of real estate activity in the marketplace, which impacted new customer additions. There were also no prolonged periods of cold or major storms during the year, which often drives customers to our higher quality, faster response service operations. Our acquisition program remains an important component of our growth strategy. And in total, we completed five separate transactions during fiscal 2024, adding just over 20,000 customers and 23 million gallons of heating oil and propane volume annually. We continue to have an active pipeline of opportunities in various stages of review. And our recently completed credit facility, including a $400 million revolver and a $210 million term loan, provides additional liquidity for acquisitions in general corporate purposes. This leaves us well-positioned to complete some near-term opportunities currently under review. I'm proud of the way our team has navigated through what ended up being another mild year. As we enter the heating season, we believe the company is well-prepared to respond to anything Mother Nature throws our way while providing our customers with superior customer service. With that, I'll turn the call over to Rich to provide additional comments on the quarter and year-end results. Rich?

Thanks, Jeff, and good morning, everyone. For the fiscal 2024 fourth quarter, our home heating oil and propane volume decreased by 300,000 gallons, or about 1.5% to 18.5 million gallons, as the additional volume provided from acquisitions was more than offset by the impact of net customer attrition and other factors. However, our product gross profit increased by $4 million, or roughly 10%, to $42 million, largely due to higher home heating oil and propane margins. In addition, our net service and installation gross profit rose by $3 million to almost $16 million. Delivery, branch, and G&A expenses increased by $6 million, or about 7% to $88 million. Of that increase, approximately $2 million of that increase was related to recent acquisitions. Our net loss increased by $15 million during the quarter to $35 million as an unfavorable non-cash change in the fair value of derivative instruments of $28 million was only partially offset by a $1.7 million decrease in the adjusted EBITDA loss, $1 million lower net interest expense, and a $9 million increase in the income tax benefit. The adjusted EBITDA loss decreased by $1.7 million to approximately $30 million in the quarter, reflecting higher home heating oil and propane per gallon margins, an increase in service and installation profitability, and additional EBITDA from acquisitions, which more than offset an increase in operating expenses. Moving over to the full year for 2024, our home heating oil and propane volume decreased by 6 million gallons or 2 percent to 253 million gallons, again, as the additional volume provided from acquisitions and other factors was more than offset by net customer attrition. Temperatures in our geographic areas of operations were less than one-tenth of one percent warmer than the prior year period. Our product gross profit increased by approximately $21 million or 5% to $468 million as an increase in home heating oil and propane margins more than offset the impact from a decline in liquid products sold. In addition, our net service and installation gross profit increased by $10 million to $34 million. Delivery, branch, and G&A expenses increased by $15 million to $395 million compared to $379 million in fiscal 2023. During fiscal 2024, the company recorded a benefit under its weather hedge of $7.5 million compared to a benefit of $12.5 million during fiscal 2023, accounting for a $5 million increase in expense. The year-over-year change also reflects $6 million of expenses associated with recent acquisitions, along with a $4 million increase in base business expenses. Net income rose by $3 million to $35 million as a $14.7 million increase in adjusted EBITDA and a $4 million decrease in net interest expense was largely offset by an unfavorable change in the fair value of derivative instruments. Again, that's non-cash of $17 million. Adjusted EBITDA rose by $14.7 million to $111.6 million as higher home heating oil and propane per gallon margins, an increase in service and installation profitability, and the additional adjusted EBITDA from acquisitions more than offset an $11 million decrease in home heating oil and propane volume in the base business, a $5 million reduction in the company's weather hedge benefit, and an increase in base business operating expenses. That concludes my discussions on the financial results. Jeff?

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

We will now begin the question and answer session. To ask a question, you may press the R then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Once again, if you would like to ask a question, please press star then 1 to enter the question queue. The first question today comes from Michael Prouty with 10K Capital. Please go ahead.

Hey, guys. Good morning. Morning, Michael. Hey, just a couple of questions. I'll ask them all at once. First, Jeff, I'm wondering what your weather forecasting services might be telling you to expect as far as the upcoming heating season. Second, I was curious to get your read on current customer retention. And third question, just wanted to get your read also on the acquisition environment. It looks like you were able to put a decent amount of capital to work in the prior fiscal year. I'm just wondering what your expectations might be as far as the upcoming fiscal year and in particular, the potential for some larger deals. Thanks.

Michael, can you repeat your first question for me, please? I'm sorry.

Oh, yeah, of course. Just wanted to get your thoughts on what kind of weather you might be expecting for the upcoming heating season based on the professional weather forecasting services that you guys subscribe to.

Yeah, we try not to look too far out. You know, it's difficult to rely on long-term weather forecasts, as you probably know. The first, you know, two months of the fiscal year of 2025 have been October and November, has been a little bit mild than normal. November came in about 20% more mild than normal. Obviously, December is starting off more favorably. So we'll just have to see how the quarter ends up. But getting past that, I'm not a weatherman, so I'm not necessarily going to make any strong predictions. We plan on normal. Put it that way.

Okay, fair enough.

Okay. In terms of, you know, just overall customer attrition, and as I said in my remarks, and if you recall, we really started in in 2024 and fiscal 2024, we kind of started off slow. Our customer losses and overall churn rates have remained in really good shape and continued to improve, as have all of our internal customer satisfaction indicators, our net promoter scores, all the things that we look at to ensure that we're doing the right things and are focused on the right things. But just as a result of just a lower level of overall market activity, a lot of which related to the real estate markets, did impact our gain rates for the year, and particularly in that first quarter. And then we really didn't have any weather events. And, you know, we're dealing with in 2024, I think it's probably the fourth warmest winter in history, coming off the third warmest winter in history in 2023. And that certainly impacts and reduces kind of service disruptions and other things that tend to attract customers to our full-service brands. So that had an impact in the fiscal year. Great. No, that totally makes sense. And on the acquisition front, our pipeline remains strong. It's encouraging. The team has been extremely busy. We closed five acquisitions in 2024. And most recently, we had another acquisition close in October, a smaller deal. We made a larger acquisition transaction in September right at the end of 2024, which was very encouraging. And we've got several opportunities right now currently under review. some of them in later stages of review. Read into that what you may. But we're very optimistic moving forward. We'll just have to see how everything works out. But the acquisition pipeline certainly looks encouraging.

Okay, that's great news. We'll keep up the good work on the cash conversion cycle and look forward to joining you in a couple of months. You bet. Thank you, Michael.

As a reminder, if you have a question, please press star then one to be joined into the question queue. At this time, there appear to be no further questions in the queue. I'd like to turn the call back to Mr. Woosnam 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 2025 fiscal first quarter results in February. In the meantime, have a wonderful holiday season. Thank you.

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