Star Group L.P.

Good day and welcome to the STAR Group Fiscal 2025 Third Quarter Results Conference Call. All participants will be in 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. 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, the Investor Relations Advisor. Please go ahead.

Thank you and good morning. With and 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 four 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 indicator or implied by such statements. All statements other than statements of historical facts included in this conference call are forward-looking statements. Whether 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, 2024, and the company's other filings of the SEC. All subsequently 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 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'd now like to turn the call over to Jeff Woosnam. Jeff?

Thanks, Chris, and good morning, everyone. Thank you for joining us to discuss our third quarter and fiscal -to-date results. While outside of our core heating season, the third quarter was still negatively impacted by lower volume due to slightly warmer temperatures than last year, along with net customer attrition and other factors. That said, we were pleased with our continued improvement in service and installation performance, and adjusted EBITDA from recent acquisitions positively contributed to the quarter as well as the -to-date period. We believe we are on track for strong financial performance in fiscal 2025. As I've shared on previous calls, we are dedicated to providing our customers with superior service to improve retention and drive additional revenues. Consistent with that objective, we continue to look at ways to sell more value-added products and services to our existing customers, while also expanding our HVAC offerings in select markets beyond our traditional heating oil and propane account base to gain access to a larger audience. To support this initiative, we have made an investment in additional training for our sales and technical teams. Fundamentally, STAR is a service provider, so any effort to improve what truly differentiates us from our competition is a sound investment. We are pleased with the way our team has responded and become engaged in what we are trying to accomplish. And although there is so much work to be done, I am encouraged with our progress to date. As we pursue a strategy that includes growing our heating oil and propane customer base through acquisitions, while at the same time improving service and installation profitability, we believe we are positioning STAR as a fully diversified energy provider that, over time, will be more resilient and adaptable to varied weather conditions. 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 third quarter, our home heating oil and propane volume decreased by 1.5 million gallons, or .8% to 36 million gallons, as the additional volume provided from acquisitions was more than offset by warmer weather, net customer attrition, and other factors. In terms of weather conditions, temperatures for the fiscal 2025 third quarter were 2% warmer than last year and almost 20% warmer than normal during this non-heating season period. Our product gross profit decreased by $3 million, or 4%, to $72 million due to both a lower home heating oil and propane volume sold as well as lower per gallon margins driven, in part, by the mix of volume associated with recent acquisitions. We realized the combined gross profit from service and installation of $14 million, or $600,000 higher than the prior year's comparable quarter, as we continued to focus on improving service and controlling expenses. Delivery, branch, and G&A expenses increased by $4.3 million year over year, reflecting additional operating costs associated with acquisitions of $5.8 million, partially offset by lower costs in the base business of $1.5 million, or approximately 1.6%. Depreciation and amortization rose by $2 million, and net interest expense increased by about $1 million year over year. These changes were largely due to the impact of recent acquisitions. We posted a net loss of $16.6 million in the third quarter of fiscal 2025, or $5.6 million more than the prior year period, reflecting a $6.5 million increase in our adjusted EBITDA loss, higher depreciation and amortization expense of $2 million, and higher acquisition-related financing costs of $1 million, partially offset by a $2.3 million greater income tax benefit and a non-cash favorable change in the fair value of derivative instruments of $1.6 million. The adjusted EBITDA loss increased by $6.5 million to $10.6 million, as the additional positive adjusted EBITDA from acquisitions and lower operating costs in the base business was more than offset by lower home heating oil and propane volumes in the base business and slightly lower home heating oil and propane per gallon margins. The positive adjusted EBITDA realized from acquisitions during this historical loss quarter was due in part to our recent propane acquisitions. Now turning to the results for the first nine months of fiscal 2025, our home heating oil and propane volume increased by 28 million gallons, or 12%, to 263 million gallons, reflecting colder temperatures and the additional volume provided from acquisitions more than offsetting customer attrition and other factors. Temperatures in our geographic areas of operations fiscal year to date were 8% colder than the prior year period, but still 8% warmer than normal. Our product gross profit rose by $55 million, or 13%, to $480 million due to an increase in the volume of home heating oil and propane sold, higher home heating oil and propane per gallon margins, and a slight increase in gross profit from other petroleum products. As previously mentioned on prior calls, we've successfully improved our service and installation business, which contributed to an increase in gross profit of $4.8 million year to date, with $2.7 million attributable to acquisitions and $2.1 million due to initiatives in the base business. Delivery, branch, and G&A expenses rose by $31.5 million year over year, of which $10.6 million was attributable to our weather hedging program. As a reminder, in fiscal 2025, we recorded an expense of $3.1 million under our weather hedge, compared to a benefit of $7.5 million recorded in fiscal 2024, reflecting weather conditions in both periods. Aside from this, recent acquisitions accounted for an increase in expenses of $18.7 million year over year, while expenses in the base business rose by just $2.2 million, or .7% of 1%. Depreciation and memorization rose by $2.6 million, and net interest expense increased by $1.4 million. These changes were largely attributable to the impact of recent acquisitions. We posted net income of $102 million year to date, or $32 million in the prior year period, largely due to an increase in adjusted EBITDA of $28 million, and a non-cash favorable change in the fair value of derivative instruments of $20 million, more than offsetting higher income tax expense of $12 million and other factors. Adjusted EBITDA rose by $28 million to $170 million, primarily due to a $21 million increase in adjusted EBITDA in the base business, and a $17 million increase in adjusted EBITDA from acquisitions, partially offsetting a $10.6 million increase in expense relating to the company's weather hedge contracts, which applied to both the base business and the recent acquisitions, as I just previously discussed. And with that, I'd like to turn the call

back to Chad. Thanks, Rich. This time we're pleased to address any questions you may have. Chad, please open the phone lines for questions.

Thank you. We will now begin our question and answer session. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. And at this time, we will pause momentarily to assemble our roster. Again, as instructions are to press star then one if you'd like to join the question queue. And our question is from Michael Prouting from 10K Capital. Please go ahead.

Morning, guys. Just a couple of questions. Firstly, Jeff, I was wondering if you could update us on the acquisition pipeline. And then secondly, I just thought I'd have to ask the question, but curious as to whether you see any applications for AI in the business. It seems like the obvious would be customer service, but just kind of curious to get your feedback on that.

Thanks. You bet, Michael. So in terms of acquisitions, obviously we've closed on four transactions so far this fiscal year. Our last one in April, the team remains very busy with opportunities. We just, you know, you never know how that's going to end up coming out. But we're extremely pleased with what we've had in our pipeline, what we've been able to close over the last 14 months, some sizable deals. And again, we just continue to push forward and there's plenty of activity in the marketplace right now. And in terms of AI, yeah, we have certainly instituted some of that technology into our customer interface. You know, the one thing we always want to keep in mind is we want to remember that we're a service business first. And to the degree that AI can assist with that and allow us to serve our customers in a way that they prefer. But we always like and prefer that, you know, that personal touch and allowing them to be able to talk to an employee that can provide them, you know, appropriate assistance and, you know, a comfort level that we're going to react and respond as they need us to. So we always have to kind of strike that balance, but there's certainly opportunity there for us in the future.

Okay, great. Yeah, thanks for the updates. And, you know, definitely hear what you're saying as far as the human touch. So, yeah, thanks for the updates.

And as a final reminder, if you'd like to join the question queue, please press star then one. And at this time, there appears to be no further questions. So I'd like to return the conference to Mr. Wurstner for any closing remarks.

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 2025 fiscal fourth quarter results in December. Thanks, everyone.

And thank you, sir. The conference has now concluded. Thank you for joining today's presentation. You may not disconnect.