Star Group L.P.

Good day and welcome to the STAR Group Fiscal 2026 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 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press STAR then 1 on your telephone keypad. To withdraw your question, please press STAR then 2. Please note this event is being recorded. I would now like to turn the conference over to Chris Witty, 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 Ambury, 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 Thank you very much. The company's annual report on Form 10-K for the fiscal year ended September 30, 2025, 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. And now I'd 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 in fiscal year-to-date results. Our results this quarter in non-heating period largely reflected seasonal factors in net customer attrition, which was in line with prior year periods. While temperatures were moderately colder than last year, the volume of home heating oil and propane sold was actually lower given the more muted impact of additional degree days in the shoulder months of April and May. Operating costs were elevated in the period primarily due to higher insurance expense, which related to some adverse developments regarding certain claims. We continue to be encouraged by the ongoing improvement of our service and installation business, which delivered gross profit of $15.6 million in the quarter or $1.4 million higher than the prior year period. Our strategy of selling more value-added products and services to our existing clients while expanding our HVAC offering in select markets beyond our traditional customer base is beginning to take shape. It's exciting to see our employees, particularly our frontline service technicians and sales teams, truly embrace and become energized by these efforts. While we did not complete any acquisitions within the quarter, we recently closed in a small heating oil dealer after the end of the period. We are actively assessing several attractive businesses and remain very well positioned to take advantage of future opportunities as they are presented. As we've done in years past, we're utilizing the summer to strengthen our operations, streamline where appropriate, and prepare for the coming winter months. At the same time, we continue to invest in our service and installation business where we see further room for revenue growth and believe STAR remains in great shape and on track for strong financial performance in fiscal 2026. 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 third quarter, our home heating oil and propane volume decreased by 3.4 million gallons, or 9.4% to 33 million gallons, as the additional volume provided from acquisitions was more than offset by net customer attrition and other factors. In terms of weather conditions, degree days for the fiscal 2026 third quarter were 16% colder than last year, but 6% warmer than normal. But please keep in mind that the temperatures during this non-heating season period are not as impactful as during the winter season. Our product gross profit was virtually unchanged at $72 million as an increase in home heating oil and propane per gallon margins and a higher gross profit from other petroleum products was offset by the lower home heating oil and propane volume sold. As Jeff stated, we realized the combined gross profit from service and installation of $15.6 million, or $1.4 million higher than the prior year's comparable period, as we continue to focus on improving revenue and controlling costs. Delivery, branch, and G&A expenses increased by $8.7 million year over year, primarily due to a $6.2 million of higher insurance claims reflecting an adverse development. We posted a net loss of $28 million in the third quarter of fiscal 2026, or $11.4 million more than the prior year period, reflecting a $7 million increase in our adjusted EBITDA loss and an unfavorable non-cash change in the fair value of derivative instruments of $8.6 million, partially offset by a $3.4 million greater income tax benefit and lower depreciation and amortization expense of $900,000. The adjusted EBITDA loss increased by $7 million to 17.7 as higher per gallon home heating oil and propane margins and improvement in service and installation profitability and the additional gross profit from other petroleum products was more than offset by higher operating expenses, including the insurance costs I just mentioned, and lower home heating oil and propane volume sold. Now turning to the results for the nine months of fiscal 2026, our home heating oil and propane volume increased by 8.6 million gallons or 3.3% to 271 million gallons, reflecting colder temperatures and the additional volume provided from acquisitions more than offsetting net customer attrition and other factors. Temperatures in STARS geographic areas operations fiscal year to date were 11.5% colder than the prior year period and 3% colder than normal. Our product gross profit increased by $48 million, or 10%, to $529 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 an increase in gross profit from other petroleum products. As previously mentioned on other calls, colder weather conditions and numerous snowstorms during the first half of fiscal 2026 increased the demand for service, which led to higher service-related expenses. While installation gross profit increased by $2.5 million, service gross loss increased by $5.7 million due to the increase in demand for service and an increase in propane tank sets. Delivery, branch, and G&A expenses rose by $25 million year over year, of which $1.9 million was attributable to our weather hedging program. As I've previously mentioned, in fiscal 2026, we recorded an expense of $5 million under our weather hedge, compared to an expense of $3.1 million recorded in fiscal 2025, reflecting weather conditions in both periods. Recent acquisitions accounted for an increase of $3.2 million to delivery branch and G&A expenses, while associated costs in the base business rose by $20 million, reflecting an increase in volume and the impact of severe weather conditions on operating expenses, including insurance claims. We posted net income of $116 million for the first nine months of fiscal 2026, or $14 million higher than the prior year period, as an increase in adjusted EBITDA of $20 million with somewhat offset by higher income tax expense of $7.6 million and other factors. Adjusted EBITDA rose by $20 million to $189 million due to an increase in home heating oil and propane volume sold in the base business, an increase in adjusted EBITDA from acquisitions, and higher home heating oil and propane per gallon margins which were more than offset by higher operating expenses. And with that, I'd like to turn the call back over to Jack.

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

Certainly. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. 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. Again, if you have a question, please press star then 1. and your first question today comes from Michael Prouting with 10K Capital. Please go ahead.

Yeah, morning guys. Jeff, by the way, congratulations on the well-deserved salary increase.

Just a couple questions.

One thing I'm curious about is assuming things continue as they are vis-a-vis Iran, I'm just wondering if you see what risks you might see in terms of product availability or competitive dynamics or customer behavior in terms of the upcoming heating season.

We don't see at this time any issues with product availability. I mean, we're in the process now of securing from our wholesalers, you know, contracts for next year. So we're well on our way for securing contracts for next year. And naturally, you know, prices are up, so that will impact, you know, customer behavior somewhat. You know, the question is when these customers will commit to either a ceiling or a fixed price. And, you know, some of our customers are on those products and they might just want to you know, wait for the market to come off. But come October, folks are going to need to sign up or on a price protected plan or remain on variable.

Okay. Okay. And I guess just a quick question on the acquisition pipeline. I can't help asking any potential for transformational acquisitions or Anything, any other way that you could characterize the acquisition pipeline? And that's all the questions I have for this morning. Thanks.

Yeah, obviously, Michael, we've done, we've completed two transactions so far this year, smaller deals. We are certainly continuing to work on and look at and assess several attractive businesses. I wouldn't categorize any of those as transformational, but we certainly have a full pipeline and the team is busy and we haven't changed our approach at all. And sometimes these things kind of come in in bunches and we'll just see how all that works out.

Okay, great. Thanks.

Thank you.

Again, if you have a question, please press star, then one. Seeing no further questions in the queue, this concludes our question and answer session. I would like to turn the conference back over 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 2026 fiscal fourth quarter results in December. Thanks, everyone.

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