Star Group Q4 2023 Earnings Call Transcript

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December 7, 2023

There are 5 speakers on the call.

Operator

Good morning, and welcome to the STAAR Group Fiscal 2023 4th Quarter Results Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Chris Witty, the Investor Relations Advisor.

Operator

Please go ahead.

Speaker 1

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 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, We can give no assurance that such expectations will prove to have been correct.

Speaker 1

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 ks 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 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 would now like to turn the call over to Jeff Woosnam. Jeff?

Speaker 2

Thanks, Chris, and good morning, everyone. Thank you for joining our Q4 It's an exciting time for us as we conclude another fiscal year and begin a new heating season. As we turn the corner on fiscal 2023, I would say the year was in many respects similar to the one before As we experienced elevated oil prices and continued market volatility and thus rather high revenue, but largely due to warmer weather, lower overall product demand. Notably, temperatures for the period were 7.7% warmer than the prior year and 16.3% warmer than normal. To give that some context, fiscal 2023 was the 3rd warmest in 123 years in the New York City metropolitan area.

Speaker 2

Despite these significant headwinds, we were able to effectively manage costs and further strengthen our margins, delivering $97,000,000 and adjusted EBITDA as well as slightly improved net customer attrition versus the prior fiscal year. In addition, our acquisition program remained active In total, we completed 3 separate transactions during the past 12 months, while recently closing on 2 small heating oil dealers in November after the end of the fiscal year. Each of these companies complement our existing businesses in key geographic areas. While we cannot control the weather, I'm very proud of the way our team has Continue to persevere and navigate through the multitude of challenges we faced during the year. As we head into fiscal 2024, We remain focused on effectively managing working capital, controlling overall operating expenses and providing the best customer service possible.

Speaker 2

All these things will enhance long term unitholder value. Given the strength of our operating platform, we believe STAAR is prepared and well positioned to capitalize on what we hope will be more normal weather and overall product demand in the heating season to come. With that, I'll turn the call over to Rich to provide additional comments on the quarter year end results. Rich?

Speaker 3

Thanks, Jeff, and good morning, everyone. For the fiscal 20 Q3, our home heating oil and propane volume decreased by 600,000 gallons or 3 percent to 18,800,000 gallons As the additional volume provided from acquisitions were more than offset by the net impact of net customer attrition and other factors. However, our product gross profit did increase by $3,000,000 or roughly 10 percent to $38,000,000 due largely to higher home heating oil and propane Per gallon margins. Delivery, branch and G and A expenses increased by $3,600,000 or 4.6 percent to $83,000,000 Our net loss decreased by $30,000,000 during the quarter to $19,700,000 Due to a favorable change in the fair value of derivative instruments of $47,000,000 somewhat offset by an increase in depreciation and amortization expense of $1,000,000 and a decrease in the company's income tax benefit of $15,000,000 The adjusted EBITDA loss Increased by $700,000 to approximately $31,000,000 reflecting the lower sales volume and an increase in operating costs, largely offset by an increase in home heating oil and per gallon margins. Now switching to the 2023 full fiscal year, Our home heating oil and propane volume decreased by 37,000,000 gallons or 12.5 percent to 259,000,000 gallons With the additional volume provided from acquisitions more than offset by the impact of warmer weather's net customer attrition and other factors.

Speaker 3

Again, temperatures in our geographic areas of operations were 7.7% warmer than the prior fiscal year and 13.6 percent warmer than normal. Our product gross profit decreased by $12,000,000 or just 2.6 percent as an increase in home heating oil and per gallon propane margins was more than offset by a decline in liquid products sold. Delivery branch and G and A expenses rose by just $1,000,000 year over year, inclusive of $11,400,000 benefit Attributable to our weather hedging program. As a reminder, in fiscal 2023, we recorded a benefit of $12,500,000 under our weather hedge compared to a benefit of $1,100,000 recorded in fiscal 2022. Recent acquisitions accounted for an increase of $2,000,000 In operating expenses, while expenses in the base business rose by $11,500,000 bad debt and credit card fees rose by $4,500,000 and vehicle fuel costs were higher by $2,000,000 due largely to an increase in product costs With remaining expenses in the base business were up $4,000,000 or just 1%.

Speaker 3

Net income declined by approximately $3,000,000 to $32,000,000 primarily due to a $13,500,000 decrease in adjusted EBITDA and a $5,000,000 increase in net interest expense, partially offset by a $15,000,000 favorable change in the fair value of derivative instruments. Adjusted EBITDA for the year declined by $13,500,000 to approximately $97,000,000 as a decrease in home heating oil and propane Volume was more than offset by an increase in per gallon margins and $11,000,000 higher Benefit recorded on the company's weather hedge. And with that, I'd like to turn the call back over to Jeff. Thanks, Rich.

Speaker 2

At this time, we're pleased to address any questions you may have. Gary, could you please open the phone lines for questions?

Operator

We will now begin the question and answer session. Our first question is from Tim Mullen with Laurelton Management. Please go ahead.

Speaker 4

Hey, thank you for taking my call. Just a quick question regarding the credit quality Customers, have you seen any changes either this quarter or over the past few quarters with regards to bad debt or customers' ability to pay?

Speaker 3

Well, our bad debt is up a little bit Year over year and quarter over quarter, and we have seen some customers, the credit quality deteriorating A little bit as compared to where we were 2 or 3 years ago When the economy was being was actually being flooded with money. Having said that, 2 or 3 years ago, we were Buying product at $0.61 a gallon in April of 2020 and now we're in the $2.70 to $2.75 range for The underlying, Questa product. I guess the answer to your question is, yes, we are seeing a little bit.

Speaker 4

Got it. Thank you very much.

Speaker 1

You're welcome.

Operator

Showing no further questions. This concludes our question and answer session. I would like to turn the conference back over to Jeff Wissom for any closing remarks.

Speaker 2

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 1st quarter results in February. In the meantime, have a wonderful holiday season. Thank you.

Operator

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

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