Star Group Q3 2023 Earnings Call Transcript

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August 3, 2023

There are 4 speakers on the call.

Operator

Good day, and welcome to the STAAR Group Fiscal 2023 Third Quarter Results Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask Please note this event is being recorded. I would now like to turn the conference Over to Chris Vitti, the Investor Relations Advisor. 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 concerning future events that involve risks and uncertainties and may cause the company's actual performance to be materially different than 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.

Speaker 1

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 I'll disclose in this conference call the company's Annual Report on Form 10 ks for the fiscal year ended September 30, 2022, 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'd now like to turn the call over to Jeff Woosnam.

Speaker 1

Jeff?

Speaker 2

Thanks, Chris, and good morning, everyone. Thank you for joining us to discuss our Q3 and fiscal year to date results. The weather this year certainly continued to be much warmer than anticipated. Temperatures Within STAAR's geographic footprint during Q3 were 12% warmer than last year and 19% warmer than normal, which significantly impacted our results. Year to date temperatures were the 3rd warmest on record over the past 123 years in the New York Metropolitan a key market for STAAR.

Speaker 2

While we cannot control Mother Nature, we did take steps to reduce operating expenses and have maintained our focus on customer In addition, even as weather negatively impacted our performance, we're actually in a very strong position from a liquidity standpoint, given that home heating and oil product costs are down approximately $0.60 per gallon from this time last year. As of June 30, 2023, we now have approximately $57,000,000 in cash on the balance sheet, and our inventory and accounts receivable in aggregate are lower by some $77,000,000 year over year. Our bank borrowings are down approximately $73,000,000 year over year. Therefore, we have approximately $218,000,000 of availability under our bank agreement to fund growth initiatives and our working capital requirements, despite the extremely warm weather this year. We're also trying to make the most of the non heating season, evaluating a number of possible acquisitions, Working on home heating or HVAC repairs and upgrades, controlling operating expenses and otherwise preparing for the upcoming heating season.

Speaker 2

Reducing net customer attrition continues to be a critical area of focus for us. As you may recall, we took advantage of market conditions with regard to supply During the Q1, achieving 1.7 net account growth and our best results in many years. This set us up to achieve gross customer gains and reduce net attrition during the 9 month period as compared to the prior year's period, notwithstanding the unusually warm weather. While there's still room for improvement, we believe our results validate the investment we've made in enhancing the overall customer experience as well as reflect the strength of our brands and appeal of STAAR's product and service offerings. As we near the end of fiscal 2023, we believe the company is well prepared to respond to whatever weather comes our way.

Speaker 2

With that, I'll turn the call over to Rich to provide additional comments on the quarter's results. Rich?

Speaker 3

Thanks, Jeff, and good morning, everyone. For the Q3, our home heating oil and propane volume decreased by 11 1,000,000 gallons or 26 percent to 30,000,000 gallons as the additional volume provided from acquisitions was more than offset by warm weather, net customer attrition As previously mentioned, temperatures for the fiscal 2023 Q3 were 12% warmer than last year and 19% warmer than normal. Our product gross profit decreased by $12,000,000 or 19 percent to $55,000,000 As the 26% decline in home heating oil and propane volumes sold and lower gross profit from motor fuels more than offset an increase in per gallon margins. Delivery, branch and G and A expenses decreased by $1,000,000 year over year as we are successful in managing such costs and mitigating the impact from inflationary pressure. We posted a net loss of $24,000,000 in the Q3 of fiscal 2023 or $13,000,000 greater than the prior year period, reflecting the after tax impact of a non cash unfavorable change in the fair value of derivative instruments of $7,000,000 and a $12,000,000 increase in the adjusted EBITDA loss.

Speaker 3

The adjusted EBITDA loss increased by $12,000,000 to $23,000,000 as the impact of lower home heating oil and propane volume of 11,000,000 gallons more than offset an increase in home heating oil and propane per gallon margins and a slight decrease in operating expenses. Turning to the results for the 9 months 1st 9 months of fiscal 2023, Our home heating oil and propane volume declined by 36,000,000 gallons or 13 percent to 240,000,000 gallons as the additional volume provided from acquisitions was more than offset by warmer temperatures, net customer attrition and other factors. Temperatures for the period were 8% warmer than last year and 16% warmer than normal. Our product gross profit did decrease by $16,000,000 or 4 percent to $408,000,000 as higher home heating oil and propane margins only partially offset the 13% decline in home heating oil and propane volume and lower gross profit from the sale of motor fuels. Branch, delivery and G and A expenses were lower by $2,600,000 year over year, which included 11,400,000 attributable to our weather hedging program.

Speaker 3

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 expense And the base business costs rose by $6,800,000 Credit card fees, vehicle fuels and bad debt expense rose by $6,000,000 largely due to higher product costs with remaining expenses in the base business up just $800,000 or 0.3 percent. We posted net income of $52,000,000 for the 1st 9 months of fiscal 2023 or $34,000,000 lower than the prior year period due to the after tax Impact of a non cash unfavorable change in the fair value of derivative instruments of $32,000,000 an increase in net Interest expense of $5,000,000 and an increase in The adjusted EBITDA loss. Adjusted EBITDA declined by $13,000,000 to $128,000,000 As the impact of lower home heating oil and propane volume of 36,000,000 gallons and higher operating expenses more than offset an increase in home heating oil and propane per gallon margins and the weather hedge benefit of $11,400,000 And now

Speaker 2

I'd like to turn the call back over to Jeff. Thanks, Rich. At this time, we're pleased to address any questions you may have. Operator, please open the phone lines for questions.

Operator

We will now begin the question and answer session. There appears to be no questions at this time. So I'll turn it over to Mr. Woosnam for any closing remarks.

Speaker 2

Okay. 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 2023 fiscal 4th quarter results in December. Thanks, everybody.

Operator

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

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Earnings Conference Call
Star Group Q3 2023
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