Star Group Q3 2024 Earnings Call Transcript

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August 1, 2024

There are 4 speakers on the call.

Operator

Good day, and welcome to Star Group's Fiscal Third Quarter 20 24 Earnings Call. All participants will be in a listen only mode. Also, please be aware that today's call is being recorded. I would now like to turn the call over to Chris Witty, 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 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.

Speaker 1

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. 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 especially 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. As the summer progresses, we continue to deliver solid results benefiting from both higher volumes and improved per gallon gross margin versus the Q3 of fiscal 2023. This coupled with strong expense control and higher service and equipment installation profitability has allowed us to reduce our EBITDA loss by nearly $19,000,000 for the Q3 of fiscal 2024. Through the 1st 9 months of fiscal 2024, temperatures were virtually identical to last year, but 15% warmer than normal.

Speaker 2

Despite the mild heating season, we were able to increase adjusted EBITDA by $13,000,000 which I believe is a testament to our team's ability to rapidly adjust and make the most of whatever weather conditions we face during the year. In addition, I am pleased to announce that we have entered into a definitive agreement to purchase a very high quality fuel dealer for approximately $35,000,000 before working capital. The business, which is expected to add some 19,000,000 gallons of heating oil annually, is located within our existing operating footprint and we anticipate closing on the transaction in the Q4. This purchase will represent our 5th acquisition in the current fiscal year, and we continue to have an active pipeline of opportunities being evaluated for the future. Of course, we are also working to improve the overall efficiency and performance across our existing businesses, which is always a priority for us.

Speaker 2

Our net attrition for the quarter remained stable and was down slightly year over year, reflecting our ongoing focus on excellent customer service and strategies to elevate retention rates going forward. Given our investment

Speaker 3

in our operations and our people, we look forward to the return of winter in the coming months. With that, I'd like to turn the call over to Rich to provide additional comments on the quarter's results. Rich? Thanks, Jeff, and good morning, everyone. For the Q3, our home heating oil and propane volume increased by 7,600,000 gallons or 25 percent to 38,000,000 gallons as the additional volume provided from acquisitions and other factors was reduced by net customer attrition.

Speaker 3

Temperatures for the fiscal 2024 Q3 were equal to last year and 18% warmer than normal. Our product gross profit increased by $20,000,000 or 37 percent to $75,000,000 due to an increase in home heating oil and propane volumes sold and higher per gallon margins. We realized a combined gross profit from service and installation of $13,500,000 or $3,500,000 higher than the prior year's comparable quarter as we continue to focus on improving both revenue and controlling expenses. Delivery, branch and G and A expenses increased by $4,700,000 year over year due in part to the additional operating costs attributable to acquisitions of $1,600,000 In addition, insurance expense rose by 1,600,000 dollars due to increasing premiums and expected higher claim costs. The balance of the expenses rose by just 1.5 $1,000,000 or 1.7 percent as we were successful in managing such costs and mitigating the impact from inflationary pressures.

Speaker 3

We posted a net loss of $11,000,000 in the Q3 of fiscal 2024 or $13,000,000 less than the prior year period, reflecting the after tax impact of a non cash unfavorable change in the fair value of derivative instruments of 2,000,000 and an $18,900,000 decrease in the adjusted EBITDA loss. The adjusted EBITDA loss decreased by $18,900,000 to $4,000,000 as the impact of higher home heating oil and propane volume and expansion of per gallon margins and improvement in service and installation profitability and the additional EBITDA from acquisitions more than offset an increase in operating expenses. Turning to the results for the 1st 9 months of fiscal 2024, our home heating oil and propane volume declined by 5,500,000 gallons or 2% to $235,000,000 as the additional volume provided from acquisitions was more than offset by net customer attrition and other factors. Temperatures for the period were unchanged from last year, but still approximately 15% warmer than normal. Our product gross profit increased by $18,000,000 or 4 percent to $426,000,000 as higher home heating oil and propane margins was reduced by the 2% decline in home heating oil and propane sold and to a certain extent lower gross profit from the sale of motor fuels.

Speaker 3

We realized the combined gross profit from service and installation of $18,000,000 or $6,300,000 higher than the prior year's comparable quarter, again as we continue to focus on improving both revenue and controlling these operating costs. Delivery, branch and G and A were higher by $9,700,000 year over year, which included $5,000,000 attributable to our weather hedging program. In fiscal 2024, we recorded a benefit of $7,500,000 under our weather hedge compared to $12,500,000 recorded in fiscal 2023. Recent acquisitions accounted for an increase of approximately $4,000,000 in operating expenses and the base business rose by just $400,000 We posted net income of $70,000,000 in the 1st 9 months of fiscal 2024 or $19,000,000 higher than the prior year period as the after tax impact of a non cash favorable change in the fair value of derivative instruments of $11,000,000 and an increase in adjusted EBITDA of $13,000,000 Adjusted EBITDA increased by $13,000,000 to $141,000,000 as the expansion of per gallon margins and improvement in service and installation profitability and the additional EBITDA provided from acquisitions more than offset a reduction in home heating oil and propane volume in the base business and the $5,000,000 decline in the weather hedge benefit year over year.

Speaker 3

With regard to our weather hedge for fiscal 2025, the maximum that the company can receive is $15,000,000 and we are obligated to make an annual payment capped at $5,000,000 if the degree days exceed the payment threshold. If we had the same coverage in place in fiscal 2024, we would have received an additional $7,500,000 more in fiscal 2024. And with that, I'd like to turn the call back over to Jeff.

Speaker 2

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

Operator

And with that, that will conclude the question and answer session. I'd like to turn the conference back over to Jeff Woosum 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 4th quarter results in December. Thanks, everyone.

Operator

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

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Earnings Conference Call
Star Group Q3 2024
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