Star Group Q2 2024 Earnings Call Transcript

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May 2, 2024

There are 6 speakers on the call.

Operator

Good morning, and welcome to the STAAR Group Fiscal 20 24 Second 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, 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 Anbury, 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, 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 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'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 Q2 and fiscal year to date results. Temperatures in the Q2 were 15.2% warmer than normal throughout STAAR's footprint. While slightly colder than the same period last year, it was unfortunately not enough to drive higher delivery volumes. However, we were able to smooth the impact on adjusted EBITDA even with a lower weather hedge benefit and some ongoing inflationary pressures by improving per gallon margins and employing solid expense control.

Speaker 2

We also kept net customer attrition at modest levels during the quarter and as previously noted closed on 2 strategic acquisitions in February on Long Island, giving us a total of 4 transactions thus far in the current fiscal year. Our team has remained very busy evaluating various heating oil and propane opportunities that align with our goal of strengthening and broadening our portfolio of brands. Through the 1st 6 months of fiscal 2024, temperatures were 0.2% warmer than the same period last year and 14.7% warmer than normal. While there is nothing we can do to control the weather, we believe our team is quite adept at adjusting to it and making the most of the conditions. An area of note is the year over year improvement we've made in service and equipment installation profitability, which has been an area of focus for us.

Speaker 2

I'm quite pleased with our progress, which I believe is evidence of the quality of service that we provide and certainly a direct result of the hard work and dedication of our employees. With the heating season now behind us, we believe we are well positioned for the remainder of fiscal 2024 as well as the opportunities that SUMR brings to further invest in our people and business development activities. 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 Q2, our home heating oil and propane volume decreased by 4,000,000 gallons or roughly 3% to 117,000,000 gallons as the additional volume provided from acquisitions and colder weather was more than offset by net customer attrition and other factors. Temperatures for the fiscal 2024 Q2 were 7% colder than last year, but still 15% warmer than normal. Our product gross profit increased by $3,000,000 or 1.5 percent to $206,000,000 as an increase in per gallon margins was reduced by the 3% decline in home heating oil and propane volumes sold. Delivery and branch expenses increased by $8,000,000 year over year of which $6,400,000 was attributable to our weather hedging program.

Speaker 3

In the Q2 of fiscal 2024, we recorded a benefit of $6,500,000 under our weather hedge compared to a benefit of $12,500,000 recorded in the comparable period last year. Recent acquisitions accounted for an increase of $1,800,000 in operating expenses. We posted net income of $68,000,000 in the Q2 of fiscal 2024 or $6,000,000 more than the prior year period, reflecting the after tax impact of a non cash favorable change in the fair value of derivative instruments of $15,000,000 and a $6,000,000 decrease in adjusted EBITDA. Adjusted EBITDA declined by $6,000,000 to $96,000,000 as an increase in home heating oil and propane per gallon margins was more than offset by the $4,000,000 decrease excuse me, 4,000,000 gallon decrease in home heating oil and propane volumes sold and a $6,400,000 decline in our weather hedge benefit. Turning to the results for the first half of fiscal twenty twenty four, our home heating oil and propane volume declined by additional volume provided from acquisitions was reduced by slightly warmer temperatures, net customer attrition and other factors.

Speaker 3

Temperatures for the first half of fiscal twenty twenty four were just 2 tenths of a percent warmer than last year and 15% warmer than normal. Our product gross profit decreased by $3,000,000 or 1% to $351,000,000 as the impact of higher home heating oil and propane per gallon margins was largely offset by lower motor fuel gross profit and a 6% decline in home heating oil and propane volume. Delivery, branch and G and A expenses rose by $4,800,000 year over year of which $5,000,000 was attributable to our weather hedging program. In fiscal 2024, we recorded a benefit of $7,500,000 under our weather hedge compared to a $12,500,000 benefit recorded in the first half of fiscal twenty twenty three. We had net income of $81,000,000 for the 1st 6 months of fiscal 2024 or $6,000,000 higher than the prior year period largely due to the after tax impact of a non cash favorable change in the fair value of derivative instruments of $13,000,000 partially offset by a decrease in adjusted EBITDA of $6,000,000 Adjusted EBITDA declined by $6,000,000 to 140 $1,000,000 as an increase in home heating oil and propane per gallon margins was more than offset by a 13,000,000 gallon decrease in home heating oil and propane volumes sold and a $5,000,000 decline in the weather hedge benefit year over year.

Speaker 3

The decrease in adjusted EBITDA of $6,000,000 was muted by a $2,000,000 favorable change in net interest expense. As a result, our after tax cash flow declined by approximately $2,700,000 And we'd like everyone to note that for fiscal 2025, we have put in $15,000,000 of weather hedges. If we had the same amount of coverage in place during 2024 and the same temperatures, we would have been paid an additional $7,500,000 more in fiscal 2024 for a total of $15,000,000 under the weather hedges. And with that, I'll turn the call back to Jeff.

Speaker 2

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

Operator

Our first question will come from Tim Mullen with Laurelton Management. You may now go ahead.

Speaker 4

Hey, guys. Thanks for taking my questions. First, just given the larger size of the acquisitions that you've completed more recently, I was just wondering if you could provide any color on those businesses in terms of their strategic objective. Obviously, from a geographical standpoint, they seem like natural fits for you all. But just wanted to see if you could provide any color, types of customers, product fit, any financial information regarding the acquisitions?

Speaker 2

Sure. So we closed on 2 acquisitions in November. Both of those were heating oil acquisitions, smaller opportunities that were that are tuck ins to our existing New Jersey operations. And then we closed on 2 businesses in February, in early February. One was a propane business and the other one a heating oil business, as I mentioned, both located in Long Island.

Speaker 4

Mean, typically, we don't like to give any of the financial information, but is there any color you can provide on multiples or kind of anything along those lines?

Speaker 2

No, not at this time.

Speaker 4

Okay. And then just when you think about the business more kind of on a medium and longer term basis, how do you think about the possibility of homes transitioning away from using home heating oil as their energy source? And does that impact M and A strategy or how you think about organic growth?

Speaker 2

Yes, I guess so what I'd say is, I don't want to necessarily comment on specific state or federal legislation and how that might impact our business long term. We as a business and as an industry feel like we've made a very strong commitment to Bioheat, which is a blend of renewable biodiesel and ultra low sulfur heating oil and have increased our sales of that product and have committed to continue to do that. We can we all have, I guess, our views on the whole energy transition and how quickly it's going to occur. But we feel like we're properly positioned to deal with those changes.

Operator

Our next question will come from Michael Prouting with 10 ks Capital. You may now go ahead.

Speaker 5

Yes, good morning guys. I had a question related actually to the prior questions on the acquisitions. It seems like the pace of acquisitions has picked up recently. Jeff, I'm just wondering if that's a reflection of sellers being or rather owners being more willing to sell? And then I guess related to that, even though you might not want to comment on the valuations of the acquisitions you've closed, I'm just wondering what you're seeing in the market as far as multiples are concerned.

Speaker 5

And I guess also related to the prior question, if multiples are reflecting both the warmer weather environment as well as transition risks? Thanks.

Speaker 2

Sure, Michael. Yeah, so our team has been very busy. As I mentioned, we've closed on 4 transactions already this year that we feel are high quality. What I'd say is it kind of goes ebbs and flows, the activity levels and the businesses that are on the market. What I would note is that there what we've been evaluating more recently over the last 6 months have been, some what we would consider some very high quality businesses that seem to be very good fit for us.

Speaker 2

And it's hard to predict what is actually going to come to fruition from that. We have to go through our process. We're going to remain very disciplined in that regard. And we'll just have to see how that plays out. I have not seen multiples depressed in any way as a result of weather and we typically when we're evaluating a business we'll kind of normalize the results as it when we value the business.

Speaker 5

Okay, all right. Thanks.

Operator

At this point, there appears to be no further questions in the queue. So I'll turn it back to Mr. Woosnam for any closing remarks.

Speaker 2

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 2024 fiscal 3rd quarter results in August. Thank you, everyone.

Operator

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

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Earnings Conference Call
Star Group Q2 2024
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