Star Group Q3 2024 Earnings Report

Star Group EPS Results

• Actual EPS: -$0.31
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Star Group Revenue Results

• Actual Revenue: $331.64 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Star Group Announcement Details

• Quarter: Q3 2024
• Date: 7/31/2024
• Time: N/A
• Conference Call Date: Thursday, August 1, 2024
• Conference Call Time: 11:00AM ET

Star Group (NYSE:SGU), together with its subsidiaries, provides home heating oil and propane products and services to residential and commercial customers in the United States. It offers gasoline and diesel fuel; and installs, maintain, and repairs heating and air conditioning equipment. As of September 30, 2023, the company served approximately 402,200 full service residential and commercial home heating oil and propane customers and 52,400 customers on a delivery only basis. It also sells gasoline and diesel fuel to approximately 26,600 customers. The company was formerly known as Star Gas Partners, L.P. and changed its name to Star Group, L.P. in October 2017. Star Group, L.P. was incorporated in 1995 and is based in Stamford, Connecticut.

Star Group Q3 2024 Earnings Call Transcript

Key Takeaways

• Star Group reduced its adjusted EBITDA loss by $18.9 million in Q3 to $4 million, driven by higher volumes, improved per-gallon margins and strong expense control.
• For the first nine months, the company posted net income of $70 million—up $19 million year-over-year—and increased adjusted EBITDA by $13 million to $141 million.
• Star Group entered into a definitive agreement to acquire a high-quality fuel dealer for approximately $35 million, adding 19 million annual gallons and marking its fifth acquisition this fiscal year.
• Net attrition remained stable and was slightly down year-over-year, reflecting ongoing focus on customer service and retention strategies.
• The company’s weather hedge benefit declined year-over-year, and for fiscal 2025 it can receive up to $15 million with a capped payment obligation of $5 million if degree days exceed thresholds.

Presentation

[Operator]

Good day, and welcome to Star Group's fiscal Q3 2024 earnings call. All participants will be in a listen-only mode, and should you need any assistance during the call, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw a question, please press star, then two. 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.

[Chris Witty, Investor Relations Advisor at Star Group]

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. 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.

[Chris Witty, Investor Relations Advisor at Star Group]

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-K for the fiscal year ended September 30th, 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. Jeff?

[Jeff Woosnam, President and CEO at Star Group]

Thanks, Chris. 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 Adjusted EBITDA loss by nearly $19 million for the Q3 of fiscal 2024. Through the first nine months of fiscal 2024, temperatures were virtually identical to last year, but 15% warmer than normal. Despite the mild heating season, we were able to increase Adjusted EBITDA by $13 million, 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.

[Jeff Woosnam, President and CEO at Star Group]

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 million before working capital. The business, which is expected to add some 19 million gal 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 fifth 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. Our net attrition for the Q4 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.

[Jeff Woosnam, President and CEO at Star Group]

Given our investment 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?

[Rich Ambury, CFO at Star Group]

Thanks, Jeff, and good morning, everyone. For the Q3, our home heating oil and propane volume increased by 7.6 million gal, or 25% to 38 million gal, as the additional volume provided from acquisitions and other factors was reduced by net customer attrition. Temperatures for the fiscal 2024 Q3 were equal to last year and 18% warmer than normal. Our product gross profit increased by $20 million, a 37% to $75 million, due to an increase in home heating oil and propane volume sold and higher per-gallon margins. We realized a combined gross profit from service and installation of $13.5 million, or $3.5 million higher than the prior year's comparable quarter, as we continue to focus on improving both revenue and controlling expenses.

[Rich Ambury, CFO at Star Group]

Delivery, branch, and G&A expenses increased by $4.7 million year-over-year, due in part to the additional operating costs attributable to acquisitions of $1.6 million. In addition, insurance expense rose by $1.6 million due to increasing premiums and expected higher claim costs. The balance of the expenses rose by just $1.5 million, or 1.7%, as we were successful in managing such costs and mitigating the impact from inflationary pressures. We posted a net loss of $11 million in the Q3 of fiscal 2024, or $13 million 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 million, and an $18.9 million decrease in the Adjusted EBITDA loss.

[Rich Ambury, CFO at Star Group]

The Adjusted EBITDA loss decreased by $18.9 million to $4 million, as the impact of higher home heating oil and propane volume, an expansion of per-gallon margins, an 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 first nine months of fiscal 2024, our home heating oil and propane volume declined by 5.5 million gal, or 2% to 235 million gal, 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.

[Rich Ambury, CFO at Star Group]

Our product gross profit increased by $18 million, or 4% to $426 million, as higher home heating oil and propane margins were 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. We realized the combined gross profit from service and installation of $18 million, or $6.3 million 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&A were higher by $9.7 million year-over-year, which included $5 million attributable to our weather hedging program. In fiscal 2024, we recorded a benefit of $7.5 million under our weather hedge, compared to $12.5 million recorded in fiscal 2023.

[Rich Ambury, CFO at Star Group]

Recent acquisitions accounted for an increase of approximately $4 million in operating expenses, and the base business rose by just $400,000. We posted net income of $70 million in the first nine months of fiscal 2024, or $19 million 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 million, and an increase in Adjusted EBITDA of $13 million. Adjusted EBITDA increased by $13 million to $141 million, as the expansion of per-gallon margins, an 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 million decline in the weather hedge benefit year-over-year.

[Rich Ambury, CFO at Star Group]

With regard to our weather hedge for fiscal 2025, the maximum that the company can receive is $15 million, and we are obligated to make an annual payment capped at $5 million if degree days exceed the payment threshold. If we had the same coverage in place in fiscal 2024, we would have received an additional $7.5 million more in fiscal 2024. And with that, I'd like to turn the call back over to Jeff.

[Jeff Woosnam, President and CEO at Star Group]

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]

We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your headset before pressing the keys. And if you would like to withdraw a question, please press star, then two. At this time, we will pause momentarily to assemble our roster. And again, you may press star, then one to join the queue. And with that, that will conclude the question-and-answer session. I'd like to turn the conference back over to Jeff Woosnam for any closing remarks.

[Jeff Woosnam, President and CEO at Star Group]

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 Q4 results in December. Thanks, everyone.

[Operator]

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

Participants

Executives

• Chris Witty, Investor Relations Advisor
• Jeff Woosnam, President and CEO
• Rich Ambury, CFO