Good morning, and welcome to the Star Gas Partners' Third Quarter Results Conference Call. [Operator Instructions] Please note, this event is being recorded. .

I would now like to turn the conference over to Steve Goldman, Chief Executive Officer. Please go ahead. .

Good morning, and thank you for joining us today. With me today is Star's Chief Financial Officer, Richard Ambury. After I provide some brief remarks about the quarter and first 9 months of fiscal 2017, Rich will review the fiscal third quarter ended June 30, 2017, and year-to-date financial results. We will then take your questions.

Before we begin, Chris Witty, of our Investor Relations firm, Darrow Associates, will read the safe harbor statement. Please go ahead, Chris. .

Thanks, Steve, and good morning. This conference call may include forward-looking statements that represent the partnership's expectations and beliefs concerning future events that involve risks and uncertainties and may cause the partnership'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 partnership 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 partnership's expectations are disclosed in this conference call and in the partnership's quarterly reports and annual report in Form 10-K for the fiscal year ended September 30, 2016.

All subsequent written and oral forward-looking statements attributable to the partnership or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements.

Unless otherwise required by law, the partnership 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 back over to Steve Goldman.

Steve?.

Thanks, Chris. We continue to assess various ways to improve what we're doing here at Star Gas. So we're challenging our team to look for new opportunities to achieve our operating results. This past quarter certainly reflects such an approach to running our business.

For example, we recently began upgrading certain aspects of our technology platform so we can better respond to the changing needs and wants of our customers. These enhancements resulted in some additional IT costs and other yet temporary expenses in this quarter as our employees were trained and adapted to modifications in our operating environment.

We see such upgrades as a very positive and necessary part of growing Star Gas for the long term, and both our employees and customers are telling us the same..

As a result of these changes, we now have the ability to understand customer issues further upstream and far greater detail than before. And the early signs indicate that this is directly impacting our ability to retain customers.

This year’s such actions have helped keep attrition in check despite the warm weather and increasing oil prices, but we're not resting on our laurels. We're working very hard at challenging every aspect of attracting and retaining all segments of our customers.

We are also more aggressively pushing boundaries when it comes to expanding the services we offer and the territories which we operate and serve..

On the acquisition front, we concluded just one of the busiest periods in terms of M&A interest that we've seen.

And during the quarter, we were able to close on one acquisition in New York for approximately $10.5 million, but we have many more attractive opportunities in our pipeline, some of which we are expected to be able to close in the very near future..

One other notable event this past quarter was the opening of our new customer service center in Newtown, Pennsylvania. This represents an adjustment to our Mid-Atlantic operating -- operations and is designed to better serve our customers and improve our ability to attract the best employees for this purpose.

We still believe that one of our greatest areas of opportunity is to continue strengthening our team. The work we've been doing in both recruitment and developmental training is crucial to ensuring we deliver strong results into the future.

We have been reviewing our processes to improve training of the next generation of managers necessary to drive our continued growth into the future as well. .

We know investing in the business while managing cost is a delicate balance, particularly in the warm year.

While we are doing what we can to hold the line on expenses, we believe that investing is necessary for future growth and seeing some expense rise this quarter from the implementation of the changes we've made as I discussed as well as from growth in other service are expected.

Our team is energized about all that we're doing to keep Star Gas the strong competitive company we are today. And with that, I will now turn the call over to Rich. .

Thanks, Steven, and good morning, everyone. For the third quarter of fiscal 2017, home heating oil and propane volume declined by 4 million gallons or about 9% to 41 million gallons, as the additional volume provided from acquisitions was more than offset by net customer attrition in the base business and the impact of warmer weather.

Temperatures in our geographic areas operations for the fiscal 2017 third quarter were roughly about 20% warmer than the fiscal 2016 third quarter and about 18% warmer than normal.

However, the warm weather this year did not lead to a 20% decrease in home heating oil and propane volume sold since only a portion of Star's customer base normally receives delivery during the spring time period. .

Stated another way, temperatures during this nonheating period are not as impactful to annual sale as during the heating season. We realized heating oil and propane margins of $1.15 per gallon, approximately $0.14 higher than last year.

Our total product gross profit was $54 million, up $1.6 million as the impact of higher home heating oil and propane margins was somewhat offset by the decline in home heating oil and propane volume sold. .

Our net loss increased by $10 million to $13 million versus last year, largely due to the after-tax impact of an unfavorable change in the noncash change in the fair value of derivative instruments of $14 million.

The quarter's adjusted EBITDA loss did increase by $1.5 million to $9.3 million, as the decline in home heating oil and propane volume and an increase in certain operating expenses more than offset the additional gross profit provided by higher home heating oil and propane margins and a slight improvement in service and installation profitability..

In looking at the 9 months results, our home heating oil and propane volume increased by 12 million gallons or 4% to 294 million gallons, again, as additional volume provided by acquisitions and some colder temperatures more than offset the impact of net customer attrition and other factors..

Temperatures in our geographic area operations for the first 9 months of fiscal 2017 were about 7% colder than last year's comparable period, but 12% warmer than normal still.

Star's product gross profit increased by 5% or $18 million to $358 million due to slightly higher home heating oil and propane margins and the increase in home heating oil and propane volume sold.

In delivery and branch expenses, we recorded a $12.5 million credit under our weather hedge in the prior year period, and we did not record any such hedge in the current year period.

Excluding this, delivery and branch expenses rose $10 million year-over-year reflecting higher delivery expense of $2.5 million due in part to the weather-related increase in home heating oil and propane volume of 4%, acquisitions, and an increase in spending of approximately $5 million largely due to additional staffing in the areas of information technology, customer service, operation management and sales and marketing.

We believe that this staffing positively impacted the 11,000 account improvement we saw in the 9-month period in net customer attrition..

We recorded a noncash charge of $7 million for our derivatives during the 9 months of fiscal 2017 and the prior year's comparable period, again, we had recorded a noncash credit of $20 million. We posted net income of $45 million for the first 9 months of fiscal 2017 or about $19 million less than the prior year period..

Our adjusted EBITDA this year decreased by $7 million to $110 million as the impact of higher home heating oil and propane volume and again, slightly higher home heating oil and propane margins, were more than offset by the absence of the $12.5 million credit that was recorded in the first quarter of fiscal 2016 under the partnership's weather hedge contracts, lower service and installations gross profit and additional staffing expense in the areas of information technology, customer service, operation, management and sales and marketing..

Now moving over to the balance sheet. At the end of June, we had cash on hand of $95 million, 0 borrowings under our revolving credit facility and $78 million of total debt. .

And with that, I would like to turn the call back over to Steve. .

Thanks, Rich. And at this time, we'll be pleased to address any questions you may have. Operator, please open the phone lines for questions. .

[Operator Instructions] Our first question comes from Michael Prouting with 10K Capital. .

This -- I hesitate to say it, but this really was a terrific quarter when you look at a bunch of the metrics here, particularly encouraging to see the continuing improvement in customer attrition both in terms of customer gains and customer losses.

Do you want to put some more color around that? I think, one thing, in particular, obviously, is that success in this area really adds to the value of the business over time. And then I'm curious, the extent to which you've already harvested the benefits of your technology investments or the extent to which there's still more to come. .

Yes. That's a good question. Thank you, first of all. But -- and we appreciate you looking at the quarter the way you are. The material difference in retention of customers that we've seen for the past 6 months is the beginning of leveraging about half of the technological improvements we put in place.

What we're seeing in the front end of this difference is a set of tools, which allows us to drill down on all customer interactions and evaluate them, and they evaluate us on what the customers like and didn't like and try to assess what that means for risk of the customer being dissatisfied and/or ultimately leaving us.

And then what we're working on now, and I would say, like I said, about halfway through the mechanisms to, in a speedy fashion, get back to those customers and more than just resolve whatever they might be concerned about, but pay attention to where we missed the mark on what we think the customers expect us to be doing and change that.

So what we're finding is it's not just a sensitivity issue, there are some operational execution issues from the perspective of the customer. So they kind of challenge our traditional thoughts of how well we were executing for the customer and we're getting to see our performance through customers' eyes.

And quite frankly, it's very different by location and really eye-opening, and I think, the positive and exciting part of that is it's very actionable. So I don't think we've seen all the benefit to your second question. I think there is more opportunity to come. It may not always be even.

I would not say that we -- it may not see a small blip up in losses at some point. There are other factors. Price is always a significant one.

But again, as I mentioned in my comments, all this comes in the shadow of 2 warm winters and a little help from mother nature and a little bit of cold weather, all this could be exaggerated in our benefit hopefully that we're really getting a more crystal-clear vision of what our customers want.

Now I will say that there are some other things in our technology pipeline that we're working on, that we're not fully done getting into place. And some of those things will help on the sale side, attracting a different amount of customers that we're targeting based on their value to us as an organization.

And I think the results of that stuff you'll see in the next 12 months or so. .

Well, great. Thanks for that. I know this is really exciting news and obviously, I'd like to see nothing greater than you guys become the Amazon of heating oil and propane deliveries. So as far as I'm concerned, this is really exciting news. Just a couple of other quick questions.

So on the acquisition front, is there anything more you can say about that? In particular, are you seeing any larger deals out there? And then just one final question for Rich. I notice the DSO has crept up a little bit in the quarter and just wanted to understand what might have been behind that. .

Well, we'll let Rich answer that first. .

Yes. The DSOs, while they might be up versus last year, don't -- let's not forget that last year was a much, much, much warmer year than last year. And frankly, the weather that we did get, kind of the only 2 real good weeks we had was in the month of March. So that kind of pushed out, if you will, the over 90s in summertime.

But yes, I'm not concerned about our receivable levels. .

And then on the acquisition front, Michael, we -- as I said, I can't really exaggerate how many people we've spoken to in the last 6 months, it's been a lot. And again, speaking to customers doesn't always turn -- potential acquisition doesn't always turn into purchased acquisitions.

And from a scale point of view there, as small as we've seen and some of the largest we've seen in a while as well that we've looked at, so anywhere from 1 million gallons to over 20 million gallons and they are geographically diverse as well. So part of the issue is always qualitative.

What's going to be -- what's going to happen when we try to negotiate a price that works for us that will be accretive and beneficial for the company and then who else is trying to buy them, and then what happens in due diligence. And we've been through all those exercises in the last several months.

Some have fallen apart in due diligence quite frankly. I thought we'd be having a couple or more to talk about during this call, and they just didn't materialize because they weren't really [indiscernible] in the end for us to purchase at the price that we thought the value of the business was when we first started looking at them.

So -- and I don't want to waste money just for the sake of saying we've added to the business and bought accounts. And like I always say, we're working on a lot of fronts. We're trying to economize some expense where we can. We're trying to do the best we can with margins under all circumstances. We're trying to grow the geography.

We're trying to grow the services we're offering customers. So it's just -- all over, we're trying to make the business a more healthy business for those people who've invested in the company as well as the employees that work for the business. .

[Operator Instructions] There appear to be no further questions in the queue at this time. I would like to turn the conference back over to Mr. Goldman for any closing remarks. .

Okay, and thank you. Thank you for taking the time today to join us and for your ongoing interest in Star Gas. And we look forward to sharing our fiscal fourth quarter results with you in December. .

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