Chris Witty - Darrow Associates, Inc. Steven Goldman - President and Chief Executive Officer Richard Ambury - Executive Vice President and Chief Financial Officer.

Andrew Gadlin - Odeon Capital Group LLC Matthew Spiegelman - Locust Wood Capital Advisers LLC Michael Prouting - 10K Capital LLC.

Good morning and welcome to the Star Group Fiscal 2018 First Quarter Results Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [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, Rich Ambury. After some brief remarks, Rich will review our first quarter 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 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, 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 and in the Company’s Annual Report and Form 10-K for the fiscal year ended September 30, 2017.

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 statement, 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. Good morning, everyone. At the beginning of this fiscal year, we often ask ourselves. When will this winter begin? October 2017 was one of the warmest record throughout most of our footprint. And it was not a good way to start this quarter.

When November rolled in and we finally saw a cooler weather, it seemed like everyone woke up and decided to turn on the year at the same time. Basically we saw a much of the expected service demand and inbound total volume from October squeeze into November which was otherwise a fundamentally normal month for us.

It certainly gave us a flavor for what we would see later on as the winter unfolded, while December also began as a somewhat milder than we would like month near the end of the year began a period of extremely cold weather which worldwide into January.

So the first quarter did provide us the opportunity to ultimately begin delivering a reasonable flow oil and propane, but it also brought with it some very challenging customer service and service requirements in general.

We handle these with the same high level of commitment we always provide to our accounts and I'm proud of the outcome even while dealing with some very stressful days. While boilers and furnaces across our footprint were battling Old Man Winter.

Envision and similar to last winter, we saw oil and propane products cost rise putting pressure on both margins and our retention efforts with customers as their selling prices rose as well. However, such challenges are not new to us and we believe our results were very good given the conditions we experience.

We saw customer net growth of about 1% for the quarter, which were level similar to last year's 1.2% just a 400 net account difference and we did this even while our strongest competitors were doing everything in their power to hold onto and to attract more customers.

While we did not close on any notable acquisitions this quarter we believe we've made some very good progress working towards the integration of the organizations we've purchased last summer and we believe that we'll see some acquisitions that will fit with our design come to fruition in their future.

However, as we're in discussions with multiple entities and they will seem to be going very well we have nothing specific to report on at this moment.

One area of managing a business that has become increasingly challenging involves the addition of talented employees and the development of a strong management team for the future leadership of the business.

However, even in a competitive market we are doing everything we believe possible to hire the best and brightest to Star Group across all levels of the organization. We will continue to improve our practices to attract, hire, train, manage our human resources like no one else in the industry can.

Overall, we feel that even though this quarter's weather started out rather weak and then turned into one of the coldest periods in our memory, our team was able to manage the issues well and provide the excellent customer service that is the hallmark of our Company.

We are happy that our people continue to drive the business forward and can handle whatever conditions develop as we evolve into a stronger more successful Star Group for the years to come. With that, I will turn the call over to Rich Ambury to provide some comments on the quarter's results.

Rich?.

Thanks, Steve, and good morning, everyone. For the quarter, our home heating oil and propane volume increased by 4 million gallons or 4% to 103 million gallon as colder temperatures and acquisitions more than offset the impact of net customer attrition and other factors.

Temperature for the fiscal 2018 first quarter were 5.5% colder than fiscal 2017, but 6% warmer than normal due to the record warm temperatures in October. Having said that, we believe that the extremely cold temperatures experienced during the last week of December 2017 will favorably impact deliveries during the second quarter of fiscal 2018.

Our product gross profit increased by $7 million or 6% to $124 million due to higher home heating oil and propane volumes and a $0.027 increase in home heating oil and propane margins.

But please keep in mind that over 98% of our hedges for our price protected customers were at their strike price which reduces the potential for future per gallon margin expansion. Delivery and branch expenses increased $10 million or 12% to $91 million during the quarter.

In the base business, operating expenses rose by $3 million or 3.7%, and acquisitions accounted for another $4 million of the $10 million increase. We also recorded a $3 million charge relating to our weather hedge contract based on temperatures experienced during November and December.

As a reminder, our weather insurance hedge covers the period from November 1 through March 31 taken as a whole, and temperatures during November and December were 13% colder than the payment threshold.

We posted net income for the quarter of $30 million or $12 million higher than in the prior year period, largely due to a $12 million deferred tax benefit reflecting a reduction in the federal corporate tax rate from 35% to 21%.

Adjusted EBITDA decreased by $4 million or 12% to $27 million as higher home heating oil and propane margins and the additional adjusted EBITDA provided from acquisitions were more than offset by higher operating costs in the base business of $3 million – by the $3 million charge, I mentioned on our weather insurance contract and by a little decline of volumes in the base business.

Before turning the call back over to Steve, I would like to point out that as a result of the recent tax reform that our federal income tax rate will be reduced from 35% to 21% for fiscal 2018 tax year. As a rule of thumb, our blended state and federal effective tax rate will decline from 42% to 30%.

And with that, I'll turn the call back over to Steve..

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

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Andrew Gadlin with Odeon Capital Group. Please go ahead..

Good morning. Steve, early on in your comments you highlighted that there were some challenges with the very cold weather as well. I was wondering if you could elaborate on that a little bit..

Yes. Some of this is spilling into January while we did see the period of extreme cold begin in the end of December of last two days – last two days of the period ending December. The first couple of weeks of January do both degree days, per day and duration of the amount of days that we had the cold for were unprecedented in recent memory.

We had to go back to 1978 to see a period that looks as extreme. So the way that manifested itself was a lot of people needing services that all of one's, a lot of the people delivery cycle increasing meaning a lot more driver activity and hours needed.

All the states we operated in ultimately gave a waiver of service hours, so we could increase our capacity to deliver.

But the weather that we were experiencing for a relatively short duration for a whole year, but a very intense period for us, dictated that delivery oil and propane consumption was being burned by customers at a rate faster than we can replenish it for that period.

And so in some cases, it also impacted by snow and ice in severe situations, a couple of states that we operated. Very important roads were closed down or areas of service were restricted from delivering for us particularly in parts of New England.

Telephone volume increased dramatically beyond normal expectations in part due to some media attention to the weather and instructions from News stations I think trying to be helpful to their constituents saying, call your heating provider and make sure you get a delivery and people are calling that they need deliveries and when you get weather that was sub 20 degrees for prolonged periods, you start getting a lot of call activity related to insufficient heat, which in a lot of cases it's not even a service of all item, but those require an inspection.

So there was an incredible demand for activity. Again I think for the most part, we were able to do an extraordinary job and measured in areas moving resources, identifying priority customers to address meaning situations that need to be addressed as directly as possible.

It certainly was in a perfect situation, just the enormity of the demand across all heating companies, not just ours that heated with any kind of resource whether it was heating oil propane, natural gas, the demand was extreme. And again I think what we were able to do with our resources is extraordinary.

But it was a real test for everybody in every single position in the organization..

One thing I would like to add is that if you look at that last week of December, and to the first week of January, the temperatures were about 40% colder, 40%, 45% colder....

I mean it is no picnic to live through, but I'm sure it does very helpful the overview just gave us. If you could just delve in and kind of translate some of that into numbers if possible.

The delivery in branch expenses in the December quarter were about $10 million higher year-over-year and that make sense given all that you just described?.

Well, let me just add one more piece of color to that aspect delivery expense..

Over time, that’s speaks to over time in part, correct?.

It does, but there is a national challenge to all industries to find identify and train the needed TDL drivers. It is become over the last few years.

And increasing element of challenge for any company that's involved in transportation and we have some special challenges being that a large portion of our delivery – what we have needed to do is step up the cycle of training. As we've seen kind of an older group of drivers start to retire.

It happens from time-to-time that we reach a cycle in the aging of our employees where we see larger than average group of employees start to retire as they get to a certain age.

And we've been bringing in more and more newer drivers in the last couple of years and part – our concern isn't just based training, but training for safety reasons and knowledge of areas and just getting up to our level of expectation. So we invest a lot in a new driver. And some of that’s reflected in that course that's the quarter happens..

If you take a step aside from going back to my remarks if you look at the $10 million increase, $4 million was - other was through the acquisition related volumes. $3 had to do with a charge that we booked for the weather hedge because November and December or colder than the threshold them out and we recorded a charge of $3 million.

So in the base business if you will our operating expenses there are $3 million, which is like 3.7%..

That is helpful. Thinking about now Q2. This business is difficult to forecast I'm sure from where you sit even but where we said so just trying I think about this up coming quarter.

The cold weather persisted into January and as we enter February it's still feels a lot colder than it's been in a number of years?.

Let me stop you right there. If you look at January in and of itself it's about 3%, 3.5% colder than the average of the - kind of the average of the last 10 years or so despite the first week being colder than normal-ish by a 40% so tell three weeks or actually warmer.

And then if you look at the next 7 days, 10 days and I'm not a forecaster as far as weather goes, but they're suggesting that it's going to be close to the 10-year average or even slightly warmer over the next 7 days or 8 days but go ahead just to put that in the backdrop at January even though that first week was cold it's not turning out to be an extremely cold month..

Okay, fair enough, granted. I'm just pointing out to just trying to look at year-over-year comps to try to keep things as much apples-to-apples. And last year was cold-ish January now is go this year February is incredibly warm last year and then March was cold here in the northeast.

I don't know where it stood relative to normal but only it was a normal it was a warmer than normal March quarter last year as well.

So I'm just trying to compare and say okay if there was $92.25 million a delivery in branch last year in the March quarter and what – we got expected to be higher right you're investing in the new workforce does that $4 million, does that $3 million, oh! I am sorry you got $4 of acquisition that will carryover presumably probably at the same level into March.

The weather hedge I had assume is there if not more so. And if it's business I should assume at least that amount right I mean is that a fair way to think about this..

It's a way to think about it I'm not going to comment on as the whether it's fair or not you have to do your own numbers..

Okay. In terms of the margins one of the things that we saw in the market at least was that some natural gas prices and oil prices were up quite a bit some spike even during that last week December, first week January period.

Is that going to have an impact on margins in this March quarter?.

Like I said in my opening remarks. Well protected price business 98% of those hedges for those customers were at their strike price. So at least on the protected price business I would think it's at a pretty high margin, where there is no room for significant margin expansion unless prices collapse..

Yes. I'm worried about margin deterioration – is what I'm asking about..

I don't know, you can come back to me in April, when I know where heating oil prices end up being and we'll find it out..

During that period you didn't suffer, meaning you weren't buying, the spot market was up dramatically, you were buying in the spot, you weren't paying those exorbitant prices?.

All our supply contractors are based on the Merck. Each and every day and for our ceiling and our fixed price contracts we buy over the counter hedges to protect against increasing prices.

So for our variable business, we're buying based on the spot market and for our protected price business, it's whatever price the market was on the day we entered in to that agreement with our customers on a back-to-back basis..

So in other words, the margin that you have on a gross margin, you are pretty much protected. It’d be some variability a little bit, but I should expect major variability in that margin per….

I'm going to say yes. We protected the margins on our protected price for customers. And I would like to leave that discussion at that..

Okay. Thank you..

You are welcome..

That’s it for me..

The next question comes from [indiscernible]. Please go ahead..

Hi. This is [indiscernible]. Thanks for taking the question.

So in terms of capital allocation now that we're through the [C Curve] conversion, is there a thought that the cash might be freed up to do more buybacks or otherwise return capital?.

What we've been saying for about 14 years now since we've been at this, since we’ve capitalized in, I guess it was 2006. We look at acquisitions, we look at unit repurchases, we look at whatever we might need to do with our fixed assets in our fleet.

I mean there was a significant change in the tax law; now where you can ducked almost 100%, if not I guess 100% of fixed assets put in place. So we also have to look at what is that allocation of capital at the end of the quarter or even during the quarter..

Okay.

And in terms of the M&A opportunities that are out there, how does the pipeline look right now?.

I think it looks healthy. We have not stopped looking at acquisitions for a good period now probably meaning a strong flow of prospects for the last couple of years.

As we've expanded our footprint, we've gotten a lot more looks at more businesses that hasn't always translated into us buying more because the standard of what we're looking to buy we are as usual.

Seriously speaking to several businesses that at least volume we believe and hope that they will make it through the thought processes of duediligence and other aspects and they will survive our scrutiny and ultimately become purchases for us. So I'm pretty optimistic in that that.

Our reach to find new prospects for us to help grow the business are working well and that will have other opportunities in the coming months.

It's a very unpredictable aspect of the business and we know that and we kind of incorporate that into our expectation that once come our way, we make sure we have the means to execute and we had to have some patience and the ability to work through all that we could possibly look at it to make sure that we're making the appropriate purchases that are in the best interest of the business..

Great. And then in terms of the volume trend, so I was little confused by the press release, you stated that I believe by the end of the quarter you actually had net additions to your customer base which is great. But then you talked about volume declines in your base business and then heating degree days were up.

And I think you have to exclude the last week there was a little bit at least. So I'm trying to figure out where those volume declines in the base business came from and if you could quantify what they were that we would be helpful..

Yes, the attrition number that’s in – that we use in the volume reconciliation in our – I guess our 10-Q we mentioned in the press release. It's basically a trailing 12-month attrition number. It's not just the attrition for the quarter.

We have to look back over the preceding nine months for the quarter and see what accounts we've added and see what accounts we've lost, so that we reconcile the volume that we sold the prior year’s comparable quarter. We might have lost 3% or 4% of our total customer base, but in the quarter actually added a percent.

So we look at the net attrition for the previous 12 months, not just the specific quarter..

Got it, okay.

So the answer is that the quarter end comment was referring to versus the end of Q3? From any Q3 to any Q4, you added, but from Q4 year-over-year, you were down 3% or 4%?.

We'd like to look at that as Q1, because we're in a fiscal year..

Q1, yes..

But your analysis is correct..

And that’s only for the base business because it does not include the addition of acquisitions year-over-year..

Right, right, understood. In that 3% to 4% net attrition in the base business, I threw out 3% to 4%. Let me give you the exact number of what the attrition in the base business was because we say that in the 10-Q..

Just give me a second. It was 1.6%. I want anybody – 1.6% was our net attrition for the 12 months ending December 31, 2017..

Got it and then qualitatively in terms of the how we think about the costs here.

So what are some sense in which the difficult whether toward the end of – particular in the last week added to costs in Q4, because clearly the revenue from that is partially deferred into Q1 because of the fill up cycle, but I'm wondering if there were none the less extra cost that were occurred related to that extreme weather that sort of didn't get the benefit of that revenue?.

Yes, I would say some, but I would not pin the increase in costs in the quarter on the last week of December. Our insurance expense was up. Our customer service department I guess that possibly would be one of the drivers of the increase in cost was up $0.5 million..

Got it, okay. And then last question just make sure I understand this weather hedge, effectively you sort of pinned your heating degree day based or perhaps to your volume based margin variation to something approximating normal.

Is that the net of what you tried to accomplish here?.

What we what we have this year, which is different than in the past year is for November through March as a whole, we added a swap. So it's colder. And again it's with a five month period. We might have to pay $5 million. But if it's warmer, we will receive $5 million dollars. In addition we also have a put that would kick in if it was 7.5% warmer.

So conceivably we could get $5 million and $12.5 million that would be like $17.5 million. If it was significantly warm this year for example if last year if we had the same weather conditions this year, our EBITDA would have been $4 million or $5 million higher..

Right..

We added that swap this year..

And the hedging cost that you reported in this call and in the Q.

Is that all realized cash costs or is that in mark-to-market on the sort of entire hedge portfolio through the end of March?.

All realized hedges go to cost the goods sold that would include the options and the gain and loss and what’s you see in the 10-Q and a change in fair value of derivative transactions is the basically the increase or decrease in the market value of those hedges from the last time we reported which would have been September 30..

Okay.

Does that change in market value affect EBITDA or is that below EBITDA?.

It's below even because it's a non-cash change..

Right. Okay that’s it for me. Thank you..

You're welcome..

The next question comes from Matt Spiegelman with Locust Wood Capital. Please go ahead..

Good morning. Just a couple questions. I want to follow-up on the delivery expenses.

It seems like a portion of that was sort of investments that we made in different things to improve the level of service and a portion of that was temporary caused by the conditions we want if you can give us any sort of rough break-out of how much of that increase was due to the temporary factors this quarter?.

I think in this quarter and different think Rich touched on it the impact of the actual weather on additional costs for the quarter was marginal. Because the weather came in late in the period it was only a few days a lot of the extra delivery activity was really subsequent to the end of the period trailing into January.

So the delivery cycle based the trails the weather, for the most part, especially the expansion of over time hours.

And then to point that there some of the cost was investment either providing better service, creating strong fundamentals in the way of training, tools for drivers and to protecting the business as Rich talked about the weather hedge, those certainly were additional costs for those reasons..

Okay.

And then you highlighted the beginning that you're working to prove your human resources and get these drivers even though it may be challenging? Do you feel like at this cost level you have made a lot of the investments you need to make? Or are there incremental investments you need to make from here to have a business where it needs to be?.

Yes, that's a – I think it’s good question and a fair one, and when we challenge ourselves with I think we're substantially invested to the point that we have a much better platform to do what we need to do address the issues I spoke about.

When you get into that aspect of strengthening resources especially as the economy increases and competition for better employees of ever sort becomes a little more fierce – and minimum wages in most of our footprint have increased substantially impacting the base cost of any employment.

I think they’ll continue to be small incremental costs but I think we've seen the most substantial aspect of those components of the business increase already..

Okay. And it seems like you have turned the attrition around somewhat with the investments to that….

I think you've been noticing that and I do think that we have a little a lot better control on customer losses.

I think we have much better tools and insight into things to satisfying the customers and we're trying to address of it certainly not perfect and it's not beyond having defects or issues from time-to-time but is it we can get our arms around that a lot quicker than we have been able to ever in the past.

And I think one of our greatest challenges obviously and I think the best organizations tend to be challenged by this acquiring new customers and attracting new customers and finding the right additional customers to add to your revenue..

Okay.

And just a question on the – you’ve spent a bunch of time talking about the some stressful days where response times were a bit challenged, do you expect that to have any impact on customer attrition in the coming quarters or is that more of an issue that affected the whole industry not just you?.

Well, what I'm saying is there were certainly some – again, I deem, a relatively small percentage of our customers that were impacted in a way they were not happy about. There were certainly situations way beyond anybody's capacities to control them. We did all we could to limit that with all means that we had possible.

I can't tell you how many people that actively worked nearly around the clock to do that in the organization, but it wasn't just us. Most I would think, most other competitors of ours fared far worse than us. We have been attracting new customers because of that during this period.

I would not be surprised to see some spike up because customers were just satisfied with what we do. I would think it would be marginal and short lived. We are doing all we can on a proactive basis to reach out to those customers to try to limit that. And so far that outreach has been pretty positive.

So I think we do what we say we're going to do and one of things we're trying to do with all the means post that situation is to communicate with our customers. Our appreciation for them to being customers. And to be very clear that we understand why they would be unhappy with the level of service we provided.

Looking to remediate that where we can and get their trust back and retain them as customers.

And I think, again, like no other business we will be able to do the best of that in the situation, but I couldn't honestly say to you I don't think there will be any impact because there is certainly going to be people that were severely disappointed in their particular situation. .

Okay. That sounds like the right way to handle it. Just a last question for me on the tax.

It seem like the effective tax rate comes down slightly less than the federal statutory, is that just to offset state local or what’s the offsetting factor there?.

I'm sorry.

What’s your question?.

I just said it seem like in the press release the federal statutory tax rate came down by more than the total effective tax rate. I think you guys pointed to a 30% ongoing tax rate by a few points, so I'm just wondering what was the offset. .

You've got to look at the footnote in the 10-Q, there’s about six or seven items impacting the tax rate for the quarter.

To a certain extent the quarter is the blending of the old rate plus the new rate, but kind of rest assured now once we get passed this blending fiscal 2018 tax rate, we're going to go from 42 down to around 30 with state and local taxes. There's a lot of ins and outs in that taxes.

And if you want to take a look at our tax footnote in the 10-Q and you have any questions give me a call..

Perfect. All right. Thank you..

The next question comes from Michael Prouting with 10K Capital. Please go ahead..

Yes. Good morning, guys. Thanks for taking my questions..

Good morning, Michael..

Steve, on the customer action, just followed back on the question that was just asked.

I think you guys are positioned in the market as being premier pricing, premier customer service right? So I would imagine that competitive customers as far as service is concerned, and I would think that should add to your ability to gain new customers in the coming quarters, is that the right way to think about that?.

We are hoping that. I can’t guarantee that. That will be our presumption. That’s one of reasons we do all we do to try to maintain the level of service that it is warm year and cold year. That has to be the silver lining then, that's what we've been doing.

That if our reputation is unbroken that we're committed to that and even in a situations where we were and able to absolutely 100% fulfill that in every situation. And again I would say that's a small percentage of the customers that we serve.

We're using every means possible to have dialogue with those people and do what we can to win back their trust because our reputation for us is everything, and we have a lot invested in that and that's one of our key selling points.

I agree, and glad you get that and I think from the long-term situation, we've got a couple of more cold months ahead of us. We should be able to exploit that and try to garner some more customers out of it..

Yes, great because I mean just looking at that as a glass half-full, rather than a glass half-empty. The challenge is that your competitors faced, and many of you guys invested in working around the clock to meet customer deliveries. That's actually an opportunity to improve your custom gain.

So I mean net-net the logistical challenges of the last quarter should actually improve your market positioning rather than hurt it..

I believe you're right..

Okay, all right, great. We'll be looking to see how you kept lies on that going forward. Turning to some financial stuff, Rich, I want to continue to beat the dead horse because I’m still a bit confused. I don’t know whether hedge.

Am I understanding correctly is that there were no costs related to that in first fiscal quarter of last year, but there were $3 million related to the where the hedge in the fiscal quarter of this year? Is that correct?.

That is correct. Now the question is cost. We've basically added to our put that we normally had as we added a swap to a certain extent at the money, which was the average of the 10 years. So that from a cash outlay to enter into that swap, cost us zero dollars.

But since November and December were 13% colder than the threshold amount, the degree days were higher so we old on that swap..

Okay..

Now if January, February and March come in a little bit warmer or somewhat warmer that $3 million that we all could go down conceivably to zero. But if it comes in a little bit colder, we could actually owe $5 million on that swap..

Okay, great. Thanks for clarifying that.

So then apples-to-apples so for the second fiscal quarter of last year, how much weather related hedge costs were there in the March quarter of last year?.

Well again it's – we have the same put cost as we had last year in fiscal 2018 second quarter. We’re going to have the same put cost this year versus last year. The question is whether we will all anymore money on the swap or whether the swap will reverse or get so disastrously warm that the put that we have would start to come into play..

Okay, I'm still trying to simplify things getting into derivatives and puts and hedges and on the rest of it, just purely financial terms.

Let's just suppose that the weather stays cold and you don't collect anything on the weather insurance whatsoever in the March quarter? How do we think about the relative cost?.

I’ll make – I’ll try to make it simple for you. If we have for January, February and March, basically the average of the last 10 years or the threshold them out in the second quarter of fiscal 2018 there will be no additional charge in the second quarter of fiscal 2018 versus 2017..

Okay, so no additional charge, but you don't – I guess so net-net over the first two fiscal quarters.

The net result is that the weather insurance is going to cost you $3 million or more than the current fiscal year than it in prior fiscal year?.

That is correct..

Okay. All right, thanks for clarifying that. And then one of the financial question. So I know you guys moved $34 million of cash into the pension fund and I believe that was instead of the actually – what you call it the letters of credit. One thing I was just struggling to understand is you guys have a relatively high cost of capital.

And I know that having the cash and capital is able to make acquisitions has always been a major reason why you haven't had our capital returns to shareholders in the past. So I'm just trying to understand given the high opportunity costs of raising capital and not paying that capital out to shareholders.

Why you would choose to transfer that $34 million from the balance sheet to the pension fund?.

Well, first of all, it wasn’t to the pension fund. Okay what we did as we cash collateralize our liability for prior year insurance claims including workers compensation, automobile and to a certain extent general liability. Now when we did that we got relief of almost an equal amount of letters of credit.

So our ability to borrow from the bank actually went up a little bit because the letters of credit went down by about $2 billion more that the cash that we invested.

And again those are investment and we are earning interest on that and our letters of credit fee went down and we also got the take for our calendar if you will 2017 tax returns, a pretty nice tax deduction.

So net-net, our liquidity, our ability to fund acquisitions actually went up and we’re earning and we reduced our interest in letters of credit cost..

Okay. Great so in terms of the additional ability to do acquisitions. I think also the fact that you guys now have a lower tax rate and also your competitors or potential inquiries also have lower tax rates. So that presumably is going to improve cash flow and also make the numbers easier to run.

So I'm just wondering given that do you expect to become – a) do you expect to come more aggressive on the acquisition front, b) what do you expect to do with the incremental cash flow and I guess see the third part to that is some I'm also just curious given the lack of closer acquisitions recently.

If you've run the numbers on potentially acquiring any of your publicly-traded competitors out there because when you guys certainly have a rock solid balance sheet and there are other companies out there with some much higher cost of capital, so I'm curious if that's something you've looked at?.

Well, that’s a lot of questions. I think we bought $40 million last year in acquisitions. So I won’t say that we’ve sitting here on our hands and not looking at acquisitions, we then closed a lot this quarter, but last year we closed on $40 million worth of acquisitions.

Hey, we're going to evaluate acquisitions, will there be of benefit of the tax – of the lower tax rate? Yes. I'm sure there is, whether you what to decide internally has to you know how that translates into our model..

One thing, when we're looking at the tax rate we want to be cautious of. The tax benefit is the effect of the change in the political wins and the administration. We look at businesses and we look at them as a form of one-year return or five-year return and a 10-year return.

No one can guarantee us that there's change in tax rate will continue for 10 years, so we're being kind of cautious in the application of this new tax rate as we look at the acquisitions we're looking at right now. We still have one eye kind of on the old rate as we've begun progressing at some new businesses.

And I think from the seller's standpoint, they all have very different situations. Some have partnerships, some have no real basis, some are at the stress, some want to be paid over a longer period of time, so the tax thresholds maybe lower, the business is kind of small. So we're taking them to consideration.

To the point about additional cash flow from the difference in tax, honestly it's not that bigger difference in cash flow from this past year because which mentioned some of the tax savings from this year and cash flow is only realized when we actually make money and get cash. We'll see what this year looks like.

I don't want to count money that hasn't come yet. We do have some capital expenditures we're looking at. We always are as the business expands and grows in different directions. Fleet is a piece of that. We're looking at acquisitions as usual. And in the coming quarter we evaluate the distribution as well as a piece of the whole picture of things we do.

It's certainly helpful to get this change in the tax law, but I think we have demonstrated for pretty long period of time that we're a conservative management team that tries to do things carefully and not leap to any wild activity deviation from what we've done in the past, and I think the people have been invested in the company for a long of period of time and gotten to know that and that's why they've stayed invested for the period of time that they've been with us..

Yes. I mean we certainly appreciate that given the fact that we've been with the company for over 10 years now. Thanks. I appreciate you taking my questions and I look forward to joining you on the second quarter fiscal conference call..

Okay. Thanks Michael..

The next question comes from Jean Riley, a Private Investor. Please go ahead..

This was related to the collateral part of the capital insurance company again.

Does that continue growing over time or is there a point where it reaches a steady state or at some point, you get the start reclaiming some of that money to use for something else?.

That's a good question. It's possible it can grow. We pretty much of collateralized all our prior year claims. We've collateralized to certain extent some forward looking claims.

So to answer your question is going to – it's going to be the difference between well claims run off and we pay, and what the expectation for the new claims coming on as we enter into another insurance year or another fiscal year.

But having said that, we had this same issue with our letters of credit, so we basically swap $34 million, $32 million of cash for $32 million, $33 million of letters of credit and every year our letters of credit would either go up or go down by that same expectation and the same things going to happen in the captive, whether it's for collateral or whether – in the captive whether it's cash or when we didn't have the captive, it was letters of credit.

Now the only thing is that the cash deposit it at the captive is on the balance sheet and I guess you have to look at this the fine print in our 10-Ks in our 10-Qs to figure out what the letters of credit. But you can see that.

Year-ago we probably had $45 million worth a letter – letters of credit and today we got 7.2 or around $7 million to $8 million worth of letters of credit. So I want to say it was in there in the 10-K and 10-Q is just was it on the balance sheet if you will..

Okay, I understand that. Now that how long do these tails last? I know you're starting 2004 to 2016 and then we had 2018.

Like when does that 2004 number became 2005, and then 2005 becomes…?.

These tales can go on forever, but the majority of them are workers' comp claims, a good portion or working comp claims that once they hit the majority. And that can be over a lifetime. I mean if a poor fellow gets hurt, when he's 25 years old then he lives to 80 at a pretty long tail..

Right, okay.

And then just one more question, now that we're a corporation, I know it's on the thank you, but still talking about the partners and units and does that ever become stockholders equity and stockholders instead of partners and…?.

Well we still are a Delaware based partnership legally. We just have elected to file the partnership if you will in with our C corp and to be taxed as C corporation, isn't that kind of the correct way to say that..

Okay..

We still have the high splits. We still have the distribution and the set of distribution rights, and we still have a general partner..

Okay..

But going forward, instead of getting a K1 that you have to process for fiscal 2018, you're going to get a 10.99..

Right. Okay, thank you very much..

Okay. End of Q&A.

There appear to be no further questions in the queue. So I would like to turn the conference back over to Mr. Goldman for any closing remarks..

Gary, thank you for taking on all of that joined us today. Thank you and for your growing interest in Star Group, we look forward to sharing a second quarter 2018 results with you in May..

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