Good day, and welcome to the Star Group Fiscal 2020 Second Quarter Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to Chris Witty, our Investor Relations moderator. Please go ahead..

Thank you, and good morning. With me on the call today are Jeff Woosnam, 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, including those related to the impact of COVID-19 on the company.

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-K for the fiscal year ended September 30, 2019, and in the company's quarterly reports on Form 10-Q for the fiscal quarter ended March 31, 2020.

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 statement.

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?.

Thanks, Chris, and good morning, everyone. As we conclude the second quarter of fiscal 2020, Star Group, like many companies, is managing through a number of unforeseen challenges related to the current pandemic and associated economic downturn.

The outbreak of COVID-19 has clearly had an impact in the way we operate, largely from a safety and logistical standpoint, but I'm pleased to report that we still achieved solid results for the quarter.

Gross margins rose, helped by falling oil prices, operating costs were reduced by $20 million year-over-year and weather hedge worked as anticipated, all resulting in an increase in EBITDA - adjusted EBITDA of $7 million or 8% for the quarter.

Net customer attrition also declined during the quarter to 1.2% from 2.2% a year ago, evidence of our continued focus on operating fundamentals and improving the customer experience. Our overall performance was particularly encouraged given that temperatures were 18.2% warmer than in 2019.

Now a year into the appointment of our new management team, I am quite pleased with our progress and believe that the strategies we have implemented are taking a firm hold and producing measurable improvements in both our financial performance and our net customer position.

With regard to COVID-19, because Star has been classified as an essential business in every state in which we operate, we are fortunate to be less impacted than many other industries or companies. However, that does not mean that we are unaffected or that we don't have employees impacted by the pandemic.

Over the past 8 weeks, we have implemented a number of adjustments in the way we operate and measures designed to protect both our employees and our customers.

These measures include, but are not limited to, leveraging technology to allow more employees to work from home, conducting advanced telephone screens of all service and sales appointments and temporarily reducing non-emergency service visits.

We are closely monitoring all official pronouncements and executive orders concerning our status as an essential business. I couldn't be more proud and appreciative of how our employees have responded to what is certainly a very difficult and unique set of circumstances. They remained 100% focused and committed to serving our customers.

And as a result, our service levels continue to be high, as do all of our internal customer satisfaction indicators. While it's difficult to anticipate exactly what challenges or opportunities lie ahead, I am very confident that Star is well positioned to navigate through the unchartered territory in the months to come.

With that, I'll turn the call over to Rich to provide additional comments on the quarter.

Rich?.

Thanks, Jeff, and good morning, everyone. For the quarter, our home heating oil and propane volume decreased by 37 million gallons or 21% to 136 million gallons as the additional volume provided from acquisitions was more than offset by warmer temperatures, net customer attrition and other factors.

Temperatures for the fiscal 2020 second quarter were 18% warmer than last year and 21% warmer than normal. Our product gross profit decreased by $26 million or 12% to $186 million.

The lower volume of home heating oil and propane sold reduced gross profit by $45 million, but this was partially offset by an increase in home heating oil and propane margins, which favorably impacted product gross profit by $19 million.

Please note that the company utilizes weighted average costing for computing cost of goods sold, which contributed $7 million to the increase in product gross profit. It is anticipated that product gross profit will be reduced by a similar amount over future periods.

Delivery and branch expense decreased by $25 million or 23% to $86 million during the quarter as additional costs from acquisitions of $4 million were more than offset by a $29 million or 26% decrease in expenses within the base business.

The decline in the base business was attributable to a $7 million or 19% reduction in direct delivery costs due to lower volume, a $1 million decrease in expenses relating to the company's lower level of its concierge program, which we greatly curtailed last January, and other reductions in operating expenses totaling $8 million or 8% as we continue to improve Star's operating efficiency.

Operating expenses were also reduced by $13 million due to the impact of our weather hedge program. As of December 31, 2019, we expected to pay $3 million under the weather hedge program because at that time, the weather experienced during that quarter resulted in us increasing our expense for $3 million.

However, the warm weather experienced during the second quarter of fiscal '20 resulted in a reversal of the $3 million charge previously accrued as well as recording a benefit and receivable in the amount of $10 million. This $10 million was subsequently received in April 2020.

General and administrative expenses were also lower by $4 million, primarily due to a decline in legal and professional expenses of $3 million and a lack of $1.5 million charge related to the discontinued use of a tank monitoring system that occurred during the 3 months ending March 31, 2019, which did not reoccur in the second fiscal quarter of 2020.

We posted net income of $58 million in the second quarter of fiscal 2020 or $14 million lower than the prior year period as the noncash unfavorable change in the fair value of derivative instruments of $25 million was partially offset by an increase in adjusted EBITDA of $7 million. Adjusted EBITDA rose by $7.4 million or 8% to $107 million.

Acquisition provided $5 million of adjusted EBITDA, while adjusted EBITDA in the base business increased by $2.5 million as the impact from the lower volumes sold due to 18% warmer weather and net customer attrition were more than offset by higher home heating oil and per gallon margins and lower operating expenses in the base business of $20 million and a favorable change in the company's weather hedge program of $13 million and an improvement in net service and installation profitability of $3 million.

Turning to the results for the first half of fiscal 2020, our home heating oil and propane volume decreased by 43 million gallons or 15% to 243 million gallons as the additional volume provided from acquisitions were more than offset by warmer temperatures, net customer attrition and other factors.

Temperatures for the first half of fiscal 2020 were 12% warmer than last year and 14% warmer than normal. Our product gross profit decreased by $33 million or 9% to $341 million.

Lower home heating oil and propane volume reduced product gross profit by $53 million, although an increase in home heating oil and propane margins favorably impacted product gross profit by $20 million.

Delivery and branch expenses declined by $31 million or 15% to $182 million during the first half of 2020 as the additional cost from acquisitions of $8 million were more than offset by a $39 million or 18% decrease in expenses within the base business.

The decline in the base business was attributable to about $10 million or 14% reduction in direct delivery costs due to lower volume, a $3.5 million decrease in expenses related to the customers - the company's concierge level of service and other reductions in operating expenses totaling $13 million or 6% as we continue to improve Star's operating efficiency.

Operating expenses were also reduced by $12 million due to the impact of our weather hedge program. As I just discussed, we recorded a benefit of $10 million for the 6 months ended March 31, 2020, versus a charge of $2 million in the prior year period.

General and administrative expenses were also lower by $6 million, primarily due to a reduction in legal and professional expenses of $3.5 million, and again the lack of the $1.5 million charge related to the discontinued use of a tank monitoring system, and we had other savings along with that of about $1 million.

We posted net income of $86 million for the first half of fiscal 2020 or $12 million higher than the prior year period due to a noncash favorable change in the fair value of derivative instruments of $12 million and an increase in adjusted EBITDA of $8 million. Adjusted EBITDA increased by $8 million or 5% to $152 million.

Acquisitions provided $8 million of adjusted EBITDA, while adjusted EBITDA in the base business decreased ever so slightly as the impact from lower volumes sold, reflecting 12% warmer weather and net customer attrition was largely offset by higher per gallon home heating oil and propane margins, lower operating expenses in the base business of $32 million and a favorable change in the amount due to our weather hedge program of $12 million, an improvement - and an improvement in net service and installation profitability of $3 million.

And with that, I'd like to turn the call back to Jeff..

Thanks, Rich. At this time, we're pleased to address any questions you may have.

Aileen, could you please open the phone lines for questions?.

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

Congratulations, Jeff, on a terrific quarter and just really good cost management and improved customer churn. These are just terrific results. I don't have a whole lot, I guess just two questions.

One, if you or Rich could update us on the stock repurchase program in terms of how much is still available? And whether you're planning on reloading that? And the other question I had is just any updates on the acquisition front in terms of the pipeline of deals you might be looking at?.

Sure. I'll take the first part of that question. If you look in the 10-Q, you can see that we did exhaust the number of units that are available to be repurchased in the public market. And the Board is going to be discussing that, and they'll have to come to a decision on whether to proceed with the program going forward.

But nothing has been announced as of yet. And we can only make that change anyway in an open window period, and that will be within a couple of days..

And Michael, in terms of acquisitions, as you can imagine, it's been a little bit quiet over the last 6 to 8 weeks. However, we did have several opportunities in the pipeline prior to March that we continue to work through and hope to bring to conclusion. And we've actually recently been introduced to a few other opportunities in the last week or so.

So we're hopeful that there will be additional opportunities out there as we move forward..

Our next question comes from Greg Jansen, a Private Investor..

I had the same question on the acquisition candidates, and I appreciate that answer. Just one more question. Your receivables book obviously grows during the heating season.

And I'm curious if you experienced, since we are still in a heating season, any increase in slow pay or bad debt, et cetera, from your customers?.

That's a very good question. If you look at our receivables this year versus last year point-to-point at March, I believe we're down about $100 million. So we have, less to collect, if you will, at this point in time last year. March was warm, which resulted in the payoff on the weather hedge.

And no matter how you look at it, the impact of the warm weather impacted us probably by 20 million, 25 million gallons and at a $3 per gallon selling price we have less receivables of around $70 million to $75 million. But having said that, through April, we're seeing a similar decline in receivables, as we saw this April versus last April.

And I haven't seen any deterioration as of yet in the collectability of those receivables. Only time will tell as the summer progresses..

[Operator Instructions]. I'm seeing no further questions, I would like to turn the call back over to Mr. Woosnam for any closing remarks..

Well, thank you for taking the time to join us today and your ongoing interest in Star Group. We look forward to sharing our 2020 fiscal third quarter results with you in August. Thanks, everyone..

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