Good morning. And welcome to the Star Group Fiscal 2020 Third Quarter Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Chris Witty, 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 that 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 the company's quarterly report on Form 10-Q for the quarter ended June 30, 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 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?.

Thanks, Chris, and good morning, everyone. As we continue to manage through the ongoing COVID-19 pandemic and associated economic downturn, I'm pleased to report that Star's fiscal third quarter result was one of strong performance, most notably the significant increase achieved year-over-year in the company's adjusted EBITDA. .

Benefiting from cooler-than-normal spring temperatures, our heating oil and propane volumes rose nearly 40%, margins were stable, and operating expenses declined by over $10 million in the base business. We also experienced lower net customer attrition for the quarter, which was 1.2% versus 1.9% for the same period last year. .

On a fiscal year-to-date basis, we are very encouraged by the year-over-year increase in adjusted EBITDA of $33 million, which includes $9 million from acquisitions along with a $24 million improvement in the base business, reflecting the many steps taken to reduce expenses and increase operating efficiency this year. .

We also had 7,300 or 41% fewer net customer losses versus the same 9-month period a year ago. I firmly believe this is a direct reflection of our strategy to focus on the execution of our core business and continued emphasis on improving the customer experience as well as Star's overall competitive position.

After the end of the quarter, we closed on 1 small acquisition in early July which we anticipate will add 2.2 million gallons of heating oil deliveries annually. We are currently evaluating several other attractive opportunities.

As mentioned last quarter, since the beginning of the pandemic, we've implemented a number of measures designed to protect both our employees and our customers, and have adjusted these when necessary as states have added new requirements or conversely, relaxed regulations. .

I remain extremely pleased with the way our employees have adapted and responded to these changes. And it's because of their dedication and professionalism we've been successful in continuing to improve both our service levels and operating efficiency, despite a difficult and unique set of circumstances. .

Overall, I'm very proud of the results during this challenging time, which says as much about Star's high-caliber team of employees as it does the enduring demand for the products and services we provide. .

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 fiscal 2020 third quarter, our home heating oil and propane volume increased by 14 million gallons or 39% to 51 million gallons, as the impact of colder temperatures and the additional volume provided from acquisitions more than offset net customer attrition and other factors. .

Temperatures for the quarter were 46% colder than last year and 18% colder than normal. The volume of other petroleum products sold decreased by 8 million gallons or 19% to 34 million gallons, as additional volume provided by acquisitions of 2 million gallons was more than offset by a decline in motor fuel sales, largely due to COVID-19. .

Our product gross profit increased by $16 million or 29%, due to the higher home heating oil and propane volumes sold. Delivery and branch decreased by $10 million as the additional costs from acquisitions of $2 million were more than offset by a $12 million or 14% decrease in expenses within the base business. .

The cost decline in the base business was attributable to $2 million of lower bad debt and credit card processing fees, lower insurance expense of approximately $5 million, lower medical costs of $2 million and other reductions in operating expenses totaling $3 million or 3.5%, as we continue to improve Star's operating efficiency. .

General and administrative expenses did rise by $1.5 million due to an increase in profit sharing expense. Our net loss decreased by $23 million due to an increase in adjusted EBITDA of $26 million and a noncash favorable change in the fair value of derivative instruments of $5 million, partially offset by a decrease in our income tax benefit. .

Adjusted EBITDA increased by $26 million to $6 million and was positive.

Acquisitions provided $1 million of adjusted EBITDA, while adjusted EBITDA in the base business increased by $25 million due to the impact of, one, the impact of higher home heating oil and propane volumes sold; two, lower operating expenses in the base business of $10 million; and lastly, an improvement in our net service and installation profitability of $1 million.

For the first 9 months of fiscal 2020, our home heating oil and propane volume decreased by 29 million gallons or 9% to 295 million gallons, as the additional volume provided by acquisitions was more than offset by warmer temperatures, net customer attrition and other factors. .

Temperatures for the first 9 months of fiscal 2020 were 6% warmer than last year and 10% warmer than normal.

The volume of other petroleum products sold did decrease by 11 million gallons or 9%, as the additional volume provided by acquisitions of 9 million gallons was more than offset by lower wholesale demand due to the warmer temperatures and a decline in motor fuel sales, again due in part to the impact of COVID-19. .

Our product gross profit decreased by $17 million or 4% as the decline in home heating oil and propane volumes more than offset an increase in per gallon margins.

Delivery and branch expense declined by $41 million as the additional costs from acquisitions of $9 million was more than offset by a $51 million or 17% decrease in expenses within the base business. .

The decline in the base business was attributable to a $10 million or 11% reduction in direct delivery costs due to the lower volumes, a $4 million decrease in our concierge program, which we've greatly reduced, $4 million of lower bad debt and credit card processing fees, lower insurance expense and insurance claims of $6 million, lower medical costs of $3 million and other reductions in operating costs totaling $11 million or 3.6%.

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Operating expenses were also reduced by $12 million due to the impact of our weather hedging program. In fiscal 2019, [ we ] recorded a charge of $2 million versus a benefit of $10 million in fiscal 2020, reflecting this year's warmer winter temperatures during the hedge period. .

General and administrative expenses decreased by $4 million, primarily due to lower legal and professional expenses of $4 million.

Net income increased $35 million or 67% to $86 million, due to a $33 million increase in adjusted EBITDA and a noncash favorable change in the fair value of derivative instruments of $17 million, partially offset by a $14 million increase in income tax expense. Year-to-date adjusted EBITDA increased by $33 million to $158 million.

Acquisitions provided $9 million of adjusted EBITDA, while adjusted EBITDA in the base business increased by $24 million. .

In the base business, the impact of lower home heating oil and propane volumes sold was more than offset by higher per-gallon home heating oil and propane margins, lower operating expenses in the base business of $55 million, a favorable change in the amount due under the company's weather hedging program of $12 million, and an improvement in net service and installation profitability of $4 million.

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With regard to our weather hedge program, warmer temperatures during fiscal 2020 during the winter weather hedge period resulted in us collecting $10 million. By contrast, the third quarter of fiscal 2020 was colder than normal and resulted in us selling more volume than anticipated. .

If the additional degree days in the third quarter had occurred in the period covered by the weather hedge, which is from November through March, the payout under our weather hedge program would have been less than $2 million. And with that, I would like to turn the call back over to Jeff. .

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

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

[Operator Instructions] The first question comes from Michael Prouting of 10K Capital. .

Terrific quarter all around. I just had 3 quick questions. Firstly, on the cost side, I'm wondering if there's additional cost-saving opportunities. Secondly, as far as customer churn goes, Jeff, I'm wondering what your outlook there is and whether the improvements can continue. .

And then finally, on the acquisition front, it has been a while since you've made any sizable acquisitions. And I'm just wondering what the pipeline looks like and what your expectations there might be going forward. .

You bet, Michael. From an operating expense standpoint, I think that we're very pleased with the progress we've made to date. Rich, I think in his remarks, outlined some of the benefit that we received from things like lower product costs and more mild temperatures kind of in the core of our heating season, namely in January and February.

We benefited from that, and then also got the benefit of a cooler spring, which helped us. But as we move forward, I really do believe that we've got -- we've -- continue to have an opportunity to become more efficient as a business just to reevaluate -- continue to reevaluate how we're doing things, the effectiveness of that.

I'll use delivery as an example of the fact that we place a tremendous amount of emphasis on improving delivery productivity, our efficiency, on-road performance, routing and all those things that are just really kind of fundamental to our business and executing better in those areas. So I think there's opportunity as we move forward. .

The second question, Michael, I'm sorry, could you say that again, repeat that?.

Yes, sure. The second question was on customer churn. And it's very, very encouraging to see the progress you're making there.

I just wanted to touch base with you in terms of -- do you think -- are there additional opportunities there? Do you see the improvements continuing? Just what's your general outlook as far as churn is concerned?.

We're hopeful, hopeful. We believe we're doing a lot of the right things.

And as I've mentioned on this call in the past, that a large part of our strategy is to really look at the business, to rightsize the business, reduce some of the overhead expense that we've had, reinvest that back into areas that improve the customer experience and really our competitive position in the marketplace, and we're beginning to see that pay off.

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So the benefit of that is certainly lower customer losses and reduced overall churn in the business. And I'm hopeful that will continue. I think we can continue to improve as a business. And as we do that, I hope the results follow. .

Okay. Good. And then on my -- okay, go ahead. .

Yes. On the acquisition front, as I mentioned in my comments, we closed on 1 small acquisition in July, in early July. We've got several other opportunities that we're looking, evaluating the pipeline, that look encouraging.

I don't think it's a secret that the pandemic and the timing of the pandemic affected some of the activity level, in that the spring and summer tend to be a period of time in which business owners start to evaluate their options and consider sales of their business. .

But I look at that -- so we've had a bit of a slowdown there. But I look at that more of probably a postponement than anything else. .

And so I'm hopeful and confident that as things begin to normalize, whatever the new normal is going to be, that we'll see an increase in activity. .

Okay. Great. Again, terrific quarter. In particular, as we talked before, it's just really encouraging to see the improvement in customer churn, because obviously, there's nothing that adds value to the net worth of the company like reducing customer churn. So keep up the good work and congratulations. .

Thank you. .

The next question comes from Tim Mullen of Laurelton Management. .

Congratulations on a great quarter. I just want to touch base -- touch on the buybacks. It looks like the pace has kind of picked up year-to-date and kind of continued through July.

Just curious if there's any commentary or background anecdotally you could provide, in terms of your thinking on the buyback?.

Sure. The buyback is governed by the amount of units that are traded in a lookback period, and we can buy x percentage of those. So it's really a function of -- what has happened over the last 60 days. It's not like we decided to triple our unit repurchases or cut back on our unit repurchases. We're buying back. And it's on automatic pilot.

We're buying back the number of units that we're allowed to buy back each and every day. It's not like we've increased our interest or decreased our interest. We're buying back under the safe harbor SEC rules. .

Okay.

And any changes to the plan going forward? Do you have a sense for timing when that would occur?.

No. We've always -- when we kind of run out of units, we take a look at it and evaluate it. And if we want to continue to repurchase units, we will amend the plan to give us more firepower. And we've historically -- have done that. .

[Operator Instructions] Seeing that there are no further questions, I would like to turn the conference back over to Mr. Woosnam for 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 fourth quarter results with you in December. Thanks, everyone. .

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