Good day, and welcome to the Star Group Fiscal 2021 Second Quarter Results. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded.

I would now like to turn the conference over to Chris Witty, Investor Relations Moderator. Please go ahead, sir..

Thank you, and good morning. With me on the call today are Jeff Woosnam, President and CEO; and Rich Ambury, CFO. 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. Although the company believes that the expectations reflected in such forward-looking statements are reasonable – 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, 2020, and the company’s other filings with the SEC.

All subsequent written and oral forward-looking statements attributed 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 day, everyone. Thank you for joining us to discuss our quarterly results. I’m pleased to report that while temperatures in the second quarter were 9% warmer than normal, they were 16% colder than the same period last year, which drove improved operating performance across the business.

Home heating oil and propane volumes rose as did adjusted EBITDA, which increased by $12.9 million to $119.7 million. The increased activity levels certainly tested the hybrid remote working platform that we’ve been operating in since last March.

But as expected, our employees were more than up to the task and responded by demonstrating their ongoing commitment to providing the best customer experience possible. As a result, we have continued to see steady improvement in our internal customer satisfaction indicators.

While the pandemic ran its course, we remained keenly focused on customer service, employee safety, and operating fundamentals. Two areas previously impacted by the pandemic, namely equipment installations and service revenues, have normalized and performed quite well during the quarter.

Our motor fuels business also improved, but volumes are still down from pre-pandemic levels. During the quarter, Star purchased two small heating all dealers and in April acquired another, adding approximately 6 million gallons in aggregate of additional volume to our operations.

With these acquisitions, we have now closed on five transactions since the beginning of the fiscal year, equating to some 13 million gallons in product annually. Our acquisition program remains an important part of our growth plan and these recent purchases are already proving to be great additions to the organization.

I remain confident that the overall strategy we’ve been executing has Star well-positioned and prepared for whatever challenges and opportunities lie ahead. With that, I’ll turn the call over to Rich to provide additional comments on the quarter’s results.

Rich?.

Thanks, Jeff, and good afternoon, everyone. For the quarter, our home heating oil and propane volume increased by 21 million gallons or 16% to 158 million gallons as the additional volume provided from colder temperatures, acquisitions, and other factors more than offset net customer attrition.

Temperatures for the fiscal 2021 second quarter were 16% colder last year, but still 9% warmer than normal. Our product gross profit increased by $30 million or 15% to $226 million, largely due to higher volume of home heating oil and propane sold.

Our delivery and branch expenses increased by $15.4 million year-over-year of which $13.6 million was attributable to our weather hedging program. In the second quarter of fiscal 2021, we recorded a slight charge of $0.5 million compared to a benefit of $13.1 million recorded in the second quarter of fiscal 2020, reflecting warmer weather that year.

Other delivering and branch expenses rose just $1.8 million or 2%, which compares quite favorably to the 16% increase in home heating oil and propane volume sold.

We posted net income of $85 million or $27 million higher than the prior year period, reflecting a non-cash favorable change in the fair value of derivative instruments of $20 million and a $13 million increase in adjusted EBITDA, partially offset by higher income tax expense of approximately $9 million.

Adjusted EBITDA rose by $13 million or 12% to approximately $120 million. The impact of higher home heating oil and propane volume of 16% more than offset the $13.6 million decline in the weather hedge benefit and an increase in total operating expenses of just $3 million or 3%. Turning to the results for the first half of fiscal 2021.

Our home heating oil and propane volume increased by 4 million gallons or 1.5% to 147 million gallons as the additional volume provided from acquisitions, slightly colder temperatures, and other factors more than offset net customer attrition. Temperatures for the first half of fiscal 2021 were 3% colder than last year.

But again, still 11% warmer than normal. Our product gross profit increased by $13 million or 4% to $354 million as an increase in home heating oil and propane volume and higher home heating oil and propane per gallon margins more than offset a decline in gross profit from other petroleum products.

Delivery and branch expenses were virtually unchanged year-to-date as an unfavorable change in the weather hedge benefit of $6.7 million was offset by a reduction in operating costs of $6.7 million.

We posted net income of $123 million for the first half of fiscal 2021 or $37 million higher than the prior year period, again, due to a non-cash favorable change in the fair market of derivative instruments of $31 million and an increase in adjusted EBITDA of $13 million, partially offset by an increase in income tax expense of $10.5 million.

Adjusted EBITDA increased by $13 million or 9% to $165 million. The impact of slightly higher home heating oil and propane volume, higher home heating oil and propane margins, and total lower operating expenses of $6.7 million, more than offset a $6.7 million decline in the company’s weather hedge benefit.

And now I’d like to turn the call back over to Jeff..

Thanks, Rich. At this time we’re pleased to address any questions you may have. Cole, please open the phone lines to questions..

Certainly. We’ll now begin the question-and-answer session. [Operator Instructions] And our first question today will come from Michael Prouting with 10K Capital. Please go ahead..

Hey guys, good morning, and congratulations on another great quarter. So I have three questions this morning. First one is for Rich. Rich, you guys had some impressive cost savings in the delivery expenses, including both the reduction in bad debt and also insurance expense.

And I just wanted to get a little bit more color on those, given that it seems just about everyone else these days is talking about increases in expenses. And then secondly, Jeff, this is probably for you, just wanted to touch again on the churn issue.

As we’ve talked about before, just very tiny changes in churn can have dramatic valuation implications and it’s starting to look as though the trends are moving in the right direction there. So just wanted to get your thoughts on that in terms of progress and sustainability.

And then final question for anyone that wants to take it, is on capital allocation, specifically, the share repurchase. And I just wanted to make the observation that obviously with the share base contracting, the free cash flow per share is going to increase in proportion.

And I think that means hopefully both the stock price is going to continue to go up, which also implies that I think there needs to be a willingness on the part of the company to modify the buyback formula to at least on a reasonable basis rather than going out and doing a massive buyback tomorrow, for example.

But on a, as always, measured basis to continue to increase the price at which you’re willing to repurchase stock. So I wanted to get input on all those three issues. Thanks..

Sure. I can take a couple of those. With regard to bad debt expense, to a certain extent it is the function of where heating oil prices are. Our bad debts historically have run history three-tenth of 1% of sales, or 35 basis points as a percentage of sales on an annual basis. And we’ll have to see how that all plays out at the end of September.

But product costs are down generally speaking, so we did pick up – we had some lower bad debt expense this year versus last year. Having said that, our receivables are in fairly decent shape and they have continued to improve. We’ll have to see how the economy plays out and where this will go.

Next year or going forward, those heating oil prices or the cost of what we pay is up significantly versus this time last year by $0.75 to $1 per gallon. So we’ll have to watch that, but we appreciate you seeing that we are doing better. Insurance expense, it’s a function of our claims.

And we’ve done a great job of managing the claims as well as trying to prevent accidents, whether it’s a workers’ comp, automobile, or some kind of general liability issue that we’ve had, and our guys are doing a great job at managing these claims, as well as making sure we don’t have any incidents.

And, knock on wood, we can keep going forward with doing better on our insurance claims. However, if you look at sort of the premiums to insure companies of our size, who have a fleet of over 2000 vehicles, not the general liability, but the excess insurance market is increasing.

And we’re seeing 10% to 15%, maybe even more percentage increases going forward. So, it’s great bad debts are down and insurance expense is down. But the prices of heating oil is going up and we do expect some premium increases for the $100 million of excess liability coverage that we have.

And I’ll take the fourth part of that question, and then I’ll turn it back over to Jeff to discuss the churn. We’re just entering into a period now where we can evaluate the price that we are going to pay for our shares.

And that’s something that we’re looking at and we’ll probably come up with something in a couple of weeks or we’ll make a decision to change the price that we’re going to be buying in these units. Yes..

I’ll just jump in quickly and say again, terrific job on the execution side. And it’s great to see that being reflected both in the improvement in bad debt and also some of the cost items.

And I think again, on the share repurchase, certainly the fact that it’s getting harder and harder to allocate capital in that direction definitely does I think, indicate an important and timely need to adjust that. So anyway, thanks for your feedback..

Okay. You’re welcome..

Yes. And Michael, with regard to customer churn, and I think I’ve mentioned this many times on these calls over the last two years, we knew as a new management team, when we got into place that we needed to put a tremendous amount of focus on improving that customer attrition, which, in my mind, were at unacceptable levels in 2019.

We’ve made very strong progress in that regard in not only reducing attrition, as you mentioned, reducing customer churn and improving overall customer retention.

And a lot of that’s come – we’ve included a higher level of customer analytics into that exercise in terms of better understanding our customers and what they expect from us and what makes them stickier.

The whole cost piece of this in removing unnecessary costs from the business, but then reinvesting that, and you’ve heard me say this many times, re-investing that into areas that really do improve the customer experience and our whole value equation as a business. And we’ve got a lot of work to do. We’re not done.

But I am very pleased with how we’ve executed all of that to date..

Yes. It’s great to hear that and forgive me for being a broken record, but until you guys figure out how to control the weather, I think if there was one metric and – this is one being a broken record, is if there was one metric, you could focus on to improve the economic value of the business, it’s customer churn.

And so I’m probably going to continue with your forbearance to ask questions about that on every single earnings call. But again, it’s great to see the progress and keep up the good work..

Thank you..

[Operator Instructions] Seeing no further questions, I’d like to turn the conference back over to Jeff 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 2021 fiscal third quarter results in August. Thanks everybody..

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