Good day, and welcome to the Star Group Fiscal 2022 Second Quarter Results Conference Call. 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, this event is being recorded.

I would now like to turn the conference over to Alison Ziegler, Investor Relations Adviser. Please go ahead..

Thank you, and good morning. With me on the call today are Jeff Woosnam, President and 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. 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, 2021, and the company's other filings with the SEC.

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, Alison, and good morning, everyone. Thank you for joining us to discuss our second quarter and fiscal year-to-date results. The second quarter was rather challenging due to extreme volatility in the wholesale cost of home heating oil, which varied from $2.36 per gallon to as high as $4.44 per gallon during the period.

It should come as no surprise that our working capital needs increased substantially, but fortunately, we were able to access $100 million of our seasonal working capital line, bringing the total to $400 million.

However, the rapidly changing conditions impacted our ability to deliver the adjusted EBITDA results we would have otherwise expected, even as we believe we took the right steps to mitigate such headwinds as much as possible.

The sudden and significant increase in wholesale product cost drove higher operating expenses in areas such as bad debt and credit card fees, while at the same time elevating customer price sensitivity.

Heating oil and propane margins did rise by $0.032 versus the prior year, but this increase was not sufficient to offset the impact of the higher operating expenses and the shortfall in volume, which Rich will review further in a moment.

We remain as keenly focused on reducing customer attrition and churn as ever, especially as we navigate through this period of extreme price volatility. I'm pleased to report that during the quarter, Star purchased one small heating oil dealer and in April purchased another, adding approximately 5.5 million gallons in aggregate of annual volume.

Both companies are well-established full-service businesses located within our current operating footprint. We continue to evaluate additional acquisition opportunities that align with our growth strategy to strengthen and broaden our brand portfolio.

Overall, despite the unique challenges that the second quarter presented, we're certain that the steps we have taken to improve the company over the past three years, which includes removing unnecessary overhead expense, improving the customer experience and placing us in a better competitive position, have made Star a stronger and more resilient business, better prepared and able to respond to these types of conditions.

As we navigate through the remainder of fiscal 2022, I'm confident in our ability to continue to provide the best possible customer experience and improve bottom line results, even as we remain vigilant in monitoring and addressing inflationary pressures across many aspects of our business.

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

Thanks, Jeff, and good morning, everyone. For the quarter, our home heating oil and propane volume decreased by 9 million gallons or about 5.5% to 149 million gallons as the additional volume provided from somewhat colder temperatures and acquisitions was more than offset by net customer attrition and other factors.

Please note that the volume delivered during the three months ending March 31, 2022, was reduced by approximately 3.5 million gallons as certain deliveries were made in the first fiscal quarter in anticipation of another COVID wave. Temperatures for the fiscal 2022 second quarter were 3% colder than last year but still 4% warmer than normal.

Our product gross profit decreased by $6 million to $222 million as the decline in home heating oil and propane volumes sold was only partially offset by an increase in margin of $0.032 per gallon. Operating expenses did increase by $6 million, of which $600,000 was attributable to our weather hedging program.

Recent acquisitions accounted for $1.4 million in operating costs and expenses, and the base business rose by $4 million. Higher sales of over $178 million or 30%, driven by the higher cost of product, led to an increase in bad debt and credit card fees of $2.7 million.

The remaining expense variance reflects a relatively nominal $1 million or 1% increase in wages, benefits and other factors.

We posted net income of $81 million in the second quarter of fiscal 2022, or $4 million less than the prior year, reflecting a noncash favorable change in the fair value of derivative instruments and a $12 million decrease in adjusted EBITDA.

Adjusted EBITDA decreased by $12 million to $108 million as the impact of a decline in home heating oil and propane volume of 9 million gallons and higher operating expenses more than offset an increase in home heating oil and propane per gallon margins.

As I just mentioned, the volumes sold during the second quarter was lower by 3.5 million gallons, reflecting deliveries made during the first quarter in anticipation of another COVID wave and lastly temperatures were warmer than normal. Turning to the results for the first half of fiscal 2022.

Our home heating oil and propane volume decreased by 11 million gallons or 4.5% to 236 million gallons as the additional volume provided from acquisitions was reduced by slightly warmer temperatures, net customer attrition and other factors.

Temperatures for the first half of fiscal 2022 were 0.5% warmer than last year, but again, still 10% warmer than normal.

Our product gross profit increased by $3 million or 1% to $357 million as higher home heating oil and propane margins of $0.066 per gallon or 5%, and higher motor fuel gross profit, more than offset the decline in home heating oil and propane volume.

Operating expenses did increase by $15 million year-over-year, of which $2.3 million was attributable to our weather hedging program. In fiscal 2022, we recorded a benefit of $1.1 million under the weather hedge compared to a benefit of $3.4 million recorded in fiscal 2021.

Recent acquisitions accounted for an increase of $3 million in operating expenses, while base business operating cost rose by $9.5 million. Bad debt and credit card fees were higher by $3.5 million due to higher sales of 30%, and the remaining expense increase in the base business was about 3% or so.

We posted net income of $96 million for the first half of fiscal 2022 or $27 million lower than the prior period due to a noncash unfavorable change in the fair value of derivative instruments and a decrease in adjusted EBITDA.

Adjusted EBITDA decreased by $13 million to $152 million as the impact of the decline in home heating oil and propane volume of 11 million gallons and higher operating expenses more than offset an increase in home heating oil and propane per gallon margins of $0.066 or 5%.

And lastly, temperatures were still about 10% warmer than normal for the fiscal 2022 heating season. And with that, I'd like to turn it back over to Jeff..

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

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Michael Prouting with 10K Capital. Please go ahead..

Good morning guys..

Good morning..

Good morning, Mike..

Just one question really, or maybe a two-part question. I seem to recall in the 10-Q, you mentioned that you had to pay some fees or incurred some expenses in order to get expedited product delivery.

I'm just curious how much that added to costs in the quarter? And then just on your opening remarks, acknowledging the volatility in product cost during the quarter, I'm just wondering, is there anything differently that you could have done had you somehow magically forecast the kind of price volatility and other conditions that that you ultimately ended up facing this quarter? Thanks..

Yes, Mike, this is Rich. We did pay a prop premium, as did all our other competitors in the market for – at certain times when we had to buy some – make some spot purchases. And the volatility in the quarter really started in March. So it's been pretty extremely volatile even past March. And there's nothing we would have done different.

We don't have a crystal ball as to where prices are going to go, whether they're going to go up or going to go down. We have our inventory levels that's coming into the season and going out of the season. And we have the same hedging program that we've always had, but it was extremely volatile.

And you saw sometimes upward or downward movement in the market of almost $1 a gallon at times, if not more..

Okay, thanks..

[Operator Instructions] The next question comes from Tim Mullen with Laurelton Management. Please go ahead..

Thanks very much. I'm just curious if you can give a sense for when we may or may not get an update to the share repurchase program, I see there's about 1 million shares or so – or units left on the existing program. Any color on that? Thanks..

Yes. We're still running through those units. And from time to time, we'll look at it. And when we have an open window to make changes to that plan, we will take a look at that, all within the confines of our capital program, whether it's reducing some of our debt or making acquisitions or/and buying units..

And can you just remind me when that window is open again?.

It should open in four or five days after the end of – after we report. So it will be probably sometime in the middle of next week..

Great. Thank you..

You're welcome..

At this time, there are no other callers in queue. So I'll turn the call back 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 2022 fiscal third quarter results in August. Thanks, everybody..

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