Good morning and welcome to the Star Group Fiscal 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 Adviser. Please go ahead..

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 forward-looking statements other than statements of historical facts 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?.

Good morning, everyone and thank you for joining us to discuss our fiscal third quarter results. As was the case last quarter, Star continued to be challenged by higher petroleum costs and related expenses this period, exemplified by product costs that were nearly double those of 2021.

The wholesale cost of home heating oil in the New York Mercantile Exchange varied from $3.27 per gallon to a historic high of $5.14 per gallon during the quarter. This increase led to higher operating expenses in areas such as bad debt reserves, bank charges and vehicle fuels.

Such elevated product costs as well as volatility also impacted net customer attrition, which was higher than the prior year period due to an increase in lost accounts related to price, credit and fuel conversions.

On a fiscal year-to-date basis, however, our net attrition remains in line with 2021, and we continue to be vigilant in our efforts to improve the customer experience and demonstrate our value proposition at every point of contact.

As a reminder, we have experienced high energy price environments in the past and I am confident of the steps being taken to mitigate such conditions and build a stronger company in tandem.

We’re focused on operating efficiency, controlling SG&A expenses and actively managing pricing and margins while remaining dedicated to providing the utmost in customer service.

In addition, after the quarter, we extended our credit facility through 2027, expanding our ability to borrow up to $550 million for seasonal working capital requirements, and increased the company’s term loan to $165 million. As such, we believe Star is well prepared and positioned for the upcoming heating season and beyond.

I am also pleased to report that we acquired 1 heating oil dealer during the period located within our existing operating footprint, which added approximately 3.8 million gallons annually to our portfolio. With that, I will turn the call over to Rich to provide additional comments on the quarter.

Rich?.

Thanks Jeff and good morning everyone. For the fiscal 2022 third quarter, our home heating oil and propane volume increased by 3 million gallons or 7% to 41 million gallons as the additional volume provided from acquisitions and other factors were more than offset by the – more than offset the impact of net customer attrition.

Temperatures for the quarter were similar to last year, but still about 8% warmer than normal. Our gross profit increased by $8 million or 14% to $67 million due largely due to higher home heating oil and propane volume as well as higher per gallon margins across all liquid products sold.

Delivery, branch and G&A expense increased by $9 million or 11% to $90 million, reflecting additional costs from acquisitions of $1 million, an increase in credit card fees, vehicle fuels and reserves for doubtful accounts totaling an aggregate $5 million, and a $3 million or 4% increase in other areas in the base business.

Higher petroleum product costs did drive the $5 million increase in the AR reserve, credit card fees and vehicle fuels. Our net loss did decrease by $1.5 million to $10.6 million as a favorable non-cash change in the fair value of derivative instruments of $3 million was more than offset by an increase in adjusted EBITDA loss of $1.2 million.

The adjusted EBITDA loss rose by $1.2 million to a loss of $11 million as an increase in operating expenses more than offset the impact from higher home heating oil and propane volume and the increase in per gallon margins.

For the first 9 months of fiscal 2022, our home heating oil and propane volume decreased by 8 million gallons or 3% to 277 million gallons at slightly warmer temperatures. Net customer attrition and other factors more than offset the impact from acquisitions.

Temperatures were about 0.5% warmer than last fiscal year again, but still 9% warmer than normal. Our product gross profit increased by $11 million or 3% as an increase in per gallon margins, again, more than offset the decline in home heating oil and propane volume.

Operating expenses did rise by $24 million, reflecting a $2 million lower benefit from our weather hedge program, additional costs from acquisitions of $4 million and an $18 million or 7% increase in expenses within the base business.

Higher petroleum costs drove an increase again in credit card fees, the reserve for doubtful accounts and higher vehicle fuels totaling $9 million. Medical and other insurance-related expenses accounted for an increase of $5 million. And other areas in the base business increased by just $3 million or 1%.

Net income did decrease by $26 million to $85 million as an unfavorable non-cash change in the fair value of derivative instruments of $18 million and a decrease in adjusted EBITDA of $14 million was reduced by lower income tax expense of $8 million.

Year-to-date adjusted EBITDA decreased by $14 million to $141 million as a decline in home heating oil and propane volume and an increase in operating expenses did more than offset the impact from higher per gallon margins. And with that, I will turn the conversation over back to Jeff..

Thanks, Rich. At this time, we are pleased to address any questions you may have. Debbie, please open the phone lines for questions..

[Operator Instructions] The first question comes from Michael Prouting with 10K Capital. Please go ahead..

Yes, good morning guys..

Good morning..

Good morning, Mike..

Hey, just two quick questions on capital allocation. First, congrats on the acquisition I was just wondering if you can update us on the acquisition pipeline? And then the other question is on your unit repurchase and I guess two parts.

One is it looks like you are trying to get pretty low on the authorization and just wondering what your plans are for increasing that. And then secondly, I also noticed that you repurchased fewer units in the quarter despite the lower unit price and just wanted to better understand that dynamic? Thanks..

Sure. I’ll tackle the acquisition question. I would just generally say, Michael, that the activity level was somewhat soft in the second quarter – first and second quarter as we would kind of assume in season. As we progress through the third quarter, we certainly saw an increase in activity, particularly over the last 30 to 60 days.

And there is nothing really transformational in size that we are evaluating, but we have got a number of potentially attractive tuck-in prospects that are in various stages of evaluation. So I am generally encouraged..

And with regard to the unit repurchase plan, we will evaluate that between now and the end of the month or first week in September because that’s the open window when we can actually make changes to the plan. So, we will be taking a look at that and I can’t tell you which way that’s going to go as of yet.

But in past, we have always increased the number of units available to repurchase when we start to dwindle down. With regard to the number of units that we’re buying, again, we don’t really control that. It’s not price dictated, to a certain extent. I mean, we have a maximum price that’s in our agreement.

But based on the number of shares that are available and the calculation that we can buy back, we are not really controlling that, hey, we are down $3. So today, we want to load off. We have no control on it. It’s kind of automatic pilot. And let’s not forget as well is that we have taken off half the shares.

We had about 76 million units outstanding, and now we got roughly 36 million units outstanding. So the pie available to be sold is much less..

Totally understood.

So just on that last point, I am wondering – so given that the repurchases have slowed down and I assume that probably at least in your trading volume, does that indicate a need to make adjustments to that formula of what you were alluding to in your earlier comments?.

No, because it’s an SEC-derived formula. We can’t – whatever the formula is, we can’t say it’s 200x or 300x that formula. It is what it is. And we have no – we can’t control it. The only thing we can control is the maximum price..

Okay, understood. Thanks..

You are welcome..

[Operator Instructions] The next question is from Bruce Stone with Stone Investment Management..

Hi, good morning..

Good morning..

I have a question about the credit card fees.

Are you charging like a 2% or 3% credit card fee or giving people an incentive to go direct charge, that type of thing to help mitigate the expense?.

Yes, we do try to lead people to the direct debit if it’s possible. And to the extent that we can discourage credit card fees, we do. We have not kind of charged customers, if you will, whatever the interchange rate that we are paying. We are looking at it, but we don’t want to turn customers off as much as we possibly can..

Right. But most businesses have switched to that model and it’s quite reasonable. And given the sensitivity of your results to this essentially inflated cost of your product, I don’t think people would have hit that.

Is that going to cause people to switch over to natural gas or to solar, a 3% credit card fee?.

No, it might not have them switch over to natural gas or credit card – or solar, but they might go to another heating oil dealer..

I see. Okay. Maybe it could be tested in one region and see if what the results are..

Right..

We are discussing it..

Okay, thank you..

[Operator Instructions] At this time, there appears to be no further questions in the queue. So I will turn it back to Mr. Woosnam for any closing comments..

Well, thank you for taking the time to join us today and your ongoing interest in the Star Group. We look forward to sharing our 2022 fiscal fourth quarter results in December. Thanks everyone..

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