Star Group, L.P. (SGU) Earnings Call Transcript & Summary

Thank you. Good day and welcome to the Star Group Fiscal 2026 Third Quarter Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Chris Witte, Investor Relations Advisor. Please go ahead. Thanks, Scott.

Thank you and good morning. With me on the call today are Jeff Woosnam, President and Chief Executive Officer, and Rich Hanbury, 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. It may cause the company's actual performance to be materially different than 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, 2025, 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 now need to turn the call over to Jeff Woosna. Jeff? Thanks, Chris, and good morning, everyone. Thank you for joining us to discuss our third quarter and fiscal year-to-date results. The results this quarter in non-heating period largely reflected seasonal factors in net customer attrition, which was in line with prior year periods. While temperatures were moderately colder than last year, the volume of home heating oil and propane sold was actually lower given the more muted impact of additional degree days in the shoulder months of April and May. Operating costs were elevated in the period primarily due to higher insurance expense, which related to some adverse developments regarding certain claims. We continue to be encouraged by the ongoing improvement of our service and installation business, which delivered gross profit of $15.6 million in the quarter, or $1.4 million higher than the prior year period. Our strategy of selling more value-added products and services to our existing clients while expanding our HVAC offering in select markets beyond our traditional customer base is beginning to take shape. It's exciting to see our employees, particularly our frontline service technicians and sales teams, truly embrace and become energized by these efforts. While we did not complete any acquisitions within the quarter, we recently closed in a small heating oil dealer after the end of the period. We are actively assessing several attractive businesses and remain very well positioned to take advantage of future opportunities as they are presented. As we've done in years past, we're utilizing the summer to strengthen our operations, streamline where appropriate, and prepare for the coming winter months. At the same time, we continue to invest in our service and installation business, where we see further room for revenue growth. And BelieveStar remains in great shape and on track for strong financial performance in fiscal 2026. With that, I'll turn the call to Rich to provide additional comments on the quarter's results. Rich?.

Thanks, Jeff, and good morning, everyone. For the third quarter, our home heating oil and propane volume decreased by 3.4 million gallons, or 9.4% to 33 million gallons, as the additional volume provided from acquisitions was more than offset by net customer attrition and other factors. In terms of weather conditions, Degree days for the fiscal 2026 third quarter were 16% colder than last year, but 6% warmer than normal. But please keep in mind that the temperatures during this non-heating season period are not as impactful as during the winter season. Our product gross profit was virtually unchanged at $72 million as an increase in home heating oil and propane per gallon margins and a higher gross profit from other petroleum products was offset by the lower home heating oil and propane volume sold. As Jeff stated, we realized the combined gross profit from service and installation of $15.6 million or $1.4 million higher than the prior year's comparable period as we continue to focus on improving revenue and controlling costs. Delivery, branch, and G&A expenses increased by $8.7 million year-on-year, and year over year, primarily due to a 6.2 million of higher insurance claims reflecting an adverse development. We posted a net loss of $28 million in the third quarter of fiscal 2026, or 11.4 million more than the prior year period, reflecting a $7 million increase in the year over year in our adjusted EBITDA loss and an unfavorable non-cash change in the fair value of derivative instruments of $8.6 million, partially offset by a $3.4 million greater income tax benefit and lower depreciation and amortization expense of $900,000. The adjusted EBITDA loss increased by $7 million to $17.7 as higher per gallon home heating oil and propane margins and improvement in service and installation profitability and the additional gross profit from other petroleum products was more than offset by higher operating expenses, including the insurance costs I just mentioned and lower home heating oil and propane volume sold. Now turning to the results for the nine months of fiscal 2026, our home heating oil and propane volume increased by 8.6 million gallons or 3.3 percent to 271 million gallons, reflecting colder temperatures and the additional volume provided from acquisitions more than offsetting net customer attrition and other factors. Temperatures in STARS geographic areas operations fiscal year to date were 11.5% colder than the prior year period and 3% colder than normal. Our product gross profit increased by $48 million, or 10%, to $529 million, due to an increase in the volume of home heating oil and propane sold, higher home heating oil and propane per gallon margins, and an increase in gross profit from other petroleum products. As previously mentioned on other calls, colder weather conditions and numerous snowstorms during the first half of fiscal 2026 increased the demand for service, which led to higher service-related expenses. While installation gross profit increased by $2.5 million, service gross loss increased by 5.7 million due to the increase in demand for service and an increase in propane tank sets. Delivery, branch, and G&A expenses rose by $25 million year over year, of which $1.9 million was attributable to our weather hedging program. As I've previously mentioned, in fiscal 2026, we recorded an expense of $5 million under our weather hedge compared to an expense of recorded in fiscal 2025, reflecting weather conditions in both periods. Recent acquisitions accounted for an increase of $3.2 million to delivery branch and G&A expenses, while associated costs in the base business rose by $20 million, reflecting an increase in the cost in volume and the impact of severe weather conditions on operating expenses, including insurance claims. We posted net income of $116 million for the first nine months of fiscal 2026, or $14 million higher than the prior year period as an increase in adjusted EBITDA of $20 million $1.5 million, with somewhat offset by higher income tax expense of $7.6 million and other factors. Adjusted EBITDA rose by $20 million to $189 million due to an increase in home heating oil and propane volume sold in the base business, an increase in from acquisitions, and higher home heating oil and propane per gallon margins, which were more than offset by higher operating expenses. And with that, I'd like to turn the call back over to Jack.

Thanks, Rich. At this time, we'd be pleased to address any questions you may have. Michael, please open the phone lines for questions.

Certainly. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. any time your question has been addressed and you would like to withdraw your question, please press star then 2. This time we will pause momentarily to assemble our roster. Again, if you have a question, please press star then 1. And your first question today comes from Michael Prouting with 10K Capital. Please go ahead.

Yes, morning, guys. Jeff, by the way, congratulations on the well-deserved salary increase. Just a couple questions. One thing I'm curious about is assuming things continue as they are, uh, these, the Iran, I'm just wondering, um, how, if you see what risks you might see in terms of product availability or competitive dynamics or customer behavior in terms of the upcoming heating season.