Star Group LP (SGU) 2020 Q1 法說會逐字稿

Good day. And welcome to the Star Group Fiscal 2020 First Quarter Results Conference Call and Webcast.

(Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Mr. Chris Witty, Investor Relations Adviser. 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. 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 and in the company's annual report and Form 10-K for the fiscal year ended September 30, 2019. 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.

The first quarter of fiscal 2020 brought with it some interesting weather trends, challenges and opportunities. While October was much warmer than normal, temperatures in November and December were cold enough by contrast that it necessitated a charge against our weather hedge contract. Weather for the entire quarter was warmer than fiscal 2019 due to October, which resulted in somewhat lower demand.

Against this backdrop, we continued to focus on reducing unnecessary overhead expenses, increasing operating efficiency and improving customer retention. As you may recall, we began to see evidence of these efforts taking hold at the end of fiscal 2019, and I am pleased that they are even more prominently reflected in our fourth -- first quarter 2020 results. We reduced operating expenses year-over-year by some $12.3 million in the base business, a significant accomplishment for the company. These, combined with our continued investment in improving the customer experience, are certainly encouraging steps towards our goal of strengthening Star's competitive position in the marketplace. While our net customer growth for the quarter was very similar to last year, we experienced approximately 9% fewer customer losses and, therefore, had lower churn in the business.

Overall, I'm extremely proud of the many steps we have taken over the past year to improve service and reduce costs.

We completed one small acquisition during the quarter, which brought with it roughly 1 million gallons of annualized volume, and we are currently evaluating several other potential attractive transactions.

While January ended up considerably warmer than last year and further tested our ability to control expenses, we remain prepared for normal fluctuating weather patterns as we proceed through the rest of the heating season.

With that, I'll turn the call over to Rich to provide additional comments on the quarter and full year results. Rich?

Thanks, Jeff, and good morning, everyone.

For the quarter, our home heating oil and propane volume decreased by 6 million gallons or 5% to 107 million gallons, as the additional volume provided from acquisitions was more than offset by the impact of warmer weather, net customer attrition and other factors. Temperatures for the fiscal 2020 first quarter were 2% warmer than the first quarter of fiscal 2019 and as well as 2% warmer than normal.

Our product gross profit decreased by $7.5 million or 5% to $145 million, as a 1 -- as a 0.5% increase in home heating oil and propane margins was more than offset by a decrease in home heating oil and propane volume. With regard to our per gallon margins, note that market conditions experienced in the 3 months ending December 31, 2018, created an opportunity for margin expansion and contributed to an increase in home heating oil and propane margins of $0.13 per gallon versus the prior year. Similar market conditions did not exist during the 3 months ending December 31, 2019, which tempered our per gallon margin expansion.

Delivery, branch and G&A in aggregate decreased by $7 million or 7% to $103 million compared to $111 million last year, as additional costs from acquisitions of $4 million and an increase in amount due under our weather hedge contract of $1 million was more than offset by a $12 million or 11% decrease in expense within the base [business]. The sizable reduction in costs reflected a $3 million or 9% decline in direct delivery costs due to lower volume, a $3 million decrease in expense related to our concierge-level service program and other reductions in operating expense totaling $6 million or 6% as we continued to improve the company's operating efficiency.

During the first fiscal quarter, we recorded a $6 million noncash credit relating to the change in the fair value of derivative instruments. By comparison, in the first quarter of fiscal 2019, we recorded a $31 million noncash charge, again, due to the change in market conditions. The overall year-over-year impact was a positive $37 million.

Net income did increase by $25 million to $28 million, again, largely due to the after-tax impact of the $37 million favorable change in the fair value of derivative instruments.

Adjusted EBITDA decreased by $200,000 to $45 million. While acquisitions provided $2.8 million of adjusted EBITDA, adjusted EBITDA in the base business decreased by $2.6 million, as the impact of lower volume and an increase in the amounts due under our weather hedge program of $1 million was more than offset by a slight increase in home heating oil and propane per gallon margins and the $12 million of lower operating expenses.

And with that, 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. Operator, please open the phone lines for questions.

(Operator Instructions) Our first question comes from Michael Prouting from 10K Capital.

I know this is kind of a cliché, but congratulations on a terrific quarter. The cost management was really outstanding.

Thanks.

Thanks, Michael.

Just a couple of questions this morning. One of the things I noticed is that the unit repurchase in January was a little bit lower than the unit repurchases you were making in the fourth quarter. I mean fourth calendar quarter. So I'm wondering if there's any change to the repurchase program and also where you currently stand in terms of your repurchase authorization and whether you'll be seeking increasing the authorization.

Sure. In the fourth quarter, there was a private purchase which [we quoted] and that was filed. So that was entered into the fourth quarter number. I think, once you carve that out, we're probably running the same per-day unit repurchases that we're making under the program. We will probably run out of the unit repurchase what we have left. We probably have less than 100,000 units, and we can only make a change in the open period, which would probably be coming up in a few days. And we'll have to discuss that with the Board to see what they want to do as far as repurchasing units going forward.

Okay, terrific. So in other words, there's no change in the secret formula or anything like that.

Yes, no change in the secret sauce or the formula.

Okay. Okay, great. And just 2 other quick questions, 1 on the customer attrition. This quarter, it was flat year-over-year, although the December quarter isn't a significant quarter for attrition. Just wondering what your outlook going forward there is and whether we can expect to see some improvements going forward. And then the other question I had was on the acquisition pipeline, how it's looking at this stage, if you're seeing any larger-than-normal deals. And with that, I'll pass it over to someone else.

Yes. Michael, I would say this. And we are and remain 100% focused on improving our net attrition results. There's no question about that. And it really has driven so many of the decisions that we've made as a business. Overall, our net position for the first quarter wasn't exactly what we hoped it to be. But we've been very encouraged by a reduction in customer losses, an improvement in retention of customers, a reduction in customer losses, which therefore means a reduction in churn in the business. And there's a number of leading indicators that we look at internally, customer satisfaction indexes and other things, that point to the fact that the steps that we're taking and the strategy that we're employing are the right ones and will ultimately result in a improved result overall.

Okay, terrific. And outlook on the acquisition front?

Yes. I would say that the level of activity is pretty typical for this time of year. As I mentioned in my opening comments, we've got -- we closed on one smaller transaction in the prior quarter. We've got several different opportunities in the pipeline right now that we've been working on. And at this time of year, I mean, in my experience, things can slow down a little bit from a progress standpoint just because potential sellers are busy running their business and during the heating season. But we -- again, we are evaluating several attractive transactions and hopefully can bring those to fruition.

(Operator Instructions) There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Jeffrey 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 2020 fiscal second quarter results with you in May. Thanks, everybody.

This concludes the conference. Thank you for attending today's presentation. You may now disconnect.