Star Group, L.P. (SGU) Q3 2026 Earnings Report, Transcript and Summary

Good day. And welcome to the STAR Group fiscal 26 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 0. After today's presentation, To withdraw your question, Please note this event is being recorded. I would now like to turn the conference over to Chris Witty, Investor Relations Advisor. Please go ahead.

Thank you, and good morning. With me on the call today are Jeffrey 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 that 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, we 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 disclosed in this conference call, the company's annual report on Form 10-K for the fiscal year ended 09/30/2025, and the company's other filings with the SEC. All subsequent written and oral forward looking statements attributable to the company are 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 statement as a result of new information, future events or otherwise, after the date of this conference call. I would now like to turn the call over to Jeffrey Woosnam. Jeffrey?

Thanks, Chris, and good morning, everyone. Thank you for joining us to discuss our third quarter and fiscal year to date results. Our results this quarter, a 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 is beginning to take shape. it is 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 on 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 have done in years past, we are utilizing this 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 believe Star remains in great shape and on track for strong financial performance in fiscal 26. With that, I will turn the call over to Richard to provide additional comments on the quarter's results. Richard?

Thanks, Jeffrey, 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 26 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 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 26, or $11.4 million more than the prior year period reflecting a $7 million increase 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 $3.4 million greater income tax benefit and lower depreciation and amortization expense of $0.9 million The adjusted EBITDA loss increased by $7 million to $17.7 million 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 9 months of fiscal 26. Our home heating oil and propane volume increased by 8.6 million gallons or 3.3% 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 Star's geographic areas of operations for the 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 26, increase 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 have previously mentioned, in fiscal 26, we recorded an expense of $5 million under our weather hedge compared to an expense of $3.1 million recorded in fiscal 25 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 volume and the impact of severe weather conditions on operating expenses, including insurance claims. We posted net income of $116 million for the first 9 months of fiscal 26, or $14 million higher than the prior year period as an increase in adjusted EBITDA of $20 million was 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 volumes sold in the base business, an increase in adjusted EBITDA 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 would like to turn the call back over to Jeffrey.

Thanks, Richard. At this time, we would 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. If at any time your question has been addressed and you would like to withdraw your question. At 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.

Yeah. Good morning, guys. Just by the way, congratulations on the well deserved salary increase. Just a couple of questions. Thing I am curious about is assuming things continuously [Inaudible]. I am just wondering 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?

We do not see at this time any issues with product availability. I mean we are in the process now of securing from our wholesalers, contracts for next year. So we are well on our way for securing contracts for next year. And naturally, prices are up. So that will impact customer behavior somewhat. The question is when these customers will commit to either a ceiling or a fixed price. And you know, some of our customers are on those products, and they might just want to, you know, wait for the market to come off. But come October, folks are gonna need to sign up. If on a price protected plan, they will remain on variable.

Okay. Okay. And I guess just a quick question on the acquisition pipeline. I cannot help asking any potential for transformational acquisitions or anything any other way that you could characterize the acquisition pipeline And that is all the questions I have for this morning. Thanks.

Yeah. I would say obviously, Michael, we have done-- we have completed 2 transactions so far this year. So they are smaller deals. We are certainly continuing to work on and look at and assess several attractive businesses. I would not categorize any of those as transformational. We certainly have a full pipeline, and the team is busy. And we have not changed our approach at all. And sometimes these things kind of come in bunches, and we will just see how all that works out. Okay. Great. Thanks.

Thank you. Seeing no further questions in the queue, this concludes our question-and-answer session. I would like to turn the conference back over 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 fiscal 2026 fourth quarter results in December. Thanks, everyone.

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