Star Group, L.P. (NYSE:SGU) Q3 2025 Earnings Call Transcript

Star Group, L.P. (NYSE:SGU) Q3 2025 Earnings Call Transcript August 8, 2025

Operator: Good day, and welcome to the Star Group Fiscal 2025 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, the Investor Relations Adviser. Please go ahead.

Chris Witty:

Investor Relations Contact: 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, 2024, 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?

Q&A Session

Jeffrey M. Woosnam: Thanks, Chris, and good morning, everyone. Thank you for joining us to discuss our third quarter and fiscal year-to-date results. While outside of our core heating season, the third quarter was still negatively impacted by lower volume due to slightly warmer temperatures than last year, along with net customer attrition and other factors. That said, we were pleased with our continued improvement in service and installation performance, and adjusted EBITDA from recent acquisitions positively contributed to the quarter as well as the year-to-date period. We believe we are on track for strong financial performance in fiscal 2025. As I’ve shared on previous calls, we are dedicated to providing our customers with superior service to improve retention and drive additional revenues.

Consistent with that objective, we continue to look at ways to sell more value-added products and services to our existing customers while also expanding our HVAC offerings in select markets beyond our traditional heating oil and propane account base to gain access to a larger audience. To support this initiative, we have made an investment in additional training for our sales and technical teams. Fundamentally, Star is a service provider so any effort to improve what truly differentiates us from our competition is a sound investment. We are pleased with the way our team has responded to become engaged in what we are trying to accomplish. And although there is still much work to be done, I’m encouraged with our progress to date. As we pursue a strategy that includes growing our heating oil and propane customer base through acquisitions while at the same time improving service and installation profitability, we believe we are positioning Star as a fully diversified energy provider that over time will be more resilient and adaptable to varied weather conditions.

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

Richard F. Ambury: Thanks, Jeff, and good morning, everyone. For the third quarter, our home heating oil and propane volume decreased by 1.5 million gallons or 3.8% to 36 million gallons as the additional volume provided from acquisitions was more than offset by warmer weather, net customer attrition and other factors. In terms of weather conditions, temperatures for the fiscal 2025 third quarter were 2% warmer than last year and almost 20% warmer than normal during this non-heating season period. Our product gross profit decreased by $3 million or 4% to $72 million due to both a lower home heating oil and propane volumes sold as well as lower per gallon margins driven in part by the mix of volume associated with recent acquisitions.

We realized a combined gross profit from service and installation of $14 million or $600,000 higher than the prior year’s comparable quarter as we continued to focus on improving service and controlling expenses. Delivery, branch and G&A expenses increased by $4.3 million year-over-year, reflecting additional operating costs associated with acquisitions of $5.8 million, partially offset by lower costs in the base business of $1.5 million or approximately 1.6%. Depreciation and amortization rose by $2 million, and net interest expense increased by about $1 million year-over-year. These changes were largely due to the impact of recent acquisitions. We posted a net loss of $16.6 million in the third quarter of fiscal 2025 or $5.6 million more than the prior year period, reflecting a $6.5 million increase in our adjusted EBITDA loss, higher depreciation and amortization expense of $2 million and higher acquisition- related financing costs of $1 million, partially offset by a $2.3 million greater income tax benefit and a noncash favorable change in the fair value of derivative instruments of $1.6 million.

The adjusted EBITDA loss increased by $6.5 million to $10.6 million as the additional positive adjusted EBITDA from acquisitions and lower operating costs in the base business was more than offset by lower home heating oil and propane volumes in the base business and slightly lower per gallon home heating oil and propane per gallon margins. The positive adjusted EBITDA realized from acquisitions during this historical loss quarter was due in part to our recent propane acquisitions. Now turning to the results for the first 9 months of fiscal 2025. Our home heating oil and propane volume increased by 28 million gallons or 12% to 263 million gallons, reflecting colder temperatures and the additional volume provided from acquisitions more than offsetting net customer attrition and other factors.

Temperatures in our geographic areas of operation fiscal year-to-date were 8% colder than the prior year period, but still 8% warmer than normal. Our product gross profit rose by $55 million or 13% to $480 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 a slight increase in gross profit from other petroleum products. As previously mentioned on prior calls, we’ve successfully improved our service and installation business, which contributed to an increase in gross profit of $4.8 million year-to-date with $2.7 million attributable to acquisitions and $2.1 million due to initiatives in the base business. Delivery, branch and G&A expenses rose by $31.5 million year-over-year, of which $10.6 million was attributable to our weather hedging program.

As a reminder, in fiscal 2025, we recorded an expense of $3.1 million under our weather hedge compared to a benefit of $7.5 million recorded in fiscal 2024, reflecting weather conditions in both periods. Aside from this, recent acquisitions accounted for an increase in expenses of $18.7 million year-over-year while expenses in the base business rose by just $2.2 million or 0.7%. Depreciation and amortization rose by $2.6 million, and net interest expense increased by $1.4 million. These changes were largely attributable to the impact of recent acquisitions. We posted net income of $102 million year-to-date or $32 million more than the prior year period, largely due to an increase in offsetting higher income tax expense of $12 million and other factors.

Adjusted EBITDA rose by $28 million to $170 million, primarily due to a $21 million increase in adjusted EBITDA in the base business and a $17 million increase in adjusted EBITDA from acquisitions, partially offsetting a $10.6 million increase in expense relating to the company’s weather hedge contracts, which apply to both the base business and the recent acquisitions, as I just previously discussed. And with that, I’d like to turn the call back to Jeff.

Jeffrey M. Woosnam: Thanks, Rich. This time, we’re pleased to address any questions you may have. Chad, please open the phone lines for questions.

Operator: [Operator Instructions] And our question is from Michael Prouting from 10K Capital.

Michael Prouting: Just a couple of questions. Firstly, Jeff, I was wondering if you could update us on the acquisition pipeline. And then secondly, I just thought I’d have to ask the question, but curious as to whether you see any applications for AI in the business. It seems like the obvious would be customer service, but just kind of curious to get your feedback on that.

Jeffrey M. Woosnam: You bet, Michael. So in terms of acquisitions, obviously, we’ve closed on 4 transactions so far this fiscal year. Our last one in April. The team remains very busy with opportunities. You never know how that’s going to end up coming out, but we’re extremely pleased with what we’ve had in our pipeline, what we’ve been able to close, particularly over the last 14 months, some sizable deals. And again, we just continue to push forward and there’s plenty of activity in the marketplace right now. And in terms of AI, yes, we have certainly instituted some of that technology into our customer interface. The one thing we always want to keep in mind is we want to remember that we’re a service business first and to the degree that AI can assist with that and allow us to serve our customers in a way that they prefer.

But we always like and prefer that personal touch and allowing them to be able to talk to an employee that can provide them appropriate assistance and a comfort level that we’re going to react and respond as they need us to. So we always have to kind of strike that balance, but there’s certainly opportunity there for us in the future.

Michael Prouting: Okay. Yes. And I definitely hear what you’re saying as far as the human touch.

Operator: [Operator Instructions] And at this time, there appears to be no further questions. So I’d like to return the conference to Mr. Woosnam for any closing remarks.

Jeffrey M. Woosnam: Well, thank you for taking the time to join us today and for your ongoing interest in Star Group. We look forward to sharing our 2025 fiscal fourth quarter results in December. Thanks, everyone.

Operator: And thank you, sir. The conference has now concluded. Thank you for joining today’s presentation. You may now disconnect.