Star Group, L.P. Common Units Representing Limited Partner Interest 2026 Q3 Earnings Call

Please go ahead. 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 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 30th, 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'd now like to turn the call over to Jeff Woosnam.

Jeff? 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 and 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 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'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 believe Star remains in great shape and on track for strong financial performance in fiscal 2026. With that, I'll turn the call over 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, 6% warmer than normal. 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 a 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 2026, 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 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 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 cost I just mentioned and lower home heating oil and propane volume sold.

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% 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 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 $3.1 million recorded in fiscal 2025, reflecting weather conditions in both periods.