Steven J. Goldman - Chief Executive Officer of Kestrel Heat LLC, President of Kestrel Heat LLC and Director of Kestrel Heat LLC Chris Witty Richard F. Ambury - Chief Financial Officer of Kestrel Heat LLC, Executive Vice President of Kestrel Heat LLC, Treasurer of Kestrel Heat LLC and Secretary of Kestrel Heat LLC

Andrew E. Gadlin - Odeon Capital Group LLC, Research Division Jake Woodson Jeff Gramm

Good day, ladies and gentlemen, and welcome to the Star Gas Fiscal 2014 First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this call may be recorded. I will now like to introduce your host for today's conference, Steve Goldman, Chief Executive Officer. You may begin. Steven J. Goldman: Good morning, and thank you for joining us today. With me today is Star's Chief Financial Officer, Rich Ambury. After some brief remarks, Rich will review our first quarter financial results. We will then take your questions. Before we begin, Chris Witty of our Investor Relations firm, Darrow Associates, will read the Safe Harbor statement. Please go ahead, Chris.

Thanks, Steve, and good morning. This conference call may include forward-looking statements that represent the partnership's expectations and beliefs concerning future events that involve risks and uncertainties and may cause the partnership'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 partnership 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 partnership's expectations are disclosed in this conference call and in the partnership's annual report and Form 10-K for the fiscal year ended September 30, 2013. All subsequent written and oral forward-looking statements attributable to the partnership or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements. Unless otherwise required by law, the partnership 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 back over to Steve Goldman. Steve? Steven J. Goldman: Thanks, Chris. I'm certainly pleased to be able to comment today on a very good quarter for Star Gas. This period saw a return to the type of winter weather we view as much more normal weather that not only allows us to produce sound financial results but also provides the opportunity to service our customers at a level which distinguishes Star in the marketplace. One validation of this performance is our continued improvement in the area of net customer attrition, actually, in this case, growth. During the quarter just ended, we actually grew our customer base by some 3,100 accounts or nearly 1%. This was our fifth consecutive quarter of lower net attrition on a year-over-year basis. We believe some of this improvement can be attributed to further growth in our other service offerings as we continue to add value to our customers. Star's management team is very energized by these results, and we're doing all we can to reimagine our brands for the many services that we now offer across our various geographic locations. Operationally, our performance was solid throughout our footprint this quarter. Even though the period began a bit warmer than normal, we stayed the course and staffed up for the predicted winter weather to come. And come, it did. Continuing into the current quarter with this return to traditionally colder weather, we have seen higher demand for oil and propane, as well as an uptick in service calls in all our operating areas. Before turning the call over to Rich, I would like to quickly comment on a few other recent activities that you are probably aware of based on our filings and press releases last month. We just extended our credit facility and raised its size, which, in turn, has given us greater flexibility for working capital needs prior to our announced acquisition of Griffith Energy, which we view as a very important transaction. I wanted to mention both of these activities because they came during a period that was already rather busy for our team given the cold weather and are the culmination of many months of very diligent work. As we have said in the past, it often takes as much time to analyze a small acquisition as it does a large one, so finding a company of this size that can have a significant impact on our operations is very rewarding. We believe Griffith is going to be an excellent fit with Star given its great people, the areas it serves and its diverse product portfolio, and it comes with a strong management team. We anticipate the acquisition closing later this month, meaning that Griffith should be partially included in the fiscal quarter's operating results. We look forward to having the organization under the Star umbrella. With that, I'll turn the call over to Rich Ambury to provide some comments on the quarter's results. Rich? Richard F. Ambury: Thanks, Steven. Good morning, everyone. For the quarter, our volume increased by 6.6 million gallons or 6.8% as the impact from acquisitions, 5.5% colder temperatures and a return to more normal consumption patterns by customers impacted by Sandy last year more than offset the impact of net customer attrition and other factors affecting volume. Our total gross profit rose by 5.7% or $5.9 million. While the increased volume and higher per gallon home heating oil and propane margins drove an improvement in gross profit, these increases were somewhat tempered by lower net service and installation profitability and lower gross profit from the sale of other petroleum products. In the prior year's comparable quarter, we sold more diesel to power generators, and our service and installation sales were also higher due to the demand for these products and services resulting from Sandy's impact in our areas of operation. Delivery and branch expenses were unchanged at $68.4 million and improved on a per-gallon basis by 3.9% as certain costs were spread over a higher volume. Star's operating income increased by $18.3 million to $36.9 million due to the $5.9 million increase in gross profit and a favorable noncash change in fair value of derivative instruments of $13.4 million. We posted net income for the quarter of $19.2 million or $9.5 million more than the prior year period. Adjusted EBITDA increased to $35.8 million, up $4.9 million, as the impact of an increase in home heating oil and propane volume and higher home heating oil and propane margins more than offset the decline in net service profitability and lower gross profit from other petroleum products. During the 3 months ended December 31, 2012, the partnership's home heating oil and propane volume was negatively impacted by Sandy, while service and installation gross profit and gross profit from sales of other petroleum products was positively impacted. Now moving over to the balance sheet. At the end of the quarter, we had cash on hand of just over $83 million, of which $70 million had been earmarked for the Griffith acquisition. In January 2014, we extended our bank facility and increased the seasonal line to $450 million to facilitate the Griffith acquisition. I'll now turn the call back over to Steve. Steven J. Goldman: Thanks, Rich. At this time, we'll be pleased to address any questions you may have. Operator, please open the phone lines for questions.

[Operator Instructions] Our first question comes from Andrew Gadlin of Odeon Capital Group. Andrew E. Gadlin - Odeon Capital Group LLC, Research Division: I wonder if you could talk a little bit on the financials for Griffith, let's say, EBITDA, acquisition multiple and any expected synergies you might get from the deal. Richard F. Ambury: Sure. We're expecting around $13 million to $14 million of EBITDA from Griffith -- or adjusted EBITDA from Griffith. So that would represent a multiple of about 5.07 or so on the $69.9 million that we are purchasing Griffith for, at least the long-term assets. We don't expect -- we have no synergies baked into our numbers for personnel reductions. All the people down there we need, but we do see, possibly, some savings in insurance, accounting, and legal and professional. Andrew E. Gadlin - Odeon Capital Group LLC, Research Division: Got it. And when you talk about the footprint being a good fit for Star Gas, in what way is it, that it goes into markets where you don't have as strong a presence currently or because it has strong overlap with your existing footprint? Steven J. Goldman: More so the first point, that there are several markets that we barely or don't serve at all. And we see those as great opportunities to extend Star Gas' reach. As you know, we have some operations in Maryland and then we -- and the most northern tip of Virginia. But then we leapfrog all the way down to North Carolina and not much in between. And this bridges a little bit of that gap, and we see that as a very positive opportunity for Star Gas. Andrew E. Gadlin - Odeon Capital Group LLC, Research Division: Does that create infill opportunities to add customers in areas where you have greater density now? Steven J. Goldman: It does. And also looking at their mix of products and some of the products that we've been working on as additional services, we see other opportunities over time to sell some of these services and broaden the Griffith offering as well. Andrew E. Gadlin - Odeon Capital Group LLC, Research Division: Okay, great. And you mentioned products. There's a new motor fuel business for you guys now. Can you talk a little bit about the business, its margins and how it fits into what you're already doing? Steven J. Goldman: It's really not new for us. It's just not a big part of what we do at this point. So this would be, by proportion, a much bigger percentage of that type of business for any one of our locations. We did experience some very positive addition of a similar-type configuration when we added the business in the Albany area. That business had some motor fuels, and there are some positive aspects in that. They contribute to support for the overall driver population, so we have a more stable population of employees. Anything that we can offer, make a profit on, that we see stability as an offering and doesn't put extra cost into our capital budget or infrastructure pressure created by extending ourself beyond our base business we see as good. Even from the extent that those businesses employ people who own homes that will need our services, again, it's an extension of another avenue to sell our businesses to them. Andrew E. Gadlin - Odeon Capital Group LLC, Research Division: Got it. Is there an idea to bring more motor fuel business into the rest of Star Gas' locations? Steven J. Goldman: There's not at this time. There's not at this time, Andrew, but what I would say is we learn -- from every acquisition, we learn different things about the acquisitions and then ourselves over time. So while we don't see that as something that we would adopt more globally, and it probably has a good fit right where it is, we wouldn't turn away other businesses that had it as a component in further acquisitions. But I don't see us as concentrating any effort to try to spread that business. Andrew E. Gadlin - Odeon Capital Group LLC, Research Division: Okay, great. How is the acquisition environment? Obviously, besides this one, there haven't been many acquisitions for a while. And we've heard talk that with the good winter, there might be some more sellers out there or the terms might be a little more reasonable. Steven J. Goldman: Honestly, what I would say about the acquisition environment is it feels exactly the same as it's felt for the last 2 years. We're always talking to lots of people about the possibilities and discussing their businesses and their personal timing, when they may do it. This has brought out a few more people to have discussions, but when they would translate into an acquisition, whether it's 6 months, 1 year, 2 years, 5 years, we really can't tell. And those, again, are small and large, and some, we've been talking to for months already. It really hasn't made any more difference except that this is the largest acquisition that we've done. And it definitely brought notice to our doing because we're not compete with it yet. It definitely has caught some people's attention that we are serious about trying to get an acquisition of this size completed. And if you look back, the last time we did something close to this size was 2010. So it's been a lot of years and not without effort or conversation about doing these type of things. They just haven't happened.

[Operator Instructions] Our next question comes from Jake Woodson of UBC PMF.

I'm just wondering, in the past, you talked about focusing on some of these acquisitions getting more in the propane segment, I believe. Is this something you're still focused on? I know Griffith has pretty negligible amount of propane. I'm just wondering if you could talk to that. Steven J. Goldman: Yes, we are still focused on that, but there are -- I don't know the exact number, maybe 10, 12 very notable businesses in our base industry, the heating oil business, that we see as the top echelon of the companies that do very similar type of business and have the same strategy we do. And Griffith was one of them that we always looked at and always wanted to add to our portfolio of businesses. We certainly have our eyes open for the future to look at propane opportunities as they come along. We're always communicating and letting owners know that we're interested. We do that through very different means, whether it's through associations or direct letters or relationship building. There's not a lot for sale all the time. There's a lot of competition in the space. And at this time, in this period, we don't know of anything that was sizable that was for sale that we thought would have been a better fit for Star Gas, and we thought this was the best addition to what we already do.

All right, great. And then can you talk to what mix of your current product sales under the heating oil segment is actually propane, as I know they are consolidated right now? Steven J. Goldman: Rich? Richard F. Ambury: Yes, it's about 5% or so -- or less than 5%. On an annual basis, it's probably more like 3% or 4%.

Okay, great. And then just one more question just on the natural gas conversions. I know they're kind of ticking up again. What are you guys seeing there? Is it still, like, economical with these higher natural gas prices? What are your guys' strategies for mitigating that on the ground with the households? Steven J. Goldman: Well, natural gas prices have ticked up quite a bit. Still nowhere near the levels where it would stifle conversion. It certainly gives us a better conversation to have with the customer to show them that natural gas prices have gone up 25% in a short period of time, and who knows where they'll go from here. And maybe making that switch at this point would not be a prudent switch to make because you can't predict where natural gas prices will go. In addition to that, we've seen, during this very cold period, natural gas companies have difficulties serving their customers and taking a lot of their large commercial businesses and telling them to switch over to diesel fuels. And we're obviously, one of the companies that can supply that. So we have the same strategy in combating conversion, educating our customers, trying to get to them before they make that decision. But customers are definitely swayed by their friends and neighbors, and the availability of the product, and some very aggressive marketing by both the natural gas companies and, in some cases, the states they live in trying to create avenues for gas conversion. It's definitely a fight we're continuing to have. I can't say that it's something different. And I'm optimistic that the strategy we have to, at least, hold our own with it is a good one. It's been -- we've been able to keep it in a percentage that's containable and gives us the opportunity, as you're seeing with the results of the attrition for the last several months, to keep adding customers when they become available in the marketplace and hold on to the customers that we see are loyal and profitable long-term customers.

[Operator Instructions] Looks like we have a question from Jeff Gramm of Bandera Partners.

I have 2 questions. The first is, like, can you talk a little bit about the positive churn? Obviously, this happened after Sandy, but beyond that, I don't even remember a time in the past that you had positive customer gains. So I mean, did anything in particular happen? Was it the extreme cold and your service, like, that drove in the customers? I'd be curious just to hear some more color. Steven J. Goldman: I think what we can see internally is a couple of things. One, it's pretty even, which we're very happy about, that the net positive result for the last quarter is no greater in one area of our footprint than another. It seems to be that our strategies, combined with the benefit of the impression we left on customers last year from Sandy, as well as our response to customers as the cold has come in, has given us the opportunity to both retain customers and attract other people, other companies' customers as they falter. We have seen companies in many of our areas of our footprint where the extra cost of heating oil product, as well as the demand for supplying the service, which is not something we talk about a lot, but obviously, to have the right staffing in this type of weather is difficult to plan for and maintain, especially in the extremes. And they've let their customers down in many ways. Whether it's being able to actually service the customer's home, or provide the heating oil when they needed it before they incurred any kind of interruption in their home. Those things, all combined, I think, are giving us better tools to retain customers, as well as attract customers. And it's a culmination. In the past, we've talked about the perfect storm negatively. I think this is the opposite. This is all forces good, kind of coming together for a period. I think the last -- the icing of this is, as we add more of these services, whether they're plumbing, generator sales, HVAC, we spread natural gas service work as an addition, propane because a lot of homes do have dual fuels. Those customers that get to know our brands for multiple reasons tend to be more responsive to us. And it's not just heating oil. I can't say that, that is having the strongest impact everywhere, but places that we're the most saturated have done the best.

Okay. That's great. I have a really nerdy follow-up, so apologies about this. But Rich, on the EBITDA for Griffith, like, when you talk about that '13 to '14, is that kind of a 2013 number? I mean, I couldn't tell if you meant that was, like, a trailing number or, like, if that includes, like, your kind of assumptions about the current quarter because obviously... Richard F. Ambury: That's a weather-normalized -- what we believe the business is capable of making on an annual basis.

Got it, got it. Like for January being 25% colder than normal. Richard F. Ambury: Right. We don't have any information on them for January, but yes, that's right. Based on the numbers that we look at, that's what we think annually Griffith will throw off.

Thank you. I'm not showing any further questions in queue. I'd like to turn the call back over to Steve Goldman for any further remarks. Steven J. Goldman: Okay. Thank you, and we appreciate everybody's attention and joining us today for the call and hearing our comments. And we appreciate you following Star Gas, and we look forward to speaking to you on our next conference call.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.