Steve Goldman, Chief Executive Officer Rich Ambury - Chief Financial Officer Chris Witty - Investor Relations, Darrow Associates

Andrew Gadlin - Odeon Capital Group Stephen Errico - Locust Wood Capital

Good day, ladies and gentlemen. And welcome to the Star Gas Partners Fiscal 2014 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Steve Goldman, Chief Executive Officer. Sir, you may begin.

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 the fiscal second quarter ending March 31, 2014. 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 resulted -- 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 quarterly reports and annual reports 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?

Thanks, Chris. Star Gas’ fiscal second quarter was a challenging, busy and rewarding period largely shaped by the colder than normal weather we experienced. Overall, temperatures were 14.6% colder than normal and in addition, the quarter will be remembered for several prolonged very cold polar vortex period across our geographic area of operation. Adding to the unusually cold weather came the numerous snow storms within our footprint. But as we’ve discussed before, Star Gas has built the dedicated, best-in-class service organization that our customers can rely on in the worst conditions. This period was certainly no exception. While many days certainly pushed our resources to the limits, the performance of our unmatched team of great employees once again was will tell us above the competition. The best indicator of our success this quarter was not our operating performance but more importantly the fact that this was our second quarter in a row of organic account growth this fiscal year. The first time this has happened in recent memory. Net attrition improved by 5,600 accounts versus the same time last year and while we experienced further losses, we also attracted many new customers who were dissatisfied with the service they are being getting from their current providers during this rigid period. On the expense side, we did see extremely volatile oil and propane cost, and in some markets, the premium for spot purchases reached $0.40 per gallon. Some of the uptick there was due directly to weather conditions, while other factors included natural gas companies being forced to use alternative fuels due to tight supplies across the industry. Again our operating folks did an unbelievably superb job managing through these conditions. This quarter was also significant in terms of acquisitions. I’ve discussed in the past that every effort goes into finding the right organizations to Star Gas and so we are very pleased rather than excited to have been able to complete the acquisition of Griffith Energy. This company is not only a perfect fit with our operations but we believe it will greatly contribute to Star Gas’ future success due to its products, services, customer base, management team and geographic footprint. It’s been a great addition thus far and we are very pleased with how it's going to integrate. We’ve also continued discussions with many other potential acquisitions during the last few months. Although, not along the same size and scale, at the same time, we also been busy testing out new ways to improve how we operate in several areas of the business, including sales, delivery, operations and customer payment processing. We not only must continue look for operational enhancement such as these and expand our efforts to organically grow our service offerings, while at the same time managing costs and expanding margins. Our team is dedicated to continuous improvement and I think this is evident in our results especially this quarter. During such performance, Star Gas has recently announced it has raised the quarterly distribution to $8.75 per unit. Based on our never ending effort to strengthen the business and shareholder value, we believe this increase is part of a rational approach consistent with current and future cash flow expectations. Overall, the company performed, as well as expected during the very busy winter and I'm extremely pleased with the results. Looking at fiscal 2014 as a whole, we’ve had the best six months in over a decade. With that, I will turn the call over to Rich Ambury to provide some comments on the second quarter results. Rich?

Thanks, Steven. Good morning, everyone. For the quarter, our volume increased by 23.5 million gallons or 14%, as the volume from acquisitions and the impact of 14.6% colder temperatures more than offset the impact of net customer attrition for the 12-months ending March 31, 2014. Our total gross profit rose by 23% or $37.6 million. While the increase in volume and higher per gallon home heating oil and propane margins drove an improvement in gross profits, that gain was somewhat reduced by lower net service and installation profitability. Service costs rose primarily through the additional expenses associated with the colder temperatures and installation profits declined to a lower level of overall activity. In the prior year's comparable period, installation revenues benefited from storm Sandy’s impact on our areas of operations. Our delivery and branch expenses rose 11%, comparatively less than the 14% increase in home heating oil and propane volume and as a result, declined on a cents per gallon basis by 3.6%. Higher acquisition-related legal and professional expenses and an increase in our profit sharing provisions drove an increase in general and administrative expenses. The Griffith acquisition did contribute to a rise in our depreciation and amortization expense. Star’s operating income increased by $18.7 million to $94 million, as the higher gross profit of $37.6 million was reduced by an unfavorable non-cash change in the fair value of derivative instruments of $7.6 million and higher delivery, branch, general and administrative and D&A expenses totaling $11.4 million. We posted net income for the quarter of $51 million or $10.5 million more than in the prior year periods. Our adjusted EBITDA increased to $103 million, up $27 million or 35%, as the impact of an increase in home heating oil and propane volume and higher home heating oil and propane per gallon margins more than offset the decline in net service and installation profitability and weather-related volume increases in operating expenses. Now let’s look at the six months results. For the first half of fiscal 2014, our volume increased by over 30 million gallons or 11.5%, as the volume again from acquisitions, the impact of 11% colder temperatures and a return to more normal consumption patterns by customers impacted by storm Sandy last year, more than offset the impact of net customer attrition for the 12-months ending March 31, 2014. Our total gross profit rose by $43.5 million or 16% to $308 million. While the increase in volume and higher per gallon home heating oil and propane margins did drive an improvement in gross profit, as profit was somewhat tempered by lower net service and installation profits and lower gross profit from the sale of other petroleum products. In the prior year’s comparable periods, we’ve sold more diesel to power generators and our service and installation sales were also higher, again due to stronger demand for these products and services resulting from Sandy’s impact on our areas of operations. Delivery and branch expenses increased by 6%, which again was less than a 11.5% increase in home heating oil and propane volume, let’s say the expenses, again on a per gallon basis improved by 4.4% as cost was spread over higher volume. As I mentioned in the three months discussion, higher acquisitions, legal and professional expenses and an increase in the profit sharing pool drove an increase in G&A expenses. And again, the Griffith acquisition contributed to a rise in depreciation and amortization expenses. We posted net income of $71.5 million for the first half of fiscal 2004 (sic) [2014], which is $20 million more than in the prior year periods. Adjusted EBITDA increased to $138.8 million, up $31.8 million, as the impact of an increase in home heating oil and propane volume and higher home heating oil and propane per gallon margins more than offset the decline in net service and installation profitably and gross profit from other petroleum products. Last year during the six months ending March 31, 2013, the Partnership’s on heating oil and propane volume was negatively impacted by Sandy, while service and installation gross profit and gross profit from the sales of other petroleum products was positively impacted. Now let’s move over to the balance sheet. At the end of the quarter, we had cash on hand of $13 million, the bank borrowings of $165 million. As of today, we have reduced our bank borrowings by $58 million to $107 million. And with that, I’d like to turn the call back over to Steve.

Thanks, Rich. And at this time, we will be pleased to address any questions you may have. Operator, please open the phone lines for questions.

(Operator Instructions) And our first question comes from Andrew Gadlin with Odeon Capital Group. Your line is now open. Andrew Gadlin - Odeon Capital Group: Good morning. Thanks for taking my question.

Good morning. Andrew Gadlin - Odeon Capital Group: Congratulations on a fantastic quarter.

Thanks, Andrew. Andrew Gadlin - Odeon Capital Group: I was wondering if you could talk about the competitive dynamics in your markets as they respond to this, really a one-time bounty from a very strong winter, hopefully not one-time, but certainly the first really cold winter in a while. So when you think about some of your competitors, most of whom are considerably smaller, and have less scale than Star Gas and its entities. How does this affect both their profitability, their willingness or interest in competing on price, and as well as their thoughts about M&A and whether or not, this makes more likely for them to sell or do they want to hold on for the next hopefully really cold winter?

Obviously I don't know exactly what you’re thinking since only when we're discussing a specific acquisition with individuals, who may have come to us for reasons, maybe prompted finally by this whether that we had with the -- as you point out maybe a windfall for them because of getting weather we haven't seen in quite a long period of time. I have some sense of those competitors. There certainly are some more sizable competitors in some of our regional areas that probably really enjoy this weather and see some staying power out of it, and possibly we will see some further competitive pricing on their part over the next several months, which will be a bit of a challenge to us as they try to take that money and invested in their cost of acquiring new customers and they maybe a little more aggressive. We haven't seen it yet, but we’re certainly anticipating that could be a possibility for the next several months. So we certainly are trying to be on guard to that. As far as the negative impact of the weather like this, winter like this with this whether or somebody who is at near the tipping point. Receivables are certainly an issue to a smaller business who now is carrying the summer and they need to collect sizable amount of cash relative to this size of business or their anticipation of what maybe carrying these receivables based on the last several years that were more on the warmer side. It has stimulated several more discussions than we were seeing at the same time the last year. We haven't solidified any specific acquisitions because of it, but there are certainly more discussions going on about those type of things. I don't think that anybody has changed their mind, that’s been operating these businesses that all winters are going to now be like this so they will stay in for the next 10 years, but they -- I wouldn’t say if that’s the end -- we would understand that makes some people feeling really good because they have more cash in their pockets and others are feeling some pressure and they are exploring the opportunity to sell. Andrew Gadlin - Odeon Capital Group: Got it. Thank you. You mentioned that there is number of other conversations going on, were there any other acquisitions beside Griffith this past quarter?

Any other acquisitions closed, no. Andrew Gadlin - Odeon Capital Group: And then none have been closed since the quarter end, right?

No. Andrew Gadlin - Odeon Capital Group: Okay. That’s it for me. I will jump back into the queue. Thank you.

Okay. Thanks, Andrew.

Thank you. And our next question comes from Stephen Errico with Locust Wood Capital. Your line is now open. Stephen Errico - Locust Wood Capital: Hi, guys, how are you?

Good morning, Steve. Stephen Errico - Locust Wood Capital: Yeah. I know you guys do such a good job. I just have to sit and watch from afar, congratulations. It’s been a while since I spoke to you. Just remind me again of the seasonality of your balance sheet. When do we -- how soon do the receivables get pay down again? And when we see a lot of cash coming out of the working capital side of the balance sheet? That’s my first question. Go ahead.

Let me answer that one first. We built the receivables in the winter. I don’t know if that’s obvious or not. And like I said the last comment in my call, we’ve collected $58 million or our cash, our balance with the bank borrowings is down by $58 million at the end of -- as of today versus March. So we’re down to about $108 million with bank borrowings versus $165 at the end of March. But we should be cash positive in April, May, June, July, and we should be working out of the bank balance pretty much over the summer months. Stephen Errico - Locust Wood Capital: Right, that’s what I thought. But those receivables, is it -- are they typically want -- is it 30 days or 60 days, 90 days, how long is it take for people to pay these things off?

Well, at the end of the March, our average days outstanding was in the 30, 32 day sales outstanding. I will tell you though that over the summer, some of our customers do try to drag out the receivables. So it’s based on the lower level of sales. Those sales days outstanding could grow to 45, 50 day sales outstanding, but again it’s not on a much lower base.

Steve, I just want to mention one thing and this certainly is not obvious. All our customers are for every gallon are not on immediate 30 day terms. We have program called smart pay that we offer that customers pay their balance on a more budgeted basis like utility and many customers opt for that. And then there's a settlement period and those tend to settle between June and August. So we see a lot of reconciliation of those monies owe during that period. Stephen Errico - Locust Wood Capital: Great. Okay. And the last one, it’s been a long time, I’m sorry if you guys have addressed this on some previous call. But are we on the tax status of the Partnership? I mean, you structured it as an MLP, and my memory is correct, a part of the businesses doesn’t get the benefit of the MLP. If we run out of NOLs and things of that nature that have been shielding some of our income and allowing our distribution, etcetera.

We’ve run out of he NOL a couple of years ago, it might be three years or so, I’d have to go back and look at the exact numbers. But it’s now three to four years, we’ve run out of NOL. And none of our income is from qualifying asset. We are able to maintain the MLP status because the corporation underneath the MLP paid a dividend, which is a qualifying income for MLP company Partnership’s. So we’ve run out of the NOLs, we’ve absorbed the NOLs because there are still remaining of $7 million, $8 million, $9 million when use the $1 million to $2 million a year for the next couple of years. Stephen Errico - Locust Wood Capital: My question is, is there a more efficient structure for us going forward from a tax point of view or is this about as good as this is what it’s going to be?

Yeah. We are trying to explore some efficiency that was possibly obtained and if we were entirely a C corporation, basically somehow and I don’t want to get into the role of tax verification of collapsing the Partnership into the C corp. There could be some efficiency there. Stephen Errico - Locust Wood Capital: Okay. Well, terrific job, guys, and thank you very much.

Thanks, Steve

(Operator Instructions) And I’m showing no questions at this time. I’d now like to turn the call back over to Steve Goldman for any closing remarks.

That’s all the remarks we have for today. We certainly appreciate you guys joining us and the interest in Star Gas, and we look forward to reporting back to guys in a quarter. Thank you.

Thank you, ladies and gentlemen, for attending today's conference. This does conclude the program. You may all disconnect and have a wonderful day.