Chris Witty - Darrow Associates, IR Steven Goldman - President and CEO Rich Ambury - CFO

Andrew Gadlin - Odeon Capital Group

Good morning, and welcome to the Star Gas Partners Fiscal 2016 Third Quarter Results Conference Call. All participants will be in listen-only mode [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions [Operator Instructions]. Please note that this event is being recorded. I would now like to turn the conference over to Steven Goldman. Please go ahead.

Good morning and thank you Andrea. And thank you all for joining us today. With me today is Star’s Chief Financial Officer, Rich Ambury. After I read some brief remarks about the quarter and first nine months of fiscal 2016, Rich will review the fiscal third quarter ended June 30, 2016, and year-to-date 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. Chris, please go ahead.

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 that 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 quarterly reports and annual report on Form 10-K for the fiscal year ended September 30, 2015. 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. We would like to characterize the spring quarter as a relatively quiet one in which our operations performed somewhat better than last year. And while there’s relatively evidential period, we continue to work steadily to improve the Company’s underlying fundamentals and outlook. Our key focus is always has been on finding ways to attract new customers, retain accounts we currently serve, improve our processes in an effort to reduce expense and expand our business footprint, both organically and through acquisitions. During the year with the first six months were very disappointing primarily due to warm weather, and we carefully managed the business this quarter to improve our operations as well as the balance sheet. Our results clearly reflect that approach. During the past quarter, we did complete one small acquisition in New York and one more recently, a smaller one in North Carolina. They both fit well in our overall objective of growing our footprint where we see the right opportunities to broaden our customer base, as well as our suite of products and services. We continue to be involved in ongoing discussions with several other attractive companies, which we do hope will conclude positively within the coming months. We are also making steady progress with our work towards improving our total customer interface. We conducted several customer surveys and focus group discussions this past quarter to help us better understand how well our services offerings are being received by the public. While we know this will be a long process, we believe in the end, it will result in additional ways to show customers how employing our relationship with them and how responses we have to their service wants and needs. Our first two quarters of fiscal 2016 were stronger but we’ve got customer attritions, particularly given the lack of new accounts due to the warm weather and relatively low oil prices. However, we need to work on ways to limit attrition even during conditions such as these, and we know that. The third quarters to our return to attrition levels more in line with that as the last few years. But overall we’re still very disappointed with this aspect of our results. As such, we have made several changes in both direction strategy in our management team to address customer retention and sales going forward. I continue to believe that the work we are doing to grow our newer lines of service will add to both our customer satisfaction as well as ultimately our bottom line. During the past quarter, we began to create a better awareness within our team of how everyone can help to expand the business and the response has been very positive by our employees. Stock continues to grow stronger as our organization develops and we are very proud of the Partnership’s results in this relatively challenging year. With that, I will now turn the call over to Rich.

Thanks Steve and good morning everyone. For the third quarter of fiscal 2016, our home heating oil and propane volume increased by 200,000 gallons to 44.7 million gallon, as the addition of volume provided from acquisitions largely mitigated the impact of net customer attrition in the base business. Temperatures in our geographic areas of operations for the fiscal 2016 third quarter were about 32% colder than the fiscal 2015 third quarter, and about 2.4% colder than normal. However, the colder temperatures experienced in 2016 did not lead to a significant increase in home heating oil and propane volumes sold, as only a portion of Star’s customer base normally receive deliveries during this time of the year. Stated another way, temperatures during this non-heating season period are not as impactful to annual sales volumes as during the heating season. We realized home heating oil and propane margins of about $1 per gallon, which was unchanged from last year. Total product gross profit was $61.4 million, up about $1.6 million due to the acquisition related increase in other petroleum products sold and a slight improvement in net service profitability. Our net loss declined by $5.1 million to $3.2 million, largely due to the after tax impacts of a favorable non-cash change in the fair value of derivative instruments of $5.1 million, lower interest expense of about $1.8 million and generally lower operating expenses in the base business. The adjusted EBITDA loss declined by $1.5 million to $7.8 million, primarily due to lower service cost and operating expenses in the base business partially offset by the decrease in buying attributable to net customer attrition for the 12 months ending June 30, 2016. The net impact of acquisitions on adjusted EBITDA on the adjusted EBITDA loss was minimal during the quarter. Now let’s look at the nine month results. Our home heating oil and propane volumes sold decreased by 80 million gallons or 22% to 282 million gallons, as the additional volume provided from acquisitions was more than offset by the impact of warmer weather, net customer attrition and other factors. Temperatures in Star’s geographic areas operations for the first nine months of fiscal 2016 were 22% warmer than last year’s comparable period and 18% warmer than normal. Our product gross profit declined by 19% or $81 million as the slightly higher home heating oil and propane margins were more than offset by the decline in home heating oil and propane volumes sold. The continued decline in home heating oil and propane product cost did contribute to the per gallon margin expansion. In delivery and branch expenses, we recorded $12.5 million credit under our weather hedge contracts. Outside of this, delivery in branch expenses rose $9 million due to acquisitions but were reduced by $27 million largely due to the response to the warm weather. General and administrative expenses was also lower by $1.6 million, again largely due to lower compensation driven by the warmer weather. We recorded a non-cash credit of $20 million for our derivatives during fiscal 2016. In the prior year’s comparable period we recorded a similar credit of $10 million. Interest expense decreased by $5.3 million this fiscal year, the result of refinancing $125 million of 8.875 debt with $100 million term loan at lower variable interest rates last year. We posted net income of $64 million for the first nine months of fiscal 2016, or $19 million less than the prior period, reflecting the items I just discussed. Our adjusted EBITDA this year decreased by $47 million to $117 million as the impact of higher home heating oil and propane per gallon margins, acquisitions, lower operating expenses and lower service and installation cost in the base business as well as $12.5 million credit recorded under our weather insurance contract was more than offset by the impact on adjusted EBITDA of the decline in home heating oil and propane volume attributable to the 21.6% warmer weather. Now let’s move over to the balance sheet. At the end of June, we had cash on hand of $171 million, zero borrowings under our revolving credit facility and $95 million of long-term debt. Note for the 12 months ending June 30, 2016 we generated $94 million in adjusted EBITDA during the period in which winter weather temperatures were 18% warmer than normal. As I mentioned on our last call, as this has been our fiscal year end, it would have been our third best year ever. And now I would like to turn the call back over to Steven.

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

We will now begin the question-and-answer session [Operator Instructions]. Our first question comes from Andrew Gadlin from Odeon Capital Group. Please go ahead.

Two questions, first, the cash balance and I think which you started I think this at the end of your prepared remarks. The cash balance is substantially higher than the debt outstanding and certainly very large amount historically. So I am just curious, what are the priorities for that cash right now? You mentioned you’re working on some M&A. If it’d be possible that any of the deals you’re working on would need the amount of cash you’re holding on the balance sheet?

We really don’t disclose what size deals that we’re working on. But anything is impossible. Anything is possible, but let’s not forget if prices did increase from the low levels that we’re at today, we would need a portion of that cash to finance the increase in receivables and inventory during the heating season. In addition to that, our budget customers are a little bit ahead of their plan. This year versus last year, so those are two impacts on the cash balance I put today.

Do you think some of that is just the fact that clients have pay ahead of the amount of oil that they’ve consumed, and so you don’t want to spend that in those proceeds right now?

We really don’t want to spend money that to a certain extent is really not ours, so to speak.

But yes, we do have a very robust cash position at this time.

And then what would be, on that term loan, what would be some of your thoughts about prepaying earlier?

Well, it is relatively and expected to have about 3.5%.

So it's not a priority?

Not a priority than we do, we do pay $10 million annually and do have to pay a portion back with excess cash that we do generate during the year, which might be $5 million. So between now and year from now we’ll probably pay back $15 million on that term loan or so, thereabout.

And then the other question I have is while you think about strategic initiatives at this time. I know it's the question that come up at least once a year, either in calls is the impetus for the MLP structure, given that you are a full tax payer down below. How are you thinking about that now? Is it something you’re revisiting?

We’re really not revisiting it right now. I mean we have our assets for the most part do not qualify for the MLP structure, but having said that, right now we’re not looking at dismantling the structure.

Our next question comes from Ed Olson, a Private Investor. Please go ahead.

Just two questions; one, would you break out the propane business little bit; and number two, what’s you reach $0.45 in the dividend, what’s the Company’s philosophy going forward on the dividend?

Well, we really haven’t disclosed our breakout of propane accounts. It’s probably about 10% or so of our total business. And with regard to the dividends, we’ve got up each and every year for the last three or four years, $0.02 to $0.03 and I don’t think we’re probably going to change that track record going forward.

In other words, that will continue after the $0.45...

We haven’t imposed an cat -- it's based on what we believe we produce as a business as a conservative business. We’re looking at all uses of what we want to do with cash. The first question came, asked about that and is a lot of things. One of the things we didn’t mentioned aside from acquisition is current emphasis on organic growth and the structural need to spend money on that to support that. So, all that included as we’ve been on this trail for many years now. We annually look at our ability to sustain and if possible increase the dividend. And I don’t think and hopefully the business we think need to grow, I mean that’s what my objective is as CEO, that we’re going to keep bringing this business forward and keep producing for ourselves and the shareholders.

Just going back to the propane again. Can you give us any clue as to whether you’re happy with the growth as it’s been following the historical use to break it out? But is that business operating satisfactorily, and is the outlook still good?

So, I’ll talk a little bit about propane. Propane prior to when we didn’t have the propane business before we sold it, it was really more of a segregated business. And when we’re back into propane in 2009, it was -- it’s a more fully integrated piece of our business. So, it's really another product line on the operating sheets of our general managers, just like gasoline and diesel, and kerosene, all the other fuels we sell. Just one, there is a segment that certainly offers us opportunity into more homes as we see more growth opportunity in it, because of the territories that we don’t serve currently for propane and even some propane opportunities within the territories that we do serve. We’re very happy with the growth. I mean, 2009, we’ve grown that business seven or eight fold. So, it's very hard to be disappointed with what we did so far, but that doesn’t mean that with content that we’re going to rest on how we approach that business. We think we have many opportunities that we can create for ourselves. We certainly broaden the opportunity for acquisition potential by being better known in the propane space now and reaching into more geography. As Rich said, it represents about 10% of our account base. Although, not all propane accounts are equal to heating oil accounts, I mean, I don’t think but you totally look at it that way since heat related propane is an universal hold of our footprint as you get into certain areas, it's more related auxiliary use, such as swimming pools and cooking and pipelines inserts. But outskirts of where there is no natural gas, propane has some popularity and we’re going to take advantage of that. It’s certainly within the arsenal of all our general managers looking how they can improve their business through that as combined with of our other service related areas of offering to grow the business and attract more homeowners to follow those customers.

There appear to be no further questions. I would like to turn the conference back over to Mr. Steven Goldman for any closing remarks.

Thank you, Andrea. And thank you, everybody for taking the time to join us today and for your ongoing interest in Star Gas. And we look forward to sharing our fourth quarter December 2016 results with you in December.

The conference has now concluded. Thank you for attending today’s presentation. And you may now disconnect the lines.